**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC  20549**

### **FORM10-Q**

**(Mark One)**
| **x**      | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                   |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | **For the quarterly  period ended July 31, 2006**                                                                                                                              |
| ** ** | ** **                                                                                                                                                                     |
| **or**     |
| ** ** |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                  |
| ** ** | **For the transition  period from              to             ** |

 

**CommissionFile Number 333-66291**

#### **The DoeRun Resources Corporation**

(Exact name of registrantas 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)                         |

 

**(314) 453–7100**

(Registrant’s telephonenumber, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.
| **o** | ** ** | **Yes** | ** ** | **x** | ** ** | **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 markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):
| **o  Larger accelerated filer** | **o  Accelerated filer** | **x  Non-accelerated  filer** |
|-------------------------------------------|------------------------------------|-----------------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of the ExchangeAct).
| **o** | ** ** | **Yes** | ** ** | **x** | ** ** | **No** |
|-------|------------|---------|------------|-------|------------|--------|

 

Number of sharesoutstanding of each of the issuer’s classes of common stock, as of September 14,2006:
| **Common stock, $.10 par value** | ** ** | **1,000 shares** |
|----------------------------------|------------|------------------|

** **

 

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**THE DOE RUNRESOURCES CORPORATION**

**INDEX TOFORM 10-Q**

 
| **PART I – FINANCIAL INFORMATION** |                                                                                        |
|-----------------------------------------|---------------------------------------------------------------------------------------------|
| ** **                              | ** **                                                                                  | ** ** |
| Item 1.                                 | Financial Statements                                                                        | 3 |
|                                    |                                                                                        |   |
| Item 2.                                 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 37 |
|                                    |                                                                                        |   |
| Item 3.                                 | Quantitative  and Qualitative Disclosures About Market Risk                                 | 44 |
|                                    |                                                                                        |   |
| Item 4.                                 | Controls and  Procedures                                                                    | 45 |
|                                    |                                                                                        |   |
|                                    |                                                                                        |   |
| **PART II – OTHER INFORMATION**    | ** **                                                                                  |
|                                    |                                                                                        |   |
| Item 1.                                 | Legal Proceedings                                                                           | 46 |
|                                    |                                                                                        |   |
| Item 1A.                                | Risk Factors                                                                                | 46 |
|                                    |                                                                                        |   |
| Item 2.                                 | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 46 |
|                                    |                                                                                        |   |
| Item 3.                                 | Defaults  Upon Senior Securities                                                            | 46 |
|                                    |                                                                                        |   |
| Item 4.                                 | Submission  of Matters to a Vote of Security Holders                                        | 46 |
|                                    |                                                                                        |   |
| Item 5.                                 | Other Information                                                                           | 46 |
|                                    |                                                                                        |   |
| Item 6.                                 | Exhibits                                                                                    | 46 |

** **

2

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**Item 1.Financial Statements.**

 

**THE DOERUN RESOURCES CORPORATION**

**Condensed Consolidated Balance Sheets**

**(Dollarsin thousands, except share and per share data)**

 
| ** **                                                                                                                                                                                                  | ** ** | **July 31,** | ** ** | **October 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                                                  | ** ** | **2006**          | ** ** | **2005**             | ** ** |
| ** **                                                                                                                                                                                                  | ** ** | **(unaudited)**   | ** ** | ** **           | ** ** |
| **ASSETS**                                                                                                                                                                                                  | ** ** | ** **        | ** ** | ** **           | ** ** |
| Current assets:                                                                                                                                                                                             |       |              |       |                 |       |
| Cash                                                                                                                                                                                                        |       | $                 | 15,232     |                 | $          | 23,486 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts                                                                                                                                          |       | 118,074           |       | 85,740               |       |
| Inventories                                                                                                                                                                                                 |       | 142,012           |       | 105,634              |       |
| Prepaid expenses  and other current assets                                                                                                                                                                  |       | 30,619            |       | 20,814               |       |
| Total current  assets                                                                                                                                                                                       |       | 305,937           |       | 235,674              |       |
| Property, plant and  equipment, net                                                                                                                                                                         |       | 268,724           |       | 253,263              |       |
| Noncurrent restricted  cash                                                                                                                                                                                 |       | 38,471            |       | —               |       |
| Other noncurrent  assets, net                                                                                                                                                                               |       | 7,520             |       | 5,838                |       |
| Total assets                                                                                                                                                                                                |       | $                 | 620,652    |                 | $          | 494,775 |   |
|                                                                                                                                                                                                        |       |              |       |                 |       |
| **LIABILITIES  AND SHAREHOLDER’S DEFICIT**                                                                                                                                                             | ** ** | ** **        | ** ** | ** **           | ** ** |
| Current liabilities:                                                                                                                                                                                        |       |              |       |                 |       |
| Current maturities  of long-term debt                                                                                                                                                                       |       | $                 | 99,117     |                 | $          | 114,947 |   |
| Accounts payable                                                                                                                                                                                            |       | 138,292           |       | 92,275               |       |
| Accrued  liabilities                                                                                                                                                                                        |       | 124,698           |       | 87,060               |       |
| Total current  liabilities                                                                                                                                                                                  |       | 362,107           |       | 294,282              |       |
|                                                                                                                                                                                                        |       |              |       |                 |       |
| Long-term debt, less  current maturities                                                                                                                                                                    |       | 260,950           |       | 271,566              |       |
| Other noncurrent liabilities                                                                                                                                                                                |       | 67,990            |       | 68,337               |       |
| Total  liabilities                                                                                                                                                                                          |       | 691,047           |       | 634,185              |       |
|                                                                                                                                                                                                        |       |              |       |                 |       |
| Series A redeemable  preferred stock, $1,000 par value per share, 5,000 shares authorized; 2,849  shares issued and outstanding as of July 31, 2006 and October 31, 2005,  liquidation and redemption value |       | 31,165            |       | 28,495               |       |
|                                                                                                                                                                                                        |       |              |       |                 |       |
| Shareholder’s deficit:                                                                                                                                                                                 |       |              |       |                 |       |
| Common  stock, $.10 par value per share, 1,667 shares authorized; 1,000 shares issued  and outstanding                                                                                                      |       | —            |       | —               |       |
| Accumulated  deficit                                                                                                                                                                                        |       | (54,125           | )          | (123,141             | )          |
| Accumulated  preferred stock dividends in excess of paid in capital                                                                                                                                         |       | (5,928            | )          | (3,257               | )          |
| Accumulated  other comprehensive losses                                                                                                                                                                     |       | (41,507           | )          | (41,507              | )          |
| Total  shareholder’s deficit                                                                                                                                                                           |       | (101,560          | )          | (167,905             | )          |
| Total liabilities and  shareholder’s deficit                                                                                                                                                           |       | $                 | 620,652    |                 | $          | 494,775 |   |

 

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

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**THE DOE RUN RESOURCES CORPORATIONCondensed Consolidated Statements of Operations (unaudited)(Dollars in thousands)**
| ** **                                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                          | ** ** | **July 31,**                | ** ** | **July 31,**               | ** ** |
| ** **                                          | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Net sales                                           |       | $                                | 419,189    |                            | $          | 257,523 |   | $ | 1,113,534 |   | $ | 741,221 |   |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Costs and  expenses:                                |       |                             |       |                            |       |   |   |   |   |
| Cost of sales                                       |       | 364,416                          |       | 227,900                         |       | 934,763 |   | 645,231 |   |
| Depreciation, depletion and amortization            |       | 6,929                            |       | 6,310                           |       | 20,057 |   | 18,211 |   |
| Selling, general and administrative                 |       | 14,291                           |       | 12,998                          |       | 42,859 |   | 35,684 |   |
| Unrealized gain on derivative financial instruments |       | (547                             | )          | (2,595                          | )          | (4,803 | ) | (3,856 | ) |
| Other                                               |       | 940                              |       | 871                             |       | 4,055 |   | 4,029 |   |
| Total costs and expenses                            |       | 386,029                          |       | 245,484                         |       | 996,931 |   | 699,299 |   |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Income from operations                              |       | 33,160                           |       | 12,039                          |       | 116,603 |   | 41,922 |   |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Other income  (expense):                            |       |                             |       |                            |       |   |   |   |   |
| Interest expense, net                               |       | (1,681                           | )          | (1,955                          | )          | (5,406 | ) | (8,710 | ) |
| Other, net                                          |       | (309                             | )          | 248                             |       | 176 |   | 473 |   |
|                                                |       | (1,990                           | )          | (1,707                          | )          | (5,230 | ) | (8,237 | ) |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Income before income tax expense                    |       | 31,170                           |       | 10,332                          |       | 111,373 |   | 33,685 |   |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Income tax expense                                  |       | 8,134                            |       | —                          |       | 13,404 |   | — |   |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Net income                                          |       | $                                | 23,036     |                            | $          | 10,332 |   | $ | 97,969 |   | $ | 33,685 |   |
| Preferred stock dividends                           |       | (890                             | )          | (792                            | )          | (2,671 | ) | (2,375 | ) |
| Net income allocable to common shares               |       | $                                | 22,146     |                            | $          | 9,540 |   | $ | 95,298 |   | $ | 31,310 |   |
|                                                |       |                             |       |                            |       |   |   |   |   |
| Total  comprehensive income                         |       | $                                | 23,036     |                            | $          | 11,177 |   | $ | 97,969 |   | $ | 34,664 |   |

 

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

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**THE DOE RUN RESOURCES CORPORATIONCondensed Consolidated Statements of Cash Flows (unaudited)(Dollars in thousands)**
| ** **                                                                         | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **July 31,**               | ** ** |
| ** **                                                                         | ** ** | **2006**                        | ** ** | **2005** | ** ** |
|                                                                               |       |                            |       |   |   |
| Cash flows from  operating activities:                                             |       |                            |       |   |   |
| Net income                                                                         |       | $                               | 97,969     |   | $ | 33,685 |   |
| Adjustments to reconcile net income to net cash provided  by operating activities: |       |                            |       |   |   |
| Depreciation, depletion and amortization                                           |       | 20,057                          |       | 18,211 |   |
| Imputed interest and amortization of deferred  financing costs                     |       | 471                             |       | 705 |   |
| Unrealized gain on derivative financial instruments                                |       | (4,803                          | )          | (3,856 | ) |
| Losses from impairment and disposal of long-lived  assets                          |       | 1,079                           |       | 2,250 |   |
| Increase (decrease) resulting from changes in:                                     |       |                            |       |   |   |
| Trade receivables                                                                  |       | (32,334                         | )          | (3,603 | ) |
| Inventories                                                                        |       | (36,378                         | )          | (17,132 | ) |
| Prepaid expenses and other current assets                                          |       | (9,504                          | )          | 11,496 |   |
| Accounts payable                                                                   |       | 46,017                          |       | 23,209 |   |
| Accrued liabilites                                                                 |       | 28,660                          |       | (1,458 | ) |
| Other noncurrent assets and liabilites, net                                        |       | (1,869                          | )          | 284 |   |
| Net cash provided by operating activities                                          |       | 109,365                         |       | 63,791 |   |
|                                                                               |       |                            |       |   |   |
| Cash flows from  investing activities:                                             |       |                            |       |   |   |
| Purchases of property, plant and equipment                                         |       | (36,355                         | )          | (37,878 | ) |
| Proceeds from disposal of assets and sale of  investments                          |       | —                          |       | 512 |   |
| Increase in PAMA guarantees and other restricted  cash                             |       | (38,471                         | )          | — |   |
| Net cash used in investing activities                                              |       | (74,826                         | )          | (37,366 | ) |
|                                                                               |       |                            |       |   |   |
| Cash flows from  financing activities:                                             |       |                            |       |   |   |
| Payments on revolving loans, net                                                   |       | (14,570                         | )          | (15,122 | ) |
| Proceeds from long-term debt                                                       |       | 10,000                          |       | — |   |
| Payments on long-term debt                                                         |       | (22,124                         | )          | (14,642 | ) |
| Payments of financing costs                                                        |       | (925                            | )          | — |   |
| Payments of tax dividends                                                          |       | (15,174                         | )          | (451 | ) |
| Net cash used in financing activities                                              |       | (42,793                         | )          | (30,215 | ) |
|                                                                               |       |                            |       |   |   |
| Net decrease in cash                                                               |       | (8,254                          | )          | (3,790 | ) |
|                                                                               |       |                            |       |   |   |
| Cash at  beginning of period                                                       |       | 23,486                          |       | 20,318 |   |
| Cash at end of period                                                              |       | $                               | 15,232     |   | $ | 16,528 |   |

 

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

5

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**THE DOERUN RESOURCES CORPORATION**

 

**Notes toCondensed Consolidated Financial Statements**

**(Dollars in thousands)**

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

***Unaudited Interim FinancialStatements***

These interim consolidated financial statementsinclude the accounts of The Doe Run Resources Corporation (“Doe Run”) and itssubsidiaries, including Doe Run Peru S.R.L. (“Doe Run Peru”, and together withDoe Run on a consolidated basis, the “Company”). Doe Run’s issued andoutstanding common stock is 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, 2006 and the results of operations for the three andnine-month periods ended July 31, 2006 and 2005.  Interim periods are not necessarilyindicative of results to be expected for the year.

***Reclassifications***

Certain prior period balances have been reclassifiedin order to conform to the current presentation.

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

The Company ishighly leveraged and has significant commitments both in the U.S. and Peru forenvironmental matters and for Environmental Remediation and Management Program(“PAMA”) expenditures that require it to dedicate a substantial portion of cashflow from operations to the payment of these obligations, which will reducefunds available for other business purposes (see Note 7: Asset Retirement andEnvironmental Obligations).  Thesefactors increase the Company’s vulnerability to general adverse conditions,limit the Company’s flexibility in planning for, or reacting to, changes in itsbusiness and industry, and limit the Company’s ability to obtain financingrequired to fund working capital and capital expenditures and for other generalcorporate purposes. An unfavorable outcome to certain contingencies, discussedbelow, would have a further adverse effect on the Company’s ability to meet itsobligations when due.  The Company’sability to meet these obligations is also 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.

During the period beginning on October 29, 2005 andending on October 29, 2012, the majority warrantholders, pursuant to theWarrant Agreement dated as of October 29, 2002 between Doe Run and State StreetBank and Trust Company, as Warrant Agent, have the right to require Doe Run to repurchase all, but not less thanall, of the warrants and any outstanding shares issued upon the exercisethereof at a price equal to the fair market value of the warrants, asdetermined by a third party appraisal. On July 31, 2006, the warrantholdersexercised this right and management engaged BearingPoint, a nationallyrecognized valuation firm, to value the warrants as of April 30, 2006 inaccordance with the terms of the warrant agreement.   Management’s estimate of the fair value ofthe warrants was approximately $0.6 million at July 31, 2006, based on thevaluation made at October 31, 2005 by BearingPoint.

Metal prices have risen dramatically over the past twofiscal years as shown in the following table using the London Metal Exchange (“LME”)settlement monthly average:
|                       | ** ** | **October 2004** | ** ** | **October 2005** | ** ** | **July 2006** | ** ** |
|-----------------------|------------|-----------------------|------------|-----------------------|------------|--------------------|------------|
|                  |       |                  |       |                  |       |               |       |
| Lead ($/ton)          |       | $                     | 847.4      |                  | $          | 911.4              |       | $ | 954.6 |   |
| Copper ($/ton)        |       | $                     | 2,734.6    |                  | $          | 3,682.8            |       | $ | 6,996.2 |   |
| Zinc ($/ton)          |       | $                     | 965.6      |                  | $          | 1,350.2            |       | $ | 3,029.8 |   |
| Silver ($/troy ounce) |       | $                     | 7.11       |                  | $          | 7.67               |       | $ | 11.23 |   |

 

The Company has benefited from these price increasesin both its metal and concentrate sales.

6

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The consolidatedfinancial statements have been prepared assuming the Company will continue as agoing concern. Doe Run Peru has significant capital requirements underenvironmental commitments and substantial contingencies related to Peruviantaxes and has significant debt service obligations, each of which, if notsatisfied, could result in a default under the Company’s credit agreements andcollectively raise substantial doubt about the Company’s ability to continue asa going concern. Management believes that the price improvements seen throughfiscal year 2005 and in the first three quarters of fiscal year 2006, thepotential revenues and cash flow enhancements from the Company’s new ferriteproject in Peru and the approval by the Peruvian Government obtained on May 29,2006 to extend certain PAMA projects (“the Modified PAMA”), will enable theCompany to continue as a going concern. However, there can be no assurance that these actions will achieve thedesired results.

Net unused availabilityat July 31, 2006 under the Doe Run Revolving Credit Facility and the Doe RunPeru Revolving Credit Facility was $42,643 and $200, respectively.  In addition to the availability under itsrevolving credit facilities, the cash balances at July 31, 2006 of Doe Run andDoe Run Peru were $10,897 and $4,335, respectively.  The cash balances at July 31, 2006 are afterfunding $32,641 for the financial guarantees required by the terms of theModified PAMA.  Doe Run Peru has reachedand maintained its maximum borrowing level under the Doe Run Peru RevolvingCredit Facility due in part to the higher metal prices resulting in higheroutlays for concentrate purchases and higher Value-Added Tax (“VAT”) paymentsfunded by cash from operations.

The Doe Run RevolvingCredit Facility expires on August 29, 2008. The Doe Run Peru Revolving Credit Facility expires on September 22, 2006and negotiations are ongoing to extend its terms. There can be no assurancethat the Company will be successful in extending the existing credit agreementor negotiating a new credit agreement, or if it is successful, that the extendedor new credit agreement would be at terms that are favorable to the Company.

Any default under therequirements of the Modified PAMA could result in a default under the Doe RunPeru Revolving Credit Facility.  Adefault under the requirements of the Doe Run Peru Revolving Credit Facilityresults in defaults under the Doe Run Revolving Credit Facility and theindenture governing the bonds.

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

Inventoriesconsist of the following:
|                                       | ** ** | **July 31,** | ** ** | **October 31,** | ** ** |
|---------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                            | ** ** | **2006**          | ** ** | **2005**             | ** ** |
|                                  |       |              |       |                 |       |
| Finished metals  and concentrates     |       | $                 | 24,775     |                 | $          | 18,461 |   |
| Metals and  concentrates in process   |       | 78,692            |       | 55,681               |       |
| Materials,  supplies and repair parts |       | 38,545            |       | 31,492               |       |
|                                  |       | $                 | 142,012    |                 | $          | 105,634 |   |

 

Materials, supplies and repair parts are stated net ofreserves for obsolescence of approximately $5,024 and $5,389 at July 31, 2006and October 31, 2005, respectively.

**(4)****                  IncomeTaxes**

Doe Run Cayman Ltd. (“Doe Run Cayman”), the parent ofDoe Run Peru, is subject to the regulations of the Cayman Islands, whichcurrently have no corporate income or capital gains tax. Doe Run Peru and DoeRun Cayman’s other subsidiaries located in Peru, however, are subject toPeruvian taxation. The statutory income tax rate in Peru is 30%. Doe Run Peruhas a ten-year tax stabilization agreement with the Peruvian Government, whichprovides for Peruvian taxation based on tax statutes and regulations prevailingon November 6, 1997, beginning with the Peruvian tax year ending onDecember 31, 1997 through December 31, 2006.

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On December 30, 1997, Doe Run Peru signed a Contractof Guarantees and Measures to Promote Investments (“Contract”) with theGovernment of Peru.  The Contract, which has been modified various timesthrough 2006, committed Doe Run Peru to making certain investments related tothe improvements of its facilities in order to receive certain taxbenefits.  The Contract provided that if the investments were completedaccording to the schedule by December 31, 2006, Doe Run Peru would receive anadditional tax stability agreement covering the period beginning January 1,2007 and ending December 31, 2021.  Doe Run Peru will be unable tocomplete the required investments, and as a result, Doe Run Peru will notreceive the benefits of the additional tax stabilization agreement.  Beginning in January 2007, Doe Run Peru willbe subject to future tax law changes. These changes could have a material impact on Doe Run Peru’s financialresults.

Doe Run Peru isthe subject of income tax assessments from Peru’s tax authority (“SUNAT”) fortax years 1998 through 2001.  Theassessments primarily relate to Doe Run Peru’s income tax treatment of theDecember 1997 merger of Metaloroya S.A. into Doe Run Peru, which Doe Run Perupurchased in October 1997, and its effects on subsequent years’ taxableincome.  Under the assessment by SUNAT,the tax basis of Doe Run Peru’s fixed assets acquired would decrease, resultingin lower tax depreciation expense than originally claimed. The assessments ofyears 1999 through 2001 also relate to the disallowance of the deduction ofinterest paid, the offsetting of losses on derivatives executed in the U.S. andsome leaseback and leasing operations. The estimated assessed amount,consisting of additional income taxes due, penalties and interest as of July 31,2006, totals approximately $129,125.  TheCompany estimates that the effect of a similar assessment for tax years after2001 would be approximately $35,087. 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 changes discussed above, or approximately $11,376, forcalendar years 1998 through 2005.

Doe Run Peru is thesubject of VAT assessments for the tax years 1999 through 2001 and for the periodfrom January through July 2004.  Theassessments primarily relate to Doe Run Peru’s exports with holdingcertificates and differences in a tax credit application. Doe Run Perudiscontinued the use of holding certificates for exports in June of 2004. Thetotal assessment for these periods, calculated with penalties and interest asof July 31, 2006, was approximately $50,205. SUNAT offset their originalassessment for 2004 of $2,300 with Doe Run Peru’s VAT receivable balance fromJuly of 2004; however, on May 17, 2006, SUNAT confirmed its 2004 tax assessmentrelating to exports using holding certificates for an amount of $1,380 andapproved Doe Run Peru’s treatment of the tax credits of 2004. The differencebetween the original 2004 assessment of $2,300 and the confirmed amount of$1,380 was refunded to Doe Run Peru.  TheCompany is appealing this assessment to the tax courts. The Company estimatesexpected additional assessments related to VAT for tax years 2002 and 2003,calculated with penalties and interest as of July 31, 2006, to totalapproximately $23,883 in regard to its exports with holding certificates.

Management of the Company believes that in each casediscussed above for income tax and VAT assessments, Doe Run Peru has followedthe applicable Peruvian tax statutes and intends to pursue all availableadministrative and judicial appeals. Doe Run Peru is not required to make anypayments pending the administrative appeal process. If Doe Run Peru is notsuccessful in the administrative appeal processes and were to appeal in thejudicial system, some type of financial assurance would be required. No amountshave been accrued as liabilities related to these actions.

For the past several years,Doe Run Peru has generated net losses from operations that according to tax lawmay be used to offset taxable income in the future.  The Company expects to utilize all of Doe RunPeru’s net operating loss carryforwards in the current fiscal year.  As a result, Doe Run Peru has recorded$13,404 of income tax expense for the first three quarters of 2006.

Pursuant to the Company’stax sharing agreement with Renco, a tax dividend is payable to Renco forfederal and state income taxes that would be assessed if the Company was a Ccorporation.  Tax dividends payable to Rencoof $14,163 and $384 were reflected in the Company’s balance sheets, as accrued liabilities,at July 31, 2006 and October 31, 2005, respectively.  The dividend payable at October 31, 2005 of$384 was paid in the second quarter of 2006 along with the tax dividend for thefirst quarter of 2006 of $1,949.  TheCompany paid $12,841 of the tax dividend payable for the second quarter in thethird quarter of 2006, and the

8

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remaining $2,645 of the tax dividend payablefor the second quarter along with the tax dividend for the third quarter of$11,518 was paid during the fourth quarter of 2006.

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

***Defined Benefit Plans***

Net periodicbenefit cost is comprised of the following:
|                                                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                | ** ** | **July 31,**                | ** ** | **July 31,**               | ** ** |
| ** **                                                | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                      |       |                             |       |                            |       |   |   |   |   |
| Service cost                                              |       | $                                | —     |                            | $          | 667 |   | $ | — |   | $ | 1,764 |   |
| Interest cost on  projected benefit obligation            |       | 1,731                            |       | 1,711                           |       | 5,143 |   | 5,036 |   |
| Expected return  on assets                                |       | (1,606                           | )          | (1,418                          | )          | (4,772 | ) | (4,276 | ) |
| Net amortization  and deferral of unrecognized net losses |       | 338                              |       | 1,734                           |       | 1,004 |   | 3,156 |   |
| Curtailment loss                                          |       | —                           |       |                            |       | — |   | 690 |   |
| Net periodic  benefit cost                                |       | $                                | 463        |                            | $          | 2,694 |   | $ | 1,375 |   | $ | 6,370 |   |

 

The Company is required to make total contributions of$10,082 in 2006, of which $6,612 had been paid as of July 31, 2006.

***Net WorthAppreciation Agreements***

Certain current and former employees are parties to net worthagreements with Doe Run, pursuant to which, upon termination of each employee’semployment with Doe Run, they are entitled to receive a fixed percentage of theincrease in the net worth of the Company, as defined in such agreement, from abase date until the end of the fiscal quarter preceding the date of theemployee’s termination or in accordance with the terms of the individualagreements. Such amounts are payable without interest in 40 equal quarterlyinstallments, commencing three months after the termination of each employee’semployment or in accordance with the terms of the individual agreements, and atthree month intervals thereafter. The net worth appreciation agreements alsoprovide that, in the event of payment of a dividend, other than tax dividendspaid in accordance with the Company’s tax sharing agreement, or sale of theCompany, the active participants will be entitled to receive a percentage ofthe dividend or the net proceeds of the sale equal to their maximum percentagesunder the agreements. The Company recorded $3,200 inexpense during the first three quarters of 2006.

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

The Company’s operating segments are separatelymanaged business units that are distinguished by products, location andproduction processes.  The primary leadsegment includes integrated mining, milling and smelting operations located inMissouri.  The recycling operationsegment, located in Missouri, recycles lead-bearing materials, primarily spentbatteries.  The fabricated productssegment, located in Washington and Arizona, produces value-added lead products.  Doe Run Peru produces an extensive productmix of non-ferrous and precious metals.

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*Operating Segments – Revenues*

 

 
|                                                   | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                        | ** ** | **2006**                                        | ** ** | **2005**                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues from  external customers:                |       |                                            |       |                                           |       |   |   |   |   |
| Doe Run Peru                                      |       | $                                               | 301,500    |                                           | $          | 171,975 |   | $ | 751,865 |   | $ | 478,676 |   |
| Primary lead                                      |       | 84,023                                          |       | 63,256                                         |       | 267,891 |   | 192,336 |   |
| Recycling operation                               |       | 25,508                                          |       | 22,262                                         |       | 72,268 |   | 63,260 |   |
| Fabricated products                               |       | 3,908                                           |       | 3,137                                          |       | 11,301 |   | 10,338 |   |
| Total                                             |       | 414,939                                         |       | 260,630                                        |       | 1,103,325 |   | 744,610 |   |
| Revenues from  other operating segments: (1)      |       |                                            |       |                                           |       |   |   |   |   |
| Doe Run Peru                                      |       | 5,422                                           |       | 396                                            |       | 17,753 |   | 3,120 |   |
| Primary lead                                      |       | 4,555                                           |       | 508                                            |       | 5,631 |   | 1,219 |   |
| Recycling operation                               |       | —                                          |       | 14                                             |       | 182 |   | 194 |   |
| Total                                             |       | 9,977                                           |       | 918                                            |       | 23,566 |   | 4,533 |   |
| Total reportable  segments                        |       | 424,916                                         |       | 261,548                                        |       | 1,126,891 |   | 749,143 |   |
| Metal sales not  attributed to operating segments |       | 5,169                                           |       | 31                                             |       | 17,295 |   | 2,551 |   |
| Realized losses  on derivative contracts          |       | (919                                            | )          | (3,138                                         | )          | (7,086 | ) | (5,940 | ) |
| Intersegment  eliminations                        |       | (9,977                                          | )          | (918                                           | )          | (23,566 | ) | (4,533 | ) |
| Total revenues                                    |       | $                                               | 419,189    |                                           | $          | 257,523 |   | $ | 1,113,534 |   | $ | 741,221 |   |

 

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(1)          Transactionsbetween segments consist of metal sales recorded based on sales contracts thatare negotiated between segments on terms that management feels are similar tothose that would be negotiated between unrelated parties.

The measure of segment profit and loss used by theCompany is earnings of the segment before interest, taxes, depletion,depreciation and amortization (“EBITDA”), as adjusted to exclude losses fromimpairment and disposal of long-lived assets and unrealized gains (losses) onderivatives (“Adjusted EBITDA”). Consolidated Adjusted EBITDA also excludesaccretion expense under Statement of Financial Accounting Standards No. 143; *Asset Retirement Obligations* adoptedNovember 1, 2002*.*

*Operating Segments – Adjusted EBITDA*
|                                                           | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                | ** ** | **2006**                                        | ** ** | **2005**                                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                      |       |                                            |       |                                           |       |   |   |   |   |
| Doe Run Peru                                              |       | $                                               | 16,628     |                                           | $          | 12,437 |   | $ | 50,235 |   | $ | 28,151 |   |
| Primary lead                                              |       | 32,243                                          |       | 11,429                                         |       | 108,736 |   | 49,115 |   |
| Recycling  operation                                      |       | 3,722                                           |       | 5,075                                          |       | 11,229 |   | 12,704 |   |
| Fabricated  products                                      |       | 474                                             |       | 449                                            |       | 1,615 |   | 1,598 |   |
| Total reportable segments                                 |       | 53,067                                          |       | 29,390                                         |       | 171,815 |   | 91,568 |   |
| Realized losses  on derivatives                           |       | (919                                            | )          | (3,138                                         | )          | (7,086 | ) | (5,940 | ) |
| Other revenues  and (expenses) (1)                        |       | (3,549                                          | )          | (1,384                                         | )          | (5,740 | ) | (4,177 | ) |
| Corporate  selling, general and administrative expenses   |       | (8,326                                          | )          | (8,220                                         | )          | (24,337 | ) | (21,331 | ) |
| Intersegment  eliminations                                |       | (62                                             | )          | (10                                            | )          | (66 | ) | 3 |   |
| Consolidated adjusted EBITDA                              |       | 40,211                                          |       | 16,638                                         |       | 134,586 |   | 60,123 |   |
| Depreciation,  depletion and amortization                 |       | (6,929                                          | )          | (6,310                                         | )          | (20,057 | ) | (18,211 | ) |
| Interest  expense, net                                    |       | (1,681                                          | )          | (1,955                                         | )          | (5,406 | ) | (8,710 | ) |
| Unrealized gain  on derivatives                           |       | 547                                             |       | 2,595                                          |       | 4,803 |   | 3,856 |   |
| Losses from  impairment and disposal of long-lived assets |       | (287                                            | )          | (261                                           | )          | (1,079 | ) | (2,250 | ) |
| Asset retirement  obligation accretion expense            |       | (691                                            | )          | (375                                           | )          | (1,474 | ) | (1,123 | ) |
| Income before  income taxes                               |       | $                                               | 31,170     |                                           | $          | 10,332 |   | $ | 111,373 |   | $ | 33,685 |   |

 

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(1)          Otherrevenues and expenses consist of the profit on metal sales not attributed tooperating segments and expenses not allocated to operating segments, includingenvironmental expenses relating to historic operations of $3,310 and $4,113 forthe three and nine months ended July 31, 2006, respectively, and $330 and$3,301 for the three and nine months ended July 31, 2005, respectively.

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

The Company is subject to numerous federal, state,local and other government environmental laws and regulations governing, amongother things, air emissions, wastewater discharges, solid and hazardous wastetreatment, storage and disposal and remediation of releases of hazardoussubstances. The Company’s

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facilities are locatedon sites that have been used for heavy industrial purposes for decades and mayrequire remediation. The Company has made and intends to continue making thenecessary expenditures for environmental remediation and compliance withenvironmental laws and regulations. Environmental laws and regulations maybecome more stringent in the future, which could increase costs of compliance.

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

Assetretirement obligations (“AROs”) are recognized as liabilities when incurred,with the initial measurement at fair value. These liabilities are increased tofull value over time through charges of accretion to operating expense. Inaddition, an asset retirement cost is capitalized as part of the related asset’scarrying value and is depreciated over the asset’s useful life. Changes in theARO liability resulting from revisions to the timing or the amount of theoriginal estimate of undiscounted cash flows are recognized as an increase or adecrease in the carrying amount of the liability for an ARO and the relatedasset retirement cost capitalized as part of the carrying amount of the relatedlong-lived asset.

Doe Run’s mines and related processing facilities aregoverned by various agencies that have established minimum standards forreclamation. Doe Run’s primary smelter slag produced by and stored at theprimary smelter in Herculaneum, Missouri, is currently exempt from hazardouswaste regulation under the Resource Conservation and Recovery Act of 1976, asamended (“RCRA”), but is subject to a state closure permit, which requires DoeRun to contain and cover the pile upon cessation of operations. Doe Run’smining and milling operations are subject to Missouri mine waste closure permitrequirements and lease agreements that require Doe Run to reclaim surfaceareas, including remediation of mining waste disposal areas, and to performclosure activities underground. These activities, which tend to be sitespecific, generally include costs for earthwork, revegetation, water treatmentand demolition. Closure activities may be performed over time.

Doe Run has a RCRA permit addressing the closure ofportions of its recycling operation. 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 cannot bedetermined due to the indeterminate timing. The cost of closure, based on thirdparty estimates for bonding purposes, is approximately $3,200. The life of theoperation is considered indeterminable because there is not currently acost-effective alternative to the lead acid batteries and because batterymanufacturers are required to recycle the batteries.

Mine Closure Law No. 28090 (“Law”) became effective inPeru as of October 15, 2005 and is applicable to smelters and mines. The Lawestablishes the obligations and procedures that titleholders of miningactivities must follow and requires, among other things, the provision of afinancial guarantee for environmental issues.  Under the Law, Doe RunPeru was originally required to submit a mine closure plan to the Ministry ofEnergy and Mines (“MEM”) by August 17, 2006. According to a modification issuedAugust 15, 2006, however, Doe Run Peru was required to submit a conceptual mineclosure plan to MEM by August 16, 2006, which provided a general description ofthe remediation measures to be done.  DoeRun Peru retained one of the technical mining consultants registered with MEMto prepare the mine closure plans for Cobriza and La Oroya to ensure compliancewith the technical and legal requirements of the Law and regulations. Theconceptual mine closure plan was filed when due and the final mine closure planis now due approximately six months later. The financial guarantee requirementswill not be known until the final mine closure plan is approved; therefore, theguarantee is expected to be funded by equal annual payments into a trust fundbetween January of 2008 and the estimated closure date of each element ofoperation.

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 eventual covering and revegetation of mixed lead and copper slag alsostored in Huanchan, an area a short distance from the La Oroya smelter wherethe slag is currently stored.

The Company’s total recorded liabilities for AROs wereapproximately $16,661 and $15,188 as of July 31, 2006 and October 31, 2005,respectively.

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#### ***Environmental Remediation - Domestic Operations***

The Company recorded liabilities of approximately$16,626 and $20,021 related to remediation obligations as of July 31, 2006 andOctober 31, 2005, respectively.

Doe Run is subject to anAdministrative Order on Consent (“AOC”) with the U.S. Environmental ProtectionAgency (“U.S. EPA”), effective May 29, 2001, to study and address issues relatedto the slag pile, plant property, community soils adjacent to the primarysmelter in Herculaneum, Missouri, elevated blood lead levels in the communityand lead releases from the plant. The AOC was modified effective on May 20,2004 to address the technical requirements concerning the slag pile design andconstruction along with adjustments to the remediation schedule. At July 31,2006, the estimated remaining cost of remediating the soils of this communitywas approximately 604.

Doe Run has received notice that it is a potentiallyresponsible party (“PRP”) subject to liability under The ComprehensiveEnvironmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”),at the following sites: six sites in St. Francois County, Missouri, includingthe Big River Mine Tailings site, the Bonne Terre site, the Federal site, theNational site, the Rivermines site and the Leadwood site; sites comprisingareas along roads in Iron, Dent and Reynolds counties in Missouri; the Oronogo-Durenwegsite in Jasper County, Missouri; the Cherokee County site in Cherokee County,Kansas; the Tar Creek site in Ottawa County, Oklahoma; the Block “P” site inCascade County and Judith County, Montana; and the Missouri Electric Works sitein Cape Girardeau, Missouri. There are two additional sites in St. FrancoisCounty for which the U.S. EPA has indicated it will issue notice. CERCLAprovides for strict and, in certain circumstances, joint and several liabilityfor response costs and natural resource damages. The Company’s estimate of thecost of the remediation of these sites, including the two additional sites inSt. Francois County, is included in the total liability for remediationobligations, which the Company believes is adequate based on its investigationsto date. However, depending upon the types of remediation required and certainother factors, additional costs at these sites, individually or collectively,could have a material adverse effect on the results of operations, financialcondition and liquidity of the Company.

In addition to being asked to conduct remediation atthe above sites, the U.S. EPA may also seek reimbursement from Doe Run forresponse actions it has conducted at these sites.  The U.S. EPA has advised PRP’s at the TarCreek site, including Doe Run, that it will seek reimbursement forapproximately $125,000 of such costs. Given the Company’s belief that Doe Run’s responsibility for activitiesof a former subsidiary are uncertain, the fact that the former subsidiary’sactivities at the site were localized and small (less than 1% of the waste) andthe major involvement at the site of the U.S. Government through the Bureau ofLand Management’s and the Bureau of Indian Affairs’ management of mineralleasing at the site, the Company is unable to estimate the expected outcome ofany such potential claim.

Doe Run has completed anEngineering Evaluation/Cost Analysis (“EE/CA”) for the Bonne Terre site and hassigned two AOCs to conduct removal actions on the west and east portions of thesite. Work is completed on the west Bonne Terre site and is nearly finished onthe east site, with completion expected by the end of fiscal year 2006.

Doe Run has completed anEE/CA for the Rivermines site and, while unable to accept certain financialassurance provisions of a proposed AOC, has agreed to conduct a removal actionat the site under a UAO. Work has commenced on the removal action. The EPAaccelerated the timeframe to complete the majority of the remediation effort bythe end of fiscal year 2006.

Doe Run is subject to anAOC with the U.S. EPA to remediate the Big River 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 has also signed AOCs to perform an EE/CA oneach of the National and Leadwood sites for remediation of mine waste areas.The National EE/CA was completed by the PRPs and was submitted to the U.S. EPAfor approval. The U.S. EPA then had two EE/CA’s prepared, the last of which wasaccepted by them. The cost of their remedy is higher than that estimated by theEE/CA prepared by Doe Run. On July 6,

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2006, the U.S. EPA issued a unilateral administrativeorder to four parties, the generating company and three landowners, includingDoe Run.  Doe Run is negotiating itsshare with the generating PRP. The Leadwood EE/CA has been modified andsubmitted to the U.S. EPA for approval, and it is contemplated that aunilateral order or a negotiated AOC will be issued during the fiscal year toconduct the work.  Doe Run will utilizeits internal workforce, which is about to complete work at Elvins-Rivermines.In addition, Doe Run has signed an AOC with the U.S. EPA to conduct a RemedialInvestigation/Feasibility Study (“RI/FS”) to assess potential off-site impactsof these site operations on groundwater, residential soils, several creeks anda river and the need for related remediation. The initial draft of the RI/FSwas submitted in early March of 2002. Doe Run signed an order to conductinterim measures, which consisted of blood lead testing of young children,residential soil sampling and limited soil remediation as indicated by thetesting and sampling results, which was terminated and replaced by an AOC toconduct certain additional soil remediation in the area and has included itsbest estimate of these efforts in its recorded liabilities. The Companybelieves the recorded liabilities related to these sites are adequate. However,should remediation goals or areas change, requiring substantially increasedmeasures, there can be no assurance that the recorded liabilities would beadequate.

In March of 2004, Doe Runreceived notice that it is a PRP subject to liability under CERCLA forcontamination along roads in Iron, Dent and Reynolds counties in Missouri,along with a number of mining companies involved in the transportation ofconcentrates. After the U.S. EPA and the Missouri Department of NaturalResources sampled approximately 750 houses, approximately 150 houses wereidentified as potentially requiring some level of remediation. Doe Run and fourother mining companies have signed an AOC to conduct soil remediation atapproximately 40 of these houses. The five companies have completed a mediationsession concerning the allocation of costs and, subject to resolving certainoutstanding issues, expect to modify the agreement between them resolving theallocation of the completed work.  Theyare also expected to sign an agreement to resolve the management andexpenditures regarding future work on this project.  Also, in regard to potential contaminationfrom transportation activities in and near the City of Viburnum, Doe Run hassigned an AOC to conduct sampling and prepare a Preliminary Assessment/SiteInspection report.  The draft of thatwork has been completed and submitted.

Doe Run has been advisedthat the U.S. EPA is considering taking certain response actions at a mine sitein Madison County, Missouri known as the Mine LaMotte Site. Doe Run and theowner of the other 50% share of stock in the company that mined the site, havesigned an AOC to conduct an RI/FS at the site. This site is substantiallysmaller than the sites in St. Francois County where the Company has been nameda PRP, and the potential issues are less complex. Doe Run has also been advisedthat remediation is required at a related small satellite mine site. Afterconducting an investigation, Doe Run has determined that it was not involved inoperations at the satellite site, but further review will be required before adetermination can be made as to whether it has any liability at the main site.At this time, based on preliminary information and an inspection of the sites,management does not believe that any future action will result in a materialadverse impact to the results of operations, financial condition or liquidityof the Company.

Doe Run’s recyclingfacility is subject to corrective action requirements under RCRA as a result ofa storage permit for certain wastes initially issued in 1989. This will involveremediation of solid waste management units at the site, and it is expectedthat the plan for corrective action will be approved in fiscal 2006. TheCompany’s estimate of the cost of this corrective action is $1,000. Whilemanagement believes that recorded liabilities are adequate based onexpectations of the closure plan requirements, regulators could require thatadditional measures be included in the finalized plan, which could change theestimate of the costs for corrective action.

#### ***Environmental Remediation - Foreign Operations***

Doe Run Peru’s LaOroya operations historically and currently exceed some of the applicablemaximum permissible limits established by MEM pertaining to air emissions andwastewater effluents quality.  Prior toour acquisition of La Oroya, Metaloroya S.A., the former owner, a subsidiary ofEmpresa Minera del Centro del Peru S.A. (“Centromin”), received approval fromthe Peruvian Government for a PAMA.  ThePAMA is an environmental regulatory program for Peruvian mining operationsdesigned to achieve compliance with MEM’s air and wastewater limits.  It consisted of an environmental impactanalysis, monitoring program and data mitigation measures and a closureplan.  The PAMA also set forth the actionsand corresponding annual

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investments a company agrees to undertake in order to achievecompliance with the maximum permissible limits prior to expiration of the PAMA(ten years for smelters, such as Doe Run Peru’s operations in La Oroya, andfive years for mining operations, such as Cobriza).  The PAMA projects, which are more fullydiscussed below, were designed to achieve compliance with these requirements.

In compliance withLa Oroya’s PAMA, from inception, Doe Run Peru completed the following projects:

·        Constructeda treatment plant for the copper refinery effluent;

·        Improvedthe slag handling system;

·        ImprovedHuanchan lead and copper slag deposits;

·        Constructedan arsenic trioxide deposit;

·        Improvedthe zinc ferrite disposal site; and

·        Constructeda monitoring station.

On December 29, 2004, the Peruvian Government issued aSupreme Decree No. 046-2004-EM (“Supreme Decree”), which recognized thatexceptional circumstances may justify an extension of the time to complete oneor more projects within the scope of a PAMA. Since Doe Run Peru expected that it would not be able to comply with thespending requirements of La Oroya’s PAMA investment schedule by the end ofcalendar year 2006 with respect to certain projects, Doe Run Peru applied foran extension on December 20, 2005.

On May 29, 2006, MEM approved the extension of certainprojects required under La Oroya’s PAMA through October 31, 2009.  Pursuant to the terms of the Modified PAMA,Doe Run Peru is now required to complete the acid plant projects for the leadcircuit and the copper circuit by September 30, 2008 and October 31, 2009,respectively, and Doe Run Peru remains obligated to implement the followingprojects at its La Oroya smelter by December 31, 2006:

·        Upgradethe acid plant for the zinc circuit;

·        Constructan industrial wastewater treatment plant for the smelter and refinery; and

·        Constructdomestic wastewater treatment and domestic waste disposal.

The Modified PAMA also requires Doe Run Peru to complywith certain special measures not previously required.  These measures include, but are not limitedto, implementation of projects to reduce stack and fugitive emissions, whichare designed to meet certain air quality objectives, a continuing improvementprovision that provides for additional pollution controls to address theshortfalls in meeting objectives or to further reduce risks and certainmeasures regarding protection of public health, including, among others, actions for the reduction of lead in bloodlevels and special health programs for children and expectant women.  Doe Run Peru is required to spend approximately$2,300 per year for 2007, 2008 and 2009 complying with these measures andexisting social programs, with additional expected spending of $1,600 for theremainder of the 2006 calendar year.

MEM has also required that the cost of a plannedreplacement of the oxy-fuel reverberatory furnace with a submerged lancedreactor furnace that will reduce gas volume while enriching sulfurous gas feedto the copper circuit sulfuric acid plant be included as part of the cost ofthe Modified PAMA acid plant projects. The estimated cost of this reactor furnace is $57,000, which brings thetotal remaining investment needed to build the sulfuric acid plants toapproximately $150,876 as of July 31, 2006.

Additional projects required under the Modified PAMAfor fiscal year 2006 include an upgrade of the ventilation system in the Sinterplant, completion of the enclosure work around the lead and dross furnace, theenclosure of the anode residue plant along with the elimination of its nitrousgases, and the reduction of fugitive emissions from the copper and leadbeds.  The total cost of the currentlyremaining Modified PAMA projects as of July 31, 2006 was approximately $175,868,of which $25,642 remains to be spent in the 2006 calendar year.

Doe Run Peru’s ability to complete the requiredprojects by the specific deadlines depends in large part upon the availabilityof sufficient funds.  Doe Run Perubelieves that sufficient funds will be available on a

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timely basis, but the availability of sufficient funds is substantiallydependent upon the results of its business operations and the possibility ofadditional financing; therefore, there can be no assurance that sufficient fundswill be available for these projects.

Consistent with the requirements of the Supreme Decree,the Modified PAMA also contains two separate financial security arrangements toensure that Doe Run Peru fulfills its statutory obligation to complete theModified PAMA projects.

First, Doe Run Peru has established an environmentaltrust account with Scotiabank Peru into which receipts from sales to certaincustomers are required to be directly remitted in an amount sufficient to havecash available to pay the expenditures estimated to be incurred in eachsubsequent month by Doe Run Peru under the Modified PAMA. At July 31, 2006, thebalance in this account was $5,830 and is included in noncurrent restrictedcash on the balance sheet. Second, Doe Run Peru has provided to MEM a bankletter of guarantee in the amount of $28,641 (which, when determined, was 20%of the projected cost of the Modified PAMA projects to be spent after2006).  Doe Run Peru deposited suchamount with Standard Chartered Bank, which has in turn provided for theissuance to MEM of the necessary bank letter of guarantee relying solely uponthe funds so deposited.  This amount wasincluded as noncurrent restricted cash on the balance sheet at July 31,2006.  Doe Run Peru has amended the DoeRun Peru Revolving Credit Facility to allow for these arrangements.

Although not contemplated by the Supreme Decree, as acondition of granting the Modified PAMA, MEM unilaterally determined that DoeRun Peru could lose the benefit of the extension if Doe Run Peru makes anypayments to any shareholder or affiliate that could affect the full andsatisfactory compliance with the Modified PAMA obligations.  This determination was not agreed to by DoeRun or Doe Run Peru, but was imposed under applicable law over theirobjection.  Doe Run Peru was required,however, to provide a bank letter of guarantee in the amount of $4,000, whichmay be drawn upon to fund Modified PAMA projects if Doe Run Peru makes anypayments to any shareholder or affiliate. Doe Run Peru satisfied this requirement by depositing such amount withStandard Chartered Bank, which has in turn provided for the issuance to MEM ofthe necessary bank letter of guarantee relying solely upon the funds sodeposited.  At July 31, 2006, this amountwas included in noncurrent restricted cash on the balance sheet.

Separately, Renco has advised Doe Run that Renco has confirmedto MEM that Renco understands that Doe Run Peru could lose the benefit of theextension if Doe Run Peru makes any payments to any shareholder or affiliatethat could affect the full and satisfactory compliance with Doe Run Peru’sModified PAMA obligations, and Renco has advised Doe Run that Renco has nointention of causing, and will not do anything to cause, Doe Run Peru to makeany such payment.

In connection with its negotiations with MEM regardingthe Modified PAMA, Doe Run voluntarily agreed to extend the maturity of Doe RunPeru’s $139,063 intercompany note payable to Doe Run from December 9, 2006until such time as the Modified PAMA has been completed.

No assurance can be given that implementation of theprojects under the Modified PAMA is feasible or that their implementation willachieve compliance with the applicable legal requirements by the end of theModified PAMA period.  The PeruvianGovernment may, in the future, require compliance with additional environmentalregulations that could adversely affect Doe Run Peru’s business, financialcondition and results of operations, as well as its ability to comply with theModified PAMA.  After expiration of theModified PAMA, Doe Run Peru must continue to comply with all applicablestandards and requirements.

In addition to itsPAMA obligations, Doe Run Peru is responsible for the remediation costsrelating to the zinc ferrite disposal site at La Oroya.  The current closure plan provides forencapsulating the ferrite residues in place in 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, 2006 andOctober 31, 2005.

The Cobriza minehas a separate PAMA in which Doe Run Peru committed to complete projects tomanage tailings, mine drainage, sewage and garbage.  Doe Run Peru completed its own PAMArequirements

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with respect to Cobrizain June of 2004 and is in compliance with emissions standards required by thisPAMA.

 

Under the purchaseagreement related to the acquisition of the La Oroya assets in October of 1997,Centromin, the prior owner of the La Oroya smelter and Cobriza mine, agreed toindemnify Doe Run Peru against environmental liability arising out of its prioroperations and its apportioned share of any complaint related toemissions.  Performance of the indemnityhas been guaranteed by the Peruvian Government through the enactment of theSupreme Decree No. 042-97-PCM.  However,there can be no assurance that Centromin will satisfy its environmentalobligation and investment requirements or that the guarantee will be honored.  Any failure by Centromin to satisfy its environmentalobligations could adversely affect Doe Run Peru’s business, financial conditionand results of operations.

***Environmental Remediation -******Consolidated***

The Company believes itsreserves for domestic and foreign environmental, mine closure and reclamationmatters are adequate, based on the information currently available. Dependingupon the type and extent of activities required, revisions to management’sestimates of costs to perform these activities are reasonably possible in thenear term. Therefore, there can be no assurance that additional costs, bothindividually and in the aggregate, would not have a material adverse effect onthe results of operations, financial condition and liquidity of the Company.

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

Doe Run is a defendant in 29 lawsuits alleging certaindamages stemming from the operations at the Herculaneum primary smelter.  Three of these cases are class actionlawsuits.  In two of the class action lawsuits,the plaintiffs seek to have certified a class of property owners in a certainsection of Herculaneum, alleging that property values have been damaged due tothe operations of the smelter.  In thethird class action lawsuit, plaintiffs seek to have certified a class ofchildren who lived in Herculaneum during a period of time when they were lessthan six years old and children born to mothers who lived in Herculaneum duringtheir pregnancies.  The remedy sought ismedical monitoring for the class.  Theother twenty-six cases are personal injury actions by 161 individuals whoallege damages from the effects of lead due to operations at the smelter.  Punitive damages also are being sought ineach case.  Doe Run is also a defendantin a wrongful death action concerning a drowning in the City of Herculaneum.

Aresident of Herculaneum has claimed personal injuries allegedly resulting fromexposure to emissions from the smelter. No suit has yet been filed in this matter.

Doe Run is a defendant in 17 lawsuits alleging certaindamages from discontinued mine facilities in St. Francois County.  Four of the cases are class actionlawsuits.  The first case seeks to havecertified a class consisting of property owners in Bonne Terre, Missouri,alleging that property values have been damaged due to the tailings from thediscontinued operations.  In the secondcase, plaintiffs seek to have certified a class of children who lived, went toschool or day care in Bonne Terre, or whose mothers lived in Bonne Terre duringtheir pregnancies.  The third and fourthcases are class actions for property damage and medical monitoring concerningalleged damages caused by chat, tailings and related operations in six areas inSt. Francois County.  The remainder ofthe cases allege personal injury to 28 individuals who were exposed to lead inSt. Francois County.

Doe Run is a defendant in a lawsuit by the BNSFRailway Company, which has alleged that Doe Run and other companies associatedwith lead mining operations in Missouri are responsible for property damage atcertain rail yards and for contribution and indemnity for costs incurred byBNSF associated with the settlement by BNSF of lead exposure cases.  Given the early stage of this case, theCompany is unable at this time to estimate the expected outcome and any finalcosts of this action.

16

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Doe Run is a defendant in five lawsuits allegingcertain damages from past mining operations in Ottawa County, Oklahoma.  Three of these suits are class actionsalleging personal injury and property damage in Picher and Quapaw, Oklahoma.  The other lawsuits are personal injury casesbeing brought by seven children living in Picher, Oklahoma and 42 childrenliving in Ottawa County.

Doe Run, with several other defendants, has been namedin four cases in Maryland but has not yet been joined as a defendant in any ofthese cases.  These suits seek damages,including punitive damages, alleging personal injuries as a result of leadpoisoning from exposure to lead paint and tetraethyl lead dust.  Doe Run was dismissed from two similar casesin which it was joined as a defendant.  UntilDoe Run is actually joined as a defendant in one or more of these cases,material liability from these cases is considered remote.

DoeRun is currently a defendant in three asbestos injury suits filed in MadisonCounty, Illinois, each alleging that a worker was exposed to asbestos at thepremises of the St. Joe Minerals Corporation. However, Doe Run has not been properly served in one of these cases, andone case was settled and dismissed. Doe Run has reached a tentative settlementin another of these cases prior to going to trial.  Doe Run is also a defendant in an asbestoscase filed in Lawrence County, Pennsylvania.

Doe Run is in a commercial dispute with a buyerconcerning one ocean shipment of lead concentrates.  The buyer is seeking reimbursement ofexpenses incurred to address a large amount of water that appeared during thevoyage on top of concentrates in the forward holds.  This contract dispute is in arbitrationbefore the London Metal Exchange.

Doe Run is a defendant in a lawsuit by Korea Zinc Co.and affiliates filed on January 19, 2006 in the Circuit Court of St. LouisCounty, concerning alleged violations of an agreement regarding the sale ofzinc concentrates.  Doe Run disputes theclaim and will seek dismissal because the dispute should be subject toarbitration.

Doe Run is a defendant in a lawsuit filed by Nadist,LLC in U.S. District Court for the Eastern District of Missouri on June 23,2006 concerning the Sweetwater Mine and Mill. The lawsuit purports to constitute a citizen suit alleging violations ofcertain U.S. environmental laws and includes certain state law allegations.

Doe Run has been named as a party in various lawsuitsrelating to certain operations of its predecessor.  Fluor Corporation, the owner of Doe Run’spredecessor, retained the obligation for any costs of defense or claimsrelating to these lawsuits.  Should FluorCorporation become unable to fulfill its contractual obligation, Doe Run couldbe liable for any costs or claims resulting from these lawsuits.  There is no reason at this time to believethat Fluor Corporation could not fulfill its contractual obligations.

Doe Run Peru is currently a defendant in 234 lawsuitsin the Lima, Peru labor courts that allege damage to workers from industrialdiseases. Doe Run Peru has made claims in most of the cases against Centrominand has also made claims against both governmental agencies and privatecompanies that provide workers’ insurance. The average claim is $18. Of 21previously concluded cases in this category, 19 were dismissed and 2 resultedin awards totaling $9.

Doe Run Peru is also currently a defendant in 176lawsuits by workers alleging that they are owed certain differences in salariesand benefits. The average claim, excluding those mentioned specifically below,is $20. Of 39 previously concluded cases in this category, 30 were dismissedand 9 resulted in awards totaling $18. Of the remaining lawsuits in this group,four are individually significant.  TheYauli-La Oroya Employees Union lawsuit has the claims of 149 workers remaining thathave been valued at a total of $242 according to a report by an expertappointed by the court.  The CorbrizaWorkers Union lawsuit has the claims of 288 workers remaining for an amount of$2,086.  There are two lawsuits filed byindviduals, one claiming $1,449 and the other claiming $347.

Doe Run Peru is also currently a defendant in 24lawsuits alleging various labor claims including indemnification for arbitrarydismissal, nullity of dismissal, moral damage compensation, compensatorydamages from work accident and readmission of worker. The average claim is $6.Of 30 previously concluded cases in this category, 26 were dismissed and 4resulted in awards totaling $21.

17

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The amount of awards in the various categories of lawsuitsreferenced above represented total judgments issued by the relevant courts. Forcertain of these lawsuits, Centromin will pay a portion of the total award.

On January 19, 2005, Doe Run Peru was served with alawsuit by an association of municipalities of the Junin Region of Peru againstDoe Run Peru and two other mining companies. This lawsuit alleges environmentaldamages to the Mantaro River basin in the amount of $5,000,000. On February 2,2006, Doe Run Peru was served with a lawsuit by the municipality of Jauja. Thislawsuit alleges environmental damages to the Mantaro River basin in the amountof $5,000.  Material liability to Doe RunPeru, in these two actions, is believed to be remote based on the opinion ofmanagement and outside counsel for Doe Run Peru. Any potential judgment wouldbe subject to the indemnification obligations of Centromin, which areguaranteed by the Peruvian Government.

On December 3, 2003, Doe Run Peru filed anadministrative lawsuit against the Yauli – La Oroya Provincial City Hall inorder to nullify and void a number of fines totaling $2,860. Doe Run Peru wasfined for not having construction licenses for the PAMA projects.

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 these actions. Noamounts have been accrued as liabilities related to these actions.  There can be no assurance that these caseswould not have a material adverse effect, both individually and in theaggregate, on the results of operations, financial condition and liquidity ofthe Company. The Company has and will continue to vigorously defend itselfagainst such claims.

**(9)****                  Guarantor Subsidiaries**

Fabricated Products, Inc. (“FPI”) and DR LandHoldings, LLC (together with FPI, the “Domestic Guarantors”), Buick ResourceRecycling Facility, LLC, Doe Run Cayman and its subsidiary, Doe Run Peru, eacha direct or indirect subsidiary of Doe Run (collectively, the “Guarantor Subsidiaries”),have jointly and severally, fully, unconditionally and irrevocably guaranteedthe 11.75% notes of the Company.  Doe RunCayman has no operations separate from those of Doe Run Peru.  Separate financial statements and otherdisclosures concerning certain Guarantor Subsidiaries and disclosuresconcerning non-Guarantor Subsidiaries have not been presented becausemanagement has determined that such information is not material toinvestors.  Intercompany transactionseliminated in consolidation consist of various service and agency fees betweenDoe Run and Doe Run Peru and sales of metal to Doe Run by Doe Run Peru and toFPI by Doe Run.

 

18

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**CondensedConsolidating Balance Sheet (unaudited)**

**As ofJuly 31, 2006**

**(Dollarsin thousands, except share and per share data)**

** **
| ** **                                                                                 | ** ** | **The Company** | ** ** | **Buick**              | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
|--------------------------------------------------------------------------------------------|------------|----------------------|------------|------------------------|------------|----------------|------------|---------------------|------------|------------------|------------|-------------|------------|
| ** **                                                                                 | ** ** | **Excluding**        | ** ** | **Resource**           | ** ** | **Other**      | ** ** | **Doe Run**    | ** ** | ** **       | ** ** | ** **  | ** ** |
| ** **                                                                                 | ** ** | **Guarantor**        | ** ** | **Recycling**          | ** ** | **Domestic**   | ** ** | **Cayman and** | ** ** | ** **       | ** ** | **The**     | ** ** |
| ** **                                                                                 | ** ** | **Subsidiaries**     | ** ** | **Facility, LLC** | ** ** | **Guarantors** | ** ** | **Subsidiary**      | ** ** | **Eliminations** | ** ** | **Company** | ** ** |
|                                                                                       |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| **ASSETS**                                                                                 | ** ** | ** **           | ** ** | ** **             | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
| Current assets:                                                                            |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cash                                                                                       |       | $                    | 10,896     |                   | $          | —         |       | $                   | 1          |             | $          | 4,335       |       | $ | — |   | $ | 15,232 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts                         |       | 65,319               |       | —                 |       | 2,560          |       | 56,738              |       | (6,543           | )          | 118,074     |       |
| Inventories                                                                                |       | 45,287               |       | —                 |       | 1,637          |       | 95,190              |       | (102             | )          | 142,012     |       |
| Prepaid expenses  and other current assets                                                 |       | 8,727                |       | —                 |       | 33             |       | 21,859              |       | —           |       | 30,619      |       |
| Due from  subsidiaries/parent                                                              |       | 8,721                |       | 2,699                  |       | —         |       | —              |       | (11,420          | )          | —      |       |
| Total current  assets                                                                      |       | 138,950              |       | 2,699                  |       | 4,231          |       | 178,122             |       | (18,065          | )          | 305,937     |       |
| Property, plant  and equipment, net                                                        |       | 74,421               |       | 14,743                 |       | 738            |       | 178,822             |       | —           |       | 268,724     |       |
| Due from  subsidiaries                                                                     |       | 156,870              |       | —                 |       | —         |       | —              |       | (156,870         | )          | —      |       |
| Noncurrent  restricted cash                                                                |       | —               |       |                   |       |           |       | 38,471              |       |             |       | 38,471      |       |
| Other noncurrent  assets, net                                                              |       | 7,303                |       | —                 |       | 63             |       | 154                 |       | —           |       | 7,520       |       |
| Investment in  subsidiaries                                                                |       | 31,070               |       | —                 |       | —         |       | —              |       | (31,070          | )          | —      |       |
| Total assets                                                                               |       | $                    | 408,614    |                   | $          | 17,442         |       | $                   | 5,032      |             | $          | 395,569     |       | $ | (206,005 | ) | $ | 620,652 |   |
|                                                                                       |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                   | ** ** | ** **           | ** ** | ** **             | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
| Current liabilities:                                                                       |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
|                                                                                       |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Current  maturities of long-term debt                                                      |       | $                    | 52,556     |                   | $          | —         |       | $                   | —     |             | $          | 46,561      |       | $ | — |   | $ | 99,117 |   |
| Accounts payable                                                                           |       | 28,738               |       | —                 |       | 963            |       | 115,134             |       | (6,543           | )          | 138,292     |       |
| Accrued  liabilities                                                                       |       | 72,087               |       | —                 |       | 539            |       | 52,072              |       | —           |       | 124,698     |       |
| Due to  parent/subsidiaries                                                                |       | 2,699                |       | —                 |       | 8,721          |       | —              |       | (11,420          | )          | —      |       |
| Total current  liabilities                                                                 |       | 156,080              |       | —                 |       | 10,223         |       | 213,767             |       | (17,963          | )          | 362,107     |       |
|                                                                                       |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Long-term debt,  less current maturities                                                   |       | 258,704              |       | —                 |       | —         |       | 2,246               |       | —           |       | 260,950     |       |
| Due to parent                                                                              |       | —               |       | —                 |       | —         |       | 156,870             |       | (156,870         | )          | —      |       |
| Other noncurrent  liabilities                                                              |       | 64,225               |       | —                 |       | 5              |       | 3,760               |       | —           |       | 67,990      |       |
| Total  liabilities                                                                         |       | 479,009              |       | —                 |       | 10,228         |       | 376,643             |       | (174,833         | )          | 691,047     |       |
|                                                                                       |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Series A  redeemable preferred stock                                                       |       | 31,165               |       | —                 |       | —         |       | —              |       | —           |       | 31,165      |       |
|                                                                                       |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Shareholders’ equity  (deficit):                                                      |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Common stock,  $.10 par value, 1,667 shares authorized, 1000 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                                                                |       | —               |       | 23,909                 |       | 1,205          |       | —              |       | (25,114          | )          | —      |       |
| Accumulated  preferred stock dividends in excess of paid in capital                        |       | (5,928               | )          | —                 |       | —         |       | —              |       | —           |       | (5,928      | )          |
| Retained  earnings (accumulated deficit) and accumulated other comprehensive losses        |       | (95,632              | )          | (6,467                 | )          | (6,402         | )          | 16,921              |       | (4,052           | )          | (95,632     | )          |
| Total  shareholders’ equity (deficit)                                                 |       | (101,560             | )          | 17,442                 |       | (5,196         | )          | 18,926              |       | (31,172          | )          | (101,560    | )          |
| Total liabilities and  shareholders’ equity (deficit)                                 |       | $                    | 408,614    |                   | $          | 17,442         |       | $                   | 5,032      |             | $          | 395,569     |       | $ | (206,005 | ) | $ | 620,652 |   |

 

19

----

**CondensedConsolidating Balance Sheet**

**As ofOctober 31, 2005**

**(Dollarsin thousands, except share and per share data)**

 
| ** **                                                                                  | ** ** | **The Company** | ** ** | **Buick**              | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
|---------------------------------------------------------------------------------------------|------------|----------------------|------------|------------------------|------------|----------------|------------|---------------------|------------|------------------|------------|-------------|------------|
| ** **                                                                                  | ** ** | **Excluding**        | ** ** | **Resource**           | ** ** | **Other**      | ** ** | **Doe Run**    | ** ** | ** **       | ** ** | ** **  | ** ** |
| ** **                                                                                  | ** ** | **Guarantor**        | ** ** | **Recycling**          | ** ** | **Domestic**   | ** ** | **Cayman and** | ** ** | ** **       | ** ** | **The**     | ** ** |
| ** **                                                                                  | ** ** | **Subsidiaries**     | ** ** | **Facility, LLC** | ** ** | **Guarantors** | ** ** | **Subsidiary**      | ** ** | **Eliminations** | ** ** | **Company** | ** ** |
| ** **                                                                                  | ** ** | ** **           | ** ** | ** **             | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
| **ASSETS**                                                                                  | ** ** | ** **           | ** ** | ** **             | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
| Current assets:                                                                             |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cash                                                                                        |       | $                    | 8,916      |                   | $          | —         |       | $                   | 1          |             | $          | 14,569      |       | $ | — |   | $ | 23,486 |   |
| Trade accounts receivable, net of allowance for  doubtful accounts                          |       | 56,454               |       | —                 |       | 2,202          |       | 31,637              |       | (4,553           | )          | 85,740      |       |
| Inventories                                                                                 |       | 35,613               |       | —                 |       | 1,301          |       | 68,756              |       | (36              | )          | 105,634     |       |
| Prepaid expenses and other current assets                                                   |       | 4,564                |       | —                 |       | 59             |       | 16,191              |       | —           |       | 20,814      |       |
| Selling, general and administrative                                                         |       | 151,617              |       | 2,037                  |       | —         |       | —              |       | (153,654         | )          | —      |       |
| Total current assets                                                                        |       | 257,164              |       | 2,037                  |       | 3,563          |       | 131,153             |       | (158,243         | )          | 235,674     |       |
|                                                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Property, plant and equipment, net                                                          |       | 74,604               |       | 16,083                 |       | 1,013          |       | 161,563             |       | —           |       | 253,263     |       |
| Due from subsidiaries                                                                       |       | 14,057               |       | —                 |       | —         |       | —              |       | (14,057          | )          | —      |       |
| Other noncurrent assets, net                                                                |       | 5,775                |       | —                 |       | 63             |       | —              |       | —           |       | 5,838       |       |
| Investment in subsidiaries                                                                  |       | 6,708                |       | —                 |       | —         |       | —              |       | (6,708           | )          | —      |       |
| Total assets                                                                                |       | $                    | 358,308    |                   | $          | 18,120         |       | $                   | 4,639      |             | $          | 292,716     |       | $ | (179,008 | ) | $ | 494,775 |   |
|                                                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                    | ** ** | ** **           | ** ** | ** **             | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
| Current  liabilities:                                                                       |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Current maturities of long-term debt                                                        |       | $                    | 75,126     |                   | $          | —         |       | —              |       | $                | 39,821     |        | $          | — |   | $ | 114,947 |   |
| Accounts payable                                                                            |       | 29,007               |       | —                 |       | 706            |       | 67,115              |       | (4,553           | )          | 92,275      |       |
| Accrued liabilities                                                                         |       | 55,392               |       | —                 |       | 468            |       | 31,200              |       | —           |       | 87,060      |       |
| Due to parent/subsidiaries                                                                  |       | 2,037                |       | —                 |       | 8,554          |       | 143,063             |       | (153,654         | )          | —      |       |
| Total current liabilities                                                                   |       | 161,562              |       | —                 |       | 9,728          |       | 281,199             |       | (158,207         | )          | 294,282     |       |
|                                                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Long-term debt, less current maturities                                                     |       | 271,566              |       | —                 |       | —         |       | —              |       | —           |       | 271,566     |       |
| Due to parent                                                                               |       | —               |       | —                 |       | —         |       | 14,057              |       | (14,057          | )          | —      |       |
| Other noncurrent liabilities                                                                |       | 64,590               |       | —                 |       | 281            |       | 3,466               |       | —           |       | 68,337      |       |
| Total liabilities                                                                           |       | 497,718              |       | —                 |       | 10,009         |       | 298,722             |       | (172,264         | )          | 634,185     |       |
|                                                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Series A redeemable preferred stock                                                         |       | 28,495               |       | —                 |       | —         |       | —              |       | —           |       | 28,495      |       |
|                                                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| 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                                                                  |       | —               |       | 23,305                 |       | 1,205          |       | —              |       | (24,510          | )          | —      |       |
| Accumulated preferred stock dividends in excess of  paid in capital                         |       | (3,257               | )          | —                 |       | —         |       | —              |       | —           |       | (3,257      | )          |
| Accumulated deficit and accumulated other comprehensive  losses                             |       | (164,648             | )          | (5,185                 | )          | (6,576         | )          | (8,011              | )          | 19,772           |       | (164,648    | )          |
| Total shareholders’ equity (deficit)                                                   |       | (167,905             | )          | 18,120                 |       | (5,370         | )          | (6,006              | )          | (6,744           | )          | (167,905    | )          |
| Total  liabilities and shareholders’ equity (deficit)                                  |       | $                    | 358,308    |                   | $          | 18,120         |       | $                   | 4,639      |             | $          | 292,716     |       | $ | (179,008 | ) | $ | 494,775 |   |

 

20

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**CondensedConsolidating Statement of Operations (unaudited)Nine Months Ended July 31, 2006(Dollars in thousands)**
| ** **                                          | ** ** | **The Company** | ** ** | **Buick**              | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|------------------------|------------|----------------|------------|---------------------|------------|------------------|------------|-------------|------------|
| ** **                                          | ** ** | **Excluding**        | ** ** | **Resource**           | ** ** | ** **     | ** ** | **Doe Run**    | ** ** | ** **       | ** ** | ** **  | ** ** |
| ** **                                          | ** ** | **Guarantor**        | ** ** | **Recycling**          | ** ** | **Domestic**   | ** ** | **Cayman and** | ** ** | ** **       | ** ** | **The**     | ** ** |
| ** **                                          | ** ** | **Subsidiaries**     | ** ** | **Facility, LLC** | ** ** | **Guarantors** | ** ** | **Subsidiary**      | ** ** | **Eliminations** | ** ** | **Company** | ** ** |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Net sales                                           |       | $                    | 352,382    |                   | $          | —         |       | $                   | 11,301     |             | $          | 769,618     |       | $ | (19,767 | ) | $ | 1,113,534 |   |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Costs and  expenses:                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cost of sales                                       |       | 244,083              |       | —                 |       | 8,356          |       | 702,025             |       | (19,701          | )          | 934,763     |       |
| Depreciation, depletion and amortization            |       | 7,212                |       | 1,944                  |       | 330            |       | 10,571              |       | —           |       | 20,057      |       |
| Selling, general and administrative                 |       | 23,447               |       | —                 |       | 2,127          |       | 17,285              |       | —           |       | 42,859      |       |
| Unrealized gain on derivative financial instruments |       | (2,650               | )          | —                 |       | —         |       | (2,153              | )          | —           |       | (4,803      | )          |
| Other                                               |       | 2,687                |       | —                 |       | —         |       | 1,368               |       | —           |       | 4,055       |       |
| Total costs and expenses                            |       | 274,779              |       | 1,944                  |       | 10,813         |       | 729,096             |       | (19,701          | )          | 996,931     |       |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income (loss) from operations                       |       | 77,603               |       | (1,944                 | )          | 488            |       | 40,522              |       | (66              | )          | 116,603     |       |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Other income  (expense):                            |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Interest expense, net                               |       | (2,692               | )          | —                 |       | (319           | )          | (2,395              | )          | —           |       | (5,406      | )          |
| Other, net                                          |       | (700                 | )          | 662                    |       | 5              |       | 209                 |       | —           |       | 176         |       |
| Equity in earnings of subsidiaries                  |       | 23,758               |       | —                 |       | —         |       | —              |       | (23,758          | )          | —      |       |
|                                                |       | 20,366               |       | 662                    |       | (314           | )          | (2,186              | )          | (23,758          | )          | (5,230      | )          |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income (loss) before income tax expense             |       | 97,969               |       | (1,282                 | )          | 174            |       | 38,336              |       | (23,824          | )          | 111,373     |       |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income tax expense                                  |       | —               |       | —                 |       | —         |       | 13,404              |       | —           |       | 13,404      |       |
| Net income (loss)                                   |       | 97,969               |       | (1,282                 | )          | 174            |       | 24,932              |       | (23,824          | )          | 97,969      |       |
| Preferred stock dividends                           |       | (2,671               | )          | —                 |       | —         |       | —              |       | —           |       | (2,671      | )          |
| Net income  (loss) allocable to common shares       |       | $                    | 95,298     |                   | $          | (1,282         | )          | $                   | 174        |             | $          | 24,932      |       | $ | (23,824 | ) | $ | 95,298 |   |

 

21

----

**CondensedConsolidating Statement of Operations (unaudited)Three Months Ended July 31, 2006(Dollars in thousands)**
| ** **                                          | ** ** | **The Company** | ** ** | **Buick**              | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|------------------------|------------|----------------|------------|---------------------|------------|------------------|------------|-------------|------------|
| ** **                                          | ** ** | **Excluding**        | ** ** | **Resource**           | ** ** | ** **     | ** ** | **Doe Run**    | ** ** | ** **       | ** ** | ** **  | ** ** |
| ** **                                          | ** ** | **Guarantor**        | ** ** | **Recycling**          | ** ** | **Domestic**   | ** ** | **Cayman and** | ** ** | ** **       | ** ** | **The**     | ** ** |
| ** **                                          | ** ** | **Subsidiaries**     | ** ** | **Facility, LLC** | ** ** | **Guarantors** | ** ** | **Subsidiary**      | ** ** | **Eliminations** | ** ** | **Company** | ** ** |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Net sales                                           |       | $                    | 114,537    |                   | $          | —         |       | $                   | 3,908      |             | $          | 306,922     |       | $ | (6,178 | ) | $ | 419,189 |   |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Costs and  expenses:                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cost of sales                                       |       | 82,648               |       | —                 |       | 3,108          |       | 284,776             |       | (6,116           | )          | 364,416     |       |
| Depreciation, depletion and amortization            |       | 2,441                |       | 580                    |       | 111            |       | 3,797               |       | —           |       | 6,929       |       |
| Selling, general and administrative                 |       | 8,022                |       | —                 |       | 800            |       | 5,469               |       | —           |       | 14,291      |       |
| Unrealized gain on derivative financial instruments |       | (687                 | )          | —                 |       | —         |       | 140                 |       | —           |       | (547        | )          |
| Other                                               |       | 659                  |       | —                 |       | —         |       | 281                 |       | —           |       | 940         |       |
| Total costs and expenses                            |       | 93,083               |       | 580                    |       | 4,019          |       | 294,463             |       | (6,116           | )          | 386,029     |       |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income (loss) from operations                       |       | 21,454               |       | (580                   | )          | (111           | )          | 12,459              |       | (62              | )          | 33,160      |       |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Other income  (expense):                            |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Interest expense, net                               |       | (688                 | )          | —                 |       | (102           | )          | (891                | )          | —           |       | (1,681      | )          |
| Other, net                                          |       | (213                 | )          | 187                    |       | 2              |       | (285                | )          | —           |       | (309        | )          |
| Equity in earnings of subsidiaries                  |       | 2,483                |       | —                 |       | —         |       | —              |       | (2,483           | )          | —      |       |
|                                                |       | 1,582                |       | 187                    |       | (100           | )          | (1,176              | )          | (2,483           | )          | (1,990      | )          |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income (loss) before income tax expense             |       | 23,036               |       | (393                   | )          | (211           | )          | 11,283              |       | (2,545           | )          | 31,170      |       |
|                                                |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income tax expense                                  |       | —               |       | —                 |       | —         |       | 8,134               |       | —           |       | 8,134       |       |
| Net income (loss)                                   |       | 23,036               |       | (393                   | )          | (211           | )          | 3,149               |       | (2,545           | )          | 23,036      |       |
| Preferred stock dividends                           |       | (890                 | )          | —                 |       | —         |       | —              |       | —           |       | (890        | )          |
| Net income  (loss) allocable to common shares       |       | $                    | 22,146     |                   | $          | (393           | )          | $                   | (211       | )                | $          | 3,149       |       | $ | (2,545 | ) | $ | 22,146 |   |

 

22

----

**CondensedConsolidating Statement of Operations (unaudited)Nine Months Ended July 31, 2005(Dollars in thousands)**
| ** **                                                  | ** ** | **The Company** | ** ** | **Buick**              | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
|-------------------------------------------------------------|------------|----------------------|------------|------------------------|------------|----------------|------------|---------------------|------------|------------------|------------|-------------|------------|
| ** **                                                  | ** ** | **Excluding**        | ** ** | **Resource**           | ** ** | ** **     | ** ** | **Doe Run**    | ** ** | ** **       | ** ** | ** **  | ** ** |
| ** **                                                  | ** ** | **Guarantor**        | ** ** | **Recycling**          | ** ** | **Domestic**   | ** ** | **Cayman and** | ** ** | ** **       | ** ** | **The**     | ** ** |
| ** **                                                  | ** ** | **Subsidiaries**     | ** ** | **Facility, LLC** | ** ** | **Guarantors** | ** ** | **Subsidiary**      | ** ** | **Eliminations** | ** ** | **Company** | ** ** |
|                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Net sales                                                   |       | $                    | 253,621    |                   | $          | —         |       | $                   | 10,338     |             | $          | 481,795     |       | $ | (4,533 | ) | $ | 741,221 |   |
|                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Costs and  expenses:                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cost of sales                                               |       | 201,569              |       | —                 |       | 7,589          |       | 440,609             |       | (4,536           | )          | 645,231     |       |
| Depreciation, depletion and amortization                    |       | 6,685                |       | 1,899                  |       | 327            |       | 9,300               |       | —           |       | 18,211      |       |
| Selling, general and administrative                         |       | 20,551               |       | —                 |       | 1,851          |       | 13,282              |       | —           |       | 35,684      |       |
| Unrealized (gain) loss on derivative financial  instruments |       | (4,425               | )          | —                 |       | —         |       | 569                 |       | —           |       | (3,856      | )          |
| Other                                                       |       | 3,711                |       | 29                     |       | 152            |       | 137                 |       | —           |       | 4,029       |       |
| Total costs and expenses                                    |       | 228,091              |       | 1,928                  |       | 9,919          |       | 463,897             |       | (4,536           | )          | 699,299     |       |
|                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income (loss) from operations                               |       | 25,530               |       | (1,928                 | )          | 419            |       | 17,898              |       | 3                |       | 41,922      |       |
|                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Other income  (expense):                                    |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Interest expense, net                                       |       | (6,495               | )          | —                 |       | (461           | )          | (1,754              | )          | —           |       | (8,710      | )          |
| Other, net                                                  |       | (527                 | )          | 681                    |       | 9              |       | 310                 |       | —           |       | 473         |       |
| Equity in earnings of subsidiaries                          |       | 15,177               |       | —                 |       | —         |       | —              |       | (15,177          | )          | —      |       |
|                                                        |       | 8,155                |       | 681                    |       | (452           | )          | (1,444              | )          | (15,177          | )          | (8,237      | )          |
|                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income (loss) before income tax expense                     |       | 33,685               |       | (1,247                 | )          | (33            | )          | 16,454              |       | (15,174          | )          | 33,685      |       |
|                                                        |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income tax expense                                          |       | —               |       | —                 |       | —         |       | —              |       | —           |       | —      |       |
| Net income (loss)                                           |       | 33,685               |       | (1,247                 | )          | (33            | )          | 16,454              |       | (15,174          | )          | 33,685      |       |
| Preferred stock dividends                                   |       | (2,375               | )          | —                 |       | —         |       | —              |       | —           |       | (2,375      | )          |
| Net income  (loss) allocable to common shares               |       | $                    | 31,310     |                   | $          | (1,247         | )          | $                   | (33        | )                | $          | 16,454      |       | $ | (15,174 | ) | $ | 31,310 |   |

 

23

----

**CondensedConsolidating Statement of Operations (unaudited)Three Months Ended July 31, 2005(Dollars in thousands)**
| ** **                                    | ** ** | **The Company** | ** ** | **Buick**              | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
|-----------------------------------------------|------------|----------------------|------------|------------------------|------------|----------------|------------|---------------------|------------|------------------|------------|-------------|------------|
| ** **                                    | ** ** | **Excluding**        | ** ** | **Resource**           | ** ** | ** **     | ** ** | **Doe Run**    | ** ** | ** **       | ** ** | ** **  | ** ** |
| ** **                                    | ** ** | **Guarantor**        | ** ** | **Recycling**          | ** ** | **Domestic**   | ** ** | **Cayman and** | ** ** | ** **       | ** ** | **The**     | ** ** |
| ** **                                    | ** ** | **Subsidiaries**     | ** ** | **Facility, LLC** | ** ** | **Guarantors** | ** ** | **Subsidiary**      | ** ** | **Eliminations** | ** ** | **Company** | ** ** |
|                                          |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Net sales                                     |       | $                    | 82,934     |                   | $          | —         |       | $                   | 3,137      |             | $          | 172,370     |       | $ | (918 | ) | $ | 257,523 |   |
|                                          |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Costs and  expenses:                          |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cost of sales                                 |       | 70,860               |       | —                 |       | 2,349          |       | 155,599             |       | (908             | )          | 227,900     |       |
| Depreciation, depletion and amortization      |       | 2,152                |       | 643                    |       | 118            |       | 3,397               |       | —           |       | 6,310       |       |
| Selling, general and administrative           |       | 7,920                |       | —                 |       | 649            |       | 4,429               |       | —           |       | 12,998      |       |
| Unrealized (gain) loss on derivatives         |       | (2,933               | )          | —                 |       | —         |       | 338                 |       | —           |       | (2,595      | )          |
| Other                                         |       | 871                  |       | —                 |       | —         |       | —              |       | —           |       | 871         |       |
| Total costs and expenses                      |       | 78,870               |       | 643                    |       | 3,116          |       | 163,763             |       | (908             | )          | 245,484     |       |
|                                          |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income (loss) from operations                 |       | 4,064                |       | (643                   | )          | 21             |       | 8,607               |       | (10              | )          | 12,039      |       |
|                                          |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Other income  (expense):                      |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Interest expense, net                         |       | (1,288               | )          | —                 |       | (147           | )          | (520                | )          | —           |       | (1,955      | )          |
| Other, net                                    |       | (89                  | )          | 235                    |       | 7              |       | 95                  |       | —           |       | 248         |       |
| Equity in earnings of subsidiaries            |       | 7,645                |       | —                 |       | —         |       | —              |       | (7,645           | )          | —      |       |
|                                          |       | 6,268                |       | 235                    |       | (140           | )          | (425                | )          | (7,645           | )          | (1,707      | )          |
|                                          |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income (loss) before income tax expense       |       | 10,332               |       | (408                   | )          | (119           | )          | 8,182               |       | (7,655           | )          | 10,332      |       |
|                                          |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Income tax expense                            |       | —               |       | —                 |       | —         |       | —              |       | —           |       | —      |       |
| Net income (loss)                             |       | 10,332               |       | (408                   | )          | (119           | )          | 8,182               |       | (7,655           | )          | 10,332      |       |
| Preferred stock dividends                     |       | (792                 | )          | —                 |       | —         |       | —              |       | —           |       | (792        | )          |
| Net income  (loss) allocable to common shares |       | $                    | 9,540      |                   | $          | (408           | )          | $                   | (119       | )                | $          | 8,182       |       | $ | (7,655 | ) | $ | 9,540 |   |

 

24

----

**CondensedConsolidating Statement of Cash Flows (unaudited)**

**NineMonths Ended July 31, 2006**

**(Dollarsin the thousands)**

 
| ** **                                             | ** ** | **The Company** | ** ** | **Buick**              | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
|--------------------------------------------------------|------------|----------------------|------------|------------------------|------------|----------------|------------|---------------------|------------|------------------|------------|-------------|------------|
| ** **                                             | ** ** | **Excluding**        | ** ** | **Resource**           | ** ** | ** **     | ** ** | **Doe Run**    | ** ** | ** **       | ** ** | ** **  | ** ** |
| ** **                                             | ** ** | **Guarantor**        | ** ** | **Recycling**          | ** ** | **Domestic**   | ** ** | **Cayman and** | ** ** | ** **       | ** ** | **The**     | ** ** |
| ** **                                             | ** ** | **Subsidiaries**     | ** ** | **Facility, LLC** | ** ** | **Guarantors** | ** ** | **Subsidiary**      | ** ** | **Eliminations** | ** ** | **Company** | ** ** |
|                                                   |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Net cash  provided by (used in) operating activities   |       | $                    | 83,525     |                   | $          | 662            |       | $                   | (112       | )                | $          | 49,048      |       | $ | (23,758 | ) | $ | 109,365 |   |
|                                                   |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cash flows from  investing activities:                 |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Purchases of property, plant and equipment             |       | (7,926               | )          | —                 |       | (55            | )          | (28,374             | )          | —           |       | (36,355     | )          |
| Increase in PAMA guarantees and other restricted  cash |       | —               |       | —                 |       | —         |       | (38,471             | )          | —           |       | (38,471     | )          |
| Investment in subsidiaries                             |       | (23,758              | )          | —                 |       | —         |       | —              |       | 23,758           |       | —      |       |
| Net cash used in investing activities                  |       | (31,684              | )          | —                 |       | (55            | )          | (66,845             | )          | 23,758           |       | (74,826     | )          |
|                                                   |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cash flows from  financing activities:                 |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Payments on revolving loans, net                       |       | (14,570              | )          | —                 |       | —         |       | —              |       | —           |       | (14,570     | )          |
| Proceeds from long-term debt                           |       | —               |       | —                 |       | —         |       | 10,000              |       | —           |       | 10,000      |       |
| Payments on long-term debt                             |       | (20,862              | )          | —                 |       | —         |       | (1,262              | )          | —           |       | (22,124     | )          |
| Payment of financing costs                             |       | —               |       | —                 |       | —         |       | (925                | )          | —           |       | (925        | )          |
| Payments of dividends                                  |       | (15,174              | )          | —                 |       | —         |       | —              |       | —           |       | (15,174     | )          |
| Change in due to/due from parent/subsdiaries           |       | 745                  |       | (662                   | )          | 167            |       | (250                | )          | —           |       | —      |       |
| Net cash provided by (used in) financing activities    |       | (49,861              | )          | (662                   | )          | 167            |       | 7,563               |       | —           |       | (42,793     | )          |
|                                                   |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Net increase (decrease) in cash                        |       | 1,980                |       | —                 |       | —         |       | (10,234             | )          | —           |       | (8,254      | )          |
|                                                   |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cash at  beginning of period                           |       | 8,916                |       | —                 |       | 1              |       | 14,569              |       | —           |       | 23,486      |       |
| Cash at end of period                                  |       | $                    | 10,896     |                   | $          | —         |       | $                   | 1          |             | $          | 4,335       |       | $ | — |   | $ | 15,232 |   |

 

25

----

**CondensedConsolidating Statement of Cash Flows (unaudited)**

**NineMonths Ended July 31, 2005**

**(Dollarsin thousands)**

 
| ** **                                                | ** ** | **The Company** | ** ** | **Buick**              | ** ** | ** **     | ** ** | ** **          | ** ** | ** **       | ** ** | ** **  | ** ** |
|-----------------------------------------------------------|------------|----------------------|------------|------------------------|------------|----------------|------------|---------------------|------------|------------------|------------|-------------|------------|
| ** **                                                | ** ** | **Excluding**        | ** ** | **Resource**           | ** ** | ** **     | ** ** | **Doe Run**    | ** ** | ** **       | ** ** | ** **  | ** ** |
| ** **                                                | ** ** | **Guarantor**        | ** ** | **Recycling**          | ** ** | **Domestic**   | ** ** | **Cayman and** | ** ** | ** **       | ** ** | **The**     | ** ** |
| ** **                                                | ** ** | **Subsidiaries**     | ** ** | **Facility, LLC** | ** ** | **Guarantors** | ** ** | **Subsidiary**      | ** ** | **Eliminations** | ** ** | **Company** | ** ** |
|                                                      |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Net cash  provided by (used in) operating activities      |       | $                    | 44,099     |                   | $          | 653            |       | $                   | (851       | )                | $          | 35,067      |       | $ | (15,177 | ) | $ | 63,791 |   |
|                                                      |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cash flows from  investing activities:                    |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Purchases of property, plant and equipment                |       | (11,596              | )          | —                 |       | (130           | )          | (26,152             | )          | —           |       | (37,878     | )          |
| Proceeds from disposal of assets and sale of  investments |       | 511                  |       | —                 |       | 1              |       | —              |       | —           |       | 512         |       |
| Investment in subsidiaries                                |       | (15,177              | )          | —                 |       | —         |       | —              |       | 15,177           |       | —      |       |
| Net cash used in investing activities                     |       | (26,262              | )          | —                 |       | (129           | )          | (26,152             | )          | 15,177           |       | (37,366     | )          |
|                                                      |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cash flows from  financing activities:                    |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Payments on revolving loans, net                          |       | (15,522              | )          | —                 |       | —         |       | 400                 |       | —           |       | (15,122     | )          |
| Payments on long-term debt                                |       | (14,621              | )          | —                 |       | —         |       | (21                 | )          | —           |       | (14,642     | )          |
| Payments of dividends                                     |       | (451                 | )          | —                 |       | —         |       | —              |       | —           |       | (451        | )          |
| Change in due to/due from parent/subsdiaries              |       | 2,673                |       | (653                   | )          | 980            |       | (3,000              | )          | —           |       | —      |       |
| Net cash provided by (used in) financing activities       |       | (27,921              | )          | (653                   | )          | 980            |       | (2,621              | )          | —           |       | (30,215     | )          |
|                                                      |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Net decrease (decrease) in cash                           |       | (10,084              | )          | —                 |       | —         |       | 6,294               |       | —           |       | (3,790      | )          |
|                                                      |       |                 |       |                   |       |           |       |                |       |             |       |        |       |
| Cash at  beginning of period                              |       | 13,412               |       | —                 |       | 1              |       | 6,905               |       | —           |       | 20,318      |       |
| Cash at end of period                                     |       | $                    | 3,328      |                   | $          | —         |       | $                   | 1          |             | $          | 13,199      |       | $ | — |   | $ | 16,528 |   |

 

26

----

**DOE RUNPERU S.R.L.**

**CondensedBalance Sheets**

**(U.S.dollars in thousands, except share and per share data)**

 
| ** **                                                         | ** **   | **July 31,** | ** **   | **October 31,** | ** **   |
|--------------------------------------------------------------------|--------------|-------------------|--------------|----------------------|--------------|
| ** **                                                         | ** **   | **2006**          | ** **   | **2005**             | ** **   |
| ** **                                                         | *** *** | **(unaudited)**   | *** *** | *** ***         | *** *** |
| **ASSETS**                                                         | ** **   | ** **        | ** **   | ** **           | ** **   |
| Current assets:                                                    |         |              |         |                 |         |
| Cash                                                               |         | $                 | 4,335        |                 | $            | 14,569 |   |
| Trade accounts receivable, net of allowance for  doubtful accounts |         | 56,738            |         | 31,637               |         |
| Inventories                                                        |         | 95,190            |         | 68,756               |         |
| Prepaid expenses and other current assets                          |         | 21,859            |         | 16,191               |         |
| Total current assets                                               |         | 178,122           |         | 131,153              |         |
|                                                               |         |              |         |                 |         |
| Property, plant  and equipment, net                                |         | 178,822           |         | 161,563              |         |
| Noncurrent  restricted cash                                        |         | 38,471            |         | —               |         |
| Other noncurrent  deferred financing fees, net                     |         | 154               |         | —               |         |
| Total assets                                                       |         | $                 | 395,569      |                 | $            | 292,716 |   |
|                                                               |         |              |         |                 |         |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)**            | ** **   | ** **        | ** **   | ** **           | ** **   |
| Current  liabilities:                                              |         |              |         |                 |         |
| Current maturities of long-term debt                               |         | $                 | 46,561       |                 | $            | 39,821 |   |
| Accounts payable                                                   |         | 115,134           |         | 67,115               |         |
| Accrued liabilities                                                |         | 52,072            |         | 31,200               |         |
| Due to related parties                                             |         | —            |         | 143,063              |         |
| Total current liabilities                                          |         | 213,767           |         | 281,199              |         |
|                                                               |         |              |         |                 |         |
| Long-term debt,  less current maturities                           |         | 2,246             |         | —               |         |
| Due to related  parties                                            |         | 156,870           |         | 14,057               |         |
| Other noncurrent  liabilities                                      |         | 3,760             |         | 3,466                |         |
| Total liabilities                                                  |         | 376,643           |         | 298,722              |         |
|                                                               |         |              |         |                 |         |
| Shareholders’  equity (deficit):                              |         |              |         |                 |         |
| Capital stock, $0.01 par value, 15,912,083,739  shares, fully paid |         | 2,005             |         | 2,005                |         |
| Retained earnings (deficit) and comprehensive income  (loss)       |         | 16,921            |         | (8,011               | )            |
| Total shareholders’ equity (deficit)                          |         | 18,926            |         | (6,006               | )            |
| Total  liabilities and shareholders’ equity (deficit)         |         | $                 | 395,569      |                 | $            | 292,716 |   |

 

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

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**DOERUN PERU S.R.L.Condensed Statement of Operations (unaudited)(U.S. dollars in thousands)**
| ** **                               | ** **   | **Three Months**        | ** **   | **Nine Months**         | ** **   |
|------------------------------------------|--------------|------------------------------|--------------|------------------------------|--------------|
| ** **                               | ** **   | **Ended July 31,** | ** **   | **Ended July 31,** | ** **   |
| ** **                               | ** **   | **2006**                     | ** **   | **2005**                     | ** **   | **2006** | ** ** | **2005** | ** ** |
| *** ***                             | *** *** | *** ***                 | *** *** | *** ***                 | *** *** | *** *** | *** *** | *** *** | *** *** |
| Net sales                                |         | $                            | 306,922      |                         | $            | 172,370 |   | $ | 769,618 |   | $ | 481,795 |   |
|                                     |         |                         |         |                         |         |   |   |   |   |
| Costs and  expenses:                     |         |                         |         |                         |         |   |   |   |   |
| Cost of sales                            |         | 284,776                      |         | 155,599                      |         | 702,025 |   | 440,609 |   |
| Depreciation, depletion and amortization |         | 3,797                        |         | 3,397                        |         | 10,571 |   | 9,300 |   |
| Selling, general and administrative      |         | 5,469                        |         | 4,429                        |         | 17,285 |   | 13,282 |   |
| Unrealized (gain) loss on derivatives    |         | 140                          |         | 338                          |         | (2,153 | ) | 569 |   |
| Other                                    |         | 281                          |         | —                       |         | 1,368 |   | 137 |   |
| Total costs and expenses                 |         | 294,463                      |         | 163,763                      |         | 729,096 |   | 463,897 |   |
|                                     |         |                         |         |                         |         |   |   |   |   |
| Income from operations                   |         | 12,459                       |         | 8,607                        |         | 40,522 |   | 17,898 |   |
|                                     |         |                         |         |                         |         |   |   |   |   |
| Other income  (expense):                 |         |                         |         |                         |         |   |   |   |   |
| Interest expense, net                    |         | (891                         | )            | (520                         | )            | (2,395 | ) | (1,754 | ) |
| Other, net                               |         | (285                         | )            | 95                           |         | 209 |   | 310 |   |
|                                     |         | (1,176                       | )            | (425                         | )            | (2,186 | ) | (1,444 | ) |
| Income before income tax expense         |         | 11,283                       |         | 8,182                        |         | 38,336 |   | 16,454 |   |
|                                     |         |                         |         |                         |         |   |   |   |   |
| Income tax  expense                      |         | 8,134                        |         | —                       |         | 13,404 |   | — |   |
|                                     |         |                         |         |                         |         |   |   |   |   |
| Net income                               |         | $                            | 3,149        |                         | $            | 8,182 |   | $ | 24,932 |   | $ | 16,454 |   |

 

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

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**DOE RUNPERU S.R.L.**

**CondensedStatements of Cash Flows (unaudited)**

**(U.S.dollars in thousands)**

 
| ** **                                                                         | ** ** | **Nine Months**         | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                         | ** ** | **Ended July 31,** | ** ** |
| ** **                                                                         | ** ** | **2006**                     | ** ** | **2005** | ** ** |
| ** **                                                                         | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                            | 24,932     |   | $ | 16,454 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                         |       |   |   |
| Depreciation, depletion and amortization                                           |       | 10,571                       |       | 9,300 |   |
| Imputed interest and amortization of deferred  financing costs                     |       | 308                          |       | 100 |   |
| Unrealized gain on derivative financial instruments                                |       | (2,153                       | )          | 569 |   |
| Losses from impairment and disposal of long-lived  assets                          |       | 786                          |       | 74 |   |
| Increase (decrease) resulting from changes in:                                     |       |                         |       |   |   |
| Trade receivables                                                                  |       | (25,101                      | )          | (3,412 | ) |
| Inventories                                                                        |       | (26,434                      | )          | (11,330 | ) |
| Prepaid expenses and other current assets                                          |       | (5,206                       | )          | (120 | ) |
| Accounts payable                                                                   |       | 48,019                       |       | 21,118 |   |
| Accrued liabilities and other current liabilities                                  |       | 23,026                       |       | 2,890 |   |
| Other noncurrent assets and liabilites, net                                        |       | 300                          |       | (576 | ) |
| Net cash  provided by operating activities                                         |       | $                            | 49,048     |   | $ | 35,067 |   |
|                                                                               |       |                         |       |   |   |
| Cash flows from  investing activities:                                             |       |                         |       |   |   |
| Purchases of property, plant and equipment                                         |       | (28,374                      | )          | (26,152 | ) |
| Increase in PAMA guarantees and other restricted  cash                             |       | (38,471                      | )          | — |   |
| Net cash used in investing activities                                              |       | (66,845                      | )          | (26,152 | ) |
|                                                                               |       |                         |       |   |   |
| Cash flows from  financing activities:                                             |       |                         |       |   |   |
| Payments on revolving loans, net                                                   |       | —                       |       | 400 |   |
| Proceeds from long-term debt                                                       |       | 10,000                       |       | — |   |
| Payments on long-term debt                                                         |       | (1,262                       | )          | (21 | ) |
| Payments of financing costs                                                        |       | (925                         | )          | — |   |
| Change in amount due to related parties                                            |       | (250                         | )          | (3,000 | ) |
| Net cash provided by (used in) financing activities                                |       | 7,563                        |       | (2,621 | ) |
|                                                                               |       |                         |       |   |   |
| Net increase (decrease) in cash                                                    |       | (10,234                      | )          | 6,294 |   |
|                                                                               |       |                         |       |   |   |
| Cash at  beginning of period                                                       |       | 14,569                       |       | 6,905 |   |
| Cash at end of period                                                              |       | $                            | 4,335      |   | $ | 13,199 |   |

 

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

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**DOE RUNPERU S.R.L**

**Notes toFinancial Statements**

**(U.S. dollars in thousands)**

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

***Unaudited Interim Financial Statements***

These interim financialstatements include the accounts of Doe Run Peru S.R.L. (“Doe Run Peru”). In theopinion of management, the interim financial statements contain alladjustments, consisting of normal recurring accruals, necessary to presentfairly the financial position as of July 31, 2006 and results of operations forthe three and nine-month periods ended July 31, 2006 and 2005.  All material intercompany balances andtransactions have been eliminated. Interim periods are not necessarily indicative of results to be expectedfor the year.

***Reclassifications***

Certain prior period balances have been reclassifiedin order to conform to the current presentation.

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

DoeRun Peru is highly leveraged and has significant commitments for environmentalmatters and for Environmental Remediation and Management Program (“PAMA”)expenditures that require it to dedicate a substantial portion of cash flowfrom operations to the payment of these obligations, which will reduce fundsavailable for other business purposes (see Note 6: Asset Retirement andEnvironmental Obligations). These factors also increase Doe Run Peru’svulnerability to general adverse conditions, limit Doe Run Peru’s flexibilityin planning for or reacting to changes in its business and industry, and limitDoe Run Peru’s ability to obtain financing required to fund working capital andcapital expenditures and for other general corporate purposes.  An unfavorable outcome to certaincontingencies, discussed below, would have a further adverse effect on Doe RunPeru’s ability to meet its obligations when due. Doe Run Peru’s ability to meetthese obligations is also dependent upon future operating performance andfinancial results, which are subject to financial, economic, political,competitive and other factors affecting Doe Run Peru, many of which are beyondDoe Run Peru’s control.

The effects of higher metal prices over the past twoyears have been positive. Comparing the first three quarters of 2006 to that of2005, the value of the metal recovered over the amount paid for the metal hasincreased 40% from $21,276 to $29,804. The values of by-products have alsoimproved from $17,293 to $21,637 or 25%. During the first three quarters of 2006, Doe Run Peru has benefited fromits ferrites floatation plant, which was placed in service at the end of theprior fiscal year. Though the plant has not reached its full capacity, it stillcontributed $9,890 to revenues.

While conversion costs have risen by $16,545 andSG&A has risen $4,003 from the nine-month period ending July 31, 2005 tothe nine-month period ending July 31, 2006, management believes that Doe RunPeru’s financial condition, as a result of the improved market conditionsdiscussed in the preceding paragraphs, is stabilizing.  There still exists, however, the possibilitythat concentrate supplies will tighten again in one or more metals in the nearfuture or that one or more of Doe Run Peru’s significant local suppliers couldcease delivery of concentrates. Under these circumstances there is no assurancethat we would be able to secure sufficient replacement at economicallyfavorable terms. An interruption in the feed supply would adversely affectproduction at La Oroya and impair financial condition and liquidity.

The financial statementshave been prepared assuming Doe Run Peru will continue as a going concern.  Doe Run Peru has significant capitalrequirements under environmental commitments and guarantees and substantialcontingencies related to taxes and has significant debt service obligationsunder the revolving credit facility, each of which, if not satisfied, could resultin a default under Doe Run Peru’s credit agreement and collectively raisesubstantial doubt about Doe Run Peru’s ability to continue as a going concern.Management believes that the price improvements seen through fiscal year 2005and in the first three quarters of fiscal year 2006, the potential revenues andcash flow enhancements from the new ferrite project and the approval obtainedon May 29, 2006 to extend certain PAMA projects (“the Modified PAMA”) willenable Doe Run Peru to continue as a going concern.  However, there can be no assurance that theseactions will achieve the desired results.

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Doe Run Peru continues tohave substantial cash requirements in the future, including the maturity of therevolving credit facility on September 22, 2006 and significant capitalrequirements under environmental commitments, (see Note 6: Asset Retirement andEnvironmental Obligation).  In addition,there are substantial contingencies related to taxes (see Note 4: Income Taxes)and litigation (see Note 5: Litigation).

Netunused availability at July 31, 2006 under the Doe Run Peru Revolving CreditFacility was approximately $200.  Inaddition to the availability under its revolving credit facility, the cashbalance of Doe Run Peru was $4,335, at July 31, 2006, after funding $32,641  for the financial guarantees required by theterms of the Modified PAMA.  Doe Run Peruhas reached and maintained its maximum borrowing level under the Doe Run PeruRevolving Credit Facility due in part to the higher metal prices resulting inhigher outlays for concentrate purchases and higher Value-Added Tax (“VAT”)payments funded with cash from operations.

TheDoe Run Peru Revolving Credit Facility expires on September 22, 2006 andnegotiations are ongoing to extend its terms. There can be no assurance thatDoe Run Peru will be successful in extending the existing credit agreement ornegotiating a new agreement, or if it is successful, that the extended or newcredit agreement would be at terms that are favorable to Doe Run Peru.

Anydefault under the requirements of the Modified PAMA could result in a defaultunder the Doe Run Peru Revolving Credit Facility.  A default under the requirements of the DoeRun Peru Revolving Credit Facility results in defaults under the Doe RunRevolving Credit Facility and the indenture governing the bonds.

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

Inventories consist ofthe following:
|                                       | ** ** | **July 31,** | ** ** | **October 31,** | ** ** |
|---------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                            | ** ** | **2006**          | ** ** | **2005**             | ** ** |
|                                  |       |              |       |                 |       |
| Finished metals  and concentrates     |       | $                 | 5,441      |                 | $          | 10,397 |   |
| Metals and  concentrates in process   |       | 73,233            |       | 44,668               |       |
| Materials,  supplies and repair parts |       | 16,516            |       | 13,691               |       |
|                                  |       | $                 | 95,190     |                 | $          | 68,756 |   |

Materials,supplies and repair parts are stated net of reserves for obsolescence ofapproximately $1,357 and $1,162 at July 31, 2006 and October 31, 2005,respectively.

**(4)****                     Income Taxes**

Doe Run Cayman Ltd. (“Doe Run Cayman”), the parent ofDoe Run Peru is subject to the regulations of the Cayman Islands, whichcurrently have no corporate income or capital gains tax. Doe Run Peru and DoeRun Cayman’s other subsidiaries located in Peru; however, are subject toPeruvian taxation. The statutory income tax rate in Peru is 30%. Doe Run Peruhas a ten-year tax stabilization agreement with the Peruvian Government, whichprovides for Peruvian taxation based on tax statutes and regulations prevailingon November 6, 1997, beginning with the Peruvian tax year ending onDecember 31, 1997 through December 31, 2006.

On December 30, 1997, DoeRun Peru signed a Contract of Guarantees and Measures to Promote Investments (“Contract”)with the Government of Peru.  The Contract, which has been modifiedvarious times through 2006, committed Doe Run Peru to making certaininvestments related to the improvements of its facilities in order to receivecertain tax benefits.  The Contract provided that if the investments werecompleted according to the schedule by December 31, 2006, Doe Run Peru wouldreceive an additional tax stability agreement covering the period beginningJanuary 1, 2007 and ending December 31, 2021.  Doe Run Peru will be unableto complete the required investments and as a result, Doe Run Peru will notreceive the benefits of the additional tax stabilization agreement. Beginningin January 2007, Doe Run Peru will be subject to future tax law changes.  These changes could have a material impact onDoe Run Peru’s financial results.

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Doe Run Peru is thesubject of income tax assessments from Peru’s tax authority (“SUNAT”) for taxyears 1998 through 2001.  The assessmentsprimarily relate to Doe Run Peru’s income tax treatment of the December 1997merger of Metaloroya S.A. into Doe Run Peru which Doe Run Peru purchased inOctober 1997, and its effects on subsequent years’ taxable income.  Under the assessment by SUNAT, the tax basisof Doe Run Peru’s fixed assets acquired would decrease, resulting in lower taxdepreciation expense than originally claimed. The assessments of years 1999 through 2001 also relate to thedisallowance of the deduction of interest paid, the offsetting of losses onderivatives executed in the U.S. and some leaseback and leasing operations. Theestimated assessed amount consisting of additional income taxes due, penaltiesand interest as of July 31, 2006 totals approximately $129,125.  Doe Run Peru estimates that the effect of asimilar assessment for tax years after 2001 would be approximately$35,087.  Furthermore, Doe Run Peru wouldalso be required to make additional workers’ profit sharing payments equal to8% of the increase in taxable income generated by the changes discussed above,or approximately $11,376, for calendar years 1998 through 2005.

Doe Run Peru is thesubject of VAT assessments for the tax years 1999 through 2001 and for theperiod from January through July 2004. The assessments primarily relate to Doe Run Peru’s exports with holdingcertificates and differences in a tax credit application. Doe Run Perudiscontinued the use of holding certificates for exports in June 2004. Thetotal assessment for these periods, calculated with penalties and interest asof July 31, 2006, was approximately $50,205. SUNAT offset the originalassessment for 2004 of $2,300 with Doe Run Peru’s VAT receivable balance fromJuly of 2004; however on May 17, 2006, SUNAT confirmed its 2004 tax assessmentrelating to exports using holding certificates for an amount of $1,380 andapproved Doe Run Peru’s treatment of the credit for 2004.  The difference between the original 2004assessment of $2,300 and the confirmed amount of $1,380 was refunded to Doe RunPeru. The Company is appealing this assessment to the tax courts. Doe Run Peruestimates expected additional assessments related to VAT for tax years 2002 and2003, calculated with penalties and interest as of July 31, 2006, to totalapproximately $23,883 in regard to its exports with holding certificates.

Management of Doe RunPeru believes that in each case discussed above for income tax and VATassessments, Doe Run Peru has followed the applicable Peruvian tax statutes andintends to pursue all available administrative and judicial appeals. Doe RunPeru is not required to make any payments pending the administrative appealprocess. If Doe Run Peru is not successful in the administrative appealprocesses and were to appeal in the judicial system, some type of financialassurance would be required. No amounts have been accrued as liabilitiesrelated to these actions.

For the past severalyears, Doe Run Peru has generated net losses from operations that according totax law may be used to offset taxable income in the future.  Doe Run Peru expects to utilize all of itsnet operating loss carryforwards in the current fiscal year.  As a result, Doe Run Peru has recorded$13,404 of income tax expense for the first three quarters of 2006.

**(5)****                     Litigation**

All existing and pending litigations at the time ofthe acquisition of Doe Run Peru were retained by the prior owner of the LaOroya smelter and Cobriza mine, a subsidiary of Empresa Minera del Centro delPeru S.A., (“Centromin”).

Doe Run Peru is currentlya defendant in 234 lawsuits in the Lima, Peru labor courts that allege damageto workers from industrial diseases. Doe Run Peru has made claims in most ofthe cases against Centromin and has also made claims against both governmentalagencies and private companies that provide workers’ insurance. The average claimis $18. Of 21 previously concluded cases in this category, 19 were dismissedand 2 resulted in awards totaling $9.

Doe Run Peru is alsocurrently a defendant in 176 lawsuits by workers alleging that they are owedcertain differences in salaries and benefits. The average claim, excludingthose mentioned specifically below, is $20. Of 39 previously concluded cases inthis category, 30 were dismissed and 9 resulted in awards totaling $18. Of theremaining lawsuits in this group, four are individually significant. The Yauli-LaOroya Employees Union lawsuit has the claims of 149 workers remaining that  have been valued at a total of $242 accordingto a report by an expert appointed by the court. The Cobriza

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Workers Union lawsuit has the claims of 288 workersremaining for an amount of $2,086.  Thereare two lawsuits filed by individuals, one claiming $1,449 and the otherclaiming $347.

Doe Run Peru is alsocurrently a defendant in 24 lawsuits alleging various labor claims includingindemnification for arbitrary dismissal, nullity of dismissal, moral damagecompensation, compensatory damages from work accident and readmission ofworker. The average claim is $6. Of 30 previously concluded cases in thiscategory, 26 were dismissed and 4 resulted in awards totaling $21.

The amount of awards inthe various categories of lawsuits referenced above represented total judgmentsissued by the relevant courts. For certain of these lawsuits, Centromin willpay a portion of the total award.

On January 19, 2005, DoeRun Peru was served with a lawsuit by an association of municipalities of theJunin Region of Peru against Doe Run Peru and two other mining companies. Thislawsuit alleges environmental damages to the Mantaro River basin in the amountof $5,000,000. On February 2, 2006, Doe Run Peru was served with a lawsuit bythe municipality of Jauja. This lawsuit alleges environmental damages to theMantaro River basin in the amount of $5,000. Material liability to Doe RunPeru, in these two actions, is believed to be remote based on the opinion ofmanagement and outside counsel for Doe Run Peru. Any potential judgment wouldbe subject to the indemnification obligations of Centromin, which areguaranteed by the Peruvian Government.

On December 3, 2003, DoeRun Peru filed an administrative lawsuit against the Yauli – La OroyaProvincial City Hall in order to nullify and void a number of fines for theamount of $2,860. Doe Run Peru was fined for not having construction licensesfor the PAMA projects.

Since most of theabove cases are either in the pleading or discovery stages, Doe Run Peru isunable at this time to estimate the expected outcome and the final costs,except as noted, of these actions. No amounts have been accrued as liabilitiesrelated to these actions. There can be no assurance that these cases would nothave a material adverse effect, both individually and in the aggregate, on theresults of operations, financial condition and liquidity of Doe Run Peru. DoeRun Peru has and will continue to vigorously defend itself against such claims.

**(6)****                     AssetRetirement and Environmental Obligations**

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

Asset retirement obligations (“AROs”) are recognizedas liabilities when incurred, with the initial measurement at fair value. Theseliabilities are increased to full value over time through charges of accretionto operating expense. In addition, an asset retirement cost is capitalized aspart of the related asset’s carrying value and is depreciated over the asset’suseful life. Changes in the ARO liability resulting from revisions to thetiming or the amount of the original estimate of undiscounted cash flows arerecognized as an increase or a decrease in the carrying amount of the liabilityfor an ARO and the related asset retirement cost capitalized as part of thecarrying amount of the related long-lived asset.

Mine Closure Law No.28090 (“Law”) became effective in Peru as of October 15, 2005 and is applicableto smelters and mines. The Law establishes the obligations and procedures thattitleholders of mining activities must follow and requires, among other things,the provision of a financial guarantee for environmental issues. Under theLaw, Doe Run Peru was originally required to submit a mine closure plan to theMinistry of Energy and Mines (“MEM”) by August 17, 2006. According to amodification issued August 15, 2006, however,  Doe Run Peru was requiredto submit a conceptual mine closure plan to MEM by August 16, 2006 whichprovided a general description of the remediation measures to be done. Doe RunPeru retained one of the technical mining consultants registered with MEM toprepare the mine closure plans for Cobriza and La Oroya to ensure compliancewith all the technical and legal requirements of the Law and regulations.  The conceptual mine closure plan was filed whendue and the final mine closure plan is now due approximately six months later.The financial guarantee requirements will not be known until the final mineclosure plan is approved; therefore, the guarantee is expected to be funded byequal annual payments into a trust fund between January of 2008 and theestimated closure date of each element of operation.

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Doe Run Peru has AROs atits Cobriza mine related to the costs associated with closing the mine openingsand covering acid rock.  Doe Run Peru isalso responsible for the eventual covering and revegetation of mixed lead andcopper slag also stored in Huanchan, an area a short distance from the La Oroyasmelter, where the slag is currently stored.

Doe Run Peru’s totalrecorded liability for AROs was approximately $2,166 as of July 31, 2006 andOctober 31, 2005.

***Environmental Remediation***

 Doe Run Peru’s La Oroya operationshistorically and currently exceed some of the applicable maximum permissiblelimits established by MEM pertaining to air emissions and wastewater effluentsquality.  Prior to our acquisition of LaOroya, Metaloroya S.A., the former owner, Centromin, received approval from thePeruvian Government for a PAMA.  The PAMAis an environmental regulatory program for Peruvian mining operations designedto achieve compliance with MEM’s air and wastewater limits.  It consisted of an environmental impactanalysis, monitoring program, mitigation measures and a closure plan.  The PAMA also set forth the actions andcorresponding annual investments a company agrees to undertake in order toachieve compliance with the maximum permissible limits prior to expiration ofthe PAMA (ten years for smelters, such as Doe Run Peru’s operations in LaOroya, and five years for mining operations, such as Cobriza).  The PAMA projects, which are more fullydiscussed below, were designed to achieve compliance with these requirements.

In compliance withLa Oroya’s PAMA from its inception, Doe run Peru completed the followingprojects:

·        Constructed a treatment plant for thecopper refinery effluent;

·        Improved the slag handling system;

·        Improved Huanchan lead and copper slagdeposits;

·        Constructed an arsenic trioxide deposit;

·        Improved the zinc ferrite disposal site;and

·        Constructeda monitoring station.

On December 29, 2004, thePeruvian Government issued a Supreme Decree No. 046-2004-EM (“Supreme Decree”),which recognized that exceptional circumstances may justify an extension of thetime to complete one or more projects within the scope of a PAMA.  Since Doe Run Peru expected that it would notbe able to comply with the spending requirements of La Oroya’s PAMA investmentschedule by the end of calendar year 2006 with respect to certain projects, DoeRun Peru applied for an extension on December 20, 2005.

On May 29, 2006, MEMapproved the extension of certain projects required under the La Oroya’s PAMAthrough October 31, 2009.  Pursuant tothe terms of the Modified PAMA, Doe Run Peru is now required to complete theacid plant projects for the lead circuit and the copper circuit by September30, 2008 and October 31, 2009, respectively, and Doe Run Peru remains obligatedto implement the following projects at its La Oroya smelter by December 31,2006:

·        Upgrade the acid plant for the zinc circuit;

·        Construct an industrial wastewatertreatment plant for the smelter and refinery; and

·        Constructdomestic wastewater treatment and domestic waste disposal.

The Modified PAMA alsorequires Doe Run Peru to comply with certain special measures not previouslyrequired.  These measures include, butare not limited to, implementation of projects to reduce stack and fugitiveemissions, which are designed to meet certain air quality objectives, acontinuing improvement provision that provides for additional pollutioncontrols to address the shortfalls in meeting objectives or to further reducerisks and certain measures regarding protection of public health, including,among others, actions for thereduction of lead in blood levels and special health programs for children andexpectant women.  Doe Run Peru isrequired to spend approximately $2,300 per year for 2007, 2008 and 2009complying with these measures and existing social programs, with additionalexpected spending of $1,600 for the remainder of the 2006 calendar year.

MEM has also requiredthat the cost of a planned replacement of the oxy-fuel reverberatory furnacewith a submerged lanced reactor furnace that will reduce gas volume whileenriching sulfurous gas feed to the copper circuit sulfuric acid plant beincluded as part of the cost of the Modified PAMA acid plant projects.  The estimated

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cost of this reactor furnace is $57,000, which bringsthe total remaining investment needed to build the sulfuric acid plants toapproximately $150,876 as of July 31, 2006.

Additional projectsrequired under the Modified PAMA for fiscal year 2006 include an upgrade of theventilation system in the Sinter plant, completion of the enclosure work aroundthe lead and dross furnace, the enclosure of the anode residue plant along withthe elimination of its nitrous gases and the reduction of fugitive emissionsfrom the copper and lead beds.  The totalcost of the currently remaining Modified PAMA projects as of July 31, 2006 wasapproximately $175,868, of which $25,642 remains to be spent in the 2006calendar year.

Doe Run Peru’s ability tocomplete the required projects by the specific deadlines depends in large partupon the availability of sufficient funds. Doe Run Peru believes that sufficient funds will be available on atimely basis, but the availability of sufficient funds is substantiallydependent upon the results of its business operations and the possibility ofadditional financing; therefore, there can be no assurance that sufficientfunds will be available for these projects.

Consistent with therequirements of the Supreme Decree, the Modified PAMA also contains twoseparate financial security arrangements to ensure that Doe Run Peru fulfillsits statutory obligation to complete the Modified PAMA projects.

First, Doe Run Peru hasestablished an environmental trust account with Scotiabank Peru into whichreceipts from sales to certain customers are required to be directly remittedin an amount sufficient to have cash available to pay the expendituresestimated to be incurred in each subsequent month by Doe Run Peru under theModified PAMA.  At July 31, 2006, thebalance in this account was $5,830 and is included in noncurrent restrictedcash on the balance sheet.  Second, DoeRun Peru has provided to MEM a bank letter of guarantee in the amount of$28,641 (which, when determined, was 20% of the projected cost of the ModifiedPAMA projects to be spent after 2006). Doe Run Peru deposited such amount with Standard Chartered Bank, whichhas in turn provided for the issuance to MEM of the necessary bank letter ofguarantee relying solely upon the funds so deposited.  This amount was included as noncurrentrestricted cash on the balance sheet at July 31, 2006.   Doe Run Peru has amended the Doe Run PeruRevolving Credit Facility to allow for these arrangements.

Although not contemplatedby the Supreme Decree, as a condition of granting the Modified PAMA, MEMunilaterally determined that Doe Run Peru could lose the benefit of the extensionif Doe Run Peru makes any payments to any shareholder or affiliate, which couldaffect the full and satisfactory compliance with the Modified PAMAobligations.  This determination was notagreed to by Doe Run or Doe Run Peru, but was imposed under applicable law overtheir objection.  Doe Run Peru wasrequired, however, to provide a bank letter of guarantee in the amount of$4,000, which may be drawn upon to fund Modified PAMA projects if Doe Run Perumakes any payments to any shareholder or affiliate.  Doe Run Peru satisfied this requirement bydepositing such amount with Standard Chartered Bank, which has in turn providedfor the issuance to MEM of the necessary bank letter of guarantee relyingsolely upon the funds so deposited.  AtJuly 31, 2006, this amount was included in noncurrent restricted cash on thebalance sheet.

Separately, Renco has advisedDoe Run that Renco has confirmed to MEM that Renco understands that Doe RunPeru could lose the benefit of the extension if Doe Run Peru makes any paymentsto any shareholder or affiliate that could affect the full and satisfactorycompliance with Doe Run Peru’s Modified PAMA obligations, and Renco has advisedDoe Run that Renco has no intention of causing, and will not do anything tocause, Doe Run Peru to make any such payment.

In connection with itsnegotiations with MEM regarding the Modified PAMA, Doe Run voluntarily agreedto extend the maturity of Doe Run Peru’s $139,063 intercompany note payable toDoe Run from December 9, 2006 until such time as the Modified PAMA has beencompleted.

No assurance can be giventhat implementation of the projects under the Modified PAMA is feasible or thattheir implementation will achieve compliance with the applicable legalrequirements by the end of the Modified PAMA period.  The Peruvian Government may, in the future,require compliance with additional environmental regulations that couldadversely affect Doe Run Peru’s business, financial condition and results ofoperations, as well as its ability to comply with the Modified PAMA.  After expiration of the Modified PAMA, DoeRun Peru must continue to comply with all applicable standards andrequirements.

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In addition to its PAMAobligations, Doe Run Peru is responsible for the remediation costs relating tothe zinc ferrite disposal site at La Oroya. The current closure plan provides for encapsulating the ferrite residuesin place in 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, 2006 and October 31, 2005.

The Cobriza mine has a separate PAMA in which Doe RunPeru committed to complete projects to manage tailings, mine drainage, sewageand garbage.  Doe Run Peru completed itsown PAMA requirements with respect to Cobriza in June of 2004 and is incompliance with emissions standards required by this PAMA.

Under the purchase agreement related to theacquisition of the La Oroya assets in October of 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 andits apportioned share of any complaint related to emissions.  Performance of the indemnity has beenguaranteed by the Peruvian Government through the enactment of the SupremeDecree No. 042-97-PCM.  However, therecan be no assurance that Centromin will satisfy its environmental obligationand investment requirements or that the guarantee will be honored.  Any failure by Centromin to satisfy itsenvironmental obligations could adversely affect Doe Run Peru’s business,financial condition and results of operations.

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

The following discussion andanalysis of the three-months and the nine-months ended July 31, 2006 comparedto the three-months and the nine-months ended July 31, 2005 should be read inconjunction with the condensed consolidated financial statements of The Doe RunResources Corporation (“Doe Run” and together with its subsidiaries, the “Company”)and the notes thereto, and other financial information included herein.

***Forward-LookingStatements***

*The Private Securities LitigationReform Act of 1995 provides a “safe harbor” for forward-looking statements. TheCompany makes forward-looking statements in this Quarterly Report on Form 10-Q,which represent the Company’s expectations or beliefs about future events andfinancial performance. When used in this report, the words “expect,” “believe,”“anticipate,” “goal,” “plan,” “intend,” “estimate,” “may,” “will” or similarwords are intended to identify forward-looking statements. Theseforward-looking statements are subject to known and unknown risks,uncertainties and assumptions, including those referred to in this QuarterlyReport on Form 10-Q and otherwise described in the Company’s periodic filings.*

*All predictions as to futureresults contain a measure of uncertainty, and accordingly, actual results coulddiffer materially. Among the factors that could cause actual results to differfrom those contemplated, projected or implied by the forward-looking statements(the order of which does not necessarily reflect their relative significance)are:*

·                  *general economic andbusiness conditions;*

·                  *increasing industrycapacity and levels of imports of non-ferrous metals or non-ferrous metalsproducts;*

·                  *industry trends,including the price of metals and product pricing;*

·                  *competition;*

·                  *currency fluctuations;*

·                  *the loss of anysignificant customer or supplier;*

·                  *availability of rawmaterials;*

·                  *availability ofqualified personnel;*

·                  *effects of futurecollective bargaining agreements;*

·                  *outcome of litigation;*

·                  *historicalenvironmental liabilities;*

·                  *changing environmentalrequirements and costs, including the capital requirements in Peru;*

·                  *political uncertaintyand terrorism;*

·                  *major equipmentfailures;*

·                  *changes in accountingprinciples or new accounting standards; and*

·                  *compliance with laws and regulationsand other unforeseen circumstances.*

*In light of these risks, uncertainties andassumptions, the forward-looking events discussed may not occur. In addition,actual results could differ materially from those suggested by theforward-looking statements. Accordingly, investors are cautioned not to placeundue reliance on the forward-looking statements. Except as required by law,the Company undertakes no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise. Investors should, however, review additional disclosuresmade by the Company from time to time in its periodic filings with theSecurities and Exchange Commission.*

*This Quarterly Report on Form 10-Q should be readcompletely and with the understanding that the Company’s actual future resultsmay be materially different from what the Company expects. All forward-lookingstatements made by the Company in this Quarterly Report on Form 10-Q and in theCompany’s other filings with the Securities and Exchange Commission arequalified by these cautionary statements.*

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***Recent events***

On August 16, 2006, theCompany entered into a separation agreement with David A. Chaput in connectionwith Mr. Chaput’s planned resignation as vice president finance, treasurer andchief financial officer of the Company. Mr. Chaput’s resignation shall beeffective September 24, 2006.

On September 5, 2006,the Company entered into an employment agreement with Theodore P. Fox, III toserve as vice president of finance and chief financial officer of the Company,effective September 25, 2006. The Company also entered into a net worthapprecaition agreement, dated August 24, 2006, with Mr. Fox

***Results of Operations***

*Metals Pricing*

The followingtable sets forth average London Metal Exchange prices for lead, copper and zincand the average London Bullion Market Association price for silver for theperiods indicated:
|                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **              | ** ** | **July 31,**                | ** ** | **July 31,**               | ** ** |
| **Average Prices** | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Lead ($/ton)            |       | $                                | 961.00     |                            | 855.20     |   | 1,028.20 |   | 876.20 |   |
| Copper ($/ton)          |       | 6,935.20                         |       | 3,145.00                        |       | 5,337.60 |   | 3,010.40 |   |
| Zinc ($/ton)            |       | 3,061.40                         |       | 1,123.40                        |       | 2,351.20 |   | 1,132.00 |   |
| Silver ($/troy ounce)   |       | 11.80                            |       | 7.12                            |       | 10.37 |   | 7.11 |   |
|                         |            |                                  |            |                                 |            |  |  |  |  |  |

Theseprices reflect the continued tightening in the worldwide metal supply and theeffect of other macroeconomic factors such as exchange rates, interest ratesand oil prices.

*Production*

All references to “ton” are in short tons.

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

|                                           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                | ** ** | **July 31,**                | ** ** | **July 31,**               | ** ** |
| ** **                                | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| U.S. Operations                           |       |                             |       |                            |       |   |   |   |   |
| Lead metal - primary (tons)               |       | 41,473                           |       | 29,950                          |       | 122,566 |   | 110,309 |   |
| Lead metal - secondary (tons)             |       | 33,891                           |       | 34,262                          |       | 100,963 |   | 100,772 |   |
| Lead concentrates (metal content, tons)   |       | 64,639                           |       | 73,864                          |       | 201,280 |   | 210,509 |   |
| Ore grade (lead)                          |       | 4.92                             | %          | 5.54                            | %          | 5.22 | % | 5.44 | % |
|                                      |       |                             |       |                            |       |   |   |   |   |
| Doe Run Peru  Operations                  |       |                             |       |                            |       |   |   |   |   |
| Refined copper (tons)                     |       | 15,175                           |       | 16,667                          |       | 48,723 |   | 48,175 |   |
| Refined lead (tons)                       |       | 33,414                           |       | 33,655                          |       | 99,485 |   | 98,550 |   |
| Refined zinc (tons)                       |       | 10,949                           |       | 10,710                          |       | 33,579 |   | 38,026 |   |
| Refined silver (thousands of troy ounces) |       | 9,342                            |       | 8,488                           |       | 27,760 |   | 25,454 |   |
| Refined gold (thousands of troy ounces)   |       | 18.90                            |       | 17.53                           |       | 54.64 |   | 47.64 |   |
| Copper concentrates (metal content, tons) |       | 4,906                            |       | 4,417                           |       | 14,005 |   | 11,796 |   |
| Ore grade  (copper content)               |       | 1.02                             | %          | 1.00                            | %          | 1.02 | % | 0.98 | % |

The metal contained inlead concentrates produced at the Company’s primary lead operation’s mines inthe 2006 third quarter was 12.5% lower than the 2005 third quarter, but was4.4% lower when comparing the 2006 nine-month

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period with the2005 nine-month period.  The lower 2006third quarter lead concentrate production was due to the ore grade being about11% lower than the corresponding 2005 third quarter, and the ore grade for the2006 nine-month period was about 4% lower when compared to the 2005 nine-monthperiod.  The volume of ore processed forthe 2006 third quarter and 2006 nine-month period were essentially the same asthe 2005 third quarter and 2005 nine-month period, respectively.

Developmentof the drift connecting the south end of the Fletcher mine to a new ore bodycalled RC West Fork is near completion. A ventilation shaft will be sunk in the next few months, which shouldallow ore production to begin by the end of the first calendar quarter of 2007.

In the2006 third quarter, the Herculaneum primary smelter operation’s lead metalproduction was about 38.5% higher than in the 2005 third quarter, and the 2006nine-month period production was 11% higher than the 2005 nine-monthperiod.  The increase in production isdue to the 2005 third quarter being negatively impacted by a storm and moreconsistent plant operation as a result of the continued investment in plantinfrastructure.

Doe Run is subject to a State Implementation Plan (“SIP”)with the Missouri Department of Natural Resources and the Missouri AirConservation Commission to attain and maintain compliance with the ambient airquality standard for lead promulgated under the federal Clean Air Act for thecity of Herculaneum. The plan was included in a consent judgment entered intoby Doe Run and has been approved at the state level and by the U.S. EPA. Theair quality monitors reflected attainment of the lead standard for 11 of thelast 15 quarters. However, once the air quality monitors reflected two quartersof non-compliance, the permitted annual capacity of the Herculaneum primarysmelter decreased from 250,000 to 200,000 tons. This decrease in permitted capacitydoes not affect results at current production levels. Further non-compliancecould result in SIP revisions that could have a material adverse financialimpact on the Company. Management is in discussions with the MissouriDepartment of Natural Resources to explore options intended to improve thesmelter’s ability to attain and maintain compliance in the future.

Leadproduction at the Company’s U.S. recycling operation was 1% lower in the 2006third quarter than in the 2005 third quarter but remained consistent for the2006 nine-month period when compared to the 2005 nine-month period. The lower2006 third quarter production was the result of down time during the rebuildingof the reverberatory furnace in June of 2006.

Duringthe 2006 third quarter, Doe Run Peru’s silver and gold production increased10.1% and 7.8%, respectively, but decreased 9% for copper compared to the 2005third quarter. These increases were due to higher gold content in the copperconcentrates processed in the 2006 third quarter compared to that processed inthe 2005 third quarter.  On the otherhand, the decrease in copper production was due to maintenance on the oxy-fuelfurnace that limited the availability of blister copper for the copper refineryin the 2006 third quarter. Production of lead remained essentially unchangedfrom the 2005 third quarter to the 2006 third quarter.

Themetal content in the copper concentrates produced at Doe Run Peru’s Cobrizamine in the 2006 third quarter was approximately 11% higher than the 2005 thirdquarter due to the correction of mine stability problems, improved minepreparation and development and increased recoveries from pillars and sills.

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*Results of Operations*

**Gross Margin** increased from$23.4 million in the 2005 third quarter to $48.1 million in the 2006 thirdquarter and gross margin increased from $78.3 million in the 2005 nine-monthperiod to $159.4 million in the 2006 nine-month period. Gross margin for DoeRun’s U.S. operations increased from $10.1 million in the 2005 third quarter to$29.7 million in the 2006 third quarter and gross margin increased from $46.4million in the 2005 nine-month period to $102.3 million in the 2006 nine-monthperiod. Gross margin for Doe Run Peru increased from $13.4 million in the 2005third quarter to $18.4 million in the 2006 third quarter and gross marginincreased from $31.9 million in the 2005 nine-month period to $57.1 million inthe 2006 nine-month period.

Gross margin is net sales less cost of sales,including depreciation, depletion, and amortization attributable to cost ofsales as disclosed in the table below.

**Depreciation,Depletion and Amortization Attributable to Cost of Sales**

(dollars in the millions)
|                 | ** ** | **Third quarter** | ** ** | **Nine-month period** | ** ** |
|-----------------|------------|------------------------|------------|----------------------------|------------|
| ** **      | ** ** | **2006**               | ** ** | **2005**                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|            |       |                   |       |                       |       |   |   |   |   |
| U.S. operations |       | $                      | 2.9        |                       | $          | 2.8 |   | $ | 8.9 |   | $ | 8.4 |   |
| Doe Run Peru    |       | 3.8                    |       | 3.4                        |       | 10.5 |   | 9.3 |   |
| Consolidated    |       | $                      | 6.7        |                       | $          | 6.2 |   | $ | 19.4 |   | $ | 17.7 |   |

An 8.5% and 15.4%increase in the Company’s realized prices for lead metal, fueled by a 12.4% and17.3% increase in London Metal Exchange prices and higher premiums achievedover the London Metal Exchange, contributed a $4.0 million increase and $23.7million increase to the Company’s gross margin on sales in the 2006 thirdquarter and 2006 nine-month period compared to the 2005 third quarter and 2005nine-month period, respectively. A decrease in both lead concentrate salesvolume and in copper concentrate sales volume offset by an increase in realizedprices resulted in an increase in net sales of $13.3 million and $17.6 million,respectively, in the 2006 nine-month period over the 2005 nine-month period.These increases were offset by higher production costs at Doe Run’s primaryoperations, primarily due to slightly higher production, higher salaries, wagesand employee benefits and maintenance and fuel costs. Increased conversioncosts at the recycling operation, due to higher metallurgical coke and propanecosts, were partially offset by improved feed costs per unit of metal produced.

The $5.0 million increase in Doe Run Peru’s gross margin from the 2005third quarter to the 2006 third quarter and the $25.2 million increase in DoeRun Peru’s gross margin from the 2005 nine-month period to the 2006 nine-monthperiod were primarily the result of an improvement in the treatment chargesreceived for processing concentrates and higher metal prices, offset by a LIFOinventory adjustment.

**Selling,General and Administrative costs** increased $1.3 million inthe 2006 third quarter over the 2005 third quarter and $7.2 million in the 2006nine-month period over the 2005 nine-month period. The increase was dueprimarily to increased salaries and employee benefit costs, legal fees andprofessional fees related to software implementation.

**UnrealizedGains** on derivative financial instruments**are**relatedto the change in fair market value of derivative financial instruments that area part of the Company’s risk management strategy. The change from an unrealizedgain of $3.9 million in the 2005 nine-month period to an unrealized gain of$4.8 million in the 2006 nine-month period and the decrease from $2.6 millionto $0.5 million in the 2006 third quarter versus 2005 third quarter isprimarily the result of the settled 2006 positions.  These gains were overcome by realized lossesincluded in net sales along with the reduction in actual derivative positionsduring 2006.  Also see “Item 3.Quantitative and Qualitative Disclosures About Market Risk.”

**Other Operating Expenses**remained essentially unchanged from the 2005 third quarter to the 2006 thirdquarter and from the 2005 nine-month period to the 2006 nine-month period.

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The Renco Group, Inc., the parent company of Doe Run’ssole shareholder (referred to as Renco), has elected for the Company to betreated as a qualified subchapter S subsidiary for U.S. federal taxpurposes.  Most states in which theCompany operates will follow similar tax treatment. Subchapter S statusrequires the ultimate shareholders to include their pro rata share of theCompany’s income or loss in their individual tax returns.  As a result of the Company’s tax status inthe U.S., the Company is not generally subject to U.S. federal and most stateincome taxes, however, under a tax sharing agreement with Renco, the Company isliable to Renco for pro forma federal and state income taxes as defined in theagreement, and our costs are shown as tax dividends.

***Liquidity and Capital Resources***

*Overview*

Our auditors issued unqualified opinions on the 2005audited consolidated financial statements of the Company and the 2005 auditedfinancial statements of Doe Run Peru that expressed substantial doubt about theCompany’s and Doe Run Peru’s ability to continue as going concerns.  Doe Run Peru has significant capitalrequirements under environmental commitments, substantial contingencies relatedto Peruvian taxes and has significant debt service obligations, each of which,if not satisfied, could result in a default under the Company’s creditagreements and collectively raise substantial doubt about the Company’s abilityto continue as a going concern.  Thesecommitments require Doe Run Peru to dedicate a substantial portion of cash flowfrom operations to the payment of these obligations, which includes futureexpenditures of approximately $175.9 million as of July 31, 2006 under theterms of the PAMA, the term of which was extended as described below.  These commitments will reduce funds availablefor other business purposes.  Inaddition, the Company is highly leveraged. These factors also increase the Company’s vulnerability to generaladverse conditions, limit our flexibility in planning for or reacting tochanges in its business and industry and limit the Company’s ability to obtainfinancing required to fund working capital and capital expenditures and forother general corporate purposes.  Anunfavorable outcome to lawsuits and tax assessments in Peru would have afurther adverse effect on the Company’s ability to meet its obligations whendue.

The period for Doe Run Peru’s compliance with the PAMArequiring the construction of sulfuric acid plants at its La Oroya smelter wasdue to expire on December 31, 2006.  OnMay 29, 2006, the Peruvian Ministry of Energy and Mines issued a resolution,pursuant to Supreme Decree No. 046-2004-EM, modifying the PAMA (the “ModifiedPAMA”) by extending the completion dates of certain projects under the PAMA toOctober 31, 2009.  The sulfuric acidplant projects for the zinc circuit, the lead circuit and the copper circuitare required to be completed by December 31, 2006, September 30, 2008 andOctober 31, 2009, respectively.  Theywere all originally required to be completed by December 31, 2006. Managementbelieves the Modified PAMA compliance period, in addition to high metal pricesand other revenue enhancements, will enable the Company to continue as a goingconcern.  The Company’s ability to meetobligations after 2006 could be affected by future operating performance andfinancial results, which are subject to financial, economic, political,competitive and other factors affecting the Company, many of which are beyondthe Company’s control, or an unfavorable outcome to the items noted above, and,accordingly, no assurance can be given that it will be able to meet suchobligations.

*Capital Resources and Debt Instruments*

Netunused availability at July 31, 2006 under the Doe Run Revolving CreditFacility was approximately $42.6 million and under the Doe Run Peru RevolvingCredit Facility was $0.2 million at July 31, 2006.  In addition to the availability under theserevolving credit facilities, cash balances at Doe Run and Doe Run Peru were$10.9 million and $4.3 million, after funding $32.6 million for the financialguarantees required by the terms of the Modified PAMA, respectively, at July31, 2006. In Peru, continued high metal prices have resulted in outlays forconcentrate purchases and value-added tax payments being funded by cash fromoperations, as Doe Run Peru has reached its maximum borrowing level under theDoe Run Peru Revolving Credit Facility. Accounts payable have increased during the 2006 nine-month period due,in part to the high metal prices for materials and, in part to Doe Run Peruextending its payment terms with certain suppliers in response to the lack ofborrowing availability.

TheCompany’s term note of $8 million has been paid; however, the Company still hassubstantial debt service requirements in the future, including interest paymentsof $12.9 million in October of 2006 for the Company’s 11.75%

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notes which aredue in 2008.  The Doe Run Peru RevolvingCredit Facility expires on September 22, 2006 and negotiations are ongoing toextend its terms.  There can be noassurance that the Company will be successful in extending the existing creditagreement or negotiating a new credit agreement, or if it is successful, thatthe extended or new credit agreement would be at terms that are favorable tothe Company.

During the period beginning on October 29, 2005 andending on October 29, 2012, the majority warrantholders, pursuant to theWarrant Agreement dated as of October 29, 2002 between Doe Run and State StreetBank and Trust Company, as Warrant Agent, have the right to require Doe Run torepurchase all, but not less than all, of the warrants and any outstandingshares issued upon the exercise thereof at a price equal to the fair marketvalue of the warrants, as determined by a third party appraisal. On July 31,2006, the warrantholders, exercised this right and management engagedBearingPoint, a nationally recognized valuation firm, to value the warrants asof April 30, 2006 in accordance with the terms of the warrant agreement.  Management’s estimate of the fair value ofthe warrants was approximately $0.6 million at July 31, 2006, based on thevaluation made at October 31, 2005 by BearingPoint.

*Tax Commitments*

Income tax assessments from Peru’s tax authority,SUNAT, for the tax years 1998 through 2001, show an assessed amount due fromDoe Run Peru, consisting of additional income taxes due, penalties and interestas of July 31, 2006, of approximately $129.1 million.  Value-added tax, referred to as VAT,assessments for tax years 1999 through 2001 and for the period from Januarythrough July 2004, calculated with penalties and interest as of July 31, 2006,show a total assessment amount of approximately $50.2 million. SUNAT offset theamount assessed for 2004 of approximately $1,380 with Doe Run Peru’s VATreceivable balance from July 2004.  Inaddition, the Company estimates that the effect of similar assessments forperiods not yet assessed would be approximately $35.1 million and $23.9 millionfor the income tax and VAT matters, respectively.  Furthermore, Doe Run Peru would also berequired to make additional workers’ profit sharing payments equal to 8% of theincrease in taxable income generated by the changes discussed above, orapproximately $11.4 million for calendar years 1998 through 2005.

Management of the Company believes that in each caseDoe Run Peru has followed the applicable Peruvian tax statutes and intends topursue all available administrative and judicial appeals. Doe Run Peru is not required to make anypayments pending the administrative appeal process.  If Doe Run Peru is not successful in theadministrative appeal processes and were to appeal in the judicial system, sometype of financial assurance would be required, which would have a significantadverse effect on liquidity.

*Contractual Obligations*

Pursuant to theterms of the Modified PAMA, Doe Run Peru is now required to complete the acidplant projects for the lead circuit and the copper circuit by September 30,2008 and October 31, 2009, respectively, and Doe Run Peru remains obligated toimplement the following projects at its La Oroya smelter by December 31, 2006:

·            Upgradethe acid plant for the zinc circuit;

·            Constructan industrial wastewater treatment plant for the smelter and refinery; and

·            Construct domestic wastewatertreatment and domestic waste disposal.

The Modified PAMAalso requires Doe Run Peru to comply with certain special measures notpreviously required.  These measuresinclude, but are not limited to, implementation of projects to reduce stack andfugitive emissions, which are designed to meet certain air quality objectives,a continuing improvement provision that provides for additional pollutioncontrols to address the shortfalls in meeting objectives or to further reducerisks and certain measures regarding protection of public health, including,among others, actions for thereduction of lead in blood levels and special health programs for children andexpectant women.  Doe Run Peru isrequired to spend approximately $2.3 million per year for 2007, 2008 and 2009complying with these measures and existing social programs, with additionalexpected spending of $1,600 for the remainder of the 2006 calendar year.

The PeruvianMinistry of Energy and Mines has also required that the cost of a plannedreplacement of the oxy-fuel reverberatory furnace with a submerged lancedreactor furnace that will reduce gas volume while enriching sulfurous gas feedto the copper circuit sulfuric acid plant be included as part of the cost ofthe Modified PAMA acid plant projects.

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The estimated cost ofthis reactor furnace is $57 million, which brings the total remaininginvestment needed to build the sulfuric acid plants to approximately $150.9million.

Additionalprojects required under the Modified PAMA for fiscal year 2006 include anupgrade of the ventilation system in the Sinter plant, completion of theenclosure work around the lead and dross furnace, the enclosure of the anoderesidue plant along with the elimination of its nitrous gases, and thereduction of fugitive emissions from the copper and lead beds.  The total cost of the currently remainingModified PAMA projects as of July 31, 2006 was approximately $175.9 million, ofwhich $25.6 million remains to be spent in the 2006 calendar year.

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**Item 3.Quantitative and Qualitative Disclosures About Market Risk.**

**Commodity Price Risk**

Inthe normal course of its business, the Company has used in the past, and mayuse in the future, forward sales commitments and commodity put and call optioncontracts to manage its exposure to fluctuations in the prices of lead, copper,zinc, silver and gold. Contract positions are designed to ensure that theCompany will receive a defined minimum price for certain quantities of itsproduction. None of the aforementioned activities have been entered into forspeculative purposes.

The fair market value (gain/(loss)) of the Company’sderivatives was approximately $(0.3) million at July 31, 2006. These losses,when realized, would be offset by higher prices on the Company’s sales ofphysical metal. The majority relates to sold lead futures and sold lead calloptions related to the U.S. operations. A 10% increase in metal prices would result in a gain of approximately$0.4 million and a 10% decrease in the metal prices would not have asignificant effect on the Company’s open contracts at July 31, 2006.

**Interest Rate Risk**

The Company is subject to interest rate risk onvariable interest rate obligations.  TheDoe Run Revolving Credit Facility bears interest at the prime rate plus 0.75%per annum and at LIBOR plus 3% per annum. The Doe Run Peru Revolving Credit Facility bears interest at LIBOR(1-month, 2-month or 3-month rate, depending on the term of the loan) plus3.5%, 3.75% and 4.25%, respectively, per annum. A material increase in interestrates could adversely affectthe Company’s business, financial condition and results of operations. A1% increase in the interest rate under both the Doe Run Revolving CreditFacility and the Doe Run Peru Revolving Credit Facility would result inadditional annual interest expense of approximately $0.7 million, based on theloan balances outstanding as of July 31, 2006.

**Foreign Tax Risk**

On December 30,1997, Doe Run Peru signed a Contract of Guarantees and Measures to PromoteInvestments with the government of Peru.  This contract, which has beenmodified various times through 2006, committed Doe Run Peru to making certaininvestments related to the improvements of its facilities in order to receivecertain tax benefits.  This contractprovided that if the investments were completed according to the schedule byDecember 31, 2006, Doe Run Peru would receive an additional tax stabilityagreement covering the period beginning January 1, 2007 and ending December 31,2021.  Doe Run Peru will be unable to complete the required investmentsand as a result, Doe Run Peru will not receive the benefits of the additionaltax stabilization agreement, and the current tax stability agreement willexpire on December 31, 2006.  The Companywill be subject to tax risk on any future changes to taxes or guaranteesrequired by the Peruvian government.  Anysignificant change could have an adverse effect on the Company’s business,financial condition and results of operations.

**Foreign Currency Risk**

Doe Run Peru’s sales and feed costs are denominated inU.S. dollars. Certain operating costs, such as labor, are denominated inPeruvian nuevos soles.  While allrevenues and significant costs are denominated in U.S. dollars, a material weakening of exchange rates could still have anadverse effect on the Company’s business,financial condition and results of operations.

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**Item 4. Controls and Procedures.**

As of the end of the period covered by this report, an evaluation wasperformed by our management, under the supervision and with the participationof our Chief Executive Officer, the principal executive officer, and ChiefFinancial Officer, the principal financial officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures (as defined inRules 13a-5(e) and 15d-15(e) promulgated under the Securities and Exchange Actof 1934, as amended (the “Exchange Act”)). Based upon this evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that such disclosure controls and procedures wereeffective as of the end of the period covered by this report to ensure thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Exchange Act is (a) recorded, processed, summarizedand reported within the time periods specified in the Securities and ExchangeCommission’s rules and forms and (b) is accumulated and communicated to theCompany’s management, including its principal executive and principal financialofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure.

No change in our internal control over financial reporting occurredduring the period covered by this report that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

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**PART II.  OTHER INFORMATION**

**Item1.  Legal Proceedings.**

*Pagano,et al. v. Anheuser-Busch, Inc., et al.* (filed December 17,2004) was dismissed with prejudice on May 26, 2006. The case was filed against43 defendants, including Doe Run, by a person who did laundry for insulationworkers in her family. The plantiff alleged that the workers were exposed toasbestos at Doe Run’s Herculaneum, Missouri facility.

**Item 1A. Risk Factors.**

No materialchanges.

**Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.**

None.

**Item 3.Defaults Upon Senior Securities.**

None.

**Item 4.Submission of Matters to a Vote of Security Holders.**

None.

**Item 5.Other Information.**

None.

**Item 6.Exhibits.**

| **10.1.13** | **Employment agreement, dated as of September 5,  2006, between Doe Run and Theodore P. Fox, III.**            |
|-------------|----------------------------------------------------------------------------------------------------------------|
| **10.1.14** | **Separation agreement and general release, dated  August 16, 2006, between Doe run and Mr. David A. Chaput.** |
| **10.2.7**  | **Net worth appreciation agreement, dated August  24, 2006, between Doe Run and Theodore P. Fox III**          |
| **31.1**    | **Certification of Chief Executive Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**       |
| **31.2**    | **Certification of Chief Financial Officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**       |
| **32.1**    | **Certification of Chief Executive Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**       |
| **32.2**    | **Certification of Chief Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**       |

 

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###### **SIGNATURES**

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

 
|                           |   | THE DOE RUN RESOURCES CORPORATION                          |
|---------------------------|--------|------------------------------------------------------------|
|                      |   | (Registrant)                                               |
|                      |   |                                                       |
|                      |   |                                                       |
|                      |   | /s/ David A. Chaput                                        |   |
| Date: September 14,  2006 |   | David A. Chaput                                            |
|                      |   | Chief Financial Officer                                    |
|                      |   | (duly authorized officer and principal financial  officer) |

 

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