**UNITED STATES**

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

**Washington,DC  20549**

 

### **FORM 10-Q**

 

**(Mark One)**

 
| **ý** | ** ** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                                                                                |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                             |
|       |       | **For the quarterly period ended April 30,  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                   ** |

 

**CommissionFile Number 333-66291**

 
| **The Doe Run Resources Corporation**                           |
|-----------------------------------------------------------------|
| (Exact name  of registrant as specified in its charter)         |
| ** **                                                      | ** ** | ** ** |
| **New York**                                                    | ** ** | **13-1255630** |
| (State or  other jurisdiction of incorporation or organization) |   | (IRS  Employer Identification No.) |
| ** **                                                      | ** ** | ** ** |
| **1801  Park 270 Drive, Suite 300  St. Louis, Missouri**   | ** ** | **63146** |
| (Address of  principal executive offices)                       |   | (Zip Code) |
|                                                            |   |   |
| **(314)  453-7100**                                             |
| (Registrant’s  telephone number, 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 mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

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

 

Number of shares outstanding of each of the issuer’s classes of commonstock, as of June 14, 2005:

 

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

 

 

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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.**

 

**THEDOE RUN RESOURCES CORPORATION**

**CondensedConsolidated Balance Sheets**

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

 
| ** **                                                                                                                                                              | ** ** | **April 30,** | ** ** | **October 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                                                                                                                                              | ** ** | **2005**           | ** ** | **2004**             | ** ** |
| ** **                                                                                                                                                              | ** ** | **(unaudited)**    | ** ** | ** **           | ** ** |
| **ASSETS**                                                                                                                                                              | ** ** | ** **         | ** ** | ** **           | ** ** |
| Current  assets:                                                                                                                                                        |       |               |       |                 |       |
| Cash                                                                                                                                                                    |       | $                  | 11,626     |                 | $          | 20,318 |   |
| Trade  accounts receivable, net of allowance for doubtful accounts                                                                                                      |       | 74,349             |       | 64,219               |       |
| Inventories                                                                                                                                                             |       | 125,013            |       | 103,309              |       |
| Prepaid  expenses and other current assets                                                                                                                              |       | 30,456             |       | 35,858               |       |
| Total  current assets                                                                                                                                                   |       | 241,444            |       | 223,704              |       |
| Property,  plant and equipment, net                                                                                                                                     |       | 242,416            |       | 229,640              |       |
| Other  noncurrent assets, net                                                                                                                                           |       | 6,350              |       | 4,075                |       |
| Total assets                                                                                                                                                            |       | $                  | 490,210    |                 | $          | 457,419 |   |
|                                                                                                                                                                    |       |               |       |                 |       |
| **LIABILITIES  AND SHAREHOLDER’S DEFICIT**                                                                                                                         | ** ** | ** **         | ** ** | ** **           | ** ** |
| Current  liabilities:                                                                                                                                                   |       |               |       |                 |       |
| Current  maturities of long-term debt                                                                                                                                   |       | $                  | 108,446    |                 | $          | 96,767 |   |
| Accounts  payable                                                                                                                                                       |       | 85,091             |       | 65,855               |       |
| Accrued  liabilities                                                                                                                                                    |       | 81,724             |       | 83,878               |       |
| Total  current liabilities                                                                                                                                              |       | 275,261            |       | 246,500              |       |
|                                                                                                                                                                    |       |               |       |                 |       |
| Long-term  debt, less current maturities                                                                                                                                |       | 299,485            |       | 320,561              |       |
| Other  noncurrent liabilities                                                                                                                                           |       | 77,835             |       | 75,765               |       |
| Total  liabilities                                                                                                                                                      |       | 652,581            |       | 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 |       | 26,912             |       | 25,329               |       |
|                                                                                                                                                                    |       |               |       |                 |       |
| Shareholder’s  deficit:                                                                                                                                            |       |               |       |                 |       |
| Common  stock, $.10 par value per share, 1,667 shares authorized; 1,000 shares issued  and outstanding                                                                  |       | —             |       | —               |       |
| Accumulated  deficit                                                                                                                                                    |       | (147,381           | )          | (168,700             | )          |
| Accumulated  other comprehensive losses                                                                                                                                 |       | (41,902            | )          | (42,036              | )          |
| Total  shareholder’s deficit                                                                                                                                       |       | (189,283           | )          | (210,736             | )          |
| Total  liabilities and shareholder’s deficit                                                                                                                       |       | $                  | 490,210    |                 | $          | 457,419 |   |

 

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

 

3

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**THE DOE RUN RESOURCES CORPORATION**

**Condensed Consolidated Statements ofOperations (unaudited)**

**(Dollars in thousands)**

 
| ** **                                                  | ** ** | **Three Months Ended   April 30,** | ** ** | **Six Months Ended   April 30,** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                        |       |                                    |       |                                  |       |   |   |   |   |
| Net sales                                                   |       | $                                       | 247,380    |                                  | $          | 215,641 |   | $ | 483,039 |   | $ | 405,645 |   |
|                                                        |       |                                    |       |                                  |       |   |   |   |   |
| Costs and  expenses:                                        |       |                                    |       |                                  |       |   |   |   |   |
| Cost of  sales                                              |       | 219,328                                 |       | 194,952                               |       | 417,331 |   | 373,363 |   |
| Depreciation,  depletion and amortization                   |       | 5,764                                   |       | 6,207                                 |       | 11,901 |   | 12,672 |   |
| Selling,  general and administrative                        |       | 11,613                                  |       | 7,357                                 |       | 22,441 |   | 16,483 |   |
| Unrealized  (gain) loss on derivative financial instruments |       | (463                                    | )          | (4,084                                | )          | (1,261 | ) | 940 |   |
| Other                                                       |       | 1,321                                   |       | 1,018                                 |       | 3,158 |   | 2,049 |   |
| Total costs  and expenses                                   |       | 237,563                                 |       | 205,450                               |       | 453,570 |   | 405,507 |   |
|                                                        |       |                                    |       |                                  |       |   |   |   |   |
| Income from  operations                                     |       | 9,817                                   |       | 10,191                                |       | 29,469 |   | 138 |   |
|                                                        |       |                                    |       |                                  |       |   |   |   |   |
| Other income  (expense):                                    |       |                                    |       |                                  |       |   |   |   |   |
| Interest  expense, net                                      |       | (3,314                                  | )          | (3,410                                | )          | (6,755 | ) | (6,587 | ) |
| Other, net                                                  |       | 163                                     |       | (462                                  | )          | 639 |   | (512 | ) |
|                                                        |       | (3,151                                  | )          | (3,872                                | )          | (6,116 | ) | (7,099 | ) |
|                                                        |       |                                    |       |                                  |       |   |   |   |   |
| Income  (loss) before income tax expense                    |       | 6,666                                   |       | 6,319                                 |       | 23,353 |   | (6,961 | ) |
|                                                        |       |                                    |       |                                  |       |   |   |   |   |
| Income tax  expense                                         |       | —                                  |       | 956                                   |       | — |   | 1,521 |   |
|                                                        |       |                                    |       |                                  |       |   |   |   |   |
| Net income  (loss)                                          |       | $                                       | 6,666      |                                  | $          | 5,363 |   | $ | 23,353 |   | $ | (8,482 | ) |
| Preferred  stock dividends                                  |       | (791                                    | )          | (782                                  | )          | (1,583 | ) | (1,407 | ) |
| Net income  (loss) allocable to common shares               |       | $                                       | 5,875      |                                  | $          | 4,581 |   | $ | 21,770 |   | $ | (9,889 | ) |
|                                                        |       |                                    |       |                                  |       |   |   |   |   |
| Total  comprehensive income (loss)                          |       | $                                       | 6,696      |                                  | $          | 6,442 |   | $ | 23,487 |   | $ | (6,848 | ) |

 

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

 

4

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**THEDOE RUN RESOURCES CORPORATION**

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

**(Dollarsin thousands)**

 
| ** **                                                                                | ** ** | **Six Months Ended   April 30,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                              | ** ** | **2004** | ** ** |
|                                                                                      |       |                                  |       |   |   |
| Cash flows  from operating activities:                                                    |       |                                  |       |   |   |
| Net income  (loss)                                                                        |       | $                                     | 23,353     |   | $ | (8,482 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities: |       |                                  |       |   |   |
| Depreciation,  depletion and amortization                                                 |       | 11,901                                |       | 12,672 |   |
| Imputed  interest and amortization of deferred financing costs                            |       | 346                                   |       | 554 |   |
| Unrealized  (gain) loss on derivative financial instruments                               |       | (1,261                                | )          | 940 |   |
| Losses from  impairment and disposal of long-lived assets                                 |       | 1,989                                 |       | 1,241 |   |
| Net decrease  resulting from other changes in assets and liabilities                      |       | (9,126                                | )          | (5,920 | ) |
| Net cash  provided by operating activities                                                |       | 27,202                                |       | 1,005 |   |
|                                                                                      |       |                                  |       |   |   |
| Cash flows  from investing activities:                                                    |       |                                  |       |   |   |
| Purchases of  property, plant and equipment                                               |       | (26,614                               | )          | (11,165 | ) |
| Proceeds  from sale of investments                                                        |       | 333                                   |       | — |   |
| Net cash  used in investing activities                                                    |       | (26,281                               | )          | (11,165 | ) |
|                                                                                      |       |                                  |       |   |   |
| Cash flows  from financing activities:                                                    |       |                                  |       |   |   |
| Proceeds  from revolving loans, net                                                       |       | 5,335                                 |       | 596 |   |
| Payments on  long-term debt                                                               |       | (14,638                               | )          | (2,353 | ) |
| Payments of  dividends                                                                    |       | (310                                  | )          | — |   |
| Net cash  used in financing activities                                                    |       | (9,613                                | )          | (1,757 | ) |
|                                                                                      |       |                                  |       |   |   |
| Net decrease  in cash                                                                     |       | (8,692                                | )          | (11,917 | ) |
|                                                                                      |       |                                  |       |   |   |
| Cash at  beginning of period                                                              |       | 20,318                                |       | 16,794 |   |
| Cash at end  of period                                                                    |       | $                                     | 11,626     |   | $ | 4,877 |   |

 

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

 

5

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**THE DOERUN RESOURCES CORPORATION**

 

**Notes toCondensed Consolidated Financial Statements**

**(Dollarsin thousands)**

 

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

 

***Unaudited Interim FinancialStatements***

 

These interim consolidated financialstatements include the accounts of The Doe Run Resources Corporation (Doe Run)and its subsidiaries (on a consolidated basis, the Company). Doe Run’s issuedand outstanding common stock is owned by a subsidiary of The Renco Group, Inc.(Renco).  In the opinion of management,the interim consolidated financial statements contain all adjustments, consistingof normal recurring accruals, necessary to present fairly the consolidatedfinancial position as of April 30, 2005 and the results of operations forthe three and six-month periods ended April 30, 2005 and 2004.  Interim periods are not necessarilyindicative of results to be expected for 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 decliningtreatment charges and low metal prices, a condition exacerbated by the Company’ssignificant interest costs prior to a restructuring in October 2002. Theseconditions have caused the Company’s net capital deficiency.

 

The Company is highly leveraged and has significant commitments forenvironmental matters. In addition, Doe Run Peru has significant commitmentsfor Environmental 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. See Note 8 for further discussion of theseobligations. These factors also increase the Company’s vulnerability to generaladverse conditions, limit the Company’s flexibility in planning for or reactingto changes in its business and industry, and limit the Company’s ability toobtain financing required to fund working capital and capital expenditures andfor other general corporate purposes. An unfavorable outcome to certaincontingencies discussed below, would have a further adverse effect on theCompany’s ability to meet its obligations when due. The Company’s ability tomeet these obligations is also dependent upon 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.

 

Doe Run has substantial debt service requirements in the future,including the maturity in 2005 of $15,500 for the Term Note. In addition, DoeRun Peru has significant capital requirements under the PAMA. The Company’srevolving credit facilities also expire in the fourth quarter of 2005, and willrequire renegotiation to extend their terms. There can be no assurance that therenewal efforts will be successful, or if successful, that the renewal would beat terms that are favorable to the Company. Discussions have been held withRenco to extend the Term Note, but there can be no assurance that the term willbe extended.

 

Management will continue to assess market and operating conditions atprevailing metal prices to maximize its operating profit or limit losses, whileallowing the Company to fulfill its environmental obligations.

 

As discussed in Note 8, Doe Run Peru’s existing PAMA requires it toperform projects in 2005 and 2006 at a total cost of $121,200. Doe Run Peruexpects that it will not be able to comply with the spending requirements ofthe 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.

 

The Peruvian Government has issued a supreme decree (Supreme Decree),which recognized that exceptional circumstances may justify an extension of oneor more projects within the scope of a PAMA. See Note 8 for discussion ofcurrent legislation that may affect the Supreme Decree. Doe Run Peru willsubmit an application for extension to modify the requirements of the existingPAMA and extend the term of the PAMA to complete the construction of thesulfuric acid plants contemplated by the original PAMA. Doe Run Peru will alsoperform additional environmental projects to reduce fugitive emissions,including heavy metal dust,

 

6

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to address the health issues of the community. As of April 30,2005, the remaining total cost of the current PAMA projects, including thesulfuric acid plants construction, and the additional projects is approximately$138,800. If the extension of the PAMA is approved, management expects to fundthe PAMA projects with cash from Doe Run Peru’s operations.

 

Upon approval of a modified PAMA, Doe Run Peru would be required tocreate a trust account to administer the receipts and disbursements related tothe extended PAMA projects. The Supreme Decree requires that receipts from DoeRun Peru’s sales 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.

 

The Supreme Decree also requires that Doe Run Peru provide financialsecurity within 30 days of the approval of the PAMA extension in an amountequal to 20% of the projected cost of the project or projects to be extended.The Company currently expects the overall investment required to build thesulfuric acid plants to be approximately $102,000.

 

A default under the requirements of the PAMA could result in a defaultunder the Doe Run Peru Revolving Credit facility. A default under the Doe RunPeru Revolving Credit Facility would result in a default under Doe Run’scurrent credit facility (Doe Run Revolving Credit Facility) and the Term Note.An acceleration of these obligations would result in a default of the 11.75%senior notes due 2008 (the 11.75% Notes).

 

These issues raise substantial doubt about the Company’s ability tocontinue as a going concern. Management believes that Doe Run Peru will obtainan approval of an extension to complete the sulfuric acid plants. There is noassurance, however, that Doe Run Peru will receive an extension, or, if itdoes, that the projects will be completed within the time limitation specifiedby the Supreme Decree. Doe Run Peru has developed a business plan thatidentifies several revenue generating and cost reduction activities. Managementbelieves the plan will enhance liquidity, which is expected to improve Doe Run Peru’sability to make the investments under the PAMA, assuming an extension isreceived. Revenue enhancement includes the processing of zinc ferrites and aneffort to bring more recycled feed into the smelter. The zinc ferriteprocessing is expected to produce a product with a zinc and silver contenttotaling approximately 20,000 tons and 4.3 million ounces, respectfully, on anannual basis beginning in the fourth quarter of 2005.  Planned cost reduction measures includemanpower reductions through voluntary retirement and decreased power usage inthe zinc circuit.  Doe Run Peru ceasedoperations of its three New Jersey zinc roasters in the first quarter of 2005.The decision should result in a reduction of refined zinc production to 50,000tons per year, down from the previous capacity of 88,200. This has reduced thepower usage in the zinc circuit. Management will continue to analyze costmanagement opportunities in current operating conditions.

 

Doe Run Peru has received assessments of income tax, includingpenalties and interest, and Value Added Tax (VAT) totaling $104,100 and$41,600, respectively, as discussed in Note 5. In addition, the Companyestimates that the effect of similar assessments for periods not yet assessedwould be approximately $1,400 and $19,300 for the income tax and VAT matters,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$5,900 for tax years 1998 through 2004.

 

Management of the Company believes that in each case Doe Run Peru hasfollowed the applicable Peruvian tax statutes and intends to pursue allavailable administrative and judicial appeals. Doe Run Peru is not required tomake any payments pending the administrative appeal process. If Doe Run Peru isnot successful in the administrative appeal processes and were to appeal in thejudicial system, some type of financial assurance would be required, which wouldhave a significant adverse effect on liquidity.

 

Net unused availability at April 30, 2005 and October 31,2004 under the Doe Run Revolving Credit Facility was approximately $22,300 and$22,500, respectively, and under the Doe Run Peru Revolving Credit Facilitywere $5,800 and virtually none, respectively. In addition to the availability under their revolving credit

 

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facilities, cash balances at Doe Run and Doe Run Peru were $7,400 and$4,200, respectively, at April 30, 2005 and $13,400 and $6,900,respectively, at October 31, 2004.

 

Management believes that high metal prices and other revenueenhancements, and the issuance of the Supreme Decree, by allowing anapplication to extend La Oroya’s PAMA requirement for the construction of thesulfuric acid plants, will enable the Company to continue as a going concern.

 

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

 

Inventories consist of the following:

 
| ** **                            | ** ** | **April 30,  2005** | ** ** | **October 31,  2004** | ** ** |
|---------------------------------------|------------|--------------------------|------------|----------------------------|------------|
|                                  |       |                     |       |                       |       |
| Finished  metals and concentrates     |       | $                        | 21,189     |                       | $          | 16,646 |   |
| Metals and  concentrates in process   |       | 72,696                   |       | 58,664                     |       |
| Materials,  supplies and repair parts |       | 31,128                   |       | 27,999                     |       |
|                                  |       | $                        | 125,013    |                       | $          | 103,309 |   |

 

Materials, supplies and repair parts arestated net of reserves for obsolescence of approximately $4,507 and $5,146 at April 30,2005 and October 31, 2004, respectively.

 

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

 

The 11.75% Notes are accounted for in accordance withStatement of Financial Accounting Standards No. 15, *Accounting by Debtors and Creditors for Troubled DebtRestructurings* (Statement No. 15). Interest on the 11.75% Notesis paid semi-annually in arrears on April 15 and October 15, exceptthat on each payment date occurring on or prior to October 15, 2005, DoeRun, at its option, may pay interest by either a) a cash payment of accruedinterest at an annual rate of 3% and issuance of additional notes with aprincipal amount equal to interest accrued since the last payment date at arate of 11.5% (PIK option) or b) a cash payment of accrued interest at anannual rate of 8.5%.

 

The April 15, 2005 payment was paid in cash at the 8.5% ratetotaling $9,300. Under Statement No. 15, a debtor may not change thecarrying amount of the payable at the time of restructuring unless the totalfuture cash payments, including interest, specified by the new terms are lessthan the carrying amount of the payable at the time of restructuring. Allamounts contingently payable were assumed payable in determination of theeffective interest rate used to record interest under Statement No. 15. Asa result, interest was calculated assuming the PIK option was exercised foreach payment date it was available. The effective interest rate changed asa result of the election to make the cash payment at 8.5% from 1.35% to 0.17%.

 

The credit agreement governing the Term Note was amended April 29,2005 to change the amount of capital expenditures allowed for the year ending October 31,2005.

 

**(5)****                     Income Taxes**

 

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 totalsapproximately $104,100.

 

The Companyestimates that the effect of a similar assessment for tax years after 2001would be approximately $1,400.

 

8

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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 $5,900 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.  The assessments primarily relate to Doe RunPeru’s exports with holding certificates and differences in a tax creditapplication. The total assessment for these periods was approximately $41,600.SUNAT offset the amount assessed for 2004 of approximately $2,300 against DoeRun Peru’s VAT receivable balance from July 2004.  Future VAT reimbursements cannot be used tooffset the assessment by SUNAT.  TheCompany estimates expected additional assessments related to VAT for tax years2002 and 2003 to total approximately $19,300 in regard to its exports withholding certificates.

 

Management of the Company believes that ineach case Doe Run Peru has followed the applicable Peruvian tax statutes andintends to pursue all available administrative and judicial appeals. Doe RunPeru is not required to make any payments pending the administrative appealprocess. If Doe Run Peru is not successful in the administrative appeal processesand were to appeal in the judicial system, some type of financial assurancewould be required. No amounts have been accrued as liabilities related to theseactions.

 

Pursuant to the Company’s tax sharingagreement with Renco, the Company paid Renco $310 in the second quarter of 2005,and had $141 owing as of April 30, 2005.

 

**(6)****                     EmployeeBenefits**

 

***Defined Benefit Plans***

** **

Net periodic benefit cost is comprised of thefollowing:

 
| ** **                                                | ** ** | **Three Months Ended   April 30,** | ** ** | **Six Months Ended   April 30,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------|------------|
| ** **                                                | ** ** | **2005**                                | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                      |       |                                    |       |                                  |       |   |   |   |   |
| Service cost                                              |       | $                                       | 551        |                                  | $          | 580 |   | $ | 1,097 |   | $ | 1,199 |   |
| Interest  cost on projected benefit obligation            |       | 1,670                                   |       | 1,764                                 |       | 3,325 |   | 3,644 |   |
| Expected  return on assets                                |       | (1,435                                  | )          | (1,274                                | )          | (2,858 | ) | (2,633 | ) |
| Net  amortization and deferral of unrecognized net losses |       | 714                                     |       | 935                                   |       | 1,422 |   | 1,932 |   |
| Net periodic  benefit cost                                |       | $                                       | 1,500      |                                  | $          | 2,005 |   | $ | 2,986 |   | $ | 4,142 |   |

 

The Company is required to make totalcontributions of $9,025 in 2005, of which $3,698 had been paid as of April 30,2005.

 

On April 11, 2005 the Company’s Board ofDirectors adopted changes to the Company’s defined benefit plans. Effective July 1,2005, no new employees will be eligible to participate in the plans andparticipants’ benefit accruals will cease. In addition to the net periodic benefit cost shown above, a curtailmentloss of $690 was reflected in operating expenses in the three months ended April 30,2005. Effective July 1, 2005, the Company’s 401(k) plan was also amendedto change the definition of eligible compensation and change the Company’smandatory match from 25% of the first 6% of a participant’s before-taxcontribution to 50% of the first 5% of a participant’s before-taxcontribution.  In addition, the amendmentprovides for a fixed 1% profit sharing contribution.

 

**(7)****                     SegmentInformation**

 

The Company’s operating segments areseparately managed business units that are distinguished by products, locationand production processes.  The primarylead segment includes integrated mining, milling and

 

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smelting operations located in Missouri.  The recycling operation segment, located inMissouri, recycles lead-bearing materials, primarily spent batteries.  The fabricated products segment, located inCasa Grande, Arizona and Vancouver, Washington, produces value-added leadproducts.  Doe Run Peru produces anextensive product mix of non-ferrous and precious metals.

 

*Operating Segments – Revenues*

 
| ** **                                        | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|---------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                        | ** ** | **2005**                               | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues  from external customers:                |       |                                   |       |                                 |       |   |   |   |   |
| Doe Run Peru                                      |       | $                                      | 157,980    |                                 | $          | 148,004 |   | $ | 306,042 |   | $ | 270,977 |   |
| Primary lead                                      |       | 65,143                                 |       | 48,194                               |       | 129,080 |   | 98,722 |   |
| Recycling  operation                              |       | 22,432                                 |       | 21,693                               |       | 40,998 |   | 37,762 |   |
| Fabricated  products                              |       | 3,386                                  |       | 3,340                                |       | 7,201 |   | 6,148 |   |
| Total                                             |       | 248,941                                |       | 221,231                              |       | 483,321 |   | 413,609 |   |
| Revenues  from other operating segments: (1)      |       |                                   |       |                                 |       |   |   |   |   |
| Doe Run Peru                                      |       | —                                 |       | 109                                  |       | 2,724 |   | 109 |   |
| Primary lead                                      |       | 209                                    |       | 252                                  |       | 711 |   | 516 |   |
| Recycling  operation                              |       | 82                                     |       | 111                                  |       | 180 |   | 155 |   |
| Fabricated  products                              |       | —                                 |       | —                               |       | — |   | — |   |
| Total                                             |       | 291                                    |       | 472                                  |       | 3,615 |   | 780 |   |
| Total  reportable segments                        |       | 249,232                                |       | 221,703                              |       | 486,936 |   | 414,389 |   |
| Metal sales  not attributed to operating segments |       | (1                                     | )          | 551                                  |       | 2,520 |   | 551 |   |
| Realized  losses on derivative contracts          |       | (1,560                                 | )          | (6,141                               | )          | (2,802 | ) | (8,515 | ) |
| Intersegment  eliminations                        |       | (291                                   | )          | (472                                 | )          | (3,615 | ) | (780 | ) |
| Total  revenues                                   |       | $                                      | 247,380    |                                 | $          | 215,641 |   | $ | 483,039 |   | $ | 405,645 |   |

 

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

 

10

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The measure of segment profit and loss usedby the Company is earnings of the segment before interest, taxes, depletion,depreciation, and amortization (EBITDA), as adjusted to exclude losses fromimpairment and disposal of long-lived assets and Doe Run Peru’s expensesrelated to hedging and agency fees under an agreement with Doe Run (AdjustedEBITDA). Consolidated Adjusted EBITDA also excludes accretion expense underStatement of Financial Accounting Standards No. 143, *Asset Retirement Obligations* (Statement No. 143),adopted November 1, 2002*.*

 

*Operating Segments – Adjusted EBITDA*

 
| ** **                                                | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **2005**                               | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                      |       |                                   |       |                                 |       |   |   |   |   |
| Doe Run Peru                                              |       | $                                      | 7,238      |                                 | $          | 9,029 |   | $ | 15,714 |   | $ | 10,443 |   |
| Primary lead                                              |       | 18,989                                 |       | 10,193                               |       | 42,071 |   | 19,059 |   |
| Recycling  operation                                      |       | 5,106                                  |       | 5,136                                |       | 8,933 |   | 7,259 |   |
| Fabricated  products                                      |       | 733                                    |       | 166                                  |       | 1,242 |   | 414 |   |
| Total  reportable segments                                |       | 32,066                                 |       | 24,524                               |       | 67,960 |   | 37,175 |   |
| Realized  losses on derivatives                           |       | (1,560                                 | )          | (6,141                               | )          | (2,802 | ) | (8,515 | ) |
| Other  revenues and expenses (1)                          |       | (4,638                                 | )          | (1,162                               | )          | (6,102 | ) | (3,169 | ) |
| Expenses to  be allocated (2)                             |       | (2,473                                 | )          | —                               |       | (2,473 | ) | — |   |
| Corporate  selling, general and administrative expenses   |       | (6,856                                 | )          | (4,335                               | )          | (13,111 | ) | (10,232 | ) |
| Intersegment  eliminations                                |       | (12                                    | )          | 5                                    |       | 13 |   | 25 |   |
| Consolidated  adjusted EBITDA                             |       | 16,527                                 |       | 12,891                               |       | 43,485 |   | 15,284 |   |
| Depreciation,  depletion and amortization                 |       | (5,764                                 | )          | (6,207                               | )          | (11,901 | ) | (12,672 | ) |
| Interest  expense, net                                    |       | (3,314                                 | )          | (3,410                               | )          | (6,755 | ) | (6,587 | ) |
| Unrealized  gain (loss) on derivatives                    |       | 463                                    |       | 4,084                                |       | 1,261 |   | (940 | ) |
| Losses from  impairment and disposal of long-lived assets |       | (779                                   | )          | (533                                 | )          | (1,989 | ) | (1,241 | ) |
| Asset  retirement obligation accretion expense            |       | (374                                   | )          | (489                                 | )          | (748 | ) | (890 | ) |
| Other                                                     |       | (93                                    | )          | (17                                  | )          | — |   | 85 |   |
| Income  (loss) before income taxes                        |       | $                                      | 6,666      |                                 | $          | 6,319 |   | $ | 23,353 |   | $ | (6,961 | ) |

 

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(1)          Other revenues and expenses consists of theprofit on metal sales not attributed to operating segments and operatingexpenses not allocated to operating segments, including adjustments toenvironmental liabilities relating to historic operations of $3,645 for thethree and six months ended April 30, 2005, and $0 and $1,000 for the threeand six months ended April 30, 2004, respectively; certain employeecompensation expenses of $678 and $1,791 for the three and six months ended April 30,2005 and $492 for the three and six months ended April 30, 2004,respectively; and adjustments necessary to state the primary lead and recyclingoperations’ inventories at LIFO cost of $750 for the three and six months endedApril 30, 2005, and $600 and $1,200 for the three and six months ended April 30,2004, respectively.

 

(2)          Due to timing, certain operating costs willbe allocated to segments in a different period than recorded in theconsolidated financial statements.

 

**(8)****                     AssetRetirement and Environmental Obligations**

 

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

 

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#### **Asset RetirementObligations**

#### ** **

Asset retirement obligations (AROs) are recognized as liabilities whenincurred, with the initial 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 iscapitalized as part of the related asset’s carrying value and will bedepreciated over the asset’s useful life. Changes in the ARO liability resulting from revisions to the timing orthe amount of the original estimate of undiscounted cash flows shall berecognized as an increase or a decrease in the carrying amount of the liabilityfor an ARO and the related asset retirement cost capitalized as part of thecarrying amount of the related long-lived asset.

 

The Company’s mines and related processingfacilities are subject to governance by various agencies that have establishedminimum 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 activities to containand cover the pile upon cessation of operations.  The Company’s mining and milling operationsare subject to Missouri mine waste closure permit requirements and leaseagreements which require the Company to reclaim surface areas, includingremediation of mining waste disposal areas, and to perform closure activitiesunderground.  These activities, whichtend to be site specific, generally include costs for earthwork, revegetation,water treatment and demolition.  Closureactivities may be performed over time.

 

The Company has a RCRA permit addressing the closureof portions of its recycling operation. The majority of the cost will arise from removing hazardous materialsfrom the facility. No ARO liability or related asset cost has been recordedbecause the fair value of the obligation cannot be determined due to theindeterminate timing. The cost of closure, based on third party estimates forbonding purposes, is approximately $3,000. The life of the operation is considered indeterminable because there isnot currently a cost-effective alternative to the lead acid batteries andbecause battery 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 acidrock.  Doe Run Peru is also responsiblefor the covering and revegetation of mixed lead and copper slag stored inHuanchan, an area a short distance from the smelter where the slag is currentlystored.

 

The Company’s total recorded liability for AROs wasapproximately $15,400 and $14,600 as of April 30, 2005 and October 31,2004, respectively.

 

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

#### ** **

The Company had recorded liabilities ofapproximately $20,200 and $18,800 related to remediation obligations as of April 30,2005 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 on May 20, 2004.  At April 30, 2005 the estimatedremaining cost of remediating these properties is approximately $690, withapproximately $430 to be spent during the remainder of calendar 2005.

 

Doe Run signed a settlement agreement with the State of Missouri on April 26,2002, whereby it agreed to offer to purchase approximately 160 residentialproperties in an area close to the smelter if the owner requests such an offer.The homeowners have until June 30, 2005 to accept any offers made. Theamount paid to the homeowners who accept an offer is based on an appraisal ofthe property’s value at August 31, 2001, plus, if a replacement propertyis purchased, an amount for owner-occupied residences representing the lesserof the difference between the appraisal amount and the cost of a similarproperty in another designated community or the difference between theappraisal amount and the replacement property.

 

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As of May 31, 2005, a total of 149 homeowners hadrequested offers, and 125 of 148 delivered offers had been accepted. As of May 31,2005, the Company had spent approximately $9,300 under the residential propertypurchase plan. Another $300 of accepted offers are awaiting a closing date and$1,800 in outstanding offers have not been accepted. Management cannot estimatehow many of the remaining homeowners will accept offers.  If Doe Run does not comply with the materialproperty purchase provisions of the settlement agreement, Doe Run will besubject to a $1,000 penalty.

 

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’s recorded liability forremediation does not include the future purchase costs relating to theresidential property purchase plan as these costs are capitalized.

 

Doe Run is subject to a plan with the MissouriDepartment of Natural Resources and the Missouri Air Conservation Commission toachieve and maintain compliance with the ambient air quality standard for leadpromulgated under the federal Clean Air Act for the city of Herculaneum.  The plan was included in a consent judgmententered into by Doe Run and has been approved at the state level and by theU.S. EPA. The air quality monitors reflected compliance for 10 of the last 11quarters. If the air quality monitors reflect a second quarter ofnoncompliance, the permitted annual capacity of the Herculaneum Smelter woulddecrease from 250,000 to 200,000 tons, which would not affect results atcurrent production levels.  Future non-attainmentcould have a material adverse financial impact on the Company.

 

Doe Run has received notice that it is apotentially responsible party (PRP) subject to liability under TheComprehensive Environmental Response, Compensation and Liability Act of 1980,as amended (CERCLA), at the following sites: six sites in St. Francois County,Missouri, including the Big River Mine Tailings site, the Bonne Terre site, theFederal site, the National site, the Rivermines site and the Leadwood site; theOronogo-Durenweg site in Jasper County, Missouri; the Cherokee County site inCherokee County, Kansas; the Tar Creek site in Ottawa County, Oklahoma; theBlock “P” site in Cascade County and Judith County, Montana; and the MissouriElectric Works site in Cape Girardeau, Missouri.  There are two additional sites in St.Francois County for which the U.S. EPA has indicated it will issue notice.  CERCLA provides for strict and, in certaincircumstances, joint and several liability for response costs and naturalresource damages.  The Company’s estimateof the cost of the remediation of these sites, including the two additionalsites in St. Francois County, is included in the total liability forremediation obligations, which the Company believes is adequate based on its investigationsto date.  However, depending upon thetypes of remediation required and certain other factors, additional costs atthese sites, individually or collectively, could have a material adverse effecton the results of operations, financial condition and liquidity of the Company.

 

In February 2004 the U.S. Department ofAgriculture issued a Unilateral Administrative Order (UAO) ordering certainremediation activities by Doe Run at the Block “P” millsite. Doe Run hasrequested that other parties be added to the order.  Doe Run will seek reimbursement from the U.S.Government and these other parties.

 

Doe Run has completed 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 westBonne Terre site and is underway on the east site with completion expected inlate 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 will commence upon approval of a work plan.

 

Doe Run is subject to anAOC with the U.S. EPA to remediate the Big River Mine Tailings site.  The remediation work required by the AOC hasbeen substantially completed and will continue with revegetation and ongoingmonitoring and maintenance activities.

 

Doe Run has also signed AOCs to perform an EE/CA on each of theNational and Leadwood sites for remediation of mine waste areas.  Doe Run’s National EE/CA was completed by thePRP’s and was

 

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submitted to the U.S. EPA for approval. The U.S. EPA decided to conduct its own EE/CA and, although it is not yetfinalized, the cost of their remedy is higher than the submitted EE/CA. TheLeadwood EE/CA has been submitted to the U.S. EPA for approval. In addition,Doe Run has signed an AOC with the U.S. EPA to conduct a RemedialInvestigation/Feasibility Study (RI/FS) to assess potential off-site impacts ofthese site operations on groundwater, residential soils, several creeks and ariver and the need for related remediation. The initial draft of the RI/FS was submitted in early March 2002.  Doe Run signed an order to conduct interimmeasures, which consisted of blood lead testing of young children, residentialsoil sampling and limited soil remediation as indicated by the testing andsampling results, which was terminated and replaced by an AOC to conduct certainadditional soil remediation in the area and has included its best estimate ofthese efforts in its recorded liabilities. The Company believes the recorded liabilities related to these sites areadequate.  However, should remediationgoals or areas change, requiring substantially increased measures, there can beno assurance that the recorded 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 573 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. Doe Run expects that its share of thepotential remediation costs will not be significant, based on management’sestimates of the number of houses requiring remediation, remediation methodsand Doe Run’s apportionment 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, Missouriknown as the Mine LaMotte Site.  Doe Runand the owner of the other 50% share of stock in the company that mined thesite have signed an AOC to conduct an RI/FS at the site.  This site is substantially smaller than thesites in St. Francois County where the Company has been named a PRP, and thepotential issues are less complex.  DoeRun has also been advised that remediation is required at a related smallsatellite mine site.  After conducting aninvestigation, Doe Run has determined that it was not involved in operations atthe satellite site, but further review will be required before a determinationcan be made as to whether it has any liability at the main site.  At this time, based on preliminary informationand an inspection of the sites, management does not believe that any futureaction will result in a material adverse impact to 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 involveremediation of solid waste management units at the site. and it is expectedthat the plan for corrective action will be approved in fiscal 2005. TheCompany’s estimate of the cost of this corrective action is $2,000.  The storage area is also covered under thepermit, but management does not believe the cost of closure issignificant.  While management believesthat recorded liabilities are adequate based on expectations of the closureplan requirements, regulators could require that additional measures beincluded in the finalized plan, which could change the estimate of the costsfor corrective action.

 

On August 25, 2004, the U.S. EPA issueda Notice of Violation (NOV) to the Company alleging past violations of therecycling facility’s air permit conditions regarding production limits for itsreverbatory furnace. Management believes the facility has operated incompliance with state and federal air requirements and has objected to the NOV.Consequently, management believes this issue will not cause a material adverseimpact on the Company.

 

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

 

#### ***ForeignOperations***

#### ** **

Doe Run Peru’s La Oroya operations historically and currently exceedsome of the applicable Ministry of Energy and Mines (MEM) maximum permissiblelimits pertaining to air emissions and wastewater effluent

 

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quality. The PAMA projects, which are more fully discussed below, havebeen designed to achieve compliance with these requirements. There can be noassurance that the Peruvian government will not, in the future, requirecompliance with additional environmental regulations that could adverselyaffect Doe Run Peru’s business, financial condition and results of operations.

 

Metaloroya S.A., the former owner of the La Oroya smelter, at the timea subsidiary of Empresa Minera 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 ofthe PAMA, the operator must comply with all applicable standards andrequirements. Because these costs improve the property or prevent futureenvironmental contamination, they are capitalized.

 

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

 

•      Newsulfuric acid plants;

•      Treatmentplant for the copper refinery effluent;

•      Industrialwastewater treatment plant for the smelter and refinery;

•      Improvethe slag handling system;

•      ImproveHuanchan lead and copper slag deposits;

•      Buildan arsenic trioxide deposit;

•      Improvethe zinc ferrite disposal site;

•      Domesticwastewater treatment and domestic waste disposal; and

•      Monitoringstation.

 

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    |   |

 

Doe Run Peru expects that it will not be ableto comply with the spending requirements of La Oroya’s 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.

 

On December 29, 2004 the PeruvianGovernment issued a Supreme Decree, which recognized that exceptionalcircumstances may justify an extension of one or more projects within the scopeof a PAMA. The Supreme Decree specifies that companies have until December 31,2005 to apply for an extension.  The maximum extension is for three yearsand the MEM may authorize an additional year based upon the results of a healthrisk study.

 

15

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The Peruvian Congress passed a law in April 2005that included several provisions that could affect the administration’s abilityto extend the PAMA, contrary to the Supreme Decree. The President of Peruobjected to a provision prohibiting extensions to projects within a PAMA andreturned the bill to the Congress, where 61 votes out of the full congressionalbody of 120 members could override the objection. Current provisions beingreconsidered by Congress would require approval by CONAM, Peru’s environmentalprotection agency, before MEM may approve a request to extend the term of thePAMA. Management believes it is unlikely that the Congress will override theobjection or that any provisions to which the President objected will remain inreplacement legislation.

 

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. In order to meet these requirements, Doe Run Peru does not expectto apply for the extension until October 2005.

 

Upon approval of a modified PAMA, Doe RunPeru would be required to create a trust account to administer the receipts anddisbursements related to the extended PAMA. The Supreme Decree requires thatreceipts from sales be remitted monthly directly to the trust account, in an amountsufficient to fund the month’s cash requirements of the extended PAMA. Such anarrangement is prohibited by the Doe Run Peru Revolving Credit Facility, whichexpires on September 23, 2005. Accordingly, any new or amended Doe Run Peru credit facility must complywith the requirements established by the Supreme Decree, should Doe Run Peru’sPAMA be extended.

 

The Supreme Decree also requires that Doe RunPeru provide financial security within 30 days of the approval of the PAMAextension in an amount equal to 20% of the projected cost of the project orprojects to be extended. The Company currently expects the overall investmentrequired to build the sulfuric acid plants to be approximately $102,000. TheCompany cannot assure that it will be successful in obtaining the necessaryfinancial security required.

 

Doe Run Peru will perform other environmental projects to reducefugitive emissions, including heavy metal dust, to address the health issues ofthe community. As of April 30, 2005, the remaining total cost of thecurrent PAMA projects, including the sulfuric acid plants construction, andthese projects is approximately $138,800.

 

Management believes that Doe Run Peru willobtain an approval of an extension to complete the sulfuric acid plants. Thereis no assurance, however, that Doe Run Peru will receive an extension, or, ifit does, that the projects will be completed within the time limitationspecified by the Supreme Decree.

 

The PAMA projects have been designed to achieve compliance with themaximum permissible limits of emission prior to the expiration of the PAMA. Noassurance can be given that implementation of the PAMA projects is feasible orthat their implementation will achieve compliance with the applicable legalrequirements by the end of the PAMA period. Further, there can be no assurancethat the Peruvian government will not in the future require compliance withadditional or different environmental obligations that could adversely affectDoe Run Peru’s business, financial condition and results of operations.

 

Under the purchase agreement related to the acquisition of the La Oroyaassets in October 1997, Centromin, the prior owner of the La Oroya smelterand Cobriza mine, agreed to indemnify Doe Run Peru against environmentalliability arising out of its prior operations and their apportioned share ofany other complaint related to emissions. Performance of the indemnity has beenguaranteed by the Peruvian government through the enactment of the SupremeDecree No. 042-97-PCM. However, there can be no assurance that Centrominwill satisfy its environmental obligations and investment requirements,including those in its PAMA, or that the guarantee will be honored. Any failureby Centromin to satisfy its environmental obligations could adversely affectDoe Run Peru’s business, financial condition and results of operations.

 

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The Cobriza mine has a separate PAMA in which Doe Run Peru committed tocomplete projects to manage tailings, mine drainage, sewage and garbage. As of June 2004,Doe Run Peru completed its PAMA requirements and ceased discharging mine wasteinto the Mantaro River and was in compliance with the emissions standardsrequired by the PAMA.

 

Doe Run Peru is responsible for the remediation costs relating to azinc ferrite disposal site. The current closure plan provides for encapsulatingthe ferrite residues in place at Huanchan, an area a short distance from thesmelter where they are currently stored, for which an environmental liabilityof $1,600 has been recorded as of April 30, 2005 and October 31,2004.

 

***Consolidated***

 

The Company believes its liabilities for domestic andforeign environmental, mine closure and reclamation matters are adequate, basedon the information currently available. Depending upon the type and extent of activities required, revisions tomanagement’s estimates of costs to perform these activities are reasonablypossible in the near term.  Therefore,there can be no assurance that additional costs, both individually and in theaggregate, would not have a material adverse effect on the results ofoperations, financial condition and liquidity of the Company.

 

**(9)****                     Litigation**

 

Doe Run is a defendant in nine lawsuits allegingcertain damages stemming from the operations at the Herculaneum smelter.  Three of these cases are class actionlawsuits.  In two cases, the plaintiffsseek to have certified a class of property owners in a certain section ofHerculaneum, alleging that property values have been damaged due to theoperations of the smelter.  In anothercase, plaintiffs seek to have certified a class of children who lived inHerculaneum during a period of time when they were less than six years old andchildren born to mothers who lived in Herculaneum during theirpregnancies.  The remedy sought ismedical monitoring for the class.  Six ofthe cases are personal injury actions by 26 individuals who allege damages fromthe effects of lead due to operations at the smelter.  Punitive damages also are being sought in eachcase.

 

A resident of Herculaneum has claimed personal injuries allegedlyresulting from exposure to emissions from the smelter.  No suit has yet been filed in this matter.

 

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

 

Doe Run has been named in 17 suits filed by 116railway employees against a railroad carrier and multiple lead mining companiesalleging personal injury resulting from exposure to lead concentrates hauled bythe railroad carrier.  In addition, DoeRun has been named in an action by the spouses of four railway workers relatedto the exposure to lead from the hauling of lead concentrates by therailroad.  Doe Run has settled all ofthese cases without any admissions of liability and the cases have beendismissed.

 

Doe Run is a defendant in a lawsuit by theBNSF Railway Company who has alleged that Doe Run and other companiesassociated with lead mining operations in Missouri are responsible for propertydamage at certain rail yards and for contribution and indemnity for costsincurred by BNSF associated with settlement by BNSF of lead exposurecases.  The complaint against Doe Runindicates that material liability is reasonably possible, but, given theearly stage of this case, the Company is unable at this time to estimate theexpected outcome and any final costs of this action.

 

17

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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 QuapawTribe.  One of the personal injurylawsuits, which was consolidated from five separate lawsuits, currentlyconsists of claims against companies who mined lead and zinc in Ottawa Countyby seven child plaintiffs who allege personal injury from exposure to chat andtailings.  A second personal injury casewas consolidated from two separate cases and currently consists of claimsagainst companies who mined lead and zinc in Ottawa County by 42 child plaintiffswho allege personal injury from exposure to chat and tailings.  The Company is unable at this time toestimate 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 result of lead poisoning from exposure to leadpaint and tetraethyl lead dust.  Thesuits seek punitive damages.  Doe Run wasdismissed from two similar cases in which it was joined as a defendant.  Until Doe Run is actually joined as adefendant in one or more of these cases, material liability from these cases isconsidered remote.

 

Doe Run has been named in an asbestos injury suit in the City of St.Louis by an individual against numerous companies and public entities, allegingthat he was exposed to asbestos, including at the premises of the St. JoeMinerals Corporation (Doe Run’s predecessor). 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, in which Doe Run has not been properly served,and the other filed by a person who did laundry for insulation workers in herfamily who were allegedly exposed to asbestos at Doe Run’s Herculaneum,Missouri facility.  Doe Run was served aWrit of Summons in a fourth case filed in Pennsylvania in May 2003 but hasnot yet been served with a complaint.

 

Doe Run has been named as a party in various lawsuits relating tocertain operations of its predecessor. Fluor Corporation, the owner of Doe Run’s predecessor, retained theobligation for any costs of defense or claims relating to these lawsuits.  Should Fluor Corporation become unable tofulfill its contractual obligation, Doe Run could be liable for any costs orclaims resulting from these lawsuits. There is no reason at this time to believe that Fluor Corporation couldnot fulfill its contractual obligations.

 

Doe Run Peru is a defendant in 134 lawsuitsin the Lima, Peru labor courts whereby workers have alleged damages fromindustrial diseases.  Doe Run Peru hasmade claims in most of the cases against Centromin and has also made claimsagainst both governmental agencies and private companies that provide workers’insurance.  The average claim is$18.  Of seven concluded cases in thiscategory, six were dismissed and one resulted in a payment by Doe Run Peru of$9.

 

Doe Run Peru is also a defendant in 136lawsuits by workers alleging that they are owed certain differences in salariesand benefits.  The average claim is$24.  Of 25 concluded cases in thiscategory, 22 were dismissed and three resulted in a payment by Doe Run Peru of$3. Doe Run Peru is also a defendant in a lawsuit by the Yauli-La OroyaEmployees Union concerning salaries and benefits.  The claims ofthe 150 workers remaining in the lawsuit total approximately $660.

 

On January 19, 2005, Doe Run Peru wasserved with a lawsuit by an association of municipalities of the Junin Regionof Peru against Doe Run Peru and two other mining companies.  This lawsuit alleges environmental damages tothe Mantaro River basin in the amount of $5.0 billion.  Material liability to Doe Run Peru isbelieved to be remote because it is the opinion of management and outsidecounsel for Doe Run Peru that the probability under Peruvian law ofthis case proceeding to a conclusion at the favor of the plaintiffs is low. Anypotential judgment would be subject to the indemnification obligations ofCentromin, 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 time to estimate the expected outcome and the finalcosts, except as noted, of these actions. No amountshave been accrued as liabilities related to these actions.  There can be no assurancethat these cases would not have a material adverse effect, both individuallyand in the aggregate, on the results of operations, financial

 

18

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conditionand liquidity of the Company.  TheCompany has and will continue to vigorously defend itself against such claims.

 

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

 

The Guarantor Subsidiaries (Fabricated Products, Inc. (FPI) and DRLand Holdings, LLC (together, the Domestic Guarantors), Buick ResourceRecycling Facility, LLC, Doe Run Cayman Ltd. (Doe Run Cayman) and itssubsidiary Doe Run Peru) have jointly and severally, fully, unconditionally andirrevocably guaranteed the 11.75% Notes of the Company. Doe Run Cayman has nooperations separate from those of Doe Run Peru. Separate financial statementsand other disclosures concerning certain Guarantor Subsidiaries and disclosuresconcerning non-Guarantor Subsidiaries have not been presented because managementhas determined 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

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

 

**Condensed Consolidating Balance Sheet(unaudited)**

**As of April 30, 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                                                                                         |       | $                                                      | 7,444      |                                             | $          | —                            |       | $                                     | 1          |             | $          | 4,181             |       | $ | — |   | $ | 11,626 |   |
| Trade  accounts receivable, net of allowance for doubtful accounts                           |       | 53,933                                                 |       | —                                           |       | 2,441                             |       | 19,277                                |       | (1,302           | )          | 74,349            |       |
| Inventories                                                                                  |       | 43,804                                                 |       | —                                           |       | 1,550                             |       | 79,702                                |       | (43              | )          | 125,013           |       |
| Prepaid  expenses and other current assets                                                   |       | 14,063                                                 |       | —                                           |       | 32                                |       | 16,361                                |       | —           |       | 30,456            |       |
| Due from  subsidiaries/parent                                                                |       | 151,812                                                |       | 1,579                                            |       | —                            |       | —                                |       | (153,391         | )          | —            |       |
| Total  current assets                                                                        |       | 271,056                                                |       | 1,579                                            |       | 4,024                             |       | 119,521                               |       | (154,736         | )          | 241,444           |       |
| Property,  plant and equipment, net                                                          |       | 74,253                                                 |       | 14,037                                           |       | 1,210                             |       | 152,916                               |       | —           |       | 242,416           |       |
| Due from  subsidiaries                                                                       |       | 15,435                                                 |       | —                                           |       | —                            |       | —                                |       | (15,435          | )          | —            |       |
| Other  noncurrent assets, net                                                                |       | 6,231                                                  |       | —                                           |       | 63                                |       | 56                                    |       | —           |       | 6,350             |       |
| Investment  in subsidiaries                                                                  |       | (3,993                                                 | )          | —                                           |       | —                            |       | —                                |       | 3,993            |       | —            |       |
| Total assets                                                                                 |       | $                                                      | 362,982    |                                             | $          | 15,616                            |       | $                                     | 5,297      |             | $          | 272,493           |       | $ | (166,178 | ) | $ | 490,210 |   |
|                                                                                         |       |                                                   |       |                                             |       |                              |       |                                  |       |             |       |              |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                     | ** ** |
| Current  liabilities:                                                                        |       |                                                   |       |                                             |       |                              |       |                                  |       |             |       |              |       |
| Current  maturities of long-term debt                                                        |       | $                                                      | 74,227     |                                             | $          | —                            |       | $                                     | —     |             | $          | 34,219            |       | $ | — |   | $ | 108,446 |   |
| Accounts  payable                                                                            |       | 26,059                                                 |       | —                                           |       | 539                               |       | 59,795                                |       | (1,302           | )          | 85,091            |       |
| Accrued  liabilities                                                                         |       | 50,077                                                 |       | —                                           |       | 533                               |       | 31,114                                |       | —           |       | 81,724            |       |
| Due to  parent/subsidiaries                                                                  |       | 1,579                                                  |       | —                                           |       | 8,749                             |       | 143,063                               |       | (153,391         | )          | —            |       |
| Total  current liabilities                                                                   |       | 151,942                                                |       | —                                           |       | 9,821                             |       | 268,191                               |       | (154,693         | )          | 275,261           |       |
|                                                                                         |       |                                                   |       |                                             |       |                              |       |                                  |       |             |       |              |       |
| Long-term  debt, less current maturities                                                     |       | 299,468                                                |       | —                                           |       | —                            |       | 17                                    |       | —           |       | 299,485           |       |
| Due to  parent                                                                               |       | —                                                 |       | —                                           |       | —                            |       | 15,435                                |       | (15,435          | )          | —            |       |
| Other  noncurrent liabilities                                                                |       | 73,943                                                 |       | —                                           |       | 432                               |       | 3,460                                 |       | —           |       | 77,835            |       |
| Total  liabilities                                                                           |       | 525,353                                                |       | —                                           |       | 10,253                            |       | 287,103                               |       | (170,128         | )          | 652,581           |       |
|                                                                                         |       |                                                   |       |                                             |       |                              |       |                                  |       |             |       |              |       |
| Series A  redeemable preferred stock                                                    |       | 26,912                                                 |       | —                                           |       | —                            |       | —                                |       | —           |       | 26,912            |       |
|                                                                                         |       |                                                   |       |                                             |       |                              |       |                                  |       |             |       |              |       |
| 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                                                                  |       | —                                                 |       | 19,901                                           |       | 1,205                             |       | —                                |       | (21,106          | )          | —            |       |
| Retained  earnings (accumulated deficit) and accumulated other comprehensive losses          |       | (189,283                                               | )          | (4,285                                           | )          | (6,162                            | )          | (16,615                               | )          | 27,062           |       | (189,283          | )          |
| Total  shareholders’ equity (deficit)                                                   |       | (189,283                                               | )          | 15,616                                           |       | (4,956                            | )          | (14,610                               | )          | 3,950            |       | (189,283          | )          |
| Total  liabilities and shareholders’ equity (deficit)                                   |       | $                                                      | 362,982    |                                             | $          | 15,616                            |       | $                                     | 5,297      |             | $          | 272,493           |       | $ | (166,178 | ) | $ | 490,210 |   |

 

20

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

 

**Condensed Consolidating Statement ofOperations (unaudited)**

**Six Months Ended April 30, 2005**

 
| ** **                                    | ** ** | **The Company   Excluding   Guarantor   Subsidiaries** | ** ** | **Buick   Resource   Recycling   Facility, LLC** | ** ** | **Domestic   Guarantors** | ** ** | **Doe Run   Cayman and   Subsidiary** | ** ** | **Eliminations** | ** ** | **The   Company** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------|------------|---------------------------------------|------------|------------------|------------|-------------------|------------|
|                                          |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Net sales                                     |       | $                                                      | 170,687    |                                             | $          | —                    |       | $                                     | 7,201      |             | $          | 308,766           |       | $ | (3,615 | ) | $ | 483,039 |   |
|                                          |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Costs and  expenses:                          |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Cost of  sales                                |       | 130,709                                                |       | —                                           |       | 5,240                     |       | 285,010                               |       | (3,628           | )          | 417,331           |       |
| Depletion,  depreciation and amortization     |       | 4,533                                                  |       | 1,256                                            |       | 209                       |       | 5,903                                 |       | —           |       | 11,901            |       |
| Selling,  general and administrative          |       | 12,631                                                 |       | —                                           |       | 1,202                     |       | 8,608                                 |       | —           |       | 22,441            |       |
| Unrealized  (gain) loss on derivatives        |       | (1,492                                                 | )          | —                                           |       | —                    |       | 231                                   |       | —           |       | (1,261            | )          |
| Other                                         |       | 2,840                                                  |       | 29                                               |       | 152                       |       | 137                                   |       | —           |       | 3,158             |       |
| Total costs  and expenses                     |       | 149,221                                                |       | 1,285                                            |       | 6,803                     |       | 299,889                               |       | (3,628           | )          | 453,570           |       |
|                                          |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Income  (loss) from operations                |       | 21,466                                                 |       | (1,285                                           | )          | 398                       |       | 8,877                                 |       | 13               |       | 29,469            |       |
|                                          |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Other income  (expense):                      |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Interest  expense, net                        |       | (5,207                                                 | )          | —                                           |       | (314                      | )          | (1,234                                | )          | —           |       | (6,755            | )          |
| Other, net                                    |       | (438                                                   | )          | 446                                              |       | 2                         |       | 629                                   |       | —           |       | 639               |       |
| Equity in  earnings of subsidiaries           |       | 7,532                                                  |       | —                                           |       | —                    |       | —                                |       | (7,532           | )          | —            |       |
|                                          |       | 1,887                                                  |       | 446                                              |       | (312                      | )          | (605                                  | )          | (7,532           | )          | (6,116            | )          |
|                                          |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Income  (loss) before income tax expense      |       | 23,353                                                 |       | (839                                             | )          | 86                        |       | 8,272                                 |       | (7,519           | )          | 23,353            |       |
|                                          |       |                                                   |       |                                             |       |                      |       |                                  |       |             |       |              |       |
| Income tax  expense                           |       | —                                                 |       | —                                           |       | —                    |       | —                                |       | —           |       | —            |       |
| Net income  (loss)                            |       | 23,353                                                 |       | (839                                             | )          | 86                        |       | 8,272                                 |       | (7,519           | )          | 23,353            |       |
| Preferred  stock dividends                    |       | (1,583                                                 | )          | —                                           |       | —                    |       | —                                |       | —           |       | (1,583            | )          |
| Net income  (loss) allocable to common shares |       | $                                                      | 21,770     |                                             | $          | (839                      | )          | $                                     | 86         |             | $          | 8,272             |       | $ | (7,519 | ) | $ | 21,770 |   |

 

22

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

 

**Condensed Consolidating Statement ofOperations (unaudited)**

**Three Months Ended April 30, 2005**

 
| ** **                                    | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|-------------------------------------|------------|------------------|------------|------------------|------------|
|                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Net sales                                     |       | $                                                   | 86,305     |                                          | $          | —                   |       | $                                   | 3,386      |             | $          | 157,980          |       | $ | (291 | ) | $ | 247,380 |   |
|                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Costs and  expenses:                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Cost of  sales                                |       | 70,671                                              |       | —                                        |       | 2,290                    |       | 146,646                             |       | (279             | )          | 219,328          |       |
| Depletion,  depreciation and amortization     |       | 2,274                                               |       | 633                                           |       | 109                      |       | 2,748                               |       | —           |       | 5,764            |       |
| Selling,  general and administrative          |       | 6,605                                               |       | —                                        |       | 615                      |       | 4,393                               |       | —           |       | 11,613           |       |
| Unrealized  gain on derivatives               |       | (383                                                | )          | —                                        |       | —                   |       | (80                                 | )          | —           |       | (463             | )          |
| Other                                         |       | 1,319                                               |       | —                                        |       | (1                       | )          | 3                                   |       | —           |       | 1,321            |       |
| Total costs  and expenses                     |       | 80,486                                              |       | 633                                           |       | 3,013                    |       | 153,710                             |       | (279             | )          | 237,563          |       |
|                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) from operations                |       | 5,819                                               |       | (633                                          | )          | 373                      |       | 4,270                               |       | (12              | )          | 9,817            |       |
|                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Other income  (expense):                      |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Interest  expense, net                        |       | (2,528                                              | )          | —                                        |       | (158                     | )          | (628                                | )          | —           |       | (3,314           | )          |
| Other, net                                    |       | (359                                                | )          | 222                                           |       | —                   |       | 300                                 |       | —           |       | 163              |       |
| Equity in  earnings of subsidiaries           |       | 3,734                                               |       | —                                        |       | —                   |       | —                              |       | (3,734           | )          | —           |       |
|                                          |       | 847                                                 |       | 222                                           |       | (158                     | )          | (328                                | )          | (3,734           | )          | (3,151           | )          |
|                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income  (loss) before income tax expense      |       | 6,666                                               |       | (411                                          | )          | 215                      |       | 3,942                               |       | (3,746           | )          | 6,666            |       |
|                                          |       |                                                |       |                                          |       |                     |       |                                |       |             |       |             |       |
| Income tax  expense                           |       | —                                              |       | —                                        |       | —                   |       | —                              |       | —           |       | —           |       |
| Net income  (loss)                            |       | 6,666                                               |       | (411                                          | )          | 215                      |       | 3,942                               |       | (3,746           | )          | 6,666            |       |
| Preferred  stock dividends                    |       | (791                                                | )          | —                                        |       | —                   |       | —                              |       | —           |       | (791             | )          |
| Net income  (loss) allocable to common shares |       | $                                                   | 5,875      |                                          | $          | (411                     | )          | $                                   | 215        |             | $          | 3,942            |       | $ | (3,746 | ) | $ | 5,875 |   |

 

23

----

 

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

 

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

**Six Months Ended April 30, 2004**

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

 

24

----

 

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

 

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

**Three Months Ended April 30, 2004**

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

 

25

----

 

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

 

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

**Six Months Ended April 30, 2005**

 
| ** **                                           | ** ** | **The Company**  | ** ** | **Buick**         | ** ** | ** **     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **  | ** ** |
|------------------------------------------------------|------------|------------------|------------|-------------------|------------|----------------|------------|----------------|------------|------------------|------------|-------------|------------|
| ** **                                           | ** ** | **Excluding**    | ** ** | **Resource**      | ** ** | ** **     | ** ** | **Doe Run**    | ** ** | ** **       | ** ** | ** **  | ** ** |
| ** **                                           | ** ** | **Guarantor**    | ** ** | **Recycling**     | ** ** | **Domestic**   | ** ** | **Cayman and** | ** ** | ** **       | ** ** | **The**     | ** ** |
| ** **                                           | ** ** | **Subsidiaries** | ** ** | **Facility, LLC** | ** ** | **Guarantors** | ** ** | **Subsidiary** | ** ** | **Eliminations** | ** ** | **Company** | ** ** |
|                                                 |       |             |       |              |       |           |       |           |       |             |       |        |       |
| Net cash  provided by (used in) operating activities |       | $                | 13,758     |              | $          | 417            |       | $              | (709       | )                | $          | 22,587      |       | $ | (8,851 | ) | $ | 27,202 |   |
|                                                 |       |             |       |              |       |           |       |           |       |             |       |        |       |
| Cash flows from  investing activities:               |       |             |       |              |       |           |       |           |       |             |       |        |       |
| Purchases of  property, plant and equipment          |       | (8,387           | )          | —            |       | (130           | )          | (18,097        | )          | —           |       | (26,614     | )          |
| Net proceeds  from sales of investments              |       | 333              |       | —            |       | —         |       | —         |       | —           |       | 333         |       |
| Investment in  subsidiaries                          |       | (8,851           | )          | —            |       | —         |       | —         |       | 8,851            |       | —      |       |
| Net cash  provided by (used in) investing activities |       | (16,905          | )          | —            |       | (130           | )          | (18,097        | )          | 8,851            |       | (26,281     | )          |
|                                                 |       |             |       |              |       |           |       |           |       |             |       |        |       |
| Cash flows from  financing activities:               |       |             |       |              |       |           |       |           |       |             |       |        |       |
| Proceeds from  (payments on) revolving loans, net    |       | 10,535           |       | —            |       | —         |       | (5,200         | )          | —           |       | 5,335       |       |
| Payments on  long-term debt                          |       | (14,621          | )          | —            |       | —         |       | (17            | )          | —           |       | (14,638     | )          |
| Payments of  dividends                               |       | (310             | )          | —            |       | —         |       | —         |       | —           |       | (310        | )          |
| Due to/due from  parent/subsdiaries                  |       | 1,575            |       | (417              | )          | 839            |       | (1,997         | )          | —           |       | —      |       |
| Net cash  provided by (used in) financing activities |       | (2,821           | )          | (417              | )          | 839            |       | (7,214         | )          | —           |       | (9,613      | )          |
|                                                 |       |             |       |              |       |           |       |           |       |             |       |        |       |
| Net decrease in  cash                                |       | (5,968           | )          | —            |       | —         |       | (2,724         | )          | —           |       | (8,692      | )          |
|                                                 |       |             |       |              |       |           |       |           |       |             |       |        |       |
| Cash at  beginning of period                         |       | 13,412           |       | —            |       | 1              |       | 6,905          |       | —           |       | 20,318      |       |
| Cash at end of  period                               |       | $                | 7,444      |              | $          | —         |       | $              | 1          |             | $          | 4,181       |       | $ | — |   | $ | 11,626 |   |

 

26

----

 

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

 

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

**Six Months Ended April 30, 2004**

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

 

27

----

 

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

**Condensed Balance Sheets**

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

 
| ** **                                                         | ** ** | **April 30,** | ** ** | **October 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                                         | ** ** | **2005**           | ** ** | **2004**             | ** ** |
| ** **                                                         | ** ** | **(unaudited)**    | ** ** | ** **           | ** ** |
| **ASSETS**                                                         | ** ** | ** **         | ** ** | ** **           | ** ** |
| Current assets:                                                    |       |               |       |                 |       |
| Cash                                                               |       | $                  | 4,181      |                 | $          | 6,905 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts |       | 19,277             |       | 22,217               |       |
| Inventories                                                        |       | 79,702             |       | 65,876               |       |
| Prepaid expenses  and other current assets                         |       | 16,361             |       | 15,901               |       |
| Total current  assets                                              |       | 119,521            |       | 110,899              |       |
|                                                               |       |               |       |                 |       |
| Property, plant  and equipment, net                                |       | 152,916            |       | 140,743              |       |
| Other noncurrent  assets, net                                      |       | 56                 |       | 122                  |       |
| Total assets                                                       |       | $                  | 272,493    |                 | $          | 251,764 |   |
|                                                               |       |               |       |                 |       |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIT**                     | ** ** | ** **         | ** ** | ** **           | ** ** |
| Current  liabilities:                                              |       |               |       |                 |       |
| Current  maturities of long-term debt                              |       | $                  | 34,219     |                 | $          | 39,400 |   |
| Accounts payable                                                   |       | 59,795             |       | 44,092               |       |
| Accrued  liabilities                                               |       | 31,114             |       | 27,199               |       |
| Due to related  parties                                            |       | 143,063            |       | 143,063              |       |
| Total current  liabilities                                         |       | 268,191            |       | 253,754              |       |
|                                                               |       |               |       |                 |       |
| Long-term debt,  less current maturities                           |       | 17                 |       | —               |       |
| Due to parent  company and related parties                         |       | 15,435             |       | 17,432               |       |
| Other noncurrent  liabilities                                      |       | 3,460              |       | 3,460                |       |
| Total  liabilities                                                 |       | 287,103            |       | 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                  |       | (16,615            | )          | (24,887              | )          |
| Total  shareholders’ deficit                                  |       | (14,610            | )          | (22,882              | )          |
| Total  liabilities and shareholders’ deficit                  |       | $                  | 272,493    |                 | $          | 251,764 |   |

 

The accompanyingnotes are an integral part of these condensed financial statements.

 

28

----

 

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

**Condensed Statements ofOperations (unaudited)**

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

 
| ** **                                | ** **   | **Three Months  Ended April 30,** | ** **   | **Six Months  Ended April 30,** | ** **   |
|-------------------------------------------|--------------|----------------------------------------|--------------|--------------------------------------|--------------|
| ** **                                | ** **   | **2005**                               | ** **   | **2004**                             | ** **   | **2005** | ** ** | **2004** | ** ** |
| *** ***                              | *** *** | *** ***                           | *** *** | *** ***                         | *** *** | *** *** | *** *** | *** *** | *** *** |
| Net sales                                 |         | $                                      | 157,980      |                                 | $            | 148,113 |   | $ | 308,766 |   | $ | 271,086 |   |
|                                      |         |                                   |         |                                 |         |   |   |   |   |
| Costs and  expenses:                      |         |                                   |         |                                 |         |   |   |   |   |
| Cost of sales                             |         | 146,646                                |         | 136,146                              |         | 285,010 |   | 254,734 |   |
| Depletion,  depreciation and amortization |         | 2,748                                  |         | 2,872                                |         | 5,903 |   | 5,789 |   |
| Fees and commissions  to related parties  |         | —                                 |         | 3,119                                |         | — |   | 5,775 |   |
| Selling, general  and administrative      |         | 4,393                                  |         | 2,684                                |         | 8,608 |   | 5,523 |   |
| Unrealized  (gain) loss on derivatives    |         | (80                                    | )            | (949                                 | )            | 231 |   | (315 | ) |
| Other                                     |         | 3                                      |         | 3                                    |         | 137 |   | 4 |   |
| Total costs and  expenses                 |         | 153,710                                |         | 143,875                              |         | 299,889 |   | 271,510 |   |
|                                      |         |                                   |         |                                 |         |   |   |   |   |
| Income (loss)  from operations            |         | 4,270                                  |         | 4,238                                |         | 8,877 |   | (424 | ) |
|                                      |         |                                   |         |                                 |         |   |   |   |   |
| Other income  (expense):                  |         |                                   |         |                                 |         |   |   |   |   |
| Interest  expense, net                    |         | (628                                   | )            | (642                                 | )            | (1,234 | ) | (1,120 | ) |
| Other, net                                |         | 300                                    |         | (355                                 | )            | 629 |   | (486 | ) |
|                                      |         | (328                                   | )            | (997                                 | )            | (605 | ) | (1,606 | ) |
| Income (loss)  before income tax expense  |         | 3,942                                  |         | 3,241                                |         | 8,272 |   | (2,030 | ) |
|                                      |         |                                   |         |                                 |         |   |   |   |   |
| Income tax  expense                       |         | —                                 |         | —                               |         | — |   | — |   |
|                                      |         |                                   |         |                                 |         |   |   |   |   |
| Net income  (loss)                        |         | $                                      | 3,942        |                                 | $            | 3,241 |   | $ | 8,272 |   | $ | (2,030 | ) |

 

The accompanyingnotes are an integral part of these condensed financial statements.

 

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

**Condensed Statements of CashFlows (unaudited)**

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

 
| ** **                                            | ** **   | **Six Months  Ended April 30,** | ** **   |
|-------------------------------------------------------|--------------|--------------------------------------|--------------|
| ** **                                            | ** **   | **2005**                             | ** **   | **2004** | ** ** |
| *** ***                                          | *** *** | *** ***                         | *** *** | *** *** | *** *** |
| Net cash  provided by (used in) operating activities  |         | $                                    | 22,587       |   | $ | (6,741 | ) |
|                                                  |         |                                 |         |   |   |
| Cash flows from  investing activities:                |         |                                 |         |   |   |
| Purchases of  property, plant and equipment           |         | (18,097                              | )            | (6,073 | ) |
| Net cash used in  investing activities                |         | (18,097                              | )            | (6,073 | ) |
|                                                  |         |                                 |         |   |   |
| Cash flows from  financing activities:                |         |                                 |         |   |   |
| Payments on  revolving loans, net                     |         | (5,200                               | )            | (1,600 | ) |
| Payments on  long-term debt                           |         | (17                                  | )            | (1,559 | ) |
| Increase  (decrease) in amount due to related parties |         | (1,997                               | )            | 4,056 |   |
| Net cash  provided by (used in) financing activities  |         | (7,214                               | )            | 897 |   |
|                                                  |         |                                 |         |   |   |
| Net decrease in  cash                                 |         | (2,724                               | )            | (11,917 | ) |
|                                                  |         |                                 |         |   |   |
| Cash at  beginning of period                          |         | 6,905                                |         | 16,794 |   |
| Cash at end of  period                                |         | $                                    | 4,181        |   | $ | 4,877 |   |

 

The accompanyingnotes are 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)       Summary of Significant AccountingPolicies**

 

***UnauditedInterim Financial Statements***

 

These interim financial statements include theaccounts of Doe Run Peru S.R.L. (Doe Run Peru or the Company). In the opinionof management, the interim financial statements contain all adjustments,consisting of normal recurring accruals, necessary to present fairly thefinancial position as of April 30, 2005 and results of operations for thethree and six-month periods ended April 30, 2005 and 2004.  Interim periods are not necessarilyindicative of results to be expected for the year.

 

 **(2)      Inventories**

 

Inventories consist ofthe following:

 
| ** **                            | ** ** | **April 30,** | ** ** | **October 31,** | ** ** |
|---------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                            | ** ** | **2005**           | ** ** | **2004**             | ** ** |
|                                  |       |               |       |                 |       |
| Finished metals  and concentrates     |       | $                  | 15,013     |                 | $          | 8,356 |   |
| Metals and  concentrates in process   |       | 50,272             |       | 44,523               |       |
| Materials,  supplies and repair parts |       | 14,417             |       | 12,997               |       |
|                                  |       | $                  | 79,702     |                 | $          | 65,876 |   |

 

Materials, supplies andrepair parts are stated net of reserves for obsolescence of approximately $787and $1,436 at April 30, 2005 and October 31, 2004, respectively.

 

**(3)       Income Taxes**

 

Doe Run Peru has receivedincome tax assessments from Peru’s tax authority, SUNAT for tax years 1998through 2001. The assessments primarily relate to Doe Run Peru’s income taxtreatment of the December 1997 merger of Doe Run Peru and Metaloroya S.A.,which was purchased by Doe Run Peru in October 1997, and its effects onsubsequent years’ taxable income. Under the assessment by SUNAT, the tax basisof Doe Run Peru’s fixed assets acquired would decrease, resulting in lower taxdepreciation expense than originally claimed. The assessed amounts consistingof additional income taxes due, penalties and interest totals approximately$104,100.

 

The Company estimatesthat the effect of a similar assessment for tax years after 2001 would beapproximately $1,400.

 

Furthermore,Doe Run Peru would also be required to make additional workers’ profit sharingpayments equal to 8% of the increase in taxable income generated by the changesdiscussed above, or approximately $5,900 for tax years 1998 through 2004.

 

Doe Run Peru has alsoreceived Value-Added Tax (VAT) assessments for the tax years 1999 through 2001and for the period from January through July 2004.  The assessments primarily relate to Doe RunPeru’s exports with holding certificates and differences in a tax creditapplication. The total assessment for these periods was approximately $41,600.SUNAT offset the amount assessed for 2004 of approximately $2,300 against DoeRun Peru’s VAT receivable balance from July 2004.  Future VAT reimbursements cannot be used tooffset the assessment by SUNAT.  TheCompany estimates expected additional assessments related to VAT for tax years2002 and 2003 to total approximately $19,300 in regard to its exports withholding certificates.

 

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 isnot required to make any payments pending the administrative appeal process. IfDoe Run Peru is not successful in the administrative appeal processes and wereto appeal in the judicial system, some type of financial assurance would berequired. No amounts have been accrued as liabilities related to theseactions.

 

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**(4)       Asset Retirement and EnvironmentalObligations**

 

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

#### ** **

Asset retirement obligations (AROs) are recognized asliabilities when incurred, with the initial 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 iscapitalized as part of the related asset’s carrying value and will bedepreciated over the asset’s useful life. Changes in the ARO liability resulting from revisions to the timing orthe amount of the original estimate of undiscounted cash flows shall berecognized as an increase or a decrease in the carrying amount of the liabilityfor an ARO and the related asset retirement cost capitalized as part of thecarrying amount of the related long-lived asset.

 

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

 

The Company’s total recorded liability for AROs wasapproximately $1,900 as of April 30, 2005 and October 31, 2004.

 

#### ***Environmental Remediation***

#### ** **

Doe Run Peru’s La Oroya operations historically andcurrently exceed some of the applicable Ministry of Energy and Mines (MEM)maximum permissible limits pertaining to air emissions and wastewater effluentquality. The PAMA projects, which are more fully discussed below, have beendesigned to achieve compliance with these requirements. There can be noassurance that the Peruvian government will not, in the future, requirecompliance with additional environmental regulations that could adverselyaffect Doe Run Peru’s business, financial condition and results of operations.

 

Metaloroya S.A., the former owner of the La Oroyasmelter, at the time a subsidiary of Empresa Minera del Centro del Peru S.A.(Centromin), received approval from the Peruvian government for a PAMA thatconsisted of an environmental impact analysis, monitoring plan and data,mitigation measures and closure plan. Doe Run Peru assumed the obligationsunder the PAMA. The PAMA also sets forth the actions and corresponding annualinvestments the concession holder agrees to undertake in order to achievecompliance with the maximum permissible limits prior to expiration of the PAMA(ten years for smelters, such as Doe Run Peru’s operations in La Oroya, andfive years for any other type of mining or metallurgical operation likeCobriza). After expiration of the PAMA, the operator must comply with allapplicable standards and requirements. Because these costs improve the propertyor prevent future environmental contamination, they are capitalized.

 

Doe Run Peru has committed under its current approvedPAMA to implement the following projects at its La Oroya smelter through December 31,2006:

 

•  New sulfuricacid plants;

•  Treatment plantfor the copper refinery effluent;

•  Industrialwastewater treatment plant for the smelter and refinery;

•  Improve theslag handling system;

•  ImproveHuanchan lead and copper slag deposits;

•  Build anarsenic trioxide deposit;

•  Improve thezinc ferrite disposal site;

•  Domesticwastewater treatment and domestic waste disposal; and

•  Monitoringstation.

 

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 

 

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spending on a calendar year basis for the projectsapproved 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    |   |

 

Doe Run Peru expects thatit will not be able to comply with the spending requirements of La Oroya’s PAMAinvestment schedule in 2005 and 2006 with respect to the construction ofthe sulfuric acid plants required by the PAMA and, as a result, could besubject to penalties. Failure to comply with the PAMA could result in thecessation of operations at the La Oroya smelter.

 

On December 29, 2004the 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. The maximum extension is for three years and the MEM may authorize anadditional year based upon the results of a health risk study.

 

The Peruvian Congresspassed a law in April 2005 that included several provisions that couldaffect the administration’s ability to extend the PAMA, contrary to the SupremeDecree. The President of Peru objected to a provision prohibiting extensions toprojects within a PAMA and returned the bill to the Congress, where 61 votesout of the full congressional body of 120 members could override the objection.Current provisions being reconsidered by Congress would require approval byCONAM, Peru’s environmental protection agency, before MEM may approve a requestto extend the term of the PAMA. Management believes it is unlikely that theCongress will override the objection or that any provisions to which thePresident objected will remain in replacement legislation.

 

Pursuant to the Supreme Decree, the application for aPAMA extension must be supported by a health risk study performed by a thirdparty. The application must contain an engineering description and funding planof any project to be extended, a discussion of how and when environmentalemission standards will be met, a plan to monitor emissions with theparticipation of the community, proof that at least three public workshops wereheld in various districts to provide information on Doe Run Peru’s financial situationand health programs, proof that two public hearings were held regarding theextension plans, and other financial information. In order to meet theserequirements, Doe Run Peru does not expect to apply for the extension until October 2005.

 

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. TheSupreme Decree requires that receipts from sales be remitted monthly directlyto 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 Doe Run Peru credit facility must complywith the requirements established by the Supreme Decree, should Doe Run Peru’sPAMA be extended.

 

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 $102,000. The Company cannot assure that it will be successful inobtaining the necessary financial security required.

 

Doe Run Peru will perform other environmental projectsto reduce fugitive emissions, including heavy metal dust, to address the healthissues of the community. As of April 30, 2005, the remaining total cost ofthe current PAMA projects, including the sulfuric acid plants construction, andthese projects is approximately $138,800.

 

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Management believes thatDoe Run Peru will obtain an approval of an extension to complete the sulfuricacid plants. There is no assurance, however, that Doe Run Peru will receive anextension, or, if it does, that the project will be completed within the timelimitation specified by the Supreme Decree.

 

The PAMA projects have been designed to achievecompliance with the maximum permissible limits of emission prior to theexpiration of the PAMA. No assurance can be given that implementation of thePAMA projects is feasible or that their implementation will achieve compliancewith the applicable legal requirements by the end of the PAMA period. Further,there can be no assurance that the Peruvian government will not in the futurerequire compliance with additional or different environmental obligations thatcould adversely affect Doe Run Peru’s business, financial condition and resultsof operations.

 

Under the purchase agreement related to theacquisition of the La Oroya assets in October 1997, Centromin, the priorowner of the La Oroya smelter and Cobriza mine, agreed to indemnify Doe RunPeru against environmental liability arising out of its prior operations andtheir apportioned share of any other complaint related to emissions.Performance of the indemnity has been guaranteed by the Peruvian governmentthrough 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 a separate PAMA in which Doe RunPeru committed to complete projects to manage tailings, mine drainage, sewageand garbage. As of June 2004, Doe Run Peru completed its PAMA requirementsand ceased discharging mine waste into the Mantaro River and was in compliancewith the emissions standards required by the PAMA.

 

Doe Run Peru is responsible for the remediation costsrelating to a zinc ferrite disposal site. The current closure plan provides forencapsulating the ferrite residues in place at Huanchan, an area a shortdistance from the smelter where they are currently stored, for which anenvironmental liability of $1,600 has been recorded as of April 30, 2005and October 31, 2004.

 

**(5)*      *Litigation**

 

Doe Run Peru is adefendant in 134 lawsuits in the Lima, Peru labor courts whereby workers havealleged damages from industrial diseases. Doe Run Peru has made claims in most of the cases against Centromin andhas also made claims against both governmental agencies and private companiesthat provide workers’ insurance.  Theaverage claim is $18.  Of seven concludedcases in this category, six were dismissed and one resulted in a payment by DoeRun Peru of $9.

 

Doe Run Peru is also adefendant in 136 lawsuits by workers alleging that they are owed certaindifferences in salaries and benefits. The average claim is $24.  Of 25concluded cases in this category, 22 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 150 workers remaining inthe lawsuit total approximately $660.

 

On January 19, 2005,Doe Run Peru was served with a lawsuit by an association of municipalities ofthe Junin Region of Peru against Doe Run Peru and two other miningcompanies.  This lawsuit allegesenvironmental damages to the Mantaro River basin in the amount of $5.0billion.  Material liability to Doe RunPeru is 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.

 

Since most of the abovecases are either in the pleading or discovery stages, the Company is unable atthis time to estimate the expected outcome and the final costs, except asnoted, of these actions.  No amounts havebeen accrued as liabilities related to these actions.  There can be no assurance that these caseswould not have a material 

 

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adverse effect, bothindividually and in the aggregate, on the results of operations, financialcondition and liquidity of the Company. The Company has and will continue to vigorously defend itself againstsuch claims.

 

**(6)       Financial Condition**

 

For the year ended October 31, 2003 and forseveral years prior, Doe Run Peru reported recurring losses, primarily due tothe decline of treatment charges Doe Run Peru received for processing rawmaterials over the prior five years, which had severely impacted Doe Run Peru’sliquidity. The Company has substantial environmental commitments that willaffect the Company’s liquidity. These issues raise substantial doubt about theCompany’s ability to continue as a going concern.

 

Net unused availability at April 30, 2005 and October 31,2004 under the Doe Run Peru Revolving Credit Facility was $5,800 and virtuallynone, respectively.  In addition to theavailability under the revolving credit facility, cash balances at Doe Run Peruwere $4.2 million and $6.9 million, respectively, at April 30, 2005 and atOctober 31, 2004. Continued high metal prices have resulted in outlays forconcentrate purchases and VAT payments being funded by cash from operations, asDoe Run Peru has remained near its maximum borrowing level under the Doe RunPeru Revolving Credit Facility. The improvement in availability resulted from areceipt of overdue reimbursements of VAT deposits by Doe Run Peru. The balanceof VAT receipts receivable decreased by $15.6 million in the 2005 period.

 

As discussed in Note 4, Doe Run Peru’s existing PAMArequires it to perform projects in 2005 and 2006 at a total cost of $121,200.Doe Run Peru expects that it will not be able to comply with the spendingrequirements of the PAMA investment schedule in 2005 and 2006 with respectto the construction of the sulfuric acid plants required by the PAMA and, as aresult, could be subject to penalties. Failure to comply with the PAMA couldresult in the cessation of operations at the La Oroya smelter.

 

The Peruvian Government has issued a Supreme Decree,which recognized that exceptional circumstances may justify an extension of oneor more projects within the scope of a PAMA. See Note 4 for discussion ofcurrent legislation that may affect the Supreme Decree. Doe Run Peru willsubmit an application for extension to modify the requirements of the existingPAMA and extend the term of the PAMA to complete the construction of thesulfuric acid plants contemplated by the original PAMA. Doe Run Peru will alsoperform additional environmental projects to reduce fugitive emissions,including heavy metal dust, to address the health issues of the community. Asof April 30, 2005, the remaining total cost of the current PAMA projects,including the sulfuric acid plants construction, and the additional projects isapproximately $138,800. If the extension of the PAMA is approved, managementexpects to fund the PAMA projects with cash from Doe Run Peru’s operations.

 

Upon approval of a modified PAMA, Doe Run Peru wouldbe required to create a trust account to administer the receipts anddisbursements related to the extended PAMA project. The Supreme Decree requiresthat receipts from Doe Run Peru’s sales be remitted monthly directly to thetrust account, in an amount sufficient to fund the month’s cash requirements ofthe extended PAMA projects. Such an arrangement is prohibited by the Doe RunPeru 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 also requires that Doe Run Peruprovide financial security within 30 days of the approval of the PAMA extensionin an amount equal to 20% of the projected cost of the project or projects tobe extended. The Company currently expects the overall investment required tobuild the sulfuric acid plants to be approximately $102,000.

 

A default under the requirements of the PAMA couldresult in a default under the Doe Run Peru Revolving Credit facility. Anacceleration of this obligation would result in a default of the 11.75% seniornotes due 2008 (the 11.75% Notes), of which Doe Run Peru is a guarantor.

 

These issues raise substantial doubt about Doe RunPeru’s ability to continue as a going concern. Management believes that Doe RunPeru will obtain an approval of an extension to complete the sulfuric acid plant.There is no assurance, however, that Doe Run Peru will receive an extension,or, if it does, that the project will be completed 

 

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within the time limitation specified by the SupremeDecree. Doe Run Peru has implemented a business plan that identifies severalrevenue generating and cost reduction activities. Management believes the planwill enhance liquidity, which would improve Doe Run Peru’s ability to make theinvestments under the proposed modifications to the PAMA. Revenue enhancementprojects include the processing of zinc ferrites and an effort to bring morerecycled feed into the smelter. The zinc ferrite processing is expected toproduce a product with a zinc and silver content of approximately 20,000 tonsand 4.3 million ounces, respectfully, on an annual basis beginning in thefourth quarter of 2005. Planned cost reduction measures include manpowerreductions through voluntary retirement and decreased power usage in the zinccircuit. Doe Run Peru ceased operations of its three New Jersey zinc roastersin the first quarter of 2005. The decision should result in a reduction ofrefined zinc production to 50,000 tons per year, down from the previouscapacity of 88,200. This has reduced the power usage in the zinc circuit.Management will continue to analyze cost management opportunities in currentoperating conditions.

 

Doe Run Peru has received assessments of income tax,including penalties and interest, and VAT totaling $104,100 and $41,600, respectively,as discussed in Note 3. In addition, the Company estimates that the effect ofsimilar assessments for periods not yet assessed would be approximately $1,400and $19,300 for the income tax and VAT matters, respectively. Furthermore, DoeRun Peru would also be required to make additional workers’ profit sharingpayments equal to 8% of the increase in taxable income generated by the changesdiscussed above, or approximately $5,900 for tax years 1998 through 2004.

 

Management of the Company believes that in each caseDoe Run Peru has followed the applicable Peruvian tax statutes and intends topursue all available administrative and judicial appeals. Doe Run Peru is notrequired to make any payments pending the administrative appeal process. If DoeRun Peru is not successful in the administrative appeal processes and were toappeal in the judicial system, some type of financial assurance would berequired, which would have a significant adverse effect on liquidity.

 

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

 

The following discussion and analysis of the three months(the 2005 quarter) and the six months (the 2005 period) ended April 30,2005 compared to the three months (the 2004 quarter) and the six months (the2004 period) ended April 30, 2004 should be read in conjunction with thecondensed consolidated financial statements of The Doe Run ResourcesCorporation (Doe Run and together with its subsidiaries, the Company) and thenotes thereto, and other financial information included herein.

 

***Forward-LookingStatements***

 

*ThePrivate Securities Litigation Reform Act of 1995 provides a “safe harbor” forforward-looking statements. The Company makes forward-looking statements inthis Quarterly Report on Form 10-Q, which represent the Company’sexpectations or beliefs about future events and financial performance. Whenused in this report, the words “expect,” “believe,” “anticipate,” “goal,” “plan,”“intend,” “estimate,” “may,” “will” or similar words are intended to identifyforward-looking statements. These forward-looking statements are subject toknown and unknown risks, uncertainties and assumptions, including thosereferred to in this Quarterly Report on Form 10-Q and otherwisedescribed in the Company’s periodic filings.*

 

*Allpredictions as to future results contain a measure of uncertainty, andaccordingly, actual results could differ materially. Among the factors thatcould cause actual results to differ from those contemplated, projected orimplied by the forward-looking statements (the order of which does notnecessarily reflect their relative significance) are: general economic andbusiness conditions; increasing industry capacity and levels of imports ofnon-ferrous metals or non-ferrous metals products; industry trends, includingthe price of metals and product pricing; competition; currency fluctuations;the loss of any significant customer or supplier; availability of rawmaterials; availability of qualified personnel; effects of future collectivebargaining agreements; outcome of litigation; changing environmentalrequirements and costs, including the capital requirements in Peru; politicaluncertainty and terrorism; major equipment failures; changes in accountingprinciples or new accounting standards; compliance with laws and regulations;and other unforeseen circumstances.*

 

*Inlight of these risks, uncertainties and assumptions, the forward-looking eventsdiscussed may not occur. In addition, actual results could differ materiallyfrom those suggested by the forward-looking statements. Accordingly, investorsare cautioned not to place undue reliance on the forward-looking statements.Except as required by law, the Company undertakes no obligation to publiclyupdate or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise. Investors should, however, reviewadditional disclosures made by the Company from time to time in its periodicfilings with the Securities and Exchange Commission.*

 

*ThisQuarterly Report on Form 10-Q should be read completely and with theunderstanding that the Company’s actual future results may be materiallydifferent from what the Company expects. All forward-looking statements made bythe Company in this Quarterly Report on Form 10-Q and in the Company’sother filings with the Securities and Exchange Commission are qualified bythese cautionary statements.*

 

***Significant Issues***

 

*Doe RunPeru*

 

Doe Run Peru expects thatit will not be able to comply with the spending requirements of La Oroya’sEnvironmental Remediation and Management Program (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.

 

On December 29, 2004the 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.

 

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The Peruvian Congresspassed a law in April 2005 that included several provisions that couldaffect the administration’s ability to extend the PAMA, contrary to the SupremeDecree. The President of Peru objected to a provision prohibiting extensions toprojects within a PAMA and returned the bill to the Congress, where 61 votesout of the full congressional body of 120 members could override the objection.Current provisions being reconsidered by Congress would require approval byCONAM, Peru’s environmental protection agency, before MEM may approve a requestto extend the term of the PAMA. Management believes it is unlikely that theCongress will override the objection or that any provisions to which thePresident objected will remain in replacement legislation.

 

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 monitor emissionswith the participation of the community, proof that at least three publicworkshops were held in various districts to provide information on Doe Run Peru’sfinancial situation and health programs, proof that two public hearings wereheld regarding the extension plans, and other financial information. In orderto meet these requirements, Doe Run Peru does not expect to apply for theextension before October 2005.

 

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  thesulfuric acid plants to be approximately $102.0 million. The Company cannotassure that it will be successful in obtaining the necessary financial securityrequired.

 

Doe Run Peru will alsoperform other additional environmental projects to reduce fugitive emissions,including heavy metal dust, to address the health issues of the community. Asof April 30, 2005, the remaining total cost of the current PAMA projects,including the sulfuric acid plants construction, and these projects isapproximately $138.8 million. Doe Run Peru spent $9,400 in the 2005 period onPAMA projects.

 

Management believes thatDoe Run Peru will obtain an approval of an extension to complete the 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.

 

Doe Run Peru has implemented a business plan that identifies severalrevenue generating and cost reduction activities. Management believes the planwill enhance liquidity, which would improve Doe Run Peru’s ability to make theinvestments under the proposed modifications to the PAMA. Revenue enhancementprojects include the processing of zinc ferrites and an effort to bring morerecycled feed into the smelter. Planned cost reduction measures includemanpower reductions through voluntary retirement and decreased power usage inthe zinc circuit. The zinc ferrite processing is expected to produce a productwith a zinc and silver content of approximately 20,000 tons and 4.3 millionounces, respectfully, on an annual basis beginning in the fourth quarter of2005.   The cessation of operations ofits three New Jersey zinc roasters in the first quarter of 2005 has reduced thepower usage in the zinc circuit. Management will continue to analyze cost managementopportunities in current operating conditions.

 

Doe Run Peru has received assessments of income tax, includingpenalties and interest, and value added tax (VAT) totaling $104.1 million and$41.6 million, respectively.  The incometax assessments primarily relate to Doe Run Peru’s income tax treatment of the December 1997merger of Doe Run Peru and Metaloroya S.A., which was purchased by Doe Run Peruin October 1997, and its effects on subsequent years’ taxable income.Under the assessment by SUNAT, the tax basis of Doe Run Peru’s fixed assetsacquired would decrease, resulting in lower tax 

 

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depreciation expense than originally claimed. TheVAT assessments primarily relate to Doe Run Peru’s exports with holdingcertificates and differences in a tax credit application. See furtherdiscussion in “*Liquidity.*” No amounts have been accrued asliabilities related to these assessments.

 

***Results of Operations***

 

*Metals Pricing*

 

The followingtable sets forth average London Metal Exchange (LME) prices for lead, copperand zinc and the average London Bullion Market Association (LBMA) price forsilver for the periods indicated:

 

| ** **             | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| **Average Prices**     | ** ** | **2005**                               | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| Lead ($/ton)           |       | $                                      | 898.00     |                                 | $          | 766.40 |   | $ | 886.80 |   | $ | 697.60 |   |
| Copper ($/ton)         |       | 3,033.60                               |       | 2,640.40                             |       | 2,942.60 |   | 2,333.80 |   |
| Zinc ($/ton)           |       | 1,210.80                               |       | 976.80                               |       | 1,136.20 |   | 929.00 |   |
| Silver ($/troy  ounce) |       | 7.13                                   |       | 6.92                                 |       | 7.11 |   | 6.32 |   |
|                        |            |                                        |            |                                      |            |  |  |  |  |  |  |  |  |

 

Theseprices reflect the significant tightening in worldwide metal supply and theweakening of the U.S. dollar. Supply has tightened due to mine closures andcutbacks and slowed development stemming from the low prices from 1998-2003.The higher prices resulted in higher net realized prices for the Company’s U.S.operations sales; see the discussion in “*Resultsof Operations*”*.*

 

*Production*

 

Allreferences to “ton” are in short tons.

 

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

 

| ** **                                 | ** ** | **Three Months Ended  April 30,** | ** ** | **Six Months Ended  April 30,** | ** ** |
|--------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                 | ** ** | **2005**                               | ** ** | **2004**                             | ** ** | **2005** | ** ** | **2004** | ** ** |
| U.S. Operations                            |       |                                   |       |                                 |       |   |   |   |   |
| Lead metal -  primary (tons)               |       | 39,943                                 |       | 39,606                               |       | 80,359 |   | 89,162 |   |
| Lead metal -  secondary (tons)             |       | 32,812                                 |       | 32,789                               |       | 66,510 |   | 65,636 |   |
| Lead  concentrates (metal content, tons)   |       | 71,497                                 |       | 69,343                               |       | 136,645 |   | 132,267 |   |
| Ore grade (lead)                           |       | 5.40                                   | %          | 5.70                                 | %          | 5.38 | % | 5.62 | % |
|                                       |       |                                   |       |                                 |       |   |   |   |   |
| Doe Run Peru  Operations                   |       |                                   |       |                                 |       |   |   |   |   |
| Refined copper  (tons)                     |       | 15,594                                 |       | 15,528                               |       | 31,508 |   | 31,303 |   |
| Refined lead  (tons)                       |       | 33,135                                 |       | 32,673                               |       | 64,895 |   | 64,792 |   |
| Refined zinc  (tons)                       |       | 11,088                                 |       | 17,523                               |       | 27,316 |   | 37,668 |   |
| Refined silver  (thousands of troy ounces) |       | 8,727                                  |       | 9,235                                |       | 16,966 |   | 18,012 |   |
| Refined gold  (thousands of troy ounces)   |       | 15                                     |       | 17                                   |       | 30 |   | 30 |   |
| Copper  concentrates (metal content, tons) |       | 3,607                                  |       | 4,409                                |       | 7,379 |   | 8,905 |   |
| Ore grade  (copper content)                |       | 0.96                                   | %          | 1.13                                 | %          | 0.98 | % | 1.12 | % |

 

The increase inlead concentrate production at the Company’s primary lead operation’s mines inthe 2005 quarter and 2005 period over the first quarter of 2004 and 2004 periodwas the result of an increase in ore production of approximately 10%, offset bylower ore grade. A change was made in the second quarter of 2004 to increaseore production and mine at a lower grade to optimize the earnings on themineral resources. Ore production improved 

 

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overthe first quarter of 2005 due to improved production at the Fletcher mine, dueto increased pillar extraction. Equipment received in 2005 enabled theincreased pillar production.

 

The Company alsoinstalled a copper pre-float circuit at its Buick mill in the first half of2004 that enabled it to process more high grade copper ores from the Viburnum-29and Viburnum-35 mines and improve copper recoveries from the Buickmill.  As a result, copper concentrateproduction increased 4,979 tons in the 2005 period to 12,346 over the 2004period production of 7,367 tons.

 

In the 2005 period, the primary smelter operations’ leadmetal production was 10% lower than in the 2004 period primarily due to theindefinite suspension of operations at the Glover smelter in the first quarterof 2004. The Glover smelter produced approximately 7,000 tons in the 2004period and production at the Herculaneum smelter was approximately 82,000 tonsfor the 2004 period.

 

The Company’s U.S. recycling operations addeddesulfurization capacity during 2004. Consecutive monthly records were set in September and October of2004 for batteries processed and reverb furnace lead produced as a result ofthe improvements.  Production for the2005 period was slightly lower than the fourth quarter of 2004 production ratedue to shortages in metallurgical coke supply and coke quality which resultedin production interruptions and furnace problems.

 

The decrease in Doe Run Peru’s La Oroya smelter (LaOroya) 2005 period production of zinc compared to the 2004 period was due tothe cessation of operations of its three New Jersey zinc roasters, which werecostly to operate and environmentally inefficient. The decision should result ina reduction of refined zinc production to 50,000 tons per year, down from theprevious capacity of 88,200. This change, as expected, has reduced sulfuricacid gas and other gas emissions as well as reduced the disposal of liquideffluents.

 

*Results of Operations*

 

*Grossmargin on sales (net sales less cost of sales)* increased from$20.7 million in the 2004 quarter to $28.1 million in the 2005 quarter and from$32.3 million in the 2004 period to $65.7 million in the 2005 period. Grossmargin on sales for the Company’s U.S. operations increased from $8.7 millionin the 2004 quarter to $16.7 million in the 2005 quarter and from $15.9 millionin the 2004 period to $42.0 million in the 2005 period. Gross margin on salesfor Doe Run Peru decreased from $12.0 million in the 2004 quarter to $11.3million in the 2005 quarter and increased from $16.4 million in the 2004 periodto $23.8 million in the 2005 period.

 

A 40% and 49% increase inrealized prices for the Company’s U.S. operations lead metal sales, fueled bythe increase in LME prices and by higher premiums over the LME, contributed anadditional $16.7 million and $33.5 million to gross margin on sales in the 2005quarter and period compared to the 2004 quarter and period, respectively. Anincrease in copper concentrate and kettle dross sales volume resulted in anincrease in gross margin for the Company’s U.S. operations of $6.6 million inthe 2005 period over the 2004 period and higher realized prices for zincconcentrates contributed an additional $3.8 million to gross margin compared tothe 2004 period. These increases were offset by higher production costs at theU.S. primary lead operations, primarily due to lower ore grade, lower metalproduction, higher salaries, wages and employee benefits, maintenance andmetallurgical coke costs. Increased conversion costs at the recyclingoperation, due to higher metallurgical coke and propane costs, were offset byimproved feed costs per unit of metal produced. In addition, cost revisionsresulted in an adjustment of environmental remediation liabilities ofapproximately $3.5 million in the 2005 quarter and period compared to $1.0million in the 2004 period, which was recorded in the first quarter of 2004.

 

DoeRun Peru’s gross margins were relatively flat for the 2005 period over the 2004period, which is primarily the result of an improvement in the treatmentcharges received in processing copper and zinc concentrates and free metalbenefits. Also contributing to an improved gross margin were by-productsales. These benefits were offset by higher conversion costs primarily due tohigher fuel and coke prices, higher maintenance and spare parts and suppliescosts.

 

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*Selling,general and administrative costs* increased $4.3 million inthe 2005 quarter over the 2004 quarter and $6.0 million in the 2005 period overthe 2004 period. The increase was due primarily to increased salaries andemployee benefit costs and legal fees.

 

*Unrealized(gains) losses on derivative financial instruments*are**relatedto the change in fair market value of derivative financial instruments that area part of Doe Run’s risk management strategy. The change from an unrealizedloss of $0.9 million in the 2004 period to an unrealized gain of $1.3 millionin the 2005 period is the result of a decrease in the fair market value of opencontracts at April 30, 2005 compared to October 31, 2004, and therealization of previously unrealized losses. Unrealized gains decreased from $4.1 million to $0.5 million in the 2005quarter versus the 2004 quarter due to the reclassification of previouslyunrealized losses to realized losses in the 2004 quarter as the result of thesubstantial increase in the LME price during 2004.  See also “*Item3. Quantitative and Qualitative Disclosures About Market Risk*.”

 

*Other*operating expenses increased $0.3 million from the 2004 quarter to the 2005quarter and $1.1 million from the 2004 period to the 2005 period. The expensesprimarily relate to the recognitionof impairment losses for the value of houses purchased in the town ofHerculaneum, Missouri under a residential property purchase plan.

 

As of May 31, 2005,149 homeowners had requested offers, and 125 of 148 delivered offers had beenaccepted. As of May 31, 2005, the Company had spent approximately $9.3million under the residential property purchase plan. Another $0.3 million ofaccepted offers are awaiting a closing date and $1.8 million in outstandingoffers have not been accepted. Management cannot estimate how many of theremaining homeowners will accept offers.

 

*Incometax expense (benefit)* in the 2004 quarter and 2004 period reflects a change in tax law inPeru. Under a law passed in December 2003, certain technical services thatDoe Run provided under an agreement with Doe Run Peru were taxed at 30%. Theagreement was canceled on July 1, 2004.

 

Renco has elected for the Company to be treated as aqualified subchapter S subsidiary (QSSS) for U.S. federal tax purposes.  Most states in which the Company operateswill follow similar tax treatment. QSSS status requires the ultimateshareholders to include their pro rata share of the Company’s income or loss intheir individual tax returns.  As aresult of the Company’s tax status in the U.S., the Company is not generallysubject to U.S. federal and most state income taxes, however, under a taxsharing agreement with Renco, the Company is liable to Renco for pro formafederal and state income taxes as defined in the agreement. The Company paidRenco $0.3 million under this agreement in the 2005 quarter, and had $0.1million owing as of April 30, 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 limit theCompany’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.

 

Net unused availabilityat April 30, 2005 and October 31, 2004 under the Doe Run RevolvingCredit Facility was approximately $22.3 million and $22.5 million,respectively, and under the Doe Run Peru Revolving Credit Facility was $5.8million and virtually none, respectively. In addition to the availability under its revolving credit facilities,cash balances at Doe Run and Doe Run Peru were $7.4 million and $4.2 million,respectively, at April 30, 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. The improvement in availability resulted from a receipt of overduereimbursements of 

 

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VAT deposits by Doe RunPeru. The balance of VAT receipts receivable decreased by $15.6 million in the2005 quarter.

 

Inventory quantities forthe Company’s U.S. operations at April 30, 2005 have increased since October 31,2004, resulting from normal seasonal fluctuations, lower lead metal productionthan the fourth quarter of 2004 at the recycling facility, which has resultedin an increase of work in process inventories, and lower sales volume, as wellas lack of availability of transportation for sales of concentrates. Doe RunPeru also has had difficulty obtaining transportation for its export sales,which resulted in an increase in finished goods inventories for the sameperiods.

 

The Company’s auditors issued unqualified opinions on the 2004 auditedfinancial statements of the Company and of Doe Run Peru that expressedsubstantial doubt about the Company’s and Doe Run Peru’s ability to continue asgoing concerns due to net capital deficiencies, substantial debt servicerequirements, and significant capital requirements under environmentalcommitments.

 

Doe Run’s outstanding 11.25% Senior Notes and 11.25%Senior Secured Notes totaling $7.5 million were retired in the second quarterof 2005. In addition, Doe Run paid interest at the option of 8.5% on its 11.75%Notes totaling $9.3 million in the 2005 quarter. Interest of $3.0 million dueunder the Term Note in April 2005 was paid within a grace period in May 2005.The Doe 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.*” There can be noassurance that the renewal efforts will be successful, or if successful, thatthe renewal would be at terms favorable to the Company. The Company’s term notein the amount of $15.5 million (the Term Note) matures in October 2005.Discussions have been held with Renco to extend the Term Note, but there can beno assurance that the term will be extended.

 

During the period beginning on October 29, 2005and ending on October 29, 2012, the Majority Warrantholders will have the rightto require Doe Run to repurchase all, but not less than all, of the Warrantsand any outstanding shares issued upon the exercise thereof at a price equal tothe fair market value of the Warrants, as determined by a third partyappraisal.

 

Doe Run Peru has received assessments of income tax,including penalties and interest, and VAT totaling $104.1 million and $41.6million, respectively. In addition, the Company estimates that the effect ofsimilar assessments for periods not yet assessed would be approximately $1.4million and $19.3 million for the income tax and VAT matters, respectively.  Furthermore, Doe Run Peru would also berequired to make additional workers’ profit sharing payments equal to 8% of theincrease in taxable income generated by the changes discussed above, orapproximately $5.9 million for tax years 1998 through 2004.

 

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

 

Management believes that high metal prices and otherrevenue enhancements, and the issuance of the Supreme Decree allowing anapplication to extend La Oroya’s PAMA requirement for the construction of thesulfuric acid plants will enable the Company to continue as a going concern.The Company’s ability to meet obligations after 2005 could be affected by  future operating performance and financialresults, which are subject to financial, economic, political, competitive andother factors affecting the Company, many of which are beyond the Company’scontrol, or an unfavorable outcome to the items noted above, and, accordingly,no assurance can be given that it will be able to meet such obligations.

 

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

 

**Commodity Price Risk**

 

In the normal course of its business, the Company hasused in the past, and may use in the future, forward sales commitments andcommodity put and call option contracts to manage its exposure to fluctuationsin the prices of lead, copper, zinc, silver and gold. Contract positions aredesigned to ensure that the Company will receive a defined minimum price forcertain quantities of its production. None of the aforementioned activities havebeen entered into for speculative purposes.

 

The fair market value loss of the Company’sderivatives was approximately $6.9 million and $9.0 million at April 30,2005 and October 31, 2004, respectively. These losses, when realized,would be offset by higher prices on the Company’s sales of physical metal. Themajority relates to sold lead futures and sold lead call options related to theU.S. operations. A 10% increase in metal prices would not have a significanteffect on the Company’s open contracts at April 30, 2005.

 

**Interest Rate Risk**

 

The Company is subject to interest rate risk onvariable interest rate obligations. The Doe Run Revolving Credit Facility bearsinterest at the prime rate plus 1% per annum. The Doe Run Peru Revolving CreditFacility bears interest at LIBOR (1-month, 3-month or 6-monthrate, depending on the term of the loan) plus 3.5% per annum. A materialincrease in interest rates could adversely affect the Company’s business, financialcondition and results of operations. A 1% increase in the interest rateunder the Doe Run Revolving Credit Facility and the Doe Run Peru RevolvingCredit Facility would result in additional annual interest expense ofapproximately $0.8 million, based on the loan balances outstanding as of April 30,2005.

 

**Foreign Currency Risk**

 

Doe Run Peru’s sales andfeed costs are denominated in U.S. dollars. Certain operating costs, such aslabor, are denominated in Peruvian nuevos soles. While all revenues andsignificant costs are denominated in U.S. dollars, a material weakeningof exchange rates could still have an adverse affect on the Company’s business, financial conditionand results of operations.

 

**Item 4. Controls and Procedures.**

 

As of the end of the period covered by this report, an evaluation wasperformed under the supervision and with the participation of the Company’smanagement, including the Chief Executive Officer (“CEO”) and the ChiefFinancial Officer (“CFO”), of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures. Based on that evaluation, theCompany’s management, including the CEO and CFO, concluded the Company’sdisclosure controls and procedures as of April 30, 2005 were effective inensuring information required to be disclosed in this Quarterly Report on Form 10-Qwas recorded, processed, summarized and reported on a timely basis. There havebeen no 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.**

 

Doe Run was dismissed from the following cases: *Bray, et al. v. BNSF, et al.*(filed June 10, 2004), *Storie, et al. v. BNSF, et al.*(filed June 18,2004)*, Barnicle, et al., v. BNSF, et al,*(filedJuly 1, 2004), *Abney, et al. v. BNSF,et al*(filed July 9,2004), *Cooper,et al. v. BNSF*(filed July 19, 2004), *Blackwell, et al. v. BNSF, et al.*(filed July 28,2004), *Gold, et al. v. BNSF, et al.*(filedAugust 13, 2004), *Barnes, et al. v.BNSF, et al.*(filed August 27, 2004), *Bennett, et al. v. BNSF, et al.*(filed August 31,2004), *Berendt, et al. v. BNSF, et al.*(filedSeptember 1, 2004), *Boyer, et al. v.BNSF, et al.*(filed September 16, 2004),*Bowers, et al. v. BNSF, et al.*(filed September 21,2004), *Bellm, et al. v. BNSF, et al.*(filedOctober 8, 2004), *Brutcher, et al. v.BNSF, et al.* (filed October 15, 2004), *Cox, et al. v. BNSF*(filed November 1,2004), *Green v. BNSF, et al.*(filedNovember 5, 2004), *Nichols v. BNSF, etal.*(filed November 5, 2004) and *Barnicle, et al., v. BNSF, et al,*(filed December 21,2004); all filed in the Circuit Court of the City of St. Louis, Missouri.

 

*BNSF Railway Company v. The Doe RunResources Corporation, et al.*(filed May 6, 2005) wasfiled in the Circuit Court for the City of St. Louis alleging that Doe Run andother companies associated with lead mining operations in Missouri areresponsible for property damage at certain rail yards and for contribution andindemnity for costs incurred by BNSF associated with settlement by BNSF of leadexposure cases.

 

*Farrow et al.v. Fluor Corporation, et al.* (filed May 6, 2005) was filed in the Circuit Court for theCity of St. Louis alleging certain damages stemming from the operations at theHerculaneum smelter.

 

**Item2. Unregistered Sales of Equity Securities and Use of Proceeds.**

 

None.

 

**Item3. Defaults Upon Senior Securities.**

 

None.

 

**Item4. Submission of Matters to a Vote of Security Holders.**

 

None.

 

**Item5. Other Information.**

 

None.

 

**Item 6.Exhibits.**

 
|   | 10.19.11 |   | Waiver to Amended and Restated Credit Agreement  dated as of February 25, 2005 by and between Doe Run and The Renco  Group, Inc., as agent and lender.                   |
|--------|----------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.19.12 |   | Second Amendment and Waiver to Amended and Restated  Credit Agreement dated as of April 29, 2005 by and between Doe Run and  The Renco Group, Inc., as agent and lender. |
|   | 31.1     |   | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                          |
|   | 31.2     |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                          |
|   | 32.1     |   | Certification of Chief  Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                         |
|   | 32.2     |   | Certification of Chief  Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                         |

 

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###### **SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
| ** ** | **THE DOE RUN RESOURCES CORPORATION**                      |
|------------|------------------------------------------------------------|
|       | (Registrant)                                               |
|       |                                                       |
|       |                                                       |
|       | /s/ David A. Chaput                                        |   |
|       | Date: June 14, 2005                                   | David A. Chaput |
|       | Chief Financial Officer                                    |
|       | (duly authorized  officer and principal financial officer) |
|            |                                                            |  |  |

 

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