Annual Report 2011 - Volcan Report/Annual...Annual Report 2011 2 The Volcan Annual Report 2011 was...

Annual Report 2011 1

Annual Report 2011


The Volcan Annual Report 2011 was drawn up by:

Volcan Compañía Minera S.A.AAv. Gregorio Escobedo No 710 Res. San Felipe. Jesús María Published by

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Annual Report 2011


Volcan Compañía Minera S.A.A. is a diversified mining company and an important global producer of zinc, silver and lead.

The company first started operating in 1943 as Volcan Mines Company, with the Ticlio and Carahuacra mines. In the 1990s, in a raft of privatizations, the Peruvian Government sold off certain mining and related assets. Many of these were acquired and subsequently grew rapidly.

In 1997, Volcan Compañía Minera S.A. acquired Empresa Minera Mahr Túnel S.A., owner of the Mahr Túnel, San Cristóbal and Andaychagua mining operations in an international public auction, for the sum of US$ 127,777,777 including a commitment to invest an additional US$ 60 million, which was completed in the third year. This acquisition would mark the start of an expansion that would see the company’s production increase by 400%. In 1998 both companies merged to create Volcan Compañía Minera S.A.A., Its current trading name.

In 1999, Volcan Compañía Minera S.A.A. acquired Empresa Minera Paragsha S.A.C. for US$ 62 million and a commitment to invest a further US$ 70 million, from Centromin Peru in an international auction. The acquisition included the Cerro de Pasco operation and made Volcan Compañía Minera S.A.A. into the largest zinc mining company in Peru.

In 2000 the company acquired Empresa Administradora Chungar S.A.C., as well as Empresa Explotadora de Vinchos Ltda. S.A.C., owners of the Animón and Vinchos mines, respectively. The total purchase price was US$ 20 million and 16 million Class B shares in Volcan.

The Vinchos silver mine opened in 2004 and produced more than 6 million ounces of fine silver up to the 31st of December 2009.

In 2006 Volcan acquired the Zoraida mine from Minera Santa Clara and Llacsacocha S.A. In 2007 it acquired 100% of Compañía Minera El Pilar, owner of the El Pilar mine, which is contiguous with the Cerro de Pasco mine and open-pit workings. That same year exploration started on Compañía Minera Vichaycocha’s Rondoní copper project. In 2010 Volcan also acquired Compañía

History

Minera San Sebastián, whose mining concessions lie close to Cerro de Pasco.

On the 27th of January 2011, a general meeting of shareholders in Volcan Compañía Minera S.A.A. approved a “simple reorganization” of the Cerro de Pasco Mining Unit. The aim of the reorganization was that each mining unit would independently manage improvements in its operating results by reducing costs and seeking growth. As a result, Volcan Compañía Minera S.A.A. received shares representing 99.99% of the capital of Empresa Administradora Cerro S.A.C., which is now a Volcan subsidiary.

Since 2000, in addition to the acquisitions mentioned above, the company has focused on integrating all the new companies, placing special emphasis on reducing costs and increasing their reserves and resources. Under the leadership of Dr. Roberto Letts Colmenares, majority shareholder and President of the board of directors until his death in 2010, Volcan expanded its operations and became the principal producer of silver and lead in Peru and the second largest zinc producer. The company is also one of the ten largest global producers of silver, lead and zinc.

Volcan Compañía Minera S.A.A. is a mining company incorporated by public deed on the 1st ofFebruary 1998, by notary public Dr. Abraham Velarde Álvarez, arising from the merger between Volcan Compañía Minera S.A. and Empresa Minera Mahr Túnel S.A. registered at the Public Mining Records Office under entry Nº one, item 41074 entry 11363057 of the Lima Companies Registry. The company is engaged in exploration, extraction and refining of minerals on its own account and on behalf of subsidiaries, including extraction, concentration and treatment. Volcan is responsible for the sale of all products and concentrates. Its activities are covered by ISIC Code Nº 1320 – mining of non ferrous metal ores. The duration of the company is indefinite and limited only to the availability of ore reserves, which may also vary as a function of investment by the company in exploration, and its results.

Volcan Compañía Minera S.A.A. is quoted on the Lima Stock Exchange (BVL), on the Santiago de Chile Stock Exchange and on Latibex at the Madrid Stock Exchange.


Location of the Company’s Main Mining Properties 13

Letter to the shareholders 14

General Economic Report 18

Growth Prospects 19

Perú 2011:Production Ranking – Fine Metal Content 21

Operations 24

Exploration 42

Reserves and Resources 50

Projects 60

Energy 68

Occupational Health and Safety 72

Social Responsibility and the Environment 76

Personnel Management 82

Analysis of Financial Results and Investments 86

Audited Financial Statements 94

Board of Directors and Senior Management 108

Stock Market Information 115

Corporate Information 118

Table of Contents Pag


This document contains accurate and sufficient information

on the performance of Volcan Compañía Minera S.A.A. during

2011.

The information contained in this document must not be used

on its own as a basis for investment decisions.

March 2012

José Picasso Salinas

Chairman of the Board of Directors

Declaration of responsibility

Juan José Herrera Távara

Chief Executive Officer


Production Indicators

Changes in Concentrate Production

0.0

2.0

4.0

6.0

8.0

10.0

Changes in Annual Production and Grades

0

100

200

300

400

500

600

700

800

Mill

ion

MT

Tho

usa

nd

MT

Gra

des

Mlil

lion

ou

nce

s A

g


Sales(Million US$)

EBITDA(Million US$)

Financial Indicators

0

200

400

600

800

1000

1200

1400

0

100

200

300

400

500

600

700

800695

2007* 2008* 2009* 2010 2011

241280

509

629

Net Profit(Million US$)

Operating cash flow(Million US$)

0

50

100

150

200

250

300

350

400

450397

2007* 2008* 2009* 2010 2011

177 170

253

329

050

100

150

200

250

300

350

400

450

500

416

2007* 2008* 2009* 2010 2011

175

256

354

469

Calculations up until 2009 have been made based on Peruvian Generally Accepted Accounting Principles (GAAP). Starting in 2010, calculations are based on IFRS standards.


Board of Directors

José Picasso Salinas;


Felipe Osterling Parodi;

Vice Chairman of the Board of Directors

José Ignacio De Romaña Letts, Director

Daniel Maté Badenes, Director

Gonzalo Andrade Nicoli, Director

Pablo Moreyra Almenara, Director

Víctor Gobitz Colchado, Director

Sunset in Chungar


Senior Management

Juan José Herrera TávaraCEO

Juan Ignacio Rosado Gómez De La TorreDeputy CEO

Roberto Maldonado Astorga Chief Operations Officer

José Montoya StahlChief Planning Officer

José Carlos del Valle CastroChief Finance Officer

David Brian GleitBusiness Development Manager

Jorge Murillo NuñezFinancial Planning and Control Manager

José Antonio Cuadros ObandoOperations Manager of Empresa Administradora Cerro S.A.C.

Edgardo Zamora Pérez Operations Manager of Empresa Administradora Chungar

Herman Flores ArévaloGeneral Superintendent of Compañía Minera Alpamarca

Adolfo Torre GonzálesGeneral Superintendent of Vinchos Unit

Ulises Oliveros SalasCorporate Project Manager

Pedro Martínez RecioResearch and Metallurgical Project Manager

César Farfán BernalesRegional Explorations Manager

Eduardo Julio Magnasco La Torre Operational Excellence Manager

Felipe Injoque EspinozaSocial Responsibility Manager

José Estela Ramírez Energy Manager

Mario Eduardo De las Casas Vizquerra Logistics Manager

Néstor Hernán Astete AnguloHuman Resources Manager

Roberto Servat Pereira de SousaLabor Relations Manager

Paolo Cabrejos Martin Commercial Manager

Carlos Eduardo Flores TrellesInformation Technology Manager

Pedro Navarro NeyraTreasury and Administration Manager

Pedro Torres TorresAccounting and Tax Manager

Juan Begazo VizcarraAudit Manager

Alfonso Rebaza GonzálezLegal Manager

Jorge Luis Cotrina LunaHead of Shareholders’Services


Corporate Structure

4%

100%

100%

100%

100% 99.9% 99.9% 100%

50%

44%

80%20%

99.9% 100%

Volcan Compañia Minera S.A.A.

EmpresaAdministradoraChungar S.A.C.

Empresa deGeneración Eléctrica RíoBaños S.A.C.

CompañiaEnergética del

Centro.

CompañíaMinera

Alpamarca S.A.C.

ShalcaCompañia

Minera S.A.C.

MineraAurífera

Toruna S.A.C.

CompañíaMinera

Huascarán S.A.C.

Whitemol(Panamá)

CompañíaIndustrial Limitada

de Huacho S.A.

CompañíaMinera Vichaycocha

S.A.C.

EmpresaMinera

Paragsha S.A.C.

EmpresaExplotadora deVinchos S.A.C.

EmpresaAdministradoraCerro S.A.C.*

MineraSan Sebastían.

CompañiaMinera

El Pilar S.A.C.

Compañia MineraSanta Clara yLlacsacocha

99.5%

99.5%

80%

99.9%


1. Location of key Mining Properities of the Company

Mines

Prospects

Hidroelectric Plants

Concentrator Plants

Concessions

Third Party Mines


2. LETTER TO THE SHAREHOLDERS

Gentlemen:

A little more than a decade ago, with the purchase of

Empresa Administradora Chungar, Volcan successfully

completed a process of acquisitions that had started with

Mahr Túnel in 1997 and Paragsha in 1999. This important

milestone marked the start of a new stage in the 69 year

history of Volcan Compañía Minera.

The first decade of the present century saw a massive

transformation of the world we had come to know in the

last century. This transformation was led by the expansion

of China and its opening to the world, displacing Europe

and the United States as leaders of economic policy.

Similarly, the crisis afflicting the world powers has given

Latin America an opportunity to meet the needs that the

crisis-hit countries are unable to cover, to a certain extent,

and has become a destination for new investment. In this

scenario, Peru has become an interesting destination,

and within it, Volcan is an important company with great

potential still to be discovered.

During this decade, Volcan was not unaffected by the

global crisis, but with creativity, hard work and the support

and confidence of our shareholders, we have consolidated

the company and steered it successfully through the period

of crisis.

Now, Volcan has entered a new stage in its history. The

company has sought out the best talent available in Peru and

abroad, it has reinforced each of its different departments

and has promulgated its mission, vision and values. We

are convinced that we have the ingredients necessary to

make this new stage in the life of the company a period

of growth in which Volcan positions itself as one of the

best mining companies in Peru and in the region. We have

the natural resources, we have the mining experience, we

have the determination, and above all, we have the human

talent to achieve this.

2011 was a year of great uncertainty both internally and

externally. In foreign affairs, the European crisis continued as

the main concern, while in the domestic arena presidential

elections and possible changes in economic policy fueled

Peruvians’ expectations. It is worth mentioning that there

are some signs from the new government suggesting its

economic policy will favor growth, and this has eased fears

in the market. This is reinforced by GDP growth in 2011,

which was 6.92%, putting Peru among the countries with

the highest growth in Latin America last year.

Internationally, as a result of financial volatility and

turbulence, most stock markets shrank, reflecting greater

risk aversion during 2011. International prices for the

principal metals we produce were very volatile, particularly

towards the end of 2011. Nevertheless, if we compare

average prices to those of 2010, there were increases of

1.2% for zinc, 12.2% for lead, 17.1% for copper and

73.8% for silver.

Taking our financial results into account, despite the global

economic crisis the company’s sales in 2011 were 24%

higher than in 2010, rising from US$ 981 million in 2010 to

US$ 1,212 million in 2011.

Net earnings also increased by 30% from US$ 253 million

in 2010 to US$ 329 million in 2011. We should also

mention that 2011 was the first year in which the use of

IFRS accounting standards was obligatory and this had an

impact on net earnings of approximately US$ 41 million,

as the net earnings figure reported by the company in

February last year, using Peruvian Generally Accepted

Accounting Principles (GAAP), was US$ 372 million.

In general terms, the increase in sales and net profit in 2011

compared with 2010 is the result of hard work by all in


José Picasso Salinas, Chairman of the Board

the company, as well as better prices, principally for zinc

and silver. These increases, however, were partly offset by

an increase in our unit production costs, following global

trends in the industry.

The company’s cash position at the close of 2011 was

US$ 154 million, compared with US$ 135 million at the

end of 2010. This cash position at the end of 2011 is net

of investments worth US$ 275 million, 15% higher than

investments of US$ 239 million made in 2010.

In addition to this cash position at the close of 2011, the

company had a successful international bond issue in

January 2012. This started in the last quarter of 2011 and

generated considerable demand from investors all over

the world,culminating in the company obtaining financing

worth US$ 600 million, maturing in 10 years and at a very

competitive rate. The current cash position gives us the

funds we need to invest in our growth projects.

On the operations side of the business the results were

satisfactory, as we invested in important improvements

during 2011, in both mines and concentrator plants, aimed

at making our infrastructure more efficient and, therefore,

reducing the company’s costs.

It is also worth mentioning that our Cerro de Pasco mine

will become the company’s main silver producer, after

construction of the silver oxides plant, which is scheduled

for completion in 2013. We are also seeking a better

metallurgical process for treating silver-bearing pyrites and

we expect to increase recovery of silver from pyrites to

more than 60%.

The good performance of Empresa Administradora

Chungar during the year should be emphasized; operating

costs were reduced through good planning, focusing on

main access roads and improvements in mining methods,

pumping systems and machinery refurbishment. The

increase in plant capacity to 5,200 tons a day is under way

and is expected to be finished at the end of 2012.

The Yauli dome, a world-class deposit, was responsible

for 50% of the company’s income. Each one of its mines

and metallurgical plants hasbeen subject to an exhaustive

analysis aimed at bringing the operation up to the highest

standards of operational excellence.

Alpamarca is worthy of a separate mention. After several

good years of production we decided to halt mining in

order to re-evaluate the mine and plan to make better

use of it. Over the last two years we have invested in

geological exploration, both inside the mine and in defining

how far the existing open pit can be expanded. We have

also completed the engineering details of the future

concentrator plant with a capacity of 2,000 tons a day,

which will also treat ore from Río Pallanga and the old mine

at Carhuacayán. Today, after several years of hard work,

we can announce that we have completed the acquisition

of all the concessions of the old Carhuacayán mine.

I would like to emphasize the importance of the latter as,

geographically, Alpamarca, Río Pallanga, Chungar, and our

Carhuacayán regional exploration project make up a new

focus for mining development, just as Cerro de Pasco and

Yauli are today.

In summary, the silver oxides projects at Cerro de Pasco,

the commissioning of Alpamarca and Rio Pallanga and

the expansion of the Chungar plant will, over the next 20

months, contribute 6 to 10 million ounces of new silver

production a year. In addition, we have the silver pyrites

project, which it is estimated will produce around 3 to 6

million ounces a year. All of these projects will consolidate


Volcan as Peru’s largest silver producer and one of the

largest silver producers in the world.

As far as increasing our copper production through our

Rondoní project, 90,000 meters of diamond drilling during

2011 have revealed 60 million tons of resources. During

2012 we should complete the exploration phase with

drilling in the Acejar zone, which will tell us whether the

outcrops are similar to the Rondoní deposit. We will have

this information by the middle of 2012. We estimate that

if the expected potential is confirmed, the mining project

should start in 2013 producing an estimated 40,000 to

50,000 tons of fine copper.

I would also like to mention the achievements of our

regional exploration projects such as San Sebastián,

Zoraida, Palma, Oyama, El Muki, and, as mentioned earlier,

Río Pallanga and Carhuacayán. All of these projects are

contained within our 315,000 hectares of concessions in

the central highlands of Peru and have great potential for

growth.

In the case of San Sebastian, a geological survey of the

whole mine was carried out,and as at the date of the

annual general meeting the first diamond drilling should

have been undertaken. We expect to have the first results

within the next 6 months.

In the medium term, Volcan expects to continue increasing its

production of base and precious metals throughaggressive

regional exploration programs and a systematic search for

opportunities outside our area of influence.

At the same time, efforts continued during 2011 to

make Volcan more self-sufficient in energy; significant

progress was made with the construction of the Baños V

hydroelectric power station, which will start production

in April of this year, providing the company with 10 MW

of power. In addition, in February 2012 another 20 MW

were added after the successful purchase of the Huanchor

hydroelectric station for US$ 46.7 million. These two

operations, in addition to the 13 MW of energy we already

generate, represent 43 MW, which is more than 50% of

the energy required by our existing operations.

Our other energy projects are progressing according to

plan, both the 60 MW Chancay project and our 180 MW

Belo Horizonte project located in Tingo María.

We should also mention that during 2011 we acquired

20.63% of Cementos Polpaico S.A., one of the main cement

producers in Chile, whose majority shareholder is Swiss

company Holcim S.A., the world leader in this industry. This

investment will provide us with an understanding of the

cement business (non-metallic mining) and bring us closer

to potential opportunities in the Chilean market.

Furthermore, we should mention that we remain committed

to strengthening our relationships with more than 50


rural communities, regional governments, local councils,

marginal settlements and other populated areas, with

which we have so far signed more than 80 agreements.

The company has also benefited approximately 180,000

inhabitants through the development of various activities

and projects.

Finally, in 2011 we continued with our initiative of reinforcing

the management team that started in 2010. As a result of

this work we believe we are better prepared to achieve our

growth objectives and to gradually consolidate our firm as

one of the safest and lowest cost mining companies. We

are currently working on various improvement initiatives to

help us to achieve these objectives.

Let me finish by thanking all our collaborators for their

dedication, effort, hard work and commitment to the

company and its goals.

I would also like to acknowledge the shareholders’ backing

and commitment to the activities and achievements of

Volcan.

Yours faithfully,

José Picasso Salinas



3. General Economic Report 2011

Financial summary of the world economy

Global financial volatility and turbulence resulted in most stock exchange indices falling to reflect greater risk aversion during 2011.

Stock market losses were accentuated by a severe debt crisis in the Euro zone. Falls on European stock exchanges were particularly steep, principally in Greece (more than 50%), Portugal (20%) and France (18%). Furthermore, Asian markets fell between 4% and 21%, whilst in Latin America, the Argentine bourse fell 27% and that of Brazil 18%. Following this trend, the general index of the Lima Stock Exchange (IGBVL) also fell by 16.7% to close the year at 19,473.7 points.

The impact on money markets was varied, with a significant effect on the financing of European banks. This translated into restricted access to the markets and an increase in the risk of a scarcity of collateral and bank rates that make financing more expensive. Although the American markets were not severely affected, there is a risk that contagion from the Euro zone will have a greater impact on credit conditions.

These financial problems occurred at a time when greater regulatory capital requirements had to be met, putting pressure on the balance sheets of European banks and potentially causing deleveraging (or credit crunch), further increasing the risk of a recession in the Euro zone.

Finally, and in contrast to the events mentioned above, emerging economies performed very favorably, particularly their financial stability, as measured by the World Economic

Forum (WEF) Financial Development Index 2011. Thus Chile (7), Brazil (11) and Peru (17) are in the top twenty countries in the world using this indicator.

Macroeconomic Summary - Perú

As mentioned above, the final months of 2011 were notable for economic instability and financial tension in Europe and the United States. The global economy decelerated while the more dynamic emerging countries grew much faster than the more sluggish developed countries.

Even though turbulence in Europe and the United States affected the financial markets and translated into greater market volatility and reduced flows of capital, emerging economies continued to grow based on strong internal demand and high raw materials prices. Peru in particular stood out as having one of the highest GDP growth rates in Latin America during 2011, at 6.92% though growth was tending to moderate as a result of reduced dynamism in domestic demand, explained mainly by public spending and, to a lesser extent, by a deceleration in private investment.

As far as other economic indicators for Peru were concerned, inflation measured by the change in the retail prices index was 4.74%, while the wholesale prices index rose by 6.26%. Peru’s currency continued to strengthen and closed the 2011 at 2.697 PEN/US$, a change of -4% compared with the figure of 2.809 PEN/US$ at the close of 2010.


4. Growth Prospects

During 2011 we defined a vision for the company for the next 10 years with a view to taking specific action leading to continual growth.

The company’s board of directors has approved this vision as follows:

“By 2021 we aim to be one of the principal Latin American mining companies, diversified among base and precious metals, leader in growth and operational excellence, and acting in accordance with social responsibility, good corporate governance and with a committed and highly qualified team.

If we look specifically at the growth in production, this announcement has many implications for the company’s track record of leadership in the base and precious metals business. For many years Volcan has been an internationally important producer of zinc, lead and silver, and is the main producer of these metals in Peru. In the Wood Mckenzie Silver Institute 2010 world ranking, Volcan was the world’s sixth largest zinc and silver producer, and its ninth largest producer of lead. In the same year, Volcan was the largest producer of zinc, lead and silver in Peru.

We expect to maintain this leadership in future years, given that the company’s strength lies in its long life of mine, as well as the enormous potential of the 315,000 hectares of mining concessions it currently possesses.

The majority of Volcan’s mines are underground mines. As far as life of mine is concerned, Volcan has been increasing its life of mine based on reserves from 9 years in 2006 to 17 years in 2011, and the life of mine including measured and indicated resources, from 14 years to 27 years in 2011. This situation is clearly one of the strengths of Volcan, not only because it is a successful demonstration of a substantial

increase of approximately 90% in reserves and resources over the last 5 years, but also because this means stable production and operating cash flow, which is the basis for financing our planned growth.

By diversifying in base and precious metals Volcan intends to extend its operations to increase zinc and lead production organically, while seeking to increase its silver and copper production significantly from these expanded operations and also from new projects.

In the short term, Volcan is taking action to increase silver production from the silver oxides project at Cerro de Pasco, Alpamarca - Río Pallanga and an expansion of its plant at Chungar. All these projects are being implemented in line with estimated timelines and budgets. We expect the first two to start production by the second quarter of 2013 and the third during the fourth quarter of this year. Silver production from these three projects is estimated at 6 to 10 million ounces a year.

Furthermore, the silver pyrites project is in the pre-operation stage and produced 1.25 million ounces in 2011. It is hoped that similar levels of production will be obtained in 2012, while we decide on the metallurgical process for the construction of either a fine milling and/or leaching plant. We estimate that pyrites production when the metallurgical process has been defined will be around 3 to 6 million ounces a year. All of these projects should increase silver production by more than 50% in the next few years, consolidating our position as one of the largest silver producers in the world.

As far as copper is concerned, Volcan expects to increase production through the Rondoní project. A pre-feasibility study should be completed this year, as well as an aggressive exploration program to complement the successful


program carried out in 2011, which revealed more than 50 million tons of measured and indicated resources. It is estimated that if the expected potential is confirmed, the project should start in 2013 and be producing 40,000 to 50,000 tons of fine copper by the end of 2015.

In the medium term, Volcan expects to continue increasing its base and precious metals production through aggressive regional exploration programs and a systematic search for opportunities outside its area of influence.

Regional exploration for zinc and lead involves projects such as Palma, San Sebastián and Carhuacayán. For silver we have projects such as Río Pallanga, Zoraida and Islay. Finally, our copper projects include Oyama, Carhuacayán and Muki. All of these projects are contained within our 315,000 hectares of concessions in the central highlands of Peru and have great potential for growth.

Not the least of its strengths, Volcan possesses a highly qualified team in the fields of business development and regional exploration. This team is evaluating opportunities in the different target metals. Our aim is to seek project opportunities in the different stages of exploration, as well as mines currently in production, through a systematic methodology concentrating on these metals.

Thanks to the expansion of our existing operations, to the mining projects we are successfully developing, to exploration projects with great potential that have already been identified, to exploration of new prospects on our 315,000 hectares of concessions and to the systematic search for new opportunities, Volcan expects to become one of the main mining companies in Latin America with a diversified portfolio of base and precious metals, and a leader in growth.


5. Peru: 2011 Production Ranking – Fine Metal Content

Source: MEM Statistics


Mineral Reserves and Resources

OPERATIONS


6. Operations

Our operations are divided into three Economic Administrative Units (UEA): Yauli, Cerro de Pasco and Chungar.

Mining units

Each mining unit consists of one or more mines and treatment plants, as described below:

UNIT MINE PROCESSING PLANT

Yauli San Cristóbal La Victoria

Andaychagua Mahr Túnel

Ticlio Andaychagua

Carahuacra

Cerro de Pasco Tajo abierto Raúl Rojas Paragsha

Mina Subterránea San Expedito

Chungar Animón Animón

Islay

UEA Yauli

UEA Yauli is 40 kilometers from La Oroya and 170 kilometers

from Lima. It is accessible by road and rail. The unit consists

principally of four underground mines. The ore is treated

at three concentrator plants which have a joint capacity

of 9,600 MT a day. During 2011, the three concentrator

plants treated 3,508,555 tons of head ore having grades

of 4.87% Zn, 0.85% Pb, 0.15% Cu and 3.58 oz Ag/t and

representing around 52% of Volcan’s total sales.

By December 2011, the unit’s proven and probable

reserves represented a life of mine of approximately 10

years at current installed capacity. Additionally, measured

and indicated resources increase the life of the mine by an

average of 4 years.

Concentrate production was 287,704 tons of zinc, 47,871

tons of lead, 10,822 tons of copper concentrate and

11,189,799 ounces of silver concentrates. During 2011 we

purchased ore from third parties for treatment at the Mahr

Túnel plant.

Concentrate production and metal contents at UEA Yauli

are shown below:


FINES

Zinc (MT) 155,213

Lead (MT) 25,702

Copper (TMS) 2,088

Silver (Oz) 11,189,799

CONCENTRATES

Zinc (MT) 287,704

Lead (MT) 47,871

Copper (MT) 10,822

TOTAL YAULI 2011

PROCESSED (MT) 3,508,555

Grades:

Zn (%) 4.87

Pb (%) 0.85

Cu (%) 3.58

Ag (Oz) 3.58

Mines

San Cristóbal Mine

During 2011 the unit mined and treated 1,561,567 tons

of ore having average grades of 0.15% Cu, 0.62% Pb,

5.41% Zn and 3.24 oz Ag/t. Annual exploration reached

2,249 meters, 9,971 meters in development and 5,905

meters in preparation. 11,396 meters of diamond drilling

were performed. Average daily production was 4,278 tons.

In order to improve operating standards we increased

support equipment such as mechanized scalers, jumbos

and shotcrete equipment. A program of chimneys was

implemented using raise borer technology, to improve

primary and secondary ventilation.

More roof supports were installed in the main roads of

old workings. Modern Simba deep drilling equipment was

acquired and will enable us to increase drilling speed and

accuracy.

Furthermore, we started to surface the access ramps, which

will reduce road maintenance and ore transport costs by

reducing consumption of spare parts.

Andaychagua Mine

During 2011, Andaychagua mine produced 705,922 tons

of ore with average grades of 0.12% Cu, 1.09% Pb, 5.16%

Zn and 6.15 oz Ag/t. Annual exploration amounted to 620

meters, with 5,668 meters under development and 4,306

meters under preparation. 5,595 meters of diamond drilling

were performed. Average daily production was 1,934 tons.

During the year priority was given to standardizing work,

improving the cemented filling system, and renewing the

mine’s fleet.

The pumping system on level 1000 also started operating

and work began on refurbishing the old pumping system to

include parallel lines to increase systems safety.

Ticlio Mine

During 2011 the Ticlio mine produced 326,380 tons having

average grades of 0.32% Cu, 0.99% Pb, 4.42% Zn and

1.62 oz Ag/t. Annual exploration amounted to 2,581

meters, 3,073 meters in development and 3,437 meters in

preparation. 3,608 meters of diamond drilling was carried

out. The averageproduction of the mine was 894 tons a day.

Ore is mined principally from the Ramal Techo vein in the

Huacracocha and Borrachitos zones, using the deep drilling


During 2011 UEA Yauli processed 3,508,555 tons of head ore, with grades of 4.87% for Zinc, 0.85% for Lead, 0.15% for Copper and 3.58 oz Ag/t, which represent around 52% of Volcan’s total sales.


method with mechanized supports.

At present we are implementing a new pumping system

on level 10, which will enable us to mine at deeper levels

thanks to the good results produced by diamond drilling.

It is important to highlight achievements in exploring

the Ariana ore body as this will enable us to increase the

volume and quality of the mine’s production.

Carahuacra Mine

During 2011 the Carahuacra mine produced 238,095

tons of ore with average grades of 0.24% Pb, 6.79% Zn

and 1.92 oz Ag/t. Annual exploration amounted to 667

meters, 829 meters in development and 1,525 meters in

preparation. 5,954 meters of diamond drilling was carried

out. Average production from the mine was 652 tons a

day.

Ore was extracted principally from the Yanina, Mary and

ML veins and the Huaripampa ore body. The ventilation

system was improved by the construction of a chimney

using the raise borer technique.

Furthermore, construction started on ramp 327 to level

1020, which by 2012 will enable us to operate the mine

using mechanized supports, jumbos and scoops of higher

capacity, as well as deep drilling into the Mary and ML

veins.

Carahuacra Norte or Gavilán Open Pit

The Carahuacra Norte or Gavilán open pit mine contributed

322,628 tons of ore during 2011, having average grades of

0.26% Pb, 1.83% Zn and 4.48 oz Ag/t. Production from

Carahuacra Norte offset the reduced production of Ticlio

and San Cristóbal mines.

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Concentrator plants

Victoria Plant

During 2011 this plant processed 1,498,058 tons of ore

having average grades of 0.56% Pb, 5.17% Zn and 3.06 oz

Ag/t; obtaining 131,562 tons of zinc concentrate; 14,578

tons of lead concentrate and 3,901,143 ounces of silver

in the concentrates; metal recovery was 91.51% for zinc,

80.76% for lead and 85.12% for silver.

Investments were made to optimize the crushing and

filtering processes and tailings disposal. Special attention

was paid to the plant infrastructure in order to improve

operating standards. Also in 2011, a further extension to

the Rumichaca tailings dam was built. Engineering studies

on improvements to the crushing process were carried out

and a project aimed at increasing the plant’s production to

4,250 tons a day was begun. Furthermore, studies into the

new tailings dam at Chumpe continued; this project will

ensure a further 35 years of operation for the plant.

Mahr Tunnel Plant

In 2011 this plant processed 995,300 tons of ore having

average grades of 0.31% Cu, 1.29% Pb, 4.74% Zn and 2.72

oz Ag/t, obtaining 79,500 tons of zinc concentrate, 17,458

tons of lead concentrate, 9,978 tons of copper concentrate

and 2,226,371 ounces of silver in the concentrates. Metal

recovery was 90.18% for zinc, 87.46% for lead, 62.58%

for copper and 82.31% for silver.

Planta Andaychagua

During 2011 the plant processed 969,030 tons of ore

having average grades of 0.10% Cu, 0.87% Pb, 4.71%

Zn and 5.27 oz Ag/t, obtaining 76,641 tons of zinc

concentrate, 15,589 tons of lead concentrate, 573 tons of

copper concentrate and 4,937,062 ounces of silver in the

concentrates. Metal recovery was 91.42% for zinc, 90.06%

for lead, 13.17% for copper and 96.76% for silver.

Concentrate Production - Yauli

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Outlook

The future strategy for UEA Yauli is based on the

consolidation of reserves and resources to enable planning of

exploitation and to evaluate alternative means of increasing

production. The results of the exploration program prove

the continuity of the most important underground veins.

There are two regional exploration projects: the Zoraida

project and the Oyama project. Both projects are located

near Andaychagua. The Zoraida project is an opportunity

to increase the production of Andaychagua, given that it

is a polymetallic deposit that can be treated at that plant.

Oyama is a copper project that is currently in the exploration

study and geological modeling stage.

By the end of 2012 we plan to increase the capacity of

the Victoria plant to 4,250 tons per day and that of the

Andaychagua plant to 3,200 tons per day. The basis for this

expansion is the increase in production from Carahuacra

and San Cristóbal. We will also continue with infrastructure

and process improvements with the installation of Courier

6iSL at the Victoria and Andaychagua plants. Expansion

of the Andaychagua Alto, Rumichaca and Nº 6 tailings

dams will continue in order to guarantee sufficient tailings

storage capacity. The most important project is the Chumpe

tailings dam, which is still in the engineering development

stage, which should be completed during 2012, ready for

construction to start in 2013.

At present we are continuing with infrastructure

improvements, and among the most important projects

is the construction of the Roberto Letts shaft, which will

reduce transport costs and improve the productivity of

the Andaychagua mine. We are also working on the

mine communication system, with a view to improving

communications and data flow, optimizing coordination

and increasing the monitoring of personnel and equipment,

which will be reflected in better control of operating cycles

and increased productivity.

It is important to mention that the UEA Yauli has

experienced significant growth in recent years and is now

responsible for approximately 50% of the company’s

sales. For this reason, at the end of the year it was found

necessary to restructure the organization of this unit in

accordance with our objectives, in terms of safety, process

improvementand management of operational excellence

standards, productivity improvements and cost reduction.

Thus the Andaychagua Operations Department, the San

Cristóbal Operations Department and the Ticlio General

Superintendent’s Office were created. This new structure

will enable better control of the operations and achieve our

goals.

UEA Cerro de Pasco Empresa Administradora Cerro

UEA Cerro de Pasco is located in the district of Cerro de Pasco

in the department of Pasco; it is accessible from the Central

Highway and is approximately 295 kilometers from Lima.

The unit consists of the Paragsha underground mine and

the Raúl Rojas open pit. The Raúl Rojas open pit is close to

the town of Cerro de Pasco, which has 70,000 inhabitants.

The ore is processed at 2 concentrator plants: Paragsha,

which has an approximate capacity of 6,500 tons of ore

per day, and San Expedito, with an approximate capacity of

1,500 tons per day.

During 2011, ore from the underground mine and open pit

was processed at the Paragsha concentrator plant together

with additional ore from Vinchos and Islay (Chungar),


which were processed separately. The San Expedito

plant processed ore from the silver pyrites stockpiles.

The consolidated production of Cerro de Pasco in 2011

was 2,546,564 tons, representing approximately 18% of

Volcan’s total sales.

As at December 2011, Cerro de Pasco’s proven and probable

reserves, not including oxides or pyrites, represented

approximately 32 years of life of mine at the current capacity

of the Paragsha plant. In addition, measured and indicated

resources add 8 years to the average life of the mine.

Concentrate production and metal contents at UEA Cerro

de Pasco are shown below:


Raúl Rojas Open Pit

The production of the Raúl Rojas open pit amounted to

916,360 tons of ore,with grades of 0.91% Pb, 3.05% Zn

and 0.99 oz Ag/t.

Because of the reorganization of the unit, production from

the Raúl Rojas pit was halted from January to July 2011.

During the suspension, mineral processed came from the

Pb-Zn ore stock built up during the previous year. In August

2011 ore production from the open pit restarted with

Phase 3 on the eastern wall.

Underground Mine

Production from the underground mine amounted to

1,027,052 tons,with grades of 1.38% Pb, 5.22% Zn and

3.74 oz Ag/t. Development amounted to 10,881 meters,

with 6,091 meters in preparation and 2,895 meters being

explored. Diamond drilling totaled 18,557 meters. In

addition, 2,878 meters of regional exploration were carried

out making a total of 21,435 meters of diamond drilling.

During 2011 the acid drainage and neutral drainage

pumping systems were improved, making the integral

pumping system more reliable. We also continued with the

project to increase the pumping capacity of the mine in

order to program the development and exploitation of the

south eastern sector.

Production of Vinchos and Islay

Because of a reduction in production from the underground

mine and open pit, ore from Islay and Vinchos was brought

to the Paragsha plant for processing. As far as Vinchos was

concerned, 40,415 tons with grades of 1.28% Pb, 1.56%

Zn, 5.43 oz Ag/t were mined. At Islay 6,204 tons with grades

of 0.57% Pb, 0.92% Zn and 4.42 oz Ag/t were mined.

Production from Silver Pyrite Stockpiles

503,625 tons of silver-bearing pyriteswith grades of 0.61%

Pb, 0.36% Zn and 11.69 oz Ag/t were mined. This ore

was processed at the San Expedito plant as part of the

metallurgical research program of this project.

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Paragsha Plant

The Paragsha plant processed 2,047,502 tons of ore with

grades of 1.16% Pb, 4.05% Zn and 2.67 oz Ag/t, to obtain

36,339 tons of lead concentrate, 131,453 tons of zinc

concentrate and 3,812,337 ounces of silver in concentrates.

Metallurgical recoveries were 73.41% for lead, 74.02%

for zinc and 69.81% for silver contained in lead and zinc

concentrates.

During 2011 the grinding-regrinding circuits were

commissioned, simplifying the circuits and increasing

metal recovery.

The capacity of the water neutralization plant was increased

to 3,500 GPM, which now enables better treatment during

the neutralization process.

San Expedito Plant

During 2011 the San Expedito plant processed ore mainly

from the Cerro de Pasco and Vinchos mines. This plant

was also the only one processing the pyrites stockpiles as

part of the silver pyrite project. 499,062 tons of ore were

processed, producing 11.72 ounces of silver per ton of

mineral. Production was 12,293 tons of bulk commercial

silver containing 1,246,505 ounces of silver.

Concentrate Production – UEA Cerro de Pasco

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The consolidated production of Cerro de Pasco in 2011 was 2,546,564 tons, representing approximately 18% of Volcan’s total sales.


Outlook

The future strategy for UEA Cerro de Pasco concentrates

on strengthening the underground mining operation and

increasing silver production with the commissioning of

a silver oxides leaching plant. Metallurgical research into

lead, zinc and silver ores will also be increased.

Improvements to the production processes are also being

implemented, including better drilling and blasting, the

system for taking cement to the shotcrete plant inside the

mine, communications and the pumping and ventilation

systems.

As part of the optimization program, the company is

working on renewing the labor force, offering early

retirement schemes to some of the older collaborators.

Finally, the strategy for this unit involves two projects

aimed at increasing silver production. The first one

involves oxides with a high silver content and the second

is the concentration project for bulk silver in pyrites. These

projects are well supported by reserves and resources, part

of which consists of stockpiles accumulated on the surface,

which, therefore, involve low operating costs.

UEA ChungarEmpresa Administradora Chungar

UEA Chungar is made up of two underground mines:

Animón and Islay, and a concentrator plant with a

processing capacity of 4,200 tons a day.

During 2011 the unit processed 1,525,709 tons of head ore

with grades of 7.17% Zn, 1.46% Pb, 0.16% Cu and 3.91

oz Ag/t. Production of fines totaled 101,810 tons of zinc,

18,897 tons of lead, 1,015 tons of copper and 4,887,766

ounces of silver from the concentrate, which represented

approximately 30% of Volcan’s total sales.

As of December 2011, the unit’s proven and probable

reserves represented a life of mine of approximately 7 years

at its present installed capacity. Additionally, measured and

indicated resources add another 4 years to the average life

of the mine.

The following is a summary of concentrate production and

metal contents at UEA Chungar:

FINES

Zinc (MT) 101,810

Lead (MT) 18,897

Copper (MT) 1,015

Silver (Oz) 4,887,766

CONCENTRATES

Zinc (MT) 174,190

Lead (MT) 28,405

Cooper (MT) 4,208

TOTAL CHUNGAR 2011

PROCESSED MT 1,525,709

Leyes:

Zn (%) 7.17

Pb (%) 1.46

Cu (%) 0.16

Ag (Oz) 3.91


Mines

Animón Mine

In 2011 1,297,839 tons of ore with average grades of

8.11% Zn, 1.60% Pb, 0.18% Cu and 3.16 oz Ag/t were

mined. Exploration covered 3,726 meters while 7,409

meters were developed and 8,184 meters were prepared.

Average production per day was 3,605 tons.

In addition, 21,546 meters of diamond drilling were carried

out in order to evaluate the continuity of the deposits in the

deepest sections of the mine and to look for ore at higher

levels near to the operations area.

It is worth emphasizing that reserves increased by 1,300,000

tons compared with 2010, reaching 9,500,000 tons.

During 2011 a pilot exploitation project using deep drilling

was carried out on the Carmen vein. The aim was to

evaluate the possibility of increasing the mine production

by up to 20% using this method in 2012, thus reducing

costs, improving safety and increasing productivity.

Islay Mine

In 2011 250,113 tons of ore with average grades of 1.35%

Zn, 0.59% Pb, 0.03% Cu and 8.35 oz Ag/t were mined. The

diamond drilling campaign drilled 5,591 meters of test bores.

Other concessions were integrated into the Islay mine,

obtaining very good results for volumes of resources and

reserves; 1,300,000 tons of resources and 1,175,000 tons

of reserves. The development of the structures favored the

integration with the Chungar concessions to the east, towards

the Quimacocha zone.

During 2011, 46,946 tons of ore from the Islay mine were

sent to Cerro de Pasco, for processing at the Paragsha plant.

Annual Production and Ore Grades – UEA Chungar

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Animón Plant

1,525,709 tons were processed in 2011, with head grades of 7.17% Zn, 1.46% de Pb, 0.16% Cu, and 3.91 oz Ag/t.

In the second half of 2011, improvements were made to the concentrator plant maintenance systems, enabling the operation and processing capacity to be increased, with

stoppages for maintenance every 45 days. In November work on the first stage of expanding the tailings dam was completed, giving us a storage capacity of 2.8 years of useful life.

Concentrate Production – UEA Chungar

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The future strategy for UEA Chungar is based on consolidating the plant capacity at 5,200 tons a day. The expansion process is expected to be completed during the fourth quarter of 2012. Furthermore, work is going ahead on the project to automate the Animón and Islay mines.

At Animón mine we are continuing to develop 1.5 km of the main vein towards the east. This zone is where the Jacob Timmers shaft is being sunk, which will have a capacity of 5,000 tons a day and should be completed during the first half of 2012.

Among the improvements to be implemented in the plant is the automation of all processes, which will produce a

more modern facility, giving a rapid metallurgical response and optimum results. Another important project that complements the operation of the concentrating plant is a new tailings dam, which will guarantee the operation for at least a further 10 years. In addition, we are carrying out a study of paste backfilling in the underground mine, which will provide a closed circuit and minimize production of tailings sent to the tailings dam.

Long-term strategies include reviewing and improving operating processes in order to reduce costs. For this reason we are looking at changing the extraction method from cut and fill stoping with conventional drilling to vertical drilling using long drills.

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EXPLORATION


7. Exploration

Volcan has a regional exploration program concentrated on central Peru, aimed at discovering and increasing mineral resources that will enable us to replace our reserves and increase the life of our operations, as well as to diversify its metals portfolio. Thus in addition to exploring polymetallic deposits, Volcan has mainly developed silver and copper projects.

In the last five years we have carried out more than 290,000 meters of diamond drilling, as shown below:

YEAR 2007 2008 2009 2010 2011

METERS 50.000 66.000 18.000 67.000 92.000

This has enabled Volcan to develop successfully zinc, lead and silver projects such as Alpamarca, Palma and San Sebastián; silver projects such as Islay, Río Pallanga and Zoraida; and copper projects such as Rondoní and Oyama. Thus, during 2011 exploration led to mining in Alpamarca; the definition of reserves and resources on the Rondoní and Río Pallanga projects; the definition of resources for the Oyama project and preliminary diamond drilling on the Palma and San Sebastián projects.

It should be mentioned that at the end of 2011 we purchased 100% of 3,800 hectares of mining concessions making up the Muki mining project near the city of Huancayo, which shows evidence of copper mineralization. The exploration program will start during 2012.

A diamond drilling program of around 45,000 meters is planned for 2012 for all the exploration projects, in addition to a program of 80,000 meters at Rondoní.

Finally, in 2012 Volcan will seek to expand its horizons, exploring and evaluating -as in previous years- new opportunities outside its existing operations, thus generating growth throughout Peru.

Yauli Region

The Yauli dome consists of a “structural window” in the central Andes where there are important polymetallic

operations such as those of Volcan, and the Pan-American Silver and Chinalco groups.

The mining districts of Morococha and San Cristóbal, located in Yauli, are considered to be world class, contain mineralogies related to epithermal polymetallic systems, replacement bodies and polymetallic vein systems, as well as porphyry and skarn mineralization, which suggest that the area has great potential.

Oyama-Triunfo

The Oyama-Triunfo project is located on the eastern flank of the Chumpe anticline to the north of the Andaychagua mine an east of San Cristóbal. Its outcrops correspond to the eastern end of the San Cristóbal vein. Old workings and diamond drilling in the area reveal significant grades of copper and silver in the structure. The mineralization takes variable forms, such as veins, breccias and irregular disseminations in volcanic rocks associated with the San Cristóbal vein.

During 2011 we carried out 2,917 meters of diamond drilling, which indicated the presence of an estimated 4,800,000 tons of mineral with average grades of 0.76% Cu and 0.87 oz Ag/t; and 2,500,000 tons of inferred resources, with average grades of 0.63% Cu and 0.77 oz Ag/t.


Resources Million MT %Cu %Pb %Zn Oz - Ag/t

Measured - - - - -

Indicated 4.8 0.76 0.02 0.23 0.87

Inferred 2.5 0.63 0.03 0.19 0.77

Oyama-Triunfo

In 2012 we plan an intense program of diamond drilling that will define the mineralization as a whole, so that we can estimate resources of around 6 million tons with a similar grade.

San Nicolás

San Nicolás is located 4 km from the Andaychagua mine. The mineralization takes the form of infilling of empty spaces, consisting of a system of veins, and hydrothermal

breccias, forming part of the San Cristóbal mineralogical complex.

In 2011 we carried out 4,200 meters of diamond drilling. Resources were estimated at 370,000 tons of ore with grades of 2.31% Zn and 2 oz Ag/t.

This project is in the preliminary phase and it is expected to be developed at the start of 2012.

Resources Million MT %Cu %Pb %Zn Oz - Ag/t gr Au/t

Measured - - - - - -

Indicated 0.12 0.13 0.05 2.31 2.33 -

Inferred 0.25 0.12 0.05 2.31 2.29 -

San Nicolás

Zoraida

Located in the district of Suitucancha, 7 km south of Andaychagua, this prospect contains polymetallic reserves, principally lead and silver. At present the environmental impact survey (EIS) has been approved by the Ministry of Energy and Mining and an exploration agreement has been approved by the Community of Suitucancha.

An intensive diamond drilling program will be implemented during 2012 to verify and extend the resources available in the area.

Zoraida is adjacent to other important polymetallic prospects held by UEA Yauli (Aerolito, Trafalgar, Milanza, Yacuarrumi and Pullca), whose exploration programs will be intensified.



Indicated - - - - - -

Inferred 0.68 0.02 1.16 0.76 2.43 -

Zoraida


In addition to exploring polymetallic deposits, Volcan has developed mainly silver and copper projects.


Cerro de Pasco Region

The Cerro de Pasco region is one of the world’s main areas of polymetallic mineralization (zinc, lead and silver) and apart from our Cerro de Pasco mine other large mines are operated by the Buenaventura and Votorantim groups.

Santa Rosa – Ayapoto (western sector)

Located to the south east of the Cerro de Pasco volcanic neck and west of earlier explorations such as Santa Rosa – Ayapoto, where disseminated gold and silver mineralizations were found, with grades reported in 2011

of 1.75 gr. Au/t and 3 oz Ag/t and resources of around 4 million tons.

We expect that in two or three years Santa Rosa – Ayapoto will contribute 7 million tons with grades of 1.5 gr Au/t and 2.5 oz Ag/t to the silver oxides project, which will be processed by the future oxides plant with a capacity of 2,500 tons per day, thus adding between 3,000,000 and 5,000,000 ounces of silver production per year.



Indicated 4 - - - 3 1.75

Inferred 1.3 - - - - 0.84

Santa Rosa – Ayapoto (wester sector)

San Sebastián

The old San Sebastián mine is located 1 km to the west of the village of La Quinua, in Cerro de Pasco, immediately to the south of the Atacocha concessions and surrounded by concessions owned by Milpo.

During 2011 we surveyed 80 hectares, representing 100% of the accumulated San Sebastián concessions.

A total of 1,640 meters of underground workings have been mapped and 7 mineralized structures defined.

Current production of the mine is 30 tons a day. In 2011 a total of 4,460 MT were mined, having average grades of 0.11% Cu, 5.96% Pb, 3.99% Zn and 8.01 oz Ag/t. The samples contain gold at around 1.3 gr. Au/t, from material accumulated in Cerro de Pasco



Indicated - - - - - -

Inferred 0.2 0.1 5.76 4.72 6.89 -

San Sebastián

During 2012 we will continue with the small-scale production program at a volume of 30 tons per day, to be increased to 50 tons per day. Furthermore, a

diamond drilling program will be undertaken, which will help to determine new mineral resources.


Chungar Region

Exploration of the Shalca project was carried out in 2011 aimed at investigating the likelihood of mineralization at depth in the Infalible vein. Nevertheless, the difficult nature of the rocks affected the diamond drilling so the work to cut or approach the deep vein was halted. Because of this situation, the Shalca project is undergoing a reevaluation.

Light mineralization is also found around the Shalca deposit, in Shipra creek. An evaluation will be carried out when work restarts on Shalca.

Initial exploration work was carried out in the area surrounding Animón mine, in the San Pedro conglomerate, in order to locate polymetallic mineralization associated with the mine, as well as to the south east of Islay, with a

view to investigating a possible mineralization correlation in the Islay-Chungar corridor.

Shipra – Shalca – Huayla

This complex is located near to the district of Pacaraos, province of Huaral, department of Lima. In addition to the exploration campaign carried out during the first half of 2011, there is a possibility of mineralization in irregular polymetallic breccias found in Shipra creek, which, with Huayla and Shalca constitutes a potentially interesting area.

The average grades found in 115 samples taken from the structure and surrounding areas in Shipra creek were as follows:

Width (m) %Cu %Pb %Zn Oz. Ag/t

2.04 0.05 1.92 5.08 2.5

Shipra – Shalca – Huayla

Lima Region

Palma

The old Palma mine belonged originally to Cedimin, who gave an option in 1985 to the Arias group (Simsa). From 1986 to 1990 it was explored and mined on a small scale, at a rate of 60 tons per day, by Mr. Jesus Arias, who exploited the mine until 1997 and decided not to exercise the option. Years later, it was acquired by the Buenaventura group who decided to extinguish the concessions, which were acquired by third parties. Finally, in 2009, Volcan obtained the concessions by staking a free claim and to date has consolidated all the old concessions that made up the Palma mine.

Exploration during 2012 will be centered on the area adjacent to Animón mine, with work restarting on outcrops on the surface of the San Pedro conglomerate to the north

The Palma project is located in the district of Antioquia, province of Huarochiri, department of Lima, at an altitude of 1,710 meters above sea level. The project is 100% owned by Volcan, through its subsidiary Empresa Administradora Chungar S.A.C. The project consists of 9 mining concessions covering a total of 6,821 hectares.

We plan to continue exploration work on this project in 2012.

east of the mine. We expect to find a polymetallic deposit with a potential of 720,000 metric tons of ore with grades of 1% Pb, 3% Zn and 2.5 oz Ag/t.



MINERAL RESERVES AND RESOURCES


8. Mineral Reserves and Resources

Reserves and mineral resources have been estimated in accordance with international standards of the Joint Ore Reserves Committee (JORC), as at the 31st of December 2011.

Mineral reserves include ore classified as proven and probable. Reported mineral resources are additional to the mineral reserves and include dilution. The prices used in the calculation are Cu: $6,500/ton; Pb: $1,800/ton; Zn: $1,800/ton; Ag: $15/oz.

RESERVES MT %Cu %Pb %Zn Oz - Ag/t

Proven 83,539,000 0.04 1.38 4.43 2.84

Probable 52,152,000 0.07 0.71 2.94 3.86

Total 135,691,000 0.05 1.12 3.86 3.23

Estimated mineral reserves are:

Historic variations in reserves - Volcan & Subsidiaries

YEAR MT (000) %Cu %Pb %Zn Oz/t - Ag

1996 2,318 0.00 1.10 8.80 2.90

1997 11,439 0.30 1.10 7.30 4.20

1998 11,247 0.30 1.20 7.50 4.00

1999 33,144 0.10 2.10 8.10 3.10

2000 46,769 0.10 2.10 7.70 2.90

2001 48,459 0.10 2.20 8.10 3.10

2002 51,467 0.10 1.90 7.00 3.20

2003 51,620 0.10 2.00 6.90 3.70

2004 58,680 0.10 1.60 5.80 3.50

2005 64,553 0.10 1.90 6.40 3.60

2006 76,455 0.10 1.70 5.80 3.60

2007 110,320 0.00 1.50 4.80 3.30

2008 123,129 0.00 1.30 4.20 3.10

2009 140,260 0.00 1.30 4.00 2.90

2010 148,429 0.06 1.15 3.85 3.05

2011 135,691 0.05 1.12 3.86 3.23


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Metal prices used in estimating reserves

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Copper S/tmf 1,850 1,850 2,000 2,000 2,000 2,500 5,000 5,000 5,000 5,000 6,500 6,500

Lead S/tmf 500 500 600 800 800 1,000 1,800 1,500 1,800 1,800 1,800 1,800

Zinc S/tmf 1,150 1,150 1,170 1,170 1,170 1,800 1,800 1,500 1,800 1,800 1,800 1,800

Silver $/oz 5 5 6 6 6 9 12 12 12 12 15 15

Gold $/oz 300 300 350 350 350 400 700 700 700 900 1,000 1,000

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Mineral Reserves

Proven and probable mineral reserves as at the 31st December 2011 are as follows.

Cu Pb Zn Ag CONTENTUNIT TYPE (%) (%) (%) (oz/t) Cu (t) Pb (t) Zn (t) Ag (oz) Million

Yauli Proven 14,885,000 0.14 0.94 5.91 4.77 20,800 139,700 879,700 71.0

Probable 17,468,000 0.15 0.91 5.35 3.79 27,000 158,900 934,600 66.3

Subtotal Yauli 32,353,000 0.15 0.92 5.61 4.24 47,800 298,600 1,814,300 137.3

C° Pasco Proven 61,224,000 0.00 1.46 3.85 2.21 895,900 2,356,400 135.6

Probable 27,240,000 0.00 0.40 1.18 3.97 110,000 322,300 108.2

Subtotal Cerro de Pasco 88,464,000 0.00 1.14 3.03 2.76 1,005,900 2,678,700 243.8

Chungar Proven 7,022,000 0.16 1.54 6.51 4.06 11,200 108,500 457,200 28.5

Probable 2,709,000 0.16 1.43 7.14 3.10 4,300 38,700 193,600 8.4

Subtotal Chungar 9,731,000 0.16 1.51 6.69 3.79 15,500 147,200 650,800 36.9

Alpamarca Proven 107,000 0.12 1.31 1.72 3.68 100 1,400 1,800 0.4

Probable 4,454,000 0.13 1.29 1.80 3.86 5,600 57,300 80,200 17.2

Subtotal Alpamarca 4,561,000 0.13 1.29 1.80 3.86 5,700 58,700 82,000 17.6

Vinchos Proven 301,000 0.05 1.69 1.31 4.89 5,100 3,900 1.5

Probable 281,000 0.05 1.55 1.21 5.08 4,400 3,400 1.4

Subtotal Vinchos 582,000 0.05 1.62 1.26 4.98 9,500 7,300 2.9

Proven 83,539,000 0.04 1.38 4.43 2.84 32,100 1,150,600 3,699,000 236.9

TOTAL Probable 52,152,000 0.07 0.71 2.94 3.86 36,900 369,300 1,534,100 201.5

135,691,000 0.05 1.12 3.86 3.23 69,000 1,519,900 5,233,100 438.4

MT


Reserves by Type of Mine

UNDERGROUND Cu Pb Zn AgUNIT MINE (%) (%) (%) (oz/t)

Yauli San Cristobal 16,104,000 0.17 1.00 6.43 4.04

Carahuacra 2,458,000 0.07 0.45 8.53 2.60

Andaychagua 11,067,000 0.12 0.87 4.22 5.36

Ticlio 1,628,000 0.26 1.51 4.87 1.38

Cerro Paragsha 7,613,000 - 2.10 5.49 2.41

Chungar Animón 8,571,000 0.17 1.62 7.37 2.63

Islay 1,160,000 0.04 0.71 1.62 12.34

Shalca - - - - -

Alpamarca Rio Pallanga 339,000 0.33 0.77 1.36 13.48

Vinchos Vinchos 582,000 0.05 1.62 1.26 4.98

Subtotal 49,522,000 0.13 1.23 5.80 3.95

Cu Pb Zn AgUNIT OPEN PIT (%) (%) (%) (oz/t)

Yauli Carahuacra N & other 1,093,000 0.01 0.52 2.11 4.11

Zoraida - - - - -

Cerro Raul Rojas 58,825,000 0.00 1.35 3.58 2.01

Oxides In Situ 5,470,000 - - - 4.44

Chungar Alpamarca 4,222,000 0.11 1.33 1.83 3.09

Subtotal 70,613,000 0.01 1.23 3.18 2.29

Cu Pb Zn AgUNIT STOCKPILES (%) (%) (%) (oz/t)

Yauli SP Marginal 5,982,000 - 0.61 1.95 0.56

SP Oxides 3,503,000 - - - 7.74

SP Sulphur Pyrites 6,071,000 - - - 8.34

Subtotal 15,556,000 - 0.23 0.75 5.21

TOTAL 135,691,000 0.05 1.12 3.86 3.23

MT

MT

MT


Mineral Resources

The mineral resources discussed below represent that portion of the mineral resources that have not yet been shown to be economically viable.

The purpose of the programmed studies and exploration work is to gradually reclassify these as proven or probable reserves.

Measured and Indicated Resources by Mining Unit

Measured 65,438,000 0.43 0.36 0.94 2.06 214,580 237,400 568,430 137.1

TOTAL Indicated 77,434,000 0.35 0.70 1.79 2.27 140,320 546,000 1,368,400 175.6

Total 143,872,000 0.38 0.54 1.40 2.17 354,900 783,400 1,936,830 312.6

Cu Pb Zn Ag CONTENTUNIT TYPE (%) (%) (%) (oz/t) Cu (t) Pb (t) Zn (t) Ag (oz) Million

Yauli Measured 1,953,000 0.13 0.91 4.89 4.36 2,600 14,800 95,600 8.5

Indicated 13,068,000 0.38 0.52 2.70 2.18 49,400 68,200 352,200 28.5

Subtotal Yauli 15,021,000 0.35 0.57 2.98 2.46 52,000 86,000 447,800 37.0

C° Pasco Measured 26,452,000 0.26 0.69 1.40 4.43 182,400 369,300 117.2

Indicated 41,838,000 0.31 0.82 1.76 2.86 343,500 734,800 119.5

Subtotal Cerro 68,290,000 0.29 0.77 1.62 3.47 525,900 1,104,100 236.7

Chungar Measured 1,747,000 0.15 1.85 5.15 2.26 2,600 32,300 89,900 3.9

Indicated 4,862,000 0.12 1.78 4.16 2.53 6,000 86,800 202,400 12.3

Subtotal Chungar 6,609,000 0.13 1.80 4.42 2.46 8,600 119,100 292,300 16.3

Alpamarca Measured 52,000 0.08 1.13 1.68 3.57 40 600 900 0.3

Indicated 2,175,000 0.12 1.46 1.88 3.78 2,600 31,700 40,800 8.2

Subtotal Alpamarca 2,227,000 0.12 1.45 1.87 3.77 2,640 32,300 41,700 8.4

Vinchos Measured 12,000 0.00 2.29 0.23 2.19 300 30 0.0

Indicated 930,000 0.06 1.33 2.81 4.15 12,400 26,100 3.9

Subtotal Vinchos 942,000 0.06 1.34 2.78 4.13 12,700 26,130 3.9

Rondoní Measured 36,084,000 0.58 0.15 0. 19 209,300 6.9

Indicated 14,437,000 0.57 0.13 0.20 82,300 2.9

Subtotal Rondoní 50,521,000 0.58 0.14 0.19 291,600 32,300 41,700 8.4

Palma Measured 102,000 0.00 2.51 11.02 1.18 2,600 11,200 0.1

Indicated 101,000 0.00 2.46 10.98 1.15 2,500 11,100 0.1

Subtotal Palma 203,000 0.00 2.48 11.00 1.17 0 5,100 22,300 0.2

San Measured 36,000 0.12 3.88 4.03 6.69 40 1,400 1,500 0.2

Sebastian Indicated 23,000 0.11 3.83 4.46 6.12 20 900 1,000 0.1

Subtotal Palma 59,000 0.12 3.86 4.20 6.47 60 2,300 2,500 0.4

MT


Inferred Resources by Mining Unit

Cu Pb Zn Ag CONTENTUNIT TYPE MT (%) (%) (%) (oz/t) Cu (t) Pb (t) Zn (t) Ag (oz) Million

Yauli Inferred 30,966,000 0.25 0.78 4.85 3.69 77,400 240,500 1,502,300 114.2

C. Pasco Inferred 23,388,000 0.01 0.50 1.89 1.69 117,200 441,300 39.5

Chungar Inferred 7,601,000 0.13 1.61 4.45 2.56 10,000 122,700 338,500 19.5

Alpamarca Inferred 6,549,000 0.14 1.42 1.91 4.27 9,000 93,000 125,200 28.0

Vinchos Inferred 693,000 0.05 1.88 3.05 5.05 13,000 21,100 3.5

Rondoni Inferred 10,474,000 0.53 0.13 0.18 55,500 1.9

Palma Inferred 800,000 1.88 8.27 0.88 15,000 66,200 0.7

S. Sebastian Inferred 230,000 9.65 4.70 10.36 22,200 10,800 2.3

80,701,000 0.19 0.77 3.12 2.60 151,900 623,600 2,505,400 209.5Total


Measured and Indicated Resources by Type of Mine

UNDERGROUND Cu Pb Zn AgUNIT MINE (%) (%) (%) (oz/t)


Carahuacra 631,000 0.06 0.51 6.41 2.18

Andaychagua 2,348,000 0.09 0.60 2.97 3.84

Ticlio 737,000 0.06 1.36 2.38 2.17

Cerro Paragsha 15,433,000 0.00 1.08 3.40 1.01

Chungar Animón 6,092,000 0.14 1.85 4.43 2.20

Islay 316,000 0.04 0.51 1.55 6.92

Shalca 201,000 0.07 2.25 8.68 3.49

Alpamarca Alpamarca 2,220,000 0.12 1.45 1.88 3.78

Vinchos Vinchos 942,000 0.06 1.34 2.78 4.13

Palma Palma 203,000 0.00 2.48 11.00 1.17

Sebastían San Sebastían 59,000 0.12 3.86 4.20 6.47

Subtotal 34,479,000 0.08 1.21 3.88 2.14

Cu Pb Zn AgUNIT OPEN PIT (%) (%) (%) (oz/t)

Yauli Carahuacra N & other 416,000 0.01 0.55 2.19 3.03

Zoraida 769,000 0.03 0.27 0.22 3.19

Oyama 4,823,000 0.76 0.02 0.23 0.87

Cerro Raul Rojas 1,047,000 0.00 0.81 2.25 0.35

Sulphure Pyrites 33,831,000 0.47 0.75 1.46 4.55

Alpamarca Alpamarca 7,000 0.15 0.35 0.50 3.47

Rondoní Rondoní 50,521,000 0.58 0.00 0.14 0.19

Subtotal 91,414,000 0.53 0.29 0.67 1.88

Cu Pb Zn AgUNIT STOCKPILES (%) (%) (%) (oz/t)

Yauli Marginal Pb - Zn - 0.00 0.00 0.00 0.00

SP Oxides 3,608,000 0.00 0.00 0.00 2.07

SP Sulphure Pyrites 14,371,000 0.27 0.67 0.42 4.13

Subtotal 17,979,000 0.22 0.54 0.34 3.72

TOTAL 143,872,000 0.38 1.34 1.40 2.17

MT

MT

MT


Inferred Resources by Type of Mine

UNDERGROUND MT Cu Pb Zn AgUNIT MINE (%) (%) (%) (oz/t)


Carahuacra 3,190,000 0.13 0.29 6.54 1.89

Andaychagua 5,015,000 0.22 0.48 3.31 3.70

Ticlio 1,200,000 0.15 1.83 4.44 1.73

Cerro Paragsha 13,917,000 0.00 0.59 2.54 0.63

Chungar Animón 6,977,000 0.14 1.68 4.64 2.29

Islay 570,000 0.05 0.90 2.08 5.93

Shalca 54,000 0.03 1.13 5.36 1.65


Rio Pallanga 852,000 0.23 0.65 1.15 9.50

Vinchos Vinchos 693,000 0.05 1.88 3.05 5.05

Palma Palma 800,000 0.00 1.88 8.27 0.88

San Sebastían San Sebastían 230,000 0.00 9.65 4.70 10.00

Subtotal 54,317,000 0.14 1.00 4.31 3.04

MT Cu Pb Zn AgUNIT OPEN PIT (%) (%) (%) (oz/t)

Yauli Carahuacra N & other 1,144,000 0.01 0.50 2.16 0.66

Zoraida 677,000 0.02 1.28 0.79 2.43

Oyama 2,522,000 0.63 0.03 0.19 0.77

Cerro Raul Rojas 2,705,000 0.00 1.03 2.69 0.67

Oxides In Situ 800,000 0.00 0.00 0.00 3.76

Sulphur Pyrites 2,096,000 0.16 1.10 2.40 4.82


Rondoní Rondoní 10,474,000 0.53 0.00 0.13 0.18

Subtotal 22,965,000 0.33 0.35 0.79 1.28

MT Cu Pb Zn AgUNIT STOCKPILES (%) (%) (%) (oz/t)

Cerro SP Oxides 3,419.000 0.00 0.00 0.00 4.40

Subtotal 3,419,000 0.00 0.00 0.0 4.40

TOTAL 80,701,000 0.19 0.11 3.12 2.60

The above mineral Reserves and Resources have been prepared following the guidelines of the JORC Code, and were validated by Eng. Martin Mount, acting as Qualifield Person (QP).



PROJECTS


9. Projects

The company is implementing a series of mining and metallurgical projects, which will be developed over the next five years.

MINING Operating Unit / Additional expected Estimated Start DatePROJECTS Project Annual Production Start Date

Rondoní Rondoní 40,000 - 50,000 DMT Cu 2015 Exploration Permit granted.

Estudio de Impacto Ambiental aprobado.Alpamarca / Río Pallanga Alpamarca 1.5 - 3.5 million Oz Ag 2013 Permiso para construccion de planta aprobado. Estudio de exploración en proceso para Rio Pallanga.

Vinchos Vinchos 1.0 - 2.0 million Oz Ag 2012 Permiso de exploracion aprobado

METALLURGIC Operating Unit / Additional expected Estimated Permit StatusPROJECTS Projects Annual Production Start Date

Silver Pyrites Cerro de Pasco 3.0 - 6.0 million Oz Ag 2011 - 2014 Permiso aprobado para laStockpiles Planta San Expedito.

Estudio de Impacto AmbientalSilver Oxides Cerro de Pasco 3.0 - 5.0 million Oz Ag 2013 aprobado. Permiso de construcción pendiente.

Chungar Expansion Chungar 1.5 - 2.0 million Oz Ag 2012 Autorización de expansión de planta en trámite.

EIA approved

Construction Permit granted

Exploration Permit por Río Pallanga, in process.

Exploration Permit granted.

Permit for San Expedito Plant granted.

Plant Expansion permit in process.

EIA approved

Construction permit in process.

Mining projects

Rondoní

The Rondoní project is located in the district of Cayna, in the department of Huánuco. It is a skarn deposit of magnetite with copper and silver mineralization. Access to the project is easy and it consists of 9,911 hectares of mining concessions. It is currently in the resource definition stage.

During 2011 an aggressive program of diamond drilling took place with 62,000 meters drilled around the Skarn aureola, making a total of 100,000 meters drilled.

The Rondoní project has a possible potential of 150 to 200 million tons and developing it would enable Volcan to diversify its portfolio of metals and mining operations, entering the copper market with a production of 40,000 tons of fine copper a year.

At present the program has defined 61,000,000 tons of resources with a copper content equivalent to 0.60%. The geological potential of the deposit is significant, given that the 50,000,000 tons of resources defined initially in


July 2011 are located in areas to the south east - north east of the skarn ring at a depth of 200 meters. There is an important resource potential in the Skarn aureole, at a greater depth.

Similarly, 2 km from Rondoní there is another area of mineralization, called Acejar, the geophysical characteristics of which are similar to those of Rondoní and which extends towards the south. At present 6.7 km of access roads to the zone have been built, which will enable us to carry out 30,000 meters of diamond drilling during 2012 in an effort to confirm the continuity of the mineralization at Acejar.

Social Capital Group has produced a survey of actors and census of land holders aimed at identifying the relevant actors, their positions and the fundamental subjects that should be borne in mind in developing an appropriate social strategy for managing the communities adjacent to the project.

As far as the environment is concerned, Walsh Perú has measured the environmental baseline (biological, physical, quality and archaeological) and a social baseline for the environmental impact survey for mining at Rondoní (EIS – Exploitation), which includes the transport route to Ambo. The environmental baseline covered the rainy season (February-March) and the dry season (July-August).

During 2012 we expect to carry out a total of 80,000 meters of diamond drilling aimed at discovering new areas of mineralization at deeper depths, increasing certainty regarding the resources defined and exploring the Acejar prospect.

We also intend to carry out a comprehensive pre-feasibility study to determine the main characteristics and provide a solid foundation for the viability of the mining project. AMEC has been contracted to carry out the pre-feasibility study and this is expected to be completed by the end of 2012.

Resources Million MT %Cu %Zn Oz. Ag/t

Measured 36.08 0.58 0.15 0.19

Indicated 14.44 0.57 0.13 0.20

Inferred 10.47 0.53 0.13 0.18

Alpamarca – Río Pallanga

The Alpamarca project is located 4,700 meters above sea level in the district of Santa Bárbara de Carhuacayán, province of Yauli, department of Junín. It is a deposit consisting of veins of lead, zinc, silver and copper. The project consists of 2,100 hectares of concessions in a zone with considerable geological potential.

The old Río Pallanga mine is located 10 km from Alpamarca, 25 and 14 km to the south west of the Carhuacayán and Colquihuarmi prospects, respectively.

The environmental impact survey (EIS) for Alpamarca has been approved and permits issued by the relevant communities. 38,000 meters of diamond drilling have been completed and the ore bodies have been modeled. In addition the designs for the concentrator plant, tailings dam, electricity system and complementary infrastructure have been completed. The geomechanical design, mining method and mine development plan are finished, as is the final economic feasibility study. During 2011 Volcan took the decision to proceed with the

Rondoní


Alpamarca project, which will become the company’s fourth production unit. This project involves the construction of a concentrator plant with a capacity of 2,000 tons per day, to process 1,500 tons of ore from the Alpamarca open pit and 500 tons from the Río Pallanga underground mine. Work is expected to start in the first quarter of 2012 and the project will require an investment of approximately US$ 90 million before it starts operating at the end of the second quarter of 2013. Production from this project will be 3.5 million ounces of silver in the first years of operation.The Alpamarca mine will initially be an open pit operation

and the pre-operating work will be carried out in 2012. Later, the deepest zones will be exploited through an underground mine at a rate of 2,000 tons per day, with the possibility of increasing production to 3,000 ton per day.

At Río Pallanga 13,700 meters of test bores have been drilled at the north east end of the vein. Furthermore, diamond drilling has been carried out in the Pillococha zone north of the vein.

Resources Million MT %Cu %Pb %Zn Oz. Ag/t

Measured 0.05 0.08 1.13 1.68 3.57

Indicated 2.18 0.12 1.46 1.88 3.78

Inferred 5.70 0.12 1.54 2.03 3.49

Alpamarca

Río Pallanga


Inferred 0.85 0.23 0.65 1.15 9.5

Vinchos

Vinchos is a polymetallic deposit rich in silver, located to the north of UEA Cerro de Pasco. Structurally, it is controlled by three faults; different mineralized structures have formed within these and parallel to them, producing a skarn and distal skarn deposit.

The production program for Vinchos was only implemented from January to March 2010 because of a reduction in the ore grade. After refurbishing the mine we decided to start an aggressive exploration program aimed at increasing

reserves, resources and the silver ore grade.

During 2011 the exploration program continued at full speed, but given the reserves obtained we decided to restart mineral production in July, in parallel with the exploration program.

In 2011 production from Vinchos was 64,497 tons with ore grades of 1.79% Pb, 1.69% Zn and 6.06 oz Ag/t. Exploration amounted to 1,241 meters, with 1,707 meters


in development and 121 meters in preparation.

Ore from Vinchos is processed at the Paragsha plant in Cerro de Pasco.

Mineral resources are in addition to the reserves. The purpose of the programmed studies and exploration work is

to gradually reclassify these reserves as proven or probable.

At present improvements are being made to the drilling and blasting processes, communications systems and the pumping and ventilation systems.


Measured 0.01 0 2.29 0.23 2.19

Indicated 0.93 0.06 1.33 2.81 4.15

Inferred 0.69 0.05 1.88 3.05 5.05

Metallurgical Projects

Silver Oxides Plant

UEA Cerro de Pasco has 8,970,000 tons of oxides containing silver and gold in stockpiles in-situ (3,500,000 tons having grades from 7.7 oz Ag/t and 0.10 gr Au/t) and in the southern side of the Raúl Rojas open pit (5,470,000 tons in-situ having ore grades of 4.4 oz Ag/t and 1.40 gr Au/t).

Over the last two years we have carried out metallurgical tests that confirm the feasibility of recovering the silver and gold from these oxides by leaching. The EIS for this project has been approved and it is now in the final stage of obtaining permits and completing the detailed engineering in order for construction to start. The project consists of a cyanide leaching plant with an initial processing capacity of 2,500 tons per day, which will produce approximately 3,000,000 to 5,000,000 ounces of silver per year. The plant design includes the space necessary for a future expansion to 4,000 tons per day. Construction work is planned to start during the first half of 2012 for completion in approximately 15 months.

Parallel to this, exploration of the area south of the open pit

will continue. The results show greater potential resources than those being mined at present, and containing gold. The life of the project is 10 years, based solely on the quantity of ore identified to date.

As soon as production starts the oxides project may increase its daily processing capacity as ore becomes available. This provides an important synergy, as the cyanide leaching process has proved to be a viable alternative for the treatment of the stockpiled silver pyrites.

Silver Pyrites Stockpiles (Py – Ag)

The process of removing the overburden when opening the Raúl Rojas open pit at Cerro de Pasco created stockpiles of pyrite-silica containing silver. These stockpiles amount to 20.4 million tons of mineral, with an average silver content of 5.4 oz Ag/t, and are located in an industrial area of the unit.

Metallurgical tests carried out in the laboratory and pilot plant show that the ore can be processed using conventional leaching torecover 60% of the silver content. At present laboratory testing is being carried out by SGS in Canada to see whether ultra fine milling is a better processing alternative giving better recovery and lower

Vinchos


leaching costs. The economic viability of treating these stockpiles via leaching has been proved, but studies into optimizing the metallurgical process may yield important results. It is expected that the studies will be ready this year so that the detailed engineering of the processing plant for the stockpiles can begin.

A program of reverse air drilling is currently under way in all the stockpiles in order to define the grade distribution in detail and determine the metallurgical characteristics of this mineral with greater accuracy.

While characterization and metallurgical optimization is under way, to decide upon the best way to process the stockpiles and in-situ ore, the San Expedito plant is processing 2,000 tons of ore per day by flotation, to produce a silver-bearing pyrite concentrate. This production aims to take advantage of the high price of silver while the project is being developed.

It is estimated that a plant can be built that is capable of processing 4,000 tons per day of this mineral, giving an annual production of between 4,000,000 and 6,000,000 ounces of silver.

Certainty Million MT %Cu %Pb %Zn Oz. Ag/t

Reserves Probable 6.07 8.34

Resources Indicated 14.37 4.13

Expansion of the Chungar plant During this year approval was granted for an expansion of the Animón concentrator plant from 4,200 tons a day to 5,200 tons a day. This expansion involves new primary and tertiary crushers, an additional 1,000 ton fines hopper, a new bar mill, more flotation cells and an additional thickener in the existing zinc circuit.

The expansion project (increase in installed capacity) does not require a modification to the plant’s EIS, merely a modification to the processing capacity of the concession. This procedure is not complicated as there is no change

to the plant area and we expect to obtain authorization by the end of the first half of 2012. It is planned to start construction during the first half of 2012 and commission the plant in the fourth quarter of the same year.

The expansion will enable the plant to process 25% more silver-rich ore, which for Chungar represents an increase of 2,000,000 ounces of silver a year, approximately 10% of Volcan’s current production.



ENERGY


Energía



Energy is supplied to Volcan Compañía Minera S.A.A., Empresa Administradora Chungar S.A.C., Empresa Administradora Cerro S.A.C. and Empresa Explotadora de Vinchos Ltda. S.A.C. through the Peruvian national grid system - SEIN and from the group’s own hydroelectric power stations.

During 2011, approximately 15% of the demand for energy was generated in-house. The rest of our electricity was supplied by Electroperú S.A., through an electricity supply contract having an adjustable tariff. In October 2010 a new electricity supply contract for the period 2011-2017 was signed. Energy supplies were increased in order to meet increased demand for electricity from the mines and new projects.

Electricity consumption in 2011 amounted to 576 GWh with a peak power demand of 76 MW, an increase of around 4.5% in energy and power consumption compared with 2010.

It is important to mention that in 2011 the unit cost of energy per metric ton of mineral processed was 4.8 US$/MT. The annual cost of energy in 2011 was $36 MM ($33 MM purchased and $3 MM generated) representing 9% of total operating costs, a higher percentage than in 2010 (8.3%).

10. Energy

In 2011 a framework agreement was signed between Empresa Administradora Chungar S.A.C. and Sindicato Energético S.A. to develop hydroelectric power projects in the basin of the River Chancay – Huaral, in Lima Region. Based on this agreement, Chungar will pursue the Chancay project, which has a total installed potential of 60 MW from two hydraulic sources. Furthermore in 2011, Compañía Energética del Centro S.A.C. -a member company of the VOLCAN group- obtained the 180 MW “Belo Horizonte Hydroelectric Power Station” concession.

In addition, construction of the Baños V 9.2 MW hydroelectric project being implemented since the middle of 2010, is 90% completed and is planned to begin operation in April 2012.

Towards the end of the fiscal year, new transmission lines and substations were being built to guarantee the supply of electricity to theYauli and Chungar mining units,from the Pomacocha, Paragsha II and Francois substations, respectively.

Electricity generating projects

The proposed hydroelectric plants for which feasibility studies have been completed are shown below:

Energy projects Power Year Estimated Investment (MW) (in us$ mm)

Baños V 9 2012 22

Chancay II 20 2014 36

Chancay III 40 2015 71

Belo Horizonte 180 2016 330

TOTAL 249 459


Baños V hydroelectric station

The proposed Baños V hydroelectric power station is located at the confluence of the rivers Quiles and Baños, both of which are tributaries of the River Chancay – Huaral.

The installed capacity of the plant should be 9.2 MW and its annual energy production 58 GWh. It is expected to start operating in 2012.

Chancay and Rucuy hydroelectric station

The projected Chancay hydroelectric power station is located alongside the eponymous river, on the Pacific watershed, between Acos and Pacaraos. The two plants are expected to have an installed capacity of 20 MW and 40 MW, and they are expected to generate on aggregate 412 GWh a year.

The feasibility and pre-operation studies for this project have been completed. The environmental impact survey has been submitted to the Ministry of Energy and Mines and we are in the process of signing agreements with the communities involved. The plants are expected to start operating in 2014 (Chancay II – 20 MW) and 2015 (Chancay III – 40 MW).

Acquisition of Belo Horizonte hydroelectric power station

In January 2011, we acquired 100% of the shares in Energética del Centro, owners of the Belo Horizonte power station project in Huánuco. Belo Horizonte is expected to have an installed capacity of 180 MW and an annual production of 1,220 GWh.

Electricity transmission lines

Pomacocha-Yauli transmission line

This 12 km, 50 kV project involves an investment estimated at US$5,5000,000. The pre-operating study was approved

by the National Grid’s Economic Operations Committee and the final engineering work on the main new lines is currently under way. Furthermore, the environmental impact survey is in the final stage of the approval process. Initial construction is divided into two phases: the first is the transmission line itself, during 2011 and the second is the substation upgrade in 2012. This line is expected to guarantee the supply of energy from the Pomacocha-SEIN substation to UEA Yauli.

Paragsha II - Francois transmission line

This project consists of an electricity transmission line between Paragsha II and Francois substations, to be 45 km long and carrying 220 kV, with steel pylons for two sets of three lines. Francois is a transformation substation of 220/50/10.5 kV which will supply the increased demand for electricity from the Chungar, Alpamarca and Río Pallanga mines and will also carry energy from future hydroelectric stations at Chancay to the SEIN.

A certificate of freedom from archaeological remains (CFAR) was obtained in 2011 from the Ministry of Culture, and the environmental impact survey for the project has been applied for.

Francois - Animón transmission line

This project involves an electricity transmission line between the Francois and Animón substations, to be 4.8 km long and carrying 50 kV on two sets of three lines. This line will supply energy to the Animón substation.

The detail engineering was completed by December 2011, a certificate of freedom from archaeological remains (CFAR) was obtained and procedures for obtaining the environmental impact survey were under way.



OCCUPATIONAL HEALTH AND SAFETY


Safety

2011 saw a slight increase in the number of man-hours worked compared with 2010, the accident rate increased to 3.8. In contrast to 2010’s statistics, those for 2011 included the San Sebastián and Rondoní units, and the Chungar hydroelectric stations were excluded from the statistics.

Certification

In March, audits were carried out by Messrs Team Consulting and Safe Human (IRCA) aimed at finding opportunities for improving conditions and behavior, respectively. These audits were carried out at the Yauli, Cerro de Pasco, Chungar, Alpamarca and Vinchos units and 55% of the recommendations have so far been implemented.

In November an external audit was carried out by International Strategic Registrations (NSF), leading to renewal of our OHSAS 18001 - 2007 certificate in occupational health and safety for the Yauli, Chungar and Cerro de Pasco mining units.

Health, safety, environment and quality system (SSOMAC)

The form and content of the SSOMAC was reviewed and standardized for the whole of the Volcan organization. This review also covered procedures and standards.

11. Occupational Health and Safety

The new presentation included the Vinchos and Alpamarca units and was applied locally to San Sebastián.

Occupational health

The occupational health team was reinforced. A diagnosis was performed in 2011 and its recommendations will be implemented during 2012.

We held the “1st Family Health Fair” in which the SSO and emergency departments gave talks to the families of our collaborators.

Emergency response

During 2011 an emergency response system was implemented at the Chungar, Yauli and Cerro units and, at the end of the year, in Rondoní. The response is in the hands of professionals trained as paramedics and with experience in fire fighting and rescue work.

6th National Rescue Competition

This competition is organized annually by SNMP. Thus, from the 18th to the 20th of August, 18 companies took part in this event. The results for the Volcan units that participated were as follows:

Operating Unit

Emp. Admin Chungar

Emp. Admin Cerro

Volcán - UEA Yaulí

Third Place in Compex Test A (Dangerous material leak, with victims)

Third Place in Compex Test A (Dangerous material leak, with victims)

Second Place in Complex Test B (Bus accident with multiple victims)Third Place in Medical Emergencies

Achievement



SOCIAL RESPONSIBILITY AND THE ENVIRONMENT


Volcan has built up relationships with social actors in the areas of influence of its operations and projects, through a strategy that for many years has concentrated on respect for local communities and easements over the areas required for its operations. Agreements with the communities, are the foundation for negotiations based upon the creation of confidence, humanization and compliance.

These agreements concentrate on productive and sustainable development seeking to improve the quality of life and economic opportunities in activities other than mining.

They promote awareness-raising in the fields of: health, respect for gender, production and the basic needs of the communities; Volcan creates opportunities for dialogue that facilitate complex and challenging negotiations at both national and regional levels. The community relations process is based on these principles and on that of harmonious and respectful cohabitation.

The creation of sustainable social businesses is reflected in the strategy adopted by the company, whose slogan is “Volcan, strategic partner in sustainable development”.

Volcan and its subsidiaries maintain relationships with more than 52 rural communities and 42 institutions such as regional governments, local councils, marginal settlements and villages. As a result of this, 81 agreements have been negotiated and signed, mostly covering easements.The company has also benefited approximately 180,000 inhabitants through the development of various activities and projects.

The different activities and the most important projects are described below:

Development and strengthening of sustainable production skills

• Development of workshops for cattle farmers and the rural communities of Lima and Cerro de Pasco.

12. Social Responsibility and the Environment

• Training and technical assistance in animal health, genetic improvements and artificialinsemination, animal husbandry and pasture cultivation, in the rural communities of Lima and Cerro de Pasco.

• Animal inoculation campaign in the rural communities of Lima and Cerro de Pasco.

• Installation, extension and equipment of communal fish farmsin the communities of Cerro de Pasco.

• Building, installation and implementation of facilities forthe raising of small animals in the rural village ofCondorcayán, community of Huayllay in Cerro de Pasco.

• Building, equipment and implementation of a veterinary clinic in the community of Huaychao, Cerro de Pasco.

• Installation and training in the management of two organic market gardens in the rural community of Viscas in the Huaral Valley in Lima.

Assistance with education and health

• Provision of pupil packs to schools in the communities of Lima, Huánuco and Cerro de Pasco.

• Development of a vocational guidance program for school students from the community of Cayna and Quío, benefiting 50 students of 4th and 5th grade of secondary education.

• Development of useful holidays programs in different communities, in order to trengthen the cognitive, artistic and sporting skills of children and young people of school age.

• Maintenance and improvement of the infrastructure of the different educational institutions.

• Implementation of a school breakfast programin initial


and primary schools in the communities of Cerro de Pasco and Lima.

• Improvements to housing and healthier cooking facilities for poor families.

• Hiring teachers who are also community members and provide services at the different educational institutions.

• Hiring teachers for primary and secondary schools in the different communities adjacent to our operations.

• Pre-graduation training for community members and their community members.

• Support for competitions and sports tournaments in schools (initial and primary) and between communities.

• Scholarships for technical-professional training in institutions such as SENATI and CETEMIN for youngcommunity members.

• Donations of musical instruments to the twoemblematic educational institutions in the district of Yauli.

• Transport for the students of School Nº. 30924 to enable them to take part in school competitions in reading and literature.

• Provision of computer equipment to theschools in the villages of: Canchacucho , León Pata, San Carlos, Huarimarcan, La Cruzada and Condorcayán.

Creation of local jobs

• Service opportunities for communal companiesand private companies consisting of community members and theirchildren fromsurrounding communities.

• Job opportunities for community members and their children in the different specialist companies and contractors.

• Training in the textile trade and operation of industrial apparel industry machinery and carpentry, at Instituto

Tecnológico de Pacaraos, Huaral Valley in Lima.

• Annual support for the “Maize Festival, a tourist event run by the Municipality of Pallanchacra, in Cerro de Pasco.

• Training for members of communal companies in environmental monitoring.

• Development of a local employment program to benefit 100 members of the communities of Quío, San Antonio de Rondoní and Cayna in alternate months; thus, during 2011 benefiting more than 1,000 community members representing 80% of the populationof the three communities with which we work.

Support for basic road and public service infrastructure

• Maintenance and improvements to inter provincial, trunk and local roads in thejurisdiction of our mining operations, as well as emergency support in the rainy season.

• Installation of public drinking fountains in the village of Huaychao to improve thepotable water supply and the quality of life of the villagers.

• Construction of new educational infrastructure for SchoolAntonio Álvarez de Arenales”de Huayllay,at approximately 4,000,000 nuevos soles in the form of tax payments in kind.

• Road maintenance.

• Help with hotel infrastructure, reconstruction of boundary fences and irrigation ditches in the communities of Lima.

• Help with the delivery of materials in various communities of Lima and Cerro de Pasco in order toimprove street lighting systems, as well as housing and education.

• Supply and maintenance of potable water systems in Vinchos and help with transport of water to Pariacancha and San Miguel during the dry season.


• Help with the provision and installation of waterpipes for the construction of a water pumping system in San Miguel and Pariacancha, by the Municipality of Pallanchacra.

• Management and coordination with communalauthorities in the construction, commissioning and inauguration of a sports field in Quío.

Institutional support

• Help to authorities of the different communitiesin the area of influence to formalize themselves with SUNARP.

• Various institutional interventions during local and communal festivals celebratingtheanniversary of the main rural communities adjacent to our operations, such as Suitucancha, Huayhuay, Yauliand Andaychagua.

• Christmas campaign in fourteen rural communities, benefiting around 5,000 inhabitants.

• Help in the process of obtaining title for the communities of Cochahuayco and Sisicaya.

Cultural Activities

• Participation and support for local festivals, in the communities of Lima, Cerro de Pasco, Junín and Huánuco

• Organization of sporting activities in the communities of Lima, Cerro de Pasco, Junín and Huánuco

• Christmas celebrations in the communities of Lima, Cerro de Pasco, Junín and Huánuco

• Support for cultural promotion through anniversary

celebrations in the communities, civic celebrations such as Mothers Day, Fathers Day,Christmas and others in the communities of Lima, Cerro de Pasco, Junín and Huánuco.

• Help to promote tourism in the Huayllay Reserve and support for the Huayllay Festival – Ruraltur.

Works in lieu of taxes (Obras por Impuestos)

As part of its social responsibility strategy and in coordination with municipal and regional authorities, Volcan Cía. Minera S.A.A. has decided to implement projects within the framework of Law 29230 the “Works in Lieu of Taxes Act”, principally in poor areas.

Recognizing the importance of education as a central element of social inclusion, the company signed two cooperation agreements in November 2011. One with the Regional Government of Callao to rebuild Portocarrero School in Pachacútec, Ventanilla, valued at 5,900,000 nuevos soles and another with the District Municipality of Huayllay in Pasco to rebuild the A. Alvarez school, valued at 3,900,000 nuevos soles. The work has already started and is expected to be completed by the end of June 2012, benefiting a total of 2,500 primary and secondary school students.

In 2012, the company will continue to support projects within the framework of this act, particularly in the fields of education, health, potable water and public hygiene, and important infrastructure projects in both itsarea of influence (Pasco and Junín) and in other regions of the country.



PERSONNEL MANAGEMENT


2011 was a year in which all the Company´s departments were strengthened, with professionals joining and being promoted within them, both in Lima and at our operating units.

We began the consolidation of a Volcan culture, incorporating new forms of work with respect for history and past achievements. Great efforts were made in all human resources areas and functions, particularly:

Compensation, benefits and welfare:

Efforts were concentrated on building a wages structure with clear grades and levels, as well as on controlling positions and the number of people. A variable remuneration scheme was implemented. In addition all our mining units saw the implementation of construction and improvement programs for housing, lunch rooms and offices; as well as meals services.

Human Development

Performance evaluation processes were established and corporate goals defined, thus facilitating management by results and budget monitoring.

During 2011 training programs in health and safety at work were introduced as a fundamental aspect of the operation of our mining units. We also began a change management program aimed at consolidating our corporate culture and helping to build a first-class executive team. This program will continue in 2012.

13. Personnel management

In 2011 the company once again had a presence in Peru’s principal universities and faculties, as well as in the most prestigious student forums. Programs aimed at future professionals were launched, particularly the pre-graduationinternship”and professionals under training” programs; both are aimed principally at the Operations department. We completed our talent survey and restructuring of the management skills training and leadership programs that have made a contribution to the results of the business.

Human resources superintendents were employed in all mining units to strengthen the personal development and welfare departments.

Finally, all departments and superintendents were offered advice on aspects such as recruiting, personnel evaluation and selection, training, team management and key personnel management, as well as supervision and leadership tools.

During 2011 there were more than 2,000 personnel movements, including new hiring, transfers and internal promotions. This is evidence of the many opportunities for professional development that the company offers to its personnel.

Future Strategy and prospects

Our strategy seeks to generate a culture of high performance that will create value for the company and its interest groups. It takes into account elements that are common to the whole organization, as well as others that


are particular to each operation and project.

Our personnel management strategy is based on four basic pillars:

1. Talent management: to attract and keep the best collaborators.

2. Knowledge management: to accelerate theoretical and practical training to give our collaborators the skills they need to help them achieve Volcan’s objectives.

Changes in the number of employees over the last three years are shown below:

3. Results-based performance management: to reward improvements in performance and achieve our aims in a fair and competitive manner through recognition.

4. Commitment management: to strengthen our collaborators’ identification with the company.

As at the 31st December 2011 the company had 3,190 collaborators in Lima and its operating units.

FRONT LINE WORKERS EMPLOYEES MANAGEMENT TOTALCOMPANY 2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009

Volcan 820 1569 1720 703 878 869 41 38 34 1564 2485 2623

Cerro 640 0 0 293 0 0 1 0 0 880 0 0

Chungar 279 186 180 348 306 241 0 3 5 627 495 426

Vinchos 0 0 0 23 23 51 0 0 0 23 23 51

Alpamarca 18 20 11 32 41 71 0 0 0 50 61 82

Toruna 0 0 12 0 2 8 0 1 1 0 3 21

Huascaran 0 0 0 0 0 8 0 0 1 0 0 9

El Pilar 5 10 15 0 1 0 0 0 0 5 11 15

San Sebastian 32 0 0 9 0 0 0 0 0 41 0 0

TOTAL 1,794 1,785 1,938 1,354 1,251 1,248 42 42 41 3,190 3,078 3,227



ANALYSIS OF FINANCIAL RESULTS AND INVESTMENTS


International Financial Reporting Standards (IFRS)

The following analysis of financial results uses figures from the financial statements prepared in accordance with the International Financial Reporting Standards (IFRS). It should be said that in 2010 the company prepared its consolidated financial statements in accordance with Peruvian Generally Accepted Accounting Principles (GAAP).

The financial statements for 2011 are the first prepared by the company in accordance with the IFRS, which implies that adjustments are applied to the opening balance as at the 1st January 2010 (the date of transition to the IFRS). The audited and consolidated financial statements for 2011 include a reconciliation of the 2010 results before and after adoption of the IFRS.

Business Environment and Sales

Higher price seen in 2010 meant that 2011 started from a good basis that subsequently improved as the world remained stable during the year. The first two months of 2011 were characterized by increased investment in higher risk assets such as raw materials, taking the price of copper above US$ 10,000 a ton and zinc to nearly US$ 2,600 a ton in February. March saw turbulence with the start of the socio-political crisis in the Middle East and the earthquake and tsunami in Japan, both of which occurred in that month. The first quarter continued volatile but prices remained high until the end of July, when the markets again faltered with the threat of non-payment of government debt by the United States if its borrowing limits were not extended. Before this occurred, silver reached a historic high of US$

14. Analysis of Financial Results and Investments

50.00 an ounces in April. During that month lead was also very close to US$ 3,000 a ton; its price then behaved erratically but remained high until July.

After August, the world concentrated on sovereign debt, particularly that of the United States where there had been a threat of non-payment since July. Given the situation, Standard & Poor’s reduced its risk rating, starting a fall in the markets that would be the trend for the rest of the year. Europe was the second source of bad news as the sovereign debt crisis that had originated in Greece became more acute, affecting Italy, among others countries. A number of financial scandals also rocked the world, such as that at UBS and the collapse of MF Global, which brought into question the effectiveness of regulatory authorities that should have prevented a repeat of the events of 2008. The year wound to a close with doubts about future growth in China and possible solutions to the Euro zone debt crisis, but with certain economic indicators suggesting that some sectors of the global economy were on the road to recovery.

In the concentrates market, commercial conditions for zinc improved assupply contracted, principally in Peru. Antamina reduced production as it was working deposits containing mainly copper, while falls in the production of certain mines such as Milpo, Atacocha and El Brocal, contributed to a reduced supply. On the demand side, Cajamarquilla was operating at full capacity, processing 720,000 MT of concentrates a year while reduced production in this part of the continent began to be felt abroad. This increased differences in agreed market prices between the so-called “Benchmark” and private contracts or tenders. The latter favored producers of concentrates.


With regard to lead, concentrates with a high silver content faced serious sales problems because of increased supply taking advantage of the high price of silver and a lack of refineries capable of processing such concentrates in a technically and economically viable manner. The largest lead purchaser, China, imposed customs restrictions on silver-bearing concentrates, by not reimbursing the import duty when the silver was re-exported in metallic form. As far as copper was concerned, the market for complex materials remained seriously restricted by a lack of refineries capable of processing them. Meanwhile clean concentrates with

a high copper content were in demand with processing costs practically zero in the different calls for bidders. All the restrictions on purchases of complex copper and lead concentrates caused an increase in stocks held in Peru, Mexico and China, thus affecting the liquidity of trade in these products.

In spite of some complications during the year, Volcan achieved the highest sales in the company’s history in 2011, amounting to US$ 1,212 million, a figure 23.6% higher than that for 2010, which was US$ 981 million.

Annual Prices Year Year Year(in US$) 2009 2010 2011

Zinc 1655 2168 2193

Lead 1720 2141 2402

Cooper 5147 7535 8821

Silver 14.65 20.16 35.1

Ag48%

Pb7%

Cu3%

Zn42%

Sales Composition by Metal


Operating Costs

In 2011 the company’s unit cost of production, not including ore purchases from third parties, increased by 23.9% compared with the previous year (52.8 vs. 42.6 US$/MT). The largest increase took place at UEA Cerro de Pasco, because of a reduction in tonnage processed caused by the optimization program aimed at improving the profitability of the operation in the short and medium term. The most important effects of this initiative on costs are explained below:

• An increase in fixed costs per ton at UEA Cerro de Pasco, as a consequence of a reduction in tonnage processed from the open pit after September 2010.

• The reduction in ore processed from the open pit also resulted in a new mix of ore between the underground mine and the Cerro de Pasco open pit. The unit cost of ore extraction from the underground mine is considerably higher than the unit cost of extraction from the open pit.

Nevertheless, higher grades and better recovery from the ore that came from the underground mine offset its higher unit cost, generating a higher contribution per MT.

Furthermore, inflation in the mining sector has been significant due to the growth of mining in Peru, especially in the area of Volcan’s operations. As a result of the above, the cost of labor, contractors’ services and the prices of the main raw materials, such as lime, copper sulfate, timber, steel balls, etc., have all increased.

Finally, higher costs have been incurred in order to increase the safety, maintenance and planning standards of our units, among others, which in the medium term will improve the efficiency, productivity and profitability of our operations.

VarUnit 2011 2010 (%)

Yauli 55.7 51.2 8.9

Cerro de Pasco 45.9 29.7 54.4

Chungar 54.6 50.3 8.5

Vinchos* 44.8 56.2 (20.1)

Alpamarca** 44.4

TOTAL 52.8 42.6 23.9

Production costs(US$/MT)

* Vinchos stopped production in April 2010 and restarted in July 2011** Alpamarca halted production in August 2010

In 2012 we have planned a series of investments and initiatives to improve the productivity and efficiency of the operations. This should have a positive impact on unit costs. Furthermore, an integral project to optimize management control processes will be implemented in order to improve the quality and speed of generation of the information nedded for decision making.

It is also important to mention that on the 27th of January 2011 a general shareholders meeting approved a “simple reorganization” of UEA Cerro de Pasco, which was implemented in February of the same year. The purpose of this reorganization was to enable the Cerro de Pasco and Yauli units to produce individual results, so that each unit can seek improvements in its operating results independently, hrough cost reductions and increased


growth. This reorganization resulted in no change to the value of the assets and liabilities on the consolidated balance sheet of Volcan Compañía Minera S.A.A.

Operating and financial costs

In 2011 administrative expenses amounted to US$ 60.8 million, 7.4% higher than the figure of US$ 56.6 million for 2010. This increase can be explained principally by an increase in personnel costs, insurance premiums due to better coverage and an increase in mail and telecommunications costs. This was partially offset by a substantial reduction in the provision for overdue accounts.

Sales expenses amounted to US$ 26.0 million, a fall of 8.3% from US$ 28.4 million in 2010. This reduction was due mainly to a reduction in freight and shipping costs.

Finally, the other income and expenses account ended 2011 with a net expense of US$ 0.69 million, 93.4% lower than the net expenses of US$ 10.6 million in 2010. This reduction is explained principally by lower expenditures from previous

fiscal years and lower extraordinary expenditures.

In general terms, in 2011 operating expenses amounted to US$ 87.6 million, 8.4% lower than the figure of US$ 95.6 million for 2010.

Furthermore, net financial income of US$ 0.3 million for 2010 became a net financial expense of US$ 2 million in 2011. In this year,full repayment of the syndicated loan was completed. Exchange rate losses fell from US$ 4.5 million in 2010 to US$ 2.7 million in 2011. Finally, hedging produced a loss of US$ 12.6 million in 2011 compared with earnings of US$ 2.3 million in the previous year, because of high metal prices, particularly for silver.

It is also important to mention that in January 2012 bonds for US$ 60 million were placed in the international market under the 144A / Reg-S scheme, at an interest rate of 5.375%.

The main components of the profit and loss statement are shown below:

Resources 2011 2010 Var (%)

Sales 1,211,614 100% 980,600 100% 23.6

Cost of Sales -613,698 -51% -503,768 -51% 21.8

Gross Profit 597,916 49% 476,832 49% 25.4

Administrative expenses -60,799 -5% -56,563 -6% 7.5

Sales Expenses -26,072 -2% -28,429 -3% -8.3

Other income (expenses) -690 0% -10,575 -1% -93.5

Operating profit 510,355 42% 381,265 39% 33.9

Financial income (expenses)* -1,950 0% 338 0% -676.9

Options & hedging -12,630 -1% 2,251 0% -661.1

Income tax -138,400 -11% -106,736 -11% 29.7

Royalties -28,475 -2% -23,704 -2% 20.1

Net profit 328,900 27% 253,411 26% 29.8

* Includes exchange rate differences.


Profitability

The net profit made by Volcan in 2011 was US$ 328.9 million, an increase of 29.8% compared to profits in the previous year, explained principally by higher international metal prices.

Var 2011 2010 (%)

Net Profit 328,900 253,414 29.8(US$ Thousand)

EBITDA* 628,943 508,795 23.6(US$ Thousand)

EBITDA / Sales 52% 52%

* EBITDA for fiscal year 2010 has been recalculated to include employee profit sharing as part of costs and expenses in accordance with International Financial Reporting Standards (IFRS).

Investments

During 2011 total investments amounted to US$ 275.1 million, 15% more than in the previous year. Significant investment was made in our operating units to improve productivity and raise operational standards, as well as to maintain or increase the life of our mines. These investments totaled US$ 196.1 million, 5% higher than in 2010. They were concentrated on exploration in order to obtain new resources (US$ 21 million); developments to better prepare the mines and increase flexibility (US$ 68 million); investments in the mines (US$ 40 million, principally mining equipment to improve efficiency and productivity, and pumping systems); investment in plants and tailings dams (US$ 35 million); special projects (US$ 12

million, particularly the Roberto Letts shaft at Andaychagua and the Jacob Timmers shaft at Chungar); energy (US$ 4 million, not including hydroelectric energy); and IT (US$ 3 million). Furthermore, investment in regional exploration amounted to US$ 4.4 million, whilst corporate investments and growth projects amounted to US$ 74.6 million. The latter includes energy projects (US$ 28 million), Rondoní (US$ 20 million), Alpamarca and Río Pallanga (US$ 10 million), fixed assets and installations (US$ 10 million), oxides and pyrites (US$ 1.5 million), among others.

Equally, EBITDA was considerably higher in absolute terms, increasing from US$ 509 million in 2010 to US$ 629 million in 2011, a 23.6% growth rate.


US$ (000) Ene-Dic 2011 Ene-Dic 2010 Var (%)

Inversiones en unidades mineras 196,138 186,777 5.0

Exploraciones Regionales 4,372 11,341 (61.5)

Proyectos y Otros 74,578 40,443 84.4

TOTAL 275,088 238,561 15.3

* The total in the table of investments does not coincide with the addition of fixed assets and intangibles contained in the notes to the balance sheet, because these additions include concepts such as advance payments, goodwill and municipal agreements, among others, and do not include the investments in Vichaycocha. The value of investments in 2010 has been recalculated for comparison with 2011.

Also in 2011 US$ 58 million was invested in acquiring shares in Cementos. Polpaico S.A., one of Chile’s largest cement manufacturers, whose main shareholder is Swiss company Holcim.

Liquidity and Solvency

The company generated a healthy cash flow from its operations, which enabled it to increase its net cash position as at the 31st December 2011 to US$ 154 million, compared with US$ 135 million on the same date in the previous year, despite higher investment (US$ 275.1 million in 2011 vs. US$ 238.6 million in 2010), repayment of the

syndicated loan (US$ 36 million) and payment of dividends (US$ 121.7 million).

As a consequence of positive changes in EBITDA and full amortization of the syndicated loan, Volcan’s leverage (financial debt / EBITDA) remained at a minimum (0.1x. as at the 31st December 2011). Including the international bond issue valued at US$ 600 million in January 2012, leverage will be approximately 1x.

The following graph illustrates changes in the company’s cash position and debt balance.

0

50

100

150

200

250

Summary of Investments*

Debt

Cash

Q1 09 Q2 09 Q3 09 Q3 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11


Acknowledgement

At the end of this annual report for fiscal year 2011, the

Board of Directors wishes to express its thanks to theof-

ficers, employees and advisors who work or have worked

for the company for their efforts and dedication.

Lima, March 2012

BOARD OF DIRECTORS.


15. Audited Financial Statements


INDEPENDENT AUDITORS’ OPINION

To the shareholders:

VOLCAN COMPAÑÍA MINERA S.A.A.

We have audited the attached consolidated financial statements of VOLCAN COMPAÑÍA MINERA S.A.A. AND

SUBSIDIARIES, including the consolidated balance sheet as at the 31st of December 2011 and 2010 and the 1st of January

2010 and the consolidated profit and loss account, integral profit and loss account, changes in equity and cash flow

statements for the years ending on the 31st of December 2011 and 2010, and the summary of significant accounting

policies and other explanatory notes.

Management responsibility for the financial statements

The management of the Principal is responsible for the preparation and fair presentation of these financial statements

in accordance with International Financial Reporting Standards. This responsibility Includes: designing, implementing and

maintaining relevant internal controls over the preparation and presentation of the financial statements to ensure that they

are free from significant inaccuracies, whether arising by error or fraud; choosing and applying the appropriate accounting

policies; and making such reasonable estimates as circumstances may require.

Auditor’s responsibility

Our responsibility consists in giving an opinion on the financial statements based on our audits. Our audit was carried

out in accordance with international audit standards approved for use in Peru by the Board of Rectors of the Professional

Associations of Public Accountants of Peru. These rules demand that we meet ethical requirements and plan and carry out

our audit such that we are reasonable certain that the financial statements do not contain significant errors.

An audit consists of procedures to obtain audit evidence of the balances and information contained in the financial

statements. The procedures chosen depend on the auditor’s judgment and this includes an evaluation of the risk that the

financial statements contain significant inaccuracies, whether the result of error or fraud. On carrying out this evaluation

of risk, the auditor takes into consideration the company’s internal controls used in the preparation and presentation of

the financial statements in order to design audit procedures appropriate to the circumstances but not in order to express

an opinion on the effectiveness of the company’s internal controls. An audit also includes and evaluation of whether the

accounting principles applied are appropriate and whether the estimates made by management are reasonable, as well as

an evaluation of the general presentation of the financial statements.

Tel. +511 2225600 PAZOS, LÓPEZ DE ROMAÑA, RODRÍGUEZFax: +511 513787 Sociedad Civil de Responsabilidad Limitadawww.bdo.com.pe Av. Camino Real 456

Torre Real, Piso 5San Isidro

LIMA 27- PERU

Pazos, López de Romaña, Rodríguez Sociedad Civil de Responsabilidad Limitada, a Peruvian company, is a member firm of BDO International Limited, a company limited by guarantee in the United Kingdom,

and is part of the independent BDO network of associated independent companies.

BDO is the trading name of the BDO network and of each one of BDO’s associated companies.


We believe that the evidence we have obtained is sufficient and appropriate to support our auditors’ opinion.

Opinion

In our opinion, the above-mentioned financial statements are a reasonable indication, in all significant aspects, of

the financial position of VOLCAN COMPAÑÍA MINERA S.A.A. AND SUBSIDIARIES as at the 31st December 2011 and 2010

and the 1st of January 2010, its financial performance and cash flows for the years ended 31st December 2011 and 2010

in accordance with International Financial Reporting Standards.

Lima, Peru

20th February 2012

Countersigned by:

_________________________ (partner)

Luis Pierrend Castillo

Registered Public Accountant

Matrícula Nº 01-03823

Pazos,

PAZOS, LÓPEZ DE ROMAÑA, RODRÍGUEZSociedad Civil de Responsabilidad Limitada

Pazos, López de Romaña, Rodríguez Sociedad Civil de Responsabilidad Limitada, a Peruvian company, is a member firm of BDO International Limited, a company limited by guarantee in the United Kingdom,

and is part of the independent BDO network of associated independent companies.

BDO is the trading name of the BDO network and of each one of BDO’s associated companies.


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2011 AND 2010

(In thousand US Dollars)

As of As of As of

December 31, December 31, December 31,

ASSETS NOTES 2011 2010 2010

CURRENT ASSETS

Cash and cash equivalent 6 154,123 135,390 124,513

Trade accounts receivable, net 7 126,947 165,491 104,525

Other accounts receivable 8 154,291 100,785 54,568

Derivative instruments associated with sale of

concentrates 17(d) - 6,764 2,765

Hedging derivatives 17(a) 11,453 - -

Inventories, net 9 97,545 70,928 69,875

------------ ------------ ------------

Total current assets 544,359 479,358 356,246

------------ ------------ ------------

NON-CURRENT ASSETS

Other accounts receivable 8 6,515 6,027 5,142

Hedging derivatives 17(a) 8,533 - -

Investments in associates 1 (b) 61,055 916 18,002

Mining titles and concessions, deferred exploration,

development and stripping costs, and property,

machinery and equipment, net 10 1,139,516 981,731 858,739

Deferred income tax assets 15(b) 18,717 30,607 17,135

Intangibles, net 3,835 2,927 2,753

------------ ------------ ------------

Total non-current assets

1,238,171 1,022,208 901,771

------------ ------------ ------------

Total assets 1,782,530 1,501,566 1,258,017

======== ======== ========

The accompanying notes are an integral part of these consolidated financial statements.


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2011 AND 2010


As of As of As of

December 31, December 31, January 1,

LIABILITIES AND EQUITY Notes 2011 2010 2010

CURRENT LIABILITIES

Trade accounts payable 11 148,116 104,301 62,694

Other accounts payable 12 107,260 121,257 91,085

Derivative instruments associated with sale of

concentrates 17(d) 8,923 - -

Hedging financial instruments 17(a) 34,542 64,978 11,589

Financial obligations 13 45,538 37,450 48,674

------------ ------------ ------------

Total current liabilities 344,379 327,986 214,042

------------ ------------ ------------

NON-CURRENT LIABILITIES

Long-term financial obligations 13 14,965 5,461 36,000

Deferred income tax liability 15(b) 125,922 93,359 79,668

Provision for contingencies 27 (f) 17,005 17,005 17,005

Provision for closure of mining units 14(b) 41,366 36,999 32,762

------------ ------------ ------------

Total non-current liabilities 199,258 152,824 165,435

------------ ------------ ------------

Total liabilities 543,637 480,810 379,477

------------ ------------ ------------

NET EQUITY 16

Share capital 924,977 747,900 619,883

Legal reserve 85,376 68,807 57,940

Capital reserve 4,309 9,062 27,302

Unrealized results, (loss) (10,189) (45,484) (8,112)

Accumulated results 234,420 240,471 181,527

------------ ------------ ------------

Total net equity 1,238,893 1,020,756 878,540

------------ ------------ ------------

Total liabilities and net equity 1,782,530 1,501,566 1,258,017

======== ======== ========



The accompanying notes are an integral part of these consolidated financial statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

(In thousand US Dollars, except per share amounts)

Notes 2011 2010

SALES 19 1,211,614 980,600

COST OF SALES 20 (613,698) (503,768)

------------ ------------

Gross profit 597,916 476,832

------------ ------------

OPERATIONAL (EXPENSES) REVENUES:

Administrative expenses 21 (60,799) (56,563)

Selling expenses 22 (26,072) (28,429)

Other revenues 23 39,295 52,218

Other expenses 23 (39,985) (62,793)

------------ ------------

(87,561) (95,567)

------------ ------------

Operating profit 510,355 381,265

------------ ------------

FINANCIAL REVENUES (EXPENSES):

Revenues 24 17,404 20,813

Expenses 24 (19,354) (20,475)

Net (loss) gain on derivative financial

instruments 17(c) (12,630) 2,251

------------ ------------

(14,580) 2,589

------------ ------------

Income before income tax 495,775 383,854

INCOME TAX 15 (a) (166,875) (130,440)

------------ ------------

Net income 328,900 253,414

======== ========

Weighted average of the number of

issued and outstanding shares

(in thousands) 25 2,839,519 2,327,682

======== ========

Basic and diluted earnings per share 25 0.116 0.109

======== ========



CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME



Notes 2011 2010

Net income 328,900 253,414

---------- ----------

OTHER COMPREHENSIVE INCOME

Net variation in unrealized gain (loss)

on derivative financial instruments 17 (c) 50,422 (53,389)

Income tax 17 (c) (15,127) 16,017

---------- ----------

Other comprehensive income, net of

income tax 35,295 (37,372)

---------- ----------

Total other comprehensive income 364,195 216,042

======= =======



Balance as of January 1, 2010 (Note 3.1(a)) 850,249,279 1,132,740,583 619,883 57,940 27,302 (8,112) 181,527 878,540

Net income - - - - - - 253,414 253,414

Net variation of unrealized loss on derivative financial

instruments - - - - - (53,389) - (53,389)

Income Tax corresponding to unrealized loss on derivative

financial instruments - - - - - 16,017 - -

----------------- ----------------- ---------- ---------- ---------- ---------- ---------- ------------

Total year comprehensive income 850,249,279 1,132,740,583 619,883 57,940 27,302 (45,484) 434,941 1,094,582

Appropriation - - - 11,140 - - (11,140) -

Adjustment for conversion to functional currency - - (37,578) (687) (6,853) - 45,118 -

Capitalization of accumulated profit 188,505,921 281,955,169 156,363 - (3,098) - (153,265) -

Distribution of dividends corresponding to 2009 - - - - (727) - (75,240) (75,967)

Adjustment - - - 414 - - 57 471

Sale of shares in treasury held by subsidiaries - 159,819,572 49,615 - 155,055 - - 204,670

Purchase of shares of the Company by a Subsidiary (110,672,246) (16,750,090) (40,383) - (162,617) - - (203,000)

----------------- ----------------- ---------- ---------- ---------- ---------- ---------- ------------

Balance as of December 31, 2010 (Note 3.1(b)) 928,082,954 1,557,765,234 747,900 68,807 9,062 (45,484) 240,471 1,020,756

Net income - - - - - - 328,900 328,900

Net variation of unrealized gain on derivative

financial instruments (Note 17 (c)) - - - - - 50,422 - 50,422

Income Tax corresponding to unrealized gain on

derivative financial instruments (Note 17(c)) - - - - - (15,127) - (15,127)

----------------- ----------------- ---------- ---------- ---------- ---------- ---------- ------------


Capitalization of profit 208,195,483 311,405,565 191,994 - - - (191,994) -

Appropriation - - - 16,569 - - (16,569) -

Dividends distribution - - - - - - (56,526) (56,526)

Dividends advance payment - - - - - - (65,191) (65,191)

Sale of shares in treasury held by subsidiaries - 5,180 5 - - - - 5

Purchase of shares of the Company by a subsidiary (41,876,241) - (14,922) - (4,753) - - (19,675)

Effect from conversion - - - - - - (4,671) (4,671)

----------------- ----------------- ---------- ---------- ---------- ---------- ---------- ------------

Balance as of December 31, 2011 1,094,402,196 1,869,175,979 924,977 85,376 4,309 (10,189) 234,420 1,238,893

============ ============ ======= ======= ======= ======= ======= ========

CONSOLIDATED STATEMENT OF CHANGES IN THE NET EQUITY ACCOUNTS


NUMBER OF SHARES

COMMON A SHARES

COMMON B SHARES

SHARE CAPITALUS$(000)

LEGAL RESERVEUS$(000)


Balance as of January 1, 2010 (Note 3.1(a)) 850,249,279 1,132,740,583 619,883 57,940 27,302 (8,112) 181,527 878,540

Net income - - - - - - 253,414 253,414

Net variation of unrealized loss on derivative financial

instruments - - - - - (53,389) - (53,389)

Income Tax corresponding to unrealized loss on derivative

financial instruments - - - - - 16,017 - -

----------------- ----------------- ---------- ---------- ---------- ---------- ---------- ------------


Appropriation - - - 11,140 - - (11,140) -

Adjustment for conversion to functional currency - - (37,578) (687) (6,853) - 45,118 -

Capitalization of accumulated profit 188,505,921 281,955,169 156,363 - (3,098) - (153,265) -

Distribution of dividends corresponding to 2009 - - - - (727) - (75,240) (75,967)

Adjustment - - - 414 - - 57 471

Sale of shares in treasury held by subsidiaries - 159,819,572 49,615 - 155,055 - - 204,670

Purchase of shares of the Company by a Subsidiary (110,672,246) (16,750,090) (40,383) - (162,617) - - (203,000)

----------------- ----------------- ---------- ---------- ---------- ---------- ---------- ------------

Balance as of December 31, 2010 (Note 3.1(b)) 928,082,954 1,557,765,234 747,900 68,807 9,062 (45,484) 240,471 1,020,756

Net income - - - - - - 328,900 328,900

Net variation of unrealized gain on derivative

financial instruments (Note 17 (c)) - - - - - 50,422 - 50,422

Income Tax corresponding to unrealized gain on

derivative financial instruments (Note 17(c)) - - - - - (15,127) - (15,127)

----------------- ----------------- ---------- ---------- ---------- ---------- ---------- ------------


Capitalization of profit 208,195,483 311,405,565 191,994 - - - (191,994) -

Appropriation - - - 16,569 - - (16,569) -

Dividends distribution - - - - - - (56,526) (56,526)

Dividends advance payment - - - - - - (65,191) (65,191)

Sale of shares in treasury held by subsidiaries - 5,180 5 - - - - 5

Purchase of shares of the Company by a subsidiary (41,876,241) - (14,922) - (4,753) - - (19,675)

Effect from conversion - - - - - - (4,671) (4,671)

----------------- ----------------- ---------- ---------- ---------- ---------- ---------- ------------

Balance as of December 31, 2011 1,094,402,196 1,869,175,979 924,977 85,376 4,309 (10,189) 234,420 1,238,893

============ ============ ======= ======= ======= ======= ======= ========


CONSOLIDATED STATEMENT OF CHANGES IN THE NET EQUITY ACCOUNTS


CAPITAL RESERVEUS$(000)

UNREALIZED RESULTS (LOSS)

US$(000)

ACCUMULATED RESULTSUS$(000)

TOTALUS$(000)


CONSOLIDATED STATEMENTS OF CASH FLOWS



2011 2010

OPERATING ACTIVITIES:

Collection of sales 1,237,528 921,885

Payments to suppliers and third parties (685,229) (570,857)

Payments to employees (47,226) (81,360)

Payments of income tax and other taxes (166,875) (130,440)

Other operating collections 131,717 203,267

------------ ----------

NET CASH

FROM OPERATING ACTIVITIES 469,915 342,495

------------ ----------

INVESTMENT ACTIVITIES:

Acquisition of property, machinery and equipment (131,330) (99,909)

(Payments) collections of investments in shares (60,139) 17,086

Disbursements for acquisition of mining concessions (13,323) (10,554)

Disbursements for exploration and development

activities (122,596) (122,181)

------------ ----------

NET CASH DECREASE

FROM INVESTMENT ACTIVITIES (327,388) (215,558)

------------ ----------

FINANCING ACTIVITIES:

Increase (decrease) of financial obligations 17,592 (41,763)

Sale of treasury stock 5 204,670

Purchase of treasury stock (19,675) (203,000)

Payment of dividends (121,716) (75,967)

------------ ----------

NET CASH DECREASE

FROM FINANCING ACTIVITIES (123,794) (116,060)

------------ ----------

NET CASH AND CASH EQUIVALENT INCREASE

18,733 10,877

CASH AND CASH EQUIVALENT AT THE BEGINNING

OF THE YEAR 135,390 124,513

------------ ----------

CASH AND CASH EQUIVALENT AT THE END

OF THE YEAR (Note 6) 154,123 135,390

======== =======



CONSOLIDATED STATEMENTS OF CASH FLOWS



2011 2010

RECONCILIATION OF NET RESULTS WITH

CASH FROM OPERATING ACTIVITIES:

Net income 328,900 253,414

Adjustments to reconcile net income to net cash

used in operating activities:

Depreciation and amortization 103,904 109,155

Bad debt expense 852 8,684

Net changes in assets and liabilities

Decrease (increase) of operating assets -

accounts receivable, net (29,524) (120,751)

Inventories (26,617) (1,053)

Increase of operating liabilities -

Trade accounts payable 43,815 41,607

Other accounts payable 48,585 51,439

---------- ----------

NET CASH

FROM OPERATING ACTIVITIES 469,915 342,495

======= =======


Directorio y Alta Dirección

Board of Directors and Senior Management


José Picasso SalinasDirector and member of the Executive Ccommittee since

March 1996. Vice-Chairman of the Board of Directors until

April 2010 and Chairman of the Board and the Executive

Committee thereafter. Mr Picasso is also Vice-Chairman

of the Board of Directors of Compañía Minera Poderosa,

Vice-Chairman of Reactivos Nacionales S.A., a Director of

Cements Polpaico S.A. and a Director of Bodegas Vista

Alegre. He has been Vice-Chairman of Embotelladora

Latinoamericana S.A.A. (CocaCola) and a Director of

Compañía Minera Atacocha S.A., EXSA S.A., Castrovirreyna

Compañía Minera, Corporación Minera Castrovirreyna

S.A., Compañía Molinera del Peru, Compañía de Seguros

La Fénix Peruana S.A., Lima Stock Exchange, Acción

Comunitaria.

Felipe Osterling ParodiVice President of the board of directors and member of

the executive committee since April 2010. He was a

director until April 2010. Formerly an attorney with Estudio

Osterling law firm, he is a member of the board of directors

of Corporación Backus & Johnston. Member the Peruvian

International Law Society. Formerly he was President of the

Academia Peruana de Derecho y Académico de Número,

President and member of the Court of Honor of Lima Bar

Association, a Peruvian senator, Speaker of the Senate

and Peruvian Congress and a former rector of Lima Bar

Association. Formerly Minister of Justice

Mr Osterling graduated as an attorney from the Catholic

University of Peru and studied postgraduate courses at the

universities of Michigan and New York. He is a doctor of law.

José Ignacio De Romaña Letts Director since 1993, member of the Executive Committee.

He worked in the Commercial Deaprtment of Compañía de

Minas Buenaventura from 1992 to 1999. Responsible for

16. Board of Directors and Senior Management

Volcan´s Commercial Department from 2000 to 2010 and

a Director of Castrovirreyna Compañía Minera S.A. since

2005 and of Corporación Minera Castrovirreyna since 2002.

Mr De Romaña graduated in Business Aadministration from

Universidad del Pacífico.

Daniel Maté BadenesDirector since March 2006.

Joint-director of the zinc, lead and copper divisions of

Glencore International since February 2000, responsible

for marketing and industrial assets, including strategy and

operations. He previously worked in Glencore from October

1988, starting at the Madrid office and gaining experience

in metals transactions and logistics in Spain and North

Africa. After three years in the Glencore office in Madrid,

he joined the zinc and lead department in Switzerland

in August 1991, before being transferred to the copper

department in February 2002, where he was responsible

for zinc concentrates operations in Spain, North Africa and

North and South America. Later he was appointed as head

of the worldwide zinc marketing division. Mr Maté is an

economist and graduated in law from the Universidad de

Deusto in Spain.

Gonzalo Andrade NicoliDirector since March 2006.

Formerly director and commercial manager of Consorcio

Minero S.A. and commercial director of Compañía Minera

Condestable S.A.A. He worked for SOGEM Peru, the

commercial arm and subsidiary of Belgian company Union

Minière in Lima from 1990 to 1992. He then worked in

SOGEM’s offices in New York until 1997. Joined the

Trafigura Group in June 1997. At present he is the

commercial manager of Consorcio Minero S.A., a Trafigura

subsidiary.


Pablo Moreyra AlmenaraIndependent Director since 2011. Also director of Essalud

and formerly a director of Procapitales and Continental

Bolsa. Advisor to important Peruvian companies such

as Ferreyros S.A.A. Formerly he was a director and chief

analyst of ING Barings (Peru) from 1993 to 1998 (with

experience of privatizations, including the listing of ADRs

issued by Buenaventura on the New York Stock Exchange).

He has also been a senior executive of the BBVA Group

in Peru from 1998 to 2008, occupying several posts such

as investment manager of BBVA Horizonte AFP, general

manager of BBVA Continental Fondos Mutuos and financial

planning manager of BBVA Banco Continental. Private

Equity fund manager of Enfoca Inversiones from 2008 to

2009. Mr Moreyra is an economist, who graduated from

the Universidad del Pacífico and holds an MBA from the

UPC Business School. He has studied the capital market,

corporate finance and has taken refresher courses in

various institutions such as Harvard Business School and the

University of Texas in Austin.

Víctor Gobitz ColchadoIndependent director since May 2009. Member of the

executive committee. He is a director has been general

manager of Compañía Minera Castrovirreyna S.A. and of

Corporación Minera Castrovirreyna, he is a director of the

Professional Association of Engineers of Peru, the Mine

Safety Institute (ISEM) and the National Mining Society. In

the past he has worked for Compañía Minera San Ignacio

de Morococha from 1989 to 1992; he was corporate

financial planning manager of Minera Aurífera Retamas

S.A.C. from 1993 to 1996; general manager of Empresa

Administradora Chungar S.A. from 1996 to 1999; assistant

general manager and central operations manager of Volcan

Compañía Minera S.A.A. from 1999 to 2004. Mr Gobitz

qualified as a mining engineer from the Catholic University

of Peru and holds an MBA from ESAN School of Business

Administration.

Executive Management

Juan José Herrera TávaraCEO since 2009.

Previously General Superintendent of Perubar, Mine

Superintendent of Compañía Minera del Sur (Bolivia) and

operations manager’s assistant at Corporación Minera Nor

Perú. He has acted as general manager of several mining

companies since 1996, including Perubar, Yauliyacu and

Iscaycruz and Compañía Minera Atacocha. Formerly deputy

director of Compañía Minera San Ignacio de Morococha

since 2006. Director of the National Mining Society. Mr

Herrera graduated as a mining engineer from the National

Engineering University and holds a master’s degree in

mining engineering from Queen’s University in Canada. He

took part in a graduate training program at Gold Fields in

South Africa. He graduated from the senior management

program run by the University of Piura in October 2002.

Juan Ignacio Rosado Gómez De La TorreDeputy CEO since June 2010.

Formerly Vice-Chairman and Finance Director of Hochschild

Mining Plc. He has also worked as Senior Project Manager

for McKinsey & Company from August 2000 to January

2005. Director of Lake Shore Gold Corp. from March

2008 to June 2010 and of Zincore Metals in 2010;

both are mining companies listed on the Toronto Stock


Exchange. Mr Rosado graduated as an economist from

the Universidad del Pacífico and holds a master’s degree

in business administration from Ross School of Business,

University of Michigan.

Roberto Maldonado AstorgaChief Operations Officer since January 2008.

Previously worked for Volcan as Engineering and Projects

Superintendent from September 2000 to August 2004.

Then as general superintendent of Animón mine until March

2007. Formerly Las Bambas project manager for Xstrata

Peru. Mr Maldonado is a mining engineer who graduated

from the Universidad Nacional de Ingeniería and holds a

Master’s Degree in mineral Engineering Management from

Pennsylvania State University.

José Montoya Stahl Chief Planning Officer since June 2010.

Previously he worked in large corporations such as

Votarantim Metais, Exsa S.A., Minera Yanacocha S.R.L.

in the production and planning departments for open pit

and underground mines. Mr Montoya graduated from

the Pontificia Universidad Catolica del Peru as a mining

engineer and holds a master’s degree in economics from

Colorado School of Mines. He has participated in executive

development programs run by the University of Piura (Peru)

and the Don Cabral Foundation (Brazil).

José Carlos del Valle CastroChief Finance Officer since September 2010.

During his career he has worked in management positions

in well-known international companies such as Wells Fargo

Bank in San Francisco (California), Standard Chartered Bank

in the USA and Peru and McKinsey & Company in Venezuela

and Peru. Before joining the company he was general

manager of Textil San Cristóbal S.A. Mr Del Valle studied

economics and business administration at Universidad del

Pacífico. He graduated in business administration from

California State University, Hayward, and holds a master’s

degree in business administration from The Wharton

School, University of Pennsylvania, majoring in both finance

and strategic management.

David Brian GleitBusiness Development Manager since September 2011.

Has wide professional experience in investment and

financial advice and has occupied a number of positions:

with Aronson+Johnson+Ortiz of Philadelphia as marketing

and institutional relations director; as general manager

of Compass Peru; as a founder and general manager of

Peru Investment Advisers S.A.C; with the Interbank Group

in Nassau and the Bahamas as financial advisor; and

with Stracon S.A.C.- a mining contractor, as finance and

administration manager. Mr Gleit, studied literature and

economics at the University of Vermont and holds an MBA

in finance from the University of Drexel, USA.

Jorge Murillo NuñezFinancial Planning and Management Control Manager

since January 2011.

Mr Murillo has been a financial consultant with KPMG

Consulting, financial comptroller for Peru and Colombia

of Bearing Point, assistant corporate financial planning

manager for the Gloria Group and budget manager of

Hochschild Mining. He graduated as an industrial engineer

from the Pontificia Universidad Catolica del Peru and holds

a diploma in finance from the same university and an MBA

from ESAN.

José Antonio Cuadros ObandoEmpresa Administradora Cerro S.A.C. Operations Manager

since March 2010.

He has also been head of planning, technical superintendent

and operations manager of Empresa Minera Iscaycruz.

Before joining the company he was the manager of the

Selena and Pallancata mining units Compañía Minera

Ares – Hochschild Mining. Mr Cuadros graduated as a

mining engineer from Universidad Nacional Jorge Basadre

Grohmann in Tacna and holds a master’s degree in

geotechnical engineering from the Pontificia Universidad

Catolica de Chile.


Edgardo Zamora PerezEmpresa Administradora Chungar Operations Manager

He joined Volcan in May 2000.Mining Engineer, graduated

from the Universidad Nacional Mayor de San Marcos, Mr

Zamora has 12 years of professional experience in mineg

operations and served as Superintendent of Planning until

March 2007. Since the he has been in charge of the General

Superintendencyat Chungar.

Herman Flores ArévaloGeneral Superintendent of Compañia Minera Alpamarca,

a subsifiary of Volcan Compañía Minera S.A.A. since 2007.

A mining engineer from the Universidad Nacional de

Ingenieria with a Master`s degree in Business Administration

from ESAN. He worked at Centromin Peru from 1987

until joining Volcan in 1999, serving as Superintendent of

Planning and Superintendent of Mines in Cerro de Pasco.

Adolfo Torre GonzalesGeneral Superintendent of Vinchos Unit, a subsidiary of

Volcan Compañia Minera S.A.A. since 2007.

Mining engineer, graduated from the Universidad

Nacional de Ingenieria with a Master´s Degree in Business

Administration from ESAN and a Diploma in Strategic

Mining Management (PUCP). He worked at companies

such as Centromin Peru, Cia. Minera Milpo and Cia. Minera

San Juan de Lucanas from 1979 until joining Volcan in 1999,

where he has had various positions such as Mine Captain,

Assistant Mine Superintendent, Cerro de Pasco Unit Mine

Superintendent and Chungar unit Superintendent of

Engineering and Planning.

Ulises Oliveros SalasProject Manager since June 2011.

Mr Oliveros graduated as a Civil Engineer from the

Pontificia Universidad Catolica delPeru and has a Master´s

Degree in Business Administration from the Universidad

Privada de Tacna. He has 20 years of experience in project

management in the mining industry and has taken part in

the different stages of project development from feasibility

studies to engineering and construction. He has occupied

different positions at Southern Peru Copper Corporation,

such as Tia Maria Project Manager, Head of Administration

and Control of Ilo Refinery moderniszation project and the

diversion of the River Toratay project. He has also taken

part in projects involving the expansion of concentrator

plants and infrastructure.

Pedro Martinez RecioCorporate Research and Metallurgical Projects Manager

since May 2010 and a Spanish national.

A graduate in Chemical Sciences fro mthe Universidad

de Sevilla, Spain, he holds a Master´s Degree in Mineral

Processing Science from the Royal School of Mines,

University of London, United Kingdom.

He was General Manager at the Rio Tinto Mining Company

in Spain with gold, silver and copper mines. He has served

as a metallurgical consultant to numerous companies and

has led several projects in Spain, Nicaragua and South

Africa. His last post prior to Volcan was Metallurgical

Managerat the Spanish company Aguas Teñidas, part of

the Trafigura Group.

Cesar Farfán BernalesRegional Exploration Manager, joined Volcan in September

2001.

Geological Engineer graduated from the Universidad

Nacional Mayor de San Marcos with post-graduate studies

in Metallogenic Geology at the Universidad Central de

Quito, Ecuador.

Eduardo Julio Magnasco La TorreOperational Excellence Manager since November 2010.

Holds a Master´s Degree in Business Administration from

Universidad Diego Portales, Chile. He is a Aerospace

Mechanical Engineer with experience in operations,

maintenance, logistics, regulations, quality, human

resources and management. He has held the posts of


Assistant Director of Airworthiness at the General Civil

Aviation Board in Lima, Director of Quality Assurance at

Compañia de Aviacion Faucett, Maintenance Manager at

Amreicana de Aviacion in Lima, Peru, Director of Quality

Control at Tans Peru and Maintenance Manager at Taca

Peru.

Felipe Injoque EspinozaSocial Responsibility Manager since December 2010.

Has 30 years of experience in consulting, teaching and

management in the fields of forestry, agri-business, natural

resources conservation, protected area planning and the

management of social and environmental matters in the

mining and other sectors. He has occupied various posts in

Minera Yanacocha, Rescan Perú, Mauricio Hochschild and

Cía, Compañía Minera Atacocha. Mr Injoque graduated

in forestry engineering from the Universidad Nacional

Agraria“La Molina”and holds a Master’s Degree in

Environmental Sciences from the Postgraduate School of

the Universidad Nacional Agraria“La Molina.

José Estela RamírezSuperintendent of Energy.

Joined Volcan in March 2009. He has been operations

manager of Empresa de Generación Cahua, general

manager of Egasa Arequipa, and a director of Egesur.

Mr Estela is a mechanical engineer who graduated from

the Universidad Nacional de Ingeniería and holds a

Master’s Degree in Business Administration from ESAN

and a postgraduate qualification in electricity company

management from Vattenfall (Sweden); he has been

studies division manager of COES Sur.

Mario Eduardo De las Casas VizquerraLogistics Manager since February 2010.

Mr De las Casas obtained wide experience from 1990 to

1998 in the logistics department of Buenaventura S.A.

and Minera Yanacocha S.A., he was logistics manager of

Volcan Compañía Minera from 1998 to 2007 and assistant

contracts, logistics and procurement in the projects

department of Votorantim Metais – Cajamarquilla Refinery

from 2007 to January 2010. Mr De las Casas graduated

in business administration from Universidad Ricardo Palma

and holds a PADE in logistics from ESAN.

Néstor Hernán Astete AnguloHuman Resources Manager since November 2010.

He was formerly executive HR director of the Aeroméxico

Group and HR projects director for Latin America of Banco

Santander in Mexico. He was also executive director of HR

of the Banco Santander in Mexico, Brazil and Peru, and

has served as HR manager of Orión (the financial arm of

the Carsa Group) and worked for Occidental Petroleum

Corporation and Armco Peruana S.A. He has been talent

and personnel manager in various Latin American countries,

creating teams and managing mergers and cultural change

in multinational corporations.

Mr Astete graduated as an industrial engineer from the

Universidad de Lima and specialized in human resources

at ESAN.

Roberto Servat Pereira de SousaLabour Relations Manager.

Joined Volcan in January 2007. He has been vice minister of

employment, vice minister of social promotion, a ministerial

advisor, director general of legal advice and a member of

the consultative commission of the Ministry of Employment

and Job Creation; a member of the commission for fair

competition and intellectual property of INDECOPI; and a

member of the managing council of the Health Services

Providers Regulatory Body. At present he lectures at the

Universidad de Lima and Universidad de Ciencias Aplicadas

(UPC). Mr Servat graduated as an attorney from the

Universidad de Lima in 1993. He holds a Master’s Degree in

Public Administration (Instituto Ortega & Gasset attached

to the Universidad Complutense de Madrid).

Paolo Cabrejos MartinCommercial manager since September 2010.

He joined Volcan in November 2008 as Deputy Business


Manager. He has 11 years of national and international

experience in trading zinc, lead and copper concentrates

with companies such as Glencore International AG, Louis

Dreyfus Commodities and BHL. Mr Cabrejos graduated in

Business Administration from Universidad del Pacífico.

Carlos Eduardo Flores TrellesInformation Technology Manager since December 2010.

He was formerly corporate IT director of Yanbal International

Corporation and has occupied various executive posts in

the field of IT at Bellsouth International Corporation. He

lectures at the Universidad de Lima Business School and

the Business School of the Pontificia Universidad Catolica

del Peru. Mr Flores graduated in Systems Engineering from

the Universidad de Lima and holds an MBA specializing

in strategic business administration from Centrum PUCP,

he also holds a postgraduate qualification in information

security from Centrum PUCP and has attended the PAD

program in personnel management at the Universidad de

Piura. PEE in organization and administration from ESAN.

Pedro Navarro NeyraTreasury and Administration Manager since December

2010.

He is also managing director of Compañía Industrial

Limitada Huacho S.A. Mr Navarro holds a degree in

business administration and a master’s degree in business

administration from the Universidad de Piura as well as a

master’s degree in strategic finance management from the

UPC (Peru) – EOI (Spain).

Pedro Torres TorresAccounting and Tax Manager since November 2010.

He joined Volcan in February 2010 as general

accountant and worked for 17 years as audit manager of

Pricewaterhouse Coopers. During his last 10 years as audit

manager he worked with large companies in different

sectors, both Peruvian and foreign. Mr Torres is a licensed

public accountant and a graduate of San Martín de Porres

Private University and holds a master’s degree in business

administration from the Université du Québec á Montreal,

Canada. Diploma in Finance from the Universidad de

Piura. Specialist diploma in international financial reporting

standards and international accounting standards from

Universidad del Pacifico.

Juan Begazo VizcarraAudit Manager since July 2010.

Mr Begazo formerly worked as chief financial officer (CFO)

of Gold Fields, and was comptroller general of Doe Run and

accounting manager and chief accountant of Centromin

Peru. Mr Begazo is a licensed public accountant and has

studied specialist courses in finance and administration. He

is a member of the mining accounting experts committee

and professor of mine management at the Universidad de

Lima.

Alfonso Rebaza González

Legal Manager since September 2010.

He has experience in corporate law, mining law, arbitration

and contracts. He is a partner in the Estudio Osterling law

firm and is a tutor of civil law at the Pontificia Universidad

Catolica del Peru’s Faculty of Law; Mr Rebaza graduated

as an attorney from the Pontificia Universidad Catolica del

Peru.

Jorge Luis Cotrina LunaHead of Shareholder Services since November 1999.

He held various posts in the banking sector from 1984 to

1999. Mr Cotrina graduated in business administration

from the Universidad Nacional Mayor de San Marcos

and specialized in banking and the capital markets at the

Pontificia Universidad Catolica del Peru.


Stock Market Information


The subscribed, paid-up capital to date is S/. 3,118’845,350; represented by 1,249’669,371 ordinary class A shares and

1,869’175,979 ordinary class B shares.

As at the 31st December 2011 shareholdings were as follows:

Class “A” ordinary shares

Holding Number of shareholders % participation

Less than 1% 662 5.93

Between 1% - 5% 9 20.88

Between 5% - 10% 2 15.30

More than 10% 2 57.89

Total 675 100.00

Class “B” ordinary shares

Holding Number of shareholders % participation

Less than 1% 8,228 32.08

Between 1% - 5% 11 27.00

Between 5% - 10% 3 20.24

More than 10% 2 20.68

Total 8,244 100.00

56.20% of the shares are held by Peruvian shareholders, who own 1,752´886,344 shares while 43.80% or 1,365’959,006

shares are held by foreign nationals.

The following shareholders hold more than 5.0% of the shares:

Class “A” ordinary shares

Shareholder % Personality Nationality

GREENVILLE OVERSEAS INVESTMENTS LTD 46.90 Legal Virgin Islands

EMPRESA MINERA PARAGSHA S.A.C. 10.99 Legal Peruvian

BLUE STREAK INTERNATIONAL N.V. 8.38 Legal Dutch Antilles

SANDOWN RESOURCES S.A. 6.92 Legal Panamanian

Class “B” ordinary shares

Shareholder % Personality Nationality

IN - FUND 2 10.38 Legal Peruvian

RI - FUND 2 10.30 Legal Peruvian

HO - FUND 2 8.24 Legal Peruvian

RI - FUND 3 6.95 Legal Peruvian

IN - FUND 3 5.05 Legal Peruvian

17. Stock Market Information


All cash dividends from profits of fiscal year 2010 and charged to the results of fiscal year 2011.

- April 2011 S/.0.0571 nuevos soles for each Class “A” share.

- October 2011 S/.0.0571 nuevos soles for each Class “A” share.

- April 2011 S/.0.0600 nuevos soles for each Class “B” share.

- October 2011 S/.0.0600 nuevos soles for each Class “B” share.

Stock Dividends

During fiscal year 2011 we capitalized a total of S/. 519’601,048 representing 19.98% in shares released, which were

handed over on the 29th of April and 9th of September 2011.

During 2011 variations in the stock market prices in nuevos soles of ordinary class “A” and ordinary class”B” shares

were as follows:

Ordinary class “A” shares

Month Opening S/. Closing S/. Maximum S/. Minimum S/. Average price S/.

January 4.93 4.80 5.00 4.20 4.59

February 5.00 4.60 5.00 4.45 4.77

March 4.50 4.60 4.60 4.00 4.57

April 4.60 4.30 4.60 3.90 4.28

May 4.40 4.70 4.83 4.30 4.78

June 4.60 4.15 4.60 3.91 4.58

July 4.15 4.30 4.30 4.15 4.29

August 4.28 4.00 4.30 4.00 4.07

September 3.90 3.80 3.90 3.75 3.85

October 3.80 3.95 3.95 3.80 3.83

November 3.85 4.50 4.50 3.75 4.34

December 4.45 4.50 4.50 4.45 4.50

Source: LIMA STOCK EXCHANGE


Ordinary class “B” shares

Month Opening S/. Closing S/. Maximum S/. Minimum S/. Average price S/.

January 3.84 3.95 4.04 3.60 3.82

February 4.00 4.14 4.20 3.90 4.02

March 4.14 3.95 4.15 3.57 3.85

April 3.95 3.10 4.01 2.48 3.18

May 3.08 3.23 3.54 2.99 3.28

June 3.20 2.77 3.25 2.65 2.98

July 2.78 3.20 3.38 2.78 3.16

August 3.23 3.00 3.24 2.66 2.91

September 3.00 2.55 3.01 2.55 2.83

October 2.50 2.65 2.75 2.30 2.54

November 2.65 3.24 3.24 2.63 3.12

December 3.15 2.99 3.17 2.92 3.05

Source: LIMA STOCK EXCHANGE

Latibex prices - 2011

MonthEuro exchange

rateOpening S/. Closing S/. Maximum S/. Minimum S/. Average price S/.

January 3,913 3.59 3.92 4.01 3.54 3.91

February 3,865 3.92 4.46 4.68 3.8 4.35

March 4,046 4.46 4.32 4.62 3.56 3.75

April 4,376 3.82 3.01 3.90 2.5 2.9

May 4,080 3.01 3.25 3.68 2.86 3.34

June 4,048 3.25 2.70 3.40 2.66 2.67

July 4,074 2.70 3.20 3.29 2.67 3.1

August 4,049 3.20 2.76 3.29 2.59 2.77

September 3,829 2.76 2.47 3.09 2.35 2.93

October 3,934 2.47 2.57 2.62 2.35 2.54

November 3,839 2.57 3.22 3.29 2.39 3.18

December 3,688 3.22 2.99 3.33 2.94 3.08

Sources: Banking, Insurance and Pension Fund Regulator


VOLCAN COMPAÑÍA MINERA S.A.A.

Head office: Av. Gregorio Escobedo 710, Jesús María

Lima – Peru

Telephone: (511) 219-4000

Empresa Administradora Chungar S.A.C.

Huayllay - Cerro de Pasco

Telephone: (5163) 837-109

Empresa Administradora Cerro S.A.C.

Av. Gregorio Escobedo 710, Jesús María

Telephone: (511) 219-4000

Compañía Minera Alpamarca S.A.C.

Santa Bárbara de Carhuacayán - Yauli - Junín

Telephone: (5163) 826-954

Empresa Explotadora de Vinchos Ltda. S.A.C.

Pallanchacra - Cerro de Pasco

Telephone: (5163) 826-501

Empresa Minera Paragsha S.A.C.

Cerro de Pasco

Telephone: (5163) 422-244

Website www.volcan.com.pe

Contact with shareholders: Jorge L. Cotrina L. – Head of Shareholder Services

Tickers Volcan Compañía Minera S.A.A.

Shares LIMA STOCK EXCHANGE Santiago de Chile Latibex Exchange, Madrid

Volcan ordinary Class “A” VOLCAAC1 VCMAC1

Volcan ordinary Class “B” VOLCABC1 VCMBC1 XVOLB.MC

18. Corporate Information

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