**UNITED STATES**

#### **SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

### **FORM 10-Q**

### ** **

**(MarkOne)**

 
| **ý** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                      |
|------------|------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                   |
| ** ** | **For the  quarterly period ended July 31,  2005**                                                                      |
| ** ** | ** **                                                                                                                   |
| **or**     |
| ** ** |
| **o**      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**                     |
| ** ** | ** **                                                                                                                   |
| ** ** | **For the  transition period from         to        ** |

 

**Commission File Number 333-66291**

 

#### **The Doe Run ResourcesCorporation**

(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 checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

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

 

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

 

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

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

 

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

 

Number of sharesoutstanding of each of the issuer’s classes of common stock, as of September 14,2005:

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

 

 

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**THE DOE RUN RESOURCES CORPORATION**

**INDEX TO FORM 10-Q**

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

 

2

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**PART I -FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

**THE DOE RUNRESOURCES CORPORATION**

**CondensedConsolidated Balance Sheets**

**(Dollars inthousands, except share data)**

 
| ** **                                                                                                                                                             | ** ** | **July 31,** | ** ** | **October 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------|------------|
| ** **                                                                                                                                                             | ** ** | **2005**          | ** ** | **2004**             | ** ** |
| ** **                                                                                                                                                             | ** ** | **(unaudited)**   | ** ** | ** **           | ** ** |
| **ASSETS**                                                                                                                                                             | ** ** | ** **        | ** ** | ** **           | ** ** |
| Current assets:                                                                                                                                                        |       |              |       |                 |       |
| Cash                                                                                                                                                                   |       | $                 | 16,528     |                 | $          | 20,318 |   |
| Trade accounts receivable, net of allowance for  doubtful accounts                                                                                                     |       | 67,822            |       | 64,219               |       |
| Inventories                                                                                                                                                            |       | 120,441           |       | 103,309              |       |
| Prepaid expenses and other current assets                                                                                                                              |       | 23,866            |       | 35,858               |       |
| Total current assets                                                                                                                                                   |       | 228,657           |       | 223,704              |       |
| Property, plant  and equipment, net                                                                                                                                    |       | 247,068           |       | 229,640              |       |
| Other noncurrent  assets, net                                                                                                                                          |       | 6,099             |       | 4,075                |       |
| Total assets                                                                                                                                                           |       | $                 | 481,824    |                 | $          | 457,419 |   |
|                                                                                                                                                                   |       |              |       |                 |       |
| **LIABILITIES AND SHAREHOLDER’S DEFICIT**                                                                                                                         | ** ** | ** **        | ** ** | ** **           | ** ** |
| Current  liabilities:                                                                                                                                                  |       |              |       |                 |       |
| Current maturities of long-term debt                                                                                                                                   |       | $                 | 88,121     |                 | $          | 96,767 |   |
| Accounts payable                                                                                                                                                       |       | 89,064            |       | 65,855               |       |
| Accrued liabilities                                                                                                                                                    |       | 77,136            |       | 83,878               |       |
| Total current liabilities                                                                                                                                              |       | 254,321           |       | 246,500              |       |
|                                                                                                                                                                   |       |              |       |                 |       |
| Long-term debt,  less current maturities                                                                                                                               |       | 299,477           |       | 320,561              |       |
| Other noncurrent  liabilities                                                                                                                                          |       | 79,303            |       | 75,765               |       |
| Total liabilities                                                                                                                                                      |       | 633,101           |       | 642,826              |       |
|                                                                                                                                                                   |       |              |       |                 |       |
| Series A redeemable preferred stock, $1,000 par  value per share, 5,000 shares authorized; 2,533 shares issued and  outstanding; liquidation and redemption value |       | 27,704            |       | 25,329               |       |
|                                                                                                                                                                   |       |              |       |                 |       |
| Shareholder’s deficit:                                                                                                                                            |       |              |       |                 |       |
| Common stock, $.10 par value per share, 1,667 shares  authorized;                                                                                                      |       |              |       |                 |       |
| 1,000 shares issued and outstanding                                                                                                                                    |       | —            |       | —               |       |
| Accumulated deficit                                                                                                                                                    |       | (137,924          | )          | (168,700             | )          |
| Accumulated other comprehensive losses                                                                                                                                 |       | (41,057           | )          | (42,036              | )          |
| Total shareholder’s deficit                                                                                                                                       |       | (178,981          | )          | (210,736             | )          |
| Total liabilities and shareholder’s deficit                                                                                                                       |       | $                 | 481,824    |                 | $          | 457,419 |   |

 

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

 

3

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**THE DOE RUN RESOURCES CORPORATION**

**CondensedConsolidated Statements of Operations (unaudited)**

**(Dollars in thousands)**

 
| ** **                                                  | ** ** | **Three Months Ended   July 31,** | ** ** | **Nine Months Ended   July 31,** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                        |       |                                   |       |                                  |       |   |   |   |   |
| Net sales                                                   |       | $                                      | 257,109    |                                  | $          | 226,622 |   | $ | 740,148 |   | $ | 632,267 |   |
|                                                        |       |                                   |       |                                  |       |   |   |   |   |
| Costs and expenses:                                         |       |                                   |       |                                  |       |   |   |   |   |
| Cost of sales                                               |       | 227,900                                |       | 193,148                               |       | 645,231 |   | 566,511 |   |
| Depreciation, depletion and amortization                    |       | 6,310                                  |       | 6,107                                 |       | 18,211 |   | 18,779 |   |
| Selling, general and administrative                         |       | 12,909                                 |       | 8,604                                 |       | 35,350 |   | 25,087 |   |
| Unrealized (gain) loss on derivative financial  instruments |       | (2,595                                 | )          | (679                                  | )          | (3,856 | ) | 261 |   |
| Other                                                       |       | 871                                    |       | 980                                   |       | 4,029 |   | 3,029 |   |
| Total costs and expenses                                    |       | 245,395                                |       | 208,160                               |       | 698,965 |   | 613,667 |   |
|                                                        |       |                                   |       |                                  |       |   |   |   |   |
| Income from operations                                      |       | 11,714                                 |       | 18,462                                |       | 41,183 |   | 18,600 |   |
|                                                        |       |                                   |       |                                  |       |   |   |   |   |
| Other income (expense):                                     |       |                                   |       |                                  |       |   |   |   |   |
| Interest expense, net                                       |       | (1,955                                 | )          | (3,105                                | )          | (8,710 | ) | (9,692 | ) |
| Other, net                                                  |       | 573                                    |       | (288                                  | )          | 1,212 |   | (800 | ) |
|                                                        |       | (1,382                                 | )          | (3,393                                | )          | (7,498 | ) | (10,492 | ) |
|                                                        |       |                                   |       |                                  |       |   |   |   |   |
| Income before income tax expense                            |       | 10,332                                 |       | 15,069                                |       | 33,685 |   | 8,108 |   |
|                                                        |       |                                   |       |                                  |       |   |   |   |   |
| Income tax expense                                          |       | —                                 |       | 626                                   |       | — |   | 2,147 |   |
|                                                        |       |                                   |       |                                  |       |   |   |   |   |
| Net income                                                  |       | $                                      | 10,332     |                                  | $          | 14,443 |   | $ | 33,685 |   | $ | 5,961 |   |
| Preferred stock dividends                                   |       | (792                                   | )          | (703                                  | )          | (2,375 | ) | (2,110 | ) |
| Net income allocable to common shares                       |       | $                                      | 9,540      |                                  | $          | 13,740 |   | $ | 31,310 |   | $ | 3,851 |   |
|                                                        |       |                                   |       |                                  |       |   |   |   |   |
| Total comprehensive income                                  |       | $                                      | 11,177     |                                  | $          | 14,653 |   | $ | 34,664 |   | $ | 7,805 |   |

 

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

 

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**THE DOE RUNRESOURCES CORPORATION**

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

**(Dollars inthousands)**

 
| ** **                                                                         | ** ** | **Nine Months Ended   July 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                              | ** ** | **2004** | ** ** |
|                                                                               |       |                                  |       |   |   |
| Cash flows from operating activities:                                              |       |                                  |       |   |   |
| Net income                                                                         |       | $                                     | 33,685     |   | $ | 5,961 |   |
| Adjustments to reconcile net income to net cash provided  by operating activities: |       |                                  |       |   |   |
| Depreciation, depletion and amortization                                           |       | 18,211                                |       | 18,779 |   |
| Imputed interest and amortization of deferred  financing costs                     |       | 705                                   |       | 1,927 |   |
| Unrealized (gain) loss on derivative financial  instruments                        |       | (3,856                                | )          | 261 |   |
| Losses from impairment and disposal of long-lived  assets                          |       | 2,250                                 |       | 1,680 |   |
| Net increase (decrease) resulting from other changes  in assets and liabilities    |       | 12,796                                |       | (21,014 | ) |
| Net cash provided by operating activities                                          |       | 63,791                                |       | 7,594 |   |
|                                                                               |       |                                  |       |   |   |
| Cash flows from investing activities:                                              |       |                                  |       |   |   |
| Purchases of property, plant and equipment                                         |       | (37,878                               | )          | (16,817 | ) |
| Proceeds from disposal of assets                                                   |       | 43                                    |       | — |   |
| Proceeds from sale of investments                                                  |       | 469                                   |       | — |   |
| Net cash used in investing activities                                              |       | (37,366                               | )          | (16,817 | ) |
|                                                                               |       |                                  |       |   |   |
| Cash flows from financing activities:                                              |       |                                  |       |   |   |
| Proceeds from (payments on) revolving loans, net                                   |       | (15,122                               | )          | 914 |   |
| Payments on long-term debt                                                         |       | (14,642                               | )          | (2,387 | ) |
| Payments of dividends                                                              |       | (451                                  | )          | — |   |
| Net cash used in financing activities                                              |       | (30,215                               | )          | (1,473 | ) |
|                                                                               |       |                                  |       |   |   |
| Net decrease in cash                                                               |       | (3,790                                | )          | (10,696 | ) |
|                                                                               |       |                                  |       |   |   |
| Cash at beginning of period                                                        |       | 20,318                                |       | 16,794 |   |
| Cash at end of period                                                              |       | $                                     | 16,528     |   | $ | 6,098 |   |

 

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

 

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**THE DOE RUN RESOURCES CORPORATION**

 

**Notes to Condensed Consolidated FinancialStatements**

**(Dollars in thousands)**

 

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

 

***Unaudited Interim Financial Statements***

 

Theseinterim consolidated financial statements include the accounts of The Doe RunResources Corporation (Doe Run) and its subsidiaries (on a consolidated basis,the Company). Doe Run’s issued and outstanding common stock is owned by asubsidiary of The Renco Group, Inc. (Renco). In the opinion of management,the interim consolidated financial statements contain all adjustments,consisting of normal recurring accruals, necessary to present fairly theconsolidated financial position as of July 31, 2005 and the results ofoperations for the three and nine-month periods ended July 31, 2005 and2004. Interim periods are not necessarily indicative of results to be expectedfor the year.

 

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

 

For the year ended October 31,2003 and for several years prior, the Company reported recurring losses,primarily the result of declining treatment charges and low metal prices, acondition exacerbated by the Company’s significant interest costs prior to arestructuring in October 2002. These conditions have caused the Company’snet capital deficiency.

 

The Company is highlyleveraged and has significant commitments for environmental matters. Inaddition, Doe Run Peru has significant commitments for EnvironmentalRemediation and Management Program (PAMA) expenditures. Consequently, asubstantial portion of cash flows from operations is dedicated to the paymentof these obligations, which will reduce funds available for other business purposes.See Note 7 for further discussion of these obligations. These factors alsoincrease the Company’s vulnerability to general adverse conditions, limit theCompany’s flexibility in planning for or reacting to changes in its businessand industry, and limit the Company’s ability to obtain financing required tofund working capital and capital expenditures and for other general corporatepurposes. An unfavorable outcome to certain contingencies discussed below,would have a further adverse effect on the Company’s ability to meet itsobligations when due. The Company’s ability to meet these obligations is alsodependent upon future operating performance and financial results, which aresubject to financial, economic, political, competitive and other factors affectingthe Company, many of which are beyond the Company’s control.

 

Doe Run has substantialdebt service requirements in the future, including the maturity in 2005 of$15,500 for the Term Note. In addition, Doe Run Peru has significant capitalrequirements under the PAMA. The Company’s revolving credit facilities alsoexpire in the fourth quarter of 2005, and will require renegotiation to extendtheir terms. There can be no assurance that the renewal efforts will besuccessful, or if successful, that the renewal would be at terms that arefavorable to the Company.

 

Management will continueto assess market and operating conditions at prevailing metal prices tomaximize its operating profit or limit losses, while allowing the Company tofulfill its environmental obligations.

 

As discussed in Note 7,Doe Run Peru’s existing PAMA requires it to perform projects in 2005 and 2006at a total cost of $121,200. Doe Run Peru expects that it will not be able tocomply with the spending requirements of the PAMA investment schedule in2005 and 2006 with respect to the construction of the sulfuric acid plantsrequired by the PAMA and, as a result, could be subject to penalties. Failureto comply with the PAMA could result in the cessation of operations at the LaOroya smelter.

 

The Peruvian Governmenthas issued a supreme decree (Supreme Decree), which recognized that exceptionalcircumstances may justify an extension of one or more projects within the scopeof a PAMA. See Note 7 for discussion of current legislation that may affect theSupreme Decree. Doe Run Peru will submit an application for extension to modifythe requirements of the existing PAMA and extend the term of the PAMA tocomplete the construction of the sulfuric acid plants contemplated by theoriginal PAMA. Doe Run Peru will also perform additional environmental projectsto reduce fugitive emissions, including heavy metal dust, to address the healthissues of the community. As of July 31, 2005, the estimated remainingtotal cost of the 

 

6

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current PAMA projects,including the sulfuric acid plants construction, and the additional projects isapproximately $129,400. If the extension of the PAMA is approved, managementexpects to fund the PAMA projects with cash from Doe Run Peru’s operations orthrough additional borrowings.

 

Upon approval of amodified PAMA, Doe Run Peru would be required to create a trust account toadminister the receipts and disbursements related to the extended PAMAprojects. The Supreme Decree requires that receipts from Doe Run Peru’s salesbe remitted monthly directly to the trust account, in an amount sufficient tofund the month’s cash requirements of the extended PAMA projects. Such anarrangement is prohibited by Doe Run Peru’s existing revolving credit facility(the Doe Run Peru Revolving Credit Facility), which expires on September 23,2005. Accordingly, any new or amended credit facility must comply with therequirements established by the Supreme Decree, should Doe Run Peru’s PAMA beextended.

 

The Supreme Decree alsorequires that Doe Run Peru provide financial security within 30 days of theapproval of the PAMA extension in an amount equal to 20% of the projected costof the project or projects to be extended. The Company currently expects theoverall investment required to build the sulfuric acid plants to beapproximately $113,900.

 

A default under therequirements of the PAMA could result in a default under the Doe Run PeruRevolving Credit Facility. A default under the Doe Run Peru Revolving CreditFacility would result in a default under Doe Run’s current credit facility (DoeRun Revolving Credit Facility) and the Term Note. An acceleration of theseobligations would result in a default of the 11.75% senior notes due 2008 (the11.75% Notes).

 

These issues raisesubstantial doubt about the Company’s ability to continue as a going concern. Subjectto Doe Run Peru’s ability to provide the required financial security,management believes that Doe Run Peru will obtain an approval of an extensionto complete the sulfuric acid plants. There is no assurance, however, that DoeRun Peru will receive an extension, or, if it does, that the projects will becompleted within the time limitation specified by the Supreme Decree. Doe RunPeru has implemented a business plan that identifies several revenue generatingand cost reduction activities. Management believes the plan will enhanceliquidity, which is expected to improve Doe Run Peru’s ability to make theinvestments under the PAMA, assuming an extension is received. Revenueenhancement includes the processing of zinc ferrites and an effort to bringmore recycled feed into the smelter. The zinc ferrite processing is expected toproduce a product with a zinc and silver content totaling approximately 20,000tons and 4.3 million ounces, respectively, on an annual basis beginning in thesecond half of the fourth quarter of 2005. Planned cost reduction measuresinclude manpower reductions through voluntary retirement. Management willcontinue to analyze cost management opportunities in current operatingconditions.

 

Doe Run Peru has receivedassessments of income tax, including penalties and interest, and Value AddedTax (VAT) totaling $108,800 and $43,400, respectively, as discussed in Note 4.In addition, the Company estimates that the effect of similar assessments forperiods not yet assessed would be approximately $8,000 and $20,100 for theincome tax and VAT matters, respectively. Furthermore, Doe Run Peru would alsobe required to make additional workers’ profit sharing payments equal to 8% ofthe increase in taxable income generated by the changes discussed above, orapproximately $7,400 for tax years 1998 through 2004.

 

Management of the Companybelieves that in each case Doe Run Peru has followed the applicable Peruviantax statutes and intends to pursue all available administrative and judicialappeals. Doe Run Peru is not required to make any payments pending theadministrative appeal process. If Doe Run Peru is not successful in the administrativeappeal processes and were to appeal in the judicial system, some type offinancial assurance would be required, which would have a significant adverseeffect on liquidity.

 

Net unused availabilityat July 31, 2005 and October 31, 2004 under the Doe Run RevolvingCredit Facility was approximately $34,200 and $22,500, respectively, and underthe Doe Run Peru Revolving Credit Facility was $200 and virtually none,respectively. In addition to the availability under their revolving creditfacilities, cash balances at Doe Run and Doe Run Peru were $3,300 and $13,200,respectively, at July 31, 2005 and $13,400 and $6,900, respectively, at October 31,2004.

 

7

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Management believes thathigh metal prices and other revenue enhancements, and the issuance of theSupreme Decree, which allows an application to extend La Oroya’s PAMArequirement for the construction of the sulfuric acid plants, will enable theCompany to continue as a going concern.

 

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

 

Inventoriesconsist of the following:

 
| ** **                           | ** ** | **July 31,  2005** | ** ** | **October 31,  2004** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|
|                                 |       |                    |       |                       |       |
| Finished metals and concentrates     |       | $                       | 15,491     |                       | $          | 16,646 |   |
| Metals and concentrates in process   |       | 73,419                  |       | 58,664                     |       |
| Materials, supplies and repair parts |       | 31,531                  |       | 27,999                     |       |
|                                 |       | $                       | 120,441    |                       | $          | 103,309 |   |

 

Materials,supplies and repair parts are stated net of reserves for obsolescence ofapproximately $4,363 and $5,146 at July 31, 2005 and October 31,2004, respectively.

 

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

 

Doe Run Peru hasreceived income tax assessments from Peru’s tax authority, SUNAT for tax years1998 through 2001. The assessments primarily relate to Doe Run Peru’s incometax treatment of the December 1997 merger of Doe Run Peru and MetaloroyaS.A., which was purchased by Doe Run Peru in October 1997, and its effectson subsequent years’ taxable income. Under the assessment by SUNAT, the taxbasis of Doe Run Peru’s fixed assets acquired would decrease, resulting inlower tax depreciation expense than originally claimed. The assessed amountsconsisting of additional income taxes due, penalties and interest totalapproximately $108,800.

 

The Companyestimates that the effect of a similar assessment for tax years after 2001consisting of additional income taxes due, penalties and interest would be approximately$8,000.

 

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 $7,400 for tax years1998 through 2004.

 

Doe Run Peru hasalso received Value-Added Tax (VAT) assessments for the tax years 1999 through2001 and for the period from January through July 2004. Theassessments primarily relate to Doe Run Peru’s exports with holdingcertificates and differences in a tax credit application. The total assessmentfor these periods was approximately $43,400. SUNAT offset the amount assessedfor 2004 of approximately $2,300 against Doe Run Peru’s VAT receivable balancefrom July 2004. The Company discontinued use of holding certificates inMay 2004. Future VAT reimbursements cannot be used to offset the assessment bySUNAT. The Company estimates expected additional assessments related to VAT fortax years 2002 and 2003 to total approximately $20,100 in regard to its exportswith holding certificates.

 

Managementof the Company believes that in each case Doe Run Peru has followed theapplicable Peruvian tax statutes and intends to pursue all availableadministrative and judicial appeals. Doe Run Peru is not required to make any payments pending theadministrative 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. No amounts have been accruedas liabilities related to these actions.

 

Pursuant to the Company’s tax sharing agreement withRenco, the Company paid Renco $141 in the third quarter of 2005, and had$83 owing as of July 31, 2005.

 

8

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

 

***Defined Benefit Plans***

 

Net periodic benefit cost is comprised of thefollowing:

 
| ** **                                                | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                      |       |                                  |       |                                 |       |   |   |   |   |
| Service cost                                              |       | $                                     | 667        |                                 | $          | 420 |   | $ | 1,764 |   | $ | 1,619 |   |
| Interest cost on projected benefit obligation             |       | 1,711                                 |       | 1,276                                |       | 5,036 |   | 4,921 |   |
| Expected return on assets                                 |       | (1,418                                | )          | (922                                 | )          | (4,276 | ) | (3,555 | ) |
| Net amortization and deferral of unrecognized net  losses |       | 1,734                                 |       | 677                                  |       | 3,156 |   | 2,608 |   |
| Curtailment loss                                          |       | —                                |       | —                               |       | 690 |   | — |   |
| Net periodic benefit cost                                 |       | $                                     | 2,694      |                                 | $          | 1,451 |   | $ | 6,370 |   | $ | 5,593 |   |

 

TheCompany is required to make total contributions of $8,925 in 2005, of which$5,720 had been paid as of July 31, 2005.

 

On April 11,2005, the Company’s Board of Directors adopted changes to the Company’s definedbenefit plans. Effective July 1, 2005, no new employees are eligible toparticipate in the plans and participants’ benefit accruals will cease. Acurtailment loss of $690 was reflected in operating expenses in the threemonths ended April 30, 2005. Effective July 1, 2005, the Company’s401(k) plan was also amended to change the definition of eligible compensationand change the Company’s mandatory match from 25% of the first 6% of aparticipant’s before-tax contribution to 50% of the first 5% of a participant’sbefore-tax contribution. In addition, the amendment provides for a fixed 1%profit sharing contribution.

 

***Net Worth Appreciation Agreements***

 

Certainemployees are parties to net worth agreements with Doe Run, pursuant to which,upon termination of each person’s employment with Doe Run, they are entitled toreceive a fixed percentage of the increase in the net worth of the Company, asdefined in such agreement, from a base date until the end of the fiscal quarterpreceding the date of his termination. Such amount is payable without interestin 40 equal quarterly installments, commencing three months after thetermination of each person’s employment, and at three month intervalsthereafter. The net worth appreciation agreements also provide that, in theevent of payment of a dividend or a sale of the Company, the activeparticipants will be entitled to receive a percentage of the dividend or thenet proceeds of the sale equal to their maximum percentages under theagreements.

 

On July 1, 2005, the Company’s Board of Directorsadopted changes to the Company’s net worth appreciation agreements, copies ofwhich are exhibits to this report, primarily consisting of changes to the basedates as defined in the agreements. In accordance with these changes, theCompany recorded $1,011 in expense during the third quarter of 2005.

 

9

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

 

TheCompany’s operating segments are separately managed business units that aredistinguished by products, location and production processes. The primary leadsegment includes integrated mining, milling and smelting operations located inMissouri. The recycling operation segment, located in Missouri, recycleslead-bearing materials, primarily spent batteries. The fabricated productssegment, located in Casa Grande, Arizona and Vancouver, Washington, producesvalue-added lead products. Doe Run Peru, with operations in La Oroya andCobriza, Peru, produces an extensive product mix of non-ferrous and preciousmetals.

 

*OperatingSegments – Revenues*

 
| ** **                                       | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|--------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                       | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues from external customers:                |       |                                  |       |                                 |       |   |   |   |   |
| Doe Run Peru                                     |       | $                                     | 171,561    |                                 | $          | 144,897 |   | $ | 477,603 |   | $ | 415,874 |   |
| Primary lead                                     |       | 63,256                                |       | 59,235                               |       | 192,336 |   | 157,957 |   |
| Recycling operation                              |       | 22,262                                |       | 20,595                               |       | 63,260 |   | 58,357 |   |
| Fabricated products                              |       | 3,137                                 |       | 2,934                                |       | 10,338 |   | 9,082 |   |
| Total                                            |       | 260,216                               |       | 227,661                              |       | 743,537 |   | 641,270 |   |
| Revenues from other operating segments: (1)      |       |                                  |       |                                 |       |   |   |   |   |
| Doe Run Peru                                     |       | 396                                   |       | 1,469                                |       | 3,120 |   | 1,578 |   |
| Primary lead                                     |       | 508                                   |       | 397                                  |       | 1,219 |   | 913 |   |
| Recycling operation                              |       | 14                                    |       | 151                                  |       | 194 |   | 306 |   |
| Total                                            |       | 918                                   |       | 2,017                                |       | 4,533 |   | 2,797 |   |
| Total reportable segments                        |       | 261,134                               |       | 229,678                              |       | 748,070 |   | 644,067 |   |
| Metal sales not attributed to operating segments |       | 31                                    |       | 1,052                                |       | 2,551 |   | 1,603 |   |
| Realized losses on derivative contracts          |       | (3,138                                | )          | (2,091                               | )          | (5,940 | ) | (10,606 | ) |
| Intersegment eliminations                        |       | (918                                  | )          | (2,017                               | )          | (4,533 | ) | (2,797 | ) |
| Total revenues                                   |       | $                                     | 257,109    |                                 | $          | 226,622 |   | $ | 740,148 |   | $ | 632,267 |   |

 

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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.

 

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

 

*OperatingSegments – Adjusted EBITDA*

 
| ** **                                                | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                      |       |                                  |       |                                 |       |   |   |   |   |
| Doe Run Peru                                              |       | $                                     | 12,437     |                                 | $          | 9,930 |   | $ | 28,151 |   | $ | 20,373 |   |
| Primary lead                                              |       | 8,062                                 |       | 17,274                               |       | 50,133 |   | 36,332 |   |
| Recycling operation                                       |       | 5,760                                 |       | 5,552                                |       | 14,693 |   | 12,811 |   |
| Fabricated products                                       |       | 445                                   |       | 442                                  |       | 1,687 |   | 856 |   |
| Total reportable segments                                 |       | 26,704                                |       | 33,198                               |       | 94,664 |   | 70,372 |   |
| Realized losses on derivatives                            |       | (3,138                                | )          | (2,092                               | )          | (5,940 | ) | (10,607 | ) |
| Other revenues and expenses (1)                           |       | (1,939                                | )          | (1,017                               | )          | (7,273 | ) | (4,177 | ) |
| Expenses allocated in current period (2)                  |       | 3,241                                 |       | —                               |       | — |   | — |   |
| Corporate selling, general and administrative  expenses   |       | (8,220                                | )          | (5,576                               | )          | (21,331 | ) | (15,808 | ) |
| Intersegment eliminations                                 |       | (10                                   | )          | (10                                  | )          | 3 |   | 7 |   |
| Consolidated adjusted EBITDA                              |       | 16,638                                |       | 24,503                               |       | 60,123 |   | 39,787 |   |
| Depreciation, depletion and amortization                  |       | (6,310                                | )          | (6,107                               | )          | (18,211 | ) | (18,779 | ) |
| Interest expense, net                                     |       | (1,955                                | )          | (3,105                               | )          | (8,710 | ) | (9,692 | ) |
| Unrealized gain (loss) on derivatives                     |       | 2,595                                 |       | 679                                  |       | 3,856 |   | (261 | ) |
| Losses from impairment and disposal of long-lived  assets |       | (261                                  | )          | (439                                 | )          | (2,250 | ) | (1,680 | ) |
| Asset retirement obligation accretion expense             |       | (375                                  | )          | (462                                 | )          | (1,123 | ) | (1,352 | ) |
| Other                                                     |       | —                                |       | —                               |       | — |   | 85 |   |
| Income before income taxes                                |       | $                                     | 10,332     |                                 | $          | 15,069 |   | $ | 33,685 |   | $ | 8,108 |   |

 

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(1)          Other revenues andexpenses consists of the profit on metal sales not attributed to operatingsegments and operating expenses not allocated to operating segments, includingadjustments to environmental liabilities relating to historic operations of $330and $3,301 for the three and nine months ended July 31, 2005,respectively, and $0 and $1,000 for the three and nine months ended July 31,2004, respectively; certain employee compensation (income) expenses of $(3) and$1,788 for the three and nine months ended July 31, 2005, respectively and$247 and $739 for the three and nine months ended July 31, 2004, respectively;and adjustments necessary to state the primary lead and recycling operations’inventories at LIFO cost of $558 and $1,308 for the three and nine months endedJuly 31, 2005, respectively and $600 and $1,800 for the three and ninemonths ended July 31, 2004, respectively.

 

(2)          Due to timing, certainoperating costs were allocated to segments in a different period than recordedin the consolidated financial statements.

 

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

 

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

 

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

 

Asset retirement obligations(AROs) are recognized as liabilities when incurred, with the initialmeasurement at fair value. These liabilities will be increased to full valueover time through charges of accretion to operating expense. In addition, anasset retirement cost is capitalized as part of the related asset’s carryingvalue and will be depreciated over the asset’s useful life. Changes in the AROliability resulting from revisions to the timing or the amount of the originalestimate of undiscounted cash flows shall be 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.

 

TheCompany’s mines and related processing facilities are subject to governance byvarious agencies that have established minimum standards for reclamation. TheCompany’s primary smelter slag produced by and stored at the primary smelter inHerculaneum, Missouri, is currently exempt from hazardous waste regulationunder the Resource Conservation and Recovery Act of 1976, as amended (RCRA),but is subject to a state closure permit, which requires the Company to containand cover the pile upon cessation of operations. The Company’s mining andmilling operations are subject to Missouri mine waste closure permitrequirements and lease agreements that require the Company 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.

 

The Company has a RCRA permit addressing the closureof portions of its recycling operation. The majority of the cost will arisefrom removing hazardous materials from the facility. No ARO liability orrelated asset cost has been recorded because the fair value of the obligationcannot be determined due to the indeterminate timing. The cost of closure,based on third party estimates for bonding purposes, is approximately $3,000.The life of the operation is considered indeterminable because there is notcurrently a cost-effective alternative to the lead acid batteries and becausebattery manufacturers are required to recycle the batteries.

 

Doe Run Peru also has AROs at its Cobriza mine relatedto the costs associated with closing the mine openings and covering acid rock.Doe Run Peru is also responsible for the covering and revegetation of mixed leadand copper slag stored in Huanchan, an area a short distance from the smelterwhere the slag is currently stored.

 

The Company’s total recorded liability for AROs wasapproximately $15,700 and $14,600 as of July 31, 2005 and October 31,2004, respectively.

 

#### ***Environmentalremediation - Domestic Operations***

 

TheCompany had recorded liabilities of approximately $19,500 and $18,800 relatedto remediation obligations as of July 31, 2005 and October 31, 2004,respectively.

 

Doe Run is subject to an Administrative Order onConsent (AOC), effective May 29, 2001, to study and address issues relatedto the slag pile, plant property, community soils adjacent to the primarysmelter in Herculaneum, elevated blood lead levels in the community and leadreleases from the plant. Under this AOC, Doe Run completed additional soiltesting in the area within a one-mile radius of the smelter and subsequentlysigned a second AOC with the U.S. EPA on December 21, 2001, which hasessentially been completed. The May 29, 2001 AOC was modified effective onMay 20, 2004. At July 31, 2005 the estimated remaining cost ofremediating these properties is approximately $960, with approximately $180 tobe spent during the remainder of calendar 2005.

 

Doe Run signed asettlement agreement with the State of Missouri on April 26, 2002, wherebyit agreed to offer to purchase approximately 160 residential properties in anarea close to the smelter if the owner requests such an offer. The offers haveexpired except for a few with pending closing dates or special arrangements.

 

As of July 31, 2005, a total of 149 homeownershad requested and were delivered offers, and 142 of those offers had beenaccepted. As of July 31, 2005, the Company had spent approximately $9,700under the residential property purchase plan. Another $1,400 of accepted offersare awaiting a closing date and $400 in

 

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outstanding offers have not been accepted. Doe Run hascomplied in all material respects with the property purchase provisions of thesettlement agreement.

 

The Company’s statements of operations reflect lossesfrom impairment or retirement of long-lived assets primarily related to theresidential properties owned in Herculaneum, as it cannot be assured that thecost of the properties will be recovered through future cash flows. The Company’srecorded liability for remediation does not include the future purchase costsrelating to the residential property purchase plan as these costs arecapitalized.

 

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 10 of thelast 12 quarters. Since the air quality monitors reflected a second quarter ofnon-compliance, the permitted annual capacity of the Herculaneum Smelter willdecrease from 250,000 to 200,000 tons, which does not affect results at currentproduction levels. Further non-compliance could result in SIP revisions thatcould have a material adverse financial impact on the Company. Management is indiscussions with the Missouri Department of Natural Resources to exploreoptions intended to improve the smelter’s ability to attain and maintaincompliance in the future.

 

Doe Run has receivednotice that it is a potentially responsible party (PRP) subject to liabilityunder The Comprehensive Environmental Response, Compensation and Liability Actof 1980, as amended (CERCLA), at the following sites: six sites in St. FrancoisCounty, Missouri, including the Big River Mine Tailings site, the Bonne Terresite, the Federal site, the National site, the Rivermines site and the Leadwoodsite; sites comprising areas along roads in Iron, Dent and Reynolds counties inMissouri; the Oronogo-Durenweg site in Jasper County, Missouri; the CherokeeCounty site in Cherokee County, Kansas; the Tar Creek site in Ottawa County,Oklahoma; the Block “P” site in Cascade County and Judith County, Montana; andthe Missouri Electric Works site in Cape Girardeau, Missouri. There are twoadditional sites in St. Francois County for which the U.S. EPA has indicated itwill issue notice. CERCLA provides for strict and, in certain circumstances,joint and several liability for response costs and natural resource damages.The Company’s estimate of the cost of the remediation of these sites, includingthe two additional sites in St. Francois County, is included in the totalliability for remediation obligations, which the Company believes is adequatebased on its investigations to date. However, depending upon the types ofremediation required and certain other factors, additional costs at thesesites, individually or collectively, could have a material adverse effect onthe results of operations, financial condition and liquidity of the Company.

 

In February 2004the U.S. Department of Agriculture issued a Unilateral Administrative Order(UAO) ordering certain remediation activities by Doe Run at the Block “P”millsite. Doe Run has requested that other parties be added to the order. DoeRun will seek reimbursement from the U.S. Government and these other parties.The final remediation is currently in progress.

 

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 in late 2005.

 

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 EPA hasaccelerated the timeframe to complete the majority of the remediation effort bythe summer of 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.

 

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Doe Run has also signedAOCs to perform an EE/CA on each of the National and Leadwood sites for remediationof mine waste areas. Doe Run’s National EE/CA was completed by the PRPs and wassubmitted to the U.S. EPA for approval. The U.S. EPA conducted its own EE/CA,which is currently open for public discussion. The cost of their remedy ishigher than the submitted EE/CA. The Leadwood EE/CA has been submitted to theU.S. EPA for approval. In addition, Doe Run has signed an AOC with the U.S. EPAto conduct a Remedial Investigation/Feasibility Study (RI/FS) to assesspotential off-site impacts of these site operations on groundwater, residentialsoils, several creeks and a river and the need for related remediation. Theinitial draft of the RI/FS was submitted in early March 2002. Doe Runsigned an order to conduct interim measures, which consisted of blood leadtesting of young children, residential soil sampling and limited soilremediation as indicated by the testing and sampling results, which wasterminated and replaced by an AOC to conduct certain additional soilremediation in the area and has included its best estimate of these efforts inits recorded liabilities. The Company believes the recorded liabilities relatedto these sites are adequate. However, should remediation goals or areas change,requiring substantially increased measures, there can be no assurance that therecorded liabilities would be adequate.

 

In March 2004, Doe Run received notice that it isa PRP subject to liability under CERCLA for contamination along roads in Iron,Dent and Reynolds counties in Missouri, along with a number of mining companiesinvolved in the transportation of concentrates. After a sampling of 678 housesby the U.S. EPA and the Missouri DNR, approximately 150 houses were identifiedas potentially requiring some level of remediation. Doe Run and four othermining companies have signed an AOC to conduct soil remediation atapproximately 40 of these houses. Recorded liabilities could change, due tochanges in management’s estimates of the number of houses requiringremediation, remediation methods, the costs of remediation and Doe Run’sapportionment of the costs.

 

Doe Run has been advised that the U.S. EPA isconsidering taking certain response actions at a mine site in Madison County,Missouri known as the Mine LaMotte Site. Doe Run and the owner of the other 50%share of stock in the company that mined the site have signed an AOC to conductan RI/FS at the site. This site is substantially smaller than the sites in St.Francois County where the Company has been named a PRP, and the potentialissues are less complex. Doe Run has also been advised that remediation isrequired at a related small satellite mine site. After conducting aninvestigation, Doe Run has determined that it was not involved in operations atthe satellite site, but further review will be required before a determinationcan be made as to whether it has any liability at the main site. At this time,based on preliminary information and an inspection of the sites, managementdoes not believe that any future action will result in a material adverse impactto the results of operations, financial condition or liquidity of the Company.

 

Doe Run’s recycling facility is subject to correctiveaction requirements under RCRA as a result of a storage permit for certainwastes issued in 1989. This will involve remediation of solid waste managementunits at the site and it is expected that the plan for corrective action willbe approved in fiscal 2005. The Company’s estimate of the cost of thiscorrective action is $2,000. The storage area is also covered under the permit,but management does not believe the cost of closure is material. 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.

 

On August 25,2004, the U.S. EPA issued a Notice of Violation (NOV) to the Company allegingpast violations of the recycling facility’s air permit conditions regardingproduction limits for its reverbatory furnace. Management believes the facilityhas operated in compliance with state and federal air requirements and hasobjected to the NOV. Consequently, management believes this issue will notcause a material adverse impact on the Company.

 

The domestic operating facilities have wastewaterdischarge permits issued under the federal Clean Water Act, as amended. Doe Runcurrently meets the effluent limits under these permits, but if compliance isnot maintained, additional improvements to its treatment facilities could berequired.

 

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#### ***ForeignOperations***

#### ** **

Doe Run Peru’s La Oroyaoperations historically and currently exceed some of the applicable Ministry ofEnergy and Mines (MEM) maximum permissible limits pertaining to air emissionsand wastewater effluent quality. The PAMA projects, which are more fullydiscussed below, have been designed to achieve compliance with theserequirements. The Peruvian government may, in the future, require compliancewith additional environmental regulations that could adversely affect Doe RunPeru’s business, financial condition and results of operations.

 

Metaloroya S.A., theformer owner of the La Oroya smelter, at the time a subsidiary of EmpresaMinera del Centro del Peru S.A. (Centromin), received approval from thePeruvian government for a PAMA that consisted of an environmental impactanalysis, monitoring plan and data, mitigation measures and closure plan. DoeRun Peru assumed the obligations under the PAMA. The PAMA also sets forth theactions and corresponding annual investments the concession holder agrees toundertake in order to achieve compliance with the maximum permissible limitsprior to expiration of the PAMA (ten years for smelters, such as Doe Run Peru’soperations in La Oroya, and five years for any other type of mining ormetallurgical operation like Cobriza). After expiration of the PAMA, theoperator must comply with all applicable standards and requirements. Becausethese costs improve the property or prevent future environmental contamination,they are capitalized.

 

Doe Run Peru hascommitted under its current approved PAMA to implement the following projectsat its La Oroya smelter through December 31, 2006:

 

•      Constructnew sulfuric acid plants;

•      Constructa treatment plant for the copper refinery effluent;

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

•      Improvethe slag handling system;

•      ImproveHuanchan lead and copper slag deposits;

•      Constructan arsenic trioxide deposit;

•      Improvethe zinc ferrite disposal site;

•      Constructdomestic wastewater treatment and domestic waste disposal; and

•      Constructa monitoring station.

 

An investment schedule in the PAMA provides aspecific plan for achieving the applicable MEM maximum permissible limitspertaining to air emissions and wastewater effluent quality. The PAMA may bemodified and amended as to the actual design and timing of projects to beimplemented, provided compliance with the applicable maximum permissible limitsis achieved by December 31, 2006. The required estimated annual spendingon a calendar year basis for the projects approved in the La Oroya PAMA, asamended, most recently on January 25, 2002, are as follows:

 

| **Year** | ** ** | **Estimated  Cost** | ** ** |
|----------|------------|---------------------|------------|
|     |       |                |       |
| 2005     |       | $                   | 53,500     |   |
| 2006     |       | 67,700              |       |
|     |       | $                   | 121,200    |   |

 

DoeRun Peru expects that it will not be able to comply with the spendingrequirements of La Oroya’s PAMA investment schedule in 2005 and 2006 withrespect to the construction of the sulfuric acid plants required by the PAMAand, as a result, could be subject to penalties. Failure to comply with thePAMA could result in the cessation of operations at the La Oroya smelter.

 

On December 29,2004 the Peruvian Government issued a Supreme Decree, which recognized thatexceptional circumstances may justify an extension of one or more projectswithin the scope of a PAMA. The Supreme Decree specifies that companies haveuntil December 31, 2005 to apply for an extension. The

 

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maximumextension is for three years and the MEM may authorize an additional year basedupon the results of a health risk study.

 

ThePeruvian Congress passed a law in April 2005 that included severalprovisions that could affect the administration’s ability to extend the PAMA,contrary to the Supreme Decree. The President of Peru objected to a provisionprohibiting extensions to projects within a PAMA and returned the bill to theCongress, where 61 votes out of the full congressional body of 120 memberscould override the objection. Current provisions being reconsidered by Congresswould require approval by CONAM, Peru’s environmental protection agency, beforeMEM may approve a request to extend the term of the PAMA. Management believesit is unlikely that the Congress will override the objection or that anyprovisions to which the President objected will remain in replacementlegislation.

 

Pursuant to the SupremeDecree, the application for a PAMA extension must be supported by a health riskstudy performed by a third party. The application must contain an engineeringdescription and funding plan of any project to be extended, a discussion of howand when environmental emission standards will be met, a plan to monitoremissions with the participation of the community, proof that at least threepublic workshops were held in various districts to provide information on DoeRun Peru’s financial situation and health programs, proof that two publichearings were held regarding the extension plans, and other financialinformation. Upon meeting these requirements, Doe Run Peru expects to apply forthe extension in October 2005.

 

Uponapproval of a modified PAMA, Doe Run Peru would be required to create a trustaccount to administer the receipts and disbursements related to the extendedPAMA. The Supreme Decree requires that receipts from sales be remitted monthlydirectly to the trust account, in an amount sufficient to fund the month’s cashrequirements of the extended PAMA. Such an arrangement is prohibited by the DoeRun Peru Revolving Credit Facility, which expires on September 23, 2005.Accordingly, any new or amended Doe Run Peru credit facility must comply withthe requirements established by the Supreme Decree, should Doe Run Peru’s PAMAbe extended.

 

TheSupreme Decree also requires that Doe Run Peru provide financial securitywithin 30 days of the approval of the PAMA extension in an amount equal to 20%of the projected cost of the project or projects to be extended. The Company currentlyexpects the overall investment required to build the sulfuric acid plants to beapproximately $113,900.

 

Doe Run Peru will performother environmental projects to reduce fugitive emissions, including heavymetal dust, to address the health issues of the community. As of July 31,2005, the estimated remaining total cost of the current PAMA projects,including the sulfuric acid plants construction, and these projects isapproximately $129,400.

 

Subjectto Doe Run Peru’s ability to provide the required financial security,management believes that Doe Run Peru will obtain an approval of an extensionto complete the sulfuric acid plants. There is no assurance, however, that DoeRun Peru will receive an extension, or, if it does, that the projects will be completedwithin the time limitation specified by the Supreme Decree. In addition, theCompany cannot assure that it will be successful in obtaining the necessaryfinancial security required.

 

The PAMA projects havebeen designed to achieve compliance with the maximum permissible limits ofemission prior to the expiration of the PAMA. No assurance can be given thatimplementation of the PAMA projects is feasible or that their implementationwill achieve compliance with the applicable legal requirements by the end ofthe PAMA period. Further, there can be no assurance that the Peruviangovernment will not in the future require compliance with additional ordifferent environmental obligations that could adversely affect Doe Run Peru’sbusiness, financial condition and results of operations.

 

Under the purchaseagreement related to the acquisition of the La Oroya assets in October 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 their apportioned share of

 

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any other complaintrelated to emissions. Performance of the indemnity has been guaranteed by thePeruvian government through the enactment of the Supreme Decree No. 042-97-PCM.However, there can be no assurance that Centromin will satisfy itsenvironmental obligations and investment requirements, including those in itsPAMA, or that the guarantee will be honored. Any failure by Centromin tosatisfy its environmental obligations could adversely affect Doe Run Peru’sbusiness, financial condition and results of operations.

 

The Cobriza mine has aseparate PAMA in which Doe Run Peru committed to complete projects to managetailings, mine drainage, sewage and garbage. Doe Run Peru completed its PAMArequirements in June 2004, ceased discharging mine waste into the MantaroRiver and is in compliance with the emissions standards required by the PAMA.

 

In addition to its PAMAobligations, Doe Run Peru is responsible for the remediation costs relating toa zinc ferrite disposal site. The current closure plan provides forencapsulating the ferrite residues in place at Huanchan, an area a shortdistance from the smelter where they are currently stored, for which anenvironmental liability of $1,600 has been recorded as of July 31, 2005and October 31, 2004.

 

***Consolidated***

 

The Company believes its reserves for domestic andforeign environmental, mine closure and reclamation matters are adequate, basedon the information currently available. Depending upon the type and extent ofactivities required, revisions to management’s estimates of costs to performthese activities are reasonably possible in the near term. Therefore, there canbe no assurance that additional costs, both individually and in the aggregate,would not have a material adverse effect on the results of operations,financial condition and liquidity of the Company.

 

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

 

Doe Run is a defendant in nine lawsuits alleging certaindamages stemming from the operations at the Herculaneum smelter. Three of thesecases are class action lawsuits. In two cases, the plaintiffs seek to havecertified a class of property owners in a certain section of Herculaneum,alleging that property values have been damaged due to the operations of thesmelter. In another case, plaintiffs seek to have certified a class of childrenwho lived in Herculaneum during a period of time when they were less than sixyears old and children born to mothers who lived in Herculaneum during theirpregnancies. The remedy sought is medical monitoring for the class. The trialcourt has denied class certification for the medical monitoring class, butgranted class certification for a property owner class subject to considerationof requests for clarification from the plaintiffs and defendants. Six of thecases are personal injury actions by 26 individuals who allege damages from theeffects of lead due to operations at the smelter. Punitive damages also arebeing sought in each case.

 

A resident of Herculaneumhas claimed personal injuries allegedly resulting from exposure to emissionsfrom the smelter. No suit has yet been filed in this matter.

 

Doe Run is a defendant in five lawsuits allegingcertain damages from discontinued mine facilities in St. Francois County. Fourof the cases are class action lawsuits. The first case seeks to have certifieda class consisting of property owners in Bonne Terre, Missouri, alleging thatproperty values have been damaged due to the tailings from the discontinuedoperations. In the second case plaintiffs seek to have certified a class ofchildren who lived, went to school or day care in Bonne Terre, or whose motherslived in Bonne Terre during their pregnancies. The third and fourth cases areclass actions for property damage and medical monitoring concerning allegeddamages caused by chat, tailings, and related operations in six areas in St.Francois County. The fifth case alleges personal injury to two children livingin St. Francois County.

 

DoeRun is a defendant in a lawsuit by the BNSF Railway Company who has allegedthat Doe Run and other companies associated with lead mining operations inMissouri are responsible for property damage at certain rail yards and forcontribution and indemnity for costs incurred by BNSF associated withsettlement by BNSF

 

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oflead exposure cases. The complaint against Doe Run indicates that materialliability is reasonably possible, but, given the early stage of this case,the Company is unable at this time to estimate the expected outcome and anyfinal costs of this action.

 

Doe Run is a defendant in three class action lawsuits and twopersonal injury lawsuits allegingcertain damages from past mining operations in Ottawa County, Oklahoma. Twoclass action lawsuits are for property damage and medical monitoring in thecities of Picher and Quapaw, Oklahoma. The third class action lawsuit is fordamages to natural resources and land owned by members of the Quapaw Tribe. Oneof the personal injury lawsuits, which was consolidated from five separatelawsuits, currently consists of claims against companies who mined lead andzinc in Ottawa County by seven child plaintiffs who allege personal injury fromexposure to chat and tailings. A second personal injury case was consolidatedfrom two separate cases and currently consists of claims against companies whomined lead and zinc in Ottawa County by 42 child plaintiffs who allege personalinjury from exposure to chat and tailings. The Company is unable at this timeto estimate the expected outcome and any final costs of these actions.

 

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

 

Doe Run has been named inan asbestos injury suit in the City of St. Louis by an individual against numerouscompanies and public entities, alleging that he was exposed to asbestos,including at the premises of the St. Joe Minerals Corporation (Doe Run’spredecessor). Doe Run was named in two similar suits filed in Madison County,Illinois, one alleging that a worker was exposed to asbestos at premises of theSt. Joe Minerals Corporation, and the other filed by a person who did laundryfor insulation workers in her family who were allegedly exposed to asbestos atDoe Run’s Herculaneum, Missouri facility. Doe Run was served a Writ of Summonsin a fourth case filed in Pennsylvania in May 2003.

 

Doe Run has been named asa party in various lawsuits relating to certain operations of its predecessor.Fluor Corporation, the owner of Doe Run’s predecessor, retained the obligationfor any costs of defense or claims relating 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 noreason at this time to believe that Fluor Corporation could not fulfill itscontractual obligations.

 

DoeRun Peru is a defendant in 155 lawsuits in the Lima, Peru labor courts wherebyworkers have alleged damages from industrial diseases. Doe Run Peru has madeclaims in most of the cases against Centromin and has also made claims againstboth governmental agencies and private companies that provide workers’insurance. The average claim is $18. Of nine concluded cases in this category,eight were dismissed and one resulted in a payment by Doe Run Peru of $9.

 

DoeRun Peru is also a defendant in 141 lawsuits by workers alleging that they areowed certain differences in salaries and benefits. The average claim is $25. Of26 concluded cases in this category, 23 were dismissed and three resulted in apayment by Doe Run Peru of $3. Doe Run Peru is also a defendant in a lawsuit bythe Yauli-La Oroya Employees Union concerning salariesand benefits. The claims of the 149 workers remaining inthe lawsuit total approximately $660.

 

On January 19,2005, Doe Run Peru was served with a lawsuit by an association ofmunicipalities of the Junin Region of Peru against Doe Run Peru and two othermining companies. This lawsuit alleges environmental damages to the MantaroRiver basin in the amount of $5.0 billion. Material liability to Doe Run Peruis believed to be remote because it is the opinion of management andoutside counsel for Doe Run Peru that the probability under Peruvianlaw of this case proceeding to a conclusion at the favor of the plaintiffsis low. Any potential judgment would be subject to the indemnificationobligations of Centromin, which are guaranteed by the Peruvian government.

 

Sincemost of the above cases are either in the pleading or discovery stages, theCompany is unable at this

 

18

----

 

timeto estimate the expected outcome and the final costs, except as noted, of theseactions. No amountshave been accrued as liabilities related to these actions. There can be noassurance that these cases would not have a material adverse effect, bothindividually and in the aggregate, on the results of operations, financialcondition and liquidity of the Company. The Company has and will continue tovigorously defend itself against such claims.

 

**(9)****                     SubsequentEvents**

 

*Litigation*

 

Lawyerscurrently involved in litigation against the Company in Missouri filed 31lawsuits on behalf of 159 plaintiffs in the Circuit Court for the City of St.Louis.  The lawsuits were filedimmediately preceding the August 28, 2005 deadline for a statutory changerestricting tort claim venues to the county where the plaintiff was firstinjured.

 

TheCompany is unable at this time to estimate the expected outcome and the finalcosts of these actions. No amounts have been accrued as liabilities related tothese actions. There can be no assurance that these cases would not have amaterial adverse effect, both individually and in the aggregate, on the resultsof operations, financial condition and liquidity of the Company. The Companyhas and will continue to vigorously defend itself against such claims.

 

*HurricaneKatrina*

 

TheCompany ships concentrates to customers overseas and receives coke fromsuppliers on barges that are processed in New Orleans. Should such shipments behindered by the recent hurricane, it could have a material impact on theresults of operations of the Company for the year ended October 31, 2005.

 

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

 

The GuarantorSubsidiaries (Fabricated Products, Inc. (FPI) and DR Land Holdings, LLC(together, the Domestic Guarantors), Buick Resource Recycling Facility, LLC,Doe Run Cayman Ltd. (Doe Run Cayman) and its subsidiary Doe Run Peru) havejointly and severally, fully, unconditionally and irrevocably guaranteed the11.75% Notes of the Company. Doe Run Cayman has no operations separate fromthose of Doe Run Peru. Separate financial statements and other disclosuresconcerning certain Guarantor Subsidiaries and disclosures concerningnon-Guarantor Subsidiaries have not been presented because management hasdetermined that such information is not material to investors. Intercompanytransactions eliminated in consolidation consist of various service and agencyfees between Doe Run and Doe Run Peru and sales of metal to Doe Run by Doe RunPeru and to FPI by Doe Run.

 

19

----

 

**(10)  Guarantor Subsidiaries (Continued)**

 

**Condensed Consolidating Balance Sheet (unaudited)**

**As of July 31, 2005**

 
| ** **                                                                                 | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Other  Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                                       |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| **ASSETS**                                                                                 | ** ** |
| Current assets:                                                                            |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| Cash                                                                                       |       | $                                                   | 3,328      |                                          | $          | —                          |       | $                                   | 1          |             | $          | 13,199           |       | $ | — |   | $ | 16,528 |   |
| Trade accounts receivable, net of allowance for doubtful  accounts                         |       | 40,549                                              |       | —                                        |       | 2,251                           |       | 25,629                              |       | (607             | )          | 67,822           |       |
| Inventories                                                                                |       | 42,128                                              |       | —                                        |       | 1,160                           |       | 77,206                              |       | (53              | )          | 120,441          |       |
| Prepaid expenses and other current assets                                                  |       | 7,835                                               |       | —                                        |       | 10                              |       | 16,021                              |       | —           |       | 23,866           |       |
| Due from subsidiaries/parent                                                               |       | 151,473                                             |       | 1,815                                         |       | —                          |       | —                              |       | (153,288         | )          | —           |       |
| Total current assets                                                                       |       | 245,313                                             |       | 1,815                                         |       | 3,422                           |       | 132,055                             |       | (153,948         | )          | 228,657          |       |
| Property, plant and equipment, net                                                         |       | 72,642                                              |       | 15,760                                        |       | 1,092                           |       | 157,574                             |       | —           |       | 247,068          |       |
| Due from subsidiaries                                                                      |       | 14,432                                              |       | —                                        |       | —                          |       | —                              |       | (14,432          | )          | —           |       |
| Other noncurrent assets, net                                                               |       | 6,014                                               |       | —                                        |       | 63                              |       | 22                                  |       | —           |       | 6,099            |       |
| Investment in subsidiaries                                                                 |       | 6,019                                               |       | —                                        |       | —                          |       | —                              |       | (6,019           | )          | —           |       |
| Total assets                                                                               |       | $                                                   | 344,420    |                                          | $          | 17,575                          |       | $                                   | 4,577      |             | $          | 289,651          |       | $ | (174,399 | ) | $ | 481,824 |   |
|                                                                                       |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY (DEFICIT)**                                   | ** ** |
| Current liabilities:                                                                       |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| Current maturities of long-term debt                                                       |       | $                                                   | 48,301     |                                          | $          | —                          |       | $                                   | —     |             | $          | 39,820           |       | $ | — |   | $ | 88,121 |   |
| Accounts payable                                                                           |       | 24,058                                              |       | —                                        |       | 403                             |       | 65,210                              |       | (607             | )          | 89,064           |       |
| Accrued liabilities                                                                        |       | 46,577                                              |       | —                                        |       | 470                             |       | 30,089                              |       | —           |       | 77,136           |       |
| Due to parent/subsidiaries                                                                 |       | 1,815                                               |       | —                                        |       | 8,410                           |       | 143,063                             |       | (153,288         | )          | —           |       |
| Total current liabilities                                                                  |       | 120,751                                             |       | —                                        |       | 9,283                           |       | 278,182                             |       | (153,895         | )          | 254,321          |       |
|                                                                                       |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| Long-term debt, less current maturities                                                    |       | 299,465                                             |       | —                                        |       | —                          |       | 12                                  |       | —           |       | 299,477          |       |
| Due to parent                                                                              |       | —                                              |       | —                                        |       | —                          |       | 14,432                              |       | (14,432          | )          | —           |       |
| Other noncurrent liabilities                                                               |       | 75,481                                              |       | —                                        |       | 369                             |       | 3,453                               |       | —           |       | 79,303           |       |
| Total liabilities                                                                          |       | 495,697                                             |       | —                                        |       | 9,652                           |       | 296,079                             |       | (168,327         | )          | 633,101          |       |
|                                                                                       |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| Series A redeemable preferred stock                                                   |       | 27,704                                              |       | —                                        |       | —                          |       | —                              |       | —           |       | 27,704           |       |
|                                                                                       |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| 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                                                                 |       | —                                              |       | 22,268                                        |       | 1,205                           |       | —                              |       | (23,473          | )          | —           |       |
| Retained earnings (accumulated deficit) and  accumulated other comprehensive losses        |       | (178,981                                            | )          | (4,693                                        | )          | (6,281                          | )          | (8,433                              | )          | 19,407           |       | (178,981         | )          |
| Total shareholders’ equity (deficit)                                                  |       | (178,981                                            | )          | 17,575                                        |       | (5,075                          | )          | (6,428                              | )          | (6,072           | )          | (178,981         | )          |
| Total liabilities and shareholders’ equity (deficit)                                  |       | $                                                   | 344,420    |                                          | $          | 17,575                          |       | $                                   | 4,577      |             | $          | 289,651          |       | $ | (174,399 | ) | $ | 481,824 |   |

 

20

----

 

**(10)  Guarantor Subsidiaries (Continued)**

 

**Condensed Consolidating Balance Sheet**

**As of October 31, 2004**

 
| ** **                                                                                  | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Other  Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                                        |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| **ASSETS**                                                                                  | ** ** |
| Current assets:                                                                             |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| Cash                                                                                        |       | $                                                   | 13,412     |                                          | $          | —                          |       | $                                   | 1          |             | $          | 6,905            |       | $ | — |   | 20,318 |   |
| Trade accounts receivable, net of allowance for doubtful  accounts                          |       | 42,269                                              |       | —                                        |       | 1,942                           |       | 22,217                              |       | (2,209           | )          | 64,219           |       |
| Inventories                                                                                 |       | 36,359                                              |       | —                                        |       | 1,130                           |       | 65,876                              |       | (56              | )          | 103,309          |       |
| Prepaid expenses and other current assets                                                   |       | 19,898                                              |       | —                                        |       | 59                              |       | 15,901                              |       | —           |       | 35,858           |       |
| Due from subsidiaries/parent                                                                |       | 11,998                                              |       | 1,162                                         |       | —                          |       | —                              |       | (13,160          | )          | —           |       |
| Total current assets                                                                        |       | 123,936                                             |       | 1,162                                         |       | 3,132                           |       | 110,899                             |       | (15,425          | )          | 223,704          |       |
| Property, plant and equipment, net                                                          |       | 72,716                                              |       | 14,739                                        |       | 1,442                           |       | 140,743                             |       | —           |       | 229,640          |       |
| Due from subsidiaries                                                                       |       | 156,495                                             |       | —                                        |       | —                          |       | —                              |       | (156,495         | )          | —           |       |
| Other noncurrent assets, net                                                                |       | 3,890                                               |       | —                                        |       | 63                              |       | 122                                 |       | —           |       | 4,075            |       |
| Investment in subsidiaries                                                                  |       | (12,647                                             | )          | —                                        |       | —                          |       | —                              |       | 12,647           |       | —           |       |
| Total assets                                                                                |       | $                                                   | 344,390    |                                          | $          | 15,901                          |       | $                                   | 4,637      |             | $          | 251,764          |       | $ | (159,273 | ) | 457,419 |   |
|                                                                                        |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY (DEFICIT)**                                    | ** ** |
| Current liabilities:                                                                        |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| Current maturities of long-term debt                                                        |       | $                                                   | 57,367     |                                          | $          | —                          |       | $                                   | —     |             | $          | 39,400           |       | $ | — |   | 96,767 |   |
| Accounts payable                                                                            |       | 23,310                                              |       | —                                        |       | 662                             |       | 44,092                              |       | (2,209           | )          | 65,855           |       |
| Accrued liabilities                                                                         |       | 55,625                                              |       | —                                        |       | 1,054                           |       | 27,199                              |       | —           |       | 83,878           |       |
| Due to parent/subsidiaries                                                                  |       | 1,162                                               |       | —                                        |       | 7,998                           |       | 143,063                             |       | (152,223         | )          | —           |       |
| Total current liabilities                                                                   |       | 137,464                                             |       | —                                        |       | 9,714                           |       | 253,754                             |       | (154,432         | )          | 246,500          |       |
|                                                                                        |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| Long-term debt, less current maturities                                                     |       | 320,561                                             |       | —                                        |       | —                          |       | —                              |       | —           |       | 320,561          |       |
| Due to parent                                                                               |       | —                                              |       | —                                        |       | —                          |       | 17,432                              |       | (17,432          | )          | —           |       |
| Other noncurrent liabilities                                                                |       | 71,772                                              |       | —                                        |       | 533                             |       | 3,460                               |       | —           |       | 75,765           |       |
| Total liabilities                                                                           |       | 529,797                                             |       | —                                        |       | 10,247                          |       | 274,646                             |       | (171,864         | )          | 642,826          |       |
|                                                                                        |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| Series A redeemable preferred stock                                                    |       | 25,329                                              |       | —                                        |       | —                          |       | —                              |       | —           |       | 25,329           |       |
|                                                                                        |       |                                                |       |                                          |       |                            |       |                                |       |             |       |             |       |
| 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                                                                  |       | —                                              |       | 19,348                                        |       | 1,205                           |       | —                              |       | (20,553          | )          | —           |       |
| Retained earnings (accumulated deficit) and  accumulated other comprehensive losses         |       | (210,736                                            | )          | (3,447                                        | )          | (6,816                          | )          | (24,887                             | )          | 35,150           |       | (210,736         | )          |
| Total shareholders’ equity (deficit)                                                   |       | (210,736                                            | )          | 15,901                                        |       | (5,610                          | )          | (22,882                             | )          | 12,591           |       | (210,736         | )          |
| Total liabilities and shareholders’ equity (deficit)                                   |       | $                                                   | 344,390    |                                          | $          | 15,901                          |       | $                                   | 4,637      |             | $          | 251,764          |       | $ | (159,273 | ) | 457,419 |   |

 

21

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**(10)  Guarantor Subsidiaries (Continued)**

 

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

**Nine Months Ended July 31, 2005**

 
| ** **                                   | ** ** | **The Company   Excluding  Guarantor  Subsidiaries** | ** ** | **Buick   Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and   Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|--------------------------|------------|--------------------------------------|------------|------------------|------------|------------------|------------|
|                                         |       |                                                 |       |                                           |       |                     |       |                                 |       |             |       |             |       |
| Net sales                                    |       | $                                                    | 253,621    |                                           | $          | —                   |       | $                                    | 10,338     |             | $          | 480,722          |       | $ | (4,533 | ) | $ | 740,148 |   |
|                                         |       |                                                 |       |                                           |       |                     |       |                                 |       |             |       |             |       |
| Costs and expenses:                          |       |                                                 |       |                                           |       |                     |       |                                 |       |             |       |             |       |
| Cost of sales                                |       | 201,569                                              |       | —                                         |       | 7,589                    |       | 440,609                              |       | (4,536           | )          | 645,231          |       |
| Depletion, depreciation and amortization     |       | 6,685                                                |       | 1,899                                          |       | 327                      |       | 9,300                                |       | —           |       | 18,211           |       |
| Selling, general and administrative          |       | 20,551                                               |       | —                                         |       | 1,851                    |       | 12,948                               |       | —           |       | 35,350           |       |
| Unrealized (gain) loss on derivatives        |       | (4,425                                               | )          | —                                         |       | —                   |       | 569                                  |       | —           |       | (3,856           | )          |
| Other                                        |       | 3,711                                                |       | 29                                             |       | 152                      |       | 137                                  |       | —           |       | 4,029            |       |
| Total costs and expenses                     |       | 228,091                                              |       | 1,928                                          |       | 9,919                    |       | 463,563                              |       | (4,536           | )          | 698,965          |       |
|                                         |       |                                                 |       |                                           |       |                     |       |                                 |       |             |       |             |       |
| Income (loss) from operations                |       | 25,530                                               |       | (1,928                                         | )          | 419                      |       | 17,159                               |       | 3                |       | 41,183           |       |
|                                         |       |                                                 |       |                                           |       |                     |       |                                 |       |             |       |             |       |
| Other income (expense):                      |       |                                                 |       |                                           |       |                     |       |                                 |       |             |       |             |       |
| Interest expense, net                        |       | (6,495                                               | )          | —                                         |       | (461                     | )          | (1,754                               | )          | —           |       | (8,710           | )          |
| Other, net                                   |       | (527                                                 | )          | 681                                            |       | 9                        |       | 1,049                                |       | —           |       | 1,212            |       |
| Equity in earnings of subsidiaries           |       | 15,177                                               |       | —                                         |       | —                   |       | —                               |       | (15,177          | )          | —           |       |
|                                         |       | 8,155                                                |       | 681                                            |       | (452                     | )          | (705                                 | )          | (15,177          | )          | (7,498           | )          |
|                                         |       |                                                 |       |                                           |       |                     |       |                                 |       |             |       |             |       |
| 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 |   |

 

22

----

 

**(10)  Guarantor Subsidiaries (Continued)**

 

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

**Three Months Ended July 31, 2005**

 
| ** **                                   | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net sales                                    |       | $                                                   | 82,934     |                                          | $          | —                   |       | $                                   | 3,137      |             | $          | 171,956          |       | $ | (918 | ) | $ | 257,109 |   |
|                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Costs and expenses:                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cost of sales                                |       | 70,860                                              |       | —                                        |       | 2,349                    |       | 155,599                             |       | (908             | )          | 227,900          |       |
| Depletion, depreciation and amortization     |       | 2,152                                               |       | 643                                           |       | 118                      |       | 3,397                               |       | —           |       | 6,310            |       |
| Selling, general and administrative          |       | 7,920                                               |       | —                                        |       | 649                      |       | 4,340                               |       | —           |       | 12,909           |       |
| Unrealized (gain) loss on derivatives        |       | (2,933                                              | )          | —                                        |       | —                   |       | 338                                 |       | —           |       | (2,595           | )          |
| Other                                        |       | 871                                                 |       | —                                        |       | —                   |       | —                              |       | —           |       | 871              |       |
| Total costs and expenses                     |       | 78,870                                              |       | 643                                           |       | 3,116                    |       | 163,674                             |       | (908             | )          | 245,395          |       |
|                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income (loss) from operations                |       | 4,064                                               |       | (643                                          | )          | 21                       |       | 8,282                               |       | (10              | )          | 11,714           |       |
|                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Other income (expense):                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Interest expense, net                        |       | (1,288                                              | )          | —                                        |       | (147                     | )          | (520                                | )          | —           |       | (1,955           | )          |
| Other, net                                   |       | (89                                                 | )          | 235                                           |       | 7                        |       | 420                                 |       | —           |       | 573              |       |
| Equity in earnings of subsidiaries           |       | 7,645                                               |       | —                                        |       | —                   |       | —                              |       | (7,645           | )          | —           |       |
|                                         |       | 6,268                                               |       | 235                                           |       | (140                     | )          | (100                                | )          | (7,645           | )          | (1,382           | )          |
|                                         |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| 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 |   |

 

23

----

 

**(10)  Guarantor Subsidiaries (Continued)**

 

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

**Nine Months Ended July 31, 2004**

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

 

24

----

 

**(10)  Guarantor Subsidiaries (Continued)**

 

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

**Three Months Ended July 31, 2004**

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

 

25

----

 

**(10)  Guarantor Subsidiaries (Continued)**

 

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

**Nine Months Ended July 31, 2005**

 
| ** **                                          | ** ** | **The Company   Excluding   Guarantor   Subsidiaries** | ** ** | **Buick   Resource   Recycling   Facility, LLC** | ** ** | **Domestic   Guarantors** | ** ** | **Doe Run   Cayman and   Subsidiary** | ** ** | **Eliminations** | ** ** | **The   Company** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------|------------|---------------------------------------|------------|------------------|------------|-------------------|------------|
|                                                |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Net cash provided by (used in) operating activities |       | $                                                      | 45,346     |                                             | $          | 653                       |       | $                                     | (71        | )                | $          | 35,067            |       | $ | (17,204 | ) | $ | 63,791 |   |
|                                                |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Cash flows from investing activities:               |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Purchases of property, plant and equipment          |       | (11,596                                                | )          | —                                           |       | (130                      | )          | (26,152                               | )          | —           |       | (37,878           | )          |
| Net proceeds from disposal of assets                |       | 42                                                     |       | —                                           |       | 1                         |       | —                                |       | —           |       | 43                |       |
| Net proceeds from sales of investments              |       | 469                                                    |       | —                                           |       | —                    |       | —                                |       | —           |       | 469               |       |
| Investment in subsidiaries                          |       | (17,204                                                | )          | —                                           |       | —                    |       | —                                |       | 17,204           |       | —            |       |
| Net cash provided by (used in) investing activities |       | (28,289                                                | )          | —                                           |       | (129                      | )          | (26,152                               | )          | 17,204           |       | (37,366           | )          |
|                                                |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Cash flows from financing activities:               |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Proceeds from (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              | )          |
| Due to/due from parent/subsdiaries                  |       | 3,453                                                  |       | (653                                             | )          | 200                       |       | (3,000                                | )          | —           |       | —            |       |
| Net cash provided by (used in) financing activities |       | (27,141                                                | )          | (653                                             | )          | 200                       |       | (2,621                                | )          | —           |       | (30,215           | )          |
|                                                |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Net increase (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

----

 

**(10)  Guarantor Subsidiaries (Continued)**

 

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

**Nine Months Ended July 31, 2004**

 
| ** **                                          | ** ** | **The Company   Excluding   Guarantor   Subsidiaries** | ** ** | **Buick   Resource   Recycling   Facility, LLC** | ** ** | **Domestic   Guarantors** | ** ** | **Doe Run   Cayman and   Subsidiary** | ** ** | **Eliminations** | ** ** | **The   Company** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------|------------|---------------------------------------|------------|------------------|------------|-------------------|------------|
|                                                |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Net cash provided by (used in) operating activities |       | $                                                      | 14,717     |                                             | $          | 601                       |       | $                                     | (595       | )                | $          | (6,301            | )          | $ | (828 | ) | $ | 7,594 |   |
|                                                |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Cash flows from investing activities:               |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Purchases of property, plant and equipment          |       | (7,917                                                 | )          | —                                           |       | —                    |       | (8,900                                | )          | —           |       | (16,817           | )          |
| Investment in subsidiaries                          |       | (828                                                   | )          | —                                           |       | —                    |       | —                                |       | 828              |       | —            |       |
| Net cash used in investing activities               |       | (8,745                                                 | )          | —                                           |       | —                    |       | (8,900                                | )          | 828              |       | (16,817           | )          |
|                                                |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Cash flows from financing activities:               |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Proceeds from (payments on) revolving loans, net    |       | (1,086                                                 | )          | —                                           |       | —                    |       | 2,000                                 |       | —           |       | 914               |       |
| Payments on long-term debt                          |       | (828                                                   | )          | —                                           |       | —                    |       | (1,559                                | )          | —           |       | (2,387            | )          |
| Due to/due from parent/subsdiaries                  |       | (4,058                                                 | )          | (601                                             | )          | 595                       |       | 4,064                                 |       | —           |       | —            |       |
| Net cash provided by (used in) financing activities |       | (5,972                                                 | )          | (601                                             | )          | 595                       |       | 4,505                                 |       | —           |       | (1,473            | )          |
|                                                |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Net decrease in cash                                |       | —                                                 |       | —                                           |       | —                    |       | (10,696                               | )          | —           |       | (10,696           | )          |
|                                                |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Cash at beginning of period                         |       | —                                                 |       | —                                           |       | —                    |       | 16,794                                |       | —           |       | 16,794            |       |
| Cash at end of period                               |       | $                                                      | —     |                                             | $          | —                    |       | $                                     | —     |             | $          | 6,098             |       | $ | — |   | $ | 6,098 |   |

 

27

----

 

**DOE RUN PERU S.R.L.**

**Condensed Balance Sheets**

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

 
| ** **                                                         | ** ** | **July 31,  2005** | ** ** | **October 31,  2004** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                                         | ** ** | **(unaudited)**         | ** ** | ** **                 | ** ** |
| **ASSETS**                                                         |       |                    |       |                       |       |
| Current assets:                                                    |       |                    |       |                       |       |
| Cash                                                               |       | $                       | 13,199     |                       | $          | 6,905 |   |
| Trade accounts receivable, net of allowance for  doubtful accounts |       | 25,629                  |       | 22,217                     |       |
| Inventories                                                        |       | 77,206                  |       | 65,876                     |       |
| Prepaid expenses and other current assets                          |       | 16,021                  |       | 15,901                     |       |
| Total current assets                                               |       | 132,055                 |       | 110,899                    |       |
|                                                               |       |                    |       |                       |       |
| Property, plant and equipment, net                                 |       | 157,574                 |       | 140,743                    |       |
| Other noncurrent assets, net                                       |       | 22                      |       | 122                        |       |
| Total assets                                                       |       | $                       | 289,651    |                       | $          | 251,764 |   |
|                                                               |       |                    |       |                       |       |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIT**                     | ** ** | ** **              | ** ** | ** **                 | ** ** |
| Current liabilities:                                               |       |                    |       |                       |       |
| Current maturities of long-term debt                               |       | $                       | 39,820     |                       | $          | 39,400 |   |
| Accounts payable                                                   |       | 65,210                  |       | 44,092                     |       |
| Accrued liabilities                                                |       | 30,089                  |       | 27,199                     |       |
| Due to related parties                                             |       | 143,063                 |       | 143,063                    |       |
| Total current liabilities                                          |       | 278,182                 |       | 253,754                    |       |
|                                                               |       |                    |       |                       |       |
| Long-term debt, less current maturities                            |       | 12                      |       | —                     |       |
| Due to parent company and related parties                          |       | 14,432                  |       | 17,432                     |       |
| Other noncurrent liabilities                                       |       | 3,453                   |       | 3,460                      |       |
| Total liabilities                                                  |       | 296,079                 |       | 274,646                    |       |
|                                                               |       |                    |       |                       |       |
| Shareholders’ deficit:                                        |       |                    |       |                       |       |
| Capital stock, $0.01 par value, 15,912,083,739  shares, fully paid |       | 2,005                   |       | 2,005                      |       |
| Accumulated deficit and other comprehensive loss                   |       | (8,433                  | )          | (24,887                    | )          |
| Total shareholders’ deficit                                   |       | (6,428                  | )          | (22,882                    | )          |
| Total liabilities and shareholders’ deficit                   |       | $                       | 289,651    |                       | $          | 251,764 |   |

 

The accompanying notes are an integral part of thesecondensed financial statements.

 

28

----

 

**DOE RUN PERU S.R.L.**

**Condensed Statements of Operations (unaudited)**

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

 
| ** **                               | ** ** | **Three Months  Ended July 31,** | ** ** | **Nine Months  Ended July 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                               | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| * *                                 | * *   | * *                              | * *   | * *                             | * *   | * * | * * | * * | * * |
| Net sales                                |       | $                                     | 171,956    |                                 | $          | 146,366 |   | $ | 480,722 |   | $ | 417,452 |   |
|                                     |       |                                  |       |                                 |       |   |   |   |   |
| Costs and expenses:                      |       |                                  |       |                                 |       |   |   |   |   |
| Cost of sales                            |       | 155,599                               |       | 133,613                              |       | 440,609 |   | 388,347 |   |
| Depletion, depreciation and amortization |       | 3,397                                 |       | 3,055                                |       | 9,300 |   | 8,844 |   |
| Fees and commissions to related parties  |       | —                                |       | 3,119                                |       | — |   | 5,775 |   |
| Selling, general and administrative      |       | 4,340                                 |       | 1,661                                |       | 12,948 |   | 10,303 |   |
| Unrealized (gain) loss on derivatives    |       | 338                                   |       | 304                                  |       | 569 |   | (11 | ) |
| Other                                    |       | —                                |       | 7                                    |       | 137 |   | 11 |   |
| Total costs and expenses                 |       | 163,674                               |       | 141,759                              |       | 463,563 |   | 413,269 |   |
|                                     |       |                                  |       |                                 |       |   |   |   |   |
| Income from operations                   |       | 8,282                                 |       | 4,607                                |       | 17,159 |   | 4,183 |   |
|                                     |       |                                  |       |                                 |       |   |   |   |   |
| Other income (expense):                  |       |                                  |       |                                 |       |   |   |   |   |
| Interest expense, net                    |       | (520                                  | )          | (417                                 | )          | (1,754 | ) | (1,537 | ) |
| Other, net                               |       | 420                                   |       | (187                                 | )          | 1,049 |   | (673 | ) |
|                                     |       | (100                                  | )          | (604                                 | )          | (705 | ) | (2,210 | ) |
| Income before income tax expense         |       | 8,182                                 |       | 4,003                                |       | 16,454 |   | 1,973 |   |
|                                     |       |                                  |       |                                 |       |   |   |   |   |
| Income tax expense                       |       | —                                |       | —                               |       | — |   | — |   |
|                                     |       |                                  |       |                                 |       |   |   |   |   |
| Net income                               |       | $                                     | 8,182      |                                 | $          | 4,003 |   | $ | 16,454 |   | $ | 1,973 |   |

 

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

 

29

----

 

**DOE RUN PERU S.R.L.**

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

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

 
| ** **                                           | ** ** | **Nine Months   Ended July 31,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                           | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| * *                                             | * *   | * *                              | * *   | * * | * * |
| Net cash provided by (used in) operating activities  |       | $                                     | 35,067     |   | $ | (6,301 | ) |
|                                                 |       |                                  |       |   |   |
| Cash flows from investing activities:                |       |                                  |       |   |   |
| Purchases of property, plant and equipment           |       | (26,152                               | )          | (8,900 | ) |
| Net cash used in investing activities                |       | (26,152                               | )          | (8,900 | ) |
|                                                 |       |                                  |       |   |   |
| Cash flows from financing activities:                |       |                                  |       |   |   |
| Proceeds from revolving loans, net                   |       | 400                                   |       | 2,000 |   |
| Payments on long-term debt                           |       | (21                                   | )          | (1,559 | ) |
| Increase (decrease) in amount due to related parties |       | (3,000                                | )          | 4,064 |   |
| Net cash provided by (used in) financing activities  |       | (2,621                                | )          | 4,505 |   |
|                                                 |       |                                  |       |   |   |
| Net increase (decrease) in cash                      |       | 6,294                                 |       | (10,696 | ) |
|                                                 |       |                                  |       |   |   |
| Cash at beginning of period                          |       | 6,905                                 |       | 16,794 |   |
| Cash at end of period                                |       | $                                     | 13,199     |   | $ | 6,098 |   |

 

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

 

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**DOE RUN PERU S.R.L.**

 

**Notes to Financial Statements(U.S. dollars in thousands)**

 

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

 

***Unaudited Interim Financial Statements***

 

These interim financial statements include theaccounts of Doe Run Peru S.R.L. (Doe Run Peru or the Company). In the opinion ofmanagement, the interim financial statements contain all adjustments,consisting of normal recurring accruals, necessary to present fairly thefinancial position as of July 31, 2005 and results of operations for thethree and nine-month periods ended July 31, 2005 and 2004. Interim periodsare not necessarily indicative of results to be expected for the year.

 

**(2)****                     Inventories**

 

Inventoriesconsist of the following:

 
| ** **                           | ** ** | **July 31,  2005** | ** ** | **October 31,  2004** | ** ** |
|--------------------------------------|------------|-------------------------|------------|----------------------------|------------|
|                                 |       |                    |       |                       |       |
| Finished metals and concentrates     |       | $                       | 8,970      |                       | $          | 8,356 |   |
| Metals and concentrates in process   |       | 53,948                  |       | 44,523                     |       |
| Materials, supplies and repair parts |       | 14,288                  |       | 12,997                     |       |
|                                 |       | $                       | 77,206     |                       | $          | 65,876 |   |

 

Materials,supplies and repair parts are stated net of reserves for obsolescence ofapproximately $771 and $1,436 at July 31, 2005 and October 31, 2004,respectively.

 

**(3)****                     IncomeTaxes**

 

Doe Run Peru hasreceived income tax assessments from Peru’s tax authority, SUNAT for tax years1998 through 2001. The assessments primarily relate to Doe Run Peru’s incometax treatment of the December 1997 merger of Doe Run Peru and MetaloroyaS.A., which was purchased by Doe Run Peru in October 1997, and its effectson subsequent years’ taxable income. Under the assessment by SUNAT, the taxbasis of Doe Run Peru’s fixed assets acquired would decrease, resulting inlower tax depreciation expense than originally claimed. The assessed amountsconsisting of additional income taxes due, penalties and interest totalapproximately $108,800.

 

The Companyestimates that the effect of a similar assessment for tax years after 2001consisting of additional income taxes due, penalties and interest would beapproximately $8,000.

 

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 $7,400 for tax years1998 through 2004.

 

Doe Run Peru hasalso received Value-Added Tax (VAT) assessments for the tax years 1999 through2001 and for the period from January through July 2004. Theassessments primarily relate to Doe Run Peru’s exports with holdingcertificates and differences in a tax credit application. The total assessmentfor these periods was approximately $43,400. SUNAT offset the amount assessed for2004 of approximately $2,300 against Doe Run Peru’s VAT receivable balance fromJuly 2004. The Company discontinued use of holding certificates in May2004. Future VAT reimbursements cannot be used to offset the assessment bySUNAT. The Company estimates expected additional assessments related to VAT fortax years 2002 and 2003 to total approximately $20,100 in regard to its exportswith holding certificates.

 

Managementof the Company believes that in each case Doe Run Peru has followed theapplicable Peruvian tax statutes and intends to pursue all availableadministrative and judicial appeals. Doe Run Peru is not required to make any payments pending theadministrative 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. No amounts have beenaccrued as liabilities related to these actions.

 

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

 

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

#### ** **

Asset retirementobligations (AROs) are recognized as liabilities when incurred, with theinitial measurement at fair value. These liabilities will be increased to fullvalue over time through charges of accretion to operating expense. In addition,an asset retirement cost is capitalized as part of the related asset’s carryingvalue and will be depreciated over the asset’s useful life. Changes in the AROliability resulting from revisions to the timing or the amount of the originalestimate of undiscounted cash flows shall be 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 Peru has AROs at its Cobriza mine related tothe costs associated with closing the mine openings and covering acid rock. DoeRun Peru is also responsible for the covering and revegetation of mixed leadand copper slag stored in Huanchan, an area a short distance from the smelterwhere the slag is currently stored.

 

The Company’s total recorded liability for AROs wasapproximately $1,900 as of July 31, 2005 and October 31, 2004.

 

#### ***EnvironmentalRemediation***

#### ** **

Doe Run Peru’s La Oroyaoperations historically and currently exceed some of the applicable Ministry ofEnergy and Mines (MEM) maximum permissible limits pertaining to air emissionsand wastewater effluent quality. The PAMA projects, which are more fullydiscussed below, have been designed to achieve compliance with theserequirements. The Peruvian government may, in the future, require compliancewith additional environmental regulations that could adversely affect Doe RunPeru’s business, financial condition and results of operations.

 

Metaloroya S.A., theformer owner of the La Oroya smelter, at the time a subsidiary of EmpresaMinera del Centro del Peru S.A. (Centromin), receivedapproval from the Peruvian government for a PAMA that consisted of anenvironmental impact analysis, monitoring plan and data, mitigation measuresand closure plan. Doe Run Peru assumed the obligations under the PAMA. The PAMAalso sets forth the actions and corresponding annual investments the concessionholder agrees to undertake in order to achieve compliance with the maximumpermissible limits prior to expiration of the PAMA (ten years for smelters,such as Doe Run Peru’s operations in La Oroya, and five years for any othertype of mining or metallurgical operation like Cobriza). After expiration of thePAMA, the operator must comply with all applicable standards and requirements.Because these costs improve the property or prevent future environmentalcontamination, they are capitalized.

 

Doe Run Peru hascommitted under its current approved PAMA to implement the following projectsat its La Oroya smelter through December 31, 2006:

 

•      Constructnew sulfuric acid plants;

•      Constructa treatment plant for the copper refinery effluent;

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

•      Improvethe slag handling system;

•      ImproveHuanchan lead and copper slag deposits;

•      Constructan arsenic trioxide deposit;

•      Improvethe zinc ferrite disposal site;

•      Constructa domestic wastewater treatment and domestic waste disposal; and

•      Constructa monitoring station.

 

An investment schedule in the PAMA provides aspecific plan for achieving the applicable MEM maximum permissible limitspertaining to air emissions and wastewater effluent quality. The PAMA may bemodified and amended as to the actual design and timing of projects to beimplemented, provided compliance with the applicable maximum permissible limitsis achieved by December 31, 2006. The required estimated

 

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

 

| **Year** | ** ** | **Estimated  Cost** | ** ** |
|----------|------------|---------------------|------------|
|     |       |                |       |
| 2005     |       | $                   | 53,500     |   |
| 2006     |       | 67,700              |       |
|     |       | $                   | 121,200    |   |

 

DoeRun Peru expects that it will not be able to comply with the spendingrequirements of La Oroya’s PAMA investment schedule in 2005 and 2006 withrespect to the construction of the sulfuric acid plants required by the PAMAand, as a result, could be subject to penalties. Failure to comply with thePAMA could result in the cessation of operations at the La Oroya smelter.

 

On December 29,2004 the Peruvian Government issued a supreme decree (Supreme Decree), whichrecognized that exceptional circumstances may justify an extension of one ormore projects within the scope of a PAMA. The Supreme Decree specifies thatcompanies have until December 31, 2005 to apply for an extension. Themaximum extension is for three years and the MEM may authorize an additionalyear based upon the results of a health risk study.

 

ThePeruvian Congress passed a law in April 2005 that included severalprovisions that could affect the administration’s ability to extend the PAMA,contrary to the Supreme Decree. The President of Peru objected to a provisionprohibiting extensions to projects within a PAMA and returned the bill to theCongress, where 61 votes out of the full congressional body of 120 memberscould override the objection. Current provisions being reconsidered by Congresswould require approval by CONAM, Peru’s environmental protection agency, beforeMEM may approve a request to extend the term of the PAMA. Management believesit is unlikely that the Congress will override the objection or that anyprovisions to which the President objected will remain in replacementlegislation.

 

Pursuant to the SupremeDecree, the application for a PAMA extension must be supported by a health riskstudy performed by a third party. The application must contain an engineeringdescription and funding plan of any project to be extended, a discussion of howand when environmental emission standards will be met, a plan to monitoremissions with the participation of the community, proof that at least threepublic workshops were held in various districts to provide information on Doe RunPeru’s financial situation and health programs, proof that two public hearingswere held regarding the extension plans, and other financial information. Uponmeeting these requirements, Doe Run Peru does not expect to apply for theextension until October 2005.

 

Uponapproval of a modified PAMA, Doe Run Peru would be required to create a trustaccount to administer the receipts and disbursements related to the extendedPAMA. The Supreme Decree requires that receipts from sales be remitted monthlydirectly to the trust account, in an amount sufficient to fund the month’s cashrequirements of the extended PAMA. Such an arrangement is prohibited by the DoeRun Peru’s revolving credit facility (Doe Run Peru Revolving Credit Facility),which expires on September 23, 2005. Accordingly, any new or amended DoeRun Peru credit facility must comply with the requirements established by theSupreme Decree, should Doe Run Peru’s PAMA be extended.

 

TheSupreme Decree also requires that Doe Run Peru provide financial securitywithin 30 days of the approval of the PAMA extension in an amount equal to 20%of the projected cost of the project or projects to be extended. The Companycurrently expects the overall investment required to build the sulfuric acidplants to be approximately $113,900.

 

Doe Run Peru will performother environmental projects to reduce fugitive emissions, including heavymetal dust, to address the health issues of the community. As of July 31,2005, the remaining total cost of the current PAMA projects, including thesulfuric acid plants construction, and these projects is approximately$129,400.

 

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Subjectto Doe Run Peru’s ability to provide the required financial security,management believes that Doe Run Peru will obtain an approval of an extensionto complete the sulfuric acid plants. There is no assurance, however, that DoeRun Peru will receive an extension, or, if it does, that the project will becompleted within the time limitation specified by the Supreme Decree. Inaddition, the Company cannot assure that it will be successful in obtaining thenecessary financial security required.

 

The PAMA projects havebeen designed to achieve compliance with the maximum permissible limits ofemission prior to the expiration of the PAMA. No assurance can be given thatimplementation of the PAMA projects is feasible or that their implementationwill achieve compliance with the applicable legal requirements by the end ofthe PAMA period. Further, there can be no assurance that the Peruviangovernment will not in the future require compliance with additional ordifferent environmental obligations that could adversely affect Doe Run Peru’sbusiness, financial condition and results of operations.

 

Under the purchaseagreement related to the acquisition of the La Oroya assets in October 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 their apportioned share of any other complaint related toemissions. Performance of the indemnity has been guaranteed by the Peruviangovernment through the enactment of the Supreme Decree No. 042-97-PCM.However, there can be no assurance that Centromin will satisfy itsenvironmental obligations and investment requirements, including those in itsPAMA, or that the guarantee will be honored. Any failure by Centromin tosatisfy its environmental obligations could adversely affect Doe Run Peru’sbusiness, financial condition and results of operations.

 

The Cobriza mine has aseparate PAMA in which Doe Run Peru committed to complete projects to managetailings, mine drainage, sewage and garbage. As of June 2004, Doe Run Perucompleted its PAMA requirements and ceased discharging mine waste into theMantaro River and was in compliance with the emissions standards required bythe PAMA.

 

In addition to its PAMAobligations, Doe Run Peru is responsible for the remediation costs relating toa zinc ferrite disposal site. The current closure plan provides forencapsulating the ferrite residues in place at Huanchan, an area a shortdistance from the smelter where they are currently stored, for which anenvironmental liability of $1,600 has been recorded as of July 31, 2005 andOctober 31, 2004.

 

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

 

DoeRun Peru is a defendant in 155 lawsuits in the Lima, Peru labor courts wherebyworkers have alleged damages from industrial diseases. Doe Run Peru has madeclaims in most of the cases against Centromin and has also made claims againstboth governmental agencies and private companies that provide workers’insurance. The average claim is $18. Of nine concluded cases in this category,eight were dismissed and one resulted in a payment by Doe Run Peru of $9.

 

DoeRun Peru is also a defendant in 141 lawsuits by workers alleging that they areowed certain differences in salaries and benefits. The average claim is $25. Of26 concluded cases in this category, 23 were dismissed and three resulted in apayment by Doe Run Peru of $3. Doe Run Peru is also a defendant in a lawsuit bythe Yauli-La Oroya Employees Union concerning salariesand benefits. The claims of the 149 workers remaining inthe lawsuit total approximately $660.

 

On January 19,2005, Doe Run Peru was served with a lawsuit by an association ofmunicipalities of the Junin Region of Peru against Doe Run Peru and two othermining companies. This lawsuit alleges environmental damages to the MantaroRiver basin in the amount of $5.0 billion. Material liability to Doe Run Peruis believed to be remote because it is the opinion of management andoutside counsel for Doe Run Peru that the probability under Peruvianlaw of this case proceeding to a conclusion at the favor of the plaintiffsis low. Any potential judgment would be subject to the indemnificationobligations of Centromin, which are guaranteed by the Peruvian government.

 

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Sincemost of the above cases are either in the pleading or discovery stages, theCompany is unable at this time to estimate the expected outcome and the finalcosts, except as noted, of these actions. No amounts have been accrued asliabilities related to these actions. There can be no assurance that thesecases would 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.

 

**(6)****                     FinancialCondition**

 

For the year ended October 31,2003 and for several years prior, Doe Run Peru reported recurring losses,primarily due to the decline of treatment charges Doe Run Peru received forprocessing raw materials over the prior five years, which had severely impactedDoe Run Peru’s liquidity. The Company has substantial environmental commitmentsthat will affect the Company’s liquidity. These issues raise substantial doubtabout the Company’s ability to continue as a going concern.

 

Net unused availabilityat July 31, 2005 and October 31, 2004 under the Doe Run PeruRevolving Credit Facility was $200 and virtually none, respectively. Inaddition to the availability under the revolving credit facility, cash balancesat Doe Run Peru were $13,200 and $6,900, respectively, at July 31, 2005and at October 31, 2004. Continued high metal prices have resulted inoutlays for concentrate purchases and VAT payments being funded by cash fromoperations, as Doe Run Peru has remained near its maximum borrowing level underthe Doe Run Peru Revolving Credit Facility.

 

As discussed in Note 4,Doe Run Peru’s existing PAMA requires it to perform projects in 2005 and 2006at a total cost of $121,200. Doe Run Peru expects that it will not be able tocomply with the spending requirements of the PAMA investment schedule in2005 and 2006 with respect to the construction of the sulfuric acid plantsrequired by the PAMA and, as a result, could be subject to penalties. Failureto comply with the PAMA could result in the cessation of operations at the LaOroya smelter.

 

The Peruvian Governmenthas issued a Supreme Decree, which recognized that exceptional circumstancesmay justify an extension of one or more projects within the scope of a PAMA.See Note 4 for discussion of current legislation that may affect the SupremeDecree. Doe Run Peru will submit an application for extension to modify therequirements of the existing PAMA and extend the term of the PAMA to completethe construction of the sulfuric acid plants contemplated by the original PAMA.Doe Run Peru will also perform additional environmental projects to reducefugitive emissions, including heavy metal dust, to address the health issues ofthe community. As of July 31, 2005, the remaining total cost of thecurrent PAMA projects, including the sulfuric acid plants construction, and theadditional projects is approximately $129,400. If the extension of the PAMA isapproved, management expects to fund the PAMA projects with cash from Doe RunPeru’s operations or through additional borrowings.

 

Upon approval of amodified PAMA, Doe Run Peru would be required to create a trust account toadminister the receipts and disbursements related to the extended PAMA project.The Supreme Decree requires that receipts from Doe Run Peru’s sales be remittedmonthly directly to the trust account, in an amount sufficient to fund themonth’s cash requirements of the extended PAMA projects. Such an arrangement isprohibited by the Doe Run Peru Revolving Credit Facility, which expires on September 23,2005. Accordingly, any new or amended credit facility must comply with therequirements established by the Supreme Decree, should Doe Run Peru’s PAMA beextended.

 

The Supreme Decree alsorequires that Doe Run Peru provide financial security within 30 days of theapproval of the PAMA extension in an amount equal to 20% of the projected costof the project or projects to be extended. The Company currently expects theoverall investment required to build the sulfuric acid plants to beapproximately $113,900.

 

A default under therequirements of the PAMA could result in a default under the Doe Run PeruRevolving Credit Facility. An acceleration of this obligation would result in adefault of the 11.75% senior notes due 2008 (the 11.75% Notes), of which DoeRun Peru is a guarantor.

 

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These issues raisesubstantial doubt about Doe Run Peru’s ability to continue as a going concern. Subjectto Doe Run Peru’s ability to provide the required financial security,management believes that Doe Run Peru will obtain an approval of an extensionto complete the sulfuric acid plant. There is no assurance, however, that DoeRun Peru will receive an extension, or, if it does, that the project will becompleted within the time limitation specified by the Supreme Decree. Doe RunPeru has implemented a business plan that identifies several revenue generatingand cost reduction activities. Management believes the plan will enhanceliquidity, which would improve Doe Run Peru’s ability to make the investmentsunder the proposed modifications to the PAMA. Revenue enhancement projectsinclude the processing of zinc ferrites and an effort to bring more recycledfeed into the smelter. The zinc ferrite processing is expected to produce aproduct with a zinc and silver content of approximately 20,000 tons and 4.3million ounces, respectfully, on an annual basis beginning in the second halfof the fourth quarter of 2005. Planned cost reduction measures include manpowerreductions through voluntary retirement. Management will continue to analyzecost management opportunities in current operating conditions.

 

Doe Run Peru has receivedassessments of income tax, including penalties and interest, and VAT totaling$108,800 and $43,400, respectively, as discussed in Note 3. In addition, theCompany estimates that the effect of similar assessments for periods not yetassessed would be approximately $8,000 and $20,100 for the income tax and VATmatters, respectively. Furthermore, Doe Run Peru would also be required to makeadditional workers’ profit sharing payments equal to 8% of the increase intaxable income generated by the changes discussed above, or approximately$7,400 for tax years 1998 through 2004.

 

Management of the Companybelieves that in each case Doe Run Peru has followed the applicable Peruviantax statutes and intends to pursue all available administrative and judicialappeals. Doe Run Peru is not required to make any payments pending theadministrative appeal process. If Doe Run Peru is not successful in the administrativeappeal processes and were to appeal in the judicial system, some type offinancial assurance would be required, which would have a significant adverseeffect on liquidity.

 

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**Item 2.****Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

Thefollowing discussion and analysis of the three months (the 2005 quarter) andthe nine months (the 2005 period) ended July 31, 2005 compared to thethree months (the 2004 quarter) and the nine months (the 2004 period) ended July 31,2004 should be read in conjunction with the condensed consolidated financialstatements of The Doe Run Resources Corporation (Doe Run and together with itssubsidiaries, the Company) and the notes thereto, and other financialinformation included herein.

 

***Forward-Looking Statements***

 

*The Private Securities Litigation Reform Act of 1995provides a “safe harbor” for forward-looking statements. The Company makesforward-looking statements in this Quarterly Report on Form 10-Q, whichrepresent 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 similar words are intended to identify forward-looking statements.These forward-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 periodicfilings.*

 

*All predictions as to future results contain ameasure of uncertainty, and accordingly, actual results could differmaterially. Among the factors that could cause actual results to differ fromthose contemplated, projected or implied by the forward-looking statements (theorder of which does not necessarily reflect their relative significance) are:general economic and business conditions; increasing industry capacity andlevels of imports of non-ferrous metals or non-ferrous metals products;industry trends, including the price of metals and product pricing;competition; currency fluctuations; the loss of any significant customer orsupplier; availability of raw materials; availability of qualified personnel;effects of future collective bargaining agreements; outcome of litigation;changing environmental requirements and costs, including the capitalrequirements in Peru; political uncertainty and terrorism; major equipmentfailures; changes in accounting principles or new accounting standards;compliance with laws and regulations; and 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 asrequired by law, the Company undertakes no obligation to publicly update orrevise any forward-looking statements, whether as a result of new information,future events or otherwise.  Investors should, however,review additional disclosures made by the Company from time to time in itsperiodic filings with the Securities and Exchange Commission.*

 

*This Quarterly Report on Form 10-Q should beread completely and with the understanding that the Company’s actual futureresults may be materially different from what the Company expects. Allforward-looking statements made by the Company in this Quarterly Report on Form 10-Qand in the Company’s other filings with the Securities and Exchange Commissionare qualified by these cautionary statements.*

 

***Significant Issues***

 

*Primary operations*

 

Stormsin May 2005 damaged the roof and siding of the Herculaneum smelter’ssinter plant and strip mill roof. Due to this incident, production wasintermittently curtailed during a three-week period for repairs and concern forfugitive emissions resulting in the decrease noted below.  See further discussion and impact under *“Results of Operations–Production”*below.

 

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*Hurricane Katrina*

 

TheCompany ships concentrates to customers overseas and receives coke fromsuppliers on barges that are processed in New Orleans. Should such shipments behindered by the recent hurricane, it could have a material impact on theresults of operations of the Company for the year ended October 31, 2005.

 

*Doe Run Peru*

 

DoeRun Peru expects that it will not be able to comply with the spendingrequirements of La Oroya’s Environmental Remediation and Management Program(PAMA) investment schedule in 2005 and 2006 with respect to theconstruction of the sulfuric acid plants required by the PAMA and, as a result,could be subject to penalties. Failure to comply with the PAMA could result inthe cessation of operations at the La Oroya smelter.

 

OnDecember 29, 2004 the Peruvian Government issued Supreme Decree No. 046-2004-EM(Supreme Decree), which recognized that exceptional circumstances may justifyan extension of one or more projects within the scope of a PAMA. TheSupreme Decree specifies that companies have until December 31, 2005 toapply for an extension. The maximum extension is for three years and theMinistry of Energy and Mines (MEM) may authorize an additional year based uponthe results of a health risk study.

 

ThePeruvian Congress passed a law in April 2005 that included severalprovisions that could affect the administration’s ability to extend the PAMA,contrary to the Supreme Decree. The President of Peru objected to a provisionprohibiting extensions to projects within a PAMA and returned the bill to theCongress, where 61 votes out of the full congressional body of 120 memberscould override the objection. Current provisions being reconsidered by Congresswould require approval by CONAM, Peru’s environmental protection agency, beforeMEM may approve a request to extend the term of the PAMA. Management believesit is unlikely that the Congress will override the objection or that anyprovisions to which the President objected will remain in replacementlegislation.

 

Pursuantto the Supreme Decree, the application for a PAMA extension must be supportedby a health risk study performed by a third party. The application must containan engineering description and funding plan of any project to be extended, adiscussion of how and when environmental emission standards will be met, a planto monitor emissions with the participation of the community, proof that atleast three public workshops were held in various districts to provideinformation on Doe Run Peru’s financial situation and health programs, proofthat two public hearings were held regarding the extension plans, and otherfinancial information. Upon meeting these requirements, Doe Run Peru expects toapply for the extension in October 2005.

 

Uponapproval of a modified PAMA, Doe Run Peru would be required to create a trustaccount to administer the receipts and disbursements related to the extendedPAMA projects. The Supreme Decree requires that receipts from Doe Run Peru’ssales be remitted monthly directly to the trust account, in an amountsufficient to fund the month’s cash requirements of the extended PAMA projects.Such an arrangement is prohibited by Doe Run Peru’s existing revolving creditfacility (the Doe Run Peru Revolving Credit Facility), which expires on September 23,2005. Accordingly, any new or amended credit facility must comply with therequirements established by the Supreme Decree, should Doe Run Peru’s PAMA beextended.

 

TheSupreme Decree also requires that Doe Run Peru provide financial securitywithin 30 days of the approval of the PAMA extension in an amount equal to 20%of the projected cost of the project or projects to be extended. The Companycurrently expects the overall investment required to build the sulfuric acidplants to be approximately $113.9 million.

 

DoeRun Peru will also perform other additional environmental projects to reducefugitive emissions, including heavy metal dust, to address the health issues ofthe community. As of July 31, 2005, the estimated remaining total cost ofthe current PAMA projects, including the sulfuric acid plants construction, andthese projects is approximately $129.4 million. Doe Run Peru spent $13.5million in the 2005 period on PAMA projects.

 

Subject to Doe Run Peru’s ability to provide the required financialsecurity, management believes that Doe Run Peru will obtain an approval ofan extension to complete the

 

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sulfuricacid plants. There is no assurance, however, that Doe Run Peru will receive anextension, or, if it does, that the projects will be completed within the timelimitation specified by the Supreme Decree. In addition, there is no assurancethat the Company will be successful in obtaining the necessary financialsecurity required.

 

DoeRun Peru has implemented a business plan that identifies several revenuegenerating and cost reduction activities. Management believes the plan will enhanceliquidity, which would improve Doe Run Peru’s ability to make the investmentsunder the proposed modifications to the PAMA. Revenue enhancement projectsinclude the processing of zinc ferrites and an effort to bring more recycledfeed into the smelter. Planned cost reduction measures include manpowerreductions through voluntary retirement. The zinc ferrite processing isexpected to produce a product with a zinc and silver content of approximately20,000 tons and 4.3 million ounces, respectively, on an annual basis beginningin the second half of the fourth quarter of 2005. Management will continue toanalyze cost management opportunities in current operating conditions.

 

DoeRun Peru has received assessments of income tax, including penalties and interest,and value added tax (VAT) totaling $108.8 million and $43.4 million,respectively. The income tax assessments primarily relate to Doe Run Peru’sincome tax treatment of the December 1997 merger of Doe Run Peru andMetaloroya S.A., which was purchased by Doe Run Peru in October 1997, andits effects on subsequent years’ taxable income. 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 VAT assessmentsprimarily relate to Doe Run Peru’s exports with holding certificates anddifferences in a tax credit application. See further discussion in “*Liquidity.*” No amounts have been accruedas liabilities related to these assessments.

 

***Results of Operations***

 

*Metals Pricing*

 

Thefollowing table sets forth average London Metal Exchange (LME) prices for lead,copper and zinc and the average London Bullion Market Association (LBMA) pricefor silver for the periods indicated:

 
| ** **             | ** ** | **Three Months Ended  July 31,** | ** ** | **Nine Months Ended  July 31,** | ** ** |
|------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| **Average Prices**     | ** ** | **2005**                              | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Lead ($/ton)           |       | $                                     | 855.20     |                                 | $          | 794.60 |   | $ | 876.20 |   | $ | 730.20 |   |
| Copper  ($/ton)        |       | 3,145.00                              |       | 2,488.60                             |       | 3,010.40 |   | 2,385.80 |   |
| Zinc ($/ton)           |       | 1,232.40                              |       | 918.00                               |       | 1,132.00 |   | 925.20 |   |
| Silver  ($/troy ounce) |       | 7.12                                  |       | 6.01                                 |       | 7.11 |   | 6.22 |   |
|                        |            |                                       |            |                                      |            |  |  |  |  |  |  |  |  |

 

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*Production*

 

Allreferences to “ton” are in short tons.

 

Thefollowing table sets forth the Company’s production statistics for the periodsindicated:

 

|                                      |   | **Three Months Ended  July 31,** |   | **Nine Months Ended  July 31,** |   |
|-------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                      |   | **2005**                              |   | **2004**                             |   | **2005** |   | **2004** |   |
| U.S.  Operations                          |   |                                  |   |                                 |   |   |   |   |   |
| Lead metal - primary (tons)               |   | 29,950                                |   | 42,281                               |   | 110,309 |   | 131,443 |   |
| Lead metal - secondary (tons)             |   | 34,262                                |   | 33,824                               |   | 100,772 |   | 99,460 |   |
| Lead concentrates (metal content, tons)   |   | 73,864                                |   | 70,154                               |   | 210,509 |   | 202,421 |   |
| Ore grade (lead)                          |   | 5.54                                  | %      | 6.01                                 | %      | 5.44 | % | 5.75 | % |
|                                      |   |                                  |   |                                 |   |   |   |   |   |
| Doe Run Peru  Operations                  |   |                                  |   |                                 |   |   |   |   |   |
| Refined copper (tons)                     |   | 16,667                                |   | 15,470                               |   | 48,175 |   | 46,773 |   |
| Refined lead (tons)                       |   | 33,655                                |   | 33,571                               |   | 98,550 |   | 98,363 |   |
| Refined zinc (tons)                       |   | 10,710                                |   | 18,433                               |   | 38,026 |   | 56,101 |   |
| Refined silver (thousands of troy ounces) |   | 8,488                                 |   | 9,015                                |   | 25,454 |   | 27,027 |   |
| Refined gold (thousands of troy ounces)   |   | 18                                    |   | 18                                   |   | 48 |   | 48 |   |
| Copper concentrates (metal content, tons) |   | 4,417                                 |   | 3,585                                |   | 11,796 |   | 12,490 |   |
| Ore grade (copper content)                |   | 1.00                                  | %      | 1.04                                 | %      | 0.98 | % | 1.10 | % |

 

Inthe 2005 quarter, the primary smelter operations’ lead metal production wasapproximately 30% lower than in the 2004 quarter as a result of storms in May 2005that damaged the roof and siding of the Herculaneum smelter’s sinter plant andstrip mill roof. Due to this incident, production was intermittently curtailedduring a three-week period for repairs and concern for fugitive emissions resultingin the decrease noted above. Slag chemistry and other operational problems alsonegatively impacted production during the 2005 quarter. Management is indiscussions with the Missouri Department of Natural Resources to exploreoptions that will improve the smelter’s ability to attain and maintaincompliance with fugitive emissions standards. In addition to the above,production for the 2005 period was also lower by approximately 7,000 tons thanthe 2004 period due to the indefinite suspension of operations at the Gloversmelter in the first quarter of 2004.

 

Theincrease in lead concentrate production at the Company’s primary lead operation’smines in the 2005 quarter and 2005 period over the first quarter of 2004 and2004 period was the result of increases in ore production of approximately 16%and 12% in the 2005 quarter and 2005 period, respectively, offset by lower oregrade. These fluctuations are the result of a change made in the second quarterof 2004 to mine at a lower grade to optimize the earnings on the mineralresources. Ore production has improved from earlier in 2005 due to improvedproduction at the Fletcher and Sweetwater mines, attributable to increasedpillar extraction. Equipment received in 2005 has enabled the increased pillar extraction.

 

TheCompany also installed a copper pre-float circuit at its Buick mill in thefirst half of 2004 that enabled it to process more highgrade copper ores from the Viburnum-29 and Viburnum-35 mines and improve copperrecoveries from the Buick mill. As a result, copper concentrate productionincreased 5,416 tons in the 2005 period to 17,345 over the 2004 periodproduction of 11,929 tons. Improvement in the 2005 quarter was not aspronounced as in earlier quarters due to lower copper grade of ore mined.

 

TheCompany’s U.S. recycling operations added desulfurization capacity during 2004.Consecutive monthly records were set in September and October of 2004for batteries processed and reverb furnace lead produced as a result of theimprovements. As a result, production continues at rates slightly better thanthe 2004 period, but less than planned due to the mix of feed into therecycling facility containing higher levels of sulfur than historical feedmaterials.

 

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Thedecrease in Doe Run Peru’s La Oroya smelter (La Oroya) 2005 period productionof zinc compared to the 2004 period was due to the cessation of operations ofits three New Jersey zinc roasters, which were costly to operate andenvironmentally inefficient. The decision should result in a reduction ofrefined zinc production to 50,000 tons per year, down from 2004 fiscal yearproduction of 75,200 tons. This change, as expected, has reduced sulfuric acidgas and other gas emissions as well as reduced the disposal of liquideffluents.

 

*Results of Operations*

 

*Gross margin on sales (net sales less cost of sales)* decreased from $33.5 million in the 2004quarter to $29.2 million in the 2005 quarter and increased from $65.8 millionin the 2004 period to $94.9 million in the 2005 period. Gross margin on salesfor the Company’s U.S. operations decreased from $20.7 million in the 2004quarter to $12.8 million in the 2005 quarter and increased from $36.7 millionin the 2004 period to $54.8 million in the 2005 period. Gross margin on salesfor Doe Run Peru increased from $12.7 million in the 2004 quarter to $16.3million in the 2005 quarter and from $29.1 million in the 2004 period to $40.1million in the 2005 period.

 

Inthe 2005 quarter and period compared to the 2004 quarter and period, a 24% and41% increase in realized prices for the Company’s U.S. operations lead metalsales, fueled by the increase in LME prices and by higher premiums over theLME, contributed an additional $6.9 million and $40.4 million to gross marginon sales, respectively. An increase in lead concentrate, copper concentrate andkettle dross sales volume resulted in an increase in gross margin for theCompany’s U.S. operations of $10.0 million in the 2005 period over the 2004period. Higher realized prices for zinc concentrates contributed an additional$5.0 million to gross margin compared to the 2004 period.

 

Theseimprovements were more than offset by the effect of lower lead metal salesvolume in the 2005 quarter compared to the 2004 quarter, primarily the resultof the lower primary lead production due to the storm damage in the 2005quarter, and higher production costs at the U.S. primary lead operations,primarily due to lower ore grade, lower metal production, higher salaries, wagesand employee benefits, maintenance and repair costs, metallurgical coke costsand steel prices. Increased conversion costs at the recycling operation, due tohigher metallurgical coke and propane costs, were offset by improved feed costsper unit of metal produced. In addition, cost revisions resulted in anadjustment of environmental remediation liabilities of approximately $4.8million in the 2005 period compared to $1.0 million in the 2004 period and $1.1million in the 2005 quarter versus none in the 2004 quarter.

 

Theincrease in Doe Run Peru’s gross margins is primarily due to the improvement oftreatment charges received in processing copper and lead concentrates and freemetal benefits for copper and zinc. Also contributing to an improved gross marginwere by-product sales such as indium, tellurium and antimony and premiumbenefits for copper and lead. These benefits were offset by higher conversioncosts primarily due to higher fuel and coke prices, increased salaries combinedwith a weakened U.S. dollar, higher maintenance, spare parts and suppliescosts.

 

*Selling, general and administrative costs* increased $4.3 million in the 2005 quarterover the 2004 quarter and $10.3 million in the 2005 period over the 2004period. The period to period increase was due primarily to increased salariesand employee benefit costs of $5.4 million, including $1.0 million related tonet worth appreciation agreements, legal fees of $0.9 million, otherprofessional fees of $1.6 million and community related expenses in Peru of$1.2 million.

 

*Unrealized (gains) losses on derivative financialinstruments*are**related to the change in fair marketvalue of derivative financial instruments that are a part of Doe Run’s riskmanagement strategy. The change from an unrealized loss of $0.3 million in the2004 period to an unrealized gain of $3.9 million in the 2005 period was theresult of a decrease in the fair market value of open contracts at July 31,2005 compared to October 31, 2004, and the realization of previouslyunrealized losses. Unrealized gains increased from $0.7 million to $2.6 millionin the 2005 quarter versus the 2004 quarter due to the reclassification ofpreviously unrealized losses to realized losses in the 2004 quarter as theresult of the substantial increase in the LME price during 2004. See also “*Item 3. Quantitative and Qualitative Disclosures About Market Risk*.”

 

41

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*Other* operating expenses decreased $0.1 million from the 2004 quarter to the2005 quarter and increased $1.0 million from the 2004 period to the 2005period. The expenses primarily relate to the recognition of impairment lossesfor the value of houses purchased in the town of Herculaneum, Missouri under aresidential property purchase plan.

 

Asof July 31, 2005, 149 homeowners had requested and were delivered offers,and 142 of those offers had been accepted. As of July 31, 2005, theCompany had spent approximately $9.7 million under the residential propertypurchase plan. Another $1.4 million of accepted offers are awaiting a closingdate and $0.4 million in outstanding offers have not been accepted.

 

*Income tax expense (benefit)* in the 2004 quarter and 2004 period reflectsa change in tax law in Peru. Under a law passed in December 2003, certaintechnical services that Doe Run provided under an agreement with Doe Run Peruwere taxed at 30%. The agreement was canceled on July 1, 2004.

 

Rencohas elected for the Company to be treated as a qualified subchapter Ssubsidiary (QSSS) for U.S. federal tax purposes. Most states in which theCompany operates will follow similar tax treatment. QSSS status requires theultimate shareholders to include their pro rata share of the Company’s incomeor loss in their individual tax returns. As a result of the Company’s taxstatus in the U.S., the Company is not generally subject to U.S. federal andmost state income taxes, however, under a tax sharingagreement with Renco, the Company is liable to Renco for pro forma federal andstate income taxes as defined in the agreement. The Company paid Renco $0.1million under this agreement in the 2005 quarter, and had $0.1 million owing asof July 31, 2005.

 

***Liquidity***

 

TheCompany is highly leveraged and has significant commitments for environmentalmatters. In addition, Doe Run Peru has significant commitments forEnvironmental Remediation and Management Program (PAMA) expenditures.Consequently, a substantial portion of cash flows from operations is dedicatedto the payment of these obligations, which will reduce funds available forother business purposes. These factors also increase the Company’svulnerability to general adverse conditions, limit the Company’s flexibility inplanning for or reacting to changes in its business and industry, and may limitthe Company’s ability to obtain financing required to fund working capital andcapital expenditures and for other general corporate purposes. An unfavorableoutcome to lawsuits and tax assessments in Peru would have a further adverseeffect on the Company’s ability to meet its obligations when due.

 

Netunused availability at July 31, 2005 and October 31, 2004 under theDoe Run Revolving Credit Facility was approximately $34.2 million and $22.5million, respectively, and under the Doe Run Peru Revolving Credit Facility was $0.2 million and virtually none, respectively. Inaddition to the availability under its revolving credit facilities, cashbalances at Doe Run and Doe Run Peru were $3.3 million and $13.2 million,respectively, at July 31, 2005 and $13.4 million and $6.9 million,respectively, at October 31, 2004. In Peru, continued high metal priceshave resulted in outlays for concentrate purchases and value-added tax (VAT)payments being funded by cash from operations, as Doe Run Peru has remainednear its maximum borrowing level under the Doe Run Peru Revolving CreditFacility.

 

Inventoryquantities for the Company’s U.S. operations at July 31, 2005 haveincreased $5.8 million since October 31, 2004, resulting from normalseasonal increases, lower lead metal production than the fourth quarter of 2004at the recycling facility which has resulted in an increase of work in processinventories and lower sales volume, as well as lack of availability oftransportation for sales of concentrates. Doe Run Peru also has had difficulty obtainingtransportation for its export sales, which resulted in an increase in finishedgoods inventories for the same periods.

 

TheCompany’s auditors issued unqualified opinions on the 2004 audited financialstatements of the Company and of Doe Run Peru that expressed substantial doubtabout the Company’s and Doe Run Peru’s ability to continue as going concernsdue to net capital deficiencies, substantial debt service requirements,

 

42

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andsignificant capital requirements under environmental commitments.

 

TheDoe Run Revolving Credit Facility and the Doe Run Peru Revolving CreditFacility expire in the fourth quarter of 2005, and will require renegotiationto extend their terms. Furthermore, any new or amended credit facility mustcomply with the cash assignment requirements established by the Supreme Decree,should Doe Run Peru’s PAMA be extended, as discussed in “*Significant Issues.*” Renewal negotiationsare in progress. There can be no assurance that the renewal efforts will besuccessful, or if successful, that the renewal would be at terms favorable tothe Company. The Company’s term note in the amount of $15.5 million (the TermNote) matures in October 2005.

 

Duringthe period beginning on October 29, 2005 and ending on October 29,2012, the Majority Warrantholders will 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.

 

DoeRun Peru has received assessments of income tax, including penalties andinterest, and VAT totaling $108.8 million and $43.4 million, respectively. Inaddition, the Company estimates that the effect of similar assessments forperiods not yet assessed would be approximately $8.0 million and $20.1 millionfor the income tax and VAT matters, respectively. Furthermore, Doe Run Peruwould also be required to make additional workers’ profit sharing paymentsequal to 8% of the increase in taxable income generated by the changesdiscussed above, or approximately $7.4 million for tax years 1998 through 2004.

 

Managementof the Company believes that in each case Doe Run Peru has followed the applicablePeruvian tax statutes and intends to pursue all available administrative andjudicial appeals. Doe Run Peru is not required to make any payments pending theadministrative 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.

 

DoeRun Peru is attempting to obtain financing of the sales from its zinc ferritesprocessing mentioned in the *“SignificantIssues—Doe Run Peru”* section above. There can be no assurancethat such attempts will be successful.

 

Managementbelieves that high metal prices and other revenue enhancements, and theissuance of the Supreme Decree allowing an application to extend La Oroya’sPAMA requirement for the construction of the sulfuric acid plants will enablethe Company to continue as a going concern. The Company’s ability to meetobligations after 2005 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.

 

**Item 3.****Quantitative andQualitative 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.

 

Thefair market value loss of the Company’s derivatives was approximately $3.6million and $9.0 million at July 31, 2005 and October 31, 2004,respectively. These losses, when realized, would be offset by higher prices onthe Company’s sales of physical metal. The majority relates to sold leadfutures and sold lead call options related to the U.S. operations. A 10% increasein metal prices would result in additional expense of $0.8 million, based onthe Company’s open contracts at July 31, 2005.

 

43

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**Interest Rate Risk**

 

TheCompany is subject to interest rate risk on variable interest rate obligations.The Doe Run Revolving Credit Facility bears interest at the prime rate plus 1%per annum. The Doe Run Peru Revolving Credit Facility bears interest at LIBOR (1-month,3-month or 6-month rate, depending on the term of the loan) plus 3.5% perannum. A material increase in interest rates could adversely affect the Company’sbusiness, financial condition and results of operations. A 1% increase in theinterest rate under the Doe Run Revolving Credit Facility and the Doe Run PeruRevolving Credit Facility would result in additional annual interest expense ofapproximately $0.6 million, based on the loan balances outstanding as of July 31,2005.

 

**Foreign Currency Risk**

 

DoeRun Peru’s sales and feed costs are denominated in U.S. dollars. Certainoperating costs, such as labor, are denominated in Peruvian nuevos soles. Laborrepresents approximately 36% of Doe Run Peru’s operating costs. As such,further devaluation of the U.S. dollar would adversely affect the Company’sbusiness, financial condition and results of operations.

 

**Item 4.****Controlsand Procedures.**

 

Asof the end of the period covered by this report, an evaluation was performedunder the supervision and with the participation of the Company’s management,including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”),of the effectiveness of the design and operation of the Company’s disclosurecontrols and procedures. Based on that evaluation, the Company’s management,including the CEO and CFO, concluded the Company’s disclosure controls andprocedures as of July 31, 2005 were effective in ensuring informationrequired to be disclosed in this Quarterly Report on Form 10-Q wasrecorded, processed, summarized and reported on a timely basis. There have beenno changes in the Company’s internal control over financial reporting thatoccurred during the period covered by this Quarterly Report on Form 10-Qthat have materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting.

 

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**PART II.****OTHER INFORMATION**

 

**Item 1.****Legal Proceedings.**

 

*Kirk v. ASARCO Inc., et al.* (filed June 27, 2005), *Williams v. ASARCO Inc., et al.* (filed June 27,2005) and *Anderson v. ASARCO Inc., et al.*(filed August 15, 2005) were filed in the U.S. District Court for theNorthern District of Oklahoma against Doe Run and other mining companiesalleging personal injury damages by two individuals from exposure to chat andtailings in Ottawa County, Oklahoma. All three cases were subsequentlydismissed by the plaintiffs.

 

Oneset of attorneys filed in the Circuit Court for the City of St. Louis thefollowing set of personal injury cases: *Miller,et al. v. Fluor Corporation, et al.* (filed August 26, 2005), *Wamble, et al. v. Fluor Corporation, et al.*(filedAugust 26, 2005), *Hawley, et al. v.Fluor Corporation, et al.* (filed August 26, 2005), *Wren, et al. v. Fluor Corporation, et al.*(filedAugust 26, 2005), *Dawson, et al. v.Fluor Corporation, et al.*(filed August 25, 2005), *Alexander, et al. v. Fluor Corporation, et al.*(filed August 25, 2005), *Pederson, etal. v. Fluor Corporation, et al.*(filed August 25, 2005), and *Heilig, et al. v. Fluor Corporation, et al.*(filedAugust 25, 2005). A separate set of attorneys filed in the Circuit Courtfor the City of St. Louis the following set of personal injury cases: * Shannon v.Fluor Corporation, et al.* (filed August 24, 2005), *White, et al. v. Fluor Corporation, et al.*(filedAugust 24, 2005), *Stotler, et al. v.Fluor Corporation, et al.* (filed August 24, 2005), *Sorbello, et al. v. Fluor Corporation, et al.*(filed August 24, 2005), *Lynch, et al.v. Fluor Corporation, et al.*(filed August 25, 2005), *Mullins II, et al. v. Fluor Corporation, et al.*(filed August 25, 2005), *Losh, et al.v. Fluor Corporation, et al.* (filed August 25, 2005), *Brown II v. Fluor Corporation, et al.*(filed August 25, 2005), *Burnia, et al.v. Fluor Corporation, et al.* (filed August 25, 2005), *Ball v. Fluor Corporation, et al.*(filed August 25,2005), *Whaley, et al. v. Fluor Corporation,et al.* (filed August 25, 2005), *Duncan, et al. v. Fluor Corporation, et al.*(filed August 25,2005), *Meyer v. Fluor Corporation, et al.*(filedAugust 25, 2005), *Edmond, et al. v.Fluor Corporation, et al.*(filed August 25, 2005),*Lucas, et al. v. Fluor Corporation, et al.*(filedAugust 25, 2005), *Snyder, et al. v.Fluor Corporation, et al.* (filed August 25, 2005), *McCoy v. Fluor Corporation, et al.* (filed August 25,2005), *Damazyn, et al. v. Fluor Corporation,et al.* (filed August 25, 2005), *Politte, et al. v. Fluor Corporation, et al.* (filed August 26,2005), *Jarvis v. Fluor Corporation, et al.*(filed August 26, 2005), *Ruessler, etal. v. Fluor Corporation, et al.*(filed August 26, 2005), *Baker v. Fluor Corporation, et al.*(filed August 26,2005), and *Brewer v. Fluor Corporation, etal.* (filed August 24, 2005).

 

**Item 2.****UnregisteredSales of Equity Securities and Use of Proceeds.**

 

None.

 

**Item 3.****Defaults UponSenior Securities.**

 

None.

 

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

 

None.

 

**Item 5.****Other Information.**

 

None.

 

45

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**Item 6.****Exhibits.**

 
| 10.2.1 |   | Amended  and Restated Net Worth Appreciation Agreement, dated as of July 1, 2005,  between Doe Run and Jeffrey L. Zelms.          |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                   |
| 10.2.2 |   | Amended  and Restated Net Worth Appreciation Agreement, dated as of July 1, 2005,  between Doe Run and Marvin K. Kaiser.          |
|   |   |                                                                                                                                   |
| 10.2.3 |   | Amended  and Restated Net Worth Appreciation Agreement, dated as of July 1, 2005,  between Doe Run and Jerry L. Pyatt.  |
|   |   |                                                                                                                                   |
| 10.2.4 |   | Amended  and Restated Net Worth Appreciation Agreement, dated as of July 1, 2005,  between Doe Run and David A. Chaput. |
|   |   |                                                                                                                                   |
| 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**

######  

Pursuantto the requirements 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)                                               |
|                           |   |                                                       |
|                           |   |                                                       |
| Date:  September 14, 2005 |   | /s/  David A. Chaput                                       |   |
|                           |   | David  A. Chaput                                           |
|                           |   | Chief  Financial Officer                                   |
|                           |   | (duly  authorized officer and principal financial officer) |

 

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