**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  July 31, 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                       ** |

 

**Commission File 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 mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the proceeding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days.

 

| **o** | ** ** | **Yes** | ** ** | **ý** | ** ** | **No** |
|-------|------------|---------|------------|------------|------------|--------|

 

**Note:The Registrant files pursuant to an indenture, but is not otherwise subject tothe reporting requirements of Section 13 or 15(d).**

 

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

 

| **o** | ** ** | **Yes** | ** ** | **ý** | ** ** | **No** |
|-------|------------|---------|------------|------------|------------|--------|

 

Number of shares outstanding of each of the issuer’s classes of commonstock, as of September 24, 2004:

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

 

 

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**THE DOE RUN RESOURCESCORPORATION**

**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 shareamounts)**

 
| ** **                                                                                                                                                                                                                     | ** **   | **July 31,  2004** | ** ** | **October 31,  2003** | ** **   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------------|------------|----------------------------|--------------|
| *** ***                                                                                                                                                                                                                   | *** *** | **(unaudited)**         | ** ** | ** **                 | *** *** |
| **ASSETS**                                                                                                                                                                                                                     |         |                    |       |                       |         |
| Current assets:                                                                                                                                                                                                                |         |                    |       |                       |         |
| Cash                                                                                                                                                                                                                           |         | $                       | 6,098      |                       | $            | 16,794 |   |
| Trade accounts receivable, net of allowance  for doubtful accounts                                                                                                                                                             |         | 69,525                  |       | 56,659                     |         |
| Inventories                                                                                                                                                                                                                    |         | 114,653                 |       | 95,680                     |         |
| Prepaid expenses and other current assets                                                                                                                                                                                      |         | 37,450                  |       | 21,531                     |         |
| Total current assets                                                                                                                                                                                                           |         | 227,726                 |       | 190,664                    |         |
| Property, plant and equipment, net                                                                                                                                                                                             |         | 226,735                 |       | 230,367                    |         |
| Other noncurrent assets, net                                                                                                                                                                                                   |         | 4,711                   |       | 5,496                      |         |
| Total assets                                                                                                                                                                                                                   |         | $                       | 459,172    |                       | $            | 426,527 |   |
|                                                                                                                                                                                                                           |         |                    |       |                       |         |
| **LIABILITIES AND SHAREHOLDER’S DEFICIT**                                                                                                                                                                                 |         |                    |       |                       |         |
| Current liabilities:                                                                                                                                                                                                           |         |                    |       |                       |         |
| Short-term borrowings and current maturities  of long-term debt                                                                                                                                                                |         | $                       | 86,332     |                       | $            | 78,117 |   |
| Accounts payable                                                                                                                                                                                                               |         | 72,527                  |       | 48,392                     |         |
| Accrued liabilities                                                                                                                                                                                                            |         | 84,336                  |       | 84,483                     |         |
| Total current liabilities                                                                                                                                                                                                      |         | 243,195                 |       | 210,992                    |         |
|                                                                                                                                                                                                                           |         |                    |       |                       |         |
| Long-term debt, less current maturities                                                                                                                                                                                        |         | 322,019                 |       | 330,579                    |         |
| Other noncurrent liabilities                                                                                                                                                                                                   |         | 72,705                  |       | 71,508                     |         |
| Total liabilities                                                                                                                                                                                                              |         | 637,919                 |       | 613,079                    |         |
|                                                                                                                                                                                                                           |         |                    |       |                       |         |
| Series A redeemable preferred stock, $1,000  par value, 5,000 authorized; 2,251 and 2,000   shares issued and outstanding at July 31, 2004 and  October 31, 2003 respectively; liquidation and redemption value |         | 24,624                  |       | 22,514                     |         |
|                                                                                                                                                                                                                           |         |                    |       |                       |         |
| Shareholder’s deficit:                                                                                                                                                                                                    |         |                    |       |                       |         |
|                                                                                                                                                                                                                           |         |                    |       |                       |         |
| Common stock, $.10 par value, 1,667 shares  authorized, 1,000 shares issued and outstanding                                                                                                                                    |         | —                  |       | —                     |         |
| Additional paid-in capital                                                                                                                                                                                                     |         | 614                     |       | 2,724                      |         |
| Accumulated deficit                                                                                                                                                                                                            |         | (167,562                | )          | (173,523                   | )            |
| Accumulated other comprehensive losses                                                                                                                                                                                         |         | (36,423                 | )          | (38,267                    | )            |
| Total shareholder’s deficit                                                                                                                                                                                               |         | (203,371                | )          | (209,066                   | )            |
| Total liabilities and shareholder’s deficit                                                                                                                                                                               |         | $                       | 459,172    |                       | $            | 426,527 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

1

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**THE DOE RUN RESOURCES CORPORATION**

**Condensed Consolidated Statements ofOperations (unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                      | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                      | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Net sales                                                                       |       | $                                     | 226,622    |                                 | $          | 169,204 |   | $ | 632,267 |   | $ | 492,325 |   |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Costs and expenses:                                                             |       |                                  |       |                                 |       |   |   |   |   |
| Cost of sales                                                                   |       | 193,148                               |       | 159,560                              |       | 566,511 |   | 457,737 |   |
| Depreciation, depletion and amortization                                        |       | 6,107                                 |       | 7,605                                |       | 18,779 |   | 23,546 |   |
| Selling, general and administrative                                             |       | 8,604                                 |       | 7,857                                |       | 25,087 |   | 20,603 |   |
| Unrealized (gain) loss on derivative  financial instruments                     |       | (679                                  | )          | 1,599                                |       | 261 |   | 1,013 |   |
| Other                                                                           |       | 980                                   |       | 770                                  |       | 3,029 |   | 1,670 |   |
| Total costs and expenses                                                        |       | 208,160                               |       | 177,391                              |       | 613,667 |   | 504,569 |   |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Income (loss) from operations                                                   |       | 18,462                                |       | (8,187                               | )          | 18,600 |   | (12,244 | ) |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Other income (expense):                                                         |       |                                  |       |                                 |       |   |   |   |   |
| Interest expense, net                                                           |       | (3,105                                | )          | (3,232                               | )          | (9,692 | ) | (9,767 | ) |
| Other, net                                                                      |       | (288                                  | )          | (520                                 | )          | (800 | ) | (424 | ) |
|                                                                            |       | (3,393                                | )          | (3,752                               | )          | (10,492 | ) | (10,191 | ) |
| Income (loss) before income tax expense                                         |       | 15,069                                |       | (11,939                              | )          | 8,108 |   | (22,435 | ) |
| Income tax expense                                                              |       | 626                                   |       | —                               |       | 2,147 |   | — |   |
| Income (loss) before cumulative effect of  change in accounting principle       |       | 14,443                                |       | (11,939                              | )          | 5,961 |   | (22,435 | ) |
| Cumulative effect of change in accounting  principle, net of income tax benefit |       | —                                |       | —                               |       | — |   | (3,940 | ) |
| Net income (loss)                                                               |       | $                                     | 14,443     |                                 | $          | (11,939 | ) | $ | 5,961 |   | $ | (26,375 | ) |
| Cumulative preferred stock dividends                                            |       | (703                                  | )          | (625                                 | )          | (2,110 | ) | (1,889 | ) |
| Net income (loss) allocable to common  shares                                   |       | $                                     | 13,740     |                                 | $          | (12,564 | ) | $ | 3,851 |   | $ | (28,264 | ) |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Total comprehensive income (loss)                                               |       | $                                     | 14,653     |                                 | $          | (12,037 | ) | $ | 7,805 |   | $ | (26,474 | ) |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

2

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**THE DOE RUN RESOURCES CORPORATION**

**Condensed Consolidated Statements of CashFlows (unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                       | ** ** | **Nine Months Ended  July 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                       | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| Cash flows from operating activities:                                            |       |                                 |       |   |   |
| Net income (loss)                                                                |       | $                                    | 5,961      |   | $ | (26,375 | ) |
| 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                                         |       | 18,779                               |       | 23,546 |   |
| Imputed interest and amortization of  deferred financing costs                   |       | 1,927                                |       | 1,803 |   |
| Unrealized loss on derivative financial  instruments                             |       | 261                                  |       | 1,013 |   |
| Losses from impairment and disposal of  long-lived assets                        |       | 1,680                                |       | 845 |   |
| Decrease resulting from other changes in  assets and liabilities:                |       | (21,014                              | )          | (2,255 | ) |
| Net cash provided by operating activities                                        |       | 7,594                                |       | 2,517 |   |
|                                                                             |       |                                 |       |   |   |
| Cash flows from investing activities:                                            |       |                                 |       |   |   |
| Purchases of property, plant and equipment                                       |       | (16,817                              | )          | (12,343 | ) |
| Net cash used in investing activities                                            |       | (16,817                              | )          | (12,343 | ) |
|                                                                             |       |                                 |       |   |   |
| Cash flows from financing activities:                                            |       |                                 |       |   |   |
| Proceeds from revolving loans and short  term borrowings, net                    |       | 914                                  |       | 17,705 |   |
| Payments on long-term debt                                                       |       | (2,387                               | )          | (6,391 | ) |
| Payment of financing costs                                                       |       | —                               |       | (482 | ) |
| Net cash provided by (used in) financing  activities                             |       | (1,473                               | )          | 10,832 |   |
| Net increase (decrease) in cash                                                  |       | (10,696                              | )          | 1,006 |   |
| Cash at beginning of period                                                      |       | 16,794                               |       | 7,018 |   |
| Cash at end of period                                                            |       | $                                    | 6,098      |   | $ | 8,024 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

3

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**THE DOE RUN RESOURCES CORPORATION**

 

**Notes to Condensed Consolidated FinancialStatements**

**(Dollars in thousands)**

 

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

 

***Unaudited Interim Financial Statements***

 

These interim consolidated financial statements include the accounts ofThe Doe Run Resources Corporation (Doe Run) and its subsidiaries (on aconsolidated basis, the Company). Doe Run’s issued and outstanding common stockis owned by a subsidiary of The Renco Group, Inc. (Renco).  In the opinion of management, the interimconsolidated financial statements contain all adjustments, consisting of normalrecurring accruals, necessary to present fairly the consolidated financialposition as of July 31, 2004 and the results of operations for the threeand nine month periods ended July 31, 2004 and 2003.  Interim periods are not necessarilyindicative of results to be expected for the year.

 

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

 

The Company’s auditors issued unqualified opinions on the 2003 auditedfinancial statements of the Company and of Doe Run Peru that expressedsubstantial doubt about the Company’s and Doe Run Peru’s ability to continue asgoing concerns due to liquidity and other issues related to defaults under loanagreements, uncertainties related to environmental and litigation matters, aswell as the Company’s recurring losses.

 

The Company has substantial debt service requirements in the future,including the maturities in 2005 of the Term Note with Renco, the 11.25% SeniorNotes and 11.25% Senior Secured Notes totaling $23,000, and also significantcapital requirements under the PAMA. The Company’s ability to generate theliquidity to meet these obligations is dependent upon future operatingperformance and financial results, which are subject to financial, economic,political, competitive and other factors affecting the Company, many of whichare beyond the Company’s control.

 

The Company had recurring losses in the past several years, primarilythe result of the declining treatment charges and low metal prices. Metalprices have risen dramatically in fiscal 2004. Lead prices increased from aLondon Metal Exchange (LME) settlement monthly average of $532.60 per short tonin October 2003, to $852.40 per short ton in July 2004.  Doe Run has benefited from this price increasein both its lead metal and lead concentrate sales, as affected by the Company’srisk management strategy.

 

Management will continue to assess market and operating conditions tomaximize its operating profit or limit losses, while allowing Doe Run tofulfill its environmental obligations. In response to declining demand in theU.S. for lead metal and increasing global demand for clean lead concentrates,Doe Run indefinitely suspended operations at its Glover smelter in November,2003 and is selling on the open market any concentrates that are not requiredto maintain production at its Herculaneum smelter. Headcount at the GloverSmelter decreased from 163 employees at October 31, 2003 to 10 employeeseffective with the suspension.  TheCompany recorded a severance liability related to Glover employees ofapproximately $1,400 at October 31, 2003. No impairment loss wasrecognized with respect to this suspension of operations, as cash flows withrespect to the primary lead segment should improve with the decision.

 

As discussed in Note 6, Doe Run Peru expects that it will not be ableto comply with the spending requirements of the PAMA investment schedule in2005 and 2006 and could be subject to penalties. Doe Run Peru has requested amodification to the PAMA for the La Oroya smelter. Although the requiredcompliance date would be extended under the modification, total spending wouldbe approximately $22,000 higher than what is currently required, with anestimated cost of approximately $143,000 over the calendar years 2005-2011.

 

Doe Run Peru has developed a business plan that identifies severalrevenue generating and cost reduction activities. Management believes the planwill enhance liquidity, which would improve Doe Run Peru’s ability to make theinvestments under the proposed modifications to the PAMA. Revenue enhancementand cost reduction projects include the processing of zinc ferrites and aneffort to bring more recycled feed into the smelter. Cost reduction measuresinclude manpower reductions through voluntary retirement, decreased power usagein the zinc circuit and the closure of the coke plant.

 

Net unused availability at July 31, 2004 under the Doe RunRevolving Credit Facility and Doe Run Peru Revolving Credit Facility wasapproximately $21,967 and $1,830, respectively. In addition to the availability

 

4

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under its revolving credit facilities, Doe Run Peru also had $6,098 ofcash at July 31, 2004.  Net unusedavailability at October 31, 2003 was approximately $14,373 and $3,830under the Doe Run Revolving Credit Facility and Doe Run Peru Revolving CreditFacility, respectively, and Doe Run Peru’s cash balances totaled $16,794.  The Company’s long-term liquidity outlook hasimproved, due to higher prices and other revenue enhancements.  In Peru, higher metal prices resulted inhigher 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 between October 2003and July 2004. At metal prices higher than 2003 averages, but lower thanthose experienced through the third quarter of 2004, Doe Run’s liquidity shouldcontinue to improve and Doe Run Peru’s liquidity should stabilize.

 

Management believes that the price improvements and other revenueenhancements and the expected approval of the proposed modification to the LaOroya smelter’s PAMA will enable the Company and its subsidiaries to continueas going concerns.

 

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

 

Inventories consist of the following:

 
| ** **                           | ** ** | **July 31,  2004** | ** ** | **October 31,  2003** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|
|                                 |       |                    |       |                       |       |
| Finished metals and concentrates     |       | $                       | 7,626      |                       | $          | 12,466 |   |
| Metals and concentrates in process   |       | 76,681                  |       | 56,399                     |       |
| Materials, supplies and repair parts |       | 30,346                  |       | 26,815                     |       |
|                                 |       |                    |       |                       |       |
|                                 |       | $                       | 114,653    |                       | $          | 95,680 |   |

 

Materials, supplies and repair parts are stated net of reserves forobsolescence of approximately $5,132 and $5,220 at July 31, 2004 andOctober 31, 2003, respectively.

 

5

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**(4)****                                 EmployeeBenefits**

 

***Defined BenefitPlans***

 

Net periodic benefit cost is comprised of thefollowing:

 
| ** **                                                | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                      |       |                                  |       |                                 |       |   |   |   |   |
| Service cost                                              |       | $                                     | 420        |                                 | $          | 523 |   | $ | 1,619 |   | $ | 1,540 |   |
| Interest cost on projected benefit  obligation            |       | 1,276                                 |       | 1,538                                |       | 4,921 |   | 4,530 |   |
| Expected return on assets                                 |       | (922                                  | )          | (1,164                               | )          | (3,555 | ) | (3,427 | ) |
| Net amortization and deferral of  unrecognized net losses |       | 677                                   |       | 430                                  |       | 2,608 |   | 1,266 |   |
| Net periodic benefit cost                                 |       | $                                     | 1,451      |                                 | $          | 1,327 |   | $ | 5,593 |   | $ | 3,909 |   |

 

The Company is required to make total contributions of $13,003 in 2004,of which $4,012 have been made as of July 31, 2004.

 

###### ***Postretirement Benefit Plans***

###### ** **

Net periodic postretirement benefit cost includes the followingcomponents:

 
| ** **                                       | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|--------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                       | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                       | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service cost                                     |       | $                                     | 23         |                                 | $          | 17 |   | $ | 66 |   | $ | 51 |   |
| Interest cost                                    |       | 150                                   |       | 201                                  |       | 431 |   | 595 |   |
| Amortization of gains                            |       | (40                                   | )          | (53                                  | )          | (116 | ) | (158 | ) |
| Amortization of unrecognized prior service  cost |       | 5                                     |       | 6                                    |       | 15 |   | 19 |   |
|                                             |       |                                  |       |                                 |       |   |   |   |   |
| Net periodic postretirement benefit cost         |       | $                                     | 138        |                                 | $          | 171 |   | $ | 396 |   | $ | 507 |   |

 

6

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**(5)****                                 SegmentInformation**

 

The Company’s operating segments are separately managed business unitsthat are distinguished by products, location and production process. Theprimary lead segment includes integrated mining, milling and smeltingoperations located in Missouri. The recycling operations segment, located inMissouri, recycles lead-bearing materials, primarily spent batteries. Thefabricated products segment produces value-added lead products. Doe Run Peruproduces an extensive product mix of non-ferrous and precious metals.

 
| ** **                                  | ** ** | **Three Months Ended****July 31,** | ** ** | **Nine Months Ended****July 31,** | ** ** |
|---------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| * *                                    | ** ** | **2004**                                | ** ** | **2003**                               | ** ** | **2004** | ** ** | **2003** | ** ** |
| *Operating Segments – Revenues*        |       |                                    |       |                                   |       |   |   |   |   |
| Revenues from external customers:           |       |                                    |       |                                   |       |   |   |   |   |
| Peruvian operations                         |       | $                                       | 144,897    |                                   | $          | 106,934 |   | $ | 415,874 |   | $ | 313,117 |   |
| Primary lead                                |       | 59,235                                  |       | 39,938                                 |       | 157,957 |   | 115,988 |   |
| Recycling operations                        |       | 20,595                                  |       | 17,656                                 |       | 58,357 |   | 49,930 |   |
| Fabricated products                         |       | 2,934                                   |       | 3,649                                  |       | 9,082 |   | 11,513 |   |
| Total                                       |       | 227,661                                 |       | 168,177                                |       | 641,270 |   | 490,548 |   |
| Revenues from other operating segments: (1) |       |                                    |       |                                   |       |   |   |   |   |
| Peruvian operations                         |       | 1,469                                   |       | 90                                     |       | 1,578 |   | 528 |   |
| Primary lead                                |       | 397                                     |       | 142                                    |       | 913 |   | 621 |   |
| Recycling operations                        |       | 151                                     |       | 217                                    |       | 306 |   | 612 |   |
| Total                                       |       | 2,017                                   |       | 449                                    |       | 2,797 |   | 1,761 |   |
| Total reportable segments                   |       | 229,678                                 |       | 168,626                                |       | 644,067 |   | 492,309 |   |
| Other revenues/gains (losses) (2)           |       | (1,039                                  | )          | 1,027                                  |       | (9,003 | ) | 1,777 |   |
| Intersegment eliminations                   |       | (2,017                                  | )          | (449                                   | )          | (2,797 | ) | (1,761 | ) |
| Total revenues                              |       | $                                       | 226,622    |                                   | $          | 169,204 |   | $ | 632,267 |   | 492,325 |   |
|                                             |            |                                         |            |                                        |            |  |  |  |  |  |  |  |  |

 

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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.

 

The measure of segment profit and loss used by the Company is earningsof the segment before interest, taxes, depletion, depreciation, and amortization(EBITDA), as adjusted to exclude losses from impairment and disposal oflong-lived assets and Doe Run Peru’s expenses related to hedging and agencyfees under an agreement with Doe Run (Adjusted EBITDA). Consolidated AdjustedEBITDA also excludes accretion expense under Statement of Financial AccountingStandards No. 143, Asset Retirement Obligations, adopted November 1, 2002.

 

7

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*Operating Segments – Adjusted EBITDA*

 
| ** **                                                | ** ** | **Three Months  Ended July 31,** | ** ** | **Nine Months  Ended July 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                      |       |                                  |       |                                 |       |   |   |   |   |
| Peruvian operations                                       |       | $                                     | 9,930      |                                 | $          | (1,849 | ) | $ | 20,373 |   | $ | 6,551 |   |
| Primary lead                                              |       | 17,274                                |       | 4,739                                |       | 36,332 |   | 7,955 |   |
| Recycling operations                                      |       | 5,552                                 |       | 4,616                                |       | 12,811 |   | 10,222 |   |
| Fabricated products                                       |       | 442                                   |       | 433                                  |       | 856 |   | 1,488 |   |
| Total reportable segments                                 |       | 33,198                                |       | 7,939                                |       | 70,372 |   | 26,216 |   |
| Realized gains (losses) on derivatives                    |       | (2,092                                | )          | 589                                  |       | (10,607 | ) | 979 |   |
| Other revenues and expenses (3)                           |       | (1,017                                | )          | (1,899                               | )          | (4,177 | ) | (816 | ) |
| Corporate selling, general and  administrative expenses   |       | (5,576                                | )          | (4,976                               | )          | (15,808 | ) | (11,996 | ) |
| Intersegment eliminations                                 |       | (10                                   | )          | —                               |       | 7 |   | (18 | ) |
| Consolidated adjusted EBITDA                              |       | 24,503                                |       | 1,653                                |       | 39,787 |   | 14,365 |   |
| Depreciation, depletion and amortization                  |       | (6,107                                | )          | (7,605                               | )          | (18,779 | ) | (23,546 | ) |
| Interest expense, net                                     |       | (3,105                                | )          | (3,232                               | )          | (9,692 | ) | (9,767 | ) |
| Unrealized gain (loss) on derivatives                     |       | 679                                   |       | (1,599                               | )          | (261 | ) | (1,013 | ) |
| Losses from impairment and disposal of  long-lived assets |       | (439                                  | )          | (401                                 | )          | (1,680 | ) | (845 | ) |
| Asset retirement obligation accretion  expense            |       | (462                                  | )          | (461                                 | )          | (1,352 | ) | (1,147 | ) |
| Expenses related to restructuring of debt                 |       | —                                |       | (294                                 | )          | 85 |   | (482 | ) |
| Income (loss) before income taxes                         |       | $                                     | 15,069     |                                 | $          | (11,939 | ) | $ | 8,108 |   | $ | (22,435 | ) |

 

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(3)          Other revenues and expenses include expensesnot allocated to operating segments, including environmental expenses relatingto historic operations, and adjustments necessary to state the primary lead andrecycling operation’s inventories at LIFO cost.

 

**(6)****                                 AssetRetirement and EnvironmentalObligations**

 

The Company is subject to numerous federal,state and local environmental laws and regulations governing, among otherthings, air emissions, wastewater discharges, solid and hazardous wastetreatment, storage and disposal and remediation of releases of hazardoussubstances.  The Company’s facilities arelocated on sites that have been used for heavy industrial purposes for decadesand may require remediation.  The Companyhas made and intends to continue making the necessary expenditures forenvironmental remediation and compliance with environmental laws andregulations.  Environmental laws andregulations may become more stringent in the future which could increase costsof compliance.

 

#### ***Asset Retirement Obligations***

#### ** **

On November 1, 2002 the Company 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.

 

The Company’s mines and related processing facilities are subject togovernance by various agencies that have established minimum standards forreclamation.  The Company’s primarysmelter slag produced by and stored at the primary smelter in Herculaneum,Missouri is currently exempt from hazardous waste regulation under the ResourceConservation and Recovery Act of 1976, as amended (RCRA), but is subject to astate closure permit, which requires activities to contain and cover the pileupon cessation of operations.  The Company’smining and milling operations are subject to Missouri mine waste closure permitrequirements and lease agreements which

 

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require the Company to reclaim surface areas, including remediation ofmining waste disposal areas, and to perform closure activitiesunderground.  These activities, whichtend to be site specific, generally include costs for earthwork, revegetation,water treatment and demolition.  Closureactivities may be performed over time.

 

The Company has a RCRA permit addressing theclosure of portions of its recycling operations.  The majority of the cost will arise fromremoving hazardous materials from the facility. No ARO liability or relatedasset cost has been recorded, because the fair value of the obligation cannotbe determined, due to the indeterminate timing. The cost of closure, based onthird party estimates for bonding purposes, is approximately $3,000.  The life of the operation is consideredindeterminable because there is not currently a cost-effective alternative tothe lead acid battery and because battery manufacturers are required to recyclethe batteries.

 

Doe Run Peru also has AROs at its Cobrizamine, 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.

 

The Company’s total recorded liability for AROswas approximately $15,100 and $14,600 as of July 31, 2004 andOctober 31, 2003, respectively.

 

#### ***Environmental remediation - Domestic Operations***

#### ** **

Doe Run is subject to a voluntaryAdministrative Order on Consent (AOC), effective May 29, 2001, to study andaddress issues related to the slag pile, plant property, community soilsadjacent to the primary smelter in Herculaneum, elevated blood lead levels inthe community and lead releases from the plant.

 

Under this AOC Doe Run completed additionalsoil testing 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 cost 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 2004 assumesthe 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 signeda Settlement Agreement with the State of Missouri on April 26, 2002whereby it agreed to offer to purchase approximately 160 residential propertiesin an area close to the smelter if the owner requests such an offer.   Under the terms of the voluntary propertypurchase plan, Doe Run immediately extended offers to the owners of twenty-oneproperties having children less than 72 months old living in them. All of theseowners have requested offers and all but two have accepted offers. Of theremaining one hundred thirty-nine homeowners, those that request an offer must beextended offers by the end of 2004.  Thehomeowners have until June 30, 2005 to accept any offers made. The amountpaid to the homeowners who accept an offer is based on an appraisal of theproperty’s value at August 31, 2001, plus, if a replacement property ispurchased, an amount for owner-occupied residences representing the lesser ofthe difference between the appraisal amount and the cost of a similar propertyin another designated community or the difference between the appraisal amountand the replacement property.

 

As ofAugust 31, 2004, a total of one hundred thirty-six homeowners haverequested offers, and eighty-three of one hundred twenty-one delivered offershad been accepted. As of August 31, 2004, the Company had spentapproximately $5,200 under the voluntary property purchase plan, with another$1,600 in accepted offers awaiting a closing date, and $3,400 in outstandingoffers. Management cannot estimate how many of the remaining homeowners willrequest offers, or, if offers are requested and accepted, what price will bepaid for the related property.

 

Doe Run will attempt to rent out certainpurchased properties, once approval is received by the regulatoryagencies.  The properties must remainvacant while owned by Doe Run until regulators and the city agree thatre-occupancy is not a risk to human health. Management believes that there is current evidence that no health risk

 

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exists as a result of smelter operations, dueto soil remediation efforts and low concentrations of lead in the air in thebuyout area, and that other sources of lead contamination could beremedied.  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 operationsreflects an impairment loss that is primarily related to properties owned inHerculaneum, as approval for reoccupancy of the properties has not yet beenreceived and it cannot be assured that the cost of the properties will berecovered through future cash flows.  Ifthe cost of the property cannot be recovered through future cash flows,additional impairment losses will be recognized as properties are purchased.The Company’s recorded liability for remediation does not include the futurepurchase costs relating to the voluntary property purchase plan, as these costsare capitalized.

 

Doe Run has implemented a plan with theMissouri DNR and the Missouri Air Conservation Commission to bring theHerculaneum smelter in compliance with the ambient air quality standard forlead promulgated under the federal Clean Air Act.  The plan was included in a consent judgmententered into by Doe Run and has been approved at the state level and by theU.S. EPA. The air quality monitors have reflected compliance sinceJuly 2002.

 

Doe Run has received notice that it is a potentially responsible party(PRP) subject to liability under The Comprehensive Environmental Response,Compensation and Liability Act of 1980, as amended (CERCLA) at the followingsites: six sites in St. Francois County, Missouri, including the Big River MineTailings site, the Bonne Terre site, the Federal site, the National site, theRivermines site and the Leadwood site; the Oronogo-Durenweg site in JasperCounty, Missouri; the Cherokee County site in Cherokee County, Kansas; the TarCreek site in Ottawa County, Oklahoma; the Block “P” site in Cascade County,Montana; and the Missouri Electric Works site in Cape Girardeau, Missouri.  There are two additional sites in St.Francois County for which the EPA has indicated it will issue notice.  CERCLA provides for strict and, in certaincircumstances, joint and several liability for response costs and naturalresource damages.  The Company’s estimateof the cost of this remediation is approximately $8,000 for these sites, includingthe two additional sites in St. Francois County, which the Company believes isadequate based on its investigations to date. However, depending upon the types of remediation required and certainother factors, costs at these sites, individually or collectively, could have amaterial adverse effect on the results of operations, financial condition andliquidity of the Company. In February 2004 the U.S. Department ofAgriculture issued a Unilateral Administrative Order ordering certainremediation activities by Doe Run at the Block “P” millsite. Doe Run hasrequested that other parties be added to the order.  Doe Run will seek reimbursement from the U.S.Government and these other parties.

 

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

 

Doe Run is subject to a voluntary AOC with the EPA to remediate the BigRiver Mine Tailings site.  Theremediation work required by the AOC has been substantially completed, and willcontinue with revegetation and ongoing monitoring and maintenance activities.

 

Doe Run hasalso signed AOCs to perform an EE/CA on each of the National, Rivermines, andLeadwood sites for remediation of mine waste areas.  The National EE/CA is complete, theRivermines EE/CA is under public review and has been submitted to the EPA forapproval, 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, residentialsoils, several creeks and a river.  Theinitial draft of the RI/FS was submitted in early March 2002.  Doe Run signed an order to conduct interimmeasures which consisted of blood lead testing of young children, residentialsoil sampling, and limited soil remediation as indicated by the testing andsampling

 

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results, whichwas terminated and replaced by an AOC to conduct certain additional soilremediation in the area and has included its best estimate of these efforts inits recorded liabilities.  The Companybelieves the recorded liabilities related to these sites are adequate.  However, should remediation goals or areaschange, requiring substantially increased measures, there can be no assurancethat the recorded liabilities would be adequate.

 

In March 2004, Doe Run received noticethat it is a PRP subject to liability under CERCLA for contamination alongroads in Iron, Dent and Reynolds counties in Missouri, along with a number ofmining companies involved in the transportation of concentrates. Approximately412 houses were identified as potentially requiring remediation. Doe Runexpects that its share of the potential remediation costs will not besignificant, based on management’s estimates of the number of houses requiringremediation, remediation methods and Doe Run’s apportionment of the costs.

 

Doe Run has been advised that the EPA isconsidering taking certain response actions at a mine site in Madison County,Missouri known as the Mine LaMotte Site. Doe Run and the owner of the other 50% share of stock in the companythat mined the site 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 tocorrective action requirements under RCRA as a result of a storage permit forcertain wastes issued in 1989.  This willinvolve remediation of solid waste management units at the site, although theplan for corrective 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 of Violation (“NOV”)to the Company alleging past violations of the recycling facility’s air permitconditions regarding production limits for its reverbatory furnace. Managementbelieves the facility has operated in compliance with state and federal airrequirements and will contest the NOV. If the EPA prevails, there is a reasonable possibility that fines basedon this action could have a material adverse effect on the Company’s liquidityor results of operations.

 

The domestic operating facilities havewastewater discharge permits issued under the federal Clean Water Act, asamended.  Doe Run currently meets theeffluent limits under these permits, but if compliance were not maintained,additional improvements to its treatment facilities could be required.

 

The Company had recorded liabilities ofapproximately $12,500 and $14,400 related to these remediation obligations asof July 31, 2004 and October 31, 2003, respectively.

 

#### ***Foreign Operations***

#### ** **

MetaloroyaS.A., the former owner of the La Oroya smelter, at the time a subsidiary ofCentromin, received approval from the Peruvian government for an EnvironmentalAdjustment and Management Program (PAMA) that consisted of an environmentalimpact analysis, monitoring plan and data, mitigation measures and closureplan. Doe Run Peru assumed the obligations under the PAMA. The PAMA also setsforth the actions and corresponding annual investments the concession holderagrees to undertake in order to achieve compliance with the maximum permissiblelimits prior to expiration of the PAMA (ten years for smelters, such as Doe RunPeru’s operations in La Oroya, and five years for any other type of mining ormetallurgical operation like Cobriza). Once

 

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approved, thePAMA, as modified from time to time, functions as the equivalent of anoperating permit with which the operator must comply. After expiration of thePAMA, the operator must comply with all applicable standards and requirements.Future changes in legal rules and maximum permissible levels would not beapplicable to Doe Run Peru for the remaining period of La Oroya’s PAMA, exceptfor certain closure requirements. Because these costs improve the property orprevent future environmental contamination, they are capitalized.

 

Doe Run Peruhas committed under its PAMA to implement the following projects at its LaOroya smelter through December 31, 2006:

 
| • |   | New sulfuric acid plants                                            |
|--------|--------|---------------------------------------------------------------------|
| • |   | Treatment plant for the copper refinery  effluent                   |
| • |   | Industrial wastewater treatment plant for  the smelter and 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  waste disposal          |
| • |   | Monitoring station                                                  |

 

An investmentschedule in the PAMA provides a specific plan for achieving the applicableMinistry of Energy and Mines (MEM) maximum permissible limits pertaining to airemissions and wastewater effluent quality. The PAMA may be modified and amendedas to the actual design and timing of projects to be implemented, providedcompliance with the applicable maximum permissible limits is achieved byDecember 31, 2006. Estimated annual spending on a calendar year basis for theprojects approved in the La Oroya PAMA, as amended, most recently on January25, 2002, are as follows:

 

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

 

The currentestimate of cost for the required remaining projects under the existing PAMAand on additional related process changes is approximately $168,000. The PAMAcurrently requires Doe Run Peru to begin construction of certain sulfuric acidplants in 2005, estimated to cost approximately $107,500, in order to reduceemissions. Doe Run Peru expects that it will not be able to comply with thespending requirements of the PAMA investment schedule in 2005 and 2006 andcould be subject to penalties.

 

Doe Run Perusubmitted a request to MEM in July 2004 to modify the requirements of theexisting PAMA and extend the term of the PAMA. Although the required compliancedate under the proposal would be extended, total spending would beapproximately $22,000 higher than what is currently required under the existingPAMA, with an estimated cost of approximately $143,000 over the calendar years2005-2011. There can be no assurance that the Peruvian government will approvethe modification or that they will achieve compliance in the timeframe requiredby the PAMA. If the requested PAMA modification is not approved and the La Oroya

 

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smelter doesnot comply with the investment schedule of the PAMA or does not operate withinthe current PAMA limits after December 31, 2006, Doe Run Peru could be forcedto cease or curtail operations at the La Oroya smelter.

 

Doe Run Peru’soperations historically and currently exceed some of the applicable MEM maximumpermissible limits pertaining to air emissions, ambient air quality andwastewater effluent quality. The PAMA projects have been designed to achievecompliance with such requirements prior to the expiration of the PAMA onDecember 31, 2006. No assurance can be given that implementation of thePAMA projects is feasible or that their implementation will achieve compliancewith the applicable legal requirements by the end of the PAMA period. Further,there can be no assurance that the Peruvian government will not in the futurerequire compliance with additional or different environmental obligations thatcould adversely affect Doe Run Peru’s business, financial condition or resultsof operations.

 

Under thepurchase agreement related to the acquisition of the La Oroya assets inOctober 1997, Centromin, the prior owner of the La Oroya smelter andCobriza mine, agreed to indemnify Doe Run Peru against environmental liabilityarising out of its prior operations and their apportioned share of any othercomplaint related to emissions. Discussions are being held with Centrominregarding the modification discussed above. Performance of the indemnity hasbeen guaranteed by the Peruvian government through the enactment of the SupremeDecree No. 042-97-PCM. However, there can be no assurance that Centromin willsatisfy its environmental obligations and investment requirements, includingthose in its PAMA, or that the guarantee will be honored. Any failure byCentromin to satisfy its environmental obligations could adversely affect DoeRun Peru’s business, financial condition or results of operations.

 

The Cobrizamine has a separate PAMA in which Doe Run Peru has committed to completeprojects to manage tailings, mine drainage, sewage and garbage. As ofJune 2004, Doe Run Peru ceased discharging mine waste into the MantaroRiver, and was in compliance with the emissions standards required by the PAMA.Doe Run Peru will have ongoing projects, including a mine water treatmentsystem and the production of surface paste fill from tailings, which equipmenthas been installed.

 

Doe Run Peruis responsible for the remediation costs relating to a zinc ferrite disposalsite. The current closure plan provides for encapsulating the ferrite residuesin place at Huanchan, an area a short distance from the smelter where they arecurrently stored, for which an environmental liability of $1,600 has beenrecorded as of July 31, 2004 and October 31, 2003.

 

***Consolidated***

 

The Company believes its recorded liabilitiesfor domestic and foreign environmental, mine closure and reclamation mattersare adequate, 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.

 

**(7)****                                 Litigation**

 

Doe Run is a defendant in eight lawsuitsalleging certain damages stemming from the operations at the Herculaneumsmelter.  Three of these cases are classaction lawsuits.  In two cases, theplaintiffs seek to have certified a class of property owners in a certainsection of Herculaneum, alleging that property values have been damaged dueto the operations 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 their pregnancies.  The remedy sought is medical monitoring forthe

 

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class. Five of the cases are personal injury actions by 24 individuals whoallege damages from the effects of lead due to operations at the smelter.  Punitive damages also are being sought ineach case.

 

A resident ofHerculaneum has claimed personal injuries allegedly resulting from exposure toemissions from the smelter.  No suit hasyet been filed in this matter.

 

Doe Run is a defendant in five lawsuitsalleging certain damages from discontinued mine facilities in St. FrancoisCounty.  Four of the cases are classaction lawsuits.  The first case seeks tohave certified 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 third and fourthcases are class actions for property damage and medical monitoring concerningalleged damages caused by chat, tailings, and related operations in six areasin St. Francois County.  The fifth casealleges personal injury to two children living in St. Francois County.

 

Doe Run has been named in ten suits filed byseventy-five 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 indemnityallegedly arising out of contracts with Doe Run or its predecessors forpayments that the railroad has made in regard to personal injury claims againstthe railroad by railway workers and others, including those made in 114 casespreviously settled by Doe Run.   Doe Runis currently in the process of investigating these claims.

 

This railroad carrier has also communicated to Doe Run that it intendsto seek contribution from Doe Run for cleanup actions at a rail car clean-outarea that the carrier was ordered to take by the federal government.   The carrier pled guilty to a felony and paida criminal fine for its actions.  It isDoe Run’s position that Doe Run cannot be held liable for another’s criminalactions.  No lawsuit has been filed.

 

Doe Run is a defendant in lawsuits alleging certain damages from pastmining operations in Ottawa County, Oklahoma. Ten lawsuits have been filed alleging personal injury to twenty-fivechildren and one adult living in Ottawa County against eight companies,including Doe Run, who allegedly, either through predecessors or subsidiaries,mined lead and zinc in Ottawa County or commercially used the chat or tailings inOttawa County.   Five of these suits weredismissed leaving claims alleged by seven children. One case is a class actionlawsuit for personal injury and property damage in Ottawa County. An additionalclass action lawsuit for damages to natural resources and land owned by membersof the Quapaw Tribe was filed on December 10, 2003 against seven companies,including Doe Run. Six individuals filed an additional class action lawsuitagainst six companies, including Doe Run, in Ottawa County, Oklahoma on February9, 2004.  The Company is unable at thistime to estimate 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, hasbeen named in four cases in Maryland, but has not yet been joined as adefendant in any of these cases.  Thesesuits seek damages, alleging personal injuries as a result of lead poisoningfrom exposure to lead paint and tetraethyl lead dust.  The suits seek punitive damages.  Doe Run was dismissed from two similar casesin which it was joined as a defendant. Until Doe Run is actually joined as a defendant in one or more of thesecases, material liability from these cases is considered remote.

 

Doe Run hasbeen named in an asbestos injury suit by an individual against numerouscompanies, alleging that they were exposed to asbestos, including at the St.Joe Minerals Corporation (Doe Run’s predecessor) premises but has not beenserved with a complaint.  Doe Run wasserved a Writ of Summons in a second case filed in Pennsylvania in May 2003 buthas not yet been served with a complaint, so few details of the case are known,including the alleged location of the exposure.

 

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Doe Run has been named in a suit claimingalleged damages to the property of a small business in the vicinity of DoeRun’s recycling facility.  Because thefacility meets the required national ambient air standard for lead and giventhe scope of any potential economic loss as measured by property values in thearea, it is not probable that such a claim would have a material impact on DoeRun.

 

Doe Run hasbeen named as a party in various lawsuits relating to certain operations of itspredecessor.  Fluor Corporation, theowner of Doe Run’s predecessor, retained the obligation for any costs ofdefense or claims relating to these lawsuits. Should Fluor Corporation become unable to fulfill its contractualobligation, Doe Run could be liable for any costs or claims resulting fromthese lawsuits.  There is no reason atthis time to believe that Fluor Corporation could not fulfill its contractualobligations.

 

Doe Run Peru is a defendant in seventy-two lawsuits in the Lima, Perulabor courts.  All lawsuits allege thatworkers have contracted lung disease from working at the miningfacilities.  Doe Run Peru has made claimsin most of the cases against Centromin, the prior owner and has also madeclaims against both governmental agencies and private companies that provideworkers’ 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 DoeRun Peru of an income tax assessment for the 1998 tax year.  The assessment primarily relates to Doe RunPeru’s income tax treatment of the December 1997 merger of Doe Run Peruand Metaloroya S.A., which was purchased by Doe Run Peru inOctober 1997.  Under the assessmentby SUNAT, the tax basis of Doe Run Peru’s fixed assets acquired would decrease,resulting in lower tax depreciation expense than originally claimed andadditional income taxes due.

 

Under the assessment, the reduction in depreciation would result inadditional taxes of approximately $6,600, plus penalties and interest of$10,200 through July 31, 2004 for the 1998 tax year.  For tax years after 1998, the Companyestimates that additional taxes of approximately $5,700 would be due related tothe decrease in the amount of depreciation originally claimed plus penaltiesand interest of approximately $23,900 through July 31, 2004 in the event SUNATwould prevail. Interest would also be assessed on the prepayments of taxes thatwere not made as a result of the depreciation deductions taken by Doe Run Peruin the years affected, estimated at approximately $6,200 through July 31,2004.  Currently, SUNAT is reviewing taxyears 1999, 2000 and 2001.

 

Furthermore, Doe Run Peru would also be required to make additionalworkers’ profit sharing payments equal to 8% of the increase in taxable incomegenerated by the change discussed above, or approximately $3,500.

 

Management ofthe Company believes that Doe Run Peru has followed the applicable Peruvianstatutes and intends to pursue all available administrative and judicialappeals.  Doe Run Peru is not required tomake any payments pending the administrative appeal process.  If Doe Run Peru is not successful in theadministrative appeals process and were to appeal in the judicial system, sometype of financial assurance would be required.

 

Since most of the above cases are either inthe pleading or discovery stages, the Company is unable at this time toestimate the 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.

 

**(8)****                                 GuarantorSubsidiaries**

 

The GuarantorSubsidiaries (Fabricated Products, Inc. (FPI) and DR Land Holdings, LLC(together, the Domestic Guarantors) Buick Resource Recycling Facility, LLC, DoeRun Cayman Ltd. (Doe Run Cayman) and its subsidiary Doe Run Peru) have jointlyand severally, fully, unconditionally and irrevocably guaranteed the UnsecuredNotes, Secured Notes and 11.75% Notes of the Company. Doe Run Cayman has nooperations separate from those of Doe Run Peru. Separate financial statementsand other disclosures concerning certain

 

15

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GuarantorSubsidiaries and disclosures concerning non-Guarantor Subsidiaries have notbeen presented because management has determined that such information is notmaterial to investors. Intercompany transactions eliminated in consolidationconsist of various service and agency fees between Doe Run and Doe Run Peru andsales of metal to Doe Run by Doe Run Peru and to FPI by Doe Run.

 

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**(8)Guarantor Subsidiaries (Continued)**

 

**Condensed Consolidating Balance Sheet (unaudited)**

**As of July 31, 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                                                                                         |       | $                                                   | —     |                                          | $          | —                   |       | $                                   | —     |             | $          | 6,098            |       | $ | — |   | $ | 6,098 |   |
| Trade  accounts receivable, net of allowance for doubtful accounts                           |       | 41,104                                              |       | —                                        |       | 1,826                    |       | 27,671                              |       | (1,076           | )          | 69,525           |       |
| Inventories                                                                                  |       | 39,733                                              |       | —                                        |       | 1,302                    |       | 73,646                              |       | (28              | )          | 114,653          |       |
| Prepaid  expenses and other current assets                                                   |       | 18,544                                              |       | —                                        |       | 77                       |       | 18,829                              |       | —           |       | 37,450           |       |
| Due  from subsidiaries                                                                       |       | 31,301                                              |       | 972                                           |       | —                   |       | —                              |       | (32,273          | )          | —           |       |
| Total  current assets                                                                        |       | 130,682                                             |       | 972                                           |       | 3,205                    |       | 126,244                             |       | (33,377          | )          | 227,726          |       |
| Property,  plant and equipment, net                                                          |       | 77,898                                              |       | 13,445                                        |       | 1,653                    |       | 133,739                             |       | —           |       | 226,735          |       |
| Due  from subsidiaries                                                                       |       | 139,063                                             |       | —                                        |       | —                   |       | —                              |       | (139,063         | )          | —           |       |
| Other  noncurrent assets, net                                                                |       | 4,489                                               |       | —                                        |       | 66                       |       | 156                                 |       | —           |       | 4,711            |       |
| Investment  in subsidiaries                                                                  |       | (12,678                                             | )          | —                                        |       | —                   |       | —                              |       | 12,678           |       | —           |       |
| Total  assets                                                                                |       | $                                                   | 339,454    |                                          | $          | 14,417                   |       | $                                   | 4,924      |             | $          | 260,139          |       | $ | (159,762 | ) | $ | 459,172 |   |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                      | ** ** |
| Current  liabilities:                                                                        |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Short-term  borrowings and current maturities of long-term debt                              |       | $                                                   | 48,332     |                                          | $          | —                   |       | $                                   | —     |             | $          | 38,000           |       | $ | — |   | $ | 86,332 |   |
| Accounts  payable                                                                            |       | 20,207                                              |       | —                                        |       | 491                      |       | 52,905                              |       | (1,076           | )          | 72,527           |       |
| Accrued  liabilities                                                                         |       | 57,954                                              |       | —                                        |       | 1,495                    |       | 24,887                              |       | —           |       | 84,336           |       |
| Due  to parent/subsidiaries                                                                  |       | 972                                                 |       | —                                        |       | 8,199                    |       | 23,102                              |       | (32,273          | )          | —           |       |
| Total  current liabilities                                                                   |       | 127,465                                             |       | —                                        |       | 10,185                   |       | 138,894                             |       | (33,349          | )          | 243,195          |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Long-term  debt, less current maturities                                                     |       | 322,019                                             |       | —                                        |       | —                   |       | —                              |       | —           |       | 322,019          |       |
| Due  to parent                                                                               |       | —                                              |       | —                                        |       | —                   |       | 139,063                             |       | (139,063         | )          | —           |       |
| Other  noncurrent liabilities                                                                |       | 68,717                                              |       | —                                        |       | 587                      |       | 3,401                               |       | —           |       | 72,705           |       |
| Total  liabilities                                                                           |       | 518,201                                             |       | —                                        |       | 10,772                   |       | 281,358                             |       | (172,412         | )          | 637,919          |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Series  A redeemable preferred stock                                                         |       | 24,624                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | 24,624           |       |
|                                                                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| 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                                                                  |       | 614                                                 |       | 17,384                                        |       | 1,205                    |       | —                              |       | (18,589          | )          | 614              |       |
| Retained  earnings (accumulated deficit) and accumulated other comprehensive losses          |       | (203,985                                            | )          | (2,967                                        | )          | (7,054                   | )          | (23,224                             | )          | 33,245           |       | (203,985         | )          |
| Total  shareholders’ equity (deficit)                                                   |       | (203,371                                            | )          | 14,417                                        |       | (5,848                   | )          | (21,219                             | )          | 12,650           |       | (203,371         | )          |
| Total  liabilities and shareholders’ equity (deficit)                                   |       | $                                                   | 339,454    |                                          | $          | 14,417                   |       | $                                   | 4,924      |             | $          | 260,139          |       | $ | (159,762 | ) | $ | 459,172 |   |

 

17

----

 

**(8)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

----

 

**(8)Guarantor Subsidiaries (Continued)**

 

**Consolidating Statement of Operations (unaudited)**

**Nine Months Ended July 31,  2004**

 
| ** **                                                                | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net  sales                                                                |       | $                                                   | 216,368    |                                          | $          | —                   |       | $                                   | 9,082      |             | $          | 417,452          |       | $ | (10,635 | ) | $ | 632,267 |   |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Costs  and expenses:                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cost  of sales                                                            |       | 173,777                                             |       | —                                        |       | 7,191                    |       | 388,347                             |       | (2,804           | )          | 566,511          |       |
| Depletion,  depreciation and amortization                                 |       | 7,113                                               |       | 2,189                                         |       | 633                      |       | 8,844                               |       | —           |       | 18,779           |       |
| Selling,  general and administrative                                      |       | 15,230                                              |       | —                                        |       | 1,617                    |       | 16,078                              |       | (7,838           | )          | 25,087           |       |
| Unrealized  (gain) loss on derivatives                                    |       | 272                                                 |       | —                                        |       | —                   |       | (11                                 | )          | —           |       | 261              |       |
| Other                                                                     |       | 2,990                                               |       | 29                                            |       | (1                       | )          | 11                                  |       | —           |       | 3,029            |       |
| Total  costs and expenses                                                 |       | 199,382                                             |       | 2,218                                         |       | 9,440                    |       | 413,269                             |       | (10,642          | )          | 613,667          |       |
| Income  (loss) from operations                                            |       | 16,986                                              |       | (2,218                                        | )          | (358                     | )          | 4,183                               |       | 7                |       | 18,600           |       |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Other  income (expense):                                                  |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Interest  expense, net                                                    |       | (7,623                                              | )          | —                                        |       | (532                     | )          | (1,537                              | )          | —           |       | (9,692           | )          |
| Other,  net                                                               |       | (761                                                | )          | 630                                           |       | 4                        |       | (673                                | )          | —           |       | (800             | )          |
| Equity  in earnings of subsidiaries                                       |       | (494                                                | )          | —                                        |       | —                   |       | —                              |       | 494              |       | —           |       |
|                                                                      |       | (8,878                                              | )          | 630                                           |       | (528                     | )          | (2,210                              | )          | 494              |       | (10,492          | )          |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before income tax expense                                  |       | 8,108                                               |       | (1,588                                        | )          | (886                     | )          | 1,973                               |       | 501              |       | 8,108            |       |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  tax expense                                                       |       | 2,147                                               |       | —                                        |       | —                   |       | —                              |       | —           |       | 2,147            |       |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before cumulative effect of change in accounting principle |       | 5,961                                               |       | (1,588                                        | )          | (886                     | )          | 1,973                               |       | 501              |       | 5,961            |       |
| Cumulative  effect of change in accounting principle                      |       | —                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | —           |       |
| Net  income (loss)                                                        |       | $                                                   | 5,961      |                                          | $          | (1,588                   | )          | $                                   | (886       | )                | $          | 1,973            |       | $ | 501 |   | $ | 5,961 |   |
| Cumulative  preferred stock dividends                                     |       | (2,110                                              | )          | —                                        |       | —                   |       | —                              |       | —           |       | (2,110           | )          |
| Net  income (loss) allocable to common shares                             |       | $                                                   | 3,851      |                                          | $          | (1,588                   | )          | $                                   | (886       | )                | $          | 1,973            |       | $ | 501 |   | $ | 3,851 |   |

 

19

----

 

**(8)Guarantor Subsidiaries (Continued)**

 

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

**Three Months Ended July 31, 2004**

 
| ** **                                                                | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net  sales                                                                |       | $                                                   | 81,402     |                                          | $          | —                   |       | $                                   | 2,934      |             | $          | 146,366          |       | $ | (4,080 | ) | $ | 226,622 |   |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Costs  and expenses:                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cost  of sales                                                            |       | 59,358                                              |       | —                                        |       | 2,184                    |       | 133,613                             |       | (2,007           | )          | 193,148          |       |
| Depletion,  depreciation and amortization                                 |       | 2,271                                               |       | 570                                           |       | 211                      |       | 3,055                               |       | —           |       | 6,107            |       |
| Selling,  general and administrative                                      |       | 5,372                                               |       | —                                        |       | 515                      |       | 4,780                               |       | (2,063           | )          | 8,604            |       |
| Unrealized  (gain) loss on derivatives                                    |       | (983                                                | )          | —                                        |       | —                   |       | 304                                 |       | —           |       | (679             | )          |
| Other                                                                     |       | 973                                                 |       | —                                        |       | —                   |       | 7                                   |       | —           |       | 980              |       |
| Total  costs and expenses                                                 |       | 66,991                                              |       | 570                                           |       | 2,910                    |       | 141,759                             |       | (4,070           | )          | 208,160          |       |
| Income  (loss) from operations                                            |       | 14,411                                              |       | (570                                          | )          | 24                       |       | 4,607                               |       | (10              | )          | 18,462           |       |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Other  income (expense):                                                  |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Interest  expense, net                                                    |       | (2,513                                              | )          | —                                        |       | (175                     | )          | (417                                | )          | —           |       | (3,105           | )          |
| Other,  net                                                               |       | (315                                                | )          | 211                                           |       | 3                        |       | (187                                | )          | —           |       | (288             | )          |
| Equity  in earnings of subsidiaries                                       |       | 3,486                                               |       | —                                        |       | —                   |       | —                              |       | (3,486           | )          | —           |       |
|                                                                      |       | 658                                                 |       | 211                                           |       | (172                     | )          | (604                                | )          | (3,486           | )          | (3,393           | )          |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before income tax expense                                  |       | 15,069                                              |       | (359                                          | )          | (148                     | )          | 4,003                               |       | (3,496           | )          | 15,069           |       |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  tax expense                                                       |       | 626                                                 |       | —                                        |       | —                   |       | —                              |       | —           |       | 626              |       |
|                                                                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before cumulative effect of change in accounting principle |       | 14,443                                              |       | (359                                          | )          | (148                     | )          | 4,003                               |       | (3,496           | )          | 14,443           |       |
| Cumulative  effect of change in accounting principle                      |       | —                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | —           |       |
| Net  income (loss)                                                        |       | $                                                   | 14,443     |                                          | $          | (359                     | )          | $                                   | (148       | )                | $          | 4,003            |       | $ | (3,496 | ) | $ | 14,443 |   |
| Cumulative  preferred stock dividends                                     |       | (703                                                | )          | —                                        |       | —                   |       | —                              |       | —           |       | (703             | )          |
| Net  income (loss) allocable to common shares                             |       | $                                                   | 13,740     |                                          | $          | (359                     | )          | $                                   | (148       | )                | $          | 4,003            |       | $ | (3,496 | ) | $ | 13,740 |   |

 

20

----

 

**(8)Guarantor Subsidiaries (Continued)**

 

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

**Nine Months Ended July 31, 2003**

 
| ** **                                                                      | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  sales                                                                      |       | $                                                   | 175,832    |                     | $          | 11,514                              |       | $                | 313,645    |             | $          | (8,666 | ) | $ | 492,325 |   |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Costs  and expenses:                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Cost  of sales                                                                  |       | 150,990                                             |       | 8,897                    |       | 299,593                             |       | (1,743           | )          | 457,737          |       |
| Depletion,  depreciation and amortization                                       |       | 13,841                                              |       | 1,084                    |       | 8,621                               |       | —           |       | 23,546           |       |
| Selling,  general and administrative                                            |       | 11,853                                              |       | 1,279                    |       | 14,376                              |       | (6,905           | )          | 20,603           |       |
| Unrealized  (gain) loss on derivatives                                          |       | 1,121                                               |       | —                   |       | (108                                | )          | —           |       | 1,013            |       |
| Other                                                                           |       | 1,670                                               |       | —                   |       | —                              |       | —           |       | 1,670            |       |
| Total  costs and expenses                                                       |       | 179,475                                             |       | 11,260                   |       | 322,482                             |       | (8,648           | )          | 504,569          |       |
| Income  (loss) from operations                                                  |       | (3,643                                              | )          | 254                      |       | (8,837                              | )          | (18              | )          | (12,244          | )          |
| Other  income (expense):                                                        |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Interest  expense, net                                                          |       | (7,327                                              | )          | (446                     | )          | (1,994                              | )          | —           |       | (9,767           | )          |
| Other,  net                                                                     |       | (283                                                | )          | 7                        |       | (148                                | )          | —           |       | (424             | )          |
| Equity  in earnings of subsidiaries                                             |       | (11,274                                             | )          | —                   |       | —                              |       | 11,274           |       | —           |       |
|                                                                            |       | (18,884                                             | )          | (439                     | )          | (2,142                              | )          | 11,274           |       | (10,191          | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before income tax expense                                        |       | (22,527                                             | )          | (185                     | )          | (10,979                             | )          | 11,256           |       | (22,435          | )          |
| Income  tax expense                                                             |       | —                                              |       | —                   |       | —                              |       | —           |       | —           |       |
| Income  (loss) before cumulative effect of change in accounting principle       |       | (22,527                                             | )          | (185                     | )          | (10,979                             | )          | 11,256           |       | (22,435          | )          |
| Cumulative  effect of change in accounting principle, net of income tax benefit |       | (3,848                                              | )          | —                   |       | (92                                 | )          | —           |       | (3,940           | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  income (loss)                                                              |       | $                                                   | (26,375    | )                        | $          | (185                                | )          | $                | (11,071    | )                | $          | 11,256 |   | $ | (26,375 | ) |
| Cumulative  preferred stock dividends                                           |       | (1,889                                              | )          | —                   |       | —                              |       | —           |       | (1,889           | )          |
| Net  income (loss) allocable to common shares                                   |       | $                                                   | (28,264    | )                        | $          | (185                                | )          | $                | (11,071    | )                | $          | 11,256 |   | $ | (28,264 | ) |

 

21

----

 

**(8)Guarantor Subsidiaries (Continued)**

 

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

**Three Months Ended July 31, 2003**

 
| ** **                                                                      | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  sales                                                                      |       | $                                                   | 61,345     |                     | $          | 3,650                               |       | $                | 107,024    |             | $          | (2,815 | ) | $ | 169,204 |   |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Costs  and expenses:                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Cost  of sales                                                                  |       | 50,718                                              |       | 2,935                    |       | 106,355                             |       | (448             | )          | 159,560          |       |
| Depletion,  depreciation and amortization                                       |       | 4,500                                               |       | 357                      |       | 2,748                               |       | —           |       | 7,605            |       |
| Selling,  general and administrative                                            |       | 4,976                                               |       | 285                      |       | 4,962                               |       | (2,366           | )          | 7,857            |       |
| Unrealized  loss on derivatives                                                 |       | 1,581                                               |       | —                   |       | 18                                  |       | —           |       | 1,599            |       |
| Other                                                                           |       | 770                                                 |       | —                   |       | —                              |       | —           |       | 770              |       |
| Total  costs and expenses                                                       |       | 62,545                                              |       | 3,577                    |       | 114,083                             |       | (2,814           | )          | 177,391          |       |
| Income  (loss) from operations                                                  |       | (1,200                                              | )          | 73                       |       | (7,059                              | )          | (1               | )          | (8,187           | )          |
| Other  income (expense):                                                        |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Interest  expense, net                                                          |       | (2,468                                              | )          | (182                     | )          | (582                                | )          | —           |       | (3,232           | )          |
| Other,  net                                                                     |       | (482                                                | )          | 2                        |       | (40                                 | )          | —           |       | (520             | )          |
| Equity  in earnings of subsidiaries                                             |       | (7,789                                              | )          | —                   |       | —                              |       | 7,789            |       | —           |       |
|                                                                            |       | (10,739                                             | )          | (180                     | )          | (622                                | )          | 7,789            |       | (3,752           | )          |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before income tax expense                                        |       | (11,939                                             | )          | (107                     | )          | (7,681                              | )          | 7,788            |       | (11,939          | )          |
| Income  tax expense                                                             |       | —                                              |       | —                   |       | —                              |       | —           |       | —           |       |
| Income  (loss) before cumulative effect of change in accounting principle       |       | (11,939                                             | )          | (107                     | )          | (7,681                              | )          | 7,788            |       | (11,939          | )          |
| Cumulative  effect of change in accounting principle, net of income tax benefit |       | —                                              |       | —                   |       | —                              |       | —           |       | —           |       |
|                                                                            |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  income (loss)                                                              |       | $                                                   | (11,939    | )                        | $          | (107                                | )          | $                | (7,681     | )                | $          | 7,788 |   | $ | (11,939 | ) |
| Cumulative  preferred stock dividends                                           |       | (625                                                | )          | —                   |       | —                              |       | —           |       | (625             | )          |
| Net  income (loss) allocable to common shares                                   |       | $                                                   | (12,564    | )                        | $          | (107                                | )          | $                | (7,681     | )                | $          | 7,788 |   | $ | (12,564 | ) |

 

22

----

 

**(8)Guarantor Subsidiaries (Continued)**

 

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

**Nine Months Ended July 31, 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          |       | $                                                   | 14,717     |                                          | $          | 601                      |       | $                                   | (595       | )                | $          | (6,301           | )          | $ | (828 | ) | $ | 7,594 |   |
| Cash  flows from investing activities:                        |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Purchases  of property, plant and equipment                   |       | (7,917                                              | )          | —                                        |       | —                   |       | (8,900                              | )          | —           |       | (16,817          | )          |
| Investment  in subsidiaries                                   |       | (828                                                | )          | —                                        |       | —                   |       | —                              |       | 828              |       | —           |       |
|                                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net  cash used in investing activities                        |       | (8,745                                              | )          | —                                        |       | —                   |       | (8,900                              | )          | 828              |       | (16,817          | )          |
|                                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cash  flows from financing activities:                        |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Proceeds  from revolving loans and short-term borrowings, net |       | (1,086                                              | )          | —                                        |       | —                   |       | 2,000                               |       | —           |       | 914              |       |
| Payments  on long-term debt                                   |       | (828                                                | )          | —                                        |       | —                   |       | (1,559                              | )          | —           |       | (2,387           | )          |
| Due  to/due from parent/subsdiaries                           |       | (4,058                                              | )          | (601                                          | )          | 595                      |       | 4,064                               |       | —           |       | —           |       |
| Net  cash provided by (used in) financing activities          |       | (5,972                                              | )          | (601                                          | )          | 595                      |       | 4,505                               |       | —           |       | (1,473           | )          |
| Net  decrease in cash                                         |       | —                                              |       | —                                        |       | —                   |       | (10,696                             | )          | —           |       | (10,696          | )          |
|                                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cash  at beginning of period                                  |       | —                                              |       | —                                        |       | —                   |       | 16,794                              |       | —           |       | 16,794           |       |
| Cash  at end of period                                        |       | $                                                   | —     |                                          | $          | —                   |       | $                                   | —     |             | $          | 6,098            |       | $ | — |   | $ | 6,098 |   |

 

23

----

 

**(8)Guarantor Subsidiaries (Continued)**

 

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

**Nine Months Ended July 31, 2003**

 
| ** **                                                    | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                          |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Net  cash provided by (used in) operating activities          |       | $                                                   | (15,563    | )                        | $          | 1,462                               |       | $                | 5,488      |             | $          | 11,130 |   | $ | 2,517 |   |
| Cash  flows from investing activities:                        |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Purchases  of property, plant and equipment                   |       | (4,672                                              | )          | (5                       | )          | (7,666                              | )          | —           |       | (12,343          | )          |
| Investment  in subsidiaries                                   |       | 11,130                                              |       | —                   |       | —                              |       | (11,130          | )          | —           |       |
| Net  cash provided by (used in) investing activities          |       | 6,458                                               |       | (5                       | )          | (7,666                              | )          | (11,130          | )          | (12,343          | )          |
| Cash  flows from financing activities:                        |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Proceeds  from revolving loans and short-term borrowings, net |       | 18,405                                              |       | —                   |       | (700                                | )          | —           |       | 17,705           |       |
| Payments  on long-term debt                                   |       | (3,131                                              | )          | —                   |       | (3,260                              | )          | —           |       | (6,391           | )          |
| Payment  of financing costs                                   |       | (482                                                | )          | —                   |       | —                              |       | —           |       | (482             | )          |
| Due  to/due from parent/subsdiaries                           |       | (5,687                                              | )          | (1,457                   | )          | 7,144                               |       | —           |       | —           |       |
| Net  cash provided by (used in) financing activities          |       | 9,105                                               |       | (1,457                   | )          | 3,184                               |       | —           |       | 10,832           |       |
| Net  increase in cash                                         |       | —                                              |       | —                   |       | 1,006                               |       | —           |       | 1,006            |       |
|                                                          |       |                                                |       |                     |       |                                |       |             |       |             |       |
| Cash  at beginning of period                                  |       | —                                              |       | —                   |       | 7,018                               |       | —           |       | 7,018            |       |
| Cash  at end of period                                        |       | $                                                   | —     |                     | $          | —                              |       | $                | 8,024      |             | $          | — |   | $ | 8,024 |   |

 

24

----

 

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

**CondensedConsolidated Balance Sheets**

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

 
| ** **                                                                    | ** **   | **July 31,** | ** **   | **October 31,** | ** **   |
|-------------------------------------------------------------------------------|--------------|-------------------|--------------|----------------------|--------------|
| ** **                                                                    | ** **   | **2004**          | ** **   | **2003**             | ** **   |
| *** ***                                                                  | *** *** | **(unaudited)**   | *** *** | *** ***         | *** *** |
| **ASSETS**                                                                    |         |              |         |                 |         |
| Current  assets:                                                              |         |              |         |                 |         |
| Cash                                                                          |         | $                 | 6,098        |                 | $            | 16,794 |   |
| Trade  accounts receivable, net of allowance for doubtful accounts            |         | 27,671            |         | 16,982               |         |
| Inventories                                                                   |         | 73,646            |         | 54,081               |         |
| Prepaid  expenses and other current assets                                    |         | 18,829            |         | 8,352                |         |
| Total  current assets                                                         |         | 126,244           |         | 96,209               |         |
|                                                                          |         |              |         |                 |         |
| Property, plant and  equipment, net                                           |         | 133,739           |         | 133,683              |         |
| Other  noncurrent assets, net                                                 |         | 156               |         | 256                  |         |
| Total  assets                                                                 |         | $                 | 260,139      |                 | $            | 230,148 |   |
|                                                                          |         |              |         |                 |         |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                |         |              |         |                 |         |
| Current  liabilities:                                                         |         |              |         |                 |         |
| Short-term  borrowings and current maturities of long-term debt               |         | $                 | 38,000       |                 | $            | 37,559 |   |
| Accounts  payable                                                             |         | 52,905            |         | 31,425               |         |
| Accrued  liabilities                                                          |         | 24,887            |         | 23,018               |         |
| Due  to parent                                                                |         | 23,102            |         | 19,038               |         |
| Total  current liabilities                                                    |         | 138,894           |         | 111,040              |         |
|                                                                          |         |              |         |                 |         |
| Due  to parent                                                                |         | 139,063           |         | 139,063              |         |
| Other  noncurrent liabilities                                                 |         | 3,401             |         | 3,237                |         |
| Total  liabilities                                                            |         | 281,358           |         | 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                             |         | (23,224           | )            | (25,197              | )            |
| Total  shareholders’ deficit                                             |         | (21,219           | )            | (23,192              | )            |
| Total  liabilities and shareholders’ equity                              |         | $                 | 260,139      |                 | $            | 230,148 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

25

----

 

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

**CondensedConsolidated Statements of Operations (unaudited)**

**(Dollarsin thousands)**

 
| ** **                                                                      | ** ** | **Three Months  Ended July 31,** | ** ** | **Nine Months  Ended July 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                      | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| * *                                                                        | * *   | * *                              | * *   | * *                             | * *   | * * | * * | * * | * * |
| Net  sales                                                                      |       | $                                     | 146,366    |                                 | $          | 107,024 |   | $ | 417,452 |   | $ | 313,645 |   |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Costs  and expenses:                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Cost  of sales                                                                  |       | 133,613                               |       | 106,355                              |       | 388,347 |   | 299,593 |   |
| Depletion,  depreciation and amortization                                       |       | 3,055                                 |       | 2,748                                |       | 8,844 |   | 8,621 |   |
| Selling,  general and administrative                                            |       | 4,780                                 |       | 4,962                                |       | 16,078 |   | 14,376 |   |
| Unrealized  (gain)/loss on derivatives                                          |       | 304                                   |       | 18                                   |       | (11 | ) | (108 | ) |
| Other                                                                           |       | 7                                     |       | —                               |       | 11 |   | — |   |
| Total  costs and expenses                                                       |       | 141,759                               |       | 114,083                              |       | 413,269 |   | 322,482 |   |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Income  (loss) from operations                                                  |       | 4,607                                 |       | (7,059                               | )          | 4,183 |   | (8,837 | ) |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Other  income (expense):                                                        |       |                                  |       |                                 |       |   |   |   |   |
| Interest  expense, net                                                          |       | (417                                  | )          | (582                                 | )          | (1,537 | ) | (1,994 | ) |
| Other,  net                                                                     |       | (187                                  | )          | (40                                  | )          | (673 | ) | (148 | ) |
|                                                                            |       | (604                                  | )          | (622                                 | )          | (2,210 | ) | (2,142 | ) |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Income  (loss) before income tax expense                                        |       | 4,003                                 |       | (7,681                               | )          | 1,973 |   | (10,979 | ) |
|                                                                            |       |                                  |       |                                 |       |   |   |   |   |
| Income  tax expense                                                             |       | —                                |       | —                               |       | — |   | — |   |
| Income  (loss) before cumulative effect of change in accounting principle       |       | 4,003                                 |       | (7,681                               | )          | 1,973 |   | (10,979 | ) |
| Cumulative  effect of change in accounting principle, net of income tax benefit |       | —                                |       | —                               |       | — |   | (92 | ) |
| Net  income (loss)                                                              |       | $                                     | 4,003      |                                 | $          | (7,681 | ) | $ | 1,973 |   | $ | (11,071 | ) |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

26

----

 

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

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

**(Dollarsin thousands)**

 
| ** **                                                                  | ** ** | **Nine Months  Ended July 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                  | ** ** | **2004**                             | ** ** | **2003** | ** ** |
| * *                                                                    | * *   | * *                             | * *   | * * | * * |
| Net  cash provided by (used in) operating activities                        |       | $                                    | (6,301     | ) | $ | 5,488 |   |
| Cash  flows from investing activities:                                      |       |                                 |       |   |   |
| Purchases  of property, plant and equipment                                 |       | (8,900                               | )          | (7,666 | ) |
| Net  cash used in investing activities                                      |       | (8,900                               | )          | (7,666 | ) |
| Cash  flows from financing activities:                                      |       |                                 |       |   |   |
| Proceeds  from (payments on) revolving loans and short-term borrowings, net |       | 2,000                                |       | (700 | ) |
| Payments  on long-term debt                                                 |       | (1,559                               | )          | (3,260 | ) |
| Loans  with parent                                                          |       | 4,064                                |       | 7,144 |   |
| Net  cash provided by financing activities                                  |       | 4,505                                |       | 3,184 |   |
| Net  increase (decrease) in cash                                            |       | (10,696                              | )          | 1,006 |   |
|                                                                        |       |                                 |       |   |   |
| Cash  at beginning of period                                                |       | 16,794                               |       | 7,018 |   |
| Cash  at end of period                                                      |       | $                                    | 6,098      |   | $ | 8,024 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

27

----

 

**DOE RUNPERU S.R.L**

 

**Notes toCondensed Consolidated Financial Statements**

**(Dollars in thousands)**

 

**(1)****                     Summary ofSignificant 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 July 31, 2004 andresults of operations for the three and nine month periods ended July 31,2004 and 2003.  All material intercompanybalances and transactions have been eliminated. Interim periods are not necessarily indicative of results to be expectedfor the year.

 

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

 

The Company’s auditors issued unqualified opinions onthe 2003 audited financial statements of the Company that expressed 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.

 

The Company has significant capital requirements underthe PAMA. As discussed in Note 4, Doe Run Peru expects that it will not be ableto comply with the spending requirements of the PAMA investment schedule in2005 and 2006 and could be subject to penalties. Doe Run Peru has requested amodification to the PAMA for the La Oroya smelter. Although the requiredcompliance date would be extended under the modification, total spending wouldbe approximately $22,000 higher than what is currently required, with anestimated cost of approximately $143,000 over the calendar years 2005-2011. TheCompany’s ability to generate the liquidity to meet these obligations isdependent upon future operating performance and financial results, which aresubject to financial, economic, political, competitive and other factors affectingthe Company, many of which are beyond the Company’s control.

 

Doe Run Peru hasdeveloped a business plan that identifies several revenue generating and costreduction activities. Management believes the plan will enhance liquidity,which would improve Doe Run Peru’s ability to make the investments under theproposed modifications to the PAMA. 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 July 31, 2004 and October 31, 2003 under the Doe Run PeruRevolving Credit Facility was approximately $1,830 and $3,830,respectively.  In addition to theavailability under its revolving credit facilities, Doe Run Peru also had cashbalances of $6,098 at July 31, 2004 and $16,794 at October 31,2003.  The Company’s long-term liquidity outlookhas improved, due to higher prices and other revenue enhancements.  In Peru, higher metal prices resulted inhigher 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 betweenOctober 2003 and July 2004. At metal prices higher than 2003averages, but lower than those experienced through the third quarter of 2004,Doe Run Peru’s liquidity should stabilize.

 

Management believes thatthe price improvements and other revenue enhancements and the expected approvalof the proposed modification to the La Oroya smelter’s PAMA will enable theCompany to continue as a going concern.

 

28

----

 

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

 

Inventories consist ofthe following:

 
| ** **                            | ** ** | **July 31,** | ** ** | **October 31,** | ** ** |
|---------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                            | ** ** | **2004**          | ** ** | **2003**             | ** ** |
|                                  |       |              |       |                 |       |
| Finished  metals and concentrates     |       | $                 | 4,692      |                 | $          | 2,535 |   |
| Metals  and concentrates in process   |       | 54,564            |       | 39,654               |       |
| Materials,  supplies and repair parts |       | 14,390            |       | 11,892               |       |
|                                  |       |              |       |                 |       |
|                                  |       | $                 | 73,646     |                 | $          | 54,081 |   |

 

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

 

**(4)****                     AssetRetirement and Environmental Obligations**

 

***Asset Retirement 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 July 31, 2004 and October 31,2003, respectively.

 

***Environmental Remediation***

 

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 or metallurgicaloperation like Cobriza). Once approved, the PAMA, as modified from time totime, functions as the equivalent of an operating permit with which theoperator must comply. After expiration of the PAMA, the operator must complywith all applicable standards and requirements. Future changes in legal rulesand maximum permissible levels would not be applicable to Doe Run Peru for theremaining period of La Oroya’s PAMA, except for certain closure requirements.Because these costs improve the property or prevent future environmentalcontamination, they are capitalized.

 

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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

 

An investment schedule in the PAMA provides a specificplan for achieving the applicable Ministry of Energy and Mines (MEM) maximum permissiblelimits pertaining to air emissions and wastewater effluent quality. The PAMAmay be modified and amended as to the actual design and timing of projects tobe implemented, provided compliance with the applicable maximum permissiblelimits is achieved by December 31, 2006. Estimated annual spending on acalendar year basis for the projects approved in the La Oroya PAMA, as amended,most recently on January 25, 2002, are as follows:

 

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

 

The current estimate of cost for the requiredremaining projects under the existing PAMA and on additional related processchanges is approximately $168,000. The PAMA currently requires Doe Run Peru tobegin construction of certain sulfuric acid plants in 2005, estimated to costapproximately $107,500, in order to reduce emissions. Doe Run Peru expects thatit will not be able to comply with the spending requirements of the PAMAinvestment schedule in 2005 and 2006 and could be subject to penalties.

 

Doe Run Peru submitted a request to MEM in July 2004to modify the requirements of the existing PAMA and extend the term of thePAMA. Although the required compliance date under the proposal would beextended, 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 modification or thatthey will achieve compliance in the timeframe required by the PAMA. If therequested PAMA modification is not approved and the La Oroya smelter does notcomply with the investment schedule of the PAMA or does not operate within thecurrent PAMA limits after December 31, 2006, Doe Run Peru could be forced tocease or curtail operations 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

 

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31, 2006. No assurance can be given thatimplementation of the PAMA projects is feasible or that their implementationwill achieve compliance with the applicable legal requirements by the end ofthe PAMA period. Further, there can be no assurance that the Peruvian governmentwill not in the future require compliance with additional or differentenvironmental obligations that could adversely affect Doe Run Peru’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 paste fillfrom tailings, which equipment has been installed.

 

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 July 31, 2004and October 31, 2003.

 

**(5)*****                    *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.

 

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.

 

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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 ofFinancial Condition and Results of Operations**

 

The following discussion and analysis of the threemonths (the 2004 quarter) and the nine months (the 2004 period) endedJuly 31, 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 the 2004period. Lead prices increased from a London Metal Exchange (LME) settlementmonthly average of $532.60 per short ton in October 2003 to $852.40 pershort ton in July 2004.  Doe Run hasbenefited from this price increase in both its lead metal and lead concentratesales, as affected 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, accounts receivable andaccounts payable as of July 31, 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 for cleanlead concentrates, Doe Run indefinitely suspended operations at its Gloversmelter in November 2003 and is selling 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. Copper production forthe 2004 quarter was 1,225 tons, or 37%, higher than in the second quarter of2004.  The plan also provides for achange in the mine plan to mine at a lower grade than prior year in order tooptimize 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 modificationshave been implemented 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*

 

Doe Run Peru expects thatit will not be able to comply with the spending requirements of the PAMAinvestment schedule in 2005 and 2006 and could be subject to penalties. InJuly 2004, Doe Run Peru submitted a request for modification of its PAMAfor the La Oroya smelter to the Ministry of Energy and Mining with the intentof modifying and extending the PAMA through the end of 2011. The proposaladdresses environmental impacts related to fugitive emissions and the escape ofheavy metal and is intended to meet the health and safety needs of thecommunity. Although the required compliance date under the proposal would beextended, total spending would be approximately $22.0 million higher than whatis currently 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

 

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requested PAMAmodification is not approved Doe Run Peru could be forced to cease or curtailoperations at the La Oroya 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, which would improve Doe Run Peru’s ability tomake the investments under the proposed modifications to the PAMA. Revenueenhancement and cost reduction projects include the processing of zinc ferritesand an effort to bring more recycled feed into the smelter. Cost reductionmeasures include manpower reductions through voluntary retirement, decreasedpower usage in the zinc circuit and the closure of the coke plant.

 

# ***Results of Operations***

# ** **

*Impactof Metals Pricing*

 

Metal prices haveremained strong during the 2004 quarter. The following table sets forth averageLondon Metal Exchange (LME) prices for lead, copper and zinc and the averageLondon Bullion Market Association (LBMA) price for silver for the periodsindicated:

 
| ** **             | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **             | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Average  Prices        |       |                                  |       |                                 |       |   |   |   |   |
| Lead  ($/short ton)    |       | 794.60                                |       | 438.40                               |       | 730.20 |   | 418.60 |   |
| Copper  ($/short ton)  |       | 2,488.60                              |       | 1,526.00                             |       | 2,385.80 |   | 1,493.00 |   |
| Zinc  ($/short ton)    |       | 918.00                                |       | 725.00                               |       | 925.2 |   | 713.00 |   |
| Silver  ($/troy ounce) |       | 6.01                                  |       | 4.69                                 |       | 6.22 |   | 4.63 |   |

 

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****July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|
| ** **                                       | ** ** | **2004**                                | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
| U.S.  Operations                                 |       |                                    |       |                                 |       |   |   |   |   |
| Lead  concentrates (metal content, short tons)   |       | 70,154                                  |       | 76,581                               |       | 202,421 |   | 221,773 |   |
| Lead  metal-primary (short tons)                 |       | 42,281                                  |       | 73,378                               |       | 131,443 |   | 214,345 |   |
| Lead  metal-recycling (short tons)               |       | 33,824                                  |       | 39,761                               |       | 99,460 |   | 110,091 |   |
| Ore  Production (000’s of dry short tons)   |       | 1,219                                   |       | 1,160                                |       | 3,655 |   | 3,489 |   |
| Ore  grade                                       |       | 6.01                                    | %          | 6.80                                 | %          | 5.75 | % | 6.53 | % |
|                                             |       |                                    |       |                                 |       |   |   |   |   |
| Doe  Run Peru Operations                         |       |                                    |       |                                 |       |   |   |   |   |
| Refined  copper (short tons)                     |       | 15,470                                  |       | 17,294                               |       | 46,773 |   | 52,166 |   |
| Refined  lead (short tons)                       |       | 33,571                                  |       | 31,483                               |       | 98,363 |   | 89,672 |   |
| Refined  zinc (short tons)                       |       | 18,433                                  |       | 19,704                               |       | 56,101 |   | 60,755 |   |
| Refined  silver (thousands of troy ounces)       |       | 9,015                                   |       | 8,889                                |       | 27,027 |   | 26,087 |   |
| Refined  gold (thousands of troy ounces)         |       | 17                                      |       | 23                                   |       | 48 |   | 66 |   |
| Copper  concentrates (metal content, short tons) |       | 3,585                                   |       | 4,514                                |       | 12,490 |   | 13,446 |   |
| Ore  Grade (copper content)                      |       | 1.04                                    | %          | 1.07                                 | %          | 1.10 | % | 1.10 | % |

 

At the Company’s primarymining operations, the lead grade of ore decreased in 2004, compared to 2003,due to changes in the mine plan, as discussed above, in addition to lowerpillar recovery in the Buick

 

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mine, resulting in lowervolume of lead in concentrate produced. Gross production costs in the 2004 quarter increased by 33% compared tothe prior quarter, and by 25% in the 2004 period as compared with the prior period,due to higher payroll costs, higher repairs and maintenance costs and higherroyalties resulting from the increase in metal prices.  As a result of the higher production costsand lower production of lead metal in concentrates, the unit cost of metalcontained in concentrates increased 40% in the 2004 quarter compared to the2003 quarter and 32% in the 2004 period compared 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 35,000 tons in the 2004 quarter and 94,000 tons in the 2004period, compared to the comparable prior year periods. In the 2004 quarter andthe 2004 period, the Herculaneum smelter increased production approximately4,000 tons from the 2003 quarter and over 11,000 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. Thisoperating level is dependent upon the smelter’s ability to continue compliancewith air quality monitors at the higher production levels as well as supportingmarket conditions. The production costs decreased due to the suspension ofoperations at the Glover smelter offset by higher payroll and fringe costs,higher production levels and an increase in repair and maintenance costs at theHerculaneum smelter.  As a result ofthese changes, the cost per ton of primary lead metal produced for the 2004quarter and the 2004 period increased 43% and 27% compared to the correspondingprior year periods.

 

Production at theCompany’s Buick recycling operation declined 16% for the 2004 quarter and 11%for the 2004 period.  A change in feedmix resulting 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 4% in the 2004 quarter and 7% in the 2004 periodversus the comparable prior year periods due primarily to increases in propane,oxygen, chemicals, reagents and labor costs. In addition, the cost of feed materials increased in the 2004 quarter 73%when compared to the 2003 quarter and 52% in the 2004 period when compared tothe 2003 period, which was impacted by the shortage in supply of certain feedand current market conditions. As a result of the decreased production andhigher production and feed costs, the cost per ton of lead metal produced forthe 2004 quarter increased 47% and for the period increased 35% over the prioryear.

 

The intense worldwide competition for concentrates hascontinued into the third 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 11% 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 7% increase inlead production in the 2004 quarter compared to the 2003 quarter, and 10% 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 45%, 63%, 16% and 32% 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.

 

Ore production at Doe Run Peru’s Cobriza mine in the2004 quarter was approximately 20% lower than the 2003 quarter, caused byground stability and equipment availability issues.  Management is implementing corrective actionsto address the ground stability problems based on studies by Doe Run technicalservices personnel and outside consultants. Cobriza is in the process ofobtaining new equipment, which should improve production volume.

 

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*

 

 *Gross margin on sales*(net sales less cost of sales) increased $23.8 million to $33.5 million in the2004 quarter compared to the 2003 quarter, and increased $31.2 million to $65.8million in the 2004 period compared to the 2003 period. Gross margin on salesfor the Company’s U.S. operations increased $11.8

 

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million to $20.7 millionfor the 2004 quarter and increased $16.1 million to $36.7 million for the 2004period. An increase of 36% for the 2004 quarter and 29% for the 2004 period inthe U.S. operation’s realized prices for lead metal, fueled by higher LMEprices, contributed an additional $15.7 and $37.0 million, respectively, to DoeRun’s U.S. operations’ gross margin on sales compared to prior year. Theincrease in the lead metal net realized prices was less than the increase inthe average LME settlement price, due to the effects of the Company’s riskmanagement strategy, which reduces the Company’s exposure to changes in themarket price in an attempt to fix an acceptable price for its products.Increases in copper and zinc metal prices fueled an increase in the net realizedprice for copper and zinc concentrate sales, which contributed an additional$3.7 million to gross margin compared to the 2003 quarter and $8.4 millioncompared to the 2003 period. The sale of lead concentrates contributed $4.6million to margins in the 2004 quarter and $7.4 million to margins in the 2004period as compared to the 2003 quarter and period, respectively. These wereoffset by higher costs per unit of metal produced at the U.S. operations drivenby the increases in repairs and maintenance, payroll and related fringes andthe higher feed costs and the effects of the change in feed mix on theproduction at the recycling operations.

 

DoeRun Peru’s gross margins increased $12.0 million to $12.7 million in the 2004quarter compared to the 2003 quarter, and increased $15.1 million to $29.1million in the 2004 period compared to the 2003 period. The increase in metalprices also benefited Doe Run Peru, contributing to price related increases of$12.3 million and $22.7 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, and higher utilities and fuel costs at the Cobrizamine. The 2004 period was also affected by severance costs on employeesreleased in the first quarter of 2004 under a work force reduction planannounced in September 2003.

 

*Selling,general and administrative costs* increased $0.7 million or10% for the 2004 quarter, compared to the 2003 quarter, and $4.5 million or 22%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 ofAugust 31, 2004, a total of one hundred thirty-six homeowners haverequested offers, and eighty-three of one hundred twenty-one delivered offershad been accepted. As of August 31, 2004, the Company had spentapproximately $5,200 under the voluntary property purchase plan, with another$1,600 in accepted offers awaiting a closing date, and $3,400 in outstandingoffers. Management cannot estimate how many of the remaining homeowners willrequest offers, or, if offers are requested and accepted, what price will bepaid 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 taxpurposes.  Most states in which theCompany operates will follow similar tax treatment. QSSS status requires theultimate shareholders to include their pro rata share of the Company’s incomeor loss in their individual tax returns. As a result of the

 

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Company’s tax status inthe U.S., the Company is not subject to federal 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*.

 

***FinancialCondition and Liquidity***

 

The Company’s auditorsissued unqualified opinions on the 2003 audited financial statements of theCompany and of Doe Run Peru that expressed substantial doubt about theCompany’s and Doe Run Peru’s ability to continue as going concerns due toliquidity and other issues related to defaults under loan agreements,uncertainties related to environmental and litigation matters, as well as theCompany’s recurring losses.

 

The Company hassubstantial debt service requirements in the future, including the maturitiesin 2005 of the Term Note with Renco, the 11.25% Senior Notes and 11.25% SeniorSecured Notes totaling $23,000, and also significant capital requirements underthe PAMA. The Company’s ability to generate the liquidity to meet theseobligations is dependent upon future operating performance and financial results,which are subject to financial, economic, political, competitive and otherfactors affecting the Company, many of which are beyond the Company’s control.

 

Doe Run Peru expects thatit will not be able to comply with the spending requirements of the PAMAinvestment schedule in 2005 and 2006 and could be subject to penalties. Doe RunPeru has submitted the modification discussed in the “*Overview*” to modify the requirements ofthe existing PAMA and extend the term of the PAMA. If the requested PAMA modificationis not approved and the La Oroya smelter does not comply with the investmentschedule of the PAMA or does not operate within the current PAMA limits afterDecember 31, 2006, Doe Run Peru could be forced to cease or curtail operationsat the La Oroya smelter.

 

Net unused availabilityat July 31, 2004 under the Doe Run Revolving Credit Facility and Doe Run PeruRevolving Credit Facility was $22.0 million and $1.8, respectively.  In addition to the availability under its revolvingcredit facilities, Doe Run Peru also had $6.1 million of cash at July 31,2004.  Net unused availability at October31, 2003 was $14.4 million and $3.8 million under the Doe Run Revolving CreditFacility and Doe Run Peru Revolving Credit Facility, respectively, and Doe RunPeru’s cash balances totaled $16.8 million. The Company’s long-term liquidity outlook has improved due to higherprices and other revenue enhancements. In Peru, higher metal prices resulted inhigher 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 between October2003 and July 2004. At metal prices higher than 2003 averages, but lower thanthose experienced through the third quarter of 2004, Doe Run’s liquidity shouldcontinue to improve and Doe Run Peru’s liquidity should stabilize.

 

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 statusis not 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 as of July 31,2004. Although Doe Run Peru management is taking action to regain its previousstatus, and believes that Doe Run Peru will be requalified, there is noassurance that the previous status will be reinstated.

 

Effective July 1, 2004,Doe Run and Doe Run Peru suspended a sales agency agreement under which Doe Runacted as a sales agent on behalf of Doe Run Peru.  Under the cancellation, the balance owed toDoe Run of $22.6 million will be paid in $1.0 million quarterly installments,or as otherwise agreed by the parties.

 

Management believes that,based on current projections at prices lower than those experienced through thethird quarter of 2004, it will meet its 2005 debt service requirements and thespending requirements proposed in the PAMA modification. Furthermore, managementbelieves that the price improvements and other revenue enhancements and theexpected approval of the proposed modification to the La Oroya smelter’s PAMAdiscussed in the *“Overview”* willenable the Company and its subsidiaries to continue as going concerns. It’sability to do so and to meet obligations after 2005 could be affected by thefactors named above, and accordingly, no assurance can be given that it will beable to meet such obligations.

 

***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 business conditions,increasing industry capacity and levels of imports of non-ferrous metals ornon-ferrous metals products, industry trends, including product pricing;competition, currency fluctuations, the loss of any significant customer,availability of qualified personnel, effects of future collective bargainingagreements, outcome of litigation, changing environmental requirements,political uncertainty, terrorism and major equipment failures.  These forward-looking statements speak onlyas of the date of this report.  TheCompany expressly disclaims any obligation or undertaking to disseminate anyupdates or revisions to any forward-looking statement contained herein toreflect any change in the Company’s expectations with regard thereto or anychange in events, conditions, or circumstances on which any such statement isbased.

 

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##### **Item 3**.  Quantitativeand Qualitative Disclosures About 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 contractsto manage 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.

 

The fair marketvalue (gain/(loss)) of the Company’s derivatives was approximately $(8.8)million and $(11.0) million at July 31, 2004 and October 31, 2003.The majority of the balance relates to sold lead futures and sold lead calloptions related to the U.S. operations.

 
| ** **                      | ** ** | **Tons**     | ** ** | **Contract Prices** | ** ** | **Fair Value (in 000’s)** | ** ** |
|---------------------------------|------------|--------------|------------|---------------------|------------|--------------------------------|------------|
| ** **                      | ** ** | **07/31/04** | ** ** | **10/31/03**        | ** ** | **07/31/04**                   | ** ** | **10/31/03** | ** ** | **07/31/04** | ** ** | **10/31/03** | ** ** |
|                            |       |         |       |                |       |                           |       |   |   |   |   |   |   |
| Sold  lead futures - hedges     |       | 7,055        |       | 17,417              |       | $796.20/ton                    |       | $489.00/ton |   | 160 |   | (1,850 | ) |
| Sold  lead futures - other      |       | 48,336       |       | N/S                 | *          | $598.26/ton                    |       | N/S | * | (10,975 | ) | N/S | * |
| Purchased  lead futures - other |       | (56,356      | )          | N/S                 | *          | $695.61/ton                    |       | N/S | * | 7,323 |   | N/S | * |
| Sold  lead call options         |       | 19,015       |       | 69,363              |       | $521.63/ton  to  $929.86/ton   |       | $430.91/ton  to  $544.31/ton |   | (3,274 | ) | (7,475 | ) |

 

----

*  Not Significant

 

##### **Item 4**.  Controls andProcedures.

##### ** **

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 July 31, 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.**

 

**Item1.  Legal Proceedings**

 

*Bennett, et al. v. BNSF, et al.*(filed August 31, 2004) and *Berendt, etal. v. BNSF, et al.* (filed September 1, 2004) were filed in theCircuit Court of the City of St. Louis, Missouri and listed Doe Run among thedefendants. The suits allege that a total of sixteen employees or ex-employeesof Burlington Northern and Santa Fe Railway Co. (BNSF) were exposed to leadfrom the hauling of lead concentrates by the railroad. Similar lawsuits weresettled in fiscal 2003.

 

**Item6.  Exhibits andReports 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

 

38

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

 

A report was filed August18, 2004 that amended a report filed July 27, 2004, which contained informationconcerning changes in the Registrant’s certifying accountant.

 

 

S I G N A T U R ES

 

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 24,  2004 | David A. Chaput                                   |
|                           | Chief Financial Officer                           |
|                           | (duly authorized  officer and principal financial |
|                           | officer)                                          |

 

39

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