Pulacayo Project Feasibility Study - Apogee Silver

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Pulacayo 1 000 t/d Phase I Feasibility Study - NI 43-101 Technical Report 090644-3-0000-20-IFI-100 to secure supplies. The lead concentrates on the other hand, being more complex and high in silver may be best suited for the trade, particularly where arsenic and antimony levels can be managed, either through mechanical or ‘paper’ blends 2 . Furthermore, the small annual production volumes of each product make them more amenable to trader sales as they are frequently better equipped to handle small parcel sizes, thereby obviating the need to build shippable (typically 5,000 ton) lots. Regardless of buyer, contracts can be entered into for any duration, from as short as spot sales (single or multiple sales but less than one-year contract duration), to short (one year) or medium term (2 to 4 year) contracts, to Life of Mine deals. Spot sales will typically provide fixed terms for the duration of the contract whereas other transactions can provide for a combination of terms including: Fixed terms (for all or a portion of the contract). Benchmarked terms in which base commercial terms (payable metals, penalties, payment terms, etc.) may be agreed but treatment charges, escalators, and refining charges and freight allowances (if applicable), may be adjusted annually or bi-annually, for example, using industry referenced benchmarks. Annually negotiated terms within a multi-year frame agreement. In order to ensure a home for their concentrates many miners will typically enter into mediumterm contracts with smelters and/or traders with terms agreed for two or three years and then subject to renegotiation thereafter. There is no single ‘right way’ to manage concentrate sales in terms of contract duration and distribution. A marketing strategy needs to be developed and implemented which meets the specific requirements of the mine (e.g. comfort with/confidence in counterparty’s abilities; assurance of off take under potentially difficult market conditions; risk tolerance vs. a vis terms fluctuations, etc.) while taking into consideration prevailing market conditions at the time contract discussions are entered into (e.g. under tight market conditions a mine may want to lock in lower treatment and refining charges over a period of time rather than risk having terms move against them; or, in a soft market, it may be preferable to do short-term [spot or one-year] deals to ride out unfavorable conditions). The strategy ultimately implemented for the sale of the Pulacayo concentrates will need to factor in such conditions and opportunities, as well as others, prevailing at the time discussions are entered into. 19.4 Concentrate Contract Sales Terms 19.4.1 Delivery Terms There are several different delivery options available to consider when selling concentrates but the most commonly used are (all basis Incoterms nomenclature): 2 Traders are frequently able to provide smelters with paper blends of concentrates whereby a parcel of complex concentrates can be delivered with another parcel of clean concentrates. On a stand-alone basis, the smelter may not consider more complex parcels but if suitable volumes of clean feeds can be provided, they might be encouraged to take in such materials. TWP Sudamérica S.A. Av. Encalada 1257 Of. 801, Santiago de Surco Lima 33, Perú (51-1) 4377473 Page 227
Pulacayo 1 000 t/d Phase I Feasibility Study - NI 43-101 Technical Report 090644-3-0000-20-IFI-100 CIF, named discharge port: for most offshore concentrate sales transactions, the seller delivers concentrates to the buyer’s discharge port with all costs of loading, transport, insurance and freight to destination for the seller’s account (CIF = Carriage, Insurance, Freight). Under CIF contracts, the buyer/receiver is responsible for all vessel discharge costs. INW named destination: in many instances the buyers, be they traders or in some instances smelters, will take delivery of the concentrates In Warehouse at or near the load port where they can be blended and/or packaged (e.g. bagged) for onward shipment to a smelter buyer. In this instance, the seller is responsible for the costs of delivering the concentrates to the buyer’s warehouse and for the insurance covering this move. The buyer is responsible for all handling costs from the warehouse to delivery to the receiving smelter’s discharge port, including handling, vessel loading, ocean freight and insurance after delivery to the warehouse. FOB named load port: as an alternative to an INW delivery, buyers will sometimes take delivery of concentrates loaded onto the ocean vessel at the load port. In this case, the seller is responsible for the costs of delivering the concentrates to the buyer on board the vessel (so including any warehousing and vessel loading costs) and for the insurance up to the vessel’s rail. The buyer is responsible for all ocean shipping costs from the load port to the discharge port, including insurance coverage from delivery to the carrying vessel’s rail along with all discharge costs. EXW or FCA: less frequently used, buyers will sometimes take delivery of the concentrates at Seller’s site loaded into a truck or railcar. In this instance, seller is responsible for simply loading the concentrates into the carrying conveyance; the buyer is responsible for all further costs to destination, including insurance. Where concentrates are to be delivered to a domestic or inland smelter then other terms and conditions would apply (comparable to INW above); however this is not likely to be an option for Pulacayo unless the La Oroya smelter were to reopen. In the case of anything other than a CIF delivery, the seller will typically provide an allowance (“Freight Allowance”) to the buyer to cover the equivalent costs of getting the concentrates to the ultimate market destination i.e. the cost that the seller were to otherwise incur were it to be selling concentrates direct to the end user. This allowance can either be included as part of the treatment charge or appear as a separate charge. 19.4.2 Payable (Accountable) Metals Based on the anticipated grades as set out in Section 3, payable, or accountable metals in the Pulacayo zinc and lead concentrates can be expected to be as follows: TWP Sudamérica S.A. Av. Encalada 1257 Of. 801, Santiago de Surco Lima 33, Perú (51-1) 4377473 Page 228
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Pulacayo Project Feasibility Study - Apogee Silver

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