The Santa Ana silver project is located 120 kilometers southeast of the city of Puno, Department of Puno, Peru. The project comprises 5,400 hectares of mineral concessions situated at an elevation of approximately 4,300 meters above sea level.
In 2007, a Supreme Decree was issued by the Government of Peru granting the Company the right to acquire title to and operate within the mineral concessions covering the Santa Ana project, a requirement stemming from the project’s location within the 50 km border zone of Peru. In June 2011 however, the Company was notified that the Peruvian Government had issued a subsequent Supreme Decree that revoked the Company’s right to operate the Santa Ana project, but did not specifically revoke the Company’s title to the concessions, despite revoking any rights under them. Accordingly, no further development of the Santa Ana project has been conducted since 2011.
The Company is currently pursuing an international arbitration proceeding against the Republic of Peru under the Canada-Peru Free Trade Agreement before the International Centre for Settlement of Investment Disputes in Washington D.C. In the arbitration proceeding, Bear Creek seeks full reparation resulting from, among other things, the expropriation of the Santa Ana project and Peru’s violations of the TPA and international law.
After acquiring the Santa Ana project in 2004, Bear Creek conducted surface exploration and drilling programs and completed various economic studies and community engagement initiatives, including an ESIA and a feasibility study on the Santa Ana project that was completed in January 2011 (the Technical Report for which is available on SEDAR (www.sedar.com) under the title “Revised Feasibility Study, Santa Ana project, Puno, Peru, NI 43-101 Technical Report Update to the 21-Oct-2010 Report” dated April 1, 2011).
Significant time has passed since completion of the Santa Ana feasibility study and many of the inputs and cost estimates, used in the report, while considered reasonable at the time of publication, are likely to have changed materially. Furthermore, as a negotiated resolution to the Santa Ana dispute has not been achieved, Bear Creek has no reasonable expectation of resuming exploration, development or further advancement of the Santa Ana project. The Company is not treating the estimates in the Santa Ana Feasibility Study as current Mineral resources or Mineral reserves. As such, the results of the Santa Ana Feasibility Study, including estimates of Mineral resources and Mineral reserves, should not be relied upon.
In 2007, in the midst of Bear Creek’s exploration of the Santa Ana project, a Supreme Decree (the “2007 Supreme Decree”) was issued by the Government of Peru granting the Company the right to acquire title to and operate within the mineral concessions covering the Santa Ana project, a requirement stemming from the project’s location within the 50 km border zone of Peru. On June 25, 2011 however, the Company was notified that the Peruvian Government had issued a subsequent Supreme Decree (the “2011 Supreme Decree”) that revoked the Company’s right to acquire the mineral concessions and operate the Santa Ana project provided by the 2007 Supreme Decree, but did not specifically revoke the Company’s title to the concessions, despite revoking any rights under them. Accordingly, no further development of the Santa Ana project has been conducted since 2011.
As a result of the issuance of the 2011 Supreme Decree and, notwithstanding Bear Creek’s best efforts at goodwill negotiations, the failure of the Government of Peru to reinstate the Company’s rights to operate the Santa Ana project (despite their assurances to the contrary), the Company was left with no reasonable choice but to commence an action under the Canada-Peru FTA. As such, on February 6, 2014, Bear Creek delivered a Notice of Intent to Submit a Claim to Arbitration to the Peruvian Minister of Economy and Finance.
As no amicable settlement was reached in the six-month period following the filing of the Notice of Intent, on August 11, 2014 the Company submitted to the International Centre for Settlement of Investment Disputes (“ICSID”), a branch of the World Bank that oversees numerous international trade treaties, a Request for Arbitration against the Republic of Peru pursuant to the terms of the Canada-Peru FTA. Bear Creek commenced the Arbitration to pursue the Company’s rights to full reparations resulting from Peru’s improper actions against the Company, which violate, among other things, the Canada-Peru FTA.
In accordance with P.O. No. 1, issued by the Arbitration tribunal on January 27, 2015, the Company submitted its Memorial on the Merits on May 29, 2015, wherein factual and legal arguments supporting its claims against the Government of Peru were detailed. The Memorial also includes a calculation of the damages sustained with respect to the expropriation of Santa Ana as the Fair Market Value of the Santa Ana project on the date immediately prior its expropriation by the Government. The Company’s independent experts estimated the FMV of the Santa Ana project at $224.2 million as of June 23, 2011 using the discounted cash flow analysis, excluding interest. The independent experts also estimated the damages to Corani resulting from Peru’s expropriation of, and other illegal actions against, the Santa Ana project at $170.6 million, excluding interest. Accordingly, the Company requested that the Tribunal award it the sum of $522.2 million, which includes pre-award interest of 5.0% per annum, compounded annually, up to the estimated date of the award.
The Memorial was followed by the following Arbitration-related submissions and events:
- On October 6, 2015, the Government of Peru filed its Counter-Memorial on the Merits and Memorial on Jurisdiction.
- On January 8, 2016, the Company submitted its Reply on the Merits and a Counter-Memorial on Jurisdiction.
- On April 13, 2016, the Government of Peru submitted its Rejoinder on the Merits and a Reply on Jurisdiction.
- On May 26, 2016, the Company filed a Rejoinder on Jurisdiction.
- On June 9, 2016, the Government of Canada filed a Non-Disputing Party Submission, providing its views on certain questions of interpretation of the Canada-Peru FTA.
- On June 9, 2016, the Asociación de Derechos Humanos y Medio Ambiente-Puno (“DHUMA”), Mr. Carlos López-Hurtado, and the Columbia Center on Sustainable Investment (“CCSI”) all filed applications to file written submissions as “other persons” pursuant to the Canada-Peru FTA, together with the submissions themselves.
- On July 7, 2016, the Company and the Government of Peru each submitted their comments to the “other person” applications.
- On July 21, 2016, the Tribunal decided to accept the submission filed by DHUMA and Mr. López-Hurtado, and deny the submission filed by CCSI.
- On August 18, 2016, the Company and the Government of Peru each submitted their comments to the Government of Canada’s Non-Disputing Party Submission, and to the DHUMA/López-Hurtado “other person” submission.
- Hearings on jurisdiction and the merits before the Arbitration tribunal were held at ICSID headquarters at the World Bank in Washington D.C. from September 7 to 14, 2016.
- On December 21, 2016, the Company and the Government of Peru each submitted post-hearing briefs.
- On February 15, 2017, the Company and the Government of Peru each submitted a reply to the post-hearing briefs filed on December 21, 2016.
- On March 29, 2017, the Company and the Government of Peru each submitted a Statement on Costs, setting forth in a summary fashion their Arbitration-related costs and expenses.
- On April 14, 2017, the Company and the Government of Peru each submitted a Submission on Costs, addressing the basis on which costs should be allocated. The Company is requesting that it be reimbursed for the entirety of its costs.
An award on Bear Creek’s case is anticipated within the second half of 2017, though there is no prescribed deadline for the tribunal’s ruling. The aforementioned filings are or will be available on ICSID’s website at https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB/14/21.
While the Government of Peru has the option to attempt a negotiated settlement of the Santa Ana dispute, the ICSID Arbitration process does not provide for the alternative of returning the Santa Ana project to the Company. As such, Bear Creek is not contemplating any further exploration, development or project financing scenarios for the Santa Ana project.