Second Witness Statement of Gordon Lloyd Ellis

This HTML version is machine-generated. Always consult the original document.

ARBITRATION UNDER THE RULES OF THE
INTERNATIONAL CENTRE FOR SETTLEMENT OF
INVESTMENT DISPUTES

ICSID CASE NO. ARB/20/46

LUPAKA GOLD CORP.	Claimant
VS.
REPUBLIC OF PERU	Respondent

SECOND WITNESS STATEMENT OF
GORDON LLOYD ELLIS

23 September 2022

[Page 2]

1 INTRODUCTION

1 I, Gordon Lloyd Ellis, provide a second witness statement in the arbitration
between Lupaka Gold Corp. (“Lupaka") against the Republic of Peru
(“Peru”). My testimony is centred on specific parts of Peru's Counter-
Memorial.

2 Unless stated otherwise, I adopt for the purposes of this second witness
statement the definitions set out in my first statement.

2 THE EXPERIENCE OF LUPAKA'S MANAGEMENT
AND BOARD OF DIRECTORS IN DEVELOPING AND
OPERATING MINES IN PERU AND GLOBALLY

3 My attention has been drawn to Peru's allegation that Lupaka “lacked any
experience in bringing any Peruvian mining project to the exploitation
phase”¹ and that we were not able “to adequately manage [our] resources”
and get mining projects “off the ground" to the exploitation phase.² This
description is misleading and inaccurate.

4 As I described in my first witness statement, I have devoted much of my
career to working in the mining industry and have been involved in a
number of mining projects. Generally, over my 50-year career, I have
worked for and held senior management positions in numerous mining and
development companies, some of which I headed or co-founded. In
particular, as mentioned in my first witness statement, I have had specific
experience in the development of mines for advanced exploration projects
reaching the mining phase.

5 For instance, early in my career, I was involved in the construction of the
Endako and Granduc mines in British Columbia, Canada. Subsequent to
that, I was a co-founder and directly involved in the development of the

¹ Counter-Memorial, 24/03/2022, p. 60 (para. 124). ↩
² Counter-Memorial, 24/03/2022, p. 56 et seq. (paras. 118-119). ↩

[Page 4]

Sonora open-pit gold mine in California, United States.³ Outside of the
mining industry, but with profits earned from the mining industry, I co-
founded and led the expansion of two non-mining enterprises to become
leaders in their respective sectors. Each was ultimately purchased by
multibillion-dollar industry giants.

6 As Lupaka's co-founder and one of its largest shareholders, one of my
primary responsibilities has been to recruit a management team and a board
of directors with a vast array of experience across all stages of mining. As
detailed below, Lupaka's executive officers and board directors all had a
strong track record of bringing exploration projects into production and
operating mines in Peru and in other mining jurisdictions. For example:

Darryl Jones, Lupaka's other co-founder and CFO, played a key
role in developing the Mirador exploration project in Ecuador as
CFO of Corriente Resources. Corriente Resources sold that project
for almost USD 700 million to the large Chinese mining
conglomerate, China Railway Construction Corporation Ltd. This
project was Ecuador's first open-pit mine and is currently
Ecuador's largest operating mine.⁴
Will Ansley, Lupaka's former CEO, was Vice President at Lake
Shore Gold Corp. during its successful transition into production
of three gold mines and three nickel-copper-platinum mines in
Timmins and Sudbury, Ontario, Canada, respectively.⁵
Dan Kivari, Lupaka's former director of operations, has extensive
experience managing copper and gold mines across South
America. Mr Kivari was COO of Carpathian Gold Inc. during its
development of the Riacho dos Machados gold project in Brazil
and Rovina porphyry copper-gold project in Romania. Mr Kivari

³ Witness Statement of Gordon Ellis, 01/10/2021, p. 4 et seq. (paras. 7, 10). ↩
⁴ See Darryl Jones Net Worth, Wallmine, 01/07/2022, at Exhibit C-256; EcuaCorriente SA ↩
starts to ramp up Mirador copper mine in Ecuador as XCMG ships large scale mining
equipment, International Mining, 03/11/2021, at Exhibit C-257; MDO website, "Mirador
Mine: Overview" (accessed 16/09/2022), at Exhibit C-258; "Lupaka Gold: Invicta should
provide the company with cash flow", Caesars Report, 24/07/2014, at Exhibit C-259, p. 8.
⁵ See "Lupaka Gold Appoints William Ansley as Chief Executive Officer", Junior Mining ↩
Network, 25/09/2017, at Exhibit C-260; Will Ansley CV, at Exhibit C-261.

[Page 5]

had also previously supervised the successful transition to
exploitation of the 350,000-ounces-per-year Meadowbank gold
project and the Chapada gold-copper mine in Brazil (a 50,000-
tonne-per-day operation) while working at Agnico Eagle Ltd. and
Yamana Gold Inc., respectively. Mr Kivari also managed the
underground mining operations of three producing mines in Brazil
and Honduras.⁶

Julio Castañeda, Lupaka's former country manager in Peru,
worked as a Senior District Geologist for Barrick Gold
Corporation at the Las Lagunas Norte gold mine. Over his career,
Mr Castañeda coordinated exploration activities that discovered
gold deposits with combined resources of several million ounces.⁷
Luis Felipe Bravo, Lupaka's country manager in Peru as of 1
February 2019, acted previously as a General Manager of Century
Mining Peru SAC, which brought into production and runs an
underground gold mine in San Juan de Arequipa in Peru at 750 t/d,
producing approximately 25,000 ounces of gold per year.⁸
Norman Keevil Jr. (III), a member of Lupaka's Board of Directors
since 2010,⁹ has been directly involved with the mining industry
from a very early age. He is currently vice-chair of Teck Resources
Limited ("Teck”), one of the world's larger mining conglomerates,
and has been a member of its board since 1997.
Luquman Shaheen, who has served on Lupaka's Board of
Directors since 2013, is the CEO of Panoro Minerals Ltd., a

⁶ See "Lupaka Gold Appoints Dan Kivari as Director of Operations", Bloomberg, 20/02/2018, ↩
at Exhibit C-262; "Carpathian Gold Strengthens Management Team", Bloomberg, 28/01/2008,
at Exhibit C-263.
⁷ See "Lupaka Gold: Invicta should provide the company with cash flow", Caesars Report, ↩
24/07/2014, at Exhibit C-259, p. 8.
⁸ Lupaka News Release, "Lupaka Provides Update on Illegal Demonstration at Invicta, ↩
Announces Non-Brokered Private Placement, and Management Changes", 28/01/2019, at
Exhibit C-264, p. 2; CAM, NI 43-101 Technical Report, San Juan Property Arequipa
Department, Peru, 19/03/2007, at Exhibit C-265, p. 14 (Hard copy p. 17).
⁹ Lupaka News Release, "Lupaka Gold Reports Voting Results for Election of Directors", ↩
16/05/2013, at Exhibit C-266, p. 1.

[Page 6]

Canadian copper exploration company with a portfolio of
exploration projects in Southern Peru.¹⁰

Lucio Pareja, another of Lupaka's Directors, is the former CEO of
Minsur S.A., which operates the San Rafael mine in the Puno
region of Peru. Mr Pareja was directly involved as CEO and
operations manager in the development and exploitation of
numerous successful mines in Peru. As an example, the San Rafael
mine is South America's largest tin-producing mine and the
world's third largest.¹¹ There are not many people in Peru with a
greater level of local mining experience than Mr Pareja. He
currently acts as a consultant in the mining industry.
Our director, Mario Stifano, is a former Vice President and CFO at
Lake Shore Gold Corp Inc., where he successfully secured funding
of over USD 500,000,000 and finalised the development of two
gold mines in Canada, which are currently producing over 180,000
ounces of gold annually and have since been acquired by Tahoe
Resources Inc.¹²

3 THE SALE OF CRUCERO AND THE PRIORITY
ACCORDED TO INVICTA

7 Peru also alleges that Lupaka "failed to adequately manage its resources"
in relation to the Crucero project.¹³ In particular, Peru criticises our
decision to sell the Crucero project in the autumn of 2017.¹⁴ Such criticism
demonstrates Peru's failure to understand the business of junior
exploration companies and the context in which Lupaka decided to sell its
interest in Crucero as I explain below. In essence, the sale of Crucero

¹⁰ See Panoro News Release, “Panoro Minerals Commences Pre-Feasibility Drilling Program ↩
at Cotabambas Project, Peru", 19/04/2022, at Exhibit C-267.
¹¹ See "Peru's Minsur looking for financing for Brazil buy", Reuters, 29/09/2008, at Exhibit ↩
C-268; Wikipedia, "San Rafael Mine" (accessed on 16/09/2022), at Exhibit C-269.
¹² See Lupaka News Release, “Lupaka Announces Changes to Board of Directors and ↩
Management Team", 23/05/2018, at Exhibit C-270; Crunchbase website, "Mario Stifano
Profile Overview" (accessed on 16/09/2022), at Exhibit C-271.
¹³ Counter-Memorial, 24/03/2022, p. 56 et seq. (para. 118). ↩
¹⁴ Counter-Memorial, 24/03/2022, p. 58 (para. 120). ↩

[Page 7]

resulted from the lesser prospects that it offered relative to the Invicta
Project.

8 Most junior mining companies typically own a portfolio of exploration
assets which they can progress and develop in parallel. Based on
exploration results and prevailing economic conditions, junior companies
can decide over time to focus their efforts on the more promising assets
and divest from other projects with less potential to create shareholder
value in the near term. As I explained to our shareholders at the time, this
was precisely the rationale behind our decision to sell the Crucero project
in the autumn of 2017.¹⁵

9 During Lupaka's ownership of Crucero, we expanded the indicated and
inferred resource base from approximately 1,200,000 gold ounces in
February 2011¹⁶ to 2,100,000 ounces of gold in a pit-constrained resource
in November 2013.¹⁷ As we moved closer to the completion of the initial
exploration phase, we undertook additional metallurgical studies.
Although earlier studies had indicated that the mineralization was
amenable to basic processing techniques, new metallurgical analyses
carried out in 2013 revealed that a high percentage of the deposit consisted
of "refractory" gold-bearing ores. This meant that the gold particles were
encapsulated inside sulphide or arsenic minerals.¹⁸ In order to obtain a
satisfactory recovery of these encapsulated gold particles, it was necessary
to add an expensive step of very fine grinding before proceeding further
with standard refining processes. In October 2013, we commissioned a
conceptual study from SRK to determine the fundamental economics of
what would now need to be a refractory project, including the feasibility

¹⁵ Lupaka News Release, "Lupaka Gold Agrees to Sell its Crucero Gold Project to Goldmining ↩
Inc.", 19/09/2017, at Exhibit C-272, p. 1.
¹⁶ Wardrop, NI 43-101 Technical report on the Crucero Project, 28/02/2011, at Exhibit C-273, ↩
p. 2.
¹⁷ SRK's Amended and Restated NI 43-101 Technical Report, Crucero Property, Peru, ↩
22/10/2013, at Exhibit C-274, p. 53 (Table 14.4).
¹⁸ Lupaka News Release, "Metallurgical Results for Crucero Gold Project's A-1 Zone", ↩
02/07/2013, at Exhibit C-275, p. 2.

[Page 8]

of mining a portion of the defined Crucero mineralization.¹⁹
Unfortunately, the difficulties related to the low grade and high costs of
processing the Crucero mineralization rendered it not economic to mine
under the prevailing metal prices.

10 For the Invicta Project, we commissioned two conceptual studies from
SRK to look into possible production scenarios in 2014.²⁰ These
conceptual studies showed that the Invicta Project had much stronger
prospects of economic extraction, could generate greater value for our
shareholders in the near term and had exceptional growth potential as
defined by the previous exploration. There had been a significant amount
of exploration to date. Indeed, the Invicta property exploration by that time
had uncovered at least three major mineralized zones of which Lupaka's
initial development plan had only focused on one of these.²¹ It was clear
therefore that the potential for further development was high. Andean
American Gold's pre-feasibility study had defined a program mining over
4,000 tonnes per day on the basis of the mineralization from the three
zones.²² All things considered, at the then current and forecast metal
prices, the Invicta Project had greater growth potential, much stronger
economic characteristics and a considerably higher likelihood of financial
success.

11 As a result of SRK's technical and economic analysis of the two projects,
we decided in 2014 to suspend active exploration at the Crucero project²³

¹⁹ Lupaka News Release, "Lupaka Announces Pit-Constrained Resource Estimate for the ↩
Crucero Gold Project", 28/10/2013, at Exhibit C-276; SRK's Amended and Restated NI 43-
101 Technical Report, Crucero Property, Peru, 22/10/2013, at Exhibit C-274, p. 51 et seq.
(Section 14.10); SRK, Lupaka Crucero Conceptual Pit Design for Resource Modelling,
23/10/2013, at Exhibit C-277.
²⁰ SRK, Conceptual Study Invicta Project: Preliminary Results (1,000 tpd), 22/01/2014, at ↩
Exhibit C-67; SRK, Conceptual Study Invicta Project: 300 tpd Option, 03/02/2014, at Exhibit
C-37.
²¹ 2012 SRK Report, at Exhibit C-58, p. iii. ↩
²² Lokhorst Group, Invicta Mine Feasibility Study for AAG, June 2009, at Exhibit C-57, p. 15 ↩
(Section 1.8).
²³ Management's Discussion and Analysis, Lupaka Gold Corp., 20/04/2016, at Exhibit R-0034, ↩
p. 13 et seq.

[Page 9]

and prioritise the development of the Invicta Project.²⁴ In the years that
followed, we developed the Invicta Project through financing
arrangements with Pandion. The proceeds from the sale of the Crucero
Project in 2017 served to unlock further financing from Pandion, as I will
explain.

12 By early 2015, PLH, Lupaka's mining contractor, had completed
rehabilitation works to the existing underground infrastructure,²⁵ which
had allowed Lupaka to carry out two run-of-mine bulk tests of 342 tonnes²⁶
and 532 tonnes,²⁷ respectively by early 2016. This was significant because
most exploration projects cannot carry out such large sampling exercises
directly from the orebody because they lack the underground infrastructure
to access such large quantities of ore. For the first bulk test, we used the
San Juan Evangelista plant with the supervision of our processing
consultant, CERTIMIN,²⁸ while we relied on the plant owned by Minex in
Nazca for the second bulk test.²⁹ The concentrates produced reported
excellent recoveries.³⁰

13 On the back of the positive results, in June 2016, Lupaka secured a
commitment from Pandion to contribute USD 7 million in three

²⁴ Lupaka News Release, "Lupaka Gold to Begin Permitting and Commence Small-Scale ↩
Production at the Invicta Gold Project by Q1-2015", 17/03/2014, at Exhibit C-68.
²⁵ Lupaka News Release, "Lupaka Gold begins underground mining at Invicta for initial toll ↩
mill test campaign", 19/05/2015, at Exhibit C-77, p. 1.
²⁶ Lupaka News Release, “Lupaka Gold Completes First Run-of-Mine Bulk Processing Test", ↩
27/10/2015, at Exhibit C-72, p. 1.
²⁷ Lupaka News Release, "Lupaka Gold Completes Closing of Private Placement Financing ↩
and Reports Second Run-of-Mine Bulk Processing Test Results", 22/02/2016, at Exhibit C-
278, p. 1.
²⁸ Lupaka News Release, "Lupaka Gold Completes First Run-of-Mine Bulk Processing Test", ↩
27/10/2015, at Exhibit C-72, p. 2.
²⁹ Lupaka News Release, "Lupaka Gold Completes Closing of Private Placement Financing ↩
and Reports Second Run-of-Mine Bulk Processing Test Results", 22/02/2016, at Exhibit C-
278, p. 1 et seq.
³⁰ Lupaka News Release, “Lupaka Gold Completes First Run-of-Mine Bulk Processing Test”, ↩
27/10/2015, at Exhibit C-72, p. 2; Lupaka News Release, "Lupaka Gold Completes Closing of
Private Placement Financing and Reports Second Run-of-Mine Bulk Processing Test Results",
22/02/2016, at Exhibit C-278, p. 1.

[Page 10]

instalments under the PPF Agreement to fund the development and initial
production phases of the Invicta Project.³¹

14 By September 2017 (when we sold Crucero), Lupaka had already unlocked
the first USD 2.5 million instalment of Pandion's financing³² and was a
few weeks away from receiving the second USD 2 million instalment
which would be received upon registration by the Peruvian authorities of
the community agreement entered into with the Lacsanga Community and
filed in July 2017.³³

15 At that stage, we had also already satisfied all but one of the conditions
precedent to unlock the third and final instalment of USD 2.5 million. The
only outstanding condition to receive this third instalment was that we
contribute an additional USD 2 million of capital to the Invicta Project
independently of Pandion.³⁴

16 It was clear that selling the Crucero project was the best way to meet this
final condition and realise value for our shareholders in the short term.³⁵

17 The total consideration received for the sale of the Crucero project in
September 2017 was USD 750,000 in cash and 3.5 million GoldMining
shares.³⁶ After initial resale restrictions on the GoldMining shares had
been lifted, we were then able to sell 3.1 million GoldMining shares in
February 2018 for USD 3 million. These proceeds in turn allowed us to
contribute to the Project the capital required to satisfy the outstanding

³¹ PPF Agreement, 30/06/2016, at Exhibit C-44. ↩
³² Lupaka Gold Corp., "Lupaka Gold Receives First Tranche Under Amended Invicta ↩
Financing Agreement", 09/08/2017, at Exhibit R-0050.
³³ Lupaka News Release, "Lupaka Gold Receives US$2 Million from Second Tranche of the ↩
Pre-Paid Forward Gold Purchase Agreement", 08/11/2017, at Exhibit C-279.
³⁴ Lupaka News Release, "Lupaka Gold Receives US$2 Million from Second Tranche of the ↩
Pre-Paid Forward Gold Purchase Agreement", 08/11/2017, at Exhibit C-279, p. 1.
³⁵ Lupaka News Release, "Lupaka Gold Agrees to Sell its Crucero Gold Project to Goldmining ↩
Inc.", 19/09/2017, at Exhibit C-272, p. 1.
³⁶ Lupaka News Release, “Lupaka Gold Agrees to Sell its Crucero Gold Project to Goldmining ↩
Inc.", 19/09/2017, at Exhibit C-272; Lupaka News Release, "Lupaka Gold Receives $5.7
Million in Cash and Securities from Sale of Non-Core Asset to GoldMining", 21/11/2017, at
Exhibit C-280, p. 1.

[Page 11]

condition precedent for the release of the third USD 2.5 million instalment
by Pandion.³⁷

18 As a result, the Invicta Project was well funded to allow for the completion
of its development and to bring it into production within a few months.³⁸
It also allowed us to potentially access a second round of funding estimated
between USD 6 million and USD 12 million under substantially similar
terms to acquire our own processing plant and further optimise our
operating cashflows.³⁹

19 Contrary to Peru's allegations, the decision to sell the Crucero project
cannot be viewed as a “fail[ure] to adequately manage its resources”⁴⁰ but
rather a key strategic decision that allowed us to advance the Invicta
Project.

4 PANDION'S PARTNERSHIP WITH LUPAKA

20 Peru makes several incorrect statements in its Counter-Memorial about the
nature of the funding agreement between Pandion and Lupaka:

The financing structure agreed with Pandion, including the pledge
over IMC's shares, was “risky and potentially inadequate";⁴¹
The timeline set out under the PPF Agreement with Pandion forced
Lupaka to rush its negotiations with the local communities;⁴²
In the absence of the Blockade, Lupaka would have failed to meet
its delivery obligations and defaulted under the PPF Agreement;⁴³

³⁷ Lupaka News Release, "Lupaka Gold Completes Financing for Development of the Invicta ↩
Gold Project", 13/02/2018, at Exhibit C-281.
³⁸ Lupaka News Release, "Lupaka Gold Completes Financing for Development of the Invicta ↩
Gold Project", 13/02/2018, at Exhibit C-281, p. 1.
³⁹ Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 16 et seq. ↩
(Section 1 "Second Tranche Prepayment").
⁴⁰ Counter-Memorial, 24/03/2022, p. 56 et seq. (para. 118). ↩
⁴¹ Counter-Memorial, 24/03/2022, p. 171 et seq. (Section II. F. 3); p. 353 et seq. (Section V. B. ↩
1. c.).
⁴² Counter-Memorial, 24/03/2022, p. 78 et seq. (Section II. C. 4). ↩
⁴³ Counter-Memorial, 24/03/2022, p. 146 et seq. (para. 290). ↩

[Page 12]

Apart from the failure to deliver gold, the other defaults relied on
by PLI Huaura (after it was taken over by Lonely Mountain) in its
Notice of Default were unconnected to the Blockade;⁴⁴
"[Lupaka] retained an option to pay an Early Termination Amount,
at any point up to and after default, to avoid PLI Huaura's
foreclosure on [its] shares in Invicta.”⁴⁵

21 I address each of these points below.

22 Peru also makes the general suggestion that, in the absence of the
Blockade, Pandion would have seized on the first opportunity to call in the
loan and possibly foreclose on IMC shares.⁴⁶

23 As I also explain further below, Pandion's “philosophy” in the words of its
founder, Joe Archibald, was to "take a solution-oriented and partnership
approach to build long term relationships with mining companies.”⁴⁷ This
meant in practice, that Pandion always demonstrated a willingness to adapt
the PPF Agreement to the realities of the Project and actively collaborated
with Lupaka to develop the Project towards production. Contrary to Peru's
suggestion, Pandion marketed itself as “provid[ing] flexible financing
solutions to developing mining companies”⁴⁸ and had no interest in being
perceived by the junior mining sector as hard to deal with.

24 In short, it was in Pandion's interest to be flexible so as to maximise its
return through gold purchases – not to sell its loan at a steep haircut to
Lonely Mountain, which it was ultimately forced to do.

⁴⁴ Counter-Memorial, 24/03/2022, p. 174 et seq. (paras. 344-345). ↩
⁴⁵ Counter-Memorial, 24/03/2022, p. 337 et seq. (para. 718). ↩
⁴⁶ Counter-Memorial, 24/03/2022, p. 189 (para. 380) ("[PLI Huaura's] foreclosure was not ↩
caused by any actions of Peru, but rather was a consequence of Claimant's own conduct and its
dispute with the Parán Community"); p. 357 et seq. (para. 762) ("PLI Huaura evidently had
grounds unrelated to the [Blockade] to foreclose on the Invicta shares") (emphasis in the
original).
⁴⁷ Lupaka News Release, "Lupaka Gold Executes Definitive Agreement to Finance Invicta ↩
Mine Development and Mining Operations", 30/06/2016, at Exhibit C-282, p. 1.
⁴⁸ Lupaka News Release, "Lupaka Gold Executes Definitive Agreement to Finance Invicta ↩
Mine Development and Mining Operations", 30/06/2016, at Exhibit C-282, p. 3.

[Page 13]

4.1 The financing structure agreed upon with Pandion was
commensurate with the Project's capital requirements and in
line with standard practice in the junior mining industry

25 I disagree with Peru's assertion that the financing structure agreed with
Pandion was “risky and potentially inadequate”.⁴⁹ Peru states that under
the previous ownership, AAG “had underestimated the capital
expenditures that would be required to bring the mine to its exploitation
stage".⁵⁰ Peru further refers to the Joint Disclosure Booklet published by
Lupaka and AAG, before the acquisition of the latter by the former, which
states that “there [is] no assurance that the Combined Company will be
able to obtain financing required to execute its business plan."⁵¹ On that
basis, Peru concludes that the “Claimant [...] knew and accepted that the
Invicta Project would pose a significant financial risk.”⁵²

26 However, Peru's presentation is misleading because the Joint Disclosure
Booklet refers to AAG's original “business plan" to build a processing
plant on site and produce at a rate of 5,100 t/d.⁵³ After AAG's acquisition,
Lupaka significantly downsized the project and developed a reduced mine
plan at 355 t/d in September 2014 with much lower capital expenditure
requirements.⁵⁴ Shortly after developing this mine plan, Lupaka secured a
USD 7 million financing commitment from Pandion in June 2016.⁵⁵ As
shown by the progress subsequently made to advance the Invicta Project
towards production until October 2018, the capital provided by Pandion
was adequate and in line with our revised capital expenditure requirements.

27 Peru also argues that Lupaka “plac[ed] its investment at risk” by pledging
it as collateral to secure the performance of its obligations under the PPF

⁴⁹ Counter-Memorial, 24/03/2022, p. 171 et seq. (Section II. F. 3); p. 353 et seq. (Section V. B. ↩
1. c.).
⁵⁰ Counter-Memorial, 24/03/2022, p. 78 (para. 158). See also, Counter-Memorial, 24/03/2022, ↩
p. 69 et seq. (para. 141).
⁵¹ Counter-Memorial, 24/03/2022, p. 171 (para. 336) (emphasis omitted). ↩
⁵² Counter-Memorial, 24/03/2022, p. 171 (para. 337). ↩
⁵³ 2012 SRK Report, at Exhibit C-58, p. ii. ↩
⁵⁴ Asesores y Consultores Mineros S.A., Project Mining Plan for IMC, 2014 (SPA), at Exhibit ↩
C-41.
⁵⁵ PPF Agreement, 30/06/2016, at Exhibit C-44. ↩

[Page 14]

Agreement.⁵⁶ This statement shows a lack of understanding of project
finance and junior mining. It is standard practice for junior mining
companies to set up a special purpose vehicle, such as IMC, to hold a given
mining project and use its assets to secure the necessary funding for the
project's exploration and development activities.

4.2 Pandion amended the original PPF Agreement to give Lupaka
more time to pursue its negotiations with the local communities

28 In its Counter-Memorial, Peru alleges that Lupaka “secured project
financing that left virtually zero margin for any errors or setbacks (whether
likely or unexpected)" and that it imposed a schedule that "force[d]
[Lupaka] to rush various components of the mine development, and that
threatened to compromise – and indeed, ultimately destroyed – Invicta's
still-tenuous relationships with the Parán Community.”⁵⁷ This is
misleading for several reasons as explained below.

29 First, Lupaka did not rush its negotiations with the local communities as
Peru implies. Ever since we took over the Invicta Project in October 2012
and thus, long before our partnership with Pandion, we actively engaged
with the Parán Community. For instance, in 2013, we rolled out several
development programmes to support the construction of a medical centre
and school classrooms and provide food and medicine supplies to the Parán
Community.⁵⁸

30 Contrary to Peru's suggestion, our relationship with Pandion did not
prevent us from further pursuing these outreach efforts. In fact, in
September 2016, shortly after we entered into the PPF Agreement with
Pandion, we intensified these efforts with the hiring of a specialist team
from SSS, a community relations consultant – with Pandion's full
support.⁵⁹ In total, at the time of the Blockade, we had been engaging with
the Parán Community for close to six years.

⁵⁶ Counter-Memorial, 24/03/2022, p. 353 et seq. (para. 755). ↩
⁵⁷ Counter-Memorial, 24/03/2022, p. 78 (para. 158). ↩
⁵⁸ Lupaka Gold Corp., 2013 Annual Report, at Exhibit AC-49, p. 38. ↩
⁵⁹ Internal Lupaka email chain, 30/11/2016 to 01/12/2016, at Exhibit C-283, p. 2. ↩

[Page 15]

31 Second, as an experienced investment fund focussed on the mining sector,
Pandion was conscious of the time needed to negotiate and conclude such
community agreements. For example, while the PPF Agreement, as signed
on 30 June 2016, originally granted Lupaka until 30 December 2016 to
enter into an agreement with a neighbouring community to improve and
use its community roads to transport ore from the Project to the State's
highway,⁶⁰ Pandion subsequently extended the timeline to 31 December
2017.⁶¹ Lupaka eventually concluded such an agreement with the
Lacsanga Community on 19 July 2017.⁶² Unfortunately, even though we
continued to engage with the Parán Community after the conclusion of the
agreement with the Lacsanga Community, we were not able to reach a
similar agreement with the Parán Community. Peru's suggestion that this
could be attributed to Pandion is just wrong.

4.3 Pandion and Lupaka agreed to defer Lupaka's gold repayment
obligations until at least September 2019 under the Draft
Amendment and Waiver No. 3 to the PPF Agreement

32 Peru argues that there was not enough ore processing capacity available to
Lupaka near the Project to allow it to start making gold repayments in
December 2018 in accordance with the PPF Agreement's unamended
schedule.⁶³ For the reasons explained below, this issue would not have
arisen in practice because, as part of a third full amendment and
restatement of the PPF Agreement, Pandion and Lupaka had already
agreed in early October 2018 to defer the gold repayments by 9 months to
allow time to fully set up the Mallay plant.⁶⁴

33 However, for the sake of completeness, I also explain in Section 6 below
that, even under the unamended schedule, there were many processing

⁶⁰ PPF Agreement, 30/06/2016, at Exhibit C-44, p. 22 et seq. (Section 3(1)(e)(xi) and Section ↩
3(2) "Purchase Offer Termination Date").
⁶¹ First Amended and Restated PPF Agreement, 16/03/2017, at Exhibit C-284, p. 20 et seq. ↩
(Section 3(1)(e)(x) and Section 3(2) "Purchase Offer Termination Date").
⁶² Public Deed for the 2017 Lacsanga Agreement (SPA), 19/07/2017, at Exhibit C-89. ↩
⁶³ Counter-Memorial, 24/03/2022, p. 81 et seq. (para. 165); p. 146 et seq. (paras. 290-291); p. ↩
173 (para. 341).
⁶⁴ Draft Amendment and Waiver No. 3 to the Second Amended and Restated PPF Agreement ↩
(Final version), 05/10/2018, at Exhibit C-285.

[Page 16]

options available to Lupaka and therefore, we would have been able to
process enough ore to deliver the agreed quantities of gold in December
2018, if required to do so.

34 As I have already noted in Section 3 above, from the start of our
partnership with Pandion we had anticipated that Lupaka may require a
second round of financing, estimated between USD 6 million and USD 12
million for the acquisition of Lupaka's own processing plant.⁶⁵ Pandion
was supportive of Lupaka buying our own processing plant because it
would reduce the overall risk profile of the Project, reduce operating costs
and thus increase cashflows.⁶⁶ We had been in contact for several years
with Buenaventura, a Peruvian mining company, and we contemplated
buying their processing plant at Mallay, provided they offered reasonable
terms. Buenaventura approached us in early 2018 to re-open the
negotiations on the acquisition of their processing plant, together with their
adjoining mine at Mallay. When we informed Pandion of Buenaventura's
intention to resume our negotiations to acquire their Mallay mining unit,
Pandion continued to support such an acquisition. Indeed, it was willing
to provide up to USD 13 million to finance this acquisition, which was
beyond the upper limit of USD 12 million that had initially been
envisaged.⁶⁷ To us, this was a sign of Pandion's strong confidence in our
Project arising from the ongoing due diligence and scrutiny to which
Pandion had subjected our Project.

⁶⁵ See the unchanged definition of "Second Tranche Prepayment" and Pandion's right of first ↩
refusal to provide the Second Tranche Prepayment under Section 7(1)(c) of the PPF Agreement,
30/06/2016, at Exhibit C-44, p. 18 et seq., First Amended and Restated PPF Agreement,
16/03/2017, at Exhibit C-284, p. 16 et seq. and Second Amended and Restated PPF Agreement,
02/08/2017, at Exhibit C-45, p. 16 et seq.
⁶⁶ Lupaka News Release, "Lupaka Gold Executes Definitive Agreement to Finance Invicta ↩
Mine Development and Mining Operations", 30/06/2016, at Exhibit C-282, p. 1 ("Joseph
Archibald, Founding Partner of Pandion, commented, 'We are delighted to be working with the
Lupaka team in providing the financing for their Invicta Gold Project and look forward to
providing the funding for their planned acquisition or construction of a processing plant as
well [...]'.") (emphasis added).
⁶⁷ See the unchanged definition of "Second Tranche Prepayment" and Pandion's right of first ↩
refusal to provide the Second Tranche Prepayment under Section 7(1)(c) of the PPF Agreement,
30/06/2016, at Exhibit C-44, p. 18 et seq., First Amended and Restated PPF Agreement,
16/03/2017, at Exhibit C-284,p. 16 et seq., and Second Amended and Restated PPF Agreement,
02/08/2017, at Exhibit C-45, p. 16 et seq.

[Page 17]

35 Together with Pandion, we spent the first half of 2018 conducting due
diligence and negotiating the terms of the sale and purchase agreement
with Buenaventura while preparing the necessary amendment to the PPF
Agreement to provide for the required funding. By early October 2018,
Buenaventura, Pandion and Lupaka had agreed to final versions of the sale
and purchase agreement for the Mallay plant (“Mallay Purchase
Agreement") and the new amendment to the PPF Agreement (“Draft
Amendment and Waiver No. 3 to the PPF Agreement"). Pandion,
Buenaventura and Lupaka had further agreed that they would sign the two
agreements on 15 October 2018 and that Lupaka would issue a press
release the next day.⁶⁸

36 As set out in the Draft Amendment and Waiver No. 3 to the PPF
Agreement, the parties anticipated that, after the signing of the Mallay
Purchase Agreement, there would be a “closing" of the Mallay Purchase
Agreement upon which Pandion would unlock the full USD 13 million
tranche and grant Lupaka a further nine-month grace period on its delivery
obligations as from such time.⁶⁹ One of the conditions precedent of the
"closing" was that Buenaventura obtain the formal approval of the Mallay
Community to transfer its surface rights agreement and related agreements
to Lupaka (“Mallay's Consent”).⁷⁰ Buenaventura had anticipated that
Mallay's Consent would be obtained shortly before the closing of the
Mallay transaction in November 2018. One can see this from Schedule P-
2 of the Draft Amendment and Waiver No. 3 to the PPF Agreement dated
5 October 2019 which reflects that the Mallay Consent would have been
obtained (together with other conditions precedent) by November 2018 in
order to allow for the drawdown of the USD 12.5 million instalment.⁷¹

37 However, on 5 October 2018, a few days before the agreed signing date,
Buenaventura informed Mr Ansley that their community relations team

⁶⁸ Email chain between Buenaventura, Pandion and Lupaka, 24/09/2018-09/10/2018, ↩
09/10/2018, at Exhibit C-286, p. 2.
⁶⁹ Draft Amendment and Waiver No. 3 to the Second Amended and Restated PPF Agreement ↩
(Final version), 05/10/2018, at Exhibit C-285, p. 45 (Schedule P-2).
⁷⁰ Draft Mallay Purchase Agreement between Buenaventura and IMC (Final version) (SPA), ↩
05/10/2018, at Exhibit C-287, p. 20 et seq. (Section 11.1.1. b)).
⁷¹ Draft Amendment and Waiver No. 3 to the Second Amended and Restated PPF Agreement ↩
(Final version), 05/10/2018, at Exhibit C-285, p. 45 (Schedule P-2).

[Page 18]

were worried that the issuance of a press release announcing the
acquisition of Mallay could hamper their negotiations regarding Mallay's
Consent.⁷² As a publicly listed company, we could not sign the transaction
with Buenaventura without issuing a press release to inform our
shareholders. As such, we were forced to postpone the signing of the
Mallay Purchase Agreement until Buenaventura had signed and registered
Mallay's Consent.

38 Buenaventura further informed us in early October 2018, that, due to the
renewal of the Governing Committee of the Mallay Community, it would
take Buenaventura an additional two to three months to finalise this
agreement.⁷³ However, a few days later, on 14 October 2018, Parán
invaded the Site for the second time and set up a permanent Blockade on
the road we had just finished building to access our Project through
Lacsanga's territory. Mallay's Consent was eventually signed and
registered on 14 March 2019.⁷⁴ Had the Blockade not been in place at that
time, we would have signed and closed the Mallay Purchase Agreement by
the end of March 2019. Indeed, other than the Blockade, Mallay's Consent
was the only item preventing us from acquiring the Mallay processing
plant.

39 The closing of the Mallay Purchase Agreement at the end of March 2019
would have meant that our gold repayment obligation schedule would have
been moved back to start in January 2020 (i.e., nine months later).

40 It is true that the delay in obtaining Mallay's Consent pushed back the date
of "closing" under the Mallay Purchase Agreement – which entitled
Lupaka to the additional grace period – until after the first delivery dates
under the unamended schedule (i.e., after December 2018). However, in
light of Pandion's pragmatic attitude throughout the Project, I do not
believe that Pandion would have realistically insisted on a few monthly
deliveries until Lupaka closed the Mallay transaction and the new schedule

⁷² Email chain between Buenaventura, Pandion and Lupaka, 24/09/2018-09/10/2018, ↩
09/10/2018, at Exhibit C-286, p. 1.
⁷³ Email chain between Ausenco and Lupaka, 15/10/2018, at Exhibit C-288. ↩
⁷⁴ Notarized Addendum to the Easement Contract between Buenaventura and the Mallay ↩
Community (SPA), 14/03/2019, at Exhibit C-289.

[Page 19]

came into force. Pandion would have agreed to suspend our delivery
obligations during these four months (December 2018-March 2019) until
we closed the Mallay transaction.

41 As I alluded to above, Pandion had been willing to modify the terms and
timeline for its financing to accommodate the reality of the Project's
progress, even for much longer periods. Pandion additionally had a
significant financial interest in seeing the Project come to fruition and no
reason to create unnecessary difficulties as Lupaka progressed the Project
to production.

42 As I mentioned above, for example, at the end of 2016, Lupaka was still
negotiating an access agreement with local communities and Pandion
agreed to grant Lupaka a one-year extension to satisfy this key condition
under the PPF Agreement.⁷⁵ This gave us comfort that Pandion would be
willing to work with us.

43 Similarly, Pandion was willing to adjust its expectations and timeline under
the PPF Agreement to the actual progress of Lupaka's development works
and regulatory processes gearing up to production. For instance, at the
time of the signing of the Second Amended and Restated PPF Agreement
on 2 August 2017, the parties expected that Lupaka would be able to start
production in 2017 and forecast an initial production of 5,800 tonnes in
2017, going up to 119,867 tonnes in 2018.⁷⁶ While Pandion could have
insisted on the terms of the PPF Agreement and required Lupaka not to
deviate from the Initial Annual Production Forecast, Pandion instead
agreed in early 2018 to amend the Initial Annual Production Forecast to
reflect the additional time required to get the Invicta Project into
production, without changing the terms of its financing.⁷⁷ At that time, it
also appeared that some of the assumptions made under the PPF

⁷⁵ See PPF Agreement, 30/06/2016, at Exhibit C-44, p. 22 et seq. (Section 3(1)(e)(xi) and ↩
Section 3(2) setting the "Purchase Offer Termination Date" to 30 December 2016); First
Amended and Restated PPF Agreement, 16/03/2017, at Exhibit C-284, p. 21 (Section 3(2)
setting the "Purchase Offer Termination Date" to 31 December 2017).
⁷⁶ See Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 80 ↩
(Schedule B Initial Annual Production Forecast).
⁷⁷ Amendment No. 2 to the Second Amended and Restated PPF Agreement, 06/02/2018, at ↩
Exhibit C-46.

[Page 20]

Agreement's Initial Expense Budget were no longer aligned with the
reality of the Project. Again, while Pandion could have technically argued
that Lupaka was not in strict compliance with its obligations under the PPF
Agreement, Pandion instead agreed to increase Lupaka's overall
expenditure allowance over the life of the mine while also deferring some
of the expenditure projected for 2017-2018 to later production years.⁷⁸

44 Pandion had shown the same flexibility for the pay-out of the
Barrick/Franco Nevada royalties and the release of the underlying liens
which was also a key term of the PPF Agreement. By way of background
to these royalties, IMC had originally acquired five of its mining
concessions from Minera ABX Explorations S.A., a subsidiary of Barrick
Gold Corporation, in December 2008 in exchange for a USD 800,000 NSR
royalty,⁷⁹ the payment of which was secured against a mortgage on the
same mining concessions.⁸⁰ In June 2014, Barrick then assigned this
royalty to Franco Nevada.⁸¹ To obtain the full release of the funds under
the PPF Agreement, Lupaka had to register a first priority lien over the
mining concessions in favour of PLI Huaura, which meant removing
Franco Nevada's existing lien.⁸² By the end of 2016, Lupaka was still
negotiating an early release from its obligations with Franco Nevada.
Pandion nevertheless agreed to grant Lupaka a one-year extension to
finalise the necessary agreements and to amend the conditions precedent
so that Lupaka could unlock part of the funds provided by Pandion even

⁷⁸ Amendment No. 2 to the Second Amended and Restated PPF Agreement, 06/02/2018, at ↩
Exhibit C-46, p. 15 et seq.
⁷⁹ Lupaka, Annual Information Form for the year ended 31 December 2014, 26/03/2015, at ↩
Exhibit C-290, p. 21.
⁸⁰ Lupaka Gold Corp., "Lupaka Gold Receives First Tranche Under Amended Invicta ↩
Financing Agreement", 09/08/2017, at Exhibit R-0050.
⁸¹ Lupaka, Annual Information Form for the year ended 31 December 2014, 26/03/2015, at ↩
Exhibit C-290, p. 21.
⁸² PPF Agreement, 30/06/2016, at Exhibit C-44, p. 20 (Section 3(1)(a) making the ↩
Barrick/Franco Nevada Consent and Release of Liens a condition precedent to the Initial
Effective Date) and p. 22 et seq. (Section 3(1)(b) whereby the registration of a first priority lien
is a condition precedent to the Supplemental Effective Date).

[Page 21]

before obtaining a complete release from Barrick/Franco Nevada's
royalties and liens over its mining concessions.⁸³

45 Pandion's practical attitude is further evidenced by the approach it took to
the obligation to have and maintain mineral offtake agreements under the
PPF Agreement.⁸⁴ During the development of the Project in 2016 and
2018, Lupaka had been producing concentrates from bulk testing and
development ore⁸⁵ and then selling them to various offtakers. Since it
agreed to finance the Project in 2016, Pandion had been actively reviewing
the terms offered by various offtakers to Lupaka.⁸⁶ Even though the PPF
Agreement technically required Lupaka to have and maintain a long-term
mineral offtake agreement,⁸⁷ Pandion had instead chosen to continue its
due diligence with Lupaka and we entered into two successive
amendments to the PPF Agreement to defer the date on which this
obligation would become effective.⁸⁸ The latest amendment required that
such mineral offtake agreement be entered into on 30 April 2018.
However, this date was later waived by Pandion as Pandion and Lupaka
were continuing to cooperate in the negotiations with various offtake
bidders.⁸⁹ Overall, as of 14 October 2018 when the Blockade came into
effect, Pandion had deferred that obligation by more than a year (and
almost two years when Pandion transferred its interest under the PPF
Agreement to Lonely Mountain).

⁸³ PPF Agreement, 30/06/2016, at Exhibit C-44, p. 20 (Section 3(1)(a) making the ↩
Barrick/Franco Nevada Consent and Release of Liens a condition precedent to the Initial
Effective Date); First Amended and Restated PPF Agreement, 16/03/2017, at Exhibit C-284,
p. 20 (Section 3(1)(b) making the Franco Nevada Consent and Release Mortgage a condition
precedent to the Supplemental Effective Date).
⁸⁴ PPF Agreement, 30/06/2016, at Exhibit C-44, p. 45 et seq. (Section 12(1)(r)). ↩
⁸⁵ 2018 PEA, 13/04/2018, at Exhibit C-34, p. 76 et seq. (Section 12). ↩
⁸⁶ See e.g., Email from Lupaka to Pandion, 09/05/2016, at Exhibit C-291. ↩
⁸⁷ PPF Agreement, 30/06/2016, at Exhibit C-44, p. 45 et seq. (Section 12(1)(r)). ↩
⁸⁸ Amendment No. 1 to the Second Amended and Restated PPF (Signed), 07/11/2017, at ↩
Exhibit C-292, p. 1 (Section 1.(b) amending Section 12(1)(r) of the Second Amended and
Restated PPF Agreement); Amendment No. 2 to the Second Amended and Restated PPF
Agreement, 06/02/2018, at Exhibit C-46, p. 1 et seq. (Section 1.(a) further amending Section
12(1)(r) of the Second Amended and Restated PPF Agreement).
⁸⁹ Lupaka, MD&A for the period ended 30 June 2018 and 30 June 2017, at Exhibit C-293, p. ↩
29.

[Page 22]

46 In each of the instances I have referred to, Pandion agreed to adapt to the
reality of the Project and the time constraints inherent to commercial
negotiations with royalty holders, local communities and offtakers alike –
without changing the terms of financing. I have no reason to believe that
it would have been any different for a delay of less than four months to
conclude the Mallay Community Agreement and close the Mallay plant
acquisition.

47 It should be noted that, as a result of Parán's illegal Blockade, Lupaka was
not able to make any gold repayments for seven months as required under
the PPF Agreement's unamended delivery schedule. Pandion only chose
to sell its interest to Lonely Mountain in July 2019, by which point it no
longer had any hope that the Peruvian authorities would resolve the
situation.

48 I note that Pandion's patience was consistent with the terms of the PPF
Agreement according to which, in the event of force majeure preventing
Lupaka from making its deliveries, the parties were first required to use
their good faith efforts to reschedule the delivery obligations before taking
any steps towards the early termination of the PPF Agreement.⁹⁰ As I
explained above, Pandion also had a vested interest in seeing the Project
through to production and to continue to cultivate its reputation amongst
the junior mining sector as a pragmatic and conciliatory lender. In light of
this, in the absence of the Blockade, Pandion would have suspended our
gold repayment obligations until Mallay's Consent was obtained in March
2019.

4.4 Peru's references to other possible defaults under the financing
agreements

49 Peru also argues that a failure to deliver gold was not the only possible
default under the financing agreement and that PLI Huaura referred to
other breaches in its Notice of Acceleration dated 2 July 2019, namely:

⁹⁰ Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 56 ↩
(Section 12(1)(b)).

[Page 23]

"Claimant's failure to comply with the terms of its loan documents,
its insolvency, the occurrence of an event that would cause a
'Material Adverse Effect,' its deviation from the 'Initial Expense
Budget,' and its diversion from the ‘Initial Production Forecast”’.⁹¹

50 Peru alleges that “each relate to failures by Claimant that Claimant has not
even alleged to have been proximately caused by the [Blockade], much
less by Peru's actions.”⁹² I have several comments on this Notice of
Acceleration and Peru's reliance on it.

51 First, the alleged events of default referred to by Peru as unrelated to the
Blockade and set out in the Notice of Acceleration had never been raised
while Pandion owned PLI Huaura. We had kept Pandion and PLI Huaura
fully apprised of the situation which prevented us from complying with our
obligations and shared all relevant information with Pandion.⁹³

52 Second, Lonely Mountain had bought out Pandion's interest under the PPF
Agreement to exploit Invicta themselves and were therefore shooting in all
directions with the Notice of Acceleration, which they delivered the day
after they acquired PLI Huaura, i.e., on 2 July 2019. Yet, I disagree with
Peru's assertion that there were events of default alleged by Lonely
Mountain in its Notice of Acceleration that were unrelated to the illegal
Blockade maintained by the Parán Community. Based on my review, out
of fourteen specified events of defaults listed in Schedule I of Lonely
Mountain's Notice of Acceleration, there are only six entries which are not
directly related to the Blockade – five of which are reporting requirements
with which Lupaka materially complied at all times (see Events No. 3, 4,
5, 6 and 7 in the table below). The final entry was expressly waived by
Pandion (see Event No. 8).

53 I summarise my observations on each of these fourteen alleged “events of
default" in the table below.

⁹¹ Counter-Memorial, 24/03/2022, p. 175 (para. 345). ↩
⁹² Counter-Memorial, 24/03/2022, p. 175 (para. 345). ↩
⁹³ Letter from Davis Wright Tremaine LLP to PLI Huaura, 19/08/2019, at Exhibit C-294, p. 2. ↩

[Page 24]

Table 1

No.	Lonely Mountain's Notice of Acceleration, Schedule I "Specified Defaults”⁹⁴	My observations
1.	(a) pursuant to Section 13(1)(a) of the PPF Agreement, the Seller's failure to Deliver or cause to be Delivered any amount of Gold as and when required by the PPF Agreement and the Seller's admission of such default in its press release re: Lupaka Provides Update on Illegal Demonstration at Invicta, Announces Non-Brokered Private Placement, and Management Changes, dated as of January 28, 2019;	Directly related to Parán's illegal Blockade.
	(b) pursuant to Section 13(1)(f) of the PPF Agreement, the Obligors' failure to comply with terms, covenants or agreements in the PPF Agreement or any other Transaction Document to which it is a party, and such failure remaining unremedied for thirty (30) days, with respect to:	Directly related to Parán's illegal Blockade.
2.	(i) the Seller's failure to timely Deliver, or cause to be Delivered, the Scheduled Monthly Quantity of Gold for each Monthly Delivery Date, pursuant to Section 5 of the PPF Agreement;
3.	(ii) the Seller's failure to timely deliver monthly management reports, pursuant to Section 12(1)(a)(vi) of the PPF Agreement;	Lupaka provided all the relevant information to Pandion and/or Pandion waived this reporting requirement. Indeed, PLI Huaura under Pandion's control never notified a breach in relation to this.
4.	(iii) the Seller's failure to timely deliver Capital Expenditure Reports, pursuant to Section 12(1)(a)(viii) of the PPF Agreement;	Lupaka provided all the relevant information to Pandion and/or Pandion waived this reporting requirement. Indeed, PLI Huaura under Pandion's control never notified a breach in relation to this.
5.	(iv) the Seller's failure to timely deliver Monthly Reports, pursuant to Section 12(1)(a)(ix) of the PPF Agreement;	Lupaka provided all the relevant information to Pandion and/or Pandion waived this reporting requirement. Indeed, PLI Huaura under Pandion's

⁹⁴ PLI, Notice of Acceleration under PPF Agreement, 02/07/2019, at Exhibit C-54, p. 4 et seq. ↩

[Page 25]

		control never notified a breach in relation to this.
6.	(v) the Seller's failure to timely deliver notice of any anticipated failure to Deliver as required on such Monthly Delivery Date, pursuant to Section 12(1)(c)(i) of the PPF Agreement;	This reporting requirement relates to Lupaka's inability to deliver gold as a result of Parán's illegal Blockade. Lupaka provided all the relevant information to Pandion and/or Pandion waived this reporting requirement. Indeed, PLI Huaura under Pandion's control never notified a breach in relation to this.
7.	(vi) the Seller's failure to timely deliver statements of the chief financial officer of the Seller setting forth the details of Seller Default or Events of Default, pursuant to Section 12(1)(c)(ii) of the PPF Agreement;	This reporting requirement relates to Lupaka's inability to deliver gold as a result of Parán's illegal Blockade. Lupaka provided all the relevant information to Pandion and/or Pandion waived this reporting requirement. Indeed, PLI Huaura under Pandion's control never notified a breach in relation to this.
8.	(vii) the Seller's failure to timely maintain a fully executed and enforceable Mineral Sales Contract/Refining Agreement containing terms substantially similar to those set forth in Schedule E of the PPF Agreement, pursuant to Section 12(1)(r) of the PPF Agreement;	Pandion had waived this requirement.⁹⁵
9.	(viii) the Seller's failure to perform and cause all other Obligors to perform, all of its and their obligations under all Material Agreements in all material respects, pursuant to Section 12(1)(w) of the PPF Agreement; and	Directly related to Lupaka's inability to deliver gold as a result of Parán's illegal Blockade.
10.	(ix) the Seller's failure to timely cure funding deficits, pursuant to Section 12(1)(aa) of the PPF Agreement;	Directly related to Lupaka's inability to deliver gold as a result of Parán's illegal Blockade.
11.	(c) pursuant to Section 13(1)(m) of the PPF Agreement, the insolvency and general inability of the Seller to pay its debts as they become due;	Directly related to Lupaka's inability to deliver gold as a result of Parán's illegal Blockade.

⁹⁵ Lupaka, MD&A for the period ended 30 June 2018 and 30 June 2017, at Exhibit C-293, p. ↩
29.

[Page 26]

12.	(d) pursuant to Section 13(1)(n) of the PPF Agreement, the occurrence, in the opinion of the Buyer, of an event or development that would reasonably be expected to have a Material Adverse Effect;	Directly related to Lupaka's inability to deliver gold as a result of Parán's illegal Blockade.
13.	(e) pursuant to Section 13(1)(s)(i) of the PPF Agreement, the deviation by the Obligors from the Initial Expense Budget, where such deviation has had, in the sole and absolute discretion of the Buyer, a Material Adverse Effect; and	Directly related to Lupaka's inability to deliver gold as a result of Parán's illegal Blockade.
14.	(f) pursuant to Section 13(1)(s)(ii) of the PPF Agreement, the changes by the Obligors from the Initial Production Forecast and updated Annual Production Forecasts, where such deviation has had, in the sole and absolute discretion of the Buyer, a Material Adverse Effect.	Directly related to Lupaka's inability to deliver gold as a result of Parán's illegal Blockade.

54 Lupaka would have obviously been in a different situation financially if its
Invicta Project had not been held to ransom by Parán officials. There is no
reason why it would not have been successful absent Parán's violence and
Peru's inaction. If we had needed more cash, we could have raised it from
the market given the prospects (absent the Blockade). Yet, as we were
unable to produce, it was only natural that we were failing to cover our
expenses, had effectively become insolvent, and were not meeting our
production forecasts.

4.5 Discussions with Lonely Mountain in July/August 2019

55 Counsel for Lupaka has drawn my attention to the following statement by
Peru in its Counter-Memorial:

"Claimant could have paid the Early Termination Amount rather
than submit to a foreclosure proceeding. Claimant entered into
discussions with Lonely Mountain, related to potential payment of
the Early Termination Amount, but did not reach an agreement.
Because Claimant did not pay the Early Termination Amount,

[Page 27]

PLI Huaura was contractually entitled to foreclose on Claimant's
shares in Invicta and did so.”⁹⁶

56 This statement has matters the wrong way around. As I explain below,
Lonely Mountain, through PLI Huaura, was contractually entitled to
foreclose on Lupaka's shares in IMC, irrespective of whether Lupaka was
willing or able to pay the Early Termination Amount.

57 Under the terms of the PPF Agreement, PLI Huaura was entitled to
immediately terminate the agreement following the occurrence of an Event
of Default.⁹⁷ Further to the termination, Section 14(4) of the PPF
Agreement expressly gave discretion to Lonely Mountain to either demand
that Lupaka make the payment of the Early Termination Amount or recover
the amount by foreclosing on the shares pledged as collateral under the
PPF Agreement.⁹⁸

58 As explained in my first witness statement⁹⁹ and as cited by Peru in its
Counter-Memorial,¹⁰⁰ we did try to negotiate with Lonely Mountain and
convince them to grant us time to pay the Early Termination Amount.
However, as it transpired, they intended to exploit Invicta. For that purpose
Lonely Mountain had hired Luis Goyzueta, an experienced Peruvian miner
and Chairman of Vicuñita Metals and Stellar Mining.¹⁰¹ Mr Goyzueta had
been trying to acquire the Invicta Project for many years and, through
several due diligence exercises, he had acquired extensive knowledge
about the Invicta Project.¹⁰² On that basis, Mr Goyzueta believed that he
was the best person to run the Invicta Project¹⁰³ and Lonely Mountain
believed him.

⁹⁶ Counter-Memorial, 24/03/2022, p. 175 (para. 346) (emphasis added). ↩
⁹⁷ Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 56 (Section ↩
14(1)).
⁹⁸ Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 56 (Section ↩
14(4)).
⁹⁹ Witness Statement of Gordon Ellis, 01/10/2021, p. 16 (para. 56). ↩
¹⁰⁰ Counter-Memorial, 24/03/2022, p. 175 (para. 346); p. 333 et seq. (para. 710). ↩
¹⁰¹ Email from Lupaka to Stellar Mining, 29/05/2020, at Exhibit C-295 ↩
¹⁰² Email from Panoro to Lupaka, 08/01/2019, at Exhibit C-296. ↩
¹⁰³ Email from Panoro to Lupaka, 08/01/2019, at Exhibit C-296. ↩

[Page 28]

59 In sum, there was nothing we could do to prevent Lonely Mountain from
exercising its right under the PPF Agreement to foreclose on IMC's shares
because Luis Goyzueta had convinced Lonely Mountain that under his
management IMC would be able to resolve the conflict with the Parán
Community and go into production in a matter of months. History has now
shown how wrong he was.

5 GRADES OF DEVELOPMENT ORE PROCESSED IN
THE SUMMER OF 2018

60 In their report, AlixPartners, Peru's quantum experts, appear to question
the gold grade of 4.85g/t set out in SRK's PEA dated March 2018 on which
Accuracy relied in their first report dated 1 October 2021. Indeed,
AlixPartners state that “the 4.85g/t gold grade assumed [in SRK's PEA
cannot be reconciled] with the actual gold grade achieved as of October
2018 of 2.25g/t".¹⁰⁴ This criticism is misplaced because the gold grades
set out in SRK's PEA are based on samples representative of the entire
deposit to be mined which is not the case for the ore extracted as of October
2018 to which AlixPartners refers, as I will explain below.

61 SRK's PEA is based on extensive exploration work, including hundreds of
drill hole samples, carried out across the entire Invicta mineralisation over
the past thirty years.¹⁰⁵ All the geological data is compiled in a database
commonly known as the “block model” which provides an accurate
modelling of the underground resources. Moreover, since the Invicta
Project already had a large underground infrastructure in place at the time
of our acquisition of the Project, we could confirm the results obtained
through drilling by collecting channel samples directly from underground
– which enhances further the confidence of the block model and is not

¹⁰⁴ Expert Report of AlixPartners on Damages, 24/03/2022, p. 50 et seq. (para. 143 b) and ↩
Figure 19).
¹⁰⁵ 2012 SRK Report, at Exhibit C-58, p. iii. ↩

[Page 29]

available for most exploration projects.¹⁰⁶ I have included below a visual
depiction of part of the block model for the Invicta Project:¹⁰⁷

[Image of a 3D mine model with colored blocks representing ore grades. Text labels are transcribed below.]

Proposed Production Area

X-cut

Adit

Portal

NSR ($/t)

120.00 -> 130.00
130.00 -> 140.00
140.00 -> 150.00
150.00 -> 160.00
160.00 -> 170.00
170.00 -> 180.00
180.00 -> 10000.00

62 As can be gleaned from the figure above, the colours used for the ore
blocks vary depending on the content of valuable minerals in each part of
the deposit (i.e., the grades for each metal).

63 After a mining company has developed a robust geological understanding
of the deposit, the next step is to develop a mine plan (identifying which
areas of the deposit should be mined) and a mining sequence (setting out
the order in which these areas should be mined).

64 It is important to understand the mining method we adopted in order to
appreciate why the October 2018 sampling was not representative of the
mineralisation included in the mine plan in SRK's PEA of March 2018.

65 In the case of the Invicta Project, the studies carried out by SRK in 2014
had shown that the most economical mining method was the “sub-level
open stoping" method (“SLOS method”).¹⁰⁸ Under this method, the ore
included in the mine plan (i.e., the "production ore") is divided into
"stopes", that is to say large blocks of ore that are extracted progressively
through blasting. It is called sub-level stoping because the ore is blasted

¹⁰⁶ 2012 SRK Report, at Exhibit C-58, p. 83 (Table 12.1.1); 2018 PEA, 13/04/2018, at Exhibit ↩
C-34, p. 46 (Figure 12).
¹⁰⁷ SRK, Conceptual Study Invicta Project: 300 tpd Option, 03/02/2014, at Exhibit C-37, p. 4. ↩
¹⁰⁸ SRK, Conceptual Study Invicta Project: 300 tpd Option, 03/02/2014, at Exhibit C-37, p. ↩
16. "Open" here simply means that there is no need for artificial support for the roof of the
stope once excavated.

[Page 30]

from a sub-level above the stope directly into another sub-level below.
Once the ore from this stope is completely excavated, the stope is
backfilled to access other stopes at higher sub-levels. The diagram below
shows the four steps involved in the “sub-level open stoping" mining
method: (i) excavate sub-levels above and below the stope (“development
drifting"); (ii) drill through the stope to prepare extraction through blasting
("longhole drilling”); (iii) place the charges and blast the stope (“charging
and blasting") and finally (iv) muck out the blasted ore which has fallen to
the lower sub-level (“mucking out").¹⁰⁹

[Image of a diagram illustrating the sub-level open stoping mining method. Text labels are transcribed below.]

Development
drifting

Longhole
drilling

Charging and
blasting

Mucking
out

66 Some of SRK's proposed stopes are shown as large colourful blocks on the
figure below:¹¹⁰

¹⁰⁹ SRK, Conceptual Study Invicta Project: Preliminary Results (1,000 tpd), 22/01/2014, at ↩
Exhibit C-67, p. 10.
¹¹⁰ SRK, Conceptual Study Invicta Project: 300 tpd Option, 03/02/2014, at Exhibit C-37, p. ↩
16.

[Page 31]

[Image of a 3D model of underground mine tunnels and stopes. Text labels are transcribed below.]

Alimak Raise

Ramp

Adit and
X-cut 1 slash

67 To start commercial production and execute a mining sequence based on a
SLOS method, it is therefore necessary to have built at least two sub-levels:
a lower and an upper sub-level delimiting respectively the floor and the
roof of the first stopes to be extracted through blasting. Before the Invicta
Project could go into production, SRK had identified pre-production works
that IMC had to complete at 3400m (the lower level) and 3430m (the upper
level) to prepare for the extraction of the related stopes.¹¹¹

68 AlixPartners' observations on the gold grade relate in effect to these pre-
production development works that IMC carried out in the summer of 2018
on the basis of the mining sequence laid out by SRK in their PEA.

69 The tonnage and grade of the development ore extracted during this pre-
production will frequently be different from the tonnage and grades that
will subsequently be achieved during commercial production. This is
because the grade of the material extracted during the development phase
is not necessarily representative of the grade of the ore that will be mined
from the area specified by the mining plan. For example the mining
software used to develop the mining sequence will typically recommend
building the additional underground infrastructure (additional access
tunnels, sub-levels etc.) through the lower grade areas shown in the block
model. Moreover, during the excavation of the sub-levels and access
tunnels development ore will often get mixed with waste rock – a

¹¹¹ 2018 PEA, 13/04/2018, at Exhibit C-34, p. viii. ↩

[Page 32]

phenomenon that is referred to as “dilution” – which will further reduce
the grades in development ore.

70 As such, and contrary to AlixPartners's suggestions, there was nothing
surprising about the fact that the anticipated gold grade of 4.83g/t for
Year 1 under the PEA (which was based on commercial extraction of
stopes) was higher than the gold grade of 2.25 g/t found in the ore extracted
during the pre-production phase in the summer of 2018.¹¹² This lower
grade simply reflects the fact that Lupaka was not yet extracting the
production ore from the stopes delineated under SRK's mine plan as it
would have done when the Invicta Project would have gone into full
commercial production.

6 THE INVICTA PROJECT WAS READY FOR
PRODUCTION BEFORE DECEMBER 2018

71 Peru alleges in its Counter-Memorial that Lupaka has not shown that "it
realistically would have been able to exploit the Invicta Project and meet
it [sic] obligations, absent Peru's alleged acts and omissions."¹¹³ Peru
further claims that it is “highly implausible”¹¹⁴ that, in the absence of the
Parán Community's violence and Peru's passiveness, we “would have
managed to (i) reach the exploitation stage, (ii) extract sufficient ore for
processing, (iii) process that ore into gold, and (iv) deliver that gold to PLI
Huaura in time to meet the contractual deadline.”¹¹⁵ These allegations are
wrong as I explain below.

72 First, as I explained in the previous section, by early October 2018, IMC
had completed all the necessary pre-production development work and was
ready to start exploitation through the extraction of stopes. The figure
below shows in yellow the tunnels that had been excavated at the 3400m

¹¹² Expert Report of AlixPartners on Damages, 24/03/2022, p. 29 (para. 80 and Figure 12); p. ↩
50 et seq. (para. 143(b) and Figure 19).
¹¹³ Counter-Memorial, 24/03/2022, p. 146 et seq. (para. 290). ↩
¹¹⁴ Counter-Memorial, 24/03/2022, p. 149 et seq. (para. 296). ↩
¹¹⁵ Counter-Memorial, 24/03/2022, p. 146 et seq. (para. 290). ↩

[Page 33]

and 3430m levels and circled in red are the stopes IMC intended to blast
first under its mining sequence:¹¹⁶

[Image of a 2D map of underground mine tunnels. Text labels are transcribed below.]

CX 3460 NE

BY PASS 834 SW

GL 880 NE

NV 3430

TAJO A1

Tajo de Pruebas
P&V

By Pass 882NE

NV 3400

73 The following diagram further shows all the stopes that these two existing
sub-levels would have allowed to extract in Year 1 of production:¹¹⁷

[Image of a 3D model of underground mine tunnels and stopes.]

74 In light of this, it is clear that from an operational perspective, IMC was
ready to start commercially extracting the ore in October 2018.

75 Moreover, as explained by Julio Castañeda in his second witness
statement, all the outstanding permits would have been obtained as matter
of course in the absence of the Blockade.¹¹⁸

¹¹⁶ IMC, Mining Sequence Year 2019 (SPA), at Exhibit C-297, p. 2. This mining sequence ↩
was developed in November 2018 and, as such, is based on the developed underground
infrastructure as of the start of the Blockade. For ease of reference, I have drawn red circles on
this diagram to identify the stopes included in the mine plan.
¹¹⁷ IMC, Mining Sequence Year 2019 (SPA), at Exhibit C-297, p. 13. ↩
¹¹⁸ Second Witness Statement of Julio F. Castañeda, 23/09/2022, p. 37 et seq. (Section 7). ↩

[Page 34]

76 The Respondent refers to the fact that SRK's PEA states "the [Project]
property is located within the boundaries of the Par[á]n, Lacsanga and
Santo Domingo de Apache peasant communities”¹¹⁹ to argue that “that the
Invicta Project was in fact within the Parán Community's territory”.¹²⁰
However, the Respondent misunderstands the meaning of the term
"property" in technical reports such as a PEA. The “property" refers to the
entire area under concessions – which did include the Parán Community's
land and was much broader than the area in which we were developing the
Invicta Mine. Yet, Lupaka was not conducting, and did not intend to
conduct, any mining activities on the Parán Community's land – at least
until an agreement could be reached with this community.

77 Second, Peru states in its Counter-Memorial that "[Lupaka] has
acknowledged that in the end it failed to secure adequate processing
capacity to convert ore into marketable metals”¹²¹ and therefore, it was
“unlikely [that Lupaka could] process ore at the rate necessary to satisfy
the gold repayment obligations in the PPF Agreement.”¹²² Again, these
allegations are inaccurate and misrepresent the situation at the time.

78 Since the beginning of 2018, we had been carrying out due diligence on
Buenaventura's Mallay plant together with Pandion with a view to
acquiring it, as I noted in Section 4.2 above. By late May 2018, we were
already fairly advanced in our negotiations with Buenaventura and
anticipated that we would only need to rely on third-party toll mills until
the summer of 2019 while we would complete the acquisition and upgrade
of the Mallay plant.¹²³ The aim was to conclude a one-year agreement with
a toll mill to process our ore until August 2019 when we anticipated that
the Mallay plant would be up and running.¹²⁴

79 Before entering into such a contract with a toll mining, we needed to carry
out pre-production testing – i.e., try out various processing plants in the

¹¹⁹ 2018 PEA, 13/04/2018, at Exhibit C-34, p. iv. ↩
¹²⁰ Counter-Memorial, 24/03/2022, p. 82 (para. 166). ↩
¹²¹ Counter-Memorial, 24/03/2022, p. 359 (para. 766). ↩
¹²² Counter-Memorial, 24/03/2022, p. 155 et seq. (para. 307). ↩
¹²³ Email chain between Lupaka and Pandion, 29/05/2019-30/05/2018, at Exhibit C-298. ↩
¹²⁴ Email chain between Lupaka and Pandion, 29/05/2019-30/05/2018, at Exhibit C-298. ↩

[Page 35]

region by delivering small batches of ore to decide on the best processing
option before starting full commercial production. This is what we did in
the summer of 2018 until mid-October 2018 when the Parán Community
set up the Blockade.

80 The issues that we faced in dealing with the toll mills during pre-
production testing were easy to remedy and would not have continued with
a longer-term contract in place for full production. I have read Mr
Castañeda's statement and confirm that it is aligned with my recollection
of the performance of Huancapeti, Coriland and San Juan Evangelista
plants during pre-production testing.¹²⁵

81 Peru notes that Lupaka needed to “insulate itself against contractual
breaches perpetrated by those mills with which it had pre-existing
contracts" and it implies that Lupaka could only do so by having its own
processing plant.¹²⁶ This is incorrect. While in an ideal world we would
be acquiring our plant (in this case Mallay), a long-term contract with any
of the processing plants where we took a large part of their capacity would
have made the processing much more secure. Indeed, the lack of
cooperation from the toll mills we faced was specific to pre-production
testing and we would have been able to work much more collaboratively
once we had committed to supplying larger quantities of our ore to one of
these toll mills. Indeed, a toll mill can only process ore from one client at
a time with downtimes for cleaning up and set-up in between, which makes
it less profitable to process small shipments of ore. For this reason, toll
mills tend to favour and prioritise larger shipments from regular suppliers
with producing mines rather than small batches sent for pre-production
testing. I will refer to a couple of examples to show this.

82 At the time SRK issued its PEA report in March 2018, we had anticipated
that we would be using the DHP plant in Caraz (also referred to as “Virgen
del Rosario").¹²⁷ We had been negotiating a contract with the owner of this
plant to process 4,000 tonnes of ore to measure the performance of their

¹²⁵ Second Witness Statement of Julio F. Castañeda, 23/09/2022, p. 41 et seq. (paras. 100-111). ↩
¹²⁶ Counter-Memorial, 24/03/2022, p. 155 et seq. (para. 308). ↩
¹²⁷ 2018 PEA, 13/04/2018, at Exhibit C-34, p. 137. ↩

[Page 36]

plant.¹²⁸ However, by the time we were ready to start sending small
batches of ore to DHP to test their plant in June 2018, the owner of the
plant informed us that it had already given all its excess processing
capacity to Stellar Mining to process their ore from the Toropunto mine.¹²⁹
DHP had in effect made a business decision to enter into a long-term
exclusivity supply contract with Stellar Mining over testing our Invicta ore
at their plant without any guarantee that they would be awarded a long-
term contract.

83 In addition, Stellar Mining's founder and CEO, Luis Goyzueta (which I
referred to above), told me in November 2018 about the results that Stellar
Mining obtained from processing their production ore.¹³⁰ As Mr Goyzueta
explained, Stellar Mining did face some teething issues when they started
processing at DHP but after reviewing the plant's set-up, the performance
they achieved was very good and the recoveries were even better than those
they obtained during their pre-production metallurgical tests.¹³¹ What he
said illustrates the benefits of having the processing plant process one's
own ore for longer, uninterrupted periods where your metallurgists can
work with the plant to make all the adjustments necessary to improve the
plant's recoveries and maximise its yield. Indeed, this is entirely normal
and would apply to other plants in my experience.

84 During the summer of 2018, we decided instead to test the performance of
the Coriland plant in Caral since the DHP plant was fully occupied by
Stellar Mining. Mr Javier Yep, the owner of this plant, expressed an
interest in developing a long-term relationship with Lupaka by way of a
joint venture or some other form of co-ownership agreement for his plant.
He was also interested in buying our concentrates.¹³² As I explained above,
at the time, we first wanted to ensure that the performance of the plant was
adequate for our needs and therefore, we were only willing to start with a

¹²⁸ Internal Lupaka email chain, 29/04/2018-30/04/2018, at Exhibit C-299. ↩
¹²⁹ Email exchange between Lupaka and Stellar Mining, 16/06/2019, at Exhibit C-300. ↩
¹³⁰ Discussion with Stellar Mining, Comments on Denwood Holdings Perú Metals S.A.C, ↩
November 2018, at Exhibit C-301.
¹³¹ Discussion with Stellar Mining, Comments on Denwood Holdings Perú Metals S.A.C, ↩
November 2018, at Exhibit C-301.
¹³² Internal Lupaka email chain, 29/04/2018-30/04/2018, at Exhibit C-299. ↩

[Page 37]

small batch of approximately 1,500 tonnes in June 2018.¹³³ In total, we
sent 4,987 tonnes in two shipments, with another shipment of 3056 tonnes
in August 2018.¹³⁴ Unfortunately, although the recoveries improved along
the way, we would have needed to make an additional investment to
upgrade Coriland from 200 t/d to 350 t/d and, therefore, decided that it was
less costly and more efficient to go with Huancapeti, another processing
option that we had also been testing at the time, which already had a
processing capacity of 350 t/d.¹³⁵

85 We had agreed to send larger shipments to Huancapeti to allow it to process
between up to 7,000 tonnes in September and then 10,000 tonnes on an
uninterrupted basis each month between October 2018 and May 2019.¹³⁶
In September 2018, we had already shipped a total of 2,140 tonnes of ore
to Huancapeti¹³⁷ – which they were going to process at a rate of
approximately 355 t/d over the course of 5-6 days.¹³⁸ Huancapeti were
ready to start processing this ore a few weeks later but we needed to ship
another batch to ensure that there was a continuous supply of ore for
processing.¹³⁹ Accordingly, we had organised for the shipment of another
batch of 6,500 tonnes for the week commencing 15 October 2018.¹⁴⁰
Unfortunately, as a result of the seizure of the Site and the Blockade that
started on Sunday 14 October 2018, we were not able to ship any more ore

¹³³ Internal Lupaka email chain, 29/04/2018-30/04/2018, at Exhibit C-299. ↩
¹³⁴ We sent a first batch of 1,931 tonnes in June 2018, see IMC, Monthly Report, June 2018, ↩
at Exhibit C-234, p. 7. In August 2018, we sent a second, larger batch of 3056 tonnes. We
later decided to reship 923 tonnes from Coriland to Huancapeti in September 2018. see Lupaka,
Project Monthly Report, September 2018, at Exhibit C-86, p. 7 et seq..
¹³⁵ Lupaka, Project Monthly Report, September 2018, at Exhibit C-86, p. 8. ↩
¹³⁶ Service Contract for processing mineral at Huancapeti II (SPA), 01/08/2018, at Exhibit C- ↩
146, p. 1 (para. 2.1): “INVICTA hires the services of VENARD in order to continuously
process up to 7,000 WMT of polymetallic ore in September and 10,000 WMT monthly
from October 2018 until May 2019 to obtain concentrates of: a) lead-silver-gold b) zinc and
c) copper-silver-gold."
¹³⁷ Lupaka, Project Monthly Report, September 2018, at Exhibit C-86, p. 8. ↩
¹³⁸ IMC Management Call Notes, 09/10/2018, at Exhibit C-302, p. 2. ↩
¹³⁹ IMC Management Call Notes, 09/10/2018, at Exhibit C-302, p. 2. ↩
¹⁴⁰ IMC Management Call Notes, 09/10/2018, at Exhibit C-302, p. 2. ↩

[Page 38]

to Huancapeti.¹⁴¹ If we had been able to there is no reason why it would
not have been processed at the rate of some 350 t/d.

86 Indeed, in the meantime, we had also agreed with Buenaventura that we
would be able to start processing our Invicta ore at the Mallay plant in the
interim period before we formally took over the plant. This can be seen
from Section 10 of the Mallay Purchase Agreement dated 5 October 2018
which gave Lupaka the right, as of the signing of the Mallay Purchase
Agreement, to process up to 8,000 tonnes per month at a rate of 600 t/d at
the Mallay plant.¹⁴² This was in both parties' interest as, on the one hand,
it allowed Buenaventura to generate additional revenues from its
processing plant while, on the other hand, allowing us to start processing
our ore earlier at the Mallay plant.

87 Pending the closing of the Mallay transaction, we would not have been
able to proceed with the upgrade of the Mallay plant to build a third
flotation circuit, but our plan was to use the two existing processing lines
at Mallay in the meantime. Historically, the Mallay plant had been running
two processing lines – one producing a lead concentrate and the other a
zinc concentrate. Processing lines for most metals are similar so we would
have simply converted the existing zinc line – the less valuable of the
concentrates produced from the Invicta ore – into a copper line – the most
valuable of our concentrates. This could be done in a few weeks and at
minimal cost (some USD 20,000 at most). In 2016, we had used a single
copper line for our 520-tonne bulk testing at the Minex plant in Nazca and
our copper concentrates had sold for a very good price.

88 Had the Mallay Purchase Agreement been signed on 15 October 2018 as
anticipated, we would have been able to rely on both Huancapeti with a
processing capacity of 355 t/d and Mallay at 600 t/d – which was more
than enough to cover our needs. It is true that due to Buenaventura's
announcement on 5 October 2018 about the delays in obtaining Mallay's
Consent we could not sign the Mallay Purchase Agreement on 15 October
2018. However, given that processing our ore at the Mallay plant did not

¹⁴¹ Lupaka, Project Monthly Report, October 2018, at Exhibit C-87, p. 7 (Section 4.3). ↩
¹⁴² Draft Mallay Purchase Agreement between Buenaventura and IMC (Final version) (SPA), ↩
05/10/2018, at Exhibit C-287, p. 20 (Article 10: Right to Process Minerals).

[Page 39]

involve any transfer of agreements concluded with the Mallay Community,
I am confident that, if the Blockade had not occurred 10 days later, we
would have still reached an agreement with Buenaventura to start
processing our ore at Mallay. In fact, even after Buenaventura's
announcement on 5 October 2018, we continued to discuss sending our
metallurgists to the Mallay plant¹⁴³ so that we could start the first
shipments of ore when we could regain access to the Invicta Mine.

89 As explained above, in the absence of the Blockade, it is most likely that
Lupaka would have started production in November 2018 and processed
its ore both at Huancapeti and Mallay until the deal with Mallay was
finalised and Lupaka could then upgrade the Mallay plant to have three
circuits to produce three distinct concentrates. Lupaka would also have
commissioned an update to SRK's PEA to prepare a revised mine plan
taking into account the Mallay acquisition – similar to the report prepared
by Micon in this arbitration. As a result of the Blockade, we never
commissioned this update.

7 "GOLD DELIVERY OBLIGATIONS" TOWARDS
PANDION UNDER THE PPF AGREEMENT

90 Finally, it appears that Peru and its quantum expert, AlixPartners, have
misunderstood the provisions of the PPF Agreement regarding Lupaka's
gold delivery obligations. For instance, Peru states in its Counter-
Memorial that:

“[Lupaka needed] to (i) reach the exploitation stage, (ii) extract
sufficient ore for processing, (iii) process that ore into gold, and
(iv) deliver that gold to PLI Huaura [to satisfy its gold delivery
obligations]".¹⁴⁴

91 It is clear that Peru wrongly assumes that the PPF Agreement implied that
we had to make physical deliveries of gold to Pandion, but that is not how
the contract was structured. As defined in Section 1 of the PPF Agreement,

¹⁴³ Email from Buenaventura to Lupaka, 15/11/2018, at Exhibit C-303. ↩
¹⁴⁴ Counter-Memorial, 24/03/2022, p. 146 et seq. (para. 290) (emphasis added). ↩

[Page 40]

"Delivery" means "delivery of gold by [Lupaka] to [Pandion] by means of
credit to [Pandion]'s Unallocated Gold Account”.¹⁴⁵

92 To put it in simple terms, an unallocated gold account is simply a standard
bank account with gold as its currency. The gold on the account is said to
be "unallocated" because the bank does not physically store the gold on its
client's behalf in a separate vault (as opposed to "allocated gold
accounts"). Therefore, making a "gold delivery" under the terms of the
PPF Agreement simply meant making a bank order to credit Pandion's
Unallocated Gold Account; as with any other transfers between bank
accounts, this could be done from any other currency into a gold-
denominated account.

93 In practice, these “gold deliveries” would come out of the proceeds from
our monthly concentrate sales to the offtakers – i.e., the overall value of
the concentrates sold, not just their payable gold content. To that effect,
Section 12(1)(r) of the PPF Agreement provides that:

"[Lupaka] agrees to irrevocably direct and cause the Offtaker to
credit to [Pandion]'s Unallocated Gold Account, in each month,
in priority to any other application, the Scheduled Monthly
Quantity for such month [...]"¹⁴⁶

94 In the same vein, Schedule E of the PPF Agreement requires Lupaka to
include in any offtake contract for the purchase of concentrates the
following term:

"The Offtaker hereby acknowledges and agrees that all amounts
then due and owing to the Buyer in respect of any Contract Quantity
of Gold to be delivered and any other amounts of Gold to be
delivered by the Seller hereunder shall first be credited to the

¹⁴⁵ Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 4 et seq. ↩
(Section 1) (emphasis added).
¹⁴⁶ Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 44 et seq. ↩
(Section 12(1)(r)) (emphasis added).

[Page 41]

Buyer's Unallocated Gold Account prior to any credit or remittance to the Seller or an account of the Seller.”¹⁴⁷

95 This meant that every month, after taking delivery of the concentrates, the offtaker would first credit the Scheduled Monthly Quantity to Pandion's Unallocated Gold Account before remitting the rest of the proceeds to Lupaka. The credit to Pandion's Unallocated Gold Account would be deducted from the entire value of the concentrates, not just their payable gold content. This is further confirmed by paragraph 6 of Schedule E which requires the offtake agreement to set out expressly Pandion's right to be paid based on the proceeds from all metals and not only gold:

“[t]he Buyer [i.e., Pandion] shall have the right to be credited to its Buyer's Unallocated Gold Account amounts deriving from minerals other than gold that are processed by the Offtaker, in case that the Actual Monthly Quantity delivered is less than the amounts required to be delivered in such Scheduled Delivery Month.”¹⁴⁸

96 On that basis, it is clear that the following statement made by Peru in its Counter-Memorial – citing AlixPartners' report – is factually incorrect:

“[Lupaka]'s attempts to use third-party ore processing were so unsuccessful that, from June to October 2018, (i.e., prior to the [Blockade]), [Lupaka] processed only ‘only 28.8% of the monthly Contract Quantity of gold required [under the PPF Agreement] to Sell starting December 2018, and 16.5% of the monthly Contract Quantity of gold required to Sell starting March 2019.”¹⁴⁹

97 First, for the reasons outlined above, it is misleading to rely on sales figures obtained from pre-production testing from development ore as these

¹⁴⁷ Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 84 (Schedule E, para. 2) (emphasis added). ↩

¹⁴⁸ Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 84 (Schedule E, para. 6) (emphasis added). ↩

¹⁴⁹ Counter-Memorial, 24/03/2022, p. 366 et seq. (para. 787) (citing Expert Report of AlixPartners on Damages, 24/03/2022, p. 29 et seq. (paras. 80-81)). ↩

[Page 42]

figures are based on grades and volumes that are not representative of a mine in commercial production.

98 Second, even if one were to rely on pre-production sales to assess Lupaka's ability to make “gold deliveries” under the PPF Agreement, the overall value of the concentrates produced by Lupaka during this period should be taken into account, and not just simply consider its gold payable content. Over five months of pre-production, Lupaka generated net smelter returns worth USD 731,448. ¹⁵⁰ This translates into monthly proceeds of USD 146,298.60¹⁵¹ which would allow crediting approximately 117oz of gold each month to Pandion's Unallocated Gold Account.¹⁵² This is equal to 63% and 36% of the monthly gold deliveries due from December 2018 and March 2019 respectively.¹⁵³ As noted by AlixPartners in their report, the tonnage of ore mined and processed by Lupaka during pre-production was only 11% of the tonnage for commercial production. Therefore, it is clear that with production tenfold that of pre-production, Lupaka would have been able to satisfy its gold deliveries by a comfortable margin.

99 In any case, I note that if Lupaka did not produce enough concentrates to meet its delivery obligations under the PPF Agreement, Section 5(5) allowed Lupaka to pay any shortfall directly in cash:

“Any obligation to Deliver Gold on a Monthly Delivery Date that is not performed in full on such Monthly Delivery Date shall be converted into, to the extent of the Gold Shortfall, an obligation of the Seller to pay to the Buyer in US Dollars [...]”¹⁵⁴

100 This meant that, if the value of the concentrates sold during the initial months fell short, Lupaka would have been able to raise funds to make up for the shortfall during the initial ramp-up to full production in the very

¹⁵⁰ Lupaka, Project Monthly Report, December 2018, at Exhibit C-52, p. 8. ↩

¹⁵¹ USD 146,289.60 = 731,448.00 / 5. ↩

¹⁵² Based on a gold price of USD 1,250 (as anticipated in the PEA), USD 146,289.60 / 1,250 = 117.03 oz of gold. ↩

¹⁵³ 63% = 117.03 / 187. 36% = 117.03 / (187+139). ↩

¹⁵⁴ Second Amended and Restated PPF Agreement, 02/08/2017, at Exhibit C-45, p. 22 (Section 5(5)). ↩

[Page 43]

unlikely event that Pandion would have insisted on strict compliance with the schedule.

101 Indeed, as I set out in the Annex, up until the Blockade Lupaka had a very strong track record of raising funds in relation to the Invicta Project. As we would go into production, our ability to raise funds would only have improved.

102 This table further shows that the Blockade had a significant impact on our ability to raise funds and, as explained in Section 4.4 above, led to our default under the PPF Agreement.¹⁵⁵

103 Finally, it is important to stress that, prior to the Blockade, Pandion had every confidence that the Project would be a commercial success and was willing to invest further into the Project to have a greater share of the dividends the Project would bring. None of the parties considered that there was a risk of default on the part of Lupaka in the coming months.

***

This witness statement has been drafted with the assistance of LALIVE, counsel for Lupaka Gold Corp., on the basis of several discussions and exchanges of correspondence. I have carefully reviewed the statement and confirm that it correctly reflects my recollection of the facts described and my opinions. I am prepared to appear before the Arbitral Tribunal to confirm the content of this statement.

Signature

Gordon Lloyd Ellis

Signed on 23 September 2022 in Vancouver, Canada.

¹⁵⁵ See Annex and Table 1 (Item 11). ↩

[Page 44]

ANNEX – LUPAKA'S FUNDRAISING SINCE THE INVICTA PROJECT BECAME ITS PRIME FOCUS IN MARCH 2014

Date of press release	Debt / Equity	Type of fundraising	Amounts anticipated	Amounts effectively raised	Percentage raised
07 August 2014	Equity (Shares and Warrants)	Private Placement	USD 1'610'000.00	USD 1'610'000.00	100.00%
21 August 2015	Equity (Shares and Warrants)	Private Placement (announcement)	USD 600'000.00	N/A	N/A
24 August 2015	Equity (Shares and Warrants)	Private Placement (First Tranche)	USD 600'000.00	USD 452'260.00	75.38%
28 September 2015	Equity (Shares and Warrants)	Private Placement (Second Tranche)	USD 600'000.00	USD 150'250.15	25.04%
Total:	Equity (Shares and Warrants)	Private Placement	USD 600'000.00	USD 602'510.15	100.42%
29 December 2015	Equity (Shares and Warrants)	Private Placement (announcement)	USD 110'000.00	N/A	N/A

[Page 45]

Date of press release	Debt / Equity	Type of fundraising	Amounts anticipated	Amounts effectively raised	Percentage raised
31 December 2015	Equity (Shares and Warrants)	Private Placement	USD 110'000.00	USD 110'000.00	100.00%
11 February 2016	Equity (Shares and Warrants)	Private Placement (announcement)	USD 300'000.00	N/A	N/A
22 February 2016	Equity (Shares and Warrants)	Private Placement	USD 300'000.00	USD 419'500.00	139.83%
15 June 2016	Debt	Bridge Loan (announcement)	USD 750'000.00	N/A	N/A
30 June 2016	Debt	Bridge Loan	USD 750'000.00	USD 750'000.00	100.00%
04 January 2017	Debt	Bridge Loan (announcement)	USD 300'000.00	N/A	N/A
12 January 2017	Debt	Bridge Loan	USD 300'000.00	USD 300'000.00	100.00%

[Page 46]

Date of press release	Debt / Equity	Type of fundraising	Amounts anticipated	Amounts effectively raised	Percentage raised
19 May 2017	Equity (Shares and Warrants)	Private Placement (announcement)	USD 300'000.00	N/A	N/A
24 May 2017	Equity (Shares and Warrants)	Private Placement	USD 300'000.00	USD 300'000.00	100.00%
22 June 2017	Debt	Bridge Loan (announcement)	USD 600'000.00	N/A	N/A
30 June 2017	Debt	Bridge Loan	USD 600'000.00	USD 600'000.00	100.00%
04 May 2018	Debt	Extension of Bridge Loan	USD 600'000.00	USD 600'000.00	100.00%
Total before the Blockade:			USD 4'570'000.00	USD 4'692'010.15	102.67%
Date of Blockade: 14 October 2018
28 January 2019	Equity (Shares and Warrants)	Private Placement (announcement)	USD 1'000'000.00	N/A	N/A
14 February 2019	Equity (Shares and Warrants)	Private Placement (announcement)	USD 1'000'000.00	N/A	N/A

[Page 47]

Date of press release	Debt / Equity	Type of fundraising	Amounts anticipated	Amounts effectively raised	Percentage raised
07 March 2019	Equity (Shares and Warrants)	Private Placement	USD 1'000'000.00	USD 665'000.00	66.50%
14 March 2019	Equity (Shares and Warrants)	Private Placement	USD 1'000'000.00	USD 665'000.00	66.50%
Total after the Blockade:			USD 1'000'000.00	USD 665'000.00	66.50%
Total Overall:			USD 5'570'000.00	USD 5'357'010.15	96.18%

1 INTRODUCTION

2 THE EXPERIENCE OF LUPAKA'S MANAGEMENTAND BOARD OF DIRECTORS IN DEVELOPING ANDOPERATING MINES IN PERU AND GLOBALLY

3 THE SALE OF CRUCERO AND THE PRIORITYACCORDED TO INVICTA

4 PANDION'S PARTNERSHIP WITH LUPAKA

4.1 The financing structure agreed upon with Pandion wascommensurate with the Project's capital requirements and inline with standard practice in the junior mining industry

4.2 Pandion amended the original PPF Agreement to give Lupakamore time to pursue its negotiations with the local communities

4.3 Pandion and Lupaka agreed to defer Lupaka's gold repaymentobligations until at least September 2019 under the DraftAmendment and Waiver No. 3 to the PPF Agreement

4.4 Peru's references to other possible defaults under the financingagreements