BNP PARIBAS PROJECT Nº 2102 LA OROYA BANKABLE FEASIBILITY STUDY PROJECT REPORT ON DOE RUN PERU’S PROPOSED LA OROYA BANKABLE FEASIBILITY STUDY FOR PAMA PROJECTS AND A MODERNIZATION PROGRAM Prepared by: AMEC International (Chile) S.A. 11 July, 2006 TABLE OF CONTENTS 1.0 INTRODUCTION.......................................................................................................................3 2.0 SUMMARY................................................................................................................................5 3.0 TECHNICAL REVIEW ............................................................................................................14 4.0 ENVIRONMENTAL.................................................................................................................25 4.1 INTRODUCTION.....................................................................................................................25 5.0 ZINC FERRITE RESERVE .....................................................................................................49 6.0 EXECUTION PLAN ................................................................................................................57 7.0 CAPITAL COST ESTIMATE ..................................................................................................64 8.0 PREPARATION OF THE BFS ...............................................................................................68 APPENDICES Appendix I – Typical Basis of Estimate Appendix II – BFS Table of Contents This report was prepared exclusively for BNP Paribas Bank by AMEC International (Chile) S.A., a wholly owned subsidiary of AMEC Americas Limited. The quality of information, conclusions and estimates contained herein is consistent with the level of effort involved in AMEC services and based on: i) information available at the time of preparation, ii) data supplied by outside sources, and iii) the assumptions, conditions and qualifications set forth in this report. This report is intended to be used by BNP Paribas only, subject to the terms and conditions of its contract with AMEC. Any other use of, or reliance on, this report by any third party is at that party’s sole risk. Page 2 of 68 1.0 INTRODUCTION Doe Run Peru (DRP) has carried out conceptual studies for various environmental improvement and modernization projects at its La Oroya smelting and refining complex 180 km north east of Lima. The environmental improvement projects are part of DRP’s PAMA commitments. The modernization projects will provide increased copper zinc, lead, indium, precious metals and sulphuric acid production while also lowering operating costs. DRP is now embarking on a bankable feasibility study (BFS) to confirm the details of the above projects and provide a capital cost estimate with a precision of +/- 15% at the 85% confidence level. BNP Paribas (BNPP) is negotiating a loan with DRP to provide funds to carry out these projects. AMEC has been retained as an independent engineer by BNPP to provide the following services: Phase I • Review DRP information • Visit La Oroya to review the existing plant and discuss the projects with DRP staff • Prepare a report which summarizes the findings of the information review and site visit and establishes the parameters for the preparation of the BFS. Phase II • Carry out a technical review of the BFS including: • Review of all process areas including flowsheets, equipment lists, general arrangement drawings, production schedules and operating costs. • Review of the adequacy of all supporting infrastructure • Carry out an environmental review including: • Ability of the projects to meet PAMA commitments for fugitive emissions • Effect of the projects on the occupational health of the workforce and the health of the local population. • Commentary on DRP’s social programs and interaction with the community at local, regional and national levels • Review of compliance with World Bank and Equator Principles. • Review DRP’s calculations of tonnage and grades of the zinc ferrite stockpile • Review the execution plan for the implementation of the projects • Review the plan for the commissioning and ongoing operation of the new projects • Review the capital cost estimate. Phase III • Review the implementation phase of the projects including commentary on the monthly reports and a visit to La Oroya every 3 months during the construction phase to review progress • Review of DRP’s annual budget and production plans. This report covers the work carried out in Phase I. Page 3 of 68 On 26 May, 2006, AMEC set up an ftp site which provided access to BNPP, DRP and the AMEC team. DRP loaded information onto the site for review by AMEC. The AMEC team visited La Oroya from 19-22 June, 2006. Team members were: Tony Maycock - Project Manager Carlos Torres - Construction Manager Scott Ansell - Geologist Angel Chiang - Copper smelting, refining and acid plant process specialist Sean Thornton - Lead, zinc, indium and precious metals process specialist Gonzalo Ríos - Environmental team leader Stella Hartinger - Biologist and occupational health specialist Boris Dávila - Sociologist. The visit commenced in Lima with an executive level presentation by DRP to AMEC of the La Oroya complex and the proposed projects. This was followed at site by another presentation by DRP that focused specifically on the projects. The AMEC team members then held individual meetings with their specialist counterparts in the DRP organization. A team visit was made to all areas of the plant and the project areas. Other individual visits were made as required. The environmental team also visited the township and hospital. Prior to returning to Lima, AMEC made a verbal presentation of its initial findings to DRP’s La Oroya staff. This presentation was repeated, in Lima, to BNPP staff. A summary of the presentation was then made to DRP’s Lima based executive staff. AMEC wishes to thank Dr. Juan Carlos Huyhua, President, Doe Run Perú, Mr. Pepe Reyes, La Oroya Operations Manager, and his staff; Mr. Michael Sankovitch, Vice President and Manager Technical, and his staff; and Mr. Doug Zunkel, Consultant, for the cordiality and cooperation shown during the site visit and for the provision of information for this report. Page 4 of 68 2.0 SUMMARY 2.1 Overview Doe Run Peru (DRP) is negotiating a loan with BNP Paribas (BNPP) to finance a series of projects at its La Oroya smelting and refining complex located 180 km NE of Lima, Peru. The projects are categorized as “PAMA Projects” and “Modernization Projects”. The projects comprise: • Copper smelter modernization using Xstrata’s ISASMELT technology • Copper smelter sulphuric acid plant (PAMA) • Lead circuit acid plant (PAMA) • Modernization of the tuyère controls of the exiting lead blast furnaces • Modernization of the feed and combustion systems of the lead circuit drossing reverberatory furnace • Installation of two pressure autoclaves to leach stockpiled zinc ferrites, plus indium circuit improvements • Modernization of the anode residues treatment and precious metals plants • Replacement of the copper and zinc refinery rectifiers. The successful completion of the projects will enable DRP to comply with its PAMA (environmental) commitments in terms of reduction of fugitive emissions of lead and sulphur dioxide and also provide increased production of copper, lead, zinc, indium, precious metals and sulphuric acid while reducing operating costs. The approximate capital cost of the projects considered in this report is estimated by DRP at US$ 250 million. DRP has carried out conceptual studies to define the technology and principle equipment to be used in the projects and to determine the costs and benefits. The next phase of the work will be the preparation of a Bankable Feasibility Study (BFS). This document is scheduled to be completed by the end of 2006 and will define the projects in process, engineering, social and financial terms. BNPP has contracted AMEC to review the overall project in three phases: Phase I • Review the conceptual studies and supporting information. Prepare a report commenting on the information, make recommendations and establish the parameters for preparation of the BFS. Phase II • Review the BFS. Phase III • Review the implementation phase of the project and comment on DRP’s annual plans. This document constitutes the Phase I report. Page 5 of 68 2.2 Technical Review 2.2.1 Copper Smelter DRP has selected Xstrata’s ISASMELT technology to replace the existing hearth roasters and oxy- fuel furnace. ISASMELT is a relatively new but proven technology. It does not require the concentrate fed to be bone dry and all the SO2 off gas can be captured to a sulphuric acid plant. The ISASMELT furnace will produce a 60% copper matte compared to the 30% matte from the oxy-fuel furnace. This matte will pass to a rotary holding furnace for slag cleaning and then to the converters for conversion to blister copper. The converter configuration requires further study, however, the converters will be fitted with new hoods to capture off gas and pass it to the sulphuric acid plant. The blister copper will be taken to two new pyro-refining furnaces. In this section impurities and oxygen content will be reduced to enable casting of good quality anodes compared to the existing “blister” anodes. The new anodes will be thinner and will allow more anodes to be loaded into the electrolytic cells in the refinery. As a result of the above changes copper production will be increased from around 63,000