1 ANNUAL INTEGRATED REPORT 2015 CORPORATE MANAGEMENT AND SUSTAINABILITY 3 INDEX Statement of responsibility Pág.5 Letter from the President of the Board of Directors Pág.7 Message from the General Manager Pág.10 Innovation for long- Operating world- term growth class assets A trajectory 1of values Pág. 13 3 Pág. 59 5 Pág. 81 1.1 Historical overview Pág.15 3.1 Expansion Projects Pág.61 5.1 Our safety performance Pág.83 1.2 Our corporate governance 3.2 Innovation projects and new 5.2 Safety practices Pág.85 practices Pág.17 technologies Pág.65 5.3 Occupational health performance Pág.87 Pág.20 1.3 Our culture 3.3 Explorations Pág.66 1.4 Our stakeholders Pág.25 1.5 Our operations and projects Pág.28 1.6 Economic and sectoral context Financial soundness in 2015 Pág.31 for new market A shared 4development Pág. 68 6responsibility Pág. 91 Operational excellence 4.1 Long-term business relationship 6.1 Our work profile Pág.93 and maximum 6.2 Talent attraction and retention Pág.98 2productivity Pág. 36 strategy Pág.70 4.2 Our market performance Pág.72 6.3 Training and development Pág.99 2.1Performance of our operations Pág.38 4.3 Financial results Pág.74 6.4 Performance assessments Pág.101 2.2 Standards for our operations and 4.4 Economic value of our operations Pág.79 supply chain Pág.55 INDEX A drive for 7compliance Pág. 103 7.1 Environmental management approach Pág.105 8.6 Social Programs in Pucamarca 9.7 Evolution of stock price Pág.136 7.2 Compliance Pág.107 MU Pág.127 9.8 Tax treatment Pág.137 7.3 Water resources management Pág.108 8.7 Social Programs in the SPR of 9.9 Judicial, administrative or 7.4 Effluent and waste management Pág.110 Pisco Pág.129 arbitration procedures Pág.139 7.5 Materials management Pág.113 8.8 Local procurement Pág.130 9.10 Professional Trajectory of 7.6 Energy and emissions Directores Pág.140 Pág.114 management 9.11 Other aspects related to the Board of Directors Pág.143 Capacities for our Corporate 9.12 Remuneration of the Board of 8communities Pág. 117 9information Pág. 130 Directors Pág.143 8.1Social management approach Pág.119 9.1 Corporate name Pág.132 9.13 Professional Trajectory of 8.2 Our relationship with the 9.2 Corporate purpose and term Pág.132 Managers Pág.144 community Pág.120 9.3 Incorporation and registration in 8.3 Complaint and grievance the Public Registry Pág.133 procedures Pág.124 9.4 Economic group Pág.134 10On this Report Pág. 150 8.4 Social investment Pág.124 9.5 Share capital, number and 8.5 Social Programs in San Rafael nominal value of shares Pág.134 GRI Table of Contents Pág. 157 MU Pág.125 9.6 Types of shares and shareholding structure Pág.134 5 STATEMENT OF RESPONSIBILITY 6 The document hereof provides truthful and sufficient information on the development of businesses of MINSUR S.A. in 2015. Notwithstanding the responsibility of the issuer, the signatories are liable for its content pursuant to applicable statutory provisions. Juan Luis Kruger Sayán Fortunato Brescia Moreyra General Manager President of the Board of Directors 7 LETTER FROM THE PRESIDENT OF THE BOARD OF DIRECTORS 8 DEAR SHAREHOLDERS It is a pleasure to present, for the first time, • Maximizing the value of our current the Annual Integrated Report 2015: Corporate operations focusing on maximizing Management and Sustainability, as well as productivity, optimizing scale economies the Audited Financial Statements, which and on a strict control of costs and jointly summarize the most outstanding expenses facts in the company’s management during the last year, pursuant to the requirements • Investing in growth, mainly in extending of the Superintendency of Securities, and the life-of-mine in our current operations, in accordance to the “core” option of the expanding explorations in areas surrounding Global Reporting Initiative (GRI) guidelines for our current operations, and moving forward sustainability reporting. in an organized and efficient manner in our expansion and diversification projects The global economic downturn and political (Marcobre and expansions in Taboca) uncertainty were some of the main aspects affecting business performance in 2015. GDP • Keeping a cautious financial policy, ensuring grew 3,0%, mainly due to the deteriorated the necessary resources to finance our international environment for the fourth year in a needs in the future and providing maximum row –the worst since the 2009 financial crisis- protection to our cash position and capacity and the limited fiscal stimulus. Specifically, the industrial slowdown in China weakened Focusing on this strategy and its efficient the global demand for industrial commodities implementation has prepared us to address and, thus, the prices of metals we export fell an adverse price scenario. Thus, despite the significantly. fall of over 25% in tin prices (MINSUR flagship product) in 2015, our operational units have Two years ago we started an important process continued showing a high capacity to generate of change in Minsur, aiming at implementing a positive cash flows, with EBITDA amounting to strategy allowing us to maximize the value of US$ 227 million at the Individual Minsur level. our operations and to grow in the future, while dealing with a transition in San Rafael mining To address the fall in the prices of commodities activities from streaks to bodies. Consequently, in general, we assessed the capacity to we started a process of change in the generate future cash flows of all our operations company’s management; which resulted in the and projects, which led us to conclude that definition of a strategy focused on: all our operations maintain a future cash flow generation capacity that exceeds their carrying 9 value. However, in the Marcobre project have strengthened MINSUR as a solid company we concluded that, though it has a future that is ready to address the challenges of 2016. positive cash flow generation expectation and The invaluable contribution of our shareholders, a positive net present value, it is lower than customers, suppliers, neighboring communities its carrying value, therefore –following our to the areas where we operate and, in general, principles of good corporate management, all our stakeholders has been essential to the Management and the Board of Directors support the company’s management in 2015 decided to adjust the financial statements in and to put their confidence and provide their a timely manner in the fourth quarter of 2015, collaboration to the Board of Directors and the which led us to record a net loss of US$ management officers. 421,8 million in 2015 at Minsur Individual level, versus a net income of US$ 84,9 million in 2014. Fortunato Brescia Moreyra Within the framework of MINSUR commitment President of the Board to sustainability, these results have been of Directors accompanied by a management focused on material aspects that reflect the company’s significant economic, environmental and social impacts, covering the information expectations of its main stakeholders. Consolidating MINSUR as the unquestioned leader in the tin market, and a sustainable and diversified producer in the long term, shall remain its main challenge in the coming years, supported by a world-class management. All these achievements have been supported by the commitment, efforts and dedication of each one of the company collaborators, which not only allowed us to endure the difficult price context in 2015, but they also 10 MESSAGE FROM THE GENERAL MANAGER 11 MESSAGE FROM THE GENERAL MANAGER 2015 has been an important transition year For its part, our operations in Brazil Therefore, in line with our commitment to good for MINSUR. We have achieved important through Mineraçao Taboca benefitted corporate governance practices, we decided operational progress in the implementation of from the implementation of almost all to make an accounting adjustment of US$ 641 the strategy prepared two years ago, oriented the projects to remove bottlenecks from million in Marcobre’s value, (US$ 481 million net towards maximizing the value of current the Pitinga Mining Unit. Furthermore, of deferred income tax). As a consequence, operations, making progress with our expansion we developed two new products our financial results were strongly affected and growth plan by extending the life of current (ferroniobium and ferrotantalum) to recording a loss of US$ 375 million, net of operations, exploring neighboring areas to our diversify our portfolio and open new deferred income tax, at MINSUR Individual operations and continuing with our growth and markets. For Taboca management level; however, we managed to significantly diversification projects, which has positioned restructuring we formed and sent a support our operations’ capacity to generate us to deal with a scenario of low commodity “transformation” team, comprised by positive cash flows, with EBITDA amounting to prices. prominent MINSUR collaborators. US$ 207 million in the FY, which represents an EBITDA margin of 42%, including an investment In 2015, we made significant progress in the In 2015 we had to deal with a scenario of approximately US$ 48 million in growth. implementation of our operation optimization of adverse commodity prices. Tin strategy, which has been an essential part of price dropped 27% and gold price Measures implemented in the year, in line with the company’s management. Our focus on dropped 8%. Moreover, we suffered an a strategy to maximize our operations’ value, productivity, cost and expense savings, and unexpected problem with the energy strongly emphasizing productivity, cost and on generating larger scale economies enabled supply of our operation in Taboca, which expense savings, and protection of MINSUR us to significantly reduce production costs affected our results for the period, but cash generation capacity, allowed closing in all operational units, and also to reach the did not affect the implementation of our December 2015 with US$ 581.9 million in production record in Pucamarca and Taboca.