**UNITED STATES**

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

**Washington,DC  20549**

 

### **FORM 10-K**

### ** **

**(Mark One)**

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

**CommissionFile Number 333-66291**

** **

**The Doe Run Resources Corporation**

(Exact name ofregistrant 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)      |

 

Securities registered pursuant to Section 12(b) of the Act:

** **

| **Title of each class** | ** ** | **Name of each exchange on which registered** |
|-------------------------|------------|-----------------------------------------------|
| None                    |       | Not Applicable                                |

** **

Securities registered pursuant to Section 12(g) of the Act:

 

**None**

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.

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

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act

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

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

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

 

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

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of the registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K. **ý**

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer in Rule 12b-2 of the Exchange Act. (Check one)

 
| **o  Larger accelerated filer** | ** ** | **o  Accelerated filer** | ** ** | **ý  Non-accelerated filer** |
|---------------------------------|------------|--------------------------|------------|-----------------------------------|

 

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

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

 

Aggregate market value ofthe voting and non-voting common stock held by non-affiliates of theregistrant: **$0; all shares of the votingstock of the registrant are owned by its parent, DR Acquisition Corp.**

 

Number of sharesoutstanding of each of the registrant’s classes of common stock, as of March 21,2006: **Common stock, $0.10 par value pershare; 1,000 shares**

 

 

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**THE DOE RUN RESOURCES CORPORATION**

**INDEX TO FORM 10-K**

 
| **Part I**         | ** ** |
|--------------------|------------|
| ** **         | ** ** | ** ** |
|               | Item 1.    | Business. |
|               |       |   |
|               | Item 1A.   | Risk Factors. |
|               |       |   |
|               | Item 1B.   | Unresolved Staff Comments. |
|               |       |   |
|               | Item 2.    | Properties. |
|               |       |   |
|               | Item 3.    | Legal Proceedings. |
|               |       |   |
|               | Item 4.    | Submission  of Matters to a Vote of Security Holders. |
|               |       |   |
| **Part II**        | ** ** |
|               |       |   |
|               | Item 5.    | Market for  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities. |
|               |       |   |
|               | Item 6.    | Selected Financial  Data. |
|               |       |   |
|               | Item 7.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations. |
|               |       |   |
|               | Item 7A.   | Quantitative  and Qualitative Disclosures About Market Risk. |
|               |       |   |
|               | Item 8.    | Financial  Statements and Supplementary Data. |
|               |       |   |
|               | Item 9.    | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure. |
|               |       |   |
|               | Item 9A.   | Controls and  Procedures. |
|               |       |   |
|               | Item 9B.   | Other Information. |
|               |       |   |
| **Part III**       | ** ** |
|               |       |   |
|               | Item 10.   | Directors  and Executive Officers of the Registrant. |
|               |       |   |
|               | Item 11.   | Executive  Compensation. |
|               |       |   |
|               | Item 12.   | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters. |
|               |       |   |
|               | Item 13.   | Certain  Relationships and Related Transactions. |
|               |       |   |
|               | Item 14.   | Principal  Accounting Fees and Services. |
|               |       |   |
| **Part IV**        | ** ** |
|               |       |   |
|               | Item 15.   | Exhibits,  Financial Statement Schedules. |
| ** **         | ** ** | ** ** |
| **Signatures**     | ** ** |
| ** **         | ** ** | ** ** |
| **Exhibit  Index** | ** ** |

 

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*The Private Securities Litigation Reform Actof 1995 provides a “safe harbor” for forward-looking statements. We  makeforward-looking statements in this Annual Report on Form 10-K and in the publicdocuments that are incorporated herein by reference, which represent ourexpectations or beliefs about future events and financial performance. Whenused in this report and the documents incorporated herein by reference, thewords “expect,” “believe,” “anticipate,” “goal,” “plan,” “intend,” “estimate,” “may,”“will” and similar words, or the negative of such words, are intended toidentify forward-looking statements. These forward-looking statements aresubject to known and unknown risks, uncertainties and assumptions, includingthose referred to under “Risk Factors” in this Annual Report on Form 10-K andotherwise described in our 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 and business conditions;*

•                  *increasing industry capacity and levels of imports ofnon-ferrous metals or non-ferrous metals products;*

•                  *industry trends, including the price of metals andproduct pricing;*

•                  *competition;*

•                  *currency fluctuations;*

•                  *the loss of any significant customer or supplier;*

•                  *availability of raw materials;*

•                  *availability of qualified personnel;*

•                  *effects of future collective bargaining agreements;*

•                  *outcome of litigation;*

•                  *historical environmental liabilities;*

•                  *changing environmental requirements and costs,including the capital requirements in Peru;*

•                  *political uncertainty and terrorism;*

•                  *major equipment failures;*

•                  *changes in accounting principles or new accountingstandards; and*

•                  *compliance with laws and regulations and otherunforeseen circumstances.*

 

*In light of these risks, uncertainties andassumptions, the forward-looking events discussed in this Annual Report on Form10-K may not occur. In addition, actual results could differ materially fromthose suggested by the forward-looking statements. Accordingly, investors arecautioned not to place undue reliance on the forward-looking statements. Exceptas required by law, we undertake no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise. Investors should, however, review additional disclosureswe make from time to time in our periodic filings with the Securities andExchange Commission.*

 

*This Annual Report on Form 10-K and the documentsincorporated herein by reference should be read completely and with theunderstanding that our actual future results may be materially different fromwhat we expect. All forward-looking statements we make in this Annual Report onForm 10-K and our other filings with the Securities and Exchange Commission arequalified by these cautionary statements.*

 

**PartI**

 

**Item 1. Business**

 

*All references in this Annual Report onForm 10-K to “we,” “us,” “our” or “Company” refer to The Doe Run ResourcesCorporation and its subsidiaries. All dollars are in thousands except wherenoted otherwise.*

 

**Overview**

 

*General*

 

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We are a producerof non-ferrous and precious metals with operations in the United States andPeru. We are also the largest integrated lead producer in North America and thelargest primary lead producer in the western world. We operate our business inthe United States through The Doe Run Resources Corporation, which we refer toas Doe Run, and our wholly owned subsidiary Fabricated Products, Inc., which werefer to as Fabricated Products. We operate our Peruvian operations through DoeRun Peru S.R.L., an indirect subsidiary of Doe Run that we refer to as Doe RunPeru. Doe Runoperates an integrated primary lead operation and a recycling operation locatedin Missouri, referred to as Buick Resource Recycling. Fabricated Productsoperates a lead fabrication operation located in Arizona and a lead oxidebusiness located in Washington. Doe Run Peru, operates a smelter in La Oroya,Peru, one of the largest polymetallic processing facilities in the world,producing an extensive product mix of non-ferrous and precious metals,including silver, copper, zinc, lead and gold. Doe Run Peru also has a coppermining and milling operation in Cobriza, Peru in the region of Huancavelica,which is approximately 200 miles southeast of La Oroya in Peru. See “Item 8.Financial Statements and Supplementary Data—Note 16 to Consolidated FinancialStatements” for financial information about operating segments and geographicareas.

 

Our auditors issued unqualified opinions on the 2005audited consolidated financial statements of the Company and the 2005 auditedfinancial statements of Doe Run Peru that expressed substantial doubt about theCompany’s and Doe Run Peru’s ability to continue as going concerns due to netcapital deficiencies, substantial debt service requirements, and significantcapital requirements under environmental commitments. See further discussionand management’s plans in “Item 7. Management’s Discussion of FinancialCondition and Results of Operations—*Liquidityand Capital Resources.*”

 

*CorporateStructure*

 

Doe Run is a NewYork corporation formed in 1981. Doe Run is the successor via merger to the St.Joseph Lead Company, which was formed in 1864. All of Doe Run’s issued andoutstanding common and preferred stock is directly or indirectly owned by TheRenco Group, Inc. (Renco). Renco is owned by trusts established by Mr. Ira LeonRennert, Renco’s Chairman and Chief Executive Officer, for himself and membersof his family. As a result of such ownership, Mr. Rennert controls Doe Run andits subsidiaries, including Doe Run Peru, subject to the provisions of anInvestor Rights Agreement discussed in “Item 5. Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

 

Doe Run owns 100%of Doe Run Cayman Ltd., a Cayman Islands corporation, which in turn owns inexcess of 99% of the interest in Doe Run Peru. As required by Peruvian law, theremainder of Doe Run Peru’s shares are owned by present and former employees ofboth Doe Run Peru and Empresa Minera del Centro del Peru S.A., (Centromin).Centromin is the Peruvian government entity whose subsidiary previously ownedLa Oroya. Doe Run Peru purchased that subsidiary on October 23, 1997.

 

Doe Run’s fiscal year ends on October 31. Any referenceherein to a specific year, such as 2005, refers to the *fiscal year* 2005, unless otherwise noted.

 

*U.S.Operations*

 

Doe Run’s primarylead operation in the U.S. consists of two primary lead smelters, one of whichis active and the other is indefinitely suspended as a result of marketconditions. The active smelter obtains concentrates principally from Doe Run’sfour operating mills. The mills are supplied with ore mined from six productionshafts along approximately 40 miles of the Viburnum Trend in southeasternMissouri, one of the world’s most productive lead deposits. As of October 31,2005, our U.S. ore reserves consisted of approximately 34 million proven andprobable tons, containing average grades of 6.23% lead, 1.36% zinc and 0.26%copper.

 

Doe Run alsooperates the world’s largest secondary lead smelter, which is located insoutheastern Missouri and produces lead metal from recycled lead-acid batteriesand other lead-bearing materials.

 

FabricatedProducts produces value-added lead products such as lead oxide, lead sheet andlead pipes at facilities in Arizona and Washington.

 

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These operationsenable our U.S. operations to participate in and manage the entire lead lifecycle from mining lead ore, to producing refined lead metal, to fabricatingvalue-added lead products, to recycling batteries and other materialscontaining lead.

 

In 2005, our U.S.operations delivered approximately 324,000 tons of refined lead metal and leadalloy products, including lead recycled for customers (tolling). Thisrepresented approximately 17% of North American consumption and 6% of westernworld consumption. In addition, our U.S. operations delivered approximately152,000 tons of lead concentrates to international metal trading companies in2005.

 

Approximately 50% of our U.S. operations’ sales in 2005 were to batterymanufacturers or their suppliers. Historically, the lead-acid battery has beenthe dominant technology for automotive and other starting, lighting andignition batteries as well as for motive power, telecommunication, networkpower, uninterruptible power systems and emergency lighting. Managementbelieves this will continue to be the case for the foreseeable future becauseof its cost competitiveness, recyclability and existing infrastructure. Refinedlead is also used in products such as computer and television screens,ammunition, and rolled and extruded lead products.

 

See “Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations—*Results of Operations*” for a detailed discussion of themarkets for lead and other metals affecting Doe Run’s results of operations. Bytaking advantage of our extensive polymetallic ore resources and smeltingassets, we are somewhat able to reduce the impact of metal price volatilitythrough adjustments to our mining, milling and smelting plans beyond theshort-term. In addition, sales from tolling services, by-products andfabricated products provide Doe Run with sources of revenue that are largelyindependent of lead prices.

 

*PeruvianOperations*

 

Doe Run Peruacquired La Oroya in October 1997 and Cobriza in August 1998. La Oroya’s uniquecombination of non-ferrous metal smelters, refineries and by-product circuitsenable it to process complex polymetallic concentrates and to produce a numberof high quality finished metals. In 2005, La Oroya was one of Peru’s largestexporters, exporting approximately 89% of its total sales to North America,Latin America, Asia and Europe. Its customers include end-users of non-ferrousand precious metals and metal by-products as well as international metaltrading companies.

 

La Oroya’soperations smelt and refine complex concentrates obtained from Cobriza and fromunaffiliated mining operations primarily in Peru. La Oroya typically purchasesconcentrate feedstock pursuant to contracts under which the cost ofconcentrates is based on a percentage of the non-ferrous metal and preciousmetal content of the concentrates, reduced by treatment and refining charges toprocess the concentrates and penalties for impurities within the concentrates.The impurities, such as arsenic, antimony and bismuth, can be processed andsold as by-products. Non-ferrous metal prices are generally established byreference to international metal markets, primarily the London Metal Exchange(LME). Treatment charges are negotiated with concentrate sellers, generallybased on world terms. They are affected by numerous factors beyond Doe Run Peru’scontrol including:

 

•                  global and regional demand for smelter capacity,

•                  availability and quality of concentrates and

•                  expectations for inflation.

 

The aggregateeffect of these factors is impossible for us to predict. La Oroya’s ability toprocess the impurities in copper and lead concentrates allows Doe Run Peru tocharge a penalty for processing these concentrates. These penalties are asignificant source of revenue to Doe Run Peru, and La Oroya is one of only sixsmelters in the western world that can process these types of concentrates.

 

La Oroya derivesits operating profit primarily from treatment charges, refining charges andpenalties on concentrates purchased. The smelter pays for the majority of themetal contained in the concentrates purchased, but metallurgical recoveries aretypically greater than the percentage of metal content paid for. Therefore, itgenerates a portion of its operating profit from sales of the metals producedfrom these excess recoveries. Additional operating profit is generated from thesale of by-products as well as from premiums over market prices received on itsrefined

 

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metalsales.

 

The market for La Oroya’s products is global, and demand depends uponworldwide economic conditions. Given the diversity of its products andby-products, Doe Run Peru’s financial performance is not solely dependent uponany single product or by-product. Also, because the La Oroya smelter isprimarily a processor of complex concentrates that are purchased based onmarket prices, its financial performance is less sensitive than Doe Run’s U.S.operations to the volatility of metal prices. La Oroya’s operating results,however, are sensitive to the level of treatment and refining charges andpenalties received for concentrates processed and the availability ofeconomically suitable concentrate feed. See “Doe Run Peru’s Operations—*Raw Materials*” for a discussion oftreatment charges and difficulties encountered in obtaining adequate feedsupply.

 

**Doe Run’sU.S. Operations**

 

*Productsand Services*

 

The principalproducts produced by Doe Run’s operations include refined lead from primary andrecycled sources, lead, zinc and copper concentrates, fabricated lead productsand other by-products. Historically, the majority of lead concentrates producedhave been used to feed Doe Run’s two primary smelters, but in November 2003,Doe Run indefinitely suspended operations at its Glover primary smelter andbegan selling its excess concentrates on the open market. Doe Run alsogenerates revenue from tolling fees received for recycling spent lead-acidbatteries and other lead-bearing materials for its customers. The followingtable sets forth net sales of products and services for Doe Run: 

 
| ** **                | ** ** | **Year Ended October 31,** | ** ** |
|---------------------------|------------|-------------------------------------------|------------|
| ** **                | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                | ** ** | **(dollars in thousands)**      | ** ** |
|                      |       |                                      |       |   |   |   |   |
| Primary lead  metal sales |       | $                                         | 174,285    |   | $ | 131,919 |   | $ | 134,530 |   |
| Recycling  operation:     |       |                                      |       |   |   |   |   |
| Tolling                   |       | 35,178                                    |       | 27,361 |   | 29,709 |   |
| Metal sales               |       | 41,432                                    |       | 43,026 |   | 33,717 |   |
| Other                     |       | 9,204                                     |       | 6,919 |   | 4,682 |   |
| Lead  concentrates        |       | 59,417                                    |       | 42,369 |   | 2,912 |   |
| Zinc  concentrates        |       | 30,627                                    |       | 24,353 |   | 19,717 |   |
| Copper  concentrates      |       | 16,924                                    |       | 7,959 |   | 4,336 |   |
| Fabricated  products      |       | 14,203                                    |       | 12,658 |   | 14,771 |   |
| Other                     |       | 6,918                                     |       | 7,315 |   | 4,735 |   |
| Total                     |       | $                                         | 388,188    |   | $ | 303,879 |   | $ | 249,109 |   |

 

For the years endedOctober 31, 2005, 2004 and 2003, exports represented approximately 17%, 17% and6%, respectively, of Doe Run’s operations’ net sales. See the discussion in “Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations—*Results of Operations*” for informationregarding the impact of price and volume on sales.

 

*Transportation*

 

Doe Run transportsits products by truck, barge and rail. It sells a significant amount of leadconcentrates on the global market requiring transloading to barge on theMississippi River.

 

*Customers*

 

Doe Run had approximately 128 lead metal customers in 2005,including the largest lead-acid battery manufacturers in the world.Approximately 50% of Doe Run’s revenues from unaffiliated customers weredirectly from U.S. battery manufacturers, primarily automotive, or theirsuppliers. Lead concentrates are sold to international

 

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trading companies.

 

*Competition*

 

Doe Run is thelargest integrated lead producer in North America and the largest primaryproducer in the western world. It is also the third largest secondary leadproducer in North America and the fourth largest in the world. Doe Runprimarily services the North American lead metal market, where its majorcompetitors are three primary lead producers and 12 secondary lead producers.

 

Competition withinthe North American lead metal market is based primarily on quality, price,service, timely delivery and reliability. Because lead is generally sold on adelivered basis with freight charges included, Doe Run’s central U.S. locationtypically allows it to have transportation costs significantly lower than itsmajor competitors with operations outside of North America. Due to itslocation, Doe Run also is able to provide its customers just-in-time deliveryat a lower cost than most of its competitors. In addition, management believesDoe Run’s combined primary and secondary production capabilities and focus onthe lead business as its core business provide it with additional competitiveadvantages.

 

Inresponse to a declining domestic metal market, and as battery manufacturersmove production overseas, primarily to China, Doe Run has reduced its leadmetal production and is selling more of its production as lead concentrates,competing in the global market for concentrates, where there is currently adeficit in supply. Doe Run produces clean concentrates, relatively free ofimpurities, which can be used with lower quality concentrates to improvesmelters’ feed mix.

 

*RawMaterials*

 

Atcurrent production levels, lead concentrates for Doe Run’s primary smeltingoperation are supplied by its mining operations. However, should productionlevels change, lead concentrates may , from time to time, be purchased fromthird parties. For a discussion of our mineral reserves, see “Item 2.Properties—U.S. Operations—*Ore Reserves*.”Doe Run utilizes various other raw materials, principally metallurgical coke,chemicals and reagents, which are secured from external sources, primarily onthe basis of competitive bids.

 

Thereis a shortage in the U.S. market for coke due to competition from China. Cokesupply was an issue in 2005 as was increased raw material costs at theHerculaneum primary smelter and Buick Resource Recycling Poor coke qualitynegatively impacted production at Buick Resource Recycling by approximately4,000 tons in 2005. We believe the coke supply is improving, and Doe Run isworking on a contract for the 2006 supply requirements although the costs havecontinued to increase from current cost levels. Increased natural gas andpropane costs also contributed to negative cost variances at the Herculaneumprimary smelter and at the secondary operations. Soda ash was in short supplyfor the U.S. recycling operation in the first half of 2005. Alternativesupplies have been located, and we do not anticipate an ongoing problem. Webelieve that Doe Run has adequate sources of the other raw materials to meetits present production needs.

 

Doe Run’s recycling operation recycles a variety oflead-bearing materials, primarily spent batteries, which it purchases fromcustomers or tolls for customers. The chemistry and composition of feedmaterials can have a significant impact on the cost and operating performanceof the recycling operation.

 

*Power*

 

The primaryelectric power source for the majority of Doe Run’s operations is Ameren UE, apublic utility headquartered in St. Louis, Missouri. The Viburnum-35 mineobtains its electric power from Black River Electric Cooperative located insoutheastern Missouri. Natural gas and propane are secured from externalsources, primarily under contracts that are awarded on the basis of competitivebidding, whose prices fluctuate with the market for natural gas and petroleum,respectively. We believe Doe Run has adequate power sources to meet its presentproduction needs.

 

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*EnvironmentalMatters*

 

Doe Run’soperations are subject to numerous federal, state and local environmental lawsand regulations governing, among other things, air emissions, wastewaterdischarge, solid and hazardous waste treatment, storage and disposal, andremediation of releases of hazardous substances. As is the case with much ofthe mining industry, Doe Run’s facilities are located on sites that have beenused for heavy industrial purposes for decades and may require remediation.Environmental laws and regulations may become more stringent in the future,which could increase costs of compliance. See “Item 8. Financial Statements andSupplementary Data—Note 19 to Consolidated Financial Statements.”

 

*Safety*

 

For both our U.S. and Peruvian operations, we strongly emphasizeproviding a safe working environment through extensive employee training toensure safe work practices and worker knowledge of proper equipment operation.In the U.S., the Mine Safety and Health Administration of the Department ofLabor regulates Doe Run’s mining and milling operations, and the OccupationalSafety and Health Administration of the Department of Labor regulates itssmelting and fabricating operations. Doe Run has achieved safety results thatare among the best in its industry classifications. In 2005, the mining andmilling operations’ lost-time injury rate was about two times better than thenational average for the underground metal mining industry. The lost-timeinjury rate for Doe Run’s primary smelter and its recycling operation was threetimes better than the national average for the primary nonferrous metalsindustry. In addition, the lost-time injury rate at Fabricated Products was twotimes better than the national fabricated metal products industry. TheFletcher, Viburnum #29, Viburnum #35 and Sweetwater mines, Buick ResourceRecycling, and Fabricated Products completed 2005 with no lost-time injuries. Doe Run and its predecessor companieshave won the prestigious Sentinels of Safety award 23 times in the past 31years. The annual award is sponsored by the Mine Safety & HealthAdministration and the National Mining Association. The Doe Run Brushy CreekMine won the award for 2004, and five of the six SEMO mines are in contentionfor the 2005 award.

 

*Employees*

 

As of October 31,2005, Doe Run had 332 active salaried employees and 1,034 active hourlyemployees, of which Local 7450 of the United Steelworkers of America (USWA)represented five active hourly employees at our Glover primary smelter. Doe Runhas extended a three-year labor agreement with the USWA for an additionalperiod of one year. The labor agreement expires in May 2006.

 

We received aletter on February 24, 2006 from the National Labor Relations Board requestinga representation election for all Buick Resource Recycling’s hourly production,maintenance and materials handling employees by the International union, UnitedAutomobile, Aerospace and Agricultural Implement Workers of America, AFL-CIO.

 

**Doe RunPeru’s Operations**

 

*Products*

 

Doe Run Peru’s principal products are refined silver, copper, lead,zinc and gold. In addition, Doe Run Peru produces a variety of by-products. Thefollowing table sets forth net sales, excluding sales to Doe Run, for each ofDoe Run Peru’s principal products. 

 
| ** **   | ** ** | **Year Ended October 31,** | ** ** |
|--------------|------------|-------------------------------------------|------------|
| ** **   | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **   | ** ** | **(dollars in thousands)**      | ** ** |
|         |       |                                      |       |   |   |   |   |
| Silver       |       | $                                         | 238,671    |   | $ | 227,546 |   | $ | 167,698 |   |
| Copper       |       | 156,945                                   |       | 116,885 |   | 104,987 |   |
| Lead         |       | 106,709                                   |       | 98,853 |   | 55,884 |   |
| Zinc         |       | 58,955                                    |       | 68,524 |   | 58,376 |   |
| Gold Bullion |       | 30,063                                    |       | 25,261 |   | 28,496 |   |
| By-Products  |       | 49,909                                    |       | 27,120 |   | 20,832 |   |
| Total        |       | $                                         | 641,252    |   | $ | 564,189 |   | $ | 436,273 |   |

 

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See the discussionin “Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations—*Results of Operations*”for information regarding the impact of price and volume on sales.

 

*Transportation*

 

Doe Run Peru primarily transports itsproducts by ocean freight after first being transported by truck and rail tothe port of Callao in Lima, Peru. The primary exception is that exported goldis transported via aircraft. Ocean freight availability has tightened due to competitionfor cargo vessels with China, which has in turn led to higher shipping costs.

 

*Customers*

 

Doe Run Peru hadapproximately 327 customers in 2005, including a wide variety of industrial andinternational trading companies. In 2005, approximately 89% of net sales wereexported, with sales to North America, Latin America, Asia and Europerepresenting approximately 37%, 24%, 16% and 12%, respectively, of net sales.Substantially all of Doe Run Peru’s 2005 metal sales were pursuant tocontractual agreements, typically with terms of one year or less. Suchcontracts generally set forth pricing mechanisms with minimum volumes.Substantially all of Doe Run Peru’s sales are denominated in U.S. dollars.

 

*Competition*

 

The uniquecombination of non-ferrous metal smelters, refineries and by-product circuitsat La Oroya are capable of processing complex concentrates into high qualitybase and precious metals. Only five other facilities in the western world havethe capability to treat lead and copper concentrates containing high antimony,arsenic, bismuth and precious metal values in addition to a variety ofresidues. Chinese smelters, however, which can also process complexconcentrates, are competing with Doe Run Peru in the market for concentrates.See the discussion of concentrates below in “*RawMaterials.*”

 

*RawMaterials*

 

Doe Run Peru’sprimary raw material is concentrate feedstock. In addition, Doe Run Peru’sprocesses consume various other raw materials, principally coke and fluxes.

 

*Copper.*During 2005,approximately 65% of the copper concentrates processed at La Oroya wereobtained from the Peruvian domestic market, including approximately 25% fromCobriza. In 2006, we expect to obtain approximately 66% of La Oroya’s copperconcentrate requirements from the Peruvian domestic market, includingapproximately 26% from Cobriza. We expect to obtain the remaining 34% primarilyfrom neighboring Latin American countries. La Oroya requires approximately77,000 tons per year of copper metal contained in concentrates to produce atcapacity.

 

*Zinc.*All of the zincconcentrates processed at La Oroya during 2005 were secured from the Peruviandomestic market. La Oroya requires approximately 50,000 tons of zinc metalcontained in concentrates per year to optimize production volume. During 2005,the capacity was voluntarily decreased from 88,200 tons to 50,000 tons per yearin order to reduce sulfuric acid gas and other gas emissions as well as toreduce the disposal of liquid effluents.

 

*Lead.*During 2005,approximately 96% of the lead concentrates processed at La Oroya were obtainedfrom the Peruvian domestic market. The smelter requires approximately 134,000tons of lead contained in concentrates per year to produce at capacity.

 

*FeedSupply.*Most ofDoe Run Peru’s copper, lead and zinc concentrate feed supplies are secured froma small number of suppliers in the Peruvian domestic market. Due to theproximity of La Oroya to these suppliers, it is economically advantageous forDoe Run Peru to acquire its concentrates from Peruvian suppliers. Tightness inthe

 

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globalmarket for concentrates, however, has caused intense competition from buyersoutside of Peru, especially in China, for all concentrates, including thecomplex concentrates that may have been previously undesirable for somesmelters. This intense competition has adversely affected concentrateavailability and treatment charges received. Since the middle of 2003 andthrough October 31, 2005, however, copper, zinc and lead prices have increasedsignificantly, primarily due to decreased availability of supply. The increasein the copper prices has encouraged more production from the mines and,together with the decision of Chinese smelters to reduce their copperconcentrate imports, has generated a radical change in the availability ofcopper concentrate beginning in the last quarter of 2004. Management estimatesthat there will be an excess of copper concentrates for the near future, whichwill improve the performance of the copper circuit in La Oroya. In spite of theprice improvements, in the case of lead and zinc concentrate, the marketremains tight, and we project that it will be tighter for the next few yearssince there are only a few mining projects coming on stream.

 

Currently, Doe RunPeru has secured approximately 95% of its concentrate requirements for 2006through material supplied by Cobriza and contracts with independent suppliers.For 2005, all of Cobriza’s output fed the La Oroya smelter, representingapproximately 25% of the smelter’s copper concentrate requirements.

 

*Water.*Doe Run Peruobtains water for La Oroya from two main sources: the Tishgo River and theCuchimachay Spring. The Mantaro River was another source of water untilSeptember 2005 when we stopped taking water out of the river and began torecycle our industrial water. Management believes the remaining two sources, inaddition to numerous adjacent springs and wells, provide adequate watersupplies for the facility.

 

*Power.*La Oroya receiveselectric power from Empresa de Electricidad de los Andes S.A., also known asElectroandes, a local electric power company owned by PSEG Global Inc. Thesmelting complex consumes approximately 63 megawatts of ongoing load, whichrepresents approximately 45% of the capacity of Electroandes. Doe Run Peru hasa supply contract with Electroandes that expires in July 2008. Managementbelieves this agreement provides sufficient power at satisfactory rates. Mostof Cobriza’s electrical power is also provided by Electroandes. Cobriza’srequirements do not represent a significant portion of Electroandes’ capacity.Electroandes is not the only source of electricity in the areas where Doe RunPeru operates.

 

*Other.*Doe Run Peru usesvarious other raw materials, principally oxygen, coke, fluxes and oil. Itsoxygen plant at La Oroya supplies oxygen for the oxy-fuel burners of thereverberatory furnace of the copper smelter and for the blast furnaces of thelead smelter. The plant supplies all of La Oroya’s oxygen requirements.

 

Historically, DoeRun Peru consumed coke it produced and coke it imported. In order to reduceemissions at its coke processing plant, on November 8, 2004, Doe Run Peru beganimporting all of its coke instead of producing it. By the end of 2004, cokeprices increased significantly, which resulted in higher production costs.Fluxes consumed in the smelting process are supplied primarily by Doe Run Perucontrolled mining concessions near La Oroya. Doe Run Peru also purchases silicaand pyrite fluxes containing precious metals. The smelter primarily usesindustrial and diesel oil for fuel. During 2004, fuel prices increasedsignificantly. Management believes that its sources of these materials areadequate to support operations for the foreseeable future.

 

*EnvironmentalMatters*

 

Modernenvironmental legislation has been introduced only in the last 15 years inPeru. Nevertheless, we are governed by a number of agencies. For instance, theNational Environmental Council coordinates government regulations and policies,including the air quality standards for Peru. The Directorate General ofEnvironmental Health (DIGESA), a division of the Ministry of Health, issueswastewater discharge permits based on water quality standards. For mining andmetallurgical activities, the Ministry of Energy and Mines, known as the MEM,is the principal regulatory authority. The MEM has issued “maximum permissiblelimits” for liquid effluent and air emissions. MEM also requires all new miningor metallurgical operations, and existing operations expanding by over 50% ofinstalled capacity, to submit an Environmental Impact Study to the MEM.

 

La Oroya’s operationshistorically and currently exceed some of the applicable MEM maximumpermissible limits pertaining to air emissions and wastewater effluent quality.Prior to our acquisition of La Oroya, Metaloroya S.A., the former owner,and at the time a subsidiary of Centromin, received approval from the Peruviangovernment for an Environmental Remediation and Management Program, known as aPAMA. The PAMA was designed to

 

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achieve compliance with MEM’s air andwastewater limits. It consisted of an environmental impact analysis, monitoringplan and data, mitigation measures and a closure plan. The PAMA also sets forththe actions and corresponding annual investments the concession holder agreesto undertake in order to achieve compliance with the maximum permissible limitsprior to expiration of the PAMA (ten years for smelters, such as Doe Run Peru’soperations in La Oroya, and five years for any other type of mining ormetallurgical operation like Cobriza). After expiration of the PAMA, theoperator must comply with all applicable standards and requirements. The PAMAprojects, which are more fully discussed below, have been designed to achievecompliance with these requirements. The Peruvian government may, in the future,require compliance with additional environmental regulations that couldadversely affect Doe Run Peru’s business, financial condition and results ofoperations.

 

As part of ouracquisition of La Oroya, Doe Run Peru assumed certain obligations under thePAMA, and Centromin agreed to indemnify Doe Run Peru against any environmentalliability arising out of its prior operations and its apportioned share of anyother liabilities related to emissions as mentioned above. Performance of theindemnity has been guaranteed by the Peruvian government through the enactmentof Supreme Decree No. 042-97-PCM. There can be no assurance, however, thatCentromin will satisfy its environmental obligations and investmentrequirements, including those in its PAMA, or that the governmental guaranteewill be honored. Any failure by Centromin to satisfy its environmentalobligations could adversely affect Doe Run Peru’s business, financial conditionor results and operations. There can be no assurance that the Peruviangovernment will not, in the future, require compliance with additionalenvironmental regulations that could adversely affect Doe Run Peru’s business,financial condition and results of operations.

 

The PAMAprovides a specific plan for achieving the applicable MEM maximum permissiblelimits pertaining to air emissions and wastewater effluent quality. However,the specific projects included in the PAMA may be modified and amended as tothe actual design and timing to be implemented, provided compliance with theapplicable maximum permissible limits is achieved by the date in the PAMA.

 

Under the currentapproved PAMA, Doe Run Peru has committed to implement projects that include:

 

•                  constructing water andsewage treatment facilities

•                  installing slag handlingequipment and disposal facilities and

•                  building sulfuric acidplants for the metal circuits — including some process changes that may be necessaryto ensure compliance with Peru government agency regulations.

 

La Oroya’s currentPAMA requires Doe Run Peru to complete these projects by December 31, 2006. Doe Run Peruexpects that it will not be able to comply with the spending requirements of LaOroya’s PAMA investment schedule in 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 theforced cessation of operations at the La Oroya smelter, which would adverselyaffect our business, financial condition and results of operations. Peruvian law changed in 2004 to allowcompanies to request an extension of the compliance date. Doe Run Peruapplied for an extension to complete the construction of the sulfuric acidplant contemplated by the original PAMA. See the discussion in “Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations—*Liquidity and Capital Resources*” for a description of thelaw and Doe Run Peru’s plans.

 

The Cobriza mine has a separate PAMA in which Doe Run Peru committed tocomplete projects to manage tailings, mine drainage, sewage and garbage. DoeRun Peru completed its PAMA requirements with respect to Cobriza in June 2004,ceased discharging mine waste into the Mantaro River and is in compliance withthe emissions standards required by the PAMA.

 

*Safety*

 

In Peru, the MEM is also responsible for regulations enacted tominimize accidents. It conducts annual inspections to ensure compliance withnumerous safety standards. The Peruvian operations maintain a high regard forsafety and health. During 2004, Doe Run Peru received the John T. Ryan award,granted by Mining Safety Appliances, or MSA, for obtaining the best performancein mining safety in the category of Smelting and Refineries and for havingachieved the best indexes of safety in Peru during the last two years. The LaOroya smelter

 

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completed nearly two million employee hours withouta lost-time accident between July and October 2005.

 

During 2005, LaOroya experienced a fatal accident involving a contractor’s employee, andCobriza experienced a fatal accident involving an employee in February 2005.Management has thoroughly investigated these incidents and reinforced theappropriate safety procedures with the workforce and its contractors. Therewere no other lost-time accidents at Doe Run Peru’s operations during 2005.

 

*Employees*

 

As of October 31, 2005,Doe Run Peru’s employees included 779 active salaried employees, 2,119 activehourly employees and 1,185 contractors. Management believes its relations withemployees are good. There are three unions for hourly employees and two unionsfor salaried employees. The principal union, representing 73% of the hourlyemployees, is the Sindicato de Trabajadores Metalúrgicos La Oroya (La OroyaMetallurgic Workers Union). The Sindicato de Trabajadores Cobriza (CobrizaWorkers Union) and the Sindicato de Trabajadores Ferroviarios La Oroya (LaOroya Railroad Workers Union) represent 14% and 3% of the hourly workers,respectively. On July 21, 2003 and September 1, 2003, Doe Run Peru entered intoa five-year labor agreement with the unions representing the hourly employees atLa Oroya and Cobriza, respectively. The salaried employees are represented bythe Sindicato de Empleados Yauli-La Oroya (Yauli-La Oroya Employees Union),representing 33% of the salaried employees, and by the Sindicato de EmpleadosCobriza (Cobriza Employees Union), representing 4% of salaried employees. OnJanuary 6, 2003 and September 1, 2003, Doe Run Peru entered into a five-yearlabor agreement with the unions representing the salaried employees at La Oroyaand Cobriza, respectively.

 

**Additional Information**

 

We file annual, quarterly and current reports with the SEC.Any materials filed with the SEC may be read and copied at the SEC’s PublicReference Room at 450 Fifth Street, N.W., Washington D.C. 20549. Furtherinformation is available at 1-800-SEC-0330. Reports are also available on theSEC’s website at www.sec.gov.

 

Additional informationrelated to us is available on our website at www.doerun.com. Our website andinformation contained on our website are not part of this Annual Report on Form10-K and are not incorporated by reference herein.

 

# **Item 1A. RiskFactors**

# ** **

The following risks and uncertainties,along with those described elsewhere in this report and in other documentsfiled with the SEC should be considered when evaluating our business and prospects.These risks are not intended to represent a complete list of the general orspecific risks that may affect us. Additional risks and uncertainties notpresently known to us or that are considered immaterial may also impair ourbusiness operations.

 

**Risks Relating to the Company**

 

***OURSUBSTANTIAL DEBT, EQUITY AND ENVIRONMENTAL OBLIGATIONS MAY PLACE LIMITS ONFUNDS AVAILABLE FOR OTHER BUSINESS PURPOSES***

 

We are highly leveraged and havesignificant commitments for environmental matters and PAMA expenditures thatrequire us to dedicate a substantial portion of cash flow from operations tothe payment of these obligations, which will reduce funds available for otherbusiness purposes. See“Item 8. Financial Statements and Supplementary Data—Note 8 and Note 19 to ConsolidatedFinancial Statements.”  These factors also increase our vulnerability togeneral adverse conditions, limit our flexibility in planning for or reactingto changes in our business and industry and limit our ability to obtainfinancing required to fund working capital and capital expenditures and forother general corporate purposes. An unfavorable outcome to the lawsuits andtax assessments in Peru, as discussed in “Item 3. Legal Proceedings,” wouldfurther restrict our ability to meet our obligations when due.

 

We have $308.2 million in outstandingindebtedness on a consolidated basis as of October 31, 2005, excluding theeffects of Financial Accounting Standard No. 15, *Accounting by Debtors andCreditors for Troubled Debt*

 

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*Restructurings* (StatementNo. 15).See “Item 8. Financial Statements and Supplementary Data—Note 8 to ConsolidatedFinancial Statements.”  Doe Run has 11.75% secured notes outstandingwith a face amount of $219.0 million due November 1, 2008. Subsequent toOctober 15, 2005, Doe Run no longer has the option to pay interest on the 11.75% notes by a 3%cash payment with the remainder of interest paid in kind by the issuance ofadditional notes, as discussed in “Item 8. FinancialStatements and Supplementary Data—Note 8 to Consolidated Financial Statements.” The additional cash required to servicethe 11.75% notes will further reduce our ability to meet our obligations whendue.

 

Doe Run’srevolving credit facility, Doe Run Peru’s revolving credit facility, a termnote with Renco due June 16, 2006 and the indenture governing the 11.75% notescontain numerous covenants and restrictions. They include certain requirementswith respect to net worth, working capital, earnings before interest, taxes,depreciation, depletion and amortization (EBITDA) and debt to earnings ratios.These agreements also place limitations on capital expenditures, dividendpayments and other outside borrowings.

 

In addition, each holder of the Company’s 11.75% notes due 2008 issuedunder the indenture received a proportionate share of warrants that at any timeon or after October 29, 2005 and on or prior to October 29, 2012 shall have theright, upon majority vote, to exercise the warrants**.**The exercise of these warrants could further reduce ourability to meet our obligations when due.

 

***WEMAY NOT BE ABLE TO CONTINUE AS A GOING CONCERN***

 

Doe Run Peru hassignificant capital requirements under environmental commitments, which, if notmet, could result in defaults of the Company’s credit agreements; hassubstantial contingencies related to tax; and has significant debt serviceobligations that raise substantial doubt about the Company’s ability tocontinue as a going concern.  Ourauditors issued unqualified opinions on the 2005 audited consolidated financialstatements of the Company and the 2005 audited financial statements of Doe RunPeru that expressed substantial doubt about the Company’s and Doe Run Peru’sability to continue as going concerns due to these issues.

 

Our ability to continueas a going concern will depend upon our ability to meet our obligations andultimately to sustain profitable operations. Management has developed a planthat includes other revenue enhancements and an extension, for which we haveapplied, to complete the construction of the sulfuric acid plant contemplatedby the original PAMA. See the discussion in “Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations” for adescription of our plans. If we are unsuccessful in accomplishing any of thesetasks, our ability to continue to operate as a going concern could be in doubt.Concern about our ability to continue as a going concern may place additionalconstraints on operations and make it more difficult for us to meet ourobligations or adversely affect the terms of any alternative funding we mayrequire.

 

***EXISTINGOR NEW LITIGATION MAY HAVE AN ADVERSE IMPACT ON US***

 

Doe Run is currentlyengaged in the defense of numerous personal injury claims and class actionsregarding damages allegedly caused by exposure to lead and other metals frompast and present mining and smelting operations in Missouri and past miningoperations in Oklahoma. Doe Run is also engaged in the defense of a lawsuit bya railroad regarding damages allegedly caused by exposures to lead associatedwith the rail transportation of lead concentrates.

 

DoeRun Peru is currently engaged in the defense of numerous industrial diseaseclaims and claims for benefits and is also engaged in the defense of a lawsuitregarding alleged impacts on the Mantaro River from Doe Run Peru operations.

 

WhileDoe Run and Doe Run Peru are vigorously defending these lawsuits, there can beno assurance that final judgments in some or all of these lawsuits or othersimilar new lawsuits will not occur that could have a material adverse impacton the results of operations, financial condition and liquidity of Doe Run orDoe Run Peru.

 

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***LIMITSON CASH FLOW FROM DOE RUN PERU MAY HAVE AN ADVERSE AFFECT ON DOE RUN’SLIQUIDITY***

 

Covenants governing the Doe Run Perurevolving credit facility place strict limitations on the ability of Doe RunPeru to pay dividends, fees and other distributions to Doe Run (based upon limitationsthat make those payments contingent upon the achievement of specific financialperformance targets by Doe Run Peru). The Doe Run Peru revolving creditfacility precludes Doe Run Peru from making distributions to Doe Run in anamount greater than $4.0 million in the aggregate per year for the annualadministration fee. Any amount of the $4.0 million annual administration feenot paid by Doe Run Peru in any given year can be accumulated and carriedforward to be paid in a subsequent year. Since July 2004 there has been noadministration fees charged to Doe Run Peru. The payments made to Doe Run arefor prior years’ accruals. Doe Run Peru is allowed under this covenant toreimburse Doe Run for services and expenses provided to and advanced on behalfof Doe Run Peru by Doe Run. Accordingly, no reliance can be made upon Doe Run’sreceipt of distributions from Doe Run Peru in order to meet its debt servicerequirements.

 

***BASEMETAL PRICES, TREATMENT CHARGES AND PENALTIES MAY ADVERSELY FLUCTUATE***

 

Base metal prices, treatment charges andpenalties that may be charged to customers fluctuate and are affected bynumerous factors beyond our control, including speculativeactivities, global and regional demand and production, expectations for inflation and politicaland economic conditions. The aggregate effect of these factors is impossiblefor us to predict and could have a material adverse effect on our results ofoperations, financial condition and liquidity.

 

***WE MAYNOT BE ABLE TO FIND AND DEVELOP NEW MINERAL DEPOSITS***

 

Mineral exploration is highly speculative in nature, involvesmany risks and frequently is nonproductive. As a result, our current mineralexploration efforts may not be successful. Once mineralization is discovered,it may take a number of years from the initial phases of drilling untilproduction is possible, during which time the economic feasibility ofproduction may change. In addition, permitting is required to get to theproduction phase. Our ability to increase our production longevity ofconcentrate feeds is dependent on the successful development of new ore bodiesand/or expansion of existing mining operations. Our exploration programs maynot yield new reserves to expand and replace existing reserves that are beingdepleted by current production. If we deplete our reserves, we may not be ableto obtain adequate supplies of concentrate feeds in the open market ateconomically acceptable terms.

 

***INTEREST RATES MAY ADVERSELYINCREASE***

 

We are subject to interest rate risk on variable interest rate obligations. The Doe Run revolving credit facility bears interest at either the prime rate plus 0.75% per annum or at LIBOR plus 3.0%. The Doe Run Peru revolving credit facility bears interest at LIBOR (1-month, 3-month or 6-month rate, depending on the term of the loan) plus 3.5% per annum. Because of our current limited cash flow, we may not be able to service a material increase in interest rates. If we default on our debt obligations, the lenders will be entitled to a number of remedies, including accelerating all of the outstanding indebtedness.

 

***OUR COMPLIANCE WITH THEREQUIREMENTS OF SECTION 404 OF THE SARBANES-OXLEY ACT WILL RESULT INSIGNIFICANT COSTS***

 

We are required to comply with the provisions ofSection 404 of the Sarbanes-Oxley Act of 2002 by October 31, 2007.

 

Section 404 requires that we document and test ourinternal controls over financial reporting and issue management’s assessment ofthose controls. Section 404 also requires that our independent registeredpublic accounting firm opine upon our internal controls and management’sassessment of those controls. We are currently evaluating our existing controlsusing the framework established by the Committee of Sponsoring Organizations ofthe Treadway Commission. During the course of our evaluation, we may identifyareas requiring improvement, and we may have to change processes and enhancecontrols to address identified issues.

 

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We believe the out-of-pocket costs of complying withthe requirements of Section 404 of the Sarbanes-Oxley Act will be approximately$1.5 million. We also believe management will need to spend a significantamount of time focusing on our compliance efforts rather than on our day-to-dayoperations until the date we are compliant with Section 404. If the time andcosts associated with our compliance exceed our current expectations, ourproductivity and profitability could decrease.

 

We cannot be certain that we will be able tosuccessfully complete the assessment process required by Section 404 on atimely basis or that we or our independent registered public accounting firmwill not identify material weaknesses in our internal controls over financialreporting. If we fail to comply with the requirements of Section 404, or if weor our independent registered public accounting firm identifies any materialweaknesses, the accuracy and timeliness of the filing of our annual andquarterly reports may be negatively affected and could cause investors to loseconfidence in our reported financial information. In addition, a materialweakness in the effectiveness of our internal controls over financial reportingcould result in fraud, the loss of customers, or adversely affect our abilityto obtain financing. Remediating any such material weakness may requireadditional management attention and increased compliance costs.

 

**Risks Relating to Doe Run’sBusiness**

 

***MODIFIEDOR NEW GOVERNMENTAL LEGISLATION OR ENVIRONMENTAL REGULATIONS MAY HAVE ANADVERSE IMPACT ON DOE RUN***

 

Doe Run is subject to numerous federal,state and local environmental laws and regulations governing, among otherthings, air emissions, waste water discharge, solid and hazardous wastetreatment, storage and disposal, and remediation of releases of hazardous substances.Environmental laws and regulations may become more stringent in the future,which could increase costs of compliance. Insurance against environmental risks(including potential pollution or other hazards as a result of disposal ofwaste products from mining, milling and smelting) is not generally available toDoe Run or other companies in the industry. Should Doe Run be unable to fundfully the cost of compliance or of remediating an environmental issue, Doe Runmay be required to suspend operations or enter into interim compliance measuresrequiring additional expenditures.

 

Federal, state and local authorities also regulate a varietyof matters, including, but not limited to, health, safety and permitting inaddition to the environmental matters discussed above. New legislation andregulations may require Doe Run to make material changes to its operations,resulting in significant increases in costs that are not within in our currentbudget.

 

***DOERUN MAY BE MATERIALLY IMPACTED BY ADVERSE CONDITIONS RELATED TO THE NATURE OFMINING***

 

The business of mining and smelting isgenerally subject to a number of risks and hazards, including environmentalhazards, industrial accidents, labor disputes, encountering unusual orunexpected geologic formations, cave-ins, rockbursts, flooding and periodicinterruptions due to inclement or hazardous weather conditions. Such riskscould result in damage to, or destruction of, mineral properties or producingfacilities, personal injury, environmental damage, delays in mining, monetarylosses and possible legal liability. Although Doe Run currently maintainsinsurance within ranges of coverage consistent with industry practice, noassurance can be given that such insurance will continue to be available ateconomically feasible premiums. Although Doe Run’s work force is notsignificantly unionized, there can be no assurance that Doe Run’s workforcewill not become significantly unionized and experience labor disputes in thefuture.

 

***A PROTRACTED INTERRUPTION IN THE AVAILABILITY OF RAWMATERIALS COULD ADVERSELY AFFECT DOE RUN***

 

Doe Run utilizes various raw materials, principallymetallurgical coke, chemicals and reagents, which are secured from externalsources, primarily on the basis of competitive bids. Doe Run recycles a varietyof lead-bearing materials, primarily spent batteries, which it purchases ortolls for customers. The chemistry and composition of feed materials can have asignificant impact on the cost and operating performance of the recyclingoperation. The

 

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availability of raw materials could be affected by naturaldisasters, third party shutdowns or other factors beyond Doe Run’s control. Anyprotracted interruption in the availability of any raw materials could cause adecrease in productivity and profitability.

 

***ADECREASE IN THE WORLD’S RELIANCE ON LEAD-ACID BATTERIES MAY REDUCE DEMAND FORDOE RUN’S LEAD PRODUCTION***

 

Doe Run sells a significant portion ofits lead production for use in lead-acid batteries. Of its 128 lead metalcustomers, Doe Run’s customers include the four of the six largest lead-acidbattery manufacturers in the world. The obsolescence of, or any curtailment inthe worldwide use of, lead-acid batteries could materially reduce demand forDoe Run’s lead production, which could have a material adverse effect on thebusiness, financial condition and results of operations due to a reduction inproductivity.

 

**Risks Relating to the Operationof Doe Run Peru’s Business**

 

***APROTRACTED INTERRUPTION IN THE AVAILABILITY OF RAW MATERIALS COULD ADVERSELYAFFECT DOE RUN PERU***

 

In addition to concentrate feeds, Doe RunPeru’s operations are heavily dependent on the supply of various raw materialsand services, including water, hydroelectric power, oxygen, coke, fluxes andpetroleum products. Doe Run Peru produces its oxygen requirements from anonsite oxygen plant and extracts limestone and silica fluxes from depositsclose to its facility. The availability of raw materials could be affected bynatural disasters, third party shutdowns or other factors beyond Doe Run Peru’scontrol. Any protracted interruption in the availability of raw materials couldhave a material adverse effect on the business, financial condition and resultsof operations due to a reduction of productivity.

 

WhileDoe Run Peru has contracted for most of its concentrate requirements for 2006,and recent metal price improvements and other factors have improved thefinancial condition of the smelter’s traditional suppliers, it remains possiblethat the smelter could experience difficulties obtaining economically suitablelead and zinc concentrate feed supply. Failure to secure economically suitableconcentrate could have a material adverse impact on La Oroya’s performance andDoe Run Peru’s business, financial condition and results of operations.

 

Doe Run Peru’s La Oroya smeltingoperations depend on the availability of lead, zinc and copper concentrates asraw materials. Significant portions of these concentrates are currently securedfrom the Peruvian domestic market. If one or more of these suppliers ofconcentrates ceases or suspends operations, there can be no assurance that DoeRun Peru will be able to secure replacements for these necessary raw materialson economically acceptable terms, and accordingly, such a cessation orsuspension of activities of these suppliers could have a material adverseeffect on the business, financial condition and results of operations due to areduction in productivity.

 

***NEW ORMODIFIED ENVIRONMENTAL LEGISLATION OR REGULATIONS MAY HAVE AN ADVERSE IMPACT ONDOE RUN PERU***

 

Doe Run Peru is subject to numerousenvironmental laws and regulations enacted in the last 15 years in Peru,governing, among other things, air emissions, waste water discharge, solid andhazardous waste storage, treatment and disposal, and remediation of releases ofhazardous materials. Doe Run Peru is also subject to certain Peruvianconstitutional provisions assuring each person the right to a clean andhealthful environment. The current and future application of these laws andregulations related to Doe Run Peru is subject to certain agreements with theMEM. Given the developing nature of environmental law and enforcement policiesin Peru, however, the Peruvian government could in the future requirecompliance with additional environmental requirements that would adverselyaffect Doe Run Peru’s business, financial condition and results of operations.Further, the Peruvian government or other interested persons may seek changesin the future to the terms and conditions of any of the agreements made by DoeRun Peru with the MEM that may adversely affect Doe Run Peru’s business,financial conditions and results of operations.

 

Mine Closure Law No.28090 (Law)  became effective as ofOctober 15, 2005. The Law establishes the obligations and procedures thattitleholders of mining activities must adhere to, including a financialguarantee for

 

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environmental issues. Doe Run Peru must submit a mine closure plan tothe Ministry of Energy and Mines by August 17, 2006. The mine closure plan mustinclude a description of the remediation measures to be done, along with theircost and timing, and the expected amount of the financial guarantee. Pursuantto the Tax Stabilization Agreement, Doe Run Peru is exempt from new obligationsthat could result in a reduction of its cash availability, such as theguarantee discussed above. Therefore, Doe Run Peru considers that theestablishment of the corresponding environmental guarantee would be inopposition to the provisions set forth in the Tax Stabilization Agreement. Thereis a risk that mining authorities could disagree with our position. There isalso a risk that there may be future obligations when our tax stability agreementexpires on December 31, 2006. Management feels that Doe Run Peru will complywith all the obligations.

 

Doe Run Peru also is potentially subjectto claims for alleged personal injury and property and other damages resultingfrom the release of certain substances into the environment, to the extent suchliabilities were not retained and/or are not satisfied by Centromin pursuant tothe agreement between Doe Run and Centromin for the purchase of La Oroya. Seethe discussion in “Doe Run Peru Operations—*Environmental Matters*”above for more details on the agreement. Compliance with environmental laws andregulations, as well as personal injury and property and other damage claims,could have a material adverse effect on Doe Run Peru’s business, financial conditionand results of operations.

 

Insurance against environmental risks(including potential liability for pollution or other hazards as a result ofdisposal of waste products occurring from exploration and production) is notgenerally available to Doe Run Peru or to other companies within the industry.Should Doe Run Peru be unable to fund fully the cost of complying withenvironmental requirements, it could be required to suspend operations or takeinterim compliance measures pending completion of the required remedy. Theaforementioned costs of environmental remediation and compliance by Doe RunPeru could have a material adverse effect on Doe Run Peru’s business conditionand future prospects and could impair Doe Run Peru’s future ability to make payments,dividends and other distributions to Doe Run.

 

Doe Run Peru’s commitments under its PAMA are significant. Doe Run Peru’sexisting PAMA requires it to perform projects during 2006 at a cost of $108.0million. See the discussion of the PAMA in “Doe Run Peru Operations—*Environmental Matters*” above and also in “Item 7. Management’s Discussion andAnalysis of Financial Condition and Results of Operations—*Overview*—*DoeRun Peru.*” If the La Oroya smelter does not comply with theinvestment schedule of the PAMA or does not operate within the current PAMAlimits, Doe Run Peru could be forced to cease operations at the La Oroyasmelter. No assurancecan be given that implementation of the PAMA projects is feasible or that theirimplementation will achieve compliance with the applicable legal requirementsby the end of the PAMA period. Furthermore, there can be no assurance that thePeruvian government will not, in the future, require compliance with additionalenvironmental regulations that could adversely affect Doe Run Peru’s business,financial condition and results of operations.

 

***WORKSTOPPAGES AND STRIKES FROM DOE RUN PERU’S UNIONIZED WORKFORCE MAY CAUSEOPERATIONAL DISRUPTIONS***

 

Approximately 90% and 37% of Doe Run Peru’shourly and salaried workforce, respectively, are represented by labor unions.Doe Run Peru has five-year collective bargaining agreements with each of itslabor unions, which expire in 2008. Although management believes its presentlabor relations are generally good, in the past, work stoppages and strikeshave occurred. As a result, work stoppages and strikes may occur prior to theexpiration of the current labor agreements or during negotiations for new laboragreements (including extensions of the existing labor agreements), and a workstoppage or strike may significantly restrict Doe Run Peru’s production levels.

 

***OPERATING RISKS RELATED TO THE BUSINESS OF SMELTING ANDREFINING MAY SUBJECT DOE RUN PERU TO ENVIRONMENTAL, PERSONAL INJURY AND OTHERSIMILAR CLAIMS***

 

The business of smelting and refining complex concentratesgenerally is subject to a number of risks and hazards, including environmentalhazards, industrial accidents and labor disputes. Such risks could result inpersonal injury, environmental damage, delays in operation, monetary losses andpossible legal liability. Although Doe Run Peru maintains insurance withinranges of coverage consistent with industry practice, any claims that arecovered by our insurance policies may cause our premiums to increase, and wemay not be able to maintain adequate insurance

 

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coverage levels in the future at economically feasiblepremiums.

 

***TAX MATTERS RESULTING FROM OPERATIONS***

 

Doe Run Peru hasreceived assessments of income tax, including penalties and interest calculatedas of October 31, 2005, for the tax years 1998 through 2001 and Value Added Tax(VAT) for the tax years 1999 through 2001 and for the period from Januarythrough July 2004, totaling $109.0 million and $43.5 million, respectively, asdiscussed in Note 13 to the Consolidated Financial Statements. In addition, theCompany estimates that the effect of similar assessments for periods not yetassessed would be approximately $30.3 million and $20.2 million for theincome tax and VAT matters, respectively. Furthermore, Doe Run Peru would alsobe required to make additional workers’ profit sharing payments equal to 8% ofthe increase in taxable income generated by the changes discussed above, orapproximately $11.2 million for tax years 1998 through 2005.

 

Management of theCompany believes that in each case Doe Run Peru has followed the applicablePeruvian tax statutes and intends to pursue all available administrative andjudicial appeals. Doe Run Peru is not required to make any payments pending theadministrative appeal process. If Doe Run Peru is not successful in theadministrative appeal processes and were to appeal in the judicial system, sometype of financial assurance would be required, which would have a significantadverse effect on liquidity.

 

**Risks Relating to the Economicand Political Situation in Peru**

 

***POLITICALAND ECONOMIC INSTABILITY MAY ADVERSELY AFFECT DOE RUN PERU***

 

During the past 30 years, Peru hasexperienced political instability under both civilian and military governments.These governments have pursued various policies, including frequentintervention in the economic and social structure. Past governments haveimposed controls on prices, exchange rates, local and foreign investment andinternational trade; restricted the ability of companies to dismiss employees;expropriated private sector assets; and prohibited the remittance of “profits”to foreign investors and payments to foreign creditors. In 1974, the governmentof Peru expropriated the assets of Doe Run Peru’s predecessor and transferredthem to Centromin, a government-owned conglomerate.

 

Doe Run Peru’s financial condition and resultsof operations could be adversely affected by changes in economic or otherpolicies of the Peruvian government, including reversal of the trend towardprivatization, or other political or economic developments in Peru.

 

***REINSTITUTIONOF EXCHANGE CONTROLS COULD SIGNIFICANTLY REDUCE OUR PROFITABILITY AND RESTRICTOUR CASH FLOW***

 

During the 1970s and 1980s, governmentpolicies restricted the ability of companies in Peru to, among other things,repatriate funds and import products, including oil, from abroad. In addition,currency exchange rates were strictly controlled, and all export sales revenueswere required to be deposited in the Central Bank, where they were exchangedfrom U.S. dollars to the then local currency at less-than-market rates ofexchange. The current Peruvian legal framework imposes no restrictions on theability of a company operating in Peru to transfer foreign currency from Peruto other countries or to convert Peruvian currency into foreign currency orforeign currency into Peruvian currency. There can be no assurance that thePeruvian government will continue its current policy of permitting currencytransfers and conversions without restriction. Reinstitution of exchangecontrols by the Peruvian government could significantly reduce ourprofitability and restrict our cash flow.

 

***INCREASEDINFLATION WITHOUT A CURRENCY DEVALUATION MAY ADVERSELY AFFECT DOE RUN PERU***

 

Peru has in the past experienced highlevels of inflation. In addition, the Peruvian currency has been devaluednumerous times in the past 20 years. A portion of the operating costs of DoeRun Peru are denominated in nuevos soles and, therefore, could be significantlyaffected by the rate of inflation in Peru. If inflation in Peru were toincrease significantly without a corresponding devaluation of the nuevo sol,the financial condition and results of

 

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operations of Doe RunPeru could be materially and adversely affected.

 

**Risks Relating to Control byRenco**

 

***RENCOIS ABLE TO EXERT SIGNIFICANT INFLUENCE UPON THE COMPANY***

 

We are an indirect subsidiary of Renco, of whichMr. Ira Leon Rennert is the controlling shareholder. As a result of hisindirect ownership of us, and his status as a director, Mr. Rennert is, andwill continue to be, able to influence our policies, including mergers, salesof assets and similar transactions. Pursuant to the Investor Rights Agreement,the Board of Directors of Doe Run is comprised of three individuals, includingthe independent director as designated by the holders of the majority of thewarrants, as described in “Item5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” However, Mr. Rennert will still be ableto exert significant influence over us as he effectively controls, pendingexercise of the warrants, 100% of the capital stock of Doe Run.

 

***DOERUN MAY HAVE OBLIGATIONS UNDER A CONTROLLED GROUP THAT COULD HAVE A MATERIALADVERSE EFFECT ON US***

 

Doe Run is a member of a controlled group with otherRenco-owned companies. Accordingly, we are jointly and severally liable withall other members of the controlled group under Title IV of the EmployeeRetirement Income Security Act for obligations of other members of thecontrolled group that could include certain pension funding and excise taxes inthe event that any member of the controlled group does not satisfy certain ofits pension obligations arising pursuant to ERISA.

 

In such an event, statutory liens would arise in favorof the Pension Benefit Guaranty Corporation, referred to as the PBGC, upon theassets of the other members of the controlled group not in bankruptcy, and thePBGC may seek to obtain court approval to terminate the plan and may requirethe other members of the controlled group to satisfy such pension planobligations. In the event the PBGC obtains a court-approved termination, andthe PBGC requires that the Company satisfy such pension plan obligations, suchrequirements could have a material adverse effect on our financial conditionand liquidity.  Obligations under thecontrolled group have not been determined.

 

On February 3, 2006, the PBGC notified another memberof the controlled group of its intention to seek a PBGC Termination of thatmember’s plan. On the same day, the PBGC filed a complaint in the US DistrictCourt seeking to terminate the plan as of February 3, 2006 and for theappointment of the PBGC as the plan’s Trustee under ERISA. An agreement inprincipal has been reached whereby sponsorship of the member’s plan would betransferred to Renco and upon the agreement being finalized, the PBGC wouldwithdraw its complaint and PBGC Termination. In any event, Renco has assuredthe Company that these actions will not have an impact on the Company’sfinancial condition.

 

**Item 1B.Unresolved Staff Comments**

 

Not applicable.

 

**Item 2. Properties**

 

**Doe Run**

 

*MiningOperations*

 

Doe Run’s miningoperations are based in Missouri. It has seven production shafts, six of whichare currently operating, that form a north-south line along approximately 40miles of an ore body. Two of its production shafts, Viburnum-29 andViburnum-35, lie within a five-mile radius, north and south, respectively, ofViburnum, Missouri, which is located approximately 125 miles southwest of St.Louis, Missouri. Doe Run’s Buick, Brushy Creek, Fletcher, West Fork andSweetwater production shafts are within 30 miles of Viburnum. The seventhproduction shaft, known as West Fork, is on care and maintenance status.

 

Doe Run also hasfive grinding/flotation mills located near its production shafts, four of whichare currently 

 

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operatingas shown below. All of the mining and milling facilities are accessible bystate or county roads or haul roads owned by Doe Run. Products are shipped bytruck over public roads.

 

The productioncapacities of Doe Run’s mills are as follows: 

 

| ** **    | ** ** | **Milling Capacity**                     | ** ** |
|---------------|------------|-----------------------------------------------|------------|
| **Mill**      | ** ** | **(Tons of Ore Per Day)** | ** ** |
| Sweetwater    |       | 6,800                                         |       |
| Buick         |       | 6,400                                         |       |
| Fletcher      |       | 5,000                                         |       |
| Brushy Creek  |       | 5,000                                         |       |
| West Fork (1) |       | 4,000                                         |       |

 

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(1)   The WestFork mill is on care and maintenance status, where production at the facilityis temporarily suspended, but certain maintenance activities are continued.

 

Doe Run owns theproperty where the necessary surface structures for mining and milling arelocated. The mineral rights are held either by fee title or mineral leases witheither private landowners or the federal government. There are also numerousprospecting permits, most of which are for exploration of new mineral oredeposits. Five of the production leases are private leases and 13 aregovernment leases. Doe Run makes royalty payments under these leases. Themineral leases with private landowners have no expiration periods. Thegovernment leases are for a period of either 10 or 20 years and are renewableat Doe Run’s option if no default exists under the agreement, subject tonegotiation of specific terms of the lease, including royalty rates. Althoughno assurance can be given, management anticipates that these leases will berenewed at rates that do not exceed the current levels.

 

Doe Run’sproducing leases from the federal government consist of the following: 

 

| **Location** | ** ** | **Number of  Producing Leases** | ** ** | **Expiration  Date** | ** ** |
|--------------|------------|-------------------------------------------|------------|----------------------|------------|
|         |       |                                      |       |                 |       |
| Viburnum     |       | 7                                         |       | March 31, 2018       |       |
| Fletcher     |       | 2                                         |       | May 31, 2013         |       |
| Buick        |       | 1                                         |       | October 31, 2014     |       |
| Brushy Creek |       | 2                                         |       | May 31, 2013         |       |
| West Fork    |       | 1                                         |       | January 31, 2013     |       |

 

*Ore Reserves*

 

The following tables set forth the mineable reservesestimated by Doe Run for the fiscal years ended October 31, 2005 and 2003,which have been audited by the mining consulting firm of Pincock, Allen &Holt (PAH), a division of Runge, Inc. PAH reviewed the methodology and costbasis used in the reserve calculation, as discussed in their reports datedJanuary 16, 2006 and January 29, 2004, and believe that the reserve estimationshave been performed in a reasonable manner consistent with industry acceptedstandards. The table below does not include the total proven and mineablereserves as of the fiscal year ended October 31, 2004, which were estimated bythe Company to be 45.2 million tons consisting of 5.51% lead, 1.31% zinc and0.29% copper. The 2004 mineable reserves were not audited.

 

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**AuditedMineable Reserves**

**As of October 31, 2005**

 
| ** **                          | ** ** | ** **          | ** ** | **Grade(1)** | ** ** |
|-------------------------------------|------------|---------------------|------------|--------------|------------|
| ** **                          | ** ** | **Tons**            | ** ** | **Lead**     | ** ** | **Zinc** | ** ** | **Copper** | ** ** |
| ** **                          | ** ** | **(in  thousands)** | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Proven  (measured) reserves         |       | 10,709              |       | 8.17         | %          | 1.52 | % | 0.30 | % |
| Probable  (indicated) reserves      |       | 23,574              |       | 5.34         | %          | 1.28 | % | 0.24 | % |
|                                |       |                |       |         |       |   |   |   |   |
| Total proven and  probable reserves |       | 34,283              |       | 6.23         | %          | 1.36 | % | 0.26 | % |

 

**As of October 31, 2003**

 
| Proven  (measured) reserves         |   | 11,561 |   | 7.64   | %      | 1.54   | %      | 0.31   | %      |
|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Probable  (indicated) reserves      |   | 36,125 |   | 4.83   | %      | 1.16   | %      | 0.29   | %      |
|                                |   |   |   |   |   |   |   |   |   |
| Total Proven and  Probable reserves |   | 47,686 |   | 5.51   | %      | 1.25   | %      | 0.29   | %      |

 

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(1)   The estimated average extraction recoveryof metals, after allowing for expected dilution for lead, zinc and copper, isapproximately 89%. This dilution is included in the above reserve table.Estimated average metallurgical recoveries for lead, zinc and copper are 96.5%,83.0% and 50.0%, respectively. Metallurgical recovery losses have not beenincluded in the above reserve table.

 

Includedin the 2005 table of mineable reserves is the Higdon deposit, which is outsideof the Viburnum trend, consisting of 2.3 million tons of ore with a grade of5.7% lead and 2.2% zinc. Similarly, the table representing the 2003 mineablereserves includes Higdon, which consisted of 2.7 million tons of ore with agrade of 5.7% lead and 2.0% zinc. While the surface structures and shaft are inplace for the hoisting of ore from the mine, underground mine developmentrequiring significant investment would be necessary in order to generateproduction from the mine. Processing of any ore mined from the Hidgon resourcewould require permitting and construction of a mill at the site or haulage ofthe ore to an existing mill in the Viburnum trend.

 

Totalmineable reserves for 2005 declined 28% from the audited 2003 total. PAH attributed this reduction due mainly to higher operating costs, whichresulted in higher cutoff grades for the calculation.  Additionally, mineproduction decreases to the reserve base were only partially offset by oreadded through exploration.

 

The term “reserve”means that part of a mineral deposit that could be economically and legallyextracted or produced at the time of the reserve determination. The term “proven(measured) reserves” means reserves for which: 1) quantity is computed fromdimensions revealed in outcrops, trenches, workings or drill holes; gradeand/or quality are computed from the results of detailed sampling and 2) thesites for inspection, sampling and measurement are spaced so closely and thegeologic character is so well defined that size, shape, depth and mineralcontent of reserves are well-established. The term “probable (indicated)reserves” means reserves for which quantity and grade and/or quality arecomputed from information similar to that used for proven (measured) reserves,but the sites for inspection, sampling and measurement are farther apart or areotherwise less adequately spaced. The degree of assurance, although lower thanthat for proven (measured) reserves, is high enough to assume continuitybetween points of observation.

 

*SmeltingOperations*

 

Doe Run’sHerculaneum primary lead smelter is located approximately 35 miles south of St.Louis on the Mississippi River in Herculaneum, Missouri. It has a capacity of250,000 tons per year, but is limited to 200,000 tons per year by permit. Thesmelter is currently operating at an annualized run rate of approximately175,000 tons. The smelter, which began operations in 1892, is the largestprimary lead smelter in North America and the third largest in the world.

 

Located in Glover,Missouri, approximately 20 miles southeast of the Sweetwater production shaft,is Doe Run’s Glover primary smelter, which began operations in 1968 and has acapacity of approximately 136,000 tons

 

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peryear. Doe Run indefinitely suspended operations at the Glover primary smelterin the first quarter of 2004 due to decreased U.S. demand for lead. See thediscussion in “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations—*Overview.*”

 

Doe Run’srecycling operation, located in Boss, Missouri, approximately ten miles southof Viburnum, began operations in 1991 and currently has an annual physicalcapacity of approximately 165,000 tons. The facility operates under a ResourceConservation and Recovery Act permit allowing it to handle hazardous waste,primarily lead-bearing material. Up until January 2005, the smelter waspermitted for 152,410 tons of furnace production annually. A permit topermanently expand the emissions capacity of the recycling operation to allowapproximately 175,000 tons of production was received in January 2005. The facility can, however, recycle leadmetal scrap materials that are not required to go through the furnaces in orderto achieve additional metal production.

 

Doe Run owns itstwo primary smelters and its secondary smelter.

 

FabricatedProducts, operates in leased facilities located in Casa Grande, Arizona, andVancouver, Washington. Fabricated Products ended production at its Lone StarLead Construction facility in Houston, Texas in December 2003.

 

Substantially allof the assets of our U.S. operations are pledged as collateral under variousfinancing agreements.

 

**PeruvianOperations**

 

*SmeltingOperations*

 

Doe Run Peru’ssmelting operations are located in the central Peruvian Andes town of La Oroya,approximately 110 miles east of the Peruvian capital of Lima and at an altitudeof approximately 12,000 feet above sea level. The complex is linked to portfacilities by highway and railroad service. Most local supply sources also haverail service. Doe Run Peru owns the facilities, which consist of a coppersmelter, lead smelter, copper refinery, lead refinery, copper fabricatingplant, zinc refinery, precious metals refinery, antimony plant, arsenic plant,coke plant, cadmium plant, maintenance shops and other support facilities.Current production capacities of primary products are as follows: 

 

| **Product**                        | ** ** | **Annual Capacity** | ** ** |
|------------------------------------|------------|--------------------------|------------|
|                               |       |                     |       |
| Copper (short tons)                |       | 77,000                   |       |
| Lead (short  tons)                 |       | 134,000                  |       |
| Zinc (short  tons)                 |       | 50,000                   |       |
| Silver  (thousands of troy ounces) |       | 37,000                   |       |
| Gold (thousands  of troy ounces)   |       | 64                       |       |

 

During 2004, LaOroya produced at less than capacity primarily due to environmental limits and insufficientavailability of suitable feed materials. See the discussion in “Item 1.Business—Doe Run Peru Operation’s—*RawMaterials.*” See the discussion of production levels for 2004 in “Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations—*Results of Operations.*”

 

In 2005,Doe Run Peru ceased operating its three New Jersey zinc roasters, which werecostly to operate and environmentally inefficient. The decision resulted in areduction of refined zinc production to 50,000 tons per year, down from theprevious capacity of 88,200 tons per year. We believe that this change willreduce sulfuric acid gas and other gas emissions as well as reduce the disposalof liquid effluents.

 

*MiningOperations*

 

Doe Run Peru’s Cobriza mineis located approximately 250 miles southeast of Lima in the district of SanPedro de Coris, Churcampa Province. Access to the site is by improved unpavedroad through rugged terrain.

 

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Concentratesproduced at the mine are trucked 130 miles over unpaved road to Huancayo andthen an additional 70 miles over paved road to the La Oroya smelter. Cobriza’smill has a capacity of 10,000 short tons per day. Cobriza used approximatelyhalf of its capacity as of October 31, 2005.

 

Landholdings at Cobrizainclude approximately 2,700 acres of surface ownership and approximately112,000 acres of mining concessions. The current mining operation is located ona portion of the area held. Economic mineralization outside the existing miningarea has not been confirmed as of October 31, 2005. Doe Run Peru’s estimatesindicate mineable proven and probable ore reserves of approximately 7.2 millionshort tons containing approximately 1.20% copper.

 

**Exploration**

 

We continue to explore for additional reserves within the ViburnumTrend, one of the world’s most productive lead-zinc ore districts. Currentexploration is focused on surface and underground drilling in and adjacent tothe operating mines for the purpose of discovering new ore reserves in themines as well as discovering additional ore bodies in the general area of theexisting mines. Drillingin 2004 in the Viburnum Trend led to the discovery of a new ore body, the RCWest Fork ore body. Development on the ore body began in the first quarter of2005, with full production scheduled to begin in late 2006. This resource nowstands at approximately 2.9 million tons, grading 6.65% lead and 0.83% zinc.The RC West Fork ore body remains open both to the north and south and willremain a focus for further drilling planned for 2006.

 

We hold additionalexploration tracts outside the Viburnum Trend in the U.S. In Missouri, 50 mileseast of the Viburnum Trend, we have conducted pre-development work on theHigdon lead-zinc-cobalt deposit. See “*Ore Reserves*”for further detail.

 

Currentmine exploration at Doe Run Peru is focused on underground drilling in theCobriza mine for the purpose of discovering additional ore reserves. Regionalexploration is ongoing on Doe Run Peru landholdings in the Cobriza region.Geological mapping and surface sampling as well as airborne and groundgeophysical methods are being utilized in the search for new ore bodies.Drilling of developed targets began in the first quarter of 2006.

 

In SouthAfrica, through a subsidiary, we have conducted pre-feasibility work on a zincand lead deposit approximately 100 miles from Kimberly, in the Northern CapeProvince. Surface rights to these properties are currently being held withminimal cost pending further economic evaluation. We continue to pursue revisedexploration permits for these properties from the South African government.

 

**Item 3.Legal Proceedings**

 

In addition to theitems discussed below, we are involved in various litigation and claims,government investigations and other legal proceedings that arise from time totime in the ordinary course of business. While management does not believe anyof these matters will have a material adverse effect on our financial position,litigation is inherently unpredictable, and excessive verdicts do occur.Although management believes valid defenses exist in these matters, we could inthe future incur judgments or enter into settlements of claims that could havea material adverse effect on our financial condition, liquidity and results ofoperations.

 

Doe Run is adefendant in 29 lawsuits alleging certain damages from lead emissions stemmingfrom the operations at the Herculaneum smelter. The cases were brought in theCircuit Court of the City of St. Louis: *Meyer,et al. v. Fluor Corporation, et al. (formerly known as Mitchell, et al. v.Fluor Corporation, et al.)*, *Doyle,et al. v. Fluor Corporation, et al.* and *Figge, et al. v. Fluor Corporation et al.*, all filed July 9,2001; *Gross v. Fluor Corporation et al.*,filed May 9, 2002; *Warden, et al. vs. FluorCorporation et al.*, filed September 12, 2002; *Cross v. Fluor Corporation et al.*, filedJanuary 10, 2003; *Johnson, et al. v. FluorCorporation, et al.* and *Browning,et al. v. Fluor Corporation, et al.*, both filed September 9, 2003; *Farrow,et al. v. Fluor Corporation, et al.,* filed May 6 2005; *Dawson,et al. v. Fluor Corporation, et al., Alexander, et al. v. Fluor Corporation, etal., Pedersen, et al. v. Fluor Corporation, et al., Heilig, et al. v. Fluor Corporation,et al., Lynch, et al. v. Fluor Corporation, et al., Brown II v. FluorCorporation, et al., Whaley, et al. v. Fluor Corporation, et al., Duncan, etal. v. Fluor Corporation, et al., Meyer v. Fluor Corporation, et al., Edmond,et al. v. Fluor Corporation, et al., Lucas, et al. v. Fluor Corporation, et*

 

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*al., McCoy v. FluorCorporation, et al.,*and *Damazyn,et al. v. Fluor Corporation, et al.,*all filed August 25, 2005;**and*Joyner, et al. v. Fluor Corporation,**Miller,et al. v. Fluor Corporation, et al., Wamble, et al. v. Fluor Corporation, etal., Hawley, et al. v. Fluor Corporation, et al., Wren, et al. v. FluorCorporation, et al. , Jarvis v. Fluor Corporation, et al.,*and*Ruessler, et al. v. Fluor Corporation, et al.,*allfiled August 26, 2005.

 

The *Doyle, Meyer*,**and*Johnson*cases are class action lawsuits. In the *Doyle*and *Johnson* 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 the *Meyer*case, plaintiffs seek to have certified a class of children who lived inHerculaneum during a period of time when they were six years old or younger andchildren born to mothers who lived in Herculaneum during their pregnancies. Theremedy sought is medical monitoring for the class. The trial court has grantedthe property class action in *Doyle*,but has denied the medical monitoring class action in *Meyer*. Both decisions are being appealed.

 

The remainder ofthe 29 cases are personal injury actions by 161 individuals who allege damagesfrom the effects of lead poisoning they attribute to operations at the smelterand seek punitive damages.

 

Doe Run is also adefendant in a wrongful death action, *Schmidt-Sido,et al., v. Doe Run Resources Corporation,* filed August 26, 2005,concerning an individual who drowned in the City of Herculaneum. The lawsuit wasfiled in the circuit court of the City of St. Louis, Missouri.

 

Doe Run is adefendant in 17 lawsuits alleging certain damages from past mining operationsin St. Francois County, Missouri (one suit also alleges exposure to operationsin Iron County) filed in the Circuit Court of the City of St. Louis, Missouri: *Dowd, et al. v. Fluor Corporation, et al.,*filedJuly 9, 2001; *Lee Ann Stotler and Keely Stotlerv. Fluor Corporation, et al.*and *Layne Stotler v. Fluor Corporation, et al.*,both filed January 10, 2002; *Mullins v.Fluor Corporation, et al.* and *MullinsII v. Fluor Corporation, et al.*, both filed April 15, 2002; *Shannon v. Fluor Corporation, et al., White, et al.v. Fluor Corporation, et al., Stotler, et al. v. Fluor Corporation, et al.,Sorbello, et al v. Fluor Corporation, et al*, and*Brewer v. Fluor Corporation, et al.*, allfiled August 24, 2005;*Mullins II, et al. v.Fluor Corporation, et al., Losh, et al. v. Fluor Corporation, et al., Burnia,et al. v. Fluor Corporation, et al., Ball v. Fluor Corporation, et al.,*and*Snyder, et al. v. Fluor Corporation, etal.*, all filed August 25, 2005; and *Politte,et al. v. Fluor Corporation, et al* and*Baker v. Fluor Corporation, et al.*, all filed August 26,2005.

 

The *Lee Ann Stotler*, *Layne Stotler, Mullins,*and *Mullins II* cases are class actionlawsuits. The *Lee Ann Stotler* and*Layne Stotler*cases are class actions for propertydamages and medical monitoring, respectively, concerning alleged damages causedby tailings and related operations in Bonne Terre. The *Mullins* and *Mullins II*cases areclass actions for property damages and medical monitoring, respectively,concerning alleged damages caused by chat, tailings and related operations insix areas in St. Francois County, Missouri.

 

The remainder ofthe 17 cases are personal injury actions by 28 individuals who allege damagesfrom the effects of lead poisoning they attribute to chat, tailings and relatedoperations and seek punitive damages.

 

Doe Run, with several other defendants, was named in several lawsuitsalleging personal injuries as a result of lead poisoning from exposure to leadpaint and tetraethyl lead dust. While filed in the summer of 2000, these suitshave not been served on Doe Run: *Hall v.Lead Industries Association, Inc., et al.*, *Hart v. Lead Industries Association, Inc., et al.*,*Williams v. Lead Industries Association,Inc., et al.* and *Randell v. LeadIndustries Association, Inc., et al*. The suits were all filed in theCircuit Court of Baltimore, Maryland and seek damages, including punitivedamages.

 

Doe Run is a defendant in a lawsuit filed inthe Circuit Court of the City of St. Louis, Missouri by the BNSF RailwayCompany who has alleged that Doe Run and other companies associated with leadmining operations in Missouri are responsible for property damage at certainrail yards and for contribution and indemnity for costs incurred by the BNSFassociated with settlement by BNSF of lead exposure cases. The demands in thecomplaint indicate that material liability is reasonably possible, but,given the early stage of this case, we are unable at this time to estimate theexpected outcome and any final costs of this action.

 

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*B.H.,et al. v. Gold Fields Mining Corporation, et al.*and *R.S.,et al. v. Gold Fields Mining Corporation, et al.,*were filed on July19, 2004 in the U.S. District Court for the Northern District of Oklahoma andthe District Court of Ottawa County, Oklahoma, respectively, against fourcompanies, including Doe Run, alleging personal injury to 45 and three minors,respectively, resulting from past mining operations in Ottawa County, Oklahoma.The latter case has been removed to the U.S. District Court for the NorthernDistrict of Oklahoma. These two cases have been consolidated, and six of the 48plaintiffs have been dismissed from the case.

 

Two class action suits, *Cole, et al. v. Asarco, Inc., et al.*,filed May 14, 2003, and *Evans, et al. v.Asarco Inc., et al.,* filed February 9, 2004, were filed in the U.S.District Court for the Northern District of Oklahoma, alleging personal injuryand property damage in Picher, Oklahoma and Quapaw, Oklahoma respectively. *Brewer, et al. v. Asarco, Inc., et al.,*wasfiled on July 8, 2003, and *Moss, et al. v.Asarco, Inc., et al., Nowlin, et al. v. Asarco, Inc., et al., Sargent, et al.v. Asarco, Inc., et al.* and *South,et al. v. Asarco, Inc., et al.,* were filed July 29, 2003 in theDistrict Court of Ottawa County, Oklahoma and allege personal injury tochildren living in Picher, Oklahoma. These cases were subsequently removed tothe U.S. District Court for the Northern District of Oklahoma and have beenconsolidated. Another class action suit, *TheQuapaw Tribe of Oklahoma, et al. v. Asarco, Inc., et al.*, was filedin the U.S. District Court for the Northern District of Oklahoma on December10, 2003 against seven companies, including Doe Run. This action alleges damageto natural resources and to property of members of the Quapaw Tribe.

 

*Priesmeyer v. Union Carbide, et al.* was filed in the Circuit Court of MadisonCounty, Illinois on May 16, 2002, alleging that a contractor was injured byexposure to asbestos and is seeking reimbursement for damages, but Doe Run hasnot been properly served. Doe Run received notice that a similar suit, *Hawrylak v. Allied Glove Corp., et al.* was filed on May 16,2003 in the Court of Common Pleas of Lawrence County, Pennsylvania. *Straussner v. Union Carbide Corp., et al.*, an asbestos suitoriginally filed on February 25, 2003, was dismissed on June 8, 2005. A newsuit, *Straussner v. Union Carbide Corp., et al.*,was filed on September 13, 2005 in the Circuit Court of Madison County,Illinois against 88 corporations, including Doe Run, alleging that acontractor has a cancer caused by exposure to asbestos. *Overberg v. Arch City Drywall Supply, et al.*, an asbestossuit filed in the Circuit Court of the City of St. Louis, was dismissed onOctober 12, 2005. A tentative settlement has been reached in *Pagano and Roti v. Anheuser-Busch, Inc., et al.*, an asbestossuit filed in the Circuit Court of Madison County, Illinois on December 17,2004.

 

DoeRun is in a commercial dispute with a buyer concerning one ocean shipment oflead concentrates. Buyer is seeking reimbursement of expenses incurred toaddress a large amount of water that appeared during the voyage on top ofconcentrates in the forward holds. This contract dispute is in arbitrationbefore the LME.

 

DoeRun is a defendant in a lawsuit by Korea Zinc Co. and affiliates filed onJanuary 19, 2006 in the Circuit Court of St. Louis County, concerning allegedviolations of an agreement regarding the sale of zinc concentrates. Doe Rundisputes the claim and will seek dismissal because the dispute should besubject to arbitration.

 

On December 26, 2003,Peru’s tax authority, SUNAT, notified Doe Run Peru of an income tax assessmentfor the 1998 tax year. On December 23, 2004, assessments were received for taxyears 1999 through 2001. The assessments primarily relate to Doe Run Peru’sincome tax 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 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 amount, consistingof additional income taxes due, penalties and interest, as of October 31, 2005,totals approximately $109.0 million. We estimate that the effect of a similarassessment for tax years after 2001 would be approximately $30.3 million.

 

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 $11.2 million for tax years 1998 through2005.

 

On November 15, 2004,SUNAT notified Doe Run Peru of a Value Added Tax (VAT) assessment for theperiod from January through July 2004. On December 23, 2004, Doe Run Perureceived additional VAT assessments for tax years 1999 through 2001. Theassessments primarily relate to Doe Run Peru’s exports with 

 

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holding certificates anddifferences in a tax credit application. The total assessment for these periodswas approximately $43.5 million. SUNAT offset the amount assessed for 2004 of$2.3 million against Doe Run Peru’s VAT receivable balance from July 2004.Future VAT reimbursements cannot be used to offset the assessment by SUNAT. TheCompany discontinued use of the holding certificates for exports in June 2004. Weestimate expected additional assessments related to VAT for tax years 2002 and2003 to total approximately $20.2 million in regard to its exports with holdingcertificates.

 

Management 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 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.

 

Allexisting and pending litigation at the time of the acquisition of Doe Run Peruwere retained by Centromin, the prior owner of the La Oroya smelter and Cobrizamine. Centromin has also agreed to indemnify Doe Run Peru againstenvironmental liability arising out of its prior operations and theirapportioned share of any other complaint related to emissions.

 

Doe Run Peru is a defendant in 198 lawsuits in the Lima, Peru laborcourts that allege damage to workers from industrial 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 17 concluded cases in this category, 16 weredismissed and one resulted in an award of $9.

 

Doe Run Peru is also a defendant in 163 lawsuits by workers allegingthat they are owed certain differences in salaries and benefits. The averageclaim is $21. Of 31 concluded cases in this category, 26 were dismissed and fiveresulted in awards totaling $15. Doe Run Peru is also a defendant in a lawsuitby the Yauli-La Oroya Employees Union concerning salariesand benefits.  The claims of the 146 workers remaining in the lawsuithave been valued at a total of $238 according to a report by an expertappointed by the court.

 

Doe Run Peru is also a defendant in 26 lawsuits alleging claims rangingfrom industrial diseases to salary disputes, including indemnification forarbitrary dismissal, nullity of dismissal, moral damage compensation,compensatory damages from work accident and readmission of worker. The averageclaim is $6. Of 29 concluded cases in this category 26 were dismissed and threeresulted in awards totaling $22.

 

The amount ofawards in the various categories of lawsuits referenced above represent totaljudgments issued by relevant courts.  Forcertain of these lawsuits, Centromin will pay a portion of the total award.

 

On January 19, 2005, Doe Run Peru was served with a lawsuitby an association of municipalities of the Junin Region of Peru against Doe RunPeru and two other mining companies. This lawsuit alleges environmental damagesto the Mantaro River basin in the amount of $5.0 billion. Material liability toDoe Run Peru is believed to be remote because it is the opinion ofmanagement and outside counsel for Doe Run Peru that the probability underPeruvian law of this case proceeding to a conclusion at the favor of theplaintiffs is low. Any potential judgment would be subject to theindemnification obligations of Centromin, which are guaranteed by the Peruviangovernment.

 

OnMay 25, 2005, Doe Run Peru was served with a civil lawsuit alleging theexistence of lead in a person caused by Doe Run Peru’s operations. The claim isfor $100.

 

On July 11, 2003, Doe Run Peru filed an administrativelawsuit against the Yauli – La Oroya Provincial City Hall in order to dismiss anumber of fines for the amount of $2.8 million. Doe Run Peru was fined for nothaving construction licenses for the PAMA projects.

 

Doe Runis a party to a number of orders with various regulatory agencies that requireongoing expenditures for compliance. See “Item 8. Financial Statements andSupplementary Data—Note 19 to Consolidated Financial Statements” for adiscussion of these matters.

 

We are unable atthis time, except as noted, to estimate the expected outcome and the finalcosts of these actions. No amounts have been accrued as liabilities related tothese actions. There can be no assurance that these 

 

26

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caseswill not have a material adverse effect, both individually and in theaggregate, on our results of operations, financial condition and liquidity. Wehave and will continue to vigorously defend ourselves against these claims.

 

Refer to “Item 8. Financial Statements andSupplementary Data—Notes 13, 19 and 20 to Consolidated Financial Statements”for further information regarding the aforementioned legal proceedings.

 

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

 

No matters weresubmitted to a vote of security holders during the quarter ended October 31,2005.

 

**Part II**

 

**Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities**

 

All of Doe Run’sissued and outstanding 1,000 shares of common stock, $0.10 par value per share,are owned by a single stockholder, DR Acquisition Corp., a wholly ownedsubsidiary of Renco. There is no established public trading market for theseshares. Renco is owned by trusts established by Mr. Ira Leon Rennert, Renco’sChairman and Chief Executive Officer, for himself and members of his family. Asa result of such ownership, Mr. Rennert controls us, subject to the provisionsof the Investor Rights Agreement discussed below.

 

On October 29, 2002, the Company consummated a consensual restructuring(the Restructuring) of most of its previously outstanding notes (Old Notes) byexchanging Old Notes with a principal amount of $295 million, plus unpaidaccrued interest of $37 million, for stock warrants, exercisable for anaggregate of approximately 39% of the fully diluted common stock of the Companyand new 11.75% notes with a principal amount of $176 million. Pursuant to theRestructuring, Doe Run issued warrants to purchase 644.7813 shares of itscommon stock, representing approximately 39% of Doe Run’s common stock on afully diluted basis, to holders of its previously outstanding notes whoexchanged them for the 11.75% notes. The warrants expire on October 29, 2012 and are exercisable at any timeafter November 1, 2008. During the period beginning on October 29, 2005 andending on October 29, 2012, the holders of a majority of the warrants will havethe right to require Doe Run to repurchase all, but not less than all, of thewarrants and any outstanding shares issued upon the exercise thereof at a priceequal to the fair market value of the warrants, as determined by a third partyappraisal. Doe Run and Renco each have the right to call all, but not less thanall, of the warrants and any outstanding shares issued upon their exercise atany time after the borrowings from a credit facility governing the Renco termnote are repaid and prior to the expiration of the warrants, except that, ifexercised by Doe Run within 48 months of the Restructuring, the notes issued inthe Restructuring must be redeemed by Doe Run at the applicable redemptionprices. The call price will be the greater of $10.0 million or the fair marketvalue of the warrants at such time, as determined by a third party appraisal.

 

On October 29, 2002, Renco purchased 2,000 shares of Series Aredeemable preferred stock of Doe Run for $20.0 million. The redeemablepreferred stock accrues dividends at a rate of 12.5% per annum, which arepayable only in kind as long as the Renco term note or warrants areoutstanding. The redeemable preferred stock ranks senior to all other classesof capital stock of Doe Run for purposes of liquidation preference anddividends and is redeemable, at the option of Renco, at any time after May 1,2009. Renco was issued 316, 282 and 251 shares of redeemable preferred stock onOctober 31, 2005, October 31, 2004 and November 1, 2003, respectively, aspayment of the aforementioned dividends. See “Item 8. Financial Statements andSupplementary Data—Note 9 to Consolidated Financial Statements” for furtherinformation regarding the redeemable preferred stock and related dividends.

 

Pursuant to DoeRun’s by-laws, there are three seats on the Board of Directors. The InvestorRights Agreement provides that DR Acquisition Corp. may elect two of thesedirectors and holders of a majority of the warrants may appoint one, who isreferred to as the independent director. The independent director nominated bythe holders of a majority of the warrants to serve on Doe Run’s Board ofDirectors could have significant influence over the operations of Doe Run’sbusiness. Pursuant to the Investor Rights Agreement, Doe Run may not take, norpermit any of its subsidiaries to take, certain actions without the approval ofthe independent director. These actions include 

 

27

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filinga voluntary bankruptcy petition, merging or consolidating with another entity,issuing capital stock or securities convertible into capital stock, makingcertain changes to its charter documents or incurring certain levels ofindebtedness.

 

The holders of amajority of the warrants may, upon the occurrence of a “major default,” asdefined in the Investor Rights Agreement (which includes a payment defaultunder the term note as described in “Item 8. Financial Statements andSupplementary Data—Note 8 to Consolidated Financial Statements”), appoint adirector, referred to as the special director, to Doe Run’s Board of Directors.The special director would have super-majority voting powers and be able torequire Doe Run to undertake certain transactions. Upon such appointment, thespecial director would be entitled to cast a majority of the votes at allmeetings of directors, and Doe Run would be required to take any of thefollowing actions if approved by the special director: (i) sell all of its orany of its subsidiaries capital stock, (ii) merge or consolidate itself or anyof its subsidiaries with any other entity, and (iii) sell off any or all of itsassets or any of its subsidiaries and apply the proceeds of such sale to cureany payment default with respect to the 11.75% notes. The special director, ifappointed to Doe Run’s Board of Directors, could have a significant impact onthe operation of Doe Run’s business as well as its strategic direction.

 

The indentures governing the 11.75% notes and Doe Run’scredit facilities restrict its ability to pay dividends on its outstandingcapital stock.

 

 

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**Item 6.Selected Financial Data**

 

**SELECTED HISTORICAL CONSOLIDATEDFINANCIAL DATA**

 

The following tables set forth our historical consolidated financialdata for the five fiscal years ended October 31, 2005, which have been derivedfrom our audited consolidated financial statements. It is important that theselected historical consolidated financial data presented below be read inconjunction with “Item 7. Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and our audited financial statements andthe accompanying notes included elsewhere in this Annual Report on Form 10-K.

 

Thecumulative effects of the changes in accounting principles presented below relateto the adoption of Statement of Financial Accounting Standards No. 143, *Accounting for Asset Retirement Obligations*(SFAS No. 143), in 2003 and to the adoptionof Statement of Financial Accounting Standards No. 133, *Accounting for Derivative Instruments and Hedging Activities*(SFAS No. 133)*,* in 2001.

 
| ** **                                                                             | ** ** | **Year Ended October 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                             | ** ** | **2001**                                  | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                                             | ** ** | ** **                                | ** ** | **(dollars in thousands)** | ** ** | ** ** |
| **Statement of Operations Data:**                                                      |       |                                      |       |   |   |   |   |   |   |   |   |
| Net sales                                                                              |       | $                                         | 738,612    |   | $ | 664,759 |   | $ | 685,382 |   | $ | 868,068 |   | $ | 1,029,440 |   |
| Cost of sales                                                                          |       | 665,279                                   |       | 614,563 |   | 643,893 |   | 782,981 |   | 911,732 |   |
| Depletion, depreciation and amortization                                               |       | 30,461                                    |       | 30,847 |   | 30,407 |   | 25,322 |   | 24,170 |   |
| Selling, general and administrative  expenses                                          |       | 30,845                                    |       | 29,048 |   | 28,366 |   | 35,782 |   | 46,096 |   |
| Exploration expense                                                                    |       | 1,602                                     |       | 1,072 |   | 1,078 |   | 2,178 |   | 2,984 |   |
| Losses from impairment and disposal of  long-lived assets                              |       | 996                                       |       | 10,606 |   | 1,409 |   | 3,591 |   | 2,978 |   |
| Unrealized (gain) loss on derivative  financial instruments                            |       | (1,764                                    | )          | (1,408 | ) | 7,220 |   | 231 |   | (4,876 | ) |
| Operating income (loss)                                                                |       | 11,193                                    |       | (19,969 | ) | (26,991 | ) | 17,983 |   | 46,356 |   |
| Interest expense                                                                       |       | 59,992                                    |       | 55,337 |   | 13,270 |   | 13,289 |   | 10,010 |   |
| Interest income                                                                        |       | 14,870                                    |       | 12,276 |   | 29 |   | 19 |   | 141 |   |
| Gain (Loss) on retirement/restructure of  long term debt                               |       | (159                                      | )          | (7,439 | ) | (550 | ) | — |   | 9,233 |   |
| Other income (expense)                                                                 |       | (691                                      | )          | (430 | ) | (176 | ) | (460 | ) | 666 |   |
| Income (loss) before income tax expense and  cumulative change in accounting principle |       | (34,779                                   | )          | (70,899 | ) | (40,958 | ) | 4,253 |   | 46,386 |   |
| Income tax expense (benefit)                                                           |       | 8,226                                     |       | — |   | — |   | (661 | ) | — |   |
| Income (loss) before cumulative change in  accounting principle                        |       | (43,005                                   | )          | (70,899 | ) | (40,958 | ) | 4,914 |   | 46,386 |   |
| Cumulative effect of change in accounting  principle net of income tax benefit         |       | (3,774                                    | )          | — |   | (3,940 | ) | — |   | — |   |
| Net income (loss)                                                                      |       | $                                         | (46,779    | ) | $ | (70,899 | ) | $ | (44,898 | ) | $ | 4,914 |   | $ | 46,386 |   |

 

 
| ** **                             | ** ** | **As of October 31,** | ** ** |
|----------------------------------------|------------|--------------------------------------|------------|
| ** **                             | ** ** | **2001**                             | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                             | ** ** | ** **                           | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** |
| **Balance Sheet Data:**                |       |                                 |       |   |   |   |   |   |   |   |   |
| Cash                                   |       | $                                    | 6,263      |   | $ | 7,018 |   | $ | 19,700 |   | $ | 20,318 |   | $ | 23,486 |   |
| Working capital                        |       | 33,027                               |       | 74,449 |   | (20,328 | ) | (22,796 | ) | (58,608 | ) |
| Property, plant and equipment, net     |       | 264,300                              |       | 249,667 |   | 230,367 |   | 229,640 |   | 253,263 |   |
| Total assets                           |       | 603,115                              |       | 450,196 |   | 429,433 |   | 457,419 |   | 494,775 |   |
| Total debt (including current portion) |       | 495,981                              |       | 402,219 |   | 408,696 |   | 417,328 |   | 386,513 |   |
| Other noncurrent liabilities           |       | 62,569                               |       | 71,205 |   | 71,508 |   | 75,765 |   | 68,387 |   |
| Redeemable preferred stock             |       | —                               |       | 20,000 |   | 22,514 |   | 25,329 |   | 28,495 |   |
| Shareholder’s deficit             |       | (65,801                              | )          | (147,171 | ) | (209,066 | ) | (210,736 | ) | (167,905 | ) |
|                                        |            |                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item 7.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

The following discussion and analysis should be read in conjunctionwith our condensed consolidated financial statements and the notes thereto andother financial information included herein.

 

***Overview***

 

## *Metal prices*

## * *

Metal pricesextended their dramatic rise during 2005, continuing on an upward trend thatbegan in mid-2003. Lead prices increased from a LME settlement monthly averageof $847.40 per short ton in October 2004 to $911.40 per short ton in October2005. The Company benefited from this price increase in both its U.S.operations’ lead metal and lead concentrate sales. See further discussion belowin “*Results of Operations—Impact of MetalsPricing*.”

 

#### *Primary lead operations*

#### * *

Inresponse to continued strong metal prices, our primary lead division madesignificant changes to operations in 2005. The lead grade of ore mined waslowered approximately 5% compared to the 2004 period, while the tonnageprocessed increased by 10%. These changes were made in an effort to optimizethe return on Doe Run’s ore reserves. As in the previous year, Doe Runcontinued to sell a substantial portion of the lead concentrates produced fromits mines into the open market.

 

Amajor development project was started at the south end of the Company’sFletcher mine to access an ore body known as RC Westfork. We expect to completethis development project in 2006.

 

Leadproduction from the Herculaneum primary smelter in 2005 was 5% lower than in2004, primarily as a result of production interruption due to storm damage tosome process buildings. Environmentally, the smelter did not meet the ambientair standard at the nearby Broad Street monitor in three of four quartersduring the period. All other results were in attainment. The StateImplementation Plan (“SIP”) will be revised to address attainment andmaintenance of the standards and may include engineering controls and a bufferzone.

 

*Recycling operation*

 

Ourrecycling operation produced approximately 2% more lead in 2005 than in 2004. Theincrease is the result of 7% more batteries being processed than in 2004. Thisis the 12th consecutive year that Buick Resource Recycling has set anew production record for the volume of batteries recycled.

 

Themix of feed into Buick Resource Recycling continues to be an issue that islimiting production. A tight scrap market and the reduced availability of highlead content feed have adversely affected production and costs at the division.

 

Productioncosts at both the primary lead division and the recycling operation were upsubstantially due to inflationary cost increases of raw materials, coke, fuelsand repair parts. The increased costs were partially offset by savings realizedfrom the implementation of lean manufacturing principles at the operations.

 

*Doe Run Peru*

 

Doe Run Peruis subject to numerous requirements pursuant to La Oroya’s PAMA. See “Item 1.Business – Doe Run Peru’s Operations – Environmental Matters.” Doe Run Peruexpects that it will not be able to comply with the spending requirements of LaOroya’s PAMA investment schedule in 2006 with respect to the construction ofthe sulfuric acid plant required by the PAMA and, as a result, could be subjectto penalties. Failure to comply with PAMA could result in the forced cessationof operations at the La Oroya smelter, which would adversely affect ourbusiness, financial condition and results of operations.

 

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On December 29, 2004 the Peruvian Government issued Supreme Decree No.046-2004-EM (Supreme Decree), which recognized that exceptional circumstancesmay justify an extension of one or more projects within the scope of aPAMA.  The Supreme Decree specifies that companies had until December 31,2005 to apply for an extension.  The maximum extension is for three years,and the MEM may authorize an additional year based upon the results of a healthrisk study.

 

Doe Run Peruapplied for an extension to complete the construction of the sulfuric acidplant contemplated by the original PAMA on December 20, 2005.

 

Upon approval of a modified PAMA, Doe RunPeru would be required to create a trust account. The trust account would administerthe receipts and disbursements related to the extended PAMA project. TheSupreme Decree requires that receipts from sales, in an amount sufficient tofund the monthly cash requirements of the extended PAMA project, be remitteddirectly to the trust account.

 

The SupremeDecree also requires that, within 30 days of the approval of the PAMAextension, the Company provide financial security in an amount equal to 20% ofthe projected cost of the project or projects to be extended. The companycurrently expects the remaining investment needed to build the sulfuric acidplant to be approximately $102.0 million.

 

Toachieve the financial guarantee and the trust contract required by SupremeDecree, Doe Run Peru has amended the Doe Run Peru Revolving Credit Facility toallow for those arrangements and has filed a draft of a trust guaranteecontract with a Peruvian bank. Additionally, on December 10, 2005 Doe Run Perusigned a Working Capital Financial Facility Agreement for the amount of $30,000(named Ferrites Loan) with Servicios Mineros Integrados S.A.C., a TrafiguraBeheer B.V. subsidiary, to use such funds in the fulfillment of the financialsecurity requirements of the extended PAMA project.

 

DoeRun Peru has performed other environmental projects to reduce fugitiveemissions in 2005 including the installation work on the short rotary furnace,enclosing the blast furnace and dross plant, along with other complementarywork. Major projects scheduled for fiscal year 2006 include an upgrade of theventilation system in the Sinter plant, completion of the enclosure work aroundthe lead and dross furnace, the enclosure of the anode residue plant along withthe elimination of its nitrous gases, and the reduction of fugitive emissionsfrom the copper and lead beds. The total cost of the currently remainingPAMA projects, including the sulfuric acid plant construction, and theseprojects is approximately $130.0 million.

 

Management believes that Doe Run Peru will obtain an approval of anextension 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 projectwill be completed within the time limitation specified by the Supreme Decree.

 

In the future, as part of a modernization plan and to enrich sulfurousgas feed to the sulfuric acid plant, we are planning to replace the oxy-fuelreverberatoy furnace with a reactor furnace to smelt copper concentrates. Theanticipated cost is approximately $57 million.

 

Doe Run Peru hasdeveloped a business plan that identifies several revenue generating and costreduction activities. Management believes the plan will enhance liquidity,which will improve Doe Run Peru’s ability to make the investments under theproposed modifications to the PAMA. In fiscal year 2005 Doe Run Peru launchedits zinc ferrites processing plant, which, as of October 31, 2005, is producing845 tons/month of high silver, zinc concentrates valued at approximately $991per ton.

 

DoeRun Peru has received income tax assessments from Peru’s tax authority, SUNATfor tax years 1998 through 2001. The assessments primarily relate to Doe RunPeru’s income tax treatment of the December 1997 merger of Doe Run Peru andMetaloroya S.A., which was purchased by Doe Run Peru in October 1997, and itseffects on subsequent years’ taxable income. Under the assessment by SUNAT, thetax basis of Doe Run Peru’s fixed assets acquired would decrease, resulting inlower tax depreciation expense than originally claimed. The estimated assessedamount consisting of additional income taxes due, penalties and interest as ofOctober 31, 2005 totals approximately $109.0 million. The Companyestimates that the effect of a similar assessment for tax years after 2001would be approximately $30.3 million. Furthermore, Doe Run Peru would also berequired to make additional workers’ profit sharing payments equal to 8% of theincrease in taxable income generated by the changes discussed above, orapproximately $11.2 million for calendar years 1998 through 2005.

 

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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 primarilyrelate to Doe Run Peru’s exports with holding certificates and differences in atax credit application. The total assessment for these periods wasapproximately $43.5 million. SUNAT offset the amount assessed for 2004 ofapproximately $2.3 million against Doe Run Peru’s VAT receivable balance fromJuly 2004. Future VAT reimbursements cannot be used to offset the assessment bySUNAT. The Company discontinued the use of holding certificates for exports inJune 2004. The Company estimates expected additional assessments related to VATfor tax years 2002 and 2003 to total approximately $20.2 million in regard toits exports with holding certificates.

 

***Results of Operations***

 

*Impact of Metals Pricing*

 

Our results for2005 reflect significant increases in the market prices of lead, copper, zincand silver as compared to 2004. The following table sets forth average LMEprices for lead, copper and zinc and the average London Bullion MarketAssociation (LBMA) price for silver for the periods indicated: 

 

| ** **                      | ** ** | **Year Ended October 31,** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| ** **                      | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                      | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Average Prices             |       |                                      |       |   |   |   |   |
| Lead ($/short ton)    |       | $                                         | 870.40     |   | $ | 759.00 |   | $ | 436.20 |   |
| Copper ($/short ton)  |       | 3,146.60                                  |       | 2,452.00 |   | 1,535.40 |   |
| Zinc ($/short ton)    |       | 1,165.80                                  |       | 921.80 |   | 727.00 |   |
| Silver ($/troy ounce) |       | 7.15                                      |       | 6.34 |   | 4.74 |   |
|                                 |            |                                           |            |  |  |  |  |  |  |  |

 

The average annual LME lead price increased in 2005 by over $111.00 pershort ton, or 15%, from 2004. This increase was a result of several factors,including reduced supply of both lead concentrates and lead metal in the worldmarket and an increase in global lead demand, particularly from China. Previously,the price had declined approximately 38% from 1996 through mid-2003. These lowlead prices from 1996 through mid-2003 resulted in several lead producing minesclosing, suspending operations or reducing production, mainly in North Americaand Australia.

 

In the United States and Western Europe, however, lead demandcontinues to decline as lead consuming industries move to lower labor costareas. In the U.S., this movement has been most pronounced in automotive lead-acidbatteries. Conversely, U.S. lead consumption in industrial batteries reboundedsharply in 2005 in line with overall economic improvements. The net result hasbeen a significant tightening in lead metal availability.

 

Copper prices continued their strong rebound in 2005 fromhistorically low prices. The copper price increased by nearly $695.00 per shortton, or 28%, from 2004 to 2005. Again, Chinese demand was the main influence. Thehigh copper prices have resulted in several producers announcing the re-openingof closed mines or increasing copper production of existing mines. Severalcommodity-forecasting services are predicting a balanced market of copperconcentrates in 2006, ultimately resulting in the refined copper market movinginto surplus by 2006.

 

Zinc prices have also recovered from the lows set in 2002. Fundamentalsfor zinc improved as zinc metal consumption exceeded zinc production in 2005. Zincprices, like lead and copper, also benefited from a weak U.S. dollar.Currently, demand for zinc concentrates is exceeding the supply, making themarket very competitive.

 

Changes in the market prices for metals expose us tovariability in our cash receipts. We employ a commodity price riskmanagement strategy using forward sales commitments, futures and commodity putand call option contracts. The purposeof our price risk management program is to limit our risk to acceptable levels,while enhancing revenue through the receipt of option premiums. See thediscussion in “Item 7A. Quantitative and Qualitative Disclosures About MarketRisk.”

 

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As withlead prices mentioned above, low zinc and copper prices in the preceding fiveyears have induced mine closures and cutbacks and slowed the development of newcopper, zinc and lead projects. In addition, new smelting capacity has come onstream in China and India, increasing demand for concentrates. As a result,supplies of lead and zinc concentrates have been very tight. Copperconcentrates, however, are no longer in tight supply due to the re-opening of closed mines and increased copper production ofexisting mines.

 

*Production*

 

The followingtable sets forth our production statistics for the periods indicated: 

 

| ** **                                       | ** ** | **Year Ended October 31,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| U.S. Operations                                  |       |                                      |       |   |   |   |   |
| Lead metal - primary (short tons)                |       | 155,838                                   |       | 171,664 |   | 281,531 |   |
| Lead metal - secondary (short tons)              |       | 136,478                                   |       | 133,986 |   | 149,616 |   |
| Lead concentrates (metal content, short  tons)   |       | 281,772                                   |       | 274,950 |   | 295,581 |   |
| Ore grade (lead)                                 |       | 5.36                                      | %          | 5.73 | % | 6.53 | % |
|                                             |       |                                      |       |   |   |   |   |
| Peruvian Operations                              |       |                                      |       |   |   |   |   |
| Refined copper (short tons)                      |       | 64,548                                    |       | 63,518 |   | 68,958 |   |
| Refined lead (short tons)                        |       | 132,919                                   |       | 130,959 |   | 122,946 |   |
| Refined zinc (short tons)                        |       | 49,554                                    |       | 75,163 |   | 80,679 |   |
| Refined silver (thousands of troy ounces)        |       | 33,998                                    |       | 35,804 |   | 35,305 |   |
| Refined gold (thousands of troy ounces)          |       | 67                                        |       | 66 |   | 82 |   |
| Copper concentrates (metal content, short  tons) |       | 16,516                                    |       | 16,683 |   | 17,944 |   |
| Ore grade (copper content)                       |       | 1.00                                      | %          | 1.10 | % | 1.10 | % |

 

In response to continued strong lead metal market conditions at thebeginning of 2005, we made a number of changes in our U.S. primary leaddivision during the year. We increased the amount of tons of ore mined at theViburnum-29, Viburnum-35 and Sweetwater mines, knowing that we would be mininga slightly lower lead grade of ore for 2005 due to the extra ore fromViburnum-29, Viburnum-35 and Sweetwater being relatively low grade. The neteffect of these changes was that our lead grade of ore processed lowered from5.73% in 2004 to 5.36% in 2005, but the volume of ore processed increased byover 535,000 tons, or 11%, from 2004 to 2005. Although the volume of ore minedincreased by 11% in 2005 versus 2004, our expected total ore volume was 2% lessthan planned because of less than planned production from the Sweetwater Mine.The Sweetwater Mine ore production shortfall was due to poor developmentresults from the south end of the mine that limited the availability ofproduction areas. Current production plans include the extraction of pillarsand a retreat from the south end of the Sweetwater Mine with the abandonment ofthe last development to the south. We expect these changes will raise the gradeof ore mined from Sweetwater and reduce its operating costs for the 2006 period.Also, technical changes made to the pillar recovery process in 2004 allowed theBuick mine to substantially improve its performance in 2005.

 

Gross operating costs from the mining operations were just over 8% overthe amount planned for 2005, with some major consumable costs increasing over20%. Major consumable costs include items such as tires, explosives, dieselfuel, repair parts and grinding media. The benefits derived from the continuedimplementation of lean manufacturing principles helped offset some of theinflationary cost increases. Manpower at our U.S. primary lead division miningoperations increased by 6% as compared to 2004 in order to process the higherore volume.

 

Westarted a major development to the south end of the Fletcher mine in 2005 andwill continue that development throughout 2006. It accesses a new major orebody called RC Westfork. The total development is 5,000 feet, and isapproximately 50% complete at October 2005. As of October 2005 the RC Westfork orereserves are 2.9 million tons of ore grading 6.65% lead and 0.83%zinc.  Exploration drilling will continue in 2006.

 

In 2005, production at the Herculaneum primary smelter was155,800 tons, over 5% less than 2004. This was primarily due to storm damage tothe sinter plant process building in the third quarter of 2005 that requiredseveral 

 

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days for repair and sealing of the building. Productionwas curtailed during this period and was intermittently curtailed throughoutthe quarter to control emissions. Blastfurnace slag chemistry control also contributed to some production shortfall inthe third quarter of 2005. The reduced production combined with inflationarycost increases of coke, natural gas and repair parts resulted in higher unitcosts. Process control changes and the completion of repairs to the sinter andacid plants resulted in increased fourth quarter production.

 

Environmentally, the Herculaneum primary smelter did not meetthe ambient air lead standard at the Broad Street monitoring station in thefirst three quarters of 2005. However, it was in attainment for the fourthquarter. All other monitoring stations’ results were in attainment. Since the air quality monitors reflected three quarters ofnon-compliance, the permitted annual capacity of the Herculaneum primarysmelter decreased from 250,000 to 200,000 tons, which does not affect resultsat current production levels.

 

Our recycling operationproduced 136,500 tons of finished lead products in 2005, approximately 2% morethan the prior year. However, production was less than management’sexpectations for 2005. The production shortfall was the result of lower blastfurnace production due to poor coke quality and high levels of sulfur in thefeed. Coke quality improved during the second half of the year, and we madeprocess changes to the slag handling system at the reverb furnace that havereduced sulfur levels in the feed to the blast furnace. October’s blast furnaceproduction was about 20% greater than the average production rate during thebalance of the year.

 

Unit operating costs at the recycling operation were higher thanexpected due to both the production shortfall described earlier andinflationary cost increases, particularly coke, propane and repair parts. Therecycling operation made additional improvements to the desulfurization circuitin 2005 that allowed it to process 7% more scrap batteries in the periodcompared to the prior period. This represented the 12th consecutiveyear that Buick Resource Recycling set a new record for tons of batteriesprocessed. These improvements were the main contributor to the increase inproduction in 2005 versus 2004.

 

Doe Run Peru’sLa Oroya smelter copper production was affected by frequent stoppages to reducegaseous emissions and to perform maintenance on the reverberatory furnace,however not to the extent in 2004, therefore the overall result was an increasein copper production of 2% in 2005 as compared to 2004. Temperature inversionsexperienced at La Oroya can trap gases in the mountain peaks surrounding theplant. In order to reduce the level of gases, management may cease operationsof the reverberatory furnace and copper converters. The temperature inversionsalso caused increased maintenance to replace the bricks in the furnace, sincerepeated heating and cooling shorten the life of the bricks. Receipts of leadconcentrates improved in 2005, resulting in a 2% increase in lead production in2005 compared to 2004. Feed costs increased substantially as a result of theincrease in metal prices.

 

Ore productionat Doe Run Peru’s Cobriza mine in 2005 was approximately 10% higher than 2004;however, ore grade was 9% lower. The net result was that metal contentdecreased by 1% from 2004 to 2005. Management is implementing correctiveactions to address ground stability issues based on studies by the Company’stechnical services personnel and outside consultants. Cobriza is in the processof obtaining new equipment, which management believes should improve productionvolume.

 

The aging of the Company’s assets has resulted in increasedmaintenance costs to keep them in condition to operate at current levels. Alloperations have seen an increase in maintenance costs over comparable periodsin prior years.

 

Results of operationsfor the years ended October 31, 2005, 2004 and 2003 include the results of theCompany’s U.S. operations and Doe Run Peru. In order to provide a moremeaningful analysis, the results of operations attributable to Doe Run Peruwill be noted and discussed separately under “*Resultsof Doe Run Peru*.”

 

*Fiscal 2005 Compared to Fiscal 2004*

 

*Gross margin on sales* (net salesless cost of sales) increased from $85.1 million in 2004 to $117.5 million in2005. Gross margin on sales for our U.S. operations increased from $49.1million in 2004 to $68.8 million in 2005. A 30% increase in the U.S. operation’srealized prices for lead metal, fueled by higher LME prices, contributed anadditional $49.3 million to our U.S. operations’ gross margin on sales in 2005compared to prior year. The increase 

 

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in the lead metal net realized price in 2005 was more thanthe increase in the average LME settlement price, due to the effects of ourrisk management strategy, which reduced our exposure to changes in the marketprice in an attempt to fix an acceptable price for its products. Increases incopper and zinc metal prices in 2005 fueled an increase in the net realizedprice for copper and zinc concentrate sales, which contributed an additional$7.0 million to gross margin compared to 2004. The sale of lead concentratescontributed an additional $7.4 million to margins in 2005 over 2004. Theseincreases were offset by higher costs per unit of metal produced at the U.S.operations driven by the increases in repairs and maintenance costs, payrolland benefit costs, higher feed and raw material costs and the effects of thechange in feed mix on the production at the recycling operation.

 

*Selling, general and administrative costs*increased$10.3 million in 2005 compared to 2004, $4.5 million of which relates to DoeRun Peru. The increase was due to increased salaries and employee benefitcosts, increase in professional services and an increase in insurance expense.

 

*Losses from impairment and disposal of long-lived assets*relate primarily to recognition of impairment losses for the value of housespurchased in Herculaneum relating to properties purchased under a residentialproperty purchase plan in the town of Herculaneum.

 

As of October 31, 2005, a total of 149 homeowners hadrequested and were delivered offers, and 142 of those offers had been accepted.As of October 31, 2005, the Company had spent approximately $10.0 million underthe residential property purchase plan. Another $1.1 million of accepted offersare awaiting a closing date and $0.4 million in outstanding offers have notbeen accepted. Doe Run has complied in all material respects with the propertypurchase provisions of the settlement agreement.

 

*Unrealized (gain) and loss on derivative financial instruments* are**related tothe change in fair market value of derivative financial instruments that were apart of Doe Run’s risk management strategy. The increase in unrealized gainsfrom 2003 to 2005 is the result of the continual rise in the LMEprice over that period. See also “Item7A. Quantitative and Qualitative Disclosures About Market Risk.”

 

*Income tax expense (benefit)*in2004 reflects a reversal of a U.S. federal income tax liability and a change intax law in Peru. In 2004, the Company reversed a U.S. federal income taxliability related to years that are closed to audit of $2.8 million. Offsettingthis reversal were taxes of $2.2 million paid in the third quarter of 2004pursuant to a law passed in Peru in December 2003, under which certaintechnical services that Doe Run provided under an agreement with Doe Run Peruare taxed at 30%.

 

Renco has elected for the Company to be treated as aqualified subchapter S subsidiary (QSSS) for U.S. federal tax purposes. Moststates in which the Company operates will follow similar tax treatment. QSSSstatus requires the ultimate shareholders to include their pro rata share ofthe Company’s income or loss in their individual tax returns. As a result ofthe Company’s tax status in the U.S., the Company is not generally subject toU.S. federal and most state income taxes; however, under a tax sharingagreement with Renco, the Company is liable to Renco for pro forma federal andstate income taxes as defined in the agreement. See “Item 13.Certain Relationships and Related Transactions” for more information.

 

*Fiscal 2004 Compared to Fiscal 2003*

 

*Gross margin on sales*(net sales less cost of sales) increased from $41.5 million in 2003 to $85.1million in 2004. Gross margin on sales for our U.S. operations increased from$26.2 million in 2003 to $49.1 million in 2004. A 35% increase in the U.S.operation’s realized prices for lead metal, fueled by higher LME prices,contributed an additional $61.4 million to our U.S. operations’ gross margin onsales in 2004 compared to prior year. The increase in the lead metal netrealized price in 2004 was less than the increase in the average LME settlementprice, due to the effects of our risk management strategy, which reduced ourexposure to changes in the market price in an attempt to fix an acceptableprice for its products. Increases in copper and zinc metal prices in 2004fueled an increase in the net realized price for copper and zinc concentratesales, which contributed an additional $9.1 million to gross margin compared to2003. The sale of lead concentrates contributed an additional $9.4 million tomargins in 2004 over 2003. These increases were offset by higher costs per unitof metal produced at the U.S. operations driven by the increases in repairs andmaintenance costs, payroll and benefit costs, higher feed and raw materialcosts and the effects of the change in feed mix on the production at therecycling operation.

 

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*Selling, general and administrative costs*increased $7.4 million in 2004 compared to 2003, $1.4 million of which relatesto Doe Run Peru. The remaining increase was due primarily to insurance refundsreceived in 2003 applicable to legal fees incurred in a previous fiscal year andcredited to selling, general and administrative costs and to increased salariesand employee benefit costs and insurance expense.

 

*Losses from impairment and disposal of long-livedassets* relate primarily to recognition ofimpairment losses for the value of houses purchased in Herculaneum relating toproperties purchased under a residential property purchase plan in the town ofHerculaneum.

 

*Unrealized losses on derivative financialinstruments*are**related to the change in fair market value of derivative financialinstruments that were a part of Doe Run’s risk management strategy. Thedecrease in unrealized losses in 2004 compared to 2003 is the result of the substantial increase in the LME priceat the end of 2003, which caused large unrealized losses to be recognized inthe fourth quarter of 2003. See also “Item 7A. Quantitative andQualitative Disclosures About Market Risk.”

 

*Income tax expense (benefit)*in2004 reflects a reversal of a U.S. federal income tax liability and a change intax law in Peru. In 2004, the Company reversed a U.S. federal income taxliability related to years that are closed to audit of $2.8 million. Offsettingthis reversal were taxes of $2.2 million paid in the third quarter of 2004pursuant to a law passed in Peru in December 2003, under which certaintechnical services that Doe Run provided under an agreement with Doe Run Peruare taxed at 30%.

 

*Cumulative effect of change in accounting principle*resulted in a charge of $3.9 million in the first quarter of2003, which relates to the adoption of Statement No. 143.

 

***Results of Doe Run Peru***

 

*Fiscal 2005 Compared to Fiscal 2004*

 

*Gross margin on sales* (net salesless cost of sales) for Doe Run Peru increasedfrom $36.0 million in 2004 to $48.9 million in 2005. This increase is primarilydue to the improvement in treatment charges received in processing copper andlead concentrates and free metal benefits for lead and zinc. Also contributingto an improved gross margin were by-product sales such as indium, tellurium andpremium improvements for copper and lead metal. These benefits were offset byhigher conversion costs primarily due to higher fuel and coke prices, increasedsalaries combined with a weakened U.S. dollar, and higher maintenance, spareparts and supplies costs.

 

*Selling, general and administrative costs* for Doe Run Peru increased by$4.5 million in 2005 compared to the prior year. Thedifference is due primarily to increases in compensation costs, professionalfees and contributions to community activities, partially offset by a decreasein insurance expense.

 

*Other, net*for DoeRun Peru increased by $1.2 million in 2005 compared to 2004, primarilydue to exchange gains on transactions denominated in Peruvian nuevos soles as aresult of the effect of a decrease in the value of nuevos soles against theU.S. dollar.

 

*Income tax expense* for Doe Run Peru was $0 in 2005 and 2004, reflectingtax losses and management’s belief that sufficient uncertainty exists regardingthe realization of certain deferred tax assets, which requires that a valuationallowance be established.

 

*Fiscal 2004 Compared to Fiscal 2003*

 

*Gross margin on sales* (net salesless cost of sales) for Doe Run Peru increasedfrom $15.3 million in 2003 to $36.0 million in 2004. The increase in metalprices also benefited Doe Run Peru, contributing to price related increases of$32.2 million to gross margin in 2004. Conversion costs increased slightly dueto increases in maintenance, fuel and coke costs. Maintenance expense increasedas Doe Run Peru completed maintenance programs originally scheduled for 2003 in2004. These increases were partially offset by lower labor costs as thebenefits of a 2003 reduction in labor were realized in 2004.

 

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*Selling, general and administrative costs* for Doe Run Peru increased by$1.4 million in 2004 compared to the prior year. Thedifference is due primarily to increases in contributions to community andregional activities, compensation costs and professional fees, partially offsetby a decrease in insurance expense.

 

*Other, net*for DoeRun Peru decreased in 2004 compared to 2003, primarily due to exchangelosses on transactions denominated in Peruvian nuevos soles as a result of theeffect of an increase in the value of nuevos soles against the U.S. dollar.

 

*Income tax expense* for Doe Run Peru was $0 in 2004 and 2003, reflectingtax losses and management’s belief that sufficient uncertainty exists regardingthe realization of certain deferred tax assets, which requires that a valuationallowance be established.

 

***Liquidity and Capital Resources***

 

*Overview*

 

 

 

DoeRun is highly leveraged.  Doe Run Peruhas significant capital requirements under environmental commitments, which, ifnot met, could result in defaults of the Company’s credit agreements; hassubstantial contingencies related to tax; and has significant debt service obligationsthat raise substantial doubt about the Company’s ability to continue as a goingconcern.  These commitments require us todedicate a substantial portion of cash flow from operations to the payment ofthese obligations, which will reduce funds available for other businesspurposes. See “*Contractual Obligations”*for a summary of these and other contractual obligations. These factors alsoincrease our vulnerability to general adverse conditions, limit our flexibilityin planning for or reacting to changes in its business and industry, and limitour ability to obtain financing required to fund working capital and capitalexpenditures and for other general corporate purposes. An unfavorable outcometo the lawsuits and tax assessments in Peru, as discussed in “Item 3. LegalProceedings,” would have a further adverse effect on our ability to meet ourobligations when due. These factors are discussed in more detail below.

 

Our auditorsissued unqualified opinions on the 2005 audited consolidated financialstatements of the Company and the audited financial statement of Doe Run Peruthat expressed substantial doubt about our ability to continue as goingconcerns due to net capital deficiencies, substantial debt service requirementsand significant capital requirements under environmental commitments.

 

*Cash Flow Summary*

 

Net cash provided by or (used in) activities of the Company areidentified below.

 

| ** **                                      | ** ** | **Year Ended October 31,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                            |       |                                      |       |   |   |   |   |
| Operating activities                            |       | 76,198                                    |       | 21,597 |   | 22,448 |   |
| Investing activities                            |       | (50,663                                   | )          | (29,734 | ) | (15,295 | ) |
| Financing activities                            |       | (22,367                                   | )          | 8,755 |   | 5,529 |   |
| Cash and Cash Equivalents, beginning of  period |       | 20,318                                    |       | 19,700 |   | 7,018 |   |
| Cash and Cash equivalents end of period         |       | 23,486                                    |       | 20,318 |   | 19,700 |   |

 

We had capitalexpenditures of $51.3 million in 2005 and have projected capital expendituresof approximately $54.1 million for 2006, including spending on Doe Run Peru’sPAMA projects. In the U.S., we had capital expenditures of $17.2 million in2005 and have projected total capital expenditures of approximately $14.7million for 2006, primarily to fund expansion, to support ongoing operationsand for operational and environmental improvements, including expendituresrequired pursuant to a settlement agreement with the State of Missouri thatestablished a residential property purchase plan in Herculaneum. See “Item 8.Financial Statements and Supplementary Data—Note 19 to Consolidated FinancialStatements.” In addition to these capital investments, our U.S. operationsexpended approximately $82.6 million, $66.5 million and $51.3 million onrepairs and maintenance for 2005, 2004 and 2003, respectively. Doe Run Peruhad capital expenditures of $34.0 million in 2005 and has 

 

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projected capital expenditures of approximately$39.4 million for 2006, primarily for PAMA projects and to support ongoingoperations. Doe RunPeru expended approximately $22.6 million, $19.6 million and $16.8 million onrepairs and maintenance for 2005, 2004 and 2003, respectively. As a result ofthese expenditures, we believe that the operations will continue to maintainmodern and efficient facilities.

 

*Capital Resources*

 

TheCompany’s primary available sources of liquidity are cash provided by operatingactivities and its two revolving credit facilities. The Doe Runrevolving credit facility allows Doe Run and certain U.S. subsidiaries toborrow up to $75.0 million and expires August 29, 2008. The availability ofloans under the Doe Run revolving credit facility is limited to a percentage ofeligible U.S. accounts receivable and inventories, less any outstanding loansand letters of credit. All cash received by Doe Run’s domestic operations istransferred by wire daily to the financial institutions to pay down theoutstanding loan balance, if any. The Doe Run Peru revolving credit facilityhad an expiration date of November 23, 2005, which was subsequently extended toJune 23, 2006, and provides Doe Run Peru with working capital loans up to $40.0million, with a limit on letters of credit of $5.0 million, but the totalcommitments may not exceed the maximum line of $40.0 million. The balances inthese revolving credit facilities are classified as current liabilities on thebalance sheet.

 

Netunused availability at October 31, 2005 under the Doe Run revolving creditfacility and Doe Run Peru revolving credit facility was approximately $22.1million and $0.2 million, respectively. In addition to the availability underits revolving credit facilities, cash balances at Doe Run and Doe Run Peru were$8.9 million and $14.6 million, respectively, at October 31, 2005. Net unusedavailability at October 31, 2004 was approximately $22.5 million and $0.06million under the Doe Run revolving credit facility and Doe Run Peru revolvingcredit facility, respectively, and cash balances at Doe Run and Doe Run Peruwere $13.4 million and $6.9 million, respectively, at October 31, 2004.

 

The Doe Run revolving creditfacility, the Doe Run Peru revolving credit facility, the term note and theindenture governing the notes contain numerous covenants and restrictions. Theyinclude certain requirements with respect to net worth, working capital, EBITDAand debt to earnings ratios. These agreements also place limitations on capitalexpenditures, dividend payments and other outside borrowings. The Doe Run Perurevolving credit facility also contains covenants that restrict Doe Run Peru’sability to make distributions to Doe Run in excess of a $4.0 million managementfee.

 

The Companyhas debt service requirements in the future, as shown in “*Contractual Obligations*,” including thematurity in 2006 of $8.0 million for the term note, of which $6.0 million wassubsequently paid, and interest payments of $25.7 million for the 11.75% notes.At October 31, the Doe Run Peru revolving credit facility had an expirationdate of November 23, 2005, which was subsequently extended to June 23, 2006. Itwill need to be renegotiated and there can be no assurance that we will besuccessful in renewing the agreement, or if it is successful, that the renewalwould be at terms favorable to us.

 

Effective July1, 2004, Doe Run and Doe Run Peru cancelled a sales agency agreement underwhich Doe Run acted as a sales agent on behalf of Doe Run Peru. Under thecancellation, the balance owed to Doe Run of $22.6 million will be paid in $1.0million quarterly installments or as otherwise agreed by the parties.

 

*Debt Instruments*

 

On October 29,2002, the Company consummated the Restructuring whereby most of its Old Notes wereexchanged with a principal amount of $294.84 million, plus unpaid accruedinterest of $37.473 million, for stock warrants,  exercisable for an aggregate of approximately39% of the fully diluted common stock of the Company and new 11.75% notes witha principal amount of $175.832 million described in “Item 5. Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities.” In addition to the reduction of principal, the notesimproved the Company’s liquidity by extending the maturity date to November 1,2008, and provided that a portion of interest may be paid in kind with theissuance of additional notes whereby, through October 15, 2005, interest may bepaid, at the option of Doe Run, at an annual rate of either 3% in cash and11.5% paid in kind or 8.5% paid in cash. After October 15, 2005, interest willaccrue at the rate of 11.75% per annum and will be payable in cash. Beginningwith the April 

 

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2005 interest payment, the Company began paying cash interest. Thenotes are recorded in accordance with Statement of Financial AccountingStandards No. 15, *Accounting by Debtors andCreditors for Troubled Debt Restructurings*(SFAS No. 15). See thediscussion in *Significant AccountingPolicies and Estimates* for a description of SFAS No. 15. The effectof this accounting is that Doe Run will recognize substantially less interestexpense related to the notes during their term than is reflected in the statedrate of interest because the majority of the interest payments are reflected inthe carrying amount of the notes.

 

Our balance sheet reflected$386.5 million and $417.3 million of total debt on a consolidated basis as ofOctober 31, 2005 and 2004, respectively. The face amount of indebtednessoutstanding at October 31, 2005 and 2004 was $219.0 million.

 

We were incompliance with the covenants under the various debt agreements as of October31, 2005, with the exception of the delivery of audited financials and otherreporting requirements for the year ended October 31, 2005 by January 29, 2006under the Doe Run Revolving Credit Facility and the Term Note. Waivers for thesereporting defaults were received on March 17, 2006 and March 16, 2006,respectively.

 

During the period beginningon October 29, 2005 and ending on October 29, 2012, the holders of a majorityof the warrants have the right to require Doe Run to repurchase all, but notless than all, of the warrants and any outstanding shares issued upon theexercise thereof at a price equal to the fair market value of the warrants, asdetermined by a third party appraisal. Management engaged a nationallyrecognized valuation firm to calculate the fair value of the warrants atOctober 31, 2005 and 2004. Management’sestimate of the fair value of the warrants based on the valuation is approximately $0.6 million at each of theyears ended October 31, 2005 and 2004.

 

*Environmental Commitments*

 

Our commitments under agreements with regulatory agencies forenvironmental activities are significant. Our recorded liability forenvironmental matters and asset retirement obligations was $34.7 million atOctober 31, 2005, which does not include capital expenditures related to DoeRun Peru’s PAMAs. Spending estimates may change based on the activitiesrequired, which could have a significant adverse impact on our liquidity.

 

Doe Run Peru’s existing PAMArequires it to perform projects in 2006 at an additional cost of $108 million.Doe Run Peru expects that it will not be able to comply with the spendingrequirements of the PAMA investment schedule in 2006 with respect to theconstruction of the sulfuric acid plant 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, which would adverselyaffect our business, financial condition and results of operations. DoeRun Peru submitted an application for extension discussed in the “*Overview—Doe Run Peru*” to modify therequirements of the existing PAMA and extend the term of the PAMA. Doe Run Peruwill perform other environmental projects to reduce fugitive emissions,including heavy metal dust, to address the health issues of the community. Thetotal estimated completion cost of the PAMA projects, including the sulfuricacid plant construction, and these projects is approximately $130.0 million. Doe Run Peru’s actual expenditures for theseprojects in 2005 was $12.7 million. If the extension of the PAMA is approved,management expects to fund the PAMA projects from cash from operations.Failure to comply with the PAMA could result in the cessation of operations atthe La Oroya smelter. See thediscussion of the PAMA requirements and compliance in “Item 1. Business—Doe RunPeru’s Operations—*Environmental Matters.*”A default under the requirements of the PAMA could result in a default underthe Doe Run Peru revolving credit facility. A default under the Doe Run Perurevolving credit facility would result in a default under the Doe Run revolvingcredit facility.

 

Managementbelieves that the price improvements and other revenue enhancements and theissuance of the Supreme Decree allowing an application to extend La Oroya’sPAMA requirement for the construction of the sulfuric acid plant will enable usto continue as a going concern. Our ability to meet obligations after 2005could be affected by the factors discussed in “Item 1. Business—*Risk Factors*” or an unfavorable outcome to any of theitems noted above, and, accordingly, no assurance can be given that it will beable to meet such obligations.

 

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*Tax Commitments*

 

DoeRun Peru has received income tax assessments from Peru’s tax authority, SUNATfor tax years 1998 through 2001. The assessments primarily relate to Doe RunPeru’s income tax treatment of the December 1997 merger of Doe Run Peru andMetaloroya S.A., which was purchased by Doe Run Peru in October 1997, and itseffects on subsequent years’ taxable income. Under the assessment by SUNAT, thetax basis of Doe Run Peru’s fixed assets acquired would decrease, resulting inlower tax depreciation expense than originally claimed. The estimated assessedamount consisting of additional income taxes due, penalties and interest as ofOctober 31, 2005 totals approximately $109.0 million. The Companyestimates that the effect of a similar assessment for tax years after 2001would be approximately $30.3 million. Furthermore, Doe Run Peru would also berequired to make additional workers’ profit sharing payments equal to 8% of theincrease in taxable income generated by the changes discussed above, orapproximately $11.2 million for calendar years 1998 through 2005.

 

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 primarilyrelate to Doe Run Peru’s exports with holding certificates and differences in atax credit application. The total assessment for these periods wasapproximately $43.5 million. SUNAT offset the amount assessed for 2004 ofapproximately $2.3 million against Doe Run Peru’s VAT receivable balance fromJuly 2004. Future VAT reimbursements cannot be used to offset the assessment bySUNAT. The Company discontinued the use of holding certificates for exports inJune 2004. The Company estimates expected additional assessments related to VATfor tax years 2002 and 2003 to total approximately $20.2 million in regard toits exports with holding certificates.

 

We believe that in eachcase Doe Run Peru has followed the applicable Peruvian tax statutes and intendsto pursue 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.

 

*Contractual Obligations*

 

The following table summarizes our contractual obligations at October31, 2005 (in millions):

 
| ** **                     | ** ** | ** ** | ** ** | **Payments Due By Period** | ** ** |
|--------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                     | ** ** | **Total**  | ** ** | **Less Than  1 Year**           | ** ** | **1 – 3  Years** | ** ** | **3 – 5  Years** | ** ** | **After 5  Years** | ** ** |
| Long-term debt (a)             |       | $          | 308.2      |                                      | $          | 89.2 |   | $ | 219.0 |   | $ | — |   | $ | — |   |
| Redeemable Preferred Stock (b) |       | 28.5       |       | —                                    |       | — |   | 28.5 |   | — |   |
| Operating leases               |       | 30.8       |       | 8.1                                       |       | 7.8 |   | 4.0 |   | 10.9 |   |
| Purchase obligations (c)       |       | 880.4      |       | 508.6                                     |       | 369.8 |   | 2.0 |   | — |   |
| Royalty obligations (d)        |       | 1.7        |       | 0.2                                       |       | 0.5 |   | 0.4 |   | 0.6 |   |
| Pension funding obligations    |       | 10.1       |       | 10.1                                      |       |   | (e) |   | (e) |   | (e) |
| Total                          |       | $          | 1,259.7    |                                      | $          | 616.2 |   | $ | 597.1 |   | $ | 34.9 |   | $ | 11.5 |   |

 

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(a)   Theobligations relating to long-term debt reflect the commitments as of October31, 2005 for principal payments. The amounts recorded as long-term debt in ourfinancial statements in Item 8 reflect long-term debt as accounted for underSFAS No. 15. See “Item 8. Financial Statements and Supplementary Data—Note 8 tothe Company’s Consolidated Financial Statements” for more information.

 

(b)   The Redeemable Preferred Stock is redeemable after May 1,2009.

 

(c)   Purchaseobligations include Doe Run Peru’s commitments to purchase 277,011, 178,381 and80,689 short tons of copper concentrates, 243,611, 169,403 and 49,763 shorttons of lead concentrates and 100,310, 77,823 and 14,771 short tons of zincconcentrates in 2006, 2007 and 2008, respectively. Purchase prices aregenerally based on the average quoted exchange prices for the month ofdelivery, less deductions for 

 

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treatmentand refining charges and impurity penalties. The estimated cost of theobligations less than one year was based on the following metal prices:$3,319/ton for copper, $865/ton for lead and $1,549/ton for zinc. The estimatedcost of the obligations greater than one year was based on the following metalprices: $2,800/ton for copper, $722/ton for lead and $1,522/ton for zinc.

 

(d)         Royalty obligations represent royaltycommitments calculated through the next renewal date. As discussed in “Item 2.Properties—U.S. Operations—*Mining Operations*,” governmentleases are for a period of either 10 or 20 years and are renewable at Doe Run’soption if no default exists under the agreement, subject to negotiation ofspecific terms of the lease, including royalty rates.

 

(e)          Our projectedbenefit obligation in excess of plan assets was $38.2 million as of October 31,2005. Our defined benefit plan is funded to comply with the minimum fundingrequirements under ERISA. The minimum contribution requirements will differfrom year to year based on actual market returns, changes in assumptions,changes in plan demographics and any significant updates to governmentregulations. In order to maintain minimum funding levels for the pension plan,the Company expects to fund approximately $10.1 million in 2006. Subsequentpayments will be dependent upon the factors discussed above.

 

For a discussion of environmental and reclamation obligations, see “Item8. Financial Statements and Supplementary Data—Note 19 to ConsolidatedFinancial Statements.” Our recorded liability for environmental matters andasset retirement obligations (AROs) was $34.7 million at October 31, 2005.Timing of the related spending is dependent upon a number of factors, includingthe required completion date of reclamation work under agreements withregulatory agencies and the date of facility closures. Therefore, theseobligations are not included in the table. The table also does not includecosts related to Doe Run Peru’s PAMA,. Doe Run Peru submitted an applicationfor extension of its PAMA in December 2005. See the discussion in “*Overview*”**and “*Liquidity and CapitalResources*”.

 

*Off-Balance Sheet Arrangements*

 

In the normalcourse of business, we are involved in certain off-balance sheet arrangements.These include letters of credit, surety bonds and joint and several liabilitywith all other members of a controlled group under ERISA for obligations ofother members of the controlled group. Liabilities related to thesearrangements are not reflected in our consolidated balance sheets. We do notexpect any material adverse effect on the results of operations, financialcondition and liquidity to result from these off-balance sheet arrangements.See “Item 1. Business—*Risk Factors*—RisksRelating to Control by Renco—DOE RUNMAY HAVE OBLIGATIONS UNDER A CONTROLLED GROUP THAT COULD HAVE A MATERIALADVERSE EFFECT ON US” for more information on the pension controlled groupliabilities.

 

***Significant Accounting Policies and Estimates***

 

The consolidatedfinancial statements are impacted by the accounting policies used and theestimates and assumptions made by management during their preparation.Significant accounting policies and estimates that most impact the consolidatedfinancial statements are those related to revenue recognition, mineralinterests, impairment of long-lived assets, estimated liabilities forenvironmental and legal claims, income taxes, pension benefits and derivativeinstruments.

 

Sales are recordedas products are delivered to customers or as tolling services are performed inaccordance with contract terms. Concentrate and certain smelter product salesare recorded based upon estimated weights and metal contents and metal pricesin effect at time of delivery. Revenues are adjusted between month of deliveryand month of settlement based on changes in market prices. Adjustments withrespect to such sales are recorded based on final settlement weights, metalcontents and metal prices pursuant to applicable customer agreements.

 

Mineral interestsare amortized using the units of production method. Our ore reserves are basedon geological studies and test hole drillings conducted by our geologists.These estimates are reviewed and certified periodically by an independentmining consultant. The most recent independent report on our ore reserves wasissued in January 2006. Ore reserves can and do fluctuate with the underlyingmarket price or prices of the metals 

 

41

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tobe mined. As such, there can be no assurances that the reserves currentlyreported would be economical to mine in the future.

 

Long-lived assets,such as property, plant and equipment, and purchased intangibles subject toamortization are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of an asset to the estimated undiscountedfuture cash flows expected to be generated by the asset. If the carrying amountof an asset exceeds its estimated future cash flows, an impairment charge isrecognized by the amount by which the carrying amount of the asset exceeds thefair value of the asset. Assets to be disposed of are separately presented inthe balance sheet and reported at the lower of the carrying amount or fairvalue less costs to sell and are no longer depreciated. The assets and liabilitiesof a disposed group classified as held for sale are presented separately in theappropriate asset and liability sections of the balance sheet.

 

The restructuring, discussedin *Debt Instruments* above, was accountedfor in accordance with SFAS No. 15. Under SFAS No. 15, a debtor may not changethe carrying amount of the payable at the time of restructuring unless thetotal future cash payments, including interest, specified by the new terms areless than the carrying amount of the payable at the time of restructuring. Underthe terms of the 11.75% notes, total expected payments, including all amountscontingently payable, will be greater than the carrying amount of the old notesexchanged. In accordance with Statement No. 15 the 11.75% notes are recorded onthe balance sheet at a carrying amount equal to the carrying amount of thenotes exchanged, including unpaid accrued interest, reduced by deferred issuecosts related to the old notes exchanged and the fair value of the warrantsissued.

 

We accrue for losscontingencies, including costs associated with environmental remediationobligations, when it is probable that a liability has been incurred and can bereasonably estimated. Liability estimates for environmental remediationobligations are based on an evaluation of, among other factors, currentlyavailable facts, existing technology, presently enacted laws and regulations,our experience in remediation, our status as a potentially responsible party(PRP) and the ability of other PRPs to pay their allocated portions. Costs offuture expenditures for environmental remediation obligations are notdiscounted to their present value. Recoveries of costs from other parties arerecorded as assets when their receipt is deemed probable, consistent with theAmerican Institute of Certified Public Accountants Statement of Position 96-1, *Environmental Remediation Liabilities*.However, there can be no assurance established liabilities will be sufficientto cover the costs of the actual commitments or that in the future newcommitments will not arise that could have a material adverse effect on ourresults of operations, financial condition and liquidity. See “Item 8.Financial Statements and Supplementary Data—Notes 19 and 20 to ConsolidatedFinancial Statements” for a more detailed discussion of environmental andlitigation matters.

 

As of November 1,2002, we adopted SFAS No. 143, which addresses financial accounting andreporting for obligations associated with the retirement of tangible long-livedassets and the associated asset retirement costs. The standard applies to legalobligations associated with the retirement of long-lived assets that resultfrom the acquisition, construction, development and/or normal use of the asset.SFAS No. 143 requires that the fair value of a liability for an ARO berecognized in the period in which it is incurred if a reasonable estimate offair value can be made. The fair value of the liability is added to thecarrying amount of the associated asset, and this additional carrying amount isdepreciated over the life of the asset. These liabilities will beincreased to full value over time through charges of accretion to operatingexpense. Changes inthe ARO liability resulting from revisions to the timing or the amount of theoriginal estimate of undiscounted cash flows shall be recognized as an increaseor a decrease in the carrying amount of the liability for an ARO and therelated asset retirement cost capitalized as part of the carrying amount of therelated long-lived asset. If the obligation is settled for other than thecarrying amount of the liability, we will recognize a gain or loss onsettlement.

 

The cumulative effect related to the adoption of SFAS No. 143 for theyear ended October 31, 2003 was a loss of $3.9 million, a net decrease toplant, property and equipment of $2.1 million and an increase of $1.9 millionto the liability for asset retirement obligations.

 

Renco has electedfor us to be treated as a QSSS for U.S. federal tax purposes. Most states inwhich we operate will follow similar tax treatment. QSSS status requires theultimate shareholders to include their pro rata share of our income or loss intheir individual tax returns. The election does not affect foreign income taxesrelated to our 

 

42

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foreignsubsidiaries.

 

Deferred taxassets and liabilities are recognized in foreign jurisdictions for the futuretax consequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and the respective taxbases of these assets and liabilities. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. Management believes that sufficient uncertainty exists regarding therealization of certain deferred tax assets such that a valuation allowance isrequired.

 

We sponsor anoncontributory defined benefit plan for our U.S. employees. We have alsoadopted a supplemental defined benefit plan, the Supplemental EmployeeRetirement Plan (SERP), effective November 1, 1996. The SERP provides benefitsto those participants of the defined benefit plan whose benefits under the planare limited by Sections 401(a) (17) or 415 of the Internal Revenue Code.Changes in the assumptions used to calculate Doe Run’s accumulated benefitobligation and periodic pension cost can have a significant effect on ourresults of operations. On April 11, 2005, our Board of Directors adoptedchanges to our defined benefit plans. Effective July 1, 2005, no new employeesare eligible to participate in the plans and participants’ benefit accrualshave been frozen. A curtailment loss of $690 thousand was reflected in operatingexpenses for the year ended October 31, 2005.

 

We record all derivative instruments on the balance sheet at fairvalue. The accounting for changes in the fair value (that is, gains and losses)of a derivative instrument depends on whether it has been designated andqualifies as part of a hedging relationship, and if so, whether the derivativeinstrument is designated as a hedge of exposures to changes in fair value orcash flows. If the hedged exposure is an exposure to changes in the fair valueof a fixed commitment, the gain (loss) is recognized in earnings in the periodof change, with an equal and offsetting (loss) gain recognized on the change invalue of the hedged item. If the hedged exposure is an exposure to changes inforecasted cash flows, the effective portion of the gain (loss) is reported asa component of other comprehensive income (outside earnings) until theforecasted hedged transaction affects earnings, when it is reclassified intoearnings.

 

***Recent Accounting Pronouncements***

 

InNovember 2004, the FASB issued Statement of Financial Accounting Standards No.151, **InventoryCosts****, whichrequires that**amounts of idle facility expense, freight,handling costs, and wasted material be recognized as current-period charges. Inaddition, the Statement requires that allocation of fixed production overheadsto the costs of conversion be based on the normal capacity of the productionfacilities. This statement is effective for inventory costs incurred during theyear beginning after June 15, 2005. Therefore, the Company will adopt thisstandard beginning November 1, 2005. The Company does not expect the adoptionof this interpretation to have a material impact on its financial statements.

 

InDecember 2004, the FASB issued Statement of Financial Accounting Standards No.153, *Exchanges of Nonmonetary Assets*,which eliminates the exception for nonmonetary exchanges of similar productiveassets and replaces it with a general exception for exchanges of nonmonetaryassets that do not have commercial substance. The provisions of this statementare effective for nonmonetary assets exchanges occurring in fiscal periodsbeginning after June 15, 2005 therefore, the Company will adopt this standardbeginning November 1, 2005. The Company does not expect the adoption of thisinterpretation to have a material impact on its financial statements.

 

InMay 2005, the FASB issued Statement of Financial Standards No. 154, *Accounting Changes and Error Corrections* (SFAS No. 154)*,* which requires retrospective application to priorperiods’ financial statements of a voluntary change in accounting principleunless it is impracticable. In addition, SFAS No. 154 requires that a change inmethod of deprecation, amortization or depletion for long-lived, non-financialassets be accounted for as a change in accounting estimate that is affected bya change in accounting principle. SFAS No. 154 is effective for accountingchanges and corrections of errors made in fiscal years beginning after December15, 2005. Earlier adoption is permitted for fiscal years beginning after June1, 2005. The Company does not expect the adoption of this interpretation tohave a material impact on its financial statements.

 

 

43

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**Item 7A.Quantitative and Qualitative Disclosures About Market Risk**

 

**Commodity Price Risk**

 

In the normal course of our business, we have used in the past, and mayuse in the future, forward sales commitments and commodity put and call optioncontracts to manage our exposure to fluctuations in the prices of lead, copper,zinc, silver and gold. Contract positions are designed to ensure that we willreceive a defined minimum price for certain quantities of our production. Noneof the aforementioned activities have been entered into for speculativepurposes. See “Item 8. Financial Statements and Supplementary Data—Note 18 toConsolidated Financial Statements” for a more detailed discussion of our use ofhedging and derivative financial instruments. A 10% increase in metal priceswould result in additional losses of approximately $1.2 million related to opencontracts at October 31, 2005, which would be offset by higher prices on oursales of physical metal.

 

**Interest Rate Risk**

 

We are subject to interest rate risk on variable interestrate obligations. The Doe Run revolving credit facility bears interest at theprime rate plus 0.75% per annum or at LIBOR plus 3.0%. The Doe Run Perurevolving credit facility 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 affectour business, financial condition and results of operations. A 1% increase inthe interest rate under the Doe Run revolving credit facility and the Doe RunPeru revolving credit facility would result in additional annual interestexpense of approximately $0.7 million, based on the loan balances outstandingas of October 31, 2005. Foradditional discussion of interest rates and debt, see “Note 8 to ConsolidatedFinancial Statements.”

 

**Foreign Currency Risk**

 

Doe Run Peru’s sales and feed costs are denominated in U.S.dollars, which is its functional currency.. Certain operating costs, such aslabor and electricity, are denominated in Peruvian nuevos soles. While allrevenues and significant costs are denominated in U.S. dollars, a material weakening of exchange rates could still have anadverse affect on our business, financialcondition and results of operations.

 

**Item 8. Financial Statements and Supplementary Data**

 

Financialstatements and supplementary data follow immediately and are listed in Item 15of Part IV of this report.

 

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Report of Independent Registered Public Accounting Firm

 

Board of Directors andShareholders

The Doe Run ResourcesCorporation

St.  Louis, Missouri

 

We have audited the accompanyingconsolidated balance sheets of The Doe Run Resources Corporation andsubsidiaries as of October 31, 2005 and 2004, and the related consolidatedstatements of operations, comprehensive income and shareholders’ deficit, andcash flows for the years then ended. These financial statements are the responsibility of the Company’smanagement.   Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our audits in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the financial position of The Doe Run Resources Corporation andsubsidiaries as of October 31, 2005 and 2004, and the results of theiroperations and their cash flows for the years then ended in conformity withU.S. generally accepted accounting principles.

 

The accompanying consolidated financialstatements have been prepared assuming the Company will continue as a goingconcern.  As further discussed in Note 2to the consolidated financial statements, the Company’s Peruvian subsidiary hassignificant capital requirements under environmental commitments, which, if notmet, could result in defaults of the Company’s credit agreements; hassubstantial contingencies related to tax; and has significant debt service obligations that raise substantialdoubt about the Company’s ability to continue as a going concern.  Management’s plans in regard to these mattersare also described in Note 2.  Theconsolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty.

 

 

Crowe Chizekand Company LLC

 

Oak Brook, Illinois

March 15, 2006 exceptfor Note 8

 as to which the date is March 17, 2006

 

45

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**Report of Independent Registered Public Accounting Firm**

 

The Board of DirectorsThe Doe Run Resources Corporation:

 

We have audited theaccompanying consolidated statements of operations, comprehensive income andshareholder’s deficit, and cash flows of The Doe Run Resources Corporation andsubsidiaries (the Company) for the year ended October 31, 2003. Theseconsolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statementsare free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidatedfinancial statements, assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall consolidatedfinancial statement presentation. We believe that our audit provides areasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the results of operations and the cash flows of The Doe RunResources Corporation and subsidiaries for the year ended October 31, 2003 inconformity with U.S. generally accepted accounting principles.

 

The accompanying consolidatedfinancial statements have been prepared assuming that the Company will continueas a going concern. As discussed in Note 2 to the consolidated financialstatements, the Company has suffered recurring net losses, has a net capitaldeficiency, and has liquidity concerns that raise substantial doubt about itsability to continue as a going concern. Management’s plans in regard to thesematters are also described in Note 2. The consolidated financial statements donot include any adjustments that might result from the outcome of thisuncertainty.

 

As discussed in Notes 1 and 19to the consolidated financial statements, the Company adopted the provisions ofSFAS No. 143, *Accounting for AssetRetirement Obligations*, as of November 1, 2002.

 

 KPMG LLP

 

February 2, 2004

 

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**THE DOERUN RESOURCES CORPORATION**

**ConsolidatedBalance Sheets**

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

 
| ** **                                                                                                                                                                                                                          | ** ** | **October 31,** | ** ** | **October 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                                                                                                                                                                          | ** ** | **2005**             | ** ** | **2004**             | ** ** |
| **ASSETS**                                                                                                                                                                                                                          | ** ** | ** **           | ** ** | ** **           | ** ** |
| Current assets:                                                                                                                                                                                                                     |       |                 |       |                 |       |
| Cash                                                                                                                                                                                                                                |       | $                    | 23,486     |                 | $          | 20,318 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts                                                                                                                                                                  |       | 85,740               |       | 64,219               |       |
| Inventories                                                                                                                                                                                                                         |       | 105,634              |       | 103,309              |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                          |       | 20,814               |       | 35,858               |       |
| Total current  assets                                                                                                                                                                                                               |       | 235,674              |       | 223,704              |       |
|                                                                                                                                                                                                                                |       |                 |       |                 |       |
| Property, plant  and equipment, net                                                                                                                                                                                                 |       | 253,263              |       | 229,640              |       |
| Other noncurrent  assets, net                                                                                                                                                                                                       |       | 5,838                |       | 4,075                |       |
| Total assets                                                                                                                                                                                                                        |       | $                    | 494,775    |                 | $          | 457,419 |   |
|                                                                                                                                                                                                                                |       |                 |       |                 |       |
| **LIABILITIES  AND SHAREHOLDER’S DEFICIT**                                                                                                                                                                                     | ** ** | ** **           | ** ** | ** **           | ** ** |
| Current  liabilities:                                                                                                                                                                                                               |       |                 |       |                 |       |
| Current  maturities of long-term debt                                                                                                                                                                                               |       | $                    | 114,947    |                 | $          | 96,767 |   |
| Accounts payable                                                                                                                                                                                                                    |       | 92,275               |       | 65,855               |       |
| Accrued  liabilities                                                                                                                                                                                                                |       | 87,060               |       | 83,878               |       |
| Total current  liabilities                                                                                                                                                                                                          |       | 294,282              |       | 246,500              |       |
|                                                                                                                                                                                                                                |       |                 |       |                 |       |
| Long-term debt,  less current maturities                                                                                                                                                                                            |       | 271,566              |       | 320,561              |       |
| Other noncurrent  liabilities                                                                                                                                                                                                       |       | 68,337               |       | 75,765               |       |
| Total  liabilities                                                                                                                                                                                                                  |       | 634,185              |       | 642,826              |       |
|                                                                                                                                                                                                                                |       |                 |       |                 |       |
| Series A  redeemable preferred stock, $1,000 par value per share; 5,000 shares  authorized; 2,849 and 2,533 shares issued and outstanding at October 31, 2005  and October 31, 2004, respectively; liquidation and redemption value |       | 28,495               |       | 25,329               |       |
|                                                                                                                                                                                                                                |       |                 |       |                 |       |
| Shareholder’s  deficit:                                                                                                                                                                                                        |       |                 |       |                 |       |
| Common stock,  $0.10 par value per share, 1,667 shares authorized; 1,000 shares issued and  outstanding at October 31, 2005 and 2004                                                                                                |       | —               |       | —               |       |
| Additional  paid-in capital                                                                                                                                                                                                         |       | —               |       | —               |       |
| Accumulated  deficit                                                                                                                                                                                                                |       | (123,141             | )          | (168,609             | )          |
| Accumulated preferred  stock dividends in excess of paid in capital                                                                                                                                                                 |       | (3,257               | )          | (91                  | )          |
| Accumulated  other comprehensive losses                                                                                                                                                                                             |       | (41,507              | )          | (42,036              | )          |
| Total  shareholder’s deficit                                                                                                                                                                                                   |       | (167,905             | )          | (210,736             | )          |
| Total  liabilities and shareholder’s deficit                                                                                                                                                                                   |       | $                    | 494,775    |                 | $          | 457,419 |   |

 

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

 

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**THE DOERUN RESOURCES CORPORATION**

**ConsolidatedStatements of Operations**

**(Dollarsin thousands)**

 
| ** **                                                                                        | ** ** | **Year Ended October 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                        | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                              |       |                                      |       |   |   |   |   |
| Net sales                                                                                         |       | $                                         | 1,029,440  |   | $ | 868,068 |   | $ | 685,382 |   |
| Costs and  expenses:                                                                              |       |                                      |       |   |   |   |   |
| Cost of sales                                                                                     |       | 911,732                                   |       | 782,981 |   | 643,893 |   |
| Depreciation,  depletion and amortization                                                         |       | 24,170                                    |       | 25,322 |   | 30,407 |   |
| Selling, general  and administrative                                                              |       | 46,096                                    |       | 35,782 |   | 28,366 |   |
| Exploration                                                                                       |       | 2,984                                     |       | 2,178 |   | 1,078 |   |
| Losses from  impairment and disposal of long-lived assets                                         |       | 2,978                                     |       | 3,591 |   | 1,409 |   |
| Unrealized  (gain) loss on derivative financial instruments                                       |       | (4,876                                    | )          | 231 |   | 7,220 |   |
| Total costs and  expenses                                                                         |       | 983,084                                   |       | 850,085 |   | 712,373 |   |
| Income (loss)  from operations                                                                    |       | 46,356                                    |       | 17,983 |   | (26,991 | ) |
|                                                                                              |       |                                      |       |   |   |   |   |
| Other income  (expense):                                                                          |       |                                      |       |   |   |   |   |
| Interest expense                                                                                  |       | (10,010                                   | )          | (13,289 | ) | (13,270 | ) |
| Interest income                                                                                   |       | 141                                       |       | 19 |   | 29 |   |
| Gain (Loss) on  retirement/restructure of long-term debt                                          |       | 9,233                                     |       | — |   | (550 | ) |
| Other, net                                                                                        |       | 666                                       |       | (460 | ) | (176 | ) |
| Total other  income (expense)                                                                     |       | 30                                        |       | (13,730 | ) | (13,967 | ) |
| Income (loss)  before income tax benefit and cumulative effect of change in accounting  principle |       | 46,386                                    |       | 4,253 |   | (40,958 | ) |
|                                                                                              |       |                                      |       |   |   |   |   |
| Income tax  benefit                                                                               |       | —                                    |       | (661 | ) | — |   |
| Income (loss)  before cumulative effect of change in accounting principle                         |       | 46,386                                    |       | 4,914 |   | (40,958 | ) |
| Cumulative  effect of change in accounting principle, net of income tax benefit                   |       | —                                    |       | — |   | (3,940 | ) |
|                                                                                              |       |                                      |       |   |   |   |   |
| Net income  (loss)                                                                                |       | $                                         | 46,386     |   | $ | 4,914 |   | $ | (44,898 | ) |
| Preferred stock  dividends                                                                        |       | (3,166                                    | )          | (2,815 | ) | (2,514 | ) |
| Net income  (loss) allocable to common shares                                                     |       | $                                         | 43,220     |   | $ | 2,099 |   | $ | (47,412 | ) |

 

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

 

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**THE DOERUN RESOURCES CORPORATION**

**ConsolidatedStatements of Comprehensive Income and Shareholder’s Deficit**

**(Dollarsin thousands)**

 
| ** **                                                       | ** ** | **Year Ended October 31,** | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                             |       |                                      |       |   |   |   |   |
| Net income  (loss)                                               |       | $                                         | 46,386     |   | $ | 4,914 |   | $ | (44,898 | ) |
| Unrealized gain  (loss) on derivative financial instruments, net |       | 97                                        |       | 1,757 |   | (1,854 | ) |
| Unrealized gain  (loss) on available-for-sale investments        |       | 37                                        |       | (10 | ) | 242 |   |
| Adjustment to  minimum pension liability                         |       | 395                                       |       | (5,516 | ) | (12,871 | ) |
| Comprehensive  income (loss)                                     |       | 46,915                                    |       | 1,145 |   | (59,381 | ) |
| Preferred stock  dividends                                       |       | (3,166                                    | )          | (2,815 | ) | (2,514 | ) |
| Dividends                                                        |       | (918                                      | )          | — |   | — |   |
| Change in  shareholder’s deficit                            |       | 42,831                                    |       | (1,670 | ) | (61,895 | ) |
| Shareholder’s  deficit, beginning of year                   |       | (210,736                                  | )          | (209,066 | ) | (147,171 | ) |
|                                                             |       |                                      |       |   |   |   |   |
| Shareholder’s  deficit, end of year                         |       | $                                         | (167,905   | ) | $ | (210,736 | ) | $ | (209,066 | ) |

 

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

 

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**THE DOERUN RESOURCES CORPORATION**

**ConsolidatedStatements of Cash Flows**

**(Dollarsin thousands)**

 
| ** **                                                                                | ** ** | **Year Ended October 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                      |       |                                      |       |   |   |   |   |
| Cash flows from  operating activities:                                                    |       |                                      |       |   |   |   |   |
| Net income  (loss)                                                                        |       | $                                         | 46,386     |   | $ | 4,914 |   | $ | (44,898 | ) |
| Cumulative  effect of change in accounting principle                                      |       | —                                    |       | — |   | 3,940 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                      |       |   |   |   |   |
| Depreciation,  depletion and amortization                                                 |       | 24,170                                    |       | 25,322 |   | 30,407 |   |
| Imputed interest  and amortization of deferred financing costs                            |       | 748                                       |       | 949 |   | 1,231 |   |
| Unrealized  (gain) loss on derivative financial instruments                               |       | (4,876                                    | )          | 231 |   | 7,220 |   |
| Losses from  impairment and disposal of long-lived assets                                 |       | 2,978                                     |       | 3,591 |   | 1,409 |   |
| (Gain) Loss on  retirement/restructure of long-term debt                                  |       | (9,233                                    | )          | — |   | 550 |   |
| Increase  (decrease) resulting from changes in:                                           |       |                                      |       |   |   |   |   |
| Trade accounts  receivable                                                                |       | (21,521                                   | )          | (7,560 | ) | 8,119 |   |
| Inventories                                                                               |       | (1,910                                    | )          | (7,629 | ) | 7,666 |   |
| Prepaid expenses  and other current assets                                                |       | 14,539                                    |       | (14,399 | ) | (2,093 | ) |
| Accounts payable                                                                          |       | 26,420                                    |       | 14,557 |   | 2,422 |   |
| Accrued  liabilities                                                                      |       | 7,772                                     |       | 996 |   | 20,496 |   |
| Other noncurrent  assets and liabilities, net                                             |       | (9,275                                    | )          | 625 |   | (14,021 | ) |
| Net cash  provided by operating activities                                                |       | 76,198                                    |       | 21,597 |   | 22,448 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Cash flows from  investing activities:                                                    |       |                                      |       |   |   |   |   |
| Purchases of  property, plant and equipment                                               |       | (51,261                                   | )          | (29,762 | ) | (15,349 | ) |
| Net proceeds  from disposal of assets                                                     |       | 129                                       |       | 28 |   | 54 |   |
| Net proceeds  from sale of investments                                                    |       | 469                                       |       | — |   | — |   |
| Net cash  provided by (used in) investing activities                                      |       | (50,663                                   | )          | (29,734 | ) | (15,295 | ) |
|                                                                                      |       |                                      |       |   |   |   |   |
| Cash flows from  financing activities:                                                    |       |                                      |       |   |   |   |   |
| Proceeds from  revolving loans, net                                                       |       | 9,996                                     |       | 12,075 |   | 14,224 |   |
| Payments on  long-term debt                                                               |       | (31,454                                   | )          | (3,320 | ) | (8,145 | ) |
| Payment of  financing costs                                                               |       | (375                                      | )          | — |   | (550 | ) |
| Payments of  dividends                                                                    |       | (534                                      | )          | — |   | — |   |
| Net cash  provided by (used in) financing activities                                      |       | (22,367                                   | )          | 8,755 |   | 5,529 |   |
| Net increase in  cash                                                                     |       | 3,168                                     |       | 618 |   | 12,682 |   |
| Cash at  beginning of period                                                              |       | 20,318                                    |       | 19,700 |   | 7,018 |   |
| Cash at end of  period                                                                    |       | $                                         | 23,486     |   | $ | 20,318 |   | $ | 19,700 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Supplemental  disclosure of cash flow information -                                       |       |                                      |       |   |   |   |   |
| Cash paid during  the period for:                                                         |       |                                      |       |   |   |   |   |
| Interest, net of  capitalized interest                                                    |       | $                                         | 28,372     |   | $ | 10,747 |   | $ | 11,018 |   |
| Income taxes                                                                              |       | $                                         | —     |   | $ | 2,147 |   | $ | — |   |

 

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

 

50

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**THE DOERUN RESOURCES CORPORATION**

 

**Notes toConsolidated Financial Statements**

**October31, 2005, 2004 and 2003**

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

 

**(1) Summary of SignificantAccounting Policies**

 

# ***Principlesof Consolidation***

# * *

These consolidatedfinancial statements include the accounts of The Doe Run Resources Corporation(Doe Run) and its wholly owned subsidiaries (on a consolidated basis, theCompany). All material intercompany balances and transactions have beeneliminated.

 

## ***Nature of Business***

 

The principal domesticbusiness of the Company is the exploration, development, and mining andprocessing of non-ferrous metals, primarily lead, and recycling of lead-acidbatteries and other lead-bearing materials. Doe Run, doing business as The Doe RunCompany, has mines in southern Missouri, primary smelters in Herculaneum,Missouri and Glover, Missouri and operates a recycling facility in Boss,Missouri. Operations at the Glover primary smelter were indefinitely suspendedin the first quarter of 2004. Fabricated Products, Inc. (FPI), a subsidiary,fabricates lead products used in radiation, X-ray shielding and nuclearshielding and is a leader in the production of shaped anodes and anode sheetsfor those applications. In Peru, Doe Run Peru S.R.L. (Doe Run Peru) is engagedin the mining, smelting and refining of polymetallic concentrates, producingmainly silver, copper, lead, zinc and gold, which are sold as refined metalsprimarily to customers located outside of Peru. Doe Run’s issued and outstandingcommon and preferred stock is owned directly or indirectly by The Renco Group,Inc. (Renco).

 

## ***Foreign Currency Translation***

 

The functional currencyof the Company’s foreign subsidiaries is the U.S. Dollar. Accordingly, foreigncurrency translation gains and losses are included in determining net income(loss).

 

***Useof Estimates***

 

The preparation ofconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities at the date ofthe consolidated financial statements and the reported amounts of revenues andexpenses during the reporting periods. Actual results could differ from theseestimates.

 

***CashManagement***

 

All cash received by DoeRun’s domestic operations is transferred daily by wire to pay down theoutstanding balance, if any, of its revolving credit facility (the Doe RunRevolving Credit Facility), which is described in further detail in Note 8. DoeRun borrows under the Doe Run Revolving Credit Facility to fund its accounts ona daily basis as checks are disbursed. At October 31, 2005 and 2004,outstanding checks of $612 and $2,859, respectively, were included in accountspayable.

 

***Inventories***

 

Finished metals andconcentrates, metals and concentrates in process and raw materials are statedat the lower of cost or market. The last-in, first-out (LIFO) method ofdetermining cost is used for the majority of the Company’s inventories. Suppliesand repair parts are principally stated at average cost, net of reserves forobsolescence.

 

Inventory costs include labor, material and otherproduction costs.

 

51

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***Property,Plant and Equipment***

 

Property, plant and equipment are recorded at cost. In accordance with Statement of FinancialAccounting Standards Statement No. 144, **Accounting for the Impairment or Disposalof Long-Lived Assets**,long-lived assets, such as property, plant and equipment, and purchasedintangibles subject to amortization are reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset maynot be recoverable.

 

Recoverability of assets tobe held and used is measured by a comparison of the carrying amount of an assetto the estimated undiscounted future cash flows expected to be generated by theasset. If the carrying amount of an asset exceeds its estimated future cashflows, an impairment charge is recognized by the amount by which the carryingamount of the asset exceeds the fair value of the asset. Assets to be disposedof are separately presented in the balance sheet and reported at the lower ofthe carrying amount or fair value less costs to sell and are no longerdepreciated. The assets and liabilities of a disposed group classifiedas held for sale are presented separately in the appropriate asset andliability sections of the balance sheet.

 

Major additions andimprovements to property, plant and equipment are capitalized, at cost, whenthey significantly increase the productive capacity or the life of the asset. Repairand maintenance expenditures which are routine, unanticipated, or for which thetiming cannot be estimated, and which do not extend the useful life or increasethe productive capacity of the asset, are charged to operations as incurred. Majorexpenditures required to maintain the originally anticipated productivecapacity and life of the asset (such as furnace rebuilds), for which both theamount and timing can be reasonably estimated, are accrued and charged tooperations over the period through the next anticipated maintenance date.

 

Interest incurred for thedirect or indirect debt for the construction of assets to be used in operationsis capitalized when the interest is charged. The amount of interest capitalizedwas $1,040, $274, and $414 for the years ended October 31, 2005, 2004 and 2003,respectively.

 

Costs to treatenvironmental contamination are capitalized when they extend the life, increasethe capacity or improve the safety or efficiency of the property, when theymitigate or prevent future environmental contamination or when they areincurred in preparing property for sale.

 

Mineral interests areamortized using the units of production method.

 

Depreciation is computedusing the straight-line method over the estimated useful lives of the assets,as follows: 

 

| Buildings and  improvements |   | 3 to 20 years |   |
|-----------------------------|--------|---------------|--------|
| Machinery and  equipment    |   | 2 to 15 years |   |

 

Facilities at whichoperations have temporarily ceased may be placed on a standby care andmaintenance basis. The Company continues to depreciate the related assetsduring the standby period.

 

***Software Costs***

 

The company accounts forcomputer software development costs that are incurred in the preliminaryproject stage as expense. Once the project is in the application developmentstage, the direct costs are capitalized. The costs associated with theaccounting application and infrastructure development are capitalized. Thecapitalized costs of computer software and accounting applications developed orobtained for internal use are amortized on a straight-line basis over fiveyears. All other software development costs are expensed as incurred.

 

#### ***Exploration andDevelopment Costs***

 

Exploration costs anddevelopment costs incurred to maintain production at operating mines arecharged to operations as incurred. Development expenditures for miningproperties that are considered to be commercially feasible, but are not yetproducing, and major development expenditures at operating mines that areexpected to benefit future production are capitalized and amortized using theunits of production method over the estimated proven ore reserves to bebenefited.

 

52

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#### ***Reclamation and MineClosure Costs***

 

The Company’s mines andrelated processing facilities are subject to governance by various agenciesthat have established minimum standards for reclamation.

 

 As of November 1, 2002, the Company adoptedStatement of Financial Accounting Standards No. 143, *Accountingfor Asset Retirement Obligations* (SFAS No. 143), which addresses financial accounting andreporting for obligations associated with the retirement of tangible long-livedassets and the associated asset retirement costs. The standard applies to legalobligations associated with the retirement of long-lived assets that resultfrom the acquisition, construction, development and/or normal use of the asset.

 

Prior to the adoption of SFAS No. 143, the Companyaccrued for mine and other closure obligations at their estimated, undiscountedcost. SFAS No. 143 requires that the fair value of a liability for an assetretirement obligation be recognized in the period in which it is incurred if areasonable estimate of fair value can be made. The fair value of the liabilityis added to the carrying amount of the associated asset, and this additionalcarrying amount is depreciated over the life of the asset. These liabilitieswill be increased to full value over time through charges of accretion tooperating expense. If the obligation is settled for other than the carryingamount of the liability, the Company will recognize a gain or loss onsettlement.

 

The cumulative effectrelated to the adoption of SFAS No. 143 for the year ended October 31, 2003 wasa loss of $3,940, a net decrease to plant, property and equipment of $2,088,and an increase of $1,852 to the liability for asset retirement obligations.

 

#### ***Commitments andContingencies***

 

The Company accrues forloss contingencies, including costs associated with environmental remediationobligations, when it is probable that a liability has been incurred and can bereasonably estimated. Liability estimates for environmental remediation obligationsare based on an evaluation of, among other factors, currently available facts,existing technology, presently enacted laws and regulations, the Company’sexperience in remediation, the Company’s status as a potentially responsibleparty (PRP), and the ability of other PRPs to pay their allocated portions. Costsof future expenditures for environmental remediation obligations are notdiscounted to their present value. Recoveries of costs from other parties arerecorded as assets when their receipt is deemed probable, as is consistent withthe American Institute of Certified Public Accountants Statement of Position96-1, *Environmental Remediation Liabilities*.

 

##### ***Revenue Recognition***

 

Sales are recorded asproducts are delivered to customers as defined in the specific contracts or astolling services are performed. Concentrate and certain smelter product salesare recorded based upon estimated weights and metal contents and metal pricesin effect at the time of delivery. Revenues are adjusted between the month ofdelivery and the month of settlement based on changes in market prices. Adjustmentswith respect to such sales are recorded based on final settlement weights,metal contents and metal prices using applicable customer agreements.

 

#### ***Derivative Instrumentsand Hedging Activities***

 

Statement of FinancialAccounting Standards No. 133, *Accounting for DerivativeInstruments and Hedging Activities*, was issued by the FinancialAccounting Standards Board in June 1998 and amended by Statement No. 138, *Accounting for Certain Derivative Instruments and Certain HedgingActivities, an amendment of FASB Statement No. 133*, issued in June2000 (collectively, SFAS No. 133). Under SFAS No. 133, the Company carries allderivative instruments on the balance sheet at fair value. The accounting forchanges in the fair value (i.e. gains and losses) of a derivative instrumentdepends on whether it has been designated and qualifies as part of a hedgingrelationship and if so, whether the derivative instrument is designated as ahedge of exposures to changes in fair value or cash flows. If the hedgedexposure is an exposure to changes in the fair value of a fixed commitment, thegain (loss) is recognized in earnings in the period of change, with an equaland offsetting (loss) gain recognized on the change in value of the hedged item.If the hedged exposure is an exposure to changes in forecasted cash flows, theeffective portion of the gain (loss) is reported as a component of othercomprehensive income (outside earnings) until the forecasted hedged transactionaffects earnings, when it is reclassified into earnings.

 

53

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#### ***Research and Development***

 

Research and developmentcosts are expensed when incurred and are included in selling, general andadministrative expenses on the statements of operations. Research anddevelopment costs are not significant.

 

#### ***Income Taxes***

 

Renco has elected for theCompany to be treated as a qualified subchapter S subsidiary (QSSS) for U.S.federal tax purposes. Most states in which the Company operates will followsimilar tax treatment. QSSS status requires the ultimate shareholders toinclude their pro rata share of the Company’s income or loss in theirindividual tax returns. The election does not affect foreign income taxesrelated to the Company’s foreign subsidiaries.

 

Deferred tax assets andliabilities are recognized in foreign jurisdictions for the future taxconsequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and the respective taxbases of these assets and liabilities. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. See Note 13- Income Taxes for additional discussion.

 

***Recent Accounting Pronouncements***

 

In November 2004, theFASB issued Statement of Financial Accounting Standards No. 151, **Inventory Costs****, which requires that**amountsof idle facility expense, freight, handling costs, and wasted material berecognized as current-period charges. In addition, the Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. This statement is effectivefor inventory costs incurred during the year beginning after June 15, 2005.Therefore, the Company will adopt this standard beginning November 1, 2005. TheCompany does not expect the adoption of this interpretation to have a materialimpact on its financial statements.

 

In December 2004, theFASB issued Statement of Financial Accounting Standards No. 153, *Exchanges of Nonmonetary Assets*, whicheliminates the exception for nonmonetary exchanges of similar productive assetsand replaces it with a general exception for exchanges of nonmonetary assetsthat do not have commercial substance. The provisions of this statement areeffective for nonmonetary assets exchanges occurring in fiscal periodsbeginning after June 15, 2005 therefore, the Company will adopt this standardbeginning November 1, 2005. The Company does not expect the adoption of thisinterpretation to have a material impact on its financial statements.

 

In May 2005, the FASBissued Statement of Financial Standards No. 154, *Accounting Changes and Error Corrections* (SFAS No. 154)*,* which requires retrospective application to priorperiods’ financial statements of a voluntary change in accounting principleunless it is impracticable. In addition, SFAS No. 154 requires that a change inmethod of deprecation, amortization or depletion for long-lived, non-financialassets be accounted for as a change in accounting estimate that is affected bya change in accounting principle. SFAS No. 154 will be effective for accountingchanges and corrections of errors made in fiscal years beginning after December15, 2005. Earlier adoption is permitted for fiscal years beginning after June1, 2005. We do not expect the adoption of SFAS No. 154 to have a material impacton our financial statements.

 

# ***Reclassifications***

# * *

Certain balances havebeen reclassified from their previous presentation in order to conform to thecurrent year presentation.

 

 

54

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**(2) Financial Condition**

 

***General***

 

The Company is highlyleveraged and has significant commitments both in the US and Peru forenvironmental matters and for Environmental Remediation and Management Program(PAMA) expenditures that require it to dedicate a substantial portion of cashflow from operations to the payment of these obligations, which will reducefunds available for other business purposes. (See Note 19: Asset Retirement andEnvironmental Obligations). 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 certain contingencies, discussed below, would have a further adverseeffect on the Company’s ability to meet its obligations when due. The Company’sability to meet these obligations is also dependent upon future operatingperformance and financial results which are subject to financial, economic,political, competitive and other factors affecting Doe Run, many of which arebeyond the Company’s control.

 

***Fiscal Year 2003***

 

 For the yearended October 31, 2003 and for several years prior, the Company reportedrecurring losses, primarily the result of the low treatment charges forconcentrates processed by Doe Run Peru and low metal prices for metals sold byboth the US and Peru operations, a condition exacerbated by the Company’ssignificant interest costs prior to a debt restructuring in October 2002. Duringfiscal 2003, the Company’s liquidity continued to be affected by these factors.The Company failed to meet certain financial covenant requirements contained inits revolving credit agreements and a term note (the Term Note), which defaultscontinued into fiscal years 2004 and 2005. In addition, the Company had theenvironmental and litigation matters mentioned above. These issues combinedraised substantial doubt about the Company’s ability to continue as a goingconcern.

 

Doe Run Peru’s fiscalyear 2003 results of operations and liquidity were severely impacted by lowtreatment charges received by Doe Run Peru for processing raw materialsresulting from a shortage in the global supply of concentrates. The effects oflow metals prices also caused some of Doe Run Peru’s suppliers of concentratesto suffer financial distress, which affected the availability of concentratefeed, which resulted in changes to concentrate mix and interruptions indelivery schedules adversely affecting Doe Run Peru’s metal production andresults of operations. Doe Run (US) was negatively impacted by the low metalprices, primarily lead.

 

Doe Run Peru proceededwith efforts to identify alternative methods of achieving compliance withenvironmental requirements. These efforts included, but were not limited to,reducing or curtailing production from a portion of the plant thus eliminatingthe need for the equipment presently contemplated and replacing it with anotheralternative. These efforts took into consideration the impacts on profitabilityand liquidity, as well as other economic impacts.

 

During fiscal year 2003,the Company implemented actions to improve its liquidity, including changes inmine plans, reductions in production and its workforce, and acceleration ofcash receipts. In response to declining demand in the U.S. for lead metal andincreasing global demand for clean lead concentrates, the Company indefinitelysuspended operations at its Glover smelter in November, 2003 and began sellingon the open market any concentrates that are not required to maintainproduction at its Herculaneum smelter. These changes improved the Company’scash flow and availability in 2003. At October 31, 2003, Doe Run cash balanceand net unused availability under its revolving credit facility were $16,794and $14,373, respectively, and Doe Run Peru’s cash balance and net unusedavailability under its revolving credit facility were approximately $16,794 and$3,830 at October 31, 2003, respectively.

 

Doe Run and Doe Run Peruwere in the process of negotiating amendments to agreements governing therevolving credit facilities and the Term Note at October 31, 2003, andamendments to the revolving credit facilities were finalized subsequent toOctober 31, 2003.

 

***Fiscal Years2004-2005***

 

 Metal prices haverisen dramatically over the past two fiscal years. Lead prices increased from aLondon Metal Exchange (LME) settlement monthly average of $532.60 per short tonin October 2003 to $847.40 per short ton in October 2004 to $911.76 per shortmetal ton in October 2005. The Company has benefited from this price increasein both its lead metal and lead concentrate sales. In response to continuedstrong metal prices, our primary lead division made significant changes tooperations in 2005. The lead grade of ore mined was lowered while the tonnageprocessed

 

55

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increased. These changeswere made in an effort to optimize the return on Doe Run’s ore reserves. DoeRun continued to sell a substantial portion of the lead concentrates producedfrom its mines into the open market.

 

The Company continues tohave substantial cash requirements in the future, including maturities in 2006of $8,000 for the Term Note, cash interest payments on Bonds of $25,729 andrevolving credit facilities (See Note 8: Debt), and also significant capitalrequirements under environmental commitments (See Note 19: Asset Retirement andEnvironmental Obligation). In addition, there are substantial contingenciesrelated to taxes (See Note 13: Income Taxes) and litigation (See Note 20:Litigation).

 

Netunused availability at October 31, 2005 and 2004 under the Doe Run RevolvingCredit Facility was $22,138 and $22,506, respectively. Net unused availabilityat October 31, 2005 and 2004 under the Doe Run Peru Revolving Credit Facilitywas approximately $200 and $60, respectively. In addition to the availabilityunder its revolving credit facilities, cash balances at Doe Run were $23,486and $20,318, respectively, at October 31, 2005 and 2004 and at Doe Run Peruwere $14,569 and $6,905, respectively, at October 31, 2005 and 2004. Doe RunPeru has reached and maintained its maximum borrowing level under the Doe RunPeru Revolving Credit Facility due in part to the higher metal prices resultingin higher outlays for concentrate purchases and higher VAT payments funded bycash from operations.

 

TheDoe Run Revolving Credit Facility expires on August 29, 2008. The Doe Run PeruRevolving Credit Facility expires in the fourth quarter of 2006, and willrequire renegotiation to extend their terms. There can be no assurance that theCompany will be successful, or if it is successful, that the renewal would beat terms that are favorable to the Company. The maturity date of the Term Notehas been extended to June 16, 2006 with an amended repayment schedule.

 

Adefault under the requirements of the PAMA could result in a default under theDoe Run Peru Revolving Credit Facility. A default under the requirements of theDoe Run Peru Revolving Credit Facility results in a defaults under the Doe RunCredit Facility and the Indenture governing the Bonds.

 

# ***CurrentStatus***

# * *

The consolidatedfinancial statements have been prepared assuming the Company will continue as agoing concern. Doe Run Peru has significant capital requirements underenvironmental commitments, which, if not met, could result in defaults of theCompany’s credit agreements; has substantial contingencies related to tax; andhas significant debt service obligations that raise substantial doubt about theCompany’s ability to continue as a going concern. Management believes that theprice improvements seen through fiscal year 2005 and the continuing increasesseen in the first quarter of fiscal year 2006, the potential revenues and cashflow enhancements from the new ferrite project in Peru and the anticipatedapproval of the application to extend the PAMA requirement for the constructionof the sulfuric acid plant, will enable the Company to continue as a goingconcern through October 31, 2006. However, there can be no assurance that theseactions will achieve the desired results.

 

**(3) Related Party Transactions**

 

Doe Run has a managementconsulting agreement with Renco. Under the agreement, Renco provides Doe Runwith management services for an annual fee. The agreement is automaticallyrenewed every three years unless either party gives six months prior notice,with the current term ending October 31, 2006. Fees expensed under thisagreement were $2,400 in each of the years ended October 31, 2005, 2004and 2003. Fees outstanding and unpaid were $8,700 and $7,600 at October 31,2005 and 2004, respectively. The indenture for the 11.75% notes limits thepayment of fees to $1,200 per year unless defined earnings before interest,taxes, depreciation and amortization for the Company, less that for Doe RunPeru, exceeds $35,000, in which case an additional $1,200 is allowed. Noadditional management fees were permitted to be paid to Renco for 2004 underthis provision of the 11.75% notes. For 2005 the aforementioned definedearnings were exceeded, therefore the additional $1,200 of management fees werepaid during 2006. See Note 8 for a description of the Company’s debt.

 

Renco held 2,849 and2,533 shares of Doe Run’s Series A Redeemable Preferred Stock at October 31,2005 and October 31, 2004, respectively. See Note 9 for more information.

 

On October 29, 2002,Renco signed a Junior Participation Agreement with the lender under the Doe RunRevolving Credit Facility to provide credit support for supplemental loans toDoe Run. No supplemental loans have been made and on October 14, 2005 thisagreement was terminated.

 

56

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At October 31, 2005 and2004, Doe Run owed $8,000 and $15,500, respectively, on the Term Note due toRenco pursuant to a credit facility. See further discussion in Note 8.

 

On October 29, 2002, DoeRun and Renco signed a tax sharing agreement. See Note 13 for further discussion.The amounts paid under this agreement were $534 and $0 during the years endedOctober 31, 2005 and 2004, respectively, and was paid in the form of dividends.The amount due under this agreement was $384 and $0, respectively for the yearsending October 31, 2005 or 2004.

 

At times, to obtain theadvantages of volume, Renco purchased certain insurance policies for a numberof its subsidiaries, including the Company. The actual cost of such policies,without markup, is reimbursed by the covered subsidiaries. For the years endedOctober 31, 2005, 2004 and 2003, the Company made payments to Renco ofapproximately $66, $35 and $23, respectively, under the Renco insuranceprogram.

 

**(4) Inventories**

 

Inventories consist ofthe following: 

 
| ** **                            | ** ** | **October 31,** | ** ** |
|---------------------------------------|------------|----------------------|------------|
| ** **                            | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                  |       |                 |       |   |   |
| Finished metals  and concentrates     |       | $                    | 18,461     |   | $ | 16,646 |   |
| Metals and  concentrates in process   |       | 55,681               |       | 58,664 |   |
| Materials,  supplies and repair parts |       | 31,492               |       | 27,999 |   |
|                                  |       |                 |       |   |   |
|                                  |       | $                    | 105,634    |   | $ | 103,309 |   |

 

Materials, supplies andrepair parts are stated net of reserves for obsolescence of $5,389 and $5,146at October 31, 2005 and 2004, respectively.

 

The FIFO cost ofinventories valued under the LIFO cost method were approximately $139,220 and$113,092 at October 31, 2005 and 2004, respectively. If the FIFO costmethod had been used to determine cost, inventories would have beenapproximately $61,274 and $38,289 higher at October 31, 2005 and 2004,respectively.

 

As a result of reducingcertain inventory quantities valued on the LIFO basis in 2005, 2004, and 2003,inventory costs prevailing in previous years were charged to cost of sales. TheCompany calculates the effect of LIFO liquidations on results of operationsbased on the current cost method. The effect of such liquidations on the resultsof operations were increases to net income of approximately $1,780 and $1,900for the years ended October 31, 2005 and 2004, respectively. The impact was notsignificant in 2003.

 

In 2004, the Companychanged its methodology of calculating the remaining effect of adjustments to “lowerof cost or market” on inventory costed on a LIFO basis in years after theinitial year the adjustment to market was recorded. . Inventory at October 31,2005 and 2004 would have been $851 and $855, respectively, lower under themethod used prior to 2004.

 

**(5) Property, Plant andEquipment, Net**

 

Property, plant andequipment, net consists of the following:

 
| ** **                                   | ** ** | **October 31,** | ** ** |
|----------------------------------------------|------------|----------------------|------------|
| ** **                                   | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                         |       |                 |       |   |   |
| Land                                         |       | $                    | 13,164     |   | $ | 12,689 |   |
| Buildings and  improvements                  |       | 92,587               |       | 84,886 |   |
| Machinery and  equipment                     |       | 302,112              |       | 297,615 |   |
| Mineral  interests                           |       | 31,313               |       | 31,313 |   |
| Construction in  progress                    |       | 76,766               |       | 42,574 |   |
|                                         |       | 515,942              |       | 469,077 |   |
| Less accumulated  depreciation and depletion |       | 262,679              |       | 239,437 |   |
|                                         |       |                 |       |   |   |
| Property, plant  and equipment, net          |       | $                    | 253,263    |   | $ | 229,640 |   |

 

57

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Depreciation anddepletion expense are as follows:

 
| ** **   | ** ** | **Year Ended October 31,** | ** ** |
|--------------|------------|-------------------------------------------|------------|
| ** **   | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|         |       |                                      |       |   |   |   |   |
| Depreciation |       | $                                         | 22,873     |   | $ | 23,795 |   | $ | 28,285 |   |
| Depletion    |       | $                                         | 1,297      |   | $ | 1,527 |   | $ | 2,122 |   |

 

The net book value of theCompany’s mineral interests was $9,632 and $10,929 at October 31, 2005 and2004, respectively.

 

 Changes to the estimates of expected cashflows related to asset retirement obligations resulted in an additionalincrease (decrease) to plant, property and equipment of ($537), ($1,547) and($691) for the years ended October 31, 2005, 2004 and 2003, respectively. Seeadditional disclosures related to SFAS No. 143 in Note 19.

 

Losses from impairment orretirement of long-lived assets for the years ended October 31, 2005, 2004 and2003 included $2,881, $3,588 and $1,255, respectively, relating to residentialproperties purchased under a residential property purchase plan in Herculaneum,Missouri, where one of the Company’s primary smelters is located. See furtherdiscussion of the residential property purchase plan in Note 19.

 

Rental expense applicableto minimum rentals under operating leases was $10,707, $8,063 and $7,725 forthe years ended October 31, 2005, 2004 and 2003, respectively. Contingentrental payments, based primarily on equipment usage, were $0, $796 and $666 forthe years ended October 31, 2005, 2004 and 2003, respectively. Other variousrental expense amounted to $3,095, $2,483 and $1,080 for the years endedOctober 31, 2005, 2004 and 2003, respectively.

 

The Company’s operatingleases relate primarily to operating equipment, office facilities and officeequipment. The minimum rental commitments under noncancellable leases, withterms in excess of one year are as follows: 

 
| **Fiscal year ending October 31:** | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|------------|------------|
| 2006                                                   |       | $          | 8,068      |   |
| 2007                                                   |       | 4,793      |       |
| 2008                                                   |       | 3,046      |       |
| 2009                                                   |       | 2,100      |       |
| 2010                                                   |       | 1,849      |       |
| Thereafter                                             |       | 10,900     |       |
|                                                   |       | $          | 30,756     |   |

 

**(6) Valuationand Qualifying Accounts**

 
| ** **                                         | ** ** | **Year Ended October 31,** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Allowance for doubtful accounts** |       |                                      |       |   |   |   |   |
| Balance at  beginning of year                      |       | $                                         | 1,576      |   | $ | 1,479 |   | $ | 1,160 |   |
| Amounts charged  to costs and expenses             |       | 265                                       |       | 144 |   | 458 |   |
| Deductions –  write-offs against allowance    |       | (898                                      | )          | (47 | ) | (139 | ) |
|                                               |       |                                      |       |   |   |   |   |
| Balance at end  of year                            |       | $                                         | 943        |   | $ | 1,576 |   | $ | 1,479 |   |
| **Allowance  for inventory obsolescence**          |       |                                      |       |   |   |   |   |
| Balance at  beginning of year                      |       | $                                         | 5,146      |   | $ | 4,411 |   | $ | 5,157 |   |
| Amounts charged  to costs and expenses             |       | 1,319                                     |       | 1,254 |   | 905 |   |
| Deductions –  write-offs against allowance    |       | (1,076                                    | )          | (519 | ) | (1,651 | ) |
|                                               |       |                                      |       |   |   |   |   |
| Balance at end  of year                            |       | $                                         | 5,389      |   | $ | 5,146 |   | $ | 4,411 |   |
|                                               |       |                                      |       |   |   |   |   |
| **Accrual  for major maintenance**                 |       |                                      |       |   |   |   |   |
| Balance at  beginning of year                      |       | $                                         | 1,648      |   | $ | 2,155 |   | $ | 3,061 |   |
| Amounts charged  to costs and expenses             |       | 575                                       |       | 317 |   | 477 |   |
| Deductions –  write-offs against allowance    |       | (1,117                                    | )          | (824 | ) | (1,383 | ) |
|                                               |       |                                      |       |   |   |   |   |
| Balance at end  of year                            |       | $                                         | 1,106      |   | $ | 1,648 |   | $ | 2,155 |   |

 

58

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**(7) Accrued Liabilities**

 

Accrued liabilitiesconsist of the following:

 
| ** **                                       | ** ** | **October 31,** | ** ** |
|--------------------------------------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                             |       |                 |       |   |   |
| Payroll, related  taxes and employee benefits    |       | $                    | 26,490     |   | $ | 23,531 |   |
| Accrued pension  benefit liability (see Note 14) |       | 10,083               |       | 9,025 |   |
| Fair value of  derivatives                       |       | 2,001                |       | 8,976 |   |
| Reclamation and  environmental (see Note 19)     |       | 10,496               |       | 5,444 |   |
| Other                                            |       | 37,990               |       | 36,902 |   |
|                                             |       |                 |       |   |   |
|                                             |       | $                    | 87,060     |   | $ | 83,878 |   |

 

**(8) Debt**

 

Long-term debt consistsof the following:

 
| ** **                                                                                              | ** ** | **October 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                              | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Revolving credit  facilities                                                                            |       | $                    | 81,197     |   | $ | 71,201 |   |
| 11.75% secured  notes due November 1, 2008 (face amount of $218,967 at October 31, 2005 and  2004)      |       | 297,295              |       | 323,139 |   |
| 11.25% unsecured  senior notes due March 15, 2005                                                       |       | —               |       | 5,750 |   |
| 11.25% secured  senior notes due March 15, 2005, less unamortized discount of $12 at October  31, 2004. |       | —               |       | 1,738 |   |
| Term note, due  June 16, 2006                                                                           |       | 8,000                |       | 15,500 |   |
| Capital lease  obligations                                                                              |       | 21                   |       | — |   |
|                                                                                                    |       | 386,513              |       | 417,328 |   |
| Less current  maturities                                                                                |       | 114,947              |       | 96,767 |   |
|                                                                                                    |       |                 |       |   |   |
| Long-term debt,  less current maturities                                                                |       | $                    | 271,566    |   | $ | 320,561 |   |

 

The Company has availabletwo revolving credit facilities. The first facility, the Doe Run RevolvingCredit Facility, allows Doe Run and certain U.S. subsidiaries to borrow up to$75,000 and expires August 29, 2008. The availability of loans under the DoeRun Revolving Credit Facility is limited to a percentage of eligible U.S.accounts receivable and inventories, less any outstanding loans and letters ofcredit. The Doe Run Revolving Credit Facility bears interest at the prime rateplus 0.75% per annum for an effective rate of 7.50% at October 31, 2005 andrequires an unused line fee equal to 0.25% on the amount by which the maximumcredit of $75,000 exceeds the average daily balance of outstanding loans andletters of credit. All cash received by Doe Run’s domestic operations istransferred by wire daily to the financial institution to pay down theoutstanding loan balance, if any. Revolving loans outstanding under thisfacility were $41,397 and $31,801 at October 31, 2005 and 2004, respectively. Actualavailability was $22,138 and

 

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$22,506 at October 31, 2005 and 2004, respectively. Becausethe agreement requires a lockbox for cash receipts and contains a subjectiveacceleration clause, loans under this agreement are classified as current inthe balance sheet.

 

On October 14, 2005, Doe Run entered into an amendmentof Doe Run’s Revolving Credit Facility. The amendment extended the maturitydate to August 29, 2008, removed the net worth measurement the Company wasrequired to maintain, and included an option for Libor rate loans.

 

The second facility, theDoe Run Peru Revolving Credit Facility, allows Doe Run Peru to borrow up to$40,000 for working capital,, with a limit on letters of credit of $5,000 andexpires on November 23, 2005 . The Doe Run Peru Revolving Credit Facility bearsinterest at LIBOR (1-month, 3-month or 6-month rate, depending on the term ofthe loan) plus 3.5% per annum for an effective rate of 7.59% at October 31,2005. An unused line fee of 0.375% per annum on the average unused portion ofthe line is payable quarterly, in arrears. The Doe Run Peru Revolving CreditFacility is secured by accounts receivable and inventories. Availability ofloans under the Doe Run Peru Revolving Credit Facility is limited to apercentage of Doe Run Peru’s eligible accounts receivable and inventories, lessany outstanding loans and letters of credit. Revolving loans outstanding underthis facility were $39,800 and $39,400 at October 31, 2005 and 2004,respectively. The availability was approximately $200 and $60 at October 31,2005 and 2004 respectively.

 

On November 22, 2005 DoeRun Peru entered into an amendment of its revolving credit facility whichextended the maturity date of the Doe Run Peru Revolving Credit Facility toDecember 15, 2005.

 

On December 15, 2005, DoeRun Peru entered into an amendment of its revolving credit facility. Theamendment extended the maturity date to June 23, 2006 with certain conditionsprecedent, that if met would extend the maturity date to September 23, 2006. Theconditions precedent are, that the PAMA extension be approved, that Doe RunPeru diligently seek financing to replace the existing credit line and that DoeRun Peru obtain the letter of guarantee required by the Peruvian government ifthe PAMA extension is approved. The amendment also changed the interest ratesto LIBOR (1-month, 2-month or 3-month rate, depending on the term of the loan)plus 3.5%, 3.75% and 4.25%, respectively, per annum. The amendment also allowsDoe Run Peru additional indebtedness, and the ability to create a trust accountto administer the receipts and disbursements related to the PAMA project.

 

On October 29, 2002, DoeRun consummated a consensual restructuring (the Restructuring) of most of itspreviously outstanding notes (Old Notes) by exchanging Old Notes with aprincipal amount of $294,840, plus unpaid accrued interest of $37,473, forstock warrants (Warrants) exercisable for an aggregate of approximately 39% ofthe fully diluted common stock of Doe Run and new 11.75% notes with a principalamount of $175,832. In connection with the completion of the exchange offer,Doe Run borrowed $15,500 under the Term Note and received $20,000 from the saleof redeemable preferred stock to Renco, and used the proceeds from thesetransactions to pay down the balance on the Doe Run Revolving Credit Facility,pay certain fees related to the transaction and pay interest due and unpaid,plus penalties, on the outstanding notes that were not exchanged.

 

The Restructuring was accounted for in accordance withStatement of Financial Accounting Standards No. 15, *Accounting by Debtors and Creditors for Troubled Debt Restructurings*(Statement No. 15). 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. Under theterms of the 11.75% notes, total expected payments, including all amountscontingently payable, will be greater than the carrying amount of the Old Notesexchanged. In accordance with Statement No. 15 the 11.75% notes were recordedon the balance sheet on October 29, 2002 at a carrying amount equal to thecarrying amount of the Old Notes exchanged, including unpaid accrued interest,reduced by deferred issue costs related to the Old Notes exchanged and the fairvalue of the warrants issued.

 

The effect of this accounting treatment is thatsubstantially less interest expense will be recognized related to the 11.75%notes during their term because the majority of the interest payments arereflected in the carrying amount of the 11.75% notes. In addition, StatementNo. 15 required that all costs of restructuring be expensed when incurred. Becausecontingent amounts payable are assumed payable in the application of StatementNo. 15, a gain may result in future periods if contingent amounts payable arenot paid. In conjunction with the Restructuring, the Company recognized a gainof $9,233 in the year ended October 31, 2005 and a loss of $550 the year endedOctober 31, 2003, representing the costs of restructuring.

 

60

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The face amount of the11.75% notes, plus accrued interest, was $218,967 at October 31, 2005. Intereston the 11.75% notes is paid semi-annually in arrears on April 15 and October15, except that on each payment date occurring on or prior to October 15, 2005,Doe Run, at its option, could have paid interest by either a) a cash payment ofaccrued interest at an annual rate of 3% and issuance of additional notes witha principal amount equal to interest accrued since the last payment date at arate of 11.5% or b) a cash payment of accrued interest at an annual rate of8.5%. During 2005 interest was paid in cash at a rate of 8.5%. During 2004 and2003, interest was paid in cash at the 3% rate and additional notes totaling$23,165 and $19,971 were issued during the years ended October 31, 2004 and 2003,respectively. Doe Run may redeem the notes prior to maturity at a premiumdependent on the date of redemption. Renco has the right, at any time, topurchase all or part of the then outstanding notes at a price equal to theprice (including accrued interest) that Doe Run would have to pay to redeemsuch notes at that time. The 11.75% notes are guaranteed by certainsubsidiaries of Doe Run.

 

The 11.25% unsecuredsenior notes (the Unsecured Notes) and 11.25% senior secured notes (the SecuredNotes) were paid at the maturity date of March 15, 2005.

 

The Term Note is held by Renco, pursuant to a creditfacility (Senior Credit Facility). The Senior Credit Facility allows for loansand letters of credit up to $35,500, as agreed to by Doe Run and the lender. Interestis paid monthly at the rate of 11.25% per annum. In addition, an annualanniversary fee of $75 is payable on each anniversary prior to the maturitydate and at maturity.

 

There were two amendments to the Term Note sinceOctober 31, 2004, with the most recent “Fourth Amendment” dated January 17,2006. The Fourth Amendment extended the maturity date to June 16, 2006,reaffirmed the waiver of a default and amended the repayment schedule. The loanmatures on June 16, 2006 but requires minumum aggregate principal payments of$2,000 by February 13, 2006, $4,000 by March 13, 2006 and $6,000 by May 12,2006, with earlier payments required if the cash availability exceedsprescribed limits before such dates. As a result of excess cash availablilty,in February, 2006 the Company paid $6 million in aggregate principle payments.

 

In 2002, Doe Run tendereda deposit made in 1998 (the Special Term Deposit) as payment of a loan made toDoe Run Peru by a foreign bank, and, in return, Doe Run Peru delivered anintercompany note to Doe Run in an equivalent amount, plus accrued and unpaidinterest, for an aggregate balance of $139,063. This intercompany note does notbear interest during the term of the Doe Run Peru Revolving Credit Facility. Obligationsunder the intercompany note are subordinate to Doe Run Peru’s obligations underits revolving credit facility.

 

The aggregate estimatedamounts of long-term debt maturing after October 31, 2005 are as follows:

 
| **Fiscal year ending October 31:** | ** ** | ** ** | ** ** |
|--------------------------------------------------------|------------|------------|------------|
| 2006                                                   |       | $          | 114,947    |   |
| 2007                                                   |       | 25,735     |       |
| 2008                                                   |       | 26,870     |       |
| 2009                                                   |       | 218,967    |       |
|                                                   |       |       |       |
|                                                   |       | $          | 386,519    |   |

 

Included in the long-term debt maturities is a portionof the interest payments due on the 11.75% notes that under Statement No. 15was included in the carrying amount of the 11.75% notes. Interest of $25,729,$25,729 and $26,870 is included in the maturities of long-term debt for thefiscal years ending October 31, 2006, 2007, and 2008, respectively.

 

The Doe Run Revolving Credit Facility is secured bysubstantially all of the accounts receivable and inventory relating to theCompany’s U.S. operations. The Doe Run Peru Revolving Credit Facility issecured by the accounts receivable and inventory of Doe Run Peru. The lender ofthe Term Note has a second priority security interest in the accounts receivableand inventory pledged under the Doe Run Revolving Credit Facility and a firstpriority security interest in the remainder of the Company’s assets of its U.S.operations. The 11.75% notes have a second priority interest in substantiallyall of the assets related to U.S. operations, except for accounts receivableand inventory pledged under the Doe Run Revolving Credit Facility, for whichthey have a third priority interest.

 

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At October 31, 2005, the Company’s various debtagreements contained certain requirements with respect to net worth, workingcapital, earnings before interest, taxes, depreciation, depletion andamortization (EBITDA), and fixed charge coverage ratios. These agreements alsoplace limitations on domestic and foreign capital expenditures, dividendpayments and other outside borrowings. The Doe Run Peru Revolving CreditFacility limits Doe Run Peru’s ability to make distributions to Doe Run inexcess of management fees of $4,000 per year unless certain cash flow tests aremet. The Company was in compliance with its covenants as of October 31, 2005,with the exception of the delivery of audited financials and other reportingrequirements for the year ended October 31, 2005 by January 29, 2006 under theDoe Run Revolving Credit Faclility and the Term Note. Waivers for thesereporting defaults were received on March 17, 2006 and March 16,2006, respectively.

 

 **(9) Redeemable Preferred Stock**

 

The Company has 2,849outstanding shares of Series A Redeemable Preferred Stock (Redeemable PreferredStock). The Redeemable Preferred Stock is redeemable by the holder of theshares only after May 1, 2009. The shares have a par value of $1,000 per shareand a liquidation and redemption value of $10,000 per share. There were noaccrued or unpaid dividends at October 31, 2005 or 2004. Dividends of 12.5% ofthe liquidation value per share per annum accrue and are payable only in kindas long as obligations under the Senior Credit Facility or Warrants remainoutstanding. Because the Company has an accumulated deficit, dividends arerecorded as a reduction to additional paid-in capital until depleted, afterwhich they will be accumulated in a contra-equity account called preferredstock dividends. Of the 2,849 outstanding shares of Redeemable Preferred Stock,2,000 were issued to Renco for $20,000 on October 29, 2002 in conjunction withthe Restructuring referred to in Note 8. An additional number of shares in theamount of 316, 282 and 251 shares were issued to Renco on October 31, 2005,2004and 2003, respectively, as payment of the aforementioned dividends.

 

The Redeemable PreferredStock’s dividend rights and liquidation preference rank prior and in preferenceto the Company’s common stock. The holder of the Redeemable Preferred Stock hasvoting rights with respect to matters of mergers, issuance of debt or equitysecurities, stock transactions and reorganization.

 

**(10) Warrants**

 

In conjunction with theRestructuring, Warrants were issued to holders of the 11.75% notes. TheWarrants entitle warrant-holders to purchase 644.7813 shares of common stock,representing approximately 39% of the common stock outstanding on a dilutedbasis, at the initial exercise price of $5,997 per share beginning November 1,2008 until October 29, 2012 (Expiration Date). Alternatively, the Warrants maybe converted into common stock whereby the holders will be entitled to receivea number of shares whose fair value is equal to the difference between the fairvalue of the shares the holder would receive upon exercise and the exercisevalue of the shares. The Warrants may not be exercised or converted unless amajority of Warrant holders vote in favor of such, and then all Warrants mustbe exercised or converted.

 

The Warrants are also subject to a call and a putfeature. Either Doe Run or Renco may, at any time, call all (but not less thanall) of the Warrants and any outstanding shares of stock issued upon exercisethereof at a price equal to the greater of $10,000 or the appraised fair marketvalue of the Warrants, provided that in the event that this call option isexercised by Doe Run or Renco during the first 48 months after the Warrants areissued, Doe Run or Renco will be required to, at the same time, redeem the11.75% notes at the applicable redemption prices. After October 29, 2005holders of the Warrants may , require Doe Run or Renco to repurchase all (butnot less than all) of the Warrants at a price equal to the appraised fairmarket value of the stock the Warrant holders would receive if exercised. Ifthis option is exercised by the Warrant holders, Doe Run may, under certaincircumstances, defer the payment of the purchase price to the warrant holders. Sucha deferral of the purchase price would require interest to accrue on any unpaidamounts and, upon the third anniversary of the exercise of the put option withsuch purchase price still unpaid, the warrants holders will have the right tocause the Doe Run’s stockholders to elect a special director to serve on DoeRun’s Board of Directors for the remainder of the period such purchase priceremains unpaid.

 

On the Expiration Date, the Company must purchase alloutstanding warrants or shares issued pursuant to an exercise or conversion ofthe warrants. With the Company’s permission, Renco may honor the purchase.

 

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Management engaged a nationally recognized valuationfirm to calculate the fair value of the Warrants. Management estimates that thefair value of the Warrants based on the valuation was $639 at each of thefiscal years ended October 31, 2005, 2004 and 2003, and this value is reflectedin other noncurrent liabilities. Any changes in the fair market value of theWarrants will be recorded in the Company’s results of operations as interestexpense.

 

#### ***(11)Accumulated Other Comprehensive Losses***

 

Accumulated othercomprehensive losses consist of the following:

 
| ** **                                                                | ** ** | **October 31,** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                                                      |       |                 |       |   |   |
| Minimum pension  liability (see Note 14)                                  |       | $                    | 41,507     |   | $ | 41,902 |   |
| Unrealized loss  on available-for-sale investments                        |       | —               |       | 37 |   |
| Unrealized  (gain) loss on derivative financial instruments (see Note 18) |       | —               |       | 97 |   |
|                                                                      |       |                 |       |   |   |
| Accumulated  other comprehensive losses                                   |       | $                    | 41,507     |   | $ | 42,036 |   |

 

#### ***(12)Fair Value of Financial Instruments***

 

At October 31, 2005 and2004, the fair values of the Company’s financial instruments, except forlong-term debt, were not materially different from their carrying amounts. Thefair value of the Company’s long-term debt was approximately $266,586 and$282,513 at October 31, 2005 and 2004, respectively. The fair values of theCompany’s long-term debt were based on the estimates of incremental borrowingrates for similar types of borrowing arrangements or dealer quotes.

 

**(13) Income Taxes**

 

Renco has elected for theCompany to be treated as a QSSS for U.S. federal tax purposes. Most states inwhich the Company operates will follow similar tax treatment. QSSS statusrequires the ultimate shareholders to include their pro rata share of theCompany’s income or loss in their individual tax returns. The election does notaffect foreign income taxes related to the Company’s foreign subsidiaries.

 

Doe Run is subject to atax sharing agreement with Renco, effective October 29, 2002. Pursuant to theagreement, Doe Run is required to make quarterly payments to Renco based on apro forma U.S. federal and state income tax liability, assuming that theCompany is not and never was a subsidiary of Renco (subject to certainlimitations), and amounts reasonably determined by Renco to cover taxliabilities of current or prior years not reflected in the Company’s pro formatax calculations. The pro forma income tax liabilities will assume that Doe Runbecame a C corporation under the Internal Revenue Code of 1986 (the Code) onthe day after the Restructuring and will include no income attributable to anycancellation of indebtedness prior to the Restructuring or any effect of suchcancellation on the basis of the assets of the Company. See Note 3 for furtherinformation.

 

Doe Run Cayman is subjectto the regulations of the Cayman Islands, which currently have no corporateincome or capital gains tax. Doe Run Cayman’s subsidiaries located in Peru aresubject to Peruvian taxation. The statutory income tax rate in Peru is 30%. DoeRun Peru has obtained a ten-year tax stabilization agreement with the Peruviangovernment, which provides for Peruvian taxation based on tax statutes andregulations prevailing on November 6, 1997, beginning with the Peruviantax year ending on December 31, 1997 through December 31, 2006.

 

On December 30, 1997, DoeRun Peru signed a Contract of Guarantees and Measures to Promote Investments,as modified in 2005. This agreement is effective beginning in the calendar yearended December 31, 2007, provided that Doe Run Peru complies with the committedinvestments related to the improvements of the facilities, and provides taxstability through December 31, 2021. The principal provisions are similar tothose established in the Tax Stabilization Agreement, except that Doe Run Peruwill utilize the tax statutes prevailing as of December 23, 1997.

 

63

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The last acceptedmodification of the current contract requires Doe Run Peru to spend a total$108,442 on a specific set of projects. Included in this list of projects is aportion of the total sulfuric acid plant cost of $39,000. All expenditures forthis contract must be completed by December 31, 2006. Through October 31, 2005,Doe Run Peru had invested $117,315 on projects within the projects list of thiscontract. Even though the total spending has been exceeded, specific projectsexpenditures on the list have not been accomplished. As of October 31, 2005only $4,600 of the $39,000 has been spent on a new sulfuric acid plant. Underthe current agreement the remaining $34,400 must be spent by December 31, 2006.

 

On August 23, 2005, DoeRun Peru filed for a modification to the contract, to reduce the totalinvestment commitment to $102,342. This modification included addition of some projectsand reduction of others. Included in the reduction was a reduction of thesulfuric acid plant project from $39,000 to $5,600. On January 19, 2006 theEnergy and Mines Ministry ruled on the modification and did not approve thereduction, but did approve certain new projects expenditures. As a result ofthe January 19, 2006 ruling, the overall commitment under the modification isnow $133,542 which still includes a sulfuric acid plant commitment of $39,000. OnFebruary 9, 2006, Doe Run Peru filed before the Mining Council of the MiningMinistry an appeal against this ruling. Doe Run Peru is expecting reductions,one of which reduction is the sulfuric acid plant investment to $5,600. Withthese changes the total investment amount to meet the contract will be reducedto $95,642, with remaining specific project investments required by December31, 2006 of $17,000.

 

As a result of theCompany’s status as a QSSS, the Company was not subject to U.S. federal incometaxation for the years ended October 31, 2005, 2004 and 2003, and recognized nostate or U.S. federal income tax expense during that period. For the year endedOctober 31, 2004 certain technical services that Doe Run provided under anagreement with Doe Run Peru were taxed at 30% under a law passed in Peru inDecember 2003. Taxes of $2,146 were paid in the third quarter of 2004.Offsetting this tax was the reversal of a U.S. federal income tax liabilityrelated to years that are closed to audit of $2,807. Doe Run Peru had noforeign income tax expense for the years ended October 31, 2005 and 2004 due totax loss carryforwards and an increase in the valuation allowance againstdeferred tax assets, as discussed below.

 

The tax effects oftemporary differences that give rise to significant portions of the deferredtax assets and deferred tax liabilities are as follows:

 
| ** **                               | ** ** | **October 31,** | ** ** |
|------------------------------------------|------------|----------------------|------------|
| ** **                               | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Deferred tax  assets:                    |       |                 |       |   |   |
| Trade accounts  receivable               |       | $                    | 787        |   | $ | — |   |
| Inventories                              |       | 12,378               |       | 7,865 |   |
| Property, plant  and equipment           |       | 9,721                |       | 6,565 |   |
| Accrued  liabilities                     |       | 2,479                |       | 2,488 |   |
| Tax loss  carryforwards                  |       | 14,178               |       | 27,344 |   |
| Other noncurrent  assets and liabilities |       | 1,038                |       | 1,035 |   |
|                                     |       | 40,581               |       | 45,297 |   |
| Less valuation  allowance                |       | (29,034              | )          | (38,720 | ) |
| Total deferred  tax assets               |       | 11,547               |       | 6,577 |   |
|                                     |       |                 |       |   |   |
| Deferred tax  liabilities:               |       |                 |       |   |   |
| Property, plant  and equipment           |       | (11,547              | )          | (6,577 | ) |
| Total deferred  tax liabilities          |       | (11,547              | )          | (6,577 | ) |
| Net deferred tax  assets                 |       | $                    | —     |   | $ | — |   |

 

The deferred tax balancesas of October 31, 2005 and 2004 relate solely to the Company’s Peruviansubsidiaries. The deferred tax assets and liabilities related to property,plant and equipment are principally due to differences in book and taxallocations of the excess of the fair value of the sum of assets acquired, lessliabilities assumed over the purchase price paid and accelerated depreciationmethods used for tax purposes.

 

The net operating losscarryforwards in Peru may be offset against the taxable income that the Companyobtains up to December 31, 2007, inclusively.

 

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Management believes thatsufficient uncertainty exists regarding the realization of certain deferred taxassets such that a valuation allowance is required. The valuation allowancedecreased $9,686 and $1,287 for the years ended October 31, 2005 and 2004,respectively, and increased $5,473 in the year ended October 31, 2003.

 

Doe Run Peru has received income tax assessments fromPeru’s tax authority, SUNAT for tax years 1998 through 2001. The assessmentsprimarily 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 theassessment by SUNAT, the tax basis of Doe Run Peru’s fixed assets acquiredwould decrease, resulting in lower tax depreciation expense than originallyclaimed. The assessed amount consisting of additional income taxes due,penalties and interest as of October 31, 2005 totals approximately $109,030.The Company estimates that the effect of a similar assessment for tax yearsafter 2001 would be approximately $30,300. Furthermore, Doe Run Peruwould also be required to make additional workers’ profit sharing paymentsequal to 8% of the increase in taxable income generated by the changesdiscussed above, or approximately $11,200 for calendar years 1998 through 2005

 

Doe Run Peru has also received Value-Added Tax (VAT)assessments for the tax years 1999 through 2001 and for the period from Januarythrough July 2004. The assessments primarily relate to Doe Run Peru’s exportswith holding certificates and differences in a tax credit application. Thetotal assessment for these periods was approximately $43,489. SUNAT offset theamount assessed for 2004 of approximately $2,300 against Doe Run Peru’s VATreceivable balance from July 2004. Future VAT reimbursements cannot be used tooffset the assessment by SUNAT. The Company discontinued use of the holdingcertificates for exports in June 2004. The Company estimates expectedadditional assessments related to VAT for tax years 2002 and 2003 to totalapproximately $20,166 in regard to its exports with holding certificates.

 

Managementof the Company believes that in each case Doe Run Peru has followed theapplicable Peruvian tax statutes and intends to pursue all availableadministrative and judicial appeals. Doe Run Peru is not requiredto make any payments pending the administrative appeal process. If Doe Run Peruis not successful in the administrative appeal processes and were to appeal inthe judicial system, some type of financial assurance would be required. No amounts have been accrued asliabilities related to these actions.

 

**(14) Employee Benefits**

 

###### **DomesticPlans**

 

***Defined BenefitPlans***

 

The Company sponsors anoncontributory defined benefit plan for its U.S. employees. Benefits providedto salaried employees under the defined benefit plan are based on average finalcompensation and years of service. Benefits provided to hourly employees arebased on a flat rate and years of service. The Company has also adopted asupplemental defined benefit plan, the Supplemental Employee Retirement Plan(SERP), effective November 1, 1996. The SERP provides benefits to thoseparticipants of the defined benefit plan whose benefits under the plan arelimited by Sections 401(a)(17) or 415 of the Code. Benefits under the SERPrepresent the amount by which the benefits under the defined benefit plan, ifsuch benefits were not limited, exceed those benefits the participants areentitled to receive. The SERP plan is unfunded.

 

On April 11, 2005, theCompany’s Board of Directors adopted changes to the Company’s defined benefitplans. Effective July 1, 2005, no new employees are eligible to participate inthe plans and participants’ benefit accruals have been frozen. A curtailmentloss of $690 was reflected in operating expenses for the year ended October 31,2005.

 

The Company uses ameasurement date of October 31 for its pension benefit plans.

 

65

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Net periodic pensionexpense is comprised of the following:

 
| ** **                                                | ** ** | **Year ended October 31,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                      |       |                                      |       |   |   |   |   |
| Service cost                                              |       | $                                         | 1,764      |   | $ | 2,122 |   | $ | 1,952 |   |
| Interest cost on  projected benefit obligation            |       | 6,530                                     |       | 6,450 |   | 5,742 |   |
| Expected return  on assets                                |       | (5,786                                    | )          | (4,660 | ) | (4,344 | ) |
| Net amortization  and deferral of unrecognized net losses |       | 4,099                                     |       | 3,420 |   | 1,605 |   |
| Curtailment loss                                          |       | 690                                       |       | — |   | — |   |
|                                                      |       |                                      |       |   |   |   |   |
| Net periodic  pension expense                             |       | $                                         | 7,297      |   | $ | 7,332 |   | $ | 4,955 |   |

 

The following assumptionswere used in the determination of net periodic pension expense:

 
| ** **                                   | ** ** | **Year ended October 31,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                         |       |                                      |       |   |   |   |   |
| Discount rates                               |       | 5.75                                      | %          | 6.25 | % | 7.00 | % |
| Rate of increase  in compensation levels     |       | 3.00                                      | %          | 3.00 | % | 3.00 | % |
| Expected long-term  rate of return on assets |       | 8.50                                      | %          | 8.50 | % | 9.00 | % |

 

The expected return onassets assumption for fiscal 2005 was 8.50% and will continue to remain at8.50% for fiscal 2006. The expected long-term rate of return on plan assets isbased on the historical and projected rates of return for the asset classes inthe plan’s investment portfolio. Assumed projected rates of return for eachasset class were selected after analyzing historical experience, futureexpectations of the returns and the volatility of the various asset classes. Basedon the target asset allocation for each asset class, the overall expected rateof return for the portfolio was developed, with adjustments for the historicaland expected future experience of active portfolio management results comparedto benchmark returns and for the effect of expenses paid from plan assets.

 

The following table setsforth the funded status of the Company’s defined benefit plan:

 
| ** **                     | ** ** | **October 31,** | ** ** |
|--------------------------------|------------|----------------------|------------|
| ** **                     | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Change in  benefit obligation: |       |                 |       |   |   |
| Beginning of  year             |       | $                    | 112,753    |   | $ | 102,298 |   |
| Service cost                   |       | 1,764                |       | 2,122 |   |
| Interest cost                  |       | 6,530                |       | 6,450 |   |
| Actuarial loss                 |       | 6,798                |       | 7,804 |   |
| Curtailments                   |       | (8,849               | )          | — |   |
| Benefits paid                  |       | (6,273               | )          | (5,921 | ) |
| End of year (1)                |       | $                    | 112,723    |   | $ | 112,753 |   |

 

----

(1) Includes accumulatedbenefit obligation related to the SERP plan of $5,244 and $4,149, respectively.

 

The followingassumptions were used to determine benefit:

 
| ** **                                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Obligations, at the end of the year |       |     |       |     |       |
| Discount rate                                                     |       | 5.75     | %          | 5.75     | %          |
| Rate of  compensation increase                                    |       | N/A      |       | 3.00     | %          |
|                                                              |       |     |       |     |       |
| Change in plan  assets:                                           |       |     |       |     |       |
| Beginning of  year at fair value                                  |       | $        | 66,380     |     | $          | 54,849 |   |
| Actual return on  plan assets                                     |       | 5,334    |       | 4,449    |       |
| Employer  contributions                                           |       | 9,040    |       | 13,003   |       |
| Benefits paid                                                     |       | (6,274   | )          | (5,921   | )          |
| End of year at  fair value                                        |       | $        | 74,480     |     | $          | 66,380 |   |

 

66

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The target allocation for2006, by asset category and the asset allocation for Doe Run’s U.S. pensionplan at October 31, 2005 and 2004 follows.

 
| ** **           | ** ** | **Percentage of Plan Assets at October 31,** | ** ** |
|----------------------|------------|----------------------------------------------------------------------------|------------|
| ** **           | ** ** | **Target Allocation**                                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
| Asset Category: |       |                                                                       |       |   |   |   |   |
| Equity  securities   |       | 60.0                                                                       | %          | 59.9 | % | 59.1 | % |
| Fixed income         |       | 40.0                                                                       | %          | 37.0 | % | 38.3 | % |
| Cash equivalents     |       | 0.0                                                                        | %          | 3.1 | % | 2.6 | % |
| Total                |       | 100.0                                                                      | %          | 100.0 | % | 100.0 | % |

 

Pension plan assets are managedin accordance with the Employees Retirement Income Securities Act of 1974(ERISA) and its fiduciary standards, including the “prudent investor”guidelines. The Plan’s investment strategy supports the objectives of the fund,which are to promote stability and, to the extent appropriate, growth in thefunded status. Investments are diversified across asset classes, sectors andmanager styles to minimize the risk of large losses. The Company delegatesinvestment management to specialists in each asset class and, whereappropriate, provides the investment manager with specific guidelines, whichinclude allowable and/or prohibited investment types. The Company monitorsmanager performance and compliance with the established investment guidelines.

 
| ** **                                                                      | ** ** | **October 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                      | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Reconciliation of funded status:                                 |       |                 |       |   |   |
| Projected benefit obligation in excess of  plan assets |       | $                    | (38,243    | ) | $ | (46,373 | ) |
| Unamortized net  transition asset (liability)                                   |       | (136                 | )          | 427 |   |
| Unrecognized  actuarial loss                                                    |       | 41,644               |       | 47,353 |   |
| Unrecognized  prior service cost                                                |       | —               |       | 116 |   |
| Net amount  recognized                                                          |       | $                    | 3,265      |   | $ | 1,523 |   |
|                                                                            |       |                 |       |   |   |
| Amounts  recognized in the balance sheet:                                       |       |                 |       |   |   |
| Intangible asset                                                                |       | $                    | —     |   | $ | 938 |   |
| Accrued benefit  liability – current                                       |       | (10,082              | )          | (9,025 | ) |
| Accrued benefit  liability – noncurrent                                    |       | (28,160              | )          | (32,292 | ) |
| Accumulated  other comprehensive income                                         |       | 41,507               |       | 41,902 |   |
| Net asset  (liability) at end of year                                           |       | $                    | 3,265      |   | $ | 1,523 |   |

 

Information regarding theexpected cash flows for the pension plans is as follows:

 
| ** **                 | ** ** | **Pension Benefits** | ** ** |
|----------------------------|------------|---------------------------|------------|
| Employer  Contributions    |       |                      |       |
| 2006 (expected)            |       | $                         | 10,082     |   |
| Expected Benefit  Payments |       |                      |       |
| 2006                       |       | $                         | 6,600      |   |
| 2007                       |       | $                         | 6,700      |   |
| 2008                       |       | $                         | 6,900      |   |
| 2009                       |       | $                         | 7,000      |   |
| 2010                       |       | $                         | 7,300      |   |
| 2011-2015                  |       | $                         | 38,500     |   |

 

The Company is a member of a controlled group withother Renco-owned companies. Accordingly, the Company is jointly and severallyliable with all other members of the controlled group under Title IV of ERISAfor obligations of other members of the controlled group that could includecertain pension funding and excise taxes in the event that any member of thecontrolled group does not satisfy certain of its pension obligations arisingpursuant to ERISA.

 

In such an event,statutory liens would arise in favor of the Pension Benefit GuarantyCorporation (the PBGC) upon the assets of the other members of the controlledgroup not in bankruptcy, and the PBGC may seek to obtain court approval toterminate the plan (a PBGC Termination) and may require the other members ofthe controlled group to

 

67

----

 

satisfy such pension plan obligations. In the eventthat a PBGC Termination occurs, and the PBGC requires that the Company satisfysuch pension plan obligations, such requirements could have a materiallyadverse effect on the Company’s financial condition and liquidity. Obligationsunder the controlled group have not been determined.

 

On February 3, 2006, thePBGC notified another member of the controlled group of its intention to seek aPBGC Termination of that member’s plan. On the same day, the PBGC filed acomplaint in the US District Court seeking to terminate the plan as of February3, 2006 and for the appointment of the PBGC as the plan’s Trustee under ERISA.An agreement in principal has been reached whereby sponsorship of the member'splan would be transferred to Renco and upon the agreement being finalized, thePBGC would withdraw its complaint and PBGC Termination. In any event, Renco hasassured the Company that these actions will not have an impact on the Company’sfinancial condition.

 

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

 

The Company sponsorsthree postretirement medical plans for its U.S. employees. Two of these plansare self-insured plans. The plans generally cover medical expenses subject todeductibles, copayments and limits on specified coverage. For persons retiredon or before January 1, 1992, the retiree’s contribution to the cost ofthese plans varies primarily based upon the date of retirement and therespective plan. The Company’s contribution to the cost of coverage ofemployees retiring after that date decreased gradually, until 1997, whenretirees began to pay 100% of the cost of coverage. The Company maintainsstop-loss insurance for claims exceeding $175 per person under the age of 65 inany calendar year for those plans that are self-insured. The Company alsosponsors a life-insurance plan for its U.S. employees who become eligible forthis benefit after retirement and reaching age 55. The benefit uponretirement is based on final salary, but gradually decreases to $6 in the fifthyear after retirement and remains at that level thereafter.

 

The Company uses ameasurement date of October 31 for its postretirement benefit plans.

 

Net periodicpostretirement benefit cost includes the following components:

 
| ** **                                       | ** ** | **Year ended October 31,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Service cost                                     |       | $                                         | 81         |   | $ | 87 |   | $ | 48 |   |
| Interest cost                                    |       | 509                                       |       | 571 |   | 619 |   |
| Amortization of  gains                           |       | (127                                      | )          | (153 | ) | (164 | ) |
| Amortization of  unrecognized prior service cost |       | 19                                        |       | 19 |   | 19 |   |
|                                             |       |                                      |       |   |   |   |   |
| Net periodic  postretirement benefit cost        |       | $                                         | 482        |   | $ | 524 |   | $ | 522 |   |

 

The following assumptionswere used in the determination of net periodic postretirement benefit cost:

 
| ** **     | ** ** | **Year ended October 31,** | ** ** |
|----------------|------------|-------------------------------------------|------------|
| ** **     | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Discount rates |       | 5.75                                      | %          | 6.25 | % | 7.00 | % |

 

The postretirement benefitplans are unfunded. The following illustrates the Company’s postretirementbenefit obligation:

 
| ** **                     | ** ** | **October 31,** | ** ** |
|--------------------------------|------------|----------------------|------------|
| ** **                     | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Change in  benefit obligation: |       |                 |       |   |   |
| Beginning of  year             |       | $                    | 9,186      |   | $ | 9,549 |   |
| Service cost                   |       | 81                   |       | 87 |   |
| Interest cost                  |       | 509                  |       | 571 |   |
| Actuarial loss                 |       | 1,721                |       | 232 |   |
| Benefits paid                  |       | (937                 | )          | (1,253 | ) |
| End of year                    |       | $                    | 10,560     |   | $ | 9,186 |   |

 

68

----

 

The following assumptions were used to determine benefit obligationsat:

 
| ** **    | ** ** | **October 31,** | ** ** |
|---------------|------------|----------------------|------------|
| ** **    | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Discount rate |       | 5.75                 | %          | 5.75 | % |
| Trend rate    |       | 9.00                 | %          | 9.00 | % |

 
| ** **                                             | ** ** | **October 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------|------------|
| ** **                                             | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Reconciliation of funded status:        |       |                 |       |   |   |   |   |
| Projected benefit obligation in excess of  plan assets |       | $                    | (10,560    | ) | $ | (9,186 | ) |
| Unrecognized prior service cost                        |       | 136                  |       | 155 |   |
| Unrecognized actuarial gain                            |       | (954                 | )          | (2,803 | ) |
| Accrued postretirement benefit cost                    |       | $                    | (11,378    | ) | $ | (11,834 | ) |
|                                                   |       |                 |       |   |   |
| Current portion                                        |       | $                    | (1,200     | ) | $ | (1,300 | ) |
| Noncurrent portion                                     |       | $                    | (10,178    | ) | $ | (10,534 | ) |

 

Information regarding the expected cash flows for theother postretirement benefit plans is as follows:

 
| ** **                | ** ** | **Postretirement Benefits** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| Employer Contributions    |       |                             |       |
| 2006 (expected)           |       | $                                | 1,200      |   |
| Expected Benefit Payments |       |                             |       |
| 2006                      |       | $                                | 1,200      |   |
| 2007                      |       | $                                | 1,200      |   |
| 2008                      |       | $                                | 1,000      |   |
| 2009                      |       | $                                | 1,000      |   |
| 2010                      |       | $                                | 900        |   |
| 2011-2015                 |       | $                                | 3,800      |   |

 

The following table provides information regarding theassumed health care cost trend rates at October 31:

 
| ** **                                          | ** ** | **October 31,** | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|
| ** **                                          | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Health care cost trend rate                         |       | 9.00                 | %          | 9.00 | % |
| Ultimate trend rate                                 |       | 5.00                 | %          | 5.00 | % |
| Year that the rate reaches the ultimate  trend rate |       | 2010                 |       | 2009 |   |

 

Assumed health care cost trend rates have asignificant effect on the amounts reported for the health care plans. Aone-percentage-point change in assumed health care cost trend rates would havethe following effects:

 
| ** **                                     | ** ** | **Effect of  1% Increase** | ** ** | **Effect of  1% Decrease** | ** ** |
|------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| Accumulated postretirement benefit  obligation |       | $                                    | 474        |                                 | $          | (437 | ) |
| Net periodic postretirement benefit cost       |       | $                                    | 27         |                                 | $          | (25 | ) |

#### * *

#### ***DefinedContribution Plans and Profit Sharing Program***

#### * *

The Company sponsors a 401(k) plan that covers substantially all U.S.employees. Participants can contribute up to 50% of compensation on a before-taxbasis subject to certain restrictions. Effective July 1, 2005, the Company’s401(k) plan was amended to change the definition of eligible compensation andchange the Company’s mandatory match from 25% of the first 6% of a participant’sbefore-tax contribution to 50% of the first 5% of a participant’s before-taxcontribution. In addition, the amendment provides for a fixed 1% profit sharingcontribution. The Company may make additional contributions at management’sdiscretion. The Company’s expense representing its matching contribution

 

69

----

 

was $1,085, $527 and $535 forthe years ended October 31, 2005, 2004 and 2003, respectively. Plan assetsconsist primarily of investments in common stock and debt securities.

 

The Company has a profit sharing program, which covers substantiallyall U.S. employees. The program provides for a distribution to employees equalto 15% of U.S. income, subject to certain adjustments. The first $1.5 millionof profit sharing is made as a contribution to the 401(k) plan, with theremaining amount distributed to employees in cash payments. The Company hadexpense of approximately $993 and $400 under this program for the years endedOctober 31, 2005 and 2004, respectively, and no expense for the year endedOctober 31, 2003 as a result of losses before income tax expense in the U.S. TheCompany made cash payments of $211 in December 2005 to employees under theprofit sharing plan agreement with the remaining $782 to be paid to theemployee’s 401(k) plan in 2006.

 

***Net Worth Appreciation Agreements***

 

Certain employees are parties to net worth agreements with Doe Run,pursuant to which, upon termination of each person’s employment with Doe Run,they are entitled to receive a fixed percentage of the increase in the networth of the Company, as defined in such agreement, from a base date until theend of the fiscal quarter preceding the date of his termination. Such amount ispayable without interest in 40 equal quarterly installments, commencing threemonths after the termination of each person’s employment, and at three monthintervals thereafter. The net worth appreciation agreements also provide that,in the event of payment of certain dividends or a sale of the Company, theactive participants will be entitled to receive a percentage of such dividendsor the net proceeds of the sale equal to their maximum percentages under theagreements.

 

On July 1, 2005, the Company’s Board of Directors adoptedchanges to the Company’s net worth appreciation agreements, primarilyconsisting of changes to the base dates as defined in the agreements. Inaccordance with these changes, the Company recorded $874, $0, and $0, inexpense during the years ended October 31, 2005, 2004 and 2003, respectively.

 

#### ***Foreign Plans***

#### * *

Doe Run Peru is requiredto make semi-annual deposits into a bank account for severance indemnitybenefits for Peruvian employees under Peruvian government regulations. Thebalance in the account represents the full benefit due to such employees upontermination. The Company accrues for the additional amount that would becontributed to the account since the last deposit date as if all such employeeswere to terminate as of the balance sheet date. The Company’s expenses relatedto severance indemnity benefits were $3,523, $3,428 and $3,974 for the yearsended October 31, 2005, 2004 and 2003, respectively.

 

In accordance with government regulations in Peru, employees areentitled to receive 8% of Doe Run Peru’s taxable income, 50% of which isdistributed to employees based on the number of days worked and the remainingdistributed in proportion to their salaries. Such profit sharing, which is taxdeductible, is limited to 18 times the annual salary for each worker. Anyexcess is to be reserved and used for training the workers. The Company had noexpense relating to workers’ profit sharing payments for the years endedOctober 31, 2005, 2004 and 2003 due to tax loss or offset of taxable income bytax loss carryforwards. See Note 13 for further discussion.

 

**(15) Business and Credit Concentrations**

 

Metal prices fluctuateand are affected by numerous factors beyond the Company’s control, includingexpectations for inflation, speculative activities, the relative exchange rateof the U.S. dollar, global and regional demand and production, political andeconomic conditions and production costs in major producing regions. Theaggregate effect of these factors makes it impossible for the Company topredict metal prices. Fluctuations in metal prices can have a material adverseeffect on the results of operations, financial condition and liquidity of theCompany.

 

For the years ended October 31, 2005, 2004 and 2003, approximately50%, 58% and 64%, respectively, of the Company’s U.S. operations’ revenues fromunaffiliated customers were from U.S. battery manufacturers (primarilyautomotive) or their suppliers. At October 31, 2005 and 2004, the accountsreceivable balances related to these U.S. battery manufacturers were $36,771and $26,708, respectively.

 

70

----

 

No single customer accounted for greater than 10% of consolidatedrevenues for the years ended October 31, 2005, 2004 and 2003.

 

**(16) Segment Information**

 

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

 

The accounting policiesof the segments are the same as those described in the summary of significantaccounting policies, except that the primary lead, secondary lead andfabricated products segments value finished metals and concentrates, work inprocess and raw materials inventories at FIFO cost. Certain functions areperformed at the Company’s corporate office for the primary lead and secondarylead segments, such as sales and billing, as well as the general administrationof the Company. Related accounts receivable and corporate overhead expenses arenot allocated to operating segments.

 

*Operating Segments – Revenues*

 
| ** **                                        | ** ** | **Year Ended October 31,** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                        | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenues from external customers:                 |       |                                      |       |   |   |   |   |
| Doe Run Peru                                      |       | $                                         | 641,252    |   | $ | 564,189 |   | $ | 436,273 |   |
| Primary lead                                      |       | 268,678                                   |       | 221,613 |   | 164,324 |   |
| Recycling operation                               |       | 84,945                                    |       | 76,979 |   | 67,453 |   |
| Fabricated products                               |       | 14,203                                    |       | 12,658 |   | 14,866 |   |
| Total                                             |       | 1,009,078                                 |       | 875,439 |   | 682,916 |   |
| Revenues from other operating segments: (1)       |       |                                      |       |   |   |   |   |
| Doe Run Peru                                      |       | 9,588                                     |       | 2,996 |   | 707 |   |
| Primary lead                                      |       | 1,500                                     |       | 1,425 |   | 1,035 |   |
| Recycling operation                               |       | 275                                       |       | 327 |   | 655 |   |
| Total                                             |       | 11,363                                    |       | 4,748 |   | 2,397 |   |
| Total reportable segments                         |       | 1,020,441                                 |       | 880,187 |   | 685,313 |   |
| Metal sales not attributed to operating  segments |       | 29,502                                    |       | 4,257 |   | 911 |   |
| Realized gains (losses) on derivative  contracts  |       | (9,140                                    | )          | (11,626 | ) | 1,609 |   |
| Other revenues (expenses)                         |       | —                                    |       | (2 | ) | (54 | ) |
| Intersegment eliminations                         |       | (11,363                                   | )          | (4,748 | ) | (2,397 | ) |
| Total revenues                                    |       | $                                         | 1,029,440  |   | $ | 868,068 |   | $ | 685,382 |   |

 

----

(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.

 

*Revenues by Country* (2)

 
| ** **     | ** ** | **Year Ended October 31,** | ** ** |
|----------------|------------|-------------------------------------------|------------|
| ** **     | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|           |       |                                      |       |   |   |   |   |
| United States  |       | $                                         | 552,182    |   | $ | 383,489 |   | $ | 397,776 |   |
| Brazil         |       | 92,989                                    |       | 79,355 |   | 56,994 |   |
| Peru           |       | 72,859                                    |       | 69,058 |   | 39,655 |   |
| Taiwan         |       | 54,065                                    |       | 44,669 |   | 15,013 |   |
| Japan          |       | 46,329                                    |       | 99,821 |   | 57,034 |   |
| China          |       | 41,472                                    |       | 24,408 |   | — |   |
| Other          |       | 169,544                                   |       | 167,268 |   | 118,910 |   |
| Total revenues |       | $                                         | 1,029,440  |   | $ | 868,068 |   | $ | 685,382 |   |

 

71

----

 

----

(2)          Revenues are attributedto countries based on destination of shipments.

 

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

* *

*Operating Segments –Adjusted EBITDA (Earnings before interest, taxes,depletion, depreciation, accretion and**amortization)*

 
| ** **                                                                                 | ** ** | **Year Ended October 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                       |       |                                      |       |   |   |   |   |
| Primary lead                                                                               |       | $                                         | 69,420     |   | $ | 55,397 |   | $ | 12,281 |   |
| Doe Run Peru                                                                               |       | 32,005                                    |       | 22,528 |   | 3,798 |   |
| Recycling operation                                                                        |       | 14,784                                    |       | 15,857 |   | 12,413 |   |
| Fabricated products                                                                        |       | 2,199                                     |       | 1,452 |   | 731 |   |
| Total reportable segments                                                                  |       | 118,408                                   |       | 95,234 |   | 29,223 |   |
| Realized gains (losses) on derivatives                                                     |       | (9,140                                    | )          | (11,626 | ) | 1,609 |   |
| Other revenues and (expenses)(3)                                                           |       | (11,080                                   | )          | (13,572 | ) | (1,835 | ) |
| Corporate selling, general and  administrative expenses                                    |       | (27,417                                   | )          | (21,594 | ) | (15,584 | ) |
| Intersegment eliminations                                                                  |       | 20                                        |       | (21 | ) | (14 | ) |
| Consolidated adjusted EBITDA                                                               |       | 70,791                                    |       | 48,421 |   | 13,399 |   |
| Depreciation, depletion and amortization                                                   |       | (24,170                                   | )          | (25,322 | ) | (30,407 | ) |
| Interest income                                                                            |       | 141                                       |       | 19 |   | 29 |   |
| Interest expense                                                                           |       | (10,010                                   | )          | (13,289 | ) | (13,270 | ) |
| Unrealized gain (loss) on derivatives                                                      |       | 4,876                                     |       | (231 | ) | (7,220 | ) |
| Losses from impairment and disposal of  long-lived assets                                  |       | (2,978                                    | )          | (3,591 | ) | (1,409 | ) |
| Asset retirement obligation accretion  expense                                             |       | (1,497                                    | )          | (1,754 | ) | (1,530 | ) |
| Gain (Loss) on retirement/restructure of  long-term debt                                   |       | 9,233                                     |       | — |   | (550 | ) |
| Income (loss) before income taxes and  cumulative effect of change in accounting principle |       | $                                         | 46,386     |   | $ | 4,253 |   | $ | (40,958 | ) |

 

----

(3)          Other revenues and expenses include metalsales not attributed to operating segments*,*expenses not allocated to operating segments, including environmental expensesrelating to historic operations of $8,220, $8,450 and $520 for the years endedOctober 31, 2005, 2004 and 2003, respectively; certain employee compensationexpenses of $1,462, $1,353 and $0 for the years ended October 31, 2005, 2004and 2003, respectively; and adjustments necessary to state the primary lead andrecycling operation’s inventories at LIFO cost of $833, $2,569 and $1,657 forthe years ended October 31, 2005, 2004 and 2003, respectively. 

 

*Operating Segments – Total Assets*

 
| ** **                       | ** ** | **October 31,** | ** ** |
|----------------------------------|------------|----------------------|------------|
| ** **                       | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                             |       |                 |       |   |   |
| Doe Run Peru                     |       | $                    | 292,716    |   | $ | 251,764 |   |
| Primary lead                     |       | 91,517               |       | 97,745 |   |
| Recycling operation              |       | 37,499               |       | 34,752 |   |
| Fabricated products              |       | 4,369                |       | 4,367 |   |
| Total reportable segments        |       | 426,101              |       | 388,628 |   |
| Unallocated corporate assets (4) |       | 227,255              |       | 210,731 |   |
| Intersegment eliminations        |       | (158,581             | )          | (141,940 | ) |
| Total assets                     |       | $                    | 494,775    |   | $ | 457,419 |   |

 

----

(4)          Unallocated corporate assets consist primarily ofcash, primary lead and secondary lead segments’ accounts receivable,investments and receivables from subsidiaries, pension assets, and deferredfinancing costs.

 

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#### ***(17) Commitments and Contingencies***

#### *** ***

#### ***Tolling***

#### * *

The Company has enteredinto tolling arrangements with major battery manufacturers whereby themanufacturers will deliver spent lead-acid batteries and other lead-bearingmaterial to the Company’s recycling facility and, for a processing fee, theCompany will return finished lead metal. The largest of these contracts expirein March 2007 and September 2007. The agreements cover approximately 25% *(unaudited)*of the Company’s anticipatedcombined primary and secondary lead metal production for 2006.

 

#### ***SalesCommitments***

#### * *

The Company has commitmentsto sell approximately 94% (*unaudited*)of its anticipated 2006 lead metal production and 100% (*unaudited*) of its lead, zinc and copperconcentrates. Metal sales agreements are usually less than one year;concentrate sales agreements are typically evergreen with a one-yearcancellation. Metal sales prices are generally based on the average quotedexchange prices for the month of shipment, plus a premium. Concentrate salesterms are based on average quoted exchange prices less a treatment charge. Treatmentcharges are usually based on a world benchmark.

 

#### ***Lettersof Credit***

#### * *

At October 31, 2005, theCompany had outstanding irrevocable standby letters of credit totaling $5,320in connection with the Company’s insurance and bonding activities. The Companyalso had outstanding customs bonds of $946 relating to concentrate and otherpurchases.

 

#### ***EmploymentAgreements***

#### * *

The Company has employment agreements with a number of its seniorexecutives through October 31, 2006, with automatic renewal annually thereafterunless written notice is given at least three months prior to the expirationdate.

 

**(18) Hedging and Derivative Financial Instruments**

 

A significant portion ofthe Company’s sales contracts are priced based on an average LME or otherexchange price for the respective metal plus a negotiated premium. As such, theprices of the Company’s products fluctuate due to factors in the market thatare beyond the Company’s control. These price changes expose the Company tovariability in its cash receipts. The purpose of the Company’s price riskmanagement program is to limit the Company’s risk to acceptable levels, whileenhancing revenue through the receipt of option premiums.

 

The Company’s price riskmanagement program uses various derivative instruments in its attempt tomitigate commodity price risks. The Company may use purchased futures contractsas a fair value hedge of the change in fair value of inventory related to firmsales commitments with customers or as a cash flow hedge to lock in the priceof lead purchases for its fabricated products subsidiary. In fair value hedges,the futures contracts are established at terms (quantities, prices and timing)that mirror those of the firm commitments. The Company uses sold futurescontracts as a cash flow hedge to lock in the price of a portion of forecastedlead metal sales and to lock in the price of by-product sales whose prices arebased on an average for a period after they are shipped.

 

For derivativeinstruments designated as hedges (futures contracts), the Company assesseseffectiveness by comparing the changes in fair value or cash flows relating tothe hedged transaction with all changes in the fair values or cash flows of therelated derivative contract. Because the futures fluctuate in the same amountas the hedged transaction (the change in the LME price), the hedges areconsidered effective.

 

The Company writes calloptions that, if exercised, will create sold futures contracts that areeconomic hedges of forecasted lead metal sales. The options generate premiumsthat enhance revenues. Because these instruments do not meet the requirementsfor hedge accounting, the changes in fair value of these instruments arerecorded in results of operations as unrealized (gain) loss on derivativefinancial instruments.

 

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The fair value of theCompany’s derivative financial instruments reflected in the Company’s balancesheets as of October 31, 2005 and 2004 is the difference between quoted pricesat the balance sheet date and the contract settlement value. The fair marketvalue represents the estimated net cash the Company would receive (pay) if thecontracts were cancelled on the balance sheet date.

 

The Company’s open derivative financial instruments at October 31,2005 were:

 

#### ***Sold(Purchased) Futures Contracts***(tons, ounces anddollar amounts not in thousands)

 
| **Metal** | ** ** | **Quantity** | ** ** | **Weighted  Average Price** | ** ** | **Fair Value** | ** ** | **Period**          |
|-----------|------------|--------------|------------|----------------------------------|------------|---------------------|------------|---------------------|
|      |       |         |       |                             |       |                |       |                |
| Lead      |       | 20,145 tons  |       | $750.39/ton                      |       | $                   | (2,803,955 | )                   | Nov. 05 to  Jan.06 |
|      |       | (9,673) tons |       | $786.29/ton                      |       | 1,073,453           |       | Nov. 05 to Dec. 05  |
| Copper    |       | 1,302 tons   |       | $2,577.07/ton                    |       | (1,296,940          | )          | Nov. 05 to  Jan. 06 |
|      |       | (350) tons   |       | $3,470.86/ton                    |       | 52,900              |       | Dec. 05             |
| Zinc      |       | 827 tons     |       | $1,305.44/ton                    |       | (18,570             | )          | Nov. 05 to  Jan. 06 |
|      |       | (138) tons   |       | $1,374.99/ton                    |       | 12,139              |       | Nov. 05             |
| Silver    |       | 987,300 oz.  |       | $6.83/oz.                        |       | (209,601            | )          | Nov. 05 to  Dec. 06 |
|           |            |              |            |                                  |            |                     |            |                     |  |

*** ***

***Sold (Purchased) Call Option Contracts****(tons, ounces and dollar amounts not in thousands)*

*** ***
| **Metal** | ** ** | **Quantity**    | ** ** | **Price Range**       | ** ** | **Fair Value** | ** ** | **Period**          |
|-----------|------------|-----------------|------------|----------------------------|------------|---------------------|------------|---------------------|
|      |       |            |       |                       |       |                |       |                |
| Lead      |       | 13,228 tons     |       | $929.87/ton to $938.84/ton |       | $                   | (351,790   | )                   | Jan. 06 to  Jun. 06 |
| Silver    |       | 120,670 oz.     |       | $5.47/oz.                  |       | (175,124            | )          | Jan. 06             |
| Crude Oil |       | 100,000 barrels |       | $70.00/barrel              |       | 359,750             |       | Feb. 06 to  Dec. 06 |
|           |            |                 |            |                            |            |                     |            |                     |  |

*** ***

***Sold (Purchased) Put Option Contracts****(tons, ounces and dollar amounts not in thousands)*

*** ***
| **Metal** | ** ** | **Quantity** | ** ** | **Price Range**       | ** ** | **Fair Value** | ** ** | **Period** |
|-----------|------------|--------------|------------|----------------------------|------------|---------------------|------------|------------|
|      |       |         |       |                       |       |                |       |       |
| Lead      |       | 49,604 tons  |       | $725.75/ton to $802.86/ton |       | $                   | 1,356,576  |       | Jan. 06 to  Jun. 06 |
|           |            |              |            |                            |            |                     |            |            |  |

 

The Company’s open derivative financial instruments at October 31, 2004were:

 

#### ***Sold(Purchased) Futures Contracts*** (tons, ounces anddollar amounts not in thousands)

 
| **Metal**                     | ** ** | **Quantity**  | ** ** | **Weighted  Average Price** | ** ** | **Fair Value** | ** **  | **Period**          |
|-------------------------------|------------|---------------|------------|----------------------------------|------------|---------------------|-------------|---------------------|
|                          |       |          |       |                             |       |                |        |                |
| Lead                          |       | 66,965 tons   |       | $618.86/ton                      |       | $                   | (13,325,766 | )                   | Nov. 04 to  Apr. 05 |
|                          |       | (65,808) tons |       | $698.76/ton                      |       | 7,831,684           |        | Nov. 04 to  Feb. 05 |
| Lead – cash  flow hedges |       | 4,960 tons    |       | $768.28/ton                      |       | (113,250            | )           | Jan. 05 to  Mar. 05 |
|                          |       | (551) tons    |       | $762.94/ton                      |       | 16,000              |        | Feb. 05             |
| Copper                        |       | 3,580 tons    |       | $2,269.54/ton                    |       | (1,311,261          | )           | Nov. 04 to  Aug. 05 |
|                          |       | (3,031) tons  |       | $2,450.01/ton                    |       | 693,575             |        | Nov. 04 to  Dec. 04 |
| Zinc                          |       | 4,905 tons    |       | $816.33/ton                      |       | (680,388            | )           | Nov. 04             |
|                          |       | (5,016) tons  |       | $948.78/ton                      |       | 31,375              |        | Nov. 04             |
| Silver                        |       | 850,175 oz.   |       | $5.26/oz.                        |       | (1,191,098          | )           | Nov. 04             |
|                          |       | (987,300) oz. |       | $5.56/oz.                        |       | 1,088,910           |        | Nov. 04             |
| Gold                          |       | 6,472 oz.     |       | $264.36/oz.                      |       | (792,370            | )           | Nov. 04             |
|                          |       | (6,198) oz.   |       | $299.91/oz.                      |       | 538,445             |        | Nov. 04             |
|                               |            |               |            |                                  |            |                     |             |                     |  |

 

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***Sold (Purchased) Call Option Contracts****(tons, ounces and dollar amounts not in thousands)*

*** ***
| **Metal** | ** ** | **Quantity** | ** ** | **Price Range**           | ** ** | **Fair Value** | ** ** | **Period**          |
|-----------|------------|--------------|------------|--------------------------------|------------|---------------------|------------|---------------------|
|      |       |         |       |                           |       |                |       |                |
| Lead      |       | 12,125 tons  |       | $521.63/ton to $952.54/ton     |       | $                   | (1,389,883 | )                   | Nov. 04 to  Feb.05 |
|      |       | (1,653) tons |       | $816.47/ton                    |       | 27,313              |       | Nov. 04             |
| Copper    |       | 1,100 tons   |       | $2,500.00/ton                  |       | (262,086            | )          | Feb. 05             |
|      |       | (1,102) tons |       | $2,608.16/ton to $2,948.35/ton |       | 74,097              |       | Dec. 04             |
| Zinc      |       | (1,653) tons |       | $997.90/ton                    |       | 28,150              |       | Dec. 04             |
| Silver    |       | 416,860 oz.  |       | $5.47/oz. to $7.06/oz.         |       | (479,378            | )          | Dec. 04 to  Mar. 05 |
|      |       | (54,850) oz. |       | $7.06/oz.                      |       | 10,889              |       | Dec. 04             |
|           |            |              |            |                                |            |                     |            |                     |  |

*** ***

***Sold (Purchased) Put Option Contracts****(tons, ounces and dollar amounts not in thousands)*

*** ***
| **Metal** | ** ** | **Quantity**  | ** ** | **Price Range** | ** ** | **Fair Value** | ** ** | **Period** |
|-----------|------------|---------------|------------|-----------------|------------|----------------|------------|------------|
|      |       |          |       |            |       |           |       |       |
| Copper    |       | (1,764) tons  |       | $2,512.90/ton   |       | $              | 204,748    |       | Jan. 05 to Apr.05 |
| Silver    |       | (164,550) oz. |       | $6.20/oz.       |       | 23,880         |       | Dec. 04    |
|           |            |               |            |                 |            |                |            |            |  |

 

At October 31, 2005 and 2004, the Company had recorded liability of$2,001 and $8,976, respectively, related to the fair market values of theseinstruments.

 

The Company does not obtain collateral or other security to supporthedge instruments subject to credit risk but assesses the reliability andreputation of its counterparties before contracts are established.

 

**(19) Asset Retirement and Environmental Obligations**

 

The Company is subject tonumerous federal, state and local environmental laws and regulations governing,among other things, air emissions, wastewater discharges, solid and hazardouswaste treatment, storage and disposal and remediation of releases of hazardoussubstances. The Company’s facilities are located on sites that have been usedfor heavy industrial purposes for decades and may require remediation. TheCompany has made and intends to continue making the necessary expenditures forenvironmental remediation and compliance with environmental laws andregulations. Environmental laws and regulations may become more stringent inthe future, which could increase costs of compliance.

 

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

#### * *

Assetretirement obligations (AROs) are recognized as liabilities when incurred, withthe initial measurement at fair value. These liabilities will be increased tofull value over time through charges of accretion to operating expense. Inaddition, an asset retirement cost is capitalized as part of the related asset’scarrying value and will be depreciated over the asset’s useful life. Changes inthe ARO liability resulting from revisions to the timing or the amount of theoriginal estimate of undiscounted cash flows shall be recognized as an increaseor a decrease in the carrying amount of the liability for an ARO and therelated asset retirement cost capitalized as part of the carrying amount of therelated long-lived asset.

 

The Company’s mines and related processing facilities are subject togovernance by various agencies that have established minimum standards forreclamation. The Company’s primary smelter slag produced by and stored at theprimary smelter in Herculaneum, Missouri, is currently exempt from hazardouswaste regulation under the Resource Conservation and Recovery Act of 1976, asamended (RCRA), but is subject to a state closure permit, which requires theCompany to contain and cover the pile upon cessation of operations. The Company’smining and milling operations are subject to Missouri mine waste closure permitrequirements and lease agreements that require the Company to reclaim

 

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surface areas, includingremediation of mining waste disposal areas, and to perform closure activitiesunderground. These activities, which tend to be site specific, generallyinclude costs for earthwork, revegetation, water treatment and demolition.Closure activities may be performed over time.

 

The Company has a RCRApermit addressing the closure of portions of its recycling operation. Themajority of the cost will arise from removing hazardous materials from thefacility. No ARO liability or related asset cost has been recorded because the fairvalue of the obligation cannot be determined due to the indeterminate timing.The cost of closure, based on third party estimates for bonding purposes, isapproximately $3,000. The life of the operation is considered indeterminablebecause there is not currently a cost-effective alternative to the lead acidbatteries and because battery manufacturers are required to recycle thebatteries.

 

Mine Closure Law No. 28090 (Law) became effective as of October 15,2005. The Law establishes the obligations and procedures that titleholders ofmining activities must adhere to, including a financial guarantee forenvironmental issues. Doe Run Peru must submit a mine closure plan to theMinistry of Energy and Mines by August 17, 2006. The mine closure plan mustinclude a description of the remediation measures to be done, along with theircost and timing, and the expected amount of the financial guarantee. Pursuantto the Tax Stabilization Agreement , Doe Run Peru is exempt from newobligations that could result in a reduction of its cash availability, such asthe guarantee discussed above. Therefore, Doe Run Peru considers that theestablishment of the corresponding environmental guarantee would be inopposition to the provisions set forth in the Tax Stabilization Agreement.

 

Doe Run Peru also hasAROs at its Cobriza mine related to the costs associated with closing the mineopenings and covering acid rock. Doe Run Peru is also responsible for thecovering and revegetation of mixed lead and copper slag stored in Huanchan, anarea a short distance from the smelter where the slag is currently stored.

 

Activity related to the Company’s AROs during the years ended October31, 2005 and 2004 are as follows:

 
| ** **                      | ** ** | **Octobe r 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                            |       |                  |       |   |   |
| AROs as of beginning of year    |       | $                     | 14,604     |   | $ | 14,622 |   |
| Liabilities settled             |       | (376                  | )          | (225 | ) |
| Accretion expense               |       | 1,497                 |       | 1,754 |   |
| Changes in estimated cash flows |       | (537                  | )          | (1,547 | ) |
| AROs as of end of year          |       | $                     | 15,188     |   | $ | 14,604 |   |

 

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

#### * *

The Company had recorded liabilities of approximately $20,000 and$18,800 related to remediation obligations as of October 31, 2005 and 2004,respectively.

 

Doe Run is subject to anAdministrative Order on Consent (AOC), effective May 29, 2001, to study andaddress issues related to the slag pile, plant property, community soilsadjacent to the primary smelter in Herculaneum, elevated blood lead levels inthe community and lead releases from the plant. Under this AOC, Doe Runcompleted additional soil testing in the area within a one-mile radius of thesmelter and subsequently signed a second AOC with the U.S. EPA on December 21,2001, which has essentially been completed. The May 29, 2001 AOC was modifiedeffective on May 20, 2004. At October 31, 2005 the estimated remaining cost ofremediating these properties was approximately $688.

 

Doe Run signeda settlement agreement with the State of Missouri on April 26, 2002, whereby itagreed to offer to purchase approximately 160 residential properties in an areaclose to the smelter if the owner requests such an offer. The offers haveexpired except for a few with pending closing dates or special arrangements. Asof October 31, 2005, a total of 149 homeowners had requested and were deliveredoffers, and 142 of those offers had been accepted. As of October 31, 2005, theCompany had spent approximately $10,000 under the residential property purchaseplan. Another $1,100 of accepted offers are awaiting a closing date, and $400in outstanding offers have not been accepted. Doe Run has complied in allmaterial respects with the property purchase provisions of the settlementagreement.

 

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The Company’s statementsof operations reflect losses from impairment or retirement of long-lived assetsprimarily related to the residential properties owned in Herculaneum, as itcannot be assured that the cost of the properties will be recovered throughfuture cash flows. The Company’s recorded liability for remediation does notinclude the future purchase costs relating to the residential property purchaseplan as these costs are capitalized.

 

Doe Run is subject to aState Implementation Plan (SIP) with the Missouri Department of NaturalResources and the Missouri Air Conservation Commission to attain and maintaincompliance with the ambient air quality standard for lead promulgated under thefederal Clean Air Act for the city of Herculaneum. The plan was included in aconsent judgment entered into by Doe Run and has been approved at the state leveland by the U.S. EPA. The air quality monitors reflected attainment of the leadstandard for 10 of the last 13 quarters. Since the air quality monitorsreflected three quarters of non-compliance, the permitted annual capacity ofthe Herculaneum primary smelter decreased from 250,000 to 200,000 tons, whichdoes not affect results at current production levels. Further non-compliancecould result in SIP revisions that could have a material adverse financialimpact on the Company. Management is in discussions with the MissouriDepartment of Natural Resources to explore options intended to improve thesmelter’s ability to attain and maintain compliance in the future.

 

Doe Run hasreceived notice that it is a potentially responsible party (PRP) subject toliability under The Comprehensive Environmental Response, Compensation andLiability Act of 1980, as amended (CERCLA), at the following sites: six sitesin St. Francois County, Missouri, including the Big River Mine Tailings site,the Bonne Terre site, the Federal site, the National site, the Rivermines siteand the Leadwood site; sites comprising areas along roads in Iron, Dent andReynolds counties in Missouri; the Oronogo-Durenweg site in Jasper County,Missouri; the Cherokee County site in Cherokee County, Kansas; the Tar Creeksite in Ottawa County, Oklahoma; the Block “P” site in Cascade County andJudith County, Montana; and the Missouri Electric Works site in Cape Girardeau,Missouri. There are two additional sites in St. Francois County for which theU.S. EPA has indicated it will issue notice. CERCLA provides for strict and, incertain circumstances, joint and several liability for response costs andnatural resource damages. The Company’s estimate of the cost of the remediationof these sites, including the two additional sites in St. Francois County, isincluded in the total liability for remediation obligations, which the Companybelieves is adequate based on its investigations to date. However, dependingupon the types of remediation required and certain other factors, additionalcosts at these sites, individually or collectively, could have a materialadverse effect on the results of operations, financial condition and liquidityof the Company.

 

In addition tobeing asked to conduct remediation at these sites, the U.S. EPA may also seekreimbursement from Doe Run for response actions it has conducted at these sites.The U.S. Government has advised PRP’s at the Tar Creek site, including Doe Run,that it will seek reimbursement for approximately $125 million of such costs. Givenlegal issues about Doe Run’s responsibility for activities of a formersubsidiary, the fact that the former subsidiary’s activities at the site werelocalized and small (less than 1% of the waste), and the major involvement atthe site of the U.S. Government through the Bureau of Land Management’s and theBureau of Indian Affairs’ management of mineral leasing at the site, theCompany is unable to estimate the expected outcome of any such potential claim.

 

In February 2004 the U.S. Department of Agriculture issued a UnilateralAdministrative Order (UAO) ordering certain remediation activities by Doe Runat the Block “P” mill site in Montana. Doe Run has requested that other partiesbe added to the order. Doe Run will seek reimbursement from the U.S. Governmentand these other parties. The final remediation was essentially completed as ofOctober 31, 2005.

 

Doe Run hascompleted an Engineering Evaluation/Cost Analysis (EE/CA) for the Bonne Terresite and has signed two AOCs to conduct removal actions on the west and eastportions of the site. Work is completed on the west Bonne Terre site and isnearly finished on the east site with completion expected in early 2006.

 

Doe Run hascompleted an EE/CA for the Rivermines site and, while unable to accept certainfinancial assurance provisions of a proposed AOC, has agreed to conduct aremoval action at the site under a UAO. Work has commenced on the removalaction. The EPA accelerated the timeframe to complete the majority of theremediation effort by the summer of 2006.

 

Doe Run issubject to an AOC with the U.S. EPA to remediate the Big River Mine Tailingssite. The remediation work required by the AOC has been substantially completedand will continue with revegetation and ongoing monitoring and maintenanceactivities.

 

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Doe Run hasalso signed AOCs to perform an EE/CA on each of the National and Leadwood sitesfor remediation of mine waste areas. The National EE/CA was completed by thePRPs and was submitted to the U.S. EPA for approval. The U.S. EPA then preparedtwo EE/CAs, the last of which is currently open for public discussion. The costof their remedy is higher than that estimated by the EE/CA prepared by Doe Run.The Leadwood EE/CA has been submitted to the U.S. EPA for approval. Inaddition, 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 wassubmitted 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 conductcertain additional soil remediation in the area and has included its bestestimate of these efforts in its recorded liabilities. The Company believes therecorded liabilities related to these sites are adequate. However, shouldremediation goals or areas change, requiring substantially increased measures,there can be no assurance that the recorded liabilities would be adequate.

 

In March 2004, Doe Runreceived notice that it is a PRP subject to liability under CERCLA forcontamination along roads in Iron, Dent and Reynolds counties in Missouri,along with a number of mining companies involved in the transportation ofconcentrates. After sampling approximately 750 houses by the U.S. EPA and theMissouri DNR, approximately 150 houses were identified as potentially requiringsome level of remediation. Doe Run and four other mining companies have signedan AOC to conduct soil remediation at approximately 40 of these houses.Recorded liabilities could change, due to changes in management’s estimates ofthe number of houses requiring remediation, remediation methods, the costs ofremediation and Doe Run’s apportionment of the costs. Also, in regard topotential contamination from transportation activities in and near the City ofViburnum, Doe Run has signed an AOC to conduct sampling and prepare aPreliminary Assessment/Site Inspection report.

 

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

 

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

 

On August 25, 2004, the U.S. EPA issued a Notice of Violation (NOV) tothe Company alleging past violations of the recycling facility’s air permitconditions regarding production limits for its reverbatory furnace. Managementbelieves the facility has operated in compliance with state and federal airrequirements and has objected to the NOV. Consequently, management believesthis issue will not cause a material adverse impact on the Company.

 

The domestic operatingfacilities have wastewater discharge permits issued under the federal CleanWater Act, as amended. Doe Run currently meets the effluent limits under thesepermits, but if compliance is not maintained, additional improvements to itstreatment facilities could be required.

 

#### ***Environmentalremediation - Foreign Operations***

#### * *

Doe Run Peru’sLa Oroya operations historically and currently exceed some of the applicableMinistry of Energy and Mines (MEM) maximum permissible limits pertaining to airemissions and wastewater effluent quality. Prior to our acquisition of LaOroya, Metaloroya S.A., the former owner, a subsidiary of Empresa Mineral delCentro del Peru S.A. which we refer to as (Centromin) received approval fromthe Peruvian government for an Environmental Remediation 

 

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and Management Program, known as a PAMA. ThePAMA was designed to achieve compliance with MEM’s air and wastewater limits.It consisted of an environmental impact analysis, monitoring plan and data,mitigation measures and a closure plan. The PAMA also sets forth the actionsand corresponding annual investments the concession holder agrees to undertakein order to achieve compliance with the maximum permissible limits prior toexpiration of the PAMA (ten years for smelters, such as Doe Run Peru’soperations in La Oroya, and five years for any other type of mining or metallurgicaloperation like Cobriza). The PAMA projects, which are more fully discussedbelow, have been designed to achieve compliance with these requirements. ThePeruvian government may, in the future, require compliance with additionalenvironmental regulations that could adversely affect Doe Run Peru’s business,financial condition and results of operations. After expiration of the PAMA,the operator must comply with all applicable standards and requirements.Because these costs improve the property or prevent future environmentalcontamination, they are capitalized.

 

Doe Run Peruhas committed under its current approved PAMA to implement the followingprojects at its La Oroya smelter through December 31, 2006:

 

•      Constructnew sulfuric acid plants;

•      Construct atreatment plant for the copper refinery effluent;

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

•      Improve theslag handling system;

•      ImproveHuanchan lead and copper slag deposits;

•      Constructan arsenic trioxide deposit;

•      Improve thezinc ferrite disposal site;

•      Constructdomestic wastewater treatment and domestic waste disposal; and

•      Construct amonitoring station.

 

An investment schedule inthe PAMA provides a specific plan for achieving the applicable MEM maximumpermissible limits pertaining to air emissions and wastewater effluent quality.The PAMA may be modified and amended as to the actual design and timing ofprojects to be implemented, provided compliance with the applicable maximumpermissible limits is achieved by December 31, 2006. The required estimatedspending for the projects approved in the La Oroya PAMA, as amended on January25, 2002, is estimated at $108,000 for calendar 2006.

 

Doe Run Peru expects that it will not be ableto comply with the spending requirements of La Oroya’s PAMA investment schedulein 2006 with respect to the construction of the sulfuric acid plants requiredby the PAMA and, as a result, could be subject to penalties. Failure to complywith the PAMA could result in the cessation of operations at the La Oroyasmelter, which would adversely affect our business, financial condition andresults of operations.

 

On December 29, 2004 the Peruvian Governmentissued a Supreme Decree, which recognized that exceptional circumstances mayjustify an extension of one or more projects within the scope of a PAMA. TheSupreme Decree specifies that companies had until December 31, 2005 to applyfor an extension. The maximum extension is for three years and the MEM mayauthorize an additional year based upon the results of a health risk study.

 

Pursuant tothe Supreme Decree, the application for a PAMA extension must be supported by ahealth risk study performed by a third party. The application must contain anengineering description and funding plan of any project to be extended, adiscussion of how and when environmental emission standards will be met, a planto monitor emissions with the participation of the community, proof that atleast three public workshops were held in various districts to provideinformation on Doe Run Peru’s financial situation and health programs, proofthat two public hearings were held regarding the extension plans, and otherfinancial information. Upon meeting these requirements, Doe Run Peru appliedfor an extension on December 20, 2005.

 

Upon approvalof a modified PAMA, Doe Run Peru would be required to create a trust account.The trust account would administer the receipts and disbursements related tothe extended PAMA project. The Supreme Decree requires that receipts fromsales, in an amount sufficient to fund the monthly cash requirements of theextended PAMA project, be remitted directly to the trust account.

 

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 

 

79

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Company currently expects theremaining investment needed to build the sulfuric acid plants to beapproximately $102,000.

 

To achieve thefinancial guarantee and the trust contract required by Supreme Decree, Doe RunPeru has amended the Doe Run Peru Revolving Credit Facility to allow for thosearrangements and has filed a draft of a trust guarantee contract with aPeruvian bank. Additionally, on December 10, 2005 Doe Run Peru signed a WorkingCapital Financial Facility Agreement for the amount of $30,000 (Ferrites Loan)with Servicios Mineros Integrados S.A.C., a Trafigura Beheer B.V. subsidiary,to use such funds in the fulfillment of the financial security as mentionedabove.

 

Doe Run Peruhas performed other environmental projects to reduce fugitive emissions in 2005including the installation work on the short rotary furnace, enclosing theblast furnace and dross plant, along with other complementary work. Majorprojects scheduled for fiscal year 2006 include an upgrade of the ventilationsystem in the sinter plant, completion of the enclosure work around the leadand dross furnace, the enclosure of the anode residue plant along with theelimination of its nitrous gases, and the reduction of fugitive emissions fromthe copper and lead beds. The total cost of the currently remaining PAMAprojects, including the sulfuric acid plant construction, and these projects isapproximately $130,000.

 

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

 

In the future, as part of a modernization plan and to enrich sulfurousgas feed to the sulfuric acid plant, we are planning to replace the oxy-fuelreverberatory furnace with a reactor furnace to smelt copper concentrates. Theanticipated cost is approximately $57 million.

 

The PAMAprojects have been designed to achieve compliance with the maximum permissiblelimits of emission prior to the expiration of the PAMA. However, no assurancecan be given that implementation of the PAMA projects is feasible or that theirimplementation will achieve compliance with the applicable legal requirementsby the end of the PAMA period. Furthermore, there can be no assurance that thePeruvian government will not in the future require compliance with additionalor different environmental obligations that could adversely affect Doe Run Peru’sbusiness, financial condition and results of operations.

 

Under the purchaseagreement related to the acquisition of the La Oroya assets in October 1997,Centromin, the prior owner of the La Oroya smelter and Cobriza mine, agreed toindemnify Doe Run Peru against environmental liability arising out of its prioroperations and their apportioned share of any other complaint related toemissions. Performance of the indemnity has been guaranteed by the Peruviangovernment through the enactment of the Supreme Decree No. 042-97-PCM. However,there can be no assurance that Centromin will satisfy its environmentalobligations and investment requirements, including those in its PAMA, or thatthe guarantee will be honored. Any failure by Centromin to satisfy itsenvironmental obligations could adversely affect Doe Run Peru’s business, financialcondition and results of operations.

 

The Cobrizamine has a separate PAMA in which Doe Run Peru committed to complete projectsto manage tailings, mine drainage, sewage and garbage. Doe Run Peru completedits PAMA requirements with respect to Cobriza in June 2004, ceased dischargingmine waste into the Mantaro River and is in compliance with the emissionsstandards required by the PAMA.

 

In addition toits PAMA obligations, 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 October 31, 2005 and2004.

 

***Environmentalremediation -******Consolidated***

 

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

 

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**(20) Litigation**

 

Doe Run is a defendant in29 lawsuits alleging certain damages stemming from the operations at theHerculaneum primary smelter. Three of these cases are class action lawsuits. Intwo cases, the plaintiffs seek to have certified a class of property owners ina certain section of Herculaneum, alleging that property values have beendamaged due to the operations of the smelter. In another case, plaintiffs seekto have certified a class of children who lived in Herculaneum during a periodof time when they were less than six years old and children born to mothers wholived in Herculaneum during their pregnancies. The remedy sought is medicalmonitoring for the class. Twenty-six of the cases are personal injury actionsby 161 individuals who allege damages from the effects of lead due tooperations at the smelter. Punitive damages also are being sought in each case.Doe Run is also a defendant in a wrongful death action concerning a drowning inthe City of Herculaneum.

 

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

 

Doe Run is a defendant in17 lawsuits alleging certain damages from discontinued mine facilities in St.Francois County. Four of the cases are class action lawsuits. The first caseseeks to have certified a class consisting of property owners in Bonne Terre,Missouri, alleging that property values have been damaged due to the tailingsfrom the discontinued operations. In the second case plaintiffs seek to havecertified a class of children who lived, went to school or day care in BonneTerre, or whose mothers lived in Bonne Terre during their pregnancies. Thethird and fourth cases are class actions for property damage and medicalmonitoring concerning alleged damages caused by chat, tailings and relatedoperations in six areas in St. Francois County. The remainder of the casesallege personal injury to 28 individuals who were exposed to lead in St.Francois County.

 

Doe Run is adefendant in a lawsuit by the BNSF Railway Company, who has alleged that DoeRun and other 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. Given the early stage of this case, the Company is unable atthis time to estimate the expected outcome and any final costs of this action.

 

DoeRun is a defendant in five lawsuits alleging certain damages from pastmining operations in Ottawa County, Oklahoma.  Three of these suits areclass actions alleging personal injury and property damage in Picher andQuapaw, Oklahoma.  One lawsuit, a consolidation of five suits, allegesinjury to seven children living in Picher, Oklahoma.  One lawsuit, a consolidationof two suits, alleges injury to 42 children living in Ottawa County.

 

Doe Run, with severalother defendants, has been named in four cases in Maryland but has not yet beenjoined as a defendant in any of these cases. These suits seek damages, allegingpersonal injuries as a result of lead poisoning from exposure to lead paint andtetraethyl lead dust. The suits seek punitive damages. Doe Run was dismissedfrom two similar cases in which it was joined as a defendant. Until Doe Run isactually joined as a defendant in one or more of these cases, materialliability from these cases is considered remote.

 

Doe Run iscurrently a defendant three asbestos injury suits filed in Madison County,Illinois, each alleging that a worker was exposed to asbestos at the premisesof the St. Joe Minerals Corporation. However, Doe Run has not been properlyserved in one of these cases. Doe Run has reached a tentative settlement inanother of these case prior to going to trial. Doe Run is also a defendant inan asbestos case filed in Lawrence County, Pennsylvania. Doe Run was named inan asbestos injury suit in the City of St. Louis, Missouri but that case wassubsequently dismissed.

 

Doe Run is in a commercial dispute with a buyer concerning one oceanshipment of lead concentrates. Buyer is seeking reimbursement of expensesincurred to address a large amount of water that appeared during the voyage ontop of concentrates in the forward holds. This contract dispute is inarbitration before the LME.

 

Doe Run is a defendant in a lawsuit by Korea Zinc Co. and affiliatesfiled on January 19, 2006 in the Circuit Court of St. Louis County, concerningalleged violations of an agreement regarding the sale of zinc concentrates. DoeRun disputes the claim and will seek dismissal because the dispute should besubject to arbitration.

 

81

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Doe Run hasbeen named as a party in various lawsuits relating to certain operations of itspredecessor. Fluor Corporation, the owner of Doe Run’s predecessor, retainedthe obligation for any costs of defense or claims relating to these lawsuits. ShouldFluor Corporation become unable to fulfill its contractual obligation, Doe Runcould be liable for any costs or claims resulting from these lawsuits. There isno reason at this time to believe that Fluor Corporation could not fulfill itscontractual obligations.

 

Doe Run Peru is a defendant in 198 lawsuits in the Lima, Peru laborcourts that allege damage to workers from industrial 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 17 concluded cases in this category, 16were dismissed and one resulted in an award of $9.

 

Doe Run Peru is also a defendant in 163 lawsuits by workers allegingthat they are owed certain differences in salaries and benefits. The averageclaim is $21. Of 31 concluded cases in this category, 26 were dismissed and fiveresulted in awards totaling $15. Doe Run Peru is also a defendant in a lawsuitby the Yauli-La Oroya Employees Union concerning salariesand benefits.  The claims of the 146 workers remaining inthe lawsuit have been valued at a total of $238 according to a reportby an expert appointed by the court.

 

Doe Run Peru is also a defendant in 26 lawsuits alleging claims rangingfrom industrial diseases to salary disputes, including indemnification forarbitrary dismissal, nullity of dismissal, moral damage compensation,compensatory damages from work accident and readmission of worker. The averageclaim is $6. Of 29 concluded cases in this category 26 were dismissed and threeresulted in awards totaling $22.

 

The amount of awards in the various categories of lawsuits referencedabove represent total judgements issued by the relevant courts. For certain ofthese lawsuits, Centromin will pay a portion of the total award.

 

On January 19, 2005, Doe Run Peru was served with alawsuit by an association of municipalities of the Junin Region of Peru againstDoe Run Peru and two other mining companies. This lawsuit alleges environmentaldamages to the Mantaro River basin in the amount of $5 billion. Materialliability to Doe Run Peru is believed to be remote because it is theopinion of management and outside counsel for Doe Run Peru that theprobability under Peruvian law of this case proceeding to a conclusion atthe favor of the plaintiffs is low. Any potential judgment would be subject tothe indemnification obligations of Centromin, which are guaranteed by thePeruvian government.

 

On May 25, 2005, Doe Run Peru was served with a civil lawsuit allegingthe existence of lead in a person caused by Doe Run Peru’s operations. Theclaim is for $100.

 

On July 11, 2003, Doe Run Peru filed an administrative lawsuit againstthe Yauli – La Oroya Provincial City Hall in order to dismiss a number of finesfor the amount of $2,800. Doe Run Peru was fined for not having constructionlicenses for the PAMA projects.

 

Since most of the above cases are either in the pleading or discoverystages, the Company is unable at this time to estimate the expected outcome andthe final costs, except as noted, of these actions. No amounts have beenaccrued as liabilities related to these actions. There can be no assurance thatthese cases will not have a material adverse effect, both individually and inthe aggregate, on the results of operations, financial condition and liquidityof the Company. The Company has and will continue to vigorously defend itselfagainst such claims.

 

 **(21)****           GuarantorSubsidiaries**

 

The Guarantor Subsidiaries (Fabricated Products, Inc. (FPI) and DR LandHoldings, LLC (together, the Domestic Guarantors) Buick Resource RecyclingFacility, LLC, Doe Run Cayman Ltd. (Doe Run Cayman) and its subsidiary Doe RunPeru) have jointly and severally, fully, unconditionally and irrevocablyguaranteed the 11.75% notes of the Company. Doe Run Cayman has no operationsseparate from those of Doe Run Peru. Separate financial statements and otherdisclosures concerning certain Guarantor Subsidiaries and disclosuresconcerning non-Guarantor Subsidiaries have not been presented becausemanagement has determined that such information is not material 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.

 

82

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**Condensed Consolidating Balance Sheet**

**As of October 31, 2005**

 
| ** **                                                                                             | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Other  Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------|------------|-----------------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                                                   |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| **ASSETS**                                                                                             | ** ** | ** **                                               | ** ** | ** **                                         | ** ** | ** **                      | ** ** | ** **                                    | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current assets:                                                                                        |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Cash                                                                                                   |       | $                                                        | 8,916      |                                               | $          | —                          |       | $                                             | 1          |             | $          | 14,569           |       | $ | — |   | $ | 23,486 |   |
| Trade accounts receivable, net of allowance  for doubtful accounts                                     |       | 56,454                                                   |       | —                                             |       | 2,202                           |       | 31,637                                        |       | (4,553           | )          | 85,740           |       |
| Inventories                                                                                            |       | 35,613                                                   |       | —                                             |       | 1,301                           |       | 68,756                                        |       | (36              | )          | 105,634          |       |
| Prepaid expenses and other current assets                                                              |       | 4,564                                                    |       | —                                             |       | 59                              |       | 16,191                                        |       | —           |       | 20,814           |       |
| Due from subsidiaries                                                                                  |       | 151,617                                                  |       | 2,037                                              |       | —                          |       | —                                        |       | (153,654         | )          | —           |       |
| Total current assets                                                                                   |       | 257,164                                                  |       | 2,037                                              |       | 3,563                           |       | 131,153                                       |       | (158,243         | )          | 235,674          |       |
|                                                                                                   |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Property, plant and equipment, net                                                                     |       | 74,604                                                   |       | 16,083                                             |       | 1,013                           |       | 161,563                                       |       | —           |       | 253,263          |       |
| Due from subsidiaries                                                                                  |       | 14,057                                                   |       | —                                             |       | —                          |       | —                                        |       | (14,057          | )          | —           |       |
| Other noncurrent assets, net                                                                           |       | 5,775                                                    |       | —                                             |       | 63                              |       | —                                        |       | —           |       | 5,838            |       |
| Investment in subsidiaries                                                                             |       | 6,708                                                    |       | —                                             |       | —                          |       | —                                        |       | (6,708           | )          | —           |       |
| Total assets                                                                                           |       | $                                                        | 358,308    |                                               | $          | 18,120                          |       | $                                             | 4,639      |             | $          | 292,716          |       | $ | (179,008 | ) | $ | 494,775 |   |
|                                                                                                   |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY (DEFICIT)**                                               | ** ** | ** **                                               | ** ** | ** **                                         | ** ** | ** **                      | ** ** | ** **                                    | ** ** | ** **       | ** ** | ** **       | ** ** |
| Current liabilities:                                                                                   |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Current maturities of long-term debt                                                                   |       | $                                                        | 75,126     |                                               | $          | —                          |       | $                                             | —     |             | $          | 39,821           |       | $ | — |   | $ | 114,947 |   |
| Accounts payable                                                                                       |       | 29,007                                                   |       | —                                             |       | 706                             |       | 67,115                                        |       | (4,553           | )          | 92,275           |       |
| Accrued liabilities                                                                                    |       | 55,392                                                   |       | —                                             |       | 468                             |       | 31,200                                        |       | —           |       | 87,060           |       |
| Due to parent/subsidiaries                                                                             |       | 2,037                                                    |       | —                                             |       | 8,554                           |       | 143,063                                       |       | (153,654         | )          | —           |       |
| Total current liabilities                                                                              |       | 161,562                                                  |       | —                                             |       | 9,728                           |       | 281,199                                       |       | (158,207         | )          | 294,282          |       |
|                                                                                                   |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Long-term debt, less current maturities                                                                |       | 271,566                                                  |       | —                                             |       | —                          |       | —                                        |       | —           |       | 271,566          |       |
| Due to parent                                                                                          |       | —                                                   |       | —                                             |       | —                          |       | 14,057                                        |       | (14,057          | )          | —           |       |
| Other noncurrent liabilities                                                                           |       | 64,590                                                   |       | —                                             |       | 281                             |       | 3,466                                         |       | —           |       | 68,337           |       |
| Total liabilities                                                                                      |       | 497,718                                                  |       | —                                             |       | 10,009                          |       | 298,722                                       |       | (172,264         | )          | 634,185          |       |
|                                                                                                   |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Series A redeemable preferred stock                                                                    |       | 28,495                                                   |       | —                                             |       | —                          |       | —                                        |       | —           |       | 28,495           |       |
|                                                                                                   |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Shareholders’ equity (deficit):                                                                   |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Common stock, $0.10 par value per share,  1,667 shares authorized, 1,000 shares issued and outstanding |       | —                                                   |       | —                                             |       | —                          |       | —                                        |       | —           |       | —           |       |
| Common stock, $1 par value per share, 1,000  shares authorized, issued and outstanding                 |       | —                                                   |       | —                                             |       | 1                               |       | —                                        |       | (1               | )          | —           |       |
| Common stock, $1 par value per share,  2,005,000 shares authorized, issued and outstanding             |       | —                                                   |       | —                                             |       | —                          |       | 2,005                                         |       | (2,005           | )          | —           |       |
| Additional paid in capital                                                                             |       | —                                                   |       | 23,305                                             |       | 1,205                           |       | —                                        |       | (24,510          | )          | —           |       |
| Accumulated preferred stock dividends in  excess of paid in capital                                    |       | (3,257                                                   | )          | —                                             |       | —                          |       | —                                        |       | —           |       | (3,257           | )          |
| Accumulated deficit and accumulated other comprehensive  losses                                        |       | (164,648                                                 | )          | (5,185                                             | )          | (6,576                          | )          | (8,011                                        | )          | 19,772           |       | (164,648         | )          |
| Total shareholders’ equity (deficit)                                                              |       | (167,905                                                 | )          | 18,120                                             |       | (5,370                          | )          | (6,006                                        | )          | (6,744           | )          | (167,905         | )          |
| Total liabilities and shareholders’ equity  (deficit)                                             |       | $                                                        | 358,308    |                                               | $          | 18,120                          |       | $                                             | 4,639      |             | $          | 292,716          |       | $ | (179,008 | ) | $ | 494,775 |   |

 

83

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**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                                                                                  |       | 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, $0.10 par value per share,  1,667 shares authorized, 1,000 shares issued and outstanding |       | —                                                   |       | —                                             |       | —                          |       | —                                        |       | —           |       | —           |       |
| Common stock, $1 par value per share, 1,000  shares authorized, issued and outstanding                 |       | —                                                   |       | —                                             |       | 1                               |       | —                                        |       | (1               | )          | —           |       |
| Common stock, $1 par value per share,  2,005,000 shares authorized, issued and outstanding             |       | —                                                   |       | —                                             |       | —                          |       | 2,005                                         |       | (2,005           | )          | —           |       |
| Additional paid in capital                                                                             |       | —                                                   |       | 19,348                                             |       | 1,205                           |       | —                                        |       | (20,553          | )          | —           |       |
| Accumulated preferred stock dividends in  excess of paid in capital                                    |       | (91                                                      | )          | —                                             |       | —                          |       | —                                        |       | —           |       | (91              | )          |
| Accumulated deficit and accumulated other comprehensive  losses                                        |       | (210,645                                                 | )          | (3,447                                             | )          | (6,816                          | )          | (24,887                                       | )          | 35,150           |       | (210,645         | )          |
| 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 |   |

 

84

----

 

**Condensed Consolidating Statement ofOperations**

**Year Ended October 31, 2005**

 
| ** **                                    | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Other  Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------|------------|-----------------------------------------------|------------|------------------|------------|------------------|------------|
|                                          |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Net sales                                     |       | $                                                        | 375,760    |                                               | $          | —                          |       | $                                             | 14,203     |             | $          | 650,840          |       | $ | (11,363 | ) | $ | 1,029,440 |   |
| Costs and expenses:                           |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Cost of sales                                 |       | 310,540                                                  |       | —                                             |       | 10,626                          |       | 601,949                                       |       | (11,383          | )          | 911,732          |       |
| Depletion, depreciation and amortization      |       | 8,906                                                    |       | 2,613                                              |       | 417                             |       | 12,234                                        |       | —           |       | 24,170           |       |
| Selling, general and administrative           |       | 26,743                                                   |       | —                                             |       | 2,062                           |       | 17,291                                        |       | —           |       | 46,096           |       |
| Unrealized (gain) loss on derivatives         |       | (5,379                                                   | )          | —                                             |       | —                          |       | 503                                           |       | —           |       | (4,876           | )          |
| Other                                         |       | 5,183                                                    |       | —                                             |       | 152                             |       | 627                                           |       | —           |       | 5,962            |       |
| Total costs and expenses                      |       | 345,993                                                  |       | 2,613                                              |       | 13,257                          |       | 632,604                                       |       | (11,383          | )          | 983,084          |       |
| Income (loss) from operations                 |       | 29,767                                                   |       | (2,613                                             | )          | 946                             |       | 18,236                                        |       | 20               |       | 46,356           |       |
|                                          |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Other income (expense):                       |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Interest income (expense), net                |       | (7,428                                                   | )          | —                                             |       | (592                            | )          | (1,849                                        | )          | —           |       | (9,869           | )          |
| Gain on restucture of long term debt          |       | 9,233                                                    |       | —                                             |       | —                          |       | —                                        |       | —           |       | 9,233            |       |
| Other, net                                    |       | (707                                                     | )          | 875                                                |       | 9                               |       | 489                                           |       | —           |       | 666              |       |
| Equity in earnings of subsidiaries            |       | 15,521                                                   |       | —                                             |       | —                          |       | —                                        |       | (15,521          | )          | —           |       |
| Total other income (expense)                  |       | 16,619                                                   |       | 875                                                |       | (583                            | )          | (1,360                                        | )          | (15,521          | )          | 30               |       |
| Income (loss) before income tax benefit       |       | 46,386                                                   |       | (1,738                                             | )          | 363                             |       | 16,876                                        |       | (15,501          | )          | 46,386           |       |
| Income tax benefit                            |       | —                                                   |       | —                                             |       | —                          |       | —                                        |       | —           |       | —           |       |
| Net income (loss)                             |       | 46,386                                                   |       | (1,738                                             | )          | 363                             |       | 16,876                                        |       | (15,501          | )          | 46,386           |       |
| Preferred stock dividends                     |       | (3,166                                                   | )          | —                                             |       | —                          |       | —                                        |       | —           |       | (3,166           | )          |
| Net income (loss) allocable to common  shares |       | $                                                        | 43,220     |                                               | $          | (1,738                          | )          | $                                             | 363        |             | $          | 16,876           |       | $ | (15,501 | ) | $ | 43,220 |   |

 

85

----

 

**Condensed Consolidating Statement ofOperations**

**Year Ended October 31, 2004**

 
| ** **                                    | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Other  Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------|------------|-----------------------------------------------|------------|------------------|------------|------------------|------------|
|                                          |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Net sales                                     |       | $                                                        | 300,811    |                                               | $          | —                          |       | $                                             | 12,658     |             | $          | 567,185          |       | $ | (12,586 | ) | $ | 868,068 |   |
| Costs and expenses:                           |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Cost of sales                                 |       | 246,664                                                  |       | —                                             |       | 9,849                           |       | 531,195                                       |       | (4,727           | )          | 782,981          |       |
| Depletion, depreciation and amortization      |       | 9,647                                                    |       | 2,859                                              |       | 844                             |       | 11,972                                        |       | —           |       | 25,322           |       |
| Selling, general and administrative           |       | 21,026                                                   |       | —                                             |       | 1,937                           |       | 20,657                                        |       | (7,838           | )          | 35,782           |       |
| Unrealized (gain) loss on derivatives         |       | 237                                                      |       | —                                             |       | —                          |       | (6                                            | )          | —           |       | 231              |       |
| Other                                         |       | 5,577                                                    |       | 29                                                 |       | (1                              | )          | 164                                           |       | —           |       | 5,769            |       |
| Total costs and expenses                      |       | 283,151                                                  |       | 2,888                                              |       | 12,629                          |       | 563,982                                       |       | (12,565          | )          | 850,085          |       |
| Income (loss) from operations                 |       | 17,660                                                   |       | (2,888                                             | )          | 29                              |       | 3,203                                         |       | (21              | )          | 17,983           |       |
|                                          |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Other income (expense):                       |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Interest expense, net                         |       | (10,422                                                  | )          | —                                             |       | (689                            | )          | (2,159                                        | )          | —           |       | (13,270          | )          |
| Other, net                                    |       | (558                                                     | )          | 820                                                |       | 12                              |       | (734                                          | )          | —           |       | (460             | )          |
| Equity in earnings of subsidiaries            |       | (2,427                                                   | )          | —                                             |       | —                          |       | —                                        |       | 2,427            |       | —           |       |
| Total other income (expense)                  |       | (13,407                                                  | )          | 820                                                |       | (677                            | )          | (2,893                                        | )          | 2,427            |       | (13,730          | )          |
| Income (loss) before income tax benefit       |       | 4,253                                                    |       | (2,068                                             | )          | (648                            | )          | 310                                           |       | 2,406            |       | 4,253            |       |
| Income tax benefit                            |       | (661                                                     | )          | —                                             |       | —                          |       | —                                        |       | —           |       | (661             | )          |
| Net income (loss)                             |       | 4,914                                                    |       | (2,068                                             | )          | (648                            | )          | 310                                           |       | 2,406            |       | 4,914            |       |
| Preferred stock dividends                     |       | (2,815                                                   | )          | —                                             |       | —                          |       | —                                        |       | —           |       | (2,815           | )          |
| Net income (loss) allocable to common  shares |       | $                                                        | 2,099      |                                               | $          | (2,068                          | )          | $                                             | (648       | )                | $          | 310              |       | $ | 2,406 |   | $ | 2,099 |   |

 

86

----

 

**Condensed Consolidating Statement ofOperations**

**Year Ended October 31, 2003**

 
| ** **                                                                      | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Other  Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------|------------|-----------------------------------------------|------------|------------------|------------|------------------|------------|
| Net sales                                                                       |       | $                                                        | 245,483    |                                               | $          | —                          |       | $                                             | 14,866     |             | $          | 436,980          |       | $ | (11,947 | ) | $ | 685,382 |   |
| Costs and expenses:                                                             |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Cost of sales                                                                   |       | 212,013                                                  |       | —                                             |       | 12,608                          |       | 421,655                                       |       | (2,383           | )          | 643,893          |       |
| Depletion, depreciation and amortization                                        |       | 15,435                                                   |       | 1,721                                              |       | 1,442                           |       | 11,809                                        |       | —           |       | 30,407           |       |
| Selling, general and administrative                                             |       | 15,146                                                   |       | —                                             |       | 1,843                           |       | 20,927                                        |       | (9,550           | )          | 28,366           |       |
| Unrealized loss on derivatives                                                  |       | 7,162                                                    |       | —                                             |       | —                          |       | 58                                            |       | —           |       | 7,220            |       |
| Other                                                                           |       | 2,312                                                    |       | 29                                                 |       | 58                              |       | 88                                            |       | —           |       | 2,487            |       |
| Total costs and expenses                                                        |       | 252,068                                                  |       | 1,750                                              |       | 15,951                          |       | 454,537                                       |       | (11,933          | )          | 712,373          |       |
| Loss from operations                                                            |       | (6,585                                                   | )          | (1,750                                             | )          | (1,085                          | )          | (17,557                                       | )          | (14              | )          | (26,991          | )          |
|                                                                            |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Other income (expense):                                                         |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Interest expense, net                                                           |       | (10,079                                                  | )          | —                                             |       | (619                            | )          | (2,543                                        | )          | —           |       | (13,241          | )          |
| Loss on retirement/restructure of long term  debt                               |       | (550                                                     | )          | —                                             |       | —                          |       | —                                        |       | —           |       | (550             | )          |
| Other, net                                                                      |       | (116                                                     | )          | 371                                                |       | (123                            | )          | (308                                          | )          | —           |       | (176             | )          |
| Equity in earnings of subsidiaries                                              |       | (23,720                                                  | )          | —                                             |       | —                          |       | —                                        |       | 23,720           |       | —           |       |
| Total other income (expense)                                                    |       | (34,465                                                  | )          | 371                                                |       | (742                            | )          | (2,851                                        | )          | 23,720           |       | (13,967          | )          |
| Income (loss) before income tax expense                                         |       | (41,050                                                  | )          | (1,379                                             | )          | (1,827                          | )          | (20,408                                       | )          | 23,706           |       | (40,958          | )          |
| Income tax expense                                                              |       | —                                                   |       | —                                             |       | —                          |       | —                                        |       | —           |       | —           |       |
| Income (loss) before cumulative effect of change  in accounting principle       |       | (41,050                                                  | )          | (1,379                                             | )          | (1,827                          | )          | (20,408                                       | )          | 23,706           |       | (40,958          | )          |
| Cumulative effect of change in accounting principle,  net of income tax benefit |       | (3,848                                                   | )          | —                                             |       | —                          |       | (92                                           | )          | —           |       | (3,940           | )          |
| Net income (loss)                                                               |       | (44,898                                                  | )          | (1,379                                             | )          | (1,827                          | )          | (20,500                                       | )          | 23,706           |       | (44,898          | )          |
| Preferred stock dividends                                                       |       | (2,514                                                   | )          | —                                             |       | —                          |       | —                                        |       | —           |       | (2,514           | )          |
| Net income (loss) allocable to common  shares                                   |       | $                                                        | (47,412    | )                                                  | $          | (1,379                          | )          | $                                             | (1,827     | )                | $          | (20,500          | )          | $ | 23,706 |   | $ | (47,412 | ) |

 

 

87

----

 

**Condensed Consolidating Statement of CashFlows**

**Year Ended October 31, 2005**

** **
| ** **                                           | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Other  Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------|------------|-----------------------------------------------|------------|------------------|------------|------------------|------------|
|                                                 |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Net cash provided by (used in) operating  activities |       | $                                                        | 51,991     |                                               | $          | (2,037                          | )          | $                                             | (294       | )                | $          | 44,624           |       | $ | (18,086 | ) | $ | 76,198 |   |
|                                                 |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Cash flows from investing activities:                |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Purchases of property, plant and equipment           |       | (17,076                                                  | )          | —                                             |       | (140                            | )          | (34,045                                       | )          | —           |       | (51,261          | )          |
| Net proceeds from disposal of assets                 |       | 42                                                       |       | —                                             |       | 1                               |       | 86                                            |       | —           |       | 129              |       |
| Net proceeds from sale of investments                |       | 469                                                      |       | —                                             |       | —                          |       | —                                        |       | —           |       | 469              |       |
| Investment in subsidiaries                           |       | (18,086                                                  | )          | —                                             |       | —                          |       | —                                        |       | 18,086           |       | —           |       |
| Net cash provided by (used in) investing  activities |       | (34,651                                                  | )          | —                                             |       | (139                            | )          | (33,959                                       | )          | 18,086           |       | (50,663          | )          |
|                                                 |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Cash flows from financing activities:                |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Proceeds from revolving loans, net                   |       | 9,596                                                    |       | —                                             |       | —                          |       | 400                                           |       | —           |       | 9,996            |       |
| Payments on long-term debt                           |       | (31,428                                                  | )          | —                                             |       | —                          |       | (26                                           | )          | —           |       | (31,454          | )          |
| Payment of financing costs                           |       | (375                                                     | )          | —                                             |       | —                          |       | —                                        |       | —           |       | (375             | )          |
| Payments of dividends                                |       | (534                                                     | )          | —                                             |       | —                          |       | —                                        |       | —           |       | (534             | )          |
| Due to/due from parent/subsdiaries                   |       | 905                                                      |       | 2,037                                              |       | 433                             |       | (3,375                                        | )          | —           |       | —           |       |
| Net cash provided by (used in) financing  activities |       | (21,836                                                  | )          | 2,037                                              |       | 433                             |       | (3,001                                        | )          | —           |       | (22,367          | )          |
|                                                 |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Net increase (decrease) in cash                      |       | (4,496                                                   | )          | —                                             |       | —                          |       | 7,664                                         |       | —           |       | 3,168            |       |
| Cash at beginning of period                          |       | 13,412                                                   |       | —                                             |       | 1                               |       | 6,905                                         |       | —           |       | 20,318           |       |
| Cash at end of period                                |       | $                                                        | 8,916      |                                               | $          | —                          |       | $                                             | 1          |             | $          | 14,569           |       | $ | — |   | $ | 23,486 |   |

 

 

88

----

 

**Condensed Consolidating Statement ofOperations**

**Year Ended October 31, 2004**

 
| ** **                                           | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Buick  Resource  Recycling  Facility, LLC** | ** ** | **Other  Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------|------------|-----------------------------------------------|------------|------------------|------------|------------------|------------|
|                                                 |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Net cash provided by (used in) operating  activities |       | $                                                        | 16,640     |                                               | $          | (1,162                          | )          | $                                             | (393       | )                | $          | 4,939            |       | $ | 1,573 |   | $ | 21,597 |   |
|                                                 |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Cash flows from investing activities:                |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Purchases of property, plant and equipment           |       | (10,699                                                  | )          | —                                             |       | —                          |       | (19,063                                       | )          | —           |       | (29,762          | )          |
| Net proceeds from disposal of assets                 |       | 28                                                       |       | —                                             |       | —                          |       | —                                        |       | —           |       | 28               |       |
| Investment in subsidiaries                           |       | 1,573                                                    |       | —                                             |       | —                          |       | —                                        |       | (1,573           | )          | —           |       |
| Net cash used in investing activities                |       | (9,098                                                   | )          | —                                             |       | —                          |       | (19,063                                       | )          | (1,573           | )          | (29,734          | )          |
|                                                 |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Cash flows from financing activities:                |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Proceeds from revolving loans, net                   |       | 8,675                                                    |       | —                                             |       | —                          |       | 3,400                                         |       | —           |       | 12,075           |       |
| Payments on long-term debt                           |       | (1,761                                                   | )          | —                                             |       | —                          |       | (1,559                                        | )          | —           |       | (3,320           | )          |
| Due to/due from parent/subsdiaries                   |       | (3,950                                                   | )          | 1,162                                              |       | 394                             |       | 2,394                                         |       | —           |       | —           |       |
| Net cash provided by financing activities            |       | 2,964                                                    |       | 1,162                                              |       | 394                             |       | 4,235                                         |       | —           |       | 8,755            |       |
|                                                 |       |                                                     |       |                                               |       |                            |       |                                          |       |             |       |             |       |
| Net increase (decrease) in cash                      |       | 10,506                                                   |       | —                                             |       | 1                               |       | (9,889                                        | )          | —           |       | 618              |       |
| Cash at beginning of period                          |       | 2,906                                                    |       | —                                             |       | —                          |       | 16,794                                        |       | —           |       | 19,700           |       |
| Cash at end of period                                |       | $                                                        | 13,412     |                                               | $          | —                          |       | $                                             | 1          |             | $          | 6,905            |       | $ | — |   | $ | 20,318 |   |

 

 

89

----

 

**Condensed Consolidating Statement ofOperations**

**Year Ended October 31, 2003**

 
| ** **                                           | ** ** | **The Company  Excluding  Guarantor  Subsidiaries** | ** ** | **Domestic  Guarantors** | ** ** | **Doe Run  Cayman and  Subsidiary** | ** ** | **Eliminations** | ** ** | **The  Company** | ** ** |
|------------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------|------------|-----------------------------------------------|------------|------------------|------------|------------------|------------|
|                                                 |       |                                                     |       |                     |       |                                          |       |             |       |             |       |
| Net cash provided by (used in) operating  activities |       | $                                                        | (16,982    | )                        | $          | 1,825                                         |       | $                | 15,703     |             | $          | 21,902 |   | $ | 22,448 |   |
|                                                 |       |                                                     |       |                     |       |                                          |       |             |       |             |       |
| Cash flows from investing activities:                |       |                                                     |       |                     |       |                                          |       |             |       |             |       |
| Purchases of property, plant and equipment           |       | (6,061                                                   | )          | (5                       | )          | (9,283                                        | )          | —           |       | (15,349          | )          |
| Net proceeds from (expenses of) disposal of  assets  |       | 54                                                       |       | —                   |       | —                                        |       | —           |       | 54               |       |
| Investment in subsidiaries                           |       | 21,902                                                   |       | —                   |       | —                                        |       | (21,902          | )          | —           |       |
| Net cash provided by (used in) investing  activities |       | 15,895                                                   |       | (5                       | )          | (9,283                                        | )          | (21,902          | )          | (15,295          | )          |
|                                                 |       |                                                     |       |                     |       |                                          |       |             |       |             |       |
| Cash flows from financing activities:                |       |                                                     |       |                     |       |                                          |       |             |       |             |       |
| Proceeds from (payments of) revolving  loans, net    |       | 14,924                                                   |       | —                   |       | (700                                          | )          | —           |       | 14,224           |       |
| Payments on long-term debt                           |       | (3,735                                                   | )          | —                   |       | (4,410                                        | )          | —           |       | (8,145           | )          |
| Payment of financing costs                           |       | (550                                                     | )          | —                   |       | —                                        |       | —           |       | (550             | )          |
| Due to/due from parent/subsdiaries                   |       | (6,646                                                   | )          | (1,820                   | )          | 8,466                                         |       | —           |       | —           |       |
| Net cash provided by (used in) financing  activities |       | 3,993                                                    |       | (1,820                   | )          | 3,356                                         |       | —           |       | 5,529            |       |
|                                                 |       |                                                     |       |                     |       |                                          |       |             |       |             |       |
| Net increase in cash                                 |       | 2,906                                                    |       | —                   |       | 9,776                                         |       | —           |       | 12,682           |       |
| Cash at beginning of period                          |       | —                                                   |       | —                   |       | 7,018                                         |       | —           |       | 7,018            |       |
| Cash at end of period                                |       | $                                                        | 2,906      |                     | $          | —                                        |       | $                | 16,794     |             | $          | — |   | $ | 19,700 |   |

 

 

90

----

 

## ***REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM***

 

To the Shareholders

Doe Run Peru S.R.L.

 

We have audited theaccompanying balance sheets of Doe Run Peru S.R.L. (a Peruvian Companysubsidiary of Doe Run Cayman Ltd.) as of October 31, 2005 and 2004 and therelated statements of operations, changes in shareholders’ equity (deficit) andcash flows for the years then ended. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatements presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of Doe Run Peru S.R.L. as of October 31, 2005and 2004, and the results of its operations and its cash flows for the yearsthen ended in conformity with U.S. generally accepted accounting principles.

 

The accompanying financial statements have beenprepared assuming the Company will continue as a going concern.  As further discussed in Note 17 to thefinancial statements, the Company has significant capital requirements underenvironmental commitments, which, if not met, could result in defaults of theCompany’s credit agreement; has substantial contingencies related to tax; andhas significant debt service obligations that raise substantial doubt about theCompany’s ability to continue as a going concern.  Management’s plans in regard to these mattersare also described in Note 17.  Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

 

Lima, Peru

 

February 10, 2006

 

Countersigned by

 

 

 
| /s/ Raúl  D’Angelo A. | (partner) |
|---------------------------------|-----------|
| Raúl D’Angelo A.      |      |
| Peruvian Public Accountant      |      |
| Registration No. 2896           |      |

 

91

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REPORT OF INDEPENDENT PUBLICACCOUNTING FIRM

 

 

To the Shareholders

Doe Run Peru S.R.L.:

 

We have audited theaccompanying consolidated balance sheet of Doe Run Peru S.R.L. (a PeruvianCompany) as of October 31, 2003, and the related consolidated statements ofoperations, changes in shareholders’ equity (deficit), and cash flows for eachof the years in the two-year period ended October 31, 2003. These consolidatedfinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statementsare free of material misstatement.  Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Doe Run Peru S.R.L. as of October31, 2003, and the results of their operations and their cash flows for each ofthe years in the two-year period ended October 31, 2003 in conformity with U.S.generally accepted accounting principles.

 

The accompanying consolidatedfinancial statements have been prepared assuming that the Company will continueas a going concern. As discussed in Note 17 to the consolidated financialstatements, the Company has jointly and severally, fully, unconditionallyguaranteed notes issued by Doe Run Resources. Also, the Company has sufferedrecurring losses and has a net capital deficiency. These conditions, along withother matters as set forth in note 17, indicate the existence of materialuncertainties that raises substantial doubt about its ability to continue asgoing concern. Management’s plans in regards to these matters are alsodescribed in Note 17. The consolidated financial statements do not include anyadjustments that might result from the outcome of this uncertainty.

 

As discussed in Note 3 to theconsolidated financial statements, the Company adopted the provisions of SFASNo. 143 *Accounting for Asset RetirementObligations,*as of November 1, 2002.

 

Lima, Peru

 

February 4, 2004

 

Countersigned by:

 

 /s/ Juan Jose Cordova

Juan José Córdova (Partner)

Peruvian Public Accountant

Registration No 18869

 

 

92

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

**BalanceSheets**

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

 
| ** **                                                                                                           | ** ** | **October 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                                                           | ** ** | **2005**             | ** ** | **2004** | ** ** |
| **ASSETS**                                                                                                           |       |                 |       |   |   |
|                                                                                                                 |       |                 |       |   |   |
| Current assets:                                                                                                      |       |                 |       |   |   |
| Cash                                                                                                                 |       | $                    | 14,569     |   | $ | 6,905 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $0 and $838 at  October 31, 2005 and 2004 |       | 31,637               |       | 22,217 |   |
| Inventories                                                                                                          |       | 68,756               |       | 65,876 |   |
| Prepaid expenses  and other current assets                                                                           |       | 16,191               |       | 15,901 |   |
|                                                                                                                 |       |                 |       |   |   |
| Total current  assets                                                                                                |       | 131,153              |       | 110,899 |   |
|                                                                                                                 |       |                 |       |   |   |
| Property, plant and equipment, net                                                                                   |       | 161,563              |       | 140,743 |   |
| Other non current assets, net                                                                                        |       | —               |       | 122 |   |
|                                                                                                                 |       |                 |       |   |   |
| Total assets                                                                                                         |       | $                    | 292,716    |   | $ | 251,764 |   |
|                                                                                                                 |       |                 |       |   |   |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIT**                                                                       | ** ** | ** **           | ** ** | ** ** | ** ** |
| ** **                                                                                                           | ** ** | ** **           | ** ** | ** ** | ** ** |
| Current  liabilities:                                                                                                |       |                 |       |   |   |
| Current  maturities of long-term debt                                                                                |       | $                    | 39,821     |   | $ | 39,400 |   |
| Accounts payable                                                                                                     |       | 67,115               |       | 44,092 |   |
| Accrued  liabilities                                                                                                 |       | 31,200               |       | 27,199 |   |
| Due to related  parties                                                                                              |       | 143,063              |       | 143,063 |   |
|                                                                                                                 |       |                 |       |   |   |
| Total current  liabilities                                                                                           |       | 281,199              |       | 253,754 |   |
|                                                                                                                 |       |                 |       |   |   |
| Due to parent  company and related parties                                                                           |       | 14,057               |       | 17,432 |   |
|                                                                                                                 |       |                 |       |   |   |
| Other non  current liabilities                                                                                       |       | 3,466                |       | 3,460 |   |
|                                                                                                                 |       |                 |       |   |   |
| Total  liabilities                                                                                                   |       | 298,722              |       | 274,646 |   |
|                                                                                                                 |       |                 |       |   |   |
| Shareholders’  deficit:                                                                                         |       |                 |       |   |   |
| Capital stock,  $0.01 par value, 15,912,083,739 shares, fully paid                                                   |       | 2,005                |       | 2,005 |   |
| Accumulated  deficit                                                                                                 |       | (8,011               | )          | (24,887 | ) |
|                                                                                                                 |       |                 |       |   |   |
| Total  shareholders’ deficit                                                                                    |       | (6,006               | )          | (22,882 | ) |
|                                                                                                                 |       |                 |       |   |   |
| Total  liabilities and shareholders’ deficit                                                                    |       | $                    | 292,716    |   | $ | 251,764 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

93

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

**Statementsof Operations**

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

 
| ** **                                                                      | ** ** | **Year ended October 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                            |       |                                      |       |   |   |   |   |
| Net sales                                                                       |       | $                                         | 650,840    |   | $ | 567,185 |   | $ | 436,980 |   |
|                                                                            |       |                                      |       |   |   |   |   |
| Costs and  expenses:                                                            |       |                                      |       |   |   |   |   |
| Costs of sales                                                                  |       | 601,949                                   |       | 531,195 |   | 421,655 |   |
| Depreciation                                                                    |       | 12,234                                    |       | 11,972 |   | 11,809 |   |
| Fees and  commissions to related parties                                        |       | —                                    |       | 7,838 |   | 9,550 |   |
| Selling, general  and administrative expenses                                   |       | 17,291                                    |       | 12,819 |   | 11,377 |   |
| Exploration                                                                     |       | 84                                        |       | 133 |   | — |   |
| Losses from  impairment/disposal of long-lived assets                           |       | 543                                       |       | 31 |   | 88 |   |
| Unrealized  (gain) loss on derivatives                                          |       | 503                                       |       | (6 | ) | 58 |   |
|                                                                            |       |                                      |       |   |   |   |   |
| Total costs and  expenses                                                       |       | 632,604                                   |       | 563,982 |   | 454,537 |   |
|                                                                            |       |                                      |       |   |   |   |   |
| Income (loss)  from operations                                                  |       | 18,236                                    |       | 3,203 |   | (17,557 | ) |
|                                                                            |       |                                      |       |   |   |   |   |
| Other income  (expense):                                                        |       |                                      |       |   |   |   |   |
| Interest expense                                                                |       | (1,955                                    | )          | (2,176 | ) | (2,564 | ) |
| Interest income                                                                 |       | 106                                       |       | 17 |   | 21 |   |
| Exchange gain  (loss)                                                           |       | 241                                       |       | (471 | ) | (157 | ) |
| Other, net                                                                      |       | 248                                       |       | (263 | ) | (151 | ) |
|                                                                            |       |                                      |       |   |   |   |   |
|                                                                            |       | (1,360                                    | )          | (2,893 | ) | (2,851 | ) |
|                                                                            |       |                                      |       |   |   |   |   |
| Income (loss)  before cumulative effect of change in accounting principle       |       | 16,876                                    |       | 310 |   | (20,408 | ) |
|                                                                            |       |                                      |       |   |   |   |   |
| Cumulative  effect of change in accounting principle, net of income tax benefit |       | —                                    |       | — |   | (92 | ) |
|                                                                            |       |                                      |       |   |   |   |   |
| Net income  (loss)                                                              |       | $                                         | 16,876     |   | $ | 310 |   | $ | (20,500 | ) |

 

Theaccompanying notes are an integral part of these financial statements.

 

94

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

**Statementsof Changes in Shareholders’ Equity (Deficit)**

**For theYears Ended October 31, 2005, 2004 and 2003**

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

 
| ** **                      | ** ** | **Capital  Stock** | ** ** | **Accumulated  Deficit** | ** ** | **Total** | ** ** |
|---------------------------------|------------|--------------------|------------|--------------------------|------------|-----------|------------|
|                            |       |               |       |                     |       |      |       |
| Balance as of  October 31, 2002 |       | $                  | 2,005      |                     | $          | (4,697    | )          | $ | (2,692 | ) |
| Net loss                        |       | —             |       | (20,500                  | )          | (20,500   | )          |
|                            |       |               |       |                     |       |      |       |
| Balance as of  October 31, 2003 |       | 2,005              |       | (25,197                  | )          | (23,192   | )          |
| Net income                      |       | —             |       | 310                      |       | 310       |       |
|                            |       |               |       |                     |       |      |       |
| Balance as of  October 31, 2004 |       | 2,005              |       | (24,887                  | )          | (22,882   | )          |
| Net income                      |       | —             |       | 16,876                   |       | 16,876    |       |
|                            |       |               |       |                     |       |      |       |
| Balance as of  October 31, 2005 |       | $                  | 2,005      |                     | $          | (8,011    | )          | $ | (6,006 | ) |

 

Theaccompanying notes are an integral part of these financial statements.

 

95

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

**Statements of Cash Flows**

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

 
| ** **                                                                                | ** ** | **Year ended October 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
| Cash flows from operating  activities:                                                    |       |                                      |       |   |   |   |   |
| Net income  (loss)                                                                        |       | $                                         | 16,876     |   | $ | 310 |   | $ | (20,500 | ) |
| Cumulative  effect of change in accounting principle                                      |       | —                                    |       | — |   | 92 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |                                      |       |   |   |   |   |
| Depreciation                                                                              |       | 12,234                                    |       | 11,972 |   | 11,809 |   |
| Amortization of  deferred financing fees                                                  |       | 122                                       |       | 133 |   | 133 |   |
| Unrealized  (gain) loss on derivatives                                                    |       | 503                                       |       | (6 | ) | 58 |   |
| Losses from  impairment and disposal of long-lived assets                                 |       | 543                                       |       | 31 |   | 88 |   |
| Increase  (decrease) resulting from changes in:                                           |       |                                      |       |   |   |   |   |
| Trade accounts  receivable                                                                |       | (9,420                                    | )          | (5,235 | ) | 8,279 |   |
| Inventories                                                                               |       | (2,465                                    | )          | (11,795 | ) | 5,130 |   |
| Prepaid expenses  and other current assets                                                |       | (290                                      | )          | (7,548 | ) | 3,402 |   |
| Accounts payable                                                                          |       | 23,023                                    |       | 12,667 |   | 4,636 |   |
| Accrued  liabilities                                                                      |       | 3,498                                     |       | 4,187 |   | 2,418 |   |
| Other  non-current assets and liabilities                                                 |       | —                                    |       | 223 |   | 158 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Net cash  provided by operating activities                                                |       | 44,624                                    |       | 4,939 |   | 15,703 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Cash flows from  investing activities:                                                    |       |                                      |       |   |   |   |   |
| Purchases of  property, plant and equipment                                               |       | (34,045                                   | )          | (19,063 | ) | (9,283 | ) |
| Proceeds from  sale of assets                                                             |       | 86                                        |       | — |   | — |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Net cash used in  investing activities                                                    |       | (33,959                                   | )          | (19,063 | ) | (9,283 | ) |
|                                                                                      |       |                                      |       |   |   |   |   |
| Cash flows from  financing activities:                                                    |       |                                      |       |   |   |   |   |
| Proceeds from  (payments on) revolving loans, net                                         |       | 400                                       |       | 3,400 |   | (700 | ) |
| Payments on long  term debt                                                               |       | (26                                       | )          | (1,559 | ) | (4,410 | ) |
| Increase  (decrease) in amount due to related parties                                     |       | (3,375                                    | )          | 2,394 |   | 8,466 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Net cash  provided by (used in) financing activities                                      |       | (3,001                                    | )          | 4,235 |   | 3,356 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Net increase  (decrease) in cash                                                          |       | 7,664                                     |       | (9,889 | ) | 9,776 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Cash at  beginning of year                                                                |       | 6,905                                     |       | 16,794 |   | 7,018 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Cash at end of  year                                                                      |       | $                                         | 14,569     |   | $ | 6,905 |   | $ | 16,794 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Supplemental  disclosure of cash flow information Cash paid during the period for:        |       |                                      |       |   |   |   |   |
| Interest                                                                                  |       | $                                         | 1,783      |   | $ | 2,071 |   | $ | 2,393 |   |
|                                                                                      |       |                                      |       |   |   |   |   |
| Peruvian income  tax                                                                      |       | $                                         | —     |   | $ | — |   | $ | — |   |

 

Theaccompanying notes are integral part of these financial statements.

 

96

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

 

**Notes to Financial Statements**

**October 31, 2005, 2004 and 2003**

**(U.S. dollars and nuevos soles inthousands, except share data)**

 

**(1)****Nature of Business**

 

Doe Run Peru S.R.L. (DoeRun Peru or the Company) is a Peruvian company incorporated on September 8,1997, and since June 1, 2001, 99.9% owned by Doe Run Cayman Ltd. (Doe RunCayman). Prior to June 1, 2001, Doe Run Peru was 99.9% owned by Doe Run MiningS.R.L. (Doe Run Mining), a subsidiary of Doe Run Cayman.

 

Doe Run Peru is engagedin the mining, smelting and refining of polymetallic concentrates, producingmainly copper, lead, zinc and silver which are sold as refined metals primarilyto customers located outside of Peru.

 

**(2) Basis of Presentation**

 

Thefinancial statements of the Company have been prepared in accordance withaccounting principles generally accepted in the United States of America (U.S.GAAP).

 

***Use of Estimates***

 

The preparation offinancial statements in conformity with U.S. GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting periods. Actual results could differ from these estimates.

 

**(3) Summary of SignificantAccounting Policies**

 

### ***Inventories***

### * *

Finished metals andconcentrates, metals and concentrates in process, and raw materials are statedat the lower of cost or market. The last-in, first-out (LIFO) method ofdetermining cost is used for the majority of the Company’s inventories. Suppliesand repair parts are principally stated at average cost, net of reserves forobsolescence.

 

Inventory costs includeconcentrates purchased, labor, material and other production costs.

 

##### **Property, Plant and Equipment**

#####  

Property, plant andequipment are recorded at cost. In accordance with Statement of FinancialAccounting Standards Statement No. 144, **Accountingfor the Impairment or Disposal of Long-Lived Assets**, long-lived assetsare reviewed for impairment when events or circumstances indicate that thecarrying amount of the assets may not be recoverable. The impairment loss onsuch assets, as well as long-lived assets and certain identifiable intangiblesto be disposed of, is measured as the amount by which the carrying value of theassets exceeds the fair value of the assets.

 

Recoverability of assetsto be held and used is measured by a comparison of the carrying amount of anasset to the estimated undiscounted future cash flows expected to be generatedby the asset. If the carrying amount of an asset exceeds its estimated futurecash flows, an impairment charge is recognized by the amount by which thecarrying amount of the asset exceeds the fair value of the asset. Assets to bedisposed of would be separately presented in the balance sheet and reported atthe lower of the carrying amount or fair value less costs to sell, and are nolonger depreciated. The assets and liabilities of a disposed group classifiedas held for sale are presented separately in the appropriate asset andliability sections of the balance sheet.

 

Majoradditions and improvements to property, plant and equipment are capitalized, atcost, when they significantly increase the productive capacity or the life ofthe asset. Repair and maintenance expenditures which are routine,

 

97

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unanticipated,or for which the timing cannot be estimated, and which do not extend the usefullife or increase the productive capacity of the asset, are charged tooperations as incurred.

 

Interestincurred for the direct or indirect debt for the construction of assets to beused in operations is capitalized when the interest is charged. The amount ofinterest capitalized was $763, $112, and $206 for the years ended October 31,2005, 2004 and 2003, respectively.

 

Coststo treat environmental contamination are capitalized when they extend the life,increase the capacity, or improve the safety or efficiency of the property;when they mitigate or prevent future environmental contamination or when theyare incurred in preparing property for sale.

 

Depreciation iscalculated on a straight-line basis at the rates indicated in Note 7.

 

#### ***Exploration and Development Costs***

####  

Explorationcosts and development costs incurred to maintain production at operating minesare charged to operations as incurred. Development expenditures for miningproperties that are considered to be commercially feasible, but are not yetproducing, and major development expenditures at operating mines that areexpected to benefit future production are capitalized and amortized using theunits of production method over the estimated proven ore reserves to bebenefited.

 

***Reclamation and Mine Closure Costs***

 

The Company’s mining andsmelting facilities are subject to governance by various agencies that haveestablished minimum standards for reclamation.

 

As of November 1, 2002the Company adopted Financial Accounting Standards Statement No. 143, *Accounting for Asset Retirement Obligations*(Statement No.143), which addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs. The standard applies to legal obligations associatedwith the retirement of long-lived assets that result from the acquisition,construction, development and/or normal use of the asset.

 

Prior to the adoption of Statement No. 143, theCompany accrued for mine and other closure obligations at their estimated,undiscounted cost. Statement No. 143 requires that the fair value of aliability for an asset retirement obligation be recognized in the period inwhich it is incurred if a reasonable estimate of fair value can be made. Thefair value of the liability is added to the carrying amount of the associatedasset and this additional carrying amount is depreciated over the life of theasset. The liability is accreted at the end of each period through charges tooperating expense. If the obligation is settled for other than the carryingamount of the liability, the Company will recognize a gain or loss onsettlement.

 

The cumulative effect related to the adoption ofStatement No. 143 for the year ended October 31, 2003 was a loss of $92, a netdecrease to plant, property and equipment of $1,613, and a decrease of $1,521to the liability for asset retirement obligations.

 

#### ***Commitments and Contingencies***

####  

TheCompany accrues for loss contingencies, including costs associated withenvironmental remediation obligations, when it is probable that a liability hasbeen incurred and can be reasonably estimated. Liability estimates forenvironmental remediation obligations are based on an evaluation of, amongother factors, currently available facts, existing technology, presentlyenacted laws and regulations and the Company’s experience in remediation. Costsof future expenditures for environmental remediation obligations are notdiscounted to their present value.

 

# ***Revenue Recognition***

# ** **

Sales are recorded asproducts are delivered to customers as defined in the specific contracts or astolling services are performed. Concentrate and certain smelter product salesare recorded based upon estimated weights and metal

 

98

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contents and metal pricesin effect at the time of delivery. Revenues are adjusted between the month ofdelivery and the month of settlement based on changes in market prices. Adjustmentswith respect to such sales are recorded based on final settlement weights,metal contents and metal prices using applicable customer agreements.

 

#### ***Derivative Instruments and Hedging Activities***

####  

Statement of FinancialAccounting Standards No. 133, *Accounting for DerivativeInstruments and Hedging Activities*, was issued by the FinancialAccounting Standards Board in June 1998, and amended by Statement No. 138, *Accounting for Certain Derivative Instruments and Certain HedgingActivities, an amendment of FASB Statement No. 133*, issued in June2000 (collectively, Statement No. 133). Under Statement No. 133, the Companycarries all derivative instruments in the balance sheet at fair value. Theaccounting for changes in the fair value (i.e. gains and losses) of aderivative instrument depends on whether it has been designated and qualifiesas part of a hedging relationship, and if so, whether the derivative instrumentis designated as a hedge of exposures to changes in fair values, or cash flows.If the hedged exposure is an exposure to changes in the fair value of a fixedcommitment, the gain (loss) is recognized in earnings in the period of change,with an equal and offsetting (loss) gain recognized on the change in value ofthe hedged item. If the hedged exposure is an exposure to changes in forecastedcash flows, the effective portion of the gain (loss) is reported as a componentof other comprehensive income (outside earnings) until the forecasted hedgedtransaction affects earnings, when it is reclassified into earnings.

 

# ***Deferred Income Taxes***

# ** **

Deferred tax assets andliabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and the respective tax bases of these assets and liabilities. Deferredtax assets and liabilities are measured using enacted tax rates expected toapply to taxable income in the years in which those temporary differences areexpected to be recovered or settled.

 

***Deferred Workers’ Profit Sharing***

 

In accordance withgovernment regulations in Peru, employees are entitled to receive 8% of Doe RunPeru’s taxable income, 50% of which is distributed to employees based on numberof days worked, and the remaining amount is distributed in proportion to theirsalaries. Such profit sharing, which is tax deductible, is limited to 18 timesthe annual salary for each worker. Any excess is to be reserved and used fortraining of the workers.

 

Because workers’ profitsharing is calculated on taxable income, the Company recognizes the effect oftemporary differences between financial reporting and tax bases of assets andliabilities related to workers’ profit sharing on a basis consistent with thatused for income taxes.

 

***Reclassifications***

 

Certain balances havebeen reclassified from their previous presentation in order to conform to thecurrent year presentation.

 

**(4)Remeasurement into U.S. Dollars**

** **

Themethodology utilized for the remeasurement of nuevos soles (S/) into U.S.dollars, as established by Statement of Financial Accounting Standards No. 52, *Foreign Currency Translation*, is as follows:

 

(a)   Non-monetary accounts have been remeasured athistorical exchange rates.

 

(b)         Monetaryaccounts in Peruvian currency have been remeasured at free market averageexchange rates in effect at the respective year-end. See Note 5.

 

(c)          Income andexpenses have been remeasured at the average monthly exchange rates. Cost ofsales was determined from its components once remeasured. The net effect offoreign exchange differences has been reflected in the accompanying statementsof operations.

 

99

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**(5) Foreign Currency Transactionand Exchange Risk Exposure**

 

Under current law, foreign currency transactions aremade through the Peruvian financial banking system at free market exchangerates. The exchange rates in effect were S/3.380, S/3.325 and S/3.473 to U.S.dollar for assets at October 31, 2005, 2004 and 2003, respectively, andS/3.376, S/3.322 and S/3.472 to U.S. dollar for liabilities at October 31,2005, 2004 and 2003, respectively.

 

Assetsand liabilities denominated in Peruvian nuevos soles (S/) are as follows:

 
| ** **                                 | ** ** | **October 31,** | ** ** |
|--------------------------------------------|------------|----------------------|------------|
| ** **                                 | ** ** | **2005**             | ** ** | **2004** | ** ** | **2003** | ** ** |
| Assets:                                    |       |                 |       |   |   |   |   |
| Cash                                       |       | S/ 13,557            |       | S/221 |   | S/ 10,463 |   |
| Prepaid expenses  and other current assets |       | 3,404                |       | 3,213 |   | 5,533 |   |
|                                       |       |                 |       |   |   |   |   |
|                                       |       | 16,961               |       | 3,434 |   | 15,996 |   |
|                                       |       |                 |       |   |   |   |   |
| Liabilities:                               |       |                 |       |   |   |   |   |
| Accounts payable                           |       | 6,794                |       | 3,207 |   | 5,567 |   |
| Accrued  liabilities                       |       | 41,362               |       | 37,915 |   | 37,176 |   |
|                                       |       |                 |       |   |   |   |   |
|                                       |       | 48,156               |       | 41,122 |   | 42,743 |   |
|                                       |       |                 |       |   |   |   |   |
| Net position                               |       | S/ (31,195           | )          | S/ (37,688 | ) | S/ (26,747 | ) |

 

The Company recorded netforeign currency transaction gains (losses) relating to transactionsdenominated in Peruvian nuevos soles of $241 for the year ended October 31,2005, $(471) for the year ended October 31, 2004 and $(157) for the year endedOctober 31, 2003, which have been reflected in the statements of operations.

 

**(6) Inventories**

 

Inventories consist ofthe following:

 
| ** **                           | ** ** | **October 31,** | ** ** |
|--------------------------------------|------------|----------------------|------------|
| ** **                           | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                 |       |                 |       |   |   |
| Refined metals  for sale             |       | $                    | 10,397     |   | $ | 8,356 |   |
| Metals and  concentrates in process  |       | 44,668               |       | 44,523 |   |
| Materials,  supplies and spare parts |       | 13,691               |       | 12,997 |   |
|                                 |       |                 |       |   |   |
|                                 |       | $                    | 68,756     |   | $ | 65,876 |   |

 

Materials, supplies andspare parts are stated net of reserves for obsolescence of $1,162 and $1,436 atOctober 31, 2005 and 2004, respectively.

 

The FIFO cost ofinventories, valued under the LIFO cost method, were approximately $97,122 and$78,977 at October 31, 2005 and 2004, respectively. If the FIFO cost method hadbeen used to determine cost, inventories would have been $42,789 and $26,417higher at October 31, 2005 and 2004, respectively.

 

Asa result of reducing certain inventory quantities valued on the LIFO basis in2003, inventory costs prevailing in previous years was charged to cost of sales.The Company calculates the effect of LIFO liquidations on results of operationsbased on the current cost method. The effects of this liquidation on theresults of operations in the year ended October 31, 2003 was not significant.

 

100

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**(7) Property, Plant andEquipment, Net**

 

Property, plant andequipment consists of the following:

 
| ** **                     | ** ** | **Average Annual** | ** ** | ** **           | ** ** | ** ** | ** ** |
|--------------------------------|------------|-------------------------|------------|----------------------|------------|------------|------------|
| ** **                     | ** ** | **Depreciation**        | ** ** | **October 31,** | ** ** |
| ** **                     | ** ** | **Rate**                | ** ** | **2005**             | ** ** | **2004**   | ** ** |
| Cost:                          |       |                    |       |                 |       |       |       |
| Land                           |       | —                  |       | $                    | 5,847      |       | $          | 5,847 |   |
| Buildings and  improvements    |       | 5% and 10%              |       | 41,051               |       | 35,966     |       |
| Machinery and  equipment       |       | 6.67%                   |       | 104,957              |       | 105,317    |       |
| Transportation  units          |       | 33.33%                  |       | 4,176                |       | 4,147      |       |
| Other equipment                |       | 10% and 20%             |       | 21,477               |       | 20,328     |       |
| Construction in  progress      |       | —                  |       | 63,911               |       | 37,252     |       |
|                           |       |                    |       |                 |       |       |       |
|                           |       |                    |       | 241,419              |       | 208,857    |       |
| Less accumulated  depreciation |       |                    |       | 79,856               |       | 68,114     |       |
|                           |       |                    |       |                 |       |       |       |
|                           |       |                    |       | $                    | 161,563    |       | $          | 140,743 |   |

 

The implementation ofStatement No. 143 resulted in changes to the estimates of expected cash flowsrelated to asset retirement obligations resulted in an additional decrease toplant, property and equipment of  $0, $0,and $600 as of October 31, 2005, 2004 and 2003, respectively. See additional disclosures related to Statement No.143 in Note 12.

 

**(8) Accrued Liabilities**

 

Accrued liabilities consistof the following:

 
| ** **                             | ** ** | **October 31,** | ** ** |
|----------------------------------------|------------|----------------------|------------|
| ** **                             | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                   |       |                 |       |   |   |
| Salaries, wages  and employee benefits |       | $                    | 11,228     |   | $ | 10,513 |   |
| Accounts payable  to contractors       |       | 7,061                |       | 5,983 |   |
| Income taxes  payable                  |       | 1,601                |       | 1,601 |   |
| Due to power  company                  |       | 3,863                |       | 4,415 |   |
| Other accrued  liabilities             |       | 7,447                |       | 4,687 |   |
|                                   |       |                 |       |   |   |
|                                   |       | $                    | 31,200     |   | $ | 27,199 |   |

 

**(9) Debt**

 

Long-term debt consistsof the following:

 
| ** **                               | ** ** | **October 31,** | ** ** |
|------------------------------------------|------------|----------------------|------------|
| ** **                               | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                     |       |                 |       |   |   |
| Revolving credit  facility               |       | $                    | 39,800     |   | $ | 39,400 |   |
| Capital leases                           |       | 21                   |       | — |   |
|                                     |       |                 |       |   |   |
|                                     |       | 39,821               |       | 39,400 |   |
| Less current  maturities                 |       | 39,821               |       | 39,400 |   |
|                                     |       |                 |       |   |   |
| Long-term debt,  less current maturities |       | $                    | —     |   | $ | — |   |

 

There is a long-termportion of the capital lease in the amount of $6 which is included in  “Other non current liabilities” on theBalance Sheet.

 

The revolving creditfacility (the Doe Run Peru Revolving Credit Facility) allows Doe Run Peru toborrow up to $40,000 for working capital, with a limit on letters of credit of$5,000 and expires on November 23, 2005. The Doe Run

 

101

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Peru Revolving CreditFacility bears interest at LIBOR (1-month, 3-month or 6-month rate, dependingon the term of the loan) plus 3.5% per annum for an effective rate of 7.59% atOctober 31, 2005. An unused line fee of 0.375% per annum on the average unusedportion of the line is payable quarterly, in arrears. The Doe Run PeruRevolving Credit Facility is secured by accounts receivable and inventories.Availability of loans under the facility is limited to a percentage of Doe RunPeru’s eligible accounts receivable and eligible inventories, less anyoutstanding loans and letters of credit. Revolving loans outstanding under theDoe Run Peru Revolving Credit Facility were $39,800 and $39,400 at October 31,2005 and 2004, respectively. The availability was approximately $200 and $60 atOctober 31, 2005 and 2004, respectively.

 

On November 22, 2005 DoeRun Peru entered into an amendment of its revolving credit facility whichextended the maturity date of the Doe Run Peru Revolving Credit Facility toDecember 15, 2005.

 

On December 15, 2005, DoeRun Peru entered into an amendment of its revolving credit facility. Theamendment extended the maturity date to June 23, 2006 with certain conditionsprecedent, that if met would extend the maturity date to September 23, 2006. Theconditions precedent are, that the PAMA extension be approved, that Doe RunPeru diligently seek financing to replace the existing credit line and that DoeRun Peru obtain the letter of guarantee required by the Peruvian government ifthe PAMA extension is approved. The amendment also changed the interest ratesto LIBOR (1-month, 2-month or 3-month rate, depending on the term of the loan)plus 3.5%, 3.75% and 4.25%, respectively, per annum. The amendment also allowsDoe Run Peru an additional indebtedness and the ability to create a trustaccount to administer the receipts and disbursements related to the PAMAproject.

 

The Doe Run PeruRevolving Credit Facility contains certain covenants governing minimum networth requirements, limitations on indebtedness and investments, capitalexpenditures, and restrictions on the payments of dividends in the event ofdefault. The Company was in compliance with all of the covenants as of October31, 2005.

 

If Doe Run Peru is not successful with itsadministrative appeal of the tax assessment discussed in Note 10, the lendercan, at its discretion, require that the amount of the assessment reduce networth as defined under Doe Run Peru’s Revolving Credit Facility. Such reductionalong with other factors, including results of operations, would affect Doe RunPeru’s ability to comply with the net worth requirement.

 

In 2002, The Doe Run Resources Corporation (Doe Run),Doe Run Cayman’s parent, tendered a special term deposit in payment of a loanmade to Doe Run Peru by a foreign bank, and, in return, Doe Run Peru deliveredan intercompany note to Doe Run in an equivalent amount, plus accrued andunpaid interest, for an aggregate balance of $139,063. This intercompany notewill not bear interest during the term of the Doe Run Peru Revolving CreditFacility. The due date of the intercompany note is December 1, 2006, howeverobligations under the intercompany note are subordinate to obligations underthe Doe Run Peru Revolving Credit Facility.

 

On January 16, 2006, Doe Run Peru entered into anamendment to the intercompany note which extended the due date to December 9,2006. This balance of this note is in current liabilities under due to relatedparties.

 

**(10) Taxation**

 

Doe Run Cayman issubject to the regulations of the Cayman Islands, which currently have nocorporate income or capital gains tax. Doe Run Cayman’s subsidiaries located inPeru are subject to Peruvian taxation. The statutory income tax rate in Peru is30%. Doe Run Peru is a party to a Tax Stabilization Agreement and a Contract ofGuarantees and Measures to Promote Investments with the Peruvian Government asfollows:

 

***TaxStabilization Agreement***

 

The Tax StabilizationAgreement expires as of December 31, 2006. Under this agreement, Doe Run Peruutilizes tax statutes prevailing as of November 6, 1997. The principalprovisions of the agreement are as follows:

 

•                  In exerciseof the regulation permitted in the tenth clause of the Tax StabilizationAgreement, Doe Run Peru adopted the tax statutes prevailing as of November 6,1997.

 

•                  Customduties will be calculated at rates ranging from 12% to 20%.

 

102

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•                  Free tradeof its products.

 

•                  Norestrictions on the use of proceeds from export sales.

 

•                  Freeconversion of foreign currency generated by local sales.

 

•                  Nodiscrimination in foreign currency transactions.

 

***Contract ofGuarantees and Measures to Promote Investments***

 

On December 30, 1997,Doe Run Peru signed a Contract of Guarantees and Measures to PromoteInvestments, as modified in 2005. This agreement is effective beginning in thecalendar year ended December 31, 2007, provided that Doe Run Peru complies withthe committed investments related to the improvements of the facilities, andprovides tax stability through December 31, 2021. The principal provisions aresimilar to those established in the Tax Stabilization Agreement, except thatDoe Run Peru will utilize the tax statutes prevailing as of December 23, 1997.

 

The last acceptedmodification of the current contract requires Doe Run Peru to spend a total$108,442 on a specific set of projects. Included in this list of projects is aportion of the total sulfuric acid plant cost of $39,000. All expenditures forthis contract must be completed by December 31, 2006. Through October 31, 2005,Doe Run Peru had invested $117,315 on projects within the projects list of thiscontract. Even though the total spending has been exceeded, specific projectsexpenditures on the list have not been accomplished. As of October 31, 2005only $4,600 of the $39,000 has been spent on a new sulfuric acid plant. Underthe current agreement the remaining $34,400 must be spent by December 31, 2006.

 

On August 23, 2005, DoeRun Peru filed for a modification to the contract, to reduce the totalinvestment commitment to $102,342. This modification included addition of someprojects and reduction of others. Included in the reduction was a reduction ofthe sulfuric acid plant project from $39,000 to $5,600. On January 19, 2006 theEnergy and Mines Ministry ruled on the modification and did not approve thereduction, but did approve certain new projects expenditures. As a result ofthe January 19, 2006 ruling, the overall commitment under the modification isnow $133,542 which still includes a sulfuric acid plant commitment of $39,000. OnFebruary 9, 2006, Doe Run Peru filed before the Mining Council of the MiningMinistry an appeal against this ruling. Doe Run Peru is expecting reductions,one of which reduction is the sulfuric acid plant investment to $5,600. Withthese changes the total investment amount to meet the contract will be reducedto $95,642, with remaining specific project investments required by December31, 2006 of $17,000.

 

***Peruvian IncomeTax***

 

The Company had noexpense relating to Peruvian income tax for the years ended October 31, 2005,2004 and 2003, due to changes in valuation allowance described below.

 

Peruvian income taxexpense (benefit) differed from the amount computed by applying the statutoryincome tax rate of 30% to income before income tax expense (benefit) as aresult of the following:

 
| ** **                                  | ** ** | **Year ended October 31,** | ** ** |
|---------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                  | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                        |       |                                      |       |   |   |   |   |
| Income tax  expense at statutory rate       |       | $                                         | 5,063      |   | $ | 93 |   | $ | (6,122 | ) |
| Increase  (reduction) in income tax expense |       |                                      |       |   |   |   |   |
| Resulting from:                             |       |                                      |       |   |   |   |   |
| Change in  valuation allowance              |       | (9,686                                    | )          | (1,287 | ) | 5,473 |   |
| Other, net                                  |       | 4,623                                     |       | 1,194 |   | 649 |   |
|                                        |       |                                      |       |   |   |   |   |
|                                        |       | $                                         | —     |   | $ | — |   | $ | — |   |

 

103

----

 

***Deferred Taxes***

 

The tax effects oftemporary differences that give rise to significant portions of the deferredtax assets and deferred tax liabilities are as follows:

 
| ** **                               | ** ** | **October 31,** | ** ** |
|------------------------------------------|------------|----------------------|------------|
| ** **                               | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                     |       |                 |       |   |   |
| Deferred tax  assets:                    |       |                 |       |   |   |
| Trade accounts  receivable               |       | $                    | 787        |   | $ | — |   |
| Inventories                              |       | 12,378               |       | 7,865 |   |
| Property, plant  and equipment           |       | 9,721                |       | 6,565 |   |
| Accrued  liabilities                     |       | 2,479                |       | 2,488 |   |
| Tax loss  carryforwards                  |       | 14,178               |       | 27,344 |   |
| Other noncurrent  assets and liabilities |       | 1,038                |       | 1,035 |   |
|                                     |       |                 |       |   |   |
|                                     |       | 40,581               |       | 45,297 |   |
| Less valuation  allowance                |       | (29,034              | )          | (38,720 | ) |
|                                     |       |                 |       |   |   |
| Total deferred  tax assets               |       | 11,547               |       | 6,577 |   |
|                                     |       |                 |       |   |   |
| Deferred tax  liabilities:               |       |                 |       |   |   |
| Property, plant  and equipment           |       | (11,547              | )          | (6,577 | ) |
|                                     |       |                 |       |   |   |
| Total deferred  tax liabilities          |       | (11,547              | )          | (6,577 | ) |
|                                     |       |                 |       |   |   |
| Net deferred tax  assets                 |       | $                    | —     |   | $ | — |   |

 

The deferred tax assetsand liabilities related to property, plant and equipment are principally due todifferences in book and tax allocations of the excess of the fair value of thesum of assets acquired, less liabilities assumed over the purchase price paidand accelerated depreciation methods used for tax purposes.

 

The net operating losscarryforwards may be offset against the taxable income that the Company obtainsup to December 31, 2007, inclusive.

 

Management believes thatsufficient uncertainty exists regarding the realization of certain deferred taxassets that a valuation allowance is required. The valuation allowancedecreased $9,686 and $1,287 for the years ended October 31, 2005 and 2004,respectively and increased $5,473 for the year ended October 31, 2003.

 

***Tax Assessments***

 

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 estimated assessed amountconsisting of additional income taxes due, penalties and interest as of October31, 2005 totals approximately $109,030. The Company estimates that the effectof a similar assessment for tax years after 2001 would be approximately $30,300.Furthermore, Doe Run Peru would also be required to make additional workers’profit sharing payments equal to 8% of the increase in taxable income generatedby the changes discussed above, or approximately $11,200 for calendar years1998 through 2005.

 

Doe Run Peru has also received Value Added Tax (VAT)assessments for the tax years 1999 through 2001 and for the period from Januarythrough July 2004. The assessments primarily relate to Doe Run Peru’s exportswith holding certificates and differences in a tax credit application. Thetotal assessment for these periods was approximately $43,489. SUNAT offset theamount assessed for 2004 of approximately $2,300 against Doe Run Peru’s VATreceivable balance

 

104

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from July 2004. Future VAT reimbursements cannot beused to offset the assessment by SUNAT. The Company discontinued the use ofholding certificates for exports in June 2004. The Company estimates expectedadditional assessments related to VAT for tax years 2002 and 2003 to totalapproximately $20,166 in regard to its exports with holding certificates.

 

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. No amounts have been accrued as liabilities related to these actions.

 

**(11) Employee Benefits**

 

***Severance Indemnities***

 

Doe Run Peru is requiredto make semi-annual deposits into a bank account for severance indemnitybenefits for Peruvian employees under Peruvian government regulations. Thebalance in the account represents the full benefit due to such employees upontermination. The Company accrues for the additional amount that would becontributed to the account since the last deposit date as if all such employeeswere to terminate as of the balance sheet date. The Company’s expense relatedto severance indemnity benefits was $3,523, $3,428 and $3,974 for the yearsended October 31, 2005, 2004 and 2003, respectively.

 

***Workers’ Profit Sharing***

 

In accordance withgovernment regulations in Peru, employees are entitled to receive 8% of the DoeRun Peru’s taxable income, 50% of which is distributed to employees based onnumber of days worked, and the remaining distributed in proportion to theirsalaries. Such profit sharing, which is tax deductible, is limited to 18 timesthe annual salary for each worker. Any excess is to be reserved and used fortraining of the workers. The Company had no expense relating to workers’ profitsharing payments for the years ended October 31, 2005, 2004 and 2003, due totax loss or offset of taxable income by tax loss carryforwards. See Note 10 forfurther discussion.

 

**(12) Commitments andContingencies**

 

## ***Environmental Matters***

## ** **

Doe Run Peru’s La Oroyaoperations historically and currently exceed some of the applicable Ministry ofEnergy and Mines (MEM) maximum permissible limits pertaining to air emissionsand wastewater effluent quality. Prior to our acquisition of La Oroya,Metaloroya S.A., the former owner, a subsidiary of Empresa Mineral del Centrodel Peru S.A which we refer to as (Centomin), received approval from the Peruviangovernment for an Environmental Remediation and Management Program, known as aPAMA. The PAMA was designed to achieve compliance with MEM’s air and wastewaterlimits. It consisted of an environmental impact analysis, monitoring plan anddata, mitigation measures and a closure plan. The PAMA also sets forth theactions and corresponding annual investments the concession holder agrees toundertake in order to achieve compliance with the maximum permissible limitsprior to expiration of the PAMA (ten years for smelters, such as Doe Run Peru’soperations in La Oroya, and five years for any other type of mining ormetallurgical operation like Cobriza). The PAMA projects, which are more fullydiscussed below, have been designed to achieve compliance with theserequirements. The Peruvian government may, in the future, require compliancewith additional environmental regulations that could adversely affect Doe RunPeru’s business, financial condition and results of operations. Afterexpiration of the PAMA, the operator must comply with all applicable standardsand requirements. Because these costs improve the property or prevent futureenvironmental contamination, they are capitalized.

 

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

 

•                  Constructnew sulfuric acid plants;

•                  Constructa treatment plant for the copper refinery effluent;

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

•                  Improvethe slag handling system;

 

105

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•                  ImproveHuanchan lead and copper slag deposits;

•                  Constructan arsenic trioxide deposit;

•                  Improvethe zinc ferrite disposal site;

•                  Constructdomestic wastewater treatment and domestic waste disposal; and

•                  Constructa monitoring station.

 

Aninvestment schedule in the PAMA provides a specific plan for achieving theapplicable MEM maximum permissible limits pertaining to air emissions andwastewater effluent quality. The PAMA may be modified and amended as to theactual design and timing of projects to be implemented, provided compliancewith the applicable maximum permissible limits is achieved by December 31,2006. The required estimated spending for the projects approved in the La OroyaPAMA, as amended on January 25, 2002, is $108,000 for calendar 2006.

 

Doe Run Peru expects thatit will not be able to comply with the spending requirements of La Oroya’s PAMAinvestment schedule in 2006 with respect to the construction of the sulfuricacid plants required by the PAMA and, as a result, could be subject topenalties. Failure to comply with the PAMA could result in the cessation ofoperations at the La Oroya smelter, which would adversely affect our business,financial condition and results of operations.

 

On December 29, 2004 thePeruvian Government issued a Supreme Decree No. 046-2004-EM (Supreme Decree),which recognized that exceptional circumstances may justify an extension of oneor more projects within the scope of a PAMA. The Supreme Decree specifies thatcompanies had until December 31, 2005 to apply for an extension. The maximumextension is for three years and the MEM may authorize an additional year basedupon the results of a health risk study.

 

Pursuant to the SupremeDecree, the application for a PAMA extension must be supported by a health riskstudy performed by a third party. The application must contain an engineeringdescription and funding plan of any project to be extended, a discussion of howand when environmental emission standards will be met, a plan to monitoremissions with the participation of the community, proof that at least threepublic workshops were held in various districts to provide information on DoeRun Peru’s financial situation and health programs, proof that two publichearings were held regarding the extension plans, and other financialinformation. Upon meeting these requirements, Doe Run Peru applied for anextension on December 20, 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.

 

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 theremaining investment needed to build the sulfuric acid plants to beapproximately $102,000.

 

To achieve the financialguarantee and the trust contract required by Supreme Decree, the company hasamended the Doe Run Peru Revolving Credit Facility to allow for thosearrangements and has filed a draft of a trust guarantee contract with a localbank. Additionally, on December 10, 2005 the company signed a Working CapitalFinancial Facility Agreement for the amount of $30,000 (named Ferrites Loan)with Servicios Mineros Integrados S.A.C., a Trafigura Beheer B.V. subsidiary,to use such funds in the fulfillment of the financial security as mentionedabove.

 

Doe Run Peru hasperformed other environmental projects to reduce fugitive emissions in 2005including the installation work on the short rotary furnace, enclosing theblast furnace and dross plant, along with other complementary work. Majorprojects scheduled for fiscal year 2006 include an upgrade of the ventilationsystem in the sinter plant, completion of the enclosure work around the leadand dross furnace, the enclosure of the anode residue plant along with theelimination of its nitrous gases, and the reduction of fugitive emissions fromthe copper and lead beds. The total cost of the currently remaining PAMAprojects, including the sulfuric acid plant construction, and these projects isapproximately $130,000.

 

106

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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.

 

In the future, as part ofa modernization plan and to enrich sulfuruous gas feed to the sulfuric acidplant, we are planning to replace the oxy-fuel reverberatory furnace with areactor furnace to smelt copper concentrats. The anticipated cost isapproximately $57 million.

 

The PAMA projects havebeen designed to achieve compliance with the maximum permissible limits ofemission prior to the expiration of the PAMA. However, no assurance can begiven that implementation of the PAMA projects is feasible or that theirimplementation will achieve compliance with the applicable legal requirementsby the end of the PAMA period. Furthermore, there can be no assurance that thePeruvian government will not in the future require compliance with additionalor different environmental obligations that could adversely affect Doe Run Peru’sbusiness, financial condition and results of operations.

 

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

 

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

 

In addition to its PAMAobligations, Doe Run Peru is responsible for the remediation costs relating toa zinc ferrite disposal site. The current closure plan provides forencapsulating the ferrite residues in place at Huanchan, an area a shortdistance from the smelter where they are currently stored, for which anenvironmental liability of $1,600 has been recorded as of October 31, 2005 and2004.

 

***Asset RetirementObligations***

 

Asset retirementobligations (AROs) are recognized as liabilities when incurred, with theinitial measurement at fair value. These liabilities will be increased to fullvalue over time through charges of accretion to operating expense. In addition,an asset retirement cost is capitalized as part of the related asset’s carryingvalue and will be depreciated over the asset’s useful life. Changes in the AROliability resulting from revisions to the timing or the amount of the originalestimate of undiscounted cash flows shall be recognized as an increase or adecrease in the carrying amount of the liability for an ARO and the relatedasset retirement cost capitalized as part of the carrying amount of the relatedlong-lived asset.

 

Mine Closure Law No.28090 (Law) became effective as of October 15, 2005.  The Law establishesthe obligations and procedures that titleholders of mining activities mustadhere to .including a financial guarantee for environmentalissues.   Doe Run Peru must be submitted a mine closure plan to theMinistry of Energy and Mines by August 17, 2006.  The mine closure planmust include a description of the remediation measures to be done, along withtheir cost and timing, and the expected amount of the financial guarantee.Pursuant to the Tax Stabilization Agreement, Doe Run Peru is exempt from newobligations that could result in a reduction of its cash availability, such asthe guarantee discussed above.  Therefore, Doe Run Peru considers that theestablishment of the corresponding environmental guarantee would be inopposition to the provisions set forth in the Tax Stabilization Agreement.

 

DoeRun Peru has AROs at its Cobriza mine, related to the costs associated withclosing the mine openings and covering acid rock. Doe Run Peru is alsoresponsible for the covering and revegetation of mixed lead and copper slagalso stored in Huanchan, an area a short distance from the smelter where theslag is currently stored.

 

107

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Activity related to Doe Run Peru’s AROs for the yearsended October 31, 2005 and 2004 are as follows:

 
| ** **                    | ** ** | **October 31,** | ** ** |
|-------------------------------|------------|----------------------|------------|
| ** **                    | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                          |       |                 |       |   |   |
| AROs as of  beginning of year |       | $                    | 1,866      |   | $ | 1,643 |   |
|                          |       |                 |       |   |   |
| Accretion  expense            |       | —               |       | 223 |   |
|                          |       |                 |       |   |   |
| AROs as of end  of year       |       | $                    | 1,866      |   | $ | 1,866 |   |

 

##### **Guaranteeof Doe Run Debt**

#####  

Doe Run Cayman and itswholly-owned subsidiary, Doe Run Peru, have jointly and severally, fully,unconditionally guaranteed notes issued by Doe Run. The total principal amountsowed under these notes as of October 31, 2005 and 2004 was $ 226,967 and$241,967, respectively. These notes are secured by a second priority interestin substantially all of the assets of Doe Run’s U.S. operations, except forsubstantially all accounts receivable and inventory.

 

The guarantee of Doe RunPeru is contractually subordinated to the indebtedness of Doe Run Peru underthe Revolving Credit Facility described in Note 9.

 

## ***Litigation***

## ** **

All existing and pending litigations at the time ofthe acquisition of Doe Run Peru were retained by Centromin, the prior owner ofthe La Oroya smelter and Cobriza mine.

 

Doe Run Peru is adefendant in 198 labor lawsuits in the Peruvian labor courts that to workersallege damage from industrial diseases. Doe Run Peru has made claims in most ofthe cases against Centromin and has also made claims against both governmentalagencies and private companies that provide workers’ insurance. The averageclaim is $18. Of 17 concluded cases in this category, 16 were dismissed and oneresulted in an award of $9.

 

Doe Run Peru is also adefendant in 163 lawsuits by workers alleging that are owed certain differencesin salaries and benefits. The average claim is $21. Of 31 concluded cases inthis category, 26 were dismissed and five resulted in awards totaling $15. DoeRun Peru is also defendant in a lawsuit by the Yauli-La Oroya Employees Unionconcerning salaries and benefits. The claims of the 146 workers remaining inthe lawsuit have been valued at a total of $238 according to a report by anexpert appointed by the court.

 

Doe Run Peru is also adefendant in 26 labor lawsuits alleging claims ranging from industrial diseasesto salary disputes including in indemnification for arbitrary dismissal,nullity of dismissal, moral damage compensation, and compensatory damages fromwork accident and readmission of worker. The average claim is $6. Of 29concluded cases in this category 26 were dismissed and three resulted in awardstotaling $22. 

 

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

 

On January 19, 2005, DoeRun Peru was served with a civil lawsuit by an association of municipalities ofthe Junin Region of Peru against Doe Run Peru and two other mining companies. Thislawsuit alleges environmental damages to the Mantaro River basin for the amountof $5.0 billion. Material liability to Doe Run Peru is believed to be remotebecause it is the opinion of management and outside counsel for Doe Run Peruthat the probability under Peruvian law of this case proceeding to a conclusionat the favor of the plaintiffs is low. Any potential judgment would be subjectto the indemnification obligations of Centromin, which are guaranteed by thePeruvian government.

 

On May 25, 2005, Doe RunPeru was served with a civil lawsuit alleging the existence of lead in a personcaused by Doe Run Peru’s operations. The claim is for $100.

 

On July 11, 2003, Doe RunPeru filed an administrative lawsuit against the Yauli – La Oroya ProvincialCity Hall in order to dismiss a number of fines for the amount of $2,800. DoeRun Peru was fined for not having the Construction Licenses for the PAMAprojects.

 

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 have been accrued as liabilities related tothese actions. There can be no assurance that these cases would not have a materialadverse effect, both individually and in the aggregate, on the results ofoperations, financial condition and liquidity of the Company. The Company hasand will continue to vigorously defend itself against such claims.

 

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***Letters of Credit and Other Contingent Obligations***

 

AtOctober 31, 2005, the Company had outstanding customs bonds of $946 relating tomaterials and supplies and other purchases.

 

***Sales Commitments and Concentration***

 

The Company has commitmentsto sell approximately 79%, 98%, 99%, 39% and 94% of its anticipated 2006copper, lead, zinc, silver and gold metal production, respectively, underagreements, with terms of generally less than one year. Sales prices aregenerally based on the average quoted exchange prices for the month ofshipment, plus a premium.

 

Doe Run Peru derives itsrevenue from the sale of its refined metals and other products to numerouscustomers. Doe Run Peru’s three largest customers accounted for 16%, 8% and 7%,respectively, of net sales in the year ended October 31, 2005, 17%, 14% and10%, respectively, of net sales in the year ended October 31, 2004, and 15%, 9%and 8%, respectively, of net sales in the year ended October 31, 2003. Thecustomers have sales contracts, under which the Company will supply products atprices based on international market quotations.

 

**(13)Hedging and Derivative Financial Instruments**

 

The Company usesderivative financial instruments primarily to enhance revenue by receivingpremiums on option contracts. The Company sells futures contracts and optionsand combinations thereof that effectively establish contract prices for salesand purchases that are acceptable to the Company, should the options beexercised. The options generate premium income, which enhance revenues. Becausethese instruments do not meet the requirements for hedge accounting underStatement No. 133, the changes in fair market value related to theseinstruments (including the time value portion), which reflect market prices andvolatility at the balance sheet date, are recorded in results of operations,and are expected to increase the volatility of reported results.

 

The unrealized gain orloss reflected in the statement of operations relates to the change in fairmarket value of derivative financial instruments that are not designated ashedges. For derivative instruments designated as hedges (futures contracts),the Company assesses effectiveness by comparing the changes in fair value orcash flows relating to the hedged transaction with all changes in the fairvalues or cash flows of the related derivative contract. Because the futurescontracts fluctuate by the same amount as the hedged transaction (the change inthe London Metal Exchange price), the hedges are considered effective.

 

The fair market value ofthe Company’s derivative financial instruments reflected in the Company’sbalance sheet as of October 31, 2005 and 2004 is the difference between quotedprices at the balance sheet date and the contract settlement value. The fairmarket value represents the estimated net cash the Company would receive (pay)if the contracts were canceled on the balance sheet date.

 

The Company’s openderivative positions as of October 31, 2005 were:

 

***Sold/ (Purchased) futures contracts****(tons,ounces and dollar amounts not in thousands)*

 
| **Metal** | ** ** | **Quantity** | ** ** | **Weighted Average Price** | ** ** | **Fair Value** | ** ** | **Period** | ** **           |
|-----------|------------|--------------|------------|--------------------------------------|------------|---------------------|------------|------------|----------------------|
| Copper    |       | 1,302 tons   |       | $2,577.07/ton                        |       | $                   | (1,296,940 | )          | Nov 05 – Jan 06 |   |
|      |       | (350) tons   |       | $3,470.86/ton                        |       | $                   | 52,900     |       | Dec 05               |   |
| Silver    |       | 987,300 oz   |       | $6.83/oz                             |       | $                   | (209,601   | )          | Nov 05 – Dec 06 |   |

 

***Sold/ (Purchased) call option contracts****  (tons, ounces and dollar amounts not inthousands)*

 
| **Metal** | ** ** | **Quantity**   | ** ** | **Price range** | ** ** | **Fair Value** | ** ** | **Period**           | ** ** |
|-----------|------------|----------------|------------|----------------------|------------|---------------------|------------|----------------------|------------|
| Silver    |       | 120,670 oz     |       | $5.47/oz             |       | $                   | (175,124   | )                    | Jan 06     |   |
| Crude Oil |       | 100,000 barrel |       | $70.00/barrel        |       | 359,750             |       | Feb 06 – Dec 06 |       |   |
|           |            |                |            |                      |            |                     |            |                      |            |  |  |  |

 

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The Company’s openderivative positions as of October 31, 2004 were:

 

***Sold/ (Purchased) futures contracts****(tons,ounces and dollar amounts not in thousands)*

 
| **Metal** | ** ** | **Quantity** | ** ** | **Weighted Average Price** | ** ** | **Fair Value** | ** ** | **Period** | ** **           |
|-----------|------------|--------------|------------|--------------------------------------|------------|---------------------|------------|------------|----------------------|
| Copper    |       | 1,102 tons   |       | $2,400.41/ton                        |       | $                   | (148,421   | )          | Nov 04 – Aug 05 |   |
| Silver    |       | 850,175 oz   |       | $5.26/oz                             |       | $                   | (1,191,098 | )          | Nov 04               |   |
|      |       | (987,300) oz |       | $5.56/oz                             |       | $                   | 1,088,910  |       | Nov 04               |   |
| Gold      |       | 6,472 oz     |       | $264.36/oz                           |       | $                   | (792,370   | )          | Nov 04               |   |
|      |       | (6,198) oz   |       | $299.91/oz                           |       | $                   | 538,445    |       | Nov 04               |   |

 

***Sold/ (Purchased) call option contracts****  (tons, ounces and dollar amounts not inthousands)*

 
| **Metal** | ** ** | **Quantity** | ** ** | **Price range** | ** ** | **Fair Value** | ** ** | **Period** | ** **           |
|-----------|------------|--------------|------------|----------------------|------------|---------------------|------------|------------|----------------------|
| Silver    |       | 416,860 oz   |       | $5.47 - $7.06/oz     |       | $                   | (479,378   | )          | Dec 04 – Mar 05 |   |
|      |       | (54,850) oz  |       | $7.06/oz             |       | $                   | 10,889     |       | Dec 04               |   |

 

***Sold/ (Purchased) put option contracts**** (tons, ounces and dollar amounts not inthousands)*

 
| **Metal** | ** ** | **Quantity** | ** ** | **Price range** | ** ** | **Fair Value** | ** ** | **Period** | ** **           |
|-----------|------------|--------------|------------|----------------------|------------|---------------------|------------|------------|----------------------|
| Copper    |       | (1,764 tons) |       | $2,512.90/ton        |       | $                   | 204,748    |       | Jan 05 – Apr 05 |   |
|           |            |              |            |                      |            |                     |            |            |                      |  |

 

At October 31, 2005 and2004, the Company had recorded an asset of $0 and $1, respectively, and aliability of $1,269 and $768, respectively, related to the fair values of theseinstruments.

 

The Company does notobtain collateral or other security to support hedge instruments subject tocredit risk but assesses the reliability and reputation of its counterpartiesbefore contracts are established.

 

**(14) Fair Value of FinancialInstruments**

 

The fair values of theCompany’s long-term debt were estimated using discounted cash flow analysis,based on the estimates of incremental borrowing rates for similar types ofborrowing arrangements. At October 31, 2005 and 2004, the fair values of theCompany’s financial instruments were not materially different from theircarrying amounts.

 

**(15) Related Party Transactions**

 

The Company has signedthe following agreements with Doe Run:

 

Pursuant to the termsand conditions included in an International Sales Agency Services Contractdated November 1, 2000, Doe Run agreed to perform marketing and sales servicesfor Doe Run Peru. The term of this agreement is for two years after which it isautomatically renewed on an annual basis unless either party gives notice ofnon-renewal. The commission is 2.25% of the sales revenue. Effective July 1,2004, Doe Run and Doe Run Peru cancelled the International Sales AgencyServices Contract under which Doe Run acted as a sales agent on behalf of DoeRun Peru. Under the cancellation, the balance owed to Doe Run of $22,600 willbe paid in $1,000 quarterly installments or as otherwise agreed by the parties.Doe Run Peru expensed $0, $7,502 and $9,046 for the years ended October 31,2005, 2004 and 2003, respectively.

 

Pursuant to the termsand conditions included in a Hedging Services Contract renewed November 1,2002, Doe Run agreed to perform trading and hedging services. The agreement isautomatically renewed on an annual basis unless either party gives notice ofnon-renewal. The commission is $42 per month. On July 1, 2004 Doe Run and DoeRun Peru

 

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amended the Hedging Service Contractchanging the terms of the commission calculation through January 1, 2006. DoeRun Peru expensed $0, $336 and $504 for the years ended October 31, 2005, 2004and 2003, respectively.

 

In addition to the above,Doe Run has paid expenses on behalf of Doe Run Peru of $0 and $666 in 2005 and2004, respectively. The following balances relating to inter-companytransactions were outstanding as of October 31, 2005 and 2004:

 

(a)          Asa result of these transactions, the Company had a due to related partiesbalance of $18,057 and $21,432 at October 31, 2005 and 2004, respectively.

 

(b)         Salesof refined metals to Doe Run were $9,588, $2,996 and $707 for the years endedOctober 31, 2005, 2004 and 2003, respectively. As a result of these sales theCompany had a due from related parties of $4,224 and $1,994 as of October 31,2005 and 2004, respectively and are included as trade accounts receivable inthe balance sheet as of October 31, 2005 and 2004.

 

(c)          TheCompany has signed a subordinated promissory note payable to Doe Run in theaggregate principle amount of $139,063. See Note 9.

 

Doe Run Peru has guaranteednotes of Doe Run. See the related discussion in Note 12.

 

Certain of Doe Run’s debt agreements contain covenantsthat limit the ability of Doe Run Peru to, among other things, incur additionalindebtedness, make certain restricted payments, consummate certain asset sales,enter into certain transactions with affiliates, incur lines, imposerestrictions on the ability of a subsidiary to pay dividends or make certainpayments to Doe Run, merge or consolidate with any other person or sell,assign, transfer, lease, convey or otherwise dispose of all or substantiallyall of its assets.

 

**(16)****Geographic Data**

 

The following is ananalysis of net sales by country of destination:

 
| ** **      | ** ** | **Year Ended October 31,** | ** ** |
|-----------------|------------|-------------------------------------------|------------|
| ** **      | ** ** | **2005**                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|            |       |                                      |       |   |   |   |   |
| USA             |       | $                                         | 240,287    |   | $ | 133,394 |   | $ | 161,604 |   |
| Brazil          |       | 92,989                                    |       | 79,355 |   | 56,994 |   |
| Peru            |       | 72,853                                    |       | 69,058 |   | 39,655 |   |
| Taiwan          |       | 54,065                                    |       | 44,669 |   | 15,013 |   |
| Japan           |       | 46,329                                    |       | 99,821 |   | 57,034 |   |
| Switzerland     |       | 30,224                                    |       | 25,034 |   | 25,188 |   |
| Venezuela       |       | 24,041                                    |       | 20,045 |   | 4,714 |   |
| Colombia        |       | 22,783                                    |       | 18,672 |   | 13,230 |   |
| Other           |       | 67,269                                    |       | 77,137 |   | 63,548 |   |
|            |       |                                      |       |   |   |   |   |
| Total net sales |       | $                                         | 650,840    |   | $ | 567,185 |   | $ | 436,980 |   |

 

**(17)Financial Condition**

 

***Fiscal Year 2003***

 

For the year ended October 31, 2003 and for severalyears prior, Doe Run Peru reported recurring losses, primarily due to thedecline of treatment charges Doe Run Peru received for processing raw materialsover the prior five years, which had severely impacted Doe Run Peru’s liquidity.Doe Run Peru had failed to meet certain financial covenant requirementscontained in its revolving credit agreement during fiscal 2003, which defaultcontinued into fiscal 2004. The Company has substantial environmentalcommitments that will affect the Company’s liquidity. These issues combinedraise substantial doubt about the Company’s ability to continue as a goingconcern.

 

DoeRun Peru’s results of operations and liquidity had been severely impacted bydeclining treatment charges that Doe Run Peru received for processing rawmaterials resulting from a shortage in the global supply of concentrates. The

 

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effects of low metals pricesfor the past several years had also caused some of Doe Run Peru’s currentsuppliers of concentrates to suffer financial distress, which had affected theavailability of concentrate feed. During 2003, deliveries of lead and zincconcentrates to La Oroya from a major Peruvian supplier were below contractedamounts. While Doe Run Peru was able to replace a portion of this shortfall withconcentrates from other suppliers, total concentrate receipts were less thanexpected and the resulting changes in concentrate mix and interruptions indelivery schedules adversely affected Doe Run Peru’s metal production andresults of operations. If one or more of Doe Run Peru’s significant localsuppliers were to cease delivery of concentrates, there could be no assuranceLa Oroya would be able to secure sufficient replacement feedstock ateconomically acceptable terms. If such shortages resulted in a significantinterruption in feed supply, a material reduction in the production of metalsfrom La Oroya or an interruption of production in the lead and zinc circuitscould result, which could have a significant adverse effect on the Company’sresults of operations, financial condition and liquidity.

 

DoeRun Peru proceeded with efforts to identify alternative methods of achievingcompliance with environmental requirements. These efforts included, but werenot limited to, reducing or curtailing production from a portion of the plantthus eliminating the need for the equipment presently contemplated andreplacing it with another alternative. These efforts took into considerationthe impacts on profitability and liquidity, as well as other economic impacts. Failureto comply with the PAMA could result in the cessation of operations at the LaOroya smelter.

 

During fiscal year 2003, Doe Run Peru implemented costsavings, including a reduction of approximately 10% of its workforce,acceleration of cash receipts, as well as other measures, to improve itsliquidity. In addition, the retirement of Doe Run Peru’s loan from a foreignbank, reduced Doe Run Peru’s interest payments by approximately $14,000 peryear. These changes improved Doe Run Peru’s cash flow and availability in 2003.The cash balance and net unused availability under Doe Run Peru’s revolvingcredit facility were approximately $16,800 and $3,800 at October 31, 2003,respectively.

 

***Fiscal Years 2004-2005***

 

Metal prices rose dramatically in 2005 and 2004. DoeRun Peru’s revenues and feed costs increased as a result of the priceincreases, as did accounts receivable, inventory and accounts payable as ofOctober 31, 2005.

 

Net unused availability at October 31, 2005 and 2004under the Doe Run Peru Revolving Credit Facility was approximately $200 and$60, respectively. In addition to the availability under its revolving creditfacilities, cash balances at Doe Run Peru were $14,569 and $6,905,respectively, at October 31, 2005 and 2004. Higher metal prices resulted inhigher outlays for concentrate purchases and higher VAT payments funded by cashfrom operations, as Doe Run Peru has reached its maximum borrowing level underthe Doe Run Peru Revolving Credit Facility.

 

As discussed in Note 12,Doe Run Peru’s existing PAMA requires it to perform projects in 2006 at a totalcost of $108,000. Doe Run Peru expects that it will not be able to comply withthe spending requirements of the PAMA investment schedule in 2006 with respectto the construction of the sulfuric acid plant 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, which wouldadversely affect our business, financial condition and results of operations.

 

The Peruvian Governmenthas issued the Supreme Decree, which recognized that exceptional circumstancesmay justify an extension of one or more projects within the scope of a PAMA. OnDecember 20, 2005 the Company filed the request of extension of the term tocomply with the sulfuric acid plants projects included in the original PAMA.Doe Run Peru will perform other environmental projects to reduce fugitiveemissions, including heavy metal dust, to address the health issues of thecommunity. The total cost of the currently remaining PAMA projects, includingthe sulfuric acid plant construction, and these projects is approximately$130,000. If the extension of the PAMA is approved, management expects to fundthe PAMA projects from cash from operations.

 

Upon approval of amodified PAMA, Doe Run Peru would be required to create a trust account. Thetrust account would administer the receipts and disbursements related to theextended PAMA project. The Supreme Decree requires that receipts from sales, inan amount sufficient to fund the monthly cash requirements of the extended PAMAproject, be remitted directly to the trust account.

 

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

 

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Company currently expects the remaining investmentneeded to build the sulfuric acid plants to be approximately $102,000.

 

To achieve the financialguarantee and the trust contract required by Supreme Decree, the company hasamended the Doe Run Peru Revolving Credit Facility to allow for thosearrangements and has filed a draft of a trust guarantee contract with a localbank. Additionally, on December 10, 2005 the company signed a Working CapitalFinancial Facility Agreement for the amount of $30,000 (named Ferrites Loan)with Servicios Mineros Integrados S.A.C. a Trafigura Beheer B.V. subsidiary, touse such funds in the fulfillment of the financial security as mentioned above.

 

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

 

In the future, as part ofa modernization plan and to enrich sulfurous gas feed to the sulfuric acidplant, we are planning to replace the oxy-fuel reverberatory furnace with a reactorfurnace to smelt copper concentrates. The anticipated cost is approximately$57,000.

 

A default under therequirements of the PAMA could result in a default under the Doe Run PeruRevolving Credit Facility.

 

As discussed in Note 10, Doe Run Peru has receivedincome tax assessments from SUNAT for the tax years 1998 through 2001, theassessed amount consisting of additional income taxes due, penalties andinterest as of October 31, 2005, totals approximately $109,030. Doe Run Peruhas also received VAT assessments for tax years 1999 through 2001 and for theperiod from January through July 2004, the total assessment was approximately$43,489, SUNAT offset the amount assessed for 2004 of approximately $2,300against Doe Run Peru’s VAT receivable balance from July 2004. Future VATreimbursements cannot be used to offset the assessment by SUNAT. The Companydiscontinued use of the holding certificates for exports in June 2004. Asdiscussed in Note 9, if Doe Run Peru is not successful with its administrativeappeal of the tax assessment, the lender can, at its discretion, require thatthe amount of the assessment reduce net worth which would affect Doe Run Peru'sability to comply with the net worth requirement. In addition, the Companyestimates that the effect of similar assessments for periods not yet assessedwould be approximately $30,300 and $20,166 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 $11,200for calendar years 1998 through 2005.

 

Management 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, whichwould have a significant adverse effect on liquidity.

 

These issues raisesubstantial doubt about the Company’s ability to continue as a going concern. Managementbelieves that the price improvements and other revenue enhancements, and theissuance of the Supreme Decree, by allowing an application to extend La Oroya’sPAMA requirement for the construction of the sulfuric acid plant, will enableDoe Run Peru to continue as a going concern through October 31, 2006. However,there can be no assurance that these actions will achieve the desired results.

 

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**Item 9.Changes in and Disagreements with Accountants on Accounting and FinancialDisclosures**

 

OnJuly 27, 2004, we decided to replace KPMG LLP as our independent registeredpublic accounting firm effective upon KPMG’s completion of its review of ourfinancial statements as of and for the three months ended January 31, 2004. Suchdismissal was effective as of July 30, 2004.

 

Thereport of KPMG on our financial statements for the fiscal year ended October31, 2003 contained no adverse opinion or disclaimer of opinion and was notqualified or modified as to uncertainty, audit scope or accounting principles,except as follows:

 

•                  KPMG’s report on our consolidated financial statements as of and forthe year ended October 31, 2003 contained a separate paragraph stating“the Company has suffered recurring net losses, has a net capital deficiency,and has liquidity concerns that raise substantial doubt about its ability tocontinue as a going concern. Management’s plans in regard to these matters arealso described in Note 2. The consolidated financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.”

 

•                  In addition, KPMG’s report on theconsolidated financial statements of the Company as of and for the year endedOctober 31, 2003 contained a separate paragraph stating, “As discussed inNotes 1 and 20 to the consolidated financial statements, the Company adoptedthe provisions of SFAS No. 143, *Accountingfor Asset Retirement Obligations*, as of November 1, 2002.”

 

During 2002and 2003 and through July 30, 2004, the date of KPMG’s dismissal, there hadbeen no disagreements with KPMG on any matter of accounting principles orpractices, financial statement disclosure or auditing scope or procedure, whichdisagreements, if not resolved to the satisfaction of KPMG, would have causedKPMG to make reference to the subject matter of the disagreements in connectionwith its report on the financial statements for such years.

 

During 2002 and 2003 and through July 30, 2004, there were noreportable events as defined in Regulation S-K, Item 304(a)(1)(v).

 

Effective as of August 25, 2004, Crowe Chizek and Company LLC (Crowe Chizek) accepted an engagement toserve as our independent registered public accountants. Our Audit Committee selected,and our Board of Directors ratified the appointment of, Crowe Chizek to serveas our independent registered public accounting firm.

 

During the fiscal years ended October 31, 2002 and October 31, 2003,and through July 30, 2004, we did not consult with Crowe Chizek with respect tothe application of accounting principles to a specified transaction, eithercontemplated or proposed, or the type of audit opinion that might be renderedon our financial statements, or any matter that was either the subject of adisagreement or a reportable event.

 

**Item 9A.Controls and Procedures**

 

As of the end ofthe period covered by this report, an evaluation was performed under thesupervision and with the participation of management, including our ChiefExecutive Officer (CEO) and the Chief Financial Officer (CFO), of theeffectiveness of the design and operation of our disclosure controls andprocedures. The term “disclosure controls and procedures,” as defined in Rules13a – 15(f) under the Securities and Exchange Act of 1934, as amended (ExchangeAct), means controls and other procedures of a company that are designed toensure that information required to be disclosed by the company in the reportsthat it files or submits under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the SEC’s rulesand forms. Disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required to bedisclosed by a company in the reports that it files or submits under theExchange Act is accumulated and communicated to the company’s management,including its principal executive and principal financial officers, or personsperforming similar functions, as appropriate, to allow timely decisionsregarding required disclosure.

 

As ofOctober 31, 2005, our management assessed the effectiveness of our internalcontrols over financial

 

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reporting. In performing thisassessment, management identified a deficiency in our internal controls overfinancial reporting, resulting from the untimely reconciliation of brokerstatements, reporting, our trading activity in derivative financialinstruments, to our  general ledger atOctober 31, 2005. Although the deficiency did not result in a material changeto our 2005 interim financial statements, management determined that thedeficiency resulted in more than a remote likelihood that a materialmisstatement would not be prevented or detected in the future. As a result,management determined that the deficiency was a material weakness. .We believethe areas most likely to be affected by this material weakness were accruedliabilities and unrealized gain or loss on derivative financial instruments.

 

Based onthis evaluation, ourmanagement has concluded that, as a result of the material weakness in ourinternal control over the hedging reconciliation discussed above, ourdisclosure controls and procedures were not effective as of the end of theperiod covered by this report.

 

As aresult of management’s evaluation over internal controls, the Company hasdeveloped a plan for immediate implementation of the following remediationefforts to address this material weakness. The Company will perform a timelyreconciliation of the general ledger to the broker statements on a monthlybasis which will be reviewed by a member of management. The Company will alsoperform an independent review of the transactions entered into on a daily basiswith a monthly review of the hedging results by a hedging committee and bymanagement. The above remediation efforts, in our opinion, will strengthen theinternal control over the hedging reconciliation and reduce the likelihood of amaterial misstatement in our interim or annual financial statements.

 

**Item 9B.Other Information**

 

None.

 

**Part III**

 

**Item 10.Directors and Executive Officers of the Registrant**

 

The followingtable sets forth certain information regarding the directors and executiveofficers or significant employees of the Company: 

 
| **Name**             | ** ** | **Age** | ** ** | **Position**                                                               |
|----------------------|------------|---------|------------|----------------------------------------------------------------------------|
|                 |       |    |       |                                                                       |
| Ira Leon  Rennert    |       | 71      |       | Chairman and  Director of Doe Run                                          |
| Jeffrey L.  Zelms    |       | 61      |       | Vice  Chairman and Chief Executive Officer of Doe Run                      |
| A. Bruce  Neil       |       | 60      |       | President of  Doe Run and President of Doe Run Peru                        |
| James W.  Grubbs     |       | 59      |       | Vice  President Sales and Marketing                                        |
| Jerry L.  Pyatt      |       | 49      |       | Vice  President Domestic Operations and Chief Operating Officer of Doe Run |
| Juan Carlos  Huyhua  |       | 53      |       | General  Manager of Doe Run Peru                                           |
| David A.  Chaput     |       | 47      |       | Vice  President Finance, Treasurer and Chief Financial Officer of Doe Run  |
| Dennis A.  Sadlowski |       | 65      |       | Director and  Secretary of Doe Run                                         |
| Thomas P.  Krasner   |       | 43      |       | Director                                                                   |

 

Pursuant to theInvestor Rights Agreement, Doe Run maintains a three person Board of Directors,consisting of Mr. Rennert, Mr. Sadlowski and Mr. Krasner . The holders of amajority of the warrants nominated Mr. Krasner for election as the independentdirector. See “Item 13 -Certain Relationships and Related Transactions.”

 

Ira Leon Rennert has been Chairman and Chief Executive Officer of DoeRun’s indirect parent, Renco (including predecessors), since Renco’s firstacquisition in 1975 and has been Chairman and a Director of Doe Run since itsacquisition by Renco in April 1994. Renco holds interests in a number ofmanufacturing and mining concerns operating in businesses that do not competewith Doe Run, including, among others, controlling interests

 

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inWCI Steel, Inc. (WCI Steel) (where Mr. Rennert serves as Chairman) and U.S.Magnesium LLC and an interest in a joint venture that controls AM General LLC(the manufacturer of the HUMVEE® - where Mr. Rennert served as Chairman untilAugust 2004). Mr. Rennert also owns, both through Renco and other entities, aportfolio of more passive investments.

 

Jeffrey L. Zelmshas served as Vice Chairman of Doe Run since December 1998 and as President andChief Executive Officer of Doe Run and its predecessor since August 1984. Mr.Zelms has over 30 years of experience in the mining industry. Mr. Zelm retiredas President on January 1, 2006. He will retire as Vice Chairman and as CEO onApril 1, 2006.

 

A. Bruce Neil wasappointed as Mr. Zelm’s successor to the position of President of Doe Run onJanuary 1, 2006. He will continue to serve as President of Doe Run Peru untilApril 1, 2006. He has served as President and General Manager of Doe Run Perusince September 1, 2003, but ended his term as General Manager of Doe Run Peruon January 1, 2006. He was Vice President of Doe Run since October 11, 2004. Mr.Neil served as General Manager at the Glover Smelting Division from September2001 to August 31, 2003. From September 1998 to August 2001, Mr. Neil served asan Operations Manager of Doe Run. Prior to joining Doe Run in 1998, Mr. Neil heldpositions with ASARCO, where he was involved in custom lead refining, and withNoranda, Inc. and Timminco Limited smelters in Quebec, New Brunswick andOntario, Canada. He has over 30 years of experience in the metals industry. Pursuantto our management succession plan, Mr. Neil will become Chief Executive Officerof Doe Run on April 1, 2006.

 

Marvin K. Kaiserhas served as Executive Vice President and Chief Administrative Officer sinceMay 2004, as Executive Vice President and Chief Financial and AdministrativeOfficer from September 2001 through April 2004, and as Vice President and ChiefFinancial Officer of Doe Run and its predecessor from January 1994 throughSeptember 2001. Prior to joining Doe Run in 1999, Mr. Kaiser was the ChiefFinancial Officer of AMAX Gold, Inc., a gold producing company. Mr. Kaiser is aCertified Public Accountant. Effective March 1, 2006, Mr. Kaiser retired.

 

James W. Grubbsjoined Doe Run on December 1, 2004 as Vice President Sales and Marketing. Priorto that time, Mr. Grubbs served as Vice President Marketing for Ok Tedi MiningLtd. Mr. Grubbs has 30 years experience in the metals industry.

 

Jerry L. Pyatt hasserved as Vice President Domestic Operations and Chief Operating Officer sinceSeptember 2001. Prior to that time Mr. Pyatt served as Vice President SecondarySmelting of Doe Run and General Manager of Doe Run’s resource recyclingoperation. Mr. Pyatt joined the Company in 1991 as a Metallurgical Engineer.

 

JuanCarlos Huyhua, a Peruvian native, was appointed as General Manager of Doe RunPeru on January 1, 2006. Prior to that time, he served Doe Run Peru for eightyears, as vice president and manager of operations. Pursuant to our managementsuccession plan, Mr. Huyhua will become the President of Doe Run Peru on April1, 2006.

 

David A. Chaputhas served as Chief Financial Officer since May 2004, as Vice President,Finance since September 2001 and as Treasurer since February 1993 . Prior toserving as Treasurer, Mr. Chaput served as Manager of Credit and Financial Servicesfrom June 1987 through January 1993. Mr. Chaput has 24 years of experience inthe extractive and natural resources industries.

 

Dennis A.Sadlowski, Esq. was appointed to Doe Run’s Board of Directors on  October 29, 2002. Mr. Sadlowski also servesas the Secretary of Doe Run. Mr. Sadlowski has served as the Vice President-Lawof Renco since 1996.

 

Thomas P. Krasner has served as a Director since January 13, 2003. Mr.Krasner, a Chartered Financial Analyst, co-founded Concise Capital, ahigh-yield hedge fund in January 2004. Mr. Krasner was Executive Vice Presidentof Harch Capital Management, Inc., an investment management firm located inBoca Raton, Florida, from March 1999 through December 2003. From March 1996through March 1999, Mr. Krasner was a Principal and Portfolio Manager atBiscayne Capital Management, Fort Lauderdale, Florida. He previously served as

 

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Chairmanof the Board, CEO and President of Trism, Inc. from January 2001 throughDecember 2001. In December 2001, Trism, Inc. filed for bankruptcy courtprotection under the U.S. Bankruptcy Code. Mr. Krasner has also served as amember of the boards of directors of Birch Telecom, Inc., FWT, Inc., SterlingChemicals, Inc, and Trism, Inc.

 

**Corporate Governance and Code of Ethics**

 

The Board of Directors acts as the Audit Committee. Thomas P.Krasner has been designated by the Board of Directors as the “audit committeefinancial expert” as defined by Item 401(h)(2) of Regulation S-K. The Board of Directorshas determined that, in its judgment, Mr. Krasner meets all applicableindependence standards to serve in such a capacity.

 

We have adopted a Code of Ethics that applies to our ChiefExecutive Officer, Chief Financial Officer, Controller and all our otherpersonnel. We have filed a copy of the Code of Ethics with this document, andit is available on the SEC’s website at www.sec.gov.

 

**Item 11.Executive Compensation**

 

The following table sets forth compensation earned for the three fiscalyears ended October 31, 2005, by those persons who were either (a) our ChiefExecutive Officer as of October 31, 2005 or (b) one of our four other mosthighly compensated executive officers or executive employees as of October 31,2005 (collectively, the “named executive officers”). Certain balances under the“Bonus” and “All Other Compensation” columns have been reclassified from theirprevious presentation in order to conform to the current year presentation,which is described below.

 

**Summary Compensation Table**

 
| ** **                                     | ** ** | ** ** | ** ** | **Annual Compensation (1)** | ** ** | **All Other** | ** ** |
|------------------------------------------------|------------|------------|------------|---------------------------------------|------------|--------------------|------------|
| **Name and Principal Position** | ** ** | **Year**   | ** ** | **Salary**                            | ** ** | **Bonus (2)** | ** ** | **Compensation (3)(4)(5)(6)** | ** ** |
| ** **                                     | ** ** | ** ** | ** ** | ** **                            | ** ** | ** **         | ** ** | ** ** | ** ** |
| Jeffrey L. Zelms                               |       | 2005       |       | $                                     | 515,000    |               | $          | 460,401 |   | $ | 28,078 |   |
| Vice Chairman, President and Chief             |       | 2004       |       | $                                     | 500,000    |               | $          | 491,287 |   | $ | 26,061 |   |
| Executive Officer                              |       | 2003       |       | $                                     | 500,000    |               | $          | 263,680 |   | $ | 59,432 |   |
|                                           |       |       |       |                                  |       |               |       |   |   |   |   |   |
| Marvin K. Kaiser                               |       | 2005       |       | $                                     | 286,000    |               | $          | 250,780 |   | $ | 9,964 |   |
| Executive Vice President and Chief             |       | 2004       |       | $                                     | 275,000    |               | $          | 282,502 |   | $ | 5,457 |   |
| Administrative Officer                         |       | 2003       |       | $                                     | 275,000    |               | $          | 144,933 |   | $ | 3,000 |   |
|                                           |       |       |       |                                  |       |               |       |   |   |   |   |   |
| A. Bruce Neil                                  |       | 2005       |       | $                                     | 231,333    |               | $          | 202,915 |   | $ | 107,265 |   |
| Vice President                                 |       | 2004       |       | $                                     | 182,500    |               | $          | 186,376 |   | $ | 73,992 |   |
| President – Doe Run Peru                  |       | 2003       |       | $                                     | 135,667    |               | $          | 16,498 |   | $ | 36,890 |   |
|                                           |       |       |       |                                  |       |               |       |   |   |   |   |   |
| Jerry L. Pyatt                                 |       | 2005       |       | $                                     | 208,000    |               | $          | 169,386 |   | $ | 9,964 |   |
| Vice President and Chief Operating             |       | 2004       |       | $                                     | 200,000    |               | $          | 199,516 |   | $ | 4,787 |   |
| Officer – U.S. Operations                 |       | 2003       |       | $                                     | 200,000    |               | $          | 106,544 |   | $ | 2,750 |   |
|                                           |       |       |       |                                  |       |               |       |   |   |   |   |   |
| David A. Chaput                                |       | 2005       |       | $                                     | 208,000    |               | $          | 167,386 |   | $ | 9,964 |   |
| Vice President Finance                         |       | 2004       |       | $                                     | 185,000    |               | $          | 191,139 |   | $ | 4,428 |   |
| Treasurer and Chief Financial Officer          |       | 2003       |       | $                                     | 170,000    |               | $          | 90,563 |   | $ | 2,540 |   |

 

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(1)           Aggregate value of perquisites and other personalbenefits did not exceed the lesser of $50,000 or 10% of total salary and bonusfor any named executive officer.

 

(2)           Except as indicated below, amounts disclosed wereawarded under our gainsharing bonus plan and performance bonus plan as follows:

 

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| **Named Executive Officer** | ** ** | **Year** | ** ** | **Gainsharing Bonus** | ** ** | **Performance Bonus** | ** ** |
|---------------------------------------|------------|----------|------------|----------------------------|------------|----------------------------|------------|
| Jeffrey L. Zelms                      |       | 2005     |       | $                          | 10,401     |                       | $          | 200,000 |   |
|                                  |       | 2004     |       | $                          | 23,678     |                       | $          | 217,609 |   |
|                                  |       | 2003     |       | $                          | 13,680     |                       | —     |   |
| Marvin K. Kaiser                      |       | 2005     |       | $                          | 6,030      |                       | $          | 107,250 |   |
|                                  |       | 2004     |       | $                          | 12,936     |                       | $          | 132,066 |   |
|                                  |       | 2003     |       | $                          | 7,433      |                       | —     |   |
| A. Bruce Neil                         |       | 2005     |       | $                          | 11,915     |                       | $          | 191,000 |   |
|                                  |       | 2004     |       | $                          | 6,286      |                       | $          | 180,090 |   |
|                                  |       | 2003     |       | $                          | 3,998      |                       | $          | 12,500 |   |
| Jerry L. Pyatt                        |       | 2005     |       | $                          | 4,386      |                       | $          | 65,000 |   |
|                                  |       | 2004     |       | $                          | 9,471      |                       | $          | 90,045 |   |
|                                  |       | 2003     |       | $                          | 6,544      |                       | —     |   |
| David A. Chaput                       |       | 2005     |       | $                          | 4,386      |                       | $          | 78,000 |   |
|                                  |       | 2004     |       | $                          | 8,490      |                       | $          | 97,649 |   |
|                                  |       | 2003     |       | $                          | 5,563      |                       | —     |   |

 

In 2003, 2004 and 2005, Messrs. Zelms, Kaiser, Pyatt and Chaput alsoreceived stay bonuses of $250,000, $137,500, $100,000 and $85,000,respectively. The stay bonus arrangements terminated on October 31, 2005.

 

(3)                                  An amount of $102,823, $71,255 and $34,855 for theyears 2005, 2004 and 2003, respectively, included  as “All Other Compensation” for Mr. Neilrepresents a foreign service bonus, goods and services allowance, hardship pay,housing and tax services provided for under our long-term internationalassignment policy.

 

(4)                                  Theamount shown as “All Other Compensation” for 2005 for Mr. Zelms represents$8,549 of tax services and medical expenses, and $10,000 of policy premiumsunder a split dollar life insurance agreement. We pay the premiums on a splitdollar life insurance policy, and are entitled to receive the proceeds of thepolicy upon death of Mr. Zelms, termination of the agreement, or surrender ormaturity of the policy.

 

(5)                                  Thenamed executive officers also participate in our profit sharing plan, whichcovers substantially all of our U.S. employees. The profit sharing allocationis paid in two parts:  a cash payment and401(k) payment. The cash amounts paid in 2005 for Messrs. Zelms, Kaiser, Neil,Pyatt and Chaput were $1,889, $1,049, $0, $763 and $763, respectively. The 2005401 (k) portions of profit sharing allocation, which was paid in 2006 forMessrs. Zelms, Kaiser, Neil, Pyatt and Chaput were $3,633, $4,473, $0, $4,759and $4,759, respectively. The 2004 profit sharing allocation, which was paid in2005, for Messrs. Zelms, Kaiser, Neil, Pyatt and Chaput was $4,468, $2,457, $0,$1,787 and $1,653, respectively. There was no 2003 profit sharing allocation.

 

(6)                                  Theamounts disclosed in “All Other Compensation” include contributions under our401(k) plan for 2005, 2004 and 2003, respectively, which were as follows: Mr.Zelms: $4,008, $3,000 and $3,000; Mr. Kaiser: $4,442, $3,000 and $3,000; Mr.Neil: $4,442, $2,737 and $2,035; Mr. Pyatt: $4,442, $3,000 and $2,750; and Mr.Chaput: $4,442, $2,775 and $2,540.

 

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**Retirement Plans**

 
| ** **                           | ** ** | **Pension Plan Table****Approximate Annual Retirement Benefits** | ** ** |
|--------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
| **Average Final  Compensation** | ** ** | **15 Years of  Service**                                                        | ** ** | **20 Years of  Service** | ** ** | **25 Years of  Service** | ** ** | **30 Years of  Service** | ** ** | **35 Years of  Service** | ** ** |
| $                                    | 125,000    |                                                                                      | $          | 28,125 |   | $ | 37,500 |   | $ | 46,875 |   | $ | 56,250 |   | $ | 65,625 |   |
| 150,000                              |       | 33,750                                                                                    |       | 45,000 |   | 56,250 |   | 67,500 |   | 78,750 |   |
|                                 | 175,000    |                                                                                      | 39,375     |   | 52,500 |   | 65,625 |   | 78,750 |   | 91,875 |   |
|                                 | 200,000    |                                                                                      | 45,000     |   | 60,000 |   | 75,000 |   | 90,000 |   | 105,000 |   |
|                                 | 225,000    |                                                                                      | 50,625     |   | 67,500 |   | 84,375 |   | 101,250 |   | 118,125 |   |
|                                 | 250,000    |                                                                                      | 56,250     |   | 75,000 |   | 93,750 |   | 112,500 |   | 131,250 |   |
|                                 | 300,000    |                                                                                      | 67,500     |   | 90,000 |   | 112,500 |   | 135,000 |   | 157,500 |   |
|                                 | 400,000    |                                                                                      | 90,000     |   | 120,000 |   | 150,000 |   | 180,000 |   | 210,000 |   |
|                                 | 450,000    |                                                                                      | 101,250    |   | 135,000 |   | 168,750 |   | 202,500 |   | 236,250 |   |
|                                 | 500,000    |                                                                                      | 112,500    |   | 150,000 |   | 187,500 |   | 225,000 |   | 262,500 |   |
|                                 | 600,000    |                                                                                      | 135,000    |   | 180,000 |   | 225,000 |   | 270,000 |   | 315,000 |   |
|                                 | 700,000    |                                                                                      | 157,500    |   | 210,000 |   | 262,500 |   | 315,000 |   | 367,500 |   |
|                                 | 800,000    |                                                                                      | 180,000    |   | 240,000 |   | 300,000 |   | 360,000 |   | 420,000 |   |
|                                 | 900,000    |                                                                                      | 202,500    |   | 270,000 |   | 337,500 |   | 405,000 |   | 472,500 |   |
|                                 | 1,000,000  |                                                                                      | 225,000    |   | 300,000 |   | 375,000 |   | 450,000 |   | 525,000 |   |
|                                      |            |                                                                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The preceding tableshows the estimated amount of annual retirement income (calculated as astraight life annuity benefit) payable to employees under The Doe Run ResourcesCorporation Retirement Plan for Salaried Employees, supplemented by the Doe RunResources Corporation Supplemental Employee Retirement Plan (SERP) at age 65.The SERP is a non-qualified plan under which any benefits not payable fromRetirement Plan assets by reason of the limitations imposed by the Code arepaid by us. The benefits paid are not subject to any deduction for socialsecurity. In the case of Mr. Pyatt, benefits are offset by pension benefitsthat he is entitled to receive under pension plans maintained by otheremployers that at one point in time were related to Doe Run.

 

Retirement benefitsare based on a member’s average monthly “compensation” for the highest 36consecutive months out of the final 120 months. “Compensation” covered by theRetirement Plan includes basic salary, overtime pay, cash bonuses and amountscontributed through a salary reduction arrangement to a qualified plan whichmeets the requirements of Section 401(k) of the Code or to a cafeteria planwhich meets the requirements of Section 125 of the Code. “Compensation” coveredby the Retirement Plan does not include commissions, income from the exerciseof stock options or income from shadow stock, other special pay or allowances,severance pay, payments in the nature of royalties, and the cost to us of anypublic or private employee benefit plan.

 

As of July 1, 2005, no new employees are eligible to participate in anyof our defined benefit plans, and benefit accruals of all participants werefrozen.

 

As of December 31,2005, the following named  executiveofficers had completed the number of years of service indicated opposite theirnames: Jeffrey L. Zelms, 37 years; Marvin K. Kaiser, 11 years; Jerry L. Pyatt,25 years; David A. Chaput, 18 years; and A. Bruce Neil, 6 years.

 

**Compensation of Directors**

 

Directors, other than the independent director, receive no pay fortheir services. The independent director is paid $24,000 annually for dutiesthat include attending four regularly scheduled meetings each year. For eachadditional meeting, the independent director receives $6,000 or $3,000 forattending in person or participating telephonically, respectively. For meetingsin 2005, Mr. Kaiser, the independent director received $57,000.

 

**EmploymentAgreements**

 

Messrs. Zelms,Kaiser, Pyatt and Chaput are parties to employment agreements with Doe Run

 

The agreements arefor a term of one year and are automatically renewable for additional one-yearterms,

 

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unless either party giveswritten notice at least three months prior to the respective renewal dates.Pursuant to the terms of these agreements, compensation for Messrs. Zelms,Kaiser, Pyatt and Chaput is as follows for 2005 and 2006

 
| ** **       | ** ** | **Base Compensation** | ** ** |
|------------------|------------|----------------------------|------------|
| ** **       | ** ** | **2005**                   | ** ** | **2006** | ** ** |
| Jeffrey L. Zelms |       | $                          | 515,000    |   | $ | 530,450 |   |
| Marvin K. Kaiser |       | $                          | 286,000    |   | $ | 294,580 |   |
| Jerry L. Pyatt   |       | $                          | 208,000    |   | $ | 214,240 |   |
| David A. Chaput  |       | $                          | 208,000    |   | $ | 214,240 |   |

 

The Board ofDirectors may determine from time to time in his discretion, to awardadditional compensation, subject to the terms of the credit agreements.

 

Theagreements require that, during the term of their employment, the officersshall not, directly or indirectly, engage in any aspect of the business of leadmining, milling, recycling or sale within the continental United States as anofficer, director, partner, proprietor, investor, associate, employee orconsultant except with Doe Run. In addition, each of the named executiveofficers has agreed to maintain the confidentiality of information obtainedduring employment with Doe Run.

 

As a result of Mr. Zelms’ retirement, Mr. Neil becamePresident of Doe Run on January 1, 2006 and will become the Chief ExecutiveOfficer of Doe Run on April 1, 2006. As a result, we are currently negotiatinga new employment agreement with Mr. Neil, pursuant to which, we expect hisannual base salary to be $400,000. This new agreement will replace Mr. Neil’semployment agreement with Doe Run Peru that entitled him to an annual salary of$208,000 and certain annual bonuses and payments resulting from hisinternational assignment in Peru totaling approximately $90,000.

 

**NetWorth Appreciation Agreements**

 

Messrs. Zelms,Kaiser, Neil, Pyatt and Chaput are each parties to net worth appreciationagreements with Doe Run, pursuant to which, upon termination of each person’semployment other than for cause, they are entitled to receive a fixedpercentage of the increase in our “net worth” from November 1, 2004 until theend of the fiscal quarter preceding the date of his termination. The amount ispayable without interest in 40 equal quarterly installments, commencing threemonths after the termination date. The net worth appreciation agreements alsoprovide that, in the event of payment of a dividend or a sale of our company,the active participants will be entitled to receive a percentage of thedividend or the net proceeds of the sale equal to their maximum percentagesunder the agreements. The following table summarizes the net worth percentagesfor the named executive officers who are parties to these agreements.

 
| ** **                 | ** ** | **Vested Credit as of**   | ** ** | **Maximum**                 | ** ** |
|----------------------------|------------|------------------------------------------|------------|-----------------------------|------------|
| ** **                 | ** ** | **11/01/05 of Net Worth** | ** ** | **Credit**                  | ** ** |
| **Executive Officer** | ** ** | **Appreciation Credit**             | ** ** | **As of 11/1/07** | ** ** |
| Jeffrey L. Zelms |       | 3.0                                      | %          | 5.0                         | %          |
| Marvin K. Kaiser |       | 0.9                                      | %          | 1.5                         | %          |
| A. Bruce Neil              |       | 0.6                                      | %          | 1.0                         | %          |
| Jerry L. Pyatt             |       | 0.6                                      | %          | 1.0                         | %          |
| David A. Chaput            |       | 0.3                                      | %          | 0.5                         | %          |

 

**Item 12.Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters**

 

The followingtable sets forth certain information as of the date hereof with respect to thebeneficial ownership of Doe Run’s common stock by each beneficial owner of 5%or more of the common stock, each director and each named executive officerduring the last fiscal year, and all directors and executive officers of DoeRun as a group.

 

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Except as otherwisenoted, the persons named in the table below have sole voting and investmentpower with respect to all shares or interests, as applicable, shown asbeneficially owned by them. 

 

| **Name**                                    | ** ** | **Number of  Shares** | ** ** | **Percent** | ** ** |
|---------------------------------------------|------------|----------------------------|------------|-------------|------------|
|                                        |       |                       |       |        |       |
| The Renco Group, Inc. (1)(2)                |       | 1,000                      |       | 100.0       |       |
| DR Acquisition Corp. (1)                    |       | 1,000                      |       | 100.0       |       |
| Ira Leon Rennert (1)(2)                     |       | 1,000                      |       | 100.0       |       |
| Directors and executive officers as a group |       | 1,000                      |       | 100.0       |       |

 

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(1)   The address of this beneficial owner is c/oThe Renco Group, Inc., 30 Rockefeller Plaza, Suite 4225, New York, New York10112.

 

(2)   Renco is deemed to beneficially own thecommon stock of Doe Run owned by DR Acquisition Corp. due to the ownership byRenco of all of the outstanding common stock of DR Acquisition Corp., and Mr.Rennert is deemed to beneficially own the common stock of Doe Run owned byRenco due to the ownership of all of the outstanding common stock of Rencothrough trusts established by him for himself and members of his family.

 

Byvirtue of Renco’s indirect ownership of all of the outstanding common stock ofDoe Run, and Mr. Rennert’s ownership of the stock of Renco, Mr. Rennert is inposition to influence actions that require the consent of a majority of theholders of equity interests in Doe Run and its subsidiaries, subject to theapproval of the independent director, which is required for certaintransactions. See the discussion below in “Item 13. *Certain Relationships and Related Transactions*” for actionsthat require approval by the independent director.

 

**Item 13.Certain Relationships and Related Transactions**

 

Under a managementconsultant agreement, dated as of April 7, 1994, as amended, between Renco andDoe Run, Doe Run accrues an annual fee of $2.4 million to Renco. The managementconsultant agreement provides that Doe Run shall not make any payment that wouldviolate any of its agreements with respect to any of its outstandingindebtedness. The management consultant agreement extends to October 31, 2006and thereafter shall continue for additional terms of three years each unlesssooner terminated by either party by giving six months prior written notice. Inthe year ended October 31, 2005, Doe Run recorded an expense of $2.4 millionpursuant to the management consultant agreement and made payments of $1.3million to Renco. At October 31, 2005, $8.7 million remained unpaid to Renco.We believe that the cost of obtaining the type and quality of services renderedby Renco under the management consultant agreement was, and continues to be, noless favorable than that at which we could obtain such services from unaffiliatedentities.

 

Doe Run is subjectto a tax sharing agreement with Renco effective October 29, 2002, as amendedJanuary 30, 2004. Pursuant to the agreement, Doe Run is required to makequarterly payments based on a pro forma federal and state income tax liability,assuming that Doe Run is not and never was a subsidiary of Renco, plus amountsreasonably determined by Renco to cover tax liabilities of current or prioryears not reflected in Doe Run’s pro forma tax calculations. Until theobligations under the Doe Run revolving credit facility, the 11.75% notes and the warrants haveexpired, the pro forma income tax liabilities will assume that Doe Run became aC corporation under the Code on the day after restructuring, and will includeno income attributable to any cancellation of indebtedness prior to therestructuring or any effect of such cancellation on the basis of the assets ofDoe Run. $0.5 million was paid in 2005 under the agreement.

 

Renco has electedfor us to be treated as a qualified subchapter S subsidiary, also known as aQSSS, for U.S. federal tax purposes. Most states in which we operate willfollow similar tax treatment. QSSS status requires the ultimate shareholders toinclude their pro rata share of our Company’s income or loss in theirindividual tax returns. The election does not affect foreign income taxesrelated to the Company’s foreign subsidiaries. As a result, the Company’staxable income will be included in Renco’s shareholders’ income tax returns.Generally, no provision for U.S. federal income taxes will be included in ourstatements of income for periods beginning after October 31,

 

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1998. We will continue toprovide for foreign, state and local income taxes for those taxingjurisdictions that do not recognize QSSS status. However, under the “built-ingains” provisions of the Code, federal and state taxes may become payable andwill be charged to our statement of income. Such taxes are measured by theexcess of the fair market value of assets over their tax bases on the effectivedate of the QSSS election if the appreciated assets are disposed of within theten-year post-conversion period. It is not management’s present intent totrigger any taxes under the built-in gains provisions of the Code. We may stillmake payments to Renco pursuant to the tax sharing agreement discussed above.

 

On March 21, 2003Renco and the Renco term note lenders entered into a term note assignmentagreement whereby Renco purchased all of the rights of the agent and lendersunder the Renco term note. The Renco term note was amended April 30, 2004 toamend, among other things, financial covenants and waive covenant defaults. Asof October 31, 2005, $8.0 million was unpaid on the Renco term note. The Rencoterm note was also amended on January 17, 2006 to amend the maturity date toJune 16, 2006, reaffirmed the waiver of a default and to set forth a paymentschedule for the unpaid balance until the new maturity date. Subsequent toOctober 31, 2005 $6.0 million has been paid to Renco.

 

We are a member ofa controlled group with other Renco-owned companies. Accordingly, we arejointly and severally liable with all other members of the controlled groupunder Title IV of ERISA for obligations of other members of the controlledgroup that could include certain pension funding and excise taxes in the eventthat any member of the controlled group does not satisfy certain of its pensionobligations arising pursuant to ERISA.

 

In such an event,statutory liens would arise in favor of the PBGC upon the assets of the othermembers of the controlled group not in bankruptcy, and the PBGC may seek toobtain court approval for a PBGC termination and may require the other membersof the controlled group to satisfy such pension plan obligations. In the eventthat a PBGC termination occurs, and the PBGC requires that we satisfy suchpension plan obligations, such requirements could have a materially adverseeffect on our financial condition and liquidity. Obligations under thecontrolled group have not been determined. 

 

On February 3,2006, the PBGC notified another member of the controlled group of its intentionto seek a PBGC Termination of that member's plan. On the same day, the PBGCfiled a complaint in the US District Court seeking to terminate the plan as ofFebruary 3, 2006 and for the appointment of the PBGC as the plan's Trusteeunder ERISA. An agreement in principal has been reached whereby sponsorship ofthe member's plan would be transferred to Renco and upon the agreement beingfinalized, the PBGC would withdraw its complaint and PBGC Termination. In anyevent, Renco has assured the Company that these actions will not have an impacton the Company's financial condition.

 

Pursuant to an Investor Rights Agreement, dated as of October 29, 2002,at any time during which the warrants issued pursuant to Doe Run’srestructuring are outstanding, Doe Run’s Board of Directors will consist ofthree individuals, two of whom are to be nominated by the stockholder of DoeRun, and one of whom, the independent director, is to be nominated by theholders of a majority of the warrants. Pursuant to the Investor RightsAgreement, Doe Run may not take, nor permit any of its subsidiaries to take, certain actions without the approval of theindependent director. These actions include filing a voluntary bankruptcypetition, merging or consolidating with another entity, issuing capital stockor securities convertible into capital stock, making certain changes to itscharter documents or incurring certain levels of indebtedness. The holders of amajority of the warrants have chosen Thomas P. Krasner as the independentdirector. See “Item 10. Directors and Executive Officers of the Registrant.”

 

The holders of amajority of the warrants may, upon the occurrence of a major default, appoint aspecial director to Doe Run’s Board of Directors. The special director wouldhave super-majority voting powers and be able to require Doe Run to undertakecertain transactions. Upon such appointment, the special director would beentitled to cast a majority of the votes at all meetings of directors, and DoeRun would be required to take any of the following actions if approved by thespecial director: (i) sell all of its or any of its subsidiaries capital stock,(ii) merge or consolidate itself or any of its subsidiaries with any otherentity, and (iii) sell off any or all of its assets or any of its subsidiariesand apply the proceeds of such sale to cure any payment default with respect tothe 11.75% Notes. The special director, if appointed to Doe Run’s Board ofDirectors, could have a significant impact on the operation of Doe Run’sbusiness as well as its strategic direction.

 

On October 29, 2002, Renco purchased 2,000shares of redeemable preferred stock of Doe Run for $20.0 million. Theredeemable preferred stock accrues dividends at a rate of 12.5% per annum,which are payable only in kind as long as the term note or warrants areoutstanding. The redeemable preferred stock ranks senior to all other classesof capital stock of Doe Run for purposes of liquidation preference anddividends and is redeemable, at the option of Renco, at any time after May 1,2009. Renco was issued 316, 282 and 251 shares on October 31, 2005, October 31,2004 and November 1, 2003, respectively, as payment of the aforementioneddividends. See “Item 8. Financial Statements and Supplementary Data—Note 9 toConsolidated Financial Statements” for further information regarding theredeemable preferred stock and related dividends.

 

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**Item 14.Principal Accounting Fees and Services**

 

Crowe Chizekserved as our independent registered public accounting firm for the fiscalyears ended October 31, 2005 and 2004. KPMG served as our independent registeredpublic accounting firm for the quarter ended January 31, 2004.

 

The following fees were paid to Crowe Chizek and KPMG for servicesrendered during our last two fiscal years (in thousands):

 

•                  *Audit Fees:*  $542 and $521 to Crowe Chizek and $65 and $35to KPMG  for fiscal years ended October31, 2005 and 2004, respectively, for professional services rendered by theprincipal accountant for the audit of our annual financial statements, reviewof financial statements included in our Form 10-Q and services that arenormally provided by the accountant in connection with statutory and regulatoryfilings or engagements for those fiscal years.

 

•                  *Audit-related Fees:*  $0 to Crowe Chizek and KPMG for the fiscalyears ended October 31, 2005 and 2004 for assurance and related services by theprincipal accountant that are reasonably related to the performance of theaudit or review of our financial statements, other than fees reported above.

 

•                  *Tax Fees:* $0 to Crowe Chizek and KPMG for the fiscal years ended October 31, 2005and 2004 for professional services rendered by the principal accountant for taxcompliance, tax advice and tax planning.

 

•                  *All Other Fees:*  $135 and $0 to Crowe Chizek for the fiscalyears ended October 31, 2005 and 2004, respectively and $0 to KPMG for thefiscal years ended October 31, 2005 and 2004 for products and services providedby the principal accountant, other than the services reported above.

 

Our board of directors has adopted a policy that requires advanceapproval of all audit, audit-related, tax services and other services performedby the independent registered public accounting firm. The policy provides forpre-approval by the board of directors of specifically defined audit andpermitted non-audit services. Unless the specific service has been previouslypre-approved with respect to that year, the Board of Directors must approve thepermitted service before the independent registered public accounting firm isengaged to perform it.

 

**PartIV**

 

**Item 15.Exhibits and****Financial StatementSchedules**

 

(a)   Documents filed as part of this Form 10-K:

 

1.               Financial Statements (included in Part II, Item 8):

 

(a)                        The Doe Run Resources Corporation

 

IndependentRegistered Public Accountants’ Report

ConsolidatedBalance Sheets – October 31, 2005 and 2004

ConsolidatedStatements of Operations – Years ended October 31, 2005, 2004 and 2003

ConsolidatedStatements of Comprehensive Income (Losses) and Shareholder’s Equity (Deficit)– Years ended October 31, 2005, 2004 and 2003

ConsolidatedStatements of Cash Flows – Years ended October 31, 2005, 2004 and 2003

Notesto Consolidated Financial Statements

 

(b)         Doe Run Peru S.R.L.

 

IndependentRegistered Public Accountants’ Report

BalanceSheets - October 31, 2005 and 2004

Statementsof Operations - Years ended October 31, 2005, 2004 and 2003

 

123

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Statementsof Changes in Shareholders’ Equity (Deficit) - Years ended October 31, 2005,2004 and 2003

Statementsof Cash Flows - Years ended October 31, 2005, 2004 and 2003

Notesto Financial Statements

 

2.               Financial Statement Schedules.

 

All schedules have been omitted as the requiredinformation is not present in sufficient amounts or the required information isincluded elsewhere in the Consolidated Financial Statement or notes thereto.

 

3.               Exhibits Required to be Filed by Item601 of Regulation S-K.

 

The information called for by this paragraph iscontained in the Exhibit Index of this report, which is incorporated herein byreference.

 

(b) Exhibits.

 

The information called for by this paragraph is contained in theExhibit Index of this report, which is incorporated herein by reference.

 

(c) Financial Statement Schedules.

 

All schedules have been omitted as the required information is notpresent in sufficient amounts or the required information is included elsewherein the Consolidated Financial Statement or notes thereto.

 

124

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S I G N A T U R E S

 

Pursuant to the requirements of Section 13 or 15(d) 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) |
|--------|--------|------------------------------------------------|
|   |   |                                           |
|   |   |                                           |
|   | By:    | /s/ Jeffrey L. Zelms                           |
|   |   | Jeffrey L. Zelms                               |
|   |   | Vice Chairman and Chief Executive Officer      |
|   |   | March 21, 2006                                 |
|   |   | (Date)                                         |

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| Ira Leon Rennert                                  | /s/ Ira Leon Rennert    |   | March 21, 2006 |
|---------------------------------------------------|-------------------------|--------|----------------|
| Chairman of the Board and Director                | Signature               |   | Date           |
|                                              |                    |   |           |
| Jeffrey L. Zelms                                  |                    |   |           |
| Vice Chairman and Chief Executive Officer         | /s/ Jeffrey L. Zelms    |   | March 21, 2006 |
| (principal executive officer)                     | Signature               |   | Date           |
|                                              |                    |   |           |
| David A. Chaput                                   |                    |   |           |
| Chief Financial Officer                           |                    |   |           |
| Vice President and Treasurer (principal financial | /s/ David Chaput        |   | March 21, 2006 |
| officer and principal accounting officer)         | Signature               |   | Date           |
|                                              |                    |   |           |
| Dennis A. Sadlowski                               | /s/ Dennis A. Sadlowski |   | March 21, 2006 |
| Director and Secretary                            | Signature               |   | Date           |
|                                              |                    |   |           |
| Thomas P. Krasner                                 | /s/ Thomas P. Krasner   |   | March 21, 2006 |
| Director                                          | Signature               |   | Date           |

 

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SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TOSECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIESPURSUANT TO SECTION 12 OF THE ACT.

 

No annual report to security holders covering the registrant’s 2005fiscal year and no proxy statement, form of proxy or other proxy solicitingmaterial with respect to any annual or other meeting of security holders hasbeen or will be sent to security holders.

 

126

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**EXHIBIT INDEX**

 
| **Exhibit** **No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                     |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.1                      |       | Certificate of Incorporation of Doe Run. (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.2                      |       | Certificate of Amendment of the Certificate of Incorporation of Doe  Run. (10)                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.3                      |       | Amended and Restated By-laws of Doe Run. (10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 3.4                      |       | Certificate of Incorporation of FPI. (1) Ex. 3.3                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.5                      |       | Bylaws of FPI. (1) Ex. 3.4                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 3.6                      |       | Certificate of Incorporation of Doe Run Cayman. (1) Ex. 3.5                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.7                      |       | Memorandum and Articles of Association of Doe Run Cayman. (1) Ex. 3.6                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.8                      |       | Constitución de Sociedad Comercial de Responsibilidad Limitada de Doe  Run Peru (with English translation). (1)                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 3.10                     |       | Certificate of Formation of DR Land Holdings, LLC. (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.11                     |       | Limited Liability Company Agreement of DR Land Holdings, LLC. (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 3.12                     |       | Certificate of Formation of The Buick Resource Recycling Facility,  LLC. (10).                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 3.13                     |       | Limited Liability Company Agreement of The Buick Resource Recycling  Facility, LLC. (10)                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 4.1.1                    |       | Indenture, dated as of March 12, 1998, by and among Doe Run, as  issuer, FPI, Doe Run Cayman, Doe Run Mining and Doe Run Peru, as guarantors,  and State Street Bank and Trust Company, as trustee, relating to the 111⁄4%  Senior Notes due 2005, Series A, Floating Interest Rate Senior Notes due  2003, Series A, 111⁄4% Senior Notes due 2005, Series B and Floating Interest  Rate Senior Notes due 2003, Series B and the Guarantees thereof (containing,  as exhibits, specimens of the Notes and the Guarantees). (1) |
| 4.1.2                    |       | First Supplemental Indenture, dated as of September 1, 1998, by and  among Doe Run, as issuer, FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru,  Doe Run Air and Doe Run Development, as guarantors, and State Street Bank and  Trust Company, as trustee, supplementing the Indenture, dated as of March 12,  1998. (2)                                                                                                                                                                                                           |
| 4.1.3                    |       | Second Supplemental Indenture, dated as of September 16, 1998, by and  among Doe Run, as issuer, FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru,  Doe Run Air, Doe Run Development and Cobriza, as guarantors, and State Street  Bank and Trust Company, as trustee, supplementing the Indenture, dated as of  March 12, 1998. (3)                                                                                                                                                                                                |
| 4.1.4                    |       | Third Supplemental Indenture, dated as of January 13, 1999, by  and among Doe Run, as issuer, FPI, Doe Run Cayman, Doe Run Mining, Doe Run  Peru, Doe Run Air, Doe Run Development, Cobriza and DR Land Holdings, LLC  (DRLH), as guarantors, and State Street Bank and Trust Company, as trustee,  supplementing the Indenture, dated as of March 12, 1998. (3)                                                                                                                                                           |
| 4.1.5                    |       | Fourth Supplemental Indenture, dated as of October 29, 2002, by and  among Doe Run, as issuer, Doe Run Cayman, FPI, DR Land Holdings, Doe Run Peru  and Doe Run Development, as guarantors, and State Street Bank and Trust  Company, as trustee, supplementing the Indenture, dated as of March 12, 1998.  (10).                                                                                                                                                                                                                    |
| 4.2.1                    |       | Indenture, dated as of September 1, 1998, by and among Doe Run, as  issuer, FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air and  Doe Run Development, as guarantors, and State Street Bank and Trust Company,  as trustee, relating to the 111⁄4% Senior Secured Notes due 2005, Series A and  111⁄4% Senior Secured Notes due 2005, Series B and the Guarantees thereof  (containing, as exhibits, specimens of the Notes and the Guarantees). (2)                                                             |
| 4.2.2                    |       | First Supplemental Indenture, dated as of September 16, 1998, by and  among Doe Run, as issuer, FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru,  Doe Run Air, Doe Run Development and Cobriza, as guarantors, and State Street  Bank and Trust Company, as trustee, supplementing the Indenture, dated as of  September 1, 1998. (3)                                                                                                                                                                                              |
| 4.2.3                    |       | Second Supplemental Indenture, dated as of January 13, 1999, by  and among Doe Run, as issuer, FPI, Doe Run Cayman, Doe Run Mining, Doe Run  Peru, Doe Run Air, Doe Run Development, Cobriza and DRLH, as guarantors, and  State Street Bank and Trust Company, as trustee, supplementing the Indenture,  dated as of September 1, 1998. (3)                                                                                                                                                                               |
| 4.2.4                    |       | Pledge Agreement, dated as of January 15, 1999, by Doe Run to  State Street Bank and Trust Company. (3)                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.2.5                    |       | Third Supplemental Indenture, dated as of October 29, 2002, by and  among Doe Run, as issuer, Doe Run Cayman, FPI, DR Land Holdings, Doe Run Peru  and Doe Run Development, as guarantors, and State Street Bank and Trust  Company, as trustee, supplementing the Indenture, dated as of September 1,  1998. (10)                                                                                                                                                                                                                   |

 

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| 4.4     |   | Registration Rights Agreement, dated as of September 1, 1998, by and  among Doe Run, FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run  Air, Doe Run Development and Jefferies & Company, Inc., relating to the  111⁄4% Senior Secured Notes due 2005. (2)                                                                                                                                              |
|---------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.5.1   |   | Indenture, dated as of October 29, 2002, by and among Doe Run, as  issuer, The Buick Resource Recycling Facility, DR Land Holdings, FPI, Doe Run  Peru, Doe Run Cayman and Doe Run Development, as guarantors, and State Street  Bank and Trust Company, as trustee, relating to the 11 3⁄4% Notes due 2008 and  the Guarantees thereof (containing, as exhibits, specimens of the Notes and  the Guarantees). (10). |
| 4.5.2   |   | Security Agreement, dated as of October 29, 2002, by and among Doe  Run, Doe Run Cayman, DR Land Holdings, FPI, The Buick Resource Recycling  Facility and State Street Bank and Trust Company, as trustee and collateral  agent. (10)                                                                                                                                                                                  |
| 4.5.3   |   | Warrant Agreement, dated as of October 29, 2002, by and between Doe  Run and State Street Bank and Trust Company, as warrant agent (containing, as  an exhibit, a specimen of the Warrant Certificate). (10)                                                                                                                                                                                                            |
| 4.5.4   |   | Investor Rights Agreement, dated as of October 29, 2002, by and among  Doe Run, DR Acquisition Corp., The Renco Group, Inc. and State Street Bank  and Trust Company, as Warrant Agent. (10)                                                                                                                                                                                                                            |
| 4.5.5   |   | Deed of Trust, Security Agreement, Fixture Filing and Assignment of  Leases and Rents, dated as of October 29, 2002, by and among Doe Run and Lisa  M. Haines, as trustee, for the benefit of State Street Bank and Trust  Company. (10)                                                                                                                                                                                |
| 4.5.6   |   | Participations Pledge Agreement, dated as of October 29, 2002, by and  among Doe Run Cayman, State Street Bank and Trust Company, Regiment Capital  Advisors, L.L.C. and Doe Run Peru. (10)                                                                                                                                                                                                                             |
| 4.5.7   |   | Intercreditor Agreement, dated as of March 21, 2003 by and among  Congress Financial Corporation, The Renco Group, Inc. and U.S. Bank National  Association. (10)                                                                                                                                                                                                                                                       |
| 4.5.8   |   | Environmental Compliance and Indemnity Agreement, dated as of October  29, 2002, by and among Doe Run, The Buick Resource Recycling Facility and  State Street Bank and Trust Company. (10)                                                                                                                                                                                                                             |
| 4.6     |   | Stock Purchase Agreement, dated as of October 29, 2002, by and  between Doe Run and The Renco Group, Inc. (10)                                                                                                                                                                                                                                                                                                          |
| 10.1.1  |   | Amended and Restated Executive Employment Agreement, dated as of  April 7, 1994, as amended through November 1, 2002, between Doe Run and  Jeffrey L. Zelms. (10)                                                                                                                                                                                                                                                       |
| 10.1.2  |   | Amended and Restated Executive Employment Agreement, dated as of  April 7, 1994, as amended through October 31, 2002, between Doe Run and  Marvin K. Kaiser. (10)                                                                                                                                                                                                                                                       |
| 10.1.3  |   | Certified Translation of Employment Agreement, dated as of March 31,  2003, between Doe Run Peru and A. Bruce Neil. (11)                                                                                                                                                                                                                                                                                                |
| 10.1.4  |   | Executive Employment Agreement, dated as of September 17, 2001,  between Doe Run and Jerry L. Pyatt. (11)                                                                                                                                                                                                                                                                                                               |
| 10.1.5  |   | Employment Agreement, dated as of April 7, 1994, between Doe Run and  David A. Chaput. (11)                                                                                                                                                                                                                                                                                                                             |
| 10.1.6  |   | Employment Agreement, dated as of November 18, 2004, between Doe Run  and James W. Grubbs. (11)                                                                                                                                                                                                                                                                                                                         |
| 10.1.7  |   | Amendment One to Employment Agreement dated November 1, 2002, between  Doe Run and David A. Chaput. (11)                                                                                                                                                                                                                                                                                                                |
| 10.1.8  |   | Amendment  One to Amended and Restated Executive Employment Agreement dated November 1,  2002 between Doe Run and Marvin Kaiser. (11)                                                                                                                                                                                                                                                                                   |
| 10.1.9  |   | Amendment  One to Employment Agreement dated November 1, 2002 between Doe Run and Jerry  L. Pyatt. (11)                                                                                                                                                                                                                                                                                                                 |
| 10.1.10 |   | Amendment  One to Amended and Restated Executive Employment Agreement dated November 1,  2002 between Doe Run and Jeffrey L. Zelms. (11)                                                                                                                                                                                                                                                                                |
| 10.1.11 |   | Certified  Translation of First Amendment to Employment Agreement dated June 1, 2004  between Doe Run Peru and A. Bruce Neil (amendment to Exhibit 10.1.3). (11)                                                                                                                                                                                                                                                        |
| 10.1.12 |   | Amendment  Two to Amended and Restated Executive Employment Agreement dated February 17,  2006 between Doe Run and Marvin Kaiser. (13)                                                                                                                                                                                                                                                                                  |
| 10.2.1  |   | Amended and Restated Net Worth Appreciation Agreement, dated as of  July 1, 2005, between Doe Run and Jeffrey L. Zelms. (12)                                                                                                                                                                                                                                                                                            |
| 10.2.2  |   | Amended and Restated Net Worth Appreciation Agreement, dated as of  July 1, 2005, between Doe Run and Marvin K. Kaiser. (12)                                                                                                                                                                                                                                                                                            |
| 10.2.3  |   | Amended and Restated Net Worth Appreciation Agreement, dated as of  July 1, 2005, between Doe Run and Jerry L. Pyatt. (12)                                                                                                                                                                                                                                                                                              |
| 10.2.4  |   | Amended and Restated Net Worth Appreciation Agreement, dated as of  July 1, 2005, between Doe Run and David A. Chaput. (12)                                                                                                                                                                                                                                                                                             |
| 10.2.5  |   | Net Worth Appreciation Agreement, dated as of July 1, 2005, between  Doe Run and Bruce Neil (13)                                                                                                                                                                                                                                                                                                                        |

 

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| 10.2.6  |   | First Amendment to Amended and Restated Net Worth Agreement dated  February 22, 2006, between Doe Run and Marvin Kaiser. (13)                                                                                                                                                                                                                                |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.3    |   | The Doe Run Resources Corporation Supplemental Employee Retirement  Plan. (1)                                                                                                                                                                                                                                                                                |
| 10.4    |   | The Doe Run Company Executive Tax Services Plan. (1)                                                                                                                                                                                                                                                                                                         |
| 10.5.12 |   | Amended  and Restated Loan and Security Agreement, dated as of October 29, 2002, by  and among Doe Run, The Buick Resource Recycling Facility and FPI, as guarantors,  the financial institutions named therein, as lenders, Congress Financial  Corporation, as agent and The CIT Group/Business Credit, Inc., as co-agent.  (10)                           |
| 10.5.13 |   | Amendment No. 1 to Amended and Restated Loan and Security Agreement,  dated as of March 11, 2003, by and among Doe Run, The Buick Resource  Recycling Facility and FPI, as guarantors, the financial institutions named  therein, as lenders, Congress Financial Corporation, as agent and The CIT  Group/Business Credit, Inc., as co-agent. (10)           |
| 10.5.14 |   | Amendment No. 2 to Amended  and Restated Loan and Security Agreement, dated as of April 9, 2004, by andamong Doe Run, The Buick  Resource Recycling Facility and FPI, as guarantors, the financial  institutions named therein, as  lenders, Congress Financial Corporation, as agent and The CIT Group/Business  Credit, Inc., as co-agent.  (10) |
| 10.5.15 |   | Amendment No. 3 to Amended  and Restated Loan and Security Agreement, dated as of October 14, 2005, by  and among Doe Run, The Buick Resource Recycling Facility and FPI, as  guarantors, the financial institutions  named therein, as lenders, Wachovia Bank, N.A., as agent and The CIT  Group/Business Credit, Inc.,  as co-agent. (13)        |
| 10.6    |   | Contrato de Transferencia de Acciones, Aumento del Capital Social y  Suscripción de Acciones de La Empresa Metalúrgica La Oroya S.A. (Contract of  Stock Transfer, Capital Increase and Stock Subscription) (with English  translation). (1)                                                                                                       |
| 10.7    |   | Programa de Adecuación y Manejo Ambiental (Environmental Remedy and  Management Program) (with English translation). (1)                                                                                                                                                                                                                                |
| 10.8.1  |   | Convenio de Estabilidad Jurídica Entre el Estado y La Empresa  Metalúrgica La Oroya S.A. (Legal Stability Agreement between the State and  Empresa Metalúrgica La Oroya S.A.) (with English translation). (1)                                                                                                                                 |
| 10.8.2  |   | Convenio de Estabilidad Jurídica con Doe Run Mining S.R. Ltda. (Legal  Stability Agreement with Doe Run Mining Commission for Foreign Investments  and Technologies) (with English translation). (1)                                                                                                                                                    |
| 10.8.3  |   | Convenio de Estabilidad Jurídica con Doe Run Mining S.R. Ltda. (Legal  Stability Agreement with Doe Run Mining Ministry of Energy and Mines) (with  English translation). (1)                                                                                                                                                                           |
| 10.8.4  |   | Convenio de Estabilidad Jurídica con Doe Run Perú S.R. Ltda. (Legal  Stability Agreement with Doe Run Peru Minister of Energy and Mines) (with English  translation). (1)                                                                                                                                                                          |
| 10.8.5  |   | Convenio de Estabilidad Jurídica con Doe Run Perú S.R. Ltda. (Legal  Stability Agreement with Doe Run Peru Vice Minister of Mines) (with English  translation). (1)                                                                                                                                                                                |
| 10.8.6  |   | Convenio de Estabilidad Jurídica con Doe Run Cayman Ltd. (Legal  Stability Agreement with Doe Run Cayman Commission for Foreign Investments  and Technologies) (with English translation). (1)                                                                                                                                                          |
| 10.8.7  |   | Remite Contrato de Estabilidad Administrativa Ambiental  (Environmental Stability Agreement) (with English translation). (1)                                                                                                                                                                                                                                 |
| 10.10   |   | Contrato de Afectación en Garantía de Pagos y/o Cobranzas y de  Cuentas Cobranza (Collection Account Agreement), dated June 11, 1998, between  Banco de Crédito del Perú and Doe Run Peru (with English translation). (1)                                                                                                                |
| 10.11   |   | Contrato de Prenda de Minerales (Ore Collateral Agreement), dated  June 11, 1998, between Banco de Crédito del Perú and Doe Run Peru (with  English translation). (1)                                                                                                                                                                              |
| 10.12   |   | Security Agreement, dated as of September 1, 1998, by Doe Run in  favor of State Street Bank and Trust Company, as trustee and collateral  agent. (2)                                                                                                                                                                                                        |
| 10.13   |   | Intercreditor Agreement, dated as of September 1, 1998, between State  Street Bank and Trust Company, as note trustee, and Congress Financial  Corporation, as lender. (2)                                                                                                                                                                                   |
| 10.14   |   | Management Consulting Agreement, dated as of April 17, 1994, as  amended, between The Renco Group, Inc. and The Doe Run Resources Corporation.  (3)                                                                                                                                                                                                          |
| 10.15   |   | Financial leasing dated January 20, 1999 entered into by and between  Credito Leasing S.A. and Banco de Credito del Peru as party of the first part  and Doe Run Peru S.R.L. as party of the second part (English). (5) 10.1                                                                                                                                 |
| 10.16   |   | Unconditional Guarantee dated June 11, 1999 by and among the Doe Run  Resources Corporation, Boeing Capital Corporation and First Security Bank,  N.A. (5) Ex 10.2.1                                                                                                                                                                                         |
| 10.17   |   | Promissory Note dated July 6, 1999 by and among Boeing Capital  Corporation and First Security Bank, N.A. (5) Ex 10.2.2                                                                                                                                                                                                                                      |

 

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| 10.18    |   | Loan and Security Agreement dated June 11, 1999 by and among Boeing  Capital Corporation and First Security Bank, N.A. (5) Ex 10.2.3                                                                                                                                      |
|----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.19.1  |   | Credit Agreement, dated as of October 29, 2002, by and among Doe Run,  the lenders party thereto and Regiment Capital Advisors, L.L.C., as agent for  the lenders. (10)                                                                                                   |
| 10.19.2  |   | Term Note, dated as of October 29, 2002, between Doe Run and Regiment  Capital Advisors, L.L.C. (10)                                                                                                                                                                      |
| 10.19.3  |   | Term Note, dated as of October 29, 2002, between Doe Run and Lathi,  LLC. (10)                                                                                                                                                                                            |
| 10.19.4  |   | Guarantee and Security Agreement, dated as of October 29, 2002, by  and among DR Acquisition Corp., Doe Run, Doe Run Cayman, Doe Run Peru, Doe  Run Development, DR Land Holdings, FPI, The Buick Resource Recycling Facility  and Regiment Capital Advisors, L.L.C. (10) |
| 10.19.5  |   | Intercreditor Agreement, dated as of March 21, 2003, between Congress  Financial Corporation and The Renco Group, Inc. (10)                                                                                                                                               |
| 10.19.6  |   | Deed of Trust, Security Agreement, Fixture Filing and Assignment of  Leases and Rents, dated as of October 29, 2002, by and among Doe Run and Lisa  M. Haines, as trustee, for the benefit of Regiment Capital Advisors, L.L.C.  (10)                                     |
| 10.19.8  |   | Environmental Compliance and Indemnity Agreement, dated as of October  29, 2002, by and among Doe Run, The Buick Resource Recycling Facility and  Regiment Capital Advisors, L.L.C. (10)                                                                                  |
| 10.19.9  |   | Assignment and Acceptance dated as of March 21, 2003 by and among Doe  Run, Regiment Capital II, L.P. and Lathi, LLC, as assignors, The Renco Group,  Inc., as assignee and new agent and Regiment Capital Advisors, L.L.C. as  prior agent. (10)                         |
| 10.19.10 |   | Amended and Restated  Credit Agreement dated as of April 30, 2004 by and between Doe Run and TheRenco Group, Inc., as agent  and lender. (10)                                                                                                                             |
| 10.19.11 |   | Third Amendment to Amended  and Restated Credit Agreement dated as of October 14, 2005 by and between Doe  Run and The Renco Group, Inc., as agent and lender. (13)                                                                                                       |
| 10.19.12 |   | Fourth Amendment to  Amended and Restated Credit Agreement dated as of January 17, 2006 by and  between Doe Run and The Renco Group, Inc., as agent and lender. (13)                                                                                                      |
| 10.20    |   | Asset Transfer Agreement, dated as of October 29, 2002, by and  between Doe Run and The Buick Resource Recycling Facility. (10)                                                                                                                                           |
| 10.22    |   | Amended  and Restated Tax Sharing Agreement, effective as of October 30, 2002, by and  between Doe Run  and The  Renco Group, Inc. (10)                                                                                                                              |
| 10.23.1  |   | Subordinated Promissory Note dated September 12, 2002 between Doe Run  and Doe Run Peru. (10)                                                                                                                                                                             |
| 10.23.2  |   | Correspondence relating to cancellation of previously existing  deposit and loan facilities with Banco de Credito Overseas Limited. (10)                                                                                                                                  |
| 10.23.3  |   | Revised and Amended Subordinated Promissory Note, effective as of  December 9, 2005, between Doe Run and Doe Run Peru. (13)                                                                                                                                               |
| 10.24.1  |   | Working Capital Facility dated September 17, 2002 between Doe Run  Peru and Banco de Credito del Peru (with English translation). (10)                                                                                                                                    |
| 10.24.2  |   | Accounts Receivable Assignment of Rights Agreement dated September  17, 2002 between Doe Run Peru and Banco de Credito del Peru (with English  translation). (10)                                                                                                         |
| 10.24.3  |   | Global and Floating Pledge Agreement dated September 17, 2002 between  Doe Run Peru and Banco de Credito del Peru (with English translation). (10)                                                                                                                        |
| 10.24.4  |   | Amendment to Working  Capital Facility dated September 17, 2002 between Doe Run Peru and Banco deCredito del Peru, dated  February 16, 2004. (10)                                                                                                                         |
| 10.24.5  |   | Amendment to Working  Capital Facility dated September 17, 2002 between Doe Run Peru and Banco deCredito del Peru, dated  September 14, 2005 (English translation). (13)                                                                                                  |
| 10.24.6  |   | Amendment to Working  Capital Facility dated September 17, 2002 between Doe Run Peru and Banco deCredito del Peru, dated  October 21, 2005 (English translation). (13.                                                                                                    |
| 10.24.7  |   | Amendment to Working  Capital Facility dated September 17, 2002 between Doe Run Peru and Banco deCredito del Peru, dated  October 31, 2005 (English translation). (13)                                                                                                    |
| 10.24.8  |   | Amendment to Working  Capital Facility dated September 17, 2002 between Doe Run Peru and Banco deCredito del Peru, dated  November 22, 2005 (English translation). (13)                                                                                                   |
| 10.24.9  |   | Amendment to Working  Capital Facility dated September 17, 2002 between Doe Run Peru and Banco deCredito del Peru, dated  December 15, 2005 (English translation). (13)                                                                                                   |
| 14       |   | Code of Ethics. (11)                                                                                                                                                                                                                                                      |

 

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| 21   |   | List of Subsidiaries of Registrant. (10)                                                                   |
|------|--------|------------------------------------------------------------------------------------------------------------|
| 31.1 |   | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  (13) |
| 31.2 |   | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  (13) |
| 32.1 |   | Certification of Chief Executive Officer pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. (13)  |
| 32.2 |   | Certification of Chief Financial Officer pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002. (13)  |

 

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(1)                                  Incorporated byreference to the exhibit  in theRegistration Statement on Form S-4, as amended (File No. 333-52285), originallyfiled May 11, 1998.

 

(2)                                  Incorporated byreference to the exhibit in Form 8-K (File No. 333-52285) filed September 16,1998.

 

(3)                                  Incorporated byreference to the exhibit in the Registration Statement on Form S-4, as amended(File No. 333-66291), originally filed October 29, 1998.

 

(4)                                  Incorporated byreference to the exhibit in Form 10-Q (File No. 333-52285) filed June 11, 1999.

 

(5)                                  Incorporated byreference to the exhibit in Form 10-Q (File No. 333-52285) filed September 13,1999.

 

(6)                                  Incorporated byreference to the exhibit in Form 10-K (File No. 333-52285) filed January 26,2000.

 

(7)                                  Incorporated byreference to the exhibit in Form 10-Q (File No. 333-66291) filed June 8, 2000.

 

(8)                                  Incorporated by referenceto the exhibit in Form 10-K (File No. 333-66291) filed January 29, 2001.

 

(9)                                  Incorporated byreference to the exhibit in Form 10-K (File No. 333-66291) filed May 16, 2002.

 

(10)                            Incorporated by referenceto the exhibit in Form 10-K (File No. 333-66291) filed June 2, 2004.

 

(11)                            Incorporated by referenceto the exhibit in Form 10-K (File No. 333-66291) filed March 23, 2005.

 

(12)                            Incorporated by referenceto the exhibit in Form 10-Q  (File No.333-66291) filed September 14, 2005

 

(13)                            Filed with this Form 10-K.

 

**GLOSSARY**

 

**Acidplant –** A smelter’s acid plant collects the sulfur dioxidefrom the sinter plant and converts it into sulfuric acid, which is sold tofertilizer manufacturers.

 

**Alloy –**A mixture of metals.

 

**Leadconcentrate –** After the raw ore is screened, crushed andground at the mills, it is chemically treated in a flotation process toseparate metal-containing mineral from the waste rock (tailings) and from eachother. The resulting material is called lead concentrate.

 

**NOV –**Notice of Order Violation; action taken by the state when it believes that oneor more of its orders has not been complied with.

 

**Polymetallicore –** Ore that contains lead, zinc, copper, silver and othermetals. Lead concentrates from Doe Run mining operations are transported to theHerculaneum smelter complex for treatment, while non-lead concentrates aresold.

 

**Sinter –**The two- to four-inch chunks of solid material that resultfrom roasting the sulfur away from the lead concentrate. This material becomesfeed to the blast furnace.

 

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**SIP –**State Implementation Plan; a plan prepared by state government and approved bythe EPA outlining how a company or community plans to reduce emissions during aspecific time period (often three years). The goal is to get the concentrationof certain materials measured in the air within EPA standards.

 

**Slag –**A byproduct of smelting. Slag is a glassy, sand-like material containing smallamounts of lead, zinc, copper and other materials.

 

**Tailings–** Tailings and chat are leftover rock created from twodifferent milling processes. Tailings and chat both contain a high level oflimestone. Chat is coarser material, while tailings have the consistency offine sand. Tailings have been used as agricultural lime.

 

**TreatmentCharges –**A form of compensation received by a smelter,stated as a flat rate per unit of metal contained, for the processing of metalbearing materials.

 

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