As filed with the Securities and Exchange Commission on January 6, 2012

Registration No. 333-             

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



PRE-EFFECTIVE AMENDMENT No. 4
FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933



CEMENTOS PACASMAYO S.A.A.
(Exact name of Registrant as specified in its charter)

PACASMAYO CEMENT CORPORATION
(Translation of Registrant's name into English)

Republic of Peru
(State or other jurisdiction of
incorporation or organization)
  3241
(Primary Standard Industrial
Classification Code Number)
  98-0632353
(I.R.S. Employer
Identification No.)

Cementos Pacasmayo S.A.A.
Calle La Colonia 150, Urbanización El Vivero
Surco, Lima
Peru
(+51-1-317-6000)
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)



CT Corporation System
111 Eighth Avenue
New York, New York 10011
(1-800-223-7567)
(Name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:
Jaime Mercado, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
(212) 455-3066
  Javier Durand, Esq.
General Counsel
Cementos Pacasmayo S.A.A.
Calle La Colonia 150
Urb. El Vivero
Lima, Peru
(+51-1-317-6000)
  Nicolas Grabar, Esq.
Cleary Gottlieb Steen & Hamilton LLP
1 Liberty Plaza
New York, New York 10016
(212) 225-2414



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box.    o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o

CALCULATION OF REGISTRATION FEE

       
 
Title of each class of securities
to be registered

  Proposed maximum
aggregate offering price(2)

  Amount of
registration fee

 

Common shares(1)(3)

  $250,000,000   $28,650

 

(1)
Includes common shares that the underwriters may purchase solely to cover over-allotments, if any, and common shares that are to be offered outside the United States but that may be resold from time to time in the United States in transactions requiring registration under the Securities Act. Offers and sales of common shares outside the United States are being made pursuant to Regulation S and are not covered by the Registration Statement. All or part of these common shares may be represented by American depositary shares, each of which represents [    •    ] of our common shares.

(2)
Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

(3)
A separate Registration Statement on Form F-6 will be filed for the registration of ADSs issuable upon deposit of the common shares registered hereby.



The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


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Subject to Completion, dated [    •    ], 2012

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

Prospectus

[    •    ] American depositary shares

LOGO

Representing [    •    ] common shares

This is the initial public offering of American depositary shares, or ADSs of Cementos Pacasmayo S.A.A. We are selling [    •    ] ADSs. Each ADS represents [    •    ] common shares. We expect the initial public offering price will be between US$[    •    ] and US$[    •    ] per ADS.

We have applied for listing of our ADSs on the New York Stock Exchange under the symbol "CPAC". Our common shares and our non-voting investment shares are listed on the Lima Stock Exchange (Bolsa de Valores de Lima) under the symbols "CPACASC1" and "CPACASCI1", respectively.

On [    •    ], 2012, the last reported sales price of our common shares on the Lima Stock Exchange was S/.[    •    ] per common share (equivalent to US$[    •    ] per ADS based on the exchange rate on such date).

   

    Per ADS     Total  
   

Public offering price

  US$                 US$                

Underwriting discounts and commissions

 
US$

             
 
US$

             
 

Proceeds to us, before expenses

 
US$
 
US$
 
   

We have granted the underwriters an option for a period of 30 days to purchase from us up to additional ADSs, representing [    •    ] common shares, to cover over-allotments, if any.

Investing in the ADSs involves a high degree of risk. See "Risk factors" beginning on page 16.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Neither the ADSs nor the offering has been or will be registered in the Republic of Peru and therefore are not and will not be subject to Peruvian laws applicable to public offerings in Peru. The information contained in this prospectus has not been approved or disapproved by the Peruvian Securities Commission (Superintendencia del Mercado de Valores). The ADSs may not be offered or sold in Peru except in compliance with the securities laws of Peru.

Sole Bookrunner

J.P. Morgan

Joint Lead Manager

Santander

                           , 2012


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We are responsible for the information contained in this prospectus. We have not authorized anyone to give you any other information and we take no responsibility for any other information that others may give you. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of ADSs.



Table of contents

 
  Page

Summary

  1

Risk factors

  16

Exchange rates

  34

Use of proceeds

  35

Capitalization

  36

Dilution

  37

Selected financial and operating data

  38

Management's discussion and analysis of financial condition and results of operations

  42

Industry and regulatory matters

  66

Business

  84

Management

  112

Principal shareholders

  122

Related party transactions

  124

Description of our share capital

  125

Dividends

  130

Market information

  131

Description of American depositary shares

  136

Taxation

  148

Underwriting

  155

Expenses of the global offering

  162

Legal matters

  163

Experts

  163

Where you can find more information

  164

Enforcement of judgments against foreign persons

  165

Index to consolidated financial statements

  F-1



Through and including                           , 2012 (the 25th day after the date of this prospectus), federal securities law requires all dealers that effect transactions in our ADSs, whether or not participating in this offering, to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscription.



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This prospectus has been prepared on the basis that all offers of ADSs in any Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State") will be made pursuant to an exemption under the Prospectus Directive from the requirement to produce a prospectus for offers of the ADSs. Accordingly, any person making or intending to make any offer of ADSs within the European Economic Area that are the subject of the offering contemplated in this prospectus should only do so in circumstances in which no obligation arises for us or the underwriters to produce a prospectus for such offer. Neither we nor the underwriters have authorized, or hereby authorize, the making of any offer of ADSs in circumstances in which an obligation arises for us or the underwriters to publish a prospectus for such offer. "Prospectus Directive" means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression 2-1-PD Amending Directive means Directive 2010/73/EU.

The distribution of this prospectus and the offering and sale of the ADSs in certain jurisdictions may be restricted by law. Persons who receive this prospectus must inform themselves about and observe any such restrictions. This prospectus does not constitute an offer of, or an invitation to purchase, any of the ADSs in any jurisdiction in which such offer or invitation would be unlawful.



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Presentation of financial and other information

Certain definitions

All references to "we," "us," "our," "our company" and "Cementos Pacasmayo" in this prospectus are to Cementos Pacasmayo S.A.A., a publicly-held corporation (sociedad anónima abierta) organized under the laws of Peru, and, unless the context requires otherwise, its consolidated subsidiaries. The term "U.S. dollar" and the symbol "US$" refer to the legal currency of the United States; and the term "nuevo sol" and the symbol "S/." refer to the legal currency of Peru.

Financial information

Our consolidated financial statements included in this prospectus have been prepared in nuevos soles and in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

Historically, our financial statements have been prepared in accordance with generally accepted accounting principles in Peru ("Peruvian GAAP") and audited in accordance with generally accepted auditing standards in Peru. In accordance with Peruvian law, we will be required to present our financial statements under IFRS beginning with our financial statements for the year ended December 31, 2011. Peruvian GAAP differs in material respects from IFRS. For this reason, our financial information presented in accordance with Peruvian GAAP, which we publish in Peru, is not directly comparable to our financial information prepared in accordance with IFRS included in this prospectus. For a description of the principal adjustments made to our Peruvian GAAP consolidated financial statements to transition to IFRS, see note 2 to our annual audited consolidated financial statements in this prospectus.

In this prospectus, we present Adjusted EBITDA, a non-GAAP financial measure. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure. We present Adjusted EBITDA because we believe it provides investors with a supplemental measure of the financial performance of our core operations that facilitates period-to-period comparisons on a consistent basis. Our management also uses Adjusted EBITDA from time to time, among other measures, for internal planning and performance measurement purposes. Adjusted EBITDA should not be construed as an alternative to profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (in each case, as determined in accordance with IFRS). Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies, including those in the cement industry. For a calculation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to the most directly comparable IFRS financial measure, see "Selected financial and operating data."

We have translated some of the nuevos soles amounts contained in this prospectus into U.S. dollars for convenience purposes only. Unless the context otherwise requires, the rate used to translate nuevos soles amounts to U.S. dollars was S/.2.773 to US$1.00, which was the exchange rate reported on September 30, 2011 by the Peruvian Superintendency of Banks, Insurance and Private Pension Fund Administrators (Superintendencia de Banca, Seguros y AFPs, or "SBS"). The Federal Reserve Bank of New York does not report a noon buying rate for nuevos soles. The

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U.S. dollar equivalent information presented in this prospectus is provided solely for convenience of investors and should not be construed as implying that the nuevos soles amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. See "Exchange rates" for information regarding historical exchange rates of nuevos soles to U.S. dollars.

Certain figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be arithmetic aggregations of the figures that precede them.

Market information

We make estimates in this prospectus regarding our competitive position and market share, as well as the market size and expected growth of the construction sector and cement industry in Peru. We have made these estimates on the basis of our management's knowledge and statistics and other information from the following sources: the Central Bank of Peru (Banco Central de Reserva del Perú); the National Statistical Institute of Peru (Instituto Nacional de Estadística e Informática, or "INEI"); the Association of Cement Producers in Peru (Asociación de Productores de Cemento, or "ASOCEM"); Fondo Mi Vivienda S.A. ("Fondo Mi Vivienda"), a housing fund owned and administered by the government of Peru; ADUANET, a website administered by the Peruvian Tax Superintendency (Superintendencia Nacional de Administración Tributaria, or "SUNAT"); the Peruvian Chamber of Construction (Cámara Peruana de la Construcción); The International Cement Review, a website that provides cement manufacturing information; the World Business Council for Sustainable Development, an association of approximately 200 companies worldwide focused on sustainability and development matters; and the U.S. Geological Survey, a U.S. government science organization. We believe these estimates to be accurate as of the date of this prospectus.

Offering information

All amounts contained in this prospectus that have been adjusted to reflect the estimated net proceeds of the global offering are based upon the sale of ADSs at an assumed public offering price of US$[    •    ] per ADS (the mid-point of the price range set forth on the cover page of this prospectus). Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the underwriters' option to purchase up to [    •    ] additional ADSs, representing [    •    ] common shares, to cover over-allotments, if any. Unless otherwise indicated, information contained in this prospectus also assumes no purchase of up to [    •    ] non-voting investment shares (based on the issuance of [    •    ] common shares in this offering, including full exercise of the underwriters' over-allotment option) to be offered in the preemptive rights offer that we are required to undertake pursuant to Peruvian law following this offering.

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Forward-looking statements

This prospectus contains forward-looking statements. Forward-looking statements convey our current expectations or forecasts of future events. These statements involve known and unknown risks, uncertainties and other factors, including those listed under "Risk factors," which may cause our actual results, performance or achievements to differ materially from the forward-looking statements that we make.

Forward-looking statements typically are identified by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "project," "plan," "believe," "potential," "continue," "is/are likely to," or other similar expressions. Any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Our actual results could differ materially from those contained in forward-looking statements due to a number of factors, including:

general economic, political and social risks inherent to conducting business in Peru;

exchange rates, inflation and interest rates;

the entry of new competitors into the market we serve;

construction activity levels, particularly in the northern region of Peru;

private investment and public spending in construction projects;

unpredictable natural disasters, such as floods and earthquakes affecting the northern region of Peru;

availability and prices of energy, admixtures and raw materials;

changes in the regulatory framework, including tax, environmental and other laws;

the successful expansion of our production capacity;

our ability to compete with potential substitutes of cement products that may be introduced in the Peruvian construction industry;

our ability to maintain and expand our distribution network;

our ability to retain and attract skilled employees;

our ability to develop successfully the phosphate rock and brine deposits in our fields;

our ability to obtain financing for our phosphate and brine projects; and

other factors discussed under "Risk factors."

The forward-looking statements in this prospectus represent our expectations and forecasts as of the date of this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.

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Summary

This summary highlights selected information contained in this prospectus and may not include all of the information that is important to you. For a more complete understanding of our company, our business and this offering, you should read this entire prospectus, including "Risk factors," "Management's discussion and analysis of financial condition and results of operations" and our financial statements in this prospectus.

Overview

We are a leading Peruvian cement company, and the only cement manufacturer in the northern region of Peru. We are among the most profitable publicly-listed cement manufacturers in the world, based on operating margins over the past three years. With more than 54 years of operating history, we produce, distribute and sell cement and cement-related materials, such as concrete blocks and ready-mix concrete. Our products are primarily used in construction, which has been one of the fastest growing segments of the Peruvian economy in recent years. We also produce and sell quicklime for use in mining operations.

In 2010, we sold approximately 1.8 million metric tons of cement, representing an estimated 21.3% share of Peru's total domestic cement shipments, and substantially all the cement consumed in the northern region. From 2006 to 2010, our cement sales volume grew at a compound annual growth rate ("CAGR") of 12.8%. Our performance during this period was driven primarily by growth in the construction sector which over the past five years has expanded, on average, at approximately two times the growth in Peru's annual gross domestic product ("GDP"). We believe the construction sector will continue to grow with the expected expansion of the economy and the continued housing deficit in the country.

We own two cement production facilities, our flagship Pacasmayo facility located in the northwest of Peru and our smaller Rioja facility located in the northeast. Our facilities have total installed annual cement production capacity of approximately 3.1 million metric tons. We also have installed annual production capacity of 240,000 metric tons of quicklime. We own concession rights to several quarries with reserves of limestone and other raw materials located near our facilities. We estimate that our existing quarries have sufficient reserves to supply us with limestone for approximately 70 years, based on our 2010 cement production levels.

We have three projects to increase our cement production capacity: (i) we are installing two new vertical kilns as well as upgrading one of our horizontal rotary kilns at our Pacasmayo facility, which we expect will begin production in the first quarter of 2012, to increase our installed annual clinker production capacity by 200,000 metric tons; (ii) we are more than doubling the cement production capacity of our Rioja facility, which is currently operating at near full capacity, by installing a new production line that will add 240,000 metric tons of installed annual cement production capacity by mid-2012; and (iii) we plan to undertake pre-feasibility and engineering studies to build a new cement plant in Piura, the third largest city in northern Peru. These developments will allow us to meet projected increases in demand for cement in coming years.

We provide consumers with high-quality and value-added cement products and, as a result, we believe we have developed strong brand recognition in our market. We have developed one of the largest independent retail distribution networks for construction materials in Peru. Through

 

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our network of more than 130 independent retailers, we distribute our cement products as well as other construction materials manufactured by third parties, such as steel rebar, cables and pipes, in the northern region of Peru. We also sell our cement products directly to other retailers that are not part of our distribution network and to private construction companies and government entities.

In addition to our core cement business, we are undertaking two non-metallic mining projects, which we believe present significant growth opportunities for our company. We have discovered phosphate deposits in one of our fields, which contain an estimated 541.4 million metric tons of mineralized material. We also have concessions for fields with identified brine deposits. We believe that, if we are able to extract these minerals in a profitable manner, these projects could provide us substantial new revenue streams, diversify our portfolio of products and improve our profitability.

Cementos Pacasmayo and Hochschild Mining plc are each majority owned and controlled, directly and indirectly, by Mr. Eduardo Hochschild and together constitute the businesses of the Hochschild group (the "Hochschild Group"), which has operated in Latin America for the past 100 years. Hochschild Mining plc has been listed on the London Stock Exchange since 2006 and Cementos Pacasmayo has been listed on the Lima Stock Exchange since 1995.

 

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The following table sets forth certain macroeconomic data for Peru and operating and financial data for our company for the periods indicated.

   
 
  As of and for
the year ended
December 31,
  As of and
for the nine
months ended
September 30,
 
 
  2009
  2010
  2010
  2011
 
   

Economic data(1):

                         

GDP growth in Peru

    0.9 %   8.8 %   8.7 %   7.4 %

Construction sector growth in Peru

    6.1 %   17.4 %   18.2 %   3.3 %

Operating data:

                         

Capacity (thousands metric tons per year):

                         

Installed cement capacity

    2,090     3,100     2,100     3,100  

Installed clinker capacity

    1,500     1,500     1,500     1,500  

Production (thousands metric tons):

                         

Cement production

    1,545     1,811     1,289     1,405  

Clinker production

    1,128     1,278     880     939  

Utilization rate at Pacasmayo plant(2):

                         

Cement

    72.9 %   55.7 %   80.1 %   58.1 %

Clinker

    76.8 %   86.0 %   78.0 %   84.7 %

Utilization rate at Rioja plant(2):

                         

Cement

    83.8 %   98.2 %   97.8 %   94.0 %

Clinker

    65.2 %   79.9 %   79.3 %   75.4 %

Selected financial data (amounts in millions of S/.):

                         

Net sales

    756.6     898.0     648.1     717.7  

Growth in net sales (versus prior period)

    N/A     18.7 %   N/A     10.7 %

Gross profit

    351.1     419.1     279.3     302.4  

Gross profit margin

    46.4 %   46.7 %   43.1 %   42.1 %

Adjusted EBITDA(3)

    259.4     296.7     207.1     198.2  

Adjusted EBITDA margin(3)

    34.3 %   33.0 %   32.0 %   27.6 %

Profit(4)

    148.0     223.1     172.5     39.4  

Profit margin(4)

    19.6 %   24.8 %   26.6 %   5.5 %
   
(1)
Source: Central Bank of Peru. 2011 data is preliminary.

(2)
Utilization rate is calculated by dividing production for the specified period by installed capacity. The utilization rate for the nine months ended September 30, 2010 and 2011 assumes annualized production, which is calculated by multiplying the nine months actual production by four-thirds.

(3)
For a calculation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our profit, see "Selected financial and operating data."

(4)
Profit for 2010 and for the nine months ended September 30, 2010 includes a net gain of S/.75.9 million from the sale in March 2010 of the Raul copper mine concessions in the central region of Peru that we previously leased to the buyer. In addition, profit for the nine months ended September 30, 2011 includes a non-cash loss of S/.96.1 million due to an impairment with respect to our zinc mining assets.

Peruvian cement market

Peru has experienced sustained economic growth over the past decade. From 2006 to 2010, GDP grew at a CAGR of 7.0%. Despite the global economic recession, which slowed GDP growth in Peru to 0.9% during 2009, the economy rebounded in 2010 and recorded GDP growth of 8.8%. Growth during the 2006 to 2010 period was accompanied by low inflation,

 

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which averaged 2.8% per year. In addition, at December 31, 2010, the government had accumulated foreign exchange reserves of approximately US$44.1 billion, and the sovereign debt achieved an investment grade rating from each of the three major international credit rating agencies. This economic growth has resulted, among other key trends, in significant poverty reduction, with a decrease in the percentage of the country's population living below the poverty line from approximately 48.6% in 2004 to approximately 31.3% in 2010. According to the Central Bank of Peru, the Peruvian economy is estimated to have grown at a rate of 7.4% through September 2011 and is projected to grow at a rate of 6.3% in 2011 and 5.7% in 2012.

We sell substantially all our cement in the northern region of Peru, which in 2010 accounted for approximately 23.3% of the country's population and 15.5% of national GDP. Two other groups sold substantially all the cement consumed in each of the central and southern regions of Peru, with less than 5% of all the cement consumed in the country coming from imports. From 2006 to 2010, total cement consumption in Peru grew at a CAGR of 13.6%, according to the INEI, driven by the country's overall economic growth and, to a lesser extent, by infrastructure spending. In the northern region, cement consumption grew at a CAGR of 12.8% over the same period. Despite this recent growth, Peru continues to have a significant housing deficit, estimated by Fondo MiVivienda at two million homes nationwide.

In Peru, cement is mainly sold to a highly fragmented consumer base, consisting primarily of households that buy cement in bags to gradually build or improve their own homes without professional technical assistance, a segment known in our industry as auto-construcción. We estimate that in 2010 sales to the auto-construcción segment accounted for approximately 59% of our total sales of cement, private construction projects accounted for 25% and public construction projects accounted for the remaining 16%. Approximately 92% of our total cement shipments in 2010 were in the form of bagged cement, substantially all of which was sold through retailers.

Our phosphate and brine projects

In the process of securing quarries of raw materials for our cement operations, in 2007 we acquired a diatomite concession in a field located in Bayóvar in the northwest of Peru where our geologists have discovered significant deposits of phosphate rock. According to an independent study prepared by Golder Associates Peru S.A. in August 2011, this field contains an estimated 541.4 million metric tons of mineralized material based on wet density, with an average grade of 18.5% of P2O5 (phosphorus pentoxide). Phosphate concentrates are primarily sold as a fertilizer nutrient in agriculture, which we believe will continue to benefit from rising global food consumption driven by the growing per capita income in emerging countries. In December 2011, we sold a 30.0% equity interest in our subsidiary Fosfatos del Pacífico S.A. ("Fosfatos"), which focuses on our phosphate operations, to an affiliate of Mitsubishi Corporation & Co., Ltd. ("Mitsubishi"), a global integrated business enterprise listed on the Tokyo Stock Exchange that develops and operates businesses across multiple industries, for an aggregate purchase price of approximately US$46.1 million. Mitsubishi is a world leading marketer of phosphate-derived products. In connection with the sale, Mitsubishi has entered into an off-take agreement to purchase Fosfatos' production of phosphate ore. Under the off-take agreement, Mitsubishi agreed to purchase, once we begin production, 2.0 million metric tons of phosphate ore annually, and has the option to purchase an additional

 

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0.5 million metric tons annually, to the extent we choose not to sell it to the Peruvian market, at a price to be determined pursuant to an agreed upon formula based on prevailing market prices. The off-take agreement has a term of 20 years, with an option for Mitsubishi to extend the term for an additional 5 years upon expiration. We believe this is one of the most significant foreign investments by a major international company in Peru's phosphate sector.

We own concession rights to fields in the coastal region in the northwest of Peru, which, according to our internal geologists, contain brine deposits. We recently entered into an agreement with Quimpac S.A. ("Quimpac"), a leading chemical company in Peru, pursuant to which we formed Salmueras Sudamericanas S.A. ("Salmueras"), a project company in which we own a 74.9% equity interest and Quimpac owns the remaining 25.1%. Under the agreement, we contributed our brine concessions located in the fields of Ñamuc and El Tablazo and committed to invest US$100 million to the project, while Quimpac contributed its brine concessions located in the Cañacmac field and may contribute approximately US$14.2 million to the project to maintain its current equity interest. Our combined brine concessions cover 136,230 hectares of land. Brine is used to produce potassium chloride, magnesium oxide, dicalcium phosphate, bromine and salt, which have a wide variety of agricultural and industrial uses, such as in fertilizers, animal feed and construction.

We believe our phosphate and brine projects provide significant opportunities to expand our revenue streams, diversify our portfolio of products and improve our profitability, and we intend to dedicate substantial efforts to developing these projects. Pending completion of feasibility studies, we believe that both our phosphate and brine projects could be in operation in the next three to five years. In connection with our phosphate project, we are evaluating potential partners to assist in financing the project as well as providing expertise in the commercialization of phosphate-derived products.

These projects require significant capital investments and we plan to invest a portion of the proceeds from this offering to develop them. As we have not yet completed feasibility studies, we cannot assure you that we will be able to produce and sell these products profitably or at all.

Our strengths

Our principal competitive strengths include the following:

Strong cash flow generation and high profitability.    We have historically generated strong cash flow and high profit margins mainly due to the following key factors:

our leadership position in the northern region of Peru;

our extensive distribution network, operational flexibility and efficiency, and focus on innovation; and

our low level of indebtedness.

In 2010, we generated cash flow from operating activities of S/.180.2 million (US$65.0 million) and Adjusted EBITDA of S/.296.7 million (US$107.0 million), and our operating and Adjusted EBITDA margins were 37.5% and 33.0%, respectively. During the nine months ended September 30, 2011, we generated cash flow from operating activities of S/.97.0 million (US$35.0 million) and Adjusted EBITDA of S/.198.2 million (US$71.5 million), and our operating

 

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and Adjusted EBITDA margins were 9.5% and 27.6%, respectively. In addition, we have achieved significant increases in cement production volumes and revenue growth while maintaining low levels of indebtedness. As of September 30, 2011, we had S/.331.4 million (US$119.5 million) of indebtedness and our leverage ratio (net debt to total equity) was 0.3x.

Leader in attractive and expanding market.    We are currently the only cement manufacturer in the northern region of Peru and we produce and sell substantially all of the cement consumed in the region. In 2010, the northern region accounted for approximately 23.3% of the country's population and 15.5% of its GDP. From 2006 to 2010, GDP in the northern region grew at a CAGR of 6.5%. During the same period, our cement production and sales volume grew at a CAGR of 12.8%. Despite this recent growth, the northern region continues to experience significant housing and infrastructure deficits which we expect will continue to drive demand for cement in coming years.

Established distribution network with strong brand recognition.    We have developed one of the largest independent retail distribution networks for construction materials in Peru, known as "DINO", consisting of over 130 independent retailers, primarily small, local hardware stores in the northern region, through which we distribute our cement products as well as construction materials manufactured by third parties. We use our distribution network, together with our strategically located commercial offices, to promote our products and keep informed of market developments. We have developed this network through years of fostering relationships with retailers in the region, which we believe would be difficult for a competitor to replicate. Our distribution network has enabled us to build strong recognition for our Pacasmayo brand among retailers and end-consumers in our market, which we believe is important to our business, particularly because our cement is principally sold in bags to retail consumers.

Operational flexibility and efficiency.    We operate several horizontal and vertical kilns that vary in size, which enable us to adapt quickly to market demands and other events in a cost-efficient manner. For instance, this configuration enables us to continue production without disruption by shifting operations if a serious incident were to occur at our Pacasmayo plant. In addition, our quarries are located in close proximity to our plants, enabling us to minimize transportation costs. We strive to enhance our operational efficiency by focusing on lowering costs and improving profitability.

Emphasis on innovation.    We place significant emphasis on research and development to ensure our products meet the needs of consumers in our market and to improve the efficiency of our operations. For example, we have developed cement products suitable to coastal construction that tend to be more exposed to erosion from sulfate. We believe that, by educating retailers and end consumers of these attributes of our products, we have been successful in building demand and realizing higher margins for our differentiated product offering. In addition, through our dedicated team of geologists and scientists, we have significantly reduced the amount of clinker required for our cement production by substituting clinker with other natural minerals or additives, while maintaining the quality of our cement products. Our reduced use of clinker minimizes capital expenditures that would otherwise be required to increase our cement production capacity, and reduces our carbon dioxide emissions (CO2), consistent with our commitment to the environment. Through these efforts, our clinker/cement factor was approximately 0.72 as of December 2009 and 2010, which was below the global weighted average of 0.76 among large global cement producers as of 2009, as reported

 

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by the World Business Council for Sustainable Development (Cement Sustainability Initiative). As of September 2011, our clinker/cement factor was approximately 0.67.

Know-how to develop our phosphate and brine projects.    We are highly experienced and knowledgeable in open-pit mining and industrial processes as a result of our core cement business, and we believe this know-how will enable us to develop our brine and phosphate projects, as we seek to capitalize on their value for our company. Moreover, because of our close and long-standing relations with local communities, we believe we have the credibility to obtain local support for our projects, which is essential to their success. Due to our long operating history, market position and reputation, we have been able to team up with high quality strategic partners with expertise in areas that complement our core competencies to develop our projects. For our phosphate project, we have partnered with a world leading marketer of phosphate-derived products, and for our brine project we have partnered with a leading chemical company in Peru.

Strong relationship with local communities.    Since we began operations 54 years ago, we have had a strong commitment to improving the quality of life of the local communities surrounding our plants, whose members we regularly employ. As a result, we have developed close and cooperative relationships with the local communities, which are supported by several social responsibility initiatives we have undertaken. For example, the family of our controlling shareholder founded, and we and Hochschild Mining plc continue to fund, Asociación Tecsup, a leading non-profit institute in Peru that provides technical education to high-school students. We provide scholarships and financial aid to local qualified students interested in studying at Tecsup. Through its three campuses in Peru, Tecsup has graduated over 6,000 students in various technical fields, some of whom now work for us and our affiliates.

Highly experienced and professional management and board of directors.    Our management team, with an average of 14 years of experience in the cement industry in Peru, has extensive technical and local market expertise and has led our company through our recent growth. We have developed a strong professional business culture and a team of highly qualified executives. We also have a well-regarded and experienced board of directors that includes some of Peru's business leaders and former senior government officials. We have been selected to form part of the Best Corporate Governance Practices Index of the Lima Stock Exchange, which is currently comprised of only nine listed companies.

Our strategies

Our objective is to maximize shareholder value, while honoring our commitment to the environment and abiding by our social responsibility goals. We intend to achieve our objective through the following principal strategies:

Continue to focus on our core business of supplying the rising demand for cement.    We plan to continue to meet the increasing demand for cement in our market, while controlling production costs. We intend to increase our production capacity through the expansion of our installed cement and clinker capacity. Our principal goal is to maintain our market share in the northern region of Peru without reducing the profitability of our business.

Enhance operational efficiencies to reduce production costs.    We intend to continue developing operational efficiencies in an effort to reduce costs and increase our operating

 

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margins. Our principal efficiency initiative is to reduce energy costs by securing our own source of coal. We recently exercised certain of our options to purchase coal mining concessions in the north of Peru, and we intend to replace a high proportion of our use of imported bituminous coal with anthracite coal produced locally. Additionally, we are focused on further reducing our clinker/cement factor, which would allow us to produce cement with less capital expenditure and achieve a higher product yield in a more environmentally friendly manner. To reduce our clinker/cement factor, we attempt to use substitute materials with a lower cost than our variable cost for the additional clinker required.

Deepen our commercial relationship with retailers and end-consumers.    We plan to enhance our commercial relationships with retailers and end-consumers in our market, both to maintain brand loyalty and to foster demand for our cement products. We will continue to support retailers in our DINO distribution network by providing product education, training sessions, rewards programs, and assistance in financing purchases of our products. We believe that these initiatives have been successful in strengthening our relationship with retailers and end-consumers.

Continue to focus on being the preferred provider of building solutions.    We strive to be the supplier of choice for cement consumers in the northern region of Peru, whether households building their homes or private construction companies or governmental entities undertaking projects of any size. We continue to focus on providing consumers with efficient and customized building solutions for their construction needs. Over the past several years, we have evolved from being a single type cement manufacturer to offering five different types of cement products and other building solutions. For example, we offer cement that contains special properties that protect against sulfate erosion, as well as other products designed to meet the needs of consumers in the northern region of Peru. We dedicate significant resources to developing new products that meet evolving market demands through product research and development.

Develop our non-core mineral assets.    We intend to dedicate significant efforts and resources to develop our phosphate and brine projects and create value for our shareholders by capitalizing on the potential of these mineral assets. We have begun pre-feasibility studies in connection with our phosphate and brine projects, which we expect will be completed during 2012. If these studies indicate that exploitation is economically feasible, we estimate that both the phosphate and the brine projects could be in production within the next three to five years. In connection with our phosphate project, we recently sold a minority equity interest in our subsidiary Fosfatos to an affiliate of Mitsubishi and in the case of our brine project we recently formed Salmueras with Quimpac as a minority equity holder. We believe working with strategic partners in these projects will allow us to mitigate development and execution risk. These projects are not part of our core cement business; accordingly, we intend to evaluate strategic options as the development of the projects proceeds.

Selectively pursue acquisitions.    We will continue to evaluate and may selectively pursue strategic acquisitions of cement and complementary businesses that expand our geographic footprint and diversify our portfolio of products. Our management team has significant operating experience and industry knowledge in the production and commercialization of cement and cement-related materials, and we believe this experience will enable us to identify and pursue attractive acquisitions that will maximize shareholder value.

 

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Risks we face

Our business is subject to a number of risks, including the following principal risks:

economic, social and political risks affecting Peru, including the new government's economic and taxation policies, fluctuations of the Peruvian currency and inflation, and the effects of global economic developments;

the entry of domestic or international competitors into our cement market;

the cyclical nature of housing construction, which is affected by economic conditions, and private and public construction projects, which depends on investment levels, in each case in the northern region of Peru;

increases in prices and availability of energy, admixtures, and certain raw materials;

operational risks inherent in the production of cement, particularly at our flagship Pacasmayo plant;

our ability to comply with increasingly stricter environmental standards and other changes in regulatory requirements;

risks related to the expansion of our operations beyond our core cement business, particularly our phosphate and brine projects, which are both currently in pre-feasibility stages; and

our ability to obtain funding on favorable terms to implement our long-term growth strategies.

You should read "Risk factors" in this prospectus for a discussion of these and other risks, before investing in our ADSs.

Corporate information

We are a publicly-held corporation organized under the laws of Peru. Our executive offices are located at Calle La Colonia 150, Urbanización El Vivero, Surco, Lima, Peru. Our telephone number at this location is + (511) 317-6000. Our website address is www.pacasmayo.com.pe. Information on or accessible through our website is not a part of this prospectus.

 

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The offering

The following is a brief summary of the terms of this offering and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. For a more complete description of our ADSs, see "Description of American depositary shares" and "Description of our share capital" in this prospectus.

Issuer   Cementos Pacasmayo S.A.A.

Securities offered

 

[•] ADSs, each representing [•] of our common shares.

Offering price

 

We expect the offering price will be between US$[•] and US$[•] per ADS.

Over-allotment option

 

We are granting the underwriters an option, exercisable within 30 days, to purchase up to an aggregate of [•] additional ADSs, representing [•] common shares, solely for the purpose of covering over-allotments, if any.

Use of proceeds

 

We estimate that the net proceeds from this offering, based on the offering price of US$[•] per ADS (the mid-point of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and expenses, will be approximately US$[•] million. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds will be approximately US$[•] million, after deducting the estimated underwriting discounts and commissions and expenses incurred in connection with this offering.

 

 

We intend to use the net proceeds from this offering for capital expenditures and general corporate purposes to grow our core cement business and for the development of our phosphate and brine projects. See "Use of proceeds."

Lock-up

 

We, our directors and executive officers and our controlling shareholder have agreed not to sell any of our common shares, investment shares or ADSs for a period of 180 days after the date of this prospectus without the prior approval of J.P. Morgan Securities LLC. J.P. Morgan Securities LLC has advised us that they have no present intention or arrangement to release any of the securities subject to a lock-up agreement and any future request for such a release will be considered in light of the particular circumstances surrounding the request. See "Underwriting."

 

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Common shares and investment shares   We have common shares and investment shares. Holders of investment shares are not entitled to exercise voting rights or participate in shareholders' meetings. Holders of common shares and investment shares participate equally in dividend payments and other distributions.

Preemptive rights offer

 

Under Peruvian law, as a result of this offering, holders of our investment shares will have preemptive rights to purchase an aggregate of up to [•] additional investment shares (based on the issuance of [•] common shares in this offering, including full exercise of the underwriters' over-allotment option), on a pro rata basis, at the nuevo sol equivalent of the price per ADS offered hereby. We plan to launch the preemptive rights offer one business day following the date of this prospectus and consummate any purchases made pursuant thereto on the eighteenth business day thereafter. See "Description of our share capital—Preemptive and accretion rights."

Shares outstanding immediately prior to and following the offering

 

Immediately prior to the offering, we had 418,777,479 common shares (excluding 1,200,000 common shares held by one of our wholly-owned subsidiaries) and 49,575,341 investment shares issued and outstanding. After giving effect to the offering, we will have [•] common shares and 49,575,341 investment shares outstanding (assuming no exercise of the over-allotment option and no purchase under the preemptive rights offer).

ADSs

 

Each ADS represents [•] common shares held by Citibank del Perú S.A., as custodian of JPMorgan Chase Bank, N.A., the depositary. The ADSs will be evidenced by American depositary receipts, or ADRs, issued under a deposit agreement among us, JPMorgan Chase Bank, N.A. and the holders of the ADSs.

Voting

 

Subject to Peruvian law and the terms of the deposit agreement, a holder of ADSs will generally have the right to instruct the depositary how to vote the common shares represented by its ADSs. See "Description of our share capital" and "Description of American depositary shares."

 

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Dividends   Holders of ADSs will be entitled to receive dividends, if any, paid on the common shares represented by the ADS. Cash dividends on our common shares will be paid in nuevos soles and will be converted by the depositary into U.S. dollars and paid to the holders of ADSs, net of fees, expenses and any taxes. Under Peruvian law, dividends are subject to a withholding tax of 4.1% if paid to non-Peruvian holders. See "Dividends", "Description of our share capital," and "Description of American depositary shares".

Listing

 

We have applied to list our ADSs on the New York Stock Exchange under the symbol "CPAC."

Risk factors

 

See "Risk factors" beginning on page 16 and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our ADSs.

 

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Summary financial and operating data

The following information is only a summary and should be read together with "Management's discussion and analysis of financial conditions and results of operations" and the consolidated financial statements and related notes included in this prospectus.

The following summary financial data as of and for the years ended December 31, 2009 and 2010 have been derived from our annual audited consolidated financial statements included in this prospectus, which have been prepared in accordance with IFRS as issued by the IASB. The summary financial data as of and for the nine months ended September 30, 2010 and 2011 have been derived from our unaudited consolidated interim financial statements included in this prospectus, which have been prepared in accordance with IFRS as issued by the IASB, as applied to interim financial statements. The unaudited consolidated interim financial statements and the notes thereto have been condensed, but contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of our financial position and results of operations. The results for the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2011. Accordingly, the unaudited consolidated interim financial statements and

 

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notes thereto should be read in conjunction with our annual audited consolidated financial statements.

   
 
  Year ended December 31,   Nine months ended September 30,  
 
  2009
  2010
  2010
  2010
  2011
  2011
 
 
     
 
  (in millions of S/.,
except share and
per share data)

  (in millions
of US$,
except
per share
data)(1)

  (in millions of S/.,
except share and
per share data)

  (in millions
of US$,
except
per share
data)(1)

 
   

Income statement data:

                                     

Net sales

  S/. 756.6   S/. 898.0   US$ 323.8   S/. 648.1   S/. 717.7   US$ 258.8  

Cost of sales

    (405.5 )   (479.0 )   (172.7 )   (368.9 )   (415.3 )   (149.7 )
       

Gross profit

    351.1     419.1     151.1     279.3     302.4     109.1  

Operating income (expenses):

                                     

Selling and distribution expenses

    (17.1 )   (16.5 )   (6.0 )   (10.4 )   (15.0 )   (5.4 )

Administrative expenses

    (132.9 )   (158.7 )   (57.2 )   (104.9 )   (129.6 )   (46.7 )

Net gain on sale of land and mining concessions(2)

        75.9     27.4     75.9          

Impairment of zinc mining assets(3)

                    (96.1 )   (34.7 )

Other operating income, net

    25.7     16.6     6.0     13.3     6.2     2.2  
       

Total operating income (expenses), net

    (124.4 )   (82.7 )   (29.8 )   (26.1 )   (234.5 )   (84.6 )

Operating profit

    226.7     336.4     121.3     253.2     67.9     24.5  

Other income (expenses):

                                     

Finance income

    1.9     3.3     1.2     2.1     2.0     0.7  

Finance costs

    (18.8 )   (15.0 )   (5.4 )   (10.7 )   (13.1 )   (4.7 )

Gain from exchange difference, net

    8.7     2.6     0.9     2.3     1.5     0.5  
       

Total other expenses, net

    (8.1 )   (9.2 )   (3.3 )   (6.3 )   (9.7 )   (3.5 )

Profit before income tax

    218.6     327.2     118.0     246.8     58.3     21.0  
       

Income tax expense

    (70.6 )   (104.1 )   (37.5 )   (74.3 )   (18.8 )   (6.8 )
       

Profit

  S/. 148.0   S/. 223.1   US$ 80.5   S/. 172.5   S/. 39.4   US$ 14.2  

Profit per share

  S/. 0.32   S/. 0.48   US$ 0.17   S/. 0.37   S/. 0.08   US$ 0.03  

Number of shares outstanding(4)

    468,352,820     468,352,820           468,352,820     468,352,820        
   

 

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  As of and for the year ended
December 31,
  As of and for the
nine months ended
September 30,
 
 
  2009
  2010
  2010
  2010
  2011
  2011
 
 
     
 
  (in millions of S/., except percentage and operating data)
  (in millions of US$)(1)
  (in millions of S/., except percentage and operating data)
  (in millions of US$)(1)
 
   

Balance sheet data:

                                     

Cash and short-term deposits

  S/. 111.7   S/. 154.5   US$ 55.7         S/. 41.0   US$ 14.8  

Inventories

    123.4     160.3     57.8           186.7     67.3  

Property, plant and equipment

    1,020.5     1,102.0     397.4           1,154.6     416.4  

Total assets

    1,402.4     1,587.0     572.3           1,595.1     575.2  

Total interest bearing loans and borrowings

    317.4     307.3     110.8           331.4     119.5  

Total liabilities

    567.9     593.7     214.1           619.5     223.4  

Total equity

    834.5     993.3     358.2           975.6     351.8  

Other financial information:

                                     

Adjusted EBITDA(5)

  S/. 259.4   S/. 296.7   US$ 107.0   S/. 207.1   S/. 198.2   US$ 71.5  

Adjusted EBITDA margin(6)

    34.3 %   33.0 %         32.0 %   27.6 %      

Operating data:

                                     

Installed cement capacity (thousand metric tons per year)

    2,090     3,100           2,100     3,100        

Installed clinker capacity (thousand metric tons per year)

    1,500     1,500           1,500     1,500        

Production (thousand metric tons)

    1,545     1,811           1,289     1,405        
   
(1)
Calculated based on an exchange rate of S/.2.773 to US$1.00 as of September 30, 2011.

(2)
Relates to the sale in March 2010 of the Raul copper mine concessions in the central region of Peru that we previously leased to the buyer.

(3)
Due to a sudden and sharp drop in the international price of zinc in September 2011 and based on our future expectation of zinc prices, we recorded an impairment with respect to our zinc mining assets for the nine months ended September 30, 2011.

(4)
Does not include 1,200,000 common shares held by one of our wholly-owned subsidiaries.

(5)
We define EBITDA as profit plus finance costs, income tax expenses, depreciation and amortization minus finance income and gain from exchange difference, net. We calculate Adjusted EBITDA by subtracting the gain on sale of land and mining concessions and adding the impairment of zinc mining assets to EBITDA. See "Selected financial and operating data—Non-GAAP financial measure and reconciliation" for our calculation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to our profit.

(6)
Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by net sales.

 

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Risk factors

An investment in our ADSs involves a high degree of risk. In addition to the other information in this prospectus, you should carefully consider the risks described below before purchasing our ADSs. If any of the following risks actually occurs, our business, results of operations or financial condition will likely suffer. As a result, the trading price of our ADSs may decline, and you may lose part or all of your investment.

Risks relating to Peru

Economic, social and political developments in Peru could adversely affect our business, financial condition and results of operations.

All of our operations are conducted in Peru and depend on economic and political developments in the country. As a result, our business may be materially and adversely affected by economic downturns, currency depreciation, inflation, interest rate fluctuation, government policies, regulation, taxation, social instability, political unrest, terrorism and other developments in or affecting the country, over which we have no control.

The cement industry in Peru is highly dependent on construction activity in the country, which, in turn, depends on the purchasing power of consumers and, to a lesser extent, commercial and infrastructure investment. Adverse economic conditions could adversely affect construction activity and result in a decrease in demand for cement products.

In the past, Peru has experienced periods of severe economic recession, large currency devaluation and high inflation. In addition, Peru has experienced periods of political instability, which have led to adverse economic consequences. We cannot assure you that Peru will not experience similar adverse developments in the future.

While Peru has experienced economic growth in the recent past, political tensions, high levels of poverty and unemployment, and social conflicts with local communities continue to be pervasive problems in Peru. In recent months, certain areas in the south and the northern highlands of Peru with significant mining developments have experienced strikes and protests related mainly to the environmental impact of metallic mining activities, which have resulted in political tensions, commercial disruptions and a climate of uncertainty with respect to future mining projects. Future government policies in response to social unrest could include, among other things, increased taxation, as well as expropriation of assets. These policies could materially and adversely affect the Peruvian economy and, as a result, our business, financial condition and results of operations.

The newly elected Peruvian president may not maintain recent economic policies, which could adversely affect our business, financial condition and results of operations.

On July 28, 2011, Ollanta Humala became president of Peru. The election of President Humala initially generated political and economic uncertainty. President Humala's presidential campaign was based on a platform of poverty reduction and wealth redistribution, including by means of interventionist policies, although since his inauguration President Humala has taken steps indicating that his administration will focus on more centrist economic policies. For instance, the new administration recently ratified Julio Velarde as president of the Central Bank of Peru and appointed Luis Miguel Castilla as minister of economy and finance, both of whom served

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as senior members of the previous administration and have been strong proponents of open market policies. We cannot assure you that the new administration will not pursue significant changes in the country's economic policies and regulations, including tax increases, higher minimum wages and employee pension requirements, stricter environmental standards, greater rights for local indigenous communities and more proactive or interventionist government policies in certain sectors of the economy that have been underserved by the private sector. Such policies, if implemented, could materially and adversely affect the Peruvian economy and, as a result, our business, financial condition and results of operations.

In addition, President Humala's political party did not obtain a majority of the congressional seats which may potentially lead to a gridlock in the Peruvian Congress and create further political uncertainty.

Fluctuations in the value of the nuevo sol relative to the U.S. dollar could adversely affect our business, financial condition and results of operations.

Fluctuations in the value of the nuevo sol relative to the U.S. dollar could adversely affect Peru's economy. In addition, a depreciation of the nuevo sol could increase, in terms of nuevos soles, certain of our production costs. Substantially all of our revenues are denominated in nuevos soles. However, certain of our expenses, such as the purchase of coal and electricity, are denominated in U.S. dollars. In 2010, approximately 30.0% of our cost of sales were denominated in U.S. dollars. We currently do not hedge our foreign currency risk exposure. In the past the exchange rate between the nuevo sol and the U.S. dollar has fluctuated significantly. We cannot assure you that the value of nuevo sol against other currencies will not fluctuate significantly in the future, which could adversely affect the Peruvian economy and our business, financial condition and results of operations.

In addition, although Peruvian law currently imposes no restrictions on the ability to convert nuevos soles to foreign currency and transfer foreign currency outside of the country, in the 1980s and early 1990s Peru imposed exchange controls, including controls affecting the remittance of dividends to foreign investors. We cannot assure you that exchange controls in Peru will not be implemented in the future. The imposition of exchange controls could have an adverse effect on the economy and on your ability to receive dividends from us as a holder of ADSs.

Inflation could adversely affect our business, financial condition and results of operations.

Peru, like some other countries in Latin America, experienced periods of hyper inflation in the 1980s and high inflation in the early 1990s. In recent years, inflation has been relatively low, with an average annual inflation rate between 2006-2010 of 2.8%, as measured by the Peruvian Consumer Price Index (Índice de Precios al Consumidor del Perú) that is calculated and published by the INEI. If Peru experiences significant rates of inflation in the future, the economy could be adversely affected. In addition, high rates of inflation could increase our operating costs and adversely impact our operating margins if we are not able to pass the increased costs to consumers.

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Changes in tax laws may increase our tax burden and, as a result, could adversely affect our business, financial condition and results of operations.

The Peruvian government from time to time implements changes to tax regulations. Any such changes may result in increases to our overall tax burden, which would negatively affect our profitability. On September 29, 2011, the Peruvian government amended the Mining Royalty Law (Ley de la Regalía Minera) to increase taxation on metallic and non-metallic mining activities in Peru, which will adversely affect our results of operations beginning October 1, 2011. According to this amendment, companies engaged in mining activities in Peru will be required to pay mining royalty taxes on a quarterly basis in an amount equal to the greater of (i) an amount determined in accordance with a statutory scale of tax rates based on a company's operating profit margin that is applied to its operating profit, as adjusted by certain non-deductible expenses, and (ii) 1% of a company's net sales, in each case during the applicable quarter. Our future mining royalty tax payments will depend on our operating profit, operating profit margin and net sales. Based on our results of operations for 2010 and the nine months ended September 30, 2011, we estimate that our incremental mining royalty taxes, net of the applicable income tax effect, would have been approximately S/.4.6 million (US$1.7 million) and S/.3.5 million (US$1.3 million), respectively, if this amendment had been in effect during such periods. We cannot assure you that the Peruvian government will not implement additional changes to tax regulations in the future, which could adversely affect our business, financial condition and results of operations.

Earthquakes, flooding and other natural disasters could affect our business, financial condition and results of operations.

Peru is located in an area that experiences seismic activity and occasionally is affected by earthquakes. In 2007, an earthquake with a magnitude of 7.9 on the Richter scale struck the central coast of Peru, severely damaging the Ica region, located south of Lima. In addition, Peru, including the northern region where we operate and distribute our products, experiences from time to time severe rainfall and flooding, largely as a result of the climate pattern known as El Niño, which typically occurs every two to seven years. Although we have insurance covering damages caused by natural disasters, the occurrence of a severe natural disaster in the north of Peru could affect our facilities and temporarily disrupt our operations or the distribution of our products.

A resurgence of terrorism in Peru could adversely affect the Peruvian economy and, as a result, our business and results of operations.

In the past, Peru experienced significant levels of terrorist activity that reached its peak of violence against the government and private sector in the late 1980s and early 1990s. In the mid-1990s, terrorist groups suffered significant defeats, including the arrest of leaders, resulting in considerable limitations in their activities. Although terrorism no longer poses a significant threat in Peru, a small group of terrorists primarily related to drug traffickers continues to operate in remote mountainous and jungle areas in the central and southern regions of the country. A resurgence of terrorism could materially and adversely affect the Peruvian economy and, as a result, our business, financial condition and results of operations.

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The Peruvian economy could be affected by adverse economic developments in regional or global markets.

Financial and securities markets in Peru are influenced, to varying degrees, by economic and market conditions in regional or global markets. Although economic conditions vary from country to country, investors' perceptions of the events occurring in one country may adversely affect capital flows into and securities from issuers in other countries, including Peru.

The Peruvian economy was adversely affected by the political and economic events that occurred in several emerging economies in the 1990s, including in Mexico in 1994 and the Asian crisis in 1997, which affected the market value of securities issued by companies from markets throughout Latin America. Similar adverse consequences resulted from the economic crisis in Russia in 1998, the Brazilian currency devaluation in 1999 and the Argentine crisis in 2001. In addition, Peru's economy continues to be affected by events in the economies of its major regional partners and in developed economies that are trading partners or that affect the global economy. During the recent global economic and financial crisis, global conditions led to a slowdown in economic growth in Peru, slowing GDP growth in 2009 to 0.9%. In particular, the Peruvian economy suffered the effects of lower commodity prices in the international markets, a decrease in export volumes, a decrease in foreign direct investment inflows and, as a result, a decline in foreign reserves.

Adverse developments in regional or global markets in the future could adversely affect the Peruvian economy and, as a result, adversely affect our business, financial condition and results of operations.

Risks relating to our business and industry

We are subject to the possible entry of domestic or international competitors into our market, which could decrease our market share and profitability.

The cement market in Peru is competitive and is currently served by three principal groups which together supply substantially all of the cement consumed in the country. In the cement industry, the location of a production plant tends to limit the market that a plant can serve because transportation costs are high, reducing profit margins. Historically, we have supplied the northern region of Peru while the two other groups have supplied the central (which includes the Lima metropolitan area) and southern regions of Peru, driven principally by the location of production facilities and distribution focus. However, competition could intensify if other manufacturers decide to enter our market.

We may face increased competition if the other Peruvian cement manufacturers, despite incremental freight costs, expand their distribution of cement to the northern region of Peru, or if they develop a cement plant in the north, particularly if the cement markets in Lima or other areas of Peru become saturated. Some large foreign cement manufacturers have announced plans to build cement plants in the central region of the country. If competition intensifies in the central region of Peru due to the presence of foreign cement manufacturers or otherwise, it may have price repercussions in our market.

We also face the possibility of competition from the entry into our market of imported clinker, cement or other materials or products from foreign manufacturers, which may have

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significantly greater financial resources than us, particularly as production capacity continues to exceed depressed demand in other parts of the world and transportation costs decrease.

We may not be able to maintain our market share if we cannot match our competitors' prices or keep pace with the development of new products. If any of these events were to occur, our business, financial condition and results of operations could be adversely affected.

Demand for our cement products is highly related to housing construction in the northern region of Peru, which, in turn, is affected by economic conditions in the region.

Cement consumption is highly related to construction levels. Demand for our cement products depends, in large part, on residential construction in the north of Peru, which consists mostly of low-income families gradually building or improving their own homes. We estimate that in 2010 auto-construcción accounted for approximately 59% of our cement sales. Residential construction, in turn, is highly correlated to prevailing economic conditions in Peru. A decline in economic conditions would reduce household disposable income and cause a significant reduction in residential construction, leading to a decrease in demand for cement. As a result, a deterioration in economic conditions in the northern region of Peru would have a material adverse effect on our financial performance. We cannot assure you that growth in Peru's GDP, or the contribution to GDP growth attributable to the northern region of the country, will continue at the recent pace or at all.

A reduction in private or public construction projects in the northern region of Peru will have a material adverse effect on our business, financial condition and results of operations.

We estimate that in 2010 approximately 25% of our cement sales were derived from private construction (other than auto-construcción) and 16% from public construction in the north of Peru. Significant interruptions or delays in, or the termination of, private or public construction projects may adversely affect our business, financial condition and results of operations. Private and public construction levels in our market depend on investments in the region which, in turn, are affected by economic conditions.

The level of public infrastructure construction also depends, to a great extent, on the priorities and financial resources of the national, regional and local governmental authorities. The Peruvian government has recently promoted significant public spending in infrastructure projects in the north in response to an infrastructure shortage and to stimulate the economy in response to the negative effects of recent global economic and financial crisis. We cannot assure you that the Peruvian government will continue promoting recent levels of public infrastructure spending in our market. A reduction in public infrastructure spending in our market would adversely affect our business, financial condition and results of operations.

Our business, financial condition and results of operations may be adversely affected by increases in energy prices or shortages in the supply of energy.

Energy represents a significant percentage of our production costs. Our principal energy sources are coal and electricity. In 2010, the cost of energy represented approximately 36.5% of our cement production costs. We use a substantial amount of coal as a source of fuel in our production process. We purchase anthracite coal from domestic suppliers and import bituminous coal from suppliers primarily in Colombia, in each case at market prices. We do not have long-term coal supply agreements, and we do not engage in hedging transactions in

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connection with the price of coal. Any shortage or interruption in the supply of coal could also disrupt our operations. In addition, the price of coal is largely driven by the price of oil, and, as a result, increases in international oil prices are likely to affect the price of coal and adversely affect our results of operations.

We have a long-term electricity supply agreement with Electroperú S.A. ("Electroperú"), a government-owned company, and a separate electricity supply agreement with Kallpa Generación S.A. ("Kallpa"), which expires in July 2012, to serve the electricity requirements of our Pacasmayo facility. We have also entered into a supply agreement with Electro Oriente S.A. ("ELOR") to supply the Rioja facility. Our business, financial condition and results of operations could be materially and adversely affected by higher costs, interruptions, and unavailability or shortage of electricity. We have no back-up power system at our plants and cannot assure you that, in case of interruption or failure in Electroperú's, Kallpa's or ELOR's operations, we will have access to other energy sources at the same prices and conditions, which could adversely affect our business, financial condition and results of operations. Moreover, electricity to our plants is transmitted through the Peruvian Electricity Interconnection System (Sistema Eléctrico Interconectado Nacional del Perú, or "SEIN"). Any interruptions or failures in SEIN's system would also have a material adverse effect on our business, financial condition and results of operations.

In the recent past, we have experienced electricity rationing, limiting our use of electricity to certain times of the day. In such cases, we were forced to readjust our production schedules in order to ensure that our production process was not interrupted. In the event of any future rationing of electricity, we may not be able to readjust quickly enough and our production process may be interrupted. Future shortages or efforts to respond to or prevent shortages, such as rationing, may adversely impact the cost or supply of electricity for our operations.

A significant increase in the prices of coal or electricity would increase our costs of production. We may not be able to increase the prices of our cement products in the future if the prices of coal or electricity rises, which would adversely affect our business, financial condition and results of operations.

Changes in the cost or availability of admixtures and raw materials supplied by third parties may adversely affect our business, financial condition and results of operations.

We use certain admixtures and raw materials in the production of cement, such as gypsum, burn furnace slag and iron that we obtain from third parties. In 2010, our cost of admixtures and raw materials supplied by third parties as a percentage of our cement production costs was approximately 6.3%. We do not have long-term contracts for the supply of admixtures and raw materials that we use and if existing suppliers cease operations or reduce or eliminate production of these products, our costs to procure these materials may increase significantly or we may be obligated to procure alternatives to replace these products.

We may make future acquisitions that may not achieve expected benefits.

Our strategic initiatives include pursuing acquisitions that tend to diversify our existing portfolio of products and services and expand our geographic footprint. In the future, we may decide to expand by acquiring other companies in Peru or abroad. Any future acquisitions will depend on our ability to identify suitable candidates, negotiate acceptable terms, and obtain financing for the acquisitions. If future acquisitions are significant, they could change the scale

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of our business and expose us to new geographic, political, operating and financial risks. In addition, each acquisition involves a number of risks, such as the diversion of our management's attention from our existing business to integrating the operations and personnel of the acquired business, possible adverse effects on our results of operations during the integration process, our inability to achieve the intended objectives of the combination and potential unknown liabilities associated with the acquired assets.

We may not be able to obtain the funding required to implement future strategies.

Our strategies to continue to expand our cement production capacity and distribution network and to develop our brine and phosphate projects require significant capital expenditures. We cannot assure you that we will generate sufficient cash flow from operations, or that we will have access to external financing sources, to adequately fund such capital expenditures. Our access to external sources of financing will depend on many factors, including factors beyond our control, such as conditions in the global capital markets and investors' risk perception of investing in Peru and in emerging markets generally. Any equity or debt financing, if available, may not be on terms that are favorable to us. If our access to external financing is limited, we may not be able to execute our strategy, which could adversely affect our business, financial condition and results of operations.

We are subject to risks related to litigation and administrative proceedings that could adversely affect our business and financial performance in the event of an unfavorable ruling.

The nature of our business exposes us to litigation relating to product liability claims, labor, health and safety matters, environmental matters, regulatory, tax and administrative proceedings, governmental investigations, tort claims and contract disputes, among other matters. In the past, we have been subject to antitrust and tax proceedings or investigations. While we contest these matters vigorously and make insurance claims when appropriate, litigation is inherently costly and unpredictable, making it difficult to accurately estimate the outcome of actual or potential litigation. Although we establish provisions as we deem necessary, the amounts that we reserve could vary significantly from any amounts we actually pay due to the inherent uncertainties in the estimation process. We cannot assure you that these or other legal proceedings will not materially affect our ability to conduct our business, financial condition and results of operations in the event of an unfavorable ruling.

Our business is subject to a number of operational risks, which may adversely affect our business, financial condition and results of operations.

Our business is subject to several industry-specific operational risks, including accidents, natural disasters, labor disputes and equipment failures. Such occurrences could result in damage to our production facilities, and equipment and/or the injury or death of our employees and others involved in our production process. Moreover, such accidents or failures could lead to environmental damage, loss of resources or intermediate goods, delays or the interruption of production activities and monetary losses, as well as damage to our reputation. Our insurance may not be sufficient to cover losses from these events, which could adversely affect our business, financial condition and results of operations.

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In addition, key equipment at our facilities, such as our mills and kilns, may deteriorate sooner than we currently estimate. Such deterioration of our assets may result in additional maintenance or capital expenditures, and could cause delays or the interruption of our production activities. If these assets do not generate the cash flows we expect, and we are not able to procure replacement assets in an economically feasible manner, our business, financial condition and results of operations may be materially and adversely affected.

Our business depends on the continued operation of our flagship Pacasmayo plant.

Our flagship production facility in Pacasmayo is essential to our business. In 2010, approximately 89.2% of our total cement and all of our quicklime was produced at this facility. The Pacasmayo plant is subject to normal hazards of operating any cement production facility, including accidents and natural disasters. Any interruption in our operation of the Pacasmayo facility or a decrease in the effective capacity of this facility would adversely affect our results of operations, and any prolonged disruption in the operation of this facility would have a material adverse effect on our business, financial condition and results of operations.

The introduction of cement substitutes into the market and the development of new construction techniques could have a material adverse effect on our business, financial condition and results of operations.

Materials such as plastic, aluminum, ceramics, glass, wood and steel can be used in construction as a substitute for cement. In addition, other construction techniques, such as the use of dry wall, could decrease the demand for cement and concrete. In Peru, dry wall has only been introduced into the housing construction market in recent years and it is not widely used. However, the use of dry walls for housing construction could increase significantly in the future as it becomes more popular. In addition, research aimed at developing new construction techniques and modern materials may introduce new products in the future. The use of substitutes for cement could cause a significant reduction in the demand and prices for our cement products.

Our success depends on key members of our management.

Our success depends largely on the efforts and strategic vision of our executive management team and board of directors. The loss of the services of some or all of our executive management and members of our board of directors could have a material adverse effect on our business, financial condition and results of operations.

The execution of our business plan also depends on our ongoing ability to attract and retain additional other qualified employees capable of operating our plants. Due to the limited pool of skilled workers in the north of Peru or workers from other regions willing to relocate to the north of Peru, we may not be successful in attracting and retaining the personnel we require. If we are unable to hire, train and retain qualified employees at a reasonable cost, we may be unable to successfully operate our business or reach full planned production levels in a timely manner and, as a result, our business, financial condition and results of operations could be adversely affected.

Our operations and sales are highly concentrated in the northern region of Peru.

All of our operations are located in the northern region of Peru, including our production facilities and the quarries from where we obtain limestone to produce cement. In addition,

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substantially all of our cement products are sold to consumers in this market. As a result, any adverse economic, political or social conditions affecting the northern region of Peru, as well as natural disasters and weather conditions, such as the El Niño climate pattern, among other factors that may affect this region, could have a material adverse affect on our business, financial condition and results of operations.

We are subject to environmental regulations and may be exposed to liability and political cost as a result of our handling of hazardous materials and potential costs for environmental compliance.

We are subject to various environmental protection and health and safety laws and regulations that regulate, among other things, the generation, storage, handling, use and transportation of hazardous materials; emissions and discharge of hazardous materials; and the health and safety of our employees. Pursuant to Peruvian law, in order to conduct mining and industrial activities, we are required, among other things, to (i) submit an environmental study and a mining closure plan to the Ministry of Production (Ministerio de la Producción) prior to initiating mining activities, (ii) comply with certain air emission and wastewater discharge standards, (iii) obtain approval from the water management authority to discharge wastewater into natural water sources or soil, and (iv) dispose solid waste generated by us in special landfills exclusively through companies registered with the environmental agency. In addition, we are required to have a health and safety committee and develop an internal health and safety code. Although we believe we are in compliance with all these regulations in all material respects, we cannot assure you that we have been or will be at all times in full compliance with these laws and regulations. Any violation of such laws or regulations could result in substantial fines, criminal sanctions, revocations of operating permits and shutdowns of our facilities. In addition, current or future governments may also impose stricter regulations which may require us to incur higher compliance costs.

Pursuant to certain applicable environmental laws, we could be found liable for all or substantially all of the damages caused by pollution at our current or former facilities or those of our predecessors or at disposal sites. We could also be found liable for all incidental damages due to the exposure of individuals to hazardous substances or other environmental damage.

We cannot assure you that our costs of complying with current and future environmental and health and safety laws and regulations, and any liabilities arising from past or future releases of, or exposure to, hazardous substances will not adversely affect our business, financial condition and results of operations.

International agreements related to climate change may result in an increase in our costs.

There are ongoing international efforts to address greenhouse emissions. The United Nations and certain international organizations have taken action against activities that may increase the atmospheric concentration of greenhouse gases. Regulatory measures, such as the Kyoto Protocol, aimed at addressing greenhouse gas emissions and climate changes, are in various stages of negotiation and implementation. Such measures may result in an increase in costs to us for installation of new controls aimed at reducing greenhouse gas emissions, purchase of credits or licenses for atmospheric emissions, and monitoring and registration of greenhouse

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gas emissions from our operations. These measures, if adopted in Peru, could adversely affect our business, financial condition and results of operations.

Changes in regulations or in the interpretation of regulations may adversely affect our business, financial condition and results of operations.

Our business is subject to extensive regulation in Peru, including, among others, relating to tax, environmental, labor, health and safety, and mining matters. We believe that our facilities are currently operating in all material respects in accordance with all applicable concessions, laws and regulations. Future regulatory changes, changes in the interpretation of such regulations or stricter enforcement of such regulations, including changes to our concession agreements, may increase our compliance costs and could potentially require us to alter our operations. We cannot assure you that regulatory changes in the future will not adversely affect our business, financial condition and results of operations.

A dispute with the labor unions that represent our employees could have an adverse effect on our business, financial condition and results of operations.

As of September 30, 2011, approximately 16% of our employees were members of employee unions. Our practice is to extend some of the benefits we offer our unionized employees to other employees. Although we consider our relations with our employees are currently positive, we cannot assure you that we will not experience work slowdowns, work stoppages, strikes or other labor disputes in the future, which could adversely affect our business, financial condition and results of operations.

New projects may require the prior approval of local indigenous communities.

On September 7, 2011, Peru enacted Law No. 29,785, regarding the Prior Consultation Right of Local Indigenous Communities, in accordance with the International Labor Organization Convention No. 169 (Ley del Derecho a la Consulta Previa a los Pueblos Indígenas y Originarios, Reconocido en el Convenio 169 de la Organización Internacional del Trabajo). This law, which became effective on December 6, 2011, establishes a prior consultation procedure (procedimiento de consulta previa) that the Peruvian government must carry out with local indigenous communities whose rights may be directly affected by new legislative or administrative measures, including the granting of new mining concessions. Local indigenous communities do not have a veto right; upon completion of this prior consultation procedure, the Peruvian government retains the discretion to approve or reject the applicable legislative or administrative measure. However, to the extent that in the future our new projects require legislative or administrative measures that impact local indigenous communities, we may not be able to undertake such projects, unless the Peruvian government first conducts the foregoing consultation procedure. In addition, regulation implementing this law is still pending. We cannot assure you that this law will not adversely affect our new projects and have an adverse effect on our business, financial condition and results of operations.

Additional risks relating to our phosphate and brine projects

We have not established reserves with respect to our phosphate or brine projects.

We have not established reserves with respect to our phosphate or brine projects. We have only verified mineralized material in our phosphate deposits, and both projects are undergoing

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pre-feasibility studies. Such mineralized material will not qualify as reserves until a comprehensive evaluation, based upon unit costs, grades, recoveries and other factors, concludes economic and legal feasibility. The cost, timing and complexities of upgrading mineralized material to reserves may be greater than we anticipate. Mineral exploration and development involves a high degree of risk that even a combination of careful evaluation, experience and knowledge cannot eliminate, and few properties that are explored are ultimately developed into producing mines. Once mineralization is discovered, it may take a number of years from the initial phases of drilling before production is possible, during which time the economic feasibility of production may change. Substantial expenditures typically are required to establish reserves through drilling, to determine metallurgical processes to extract the minerals from the ore and to construct mining and processing facilities.

We cannot assure you that we will be able to establish the presence of any reserves for phosphate or brine. The failure to establish reserves would materially affect our ability to develop our phosphate and brine projects and could significantly reduce their estimated value.

Mineralized material calculations are only estimates.

Our calculation of the mineralized material at our Bayóvar field is only an estimate and depends on geological interpretation and statistical inferences or assumptions drawn from drilling and sampling analysis, which may prove to be materially inaccurate. There is a significant degree of uncertainty attributable to the calculation of mineralized material. Until mineralized material is actually mined and processed, the quantity of mineralized material and grades must be considered as estimates only and we cannot assure you that indicated levels will actually be produced.

The estimate of mineralized material is partially dependent upon the judgment of the person preparing the estimates. The process relies on the quantity and quality of available data and is based on knowledge, mining experience, statistical analysis of drilling results and industry practices. Valid estimates at a given time may significantly change when new information becomes available.

Estimating mineralized material may have to be recalculated based on further exploration or development activity or actual production experience, which could materially and adversely affect estimates of the quantity or grade of mineralized material. Any material changes in quantity and grades of mineralized material will affect the economic viability of placing a property into production and a property's return on capital. We cannot assure you that mineralized material can be mined or processed profitably.

Our phosphate and brine projects are not part of our core cement business and we cannot assure you that we will be able to profitably extract and sell these products.

We are undertaking two non-metallic mining projects to develop phosphate and brine deposits. However, we have only initiated pre-feasibility studies and we cannot assure you that these projects will be successful or profitable. Mining is highly speculative in nature, involves many risks and can be unsuccessful. In addition, our core competency is the production and distribution of cement products. We have no prior experience in planning, developing and managing large-scale mining projects, and we have no operating experience or track record in extracting, processing or commercializing phosphate or brine minerals to assess our potential performance. The development of these two projects may result in unforeseen operating

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difficulties and may require significant financial and managerial resources that would otherwise be available for the ongoing development of our existing cement operations.

We may face several factors that may impair our ability to execute these projects successfully including, among others, the following:

delays in obtaining regulatory approvals, licenses or permits from different governmental or regulatory authorities, including environmental permits;

increases in the cost of energy, equipment, materials or labor, making the project economically unfeasible;

adverse weather conditions, natural disasters, accidents or other unforeseen events;

unforeseen engineering, design, environmental or geological problems;

insufficient access to adequate means of transportation for our minerals, including delays in the construction of a port nearby;

opposition from local communities;

strikes or labor disputes;

changes in the level of demand and prices for products derived from these materials; and

adverse changes in Peru's regulatory framework.

Any of these factors may delay our projects and may increase our projected capital costs. If we are unable to complete these projects, any costs incurred in connection with these projects may not be recoverable. If we experience delays, cost overruns, or changes in market circumstances, we may not be able to demonstrate the commercial viability of these projects or achieve the intended economic benefits, which would materially and adversely affect our business, financial condition and results of operations.

In addition, we may face difficulties in marketing and distributing the products derived from these fields. Even if we successfully extract these minerals, we may not be able to market them successfully or find suitable buyers, which may have an adverse effect on our business, financial condition and results of operations.

The actual amount of capital required for our phosphate and brine projects may vary significantly from our current estimates.

Our phosphate and brine initiatives are complex projects that require significant capital investment. Our estimated capital amounts for these projects are based on preliminary estimates and assumptions we have made about the mineral deposits, equipment, labor, permits and other factors required to complete the projects. If any of these estimates or assumptions change, the actual timing and amount of capital required may vary significantly from what we anticipate. Additional funds may be required in the event of departures from current estimates, unforeseen delays, cost overruns, engineering design changes or other unanticipated expenses, or if we are unable to find a suitable strategic partner to assist in financing our phosphate project. We cannot assure you that additional financing will be

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available to us, or, if available, that it can be obtained on a timely basis and on commercially acceptable terms.

If we have difficulties working with Mitsubishi to develop our phosphate project or with Quimpac to develop our brine project, we may face difficulties in carrying out these projects.

We are unfamiliar with the commercial market for phosphate and brine products and are seeking to develop these projects with partners that have expertise in commercializing these products. We sold a minority equity interest in our subsidiary Fosfatos to an affiliate of Mitsubishi, which will assist us to develop our phosphate deposits. In addition, Mitsubishi entered into a 20-year off-take agreement with Fosfatos. We have formed Salmueras with Quimpac as a minority partner to assist in financing our brine project and provide its expertise in the commercialization of dicalcium phosphate and salt. If we encounter difficulties working with Mitsubishi or Quimpac, we may not be able to execute these projects as currently contemplated.

Risks relating to the offering

The market price of our ADSs may fluctuate significantly, and you could lose all or part of your investment.

Volatility in the market price of our ADSs may prevent you from being able to sell your ADSs at or above the price you paid for them. The market price and liquidity of the market for our ADSs may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, among others:

actual or anticipated changes in our results of operations, or failure to meet expectations of financial market analysts and investors;

investor perceptions of our prospects or our industry;

operating performance of companies comparable to us and increased competition in our industry;

new laws or regulations or new interpretations of laws and regulations applicable to our business;

general economic trends in Peru;

catastrophic events, such as earthquakes and other natural disasters; and

developments and perceptions of risks in Peru and in other countries.

You may not be able to sell ADSs you own or the common shares underlying the ADSs at the time or the price you desire because an active or liquid market for these securities may not develop.

Prior to this offering, there has not been a public market for our ADSs. We have applied to list our ADSs on the New York Stock Exchange. We cannot predict whether an active liquid public trading market for our ADSs will develop or be sustained. Active, liquid trading markets generally result in lower price volatility and respond more efficiently to orders from investors

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to purchase or sell securities. Liquidity of a securities' market is often a function of the volume of the underlying shares that are publicly-held by unrelated parties. Our common shares are listed on the Lima Stock Exchange. Although ADS holders are entitled to withdraw common shares underlying our ADSs from the depositary at any time, the Lima Stock Exchange in Peru is generally a less liquid trading market than the New York Stock Exchange.

Substantial sales of ADSs or common shares after this offering could cause the price of our ADSs or common shares to decrease.

Our controlling shareholder will continue to hold a large number of our common shares after this offering. We and our controlling shareholder, among others, will agree with J.P. Morgan Securities LLC not to offer, sell, contract to sell or otherwise dispose of or hedge any common shares, investment shares, or ADSs, without the prior written consent of J.P. Morgan Securities LLC, during the 180 calendar day period following the date of the prospectus, subject to certain exceptions. After this 180 day period expires, these securities will be eligible for sale. The market price of our ADSs could decline significantly if we or our controlling shareholder sell securities in our company or the market perceives that we or our controlling shareholder intend to do so.

In connection with this offering, under Peruvian law we are required to launch a preemptive rights offer of [    •    ] non-voting investment shares to existing holders of our investment shares at the nuevo sol equivalent of the price per ADS offered hereby, which could affect the trading price of our ADSs. The preemptive rights offer will be launched one business day after the date of this prospectus and will remain open for 18 business days thereafter.

Our controlling shareholder will continue to have significant influence over us after this offering, and his interests could conflict with yours.

Upon the consummation of the global offering, our controlling shareholder will beneficially own approximately [    •    ]% of our outstanding common shares (assuming no exercise of the over-allotment option). As such, our controlling shareholder has the ability to determine the outcome of substantially all matters submitted for a vote to our shareholders and thus exercise control over our business policies and affairs, including, among others, the following:

the composition of our board of directors and, consequently, any determinations of our board with respect to our business direction and policy, including the appointment and removal of our executive officers;

determinations with respect to mergers, other business combinations and other transactions, including those that may result in a change of control;

whether dividends are paid or other distributions are made and the amount of any such dividends or distributions;

whether we offer preemptive and accretion rights to holders of our common shares in the event of a capital increase;

sales and dispositions of our assets; and

the amount of debt financing that we incur.

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Our controlling shareholder may direct us to take actions that could be contrary to your interests and may be able to prevent other shareholders, including you, from blocking these actions or from causing different actions to be taken. Also, our controlling shareholder may prevent change of control transactions that might otherwise provide you with an opportunity to dispose of or realize a premium on your investment in our ADSs. We cannot assure you that our controlling shareholder will act in a manner consistent with your best interests.

Holders of ADSs may be unable to exercise voting rights with respect to our common shares underlying the ADSs at our shareholders' meetings.

As a holder of ADSs representing common shares being held by the depositary in your name, you may exercise voting rights with respect to the common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. Holders of our common shares will receive notice of shareholders' meetings through publication of a notice in an official gazette in Peru, a Peruvian newspaper of general circulation and the bulletin of the Lima Stock Exchange, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders will not receive notice directly from us. Instead, pursuant to the deposit agreement, we will notify the depositary, who will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which voting instructions may be given. To exercise their voting rights, ADS holders must instruct the depositary how to exercise the voting rights for the common shares which underlie their ADSs. Due to these additional procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of our common shares.

Holders of ADSs also may not receive voting materials in time to instruct the depositary to vote the common shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADS or for the manner of carrying out such instructions, unless such failure can be attribute to gross negligence, bad faith or willful misconduct on the part of the depositary or its agents. Accordingly, holders of ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the underlying common shares are not voted as requested.

Our shareholders' ability to receive cash dividends may be limited.

Our shareholders' ability to receive cash dividends may be limited by the ability of the depositary to convert cash dividends paid in nuevos soles into U.S. dollars. Under the terms of our deposit agreement with the depositary for the ADSs, the depositary will convert any cash dividend or other cash distribution we pay on the common shares underlying the ADSs into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If this conversion is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADR holders to whom it is possible to do so. If the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the dividend distribution.

Holders of ADSs may be unable to exercise preemptive or accretion rights with respect to the common shares underlying their ADSs.

Under Peruvian corporate law, if we issue new common shares as part of a capital increase, unless otherwise agreed to by holders of 40% of our outstanding common shares, our

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shareholders will generally have the right to subscribe to a proportional number of common shares of the class held by them to maintain their existing ownership percentage, which is known as preemptive rights. In addition, shareholders are entitled to the right to subscribe for the unsubscribed common shares of either the class held by them or other classes which remain unsubscribed at the end of a preemptive rights offering, on a pro rata basis, which is known as accretion rights. You may not be able to exercise the preemptive or accretion rights relating to common shares underlying your ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the common shares relating to these preemptive and accretion rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, you may receive only the net proceeds from the sale of your preemptive and accretion rights by the depositary or, if the preemptive and accretion rights cannot be sold, they will be allowed to lapse. As a result, U.S. holders of our ADSs may suffer dilution of their interest in our company upon future capital increases.

We are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement, without the prior consent of the ADS holders.

We are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement, without the prior consent of the ADS holders. Any change related to an increase in deposits or charges for book-entry securities services or any modification that might hinder the rights of the ADS holders will be effective within 30 days after the ADS holders have received notice of such change or modification and such holders will have no right to any compensation whatsoever.

Our status as a foreign private issuer allows us to follow alternate standards to the corporate governance standards of the New York Stock Exchange, which may limit the protections afforded to investors.

We are a "foreign private issuer" within the meaning of the New York Stock Exchange corporate governance standards. Under New York Stock Exchange rules, a foreign private issuer may elect to comply with the practices of its home country and not to comply with certain corporate governance requirements applicable to U.S. companies with securities listed on the exchange. We currently follow certain Peruvian practices concerning corporate governance and intend to continue to do so. Accordingly, holders of our ADSs will not have the same protections afforded to shareholders of companies that are subject to all New York Stock Exchange corporate governance requirements.

For example, the New York Stock Exchange listing standards provide that the board of directors of a U.S. listed company must have a majority of independent directors at the time the company ceases to be a "controlled company". Under Peruvian corporate governance practices, a Peruvian company is not required to have a majority of independent members on its board of directors.

The listing standards for the New York Stock Exchange also require that U.S. listed companies, at the time they cease to be "controlled companies", have a nominating/corporate governance committee and a compensation committee (in addition to an audit committee). Each of these

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committees must consist solely of independent directors and must have a written charter that addresses certain matters specified in the listing standards. Under Peruvian law, a Peruvian company may, but is not required to, form special governance committees, which may be composed partially or entirely of non-independent directors.

In addition, New York Stock Exchange rules require the independent non-executive directors of U.S. listed companies to meet on a regular basis without management being present. There is no similar requirement under Peruvian law.

The New York Stock Exchange's listing standards also require U.S. listed companies to adopt and disclose corporate governance guidelines. In July 2002, the Peruvian Securities Commission and a committee comprised of regulatory agencies and associations prepared and published a list of suggested non-mandatory corporate governance guidelines called the "Principles of Good Governance for Peruvian Companies." Although we have implemented a number of these measures, we are not required to comply with the corporate governance guidelines by law or regulation.

Minority shareholders in Peru are not afforded equivalent protections as minority shareholders in other jurisdictions and investors may face difficulties in commencing judicial and arbitration proceedings against our company or the controlling shareholder.

Our company is organized and existing under the laws of Peru, and our controlling shareholder is resident in Peru. Accordingly, investors may face difficulties in serving process on our company, our officers and directors or the controlling shareholder in other jurisdictions, and in enforcing decisions granted by courts located in other jurisdictions against our company, our officers and directors or the controlling shareholder that are based on securities laws of jurisdictions other than Peru.

In Peru, there are no proceedings to file class action suits or shareholder derivative actions with respect to issues arising between minority shareholders and an issuer, its controlling shareholders or directors and officers. Furthermore, the procedural requirements to file actions by shareholders differ from those of other jurisdictions, such as in the United States. As a result, it may be more difficult for our minority shareholders to enforce their rights against us, our directors, officers or controlling shareholder as compared to the shareholders of a U.S. company. The deposit agreement provides that the depositary has no obligation to commence or become involved in any judicial proceedings and any other legal actions relating to the ADSs or the deposit agreement, either on behalf of the ADS holders or on behalf of any other person.

You will experience immediate and substantial dilution in the book value of the common shares and ADSs you purchase in this offering.

Because the initial offering price of the ADSs being sold in this offering will be substantially higher than our net tangible book value per common share, you will experience immediate and substantial dilution in the book value of the common shares underlying your ADSs. Net tangible book value represents the amount of our tangible assets on an adjusted basis, minus our total liabilities on an adjusted basis. As a result, at the assumed initial public offering price of US$[    •    ] per ADS, or US$[    •    ] per common share (based on the mid-point of the price range set forth on the cover page of this prospectus), we currently expect that you will incur immediate dilution of US$[    •    ] per ADS, or US$[    •    ] per common share, you purchase in

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this offering (assuming no exercise of the underwriters' over-allotment option and no purchase under the preemptive rights offer).

Our newly issued common shares from this offering will initially be represented by "certificados provisionales" and you will not be able to cancel your ADSs and withdraw the deposited common shares until the definitive common shares are issued.

In accordance with Peruvian law, our common shares will be represented by preliminary stock certificates (certificados provisionales) until the capital increase is recorded with the Peruvian public registry and new common shares are listed on the Lima Stock Exchange and registered in the CAVALI S.A. ICLV book-entry settlement system. We cannot assure you that the Peruvian public registry will not delay the recording of our capital increase. In addition, the corporate resolution authorizing the capital increase may be subject to judicial challenges or other factors that prevent or delay the recording of the capital increase with the Peruvian public registry. Once the capital increase has been recorded, we will issue common shares in exchange for the preliminary stock certificates. Only after the capital increase has been recorded with the Peruvian public registry and we have issued common shares in exchange for the preliminary stock certificates, will you be able to cancel your ADSs and withdraw the deposited common shares.

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Exchange rates

The Peruvian nuevo sol is freely traded in the exchange market. Current Peruvian regulations on foreign investment allow foreign equity holders of Peruvian companies to receive and repatriate 100% of the cash dividends distributed by these companies. Non-Peruvian equity holders are allowed to purchase foreign currency at free market currency rates through any member of the Peruvian banking system and transfer such foreign currency outside Peru without restriction. Peruvian law in the past, however, has imposed restrictions on the conversion of Peruvian currency and the transfer of funds abroad, and we cannot assure you that Peruvian law will continue to permit such payments, transfers, conversions or remittances without restrictions.

The following table sets forth, for the periods indicated, certain information regarding the exchange rates for nuevos soles per U.S. dollar, as published by the SBS. The Federal Reserve Bank of New York does not report a noon buying rate for nuevos soles.

   
 
  High
  Low
  Average(1)
  Period end
 
   

2006

    3.452     3.196     3.265     3.196  

2007

    3.201     2.968     3.124     2.996  

2008

    3.157     2.693     2.941     3.140  

2009

    3.259     2.852     3.006     2.890  

2010

    2.883     2.787     2.826     2.809  

2011:

                         

July

    2.750     2.736     2.742     2.738  

August

    2.752     2.725     2.739     2.725  

September

    2.777     2.725     2.744     2.773  

October

    2.776     2.707     2.732     2.707  

November

    2.713     2.700     2.705     2.700  

December

    2.701     2.694     2.696     2.696  

2012:

                         

January (through January 2)

    2.698     2.698     2.698     2.698  
   

Source: SBS

(1)
Based on the exchange rate on the last day of each month during the year.

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Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately US$[    •    ] million, or US$[    •    ] million if the underwriters exercise the over-allotment option in full. These amounts assume an initial public offering price of US$[    •    ] per ADS (the mid-point of the price range set forth on the cover page of this prospectus), after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. The following estimates assume the underwriters do not exercise the over-allotment option and holders of investment shares do not exercise the right to subscribe additional investment shares in the preemptive rights offer.

We intend to use approximately [    •    ]% of the net proceeds from this offering for capital expenditures and other general corporate purposes to grow our core cement business. The capital expenditures will include the increase of cement production capacity of our Rioja facility, which is currently operating at near full capacity, and part of the construction of a cement plant in Piura based on the results of our pre-feasibility and engineering studies. We believe that our expansion plans will allow us to meet projected increases in demand for cement in coming years, help us deepen our commercial relationships in regional areas in our market, reduce transportation costs, and secure our leadership position in the northern region of Peru. We routinely evaluate acquisition and investment opportunities that are aligned with our strategic goals, so we may also acquire, or invest in, businesses, technologies or products that are complementary to our core business. We will have broad discretion over the uses of the net proceeds from this offering.

We currently also expect to use approximately [    •    ]% of the net proceeds from this offering toward capital expenditures required to develop our phosphate and brine projects. Our preliminary estimates of the investments required to develop these projects are in the range of US$350 to US$400 million for phosphate and in the range of US$250 to US$300 million for brine. These estimates, however, are based on limited preliminary work and are subject to change. We have not developed a specific timetable for the development of these projects and our use of proceeds may vary depending on the progress and ongoing evaluation of these projects. We expect to finance these projects with a combination of the net proceeds from this offering, new borrowings and financial contributions from current or future minority partners. We will have significant flexibility in applying the net proceeds of this offering to these projects.

Pending application of the net proceeds, we expect to invest the proceeds in low-risk marketable securities, bank deposits and money market funds.

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Capitalization

The following table sets forth our capitalization as of September 30, 2011:

on an actual basis; and

as adjusted to give effect to the sale of our ADSs in the offering at an assumed initial public offering price of US$[    •    ] per ADS (the mid-point of the price range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and offering expenses payable by us.

The table below should be read in conjunction with our consolidated financial statements and related notes included in this prospectus.

   
 
  Actual   As adjusted  
As of September 30, 2011
  (in millions
of S/.)

  (in millions
of US$)(1)

  (in millions
of S/.)

  (in millions
of US$)(1)

 
   

Indebtedness:

                         

Current interest-bearing loans and borrowings(2)

  S/. 153.6   US$ 55.3   S/. [• ] US$ [• ]

Non-current interest-bearing loans and borrowings

    177.8     64.2     [• ]   [• ]
       

Total interest-bearing loans and borrowings(3)(4)

    331.4     119.5     [• ]   [• ]

Equity:

                         

Common shares

    418.8     151.0     [• ]   [• ]

Investment shares

    49.6     17.9     [• ]   [• ]

Legal reserve

    77.4     27.9     [• ]   [• ]

Other components of equity

    8.6     3.2     [• ]   [• ]

Retained earnings

    415.8     149.9     [• ]   [• ]

Non-controlling interest

    5.4     1.9     [• ]   [• ]
       

Total equity

    975.6     351.8     [• ]   [• ]

Total capitalization

  S/. 1,307.1   US$ 471.3   S/. [• ] US$ [• ]
   
(1)
Calculated based on an exchange rate of S/.2.773 to US$1.00 as of September 30, 2011.

(2)
Includes current portion of non-current interest-bearing loans and borrowings.

(3)
Does not include (i) the repayment of two short-term loans in the aggregate amount of S/.7.7 million, (ii) the increase in the outstanding balance by an additional S/.14 million in a medium-term loan, or (iii) the secured loan we recently entered into with BBVA Banco Continental in the amount of S/.202.2 million (US$75 million). In addition, we are negotiating with a Peruvian bank to obtain a secured loan for an amount of US$75 million, which we expect to close during the first quarter of 2012 and is not reflected in this table. See "Management's discussion and analysis of financial condition and results of operations—Indebtedness."

(4)
We constituted a collateral trust to which we contributed substantially all of the assets at our Pacasmayo facility and our Acumulación Tembladera quarry. Of our total interest-bearing loans and borrowings, as of September 30, 2011, S/.142.0 million was secured by the assets in this collateral trust and S/.72.1 million was secured by our mill no. 7 in our Pacasmayo facility pursuant to financing leases.

The as adjusted information in the table above assumes no exercise of the underwriters' over-allotment option and no purchase of investment shares in the preemptive rights offer.

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Dilution

Purchasers of our ADSs in this offering will experience immediate and substantial dilution to the extent of any difference between the initial public offering price per ADS and the net book value per ADS upon the completion of the offering.

Net book value represents the amount of our total assets, less our total liabilities. Net book value per share is determined by dividing our net book value by the number of our outstanding common shares and investment shares.

As of September 30, 2011, our net book value would have been approximately S/.975.6 million, or S/.2.08 per share (equivalent to US$[    •    ] per ADS). Based upon an assumed initial public offering price of US$[    •    ] per ADS (the mid-point of the price range set forth on the cover page of this prospectus), the immediate dilution to purchasers of our ADSs in the offering will be S/.[    •    ] per common share or US$[    •    ] per ADS or [    •    ]%. The following table illustrates this dilution per common share and per ADS:

   
 
  Per ADS
  Per
common
share

 
   

Assumed initial public offering price

  US$ [• ] S/. [• ]

Net book value as of September 30, 2011

    [• ] S/. 2.08  

Dilution to new investors

    [• ]   [• ]
   

If the underwriters exercise the over-allotment option in full, net tangible book value would increase to S/.[    •    ] per common share or US$[    •    ] per ADS and the immediate dilution in net tangible book value would increase to S/.[    •    ] per common share or US$[    •    ] per ADS to purchasers of ADSs in the offering. The information above does not include 1,200,000 common shares held by one of our wholly-owned subsidiaries and does not take into account any purchases of our investment shares pursuant to the preemptive rights offering.

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Selected financial and operating data

The following selected consolidated financial data should be read together with "Management's discussion and analysis of financial condition and results of operations" and our consolidated financial statements and the related notes included in this prospectus.

The following selected financial data as of and for the years ended December 31, 2009 and 2010 have been derived from our annual audited consolidated financial statements included in this prospectus, which have been prepared in accordance with IFRS as issued by the IASB. The following selected financial data as of and for the nine months ended September 30, 2010 and 2011 have been derived from our unaudited consolidated interim financial statements included in this prospectus, which have been prepared in accordance with IFRS as issued by the IASB, as applied to interim financial statements. The unaudited consolidated interim financial statements and the notes thereto have been condensed, but contain all adjustments, including adjustments of a normal and recurring nature, necessary for a fair presentation of our financial position and results of operations. The results for the nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2011. Accordingly, the unaudited consolidated interim financial statements and notes thereto should be read in conjunction with our annual audited consolidated financial statements.

   
 
  Year ended December 31,   Nine months ended September 30,  
 
  2009
  2010
  2010
  2010
  2011
  2011
 
 
     
 
  (in millions of S/.,
except share and
per share data)

  (in millions
of US$,
except per
share data)(1)

  (in millions of S/.,
except share and
per share data)

  (in millions
of US$,
except per
share data)(1)

 
   

Income statement data:

                                     

Net sales

  S/. 756.6   S/. 898.0   US$ 323.8   S/. 648.1   S/. 717.7   US$ 258.8  

Cost of sales

    (405.5 )   (479.0 )   (172.7 )   (368.9 )   (415.3 )   (149.7 )
       

Gross profit

    351.1     419.1     151.1     279.3     302.4     109.1  

Operating income (expenses):

                                     

Selling and distribution expenses

    (17.1 )   (16.5 )   (6.0 )   (10.4 )   (15.0 )   (5.4 )

Administrative expenses

    (132.9 )   (158.7 )   (57.2 )   (104.9 )   (129.6 )   (46.7 )

Net gain on sale of land and mining concessions(2)

        75.9     27.4     75.9          

Impairment of zinc mining assets(3)

                    (96.1 )   (34.7 )

Other operating income, net

    25.7     16.6     6.0     13.3     6.2     2.2  
       

Total operating income (expenses), net

    (124.4 )   (82.7 )   (29.8 )   (26.1 )   (234.5 )   (84.6 )

Operating profit

    226.7     336.4     121.3     253.2     67.9     24.5  

Other income (expenses):

                                     

Finance income

    1.9     3.3     1.2     2.1     2.0     0.7  

Finance costs

    (18.8 )   (15.0 )   (5.4 )   (10.7 )   (13.1 )   (4.7 )

Gain from exchange difference, net

    8.9     2.6     0.9     2.3     1.5     0.5  
       

Total other expenses, net

    (8.1 )   (9.2 )   (3.3 )   (6.3 )   (9.7 )   (3.5 )

Profit before income tax

    218.6     327.2     118.0     246.8     58.2     21.0  
       

Income tax expense

    (70.6 )   (104.1 )   (37.5 )   (74.3 )   (18.8 )   (6.8 )
       

Profit

  S/. 148.0   S/. 223.1   US$ 80.5   S/. 172.5   S/. 39.4   US$ 14.2  

Profit per share

  S/. 0.3155   S/. 0.4766   US$ 0.1719   S/. 0.3684   S/. 0.0842   US$ 0.0304  

Number of shares outstanding(4)

    468,352,820     468,352,820           468,352,820     468,352,820        
   

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  As of the year ended
December 31,
  As of the nine months
ended September 30,
 
Balance sheet data:
  2009
  2010
  2010
  2011
  2011
 
 
     
 
  (in millions of S/.)
  (in millions
of US$)(1)

  (in millions
of S/.)

  (in millions
of US$)(1)

 
   

Current assets

                               

Cash and short-term deposits

  S/. 111.7   S/. 154.5   US$ 55.7   S/. 41.0   US$ 14.8  

Trade and other receivables

    38.0     36.4     13.1     47.4     17.1  

Income tax prepayments

    2.3     0.5     0.2     3.3     1.2  

Inventories

    123.4     160.3     57.8     186.7     67.3  

Prepayments

    9.2     11.0     4.0     15.1     5.4  

Assets classified as held-for-sale

    2.5                  
       

Total current assets

    287.1     362.7     130.8     293.5     105.8  
       

Non-current assets

                               

Other receivables

    35.4     50.9     18.4     58.2     21.0  

Available-for-sale financial investments

    18.3     30.8     11.1     22.6     8.2  

Property, plant and equipment

    1,020.5     1,102.0     397.4     1,154.6     416.4  

Exploration and evaluation assets

    17.6     29.3     10.6     30.2     10.8  

Deferred income tax assets

    21.6     7.6     2.7     32.6     11.8  

Other assets

    1.9     3.7     1.3     3.4     1.2  
       

Total non-current assets

    1,115.3     1,224.3     441.5     1,301.6     469.4  
       

Total assets

    1,402.4     1,587.0     572.3     1,595.1     575.2  
       

Current liabilities

                               

Trade and other payables

    89.9     108.1     39.0     128.8     46.4  

Interest-bearing loans and borrowings

    88.8     121.6     43.8     153.6     55.4  

Income tax payable

    3.5     4.1     1.5     0.3     0.1  

Provisions

    19.3     26.0     9.4     21.0     7.6  
       

Total current liabilities

    201.5     259.8     93.7     303.7     109.5  
       

Non-current liabilities

                               

Interest-bearing loans and borrowings

    228.6     185.7     67.0     177.8     64.2  

Other non-current provisions

    4.6     4.8     1.7     4.6     1.6  

Deferred income tax liabilities

    133.2     143.4     51.7     133.4     48.1  
       

Total non-current liabilities

    366.4     333.9     120.4     315.8     113.9  
       

Total liabilities

    567.9     593.7     214.1     619.5     223.4  
       

Equity:

                               

Share capital

    418.8     418.8     151.0     418.8     151.0  

Investment shares

    49.6     49.6     17.9     49.6     17.9  

Legal reserve

    53.4     74.1     26.7     77.4     27.9  

Other components of equity

    5.8     14.4     5.2     8.6     3.2  

Retained earnings

    306.1     435.7     157.1     415.8     149.9  

Non-controlling interests

    0.8     0.7     0.3     5.4     1.9  
       

Total equity

    834.5     993.3     358.2     975.6     351.8  
       

Total liabilities and equity

  S/. 1,402.4   S/. 1,587.0   US$ 572.3   S/. 1,595.1   US$ 575.2  
   

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  As of and for the year ended
December 31,
  As of and for the nine months
ended September 30,
 
 
  2009
  2010
  2010
  2010
  2011
  2011
 
 
     
 
  (in millions of S/.,
except percentage
and operating data)

  (in millions
of US$)(1)

  (in millions of S/.,
except percentage
and operating data)

  (in millions
of US$)(1)

 
   

Other financial information:

                                     

Net working capital(5)

    85.6     102.9     37.1           (10.2 )   (3.7 )

Capital expenditures(6)

    63.5     98.0     35.3     61.2     184.6     66.6  

Depreciation and amortization

    32.7     36.3     13.1     29.8     34.3     12.4  

Net cash flow provided by operating activities

    165.1     180.2     65.0     151.2     97.0     35.0  

Net cash flow provided by (used in) investing activities

    (75.4 )   (20.0 )   (7.2 )   23.5     (178.5 )   (64.4 )

Net cash flow provided by (used in) financing activities

    0.6     (115.4 )   (41.6 )   (155.7 )   (31.8 )   (11.5 )

Adjusted EBITDA(7)

    259.4     296.7     107.0     207.1     198.2     71.5  

Adjusted EBITDA margin(8)

    34.3 %   33.0 %         32.0 %   27.6 %      

Operating data:

                                     

Installed capacity (thousand metric tons per year):

                                     

Cement:

                                     

Pacasmayo

    1,900     2,900           1,900     2,900        

Rioja

    190     200           200     200        
       

Total

    2,090     3,100           2,100     3,100        

Clinker:

                                     

Pacasmayo

    1,300     1,300           1,300     1,300        

Rioja

    200     200           200     200        
       

Total

    1,500     1,500           1,500     1,500        

Quicklime

                                     

Pacasmayo

    110     240           110     240        

Production (thousand metric tons):

                                     

Cement:

                                     

Pacasmayo

    1,386     1,615           1,142     1,264        

Rioja

    159     196           147     141        
       

Total

    1,545     1,811           1,289     1,405        

Clinker:

                                     

Pacasmayo

    998     1,118           761     826        

Rioja

    130     160           119     113        
       

Total

    1,128     1,278           880     939        

Quicklime

                                     

Pacasmayo

    118     127           93     65        
   
(1)
Calculated based on an exchange rate of S/.2.773 to US$1.00 as of September 30, 2011.

(2)
Relates to our sale in March 2010 of the Raul copper mine concessions in the central region of Peru that we previously leased to the buyer.

(3)
Due to a sudden and sharp drop in the international price of zinc in September 2011 and based on our expectation of future zinc prices, we recorded an impairment with respect to our zinc mining assets for the nine months ended September 30, 2011.

(4)
Does not include 1,200,000 common shares held by one of our wholly-owned subsidiaries.

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(5)
Represents current assets minus current liabilities.

(6)
Represents expenditures for the purchase of property, plant and equipment.

(7)
Adjusted EBITDA for 2010 and for the nine months ended September 30, 2010 excludes a net gain of S/.75.9 million from the sale in March 2010 of the Raul copper mine concessions referred to in note 2 above. Adjusted EBITDA for the nine months ended September 30, 2011 excludes a S/.96.1 million non-cash impairment with respect our zinc mining assets referred to in note 3 above. For a calculation of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to profit, see "—Non-GAAP financial measure and reconciliation" below.

(8)
Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

Non-GAAP financial measure and reconciliation

We define EBITDA as profit plus finance costs, income tax expenses, depreciation and amortization minus finance income and gain from exchange difference, net. We calculate Adjusted EBITDA by subtracting the gain on sale of land and mining concessions and adding the impairment of zinc mining assets to EBITDA. Adjusted EBITDA for 2010 and for the nine months ended September 30, 2010 excludes a gain from the sale in March 2010 of the Raul copper mine concessions in the central region of Peru that we previously leased to the buyer, and Adjusted EBITDA for the nine months ended September 30, 2011 excludes a non-cash loss due to an impairment with respect to our zinc mining assets that we undertook due to a sudden and sharp drop in the international price of zinc in September 2011 and based on our expectation of future zinc prices. We present Adjusted EBITDA because we believe it provides investors with a supplemental measure of the financial performance of our core operations that facilitates period-to-period comparisons on a consistent basis. Our management uses Adjusted EBITDA from time to time, among other measures, for internal planning and performance measurement purposes.

Neither EBITDA nor Adjusted EBITDA should be construed as an alternative to profit or operating profit, as an indicator of operating performance, as an alternative to cash flow provided by operating activities or as a measure of liquidity (in each case, as determined in accordance with IFRS). EBITDA and Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures reported by other companies, including those in the cement industry.

The following table sets forth the reconciliation of our profit to EBITDA:

   
 
  Year ended December 31,   Nine months ended September 30,  
 
  2009
  2010
  2010
  2010
  2011
  2011
 
 
     
 
  (in millions of S/.)
  (in millions
of US$)(1)

  (in millions of S/.)
  (in millions
of US$)(1)

 
   

Profit

  S/. 148.0   S/. 223.1   US$ 80.5   S/. 172.5   S/. 39.4   US$ 14.2  

Finance income

    (1.9 )   (3.3 )   (1.2 )   (2.1 )   (2.0 )   (0.7 )

Finance costs

    18.8     15.0     5.4     10.7     13.1     4.7  

Gain from exchange difference, net

    (8.8 )   (2.6 )   (0.9 )   (2.3 )   (1.5 )   (0.5 )

Income tax expense

    70.6     104.1     37.5     74.3     18.8     6.8  

Depreciation and amortization

    32.7     36.3     13.1     29.9     34.3     12.4  
       

EBITDA

    259.4     372.6     134.4     283.0     102.1     36.8  

Net gain on sale of land and mining concessions

        (75.9 )   (27.4 )   (75.9 )        

Impairment of zinc mining assets

                    96.1     34.7  
       

Adjusted EBITDA

  S/. 259.4   S/. 296.7   US$ 107.0   S/. 207.1   S/. 198.2   US$ 71.5  
   
(1)
Calculated based on an exchange rate of S/.2.773 to US$1.00 as of September 30, 2011.

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Management's discussion and analysis of financial
condition and results of operations

The following discussion should be read in conjunction with our consolidated financial statements as of and for the years ended December 31, 2009 and 2010 and as of and for the nine months ended September 30, 2010 and 2011 included in this prospectus. Our consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.

Overview

We are a leading Peruvian cement company, and the only cement manufacturer in the northern region of Peru. With more than 54 years of operating history, we produce, distribute and sell cement and cement-related materials, such as concrete blocks and ready-mix concrete. Our products are primarily used in construction, which has been one of the fastest growing segments of the Peruvian economy in recent years. We also produce and sell quicklime for use in mining operations.

In 2010, we sold approximately 1.8 million metric tons of cement, representing an estimated 21.3% share of Peru's total domestic cement shipments, and substantially all the cement consumed in the northern region. That same year, we also sold approximately 121,000 metric tons of quicklime.

We own two cement production facilities, our flagship Pacasmayo facility located in the northwest of Peru and our Rioja facility located in the northeast. Our facilities have total installed annual cement production capacity of approximately 3.1 million metric tons. We also have installed production capacity to produce 240,000 metric tons of quicklime. We own concession rights to several quarries with reserves of limestone and other raw materials located near our facilities. We estimate that our existing quarries have sufficient reserves to supply us with limestone for approximately 70 years, based on our 2010 cement production levels.

We are also undertaking two non-metallic mining projects, which we believe present significant opportunities for our company. We own concessions where we have discovered deposits of phosphate rock, a principal component for agricultural fertilizers, and brine deposits that have a variety of uses in the agricultural fertilizer, animal feed and construction industries, among others. We have initiated pre-feasibility studies to determine if development of these mineralized materials would be economically feasible.

Factors affecting our results of operations

Revenue drivers

In 2010, approximately 92% of our total cement shipments were in the form of bagged cement, substantially all of which was sold through retailers both within and outside of our distribution network. The remaining 8% of our cement was sold in bulk or in shipments of concrete blocks or ready-mix concrete directly to large construction companies. Our retail sales are directed to both the auto-construcción segment (i.e., households that buy cement to gradually build or improve their own homes) and construction companies that buy cement for a variety of small construction works, including minor residential, commercial and infrastructure projects. Cement destined for large private and public projects, such as housing complexes,

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highways, irrigation channels, hospitals, schools and mining and industrial facilities, is typically sold in bulk or in shipments of concrete blocks or ready-mix concrete.

According to our estimates, sales to the auto-construcción segment accounted for approximately 64% of our total cement sales in 2009, 59% in 2010 and 57% in the nine months ended September 30, 2011; private construction projects, both large and small, accounted for approximately 21% of our total cement sales in 2009, 25% in 2010 and 25% in the nine months ended September 30, 2011; and public construction projects accounted for the remaining 15% of our total cement sales in 2009, 16% in 2010 and 18% in the nine months ended September 30, 2011. Each of these segments has grown significantly during these periods as a result of improving economic conditions in the northern region of Peru. While auto-construcción continues to represent the majority of our sales, private construction projects have become increasingly more important to our business as our market is transitioning to more formal construction.

Our cement sales are largely driven by residential construction (both auto-construcción and small and large housing projects undertaken by construction companies), which are generally affected by economic conditions in the northern region of Peru. Auto-construcción is particularly affected by disposable household income levels, as low-income families tend to invest most of their savings in developing their homes. Larger residential construction can be more influenced by economic outlook, the availability of financing and prevailing investment levels in the region. GDP in the northern region of Peru is estimated to have grown 3.0% in 2009 and 8.7% in 2010. Our cement sales, which represented substantially all cement sales in the northern region of Peru, grew by 5.3% in 2009, 16.3% in 2010, and 7.8% in the nine months ended September 30, 2011.

Our cement sales are also driven, to a lesser extent, by commercial developments and infrastructure projects. Commercial and other private construction projects are also affected by investment levels in the region, while public infrastructure projects depend on the priorities and financial resources of the national, regional and local governments.

Cost drivers

Coal is the principal source of energy used in our production process, in particular to fuel our kilns. We purchase anthracite coal from nearby coal mines and import bituminous coal primarily from Colombia. We do not have long-term coal supply agreements, and we do not engage in hedging transactions in connection with the price of coal. In the past, the price of bituminous coal has been related to the international price of oil, as it is used as a substitute for oil. Coal accounted for an estimated 25.1% of our costs of production in 2009, 20.0% in 2010 and 16.9% in the nine months ended September 30, 2011. The declining trend in the proportion of coal as a percentage of our costs is largely a result of three factors: (i) a peak in the price of coal in first quarter of 2009, (ii) our partial shift in 2010 from the consumption of bituminous coal to anthracite coal, which is produced locally and tends to be less expensive, and (iii) a gradual decline in our clinker/cement factor from approximately 0.72 as of December 2009 to 0.67 as of September 2011, which led to a proportional decline in our consumption of coal. We recently exercised certain of our options to purchase coal mining concessions, which we intend to use to continue to reduce our use of bituminous coal.

Electricity is used in our facilities mainly to power our cement mills. We power our Pacasmayo facility with electricity purchased from Electroperú, with which we have a long-term supply

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agreement expiring in 2020 and, to a lesser extent, from Kallpa, with which we have a supply agreement expiring in 2012. With the expiration of our supply agreement with Kallpa, we will migrate all of our electricity consumption at our Pacasmayo facility under the Electroperú agreement. Our Rioja facility is powered primarily with electricity from ELOR, with which we have a long-term supply agreement expiring in 2016. Under these agreements, the price of electricity is based on a formula that takes into consideration our consumption of electricity and certain market variables, including the international price of oil. Electricity accounted for approximately 16.8% of our cost of production in 2009, 16.5% in 2010 and 13.1% in the nine months ended September 30, 2011. Electricity costs tend to be lower during the rainy season, from January to March of each year, as our region is served primarily by hydro-electric power plants.

In addition, we purchase from third parties admixtures and certain raw materials that we use in our production process, including gypsum, burn furnace slag, iron and other materials. Admixtures and raw materials used in our cement production process do not include construction supplies that we acquire from third-parties for resale through our distribution network along with our cement products. The cost of admixtures and raw materials purchased from third parties accounted for approximately 7.6% of our cost of production in 2009, 6.3% in 2010 and 14.4% in the nine months ended September 30, 2011. The increase in the cost of admixtures and raw materials in the nine months ended September 30, 2011 was largely due to a decrease in our use of clinker to produce cement, which has been replaced principally with burn furnace slag.

Our labor costs have increased during the past two and half years, in part to adjust for inflation and as a result of increasing profits. A portion of our labor costs relates to mandatory workers' profit sharing, which under Peruvian law is 8% to 10% of our total annual taxable income. Personnel expenses represented 24.6% of our total costs and expenses in 2009, 17.3% in 2010 and 19.3% in the nine months ended September 30, 2011.

Third-party construction supplies

In addition to selling our own products, we also sell and distribute construction supplies manufactured by third parties, such as steel rebars, wires and pipes, that are typically used in construction along with our cement. Our profit margins from the sale of third party construction supplies are significantly lower than the margins on our cement products and they are affected by fluctuations in product prices and the exchange rate between the nuevo sole and the U.S. dollar between the time we purchase these products and the time we resold them. We sell these products primarily as a service to retailers in our distribution network in an effort to support the sale of our cement products.

Sale of Raul copper mine concessions

Our results in 2010 were affected by our sale in March 2010 of our Raul copper mine concessions in central Peru that we previously leased to the buyer. Prior to the sale, we recognized rental income from related lease payments under Other income (expenses), net. Proceeds from the sale, which were approximately S/.75.9 million, were recorded as an operating gain under IFRS. Our Raul copper mine concessions were classified as held for sale as of December 31, 2009. The comparison of our results of operations is affected by this gain in the nine months ended September 30, 2010 and by the loss of the related rental income following the sale of the concessions.

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Suspension of zinc calcine operations

In 2008, we suspended our zinc mining activities due to adverse market conditions. In 2009 and 2010, however, we continued to produce and sell zinc calcine in diminishing quantities, as we used our remaining inventory of zinc oxide ore. In the nine months ended September 30, 2011, we did not produce zinc calcine and used our Waelz rotary kiln to produce quicklime instead. We sold small quantities of zinc calcine in the nine months ended September 30, 2011 from our remaining inventory of zinc calcine. As a result, our net sales and cost of sales derived from zinc calcine, which is recorded under the caption "Other" declined. The lower production levels during those periods were not sufficient to fully absorb our fixed production costs and, consequently, our gross profit for "Other" was negative in 2009 and 2010, despite increasing zinc prices during those years.

Due to a sudden and sharp drop in the international price of zinc in September 2011 and based on our future expectation of zinc prices, we recorded an impairment of approximately S/.96.1 million during the nine months ended September 30, 2011 related to our zinc mining assets, of which S/.75.5 million correspond to our zinc mine and S/.20.6 million to the portion of the plant used for zinc calcine production.

New mining royalty tax

On September 29, 2011, the Peruvian government amended the Royalty Mining Law to increase taxation on metallic and non-metallic mining activities. For a description of the new tax, see "Industry and regulatory matters—Regulatory matters—Mining regulations." The amendment became effective as of October 1, 2011, and, as a result, its effects are not reflected in our results of operations included in this prospectus. The mining royalty tax for the exploitation of metallic and non-metallic minerals is payable on a quarterly basis in an amount equal to the greater of (i) an amount determined in accordance with a statutory scale of tax rates based on a company's operating profit margin that is applied to its operating profit, as adjusted by certain non-deductible expenses, and (ii) 1% of a company's net sales, in each case during the applicable quarter. These amounts are determined based on our unconsolidated financial statements and those of our subsidiaries with operations that are under the scope of the Royalty Mining Law. Mining royalty payments are deductible for income tax purposes in the fiscal year in which such payments are made. Future mining royalty tax payments will depend on our operating profit, operating profit margin and net sales. Based on our results of operations for 2010 and the nine months ended September 30, 2011, we estimate that our incremental mining royalty taxes, net of the applicable income tax effect, would have been approximately S/.4.6 million (US$1.7 million) and S/.3.5 million (US$1.3 million), respectively, if this amendment had been in effect during such periods.

We believe that certain portions of the regulations of the Royalty Mining Law are unconstitutional, because they impose a mining royalty tax on non-mining activities. For instance, for cement companies, the amended Royalty Mining Law and its regulations establish that the mining royalty tax is calculated based on the total operating profit or net sales, as opposed to operating profit or net sales attributable exclusively to mining products, such as limestone, used to produce cement. Accordingly, we have recently filed a claim to declare that the mining royalty tax applicable for the exploitation of non-metallic mining resources be calculated based on the value of the final product obtained from the mineral separation process, net of any costs incurred in the mineral separation process ("componente minero"). Under our interpretation, we estimate that based on our results of operations for 2010 and the

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nine months ended September 30, 2011, our incremental mining royalty taxes, would have been approximately S/.0.6 (US$0.2 million) and S/.0.4 (US$0.1 million), respectively. However, we cannot assure you that our interpretation will prevail.

Operating segments

We have three operating segments: (i) cement, concrete and blocks, (ii) quicklime and (iii) third-party construction supplies. In the past, we have also sold zinc calcine in smaller quantities recorded under the caption "Other". For additional information on our operating segments, see note 31 to our annual audited consolidated financial statements and note 12 to our interim unaudited consolidated financial statements.

New accounting pronouncements

For a description of new interpretations and improvements to IFRS issued by the IASB applicable to us as of January 1, 2012, see note 2 to our interim unaudited consolidated financial statements.

Critical accounting policies

The following is a discussion of our application of critical accounting policies that require our management to make certain assumptions about matters that are uncertain at the time the accounting estimate is made, where our management could reasonably use different estimates, or where accounting changes may reasonably occur from period to period, and in each case would have a material effect on our financial statements. For additional information, see note 2.3 to our annual audited consolidated financial statements.

Useful life of property, plant and equipment

Depreciation of assets used in the mining production process is charged to cost of production on a units-of-production basis using proved and probable reserves. Other assets are depreciated on a straight-line-basis over their estimated useful lives, as follows:

 
Property, plant and equipment
  Estimated Years of Useful Life
 

Buildings and other construction:

   

Administrative facilities

  Between 35 and 48

Main production structures

  Between 30 and 49

Minor production structures

  Between 20 and 35

Machinery and equipment:

   

Mills and horizontal furnaces

  Between 42 and 49

Vertical furnaces, crushers and grinders

  Between 23 and 36

Electricity facilities and other minors

  Between 12 and 35

Furniture and fixtures

  10

Transportation units:

   

Heavy units

  Between 11 and 21

Light units

  Between 8 and 11

Computer equipment

  4

Tools

  Between 5 and 10
 

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The asset's residual value, useful lives and methods of depreciation/amortization are reviewed at each reporting period, and adjusted prospectively, if appropriate.

An item of property, plant and equipment and any significant part initially recorded in the financial statements is reversed upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement when recognition of the asset is reversed.

Exploration, evaluation and mine development costs

We review and evaluate our accounting policies regarding exploration, evaluation and mine development costs, which requires judgment in determining whether it is likely that future exploitation will result in future economic benefits. The determination of reserves and mineral resources is a complex estimate that entails varying degrees of uncertainly depending on sub-classification. These estimates directly impact the point of deferral of exploration, evaluation and mine development costs. The deferral policy requires us to make certain estimates and assumptions about future events or circumstances, in particular, whether an economically viable extraction operation can be established. Estimates and assumptions made may change as new information becomes available. If, after the expenditure is capitalized, information becomes available suggesting that we are unlikely to recover the expenditure, the amount capitalized is written off in our consolidated income statement for the period in which the new information becomes available.

Reserve and resource estimates

Reserves are estimates of the amount of ore that can be economically and legally extracted from our mining properties. We estimate our ore reserves and mineral resources, based on information compiled by appropriately qualified persons relating to the geological data with respect to size, depth and shape of the ore body. Estimates require complex geological judgments to interpret the data. Estimates of recoverable reserves are based upon factors such as estimates of foreign exchange rates, commodity prices, future capital requirements, and production costs along with geological assumptions and judgments made in estimating the size and grade of the ore body. Changes in the reserve or resource estimates may affect the carrying value of exploration and evaluation assets, property, plant and equipment, provision for rehabilitation and depreciation and amortization charges.

Rehabilitation provision

We record the present value of estimated costs of legal obligations required to restore operating property in the period in which the obligation is incurred. Rehabilitation costs are provided at the present value of expected costs to satisfy the obligation using estimated cash flows and are recorded as part of the cost of that particular asset. The cash flows are discounted at the current pre-tax rate that reflects the risk specific to the rehabilitation provision. The unwinding of the discount is recorded when incurred and recorded in the income statement as a finance cost. The estimated future costs of rehabilitation are reviewed annually and adjusted as appropriate. Changes in the estimated future costs or in the discount rate applied are added to or deducted from the cost of the asset.

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Revenue recognition

Revenue is recognized to the extent it is probable that we will obtain the economic benefits and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. We assess our revenue arrangements against specific criteria in order to determine if we are acting as principal or agent. We have concluded that we have acted as a principal in all of our revenue arrangements.

The following specific recognition criteria must be also met before revenue is recognized:

Sales of goods

Revenue from sales of goods is recognized when the significant risks and rewards of ownership have been transferred to the buyer upon delivery of the goods.

Sales of zinc calcine

Revenues from sales of zinc calcine are recognized when the significant risks and rewards of ownership are transferred to the buyer. The revenue is subject to adjustments based on inspection of the quantity and quality of the product by the customer. Revenue is initially recognized on a provisional basis using our best estimate of the quantity and quality of zinc. Any subsequent adjustments to the initial estimate of metal content, which generally occur within a 90-day period from when zinc calcine is transferred to the buyer, are recorded in revenue once they have been determined. There are no adjustments related to price because our sales of zinc calcine are based on fixed prices. See "—Factors affecting our results of operations—Suspension of zinc calcine operations."

Operating lease income

Income from operating lease of mining concessions is recognized on a monthly accrual basis during the term of the lease, and is calculated based on market prices, which are applied to monthly copper production. Revenues from lease of mining concessions were generated until March 31, 2010, when we sold our Raul copper concession. See note 10(d) to our annual audited consolidated financial statements included in this prospectus.

Interest income

Revenue is recognized when interest accrues, using the effective interest rate. Interest income is recorded in finance income in our consolidated income statements.

Impairment of long-lived assets

We assess at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, we estimate the asset?s recoverable value. An asset's recoverable value is the higher of an asset's or cash-generating unit's fair value less cost to sell and its value in use and is determined for an individual asset, unless the asset does not generate net cash flows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset's cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current

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market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

Impairment losses of continuing operations, including impairment on inventories, are recorded in the consolidated income statement in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, we estimate the asset's or cash-generating unit's recoverable value. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable value since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable value, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated income statement. Exploration and evaluation assets are tested for impairment annually as of December 31, either individually or at the cash-generating unit level, as appropriate and when circumstances indicate that the carrying value may be impaired.

Deferred tax

Deferred tax is calculated using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except with respect to taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except with respect to deductible temporary differences associated with investment subsidiaries and associates, where deferred assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

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Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred tax items are recognized in correlation with the underlying transaction either in other comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Exceptions under IFRS 1

For a discussion of our use of permitted exceptions under IFRS 1, see note 2.4 to our annual audited consolidated financial statements included in this prospectus.

Results of operations

Comparison of the nine months ended September 30, 2010 to the nine months ended September 30, 2011

   
 
  Nine months ended
September 30,
   
 
(amounts in millions of S/.)
  2010
  2011
  Variation
 
   

Net sales

  S /. 648.1   S /. 717.7     10.7 %

Cost of sales

    (368.9 )   (415.3 )   12.6  
       

Gross profit

    279.3     302.4     8.3  

Operating income (expense):

                   

Selling and distribution expenses

    (10.4 )   (15.0 )   44.2  

Administrative expenses

    (104.9 )   (129.6 )   23.5  

Net gain on sale of land and mining concessions

    75.9         N/M  

Impairment of zinc mining assets

        (96.1 )   N/M  

Other operating income, net

    13.3     6.2     (53.4 )
             

Total operating income (expense), net

    (26.1 )   (234.5 )   N/M  
             

Operating profit

    253.2     67.9     (73.2 )

Other income (expense):

                   

Finance income

    2.1     2.0     (4.8 )

Finance costs

    (10.7 )   (13.1 )   (22.4 )

Gain from exchange difference, net

    2.3     1.5     (34.8 )
             

Total other expenses, net

    (6.4 )   (9.7 )   (51.6 )
             

Profit before income tax

    246.8     58.2     (76.4 )

Income tax expense

    (74.3 )   (18.8 )   (74.7 )
             

Profit

    172.5     39.4     (77.2 )
   

N/M means not meaningful.

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Net sales

The following table sets forth a breakdown of our net sales by segment for the nine months ended September 30, 2010 and 2011.

   
 
  Nine months ended September 30,  
 
  2010   2011  
 
  (in millions
of S/.)

  %
  (in millions
of S/.)

  %
 
   

Cement, concrete and blocks

    510.0     78.7     546.5     76.1  

Quicklime

    44.1     6.8     34.3     4.8  

Construction supplies

    80.9     12.5     134.9     18.8  

Other(1)

    13.1     2.0     2.0     0.3  
       

Total

    648.1     100.0     717.7     100.0  
   
(1)
Principally zinc calcine.

Our total net sales increased by 10.7%, or S/.69.6 million, from S/.648.1 million for the nine months ended September 30, 2010 to S/.717.7 million for the nine months ended September 30, 2011. This increase was primarily due to the following:

a 7.2%, or S/.36.5 million, increase in the sales of cement, concrete and blocks. The volume of cement sold increased 7.5%, from 1.3 million metric tons for the nine months ended September 30, 2010 to 1.4 million metric tons for the nine months ended September 30, 2011, as a result of increased construction levels; and

a 66.7%, or S/.54.0 million, increase in sales of third-party construction supplies, as a result of increased construction levels and an increase in the price of steel rebars we resold;

partially offset by a 22.2%, or S/.9.8 million, decrease in the sales of quicklime due to a decline in purchases from the Yanacocha mine, our principal quicklime customer, as a result of their focus on exploration activities due to declining production; and

a S/.11.1 million decrease in the sales of zinc calcine due to a decrease in volume sold, as we sold off our remaining stock of zinc calcine. We suspended our zinc mining activities in 2008 due to adverse market conditions and redeployed our equipment to produce quicklime.

Cost of sales

The following table sets forth a breakdown of our cost of sales by segment for the nine months ended September 30, 2010 and 2011.

   
 
  Nine months ended September 30,  
 
  2010   2011  
 
  (in millions
of S/.)

  %
  (in millions
of S/.)

  %
 
   

Cement, concrete and blocks

    233.0     63.2     252.7     60.8  

Quicklime

    29.6     8.0     28.2     6.8  

Construction supplies

    85.5     23.2     130.0     31.3  

Other(1)

    20.8     5.6     4.5     1.1  
       

Total

    368.9     100.0     415.3     100.0  
   
(1)
Principally zinc calcine.

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Our total cost of sales increased by 12.6%, or S/.46.4 million, from S/.368.9 million for the nine months ended September 30, 2010 to S/.415.3 million for the nine months ended September 30, 2011, primarily due to the following:

a 8.5%, or S/.19.7 million, increase in the cost of sales of cement, concrete and blocks, due primarily to the greater volume of cement sold and, to a lesser extent, costs related to the expansion of our business, as well as cement production and transportation in the nine months ended September 30, 2011 compared to the corresponding period in 2010; and

a 52.0%, or S/.44.5 million, increase in the cost of sales of third-party construction supplies, due to the greater volume of construction supplies sold and an increase in the price of steel rebars purchased;

partially offset by a 4.7%, or S/.1.4 million, decrease in the cost of sales of quicklime, due to a decrease in the volume of quicklime sold; and

a S/.16.3 million decrease in the cost of sales of zinc calcine, as we sold small quantities of zinc calcine during the nine months ended September 30, 2011.

In addition, our cost of sales denominated in U.S. dollars was positively affected by the depreciation of the U.S. dollar versus the nuevo sol during the nine months ended September 30, 2011 as compared to the corresponding period in 2010. See "Exchange rates." We estimate that, as a result of this depreciation in the U.S. dollar versus the nuevo sol, our cost of sales decreased by approximately S/.1.5 million during the nine months ended September 30, 2011 as compared to the corresponding period in 2010.

Gross profit

The following table sets forth a breakdown of our gross profit and gross profit margin by segment for the nine months ended September 30, of 2010 and 2011.

   
 
  Nine months ended September 30,  
 
  2010   2011  
 
  Gross
profit
  Gross
profit
margin
  Gross
profit
  Gross
profit
margin
 
 
  (in millions
of S/.)

  %

  (in millions
of S/.)

  %

 
   

Cement, concrete and blocks

    277.0     54.3     293.8     53.8  

Quicklime

    14.6     33.1     6.1     17.8  

Construction supplies

    (4.6 )   (5.7 )   4.9     3.6  

Other

    (7.7 )   (58.8 )   (2.5 )   (125.0 )
       

Total gross profit

    279.3     43.1     302.4     42.1  
   

Total gross profit increased by 8.3%, or S/.23.1 million, from S/.279.3 million for the nine months ended September 30, 2010 to S/.302.4 million for the nine months ended September 30, 2011, mainly as a result of the increased volume of cement sold. Our gross profit margin (i.e., gross profit as a percentage of net sales) for the nine months ended September 30, 2011 was 42.1% compared to 43.1% for the corresponding period in 2010.

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Operating income (expenses), net

Our operating expenses primarily reflect administrative and selling and distribution expenses. However, in the nine months ended September 30, 2010, we recorded a net gain of S/.75.9 million derived from the proceeds of the sale of the Raul copper mine concessions and S/.5.3 million in rental income from related lease payments prior to the sale. In addition, during the nine months ended September 30, 2011, we recorded a non-cash impairment of S/.96.1 million with respect to our zinc mining assets due to a sudden and sharp drop in the international price of zinc in September 2011 and based on our expectation of future zinc mining prices.

Our operating expenses increased by S/.208.4 million from S/.26.1 million for the nine months ended September 30, 2010 to S/.234.5 million for the nine months of 2011, primarily due to the non-cash impairment of S/.96.1 million recorded in 2011 with respect to our zinc mining assets, as well as the net gain of S/.75.9 million recorded in 2010 from the sale in March 2010 of our Raul copper mine concessions and a loss of S/.5.3 million in rental income from related lease payments as a result of the termination of the lease in connection with the sale of the concessions.

Excluding the effect of the impairment with respect to our zinc mining assets, and the effect of the sale of the Raul mine concession and the termination of the related lease, our operating expenses, net increased by S/.31.1 million, primarily due to a S/.24.7 million increase in administrative expenses and a S/.4.6 million increase in selling and distribution expenses in the nine months ended September 30, 2011 compared to the corresponding period in 2010.

Other operating income, net

Our other operating income, net decreased S/.7.1 million, from S/.13.3 million for the nine months ended September 30, 2010 to S/.6.2 million for the nine months ended September 30, 2011, mainly due to the loss of rental income related to the Raul copper mine concessions, since we sold it in March 2010.

Administrative expenses

   
 
  Nine months ended
September 30,
 
(in millions of S/.)
  2010
  2011
 
   

Personnel expenses

    43.2     59.7  

Third-party services

    39.1     50.3  

Board of directors compensation

    12.1     4.2  

Depreciation and amortization

    5.5     6.6  

Taxes

    1.7     1.8  

Consumption of supplies

    1.4     4.4  

Donations

    1.9     2.6  
       

Total

    104.9     129.6  
   

Our administrative expenses increased 23.5%, or S/.24.7 million, from S/.104.9 million for the nine months ended September 30, 2010 to S/.129.6 million for the nine months ended September 30, 2011, principally due to increases in personnel and third-party services. Personnel expenses increased by S/.16.5 million in the nine months ended September 30, 2011, mainly due

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to a provision related to our long-term cash bonus incentives that we implemented in 2011 as part of our new executive compensation plan and a one-time payment related to the retirement of certain members of our management, partially offset by a decrease in the employee profit sharing. Third-party services, which included security, consulting (including auditing), freight, cleaning and communication services, among others, increased by S/.11.2 million. This increase was partially offset by a decline in compensation to our board of directors in the nine months ended September 30, 2011 due to the gain in the nine months ended September 30, 2010 from the sale of the Raul copper mine concessions, as well as our recent decision to change the compensation for our board of directors. See "Management."

Administrative expenses related to the cement, concrete and blocks segment accounted for approximately 87.1% of total administrative expenses for the nine months ended September 30, 2011 compared to approximately 79.4% for the corresponding period in 2010. Administrative expenses related to the quicklime, construction supplies and other segments accounted for approximately 8.3%, 2.1% and 2.4%, respectively, of total administrative expenses for the nine months ended September 30, 2011 compared to approximately 8.8%, 2.0% and 9.8%, respectively, for the corresponding period in 2010.

Selling and distribution expenses

   
 
  Nine months ended
September 30,
 
(in millions of S/.)
  2010
  2011
 
   

Personnel expenses

    5.7     6.5  

Advertising and promotion expenses

    2.0     4.4  

Other

    2.7     4.1  
       

Total

    10.4     15.0  
   

Our total selling and distribution expenses increased 44.2%, or S/.4.6 million, from S/.10.4 million for the nine months ended September 30, 2010 to S/.15.0 million for the nine months ended September 30, 2011. This increase relates primarily to advertising and promotion expenses due to greater promotional sales efforts with respect to our cement, concrete and block products in the nine months ended September 30, 2011 compared to the corresponding period in 2010.

Selling and distribution expenses related to the cement, concrete and blocks segment represented approximately 84.5% of total selling and distribution expenses for the nine months ended September 30, 2011, compared to 81.3% for the corresponding period in 2010. Selling and distribution expenses related quicklime, to the construction supplies and other segments represented approximately 11.4%, 2.7% and 1.4%, respectively, of total selling and distribution expenses for the nine months ended September 30, 2011, compared to 12.0%, 4.0% and 2.7%, respectively, for the corresponding period in 2010. Selling and distribution expenses related to the quicklime and other segment accounted for approximately 2.7% and 1.4%, respectively, of total selling and distribution expenses for the nine months ended September 30, 2011, compared to approximately 4.0% and 2.7%, respectively, for the corresponding period in 2010.

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Operating profit

As a result of the foregoing, our operating profit decreased by 73.2%, or S/.185.3 million, from S/.253.2 million for the nine months ended September 30, 2010 to S/.67.9 million for the nine months ended September 30, 2011. Our operating profit margin (i.e., operating profit as a percentage of net sales) for the nine months ended September 30, 2011 was 9.5% compared to 39.1% for the corresponding period in 2010. Excluding the effect of the impairment with respect to our zinc mining assets, and the effect of the sale of the Raul mine concession and the termination of the related lease, our operating profit decreased by 4.6%, or S/.7.9 million, from S/.171.9 million for the nine months ended September 30, 2010 to S/.164.0 million for the nine months ended September 30, 2011. Our operating profit margin for the nine months ended September 30, 2011 was 22.9% compared to 26.5% for the corresponding period in 2010.

Other income (expenses), net

Our other expenses, net increased by 51.6%, or S/.3.3 million, from S/.6.4 million for the nine months ended September 30, 2010 to S/.9.7 million for the nine months ended September 30, 2011, mainly due to a 22.4%, or S/.2.4 million, increase in finance costs, as a result of an increase in our indebtedness, and a S/.0.8 million decrease in gain from exchange differences, net due to variations in our U.S. dollar denominated cash position and short-term deposits versus loans and borrowings.

Income tax expense

Our income tax expense decreased by 74.7%, or S/.55.5 million, from S/.74.3 million for the nine months ended September 30, 2010 to S/.18.8 million for the nine months ended September 30, 2011, mainly due to tax expenses of approximately S/.22.9 million relating to the net gain from the sale of the Raul copper mine concessions recorded in the nine months ended September 30, 2010, and the deferred income tax benefit related to the impairment with respect to our zinc mining assets of approximately S/.28.8 million. Our effective tax rate for the nine months ended September 30, 2010 and 2011 was 30.1% and 32.2%, respectively.

Profit

As a result of the foregoing, our profit for the nine months ended September 30, 2011 decreased 77.2%, or S/.133.1 million, from S/.172.5 million for the nine months ended September 30, 2010 to S/.39.4 million for the nine months ended September 30, 2011. Excluding the effect of the impairment with respect to our zinc mining assets, and the effect of the sale of the Raul copper mine concessions and the termination of the related lease, our profit decreased by 8.3%, or S/.9.6 million in the nine months ended September 30, 2011 compared to the corresponding period in 2010.

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Comparison of year ended December 31, 2009 to year ended December 31, 2010

   
 
  Year ended
December 31,
   
 
(amounts in millions of S/.)
  2009
  2010
  Variation
 
   

Net sales

  S /. 756.6   S /. 898.0     18.7 %

Cost of sales

    (405.5 )   (479.0 )   18.1  
       

Gross profit

    351.1     419.1     19.4  

Operating income (expense):

                   

Selling and distribution expenses

    (17.1 )   (16.5 )   (3.5 )

Administrative expenses

    (132.9 )   (158.7 )   19.4  

Net gain on sale of land and mining concessions

        75.9     N/M  

Other operating income, net

    25.7     16.6     (35.4 )
       

Total operating expense, net

    (124.4 )   (82.7 )   (33.5 )

Operating profit

    226.7     336.4     48.4  

Other income (expense):

                   

Finance income

    1.9     3.3     73.7  

Finance costs

    (18.8 )   (15.0 )   (20.2 )

Gain from exchange difference, net

    8.9     2.6     (70.8 )
       

Total other expense, net

    (8.1 )   (9.2 )   13.6  

Profit before income tax

    218.6     327.2     49.7  

Income tax expense

    (70.6 )   (104.1 )   47.5  

Profit

  S /. 148.0   S /. 223.1     50.7 %
   

N/M means not meaningful.

Net sales

The following below sets forth a breakdown by segment of our net sales for 2009 and 2010.

   
 
  Year ended December 31,  
 
  2009   2010  
 
  (in millions
of S/.)

  %
  (in millions
of S/.)

  %
 
   

Cement, concrete and blocks

    597.4     79.0     703.8     78.4  

Quicklime

    60.5     8.0     57.7     6.4  

Construction supplies

    82.5     10.9     120.6     13.4  

Other(1)

    16.2     2.1     16.0     1.8  
       

Total

    756.6     100.0     898.0     100.0  
   
(1)
Principally zinc calcine.

Our total net sales increased by 18.7%, or S/.141.4 million, from S/.756.6 million in 2009 to S/.898.0 million in 2010. This increase was primarily due to the following:

a 17.8%, or S/.106.4 million, increase in sales volume of cement, concrete and blocks. The volume of cement sold increased 20.0%, from 1.5 million metric tons in 2009 to 1.8 million metric tons in 2010 as a result of increased construction levels;

a 46.2%, or S/.38.1 million, increase in sales of third-party construction supplies, as a result of increased construction levels and an increase in the price of steel rebars we resell; and

a 4.6%, or S/.2.8 million, decrease in the sale of quicklime due to a decline in purchases from the Yanacocha mine, our principal quicklime customer, as a result of their focus on exploration activities due to declining production.

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Cost of sales

The following table sets forth a breakdown by segment of our cost of sales for 2009 and 2010.

   
 
  Year ended December 31,  
 
  2009   2010  
 
  (in millions
of S/.)

  %
  (in millions
of S/.)

  %
 
   

Cement, concrete and blocks

    264.1     65.2     314.5     65.6  

Quicklime

    37.7     9.3     36.4     7.6  

Construction supplies

    80.0     19.7     109.6     22.9  

Other(1)

    23.7     5.8     18.5     3.9  
       

Total

    405.5     100.0     479.0     100.0  
   
(1)
Principally zinc calcine.

Our total cost of sales increased by 18.1%, or S/.73.5 million, from S/.405.5 million in 2009 to S/.479.0 million in 2010, primarily due to the following:

a 19.1%, or S/.50.4 million, increase in the cost of sales of cement, concrete and blocks, due primarily to the greater volume of cement sold in 2010;

a 37.0%, or S/.29.6 million, increase in the cost of sales of third-party construction supplies, due to the greater volume of construction supplies purchased for resale and an increase in the price of steel rebars purchased; and

partially offset by a 21.9%, or S/.5.2 million, decrease in the cost of sales of zinc calcine, as a result of our decision to suspend our zinc ore mining activities in 2008 and redeploy our facilities to produce quicklime. In 2009 and 2010, we continued to produce and sell zinc calcine, although in decreasing quantities, as we used our remaining inventory of zinc ore.

In addition, our cost of sales denominated in U.S. dollars was positively affected by the depreciation of the U.S. dollar versus the nuevo sol during 2010 as compared to 2009. See "Exchange rates." We estimate that, as a result of this depreciation in the U.S. dollar versus the nuevo sol, our cost of sales decreased by approximately S/.3.7 million during 2010 as compared to 2009.

Gross profit

The following table sets forth a breakdown by segment of our gross profit and gross profit margin for 2009 and 2010.

   
 
  Year ended December 31,  
 
  2009   2010  
 
  Gross
profit
  Gross
profit
margin
  Gross
profit
  Gross
profit
margin
 
 
  (in millions
of S/.)

  %

  (in millions
of S/.)

  %

 
   

Cement, concrete and blocks

    333.3     55.8     389.3     55.3  

Quicklime

    22.8     37.7     21.3     36.9  

Construction supplies

    2.5     3.1     11.0     9.1  

Others

    (7.6 )   (46.7 )   (2.5 )   (15.6 )
                       

Total gross profit

    351.1     46.4     419.1     46.7  
   

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Our gross profit increased by 19.4%, or S/.68.0 million, from S/.351.1 million in 2009 to S/.419.1 million in 2010, mainly attributed to the increase in the volume of cement sold. Our gross profit margin (i.e., gross profit as a percentage of net sales) in 2010 was 46.7% compared to 46.4% in 2009.

Operating income (expense), net

Our operating expense, net decreased by 33.5%, or S/.41.7 million, from an expense of S/.124.4 million in 2009 to an expense of S/.82.7 million in 2010, primarily due to a gain in 2010 of S/.75.9 million from the sale in March 2010 of our Raul copper mine concessions, partially offset by a decrease in rental income of S/.8.4 million as a result of the termination of the related lease. Excluding the effect of the sale of the Raul copper mine concessions and the termination of the related lease, our operating expenses, net increased by 18.7%, or S/.25.8 million.

Other operating income, net

Our other operating income, net decreased 35.4%, or S/.9.1 million, from S/.25.7 million in 2009 to S/.16.6 million in 2010, mainly due to the loss of income from the termination of the Raul copper mine concessions lease payments and a gain in 2009 derived from the return of approximately S/.3.2 million in capital from Zemex LLC in connection with the winding up of Zemex LLC's operations.

Administrative expenses

   
 
  Year ended December 31,  
(in millions of S/.)
  2009
  2010
 
   

Personnel expenses

    61.3     73.4  

Third-party services

    48.4     53.0  

Board of directors compensation

    7.6     15.2  

Depreciation and amortization

    5.4     6.6  

Taxes

    3.5     4.0  

Consumption of supplies

    3.8     3.8  

Donations

    2.9     2.7  
       

Total

    132.9     158.7  
   

Our administrative expenses increased 19.4%, or S/.25.8 million, from S/.132.9 million in 2009 to S/.158.7 million in 2010 primarily due to a 19.7% increase in personnel expenses from S/.61.3 million in 2009 to S/.73.4 million in 2010, as a result of the increase in our taxable profit in 2010 since a portion of these expenses, workers' profit sharing, is calculated as a percentage of our taxable net income and in part in response to inflation. Board of directors' compensation increased by S/.7.6 million in 2010, primarily as a result of a gain from the sale of the Raul copper mine concessions in 2010 that resulted in higher compensation payable to the members of our board of directors. Third-party services, which included security, consulting (including auditing), freight, cleaning and communication services, among others, increased by S/.4.6 million.

Administrative expenses related to the cement, concrete and blocks segment and the other segment accounted for approximately 82.0% and 7.0%, respectively, of total administrative expenses in 2010 compared to approximately 85.0% and 4.0%, respectively, in 2009.

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Administrative expenses related to the quicklime and construction supplies segment remained stable in 2010 compared to 2009 at 9.0% and 2.0%, respectively, of total administrative expenses.

Selling and distribution expenses

   
 
  Year ended December 31,  
(in millions of S/.)
  2009
  2010
 
   

Personnel expenses

    6.7     8.3  

Advertising and promotion

    5.0     5.2  

Third-party services

    0.6     0.8  

Transportation

    1.5     0.5  

Provision for impairment of receivables

    0.1      

Other

    3.2     1.7  
       

Total

    17.1     16.5  
   

Our total selling and distribution expenses decreased 3.5%, or S/.0.6 million, from S/.17.1 million in 2009 to S/.16.5 million in 2010, primarily due to decreases in transportation costs and other expenses principally related to the decrease in our sales of zinc calcine, partially offset by an increase in personnel expenses due to the increase in our results of operations in 2010 since a portion of these expenses, workers' profit sharing, is calculated as a percentage of our taxable net income.

Selling and distribution expenses related to the cement, concrete and blocks segment accounted for approximately 83% of total selling and distribution expenses in 2010 compared to approximately 84.0% in 2009. Selling and distribution expenses related to the quicklime, construction supplies and other segment accounted for approximately 4.0%, 11.0% and 2.0%, respectively, of total selling and distribution expenses in 2010 compared to approximately 5.0%, 10.0% and 1.0%, respectively, in 2009.

Operating profit

As a result of the foregoing, our operating profit increased by 48.4%, or S/.109.7 million, from S/.226.7 million in 2009 to S/.336.4 million in 2010. Our operating profit margin (i.e., operating profit as a percentage of sales) in 2010 was 37.5% compared to 30.0% in 2009. Excluding the effect of the sale of the Raul copper mine concessions and the termination of the related lease, our operating profit increased by 19.8%, or S/.42.2 million from S/.213.0 million in 2009 to S/.255.2 million in 2010, and our operating profit margin was 28.4% in 2010 compared to 28.2% in 2009.

Other income (expenses), net

Our other expenses, net increased by 13.6%, or S/.1.1 million, from an expense of S/.8.1 million in 2009 to an expense of S/.9.2 million in 2010, mainly due to a S/.6.3 million loss from net exchange differences, partially offset by a S/.5.2 million decrease in finance expenses, net from S/.16.9 million in 2009 to S/.11.7 million in 2010. Our finance costs decreased by 20.2%, or S/.3.8 million, from a cost of S/.18.8 million in 2009 to a cost of S/.15.0 million in 2010 mainly due to lower interest rates and a lower average principal debt balance in 2010. Our gain from exchange differences decreased 70.8%, or S/.6.3 million, from a gain of S/.8.9 million in 2009 to a gain of S/.2.6 million in 2010, mostly due to a decrease in our U.S. dollar denominated cash

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position and short-term deposits versus loans and borrowings and the appreciation in 2010 of the nuevo sol relative to the U.S. dollar.

Income tax expenses

Our income tax expenses increased by 47.5%, or S/.33.5 million, from S/.70.6 million in 2009 to S/.104.1 million in 2010. Our effective tax rate in 2009 and 2010 was 32.3% and 31.8%, respectively. In 2010, we recognized tax expenses of approximately S/.22.9 million relating to a net gain from the sale of the Raul copper mine concessions.

Profit

As a result of the foregoing, our profit increased 50.7%, or S/.75.1 million, from S/.148.0 million in 2009 to S/.223.1 million in 2010. Excluding the effect of the sale of the Raul mine concession and the termination of the related lease, our profit increased by 24.3%, or S/.32.6 million.

Liquidity and capital resources

Our main cash requirements are our operating expenses, capital expenditures relating to the maintenance and expansion of our facilities, the servicing of our debt, the payment of dividends and payment of taxes. Our primary sources of cash have been cash flow from operating activities, and, to a lesser extent, loans and other financings. We believe that these sources of cash will be sufficient to cover our working capital needs in the ordinary course of our business.

Capital expenditures

Our current plans for our cement business contemplate capital expenditures in 2012 of approximately US$35 million for the expansion of our cement production capacity at our Pacasmayo and Rioja facilities, the pre-feasibility and engineering studies for a new cement plant in Piura, and maintenance. We expect the expansion of our Pacasmayo facility to be completed in the first quarter of 2012 and the Rioja facility by mid-2012. We expect to spend over the next five years approximately US$10 million per year on recurring capital expenditures necessary to maintain our plants and equipment. We expect that our capital expenditures relating to our cement business can be met from our operating cash flow and cash on hand after this offering. We may also enter into loan agreements to finance part of these expenditures, if financing is available on attractive terms, particularly from equipment suppliers.

In addition to our cement business, we expect to have substantial capital expenditure requirements to develop our phosphate and brine projects, if the feasibility and other studies conclude that developing these projects will be legally and economically feasible. We currently estimate the total cost of developing these projects in the range of US$350 and US$400 million for the phosphate project and in the range of US$250 and US$300 million for the brine project. These estimates, however, are based on limited preliminary work and are subject to change. We have not developed a specific timetable for the development of these projects.

We expect to finance these projects with a combination of the net proceeds from this offering, new borrowings and financial contributions from us and our minority partners. In our phosphate project, we recently sold a minority equity interest in Fosfatos for an aggregate purchase price of approximately US$46.1 million. In our brine project, we have entered into a strategic partnership with Quimpac, under which we have committed to invest a total of

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US$100 million and Quimpac is obligated to invest approximately US$14.2 million as a minority partner over the time of the agreement in order to maintain its current equity interest. Our phosphate and brine projects are not part of our core cement business, and, accordingly, we expect to evaluate strategic options as we continue to develop our projects.

The table below provides our total capital expenditures incurred in 2009 and 2010 and for the nine months ended September 30, 2011.

   
 
  Year ended December 31,   Nine months ended
September 30,
2011

 
(in millions of S/.)
  2009
  2010
 
   

Mill no. 7

    50.2     34.5      

Corianta calcination plant(1)

    6.7     9.3     3.6  

Construction of diatomite brick plant

        18.5     29.1  

Expansion of Rioja cement plant

            26.5  

Expansion of Pacasmayo cement plant

            8.9  

Phosphate project

    12.7     10.5     4.3  

Brine project

        1.5     4.7  

Other investing activities(2)

    56.6     70.7     107.5  
       

Total

    126.2     145.0     184.6  
   
(1)
Capital expenditures relate to the conversion of our Waelz rotary kiln to produce zinc and quicklime interchangeably.

(2)
Includes overhauls of transmission, cooler system, storage silo, heavy machinery and others.

Cash flows

The table below sets forth certain components of our cash flows for the years ended December 31, 2009 and 2010 and for the nine months ended September 30, 2010 and 2011.

   
 
  Year ended December 31,   Nine months ended September 30,  
(in millions of S/.)
  2009
  2010
  2010
  2011
 
   

Net cash provided by operating activities

    165.1     180.2     151.2     97.0  

Net cash provided by (used in) investing activities

    (75.4 )   (20.0 )   23.5     (178.5 )

Net cash provided by (used in) financing activities

    0.6     (115.5 )   (155.7 )   (31.8 )
       

Increase (decrease) in cash

    90.3     44.7     19.0     (113.3 )
   

Cash flow from operating activities

Net cash flow from operating activities in the nine months ended September 30, 2011 was substantially lower than in the nine months ended September 30, 2010. This reflects changes in working capital in the nine months ended September 30, 2011, as inventories increased and accounts payables decreased. Inventories increased due to increased purchases of raw materials as a result of higher sales volume. Accounts payables decreased as a result of the timing of our payments.

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Net cash flow from operating activities in 2010 was higher than in 2009, primarily because of higher pretax profit, even after adjustment for the gain on the sale of the Raul copper mine concessions.

Cash flow from investing activities

Net cash flow provided by investing activities was S/.23.5 million in the nine months ended September 30, 2010, which primarily related to the proceeds received from the sale of the Raul mining concession, partially offset by the purchase of property, plant and equipment, including expenditures in our zinc calcine equipment and mill no. 7. Net cash flow used in the nine months ended September 30, 2011 was S/.178.5 million, which primarily related to the purchase of property, plant and equipment, including capital expenditures relating to the final construction stages of the diatomite brick plant, construction work relating to the expansion of our Rioja plant and other investing activities.

Net cash flow used in investing activities was S/.75.4 million in 2009, which primarily related to the purchase of property, plant and equipment, including capital expenditures relating to maintenance of our cement facilities and our phosphate and brine projects. Net cash flow used in 2010 was S/.20 million, which is primarily related to the purchase of property, plant and equipment, including capital expenditures relating to the construction of the diatomite brick plant, the conversion of the Waelz rotary kiln at our Corianta calcination plant to produce zinc and quicklime interchangeably and our phosphate project, partially offset by proceeds received from the sale of the Raul mining concession.

Cash flow from financing activities

Net cash flow used in financing activities in the nine months ended September 30, 2010 was S/.155.7 million, primarily as a result of payments on debt service and dividend payments. Net cash flow used in financing activities in the nine months ended September 30, 2011 was S/.31.8 million, primarily as a result of payments on debt service and dividend payments, partially offset by proceeds received from short-term credit loans with Banco de Crédito del Perú and BBVA Banco Continental.

Net cash flow provided by financing activities in 2009 was S/.0.6 million, primarily as a result of debt repayments and dividend payments, offset by borrowings under our loan with BBVA Banco Continental. Net cash flow used in financing activities in 2010 was S/.115.5 million, primarily as a result of lower balance of debt outstanding borrowings and higher dividend payments that year.

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Indebtedness

As of September 30, 2011, we had total outstanding indebtedness of S/.331.4 million (US$119.5 million) as set forth in the table below.

 
(in millions of S/.)
  As of
September 30,
2011

  Interest
rate

  Maturity
date

 

BBVA Banco Continental secured loan

    S/.142.0     6.20 % May 2014

BBVA Banco Continental unsecured loan(1)

    28.0     6.00 % December 2011

Banco de Crédito del Perú financing lease

    58.1     5.19 % March 2013

Banco de Crédito del Perú financing lease

    14.0     7.17 % March 2016

Banco de Crédito del Perú mid-term loan

    42.0     6.20 % March 2013

Banco de Crédito del Perú short-term loan(2)

    3.0     2.56 % November 2011

Banco de Crédito del Perú short-term loan(3)

    4.7     2.87 % December 2011

Banco de Crédito del Perú short-term loan

    12.6     2.61 % March 2012

BBVA Banco Continental mid-term loan(4)

    27.0     6.41 % October 2011
               

Total(5)

    S/.331.4          
 
(1)
In December 2011 we extended the term of this loan until June 2012.

(2)
Fully repaid in November 2011.

(3)
Fully repaid in December 2011.

(4)
In December 2011 we extended the term of this loan until December 2013 and increased the outstanding balance by an additional S/.14.0 million.

(5)
We recently entered into a secured loan with BBVA Banco Continental in the amount of S/.202.2 million (US$75 million). We are negotiating with a Peruvian bank to obtain a secured loan for an amount of US$75 million, which we expect to close during the first quarter of 2012.

BBVA Banco Continental secured loan.    We have a secured loan with BBVA Banco Continental with an outstanding amount of S/.142.0 million (US$51.2 million) accruing interest at an annual rate of 6.20% and maturing in May 2014. The loan is secured by a collateral trust to which we contributed substantially all of our assets at our Pacasmayo facility and our Acumulación Tembladera quarry. The loan contains certain restrictive covenants, including our ability to make a capital decrease or pay dividends if we default on the loan. We must also maintain the following financial covenants during the term of the loan:

our liquidity ratio (current assets divided by current liabilities) must be greater than 1.0x;

our leverage ratio (debt divided by EBITDA) must be lower than 3.5x; and

our interest coverage ratio (EBITDA divided by debt service requirements) must be greater than 1.5x.

As of September 30, 2011, the Company was in compliance with these financial covenants.

BBVA Banco Continental unsecured loan.    We have an unsecured short-term working capital loan with BBVA Banco Continental with an outstanding amount of S/.28.0 million (US$10.1 million) accruing interest at an annual rate of 6.00% and maturing in June 2012.

Banco de Crédito del Perú financing leases.    In March 2011, we entered into two secured financing lease agreements with Banco de Crédito del Perú to finance the installation of our

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cement mill No. 7 in our Pacasmayo facility. Both financing leases are secured by the mill. As of September 30, 2011, the carrying value held was US$21.0 million under one financing lease and S/.14.0 million under the other financing lease. The U.S. dollar financing lease accrues interest at an annual rate of 5.19% and matures in March 2013, and the nuevos soles financing lease accrues interest at an annual rate of 7.17% and matures in March 2016. In addition to the covenants contained in our BBVA Banco Continental loan, we must also maintain a ratio of total liability net of deferred taxes to equity lower than 1.0x. As of September 30, 2011, we were in compliance with these financial covenants.

Banco de Crédito del Perú mid-term loan.    We have an unsecured mid-term loan with Banco de Crédito del Perú with an outstanding amount of S/.42.0 million that accrues interest at an annual rate of 6.20% and matures in March 2013.

BBVA Banco Continental mid-term loan.    We have a mid-term loan with BBVA Banco Continental with an outstanding balance of S/.41.0 million that accrues interest at an annual rate of 6.41% and matures in December 2013.

Banco de Crédito del Perú short-term loan.    We have an unsecured short-term loan with Banco de Crédito del Perú with an outstanding amount of S/.12.6 million that accrues interest at an annual rate of 2.61% and matures in March 2012.

BBVA Banco Continental secured loan.    We recently entered into a secured loan with BBVA Banco Continental in the amount of S/.202.2 million (US$75 million) accruing interest at an annual rate of 6.37% for the first year, 6.64% for the second year and 7.01% for the following years, and maturing in December 2018. The loan is secured by our current collateral trust, which holds substantially all of our assets at our Pacasmayo facility and our Acumulación Tembladera quarry. In addition, the loan contains the following financial covenants during the term of the loan:

a liquidity ratio (current assets divided by current liabilities) greater than 1.0x;

a leverage ratio (net debt divided by EBITDA) no lower than 3.0x; and

an interest coverage ratio (EBITDA divided by debt service requirements) greater than 1.2x.

Expected future secured loan.    We are negotiating a secured loan with a major Peruvian Bank for an amount of up to US$75 million, which we expect will close in the first quarter of 2012. We expect the loan to be for a term of ten years and secured by our current collateral trust, which holds substantially all of our assets at our Pacasmayo facility and our Acumulación Tembladera quarry. In addition, we expect the loan to contain the following financial covenants during the term of the loan:

a liquidity ratio (current assets divided by current liabilities) greater than 1.0x;

a leverage ratio (net debt divided by EBITDA) no lower than 3.0x; and

an interest coverage ratio (EBITDA divided by debt service requirements) greater than 1.5x.

However, the bank is not legally committed to provide us with this loan, and, as a result, we cannot assure you that we will be able to obtain the loan on these terms or at all.

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Derivative financial instruments

As of September 30, 2011, we were not party to any derivative financial instruments. We do not currently hedge against fluctuations in interest rates, foreign currency exchange rates or commodity prices.

Off-balance sheet arrangements

There are no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our results of operations, financial condition or liquidity.

Contractual obligations

The following table sets forth our contractual obligations with definitive payment terms as of September 30, 2011.

   
 
  Payments due by period  
(in millions of S/.)
  Less than
1 Year

  1-3 Years
  3-5 Years
  More than
5 Years

  Total
 
   

Indebtedness(1)

    153.6     172.7     5.1     -     331.4  

Future interest payments

    12.4     10.3     0.3     -     23.0  

Brine project(2)

    -     277.3     -     -     277.3  

Purchase obligations(3)

    35.4     25.8     -     -     61.2  
       

Total

    201.4     486.1     5.4     -     692.9  
   
(1)
Does not include (i) the repayment of two Banco de Crédito short-term loans in an aggregate amount of S/.7.7 million, (ii) the increase in the outstanding balance by an additional S/.14.0 million of the BBVA Banco Continental mid-term loan, or (iii) the secured loan we recently entered into with BBVA Banco Continental in the amount of S/.202.2 million (US$75 million). In addition, we are in the process of negotiating with a Peruvian bank to obtain a secured loan for an amount of US$75 million, which we expect to close during the first quarter of 2012. See "—Indebtedness."

(2)
Relates to our contractual commitment, in connection with the formation of Salmueras with Quimpac, to invest US$100.0 million to develop our brine project. The exact timing of our investment requirement is undetermined and will depend on pending pre-feasibility studies and other conditions.

(3)
Includes commitments of (i) S/.10.4 million in 2011 related to equipment purchases and other services in connection with the installation and maintenance of our diatomite brick plant, (ii) S/.18.9 million in 2011 and S/.25.8 million in 2012 related to our cement production capacity expansion and (iii) S/.6.1 million in 2011 related to the construction of vertical kilns at our Pacasmayo facility. Excludes our obligations related to our long-term electricity supply agreements because they are determined by a formula that takes into consideration our consumption of electricity and other market variables. In connection with our long-term electricity supply agreements, we have made payments in the aggregate of S/.40.7 million in 2010 and S/.28.9 million in the nine months ended September 30, 2011.

In addition, we have various mining fees and royalties payable to the government and third parties in connection with our concessions and surface land use.

Quantitative and qualitative disclosures about market risk

For a description of our market risks, see note 29 to our annual audited consolidated financial statements included in this prospectus.

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Industry and regulatory matters

Overview of the Peruvian economy

The information included in this subsection "Overview of the Peruvian economy" has been extracted from the pre-effective amendment No. 1 to the Registration Statement under Schedule B of the Securities Act filed by the Republic of Peru with the SEC on July 26, 2011.

From 2006 to 2010, Peru experienced a period of general economic expansion. The economy expanded by 7.7% in 2006, 8.9% in 2007, 9.8% in 2008, 0.9% in 2009 and 8.8% in 2010.

The following presents Peru's key economic data during 2010:

Public debt and balance

public sector external debt totaled US$19.9 billion, or 12.9% of GDP;

public sector domestic debt totaled US$16.8 billion, or 10.9% of GDP;

the overall balance of the non-financial public sector registered a deficit of US$0.9 billion, or 0.6% of GDP, compared to a deficit of US$2.6 billion, or 1.9% of GDP for 2009.

Current accounts and exports

the current account registered a deficit of 1.5% of GDP;

exports increased 31.9%, from US$27.0 billion to US$35.6 billion, compared to a decrease of 13.1% during 2009.

Inflation

inflation increased by 2.1%, compared to 0.2% for 2009;

the net international reserves of the Central Bank of Peru increased to US$44.1 billion compared to US$31.1 billion as of December 31, 2009.

Foreign direct investment

foreign direct investment was US$7.1 billion compared to US$5.2 billion during 2009.

Gross domestic product and structure of the Peruvian economy

In the five-year period ended December 31, 2010, Peru's economy grew at a CAGR of 7.2% in real terms. The rate of growth was more pronounced from 2007 to 2008, when GDP grew on average 9.4% in real terms, and specifically in 2008, when GDP grew 9.8% compared to 2007. The economic expansion during this period was based on strong private investment, price stability, the improvement in public finances and lower external public debt. Since 2006, domestic demand (total gross investment and public and private consumption) has been Peru's principal source of growth, with an 11.5% average increase in real terms between 2006 and 2008. In 2009, Peru's economy expanded 0.9% in real terms based on GDP growth. Domestic demand, however, decreased 2.8% in 2009 compared to 2008 despite the growth in public investment and private and government consumption. In 2010, Peru's GDP grew 8.8% in real terms, compared to 2009.

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In the five year period ended December 31, 2010, private consumption experienced an annual average increase of 6.4% in real terms, with an average annual increase of 7.8% during the period from 2006 to 2008 and 2.4% in 2009. As of 2008, gross private investment has been increasing gradually, at a 23.1% annual average growth in real terms. In 2009, private consumption decreased 15.1% and increased 22.1% in 2010.

In 2009, private consumption was US$83.2 billion, a growth of 2.4% in real terms, as a result of a slower increase in average national income. Private investment decreased 15.1%, though a considerable number of projects were undertaken, primarily in the mining, hydrocarbons, electricity, transportation, telecommunications and manufacturing sectors. Total gross investment decreased 20.6%, even though public investment by the central government, local governments and government-owned companies increased compared to 2008.

In 2010, private consumption was US$95.3 billion, a growth of 6.0% in real terms, as a result of a slower increase in national income. Private investment increased 22.1%, through a considerable number of projects, primarily in the mining, hydrocarbons, electricity, transportation, telecommunications and manufacturing sectors. Total gross investment increased 34.8%, public and private investment increased 26.5% and 22.1%, respectively, compared to 2009.

Gross domestic product by expenditure

   
 
  Year ended December 31,  
(in nominal US$)
  2006(1)
  2007(1)
  2008(1)
  2009(1)
  2010(1)
 
   

Government consumption

    8,819     9,682     11,352     13,194     15,704  

Private consumption

    57,051     66,038     81,275     83,177     95,253  

Gross investment:

                               

Public sector

    2,634     3,365     5,317     6,790     9,195  

Private sector

    15,141     19,511     27,375     22,397     29,507  

Change in inventories

    751     1,675     1,481     (2,831 )   (242 )

Total gross investment

    18,526     24,552     34,173     26,356     38,460  

Exports of goods and services

    26,398     31,265     34,725     30,608     39,537  

Imports of goods and services

    18,355     24,094     34,409     25,965     35,035  

Net exports

    8,043     7,171     316     4,643     4,502  

GDP

    92,439     107,443     127,115     127,370     153,919  
   
(1)
Preliminary data

Source: Central Bank of Peru

Domestic investment as a percentage of GDP increased from 20.0% in 2006 to 25.0% in 2010, reflecting an increase in private and public investment (except for private investment in 2009 which decreased to US$22.4 billion, compared to US$27.4 billion in 2008). Domestic investments flowed mainly into mining projects, the Camisea gas project, the construction of new plants and ongoing expansions in the cement, food, electricity and hotel industries. This increase was due to a response to domestic demand, which increased driven by economic growth. Domestic investment, however, decreased by 6.2% in 2009, from 26.9% to 20.7% of GDP, as a result of the decrease in private investment.

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The standard of living of the Peruvian population improved consistently from 2006 to 2010. Per capita GDP rose from US$3,284 in 2006 to US$5,225 in 2010 due to increased commercial activity and an increase in job creation, reflected in the growth of exports, and continued increases in domestic demand. During 2010, per capita GDP decreased 0.9% due primarily to the slowdown in the economy caused by the international financial crisis.

Principal sectors of the Peruvian economy

The principal economic sectors in Peru are services (including wholesale and retail trade, transportation and tourism), manufacturing, agriculture and livestock, and mining and hydrocarbons. The following table sets forth key data for Peru's major economic sectors:

Gross domestic product by sector

   
 
  Year ended December 31,  
(as % of real GDP)
  2006(1)
  2007(1)
  2008(1)
  2009(1)
  2010(1)
 
   

Primary production:

                               

Agriculture and livestock(2)

    8.3     7.9     7.7     7.8     7.5  

Fishing

    0.5     0.5     0.5     0.4     0.3  

Mining and hydrocarbons(3)

    6.2     5.8     5.7     5.7     5.2  
       

Total primary production

    15.0     14.2     13.9     14.0     13.0  

Secondary production:

                               

Manufacturing

    15.4     15.6     15.5     14.3     15.0  

Construction

    5.2     5.6     5.9     6.2     6.7  

Electricity and water

    2.1     2.1     2.0     2.0     2.0  
       

Total secondary production

    22.6     23.3     23.4     22.6     23.7  

Services:

                               

Wholesale and retail trade

    14.0     14.5     14.6     15.0     15.0  

Other services(4)

    48.2     47.8     47.9     47.6     48.3  

Total services

    62.3     62.3     62.5     62.7     63.3  
       

Total GDP

    100.0     100.0     100.0     100.0     100.0  
   
(1)
Preliminary data

(2)
Includes forestry

(3)
Includes non-metallic mining

(4)
Includes taxes on products and import duties

Source: Central Bank of Peru

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  Year ended December 31,  
(% change over prior year)
  2006(1)
  2007(1)
  2008(1)
  2009(1)
  2010(1)
 
   

Primary production:

                               

Agriculture and livestock(2)

    8.4     3.2     7.2     2.3     4.3  

Fishing

    2.4     6.9     6.3     (7.9 )   (16.6 )

Mining and hydrocarbons

    1.4     2.7     7.6     0.6     (0.8 )

Total primary production

    5.2     3.2     7.4     1.2     1.5  

Secondary production:

                               

Manufacturing

    7.5     11.1     9.1     (7.2 )   13.6  

Construction

    14.8     16.6     16.5     6.1     17.4  

Electricity and water

    6.9     8.4     7.8     1.2     7.7  
       

Total secondary production

    9.0     12.1     10.7     (3.1 )   14.1  

Services:

                               

Wholesale and retail trade

    11.7     9.7     13.0     0.4     9.7  

Other services

    6.8     9.0     9.1     3.1     8.1  

Total services

    7.9     9.1     10.0     2.3     8.5  
       

Total GDP

    7.7     8.9     9.8     0.9     8.8  
   
(1)
Preliminary data

(2)
Includes forestry

(3)
Includes non-metallic mining

(4)
Includes taxes on products and import duties

Source: Central Bank of Peru

In 2009, GDP grew by 0.9%, compared to 9.8% in 2008. The sectors that experienced the most significant growth in 2009 were construction, other services and agriculture and livestock. The 6.1% rate of growth in the construction sector during 2009, resulted primarily from increased domestic consumption of cement and increased investment in infrastructure. The 3.1% expansion in other services (including taxes on products and import duties) during 2009 was due to an increase in government services and financial and insurance services. The 2.3% expansion in the agriculture and livestock sector during 2009 resulted primarily from increased production of poultry, cattle and sheep and, to a lesser extent, an increase in the production of eggs, an expansion of harvest areas for primary goods, attractive prices for primary goods, and favorable climate conditions that provided adequate levels of water reserves in Peru's main reservoirs. Mining and fuel grew by 0.6% due to a decrease in metals mining, which was offset by an increased rate of growth in hydrocarbon production.

In 2010, GDP grew 8.8%, compared to 2009, due to increased activity in the non-primary sectors, principally non-primary manufacture, construction and commerce. The sectors that experienced the greatest growth were agriculture and livestock, hydrocarbons, construction, utilities and other services. The expansion of 24.0% in the hydrocarbon sector was due to oil extraction, and especially due to the increase in the extraction of natural gas. The expansion in the utilities sector was due to increased production in the electric power sector. Livestock and agriculture sectors grew to a lesser extent, driven primarily by increased activity in poultry and cattle. Finally, the commerce sector grew as a result of the increase in the commerce of motor vehicles, construction and hardware materials.

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Construction sector in Peru

The construction sector grew 14.8% in 2006, 16.6% in 2007, 16.5% in 2008, and 6.1% in 2009. In 2009, 6.2% of Peru's GDP was attributed to the construction sector. The growth in construction during the recent years has been associated with increases in private investment and the housing, mining and manufacturing sectors, as well as public work projects, such as road construction, infrastructure renovation and government housing sponsored programs: Mivivienda and Techo Propio.

During 2010, the construction sector grew 17.4% compared to 2009, mainly due to continued public and private investment in housing projects, commercial malls and offices, as well as private and public infrastructure developments.

Cement market

Global cement market

According to the April 2011 report published by the European Cement Association ("CEMBUREAU"), following the recent global economic crisis, 2010 was a year of recovery for the majority of the world's developing economies. World output of cement was estimated to have expanded by 3.9% in 2010, according to the World Bank's Global Economic Prospect report (January 2011), led by strong domestic demand in developing countries. By contrast, the recovery of many developed countries continued to be constrained by the restructuring of the banking sector, high consumer debt and a re-sizing of economic sectors that had grown unsustainably large in the years leading up to the crisis.

The following tables set forth selected information regarding the evolution of global cement production and consumption, and per capita cement consumption, for the years indicated:

Global cement production

   
Production
(in millions of tons)

  2006
  2007
  2008
  2009
  2010
  '06-'10
CAGR

 
   

World

    2,618.9     2,799.1     2,863.9     3,048.5     3,344.4     6.3 %

USA

    97.7     92.6     84.0     60.4     64.9     (9.7 %)

European Union

    270.6     276.3     257.9     206.0     195.9     (7.8 %)

Japan

    73.2     71.2     68.0     60.0     54.0     (7.3 %)

China

    1,240.0     1,360.0     1,400.0     1,646.0     1,868.0     10.8 %

Latin America

    121.2     129.5     133.0     129.6     141.8     4.0 %

Brazil

    41.9     46.6     51.3     51.7     58.4     8.7 %

Mexico

    38.0     38.6     37.1     35.8     37.9     (0.1 %)

Argentina

    8.9     9.6     9.7     9.4     10.4     4.0 %

Colombia

    10.0     11.1     10.5     9.1     10.2     0.6 %

Peru

    5.8     6.2     6.9     7.2     8.5     10.0 %

Venezuela

    8.3     8.5     8.5     7.5     6.8     (4.7 %)

Ecuador

    4.2     4.4     4.4     5.0     5.6     7.6 %

Chile

    4.1     4.4     4.6     3.9     4.0     (0.9 %)
   

Source: International Cement Review (2011)

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Global cement consumption

   
Consumption (in millions of tons)
  2006
  2007
  2008
  2009
  2010
  '06-'10
CAGR

 
   

World

    2,568.2     2,762.9     2,829.6     2,998.4     3,294.0     6.4 %

USA

    122.0     110.6     93.5     68.9     68.6     (13.4 %)

European Union

    263.5     269.1     249.3     208.7     186.1     (8.3 %)

Japan

    58.6     55.9     51.0     44.0     40.0     (9.1 %)

China

    1,200.0     1,320.0     1,372.0     1,600.0     1,851.0     11.4 %

Latin America

    114.2     122.9     130.8     128.7     141.4     5.5 %

Brazil

    40.7     45.1     51.6     51.9     60.0     10.2 %

Mexico

    35.9     36.6     35.1     34.6     36.8     0.6 %

Argentina

    8.9     9.6     9.8     9.2     10.2     3.5 %

Colombia

    8.0     9.1     9.0     8.4     9.0     3.0 %

Peru

    5.1     5.9     7.0     7.3     8.5     13.3 %

Venezuela

    7.2     7.4     8.6     7.9     7.1     (0.4 %)

Ecuador

    4.1     4.4     5.0     5.3     5.6     7.8 %

Chile

    4.3     4.7     4.8     4.2     4.3     0.3 %
   

Source: International Cement Review (2011)

The following graph shows Peru's cement consumption per capita in 2010 relative to GDP per capita and compared against other Latin American countries and certain other developed countries.

Cement consumption per capita(1)

GRAPHIC


(1)
Source: World Bank, for GDP and population; International Cement Review, for cement consumption.

(2)
Latin America includes Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Venezuela.

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The Peruvian cement market

Peru's cement production is segmented into three principal geographic regions: the northern region, the central region, including Lima's metropolitan area, and the southern region. The table below sets forth selected data with respect to each region in Peru and the corresponding cement manufacturers. Market share data is based on metric tons of cement delivered during the last twelve months ended September 30, 2011.

Geographic breakdown

Shipments by plant and market share

GRAPHIC


Source: ASOCEM, INEI, ADUANET (SUNAT).

The table below sets forth production by type of cement produced by each manufacturer in Peru:

   
 
  Portland Cement   Other Portland Cements  
Business
  I
  II
  V
  IP
  I(PM)
  MS
  I Co
 
   

Cemento Andino

    X (1)   X (1)   X (1)         X              

Cementos Lima

    X     X (1)   X (1)   X                    

Pacasmayo plant

    X     X (2)   X     X (3)         X (2)   X  

Rioja plant

    X (1)   X (1),(4)   X (1),(4)   X                 X  

Cementos Sur

    X     X (2)   X (2)   X     X              

Yura

    X     X (2)   X (2)   X     X              
   

Source: ASOCEM

(1)
Low alkaline content.

(2)
Our Portland cement II is the same as our MS cement.

(3)
We used to offer this type of cement through Selva; it is no longer available.

(4)
Manufactured upon request.

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The following table sets forth cement sales by region for the years indicated:

   
(in thousands of metric tons except %)
   
  2005
   
  2006
   
  2007
   
  2008
   
  2009
   
  2010
 
   

Northern region

    846.6     19.5%     1,018.1     20.2%     1,255.5     21.3%     1,382.2     20.5%     1,460.5     20.6%     1,691.6     20.6%  

Central region

    2,663.7     61.2%     3,003.9     59.6%     3,447.6     58.7%     4,082.6     60.6%     4,189.6     59.1%     4,762.1     57.9%  

Southern region

    839.8     19.3%     1,017.9     20.2%     1,174.9     20.0%     1,275.8     18.9%     1,443.5     20.3%     1,764.5     21.5%  
       

Total

    4,350.1     100.0%     5,039.9     100.0%     5,878.0     100.0%