**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC  20549**

 

**FORM 10-Q**

 

| **(Mark One)** |
|----------------|
| ** **     |
| **ý**     | **Quarterly  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934** |
| ** **     | ** ** |
| ** **     | **For the quarterly period ended April 30, 2004** |
|           |   |
| ** **     | **Or** |
|           |   |
| **o**          | **Transition  Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of  1934** |
| ** **     | ** ** |
| ** **     | **For the transition period from                  to                ** |

 

**CommissionFile Number 333-66291**

 

| **The Doe Run Resources Corporation**                                                                                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of  registrant as specified in its charter)                                                                                                          |
| ** **                                                                                                                                                       | ** ** | ** ** |
| **New  York**                                                                                                                                                    | ** ** | **13-1255630** |
| (State or other  jurisdiction of  incorporation or organization)                                                                                                 |   | (IRS Employer  Identification No.) |
| ** **                                                                                                                                                       | ** ** | ** ** |
| **1801  Park 270 Drive, Suite 300  St. Louis, Missouri**                                                                                                         | ** ** | **63146** |
| (Address of  principal executive offices)                                                                                                                        |   | (Zip Code) |
|                                                                                                                                                             |   |   |
| Registrant’s  telephone number, including area code**             (314)  453 – 7100** |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during theproceeding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.

 

**o       Yes             ****ý       No**

 

**Note: The Registrant files pursuantto an indenture, but is not otherwise subject to the reporting requirements ofSection 13 or 15(d).**

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 

**o       Yes             ****ý       No**

 

Number of sharesoutstanding of each of the issuer’s classes of common stock, as ofSeptember 9, 2004:

 

| **Common  stock, $.10 par value** | ** ** | **1,000  shares** |
|-----------------------------------|------------|-------------------|

 

 

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**THE DOE RUN RESOURCES CORPORATION**

**INDEX TO FORM 10-Q**

 
| **Part I**  | ** **                                                                                  | ** ** |
|-------------|---------------------------------------------------------------------------------------------|------------|
|        |                                                                                        |       |
| Item 1.     | Financial Statements                                                                        |       |
|        |                                                                                        |       |
| Item  2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       |
|        |                                                                                        |       |
| Item  3.    | Quantitative  and Qualitative Disclosures About Market Risk                                 |       |
|        |                                                                                        |       |
| Item 4.     | Controls and  Procedures                                                                    |       |
|        |                                                                                        |       |
| **Part II** | ** **                                                                                  | ** ** |
|        |                                                                                        |       |
| Item 1.     | Legal Proceedings                                                                           |       |
|        |                                                                                        |       |
| Item 6.     | Exhibits and  Reports on Form 8-K                                                           |       |

 

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**Item 1. Financial Statements**

 

**THE DOE RUN RESOURCES CORPORATION**

**Condensed Consolidated Balance Sheets**

**(Dollars in thousands, except per share amounts)**

 
| ** **                                                                                                                                                                                                                      | ** ** | **April 30,  2004** | ** ** | **October 31,  2003** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                      | ** ** | **(unaudited)**          | ** ** | ** **                 | ** ** |
| **ASSETS**                                                                                                                                                                                                                      |       |                     |       |                       |       |
| Current assets:                                                                                                                                                                                                                 |       |                     |       |                       |       |
| Cash                                                                                                                                                                                                                            |       | $                        | 4,877      |                       | $          | 16,794 |   |
| Trade accounts receivable, net of allowance for  doubtful accounts                                                                                                                                                              |       | 55,843                   |       | 56,659                     |       |
| Inventories                                                                                                                                                                                                                     |       | 108,936                  |       | 95,680                     |       |
| Prepaid expenses and other current assets                                                                                                                                                                                       |       | 43,423                   |       | 21,531                     |       |
| Total current assets                                                                                                                                                                                                            |       | 213,079                  |       | 190,664                    |       |
| Property, plant and equipment, net                                                                                                                                                                                              |       | 227,651                  |       | 230,367                    |       |
| Other noncurrent assets, net                                                                                                                                                                                                    |       | 4,826                    |       | 5,496                      |       |
| Total assets                                                                                                                                                                                                                    |       | $                        | 445,556    |                       | $          | 426,527 |   |
|                                                                                                                                                                                                                            |       |                     |       |                       |       |
| **LIABILITIES AND SHAREHOLDER’S DEFICIT**                                                                                                                                                                                  |       |                     |       |                       |       |
| Current liabilities:                                                                                                                                                                                                            |       |                     |       |                       |       |
| Short-term borrowings and current maturities of  long-term debt                                                                                                                                                                 |       | $                        | 84,944     |                       | $          | 78,117 |   |
| Accounts payable                                                                                                                                                                                                                |       | 70,472                   |       | 48,392                     |       |
| Accrued liabilities                                                                                                                                                                                                             |       | 88,547                   |       | 84,483                     |       |
| Total current liabilities                                                                                                                                                                                                       |       | 243,963                  |       | 210,992                    |       |
|                                                                                                                                                                                                                            |       |                     |       |                       |       |
| Long-term debt, less current maturities                                                                                                                                                                                         |       | 322,019                  |       | 330,579                    |       |
| Other noncurrent liabilities                                                                                                                                                                                                    |       | 72,974                   |       | 71,508                     |       |
| Total liabilities                                                                                                                                                                                                               |       | 638,956                  |       | 613,079                    |       |
|                                                                                                                                                                                                                            |       |                     |       |                       |       |
| Series A redeemable preferred stock, $1,000 par  value, 5,000 authorized; 2,251 and 2,000   shares issued and outstanding at April 30, 2004 and  October 31, 2003 respectively; liquidation and redemption value |       | 23,921                   |       | 22,514                     |       |
|                                                                                                                                                                                                                            |       |                     |       |                       |       |
| Shareholder’s deficit:                                                                                                                                                                                                     |       |                     |       |                       |       |
|                                                                                                                                                                                                                            |       |                     |       |                       |       |
| Common stock, $.10 par value, 1,667 shares  authorized, 1,000 shares issued and outstanding                                                                                                                                     |       | —                   |       | —                     |       |
| Additional paid-in capital                                                                                                                                                                                                      |       | 1,317                    |       | 2,724                      |       |
| Accumulated deficit                                                                                                                                                                                                             |       | (182,005                 | )          | (173,523                   | )          |
| Accumulated other comprehensive losses                                                                                                                                                                                          |       | (36,633                  | )          | (38,267                    | )          |
| Total shareholder’s deficit                                                                                                                                                                                                |       | (217,321                 | )          | (209,066                   | )          |
| Total liabilities and shareholder’s deficit                                                                                                                                                                                |       | $                        | 445,556    |                       | $          | 426,527 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

1

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**THEDOE RUN RESOURCES CORPORATION**

**CondensedConsolidated Statements of Operations (unaudited)**

**(Dollarsin thousands)**

 
| ** **                                                                      | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                      | ** ** | **2004**                               | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Net  sales                                                                      |       | $                                      | 215,641    |                                 | $          | 164,110 |   | $ | 405,645 |   | $ | 323,121 |   |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Costs  and expenses:                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Cost  of sales                                                                  |       | 194,952                                |       | 151,343                              |       | 373,363 |   | 298,177 |   |
| Depreciation,  depletion and amortization                                       |       | 6,207                                  |       | 7,994                                |       | 12,672 |   | 15,941 |   |
| Selling,  general and administrative                                            |       | 7,357                                  |       | 5,558                                |       | 16,483 |   | 12,746 |   |
| Unrealized  (gain) loss on derivative financial instruments                     |       | (4,084                                 | )          | (489                                 | )          | 940 |   | (586 | ) |
| Other                                                                           |       | 1,018                                  |       | 582                                  |       | 2,049 |   | 900 |   |
| Total  costs and expenses                                                       |       | 205,450                                |       | 164,988                              |       | 405,507 |   | 327,178 |   |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Income  (loss) from operations                                                  |       | 10,191                                 |       | (878                                 | )          | 138 |   | (4,057 | ) |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Other  income (expense):                                                        |       |                                   |       |                                 |       |   |   |   |   |
| Interest  expense, net                                                          |       | (3,410                                 | )          | (3,481                               | )          | (6,587 | ) | (6,535 | ) |
| Other,  net                                                                     |       | (462                                   | )          | 369                                  |       | (512 | ) | 96 |   |
|                                                                            |       | (3,872                                 | )          | (3,112                               | )          | (7,099 | ) | (6,439 | ) |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Income  (loss) before income tax expense                                        |       | 6,319                                  |       | (3,990                               | )          | (6,961 | ) | (10,496 | ) |
| Income  tax expense                                                             |       | 956                                    |       | —                               |       | 1,521 |   | — |   |
| Income  (loss) before cumulative effect of change in accounting principle       |       | 5,363                                  |       | (3,990                               | )          | (8,482 | ) | (10,496 | ) |
| Cumulative  effect of change in accounting principle, net of income tax benefit |       | —                                 |       | —                               |       | — |   | (3,940 | ) |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Net  income (loss)                                                              |       | $                                      | 5,363      |                                 | $          | (3,990 | ) | $ | (8,482 | ) | $ | (14,436 | ) |
| Cumulative  preferred stock dividends                                           |       | (782                                   | )          | (625                                 | )          | (1,407 | ) | (1,264 | ) |
| Net  income (loss) allocable to common shares                                   |       | $                                      | 4,581      |                                 | $          | (4,615 | ) | $ | (9,889 | ) | $ | (15,700 | ) |

 

The accompanying notes arean integral part of these condensed consolidated financial statements.

 

2

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**THEDOE RUN RESOURCES CORPORATION**

**CondensedConsolidated Statements of Cash Flows (unaudited)**

**(Dollarsin thousands)**

 
| ** **                                                                       | ** ** | **Six Months Ended  April 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                       | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                                                             |       |                                 |       |   |   |
| Cash  flows from operating activities:                                           |       |                                 |       |   |   |
| Net  loss                                                                        |       | $                                    | (8,482     | ) | $ | (14,436 | ) |
| Cumulative  effect of change in accounting principle                             |       | —                               |       | 3,940 |   |
| Adjustments  to reconcile net loss to net cash provided by operating activities: |       |                                 |       |   |   |
| Depreciation,  depletion and amortization                                        |       | 12,672                               |       | 15,941 |   |
| Imputed  interest and amortization of deferred financing costs                   |       | 554                                  |       | 469 |   |
| Unrealized  (gain)/loss on derivative financial instruments                      |       | 940                                  |       | (586 | ) |
| Losses  from impairment and disposal of long-lived assets                        |       | 1,241                                |       | 444 |   |
| Decrease  resulting from other changes in assets and liabilities:                |       | (5,920                               | )          | (14,832 | ) |
| Net  cash provided by (used in) operating activities                             |       | 1,005                                |       | (9,060 | ) |
|                                                                             |       |                                 |       |   |   |
| Cash  flows from investing activities:                                           |       |                                 |       |   |   |
| Purchases  of property, plant and equipment                                      |       | (11,165                              | )          | (7,828 | ) |
| Net  cash used in investing activities                                           |       | (11,165                              | )          | (7,828 | ) |
|                                                                             |       |                                 |       |   |   |
| Cash  flows from financing activities:                                           |       |                                 |       |   |   |
| Proceeds  from revolving loans and short term borrowings, net                    |       | 596                                  |       | 19,207 |   |
| Payments  on long-term debt                                                      |       | (2,353                               | )          | (5,257 | ) |
| Payment  of financing costs                                                      |       | —                               |       | (338 | ) |
| Net  cash provided by (used in) financing activities                             |       | (1,757                               | )          | 13,612 |   |
| Net  decrease in cash                                                            |       | (11,917                              | )          | (3,276 | ) |
|                                                                             |       |                                 |       |   |   |
| Cash  at beginning of period                                                     |       | 16,794                               |       | 7,018 |   |
| Cash  at end of period                                                           |       | $                                    | 4,877      |   | $ | 3,742 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

3

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**THE DOERUN RESOURCES CORPORATION**

 

**Notes toCondensed Consolidated Financial Statements**

**(Dollarsin thousands)**

 

**(1)****                     Summary ofSignificant Accounting Policies**

 

***Unaudited Interim Financial Statements***

 

These interimconsolidated financial statements include the accounts of The Doe Run ResourcesCorporation (Doe Run) and its subsidiaries (on a consolidated basis, theCompany). Doe Run’s issued and outstanding common stock is owned by asubsidiary of The Renco Group, Inc. (Renco). In the opinion of management, the interim consolidated financial statementscontain all adjustments, consisting of normal recurring accruals, necessary topresent fairly the consolidated financial position as of April 30, 2004and the results of operations for the three and six month periods endedApril 30, 2004 and 2003.  Interimperiods are not necessarily indicative of results to be expected for the year.

 

**(2)****                     FinancialCondition**

 

The Company’s auditors issued unqualified opinions onthe 2003 audited financial statements of the Company and of Doe Run Peru thatexpress substantial doubt about the Company’s and Doe Run Peru’s ability tocontinue as going concerns due to liquidity and other issues related todefaults under loan agreements, uncertainties related to environmental andlitigation matters, as well as the Company’s recurring losses.

 

The Company had recurring losses in the past severalyears, primarily the result of the declining treatment charges and low metalprices. Metal prices have risen dramatically in fiscal 2004. Lead pricesincreased from a London Metal Exchange (LME) settlement monthly average of $532.60per short ton in October 2003, to $852.40 per short ton inJuly 2004.  Doe Run has benefitedfrom this price increase in both its lead metal and lead concentrate sales, asinfluenced by the effects of the Company’s risk management strategy.

 

Management will continue to assess market andoperating conditions to maximize its operating profit or limit losses, whileallowing Doe Run to fulfill its environmental obligations. In response todeclining demand in the U.S. for lead metal and increasing global demand forclean lead concentrates, Doe Run indefinitely suspended operations at itsGlover smelter in November, 2003 and will sell on the open market anyconcentrates that are not required to maintain production at its Herculaneumsmelter. Headcount at the Glover Smelter decreased from 163 employees atOctober 31, 2003 to 11 employees effective with the suspension.  The Company recorded a severance liabilityrelated to Glover employees of approximately $1,400 at October 31, 2003.No impairment loss was recognized with respect to this suspension ofoperations, as cash flows with respect to the primary lead segment shouldimprove with the decision.

 

As discussed in Note 7,Doe Run Peru has requested a modification to the PAMA for the La Oroya smelter.Although the required compliance date would be extended under the modification,total spending would be approximately $22,000 higher than what is currentlyrequired, with an estimated cost of approximately $143,000 over the calendaryears 2005-2011

 

Doe Run Peru hasdeveloped a business plan that identifies several revenue generating and costreduction activities. Management believes the plan will enhance liquidity andgenerate the funds to make the investments under the proposed modifications tothe PAMA and to modernize the smelter. Revenue enhancement and cost reductionprojects include the processing of zinc ferrites and an effort to bring morerecycled feed into the smelter. Cost reduction measures include manpowerreductions through voluntary retirement, decreased power usage in the zinccircuit and the closure of the coke plant.

 

Net unused availabilityat April 30, 2004 under the Doe Run Revolving Credit Facility and Doe RunPeru Revolving Credit Facility was approximately $17,712 and $5,430,respectively.  In addition to theavailability under its revolving credit facilities, Doe Run Peru also had$4,877 of cash at April 30, 2004. Net unused availability at October 31, 2003 was approximately$14,373 and $3,830 under the Doe Run Revolving Credit Facility and Doe Run PeruRevolving Credit Facility, respectively, and Doe Run Peru’s cash balancestotaled

 

4

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$16,794.  The Company’s long-term liquidity outlook hasimproved, due to higher prices, other revenue enhancements and cost reductions.As of July 31, 2004, net unused availability was approximately $21,967under the Doe Run Revolving Credit Facility and $1,830 under the Doe Run PeruRevolving Credit Facility, and Doe Run Peru had cash balances of $6,098.  In Peru, higher metal prices resulted inhigher initial outlays for concentrate purchases and higher VAT payments, whichresulted in a decrease in availability of borrowing under its revolving creditagreement, however Doe Run Peru’s working capital increased betweenApril and July 2004. At metal prices higher than 2003 averages, butlower than those experienced through the second quarter of 2004, Doe Run’sliquidity should continue to improve and Doe Run Peru’s liquidity shouldstabilize.

 

**(3)****                     Inventories**

 

Inventories consist ofthe following:

 
| ** **                            | ** ** | **April 30,** | ** ** | **October 31,** | ** ** |
|---------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                            | ** ** | **2004**           | ** ** | **2003**             | ** ** |
|                                  |       |               |       |                 |       |
| Finished  metals and concentrates     |       | $                  | 13,462     |                 | $          | 12,466 |   |
| Metals  and concentrates in process   |       | 67,971             |       | 56,399               |       |
| Materials,  supplies and repair parts |       | 27,503             |       | 26,815               |       |
|                                  |       |               |       |                 |       |
|                                  |       | $                  | 108,936    |                 | $          | 95,680 |   |

 

Materials, supplies andrepair parts are stated net of reserves for obsolescence of approximately$5,262 and $5,220 at April 30, 2004 and October 31, 2003,respectively.

 

**(4)****                     Debt**

 

On February 16,2004, Doe Run Peru entered into an amendment of its revolving credit facility.The amendment lowered the levels of net worth Doe Run Peru must comply withfrom the date of the amendment through September 30, 2004, among otherthings. Based on current forecasted results, assuming metal prices higher thanthose experienced in fiscal 2003, management expects to remain in compliancewith all covenants relating to Doe Run Peru’s revolving credit facility for theforeseeable future. The amendment does not cure or waive defaults in existencebefore the date of the amendment. The amendment also limits payment of fees toDoe Run through September 30, 2004 to $2,800 and $4,000 per calendar yearthereafter. In the event Doe Run Peru’s net worth would fall to a level lowerthan the requirement at the quarterly reporting dates, the amendmentpermanently reduces the amount available under Doe Run Peru’s revolving creditfacility by the amount of the difference between the required and the actualnet worth. If Doe Run Peru is not successful with its administrative appeal ofthe tax assessment discussed in Note 7, the lender can, at its discretion,require that the amount of the assessment reduce net worth as defined in DoeRun Peru’s revolving credit facility amendment. Such reduction along with otherfactors, including metal prices and results of operations, could affect Doe RunPeru’s ability to comply with the net worth requirement.

 

On April 9, 2004 DoeRun entered into an amendment of Doe Run’s revolving credit facility. Theamendment waived existing defaults and lowered the net worth requirement.  The amendment became effective when waiversof default under the Term Note were received, as discussed below. Doe Run wasin compliance with the covenants in the revolving credit facility, as amended,as of April 30, 2004.

 

On April 30, 2004 Doe Run entered into anamendment of the Term Note. The amendment waived existing defaults and amendedvarious covenant requirements, among other things. The amendment also requiredthat certain information be delivered to the lender at various times within 30days after the amendment date, which dates were extended. Doe Run was incompliance with the covenants in the Term Note, as amended, as ofApril 30, 2004.

 

5

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**(5)****                     EmployeeBenefits**

 

***Defined Benefit Plans***

 

Net periodic benefit cost is comprised of thefollowing:

 
| ** **                                                | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **2004**                               | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                      |       |                                   |       |                                 |       |   |   |   |   |
| Service  cost                                             |       | $                                      | 580        |                                 | $          | 507 |   | $ | 1,199 |   | $ | 1,016 |   |
| Interest  cost on projected benefit obligation            |       | 1,764                                  |       | 1,492                                |       | 3,644 |   | 2,992 |   |
| Expected  return on assets                                |       | (1,274                                 | )          | (1,129                               | )          | (2,633 | ) | (2,263 | ) |
| Net  amortization and deferral of unrecognized net losses |       | 935                                    |       | 417                                  |       | 1,932 |   | 836 |   |
| Net  periodic benefit cost                                |       | $                                      | 2,005      |                                 | $          | 1,287 |   | $ | 4,142 |   | $ | 2,581 |   |

 

The Company is requiredto make total contributions of $12,321 for 2004, of which $1,677 have been madeas of April 30, 2004.

 

###### ***PostretirementBenefit Plans***

 

Net periodicpostretirement benefit cost includes the following components:

 
| ** **                                       | ** ** | **Three Months Ended   April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                                       | ** ** | **2004**                                | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                             |       |                                    |       |                                 |       |   |   |   |   |
| Service  cost                                    |       | $                                       | 21         |                                 | $          | 17 |   | $ | 43 |   | $ | 34 |   |
| Interest  cost                                   |       | 142                                     |       | 198                                  |       | 281 |   | 395 |   |
| Amortization  of gains                           |       | (38                                     | )          | (52                                  | )          | (75 | ) | (105 | ) |
| Amortization  of unrecognized prior service cost |       | 5                                       |       | 6                                    |       | 9 |   | 12 |   |
|                                             |       |                                    |       |                                 |       |   |   |   |   |
| Net  periodic postretirement benefit cost        |       | $                                       | 130        |                                 | $          | 169 |   | $ | 258 |   | $ | 336 |   |

 

6

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**(6)****                     SegmentInformation**

 

The Company’s operatingsegments are separately managed business units that are distinguished byproducts, location and production process. The primary lead segment includesintegrated mining, milling and smelting operations located in Missouri. Therecycling operations segment, located in Missouri, recycles lead-bearingmaterials, primarily spent batteries. The fabricated products segment producesvalue-added lead products. Doe Run Peru produces an extensive product mix ofnon-ferrous and precious metals.

 
| ** **                                   | ** ** | **Three Months Ended****April 30,** | ** ** | **Six Months Ended****April 30,** | ** ** |
|----------------------------------------------|------------|------------------------------------------|------------|----------------------------------------|------------|
| ** **                                   | ** ** | **2004**                                 | ** ** | **2003**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| *Operating Segments - Revenues*              |       |                                     |       |                                   |       |   |   |   |   |
| Revenues  from external customers:           |       |                                     |       |                                   |       |   |   |   |   |
| Peruvian  operations                         |       | $                                        | 148,004    |                                   | $          | 104,120 |   | $ | 270,977 |   | $ | 206,183 |   |
| Primary  lead                                |       | 48,194                                   |       | 39,191                                 |       | 98,722 |   | 76,050 |   |
| Recycling  operations                        |       | 21,693                                   |       | 16,772                                 |       | 37,762 |   | 32,274 |   |
| Fabricated  products                         |       | 3,340                                    |       | 3,720                                  |       | 6,148 |   | 7,864 |   |
| Total                                        |       | 221,231                                  |       | 163,803                                |       | 413,609 |   | 322,371 |   |
| Revenues  from other operating segments: (1) |       |                                     |       |                                   |       |   |   |   |   |
| Peruvian  operations                         |       | 109                                      |       | 195                                    |       | 109 |   | 438 |   |
| Primary  lead                                |       | 252                                      |       | 269                                    |       | 516 |   | 479 |   |
| Recycling  operations                        |       | 111                                      |       | 197                                    |       | 155 |   | 395 |   |
| Total                                        |       | 472                                      |       | 661                                    |       | 780 |   | 1,312 |   |
| Total  reportable segments                   |       | 221,703                                  |       | 164,464                                |       | 414,389 |   | 323,683 |   |
| Other  revenues/gains (losses) (2)           |       | (5,590                                   | )          | 307                                    |       | (7,964 | ) | 750 |   |
| Intersegment  eliminations                   |       | (472                                     | )          | (661                                   | )          | (780 | ) | (1,312 | ) |
| Total  revenues                              |       | $                                        | 215,641    |                                   | $          | 164,110 |   | $ | 405,645 |   | $ | 323,121 |   |

 

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(1)          Transactions betweensegments consist of metal sales recorded based on sales contracts that arenegotiated between segments on terms that management feels are similar to thosethat would be negotiated between unrelated parties.

(2)          Other revenues consistof metal sales not attributed to operating segments and realized gains (losses)on derivative contracts. Realized losses on derivative contracts in currentyear are due to the effect of higher metal prices on settled positions.

 
| ** **                                                                                                                   | ** ** | **Three Months  Ended   April 30,** | ** ** | **Six Months  Ended   April 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                   | ** ** | **2004**                                 | ** ** | **2003**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| *Operating Segments – Adjusted EBITDA (Earnings  before interest, taxes, and depletion, depreciation and amortization)* |       |                                     |       |                                   |       |   |   |   |   |
| Peruvian operations                                                                                                          |       | $                                        | 9,029      |                                   | $          | 4,130 |   | $ | 10,443 |   | $ | 8,400 |   |
| Primary lead                                                                                                                 |       | 10,193                                   |       | 1,758                                  |       | 19,059 |   | 3,216 |   |
| Recycling operations                                                                                                         |       | 5,136                                    |       | 2,196                                  |       | 7,259 |   | 5,606 |   |
| Fabricated products                                                                                                          |       | 166                                      |       | 163                                    |       | 414 |   | 1,055 |   |
| Total  reportable segments                                                                                                   |       | 24,524                                   |       | 8,247                                  |       | 37,175 |   | 18,277 |   |
| Realized gains (losses)  on derivatives                                                                                      |       | (6,141                                   | )          | 309                                    |       | (8,515 | ) | 389 |   |
| Other revenues and  expenses (3)                                                                                             |       | (1,162                                   | )          | 1,897                                  |       | (3,169 | ) | 1,084 |   |
| Corporate  selling, general and administrative expenses                                                                      |       | (4,335                                   | )          | (2,622                                 | )          | (10,232 | ) | (7,020 | ) |
| Intersegment  eliminations                                                                                                   |       | 5                                        |       | 53                                     |       | 25 |   | (18 | ) |
| Consolidated  adjusted EBITDA                                                                                                |       | 12,891                                   |       | 7,884                                  |       | 15,284 |   | 12,712 |   |
| Depreciation,  depletion and Amortization                                                                                    |       | (6,207                                   | )          | (7,994                                 | )          | (12,672 | ) | (15,941 | ) |
| Interest  income                                                                                                             |       | 4                                        |       | 5                                      |       | 11 |   | 16 |   |
| Interest  expense                                                                                                            |       | (3,414                                   | )          | (3,486                                 | )          | (6,598 | ) | (6,551 | ) |
| Unrealized  gain (loss) on derivatives                                                                                       |       | 4,084                                    |       | 489                                    |       | (940 | ) | 586 |   |
| Other                                                                                                                        |       | (1,039                                   | )          | (888                                   | )          | (2,046 | ) | (1,318 | ) |
| Income  (loss) before income taxes                                                                                           |       | $                                        | 6,319      |                                   | $          | (3,990 | ) | $ | (6,961 | ) | $ | (10,496 | ) |

 

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(3)          Other revenues andexpenses include expenses not allocated to operating segments, includingenvironmental expenses relating to historic operations, and adjustmentsnecessary to state the primary lead and recycling operation’s inventories atLIFO cost.

 

**(7)****                     AssetRetirement and EnvironmentalObligations**

 

The Company is subject to numerous federal, state andlocal environmental laws and regulations governing, among other things, airemissions, wastewater discharges, solid and hazardous waste treatment, storageand disposal and remediation of releases of hazardous substances.  The Company’s facilities are located on sitesthat have been used for heavy industrial purposes for decades and may requireremediation.  The Company has made andintends to continue making the necessary expenditures for environmentalremediation and compliance with environmental laws and regulations.  Environmental laws and regulations may becomemore stringent in the future which could increase costs of compliance.

 

***Asset Retirement Obligations***

 

On November 1, 2002 the Company adopted StatementNo. 143 *“Accounting for Asset RetirementObligations”*  (Statement No.143). With the adoption of this Statement, asset retirement obligations (AROs)are recognized as liabilities when incurred, with the initial measurement atfair value.  These liabilities will beaccreted to full value over time through charges to income.  In addition, an asset retirement cost iscapitalized as part of the related asset’s carrying value and will bedepreciated over the asset’s useful life.

 

The Company’s mines andrelated processing facilities are subject to governance by various agenciesthat have established minimum standards for reclamation.  The Company’s primary smelter slag producedby and stored at the primary smelter in Herculaneum, Missouri is currentlyexempt from hazardous waste regulation under the Resource Conservation andRecovery Act of 1976, as amended (RCRA), but is subject to a state closurepermit, which requires activities to contain and cover the pile upon cessationof operations.  The Company’s mining andmilling operations are subject to Missouri mine waste closure permit requirementsand lease agreements which require the Company to reclaim surface areas,including remediation of mining waste disposal areas, and to perform closureactivities underground.  Theseactivities, which tend to be site specific, generally include costs forearthwork, revegetation, water treatment and demolition.  Closure activities may be performed overtime.

 

The Company has a RCRA permit addressing the closureof portions of its recycling operations. The majority of the cost will arise from removing hazardous materialsfrom the facility. No ARO liability or related asset cost has been recorded,because the fair value of the obligation cannot be determined, due to theindeterminate timing. The cost of closure, based on third party estimates forbonding purposes, is approximately $3,000. The life of the operation is considered indeterminable because there isnot currently a cost-effective alternative to the lead acid battery and becausebattery manufacturers are required to recycle the batteries.

 

Doe Run Peru also has AROs at its Cobriza mine,related to the costs associated with closing the mine openings and coveringacid rock.  Doe Run Peru is alsoresponsible for the covering and revegetation of mixed lead and copper slagstored in Huanchan, an area a short distance from the smelter where the slag iscurrently stored.

 

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The Company’s total recorded liability for AROs wasapproximately $15,100 and $14,600 as of April 30, 2004 andOctober 31, 2003, respectively.

 

***Environmental remediation - DomesticOperations***

 

Doe Run is subject to a voluntary Administrative Orderon Consent (AOC), effective May 29, 2001, to study and address issues relatedto the slag pile, plant property, community soils adjacent to the primarysmelter in Herculaneum, elevated blood lead levels in the community and leadreleases from the plant.

 

Under this AOC Doe Run completed additional soiltesting in the area within a mile radius of the smelter, and subsequentlysigned a second AOC with the U.S. EPA on December 21, 2001, which hasessentially been completed.  The May 29,2001 AOC was modified effective on May 20, 2004.  The modification accelerated the number ofproperties to be remediated in 2004.  Theestimated costs of remediating these properties is approximately $1,740 to bespent in 2004, and $380 in the following year. The estimated costs for the properties to be completed after 2004assumes the use of phosphate treatment to stabilize them.  If the use of such treatment is not acceptedby the EPA, costs of remediation will be higher than those currently estimated.

 

Doe Run signed a Settlement Agreement with the Stateof Missouri on April 26, 2002 whereby it agreed to offer to purchaseapproximately 160 residential properties in an area close to the smelter if theowner requests such an offer.   Under theterms of the voluntary property purchase plan, Doe Run immediately extendedoffers to the owners of twenty-one properties having children less than 72months old living in them. All of these owners have requested offers and allbut two have accepted offers. Of the remaining one hundred thirty-ninehomeowners, those that request an offer must be extended offers by the end of2004.  The homeowners have untilJune 30, 2005 to accept any offers made. The amount paid to the homeownerswho accept an offer is based on an appraisal of the property’s value atAugust 31, 2001, plus, if a replacement property is purchased, an amountfor owner-occupied residences representing the lesser of the difference betweenthe appraisal amount and the cost of a similar property in another designatedcommunity or the difference between the appraisal amount and the replacementproperty.

 

As of July 31, 2004, a total of one hundredtwenty-five homeowners have requested offers, and seventy-five of one hundredseventeen delivered offers had been accepted. As of July 31, 2004, theCompany had spent approximately $4,000 under the voluntary property purchaseplan, with another $2,000 in accepted offers awaiting a closing date, and$3,500 in outstanding offers. Management cannot estimate how many of theremaining homeowners will request offers, or, if offers are requested andaccepted, what price will be paid for the related property.

 

Doe Run will attempt to rent out certain purchasedproperties, once approval is received by the regulatory agencies.  The properties must remain vacant while ownedby Doe Run until regulators and the city agree that re-occupancy is not a riskto human health.  Management believes thatthere is current evidence that no health risk exists as a result of smelteroperations, due to soil remediation efforts and low concentrations of lead inthe air in the buyout area, and that other sources of lead contamination couldbe remedied.  Based on an analysis ofinformation currently available, Doe Run believes it should ultimately be ableto rent or sell the properties.  If DoeRun does not comply with the material property purchase provisions of thesettlement agreement, Doe Run will be subject to a $1,000 penalty.

 

The Company’s statement of operations reflects animpairment loss that is primarily related to properties owned in Herculaneum,as approval for reoccupancy of the properties has not yet been received and itcannot be assured that the cost of the properties will be recovered throughfuture cash flows.  If the cost of theproperty cannot be recovered through future cash flows, additional impairmentlosses will be recognized as properties are purchased. The Company’s recordedliability for remediation does not include the future purchase costs relatingto the voluntary property purchase plan, as these costs are capitalized.

 

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Doe Run has implemented a plan with the Missouri DNRand the Missouri Air Conservation Commission to bring the Herculaneum smelterin compliance with the ambient air quality standard for lead promulgated underthe federal Clean Air Act.  The plan wasincluded in a consent judgment entered into by Doe Run and has been approved atthe state level and by the U.S. EPA. The air quality monitors have reflectedcompliance since July 2002.

 

Doe Run has receivednotice that it is a potentially responsible party (PRP) subject to liabilityunder The Comprehensive Environmental Response, Compensation and Liability Actof 1980, as amended (CERCLA) at the following sites: six sites in St. FrancoisCounty, Missouri, including the Big River Mine Tailings site, the Bonne Terresite, the Federal site, the National site, the Rivermines site and the Leadwoodsite; the Oronogo-Durenweg site in Jasper County, Missouri; the Cherokee Countysite in Cherokee County, Kansas; the Tar Creek site in Ottawa County, Oklahoma;the Block “P” site in Cascade County, Montana; and the Missouri Electric Workssite in Cape Girardeau, Missouri.  Thereare two additional sites in St. Francois County for which the EPA has indicatedit will issue notice.  CERCLA providesfor strict and, in certain circumstances, joint and several liability forresponse costs and natural resource damages. The Company’s estimate of the cost of this remediation is approximately$9,800 for these sites, including the two additional sites in St. FrancoisCounty, which the Company believes is adequate based on its investigations todate.  However, depending upon the typesof remediation required and certain other factors, costs at these sites,individually or collectively, could have a material adverse effect on theresults of operations, financial condition and liquidity of the Company. InFebruary 2004 the U.S. Department of Agriculture issued a UnilateralAdministrative Order ordering certain remediation activities by Doe Run at theBlock “P” millsite. Doe Run has requested that other parties be added to theorder.  Doe Run will seek reimbursementfrom the U.S. Government and these other parties.

 

Doe Run has completed an Engineering Evaluation/CostAnalysis (EE/CA) for the Bonne Terre site, and has signed two AOCs to conductremoval actions on the west and east portions of the site.   Work is completed on the West Bonne Terresite and is underway on the east side with completion expected in 2005.

 

Doe Run is subject to a voluntary AOC with the EPA toremediate the Big River Mine Tailings site. The remediation work required by the AOC has been substantiallycompleted, and will continue with revegetation and ongoing monitoring andmaintenance activities.

 

Doe Run has also signed AOCs to perform an EE/CA oneach of the National, Rivermines, and Leadwood sites for remediation of minewaste areas.  The National EE/CA iscomplete, the Rivermines EE/CA is under public review and has been submitted tothe EPA for approval, and the Leadwood EE/CA is due by the end of fiscal 2004.In addition, Doe Run has signed an AOC with the EPA to conduct a RemedialInvestigation/Feasibility Study (RI/FS) to assess potential off-site impacts ofthese site operations on and the need for remediation regarding groundwater,residential soils, several creeks and a river. The initial draft of the RI/FS was submitted in earlyMarch 2002.  Doe Run signed an orderto conduct interim measures which consisted of blood lead testing of youngchildren, residential soil sampling, and limited soil remediation as indicatedby the testing and sampling results, which was terminated and replaced by anAOC to conduct certain additional soil remediation in the area and has includedits best estimate of these efforts in its recorded liabilities.  The Company believes the recorded liabilitiesrelated to these sites are adequate. However, should remediation goals or areas change, requiringsubstantially increased measures, there can be no assurance that the recordedliabilities would be adequate.

 

In March 2004, Doe Run received notice that it isa PRP subject to liability under CERCLA for contamination along roads in Iron,Dent and Reynolds counties in Missouri, along with a number of mining companiesinvolved in the transportation of concentrates. Approximately 412 houses wereidentified as potentially requiring remediation. Doe Run expects that its shareof the potential remediation costs will not be significant, based onmanagement’s estimates of the number of houses requiring remediation,remediation methods and Doe Run’s apportionment of the costs.

 

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Doe Run has been advised that the EPA is consideringtaking certain response actions at a mine site in Madison County, Missouriknown as the Mine LaMotte Site.  Doe Runand the owner of the other 50% share of stock in the company that mined thesite have signed an AOC to conduct an RI/FS at the site.  This site is substantially smaller than thesites in St. Francois County where the Company has been named a PRP, and thepotential issues are less complex.  DoeRun has also been advised that remediation is required at a related smallsatellite mine site.  After conducting aninvestigation, Doe Run has determined that it was not involved in operations atthe satellite site, but further review will be required before a determinationcan be made as to whether it has any liability at the main site.  At this time, based on preliminaryinformation and an inspection of the sites, management does not believe thatany future action will result in a material adverse impact to the results ofoperations, financial condition or liquidity of the Company.

 

Doe Run’s recycling facility is subject to correctiveaction requirements under RCRA as a result of a storage permit for certainwastes issued in 1989.  This will involveremediation of solid waste management units at the site, although the plan forcorrective action will not be finalized until late in fiscal 2004. TheCompany’s estimate of the cost of this corrective action is $2,000.  The storage area is also covered under thepermit, but management does not believe the cost of closure issignificant.  While management believesthat recorded liabilities are adequate based on expectations of the closureplan requirements, regulators could require that additional measures beincluded in the finalized plan, which could change the estimate of the costsfor corrective action.

 

On August 25, 2004, the EPA issued a Notice ofViolation (“NOV”) to the Company alleging past violations of the recyclingfacility’s air permit conditions regarding production limits for itsreverbatory furnace. Management believes the facility has operated incompliance with state and federal air requirements and will contest theNOV.  If the EPA prevails, there is areasonable possibility that fines based on this action could have a materialadverse effect on the Company’s liquidity or results of operations.

 

The domestic operating facilities have wastewaterdischarge permits issued under the federal Clean Water Act, as amended.  Doe Run currently meets the effluent limitsunder these permits, but if compliance were not maintained, additionalimprovements to its treatment facilities could be required.

 

The Company had recorded liabilities of approximately$13,700 and $14,400 related to these remediation obligations as ofApril 30, 2004 and October 31, 2003, respectively.

 

***Foreign Operations***

 

Metaloroya S.A., the former owner of the La Oroyasmelter, at the time a subsidiary of Centromin, received approval from thePeruvian government for an Environmental Adjustment and Management Program (PAMA)that consisted of an environmental impact analysis, monitoring plan and data,mitigation measures and closure plan. Doe Run Peru assumed the obligationsunder the PAMA. The PAMA also sets forth the actions and corresponding annualinvestments the concession holder agrees to undertake in order to achievecompliance with the maximum permissible limits prior to expiration of the PAMA(ten years for smelters, such as Doe Run Peru’s operations in La Oroya, andfive years for any other type of mining or metallurgical operation likeCobriza). Once approved, the PAMA, as modified from time to time, functions asthe equivalent of an operating permit with which the operator must comply.After expiration of the PAMA, the operator must comply with all applicable standardsand requirements. Future changes in legal rules and maximum permissible levelswould not be applicable to Doe Run Peru for the remaining period of La Oroya’sPAMA, except for certain closure requirements. Because these costs improve theproperty or prevent future environmental contamination, they are capitalized.

 

Doe Run Peru has committed under its PAMA to implementthe following projects at its La Oroya smelter through December 31, 2006:

 

•            New sulfuric acid plants

 

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•            Treatment plant for the copper refinery effluent

•            Industrial wastewater treatment plant for the smelterand refinery

•            Improve the slag handling system

•            Improve Huanchan lead and copper slag deposits

•            Build an arsenic trioxide deposit

•            Improve the zinc ferrite disposal site

•            Domestic wastewater treatment and domestic wastedisposal

•            Monitoring station

 

Estimated annual spending on a calendar year basis forthe projects approved in the La Oroya PAMA, as amended, most recently onJanuary 25, 2002, are as follows:

 

| **Year** | ** ** | **Estimated  Cost** | ** ** |
|----------|------------|---------------------|------------|
|     |       |                |       |
| 2004     |       | 12,800              |       |
| 2005     |       | 53,500              |       |
| 2006     |       | 67,700              |       |
|     |       | $                   | 134,000    |   |
|          |            |                     |            |  |

 

The current estimate for the total to be expended onenvironmental projects under the PAMA and on additional related process changesfor Doe Run Peru is approximately $168,000 for the remaining term of the PAMA.The investment schedule in the PAMA provides a specific plan for achievingthe applicable Ministry of Energy and Mines (MEM) maximum permissible limitspertaining to air emissions and wastewater effluent quality. The PAMA may bemodified and amended as to the actual design and timing of projects to beimplemented, provided compliance with the applicable maximum permissible limitsis achieved by December 31, 2006. Although the PAMA currently requires DoeRun Peru to begin construction of certain sulfuric acid plants in 2005,estimated to cost approximately $107,500, in order to reduce emissions, Doe RunPeru is also proceeding with efforts to identify alternative methods of achievingcompliance. These efforts include, but are not limited to, reducing orcurtailing production from a portion of the plant thus eliminating the need forthe equipment presently contemplated and replacing it with another alternative.These efforts must take into consideration the impacts on profitability andliquidity, as well as other economic impacts. Doe Run Peru submitted a requestto MEM in July 2004 to modify the requirements of the existing PAMA.Although the required compliance date under the proposal would be extended,total spending would be approximately $22,000 higher than what is currentlyrequired under the existing PAMA, with an estimated cost of approximately$143,000 over the calendar years 2005-2011. There can be no assurance that thePeruvian government will approve the alternatives or that they will achievecompliance in the timeframe required by the PAMA. If the requested PAMAmodification is not approved, Doe Run Peru may not be in compliance with therequirements of the PAMA investment schedule in 2005 and could be subjectto penalties. If the requested PAMA modification is not approved and the LaOroya smelter does not comply with the investment schedule of the PAMA ordoes not operate within the current PAMA limits after December 31, 2006,Doe Run Peru could be forced to cease or curtail operations at the La Oroyasmelter.

 

Doe Run Peru’s operations historically and currentlyexceed some of the applicable MEM maximum permissible limits pertaining to airemissions, ambient air quality and wastewater effluent quality. The PAMAprojects have been designed to achieve compliance with such requirements priorto the expiration of the PAMA on December 31, 2006. No assurance can begiven that implementation of the PAMA projects is feasible or that theirimplementation will achieve compliance with the applicable legal requirementsby the end of the PAMA period. Further, there can be no assurance that thePeruvian government will not in the future require compliance with 

 

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additional or different environmental obligations thatcould adversely affect Doe Run Peru’s business, financial condition or resultsof operations.

 

Under the purchase agreement related to theacquisition of the La Oroya assets in October 1997, Centromin, the priorowner of the La Oroya smelter and Cobriza mine, agreed to indemnify Doe RunPeru against environmental liability arising out of its prior operations andtheir apportioned share of any other complaint related to emissions.Discussions are being held with Centromin regarding the modification discussedabove. Performance of the indemnity has been guaranteed by the Peruviangovernment through the enactment of the Supreme Decree No. 042-97-PCM. However,there can be no assurance that Centromin will satisfy its environmentalobligations and investment requirements, including those in its PAMA, or thatthe guarantee will be honored. Any failure by Centromin to satisfy itsenvironmental obligations could adversely affect Doe Run Peru’s business,financial condition or results of operations.

 

The Cobriza mine has a separate PAMA in which Doe RunPeru has committed to complete projects to manage tailings, mine drainage,sewage and garbage. As of June 2004, Doe Run Peru ceased discharging minewaste into the Mantaro River, and was in compliance with the emissionsstandards required by the PAMA. Doe Run Peru will have ongoing projects,including a mine water treatment system and the production of surface pastefill from tailings that it expects to complete in August 2004.

 

Doe Run Peru is responsible for the remediation costsrelating to a zinc ferrite disposal site. The current closure plan provides forencapsulating the ferrite residues in place at Huanchan, an area a short distancefrom the smelter where they are currently stored, for which an environmentalliability of $1,600 has been recorded as of April 30, 2004 andOctober 31, 2003.

 

***Consolidated***

 

The Company believes its recorded liabilities fordomestic and foreign environmental, mine closure and reclamation matters areadequate, based on the information currently available.  Depending upon the type and extent ofactivities required, revisions to management’s estimates of costs to performthese activities are reasonably possible in the near term.  Therefore, there can be no assurance thatadditional costs, both individually and in the aggregate, would not have amaterial adverse effect on the results of operations, financial condition andliquidity of the Company.

 

**(8)****                     Litigation**

 

Doe Run is a defendant in eight lawsuits allegingcertain damages stemming from the operations at the Herculaneum smelter.  Three of these cases are class actionlawsuits.  In two cases, the plaintiffsseek to have certified a class of property owners in a certain section ofHerculaneum, alleging that property values have been damaged due to theoperations of the smelter.  In anothercase, plaintiffs seek to have certified a class of children who lived inHerculaneum during a period of time when they were less than six years old andchildren born to mothers who lived in Herculaneum during theirpregnancies.  The remedy sought ismedical monitoring for the class.  Fiveof the cases are personal injury actions by 24 individuals who allege damagesfrom the effects of lead due to operations at the smelter.  Punitive damages also are being sought ineach case.

 

A resident of Herculaneum has claimed personalinjuries allegedly resulting from exposure to emissions from the smelter.  No suit has yet been filed in this matter.

 

Doe Run is a defendant in five lawsuits allegingcertain damages from discontinued mine facilities in St. Francois County.  Four of the cases are class actionlawsuits.  The first case seeks to havecertified a class consisting of property owners in Bonne Terre, Missouri,alleging that property values have been damaged due to the tailings from thediscontinued operations.  In the secondcase plaintiffs seek to have certified a class of children who lived, went toschool or day care in Bonne Terre, or whose mothers lived in Bonne Terre duringtheir pregnancies.  The

 

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third and fourth cases are class actions for propertydamage and medical monitoring concerning alleged damages caused by chat,tailings, and related operations in six areas in St. Francois County.  The fifth case alleges personal injury to twochildren living in St. Francois County.

 

Doe Run has been named in eight suits filed byfifty-nine railway employees against a railroad carrier and multiple leadmining companies alleging personal injury resulting from exposure to leadconcentrates hauled by the railroad carrier. The railroad carrier has alsothreatened Doe Run with possible legal action for claims for indemnity allegedlyarising out of contracts with Doe Run or its predecessors for payments that therailroad has made in regard to personal injury claims against the railroad byrailway workers and others, including those made in 114 cases previouslysettled by Doe Run.   Doe Run iscurrently in the process of investigating these claims.

 

This railroad carrier hasalso communicated to Doe Run that it intends to seek contribution from Doe Runfor cleanup actions at a rail car clean-out area that the carrier was orderedto take by the federal government.   Thecarrier pled guilty to a felony and paid a criminal fine for its actions.  It is Doe Run’s position that Doe Run cannotbe held liable for another’s criminal actions. No lawsuit has been filed.

 

Doe Run is a defendant in lawsuitsalleging certain damages from past mining operations in Ottawa County,Oklahoma.  Ten lawsuits have been filed alleging personal injuryto twenty-five children and one adult living in Ottawa County against eightcompanies, including Doe Run, who allegedly, either through predecessors orsubsidiaries, mined lead and zinc in Ottawa County or commercially used thechat or tailings in Ottawa County.   Fiveof these suits were dismissed leaving claims alleged by seven children. Onecase is a class action lawsuit for personal injury and property damage inOttawa County. An additional class action lawsuit for damages to naturalresources and land owned by members of the Quapaw Tribe was filed onDecember 10, 2003 against seven companies, including Doe Run. Sixindividuals filed an additional class action lawsuit against six companies,including Doe Run, in Ottawa County, Oklahoma on February 9, 2004.  The Company is unable at this time toestimate the expected outcome and any final costs of this action. Twoadditional cases alleging personal injury to forty-five children and threechildren, respectively, were filed in July 2004.

 

Doe Run, with several other defendants, has been namedin four cases in Maryland, but has not yet been joined as a defendant in any ofthese cases.  These suits seek damages,alleging personal injuries as a result of lead poisoning from exposure to leadpaint and tetraethyl lead dust.  Thesuits seek punitive damages.  Doe Run wasdismissed from two similar cases in which it was joined as a defendant.  Until Doe Run is actually joined as adefendant in one or more of these cases, material liability from these cases isconsidered remote.

 

Doe Run and several other parties were nameddefendants in a suit brought by the City of St. Louis, Missouri for costsallegedly incurred and to be incurred by the plaintiff for the care oflead-poisoned persons, education programs for children injured by exposure tolead and the abatement of lead hazards purportedly created by the defendants inthe City of St. Louis.  Doe Run wasdismissed from the case in June 2004.

 

Doe Run has been named in an asbestos injury suit byan individual against numerous companies, alleging that they were exposed toasbestos, including at the St. Joe Minerals Corporation (Doe Run’s predecessor)premises but has not been served with a complaint.  Doe Run was served a Writ of Summons in asecond case filed in Pennsylvania in May 2003 but has not yet been served witha complaint, so few details of the case are known, including the allegedlocation of the exposure.

 

Doe Run has been named in a suit claiming allegeddamages to the property of a small business in the vicinity of Doe Run’srecycling facility.  Because the facilitymeets the required national ambient air standard for lead and given the scopeof any potential economic loss as measured by property values in the area, itis not probable that such a claim would have a material impact on Doe Run.

 

Doe Run has been named as a party in various lawsuitsrelating to certain operations of its predecessor.  Fluor Corporation, the owner of Doe Run’spredecessor, retained the obligation for any costs of defense or claims

 

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relating to these lawsuits.  Should Fluor Corporation become unable tofulfill its contractual obligation, Doe Run could be liable for any costs orclaims resulting from these lawsuits. There is no reason at this time to believe that Fluor Corporation couldnot fulfill its contractual obligations.

 

Doe Run Peru is adefendant in seventy-two lawsuits in the Lima, Peru labor courts.  All lawsuits allege that workers havecontracted lung disease from working at the mining facilities.  Doe Run Peru has made claims in most of thecases against Centromin, the prior owner, and has also made claims against bothgovernmental agencies and private companies that provide workers’insurance.  The average claim is$17.  In one of the seventy-two pendingcases, the lower court has issued a decision in which it awarded just 40% ofthe claim, with Doe Run Peru to pay 25% of the award and Centromin the rest.

 

On December 26,2003, the Peru tax authority, SUNAT notified Doe Run Peru of an income taxassessment for the 1998 tax year.  Theassessment primarily relates to Doe Run Peru’s income tax treatment of theDecember 1997 merger of Doe Run Peru and Metaloroya S.A., which waspurchased by Doe Run Peru in October 1997. Under the assessment by SUNAT, the tax basis of Doe Run Peru’s fixedassets acquired would decrease, resulting in lower tax depreciation expensethan originally claimed and additional income taxes due.

 

Under the assessment, thereduction in depreciation would result in additional taxes of approximately$6,600, plus penalties and interest of $10,200 through July 31, 2004 forthe 1998 tax year.  For tax years after1998, the Company estimates that additional taxes of approximately $5,700 wouldbe due related to the decrease in the amount of depreciation originally claimedplus penalties and interest of approximately $23,900 through July 31, 2004in the event SUNAT would prevail. Interest would also be assessed on theprepayments of taxes that were not made as a result of the depreciationdeductions taken by Doe Run Peru in the years affected, estimated at approximately$6,200 through July 31, 2004. Currently, SUNAT is reviewing tax years 1999, 2000 and 2001.

 

Furthermore, Doe Run Peruwould also be required to make additional workers’ profit sharing paymentsequal to 8% of the increase in taxable income generated by the change discussedabove, or approximately $3,500.

 

Management of the Company believes that Doe Run Peruhas followed the applicable Peruvian statutes and intends to pursue allavailable administrative and judicial appeals. Doe Run Peru is not required to make any payments pending theadministrative appeal process.  If DoeRun Peru is not successful in the administrative appeals process and were toappeal in the judicial system, some type of financial assurance would berequired.

 

Since most of the above cases are either in thepleading or discovery stages, the Company is unable at this time to estimatethe expected outcome and the final costs, except as noted, of theseactions.  Therefore, there can be noassurance that these cases would not have a material adverse effect, bothindividually and in the aggregate, on the results of operations, financialcondition and liquidity of the Company. The Company has and will continue to vigorously defend itself againstsuch claims.

 

**(9)****                     Subsequent Events**

 

On May 7, 2004, Doe Run received a notice of defaultfrom the trustee of the 11.75% Notes that it is in default of the indenturerequirements. The notice gave Doe Run 30 days from the date of receipt of thenotice to remedy such defaults by filing its quarterly and annual reports forthe 2003 fiscal year with the SEC and to provide a written statement from theCompany’s independent certified public accountants indicating whether anydefaults have come to their attention. The defaults were remedied in thetimeframe required.

 

On July 1, 2004, Doe Run received a similarnotice for the quarterly report for the quarter ended January 31, 2004from the trustee of the 11.75% Notes. If the default is not remedied within 30days of the receipt of the notice, the trustee may declare all unpaid principaland interest immediately payable. The default was remedied in the timeframerequired.

 

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**(10)****              GuarantorSubsidiaries**

 

The Guarantor Subsidiaries (Fabricated Products, Inc.(FPI) and DR Land Holdings, LLC (together, the Domestic Guarantors) BuickResource Recycling Facility, LLC, Doe Run Cayman Ltd. (Doe Run Cayman) and itssubsidiary Doe Run Peru) have jointly and severally, fully, unconditionally andirrevocably guaranteed the Unsecured Notes, Secured Notes and 11.75% Notes ofthe Company. Doe Run Cayman has no operations separate from those of Doe RunPeru. Separate financial statements and other disclosures concerning certainGuarantor Subsidiaries and disclosures concerning non-Guarantor Subsidiarieshave not been presented because management has determined that such informationis not material to investors. Intercompany transactions eliminated inconsolidation consist of various service and agency fees between Doe Run andDoe Run Peru and sales of metal to Doe Run by Doe Run Peru and to FPI by DoeRun.

 

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** **

**(****10****)****             ****Guarantor Subsidiaries(continued)**

** **

**Condensed Consolidating Balance Sheet (unaudited)**

**As of April 30, 2004**

 
| ** **                                                                                   | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| **ASSETS**                                                                                   |
| Current  assets:                                                                             |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cash                                                                                         |       | $                                                   | —     |                                          | $          | —                   |       | $                                   | —     |             | $          | 4,877            |       | $ | — |   | $ | 4,877 |   |
| Trade  accounts receivable, net of allowance for doubtful accounts                           |       | 39,582                                              |       | —                                        |       | 2,627                    |       | 13,859                              |       | (225             | )          | 55,843           |       |
| Inventories                                                                                  |       | 37,925                                              |       | —                                        |       | 1,098                    |       | 69,931                              |       | (18              | )          | 108,936          |       |
| Prepaid  expenses and other current assets                                                   |       | 20,762                                              |       | —                                        |       | 94                       |       | 22,567                              |       | —           |       | 43,423           |       |
| Due  from subsidiaries                                                                       |       | 31,595                                              |       | 761                                           |       | —                   |       | —                              |       | (32,356          | )          | —           |       |
| Total  current assets                                                                        |       | 129,864                                             |       | 761                                           |       | 3,819                    |       | 111,234                             |       | (32,599          | )          | 213,079          |       |
| Property,  plant and equipment, net                                                          |       | 78,664                                              |       | 13,157                                        |       | 1,864                    |       | 133,966                             |       | —           |       | 227,651          |       |
| Due  from subsidiaries                                                                       |       | 139,063                                             |       | —                                        |       | —                   |       | —                              |       | (139,063         | )          | —           |       |
| Other  noncurrent assets, net                                                                |       | 4,571                                               |       | —                                        |       | 66                       |       | 189                                 |       | —           |       | 4,826            |       |
| Investment  in subsidiaries                                                                  |       | (17,022                                             | )          | —                                        |       | —                   |       | —                              |       | 17,022           |       | —           |       |
| Total  assets                                                                                |       | $                                                   | 335,140    |                                          | $          | 13,918                   |       | $                                   | 5,749      |             | $          | 245,389          |       | $ | (154,640 | ) | $ | 445,556 |   |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                      |
| Current  liabilities:                                                                        |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Short-term  borrowings and current maturities of long-term debt                              |       | $                                                   | 50,544     |                                          | $          | —                   |       | $                                   | —     |             | $          | 34,400           |       | $ | — |   | $ | 84,944 |   |
| Accounts  payable                                                                            |       | 23,039                                              |       | —                                        |       | 519                      |       | 47,139                              |       | (225             | )          | 70,472           |       |
| Accrued  liabilities                                                                         |       | 63,198                                              |       | —                                        |       | 1,775                    |       | 23,574                              |       | —           |       | 88,547           |       |
| Due  to parent/subsidiaries                                                                  |       | 761                                                 |       | —                                        |       | 8,501                    |       | 23,094                              |       | (32,356          | )          | —           |       |
| Total  current liabilities                                                                   |       | 137,542                                             |       | —                                        |       | 10,795                   |       | 128,207                             |       | (32,581          | )          | 243,963          |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Long-term  debt, less current maturities                                                     |       | 322,019                                             |       | —                                        |       | —                   |       | —                              |       | —           |       | 322,019          |       |
| Due  to parent                                                                               |       | —                                              |       | —                                        |       | —                   |       | 139,063                             |       | (139,063         | )          | —           |       |
| Other  noncurrent liabilities                                                                |       | 68,979                                              |       | —                                        |       | 654                      |       | 3,341                               |       | —           |       | 72,974           |       |
| Total  liabilities                                                                           |       | 528,540                                             |       | —                                        |       | 11,449                   |       | 270,611                             |       | (171,644         | )          | 638,956          |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Series  A redeemable preferred stock                                                         |       | 23,921                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | 23,921           |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Shareholders’  equity (deficit):                                                        |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Common  stock, $.10 par value, 1,667 shares authorized, 1,000 shares issued and  outstanding |       | —                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | —           |       |
| Common  stock, $1 par value, 1,000 shares authorized, issued and outstanding                 |       | —                                              |       | —                                        |       | 1                        |       | —                              |       | (1               | )          | —           |       |
| Common  stock, $1 par value, 2,005,000 shares authorized, issued and outstanding             |       | —                                              |       | —                                        |       | —                   |       | 2,005                               |       | (2,005           | )          | —           |       |
| Additional  paid in capital                                                                  |       | 1,317                                               |       | 16,526                                        |       | 1,205                    |       | —                              |       | (17,731          | )          | 1,317            |       |
| Retained  earnings (accumulated deficit) and accumulated other comprehensive losses          |       | (218,638                                            | )          | (2,608                                        | )          | (6,906                   | )          | (27,227                             | )          | 36,741           |       | (218,638         | )          |
| Total  shareholders’ equity (deficit)                                                   |       | (217,321                                            | )          | 13,918                                        |       | (5,700                   | )          | (25,222                             | )          | 17,004           |       | (217,321         | )          |
| Total  liabilities and shareholders’ equity (deficit)                                   |       | $                                                   | 335,140    |                                          | $          | 13,918                   |       | $                                   | 5,749      |             | $          | 245,389          |       | $ | (154,640 | ) | $ | 445,556 |   |

 

17

----

** **

**(****10****)****             ****Guarantor Subsidiaries(continued)**

** **

**Condensed Consolidating Balance Sheet**

**As of October 31, 2003**

 
| ** **                                                                                   | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| **ASSETS**                                                                                   |
| Current  assets:                                                                             |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cash                                                                                         |       | $                                                   | —     |                                          | $          | —                   |       | $                                   | —     |             | $          | 16,794           |       | $ | — |   | $ | 16,794 |   |
| Trade  accounts receivable, net of allowance for doubtful accounts                           |       | 37,310                                              |       | —                                        |       | 2,590                    |       | 16,982                              |       | (223             | )          | 56,659           |       |
| Inventories                                                                                  |       | 40,432                                              |       | —                                        |       | 1,202                    |       | 54,081                              |       | (35              | )          | 95,680           |       |
| Prepaid  expenses and other current assets                                                   |       | 13,093                                              |       | —                                        |       | 86                       |       | 8,352                               |       | —           |       | 21,531           |       |
| Due  from subsidiaries                                                                       |       | 26,642                                              |       | 371                                           |       | —                   |       | —                              |       | (27,013          | )          | —           |       |
| Total  current assets                                                                        |       | 117,477                                             |       | 371                                           |       | 3,878                    |       | 96,209                              |       | (27,271          | )          | 190,664          |       |
| Property,  plant and equipment, net                                                          |       | 80,086                                              |       | 14,312                                        |       | 2,286                    |       | 133,683                             |       | —           |       | 230,367          |       |
| Due  from subsidiaries                                                                       |       | 139,063                                             |       | —                                        |       | —                   |       | —                              |       | (139,063         | )          | —           |       |
| Other  noncurrent assets, net                                                                |       | 5,174                                               |       | —                                        |       | 66                       |       | 256                                 |       | —           |       | 5,496            |       |
| Investment  in subsidiaries                                                                  |       | (13,506                                             | )          | —                                        |       | —                   |       | —                              |       | 13,506           |       | —           |       |
| Total  assets                                                                                |       | $                                                   | 328,294    |                                          | $          | 14,683                   |       | $                                   | 6,230      |             | $          | 230,148          |       | $ | (152,828 | ) | $ | 426,527 |   |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                      |
| Current  liabilities:                                                                        |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Short-term  borrowings and current maturities of long-term debt                              |       | $                                                   | 40,558     |                                          | $          | —                   |       | $                                   | —     |             | $          | 37,559           |       | $ | — |   | $ | 78,117 |   |
| Accounts  payable                                                                            |       | 16,569                                              |       | —                                        |       | 621                      |       | 31,425                              |       | (223             | )          | 48,392           |       |
| Accrued  liabilities                                                                         |       | 59,258                                              |       | —                                        |       | 2,207                    |       | 23,018                              |       | —           |       | 84,483           |       |
| Due  to parent/subsidiaries                                                                  |       | 371                                                 |       | —                                        |       | 7,604                    |       | 19,038                              |       | (27,013          | )          | —           |       |
| Total  current liabilities                                                                   |       | 116,756                                             |       | —                                        |       | 10,432                   |       | 111,040                             |       | (27,236          | )          | 210,992          |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Long-term  debt, less current maturities                                                     |       | 330,579                                             |       | —                                        |       | —                   |       | —                              |       | —           |       | 330,579          |       |
| Due  to parent                                                                               |       | —                                              |       | —                                        |       | —                   |       | 139,063                             |       | (139,063         | )          | —           |       |
| Other  noncurrent liabilities                                                                |       | 67,511                                              |       | —                                        |       | 760                      |       | 3,237                               |       | —           |       | 71,508           |       |
| Total  liabilities                                                                           |       | 514,846                                             |       | —                                        |       | 11,192                   |       | 253,340                             |       | (166,299         | )          | 613,079          |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Series  A redeemable preferred stock                                                         |       | 22,514                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | 22,514           |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Shareholders’  equity (deficit):                                                        |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Common  stock, $.10 par value, 1,667 shares authorized, 1,000 shares issued and  outstanding |       | —                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | —           |       |
| Common  stock, $1 par value, 1,000 shares authorized, issued and outstanding                 |       | —                                              |       | —                                        |       | 1                        |       | —                              |       | (1               | )          | —           |       |
| Common  stock, $1 par value, 2,005,000 shares authorized, issued and outstanding             |       | —                                              |       | —                                        |       | —                   |       | 2,005                               |       | (2,005           | )          | —           |       |
| Additional  paid in capital                                                                  |       | 2,724                                               |       | 16,062                                        |       | 1,205                    |       | —                              |       | (17,267          | )          | 2,724            |       |
| Accumulated  deficit and accumulated other comprehensive losses                              |       | (211,790                                            | )          | (1,379                                        | )          | (6,168                   | )          | (25,197                             | )          | 32,744           |       | (211,790         | )          |
| Total  shareholders’ equity (deficit)                                                   |       | (209,066                                            | )          | 14,683                                        |       | (4,962                   | )          | (23,192                             | )          | 13,471           |       | (209,066         | )          |
| Total  liabilities and shareholders’ equity (deficit)                                   |       | $                                                   | 328,294    |                                          | $          | 14,683                   |       | $                                   | 6,230      |             | $          | 230,148          |       | $ | (152,828 | ) | $ | 426,527 |   |

 

18

----

** **

**(****10****)****             ****Guarantor Subsidiaries(continued)**

 

**Consolidating Statement of Operations (unaudited)**

**Six Months Ended April 30,  2004**

 
| ** **                                                                | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net  sales                                                                |       | $                                                   | 134,966    |                                          | $          | —                   |       | $                                   | 6,148      |             | $          | 271,086          |       | $ | (6,555 | ) | $ | 405,645 |   |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Costs  and expenses:                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cost  of sales                                                            |       | 114,419                                             |       | —                                        |       | 5,007                    |       | 254,734                             |       | (797             | )          | 373,363          |       |
| Depletion,  depreciation and amortization                                 |       | 4,842                                               |       | 1,619                                         |       | 422                      |       | 5,789                               |       | —           |       | 12,672           |       |
| Selling,  general and administrative                                      |       | 9,858                                               |       | —                                        |       | 1,102                    |       | 11,298                              |       | (5,775           | )          | 16,483           |       |
| Unrealized  (gain) loss on derivatives                                    |       | 1,255                                               |       | —                                        |       | —                   |       | (315                                | )          | —           |       | 940              |       |
| Other                                                                     |       | 2,017                                               |       | 29                                            |       | (1                       | )          | 4                                   |       | —           |       | 2,049            |       |
| Total  costs and expenses                                                 |       | 132,391                                             |       | 1,648                                         |       | 6,530                    |       | 271,510                             |       | (6,572           | )          | 405,507          |       |
| Income  (loss) from operations                                            |       | 2,575                                               |       | (1,648                                        | )          | (382                     | )          | (424                                | )          | 17               |       | 138              |       |
| Other  income (expense):                                                  |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Interest  expense, net                                                    |       | (5,110                                              | )          | —                                        |       | (357                     | )          | (1,120                              | )          | —           |       | (6,587           | )          |
| Other,  net                                                               |       | (446                                                | )          | 419                                           |       | 1                        |       | (486                                | )          | —           |       | (512             | )          |
| Equity  in earnings of subsidiaries                                       |       | (3,980                                              | )          | —                                        |       | —                   |       | —                              |       | 3,980            |       | —           |       |
|                                                                      |       | (9,536                                              | )          | 419                                           |       | (356                     | )          | (1,606                              | )          | 3,980            |       | (7,099           | )          |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before income tax expense                                  |       | (6,961                                              | )          | (1,229                                        | )          | (738                     | )          | (2,030                              | )          | 3,997            |       | (6,961           | )          |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  tax expense                                                       |       | 1,521                                               |       | —                                        |       | —                   |       | —                              |       | —           |       | 1,521            |       |
| Income  (loss) before cumulative effect of change in accounting principle |       | (8,482                                              | )          | (1,229                                        | )          | (738                     | )          | (2,030                              | )          | 3,997            |       | (8,482           | )          |
| Cumulative  effect of change in accounting principle                      |       | —                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | —           |       |
| Net  income (loss)                                                        |       | (8,482                                              | )          | (1,229                                        | )          | (738                     | )          | (2,030                              | )          | 3,997            |       | (8,482           | )          |
| Cumulative  preferred stock dividends                                     |       | (1,407                                              | )          | —                                        |       | —                   |       | —                              |       | —           |       | (1,407           | )          |
| Net  income (loss) allocable to common shares                             |       | $                                                   | (9,889     | )                                             | $          | (1,229                   | )          | $                                   | (738       | )                | $          | (2,030           | )          | $ | 3,997 |   | $ | (9,889 | ) |

 

19

----

** **

**(****10****)****             ****Guarantor Subsidiaries(continued)**

 

**Condensed Consolidating Statement of Operations (unaudited)**

**Three Months Ended April 30, 2004**

 
| ** **                                                                | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net  sales                                                                |       | $                                                   | 67,779     |                                          | $          | —                   |       | $                                   | 3,340      |             | $          | 148,113          |       | $ | (3,591 | ) | $ | 215,641 |   |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Costs  and expenses:                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cost  of sales                                                            |       | 56,435                                              |       | —                                        |       | 2,840                    |       | 136,146                             |       | (469             | )          | 194,952          |       |
| Depletion,  depreciation and amortization                                 |       | 2,359                                               |       | 765                                           |       | 211                      |       | 2,872                               |       | —           |       | 6,207            |       |
| Selling,  general and administrative                                      |       | 4,177                                               |       | —                                        |       | 496                      |       | 5,803                               |       | (3,119           | )          | 7,357            |       |
| Unrealized  gain on derivatives                                           |       | (3,135                                              | )          | —                                        |       | —                   |       | (949                                | )          | —           |       | (4,084           | )          |
| Other                                                                     |       | 1,015                                               |       | —                                        |       | —                   |       | 3                                   |       | —           |       | 1,018            |       |
| Total  costs and expenses                                                 |       | 60,851                                              |       | 765                                           |       | 3,547                    |       | 143,875                             |       | (3,588           | )          | 205,450          |       |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) from operations                                            |       | 6,928                                               |       | (765                                          | )          | (207                     | )          | 4,238                               |       | (3               | )          | 10,191           |       |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Other  income (expense):                                                  |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Interest  expense, net                                                    |       | (2,586                                              | )          | —                                        |       | (182                     | )          | (642                                | )          | —           |       | (3,410           | )          |
| Other,  net                                                               |       | (334                                                | )          | 224                                           |       | 3                        |       | (355                                | )          | —           |       | (462             | )          |
| Equity  in earnings of subsidiaries                                       |       | 2,311                                               |       | —                                        |       | —                   |       | —                              |       | (2,311           | )          | —           |       |
|                                                                      |       | (609                                                | )          | 224                                           |       | (179                     | )          | (997                                | )          | (2,311           | )          | (3,872           | )          |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before income tax expense                                  |       | 6,319                                               |       | (541                                          | )          | (386                     | )          | 3,241                               |       | (2,314           | )          | 6,319            |       |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  tax expense                                                       |       | 956                                                 |       | —                                        |       | —                   |       | —                              |       | —           |       | 956              |       |
| Income  (loss) before cumulative effect of change in accounting principle |       | 5,363                                               |       | (541                                          | )          | (386                     | )          | 3,241                               |       | (2,314           | )          | 5,363            |       |
| Cumulative  effect of change in accounting principle                      |       | —                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | —           |       |
| Net  income (loss)                                                        |       | 5,363                                               |       | (541                                          | )          | (386                     | )          | 3,241                               |       | (2,314           | )          | 5,363            |       |
| Cumulative  preferred stock dividends                                     |       | (782                                                | )          | —                                        |       | —                   |       | —                              |       | —           |       | (782             | )          |
| Net  income (loss) allocable to common shares                             |       | $                                                   | 4,581      |                                          | $          | (541                     | )          | $                                   | (386       | )                | $          | 3,241            |       | $ | (2,314 | ) | $ | 4,581 |   |

 

20

----

** **

**(****10****)****             ****Guarantor Subsidiaries(continued)**

 

**Condensed Consolidating Statement of Operations (unaudited)**

**Six Months Ended April 30, 2003**

 
| ** **                                                                      | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  sales                                                                      |       | $                                                   | 114,487    |                     | $          | 7,864                               |       | $                | 206,621    |             | $          | (5,851 | ) | $ | 323,121 |   |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Costs  and expenses:                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Cost  of sales                                                                  |       | 100,272                                             |       | 5,962                    |       | 193,238                             |       | (1,295           | )          | 298,177          |       |
| Depletion,  depreciation and amortization                                       |       | 9,341                                               |       | 727                      |       | 5,873                               |       | —           |       | 15,941           |       |
| Selling,  general and administrative                                            |       | 6,877                                               |       | 994                      |       | 9,414                               |       | (4,539           | )          | 12,746           |       |
| Unrealized  gain on derivatives                                                 |       | (460                                                | )          | —                   |       | (126                                | )          | —           |       | (586             | )          |
| Other                                                                           |       | 900                                                 |       | —                   |       | —                              |       | —           |       | 900              |       |
| Total  costs and expenses                                                       |       | 116,930                                             |       | 7,683                    |       | 208,399                             |       | (5,834           | )          | 327,178          |       |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) from operations                                                  |       | (2,443                                              | )          | 181                      |       | (1,778                              | )          | (17              | )          | (4,057           | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Other  income (expense):                                                        |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Interest  expense, net                                                          |       | (4,859                                              | )          | (264                     | )          | (1,412                              | )          | —           |       | (6,535           | )          |
| Other,  net                                                                     |       | 199                                                 |       | 5                        |       | (108                                | )          | —           |       | 96               |       |
| Equity  in earnings of subsidiaries                                             |       | (3,485                                              | )          | —                   |       | —                              |       | 3,485            |       | —           |       |
|                                                                            |       | (8,145                                              | )          | (259                     | )          | (1,520                              | )          | 3,485            |       | (6,439           | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before income tax expense                                        |       | (10,588                                             | )          | (78                      | )          | (3,298                              | )          | 3,468            |       | (10,496          | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Income  tax expense                                                             |       | —                                              |       | —                   |       | —                              |       | —           |       | —           |       |
| Income  (loss) before cumulative effect of change in accounting principle       |       | (10,588                                             | )          | (78                      | )          | (3,298                              | )          | 3,468            |       | (10,496          | )          |
| Cumulative  effect of change in accounting principle, net of income tax benefit |       | (3,848                                              | )          | —                   |       | (92                                 | )          | —           |       | (3,940           | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  income (loss)                                                              |       | $                                                   | (14,436    | )                        | $          | (78                                 | )          | $                | (3,390     | )                | $          | 3,468 |   | $ | (14,436 | ) |
| Cumulative  preferred stock dividends                                           |       | (1,264                                              | )          | —                   |       | —                              |       | —           |       | (1,264           | )          |
| Net  income (loss) allocable to common shares                                   |       | $                                                   | (15,700    | )                        | $          | (78                                 | )          | $                | (3,390     | )                | $          | 3,468 |   | $ | (15,700 | ) |

 

21

----

** **

**(****10****)****             ****Guarantor Subsidiaries(continued)**

 

**Condensed Consolidating Statement of Operations (unaudited)**

**Three Months Ended April 30, 2003**

 
| ** **                                                                      | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  sales                                                                      |       | $                                                   | 59,044     |                     | $          | 3,720                               |       | $                | 104,315    |             | $          | (2,969 | ) | $ | 164,110 |   |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Costs  and expenses:                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Cost  of sales                                                                  |       | 51,165                                              |       | 3,063                    |       | 97,830                              |       | (715             | )          | 151,343          |       |
| Depletion,  depreciation and amortization                                       |       | 4,690                                               |       | 367                      |       | 2,937                               |       | —           |       | 7,994            |       |
| Selling,  general and administrative                                            |       | 2,622                                               |       | 495                      |       | 4,749                               |       | (2,308           | )          | 5,558            |       |
| Unrealized  gain on derivatives                                                 |       | (466                                                | )          | —                   |       | (23                                 | )          | —           |       | (489             | )          |
| Other                                                                           |       | 582                                                 |       | —                   |       | —                              |       | —           |       | 582              |       |
| Total  costs and expenses                                                       |       | 58,593                                              |       | 3,925                    |       | 105,493                             |       | (3,023           | )          | 164,988          |       |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) from operations                                                  |       | 451                                                 |       | (205                     | )          | (1,178                              | )          | 54               |       | (878             | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Other  income (expense):                                                        |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Interest  expense, net                                                          |       | (2,667                                              | )          | (121                     | )          | (693                                | )          | —           |       | (3,481           | )          |
| Other,  net                                                                     |       | 282                                                 |       | —                   |       | 87                                  |       | —           |       | 369              |       |
| Equity  in earnings of subsidiaries                                             |       | (2,056                                              | )          | —                   |       | —                              |       | 2,056            |       | —           |       |
|                                                                            |       | (4,441                                              | )          | (121                     | )          | (606                                | )          | 2,056            |       | (3,112           | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before income tax expense                                        |       | (3,990                                              | )          | (326                     | )          | (1,784                              | )          | 2,110            |       | (3,990           | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Income  tax expense                                                             |       | —                                              |       | —                   |       | —                              |       | —           |       | —           |       |
| Income  (loss) before cumulative effect of change in accounting principle       |       | (3,990                                              | )          | (326                     | )          | (1,784                              | )          | 2,110            |       | (3,990           | )          |
| Cumulative  effect of change in accounting principle, net of income tax benefit |       | —                                              |       | —                   |       | —                              |       | —           |       | —           |       |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  income (loss)                                                              |       | $                                                   | (3,990     | )                        | $          | (326                                | )          | $                | (1,784     | )                | $          | 2,110 |   | $ | (3,990 | ) |
| Cumulative  preferred stock dividends                                           |       | (625                                                | )          | —                   |       | —                              |       | —           |       | (625             | )          |
| Net  income (loss) allocable to common shares                                   |       | $                                                   | (4,615     | )                        | $          | (326                                | )          | $                | (1,784     | )                | $          | 2,110 |   | $ | (4,615 | ) |

 

22

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** **

**(****10****)****             ****Guarantor Subsidiaries(continued)**

 

**Condensed Consolidating Statement of Cash Flows (unaudited)**

**Six Months Ended April 30, 2004**

 
| ** **                                                    | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net  cash provided by (used in) operating activities          |       | $                                                   | 4,737      |                                          | $          | 390                      |       | $                                   | (897       | )                | $          | (6,741           | )          | $ | 3,516 |   | $ | 1,005 |   |
| Cash  flows from investing activities:                        |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Purchases  of property, plant and equipment                   |       | (5,092                                              | )          | —                                        |       | —                   |       | (6,073                              | )          | —           |       | (11,165          | )          |
| Investment  in subsidiaries                                   |       | 3,516                                               |       | —                                        |       | —                   |       | —                              |       | (3,516           | )          | —           |       |
|                                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net  cash used in investing activities                        |       | (1,576                                              | )          | —                                        |       | —                   |       | (6,073                              | )          | (3,516           | )          | (11,165          | )          |
|                                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cash  flows from financing activities:                        |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Proceeds  from revolving loans and short-term borrowings, net |       | 2,196                                               |       | —                                        |       | —                   |       | (1,600                              | )          | —           |       | 596              |       |
| Payments  on long-term debt                                   |       | (794                                                | )          | —                                        |       | —                   |       | (1,559                              | )          | —           |       | (2,353           | )          |
| Due  to/due from parent/subsdiaries                           |       | (4,563                                              | )          | (390                                          | )          | 897                      |       | 4,056                               |       | —           |       | —           |       |
| Net  cash provided by (used in) financing activities          |       | (3,161                                              | )          | (390                                          | )          | 897                      |       | 897                                 |       | —           |       | (1,757           | )          |
|                                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net  decrease in cash                                         |       | —                                              |       | —                                        |       | —                   |       | (11,917                             | )          | —           |       | (11,917          | )          |
|                                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cash  at beginning of period                                  |       | —                                              |       | —                                        |       | —                   |       | 16,794                              |       | —           |       | 16,794           |       |
| Cash  at end of period                                        |       | $                                                   | —     |                                          | $          | —                   |       | $                                   | —     |             | $          | 4,877            |       | $ | — |   | $ | 4,877 |   |

 

23

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** **

**(****10****)****             ****Guarantor Subsidiaries(continued)**

 

**Condensed Consolidating Statement of Cash Flows (unaudited)**

**Six Months Ended April 30, 2003**

 
| ** **                                                    | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                          |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  cash provided by (used in) operating activities          |       | $                                                   | (9,406     | )                        | $          | 1,015                               |       | $                | (4,011     | )                | $          | 3,342 |   | $ | (9,060 | ) |
| Cash  flows from investing activities:                        |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Purchases  of property, plant and equipment                   |       | (2,676                                              | )          | (1                       | )          | (5,151                              | )          | —           |       | (7,828           | )          |
| Investment  in subsidiaries                                   |       | 3,342                                               |       | —                   |       | —                              |       | (3,342           | )          | —           |       |
| Net  cash provided by (used in) investing activities          |       | 666                                                 |       | (1                       | )          | (5,151                              | )          | (3,342           | )          | (7,828           | )          |
| Cash  flows from financing activities:                        |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Proceeds  from revolving loans and short-term borrowings, net |       | 15,907                                              |       | —                   |       | 3,300                               |       | —           |       | 19,207           |       |
| Payments  on long-term debt                                   |       | (3,114                                              | )          | —                   |       | (2,143                              | )          | —           |       | (5,257           | )          |
| Payment  of financing costs                                   |       | (338                                                | )          | —                   |       | —                              |       | —           |       | (338             | )          |
| Due  to/due from parent/subsdiaries                           |       | (3,715                                              | )          | (1,014                   | )          | 4,729                               |       | —           |       | —           |       |
| Net  cash provided by (used in) financing activities          |       | 8,740                                               |       | (1,014                   | )          | 5,886                               |       | —           |       | 13,612           |       |
| Net  decrease in cash                                         |       | —                                              |       | —                   |       | (3,276                              | )          | —           |       | (3,276           | )          |
|                                                          |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Cash  at beginning of period                                  |       | —                                              |       | —                   |       | 7,018                               |       | —           |       | 7,018            |       |
| Cash  at end of period                                        |       | $                                                   | —     |                     | $          | —                              |       | $                | 3,742      |             | $          | — |   | $ | 3,742 |   |

 

24

----

 

**DOERUN PERU S.R.L.**

**CondensedConsolidated Balance Sheets**

**(Dollarsin thousands, except per share amounts)**

 
| ** **                                                                    | ** ** | **April 30,  2004** | ** ** | **October 31,  2003** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------|------------|----------------------------|------------|
| ** **                                                                    | ** ** | **(unaudited)**          | ** ** | ** **                 | ** ** |
| **ASSETS**                                                                    |       |                     |       |                       |       |
| Current  assets:                                                              |       |                     |       |                       |       |
| Cash                                                                          |       | $                        | 4,877      |                       | $          | 16,794 |   |
| Trade  accounts receivable, net of allowance for doubtful accounts            |       | 13,859                   |       | 16,982                     |       |
| Inventories                                                                   |       | 69,931                   |       | 54,081                     |       |
| Prepaid  expenses and other current assets                                    |       | 22,567                   |       | 8,352                      |       |
| Total  current assets                                                         |       | 111,234                  |       | 96,209                     |       |
|                                                                          |       |                     |       |                       |       |
| Property,  plant and equipment, net                                           |       | 133,966                  |       | 133,683                    |       |
| Other  noncurrent assets, net                                                 |       | 189                      |       | 256                        |       |
| Total  assets                                                                 |       | $                        | 245,389    |                       | $          | 230,148 |   |
|                                                                          |       |                     |       |                       |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                |       |                     |       |                       |       |
| Current  liabilities:                                                         |       |                     |       |                       |       |
| Short-term  borrowings and current maturities of long-term debt               |       | $                        | 34,400     |                       | $          | 37,559 |   |
| Accounts  payable                                                             |       | 47,139                   |       | 31,425                     |       |
| Accrued  liabilities                                                          |       | 23,574                   |       | 23,018                     |       |
| Due  to parent                                                                |       | 23,094                   |       | 19,038                     |       |
| Total  current liabilities                                                    |       | 128,207                  |       | 111,040                    |       |
|                                                                          |       |                     |       |                       |       |
| Due  to parent                                                                |       | 139,063                  |       | 139,063                    |       |
| Other  noncurrent liabilities                                                 |       | 3,341                    |       | 3,237                      |       |
| Total  liabilities                                                            |       | 270,611                  |       | 253,340                    |       |
|                                                                          |       |                     |       |                       |       |
| Shareholders’  deficit:                                                  |       |                     |       |                       |       |
| Capital  stock, $0.01 par value, 15,912,083,739 shares issued and outstanding |       | 2,005                    |       | 2,005                      |       |
| Accumulated  deficit and other comprehensive loss                             |       | (27,227                  | )          | (25,197                    | )          |
| Total  shareholders’ deficit                                             |       | (25,222                  | )          | (23,192                    | )          |
| Total  liabilities and shareholders’ equity                              |       | $                        | 245,389    |                       | $          | 230,148 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

25

----

 

**DOERUN PERU S.R.L.**

**CondensedConsolidated Statements of Operations (unaudited)**

**(Dollarsin thousands)**

 
| ** **                                                                      | ** ** | **Three Months  Ended April 30,** | ** ** | **Six Months  Ended April 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                      | ** ** | **2004**                               | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| * *                                                                        | * *   | * *                               | * *   | * *                             | * *   | * * | * * | * * | * * |
| Net  sales                                                                      |       | $                                      | 148,113    |                                 | $          | 104,315 |   | $ | 271,086 |   | $ | 206,621 |   |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Costs  and expenses:                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Cost  of sales                                                                  |       | 136,146                                |       | 97,830                               |       | 254,734 |   | 193,238 |   |
| Depletion,  depreciation and amortization                                       |       | 2,872                                  |       | 2,937                                |       | 5,789 |   | 5,873 |   |
| Selling,  general and administrative                                            |       | 5,803                                  |       | 4,749                                |       | 11,298 |   | 9,414 |   |
| Unrealized  (gain)/loss on derivatives                                          |       | (949                                   | )          | (23                                  | )          | (315 | ) | (126 | ) |
| Other                                                                           |       | 3                                      |       | —                               |       | 4 |   | — |   |
| Total  costs and expenses                                                       |       | 143,875                                |       | 105,493                              |       | 271,510 |   | 208,399 |   |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Income  (loss) from operations                                                  |       | 4,238                                  |       | (1,178                               | )          | (424 | ) | (1,778 | ) |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Other  income (expense):                                                        |       |                                   |       |                                 |       |   |   |   |   |
| Interest  expense, net                                                          |       | (642                                   | )          | (693                                 | )          | (1,120 | ) | (1,412 | ) |
| Other,  net                                                                     |       | (355                                   | )          | 87                                   |       | (486 | ) | (108 | ) |
|                                                                            |       | (997                                   | )          | (606                                 | )          | (1,606 | ) | (1,520 | ) |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Income  (loss) before income tax expense                                        |       | 3,241                                  |       | (1,784                               | )          | (2,030 | ) | (3,298 | ) |
|                                                                            |       |                                   |       |                                 |       |   |   |   |   |
| Income  tax expense                                                             |       | —                                 |       | —                               |       | — |   | — |   |
| Income  (loss) before cumulative effect of change in accounting principle       |       | 3,241                                  |       | (1,784                               | )          | (2,030 | ) | (3,298 | ) |
| Cumulative  effect of change in accounting principle, net of income tax benefit |       | —                                 |       | —                               |       | — |   | (92 | ) |
| Net  income (loss)                                                              |       | $                                      | 3,241      |                                 | $          | (1,784 | ) | $ | (2,030 | ) | $ | (3,390 | ) |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

26

----

 

**DOERUN PERU S.R.L.**

**CondensedConsolidated Statements of Cash Flows (unaudited)**

**(Dollarsin thousands)**

 
| ** **                                                                  | ** ** | **Six Months  Ended April 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                  | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| * *                                                                    | * *   | * *                             | * *   | * * | * * |
| Net  cash used in operating activities                                      |       | $                                    | (6,741     | ) | $ | (4,011 | ) |
| Cash  flows from investing activities:                                      |       |                                 |       |   |   |
| Purchases  of property, plant and equipment                                 |       | (6,073                               | )          | (5,151 | ) |
| Net  cash used in investing activities                                      |       | (6,073                               | )          | (5,151 | ) |
| Cash  flows from financing activities:                                      |       |                                 |       |   |   |
| Proceeds  from (payments on) revolving loans and short-term borrowings, net |       | (1,600                               | )          | 3,300 |   |
| Payments  on long-term debt                                                 |       | (1,559                               | )          | (2,143 | ) |
| Loans  with parent                                                          |       | 4,056                                |       | 4,729 |   |
| Net  cash provided by financing activities                                  |       | 897                                  |       | 5,886 |   |
| Net  increase (decrease) in cash                                            |       | (11,917                              | )          | (3,276 | ) |
|                                                                        |       |                                 |       |   |   |
| Cash  at beginning of period                                                |       | 16,794                               |       | 7,018 |   |
| Cash  at end of period                                                      |       | $                                    | 4,877      |   | $ | 3,742 |   |

 

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

27

----

 

**DOERUN PERU S.R.L.**

 

**Notesto Condensed Consolidated Financial Statements**

**(Dollarsin thousands)**

 

**(1)****                     Summaryof Significant Accounting Policies**

 

***Unaudited Interim Financial Statements***

 

These interim consolidated financial statementsinclude the accounts of Doe Run Peru S.R.L. (Doe Run Peru or the Company). Inthe opinion of management, the interim consolidated financial statementscontain all adjustments, consisting of normal recurring accruals, necessary topresent fairly the consolidated financial position as of April 30, 2004and results of operations for the three and six month periods endedApril 30, 2004 and 2003.  Allmaterial intercompany balances and transactions have been eliminated.  Interim periods are not necessarilyindicative of results to be expected for the year.

 

**(2)****                     FinancialCondition**

 

The Company’s auditors issued unqualified opinions onthe 2003 audited financial statements of the Company that expresses substantialdoubt about the Company’s ability to continue as a going concern due toliquidity and other issues related to defaults under its loan agreement,uncertainties related to environmental matters, as well as the Company’srecurring losses.

 

As discussed in Note 5,Doe Run Peru has requested a modification to the PAMA for the La Oroya smelter.Although the required compliance date would be extended under the modification,total spending would be approximately $22,000 higher than what is currentlyrequired, with an estimated cost of approximately $143,000 over the calendaryears 2005-2011

 

Doe Run Peru hasdeveloped a business plan that identifies several revenue generating and costreduction activities. Management believes the plan will enhance liquidity andgenerate the funds to make the investments under the proposed modifications tothe PAMA and to modernize the smelter. Revenue enhancement and cost reductionprojects include the processing of zinc ferrites and an effort to bring morerecycled feed into the smelter. Cost reduction measures include manpowerreductions through voluntary retirement, decreased power usage in the zinccircuit and the closure of the coke plant.

 

Net unused availabilityat April 30, 2004 and October 31, 2003 under the Doe Run PeruRevolving Credit Facility was approximately $5,430 and $3,830,respectively.  In addition to theavailability under its revolving credit facilities, Doe Run Peru also had cashbalances of $4,877 at April 30, 2004 and $16,794 at October 31,2003.  The Company’s long-term liquidityoutlook has improved, due to higher prices, other revenue enhancements and costreductions. As of July 31, 2004, net unused availability was approximately$1,830 under the Doe Run Peru Revolving Credit Facility, and Doe Run Peru hadcash balances of $6,098.  In Peru, highermetal prices resulted in higher initial outlays for concentrate purchases andhigher VAT payments, which resulted in a decrease in availability of borrowingunder its revolving credit agreement, however Doe Run Peru’s working capital increasedbetween April and July 2004. At metal prices higher than 2003averages, but lower than those experienced through the second quarter of 2004,Doe Run Peru’s liquidity should stabilize.

 

28

----

 

**(3)****                     Inventories**

 

Inventories consist ofthe following:

 
| ** **                            | ** ** | **April 30,  2004** | ** ** | **October 31,  2003** | ** ** |
|---------------------------------------|------------|--------------------------|------------|----------------------------|------------|
|                                  |       |                     |       |                       |       |
| Finished  metals and concentrates     |       | $                        | 9,245      |                       | $          | 2,535 |   |
| Metals  and concentrates in process   |       | 48,163                   |       | 39,654                     |       |
| Materials,  supplies and repair parts |       | 12,523                   |       | 11,892                     |       |
|                                  |       |                     |       |                       |       |
|                                  |       | $                        | 69,931     |                       | $          | 54,081 |   |

 

Materials, supplies andrepair parts are stated net of reserves for obsolescence of approximately $911at April 30, 2004 and October 31, 2003.

 

**(4)       Debt**

 

On February 16, 2004, Doe Run Peru entered intoan amendment of its revolving credit facility. The amendment lowered the levelsof net worth Doe Run Peru must comply with from the date of the amendmentthrough September 30, 2004, among other things. Based on currentforecasted results, assuming metal prices higher than those experienced infiscal 2003, management expects to remain in compliance with all covenantsrelating to Doe Run Peru’s revolving credit facility for the foreseeablefuture. The amendment does not cure or waive defaults in existence before thedate of the amendment. The amendment also limits payment of fees to Doe Runthrough September 30, 2004 to $2,800 and $4,000 per calendar yearthereafter. In the event Doe Run Peru’s net worth would fall to a level lowerthan the requirement at the quarterly reporting dates, the amendmentpermanently reduces the amount available under Doe Run Peru’s revolving creditfacility by the amount of the difference between the required and the actualnet worth. If Doe Run Peru is not successful with its administrative appeal ofthe tax assessment discussed in Note 6, the lender can, at its discretion,require that the amount of the assessment reduce net worth as defined in DoeRun Peru’s revolving credit facility amendment. Such reduction along with otherfactors, including metal prices and results of operations, could affect Doe RunPeru’s ability to comply with the net worth requirement.

 

**(5)****                     AssetRetirement and Environmental Obligations**

 

#### ***AssetRetirement Obligations***

 

On November 1, 2002 Doe Run Peru adoptedStatement No. 143 *“Accounting for AssetRetirement Obligations”* (Statement No. 143). With the adoption of this Statement, assetretirement obligations (AROs) are recognized as liabilities when incurred, withthe initial measurement at fair value. These liabilities will be accreted to full value over time throughcharges to income.  In addition, an assetretirement cost is capitalized as part of the related asset’s carrying valueand will be depreciated over the asset’s useful life.

 

Doe Run Peru has AROs at its Cobriza mine, related tothe costs associated with closing the mine openings and covering acidrock.  Doe Run Peru is also responsiblefor the covering and revegetation of mixed lead and copper slag stored inHuanchan, an area a short distance from the smelter where the slag is currentlystored.

 

Doe Run Peru’s total recorded liability for AROs wasapproximately $1,700 and $1,600 as of April 30, 2004 and October 31,2003, respectively.

 

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#### ***EnvironmentalRemediation***

 

Metaloroya S.A., the former owner of the La Oroyasmelter, at the time a subsidiary of Centromin, received approval from thePeruvian government for an Environmental Adjustment and Management Program(PAMA) that consisted of an environmental impact analysis, monitoring plan anddata, mitigation measures and closure plan. Doe Run Peru assumed theobligations under the PAMA. The PAMA also sets forth the actions andcorresponding annual investments the concession holder agrees to undertake inorder to achieve compliance with the maximum permissible limits prior toexpiration of the PAMA (ten years for smelters, such as Doe Run Peru’soperations in La Oroya, and five years for any other type of mining ormetallurgical operation like Cobriza). Once approved, the PAMA, as modifiedfrom time to time, functions as the equivalent of an operating permit withwhich the operator must comply. After expiration of the PAMA, the operator mustcomply with all applicable standards and requirements. Future changes in legalrules and maximum permissible levels would not be applicable to Doe Run Perufor the remaining period of La Oroya’s PAMA, except for certain closurerequirements. Because these costs improve the property or prevent futureenvironmental contamination, they are capitalized.

 

Doe Run Peru has committed under its PAMA to implementthe following projects at its La Oroya smelter through December 31, 2006:

 

•            New sulfuric acid plants

•            Treatment plant for the copper refinery effluent

•            Industrial wastewater treatment plant for the smelterand refinery

•            Improve the slag handling system

•            Improve Huanchan lead and copper slag deposits

•            Build an arsenic trioxide deposit

•            Improve the zinc ferrite disposal site

•            Domestic wastewater treatment and domestic wastedisposal

•            Monitoring station

 

Estimated annual spending on a calendar year basis forthe projects approved in the La Oroya PAMA, as amended, most recently onJanuary 25, 2002, are as follows:

 

| **Year** | ** ** | **Estimated  Cost** | ** ** |
|----------|------------|---------------------|------------|
|     |       |                |       |
| 2004     |       | 12,800              |       |
| 2005     |       | 53,500              |       |
| 2006     |       | 67,700              |       |
|     |       | $                   | 134,000    |   |
|          |            |                     |            |  |

 

The current estimate for the total to be expended onenvironmental projects under the PAMA and on additional related process changesfor Doe Run Peru is approximately $168,000 for the remaining term of the PAMA.The investment schedule in the PAMA provides a specific plan for achievingthe applicable Ministry of Energy and Mines (MEM) maximum permissible limitspertaining to air emissions and wastewater effluent quality. The PAMA may bemodified and amended as to the actual design and timing of projects to beimplemented, provided compliance with the applicable maximum permissible limitsis achieved by December 31, 2006. Although the PAMA currently requires DoeRun Peru to begin construction of certain sulfuric acid plants in 2005, estimatedto cost approximately $107,500, in order to reduce emissions, Doe Run Peru isalso proceeding with efforts to identify alternative methods of achievingcompliance. These efforts include, but are not limited to, reducing orcurtailing production from a portion of the plant thus eliminating the need forthe equipment presently

 

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contemplated and replacing it with anotheralternative. These efforts must take into consideration the impacts onprofitability and liquidity, as well as other economic impacts. Doe Run Perusubmitted a request to MEM in July 2004 to modify the requirements of theexisting PAMA. Although the required compliance date under the proposal wouldbe extended, total spending would be approximately $22,000 higher than what iscurrently required under the existing PAMA, with an estimated cost ofapproximately $143,000 over the calendar years 2005-2011. There can be noassurance that the Peruvian government will approve the alternatives or thatthey will achieve compliance in the timeframe required by the PAMA. If therequested PAMA modification is not approved, Doe Run Peru may not be incompliance with the requirements of the PAMA investment schedule in 2005and could be subject to penalties. If the requested PAMA modification is notapproved and the La Oroya smelter does not comply with the investmentschedule of the PAMA or does not operate within the current PAMA limitsafter December 31, 2006, Doe Run Peru could be forced to cease or curtailoperations at the La Oroya smelter.

 

Doe Run Peru’s operations historically and currentlyexceed some of the applicable MEM maximum permissible limits pertaining to airemissions, ambient air quality and wastewater effluent quality. The PAMAprojects have been designed to achieve compliance with such requirements priorto the expiration of the PAMA on December 31, 2006. No assurance can begiven that implementation of the PAMA projects is feasible or that theirimplementation will achieve compliance with the applicable legal requirementsby the end of the PAMA period. Further, there can be no assurance that thePeruvian government will not in the future require compliance with additionalor different environmental obligations that could adversely affect Doe RunPeru’s business, financial condition or results of operations.

 

Under the purchase agreement related to theacquisition of the La Oroya assets in October 1997, Centromin, the priorowner of the La Oroya smelter and Cobriza mine, agreed to indemnify Doe RunPeru against environmental liability arising out of its prior operations andtheir apportioned share of any other complaint related to emissions.Discussions are being held with Centromin regarding the modification discussedabove. Performance of the indemnity has been guaranteed by the Peruviangovernment through the enactment of the Supreme Decree No. 042-97-PCM. However,there can be no assurance that Centromin will satisfy its environmentalobligations and investment requirements, including those in its PAMA, or thatthe guarantee will be honored. Any failure by Centromin to satisfy itsenvironmental obligations could adversely affect Doe Run Peru’s business,financial condition or results of operations.

 

The Cobriza mine has a separate PAMA in which Doe RunPeru has committed to complete projects to manage tailings, mine drainage,sewage and garbage. As of June 2004, Doe Run Peru ceased discharging minewaste into the Mantaro River, and was in compliance with the emissionsstandards required by the PAMA. Doe Run Peru will have ongoing projects,including a mine water treatment system and the production of surface pastefill from tailings that it expects to complete in August 2004.

 

Doe Run Peru is responsible for the remediation costsrelating to a zinc ferrite disposal site. The current closure plan provides forencapsulating the ferrite residues in place at Huanchan, an area a shortdistance from the smelter where they are currently stored, for which anenvironmental liability of $1,600 has been recorded as of April 30, 2004and October 31, 2003.

 

**(6)*****                    *Litigation**

 

Doe Run Peru is adefendant in seventy-two lawsuits in the Lima labor courts.  All lawsuits allege that workers havecontracted lung disease from working at the mining facilities.  Doe Run Peru has made claims in most of thecases against Centromin, the prior owner, and has also made claims against bothgovernmental agencies and private companies that provide workers’insurance.  The average claim is$17.  In one of the seventy-two pendingcases, the lower court has issued a decision in which it awarded just 40% ofthe claim, with Doe Run Peru to pay 25% of the award and Centromin the rest.

 

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On December 26,2003, the Peru tax authority, SUNAT notified Doe Run Peru of an income taxassessment for the 1998 tax year.  Theassessment primarily relates to Doe Run Peru’s income tax treatment of theDecember 1997 merger of Doe Run Peru and Metaloroya S.A., which waspurchased by Doe Run Peru in October 1997. Under the assessment by SUNAT, the tax basis of Doe Run Peru’s fixedassets acquired would decrease, resulting in lower tax depreciation expensethan originally claimed and additional income taxes due.

 

Under the assessment, thereduction in depreciation would result in additional taxes of approximately$6,600, plus penalties and interest of $10,200 through July 31, 2004 forthe 1998 tax year.  For tax years after1998, the Company estimates that additional taxes of approximately $5,700 wouldbe due related to the decrease in the amount of depreciation originally claimedplus penalties and interest of approximately $23,900 through July 31, 2004in the event SUNAT would prevail. Interest would also be assessed on theprepayments of taxes that were not made as a result of the depreciationdeductions taken by Doe Run Peru in the years affected, estimated atapproximately $6,200 through July 31, 2004.  Currently, SUNAT is reviewing tax years 1999,2000 and 2001.

 

Furthermore, Doe Run Peruwould also be required to make additional workers’ profit sharing paymentsequal to 8% of the increase in taxable income generated by the change discussedabove, or approximately $3,500.

 

Management of the Company believes that Doe Run Peruhas followed the applicable Peruvian statutes and intends to pursue allavailable administrative and judicial appeals. Doe Run Peru is not required to make any payments pending theadministrative appeal process.  If DoeRun Peru is not successful in the administrative appeals process and were toappeal in the judicial system, some type of financial assurance would berequired.

 

Since most of the above cases are either in thepleading or discovery stages, the Company is unable at this time to estimatethe expected outcome and the final costs, except as noted, of theseactions.  Therefore, there can be noassurance that these cases would not have a material adverse effect, bothindividually and in the aggregate, on the results of operations, financialcondition and liquidity of the Company. The Company has and will continue to vigorously defend itself againstsuch claims.

 

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**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

The following discussion and analysis of the threemonths (the 2004 quarter) and the six months (the 2004 period) endedApril 30, 2004 should be read in conjunction with the condensedconsolidated financial statements of The Doe Run Resources Corporation (Doe Runand together with its subsidiaries, the Company) and the notes thereto, andother financial information included herein.

 

***Overview***

 

*Metalprices*

 

Metal prices have risen dramatically in fiscal 2004.Lead prices increased from a London Metal Exchange (LME) settlement monthlyaverage of $532.60 per short ton in October 2003, to $852.40 per short tonin July 2004.  Doe Run has benefitedfrom this price increase in both its lead metal and lead concentrate sales, asaffected by the Company’s risk management strategy.

 

Doe Run Peru’s revenues and feed costs increased as aresult of the price increases, as did inventory and accounts payable as ofApril 30, 2004.

 

*Primarylead operations*

 

In the first fiscal quarter, Doe Run made asignificant change in its primary lead operations in the U.S. In response todeclining demand in the U.S. for lead metal and increasing global demand forclean lead concentrates, Doe Run indefinitely suspended operations at itsGlover smelter in November 2003 and will sell any concentrates on the openmarket that are not required to maintain production at its Herculaneum smelter.

 

Doe Run adjusted its mineproduction plan in the second quarter to take advantage of higher metal prices,including copper recovery equipment that has been installed at our Buickmine/mill to increase copper production by approximately 2,400 tons per year,which should improve cash flow and results of operations. The plan alsoprovides for a change in the mine plan to mine at a lower grade than prior yearin order to optimize Doe Run’s ore reserves.

 

*Recyclingoperations (previously referred to as secondary lead operations)*

 

Due to a tight market forsecondary lead feed, the reduced availability of high lead content feed haschanged the mix of feed processed by the recycling facility, which hasadversely affected production and costs. In addition, the increased demand forsecondary lead feed has resulted in increases in the cost of feed.

 

Process modifications arenear completion to increase the desulfurization capability of the batterybreaking/desulfurization/crystallization (BDC) plant, which will improve thefacility’s capability to process the new feed mix. Production levels areexpected to improve, resulting in an additional 1,500 tons of lead metalproduction a month, and results of operations should improve in the fourthquarter as a result.

 

*Doe RunPeru*

 

In February 2004,Doe Run Peru previewed a plan for comment with the Ministry of Energy andMining with the intent of modifying and extending the PAMA through the end of2011. The modification was submitted in July 2004. The proposal addressesenvironmental impacts related to fugitive emissions and the escape of heavymetal and is intended to meet the health and safety needs of the community.Although the required compliance date under the proposal would be extended,total spending would be approximately $22.0 million higher than what iscurrently required under the existing PAMA, with an estimated cost ofapproximately $143.0 million over the calendar years 2005-2011, whichmanagement expects will be funded by cash from operations; see the discussionof revisions to our business plans below. Although management believes that themodification will be approved, there can be no assurance that the Peruviangovernment will approve the alternatives. If the requested PAMA modification isnot approved, Doe Run Peru may not be in compliance with the requirements ofthe PAMA investment schedule in 2005 and could be subject to penalties. Ifthe requested PAMA modification is not approved Doe Run Peru could be forced tocease or curtail

 

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operations at the LaOroya smelter.

 

To address importantchanges to the custom smelting industry, including the tight market forconcentrates, Doe Run Peru has developed a business plan that identifiesseveral revenue generating and cost reduction activities. Management believesthe plan will enhance liquidity and generate the funds to make the investmentsunder the proposed modifications to the PAMA and to modernize the smelter.Revenue enhancement and cost reduction projects include the processing of zincferrites and an effort to bring more recycled feed into the smelter. Costreduction measures include manpower reductions through voluntary retirement,decreased power usage in the zinc circuit and the closure of the coke plant.

 

# ***Results of Operations***

 

*Impactof Metals Pricing*

 

The recovery of metalprices, which began late in 2003, continued into the second quarter of 2004.The following table sets forth average London Metal Exchange (LME) prices forlead, copper and zinc and the average London Bullion Market Association (LBMA)price for silver for the periods indicated:

 
| ** **             | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **             | ** ** | **2004**                               | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Average  Prices        |       |                                   |       |                                 |       |   |   |   |   |
| Lead  ($/short ton)    |       | 766.40                                 |       | 414.20                               |       | 697.60 |   | 408.20 |   |
| Copper  ($/short ton)  |       | 2,640.40                               |       | 1,491.00                             |       | 2,333.80 |   | 1,475.40 |   |
| Zinc  ($/short ton)    |       | 976.80                                 |       | 704.80                               |       | 929.00 |   | 706.60 |   |
| Silver  ($/troy ounce) |       | 6.92                                   |       | 4.56                                 |       | 6.32 |   | 4.60 |   |

 

The recent priceincreases reflect the significant tightening in worldwide metal supply and theweakening of the U.S. dollar. Supply has tightened due to mine closures,cutbacks and slowed development stemming from the low prices from 1998-2003.

 

*Production*

 

The following table setsforth the Company’s production statistics for the periods indicated:

 
| ** **                                       | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|--------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                       | ** ** | **2004**                               | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| U.S.  Operations                                 |       |                                   |       |                                 |       |   |   |   |   |
| Lead  concentrates (metal content, short tons)   |       | 69,343                                 |       | 73,174                               |       | 132,267 |   | 145,192 |   |
| Lead  metal-primary (short tons)                 |       | 39,606                                 |       | 69,738                               |       | 89,162 |   | 140,979 |   |
| Lead  metal-recycling (short tons)               |       | 32,789                                 |       | 33,364                               |       | 65,636 |   | 70,330 |   |
| Ore  Production (000’s of dry short tons)   |       | 1,260                                  |       | 1,178                                |       | 2,436 |   | 2,328 |   |
| Ore  grade                                       |       | 5.70                                   | %          | 6.37                                 | %          | 5.62 | % | 6.39 | % |
|                                             |       |                                   |       |                                 |       |   |   |   |   |
| Doe  Run Peru Operations                         |       |                                   |       |                                 |       |   |   |   |   |
| Refined  copper (short tons)                     |       | 15,528                                 |       | 17,750                               |       | 31,303 |   | 34,872 |   |
| Refined  lead (short tons)                       |       | 32,673                                 |       | 28,146                               |       | 64,792 |   | 58,188 |   |
| Refined  zinc (short tons)                       |       | 17,523                                 |       | 20,372                               |       | 37,668 |   | 41,052 |   |
| Refined  silver (thousands of troy ounces)       |       | 9,235                                  |       | 8,496                                |       | 18,012 |   | 17,197 |   |
| Refined  gold (thousands of troy ounces)         |       | 17                                     |       | 24                                   |       | 30 |   | 42 |   |
| Copper  concentrates (metal content, short tons) |       | 4,409                                  |       | 4,402                                |       | 8,905 |   | 8,933 |   |
| Ore  Grade (copper content)                      |       | 1.13                                   | %          | 1.12                                 | %          | 1.12 | % | 1.11 | % |

 

At the Company’s primarymining operations, the lead grade of ore decreased in 2004, compared to 2003,as pillar recovery in the Buick mine has been less than planned, resulting inlower volume of lead in concentrate produced. Gross production costs in the 2004 quarter increased by 28% compared tothe prior

 

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quarter, and by 21% inthe 2004 period as compared with the prior period, with higher payroll andfringe costs, higher repairs and maintenance costs and higher royaltiesresulting from the increase in metal prices. The Company also incurred cost to move existing equipment to enhancecopper recovery at the Buick mill.  Thiswill enable the company to produce more copper product and allow the Company tobenefit from higher copper prices.  As aresult of the higher production costs and lower production of lead metal inconcentrates, the unit cost of metal contained in concentrates increased 32% inthe 2004 quarter compared to the 2003 quarter and 28% in the 2004 periodcompared to the 2003 period.

 

In 2004 Doe Run’s primarysmelter operation’s production was lower than in 2003, due to the indefinitesuspension of operations at the Glover smelter, which resulted in a decrease ofapproximately 33,000 tons in the 2004 quarter and 60,000 tons in the 2004period, compared to the comparable prior year periods. In the 2004 quarter andthe 2004 period, the Herculaneum smelter increased production approximately3,000 tons from the 2003 quarter and over 7,000 tons from the 2003 period,respectively. The Company is planning by the fourth quarter to increase theHerculaneum smelter’s production to a rate of approximately 16,000 tons permonth for the remainder of the year. This operating level is dependent upon thesmelter’s ability to continue compliance with air quality monitors at thehigher production levels as well as supporting market conditions. Theproduction costs decreased due to the suspension of operations at the Gloversmelter offset by higher payroll and fringe costs, higher production levels andan increase in repair and maintenance costs at the Herculaneum smelter.  As a result of these changes, the cost perton of primary lead metal produced for the 2004 quarter and the 2004 periodincreased 19% and 24% compared to the corresponding prior year periods.

 

Production at theCompany’s Buick recycling operation declined 2% for the 2004 quarter and 8% forthe 2004 period.  A change in feed mixresulting from the lack of availability of higher lead content feed sourcesresulted in a higher percentage of low lead content feed, which negativelyimpacted production efficiency and required increased fuel and reagent use.Production costs increased 8% in the 2004 quarter and period versus thecomparable prior year periods due primarily to increases in propane, oxygen,chemicals, reagents and labor costs.  Inaddition, the cost of feed materials increased in the 2004 quarter 52% whencompared to the 2003 quarter and 41% in the 2004 period when compared to the2003 period, which was impacted by the shortage in supply of certain feed andcurrent market conditions. As a result of the decreased production and higherproduction and feed costs, the cost per ton of lead metal produced for the 2004quarter and period increased 28% over the prior year.

 

The intense worldwide competition for concentrates hascontinued into the second quarter of 2004. Doe Run Peru’s La Oroya smeltercopper production was affected by lower receipts from suppliers of copperconcentrates compared to the prior year, resulting in a decrease in copperproduction of 13% in the 2004 quarter compared to the 2003 quarter, and 10% inthe 2004 period compared to the 2003 period. Receipts of lead concentrates froma local supplier improved in the 2004 quarter, resulting in a 16% increase inlead production in the 2004 quarter compared to the 2003 quarter, and 11% inthe 2004 period compared to the 2003 period. This also resulted in an increase in the silver production. Feed costsincreased substantially as a result of the increase in metal prices during thequarter, driving a 43%, 72%, 38% and 42% increase in unit cost of copper, lead,zinc and silver metal produced. Related to the competition for concentrates,availability of ocean vessels is also expected to remain tight for the nextseveral months but should ease as the Chinese economy cools.

 

The aging of theCompany’s assets has resulted in increased maintenance costs to keep them incondition to operate at current levels. All operations have seen an increase inmaintenance costs over comparable periods in prior years.

 

*Resultsof operations*

 

*Grossmargin on sales* (net sales less cost of sales) increased $7.9million to $20.7 million in the 2004 quarter compared to the 2003 quarter, andincreased $7.3 million to $32.3 million in the 2004 period compared to the 2003period. Gross margin on sales for the Company’s U.S. operations increased $2.5million to $8.7 million for the 2004 quarter and increased $4.3 million to$15.9 million for the 2004 period. An increase of 31% for the 2004 quarter and26% for the 2004 period in the U.S. operation’s realized prices for lead metal,fueled by higher LME prices, contributed an additional $12.3 and $21.2 million,respectively, to Doe Run’s U.S. operations’ gross margin on sales compared toprior year. The increase in the lead metal net realized prices was less thanthe increase in the average LME settlement price, due to the effects of the

 

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Company’s risk managementstrategy, which reduces the Company’s exposure to changes in the market pricein an attempt to fix an acceptable price for its products. Increases in copperand zinc metal prices fueled an increase in the net realized price for copperand zinc concentrate sales, which contributed an additional $2.8 million togross margin compared to the 2003 quarter and $4.7 million compared to the 2003period. The sale of lead concentrates contributed $1.8 million to margins inthe 2004 quarter and $2.9 million to margins in the 2004 period as compared tothe 2003 quarter and period, respectively. These were offset by higher costsper unit of metal produced at the U.S. operations driven by the increases inrepairs and maintenance, payroll and related fringes and the higher feed costsand the effects of the change in feed mix on the production at the recyclingoperations.

 

DoeRun Peru’s gross margins increased $5.4 million to $12.0 million in the 2004quarter compared to the 2003 quarter, and increased $3.0 million to $16.4million in the 2004 period compared to the 2003 period. The increase in metalprices also benefited Doe Run Peru, contributing to price related increases of$7.2 million and $10.4 million to gross margin in the 2004 quarter and 2004period, respectively, in the form of reduced cost of feed through priceparticipation, sales of copper sourced from feed from Doe Run Peru’s Cobrizacopper mine and free metal contained in purchased concentrates. These benefitsare offset by lower treatment charges received for concentrates processed andhigher maintenance costs. The 2004 period was also affected by severance costson employees released in the first quarter of 2004 under a work force reductionplan announced in September 2003.

 

*Selling,general and administrative costs* increased $1.8 million or32% for the 2004 quarter, compared to the 2003 quarter, and $3.7 million or 29%for the 2004 period, compared to the 2003 period. The increases are dueprimarily to increased salaries and employee benefit costs, insurance expenseand insurance refunds received in 2003 applicable to legal fees incurred in aprevious fiscal year and credited to selling, general and administrative costs.

 

*Unrealizedlosses on derivatives*are**related to the change in fair market value of derivativefinancial instruments. The**increase isdue to the effect of the LME price increases discussed previously on soldfutures contracts and sold call option contracts. See “Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk”.

 

*Other*operating expenses in the 2004 quarter and the 2004 period relateprimarily to recognition of impairment losses of the value of housespurchased in Herculaneum relating to residential properties purchased under avoluntary property purchase plan in the town of Herculaneum. The timing ofoffers delivered under the plan in 2003 resulted in the increase in the 2004quarter and the 2004 period, compared to 2003.

 

As of July 31, 2004, a total of one hundredtwenty-five homeowners have requested offers, and seventy-five of one hundredseventeen delivered offers had been accepted. As of July 31, 2004, theCompany had spent approximately $4,000 under the voluntary property purchaseplan, with another $2,000 in accepted offers awaiting a closing date, and$3,500 in outstanding offers. Management cannot estimate how many of theremaining homeowners will request offers, or, if offers are requested andaccepted, what price will be paid for the related property.

 

*Incometax expense (benefit)*in the 2004 quarter and the 2004 periodreflects a change in tax law in Peru. Under a law passed in December 2003,certain technical services that Doe Run provides under an agreement with DoeRun Peru will be taxed at 30%. The amounts were paid in the third quarter of2004 by Doe Run Peru.

 

The Renco Group Inc.(Renco), the Company’s ultimate parent, has elected for the Company to betreated as a qualified subchapter S subsidiary (QSSS) for federal tax purposes. Most states in which the Companyoperates will follow similar tax treatment. QSSS status requires the ultimateshareholders to include their pro rata share of the Company’s income or loss intheir individual tax returns.  As aresult of the Company’s tax status in the U.S., the Company is not subject tofederal and most state income taxes.

 

*Cumulativeeffect of change in accounting principle*resulted in a chargeof $3.9 million in the first quarter of 2003, which relates to the adoption ofStatement of Financial Accounting Standards No. 143 - *Accounting for Asset Retirement Obligations*.

 

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***FinancialCondition and Liquidity***

 

Doe Run failed to meet certain financial covenantrequirements contained in its revolving credit agreement and a term note (theTerm Note) and Doe Run Peru failed to meet certain financial covenantrequirements contained in its revolving credit agreement during fiscal 2003,and continued into fiscal 2004.  Seediscussion of amendments to agreements below.

 

The Company’s auditors issued unqualified opinions onthe 2003 audited financial statements of the Company and of Doe Run Peru thatexpress substantial doubt about the Company’s and Doe Run Peru’s ability tocontinue as going concerns due to liquidity and other issues related todefaults under loan agreements, uncertainties related to environmental andlitigation matters, as well as the Company’s recurring losses.

 

Management believes that the price improvements andother revenue enhancement and Doe Run Peru’s cost reduction plans discussed inthe *“Overview”*will enable theCompany and its subsidiaries to continue as going concerns.

 

On February 16, 2004, Doe Run Peru entered intoan amendment of its revolving credit facility. The amendment lowered the levelsof net worth Doe Run Peru must comply with from the date of the amendmentthrough September 30, 2004, among other things. Based on currentforecasted results, assuming metal prices higher than those experienced infiscal 2003, management expects to remain in compliance with all covenantsrelating to Doe Run Peru’s revolving credit facility for the foreseeablefuture. The amendment does not cure or waive defaults in existence before thedate of the amendment. The amendment also limits payment of fees to Doe Runthrough September 30, 2004 to $2,800 and $4,000 per fiscal yearthereafter. In the event Doe Run Peru’s net worth would fall to a level lowerthan the requirement at the quarterly reporting dates, the amendmentpermanently reduces the amount available under Doe Run Peru’s revolving creditfacility by the amount of the difference between the required and the actualnet worth. If Doe Run Peru is not successful with its administrative appeal ofa tax assessment (see discussion in Item 1. Note 5 to the Company’s CondensedConsolidated Financial Statements), the lender can, at its discretion, requirethat the amount of the assessment reduce net worth as defined in Doe Run Peru’srevolving credit facility amendment. Such reduction along with other factors,including metal prices and results of operations, could affect Doe Run Peru’sability to comply with the net worth requirement.

 

On April 9, 2004 Doe Run entered into anamendment of Doe Run’s revolving credit facility. The amendment waived existingdefaults and lowered the net worth requirement. The amendment became effectivewhen waivers of default under the Term Note were received, as discussed below.Based on current projections, assuming metal prices continuing higher thanthose experienced during fiscal 2003, management expects to remain incompliance under Doe Run’s revolving credit facility, as amended, throughOctober 31, 2004.

 

On April 30, 2004 Doe Run entered into anamendment of the Term Note. The amendment waived existing defaults and amendedvarious covenant requirements, among other things. The amendment also requiredthat certain information be delivered to the lender at various times within 30days after the amendment date, which dates were extended. Based on current projections,assuming metal prices continuing higher than those experienced during fiscal2003, management expects to remain in compliance under the Term Note, asamended, through October 31, 2004.

 

Net unused availabilityat April 30, 2004 under the Doe Run Revolving Credit Facility and Doe RunPeru Revolving Credit Facility was $17.7 million and $5.4, respectively.  In addition to the availability under itsrevolving credit facilities, Doe Run Peru also had $4.9 million of cash atApril 30, 2004.  Net unused availabilityat October 31, 2003 was $14.4 million and $3.8 million under the Doe RunRevolving Credit Facility and Doe Run Peru Revolving Credit Facility,respectively, and Doe Run Peru’s cash balances totaled $16.8 million.  The Company’s long-term liquidity outlook hasimproved, due to higher prices, other revenue enhancements and cost reductionsdiscussed previously. In Peru, higher metal prices resulted in higher initialoutlays for concentrate purchases and higher value added tax pre-payments, ,which resulted in a decrease in availability of borrowing under its revolvingcredit agreement, however Doe Run Peru’s working capital increased betweenApril and July 2004. As of July 31, 2004, net unusedavailability was $22.0 million under

 

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the Doe Run RevolvingCredit Facility and $1.8 million under the Doe Run Peru Revolving CreditFacility, and Doe Run Peru’s cash balances were $6.1 million. At metal priceshigher than 2003 averages, but lower than those experienced in the 2004 period,Doe Run’s liquidity should improve and Doe Run Peru’s liquidity shouldstabilize.

 

In June 2004, thePeruvian government began requalifying importers’ duty and tax status. Untilthat process is complete, Doe Run Peru must post a bond or third-partyguarantee on imports of 30% on the cost of the items imported, an increase fromthe negligible amounts under its previous status. Although amounts arerecovered when finished goods are exported, for as long as our previous status isnot reinstated it will have an adverse impact on liquidity. If the change instatus had been effective as of the beginning of 2004, the Company would havepaid approximately an additional $0.8 million on imports. Although Doe Run Perumanagement is taking action to regain its previous status, and believes thatDoe Run Peru will be requalified, there is no assurance that the previousstatus will be reinstated.

 

***Forward-LookingStatements***

 

This report includes “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995which involve known and unknown risks, uncertainties and other importantfactors that could cause the actual results, performance or achievements of theCompany to differ materially from any future results, performance orachievements expressed or implied by such forward-looking statements.  Such risks, uncertainties, and otherimportant factors include, among others: general economic and businessconditions, increasing industry capacity and levels of imports of non-ferrousmetals or non-ferrous metals products, industry trends, including productpricing; competition, currency fluctuations, the loss of any significantcustomer, availability of qualified personnel, effects of future collectivebargaining agreements, outcome of litigation, changing environmentalrequirements, political uncertainty, terrorism and major equipmentfailures.  These forward-lookingstatements speak only as of the date of this report.  The Company expressly disclaims any obligationor undertaking to disseminate any updates or revisions to any forward-lookingstatement contained herein to reflect any change in the Company’s expectationswith regard thereto or any change in events, conditions, or circumstances onwhich any such statement is based.

 

##### **Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

 

In the normalcourse of its business, the Company has used in the past, and may use in thefuture, forward sales commitments and commodity put and call option contracts tomanage its exposure to fluctuations in the prices of lead, copper, zinc andsilver.  Contract positions are designedto ensure that the Company will receive a defined minimum price for certainquantities of its production.  Gains andlosses, and the related costs paid or premiums received for option contractswhich hedge the sales prices of commodities are recognized in net sales whenthe related production is sold.  None ofthe aforementioned activities have been entered into for speculative purposes.

 

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The fair market value(gain/(loss)) of the Company’s derivatives was approximately $(9.5) million and$(11.0) million at April 30, 2004 and October 31, 2003. The majorityof the balance relates to sold lead futures and sold lead call options relatedto the U.S. operations.

 
| ** **                      | ** ** | **Tons**     | ** ** | **Contract Prices** | ** ** | **Fair Value (in 000’s)** | ** ** |
|---------------------------------|------------|--------------|------------|---------------------|------------|--------------------------------|------------|
| ** **                      | ** ** | **04/30/04** | ** ** | **10/31/03**        | ** ** | **04/30/04**                   | ** ** | **10/31/03** | ** ** | **04/30/04** | ** ** | **10/31/03** | ** ** |
|                            |       |         |       |                |       |                           |       |   |   |   |   |   |   |
| Sold  lead futures - hedges     |       | 6,614        |       | 17,417              |       | $645.61/ton                    |       | $489.00/ton |   | (146 | ) | (1,850 | ) |
| Sold  lead futures - other      |       | 49,384       |       | N/S                 | *          | $665.05/ton                    |       | N/S | * | (4,117 | ) | N/S | * |
| Purchased  lead futures - other |       | (61,840      | )          | N/S                 | *          | $665.05/ton                    |       | N/S | * | 585 |   | N/S | * |
| Sold  lead call options         |       | 26,566       |       | 69,363              |       | $453.59/ton  to  $816.47/ton   |       | $430.91/ton  to  $544.31/ton |   | (3,598 | ) | (7,475 | ) |

 

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*  Not Significant

 

##### **Item 4.  Controls and Procedures**

 

As of the end of theperiod covered by this report, an evaluation was performed under thesupervision and with the participation of the Company’s management, includingthe Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), ofthe effectiveness of the design and operation of the Company’s disclosurecontrols and procedures. Based on that evaluation, the Company’s management,including the CEO and CFO, concluded the Company’s disclosure controls andprocedures as of April 30, 2004 were effective in ensuring informationrequired to be disclosed in this Quarterly Report on Form 10-Q was recorded,processed, summarized and reported on a timely basis. There have been nochanges in the Company’s internal control over financial reporting thatoccurred during the period covered by this Quarterly Report on Form 10-Q thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

**Part II. Other Information**

 

**Item 1. Legal Proceedings**

 

*Blackwell, et al. v. BNSF, et al.*(filed July 28, 2004), *Gold, et al. v.BNSF, et al.* (filed August 13, 2004) and *Barnes, et al. v. BNSF, et al* (filedAugust 27, 2004) were filed in the Circuit Court of the City of St. Louis,Missouri and listed Doe Run among the defendants. The suits allege that a totalof twenty-four employees or ex-employees of Burlington Northern and Santa Fe RailwayCo. (BNSF) were exposed to lead from the hauling of lead concentrates by therailroad. Similar lawsuits were settled in fiscal 2003.

 

**Item 6. Exhibits and Reports on Form 8-K**

 

**(a)****          Exhibits**

 

31 Certificationspursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32 Certificationspursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

**(b)****          Reports on Form 8-K**

 

A report datedJuly 27, 2004, which contained information concerning changes in theRegistrant’s certifying accountant.

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|   | THE DOE RUN RESOURCES  CORPORATION                |
|--------|---------------------------------------------------|
|   | (Registrant)                                      |
|   |                                              |
|   |                                              |
|   | /s/ David A. Chaput                               |   |
|   | Date September 9, 2004                            | David A. Chaput |
|   | Chief Financial Officer                           |
|   | (duly authorized  officer and principal financial |
|   | officer)                                          |
|        |                                                   |  |  |

 

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