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BEFORE THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES Bear Creek Mining Corporation Claimant, v. Republic of Perú. Respondent. Case No. ARB/14/21 Respondent’s Counter-Memorial on the Merits and Memorial on Jurisdiction October 6, 2015 Counsel for Respondent: Stanimir A. Alexandrov Juan Pazos Marinn Carlson Ricardo Puccio Sala Jennifer Haworth McCandless Navarro, Ferrero & Pazos Abogados Sidley Austin LLP Av. Del Parque 195 San Isidro 1501 K Street, N.W. Lima, Peru Washington, D.C. 20005 TABLE OF CONTENTS Page I. Introduction ..........................................................................................................................1 II. Facts of the Case ..................................................................................................................8 A. Bear Creek’s Lack of Mining Experience ...............................................................8 B. Bear Creek Unlawfully Acquired the Santa Ana Project Mining Concessions .......9 1. Article 71 of the Peruvian Constitution Limits Foreigners’ Ability to Own or Possess, Directly or Indirectly, Any Mining Rights Within 50 km of the Border ..........................................................................................................9 2. Bear Creek Violated Article 71 of the Peruvian Constitution ...................14 C. Bear Creek Was Responsible for Obtaining the Communities’ Support for the Project and Failed To Do So ..................................................................................27 1. Peruvian Law Informs Bear Creek that It Must Obtain Community Support Before It Can Develop Its Mine ...................................................27 2. International Norms of Corporate Social Responsibility Stress the Importance of Consensus Building Within a Local Community ...............32 D. Social Crisis in Puno in 2011 Necessitated Supreme Decree No. 032 of 2011 .....36 1. Bear Creek Failed to Establish Relations With All of the Local Communities that the Santa Ana Project Would Affect ............................38 2. The 2011 Protests in Puno Were Directly Related to the Santa Ana Project50 3. The Government’s Actions in June 2011 Were Appropriate to End the Violent Protests in the Puno Region, and, in the Case of Santa Ana, to Protect the Integrity of Peru’s Legal Regime ............................................68 E. Peru Did Not Act Contrary to Peruvian Law When It Issued Supreme Decree No. 032 of 2011 ............................................................................................................78 F. Peru’s Legal Proceedings to Enforce Article 71 of the Constitution Are Appropriate and Well-Founded .............................................................................82 G. Bear Creek Does Not Have and Never Had the Right to Carry Out the Santa Ana Project ....................................................................................................................85 i 1. Bear Creek Lacked and Might Never Have Obtained Final Approval of Its Environmental Impact Study .....................................................................88 2. Bear Creek Lacked and Might Never Have Obtained Many Other Necessary Authorizations to Proceed to Construction and Operation of the Santa Ana Project .......................................................................................94 H. Peru’s Negotiations in Good Faith with Bear Creek Are Not an Admission of Liability ................................................................................................................102 III. The Tribunal Lacks Jurisdiction Over This Dispute ........................................................104 A. The Tribunal Lacks Jurisdiction Because Claimant Invested Illegally ...............104 1. Investment Treaty Arbitration and the ICSID Arbitral Process Do Not Protect Unlawful Investments ..................................................................105 2. Claimant Did Not Obtain Its Rights Related to Santa Ana In Accordance with Peruvian or International Law .........................................................109 B. Claimant’s Violations of Peruvian Law Invalidate Its Supposed Investment at Santa Ana .............................................................................................................112 C. The Tribunal Lacks Jurisdiction Because Claimant Does Not Own the Investments Upon Which It Bases Its Claim .......................................................112 IV. Respondent Did Not Breach the FTA ..............................................................................115 A. Respondent Did Not Expropriate Claimant’s Investment in the Santa Ana Project115 1. Claimant’s Rights Are Very Limited, and Respondent Cannot Have Expropriated Rights that Claimant Does Not Hold .................................116 2. Claimant’s Expropriation Claim Fails Because Supreme Decree No. 032 Was a Legitimate Exercise of Sovereign Police Powers .........................117 3. Claimant Has No Plausible Direct Expropriation Claim Because Claimant Maintains Title to the Santa Ana Concessions ........................................129 4. Claimant’s Indirect Expropriation Claim Fails Because Claimant Cannot Demonstrate “Rare Circumstances” as the FTA Demands ......................131 B. Respondent Afforded Claimant Fair and Equitable Treatment in Accordance with the FTA ................................................................................................................135 1. The FTA Does Not Guarantee Fair and Equitable Treatment Beyond the International Minimum Standard of Treatment, Which Places a High Burden on Claimant .................................................................................135 ii 2. Claimant’s FET Claim Fails Because It Has Not Identified a Principle of Customary International Law Regarding Fair and Equitable Treatment That Respondent Violated........................................................................141 3. Claimant’s FET Claim Fails Because It Cannot Prove that Respondent’s Actions Fell Below the International Minimum Standard for Fair and Equitable Treatment .................................................................................143 4. Claimant Cannot Import an Autonomous FET Standard Because the FTA Excludes Pre-existing Obligations from the Scope of Its Most-Favored Nation Clause ...........................................................................................147 5. Claimant Cannot Import an Autonomous FET Standard Because Doing So Would Conflict with the Will of the Contracting Parties ........................149 C. Respondent Did Not Violate Other Provisions of the FTA .................................152 1. Respondent Afforded Claimant Full Protection and Security in Accordance with the FTA ........................................................................153 2. The FTA Contains No Unreasonable or Discriminatory Measures Clause, and Claimant Cannot Import Such a Clause from Another Treaty ..........157 V. Claimant’s Damages Claims Are Inflated, Inaccurate and Inappropriate .......................159 A. Claimant’s Recovery for Santa Ana Is Limited to Amounts Invested Because Claimant Has No History of Profitable Operation at That Site ...........................160 B. The Tribunal Must Reject Claimant’s DCF Analysis Because It Is Inaccurate, Inflated and Unreliable ........................................................................................165 1. FTI Applies an Imprecise and Unreliable DCF Methodology .................165 2. Claimant’s Engineering Analysis for Santa Ana Is Inaccurate and Unreliable .................................................................................................167 3. A Market-based Analysis of the Value of Santa Ana Underscores the Unreliability of FTI’s DCF Model ...........................................................174 C. Claimant’s Damages Claim for Corani Is Fundamentally Without Merit ...........178 1. Claimant Has Failed to Demonstrate Any Lasting Damage to Corani’s Market Value ...........................................................................................179 2. Claimant Has Failed to Prove That Respondent’s Actions With Respect to Santa Ana Damaged Corani’s Market Value Based on Project Delays or Increased Financing Costs .......................................................................182 iii 3. Claimant Has Failed to Prove That Respondent’s Actions Increased the Market’s Perception of Risk for Corani and That This Has Lowered Corani’s Fair Market Value .....................................................................186 4. Claimant’s Calculation of Damages Related to Corani Is Internally Inconsistent and Erroneous ......................................................................187 D. Claimant’s Interest Calculation Is Erroneous ......................................................192 E. Claimant’s Claim for Costs and Expenses Is Inappropriate ................................193 VI. Prayer For Relief ..............................................................................................................194 iv I. INTRODUCTION 1. Claimant describes this case as involving “world class mining projects” and identifies itself as “Bear Creek Mining Corporation.” That is a mischaracterization from the outset. Bear Creek is not a “mining” company at all. A “mining” company is a company that builds and operates mines. Bear Creek has done neither. Bear Creek has never constructed or operated a mine

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