italaw180975.pdf

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[Page 1435]

IN THE MATTER OF AN ARBITRATION BEFORE A TRIBUNAL
CONSTITUTED IN ACCORDANCE WITH THE TRADE PROMOTION
AGREEMENT BETWEEN THE REPUBLIC OF PERÚ AND THE UNITED
STATES OF AMERICA AND THE UNCITRAL RBITRATION RULES 2013

PCA Case No. 2019-46

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In the Matter of Arbitration Between:

THE RENCO GROUP, INC.,

Claimants,

and

THE REPUBLIC OF PERÚ,

Respondent.

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IN THE MATTER OF AN ARBITRATION BEFORE A TRIBUNAL
CONSTITUTED IN ACCORDANCE WITH THE CONTRACT OF STOCK
TRANSFER BETWEEN EMPRESA MINERA DEL CENTRO DEL PERU S.A.
AND DOE RUN PERU S.R. LTDA, DOE RUN RESOURCES, AND RENCO,
DATED 23 OCTOBER 1997, AND THE GUARANTY AGREEMENT BETWEEN
PERU AND DOE RUN PERU S.R. LTDA, DATED 21 NOVEMBER 1997 AND
THE UNCITRAL ARBITRATION RULES 2013

PCA Case No. 2019-47

In the Matter of Arbitration Between:

THE RENCO GROUP, INC. AND
DOE RUN RESOURCES CORP.,

Claimants,

and

THE REPUBLIC OF PERÚ AND
ACTIVOS MINEROS S.A.C.,

Respondents.

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[Page 1436]

(Continued)

HEARING ON JURISDICTION AND LIABILITY

Thursday, March 14, 2024

The World Bank Group
1225 Connecticut Avenue, N.W.
C Building
Conference Room C1 450
Washington, D.C. 20036

The hearing in the above-entitled matter came on at 9:00 a.m. before:

JUDGE BRUNO SIMMA, President of the Tribunal

DR. HORACIO GRIGERA NAÓN, Co Arbitrator

MR. J. CHRISTOPHER THOMAS KC, Co Arbitrator

[Page 1437]

ALSO PRESENT:

Registry, Permanent Court of Arbitration:

MR. MARTIN DOE RODRIGUEZ
Deputy Secretary General and Principal Legal
Counsel

MR. JAVIER COMPARINI CUETTO
Assistant Legal Counsel

MS. MAGDALENA LEGRIS
Case Manager (remotely)

Assistant to the Tribunal:

DR. HEINER KAHLERT

Realtime Stenographers:

MS. DAWN K. LARSON
Registered Diplomate Reporter (RDR)
Certified Realtime Reporter (CRR)
Worldwide Reporting, LLP
529 14th Street, S.E.
Washington, D.C. 20003
United States of America

MS. MARÍA ELENA DA SILVA
MS. MARTA RINALDI
D.R. Esteno
Colombres 566
Buenos Aires 1218ABE
Argentina
(5411) 4957 0083
[email protected]

Interpreters:

MR. DANIEL GIGLIO

MS. SILVIA COLLA

[Page 1438]

APPEARANCES:

On behalf of the Claimant:

MR. ADAM SCHIFFER
MR. MURRAY FOGLER
MS. JENNIFER CORDELL
MR. BUFORD NEELY
Schiffer Hicks Johnson PLLC
700 Louisiana Street
Houston, Texas 77002
United States of America

MS. SARAH WARBURG KOECHLIN
King & Spalding
Dallas, Texas
United States of America

Claimants' Representatives:

MR. JOSH WEISS
MR. ARI RENNERT
MS. CRYSTAL SALING

[Page 1439]

APPEARANCES: (Continued)

On behalf of the Respondent:

MR. DANTE AGUILAR ONOFRE
MR. ENRIQUE JESÚS CABRERA GÓMEZ
MR. OSCAR LECAROS JIMENEZ
MR. ANTONIO MONTENEGRO CRIADO
MS. VANESSA DEL CARMEN RIVAS PLATA SALDARRIAGA
Republic of Perú

MS. GAELA K. GEHRING FLORES
MR. PATRICK W. PEARSALL
MR. BRIAN A. VACA
MS. AGUSTINA ÁLVAREZ OLAIZOLA
MR. KELBY BALLENA
MS. INÉS HERNÁNDEZ SAMPELAYO
MS. TATIANA OLAZÁBAL RUIZ DE VELASCO
MR. MICHAEL RODRÍGUEZ MARTÍNEZ
Allen & Overy
1101 New York Avenue NW
Washington D.C. 2005
United States of America

MR. RICHARD ALLEMANT
MS. VANESSA LAMAC
MS. ROMINA GARIBALDI DEL RISCO
Lazo Abogados
Av. Pardo y Aliaga 699
San Isidro 15073
Perú

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APPEARANCES: (Continued)

Nondisputing Party:

MS. LISA J. GROSH
MR. JOHN D. DALEY
Assistant Legal Advisers
Office of International Claims and
Investment Disputes
Office of the Legal Adviser
U.S. Department of State
Suite 203, South Building
2430 E Street, N.W.
Washington, D.C. 20037 2800
United States of America

MR. DAVID M. BIGGE
Chief of Investment Arbitration
Office of International Claims and
Investment Disputes
Office of the Legal Adviser
U.S. Department of State
Suite 203, South Building
2430 E Street, N.W.
Washington, D.C. 20037 2800
United States of America

MR. DAVID STUTE
Attorney Adviser
Office of International Claims and
Investment Disputes
Office of the Legal Adviser
U.S. Department of State
Suite 203, South Building
2430 E Street, N.W.
Washington, D.C. 20037 2800
United States of America

[Page 1441]

C O N T E N T S

PAGE

WITNESSES:

WIM DOBBELAERE (Continuing)

Redirect examination by Ms. Gehring Flores...........1442
Questions from the Tribunal.........................1447

ISABEL KUNSMAN SANTOS

Direct presentation..................................1467
Cross examination by Mr. Fogler......................1486
Redirect examination by Mr. Vaca.....................1522
Questions from the Tribunal..........................1529

[Page 1442]

P R O C E E D I N G S

PRESIDENT SIMMA: I try to live up to the reputation as a typical German, not just be on time but even maybe a bit ahead of time.

So good morning, everybody. This is Day 8 of the Hearing in the Renco Case, and we are in the examination -- cross-examination of Mr. Dobbelaere.

WIM DOBBELAERE, RESPONDENTS' WITNESS, CALLED

(Continuing)

PRESIDENT SIMMA: And if -- I give to floor to Ms. Gehring Flores for the redirect.

Ms. Gehring, you have the floor.

MS. GEHRING FLORES: Thank you, Mr. President.

REDIRECT EXAMINATION

BY MS. GEHRING FLORES:

Q. Good morning, Mr. Dobbelaere.

A. Good morning. Good morning.

Q. I hope you got some rest last night.

A. Yes. Yes. It's the first time for me, but I may have been some nerve -- shown some nervosity, which is okay, but -- because...

(Interruption.)

A. Yeah. I may have felt some nervosity because I experienced some category mistakes in the questions, which I talked. But okay.

[Page 1443]

Q. Yeah, I'm sure the -- we had quite a dizzying display of numbers and tables and graphs yesterday, and over the years of this case, and knowing how much you've taught me about metallurgy, and how complex polymetallic smelters work, I'm pretty certain that you would love to go through every single number, and every single graph and every single table --

A. Yes. Absolutely.

Q. -- but I think we might be losing the forest through the trees.

A. Yes.

Q. So I want to go back to basics.

A. Okay.

Q. To very basic truths and facts.

A. Yep. Yep.

Q. And I'm going to ask you some questions, and I'm going to ask, as painful as this might be for you, I'm going to ask that you not use any numbers, any graphs, or any tables. I want you to answer me as simply and basically as possible.

A. Okay.

Q. Because I -- and I know you certainly don't want anyone here to lose track of the very basic truths that are going on here. So -- and I'm sure if the Tribunal wants you to go through all of the numbers and graphs, they'll

[Page 1444]

tell you, they'll tell you later.

So remember yesterday, you gave the Tribunal an analogy of a wood-burning stove?

A. Yes, I did. Yeah.

Q. Okay.

A. I couldn't even finish the story, but okay. It was about what I think about. Right.

Q. Well, I want to use that analogy with my questions for you.

A. Okay.

Q. And then just answer with no numbers, no tables, no nothing.

A. No, no.

Q. Like that, just the truth.

So in your analogy, you have a neighbor who has a wood-burning stove; correct?

A. Yes.

Q. Okay. And if I'm understanding this right, the wood-burning stove has a chimney that sends smoke, maybe higher up out the top of the house.

A. Could be, yeah.

Q. And it's an old wood-burning stove.

A. Yes.

Q. And because of that, it sends smoke, not only out the chimney but also, maybe, out the window of the house.

[Page 1445]

A. Yes. What I wanted to say, if you -- I think people from Germany will know very well, if you then start to use waste wood, and --

Q. If you?

A. Start to use waste wood --

(Overlapping speakers.)

Q. Let me --

A. You will produce more smoke and then it will come out of your house.

Q. Okay. Well, let me -- okay. I want to walk you through this --

A. Yeah, okay.

Q. -- just so people understand, step by step.

A. Okay.

Q. Very basic. And I'm going to go factor by factor --

A. Okay.

Q. -- isolating the variables.

So a new neighbor comes in. This is part of your hypothetical or your analogy. A new neighbor comes in and promises to operate that wood stove in a cleaner way, to make it cleaner; right? Or replace it, even, with a --

A. You had agreed --

Q. I haven't asked a question yet.

A. Okay. Yes. He expected. Yeah.

[Page 1446]

Q. So the new neighbor comes in, promises to make his wood-burning stove cleaner, fewer emissions. So if the new neighbor comes in and starts putting more wood into the stove, more wood -- not dirtier wood, just more. He uses clean wood. It's dry, just more.

What does that do to emissions?

A. It will smoke more.

Q. Okay. So more, you're saying --

A. More emissions, yeah.

Q. And more emissions. Okay. Is there anything -- if nothing else changes, he just puts more wood in, clean wood, is there anything that will make the emissions go down?

A. No.

Q. Okay. Now, let's go to the next variable. Let's say the new neighbor doesn't increase the amount of wood.

A. Okay.

Q. Okay. Just uses the same amount -- is burning the same amount --

A. Yes.

Q. -- as the old neighbor, but the new neighbor uses dirtier wood and wet.

What does that do to emissions?

A. Yeah, it would produce other type of emissions, and more, because if you take wood from an old railway, it

[Page 1447]

will start to emit benzene, whatever, nasty things, nasty stuff, more, and it will produce the same -- yeah, same amount of ashes, because everything you add will go to your stack, eventually out of the door.

Q. And in that scenario, where he's not burning more wood, it's just dirtier wood, is there anything that will make emissions go down?

A. No.

Q. Now, if the new neighbor moves in and starts burning more wood, and all of that wood is dirtier, it's the dirty wood, what happens to the emissions compared to the old neighbor's emissions?

A. They will very much go up, very much.

Q. Okay. And if nothing else changes, then is there any way -- any way with -- in the world of science, is there any way that emissions will go down?

A. Not to my understanding, and I'm reasoning from the source.

MS. GEHRING FLORES: No further questions.

THE WITNESS: Okay.

PRESIDENT SIMMA: Thank you, Ms. Gehring Flores, for this.

That gets us to the phase of questions from the Tribunal. And I -- okay. Mr. Thomas? Okay.

QUESTIONS FROM THE TRIBUNAL

[Page 1448]

ARBITRATOR THOMAS: You had an exchange yesterday with Mr. Weiss, and it was -- it concerned the process of concentrates being delivered to the refinery. You mentioned the sampling process that takes place --

THE WITNESS: Yes.

ARBITRATOR THOMAS: -- one scoop for the vendor, one for the purchaser, one for the lab, as I roughly understood it.

THE WITNESS: No. One for the purchaser, one for the vendor, and one for the witness.

ARBITRATOR THOMAS: Yeah, the arbitrator.

THE WITNESS: For the independent Party.

ARBITRATOR THOMAS: Right. Sorry.

THE WITNESS: Just in case the exchange was out of what they thought it should be, and it was mainly for precious metals, and certainly for all the other metals -- not for iron because it's not an iron factory.

ARBITRATOR THOMAS: Yes. Right. Okay.

THE WITNESS: Okay.

ARBITRATOR THOMAS: The question I had is this: There's been a lot of discussion about the nature of the concentrates that were used in the refinery.

THE WITNESS: Yes.

ARBITRATOR THOMAS: Can the refinery Operator know, before it processes the concentrates, what the level

[Page 1449]

of sulfur, for example, will be in the concentrates?

THE WITNESS: Yes.

ARBITRATOR THOMAS: Can you explain?

THE WITNESS: Sulfur in this type of processes is your fuel, because it's sulfur bound to the metal, and if you bring oxygen, it produces energy. So this type of smelter tries to -- if you smelt, you need a certain temperature, and the temperature -- one of the elements in the temperature is to know how much sulfur you put in.

That's the first thing. So sulfur -- so in this Plant, very easy, three main -- let's forget zinc now -- is lead, copper -- it's in the tables -- copper, lead, and sulfur. Yeah.

ARBITRATOR THOMAS: From a smelting perspective, is it desirable -- forget about the emissions control, but from the smelting perspective, is a higher sulfur content more desirable from the smelter's perspective?

THE WITNESS: I would say a balanced, because you are dealing with a heat balance. It's more complex than a material balance. The first thing you have to know is the material balance, and then you can go to your heat balance, and, of course, you can adjust on the road because, if there is more water, it has been raining, you will have to use more -- try to use more sulfur, or slow down your process. That's the control on the spot.

[Page 1450]

But up front, you know you have a -- what you call, in our case, a fabrication program. You know this month you will have to treat this type of concentrates with this composition.

ARBITRATOR THOMAS: Okay. The second question -- forgive me if these are very elementary, but is there a correlation between high sulfur and high lead content in the concentrate, or are those separate variables?

THE WITNESS: Not necessarily. There is not necessarily a direct correlation. There will be a correlation between copper and sulfur because it's copper sulfide in the pure copper concentrate, and there will be a correlation between lead and sulfur in the pure lead concentrates, because it's -- the connection is PBS.

So PBS is a chemical connection, but there will also come sulfur with iron, which is the "findantes," the fluxes, which are in the -- so there is no direct correlation between one of the elements. You have to add them together to check if the sulfur is consistent with what you think it is, but you can do these checks.

ARBITRATOR THOMAS: Okay. Now, I've gained from your Expert Reports that a key element of your Expert Reports, is your position that DRP used -- I don't know if the term is an appropriate term or not -- but the "dirtier

[Page 1451]

concentrates."

Are you -- how did you come to the conclusion that it is -- is this, in your mind, is it a question of debate, or uncertainty, or is it a fact?

THE WITNESS: It is absolutely not a question of debate. It is a fact, and let me tell you this: Yesterday, I've seen in this whole file -- I was looking for, where are the data. And yesterday Mr. Bruno asked us, was there a logbook. Now, if there is one logbook on which you can rely, it is the heart of a smelter. It is the department that managed the whole inputs, outputs of your smelter, because if you don't manage that well, if you don't manage well your recovery, you're dead, you're not a smelter. You're just somebody who does something.

So -- and Mr. Buckley on the first day, he said, "oh, these guys were doing a good work. We kept these guys." Of course, he kept the guys. If they would have told me that, oh, but when we came in we know a lot better. We have changed the whole system. They didn't change the system.

Now, this logbook from 1999 until the end, 1997 -- I looked at 1997 -- sorry, 2007, but it was until 2009, was there in an office in Lima. And this was -- there is one document which shows what they did, these people from SX-EW, how they get it out of the office

[Page 1452]

with the help of the Metallurgical Division at the time of the insolvency, and that they checked all the numbers that were relevant, and this was it.

ARBITRATOR THOMAS: And is this what you base your --

(Overlapping speakers.)

THE WITNESS: Absolutely, but I did -- and it's in my Report, page of, I think, 52, 53, my Second Report. I checked the numbers on my own. I did not use their balances. I have a table with the result of their balance, the balances from SX-EW based on the same data, and I have done for, I think, for the year '95 and 2002, I did a check and it came exactly to the same numbers, by doing the mass balance myself. I know how to do a mass balance, and, I mean, for the exercise here it was not that difficult either.

And then -- okay. Maybe I'll let you put another question, but when I first started this study I saw, hey, they increased the leads in the lead circuits because DRP were lead smelters and know everything, by 30 percent.

This is a lot, 30 percent. This is more wood in your stove. Yes. It doesn't look as if everything that happened, and especially the sudden rise in main stack can explain this only. Said this, yeah, but this is a complex smelter, I know what a complex smelter is. So I started to

[Page 1453]

look at the copper side.

Now, there are a lot of data also in the PAMA and also in the first study of Kilborn that confirm that the converters were the most polluting operation in the copper part, in terms of lead. So a lot of people who are dealing with copper concentrates, even Partelpoeg, they could have been surprised by this. I was not surprised, and I -- because I understand how their system worked.

And maybe I should -- with another, and just a simple way of explaining, if you put lead in a copper circuit, it is not innocence, because what is the product that you want to make? You want to make copper, pure copper, which means that all the lead has to go. It has to go out of the circuit. So if in a year you put, in total 8,000 tons, or it was 7, 7,000, and then some years later you put 11,000, this is a huge increase.

Now, the second thing is, the system is -- you can have a very simple analogy on that system also in your copper circuit. You have, like, a sponge, which was the slag, and there can be some lead in the slag.

And what is the rest? I mean, in the copper circuit, you put lead in copper circuit. You have a sponge. The rest is in the air. No, it's not in the air. It's in the gas from the system. So now the sponge is 2,000. Now, you put in 7,000. 5,000 goes to the gas. You

[Page 1454]

put in 11,000, and the sponge is still 2,000.

How much goes to the gas? 9,000. This is nearly double. Now, 9,000, imagine it is all going to main Cottrell, all. And this filter leaves 5 percent in the air. I imagine it could do more, but this -- I don't know -- the number was 9,000. It is 450 tons out of main stack, which is as much as the rest of the circuit, as the lead circuit, even more.

This is one thing, but now how many fugitives were there at the converters? Mr. Partelpoeg, he shows, I think, on his Report in 2014, on Page 7 or 8, he shows a picture from a copper converter, from his experience. You know, it is smoking like hell.

Now, this smoke is a lot of SO2 fugitives. And the focus was on SO2 fugitives. How many lead was in that smoke. If you look at the investigations from Kilborn, you will find how much lead was in that smoke, because it was measured in 1996, I think. It was measured, and it's a lot.

ARBITRATOR THOMAS: Okay.

THE WITNESS: So, therefore, I was very much agreeing with the number of lead emissions that came out in the study of McVehil and Monette, who is an environmental specialist. I have been -- I said yesterday, I'm not an environmental specialist. I don't care, but I know what

[Page 1455]

comes out of the source, and this is about what comes out at the source, and he put a number like 700, and I don't know exactly what the number, 720, or something, and Mr. Fornberg from his office in USA, the environmental specialist of DRP.

On coal from numbers he takes out from a classical classic smelter, he puts half of that number there, half of the number. But the classical copper smelter has a penalty on input of lead, I think as from .5 percent. We are speaking here about 3 percent, this is -- what was the number? 2.6 yesterday, I think, the lawyer said -- Mr. -- the lawyer said yesterday, the day before yesterday, we increased by .06. No, no, no. They increased by .6.

Okay. So they increased that. These are huge numbers. I am not interested in percentages, I am interested in absolute numbers because they drive the emissions, and it was a lot. I can tell you it was a lot. And there is a lot of evidence in the whole files that these fugitive emissions increased because there was just more in the circuit.

ARBITRATOR THOMAS: Okay. Let me switch subjects.

THE WITNESS: Okay. Thank you.

ARBITRATOR THOMAS: Can you go to -- have you got

[Page 1456]

your presentation? It's Page 18. Yeah. It's the one with the chart. Actually, it's on the screen there, Mr. Dobbelaere.

THE WITNESS: Yeah. Okay. Okay. Nice.

ARBITRATOR THOMAS: And I -- you don't need to repeat what you said yesterday.

THE WITNESS: No, no. I know.

ARBITRATOR THOMAS: But the problem for a layperson on the Tribunal is to -- and I think we'll have to hear from the Parties on this. This is such an important issue.

But it's the apparent collision between your analysis of the source emissions versus Mr. Connor's analysis of the air monitoring stations, and this is a, for me, a real conundrum trying to understand this apparent conflict in data.

THE WITNESS: Yes.

ARBITRATOR THOMAS: I don't want you to repeat what you said yesterday. I understand you say that the drop in emissions is -- you can't account for that, having regard to the source data, but I would just like your -- don't try to explain that. I would like you to try to just assist the Tribunal in trying to reconcile these two sources of data.

How is the Tribunal supposed to deal with this

[Page 1457]

conflict?

THE WITNESS: I don't really know exactly how. But if I understand your question well, but maybe I can just say that from the First Report, after the First Report, after a few months, like two months, I say this drop in SO2 is impossible, that's infeasible.

Since yesterday there seems to be some agreement that in the -- I don't think here it's one of the two, but it's the upper, I think. No, it's the lower, the lower one, the lower drop here, 1990 -- in 2000. It's, indeed, not a drop or not such a huge drop. Okay.

Because they changed the method, and they must have seen that the method of measuring was flawed, and in the 2002 Report, you can even see that Mr. Buckley doesn't even report this as an emission, lower, but still higher than Centromín, still a rise, which is logic, because it is more sulfur in the circuit.

And the fixing of sulfur is very low, and it stays very low. There's nothing being done about this. It's a small fixture of sulfur in the slag, and in the small, small, small acid method is there.

So this drop, to me, is now, after more than 2.5 years, finally -- not explained, but agreed that it is not real. I'm talking about sulfur. Okay. Now, I'm talking about the first graph, which is lead. This is the

[Page 1458]

famous correlation.

Now, I cannot explain that drop in 2000 either because there are no Projects that explain such a huge drop in front of it. There are no Projects there that can explain this drop. And I have made some assumptions, but I asked for it. I asked for data to say how can this drop be there?

Now, there is another thing that strikes me. This is the rise in 2004, which is also not relevant. But it goes up, so it's not well explained.

ARBITRATOR THOMAS: Okay. Thank you very much.

Oh --

THE WITNESS: I can only say that the common -- these numbers are tons per year, tons per year, tons of emissions per year. The measurements are flow rates, velocities in the stack, samples and concentrations in the lab. That's how. And if you multiply these two together times 365, you come to that number. I've done this 100 times in this case.

And the one only common factor is flow rate.

Now, imagine or suppose there is a mistake in flow rate in measuring the velocity. I don't know. Then both are flawed. Nobody can explain me that. If the flow rate is wrong, was wrong in the first ones, then this drop is not explained. So I can never -- if somebody asks me, "do you

[Page 1459]

believe in this correlation?" No, I cannot because I am -- I am sure. I'm sure. I have no evidence that this is right, and I have more questions about it that are not answered, and I put them in my Report and there are other things that are not explained like, why does the temp -- how can you explain that the temperature drops? If you say my objective is to have more processed gases in the stack, the processed gases, they are not 70 degrees. They are like 360, 46, when they arrive in Main Cottrell. They are also measured in 1996. So this is not an explanation.

So at the same time, flow rate drops and temperature drops. There is nobody in the room, I think, and even outside the room that can explain me this by saying "we were just doing the same and we just managed to have a better efficiency in Cottrell." Were there works on the Cottrell? Yes. They were finished when? Somewhere at the end of 2001. Then, the works in Cottrell, there is a figure on it.

Mr. Connor says they -- the particulate emissions, he doesn't speak about lead emissions. Particulate emissions dropped by so many tons, I think 51, but I don't know. A number per day.

Now, if you look at the ratio in the stack between lead and dust, you'll never come to that drop. It is impossible. It is far away from that drop. So what

[Page 1460]

number should I use then? And, yeah, I mean, this is one -- and then, I mean, there is another graph of Connor who says, "we did works on the Cottrell, and everything dropped except the PM10 particles." What does that mean?

A Cottrell collects dust. Why can't a certain dust go up and another dust go down? How can a Cottrell separate the types of dust? I don't understand it. So there are so many things I didn't understand, and there is no explanation. There is some figures put together, some presentation, I don't know. I gave it a name, and I won't do it again. That doesn't explain it to me, and that's what I have to say.

ARBITRATOR THOMAS: Okay. Thank you.

PRESIDENT SIMMA: If I may follow up. I'm sorry.

ARBITRATOR GRIGERA NAÓN: Could you explain to us how these monitoring stations work and how that -- because your point is that this is the moment in which you have to test, for example, fugitive emissions, and the flow of fugitive emissions, rather than looking at what happens after.

Could you clarify to me how that works technically?

THE WITNESS: You mean what -- I was not asked to look in detail in the monitoring stations, but I can tell you something about the monitoring stations just from my

[Page 1461]

readings, not from evaluating them or not.

Yesterday, I was like driven in a corner to agree that the monitoring stations were checked by professionals. What they showed me was SO2 monitoring station in 2002 checked by an American professional. Okay. Fair enough. And it was told to the public. Ms. Deborah Proctor used the data from these monitoring systems, somewhere between, I don't know, 2000-2005, and then, in the rebuttal, Claimant said, "no, no, no, you cannot use these data. They were flawed." So this is very strange to me. If, on the one hand you said they were checked by a professional, and on the other hand, if we use this, they say, "no, you cannot use these, these are flawed." This is one thing.

I was also asked question that, "do you have some evidence that the lead monitoring stations were flawed?" I don't know. I don't have any evidence that they were checked, as they claim, for the SO2, so how could I know?

What I see is that there is some reasoning that the first monitoring stations, when Centromín started, were flawed. I was not asked to look into that in detail, but, I mean, I cannot see if they were flawed or not, but I can -- I didn't look after evidence to say there were flawed because I was not asked for it. But what I have seen is that these same monitoring stations were only changed, I think, 1999. So they were good enough to use by

[Page 1462]

DRP at the time when they rised, but yesterday they say, "yeah, they also went up in '97." Yeah. Okay. '97 was a common year. Okay. 10 months Centromín, and two months...

Sorry, I cannot explain the monitoring stations into that extent, but I see things from Claimant trying to convince you with things that are like category mistakes, as far as I can judge that.

ARBITRATOR GRIGERA NAÓN: Thank you.

PRESIDENT SIMMA: I have one question, if I may.

THE WITNESS: Yes.

PRESIDENT SIMMA: And I would -- we would need the same slide, the one with the various curves. If you look at just the explanation given for the sudden drop. Okay.

THE WITNESS: Yes.

PRESIDENT SIMMA: And what you said I've also read. It was a change in the method of measure, measuring. There was a term for it, but -- which I don't have.

THE WITNESS: Mass balancing.

PRESIDENT SIMMA: Mass balancing. Okay.

THE WITNESS: On sulfur, yes.

PRESIDENT SIMMA: And you seem to be content that that -- you just said -- a few minutes ago, you said, "yeah, there was a change," et cetera, and you didn't really put the question mark on that. You seemed

[Page 1463]

to -- that it's possible if you change to mass balancing, this sudden drop is -- could happen, could be somehow explained.

Now, my question is as follows: If that change of method had occurred during the Centromín period, that is before the 1997, if they had changed, let's say, in 1990, things would also have gone down; right?

THE WITNESS: What I see in the PAMA -- that's what I checked, that the PAMA used mass balance to write the PAMA. And to say this is the input of my system, these are the fixed sulfur in acid, in slags, and in the residue from the zinc, this is a small number. You subtract the small number from the high number, and then you multiply it by factor of 2 -- this is chemistry -- just to have how much SO2 goes into environment. And the PAMA nicely writes that this is the sum of fugitive and stack emissions because there is one equation, two variables. So still, if you do mass balance, as an operator, you can choose what you report to the authorities if you don't measure, but I can tell something I don't know -- but, if you are desperate about your measurements, which they seem to have been because they have seen that, a certain moment, and they have been asked for it in the SVS Report, in that audit from -- and also MEM has seen that something is wrong here. Then you only have mass balances, mass balance on

[Page 1464]

SO2, but your degree of freedom is to say, yeah, but what goes in fugitives and what goes now in stack? You can choose that. You can only eliminate that choice by measuring.

Now, what they did, and what you can read in the SVS Report, they did both. Maybe they changed their measuring methods because these measurements made more sense all of a sudden. They didn't make any sense if these were reported out of measurements in the Year '97, '98, '99. They really didn't make any sense because, I mean, there were so many -- the drop is the equivalent of the two Acid Plants that were installed by 2008. It's more than the sum of the two Acid Plants. This dropped together. This is just impossible. I mean, if you look at it, it doesn't take you a long time to understand this, that, if you are -- if you used to SO2 abatement and things so...

PRESIDENT SIMMA: So, for you, the explanation that the drop was just caused by a change in measurement, then you could have applied that method from the very beginning, et cetera. It's not just plausible, it is just -- for you, it's a satisfying explanation.

THE WITNESS: It is not an explanation for the reporting of 450,000 tons of SO2 emissions in the Year 1998 and 1999 because this is not nature. It cannot be. It cannot be. You would have made year after year a huge

[Page 1465]

mistake in your input of sulfur, which for such a smelter is -- I mean, it's impossible. I mean, this would be very unprofessional to have this as an explanation.

For me, the explanation is in the flaw in the measurement of either the SO2 or the flow rate in the stack. That is the explanation, but nobody gives this explanation to me. It's, for me, the most plausible, that this flow rate changed. So -- but if this flow rate changed, then both figures are wrong, also the lead, and this is why I cannot agree to accept the drop in lead either because, if this is the common flaw, one, and, secondly, there is not any explanation of how this drop could occur in 2000, then this is not right, for me.

PRESIDENT SIMMA: Okay. Thank you very much.

THE WITNESS: Sorry for my excitement.

PRESIDENT SIMMA: Thank you very much. No, no. It was a change; right?

Thanks again. You are hereby released from your duties as a witness.

THE WITNESS: Thank you.

PRESIDENT SIMMA: Thank you very much for coming and presenting your views and have a good trip to wherever you want, especially to Alleppey.

THE WITNESS: We leave tomorrow -- no, Saturday evening.

[Page 1466]

PRESIDENT SIMMA: Oh. Okay. Thank you very much.

THE WITNESS: Thank you.

(Witness steps down.)

PRESIDENT SIMMA: Now, this gets us to the examination of the last witness, Ms. Kunsman Santos. Are we more or less ready? So let's -- if you could just guide Ms. Kunsman in to the witness stand.

ISABEL KUNSMAN SANTOS, RESPONDENTS' WITNESS, CALLED

PRESIDENT SIMMA: Okay. Let's go on.

Welcome, Ms. Kunsman. A particularly hearty welcome because you're the last witness, and a good morning.

I would like you to read the explanation that you find in front of you.

THE WITNESS: Thank you.

I solemnly declare, upon my honor and conscience, that I shall speak the truth, the whole truth, and nothing but the truth, and that my statement will be in accordance with my sincere belief.

PRESIDENT SIMMA: Thank you very much.

And I'll give the floor to Mr. Vaca to direct you for the cross.

THE WITNESS: Thank you.

PRESIDENT SIMMA: Mr. Vaca, you have the floor.

[Page 1467]

MR. VACA: Thank you, Mr. President, good morning, everyone.

Members of the Tribunal, I would like to introduce you to Perú and Activo Mineros's Expert, Ms. Isabel Kunsman. Ms. Kunsman is a financing and accounting Expert from AlixPartners, and Ms. Kunsman has submitted two Reports in these Arbitrations explaining how Doe Run Perú's own financial decisions contributed to its failure to complete the PAMA.

Ms. Kunsman, good morning. The floor is yours.

THE WITNESS: Thank you. I have prepared a presentation for the benefit of the Tribunal.

DIRECT PRESENTATION

THE WITNESS: So in this first slide, I provide a summary of my experience that I also include in my Report, and I would like to highlight that I have testified on behalf of Claimants and Respondents on nearly equal proportion.

So in the Reports, I was asked to opine on the effect of Renco's Financing Arrangement to finance the acquisition of Metaloroya on DRP's capitalization and liquidity. DRP's production and the outcome of its 300 million Capital Investment Program, the effect of related-party agreements on DRP's liquidity, DRP's financing structure and the availability of external

[Page 1468]

financing, the Opinions of DRP's independent auditors, and Renco's assertion that the Global Financial Crisis of 2007-2009 constitutes a force majeure condition, of course, from a financial perspective. And then I was also asked to review and respond to selected issues in Mr. Callahan's Report.

I have divided my presentation into five sections: The PAMA commitments, the funding of the PAMA commitments, DRP's liquidity position, and then my review of DRP's Claims on force majeure from a financial perspective, and, finally, I provide a conclusion.

So in 1993, Perú enacted the Environmental Mining Law. As part of this law, the Ministry of Energy and Mining issued maximum permissible levels of pollution and ambient air quality standards. I will be referring to these as the "Permissible Limits."

So the Environmental Mining Law required mining and metallurgical operations, like Metaloroya, in existence prior to 1994, to assess the environmental impact of their operations against the new Permissible Limits.

These operations had to put together an Environmental Management and Adaptation Program, known as the PAMA, with the specific Projects they would accomplish to meet these requirements. There were two set of terms, one 10 years and another five years, but the one that

[Page 1469]

applied to Metaloroya was within 10 years. The Facility had to conform to Perú's ambient air quality standards and maximum allowable pollution levels.

So fulfilling the PAMA did not entail investing a specific amount or executing specific Projects. What it meant was that, by the end of the allowable term, the Facility would need to conform to current regulatory standards.

So Centromín put together the specific Projects that they would complete at La Oroya Facility that they thought would fulfill the PAMA requirements. They were split into two types of projects: The Modernization and the Mitigation Projects. And I was here for the Opening Statements, and this is the same slide that you've already seen from the PAMA, the original PAMA. And as you can see, the modernization and Mitigation Projects totaled 270 million that had to be spent between 1997 to 2006. Of course, this was an estimate that could change.

The modernization projects took place primarily during the first four years of the PAMA. 61 percent of the expected expenditures would happen in those first four years. Meanwhile, the Mitigation Projects would take place primarily in the last four years of the PAMA.

The reason of the timing was because, as the PAMA specifically noted, the implementation of the Mitigation

[Page 1470]

Projects was dependent on the implementation of the modernization Projects. It's also noteworthy that, while there were 12 Projects, it was one project, the Sulfuric Acid Plant, that took up most of the Investment, 231 million, which was about 86 percent of the original PAMA.

And what I mean by the Sulfuric Acid Plant, my understanding is that all modernization was part of the Sulfuric Acid Plant Project in the PAMA because it needed to happen before Project 1 of the Mitigation Projects could be carried out. Okay.

So between 1996 and 1997, Perú prepared La Oroya Facility for privatization. So what they did is they created Metaloroya and Centromín and assigned to Metaloroya all of the modernization projects and just nine of the Mitigation Projects. So, as Claimants' Treaty Memorial states, the Government allocated the PAMA Projects between DRP, modernization and updating the Complex itself, and Centromín, remediation of existing contamination.

In this updated PAMA for Metaloroya, it was still the Sulfuric Acid Plant, the main Project, with 93 percent of the expenditures. The Renco Consortium, which I consider to be The Renco Group and Doe Run Resources, DRRC, won the bid to purchase Metaloroya. And in accordance with the STA, they had to make two payments: One of 121 million

[Page 1471]

to purchase Centromín's Shares in Metaloroya that were already issued, and then 126 million monetary contribution for the purpose of increasing the Company's stock capital. So that would be new funds.

DRP, which was the Company, the Project Company that the Renco Consortium created for Metaloroya, assumed the responsibility for complying with the obligations in Metaloroya's PAMA and any eventual amendments and making a 120 million accelerated investment within five years of DRP'S PAMA commitment.

As part of the implementation of the PAMA, DRP developed a 10-year Capital Investment Program of approximately 300 million designed to improve its operations and to address the environmental requirements and fulfill the Investment Commitment.

DRP -- well, DRRC, in its Report to Investors, made it very clear that no assurance could be given that implementation of the PAMA Projects is feasible or that their implementation will achieve compliance with applicable legal requirements by the end of the PAMA Period. So they clearly understood that the PAMA was not spending a specific amount or accomplishing specific Projects, but meeting the Permissible Limits set by the MEM as part of the law that I previously mentioned.

Now, as of 2009, DRP still had to invest

[Page 1472]

155 million or 48 percent of the USD 327 million projected to meet the emission limits. The reason why I focus on 2009 is because, as the first table shows, the estimates to complete the PAMA Projects change over time, and there was an extension to complete the Sulfuric Acid Plant granted in 2006 that took them all the way to October 2009.

In the original PAMA, the Projects were separated by modernization and mitigation. Then, in the later estimates, they were separated between Sulfuric Acid Plant and the eight other Projects. So as you can see, in the end, the original -- the estimate, as of the PAMA Extension, of 245 million was in line with the original PAMA of 249 million.

Based on the 2009 DRP Extension Request, as of year-end 2007, DRP had completed eight of the nine PAMA Mitigation Projects for a total investment of 67.6 million. However, the big Project that I mentioned before that encompassed 80 -- on average, 80 percent of the expected investment was still not completed. In the same 2009 DRP Extension Request, DRP noted that, although they had spent 104 million on the Sulfuric Acid Plant, they still had to spend an additional 155 million to complete it. So in total, they still had to invest 48 percent of the expected investment estimate that they had at that point.

Now, I will move on to the funding of the PAMA

[Page 1473]

commitments. So the funding options available to DRP to fund the PAMA were mainly Equity Capital, which is funds from investors in exchange for the issuance of new shares, and in this case, the Investors have to be from the Consortium; and then Debt Capital, which are funds from loans or issuance of Bonds. These are typically the two sources that project companies rely on to fund large capital investments because large capital investments require a lot of funding up front and then you recover that funding, that investment and a return on that investment over time, over the life of the Project.

And it is -- one of the main reasons why countries privatize Projects is because private companies have easier access to equity -- raising equity and Debt Financing. It wouldn't make sense for a country to privatize a project if they could have achieved that project development themselves by just using Operating Cash Flows, which is primarily what DRP ended up doing.

Now, with regards to the initial Capital Commitment, as I explain in my Report, there was a circular transaction that ended up negating the 126 Monetary Contribution required by the STA with the purpose of increasing the Company's Stock Capital. So in this graph, I show, noted with one -- the circle, the blue circle with one, that DRM financed -- that DRM financed the purchase of

[Page 1474]

Metaloroya, primarily with a loan from Bankers Trust of 225 million, a significantly smaller loan from DRRC, another company in the Renco Group, and then a minimal Capital Contribution of 2 million from DR Cayman, which is one, two, and three on my schematic. Then DRM, as Point 4 shows, used the 248 Capital Contribution to transfer to DRP, and then, with that Capital Contribution, DRP, as Point 5 shows, made a new Capital Contribution to Metaloroya in exchange for newly issued Shares, and then to purchase the Metaloroya Shares from Centromín for 121 million, as Point 6 shows.

However, that same day, Metaloroya turned around and made a loan for 125 million to DRM, and DRM -- that's Point 7 on my schematic. And DRM, in turn, that same day, used the proceeds from that loan to make a partial repayment of the Bankers Trust Loan, which is Number 8 in my schematic.

So, basically, DRP used the Capital Contribution to finance part of the purchase of Metaloroya. And the Renco Consortium always planned to reverse the Metaloroya Capital Contribution because, in the Credit Agreement between DRM and Bankers Trust, it specifically mentioned that the Loan would take place, and that the partial repayment of the 125 million would take place, on that same day.

[Page 1475]

1 So at the end of October -- on October 23, 1997,

2 DRM ended up with three loans: The Bankers Trust Loan of

3 100 million, now, because it was reduced with a Capital

4 Contribution; the loan from DRRC of 23 million; and then

5 the loan from Metaloroya, through DRP to DRM, of

6 125 million, for a total of 248 million.

7 So even though the STA required the Consortium to

8 increase the stock of capital of the Company, Metaloroya,

9 and the premium for the issue of Shares, the contribution

10 the Consortium made never had that effect because it was

11 negated by the intercompany loan. So the stock capital

12 never increased by the 126 million. In the end, it just

13 increased by about 1.5 million, so significantly less.

14 Moreover, the STA mentioned that, within a period

15 of five years from the date of the signing of this

16 Contract, the Company commits to invest the amount of

17 120 million, and that investment must be made necessarily

18 with the contribution of the 126 million mentioned in

19 Clause 3.3.

20 Since the Consortium never replaced that Capital

21 Contribution that went away to pay the Banker Trust Loan,

22 the 120 Investment Commitment for the first five years

23 never came from that Capital Contribution. They never made

24 an additional Capital Contribution either.

25 Now, with regards to Debt Financing, the

[Page 1476]

1 transactions the Consortium used to purchase Metaloroya

2 ultimately exposed DRP to a heavy debt burden. So, first,

3 in March 12, 1998, DRRC replaced the Bankers Trust Loan

4 with the issuance of high-yield bonds to investors for

5 248 million. That is Point 1 on the left figure.

6 DRRC, with that 248 million, made a deposit at

7 Banco de Credito Overseas, which served -- that's Point 2.

8 And that deposit served as collateral for a loan from Banco

9 de Credito Overseas to DRM. That's Point 3 that shows the

10 125 million loan. And then DRM used the funds from the

11 125 million loan to pay the Bankers Trust Loan, as Point 4

12 shows in the schematic, and to also pay the $23 million

13 loan DRRC had granted to DRM, that's Point 5.

14 So DRM's liabilities went from 248 million to

15 just 125 million because DRM did not pay the loan DRP had

16 given them when they first purchased Metaloroya. So DRM

17 had a liability for 125 million, and DRP had an asset

18 associated with that DRM liability for 125 million.

19 Then, between June 2001 and September 2002, a

20 series of transactions occurred that converted the

21 Metaloroya 125 million asset into a 139 million liability.

22 As I show in the figure on the right on Step 1,

23 in June 2001, DRM merged with DRP Metaloroya. From an

24 accounting perspective, this means that the 125 million

25 liability was canceled by the 125 million asset. So after

[Page 1477]

1 the merger, DRP no longer had that asset, and DRM no longer

2 had that liability.

3 Then, the Banco de Credito Overseas Loan, which

4 is Point 4 in the schematic, was transferred to DRRC, and

5 that's because DRM defaulted on payments on that Loan.

6 So DRRC then became the lender to DRM, and the

7 Loan increased from 125 million in principle to 139 million

8 Loan because there were 14 million of accrued interest. So

9 with these transactions, DRP ended up having a loan on its

10 books, a liability of 139 million, and the funds from that

11 liability had not been used to implement the PAMA or to

12 invest in Metaloroya. Those funds were the funds that the

13 Consortium had used to purchase Metaloroya.

14 Moreover, in the issuance of the high-yield bonds

15 that I previously mentioned, DRP and DRM -- but then, when

16 they were merged, it was just DRP -- was the guarantor of

17 DRRC's high-yield bond issue. What this meant was that DRP

18 was restricted from raising new debt of its own, among

19 other restrictions. So DRP not only had to repay the

20 135 -- it was a little less than that actually -- a little

21 more than that -- the $139 million loan, but they also were

22 guarantors to the 248 million high-yield bonds issuance.

23 So this really restricted DRP from raising additional

24 financing to execute the actual Projects of the smelter.

25 Further aggravating DRP's financing position,

[Page 1478]

1 DRP's management entered into seven related-party

2 agreements that transferred liquidity from DRP to other

3 Renco companies. Between 1998 and 2004, DRP paid

4 $106 million to related Parties, DRRC and DRM, which

5 constituted over half of its Operating Income for that

6 period.

7 As was noted during the cross of Mr. Buckley, DRM

8 was a company with no independent operations; therefore, it

9 isn't clear what services it provided. Moreover, under the

10 Restructuring Plan, DRP specifically committed not to pay

11 related Parties until Project 1, the Sulfuric Acid Plant,

12 was completed.

13 DRM and -- sorry, DRRC specifically noted that it

14 was dependent upon payments from DRM and DRP including

15 loans, advances, distributions, and dividends, to meet a

16 portion of its debt service requirement. And Mr. Callahan

17 noted in his Report that these Agreements were necessary to

18 keep the business growing, but there doesn't seem to be any

19 correlation between the growth of the business and the

20 Agreements. For example, between December 1998 to

21 December 2004, when the intercompany Agreements were in

22 place, DRP's net sales grew 3.8 percent annually, on a

23 compounded annual growth rate basis.

24 Meanwhile, the price of copper grew by

25 13.7 percent and the price of lead by about a similar

[Page 1479]

1 amount. So there doesn't seem to be a correlation between

2 the two because, when the Agreements were no longer in

3 place between December 2004 and December 2007, DRP's net

4 sales grew by 37 percent on average annually while the

5 price of copper grew by 28 percent. So these figures show

6 that there really isn't a correlation.

7 Finally, Claimant is silent as to how the

8 related-party agreements were replaced between 2005 and

9 2007 to demonstrate what Mr. Callahan states, that, if the

10 services were not provided by the related-party entities,

11 DRP would have needed to obtain the services from third

12 parties. I have not seen any document, any Contract

13 replacing those services.

14 So in the end, Claimants limited DRP's options to

15 fund the PAMA. The Equity Capital Contribution that was

16 finally available to DRP was only 1.5 million because the

17 Renco Consortium had used the 125 million contribution to

18 finance the acquisition of Metaloroya. And I understand,

19 Mr. Callahan pointed out and it also came up earlier in the

20 Hearing, that that contribution per the STA didn't have to

21 remain in cash, and, from a finance perspective, that makes

22 total sense.

23 But that contribution had to increase the Equity

24 Capital of the Company, which it didn't, as I showed

25 before. And it was not available to DRP to pull from

[Page 1480]

1 during the first five years -- well, during any time of

2 their investment in Metaloroya. They never had access to

3 those funds. Once they were used to pay the Bankers Trust

4 Loan, they were gone. So in the end, they only had

5 1 -- 1.5 million in available equity funds.

6 Then, from a Debt Capital perspective, DRP did

7 have revolving credit facilities between 1998 to 2006, and

8 in 2008, between 40 and 75 million, but resolving credit

9 facilities are used for working capital needs. So

10 basically, for operating the Company, not for major capital

11 investments.

12 And as I will show later, there were several

13 indicators from bankers, auditors, and the Company's

14 internal management that they were having difficulty to

15 access financing.

16 Finally, on cash flows from operations, if DRM

17 had not withdrawn the 125 million Metaloroya contribution,

18 and if DRP had not spent 106 million in related-party

19 agreements, DRP could have used an additional 231 million

20 in PAMA investments, 69 percent of DRP's estimate as of

21 1997, I believe.

22 So my Opinions on DRP's financing are consistent

23 with the contemporaneous opinions of DRP's management and

24 bankers. For example, in 1998, DRRC's Registration

25 Statement noted that the financial covenants and other

[Page 1481]

1 restrictions contained in the new Revolving Credit

2 Facilities require Doe Run and Doe Run Perú, as applicable,

3 to meet certain financial tests and limit their ability to

4 borrow additional funds or to dispose of assets. So DRRC

5 was using DRP as collateral for its financing.

6 Then, in June 2000, Anna Corvalan, who was a

7 banker at Credit Lyonnais, said that DRP pays nearly

8 40 million each year, directly and indirectly to DRR,

9 directly to DRM, and Banco de Credito. These payments are

10 channeled through several agency, technical, and managerial

11 fees, plus constant intercompany lending to DRM, although

12 the ultimate objective is to pay for the original Cost of

13 funding the Metaloroya purchase.

14 DRP cash flow generation cannot sustain the

15 continuation of this money transfer. Anna Corvalan, again,

16 in July 2000, noted: "The level of operating and interest

17 expenses DRP is financing for the other two companies is so

18 high that, DRP, by the end of this year, may have consumed

19 all the cash. It is difficult to present a credit proposal

20 with that forecast in our hands."

21 And then, in September 2000, in a memo from

22 Mr. Buckley to Jeff Zelms, which Mr. Buckley reviewed

23 during his testimony, during his cross, he noted: "Doe

24 Run's business model, 100 percent Debt Financing, is

25 flawed, at least for companies with heavy capital

[Page 1482]

1 investment requirements. DRP, for example, has financed

2 all its purchase price, embarked on a major Capital

3 Investment Program, and sent large intercompany payments

4 north. That is simply not a reasonable expectation. The

5 system isn't working."

6 "The handling of the 125 million capital has

7 created a potentially difficult situation, where businesses

8 are insufficiently profitable to support our debt load."

9 I will now move to DRP's liquidity position. So

10 DRP's underperformance predated the Financial Crisis. In

11 several years, DRP could not service the interest expense

12 just from earnings.

13 As the first table shows, there were four years

14 in which DRP's earnings were lower than their interest

15 expense, so the ones that are marked with a "yes," except

16 for 2009. So it would be 2000, 2002, 2010, and 2011 -- oh,

17 and, 2009. Excuse me.

18 Then DRP's financial leverage, in 2001 and 2004,

19 was more than three times the financial leverage for the

20 other entities in DRP's competitive set. These are three

21 mining companies that we could find that had publicly

22 available data that were also in Perú and dealt with the

23 same type of metals. They weren't smelters, but we just

24 couldn't find data for a smelter in Perú that would be

25 comparable to Metaloroya. But these are companies that

[Page 1483]

1 would have been exposed to similar risks as DRP.

2 Then DRP also lacked its competitive set in other

3 financial and liquidity ratios. For example, DRP's current

4 ratio, which is an entity's ability to pay current

5 liabilities with current assets, was worse, in this case,

6 lower than the average since 2000.

7 And then DRP's cash from operations to current

8 liability ratio, which is used to measure an entity's

9 ability to pay its current liabilities with cash it

10 produces from its ongoing operating activities, was the

11 worst, lowest, among comparable companies each year.

12 Between 1997 to 2009, DRP's auditors also noted

13 several concerns. DRP had six unqualified opinions and six

14 unqualified opinions with going concern.

15 So the DRP's auditors raised concerns about DRP's

16 liquidity, high debt service, and capitalization, as early

17 as 2001. For example, in 2001, the auditors noted: "The

18 Company faces liquidity issues that raise substantial doubt

19 about its ability to continue as a going concern."

20 Then, in 2004, for example, they noted: "The

21 Company has a net capital deficiency, substantial debt

22 service requirements, significant capital requirements

23 under environmental commitments that raise substantial

24 doubt about its ability to continue as a going concern."

25 In this slide, I also provide several quotes from

[Page 1484]

1 management that concur that DRP faced a liquidity crisis

2 prior to the Global Financial Crisis.

3 Now, my review of DRP's Claims on force majeure

4 from a finance perspective. So I was asked to evaluate,

5 from an economic perspective, whether the Global Financial

6 Crisis constituted a force majeure condition. Of course, I

7 am not a lawyer, so I asked the lawyers, "well, what is the

8 definition of 'force majeure' that I need to work with?"

9 And they informed me that force majeure is defined as: "An

10 event not imputable to the obligor, and consisting of an

11 extraordinary, unforeseeable, and irresistible event that

12 prevents the execution of an obligation or causes its

13 partial, late, or defective fulfillment."

14 So focusing on the extraordinary and

15 unforeseeable, as I have just noted, DRP had a history of

16 being poorly capitalized and over-levered well before the

17 Global Financial Crisis. DRP's high leverage made it more

18 susceptible to adverse market conditions. And then DRP

19 faced increased difficulty in accessing capital markets due

20 to its weak financial position.

21 Renco, in its Pleadings, notes that the fall in

22 the metal prices caused by the Global Financial Crisis had

23 a great impact on DRP. However, this is contradicted by

24 the fact that metal prices were generally higher than they

25 were at the time Renco signed the STA. Also, in

[Page 1485]

1 October 2005, management noted that the state of base metal

2 prices was good. And as you can see from the graph, the

3 prices of lead, zinc, copper, and silver, during the

4 Financial Crisis, were in line with what happened in 2005.

5 In conclusion, DRP was not adequately capitalized

6 and began operations with no capital infusion from related

7 Parties. The transactions used to purchase Metaloroya

8 ultimately exposed DRP to a heavy debt burden which

9 ultimately created a liquidity crisis. The intercompany

10 payments further exacerbated DRP's growing liquidity

11 crisis. DRP was particularly susceptible to the Global

12 Financial Crisis because of its management-imposed

13 decisions. And neither DRP's parent company nor its

14 lenders would finance DRP, which ultimately forced DRP into

15 bankruptcy.

16 And with that, I conclude my presentation.

17 PRESIDENT SIMMA: Thank you very much,

18 Ms. Kunsman. That brings us to the stage of

19 cross-examination, which is done by Mr. Fogler.

20 Mr. Fogler, you have the floor.

21 MR. FOGLER: May I request that we take our

22 coffee break now?

23 PRESIDENT SIMMA: I think a coffee break was due

24 at 11:00, but this would be 40 minutes earlier, but maybe

25 we can envisage another one if the rest of the time becomes

[Page 1486]

1 too lengthy. So we have a coffee break until 10:35.

2 MR. FOGLER: Thank you.

3 THE WITNESS: Thank you.

4 (Brief recess.)

5 PRESIDENT SIMMA: So let's resume, and I give the

6 floor to Mr. Fogler for his examination. Or not his

7 examination, the examination of Ms. Kunsman by Mr. Fogler.

8 MR. FOGLER: Thank you, Mr. President.

9 CROSS-EXAMINATION

10 BY MR. FOGLER:

11 Q. Ms. Kunsman, as a numbers person, I want to wish

12 you a happy Pi day.

13 A. Thank you.

14 Q. It's March 14, 3.14. My daughter is a high

15 school math teacher. It's a big deal for her.

16 (Comments off microphone.)

17 MR. FOGLER: They bring pies to class.

18 BY MR. FOGLER:

19 Q. Let's get started. I understand that, as part of

20 your work you have reviewed and studied the Contract, the

21 STA, between the Parties; is that correct?

22 A. No. I've looked at some specific clauses, but

23 I'm not a lawyer; so what I've looked at has been from a

24 finance perspective. I don't -- so, yes, so the clauses

25 that I refer to, and I've seen others.

[Page 1487]

1 Q. All right. Well, do you understand that at issue

2 in the arbitration that you are testifying in, is the

3 allocation of environmental liabilities that is covered by

4 some of the provisions of the Contract?

5 A. Yes.

6 Q. And, in particular, Articles 5 and 6, which you

7 have read those too, have you not?

8 A. Can you please show me; so I can look at them.

9 Q. Sure. We can put them up. It's R-001.

10 Article 5 -- or the Fifth Clause -- begins on Page 17. At

11 the very bottom, you can see that this is the Section on

12 the Company's responsibility in environmental matters, and

13 it goes on at some length. And then Article 6, which

14 starts on Page 26 deals with Centromín's responsibilities

15 in environmental matters.

16 A. Like I said, I haven't studied them in detail,

17 but, yeah, my understanding is that they divided the

18 environmental responsibilities between the two.

19 Q. Right. The Contract -- and we can look at these

20 in detail, if you wish. There is nothing in these

21 Articles, 5 and 6, which conditions Centromín's assumption

22 of responsibility on Metaloroya maintaining a certain

23 amount of capital, is there?

24 A. I would need to look at them in detail.

25 Q. You're not -- at least you don't know, off the

[Page 1488]

1 top of your head, whether the Contract itself requires

2 Metaloroya to keep a certain amount of capital in order for

3 Centromín's assumption of responsibility to be maintained?

4 A. I don't know. That's not something I looked at.

5 Q. Okay. Do you know, then, whether any of these

6 Articles requires Metaloroya to have a certain capital

7 ratio in order for Centromín's assumption of responsibility

8 to remain in effect?

9 A. I am not aware. It's not something I've looked

10 at.

11 Q. Or whether Metaloroya needs to maintain a certain

12 liquidity to -- or any other financial status in order for

13 Centromín's assumption of liability to be effective?

14 A. Not that I'm aware of, but, again, I didn't study

15 the Contract with that in mind -- well, I didn't study the

16 Contract in detail, like I said.

17 Q. All right. Well, putting aside even the

18 allocation of environmental responsibilities, do you know

19 whether the Contract, as a whole, requires Metaloroya to

20 maintain a specific level of capital?

21 A. Not that I'm aware of specifically, but it does

22 say, as I pointed out in my presentation, that the

23 Consortium needed to increase the stock capital and premium

24 of the Company, Metaloroya, by a certain amount, and that

25 that amount had to be available because it would fund the

[Page 1489]

1 accelerated Investment Commitment of 125 million during the

2 first five years. So indirectly, from a financial

3 perspective, it did, but, like I mentioned, it didn't have

4 to be in cash. It just needed to be available.

5 Q. And it didn't even have to be kept in the

6 Company. I mean, you actually put in your

7 presentation -- let's look at the specific clause that

8 required the payment for the increase in the stock capital.

9 That's the Third Clause of the Contract. It's at Page 12.

10 Here you have the -- this is the -- in addition

11 to the payment that was made to Centromín, as you described

12 for us in your presentation, there was an issuance of new

13 stock by Metaloroya to DRP for the $126 million; correct?

14 Could we go to the next page. It's in 3.3. There you go.

15 The contribution -- you quoted this in your

16 presentation?

17 A. Yeah, that's what I'm trying to find. Yeah.

18 Q. Right.

19 A. Yeah. Okay. I'm there.

20 Q. This comprises the monetary contribution destined

21 to increase the stock capital of the Company and the

22 premium for the issue of Shares, and it talks about how

23 it's going to be accounted.

24 And if we go to the last sentence of 3.3, on the

25 next page: "It is hereby understood that the Company will

[Page 1490]

1 not be obliged to maintain in cash the amounts contributed

2 to increase the stock capital of the Company, pursuant to

3 numerals 3.2 and 3.3, but such funds may be used for such

4 other purposes, commercial operations, or others."

5 A. That's what it says, yes.

6 Q. And there was no restriction in the Contract for

7 what Metaloroya could do with that money?

8 A. From a financial perspective, there is an

9 implicit restriction in that it had to increase the stock

10 capital of the Company, and in making an intercompany loan,

11 it didn't.

12 Q. Now, there's no -- just as I was asking

13 previously about the specific allocation of environmental

14 liabilities, there's nothing in the Contract that required

15 Metaloroya to maintain any specific asset to liabilities

16 ratio, was there?

17 A. Not that I'm aware of, no.

18 Q. You did refer in your presentation to the

19 Investment Commitment --

20 A. Yes.

21 Q. -- in Article 4, the $120 million over

22 five years; right?

23 A. Right.

24 Q. And my understanding of your position is that

25 that Investment Commitment, even though it specifically

[Page 1491]

1 says in the Contract is for modernization, your position is

2 that is in addition to the modernization that is discussed

3 in the PAMA; is that correct?

4 A. No.

5 Q. Is it your position that -- well, we know that

6 the $141 million modernization estimate that's given in the

7 PAMA was prepared prior to the negotiation of the STA,

8 don't we?

9 A. I don't know when the negotiations started for

10 the STA, but it was prepared by Centromín.

11 Q. Is it your position that the Investment

12 Commitment of 120 million for the first five years replaced

13 the modernization estimate that was in the PAMA?

14 A. No.

15 Q. So, in your view, they're two separate

16 obligations?

17 A. The 120 million is an obligation per the STA.

18 The modernization 140 million is an estimate of Centromín

19 of what it would take to carry out certain Projects that

20 Centromín deem necessary to carry out in order to meet the

21 emission levels. So the investment itself was not the

22 commitment, the investment of the 140 million. The other

23 one, per the STA, from a financial perspective, I see it as

24 a commitment, and that that 120 million has to come from

25 the initial 126 million contribution.

[Page 1492]

1 Q. Let me make sure I understand.

2 A. Okay.

3 Q. Could Metaloroya, or DRP, once it merged with

4 Metaloroya, have used the $120 million Investment

5 Commitment from the STA to fund the Modernization Projects

6 that had been listed in the PAMA?

7 A. It could.

8 Q. Okay. So there -- in that sense, there could be

9 overlap?

10 A. Yes, there could be.

11 Q. Okay. Have you seen any communication from the

12 MEM, the Ministry of Energy and Mines in Perú, to DRP that

13 DRP was not keeping up with any obligation to fund

14 Modernization Projects?

15 A. No. I haven't seen it, but I understand. And I

16 haven't seen the Report, that there's that SVS Report, but,

17 no, I haven't seen any.

18 Q. Okay. Well, I want to -- let's focus on what's

19 in the Contract, then, because there is actually a specific

20 procedure set out for verifying that DRP is complying with

21 the obligation to fund the $120 million modernization, or

22 Investment Commitment; right?

23 A. I have not studied that clause. To me, that's a

24 legal procedural issue. It's not something that I was

25 asked to do; so...

[Page 1493]

1 Q. Well, let me show you Article 4.2 on Page 14?

2 A. Okay.

3 Q. This is the clause that discusses the Investment

4 Commitment, and it -- in 4.2, there's a procedure set out

5 for the Company, that being Metaloroya here, to present

6 sworn statements from independent auditors, to Centromín,

7 and gives Centromín the opportunity to review that. Have

8 you ever seen any communication from Centromín that the

9 $120 million Investment Commitment had not been met?

10 A. You mean from Centromín or to Centromín?

11 Q. Either way.

12 A. I have not.

13 Q. Okay. And at the end of the five-year period,

14 there was -- we can go up a little bit further. The

15 Company is supposed to submit a report, and it's supposed

16 to be countersigned by independent auditors to verify that

17 the $120 million commitment has been met.

18 Have you seen any indication in any documents

19 that that commitment was not met?

20 A. The only Reports that I've seen on investment,

21 the investment made, have been from the Audited Financial

22 Statements, which sometimes on the notes contain the

23 amount. Then on some of DRP's requests for Extensions,

24 especially the 2009, and then I know Mr. Callahan uses some

25 report to the communities, but I haven't seen what you're

[Page 1494]

1 telling me this Clause says. But I didn't look for it

2 either or ask for it; so I...

3 Q. You're not aware, then, of any communication from

4 Centromín to DRP that says: "You have not fulfilled your

5 obligations under Clause 4 to make this $120 million

6 Investment Commitment"?

7 A. No, I have not.

8 Q. Now, I know you're not a technical person, and

9 I'm not intending to ask you about the technical aspects of

10 the PAMA.

11 A. Okay. You'll be disappointed.

12 Q. I'm not either; so we're equally in the same boat

13 there.

14 And you're not here to offer any Opinions about

15 the technical aspects of the PAMA, are you?

16 A. No, but in putting together my Report, I did ask

17 some very basic questions on how the circuits fit into the

18 PAMA, into the Sulfuric Acid Plant, but all very basic,

19 yeah.

20 Q. What we do know is that, of the nine PAMA

21 Projects that were assigned specifically to Metaloroya, DRP

22 completed eight of those; right?

23 A. Correct. In the 2009 request, DRP specifically

24 mentions that they completed eight out of the nine for 65,

25 68 million, something like that. But, of course, as I

[Page 1495]

1 mention, that was the smaller part of the estimate, yeah.

2 Q. And the ninth, of course, being, as you say, the

3 big one, the Sulfuric Acid Plants.

4 A. Yes.

5 Q. You know that they also completed the Plant for

6 the zinc circuit and the Plant for the lead circuit?

7 A. I know that after 2006 they made part -- between

8 2006 and 2009, as I mention in my presentation, they

9 made -- they invested 104 million in the Sulfuric Acid

10 Plant Project. I'm not sure -- I know I've seen it when

11 reading, but I don't know. I don't remember exactly what

12 it was. I take you at your word that maybe it was for

13 that.

14 Q. My only point, Ms. Kunsman, is that it may be in

15 spite of everything that you are telling us about liquidity

16 and capitalization and ratios, DRP was able to somehow find

17 sufficient funds to do those eight PAMA Projects; right?

18 A. Yeah. They were able to find 68 million of a

19 total; so about 20 percent of what they expected to invest

20 to complete those Projects.

21 Q. Well, we're going to go through some of the

22 Financial Statements, and see exactly how much they say,

23 through their audited financials, what they put in.

24 And you've looked at these Audited Financial

25 Statements, haven't you?

[Page 1496]

1 A. I have, and I put in how much they spent during

2 the original PAMA Period. I'm not sure if I went all the

3 way through 2009 because, after 2009, I didn't really look

4 at much because it wasn't part of my scope of work.

5 Q. Well, let's just take a slow stroll through the

6 Statements.

7 A. Okay.

8 Q. I'm going to show you first R-74, which is an

9 Audited Financial Statement for the year -- maybe you could

10 blow up that middle portion so we could see.

11 A. Yeah, I see it.

12 Q. There we go. For the years, as of

13 October 31, 2000, and 1999. And it's fairly typical, in

14 accounting, for Financial Statements to present the prior

15 year and the current year; right?

16 A. Yeah.

17 Q. And you probably understand that the fiscal year

18 for the Company ended on October 31 because the acquisition

19 was made in late October in 1997?

20 A. Yeah.

21 Q. Right?

22 A. Makes sense, yeah.

23 Q. So here, we're effectively three years into the

24 operation by DRP; right?

25 A. Yes.

[Page 1497]

1 Q. If we can go to the next page, just to show you,

2 this is the actual Opinion of the auditors. And KPMG, you

3 recognize, as a reputable international accounting firm.

4 Just as we saw in the STA, when they're trying to certify

5 the Investment Commitment to be made, they wanted an

6 independent auditing firm to do that, and that's somebody

7 like KPMG, isn't it?

8 A. There are a lot of questions there. To your

9 first question, is KPMG a reputable auditing firm? Yes.

10 Have I seen that the STA contained a clause that

11 said that they needed their Financial Statements audited?

12 I haven't seen it, but I'm not surprised that it's there.

13 It's typical, yeah.

14 Q. All right. And this -- I mean, what -- this is

15 pretty basic for me, not for you. I mean, you deal with

16 this all the time, but what an auditor's Report is, is the

17 opinion on the Company's Financial Statements, and this

18 one, if we go to the last paragraph of this, this is the

19 Opinion. This is what would typically be called a "clean

20 Opinion," isn't it?

21 A. Yes.

22 Q. In other words, they're saying, without

23 qualification, we believe that the financials presented in

24 this Report fairly and accurately present the financial

25 picture of the Company?

[Page 1498]

1 A. Yes.

2 Q. Okay. You mention notes, and after the balance

3 sheet and income statement and the financials, the auditors

4 include a series of notes that explain certain aspects of

5 the Company's financials; right?

6 A. It's not the auditors that include those notes.

7 It's the Company that puts together those notes, and the

8 auditors review them, but the auditor doesn't write those

9 notes. It's the Company.

10 Q. There are notes on Page 18 of this Statement

11 that, if we do the last half of the page, blow it up a

12 little bit. Can you scroll up just a little bit so we can

13 see the heading. This is "Environmental Matters," and here

14 the Company is describing the PAMA Program and what

15 generally needs to be done.

16 You've looked at these notes, haven't you?

17 A. I have.

18 Q. Okay. And we go to the bottom of the page, we

19 see that the Company reports here that it had spent

20 approximately $18,600,000 on Projects under the PAMA?

21 A. Cumulatively, yeah, up to that point.

22 Q. Right. And even though that you say the Company

23 wrote this, the auditors test or verify so that they can

24 say that that is fairly and accurately presenting the

25 picture.

[Page 1499]

1 A. Yeah. Auditors have certain thresholds, so they

2 may not have looked at every single item. But, yeah.

3 Q. As of three years into the program, three years

4 into the operation by DRP, have you seen any finding or

5 Directive from the MEM that DRP is not spending enough on

6 the PAMA Projects?

7 A. No.

8 Q. Let's go to C-110. And I'll tell you, this is

9 not -- obviously not a company Financial Statement, but

10 this is a report from the Ministry of Energy and Mines in

11 November 2002.

12 Have you seen this before?

13 A. No. Not that I recall.

14 Q. So you may know that the MEM sends auditors out

15 to regularly inspect certain aspects of the operations at

16 the smelter.

17 Did you know that?

18 A. I'm not familiar with the details, and -- I mean,

19 they're not auditors like KPMG, but they're -- yeah.

20 Q. Correct. But, if we go down to the first

21 paragraph of this Report from the MEM, we've seen this

22 before in the Hearing, here, it's stating that: "With

23 regard to the amounts committed to and programmed in their

24 PAMA for the Year 2002, an investment of 134 percent has

25 been carried out with regard to what was programmed."

[Page 1500]

1 You don't have any reason to dispute that, do

2 you?

3 A. That is what it says. I haven't performed that

4 analysis. I wasn't asked to, so without doing the

5 analysis, I have no reason to corroborate it or to dispute

6 it. I don't know.

7 Q. All right. Well, let's look at a document that I

8 know you have seen because I think you refer to it in your

9 Report. It's R-193, and this is the E-S-A-N, ESAN Report

10 that was -- it's dated in February 2006. This was in

11 connection with DRP's request for an extension of the PAMA

12 for the Sulfuric Acid Plants.

13 You're familiar with that?

14 A. Yes.

15 Q. And you understand that this Report was

16 commissioned by the MEM to look into what had been

17 happening up to this point in time, which was now

18 eight years into the PAMA Period?

19 A. Yes.

20 Q. So let's look at Page 16, and I'm sure you're

21 familiar with this chart because you refer to it in your

22 Report, don't you?

23 A. Yes.

24 Q. And this is a report about the investments that

25 had been made by DRP into the PAMA Projects that are listed

[Page 1501]

1 in the mitigation portion of the PAMA; correct?

2 A. Yes, in the mitigations, and these are estimates

3 that they thought -- that DRP thought it would take to

4 accomplish those Mitigation Projects.

5 Q. The Statement made by this ESAN entity

6 says: "Until 2004, DRP committed to investing

7 $52.8 million in the execution of the PAMA. As of

8 December 2004, the information provided by DRP indicates

9 that they have invested $53.1 million, complying with the

10 agreed amount."

11 A. For mitigation, yeah.

12 Q. Right. And, again, you don't have any reason to

13 dispute that, do you?

14 A. No. No.

15 Q. Okay. Now, I do want to point out the next

16 sentence, just to be fair, because it states, for 2005,

17 "DRP committed to investing 53.5 million. This amount has

18 not been met, investing only 18.2 million." But, of

19 course, this was in connection with the request for an

20 extension, which ultimately was granted by the MEM. True?

21 A. The Extension for the Sulfuric Acid Plant, the

22 May 2006 Extension.

23 Q. Are you aware that the Extension also included a

24 number of additional Projects, that the MEM wanted DRP to

25 commit to, to control fugitive emissions?

[Page 1502]

1 A. I am aware. I'm not sure exactly what the

2 Projects did, but there were additional, yeah.

3 Q. All right. And those additional Projects, you're

4 aware that those were funded and completed?

5 A. It's not something that I've looked into

6 carefully, those specific additional Projects. I'm not

7 sure I even had the ability to break them out by year and

8 by project. What I mean, with abilities, the information.

9 Q. Let's look at one more, and this is C-214. This

10 is Doe Run Financial Statements as of October 31, 2010, and

11 2009. Just to set this in a time context, DRP is already

12 in bankruptcy proceedings at this point.

13 A. Yeah.

14 Q. But let's look at Page 20. These are the notes,

15 again, to the Financial Statements.

16 Again, there's a discussion of the PAMA, and you

17 see, in the second paragraph that we've highlighted, that

18 it talks about the Cost of the modified PAMA Projects which

19 are now expected to total $481 million, which includes the

20 copper modernization, the copper circuit Sulfuric Acid

21 Plant, and the lead circuit Sulfuric Acid Plant. It then

22 says: "Through the end of the 2010 Fiscal Year, the

23 Company had spent $313 million on these Projects."

24 So my point here -- I want you to tell me if I'm

25 wrong. Again, regardless of whether it was

[Page 1503]

1 undercapitalized or didn't have the right ratios compared

2 to other companies, somehow, it found $313 million to fund

3 these Projects; right?

4 A. According to what it says there, yeah. It was

5 mostly done through the cash flows from operations.

6 Q. Okay.

7 A. Of the -- yeah, of the Company.

8 Q. Are you aware that the Company, Renco and DRRC,

9 in fact, at the time they made the bid and won the bid,

10 were promised by Centromín and the Government of Perú that

11 they could fund these Projects through cash flow from

12 operations?

13 A. No, I'm not aware.

14 Q. Okay. We heard a lot in the Opening Statement

15 from Respondents -- and you were here for that?

16 A. I was here for the first part, not the second

17 part, which was -- I don't know if it was after lunch, but,

18 at some point, it got very legal, and I got out.

19 Q. Well, maybe you weren't here for the remarks that

20 Renco had a "pollute-and-profit playbook."

21 Do you remember those remarks?

22 A. I don't specifically.

23 Q. Okay. Let me show you -- I want to show you a

24 quote from the Opening Statement made by the Respondents.

25 It was stated: "The truth is that, while Renco got busy

[Page 1504]

1 extracting profit from DRP's ramped-up poisonous

2 operations, it stalled DRP's environmental obligations."

3 That sounds pretty bad, doesn't it?

4 A. Yeah.

5 Q. But you know, since you have examined all of the

6 Financial Statements and done a lot of other work as well,

7 you know that not a single penny of money from DRP went to

8 Renco, don't you?

9 A. Renco -- do you mean DRRC? Because I disagree,

10 no, money did go.

11 Q. I mean Renco.

12 A. Renco as the --

13 Q. The Company that's here today. We have Renco and

14 DRRC, and I'm asking you about Renco because that's the

15 quote that we see on the screen.

16 Not a single penny went from DRP to Renco.

17 A. The analysis that I did took the information to

18 DRM, DRRC, and DR Cayman. I don't know how Renco is

19 defined there, and how you're defining Renco, so my

20 analysis went to those Companies that I'm specifically

21 mentioning.

22 Q. You understand that Renco is a separate company

23 from DRRC?

24 A. Yes.

25 Q. And that Renco is a separate company from DRP?

[Page 1505]

1 A. Yes.

2 Q. And my question is very specific. I want to see

3 if you can answer it.

4 Do you know of any money that went from DRP to

5 Renco?

6 A. I have not done that analysis because I don't

7 know the ownership structure connecting Renco, DRRC, DRP,

8 and Renco, and DRM and Renco, and DR Cayman. I don't know

9 how those connections are. It's not something that I was

10 asked to analyze.

11 Q. What you do know is that DRP never made any

12 distributions to its Shareholders, regardless of who they

13 are; isn't that correct?

14 A. In the form of dividends, distributions in the

15 form of dividends? No. But it did pay interest on a

16 loan -- on the -- I mention it, the Banco de Credito

17 Overseas Loan, they did pay interest on that Loan that was

18 used eventually to pay for the purchase of DRP, and they

19 also made the intercompany payments -- I mean the

20 intercompany agreement payments.

21 Q. I'm going to talk to you about those in just a

22 second --

23 A. Hold on. Let me finish my answer.

24 Q. Please.

25 A. And I also only looked through 2009, which is the

[Page 1506]

1 period that I was asked to look at. I don't know what

2 happened after that, in terms of payments.

3 Q. At least through 2009, you know that there were

4 no dividends or distributions made by DRP to its

5 Shareholders, don't you?

6 A. As I just answered, there weren't any

7 distributions in the form of dividends, but there were the

8 intercompany agreement payments and they were payments on

9 the Banco de Credito Loan and DRP did have a loan on its

10 books from DRRC.

11 Q. If a company borrows money from another entity,

12 typically it pays interest on the loan, doesn't it?

13 A. On intercompany loans, sometimes those interests

14 are capitalized. So they're accruing, but there are no

15 actual payments until something, some milestone is met.

16 Q. And, in fact, that happened in this case too,

17 didn't it? There were a number of interest payments that

18 never occurred?

19 A. Right. But the only time that interest were paid

20 on that Loan from DRRC was through the Banco de Credito

21 Overseas Loan between June 2001 and September 2002, but, on

22 the loan that then DRP inherited from DRM, it increased

23 from the 125 million to the 139 because there were some

24 accrued interest in there as well.

25 So, no, there weren't any actual cash flows for

[Page 1507]

1 the intercompany loans that went from DRP to DRRC for those

2 loans, between -- up to 2009, which is what I looked at.

3 Q. Ultimately, the interest payments went to the

4 bank, didn't they?

5 A. I would assume so because they went bankrupt, but

6 I don't know. It's not something that I looked at.

7 Q. Let's talk about your related-party transactions.

8 There's nothing in the Stock Transfer Agreement that

9 prohibits related-party transactions, is there?

10 A. Not that I'm aware of, but I haven't reviewed it

11 for that.

12 Q. Okay. In fact, are you aware that, during the

13 Bidding Process, there were questions and answers from

14 potential bidders that are incorporated into the Contract?

15 Have you seen those?

16 A. Yeah, there were a lot. I've only reviewed a

17 couple of -- I searched for specific words when I was

18 looking for specific items.

19 Q. Well, let me show you one.

20 A. Okay.

21 Q. It's in R-201, Page 16. This is the second round

22 of the bidding, and there's a question here: "There are

23 restrictions for utilizing the cash flow contributed and

24 generated by La Empresa" -- which I understand to mean the

25 Company Metaloroya -- "and what it refers to, payment of

[Page 1508]

1 dividends and investment in other companies."

2 I'm not sure the translation works very well

3 here, but the answer is: "The Contract does not establish

4 restrictions regarding the flow generated by La Empresa or

5 the financing of providers."

6 And you understand --

7 A. Do you think we could look at it in Spanish,

8 because that translation is tough.

9 Q. It's tough.

10 A. Yeah. I'm not sure I understand what it says in

11 English.

12 Q. You're going to be ahead of me because you

13 understand it in Spanish and I don't, but let's look at it,

14 if we can.

15 A. I'm going to take my jacket off, too.

16 Q. Make yourself comfortable.

17 A. Thank you. Okay. And I haven't seen this

18 before.

19 Q. Give us a moment. It takes a little time because

20 I had not queued this up on the Spanish side.

21 Does that help?

22 A. It does, yeah.

23 Q. Maybe you can help us then.

24 A. Well, I don't want to interpret. This is the

25 first time that I see it, so...

[Page 1509]

1 Q. As far as you know, though, there are no

2 restrictions in the Contract for how DRP is to use any

3 money that it earns?

4 A. As far as I'm aware, no, the only restriction

5 came with one of the Extensions, and that's why the

6 intercompany loans ended in 2004.

7 Q. You're ahead of me, but, yes, you are correct.

8 You noted, in your Reports, that, whatever related-party

9 transfers had occurred, they stopped at the end of 2004?

10 A. Correct.

11 Q. I want to look at the numbers with you for these

12 related-party transactions. We're going to look at some

13 Financial Statements again.

14 A. Okay.

15 Q. First, let's look at IK -- those are your

16 initials.

17 A. Yes.

18 Q. 030. And this is a Financial Statement from

19 Arthur Andersen. It used to be a reputable accounting

20 firm, before my town destroyed it.

21 MR. PEARSALL: Our town helped.

22 MR. FOGLER: Yes.

23 BY MR. FOGLER:

24 Q. But, anyway, at least you're familiar with this?

25 I think this is a Financial Statement for the first year

[Page 1510]

1 ended October 31, 1998.

2 A. Correct.

3 Q. And let's go to the third page. The Income

4 Statement. If we could blow this up. This is a fairly

5 typical Income Statement, with income at the top and

6 expenses at the bottom, and what we see here, the sales in

7 1998, $458,291,000, because that's stated in thousands of

8 dollars; correct?

9 A. Correct.

10 Q. And the number that you have used in your Reports

11 is this line item "Fees and commissions to related

12 parties"; right?

13 A. I believe it is. I don't recall from memory

14 exactly. If you want to show me from my Report, but I can

15 take you at your word, if you want.

16 Q. Well, just for example, if you want to go to your

17 slideshow, on Page 17.

18 A. So this is the first year.

19 Q. 20.3 is what you have.

20 A. Yes. Exactly.

21 Q. I just want you to verify.

22 A. Yeah, I couldn't remember the exact amount for

23 that year.

24 Q. Trust but verify. Okay.

25 All right. So we also -- if we can go back to

[Page 1511]

1 the -- you made a comparison for us about how this

2 number compared to Operating Income. So you compared the

3 20,000 -- or 20 million to the 44 million, didn't you?

4 A. Correct.

5 Q. Okay. But, if we compare the related-party

6 amount to the sales, the revenues, it's a much smaller

7 percentage?

8 A. Yes.

9 Q. It's about 4.5 percent. You can do the math if

10 you want, but I've done it.

11 A. Right. But you need the cost of sales to be able

12 to generate those net sales, so if you didn't have the cost

13 of sales, you wouldn't have those net sales.

14 Q. So you expressed some ignorance about what these

15 related-party transactions were, but there is a set of

16 notes in the Financial Statements that discuss these

17 related-party transactions, aren't there?

18 A. There are descriptions of the Agreements for how

19 long they were and the fixed payment.

20 Q. So let's go to Page 18 of this Exhibit IK-030.

21 And I think you're going to have go farther down. It's two

22 pages before this. There we go, at the bottom.

23 "Related-party transactions."

24 You've seen these before?

25 A. I have.

[Page 1512]

1 Q. And what this describes, in a series of

2 subparagraphs, (a) through (d) that goes on to the next

3 page, you'll see that this talks about the various

4 Agreements that underlie the $20 million that is in the

5 Financial Statement?

6 A. Correct.

7 Q. And you've seen the actual Agreements, too,

8 haven't you?

9 A. I did at some point early on.

10 Q. Okay. So let's go back to (a). "Effective

11 October 23, 1997." That's the date that DRP actually

12 assumed operations; correct? That's the date of the STA.

13 A. Yes.

14 Q. "Doe Run Perú entered into a technical,

15 managerial, and professional agreement with Doe Run

16 Resources. Pursuant to this Agreement, Doe Run Resources

17 provided to Doe Run Perú professional staffing and

18 equipment for performing technical, managerial, and

19 professional services for the period from October 23, 1997,

20 to March 8, 1998."

21 A. Yes.

22 Q. And there's the -- the agreed fee was

23 $3.8 million.

24 Now, if you've seen the Agreement, it actually

25 lists a whole series of services that DRRC are going to

[Page 1513]

1 provide, things like risk management, accounting, legal,

2 Human Resources, typical things that companies of this size

3 need.

4 Have you seen that?

5 A. I saw the Agreement at some point.

6 Q. Okay. I mean, I know you haven't operated a

7 smelting business; right?

8 A. Yeah.

9 Q. Have you served as -- in a capacity in a private

10 business, financial operations, that kind of thing?

11 A. I have.

12 Q. Okay. So it wouldn't surprise you that a company

13 that employs thousands of workers would need to have

14 administrative and managerial services to manage employees,

15 Government relations, insurance services, legal services,

16 things like that?

17 A. Companies, of course, yes, they must have that,

18 but what surprised me was that they were able to turn off

19 these managerial Agreements in 2004 without any

20 implications, or without Claimants providing how they

21 replaced those Agreements.

22 And also, from the Anna Corvalan email, it

23 surprised me that if a banker is telling you "We're not

24 going to give you a loan because you're funneling money,"

25 that they wouldn't provide an explanation saying: "No, no,

[Page 1514]

1 no, these are real Agreements." So I do have concern about

2 these Agreements, as I expressed in my Report.

3 Q. Do you know what the value of the services that

4 were actually performed was?

5 A. I do not, but based on the evidence that I've

6 seen, it doesn't seem like they provided value, since they

7 were able to go away without being replaced by anything

8 else. That Mr. Callahan would have shown, or DRP would

9 have shown to the bankers, or in the email, in the memo or

10 an email correspondence from internal management.

11 They also mentioned these Agreements as siphoning

12 liquidity from the Company. So based on the evidence that

13 I've seen, I am not convinced that they provided any value.

14 And then, especially with the DRM that, as management

15 noted, it didn't have any employees.

16 Q. Do you know who paid Mr. Buckley and Mr. Diehl?

17 A. According to Mr. Buckley, DRM didn't have any

18 employees on the testimony that he did in another case,

19 in a...

20 Q. Do you have any basis to dispute how much it

21 would cost to provide the kinds of administrative and

22 managerial services that would be required to run a Company

23 like DRP?

24 A. Well, I can look at the Financial Statements what

25 it would be, but if those services were provided for a

[Page 1515]

certain period, and then they went away, and Mr. Callahan didn't provide how those services were replaced, and then I can say in the financials, that the income actually went up for those years, that they weren't replaced, well, it makes me think that those Agreements were not that useful in the first place. I mean, Mr. Callahan had the opportunity to present that, and he didn't.

Q. Well, certainly there are other explanations other than the payments that were made to fund these specific services that are listed here, because it's more than just managerial and professional services. Somebody had to sell the product; right?

So there are salespeople and commissions that are in the other paragraphs of the notes; correct?

A. In 1998, yes, but apparently in 2005 they were able to sell the products without these Agreements, and they were selling, like I showed in my presentation, that there doesn't seem to be an impact of not having the Agreements on the operations of DRP.

Q. Well, maybe Mr. Neil, who had been paid by DRRC, and was under one of these technical, managerial, and professional Agreements was hired directly by DRP after that point.

Did you consider that?

A. I would have only considered that if Mr. Callahan

[Page 1516]

had mentioned it in his Report, and he didn't.

Q. Okay. So you're -- without having any facts to back it up, you are casting doubt on whether the services that are specifically listed in the Audited Financial Statements were actually provided?

A. I am casting doubt, based on the information that I present in my Report. It's the intercompany emails, the comments from bankers, the Statements in the deposition, that DRM didn't have any employees or operations that he knew of. So it's based on a lot of evidence.

And, look, if Mr. Callahan, in his Report, had said "these Agreements in 2005 were replaced by these other Agreements that provided the same services," and I saw that the amounts were in line, then I would -- that would have been evidence. But he never did.

Q. The evidence is actually in your own analysis. If you look at your presentation, the page that I referred you to, Page 17, you show the declining amounts of the related-Party transactions, don't you?

A. Yes.

Q. And the percentage of net sales that these related-Party transactions took declines as you go from 1998 to 2004?

A. That's incorrect. That's not net sales. That's DRP Operating Income. So there are a lot of items in

[Page 1517]

there. So, no, you can't make that statement.

Q. Well, I was, perhaps, not clear in my question, because when I was doing the comparison, I was comparing the related-Party fees to the net sales. And as we go year by year, it's first 4.5, it goes up a little, but it eventually gets down to 1.4 percent of net sales.

A. Where do you see that?

Q. Well, we can go to the Financial Statements, and just look at the comparison of $7 million to what the overall sales were of the Company.

A. I did that comparison in my Report, and I didn't see any correlation and I put it in my presentation.

Q. Doesn't it make sense to you, Ms. Kunsman, that the declining amounts of related-Party transactions can be accounted for the fact that the Company was getting on its feet, and able to prefer more and more of the services itself; so that it didn't need to be dependent upon --

(Overlapping speakers.)

A. If that was the case, I'm surprised Mr. Callahan didn't mention it in his Report.

Q. Okay. Well, you're just speculating about what you think these fees really are, but you do know that the Company needed to have the services that the Financial Statements say were being provided, don't you?

A. I am not speculating -- and what was the second

[Page 1518]

part of your question?

Q. Well, you are speculating that the services that are specified in the footnotes to the Financial Statements are not actually being provided, aren't you?

A. I'm saying that those services don't appear necessary, based on the evidence that I've seen.

Q. Okay.

A. And I haven't seen any evidence to the contrary from Mr. Callahan when they had -- when he had a chance to provide it.

Q. I don't -- I'm not really following you. I want you to tell us what evidence you have seen that Doe Run Perú did not need any technical, managerial, or professional services. And I'm talking about Human Resources, personnel, legal --

A. Right.

Q. -- insurance, all of the stuff that companies need.

You're telling us, this Company did not need any of those services?

A. They would have needed those services, but I'm not sure that this Contract was necessary to have those services, that DRP must have had them from somewhere else, because when the Contract ended, the Cost didn't increase. There wasn't any correlation with increased Costs in 2005.

[Page 1519]

The Contracts ended, and that's it. Nothing happened.

Q. Have you seen any evidence, Ms. Kunsman, that DRP was unable to pay its taxes until 2009?

A. I know they had several audits from SUNAT, but it's not something that I looked at in detail. It's not -- I wasn't asked to look at the tax -- and tax issues.

Q. Have you seen any evidence that DRP was unable to pay its vendors before 2009?

A. Again, I haven't, but it's not something I analyzed.

Q. Okay. Well, have you seen any evidence that DRP wasn't able to pay any of its obligations before 2009?

A. Well, they were unable to meet the PAMA obligations. They required Extensions. By 2006, they hadn't completed the Projects, and they hadn't -- I'm assuming they didn't meet the emissions standard.

Q. You're aware that DRP spent more on PAMA Projects in 2007 and 2008 than in all of the prior years combined?

A. Yeah, but it's not about the investment amount. It's about completing the Projects that you think are -- well, it's about meeting the emissions, and to meet those emissions, DRP had already said -- I mean, they changed over time, but they said, we need to complete this these Projects, and the big Project was the Sulfur Plant.

So whatever they spent doesn't matter.

[Page 1520]

It's -- you have to complete the Projects and meet the emission standards.

Q. Right. And up until 2009, had you seen any complaint from the MEM that they weren't doing what they were supposed to do?

A. Well, they had to get Extensions; so if they had been doing what they were supposed to do, they wouldn't have asked for Extensions.

Q. Extensions which were granted; right?

A. Yeah.

Q. In the original PAMA, the estimated Cost of the nine Projects, the Mitigation Projects, that were assigned to Metaloroya was about $107 million?

A. That's right.

Q. And are you aware that, as a result of the investigations and consultants that had been hired by DRP, that it was determined that that cost, ultimately, was over three times that amount for -- actually, yeah, we saw from the Financial Statement that I showed you that the Cost, overall, was anticipated to be $481 million.

A. Right. They realized once they started implementing the Sulfuric Acid Plant Project that they said "this is going to cost a lot more than we originally thought." Not just Centromín, but themselves.

Q. By the way, you're not disputing that in 2008

[Page 1521]

there was a Global Financial Crisis, are you?

A. No, I'm not.

Q. I mean, it was real.

A. It was.

Q. And it affected a lot of people, a lot of companies?

A. Absolutely. Yes.

Q. And you didn't say anything about this in your presentation, but you understand that the Contract itself has a specific phrase in the Force Majeure provision for extraordinary economic alterations?

A. I do mention it on one of my Reports, yes.

Q. Okay. And the Global Financial Crisis was an extraordinary economic alteration, wasn't it?

A. It was, yeah.

Q. Okay.

MR. FOGLER: That's all the questions I have. Thank you, Ms. Kunsman.

THE WITNESS: You're welcome.

PRESIDENT SIMMA: Thank you, Mr. Fogler. I give the floor to Mr. Vaca for the redirect.

MR. VACA: Thank you, Mr. President. If we could get -- if I could get five minutes just to gather my thoughts, that would be helpful. Thank you.

PRESIDENT SIMMA: Yes.

[Page 1522]

(Pause.)

PRESIDENT SIMMA: So we can resume.

(Overlapping speakers.)

PRESIDENT SIMMA: -- and the Transcript. And, Mr. Vaca, you have the floor to examine Ms. Kunsman.

MR. VACA: Thank you, Mr. President.

REDIRECT EXAMINATION

BY MR. VACA:

Q. Ms. Kunsman, you were shown one of DRP's Audited Financial Statements.

Do you recall what Mr. Callahan opined about those Audited Financial Statements?

A. That they showed how much DRP had spent at certain points. I mean, he opined a lot.

Q. Well, do you recall if he had any negative opinions about DRP's own Financial Statements?

A. No.

Q. I'm going to pull up -- Kelby, if you could pull up Mr. Callahan's Report. And if you could go to PDF Page 18, and I want you to zoom in, please, on Paragraph 55.

And if you go down to the sixth line, there's a sentence that starts with "like." And does that refresh your recollection as to what some of the thoughts that

[Page 1523]

Mr. Callahan had about DRP's own Financial Statements?

A. Yes, that they were incorrect.

Q. And you mentioned that KPMG is a reputable financial auditing firm. When a company's financial statements are audited by a company like KPMG, does that mean that KPMG has done a forensic accounting analysis of the Company's financials?

A. No.

MR. FOGLER: Excuse me just a minute. I don't think that's what this paragraph says. It's referring to DRRC's Registration Statements, which is an entirely different document than DRP's Financial Statements.

MR. VACA: Mr. President, if I may respond.

PRESIDENT SIMMA: Yes.

MR. VACA: I mean, the sentence says "the notes in the DRP Audited Financial Statements," so we know exactly what Mr. Callahan is talking about -- "had inconsistent disclosures." It's Mr. Callahan's Opinion about DRP's Financial Statements. If I may continue.

PRESIDENT SIMMA: Please continue.

MR. VACA: Thank you.

BY MR. VACA:

Q. Going back to my question, Ms. Kunsman, what's the difference between a financial audit and a financial forensic audit?

[Page 1524]

A. In a financial audit for the Audited Financial Statements, you just take small samples of certain accounts, and you ensure that the Company is following certain procedures that you have on a list of questions that the auditors have, a process. They don't check everything. A forensic project would be more -- you have a very specific scope, and you look much more deeply into whatever your specific scope is.

Q. Thank you.

I want to change topics a bit to discuss the intercompany Agreements. And you were shown a Slide -- or shown a Slide that had a Statement made by Respondents' Counsel in the Opening about Renco profiting from Doe Run Perú.

A. Right.

Q. You were also here for the cross-examination of Mr. Buckley, and if you recall, Mr. Buckley was shown a memo, that was Exhibit R-85, and that memo was from Mr. Buckley to Mr. Zelms who, as you know, is the President and General Manager of Doe Run Resources Corporation.

Do you recall if, in that memo and in testimony, Mr. Buckley insisted that someone in particular received the message about the liquidation crises that Doe Run Perú is facing?

A. Yes. I believe the Head of Renco.

[Page 1525]

Q. And who was that?

A. I don't remember.

Q. Okay. Do you -- Ira Rennert?

A. Yes.

Q. And I want to continue with a few questions about these inter-Party Agreements. I'm going to show you Exhibit R-89.

A. Oh, yeah.

Q. And if we go to Page 4, if you could zoom in, Kelby, to that top portion, please. This is an email from Eric Peitz, a Doe Run Perú employee to Bruce Neil, who I think you were also here and saw was the President and General Manager at the time. And I would like you to read -- well, it's the second Number (3) in the list, because it should be (4), but the second number (3), and what that suggests to you about the effect of the intercompany payments on Doe Run Perú?

A. This is the email that I was referring to in my testimony to -- when I mentioned Eric, it's Eric Peitz.

"To complete the PAMA Projects, we will require a capital infusion of at least 15 million. The sponsors have only invested 2 million in DRP, and DRP has sent some 125 million to the U.S. over a period of six years. Expectations need to be managed."

This just shows me that those intercompany loans

[Page 1526]

were just seen as just payments upstream, transfers upstream. They're not saying -- they're not described as being necessary cost, but as something superfluous, and it had a big impact on the liquidity of the Company.

Q. In continuing with the -- this topic of intercompany Agreements, I want to now show you Exhibit R-76, which I believe you also referenced during your cross-examination.

A. Yeah. This is a deposition; right? Yeah.

Q. Yeah. Would you like to explain to the Tribunal what this is? The deposition of who?

A. This is the deposition of Mr. Buckley.

Q. Okay. And I want to show you the second page of the PDF.

A. Yeah.

Q. And we're going to zoom into this -- to the bottom of Page 33 and the top of Page 34, and I would like you to read the question that starts with "okay."

A. Yeah.

Q. And -- sorry, Kelby, can you -- I want to see the rest -- let's start with "okay." If you could zoom out real quick just so I can see the whole thing. Okay. So let's do "okay." Through here.

A. This is the document that I was referring to when in my testimony I said "the deposition." It's this one.

[Page 1527]

Q. So some of the intercompany Agreements were with Doe Run Mining?

A. Correct.

Q. And I just -- after reviewing this portion of the deposition of Kenneth Buckley, I want to know what this suggests to you about the necessity or importance of that Agreement with Doe Run Mining, the intercompany Agreement between Doe Run Perú, where Doe Run Perú paid millions of dollars to Doe Run Mining.

A. Right. Right. In this exchange, for example -- okay.

"Q. So let me just back up and ask you a few questions about that. So, in other words, you held the position of General Manager with the Company called Doe Run mining; is that correct?"

And then Buckley answers: A. "Yeah, and I don't know why that was because I didn't do anything for Doe Run Mining. I was just General Manager of the Company."

Q. "that already tells me a little bit of this being a shell company."

A. "Doe Run Mining didn't really have any operations that were separate and apart from" --

Q. "Absolutely not. They had no operations."

A. "So if they had no operations, as Mr. Buckley says, I'm not sure what services they could be providing."

[Page 1528]

Q. "All right. And you didn't have a staff that reported to you when you were General Manager of Doe Run Mining?"

A. "No."

So from this exchange, it seems that Doe Run Mining didn't do anything, didn't provide any services. And I pointed it out, and Mr. Callahan didn't dispute it.

Q. Thank you, Ms. Kunsman. I just have one more question, and then I think we can all go home or wherever we want to go. You were asked about the Global Financial Crisis. In your opinion, how did Doe Run Perú set itself up to deal with that crisis compared to other companies in the sector?

A. Doe Run Perú prepared horribly. It came into the financial crisis with already liquidity issues, issues with accessing financing, issues with not implementing the Projects in the PAMA. So it was in a very poor position, and when I was asked if the financial crisis -- I don't recall right now exactly, but if it was a Force Majeure event -- I'm not a lawyer; so I don't know if in relation to the Contract it would be seen as such.

I just want to make that clear, that I'm not interpreting the Contract and saying that the Global Financial Crisis would constitute a Force Majeure event in relation to that Clause. I don't know. You can read

[Page 1529]

my -- of course, the Report on what I say on Force Majeure. Where the point is, that DRP coming into the crisis was coming into it very, very poorly.

Q. Thank you, Ms. Kunsman.

MR. VACA: Members of the Tribunal, we have no further questions.

PRESIDENT SIMMA: Thank you, Mr. Vaca. That gets us to the questions from the Tribunal. No question? Oh, I have a couple of questions.

THE WITNESS: Okay.

QUESTIONS FROM THE TRIBUNAL

PRESIDENT SIMMA: When you look at Number -- at Page 10 of your presentation, there you look at the numbers on the costs or the spendings on modernizations and mitigation. You also -- you mentioned or emphasized that these figures were really going down considerably.

And my question is, do you have an idea why this was the case? I mean, from Germany, I know these figures would always go up, steeply.

THE WITNESS: Right.

PRESIDENT SIMMA: Or as far as one of my hobbies, the U.S. Navy expenses are concerned, up, up, up, they go. And here -- and maybe, I don't know how much you know, I was always a bit fascinated -- I'm fascinated by complex technical items, machines, whatever. They are -- they bore

[Page 1530]

names like Imperial or something; so they are custom, they are probably custom-made. There is nowhere, let's say, like John Deere, with regard to tractors.

That just -- so where does anybody -- maybe somebody -- where is this stuff being built? Was it built in Perú, or was it imported into the country? And then if you could say, maybe, we could draw a conclusion as to costs.

THE WITNESS: Right.

PRESIDENT SIMMA: That something would explain why the Costs of that stuff really went down that much. So that --

THE WITNESS: So my understanding is that, first, it's not completely clear if in the first revision, second revision, and third revision the Modernization Projects are completely included.

So I also understand from Perú and Counsel that, at some point DRP got a Report saying that they didn't need to modernize the circuits in order to build the Sulfuric Acid Plant as they thought they would, but then once they started really looking into the Sulfuric Acid Plant Project, they realized: "Well, no, that's not the case. We actually do need to work on the circuits before we can use and install the Sulfuric Acid Plant."

So it was an issue of getting the wrong advice

[Page 1531]

from the engineer that they hired too.

PRESIDENT SIMMA: Could it be the practice -- I don't know how -- say Centromín in a PAMA, if you look at the figures, that they kind of envision or prescribe in PAMA, these figures are quite specific, like 155.1 million et cetera. That goes precisely in the hundred thousands of dollars. Is there a practice that these figures are always set high; so that in the implementation of a PAMA, these figures would not just be swept away by increases?

THE WITNESS: No, it's actually the opposite. In the PAMA, the eight Projects that they actually completed, the estimate for those was 17 million, but they were actually completed for 67 million. So even for those Projects, the estimate in the original PAMA was quite low.

So it was just an issue of -- I think it was Daniel Fluor -- or I forgot the name of the Consultant, but that said, they would be able to avoid having certain equipment, but at the end once they looked into it more, and they started executing the Sulfuric Acid Plant, they realized, oh, no, we do have to go back to our original assumptions. And that's what you see at the end.

PRESIDENT SIMMA: And on the second part of that question, the -- behind these numbers, like, there are probably installation -- in several cases installation of modern equipment, replacement of equipment. And then my

[Page 1532]

question, custom-made stuff and where? You're probably not aware.

THE WITNESS: I don't know.

PRESIDENT SIMMA: I saw Mr. Weiss kind of making a body movement. I just wonder, could I ask Mr. Pearsall, could -- okay. Could Mr. Weiss just give me an answer on that? It's a technical issue. Just we heard throughout the entire case these machines mentioned with a -- sometimes with a certain pride, huge things. So may I ask?

MR. PEARSALL: We've met Mr. Weiss. I'm confident he will give you an answer, just as you expect.

PRESIDENT SIMMA: Okay, Mr. Weiss, please.

MR. WEISS: I'm sorry, Mr. President. Could you pose the question again?

PRESIDENT SIMMA: Oh. This is the -- these are questions coming from an absolute ignorant outsider, with a strange fascination for technical things, of which he doesn't understand anything.

MR. WEISS: You might get an equally ignorant answer.

(Overlapping speakers.)

PRESIDENT SIMMA: See, we have had photographs of the -- from the bag.

MR. WEISS: Baghouse.

[Page 1533]

PRESIDENT SIMMA: Bags, the bags, et cetera, et cetera. And then the most important thing going into more than 100 million, et cetera. And my question is, where were these things produced? Were they imported into Perú from the U.S. or Europe, or built on the spot? That is my question.

MR. WEISS: Honestly, I don't know the answer to that question. The best I can tell you is I think both Experts would tell you -- I think Mr. Dobbelaere agreed, that, logistically, it being in the Andean Highlands in Perú, made this particularly difficult to source the equipment, source the vendors, source the Contracts, but that's really the best answer I can give you.

PRESIDENT SIMMA: Okay. I'll -- might find the answers somewhere else. No problem.

THE WITNESS: Yeah.

PRESIDENT SIMMA: The other question is --

(Interruption.)

(Pause.)

PRESIDENT SIMMA: Thank you. So, my question would be as follows: This is a question which relates to what is called the circular transactions or intercompany transactions or payments, which in a way was fascinating, at least to me.

And my question is, is this kind of, like, this

[Page 1534]

complex? It's a transaction, et cetera, back and forth, et cetera, is this is something that you encounter often under similar circumstances? And how would you -- is it something that is just to be admired or is it something that would make you suspicious, or is it just something that these people are -- that they do that, that the man on the street would simply don't understand it? And that's why we never get rich.

THE WITNESS: No. They are not typical in project finance. I found them very atypical, and, no, it is not something to be admired, no.

PRESIDENT SIMMA: Thank you very much. Thank you very much. This brings to an end your witness examination, Ms. Kunsman. Thank you very much for coming.

THE WITNESS: You're welcome.

PRESIDENT SIMMA: You are released.

(Witness steps down.)

PRESIDENT SIMMA: Okay. So the question is now, it is 12:11. Are we going to -- what are the plans for -- let me ask Parties.

MR. PEARSALL: Well, the Parties have conferred, and we are in agreement, I believe, that we will start our Closings tomorrow at 10:00 a.m., if that's still agreeable.

MR. FOGLER: Tomorrow, yes. I would lobby to start a little bit earlier, if we could, say 9:30, because

[Page 1535]

I think we can probably finish most, if not all, in the morning.

MR. PEARSALL: 9:30 is fine by us.

PRESIDENT SIMMA: So what do you want me to do? As far as I'm concerned, the later the better, but that is a personal weakness. Since we never know how things develop, let's let it be 9:30.

MR. PEARSALL: Yes. Since Mr. Schiffer and Mr. Fogler are probably going first, they want 9:30, we'll be here at 9:30, well-caffeinated.

PRESIDENT SIMMA: Okay.

MR. PEARSALL: And the only other point, Mr. President, on kind of housekeeping that I had was just I wonder if we, since we have a little bit of time, we can't have some additional clarity on the timing of when the Tribunal wants answers to our -- to their written questions, which we haven't seen yet. Recognizing Mr. Schiffer's trial schedule, we thought it would be helpful now to have just a conversation on when you would expect those, and then there are some questions that follow, based on what you might answer.

PRESIDENT SIMMA: Could I ask Martin, Mr. Doe. Oh, you have -- let me hear you.

MR. SCHIFFER: Right. I'd like to see the questions first before I commit to a schedule, right,

[Page 1536]

because if there is one question, that is one thing, if there are 20 questions, that is quite another. We will also need time to get the Final Transcript because we have been doing is getting roughs, and then, you know, the Finals are trickling out. I mean, it is superfast, they are great, but we still need that.

And I just need to get through this trial because I'm number two on the docket, which means we will get reached next week. So it will take two weeks for me to finish that.

So I would say, let's have this table -- table this discussion until we hear the questions, and then Mr. Pearsall and we can confer, if we reach agreement on a deadline that is acceptable to the Tribunal, great. If we don't reach agreement, then we are in your hands.

(Tribunal conferring.)

PRESIDENT SIMMA: So I think that's all we need to know for the moment; right?

MR. PEARSALL: Sure. We can wait to see the Tribunal's questions and then come up with a deadline. I think that makes good sense.

Just one point on the Transcripts. It hasn't been my understanding in previous cases that we can't rely on unredacted -- on unedited transcripts for Post-Hearing Briefs. I would assume we could do the same here. But we

[Page 1537]

can table that issue. I just wanted to put a marker down that unedited transcripts generally are fine for purposes of Post-Hearing Briefs.

The last question I have is, will the Tribunal be giving us questions that it wants us to address in Closing other than the questions that it has posed throughout the last two weeks, or are we just free to present you with what we think is the most important highlights of this very informative two weeks?

PRESIDENT SIMMA: These are probably all the questions of interest to you; right? So I think with --

MR. SCHIFFER: Yes. I don't usually ask for trouble, but since we are -- I mean, that was a joke.

Of course, if the Tribunal wants to give us questions now, we will address them in our Oral Closing. I thought we were going to get them in written form at the end.

PRESIDENT SIMMA: No. You are not going to get a list of questions later to be taken up tomorrow in the concluding observations. I think what we plan is to elaborate a list of questions that would kind of direct and structure and point to certain things where we need observations to be answered in the Post-Hearing Briefs, which the Tribunal really wants and needs. Okay.

MR. PEARSALL: That sounds great. And based on

[Page 1538]

the questions and things, we will probably have comments on lengths and timing.

PRESIDENT SIMMA: Yeah. I thought that to do that tomorrow at the end, at the very end.

MR. PEARSALL: Perfect.

PRESIDENT SIMMA: But I think there is -- we could do it now since we have -- we have some final time, or do you think great things will happen?

No, I think, probably we should give it a thought among ourselves. We haven't done so. Everybody has his or her -- his own view.

MR. PEARSALL: Yeah. We don't have jury trials next week, but we do have people scattering across the world, so we want to make sure we are all ready to go.

And then the last question for me -- and then I will release everyone. Just on timing, Martin, do we have 2.5 hours tomorrow?

SECRETARY DOE: Everybody has the maximum, 2.5 hours for their Closing tomorrow.

MR. PEARSALL: Perfect. Thank you very much.

PRESIDENT SIMMA: Okay. That is enough, precisely enough, with regard to timing. Okay. So I wish you a good lunch and good preparation, and see you tomorrow at 9:30.

MR. SCHIFFER: Thank you.

[Page 1539]

MR. PEARSALL: Thank you.

(Whereupon, at 12:19 p.m., the Hearing was adjourned until 9:30 a.m. the following day.)

[Page 1540]

POST-HEARING REVISIONS

CERTIFICATE OF REPORTER

I, Dawn K. Larson, RDR-CRR, Court Reporter, do hereby attest that the foregoing English-speaking proceedings, after agreed-upon revisions submitted by the Parties, were revised and re-submitted to the Parties per their instructions.

I further certify that I am neither counsel for, related to, nor employed by any of the Parties to this action in this proceeding, nor financially or otherwise interested in the outcome of this litigation.

Signature

Dawn K. Larson

Transcript Prepared by Larson Reporting, Inc. +1 720-298-2480