The Company

Minsur was established in 1977 and is the sole tin miner in Peru as well as the developing world’s largest tin producer (29,528 tonnes in 2012, or 14% of total global output), after Chinese Yunnan Tin and Indonesian Timah. Minsur is also the largest provider of tin to the US. Tin is used in industries such as electronics and construction, as a solder for joining electric circuits and pipes.

The company operates the San Rafael mine in the Puno region (in the south of Peru) and Funsur, a tin smelter and refinery in the Ica region (south of Lima) that produces 40,000 tonnes per year. The company also has other operations: Mineração Taboca, a tin mine in Brazil; Melon, a cement producer in Chile; and Marcobre (Mina Justa), a copper mine developer in Peru. The Brescia family, one of the most prominent economic groups in Peru, with interests in the banking, insurance and fishing, among other businesses, controls Minsur through Inversiones Breca. The investment shares are the floating securities bearing liquidity. As part of its modernisation programme, Minsur has also recently recruited senior management from other prominent mines such as Gold Fields, BHP Billiton and Hochschild Mining.

Minsur is the world’s largest integrated tin producer and sells 5 kg ingots of refined tin with 99.95% purity at a premium over London Metal Exchange prices (around $800 per tonne). As the largest tin supplier to the US, Minsur sold 55% of all tin consumed in the US from 2007 to 2011, and 40% in 2012. The price of Minsur stock closely follows that of tin. The yearly moving average correlation coefficient of Minsur stock price and the price of tin has been 0.71 for the past four years (a minimum of -0.17 in August 2008 and a maximum of 0.95 in March 2011). The current correlation coefficient (0.29) is the lowest since September 2010.

Development Strategy

For 2013, our estimate for tin production is at 27,200 tonnes. The main long-term project is Bofedal II, which could produce up to 10,000 tonnes per year for five years. Direct production costs total $179 per tonne of ore treated in 2012, down 19% from the costs incurred in 2011. We expect a 5% increase in 2013 and lower increases until 2016. A mine’s lifespan is estimated at seven years if we consider 100% of resources, and three years when considering only reserves.

Minsur is actively exploring for tin, copper, molybdenum, gold, silver, zinc, and lead deposits in 158,485 ha located in Peru. The most recent exploration project was Pucamarca (in the southern Tacna region) that started production in the first quarter of 2013 and will produce 75,000 ounces of gold per year.

Minsur’s three most recent acquisitions will bring further benefits to the company. Mineração Taboca is the largest tin mine in Brazil. Minsur acquired this company for $472m in 2008. The mine hosts the Rocha Sa project, which after overcoming metallurgical recovery issues has scaled back its production outlook from 10,000 tonnes per year to 6000 tonnes per year. Melon is the largest cement and concrete producer in Chile, with 31% market share in 2011. Minsur bought Melon for $555m in 2009. It has two new mines that will supply limestone for the next 30 years to its main processing plant La Calera.

Mina Justa is a copper project in the southern Peruvian region of Ica. Minsur has a 70% participation and LS Nikko Copper and Korea Zinc has the remaining 30% share. We do not expect Mina Justa to go ahead in 2013 as stated in the 2009 feasibility study. We believe Minsur will adopt a different approach to the 10,000-tonnes-per-day underground mine to reach the higher-grade sulphide ores.

As part of its financial investments, Minsur has equity participations in other Brescia Group companies such as Rimac Seguros (insurance), Servicios Aeronauticos Unidos (aeronautics), Explosivos Exsa (explosives for the mining industry) and Futura Consorcio Inmobiliario (housing developments). These participations totalled $70m as of December 2012.