Inca Pacific Resources Inc.
TSX VENTURE : IPR

Inca Pacific Resources Inc.

March 18, 2010 16:11 ET

Inca Initiates Magistral Arbitration

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 18, 2010) - Inca Pacific Resources Inc. (TSX VENTURE:IPR) announces that Minera Ancash Cobre S.A. ("MACSA"), the Company's wholly-owned subsidiary in Peru, has initiated arbitration proceedings against Activos Mineros S.A.C. ("Activos Mineros") with respect to the Magistral Project. MACSA has also requested that notice of arbitration be served on the Agency for the Promotion of Private Investment ("ProInversion) and the National Fund for Financing State Enterprise Activity ("Fonafe").

MACSA has initiated the arbitration in response to the seizure by Activos Mineros of a US$3 million bond in October 2009 and the follow-on termination in December 2009 of the Mining Concession Transfer Agreement between Activos Mineros and MACSA ("Transfer Agreement") which governs the five core mining concessions within the Magistral Project. The Company has suffered significant damage from the actions of Activos Mineros and will be seeking monetary damages of approximately US$195 million. The Company will continue to work with the local community in Conchucos in seeing the Magistral Project through to a positive conclusion for the Company and our stakeholders.

Magistral Dispute

Under the Transfer Agreement, MACSA posted a bank guarantee of US$3 million as a performance bond in connection with MACSA's investment commitment for expenditures to be incurred at Magistral for the year ending February 2009. Over the course of 2009, MACSA and Activos Mineros disputed the amount spent. The 2009 expenditures were audited by PricewaterhouseCoopers which found that Inca Pacific and MACSA together had spent approximately US$15 million, compared with a commitment to spend US$12 million. Activos Mineros claimed that only US$4.6 million had been spent, since expenses incurred by Inca Pacific could not be considered for purposes of the Transfer Agreement. Activos Mineros also claimed that MACSA had failed to incur certain specific expenditures committed for the year ending February 2009. This dispute led to Activos Mineros calling the performance bond without any justification or support. Activos Mineros further demanded the immediate posting of a bond for $24 million for expenditures in 2009.

MACSA responded by asserting that Activos Mineros is in breach of the Transfer Agreement. MACSA demanded that Activos Mineros remedy its breach and reimburse the US$3 million. Furthermore, MACSA advised Activos Mineros that, as long as the breach was in place, MACSA would suspend the fulfillment of any other obligations under the Transfer Agreement, as permitted under Peruvian law. 

In response to our demand for reimbursement of the US$3 million and notice of arrears, Activos Mineros notified MACSA that it had terminated the Transfer Agreement on the grounds of a non-existent breach by MACSA and had registered such contract termination in the public registration records of the mining concessions referred to in the Transfer Agreement.

For the past three months the Company attempted to find a legal and commercial solution to the Magistral dispute. The lack of progress in finding a commercial solution with Activos Mineros and ProInversion has left the Company no choice but to start arbitration. The Company has initiated the arbitration with a request that the Transfer Agreement be terminated for causes attributable to Activos Mineros, and that the Company be compensated for resulting damages.

Arbitration Proceedings

Disputes under the Transfer Agreement are handled through arbitration and are governed by the Arbitration Regulations of the National Institute of Mining and Petroleum Law. Each party selects an arbiter with the two arbiters selecting a third arbiter. It is anticipated that once the arbitration panel has been named, the arbitration proceedings could last up to 12 months. However, the Transfer Agreement dictates that the arbitration procedure must not take more than 120 days, something the Company will look to enforce. All decisions by the arbitration panel are final and no appeal can be filed to contest the arbitration panel's decision.

Damages Claimed

The Company is seeking monetary damages of US$195 million. The amount of damages reflect the US$3 million performance bond seized, the Company's investment in Magistral to date of approximately US$40 million, and the loss of the project which has a net present value (NPV) based on the Company's Feasibility Study of US$152 million (at prices of US$1.50/lb copper and US$12/lb molybdenum). The Feasibility Study was accepted and approved by Activos Mineros in 2008.

The disputed concessions are five of the twenty-six contiguous concessions held by MACSA in the Magistral Project area. While the five disputed concessions contain the bulk of the known copper/molybdenum mineralization, the other concessions have several other mineral occurrences which MACSA will continue to evaluate.

The Company will continue to seek a commercial resolution with government representatives as we believe that an agreement that allows the project to be developed in the short term is in the best interest of all the stakeholders. In addition, the Company will continue its community relations program in the Conchucos region.

INCA PACIFIC RESOURCES INC.

Michael Winn, CEO and Director

Forward-Looking Statement - Some of the statements in this news release contain forward-looking information that involves inherent risk and uncertainty affecting the business of Inca Pacific Resources Inc. Actual results may differ materially from those currently anticipated in such statements

Standard & Poor's Listed

Neither the TSX Venture Exchange nor the Investment Industry Regulatory Organization of Canada accepts responsibility for the adequacy or accuracy of this release.

Contact Information