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In the Arbitration under the Convention on the Settlement of Investment Disputes
Between States and Nationals of Other States and the
United States-Peru Trade Promotion Agreement

FREEPORT-MCMORAN INC.
on its Own Behalf and on Behalf of
SOCIEDAD MINERA CERRO VERDE S.A.A.

Claimant

v. —

REPUBLIC OF PERU

Respondent

ICSID Case No. ARB/20/08

CLAIMANT’S MEMORIAL

19 October 2021

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VII. ANNEX A: ADMINISTRATIVE PROCEEDINGS ... A-1

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ABBREVIATED TERMS

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1. Claimant Freeport-McMoRan Inc. (“Freeport"), on its own behalf and on behalf of Sociedad Minera Cerro Verde S.A.A. (“SMCV"), respectfully submits this Memorial pursuant to Rule 31 of the ICSID Rules of Procedure for Arbitration Proceedings and Sections 14, 15, and 17 of Procedural Order No. 1 dated 17 June 2021, in support of its claim under the United States-Peru Trade Promotion Agreement (the “TPA”).

I. INTRODUCTION

2. This dispute arises from Peru's arbitrary failure to honor the stability guarantees it granted to Sociedad Minera Cerro Verde S.A.A. (“SMCV"), which operates the Cerro Verde mine in Arequipa, one of the largest copper mines in the world.

3. The Government of Peru operated Cerro Verde for more than two decades after it had nationalized the mine in 1970. But the Government lacked the means to unlock the full economic potential of Cerro Verde. Most of Cerro Verde's deposits are made up of a form of copper ore known as primary sulfides, which require processing through a "concentrator”—a processing facility that requires significant upfront investment. The Government long recognized that it needed to build a concentrator, but on its own it could neither afford the cost nor obtain sufficient financing.

4. In the early 1990s, Peru decided to unlock the vast primary sulfide deposits at Cerro Verde by privatizing the mine. To attract foreign investment, Peru touted its newly adopted legal framework for mining stability agreements (the “Mining Law"), which offered investors administrative, tax, and exchange-control stability guarantees, among others, for the mining units in which they invested.

5. Peru knew that these guarantees were essential to attract investment from foreign mining companies. At the time, as a result of decades of severe inflation, erratic GDP growth, and political instability, including threats of violence from domestic militant groups, investor confidence in Peru was at rock bottom. Given these risks, no prudent investor would have taken on the significant up-front costs associated with mining operations without clear stability guarantees.

6. Induced by Peru's promises of stability, Cyprus Amax Minerals Company ("Cyprus"), a major U.S. mining company, agreed to acquire SMCV and make significant investments in Cerro Verde's existing operations. In exchange for these investments, Peru entered into a fifteen-year mining stability agreement with SMCV in 1998 (the "Stability Agreement"). In the Stability Agreement, Peru guaranteed SMCV tax and administrative stability, as well as other guarantees and benefits until 31 December 2013, pursuant to the Mining Law and its implementing Regulations (the "Regulations"). The stability guarantees applied to all of SMCV's activities within the Cerro Verde Mining Unit, which was made up of two concessions: the Mining Concession, under which SMCV extracted the minerals, and the Beneficiation Concession, under which SMCV processed the minerals.

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During this time, the Government continued to push Cyprus to move ahead with the development of a concentrator, which had been one of the conditions of Cyprus's successful bid, even after initial feasibility studies for the project had failed.

7. Soon after conclusion of the Stability Agreement, Freeport's predecessor in interest, Phelps Dodge Mining Corporation (“Phelps Dodge"), acquired Cyprus and with it the Cerro Verde mine. In reliance on the stability guarantees, Phelps Dodge and SMCV decided to invest in the construction of a concentrator to process primary sulfides (the “Concentrator")—the objective that the Government had sought for decades. At a total cost of US$850 million, the Concentrator was at that time one of the largest mining investments in Peru's history. It also was the world's first installation to use a high-pressure grinding rolls (“HPGR") technology to process copper ore.

8. The Concentrator expanded Cerro Verde's operating capacity by 108,000 metric tons per day ("MT/d”), to 147,000 MT/d. By enabling the processing of primary sulfides, it expanded the mine's useful operating life by at least twenty more years. It also conferred enormous economic benefits on Peru by more than tripling SMCV's yearly average tax payments and creating thousands of jobs in Arequipa.

9. When Phelps Dodge and SMCV announced their decision to construct the Concentrator, Peru's President celebrated the Concentrator as a "new investment conquest" and vouched that "we will fulfill our responsibility to maintain economic and legal stability." Similarly, Peru's Ministry of Energy and Mines (“MINEM") assured SMCV that in accordance with the Stability Agreement and Peru's Mining Law, the stability guarantees would apply to the Concentrator. MINEM also formally approved inclusion of the Concentrator within SMCV's existing Beneficiation Concession, further confirming that it was part of the stabilized Beneficiation Concession and Cerro Verde Mining Unit. These assurances that Peru would comply with its obligations under the Stability Agreement were particularly important given that in June 2004, the Government had enacted a Royalty Law imposing a surcharge on mining profits. The new Royalty Law did not apply to mining companies with stability agreements while those agreements remained in force-a point that the Government, seeking to restore investor confidence, repeatedly confirmed.

10. Yet once Phelps Dodge and SMCV had committed to the US$850 million investment and commenced construction on the Concentrator, the Government abruptly reversed course. In the face of mounting political pressure, the Government found it politically inconvenient to honor the stability guarantees it had granted. Unable to annul or formally amend the Stability Agreement unilaterally, MINEM sought to avoid the Stability Agreement's coverage of the Concentrator by developing, behind closed doors, a novel and restrictive “interpretation."

11. In an internal memo written in June 2006, MINEM took the position that under the Mining Law, stability guarantees were limited only to the initial investment program set forth in the

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feasibility study submitted to secure those guarantees. MINEM's memo asserted that, as a result, SMCV was not entitled to apply the stabilized regime to the Concentrator operations even though it was within SMCV's stabilized Mining Unit. This new “interpretation" of the scope of stability guarantees not only flew in the face of the plain text of the Mining Law and Regulations, but it contradicted the Government's prior assurances to SMCV and its own practice in implementing stability guarantees.

12. Yet the Government did not share the memo setting out its new and restrictive interpretation with SMCV. Instead, the Government made every effort to extract from SMCV additional contributions on the understanding that the Concentrator would be stabilized and SMCV would not make any royalty payments for the remaining term of the Stability Agreement-even though MINEM's own internal legal memo contradicted that understanding. Based on that understanding, the Government induced SMCV to commit to a total of approximately US$265 million in additional “voluntary" contributions in lieu of royalty payments.

13. After SMCV committed to make these significant contributions, MINEM provided the legal memo laying out its novel interpretation to the National Superintendence of Customs and Tax Administration (“SUNAT"), the Peruvian tax agency. SUNAT, which had recently come under fire from local activists for honoring SMCV's Stability Agreement, immediately started an audit of SMCV. Relying on MINEM's novel interpretation, SUNAT then began to issue assessments against SMCV for royalties that it had allegedly failed to pay on the minerals processed in the Concentrator, as well as assessments for exorbitant penalties and interest that would soon exceed the value of the alleged royalty debt (the “Royalty Assessments").

14. In total, SUNAT's Royalty Assessments resulted in US$688.5 million in liabilities (as of the date of this filing) of which US$400.7 million consisted of penalties and interest. SUNAT also issued assessments for taxes that should not have applied under the stabilized regime (the "Tax Assessments"), resulting in an additional US$519.1 million in liabilities (as of the date of this filing), of which US$215.9 million consisted of penalties and interest.

15. SMCV promptly challenged the Assessments, first before SUNAT and then before the Tax Tribunal, the body within Peru's Ministry of Economy and Finance ("MEF") that serves as the final administrative appeal for royalty and tax matters. But instead of providing relief, the Tax Tribunal exacerbated Peru's arbitrary treatment of SMCV. The Tax Tribunal president, a long-term MEF official who has no authority to resolve individual cases, instructed her assistant to draft the Tax Tribunal's resolution in SMCV's challenge to SUNAT's 2008 Royalty Assessment. The draft upheld SUNAT's 2008 Royalty Assessment, relying on the restrictive “interpretation" set forth in the legal memo that MINEM had provided to SUNAT. In disregard of the most basic notions of due process, the Tax Tribunal president then ensured that her assistant's draft became the final decision issued by

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the Tax Tribunal Chamber assigned to hear that case, and that the separate Chamber assigned to decide the 2006-07 Royalty Assessments would adopt a copy-paste version of that resolution.

16. The Tax Tribunal's due process failures did not end there. In SMCV's challenge to the 2010-2011 Royalty Assessments, the Tax Tribunal appointed a clearly conflicted former SUNAT employee-who had acted on SUNAT's behalf against SMCV in proceedings on SMCV's challenge to the 2006-2007 Royalty Assessments-to take charge of that decision. The Tax Tribunal also appointed the president's former assistant, who at the president's instructions had drafted the first resolution regarding the 2008 Royalty Assessments, as the vocal ponente in SMCV's challenge to the Q4 2011 Royalty Assessments. In each of SMCV's successive challenges, the Tax Tribunal sided with the Government-often by simply copy-pasting segments of the flawed resolution in the 2008 Royalty Assessment challenge.

17. What is more, the Tax Tribunal and other Peruvian authorities also arbitrarily refused to waive the exorbitant penalties and interest on the Royalty and Tax Assessments, although SMCV was clearly entitled to such a waiver under Peruvian law because its position was based, at a minimum, on a reasonable interpretation of the relevant provisions of the Mining Law and its Regulations. The Tax Tribunal first attempted to sidestep the waiver requirement on spurious procedural grounds, and then, in later cases, resorted to flimsy, unsupported, and irrelevant arguments that were contradicted even by the Tax Tribunal's own decisions on the merits of SMCV's challenges.

18. The Government also arbitrarily failed to reimburse SMCV for part of its GEM payments, which were an additional type of voluntary contribution calculated as a percentage of its operating profits between 2011 and 2013 due to its exemption from royalties. SMCV had agreed to make GEM payments on the understanding that such payments were in lieu of royalties, only for the Government to turn around and begin assessing royalties for the same years once SMCV made GEM payments totaling over US$100 million. The Government itself acknowledged that SMCV was entitled to a reimbursement of the GEM payments and, in fact, refunded part of those payments. But the Government still, on spurious procedural grounds, refused to reimburse SMCV for the remaining US$63.8 million in GEM payments and interest.

19. Peru's conduct toward Freeport and SMCV violated the Stability Agreement and Article 10.5 of the TPA with respect to each of the Royalty and Tax Assessments listed in Annex A.

20. First, Article 10.16 of the TPA provides that Freeport may submit claims of breach of the Stability Agreement on SMCV's behalf in this proceeding because that Agreement constitutes an "investment agreement" for purposes of the TPA. Peru violated the Stability Agreement each time the unlawful 2009, 2010-2011, Q4 2011, 2012, and 2013 Royalty Assessments and the Tax Assessments became final and enforceable against SMCV, because once Peru effectively applied each of those Assessments, it breached its obligations under Clauses 9.4, 9.5, 9.6, 10.1, and 10.2 of the Agreement.

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Each Assessment was based on the Government's restrictive interpretation of the scope of the stability guarantees, which (i) lacked any support in the plain terms of the Mining Law and Regulations, which extend stability guarantees to concessions and mining units and do not limit them to individual investments; (ii) contradicted the investment promotion purpose of the stability regime by creating legal uncertainty and discouraging further investment; (iii) contradicted the Government's previous position on the scope of stability guarantees; and (iv) contradicted the Government's own previous assurances that the Concentrator would be covered by the Stability Agreement because it forms part of SMCV's Beneficiation Concession.

21. Instead, the Government's interpretation was based on a gross distortion of the requirement of the Mining Law that, to qualify for stability guarantees, the investor must submit a feasibility study containing an investment program that meets the minimum investment threshold. In stark recognition that the existing Mining Law and Regulations could not be reconciled with Peru's desired interpretation, the Government had to amend the relevant provisions of the Mining Law and Regulations in 2014 and 2019 respectively to limit the scope of stability guarantees, in future cases, to the initial investment program set forth in the feasibility study submitted to obtain the stability agreement.

22. Second, under Article 10.5 of the Treaty, Peru agreed to "accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security." Peru breached Article 10.5 each time the unlawful 2009, 2010-2011, Q4 2011, 2012, and 2013 Royalty Assessments became final and enforceable against SMCV, because it upheld and enforced these Assessments in contravention of Freeport and SMCV's legitimate expectations and as a result of arbitrary, inconsistent, and non-transparent Government conduct that also failed to provide due process. The Government arbitrarily adopted its novel and restrictive interpretation in response to significant domestic political pressure to obtain additional contributions from mining companies, and from SMCV in particular. Peru's interpretation was a complete volte-face from its previous position, including from specific representations Government officials had made to SMCV regarding the scope of its stability guarantees. The Government thereby thwarted Freeport and SMCV's legitimate expectation that the Government would honor the stability guarantees on which they and their predecessors-in-interest had relied in investing in the Concentrator. Further, after the Government developed that novel and restrictive interpretation, it not only failed to share that interpretation with SMCV, but it solicited hundreds of millions of dollars in additional "voluntary” contributions that were premised on the understanding that by virtue of the Stability Agreement, SMCV would not pay any royalties until the end of 2013.

23. Moreover, the Tax Tribunal proceedings upholding the Assessments were replete with due process violations, including the undue interference by the Tax Tribunal president to resolve challenges in favor of SUNAT; ex parte communications with SUNAT's representative in the

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proceedings; copy-pasting of the decision drafted by the president's assistant across cases that were supposed to be decided individually; and assigning a blatantly-conflicted former SUNAT employee to sit as the primary decision-maker. Peru likewise violated Article 10.5 because the final and enforceable 2006-2007 and 2008 Royalty Assessments resulted directly from serious due process violations by the Tax Tribunal.

24. Third, Peru violated Article 10.5 each time it arbitrarily failed to waive the penalties and interest assessed on each of the Royalty and Tax Assessments. Under both Peruvian law and international principles of fairness and equity, Peru was required to waive its exorbitant assessments of penalties and interest because SMCV's position was, at the very minimum, based on a reasonable interpretation of the relevant provisions of the Mining Law and its Regulations. Instead, the Tax Tribunal, and the contentious administrative courts to which SMCV appealed the 2006-2007 and 2008 Royalty Assessments, arbitrarily refused to consider the issue, asserting that SMCV's request was "untimely," even though Peruvian law required them to consider the issue irrespective of when or whether SMCV raised it.

25. For subsequent Assessments, both SUNAT and the Tax Tribunal arbitrarily denied SMCV's waiver based on flimsy, unsupported, and irrelevant arguments that had no basis in the relevant legal provisions. Peru also increased the harm to SMCV through its excessive delays, which significantly increased the interest charges, and its arbitrary failure to adjust the applicable interest rate in light of those delays, even though it was required to do so under Peruvian law.

26. Fourth, Peru violated Article 10.5 when it arbitrarily and unreasonably refused to reimburse SMCV for part of the GEM payments Peru had induced SMCV to make on the understanding that SMCV would not pay royalties while the Stability Agreement remained in force. When SMCV entered into the GEM Agreement, Peruvian officials repeatedly confirmed that the Government could not collect GEM at the same time it collected royalties and Special Mining Tax ("SMT") payments. The amount of SMCV's GEM payments-calculated based on the entirety of its operating profits-likewise reflected this assumption. The Government itself acknowledged that charging GEM and royalties at the same time was inappropriate, and so it reimbursed part of SMCV's GEM payments. Yet Peru arbitrarily withheld the remainder of SMCV's GEM payments on spurious grounds. So Peru managed to collect GEM in lieu of royalties, and actual royalties, and the SMT, and penalties and interest, all for the same period.

27. Peru's breaches of the TPA resulted in significant loss and damage to Freeport and SMCV. Accordingly, as compensation for the harm resulting from Peru's unlawful conduct, Freeport seeks damages of US$909 million as of the date of this Memorial, an amount that will have increased by the date of the Award, plus post-Award interest.

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II. PARTIES

28. The Claimant, Freeport-McMoRan Inc. ("Freeport” or “Claimant”), is an entity incorporated in the State of Delaware in the United States.¹ Freeport indirectly owns 53.56% of the shares of Sociedad Minera Cerro Verde S.A.A. (“SMCV”), a company constituted under the laws of the Republic of Peru.² SMCV operates Cerro Verde, an open-pit mine in the Arequipa region of Peru. Cerro Verde is one of the two largest copper mines in Peru and one of the ten largest in the world, with an average processing output of 393,100 MT/d as of 2019.³ For the past two decades, Freeport or its predecessors have also indirectly controlled SMCV by virtue of their majority ownership.⁴ As set out in Claimant's Notice of Arbitration, Freeport is an "investor" and SMCV is a “covered investment” within the meaning of Articles 10.28 and 1.3 of the TPA.⁵

29. The Respondent, the Republic of Peru (“Peru” or “Respondent"), is a Contracting Party to the TPA and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention").⁶

III. FACTUAL BACKGROUND

A. FOR DECADES, PROCESSING PRIMARY SULFIDES AT CERRO VERDE REMAINED AN ELUSIVE GOAL

1. The Cerro Verde Deposits Include Oxides, Secondary Sulfides, and Primary Sulfides

30. Cerro Verde's mineral deposits, which consist of copper and molybdenum ores embedded in porphyry, were formed between 60 and 80 million years ago.⁷ As a result of millions of years of exposure to air and water on the rock closest to the surface, Cerro Verde's deposits today contain four commingled zones: (i) a “leach cap," where weathering has substantially depleted the copper and molybdenum in the surrounding rock; (ii) “oxides," where the rock is mainly oxidized;

¹ See Ex. CE-263, Certificate of Good Standing Freeport (18 February 2020). ↩

² See Ex. CE-265, Freeport-McMoRan Inc., Sociedad Minera Cerro Verde S.A.A. Corporate Organizational Chart (21 February 2020); Ex. CE-366, SMCV, Certificate of Transition to Open Public Limited Company (11 January 2000) (certifying SMCV's change from sociedad anónima to sociedad anónima abierta). ↩

³ See Freeport-McMoRan, South America, https://www.fcx.com/operations/south-america#CVPeru. ↩

⁴ See Ex. CE-4, Share Purchase Agreement between Cyprus Climax Metals Company and Empresa Minera del Peru S.A. (17 March 1994), pp. 1-2, 8 (the state-owned company Empresa Minera del Perú S.A. sold 91.65% of its SMCV shares to Cyprus Climax Metals Company, which then assigned its rights under the 1994 Share Purchase Agreement to Cyprus Amax Mineral Company); Ex. CE-265, Freeport-McMoRan Inc., Sociedad Minera Cerro Verde S.A.A. Corporate Organizational Chart (21 February 2020) (Freeport's predecessor, Phelps Dodge Corporation, acquired Cyprus and with it a majority of SMCV). ↩

⁵ See Notice of Arbitration ¶¶ 90-98. ↩

⁶ CA-10, United States-Peru Trade Promotion Agreement (1 February 2009) (“TPA”); Ex. CE-3, ICSID, Peru Member State Entry, available at https://icsid.worldbank.org/en/Pages/about/MembershipStateDetails.aspx?state=ST109# (showing that the ICSID Convention entered into force for Peru on 8 September 1993). ↩

⁷ CWS-1, Witness Statement of Ramiro Aquiño (27 August 2021) (“Aquiño") ¶ 14. ↩

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(iii) "secondary sulfides," where the rock is partly oxidized; and (iv) "primary sulfides," which have the same chemical composition as when the deposits formed.⁸ The figure below shows the four zones at Cerro Verde.⁹

Figure 1: Cerro Verde's Mineral Deposits

[Image of a geological cross-section map of Cerro Verde's mineral deposits]

31. For most of Cerro Verde's history, mining operations have focused exclusively on the oxides and secondary sulfides, which generally sit on top of the primary sulfides, while the much larger primary sulfide deposits—which required a significantly more costly and complicated processing method—went untapped.¹⁰

2. After Decades of Private Operation, the Government Nationalized Cerro Verde in 1970, and Began Local Processing of Oxide Ores

32. Cerro Verde's modern history began in 1916, when the Anaconda Copper Mining Company ("Anaconda”), a U.S. company, commenced an initial exploration of the mine that led to it ultimately purchasing Cerro Verde's mineral rights.¹¹ For over four decades of its operation, Anaconda exported excavated ore for processing abroad.¹² Beginning in 1964, Anaconda conducted

⁸ Aquiño ¶ 15. ↩

⁹ For a technical explanation of the graphic, see Aquiño § II.A. ↩

¹⁰ Aquiño ¶¶ 18, 41-44. ↩

¹¹ See Ex. CE-291, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. II, p. I-1. ↩

¹² See Ex. CE-291, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. II, pp. I-1 to I-2. ↩

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additional studies that resulted in the conclusion that local processing was feasible.¹³ However by that point, the government of General Juan Velasco Alvarado, installed by a military coup in 1968, had already begun nationalizing large sectors of the Peruvian economy.¹⁴ After Anaconda refused to meet the Government's demand of handing over a majority stake in Cerro Verde, the Government seized control of the mine at the end of 1970.¹⁵

33. In 1970 and 1972, the Government granted special mining rights to a newly created State-owned company, Empresa Minera del Perú S.A. ("Minero Perú"), to extract ore from the two open pits at Cerro Verde.¹⁶ These open pits were known as Cerro Verde and Santa Rosa, and the Ministry of Energy and Mines (“MINEM") referred to them together as the “Economic and Administrative Unit known as Cerro Verde."¹⁷ On 3 October 1971, Minero Perú signed a contract with engineering firms Wright Engineers Ltd., British Smelter Constructions Ltd., and Ralph M. Parsons Co., to help secure financing to construct facilities to process the oxides at Cerro Verde.¹⁸ On 27 December 1971, Minero Perú signed a second contract with British Smelter Constructions Ltd. and Wright Engineers Ltd. to conduct a feasibility study for processing options for the entirety of the “Cerro Verde Economic and Administrative Unit,” including the primary sulfides.¹⁹

34. In 1972, Minero Perú began excavating ore from both the Cerro Verde and Santa Rosa pits and stockpiling the ore on the assumption that Minero Perú would eventually be able to process it on site.²⁰

35. On 7 February 1972, the engineering firms submitted their feasibility study (the "1972 Feasibility Study”), which estimated that the Cerro Verde deposit contained about 71 million MT of minable ore, with an average grade of about 1.2% copper.²¹ The 1972 Feasibility Study

¹³ See Ex. CE-291, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. II, p. I-2. ↩

¹⁴ See Ex. CE-285, H.J. Maidenberg, Anaconda Turns to Ore in Peru, N.Y. TIMES (26 October 1970). ↩

¹⁵ Ex. CE-286, Robert Walker, Copper Price Cut by Phelps Dodge, N.Y. TIMES (1 December 1970). ↩

¹⁶ Ex. CE-287, Direct Exploitation by the State of Mining Rights in the Department of Arequipa, Supreme Decree No. 023-70-EM/DGM (15 December 1970); Ex. CE-289, Establishing the Right of the State Over Expired Metal Concessions, Supreme Decree No. 012-72-EM/DGM (20 January 1972). ↩

¹⁷ Ex. CE-287, Direct Exploitation by the State of Mining Rights in the Department of Arequipa, Supreme Decree No. 023-70-EM/DGM (15 December 1970); Ex. CE-289, Direct Exploitation by the State of Mining Rights in the Department of Arequipa, Supreme Decree No. 023-70-EM/DGM (15 December 1970). ↩

¹⁸ See Ex. CE-296, Wright Engineers Ltd., Copper: From Oxides to Cathodes (April 1978), p. 3. ↩

¹⁹ See Ex. CE-290, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. I, Introduction, p. iv. ↩

²⁰ Ex. CE-2, Supreme Decree No. 027-76-EM/DGM (9 July 1976); Ex. CE-290, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. I, p. 0-1 (noting that production on the stockpiled ore is scheduled to commence in 1974). ↩

²¹ See Ex. CE-290, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. I, p. 0-2 (estimating 39.3 million MT of sulfide ore of 1.09% copper, 26 million MT of oxidized ore of 1.195% copper, and 5.3 million MT of mixed ore of 1.736% copper, for a ↩

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explored developing the mine in two stages—first the oxide ore near the surface, and then primary sulfides:²²

(a) For the first stage, the 1972 Feasibility Study recommended building leaching facilities, including a solvent extraction and electrowinning (“SX/EW”) plant with the capacity to process 10,000 MT/d of oxide ore.²³ Leaching involves using chemicals to dissolve copper out of the surrounding rock, and then extracting a solution rich in copper content from the leach solution through a process called solvent extraction.²⁴ Then in a process known as electrowinning, an electric current is passed through the resulting copper-rich solution to form cathodes of 99.999% pure copper.²⁵

(b) For the second stage, the 1972 Feasibility Study proposed building a concentrator (also called a flotation plant or mill) with a capacity of 20,000 MT/d to process the primary sulfides, which cannot be efficiently processed through leaching.²⁶ A concentrator operates by mixing crushed ore with an alkaline solution and aerating it with a metal arm, which causes particles high in copper content to rise to the surface as froth.²⁷ These particles are separated, dried, and sold to smelters as copper concentrate, which consists of approximately 25% copper.²⁸ However, at the time, the cost of this second stage was prohibitive.²⁹

36. Minero Perú conducted further exploration of the primary sulfides, revealing that minable ore at Cerro Verde exceeded an estimated 1 billion tons with an average grade of more than 0.5% copper.³⁰ A 1975 feasibility study then concluded that the enormous primary sulfide deposit could justify building a concentrator four to six times larger than the 20,000 MT/d concentrator

total average grade of 1.176% copper); see also Ex. CE-291, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. II, p. I-11.

²² Ex. CE-291, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. II, pp. VII-1 to VII-8. ↩

²³ Ex. CE-291, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. II, pp. VII-4 to VII-6. ↩

²⁴ Aquiño ¶¶ 35-40. ↩

²⁵ Aquiño ¶¶ 12, 35-40. ↩

²⁶ See Ex. CE-291, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. II, pp. VII-7 to VII-8. ↩

²⁷ Aquiño ¶¶ 41-45. ↩

²⁸ Aquiño ¶¶ 41-45. ↩

²⁹ See Ex. CE-290, Wright Engineers Ltd., Feasibility Study for the Cerro Verde Project for Empresa Minera del Perú (1 February 1972), Vol. I, pp. 0-41, 0-52 (estimating total capital costs of concentrator plus second electrowinning plant at US$88 million plus US$10 million in annual operating costs). ↩

³⁰ See Ex. CE-292, Ralph M. Parsons Co., Cerro Verde Project, Stage II: Preliminary Feasibility Study (5 March 1975), p. I-2-1 to I-2-2 (estimating mineral reserves of more than 1 billion MT at more than 0.5% copper grade). ↩

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envisioned in the 1972 Feasibility Study.³¹ But even accounting for the larger deposit, the US$1.1 billion capital investment necessary to construct a concentrator remained unreachable.³²

37. With the plans for a concentrator for primary sulfides stalled because of the lack of funds, Minero Perú proceeded to construct an on-site leaching plant to process oxide ore throughout 1976.³³ The plant encompassed a primary and secondary crusher, three leaching pads (Pads 1, 2, and 3), and an SX/EW plant.³⁴ On 15 July 1976, MINEM granted Minero Perú's request to expand its two special mining rights within the "Cerro Verde Mining Unit" to cover three mining areas called, respectively, “Cerro Verde No. 1,” “Cerro Verde No. 2,” and “Cerro Verde No. 3."³⁵ On 13 January 1977, MINEM granted an additional special right to Minero Perú, designated the “Beneficiation Plant Cerro Verde," to process the minerals that it extracted from Cerro Verde No. 1, Cerro Verde No. 2, and Cerro Verde No. 3.³⁶ This processing right encompassed the 465 hectares around the leaching facilities, which were still under construction at the time.³⁷

38. Minero Perú's leaching plant at Cerro Verde went online on 1 April 1977, with a capacity to produce 33,000 MT per year of copper cathodes from oxide ore.³⁸

3. Despite Repeated Efforts, the Government Remained Unable to Process the Primary Sulfides

39. From the outset, Minero Perú constructed the leaching facilities intending that they would eventually be accompanied by a concentrator to process the sulfide ores. For example, an April 1978 site plan includes the footprint of a “Future Sulfide Plant.”³⁹ Minero Perú also constructed a pilot concentrator with a capacity of 100 MT/d, which it completed in 1979.⁴⁰ Minero Perú used this

³¹ Ex. CE-292, Ralph M. Parsons Co., Cerro Verde Project, Stage II: Preliminary Feasibility Study (5 March 1975), vol. I, p. I-2-3. ↩

³² Ex. CE-292, Ralph M. Parsons Co., Cerro Verde Project, Stage II: Preliminary Feasibility Study (5 March 1975), vol. I, p. I-2-6. ↩

³³ See Ex. CE-295, Supreme Decree No. 002-77-EM/DGM (13 January 1977) (noting that Minero Perú applied for a special right to process minerals through the newly completed processing plant on 8 November 1976). ↩

³⁴ See Ex. CE-296, Wright Engineers Ltd., Copper: From Oxides to Cathodes (April 1978), p. [29] (showing the mine site plan). ↩

³⁵ Ex. CE-2, Supreme Decree No. 027-76-EM/DGM (9 July 1976). ↩

³⁶ See Ex. CE-295, Supreme Decree No. 002-77-EM/DGM (13 January 1977). ↩

³⁷ See Ex. CE-295, Supreme Decree No. 002-77-EM/DGM (13 January 1977); Ex. CE-308, Directorial Resolution No. 140-91-EM/DGM (20 December 1991) (noting that the Cerro Verde Beneficiation Plant spans an area of 465 hectares); Ex. CE-297, Minero Perú & Kuhn Loeb Lehmann Brothers International Inc., Cerro Verde II: Project Memorandum (October 1981), p. 1 ("Between 1974 and 1977, mining and processing facilities were constructed for the purpose of exploiting the copper oxide ore body."). ↩

³⁸ See Ex. CE-296, Wright Engineers Ltd., Copper: From Oxides to Cathodes (April 1978), p. 2. ↩

³⁹ See Ex. CE-296, Wright Engineers Ltd., Copper: From Oxides to Cathodes (April 1978), p. 7.29 (showing the future sulfide plant in the mine site plan). ↩

⁴⁰ See Ex. CE-321, Morgan Grenfell & Co. Ltd., Cerro Verde Copper Mine: Information Memo (April 1993), p. 1.1. ↩

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concentrator primarily to test the efficiency of the flotation process on Cerro Verde's primary sulfides, which Minero Perú knew it would eventually have to process in order to extend the life of the mine beyond exhaustion of the oxide and secondary sulfide reserves.⁴¹ Minero Perú continued to explore the possibility of constructing a larger concentrator in three additional feasibility studies completed in 1975, 1977, and 1980, the latter two of which considered construction of a 60,000 MT/d concentrator, but concluded that a plant of that size could not be built without an expensive new power source.⁴² By 1981, Minero Perú had expanded the capacity of the pilot concentrator to 3,000 MT/d-large enough to produce small quantities of concentrate as proof of concept, but far too small to significantly extend the mine's life.⁴³

40. In 1981, Minero Perú partnered with Kuhn Loeb Lehmann Brothers International Inc., a financial advisory firm, to seek US$288 million in foreign investment to construct and operate a larger concentrator based on the 1980 feasibility study.⁴⁴ In December 1984, at Minero Perú's request, MINEM consolidated the three special mining rights into a single mining right covering 7,455 hectares, including both pits, which was entitled “Cerro Verde No. 1, No. 2, and No. 3.⁴⁵

41. In 1985, Wright Engineers Ltd. completed another concentrator feasibility study. The study's "principal conclusion" was that Cerro Verde's primary sulfides represented “one of the most viable of the future porphyry copper projects in world inventory at the present time."⁴⁶ However, despite these promising studies, the Government failed to secure financing to construct and operate a large concentrator.⁴⁷

42. By the mid-1980s, the need for a concentrator had become critical as Minero Perú began to exhaust the oxide ore that it could feasibly process by leaching at then-prevailing copper prices.⁴⁸ Even though secondary sulfides could also be processed by leaching—and Minero Perú had

⁴¹ See, e.g., Ex. CE-300, Wright Engineers Ltd., Cerro Verde-II Stage Sulfide Ore: Feasibility Study (March 1985), p. 1-1 ("The reserves of leachable oxide and mixed sulphide material are near to the point of exhaustion and copper production will of necessity originate from other sources, one of which is the sulphide zone."). ↩

⁴² See Ex. CE-294, Ralph M. Parsons Co., Feasibility Study (1977) (Excerpt); Ex. CE-297, Minero Perú & Kuhn Loeb Lehmann Brothers International Inc., Cerro Verde II: Project Memorandum (October 1981), p. 39 (summarizing the findings of the 1980 feasibility study). ↩

⁴³ See Ex. CE-457, SMCV, Petition No. 1487019 to MINEM (27 August 2004), p. 2; Aquiño ¶ 31. ↩

⁴⁴ Ex. CE-297, Minero Perú & Kuhn Loeb Lehmann Brothers International Inc., Cerro Verde II: Project Memorandum (October 1981), p. 1. ↩

⁴⁵ See Ex. CE-298, MINEM, Supreme Resolution No. 332-84-EM/DGM (19 December 1984). ↩

⁴⁶ Ex. CE-300, Wright Engineers Ltd., Cerro Verde-II Stage Sulfide Ore: Feasibility Study (March 1985), p. 2-4. ↩

⁴⁷ See Ex. CE-313, Minero Perú, Feasibility Study (1 April 1992), p. 1 ("Stage II was to be initiated, consisting of the exploitation and beneficiation of the secondary and primary sulfides at a scale of 20,000 MT/D. In spite of the efforts made, this project did not materialize due to lack of financing."). ↩

⁴⁸ Ex. CE-351, CEPRI, Minutes for SMCV (3 July 1996), p. 2 ("The copper oxide reserves were practically exhausted in 1985, the year when the leaching of the oxide/sulfides mixtures and secondary sulfide ores began. It was no surprise that, owing due to poor recoveries from secondary sulfides, 1984 was the last ↩

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begun to do so in 1985—they were largely intermingled with primary sulfides in Cerro Verde's ore deposit, and it was generally not economical for Minero Perú to extract mixed blocks of secondary and primary sulfides in the absence of a concentrator that could process the primary sulfides.⁴⁹

B. IN THE EARLY 1990S, PERU EMBARKED ON ECONOMIC REFORMS DESIGNED TO END ECONOMIC TURMOIL AND ATTRACT FOREIGN INVESTMENT

43. In the mid- to late 1980s, Peru entered into a period of severe economic turmoil that deterred foreign investment.⁵⁰ Annual inflation exceeded 60% throughout the 1980s, at times exceeding 50% per month between 1988 and 1990 and reaching nearly 7,500% in 1990.⁵¹ Real GDP growth was erratic, with the economy contracting by 17% between 1988 and 1990.⁵² Given its long-term, capital-intensive structure, the mining industry was particularly hard hit as a result of these developments.⁵³ Threats of violence from the Shining Path and Túpac Amaru Revolutionary Movement militant groups further impacted mineral production, given the physical vulnerability of mines and their importance to the Peruvian economy.⁵⁴

44. Following the election of President Alberto Fujimori in 1990, the Government implemented a broad economic reform agenda geared toward attracting foreign investment, which it viewed as essential to Peru's economic development.⁵⁵ Among others, in August 1991, pursuant to Congress's delegation of legislative powers, President Fujimori enacted Legislative Decree No. 662 ("L.D. 662") which approved a "Legal Stability Regime for Foreign Investment,” which set forth a number of guarantees meant to attract foreign investment such as tax stability, stability in foreign exchange, and protection of private property.⁵⁶ In November 1991, President Fujimori set out these investor protections in greater detail in Legislative Decree No. 757 (“L.D. 757"), the "Framework

year it reached the projected production level of 33,000 metric tons/year of copper cathodes."); CWS-11, Witness Statement of Milagros Silva-Santiseban Concha (27 August 2021) ("Silva") ¶ 14.

⁴⁹ Aquiño ¶ 59; see Ex. CE-351, CEPRI, Minutes for SMCV (3 July 1996), pp. 2-3. ↩

⁵⁰ See CER-5, Expert Report of María del Carmen Vega ("Vega") ¶ 22. ↩

⁵¹ See World Bank, Inflation, Consumer Prices (Annual %) -Peru, https://perma.cc/N5KC-RUGA; Central Reserve Bank of Peru, Price Index for Metropolitan Lima (Monthly %), 1988-1990, https://perma.cc/3AQ7-UNFH. ↩

⁵² See World Bank, GDP Growth (Annual %)—Peru, https://perma.cc/JZD6-YZXJ. ↩

⁵³ Ex. CE-681, Kevin Ross & Juan Alonso Peschiera, Explaining the Peruvian Growth Miracle, PERU: STAYING THE COURSE OF ECONOMIC SUCCESS (International Monetary Fund, Alejandro Santos and Alejandro Werner eds. 2015), p. 39, Figure 3.2. ↩

⁵⁴ Ex. CE-301, Roger Atwood, Peru's Andean Mines Take Up Arms Against Shining Path Guerrillas, REUTERS (23 July 1989) (reporting that Peru's mines "bear a growing resemblance to military camps as mining firms arm themselves against attacks by Maoist guerrillas"). ↩

⁵⁵ See generally Ex. CE-681, Kevin Ross & Melesse Tashu, Investment Dynamics in Peru, PERU: STAYING THE COURSE OF ECONOMIC SUCCESS (International Monetary Fund, Alejandro Santos and Alejandro Werner eds. 2015), pp. 40-42, 51-53; Silva ¶¶ 8-9. ↩

⁵⁶ Ex. CE-304, Legal Stability Regime for Foreign Investment by Recognizing Certain Guarantees, Legislative Decree No. 662 (29 August 1991) ("L.D. 662"); see also Ex. CE-815, CONITE, Peru Welcomes Investors (detailing benefits of L.D. 662). ↩

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Law for Private Investment Growth."⁵⁷ Both laws authorized the Government to extend stability guarantees to investors from any sector through contracts known as “legal stability agreements.”⁵⁸

45. Peru also entered into approximately twenty-five bilateral investment treaties ("BITs") with other States between 1991 and 1996 to afford additional protections to foreign investors under international law.⁵⁹

C. PERU ACTIVELY PURSUED FOREIGN INVESTMENT IN THE MINING SECTOR, SPECIFICALLY AT CERRO VERDE

1. Peru Adopted Legislative Reforms to Encourage Private Investment

46. In addition to the legal stability regime and the BITs described above, the Government also enacted important reforms specific to the mining sector, which at the time was operating at far less than its full capacity.⁶⁰ In 1991, the Government established a legal framework for privatization by creating the Commission to Promote Private Investment (“COPRI”) to coordinate the sale of State-owned assets, and the Special Committee to Promote Private Investment in Production Units (“CEPRI"), a committee within Minero Perú, to organize the auction of Minero Perú's holdings.⁶¹ Between 1991 and 1993, the Government also enacted broad legislative reforms designed to attract foreign investment in the mining sector, including by creating a framework for mining investors to obtain tax and administrative stability for their mining units or concessions.⁶²

i. Legislative Decree No. 708

47. The most important of Peru's legislative reforms for the mining sector was Legislative Decree No. 708, the "Law for the Promotion of Investments in the Mining Sector" ("L.D. 708"), adopted on 6 November 1991.⁶³ L.D. 708 supplemented the existing legal framework

⁵⁷ Ex. CE-306, Framework Law for Private Investment Growth, Legislative Decree No. 757 (13 November 1991) ("L.D. 757"). ↩

⁵⁸ Ex. CE-304, L.D. 662; Ex. CE-306, L.D. 757. ↩

⁵⁹ See, e.g., Ex. CE-813, MEF, List of Agreements and Conventions on Investment Promotion, https://perma.cc/5GVE-SR77. ↩

⁶⁰ Ex. CE-320, Peru, 320 MINING JOURNAL 1, 1 (22 January 1993) (noting that the State sought investment "so that the minerals industry can achieve its full economic potential"). ↩

⁶¹ Ex. CE-305, Promotion of Private Investment in Enterprises of the State, Legislative Decree No. 674 (27 September 1991); Ex. CE-349, CEPRI, General Act for the Promotion of Private Investment in the Production Units of Minero Perú (31 May 1996), pp. 1, 8; see also Ex. CE-325, Supreme Resolution No. 142-93 (22 April 1993); Silva ¶¶ 5, 9. ↩

⁶² See generally Vega § II; CWS-3, Witness Statement of Marita Chappuis Cardich (27 August 2021) ("Chappuis") § II. ↩

⁶³ CA-46, Promotion of Investment in the Mining Sector, Legislative Decree No. 708 (6 November 1991) ("L.D. 708"). ↩

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for mining, Legislative Decree No. 109 (‘“L.D. 109"), by strengthening investment incentives for mining companies, including guarantees of tax and administrative stability.⁶⁴

48. María Chappuis Cardich, a witness in these proceedings, served as an engineering advisor to the Vice-Minister of Mines at the time L.D. 708 was being prepared.⁶⁵ Ms. Chappuis, along with a colleague, drafted the stability provisions of L.D. 708 at the direction of the then-Minister of Energy and Mines, Fernando Sánchez Albavera, who spearheaded the drafting process at MINEM.⁶⁶ Ms. Chappuis testifies that the Government incorporated the draft into Title Nine of the Mining Law without any substantive modifications.⁶⁷

49. Min. Sánchez Albavera also solicited input from the National Society of Mining, Petroleum, and Energy (the “Mining Society") to ensure that the bill would “encourage investment in the mining sector."⁶⁸ Hans Flury Royle, the Minister of Energy and Mines from July 2003 to February 2004, also testifies as a witness in these proceedings.⁶⁹ At the time L.D. 708 was being drafted, Mr. Flury was the Mining Society's Director and member of its Legal Committee, and testifies that he provided input to MINEM in that capacity in response to Minister Sánchez Albavera's request for the Society's assistance.⁷⁰

ii. The Single Unified Text of the General Mining Law

50. L.D. 708, in its Ninth Transitory Provision, specifically authorized MINEM to consolidate Peru's general mining law into a single unified text (texto único ordenado, or TUO, in Spanish).⁷¹ The Mining Society, at the request of MINEM, hired Peruvian lawyer María del Carmen Vega to lead the effort to create this single unified text.⁷² Ms. Vega, a lawyer with more than thirty years of experience in Peruvian investment law who testifies as an expert witness in these proceedings, testifies that this required her to closely review and interpret L.D. 708's content and scope to merge its provisions with those of L.D. 109.⁷³ The Government published the Single Unified

⁶⁴ Compare CA-37, General Mining Law, Legislative Decree No. 109 (12 June 1981) (“L.D. 109") with CA-46, L.D. 708. ↩

⁶⁵ Chappuis § II.B. ↩

⁶⁶ Chappuis § II. ↩

⁶⁷ Chappuis ¶ 18 (citing Ex. CE-11, Fernando Sánchez Albavera, THE CARDS ON THE TABLE (1992), p. 84). ↩

⁶⁸ CWS-7, Witness Statement of Hans Flury (27 August 2021) (“Flury”), ¶¶ 12, 13. ↩

⁶⁹ Flury ¶¶ 6-7. ↩

⁷⁰ Flury ¶¶ 6-7, 12-14. ↩

⁷¹ CA-46, L.D. 708, Ninth Transitory Provision. ↩

⁷² Vega ¶¶ 5, 23. ↩

⁷³ Vega ¶ 24. ↩

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Text of the General Mining Law (the “Mining Law”), which hewed closely to Ms. Vega's draft, on 3 June 1992.⁷⁴

51. As published, Title Nine of the Mining Law offered a number of incentives "to promote private investment in mining activity," key among them being the establishment of a regime for "[t]ax, currency exchange and administrative stability."⁷⁵ Other incentives included exemption from income tax on undistributed profits; free repatriation of profits; and the ability to reinvest profits in the same mining unit. The stability guarantees were implemented through two different types of agreements: 10-year and 15-year stability agreements.

52. Articles 78 through 81 of the Mining Law set forth the 10-year stability regime available to all concession holders that met certain criteria.

(a) Articles 78 and 79 set forth the eligibility requirements for a 10-year stability agreement. Specifically, they granted concession holders a right to enter into a 10-year stability agreement if (i) they invested in operations that would reach a capacity between 350 and 5,000 MT/d, or (ii) they submitted an investment program with a minimum commitment of US$2 million.

(b) Article 80 set out the guarantees to which the holder of a 10-year stability agreement would be entitled. These included tax stability, free repatriation of currency, nondiscrimination in foreign exchange, and free commercialization of mineral products.

(c) Article 81 required the mining titleholder to submit an investment program to the Directorate General of Mining (the "DGM") in order to be entitled to these guarantees. The investment program was deemed automatically approved in 45 days if the DGM did not approve it during that time period.

53. Articles 82 through 85 of the Mining Law established a broader 15-year stability regime available to concession holders that met certain additional criteria.

(a) Articles 82 and 83 set out the eligibility requirements for a 15-year agreement. Specifically, they granted concession holders a right to enter into a 15-year stability agreement if (i) they invested in projects or extensions “referring to one or more Economic-Administrative Units" that would reach an operational capacity of not less than 5,000 MT/d, and (ii) they submitted an investment plan with a minimum commitment of US$20 million to "start" a mining activity or US$50 million for an

⁷⁴ CA-1, Single Unified Text of the General Mining Law, Supreme Decree No. 014-92-EM (as amended) (3 June 1992) ("Mining Law"); Vega ¶ 26. ↩

⁷⁵ CA-1, Mining Law, Art. 72. ↩

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existing mine. Article 82 defined “Economic-Administrative Unit" for its purposes as "the processing plants and the other assets that constitute a single production unit due to sharing supply, administration, and services."

(b) Article 83 confirmed the scope of the stability guarantees; namely, that "[t]he effect of the contractual benefit shall apply exclusively to the activities of the mining company in whose favor the investment is made."

(c) Article 84 set forth the benefits to which the holder of a 15-year stability agreement would be entitled, which included all of the benefits of Article 80 (under the 10-year stability regime), plus an annual depreciation rate of up to 20% on certain fixed assets and the right to keep accounting in foreign currency.

(d) Article 85 required submission of a feasibility study as part of the application for a 15-year stability agreement to demonstrate that the investor met the required minimum investment commitment of US$20 million or US$50 million. Specifically, it provided that, to obtain a stability agreement under Articles 82 and 83, concessionaires "shall submit a technical and economic feasibility study" to the DGM. If the DGM did not approve the study within 90 days, it would be automatically approved. It further provided that after making the investment, the investor had to file an auditor-endorsed sworn statement to "demonstrate the investment amount made," confirming that it complied with the minimum investment commitment.

54. Finally, Article 86 imposed a requirement of uniformity on stability agreements, by providing that all mining stability agreements must “incorporate all the guarantees established" by the relevant provisions of Title Nine of the Mining Law.

iii. The Mining Regulations

55. In 1993, MINEM issued regulations to Title Nine of the Mining Law (the "Regulations”) to supplement the legal framework for mining incentives.⁷⁶

56. Several provisions of the Regulations clarified that stability benefits were granted to an investor with respect to one or more concessions or a “mining unit”—a group of concessions and facilities that constitute an Economic Administrative Unit.

(a) Article 2 of the Regulations explained that both the eligibility for stability benefits and the scope of those benefits is determined by the concession holder's investments in the concession or relevant mining unit. As to eligibility, Article 2 stated that the

⁷⁶ CA-2, Regulations to Title Nine of the General Mining Law, Supreme Decree No. 024-93-EM ("Regulations"). ↩

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benefits "apply as of right to all mining activity titleholders ... that perform mining activities in a concession or in concessions grouped in an Economic Administrative Unit" and have entered into a stability agreement. As to scope, Article 2 explained that when titleholders have multiple “concessions or Economic Administrative Units," the benefits "will only take effect for those concessions or units that are supported" by the stability agreement.

(b) Article 18 effectively required the application for a stability agreement to define the concessions or mining unit to which stability would apply, by including the "[n]ame of the mining rights set out in the application.”

(c) Article 22 confirmed that stability guarantees are limited to the concessions or EAUs in which the investor made the qualifying minimum investment. In particular, Article 22 provided that the guarantees in a stability agreement “will benefit the mining activity titleholder exclusively for the investments that it makes in the concessions or Economic Administrative Units." It further provided that “a mining activity titleholder that has other concessions or Economic Administrative Units shall keep independent accounts and reflect them in separate earning statements."

57. The Regulations tied the beginning of the stabilization period to the completion of the initial investment program or feasibility study set forth in the application for a stability agreement:

(a) Article 30 implemented the second paragraph of Article 85 of the Mining Law by requiring that the mining titleholder submit to the DGM a sworn statement confirming fulfillment of the investment program or feasibility study set forth in the titleholder's application for a stability agreement.

(b) Article 33 provided that the contractual guarantees of stability would apply from the year in which the sworn statement under Article 30 was approved, except that the mining titleholder could elect to have the guaranteed regime begin January 1 of the following year.

2. Peru's Stabilization Commitments Were the Central Feature of Its Legislative Reform and Critical to Attracting Foreign Investment in the Mining Sector

58. The Government's principal intent behind the Mining Law and its Regulations was to establish generous stability benefits-guaranteed under the law and implemented by contract—that would spur investment.⁷⁷ Minister Sánchez Albavera observed in his contemporaneous account of the Mining Law that it would have been "naive”

⁷⁷ Chappuis ¶¶ 14-15; Flury ¶ 15; Vega ¶ 23. ↩

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to claim that those who invest in long-term projects, such as mining, were confident that the tax regime would not undergo major alterations when the deposits entered production. A country that had shown, at least in the last ten years, to be subject to the ups and downs of the economic pendulum could not claim international credibility. It could then hardly attempt to fail to include a guarantee of tax stability in the mining reform. ... Granting [stability] guarantees constitutes an important incentive for mining companies by not altering the criteria that guided investment decisions, since their recovery is long-term.⁷⁸

59. Mr. Flury similarly testifies that based on his experience advising Minister Sánchez Albavera in connection with L.D. 708, Mr. Albavera emphasized that “he wanted to implement a legal framework that was as attractive or more attractive than that of other countries with mining potential," and particularly that “the stability regime was indispensable for attracting investment.”⁷⁹

3. Investment in Cerro Verde Was One of Peru's Top Priorities for Privatization

60. With this legal framework in place, Peru turned to privatizing Minero Perú's mining assets. Cerro Verde was Minero Perú's “priority” for privatization among its mining units.⁸⁰ Milagros Silva, who served as Secretary-General of Minero Perú and of CEPRI, from 1992 to 1996, testifies that this was because it was "very clear" to the President of Minero Perú, as well as other officials, that Minero Perú could not develop Cerro Verde's primary sulfides-at this point an existential imperative for the life of the mine—without major private investment.⁸¹

61. Peru's efforts to attract bids for Cerro Verde and other mines included advertising to foreign investors in trade publications and at industry roadshows, and the new stabilization regime featured heavily in these overtures.⁸² Ms. Silva testifies that prospective mining investors with whom she spoke at roadshows in Miami and Colombia were especially keen to understand the stability

⁷⁸ Ex. CE-311, Fernando Sánchez Albavera, THE CARDS ON THE TABLE (1992), pp. 77-78, 81. ↩

⁷⁹ Flury ¶¶ 15-16; see also Chappuis ¶ 16 (explaining that Minister Albavera sought input on L.D. 708 from engineers and industry representatives to ensure that it would have the practical effect of promoting investment). ↩

⁸⁰ Ex. CE-351, CEPRI, Minutes for SMCV (3 July 1996), p. 5 ("This need was clearly identified as the main objective for promoting private investment in the Cerro Verde Production Unit and in this vein it was that the Special Committee, in coordination with the COPRI, that decided to prioritize it vis-à-vis the other promotions to be carried out with the Production Units. Cerro Verde's operating problem was grave, since to offset the low cathode production, the small pilot concentrator plant was expanded, whose capacity in 1985 was 287 metric tons/day, to 1,000 metric tons/day in October 1987; to 1,500 metric tons/day in mid-1989; to 2,500 metric tons/day at the end of 1990; and to 3,000 metric tons/day from 1990 to 1992."); see also Ex. CE-311, Fernando Sánchez Albavera, THE CARDS ON THE TABLE (1992), p. 103 ("Within this orientation, the expansion and modernization of the Cerro Verde operating unit had a special priority, which after the depletion of copper oxides benefited secondary sulfide ores."). ↩

⁸¹ Silva ¶ 15. See also Ex. CE-351, CEPRI, Minutes for SMCV (3 July 1996), p. 4. ↩

⁸² See Silva § II; see, e.g., Ex. CE-320, Peru, 320 MINING JOURNAL 1, 12 (22 January 1993), pp. 11-13 (noting that Peru's new legal stabilization regime “contains basic regulations concerning taxation in order to protect investors from arbitrary changes of rules" and "was designed to foster international investment interest"). ↩

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guarantees when deciding whether to participate in privatization auctions of Minero Perú's mines.⁸³ Ms. Vega likewise explains that the stability guarantees of L.D. 708 "sought to break the vicious cycle of economic underdevelopment and low investment by giving mining companies the assurances they needed to invest in Peru's critical mining sector.”⁸⁴

62. The Government's goals with respect to developing Cerro Verde also drove its privatization approach. In its outreach to foreign investors, Minero Perú made clear that it would only entertain proposals that committed to developing Cerro Verde's primary sulfides, noting that "[f]urther exploitation of the resource base at Cerro Verde requires the construction of a sulphide flotation plant" at a "preferred” capacity of 40,000 MT/d.⁸⁵ Ms. Silva also testifies that because Minero Perú thought that no reasonable investor would be willing to make the substantial capital investment required to build a large concentrator unless it were also entitled to the ore that the concentrator would process, it insisted on selling both the mining and beneficiation rights together as a “single mining unit.”⁸⁶ Ms. Silva testifies that CEPRI thought that this approach was the only way to attract foreign investment in Cerro Verde.⁸⁷

63. On 16 December 1991, Minero Perú requested that MINEM convert its special mining rights into a single mining concession “Cerro Verde 1, 2, and 3" (the "Mining Concession") and a single beneficiation concession "Beneficiation Plant Cerro Verde" (the "Beneficiation Concession") spanning 7,455 and 465 hectares, respectively, which MINEM executed four days later.⁸⁸ Ms. Silva, acting as CEPRI's Secretary-General, oversaw the legal aspects of CEPRI's privatization plan for Cerro Verde.⁸⁹ CEPRI submitted this plan on 6 April 1993, and COPRI approved it on 29 April 1993.⁹⁰

⁸³ Silva ¶ 11 (discussing Ex. CE-815, CONITE, Peru Welcomes Investors, p. 9). ↩

⁸⁴ Vega ¶ 22; see also Ex. CE-320, Peru, 320 MINING JOURNAL 1, p. 1 (22 January 1993) (stressing the need for foreign investment to develop Peru's mining sector in light of the "serious challenges" facing the mining industry in Peru, including "chronically insufficient investment, resulting in the inability to fund essential new capital projects."). ↩

⁸⁵ See Ex. CE-321, Morgan Grenfell & Co. Ltd., Cerro Verde Copper Mine: Information Memo (April 1993), pp. 1.1, 1.3, 5.3; see also Ex. CE-320, Peru, 320 MINING JOURNAL 1 (22 January 1993), pp. 11, 14-15 ("exploitation of the primary sulphides will play an increasing role during any expansion at Cerro Verde"). ↩

⁸⁶ Silva ¶ 19. ↩

⁸⁷ Silva ¶ 19. ↩

⁸⁸ Ex. CE-307, Directorial Resolution No. 126-91-EM/DGM (20 December 1991) (Mining Concession) (citing Minero Perú, Official Letter No. 113.211/171/91 (16 December 1991)); Ex. CE-308, Directorial Resolution No. 140-91-EM/DGM (20 December 1991) (Beneficiation Concession) (same); Silva ¶ 16. ↩

⁸⁹ Silva ¶ 5. ↩

⁹⁰ See Ex. CE-325, Supreme Resolution No. 142-93 (22 April 1993); Ex. CE-324, CEPRI, Communication No. MP-096.93 (6 April 1993); Silva ¶¶ 17-18. ↩

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64. On 1 June 1993, Minero Perú created SMCV for the purposes of privatizing Cerro Verde; it then formally incorporated SMCV through a public deed dated 20 August 1993.⁹¹ The public deed noted that Minero Perú capitalized SMCV with S/ 277 million (about US$110 million⁹²) and granted to SMCV “the mining and beneficiation concessions and the assets that constitute the 'Cerro Verde' Mining Unit."⁹³ The public deed thus made clear that the Mining and Beneficiation Concessions, together with their supporting assets, constituted a mining unit (the “Cerro Verde Mining Unit" or the "Mining Unit").

65. Minero Perú contacted around 200 companies as potential investors in its public auction for Cerro Verde, including Amax Exploration Inc., Compañía de Minas Buenaventura S.A.A. (“Buenaventura"), Cyprus Exploration and Development Company, Phelps Dodge, and Sumitomo Metal Mining Co., Ltd. (“Sumitomo Metal Mining").⁹⁴ Yet despite Cerro Verde's potential, the political climate in Peru continued to deter potential investors.⁹⁵ Minero Perú well understood these concerns, and sought to head them off by emphasizing the availability of stability guarantees, including by sending investors draft “Heads of Agreement” that highlighted the availability of mining stability agreements.⁹⁶ Minero Perú's English-language information memorandum to prospective bidders in Cerro Verde also advertised “stability contracts" for mining companies "which guarantee the investor the maintenance of the existing tax, administrative and exchange control treatment of the investment," and assured potential investors that "[s]tability contracts have been respected by succeeding governments.”⁹⁷ In September 1993, Minero Perú also produced a bilingual primer on stability agreements for mining companies, emphasizing the Government's "honourable tradition of respecting mining contracts” and “scrupulously respecting their fulfilment.”⁹⁸

⁹¹ Ex. CE-330, SMCV Public Deed (20 August 1993), Art. 3 (noting that SMCV was created on 1 June 1993); Ex. CE-328, Minero Perú, Minutes of Board Meeting No. 633 (7 June 1993) (same). ↩

⁹² All U.S. dollar conversions of Peruvian soles are calculated according to the accounting exchange rates of Peru's Superintendence of Banking, Insurance and Private Pensions Funds available at https://www.sbs.gob.pe/app/pp/seriesHistoricas2/paso2_TipodeCambio.aspx?cod=5&paso=2&secu=03. ↩

⁹³ Ex. CE-330, SMCV Public Deed (20 August 1993), Clause 1.1; see also Ex. CE-329, Minero Perú, Minutes of Board Meeting No. 634 (22 June 1993), pp. 274-275 (approving the transfer of the Mining and Beneficiation Concessions to SMCV); Silva ¶ 18. ↩

⁹⁴ See Ex. CE-322, COPRI and Minero Perú, List of Companies Contacted (April 1993); Silva ¶ 22. ↩

⁹⁵ See, e.g., Ex. CE-318, Phelps Dodge, Cerro Verde Evaluation (1993) [Excerpt], p. 1.1, 1-4 (noting that Cerro Verde had "potential for significant expansion" and a "major upside in project economics," but noting major downside risks related to "the political climate worsen[ing] resulting in strikes and increased terrorism" and Peru's relatively poor ranking for country risk). ↩

⁹⁶ Silva ¶ 23 (citing Ex. CE-332, International Public Competitive Bidding for the Sale of SMCV S.A.: Heads of Agreement (26 October 1993)). ↩

⁹⁷ Ex. CE-321, Morgan Grenfell & Co. Ltd., Cerro Verde Copper Mine: Information Memorandum (April 1993), p. 9.17. ↩

⁹⁸ Ex. CE-331, Minero Perú, Stability Contracts (7 September 1993), § 3.0. ↩

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D. CYPRUS ACQUIRED SMCV AND OBTAINED A 15-YEAR STABILITY AGREEMENT

1. Share Purchase Agreement

66. On 4 November 1993, Cyprus Minerals Company, a U.S. company, ultimately submitted the only bid for Cerro Verde.⁹⁹ On 15 November 1993, Cyprus Minerals Company merged with Amax Inc. to form Cyprus Amax Minerals Company (together with its wholly owned subsidiaries, “Cyprus").¹⁰⁰ At the time, Cyprus was the second-largest producer of copper in the United States, operating several large mines with similar geology to Cerro Verde.¹⁰¹ Cyprus also had successfully constructed concentrators at its Sierrita and Twin Buttes mines in Arizona, and its proposal contemplated construction of a similar plant at Cerro Verde.¹⁰² Minero Perú's evaluation of Cyprus's proposal recognized that it achieved the “main objectives to be achieved of promoting private investment in Cerro Verde," including "[f]ully mining the copper reserves contained in both the primary and secondary sulfides; in other words, development of the second stage of Cerro Verde."¹⁰³

67. On 17 March 1994, Minero Perú and a subsidiary of Cyprus executed an agreement (the "Share Purchase Agreement") under which Minero Perú sold 91.65% of its shares in SMCV to the Cyprus subsidiary.¹⁰⁴ The Share Purchase Agreement committed the Government to executing mining and legal stability agreements with SMCV and Cyprus, and committed Cyprus to certain investments, including construction of a concentrator. In particular:

(a) Article I defined key terms relating to SMCV's integrated operations, making clear that Cerro Verde was being sold as a single production unit. It defined "Cerro Verde Business" as "the mining and processing business and operations and all related activities, including, but not limited to, exploration, evaluation, construction, development and sales" and "Unidad Cerro Verde” as “the mining and beneficiation concessions previously known collectively as Unidad de Producción Cerro Verde ... and all properties and facilities owned, operated or used in connection with the owning, developing, constructing and operating of a copper mine and marketing the products produced."

⁹⁹ Ex. CE-334, Cyprus, Cyprus Privatization Proposal (4 November 1993); Ex. CE-351, CEPRI, Minutes of SMCV Privatization (3 July 1996), p. 65; Silva ¶ 24. ↩

¹⁰⁰ See Ex. CE-340, Letter from ProInversión and Morgan Grenfell to CEPRI of 7 February 1994; Ex. CE-351, CEPRI, Minutes of SMCV Privatization (3 July 1996), p. 28. ↩

¹⁰¹ Ex. CE-340, Letter from ProInversión and Morgan Grenfell to CEPRI of 7 February 1994. ↩

¹⁰² Ex. CE-334, Cyprus, Cyprus Privatization Proposal (4 November 1993), p. 9; Ex. CE-340, Letter from ProInversión and Morgan Grenfell to CEPRI of 7 February 1994. ↩

¹⁰³ Ex. CE-333, CEPRI, Evaluation of Proposal from Cyprus Minerals Company (November 1993), p. 5; see also Silva ¶¶ 15, 22 (explaining that a concentrator was "required" to efficiently process primary sulfides). ↩

¹⁰⁴ See Ex. CE-4, Share Purchase Agreement Between Cyprus Climax Metals Co. and Empresa Minera del Peru S.A. (17 March 1994) ("Share Purchase Agreement"), Art. 2.1; Silva ¶ 30. ↩

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(b) Article II effected the purchase and sale of approximately 208 million shares of SMCV stock for US$34 million.

(c) Article III ensured Cyprus's ability to access stability guarantees, among others. In particular, Article 3.1(f) committed the Government to executing legal stability agreements with Cyprus and SMCV pursuant to L.D. 662 and L.D. 757, and Article 3.1(g) committed the Government to executing a mining stability agreement with SMCV pursuant to Articles 78 and 79 of the Mining Law. Appendix H included an indicative model of the mining stability agreement.

(d) Article IV contained Cyprus's investment commitment, including the commitment to build a concentrator. It committed Cyprus to investing US$316 million in four phases set out in Appendix G. Phases 1 to 3 involved improvements to the leaching and SX/EW circuits. Phase 4 called for “completion of construction and commissioning of a grinding and conventional copper/molybdenum flotation circuit"-i.e., a concentrator-with a capacity of 28,000 MT/d, plus related improvements.¹⁰⁵

(e) Article IV also allowed Cyprus to reduce its investment commitment, under certain conditions, if the investment proved infeasible. Specifically, it required Cyprus to complete a feasibility study of the planned investment within 18 months. If any of the investments proved uneconomical under the feasibility study, Cyprus had to complete a new feasibility study within a year. If the second feasibility study reached the same result, Cyprus would be able to reduce its investment commitment without penalty.

68. On the same day, the Government and Cyprus signed a Guaranty Agreement-a requirement under Article 3.1(h) of the Share Purchase Agreement-by which the Government guaranteed the execution of "any" mining stability agreement relating to SMCV's “business and operations" to which SMCV was entitled within 90 days of having complied with all requirements under the Mining Law.¹⁰⁶

69. As Ms. Silva's contemporaneous meeting minutes confirm, Cyprus viewed the stability guarantees as a “prerequisite" to its purchase of SMCV.¹⁰⁷ Ms. Silva also testifies that

¹⁰⁵ See also Ex. CE-4, Share Purchase Agreement, Appendix B (containing "Preliminary Balance Sheet" for SMCV as of 30 November 1993 and listing among its "Intangible Investments" US$7.8 million as the "[c]ost of stripping in the preparation of the mine (pre-mining) for the sulphide project"). ↩

¹⁰⁶ Ex. CE-341, Guarantee of the Republic of Peru in Favor of Cyprus Climax Metals (17 March 1994), Art. 1.6. ↩

¹⁰⁷ Ex. CE-339, SMCV, Minutes of Board Meeting No. 008, p. 2 (21 January 1994). ↩

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during the negotiations with Minero Perú, “Cyprus stated clearly its intent to enter into the stability agreements that we had promoted during the bidding process.”¹⁰⁸

2. The 1994 Mining Stability Agreement

70. On 26 May 1994, the Government and SMCV also entered into a 10-year mining stability agreement (the “1994 Stability Agreement”) under Article 78 of the Mining Law.¹⁰⁹ To meet the Mining Law's requirement of an “investment program" demonstrating a minimum US$2 million commitment, the Government and SMCV relied on an existing Minero Perú feasibility study for small improvements to the leaching facilities.¹¹⁰ While the US$316 million investment commitment under Article IV of the Share Purchase Agreement would have clearly met the US$50 million investment threshold for a 15-year stability agreement under Article 82 of the Mining Law, SMCV first applied for the 10-year mining stability agreement because doing so allowed it to secure stability guarantees immediately, without having to conduct a feasibility study for the larger capital investment.¹¹¹

71. In December 1993 and January 1995, Cyprus engaged Fluor Daniel Wright and Bechtel Corporation, respectively, to conduct studies relating to the feasibility of expanding SMCV's leaching operations and constructing a new concentrator.¹¹² Cyprus presented both studies to Minero Perú as a consolidated study prepared by Minerals Advisory Group (“MAG”) in September 1995.¹¹³ The Fluor/MAG study found that it would be economically feasible for SMCV to construct a new leaching pad (“Pad 4A"), plus associated equipment, and to expand the SX/EW plant, which would increase annual production by around 35%.¹¹⁴ However, the Bechtel/MAG study concluded that investing in a concentrator was not economically feasible, largely due to the lack of available water

¹⁰⁸ Silva ¶ 29. ↩

¹⁰⁹ Ex. CE-344, Agreement of Guarantees and Measures for the Promotion of Investments Between the Peruvian State and SMCV (26 May 1994) (“1994 Stability Agreement"). ↩

¹¹⁰ See Ex. CE-344, 1994 Stability Agreement, Art. 1.3; see also CA-1, Mining Law, Art. 79. ↩

¹¹¹ Silva ¶ 33. ↩

¹¹² See Ex. CE-348, Minerals Advisory Group LLC, Cerro Verde Expansion Project: Summary Feasibility (September 1995), p. 2-2 (“SMCV contracted with Fluor Daniel Wright (FDW) and Bechtel Corporation (Bechtel) to concurrently conduct studies relative to the economic feasibility of improving and expanding the leach/SX/EW operation and the construction of a modern flotation mill, respectively."). ↩

¹¹³ See Ex. CE-348, Minerals Advisory Group LLC, Cerro Verde Expansion Project: Summary Feasibility (September 1995), p. 2-2. ↩

¹¹⁴ Ex. CE-348, Minerals Advisory Group LLC, Cerro Verde Expansion Project: Summary Feasibility (September 1995), pp. 7.1-7.2 (setting out the revised leaching process overview); id., p. 7-8 (showing increase in Cerro Verde's annual production capacity from 68 to 105 million pounds). ↩

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and power sources to support its operation.¹¹⁵ Nevertheless, it stated that "SMCV intend[ed] to continue to evaluate the mill option with the goal [of identifying] a viable alternative."¹¹⁶

3. The 15-Year Stability Agreement

72. On 25 January 1996, SMCV filed an application with MINEM to enter into a 15-year stability agreement pursuant to Articles 82 and 84 of the Mining Law.¹¹⁷ Compared to the 10-year stability agreement already in place for Cerro Verde's mining unit, the 15-year stability agreement would allow SMCV to enjoy all stability guarantees over a longer period, and also would allow it to enjoy additional benefits, including the right to use up to a 20% annual depreciation rate and to keep its accounting in foreign currency.¹¹⁸

73. To demonstrate that it met the US$50 million minimum investment requirement under Articles 83 and 85 of the Mining Law, SMCV submitted a revised version of the 1995 Fluor feasibility study for the improvements, upgrades, and further development of the existing leaching facility and infrastructure (“1996 Feasibility Study”).¹¹⁹ The 1996 Feasibility Study outlined a US$240 million investment to construct Pad 4A and expand the SX/EW plant, and included investments laying the groundwork for the eventual construction of a concentrator, which would operate as an integrated unit alongside the expanded leaching facilities.¹²⁰ For example, the 1996 Feasibility Study noted that, as SMCV continued to dig deeper in the Santa Rosa pit, "both the chalcocite and covellite [i.e., secondary sulfide] copper percentages decrease while the chalcopyrite [i.e., primary sulfide] increases," and that SMCV's “mine plan will need to be managed in consideration of this factor to maintain a suitable feed to the plant"—a goal that SMCV could only achieve by building a concentrator.¹²¹ Accordingly, the 1996 Feasibility Study provided for an investment of over US$2.5 million over two years to conduct a feasibility study for a concentrator.¹²² Ms. Chappuis, who later reviewed the 1996 Feasibility Study when she served as Director General of Mining from 2002 to 2004, testifies that "it was obvious to any mining engineer who read the 1996

¹¹⁵ See Ex. CE-348, Minerals Advisory Group LLC, Cerro Verde Expansion Project: Summary Feasibility (September 1995), p. 2-12. ↩

¹¹⁶ Ex. CE-348, Minerals Advisory Group LLC, Cerro Verde Expansion Project: Summary Feasibility (September 1995), p. 2-3. ↩

¹¹⁷ Ex. CE-7, SMCV, Request for Stability Agreement (25 January 1996), p. [3]. ↩

¹¹⁸ CA-1, Mining Law, Art. 84. ↩

¹¹⁹ Ex. CE-9, 1996 Feasibility Study. ↩

¹²⁰ Aquiño ¶ 32; Ex. CE-9, 1996 Feasibility Study, Executive Summary, p. 1 ("Major new construction consists of fine crushing, pad leaching and a new solvent extraction plant."); id., p. 26 (showing increase in Cerro Verde's annual production capacity from 68 to 105 million pounds); id. Sections 1.1 & 2.4. ↩

¹²¹ Ex. CE-9, 1996 Feasibility Study, pp. 64-65. ↩

¹²² Ex. CE-9, 1996 Feasibility Study, p. 124. ↩

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feasibility study that it laid the groundwork for building a concentrator next to the leaching facilities."¹²³

74. On 6 May 1996, the DGM approved the 1996 Feasibility Study and sent the file to the Vice-Minister of Mines to consider SMCV's application for stability pursuant to Article 83 of the Mining Law.¹²⁴ By this time, SMCV had already substantially completed construction of Pad 4A and expansion of the SX/EW plant, and by mid-1996, these improvements allowed SMCV to increase its production of copper cathodes by over 250%.¹²⁵

75. In June 1996, ICF Kaiser completed a second study assessing the feasibility of a concentrator ("1996 Mill Feasibility Study").¹²⁶ Like the first, the 1996 Mill Feasibility Study concluded that, "although the project ha[d] improved significantly since the earlier 1995 Study, the pretax discounted cash flow [would] still not support the required investment” due to, among others, the lack of economical options for power and water.¹²⁷ On 16 September 1996, Cyprus sent the 1996 Mill Feasibility Study to Minero Perú, advising that constructing a concentrator was “uneconomical" at the time, and exercising its right under the Share Purchase Agreement to reduce its investment commitment.¹²⁸ However, Cyprus also requested an 18-month extension to "perform additional studies and test work in an attempt to establish that it [was] economically feasible to construct a mill for processing the Cerro Verde sulfide ores," which the Government granted.¹²⁹ Cyprus thus commissioned Bateman Engineering to oversee additional testing of the Cerro Verde sulfide ore and to prepare a third feasibility study (the “1998 Mill Feasibility Study").¹³⁰

¹²³ Chappuis ¶ 41. ↩

¹²⁴ See Ex. CE-8, MINEM, Report No. 043-96-EM-DGM-DFM/DFAE (6 May 1996); Ex. CE-356, MINEM, Report No. 708-97-EM/DGM/OTN (30 December 1997) (noting that the DGM sent the file to the Vice-Minister of Mines for consideration). ↩

¹²⁵ Compare Ex. CE-348, Minerals Advisory Group LLC, Cerro Verde Expansion Project: Summary Feasibility (September 1995), p. 2-1 (noting that cathode production had dropped to 40 million pounds per year, or about 1,500 MT per month), with Ex. CE-11, Letter from Cyprus Climax Metals Co. to Empresa Minera del Peru S.A. of 16 September 1996, p. 1 (noting increase in cathode production to an average of more than 4,000 MT per month). ↩

¹²⁶ Ex. CE-350, ICF Kaiser Engineers Inc., Feasibility Study Analysis for the Cerro Verde Project (1996). ↩

¹²⁷ Ex. CE-350, ICF Kaiser Engineers Inc., Feasibility Study Analysis for the Cerro Verde Project (1996), p. 1-1; see also Ex. CE-11, Letter from Cyprus Climax Metals Co. to Empresa Minera del Peru S.A. of 16 September 1996, p. 2. ↩

¹²⁸ Ex. CE-11, Letter from Cyprus Climax Metals Co. to Empresa Minera del Peru S.A. of 16 September 1996, p. 2; Ex. CE-4, Share Purchase Agreement, Art. 4.3(b)(i). ↩

¹²⁹ Ex. CE-11, Letter from Cyprus Climax Metals Co. to Empresa Minera del Peru S.A. of 16 September1996, p. 2; Ex. CE-355, Addendum to the Share Purchase Agreement (19 March 1997), Art. 1 (granting 18-month extension). ↩

¹³⁰ Ex. CE-13, Bateman Engineering Inc., Primary Sulfide Ore Mill Expansion: Feasibility Study (16 March 1998), p. 1-1. ↩

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76. On 13 February 1998, SMCV and the Government signed a 15-year stability agreement under Article 82 of the Mining Law (the “Stability Agreement").¹³¹ The Stability Agreement implemented the Mining Law's investment guarantees to stabilize the fiscal and administrative regime at 6 May 1996-the day on which the DGM approved the 1996 Feasibility Study-for SMCV's Mining and Beneficiation Concessions.¹³²

77. In terms of scope, the Agreement made clear that it applied to SMCV's Mining and Beneficiation Concessions. In particular:

(a) Clause 1.1, entitled "Background Information," explained that SMCV submitted an application for the “guarantees of the benefits contained” in Articles 72, 80, and 84 of the Mining Law “in relation with the investment in [SMCV's] concession: Cerro Verde No. 1, No. 2 and No. 3, hereinafter 'the leaching project of Cerro Verde.”¹³³

(b) Clause 3, which set out the “Mining Rights” covered by the Agreement, provided that the "Leaching Project of Cerro Verde is circumscribed to the concessions, related in EXHIBIT I, with the corresponding areas."¹³⁴ Exhibit I, in turn, defined the relevant concessions as the "mining concession” called “Cerro Verde No. 1, No. 2, and No. 3" and the "Concession of Beneficiation" called "Cerro Verde Beneficiation Plant." Clause 3 further provided that it "does not prevent [SMCV] from incorporating other mining rights to the Cerro Verde Leaching Project after approval by the Directorate General of Mining."

78. The Agreement also confirmed that SMCV had met the necessary prerequisites set out in the Mining Law and Regulations to qualify for stability. In particular:

(a) Clause 1.2 noted that SMCV had submitted the 1996 Feasibility Study with its application. Clause 2 confirmed that the DGM had approved the 1996 Feasibility Study pursuant to Article 85 of the Mining Law on 6 May 1996.

(b) Clauses 4 and 5 noted that SMCV had committed to the execution of the investment plan set out in the 1996 Feasibility Study by 31 December 1997, and that the total approximate amount for completing such investment was US$237,517,000.

79. The Agreement confirmed that SMCV would be entitled to stability benefits upon completion of its qualifying minimum investment. For example:

¹³¹ Ex. CE-12, Contract of Guarantees and Investment Promotion Measures Between the Peruvian State and Sociedad Minera Cerro Verde S.A. (26 February 1998) ("1998 Stability Agreement"). ↩

¹³² Ex. CE-12, 1998 Stability Agreement, Clauses 8.1, 9.5. ↩

¹³³ Ex. CE-12, 1998 Stability Agreement, Clause 1 (emphasis added). ↩

¹³⁴ Ex. CE-12, 1998 Stability Agreement, Clause 3 (emphasis added). ↩

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(a) Clauses 6 and 7 set out the processes for completing the investment plan and required SMCV to notify the Directorate General within 90 days of completion of the investment plan.

(b) Clause 8 confirmed that the stability guarantees would enter into force following completion of the investment plan or, per Article 33(b) of the Regulations, January 1 of the following year if SMCV so requested.

80. The Agreement also listed the stability guarantees and benefits set out in the Mining Law and Regulations. For example:

(a) Clause 9 guaranteed to SMCV the stability protections that the Mining Law provides for 15-year stability agreements, including “tax stability in the terms established in paragraphs A) and E) of Article 80 of the [Mining Law]” (Clause 9.5), the benefits of "administrative stability referred to in paragraph A) of article 72 of the [Mining Law]" (Clause 9.6); free commercialization of SMCV's “mineral products" (Clause 9.1), a 20% depreciation rate on "its fixed assets” (Clause 9.3), and U.S. dollar accounting (Clause 9.4).

(b) Clause 10 exempted SMCV from any law or regulation that would "directly or indirectly denaturalize[]" the benefits of Clause 9 and “any encumbrance or obligation that could represent reduction of its availability of cash."

81. On 25 March 1998, Cyprus delivered the 1998 Mill Feasibility Study to Minero Perú.¹³⁵ The Study concluded for the third time that the “economics” of the proposal "do not support a prudent investment for construction and operation of a copper sulfide ore concentrator."¹³⁶

82. On 23 November 1998, MINEM certified SMCV's sworn statement, submitted in accordance with Article 30 of the Regulations, that it had substantially implemented the 1996 Feasibility Study, thus "[c]onfirm[ing] that [SMCV] enjoys Tax Stability for the Regime in force as of May 6, 1996."¹³⁷ As required by Article 33 of the Regulations, SMCV informed the Peruvian tax agency (the National Superintendence of Customs and Tax Administration, or “SUNAT”) and

¹³⁵ Ex. CE-13, Bateman Engineering Inc., Primary Sulfide Ore Mill Expansion: Feasibility Study (16 March 1998), p. 1-1. ↩

¹³⁶ Ex. CE-13, Bateman Engineering Inc., Primary Sulfide Ore Mill Expansion: Feasibility Study (16 March 1998), p. 2-7. ↩

¹³⁷ Ex. CE-360, MINEM, Directorial Resolution No. 342-98-EM/DGM (23 November 1998), Preamble and Arts. 1 & 2 (referring to Regulations, Art. 30); see also CA-1, 1 Mining Law, Art. 80(a) ("[T]he titleholder shall be subject, solely, by the tax regime in-force at the date of approval of the investment program, not being applicable any tax subsequently created . . . ."). ↩

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MINEM of its intent to rely on the stabilized regime under the Stability Agreement as of 1 January 1999.¹³⁸

83. In October and November 1999, after fulfilling the investment plan set out in the 1996 Feasibility Study, SMCV made additional investments in the Cerro Verde Mining Unit when it acquired used mining equipment for US$4.5 million, allowing it to increase daily ore extraction from 120,000 to 161,000 MT.¹³⁹ The 1996 Feasibility Study did not include these investments.¹⁴⁰

E. CONSTRUCTION OF THE CONCENTRATOR BECAME POTENTIALLY FEASIBLE AFTER PHELPS DODGE TOOK OVER SMCV

1. After Phelps Dodge Acquired SMCV, Peru Insisted That the Share Purchase Agreement Committed SMCV to Construct a Concentrator

84. In October 1999, Phelps Dodge acquired Cyprus.¹⁴¹ Cristian Morán, who was involved in the acquisition as Director of Finance at Phelps Dodge Mining Services and later served as Phelps Dodge's Assistant Treasurer, testifies in these proceedings.¹⁴² Mr. Morán explains one of Phelps Dodge's considerations at the time was whether to make further investments in Cerro Verde's operations, including building a concentrator, and that because of Peru's past economic and political turmoil, the Stability Agreement was “essential” and “critically important" for such further investment.¹⁴³ Copper prices were low at the time-averaging US$0.73 per pound in 1999—and any additional taxes or charges would have jeopardized the additional investments that Phelps Dodge sought to undertake.¹⁴⁴ Mr. Morán testifies that, when Phelps Dodge acquired Cyprus, it understood that the Stability Agreement would apply to the entire Cerro Verde Mining Unit, including any investment in the development of the extraction and processing of primary sulfides, and "assigned great importance" to the Stability Agreement “in determining the company's future plans.”¹⁴⁵

85. In early 2000, Minero Perú informed Phelps Dodge, as Cyprus's acquirer, that it viewed the failure to proceed with constructing a concentrator as a violation of the Share Purchase Agreement, and threatened to commence breach of contract proceedings.¹⁴⁶ Minero Perú argued that the three failed feasibility studies did not absolve Cyprus's obligation to construct a concentrator,

¹³⁸ Ex. CE-361, SMCV Letter to SUNAT of 30 November 1998; Ex. CE-362, SMCV Letter to MINEM of 30 November 1998 (referring to CA-2, Regulations, Art. 33). ↩

¹³⁹ Ex. CE-363, Phelps Dodge, Cerro Verde Assessment (October-November 1999), p. [14]. ↩

¹⁴⁰ See Torreblanca ¶ 11. ↩

¹⁴¹ See CWS-9, Witness Statement of Cristián Morán (27 August 2021) ("Morán”) ¶¶ 10-11. ↩

¹⁴² See Morán ¶¶ 6-9. ↩

¹⁴³ Morán ¶¶ 11-15. ↩

¹⁴⁴ Morán ¶ 14; Ex. CE-810, Macro Trends, Copper Prices - 45 Year Historical Chart, available at https://www.macrotrends.net/1476/copper-prices-historical-chart-data. ↩

¹⁴⁵ Morán ¶¶ 14-15. ↩

¹⁴⁶ CWS-5, Witness Statement of Randy L. Davenport (27 August 2021) ("Davenport") ¶¶ 18-20 (describing dispute and eventual settlement related to Share Purchase Agreement). ↩

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given how central the primary sulfides had been to the sale of SMCV.¹⁴⁷ Phelps Dodge disagreed, invoking Cyprus's right to reduce its investment commitment if a feasibility study showed that any part of that commitment was not feasible.¹⁴⁸

86. Following negotiations facilitated by Humberto Montes, the then-Vice-Minister of Mines, the parties settled the dispute through an agreement signed on 30 March 2001 (the “Settlement Agreement").¹⁴⁹ In the Settlement Agreement, Minero Perú relinquished its claim in exchange for Phelps Dodge's commitment to (i) make at least US$50 million in further investments into the Cerro Verde mining unit over the following three years, and (ii) explore the feasibility of processing the primary sulfides for three more years.¹⁵⁰

87. In 2001 and 2002, Phelps Dodge, through SMCV, made two capital improvements to satisfy the bulk of the additional investment commitment under the Settlement Agreement, neither of which was included in the 1996 Feasibility Study:¹⁵¹

(a) In May 2001, SMCV began implementing a revised mine plan requiring about US$10 million in capital expenditures to optimize the leaching and SX/EW circuits in light of changes to the "cutoff grade," the threshold amount of copper that a block of ore must contain for SMCV to process it.¹⁵² Those improvements expanded production of copper cathodes from 195 to 230 MT/d, leading to an increase of 10 million pounds of annual production.¹⁵³ Because the new mine plan did not expand processing capacity but rather processed the same amount of ore more efficiently, SMCV was not required to seek approval from the DGM.¹⁵⁴

(b) In 2001 and 2002, SMCV invested US$15 million to expand the leaching facility's Pad 2-which allowed SMCV to process an additional 8,000 MT/d of ore through the leaching circuit.¹⁵⁵ On 21 May 2002, MINEM authorized SMCV to operate the pad

¹⁴⁷ Davenport ¶¶ 17-18. ↩

¹⁴⁸ See Davenport ¶ 20; see also Ex. CE-4, Share Purchase Agreement, Art. 4.3(b)(i). ↩

¹⁴⁹ Davenport ¶ 20; Ex. CE-17, Out-of-Court Settlement Agreement Between Cyprus Climax Metals Co. and Empresa Minera del Perú S.A. (30 March 2001). ↩

¹⁵⁰ Ex. CE-17, Out-of-Court Settlement Agreement Between Cyprus Climax Metals Co. and Empresa Minera del Perú S.A. (30 March 2001), Clauses 3.1, 4.1, 4.5. ↩

¹⁵¹ Davenport ¶ 21. ↩

¹⁵² Davenport ¶ 22. ↩

¹⁵³ Davenport ¶ 22. ↩

¹⁵⁴ Davenport ¶ 22. ↩

¹⁵⁵ Davenport ¶ 23. ↩

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and expanded the capacity of the Beneficiation Concession from 31,000 to 39,000 MT/d.¹⁵⁶

88. Randy Davenport, SMCV’s President and General Manager from 2000 to 2005, testifies that, while “[n]either of these investments was foreseen in Cyprus’s 1996 feasibility study,” “there was no doubt in my mind that they were protected by the Stability Agreement and the Government always treated them as such.”¹⁵⁷ Julia Torreblanca, SMCV’s Vice President of Corporate Affairs, similarly testifies that “SUNAT never questioned that these investments were covered by the Stability Agreement’s guarantees.”¹⁵⁸

2. Through an Investment in the Local Energy and Water Supply, SMCV Achieved a Breakthrough That Potentially Made Construction of a Concentrator Economically Feasible

89. By the time Minero Perú and Cyprus signed the Settlement Agreement in March 2001, the landscape for developing Cerro Verde’s primary sulfides had already started to improve. In September 2000, improvements to the electrical grid resulted in a “dramatic increase in the available energy supply” in Arequipa.¹⁵⁹ SMCV then learned that Empresa de Generación de Arequipa S.A. (“EGASA”), the regional State-owned energy company, “had been trying for several years” to construct a hydroelectric dam on the nearby Pillones River, but had been unable to obtain funding from the Government.¹⁶⁰ In October 2001, SMCV agreed to invest in the project in exchange for a share in the water rights, which SMCV could use to operate a possible future concentrator, allowing EGASA to move forward with a project that would double its output with renewable energy.¹⁶¹ SMCV ultimately finalized this agreement in April 2004, contributing 40% of the US$17 million in capital costs for an equivalent stake.¹⁶²

90. Following these breakthroughs in water and energy supply, in 2002, SMCV conducted a pre-feasibility study for a concentrator.¹⁶³ However, it was not clear to Phelps Dodge that it would be worth the significant upfront investment required to build a large enough concentrator to

¹⁵⁶ Ex. CE-382, MINEM, Directorial Resolution No. 151-2002-EM/DGM (21 May 2002) (approving the request and expanding the Beneficiation Concession); see also Ex. CE-376, SMCV, Petition No. 1341243 to MINEM (30 October 2001); Ex. CE-380, MINEM, Report No. 056-2002-EM-DGM/DPGM (18 February 2002) (recommending that the DGM approve the request). ↩

¹⁵⁷ Davenport ¶ 21. ↩

¹⁵⁸ Torreblanca ¶ 11. ↩

¹⁵⁹ Davenport ¶ 24; see Ex. CE-816, Multilateral Investment Guarantee Agency, Consorcio Transmantaro S.A., https://www.miga.org/project/consorcio-transmantaro-sa. ↩

¹⁶⁰ Davenport ¶ 24. ↩

¹⁶¹ See Ex. CE-53, Empresa de Generación Eléctrica de Arequipa S.A., Final Liquidation of Work: Pillones Dam (30 May 2011), p. 1; Torreblanca ¶ 14; Davenport ¶¶ 24, 27. ↩

¹⁶² Davenport ¶ 27; Ex. CE-430, EGASA and SMCV, Consortium Contract for the Construction of the Pillones Dam (27 April 2004), Clauses 5.1, 5.3. ↩

¹⁶³ Davenport ¶ 25. ↩

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achieve economies of scale.¹⁶⁴ Mr. Davenport testifies that in determining whether to proceed, Phelps Dodge weighed the investment in Peru—a new market for Phelps Dodge at that time—against potential investments in “world-class copper deposits elsewhere in the Americas and beyond,” and that some Phelps Dodge executives “were skeptical” given the country’s recent economic turmoil.¹⁶⁵ Mr. Davenport also testifies that “[g]uarantees of tax and administrative stability were a prerequisite for Phelps Dodge to invest in large-scale mining investment in developing economies such as Peru,” and the Stability Agreement was therefore “of paramount importance” to the prospective Concentrator investment.¹⁶⁶ As Mr. Davenport further testifies, Phelps Dodge ultimately decided to proceed with a full-scale feasibility study into how to process the primary sulfides.¹⁶⁷ Thus, in June 2003, Phelps Dodge retained Fluor Canada Ltd. to conduct a feasibility study for construction of a concentrator.¹⁶⁸

3. The Government Confirmed That the Concentrator Investment Would Enjoy the Stabilized Reinvestment Benefit

91. Beginning in mid-2003, Phelps Dodge and SMCV also set out to confirm that SMCV would be entitled to claim a tax benefit allowing it to reinvest profits from the existing operations in the Cerro Verde Mining Unit to construct a concentrator. This benefit was allowed by Article 72(b) of the Mining Law and its implementing regulations, as they existed as of 6 May 1996, the effective stabilization date of the Stability Agreement. Even though Congress had subsequently repealed the benefit, SMCV believed that it was entitled to invoke it under the Stability Agreement as part of its stabilized tax regime.¹⁶⁹ The reinvestment benefit would allow SMCV to (1) reinvest in the Mining Unit up to 80% of its non-distributed profits and (2) pay income tax on only the remaining 20%. The benefit would apply only if the “new investment program” was part of the same “mining unit[]” and “guarantee[d] the increase of production levels” in that unit.¹⁷⁰ Mr. Morán testifies that Phelps Dodge “wanted to confirm that the benefit would apply to partially fund the Concentrator, and we asked [SMCV’s executives] what requirements SMCV would have to comply with to confirm that the

¹⁶⁴ Davenport ¶ 25. ↩

¹⁶⁵ Davenport ¶ 25; see also Morán ¶ 14. ↩

¹⁶⁶ Davenport ¶ 30. ↩

¹⁶⁷ Davenport ¶ 26. ↩

¹⁶⁸ See Ex. CE-20, Fluor Canada Ltd., Feasibility Study: Cerro Verde Primary Sulfide Project (May 2004), Vol. I, p. 1. ↩

¹⁶⁹ See CA-79, Stability Agreements with the State, Law No. 27343 (5 September 2000); Morán ¶ 20; Torreblanca ¶ 16. ↩

¹⁷⁰ See CA-1, Mining Law, Art. 72(b) (“In order to grant the mining activity the necessary international competitiveness, taxes apply only to the income distributed by mining activity titleholders.”); CA-2, Regulations, Art. 10 (“Non-distributed income shall be applied to the execution of new investment programs that guarantee the increase of production levels of the relevant mining units.”); CA-68, Application of Tax Benefits to Retained Earnings That Are Used for Investment Programs to Ensure an Increase in the Production of Mining Units, Supreme Decree No. 027-98-EF (25 March 1998), Art. 4 (“The tax benefit will operate on 80% of the earnings actually obtained and deducted in each fiscal year and up to the maximum amount of the investment program that has been approved.”). ↩

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Peruvian tax authorities would recognize the benefit,” given that it would be a critical input in assessing whether the concentrator would be economically feasible.¹⁷¹

92. On 3 July 2003, Ms. Torreblanca wrote to Ms. Chappuis, then head of the DGM, to confirm that SMCV would be entitled to apply the profit reinvestment benefit as a result of the Stability Agreement.¹⁷² Ms. Torreblanca explained that SMCV’s decision to build a concentrator “was directly related” to the DGM’s approval of the benefit.¹⁷³ She continued:

Given that the executed stability agreement makes reference therein to the Leaching Project rather than to the Cerro Verde Project, which also includes the Primary Sulfides Project, we request clarification that the Investment Program using Non-Distributed Profits to be submitted would be approved regardless of the fact that it is not confined to the Leaching Project.

In order to complete this aspect related to reinvestment of profits in the Feasibility Study, we would like to ask for your opinion on this matter, to be able to specify that the reinvestment of profits stabilized for Cerro Verde . . . is applicable to the Primary Sulfides Project, even though the stability agreement does not mention this project. This is requested because this agreement stabilizes the profit-reinvestment regime for the mining titleholder rather than for the project that gave rise to its signing.¹⁷⁴

93. Ms. Chappuis testifies that she and her colleagues in the DGM—the competent agency within MINEM that administers beneficiation concessions and mining stability agreements— analyzed the request under the Regulations and on their “clear” understanding that “the Stability Agreement applied to all investments that SMCV made in the Cerro Verde mining unit during the term of the Stability Agreement,” including the Concentrator.¹⁷⁵ On 8 September 2003, the DGM replied to SMCV in a report written by a MINEM attorney and engineer and approved by Ms. Chappuis.¹⁷⁶ The report concluded that the profit reinvestment program would apply to the new concentrator by virtue of the Stability Agreement because it was a “new investment program[]” that would “increase[] the levels of production in the involved mining unit[]” in accordance with Article 10 of the Regulations.¹⁷⁷ The report noted that it was not a “requirement” of the law that the

¹⁷¹ Morán ¶ 20; see also Torreblanca ¶ 16-17. ↩

¹⁷² Torreblanca ¶ 18; Ex. CE-394, SMCV, Petition No. 1418719 to MINEM (3 July 2003). ↩

¹⁷³ Torreblanca ¶ 18; Ex. CE-394, SMCV, Petition No. 1418719 to MINEM (3 July 2003). ↩

¹⁷⁴ Ex. CE-394, SMCV, Petition No. 1418719 to MINEM (3 July 2003) (emphases added). ↩

¹⁷⁵ Chappuis ¶ 45; CA-1, Mining Law, Art. 101; see also CA-2, Regulations, Art. 10; CA-60, Regulation of the Procedure for Submitting, Approving, and Executing Investment Programs using Non-Distributed Profits, Executive Decree 07-94-EM (21 February 1994). ↩

¹⁷⁶ Ex. CE-399, MINEM, Report No. 510-2003-MEM-DGM-TNO (8 September 2003). ↩

¹⁷⁷ Ex. CE-399, MINEM, Report No. 510-2003-MEM-DGM-TNO (8 September 2003). ↩

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Stability Agreement “included [a concentrator] previously as a project” within the investment program submitted to obtain stability.¹⁷⁸

94. On 28 January 2004, Ms. Torreblanca submitted on behalf of SMCV a formal request to MINEM for permission to reinvest profits to construct “a concentrator to process the primary sulfide ore” in the Cerro Verde Mining Unit (the “Concentrator”).¹⁷⁹ Ms. Torreblanca based the request on the Stability Agreement, “which stabilized in favor of [SMCV] the tax regime in force as of May 6, 1996,” and attached a detailed summary of the Concentrator, including estimates of reserves and capital costs.¹⁸⁰

F. THE GOVERNMENT REPEATEDLY CONFIRMED THAT IT WOULD HONOR THE STABILITY AGREEMENT AS APPLIED TO A CONCENTRATOR TO PROCESS THE PRIMARY SULFIDE DEPOSIT AT CERRO VERDE

1. SMCV Obtained a Successful Feasibility Study for the Concentrator Investment

95. In May 2004, Fluor delivered its feasibility study for the Concentrator investment (the “2004 Feasibility Study”).¹⁸¹ The Study considered four design options: (i) a 50,000 MT/d concentrator with a crushing technology called semi-autonomous ball crushing (“SABC”); (ii) a 50,000 MT/d concentrator with crushing technology called high-pressure grinding rolls (“HPGR”); (iii) a 100,000 MT/d concentrator with SABC; and (iv) a 100,000 MT/d concentrator with HPGR, which the study found would in fact have an average operating capacity of 108,000 MT/d.¹⁸² The study confirmed that upgrades in the power grid and SMCV’s participation in the Pillones dam had resolved the earlier energy and water limitations, rendering all four options viable at a range of commodity prices, copper smelting and refining costs, and discount rates.¹⁸³

96. In reaching this conclusion, the 2004 Feasibility Study assumed that the Stability Agreement, which stabilized “the tax regime in force on 6 May 1996” for a 15-year period, would apply to the Concentrator.¹⁸⁴ Accordingly, the financial analysis incorporated the “key points of the

¹⁷⁸ See Ex. CE-399, MINEM, Report No. 510-2003-MEM-DGM-TNO (8 September 2003); see also Chappuis ¶¶ 46-47. ↩

¹⁷⁹ Ex. CE-421, SMCV, Petition No. 3616468 to MINEM (28 January 2004); Torreblanca ¶ 20. ↩

¹⁸⁰ Ex. CE-421, SMCV, Petition No. 3616468 to MINEM (28 January 2004); Torreblanca ¶ 20. ↩

¹⁸¹ Ex. CE-20, Fluor Canada Ltd., Feasibility Study: Cerro Verde Primary Sulfide Project (May 2004). ↩

¹⁸² See Ex. CE-20, Fluor Canada Ltd., Feasibility Study: Cerro Verde Primary Sulfide Project (May 2004), Vol. I, p. 1. ↩

¹⁸³ See Ex. CE-20, Fluor Canada Ltd., Feasibility Study: Cerro Verde Primary Sulfide Project (May 2004), Vol. I, p. 30 (noting that a 100,000 MT/d concentrator could receive enough power “by the installation of a new 220 kV double-circuit power transmission line from the regional Socabaya substation directly to the sulfide substation”); id., p. 31 (noting that, to address a concentrator’s additional water needs, “SMCV has entered into a joint-venture agreement with EGASA to participate in the development of the Pillones reservoir project in the upper Rio Chili watershed”). Cf. Davenport ¶ 26. ↩

¹⁸⁴ Ex. CE-20, Fluor Canada Ltd., Feasibility Study: Cerro Verde Primary Sulfide Project (May 2004), Vol. IV, pp. 14-15. ↩

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stabilized regime,” as well as “the current tax regime used in the economic analysis . . . beginning” after the conclusion of the stabilized regime, highlighting differences between the two.¹⁸⁵ The 2004 Feasibility Study also stated that “[t]he subject of mining royalties is currently under review in the Peruvian legislature” but that “no decrees are forthcoming at the time of writing this report.”¹⁸⁶ This approach was consistent with SMCV’s and Phelps Dodge’s “confiden[ce]” that “any expansion would be covered by the Stability Agreement” since “SMCV was operating its only mining unit with a single mining concession and a single beneficiation concession,” as Mr. Davenport testifies.¹⁸⁷

2. Amid Intensifying Political Pressure to Extract More State Revenue from the Mining Sector, Peru Enacted a Mining Royalty Law

97. SMCV’s breakthrough in the 2004 Feasibility Study arrived amid intense political debate in Peru. Beginning in late 2002 and early 2003, as rapidly increasing copper prices led to increased mining profits, some Peruvian politicians began asserting that mining companies should be more heavily taxed, and pushed to assess a royalty based on a percentage of mining profits.¹⁸⁸

98. The Government initially resisted these proposals. In January 2003, responding to the first draft royalty bills, Minister of Energy and Mines Jaime Quijandría issued an opinion warning that a royalty regime would be “counterproductive to the Government’s current goal of promoting the country’s development on the basis of private investment” in light of the “hugely negative effect that levying a royalty would have on [Peru’s] competitiveness and on its ability to attract investment.”¹⁸⁹ Mr. Flury, who succeeded Mr. Quijandría as Minister of Energy and Mines, echoed these sentiments in a 4 November 2003 opinion to Congress responding to additional proposed drafts.¹⁹⁰

99. Mr. Flury also explained that any royalty would have limited upside because “the biggest companies with investments, some of which are still in the process of recouping their investment, have Tax Stability Agreements, so that the proposed royalty tax would not be applicable to them in practice.”¹⁹¹ Several of the draft royalty bills explicitly recognized this limitation.¹⁹²

¹⁸⁵ Ex. CE-20, Fluor Canada Ltd., Feasibility Study: Cerro Verde Primary Sulfide Project (May 2004), Vol. IV, pp. 14-15 to 14-16 (comparing stabilized and non-stabilized regimes with respect to non-discrimination in foreign exchange, accounting in U.S. dollars, income tax, depreciation, tax on interest expense, and disposability of foreign currency). ↩

¹⁸⁶ Ex. CE-20, Fluor Canada Ltd., Feasibility Study: Cerro Verde Primary Sulfide Project (May 2004), Vol. IV, p. 14-16. ↩

¹⁸⁷ Davenport ¶ 31. ↩

¹⁸⁸ See e.g., Ex. CE-389, Tax Avoidance in the Chilean Mining Sector?, LA REPÚBLICA (16 May 2003); Ex. CE-387, The Hundred Days Proposal, AREQUIPA AL DÍA (5 February 2003). ↩

¹⁸⁹ Ex. CE-386, Official Letter No. 133-2003-EM/DM (31 January 2003); see also Flury ¶¶ 24-25. ↩

¹⁹⁰ Flury ¶ 27; Ex. CE-404, MINEM, Communication No. 1609-2003-MEM/DM (4 November 2003), p. 2. (opining that a royalty would “not be advantageous” because it “would make us less competitive in comparison to other countries for the purpose of attracting such national or foreign private investments as are necessary to develop our great potential mineral resources.”). ↩

¹⁹¹ Flury ¶ 27; Ex. CE-404, MINEM, Communication No. 1609-2003-MEM/DM (4 November 2003), p. 2. ↩

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Following Mr. Flury’s comments, on 26 November 2003, the Energy and Mines Commission of the Peruvian Congress issued a report recommending approval of a royalty, but clarifying that companies with mining stability agreements would be exempt—a category that Government officials repeatedly affirmed included SMCV.¹⁹³ Mining stability agreements thus quickly became central to the debate over royalties, since they presented a major obstacle to implementing any royalty plan.¹⁹⁴

100. In early 2004 certain members of Congress began to push more forcefully for the position that the royalty should apply to all mining companies, irrespective of whether they had stability agreements.¹⁹⁵ For example, in an April 2004 presentation before Congress, Congressman Diez Canseco argued that “[m]any of these [stability] agreements are a questionable legacy of Fujimori[] and should be reviewed and renegotiated.”¹⁹⁶ Similarly, on 21 May 2004, Congressman Pedro Morales submitted a proposed royalty bill that would apply to all mining companies, “including those owners who have . . . stability agreements.”¹⁹⁷

101. On 28 April 2004, President Toledo and his Prime Minister proposed an alternative to Congress’s draft royalty law, which would have replaced Congress’s proposed ad valorem royalty— essentially a surcharge on mining profits—with a one to three percent royalty applied as a prepayment of future income taxes.¹⁹⁸ The Government argued that this proposal struck a more suitable balance given that the Mining Law’s benefits, including contractual stability, had been critical in “enabl[ing] Peru to compete for foreign direct investment.”¹⁹⁹ However, members of Congress sharply rejected this proposal²⁰⁰ and pushed ahead with the congressional plan for an ad valorem royalty.²⁰¹

¹⁹² Flury ¶ 26; Ex. CE-403, Congress, Draft Law No. 08561-2003-CR (14 October 2003); Ex. CE-406, Congress, Draft Law No. 08906-2003-CR (6 November 2003) (including SMCV in list of stabilized companies). ↩

¹⁹³ Flury ¶ 28; Ex. CE-415, Congress, Opinion No. 4462/2002-CR, 4776/2002-CR, 8328/2003-CR, 8561/2003-CR, and 8906/2003-CR (5 December 2003), p. 1; see also Ex. CE-19, MEF, Evaluation of Royalty Application (11 March 2004), p. [10] (including SMCV on list of mining companies whose stability agreements would preclude application of a new royalty); Ex. CE-403, Congress, Draft Law No. 08561-2003-CR (14 October 2003), p. 8 (“The stability agreements that were signed with the Peruvian State prior to this law fall outside its scope of application, until the terms of said stability agreements are completed.”); Ex. CE-406, Congress, Draft Law No. 08906-2003-CR (6 November 2003) (including SMCV in list of stabilized companies). ↩

¹⁹⁴ See Flury ¶¶ 28-30. ↩

¹⁹⁵ See Flury ¶¶ 30-31. ↩

¹⁹⁶ See Ex. CE-429, Javier Diez Canseco, Mining Royalties and the Need to Reform Mining Taxation: Who Is Opposed? (April 2004). ↩

¹⁹⁷ Ex. CE-438, Congress, Draft Law No. 10636/2003-CR (21 May 2004), Art. 4. ↩

¹⁹⁸ Ex. CE-431, Congress, Draft Law No. 10443/2003-CR (28 April 2004), Art. 4; see also Ex. CE-433, Peru’s Congress to Examine Mine Royalty Proposals, OSTERDOWJONES COMMODITY WIRE (30 April 2004). ↩

¹⁹⁹ Ex. CE-431, Congress, Draft Law No. 10443/2003-CR (28 April 2004), pp. [6-7] (arguing that the congressional proposal would “generate[] a loss of competitiveness” unless accompanied with “compensatory mechanisms or formulas that allow the country to remain attractive to investors.”); see also id. (“Due to the weakened image of the country in the world, in 1991 it was essential to give incentives to investments in mining and, as is known, the results were, in the medium and long term, extremely positive, ↩

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102. Throughout this discussion, Government officials continued to reiterate that a royalty could not apply to companies with mining stability agreements in force, and that imposition of the royalty would hurt Peru’s standing with prospective investors.²⁰² These positions provoked vociferous reactions from the royalty’s Congressional proponents, who accused the Government of “advocat [ing] for multinational companies” and lobbying on behalf of “private companies.”²⁰³

103. Against this contentious backdrop, on 3 June 2004, the Peruvian Congress adopted the Mining Royalty Law, imposing an ad valorem royalty on the “holders of mining concessions” for the extraction of ores.²⁰⁴ The law imposed a marginal one percent royalty for every US$60 million in revenue, topping out at three percent for revenues in excess of US$120 million.²⁰⁵ On 9 June 2004, MINEM’s Regional Director of Energy and Mines in Arequipa, Juan Muñiz, stressed that the Royalty Law should be “reevaluated,” noting again its limited upside in light of the fact that most companies had stability agreements in place.²⁰⁶ Nevertheless, on 23 June 2004—facing pressure from Congress that grew each day without a signature—President Toledo signed the Royalty Law and published it in the Official Gazette on the following day.²⁰⁷

104. The Government immediately sought to soften the impact of the Royalty Law, which it feared would suppress investment in the mining sector. Beginning on the day President Toledo signed the Royalty Law, the Government proposed several amendments related to the mechanism for calculating the royalty, including creating a floor tied to international mineral prices below which the

with a significant expansion of economic activity produced, which was reflected in the demand for mining concessions, in the production of ores, concentrates and refined metals, in the investment of large sums of capital and in the presence in the country of the most important mining companies in the world”).

²⁰⁰ Ex. CE-433, Peru’s Congress to Examine Mine Royalty Proposals, OSTERDOWJONES COMMODITY WIRE (30 April 2004). ↩

²⁰¹ See, e.g., Ex. CE-437, Congress, Committee on Economy & Financial Intelligence, Minutes of 11 May 2004, p. 17 (dismissing alternative draft bills). ↩

²⁰² See Ex. CE-439, Minister of Economy of Peru Against Mining Royalties, AGENCE FRANCE PRESSE (30 May 2004) (quoting then-Minister of Economy and Finance Pedro Pablo Kuczynski as stating that the royalty would undermine Peru’s attempts to attract investment by sending a “populist message,” and also would only be “paid by a minority of companies since most of the large mining projects are stabilized in terms of both taxes and fees.”); see also Ex. CE-814, Royalty Law Will Be Approved But Other Proposals Will be Presented, EL COMERCIO; Torreblanca ¶ 30. ↩

²⁰³ Ex. CE-439, Minister of Economy of Peru Against Mining Royalties, AGENCE FRANCE PRESSE (30 May 2004). ↩

²⁰⁴ CA-6, Royalty Law No. 28258 (24 June 2004), Art. 2 (emphasis added). ↩

²⁰⁵ CA-6, Royalty Law No. 28258 (24 June 2004), Arts. 2, 5. ↩

²⁰⁶ See Ex. CE-441, Royalty Law Aimed at the Small-Scale Mining Sector, AREQUIPA AL DÍA (9 June 2004) (quoting Mr. Muñiz as noting that a “large part of the transnational companies operating in the country have been exempted from taxes for a period of 10 years. Consequently, there would not be many companies on which to effectively apply this provision.”). ↩

²⁰⁷ CA-6, Royalty Law No. 28258 (24 June 2004); see Ex. CE-442, Kuczynski Is Held Accountable for Campaign Against Royalties, LA REPÚBLICA (11 June 2004). ↩

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royalty would not apply, and questioned the wisdom of maintaining it permanently.²⁰⁸ However, Members of Congress—notably Congressman Diez Canseco—viewed the proposed amendments as merely a ploy by the Government to delay approval of the regulations to implement the Royalty Law and thus its entry into force, noting that this was “unreasonable and unacceptable.”²⁰⁹

105. Meanwhile, the same day President Toledo signed the Royalty Law, the Mining Society announced that it planned to collect 5,000 signatures to file a lawsuit challenging the law’s constitutionality, noting that its “serious deficiencies,” threatened “legal security” and “the competitiveness of Peru.”²¹⁰ Over 5,000 Peruvian citizens ultimately filed a suit challenging the Royalty Law before the Constitutional Tribunal on 24 November 2004.²¹¹

3. SMCV Sought and Received Further Confirmation That the Government Would Honor the Stability Agreement as Applied to the Concentrator

106. In light of the Government’s approval of the Royalty Law, and the contentious political context that led to its passage, Phelps Dodge and SMCV decided that it would be prudent to seek further confirmation from the Government that it would honor its obligation to apply the stabilized regime to the Concentrator, and that SMCV would thus not pay any royalties while the Stability Agreement remained in force.²¹²

107. Mr. Davenport explains that “[i]n view of the significant size of the planned investment,” and the contentious debate over the royalty law, “Phelps Dodge wanted to obtain express confirmation from the Government that SMCV’s mining stability agreement would shield the concentrator from the royalty and any other legislative changes that could affect the plant’s economics.”²¹³ To that end, in meetings with the Government held in the second and third quarters of 2004, Ms. Torreblanca raised the issue of whether the Government could grant a written assurance

²⁰⁸ Ex. CE-446, Congress, Draft Law No. 10876/2003 (24 June 2004), pp. 2-3; see also Ex. CE-451, Congressional Approval of Amendment to the Mining Royalty Law (23 July 2004); Ex. CE-455, Minister: Permanence of Mining Royalties Must Be Evaluated, BUSINESS NEWS AMERICAS (9 August 2004) (quoting Minister Quijandría’s observations that in the medium and long term it was necessary to “evaluate” the “permanence of the royalty,” noting that “[p]erhaps this tool is not the most suitable.”). ↩

²⁰⁹ Ex. CE-464, The Executive Asks for Mining Royalties Based on Prices, LA REPÚBLICA (4 September 2004); Ex. CE-461, Royalty Regulations Ready but on Hold, BUSINESS NEWS AMERICAS (2 September 2004); see also Ex. CE-456, The Difference Between Mining Royalty and Mining Canon, LA REPÚBLICA (18 August 2004) (op-ed by Congressman Oré arguing that there were no reasons “for mining companies not to pay a mining royalty” and criticizing “political leaders” that “persist in defending the economic interests of mining entrepreneurs.”). ↩

²¹⁰ Ex. CE-447, Miners to Take Legal Action Against Royalty, BUSINESS NEWS AMERICAS (24 June 2004); see also Ex. CE-449, SNMPE: Government Changes ‘Roadmap’ by Enacting Populist Law, LA GESTION (24 June 2004) (describing the law as “unconstitutional” “expropriating” and “discriminatory”). ↩

²¹¹ See Ex. CE-478, Unconstitutionality Claim re: Mining Royalty Law, No. 48-2004-AI (24 November 2004). ↩

²¹² See Torreblanca ¶ 23. ↩

²¹³ Davenport ¶ 35; Torreblanca ¶¶ 23-24. ↩

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explicitly confirming that the Stability Agreement covered the Concentrator investment.²¹⁴ The officials told Ms. Torreblanca that a specific written assurance was unnecessary because the benefits of the Stability Agreement would already extend to the Concentrator, given that the Stability Agreement applied to SMCV’s entire mining unit.²¹⁵

108. Ms. Torreblanca testifies that Ms. Chappuis, then the Director General of Mining, was “particularly clear” on this point.²¹⁶ Ms. Chappuis testifies that, “after discussing SMCV’s request with lawyers in the DGM,” she confirmed that “the Stability Agreement would apply to any investment that SMCV made in its mining unit throughout the Agreement’s effective term.”²¹⁷ One of her colleagues, César Polo, disagreed, taking the position that the Concentrator would have to pay royalties—a position Ms. Chappuis saw as “politically motivated.”²¹⁸ However, Ms. Chappuis explained to Ms. Torreblanca that SMCV should petition MINEM to expand the geographical area and installed capacity of its existing Beneficiation Concession—which the Stability Agreement explicitly covered—to include the Concentrator’s operations, since doing so would confirm that the Concentrator was entitled to stability.²¹⁹

109. Following Ms. Chappuis’s advice, on 27 August 2004, SMCV submitted a request to expand the Beneficiation Concession to the DGM.²²⁰ SMCV’s request included a detailed description of the Concentrator, including reserve and capital cost estimates adopted from the 2004 Feasibility Study, which had assumed stability.²²¹ The request sought permission to build the Concentrator, at an estimated cost of US$800 million, and expansion of the Beneficiation Concession to 1,225.08 hectares and 147,000 MT/d to account for the additional 108,000 MT/d in operating capacity.²²² In its cover letter accompanying the application, Ms. Torreblanca noted that the expansion was “required to pursue the scheduled exploitation of our operations,” referring to the long-anticipated exploitation of primary sulfides.²²³ The letter also noted that the “coexistence” of flotation and leaching in the Beneficiation Concession was “nothing new” at Cerro Verde, since the pilot concentrator had operated

²¹⁴ Torreblanca ¶¶ 24-25; Chappuis ¶ 52; Davenport ¶¶ 36, 39. ↩

²¹⁵ Torreblanca ¶¶ 24-25; Chappuis ¶ 52; Davenport ¶¶ 36, 39. ↩

²¹⁶ Torreblanca ¶ 25. ↩

²¹⁷ Chappuis ¶ 52. ↩

²¹⁸ Chappuis ¶ 53. ↩

²¹⁹ Chappuis ¶ 53. ↩

²²⁰ Torreblanca ¶ 26. ↩

²²¹ Ex. CE-457, SMCV, Petition No. 1487019 to MINEM (27 August 2004) (requesting permission to construct the Concentrator and to expand the Beneficiation Concession to accommodate it, and attaching description of the Concentrator investment as Appendix 1(b)); see Ex. CE-20, Fluor Canada Ltd., Feasibility Study: Cerro Verde Primary Sulfide Project (May 2004), Vol. IV, p. 14-15 (recognizing that “the 1996 tax regime will be applicable until fiscal year-end 2012” and noting “[k]ey points of the stabilized regime and the current tax regime used in the economic analysis”). ↩

²²² Ex. CE-457, SMCV, Petition No. 1487019 to MINEM (27 August 2004), p. 1. ↩

²²³ Ex. CE-457, SMCV, Petition No. 1487019 to MINEM (27 August 2004), p. 1. ↩

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alongside the SX/EW plant since the 1970s until 1994 under the existing Mining and Beneficiation Concessions.²²⁴ Ms. Torreblanca pointed out that the Concentrator would dramatically expand the mine’s capacity, extending the life of the mine from 2018 to at least 2033.²²⁵

110. On 3 September 2004, SMCV resubmitted to the DGM its application under the profit reinvestment program for the construction of the Concentrator.²²⁶ The DGM had rejected the January request on technical grounds and requested additional information, which SMCV provided with the September resubmission.²²⁷ As before, SMCV based its request on the reinvestment provision and the Stability Agreement, which it noted had “stabilized in favor of SMCV the tax regime in force as of May 6, 1996,” and requested approval to reinvest profits in the “expansion of current operations of Cerro Verde,” i.e., construction of the Concentrator.²²⁸

4. Phelps Dodge and SMCV Conditionally Approved the Concentrator Investment

111. After receiving the 2004 Feasibility Study, Phelps Dodge had asked Fluor to update the study to focus on the 108,000 MT/d concentrator with HPGR, the largest and most expensive option under consideration.²²⁹ Although, at the time, HPGR was a new technology for copper mining and SMCV’s concentrator would be the world’s first and largest HPGR installation for large-scale copper mines, after conducting research on HPGR’s reliability, Phelps Dodge believed that HPGR was likely the best fit for Cerro Verde.²³⁰ In early September 2004, Fluor presented its updated study, which focused on incremental results for the 108,000 MT/d concentrator, and also took into account the newly passed Royalty Law.²³¹ Fluor’s analysis assumed that “no royalties will be assessed during the stability agreement” through the end of 2013, but that “[t]he project economics include a tiered royalty structure from 1% to 3% on Net Smelter Returns starting in 2014.”²³²

112. On 11 October 2004, Phelps Dodge and SMCV’s Boards of Directors conditionally approved an investment of US$850 million for the construction of the Concentrator, specifying that approval would “depend on obtaining the required permits and the financing necessary for the

²²⁴ Ex. CE-457, SMCV, Petition No. 1487019 to MINEM (27 August 2004), p. 2. ↩

²²⁵ Ex. CE-457, SMCV, Petition No. 1487019 to MINEM (27 August 2004), p. 1. ↩

²²⁶ Ex. CE-462, SMCV, Petition No. 1488199 to MINEM (3 September 2004). ↩

²²⁷ See Ex. CE-436, MINEM, Report No. 454-2004-MEM (11 May 2004); Ex. CE-462, SMCV, Petition No. 1488199 to MINEM (3 September 2004). ↩

²²⁸ Ex. CE-462, SMCV, Petition No. 1488199 to MINEM (3 September 2004). ↩

²²⁹ Davenport ¶¶ 28-29. ↩

²³⁰ Davenport ¶¶ 28-29. ↩

²³¹ Ex. CE-459, Fluor, SMCV Primary Sulfide Project Feasibility Study Project Update (September 2004), pp. 1, 48. ↩

²³² Ex. CE-459, Fluor, SMCV Primary Sulfide Project Feasibility Study Project Update (September 2004), p. 48. ↩

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project.”²³³ As Ms. Torreblanca explains, “[t]he ‘required permits’ referred to the approval of SMCV’s request to expand the Beneficiation Concession and approval of the profit reinvestment benefit to partially finance the Concentrator’s construction.”²³⁴ Mr. Davenport testifies that “[i]n approving the investment, Phelps Dodge’s and SMCV’s Boards of Directors relied on financial projections that assumed the Stability Agreement’s guarantees would apply to the concentrator, consistent with Ms. Chappuis’s advice to SMCV.”²³⁵ Mr. Morán served on Phelps Dodge’s Finance Committee at the time, which had recommended approval of the investment to Phelps Dodge’s Board.²³⁶ Mr. Morán testifies that, in so doing, “we noted that approvals were still outstanding in Peru, including one of the most important—the permission to expand the Beneficiation Concession to include the Concentrator, which would ensure that it would be covered by the Stability Agreement.”²³⁷ Mr. Morán explains that Phelps Dodge’s Board “based its approval on the Finance Committee’s recommendation, as well as the 2004 Feasibility Study and its update which . . . reflected our understanding that the Stability Agreement’s guarantees would apply to the Concentrator (an understanding that the Peruvian authorities had confirmed to SMCV representatives).”²³⁸

113. On 12 October 2004, President Toledo met with Phelps Dodge’s President, Timothy Snider.²³⁹ After the meeting, President Toledo reportedly “congratulate[d] the company,” expressed gratitude “for trusting Peru,” and “wish[ed] [Phelps Dodge] good luck,” while asserting that “we will fulfill our responsibility to maintain economic and legal stability.”²⁴⁰

5. The Government Approved SMCV’s Requests to Include the Concentrator within its Existing Beneficiation Concession and to Apply the Profit Reinvestment Benefit

114. On 26 October 2004, MINEM approved SMCV’s request to construct the Concentrator and to expand the Beneficiation Concession.²⁴¹ Under MINEM’s internal procedures, this resolution authorized SMCV to begin construction on the understanding that the expansion of the Beneficiation Concession would take place, even though final approval to operate the Concentrator and to extend the Beneficiation Concession would come only after inspection and environmental

²³³ Ex. CE-470, SMCV, Board of Directors Meeting Minutes (11 October 2004); Torreblanca ¶ 27. ↩

²³⁴ Torreblanca ¶ 27. ↩

²³⁵ Davenport ¶ 40. ↩

²³⁶ Morán ¶¶ 26-28. ↩

²³⁷ Morán ¶ 28. ↩

²³⁸ Morán ¶ 29. ↩

²³⁹ Ex. CE-471, Peru: President Toledo Announces an Investment of US$850 Million in Cerro Verde, EUROPA PRESS (12 October 2004). ↩

²⁴⁰ Ex. CE-471, Peru: President Toledo Announces an Investment of US$850 Million in Cerro Verde, EUROPA PRESS (12 October 2004). ↩

²⁴¹ Ex. CE-476, MINEM, Report No. 784-2004-MEM-DGM/PDM and Directorial Order No. 027-2004-MEM-DGM/PDM (26 October 2004). ↩

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review of the completed plant.²⁴² Ms. Torreblanca testifies that she “understood that this MINEM resolution confirmed that the Stability Agreement would cover the Concentrator, just like all other investments that SMCV had made in the Cerro Verde Mining Unit after completing the investment program contained in the 1996 Feasibility Study.”²⁴³ Mr. Davenport similarly testifies that MINEM’s approval “confirm[ed] [SMCV’s and Phelps Dodge’s] understanding that the Stability Agreement would cover the Concentrator because it covered the entire beneficiation concession.”²⁴⁴

115. On 29 October 2004, Rosario Padilla Vidalón, a MINEM legal advisor, issued a report approving SMCV’s request under the profit reinvestment program, sending it to Ms. Chappuis and MINEM’s Director of Mining Promotion and Development, Oswaldo Tovar Jumpa, for further review.²⁴⁵ Ms. Chappuis testifies that Mr. Tovar approached her to discuss the request and asked if SMCV’s Stability Agreement would apply to the Concentrator and that he inquired in particular about the reference to the “Cerro Verde Leaching Project” in Clause 1.1 of the Stability Agreement.²⁴⁶ Ms. Chappuis testifies that she “did not give much weight to this point since it was just a referential name that could not change the scope of stability benefits under the Mining Law and Regulations,” which she had “no doubt” extended to all of SMCV’s investments “as long as the concentrator formed part of the Cerro Verde mining unit.”²⁴⁷ Ms. Chappuis testifies that she explained this to Mr. Tovar, and that he agreed that the Stability Agreement applied to SMCV’s entire production unit, including the Concentrator.²⁴⁸

116. On 30 November 2004, Mr. Tovar and Ms. Chappuis jointly signed a report recommending approval of SMCV’s request under the profit reinvestment program.²⁴⁹ The report noted that the reinvestment benefit could be invoked because SMCV “enjoys tax stability, according to the Agreement signed on February 13, 1998,” without making any distinction between the existing leaching facilities and the Concentrator.²⁵⁰ On 1 December 2004, Ms. Chappuis signed off on Ms. Padilla’s report approving SMCV’s request to benefit from the profit reinvestment program.²⁵¹ On 3 December 2004, the MEF added its approval, noting in its internal memo that SMCV had signed a stability agreement “with respect to the investment in its concession: Cerro Verde Nos. 1, 2 and 3,

²⁴² Chappuis ¶ 55; Vega ¶ 67. ↩

²⁴³ Torreblanca ¶ 27. ↩

²⁴⁴ Davenport ¶ 41. ↩

²⁴⁵ Ex. CE-477, MINEM, Report No. 1334-2004-EM-DGM/TNO (29 October 2004); Chappuis ¶ 37. ↩

²⁴⁶ Chappuis ¶ 45. ↩

²⁴⁷ Chappuis ¶ 46. ↩

²⁴⁸ See Chappuis ¶ 46. ↩

²⁴⁹ Ex. CE-479, MINEM, Report No. 841-2004-MEM/DGM/PDM (30 November 2004). ↩

²⁵⁰ Ex. CE-479, MINEM, Report No. 841-2004-MEM/DGM/PDM (30 November 2004), p. 4. ↩

²⁵¹ Ex. CE-477, MINEM, Report No. 1334-2004-EM-DGM/TNO (29 October 2004) (including Ms. Chappuis’s approval dated 1 December 2004). ↩

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known as ‘The Cerro Verde Leaching Project” that remained “in force,” and that the Concentrator was intended for the “[e]xpansion of the [c]urrent [o]perations of Cerro Verde.”²⁵² On 9 December 2004, the Minister of Energy and Mines gave final approval to SMCV’s request to apply the profit reinvestment benefit to construct the Concentrator.²⁵³

117. SMCV began constructing the Concentrator in December 2004.²⁵⁴ During the construction of the Concentrator, SMCV invested a total of US$850 million in reliance on the Stability Agreement.²⁵⁵ SMCV also generated a yearly average of 1,654 direct jobs and 9,808 indirect and induced jobs, which accounted for 3.5 percent of the employed labor force in Arequipa.²⁵⁶

6. SMCV Obtained Financing for the Concentrator Investment

118. Beginning in early 2004, Phelps Dodge had begun formally negotiating with Sumitomo Metal Mining to obtain financing for the concentrator investment. In October 2004, Sumitomo Metal Mining, Sumitomo Corporation, and Phelps Dodge executed heads of agreement, according to which Phelps Dodge agreed to make SMCV issue additional capital shares, and to assign the corresponding preferential rights certificates to enable Sumitomo Metal Mining and Sumitomo Corporation to collectively acquire 21% of the outstanding capital shares of SMCV for approximately US$265 million, all of which was earmarked to construct and operate the Concentrator.²⁵⁷ Around the same time, Phelps Dodge also entered into heads of agreement with Buenaventura, a minority shareholder in SMCV and one of Peru’s leading mining companies, which contemplated Buenaventura’s acquisition of a total of 17% to 20% of SMCV’s outstanding capital shares for approximately US$99.85 million.²⁵⁸

119. On 16 March 2005—following, among others, the Government’s approval of the Beneficiation Concession expansion, which confirmed that the Concentrator investment would enjoy the Stability Agreement’s guarantees, and the reinvestment of profits benefit—Sumitomo Metal Mining, Sumitomo Corporation, Buenaventura, Phelps Dodge, SMCV, and others entered into a participation agreement for the purpose of obtaining financing for the Concentrator (the “Participation

²⁵² See Ex. CE-22, MEF, Report No. 209-2004-EF/66.01 (3 December 2004); Ex. CE-21, MEF, Letter No. 942-2004-EF/10 (3 December 2004). ↩

²⁵³ Ex. CE-23, MEF, Ministerial Resolution No. 510-2004-MEM/DM (9 December 2004). ↩

²⁵⁴ Davenport ¶ 41. ↩

²⁵⁵ See, e.g, Davenport ¶¶ 39-41; Torreblanca ¶¶ 25-27. ↩

²⁵⁶ Ex. CE-597, APOYO, Study of the Impact of the Activities of Cerro Verde on the Economy of Arequipa and Peru 2005-2010 (1 March 2010), pp. 3,13, 23-25. ↩

²⁵⁷ Ex. CE-468, Phelps Dodge, Sale of Interests in South American Operations: Principal Terms (5 October 2004), p. 4; Morán ¶ 31. ↩

²⁵⁸ Ex. CE-469, Phelps Dodge, Sale of Additional Interest in Cerro Verde to Buenaventura: Principal Terms (7 October 2004), p. 1; Morán ¶ 31. ↩

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Agreement”).²⁵⁹ The Participation Agreement recognized that the Concentrator would be located “within the concessions of SMCV” and developed according to the plan set out in the 2004 Feasibility Study and its September 2004 update, both of which assumed that the Stability Agreement would apply.²⁶⁰

120. In May 2005, pursuant to the terms of the Participation Agreement, SMCV initiated a capital increase by issuing preferential subscription rights for 122,746,913 capital increase shares, of which Phelps Dodge (through Cyprus) acquired 101,250,165.²⁶¹ The same month, Phelps Dodge transferred its rights to purchase those shares to Buenaventura and to SMM Cerro Verde Netherlands B.V. (“SMM Cerro Verde”), a Dutch entity incorporated by Sumitomo Metal Mining and Sumitomo Corporation for the purpose of investing in the Concentrator.²⁶² On 1 June 2005, SMM Cerro Verde, Sumitomo Metal Mining, Sumitomo Corporation, Buenaventura, Phelps Dodge, SMCV, and others entered into a Shareholders Agreement.²⁶³

121. On 22 August 2005, John Broderick, who had taken over from Mr. Davenport as SMCV’s president in May of that year, addressed journalists to reaffirm the company’s commitment regarding the Concentrator. In an article published in El Comercio, one of Peru’s leading newspapers, he described the Concentrator as the largest mining investment in Peru’s history, noting that, unlike other investments, the company was “disbursing US$850 [million] in one phase” because it had a “high degree of confidence about the possibility of doing business in Peru.”²⁶⁴ Mr. Broderick noted that SMCV had signed a Stability Agreement for the “original concession” and considered that the Concentrator was “part of it.”²⁶⁵

122. On 30 September 2005, SMCV entered into a master participation agreement (the “Master Participation Agreement”) with the interested lenders to finance the Concentrator. Together, the lenders agreed to lend up to US$450 million to the project, which constituted the largest bank financing operation ever in Peru to that point in time.²⁶⁶ After securing the loans, SMCV obtained the

²⁵⁹ See Ex. CE-906, Participation Agreement. ↩

²⁶⁰ See Ex. CE-906, Participation Agreement, p. 5. (“Whereas, the board of directors of Cerro Verde (the “Board”) has approved the development of a primary sulfide ore body beneath the oxide ore body located within the mining concessions owned by Cerro Verde identified in Schedule A hereto, which shall be processed into copper concentrate as a final product at new facilities that are to be developed generally as described in the Cerro Verde Primary Sulfide Feasibility Study, dated May 2004, prepared by Fluor Canada Ltd., as modified by the Project Update, dated September 2004”). ↩

²⁶¹ Ex. CE-561, SMCV, Financial Statements 2005-2006, p. 8. ↩

²⁶² Ex. CE-497, SMCV, Board of Directors Meeting Minutes of 28 April 2005; Ex. CE-561, SMCV Financial Statements 2005-2006, p. 8. ↩

²⁶³ Ex. CE-502, Shareholders Agreement Among SMM Cerro Verde, Sumitomo Metal Mining, Sumitomo Corp., Summit Global Management B.V., Buenaventura, Cyprus, Phelps Dodge, and SMCV (1 June 2005). ↩

²⁶⁴ Ex. CE-505, “In Two Years We Will Triple Our Production,” EL COMERCIO (22 August 2005), p. 2. ↩

²⁶⁵ Ex. CE-505, “In Two Years We Will Triple Our Production,” EL COMERCIO (22 August 2005), p. 2. ↩

²⁶⁶ See Ex. CE-513, Master Participation Agreement (30 September 2005); Morán ¶ 31. ↩

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remaining financing required through a corporate bonds issuance program for US$90 million on 26 April 2006.²⁶⁷

G. THE GOVERNMENT CONTINUED TO CONFIRM THAT SMCV WOULD NOT HAVE TO PAY ROYALTIES AS A RESULT OF THE STABILITY AGREEMENT

1. SUNAT Confirmed That the Royalty Law Did Not Apply to Cerro Verde

123. On 17 February 2005, Haraldo Cruz, SUNAT’s Regional Intendent for Arequipa, sent a form letter to SMCV with instructions on how to declare and pay royalties in the event that it was under an “obligation” to do so as the “holder[] of [a] mining concession[].”²⁶⁸ The letter explained that “in order to determine the amount of the economic consideration and to be able to file the return and pay the Mining Royalty, you must download every month from Virtual SUNAT . . . the file that contains the information about your Production Unit(s).”²⁶⁹

124. On 4 March 2005, SMCV sent a response to SUNAT explaining that SMCV was entitled to stability, and that the mining royalty “is not applicable to Cerro Verde by application of the . . . Stability Agreement.”²⁷⁰ Ms. Torreblanca testifies that shortly after sending the response, she met with Mr. Cruz and explained “that the Stability Agreement covered the entire Cerro Verde Mining Unit—i.e., its Mining and Beneficiation Concessions—and that SMCV was not obliged to pay royalties during the term of the Agreement.”²⁷¹ She further testifies that “SUNAT did not mention the issue of royalties again for several years.”²⁷²

2. The Constitutional Tribunal Upheld the Royalty Law but Confirmed That Investors with Administrative Stability Agreements, like SMCV, Would Not Pay Royalties

125. In early 2005, in the lead-up to the Constitutional Tribunal’s expected decision in the Mining Society’s case challenging the constitutionality of the Royalty Law, members of Congress again began to argue that mining stability agreements should not protect companies from paying royalties. Among other things, they argued that royalties were “fair compensation for the extraction of a nonrenewable natural resource” that fell outside the scope of tax stability.²⁷³ Congressman Diez Canseco published articles in the national press attacking the Government, arguing that “instead of defending the State’s income, the MEF and MINEM are standing with their arms crossed and are winking to the mining lobbies since, for Kuczynski and his advisers, the defense of royalties is none

²⁶⁷ Ex. CE-561, SMCV, Financial Statements 2005-2006, p. 26. ↩

²⁶⁸ Ex. CE-482, SUNAT Letter to SMCV of 17 February 2005. ↩

²⁶⁹ Ex. CE-482, SUNAT Letter to SMCV of 17 February 2005 (emphasis added). ↩

²⁷⁰ Ex. CE-486, SMCV, Letter No. SMCV-AL-279/2005 to SUNAT (4 March 2005). ↩

²⁷¹ Torreblanca ¶ 32. ↩

²⁷² Torreblanca ¶ 32. ↩

²⁷³ Ex. CE-489, Mining companies urged to comply with the payment of royalties to regions, LA REPÚBLICA (9 March 2005). ↩

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of their business!”²⁷⁴ He also threatened to hold “sit-ins” before the Judiciary to “explain the importance of the [Mining Royalty] law” and to “call on the judges not to give away injunctions to mining companies” to protect them from paying royalties.²⁷⁵

126. On 1 April 2005, Peru’s Constitutional Tribunal upheld the Mining Royalty Law.²⁷⁶ The Constitutional Tribunal held that the mining royalty was not a tax but rather an “economic consideration” for the extraction of sovereign resources consistent with the right to property.²⁷⁷ In addition, the Tribunal held that “with the establishment of the mining royalty, the State has not breached the commitment to respect the attributes conferred by the Law on the investors holding the concession, since the nature of these acts—falling under public law—does not grant the concessionaire immutability of the legal regime, for which case contract-laws operate.”²⁷⁸

127. The implications of this decision for stabilized companies were not immediately apparent. Congressman Diez Canseco lauded the decision, saying that the characterization of the royalty as “the mining royalty is NOT tax but rather a mechanism to compensate for the extraction of our national resources” meant it could be “universally applied, without being stymied or distorted by tax stability agreements signed behind Peruvians’ backs.”²⁷⁹ At the same time, however, La República reported that MINEM officials—including Minister of Energy and Mines Glodomiro Sánchez Mejía—were “analyzing the ruling by the Constitutional Tribunal . . . to determine whether [it would] apply to companies that enjoy tax stability agreements.”²⁸⁰

3. The Government Confirmed That the Royalty Law Did Not Apply to Stabilized Concessions like Cerro Verde

128. Shortly after the Constitutional Tribunal issued its decision, Felipe Isasi Cayo, MINEM’s Director General of Legal Affairs, prepared a legal report addressed to Minister of Energy and Mines Glodomiro Sánchez Mejía, which analyzed in detail the application of the Royalty Law to companies with stability agreements in light of the Constitutional Tribunal’s ruling (the “April 2005 Report”). Mr. Isasi’s conclusion was unequivocal: he affirmed that “the royalty is not applicable to the mineral resources extracted from the concessions that form part of the contractually stabilized

²⁷⁴ Ex. CE-485, Mining Royalties: Sleeping with the Enemy, LA REPÚBLICA (2 March 2005). ↩

²⁷⁵ Ex. CE-487, Mining companies appeal to the Courts to avoid paying royalties, LA REPÚBLICA (5 March 2005); see also Ex. CE-483, The Offensive Against Mining Royalties, LA REPÚBLICA (23 February 2005); Ex. CE-489, Mining companies urged to comply with the payment of royalties to regions, LA REPÚBLICA (9 March 2005). ↩

²⁷⁶ Ex. CE-490, Constitutional Tribunal, Decision, Case No. 0048-2004-PI/TC (1 April 2005). ↩

²⁷⁷ Ex. CE-490, Constitutional Tribunal, Decision, Case No. 0048-2004-PI/TC (1 April 2005), ¶¶ 48-56, 86-88. ↩

²⁷⁸ Ex. CE-490, Constitutional Tribunal, Decision, Case No. 0048-2004-PI/TC (1 April 2005), ¶ 109. ↩

²⁷⁹ Ex. CE-491, Javier Diez Canseco, Mining Royalites: Peru Won, LA REPÚBLICA (6 April 2005). ↩

²⁸⁰ Ex. CE-492, Constitutional Tribunal ruling on mining companies analyzed, LA REPÚBLICA (7 April 2005). ↩

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investment project” for mining investors with administrative stability guarantees.²⁸¹ Mr. Isasi further reiterated that the scope of those guarantees was the entire concession in which the qualifying minimum investment was made, stressing that

it is not the mining titleholder (individual or legal entity) who will be exempt or not from the payment of royalties, comprehensively as a company, but it will be the mining concessions of which it is the titleholder, depending on whether or not they are part of a project set out in a stability agreement signed prior to the enactment of [the Royalty] Law.²⁸²

129. On 22 April 2005, Minister Sánchez informed El Peruano that he had sent the MEF and SUNAT information on the “mining companies that signed administrative guarantees with the State” and stressed that he would make a statement jointly with the MEF “to bring an end to the state of uncertainty existing in the mining sector” regarding which companies would be exempt from paying royalties.²⁸³ On 6 May 2005, Minister Kuczynski publicly confirmed that the Constitutional Tribunal’s classification of the royalty as an “economic consideration” meant that it would still fall within the guarantee of “administrative stability” for companies like SMCV that had mining stability agreements, even if it did not fall within the guarantee of tax stability.²⁸⁴ Minister Kuczynski further confirmed that MINEM had sent SUNAT information on mining stability agreements currently in force.²⁸⁵

H. AFTER SMCV COMMENCED CONSTRUCTION OF THE CONCENTRATOR, THE GOVERNMENT FACED INCREASING POLITICAL PRESSURE TO EXTRACT ADDITIONAL REVENUES FROM SMCV AND CERRO VERDE

130. The Government’s refusal to disclaim stability guarantees entirely frustrated the proponents of the royalty.²⁸⁶ MINEM’s decision to grant SMCV the profit reinvestment program by virtue of its Stability Agreement also gave rise to a significant backlash against SMCV and MINEM, and the royalty’s proponents began attacking the application of stability to SMCV specifically.

131. Congressman Diez Canseco was one of the key architects of the campaign against SMCV. In a 25 August 2005 article published in La República, one of Peru’s leading newspapers, Congressman Diez Canseco complained that “[t]he way Cerro Verde and its expansion . . . have been

²⁸¹ Ex. CE-494, MINEM, Report No. 153-2005-MEM/OGAJ (14 April 2005), ¶ 16 (emphasis added). ↩

²⁸² Ex. CE-494, MINEM, Report No. 153-2005-MEM/OGAJ (14 April 2005), ¶ 17 (emphasis added). ↩

²⁸³ Ex. CE-495, MEF and MEM Will Issue Analysis on Royalties Next Week, EL PERUANO (22 April 2005). ↩

²⁸⁴ Ex. CE-500, Mining Royalties to Be Defined over the Next Few Days, AREQUIPA AL DÍA (6 May 2005) (quoting Minister Kuczynski as stating that “the only way for a company to remain exempt from the payment of mining royalties would be if it holds an administrative stability agreement, and some of these companies do have one.”) ↩

²⁸⁵ Ex. CE-500, Mining Royalties to Be Defined over the Next Few Days, AREQUIPA AL DÍA (6 May 2005) ↩

²⁸⁶ Ex. CE-506, Javier Diez Canseco, Questions About Cerro Verde, LA REPÚBLICA (25 August 2005), p. 1. ↩

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handled has been shrouded in opaque trappings” and criticized that “[t]here are too many questions that beg to be answered by [MINEM], the regional authorities, and the company itself.”²⁸⁷ Noting that “the price of copper is breaking all-time records” and generating “huge profits for mining companies, including Cerro Verde in Arequipa,” he questioned why SMCV did “not pay Mining Royalties” and why SMCV had been permitted to use the “questionable Profit Reinvestment benefit, despite the fact that the Law that allowed it was repealed in 2000.”²⁸⁸

132. On 16 September 2005, Congressman Diez Canseco demanded that Minister Sánchez Mejía revoke SMCV’s authorization to reinvest profits, and “demand[] . . . that Cerro Verde comply with the payment of royalties,” threatening to file “a compliance action or process” or to “denounce [Minister Sánchez Mejía] constitutionally” if he failed to do so.²⁸⁹ Only four days later, Minister Sánchez Mejía stated to the press that Cerro Verde would have to pay royalties related to the Concentrator.²⁹⁰ Ms. Torreblanca testifies SMCV was “concerned about the undue political pressure from Congressman Diez Canseco and the Minister’s reaction,” but that SMCV expected that the Government would “ultimately act in accordance with the law and respect the stability commitments.”²⁹¹

133. On 19 September 2005, Congressman Diez Canseco proposed a congressional investigative committee to “clarify the facts relating to the granting of tax benefits” for the Concentrator “in order to determine . . . the possible irregularities that may have been committed and establish any administrative and legal responsibilities that might exist.”²⁹² This request ultimately resulted in the creation of a Working Group by the Congressional Energy and Mines Commission on 5 October 2005, to “investigate the [alleged tax benefits that SMCV may have] received” and “adopt the appropriate measures.”²⁹³ At this point, SMCV’s US$850 million construction of the Concentrator was well underway.²⁹⁴

²⁸⁷ Ex. CE-506, Javier Diez Canseco, Questions About Cerro Verde, LA REPÚBLICA (25 August 2005), p. 1. ↩

²⁸⁸ Ex. CE-506, Javier Diez Canseco, Questions About Cerro Verde, LA REPÚBLICA (25 August 2005), p. 1. ↩

²⁸⁹ Ex. CE-508, Minera Cerro Verde Under JDC’s Magnifying Glass, LA REPÚBLICA (16 September 2005); Ex. CE-509, Congressman Diez Canesco considers denouncing the Minister for providing benefits to mining companies that do not pay royalties, EL HERALDO (16 September 2005), p. 2; see also Torreblanca ¶ 42. ↩

²⁹⁰ Ex. CE-511, Minister: Cerro Verde Expansion Subject to Royalty, BUSINESS NEWS AMERICAS (20 September 2005) ↩

²⁹¹ Torreblanca ¶ 40. ↩

²⁹² Ex. CE-510, Congress, Agenda Motion No. 0366 2605 2006-DDP-EM/CR (19 September 2005), p. 2; see also id. at p. 2 ¶ 9 (arguing that the reinvestment approval was a “controversial and irregular act” resulting from “a biased interpretation and violation of the regulations governing the mining sector”). ↩

²⁹³ Ex. CE-516, Congress, Energy & Mines Commission, Minutes of Sixth Regular Session (5 October 2005), p. 2. ↩

²⁹⁴ See Torreblanca ¶ 27 (stating that SMCV’s board approved the US$850 million investment to construct the Concentrator on 11 October 2004). ↩

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134. Other members of Congress echoed Congressman Diez Canseco’s views and similarly demanded action from MINEM. On 15 September 2005, Congressman Alejandro Oré requested Minister Sánchez Mejía to provide “information relating to the legal stability agreement entered into with the mining company Phelps Dodge about the Cerro Verde mine, as well as the amending agreement that authorizes reinvestment of profits in the amount of US$800 million in expansion projects.”²⁹⁵ Several days later, Mr. Isasi sent an internal report to Minister Sánchez Mejía to address Congressman Oré’s request (the “September 2005 Report”).²⁹⁶ In the report, Mr. Isasi noted that the reinvestment of profits benefit was part of the contractually stabilized regime under SMCV’s Stability Agreement, and concluded that MINEM had appropriately granted the request in accordance with the relevant stabilized legal framework.²⁹⁷ Like in his previous report analyzing the effects of the Royalty Law on companies with stability agreements following the Constitutional Tribunal decision, Mr. Isasi’s new report made no distinction between SMCV’s two types of processing operations and nowhere indicated that the scope of the Stability Agreement would be limited to the leaching facility.²⁹⁸

135. On 3 October 2005, Minister Sánchez Mejía forwarded Mr. Isasi’s report to Congressman Oré. In the cover letter, Minister Sánchez Mejía acknowledged that SMCV was entitled to use the profit reinvestment benefit under its Stability Agreement. However, he then asserted that

[u]nlike the Leaching Project . . . the Primary Sulfide Project will not enjoy the tax, exchange-rate and administrative stability regime, since for said Project the signing of an Agreement for Promotion and Guarantee of Investment has not been applied for.²⁹⁹

136. Minister Sánchez Mejía provided no basis for his assertion that the Concentrator was not covered by the Stability Agreement—a position that the Government had never set out in writing before, that was not contained in Mr. Isasi’s September 2005 Report, and that contradicted the Government’s earlier statements and conduct.³⁰⁰ Neither Minister Sánchez Mejía nor any other Government official provided SMCV with a copy of this communication at the time, and SMCV received a copy only several years later, after SUNAT began issuing Royalty Assessments.³⁰¹

²⁹⁵ Ex. CE-507, Communication No. 3769-2005-AOM-CR from Congressman Oré to Minister Sánchez Mejía (15 September 2005). ↩

²⁹⁶ Ex. CE-512, MINEM, Report No. 385-2005-MEM/OGJ (22 September 2005). ↩

²⁹⁷ Ex. CE-512, MINEM, Report No. 385-2005-MEM/OGJ (22 September 2005), ¶¶ 2.2.3, 3.1.1-3.1.6, Conclusion. ↩

²⁹⁸ See generally Ex. CE-512, MINEM, Report No. 385-2005-MEM/OGJ (22 September 2005). ↩

²⁹⁹ Ex. CE-515, MINEM, Report No. 1725-2005-MEM/DM (3 October 2005). ↩

³⁰⁰ Compare Ex. CE-515 MINEM, Report No. 1725-2005-MEM/DM (3 October 2005); with Ex. CE-512, MINEM, Report No. 385-2005-MEM/OGJ (22 September 2005). ↩

³⁰¹ See Torreblanca ¶¶ 75-76. ↩

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Meanwhile, Congressman Diez Canseco continued his public campaign against MINEM and SMCV.³⁰²

137. On 8 November 2005, Minister Sánchez Mejía sent a letter to Congressman Diez Canseco—who had threatened to denounce him less than two months earlier—in response to the latter’s request for information regarding MINEM’s position on SMCV’s royalty payments.³⁰³ As in his 3 October letter to Congressman Oré, Minister Sánchez Mejía again asserted that “it is necessary to distinguish the legal treatment of the ‘Cerro Verde Leaching’ project, which is covered by [the Stability Agreement], from that applicable to the new Primary Sulfide Project . . . [which] does not enjoy protection under any Guarantee or Stability agreement.”³⁰⁴ He further asserted that the Government confers stability guarantees “with regard to the specific investment project contemplated by the agreement,” and that in Cerro Verde’s case, “[t]his new Sulfide Project has not been the subject of a new [stability agreement], so . . . it will have to pay the applicable royalties when it goes on line.”³⁰⁵ Again, the Government did not inform SMCV of this letter at the time.

138. In January 2006, the Working Group coordinator, Congressman Olaechea, invited Ms. Torreblanca to discuss SMCV’s investment in the Concentrator and its reinvestment of profits program.³⁰⁶ Ms. Torreblanca explained that “under the Stability Agreement, Cerro Verde’s rights and obligations contained in the tax regime in force as of May 6, 1996, are stabilized.”³⁰⁷ She further explained that:

[T]he expansion of the Current Operations of the Cerro Verde Production Unit, through the exploitation of primary sulfides, allows the mineral contained within the same geometric solid mass and the same mining concession to be exploited through two different processes. Cerro Verde, unlike other mining companies, has a single Production Unit, made up of the Cerro Verde Nos. 1, 2 and 3 mining concession and the Cerro Verde Beneficiation Plant beneficiation concession.³⁰⁸

³⁰² See Ex. CE-520, SUNAT Will Oversee Payment of Mining Royalties from 2006, GESTIÓN (17 November 2005); Ex. CE-517, Javier Diez Canseco, Cerro Verde: Enough Abusing Peru!, VOLTAIRE (6 October 2005) (calling for an end to “the barbarity of giving away our wealth without receiving fair compensation” and the “generosity towards foreign multinationals and pettiness towards Peru”). ↩

³⁰³ See Ex. CE-519, MINEM, Report No. 2004-2005-MEM/DM (8 November 2005), p. 1 (responding to request “regarding the position of the Ministry of Energy and Mines regarding the payment of mining royalties in the Cerro Verde Leaching Project (Cerro Verde 1) and the Primary Sulfide Project (Cerro Verde 2), which belong to Sociedad Minera Cerro Verde S.A.A.”). ↩

³⁰⁴ See Ex. CE-519, MINEM, Report No. 2004-2005-MEM/DM (8 November 2005), p. 1. ↩

³⁰⁵ See Ex. CE-519, MINEM, Report No. 2004-2005-MEM/DM (8 November 2005), p. 2. ↩

³⁰⁶ Torreblanca ¶ 43; see also Ex. CE-523, SMCV, Presentation Before the Congressional Working Group (31 January 2006). ↩

³⁰⁷ Ex. CE-523, SMCV, Presentation Before the Congressional Working Group (31 January 2006), p. 48. ↩

³⁰⁸ Ex. CE-523, SMCV, Presentation Before the Congressional Working Group (31 January 2006), p. 48; see also id. (explaining that “with the exploitation of primary sulfides, the objective of privatization of the ↩

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139. In March 2006, the Working Group met with the Mayor Cecilia Elizabeth Linares and Mayor Juan Víctor Flores of the districts of Yarabamba and Uchumayo, where Cerro Verde is located.³⁰⁹ According to the El Heraldo newspaper, the Mayors criticized the fact that SMCV “does not pay taxes or fees for the exploitation of Cerro Verde II [the Concentrator], nor does it help the development in the district through public interest work.”³¹⁰ Ms. Torreblanca testifies that she was “very surprised by this statement as it was categorically false,” considering that “SMCV paid taxes and fees for its operation and was contributing significantly to Arequipa.”³¹¹ Notwithstanding these accusations against SMCV, Congressman Olaechea confirmed that “[t]he legislation on tax stability exempts [SMCV] from paying income tax on profits,” that “in February 1998 the State signed a tax stability agreement [with SMCV] . . . where it was exempted from said payment,” and that “the solution is to find other ways, not ignoring the law, to achieve a good outcome.”³¹² SMCV provided additional information to the Working Group upon request in May 2006.³¹³

I. UNDER GOVERNMENT PRESSURE, SMCV MADE SUBSTANTIAL “VOLUNTARY” CONTRIBUTIONS TO PERU AND AREQUIPA ON THE UNDERSTANDING THAT IT WAS NOT SUBJECT TO THE ROYALTY LAW

1. Arequipa Politicians Demanded Contributions from SMCV to Compensate for Revenue Lost to the Reinvestment Benefit

140. The results from the Royalty Law’s first year disappointed some of its proponents: throughout 2005, mining companies paid S/ 266 million (about US$115 million) in royalties, which represented only 8.5% of the total contributions collected from the mining sector.³¹⁴ These results

Cerro Verde Production Unit [was] fulfilled, materializing [the] expansion planned since the time of Minero Perú.”)

³⁰⁹ See Torreblanca ¶ 45. ↩

³¹⁰ Ex. CE-525 Working Group Studies Destination of Cerro Verde Taxes to Districts of Arequipa and Solution to Development Works, EL HERALDO (29 March 2006) ↩

³¹¹ Torreblanca ¶ 45; see also Ex. CE-523, SMCV, Presentation Before the Congressional Working Group (31 January 2006), p. 40 (from 1994 to July 2005, SMCV had paid US$120 million in taxes, about 4.5% of everything collected in the Department of Arequipa, and its annual operations contributed 0.2% to the national GDP and 2.5% to Arequipa’s GDP). ↩

³¹² Ex. CE-525, Working Group Studies Destination of Cerro Verde Taxes to Districts of Arequipa and Solution to Development Works, EL HERALDO (29 March 2006). ↩

³¹³ See Ex. CE-529, SMCV, Letter No. SMCV-AL-686-2006, May 11, 2006 (providing additional information about SMCV’s reinvestment of profits); see also Torreblanca ¶ 47. ↩

³¹⁴ See Ex. CE-824, SUNAT, Revenue Collected by SUNAT 2005-2021, Table A2, cell P:16 (showing that total collections from the mining sector in 2005 totaled S/ 3123.5); Ex. CE-825, SUNAT, Revenue Collected by SUNAT 2005-2021, Table A6, cell P:46 (showing that SUNAT collected S/ 265.6 million in mining royalties in 2005, or 8.5% of S/ 3123.5). ↩

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became a touchstone in the 2006 presidential election between former president Alan García and newcomer Ollanta Humala, both of whom pledged to demand more from Peru’s mining companies.³¹⁵

141. Local Arequipa politicians also began demanding additional contributions from SMCV, arguing that the reinvestment benefit had created a budget shortfall in Arequipa and threatening protests if the Government did not address the issue and force SMCV to pay mining royalties.³¹⁶ SMCV wished to reach an amicable resolution given its long-term commitment to Peru and Arequipa, and thus agreed to discuss these issues with Government representatives at a roundtable (the “Roundtable Discussions”) chaired by then-Congressman Jorge del Castillo.³¹⁷ In the lead up to the meeting, on 15 June 2006, César Rodríguez Villanueva, the Director General of Mining, tempered expectations, noting that the negotiations would not have major results because “for better or worse, the Peruvian State signed stability agreements with several companies and therefore these agreements must be honored.”³¹⁸ He stressed that the Government would “inform the politicians about the scope” of the Stability Agreement and proposed that SMCV pay an “advance . . . of royalties and taxes for the years after the termination of its Stability Agreement.”³¹⁹ Mr. Rodríguez did not suggest or mention that the Government was contemplating taking the position that SMCV would soon have to pay significant amounts of royalties for the ore processed in the Concentrator.³²⁰

2. Without Informing SMCV, MINEM Developed a Rationale to Impose Royalties on SMCV Contrary to the Position the Government Was Taking Publicly

142. Yet even on the eve of the planned discussions, Mr. Isasi of MINEM was preparing to bow to political pressure by developing a contrived interpretation to justify excluding the Concentrator, by then nearing completion, from the scope of stability guarantees. Only a day after Mr. Rodriguez’s public statement, on 16 June 2006, Mr. Isasi sent Minister Sánchez Mejía another non-binding legal report regarding the scope of SMCV’s Stability Agreement (the “June 2006 Report”).³²¹ Echoing Minister Sánchez Mejía’s October and November 2005 letters, and in an abrupt about-face from his April 2005 Report that unequivocally confirmed that stabilized concessions would not be subject to the Royalty Law, Mr. Isasi took the position that the Concentrator was not entitled to benefit from the Stability Agreement and that SMCV should pay royalties in respect of that

³¹⁵ See Ex. CE-526, Humala: Leap into the Unknown, DEUTSCHE WELLE (10 April 2006); Ex. CE-548, Minería-Perú: A Beggar on a Gold Throne, TIERRAMÉRICA (22 August 2006); Ex. CE-581, There is no excuse to reduce the mining contribution, PROPUESTA CIUDADANA (1 December 2008). ↩

³¹⁶ See Ex. CE-535, Cerro Verde Evades Payment of Taxes Based on a Law Repealed in 2000, LA REPÚBLICA (19 June 2006). ↩

³¹⁷ Torreblanca ¶¶ 49-51. ↩

³¹⁸ Ex. CE-533, Advance Payment of Royalties Proposed, LA REPÚBLICA (15 June 2006), p. 1. ↩

³¹⁹ Ex. CE-533, Advance Payment of Royalties Proposed, LA REPÚBLICA (15 June 2006), p. 1. ↩

³²⁰ See Ex. CE-533, Advance Payment of Royalties Proposed, LA REPÚBLICA (15 June 2006). ↩

³²¹ See Ex. CE-534, MINEM, Report No. 156-2006-MEM/OGJ (16 June 2006). ↩

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investment.³²² Mr. Isasi based this conclusion on a novel interpretation of Article 83 of the Mining Law and Article 22 of the Regulations that would radically curtail stability guarantees by limiting them to the investment contained in the Feasibility Study.³²³ In particular, Mr. Isasi wrote that

stabilization is not granted in a general way to a company or for a specific mining concession, but in relation to a specific project, clearly delimited and approved by the Ministry of Energy and Mines, because the purpose is to confer legal certainty on the investor in the sense that the internal rate of return of their new guaranteed investment will not be affected by subsequent legislative innovations.

. . . the stability granted by the Stability Agreement does not extend to all mining concessions or economic-administrative units, and even less so to the entire mining company. Rather, it is granted to an investment project clearly delimited by the Feasibility Study and agreed to in the agreement.³²⁴

143. Applying this analysis to SMCV’s Stability Agreement, Mr. Isasi concluded that the Stability Agreement “deals only with the ‘Cerro Verde Leaching Project’” and “cannot be extended to the entire company or to other non-stabilized projects,” and SMCV was thus required to pay royalties for the Concentrator.³²⁵

144. MINEM forwarded Mr. Isasi’s June 2006 Report to members of Congress, but did not share it with SMCV.³²⁶ In fact, SMCV did not see this report until two years later, when César Zegarra, Mr. Isasi’s successor as Director General of Legal Affairs, “unofficially” provided it to Ms. Torreblanca at the request of then Minister of Energy and Mines, Juan Valdivia Romero, after SUNAT had begun auditing SMCV in connection with its alleged liability for failing to pay royalties.³²⁷ Meanwhile, members of Congress kept up the pressure to obtain additional contributions from SMCV, including by proposing a bill in June 2006 to retroactively repeal the Ministerial Resolution that accorded SMCV the profit reinvestment benefit for the Concentrator, even though SMCV had by then nearly completed construction of the Concentrator in reliance on this benefit.³²⁸

³²² See Ex. CE-534, MINEM, Report No. 156-2006-MEM/OGJ (16 June 2006), Section IV, ¶ 4; see also Ex. CE-515, MINEM, Report No. 1725-2005-MEM/DM (3 October 2005); Ex. CE-519, MINEM, Report No. 2004-2005-MEM/DM (8 November 2005) ↩

³²³ See Ex. CE-534, MINEM, Report No. 156-2006-MEM/OGJ (16 June 2006), Section I, ¶¶ 5.1-5.3; id., at Section III, ¶¶ 4.1-4.5. ↩

³²⁴ Ex. CE-534, Ex. CE-534, MINEM, Report No. 156-2006-MEM/OGJ (16 June 2006), Section I ¶ 5.2, Section III ¶ 4.1 (emphasis added). ↩

³²⁵ Ex. CE-534, MINEM, Report No. 156-2006-MEM/OGJ (16 June 2006), Section I ¶¶ 5.2-5.3, Section III ¶¶ 4.3-4.5. ↩

³²⁶ Torreblanca ¶ 70. ↩

³²⁷ Torreblanca ¶ 70. ↩

³²⁸ Ex. CE-536, Congress, Draft Bill No. 14792/2005-CR (21 June 2006), pp. 4-7; see also Torreblanca ¶¶ 49-62. ↩

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3. SMCV Agreed to Make Voluntary Contributions to Arequipa

145. On 23 June 2006, the SMCV-Government Roundtable Discussions commenced as planned with representatives from SMCV, MEF, and MINEM in attendance, including Minister Sánchez Mejía and Mr. Isasi.³²⁹ The discussion largely focused on SMCV’s profit reinvestment benefit.³³⁰ El Heraldo reported that Minister Zavala stated that “the authorization for the reinvestment of profits is legal, because it will generate greater benefits for the future” and proposed “that [SMCV] advance part of the payment of their taxes for next year . . . to cover the shortfall in the budgets of the Region and the municipalities of Arequipa.”³³¹ Despite the fact that Mr. Isasi had issued his adverse June 2006 Report less than one week earlier, neither he nor Minister Sánchez Mejía informed SMCV that they had adopted a new interpretation of the scope of the stability benefits that would result in millions of dollars in royalty payments by SMCV, nor did they provide SMCV with a copy of the report.³³² Following the meeting, the newspaper Correo reported that Minister Sánchez Mejía agreed that while the reinvestment of profits would “decrease the income for Arequipa for two years, in the mid- and long-term this region will obtain more resources from income tax.”³³³ The report made no reference to Minister Sánchez Mejía or any other official taking the position that SMCV would also make significant royalty payments.³³⁴

146. The parties reconvened on 29 June 2006.³³⁵ Ms. Torreblanca attended on behalf of SMCV, and Mr. Isasi attended representing the Government.³³⁶ El Heraldo reported that “the demand by Arequipa’s leaders focused on the repeal” of the profit reinvestment benefit and also on “the Government order[ing] the payment of the mining royalties of Cerro Verde I and II,” i.e., from both the leaching facilities and the Concentrator.³³⁷ Ms. Torreblanca testifies that Government officials quickly dismissed these claims and agreed with SMCV’s proposal to pay an income tax advance to offset the impact of the reinvestment of profits in the short term.³³⁸ However, “the Arequipa representatives ‘firmly’ reject[ed]’ SMCV’s proposal and instead, asked SMCV to make an

³²⁹ See Ex. CE-538, Congressional Pro-Investment Commission Seeks Solution to Demand Regarding Payment of Taxes of the Cerro Verde Company, EL HERALDO (23 June 2006); Torreblanca ¶ 52. ↩

³³⁰ See Ex. CE-538, Congressional Pro-Investment Commission Seeks Solution to Demand Regarding Payment of Taxes of the Cerro Verde Company, EL HERALDO (23 June 2006). ↩

³³¹ Ex. CE-538, Congressional Pro-Investment Commission Seeks Solution to Demand Regarding Payment of Taxes of the Cerro Verde Company, EL HERALDO (23 June 2006), p. 1. ↩

³³² Torreblanca ¶¶ 52, 53, 70. ↩

³³³ Ex. CE-539, Roundtable Discussion Initiated to Resolve Cerro Verde Case, EL CORREO (26 June 2006). ↩

³³⁴ Ex. CE-539, Roundtable Discussion Initiated to Resolve Cerro Verde Case, EL CORREO (26 June 2006). ↩

³³⁵ See CE-537, Congress, Pro-Investment Commission, Minutes of the Session of 23 June 2006; see also Torreblanca ¶ 53. ↩

³³⁶ Torreblanca ¶ 53. ↩

³³⁷ Ex. CE-540, Arequipa and Cerro Verde Authorities Seek Solutions, EL HERALDO (28 June 2006), p. 2; see also Torreblanca ¶ 53. ↩

³³⁸ See Torreblanca ¶ 53. ↩

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‘extraordinary contribution’ of . . . US$[23.2] million as an alternative.”³³⁹ Ms. Torreblanca testifies that SMCV agreed to “grant an allocation to the municipal authorities of Arequipa to compensate them for the royalties they would not receive.”³⁴⁰ Ms. Torreblanca also testifies that the Government representatives and Mr. Isasi in particular, agreed with this proposal.³⁴¹

147. On 10 July 2006 the parties held a third meeting, this time also including members of Congress, to discuss details regarding SMCV’s contributions to help cover Arequipa’s budget deficit.³⁴² Ms. Torreblanca testifies that SMCV was initially “willing to contribute . . . (US$4 million) to help solve the budget deficit in Arequipa, but Congressman Del Castillo [the chair] insisted that SMCV finance infrastructure works for a figure significantly higher than the US$23.2 million that the Arequipa politicians had requested.”³⁴³ Ms. Torreblanca also testifies that “[d]espite Congressman Del Castillo’s large demands, he reaffirmed that the Stability Agreement ‘that Cerro Verde enjoys expires in 2013.’”³⁴⁴ This did not satisfy the members of Congress, who argued that even if SMCV was “legally exempt from paying royalties,” it still had “a moral obligation to share its profits with Arequipa’s society,” noting that the price of copper had increased over three-fold since “the date of signing the Stability Agreement.”³⁴⁵ None of the Government representatives mentioned that SMCV would have to pay hundreds of millions of dollars in royalties over the coming years—to the contrary, those decrying SMCV’s alleged lack of contributions clearly assumed no such payments would be made.³⁴⁶

148. On 2 August 2006, SMCV signed a formal agreement with the Government— represented by now-Prime Minister del Castillo, Minister of Energy and Mines Juan Valdivia Romero, and Arequipa politicians—committing to (i) finance and prepare feasibility studies for the construction of a potable water treatment plant and a wastewater treatment plant; (ii) pay for the construction of the potable water treatment plant; and (iii) cover Arequipa’s budget deficit in investment expenses for local communities from June 2006 to May 2007 (the “Roundtable Discussion Agreement”).³⁴⁷ These commitments ultimately amounted to over US$125 million invested in

³³⁹ Torreblanca ¶ 53. ↩

³⁴⁰ Torreblanca ¶ 53. ↩

³⁴¹ Torreblanca ¶ 53. ↩

³⁴² Ex. CE-541, Congressional Commission Envisions a Solution: Minera Cerro Verde Accepts Proposal to Pay S/ 13 Million, EL HERALDO (10 July 2006); see also Torreblanca ¶ 54. ↩

³⁴³ Torreblanca ¶ 54. ↩

³⁴⁴ Torreblanca ¶ 54. ↩

³⁴⁵ Ex. CE-541, Congressional Commission Envisions a Solution: Minera Cerro Verde Accepts Proposal to Pay S/ 13 Million, EL HERALDO (10 July 2006), p. 2; see also Torreblanca ¶ 54. ↩

³⁴⁶ See Ex. CE-541, Congressional Commission Envisions a Solution: Minera Cerro Verde Accepts Proposal to Pay S/ 13 Million, EL HERALDO (10 July 2006); Torreblanca ¶ 56. ↩

³⁴⁷ See Ex. CE-544, Agreements of the Roundtable Discussion Between the Committee of the Struggle for the Defense of the Interests of Arequipa and SMCV (2 August 2006), Clauses 2 and 3; see also Torreblanca ¶ 55. ↩

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Arequipa.³⁴⁸ Ms. Torreblanca testifies that while SMCV “had reservations about committing these very large sums,” it ultimately concluded that “it was important to maintain good relations” with Arequipa.³⁴⁹ Ms. Torreblanca further testifies that at the time of signing, Prime Minister del Castillo confirmed to SMCV that it “could deduct these contributions from any program of ‘voluntary contributions’ created by the García administration.”³⁵⁰

4. SMCV Also Agreed to Make Voluntary Contributions to the National Treasury on the Understanding it was not Subject to the Royalty Law

149. As the Roundtable Discussion with Arequipa politicians concluded, similar discussions began on the national scale. President Alan García had assumed office and promptly set out to make good on his campaign promise of obtaining more contributions from the mining industry.³⁵¹ Instead of proposing new taxes or royalties—which the Government recognized could not legally be executed against companies with stability agreements—President García proposed a “voluntary contribution” regime intended to alleviate the growing political pressure.³⁵² In his first public speech upon assuming office, President García said:

[I]n recent years, the prices of ore minerals have increased significantly and this could not be anticipated by the Peruvian State or the companies that did not expect such a large profit . . . . it is fair for this profit to benefit the country somewhat more.³⁵³

150. In early August, at President García’s request, the Mining Society proposed a system by which mining companies could contribute “voluntar[ily]” to the development of local communities with a percentage of their profits.³⁵⁴ The Mining Society hired APOYO Consultoría (“APOYO”), a leading consulting firm in Lima, to design a system that would allow the Government to increase revenue collection while respecting the Stability Agreements in force.³⁵⁵ As these conversations occurred, Ms. Torreblanca confirmed to Phelps Dodge that the Government had guaranteed that the Roundtable Discussion Agreement met President García’s requirements for the voluntary contribution

³⁴⁸ See Ex. CE-596, SMCV, Financial Statement 2009, p. 29; see also Torreblanca ¶ 55. ↩

³⁴⁹ Torreblanca ¶ 55. ↩

³⁵⁰ Torreblanca ¶ 56. ↩

³⁵¹ See Ex. CE-548, Minería-Perú: A Beggar on a Gold Throne, TIERRAMÉRICA (22 August 2006); Ex. CE-581, There is no excuse to reduce the mining contribution, PROPUESTA CIUDADANA (1 December 2008). ↩

³⁵² Ex. CE-552, U.S. State Department, Mining Companies to Make “Voluntary” Social Contribution (14 September 2006). ↩

³⁵³ Ex. CE-581, There is no excuse to reduce the mining contribution, PROPUESTA CIUDADANA (1 December 2008); see also Ex. CE-543, Alan García Asks Mining Companies for Contributions and Contract Renegotiation, EL TERRITORIO (29 July 2006) (internal quotations omitted); CWS-2, Witness Statement of Gianfranco Castagnola (27 August 2021) (“Castagnola”) ¶ 15. ↩

³⁵⁴ Castagnola ¶¶ 15-16. ↩

³⁵⁵ Castagnola ¶¶ 17, 18, 20. ↩

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of the mining industry, for which SMCV could deduct those amounts from any “voluntary contributions” program created.³⁵⁶

151. APOYO’s president, Gianfranco Castagnola Zúñiga, who testifies as a witness in these proceedings, explains that APOYO’s plan calculated contributions from stabilized and non-stabilized entities differently: for stabilized companies, the voluntary contribution was simply calculated as 3% of their net profits, whereas non-stabilized companies were entitled to deduct their royalty payments from the voluntary contribution.³⁵⁷ As Mr. Castagnola testifies, the Mining Society “always included SMCV in the group of stabilized mining companies that were not required to pay royalties during the term of their agreements,” and the Government never “questioned this classification” or APOYO’s economic models.³⁵⁸ On 21 December 2006, President García accepted APOYO’s proposal and published the standard form contract that both stabilized and non-stabilized mining companies would sign to enroll in the Mining Program of Solidarity with the People (the “PMSP”).³⁵⁹ Once paid, the voluntary contributions would be transferred to privately managed funds for use in local and regional infrastructure and social projects.³⁶⁰

152. The Government’s efforts to create the PMSP did not stop the political backlash against stability agreements. In August 2006, Members of Congress proposed amending the Royalty Law so that all mining companies—even those with mining stability agreements—would be obliged to pay royalties.³⁶¹ Prime Minister Del Castillo stated that the Government would not support this bill since it had to “honor the principle of legal stability” and that they “could not toy around with such a serious issue.”³⁶² Shortly thereafter, Minister Valdivia acknowledged that the proposed bill would be “unconstitutional” and that it would entitle companies with stability agreements to “resort to international arbitration.”³⁶³

153. In January 2007, SMCV signed a standard form agreement with the Government to contribute 3.75 percent of its annual net profits in voluntary contributions, the maximum amount

³⁵⁶ See Ex. CE-561, SMCV, Financial Statement 2006 (9 February 2007), p. 31 (noting that “the provision of US$40 million related to the construction of the water plants . . . will be considered as a credit against this voluntary contribution”). ↩

³⁵⁷ Castagnola ¶ 29; id. Appendix A, p. 27, 29; id. Appendix B, p. 7-9. ↩

³⁵⁸ Castagnola ¶¶ 23, 43. ↩

³⁵⁹ See CA-131, Voluntary Contribution Program, Supreme Decree No. 071-2006-EM (21 December 2006). ↩

³⁶⁰ See CA-131, Voluntary Contribution Program, Supreme Decree No. 071-2006-EM (21 December 2006), Model Agreement, Clauses 1.1, 2.1. ↩

³⁶¹ See Ex. CE-546, The Government Agrees Not to Change the Mining Royalty Law, GESTIÓN (10 August 2006). ↩

³⁶² Ex. CE-546, The Government Agrees Not to Change the Mining Royalty Law, GESTIÓN (10 August 2006), p. 1. ↩

³⁶³ Ex. CE-551, Mining Royalty Bill Is Unconstitutional, ANDINA (12 September 2006). ↩

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under the PMSP.³⁶⁴ On 10 August 2007, SMCV and the Government executed a final version of the Agreement (the “Voluntary Contribution Agreement”).³⁶⁵ Ms. Torreblanca testifies that SMCV willingly made contributions under this agreement on the good faith understanding that it was exempt from paying royalties as a result of the Stability Agreement.³⁶⁶ Accordingly, she notes that “SMCV made all its contributions to the PMSP without making any deduction for royalties” and explains that “the Government never told [SMCV] that [it] should pay royalties and adjust the value of [its] voluntary contributions.”³⁶⁷

154. From 2007 to 2010, SMCV contributed over S/ 420 million (about US$140 million) in revenue from its leaching facilities and the Concentrator, constituting 18 percent of total contributions—making it the second-largest contributor nationwide in the PMSP—and 90 percent of those in Arequipa province.³⁶⁸ SMCV’s contributions supported local nurseries and schools, small business employment programs, childhood nutrition programs, and local infrastructure, including roads and bridges.³⁶⁹ SMCV’s voluntary contributions were in addition to the contributions SMCV made directly to Arequipa: the Government reneged on Prime Minister Del Castillo’s promise that SMCV could deduct those contributions from its voluntary contributions, arguing that doing so “would increase the political attention that the Government had been receiving” and that “Arequipa really needed [SMCV’s] contributions.”³⁷⁰

J. AFTER SMCV SUCCESSFULLY COMPLETED CONSTRUCTION OF THE CONCENTRATOR AT THE END OF 2006, FREEPORT ACQUIRED PHELPS DODGE.

155. SMCV finished building the Concentrator in the fourth quarter of 2006 and began testing its operations, producing small quantities of concentrate.³⁷¹

156. On 19 November 2006, Freeport and Phelps Dodge announced that they had signed a definitive merger agreement according to which Freeport would acquire Phelps Dodge.³⁷²

³⁶⁴ See Ex. CE-27, SMCV, Voluntary Contribution Agreement (18 January 2007), Clause 3.1 (calculating voluntary contributions based on annual net profits). ↩

³⁶⁵ See Ex. CE-560, SMCV, Voluntary Contribution Agreement (10 August 2007). ↩

³⁶⁶ Torreblanca ¶¶ 60-61. ↩

³⁶⁷ Torreblanca ¶ 60; see also CA-131, Voluntary Contribution Program, Supreme Decree No. 071-2006-EM (21 December 2006), Clause 3.1.2; CA-259, Voluntary Contribution Program, Supreme Decree No. 033-2007-EM (2 July 2007); Ex. CE-560, SMCV, Voluntary Contribution Agreement (10 August 2007), Clause 3.1.2 (“The companies paying the Mining Royalty, according to articles 5° and 6° of Law No. 28258, shall deduct from the CONTRIBUTION.”). ↩

³⁶⁸ Ex. CE-696, Cesar Flores Unzaga et. al., Tax Collection and Tax Benefits in the Mining Sector: The Las Bambas and Cerro Verde Cases (July 2017), p. 72. (showing https://estadisticas.bcrp.gob.pe/estadisticas/series/mensuales/resultados/PN01208PM/html exchange rate). ↩

³⁶⁹ Ex. CE-696, Cesar Flores Unzaga et. al., Tax Collection and Tax Benefits in the Mining Sector: The Las Bambas and Cerro Verde Cases (July 2017), p. 72, Table 3; Torreblanca ¶ 62. ↩

³⁷⁰ Torreblanca ¶ 61. ↩

³⁷¹ Aquiño ¶ 33. ↩

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157. On 2 January 2007, SMCV notified the DGM pursuant to Article 38 of the Regulations on Mining Procedures that it had completed construction of the Concentrator.³⁷³ On 26 February 2007, after conducting final engineering inspections, the DGM gave final confirmation of the expansion of the Beneficiation Concession to 147,000 MT/d and authorized SMCV to operate the Concentrator.³⁷⁴ Ms. Torreblanca testifies that the DGM’s final resolution formalizing the expansion of the Beneficiation Concession to include the Concentrator, “assure[d] us that we had complied with all the steps to guarantee its stability, as Director Chappuis confirmed.”³⁷⁵

158. On 19 March 2007, Freeport completed its acquisition of Phelps Dodge, creating the world’s largest publicly traded copper company and what Freeport described at the time as “one of the most exciting portfolios” in the copper mining industry.³⁷⁶ By virtue of this acquisition, Freeport became the indirect majority owner of SMCV.³⁷⁷

K. NOTWITHSTANDING SMCV’S CONTRIBUTIONS, POLITICIANS CONTINUED TO PRESSURE THE GOVERNMENT TO ASSESS ROYALTIES AGAINST SMCV

159. Yet neither SMCV’s participation in the voluntary contribution program, or its commitments to Arequipa, or its successful completion of the long-sought Concentrator put an end to the political campaign against it. On 12 November 2007, Dante Martínez Palacios, President of the Arequipa Association of Electric Service Users (“ADUSELA”), filed complaints against SMCV with SUNAT alleging that the company had improperly evaded royalties through “fraudulent actions” and collusion from Peruvian officials, and demanding that SUNAT assess royalties against SMCV.³⁷⁸ Mr. Martínez Palacios reiterated these claims and his intention to force SUNAT to collect taxes and royalties from SMCV in a January 2008 article, arguing that the Government had “effectively renounced its share” of taxes relating to the Concentrator operations, and so it was “legitimat[e]” for Arequipa to “claim the full amount.”³⁷⁹ He dismissed the voluntary contribution program as a

³⁷² Ex. CE-902, Freeport-McMoRan Copper & Gold Inc., Annual Report 2006 (15 March 2007), p. 25. ↩

³⁷³ See Ex. CE-558, SMCV, Petition No. 1659321 (2 January 2007), p. 2; cf. CA-48, Regulations on Mining Procedures, Supreme Decree No. 018-92-EM (7 September 1992), Art. 38. ↩

³⁷⁴ See Ex. CE-28, MINEM, Directorial Resolution No. 056-2007-MEM/DGM (26 February 2007); see also Ex. CE-562, MINEM, Report No. 165-2007-MINEM-DGM/PDM (19 February 2007), p. 21 (recommending that MINEM approve SMCV’s request to expand the Beneficiation Concession); Ex. CE-564, MINEM, Directorial Resolution No. 081-2007-MEM/DGM (11 April 2007) (correcting an error in Directorial Resolution No. 056-2007-MEM/DGM). ↩

³⁷⁵ Torreblanca ¶ 60. ↩

³⁷⁶ Ex. CE-903, Freeport-McMoRan Copper & Gold Inc., Annual Report 2007 (17 March 2008), p. 5; Ex. CE-29, SEC Filing, Freeport Completes Acquisition of Phelps Dodge Corp. (19 March 2007). ↩

³⁷⁷ See Ex. CE-265, Freeport-McMoRan Inc., Sociedad Minera Cerro Verde S.A.A. Corporate Organizational Chart (21 February 2020). ↩

³⁷⁸ See Ex. CE-588, Dante Martinez, Superior Civil Court Complaint (28 April 2009); Torreblanca ¶¶ 64-65. ↩

³⁷⁹ Ex. CE-572, Dante Martinez, The Impunity and Hidden Truth of Sociedad Minera Cerro Verde (7 January 2008), p. 1. ↩

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“mockery” of the Royalty Law and claimed that SMCV “will not pay these royalties in the future either.”³⁸⁰

160. Ms. Torreblanca testifies that SUNAT’s position quickly changed in response to these claims.³⁸¹ On 20 November 2007—a little over a week after Mr. Martínez filed his complaints— Marcel Gastón, SUNAT’s National Intendent, sent a letter to Alfredo Rodríguez, the Director General of Mining.³⁸² Mr. Gastón requested that MINEM “send us the list of parties required to pay the mining royalty from June 2004 to date,” suggesting that SUNAT’s current information was inaccurate, because certain cases “are not included on the list,” or “are included in the list but the information on their mining concessions does not include all the concessions under their responsibility.”³⁸³ As a result, Mr. Gastón noted that SUNAT has been unable “to begin the process of determining [mining companies] who have failed to file their sworn statement, which must be filed monthly by the parties that your office indicates are required to pay the mining royalty.”³⁸⁴

161. On 14 December 2007, Alfredo Rodriguez Muñoz, MINEM’s Director General of Mining, replied that MINEM would send the list “approximately in . . . February 2008,” as MINEM needed additional time to assess the “ownership of concessions and [Economic Administrative Units]” due to changes in MINEM’s databases.”³⁸⁵

162. On 29 January 2008, Mr. Rodriguez sent the “information of entities that are obligated to pay mining royalties” to SUNAT, in the form of a one-page letter enclosing (i) Mr. Isasi’s September 2005 Report regarding the reinvestment of profits, (ii) Minister Sánchez Mejía’s 8 November 2005 letter stating that the Concentrator was not within the scope of the Stability Agreement, and (iii) Mr. Isasi’s June 2006 Report setting out his novel interpretation of the Stability Agreement.³⁸⁶ The letter explained to SUNAT that “this information is sent considering the implications that the [Stability Agreement] might have on the payment of Mining Royalties corresponding to the Primary Sulfides Project, located in the ‘Cerro Verde 1, 2, 3’ mining concession, of [SMCV].”³⁸⁷ The letter, like the communications that preceded it, was not provided to SMCV at the time.

³⁸⁰ Ex. CE-572, Dante Martinez, The Impunity and Hidden Truth of Sociedad Minera Cerro Verde (7 January 2008), pp. 11-12. ↩

³⁸¹ See Torreblanca ¶ 66. ↩

³⁸² Ex. CE-568, SUNAT, Report No. 261-2007-SUNAT/2E0000 (20 November 2007). ↩

³⁸³ Ex. CE-568, SUNAT, Report No. 261-2007-SUNAT/2E0000 (20 November 2007), p. 1. ↩

³⁸⁴ Ex. CE-568, SUNAT, Report No. 261-2007-SUNAT/2E0000 (20 November 2007), p. 1. ↩

³⁸⁵ Ex. CE-570, MINEM, Report No. 1169-2007-MEM-DGM (14 December 2007), pp. 1-2. ↩

³⁸⁶ Ex. CE-573, MINEM, Report No. 077-2008-MEM-DGM (29 January 2008). ↩

³⁸⁷ Ex. CE-573, MINEM, Report No. 077-2008-MEM-DGM (29 January 2008). ↩

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163. Around the same time, SUNAT commenced an audit of SMCV.³⁸⁸ On 2 June 2008, SMCV received an audit letter from SUNAT Arequipa asserting that SMCV had not filed documents related to the payment of royalties for the sales of copper ore from the Concentrator for 2006 and 2007.³⁸⁹ SUNAT also stated that if SMCV did not agree with the scope of the request, SMCV could submit a responsive brief.³⁹⁰ On 4 June 2008, Ms. Torreblanca sent a reply stating that royalties did not apply to SMCV’s concentrate sales by operation of the Stability Agreement, and that SMCV thus was not required to file the requested documents.³⁹¹

164. Ms. Torreblanca also met with SUNAT’s regional officials in Arequipa to further explain SMCV’s position. On 6 June 2008, Ms. Torreblanca met with Juan Flores, SUNAT’s Regional Intendent for Arequipa, who told her “that he fully understood SMCV’s position but that his hands were tied since he received an opinion from MINEM’s legal counsel office stating that the Concentrator had to pay royalties because it was a ‘different project’ that was not expressly covered by the Stability Agreement.”³⁹² Even though SMCV had been in near-constant communication with the Government, including during the Roundtable Discussions that were clearly premised on the understanding that SMCV did not owe any royalties, this was the first time SMCV was made aware of the existence of Mr. Isasi’s June 2006 Report and the interpretation it contained.³⁹³

165. Ms. Torreblanca thus immediately sought clarification from Juan Valdivia, the Minister of Energy and Mines, and his advisors.³⁹⁴ Ms. Torreblanca testifies that they informed her that MINEM’s legal opinion had been drafted by Mr. Isasi, now the Vice-Minister of Energy and Mines, and sent to several members of Congress, and that Minister Valdivia encouraged her to meet with Vice-Minister Isasi to discuss the opinion in more detail.³⁹⁵ After the meeting, MINEM presented Ms. Torreblanca with an unofficial copy of Vice-Minister Isasi’s June 2006 Report. This was the first time that the Government provided the Report to SMCV.³⁹⁶

³⁸⁸ Ex. CE-582, SUNAT: Cerro Verde Does Have to Pay Royalties, EL CORREO DE AREQUIPA (12 December 2008) (noting that SUNAT initiated an audit process against SMCV in the beginning of 2008). ↩

³⁸⁹ Ex. CE-577, SUNAT, Inductive Letter No. 108052004279 (30 May 2008) (complaining that SMCV had not “filed [a mining royalty statement] for the sale of copper ore from the primary sulfide investment project subject to the payment of mining royalties . . . corresponding to the taxable years 2006 and 2007.”); Torreblanca ¶ 66. ↩

³⁹⁰ Ex. CE-577 SUNAT, Inductive Letter No. 108052004279 (30 May 2008). ↩

³⁹¹ Torreblanca ¶ 66; Ex. CE-578, SMCV, Letter No. SMCV-AL-1346-2008 (4 June 2008), pp. 1-2. ↩

³⁹² Torreblanca ¶ 67. ↩

³⁹³ Torreblanca ¶ 70. ↩

³⁹⁴ Torreblanca ¶ 70. ↩

³⁹⁵ Torreblanca ¶ 70. ↩

³⁹⁶ Torreblanca ¶ 70. ↩

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166. In July 2008, Ms. Torreblanca met with Vice-Minister Isasi to discuss the details of his legal opinion.³⁹⁷ She testifies that she “explained in detail why SMCV constituted a single Mining Unit and why the guarantees under the Stability Agreement covered all investments made in [SMCV’s] Mining and Beneficiation Concessions during the term of the Agreement.”³⁹⁸ Ms. Torreblanca testifies that Vice-Minister Isasi “agreed that SMCV’s legal position was very solid and he did not challenge it or reject it in any way.”³⁹⁹ However, “he reiterated that it was not possible for him to change the opinion that he had issued and sent to other authorities”—without mentioning that this was exactly what he had done with respect to his April 2005 Report, which confirmed SMCV’s legal position.⁴⁰⁰ He further noted that “it would be preferable for [SMCV], from a political and social perspective, to pay royalties.”⁴⁰¹

167. On 12 December 2008, the El Correo de Arequipa newspaper published an interview with Mr. Flores, SUNAT’s Regional Intendent for Arequipa, in which he stressed that SUNAT had “determined that Cerro Verde must pay mining royalties” “[a]s a result of a request from [MINEM].”⁴⁰² Mr. Flores explained that in early 2008, SUNAT had “initiated an audit process of [SMCV]” “in order to support and assess the payment of [mining royalties].”⁴⁰³ Ms. Torreblanca “tried to meet again with Mr. Flores regarding these statements, but was unable to do so before he left his position in January 2009.”⁴⁰⁴

168. On 12 March 2009, Ms. Torreblanca met Wilfredo Albarracín, Mr. Flores’s successor, and Aldo Torres, his Chief Auditor.⁴⁰⁵ According to Ms. Torreblanca, Mr. Torres stressed that “SMCV[’s] case involved a very sensitive issue and that they were evaluating it in more detail.”⁴⁰⁶ Ms. Torreblanca testifies that “Mr. Albarracín confirmed that they were conducting their technical review based on MINEM’s request and opinions.”⁴⁰⁷ Ms. Torreblanca ended the meeting by stressing that “if SUNAT decided to impose royalties on SMCV, there would be no doubt that [SMCV] would challenge the assessments and that the Government would also have to reimburse SMCV given that

³⁹⁷ Torreblanca ¶ 71. ↩

³⁹⁸ Torreblanca ¶ 71. ↩

³⁹⁹ Torreblanca ¶ 71. ↩

⁴⁰⁰ Torreblanca ¶ 71. ↩

⁴⁰¹ Torreblanca ¶ 71. ↩

⁴⁰² Ex. CE-582, SUNAT: Cerro Verde Does Have to Pay Royalties, EL CORREO DE AREQUIPA (12 December 2008). ↩

⁴⁰³ Ex. CE-582, SUNAT: Cerro Verde Does Have to Pay Royalties, EL CORREO DE AREQUIPA (12 December 2008). ↩

⁴⁰⁴ Torreblanca ¶ 72. ↩

⁴⁰⁵ Torreblanca ¶ 73. ↩

⁴⁰⁶ Torreblanca ¶ 73. ↩

⁴⁰⁷ Torreblanca ¶ 73. ↩

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the company had paid millions in contributions under the clear understanding that it was not required to pay royalties.”⁴⁰⁸

169. On 4 April 2009, Mr. Martínez filed claims against SUNAT before the Contentious Administrative Courts, decrying SUNAT’s “systematic reluctance to comply with its duties to assess and collect taxes and royalties evaded by SMCV.”⁴⁰⁹ On 14 April 2009, Ms. Torreblanca met again with MINEM officials, including Vice-Minister Isasi and Director of Legal Affairs, Cesar Zegarra.⁴¹⁰ Ms. Torreblanca notes that Vice-Minister Isasi “defended his opinion and said that mining stability agreements only covered the investment projects included in the initial feasibility studies presented to obtain the stability agreement,” but “he refused to further explain the grounds for his position or listen to our explanations about why this interpretation did not make sense under the Mining Law,” also stating that “it would be very difficult to exempt SMCV from royalties given the public perception that we had supposedly enjoyed extraordinary windfall profits.”⁴¹¹ Only after Ms. Torreblanca reiterated the obvious—that SMCV needed to understand MINEM’s legal rationale—at the meeting, Vice-Minister Isasi and Mr. Zegarra sent her a copy of Mr. Isasi’s September 2005 Report, Minister Sánchez Mejía’s 8 November 2005 letter, and Mr. Isasi’s June 2006 Report.⁴¹² Again, neither Vice-Minister Isasi nor Mr. Zegarra disclosed Mr. Isasi’s April 2005 Report confirming that stability guarantees applied to concessions, not investments.⁴¹³

L. THE GOVERNMENT REVERSED COURSE AND ASSESSED ROYALTIES AGAINST ORE PROCESSED THROUGH SMCV’S CONCENTRATOR FOR 2006-2007, 2008, AND 2009, NOTWITHSTANDING THE STABILITY AGREEMENT

1. The 2006-2007 Royalty Assessments

170. Despite the clear guarantees in the Mining Law and the Stability Agreement—and the Government’s repeated confirmation that they applied to the Concentrator—on 17 August 2009, SUNAT issued assessments against SMCV for royalties on the minerals processed in the Concentrator from October 2006 to December 2007.⁴¹⁴ In addition to royalties, SUNAT assessed penalties equivalent to 10% of the unpaid royalties, additional penalties for SMCV’s failure to present certain required documents and file royalty declarations, and interest on the unpaid royalties and penalties at the rate of 18.25% per annum running from the dates SUNAT claimed SMCV should have filed each

⁴⁰⁸ Torreblanca ¶ 73. ↩

⁴⁰⁹ See Ex. CE-603, Dante A. Martinez, The Greatest Tax Fraud in the History of Peru, Con Nuestro Perú (15 January 2011), p. 6 ¶ 26. ↩

⁴¹⁰ Torreblanca ¶ 75. ↩

⁴¹¹ Torreblanca ¶¶ 75-77. ↩

⁴¹² Torreblanca ¶ 75-76. ↩

⁴¹³ Torreblanca ¶ 75-76. ↩

⁴¹⁴ See Ex. CE-31, SUNAT, 2006/07 Royalty Assessments (17 August 2009), Annex No. 1, pp. [1-3]. ↩

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monthly royalty declaration (together, the “2006-2007 Royalty Assessments”).⁴¹⁵ The 2006-2007 Royalty Assessments totaled US$32,354,013 in royalties and US$16,359,424 in penalties and interest as of the date issued.⁴¹⁶

171. In the section listing the “support and legal basis” for its decision, SUNAT justified the 2006-2007 Royalty Assessments by relying on the interpretation Mr. Isasi set out in his June 2006 Report, which MINEM had provided to SUNAT.⁴¹⁷ In particular, SUNAT took the position that:

[T]he [stability] benefits . . . are only related to the “Cerro Verde Leaching Project.” Therefore . . . the exploitation of mining resources destined for the “Primary Sulfides Project,” as they are not within the scope of protection of the [Stability Agreement], the payment of the mining royalty is required . . . .⁴¹⁸

172. On 15 September 2009, SMCV requested that SUNAT reconsider the 2006-2007 Royalty Assessments.⁴¹⁹ In its Request, SMCV explained that the Stability Agreement covered the entirety of its production unit, including the Mining and Beneficiation Concessions, because Articles 83 and 82 of the Mining Law and Articles 2 and 22 of the Regulations

do not limit the benefit to a specific investment... [o]n the contrary, it is clear that, according to these legal provisions, stability covers all the activities and investments made within the mining concessions or Economic-Administrative Units that were set out in the Agreement.⁴²⁰

173. SMCV also argued that it was not obligated to pay royalties since the Royalty Law applies on the basis of extraction of minerals under the Mining Concession, not their processing, so it is irrelevant whether those minerals were processed in the leaching facilities or the Concentrator—a

⁴¹⁵ See Ex. CE-31, SUNAT, 2006/07 Royalty Assessments (17 August 2009); Ex. CE-38, SUNAT, Resolution No. 055-014-0001290/SUNAT, 2006/07 Royalty Assessments (31 March 2010), pp. 68-70 (rejecting SMCV’s reconsideration request regarding penalties imposed for failure to present certain required documents). ↩

⁴¹⁶ See Annex A: Administrative Proceedings. ↩

⁴¹⁷ See Ex. CE-31, SUNAT, 2006/07 Royalty Assessments (17 August 2009), Annex No. 1, pp. [1-3]; see also Ex. CE-573, MINEM, Report No. 077-2008-MEM-DGM (29 January 2008) (providing SUNAT with Mr. Isasi’s June 2006 Report, MINEM Report No. 156-2006-MEM/OGJ, among other MINEM documents and reports related to SMCV’s Stability Agreement); Ex. CE-534, MINEM, Report No. 156-2006-MEM/OGJ (16 June 2006). ↩

⁴¹⁸ Ex. CE-31, SUNAT, 2006/07 Royalty Assessments (17 August 2009), Annex No. 1, pp. [1-3]; see also Ex. CE-534, SUNAT, 2006/07 Royalty Assessments (17 August 2009), pp. 13-14 (“[SMCV] is not obligated to pay Mining Royalties for the Cerro Verde leaching project, because this project is protected by the [Stability Agreement] . . . . [SMCV] is obligated to pay Mining Royalties for the Primary Sulfide project, because this project is not covered by the [Stability Agreement].”). ↩

⁴¹⁹ See Ex. CE-32, SMCV, Request for Reconsideration, 2006/07 Royalty Assessments (15 September 2009). ↩

⁴²⁰ Ex. CE-32, SMCV, Request for Reconsideration, 2006/07 Royalty Assessments (15 September 2009), p. 18. ↩

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position that Mr. Isasi’s April 2005 opinion had explicitly confirmed.⁴²¹ Further, SMCV pointed out that the 1996 Feasibility Study did not limit the scope of the Stability Agreement, but rather established the “minimum investment” SMCV had to meet to apply for stability benefits.⁴²² SMCV attached extensive evidence in support of its Request, including expert reports from leading mining lawyers and experts on stabilization.⁴²³

174. In November 2009, while SMCV’s request was pending, Ms. Torreblanca met with two officials from the MEF to discuss SUNAT’s Royalty Assessments.⁴²⁴ Ms. Torreblanca testifies that the MEF officials told her that SMCV would have a “very strong argument for prevailing before the Tax Tribunal.”⁴²⁵

175. On 31 March 2010, SUNAT rejected SMCV’s reconsideration request for the 2006-2007 Royalty Assessments.⁴²⁶ In its decision, SUNAT again relied on Mr. Isasi’s novel and restrictive interpretation of the Mining Law, concluding that, among others:

[T]he guarantee of stability granted by the [Stability Agreement] only encompasses the activities related to the investment project contained in the Technical-Economic Feasibility Study submitted by the investor for this purpose, since the purpose of the agreement is for the investor to know in advance which rules will apply to its investment during the life of the agreement . . . .

[T]he benefits conferred through the Tax Stability Agreement signed under the General Mining Law, inure to the owner of the mining activity with respect to the activities related to the investment project that has been the object of the respective agreement, i.e., to the investment contained in the Technical-Economic Feasibility Study filed for this purpose . . . and does not fall under the concessions or

⁴²¹ See Ex. CE-32, SMCV, Request for Reconsideration, 2006/07 Royalty Assessments (15 September 2009), pp. 14-15; Ex. CE-494, MINEM, Report No. 153-2005-MEM/OGAJ (14 April 2005), ¶¶ 16-17. ↩

⁴²² See Ex. CE-32, SMCV, Request for Reconsideration, 2006/07 Royalty Assessments (15 September 2009), p. 18 (“[T]he investment] contemplated in the original Feasibility Study . . . is but a minimum investment commitment. . . .”); id., p. 19 (“[T]he investment program submitted in 1996 by CERRO VERDE was a requirement to enjoy the stability granted by the General Mining Law, but in no way defines or limits the scope of this benefit.”). ↩

⁴²³ See Ex. CE-38, SUNAT, Resolution No. 055-014-0001290/SUNAT, 2006/07 Royalty Assessments (31 March 2010), p. 13 (“attached to the aforementioned brief are the reports prepared by Dr. José Miguel Morales Dasso and Dr. Rossana Rodríguez (ANNEX 1) and Dr. Rudolf Röder (ANNEX 2) which, as stated by [SMCV], support that it should not pay royalties for the mineral extracted from its ‘Cerro Verde Nos. 1, 2 and 3’mining concession, regardless of the treatment system subsequently used for its processing.”); see also id. (“[SMCV] notes that in the audit stage it presented the report of Dr. Marcial García Scherck, in which he explains that the Tax Administration’s use of his quote from his article on stability agreements that supposedly supported the Administration’s position had been misinterpreted, since in his opinion stability contracts cover all the investments made in the concessions included in the agreement and not only those initially included in the Feasibility Study submitted to sign it.”). ↩

⁴²⁴ Torreblanca ¶ 81. ↩

⁴²⁵ Torreblanca ¶ 81. ↩

⁴²⁶ Ex. CE-38, SUNAT, Resolution No. 055-014-0001290/SUNAT, 2006/07 Royalty Assessments (31 March 2010). ↩

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Economic Administrative Unit, as the appellant asserts, independently of the investment, since this would distort the agreement, as the purpose of the agreement is unknown.⁴²⁷

176. SUNAT thus rejected SMCV’s arguments that stability guarantees under the Mining Law apply to entire mining concessions or units. SUNAT also did not conceal MINEM’s involvement, expressly noting that both Minister Sánchez Mejía’s 8 November 2005 letter and Mr. Isasi’s June 2006 Report had concluded that “the Primary Sulfide Project does not enjoy the protection of tax, administrative and exchange-rate stability under any guarantee or stability agreement.”⁴²⁸ SUNAT also acknowledged that it had relied on information MINEM provided to SUNAT designating SMCV as a company “obliged to pay the mining royalty.”⁴²⁹

2. The 2008 Royalty Assessments

177. On 1 June 2010, SUNAT issued additional royalty assessments against SMCV for minerals processed in the Concentrator from January 2008 to December 2008.⁴³⁰ As before, SUNAT also assessed penalties equivalent to 10% of the unpaid royalties, additional penalties for SMCV’s failure to file royalty declarations, and interest on the unpaid royalties and penalties at rates of 18.25% (through February 2010) and 14.6% (subsequently) per annum, calculated from the dates SUNAT claimed SMCV should have filed each monthly royalty declaration (together, the “2008 Royalty Assessments”).⁴³¹ The 2008 Royalty Assessments totaled US$37,416,894 in royalties and US$19,620,939 in penalties and interest as of the date issued.⁴³² The 2008 Royalty Assessments essentially copied and pasted the reasoning from the 2006/07 Royalty Assessments, which had

⁴²⁷ Compare Ex. CE-38, SUNAT, Resolution No. 055-014-0001290/SUNAT, 2006/07 Royalty Assessments (31 March 2010), pp. 31, 34; with Ex. CE-534, MINEM, Report No. 156-2006-MEM/OGJ (16 June 2006), Section 3, ¶ 4.1 (“[T]he stability granted by the Stability Agreement does not extend to all [of SMCV’s] mining concessions or economic-administrative units, and even less so to the entire mining company. Rather, it is granted to an investment project clearly delimited by the Feasibility Study”); id. at Section III ¶ 2.2 (“The Primary Sulfide Project is not part of the Leaching Project nor has it been contemplated in the Agreement . . . so it is not subject to any stabilized regime.”). ↩

⁴²⁸ See Ex. CE-38, SUNAT, Resolution No. 055-014-0001290/SUNAT, 2006/07 Royalty Assessments (31 March 2010), pp. 57-60. ↩

⁴²⁹ See Ex. CE-38, SUNAT, Resolution No. 055-014-0001290/SUNAT, 2006/07 Royalty Assessments (31 March 2010), p. 25 (“the Ministry of Energy and Mines has provided the Tax Administration with the list of entities obliged to pay the mining royalty, which includes the taxpayer.”); id. at p. 57 (“[A]s can be seen in the report sent by the Ministry of Energy and Mines to the current Tax Administration on pages 2234 to 2236 (report called Royalties Data December 2006), although this entity considers that the appellant has a single concession ‘Cerro Verde Nos. 1, 2 and 3,’ it includes it in the database of the owners of a mining activity who must pay the mining royalty. In addition, it is observed in the report on pages 2221 to 2223 that the Ministry of Energy and Mines considers the appellant to hold mining rights with tax, exchange-rate and administrative stability agreements, i.e., not subject to the payment of the royalty, specifying in the ‘CONTRACT NAME’ column ‘Cerro Verde Leaching Expansion Project.”). ↩

⁴³⁰ Ex. CE-39, SUNAT, 2008 Royalty Assessments (1 June 2010), Annex 1, p. 13. ↩

⁴³¹ Ex. CE-39, SUNAT, 2008 Royalty Assessments (1 June 2010). ↩

⁴³² See Annex A: Administrative Proceedings. ↩

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adopted Mr. Isasi’s assertion that only the “Cerro Verde Leaching Project” enjoyed stability guarantees and that this did not include the Concentrator.⁴³³

178. On 15 July 2010, SMCV requested that SUNAT reconsider the 2008 Royalty Assessments, reiterating its arguments and evidence in support of the request.⁴³⁴ On 31 January 2011, SUNAT rejected SMCV’s reconsideration request on grounds similar to those it had invoked with respect to the 2006-2007 Royalty Assessments.⁴³⁵ All of these grounds centered on the erroneous conclusion that stability benefits only apply to the activities related to the investment program included in the Feasibility Study submitted by SMCV to obtain the Stability Agreement.⁴³⁶

3. The 2009 Royalty Assessments

179. On 27 June 2011, SUNAT issued royalty assessments against SMCV for the minerals processed in the Concentrator from January 2009 to December 2009,⁴³⁷ as well as penalties equivalent to 10% of unpaid royalties, additional penalties for SMCV’s failure to file royalty declarations, and interest on the unpaid royalties and penalties at rates of 18.25% (through February 2010) and 14.6% (subsequently) per annum running from the dates SUNAT asserted SMCV should have filed each monthly royalty declaration (together, the “2009 Royalty Assessments”).⁴³⁸ At the time SUNAT issued them, the 2009 Royalty Assessments totaled US$38,748,628 in royalties and US$19,412,864 in penalties and interest.⁴³⁹ On 9 August 2011, SMCV requested that SUNAT reconsider the 2009 Royalty Assessments.⁴⁴⁰ On 21 December 2011, SUNAT again rejected SMCV’s reconsideration request, essentially copying and pasting its decision rejecting SMCV’s request to reconsider the 2008 Royalty Assessments.⁴⁴¹

⁴³³ Compare Ex. CE-39, SUNAT, 2008 Royalty Assessments (1 June 2010), Annex 1, p. 13; with Ex. CE-31, SUNAT, 2006/07 Royalty Assessments (17 August 2009), Annex No. 1, pp. [1-3]. ↩

⁴³⁴ See Ex. CE-600, SMCV, Request for Reconsideration, 2008 Royalty Assessments (15 July 2010). ↩

⁴³⁵ See Ex. CE-46, SUNAT, Resolution No. 055-014-0001394/SUNAT, 2008 Royalty Assessments (31 January 2011). ↩

⁴³⁶ See, e.g., Ex. CE-46, SUNAT, Resolution No. 055-014-0001394/SUNAT, 2008 Royalty Assessments (31 January 2011), p. 33. ↩

⁴³⁷ See Ex. CE-54, SUNAT, 2009 Royalty Assessments (27 June 2011). ↩

⁴³⁸ See Ex. CE-54, SUNAT, 2009 Royalty Assessments (27 June 2011). ↩

⁴³⁹ See Annex A: Administrative Proceedings. ↩

⁴⁴⁰ See Ex. CE-55, SMCV, Request for Reconsideration, 2009 Royalty Assessments (9 August 2011). ↩

⁴⁴¹ Compare Ex. CE-58, SUNAT, Resolution No. 055-014-0001495/SUNAT (21 December 2011); with Ex. CE-46, SUNAT, Resolution No. 055-014-0001394/SUNAT, 2008 Royalty Assessments (31 January 2011). ↩

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M. SMCV AGREED TO PAY A NEW “VOLUNTARY” CONTRIBUTION, OR “GEM,” ON THE BASIS THAT IT WOULD NOT BE PAYING ROYALTIES OR SPECIAL MINING TAX ON ANY PART OF ITS PRODUCTION UNIT

1. In 2011, Peru Amended the Royalty Law, Enacted a New Mining Tax, and Created the GEM Program

180. During this time, the intense political pressure to obtain additional contributions from stabilized mining companies continued unabated. In the lead up to the 2011 presidential elections, frontrunner Ollanta Humala campaigned on promises to impose higher taxes and contributions on the mining sector, including against companies entitled to stabilization.⁴⁴² In March 2011, anticipating Mr. Humala’s election, the Mining Society re-engaged APOYO to prepare a new tax and contributory scheme that the Mining Society could present to the new administration, similar to the PMSP.⁴⁴³

181. Over the course of the next few months, APOYO met with the Government to discuss the terms of a proposal that would amend the royalty regime, create a new “special mining tax” (“SMT”), and establish a new type of “voluntary” contribution for stabilized mining companies called the Gravamen Especial a la Minería (“GEM”).⁴⁴⁴ Hugo Santa María, chief economist at APOYO and a witness in these proceedings, was in charge of the project and participated in all the meetings APOYO had with the Mining Society and the Government.⁴⁴⁵ Mr. Santa María testifies that the Mining Society member companies were divided into three groups: (1) those with production units that had stability agreements in force prior to the 2004 Royalty Law, who did not have to pay royalties at all, (2) those with stability agreements that entered into force after the 2004 Royalty Law, and (3) those without stability agreements.⁴⁴⁶

182. According to Mr. Santa María, APOYO always considered SMCV part of the group of stabilized mining companies that did not have to pay royalties at all, and presented it to the Government as such.⁴⁴⁷ For example, Mr. Santa María testifies that at a 24 August 2011 meeting attended by high-ranking Government officials, including the Prime Minister, the Minister of Economy and Finance, and the Minister of Energy and Mines, he walked through quantitative simulations for specific mining companies, including SMCV, to demonstrate their expected

⁴⁴² Ex. CE-602, Gana Perú, The Great Transformation: Government Plan (December 2010), pp. 135-136 (stating that “[t]he objective will be to establish a fiscal and tax policy for the medium and long term, aimed at helping the [mining] sector pay taxes and economic considerations incumbent upon it in a scenario of stability. Royalties, the canon and the tax on windfall profits will need to be updated. The argument of respect for the agreements signed by the State does not sound convincing. Although some companies have signed for the sake of legal stability, this has never been an impediment for them to be reviewed under a responsible and respectful negotiation proposal.”). ↩

⁴⁴³ CWS-9, Witness Statement of Hugo Santa María (27 August 2021) (“Santa María”), § III.A. ↩

⁴⁴⁴ See generally Santa María ¶¶ 30-42. ↩

⁴⁴⁵ Santa María ¶¶ 4, 10, 18, 28, 32, 36. ↩

⁴⁴⁶ Santa María ¶ 19. ↩

⁴⁴⁷ Santa María ¶¶ 21-23. ↩

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contributions under the APOYO proposal as compared to the existing regime.⁴⁴⁸ APOYO’s proposed projection for SMCV’s contributions, excerpted in the table below, assumed that SMCV would not pay any royalties (regalías) for its sole production unit but would make substantial GEM payments.⁴⁴⁹

Figure 2: APOYO Projections for SMCV’s GEM Payments

SOCIEDAD MINERA CERRO VERDE
INFORMACIÓN DE LOS ESTADOS FINANCIEROS DE
EMPRESAS MINERAS
(Miles US$)

183. Mr. Santa María testifies that at no point in this meeting or any other did the Government contradict this assumption or take the position that SMCV would pay royalties for the minerals processed by the Concentrator.⁴⁵⁰

184. In early September 2011, APOYO submitted the final proposal for the new tax and contributory scheme to the Government.⁴⁵¹ Largely adopting APOYO’s proposal, on 28 September 2011 the Government enacted Laws Nos. 29788 to 29790, which amended the royalty regime and created the special mining tax (“SMT”) and the GEM.⁴⁵² Law 29788 amended the royalty regime to change the method of calculating royalties, which together meant that mining companies would pay more royalties when making bigger profits, and less when making small profits or losses.⁴⁵³

⁴⁴⁸ Santa María ¶¶ 30-32. ↩

⁴⁴⁹ Santa María, Appendix C; see also id. ¶ 39. ↩

⁴⁵⁰ Santa María ¶¶ 38, 41, 45. ↩

⁴⁵¹ Santa María ¶ 34; Ex. CE-622, APOYO Consultoría, Proposal for a New Framework for Taxes, Contributions, and Mining Contributions in Peru (2 September 2011). ↩

⁴⁵² See CA-179, Mining Royalties Law, Law Modifying Law No. 28258, Law No. 29788 (28 September 2011); CA-180, Creating the Special Mining Tax, Law No. 29789 (28 September 2011); CA-181, Establishing GEM Legal Framework, Law No. 29790 (28 September 2011) ↩

⁴⁵³ Compare CA-179, Mining Royalties Law, Law Modifying Law No. 28258, Law No. 29788 (28 September 2011), Annex (calculating royalty quarterly based on the company’s operating profit at marginal rates ranging from 1% to 12%), with CA-8, Authorizing SUNAT to Implement Provisions that Facilitate the Administration of Royalties, Law No. 28969 (25 January 2007), Arts. 2, 3, 4 and 5 (calculating royalty monthly based on sales at rates of 1% to 3%); see also CA-179, Mining Royalties Law, Law Modifying ↩

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Law 29789 created the SMT, an additional tax based on a company’s operating profit.⁴⁵⁴ Law 29790 created the GEM as a voluntary payment, which like royalties and SMT would be calculated quarterly based on the operating profit from stabilized concessions.⁴⁵⁵ The chart below summarizes the tax and contributory burden under Laws Nos. 29788 to 29790 for mining companies according to their stability status:

185. As the chart shows, under the new scheme, non-stabilized mining companies would pay royalties under the 2011 Royalty Regime and SMT but not GEM; mining companies with mining stability agreements in force after the 2004 Royalty Law would pay royalties under the 2004 Royalty Regime and GEM, after discounting the royalty payments effectively made; and mining companies with mining stability agreements in force before the 2004 Royalty Law, such as SMCV, would only pay GEM but without any discounts.⁴⁵⁶ Unlike the Voluntary Contributions, which were paid into privately administered funds to fund local social benefit projects, GEM payments constituted State

Law No. 28258, Law No. 29788 (28 September 2011), Annex (calculating the marginal rate as an increasing function of the operating income margin, among other variables).

⁴⁵⁴ See CA-180, Creating the Special Mining Tax, Law No. 29789 (28 September 2011), Annex. ↩

⁴⁵⁵ See CA-181, Establishing GEM Legal Framework, Law No. 29790 (28 September 2011), Annex II; see also Ex. CE-64, Agreement for the Assessment of Gravamen Especial a la Minería Approved by Law No. 29790 (28 February 2012), Clause 2.1 (noting that the range of effective rates is delineated in Annex II of the law). ↩

⁴⁵⁶ See CA-181, Establishing GEM Legal Framework, Law No. 29790 (28 September 2011), Arts. 2.1, 3(b) (applying the GEM regime only for stabilized companies and disallowing discounts for mining companies with stability agreements in force before the 2004 Royalty Law); CA-179, Mining Royalties Law, Law Modifying Law No. 28258, Law No. 29788 (28 September 2011) (applying the new Royalty Regime to non-stabilized mining companies); CA-180, Creating the Special Mining Tax, Law No. 29789 (28 September 2011) (applying the SMT to non-stabilized mining companies). ↩

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revenues that were collected and administered by SUNAT, and were not specifically earmarked for social projects.⁴⁵⁷

186. The GEM law also included a model agreement that participating companies would sign with the Government to agree to pay GEM until the expiration of their respective mining stability agreements (the “GEM Model Agreement").⁴⁵⁸ Among others, the GEM Model Agreement included the following:

(a) The Agreement identified, in Clause 1, any stability agreements entered into by the company and their termination dates.⁴⁵⁹

(b) The Model Agreement required a quarterly assessment of the GEM on profits "from the concessions included in each one of the Agreements entered into by the Company" and listed in Clause 1.⁴⁶⁰ To account for the fact that companies with stability agreements entered into after 2004 would pay both GEM and royalties, the agreement also provided that “amounts paid for the mining royalties established in Law. No. 28258" would be deducted for purposes of the assessment.⁴⁶¹ The agreement also noted that GEM payments would be deductible for income tax purposes, and would constitute revenues for the public treasury (Clause 2).⁴⁶²

(c) The Agreement expired on the termination date of the last of the stability agreements listed in Clause 1, and provided that GEM would be “assessed until the termination of” each of the agreements (Clause 4).⁴⁶³

(d) SUNAT would collect and administer the GEM payments (Clause 6).⁴⁶⁴

⁴⁵⁷ Compare CA-131, Voluntary Contribution Program, Supreme Decree No. 071-2006-EM (21 December 2006), Clauses 2.1, 2.4; with Ex. CE-64, Agreement for the Assessment of Gravamen Especial a la Minería Approved by Law No. 29790 (28 February 2012), Arts. 3(d), 4. ↩

⁴⁵⁸ CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011), pp. 2-3. ↩

⁴⁵⁹ CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011), Model Agreement, Clause 1. ↩

⁴⁶⁰ CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011), Model Agreement, Clause 2.1. ↩

⁴⁶¹ CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011), Model Agreement, Clause 2.2(b); see also CA-181, Establishing GEM Legal Framework, Law No. 29790 (28 September 2011), Art. 3(b). ↩

⁴⁶² CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011), Model Agreement, Clause 2.2(c). ↩

⁴⁶³ CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011), Model Agreement, Clause 4. ↩

⁴⁶⁴ CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011), Model Agreement, Clause 6. ↩

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(e) The Model Agreement did not “constitute any modification or partial waiver" of the terms of the stability agreements executed by the company (Clause 11).⁴⁶⁵

2. SMCV Agreed to Pay a GEM Contribution for Its Entire Production Unit on the Understanding That It Would Not Be Subject to Royalties or Special Mining Tax

187. Ms. Torreblanca testifies that it was "no surprise" when "the Government asked SMCV to participate in the GEM," given SMCV's participation in the Voluntary Contribution program and SMCV's longstanding position that it would not pay royalties during the life of the Stability Agreement.⁴⁶⁶ In light of SUNAT's 2006-2007, 2008, and 2009 Royalty Assessments, however, SMCV “decided to send a letter to the Government to clarify that we would only participate in the GEM given the understanding that our activities and operations would be covered under the Stability Agreement, or that we could not be subject to the payment of the GEM and royalties at the same time.”⁴⁶⁷

188. On 7 October 2011, SMCV sent a letter to Guillermo Shinno, the Director General of Mining, explaining SMCV's situation and requesting “urgent confirmation of the scope of the [Stability] Agreement for the application of the [GEM].”⁴⁶⁸ The letter set out SMCV's understanding that, after signing a GEM Agreement, the company would be subject "exclusively... to the [GEM] . . . with respect to the operating profits from the sale of the metallic minerals... from the 'Cerro Verde Nos. 1, 2 and 3' mining concession and the 'Cerro Verde Beneficiation Plant' beneficiation concession, which are the subject of the [Stability Agreement].”⁴⁶⁹ The letter also reiterated SMCV's views that "as long as the Agreement is in force (i.e., until December 31, 2013) neither mining royalties ... nor special mining tax ... would apply” to the Mining and Beneficiation Concessions.⁴⁷⁰

189. A few days later, Ms. Torreblanca had several meetings with MEF and MINEM officials, in which she sought to “clarify the scope of the GEM, as applied to SMCV.”⁴⁷¹ Ms. Torreblanca testifies that she explained the existing royalty dispute, and that SMCV was in the process of challenging the assessments.⁴⁷² As Ms. Torreblanca explains, “[t]hese officials understood

⁴⁶⁵ CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011), Model Agreement, Clause 11. ↩

⁴⁶⁶ Torreblanca ¶ 84. ↩

⁴⁶⁷ Torreblanca ¶ 84. ↩

⁴⁶⁸ Ex. CE-628, SMCV, Letter No. SMCV.VL&RG-1896-2011 (7 October 2011). ↩

⁴⁶⁹ Ex. CE-628, SMCV, Letter No. SMCV.VL&RG-1896-2011 (7 October 2011). ↩

⁴⁷⁰ Ex. CE-628, SMCV, Letter No. SMCV.VL&RG-1896-2011 (7 October 2011). ↩

⁴⁷¹ Torreblanca ¶ 86 (describing meeting with Vice-Minister of Economy, Laura Calderón, and MINEM's legal advisor, José Manuel Pando). ↩

⁴⁷² Torreblanca ¶ 86. ↩

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our concern and assured us that SMCV would only pay GEM-and not royalties and SMT-because companies could not be subject to both."⁴⁷³

190. Because she had received no response to her first letter, on 26 October 2011 Ms. Torreblanca followed up with another letter on behalf of SMCV to Mr. Shinno, reiterating that SMCV had a Stability Agreement in force that “includes the 'Cerro Verde Nos. 1, 2 and 3' mining concession as well as the 'Cerro Verde Beneficiation Plant' beneficiation concession, from which all the ore corresponding to the Cerro Verde production unit, the only one the company has, is extracted and processed."⁴⁷⁴ The letter requested confirmation that if SMCV signed the GEM Agreement,

[SMCV] will pay the GEM as of October 1, 2011, and will not pay either the Special Mining Tax approved by Law No. 29789 or the Mining Royalties set forth in Law No. 28258 for the concessions mentioned in the preceding paragraph until December 31, 2013, the expiration date of the Stability Agreement.⁴⁷⁵

191. On 5 December 2011, still awaiting a response from the DGM, SMCV wrote to Minister of Economy and Finance, Miguel Castilla Rubio, stressing that it was “necessary to have absolute clarity regarding the scope of the GEM and the inapplicability of the Special Mining Tax . . . and the Mining Royalties to the concessions for which the GEM would be paid" before it entered into the GEM Agreement.⁴⁷⁶ SMCV requested that, "as has been verbally stated to us by several authorities, please confirm that upon signing the [GEM] Agreement . . . [SMCV] will only have to pay the GEM and will pay neither the Special Mining Tax nor the Mining Royalty for the concessions included in the [Stability Agreement].”⁴⁷⁷ Mr. Castilla never responded to SMCV's letter.⁴⁷⁸

192. On 28 December 2011, MINEM's Mr. Shinno finally responded to SMCV's letters.⁴⁷⁹ Instead of confirming or denying SMCV's clearly stated understanding of stability as requested, Mr. Shinno asserted that SMCV's request for clarification “exceed[ed] the competence of the Energy and Mines Sector."⁴⁸⁰ Mr. Shinno's statement was completely at odds with the previous opinions MINEM had issued with regard to the scope of SMCV's stability agreement-most notably Mr. Isasi's June 2006 Report, which formed the basis for SUNAT's assessments.⁴⁸¹ Mr. Shinno also

⁴⁷³ Torreblanca ¶ 86. ↩

⁴⁷⁴ Ex. CE-630, SMCV, Letter No. SMCV-VL&RG-1968-2011 (26 October 2011); Torreblanca ¶ 87. ↩

⁴⁷⁵ Ex. CE-630, SMCV, Letter No. SMCV-VL&RG-1968-2011 (26 October 2011). ↩

⁴⁷⁶ Ex. CE-631, SMCV, Letter No. SMCV-VL&RG-2217-2011 (5 December 2011). ↩

⁴⁷⁷ Ex. CE-631, SMCV, Letter No. SMCV-VL&RG-2217-2011 (5 December 2011). ↩

⁴⁷⁸ Torreblanca ¶ 89. ↩

⁴⁷⁹ Ex. CE-632, MINEM, Official Letter No. 1333-2011-MEM/DGM, December 28, 2011. ↩

⁴⁸⁰ Ex. CE-632, MINEM, Official Letter No. 1333-2011-MEM/DGM, December 28, 2011. ↩

⁴⁸¹ Compare Ex. CE-632, MINEM, Official Letter No. 1333-2011-MEM/DGM, December 28, 2011 (noting that SMCV's request "exceeds the competence of the Energy and Mines Sector,") with Ex. CE-534, MINEM, Report No. 156-2006-MEM/OGJ (16 June 2006), pp. 7, 12-13, Section I, ¶ 5, Section III, ¶¶ 1.1- ↩

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attached a 14 October 2011 MEF Opinion, which took the position that MEF, the Ministry of which SUNAT forms part, "has no jurisdiction to determine the content of [the Stability Agreement], . . . or to define their scope and content."⁴⁸² However, the MEF Opinion confirmed that, in principle, the GEM program only applied to mining companies “for that which is covered by [a stability agreement]," whereas the SMT and Mining Royalty were applicable “on that which is not included in [stability] Agreements.”⁴⁸³

193. On 28 February 2012, based on Mr. Shinno and the MEF officials' confirmations that the GEM contributions “would be exclusive of any royalty or SMT obligation" and the understanding "that most of the other large mining companies with mining stability agreements were going to participate," Ms. Torreblanca signed an agreement committing to pay the GEM on behalf of SMCV (the “GEM Agreement”).⁴⁸⁴ The GEM Agreement followed the text of the GEM Model Agreement, and obliged SMCV to make GEM payments based on its "quarterly operating profit, from the concessions included in” the Stability Agreement.⁴⁸⁵

194. SMCV ultimately disbursed more than S/ 400 million (over US$100 million) in GEM payments from the fourth quarter of 2011 until the end of 2013, as shown in the table below:⁴⁸⁶

⁴⁸² 4.5 (opining extensively on the scope of the Stability Agreement and interpreting benefits under the agreement as limited to the investment project delimited by the Feasibility Study). ↩
Ex. CE-629, MEF, Report No. 206-2011-EF/61.01 (14 October 2011), p. 2, Section II, ¶¶ 2-3.

⁴⁸³ Ex. CE-629, MEF, Report No. 206-2011-EF/61.01 (14 October 2011), p. 2, Section II, ¶¶ 2-3. ↩

⁴⁸⁴ See Torreblanca ¶ 90 (noting that SMCV "did not want to be the only major mining company that would not participate in the GEM and did not want to risk reigniting a political controversy"); see also Ex. CE-639, SMCV, Letter No. SMCV-VL&RG-623-2012 (February 29, 2012); Ex. CE-64, Agreement for the Assessment of Gravamen Especial a la Minería Approved by Law No. 29790 (28 February 2012);. ↩

⁴⁸⁵ Compare CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011) with Ex. CE-64, Agreement for the Assessment of Gravamen Especial a la Minería Approved by Law No. 29790 (28 February 2012), Art. 2.1 (confirming that GEM "is the result of assessing on the quarterly operating profit, from the concessions included in each of the Agreements signed by THE COMPANY referred to in the First Clause"); id. Art. 1 (listing Stability Agreement as relevant agreement held by SMCV). ↩

⁴⁸⁶ See Ex. CE-65, SMCV, GEM Payment, 4Q 2011 (29 February 2012); Ex. CE-70, SMCV, GEM Payment, 1Q 2012 (31 May 2012); Ex. CE-71, SMCV, GEM Payment, 2Q 2012 (31 August 2012); Ex. CE-73, SMCV, GEM Payment, 3Q 2012 (30 November 2012); Ex. CE-78, SMCV, GEM Payment, 4Q 2012 (28 February 2013); Ex. CE-87, SMCV, GEM Payment, 1Q 2013 (30 May 2013); Ex. CE-96, SMCV, GEM Payment, 2Q 2013 (28 August 2013); Ex. CE-101, SMCV, GEM Payment, 3Q 2013 (28 November 2013); Ex. CE-106, SMCV, GEM Payment, 4Q 2013 (27 February 2014). ↩

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195. The amounts paid were based on SMCV's operating profit for its Mining and Beneficiation Concessions—the “concessions included in" the Stability Agreement-without deducting any royalty payments.⁴⁸⁷ The Government accepted each of those payments without question.⁴⁸⁸

N. THE TAX TRIBUNAL UPHELD SUNAT'S ROYALTY ASSESSMENTS

1. The Tax Tribunal Upheld SUNAT's 2006-2007 and 2008 Royalty Assessments in Resolutions Marred by Grave Procedural Irregularities

196. On 12 May 2010, SMCV challenged the 2006-2007 Royalty Assessments before the Tax Tribunal, the body within the MEF that serves as the final administrative appeal for royalty and tax matters (the “2006-2007 Royalty Case").⁴⁸⁹ The Tax Tribunal is empowered to review SUNAT assessments de novo, and SUNAT assessments, if challenged, are not final administrative acts or enforceable against the taxpayer until the Tax Tribunal confirms them.⁴⁹⁰ The case was assigned to

⁴⁸⁷ Ex. CE-64, Agreement for the Assessment of Gravamen Especial a la Minería Approved by Law No. 29790 (28 February 2012), Art. 2.1. ↩

⁴⁸⁸ See Torreblanca ¶ 91. ↩

⁴⁸⁹ Ex. CE-40, SMCV, Challenge to Tax Tribunal, 2006/07 Royalty Assessments (12 May 2010); CA-250, MEF Internal Regulations, Ministerial Resolution 213-2020/EF/4, Art. 16 ("The Tax Tribunal is the Ministry's decision-making body that constitutes the highest administrative body in tax and customs matters on the national level."); CA-186, Manual of the Operation and Functions of the Tax Tribunal, Ministerial Resolution No. 626-2012-EF/43 (5 October 2012), p. 1 ("The Tax Tribunal is the administrative last resort for tax and customs matters within the framework of the measures designed to improve the resolution of tax procedures"); id., p. 3 (referring to the "Tax Tribunal's administrative acts"). ↩

⁴⁹⁰ See CA-4, Tax Code, Supreme Decree No. 135-99-EF (19 August 1999), Art. 101(1) (“The Tax Tribunal has the following powers: Hear and resolve as the last administrative instance appeals against Resolutions of the Administration resolving reconsideration requests... related to the determination of tax liability."); CA-14, Tax Code, Supreme Decree No. 133-2013-EF (22 June 2013), Art. 101(1) (same); id. at Art. 115(c) (same); id. at Art. 127 ("The decision-making body is empowered to conduct a full re-examination of the ↩

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Chamber No. 10, one of the Tax Tribunal's eleven chambers, and to Luis Cayo Quispe as the vocal ponente—that is, the vocal (the Tax Tribunal decision-maker) responsible for conducting the initial analysis of the case and preparing a draft resolution.⁴⁹¹

197. Approximately nine months later, on 10 March 2011, SMCV filed a challenge to the 2008 Royalty Assessments (the “2008 Royalty Case”).⁴⁹² The 2008 Royalty Case was assigned to a different chamber, Chamber No. 1, and to vocal ponente Licette Zuñiga Dulanto, who was also the presiding vocal of her Chamber.⁴⁹³ The following chart summarizes Chambers' No. 10 and No. 1 composition during the relevant period:

198. The Tax Tribunal President, Zoraida Olano Silva, took a keen and unusual interest in SMCV's case-and its outcome-from the outset, despite having no official role in the resolution of individual cases.⁴⁹⁴ In particular, instead of allowing both Chambers to proceed with a law clerk assisting the vocal ponente in preparing a draft resolution—as required under the Tax Tribunal Manual of Procedures⁴⁹⁵—President Olano Silva personally took control of the 2008 Royalty Case instructing her assistant, Ms. Ursula Villanueva, to prepare the draft resolution.⁴⁹⁶ Contemporaneous documents confirm President Olano Silva and Ms. Villanueva's inappropriate involvement. For example, in a 22

⁴⁹¹ issues of the disputed case."); id. at Art. 157 ("The resolution of the Tax Court exhausts the administrative route."). ↩
See Ex. CE-88, Tax Tribunal, Decision No. 08997-10-2013 (30 May 2013); Estrada ¶ 37; CA-196, Tax Tribunal Procedural Manual, Ministerial Resolution No. 017-2012-EF/13 (31 October 2012), p. [13], ¶ 11 (“VOCAL PONENTE: Receives and analyzes the draft Procedural Order or draft Resolution and, if appropriate, coordinates with the advisor(s) any changes required...").

⁴⁹² Ex. CE-49, SMCV, Challenge to Tax Tribunal, 2008 Royalty Assessments (10 March 2011). ↩

⁴⁹³ See Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), p. 24. ↩

⁴⁹⁴ See CA-186, Manual of the Operation and Functions of the Tax Tribunal, Ministerial Resolution No. 626-2012-EF/43 (5 October 2012) (establishing rules on the scope of power of the President of the Tax Tribunal, which does not include the power to resolve individual cases). ↩

⁴⁹⁵ See CA-196, Tax Tribunal Procedural Manual, Ministerial Resolution No. 017-2012-EF/13 (31 October 2012), p. [12], ¶¶ 5-7(establishing rules on the process that the resolution of individual cases must follow, which includes the vocal ponente preparing the draft resolution with the assistance of a law clerk); Estrada ¶ 29. ↩

⁴⁹⁶ See generally Estrada ¶¶ 29-30, 36-59; Ex. CE-648, Email from Úrsula Villanueva Arias to Zoraida Alicia Olano Silva (22 March 2013, 4:02 PM PET); Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), p. 24. ↩

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March 2013 email-sent two years after the 2008 Royalty Case had been filed, but before the scheduling of an oral hearing-Ms. Villanueva reported on her progress to President Olano Silva:

Subject: Cerro Verde

Zoraida: I am sending you the arguments of both sides, as well as the main clauses of the stability agreement. There are good arguments for both sides, I am more or less leaning to one side. Please read the arguments when you can and we can talk about it. I'll continue working on this.⁴⁹⁷

199. On 5 April 2013-almost three years after SMCV filed its challenge-Chamber No. 10 held its oral hearing on the 2006-2007 Royalty Case.⁴⁹⁸ Four days later, Chamber No. 1 scheduled its oral hearing on the 2008 Royalty Case for 2 May 2013, which then proceeded as scheduled-less than one month after the hearing on the 2006-2007 Royalty Case, despite the fact that SMCV had filed the 2008 Royalty Case challenge almost nine months later.⁴⁹⁹

200. On 21 May 2013, less than three weeks after the hearing and before Chamber No. 10 had ruled on the earlier-filed 2006-2007 Royalty Case, Chamber No. 1 issued the resolution drafted by Ms. Villanueva in the 2008 Royalty Case.⁵⁰⁰ The resolution itself leaves no doubt about its author: according to the practice of the Tax Tribunal, a “work route" on the signature page designates the initials of the drafting law clerk, after those of the vocal ponente and the secretary-rapporteur.⁵⁰¹ Instead of the initials of a law clerk assisting Chamber No. 1, the 2008 Royalty Case lists Ursula Villanueva's initials “UV,” confirming that she drafted the resolution.⁵⁰²

⁴⁹⁷ Ex. CE-648, Email from Úrsula Villanueva Arias to Zoraida Alicia Olano Silva (22 March 2013, 4:02 PM PET). ↩

⁴⁹⁸ See Ex. CE-79, Evidence of Oral Hearing Report No. 0286-2013-EF/TF (5 April 2013). ↩

⁴⁹⁹ See Ex. CE-80, Notification of Oral Hearing Report No. 0411-2013-EF/TF (9 April 2013) (scheduling an oral hearing for the 2008 Royalty Case for 2 May 2013); see also Ex. CE-40, SMCV, Challenge to Tax Tribunal, 2006/07 Royalty Assessments (12 May 2010); Ex. CE-49, SMCV, Challenge to Tax Tribunal, 2008 Royalty Assessments (10 March 2011). ↩

⁵⁰⁰ See Ex. CE-83, 21 May 2013 Tax Tribunal Decision, No. 08252-1-2013. ↩

⁵⁰¹ Estrada ¶¶ 29, 48. ↩

⁵⁰² See Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), p. 24 (showing initials of vocal ponente "ZD" (Ms. Zúñiga Dulanto), secretary rapporteur "FQ" (Mr. Flores Quispe), "law clerk" that prepared the draft resolution “UV” (Ms. Ursula Villanueva), secretary of the Chamber "rmh" (Rosario Muñoz Hidalgo)). ↩

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Figure 3: 2008 Royalty Case Signature Page

RESUELVE:
CONFIRMAR la Resolución de Intendencia N° 055-014-0001394/SUNAT de 31 de enero de 2011.

Regístrese, comuníquese y remítase a la SUNAT, para sus efectos.

Signature

Flores Quispe
Secretario Relatcr
ZD/FQ/UV/rmh

CERTIFICO:
QUE LA FOTOCOPIA QUE ANTECEDE ES FIEL AL
DOCUMENTO QUE HE TENIDO A LA VISTA

LIMA, 3 0 MAYO 2013

Signature

TRIBUNAL FISCAL

PATRICK ALFONSO FLORES QUISPE
Secretario Relator

201. The resolution drafted by Ms. Villanueva upheld the 2008 Royalty Assessments adopting the same interpretation of the Mining Law and Regulations first set out by Mr. Isasi in his June 2006 Report, namely:

[T]he benefits of legal stability are not granted in a general manner to the owner of the mining activity or any given mining concession, but rather in relation to a specific investment project that is clearly delimited in the Feasibility Study . . . while the benefits conferred under stability contracts go to the owner of the mining activity for the purpose of promoting the investment that develops into a concession or an Economic-Administrative Unit, said benefits apply only to the activities related to the investment in question, the object of which is delimited in the Feasibility Study, which, in the present case, is in reference to the activities related to the "Cerro Verde Leaching Project."⁵⁰³

202. The resolution explicitly relied on both Minister Sanchez's November 2005 letter to congressman Diez Canseco and Mr. Isasi's June 2006 Report as “confirm[ing]" the position that

[t]he stability benefits have not been granted to the "Cerro Verde N° 1, N° 2 and N° 3" mining concession or to the "Cerro Verde Beneficiation Plant" beneficiation concession, nor with regard to any activity or investment therein, but rather with regard to a specific project implemented at said concessions (“Cerro Verde Leaching Project"), where the objective of that project is to expand the

⁵⁰³ Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), pp. 14-15 (emphasis added). ↩

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production capacity of copper cathodes obtained from copper ore heap leaching processes, as specified in the Feasibility Study submitted by [SMCV], which is incorporated in the [Stability Agreement].⁵⁰⁴

203. The resolution provided no guidance on how this interpretation could work in practice, given the difficulty of segregating the investment program in the 1996 Feasibility Study from later investments in the same integrated mining unit-particularly given that, as the resolution acknowledged, the 1996 Feasibility Study's investment program was itself an expansion of existing leaching operations.⁵⁰⁵ Equally, the Tax Tribunal did not identify any regulations that clarified how such segregation should take place-unsurprisingly, since none existed.⁵⁰⁶ The resolution also arbitrarily took the position that SMCV should have asked the DGM to modify the 1996 Feasibility Study in order to include the Concentrator⁵⁰⁷—even though a Feasibility Study can only be modified "in the course of its execution" and the resolution itself acknowledged that SMCV decided to invest in the Concentrator only after the 1996 Feasibility Study had been fully executed.⁵⁰⁸

204. The resolution further concluded that the Beneficiation Concession expansion to include the Concentrator was irrelevant because it occurred after the date the contract was signed, and because "at the date the stability agreement . . . was signed, the [Beneficiation Concession] was only authorized to process copper ore through leaching.”⁵⁰⁹ This conclusion was simply wrong: the Beneficiation Concession, like each of MINEM's previous authorizations to process minerals at Cerro Verde-including Minero Perú's 1977 special mining right, the 1991 conversion of the special mining right to the Beneficiation Concession, and subsequent expansions of the Beneficiation Concession-did not limit the rights granted to a particular processing method.⁵¹⁰ Indeed, both Minero Perú and

⁵⁰⁴ Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013) (citing Ex. CE-519, MINEM, Report No. 2004-2005-MEM/DM (8 November 2005); Ex. CE-534, MINEM, Report No. 156-2006-MEM/OGJ (16 June 2006)). ↩

⁵⁰⁵ Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), p. 13 ("[F]rom what was indicated in the [1996] Feasibility Study... the object of the project was to expand the leaching system.") (emphasis added). ↩

⁵⁰⁶ See generally Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013). ↩

⁵⁰⁷ See Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), p. 13 ("[I]n the case of modification but... also in the case of an expansion of the... Feasibility Study, it was necessary to request its approval from the Bureau of Mining."); see also id. p. 12. ↩

⁵⁰⁸ See Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), p. 13 (The investments included in the Feasibility Study were “approved on 23 November 1998... while the application for the installation of the plant that gave rise to the 'Primary Sulfides Project' occurred in year 2004"). ↩

⁵⁰⁹ See Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), p. 17. ↩

⁵¹⁰ Cf. Ex. CE-382, MINEM, Directorial Resolution No. 151-2002-EM/DGM (21 May 2002) (expanding the Beneficiation Concession); Ex. CE-10, MINEM, Directorial Resolution No. 339-96-EM/DGM (5 September 1996) (same); Ex. CE-352, MINEM, Directorial Resolution No. 308-96-EM/DGM (12 August 1996) (same); Ex. CE-308, Directorial Resolution No. 140-91-EM/DGM (20 December 1991) (converting Minero Perú's special mining right into the Beneficiation Concession); Ex. CE-295, Supreme Decree No. 002-77-EM/DGM (13 January 1977) (granting Minero Perú's special mining right). ↩

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SMCV had processed minerals through leaching and flotation simultaneously under those authorizations from the 1970s until 1994.⁵¹¹

205. In the morning of 21 May 2013, the day that Chamber No. 1 issued the resolution drafted by Ms. Villanueva, the presiding vocal of Chamber No. 10 hearing the 2006-2007 Royalty Case, Carlos Moreano, emailed President Olano Silva to inquire about the “Cerro Verde file" and Ms. Villanueva's draft:

Zoraida: A question regarding the Cerro Verde file. We were informed that Ursula Villanueva made a draft that was returned to Chamber 1, Dr. Cayo [vocal ponente of the 2006/07 Royalty case for Chamber No. 10] tells me that he will coordinate with Licette [Zuñiga, presiding vocal of Chamber No. 1 hearing the 2008 Royalty case] since we have the same subject matter.⁵¹²

206. President Olano Silva responded, “I spoke with Licette and she tells me that she has already coordinated with Luis Cayo."⁵¹³ However, the following day, after Chamber No. 1 issued the resolution drafted by Ms. Villanueva, Mr. Moreano followed up again, clearly frustrated at the President's attempt to circumvent Chamber No. 10:

Zoraida: ... the ideal thing would have been for Chamber 1 to hold a session on the Cerro Verde file after coordinating with us, who have [a case with] the same subject matter and from the same taxpayer, it was the right thing to do; as always happens, if we do not call we will not find out anything.⁵¹⁴

207. Three days after Chamber No. 1 adopted Ms. Villanueva's draft resolution, and two days after receiving Mr. Moreano's complaint, President Olano Silva and Ms. Zuñiga called Mr. Cayo, the vocal ponente of Chamber No. 10, to a meeting to discuss SMCV's case. Mr. Cayo agreed to do so, writing:

Dear Zoraida[:] At the end of the day yesterday, I received a call from Licette to have a meeting now starting at 8:30. However, as I told her, I have to attend the oral hearings we had already scheduled for today, and they are starting early in the morning. If all goes well, we should be finished by 11.00 am. As soon as I finish I will contact you and Licette.⁵¹⁵

⁵¹¹ See, e.g., Ex. CE-457, SMCV, Petition No. 1487019 to MINEM (27 August 2004). ↩

⁵¹² Ex. CE-650, Email from Carlos Hugo Moreano Valdivia to Zoraida Alicia Olano Silva (21 May 2013, 10:05 AM PET). ↩

⁵¹³ Ex. CE-650, Email from Zoraida Alicia Olano Silva to Carlos Hugo Moreano Valdivia (21 May 2013, 10:47 AM PET). ↩

⁵¹⁴ Ex. CE-652, Email from Carlos Hugo Moreano Valdivia to Zoraida Alicia Olano Silva (22 May 2013 8:58 AM PET). ↩

⁵¹⁵ Ex. CE-654, Email from Luis Gabriel Cayo Quispe to Zoraida Alicia Olano Silva and Licette Isabel Zuñiga Dulanto (24 May 2013, 8:31 AM PET). ↩

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208. President Olano Silva, in turn, confirmed the meeting and asked Mr. Cayo to bring, in addition to the 2006/07 Royalty Case, "the case file 1889-2012"-that is, the 2009 Royalty Case, which had also been assigned to Chamber No. 10 at the beginning of 2012:

Luis: Then we will wait for you when you finish your oral reports as I have a meeting later. Do you have a file number 1889-2012, which is also on the same subject?⁵¹⁶

209. Although the specific substance of President Olano Silva's meeting with Mr. Cayo remains unknown, after this meeting, on 30 May 2013-only six days later— Chamber No. 10 issued its resolution regarding the 2006-2007 Royalty Assessments. The resolution copy-pasted almost verbatim the resolution drafted by Ms. Villanueva that was previously issued by Chamber No. 1 in the 2008 Royalty Case.⁵¹⁷

Figure 4: 2006-2007 Royalty Case Signature Page

RESUELVE:
CONFIRMAR la Resolución de Intendencia N° 055-014-0001290/SUNAT de 31 de marzo de 2010.

Regístrese, comuníquese y remítase a la SUNAT, para sus efectos.

Signature

Toledo Sagastegui
Secretaria Relatora
CQ/TS/rag

210. The signature block on Chamber No. 10's resolution confirms that Chamber No. 10 did not prepare its own resolution, as the work route does not include the initials of any law clerk.⁵¹⁸

211. While the Tax Tribunal notified SUNAT of the resolution in the 2008 Royalty Case almost immediately, on 27 May 2013, it did not notify SMCV of either resolution until over three weeks later, on 20 June 2013.⁵¹⁹

⁵¹⁶ Ex. CE-655, Email from Zoraida Alicia Olano Silva to Luis Gabriel Cayo Quispe and Licette Isabel Zuñiga Dulanto (24 May 2013, 10:23 AM PET). ↩

⁵¹⁷ Compare Ex. CE-88, Tax Tribunal, Decision No. 08997-10-2013 (30 May 2013) with Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013). ↩

⁵¹⁸ See Ex. CE-88, Tax Tribunal, Decision No. 08997-10-2013 (30 May 2013) (last page of the Tax Tribunal Resolution containing initials of the vocal ponente, secretario relator, secretaria de la Sala, but not the asesor de la Sala). ↩

⁵¹⁹ See Ex. CE-85, Tax Tribunal, Notice No. 007270-2013-EF/40.01 (27 May 2013); Ex. CE-89, Receipt Notice of Resolutions No. 08252-1-2013 and No. 08997-10-2013 (20 June 2013). ↩

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2. The Tax Tribunal Dismissed SMCV's Request to Waive Penalties and Interest on the 2006-2007 and 2008 Royalty Assessments

212. In light of the Tax Tribunal's resolutions upholding the 2006-2007 and 2008 Royalty Assessments on the basis of Mr. Isasi's novel and restrictive interpretation-the first time this interpretation had been set out in a final administrative action—SMCV submitted requests asking the Tax Tribunal to waive penalties and interest in both cases.⁵²⁰ SMCV's requests were based on Article 170 of the Peruvian Tax Code, which provides that penalties and interest should be waived where interpretation of the applicable legal provisions is subject to "reasonable doubt" as a result of their imprecision, obscurity, or ambiguity.⁵²¹

213. In its requests, SMCV explained that there was clearly “reasonable doubt” relating to the proper interpretation of the applicable legal provisions.⁵²² SMCV first noted that the Tax Tribunal's resolutions were based on a completely novel interpretation of the Mining Law and Regulations in particular, the interpretation set forth in Mr. Isasi's June 2006 Report-which alone was sufficient to demonstrate reasonable doubt:

The [Tax Tribunal's interpretation] on the meaning and scope of Articles 82 and 83 of the General Mining Law and Articles 2, 22 and 24 of its Regulations, highlights the existence of a "reasonable doubt" waiving interest and penalties, since an interpretation is only now made on the supposedly correct meaning of the provisions in question in view of different terms used by the lawmaker when referring to the scope of stability guarantees. . . .

This new interpretation radically changes the scope and meaning that has always been given to the aforementioned articles of the General Mining Law and its Regulations, at the doctrinal as well as case law level, i.e., that the [Stability Agreement] protects the Production Unit or Concession as a whole, and not just the part of the investments

⁵²⁰ See Ex. CE-656, SMCV, Letter to the President of Chamber No. 10 (Royalties 2006/07) (26 June 2013); Ex. CE-90, SUNAT Letter to Tax Tribunal Chamber No. 1, Resolution No. 8252-1-2013 (26 June 2013); see also Ex. CE-658, SMCV, Supplemental Brief to Tax Tribunal (2006/07 Royalty Assessment) (9 July 2013); Ex. CE-659, SMCV, Supplemental Brief to Tax Tribunal (2008 Royalty Assessment) (9 July 2013). ↩

⁵²¹ See CA-14, Tax Code, Supreme Decree No. 133-2013-EF (22 June 2013), Art. 170 (“The assessment of interest... or the assessment of penalties is not applicable if: As a result of the misinterpretation of a provision, no amount of the tax debt related to said interpretation had been paid until the clarification thereof."); id. at Art. 92(g) (summarizing the criteria in Article 170 as involving "cases of reasonable doubt"); CA-8, Authorizing SUNAT to Implement Provisions that Facilitate the Administration of Royalties, Law No. 28969 (25 January 2007), Art. 12 (“The application of interest or penalties does not apply in the case of obligations related to the mining royalty, in the same cases and terms provided in Art. 170 of the Tax Code. Nor is it appropriate when the obligation to pay the mining royalty was breached due to causes of an objective nature attributable to the Ministry of Energy and Mines or to SUNAT."). ↩

⁵²² See Ex. CE-656, SMCV, Letter to the President of Chamber No. 10 (Royalties 2006/07) (26 June 2013), pp. 3-5, 7-12; Ex. CE-90, SMCV, Letter to President of Chamber No. 1 (Royalties 2007) (26 June 2013), pp. 3-5, 7-12. ↩

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committed in the Feasibility Study that constitutes the requirement for the signing of the Agreement.⁵²³

214. SMCV also argued, among others, that the Government had repeatedly confirmed over the years that stability agreements in general and SMCV's Stability Agreement in particular corresponded to mining concessions or units, not specific projects, including by accepting significant voluntary contributions and GEM payments from SMCV for the entirety of its concessions.⁵²⁴ SMCV further pointed out that the Tax Tribunal's own prior resolutions supported the conclusion that stabilization applied on the basis of concessions or units.⁵²⁵

215. Instead of addressing SMCV's arguments, on 15 July 2013, the Tax Tribunal arbitrarily rejected both of SMCV's requests on the flimsy procedural grounds that SMCV had not “put forward” the argument in its initial challenge.⁵²⁶ This reasoning was completely at odds with both the Tax Code and the Law on General Administrative Procedure, which required the Tax Tribunal to consider the applicability of waiver due to reasonable doubt sua sponte.⁵²⁷

216. On 10 October 2013, SUNAT approved SMCV's 4 October 2013 request, under protest, to enter into a deferral and installment plan to jointly pay the 2006-2007 and 2008 Royalty Assessments.⁵²⁸ Deferral and installment plans allow taxpayers to defer payments for up to six months, capitalize all assessment amounts owed up to the date that the taxpayer enters into the plan,

⁵²³ See Ex. CE-90, SMCV, Letter to President of Chamber No. 1 (Royalties 2007) (26 June 2013), pp. 4-5; Ex. CE-656, SMCV, Letter to the President of Chamber No. 10 (Royalties 2006/07), pp. 4-5. ↩

⁵²⁴ See Ex. CE-90, SMCV, Letter to President of Chamber No. 1 (Royalties 2007) (26 June 2013), Sections 2.2.1-2.2.4; Ex. CE-656, SMCV, Letter to the President of Chamber No. 10 (Royalties 2006/07), Sections 2.2.1-2.2.4. ↩

⁵²⁵ See Ex. CE-90, SMCV, Letter to President of Chamber No. 1 (Royalties 2007) (26 June 2013, Section 2.2.7; Ex. CE-656, SMCV, Letter to the President of Chamber No. 10 (Royalties 2006/07), Section 2.2.7. ↩

⁵²⁶ Ex. CE-91, Tax Tribunal, Decision No. 11667-10-2013 (15 July 2013), p. 5; Ex. CE-92, Tax Tribunal, Decision No. 11669-1-2013 (15 July 2013), p. 5. ↩

⁵²⁷ See CA-14, Tax Code, Supreme Decree No. 133-2013-EF (22 June 2013, Art. 127 (“The decision-making body is empowered to conduct a full re-examination of the issues of the disputed case, subject matter, whether such issues have been raised by the interested parties or not, and new verifications shall be conducted where relevant."), 129 ("Decisions shall set out the points of fact and points of law on which they are based and shall rule on all the questions raised by the interested party and any others raised by the case file, failing which, the final paragraph of Article 150 shall be applicable."); CA-18, Law of Administrative Procedure, No. 27444 (2019), Art. 5.4 ("The content must cover all the questions of fact and law put forward by those administered, and others not proposed by them that have been sua sponte identified, as long as the administrative authority gives them a period of not less than five (5) days to express their position and, if applicable, submit the evidence they deem relevant"); see also Hernández ¶¶ 103-104, 127-132. ↩

⁵²⁸ Ex. CE-99, SUNAT, Resolution No. 0510170003363 (10 October 2013); Ex. CE-664, SMCV, Request Under Protest to Enter Into Deferral and Installment Plans (2006-07, 2008 Royalty Assessments) (4 October 2013). ↩

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and then apply interest to the amounts owed under the plan at 80% of the statutory rate established by Article 33 of the Tax Code.⁵²⁹

3. Peru's Courts First Annulled, Then Upheld the 2008 Royalty Assessment

i. The First-Instance Contentious Administrative Court Annulled the 2008 Royalty Assessment

217. On 19 September 2013, SMCV challenged the Tax Tribunal resolutions confirming the 2008 Royalty Assessment to the Contentious Administrative Courts, which provide a forum for judicial review of administrative resolutions.⁵³⁰

218. While SMCV's claims were pending, on 12 July 2014, Congress enacted Law No. 30230, incorporating a new Article 83-B to the Mining Law to provide that, for certain types of stability agreements, the stability guarantees apply "solely to the activities . . . expressly mentioned in the Investment Program included in the Feasibility Study that forms part of the Stability Agreement; or the additional activities that may be carried out subsequent to the implementation of the Investment Program, provided that such activities are . . . connected to the objective of the Investment Project.”⁵³¹ In the draft bill, Congress asserted that the provision was intended to “establish a clearer regulatory framework in accordance with the principle of legal certainty.”⁵³² In particular, Congress asserted that the existing legal framework did not “stabilize pre-existing assets or investments, nor those investments that are not included in [f]easibility [s]tud[ies],” and thus that the new provision would clarify how investors could claim stability for "additional activities" not included in the feasibility study.⁵³³ In reality, however, there was no such limitation in Article 83, which applied stability guarantees on the basis of the concession or mining unit.⁵³⁴

219. On 17 December 2014, the 18th Contentious Administrative Court decided in SMCV's favor in the 2008 Royalty Case, annulling the 2008 Royalty Assessments and concluding that SMCV was entitled to stability for the entire Cerro Verde Mining Unit.⁵³⁵ After emphasizing the

⁵²⁹ CA-14, Tax Code, Supreme Decree No. 133-2013-EF (22 June 2013), Art. 36; CA-215, Amended Tax Debt Deferment and/or Installment Plan Regulations, Superintendence Resolution No. 161-2015/SUNAT (15 July 2015), Arts. 1.13, 4, 19(c). ↩

⁵³⁰ See Ex. CE-97, SMCV, Administrative Court Appeal of the Tax Tribunal Decision, 2008 Royalty Assessments (18 September 2013); CA-18, Law of Administrative Procedure, No. 27444 (2019), Art. 10. ↩

⁵³¹ CA-209, Establishing Tax Measures, Simplification of Procedures, and Permits for Promoting and Revitalizing Investment in the Country, Law No. 30230 (12 July 2014), Art. 83-B. ↩

⁵³² Ex. CE-823, Congress, Draft Bill Law No. 30230, p. 11. ↩

⁵³³ Ex. CE-823, Congress, Draft Bill Law No. 30230, p. 9. ↩

⁵³⁴ See supra § III.С.1. ↩

⁵³⁵ See Ex. CE-122, Contentious Administrative Court, Decision, No. 07650-2013-CA, 2008 Royalty Assessment (17 December 2014), p. 26, ¶ 34. ↩

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importance of stability agreements in “attracting investments for the benefit of the country,"⁵³⁶ the court rejected the interpretation adopted by SUNAT and the Tax Tribunal:

[B]oth SUNAT and the Tax Court erred in interpreting the legal stability agreement to be limited to the ... “Cerro Verde Leaching Project" ... [Their] interpretation is not supported by the General Mining Law or in the Regulations thereof. To the contrary, the benefit ... IS GIVEN TO THE MINING TITLEHOLDER FOR THE ACTIVITIES IT CARRIES OUT IN ITS CONCESSIONS OR ECONOMIC ADMINISTRATIVE UNITS, as set forth in the fourth paragraph of Article 72 and 83 of the General Mining Law (referring to tax stabilization) and Article 22 of the Regulations of Title Nine of the General Mining Law; the law does not distinguish on the benefit it grants, and thus it is broad.⁵³⁷

220. The court further noted that "nowhere does the Mining Law or its Regulations provide that the stability guarantees apply only to the activities conducted through the project in which the investment was made,”⁵³⁸ and clarified that:

The benefit of legal stability (tax, administrative, and others) is given to mining titleholders (individuals and companies) to undertake their activities, specifically those carrying out mining activities, in a concession or concessions included in an Economic-Administrative Unit [.]⁵³⁹

221. The court then concluded that the Stability Agreement's references to the "Cerro Verde Leaching Project" did not limit the legal scope of SMCV's stability guarantees or create a "restricted kind of tax and administrative stabilization"⁵⁴⁰:

The first through seventh clauses describe the events that occurred from submission of the technical-economic feasibility study and the investment plan, through the completion of the investment project, named the "Cerro Verde Leaching Project". ... From these events and having fulfilled the terms of the Stability Agreement and the General Mining Law and Regulations, i.e., by making the investment and completing it within the established term, the mining title holder

⁵³⁶ See Ex. CE-122, Contentious Administrative Court, Decision, No. 07650-2013-CA, 2008 Royalty Assessment (17 December 2014), p. 22, ¶ 29. ↩

⁵³⁷ See Ex. CE-122, Contentious Administrative Court, Decision, No. 07650-2013-CA, 2008 Royalty Assessment (17 December 2014), p. 23, ¶ 30 (emphasis original); see also id. pp. 18-20 (citing Arts. 72, 80, and 85 of the Mining Law and Arts. 1, 14, and 22 of the Regulations). ↩

⁵³⁸ See Ex. CE-122, Contentious Administrative Court, Decision, No. 07650-2013-CA, 2008 Royalty Assessment (17 December 2014), pp. 19-20, ¶ 23. ↩

⁵³⁹ See Ex. CE-122, Contentious Administrative Court, Decision, No. 07650-2013-CA, 2008 Royalty Assessment (17 December 2014), pp. 20-21, ¶ 25. ↩

⁵⁴⁰ See Ex. CE-122, Contentious Administrative Court, Decision, No. 07650-2013-CA, 2008 Royalty Assessment (17 December 2014), p. 24, ¶ 31; id. pp. 21-24, ¶¶ 26-31. ↩

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was conferred, among others, tax, exchange rate, and administrative stability benefits.⁵⁴¹

222. The court also noted that the amendments made to introduce Article 83-B of the General Mining Law several months earlier-which for the first time introduced a provision explicitly restricting stability benefits to investments described in the Feasibility Study-reinforced its interpretation that the earlier stability regime did not contain a similar restriction.⁵⁴² Accordingly, the court concluded that SMCV's "activities related to the flotation of primary sulfides were covered by the scope of the legal stability agreement,” and thus that SUNAT had improperly assessed Royalty payments, as well as penalties and interest, against SMCV.⁵⁴³

ii. The Appellate Court Reversed the Contentious Administrative Court's Decision and Upheld the 2008 Royalty Assessment

223. SUNAT appealed the decision in SMCV's favor to the Superior Court of Justice (the "Appellate Court"), which reversed the first instance court's decision annulling the 2008 Royalty Assessments on 29 January 2016.⁵⁴⁴ Echoing the novel interpretation first concocted by Mr. Isasi, and then adopted by SUNAT and the Tax Tribunal, the Appellate Court concluded that:

as laid down by Article 83 . . . of the General Mining Law, specifically the fourth paragraph and the provisions of Article 22 of the Regulations... it is precise that the contractual benefits arising from the Stability Agreement lie solely with the holder of the mining company and cover exclusively and inclusively the investment made in a specific mining concession, which allows to establish by logical inference that a future investment, subsequent to the date of conclusion of the contract, will not be covered by the benefits of the Stability Agreement signed before this latest investment.⁵⁴⁵

224. The Appellate Court also rejected SMCV's request to waive penalty and interest charges on the 2008 Royalty Assessments without any analysis on the merits whatsoever, despite having the obligation to do so, and instead simply adopted the Tax Tribunal's flawed reasoning on the basis that "review of the appeal on page 1913 of the administrative case file indicates that the

⁵⁴¹ See Ex. CE-122, Contentious Administrative Court, Decision, No. 07650-2013-CA, 2008 Royalty Assessment (17 December 2014), p. 22, ¶ 28. ↩

⁵⁴² See Ex. CE-122, Contentious Administrative Court, Decision, No. 07650-2013-CA, 2008 Royalty Assessment (17 December 2014), pp. 24-25, ¶ 32 (citing Art. 83-B of Law No. 30230, published on July 12, 2014); id. p. 25, ¶ 33. ↩

⁵⁴³ See Ex. CE-122, Contentious Administrative Court, Decision, No. 07650-2013-CA, 2008 Royalty Assessment (17 December 2014), pp. 25-26, 28 ¶¶ 34, 38. ↩

⁵⁴⁴ See Ex. CE-137, Appellate Court, Decision No. 7650-2013, 2008 Royalty Assessment (29 January 2016). ↩

⁵⁴⁵ See Ex. CE-137, Appellate Court, Decision No. 7650-2013, 2008 Royalty Assessment (29 January 2016), pp. 9-10, ¶ 9 (emphasis added). ↩

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applicant did not raise the argument on administrative appeal.”⁵⁴⁶ The Appellate Court failed to acknowledge any of SMCV's substantial arguments on this point.⁵⁴⁷

iii. The Supreme Court Upheld the Appellate Court's Decision

225. On 23 February 2016, SMCV filed an appeal in cassation before the Supreme Court of Justice (the “Supreme Court") seeking to annul the Appellate Court's decision.⁵⁴⁸ On 18 August 2017, the Supreme Court upheld the Appellate Court's decision and dismissed SMCV's appeal.⁵⁴⁹

226. In its decision, the Supreme Court endorsed Mr. Isasi's novel interpretation of the scope of the stability guarantees, holding that:

the scope of the Legal Stability Agreement (or the effects of the contractual benefit) . . . “(...)shall apply exclusively to the activities of the mining company in whose favor the investment is made". That does not mean that the contractual benefit will fall upon any of the mining activities that a mining company performs, rather solely to the activities resulting from the investment made. That is why the rule introduces the term “exclusively” in that paragraph.⁵⁵⁰

227. The Supreme Court further observed that:

submitting said "Technical/Economic Feasibility Study" does not merely constitute a requirement for execution of the Stability Agreement, but rather . . . a determining factor for establishing and setting guarantees to be applied for the investment in its concession, i.e., to determine the scope of the Stability Agreement.⁵⁵¹

228. Based on this interpretation, the Supreme Court "noted" that while there was "no doubt" that the “Leaching Project of Cerro Verde" was circumscribed to the Mining and Beneficiation Concessions, “this does not imply that the 'Primary Sulfide Plant' can be considered as part of the

⁵⁴⁶ See Ex. CE-137, Appellate Court, Decision No. 7650-2013, 2008 Royalty Assessment (29 January 2016), p. 13, ¶ 12. ↩

⁵⁴⁷ See Ex. CE-90, SUNAT Letter to Tax Tribunal Chamber No. 1, Resolution No. 8252-1-2013 (26 June 2013), pp. 2-12; see also Ex. CE-97, SMCV, Administrative Court Appeal of the Tax Tribunal Decision, 2008 Royalty Assessments (18 September 2013), p. 3, ¶ 2.4. ↩

⁵⁴⁸ See Ex. CE-138, SMCV, Supreme Court Appeal of the Appellate Court Decision No. 7650-2013, 2008 Royalty Assessment (23 February 2016). ↩

⁵⁴⁹ See Ex. CE-153, Supreme Court, Decision No. 5212-2016, 2008 Royalty Assessment (18 August 2017). ↩

⁵⁵⁰ See Ex. CE-153, Supreme Court, Decision No. 5212-2016, 2008 Royalty Assessment (18 August 2017), p. 72, ¶ 166 (emphasis added). ↩

⁵⁵¹ See Ex. CE-153, Supreme Court, Decision No. 5212-2016, 2008 Royalty Assessment (18 August 2017), p. 64, ¶ 142. ↩

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investment plan of the ‘Cerro Verde Leaching Project.”⁵⁵² On that basis, the Supreme Court concluded that the Concentrator was not covered under the Stability Agreement.⁵⁵³

229. The Supreme Court also held that neither the approval of the reinvestment of profits benefit nor the expansion of the Beneficiation Concession could “extend the scope" of the Stability Agreement, because "neither the Feasibility Study in the first place nor the Investment Plan in the second place, include [the Concentrator], because there is no evidence. . . [that SMCV] initiated the respective action to include said Plant within the Investments Plan of the 'Cerro Verde Leaching Project," per clause 4.2 of the Stability Agreement.⁵⁵⁴ The Court was silent on what “action" could possibly have accomplished this in SMCV's case, since the investment plan could only be amended prior to completion—and when SMCV signed the Stability Agreement, it had already completed the investment plan.⁵⁵⁵

230. The Supreme Court also arbitrarily upheld the Appellate Court's one-sentence refusal to waive penalties and interest, finding that although the Appellate Court's decision was "succinct[]," it "expresse[d] the minimum grounds supporting its ruling," and thus did not violate SMCV's due process right to adequate statement of grounds of judicial decisions.⁵⁵⁶ Thus, like the Appellate Court, the Supreme Court failed to consider SMCV's arguments on the merits—including as to why the issue had been preserved for appeal, because the Tax Tribunal should have considered the issue sua sponte—and failed to provide any reasoning in support of its holding.⁵⁵⁷

4. Peru's Supreme Court Failed to Render a Final Decision on the 2006-2007 Royalty Assessments, and SMCV Ultimately Withdrew Its Appeal

231. On 19 September 2013, SMCV challenged the 2006-2007 Royalty Assessments to the Contentious Administrative Court.⁵⁵⁸ On 14 April 2016, the Contentious Administrative Court upheld the 2006-2007 Royalty Assessments.⁵⁵⁹

⁵⁵² See Ex. CE-153, Supreme Court, Decision No. 5212-2016, 2008 Royalty Assessment (18 August 2017), p. 32, ¶ 32. ↩

⁵⁵³ See Ex. CE-153, Supreme Court, Decision No. 5212-2016, 2008 Royalty Assessment (18 August 2017), p. 34. ↩

⁵⁵⁴ See Ex. CE-153, Supreme Court, Decision No. 5212-2016, 2008 Royalty Assessment (18 August 2017), ¶¶ 32, 172-173. ↩

⁵⁵⁵ See, e.g., Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), p. 12 (The Feasibility Study may only be modified "in the course of its execution" but was “approved on 23 November 1998 . . . while the application for the installation of the plant that gave rise to the 'Primary Sulfides Project' occurred in the year 2004"). ↩

⁵⁵⁶ See Ex. CE-153, Supreme Court, Decision No. 5212-2016, 2008 Royalty Assessment (18 August 2017), ¶ 46; see also id. ¶¶ 45-50. ↩

⁵⁵⁷ See Ex. CE-153, Supreme Court, Decision No. 5212-2016, 2008 Royalty Assessment (18 August 2017),, pp. 37-38, ¶¶ 45-50; see also Hernández ¶¶ 103-104, 127-132. ↩

⁵⁵⁸ See Ex. CE-98, SMCV, Administrative Court Appeal of the Tax Tribunal's Decision, 2006/07 Royalty Assessment (27 September 2013). ↩

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232. Echoing Mr. Isasi's interpretation of the scope of the stability guarantees, the court found that "the benefits of legal stability are generally not granted to the operator of the mining enterprise or any given mining concession, but rather to a specific investment . . . as defined in the Feasibility Study.”⁵⁶⁰ Although the court acknowledged that the Concentrator was part of the Beneficiation Concession referenced in the Stability Agreement, it concluded that because the "expansion" of the Concession occurred after the Stability Agreement entered into force, it did not explicitly receive stability under the Agreement.⁵⁶¹ The court also arbitrarily denied SMCV's application for waiver of penalties and interest under Article 170 of the Tax Code without considering the merits of the issue, parroting the Tax Tribunal's finding that the issue had not been raised before it to conclude that SMCV failed to exhaust administrative remedies.⁵⁶²

233. On 2 May 2016, SMCV appealed the Contentious Administrative Court's decision to the Appellate Court.⁵⁶³ A majority of the Appellate Court dismissed the appeal on 12 July 2017, substantially echoing the Contentious Administrative Court's holding. The majority also dismissed SMCV's arguments relating to the waiver of penalties and interest.⁵⁶⁴ One judge, in dissent, voted to remand the case to the Contentious Administrative Court, noting that the lower court failed to state its grounds for adopting a "restrictive" interpretation of the General Mining Law, Regulations, and Stability Agreement and that "restrictive interpretations are . . . not necessarily [required] for regulations that govern ... contracting, such as those for legal stability agreements.⁵⁶⁵

234. On 9 August 2017, SMCV filed an appeal in cassation before the Supreme Court.⁵⁶⁶ Three out of the five Justices on the Supreme Court panel—including two of the Justices who also heard and dismissed SMCV's 2008 Royalty Assessment appeal in cassation-voted to dismiss SMCV's claims.⁵⁶⁷ The two other justices on the panel voted to annul the Appellate Court's ruling

⁵⁵⁹ See Ex. CE-689, Contentious Administrative Court, Decision, No. 07649-2013, 2006/07 Royalty Assessments (14 April 2016). ↩

⁵⁶⁰ See Ex. CE-689, Contentious Administrative Court, Decision, No. 07649-2013, 2006/07 Royalty Assessments (14 April 2016), p. 25, ¶ 8.8. ↩

⁵⁶¹ See Ex. CE-689, Contentious Administrative Court, Decision, No. 07649-2013, 2006/07 Royalty Assessments (14 April 2016), p. 26, ¶¶ 9.3-9.5. ↩

⁵⁶² See Ex. CE-689, Contentious Administrative Court, Decision, No. 07649-2013, 2006/07 Royalty Assessments (14 April 2016), pp. 29-30, ¶¶ 12.1-12.3. ↩

⁵⁶³ See Ex. CE-144, SMCV, Appellate Court Appeal of the Administrative Court Decision (2 May 2016). ↩

⁵⁶⁴ See Ex. CE-274, Appellate Court, Decision No. 48, File No. 7649-2013 (12 July 2017); see id. p. 27, ¶ 20 (finding that SMCV's application for waiver of penalties and interest was "not invoked in the appeal [before the Tax Tribunal]" and was thus "groundless."). ↩

⁵⁶⁵ Ex. CE-274, Appellate Court, Decision No. 48, File No. 7649-2013 (12 July 2017), pp. 31, 34, ¶¶ 8.1-8.4. ↩

⁵⁶⁶ See Ex. CE-697, SMCV, Appeal to the Supreme Court of the Appellate Court Decision (2006/07 Royalty Assessment) (9 August 2017). ↩

⁵⁶⁷ See Ex. CE-739, Supreme Court, Decision, No. 18174-2017 (2006/07 Royalty Assessments) (20 November 2018), pp. 1-35. ↩

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and issued a separate opinion to that effect.⁵⁶⁸ Under Peruvian law, four votes in favor are necessary for the Supreme Court to render a decision in a cassation case.⁵⁶⁹ If fewer than four justices concur, the Court must summon an additional justice or justices and schedule a new hearing for the parties to argue their case with the additional justice or justices present.⁵⁷⁰ Thus, the case concerning the 2006-2007 Royalty Assessments remained unresolved pending rehearing.⁵⁷¹

235. In February 2020, SMCV applied to withdraw its appeal to the Supreme Court to comply with the waiver requirement under the TPA in connection with Freeport's filing of a notice of arbitration.⁵⁷² At that point, SMCV had no knowledge of the votes that had already been issued on the appeal or that the case was to be scheduled for re-hearing. The case then formally concluded on 7 October 2020, when the Supreme Court approved SMCV's withdrawal.⁵⁷³ The Supreme Court did not notify SMCV of the justices' votes and opinions until 29 December 2020.⁵⁷⁴

236. Once received, these opinions revealed that the three Justices that voted to uphold the decision adhered to Mr. Isasi's interpretation, concluding that the “Technical/Economic Feasibility Study . . . determine[d] the scope of the Stability Agreement."⁵⁷⁵ The three justices also upheld the Appellate Court's summary refusal to waive penalties and interest, despite acknowledging that "the [Appellate Court] failed to provide exhaustive reasoning on this issue,” because they held that SMCV failed to meet "the condition set forth in the... legal provision” and raise this issue on administrative appeal.⁵⁷⁶

⁵⁶⁸ See Ex. CE-739, 2 Supreme Court, Decision, No. 18174-2017 (2006/07 Royalty Assessments) (20 November 2018), pp. 35-48. ↩

⁵⁶⁹ CA-203, Single Unified Text of the Organic Law of the Judiciary (2014), Art. 141 (“In the Chambers of the Supreme Court, four assenting opinions give rise to a decision."). ↩

⁵⁷⁰ CA-203, Single Unified Text of the Organic Law of the Judiciary (2014), Art. 144 ("In the event of failure to achieve a majority vote, the underlying point in dispute shall be published and communicated, under penalty of nullity. In the resolution itself, the Judge with the casting vote shall be called upon through the expedited procedure and a date and time shall be set for the hearing of the case by said Judge."). ↩

⁵⁷¹ CA-203, 2014 TUO of the Organic Law of the Judiciary, Art. 141(“In the Chambers of the Supreme Court, four assenting opinions give rise to a decision."); id., Art. 144 ("In the resolution itself, the Judge with the casting vote shall be called upon through the expedited procedure and a date and time shall be set for the hearing of the case by said Judge."); id., Art. 145 (“In cases of failure to obtain a majority opinion or of disqualification of one or more judges, the President shall call on judges with the same specialization from other Chambers, if any, or else Judges from chambers with another specialization, in sequence from least to most senior in the order of priority established by the corresponding Executive Board."). ↩

⁵⁷² See Ex. CE-242, SMCV, Withdrawal, 2006/07 Royalty Case, Docket 18174-2017 (27 February 2020). ↩

⁵⁷³ See Ex. CE-789, Supreme Court, Resolution Approving SMCV's Withdrawal, No. 18174-2017 (2006/07 Royalty Assessment) (7 October 2020). ↩

⁵⁷⁴ See Ex. CE-794, Supreme Court, Decision, No. 18174-2017 (2006/07 Royalty Assessment) (notified to SMCV 29 December 2020). ↩

⁵⁷⁵ Ex. CE-739, Supreme Court, Decision, No. 18174-2017, 2006/07 Royalty Assessments (20 November 2018), pp. 26-27, ¶¶ 20-22. ↩

⁵⁷⁶ Ex. CE-739, Supreme Court, Decision, No. 18174-2017, 2006/07 Royalty Assessments (20 November 2018), p. 34, ¶ 29. ↩

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237. The two remaining justices on the panel voted to annul the Appellate Court's decision, concluding that:

[T]he ruling has omitted a decision on the issue that the stability was granted to the beneficiation concession and that, because of that, with the incorporation of the Sulfides Plant, approved by Directorial Resolution No. 056-2007-MEM/DGM, the extension of the [stability] guarantee operated as a matter of law.⁵⁷⁷

238. The two justices voting to annul the Appellate Court's decision also found that the Appellate Court had failed to provide grounds in support of its reasoning on multiple other counts, including failing to identify the legal bases for its opinion, failing to identify the relevant clauses of the Stability Agreement, and failing to address other arguments SMCV raised on appeal.⁵⁷⁸ Moreover, they concluded that the Appellate Court failed to interpret the proper scope of Article 170 of the Tax Code, including whether the Tax Tribunal should have assessed SMCV's entitlement to a penalties and interest waiver sua sponte:

[T]he Court of Appeals' ruling has not addressed claimant's request that it analyze the scope of article 170 of the Single Consolidated Text of the Tax Code. According to the claimant, the Tax Tribunal had the independent obligation to verify this claim, due to the fact that [Article 170] created a legal mandate that did not need to be invoked by the obligee.⁵⁷⁹

239. The two justices thus voted to annul the Appellate Court's decision on the ground that the Appellate Court's decision failed to “resolve the . . . wrongs invoked in [SMCV's] appeal."⁵⁸⁰

O. AFTER A LONG DELAY, SUNAT ASSESSED ADDITIONAL ROYALTIES AGAINST SMCV FOR 2010, 2011, 2012, AND 2013, DESPITE THE STABILITY AGREEMENT AND SMCV'S PARTICIPATION IN THE GEM REGIME

1. SUNAT Assessed Further Royalties against Ore Processed in SMCV's Flotation Plant in 2010-2011

240. Between June 2011 and April 2016, SMCV did not receive any additional Royalty Assessments from SUNAT,⁵⁸¹ perhaps because of SMCV's participation in the GEM voluntary contribution regime. But on 13 April 2016— only months before the six-year statute of limitations for

⁵⁷⁷ See Ex. CE-739, Supreme Court, Decision, No. 18174-2017, 2006/07 Royalty Assessments (20 November 2018), p. 46, ¶ 2.12. ↩

⁵⁷⁸ See Ex. CE-739, Supreme Court, Decision, No. 18174-2017, 2006/07 Royalty Assessments (20 November 2018), pp. 46-47. ↩

⁵⁷⁹ See Ex. CE-739, Supreme Court, Decision, No. 18174-2017, 2006/07 Royalty Assessments (20 November 2018), pp. 46-47, ¶ 2.15. ↩

⁵⁸⁰ See Ex. CE-739, Supreme Court, Decision, No. 18174-2017, 2006/07 Royalty Assessments (20 November 2018), p. 47, ¶ 2.17. ↩

⁵⁸¹ See Torreblanca ¶ 92. ↩

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assessments expired—SUNAT issued royalty assessments against SMCV for 2010 and the first three quarters of 2011 (together with penalties and interest, the “2010-2011 Royalty Assessments”).⁵⁸² Along with the royalty assessments, SUNAT again assessed penalties of 10% of the unpaid royalties and additional penalties for SMCV's failure to file royalty declarations and, for the first time, for SMCV's failure to prove that it kept a separate accounting for the Concentrator, which SUNAT argued SMCV was required to do under Article 22 of the Regulations-even though Article 22 clearly only requires separate accounts for stabilized and non-stabilized concessions.⁵⁸³ SUNAT imposed interest on the unpaid royalties and penalties at the rate of 14.6% per annum running from the dates SUNAT asserted SMCV should have filed each monthly royalty declaration.⁵⁸⁴ By the time SUNAT issued the 2010-2011 Royalty Assessments, penalties and interest already comprised nearly half of the overall value, which totaled US$80,224,271 in royalties and US$76,629,050 in penalties and interest.⁵⁸⁵ To support the assessments, SUNAT again took the position that "the benefits of the [Stability Agreement]... do not cover the production and sale of mineral concentrates produced in the primary sulfides plant[.]"⁵⁸⁶

241. On 11 May 2016, SMCV submitted a request for reconsideration for the 2010-2011 Royalty Assessments, also requesting in the alternative that SUNAT waive penalties and interest based on "reasonable doubt" in the interpretation of the Mining Law.⁵⁸⁷ Among others, SMCV explained that Peruvian public officials, Peruvian courts, SUNAT, and leading experts in the field had repeatedly shared SMCV's interpretation that stability guarantees were granted to entire concessions or mining units, and mining companies had consistently applied it for over 15 years.⁵⁸⁸

242. On 29 December 2016, SUNAT rejected SMCV's request for reconsideration, again reiterating Mr. Isasi's interpretation by concluding that "the benefits of legal stability [] are granted . . . in relation to a specific investment, with a defined plan and an expected production of copper

⁵⁸² See Ex. CE-142, SUNAT, 2010/11 Royalty Assessments. ↩

⁵⁸³ See Ex. CE-688, SUNAT, Fine Resolution No. 052-002-0006603 to 052-002-0006645 (2010/11 Royalty Assessments) (13 April 2016); Ex. CE-150, SUNAT, Resolution No. 0150140013036, 2010/11 Royalty Assessments, pp. 114, 122-125. ↩

⁵⁸⁴ See Ex. CE-142, SUNAT, 2010/11 Royalty Assessments, Annex No. 1; Spiller and Chavich, Appendix J (establishing the 14.6% effective interest rate). ↩

⁵⁸⁵ See Annex A: Administrative Proceedings. ↩

⁵⁸⁶ Ex. CE-142, SUNAT, 2010/11 Royalty Assessments, Annex No. 1. ↩

⁵⁸⁷ See Ex. CE-146 SMCV, Reconsideration Request of SUNAT, 2010/11 Royalty Assessments (11 May 2016), pp. 37-39, 68-85, ¶¶ 3.3, 4.4.1-4.4.12; see also CA-8, Authorizing SUNAT to Implement Provisions that Facilitate the Administration of Royalties, Law No. 28969 (25 January 2007), Art. 12 (“The application of interest or penalties does not apply in the case of obligations related to the mining royalty, in the same cases and terms provided in Article 170 of the Tax Code. Nor is it appropriate when the obligation to pay the mining royalty was breached due to causes of an objective nature attributable to the Ministry of Energy and Mines or to SUNAT.”). ↩

⁵⁸⁸ See Ex. CE-146, SMCV, Reconsideration Request of SUNAT, 2010/11 Royalty Assessments (11 May 2016), pp. 37-39, 68-85, ¶¶ 3.3, 4.4.1-4.4.12. ↩

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cathodes, clearly delimited in the Feasibility Study.”⁵⁸⁹ SUNAT also rejected SMCV's request to waive penalties and interest.⁵⁹⁰

2. The Tax Tribunal Upheld SMCV's 2009 and 2010-2011 Royalty Assessments in Proceedings Marred by Conflicts of Interest, Extreme Delays and Other Procedural Irregularities

243. On 22 March 2017, SMCV challenged SUNAT's 2010-2011 Royalty Assessments before the Tax Tribunal (the “2010-2011 Royalty Case”).⁵⁹¹ At this point, SMCV's challenge to the 2009 Royalty Assessments-filed on 16 January 2012-had been pending for over five years without a resolution, and reassigned to several different chambers before ultimately being assigned to Chamber No. 2 (the "2009 Royalty Case").⁵⁹² In May 2018, the Tax Tribunal's Technical Office assigned the 2010-2011 Royalty Case to Victor Mejía Ninacondor as vocal ponente.⁵⁹³ Mr. Mejía Ninacondor had joined the Tax Tribunal only days earlier, and sat in Chamber No. 1 alongside two of the same vocales that had issued Ms. Villanueva's draft upholding the 2008 Royalty Assessment.⁵⁹⁴

244. Mr. Mejía Ninacondor was no stranger to Cerro Verde's case: not only had he worked in the SUNAT department that initially confirmed the 2010-2011 Royalty Assessments,⁵⁹⁵ but he had actually represented SUNAT in SMCV's appeal of the 2006-2007 Royalty Assessments before the

⁵⁸⁹ Ex. CE-150, SUNAT, Resolution No. 0150140013036, 2010/11 Royalty Assessments (29 December 2016), p. 70. ↩

⁵⁹⁰ See Ex. CE-150, SUNAT, Resolution No. 0150140013036, 2010/11 Royalty Assessments (29 December 2016), pp. 125-131, ¶ 3.4.4. ↩

⁵⁹¹ See Ex. CE-151, SMCV Appeal of SUNAT, 2010/11 Royalty Assessment (22 March 2017). ↩

⁵⁹² See Ex. CE-62, SMCV, Appeal of SUNAT 2009 Royalty Assessments (16 January 2012); Ex. CE-179, SMCV, Submission Requesting Suspension of Procedure (20 June 2018), p. 1 (summarizing case assignment history and transfer between Chamber No. 10 to Chamber No. 5 and finally, to Chamber No. 2). ↩

⁵⁹³ See Ex. CE-177, MEF, Supreme Resolution No. 013-2018-EF (4 May 2018), Art. 1 (appointing Victor Mejía Ninacondor as vocal); CE-194, Tax Tribunal, Decision No. 06575-1-2018 (28 August 2018), p. 41 (denoting Victor Mejía Ninacondor as vocal ponente). ↩

⁵⁹⁴ Compare Ex. СЕ-83, 21 May 2013 Tax Tribunal Resolution No. 08252-1-2013, 2008 Royalty Case (decided by vocales Zuñiga Dulanto, Amico de Casas, and Ramírez Mio); with CE-194, 28 Aug. 2018 Tax Tribunal Decision No. 06575-1-2018, 2010/11 Royalty Case (decided by vocales Zuñiga Dulanto, Ramírez Mio, and Mejía Ninacondor). ↩

⁵⁹⁵ See Ex. CE-227, LinkedIn Profile of Mr. Victor Mejia Ninacondor, also available at https://pe.linkedin.com/in/m-victor-mejia-ninacondor-853b43109; see also Ex. CE-18, SUNAT, Resolution No. 143-2001/SUNAT (27 December 2001) (Victor Mejía Ninacondor held the position of Ejecutor Coactivo, Intendencia Regional Lambayeque); Ex. CE-33, SUNAT, Resolution No. 212-2009/SUNAT (6 October 2009) (Victor Mejía Ninacondor held the position of Fedatario Titular de la Intendencia Regional Ica); Ex. CE-107, SUNAT Resolution No. 080-2014/SUNAT (18 March 2015) (Victor Victor Mejía Ninacondor held the position of Ejecutor Coactivo, Intendencia Lima); Ex. CE-129, SUNAT, Resolution No. 011-2015-SUNAT/600000 (18 March 2015) (Victor Mejia Ninacondor held the position of Supervisor de la Seccion de Cobranza de Oficina y Soporte II (e), División de Cobranza de Oficina y Soporte, Gerencia de Cobranza, Intendencia Lima and Jefe de la Sección de Cobranza de Campo II, División de Cobranza de Campo, Gerencia de Cobranza, Intendencia Lima); Ex. CE-216, Tax Tribunal, Meeting Transcript No. 2019-03 (14 January 2019), p. 2 (listing Victor Mejía Ninacondor holding the position of Auditor Resolutor de la División de Reclamaciones II de la Intendencia de Principales Contribuyentes Nacionales de la SUNAT) ↩

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Appellate Court.⁵⁹⁶ Citing this blatant conflict of interest, on 20 June 2018, SMCV requested that Mr. Mejía Ninacondor recuse himself from the 2010-2011 Royalty Case on the grounds that he failed to meet the most basic requirements of independence and impartiality.⁵⁹⁷

245. According to the Tax Tribunal's procedural rules, the Plenary Chamber-made up of all the vocales—should have convened to discuss SMCV's request before voting on it.⁵⁹⁸ However, President Olano Silva quickly intervened, just as she had done in the 2008 Royalty Case. On the very same day that SMCV filed its request for recusal, Gina Castro Arana, head of the Technical Office, sent President Olano Silva draft minutes of the plenary meeting, stating that SMCV's "petition for self-recusal was deliberated and it was unanimously agreed that the petition for self-recusal that was filed was inadmissible”—despite the fact that the Plenary Chamber had not even convened.⁵⁹⁹ Attaching the draft, Ms. Castro Arana wrote:

Sent: Wednesday, 20 June 2018, 8:32 pm
Subject: Plenary Chamber Resolution – Recusal vs. MN Cerro Verde.doc

Dr: I am sending you the file. I went to see you but you had already left. We'll discuss early tomorrow. Gina⁶⁰⁰

246. The next morning around 11:00 a.m., Ms. Castro Arana sent President Olano Silva a slightly revised version of the minutes, noting that “the changes [are] marked in yellow," suggesting that the two had already discussed the draft and revisions.⁶⁰¹ Like the first draft, the revised draft minutes stated that Mr. Mejía Ninacondor was not conflicted based on a narrow, literal interpretation of the Law on General Administrative Procedure, which provided that a vocal must be recused if he or she previously worked for an “administrado"-i.e., anyone who could be subject to an administrative proceeding or a “third party” to the proceeding.⁶⁰² Despite SUNAT's adversarial position in the

⁵⁹⁶ See Ex. CE-694, Contentious Administrative Court, Entry of Appearances, 2006-2007 Royalty Case (3 January 2017), p. 3. ↩

⁵⁹⁷ See Ex. CE-180, SMCV, Submission Requesting Removal of Judge Ninacondor (20 June 2018), pp. 3-4. ↩

⁵⁹⁸ See CA-120, Tax Tribunal, Plenary Chamber Order No. 08-2005 (11 April 2005), p. 13 (“After studying the briefs and documents submitted in the plenary session, the plenary chamber will decide whether or not the abstention is to be admitted, regardless of whether it was raised by the Vocales or by the taxpayer [administrado]."); see also CA-231, Single Unified Text of the Law of General Administrative Procedure, Supreme Decree No. 006-2017-JUS (1 June 2017); id. at Art. 111.1 (“Minutes are drawn up of each session, which contain a list of attendees, as well as the place and time it was held, the agenda items, each resolution adopted separately, with mention of the form and meaning of the votes of all participants."), Art. 111.3 ("Each set of minutes, after being approved, is signed by the Secretary, the Chairman, by those who have voted individually and by those who request it."). ↩

⁵⁹⁹ Ex. CE-714, Acta de Sala Plena – Abstención vs MN Cerro Verde, attached to email from Gina Castro Arana to Zoraida Alicia Olano Silva (20 June 2018, 8:32 PM PET), p. 4 (emphasis added). ↩

⁶⁰⁰ Ex. CE-713, Email from Gina Castro Arana to Zoraida Alicia Olano Silva (20 June 2018, 8:32 PM PET). ↩

⁶⁰¹ Ex. CE-715, Email from Gina Castro Arana to Zoraida Alicia Olano Silva (21 June 2018, 11:01 AM PET). ↩

⁶⁰² Ex. CE-716, Acta de Sala Plena – Abstencion vs. MN Cerro Verde, attached to Email from Gina Castro Arana to Zoraida Alicia Olano Silva (21 June 2018, 11:01 AM PET), pp. 4-5; see CA-231, Single Unified ↩

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proceeding before the Tax Tribunal, the draft minutes concluded that there was no basis for recusal because SUNAT did not qualify as “administrado” or “third party to the proceedings," but was an “administrative authority.”⁶⁰³ Twenty minutes later, President Olano Silva forwarded the draft to the vocales informing them that it contained the “draft minutes for today's meeting at 5pm" and stating to "please let me know if you agree.'⁶⁰⁴

247. Several vocales responded almost immediately to voice their disagreement:

Subject: RE: draft self-recusal minutes

Dear Zoraida: Regarding the above-mentioned subject, we, the Chamber No. 5 vocales, do not agree with the conclusion and legal grounds regarding Assumption 5 of Article 88 of the Law on General Administrative Procedure [the provision listing relationships requiring recusal]. We will leave it up to you to determine whether we should send you our vote or whether it would be necessary to meet [and discuss].⁶⁰⁵

Instead of discussing the issue in plenary session with the benefit of all the vocales present, President Olano Silva asked the vocales to “let me know which way the vote is going so I can start working on the draft resolution.”⁶⁰⁶ The dissenting vocales sent a first draft of their dissenting vote a few hours later and the final draft at noon the next day.⁶⁰⁷

⁶⁰³ Text of the Law of General Administrative Procedure, Supreme Decree No. 006-2017-JUS (1 June 2017), Art. 97(5) ("Any authority who has decision-making power... must refrain from participating in matters. . . in the following cases. . . . When he/she has or has had in the past twelve (12) months a relationship of service or subordination with any of the administrados or third parties directly involved in the matter, or if he/she had a business agreement with any of the parties."); id. at Art. 97(6)(a) (“When reasons arise that disturb the function of the authority, the latter, for the sake of decorum, may recuse himself/herself by means of a duly substantiated resolution...a) In the event that the authority is a member of a collegiate body, the latter must accept or deny the request."). ↩
See Ex. CE-716, Acta de Sala Plena - Abstencion vs. MN Cerro Verde, attached to Email from Gina Castro Arana to Zoraida Alicia Olano Silva (21 June 2018, 11:01 AM PET), pp. 4-5 ("[A]lthough SUNAT is a party in the appeal proceeding, it cannot be considered as the "third party" or an "administrado" since those "concepts... differ[] from that of the Administration.").

⁶⁰⁴ Ex. CE-717, Email from Zoraida Alicia Olano Silva to the vocales (21 June 2018, 11:21 AM PET); Ex. CE-718, Draft Abstention, Attachment to Email from Zoraida Alicia Olano Silva to the vocales (21 June 2018, 11:21 AM PET). ↩

⁶⁰⁵ Ex. CE-719, Email from Gabriela Patricia Marquez Pacheco to Zoraida Alicia Olano Silva (21 June 2018, 11:38 AM PET); see also Ex. CE-716, Acta de Sala Plena – Abstencion vs. MN Cerro Verde, attached to Email from Gina Castro Arana to Zoraida Alicia Olano Silva (21 June 2018, 11:01 AM PET), p. 4. ↩

⁶⁰⁶ See Ex. CE-720, Email from Zoraida Alicia Olano Silva to Gabriela Patricia Marquez Pacheco (21 June 2018, 11:57 AM PET). ↩

⁶⁰⁷ See Ex. CE-721, Email from Gabriela Patricia Marquez Pacheco to Zoraida Alicia Olano Silva (21 June 2018, 3:48 PM PET) ("Dear Zoraida: The vote of the Chamber 5 Vocales (Amico, Terry and Márquez) with regard to the Plenary Chamber issue of the recusal of the Vocal Mejia is attached hereto."); Ex. CE-722, Email from Gabriela Patricia Marquez Pacheco to Zoraida Alicia Olano Silva (June 22, 2018, 12:11 PM PET) ("Dear Zoraida: I'm attaching the final text of the Dissenting Vote, coordinated with the Vocales of Chamber 7 (Barrantes and Melendez), in order for it to be considered in the minutes of the Plenary Chamber. Self-Recusal of the Vocal Mejía. The aforementioned Vote was cast by the following Vocales: Amico, Barrantes, Márquez and Meléndez."); Ex. CE-723, Draft Dissenting Vote, Attached to ↩

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248. A little over two hours after receiving the final draft of the dissenting vote-and still only two days after SMCV's request-the Plenary Chamber voted to reject SMCV's recusal request.⁶⁰⁸ The final resolution was identical to the revised draft Ms. Castro prepared with President Olano Silva, with the exception of the dissenting vote and several paragraphs added to respond to the arguments of the dissenting vocales.⁶⁰⁹ It affirmed the dubious conclusion that recusal was not required on the ground that “SUNAT is not a party as an administrado [in the proceedings] but rather as the administrative authority, i.e. it acts from beginning to end in the exercise of the public prerogatives that have been conferred to it by our legislation.”⁶¹⁰ The resolution further took the position that SMCV's request based on the objective conflict arising from Mr. Mejía Ninacondor's prior roles could be set aside because he did "not feel that exercising competent jurisdiction in this case should undermine the honorability and probity with which he is called upon to exercise his duties," and that SMCV's "petition ha[d] failed to prove any reason that could result in such an alteration[.]"⁶¹¹ By contrast, the dissenting vocales concluded that SUNAT should be considered an “administrado" for purposes of the challenge proceedings in the 2010-2011 Royalty Case, explaining that:

SUNAT does have legitimate interests or rights likely to be affected, which is admitted even by the very same Tax Code, as it grants SUNAT, from the commencement of said instance onward, the right to file an answer to the appeal, produce means of evidence and engage in all other acts deemed applicable, thereby allowing it to defend the resolution it issued and which is being appealed since an overturned resolution would negatively affect the collection of taxes under its administration.

...

In this sense, the conditions in favor of self-recusal are fully met . . . and the aforementioned vocal should thus recuse himself from taking cognizance of Case No. 4689-2017.⁶¹²

⁶⁰⁸ Email from Gabriela Patricia Marquez Pacheco to Zoraida Alicia Olano Silva (22 June 2018, 12:11 PM PET). ↩
See Ex. CE-181, Tax Tribunal, Rejection of SMCV's Request for Removal, Minutes of Plenary Council Meeting No. 2018-20 (22 June 2018).

⁶⁰⁹ Compare Ex. CE-716, Acta de Sala Plena – Abstencion vs. MN Cerro Verde, attached to Email from Gina Castro Arana to Zoraida Alicia Olano Silva (21 June 2018, 11:01 AM PET) with Ex. CE-181, Tax Tribunal, Rejection of SMCV's Request for Removal, Minutes of Plenary Council Meeting No. 2018-20 (22 June 2018). ↩

⁶¹⁰ Ex. CE-181, Tax Tribunal, Rejection of SMCV's Request for Removal, Minutes of Plenary Council Meeting No. 2018-20 (22 June 2018), p. 5. ↩

⁶¹¹ Ex. CE-181, Tax Tribunal, Rejection of SMCV's Request for Removal, Minutes of Plenary Council Meeting No. 2018-20 (22 June 2018), p. 7. ↩

⁶¹² See Ex. CE-181, Tax Tribunal, Rejection of SMCV's Request for Removal, Minutes of Plenary Council Meeting No. 2018-20 (22 June 2018), pp. 9-10. ↩

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249. Tellingly, less than three months later, the Government amended the Tax Code to require vocales to abstain from participating in proceedings if they had worked for SUNAT within the last 12 months and “directly and actively participated in the SUNAT proceedings at issue before the Tax Tribunal-a revision that effectively confirmed Mr. Mejía Ninacondor's conflict of interest.⁶¹³

250. The Tax Tribunal ultimately scheduled hearings for both the 2009 Royalty Case and the 2010-2011 Royalty Case on 9 August 2018, even though the former had been filed over five years earlier than the challenge to the 2010-2011 Royalty Assessment.⁶¹⁴ On 15 August 2018, a mere six days after the hearing, Chamber No. 2 issued a resolution confirming SUNAT's 2009 Royalty Assessments.⁶¹⁵ The resolution again adopted Mr. Isasi's interpretation and copied nearly verbatim the section on the scope of the Stability Agreement of the original Chamber No. 1 resolution drafted by Ms. Villanueva confirming the 2008 Royalty Assessments.⁶¹⁶

251. The Tax Tribunal also rejected SMCV's request to waive penalties and interest on the spurious ground that Article 170 required reasonable doubt with respect to a rule, and that "this dispute did not originate in a doubt arising from the interpretation of the scope of Article 83 of the General Mining Law or Article 22 of its Regulations, but in the verification of the scope of the [stability] agreement executed.”⁶¹⁷ SUNAT's own assessment plainly contradicted this conclusion, since it listed the General Mining Law and Regulations as part of its “support and legal basis":⁶¹⁸

Figure 5: SUNAT, 2009 Royalty Assessments

II. SUPPORT AND LEGAL BASIS:
From the analysis of the corresponding legal norms and the Agreement of Guarantees and Measures for the Promotion of Investments signed by the Peruvian State and the taxpayer, the latter guarantees the taxpayer the benefits granted in articles 72, 80 and 84 of the General Mining Law.

LEGAL BASIS:
Article 7; Article 8; Article 44; Article 72; Article 78; Article 80; Article 82; Article 83; Article 84. Article 85; Article 86; Title Nine of the SINGLE UNIFIED Text of the General Mining Law, approved by Supreme Decree No. 014-92-EM.
Article 1; Article 2; Article 5; Article 10; Article 14 Article 15; Article 16; Article 17; Article 18; Article 19; Article 20; Article 22; Article 30; Article 31 of the Regulations to Title Nine of the General Mining Law approved by Supreme Decree No. 024-93-EM.
Clause One, Clause Two, Clause Three, Clause Four, Clause Five, Clause Six, Clause Seven, Clause Eight, Clause Nine, Clause Ten, Clause Eleven of the Agreement of Guarantees and Measures for the Promotion of Investments signed by the Peruvian State and the taxpayer.

⁶¹³ See CA-238, Amendments to the Tax Code, Legislative Decree No. 1421 (12 September 2018); CA-14, Tax Code, Supreme Decree No. 133-2013-EF (22 June 2013), Art. 100 (as amended by Legislative Decree No. 1421). ↩

⁶¹⁴ See Ex. CE-185, Tax Tribunal, Notice of Oral Hearing No. 1170-2018-EF/TF, 2010/11 Royalty Assessments (18 July 2018) (hearing on the 2010/11 Royalty Assessments scheduled for 9 Aug. 2018 in Chamber 1); Ex. CE-183, Tax Tribunal, Notice of Oral Hearing No. 1065-2018-EF/TF, 2009 Royalty Assessments (6 July 2018) (hearing on the 2009 Royalty Assessments scheduled for 9 Aug. 2018 in Chamber 2). ↩

⁶¹⁵ See Ex. CE-62, SMCV, Appeal of SUNAT 2009 Royalty Assessments (12 January 2012); Ex. CE-188, Tax Tribunal, Chamber 2 Decision No. 06141-2-2018 (15 August 2018). ↩

⁶¹⁶ Compare Ex. CE-188, Tax Tribunal, Chamber 2 Decision No. 06141-2-2018 (15 August 2018), pp. 8-33, with Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), pp. 5-20. ↩

⁶¹⁷ Ex. CE-188, Tax Tribunal, Chamber 2 Decision No. 06141-2-2018 (15 August 2018), p. 31 (emphasis added). ↩

⁶¹⁸ Ex. CE-54, SUNAT, 2009 Royalty Assessments (27 June 2011), Annex No. 1. ↩

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252. The Tax Tribunal's findings were also entirely at odds with its own analyses, which interpreted the scope of the Stability Agreement based on "the provisions in Article 83 of the General Mining Law and Articles 22 and 24 of the Regulations... [which] state that ... the Feasibility Study. . . will serve as a basis for determining which investments are the subject of the contract."⁶¹⁹ The Tax Tribunal further took the position that even if the interpretation of the Mining Law or Regulations were at issue in the case, "the aforementioned rules are clear when establishing the scope of the agreements executed under their protection.”⁶²⁰

253. On 28 August 2018, less than two weeks after Chamber No. 2 confirmed the 2009 Royalty Assessment, Chamber No. 1 also confirmed SUNAT's 2010-2011 Royalty Assessments, again adopting Mr. Isasi's interpretation and copying nearly verbatim the section on the scope of the Stability Agreement from the resolution in the 2008 and 2009 Royalty Cases.⁶²¹

254. In addition, relying on similar reasoning as that applied by Chamber No. 2 on the 2009 Royalty Assessment, Chamber No. 1, rejected SMCV's request to waive penalties and interest for the 2010-2011 Royalty Assessments on the spurious ground that there was no “reasonable doubť" related to the Mining Law or Regulations, and that any uncertainty relating to the scope of the Stability Agreement, as opposed to the law, could not trigger an entitlement to a waiver under Article 170.⁶²² As with the decision regarding the 2009 Royalty Assessment, the Tax Tribunal's findings were entirely at odds with its own analysis in the very same decision, which was based on an interpretation of the Mining Law and Regulations.⁶²³

⁶¹⁹ Ex. CE-188, Tax Tribunal, Chamber 2 Decision No. 06141-2-2018 (15 August 2018), p. 20; see also, e.g., Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), pp. 12-17; Ex. CE-46, SUNAT, Resolution No. 055-014-0001394/SUNAT, 2008 Royalty Assessments (31 January 2011), p. 32. ↩

⁶²⁰ Ex. CE-188, Tax Tribunal, Chamber 2 Decision No. 06141-2-2018 (15 August 2018), p. 37. ↩

⁶²¹ Compare Ex. CE-194, Tax Tribunal, Decision No. 06575-1-20, 2010/11 Royalty Assessments (28 August 2018), p. 21 ("[T]he benefits of legal stability are not granted in a general manner to the owner of the mining activity or any given mining concession, but rather in relation to a specific investment project that is clearly delimited in the Feasibility Study, which in this case is "Cerro Verde Leaching Project.") with Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), pp. 14-15; Ex. CE-188, Tax Tribunal, Chamber 2 Decision No. 06141-2-2018 (15 August 2018), p. 24. ↩

⁶²² Ex. CE-194, Tax Tribunal, Decision No. 06575-1-20, 2010/11 Royalty Assessments (28 August 2018), p. 29 ("In this case... the dispute has focused on determining the scope of the [Stability Agreement], in order to establish whether the extraction of ores intended for the "Primary Sulfide Project" is protected by stability and, consequently, whether or not the appellant was obliged to pay the Mining Royalty for said ores, since such dispute, as has been analyzed, did not originate from a misinterpretation of Article 83 of the General Mining Law or Article 22 of its regulations; in this case the existence was not found of a reasonable doubt in relation to said rules that could have led to a misinterpretation thereof, as would happen if they were imprecise, ambiguous or obscure.") (emphasis added). ↩

⁶²³ Ex. CE-194, Tax Tribunal, Decision No. 06575-1-20, 2010/11 Royalty Assessments, (28 August 2018), p. 18 ("[T]he provisions in Article 83 of the General Mining Law and Articles 22 and 24 of the Regulations.. . [which] state that... the Feasibility Study will serve as a basis for determining which investments are the subject of the contract."); see also, e.g., Ex. CE-83, Tax Tribunal, Decision No. 08252-1-2013 (21 May 2013), pp. 11-15; Ex. CE-46, SUNAT, Resolution No. 055-014-0001394/SUNAT, 2008 Royalty Assessments (31 January 2011), pp. 29-32. ↩

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3. SUNAT Refused to Recalculate Interest and Penalties on the 2009 and 2010-2011 Assessments, Despite the Tax Tribunal's Long Delays

255. On 10 and 18 October 2018, SUNAT issued writs of execution of the 2010-2011 and 2009 Royalty Assessments, respectively.⁶²⁴ SMCV immediately requested that SUNAT suspend execution proceedings and recalculate the interest owed on the 2009 and 2010-2011 Royalty Assessments, given that the Tax Tribunal had taken six years to resolve the 2009 Royalty Case and eighteen months to resolve the 2010-2011 Royalty Case.⁶²⁵ SMCV based its requests on Article 33 of the Tax Code, which requires SUNAT to apply the much lower Consumer Price Index (“CPI”)— which typically averages around 2.5%-instead of the annual interest rate of 14.6% after the twelfth month that challenges have been pending before the Tax Tribunal.⁶²⁶ Yet only a few days later, SUNAT rejected SMCV's requests on the grounds that the Royalty Law does not expressly provide that Article 33 of the Tax Code applies in royalty proceedings-even though royalty proceedings are subject to essentially the same procedural rules as tax proceedings, and challenges are similarly resolved by the Tax Tribunal.⁶²⁷

256. On 26 and 30 October 2018, SMCV requested under protest to enter into deferral and installment plans to pay the 2009 and 2010-2011 Royalty Assessments, which SUNAT approved on 30 and 31 October 2018.⁶²⁸

257. On 28 December 2018 and 3 January 2019, SMCV filed complaint requests (Recursos de Queja) that the Tax Tribunal order SUNAT to recalculate the interest owed by SMCV on the 2009 and 2010-2011 Royalty Assessments, while reserving all rights and expressly stating that the requests did not constitute acceptance of the unduly-imposed interest.⁶²⁹ Within just a few days of

⁶²⁴ See Ex. CE-727, SUNAT, Coercive Enforcement Resolution, No. 011-006-0056517, 2010/11 Royalty Assessments (10 October 2018); Ex. CE-729, 18 Oct. 2018 SUNAT Writ of Execution No. 011-006-0056535, 2009 Royalty Assessments. ↩

⁶²⁵ See Ex. CE-728, 15 Oct. 2018 SMCV Request to SUNAT to Suspend Execution Proceedings, 2010/11 Royalty Assessments; Ex. CE-730, SUNAT, Coercive Enforcement Resolution, No. 011-006-0056535, 2009 Royalty Assessments (18 October 2018). ↩

⁶²⁶ See CA-14, Tax Code, Supreme Decree No. 133-2013-EF (22 June 2013, Art. 33 (as amended by Law No. 30230); id., Art. 150. ↩

⁶²⁷ Ex. CE-731, SUNAT, Coercive Collection Resolution No. 0110070137018, 2010-2011 Royalty Assessments, pp. 1-2 ("This is corroborated by the fact that Article 3 of Law n. 28969, which gives the rules of the Tax Code that are applicable for facilitating management of mining royalties, makes no express reference to Article 33."); Ex. CE-732, SUNAT, Rejection of SMCV's Request for Suspension of Collection Enforcement Proceedings, 2009 Royalty Assessments, (22 October 2018), pp. 1-2 (same). ↩

⁶²⁸ See Ex. CE-733, SMCV, Request Under Protest to Enter Into Deferral and Installment Plans, 2009 Royalty Assessments (26 October 2018); Ex. CE-734, SMCV, Request Under Protest to Enter Into Deferral and Installment Plans, 2010/11 Royalty Assessments (30 October 2018); Ex. CE-735, SUNAT, Approval of SMCV's Deferral and Installment Plans, 2009 Royalty Assessments (30 October 2018); Ex. CE-736, SUNAT, Approval of SMCV's Deferral and Installment Plans, 2010/11 Royalty Assessments (31 October 2018). ↩

⁶²⁹ See Ex. CE-207, 2 SMCV, Submission Requesting Recalculation of Interest, 2009 Royalty Assessment (28 December 2018), pp. 26-27; Ex. CE-212, SMCV, Submission Requesting Recalculation of Interest, 2010/11 Royalty Assessments (3 January 2019), p. 26. ↩

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receiving SMCV's challenges, the Tax Tribunal dismissed both of the requests on the ground that SMCV had already requested deferral and installment plans for the payment of the 2009 and 2010-2011 Royalty Assessments.⁶³⁰ The Tax Tribunal provided no support for its conclusion that SMCV had effectively waived its right to a CPI interest rate by requesting to pay the Assessments in installments to avoid immediate collection—a conclusion that would have the perverse consequence of discouraging taxpayers from entering into payment agreements with the Government while they exercise their right to challenge an assessment.⁶³¹

4. SUNAT Issued Additional Assessments for 2011, 2012, and 2013 under the 2011 Royalty Law

258. On 29 December 2017, SUNAT issued royalty assessments against SCMV for minerals processed in the Concentrator for the fourth quarter of 2011 (together with penalties and interest, the "Q4 2011 Royalty Assessments"), the first fiscal period in which SUNAT applied the new 2011 Royalty Regime, on the grounds that “the benefits and stability guarantees inherent to the [Stability Agreement] . . . do not extend to the exploitation of metallic mining resources (copper, molybdenum and silver concentrates) from the Primary Sulfide Plant.”⁶³² SUNAT also assessed a penalty equivalent to 10% of the unpaid royalties, additional penalties for SMCV's failure to file royalty declarations, and interest on the unpaid royalties and penalties at the rate of 14.6% per annum from 29 February 2012.⁶³³ As a result of the extensive penalties and the nearly six years SUNAT took to issue the Q4 2011 Royalty Assessments, the penalties and interest of US$7,824,197 exceeded the principal royalty assessments of US$7,541,272, even as of the assessment date.⁶³⁴

259. On 15 February 2018, SMCV submitted a request for reconsideration, which SUNAT denied on 12 October 2018.⁶³⁵ SUNAT also again declined to waive penalties and interest.⁶³⁶

⁶³⁰ See Ex. CE-213, Tax Tribunal, Decision No. 00019-Q-2019, 2009 Royalty Assessment (4 January 2019); Ex. CE-214, Tax Tribunal, Decision No. 00036-Q-2019, 2010/11 Royalty Assessment (7 January 2019). ↩

⁶³¹ See Ex. CE-213, Tax Tribunal, Decision No. 00019-Q-2019, 2009 Royalty Assessment (4 January 2019), pp. 1-3; Ex. CE-214, Tax Tribunal, Decision No. 00036-Q-2019, 2010/11 Royalty Assessment (7 January 2019), pp. 1-3 ↩

⁶³² Ex. CE-700, Tax Tribunal, Decision No. 00036-Q-2019, 2010/11 Royalty Assessment (7 January 2019), pp. 1-4, ¶ 1.A. ↩

⁶³³ See Ex. CE-701, SUNAT, Fine Resolution No. 012-002-0031073, Q4 2011 Royalty Assessment (29 December 2017); Ex. CE-702, SUNAT, Fine Resolution No. 012-002-0031074, Q4 2011 Royalty Assessment (29 December 2017). ↩

⁶³⁴ See Annex A: Administrative Proceedings. ↩

⁶³⁵ See Ex. CE-175, SMCV, Request for Reconsideration, 4Q 2011 Royalty Assessments (15 February 2018); Ex. CE-198, SUNAT, Resolution No. 0150140014441, Q4 2011 Royalty Assessment (12 October 2018), p. 1. ↩

⁶³⁶ See Ex. CE-175, SMCV, Request for Reconsideration, 4Q 2011 Royalty Assessments (15 February 2018); Ex. CE-198, SUNAT, Resolution No. 0150140014441, Q4 2011 Royalty Assessment (12 October 2018), pp. 45-48. ↩

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260. On 21 November 2018, SMCV challenged SUNAT's Q4 2011 Royalty Assessments before the Tax Tribunal (the “Q4 2011 Royalty Case”).⁶³⁷ The Technical Office assigned the Q4 2011 Royalty Case to none other than the President's former assistant Ms. Villanueva, now a vocal at Chamber No. 9, thus putting her in charge of preparing the draft resolution.⁶³⁸

261. Given her previous intervention on behalf of President Olano Silva in the 2008 Royalty Case, Ms. Villanueva's appointment as vocal ponente left little doubt that she would confirm the Q4 2011 Royalty Assessments, which Chamber No. 9 indeed did in its 18 November 2019 resolution.⁶³⁹ Like her prior draft resolution, the resolution confirming the Q4 2011 Royalty Assessments adopted Mr. Isasi's interpretation that the Stability Agreement exclusively covered the investments set forth in the 1996 Feasibility Study.⁶⁴⁰ Chamber No. 9 also again denied SMCV's waiver request on the spurious grounds that the dispute did not turn on an interpretation of Article 83 of the General Mining Law and Article 22 of the Regulations, and thus could not support a finding of "reasonable doubt” under Article 170 of the Tax Code.⁶⁴¹

262. On 28 March 2018 and 28 September 2018, SUNAT assessed royalties for the minerals processed in the Concentrator in 2012 and 2013, respectively (each together with penalties and interest, the “2012 Royalty Assessment” and the “2013 Royalty Assessment”).⁶⁴² SUNAT also assessed penalties equivalent to 10% of the unpaid royalties, additional penalties for SMCV's failure to file royalty declarations, and interest on the unpaid royalties and penalties at the rate of 14.6% per annum, calculated from the dates SUNAT asserted SMCV should have filed each quarterly royalty declaration, again charging interest for the more than five years SUNAT took in average to issue the 2012 and 2013 Royalty Assessments.⁶⁴³ The significant delay again meant that penalties and interest nearly equaled the principal already by the time SUNAT issued the assessments: the 2012 Royalty Assessments totaled US$35,494,542 in royalties and, at that time, US$34,885,678 in penalties and

⁶³⁷ See Ex. CE-740, SMCV, Appeal to Tax Tribunal, Q4 2011 Royalty Assessments (21 November 2018). ↩

⁶³⁸ See Ex. CE-269, Tax Tribunal, Decision, No. 10574-9-2019, Q4 2011 Royalty Assessments (18 November 2019), p. 14 (listing Ms. Villanueva as a vocal ponente). ↩

⁶³⁹ See Ex. CE-269, Tax Tribunal, Decision, No. 10574-9-2019, Q4 2011 Royalty Assessments (18 November 2019). ↩

⁶⁴⁰ See Ex. CE-269, Tax Tribunal, Decision, No. 10574-9-2019, Q4 2011 Royalty Assessments (18 November 2019), p. 6 ("[T]he benefits of legal stability are not granted in a general manner to the owner of the mining activity or any given mining concession, but rather in relation to a specific investment project that is clearly delimited in the Feasibility Study."). ↩

⁶⁴¹ See Ex. CE-269, Tax Tribunal, Decision, No. 10574-9-2019, Q4 2011 Royalty Assessments (18 November 2019), p. 9 ("[T]he dispute has focused on determining . . . the scope of the stability agreement... this dispute, as it has been analyzed, did not arise from a misinterpretation of Article 83 of the General Mining Law or Article 22 of its Regulations, in which case there is no reasonable doubt"). ↩

⁶⁴² See Ex. CE-176, SUNAT, 2012 Royalty Assessments; CE-195, SUNAT, 2013 Royalty Assessments. ↩

⁶⁴³ See CE-176, SUNAT, 2012 Royalty Assessments; CE-195, SUNAT, 2013 Royalty Assessments. ↩

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interest, and the 2013 Royalty Assessments totaled US$26,132,821 in royalties and, at that time, US$23,363,492 in penalties and interest.⁶⁴⁴

263. On 17 May 2018 and 7 November 2018, SMCV submitted requests for reconsideration for the 2012 and 2013 Royalty Assessments, respectively, which SUNAT summarily denied on 11 January 2019 and 28 May 2019.⁶⁴⁵ In its decisions, SUNAT restated Mr. Isasi's interpretation that the Stability Agreement only covered the investments expressly included in the 1996 Feasibility Study.⁶⁴⁶ SUNAT also again denied SMCV's requests to waive penalties and interest.⁶⁴⁷ As it had done with the previous Royalty Assessments, SMCV requested under protest to enter into deferral and installment plans to pay the 2012 and 2013 Royalty Assessments, respectively, which SUNAT approved on 25 February 2019 and 1 July 2019.⁶⁴⁸ On 9 and 13 August 2021, under protest, SMCV made payments equal to US$189,087,299 to pay off the total amounts outstanding under each of the deferral and installment plans for the Royalty Assessments.⁶⁴⁹

P. SUNAT ARBITRARILY REFUSED TO REIMBURSE SMCV FOR PORTIONS OF ITS GEM PAYMENTS

264. On 28 December 2017—after the Supreme Court dismissed SMCV's appeal on the 2008 Royalty Assessments-SMCV submitted reimbursement requests to SUNAT under protest for undue GEM payments corresponding to the periods Q4 2012 to Q4 2013.⁶⁵⁰ SMCV argued that, based on the Government's own position, it could not be subject to paying both GEM and royalties for

⁶⁴⁴ See Annex A: Administrative Proceedings. ↩

⁶⁴⁵ See Ex. CE-178, SMCV, Request for Reconsideration, 2012 Royalty Assessments (17 May 2018); Ex. CE-203, SMCV, Request for Reconsideration, 2013 Royalty Assessments (7 November 2018); Ex. CE-215, SUNAT, Resolution No. 0150140014560, 2012 Royalty Assessments (11 January 2019); Ex. CE-220, SUNAT, Resolution No. 0150140014816, 2013 Royalty Assessments (23 January 2019). ↩

⁶⁴⁶ See Ex. CE-215, SUNAT, Resolution No. 0150140014560, 2012 Royalty Assessments (11 January 2019), p. 31 ("[T]he benefits of legal stability are not granted in a general way to the owner of the mining activity or of a specific mining concession, but in relation to a specific investment, with a defined plan, clearly delimited in the Feasibility Study."); Ex. CE-220, SUNAT, Resolution No. 0150140014816, 2013 Royalty Assessments (23 January 2019), p. 24 (same). ↩

⁶⁴⁷ See Ex. CE-215, SUNAT, Resolution No. 0150140014816, 2013 Royalty Assessments (23 January 2019), pp. 37-39; CE-220, SUNAT, Resolution No. 0150140014816, 2013 Royalty Assessments (23 January 2019), pp. 36-38. ↩

⁶⁴⁸ See Ex. CE-751, SMCV, Request Under Protest to Enter Into Deferral and Installment Plans, 2012 Royalty Assessments (19 February 2019); Ex. CE-763, SMCV, Request Under Protest to Enter Into Deferral and Installment Plans, 2012 Royalty Assessments (19 February 2019); Ex. CE-753, SUNAT, Approval of SMCV's Deferral and Installment Plans, 2012 Royalty Assessments (25 February 2019); Ex. CE-760, SUNAT, Approval of SMCV's Deferral and Installment Plans, 2013 Royalty Assessments (1 July 2019). ↩

⁶⁴⁹ See Ex. CE-831, SMCV, Payment Receipt (2009 Royalty Assessments); Ex. CE-832, SMCV, Payment Receipt (2010-2011 Royalty Assessments); Ex. CE-833, SMCV, Payment Receipt (2012 Royalty Assessments); Ex. CE-834, SMCV, Payment Receipt (2013 Royalty Assessments). ↩

⁶⁵⁰ See Ex. CE-705, SMCV, Reimbursement Request (GEM Q4 2012) (12 January 2018); Ex. CE-706, SMCV, Reimbursement Request (GEM Q1 2013) (12 January 2018); Ex. CE-707, SMCV, Reimbursement Request (GEM Q2 2013) (12 January 2018); Ex. CE-708, SMCV, Reimbursement Request (GEM Q3 2013) (12 January 2018); Ex. CE-709, SMCV, Reimbursement Request (GEM Q4 2013) (12 January 2018). ↩

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its Concentrator-related activities and requested SUNAT “to exclude, from [its] calculation basis, the portion of the operating profit corresponding to mining activities performed" in the Concentrator.⁶⁵¹ In its requests, SMCV reserved its rights and reiterated its position that the Stability Agreement covered its entire mining unit, including the Concentrator.⁶⁵² On 18 December 2018, SUNAT approved SMCV's request and ordered the reimbursement of US$76.3 million for SMCV's overpayments plus interest.⁶⁵³

265. On 28 December 2018, SMCV submitted reimbursement requests under protest for the remaining GEM overpayments corresponding to Q4 2011 to Q3 2012.⁶⁵⁴ On 4 March 2019, SUNAT arbitrarily refused to repay the remaining overpayments amounting to US$63.8 million, including interest, incorrectly asserting that under the Tax Code, the statute of limitations had expired on the first business day of 2017.⁶⁵⁵

Q. PERU ASSESSED NEW TAXES IN BREACH OF THE STABILITY AGREEMENT, IN SOME CASES NOT ONLY ON THE CONCENTRATOR BUT ON THE ENTIRE MINING UNIT

266. In addition to the Royalty Assessments, beginning in December 2009, SUNAT also assessed certain taxes against SMCV that were not part of the stabilized regime, along with penalties and interest on those taxes, again based on Mr. Isasi's interpretation that the stability guarantees did not apply to the Concentrator. SUNAT applied these taxes haphazardly and inconsistently over the years, demonstrating the lack of framework to support its asserted interpretation of the law.

1. General Sales Tax

267. On 28 December 2009, four months after issuing the 2006/07 Royalty Assessment, SUNAT issued its first Tax Assessment against SMCV, charging SMCV with underpayment of the General Sales Tax (“GST”) for fiscal year 2005.⁶⁵⁶ The GST is a tax on the domestic sale of goods and services purchased by consumers, including those provided by non-resident suppliers.⁶⁵⁷ The

⁶⁵¹ E.g., Ex. CE-705, SMCV, Reimbursement Request (GEM Q4 2012) (12 January 2018), p. 1. ↩

⁶⁵² See, e.g., Ex. CE-705, SMCV, Reimbursement Request (GEM Q4 2012) (12 January 2018), p. 2. ↩

⁶⁵³ Ex. CE-746, SUNAT, Resolution No. 012 180 0018113/SUNAT (GEM for Q4 2012) (18 December 2018); Ex. CE-747, SUNAT, Resolution No. 012 180 0018114/SUNAT (GEM for 2013) (18 December 2018); see also Spiller and Chavich ¶ 88(a) n. 118 (converting amount in soles to dollars). ↩

⁶⁵⁴ Ex. CE-208, SMCV Reimbursement Request, GEM Q4 2011 (28 December 2018); Ex. CE-209, SMCV Reimbursement Request, GEM Q1 2012 (28 December 2018); Ex. CE-210, SMCV Reimbursement Request, GEM Q2 2012 (28 December 2018); Ex. CE-211, SMCV Reimbursement Request, GEM Q3 2012 (28 December 2018). ↩

⁶⁵⁵ See Annex A: Administrative Proceedings; Ex. CE-218, SUNAT Resolution No. 012-180-0018640/SUNAT, GEM Q4 2011-Q3 2012 (4 March 2019). ↩

⁶⁵⁶ See Ex. CE-35, SUNAT, Assessments No. 052-003-0005626 to No. 052-003-0005637 (28 December 2009) (GST for 2005); Ex. CE-36, SUNAT, Assessments No. 052-003-0005642 to 052-003-0005653 (28 December 2009) (GST for Non-Residents 2005); see also Annex A: Administrative Proceedings. ↩

⁶⁵⁷ See CA-73, Single Unified Text of the General Sales Tax and Selective Consumption Tax, Supreme Decree No. 055-99-EF (16 April 1999), Title I, Art. 1 (“The General Sales Tax taxes . . . [s]ale within the country ↩

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GST is always bundled with the Municipal Development Tax (“MDT”), which is calculated in the same terms as the GST, and both are generally referred to collectively as GST.⁶⁵⁸ Under the Stability Agreement, the GST tax rate was 18% (16% GST, plus 2% MDT).⁶⁵⁹ Under the non-stabilized regime, the GST tax rate increased to 19% in August 2003 (17% of the GST, plus 2% of the MDT), and reduced back to 18% in March 2011.⁶⁶⁰

268. In its assessment, echoing Mr. Isasi's interpretation, SUNAT noted that:

stability benefits are not awarded in a general manner to an individual or legal entity nor to a determined mining concession, but rather the benefits shall exclusively fall upon the activities done by the mining company in favor of which the investment is done in a determined project.⁶⁶¹

269. Without providing any additional justification, SUNAT then arbitrarily concluded that the Stability Agreement covered only the sale of cathodes processed in the leaching facility, but not any other goods, such as scrap metal sales-even if they related to the leaching facility (2005 GST Assessment).⁶⁶² As a result, SUNAT found that SMCV could apply the stabilized rate of 18% only to the sale of cathodes but had to pay the non-stabilized rate of 19% for all other sales.⁶⁶³ SUNAT also

⁶⁵⁸ of personal property . . . [and] [p]rovision or use of services within the country."); id. Art. 9(a)-(c) ("Subject to the [GST] as taxpayers are individuals [and] legal entities [that] . . . (a) [m]ake in-country sales of assets subject to taxes during any stage of the production and distribution cycle; (b) [p]rovide in-country services subject to taxes; (c) [u]se in-country services provided by non-residents . . . ."). ↩
See, e.g., CA-73, Single Unified Text of the General Sales Tax and Selective Consumption Tax, Supreme Decree No. 055-99-EF (16 April 1999), Title I, Art. 31 (bundling GST with the MPT and noting that "[w]ithholdings or collections that may be made for the General Sales Tax and/or the Municipal Development Tax shall be deducted from the Tax owed.").

⁶⁵⁹ The GST and MDT rates were stabilized as of 6 May 1996, the day the DGM approved the 1996 Feasibility Study. See Ex. CE-12, 1998 Stability Agreement, Clause 9.5 (granting tax stability); CA-89, Law of General Sales Tax and Selective Consumption Tax, Legislative Decree No. 821, Art. 17 (“The tax rate is 16%."); CA-58, Municipal Tax Law, Legislative Decree No. 776 (30 December 1993), Art. 76 ("The Municipal Development Tax is applied with a rate of 2% on operations subject to the General Sales Tax regime."); see also Hernández ¶ 91. ↩

⁶⁶⁰ See CA-101, Amendment to the General Sales Tax and Selective Consumption Tax Law, Law No. 28033 (19 July 2003), Art. 1 (“The rate.. of the General Sales Tax... shall be at 17%."); CA-173, Restoring the Tax Rate Established by Article 17 of the of the Single Unified Text of the General Sales Tax and Selective Consumption Tax Law, Law No. 29666 (20 February 2011), Art. 1 (“The sixteen percent (16%) rate [of GST]... shall be reinstituted."); CA-58, Municipal Tax Law, Legislative Decree No. 776, Art. 76 ("Municipal Development Tax 2%."). ↩

⁶⁶¹ Ex. CE-42, SUNAT, Resolution No. 055-014-0001369 (GST for 2005) (25 October 2010), pp. 214-15. ↩

⁶⁶² See Ex. CE-35, SUNAT, Assessments No. 052-003-0005626 to No. 052-003-0005637 (GST for 2005) (28 December 2009), Annex No. 1, p. 13 (applying General Sales Tax to the taxable base comprising "non-cathode sales"); Ex. CE-42, SUNAT, Resolution No. 055-014-0001369 (GST for 2005) (25 October 2010), p. 215 ("[T]he Tax Administration has proceeded to repair the sale of residues (lead anodes, electric wiring, and magnesium iron waste) and equipment, gas, fuel, energy, steel fiber, cement, as well as price adjustments for cathodes sale and damaged cathode straightening services, because the aforementioned sales would not be covered by the Stability Agreement."). ↩

⁶⁶³ See Ex. CE-35, SUNAT, Assessments No. 052-003-0005626 to No. 052-003-0005637 (GST for 2005) (28 December 2009), Annex No. 1, p. 13; Ex. CE-42, SUNAT, Resolution No. 055-014-0001369 (GST for 2005) (25 October 2010), p. 215 ("[A]ccording to the... Feasibility Study and the [Stability] Agreement, ↩

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took the baseless position that the Stability Agreement did not cover any services provided by non-resident suppliers, irrespective of what they were used for.⁶⁶⁴ SUNAT imposed penalties on SMCV equivalent to 50% of the unpaid GST.⁶⁶⁵

270. SUNAT subsequently issued assessments, interest, and penalties on the same basis on 29 December 2010 (GST and GST on Non-Residents for 2006), 27 December 2011 (GST for 2007), 20 December 2012 (GST for 2008), 27 December 2013 (GST for 2009), 24 June 2014 (GST for 2010), and 29 September 2017 (GST for 2011) (collectively, the “GST Assessments”).⁶⁶⁶ For some of these years, SUNAT also imposed penalties on SMCV for alleged accounting violations relating to SMCV's use of stabilized benefits, including keeping the Concentrator's accounting in U.S. dollars-a stability benefit under Article 84 of the Mining Law, as reflected in Clause 9.4 of the Stability Agreement and failing to keep a separate account for the Concentrator based on Article 22 of the Regulations.⁶⁶⁷ In total, the GST assessments amounted to US$8,707,010 in tax and US$28,229,355 in penalties and interest as of each assessment date.⁶⁶⁸

⁶⁶⁴ the Peruvian State protects the activities regarding. . . the collection of copper cathodes . . . stabilized at a 18% tax rate."); id. at p. 217 ("[T]he stabilized rate of 18%" "does not correspond" to "sale of residues (lead anodes, electric wiring, and magnesium iron waste) and equipment, gas, fuel, energy, steel fiber, cement, as well as Price adjustments for damaged cathode straightening services.") ↩
See Ex. CE-36, SUNAT, Assessments No. 052-003-0005642 to 052-003-0005653 (GST for Non-Residents for 2005) (28 December 2009, Annex No. 1, p. 13 (applying General Sales Tax on services rendered by non-residents); Ex. CE-41, SUNAT, Resolution No. 055-014-0001358 (GST for Non-Residents for 2005) (30 September 2010), pp. 34-44 (finding that the acquisition of goods and services from nonresident suppliers are outside the scope of the Stability Agreement and applying non-stabilized General Sales Tax at 19%); Ex. CE-56, SUNAT Resolution No. 055-014-0001444 (GST for Non-Residents for 2006) (30 September 2011), pp. 48-52 ("[T]he stability guarantee granted by the [Stability Agreement] only applies to activities related to the 'Cerro Verde Leaching Project' . . . provision of services or use of services with domestic and non-resident vendors . . . do not enjoy the contractual benefit, and must be governed by the common legal framework.").

⁶⁶⁵ See Ex. CE-37, SUNAT Fine Resolutions No. 052-002-0003816 to No. 052-002-0003827 (GST for 2005) (29 December 2009). ↩

⁶⁶⁶ See Annex A: Administrative Proceedings. ↩

⁶⁶⁷ See CE-112, SUNAT Fine Resolution No. 052-002-0006091 (GST 2009) (24 June 2014), Annex 1 (fines for keeping accounting in dollars); SUNAT Fine Resolution No. 052-002-0006101 (GST 2010) (24 June 2014), Annex 1 (same); SUNAT Fine Resolution No. 052-002-0006102 (GST 2009) (24 June 2014), Annex 1 (fines for failing to keep a separate account for the Concentrator); SUNAT Fine Resolution No. 052-002-0006090 (GST 2010), Annex 1 (same); CE-130, SUNAT Resolution No. 055-014-0002103 (GST 2009 and GST 2010) (27 April 2015), pp. 154-157 (confirming SUNAT Fine Resolution Nos. 052-002-0006091 and 052-002-0006101, finding that "the Primary Sulfide Project is not covered by the guarantee granted under the stability agreement . . . all of the mining activities . . . referred to in the preceding paragraph, carried out for the performance of said project, as well as the results thereof, are regulated by the common legal regime and, accordingly, the taxpayer is obliged to keep the accounts in national currency"); SUNAT Resolution No. 055-014-0002103 (GST 2009 and GST 2010), pp. 152-154 (confirming SUNAT Fine Resolution Nos. 052-002-0006102 and 052-002-0006090, finding that "the investment made in the 'Primary Sulfide Project' is a new investment completely distinct from the one contained in the Feasibility Study" and that "according to the provisions of . . . Article 22 of the Regulations... independent accounts must be kept in order to identify the individual results of the projects with different regimes"); see also, e.g., Ex. CE-12, 1998 Stability Agreement, Clause 9.4 ("[I]t will be able to keep its accounts in dollars of the United States of America in accordance with what is provided in article 16 of the Regulations."); CA-2, 1993 Mining Regulations, Supreme Decree No. 024-93-EM, Art. 22 ↩

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271. SMCV requested reconsideration for each of these assessments, each of which SUNAT denied.⁶⁶⁹ SMCV then challenged each of the GST Assessments before the Tax Tribunal, which sat on the challenges for years nearly eight years in some cases—before it ultimately confirmed the 2005-2007 GST Assessments.⁶⁷⁰ After receiving no decision on its other challenges— some of which were again pending for over eight or nine years-SMCV ultimately withdrew the stability-related claims from its remaining challenges in February 2020 to avoid any suggestion of noncompliance with the waiver requirement under Article 10.18 of the U.S.-Peru TPA.⁶⁷¹

2. Income Tax

272. In May 2011, SUNAT also began issuing income tax assessments against SMCV.⁶⁷² Under the stabilized income tax regime, SMCV was entitled, among others, to depreciate buildings and fixed assets at a rate of up to 20% and to depreciate fixed assets for a fiscal year even if SMCV had not previously recorded them in its accounting books, and to deduct payments for the employee profit-sharing obligation (“PTU”) from its income tax base, even if they were not made prior to filing the tax return.⁶⁷³ By contrast, the non-stabilized income tax regime provided a depreciation rate for buildings of only 3% until 2009 and 5% from 2010 onwards, required the depreciation of fixed assets to be previously recorded in the company's accounting in order to be deductible, and required PTU to be paid prior to filing the tax return in order to be deductible in the same fiscal year it was accrued.⁶⁷⁴

⁶⁶⁸ ("To determine the results of its operations, a mining activity titleholder that has other concessions or Economic-Administrative Units shall keep independent accounts and reflect them in separate earnings statements."); Hernández § IV. ↩
See Annex A: Administrative Proceedings.

⁶⁶⁹ See Annex A: Administrative Proceedings. ↩

⁶⁷⁰ See Ex. CE-193, Tax Tribunal, Resolution No. 06365-2-2018 (GST for 2005) (22 August 2018) (pending since 15 December 2010); Ex. CE-788, Tax Tribunal, Resolution No. 04802-5-2020 (GST for Non-Residents for 2005) (15 September 2020) (pending since 15 November 2010); Ex. CE-190, Tax Tribunal Resolution No. 06366-2-2018 (GST for 2006) (22 August 2018) (pending since 15 Sept. 2011); Ex. CE-202, Tax Tribunal Resolution No. 08470-2-2018 (GST for 2007) (30 October 2018) (pending since 5 November 2012). ↩

⁶⁷¹ See Annex A: Administrative Proceedings. ↩

⁶⁷² See Ex. CE-51, SUNAT Assessment No. 052-003-0007147 (Income Tax for 2006) (27 May 2011). ↩

⁶⁷³ See CA-1, Mining Law, Art. 84 ("The agreements . . . shall guarantee the mining activity titleholder the benefits [in Article 80]... as well as the right to increase the annual depreciation rate of machinery, industrial equipment, and other fixed assets up to a maximum limit of twenty percent per year..."); CA-2, Regulations, Art. 17 ("[T]he titleholder will have the right to increase the annual depreciation rate of machinery, industrial equipment and other fixed assets, up to the maximum limit of twenty percent per year..."); see also Choque ¶¶ 17-28. ↩

⁶⁷⁴ See CA-59, Income Tax Law, Legislative Decree No. 774 (31 December 1993), Art. 39 ("Buildings and constructions will be depreciated at the rate of three percent (3%) per year."); CA-157, Establishing a Special Depreciation System for Depreciation of Buildings and Structures, Law No. 29342 (6 April 2009), Art. 39 ("Buildings and constructions will be depreciated at a rate of five percent (5%) per year."); CA-62, Regulations of the Income Tax Law, Supreme Decree No. 122-94-EF (21 September 1994), Art. 22(a) (“In accordance with Article 39 of the Act, buildings and structures shall be depreciated exclusively according to the straight-line method, at 3% per year."); id. at Art. 22(b) ("The depreciation accepted for tax purposes ↩

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273. On 27 May 2011, SUNAT issued an assessment charging SMCV with underpayment of income tax for 2006 and corresponding penalties and interest, including a 50% penalty on the unpaid taxes, adopting Mr. Isasi's interpretation that the scope of the Stability Agreement was limited to the investments included in the 1996 Feasibility Study.⁶⁷⁵ SUNAT issued additional assessments on 28 March 2012 (Income Tax for 2007), 21 August 2013 (Income Tax for 2008), 30 October 2014 (Income Tax for 2009), 13 February 2015 (Income Tax for 2010), 31 October 2017 (Income Tax for 2011), 26 November 2019 (Income Tax for 2012), and 28 December 2020 (Income Tax for 2013) (collectively, the “Income Tax Assessments”).⁶⁷⁶

274. In certain of its Income Tax Assessments, SUNAT imposed additional fines against SMCV for (i) failing to keep separate accounts for the leaching facility and the Concentrator; and (ii) failing to provide SUNAT a transfer pricing study or for keeping accounting in U.S. dollars, both of which are clearly permitted under the stabilized regime.⁶⁷⁷ In the 2012 Income Tax Assessment, SUNAT also rejected the deduction of the GEM overpayments for Q4 2011 to Q3 2012, despite the fact that (i) under the relevant law, GEM payments are "deductible as an expense for income tax

⁶⁷⁵ shall be the depreciation recorded in the accounting books and records in the fiscal year, provided that it does not exceed the maximum percentage rate indicated in the table above for each unit of the fixed asset, irrespective of the depreciation method applied by the taxpayer."); CA-80, Amendment to the Single Unified Text of the Income Tax Law Ratified by Supreme Decree No. 054-99-EF, Law No. 27356 (18 October 2000), Art. 37(v) (“Expenses or costs that constitute second-, fourth- or fifth-category income for their collector are deductible in the tax year to which they are attributable providing that they were paid by the deadline established by the Regulations for the filing of the affidavit corresponding to said year."). ↩
See Ex. CE-51, SUNAT Assessment No. 052-003-0007147 (Income Tax for 2006) (27 May 2011); Ex. CE-69, SUNAT Resolution No. 055-014-0001556 (Income Tax for 2006) (30 March 2012), p. 102 (limiting stability benefits to the activities related to the Cerro Verde Leaching Project); see also supra §§ III.I.2; III.L.

⁶⁷⁶ See Annex A: Administrative Proceedings. ↩

⁶⁷⁷ See, e.g., Ex. CE-50, SUNAT Fine Assessment No. 052-002-0004616 (Income Tax for 2006) (26 May 2011); Ex. CE-69, SUNAT Resolution No. 055-014-0001556 (Income Tax for 2006) (30 March 2012), pp. 122-126 (clarifying that Fine Assessment No. 052-002-0004616 was imposed for "not keeping accounting records (separate for each project)" and accounting in U.S. dollars); Ex. CE-68, SUNAT Fine Assessment No. 052-002-0005167 (Income Tax for 2007) (28 March 2012); Ex. CE-77, SUNAT Resolution No. 055-014-0001701 (Income Tax for 2007) (25 January 2013), pp. 138-142 (Fine Assessment No. 052-002-0005167 was imposed for “failure to keep accounting . . . separate" and accounting in U.S. dollars); Ex. CE-93, SUNAT Fine Assessment No. 052-002-0005883 (Income Tax for 2008) (19 August 2013); Ex. CE-109, SUNAT Resolution No. 055-014-0001907 (Income Tax for 2008) (30 May 2014), pp. 172-177 (Fine Assessment No. 052-002-0005883 was imposed for "not keeping the accounting . . . separate" and accounting in U.S. dollars); Ex. CE-119, SUNAT Fine Assessment No. 052-002-0006260 (Income Tax for 2009) (26 November 2014); Ex. CE-131, SUNAT Resolution No. 055-014-0002145 (Income Tax for 2009) (23 June 2015), pp. 367-369, 374-377 (Fine Assessment No. 052-002-0006260 was imposed "for failure to keep the accounting . . . separate" and accounting in U.S. dollars); Ex. CE-126, SUNAT Fine Assessment No. 052-002-0006355 (Income Tax for 2010) (18 February 2015); Ex. CE-134, SUNAT Resolution No. 055-014-0002255 (Income Tax for 2010) (4 November 2015), pp. 323-328 (Fine Assessment No. 052-002-0006355 was imposed because "no separate accounting was provided" and accounting in U.S. dollars); Ex. CE-234, SUNAT Fine Assessment No. 012-002-0033156 (Income Tax for 2012) (26 November 2019); Ex. CE-279, SUNAT Fine Assessment No. 012-002-0034411 (Income Tax for 2013) (28 December 2020); see also CA-2, Mining Regulations, Art. 22 ("To determine the results of its operations, a mining activity titleholder that has other concessions or Economic-Administrative Units shall keep independent accounts and reflect them in separate earnings statements."). ↩

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purposes";⁶⁷⁸ and (ii) SUNAT had already rejected SMCV's request to reimburse the GEM overpayments for Q4 2011 to Q3 2012.⁶⁷⁹

275. Moreover, while SUNAT repeated Mr. Isasi's interpretation that stability was limited to the investments included in the Feasibility Study for each of the Income Tax Assessments,⁶⁸⁰ in practice the actual methodology that SUNAT used to calculate the income tax base varied between different Income Tax Assessments, without any justifiable basis.⁶⁸¹ For example, for the 2006 to 2011 Income Tax Assessments, SUNAT applied the non-stabilized depreciation regime to the assets it identified as being related to the Concentrator; but for the 2012 to 2013 Income Tax Assessments, SUNAT treated all the assets that SMCV started using as of 2007 as non-stabilized, even those relating to the leaching facility.⁶⁸² This meant that some fixed assets related to the leaching facility, as well as "mixed" assets used in both processes and non-processing operations, like agglomerator feeders and haul trucks, were subject to different depreciation regimes on different dates-even though those assets were already partially depreciated under the stabilized regime, under which assets took five years to be fully depreciated.⁶⁸³

276. From 2017 to 2020, under protest, SMCV filed amended income tax returns applying non-stabilized depreciation rates to its so-called Concentrator-related assets for the 2012 and 2013 fiscal years and plans to fully depreciate those assets under the non-stabilized rates.⁶⁸⁴ This will allow SMCV to recapture some of the depreciation deductions that Peru denied SMCV, but over a longer period of time than if Peru had permitted SMCV to apply the accelerated depreciation rates guaranteed by the Stability Agreement.

⁶⁷⁸ See Ex. CE-232 SUNAT Assessment No. 012-003-0108051 (Income Tax for 2012) (26 November 2019); CA-182, Regulations for the Law Establishing GEM Legal Framework, Supreme Decree No. 173-2011-EF (29 September 2011), Art. 9 (classifying the GEM as an “expense" for income-tax purposes). ↩

⁶⁷⁹ See Ex. CE-218, SUNAT Resolution No. 012-180-0018640/SUNAT, GEM Q4 2011-Q3 2012 (4 March 2019). ↩

⁶⁸⁰ See, e.g., Ex. CE-614, SUNAT Result of Requirement of Information No. 0522110000184 (Income Tax for 2006) (6 May 2011), p. 13; Ex. CE-626, SUNAT Result of Requirement of Information No. 0522110000645. (Income Tax for 2007) (26 September 2011), p. 5; Ex. CE-657, SUNAT Result of Requirement of Information No. 0522120000978 (Income Tax 2008), pp. 13-14; Ex. CE-675, 29 Oct. 2014 SUNAT Result of Requirement of Information No. 0522140001454 (Income Tax for 2009) (9 July 2013), p. 20; Ex. CE-677, SUNAT Result of Requirement of Information No. 0522140001090 (Income Tax for 2010) (7 November 2014), p. 4; Ex. CE-691, SUNAT Result of Requirement of Information No. 0522160000581 (Income Tax for 2011) (27 July 2016), p. 6; Ex. CE-228, SUNAT Result of Requirement of Information No. 0122190001430 (Income Tax for 2012) (4 November 2019), p. 24; Ex. CE-792, SUNAT Result of Requirement of Information No. 0122200001120 (Income Tax for 2013) (4 December 2020), p. 15. ↩

⁶⁸¹ Choque ¶¶ 22-24 and Appendix F Income Tax. ↩

⁶⁸² See Choque ¶¶ 22-24 and Appendix F Income Tax. ↩

⁶⁸³ Choque ¶ 24. ↩

⁶⁸⁴ Ex. CE-886, 21 Dec. 2017 Amended Income Tax Return for 2012; Ex. CE-887, 27 Dec. 2018 Amended Income Tax Return for 2013; Ex. CE-888, 12 Nov. 2019 Amended Income Tax Return for 2012; Ex. CE-889, 15 Dec. 2020 Amended Income Tax Return for 2013. ↩

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277. For the 2007, 2008, 2012 and 2013 Income Tax Assessments, SUNAT also applied the non-stabilized regime to all the PTU deductions, without attempting to distinguish or distribute the PTU deductions between the leaching facility and the Concentrator.⁶⁸⁵ For the 2009 and 2010 Income Tax Assessments, SUNAT applied the non-stabilized regime to some PTU deductions, but failed to explain how it chose the workers whose PTU it treated as non-stabilized.⁶⁸⁶

278. In total, the Income Tax Assessments amounted to US$217,050,089 in tax and US$228,476,617 in penalties and interest as of each assessment date.⁶⁸⁷ SMCV requested reconsideration for the 2006-2012 assessments, all of which were denied except the request to reconsider the 2012 Income Tax Assessment, which SUNAT failed to rule on and which SMCV ultimately withdrew in February 2020, to avoid any suggestion of noncompliance with Article 10.18's waiver requirement.⁶⁸⁸ SMCV challenged the 2006-2011 Income Tax Assessments before the Tax Tribunal. After the 2006 and 2007 Income Tax Assessment challenges had been pending for over six and five years, respectively, the Tax Tribunal confirmed both of them on 22 August 2018, relying again on Mr. Isasi's interpretation of the scope of the Stability Agreement.⁶⁸⁹ After receiving no resolutions for over five years in the 2008 Income Tax Assessments case, for over four years in the 2009-2010 Income Tax Assessments case and for over a year in the 2011 Income Tax Assessments case, SMCV ultimately withdrew its stability-related claims in February 2020 to avoid any suggestion of noncompliance with Article 10.18's waiver requirement.⁶⁹⁰

279. The Income Tax Assessments also caused SMCV to incur additional liabilities under Peru's employee profit sharing (PTU) law.⁶⁹¹ The PTU law requires mining companies to contribute 8% of their taxable income for the benefit of employees.⁶⁹² The increase in SMCV's taxable income

⁶⁸⁵ See Choque ¶¶ 25-28 and Appendix F Income Tax. ↩

⁶⁸⁶ See Choque ¶¶ 25-28 and Appendix F Income Tax. ↩

⁶⁸⁷ See Annex A: Administrative Proceedings. ↩

⁶⁸⁸ See Annex A: Administrative Proceedings. SMCV did not withdraw certain income tax claims unrelated to the Government's interpretation of the Stability Agreement, which remained pending. ↩

⁶⁸⁹ See Ex. CE-191, Tax Tribunal Resolution No. 06367-2-2018 (Income Tax for 2006) (22 August 2018), pp. 25-26 ("[T]he benefits conferred through the stability agreements lie with the holder of the mining activity so as to promote the investment being developed through a concession or Economic Administrative Unit, such benefits apply exclusively to activities associated with the aforementioned investment, whose object is outlined in the Feasibility Study.”); Ex. CE-192, Tax Tribunal Resolution No. 06369-2-2018 (Income Tax for 2007) (22 August 2018), pp. 23-24 ("the benefits of the judicial stability are . . . clearly defined in the Feasibility Study . . . the investment subject to the stability agreement is related to the "Cerro Verde Leaching Project."). ↩

⁶⁹⁰ See Annex A: Administrative Proceedings. SMCV did not withdraw certain income tax claims unrelated to the Government's interpretation of the Stability Agreement, which remained pending. ↩

⁶⁹¹ See CA-65, Regulations on the Rights of Workers Participating in the Company Profit Sharing Program (PTU), Legislative Decree No. 892 (11 November 1996); CA-70, Regulations on the Application of the Rights of Workers in Private Enterprise Participating in a Company Profit Sharing Program, Regulations of the Legislative Decree No. 892 (6 August 1998). ↩

⁶⁹² See CA-65, Regulations on the Rights of Workers Participating in the Company Profit Sharing Program (PTU), Legislative Decree No. 892 (11 November 1996), Art. 2. ↩

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resulting from the Income Tax Assessments resulted in a corresponding increase in SMCV's PTU liabilities of approximately US$40.1 million.⁶⁹³

3. Additional Income Tax

280. SUNAT also issued assessments against SMCV for the Additional Income Tax ("AIT," and collectively, the “AIT Assessments”), which is levied on any form of expense deemed an indirect profit distribution at a 4.1% rate and did not apply to SMCV by virtue of the Stability Agreement because the AIT entered into force in June 2002. The AIT Assessments for 2007 and 2008 were issued at the same time as the GST Assessments for 2007-2008.⁶⁹⁴ The AIT Assessments for 2009-2013 were issued at the same time as the Income Tax Assessments, and also relied on Mr. Isasi's interpretation that stability benefits are limited to the investments set forth in the 1996 Feasibility Study.⁶⁹⁵ However, in practice SUNAT disregarded the Stability Agreement entirely, assessing AIT based on all of SMCV's expenses on the dubious grounds that distinguishing expenses related to the stabilized investment was impossible given that SMCV had not kept separate accountings.⁶⁹⁶

281. In total, the AIT Assessments amounted to US$4,651,665 in tax and US$3,815,334 in penalties and interest as of each assessment date.⁶⁹⁷ With the exception of 2013 AIT Assessments, SMCV requested reconsideration for each of these assessments. SUNAT denied SMCV's reconsideration requests for the 2008-2011 AIT Assessments, which SMCV challenged before the Tax Tribunal.⁶⁹⁸ After receiving no decisions in any of its challenges before the Tax Tribunal one of which had been pending for almost seven years—or from SUNAT on its reconsideration request for the 2012 AIT Assessment, SMCV ultimately withdrew them in February 2020 to avoid any suggestion of noncompliance with Article 10.18's waiver requirement.⁶⁹⁹

⁶⁹³ See Expert Report of Pablo Spiller and Carla Chavich, ¶ 58. ↩

⁶⁹⁴ See Annex A: Administrative Proceedings. ↩

⁶⁹⁵ See Annex A: Administrative Proceedings. ↩

⁶⁹⁶ Compare Ex. CE-131, SUNAT Resolution No. 055-014-0002145 (Income Tax 2009)(23 June 2015), pp. 269-275; id. at pp. 353-358 (confirming the application of the AIT, noting that SMCV did not distinguish between stabilized and non-stabilized expenses); Ex. CE-134, SUNAT Resolution No. 0550140002255 (Income Tax for 2010) (4 November 2015), pp. 311-317 (confirming the application of the AIT and noting that distinguishing between stabilized and non-stabilized amounts was not possible because SMCV did not provide separate accounting); Ex. CE-187, SUNAT Resolution No. 0550140014311 (Income Tax for 2011) (10 August 2018), pp. 87-91 (confirming the application of the AIT and noting that noting that SMCV did not provide separate accounting); Ex. CE-281, SUNAT Assessment No. 0120030114004 (28 December 2020), Annex 1 (applying an AIT on certain non-deductible expenses treated as presumed dividends) with Appendix F Income Tax. ↩

⁶⁹⁷ See Annex A: Administrative Proceedings. ↩

⁶⁹⁸ See Annex A: Administrative Proceedings. ↩

⁶⁹⁹ See Annex A: Administrative Proceedings. SMCV did not withdraw certain income tax claims unrelated to the Government's interpretation of the Stability Agreement, which remained pending. ↩

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4. Temporary Tax on Net Assets

282. Beginning in December 2013, SUNAT also issued assessments against SMCV for the Temporary Tax on Net Assets (“TTNA,” and collectively, the “TTNA Assessments”).⁷⁰⁰ The TTNA is calculated by applying a 0.4% rate on any net assets (minus depreciations) exceeding one million soles recorded in the adjusted balance sheet for December 31 of the previous year, and did not apply to SMCV given that it entered into force in January 2005.⁷⁰¹ On 27 December 2013, 14 August 2015, 27 July 2016, and 20 November 2019, SUNAT issued TTNA Assessments for fiscal years 2009, 2010, 2011, and 2013, respectively, reiterating the interpretation that stability guarantees applied only to the investment in the original leaching facilities.⁷⁰² SUNAT also imposed penalties for SMCV's failure to file TTNA declarations.⁷⁰³ Although it acknowledged that at least the leaching facilities were stabilized, SUNAT again effectively disregarded the Stability Agreement entirely, assessing the TTNA based on the entirety of SMCV's net assets on the grounds that segregating the Concentrator assets was impossible.⁷⁰⁴

283. In total, the TTNA Assessments amounted to US$31,166,966 in taxes and US$19,192,547 in penalties and interest as of each assessment date.⁷⁰⁵ SMCV submitted requests for reconsideration for the 2009-2011 and 2013 TTNA Assessments, and it voluntarily self-declared and paid the 2012 TTNA amounts under protest in December 2017 to avoid further penalties and interest.⁷⁰⁶ SUNAT rejected the requests for reconsideration in the 2009-2010 TTNA Assessments,

⁷⁰⁰ See Ex. CE-103, SUNAT Assessment No. 052-003-0011208 (TTNA for 2009) (27 December 2013). ↩

⁷⁰¹ See CA-112, Temporary Tax on Net Assets Law, Law No. 28424 (21 December 2004), Art. 1 ("The tax applies to net assets as of December 31st of the previous year. The obligation originates as of January 1st of each fiscal year."); id. at Art. 11 (“The Tax shall take effect as of January 1, 2005. ..."); CA-134, Legislative Decree No. 976, Establishing a Gradual Reduction of the Temporary Tax on Net Assets (14 March 2007) (setting tax rates). ↩

⁷⁰² See Annex A: Administrative Proceedings. ↩

⁷⁰³ See Ex. CE-104, SUNAT Fine Resolution No. 052-002-0006004 (TTNA 2009) (27 December 2013); Ex. CE-113, SUNAT Resolution No. 055-014-0001946 (TTNA 2009) (27 August 2014), p. 90 (confirming Fine Resolution No. 052-002-0006004 for failure to file required TTNA declarations); Ex. CE-133, SUNAT Fine Resolution No. 002-002-0006448 (TTNA 2010) (14 August 2015); Ex. CE-140, SUNAT Resolution No. 055-014-0002356 (TTNA 2010) (29 February 2016), p. 94 (confirming SUNAT Fine Resolution No. 002-002-0006448, same); Ex. CE-148, SUNAT Fine Resolution No. 052-002-0006693 (TTNA 2011) (27 July 2016); Ex. CE-156, SUNAT Fine Resolution No. 011-002-0022011 (TTNA 2013) (26 September 2017); Ex. CE-724, SUNAT Resolution No. 0150150014218 (TTNA 2013) (28 June 2018), pp. 5-6 (confirming SUNAT Fine Resolution No. 011-002-0022011, same). ↩

⁷⁰⁴ See Ex. CE-113, SUNAT Resolution No. 055-014-0001946, (TTNA for 2009) (27 August 2014), p, 81 (finding that distinguishing between stabilized and unstabilized assets is not possible because SMCV had not kept separate accountings); Ex. CE-140, SUNAT Resolution No. 055-014-0002356 (TTNA 2010) (29 February 2016), p. 84 (requiring separate accountings in order to distinguish between TTNA application). ↩

⁷⁰⁵ See Annex A: Administrative Proceedings. ↩

⁷⁰⁶ See Ex. CE-162, SMCV, Tax Return for Temporary Taxes on Net Assets and Payment Receipt (21 December 2017). ↩

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which SMCV challenged before the Tax Tribunal.⁷⁰⁷ After SUNAT failed to issue a decision on SMCV's reconsideration request for the 2011 TTNA Assessments for nine months, SMCV also challenged the 2011 TTNA Assessments before the Tax Tribunal.⁷⁰⁸ The Tax Tribunal confirmed the fine that SUNAT imposed in the 2013 TTNA Assessments, but it failed to rule on any other challenge, some of which remained pending for over five years.⁷⁰⁹ To avoid any suggestion of noncompliance with Article 10.18's waiver requirement, SMCV ultimately withdrew its stability-related claims in February 2020 for the 2009-2011 TTNA Assessments before the Tax Tribunal issued a decision, as well as its request for reconsideration before SUNAT for the 2013 TTNA Assessments.⁷¹⁰

5. Special Mining Tax and Complementary Mining Pension Fund

284. In December 2017, SUNAT also began assessing the new taxes that had been created in tandem with the 2011 Royalty Law, and thus should not have applied to SMCV until the end of 2013 under the Stability Agreement. In particular, on 29 December 2017 and 28 September 2018, SUNAT issued assessments against SMCV for, respectively, the fourth quarter of 2011 through the fourth quarter of 2012, and each quarter of 2013, for the SMT (collectively, the “SMT Assessments").⁷¹¹ Like royalties under the 2011 Royalty Regime, SUNAT calculated the SMT based on the operating profit it attributed to the Concentrator at the respective marginal rate, which for SMT ranges from 2% to 8.40%.⁷¹² SUNAT also imposed penalties for SMCV's failure to file SMT declarations.⁷¹³

⁷⁰⁷ See Annex A: Administrative Proceedings. ↩

⁷⁰⁸ Ex. CE-695, SMCV, Challenge to Tax Tribunal (TTNA for 2011) (27 June 2017). ↩

⁷⁰⁹ See Ex. CE-780, SMCV, Withdrawal of Challenge to Tax Tribunal (TTNA for 2009) (25 February 2020) (noting that challenge was pending since 6 Oct. 2014); Ex. CE-743, Tax Tribunal, Resolution No. 10372- 9-2018 (TTNA Fines for 2013) (14 December 2018). ↩

⁷¹⁰ See Annex A: Administrative Proceedings. SMCV did not withdraw certain income tax claims unrelated to the Government's interpretation of the Stability Agreement, which remained pending. ↩

⁷¹¹ See Ex. CE-700, SUNAT Assessments No. 012-003-0092658 and 012-003-0092961 to 012-003-0092964 (SMT for 4Q 2011-2012) (29 December 2017); Ex. CE-195, SUNAT Assessment No. 012-003-0099078 to 012-003-0099081 (SMT for 2013) (28 September 2018). ↩

⁷¹² See CA-180, Creating the Special Mining Tax, Law No. 29789 (28 September 2011), Art. 4.2; id., Annex (listing a progressive scale for SMT rates, ranging from 2 to 8.4%). ↩

⁷¹³ See Ex. CE-168, SUNAT Fine Resolution No. 012-002-0031072 (SMT 4Q 2011) (29 December 2017), Annex 1; Ex. CE-169, SUNAT Fine Resolution No. 012-002-0031093 (SMT 1Q 2012) (29 December 2017), Annex 1; Ex. CE-170, SUNAT Fine Resolution No. 012-002-0031094 (SMT 2Q 2012) (29 December 2017), Annex 1; Ex. CE-171, SUNAT Fine Resolution No. 012-002-0031095 (SMT 3Q 2012) (29 December 2017), Annex 1; Ex. CE-172, SUNAT Fine Resolution No. 012-002-0031096 (SMT 4Q 2012) (29 December 2017), Annex 1;Ex. CE-198, SUNAT Resolution No. 0150140014441 (SMT 4Q 2011-4Q 2012) (12 October 2018), pp. 39-40 (confirming SUNAT Fine Resolution Nos. 012- 002-0031702, 012-002-0031093 to 012-002-0031096 for failures to file SMT declarations); CE-197, SUNAT Fine Resolutions No. 012-002-0031706 to No. 012-002-0031709 (SMT 2013) (28 September 2018), Annex 1; Ex. CE-221, SUNAT Resolution No. 015014001485 (SMT 2013) (28 May 2019), pp. 38- 39 (confirming SUNAT Fine Resolution Nos. 012-002-0031706 to 012-002-0031709 for failures to file SMT declarations). ↩

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285. On 20 December 2019, SUNAT also issued an assessment charging SMCV with contributions for fiscal year 2013 to the Complementary Mining Pension Fund (the “CMPF Assessment"), a social security fund composed of 0.5% of employees' monthly gross compensation and 0.5% of mining companies' annual pre-tax income.⁷¹⁴ SUNAT calculated the CMPF Assessment on SMCV's entire gross income, again arbitrarily taking the position that trying to distinguish which part of the gross income was related to stabilized investments was impossible given that SMCV had not kept separate accountings—even though SUNAT itself had already calculated the Concentrator's profit when issuing the Q4 2011–2013 Royalty Assessments and the SMT Assessments.⁷¹⁵

286. In total, the SMT Assessments amounted to US$61,092,613 in taxes and US$46,344,574 in penalties and interest as of each assessment date, and the CMPF Assessment to US$3,792,301 in taxes and US$3,146,092 in penalties and interest as of the assessment date.⁷¹⁶ SMCV submitted requests for reconsideration for the Q4 2011-2012 and 2013 SMT Assessments, both of which SUNAT rejected.⁷¹⁷ SMCV also challenged the Q4 2011-2012 SMT Assessments before the Tax Tribunal, which upheld SUNAT's Assessments.⁷¹⁸ SMCV also submitted a request for reconsideration for the 2013 CMPF Assessment, which SMCV eventually withdrew in February 2020 when Freeport filed its notice of arbitration.⁷¹⁹

287. On 25 June 2019 and 13 August 2019, SMCV requested under protest to enter into deferral and installment plans to pay the 2013 and Q4 2011-2012 SMT Assessments, respectively.⁷²⁰ On 1 July 2019 and 16 August 2019, SUNAT approved SMCV's deferral and installment plans.⁷²¹ On 18 August 2020, SMCV agreed with SUNAT to defer and combine the two deferral and installment plans into a single plan under a more lenient regime known as the RAF regime (regimen de

⁷¹⁴ See Ex. CE-237, SUNAT Assessment No. 0120030109172 (CMPF for 2013) (20 December 2019). ↩

⁷¹⁵ Compare Ex. CE-771, 18 Dec. 2019 SUNAT Result of Requirement No. 0122190002553 (CMPF for 2013) (19 December 2019), p. 37 with Ex. CE-195, SUNAT Assessment No. 012-003-0099082, 2013 Royalty Assessments (28 September 2018), Annex 3, p. 4 (showing a calculation for the Concentrator's profit). ↩

⁷¹⁶ See Annex A: Administrative Proceedings. ↩

⁷¹⁷ See Ex. CE-198, SUNAT Resolution No. 0150140014441 (SMT for 4Q 2011-2012) (12 October 2018); Ex. CE-221, SUNAT, Resolution No. 015014001485 (SMT for 2013) (28 May 2019) (notified to SMCV 29 May 2019). ↩

⁷¹⁸ Ex. CE-198, Tax Tribunal, Resolution No. 05634-4-2019 (SMT for Q4 2011-2012) (20 June 2019) (notified to SMCV 30 July 2019). ↩

⁷¹⁹ See Ex. CE-254, SMCV Withdrawal of Request for Reconsideration (CMPF 2013) (27 February 2018). ↩

⁷²⁰ Ex. CE-759, SMCV Request Under Protest to Enter Into Deferral and Installment Plans (SMT for 2013) (25 June 2019); Ex. CE-764, SMCV Request Under Protest to Enter Into Deferral and Installment Plans (SMT for Q4 2011-12) (13 August 2019). ↩

⁷²¹ Ex. CE-760, SUNAT Approval of SMCV's Deferral and Installment Plans (SMT for 2013) (1 July 2019); Ex. CE-765, SUNAT Approval of SMCV's Deferral and Installment Plans (SMT for Q4 2011-12) (16 August 2019). ↩

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aplazamiento y fraccionamiento).⁷²² On 13 August 2021, under protest, SMCV made a payment equal to US$65,156,246 to pay off the outstanding balance under the RAF Plan.⁷²³

R. FREEPORT FILED FOR ARBITRATION

288. On 26 November 2019, Freeport submitted a Notice of Intent advising Peru that a dispute had arisen concerning Freeport's investment.⁷²⁴ Freeport and SMCV also made significant efforts to resolve the dispute amicably, including through consultations with the Government and with Peru's Special Commission that Represents Peru in International Investment Disputes.⁷²⁵ When these efforts were unable to resolve the dispute amicably, Freeport filed its Notice of Arbitration on 28 February 2020.⁷²⁶

⁷²² Ex. CE-786, SUNAT Approval of RAF Regime (SMT for Q4 2011-2013) (18 August 2020) (applying interest at 40% of the statutory rate established by Article 33 of the Tax Code). ↩

⁷²³ See Ex. CE-838, SMT RAF Payments, February 2021 to August 2021. ↩

⁷²⁴ See Ex. CE-271, Claimants' Notice of Intent to Commence Arbitration under the United States-Peru Trade Agreement (27 November 2019). ↩

⁷²⁵ See Ex. CE-273, Letter from Freeport and SMCV to the Peruvian Special Commission that Represents Peru in International Investment Disputes re: Notice of Intent (12 February 2020). ↩

⁷²⁶ Request for Arbitration, 30 April 2020. ↩

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IV. LIABILITY

A. PERU BREACHED THE STABILITY AGREEMENT

289. Peru breached the Stability Agreement each time the Royalty and Tax Assessments premised on Peru's novel and restrictive interpretation of the Agreement became final and enforceable against SMCV. Article 10.16.1(b)(i)(C) of the TPA permits Freeport to bring claims before the Tribunal for these breaches on SMCV's behalf, since the Stability Agreement is an "investment agreement" as defined by the TPA.

1. The Stability Agreement is an Investment Agreement for which Freeport May Bring Claims under Article 10.16 of the ΤΡΑ

290. Article 10.16.1(b) of the TPA provides that a claimant, “on behalf of an enterprise of the respondent that is a juridical person that the claimant owns or controls directly or indirectly," may submit to the arbitration “a claim that the respondent has breached ... an investment agreement," and that "the enterprise has incurred loss or damage by reason of, or arising out of, that breach," as long as "the subject matter of the claim and the claimed damages directly relate to the covered investment that was established or acquired, or sought to be established or acquired, in reliance on the relevant investment agreement.”⁷²⁷

291. Article 10.28 defines “investment agreement" as, among others:

“a written agreement between a national authority of a Party and a covered investment or an investor of another Party, on which the covered investment or the investor relies in establishing or acquiring a covered investment other than the written agreement itself, that grants rights to the covered investment or investor . . . with respect to natural resources that a national authority controls, such as for their exploration, extraction, refining, transportation, distribution, or sale."⁷²⁸

292. Footnote 16 to Article 10.28 further clarifies that

'[w]ritten agreement' refers to an agreement in writing, executed by both parties, whether in a single instrument or in multiple instruments, that creates an exchange of rights and obligations, binding on both parties under the law applicable under Article 10.22.2.⁷²⁹

⁷²⁷ CA-10, TPA, Article 10.16.1(b) (emphasis added). ↩

⁷²⁸ CA-10, TPA, Article 10.28 (emphasis added). ↩

⁷²⁹ CA-10, TPA, Article 10.28, n. 16; see also id. ("For greater certainty, (a) a unilateral act of an administrative or judicial authority, such as a permit, license, or authorization issued by a Party solely in its regulatory capacity, or a decree, order, or judgment, standing alone; and (b) an administrative or judicial consent decree or order, shall not be considered a written agreement."). ↩

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293. Annex 10-H carves out two specific types of legal stability agreements from the definition of "investment agreement,” confirming that mining stability agreements generally qualify as “investment agreements” under Article 10.28. In particular, Annex 10-H states in relevant part that:

Pursuant to Legislative Decrees 662 and 757, Peru may enter into agreements known as “stability agreements” with covered investments or investors of another Party.... Appendices 10-H.A and 10-H.B set forth, respectively, an illustration of a stability agreement with a covered investment and an illustration of a stability agreement with an investor . . . Where a stability agreement is materially identical to the illustration set forth in Appendix 10-H.A or 10-H.B, and does not constitute one of multiple instruments that make up an 'investment agreement,' as defined in Article 10.28, a breach of such a stability agreement by Peru shall not constitute a breach of an investment agreement.⁷³⁰

294. The Stability Agreement satisfies the plain terms of these definitions, and Freeport is thus entitled to bring claims on SMCV's behalf based on Peru's breaches of the Stability Agreement.

295. First, the Stability Agreement was a “written agreement between a national authority of a Party and a covered investment or an investor of another Party":

1. The Stability Agreement was an “agreement in writing" executed between then- Minister of Energy and Mines Daniel Hokama Tokashiki, acting "in the name and on behalf of the Peruvian State” and SMCV, a covered investment of Freeport.⁷³¹
2. The Stability Agreement created an “exchange of rights and obligations.” It provided SMCV, among others, with rights to tax and administrative stability in exchange for SMCV's qualifying minimum investment commitment to Cerro Verde.⁷³²
3. The Stability Agreement was binding on both parties under Peruvian law.⁷³³

296. Second, the Stability Agreement granted rights “with respect to natural resources that a national authority controls." The term “with respect to” is broad, and the TPA's non-exclusive list of examples of relevant rights meeting this definition includes rights to the "exploration, extraction, refining, transportation, distribution, or sale” of natural resources.⁷³⁴ The Stability Agreement, which was executed pursuant to Article 82 of the Mining Law, granted SMCV stability guarantees “with respect to" all of its activities within the Mining and Beneficiation Concessions relating to "natural

⁷³⁰ CA-10, TPA, Chapter 10, Annex 10-H (emphasis added). ↩

⁷³¹ See Ex. CE-12, 1998 Stability Agreement, p. 3. ↩

⁷³² See e.g., Ex. CE-12, 1998 Stability Agreement, Clauses 1, 9.4, 9.5, 9.6, 10.1. ↩

⁷³³ See Ex. CE-12, 1998 Stability Agreement, Clause 17 (“This contract will become effective on the date when it is executed by the parties, without prejudice to its execution in the form of a public deed and registration in the Public Mining Registry"); id. at pp. 32-33 (signatures executing the agreement). ↩

⁷³⁴ СА-10, ТРА, Article 10.28. ↩

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resources" in accordance with the Mining Law, and specifically references benefits directly related to, among others, exploitation, sale, and refining.⁷³⁵ The Mining Law confirms that the Stability Agreement grants rights with respect to all “mining activities," including “exploration, exploitation, [and] beneficiation.”⁷³⁶ Peru also “controls” the mineral resources at issue, as the preamble to the Mining Law makes clear.⁷³⁷

297. Third, Freeport, through its predecessors in interest, "relied" on the Stability Agreement when “establishing or acquiring" its covered investment in SMCV and its covered investments in the Cerro Verde Mining Unit, including the investment to construct the Concentrator. SMCV similarly “relied” on the Stability Agreement when “establishing or acquiring" covered investments in the Cerro Verde Mining Unit, including the investment to construct the Concentrator. In particular:

1. Cyprus initially acquired SMCV in reliance on Peru's guarantees of stability, which pursuant to the terms of the Share Purchase Agreement and the Guaranty Agreement would be set out in, among others, future mining stability agreements.⁷³⁸
2. Mr. Morán testifies that when Phelps Dodge assessed SMCV in connection with its acquisition of Cyprus, Phelps Dodge "believed that SMCV's stability regime was critically important."⁷³⁹ In particular, Mr. Morán explains that “[b]ecause of Peru's economic and political turmoil, the possibility of enjoying stability was essential for our operations," and that given low copper prices at the time, “any additional taxes or charges could have jeopardized any additional investments that Phelps Dodge sought

⁷³⁵ Compare CA-10, TPA, Article 10.28 with Ex. CE-12, 1998 Stability Agreement, Clauses 9.1 (providing guarantees for “free availability in the export and internal sales by the owner of its mineral products"); Clause 9.3 (providing stabilized depreciation rate for fixed assets); Clause 9.5 (providing stabilized fiscal treatment, including customs duties), 9.6, 10.1; Clause 1.3 (referencing feasibility study for the processing of "the copper mineral in the facilities of Cerro Verde"); Clause 3 (describing the "mining rights" that are the subject of the agreement). ↩

⁷³⁶ See CA-1, General Mining Law, Chapter III (titled "Other Mining Activities"); Article 7 ("[E]xploration, exploitation, beneficiation, general work and mining transport activities are carried out by national or foreign natural and legal persons through the concession system."). ↩

⁷³⁷ See CA-1, General Mining Law, Preamble, II ("All mineral resources belong to the State, whose property is inalienable and imprescriptible. The State evaluates and preserves natural resources, having to develop a basic information system for the promotion of investment; regulate the mining activity nationally; and oversee that activity according to the basic principle of administrative simplification. The exploitation of mineral resources is carried out through State and private enterprises, by the use of the system of concessions."). ↩

⁷³⁸ See supra §III.D.1; Ex. CE-4, Share Purchase Agreement Between Cyprus Climax Metals Company and Empresa Minera del Peru S.A. (17 March 1994) ("Share Purchase Agreement"), Article 3.1(g) (containing Peru's commitment to grant a mining stability agreement pursuant to Articles 78 and 79 of the Mining Law); Ex. CE-341, Guarantee of the Republic of Peru in Favor of Cyprus Climax Metals (17 March 1994), Art. 1.6 (Peru guaranteeing the execution of "any" mining stability agreement related to SMCV's "business and operations" that SMCV qualified for). ↩

⁷³⁹ Morán ¶ 14. ↩

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to undertake."⁷⁴⁰ Mr. Morán also explains that, “[f]or this reason, the technical team reviewed the stability agreements that SMCV had signed—in particular, the [Stability Agreement]—and assigned great importance to that Agreement in determining the company's future plans.”⁷⁴¹

3. Mr. Morán also testifies that Phelps Dodge's Board ultimately "based its approval" to invest in the Concentrator "on the Finance Committee's recommendation, as well as the 2004 Feasibility Study and its update which . . . reflected our understanding that the Stability Agreement's guarantees would apply to the Concentrator (an understanding that the Peruvian authorities had confirmed to SMCV representatives).”⁷⁴²
4. Mr. Davenport testifies that "[g]uarantees of tax and administrative stability were a prerequisite for Phelps Dodge to invest in large-scale mining investment in developing economies such as Peru."⁷⁴³ He thus explains that the Stability Agreement was "of paramount importance to Phelps Dodge" in considering the Concentrator investment.⁷⁴⁴ He further testifies that "[i]n approving the investment, Phelps Dodge's and SMCV's Boards of Directors relied on financial projections that assumed the Stability Agreement's guarantees would apply to the concentrator, consistent with Ms. Chappuis's advice to SMCV.⁷⁴⁵
5. Ms. Torreblanca testifies that SMCV's Board conditionally approved the Concentrator on the understanding that it would be entitled to the stabilized regime, subject to, among others, “approval of SMCV's request to expand the Beneficiation Concession."⁷⁴⁶ She testifies that once MINEM granted approval only weeks later, "[SMCV] understood that this MINEM resolution confirmed that the Stability Agreement would cover the Concentrator, just like all other investments that SMCV had made in the Cerro Verde Mining Unit after completing the investment program contained in the 1996 Feasibility Study.”⁷⁴⁷
6. The 2004 Feasibility Study, and its September 2004 update, similarly demonstrate that Phelps Dodge and SMCV relied on the Stability Agreement in relation to the

⁷⁴⁰ Morán ¶ 14. ↩

⁷⁴¹ Morán ¶ 14. ↩

⁷⁴² Morán ¶ 29. ↩

⁷⁴³ Davenport ¶ 30. ↩

⁷⁴⁴ Davenport ¶ 30. ↩

⁷⁴⁵ Davenport ¶ 40. ↩

⁷⁴⁶ Torreblanca ¶ 27. ↩

⁷⁴⁷ Torreblanca ¶ 27. ↩

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Concentrator investment, as both the Study and the update explicitly assumed that SMCV would be entitled to rely on the stabilized regime through December 31, 2013.⁷⁴⁸

298. Fourth, the Stability Agreement does not fall within Annex 10-H's narrow carve-out of two specific types of stability agreements from the definition of “investment agreement." By its plain terms, Annex 10-H excludes so-called "legal stability agreements" entered into under Legislative Decrees 662 and 757 that (i) are “materially identical" to the examples set out in Appendices 10-H.A and 10-H.B of the TPA, and (ii) do not constitute one of multiple agreements making up an “investment agreement.” The Stability Agreement is not a legal stability agreement under Legislative Decrees 662 and 757 and is not “materially identical” to the sample legal stability agreements included in Appendices 10-H.A and 10-H.B. Instead, the Stability Agreement was executed pursuant to Article 82 of the Mining Law and MINEM's model agreement incorporating all guarantees set forth in Title Nine of the Mining Law.⁷⁴⁹ Those guarantees included “tax, currency exchange, and administrative stability" for a 15-year period, whereas legal stability agreements granted only income tax and in some cases currency exchange stability for ten years.⁷⁵⁰ Other material differences between legal stability agreements and mining stability agreements concerned the requirements to enter into these agreements—for instance, to enter into the Stability Agreement, SMCV had to prepare a feasibility study and submit it for MINEM's approval, a requirement that did not apply to legal stability agreements as the Government offered them “to all investors regardless of the sector in which they invested.”⁷⁵¹

299. Finally, the "subject matter of the claim[s] and the claimed damages” “directly relate" to Freeport's covered investments in SMCV and the Cerro Verde Mining Unit made in reliance on the Stability Agreement.⁷⁵² The subject matter of Freeport's claims is Peru's breaches of the Stability Agreement arising from its novel interpretation restricting stability guarantees to the Feasibility Study's investment program instead of granting them to SMCV for all investments in the Cerro Verde Mining Unit. Relying on this novel interpretation, Peru repeatedly refused to apply stability guarantees and the stabilized regime under the Stability Agreement to the Concentrator, a covered investment that SMCV and Freeport's predecessors made in reliance on the Stability Agreement. The

⁷⁴⁸ See supra §III.F.1 (citing Ex. CE-20, Fluor Canada Ltd., Feasibility Study: Cerro Verde Primary Sulfide Project (May 2004), Vol. IV, pp. 14-16); §III.F.4 (citing Ex. CE-459, Fluor, SMCV Primary Sulfide Project Feasibility Study Project Update (September 2004), p. 48). ↩

⁷⁴⁹ See e.g., Ex. CE-778, Model Stability Agreement, Supreme Decree No. 04-94-EM (3 February 1994) (Model Agreement for fifteen-year stability agreement "granting the Regime of Guarantees and Investment Promotion Measures, provided for in the Ninth Title [of the General Mining Law]"). ↩

⁷⁵⁰ Compare CA-1, Mining Law, Articles 72, 82 with Ex. CE-304, L.D. 662, Article 15; see also Vega ¶ 55. ↩

⁷⁵¹ Compare CA-1, Mining Law, Article 85 with CA-304, L.D. 662, Articles 10, 11 and CA-306, L.D. 757, Article 41; see also Vega ¶ 56. ↩

⁷⁵² СА-10, ТРА, Art. 10.16.1(b). ↩

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claimed damages result from those breaches. Freeport is thus entitled to bring claims based on Peru's breaches of the Stability Agreement pursuant to Article 10.16.1(b) of the TPA.

2. Peru Breached the Stability Agreement Each Time it Denied Stability Guarantees on the Basis of its Novel Interpretation

300. Peru repeatedly breached its obligations under the Stability Agreement to grant stability guarantees to the entire Cerro Verde Mining Unit because:

1. Under the Mining Law and Regulations, stability guarantees applied to the entire mining unit or concessions in which the investor made its qualifying minimum investment;
2. The Stability Agreement required Peru to apply the stabilized regime to the entire Cerro Verde Mining Unit, including the Concentrator; and
3. Peru's novel interpretation limiting stability guarantees only to the investment program included in the Feasibility Study is entirely unsupported by the plain terms of the Mining Law and Regulations and the Stability Agreement itself, flies in the face of the Government's own practice, and undermines basic purposes of stability guarantees in the first place.

i. Under the Mining Law and Regulations, Stability Guarantees Applied to the Entire Mining Unit or Concession(s) in Which the Investor Made its Qualifying Minimum Investment

301. Under the plain text of the Mining Law and Regulations in force until 2014, stability guarantees applied to the entire mining unit or concession(s) in which the investor made its qualifying minimum investment. This is also the only reasonable interpretation in light of the Mining Law's purpose, because stability guarantees must apply to the entire mining unit or concession to encourage significant and continuing mining investments—as the Mining Law's drafters clearly understood. Accordingly, until it adopted its novel and restrictive interpretation of the Mining Law in relation to Cerro Verde, the Government applied stability guarantees on the basis of a mining unit or concession.

a. The Mining Law and Regulations Granted Stability Guarantees to the Entire Mining Unit or Concession(s)

302. Under the version of the Mining Law and Regulations in force until 2014, the Government granted stability to investors for the entire mining unit or concession(s) in which the qualifying minimum investment was made, without distinguishing whether the investments were included in the investment program in the feasibility study, different processing methods were used within the mining unit, or otherwise. The plain text of both the Mining Law and Regulations made this clear.

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1. The Mining Law

303. Under the plain terms of the Mining Law, the substantive guarantees of tax and administrative stability applied to an entire mining unit or concession(s). In particular:

1. Article 82 of the Mining Law—which established an investor's entitlement to tax stability for a period of 15 years—provided that:

   In order to promote investment and facilitate the financing of mining projects with an initial capacity of not less than 5,000 MT/day or expansions intended to reach a capacity of not less than 5,000 MT/day referring to one or more Economic-Administrative Units, mining activity titleholders shall enjoy tax stability that shall be guaranteed through an agreement entered into with the State for a term of fifteen years, starting from the fiscal year in which the execution of the investment or expansion, as the case may be, is accredited.⁷⁵³

   This provision thus explicitly confirmed that the law granted stability guarantees to "mining activity titleholders" for the purpose of promoting investment within an "Economic-Administrative Unit[]," and that investors might obtain stability guarantees by making significant investments within that “Economic-Administrative Unit[]." The second sentence of Article 82 then defined "Economic-Administrative Unit" as follows:

   For the purposes of the [stability] agreement . . ., the term Economic-Administrative Unit means the set of mining concessions located within the limits set forth in Article 44 of this Law, the processing plants, and the other assets that constitute a single production unit due to sharing supply, administration, and services....⁷⁵⁴

   Thus for the purpose of stability guarantees, the “Economic-Administrative Unit" explicitly included not only the mining concessions, but also the processing facilities and other assets that constitute a “single production unit."
2. Article 83 provided that only investors who submitted an investment program meeting the qualifying minimum amount (US$50 million for existing mining companies and US$20 million for the start of mining activities) had the right to enter into a stability agreement. It further provided that the “effect of the contractual benefit shall apply exclusively to the activities of the mining company in whose favor

⁷⁵³ CA-1, Mining Law, Art. 82 (emphasis added). ↩

⁷⁵⁴ CA-1, Mining Law, Art. 82 (emphasis added); see also id. Art. 44 (stating that an Economic Administrative Unit is a "grouping of concessions" "of the same class and nature" that are proximate to one another). ↩

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the investment is made.”⁷⁵⁵ By its plain text, Article 83 did not distinguish between different types of mining "activities." In particular, it did not distinguish between initial investments and later investments, or between leaching and flotation activities. On the contrary, according to Article 7 of the Mining Law, mining activities broadly included "exploration, exploitation, beneficiation, general work, and mining transport" that are "carried out . . . through the concession system.”⁷⁵⁶ The stability guarantees thus applied to all mining activities within the mining unit or concession that were the subject of the new investment.

3. Article 80 granted "tax stability" and other benefits to the "mining activity titleholder" that entered into a 10- or 15-year stability agreement under Articles 78 or 82.⁷⁵⁷ It thus made clear that those benefits derived from the investor's relevant mining titles—in other words, the concession or concessions that made up the mining unit.
4. Article 84 similarly granted additional guarantees to the “mining activity titleholder" that entered into a 15-year stability agreement, including increased depreciation rates and the right to “keep accounting in U.S. dollars."⁷⁵⁸
5. Article 72, which set out the "basic benefits" contained within the stability framework for both 10- and 15-year stability agreements, similarly characterized those benefits as granted to the “titleholders” of “mining activity.”⁷⁵⁹

2. The Mining Regulations

304. The Regulations in force during SMCV's stability period similarly confirmed that stability guarantees applied to an entire mining unit or concession. In particular:

1. Echoing Article 83 of the Mining Law, Article 1 provided that stability guarantees are granted to "mining activity titleholders” “for the performance of their activities.”⁷⁶⁰
2. Article 2 provided that stability guarantees "shall apply as of right to all mining activity titleholders"—a term defined as persons or entities "that perform mining activities in a concession or in concessions grouped in an Economic Administrative Unit, as titleholders or assignees"—so long as they "enter[ed] into a stability

⁷⁵⁵ CA-1, Mining Law, Art. 83 (emphasis added); see also Chappuis ¶ 21. ↩

⁷⁵⁶ CA-1, Mining Law, Art. 7. ↩

⁷⁵⁷ CA-1, Mining Law, Art. 80 (emphasis added); see also id. Art. 84 (incorporating by reference benefits contained in Article 80 for fifteen-year stability agreements). ↩

⁷⁵⁸ CA-1, Mining Law, Art. 84 (emphasis added). ↩

⁷⁵⁹ CA-1, Mining Law, Art. 72 (emphasis added). ↩

⁷⁶⁰ CA-2, Regulations, Art. 1. ↩

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agreement under Articles 78 and 82."⁷⁶¹ Article 2 then expressly confirmed that stability guarantees applied on the basis of a “concession or unit," providing that

[w]hen the natural or legal person is the titleholder of several concessions or Economic-Administrative Units, the qualification [for stability] will only take effect for those concessions or units that are supported by . . . the [stability] agreement referred to in this Article.⁷⁶²

3. Article 18 of the Regulations, which included the information that titleholders must submit to "avail themselves of the provisions" of the Mining Law, confirmed that the subject of an application to execute a mining stability agreement was specific mining rights—i.e., concessions.⁷⁶³ In particular, Article 18 required titleholders to submit the "[n]ame of the mining rights set out in the application, indicating their geographic location, number of hectares, and their registrations in the corresponding Book of the Public Registry of Mining.”⁷⁶⁴
4. Article 22 of the Regulations provided that stability guarantees “shall benefit the mining activity titleholder exclusively for the investments that it makes in the concessions or Economic-Administrative Units," confirming that their scope was bounded by the mining unit or concession in which the qualifying minimum investment was made.⁷⁶⁵ Article 22 also provided specific instructions for mining companies that have multiple concessions or EAUs that may have been subject to different stabilized (or non-stabilized) fiscal regimes, noting that, "[t]o determine the results of its operations, a mining activity titleholder that has other concessions or Economic-Administrative Units shall keep independent accounts and reflect them in separate earnings statements."⁷⁶⁶ By contrast, nothing in the Mining Law or Regulations contemplated that a mining company might apply multiple fiscal regimes within a single mining unit or concession.
5. Article 25 of the Regulations also made clear that stability extended to the entire mining unit or concession, rather than to a specific investment, because it acknowledged that a mining company could undertake “expansion of facilities or new investments that contractually enjoy the guarantee of legal stability.”⁷⁶⁷ In such

⁷⁶¹ CA-2, Regulations, Art. 2 (emphasis added). ↩

⁷⁶² CA-2, Regulations, Art. 2 (emphasis added). ↩

⁷⁶³ CA-2, Regulations, Art. 18; see also Vega ¶ 45. ↩

⁷⁶⁴ CA-2, Regulations, Art. 18(b) (emphasis added). ↩

⁷⁶⁵ CA-2, Regulations, Art. 22 (emphasis added). ↩

⁷⁶⁶ CA-2, Regulations, Art. 22 (emphasis added). ↩

⁷⁶⁷ CA-2, Regulations, Art. 25 (emphasis added). ↩

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cases, Article 25 required that the mining company “make available to the Tax Administration the annexes that demonstrate the application of the tax regime granted to the aforementioned expansions or new investments."⁷⁶⁸ Article 25 thus reinforced Article 22's confirmation that stability guarantees were granted to investors for all investments made “in the concessions or Economic-Administrative Units."⁷⁶⁹

b. The Mining Law's Drafters Confirm that the Mining Law Granted Stability Guarantees to the Entire Mining Unit or Concession

305. The Mining Law's drafters confirm that its provisions were intended to convey stability guarantees to the entire mining unit or concession in which an investor made its qualifying minimum investment.

306. Ms. Chappuis—who, at the direction of Minister Sánchez Albavera, co-drafted the above provisions in L.D. 708 of 1991, which became Title Nine of the Mining Law—testifies that "under the Mining Law, stability agreements cover “all investments" that a mining activity titleholder makes in its concession or “mining unit."⁷⁷⁰ In particular:

1. Ms. Chappuis testifies that she always understood the definition of "economic administrative unit" in Article 82 to be "broad and include[] the mining concessions dealt with by [Article 44], any beneficiation facilities or concessions, and any other assets that constitute a single production unit.”⁷⁷¹
2. Ms. Chappuis further testifies that she and her colleague “carefully drafted” Article 83 taking into account "[Article 82's] broad definition of 'economic administrative unit" and that they deliberately added the language that the "effect of the contractual benefit shall apply exclusively to the activities of the mining company in whose favor the investment is made" without placing any “limitation on the mining company's 'activities'—in both mining and beneficiation concessions—that could receive the 'contractual benefit' based on processing method, ore type, or any other factor."⁷⁷² They also wanted to clarify that "stability would benefit only the

⁷⁶⁸ CA-2, Regulations, Art. 25. ↩

⁷⁶⁹ CA-2, Regulations, Art. 22; see also Vega ¶ 46 (explaining that Art. 22 "[t]ellingly . . . did not provide that mining companies must keep independent accounts and statements to distinguish between stabilized and non-stabilized investments within a concession or EAU," ultimately concluding that it "similarly confirmed that stability benefits applied to concessions or EAUs"). ↩

⁷⁷⁰ Chappuis ¶¶ 45-46. ↩

⁷⁷¹ Chappuis ¶ 28. ↩

⁷⁷² Chappuis ¶ 21. ↩

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concession or mining unit that was the target of the qualifying minimum investment, to the exclusion of other mining units.”⁷⁷³

307. Ms. Vega—who at the request of MINEM and the Mining Society personally consolidated L.D. 708 into the Mining Law, in close consultation with senior Ministry officials— likewise explains that the Mining Law provisions referenced above, “alone and taken together, made clear that stability benefits extended broadly to all investments that a mining company made within the concessions or unit covered by its stability agreement during the 10 or 15 years it is in force.”⁷⁷⁴ In particular:

1. Ms. Vega notes that Article 82 “defined EAUs for purposes of stability as covering both mining and beneficiation concessions that constituted a single production unit (or single mining unit)."⁷⁷⁵ She goes on to explain that “the broad concept of a mining unit, by ensuring that stability guarantees apply to both mining concessions and to beneficiation concessions that share fundamental inputs, avoids the difficulties associated with artificially segregating an integrated operation or applying different tax regimes to an integrated operation.”⁷⁷⁶
2. Ms. Vega explains that Article 83 “clarifi[ed] . . . the scope of stability guarantees" and “confirmed that they were broad."⁷⁷⁷ As she further explains, in line with Ms. Chappuis, Article 83's purpose “was to ensure that stability guarantees would extend only to the mining unit benefitting from the company's minimum investment."⁷⁷⁸ She also explains that, if a mining company performed all activities within a single mining unit, "the limitation in Article 83 would not arise" because "the stability guarantees would cover [the mining unit] entirely."⁷⁷⁹
3. Ms. Vega likewise notes that the “activities regarding the mining industry" referenced in Article 83 are broadly defined in both the preamble and Article 7, which make clear that the relevant “activities” are those carried out “through the concession system.”⁷⁸⁰ These affirm the conclusion that stability under Article 83 extends broadly to the concession or mining unit.

⁷⁷³ Chappuis ¶ 21. ↩

⁷⁷⁴ Vega ¶ 34. ↩

⁷⁷⁵ Vega ¶ 36 (quoting CA-1, Mining Law, Art. 82) (emphasis original). ↩

⁷⁷⁶ Vega ¶ 38. ↩

⁷⁷⁷ See Vega ¶ 39. ↩

⁷⁷⁸ See Vega ¶ 39. ↩

⁷⁷⁹ See Vega ¶ 39. ↩

⁷⁸⁰ See Vega ¶ 40 (citing CA-1, Mining Law, Art. 7 ("The exploration, exploitation, beneficiation, general work and mining transport activities are carried out by national or foreign natural and legal persons through the concession system."). ↩

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с. To Achieve Their Intended Purpose, Stability Guarantees Must Extend to an Entire Mining Unit

308. The Mining Law and Regulations also must be interpreted as having applied stability guarantees to all investments that a mining company makes within its mining unit because it is the only interpretation that is consistent with the Government's stated purpose of promoting private investment in the mining sector.

309. First, promoting private investment in mining was the Government's primary objective in adopting the landmark stability incentives that D.L. 708 introduced into the Mining Law.⁷⁸¹ For example:

1. Article 72 of the Mining Law explicitly acknowledged this objective, confirming that stability guarantees were granted “[i]n order to promote private investment in mining activity."⁷⁸²
2. Article 82 similarly provided that the purpose of establishing the 15-year stability guarantees was "to promote investment and facilitate the financing of mining projects."⁷⁸³
3. Minister Sánchez Albavera, who spearheaded the drafting of L.D. 708 as President Fujimori's Minister of Energy and Mines from 1990 to 1992, noted in his contemporaneous account of the process that “[g]ranting [stability] guarantees created an important incentive for mining companies by not altering the criteria that guided investment decisions, especially given their long-term recovery.”⁷⁸⁴
4. Ms. Chappuis, who was involved in drafting many of the Mining Law's key provisions related to stability, confirms that the Government "had a very clear vision of how important it was to offer robust stability guarantees to attract foreign investment, and . . . was emphatic in stating that these guarantees should play a key role in the reform” of the Mining Law."⁷⁸⁵
5. Mr. Flury, advising on the Mining Law's drafting in his role as Director of the Mining Society, confirms that Minister Sánchez Albavera made clear “that the stability policy had to be clear, broad, and easy to implement, or we would not be able to attract the

⁷⁸¹ See supra § III.С.1. ↩

⁷⁸² CA-1, Mining Law, Art. 72. ↩

⁷⁸³ CA-1, Mining Law, Art. 82. ↩

⁷⁸⁴ See supra § III.C.1.i; see also Ex. CE-311, Fernando Sánchez Albavera, THE CARDS ON THE TABLE (1992), p. 81. ↩

⁷⁸⁵ Chappuis ¶ 15; see supra § III.С.1.і. ↩

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investors that Peru so badly needed.”⁷⁸⁶ He also notes that in implementing stability guarantees, "Peru hoped that mining companies would make all necessary investments to develop their mining units in the best possible way.”⁷⁸⁷

310. Second, to accomplish the purpose of promoting foreign investment, it is critical for stability guarantees to apply to the entire mining unit or concession, given the basic commercial realities of mining operations. Prof. Otto explains that stability guarantees are particularly important in the mining industry given that “[d]istinctive characteristics of mining—such as high capital costs, long payback periods, and fixed assets—make stability of the fiscal and administrative framework particularly important to a mining company's decision to invest.”⁷⁸⁸ He further explains that these guarantees serve their purpose only if they apply to an investor's entire concession or mining unit, because mining investments are "dynamic, with constantly evolving equipment, processes, and approaches," including the need to "update technologies, add new circuits or mills to recover additional minerals, implement new processing approaches to accommodate changing ores and technological advances, or replace trucks with conveyors.”⁷⁸⁹ Prof. Otto opines that, if these types of subsequent investments do not enjoy stability, then stability guarantees become “significantly less attractive" in the initial investment decision, and mining companies would have a “disincentive" to make those subsequent improvements—precisely the opposite of the intent behind laws like the Mining Law.⁷⁹⁰

311. The individuals involved in preparing the Mining Law specifically understood that to promote investment in mining resources, stability guarantees had to protect an investor's entire mining unit or concession:

1. Ms. Vega testifies that in preparing the Mining Law, she "discussed with Vice- Minister Patsías whether we should incorporate the broad definition of EAU[s]," and "the concept of a 'single production unit' encompassing both mining and beneficiation concessions."⁷⁹¹ She also notes that they "both agreed that it was essential" to do so because "[t]he broad application of stability benefits to a single production unit was consistent with President Fujimori's push to promote foreign investment in mining.”⁷⁹²

⁷⁸⁶ Flury ¶ 17; see supra § III.C.1.i; see also Ex. CE-311, Fernando Sánchez Albavera, THE CARDS ON THE TABLE (1992), p. 81. ↩

⁷⁸⁷ Flury ¶ 38. ↩

⁷⁸⁸ CER-4, Expert Report of James M. Otto on Comparative Practice of Fiscal Stability in Mining (27 August 2021) (“Otto") ¶ 17. ↩

⁷⁸⁹ Otto ¶¶ 23, 32-34. ↩

⁷⁹⁰ Otto ¶¶ 34, 48-50. ↩

⁷⁹¹ Vega ¶ 38. ↩

⁷⁹² Vega ¶ 38. ↩

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2. Ms. Chappuis explains that “mining companies need to constantly make investments to optimize their production processes, make them more efficient in line with technological advances, and adapt them to the inevitable changes that the company needs to implement as it exploits the orebody.”⁷⁹³ Ms. Chappuis testifies that, in drafting Title Nine, “it never occurred to us to limit the scope of stability to the initial investment included in the feasibility study's investment program, or to the initial 'activities' that the mining company had to carry out to be entitled to enter into a stability agreement" because doing so “would have been directly at odds with Minister Sánchez Albavera's instructions to grant extensive stability guarantees to make Peru more competitive internationally . . . and to attract much-needed private investment.”⁷⁹⁴ She explains that “[s]uch a limitation would ignore how the mining industry works”: “because the orebody's chemical composition is different at the surface than at lower depths, a processing circuit that may be appropriate at the time of the initial investment could be less efficient or even useless once the surface ore has been extracted from the deposit.”⁷⁹⁵

312. Finally, international practice confirms that stability guarantees typically apply to entire mining units—unsurprisingly, since governments worldwide implement stability guarantees for the same purpose, namely, to "attract investment.”⁷⁹⁶ In particular:

1. Prof. Otto testifies that "[a]ll of the stabilization schemes" that he is aware of from his extensive experience “are granted to either the mining company or a mining unit of that company," and that he is "not aware of any jurisdiction, law, or agreement that grants stability to just a part of the activities performed within a mining unit.”⁷⁹⁷
2. Prof. Otto also cites specific examples from seven jurisdictions that offered stability guarantees to mining investors with which Peru would have been competing for investment in the early 2000s.⁷⁹⁸ He notes that all of these jurisdictions “reflect[] the global norm that, when a country offers stability to its mining investors, it typically does so to the mining unit as a whole, not only to specific investments that a mining company makes within that unit.”⁷⁹⁹

⁷⁹³ Chappuis ¶ 24. ↩

⁷⁹⁴ Chappuis ¶ 23; see supra § III.C.1.i; see also Chappuis ¶ 25 ("[W]e sought to encourage investors to promote . . . comprehensive development . . . by offering stability benefits to the relevant concessions or mining units."). ↩

⁷⁹⁵ Chappuis ¶ 24. ↩

⁷⁹⁶ Otto ¶¶ 15, 17-28. ↩

⁷⁹⁷ Otto ¶ 32. ↩

⁷⁹⁸ Otto ¶ 36(a)-(g). ↩

⁷⁹⁹ Otto ¶ 36. ↩

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3. Mr. Morán testifies that while he was leading the financing of the Minera Candelaria expansion, the Chilean authorities “never questioned the application of the foreign investment [stability] contract's benefits to our expansion investments or sought to restrict those benefits to investments contemplated in a feasibility study.”⁸⁰⁰ He also testifies that because "Peru was competing with Chile to attract mining investments and had even tried offering greater guarantees to entice foreign investors," he "assumed that Peru would respect stability commitments towards SMCV and any investments that Phelps Dodge would make into the SMCV concessions listed in the Stability Agreement” during the life of the agreement.⁸⁰¹

d. Until It Adopted the Novel and Restrictive Interpretation in Cerro Verde's Case, the Government Applied Stability Guarantees Based on Mining Units or Concessions

313. Until its volte-face when it began adopting Mr. Isasi's novel and restrictive interpretation of the scope of stability guarantees, the Government had also consistently interpreted the Mining Law and Regulations as applying stability on the basis of an entire mining unit or concession, both in theory and in practice.

314. First, Mr. Isasi, who in June 2006 authored the novel interpretation that formed the basis for SUNAT's Assessments, had only a year before unequivocally confirmed that stability guarantees apply on the basis of the concessions in which the qualifying minimum investment was made, not the investment itself. In his April 2005 Report to the Minister of Energy and Mines explaining the application of the Royalty Law to mining investors with stability agreements, he stated:

[T]he royalty is not applicable to the mineral resources extracted from the concessions that form part of the contractually stabilized investment project . . . .

Consequently, it is not the owner of the mining project . . . who will be exempt or not from the payment of royalties, comprehensively as a company, but it will be the mining concessions of which it is the owner, depending on whether or not they are part of a project subject to a stability agreement signed prior to the entry into force of Law No. 28258.⁸⁰²

315. These categorical statements leave no doubt that the Government understood that the concessions, not the qualifying minimum investments, defined the scope of the stability guarantees. In a communication that Peru's Court of Transparency and Access to Public Information disclosed in

⁸⁰⁰ Morán ¶ 15. ↩

⁸⁰¹ Morán ¶ 15. ↩

⁸⁰² Ex. CE-494, MINEM, Report No. 153-2005-MEM/OGAJ (14 April 2005) ¶¶ 16-17 (emphasis added); see supra § III.G.3. ↩

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connection with a public information request, Peru's counsel recognized that "[t]he [April 2005] Report, at first glance, appears to support" the argument that "all activities within a concession or an economic administrative unit are protected by the Stabilization Agreement and therefore do not need to pay royalties for any of those activities," and "can be interpreted to support” Cerro Verde's position.⁸⁰³

316. Second, MINEM's Directorate General of Mining (“DGM”) and the Mining Council, an administrative body within MINEM in charge of “standardiz[ing] administrative jurisprudence regarding mining issues," understood stability guarantees as applying to EAUs or concessions in their treatment of stabilized companies.⁸⁰⁴ For example, a November 2001 Mining Council resolution relating to the "Parcoy" mining unit—a mining unit in northern Peru owned by Consorcio Minero Horizonte S.A.—and the DGM opinion it reviewed, both unequivocally confirmed that "tax stability [is applicable to] the Parcoy EAU, which is where the investments of the Parcoy Project were made. .”⁸⁰⁵ The resolution also specifically confirmed that stability guarantees covered the mining rights listed in Annex I of the relevant agreement, meaning in this case that "[t]he concessions created in the Parcoy EAU and the Parcoy Plant beneficiation concession . . . are subject to the [s]tability [a]greement."⁸⁰⁶

317. Third, former MINEM officials confirm that this was the Government's understanding before the Government adopted the novel interpretation under political pressure. For example:

1. Ms. Chappuis testifies that during her tenure at MINEM from 2001 to 2004— including as Director General of Mining for her final two years—she always understood that Article 82 granted the stability guarantees of Title Nine to an entire mining unit, rather than limiting the guarantees to the initial qualifying minimum investment.⁸⁰⁷
2. Mr. Flury similarly testifies that, during his tenure as Minister of Energy and Mines, he signed a stability agreement with BHP Billiton Tintaya S.A. regarding its beneficiation concession on behalf of MINEM, and that he "clearly understood that the scope of its stability would apply" to its entire beneficiation concession and that he "naturally expected that Tintaya would make additional investments in this

⁸⁰³ Ex. CE-884, Transparency and Access to Public Information Tribunal, Decision, Case No. 00547-2021- JUS/TTAIP (16 April 2021). ↩

⁸⁰⁴ See CA-1, Mining Law, Article 94(5). ↩

⁸⁰⁵ Ex. CE-377, MINEM, Resolution No. 380-2001-EM-CM (16 November 2001), p. 2. ↩

⁸⁰⁶ Ex. CE-377, MINEM, Resolution No. 380-2001-EM-CM (16 November 2001), p. 2. ↩

⁸⁰⁷ Chappuis ¶ 28. ↩

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concession during the 15-year term of its [a]greement, as most mining companies would, in order to keep operations current and productive.”⁸⁰⁸

318. Fourth, SUNAT also clearly assumed that stability guarantees applied to concessions and mining units. For example:

1. In early 2005, Haraldo Cruz, SUNAT's Regional Intendent for Arequipa, sent a form letter to SMCV referring to it as a "holder[] of [a] mining concession[]" with instructions on how to submit certain information about its “Production Unit(s)," thus confirming that the mining unit and concessions were the relevant item for purposes of stability.⁸⁰⁹ Ms. Torreblanca explained that SMCV did not owe royalties because the Stability Agreement covered its entire mining unit, and SUNAT did not raise the issue again until several years later.⁸¹⁰
2. In late 2007, less than two years before SUNAT issued the first royalty assessment against SMCV, SUNAT and MINEM further confirmed this understanding while exchanging reports regarding a "list of subjects obliged to pay the mining royalty from June 2004 to date," noting that the final list would be based on information that MINEM would provide on “ownership of concessions and EAUs.”⁸¹¹
3. In a September 2012 Report, SUNAT explicitly confirmed that “mining-activity owners that have signed [stability agreements] will enjoy a stabilized tax system applicable solely to the concession or economic-administrative unit for which said agreement has been signed.”⁸¹²

319. Fifth, the Government's initial implementation of the Royalty Law confirms that stability guarantees applied to whole mining units or concessions. In particular:

1. Articles 2 and 8 of the Royalty Law assigned the royalty obligation to "holders of mining concessions" based on the “extraction" of minerals, making clear that the Government assessed royalties on the basis of concessions.⁸¹³ Articles 4 and 7.1 of

⁸⁰⁸ Flury ¶¶ 33-38. ↩

⁸⁰⁹ Ex. CE-482, SUNAT, Letter to SMCV (17 February 2005), p. 1; see also supra § III.G.1. ↩

⁸¹⁰ See supra § III.G.1 (citing Torreblanca ¶¶ 31-32). ↩

⁸¹¹ See Ex. CE-568, SUNAT, Report No. 261-2007-SUNAT/2F0000 (20 November 2007), p. 2 (emphasis added); Ex. CE-570, MINEM, Report No. 1169-2007-MEM-DGM (14 December 2007); see also supra § III. K. ↩

⁸¹² Ex. CE-883, SUNAT, Report No. 084-2012-SUNAT/4B0000 (13 September 2012), p. 3. ↩

⁸¹³ See CA-6, Royalty Law No. 28258 (24 June 2004), Art. 2 (providing that "holders of mining concessions" shall pay royalties as consideration for the "exploitation of metallic and non-metallic mineral resources") (emphasis added); CA-1, Single Unified Text of the General Mining Law, Supreme Decree No. 014-92- EM (as amended) (3 June 1992) ("Mining Law"), Art. 8 (providing that "exploitation is the activity of extracting minerals") (emphasis added). ↩

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the Regulations similarly confirmed that the reference base for royalty calculations was initially the “mining concession"; in January 2005 the Government amended Article 6 of the Regulations to include the “Production Unit”—i.e., a specific group of concessions—as the relevant reference base for royalty calculations.⁸¹⁴

2. Prof. Hernández confirms that "[t]he extraction of ore generates the mining royalty payment obligation."⁸¹⁵ Prof. Hernández explains that by establishing the extraction as the triggering event, “the State ensured that mining titleholders pay royalties, regardless of what is done to the ore after it has been extracted.”⁸¹⁶ If instead "the event triggering the payment obligation was—for example, the processing of ore— the State would run the risk that the mining titleholder evades paying royalties if it sells the ore without processing it first.”⁸¹⁷
3. Around the time Congress passed the Royalty Law, senior Government officials publicly acknowledged that companies with stability agreements would be exempt from royalty payments—confirming that, like the Royalty Law's obligations, stability guarantees applied to entire concessions.⁸¹⁸ For example, in May 2004, then-Minister of Economy and Finance Kuczynski noted that the royalty would apply only to "a minority of companies, since the majority of the big mining projects are stabilized in both taxes and charges.”⁸¹⁹
4. Mr. Isasi's April 2005 Report likewise confirmed that the Royalty Law could not apply to a mining company—like SMCV—with a stability agreement applicable to its mining concession at the time the Government adopted the Royalty Law.⁸²⁰

⁸¹⁴ See CA-7, Royalty Law Regulations, Supreme Decree No. 157-2004-EF (15 November 2004), Art. 4 (defining the "reference base for the payment of the mining royalty for the ore extracted from the mining concessions in operation") (emphasis added); see id. Art. 7.1 ("The obligated entities must submit a monthly sworn statement in the media, conditions, form and places determined by SUNAT. In the sworn return, the reference base for each mining concession in operation must be entered independently.") (emphasis added); CA-116, Amendments to Royalty Law Regulations, Supreme Decree No. 018-2005-EF (28 January 2005), Art. 6 (“The obligated entities must submit a monthly sworn statement in the means, conditions, form and places determined by SUNAT. The sworn statement must state separately the reference base for each Production Unit, indicating for each one of them the tonnage of ore treated from each concession.") (emphasis added). ↩

⁸¹⁵ Hernández ¶ 81. ↩

⁸¹⁶ Hernández ¶ 81. ↩

⁸¹⁷ Hernández ¶ 81. ↩

⁸¹⁸ See supra § III.F.2. ↩

⁸¹⁹ See supra § III.F.2 (citing Ex. CE-439, Minister of Economy of Peru Against Mining Royalties, Agence France Presse (30 May 2004)). ↩

⁸²⁰ See supra § III.G.3 (citing Ex. CE-494, MINEM, Report No. 153-2005-MEM/OGAJ (14 April 2005), p. 7 ("[T]he royalty is not applicable to the mineral resources extracted from the concessions that form part of the contractually stabilized investment project.") (emphasis added)). ↩

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5. SUNAT instructed mining companies to provide information related to their "Production Unit" for purposes of determining royalty obligations, and similarly stored information on "Virtual SUNAT" in terms of each "Production Unit," confirming that this was the relevant designation for calculating royalties.⁸²¹

ii. The Stability Agreement Required Peru to Apply the Stabilized Regime to the Entire Cerro Verde Mining Unit

320. By entering into the Stability Agreement with SMCV, Peru guaranteed stability for the entire Cerro Verde Mining Unit, made up of the Mining and Beneficiation Concessions. This is clear from the Stability Agreement itself, which must implement all guarantees of the Mining Law and Regulations, and as such extends those guarantees to the entire concession or mining unit identified by the Agreement—here, the Mining and Beneficiation Concessions. There is further no question that Cerro Verde, including the Concentrator, operates as an integrated mining unit, and the Government's own conduct confirmed that the entire Cerro Verde Mining Unit was stabilized.

a. The Stability Agreement Confirmed That Stability Guarantees Applied to the Mining and Beneficiation Concessions, i.e., the Cerro Verde Mining Unit

321. In implementing the Mining Law and Regulations, the Stability Agreement confirmed that stability guarantees applied to all mining activities carried out within SMCV's Mining Unit, which comprises the Mining and Beneficiation Concessions.

322. First, as a matter of Peruvian law, a stability agreement must reflect the guarantees of the Mining Law, and therefore must be interpreted to be consistent with that framework, according to which stability was granted to the entire mining unit or concession:

1. Article 86 of the Mining Law provided that stability agreements “shall incorporate all the guarantees established” in the Mining Law.⁸²² To that end, the Government also created model contracts for all stability agreements entered into pursuant to Articles 78 or 82 of the Mining Law.⁸²³
2. Ms. Chappuis testifies that the purpose of Article 86 was to ensure that all stability agreements would “ensur[e] equality for all investors with stabilized investments,"

⁸²¹ See supra § III.G.1 (citing Ex. CE-482, SUNAT Letter to SMCV of 17 February 2005 (instructing companies that "you must download every month from Virtual SUNAT through the SUNAT Online Transactions module (SOL), by selecting the option 'Production Unit Download', the file that contains the information about your Production Unit(s)") (emphasis added)). ↩

⁸²² CA-1, Mining Law, Article 86; see also Ex. CE-12, 1998 Stability Agreement, Clause 1.1 (entitling SMCV to "guarantees of the benefits contained" in Articles 72, 80, and 84 of the General Mining Law); see also Chappuis, ¶ 26; Vega ¶ 31. ↩

⁸²³ See e.g., Ex. CE-778, Model Stability Agreement, Supreme Decree No. 04-94-EM (3 February 1994) (3 February 1994) (Model Agreement for fifteen-year stability agreement). ↩

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meaning that "each stability agreement would secure all the guarantees under the Mining Law without the parties being able to negotiate the agreement's specific scope of protection—that they would not depend on the official in charge at the time, but on the Law."⁸²⁴ She understood the text of Article 86 to "prevent[] scrutiny from political actors, ensuring that they could not interfere with their terms or question whether the agreements fell within the applicable legal framework.”⁸²⁵

3. Ms. Vega similarly confirms that the "Stability Agreement implemented the stability guarantees available to SMCV under Title Nine of the Mining Law," and that "neither the Government nor a mining company could negotiate a stability agreement that was broader or narrower than MINEM's model incorporating all the guarantees of Title Nine.”⁸²⁶ In the words of Ms. Vega, stability agreements “'must incorporate all the guarantees set forth' in Title Nine—no more, no less.”⁸²⁷
4. Alfredo Bullard, Professor of Civil Law at Pontificia Universidad Católica del Perú and a leading jurist on Peruvian contract law, explains that the Mining Law “define[d] the scope and content of the stability agreements," and that the guarantees granted "are not subject to negotiation by the parties."⁸²⁸ For this reason, Mr. Bullard concludes that “the State, which was in charge of preparing the form of the mining stability agreement, could not have included guarantees that are more restricted or limited than those included in the regulatory framework.”⁸²⁹

323. Second, Clause 3 of the Stability Agreement, entitled “Mining Rights,” set the operative scope of the Agreement. It confirmed that, in conformity with the Mining Law, the stability regime's guarantees applied to all of SMCV's activities in the Cerro Verde Mining Unit.⁸³⁰ In particular:

1. The first paragraph of Clause 3 provided that the “Leaching Project of Cerro Verde is circumscribed to the concessions, related in EXHIBIT I, with the corresponding

⁸²⁴ Chappuis ¶ 26. ↩

⁸²⁵ Chappuis ¶ 26. ↩

⁸²⁶ Vega ¶¶ 31, 59. ↩

⁸²⁷ Vega ¶ 53; see also CA-1, Mining Law, Art. 86 ("The agreements that guarantee the benefits set forth in this Title are adhesion contracts, and their models will be prepared by the Ministry of Energy and Mines These agreements shall incorporate all the guarantees established in this Title."); cf. CA-39, Peruvian Civil Code, Legislative Decree No. 295 (24 July 1984), Art. 1357 (“Based upon reasons pertaining to the social, national, or public interest, guarantees and warranties granted by the State by means of contract may be established."). ↩

⁸²⁸ Bullard ¶ 21. ↩

⁸²⁹ Bullard ¶ 21. ↩

⁸³⁰ See Bullard ¶ 28 ("In order to determine the scope of the Stability Agreement and the guarantees granted to SMCV, we must begin interpreting Clause 3 of the Agreement literally."). ↩

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areas.”⁸³¹ Exhibit I, in turn, listed both SMCV's Mining Concession ("Cerro Verde No. 1, No. 2 and No. 3"), and its Beneficiation Concession ("Cerro Verde Beneficiation Plant”), which includes the Concentrator.⁸³²

2. Clause 3 and Exhibit I thus implemented Article 82 of the Mining Law by identifying the "Economic Administrative Unit"—here, the Cerro Verde Mining Unit, which comprises the Mining and Beneficiation Concessions—in which the qualifying minimum investment or expansion was being made and that, as a result, was entitled to enjoy the stability guarantees.⁸³³
3. The second sentence of Clause 3 provided that the identification of the Mining and Beneficiation Concessions as the relevant mining rights for purposes of the Stability Agreement "does not prevent the owner from incorporating other mining rights to the Cerro Verde Leaching Project, after approval by the [DGM]."⁸³⁴ Hence, SMCV would have been entitled to incorporate an additional concession (“mining right") into the scope of its stabilized regime, subject to the approval of the DGM. By contrast, Clause 3 did not reference any mechanism by which SMCV could incorporate additional investments within those concessions under the scope of stability—confirming that no such need existed, because any investment made within those concessions was covered while the Agreement remained in force.⁸³⁵