INFORME ANUAL GRUPO MÉXICO 02 

## ANNUAL REPORT 2011



# EFFICIENCY grupo México s.a.b. de c.v.

edificio parque reforma campos elíseos 400 col. lomas de chapultepec c.p. 11000 méxico, d.f. tel.: 52 (55) 1103 5000

www.gmexico.com02 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 03 HIGHLIGHTS 02
LETTER TO INVESTORS 05 GRUPO MÉXICO SALES FIGURES 12
MINING DIVISION 18
GEOGRAPHIC MINE LOCATION 20
COPPER 22
MOLYBDENUM 28
ZINC 30
PRECIOUS METALS 32
PROJECTS AND INVESTMENTS 40
EXPLORATIONS 48
HEALTH AND SAFETY 56
ENVIRONMENTAL ACTIONS AND OUR COMMUNITIES 58
SUCCESS STORY “CANANEA” 66
TRANSPORTATION DIVISION 72
GEOGRAPHIC LOCATION OF THE PRINCIPAL ROUTES 75
FERROSUR 78
INTERMODAL 79 PACÍFICO TRANSPORTATION LTD 80

ITM 81
INFRASTRUCTURE DIVISION 84
GEOGRAPHIC LOCATION OF THE INFRASTRUCTURE DIVISION 87 GRUPO MÉXICO FOUNDATION 96
FINANCIAL ANALYSIS AND DISCUSSION 104
CORPORATE STRUCTURE 127
BOARD OF DIRECTORS 134

Jaime Espino. Truck trainer. Buenavista del Cobre, Sonora.02 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 03 Real Var. % 2008 2009 2010* 2011* 2011 / 2010

Sales Volumes ** Copper (tons) 505,540 514,946 701,708 790,103 13 Zinc (tons) 100,318 104,103 93,964 90,663 (4) Silver (thousands of ounces) 15,000 18,474 19,584 17,411 (11) Gold (ounces) 47,229 63,491 69,690 60,748 (13) Molybdenum (tons) 16,510 18,590 20,508 18,632 (9)
Average Prices (dollars) Copper (COMEX) (pound) 3.13 2.35 3.43 4.01 17 Zinc (LME) (pound) 0.85 0.75 0.98 0.99 1 Silver (COMEX) (pound) 14.97 14.67 20.18 35.18 74 Gold (LF) (pound) 871.71 972.98 1,224.66 1,568.58 28 Molybdenum (MW DEALER OXIDE) (pound) 28.42 10.91 15.61 15.33 (2)

Railroad Division Statistics Net tons/km (millions of tons) 40,186 39,205 52,117 52,182 (-) Cars loaded (thousands of units) 730.2 688.0 1,078.2 1,140.3 6
Balance Sheet (millions of dollars) Current Assets 3,068 4,405 6,003 5,566 (7) Fixed Assets 4,862 6,655 7,370 7,862 7 Total Assets 8,788 12,462 14,598 15,201 4 Bank Debt 1,688 3,418 4,096 3,801 (7) Total Liabilities 3,160 5,888 7,113 6,464 (9) Total Equity Capital 5,628 6,574 7,485 8,737 17
Earnings (millions of dollars) Total Sales 6,033 4,827 8,338 10,443 25 Cost of Sales 2,958 2,574 4,226 5,105 21 Taxes Assessed 891 544 964 1,408 46 Operating Profit plus Depreciation 2,904 2,115 3,921 5,193 32 Net Profit 1,076 888 1,627 2,472 52

Cash Flow (millions of dollars) From Operations 2,096 1,394 3,072 2,946 (4) Dividends paid (1,344) (199) (793) (1,464) 85 Taxes Paid 983 640 907 1,538 70 Applied to Financing Activities (854) 1,166 452 (489) (208) Total Cash Flow (102) 2,361 2,731 993 (64) Allocated to Investments (804) (2,980) (916) (1,779) 94 Cash flow after investments (906) (619) 1,815 (786) (143) 

## GRUPO MÉXICO H igh l igh ts

Real Var. % 2008 2009 2010* 2011* 2011 / 2010

Stock Information *** Total Shares Outstanding (thousands) 7,610,000 7,785,000 7,785,000 7,785,000

- EBITDA per Share 0.37 0.27 0.50 0.67 34 Cash Flow per Share 0.24 0.21 0.35 0.45 29 Earnings per Share 0.14 0.11 0.21 0.32 52 Book Value 0.55 0.65 0.77 0.93 21

Financial Ratios Operating Margin 41% 35% 41% 44% 7 Operating Margin plus Depreciation 48% 44% 47% 50% 6 Current Assets to Current Liabilities (times) 2.8 2.7 2.8 3.5 25 Total Liabilities to Total Assets 36% 47% 49% 43% (12) Debt/Capital+Debt 23% 34% 35% 30% (14) EBITDA/Interests (times) 17.56 15.84 12.22 17.56 44
Employees 18,928 23,002 25,891 26,989 4

Annual Inflation Mexico 7% 4% 4% 4%

- United States 0% 3% 1% 3% 200 Peru 7% 0% 2% 5% 150
Exchange Rate at Year End Mexico (peso/dollar) 13.54 13.06 12.36 13.98 13 Peru (sol/dollar) 3.14 2.89 2.81 2.70 (4)
Average Exchange Rate Mexico (peso/dollar) 11.14 13.51 12.64 12.43 (2) Peru (sol/dollar) 2.93 3.01 2.83 2.75 (3)

Expressed according to US GAAP

* Proforma financial statements, including Ferrosur.

** Throughout this report all tons are metric and all ounces are troy.

*** Referring to 7,785,000,000 shares.ANNUAL REPORT GRUPO MÉXICO 05 Despite the economic adversity and uncertainty that haunted economic and political processes around the world, 2011 was a very positive year for Grupo México. For Grupo México investors, 2011 was a year that saw record breaking sales of US$10.443 billion (a 25% increase), operating cash flow (EBITDA) of US$5.192 billion (32% higher), and net earnings of US$2.439 billion (a 52% increase). Overall, this year could be considered the best in the Company’s history.

Nothing about this positive outcome has been easy. The economic data did not reflect the fundamental realities of copper production and demand, subjecting prices to volatility. This situation led us to experience copper prices above US$4.50 per pound, then a few months later, below US$3.20 per pound. However, on average, copper prices were US$4.01 per pound. Copper prices were influenced more by global economic uncertainty, deficit concerns among some European countries, and unemployment in the US than by the fundamental aspects of supply and demand, which even today remain solid and sustain average copper prices. Despite this environment, our efforts made in production and in mitigating the pace at which costs are rising explain, in large part, the excellent results reported by the Company’s Mining Division.

In light of the above, we were able to invest a record amount in our Companies of US$1.217 billion, almost double the investment made in 2010 and more than half the net profit for the year. Of this, US$715 million was invested in the Mining Division; US$355 million in the Transportation Division, double the figure for 2010, and US$147 million in the Infrastructure Division. In addition, the Company paid out US$1.464 billion in dividends, an 85% increase over 2010. Over the past 5 years, Grupo México has reinforced its commitment to its shareholders by paying out US$5.235 billion in dividends. LETTER TO INVESTORS

Haulage Truck. Buenavista del Cobre, Sonora.06 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 07 The Mining Division represented 83% of total Company sales, with our mines in Mexico contributing 42%, those in Peru 36%, and those in the United States 22% to this figure. The Transportation Division contributed 16% and the Infrastructure Division the remainder.

Copper production by our Mining Division, represented by Americas Mining Corporation, increased 12.3% over 2010 to reach nearly 800,000 tons. The principal reason was the return of the Buenavista del Cobre mine in Cananea, Sonora to full operation. As a result, production of anodes, cathodes, and copper rod increased benefiting sales with a higher premium. In 2011, the Company purchased over 70,000 tons of copper from third parties to stabilize the refineries in Peru, the United States, and in Mexico. Zinc and silver production was slightly lower than that for 2010, due to flooding at the Santa Eulalia mine. The Mining Division reported sales of over US$8.655 billion, despite the drop in prices in the second half of the year. Costs have risen in parallel to increased energy consumption, materials, and equipment, and also increased taxes. Despite these cost pressures, Grupo México maintained its position as a global leader in low cost copper production (excluding byproducts) the cost of copper in 2011 was US$0.74 per pound.

At Grupo México, we know there is little we can do about metals prices, which are set by the international market. However, the Company can do more to streamline and modernize its operations, to keep cost increases low and above all, during the good years, maintain a high level of investment so as to generate more production and better identify our reserves. To this effect, US$1.746 billion will be invested in this Division in 2012. The most significant projects for the Mining Division in the near future are: the ex

pansion of Buenavista del Cobre to increase production in the next 4 years from the current 180,000 tons to 488,000 tons of copper content. The expansion of Toquepala and Cuajone, which jointly will generate an additional 125,000 tons in the next 3 to 4 years. The completion of these and other projects means that by 2017, Grupo México will be producing over 1.4 million metric tons of copper. The new Tia Maria project in Peru is awaiting a new decision from the Peruvian government on the environ

mental impact assessment, which now considers the UN’s comments and additional requests made by the Peruvian government.

Our Transportation Division, represented by Infraestructura y Transportes México (ITM) increased its sales 14%, to reach a record US$1.626 billion. EBITDA for ITM increased 6.2% to US$465 million, in spite of an 11% hike in fuel prices and various phenomena that affected industry, such as the tsunami in Japan, which had an effect on the automotive sector, the effects of hurricanes and constant trouble on certain routes involving criminal activity and undocumented migrants. We are developing a plan for collaboration with the federal and local authorities and investing in technol

ogy and security for freight transportation. The intermodal segment has maintained its growth pace transporting over 250,000 containers, a 15% increase over 2010. For 2012, we expect faster freight transportation times due to investment in improving the lines and sidings and the purchase of 58 new locomotives.

The Transportation Division operates over 10,000 kilometers of track, twice that of our principal competitor, with 40% more locomotives, and nearly 5 times more cars08 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 09 for transporting freight. The challenge of modernizing our lines, some dating back to the late 1800s, is great. We are now on a mission to meet this challenge seeing it as a mechanism to compensate rising costs, increase speed, and improve transportation times, and to maintain our railroad Company as the most competitive in the country. We have an investment budget of US$231 million for this Division in 2012.

For the Transportation Division, the acquisition of locomotives and significant disbursements to improve or modernize the rail lines will lead to better freight transportation times, greater volumes, and increased sales for the Company. The Company now has 770 modern and efficient locomotives.

The completion of the Grijalva River deviation tunnels was a major event for our Infrastructure Division. The Tunnels are now in operation helping to prevent flooding in Tabasco, optimizing the use of the area’s hydroelectric power generating system. This was a highly complex and difficult project because of the geological factors in the region. Also in 2011, we were awarded a concession to construct and operate the highway between Leon and Salamanca in Mexico, which our Construction Company (México Constructora Industrial and México Compañía Constructora) will be responsible for, representing an investment of nearly US$400 million. In addition, Compañía Perforadora México purchased two twin Jack Up Friede & Goldman Super M2 ocean platforms to drill for hydrocarbons in shallow waters for the state Company PEMEX. Both platforms are equipped with the latest technology and built in the United Arab Emirates. This purchase represents an investment of approximately US$370 million. Also noteworthy is the construction of two self-supply 250 megawatt combined cycle power plants in the state of Sonora, representing an investment of US$540 million. The first plant is on schedule to start operations during the fourth quarter of 2013, the second in mid-2014. We have an investment budget of US$636 million for the Infrastructure Division in 2012.

Grupo México and its companies hold total debt of US$3.800 billion, 7% less than the debt reported in 2010. As the Company holds a consolidated cash balance of US$2.230 billion at December 2011, Grupo México’s net debt is US$1.570 billion. In terms of the EBITDA generated in 2011, the Company’s leverage is 0.75x, one of the lowest in the industry. The debt profile has no significant maturities until 2020 at which time US$400 million will be due. Grupo México is a company with a solid capital structure, which allows it to take advantage of growth opportunities that generate value for its shareholders.

Standard and Poor’s upgraded its ratings for Grupo México, Americas Mining Cor

poration, Southern Copper Corporation, and Minera México from BBB- to BBB. In the middle of a wave of uncertainty in terms of country and Company debt, this is particularly good news. Also, Grupo México was selected by the Mexican Stock Ex

change (BMV) to be included in their first index of “Sustainable Companies”; Minera México, SCC mining Company in Mexico, was recognized by the Mexican Confed

eration of Industrial Chambers (CONCAMIN) for its corporate ethics and values, for the second consecutive year the Company received “ESR” distinction as a Socially Responsible Company. It has required constant and intense efforts for Grupo México and its companies to continue to meet the most demanding international standards.10 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 11 The Company also met its social, environmental, and community support responsi

bilities. The initiatives undertaken and results of this work by each company in the Group and Fundación Grupo México are detailed in our 2011 Sustainable Develop

ment Report, while this report mentions just some of our outstanding social and en

vironmental projects this year. The first of these is the decisive action to change the relationship the Company has with the city of Cananea, with its new union, and with the local community. This change is based on a long range program that touches the most important fibers of the city: health, with the construction of a new second level hospital; urban infrastructure, with paving and support for the repair of the clean water network; entertainment, with the construction of a full service shopping center, sports, and also a new hotel. A total of US$30 million has been spent on the project this year.

This great effort, carried out primarily in 2011, is deserving of the recognition it has received in Sonora and throughout the country. In June, Buenavista del Cobre received the “Premio a la Filantropía Sonora” (Sonora Philanthropy Award) in the businesses category.

In Peru, livestock and farming technification projects continue to be developed and put into action with producers in the regions where we operate. The Huaytire comprehensive development program in the province of Candarave includes improvements in education, health, nutrition, and livestock productive development. A Nutrition Program was started in this same province to help in changing behaviors in terms of health and eating habits in the community.

In the Transportation Division, the Tarahumara and Mayo indigenous communities in the states of Chihuahua and Sinaloa, respectively, were benefited by the railroads with free passenger and cargo service to their communities. Free passage was also given to representatives of the church serving these communities providing, among others, healthcare services and helping special needs children.

Despite market uncertainties, 2011 was a very encouraging year for Grupo México’s investors. Everyone that works for the companies of Grupo México has contributed to presenting our investors with a good report and, even more importantly, a more attractive outlook for 2012 and for years to come.

GERMÁN LARREA MOTA VELASCO Chairman of the Board12 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 13 

## 01.GRUPO MÉXICO SALES FIGURES

SALES RECORD HIGH RESULTS



# $ 

# 10.443

BILLION IN SALES, A NEW RECORD

GRUPO MÉXICO SALES INCREASED 25% OVER LAST YEAR 

# CONSISTENCY

Oscar Rodríguez Rodríguez Copper Rod Sales Manager. Corporate Offices, Mexico.14 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 15 

# U S $ 

# 10.443

GRUPO MÉXICO SALES FIGURES 

## BILLION
IN CONSOLIDATED SALES FOR GRUPO MÉXICO, A NEW RECORD.

BI LL ION PAID IN T AXE S BY GRUPO MÉXICO IN 2011 Copper maintained good prices during the first half of the year, but as was the case for most commodities, prices fell during the second half of the year due to low expectations for demand, principally because of the effect of the European debt crisis, and also lower outlooks for global economic growth.

Despite this environment, Grupo México’s consolidated net sales for 2011 reached a record high of US$10.443 billion, a 25% increase over the US$8.338 reported for 2010.

This increase is attributed to greater production by Buenavista del Cobre, improved copper, silver, and zinc prices, and also the 14% growth in sales reported by the Transportation Division, due to increased revenue mainly from the energy, minerals, and intermodal segments.

The cost of sales was US$5.105 billion, a 21% increase over 2010, due mainly to mine maintenance, increased energy and diesel costs, and higher rights of track usage expenses for the railroad. 7,078 6,033 4,827 8,338 10,443

08 07 09 10 11 12000

6000

0

TOTAL SALES (MILLIONS OF DOLLARS) Sa l e s
Product Volume in tons Thousands of dollars 2010 2011 Var.% 2010 2011 Var.%
Copper 701,708 790,103 13 5,270,932 6,888,007 31 Zinc 93,964 90,663 (4) 212,408 209,993 (1) Silver (thousands of ounces) 19,584 17,411 (11) 384,896 605,798 57 Molybdenum 20,508 18,632 (9) 683,351 544,040 (20) Gold (ounces) 69,690 60,748 (13) 83,431 95,706 15 Lead 21,775 16,225 (25) 46,979 44,114 (6) Sulfuric Acid 1,462,001 1,887,525 29 78,551 193,706 147 Infrastructure Services and others 150,319 235,516 57 Railroad Transportation 1,078.2 1,140.3 6 * 1,427,408 1,626,012 14

Total Sales 8,338,275 10,442,892 25

* (Cars loaded thousands of units)

Panoramic view of Buenavista del Cobre, Sonora. 

# US$ 

# 1.408ANNUAL REPORT GRUPO MÉXICO 17 16 GRUPO MÉXICO ANNUAL REPORT

China’s demand for copper is expected to continue to be relatively strong due to the investments needed in the power, household appliance, automotive, telecommunications, and housing sectors. The lower inflation in China could result in a more relaxed monetary policy, which would make more credit available and, consequently, increase demand for copper.

The Transportation Division reported a 14% growth in sales to reach US$1.626 billion. For Ferromex, the figure for freight transported is significant: 45 million tons, 0.6% below 2010. Ferrosur posted a new record for freight transported, growing 5.1% to 7.2 million tons. A 14% increase in the number of cars loaded for Ferromex and 10.4% for Ferrosur, shows us that the broadness of the operations continues to be very dynamic.

Costs for the Transportation Division increased 18% from a little over US$950 million to more than US$1.118 billion. This is largely due to higher fuel prices and greater volumes of diesel used vis-à-vis the increase in number of tons transported. Ferromex increased its diesel consumption from 87 million liters to 92.2 million liters. All things considered, Ferromex’s sales were 12.2% higher than in 2010 ($1.311 billion compared to $1.168 billion in 2010). Ferrosur also increased its sales compared to 2010, by 16.1%.

Mexico Compañía Constructora completed work in 2011 for more than US$111 million and is expected to develop projects in 2012 for over US$300 million, in the construction of both highways and Grupo México industrial plants in Sonora.

Meanwhile, Compañía Perforadora México closed 2011 with sales of US$112.6 million, EBITDA of US$27.0 million, and a net profit of US$14.7 million. Sales increased 59% this year, compared to 2010, mainly as a result of the contract awarded to the Company for the Sonora Platform in March 2011 and the significant improvement in the productivity of the land operation for the Tertiary Oil Gulf Project. S A L E S S HARE BY PRODUC T 2011

1

2 3 4 5 6 7 8

1. Copper 66% 2. Zinc 2% 3. Transportation 16% 4. Gold 1% 5. Silver 6% 6. Sulfuric Acid 2% 7. Molybdenum 5% 8. Others 2%

S A L E S S HARE BY REGION 2011

1

2

3 4 5

1. Mexico 29% 2. Europe 13% 3. Asia 7% 4. Latin America 14% 5. United States 37% S A L E S S HARE BY REGION 2010

1

2

3 4 5

1. Mexico 27% 2. Europe 13% 3. Asia 7% 4. Latin America 18% 5. United States 35% S A L E S S HARE BY PRODUC T 2010

1

2 3 4 5 6 7 8

1. Copper 63% 2. Zinc 3% 3. Transportation 17% 4. Gold 1% 5. Silver 5% 6. Sulfuric Acid 1% 7. Molybdenum 8% 8. Others 2% Perforadora México. Poza Rica, Veracruz.18 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 19 

### MINING DIVISION WORLD CLASS MINES



# DEDICATION **US$** 

# 8.655

BILLION IN SALES FOR THE MINING DIVISION, A RECORD HIGH

COPPER ACCOUNTED FOR 80% OF GRUPO MÉXICO SALES 

## 02.MINING DIVISION - AMERICAS MINING CORPORATION

Dulce Gálvez Truck Operator. Buenavista del Cobre, Sonora.20 GRUPO MÉXICO ANNUAL REPORT 

### GEOGRAPHIC MINE LOCATION

LEGEND

MINES
PLANTS
CORPORATE OFFICES
OFFICES
EXPLORATIONS BUENAVISTA

PILARES BUENAVISTA DEL COBRE

EL ARCO

san luis potos Í

ANGANGUEO M E XICO, CITY ray

HAYDEN MISSION AGUA PRIETA AMARILLO

LA CARIDAD

SANTA EULALIA NUEVA ROSITA SANTA BÁRBARA

SAN MARTÍN charcas

TAXCO C halchiuites PHOENIX SILVER BELL

TANTAHUATAY

LOS CHANCAS LIMA

TÍA MARÍA ILO

CATANAVE CUAJONE TOQUEPALA CHAUCHA

ANNUAL REPORT GRUPO MÉXICO 21 20 GRUPO MÉXICO ANNUAL REPORT S ME LT ER S , REFINERIE S & O T HER P L AN TS : ILO Copper S melter S ulfuric Acid Plant Copper Electrolyte Refinery Precious Metals Plant
TOQUEPALA Copper S X/EW Plant

a s arco
MINE S :

M ission , A ri z ona : Gold, Silver, Copper & Molybdenum
S ilver B ell , A ri z ona Copper
R ay , A ri z ona Gold, Silver & Copper

S ME LT ER S , REFINERY & O T HER P L AN TS :
H ayden , A ri z ona Copper and S ulfuric Acid S melter
R ay , A ri z ona Copper S X/EW Plant
A marillo , T exas Copper Refinery, Precious Metals Nickel, S elenium, T ellurium Copper Rod Plant Cake Plant

PRINCIPA L EXP L ORAT ION OR DEVE L OPMEN T PROJEC TS : El Arco, Baja California Copper & Gold Anguangueo, Michoacán Gold, Silver, Lead, Zinc & Copper Buenavista, S onora Silver, Copper, Zinc & Molybdenum Chalchihuites,Zacatecas Silver, Copper & Zinc Pilares, S onora Copper, Gold & Silver L os Chancas, Apurimac Copper, Molybdenum & Gold Catanave, Arica Silver & Gold Chaucha,Guayaquil Copper & Molybdenum MIN E S :

MEXICANA DE COBRE L a Caridad, S onora Copper, Molybdenum, Gold & Silver

BUENAVISTA DEL COBRE Cananea, S onora Copper, Gold & Silver

INDUSTRIAL MINERA MÉXICO Charcas, S an L uis Potosí Silver, Copper, Lead & Zinc S an Martín, Zacatecas Silver, Lead, Zinc & Copper S anta Eulalia, Chihuahua Silver, Lead & Zinc S anta Bárbara, Chihuahua Gold, Silver, Copper, Lead & Zinc T axco, Guerrero Gold, Silver, Lead & Zinc Nueva Rosita, Coahuila Coal & coke M inera M éxico **Gr u**  **p o**  **mÉx ico**  

### GEOG **R A**  **P HIC**  **M INE LOCATION** 

S ME LT ER S , REFINERIE S & O T HER P L AN TS : MEXICANA DE COBRE L a Caridad, S onora Copper Smelter Copper Electrolyte Refinery Copper SX/EW Plant Sulfuric Acid Plant Copper Rod Plant Precious Metals, Selenium, Tellurium Plant Agua Prieta, S onora Lime Plant
BUENAVISTA DEL COBRE Cananea, S onora Copper SX/EW Plants INDUSTRIAL MINERA MÉXICO S an L uis Potosí, S an L uis Potosí Sulfuric Acid Plant Zinc Electrolyte Refinery, Cadmium Nueva Rosita, Coahuila Coke Plant

SPCC MINE S :

CUAJONE Copper, Silver, Molybdenum & Gold TOQUEPALA Copper, Silver, Molybdenum & Gold22 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 23 The Mining Division of Grupo México is represented by its subsidiary Americas Mining Corporation (“AMC”), whose principal subsidiaries are Southern Copper Corporation (“SCC”) in Mexico and Peru, and Asarco in the United States. The sum of both companies hold the world’s largest copper reserves. SCC trades on the New York and Lima stock exchanges. Its stockholders, directly or through subsidiaries, are: GMéxico (80.9%) and other stockholders (19.1%). The Company has mines, metallurgic plants, and exploration projects in Peru, Mexico, the United States, Argentina, Chile, and Ecuador. Asarco was reincorporated into Grupo México on December 9, 2009 and operates three mines, a smelter, and copper cathode and ore processing plants in Arizona, copper and precious metals refineries, and also a copper rod plant in Texas.

COPPER

Copper accounted for 80% of the Mining Division’s sales in 2011. Despite variances in copper prices, due to global economic uncertainty, the metal achieved an average price of US$4.01 per pound, 17% higher than the 2010 average of US$3.43. Grupo México sales improved considerably thanks to prices and increased production in 2011. MINING DIVISION 

## BILLION
IN SALES FOR THE MINING DIVISION IN 2011.



# 80%

OF T HE MINING DIVI S ION’ S

S A L E S WERE COPPER 464.1 496.6 512.5 588.7 712.0

08 07 09 10 11 800

600

400

200

0

S ME LT ED COPPER (THOUSANDS OF TONS) C opper P rices and I nventories

322.17

237.0 313.36

386.0 235.42 509.0

342.51 557.0

08 07 09 10 11 400.00

300.00

200.00

100.00

0.00 600.0

500.0

400.0
300.0

200.0

100.0

0.00 480.50

540.0

COMEX N.Y. Inventories + LME London COMEX N.Y. PricesDollarcents/poundThousandsofMetricTons

445.7 459.2 451.4 638.9 774.3

08 07 09 10 11 800

600

400

200

0

R efined C opper (R efineries + SX/EW s )

( thousands of tons ) Refineries 351.7 389.0 387.2 498.6 593.1 SX/EWs 94.0 70.2 64.2 140.3 181.2 592.2
488.9 496 688 772.6

08 07 09 10 11 800

600

400

200

0

P rimary mined copper (C oncentrators + SX/EW s ) ( thousands of tons ) Concentrators 498.2 418.7 431.8 547.7 591.4 SX/EWs 94.0 70.2 64.2 140.3 181.2 

# U S $ 

# 8.65524 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 25 Consolidated copper production was 772,562 tons in 2011, which represents a 12.3% increase over the 687,980 tons produced in 2010. This increase was principally the result of the restart of production at Buenavista del Cobre, which has been operating at full capacity since April. Cathode and rod production at the Company’s facilities in La Caridad, Mexico; Ilo, Peru; and in Hayden, Arizona and Amarillo, Texas reported similar increases.

Smelter production in 2011 was 712,000 tons, while refineries produced 774,300 tons. There are 71.5 million tons of copper reserves, equal to 69 years of mine life.

Cash Cost

The operating cash cost per pound of copper, excluding byproducts was US$1.81, compared to US$1.63 per pound in 2010. The operating cash cost per pound of copper, net of byproducts, was US$0.74 per pound this year, positioning the Company as a global industry leader in efficiency and low cost. PRIMARY MINED COPPER PRODUC T ION AND RE S ERVE S 2011

... Production Reserves Ore Copper Ore Copper Processed Content Content Grade Years in operation thousands of tons Millions of tons %


### Mexico Concentrator: La Caridad 33,201 89.8 4,302.1 9.51 0.22 130 Buenavista del Cobre 22,444 110.2 5,256.1 22.55 0.43 234 Underground Mines 2,831 5.5 47.5 0.23 0.49 4 a 16 Subtotal 58,476 205.5 9,605.7 32.29



### S X/EWs: La Caridad 32,333 23.9 223.4 0.46 0.21 7 Buenavista del Cobre 47,399 62.3 2,658.8 4.34 0.16 56

Subtotal 79,732 86.2 2,882.2 4.80



### Peru Concentrator: Cuajone 28,946 140.1 2,354.6 11.21 0.48 81 Toquepala 21,497 120.4 3,377.9 15.98 0.47 157

Subtotal 50,443 260.5 5,732.5 27.19



### S X/EWs: * Cuajone 3,096 - 15.1 0.07 0.48 5 Toquepala 47,142 35.3 1,641.7 1.90 0.12 35

Subtotal 50,238 35.3 1,656.8 1.97



### United States Concentrator: Mission 14,547 66.0 303.4 1.28 0.42 21 Ray 15,422 59.4 540.2 2.88 0.53 35

Subtotal 29,969 125.4 843.6 4.16



### S X/EWs: Ray 27,506 38.5 211.8 0.57 0.27 8 Silver Bell 7,852 21.2 162.5 0.50 0.31 21

Subtotal 35,358 59.7 374.3 1.07

Total Concentrators 138,888 591.4 16,181.8 63.64 Total SX/EWs 165,328 181.2 4,913.3 7.84 Total 304,216 772.6 21,095.1 71.48

* Solutions with leached copper from Cuajone are sent to the SX/EW Plant at Toquepala

** Reserves are valued at US$2.97 per pound of copper, except for Asarco, which are valued at US$1.80 Copper rod plant. Mexicana de Cobre, Sonora.ANNUAL REPORT GRUPO MÉXICO 27 26 GRUPO MÉXICO ANNUAL REPORT SMELTED COPPER PRODUCTION 2011 Thousands of tons Mexico La Caridad 231.7

Peru Ilo 337.8

United S tates Hayden 142.5 T

otal 712.0

REFINED COPPER PRODUCTION 2011 Thousands of tons Mexico La Caridad Refinery 186.9 SX/EWs 86.2 Subtotal 273.1

Peru Ilo Refinery 261.0 SX/EWs 35.3 Subtotal 296.3

United S tates Amarillo Refinery 145.2 SX/EWs 59.7 Subtotal 204.9 T

otal 774.3 SEMI-MANUFACTURED COPPER PRODUCTION 2011 Thousands of tons Wire Rod Mexico La Caridad 107.9 United S tates Amarillo 174.6 T

otal 282.5

Cake United S tates Amarillo 10.7 T

otal 293.2 Production of copper cathodes or plates.28 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 29 Average molybdenum prices saw a slight drop in 2011 to US$15.33 from US$15.61 in 2010, representing a 1.8% decrease.

Molybdenum sales were US$544 million in 2011, a decrease of 20.4% year over year. Molybdenum production was 9.5% lower, due to lower ore grades at our Peruvian mines.

Sales translated into ton volume were 18,632 tons compared to the 20,508 tons sold in 2010.

Molybdenum reserves at La Caridad, Toquepala, and Cuajone are 10.035 billion tons of ore, with an average grade of 0.024% and equal to 69 years of mine life at the current rate of production. MOLYBDENUM MO L YBDENUM MINING PRODUC T ION AND RE S ERVE S 2011
Ore Molybdenum Ore Reserves Production Processed Content millions of Grade Thousands of tons tons %

Mines Mexico La Caridad 33,201 10.4 4,302.1 0.028

Peru Toquepala 21,497 5.4 3,377.9 0.024 Cuajone 28,946 2.8 2,354.6 0.017 Subtotal 50,443 8.2 5,732.5 Total 83,644 18.6 10,034.6

16.2 16.4 18.7 20.5 18.6

08 07 09 10 11 20

15

10

5

0

PRIMARY MINED MO L YBDENUM (THOUSANDS OF TONS) M olybdenum P rices

29.91 28.42

10.91 15.61

08 07 09 10 11 30.00

25.00

20.00

15.00

0.00 15.33

MW Dealer Oxide Pricesdollars/pound Panoramic view of La Caridad, Sonora.30 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 31 Zinc sales in 2011 were US$209.9 million, which compared to the US$212.4 million sold in 2010, were 1.2% lower.

The ton volume sold was 4% under that for 2010 and also production of metallic zinc was 4.4% lower than the previous year at 90,900 tons, due mainly to the lack of production at the Santa Eulalia mine, which is still being cleared after suffering flooding in 2010. Operations are expected to restart in the second quarter of 2012.

Zinc reserves total 47.5 million tons with an average grade of 2.77%, considering the following mines: Charcas, Santa Bárbara, San Martín, and Santa Eulalia, equal to 17 years. Z INC

PRIMARY MINED ZINC PRODUC T ION AND RE S ERVE S 2011
Ore Zinc Ore Reserves Production Processed Content Millions of Grade Years in Thousands of tons Tons % Operation

Mines Mexico Charcas 1,123.6 52.7 4.5 4.44 4 Santa Bárbara 1,552.9 31.1 24.7 2.60 16 San Martín - - 16.4 2.13 28 Santa Eulalia 154.2 - 1.9 6.47 12

Total 2,830.7 83.8 47.5 REFINED ZINC PRODUCTION Thousands of tons

Refineries Mexico San Luis Potosí 90.9 121.0 106.9 110.4 99.2 83.8

08 07 09 10 11 140

100

60

20

0

PRIMARY MINED ZINC (THOUSANDS OF TONS)

90.8 95.4 98.7 95.1 90.9

08 07 09 10 11 100

75

50

25

0

REFINED ZINC (THOUSANDS OF TONS) Z inc P rices and I nventories

147.07

89.0 85.4

254.0 75.08

391.0 98.01 701.0

08 07 09 10 11 160.00

120.00

80.00

40.00

0.00 1.000.0

800.0

600.0

400.0

200.0

0.00 99.49 824.0

LME London Inventories LME London PricesDollarcents/poundThousandsofMetricTons32 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 33 PRECIOUS METALS

S ilver

Silver sales increased from US$384.9 million in 2010 to US$605.8 million this year, representing a 57% increase. This was a great year for silver with average prices of US$35.18 per ounce, a 74.3% increase over the previous year, when prices were US$20.18 per ounce.

The reduced production of primary mined silver (4.6%) is attributed to flooding at the Santa Eulalia mine in Chihuahua.

Refined silver production increased from 13.17 to 15.85 million ounces, representing a 20% increase over 2010. 

# 57%

**inc r**  **ease**
in silver sales over 2010



# US$ 

# 1,568.6

per ounce , t he average price for go l d in 2011, 28.1% higher

. 15.2

12.3 13.3 15.2 14.5

08 07 09 10 11 16

12

8

4

0

PRIMARY MINED S I L VER (MILLIONS OF OUNCES) 6.2 7.4 10.0 13.2 15.8

08 07 09 10 11 16

12

8

4

0

REFINED S I L VER (MILLIONS OF OUNCES) Panoramic view of the Santa Bárbara mine, Chihuahua.34 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 35 Gold

2011 was a good year for gold as prices for this metal increased 28.1% compared to 2010 to an average US$1,568.58 per ounce.

Primary mined gold production was 36,111 ounces, a 110% increase over 2010. Refined gold production increased to 62,038 ounces, which was lower than that for 2010 due to a decrease in purchases of byproducts containing gold.

Sales increased 15% to US$95.7 million this year due to higher gold prices.

The mines that produce gold are: La Caridad, Buenavista del Cobre, Charcas, Santa Bárbara, Santa Eulalia, Toquepala, and Cuajone.

There are currently 16.182 billion tons in reserves for both these metals. S ilver P rices and I nventories

08 07 09 10 11 40.00

30.00

20.00

10.00

0.00 140.0

120.0

100.0

80.0

60.0

0.0 134.0 128.0 118.0
105.0 117.0

COMEX N.Y. Inventories COMEX N.Y. PricesDollars/OuncesMillionsofTroyOunces

13.39 14.97 14.67 20.18 35.18

G old P rices and I nventories

696.66 7,365.0 8,535.0

871.71 972.98 9,007.0 1,224.66 11,592.0

08 07 09 10 11 2,000.00

1,500.00

1,000.00

500.00

0.00 12,000.0

10,000.0

8,000.0

6,000.0

4,000.0

0.00 1,568.58 11,393.0

COMEX N.Y. Inventories LONDON CLOSING PricesDollars/OunceThousandsofTroyOunces 22.6

14.9 15.1 17.2 36.1

08 07 09 10 11 40

30

20

10

0

PRIMARY MINED GO L D (THOUSANDS OF OUNCES)

27.0 26.3 41.6 65.4 62.0

08 07 09 10 11 70

50

30

10

0

REFINED GO L D (THOUSANDS OF OUNCES) Production of silver ingots at La Caridad, Sonora.ANNUAL REPORT GRUPO MÉXICO 37 36 GRUPO MÉXICO ANNUAL REPORT S I L VER AND GO L D MINE PRODUC T ION AND RE S ERVE S 2011
Content Silver Ore ounces Reserves Production Millions of Grade Gold Silver Tons grs/ton

Mines Concentrates: Mexico La Caridad 6,833 1,775,528 4,302.1 3.1 Buenavista del Cobre 15,367 1,464,300 5,256.1 3.1 Underground Mines 6,286 5,866,321 47.5 93.0 Subtotal 28,486 9,106,149 9,605.7

Peru Toquepala 2,808 1,707,066 3,377.9 4.9 Cuajone 4,817 1,917,520 2,354.6 5.0 Subtotal 7,625 3,624,586 5,732.5

United S tates Mission - 1,301,836 303.4 5.3 Ray - 448,229 540.2 1.5 Subtotal - 1,750,065 843.6 Total 36,111 14,480,800 16,181.8 S ME LT ER PRODUC T ION OF S I L VER AND GO L D 2011 Ounces Gold Silver

La Caridad 43,079 8,827,841 Ilo 14,479 4,646,454 Hayden 12,927 3,731,548

Total 70,485 17,205,843

REFINERY PRODUC T ION OF S I L VER AND GO L D 2011 Ounces Gold Silver

Refineries La Caridad 32,024 6,913,428 San Luis Potosí 2,082 2,524,358 Ilo 11,674 3,152,236 Amarillo 16,258 3,258,882 Total 62,038 15,848,90438 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 39 M ine P roduc t ion Summary *
Distribution 2011 Tons 2011 2010 2009 ** 2008 2007
Copper Concentrates 2,369,759 2,093,685 1,683,646 1,643,178 1,918,281 Copper Content in Concentrates 591,329 547,692 431,772 418,726 498,207 Copper Content SX/EWs (Cathodic) 181,233 140,288 64,249 70,203 93,975 Total Mine Copper Content 772,562 687,980 496,021 488,929 592,182
Smelter Copper Content 712,015 588,701 512,493 496,595 464,110 Refinery Copper 593,026 498,640 387,187 389,070 351,740 Refined Copper (Refineries + SX/EWs) 774,259 638,928 451,436 459,273 445,715
Refined copper made into Wire Rod 282,492 247,825 62,852 76,283 96,607 Refined copper made into Cake 10,747 9,643 491 - -
Zinc Concentrates 151,493 179,826 199,083 194,035 222,762 Zinc Content in Concentrates 83,807 99,194 110,430 106,920 121,013 Refinery Zinc 90,869 95,072 98,688 95,420 90,766

Lead Concentrates 34,719 36,514 40,406 38,312 39,130 Lead Content in Concentrates 18,817 20,240 22,492 20,445 19,382
Gold Content in Concentrates (ounces) 36,111 17,204 15,073 14,948 22,602 Refinery Gold (ounces) 62,038 65,392 41,552 26,323 26,995
Silver Content in Concentrates (ounces) 14,481 15,242 13,326 12,316 15,229 Refinery Silver (ounces) 15,849 13,173 10,010 7,357 6,197
Molybdenum Content in Concentrates 18,570 20,519 18,687 16,390 16,208

Coal 238,504 240,538 238,209 296,814 97,446 Coke 84,428 72,933 72,016 70,317 63,455 Sulfuric Acid 2,538,040 2,039,729 1,761,682 1,698,905 1,610,717 Cadmium 628 602 609 647 634 Arsenic Trioxide - - - - 653 Lime 130,862 96,520 63,360 86,379 102,754

* Figures in metric tons except where indicated ** Includes Asarco production December 10-31, 2009.

ANNUAL REPORT GRUPO MÉXICO 39 Production of zinc ingots at the Zinc Electrolyte Plant, San Luis Potosi.40 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 41 

### PROJECTS & INVESTMENTS CONSTANT GROWTH



# US $ 

# 2.613

BILLION IN TOTAL INVESTMENT EXPECTED IN 2012

US$1.746 BILLION WILL BE INVESTED

IN THE MINING DIVISION IN 2012 

# P **LANNING**

03.PROJECTS AND INVESTMENTS

Ing. James Stewart General Supervisor. Ray, Arizona.42 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 43 PROJECTS AND INVESTMENTS

We are committed to the ongoing growth of our Company. In 2012 we will continue with our investment plan, budgeting US$1.746 billion for investments in the Mining Division. US$1.507 billion has been allocated for Southern Copper and US$239 million for Asarco, which includes approximately US$1.045 billion for our investment program in Mexico. These investments are part of our five year capital expenditure plan, which will increase production of copper, molybdenum, gold, and silver.

PROJECTS

S X/EW III plant at Buenavista

After obtaining the necessary environmental permits, construction of the plant is underway. All the equipment originally purchased for the Tia Ma

ria project will be used for this SX/EW III plant. This project will increase the annual SX/EW plant capacity from 88,000 to 120,000 tons. The new plant is expected to start operations in the second half of 2013. The proj

ect has a total budget cost of US$444 million.

Crusher and conveyor system at Buenavista

Associated with the SX/EW III project, we are also building a Quebalix fa

cility at Buenavista. This investment consists of a crusher, conveyor, and spreading system that will improve SX/EW copper production by increasing recovery and reducing the time required to extract copper from mineral. The project reports 88% completion and this facility is expected to start operations in the third quarter of 2012. The project has a total budgeted cost of US$70 million, with US$48.7 million expended through December 31, 2011.

Molybdenum plant at Buenavista

The first of Buenavista’s two molybdenum plants (2,000 ton annual capacity) is in the equipment purchasing stage, under an engineering, procurement, construction, and management contract. Environmental permits will be obtained shortly and we expect to start construction in the first quarter of 2012, with production beginning in the second quarter of 2013. The project has a total budget cost of US$38.2 million, with US$1.2 million expended through December 31, 2011.

New Concentrator at Buenavista

Work continues on the new Buenavista concentrator, with a milling capacity of 100,000 tons per day. The basic and de

tailed engineering are moving forward as scheduled and we have received the environmental permits necessary. We are 

# U S $ 

# 1.217

**BILLION**
IN TOTAL CAPITAL EXPENDITURES IN 2011



### THE 5 YEA **R INVEST**  **M ENT**  **P LAN WILL INC**  **R EASE CO**  **PP E**  **R PR**  **ODUCTION TO 1.4 M**  **ILLION TONS,**  **M AKING US THE WO**  **R LD’S**  **THI R**  **D LA R**  **GEST PR**  **ODUCE R** 

**.** Construction of the Quebalix Plant at Buenavista del Cobre, Sonora.

MI LL ION IN CAPI TA L EXPENDI T URE S IN T HE MINING DIVI S ION A L ONE 

# US$ 

# 71544 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 45 evaluating several supplier proposals for the main equipment and purchase orders for crushers, primary and secondary ball mills, and motors have been placed. The new concentrator will have an estimated annual production capacity of 188,000 tons of copper and is expected to start operations in 2015. The total budget cost of this project is US$1.384 billion. As part of this new concentrator, a second molybdenum plant will add 2,600 tons to the previously mentioned capacity.

The required infrastructure for these projects, including power, water, roads, shops, laboratories, townsites, etc., is considered in the master plan. A preliminary study has been delivered and we are working to have these projects aligned.

Pilares

The Board of Directors approved the continuation of the viabil

ity studies and the purchase of land for the development of the Pilares mine and the expansion of the concentrator at La Cari

dad. In 2008, we acquired 100% ownership of Pilares, with the intention of operating it as an open pit facility. for the project was presented to the Ministry of Energy and Mines (MINEM) in July 2011. As part of the approval process for the EIA, a public hearing was held in September 2011. We are awaiting the necessary approvals to move forward with the project. Project completion is scheduled for the first quarter of 2014.

Cuajone concentrator expansion

Through December 31, 2011, we have invested US$80.2 million in the Cuajone expansion project. As a first stage of the expansion plans, the project includes a variable cutoff grade methodology that will increase copper and molybdenum production. When finished, the project is expected to increase annual copper production by 22,000 tons. The completion of the project is scheduled for third quarter of 2012.

T

ailings disposal at Quebrada Honda

This project will increase the height of the existing Quebrada Honda dam to impound future tailings from the Toquepala and Cuajone mills and will extend the expected life of this tailings facility by 25 years. The first stage of the tailings disposal project has been completed and the construction of the drainage system for the lateral dam started in June 2010, has also been finished. Panoramic view of Buenavista del Cobre, Sonora.

Angangueo

The Board of Directors also approved an expenditure of US$131 million for the development of the Angangueo mine. This site in Michoacan, Mexico, is a polymetallic deposit with an annual production potential of 36,000 tons of copper concentrate, 4.5 million ounces of silver, and 41,000 tons of zinc. In 2012, we expect to start the underground development and the construction of a 2,000 tons per day concentrator. The project is scheduled to begin production in the second half of 2014.

T

oquepala concentrator expansion

Through December 31, 2011, we have invested US$199 mil

lion in the Toquepala expansion, mainly on mine equipment, which is being used for the initial stripping of the project. The scope of the project has been defined as an increase in milling capacity to 120,000 tons per day, which is expected to increase annual production by 100,000 tons of copper and 3,100 tons of molybdenum. The Environmental Impact Assessment (EIA)46 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 47 The project has a total budgeted cost of US$66.0 million with US$47.7 million expended through December 31, 2011.

T

antahuatay

The Tantahuatay mine is located in Cajamarca, in northern Peru. Production started in August 2011 and the mine produced 46,200 ounces of gold and 260,100 ounces of silver in 2011. Tantahuatay is expected to have an average annual production of 90,000 ounces of gold and 425,000 ounces of silver for five years. We hold a 44.2% interest in this project.

T ia Maria

We have initiated a new Environmental Impact Assessment (EIA) for the project, taking into account the concerns brought forward by the community, the new guidelines given by the Peruvian government, and the comments received from the UN body contracted by Peru’s Ministry of Energy and Mines for this purpose. We are confident this initiative will allow us to obtain approval for the development of the 120,000 ton Panoramic view of Cuajone, Peru.

annual copper production project. As a result, we have rescheduled the project start up to the beginning of 2015. Meanwhile, all the equipment already purchased is being reassigned to our operations at Buenavista, Toquepala, and Cuajone.

Mission Expansion

At Asarco, the Mission expansion project will increase the annual production capacity of the concentrator from its current 66,000 tons per year to 77,500 tons copper con

tent. This project represents a total investment of US$60 million, which is expected to be completed in the second quarter of 2013. In addition, studies have begun for the refurbishment and reopening of the molybdenum plant at Mission. The plant will have a production capacity of 544 tons of molybdenum, represents an investment of US$5 million, and is expected to start operations in the first quarter of 2013.

These investment projects play an important role in our 5 year expansion program, the goal of which is to increase the copper production capacity of the Mining Division from 800,000 to 1.4 million tons and molybdenum production from 18,570 to 26,800 tons.48 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 49 EXPLORATIONS

We are engaged in ongoing extensive exploration to locate additional ore bodies in Mexico, Peru, the United States, Argentina, Ecuador, and Chile. We invested US$50.3 million in exploration programs in 2011.

Currently in Peru we hold direct control of 145,064 hectares of mining rights. In Mexico, we currently hold 176,250 hectares of exploration concessions. We also hold 21,068 hectares, 35,958 hectares, and 2,544 hectares of exploration concessions in Argentina, Chile, and Ecuador, respectively.

ME xico

In addition to exploratory drilling programs at existing mines, we are currently conducting exploration to locate mineral deposits at various other sites in Mexico. The following are some of our more significant exploration projects:

El Arco

The El Arco site is a copper deposit located in the state of Baja California in Mexico. Exploration work at the site indicates approximately 1.207 billion tons of mineralized sulfide material with an average copper content of 0.5% and 0.125 grams of gold per ton and 290 million tons of copper oxide with a copper grade of 0.35%. In 2010, a deep drilling program of 1,214 meters indicates approximately 390 million tons of mineralized material with a copper content of 0.62% below the current pit limits. We continue to work on the infrastructure studies necessary for the viability of the project, including the feasibility study, already completed.

Toquepala, Peru.50 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 51 Chalchihuites

Chalchihuites is located in the state of Zacatecas and is a replacement deposit with mixed oxides and sulfides of lead, copper, zinc, and silver. A drilling program in the late 1990s defined 16 million tons of mineralized material containing 95 grams of silver, 0.36% lead, 0.69% copper, and 3.08% zinc per ton. In 2011, 9,386 meters were drilled. This drilling identified additional resources of at least 7,000,000 tons grading 0.97% g/t silver, 0.41% lead, 0.52% copper, and 2.53% zinc at the recently acquired Cronos and Guantes concessions. During 2012, we plan to continue with drilling and conduct the final metallurgic testing. We expect to complete the prefeasibility study by the end of 2012. Pilares

In 2008, we bought Freeport-McMoran’s 49% interest in Minera Pilares, S.A. de C.V. (“Pilares”), giving us 100% ownership of Pilares. Pilares is located in the state of Sonora, ten kilometers from the town of Nacozari de García and six straight line kilometers from our La Caridad mine. In 2011, 3,840 meters were drilled. With the data obtained, Mintec made a new calculation of the reserves indicating 52.3 million tons with a copper content of 0.78%. The planning for the integration of this pit with the La Caridad pit will be completed in 2012. P er U

We are developing an ongoing extensive exploration program to locate additional ore bodies in Peru and are also conducting exploration in the areas of our current mining operations. We invested US$37.5 million in exploration programs in 2011.

L os Chancas

The Los Chancas project, located in the department of Apurimac in southern Peru, is a copper and molybdenum porphyry deposit. As a result of the prefeasibility studies and after the preliminary design of the pit, estimates show 355 million tons of mineralized material with a copper content of 0.62%, molybdenum content of 0.05%, and 0.039 grams of gold per ton. During 2011, we completed the prefeasibility study and plan to conduct a feasibility study for the project in 2012. Panoramic view of Toquepala, Peru.52 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 53 UNI T ED ST A

T E S

In addition to the exploratory drilling programs at Asarco’s existing mines, exploration is ongoing to locate additional ore deposits in the United States.

Chilito, Arizona

Chilito is a copper porphyry located in Gila County, Arizona along the south side of the Dripping Springs range about 6.4 kilometers northeast of the Asarco smelter in Hayden, Arizona. Asarco acquired the deposit with the purchase of the Ray mine in 1986. Asarco controls approximately 70% of the deposit while Freeport controls the remaining 30%. Drilling indicates the Chilito deposit has two mineralized zones, one shallow, near surface hosted in the porphyry, dolerite and sedimentary units, and a deeper zone (around 457 meters below the surface) hosted in the dolerite. The firm Independent Mining Consultants prepared a new calculation of reserves in 2010 that includes the upper zone and just touches the top of the deeper zone (the bottom of the block model has an elevation of 610 meters). The model indicates that at a cutoff grade of 0.25% there are approximately 190 million tons grading 0.374% copper. In 2011, a total of 14,300 meters were drilled to support the calculation of the reserves and to provide new information on the deeper mineralized zone. A slope stability study has been completed and column leach testing continues.

Copper Butte, Arizona

The Greater Copper Butte area, located about eight kilometers west-southwest of Ray in Pinal County, Arizona, consists of three prospects, Copper Butte, Buckeye, and Pioneer – Alabama, all of which have been explored at various times for copper by different companies since 1901. Copper oxide and copper silicate ores were discovered and mined in small amounts at Copper Butte. After Asarco acquired Ray, a small amount of exploration and resource modeling continued until 1996. Using a cutoff grade of 0.2% copper, 73 million tons grading 0.74% total copper with a stripping ratio of less than 2:1 was estimated at Copper Butte; using the same cutoff

Mission Mine, Arizona. Asarco.54 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 55 grade, 39 million tons grading 0.385% total copper with a stripping ratio of 3.1:1 were estimated at Buckeye. Both properties have additional exploration potential and both seem amenable to heap leaching and SX/EW recovery. Pioneer-Alabama needs further work to identify reserves.

Porphyry exploration, Nevada

An exploration program has been underway in Nevada for porphyry copper deposits over the last three years. Several old districts have been examined and two have been selected for drill testing. One property is located near Reno, Nevada. The second prospect is called Quartz Mountain and is located near Gabbs in Nye County. Airborne and ground geophysics have been run across the property as well as detailed geologic mapping and sampling. A total of 2,700 meters were drilled in 2011, the results of which were inconclusive. A 1,000 meter drilling program is planned for 2012 to continue the search for a porphyry deposit. The property has the potential to host over 90 million tons grading 0.5% copper or greater.

C hi l e

T icnamar

The Ticnamar prospect, located in northern Chile, has been explored as a deposit with copper-molybdenum porphyritic veins. In 2011, a diamond drilling program of 1,124 meters was completed. For 2012, we plan to continue exploration with a diamond drilling program of 3,000 meters.

Catanave

Located in northern Chile (Arica), Catanave belongs to a mineralized epithermal sys

tem of gold and silver. In 2010, the environmental impact assessment was approved and during 2011, 2,189 meters of diamond drilling were completed. This prospect has good possibilities and for 2012 we plan to continue exploration with a diamond drilling program of 3,000 metros. S anta Marta

Located in the Atacama region, Santa Marta is being explored for a copper and molybdenum porphyry. During 2011 and 2010, we diamond drilled 2,837 meters and 3,318 meters, respectively, with promising results. Exploration will continue in 2012, with a diamond drilling program of 4,000 meters.

El S alado

El Salado is a copper-gold prospect located in the Atacama region in northern Chile. During 2011, we evaluated the information available for the prospect to plan the work to be done in the next stage. For 2012, we plan a diamond drilling program of 5,000 meters and metallurgical testing.

E cuador

We started exploration activities in Ecuador in 2011. For 2012, we expect to begin exploration work on the Chaucha prospect, located to the south of Guayaquil. The mineralization is characteristic of a copper-molybdenum porphyry system. In 2012, we are planning 10,000 meters of diamond drilling to evaluate the deposit.

A rgen t ina

We started exploration activities in Argentina during the last quarter of 2011. We plan to carry out exploration in the south of Argentina, where mineralization for porphyry copper, epithermal gold and silver, and polymetallic skarns are expected.56 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 57 OH S A S 18001 Certifications

In 2011, thirteen of fourteen SCC units are OHSAS 18001:2007 certified.

Buenavista del Cobre is the only unit that is still in the process of aligning with this international Occupational Health and Safety standard, because of its recent restart of operations.

Corporate Forum on S afety Cells

Minera México held a Corporate Forum on Safety Cells, November 29-30 at the Company’s offices in Mexico City. Un ionized personnel at all units were invited to participate.

Participants presented proposals to reduce the probability of the occurrence of work-related risks. HEALTH AND SAFETY 

# U S $ 

# 34.6

**M ILLION** 
INVESTED IN HEALTH AND SAFETY PROGRAMS

MI LL ION INVE ST ED IN HEA LT H Recognitions

– Cámara Minera de México (Mexican Mining Chamber) “11th Underground Mine Rescue Squad and First Aid Competition”.

The Santa Bárbara unit participated in the 11th National Mine Rescue Squad Competition 2011 taking Second Place in the “Benchman Biopack Biomarine” category.

– “President’s Award”

This award is given by the President of Minera México to the unit that has the lowest accident rate during the year. The 2011 award was given to the Nueva Rosita plant for its achievement of ZERO accidents. This is the second year that Nueva Rosita has received this award. Health and S afety Week

A “Health and Safety Week” was held September 5-9 at all plants and units, for the first time simultaneously and included the Company’s regional offices in Hermosillo and corporate offices in Mexico City. The activities held during the event included: conferences, talks, workshops, health and safety fair, sports events, exhibition of work carried out at the Company’s Community Centers, orientation in different preventive aspects of health and safety, and activities for the families of our employees and the general public.

Mine S afety Award

In Peru, at the most important specialized meeting on Mine Safe

ty, the Mine Safety Institute (ISEM) gave Southern Copper Peru the Mine Safety Award in the category Smelters and Refineries. 

# US$ 

# 29.8

MI LL ION INVE ST ED IN S AFE T Y



### CONFE **R ENCES, TALKS,**  **WO R**  **KSHO P**  **S, SAFETY FAI R**  **,**

**E X**  **CLUSIVE EVENTS, AND E**  **X HIBITION OF WO**  **R K OFFE**  **R ED** 

**DU R**  **ING HEALTH AND SAFETY WEEK** 

ANNUAL REPORT GRUPO MÉXICO 57 Participants in the Corporate Forum on Safety Cells.



# US$ 

# 4.858 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 59 

### ENVIRONMENTAL ACTIONS & OUR COMMUNITIES BENEFIT & GROWTH



# US $ 

# 112.5

MILLION INVESTED

GRUPO MÉXICO JOINS THE MEXICAN STOCK EXCHANGE IPC SUSTAINABILITY INDEX 

# SU **PP O**  **R T** 

04.ENVIRONMENTAL ACTIONS AND OUR COMMUNITIES

Olivia Rangel Nursery technician, IMMSA Didactic Nursery.60 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 61 ME xico

Closing of the Copper Plant in S an L uis Potosi

In March, the Company announced to the Department of the Environment and Natural Resources (SEMARNAT) the definitive closing of the Copper Plant the Company has been operating since 1892. Representing an investment of US$12.6 million, Minera México has started the first phase of the project, which consists of the closure of the facilities, the quantification and identification of residuals, authorization for impounding, comprehensive handling of hazardous waste, dismantling, and clean up. The second phase of the project will include soil remediation to prepare the site for residential, commercial, and recreational zoning in accordance with the San Luis Potosi state Urban Development and Ecological Ordering Plans. The neighboring communities will benefit from the closing of the plant with the development of green spaces, gardens, schools, and shopping centers. The budgeted investment for the whole project will be US$30.8 million. ENVIRONMENTAL ACTIONS AND OUR COMMUNITIES 

# U S $ 

# 112.5

**M ILLION INVESTED** 
IN ENVIRONMENTAL ACTIONS

AND OUR COMMUNITIES



# 3.28%

INCREA S E IN T REE PRODUC T ION A T OUR NUR S ERIE S

. Grupo México joins the Mexican S tock Exchange IPC S ustainability Index

In December, the Mexican Stock Exchange (BMV) presented Grupo México as one of the 23 highest rated issuers demonstrat

ing excellence in environmental performance, social responsi

bility, and corporate governance, to be included in the new IPC Sustainability Index. In terms of environmental performance, the key parameters analyzed are: water efficiency, water discharges, air emissions, responsible handling of hazardous and non-haz

ardous waste.

Grupo México is honored to be included in the Mexican Stock Exchange’s first sustainability index as it solidifies the Compa

ny’s commitment to social responsibility, environmental sustain

ability, and corporate governance. T ree production

Tree production at our nurseries in Charcas, Guaymas, San Luis Potosi, and Nacozari was 1,734,000 trees, to keep us on top among Mexican mining companies in terms of this activity.

Renewable Energy Projects: Generating power through solar panels and heating water with thermosolar systems.

The 10 tower solar panel electrical power project at the corporate explorations offices in Hermosillo, Sonora has been completed. The system follows the sun as it crosses the sky (heliotrope) and will generate more than 210,000 Kwh of power annually, sufficient to power 120 homes. This project is the largest and most advanced of its kind not only in the state of Sonora but in all of Mexico, and will stop the release of 118 tons of CO2 into the atmosphere. 

### R **E PR**  **ESENTING AN INVEST**  **M ENT OF US$304,000**  **THE 10 TOWE R**  **SOLA R**  **P ANEL**  **P OWE**  **R PR**  **OJECT WAS CO**  **MP LETED AT THE CO**  **RP O**  **R ATE**  **E XP**  **LO R**  **ATIONS OFFICES IN**

**HE RM**  **OSILLO, SONO R**  **A.** Soil remediation project, San Luis Potosi.62 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 63 Thanks to the ideal conditions for solar energy present in Mexi

co and given the characteristics of the state of Sonora, Cananea is an excellent choice for the installation of a solar powered wa

ter heating system, because of its feasibility given the existing conditions and being environmentally friendly by not releasing contaminants. The total surface area for warming for the six ther

mosolar projects at Buenavista is 270 m2 and together they can store up to 27,305 liters of hot water, equal to 600 showers.

The system will generate more than 464,000 KWh of power annually. Considering the system will replace gas heaters, this will stop 127 tons of CO2 emissions from being released into the atmosphere.

PE T Recycling

For the third year in a row, Minera México was recognized as the non-bottler Company that recycles the most PET in the state of Sonora. The corresponding resources obtained are donated to the Red Cross in Esqueda, Sonora.

Environmental Cooperation Program

Mexicana de Cobre received recognition from the Department of the Environment and Natural Resources (SEMARNAT) and the Mexican Employers’ Association (COPARMEX) for having participated in the 3rd National Waste Recycling Competition in the category Special Waste Handling with its project “Reciclaje que Salva Vidas” (Recycling that Saves Lives).

P er U

Company operations are subject to Peru’s environmental laws and regulations. The Peruvian government, through the Ministry of the Environment (MINAM), conducts annual en

vironmental audits and inspections on the Company’s mine and metallurgic operations in Peru. These environmental audits include various environmental related aspects of our operations and also compliance with the commitments estab

lished in environmental management documents, such as the Environmental Impact Assessments (EIA) and Mine Closure Plans. These audits also include compliance with the Maxi

mum Limits Permitted for dumping liquids and atmospheric emissions and compliance with Environmental Quality Stan

dards in the urban areas near our facilities. The proper han

dling of the solid waste produced by our operations is also verified. The Company is continually working to remain in good standing with the Peruvian environmental laws and regulations applicable.

Peruvian law requires mining companies to set out their obligations for future closures and remediation. In compliance with this law, the Ministry of Energy and Mines (MINEM) has approved the Company’s Closure Plans. As part of the Closure Plan, as of January 2010 the Company is obliged to provide guarantees to ensure there are sufficient funds available to meet the obligation to remove assets.

Response plans for spills of hazardous materials

In compliance with our Response Plans for spills of hazardous materials, land and sea drills were held at our operating units, simulating hypothetical spill situations, in which our brigade personnel participated to develop their skills and abilities so as to be able to respond efficiently, safely, and environmen

tally in the event of any spill involving hazardous materials. These drills were led by specialist consulting firms and 42 of our brigade personnel received certification as a result. In addition, similar courses were organized for Community or

ganizations and representatives and which comprise the Local Action Plans and Systems for contingencies involving hazard

ous materials. Solar panels at the Explorations Offices in Hermosillo, Sonora. Emergency Response Brigade. Mexicana de Cobre, Sonora.ANNUAL REPORT GRUPO MÉXICO 65 64 GRUPO MÉXICO ANNUAL REPORT

Control of atmospheric emissions

In the area of atmospheric emissions control, a control system has been implemented to increase the recovery of particulate matter in the gases from the hygiene system of the Isa furnace building, resulting in efficient handling exceeding that required to meet the Maximum Limits Permitted as set by the corresponding authorities.

Environmental Impact Assessment for the T oquepala Concentrator Expansion

In compliance with current legislation, the Environmental Impact Assessment for the Toquepala Concentrator Expansion project has been submitted to the Ministry of Energy and Mines. This project will increase the processing capacity of the con

centrator from 60,000 metric tons per day (mtpd) to 120,000 mtpd, without needing to use additional sources of freshwater by reusing water recovered from the tailings and employing water efficiency technology. The Environmental Impact Assessment is currently under review. SOCIAL RESPONSIBILITY

ME xico

S onora Philanthropy Award

Governor Guillermo Padrés Elías himself delivered the “Sonora Philanthropy Award” to Buenavista del Cobre, for the Com

pany’s contribution, as a member of the private sector, to im

proving the community, promoting values including solidarity, responsibility, and social commitment for the development of the state of Sonora.

The purpose of the award is to promote social commitment and joint efforts through community action programs directed at improving the community and serving others, to recognize and disseminate the experiences of the institutions, companies, and people involved in this work, and to encourage reflection on specific social problems, to reinforce working together and developing a culture of altruism for the benefit of all Sonora.. Community Centers

During 2011, 85 federal, state, and municipal institutions, and also various charity organizations, participated in a wide range of social programs held at the Community Development Centers. There were 280 community days, 31 meetings with citizen councils and neighborhood organizations to listen to the main problems present in the community, 570 awareness campaigns for programmed activities, 105 meetings with in

stitutions engaged in social programs, and 61 roundtables; 112 productive courses were offered, training 1,720 people over 15 years of age, to consolidate the productive potential of 420 cases that led to commercialization projects; 105 con

sults were provided on topics such as profiling and incubating productive projects.

ANNUAL REPORT GRUPO MÉXICO 65 Community Development Center, San Luis Potosi.

Mine operations. Toquepala, Peru.66 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 67 S uccess story. “Cananea”

With the goal of creating a new relationship with the community of Cananea and to offer social benefits to the area, in 2008 Grupo México started to work with the community promoting values, strengthening the social weave, and encouraging unity.

The Company wanted to be more involved with the community and that is how the project “Participemos por Cananea” (Let’s Help Cananea) was born, a program that offers improvements in educational infrastructure, social infrastructure, and social development.

These projects are approved by the Cananea Community Committee, a body formed by volunteers from the community, leaders from different walks of life, and who are responsible for overseeing, approving, and reviewing the proper execution of the projects. The Cananea Community Committee is a plural and transparent body that lends credibility to the assignment and follow-up of the resources provided by Grupo México.

Grupo México has invested US$1.7 million in these projects. During 2011, support was given to 40 school infrastructure projects, 5 service institution support projects, 25 social development and strengthening projects for the “Casa Encuentro” Community Center. Directly, the Company has dedicated nearly 700,000 service hours to these social projects. It is estimated that more than 28,000 users1 have benefited from the various supports given to the social and educational infrastructure. We are also interested in measuring the effect of these programs. The data drawn from studies conducted is periodically entered into a virtual database, which then produces a Social Impact Table, which can be consulted (in Spanish) online at http://impactosocialcananea.weebly.co m

Commitments

The Sonora state government, the federal government, and the Company signed a list of commitments to be undertaken in benefit of the community and resources were committed to improve infrastructure, education, health, and an expansion plan for the Buenavista del Cobre mine. With these investments, the state of Sonora, and the region, but mainly the community of Cananea, will benefit from the grassroots transformation. The

1 Total number of direct beneficiaries estimated for each institution supported through infrastructure projects (for example, students and teachers at remo

deled schools). commitments signed involve aspects such as social and urban infrastructure, medical services, and education, and include:

Paving: Streets near the mine have been paved to provide employees with better access to their workplace. We also improved the access road to the Industrial Park.

Wells: Water wells have been drilled and completed to help solve the water supply problem in the city.

Medical services: The Cananea General Hospital received improvements and remodeling. A new sewer system was built, electrical problems were repaired, water tanks installed, heating and air conditioning units supplied, pipes repaired, and also civil and finishing works in general. Construction on a new second level hospital will begin in 2012, which will be operated by the Sonora State Social Security Institute and will provide quality healthcare to Company employees. This project will involve the participation of the federal government, the state, and the Company. Young people from “Grupo Encuentro”. Remodeling of Cananea General Hospital, Sonora.ANNUAL REPORT GRUPO MÉXICO 69 68 GRUPO MÉXICO ANNUAL REPORT Donations: Donation of a vehicle to Comité Particular de Caridad I.A.P. to launch the program “Camino a la Vida” (Path to Life), which consists of providing comfort to pa

tients who need to be transferred from Cananea to Hermosillo and Nogales to receive dialysis and cancer treatments and for women who require mammogram screening.

Participemos por Cananea: With 58,096 man hours dedicated to the projects of the “Participemos por Cananea” program, 156 institutions have received our support in educational infrastructure and social development. The benefits are reflected in donations of equipment, furnishings, and the remodeling of schools and institutions. “Grupo Encuentro”, through cultural, educational, and recreational activities, has helped to achieve our closer involvement in the community.

Library: The Cananea Library was equipped with new computers and printers to offer its 3,000 monthly users a better service.

Scholarships: Fundación Grupo México and Fundación Bécalos have given out 120 academic scholarships to teachers and students in 2011.

Sports facilities: Construction of a baseball diamond and basketball court at the Instituto Tecnológico de Cananea

.
Entertainment Center: 22 hectares of land have been purchased on which construction has started for a Shopping Center that will have movie theaters, various shops and stores, and a food court, and there will also be recreational areas, a soccer field, basketball courts, a baseball diamond, a jogging track, gymnasium, covered pool, and a hotel.

Museum: A mining museum will be housed in the Entertainment Center.

Artisan workshop: Construction and operation of a training center for trades and handcrafts using copper.

Development of providers: There has been an important development of providers in the area thanks to the opening of the mine and the refurbishment works, providers who have offered their services with the sale of parts, various repairs, equipment maintenance, etc. P er U

Asociación Civil Ayuda del Cobre

During 2011, the contribution Southern Peru made to Asociación Civil Ayuda del Cobre increased to nearly US$4.8 million. This investment was allocated to health programs, primary education and educational support programs, technical training programs, and improvements to schools, and also nutritional programs for children under 5 and pregnant women, and to basic infrastructure with improvement projects for sanitation works, access roads, power, and water.

Huaytire Comprehensive Development Program

The Huaytire Comprehensive Development Program in the province of Candarave has been in operation since 2007 with its principal areas of interest being livestock production devel

opment, education, health and nutrition, and the transformation and commercialization of the products the region produces. The main results for this program for 2011 are: the implementation of 30 eco-kitchens that will improve the quality of life for the com

munity of Huaytire, preventing eye and lung diseases caused by breathing in smoke, the donation of school supplies and uni

forms for 123 students in the community of Huaytire, helping to improve the education conditions at all three school levels. Candarave Nutrition Program

This program consists of various actions aimed at changing health related behaviors and aspects, such as eating habits, hygiene, and order in families with children under 3 years of age, nursing mothers, and pregnant women in the province of Candarave, which will contribute to improving the nutritional health of these groups to favorably impact the nutritional levels of the community and the local governments. There have been 830 direct beneficiaries of the project, 414 children under five and 416 mothers. This program represents and investment of US$1.28 million.

T

echnical T raining Program

This program was developed in the province of Jorge Basadre and consists of offering training to the community in 7 educa

tion related areas. The courses offered are: Front loader opera

tor, computers, boiler operator, and welder. A second module of courses is currently being offered.

A total of 4,380 class hours were given in 2011, benefiting more than 20 communities.70 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 71 UNI T ED ST A

T E S

We are involved with United Way in T ucson, Arizona and Amarillo, T exas
United Way is a non-profit organization. Its operation is based on the voluntary participation of the private and business sector to support the development and sustainable wellbeing of the communities most in need in Tucson, Arizona and Amarillo, Texas. Through their contributions, Asarco and its employees demonstrate their commitment to the children of the communities where we operate, supporting them with Family Literacy Programs, which help the participating children complete their education.

A Development Program called “Ready to Learn” has also been implemented, which provides Parents and Guardians with the tools necessary to enrich the development stages of their children. With welfare reform, there is greater government support for childcare improving the quality of and access to childcare programs for low income working families.

S upport for local schools with transportation to the “Mineral Discovery Center”

Asarco recognizes the importance of educating our children and students about the Mining Industry and offers students at schools in southern Arizona free transportation to the “Mineral Discovery Center”, which communicates the importance of the Mining Industry in the area, educating students and teachers on the Earth Sciences and preservation of the mining history of Arizona and the western United States. Asarco owns this center, which is located near the Mission mine to the south of Tucson, Arizona, and is open to the public. The center can be visited online at: www.mineraldiscovery.co m

S an Miguel High S chool students support program

Asarco is involved in the internship program offered at San Miguel High School. Asarco provides participant students with job experience and training to help develop their work-related skills. The student employees start by performing different clerical tasks such as filing and data entry, then they are given greater responsibility depending on their aptitudes. The student employees learn skills and gain experience from working in a professional environment. They work in teams to fill entry level positions at companies and organizations throughout the metropolitan area of Tucson, Arizona, learning the skills necessary to be successful in a professional career and they earn money to help with the cost of their high school education.

S ports Centers

Recognizing the importance of encouraging physical and sporting activities, Asarco, together with the Professional Basketball League, supported Sports Centers for the children of our employees at the Ray complex and the Hayden Smelter in Arizona to get involved in these activities and to also promote the wellbeing of the mining community and the health of our employees and their families.

Huaytire Livestock Development Program. Candarave, Peru.72 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 73 

### TRANSPORTATION DIVISION EXTENSIVE NATIONAL COVERAGE



# E **XP ANSION**  

# 81%

COVERAGE IN MEXICO

ITM SALES TOTALED US$1.626 BILLION AND INCREASED 13.5% 

## 05.TRANSPORTATION DIVISION

Clemente Tovar Certified Locomotive Operator. Roundhouse, Guadalajara.74 GRUPO MÉXICO ANNUAL REPORT TP UP BNSF GRUPO MÉXICO RAILROAD LINES TRACK USAGE RIGHTS

UNION PACIFIC BNSF LEGEND 

## GEOG **R A**  **P HIC LOCATION**  **PR INCI**  **P AL**  **R OUTES** 

calexico mexicali

nogales

b

. hill

hermosillo

guaymas

topolobampo

mazatlán durango cd

. frontera chihuahua ciudad juárez

presidio ojinaga
piedras negras

escal ó n

torre ó n saltillo monterrey

san luis potosí

viborillas

M exico

C ity huehuetoca felipe pesca dor

aguascalientes

guadalajara

manzanillo colima pto

. altamira tampico

veracruz

coatzacoalcos progreso

salina cruz alpine

san angelo jct

eagle pass corpus christi houston ft

. worth dallas

sierra blanca el paso tucson phoenix san diego albuquerque

iowa new orleans

ANNUAL REPORT GRUPO MÉXICO 75 TRANSPORTATION DIVISION

The Transportation Division of Grupo México is represented by its subsidiary Infraestructura y Transportes México, S.A. de C.V. (“ITM”), whose principal subsidiaries are Grupo Ferroviario Mexicano, S.A. de C.V. (“GFM”), Ferrocarril Mexicano, S.A. de C.V. (“Ferromex”), Intermodal México, S.A. de C.V., and Texas Pacífico, LP, Inc. Ferromex is the largest railroad Company with the most extensive coverage in Mexico. Ferromex operates a network of 8,111 kilometers of track covering approximately 71% of Mexico. Its lines connect to five border points with the United States, four ports on the Pacific Coast and two on the Gulf of Mexico. Ferromexis controlled by GMéxico 55.5%, Union Pacific 26%, and Grupo CarsoSinca Inbursa 18.5%. On November 24, 2005, Grupo México incorporated Ferrosur through Infraestructura y Transportes Ferroviarios, S.A. de C.V. (“ITF”). Ferrosur operates a track network of 1,813 kilometers covering the central and southeastern part of the country, serving principally the states of Tlaxcala, Puebla, Veracruz, and Oaxaca, and has access to the ports of Veracruz and Coatzacoalcos on the Gulf of Mexico. Ferrosur is controlled by Grupo México, holding 74.99%, with Grupo Carso-Sinca Inbursa holding the remaining 25.01%. 

# 16.1%

**INC R**  **EASE**
IN FERROSUR SALES



# 12%

INCREA S E IN FERROMEX S A L E S 

### FE **RR O**  **M E**  **X CONNECTS**  **TO FIVE BO R**  **DE R**  **P OINTS**  **WITH THE UNITED STATES AND**  **R EACHES FOU**  **R P**  **O R**  **TS ON THE**  **P ACIFIC OCEAN AND**  **TWO ON THE GULF OF**  **M E**  **X ICO.** 76 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 77 Ferromex

Ferromex sales in 2011 were US$1.311 billion, a 12.2% increase over the US$1.168 billion reported for 2010. This increase was largely the result of a favorable mix of rates and traffics, including international traffics billed in US dollars.

The volume transported during 2011 decreased 0.6%, trans

porting 44.990 billion net tons/kilometer, compared to the 45.277 billion transported in 2010. The sectors that experi

enced the greatest variation were: intermodal 21%, chemicals and fertilizers 7%, energy 5%, industrial (16%), and agricul

ture (5%).

The operating cost in 2011 was US$912.9 million, 18.3% above that for 2010. This increase is explained by the additional freight volume, an 11.0% increase in the price of diesel, increases in connection and terminal services, car leasing, police and secu

rity services, locomotive leasing, maintenance, and exchange rate fluctuations.

EBITDA for 2011 was US$358.8 million (equivalent to 27.4% of sales), representing a (2.1%) decrease compared to 2010.

Ferromex focuses on different market niches in the agricultural, industrial, mineral, automotive, chemical, metals, cement, energy, and intermodal segments. The transportation of products and materials in bulk, especially over long distances, is more effective and efficient by train than by truck. Ferromex has implemented a commercial strategy based on three actions: a) retaining its current customer base, b) increased sales with current customers, and c) seeking out new customers. Since it began operations, Ferromex has implemented new operating practices and made significant capital expenditures to reduce costs in the long term and improve operating efficiency.

Capital Expenditures (capex)

Ferromex offers its customers efficient and reliable service, competing favorably with the trucking industry. In 2011, Ferromex invested a total of US$284.3 million in new equipment and infrastructure to improve the efficiency and reliability of its railroad system, increasing the capacity of its network. Significant investments include the purchase of locomotives and railcars, crossdocking terminals and distribution centers to transfer freight from truck to train for customers that require door to door service. In April 2011, Ferromex successfully placed 10 year notes for $1.5 billion pesos in the Mexican financial market. These resources were allocated primarily to finance the purchase of 44 new locomotives, for a total fleet of 595 locomotives, with which Ferromex can meet its volume of traffics and improve efficiency and reliability as the new locomotives are less aggressive to the track and perform better on curves, reducing the release of contaminants and providing better fuel performance.

Capital expenditures of US$180.0 million are planned for 2012, which includes the completion of sidings to increase track capacity and speeds on our lines. Loading fuel. Ferromex locomotive. Container platform.78 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 79 Ferrosur

On November 24, 2005, Grupo México announced that its subsidiary ITM had acquired outright ownership of the Company Ferrosur from Grupo Condumex-Sinca Inbursa

Ferrosur sales in 2011 were US$307.6 million, 16.1% higher than the US$265.1 million reported for 2010. The volume transported in 2011 increased 5.1%, transporting 7.192 billion net tons/kilometer, compared to 6.840 billion net tons/kilometer in 2010. The operating cost for 2011 was US$211.9 million, 12.9% above that for 2010. This increase is due mainly to the greater volume of freight and increased diesel prices. The cumulative EBITDA at December 31, 2011 was US$87.6 million, compared to US$65.5 million for 2010. Net earnings were US$38.4 million in 2011, 66.7% higher than that reached in 2010.

Capital Expenditures (capex)

During 2011, Ferrosur invested US$63.1 million to increase its track capacity and improve operating efficiency. These investments included the purchase of 14 new locomotives and investments in network infrastructure.

Capital expenditures of US$48 million are planned for 2012 to improve infrastructure and operating costs. Ferrosur Merger

ITM received a favorable final decision on the ITM-Ferrosur merger in 2011.

On March 25, 2011, the First Collegiate Court on Administrative Matters in Mexico City (TFJFA) found to dismiss the appeal filed by the Federal Competition Bureau (CFC) against the decision of the Federal Court of Justice on Tax and Administrative Matters (TFJFA) in favor of ITM, which approved the ITM-Ferrosur merger. Consequently the acquisition of Ferrosur by ITM has received final approval as no further recourse may be admitted against the decision.

Ferrosur’s financial information is consolidated with Grupo México as of this year.

Intermodal México

Intermodal México celebrated its tenth anniversary this year with a 34% increase in sales year over year, improving its operating margin and its EBITDA. Sales were US$30 million. The Company has broad geographic coverage, providing value added services to Ferromex and Ferrosur users.

New business like Fuel Oil Transfer for Petróleos Mexicanos (PEMEX) and integral solutions for customers in the automotive industry supported by the IT platform New ecological locomotive, Ferrosur. New ecological locomotive, Ferrosur.ANNUAL REPORT GRUPO MÉXICO 81 80 GRUPO MÉXICO ANNUAL REPORT

developed for our customers, recognize Intermodal México as a solid Company so that users of the railroad for transporting freight consider Intermodal México their right hand for these services.

Pacífico T ransportation LT D

Thanks to the discovery of oil and gas deposits in the area where the Texas Pacífico line is situated, the demand for railroad traffic has increased significantly, transporting sand for well and crude oil drilling.

The US$30 million investment made in improving the line means the Company can take advantage of opportunities with new customers that will quadruple traffic over the next two years, helping in the development of the area. The development of the service on this line will give the Company strategic opportunities to connect to the Ferromex network at Fort Worth, Texas.

ITM

Environmental Actions

To minimize its impact on the environment, in 2011 the Transportation Division gave special attention to the control and prevention of spills, energy efficiency, and to reducing greenhouse gas emissions.

Certifications

Five Ferrosur maintenance shops and the Puebla fueling zone were recertified in Environmental Quality this year. Ferromex maintains its Clean Industry certification for the Locomotive Maintenance Shop and its Environmental Quality certification for the car repair shop in Guadalajara.

Energy and climate change

Various initiatives were implemented in 2011 to use energy from renewable sources and to improve energy efficiency to successfully reduce greenhouse gas emissions.

Fuel Consumption

The acquisition of new ecological locomotives combined with an awareness campaign aimed at train personnel resulted in a 16.4% saving in fuel consumption by our locomotives that have AESS systems installed.

Old and new bridge over the Colorado River. Ballinger, Texas.82 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 83 Waste handling and spills

As a result of improvements made to locomotive maintenance processes, we generated 21% less hazardous waste in 2011 than the previous year. Efficiency in the use of cleaning materials was promoted to prevent saturation with hydrocarbons. Used oil is sent to authorized cement plants to be used as an alternative fuel, while other waste is sent to an authorized incinerator.

Biodiversity

In 2011, 41.37 hectares with desert type vegetation were cleared to make way for various sidings projects in different states. This clearing principally affected: mesquites, cacti, acacias, and other species, totaling 38,089 plants affected. 2,558 plants were rescued and replanted outside the right of way. Also, to compensate for the plants affected that could not be transplanted, 38,148 mesquite and cacti plants were planted.

Community Responsibility

In 1994, when Ferromex obtained the concession to operate the railroad freight transportation service, the Company was also awarded the concession on the Ferrocarril Chihuahua Pacífico (Chepe), which provides tourist passenger service from Chihuahua to Los Mochis in Sinaloa. This route passes through the heart of the breathtaking Copper Canyons, where the Tarahumara and Mayo indigenous communities have their home.

In support of these two communities, members of the Tarahumara and Mayo communities in the states of Chihuahua and Sinaloa, respectively, and also low income residents, received a special rate to travel on the passenger train. Free passage was given to priests, nuns, and missionaries engaged in social action in these areas. Also, goods and materials were transported for these communities free of charge.

This program offered special rates to 70,691 passengers this year and free passage to 75 priests, nuns, and missionaries who, due to their work in the community, travel continually and are often accompanied by indigenous who are ill or children needing special attention. Chepe tourist train. Roundhouse in Guadalajara, Jalisco.84 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 85 

### INFRASTRUCTURE DIVISION PROJECTS



# E **XP E**  **R IENCE**  

# 75

YEARS THINKING BIG

US$ 

### 636 MILLION WILL BE INVESTED IN THE INFRASTRUCTURE DIVISION IN 2012



## 06.INFRASTRUCTURE DIVISION

Miguel Angel Monsiváis Operator.86 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 87 INFRASTRUCTURE DIVISION

The Infrastructure Division of Grupo México is represented by its subsidiaries México Proyectos y Desarrollos, S.A. de C.V. (“MPD”), México Constructora Industrial, S.A. de C.V. (“MCI”), México Compañía Constructora, S.A. de C.V.(“MCC”), Servicios de Ingeniería Consutec, S.A. de C.V. (“Consutec”), México Generadora de Energía S.de R.L. (“MGE”), and Compañía Perforadora México, S.A.P.I. de C.V., which are wholly owned by Grupo México. MPD, MCI, and MCC are active in engineering, procurement, and infrastructure construction projects. Perforadora México offers oil and water drilling services and related value added services such as cementation engineering and directional or slanted drilling. Consutec engages in integral industrial and infrastructure project engineering activities. México Generadora de Energía is a recently created Company that develops power generating and renewable energy projects.

México Compañía Constructora

In 2011, México Compañía Constructora celebrated 75 years of operation supporting Mexico’s infrastructure. Its beginnings in the construction sector date back to 1936 and the Company’s value added has been its strength in demonstrating its ability to execute projects. 

## M **ILLION**

IN SALES FOR THE INFRASTRUCTURE DIVISION

MI LL ION IN S A L E S FOR MÉXICO COMPAÑÍA CON ST RUC T ORA IN 2011 

### HISTO **R Y AND E**  **XP E**  **R IENCE**  **HAVE GIVEN US THE O**  **PP O**  **R TUNITY TO**  **P A**  **R TICI**  **P ATE**  **IN AL M**  **OST ALL LA R**  **GE INVEST**  **M ENTS**  **M ADE IN THE** 

**INF R**  **AST R**  **UCTU R**  **E SECTO R** 

LEGEND **INF R**  **AST R**  **UCTU R**  **E DIVISION** 

### GEOG **R A**  **P HIC LOCATION** 

PEMSA

MGE MCI

CONSUTEC VILLAHERMOSA POZA RICA

CD. DEL CARMEN M exico C ity

JUCHITÁN, OAXACA NACOZARI, SONORA

TUXTLA GUTIÉRREZ GUADALAJARA LEON SAN LUIS POTOSÍ HERMOSILLO SONORA

ANNUAL REPORT GRUPO MÉXICO 87 

# U S $ 

# 224

**US$** 

# 11188 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 89 The history and experience of the Construction Company have afforded us the opportunity to participate in almost all large investments made in the infrastructure sector in canal and irrigation projects, railroad and hydroelectric projects, warehousing and derivatives, oil and gas, thermoelectric plants, and highway projects.

México Compañía Constructora reported sales of US$111.3 million, EBITDA of US$15.1 million, and its costs and expenses at US$96.5 million for 2011.

Major Projects

– Federal Power Commission (CFE). Construction of two 14x14 meter deviation tunnels, 1,135 m in length, now in operation helping to prevent flooding in Tabasco and optimizing the use of the Grijalva River hydroelectric power generating system.

Inaugurated by President Felipe Calderón Hinojosa, México Constructora Industrial has completed delivery of the Deviation Tunnels on the Grijalva River to the Federal Power Commission. – Minera Dolores. Construction of the “Chabacán” dam in Madera, Chihuahua.

Construction on the El Chabacán storage dam in the state of Chihuahua has been completed.

– Ferromex. Construction and refurbishment of eight railroad sidings in the states of Zacatecas, Guanajuato, Jalisco, and Colima. Improvement works are also ongoing on the track infrastructure of the railroad lines in the states of Colima and Sonora.

Railroad improvement and expansion projects were delivered at the end of 2011.

– Buenavista del Cobre. Overall refurbishment of the mine facility, civil works projects for the cementations of the Quebalix III and Crusher Building at the site, maintenance work on the edges of the Tailings Dam and the Dam at the Old Concentrator, and the dismantling of the Smelter and old Concentrator. Edge maintenance work on the Tailings Dam. Buenavista del Cobre, Sonora.90 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 91 – Mexicana de Cobre. Construction of the outside borders of Tailings Dam number 7, manufacturing and installation of new cribs for the Concentrator’s primary mills, assignment of engineering personnel, assignment of maintenance and operating personnel for heavy machinery, and street paving inside the Lime Plant at Agua Prieta, Sonora.

– Industrial Minera México. Work on the San Luis Potosi Bicentenary Park is complete and personnel are now being assigned to dismantle the Arsenic and Copper Plant in San Luis Potosi and to the Exploration Projects in Charcas, San Luis Potosi.

The Department of Transport and Communications (SCT) awarded México Constructora Industrial a 30 year concession to build and operate the Salamanca - León Highway in the state of Guanajuato, which will contribute to the growth of the region.

Constructora México will continue to participate in tenders for the construction and operation of highways, hydroelectric dams, railroad lines, and other important infrastructure projects.

Environmental Actions

México Compañía Constructora, with the collaboration of the Selva Ocote Biosphere Reserve, member of the Mexican Commission for Natural Protected Areas (CONANP) in state of Chiapas, and the Save the Mountain Rural Production Preservation, undertook a commitment for the reforestation and revegetation of the reserve. Thirty-five hectares have been reforested after being destroyed by forest fires in the community of La Florida in Cintalapa de Figueroa, which lies in the buffer zone of the reserve, to compensate for the areas affected by the construction activities for the “Contingencia Río Grijalva, Túneles de Conducción-Desastres Naturales,Estado de Chiapas” project (Grijalva River Contigency Project, Deviation TunnelsNatural Disasters, Chiapas) and to meet compliance with the requirements set by the Department of the Environment and Natural Resources (SEMARNAT).

90 GRUPO MÉXICO ANNUAL REPORT

Generator Plant, La Caridad.92 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 93 More than 45,000 native plants of different species were planted, including cedar (cedrela odorata), cocoite (gIiricidiam sepium), maculis (tabebuia rosea), mahogany (carapa guianensis), guanacaste (enterolobium ciclocarpum), guash (leucaena leu

cocephala (Lamark), jolotzin (heliocarpus mexicanus (Turcz) Sprague). A nursery was set up for this program with a production capacity of 550,000 plants. This nursery was also used to produce species for areas destroyed by fire in the state of Chiapas.

Compañía Perforadora México (“ L a México”)

Compañía Perforadora México closed 2011 with sales of US$112.6 million, EBITDA of US$27.0 million, and a net profit of US$14.7 million.

Sales increased 59% this year, compared to 2010, principally as a result of the contract the Company was awarded for the Sonora Platform in March 2011 and significant improvements made to the productivity of the land operation for the Tertiary Oil Gulf project. Ocean Drilling

Sonora Platform

The Sonora Platform received a full mechanical overhaul and remodeling of its living area in 2011.

The platform has been under a daily rental contract since March 24, 2011 and engages in shallow water drilling in the state of Campeche.

New Chihuahua and Zacatecas platforms

In December 2011, the purchase of two 300 foot Friede & Goldman Jack Up platforms was finalized, with a drilling capacity of up to 30,000 feet below the seabed. Transporting the “Chihuahua” platform, Dubai-Gulf of Campeche, Mexico.

The first platform, known as “Chihuahua”, started its mobili

zation from the Arab Emirate of Sharjah the last week of Feb

ruary and is scheduled to arrive at the oil port of Dos Bocas in the state of Tabasco on April 15, with operations starting in June, 2012.

The second platform, “Zacatecas”, is scheduled to be completed June 30, to then be transported between July and August and start operations in September 2012.

Land Drilling

Productivity this year increased over 60%, which had a significant impact on the Company’s results.

The Tertiary Oil Gulf Project has a contract expiring after 2012.94 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 95 Drilling services

Cementations

The cementations division started a new contract in October, expiring December 2013.

We are currently working on the addendums for certain products that La México provides in its cementations segment. These activities will result in increased revenue for this Division.

Since August 2011, the Company has provided service, both land and sea, to third parties holding comprehensive contracts with PEMEX.

Slanted drilling

In 2011, we completed projects for PEMEX under a 3 year contract.

We are participating in tenders that will be awarded during the first half of 2012. This division also provides land services to third parties and is analyzing opportunities to start operations overseas.

Drilling fluids

This division focuses on offering services under our comprehensive Tertiary Oil Gulf land drilling contract.

México Generadora de Energía (MGE)

México Generadora de Energía is building two 250 MW Combined Cycle Power Plants to the north of Nacozari, Sonora, representing a total investment of US$540 million of which US$144.5 million has been spent as of year close. Plant I reports 46% completion and Plant II 12% completion at December 31, 2011.

These plants are scheduled to be completed in the fourth quarter of 2013 and the second quarter of 2014, respectively, and will supply power to the mines and plants in Sonora and their expansions. In 1998, Grupo México built a pipeline connecting Douglas, Arizona with the national pipeline and construction of a 3km offshoot is underway to connect the power plants.

MGE is developing a 50 MW Wind Power Project in the state of Oaxaca, which is currently in its engineering and processing stage. This project represents an estimated investment of US$118 million and will supply power to some Grupo México facilities and to other potential buyers.

México Proyectos y Desarrollos is conducting the engineering for 6 mini 98 MW hydroelectric dams in the states of Puebla, Sonora, and Sinaloa. Renewable energies that will reduce greenhouse gas emissions.

The power produced by these dams will be used to supply new medium scale min

ing projects. Transporting the “Chihuahua” platform, Dubai-Gulf of Campeche, Mexico.96 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 97 

### GRUPO MÉXICO FOUNDATION TANGIBLE RESULTS



# CO **MM IT**  **M ENT**  

# 14,724

PEOPLE BENEFITED THANKS TO OUR PROGRAMS

THE GRUPO MÉXICO FOUNDATION IS ACTIVE IN NINE STATES IN MEXICO 

## 07.GRUPO MÉXICO FOUNDATION

Juan Ramírez Beneficiary of Grupo México Foundation’s Social Programs.98 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 99 GRUPO MÉXICO FOUNDATION

Cultural and S ocial Programs

– Revenues from sales of the book “Kakaw” were matched and donated to Casa Hogar Auxilio in the state of Chiapas to complete general remodeling projects. This shelter houses minor aged girls at risk and living in poverty.

– El Cuernito A.C. was another organization supported by the Grupo México Foundation. The dining room and kitchen at the daycare center were remodeled improving the food service the organization provides to children under 6 years of age..

– The second Musical Composition Contest was held with a railroad theme “Sinfonía Vapor” (Steam Symphony) in which the Grupo México Foundation participated giving financial support for teachers and students of symphonic and chamber music. 

## P **EO P**  **LE BENEFITED**

**G R**  **U P**  **O M**  **É X**  **ICO FOUNDATION IS ACTIVE IN THE STATES OF:**  **SONO R**  **A, M**  **O R**  **ELOS, SAN LUIS P**  **OTOSI, JALISCO, NUEVO LEÓN, CHIA**  **P AS, TA**  **M AULI**  **P AS, ESTADO**  **DE M**  **É X**  **ICO, CHIHUAHUA, AND**  **M E**  **X ICO CITY.**  through the development of three programs



# 1,023

ST UDEN T AND T EACHER S CHO L AR S HIP S GIVEN BY T HE GRUPO MÉXICO FOUNDA T ION 

# 14,724

Working with the community.100 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 101 S upport for other institutions

– In collaboration with Cinemex we held various red carpet events and movie premieres. The funds raised from these events were donated to various NGOs.

In terms of health services, we helped finance cochlear implants, kidney transplants, cancer treatments for the underprivileged, medications for childrenwith immunological disorders, and physiotherapy for children needing muscularskeletal strengthening. In the area of education, we were able to finance materials for schools with underprivileged special needs children, a training workshop for 60 young people rescued from the street, and a documentary on breast cancer prevention was distributed. In addition, we helped finance the work of women with small businesses in the Mixteca region in Oaxaca.

– Through 1,687 Cinemex theaters, we raised awareness for different organizations with “cineminuto” commercial spots to promote the work of participating organizations and also offering moviegoers the opportunity to seek out the help that perhaps they’ve been looking for.

– Consequently, Cinemex theaters were in high demand during 2011. The organizations involved have taken up the task of finding synergies to be able to produce quality “cineminutos”. Through this project, the Grupo México Foundation has been able to join companies, advertising agencies, creative minds, directors, and producers under a single purpose: to help and promote a social message.

– This year we supported 8 organizations with 4-week spots each, showing a total 5,850 messages, reaching nearly 14 million moviegoers.

– In this same area, the Grupo México Foundation was a finalist for the “Caracol de Plata” award given for excellence in social messaging, with the cineminuto “Nuestros Niños” (Our Children), an organization that provides comprehensive care to children under 6 years of age.

– In June, we collaborated on the highly successful 2nd Cinemex Run to benefit the Michou y Mau Foundation to transport child burn victims and provide follow-up care. A total 4,000 runners participated. Simultaneously, a fundraising campaign was held through the concession stands at movie theaters in Mexico City and metropolitan area to raise money for this same cause.

Various fundraising campaigns have been held at theaters to raise money for different organizations:

° Fundación Ale. The funds raised helped to finance 5 kidney transplants. Reforestation in Huixquilucan, Estado de México, with the participation of Grupo México employees. Michou y Mau Foundation. Organization supported.102 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 103 ° Thanks to the sale of stickers for the “En Nuestras Manos” Foundation, money was raised to create a “Stylist Shop”, which will be inaugurated soon at the Centro de Atención Integral para la Profesionalización del Empleo (CAI).

° As a member of the Group “Unidos por Ellos”, the Grupo México Foundation doubled the amount raised nationally to support victims of Hurricane Alex. Delivery was made on 101 homes in the state of Tamaulipas and 114 in the state of Nuevo León.

Education and Environmental Programs

– In collaboration with Fundación Televisa and the Bécalos program, we gave out 476 scholarships for academic ex

cellence in the state of Sonora. During 2012, our students will start the second of their three year scholarships. In 2011, thanks to this same collaboration, 547 scholarships were given to teachers as part of the “Formando Forma

dores” program.

– A donation of equipment and learning materials was made to Preparatoria Enrique Esqueda in the state of Sonora, which has 180 students enrolled in its high school di

ploma program. – The Grupo México Foundation sponsored and inaugurated the Centro Educativo Ambiental Desierto de los Leones. This center offers courses on environmental related topics to approximately 4,000 students each year.

– A donation was given to the Red Cross in Esqueda, Sonora for their work with special needs people.

– In San Luis Potosi, 26,510 trees were donated to the project “Vías Verdes”, which has a direct impact on nine communities.

– 150 Grupo México employees participated in the refores

tation of one hectare in Huixquilucan, Estado de México, planting 2,000 trees.

– Through the freight transportation services that Ferromex offers, we supported different organizations by transporting 842 tons of goods for 6 different Tarahumara communities in the state of Chihuahua.

– Thanks to the supplement “Equilibrio”, which reaches 43,000 Reforma newspaper subscribers, we can communicate and create awareness for issues such as sustainability and the environment.

ANNUAL REPORT GRUPO MÉXICO 103 “Tree Production”.104 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 105 

### FINANCIAL ANALYSIS AND DISCUSSION CONSOLIDATED RESULTS



# SOLID 

# 25%

INCREASE IN CONSOLIDATED SALES

CONSOLIDATED SALES REACHED A RECORD HIGH US$10.443 BILLION 

## 0 8 . F I N A N C I A L A N A LYS I S A N D D I S C U S S I O N

Julio Valencia Tractor operator. Buenavista del Cobre, Sonora.106 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 107 FINANCIAL ANALYSIS AND DISCUSSION

This analysis and discussion presents a review of the consolidated financial results for Grupo México, S.A.B. de C.V. and subsidiaries (“GMéxico” or the “Company”) (BMV: GMEXICOB). The audited financial results for the twelve months ended December 31, 2011 are compared with 2010.

Grupo México is a holding company, whose main activities are in the miningmetallurgic industry, and include the exploration, exploitation, and benefit of metallic and non-metallic minerals, and freight and multimodal railroad services, and also infrastructure projects.

All figures in this report were prepared according to US GAAP and are expressed in US dollars ($), except where indicated otherwise, and at December 31, 2011. All percentage variances are expressed in real terms. The conversion from Mexican pesos to US dollars is included for reference purposes only, applying the exchange rate set by the Bank of Mexico for settling obligations, which was 13.97 pesos per dollar on December 31, 2011.

This report may contain forward-looking statements and such statements are to beinterpreted as estimates prepared by the Company in good faith. These forwardlooking statements reflect the opinions of Company Management based on currently available information. Actual results are subject to future and uncertain events that may have a material impact on the actual performance of the Company. ST OCK EXCHANGE L I ST ING

Grupo México is a publicly traded company, whose shares have been quoted on the Mexican Stock Exchange (Bolsa Mexicana de Valores or BMV) since 1978, under the listing code: GMEXICOB. Grupo México is represented by 7,785,000,000 common series “B” shares, fully subscribed and paid. At December 31, 2011, the Company has 7,785,000,000 common series “B” shares outstanding.

SCC shares are traded on the New York Stock Exchange (NYSE) and the Lima Stock Exchange (BVL) under the listing code SCCO on both exchanges.

PRINCIPA L MINE PRODUC TS

Copper is the third most used metal in the world and an important component in creating infrastructure worldwide. Copper has exceptional chemical and physical properties, with high electrical conductivity and resistance to corrosion, and also has excellent malleability and ductility, making it an ideal material for field applications in electricity, telecommunications, computers, cell phones, construction, transportation, and industrial machinery.

Copper is also an important material for non-electrical applications, such as plumbing and roofing, and when alloyed with zinc forms bronze, and is also used in consumer and household products. Copper is used in fungicides and various other chemical products.108 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 109 Molybdenum is used to give greater resistance to steel alloys, steel tools, to soften tungsten alloys, is resistant to corrosion, and is used as a catalyst in the oil and gas industry to remove sulfur. It is also used in fertilizers, dyes, paints, and reagents. Silver is used for photographic, electrical, and electronic products, and to a lesser degree, in welding alloys, jewelry, coins, silverwork, and catalysts. Zinc is used primarily to galvanize steel and iron to protect these from corrosion. It is also used to make molds, in batteries, and in sheets for architectonic purposes.

ME T A LS PRICE S

During 2011, most metals prices experienced high volatility as a result of global economic uncertainty, particularly the European crisis, economic recovery in the US, and lower expectations for global growth. However, copper prices posted an average US$4.01 per pound, a 16% increase over 2010, due principally to a shortfall between global production and consumption of copper, and also meteorological factors, strikes, lower ore grades, delays in the startup of projects, and China’s demand for infrastructure projects.

Prices for our products depend mainly on supply and demand and are set by the New York Commodities Exchange (COMEX) and the London Metals Exchange (LME), the two most important exchanges in the world. Molybdenum prices are set using the publications Metals Week Dealer Oxide and Platts Metals Week. Our contract prices also reflect the premiums negotiated, shipping costs, and other factors. The following table shows the average annual metals prices for 2011 and 2010. Copper Copper LME Comex Molybdenum Zinc Lead Silver Gold Metals Prices: ($/lb) ($/lb) ($/lb) ($/lb) ($/lb) ($/oz) ($/oz)

1T 2011 4.36 4.38 17.17 1.08 1.18 31.74 1,384.38 2T 2011 4.15 4.15 16.50 1.02 1.15 38.42 1,504.30 3T 2011 4.07 4.07 14.44 1.00 1.11 38.76 1,700.16 4T 2011 3.41 3.40 13.2 0.86 0.89 31.81 1,685.50 Average 2011 4.00 4.01 15.33 0.99 1.08 35.18 1,568.59

1T 2010 3.30 3.30 16.24 1.05 1.01 16.92 1,110.16 2T 2010 3.19 3.20 16.38 0.93 0.89 18.35 1,196.53 3T 2010 3.30 3.31 15.13 0.93 0.94 18.98 1,227.73 4T 2010 3.91 3.94 15.84 1.06 1.09 26.58 1,370.45 Average 2010 3.43 3.44 15.90 0.99 0.98 20.21 1,226.22

Variance: 4 T 11 vs. 4 T 10 -12.8% -13.7% -16.7% -18.8% -18.3% 19.7% 23.0% Variance: Year 2011 vs. 2010 16.7% 16.4% -3.6% -0.2% 10.2% 74.1% 27.9% Zinc production. Zinc Electrolyte Refinery.110 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 111 CONSOLIDATED RESULTS

Consolidated net sales for Grupo México in 2011 reach a record high US$10.443 billion, compared to US$8.338 billion in 2010. This 25% growth is attributed principally to increased produc

tion with the restart of the Buenavista mine, which has been operating at maximum capacity since April. During the first half of the year we witnessed highs in metals prices and growths in the Transportation Division, principally due to increased expor

tations of consumer goods and freight transportation nationally. Sales for the Transportation Division reached US$1.626 billion for 2011, a 14% increase over 2010, setting a new record for ITM; representing 16% of total revenue, while the Mining Divi

sion represented 83% of Grupo México’s total revenue.

The cost of sale for 2011 was US$5.105 billion, a 21% increase over 2010, due mainly to mine maintenance, the reincorporation of Buenavista del Cobre, higher energy and fuel costs, and increased rights of track usage expenses.

Although the prices for our principal supplies and materials may experience variances that are beyond our control, the Company will continue strict efforts to reduce costs, optimize processes, and increase productivity; and will also continue its disciplined approach to consumption and expense, which has allowed the Company to maintain its position as one of the best low cost leading copper producers in terms of cost per pound produced.

As a result, the operating profit reached US$4.607 billion in 2011, 36% higher than 2010; while the EBITDA operating flow reported a record high US$5.192 billion, 32% higher than 2010, placing the EBITDA margin at 50% in 2011, an improvement over the 47% reported for 2010.

The majority consolidated net profit for 2011 reached a record high US$2.472 billion, a 52% increase over 2010, representing a total equivalent to 24% of sales.

INVE ST MEN T IN FIXED A SS E TS

Grupo México’s consolidated investment program at December 31, 2011, reached a record high US$1.217 billion, compared to the US$651 million invested in 2010, of which US$715 million was allocated to the Mining Division to increase production and improve margins with cost savings. A record amount was also invested in the Transportation Division, US$355 million, which was used to improve the railroad infrastructure, construct new sidings, and increase the fleet of locomotives. During 2011, 58 locomotives were purchased for a total fleet of 770 locomotives, resulting in increased speeds and fuel savings. Investments of US$147 million were made in the Infrastructure Division, principally for the construction of two 250 megawatt self-supply combined cycle power plants, ensuring the Mining Division’s power consumption at a more competitive cost. The total investment for this project is estimated at US$540 million. The first 250 megawatt plant is scheduled to start operations in 4Q13 and the second plant in 2Q14. Container yard. Torreón, Coahuila.112 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 113 ST OCK DIVIDEND S

During 2011, Grupo México paid out a total of $18,012 billion pesos in dividends. The following table shows the per share dividend amounts paid out for each quarter over the last two years, and also their equivalent when the dividend payment was made with new shares.

The Board of Directors sets the dividend amounts considering the current capital expenditure program and the future cash flow our operations are expected to generate quarterly.

ST OCK REPURCHA S E FUND

During 2011, Grupo México purchased 20 million treasury shares for $722.4 million. This repurchase was carried out under the $2.240 billion peso program approved by the Ordinary General Shareholders’ Meeting. The repurchase program was activated to take advantage of low GMéxico stock prices and considering this to offer a better return than cash positions, creating greater value for Company shareholders.

CON S O L IDA T ED NE T DEB T

At December 31, 2011, the total consolidated debt of Grupo México was US$3.801 billion, which taking into account a cash and banks balance of US$2.232 billion, represents net debt of US$1.570 billion, maintaining a manageable long term amortization schedule.

On April 15, 2011, Ferromex placed 10 year notes for $1.5 billion pesos at a fixed rate of 8.88%. These resources were allocated to finance the purchase of 44 new locomotives. 2011
MX$/share Date of Payment First Quarter 0.40 May 5, 2011 Second Quarter 0.45 August 19, 2011 Third Quarter* 0.49 November 14, 2011 Fourth Quarter 0.40 February 20, 2012

2010 MX$/share Date of Payment First Quarter 0.17 May 17, 2010 Second Quarter 0.17 September 10, 2010 Third Quarter 0.25 November 25, 2010 Fourth Quarter 0.30 February 18, 2011

(*) A stock dividend payment was approved in 3Q11 at one share per 389 shares. Thickeners at the La Caridad Concentrator, Sonora.114 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 115 COMFOR T AB L E DEB T MA T URI T Y

The total consolidated debt of Grupo México has an amortization schedule that does not present a difficult financial burden for the Company. The average debt amortizations per year between 2012 and 2010 will be US$165 million, with US$400 million maturing in 2020 being the most significant. The maturity schedule for the debt is as follows:

ST OCK PERFORMANCE

GMéxico continues to be one of the most important shares for the Mexican Stock Exchange. In 2011, it was the second most traded share and fourth in terms of market capitalization. DEB T MA T URI T Y $285.3 $251.0 $302.00 $225.7 $422.7
$282.8 $1000.0 $1100.0

13 16-20 12 15 14 21-30 35 40 1,400.0

1,000.0

600.0

200.0

0 DERIVA T IVE IN ST RUMEN TS

Grupo México uses derivative instruments to manage its exposure to market risks due to variances in international metals prices, energy costs, interest rates, and exchange rates. Through its two divisions, Mining and Transportation, Grupo México engaged the following derivative instruments:

Mining Division. The subsidiaries AMC, SCC, and Asarco engaged hedging to: a) protect prices on a portion of their copper sales; b) fix the energy rates for part of their production costs, and c) protect part of their operating costs in the face of an appreciation of the Mexican peso against the US dollar.

In 2011 AMC, taking advantage of volatility in the peso/dollar exchange rate and low interest rates, engaged a Cross Currency Interest Rate Swap to convert the whole of AMC’s debt listed in pesos at a floating rate maturing in December 2014, to dollars at a fixed rate. The total amount of the debt was $8.399 billion pesos, with the swap negotiated at an exchange rate of $13.60, the debt is equal to US$618 million as of September 30, 2011. The loan rate was the 28d TIIE + 425bps (~9.05%), which was exchanged for a fixed dollar rate of 5.90%.

Transportation Division. The subsidiary GFM engaged an interest rate derivative to cover a bank loan.

GFM holds an interest rate derivative for a US$47.9 million loan, which reports an unfavorable valuation as of December 31, 2011 and 2010 of US$2.1 million and US$1.9 million, respectively.116 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 117 Moody ́s S tandard & Poor ́s Fitch Ratings
Grupo México International Rating

- BBB BBB
Americas Mining Corporation International Rating

- BBB BBB
Southern Copper Corporation International Rating Baa2 BBB BBB US$1 billion Bonos Baa2 BBB BBB Local Rating

- - BBB

Minera México Local Rating

- - BBB International Rating Baa2 BBB BBB Secured Bond Baa2

- BBB

Ferromex Long term Local Rating

- MXAA AA+(Mex) International Rating

- - BBB

On January 26, 2012, the ratings firm S&P upgraded its ratings for Grupo México, Americas Mining Corporation, Southern Copper Corporation, and Minera México from BBB- to BBB. The improved rating is attributable to the Company’s low cost structure, geographical diversification, our position as the fifth largest copper producer globally, vertical integration, long life reserves, and also our solid fi

nancial position. credi t profi l e

116 GRUPO MÉXICO ANNUAL REPORT Tripper. Crusher and Conveyor System. Buenavista, Sonora.118 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 119 GRUPO MÉXICO JOIN S T HE IPC S U ST AINABI L I T Y INDEX

On December 8, 2011, Grupo México obtained one of the highest ratings as a Sustainable Company according to the methodology of the Mexican Stock Exchange (BMV), and was chosen to be included in the BMV’s new IPC Sustainability Index. This selection recognizes compliance with the adoption of strict sustainability criteria, policies, and systems.

The 70 most traded companies were analyzed to develop the “IPC Sustainability Index”, meeting the criteria for evaluation based on corporate governance, environmental issues, and social responsibility. Two research providers conducted the evaluation, the British firm EIRIS (Empowering Responsible Investment) and Universidad Anáhuac del Sur in Mexico. The companies included in the Index were compared using the average rating EIRIS publishes evaluating over 3,000 companies worldwide.

Grupo México is proud to be included in the BMV’s first sustainability index, reaffirming our commitment to social responsibility, environmental sustainability, and corporate governance. SUMMARY OF OPERATIONS BY BUSINESS UNIT

MINING DIVI S ION – AMERICA S MINING CORPORA T ION

The Mining Division of Grupo México is represented by its subsidiary Americas Mining Corporation (“AMC”), whose principal subsidiaries are Southern Copper Corporation (“SCC”) in Mexico and Peru, and Asarco in the United States. SCC trades on the New York and Lima stock exchanges. Its stockholders, directly or through subsidiaries, are: GMéxico (80.9%) and other stockholders (19.1%). The Company operates mines, metallurgic plants, and exploration projects in Peru, Mexico, the United States, Argentina, Ecuador, and Chile. Asarco was reincorporated into GMéxico on December 9, 2009. Asarco has 3 mines and 1 smelting plant in Arizona and 1 refinery in Texas.

FINANCIA L HIGH L IGH TS FOR AMERICA S MINING CORPORA T ION
January - December Variance (Thousands of Dollars) 2011 2010 US$000 %
Copper Sold (TM) 790,103 701,708 88,395 12.6 Sales 8,654,639 6,803,189 1,851,450 27.2 Cost of Sales 3,886,032 3,182,660 703,372 22.1 Operating Income 4,266,806 3,102,062 1,164,744 37.5 EBITDA 4,722,775 3,512,389 1,210,386 34.5
EBITDA Margin (%) 54.6% 51.6% Net Earnings 2,347,381 1,475,705 871,676 59.1 Investments / Capex 714,724 454,299 260,425 57.3

In October 2011, Grupo México’s Board of Directors, after consulting with the SCC Independent Committee, decided to maintain the value Asarco represents for its subsidiary Americas Mining Corporation and withdrew its offer to combine Asarco’s operations with SCC. AMC, as a holding company in GMéxico’s Mining Division that consolidates the operations of SCC and Asarco, will explore alternative strategies to create value through its two subsidiaries, which may include the placement of AMC stock on the capital markets to ensure future sources of financing and structural adjustments to consolidate as a leading mining group. Water quality analysis. Hayden, Arizona.ANNUAL REPORT GRUPO MÉXICO 121 120 GRUPO MÉXICO ANNUAL REPORT MINE PRODUC T ION & S A L E S
Mining Division January - December Variance 2011 2010 %
Copper (t.m.) Production 772,562 687,980 84,582 12.3 Sales 790,103 701,708 88,396 12.6
Molybdenum* (t.m.) Production 18,570 20,519 (1,949) (9.5) Sales 18,632 20,508 (1,876) (9.1)

Zinc* (t.m.) Production 83,807 99,194 (15,387) (15.5) Sales 90,663 93,964 (3,300) (3.5)

S ilver (Miles oz) Production 14,481 15,242 (761) (5.0) Sales 17,411 19,584 (2,173) (11.1)

Gold* (Oz) Production 36,111 17,204 18,907 109.9 Sales 60,748 69,690 (8,942) (12.8) *Asarco does not produce this mineral

S ulfuric Acid (t.m.) Production 2,538,040 2,039,729 498,311 24.4 S ales 1,887,525 1,462,001 425,524 29.1 Cash Costs

An indicator we use, and which is common in the mining industry, to measure performance is the cash cost per pound of copper produced. Our cash cost is a measure that is not found in GAAP as it has no standardized significance and cannot be compared with similar measures provided by other companies. We have defined our per pound cash cost as the cost of production plus overhead, charges for treatment and refining, and costs of sale; less revenues from byproducts and sales premiums, divided by the total pounds of copper produced. Our cash cost calculation credits the sale of byproducts, principally molybdenum, zinc, and silver, and premiums on the market prices we obtain on copper sales, against our costs. We calculate our revenues from byproducts in this manner as our principal business is the production and sale of copper.

We believe the investor community sees Americas Mining Corporation as a copper company and it is valued, largely, by its capacity to produce copper at a reasonable cost. We also include premiums on copper sales as a credit as these amounts are higher than published copper prices.

The consolidated Americas Mining Corporation cash cost per pound of copper, net of byproducts, increased from US$0.587 per pound of copper in 2010 to US$0.739 per pound of copper in 2011. Despite the increase in costs, Americas Mining Corporation is still an industry leader in low cost.122 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 123 S CC 35.8

18 41.5

10 09 11 50

40

30

20

0

A S ARCO 157.8 151.2 173.9

10 09 11 200

150

100

50

0

AMC Consolidated operating cash cost 62.4 58.7 73.9

10 09 11 80

70

60

50

0 

# } TRANSPORTATION DIVISION

Infraestructura y T ransportes México (I T M)

F inancia l H igh l igh ts for I nfrae st ruc t ura y Tran s por t e s M éxico (I T M)
January - December Variance (Thousands of Dollars) 2011 2010 US$000 %
Vol. Transported (million tons / km) 52,182 52,117 65 0.1 Sales 1,626,012 1,432,756 193,256 13.5 Cost of Sales 1,117,820 949,917 167,903 17.7 Operating Profit 321,279 312,815 8,464 2.7 EBITDA 464,557 437,320 27,237 6.2

EBI T DA Margin (%) 28.6% 30.5% Net Earnings 156,899 206,179 (49,280) (23.9)
Profit Margin (%) 9.6% 14.4% Investments - (Capex) 354,752 179,367 175,385 97.8

RE S OURCE S , T RAN S POR T A

T ION DIVI S ION

Item Ferromex Ferrosur Total
Track Network (km) 8,111 1,813 9,924 Locomotives 595 175 770 Cars 13,961 4,841 18,802 Employees 7,917 1,998 9,915 Productivity (millions of TKN / worker) 5.7 3.6

EBITDA for 2011 was US$464.5 million (equivalent to 28.6% of sales), representing a 6.2% growth over 2010.

ITM focuses on different market niches in the agriculture, industrial, mineral, automotive, chemical, iron and steel products,

Power shovel. Cuajone, Peru.124 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 125 cement, energy, and intermodal segments. The transportation of products and materials in bulk, particularly over long distances, is more effective and efficient by train than by truck. 98 99 00 01 02 03 04 05 06 07 08 09 10 11 50.000

42.000

34.000

26.000

18.000

10.000

0.00

Año 1,150.000

1,050.000

950.000

850.000

750.000

650.000

0.0TON-KMCARS

NET TON KILOMETERS (MILLIONS) CARS
RAI L FREIGH T - I T M

I T M - 2011 Sa l e s by Segmen t D iver s ifica t ion

1

2

3 4 5 6 7 8 9 10 11 12 1. Agricultural 25% 2. Diesel surcharge 13% 3. Minerals 9% 4. Industrial 9% 5. Automotive 9% 6. Chemicals 8% 7. Energy 6% 8. Steel 6% 9. Intermodal 6% 10. Cement 4% 11. Car-Hire 2% 12. Others 3%

Grain hopper.ANNUAL REPORT GRUPO MÉXICO 127 Mexico Projects and Development



### 100% Infrastructure Division

PEMSA México Compañía Constructora México Generadora de Energía 100% 100% 100% 

### Mining Division

Among the world’s largest producers of Cu, Mo, Ag & Zn. Southern Copper

Corporation

80.9% 100%

Mexico Division Peru Division

100% 100% Americas Mining Corporation (AMC) 

### 100%

Asarco

100% 74% 26% 25.1%

Ferrosur Grupo Ferroviario Mexicano Infrastructure and Transport, Mexico (ITM) 

### 74.9% Transportation Division

Ferromex

100% 100% Infraestructura y Transportes Ferroviarios GMEXI CO

The largest & most profitable railroad company in Mexico (55% market share)

. 75 years experience in infrastructure & construction projects. corporate structure

Leachable material conveyor belt. Toquepala, Peru.ANNUAL REPORT GRUPO MÉXICO 129 128 GRUPO MÉXICO ANNUAL REPORT 4.734 4.862 6.655 7.370 7.862

08 07 09 10 11 8000

6000

4000

2000

0

FIXED A SS E TS (MILLIONS OF DOLLARS)

4.271

1.392 3.068

1.101 4.405 6.033

1.661 2.131 1.615 5.566

08 07 09 10 11 7000

5000

3000

1000

0

CURRENT ASSETS CURRENT LIABILITIES

CURREN T A SS E TS AND L IABI L I T IE S (MILLIONS OF DOLLARS) 6,114 5,629 6,574 7,485 8,737

08 07 09 10 11 10000

7500

5000

2500

0

EQUI T Y CAPI T A L (MILLIONS OF DOLLARS)

0.47

0.32

0.22 0.43 0.59

08 07 09 10 11 0.70

0.50

0.30

0.10

0

OPERA T ING PROFI T PER S HARE (DOLLARS) 0.21

0.14 0.11 0.21 0.32

08 07 09 10 11 0.35

0.25

0.15

0.05

0

PER S HARE EARNING S (DOLLARS)ANNUAL REPORT GRUPO MÉXICO 131 130 GRUPO MÉXICO ANNUAL REPORT 6,114 9,745

5,629 8,788

6,574 7,485 12,462 14,598

8,737

08 07 09 10 11 16000

12000

8000

4000

0

EQUI T Y CAP T IA L AND T O T A L A SS E TS (MILLIONS OF DOLLARS) 15,201

EQUITY CAPITAL TOTAL ASSETS

6,114 3,632 5,629
3,160 6,574 7,485 5,888 7,113 8,737

08 07 09 10 11 8000

6000

4000

2000

0

EQUI T Y CAPI T A L AND T O T A L L IABI L I T IE S (MILLIONS OF DOLLARS) 6,464

EQUITY CAPITAL TOTAL LIABILITIES 0.60 0.55 0.65 0.77 0.93

08 07 09 10 11 1.00

0.80

0.60

0.40

0

BOOK VA L UE PER S HARE (DOLLARS) 23.23

17.56 15.84

12.22 17.56

08 07 09 10 11 25.00

20.00

15.00

10.00

0

EBI T DA / IN T ERE STS (TIMES)

2,067 8,181

1,688 7,317

3,418 4,096 9,992 11,581

3,801

08 23 07 25 09 34 10 35 11 30 % 14000

10500

7000

3500

0

DEB T / EQUI T Y CAPI T A L + DEB T (MILLIONS OF DOLLARS) 12,539

DEBT EQUITY CAPITAL + DEBTANNUAL REPORT GRUPO MÉXICO 133 132 GRUPO MÉXICO ANNUAL REPORT 0.51

0.37

0.27 0.50 0.67

08 07 09 10 11 0.80

0.60

0.40

0.20

0

EBI T DA PER S HARE (DOLLARS)

0.36

0.24 0.21 0.35 0.45

08 07 09 10 11 0.45

0.35

0.25

0.15

0

CA S H F L OW PER S HARE (DOLLARS) 2,067 2,665

-598 3,418

1,162 1,688 1,760 2,998 4,096

1,098

-72 2,256 2,231 3,801

08 07 09 10 11 4,000

3,000

2,000

1,000

0

-1,000

N e t D eb t ( millions of dollars ) 1,570

T otal D ebt C ash and B anks N et D ebt

New Caterpillar Equipment, Buenavista del Cobre.134 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 135 

## BOARD OF DIRECTORS Grupo México

Emilio Carrillo Gamboa Alfredo Casar Pérez Valentín Diez Morodo Xavier García de Quevedo Oscar González Rocha Claudio X. González Prudencio López Martínez Antonio Madero Bracho Fernando Ruiz Sahagún Agustín Santamarina † Rolando Vega Saenz

Alberto de la Parra Zavala Secretary
Christian Lippert Helguera Alternate Secretary Germán Larrea Mota Velasco Chairman Genaro Larrea Mota Velasco Vice-Chairman 

### Executive Officers

Juan Rebolledo Gout Vice-President, International Relations Daniel Muñiz Quintanilla Chief Financial and Administrative Officer Alberto de la Parra Zavala General Counsel Rafael Ríos García Chief Safety Officer 

## Southern Copper Corporation Members of the Board of Directors

Germán Larrea Mota Velasco Chairman

Emilio Carrillo Gamboa Alfredo Casar Pérez Xavier García de Quevedo Topete Oscar González Rocha Daniel Muñiz Quintanilla Luis Castelazo Morales Enrique Castillo Sánchez Mejorada Luis Miguel Palomino Bonilla Gilberto Perezalonso Cifuentes Juan Rebolledo Gout Carlos Ruiz Sacristán Alberto de la Parra Zavala 

### Executive Officers

Oscar González Rocha Executive President Xavier García de Quevedo Executive President Genaro Guerrero Díaz-Mercado Chief Financial Officer Remigio Martínez Muller Vice-President, Explorations Vidal Muhech Dip Vice-President, Projects Raúl Jacob Ruisánchez Comptroller José de los Heros U. Vice-President, Sales



## Asarco LLC, Inc. Executive Officers

Oscar González Rocha Executive President Manuel Ramos Rada Chief Operations Officer Oscar González Barrón Chief Financial Officer Alberto de la Parra Zavala Secretary to the Board Jorge Lazalde Psihas General Counsel136 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 137 

## Ferrocarril Mexicano, S.A. de C.V. Members of the Board of Directors

Germán Larrea Mota Velasco Chairman

Alfredo Casar Pérez Jaime Corredor Esnaola Xavier García de Quevedo Topete Robert M. Knight Jr. Agustín Santamarina Vázquez † James R. Young Rogelio Vélez López de la Cerda Albred Anthony Chacón Alberto de la Parra Zavala Alternate Secretary Christian Lippert Helguera Secretary 

### Executive Officers

Alfredo Casar Pérez Executive President Rogelio Vélez López de la Cerda Chief Executive Officer Lorenzo Reyes Retana Márquez Padilla Chief Operations Officer Terrence Mc. Dermott Vice-President, Sales Octavio Ornelas Esquinca Chief Financial and Administrative Officer



### Ferrosur, S.A. de C.V.

Alfredo Casar Pérez Executive President Rogelio Vélez López de la Cerda Chief Executive Officer 

### Intermodal México, S.A. de C.V.

Hilario Gabilondo Picollo Chief Executive Officer 

### México Proyectos y Desarrollos, S.A. de C.V.

Xavier García de Quevedo Executive President Federico Schroeder Contreras Chief Executive Officer, Ingeniería y Construcción Julio Larrea Mena Chief Executive Officer, México Compañía Constructora Industrial Ricardo Arce Castellanos Chief Executive Officer, Perforadora México José Luis Berjón Chief Executive Officer, Consutec

DESIGN: DESIGN CENTER TMANNUAL REPORT GRUPO MÉXICO 1 Independent Aud i tors’ R eport 02
Consol i d a ted B a l a n c e S heets 04
Consol i d a ted S t a tements of In c ome 05
Consol i d a ted S t a tements of S to c kholders’ E qu i ty 06
Consol i d a ted S t a tements of C a sh F lows 08

N otes to Consol i d a ted Fi n a n cia l S t a tements 10 

## Grupo México, S. A. B. de C . V. a nd Su bs idi a rie s C on s olid a ted Fin a nci a l St a

te m ent s f or the Ye a r s E nded D ece mb er 31, 2011 a nd 2010 a nd I ndependent

Auditors’ R eport D ated March 30, 2012 Grupo México, S. A. B. de C . V. and Subsidiaries I ndependent Auditors’ R eport and C onsolidated Financial Statements for 2011 and 20102 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 3 We have audited the accompanying consolidated balance sheets of Grupo México, S. A. B. de C. V. and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Independent Aud i tors’ R eport to the Bo a rd of Di re c tors a nd S to c kholders of Grupo M éx ic o, S . A. B. de C. V. a nd S u b s i d ia r i es

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Grupo México, S. A. B. de C. V. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations, stockholders ́ equity and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Galaz, Yamazaki, Ruiz Urquiza, S. C. Member of Deloitte Touche Tohmatsu Limited

C. P. C. Luis Javier Fernández Barragán

March 30, 20124 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 5 

## Grupo México, S. A. B. de C . V. a nd Su bs idi a rie s C on s olid a ted B a l a nce Sheet s A s o f D ece mb er 31, 2011 a nd 2010 ( I n thou sa nd s o f U .S. doll a r s ) 

## Grupo México, S. A. B. de C . V. a nd Su bs idi a rie s C on s olid a ted St a

te m ent s o f I nco m e For the y e a r s ended D ece mb er 31, 2011 a nd 2010 ( I n thou sa nd s o f U .S. doll a r s , except f or inco m e per s h a re am ount s )

Assets 2011 2010
Current assets:

Cash and cash equivalents $ 2,229,281 $ 2,999,623 Restricted cash 190,478 210,483 Short-term investments 523,572 80,496 Trade accounts receivables 963,134 968,507 Other accounts receivable 294,548 261,693 Inventories – Net 1,092,463 990,253 Prepaid expenses and other 94,531 19,138 Deferred income tax 332,769 401,514 Total current assets 5,720,776 5,931,707
Restricted cash 36,344 38,010 Property, plant and equipment – Net 7,642,150 6,920,125 Concession titles – Net 219,666 79,806 Investments in shares of associated companies, other unconsolidated subsidiaries and other investments 663,981 725,845 Leachable material – Net 167,953 65,222 Other intangible assets – Net 224,713 232,446 Deferred income tax 1,056,165 996,740 Other assets 169,456 147,653
Total assets $ 15,901,204 $ 15,137,554 Liabilities and Stockholders’ Equity Current liabilities:

Bank loan and current portion of long-term debt $ 286,874 $ 262,002 Accounts payable and accrued liabilities 841,054 790,254 Due to related parties 8,338 120,488 Income tax payable 191,673 245,854 Employees’ statutory profit sharing 262,030 241,622 Derivative financial instruments 15,674 375,004 Total current liabilities 1,605,643 2,035,224 Long-term debt 3,514,545 3,695,195 Labor liabilities 527,954 476,855 Deferred income tax 945,361 913,063 Non current tax payable 229,836 185,932 Other liabilities and reserves 339,158 343,519 Total liabilities 7,162,497 7,649,788 Stockholders’ equity:

Stockholders’ equity of Grupo México, S. A. B. de C. V. Common stock (shares authorized and issued: 2011 and 2010, 7,785,000,000, respectively) 2,003,496 2,003,496 Reserve for shares purchase 243,306 243,306 Additional paid-in capital 9,043 9,043 Treasury stock (547,518) (344,646) Accumulated other comprehensive loss (233,002) (291,955) Retained earnings 5,782,353 4,347,524 Stockholders’ equity of Grupo México, S. A. B. de C. V. 7,257,678 5,966,768 Noncontrolling interest 1,481,029 1,520,998 Total stockholders’ equity 8,738,707 7,487,766 Total liabilities and stockholders’ equity $ 15,901,204 $ 15,137,554
See the accompanying notes to these consolidated financial statements. 2011 2010

Income:

Net sales $ 8,654,639 $ 6,803,190 Service revenue 1,718,429 1,279,852 10,373,068 8,083,042 Costs and operating expenses:

Cost of sales (exclusive of depreciation, amortization and depletion) 5,023,556 4,017,172 Administrative expenses 172,674 249,155 Depreciation, amortization and depletion 500,758 483,473 Exploration 38,386 38,240 5,735,374 4,788,040
Income from operations 4,637,694 3,295,002

Interest expense 358,996 309,939 Capitalized interest (5,851) (7,462) Interest income (28,975) (109,789) Foreign exchange (income) loss (18,413) 33,688 Loss on derivative instruments 1,509 2,886 307,266 229,262

Income before income taxes 4,330,428 3,065,740

Income taxes 1,302,094 1,030,892
Equity in the results of associated companies and other unconsolidated subsidiaries 11,127 27,453

Consolidated net income 3,039,461 2,062,301
Less: net income attributable to noncontrolling interest (567,798 ) (451,786 )
Net income attributable to Grupo México, S. A. B. de C. V. $ 2,471,663 $ 1,610,515
Net earnings - basic and diluted income per share. $ 0.32 $ 0.21 Dividends paid $ 0.13 $ 0.06
Weighted average shares outstanding ( ́000) 7,785,000 7,785,000

See the accompanying notes to these consolidated financial statements.6 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 7 

## Grupo México, S. A. B. de C . V. a nd Su bs idi a rie s C on s olid a ted St a

te m ent s o f Stockholder s ’ E quit y For the y e a r s ended D ece mb er 31, 2011 a nd 2010 ( I n thou sa nd s o f U .S. doll a r s )

O utstanding

shares in thousands C ommon stock R eserve for shares purchase Additional paid-in capital T reasury stock Accumulated other comprehensive loss R etained earnings Stockholders’ equity of Grupo

Mexico, SAB de C V N on controlling interest T otal

Balances as of December 31, 2009 $ 7,785,000 $ 2,003,496 $ 369,050 $ 9,043 $ (346,049) $ (127,862) $ 3,180,909 $ 5,088,587 $ 1,485,035 $ 6,573,622

Treasury stock - - (125,744) - - - 125,744 - - - Dividends paid - - - - - - (453,560) (453,560) (311,600) (765,160) Acquisition of non controlling interest - - - - - - (116,084) (116,084) (75,914) (191,998) Decrease in treasury stock - - - - 1,403 - - 1,403 - 1,403 Comprehensive result:

Consolidated net income - - - - - - 1,610,515 1,610,515 451,786 2,062,301 Unrealized loss on hedge derivative instruments

net of income tax of $71,430 - - - - - (206,491) - (206,491) (25,107) (231,598)
Cumulative translation adjustment - - - - - 42,398

- 42,398 (3,202 ) 39,196

- - - - - (164,093 ) 1,610,515 1,446,422 423,477 1,869,899

Balances as of December 31, 2010 7,785,000 2,003,496 243,306 9,043 (344,646) (291,955) 4,347,524 5,966,768 1,520,998 7,487,766

Repurchase of shares (20,000) (3,270) (44,751) - (9,385) - - (57,406) - (57,406) Dividends paid - (988,813) (988,813) (476,905) (1,465,718) Dividends paid in shares 20,000 3,270 44,751 - - - (48,021) - - - Increase treasury stock - - - - (193,487) - - (193,487) - (193,487) Comprehensive result:

Consolidated net income - - - - - - 2,471,663 2,471,663 567,798 3,039,461 Unrealized gain on hedge derivative instruments

net of income tax of $67,930 - - - - - 296,428 - 296,428 25,024 321,452 Cumulative translation adjustment

- - - - - (237,475 ) - (237,475 ) (155,886 ) (393,361 )

- - - - - 58,953 2,471,663 2,530,616 592,822 2,967,552

Balances as of D ecember 31, 2011 $ 7,785,000 $ 2,003,496 $ 243,306 $ 9,043 $ (547,518 ) $ (233,002 ) $ 5,782,353 $ 7,257,678 $ 1,481,029 $ 8,738,707

See the accompanying notes to these consolidated financial statements.8 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 9 

## Grupo México, S. A. B. de C . V. a nd Su bs idi a rie s C on s olid a ted St a

te m ent s o f Cas h Flow s For the y e a r s ended D ece mb er 31, 2011 a nd 2010 ( I n thou sa nd s o f U . S. doll a r s )

2011 2010

Operating:

Consolidated net income $ 3,039,461 $ 2,062,301 Charges (credits) not requiring (providing) resources:

Seniority premiums and compensation for retirement (7,214) (11,661) Equity in the results of associated companies and other unconsolidated subsidiaries (11,127) (27,453) Depreciation, amortization and depletion 500,758 483,473 (Gain) loss cumulative translation adjustment (70,253) 54,194 Deferred income tax and employees’ statutory profit sharing 37,519 98,494 (Gain) loss on sale of property (878) 2,372 Other (16,147 ) 5,092 3,471,849 2,666,812 Changes in operating assets and liabilities:

Accounts receivable 5,373 (338,983) Inventories (204,941) (85,932) Accounts payable, accrued liabilities and other liabilities (336,799 ) 1,013,850 Net cash provided by operations (536,367) 588,935

Investing:

Additions to property and equipment (1,216,763) (603,629) Other investment acquisitions (163,347) (343,948) Sale of property 12,575 8,671 Restricted cash 20,005 (14,132) Sale of marketable securities (443,076 ) (124,704 ) Net cash used in investing activities (1,790,606) (1,077,742) 2011 2010

Financing:

Proceeds from notes payable 191,682 1,500,148 Debt repaid (350,916) (1,026,696) Dividends paid to controlling and noncontrolling stockholders (1,465,718) (765,160) (Increase) decrease in treasury stock (308,432 ) 1,403 Net cash used in financing activities (1,933,384) (290,305) (Decrease) increase in cash and cash equivalents (788,508) 1,887,700

Effect of exchange rate changes on cash and cash equivalents 18,166 (50,041 ) (770,342) 1,837,659 Cash and cash equivalents at beginning of year 2,999,623 1,161,964

Cash and cash equivalents at end of year $ 2,229,281 $ 2,999,623

RSupplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 286,288 $ 394,112 Income taxes $ 1,219,405 $ 676,314 Employees’ statutory profit sharing $ 249,046 $ 158,270

Non cash Ferrosur consolidation disclosure Net Ferrosur equity $ 327,256 $ -

See the accompanying notes to these consolidated financial statements.10 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 11 

## Grupo México, S. A. B. de C . V. a nd Su bs idi a rie s N ote s to C on s olid a ted Fin a nci a l St a

te m ent s For the y e a r s ended D ece mb er 31, 2011 a nd 2010 ( I n m illion s o f U .S. doll a r s )

1. Na ture o f b u s ine ss , bas i s o f pre s ent a

tion a nd f orei g n currenc y f in a nci a l s t a

te m ent s

Nature of business - The operating companies that comprise Grupo México, S. A. B. de C. V. and subsidiaries (collectively “the Company” or GMEXICO) are in the metallurgical mining, freight railway and infraestructure services industries. They engage in the exploration, mining and processing of metallic and nonmetallic minerals, the mining of coal, provide multi-use and freight railway services and provide infraestructure services.

The Company’s mining operations are contained through its wholly owned subsidiary Americas Mining Corporation (“AMC”), which in turn is parent company of Southern Copper Corporation (“SCC”) and Asarco Inc. (“Asarco”).

SCC and subsidiaries comprise an integrated producer of copper and other minerals, which operates mining, smelting and refining facilities in Peru and Mexico. SCC and subsidiaries conduct their Peruvian operations through a registered branch (“the Branch”). The Branch is not a corporation separate from SCC. The Company’s Mexican operations are conducted through Minera México, S. A. de C. V. and subsidiaries (“MM”).

The Branch produces copper and other minerals through the operation of two mining facilities, a smelting facility, a solvent extraction/electro winning (SX/EW) facility and a refining facility, all located in southern Peru.

MM and its subsidiaries produce copper in Mexico through the operation of two major open-pit mines, three solvent extrac

tion/electro winning (SX-EW) facilities, two smelting facilities and a refining facility, one precious metals refining facility and one copper wire facility. MM’s operations also include five underground mining facilities producing lead, zinc and copper concentrates, a zinc refining facility, a coal mine and a coke plant.

Asarco produces copper through its operation of three major open-pit mines, two smelting facilities, one of which is currently on standby, two solvent extraction/electro winning (SX-EW) facilities and a refining facility. Operations in the United States of America (“U. S.”) also include a lead smelter facility.

The Company’s railway system operations are carried out by Infraestructura y Transportes México, S. A. de C. V. (“ITM”), in which GMEXICO owns 75%. The remaining 25% of ITM is owned by Sinca Inbursa, S. A. B. de C. V. and Grupo Carso, S. A. B. de C. V.. ITM owns 74% of Grupo Ferroviario Mexicano, S. A. de C. V. (“GFM”), which, owns a 100% of Ferrocarril Mexicano, S. A. de C. V. (“Ferromex”). The remaining 26% of GFM is owned by Union Pacific.

On November 24, 2005, the Company reported that ITM, through its recently incorporated subsidiary, Infraestructura y Transportes Ferroviarios, S. A. de C. V. (“ITF”), acquired 99.99% of the capital stock of Ferrosur, S. A. de C. V. (“Ferro

sur”) from Sinca Inbursa, S. A. de C. V. (“Sinca”) and Grupo Condumex, S. A. de C. V. (“GCondumex”). In accordance with guidance set forth in Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”, it is neces

sary to have the Federal Antitrust Commission’s final authorization before the Company can consolidate Ferrosur. On November 8, 2006, the Federal Antitrust Commission denied the acquisition of Ferrosur by ITF. As a result, ITM and ITF initiated a legal proceeding to revoke the above mentioned ruled proposed by the Federal Tax and Administrative Justice Court. Because of the aforementioned circumstances and as long as the said authorization remains pending, until march 31, 2011 the investments in Ferrosur was accounted for using the equity method in GMEXICO’s consoli

dated financial statements.

Beginning April, 2011 the Company consolidated the Ferrosur financial statements due to the authorization granted by the First Collegiate Circuit Court in Administrative Matters. See more comments in Note 8.

ITM, through its wholly owned subsidiary, GFM, was formed to participate in the privatization of the Mexican Railway System. The main subsidiary of GFM is Ferromex, which is engaged in providing freight and multi-modal railroad services and related activities, including land transportation, storage and other complementary railroad transportation services. The Mexican Fed

eral Government granted Ferromex a 50-year concession (exclusive for 30 years) to operate the branches known as NorthPacific and the Ojinaga-Topolobampo Short Line. The concession is renewable, subject to certain conditions, for a similar period. In addition, the Mexican Federal Government also sold certain fixed assets and the materials necessary to operate Ferromex, plus 25% of the shares of Ferrocarril y Terminal del Valle de México, S. A. de C. V. (“FTVM”), the entity respon

sible for operating the México City Terminal. In August 1999, Ferromex obtained the rights to operate the Nogales -Nacozari Short Line concession for 30 years, renewable for a period not exceeding 50 years, beginning on September 1, 1999. GFM accounts for this 25% investment in FTVM under the equity method. In addition, ITM through its subsidiary Ferrosur operates the Southeast Railroad track concession granted by the government.

The operations under MM, ITM, GFM and Infraestructure and their respective subsidiaries are collectively referred to as the “Mexican Operations”. The operations under the Branch are collectively referred to as the “Peruvian Operations”. Asarco ́s operations are referred to as the “American Operations”.

The infraestructure sector operations are realized by Mexico Proyectos y Desarrollos, S. A. de C. V. (“MPD”), which owns 100% of the capital stock of Mexico Compañía Constructora, S. A. de C. V. (“MCC”) and Mexico Constructora Industrial, S. A. de C. V. (“MCI”), and by Compañía Perforadora México, S. A. P. I. de C. V. (“PEMSA”), in which on January 28, 2010, GMEXICO acquired the remaining 80% of PEMSA’s capital stock.

Controladora de Infraestructura Petrolera México, S. A. de C. V. (“CIPM”) was incorporated in 2011. CIPM, the main purpose of the company will be promote, establish, organize, browse, purchase and take equity or equity of all kinds of companies or civil associations or companies.12 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 13 PEMSA’s main operation is oil well drilling and providing related integral maintenance services. To date, PEMSA has provided services to Pemex for more than 50 years, and owns land and sea drilling platforms. Additional services provided by PEMSA include cementation engineering, directional drilling. PEMSA also participates in drilling water wells for mining industry com

panies in Mexico. This investment is part of GMEXICO’s strategy to increase its participation in the infraestructure industry and expand its catalog in engineering and construction services.

MCI and MCC provide direct or indirect construction and engineering services for public and private infraestructure projects, including hydroelectric and storage dams, highways, thermoelectric plants, railroad projects, mining projects, manufacturing plants, petrochemical plants and housing projects.

Significant Events -

i. SCC share exchange - On July 22, 2010, SCC received a non-binding proposal from AMC, offering to effect a share exchange in which all stockholders of SCC would receive 1.237 common shares of AMC in exchange for each share of SCC. Under this proposal, AMC stock would be registered and listed on the New York, Mexico and the Lima Stock Exchanges. Once the listing and registration of the Company shares are completed, SCC’s shares would be delisted from the exchanges. In October 2011, AMC announced, in light of discussions with a committee of is independent directors, that it had withdrawn the proposed transaction to combine AMC and SCC.

As a result of the repurchase of shares of SCC’s common stock Grupo Mexico’s direct and indirect ownership was 80% as of December 31,2010 and increased to 80.9% at December 31, 2011.

AMC and several directors of SCC are named defendants in the Lemon Bay litigation disclosed in “Class actions” in note 23 “Contingencies.” SCC has also been named as a nominal defendant. All defendants have appealed the judgment issued on December 29, 2011.

ii. Acquisition of PEMSA - In February 2010, the Company acquired from the principal shareholder of GMEXICO the re

maining 80% of the equity at $192 subsequent to the respective approval obtained from the authorities. The acquisition of the noncontrolling interest in 2010 resulted in a deficit of $116 which was recorded in retained earnings.

2. B as i s o f pre s ent a

tion:

a. Comparability - As mentioned in Note 1, the Ferrosur acquisition was approved in April 2011. As of the approval date, the acquired subsidiary financial statements are consolidated in GMEXICO financial statements. Consequently, the consolidated statements of income of 2010 and the first quarter of 2011 do not include Ferrosur  ́s results while from April through December 2011 such results are included. This situation affects the comparability of the 2011 and 2010 consolidated statements of income. b. Consolidation principles - The accompanying financial statements include the consolidation of the financial state

ments of GMEXICO (as parent and holding company) and those of its subsidiaries, over which the Company exercises control. These consolidated financial statements were prepared under accounting principles generally accepted in the United States of America (“U. S. GAAP”).

The Company’s direct consolidated subsidiaries are shown below:

C ompany O wnership P ercentage O wnership P ercentage Activity

2011 2010

Americas Mining Corporation (AMC) 100% 100% Exploration and extraction of minerals

Infraestructura y Transportes Mexico, S. A.

de C. V. (ITM) 74.9% 74.9% Freight and multimodal railway services

Compañía Perforadora Mexico,

S. A. P. I. de C. V. (PEMSA) 100% 100% Drilling and maintenance of oil wells

México Proyectos y Desarrollos, S. A.

de C. V. (MPD) 100% 100% Public and private infraestructure and construction

Grupo México Servicios, S. A. de C. V.

(GMS) 100% 100% Administrative and personnel services

Controladora de Infraestructura Petrolera

México, S. A. de C. V. (CIPM) * ...100%

- Public and private infraestructure and construction

(*) CIPM was incorporated on December 13, 2012. No operations were performed as of December 31, 2011.

All significant intercompany transactions and balances have been eliminated in consolidation.

The permanent investments in the entities in which control is held are consolidated in these financial statements because they grant the power to govern the entity’s financial and operational policies. The investments over which the Company does not have significant control are recognized by the equity method.14 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 15 c. Foreign currency financial statements - In accordance with local laws, the Peruvian branch keeps its accounting books in Peruvian nuevos soles; and MM and ITM and infraestructure division in Mexican pesos.

In the mining division, the functional currency is the U. S. dollar, therefore, foreign currency assets and liabilities are remeasured into U. S. dollars at current exchange rates except for non-monetary items such as inventory, property, plant and equipment, intangible assets, other assets and stockholders’ equity which are remeasured at historical exchange rates. Revenues and expenses are generally translated at actual exchange rates in effect during the period, except for those items related to balance sheet amounts that are remeasured at historical exchange rates. Gains and losses from foreign currency remeasurement are included in earnings of the period.

The gains and (losses) resulting from foreign currency transactions are included in “Cost of sales (exclusive of deprecia

tion, amortization and depletion)”.

The functional currency of ITM, ITF and construction companies is the Mexican peso. Therefore, these entities use the current rate translation method to translate its financial statements in to U. S. dollars. The current rate method requires the translation of all assets and liabilities using the year-end exchange rate and the capital stock continues to be trans

lated at historical exchange rates. The components of the statements of operations, including foreign exchange gains and losses recorded in Mexican pesos as a result of fluctuations in the rate of exchange between the Mexican pesos and the U. S. dollars, are translated at the average exchange rate for the period. The effect of the exchange rate on the translation is reflected as a component of accumulated other comprehensive loss within stockholders’ equity. The gains and (losses) from foreign currency transactions are shown in the consolidated statements of income.

The consolidated financial statements should not be construed as representations that Mexican pesos had been, could have been or may be converted in the future into U. S. dollars at such rates or any other rates.

Relevant exchange rates used in the preparation of these consolidated financial statements were as follows:

2011 2010

Mexican pesos (Ps) per one U. S. dollar:

Current exchange rate at December 31 P s. 13.9787 Ps. 12.3571 Weighted average exchange rate for the year ended P s. 12.4272 Ps. 12.6366

Peruvian nuevos soles (Pns) per one U. S. dollar: Current exchange rate at December 31 P ns. 2.6970 Pns. 2.8090 Weighted average exchange rate for the year ended P ns. 2.7549 Pns. 2.8258 d. Use of estimates - The preparation of financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include: ore reserves that are the basis for future cash flow estimates and amortization calculations; environmental, reclamation, closure and retirement obligations; estimates of recoverable copper in mill and leach stockpiles; asset impairments (including estimates of future cash flows); bad debts; inventory obsolescence; deferred and current income tax; valuation allowances for de

ferred tax assets; reserves for contingencies and litigation; and fair value of financial instruments. The Company bases its estimates on the historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

e. Reclassifications - Certain amounts in the consolidated financial statements as of and for the year ended December 31, 2010 have been reclassified in order to conform to the presentation of the consolidated financial statements as of and for the year ended December 31, 2011. Such reclassifications applied to correct departures from U. S. GAAP are immaterial.

3. Si g ni f ic a nt a ccountin g policie s :
A summary of the significant accounting policies used in the preparation of the accompanying consolidated financial state

ments follows:

a. Revenue recognition - Substantially all of the Company’s copper is sold under annual or other longer-term contracts. Revenue is recognized when title passes to the customer. The passing of title is based on terms of the contract, generally upon shipment. Copper revenue is determined based on the monthly average of prevailing commodity prices according to the terms of the contracts. The Company provides allowances for doubtful accounts based upon historical bad debt, claims experience and periodic evaluation of specific customer accounts.

For certain of the Company’s sales of copper and molybdenum products, customer contracts allow for pricing based on a month subsequent to shipping, in most cases within the following three months and occasionally in some cases a few additional months. In such cases, revenue is recorded at a provisional price at the time of shipment. The provision

ally priced copper sales are adjusted to reflect forward in the London Metal Exchange (“LME”) or in the Commodities Exchange in New York (“COMEX”) copper prices at the end of each month until a final adjustment is made to the price of the shipments upon settlement with customers pursuant to the terms of the contract. In the case of molybdenum sales, for which there are no published forward prices, the provisionally priced sales are adjusted to reflect the market prices at the end of each month until a final adjustment is made to the price of the shipments upon settlement with customers pursuant to the terms of the contract.16 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 17 These provisional pricing arrangements are accounted for separately from the contract as an embedded derivative instrument under ASC 815-15 “Derivatives and Hedging – embedded derivatives” (in prior literature SFAS 133 “Ac

counting for Derivative Instruments and Hedging Activities”).

The Company sells copper in concentrate, rod, anode, cathode, blister and refined form at industry standard commer

cial terms. Net sales include the invoiced value and corresponding fair value adjustment of the related forward contract of copper, zinc, silver, molybdenum, acid and other metals.

ITM and subsidiaries recognize revenue as transportation services in the period services are rendered as the shipment moves from origin.

PEMSA, MCC and MCI recognize revenues based on the “percentage of completion” method, in which revenue is recognized according to the cumulative costs incurred as a percentage of total estimated costs required to finish the project. If the most recent cost estimate exceeds the total revenue contracted, a loss is recorded to income of the period

b. Shipping and handling fees and costs - Amounts billed to customers for shipping and handling, are classified as sales. Amounts incurred for shipping and handling are included in cost of sales (exclusive of depreciation, amortiza

tion and depletion).

c. Cash and cash equivalents - Cash and cash equivalents consist mainly of bank deposits in checking accounts and short-term investments with maturities less than three months. Cash is stated at nominal value and cash equivalents are valued at fair value

d. Restricted cash - Consists of cash in the custody of Asarco and AMC for which the use in whole or in part is re

stricted for specific purposes pursuant to binding agreements. The restricted cash, including both current and longterm balances at December, 31, 2011 and 2010, were $226.8 and $248.5, respectively. The carrying value of these investments approximates fair value and is classified as Level 1 inputs in the fair value hierarchy.

e. Short-term investments - The Company accounts for short-term investments in accordance with ASC 320-10 “Investments Debt and Equity Securities Recognition” (in prior literature SFAS No. 115, Accounting for Certain In

vestments in Debt and Equity Securities). The Company determines the appropriate classification of all short-term investments as held-to-maturity, available-for-sale or trading at the time of purchase and re-evaluates such classi

fications as of each balance sheet date. Unrealized gains and losses on available-for-sale investments, net of taxes, are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity, unless such income (loss) is deemed to be other than temporary. At the end of 2011 and 2010, the Company does not hold any held-to-maturity investments. f. Inventories - Metal inventories, consisting of work- in-process and finished goods, are carried at the lower of average cost or market. Costs incurred in the production of metal inventories exclude general and administrative costs.

Work-in-process inventories represent materials that are in the process of being converted into a saleable product. Con

version processes vary depending on the nature of the copper ore and the specific mining operation. For sulfide ores, processing includes milling and concentrating and results in the production of copper and molybdenum concentrates. Molybdenum in-process inventory includes the cost of molybdenum concentrates and the costs incurred to convert those concentrates into various high-purity molybdenum chemicals or metallurgical products.

Finished goods include saleable products (e.g., copper concentrates, copper anodes, blister copper, copper cathodes, copper rod, molybdenum concentrates and other metallurgical products).

Supplies inventories are carried at average cost less a reserve for obsolescence.

Inventories consist primarily of rails, railroad ties and other materials for maintenance of property and equipment, as well as diesel fuel used in providing railroad services. Inventories are stated at the lower of cost or realizable value, using average cost method. Also, the cost of sales is recognized at historical cost of the purchased inventories during 2011 and 2010. Values thus determined do not exceed their market value.

The allowance for obsolete inventory is considered sufficient to absorb losses on these concepts, which is determined according to studies by the administration of ITM.

g. Property, plant and equipment - Property, plant, mining, railway and drilling equipment are recorded at acquisition cost, net of accumulated depreciation and amortization.

Cost includes major expenditures for improvements and replacements, which extend the useful lives or increase capac

ity and interest costs associated with significant capital additions. Maintenance, repairs, normal development costs at existing mines and gains or losses on assets retired or sold are reflected in earnings as incurred.

Buildings and equipment are depreciated on the straight-line method over their estimated lives ranging from 5 to 40 years or the estimated life of the mine if shorter.

The Mexican railway operation uses the straight-line method based on the estimated useful lives of the assets ranging from 4 to 50 years.

h. Mine development - Mine development includes primarily the cost of acquiring land rights to an exploitable ore body, pre-production stripping costs at new mines that are commercially exploitable, costs associated with bringing new mi

-18 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 19 neral properties into production, and removal of overburden to prepare unique and identifiable areas outside the current mining area for such future production. Mine development costs are amortized on a unit of production basis over the remaining life of the mines.

There is a diversity of practices in the mining industry in the treatment of drilling and other related costs to delineate new ore reserves. The Company follows the practices delineated in the next two paragraphs in its treatment of drilling and related costs.

Drilling and other associated costs incurred in the Company’s efforts to delineate new resources, whether near-mine or Greenfield are expensed as incurred. These costs are classified as mineral exploration costs. Once the Company determines through feasibility studies that proven and probable reserves exist and that the drilling and other associated costs embody a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflow, then the costs are classified as mine development costs. These mine development costs incurred prospectively to develop the property are capitalized as incurred, until the commencement of production, and are amortized using the units of production method over estimated life of the ore body. During the production stage, drilling and other related costs incurred to maintain production are included in production cost in the period in which they are incurred.

Drilling and other related costs incurred in the Company’s efforts to delineate a major expansion of reserves at an exis

ting production property are expensed as incurred. Once the Company determines through feasibility studies that pro

ven and probable incremental reserves exist and that the drilling and other associated costs embody a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflow, then the costs are classified as mine development costs. These incremental mine development costs are capitalized as incurred, until the commencement of production and amortized using the units of production method over the estimated life of the ore body. A major expansion of reserves is one that increases total reserves at a property by approximately 10%.

For the years ended December 31, 2011 and 2010 the Company did not capitalize any drilling and related costs. The net balance of capitalized mine development costs at December 31, 2011 and 2010 were $39.8 and $42.1, respectively.

i. Value Beyond Proven and Probable Ore Reserves - Included as a component of property on the consolidated ba

lance sheets at December 31, 2011 and 2010, are values for ore bodies beyond proven and probable reserves (“VBPP”). VBPP is attributable to (i) mineralized material, which includes measured and indicated amounts that the Company believes could be brought into production with the modification of existing permits and should market conditions and technical assessments warrant, (ii) inferred mineral resources, and (iii) exploration potential. Mineralized material is a mineralized body that has been delineated by appropriately spaced drilling and/or underground sampling to support reported tonnage and average grade of minerals. Such a deposit does not qualify as proven and probable reserves until legal and economic feasibility are confirmed based upon a comprehensive evaluation of development costs, unit costs, grades, recoveries, and other material factors. Inferred mineral resources are those parts of a mineral resource for which the overall tonnages, grades, and mineral contents can be estimated with a reasonable level of confidence based on geo

logical evidence and apparent geological and grade continuity after applying economic parameters. An inferred mineral resource has a lower level of confidence than that applying to an indicated mineral resource.Exploration potential is the estimated value of potential mineral deposits that the Company has the legal right to access. Carrying amounts assigned to VBPP are not charged to expense until the asset becomes associated with additional proven and probable reserves and they are produced or the asset is determined to be impaired. Transfers from VBPP to provien reserves are recorded at the carrying value. Additions to proven and probable reserves for properties with VBPP will carry with them the value assigned to VBPP at the date the Company acquired Asarco.

j. Capitalization of railway improvements and maintenance - Railway improvements and maintenance are capita

lized in the caption “”Rails and structures”, when the components of more than 20% of a track section are changed. The capitalized items are depreciated at an average rate between 3.3% and 6.6%. When maintenance or repairs do not require changing the components of more than 20% of one section of a track, the cost is expensed as incurred.

k. Capitalization of overhauls - Regular maintenance and repair costs are expensed as incurred. The costs of a loco

motive overhauls, which extend the useful life, are capitalized and amortized over a term ranging from 4 to 10 years, depending on the type of overhaul.

l. Concession titles - Concessions titles are recorded at their adjudication cost. Amortization is calculated using the straight-line method, based on the remaining estimated useful life of the fixed assets under concession, which was an average of 30.3 years (as determined by independent experts), as of the date the concessions were granted.

m. Asset retirement obligations (reclamation and remediation costs) - The fair value of a liability for asset retirement obligations is recognized in the period in which the liability is incurred. The liability is measured at fair value and is adjus

ted to its present value in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the carrying value of the related long-lived assets and depreciated over the asset’s useful life.

n. Intangible assets - Intangible assets include primarily the excess amount paid over the book value for investment shares of the Branch and mining and engineering development studies. Intangible assets are carried at its acquisition cost net of accumulated amortization and are amortized principally on a unit of production basis over the estimating remaining life of the mines. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

o. Debt issuance costs - Debt issuance costs, which are included in other assets, are amortized using the interest me

thod over the term of the related debt.20 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 21 p. Ore reserves - The Company periodically reevaluates estimates of its ore reserves, which represent the Company’s estimate as to the amount of unmined copper remaining in its existing mine locations that can be produced and sold at a profit. Such estimates are based on engineering evaluations derived from samples of drill holes and other openings, combined with assumptions about copper market prices and production costs at each of the respective mines.

The Company updates its estimate of ore reserves at the beginning of each year. In this calculation the Company uses current metal prices which are defined as the average metal price over the preceding three years. The current price per pound of copper, as defined, was $3.26 U. S. dollars and $2.97 U. S. dollars at the end of 2011 and 2010, respectively. The ore reserve estimates are used to determine the amortization of mine development and intangible assets.

q, Leachable material and capitalized mine stripping - In prior years the Company capitalized the production cost of leachable material with low copper content at the Buenavista mine in Mexico, Ray and Silver Bell in US. In 2011, the Company extended this practice of recognizing inventories for costs associated with leaching activities at the La Caridad mine in Mexico and the Toquepala mine in Peru in order to conform to evolving mine production plans at these mines. As a result of changing market conditions and mining processes, mineral extraction through leaching has become integral to the mining operations carried out at our mines. The Company has also completed engineering studies at these mines, which the Company believes adequately support its estimate of recoverable mineral content contained in the leach dumps. Accordingly, the process and sale of mineral content in leaching dumps is reasona

bly assured and the costs associated with leaching activities at such mines are now recognized as inventories. As the production cycle of the leaching process is significantly longer than the conventional process of concentrating, smelting and electrolytic refining, the Company includes on its balance sheet, current leach inventory (included in work-in-process inventories) and long-term leach inventory. The cost attributed to the leach material is charged to cost of sales generally over a five-year period (the average estimated recovery period based on the historical recovery percentages of each mine).

r. Exploration - Tangible and intangible costs incurred in the search for mineral properties are charged against earnings when incurred.

s. Income taxes - Provisions for income tax are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates applicable to the period in each jurisdiction in which the deferred tax assets and liabilities are expected to be realized and settled as prescribed in ASC Topic 740 “Income Taxes”. As changes in tax laws or rates are enacted in each jurisdiction, deferred tax assets and liabilities are adjusted in income in the period that the change is enacted. De

ferred income tax assets are reduced by a valuation allowance to the amount of benefits that, in the Company’s opinion, are more likely than not to be realized. The Company classifies income tax-related interest and penalties as income taxes in the consolidated financial statements.

The Company’s operations involve dealing with uncertainties and judgments in the application of complex tax regula

tions in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the U. S. and other tax jurisdictions based on the estimate of whether, and the extent to which, additional taxes will be due. The Company follows the guidance of ASC 740 “Income tax” (FIN 48 “Uncertain tax positions” in prior literature) to record these liabilities. The Company adjusts these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the tax liabilities.

If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the lia

bilities would result in tax benefits being recognized in the period when the Company determines the liabilities are no longer necessary. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

t. Derivative financial instruments - The Company utilizes certain types of derivative financial instruments to enhance its ability to manage risks that exist as part of its ongoing business operations and to enhance its return on Company’s assets. Derivative contracts are reflected as assets or liabilities in the consolidated balance sheet at their fair value. The estimated fair value of the derivatives is based on market and/or dealer quotations and in certain cases valuation modeling. From time to time, the Company has entered into copper swap contracts to protect a fixed copper price for portions of its metal sales, hedging contracts to fix power prices for a portion of its production costs, interest rate swap agreements to hedge the interest rate risk exposure on certain of its bank obligations with variable interest rates, currency swap arrangements to ensure Mexican peso/U. S. dollar conversion rates. Gains and losses related to copper and zinc hedges are included in net sales, gain and losses related to power costs are included in cost of sales, all other gains and losses on derivative contracts are included in “Gain (loss) on derivative instruments” in the consolidated statement of income.

The Company assesses the effectiveness of the derivative contracts periodically using either regression analysis or the dollar offset approach, both retrospectively and prospectively, to determine whether the hedging instruments have been highly effective in offsetting changes in fair value of the hedged items. The hedge derivative positions meet the 80%-125% of effectiveness required. For hedging relationships in which the Company applies the critical-terms-match method, the Company performs periodic quantitative assessments to confirm that the relationship was highly effective and that the ineffectiveness is de minimis.22 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 23 The Company does not purchase, hold or sell derivative financial instruments unless there is an existing asset or obligation or if it anticipates a future activity that is likely to occur and will result in exposure to market risks and the Company intends to offset or mitigate such risks. The Company does not enter into any derivative financial instruments for speculative purposes. The Company’s derivatives programs include strategies that both qualify and do not qualify for hedge accounting treatment under the Codification topic for Derivatives and Hedging.

Unrealized gains (losses) on cash flow derivatives that meet the requirements of hedge accounting are included in “other comprehensive income” in the consolidated balance sheet until settlement.

u. Asset impairments - The Company evaluates its long-term mining, railway and drilling assets when events or changes in economic circumstances indicate that the carrying amount of such assets may not be recoverable. These evaluations in case of mining segment are based on business plans that are prepared using a time horizon that is reflective of the Company’s expectations of metal prices over its business cycle. The Company is currently using a long-term average copper price of $3.00 dollars per pound of copper and an average molybdenum price of $14.74 dollars per pound, reflective of the current price environment, for the impairment tests. The results of its impairment tests using these long-term copper and molybdenum prices show no impairment in the carrying value of their assets.

In recent years the Company’s assumptions for long-term average prices resulted in stricter evaluations for impairment analysis than would the higher three year average prices for copper and molybdenum. Should this situation reverse in the future with three year average prices below the long-term price assumption, the Company would assess the need to use the three year average prices in its evaluations. The Company uses an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life to measure whether the assets are recoverable and measures any impairment by reference to fair value.

Related to the Tia Maria project and based on the current developments of the project the Company has performed an impairment analysis of the project assets and has concluded that no impairment exists as of December 31, 2011.

v. Investment in shares of associated companies, non-consolidated subsidiaries and other investments - In

vestments in shares of associated companies are valued according to the equity method. Under this method, the acqui

sition costs are initially recognized based on the net fair value of the entities’ identifiable assets and liabilities as of the date of acquisition. Such value is subsequently adjusted for the portion related both to comprehensive income (loss) of the associated company and the distribution of earnings or capital reimbursements thereof. The equity in income of associates and non-consolidated subsidiaries is included in earnings. Comprehensive income attributable to associates and non-consolidated subsidiaries is included in other presented comprehensive income. Permanent investments made by the Company in entities over which it has no control that are accounted for using the cost method, joint control, or significant influence, are initially recorded at acquisition cost and adjusted to its fair value if such investments have readily determinable fair values.

w. Other comprehensive income - Comprehensive income represents changes in equity during a period, except those resulting from investments by owners and distributions to owners. During the fiscal years ended December 31, 2011 and 2010, the components of “other comprehensive loss” were the unrealized gain (loss) on cash flow hedge derivative instruments, the unrecognized gain (loss) on employee benefit obligations, the unrealized gain on equity securities and cumulative translation adjustment (CTA).

U nrecognized pension costs and CT A U nrealized loss on derivative instruments Accumulated other comprehensive loss

Balance, January 1, 2010 $ (127.8) $ - $ (127.8)

Change during period 42.4 (206.5 ) (164.1 )

Balance, December 31, 2010 (85.4) (206.5) (291.9)

Change during period (237.5 ) 296.4 58.9

Balance, D ecember 31, 2011 $ (322.9 ) $ 89.9 $ (233.0 )

x. Adoption of new accounting principle - During 2011 the Company adopted the following Accounting Standards Updates (“ASU”) and ASC’s issued by the Financial Accounting Standard Board (“FASB”).

ASU 2011-05: In June 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income” an amendment of ASC topic 220 “Comprehensive Income” to provide new guidance for the reporting of comprehensive income. Under this ASU, to increase the prominence of items reported in other comprehensive income which shall be reported either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The first state

ment should present total net income and its components followed by a second statement that should present total other comprehensive income, its components and the total of comprehensive income. This ASU also eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The24 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 25 ASU is effective for fiscal years, and interim periods, beginning after December 15, 2011 with early adoption permitted. The Company will adopt this ASU in 2012.

ASU No. 2010-06: In January 2010, the FASB issued ASU No. 2010-06 “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” an update of ASC Subtopic 820-10 “Fair Value Measurements and Disclosures - Overall.”

With the adoption of this ASU in 2011, the Company has expanded its financial instruments disclosures to include those related to purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value mea

surements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

ASU No. 2011-11: On December 16, 2011, the FASB issued ASU No. 2011-11 “Disclosures about Offsetting Assets and Liabilities” an amendment of ASC topic 210 “Balance Sheet.” The objective of this ASU is to improve disclosures about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U. S. GAAP and those entities that prepare their financial statements on the basis of IFRS.

This ASU is effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.

ASU 2011-12: In connection with ASU 2011-05, on December 23, 2011, the FASB issued ASU 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” an amendment of ASC topic 220 “Compre

hensive Income” to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering this matter, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. The ASU is effective for fiscal years, and interim periods, beginning after December 15, 2011. 4. Short-ter m in v e s t m ent

The balance of short-term investments was as follows:

2011 2010

Trading securities $ 514.6 $ 66.9 Weighted average interest rate 1.37% 1.14%

Available for sale $ 8.9 $ 13.6 Weighted average interest rate 0.58% 1.01%

Total $ 523.5 $ 80.5

Trading securities: Consist of bonds issued by public companies. Each financial instrument is independent of the others. The Company has the intention to sell these bonds in the short-term.

Available-for-sale investments consist of securities issued by public companies. Each security is independent of the others and, as of December 31, 2011, included corporate bonds and asset and mortgage backed obligations. As of December 31, 2011 and 2010, gross unrealized gains and losses on available-for-sale securities were not material.

Related to these investments the Company earned interest, which was recorded as interest income in the consolidated state

ment of earnings. Also the Company redeemed some of these securities and recognized gains (losses) due to changes in fair value, which were recorded as other income (expense) in the statement of income.

As of December 31, contractual maturities of debt securities classified as available-for-sale are as follows:

2011 2010

One year or less $ 2.1 $ 76.1 Maturing after one year through five years - 0.2 Maturing after five years through ten years 0.6 0.7 Due after ten years 6.2 8.0

Total debt securities $ 8.9 $ 85.026 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 27 The following table summarized the activity of these investments:

2011 2010

Trading:

Interest earned $ 6.0 $ 2.6 Unrealized loss 7.9 -

Available for sale

Interest earned $ 0.1 $ 0.2 Investment redeemed 2.1 14.8

5. I n v entorie s

2011 2010

Metals and minerals:

Finished goods $ 152.0 $ 125.4 Work-in-process 551.3 508.8 703.3 634.2 Materials and Supplies 389.2 356.0

Inventories - Net $ 1,092.5 $ 990.2

Inventory, long-term:

Leachable material Long-term $ 167.9 $ 65.2 As of December 31, 2011 and 2010, work in-process includes $92.0 and $84.4, of leaching costs capitalized.

As of December, 31, 2011 total leaching costs capitalized as long-term inventory of leacheable material amanted to $167.9. Leacheable material recognized as cost of sales amounted to $153.5 and $150.5 in 2011 and 2010, respectively.

6. P ropert y , pl a nt a nd equip m ent

2011 2010

Buildings and equipment $ 7,906.3 $ 7,696.6 Locomotives and freight cars 914.6 700.2 Rails and structures 684.0 561.6 Train yards and terminals 147.2 146.2 Value beyond proven and probable reserves 162.5 210.2 Other railway equipment 464.6 277.0 Rig - 26.9 10,279.2 9,618.7

Less - Accumulated depreciation, amortization and depletion (5,138.6 ) (4,661.6 ) 5,140.6 4,957.1

Land, other than mineral 1,009.3 969.5 Construction in progress 1,492.3 993.6

Property, plant and equipment - Net $ 7,642.2 $ 6,920.2

Depreciation and depletiation expense for the years ended December 31, 2011 and 2010 amounted to $500.7 and $483.4, respectively.28 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 29 7. C once ss ion title s

Concessions are comprised of the following:

2011 2010

North-Pacific railroad track $ 102.2 $ 115.6 Southeast railroad track 197.1 - Nogales-Nacozari short railroad track 1.5 1.6 Ojinaga-Topolobampo short railroad track 0.2 0.2 South-Oaxaca short railroad track 0.2 - Overhauls 17.8 20.1 319.0 137.5 Accumulated amortization (99.3 ) (57.7 )

Concession titles - Net $ 219.7 $ 79.8

Amortization charged to 2011 and 2010 income amounted to $8.7 and $4.4, respectively.

The value of the North-Pacific Railway concession title was determined by deducting the value of the tangible assets received from the price paid for the Ferromex shares, net of the liability arising from the capital lease of 24 locomotives that Ferroca

rriles Nacionales de México (“FNM”) had entered into with Arrendadora Internacional, S. A. de C. V. (settled in 2001).

Ferromex is entitled to use, and has the obligation to maintain in good condition, the rights of way, railroad tracks, buildings and maintenance facilities, title to those assets and facilities; however, lies with the Federal Mexican Government and all rights over those assets must be returned to the Federal Mexican Government upon termination of the concession term.

8. I n v e s t m ent s in ass oci a ted co m p a nie s , other non-con s olid a ted s u bs idi a rie s a nd other in v e s t m ent s

Investments in associated companies and other non-consolidated subsidiaries

The investments in associated companies and other non-consolidated subsidiaries were as follows: Equity in the results from the year ended Investment at December 31, December 31,

Associated companies % 2011 2010 2011 2010

Ferrosur 75 $ - $ 318.7 $ - $ 24.0 FTVM 25 21.7 9.8 6.2 2.8 TTX Company 0.6 8.5 9.7 - 0.6 Minera Coimolache 44 54.7 - - - Other 59.0 18.3 - -

Investments $ 143.9 $ 356.5 $ 6.2 $ 27.4

In December 2007 Ferromex purchased 100 shares of TTX Company, the main activity of this company is to provide equi

pment to drive its partners, mainly Class I railroads of North America.

During 2011, the Company purchased 44.24% of Minera Coimolache equity, the main activity of this company is the extrac

tion and sales of ore principally in Peru.

The acquisition of Ferrosur was accounted on November 24, 2005 using the “purchase method”, pursuant to the provisions of SFAS No. 141 “Business combinations”, issued by FASB. These provisions establish that when applying the purchase method, the cost of the acquired entity is compared to the assigned amounts (fair value) of assets acquired and liabilities assumed. The allocated fair values were determined by means of independent appraisals, public information on market prices and management’s estimations.

As a consequence of the application of this method, the Company recorded $57.8 excess in cost of the acquired entity over the net of the amounts allocated to assets acquired and liabilities assumed (goodwill). As mentioned in Note 1 the investment in Ferrosur was accounted for by the equity method due to the uncertainty about the result of the legal procedure in process from COFECO so the goodwill was presented in the balance sheet at December 31, 2010 as part of equity investments.

As of December 31, 2011 and 2010, Ferrosur is the only subsidiary of ITF and it is mainly engaged in providing freight multimodal railroad services and auxiliary services, as well as any activity that directly supports and is related to this purpose, including any other supplementary activities to railroad transportation services.30 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 31 The Mexican Federal Government awarded Ferrosur a 50-year concession to operate the Southeast Railroad Track (exclusive for 30 years), renewable for a similar period, subject to certain conditions. The Mexican Federal Government also sold certain fixed assets and the materials necessary to operate the railroad, plus 25% of FTVM shares. In addition, in December 2005, Ferrosur obtained the rights to operate the Oaxaca-South short line concession for 30 years, renewable for a period not ex

ceeding 50 years, beginning on December 1, 2005.

Ferrosur has the right to use and the obligation to maintain in good conditions the trackage rights, railways, buildings and main

tenance facilities, as well as the ferryboat terminal. Ownership of those assets and facilities is retained by the Mexican Federal Government and all of the rights over those assets will revert to the Mexican Federal Government at the end of the concessions.

On March 25, 2011, the First Collegiate Circuit Court in Administrative Matters dismissed the reconsideration action filed by the COFECO against the judgment of the Federal Tax and Administrative Justice Court (TFJFA by its Spanish acronym) where approved Ferrosur concentration with ITM; therefore on April 1, 2011; the findings of fact and conclusions of this judgment were published. The High Court issued a ruling on April 4, 2011, acknowledging receipt of the judgment rendered by the First Collegiate Court. This matter is closed. The COFECO has not yet complied with the executory judgment; since it has not yet issued the certificate documenting that the concentration is not objected. Beginning April 2011 the Company decided to consolidate the Ferrosur financial statements.

Revenues and earnings of Ferrosur since the date of consolidation in April 2011 were $231.3 and $28.1, respectively. The pro forma revenues and consolidated net income as though the consolidation of Ferrosur had occurred at the beginning of each respective period are as follows:

2011 2010

Pro form revenue $ 10,488.9 $ 8,348.4 Consolidated net income 3,039.5 2,085.0

Other investments

The Company’s share in these investments, and their acquisition cost, are as follows:

Company Share in 2011 Share in 2010 Acquisition cost 2011 Acquisition cost 2010

Grupo Aeroportuario del

Pacífico S. A. B. de C. V. 28.04% 15.90% $ 520.1 $ 369.4 9. O ther int a n g i b le ass et s

2011 2010

Mining concessions $ 121.2 $ 121.2 Mine engineering and development studies 6.0 6.0 Software 7.8 7.6 135.0 134.8 Accumulated amortization (41.6 ) (39.5 ) 93.4 95.3 Goodwill 131.3 137.1

Intangible assets $ 224.7 $ 232.4

Amortization expense on intangible assets was $2.1 for the year ended December 31, 2011 and 2010. The estimated aggre

gate amortization expense for intangibles is $11.9 for the years 2012 through 2016 for an average expected annual expense of approximately $2.4 per year during this period.

10. M a inten a nce ag ree m ent s

Ferromex has executed a maintenance and repairs agreements with Lámparas General Electric, S. de R. L. de C. V. (“Lamparas”), GE Transportation Systems México, S. A. de C. V. (“GETS”), Alstom Mexicana, S. A. de C. V. (“ALS

TOM”), and EMD Locomotive Company de México, S. A. de C. V. (“EMDL”) to provide repair and maintenance services, as well as the major repairs of some locomotives, as follows:

Number of Terms of the agreement locomotives included Initial date Expiration date

Supplier:

Lamparas 253 February 2006 February 2012 GETS 160 May 1999 December 2026 ALSTOM 50* February 2010 February 2015 EMDL 98 June 2006 June 2026 Total 561

(*) Minimum number of locomotives; the number can be increased depending on the needs of strength.32 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 33 Ferromex is entitled to cancel some of the maintenance agreements, in which case, it would assume the respective cost of early termination. Regarding to the Lamparas agreement that will expire in February 2012, Ferromex is under renewal process, effective in March 2012.

The GETS agreement for 160 locomotives includes two separate fleets (AC-4400 and ES-4400AC); the AC-4400 agreement, expiring in June 2024, provides that Ferromex cannot cancel the agreement until July 1, 2009 and a penalty would have to be paid ranging from $2.0 in 2009 to $0.13 in June 2024. As regards to the 100 ES-4400AC (EVO) locomotives, the agreement states that Ferromex shall only cancel it as of 2010 paying a penalty from $2.7 in the year 2010 to $0.17 in 2026.

The ALSTOM agreement with expiration in February 2015 includes early termination, for which Ferromex would have to pay the inventory cost, as well as termination of labor contracts to Alstom staff.

The EMDL agreement shall only be terminated in advance as of July 1, 2015. If Ferromex decides to conclude the contract between July 1, 2015 and June 30, 2016, Ferromex must pay an equivalent quantity to 15 months of average billing, amount which shall be reduced in a month per year.

Maintenance and repairs - With respect to the locomotive’s maintenance and repair work, pursuant to the agreements; Fe

rromex must make monthly payments based on certain fees that include mainly preventive and corrective maintenance. These fees are recorded as maintenance expense in results of operations at the time such services are received. At December 31, 2011 and 2010, Ferromex paid $57.0 and $52.3, respectively.

Overhauls - Overhauls are capitalized to property and equipment as incurred.

11. B a nk lo a n s a nd lon g -ter m de b t

At December 31, 2011 and 2010, the Company was in compliance with the guarantees and restrictions established by the debt agreements which include financial covenants and restrictions on contracting additional debt and on certain capital expenditures, the consolidated debt was as follows: 2011 2010

AMC $ 554.6 $ 836.5 SCC 2,694.6 2,704.0 GFM/ITM 491.6 350.3 MM 51.1 56.4 PEMSA 9.5 10.0 Total notes payable 3,801.4 3,957.2 Less - Current portion (286.9 ) (262.0 )

Long-term debt $ 3,514.5 $ 3,695.2

The maturities of notes payable as of December 31, 2011 were as follows:

Year Principal due *

2012 $ 286.9 2013 240.7 2014 287.4 2015 224.6 Thereafter 2,787.2

$ 3,826.834 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 35 L ong-term debt

Mining segment:

2011 2010

AMC Syndicated credit with quarterly repayments from 2010 up to 2014 at interest rate of LIBOR plus 3.5 points to 6.5 points. $ 554.6 $ 836.5

SCC
6.375% Notes due 2015 ($200 face amount, less unamortized discount of $0.6 and $0.7 at December 31, 2011 and 2010, respectively) 199.4 199.3

5.375% Notes due 2020 ($400 face amount, less unamortized discount of $1.9 and $2.0 at December 31,2011 and 2010, respectively) 398.1 398.0

6.750% Notes due 2040 ($1,100 face amount, less unamortized discount of $8.0 and $8.1 at December 31,2011 and 2010, respectively) 1,092.0 1,091.9

7.500% Notes due 2035 ($1,000 face amount, less unamortized discount of $14.9 and $15.2 at December 31, 2011 and 2010, respectively) 985.1 984.8

2.02% Mitsui credit agreement due 2013 (Japanese LIBOR rate plus 1.25% (1.71% at December 31, 2010)) 20.0 30.0

MM 9.250% Yankee Bonds - Series "B" due 2028 51.1 56.4 Total debt 3,300.3 3,596.9

Less - Current portion (194.9 ) (219.1 )

Long-term debt $ 3,105.4 $ 3,377.8

Total debt maturities do not include the debt discount valuation account of $25.4. The bonds, referred above as “Yankee bonds”, contain a covenant requiring MM to maintain a ratio of EBITDA to interest expense of not less than 2.5 to 1.0 as such terms are defined by the facility. At December 31, 2011, MM is in compliance with this covenant.

The Mitsui credit agreement is collateralized by pledges of receivables on 31,000 tons of copper per year. The Mitsui agre

ement requires AMC to maintain a minimum stockholders’ equity of $750 and a specific ratio of debt to equity. Reduction of Grupo Mexico’s direct or indirect voting interest in the Company to less than a majority would constitute an event of default under the Mitsui agreement. At December 31, 2011, the Company is in compliance with these covenants.

In July 2005 the SCC issued $200 6.375% Notes due 2015 at a discount of $1.1 and $600 7.5% Notes due 2035, at a discount of $5.3. The notes are senior unsecured obligations of SCC. SCC capitalized $8.8 of costs associated with this facility and its unamortized balance is included in “Other assets”, non-current on the consolidated balance sheet. The net proceeds from the issuance and sale of the notes were principally used to repay outstanding indebtedness of SCC and the balance was used for general corporate purposes. SCC filed a registration statement on Form S-4 with respect to these notes in October 2005. In January 2006 SCC completed an exchange offer for $200, 6.375% Notes due 2015 and $600, 7.5% Notes due 2035. In the exchange offer, $197.4 of the 6.375% old notes due 2015 were tendered in exchange for an equivalent amount of new notes and an aggregate of $590.5 of the 7.5% old notes due 2035 were tendered in exchange for an equivalent amount of new notes. The indentures relating to the notes contain certain covenants, including limitations on liens, limitations on sale and lease

back transactions, rights of the holders of the notes upon the occurrence of a change of control triggering event, limitations on subsidiary indebtedness and limitations on consolidations, mergers, sales or conveyances.

Certain of these covenants cease to be applicable before the notes mature if the issuer obtains an investment grade rating. At December 31, 2011 SCC is in compliance with these covenants. At December 31, 2011, the securities had an investment grade rating, see “Changes in Credit Risk Rating” below.

On May 9, 2006, SCC issued an additional $400 7.5% notes due 2035. These notes are in addition to the $600 of existing 7.5% notes due 2035 that were issued in July 2005. The current transaction was issued at a spread of +240 basis points over the 30-year U. S. Treasury bond. The original issue in July 2005 was issued at a spread of +315 basis points over the 30-year U. S. Treasury bond. The notes were issued at a discount of $10.8. SCC capitalized $3.2 of cost associated with this facility and its unamortized balance is included in non-current “Other assets, net” on the consolidated balance sheet. SCC used proceeds from the May 2006 issuance for its expansion programs.

The notes issued in July 2005 and the new notes issued in May 2006 are treated as a single series of notes under the inden

ture, including for purposes of covenants, waivers and amendments. SCC has registered these notes under the Securities Act of 1933, as amended.36 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 37 On April 16, 2010, the Company issued $1.5 billion in fixed-rate unsecured notes with a discount of $10.3, which is being amortized over the term of the related debt. Net proceeds will be used for general corporate purposes, including the financing of the SCC’s capital expenditure program.

The $1.5 billion fixed-rate senior unsecured notes were issued in two tranches, $400 due in 2020 at an annual interest rate of 5.375% and $1.1 billion due in 2040 at an annual interest rate of 6.75%. SCC has registered these notes under the Securities Act of 1933, as amended.

Interest on the notes will be paid semi-annually in arrears. The notes will constitute SCC’s general unsecured obligations and the series of notes will rank pari passu with each other and will rank pari passu in right of payment with all of the SCC’s other existing and future unsecured and unsubordinated indebtedness.

Also, related to these notes SCC has deferred $8.2 of costs associated with the issuance of this facility, which its unamortized balance is included in “Other assets” non-current in the consolidated balance sheet and is being amortized as interest expen

se over the life of the loans.

In connection with the transaction, on April 16, 2010, SCC entered into a base indenture with Wells Fargo Bank, National Association, as trustee, as well as a first supplemental indenture and a second supplemental indenture which provide for the issuance, and set forth the terms of, the two tranches of notes described above. The indentures contain covenants that limit SCC’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale and leaseback transac

tions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all SCC’s assets. If SCC experiences a Change of Control Triggering Event (as defined in the indentures governing the notes), SCC must offer to repurchase the notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any. A Change of Control Trigger Event also includes a rating decline, that is, if the rating of the notes, by at least one of the rating agencies shall be decreased by one or more gradations.

SCC may issue additional debt from time to time pursuant to the base indenture.

Changes in Credit Risk Rating:

On April 1, 2010, Moody’s investor service upgraded to Baa2 from Baa3 SCC’s senior unsecured ratings and the rating on its Yankee bonds. Also on April 5, 2010, Fitch and Standard & Poor’s (“S&P”) ratings services assigned ratings of ‘BBB’ and ‘BBB-’, respectively, to the new notes issued. At the same time, these credit rating agencies confirmed their long-term corporate credit rating of SCC (‘Baa2’, ‘BBB and ‘BBB- for Moody’s, Fitch and S&P, respectively).

On January 26, 2012, S&P raised its long-term corporate credit rating of the Company to BBB from BBB-. Also S&P raised its ratings of the Company ́s senior notes to ‘BBB from ‘BBB-. S&P noted that this rating reflects its assessment of a satisfactory business risk profile, supported by the Company ́s low cash cost structure, geographic diversity, position as the world ́s sixth largest copper producer, vertical integration and long-life reserves.

On December 9, 2009, AMC contracted a syndicated credit for $1,500 with BBVA Bancomer, S. A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer acting as broker. The credit is divided into three tranches; Tranche A for $385.7, generating interest at the LIBOR rate plus a margin of between 3.5 and 6.0 points, with quarterly repayments from 2011 up to 2012, which may be fully or partially pre-paid at any time; Tranche B for a Mexican peso amount equivalent to $850, and; Tranche C for $134.3 and a Mexican peso amount equivalent to $130. Tranches B and C generate interest at the LIBOR rate plus a margin of between 4.0 and 6.5 points for US dollars, and the TIIE (Interbank Interest Rate) plus a margin of between 4.0 and 6.5 points for Mexican pesos. Both tranches require quarterly repayments from 2011 until 2014. Tranches A and C cannot be prepaid before the maturity of tranche A. In June 2011, AMC prepaid in-full the tranches A and B and its accrued interest.

During 2010, Asarco prepaid in full a $280.0 secured note with Asbestos Personal Injury Settelment Trust related to past en

vironmental liabilities. The note term included annual interest of 6% and quarterly installment payments with a final maturity of December 2010.

Aggregate maturities of the outstanding borrowings at December 31, 2011, are as follows:

Year Principal due

2012 $ 194.9 2013 194.9 2014 184.8 2015 200.0 Thereafter 2,551.1

3,325.7

At December 31, 2011 and 2010, other assets included $5.2 and $5.3, respectively, held in escrow accounts as required by the Mitsui’s loan agreement. The funds are released from escrow as scheduled loan repayments are made.

At December 31, 2011 and 2010, the balance of capitalized debt issuance costs was $18.8 and $19.3, respectively. Amortiza

tion charged to interest expense was $0.5 and $0.4 in 2011 and 2010, respectively.38 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 39 Railway segment:

December 31, 2011 2010

Loan from BNP PARIBAS (BNP) and Export-Import Bank (EXIM) with maturities

every three months up to July 25, 2013, subject to an interests at the LIBOR rate for three months plus 0.09% (1) $ 8.1 $ 12.8

Loan from HSBC Bank PLC and Export Development Canada (“EDC”), with ma

turities every six months up to November 26, 2014, subject to an interest at the LIBOR rate for six months plus 0.08% (2) 8.6 11.5
Loan from HSBC México, S. A. Commercial Bank (HSBC) with maturities every

six months up to November 26, 2014, subject to an interest at the LIBOR rate for six months plus 0.40% (2) 1.5 2.0
Loan from CREDIT AGRICOLE CIB (before CALYON) - and EXIM with maturities

every three months up to June 15, 2016, subject to an interests at the LIBOR rate for three months without spread (3) 37.5 45.8
Loan from CREDIT AGRICOLE CIB (before CALYON) - for with maturities every

three months up to June 15, 2016, subject to an interests at the LIBOR rate for three months plus 0.40% to 0.50% (3) 10.5 12.8
Loan from HSBC México, S. A. Commercial Bank (HSBC), subject to an interest at

a the LIBOR monthly rate plus 1.5%, with maturity expire on February 1, 2012 (4) 26.2 -
Long-term debt contracts in Mexican pesos:
Loan from BANAMEX and EXIMBANK with maturities every three months up to

September 15, 2015, subject to an interest at the fixed rate of 8.18% (5) 37.4 53.6
Loan from BANAMEX with maturities every three months up to March 15, 2014,

subject to interest at the fixed rate of 8.25% (5) 5.8 9.5
Loan from IXE BANK, whit maturities every three months up to August 31, 2013

subject to an interest at 91-days TIIE rate plus 1.35% (6) 32.2 - Syndicated loan from various banks managed by CITIBANK, N. A., secured by ITM comprised of the following tranches:

I. Ps$364,570 thousands subject to 28-day TIIE interest rate plus 0.575%, with quarterly amortizations, through June 6, 2013 (7) 26.1 -

II. $25.0 subject LIBOR interest rate plus 0.55% with quarterly amortizations through June 7, 2010, amounted $11.5 subject LIBOR interest rate plus 0.55% with at three-month through December 31, 2013 (7) 11.5 -
Debt securities (“certificados bursátiles”) (8) 286.2 202.3 491.6 350.3 Current portion of long-term debt (82.5 ) (32.9 )

Long-term debt $ 409.1 $ 317.4

Debt matures as follows:

Maturity

2012 $ 82.5 2013 45.9 2014 102.6 2015 24.6 2017 and thereafter 236.0

$ 491.6

(1) In order to secure the loans from BNP and EXIM on December 30, 2004 and on January 27, 2005, an irrevocable trust guarantee was set up, with Banco Nacional de México, S. A. (BANAMEX) as the trustee, GFM as the trustor, EXIM as the trust beneficiary in the first instance and BNP as trust beneficiary in the second instance, for which GFM pledged the rights of 25 acquired locomotives that gave rise to these loans, as well as the titles and interest on the guarantees provided to the trustee.40 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 41 (2) Loans from HSBC BANK PCL - EDC and HSBC BANK MEXICO, respectively contracted for the purchase of 15 SD70ACe locomotives, which are pledged for these loans.

(3) Loans from CREDIT AGRICOLE CIB (before CALYON) - EXIM and CREDIT AGRICOLE CIB (before CALYON), respecti

vely contracted for the purchase of 40 locomotives, which are pledged for these loans.

(4) Loans with HSBC - HSBC EXIM and direct, contract for the purchase of 23 locomotives, which remained in collateral for these loans.

(5) Loans from BANAMEX - EXIMBANK and direct loan from BANAMEX, hired to settle in advance the bridge loan from BANAMEX, used for the purchase of 60 locomotives, which are pledged for such loans.

In the loans mentioned above Ferromex signed as guarantor.

(6) Loan from IXE BANK hired by Ferrosur to refinancing liabilities and working capital.

(7) June 2007 Ferrosur derivative transaction held a fixed interest rate of 8.51% at 6 years. On September 29, 2006 Fe

rrosur held a derivative transaction exchange rate and interest rate to 7 years, making the obligation of $25.0 to $274.9 thousand pesos, generating monthly interest at the TIIE 28 0.71% days.

(8) On November 13, 2007, the Mexican Securities and Exchange Commission (CNBV), authorized Ferromex to enter into a new program to issue debt paper in the aggregate amount of Ps. 5,000 million pesos (nominal value), during a period of four years.

Ferromex has issued debt paper under these programs with the following features and whose balances are as follows:

Date of Maturity December 31 Issuance Transaction Date Annual Rate (%) 2011 2010

FERROMX -07 Nov 16, 2007 Nov 7, 2014 TIIE 28 days +0.34% $ 71.5 $ 80.9

FERROMX -07-2 Nov 16, 2007 Oct 28, 2022 Fixed rate of 9.03% 107.4 121.4

FERROMX -07-2 Apr 15, 2011 Apri 2, 2021 Fixed rate of 8.88% 107.3 -
$ 286.2 $ 202.3 The loans and the debt paper establish certain covenants for GFM, which as of December 31, 2011 had been fulfilled.

The average annual rates for the years ended on December 31, 2011 and 2010 were: 6-month LIBOR: 0.51% and 0.59%, 3-month LIBOR of 0.34% and 0.34% and TIIE for 28 days 3.33% and 4.91%, respectively.

Infraestructure segment:

2011 2010

PEMSA

Bank loan with IXE, S. A., with maturity on April 5, 2011, bears

interest at a rate equal to monthly LIBOR plus 3.5% $ 9.5 $ 10.0

12. A ss et retire m ent o b li ga tion

The Company accounting for reclamation and remediation obligations requires management to make estimates, unique to each mining operation, relating to the future costs anticipated to complete reclamation and remediation work that is required to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation work required.

The Company maintains an estimated asset retirement obligation for its mining properties mainly in Peru, as required by the Peruvian Mine Closure Law. In accordance with the requirements of this law the Company submitted plans to the Peruvian Ministry of Energy and Mines (“MEM”). As part of the closure plans, commencing in January 2010 the Company is required to provide annual guarantees of $2.6 over a 34 year period to furnish the funds for the asset retirement obligation. In the near-term future the Company has pledged the value of its Lima office complex as support for this obligation. The accepted value of the Lima office building, for this purpose, is $17. The closure cost recognized for this liability includes the cost, as outlined in its closure plans, of dismantling the Toquepala and Cuajone concentrators, the smelter and refinery in Ilo, and the shops and auxiliary facilities at the three units. In 2010, the closure plan for the new Ilo marine trestle was added to the asset retirement obligation.

The following table summarizes the asset retirement obligation activity for the two years ended December 31, 2011 and 2010:42 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 43 2011 2010

Balance as of January 1 $ 72.1 $ 60.3 Changes in estimates 0.3 5.3 Additions - 1.6 Closure payments (0.5) - Accretion expense 5.3 4.9

Balance as of December 31, $ 77.2 $ 72.1

13. Em plo y ee s ’ s t a

tutor y pro f it s h a rin g

The Company’s operations in Peru and Mexico are subject to statutory workers’ participation.

In Peru, the provision for workers’ participation is calculated at 8% of pre-tax earnings. The current portion of this participa

tion, which is accrued during the year, is based on Peruvian Branch’s taxable income and is distributed to workers following determination of final results for the year. The annual amount payable to an individual worker is capped at the worker’s salary for an 18 month period. Amounts determined in excess of the 18 months of worker’s salary is no longer made as a payment to the worker and is levied first for the benefit of the “Fondo Nacional de Capacitacion Laboral y de Promocion del Empleo” (National Workers’ Training and Employment Promotion Fund) until this entity receives from all employers in its region an amount equivalent to 2,200 Peru taxable units (approximately $2.9 in 2011). Any remaining excess is levied as payment for the benefit of the regional governments. These levies fund worker training, employment promotion, road infraestructure and other government programs.

The deferred employees’ statutory profit sharing - Mexican law requires companies to pay their employees 10% of taxable profit each year. The profit sharing arrangement has deferred tax consequences to the extent that basis differences exist bet

ween financial reporting and income tax reporting. Prior years’ losses are not deductible in calculating profit sharing. Profit sharing expense is deductible in arriving at taxable income.

The provision for workers’ participation is included in “Cost of sales (exclusive of depreciation, amortization and depletion)” and “Administrative expenses” in the consolidated statement of income. For the years ended December 31, 2011 and 2010, workers’ participation expense was $276.7 and $234.4, respectively. 14. R el a ted p a rt y ba l a nce s a nd tr a n sa ction s

December 31, 2011 2010

Due to related parties

Empresarios Industriales de México, S. A. de C. V. $ - $ 100.6 TTX Company 3.9 - Ferrocarril y Terminal Valle de México S. A. de C. V. 2.6 - México Transportes Aéreos, S. A. de C. V. 1.2 - Ferrosur, S. A. de C. V. - 17.0 Other 0.6 2.9

$ 8.3 $ 120 .5

The Company has entered into certain transactions in the ordinary course of business with parties that are controlling sha

reholders or their affiliates. These transactions include the lease of office space, air transportation and construction services and products and services relating to mining and refining. The Company lends and borrows funds among affiliates for acqui

sitions and other corporate purposes. These financial transactions bear interest and are subject to review and approval by senior management, as are all related party transactions. It is the Company’s policy that the Audit Committee of the Board of Directors shall review all related party transactions. The Company is prohibited from entering or continuing a material related party transaction that has not been reviewed and approved or ratified by the Audit Committee.

The Larrea family controls a majority of the capital stock of Grupo Mexico, and has extensive interests in other businesses, including aviation and real estate. The Company engages in certain transactions in the ordinary course of business with other entities controlled by the Larrea family relating to the lease of office space and air transportation. In connection with this, SCC paid fees for maintenance services and sale of vehicles provided by Mexico Compañia de Productos Automotrices, S. A. de C. V., a company controlled by the Larrea family and which is currently in liquidation.

Additionally, in 2007, SCC’s Mexican subsidiaries provided guaranties for two loans obtained by MexTransport, a company controlled by the Larrea family, from Bank of Nova Scotia in Mexico. One of these loans has been repaid and the remaining loan requires semi-annual repayments. Conditions and balance as of December 31, 2011 are as follows:44 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 45 Loan open

Original loan balance $ 8.5 Maturity August 2013 Interest rate Libor + 0.15% Remaining balance at December 31, 2011 $ 2.6

MexTransport provides aviation services to SCC’s Mexican operations. The guaranty provided to MexTransport is backed up by the transport services provided by MexTransport to SCC’s Mexican subsidiaries. If MexTransport defaults on the loan, SCC’s subsidiaries would have to satisfy the guaranty and repay to the bank the remaining balance plus interest. SCC pays fees to MexTransport for aviation services.

SCC purchased publicity services from Cadena Mexicana de Exhibicion S. A. de C. V., a subsidiary of Grupo Cinemex, a company controlled by the Larrea family.

SCC purchased industrial materials from Higher Technology S. A. C., and paid fees for maintenance services provided by Ser

vicios y Fabricaciones Mecanicas S. A. C. Mrs. Carlos Gonzalez, the son of SCC’s Chief Executive Officer, has a proprietary interest in these companies.

SCC purchased industrial material from Sempertrans France Belting Technology, in which Mr. Alejandro Gonzalez is emplo

yed as a sales representative. Also, SCC purchased industrial material from PIGOBA, S. A. de C. V., a company in which Mr. Alejandro Gonzalez has a proprietary interest. Mr. Alejandro Gonzalez is the son of SCC’s Chief Executive Officer.

SCC purchased industrial material and services from Breaker, S. A. de C. V., a company in which Mr. Jorge Gonzalez, son-inlaw of SCC’s Chief Executive Officer, has a proprietary interest.

15. Bene f it pl a n s

Mining segment

AMC has two noncontributory defined benefit pension plans covering former salaried employees in the U. S. and certain former employees in Peru. Also, AMC also has a postretirement health care plan. Net periodic benefit costs and other disclo

sures related to the Peruvian defined benefit pension and postretirement health care plans are not material. Mexican Operations

MM/Defined Benefit Pension Plans -

MM has established for its salaried employees a defined contribution benefit pension plan. This plan is in addition to benefits granted by the Mexican Institute of Social Security (Instituto Mexicano del Seguro Social —“IMSS”). Under this plan, MM will make yearly matching contributions equaling 3% of participating employee’s base salary. Related to this, MM recorded a contribution expense of $1.0 and $0.9 in 2011 and 2010, respectively. The defined contribution plan liability was $1.4 and $1.8 in 2011 and 2010, respectively.

MM has established for its union employees a non-contributory defined benefit pension plan. This plan is in addition to benefits granted by IMSS.

The components of net periodic benefit costs calculated in accordance with ASC 715 “Compensation retirement benefits” (in prior literature SFAS No. 87 “Employers Accounting for Pensions”), using December 31 as a measurement date, consist of the following:

2011 2010

Service cost $ 0.9 $ 2.1 Interest cost 0.6 1.6 Expected return on plan assets (2.8) (3.0) Amortization of transition assets, net (0.1) - Amortization of net actuarial loss (1.3) (1.0) Amortization of prior services cost - 0.2 Settlement /curtailment(*) - (19.0 )

Net periodic benefit cost $ (2.7 ) $ (19.1 )

The change in benefit obligation and plan assets for the years 2011 and 2010 are as follows:46 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 47 2011 2010

Change in benefit obligation:

Projected benefit obligation at beginning of year $ 12.7 $ 32.5 Service cost 0.9 2.1 Interest cost 0.6 1.6 Loss gain, net (0.4) (0.6) Benefits paid (0.9) (0.9) Settlement /curtailment(*) - (23.7) Inflation adjustment (1.3 ) 1.7

Projected benefit obligation at end of year $ 11.6 $ 12.7

(*) Included in the 2010 settlement/curtailment amount is a payment of $11.9 severance to Buenavista workers who accepted the Company’s buyout offer

2011 2010

Change in plan assets:

Fair value of plan assets at beginning of year $ 46.3 $ 38.8 Actual return on plan assets (1.1) 6.9 Employee contribution (0.5) (0.6) Benefits paid (0.2) (0.9) Currency exchange rate adjustment (5.4 ) 2.1

Fair value of plan assets at end of year $ 39.1 $ 46.3

Funded status $ 27.5 $ 33.6

ASC 715 amounts recognized in the statement of financial position consists of:

2011 2010

Non current assets $ 27.5 $ 33.6 ASC 715 amounts recognized in accumulated other comprehensive income consists of:

2011 2010

Net loss (gain) $ (7.0) $ (11.2) Transition asset - (0.1 )

Total (net of income tax of $4.7 and $7.6, respectively) $ (7.0 ) $ (11.3 )

The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, 2011 and 2010, respectively related to MM’s defined benefit pension plan, net of income tax:

2011 2010

Reconciliation of accumulated other comprehensive income:

Accumulated other comprehensive income at beginning of plan year $ (11.3) $ (6.1) Prior services cost amortized during the year - (0.1) Net loss amortized during the year 0.8 0.6 Net loss (gain) occurring during the year 2.2 (2.7) Settlement / curtailment - (2.8) Currency exchange rate changes 1.3 (0.2 )

Net adjustment to accumulated other comprehensive income 4.3 (5.2 )

Accumulated other comprehensive income at end of plan year $ (7.0 ) $ (11.3 )

The following table summarizes the amounts in accumulative other comprehensive income amortized and recognized as a component of net periodic benefit cost, net of income tax:48 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 49 2011 2010

Amortization of net losses $ 0.8 $ 0.6 Amortization of prior services cost - (0.1 )

Total amortization expenses $ 0.8 $ 0.5

The assumptions used to determine the pension obligation and seniority premiums as of year-end and net cost in the ensuing year were:

2011 2010

Weighted average discount rate 7.5% 7.5% Expected long-term rate of return on plan asset 7.5% 7.5% Rate of increase in future compensation level 4.5% 4.0%

These rates are based on Mexican pesos as pension plan payments will be paid in México.

The benefits expected to be paid in each of the next five years, and thereafter, are as follows:

Expected Year Benefit Payments

2012 $ 7.3 2013 0.5 2014 0.5 2015 0.5 2016 0.5 2017 to 2021 3.4

Total $ 12.7

The amount of contributions that MM expects to pay to the plan during 2012 is $7.3, which includes $3.4 of pending payments to former Buenavista workers. MM’s policy for determining asset mix targets includes periodic consultation with recognized third party investment consul

tants. The expected long-term rate of return on plan assets is updated periodically, taking into consideration assets alloca

tions, historical returns and the current economic environment. The fair value of plan assets is impacted by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ.

The plan assets are managed by three financial institutions, SCOTIABANK INVERLAT S. A., BANCO SANTANDER and IXE BANCO, S. A. 26% of the funds is invested in Mexican government securities, including treasury certificates and develop

ment bonds of the Mexican government. The remaining 74% is invested in common shares of Grupo Mexico.

The plan assets are invested without restriction in active markets and are accessible when required and are therefore consi

dered as level 1, in accordance with ASC 820.

The following table represents the asset mix of the investment portfolio:

2011 2010

Asset category:

Equity securities 74% 71% Treasury bills 26% 29%

100% 100%

MM/Post-retirement health care plan -

The components of net period benefit costs are as follows:

2011 2010

Interest cost $ 3.2 $ 4.3 Service cost - 0.4 Amortization of net loss - 0.1 Amortization of transition obligation 1.3 1.5 Amortization of prior service cost (10.0 ) -
Net periodic post-retirement benefit costs $ (5.5 ) $ 6.350 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 51 The change in benefit obligation and a reconciliation of funded status are as follows:

2011 2010

Change in benefit obligation:

Projected benefit obligation at beginning of year $ 49.7 $ 53.0 Service cost - 0.4 Interest cost 3.2 4.3 Amendments (24.2) - Actuarial loss (3.3) (11.1) Benefits paid (1.3) - Currency exchange rate adjustment (5.7 ) 3.1

Projected benefit obligation at end of year $ 18.4 $ 49.7

Funded status $ (18.4 ) $ (49.7 )

ASC-715 amounts recognized in the statement of financial position consist of:

2011 2010

Non current liabilities $ (18.4 ) $ (49.7 )

ASC-715 amounts recognized in accumulated other comprehensive income consists of:

2011 2010

Net loss (gain) $ (4.0) $ (2.3) Transition obligation - 10.5

Total (net of income tax of ($2.7) and $5.5, respectively) $ (4.0) $ 8.2 The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, 2011 and 2010, respectively, related to the MM post-retirement health care plan, net of income tax:

2011 2010

Reconciliation of accumulated other comprehensive income:

Accumulated other comprehensive income at beginning of plan year $ 8.2 $ 15.5 Amortization of net gain - (0.1) Amortization of transition obligation (0.8) (0.9) Amortization of prior service cost 6.0 - Prior services credit (14.5) - Net gain occurring during the year (2.0) (6.7) Currency exchange rate changes (0.9 ) 0.4 Net adjustment to accumulated other comprehensive income (12.2 ) (7.3 ) Accumulated other comprehensive income (loss) at end of plan year $ (4.0 ) $ 8.2

The following table summarizes the amounts in accumulated other comprehensive income (loss) amortized and recognized as a component of net periodic benefit cost, net of income tax:

2011 2010

Amortization of transaction obligation $ 0.8 $ 0.9 Amortization of prior service credit (6.0) - Amortization of net losses - 0.1

Total amortization (income) expenses $ (5.2 ) $ 1.0

Discount rates used in the calculation of other post-retirement benefits and costs as of December 31, 2011 and 2010 were 7.5%.

The benefits expected to be paid in each of the next five years, and thereafter, are as follows:52 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 53 Expected Year Benefit Payments

2012 $ 1.4 2013 1.5 2014 1.6 2015 1.7 2016 1.8 2017 to 2021 13.0

Total $ 21.0

For measurement purposes, a 4.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2011 and remains at that level thereafter.

An increase in other benefit cost trend rates have a significant effect on the amount of the reported obligations as well as component cost of the other benefit plan. One percentage-point change in assumed other benefits cost trend rates would have the following effects:

One Percentage Point Increase Decrease

Effect on total service and interest cost components $ 1.5 $ 1.2 Effect on the post-retirement benefit obligation $ 20.2 $ 16.8

American Operations

Asarco - Pension Plans of defined benefits

Pension and Postretirement Plans

The Company recognizes the funded status (i.e., the difference between the fair value of plan assets and benefit obliga

tions) of its defined benefit postretirement plans in the balance sheet, with corresponding adjustments to accumulated other comprehensive income, net of tax. These amounts are recognized as net periodic postretirement cost in accordance with the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic postretirement cost in the same periods will be recognized as a component of other comprehensive income. These amounts will be subsequently recognized as a component of net periodic postretirement cost on the same basis as the amounts recognized in accumulated other comprehensive income.

Pension Plans

The Company maintains two noncontributory defined benefit pension plans covering substantially all its employees. Benefits for salaried plans are based on salary and years of service. Hourly plans are based on negotiated benefits and years of ser

vice. Pension costs are determined annually with the assistance of independent actuaries. The Company’s funding policy is to contribute amounts to the plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional tax deductible amounts as may be advisable under the circumstances. Benefit accruals under the Salaried Plan were frozen effective April 30, 2011. As amended, anyone who has not yet become a participant as of that date will be excluded, and current participants will not accrue any credited service after April 30, 2011 for purposes of determining retirement benefits; however, participants will continue to accrue credited service for purposes of vesting and for eligibility for early retirement under the Plan. This amendment resulted in a one-time curtailment gain of $8.6 recognized in income. Plan assets are invested principally in commingled stock funds, mutual funds, and securities issued by the U. S. government.

Supplemental Executive Retirement Plan (“SERP”)

In 2011, the Company recorded a liability related to a SERP benefit for certain of its executives. All assumptions used to calcu

late the liability match the December 31, 2011 salaried plans noted above. As such, unrealized gains and losses that will arise in subsequent periods, as calculated by the actuaries, will be recognized as a component of other comprehensive income until such amounts are realized. The total present value of the SERP liability recorded as of December 31, 2011 was $1,518, and is in addition to the Salaried Plan as presented below.

The measurement dates used to determine benefit obligations were December 31, 2011 and 2010, and are based on census data provided as of the beginning of the years of such plans. No events have occurred that would have a significant impact on those calculations and measurements.

Postretirement Benefits

Contributory postretirement health care coverage under the Company’s health plans is provided to substantially all U. S. re

tirees not eligible for Medicare. A cost-sharing Medicare supplement plan is available for retired salaried employees, and life insurance coverage is provided to substantially all retirees. The plans are unfunded but exist as general corporate obligations. The postretirement health care plans have a December 31st year end.54 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 55 The measurement dates used to determine benefit obligations were December 31, 2011 and 2010, and are based on census data provided as of the beginning of the fiscal years of such plans. No events have occurred that would have a significant impact on those calculations and measurements.

Changes to the Company’s benefit plans as of December 31, 2011 and 2010, are reflected as follows:

Change in Projected Benefit

Obligation Period ended

December 31, 2011 Pension Pension Benefits Hourly Post-retire Post-retire Benefits Salaried Health Care Salaried Health Care Hourly Total

Beginning of the period $ 208.0 $ 236.4 $ 40.0 $ 291.4 $ 775.8 Service cost 1.7 5.7 1.1 11.7 20.2 Interest cost 11.1 13.1 1.7 14.2 40.1 Actuarial (gain)/loss 6.9 22.7 (4.8) 17.1 41.9 Administrative expenses paid (1.1) (1.6) - - (2.7) Benefits paid (12.5 ) (12.6 ) (1.6 ) (7.2 ) (33.9 )

Benefit Obligation at December 31 $ 214.1 $ 263.7 $ 36.4 $ 327.2 $ 841.4

Accumulated Benefit Obligation $ 214.1 $ 263.7

Change in Plan Assets Pension Pension Post-retire Post-retire Period ended December 31, 2011 Benefits Salaried Benefits Hourly Health Care Salaried Health Care Hourly Total

Beginning of the period $ 143.5 $ 172.8 $ - $ - $ 316.3 Actual return on plan assets (3.6) (4.5) - - (8.1) Employer contributions 15.6 23.7 1.6 7.2 48.1 Benefits paid (12.5) (12.6) (1.6) (7.2) (33.9) Administrative expenses (1.1 ) (1.6 ) - - (2.7 ) Fair Value of Plan Assets at

December 31 $ 141.9 $ 177.8 $ - $ - $ 319.7

Funded Status at December 31 $ (72.2 ) $ (85.9 ) $ (36.4 ) $ (327.2 ) Change in Projected Benefit Obligation Period ended

December 31, 2010 Pension Pension Post-retire Post-retire Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly Total

Beginning of the period $ 201.5 $ 232.5 $ 41.8 $ 240.4 $ 716.2 Service cost 3.9 5.5 1.2 10.2 20.8 Interest cost 11.2 12.9 1.9 14.4 40.4 Actuarial (gain)/loss 3.4 (2.2) (3.5) 30.3 28.0 Administrative Expenses Paid (0.6) (0.9) - - (1.5) Benefits paid (11.4 ) (11.4 ) (1.4 ) (3.9 ) (28.1 ) Benefit Obligation at December 31 $ 208.0 $ 236.4 $ 40.0 $ 291.4 $ 775.8

Accumulated Benefit Obligation $ 198.3 $ 235.8

Change in Plan Assets Period ended December 31, 2010 Pension Pension Post-retire Post-retire Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly Total

Beginning of the period $ 129.5 $ 150.6 $ - $ - $ 280.1 Actual return on plan assets 16.9 20.3 - - 37.2 Employer contributions 9.2 14.4 1.4 3.9 28.9 Benefits paid (11.4) (11.4) (1.4) (3.9) (28.1) Administrative expenses (0.7 ) (1.1 ) - - (1.8 ) Fair Value of Plan Assets at

December 31 $ 143.5 $ 172.8 $ - $ - $ 316.3

Funded Status at December 31 $ (64.5 ) $ (63.6 ) $ (40.0 ) $ (291.4 ) $ -

Amounts recognized in the accompanying consolidated balance sheets consisted of the following:56 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 57 Period ended December 31, 2011 Pension Benefits Salaried Pension Benefits Hourly Post-retire Health Care

Salaried Post-retire Health Care

Hourly

Current liabilities $ - $ - $ (2.3) $ (9.2) $ (11.5) Non-current liabilities (71.9 ) (86.0 ) (34.3 ) (317.8 ) (510.0 )

Net amount recognized $ (71.9 ) $ (86.0 ) $ (36.6 ) $ (327.0 ) $ (521.5 )

Period ended December 31, 2010 Pension Benefits Salaried Pension Benefits Hourly Post-retire Post-retire Health Care

Salaried Health Care Hourly

Current liabilities $ - $ - $ (2.8) $ (9.6) $ (12.4) Non-current liabilities (64.4 ) (63.6 ) (37.4 ) (281.7 ) (447.1 )

Net amount recognized $ (64.4 ) $ (63.6 ) $ (40.2 ) $ (291.3 ) $ (459.5 )

Amounts recognized in other comprehensive income during the periods consisted of the following:

Pension Pension Post-retire Post-retire Period ended December 31, 2011 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly Total

Net loss $ 30.0 $ 41.1 $ (4.0 ) $ 17.1 $ 84.2 Net amount recognized $ 30.0 $ 41.1 $ (4.0 ) $ 17.1 $ 84.2

Pension Pension Post-retire Post-retire Period ended December 31, 2010 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly Total

Net loss $ (2.9 ) $ (10.0 ) $ (3.3 ) $ 30.2 $ 14.0 Net amount recognized $ (2.9 ) $ (10.0 ) $ (3.3 ) $ 30.2 $ 14.0 Amounts recorded in accumulated other comprehensive income consisted of the following:

Pension Pension Post-retire Post-retire Period ended December 31, 2011 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly Total

Beginning balance $ (8.3) $ (16.5) $ (4.1) $ 25.1 $ (3.8) Amortization of net gain - - 0.7 - 0.7 Net gain / (loss) 30.0 41.1 (4.8 ) 17.1 83.4

Net amount recorded $ 21.7 $ 24.6 $ (8.2 ) $ 42.2 $ 80.3

Pension Pension Post-retire Post-retire Period ended December 31, 2010 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly Total

Beginning balance $ (5.4) $ (6.5) $ (0.8) $ (5.1) $ (17.8) Amortization of net gain - - 0.2 - 0.2 Net gain / (loss) (2.9 ) (10.0 ) (3.5 ) 30.2 13.8

Net amount recorded $ (8.3 ) $ (16.5 ) $ (4.1 ) $ 25.1 $ (3.8 )

The components of net periodic benefit cost for the periods ended are as follows:

Pension Pension Post-retire Post-retire Period ended December 31, 2011 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly Total

Service cost $ 1.7 $ 5.7 $ 1.1 $ 11.7 $ 20.2 Interest cost 11.1 13.1 1.7 14.2 40.1 Expected return on plan assets (11.3) (13.8) - - (25.1) Recognized actuarial gain (8.3 ) - (0.7 ) - (9.0 )
Total net periodic benefit cost $ (6.8 ) $ 5.0 $ 2.1 $ 25.9 $ 26.258 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 59 Pension Pension Post-retire Post-retire Period ended December 31, 2010 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly Total

Service cost $ 3.9 $ 5.5 $ 1.2 $ 10.2 $ 20.8 Interest cost 11.2 12.9 1.9 14.4 40.4 Expected return on plan assets (10.5) (12.5) - - (23.0) Recognized actuarial gain - - (0.2 ) - (0.2 )

Total net periodic benefit cost $ 4.6 $ 5.9 $ 2.9 $ 24.6 $ 38.0

The actuarial assumptions used to determine end of period benefit obligations were as follows:

Pension Pension Post-retire Post-retire Period ended December 31, 2011 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly

Discount rate 5.00% 5.00% 4.85% 4.60% Expected return on assets 7.75% 7.75% N /A N /A Rate of compensation increase N /A 4.00 N /A N /A

Pension Pension Post-retire Post-retire Period ended December 31, 2010 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly

Discount rate 5.70% 5.70% 5.45% 5.60% Expected return on assets 8.00% 8.00% N/A N/A Rate of compensation increase 4.00% 4.00% N/A N/A

Weighted-average assumptions used to determine net period benefit costs were as follows: Pension Pension Post-retire Post-retire Period ended December 31, 2011 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly

Discount rate 5.70% 5.70% 5.45% 5.65% Expected return on assets 8.00% 8.00% N /A N /A Rate of compensation increase 4.00% 4.00% N /A N /A

Pension Pension Post-retire Post-retire Period ended December 31, 2010 Benefits Benefits Health Care Health Care Salaried Hourly Salaried Hourly

Discount rate 5.75% 5.75% 5.35% 5.85% Expected return on assets 8.25% 8.25% N/A N/A Rate of compensation increase 4.00% 4.00% N/A N/A

Plan Assets

The Company’s investment policy is to actively manage certain asset classes where potential exists to outperform the broader market while maintaining acceptable risk levels inherent in specific benchmarks used to measure performance for each asset class. To develop an expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class as well as the target asset allocation of the pension portfolio.

The Company’s policy for determining asset allocation targets includes periodic consultation with recognized third-party investment consultants. The fair value of plan assets is affected by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ.

The allocations as of December 31, 2011 and 2010 were as follows:60 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 61 Asset allocation and fair value hierarchy 2011 Level 1 Level 2 Level 3 2010

US equity composite $ 89.7 98% 2% - $ 89.7 International equity composite 71.0 96 4 - 79.8 Emerging markets composite 17.5 96 4 - 23.4 Fixed income composite 86.1 61 23 16 79.1 Hedge fund composite 20.7 - 65 35 21.0 REIT's composite 11.6 100 - - 6.5 Cash composite 23.1 - 100 - 16.9

Total asset allocation $ 319.7 $ 316.4

Investments in commingled “composite” funds are recorded at fair value based on the net asset value of the fund as provided by the fund manager or general partner. Investments in these funds are specific to asset allocation strategies. The classifica

tions include both direct investments in debt and equity securities as well as investments in privately held entities that manage an underlying portfolio of marketable debt and equity securities.

For the year ended December 31, 2011, the health care cost trend rate assumptions have a significant effect on the amounts for postretirement health care costs and obligations, as show in the following table:

Salaried Hourly

1% increase $ 0.5 $ 6.9 1% decrease (0.4) (5.3)

Effect on postretirement benefit obligation 1% increase $ 3.4 $ 58.8 1% decrease (3.0) (47.1)

For measurement purposes, an 8.5% annual rate of increase in the per capita cost of covered health care is assumed for 2011 for both salaried and hourly plans. The rates are assumed to decrease until reaching 4.9% in 2069. Assumed Health Care Cost Trend Rates at December 31 2011 Salaried Hourly

Health care trend assumed for next year 8.50% 8.50% Ultimate health care cost trend rate 4.90% 4.90% Year that the rate reaches the ultimate trend rate 2069 2069

Cash Inflows and Outflows - The Company contributed approximately $39.3 and $23.6 to the pension plans in 2011 and 2010, respectively, and expects to contribute approximately $31.8 to the combined pension plans in 2012.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “Act”) was reflected as of December 31, 2011 and 2010, assuming that the Company will continue to provide a prescription drug benefit to retirees that is at least actuarially equivalent to Medicare Part D. The benefit payments listed in the following table are shown net of the expected Medicare Part D subsidy.

The Company projects benefit payments to be paid by the combined plans as follows:

Pension Benefits Postretirement Health Care

2012 $ 27.5 $ 11.5 2013 27.6 12.5 2014 28.6 13.4 2015 29.1 14.3 2016 29.7 14.9 2017 - 2021 156.6 88.2

$ 299.1 $ 154.8

Employee Savings Plan - The Company maintains employee savings plans for salaried and hourly employees that permit em

ployees to make contributions by payroll deductions pursuant to section 401(k) of the Internal Revenue Code. The Company matches contributions up to 6% of compensation for its employees. As of April 30, 2011, in conjunction with the Salaried62 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 63 Pension Plan freeze, the Company increased the matching contributions for employees who were active participants in the salaried plan, from 3% to 6% of compensation. In connection with the required match, the Company’s contributions, for both the salaried and hourly plans, charged against earnings were $3.6 and $1.6 in 2011 and 2010, respectively.

Copper Basin 401(k) Plan - Copper Basin also maintains a defined contribution plan that permits eligible employees to make contributions by payroll deductions pursuant to Section 401(k) of the Internal Revenue Code, which includes a matching Company contribution up to 6% of compensation. The contributions charged against earnings in 2011 and 2010 were $0.12 and $0.10, respectively.

Railway segment

ITM - Defined Benefit Pension Plans

In ITM and subsidiaries the liabilities and costs pertaining to the seniority premiums, which employees are entitled after 15 years of service are recognized on the basis of actuarial studies performed by independent experts.

ITM has also established plans to cover dismissal indemnities on the basis of actuarial studies, performed by independent experts. At 2011 and 2010 labor liabilities were immaterial

Corporate Services

Grupo México Servicios, S. A. de C. V. (GMS, direct subsidiary of GMEXICO) provides various professional services to its affiliates. Currently GMS has 73 executives and as of December 31, 2011 and 2010 the labor liabilities were immaterial.

16. Stockholder s ’ equit y

Common stock:

At December 31, 2011 and 2010, the Company’s paid common and outstanding stock consists 7,785,000,000, fully paid and subscribed shares, corresponding to fixed capital Series “B”, Class I shares. Variable capital is limited to ten times the amount of the minimum fixed capital.

Series “B” consists of ordinary voting stock representing 100% of all Class I and Class II voting stock. At least 51% of the shares comprising this Series must be subscribed by private individuals or companies considered to be Mexican investors, as established by the Ley General de Sociedades Mercantiles. During 2011, Board of directors approved two dividends in accordance with the resolutions taken in the Ordinary Stockhol

ders’ Meeting held on April 29, 2010 which amounted to $458.1 paid as follows: in February 18, 2011, a dividend was paid equal to 0.30 peso cents per share amounting $194.0 and other equivalent to 0.40 peso cents per share, amounting $264.1 paid in May 5, 2011, both allocated in retained earnings.

During 2011, Board of directors approved two dividends in accordance with the resolutions taken in the Ordinary Stockhol

ders’ Meeting held on April 29, 2011 which amounted to $530.7 paid as follows: In August 19, 2011, a dividend was paid equal to 0.45 peso cents per share amounting $300.5, other equivalent to 0.40 peso cents per share, amounting $230.2 paid in November 1, 2011, both allocated in retained earnings.

During 2011, Board of directors approved a dividend in shares in accordance with the resolutions taken in the Ordinary Stoc

kholders’ Meeting held on April 29, 2011 equivalent to one share per each 389 current shares, amounting $48.02

Pursuant Ordinary Stockholders’ Meeting held on April 29, 2011, the stockholders agreed to repurchase ownshares until Ps.2, 240 million pesos (243.3 million dollars). As of December 31, 2011, the shares repurchased amounting Ps.722.4 million pesos (57.4 million dollars), which Ps. 112 million pesos (9.3 million dollars) was granted to the trust of Employee Stock Purchase Plan and appied in the treasury stock account.

During 2010, Board of directors approved two dividends in accordance with the resolutions taken in the Ordinary Stockhol

ders’ Meeting held on April 29, 2010 which amounted to $260.7 paid as follows: in September 10, 2010, a dividend was paid equal to 0.17 peso cents per share amounting $103.6 and other equivalent to 0.25 peso cents per share, amounting $157.1 paid in November 12, 2010.

In addition, the stockholders agreed to decrease the reserve for shares purchase to Ps.2, 240 million pesos ($243.3 million dollars), the reduction was applied to retained earnings.

During 2010, Board of directors approved two dividends in accordance with the resolutions taken in the Ordinary Stockholders’ Meeting held on April 30, 2009, which amounted to $192.9 paid as follows: a 0.14 peso cents per share dividend paid in March 12, 2010, amounting $84.3 and other equivalent to a 0.17 peso cents per share dividend amounting $108.6 paid on May 17, 2010.

On January 28, 2010, the Company acquired the noncontrolling interest of PEMSA for $191.9. With this transaction, the Com

pany owns 100% of PEMSAs equity. Since the purchase price exceeded the carrying amount of the investment, the Company reduced retained earnings by $116.0.

Dividends paid are not subject to income tax if the dividends come from the Net Tax Profit Account (CUFIN, for its acronym in Spanish). Any dividends paid in excess of this account are subject to a tax equivalent to 38.89%. The tax is payable by64 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 65 the Company and may be credited against its income tax in the same year or in the following two years. Dividends paid from previously taxed profits are not subject to tax withholding or additional tax payment. In the event of a capital reduction, any excess of stockholders’ equity over capital contributions, the latter restated in accordance with the provisions of the Income Tax Law, is accorded the same tax treatment as dividends.

At December 31, 2011 and 2010, the CUFIN amounted to $3,228.3 and $2,782.3, respectively.

Appropriated Retained Earnings - As of December 31, 2011, the Company’s management set aside $2.0 billion of unre

mitted earnings of its Mexican subsidiary MM, as appropriated retained earnings. It is the Company’s intention to indefinitely invest these funds in Mexico. These amounts are earmarked for the Company’s Mexican expansion program.

Treasury Stock - Included in treasury stock are shares of the Company and SCC’s common stock carried at cost. Activity in treasury stock was as follows:

2011 2010

GMEXICO common shares

Balance as of January 1 $ 345 $ 346 Other activity, including received dividends, interest and currency translation effect – Net 202 (1 )

Balance as of December 31 $ 547 $ 345

At December 31, 2011 and 2010, treasury stock holds 43,616,086 shares and 34,596,086 shares of SCC’s common stock, respectively with a cost of $734.1 and $461.0, respectively. The shares of SCC’s common stock held in treasury are used for general corporate purposes.

On July 28, 2011, the Board of Directors approved an increase of the SCC share repurchase program from $500 to $1.0 billion. These shares will be available for general corporate purposes. SCC may purchase additional shares from time to time, based on market conditions and other factors. This repurchase program has no expiration date and may be modified or discontinued at any time.

The shares of SCC are used for general corporate purposes, including, among others, for awards under the Directors’ Stock Award Plan. GMEXICO’s shares are used to grant awards under both the Employee Stock Purchase Plan and the Executive Stock Purchase Plan. Directors Stock Award Plan - SCC established a stock award compensation plan for certain directors who are not compen

sated as employees of the Company. Under this plan, participants will receive 1,200 shares of common stock upon election and 1,200 additional shares following each annual meeting of stockholders thereafter 600,000 shares of the Company ́s common stock have been reserved for this plan. The fair value of the award is measured each year at the date of the grant.

Reserve for purchase of shares - In April 2005, the Company established a reserve of $201.7 for the repurchase of sha

res, of which $10 will be included in the SCC’s Treasury Stock for future sales to its employees. During 2011 and 2010, the Company purchased own shares for 44,751 and 125,744, respectively. In 2011, a dividend was declared of 48.

Employee Stock Purchase Plan - During 2007 and 2010, the Company offered to eligible employees a stock purchase plan (the “Employee Stock Purchase Plan”) through a trust that acquires shares of the Company ́s stock for sale to its employees, employees of subsidiaries, and certain affiliated companies. The purchase price is established at the approximate fair market value on the grant date. Every two years employees will be able to acquire title to 50% of the shares paid in the previous two years. The employees will pay for shares purchased through monthly payroll deductions over the eight year period of the plan. At the end of the eight year period, the Company will grant the participant a bonus of 1 share for every 10 shares purchased by the employee.

If the Company pays dividends on shares during the eight year period, the participants will be entitled to receive the dividend in cash for all shares that have been fully purchased and paid as of the date that the dividend is paid. If the participant has only partially paid for shares, the entitled dividends will be used to reduce the remaining liability owed for purchased shares.

In the case of voluntary resignation of the employee, the Company will pay to the employee the fair market sales price at the date of resignation of the fully paid shares, net of costs and taxes. When the fair market sales value of the shares is higher than the purchase price, the Company will apply a deduction over the amount to be paid to the employee based on the following schedule:

If the resignation occurs during: % Deducted

1 st year after the grant date 90% 2nd year after the grant date 80% 3rd year after the grant date 70% 4th year after the grant date 60% 5th year after the grant date 50% 6th year after the grant date 40% 7th year after the grant date 20%66 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 67 In the case of involuntary termination of the employee, the Company will pay to the employee the difference between the fair market value of the shares at the date of termination of employment and the purchase price. When the fair market value of the shares is higher than the purchase price, the Company will apply a deduction over the amount to be paid to the employee based on the following schedule.

If the termination occurs during: % Deducted

1 st year after the grant date 100% 2nd year after the grant date 95% 3rd year after the grant date 90% 4th year after the grant date 80% 5th year after the grant date 70% 6th year after the grant date 60% 7th year after the grant date 50%

In case of retirement or death of the employee, the Company will render the buyer or his legal beneficiary, fair market value as of the date of retirement or death of the shares effectively paid, net of costs and taxes.

For each of the years ended December 31, 2011 and 2010, the stock based compensation expense under the Employee Stock Purchase Plan was $2.1. As of December 31, 2011, there was $6.4 of unrecognized compensation expense under this plan, which is expected to be recognized over the remaining three year period.

The following table presents the stock award activity of the Employee Stock Purchase Plan for the years ended December 31, 2011 and 2010: Shares Unit weighted average grant date fair value

Outstanding shares at January 1, 2010 11,556,625 1.16

Granted - Exercised - Forfeited (635,932 ) 1.16

Outstanding shares at December 31, 2010 10,920,693 1.16

Granted - Exercised (3,402,855) 1.16 Forfeited (247,497 ) 1.16

Outstanding shares at December 31, 2011 7,270,341 1.16

Executive Stock Purchase Plan - The Company also offers a stock purchase plan for certain members of its executive management and the executive management of its subsidiaries and certain affiliated companies. Under this plan, participants will receive incentive cash bonuses which are used to purchase shares of the Company which are deposited in a trust.

17. I nco m e t a x, ass et t a x a nd f l a t t a x

The components of the provision (benefit) for each jurisdiction for current and deferred income tax in 2011 and 2010 were as follows:68 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 69 For the year ended December 31. 2011 México U. S. Peru Total

Income tax:

Current $ 723.7 $ 125.2 $ 559.4 $ 1,408.3 Deferred (39.7 ) 44.3 (110.8 ) (106.2 )

Total provision for income tax $ 684.0 $ 169.5 $ 448.6 $ 1,302.1

For the year ended December 31. 2010 México U. S. Peru Total

Income tax:

Current $ 361.8 $ 12.2 $ 590.0 $ 964.0 Deferred 32.3 42.8 (8.2 ) 66.9

Total provision for income tax $ 394.1 $ 55.0 $ 581.8 $ 1,030.9

The reconciliation of the statutory income tax rate to the effective tax rate is as follows:

2011 2010

Expected tax 35.0% 35.0%

Effect of income taxed at a rate other than the statutory rate (0.5) (0.4) Depletion (5.6) (5.7) Dividends

- 0.3 Permanent differences 1.3 1.1 Peru tax on net income deemed distributed 1.2 1.6 Decrease in valuation allowance (3.3) - Difference in foreign tax base 1.9 - Decrease in unrecognized tax benefits for uncertain tax positions - 2.7 Other 0.1 (1.0)

Effective income tax rate 30.1% 33.6% AMC files income tax returns in three jurisdictions, Peru, Mexico and the United States. For the years presented above the statutory income tax rates for Peru and the United States were 30% and 35%, respectively. The statutory income tax rate for Mexico was 30% in 2011 and 2010.

The Company has chosen to use the U. S. income tax rate of 35% for this tax rate reconciliation because most of the distri

butable retained earnings relate to AMC, a U. S. company. Peruvian income tax provision is the largest component of tax the expense for each of the two years presented. For all of the years presented, both AMC and the Company filed separate tax returns in their respective tax jurisdictions. Although the tax rules and regulations imposed in the separate tax jurisdictions may vary significantly, similar permanent items exist, such as items which are nondeductible or nontaxable. Some permanent differences relate specifically to AMC, such as the allowance in the U. S. for percentage depletion.

Temporary differences and carryforwards that gave rise to deferred tax liabilities, assets and related valuation allowances were as follows:

2011 2010

Assets:

Inventories $ 108.9 $ 165.4 Minimun tax credits 63.4 62.9 Posterior benefit obligations 133.0 132.4 Pension obligations 53.2 43.5 Capitalized exploration expenses 31.9 19.8 Foreign tax credit carryforward 778.2 640.7 General business credit carryforward 0.4 1.1 Reserves 72.3 124.0 Tax loss carryforwards 53.0 37.5 Capital loss carryforward - 30.5 Valuation allowance (57.5) (81.3) Hedging losses - 99.2 Effect on U. S. tax Peruvian deferred tax liabilities - 38.6 Other 152.1 58.4 Total deferred tax assets 1,388.9 $ 1,372.7 Liabilities:

Property and equipment $ (689.2) (755.3) Investments (57.0) (46.0) Deferred charges (35.3) (25.0) Retained earnings (85.4) (20.0) Mexican tax consolidated dividends (32.6) (32.7) Other (45.8 ) (8.5 ) Total deferred tax liabilities (945.3 ) (887.5 ) Total net deferred tax assets $ 443.6 $ 485.370 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 71 The Company and Mexican Subsidiaries/Mexico

In 2009, Mexico enacted new tax laws, which, among other things, impose restrictions on certain benefits of tax consolidation and temporarily increased the statutory tax rate.

Under the previous tax consolidation rules, Mexican companies were allowed to indefinitely defer taxes assessed on divi

dends in excess of tax-basis retained earnings accounts that are distributed among entities of a consolidated tax group, and the offsetting net operating losses (NOL’s) incurred by one entity against the profits of another entity, until the occurrence of certain events, such as the dissolution of the tax consolidation regime. The new law, which applies retroactively to qualifying dividends paid and the net operating losses since 1999, eliminates the indefinite deferral period and requires payment of the tax beginning in the sixth year following the dividend. The new law applies retroactively and reduced the NOL carryforward period from ten years to five years. The total liability affected by these amendments is $106.6. This amount includes an addi

tional liability of $22.6 recognized in 2009 and recorded as income tax expense in the consolidated statement of income; the balance of the liability $84.0 has been recorded as a deferred tax charge in prior years.

In March 2011 and in June 2010, the Mexican mining company made tax payments of 125 mexican pesos and 121 mexican pesos (approximately $9.3 and $10), respectively in accordance with the changes in the law. In subsequent years these taxes will continue to be paid in March.

The mexican statutory income tax rate increased to 30% from 2010 through 2012, will decrease to 29% in 2013, and to 28% in 2014 and thereafter.

Mexican companies are subject to a dual tax system comprised of regular income tax and a corporate flat tax that was enacted in 2007. The rate under the corporate flat tax law is 17.5%. Mexican companies pay the greater of the corporate flat tax or regular income tax and determine its deferred income taxes based on the tax regime it expects to be subject to in the future. Based on earnings projections, the Company believes it will be subject to regular income tax for the foreseeable future and has calculated its temporary differences and deferred taxes based on the regular income tax law.

AMC, Asarco and SCC/U. S. and PERU

U. S. Tax Matters

As of December 31, 2010, SCC had unused U. S. net capital losses carryover of $30.0 which expired unutilized in 2011. SCC had a full valuation allowance on the capital loss carryforwards.

As of December 31, 2011, SCC considers its ownership of the stock of MM to be essentially permanent in duration. The excess of the amount for financial reporting over the tax basis of the investment in this stock is estimated to be at least $2.9 billion. The SCC has provided a deferred tax liability of $91.6 as of December 31, 2011 for the U. S. income tax effects of $951 of foreign earnings that may potentially be repatriated in the future by MM.

At December 31, 2011, there were $778.2 of foreign tax credit available for carryback or carryforward. These credits have limited carryback and carryforward periods and can only be used to reduce U.S. income tax on foreign earnings included in the annual U.S. consolidated income tax return. At December 31, 2011 there were $63.4 of minimum tax credits available for carryforward. A valuation allowance again $50.9 of the minimum tax credits exists because the Company does not expect to be able to utilize a portion of credits due to separate company limitations. There were no other material U.S. tax credits at December 31, 2011.

Peruvian Tax MattersAMC obtains income tax credits in Peru for value-added taxes paid in connection with the purchase of capital equipment and other goods and services, employed in its operations and records these credits as a prepaid expense. Under current Peruvian law, AMC is entitled to use the credits against its Peruvian income tax liability or to receive a refund. The carrying value of these Peruvian tax credits approximates their net realizable value.

Special Mining tax -

In September 2011, the Peruvian government enacted a new tax for the mining industry. This tax is based on operating income and its rate ranges from 2% to 8.4%. It begins at 2% for the first 10% of operating income margin and for each additional 5% of operating income margin is increased by an additional rate of 0.4% until 85% of operating income margin is reached. In the last quarter of 2011 AMC made provisions of $16.4 por this tax. This provision is included as “income tax” in the consolidated statement of income.

Mexican Tax Matters

In 2009, Mexico enacted new rules related to the income tax law, which, among other things, impose restrictions on certain benefits of tax consolidation and temporarily increased the statutory tax rate.

Under the previous tax consolidation rules, Mexican companies were allowed to indefinitely defer taxes assessed on divi

dends in excess of tax-basis retained earnings accounts that are distributed among entities of a consolidated tax group, and the offsetting net operating losses (NOL’s) incurred by one entity against the profits of another entity, until the occurrence of certain events, such as the dissolution of the tax consolidation regime. The new law, which applies retroactively to qualifying dividends paid and the net operating losses since 1999, eliminates the indefinite deferral period and requires payment of the tax beginning in the sixth year following the dividend. The new law applies retroactively and reduced the NOL carryforward period from ten years to five years. The total liability affected by these amendments is $106.6. This amount includes an addi

-72 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 73 tional liability of $22.6 recognized in 2009 and recorded as income tax expense in the consolidated statement of earnings; the balance of the liability $84 has been recorded as a deferred tax charge in prior years.

In March 2011 and in June 2010, the Mexican parent company made tax payments of 125 million pesos and 121 million pesos (approximately $9.3 million dollares and $10 million dollares), respectively in accordance with the changes in the law. In subsequent years these taxes will continue to be paid in March.

The Mexican statutory income tax rate increased to 30% from 2010 through 2012, will decrease to 29% in 2013, and to 28% in 2014 and thereafter.

Mexican companies are subject to a dual tax system comprised of regular income tax and a corporate flat tax that was enacted in 2007. The rate under the corporate flat tax law is 17.5%. Mexican companies pay the greater of the corporate flat tax or regular income tax and determine its deferred income taxes based on the tax regime it expects to be subject to in the future. Based on earnings projections, the Company believes it will be subject to regular income tax for the foreseeable future and has calculated its temporary differences and deferred taxes based on the regular income tax law.

Accounting for Uncertainty in Income TaxesThe total amount of unrecognized tax benefits in 2011 and 2010, were as follows:

2011 2010

Unrecognized tax benefits, opening balance $ 178.6 $ 163.4 Gross (decrease) increases — tax positions in prior periods (0.1) 1.5 Gross increases — current-period tax positions 50.1 13.2 Increase (decrease) related to settlements with taxing authorities - 0.5

Unrecognized tax benefits, ending balance $ 228.6 $ 178.6

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $106.3 at December 31, 2011 and $28.4 at December 31, 2010. These amounts relate entirely to U.S. income tax matters. AMC has no unrecognized Peruvian or Mexican tax benefits.

As of December 31, 2011, AMC’s liability for uncertain tax positions included $20.3 for accrued interest and penalties. At December 31, 2010, AMC’s liability for uncertain tax positions included no amount for accrued interest and penalties. Management does not expect that any of the open years will result in a cash payment within the upcoming twelve months ending December 31, 2012. AMC’s reasonable expectations about future resolutions of uncertain items did not materially change during the year ended December 31, 2011.

In the second quarter of 2011, AMC reached agreement with the IRS and settled tax years 2005, 2006, and 2007 relating solely to separate tax returns filed by its subsidiary, Southern Copper Corporation.

The following tax years remain open to examination and adjustment by the Company’s three major tax jurisdictions:

Peru: 2008 up to 2011 (years 1997 through 2006 have been examined by the Peruvian tax authority and the issues raised are being contested; no new issues can be raised for these years. Year 2007 is being examined since December 2011) U.S.: 2008 and all future years Mexico: 2004 and all future years

In the fourth quarter of 2011, the IRS commenced its U.S. federal income tax audit of the Company for the years 2008 through 2010. At December 31, 2011, both the Company and its subsidiaries as ITM report no unrecognized tax benefits. This condi

tion is evaluated periodically.

18. Bu s ine ss s e gm ent s :
The Company’s segments are organized using the management approach by industry and geographical region, resulting in five primary reportable segments: MM, the Branch, Asarco, ITM and Infraestructure. The MM (open pit and underground operations) produce copper, with production of by-products of molybdenum, silver and other material, the Branch and Asarco include integrated copper extraction, smelting and refining operations, produce copper, with production of by-products of molybdenum, silver and other material, mainly in Peru and the U. S., respectively. The corporate and other amounts originate from corporate activities performed in the U. S. ITM carries out railway transportation activities through its main subsidiary GFM mainly in México. Infraestructure activities are mainly performed by MCI and PEMSA which main operations are infra

estructure services and oil well drilling, respectively.

Information by segments is shown in the same format used by the Company’s management to evaluate each business. An operating segment is defined as a component of the Company dedicated to business activities from which the Company generates income and incurs costs and expenses, with respect to which information for decision-making is prepared and in74 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 75 respect of which the Company’s management evaluates the allocation of resources periodically. The accounting policies of the segments are described in the summary of significant accounting policies. The Company assesses the performance by segment based on the operating income or (loss) before these expenses.

The most significant data by business segment in 2011 and 2010 were as follows:

2011

MM The Branch Asarco ITM Infraestructure Corporate and other Total

Sales of product and

services $ 3,563 $ 3,187 $ 1,904 $ 1,544 $ 175 $ - $ 10,373 Income from

operations $ 2,087 $ 1,539 $ 654 $ 303 $ 28 $ 27 $ 4,638 Administrative

expenses $ 51 $ 54 $ 14 $ 68 $ 16 $ (30 ) $ 173 Depreciation and

amortization $ 146 $ 142 $ 87 $ 112 $ 14 $ - $ 501 Comprehensive

financing result $ (1 ) $ (172 ) $ 11 $ (37 ) $ (63 ) $ (45 ) $ (307 ) Net income (loss) $ 1,446 $ 454 $ 448 $ 157 $ 21 $ (54 ) $ 2,472 Total assets,

not including investment in shares of associated companies $ 4,222 $ 3,768 $ 4,058 $ 2,184 $ 217 $ 788 $ 15,237 Total liabilities $ 647 $ 3,380 $ 1,631 $ 772 $ 123 $ 609 $ 7,162 Net investment in

property, plant and equipment $ 2,216 $ 2,204 $ 1,580 $ 1,394 $ 100 $ 148 $ 7,642 Capital expenditures $ (407 ) $ (206 ) $ (108 ) $ (355 ) $ (147 ) $ 6 $ (1,217 ) 2010

MM The Branch Asarco ITM Infraestructure Corporate and other Total

Sales of product and

services $ 1,985 $ 3,164 $ 1,654 $ 1,173 $ 107 $ - $ 8,083 Income from

operations $ 892 $ 1,712 $ 498 $ 269 $ (16 ) $ (60 ) $ 3,295 Administrative

expenses $ 58 $ 63 $ 43 $ 13 $ 20 $ 52 $ 249 Depreciation and

amortization $ 143 $ 137 $ 108 $ 83 $ 12 $ - $ 483 Comprehensive

financing result $ (3 ) $ (150 ) $ (169 ) $ 23 $ - $ 70 $ (229 ) Net income (loss) $ 592 $ 650 $ 233 $ 204 $ (39 ) $ (30 ) $ 1,610 Total assets,

not including investment in shares of associated companies $ 3,248 $ 4,868 $ 4,246 $ 1,800 $ 186 $ 64 $ 14,412 Total liabilities $ 689 $ 3,529 $ 2,633 $ 553 $ 118 $ 128 $ 7,650 Net investment in

property, plant and equipment $ 1,880 $ 2,215 $ 1,614 $ 1,107 $ 104 $ - $ 6,920 Capital expenditures $ (141 ) $ (268 ) $ (46 ) $ (132 ) $ (17 ) $ - $ (604 )76 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 77 The Company made direct sales to customers and rendered railway transportation services in the following areas:

2011 Country MM T he Branch Asarco IT M I nfraestructure T otal

U. S. $ 1,269 $ - $ 1,905 $ $ $ 3,174 México 1,584 451 1,544 174 3,753 Europe 250 1,042 1,292 Peru 1 261 262 China and Asia 56 607 663 Latin America, except

Mexico and Peru 396 819 1,215 Derivative instruments 7 7 14

Grand total $ 3,563 $ 3,187 $ 1,905 $ 1,544 $ 174 $ 10,373

2010 Country MM The Branch Asarco ITM Infraestructure Total

U. S. $ 573 $ 708 $ 1,654 $ - $ - $ 2,935 México 834 3 8 - 1,173 107 2,152 Europe 190 877 - - - 1,067 Peru - 316 - - - 316 China and Asia 49 489 - - - 538 Latin America, except

Mexico and Peru 339 778 - - - 1,117
Derivative instruments - (42 ) - - - (42 )

Grand total $ 1,985 $ 3,164 $ 1,654 $ 1,173 $ 107 $ 8,083 19. D eri va ti v e in s tru m ent s :

AMC

As part of its risk management policy, AMC occasionally uses derivative instruments to (i) safeguard the corporate assets; (ii) insure the value of its future revenue stream, and (iii) lessen the impact of unforeseen market swings of its sales revenues. To comply with these objectives AMC, from time to time, enters into commodities prices derivatives, interest rate derivative, exchange rate derivative and other instruments. AMC does not enter into derivative contracts unless it anticipates a future activity that is likely to occur that will result in exposing AMC to market risk.

Copper swaps:

From time to time AMC has entered into derivative contracts to protect a fixed copper or zinc price for a portion of its metal sales.

In 2011 and 2010, AMC entered into copper swaps and zero cost collar derivative contracts to reduce price volatility and to protect its sales value as shown below. These transactions meet the requirements of hedge accounting. The realized gains and losses from these derivatives were recorded in net sales on the consolidated statement of earnings and included in operating activities on the consolidated statement of cash flows. The following table summarized the copper derivative activity related to copper sales transactions realized in 2011 and 2010:

2011 2010

Copper swap contracts $ (13.5) $ 66.7 Copper collar call option contracts - 3.0

Realized gain (loss) on copper derivatives $ (13.5 ) $ 69.7

In addition, AMC has a hedge program to protect the sales value of a portion of its copper production for the first quarter of 2012. The hedge instruments are based on LME copper prices. AMC performed statistical analysis on the difference between78 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 79 the average monthly copper price on the LME and the COMEX exchanges and determined that the correlation coefficient is greater than 0.999. Based on this analysis AMC considers that the LME underlying price matches its sales priced at COMEX prices. These cash flow hedge relationships qualify as critical matched terms hedge relationships and as a result have no ineffectiveness. AMC performs periodic quantitative assessments to confirm that the relationship was highly effective and that the ineffectiveness was de minimis.

Asarco has designed the following cash flow hedges as hedging instruments:

2011 2010

Copper collar put option contracts Other current assets $ 7.7 $ 10.6 Copper collar put option contracts Other assets and deferred costs - 3.5 Commodity swap contracts Derivative liabilities - (117.9) Copper collar call option contracts Derivative liabilities (0.1) (73.3) Copper collar call option contracts Other liabilities and reserves - (4.7 )

$ 7.6 $ (181.8 )

Asarco’s copper swaps:

At December 31, 2010, the Company held copper swap contracts for 212 pounds at an average price of $3.81 per pound valued at $118 with maturities through December 2011. These hedge transactions are intended to reduce short-term price volatility in earnings and cash flows associated with anticipated product sales. All of the contracts were unsettled as of Dec

ember 31, 2010, accordingly, there were no realized gains and losses reported in earnings for the year ended December 31, 2010. In addition, the Company did not have any significant gains or losses during the year ended December 31, 2010, resul

ting from hedge ineffectiveness. However, all of the contracts were settled during 2011 and accordingly, the Company realized a loss in earnings of $72.7 for the year ended December 31, 2011.

Asarco’s copper collar:

At December 31, 2010, the Company held zero-cost copper collar contracts for 251 pounds capped at an average price of $4.77 per pound (call option) with an average floor price of $3.18 per pound (put option) valued at $78 with maturities through March 2012. At December 31, 2011, the Company held zero-cost copper collar contracts for 39.7 pounds capped at an ave

rage price of $5.22 per pound (call option) with an average floor price of $3.50 per pound (put option) valued at $7.7, with maturities through March 2012. The copper collar contracts consist of the simultaneous purchase of an annual put option and the sale of an annual call option. The put option portion of this hedge effectively ensured a minimum price per pound while the call option portion established a maximum price per pound. The primary objective of these contracts is to set a minimum price, and the secondary objective is to retain market upside. All of the contracts remained unsettled as of December 31, 2010, accordingly, there were no realized gains and losses reported in earnings for the year ended December 31, 2010. In addition, the Company did not have any significant gains or losses during the year ended December 31, 2010, resulting from hedge ineffectiveness. However, substantially all of the contracts were settled during 2011 and accordingly, the Company realized a loss in earnings of $2.7 for the year ended December 31, 2011. The Company estimates that approximately $7.7 in net losses that are currently reported in accumulated other comprehensive income will be reclassified into earnings during 2012.

At the end of 2011 AMC held copper derivative contracts to protect a portion of its copper sales for 2011 and the first quarter 2012, as follows:

2011 1 st Quarter 2012

Zero cost collar contracts:

Pounds (in millions) 423.3 46.3 Average LME cap price $ 3.6 $ 5.18 Average LME floor price $ 2.2 $ 3.50 Estimate % of copper sales covered - 13.6%

Realized gain on copper derivatives $ 13.5 $ -

2011 1 st Quarter 2012

Swap contracts:

Pounds (in millions) 390.8 - Weighted average COMEX price $ 3.4 $ -

Unrealized gain recognized in other

comprehensive income (net of income taxes of $3.5) $ - $ 5.4

The Company expects to reclassify into earnings during the first quarter of 2012 the unrealized gain included in accumulated other comprehensive loss of approximately $5.4 (net of income taxes) at the time the underlying hedged transactions are80 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 81 realized. However, changes in copper prices in that period could increase or decrease the amount of the gain to be reclassified into earnings.

At the end of 2011 Asarco held copper derivative contracts to protect a portion of its copper sales for 2011 and the first quarter 2012, as follows:

2011 1 st Quarter 2012

Zero cost collar contracts:

Pounds (in millions) 39.7 - Average LME cap price $ 5.22 $ - Average LME floor price $ 3.50 $ - Estimate % of copper sales covered - -
Realized gain on copper derivatives $ 2.7 $ 7.7

The amount of gains or losses reported in accumulated other comprehensive income for derivative financial instruments of Asarco as of December 31, 2011 and 2010 is as follow:

Cash Flow Hedging Relationships Gain or (Loss) in Accumulated Other Comprehensive Income 2011 2010

Copper collar put option contracts $ 7.7 $ 14.2 Copper collar call option contracts (0.1) (78.1) Commodity swap contracts - (117.9 )

Total $ 7.6 $ (181.8 )

A summary of the amount of loss recognized in income on derivatives qualified as hedge accounting of Asarco, for the years ended December 31, 2011 and 2010 is as follows: Derivatives Designated as Hedging Instruments Location of Loss Recognized

in Income on

Derivative Amount of Loss Recognized in Income on Derivative 2011 2010

Copper collar call option contracts Revenue $ (2.7) $ - Commodity swap contracts Revenue (72.7 ) -

Total $ (75.4 ) $ -

Asarco had similar contracts that were not designated as hedging instruments which were settled as of December 31, 2010. A summary of the amount of loss recognized in income in 2010 is as follows:

Location of Amount of Loss Recognized Loss Recognized Derivatives Not Designated as Hedging in Income on in Income on Instruments Derivative Derivative 2010

Copper collar call option contracts Revenue $ (2.9) Commodity swap contracts Revenue (24.8 )

Total $ (27.7 )

Transactions under these metal price protection programs are accounted for as cash flow hedges under ASC 815-30 “Derivatives and Hedging-Cash Flow Hedges” as they meet the requirements for this treatment and are adjusted to fair market value based on the metal prices as of the last day of the respective reporting period with the gain or loss recorded in other comprehensive income until settlement, at which time the gain or loss is reclassified to net sales in the consolidated statements of earnings.

AMC ́s Cross Currency Swap and Interest Rate82 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 83 On September 9, 2011, AMC contracted with HSBC and Morgan Stanley an interest rate (IR) and cross currency swap (CCS) with the purpose of managing interest and exchange rate risk on its outstanding with syndicated credit with BBVA Bancomer, S. A. Institución de Banca Mutiple, Grupo Financiero BBVA Bancomer acting as broker, on liabilities denominated in Mexi

can Pesos, with notional of MXP $8,398.8 (US 617.7). The IR change the profile of interest payments from TIIE (Interbank interest rates) plus a margin between 4.0 and 6.5 points to fixed rate 5.9067% the CCS result in a fixed exchange rate of MXP $13.5961 per one US dollar. To hedge the payment of principal and interest of loan denominated in that currency by the amount of MXP $8,398.8. Derivates have the same expiration date as the liabilities covered. The fair value of the IR and CCS at December 31, 2011 was $15.7 and recognized as liability.

Ferrosur’s Cross Currency Swaps and Interest Rate

Ferrosur used the following methods and assumptions to determine the fair value of financial instruments:

On September 29, 2006, Ferrosur entered into two Cross Currency Swaps (CCS) on liabilities denominated in dollars with notional amounts of $25.0 each, which expire on June 6, 2011 and 2013, respectively. The CCS result in a fixed exchange rate of $10.9950 per one US dollar, to hedge the payment of principal and interest of both loans, denominated in that curren

cy by the amount of $25.0 each. The CCS also changes the profile of interest payments from 3-month LIBOR + .45% and .55% to a 28-day TIIE rate + .61% and .71%. Derivatives have the same expiration date as the liabilities covered. The CCS, which expires on June 6, 2013, began with quarterly payments from June 7, 2010. Tthe remaining balance at December 31, 2011 is $11.5.

Although the CCS represent an effective hedge from an economic standpoint, for accounting purposes, from 2010, such instruments were classified as trading derivatives with the related fair value recognized in net comprehensive financing costs. The fair value of the CCS at December 31, 2011 and 2010 was $32.6 and $53.6 millions mexican pesos, respectively.

On June 6, 2007, the Company contracted two IRS, which pay fixed interest rates and receive variable interest rates. One of those swaps whose notional amount totals was $789.9 millon mexican pesos, matures on a quarterly basis from June 7, 2010 until June 6, 2013, as of December 31, 2011 the remaining balance of $364.5 and the other IRS with a notional amount of $564.2 mexican pesos due on June 6, 2011 (in both cases the notional amount expiration dates coincide with the risk positions). During 2011, the Company paid the IRS interest rates 8.51% and 8.37%, respectively, and received a weighted average interest rate of 5.396% and 5.376%. The difference was recorded in comprehensive finance cost, in addition to the variable rate of the loan covered. The IRS fair values at December 31, 2011 and 2010 were recognized as liabilities of $9.3 and $28.9 million mexican pesos, respectively. In 2011, comprehensive income within stockholders’ equity was decreased by ($8.5 mexican pesos), being recognized again as interest accrued in comprehensive financing cost and deferred income taxes of $2.5 mexican pesos.

The credits listed establish certain restrictions and obligations, which at December 31, 2011 and 2010 have been met. 20. Fin a nci a l in s tru m ent s

Subtopic 810-10 of ASC “Fair value measurement and disclosures — Overall” establishes a fair value hierarchy that prioriti

zes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quo

ted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under Subtopic 810-10 are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestric

ted assets or liabilities.

Level 2 - Inputs that are observable, either directly or indirectly, but do not qualify as Level 1 inputs. (i.e., quoted prices for similar assets or liabilities).

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable (other than accounts receivable associated with provisionally priced sales) and accounts payable approximate fair value due to their short maturities. Consequently, such financial instruments are not included in the following table that provides information about the carrying amounts and estimated fair values of other financial instruments that are not measured at fair value in the consolidated balance sheet as of December 31, 2011:

Balance at December 31, 2011 Carrying Value Fair Value

Liabilities - Long-term debt (*) $ 3,826.8 $ 2,974.90

Balance at December 31, 2010 Carrying Value Fair Value

Liabilities - Long-term debt (*) $ 3,983.2 $ 3,983.2

(*) Long-term debt is carried at amortized cost and its estimated fair value is based on quoted market prices classified as Level 1 in the fair value hierarchy. The Mitsui loan is based on the present value of the cash flow discounted at 10%, which is AMC’s weighted average cost of capital.84 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 85 Fair values of assets and liabilities measured at fair value on a recurring basis were calculated as of December 31, 2011 and 2010, are as follows:

Balance at December 31, Quoted prices in active markets for

identical assets Significant other observable inputs Significant unobservable inputs 2011 (Level 1) (Level 2) (Level 3) Assets: Short-term investments: -Trading securities $ 1,034.7 $ 1,034.7 $ - $ - -Available for sale debt securities:

Corporate bonds 0.5 - 0.5 - Asset backed obligations Mortgage backed securities 6.8 - 6.8 -

Accounts receivable: - Derivatives - Classified as flow hedges:

Zero Cost Collar 16.6 - 16.6 -

Accounts receivable: -Derivatives - Not classified as hedges:

Provisionally priced sales:

Copper 221.5 221.5 - - Molybdenum 138.1 138.1 - - Copper collar put option

Liabilities: Other current liabilities: -Liability derivatives - Classified as cash

flow hedges:

Swap - - - - Zero cost collar (15.7 ) - (15.7 ) -

Total $ 1,402.5 $ 1,394.3 $ 8.2 $ - Balance at December 31, Quoted prices in active markets for

identical assets Significant other observable inputs Significant unobservable inputs 2010 (Level 1) (Level 2) (Level 3)

Assets: Short-term investments: -Trading securities $ 456.2 $ 455.4 $ 0.8 $ - -Available for sale debt securities:

Corporate bonds 0.4 - 0.4 - Asset backed obligations 0.3 - 0.3 - Mortgage backed securities 8.6 - 7.4 1.2 Accounts receivable: -Derivatives - Not classified as

hedges: Provisionally priced sales:

Copper 4.8 4.8 - - Molybdenum 7.3 7.3 - - Copper collar put option 14.2 - 14.2 -

Liabilities: Other current liabilities: -Liability derivatives - Classified

as cash flow hedges:

Swap (244.2) - (244.2) - Zero cost collar (150.8 ) - (150.8 ) -

Total $ 96.8 $ 467.5 $ (371.9 ) $ 1.2

Certain short-term trading securities investments are classified as Level 1 because they are valued using quoted prices of the same securities.

The Company’s short-term available-for-sale investments are classified as Level 2 because they are valued using quoted prices for similar investments. The Company classifies investments within Level 3 of the valuation hierarchy in certain cases86 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 87 where there is limited activity or less observable inputs to the valuation. Investments classified within Level 3 as of Decem

ber 31, 2010, include mortgage-backed securities. These investments are valued by the fund’s management advisor taking into consideration different factors and methodologies considered appropriate in the circumstance. Factors can include the following or a combination of the following observed transactions, broker quotes, cash flow analysis, vendor prices and other factors, as appropriate.

Derivatives are valued using financial models that use as their basis readily observable market inputs, such as time value, forward interest rates, volatility factors, and current and forward market prices for foreign exchange rates and a set of pro

babilities. The Company generally classifies these instruments within Level 2 of the valuation hierarchy. Such derivatives at December 31, 2011 and December 31, 2010, include copper swaps and zero cost collars.

The Company’s accounts receivables associated with provisionally priced copper sales are valued using quoted market prices based on the forward price on the London Metal Exchange (LME) or on the Commodities Exchange (COMEX) in New York. Such value is classified within Level 1 of the fair value hierarchy. Molybdenum prices are established by reference to the publication Platt’s Metals Week and are considered Level 1 in the fair value hierarchy.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 short-term investments (corporate bond, asset backed obligations, and mortgage backed securities), for the years ended on December 31, 2011 and 2010.

2011 2010

Balance at beginning of period $ 1.2 $ 3.1

Purchase, sales, issuance and settlements (net) - (1.3) Transfers in/out of Level 3 (1.2 ) (0.6 )

Balance at end of period $ - $ 1.2

The total amount of unrealized loss for the period was included in other income (expense) in the consolidated statement of income for December 31, 2011 and 2010, respectively.

21. C oncentr a tion o f ri s k

AMC operates four open-pit copper mines, five underground poly-metallic mines, two smelters and eight refineries in Peru and Mexico and substantially all of its assets are located in these countries. There can be no assurances that AMC’s opera

tions and assets that are subject to the jurisdiction of the governments of Peru and Mexico will not be adversely affected by future actions of such governments. Much of AMC’s products are exported from Peru and Mexico to customers principally in the United States, Europe, Asia and South America.

Financial instruments, which potentially subject AMC to a concentration of credit risk, consist primarily of cash and cash equivalents, short-term investments and trade accounts receivable.

AMC invests or maintains available cash with various banks, principally in the United States, Mexico, Europe and Peru, or in commercial papers of highly-rated companies. As part of its cash management process, SCC regularly monitors the relative credit standing of these institutions. At December 31, 2011, SCC had invested its cash and cash equivalents as follows:

Country % of total cash % invested in one institution

United States 86.9% 25.2% Peru 9.1% 84.3% Mexico 4.0% 96.1%

During the normal course of business, AMC provides credit to its customers. Although the receivables resulting from these transactions are not collateralized, AMC has not experienced significant problems with the collection of receivables.

AMC is exposed to credit loss in cases where the financial institutions with which it has entered into derivative transactions (commodity, foreign exchange and currency/interest rate swaps) are unable to pay when they owe funds as a result of protection agreements with them. To minimize the risk of such losses, the Company only uses highly-rated financial institutions that meet certain requirements. The Company also periodically reviews the creditworthiness of these institutions to ensure that they are maintaining their ratings. The Company does not anticipate that any of the financial institutions will default on their obligations.

Mining Division largest customers as percentage of accounts receivable and total sales were as follows:

2011 2010

Accounts receivable trade as of December 31

Five largest customers 43.9% 49.1% Largest customer 35.8% 16.3%88 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 89 Total sales in year

Five largest customers 73.7% 29.6% Largest customer 55.3% 9.9%

22. C o mm it m ent s

Mining segment

Peruvian and Mexican Operation

Power purchase agreement

In 1997, SCC sold its Ilo power plant, to an independent power company, Enersur, S. A. (“Enersur”). In connection with the sale, a power purchase agreement was also completed under which the Company agreed to purchase all of its power needs for its Peruvian operations from Enersur for twenty years, commencing in 1997.

The Company signed in 2009 a Memorandum of Understanding (“MOU”) with Enersur regarding its power supply agreement.

The MOU contains new economic terms that the Company believes better reflect current economic conditions in the power industry and in Peru. The new economic conditions agreed to in the MOU have been applied by Enersur to its invoices to the Company since May 2009. Additionally, the MOU includes an option for providing power for the Tia Maria project. During 2010 and 2011, the Company continued its negotiation with Enersur. However, due to the delay at the Tia Maria project the final agreement was put on hold.

L ong- T

erm Sales C ontracts

Under the terms of a sales contract with Mitsui & Co. Ltd. (“Mitsui”), the Company is required to supply Mitsui with 48,000 tons of copper cathodes annually through 2013. If the shipment destination is Asia, the pricing of the cathodes is based upon the LME monthly average settlement price. However, if the destination of shipments is the United States, the pricing of the cathodes is based upon the COMEX monthly average settlement price. In either case a producer premium will be included which is agreed upon annually based on world market terms. 90,000 tons related to a prior contract (period 1994-2000) will be supplied as follows: 48,000 in 2014 and 42,000 in 2015.

Under the terms of a sales contract with Molibdenos y Metales, S. A., SPCC Peru Branch is required to supply 23,300 tons of molybdenum concentrates from 2012 through 2014. This contract may be extended for one more calendar year during each October to maintain a three year period unless either party decides to terminate the agreement. The sale price of the molyb

denum concentrates is based on the monthly average of the high and low Metals Week Dealer Oxide quotation. The roasting charge deduction is agreed based on international market terms.

Under the terms of a sales contract with Molymex, S. A. de C. V., MM is required to supply at least the 85% of its molybdenum concentrates production from 2012 through 2015. The sale price of the molybdenum concentrate is based on the monthly average of the high and low Metals Week Dealer Oxide quotation. The roasting charge deduction is negotiated based on international market terms.

American Operations:

Asarco has entered into several lease agreements, substantially all for mining equipment, and has options to purchase that equipment. The options are at fixed prices prior to expiration of the leases and at fair market value upon expiration. The leases have been accounted for as operating leases.

Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year in the aggregate at December 31, 2011, are as follows:

Period ended December 31

2012 $ 7.5 2013 4.4 2014 2.1 2015 1.1

Total $ 15.1

Total rental expenses was $46.2 and $69.2 for the years ended December 31, 2011 and 2010, respectively, and is included in costs of revenue in the consolidated statements of income. Included in total rental expenses are land royalty payments for $32.9 and $58.5 for the years ended December 31, 2011 and 2010, respectively. Asarco guarantees 100% of an operating lease of SBM, which is 75% owned by the Company. For the years ended December 31, 2011 and 2010, $6.5 and $6.2, respectively, are related to the SBM lease.

Letters of Credit, Surety Bonds and Guarantees — During 2010 Asarco canceled its $5.0 standby letters of credit with Chase Bank, therefore as of December 31, 2011 and 2010, the amounts outstanding were $0. Asarco had outstanding surety bonds90 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 91 totaling $15.5 and $15.2 at December 31, 2011 and 2010, respectively. These bonds are primarily associated with reclama

tion and permit obligations of $12.2 and $12.3 and other miscellaneous bonds of $3.1 and $2.9 as of December 31, 2011 and 2010, respectively. The underlying liabilities associated with the above-referenced financial assurances are reflected in the consolidated balance sheets as environmental remediation obligations. At December 31, 2011 and 2010, Asarco had a guarantee outstanding for 100% of an operating lease at SBM, of which 75% is owned by Asarco. The guarantee by Asarco was a requirement by the lessor as part of the lease agreement with SBM. The lease has a remaining term of 1-1/2 years at December 31, 2011. The maximum potential amount of future payments under the guarantee is approximately $8.3 at Dec

ember 31, 2011. Payment would be required if SBM defaults on its lease obligations.

Railway segment

Ferromex’s operations are subject to Mexican federal and state laws, and to regulations related to environmental pro

tection. Under these laws, guidelines have been issued concerning air, soil and water pollution, and studies have been carried out concerning environmental impact, noise control and hazardous residues. The Environment and Natural Re

sources Ministry (SEMARNAT for its acronym in Spanish) may impose administrative and criminal sanctions against companies that breach environmental laws and it has authority to partially or entirely close any facilities that fail to comply with such regulations.

As of December 31, 2011, there are 3 administrative processes were opened before the Procuraduría Federal de Protección al Ambiente (PROFEPA), related to product’s spills by railway accidents in which it hopes that lower economic sanctions could be imposed to Ferromex because the impacted soils’ sanitation was fulfilled. Regarding that none of these events had relevance or impact in the consolidated financial statements. All events related liberation of products to environment by rai

lway accidents, which its cost be superior to fifty thousand dollars, these events are protected by coverages of assurance by environmental damages.

Under the terms of the concession, the Mexican Federal Government has the right to receive payments from Ferromex equal to 0.5% of the gross revenue during the first 15 years of the concession and 1.25% during the remaining years of the conces

sion. In the years ended on December 31, 2011 and 2010, such payments $8.0 and $5.79, respectively.

As part the concession agreements, the Port Authority of Coatzacoalcos (APICOA) is entitled to receive from Transgolfo Terminal, S. A. de C. V. (subsidiary) a monthly fee per square meter of surface terminal. In the year December 31, 2011, the amount of these payments totaled $476.

Ferromex leases the building where its main offices are located, the lease agreement is for ten years beginning from April 1, 2003. In addition, Ferromex leases certain equipment, such as hoppers, boxcars, flatcars and tanker cars. Commitments for minimum payments under lease agreements for the following years are as follows:

Total

$ 60.5 2013 51.4 2014 38.7 2015 35.0 2016 Thereafter 95.1

Total $ 280.7

In January 1998, Ferromex entered into a fuel purchase agreement with PEMEX, under which Ferromex is required to purcha

se, at market value, a minimum of 19,575 cubic meters and a maximum of 38,650 cubic meters of diesel per month, although this limit may be exceeded, without any repercussion, in conformity to the modifying agreement which became effective since May 18, 2010. At the same time, in the modifying agreement which became effective from June 29, 2007, the purchase agreement has effect during four years and its validity will be extended for two years, and at the end of this two years period it will be renewed every year.

Ferromex entered into a fuel purchase agreement with PEMEX, under which Ferromex is required to purchase, at market value, a minimum of 19,575 meters and a maximum cubic 38,650 meters cubic of diesel per month, although this limit may be exceeded, without any repercussions, according to the contract of sale of first-hand petroleum products for consumption concluded between PEMEX Refining and Ferromex which took effect from September 15, 2011. The contract is valid for four years renewable for an additional two years and therafter renewed each year.

On January 5, 2001, Ferrosur entered into a contract with PEMEX refining for own consumption, which establishes a con

tractual volume in relation to any month that PEMEX refinery is forced to sell and Ferrosur to buy and indicating a maximum contract amount and a minimum contract volume by center assigned shipper, (volume 2,075 cubic meters (m3) minimum and maximum volume 10,500 m3 in total) that contract is effective from the date above and continues in force for an indefinite term until terminated by either party at the end of any month upon notice to the other party with at least three months in advance. On June 29, 2007 amended the contract and is valid for four years, after which written request may be made to extend for a term of two years and won it, for another year and so on for each year.92 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 93 ITM is the guarantor of Ferrosur on:

a. Syndicated loan with several banks operated on June 6, 2006 by CITIBANK, N. A., consists of the following segments:

- $364.5 thousand Mexican pesos which bears interest at a rate of TIIE 28 days 0.575% with quarterly amortizations from June 6, 2010, until June 6, 2013.

- $11.5 thousand Mexican pesos bearing interest at Libor plus 0.55% three months, with quarterly amortizations from June 6, 2010, until June 6, 2013.

b. Additionally Ferrosur uses the following methods and assumptions to determine the fair value of financial instruments:

On September 29, 2006, Ferrosur hired two Cross Currency Swaps (CCS) on liabilities denominated in dollars with notional amount of $25.0 who conquered and settled on June 6, 2011 and $11.5, which expires on June 13, 2013. The CCS fix an exchange rate of $10.9950 per dollar, to cover the payment of principal and interest on two loans, denominated in that cu

rrency for the amount of $25.0 (liquidated in 2011) and $11.539, the CCS also change profile of interest payments of US-rate 3-month LIBOR + 0.45% and 0.55% at a 28-day TIIE + 0.61% and 0.71%. The derivatives have the same expiration date of the liabilities covered.

On June 6, 2007 Ferrosur contracted two interest rate hedges (IRS) for its acronym in English “Interest Rate Swap”, through which pay fixed interest rates and receives variable interest rates. One of the swaps whose notional amount is $364.5 expires on June 6, 2013, and the other with a notional amount of $564.2 expired and was settled on June 6, 2011 (in both cases both the notional amount and maturity dates coincide with the risk positions.) During 2011, ITM paid Ferrosur interest rates 8.51% and 8.37%.

The credits listed establish certain restrictions and obligations, which at December 31, 2011 and 2010 have been met.

23. C ontin g encie s

Mining Segment

E nvironmental matters

Peruvian and Mexican Operation

The Company has instituted extensive environmental conservation programs at its mining facilities in Peru and Mexico. The Company’s environmental programs include, among other features, water recovery systems to conserve water and minimize impact on nearby streams, reforestation programs to stabilize the surface of the tailings dams and the implementation of scrubbing technology in the mines to reduce dust emissions.

Company’s operations in Peru are subject to applicable Peruvian environmental laws and regulations. The Peruvian govern

ment through the environmental ministry conducts annual audits of Company’s Peruvian mining and metallurgical operations. Through these environmental audits, matters related to environmental commitments, compliance with legal requirements, atmospheric emissions, and effluent monitoring are reviewed. The Company believes that it is in material compliance with applicable Peruvian environmental laws and regulations.

Peruvian law requires that companies in the mining industry provide for future closure and remediation. In accordance with the requirements of this law the Company’s closure plans were approved by MINEM. As part of the closure plans, the Com

pany is providing guarantees to ensure that sufficient funds will be available for the asset retirement obligation. See Note 12, “Asset retirement obligation,” for further discussion of this matter.

Company’s operations in Mexico are subject to applicable Mexican federal, state and municipal environmental laws, to Mexi

can official standards, and to regulations for the protection of the environment, including regulations relating to water supply, water quality, air quality, noise levels and hazardous and solid waste.

The principal legislation applicable to Company’s Mexican operations is the Federal General Law of Ecological Balance and Environmental Protection (“General Law”), which is enforced by the Federal Bureau of Environmental Protection (“PROFE

PA”). PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations and official standards. PROFEPA may initiate administrative proceedings against companies that violate environmental laws, which in the most extreme cases may result in the temporary or permanent closing of non-complying facilities, the revocation of operating licenses and/or other sanctions or fines. Also, according to the Federal Criminal Code, PROFEPA must inform corresponding authorities regarding environmental noncompliance.

Mexican environmental regulations have become increasingly stringent in recent years, and this trend is likely to continue and has been influenced by the environmental treaty entered into by Mexico, United States and Canada in connection with NAFTA in 1999.

In relation the aforementioned, on January 28, 2011, Article 180 of the General Law was amended. This amendment, gives an individual or entity the ability to contest administrative acts, including environmental authorizations, permits or concessions granted, without the need to demonstrate the actual existence of harm to the environment, natural resources, flora, fauna or human health, because it will be sufficient to argue that the harm may be caused.

As a result of the amendment, more legal actions supported or sponsored by non-governmental groups, interested in halting projects, and not necessarily in protecting the rights of affected communities may be filed against companies operating in all industrial sectors, including the mining sector.94 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 95 In addition, on August 30, 2011, amendments to the Civil Federal Procedures Code (“CFPC”) were published in the Offi

cial Gazette wich have already entered into force. These amendments establish three categories of collective actions, by means of which 30 or more people claiming injury derived from environmental, consumer protection, financial services and economic competition issues will be considered to be sufficient in order to have a legitimate interest to seek through a civil procedure restitution or economic compensation or suspension of the activities from which the alleged injury derived. The amendments to the CFPC may result in more litigation, with plaintiffs seeking remedies, including suspension of the activities alleged to cause harm.

On December 5, 2011, the Senate Chamber approved the Environmental Liability Federal Law which establishes general gui

delines in order to determine which environmental actions will be considered to cause environmental harm that will give rise to administrative responsibilities (remediation or compensations) and criminal responsibilities. Also economic fines could be established. This initiative has been turned to lower chamber for discussion and voting. The law will be in force once approved by the lower chamber and signed by the President.

FIn March 2010, the Company announced to the Mexican federal environmental authorities the closure of the copper smelter plant at San Luis Potosi. The Company has initiated a program for plant demolition and soil remediation with a budget of $35.7, of which the Company has spent $22.5 through December 31, 2011. The program is expected to be completed by the end of 2013. The Company expects to remediate the site and promote an urban development to generate a net gain on the disposal of the property.

The Company believes that all of its facilities in Peru and Mexico are in material compliance with applicable environmental, mining and other laws and regulations.

The Company also believes that continued compliance with environmental laws of Mexico and Peru will not have a material adverse effect on the Company’s business, properties, result of operations, financial condition or prospects and will not result in material capital expenditures.

Environmental remediation

United States operations

In connection with the matters referred to below, AMC is working with federal and state agencies to resolve environmental issues. Asarco accrues for losses when such losses are deemed probable and reasonably estimable. Such accruals are ad

justed as new information comes to Asarco’s attention or circumstances change. These environmental liabilities are not dis

counted to present value. Recoveries of environmental remediation and related costs from insurance carriers and other parties are recorded as assets when realized. Remedial action is being undertaken by Asarco at, and in some instances nearby, some of the following sites: Hayden - The Environmental Protection Agency (“EPA”) notified Asarco that it was considering listing certain areas surroun

ding Asarco’s Hayden Smelter in Hayden, Arizona, on the Federal Superfund’s National Priorities List (“NPL”). The basis of the listing was ostensibly that emissions from the smelter have contributed to elevated levels of metals in soil. Asarco, the EPA, and the Arizona Department of Environmental Quality (“ADEQ”) entered into negotiations to address environmental conditions at the Hayden site without resorting to such a listing. The parties participated in extensive negotiations regarding the scope of actions to be taken at the Hayden site, which resulted in an agreement regarding cleanup of the site. Pursuant thereto, Asarco has begun work on certain residential yards that the EPA deems to be a high priority.

As required to Secure its Obligations Under The approved settlement agreement, Asarco established and funded a $15.0 trust on July 3, 2008. The funds in the Hayden site trust are to be used to pay for (I) required cleanup of the residential areas surrounding the smelter and (II) to pay for additional investigative work at the Hayden site to identify any releases of hazardous substances if any such releases are not otherwise being addressed under any other regulatory program for cleanup. Under the settlement agreement, Asarco’s liability for cleanup of the residential areas is limited to $13.5, while there is no cap on Asarco’s liability for the cost of the required investigation activities of on-site remediation. The residential cleanup is subs

tantially complete and management believes the funds in the Hayden site trust are adequate to cover any further investigative activities. The amounts reserved on the Company’s consolidated balance sheets as of December 31, 2011 and 2010, were $6.7 and $8.1, respectively.

On November 10, 2011 the EPA issued Asarco a Finding of Violation (“FOV”) stating it believed the Hayden smelter was a major source of Hazardous Air Pollutants (“HAP’s”). In December, 2011, AMC met with the EPA, ADEQ and the State Attorney General’s Office to consider possible resolutions to the FOV. Asarco discussed the progress of an anode ventilation project at the smelter and evaluations of additional smelter upgrades to comply with the newly implemented sulfur dioxide regulations. Asarco belives that this upgrade together with the anode ventilation project will reduce HAPs emissions to a verifiable degree sufficient to resolve the FOV. Further discussions and negotiations are expected to continue with the EPA and Department of Justice on this matter.

Rosemont Mining Property Avoidance Action - In 2007, Asarco filed a complaint to avoid the transfer of certain of its property located in Pima County, Arizona, to Rosemont Ranch, LLC (“Rosemont”). Asarco sold the property for $4.2 to certain defen

dants while Asarco was insolvent, and certain defendants then sold the property less than one year later to other defendants for approximately $20.0. The property contains substantial proven and probable mineral reserves.

On January 15, 2009, the parties executed a term sheet compromising and setting Asarco’s claims in the lawsuit. In February 2009, the settlement was approved by the Bankruptcy Court and the initial payment of $1.3 was made to Asarco on March 16, 2009. Additionally, the agreement calls for $9.0 over eight years, payable from profits, if any, of production at the Rosemont project and subject to an option (“Buy-Back Option”), which, if exercised, would require Augusta Resources Corporation (“Augusta”) (the current owner) to pay Asarco the net present value of such payments in cash calculated using an 18%96 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 97 discount rate. For 2009, the parties agreed that the option exercise price would be $2.6. In October 2010, Augusta resources exercised the Buy-Back Option and paid the Company $2.7 to satisfy its obligation in full under the settlement agreement. The amount was recorded in other income (expense) in the consolidated statements of income.

Litigation matters

Peruvian operations

Garcia Ataucuri and Others against the Company (“SCC’s Peruvian Branch”, “Branch” or “Peruvian Branch”):

In April 1996, the Branch was served with a complaint filed in Peru by Mr. Garcia Ataucuri and approximately 900 former employees seeking the delivery of a substantial number of its “labor shares” (acciones laborales) plus dividends on such shares, to be issued to each former employee in proportion to their time of employment with SCC’s Peruvian Branch.

The labor share litigation is based on claims of former employees for ownership of a portion of labor shares that the plaintiffs’ state that the Branch did not issue during the 1970s until 1979 under a former Peruvian mandated profit sharing system. In1971, the Peruvian government enacted legislation providing that mining workers would have a 10% participation in the pretax profits of their employing enterprises. This participation was distributed 40% in cash and 60% in an equity interest of the enterprise. In 1978 the equity portion, which was originally delivered to the mining industry organization, was set at 5.5% of pre-tax profits and was delivered mainly in the form of “labor shares” to individual workers. The cash portion was set at 4.0% of pre-tax earnings and continued to be delivered to individual employees also in proportion to their time of employment at the Branch. In 1992 the workers’ participation was set at 8%, with 100% payable in cash and the equity participation was eliminated from the law.

In relation to the issuance of “labor shares” by the Branch in Peru, the Branch is a defendant in the following lawsuits:

1) Mr. Garcia Ataucuri seeks delivery, to himself and each of the approximately 900 former employees of the Peruvian Branch, of the 3,876,380,679.65 old soles or 38,763,806.80 “labor shares” (acciones laborales), as required by Decree Law 22333 (a former profit sharing law), to be issued proportionally to each former employee in accordance with the time of employment of such employee with SCC’s Branch in Peru, plus dividends on such shares. The 38,763,806.80 labor shares sought in the complaint, with a face value of 100.00 old soles each, represent 100% of the labor shares is

sued by the Branch during the 1970s until 1979 for all of its employees during that period. The plaintiffs do not represent 100% of SCC’s eligible employees during that period.

It should be noted that the lawsuit refers to a prior Peruvian currency called “sol de oro” or old soles, which was later change to the “inti”, and then into todays “nuevo sol”. One billion of old soles are equivalent to today’s one nuevo sol. After lengthy proceedings before the civil courts in Peru on September 19, 2001, on appeal from the Branch (the 2000 appeal), the Peruvian Supreme Court annulled the proceedings noting that the civil courts lacked jurisdiction and that the matter had to be decided by a labor court.

In October 2007, in a separate proceeding initiated by the plaintiffs, the Peruvian Constitutional Court nullified the Sep

tember 19, 2001 Peruvian Supreme Court decision and ordered the Supreme Court to decide again on the merits of the case accepting or denying the Branch’s 2000 appeal.

In May 2009, the Supreme Court rejected the 2000 appeal of the Branch affirming the adverse decision of the appellate civil court and lower civil court. While the Supreme Court has ordered SCC’s Peruvian Branch to deliver the labor shares and dividends, it has clearly stated that SCC’s Peruvian Branch may prove, by all legal means, its assertion that the labor shares and dividends were distributed to the former employees in accordance with the profit sharing law then in effect, an assertion which SCC’s Peruvian Branch continues to make. None of the resolutions state the manner by which SPCC must comply with the delivery of such labor shares or make a liquidation of the amount to be paid for past dividends and interest.

On June 9, 2009, SCC’s Peruvian Branch filed a proceeding of relief before a civil court in Peru seeking the nullity of the 2009 Supreme Court decision and in a separate proceeding a request for a precautionary measure. The civil court rendered a favorable decision on the nullity and the precautionary measure, suspending the enforcement of the Supre

me Court decision, for the reasons indicated above and other reasons. In February 2012, the Branch was notified that the civil court had reversed its decision regarding the nullity. The precautionary measure is still in effect. The Peruvian Branch has appealed the unfavorable decision before the superior court. In view of this, and the recent civil court deci

sion, SCC ́s Peruvian Branch continues to analyze the manner in which the Supreme Court decision may be enforced and what financial impact, if any, said decision may have.

2) In addition there are filed against SCC’s Branch the following lawsuits which seek the same number of labor shares as in the Garcia Ataucuri case, plus interest, labor shares resulting from capital increases and dividends: Cornejo Flores and others v. SCC’s Peruvian Branch (filed May 10, 2006); Alejandro Zapata Mamani and others v. SCC’s Peruvian Branch (filed June 27, 2008); Arenas Rodriguez and others, represented by Mr. Cornejo Flores, v. SCC’s Peruvian Branch (filed January 2009); Eduardo Chujutalli v. SCC’s Peruvian Branch (filed May 2011); Edgardo García Ataucuri, in represen

tation of 216 of SCC’s Peruvian Branch former workers, v. SCC’s Peruvian Branch (filed May 2011); Silvestre Macedo Condori v. SCC’s Peruvian Branch (filed June 2011); Juan Guillermo Oporto Carpio v. SCC’s Peruvian Branch (filed August 2011); Rene Mercado Caballero v. SCC’s Peruvian Branch (filed November 2011) and Enrique Salazar Alvarez and others v. SCC’s Peruvian Branch (filed December 2011). SCC’s Branch has answered the complaints and denied the validity of the claims.98 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 99 SCC’s Peruvian Branch asserts that the labor shares were distributed to the former employees in accordance with the profit sharing law then in effect. The Peruvian Branch has not made a provision for these lawsuits because it believes that it has meritorious defenses to the claims asserted in the complaints. Additionally the amount of this contingency cannot be reasonably estimated by management at this time.

3) Sociedad Minera de Responsabilidad Limitada Virgen Maria de Arequipa (SMRL Virgen Maria):

In August 2010, a lawsuit was filed against SCC’s Branch and others by SMRL Virgen Maria, a company which until July 2003 owned the mining concession Virgen Maria, which forms part of the Tia Maria project. SMRL Virgen Maria sold this mining concession in July 2003 to Excomet (see above noted case).

The plaintiff alleges that the sale of the mining concession Virgen Maria to Excomet is null and void because the per

sons who attended the shareholders’ meeting of SMRL Virgen Maria, at which the purchase was agreed upon, were not the real owners of the shares. The plaintiff is also pursuing the nullity of all the subsequent acts regarding the mining property (acquisition of the shares of Excomet by SCC’s Branch, noted above, and the sale of the concession to SCC’s Branch by Excomet). On October, 2011, the civil court dismissed the case on the grounds that the claim had been barred by the statute of limitations. The plaintiff has appealed this decision before the superior court. At December 31, 2011, resolution of the appeal was pending.

4) Exploraciones de Concesiones Metalicas S. A. C.:

In August 2009, a lawsuit was filed against SCC’s Branch by the former stockholders of Excomet. The plaintiffs allege that the acquisition of Excomet’s shares by the Branch is null and void because the $2 million purchase price paid by the Branch for the shares of Excomet was not fairly negotiated by the plaintiffs and the Branch. In 2005, the Branch acquired the shares of Excomet after lengthy negotiations with the plaintiffs, and after the plaintiffs, which were all of the stockholders of Excomet, approved the transaction in a general stockholders’ meeting. Excomet was at the time owner of a mining concession which forms part of the Tia Maria project. In October 2011, the civil court dismissed the case on the grounds that the claim had been barred by the statute of limitations. The plaintiff has appealed this decision before the superior court. At December 31, 2011, resolution of the appeal was pending.

5) Omar Nunez Melgar:

In May 2011, Mr. Omar Nunez Melgar commenced a lawsuit against the Peruvian Mining and Metallurgical Institute and the MINEM challenging the denial of Mr. Nunez’s concession request that conflicted with SCC’s Branch’s Virgen Maria concession, which forms part of the Tia Maria concession. SCC’s Branch has been made a party to the proceedings as the owner of the Virgen Maria concession. SCC’s Branch has answered the complaint and denied the validity of the claim. As of December 31, 2011, this case remains open with no further developments.

SCC asserts that the lawsuits are without merit and is vigorously defending against these lawsuits.

Mexican Operations

Pasta de Conchos Accident:

On February 19, 2010, three widows of miners, who perished in the 2006 Pasta de Conchos accident, filed a complaint for damages in the United States District Court for the District of Arizona against the defendants, Grupo Mexico, AMC and SCC. The plaintiffs allege that the defendants’ purported failure to maintain a safe working environment at the mine amounted to a violation of several laws and treaties. The Company considers that the court does not have subject-matter jurisdiction over the plaintiffs’ claims and will defend itself vigorously. On April 13, 2010, the Company filed a motion to dismiss the plaintiffs’ complaint. On March 29, 2011, the District Court for the District of Arizona dismissed the case for lack of subject-matter jurisdiction. On April 5, 2011, the plaintiffs filed a notice of appeal in this case. At March 30, 2012, resolution of the appeal was pending.

United States operations

Disputed Claims Reserve (“DCR”)

Management had identified certain bankruptcy claims at December 31, 2009, that requires Asarco to settle in cash. These contingent liabilities are related to the following:

• Administrative claims of labor unions, medical plan administration fees, and other miscellaneous items

• Certain enhancement claims by legal firms, consulting firms, and other professionals participating in the bankruptcy proceedings

• Substantial contribution claims, by previous officers, board members, and plan participants

The full face value of claims remaining in the DCR on December 31, 2011 is approximately $31.1. Management believes the likelihood of any of these claims prevailing at face value is remote and will not have a material adverse effect on Asarco’s financial position, results of operations, or cash flows because the Parent’s Plan Administrator (“PPA”) has reserved cash in the DCR for future payments of these unsettled administrative general unsecured claims and any successful remaining administrative claims listed above. On December 31, 2011 and 2010, the DCR restricted cash balances were $129.9 and $139.1, respectively. In addition to the assets recorded as restricted cash, Asarco has recorded associated liabilities in the100 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 101 amounts of $25.3 and $31.7 at December 31, 2011 and 2010, respectively. The liability amounts represent management’s best estimate to ultimately settle and pay these contingent claims at the full allowed amount. Any residual cash in the DCR will be returned to Asarco, and any deficiency will be funded by Asarco. Management believes the amount is sufficient to pay the disputed claims in full and will not have a material adverse effect on Asarco’s consolidated financial position, results of operations, or cash flows.

Labor matters

In recent years the Company has experienced a number of strikes or other labor disruptions that have had an adverse impact on its operations and operating results.

Peruvian Operations

Approximately 61% of the 4,159 Company’s Peruvian workers were unionized at December 31, 2011, represented by eight separate unions. Three of these unions, one at each major production area, represent the majority of the Company’s workers. In September 2010, the Company reached a collective bargaining agreement with these three unions which will expire on Au

gust 31, 2012. This agreement includes, among other things, a 5% annual salary increase and a signing bonus of approxima

tely 0.007 for each of the workers (approximately 2,000). In addition, this agreement provides a productivity bonus program for the departments that reach certain goals.

In addition, there are five smaller unions, representing the balance of the workers. Collective bargaining agreements with these unions will expire in November 2012. The Company expects that negotiations with the eight unions will likely continue throughout the first quarter of 2013.

There were no strikes during 2011 and 2010.

Mexican operations

Approximately 75% of the Company’s 7,975 Mexican workers were unionized at December 31, 2011, represented by three separate unions. Under Mexican law, the terms of employment for unionized workers is set forth in collective bargaining agreements. Mexican companies negotiate the salary provisions of collective bargaining agreements with the labor unions annually and negotiate other benefits every two years. The Company conducts negotiations separately at each mining com

plex and each processing plant.

In recent years the Buenavista mine experienced several labor stoppages. The latest labor stoppage started in July 2007 and finished in June 2010. The Company began the rehabilitation of the Buenavista mine during the second half of 2010 and is now operating the facility at full capacity. In 2011, the Company completed all repairs to the Buenavista mine at a total cost of $212.8, of this $131.7 were capitalized and $81.1 were charged to operating cost.

On June 6, 2011, the Confederation of Mexican Workers (“CTM”) was awarded the collective bargaining agreement of the Buenavista del Cobre’s union by the Federal Board of Conciliation and Arbitration. CTM now represents around 780 workers of this mine.

Additionally, the San Martin and Taxco mines have been on strike since July 2007. On December 10, 2009, a federal court confirmed the legality of the San Martin strike. In order to recover the control of the San Martin mine and resume operations, on January 27, 2011, the Company filed a court petition requesting that the court establish the Company’s responsibility for the strike and that it define the termination payment for each unionized worker. The court denied the petition alleging that according to Federal labor law, the union was the legitimate party to file the petition. On appeal by the Company, on May 13, 2011, the Mexican federal tribunal accepted the petition of the Company. In July 2011, the union appealed the favorable court decision before the Supreme Court. At March 30, 2012, resolution of the appeal was pending.

In the case of the Taxco mine, following the workers refusal to allow exploration of new reserves, the Company commenced litigation seeking to terminate the labor relationship with workers of the Taxco mine (including the related collective bargaining agreement). On September 1, 2010, the federal labor court issued a ruling approving the termination of the collective bar

gaining agreement and all the individual labor contracts of the workers affiliated with the Mexican mining union at the Taxco mine. The ruling was based upon the resistance of the mining union to allow the Company to search for reserves at the Taxco mine. If sustained, this ruling will also have the effect of terminating the protracted strike at the Taxco unit. The mining union appealed the labor court ruling before a federal court. In September 2011, the federal court accepted the union’s appeal and requested that the federal labor court review the procedure and to take into account all the evidence to issue a new resolution. On January 3, 2012, the federal labor court again issued a new resolution, approving the termination of the collective bar

gaining agreement and all the individual labor contracts of the workers affiliated with the Mexican mining union at the Taxco mine. On January 25, 2012, the mining union appealed the resolution before the federal court. The resolution of the appeal is expected to be issued within the next months.

Other legal matters

Class actions:

Three purported class action derivative lawsuits were filed in the Delaware Court of Chancery (New Castle County) late in De

cember 2004 and early January 2005 relating to the proposed merger transaction between the Company and Minera Mexico, S. A. de C. V. (the “Transaction”), which was completed effective April 1, 2005. On January 31, 2005, the three actions - Le

mon Bay, LLP v. AMC, et al., Civil Action No. 961-N, Therault Trust v. Luis Palomino Bonilla, et al., and Southern Peru Copper102 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 103 Corporation et al., Civil Action No. 969-N, and James Sousa v. Southern Peru Copper Corporation, et al., Civil Action No. 978-N — were consolidated into one action, captioned. In re Southern Peru Copper Corporation Shareholder Derivative Litigation, Consol. Civil Action No. 961-N; the complaint filed by Lemon Bay was designated as the operative complaint in the consolidated lawsuit. The consolidated action purports to be brought on behalf of AMCand its common stockholders; the defendants in the consolidated action are AMC, German Larrea Mota-Velasco, Genaro Larrea Mota-Velasco, Oscar Gonzalez Rocha, Emilio Carrillo Gamboa, Jaime Fernando Collazo Gonzalez, Xavier Garcia de Quevedo Topete, Armando Ortega Gomez and Juan Rebolledo Gout (together, the “AMC Defendants”), Carlos Ruiz Sacristan, Harold S. Handelsman, Gilberto Perezalonso Cifuentes, and Luis Miguel Palomino Bonilla (together, the “Special Committee Defendants”). The consolidated complaint alleges, among other things, that the Transaction was the result of breaches of fiduciary duties by the Company’s directors and was not entirely fair to the Company and its minority stockholders. On December 21, 2010, the Court dismissed the Special Committee Defendants from the action.

October 14, 2011, the Court issued an opinion on this action finding that SCC had paid AMC too much stock consideration in the Transaction. The Court issued a revised final order and judgment on December 29, 2011. The Court decided that the AMC Defendants were jointly and severally liable for damages in the amount of $1,347 plus $684.6 of pre-judgment interest. Post-judgment interest continues to accrue from October 15, 2011. The Court decided that the award is payable by AMC with cash, or with the return of a number of shares of SCC equal in value to award, or by SCC cancelling an equivalent number of shares owned by AMC, or by any combination thereof, so long as the total is equivalent to the amount of the judgment plus accrued post-judgment interest. The Court also awarded attorneys’ fees and expenses in the amount of $304.7, or 15% of the judgment, plus post-judgment interest, payable by SCC out of the award and not from existing SCC’s cash.

On January 20, 2012, the AMC defendants appealed the Court’s decisions. On the same date, SCC appealed the Court’s decision related to the award of attorneys’ fees and expenses.

The consolidated complaint alleges, among other things, that the transaction is the result of breaches committed by the di

rectors of the Company of its fiduciary duties, and that is not entirely fair to the Company or to its minority shareholders. On December 21, 2010, the Court dismissed the Plaintiffs of the Special Committee of demand.

Oklahoma Firefighters Pension & Retirement System et al. v. SCC:

Four purported class action derivative lawsuits have been filed in the Delaware Court of Chancery (Oklahoma Firefighters Pension & Retirement System et al. v. SCC et al., Gary Martin et al. v. SCC et al., Thomas Griffin et al. v. SCC et al., and Sheet Metal Workers Pension Plan of Northern California et al. v. SCC et al.) from August 2010 to October 2010 relating to the proposed combination of the Company with AMC, the parent company of Asarco. The complaints name SCC, its current and certain former directors, AMC and Grupo Mexico as defendants. Two of the actions also name Asarco as a defendant. The actions purport to be brought on behalf of the Company’s common stockholders.

The complaints allege, among other things, that the proposed transaction would result in breaches of fiduciary duties by the defendants and is not entirely fair to the Company and its minority stockholders. The complaints seek, among other things, a preliminary and permanent injunction to enjoin the transaction, the award of damages to the plaintiffs and the class, and such other relief that the court deems equitable, including interest, attorneys’ and experts’ fees and costs. On January 25, 2011, the Oklahoma Firefighters and Sheet Metal Workers plaintiffs filed an amended and joint motion to consolidate and have Firefighters’ counsel appointed lead counsel. Plaintiffs also moved to stay the Martin and Griffin actions. The Sheet Metal plaintiffs have withdrawn their prior motion to consolidate in connection with the new motion. Oral argument on all plaintiffs’ motions and cross-motions to stay or consolidate and appoint lead counsel is pending.

The Firefighters’ plaintiffs also moved for leave to file an amended complaint to add or supplement factual allegations con

cerning the summary judgment ruling in the Lemon Bay action described above. On April 1, 2011, the plaintiffs’ motion was granted. The defendants believe that these lawsuits are without merit and are defending against the actions.

On October 28, 2011, AMC announced that it had withdrawn the proposed transaction to combine AMC and Southern Copper.

The Company is involved in various other legal proceedings incidental to its operations, but the Company does not believe that decisions adverse to it in any such proceedings, individually or in the aggregate, would have a material effect on its fi

nancial position or results of operations. Additionally, the Company does not believe that the outcome of the purported class action derivative lawsuits would have a material adverse effect on its financial position or results of operations. While the defendants, including Grupo Mexico and its affiliates, believe that the claims in the purported class action derivative lawsuits are without merit, the Company cannot assure you that these or future claims, if successful, will not have an adverse effect on Grupo Mexico, AMC or the Company.

United States Operations

Asarco is a defendant in lawsuits in Arizona, the earliest of which commenced in 1975, involving the United States, Native Americans, and other Arizona water users. These suits seek damages for usage and alleged contamination of ground water. The lawsuits could affect Asarco’s use of water at its Ray Complex, Mission Complex, and other Arizona operations. Asar

co is also involved in multiple suits and claims against it arising from such matters as workers’ compensation claims and employment-related claims, among other matters. Management has analyzed the issues and has accrued approximately $2.8 and $1.8 to settle these additional litigation matters as of December 31, 2011 and 2010, respectively.104 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 105 Other commitments

Mining royalty charge

The Company’s Peruvian operations have been subject to a 1% to 3% mining royalty charge based on sales and calculated on the value of the concentrates and SXEW copper produced at the Toquepala and Cuajone mines. The Company made pro

visions for this charge in 2011 and 2010 of $52.5 and $65.5, respectively.

In September 2011, the Peruvian Congress approved an amendment to the mining royalty charge. The new mining royalty charge is based on operating income margins with graduated rates ranging from 1% to 12%, with a minimum royalty charge assessed at 1% of net sales. If the operating income margin is 10% or less, the royalty charge is 1% and for each 5% incre

ment in the operating income margin, the royalty charge rate increases by 0.75%, up to a maximum of 12%. In the last quarter of 2011, we made provisions of $19.3 for this charge.

These provisions are included in “Cost of sales (exclusive of depreciation, amortization and depletion)” in the condensed consolidated statement of earnings.

Tia Maria

Tia Maria, a Peruvian investment project of over $1.0 billion, was suspended by governmental action in April 2011 in light of protests and disruptions carried out by a small group of activists who alleged, among other things, that the project would result in severe environmental contamination and the diversion of agricultural water resources. While the Company continues high level negotiations with the Peruvian government, the Company has begun the preparation of a new EIA study.

For this purpose, the Company proposes to stop the appeal process of the original EIA submitted to the MINEM in 2011 and to expedite the preparation of the new EIA that will address the issues and questions raised during the previous EIA approval process and provide the required technical answers.

The Company considers that this new EIA process will alleviate all the concerns previously raised by the Tia Maria project’s neighboring communities, provide them with an independent source of information and reaffirm the validity of the Company’s assessment of the project.

The Company is confident that this initiative will have a positive effect on its stakeholders and will allow the Company to obtain the approval for the development of the 120,000 ton annual production copper project. As a consequence, the project start-up is now rescheduled to 2015. While the new EIA is in process, some of the equipment purchased for Tia Maria is being assigned to our operations at Toquepala, Cuajone and Buenavista. The Company has legal and valid title to the Tía Maria mining concessions and the over-lapping surface land in the area. None of above noted activities have in any way challenged, revoked, impaired or annulled the Company ́s legal rights to the Tia Maria mining concessions and/or the over-lapping surface land titles acquired in the past. All the Company’s property rights on these areas are in full force.

However, in view of the suspension of this project, the Company has reviewed the carrying value of this asset to ascertain whether impairment exists. Total spending on the project, through December 31, 2011, is $434.1. As the project is currently suspended, some of the equipment is being used at the Company’s mining operations at Toquepala and Cuajone. Should the Tia Maria project not be restarted, the Company is confident that the project equipment will continue to be used productively, through reassignment to other mine locations operated by the Company. While the Company may incur additional costs due to the delay, it believes that an impairment loss, if any, will not be material.

Railway segment

Negotiations being conducted with another Mexican railroad company

The Company is owed net receivables by Kansas City Southern México, S. A. de C. V. (KCSM) formerly TFM, S. A. de C. V. (TFM) accrued from 1998 to 2011 and negotiations are currently being conducted to determine the amounts receivable by segment (interline services and trackage and haulage rights) that are not properly defined in the concession titles. As of December 31, 2011 and 2010, net receivables were recorded in the amounts of $20.1 and $25.4, respectively. At December 31, 2011 Ferromex considers that these amounts have been properly assessed and therefore no additional contingencies have been recorded in order to take into account any contingent positive or negative results ensuing from the negotiations and legal proceedings specified below.

Legal actions and administrative proceedings

Ferromex is involved in various legal actions deriving from its normal operations. In regard to these actions, Ferromex and its legal counsel are of the opinion that regardless of their outcome when taken as a whole, they would have no material adverse effect on the Company ́s financial condition or on the results of its operations. The main legal actions in which the Ferromex is involved are the following:

a. Ordinary commercial actions against KCSM. Ferromex filed three actions against KCSM, requesting the Court’s determi

nation on the amounts to be paid as consideration for trackage rights, and interline traffic and interconnection services. At present these actions were settled as follows:106 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 107 i

. For the period running from February 19, 1998 to August 31, 2001, the amounts claimed at the time action was filed (nominal value) were for a total of Ps792.7 million and $20.6. After being processed at all court levels, Ferromex was denied constitutional relief under a writ of “amparo”, and although it’s right to sue again was safeguarded, it was ordered to pay legal costs and expenses. Both parties filed various appeal actions. On June 17, 2009 the trial Court and the Fifth Chamber in Civil Matters were notified of the judgment by which Ferromex was ordered to pay legal costs and expenses in an approximate amount of $6,292. The total amount actually paid was the amount of $6.3 and is included in the entry for sundry expenses at December 31, 2009. By rulings dated May 18, 2010, published in the Judicial Bulletin on May 19, which were effective as of the 20th of the said month and year, issued in various appellate proceedings (1344/01/28, /29, /30, /31 and /32) the destruction of the appellate dossiers was ordered to take place after giving notice to the Court Chamber that a final an unappealable judgment had been rendered and the case closed. KCSM filed a brief dated May 27, 2010 by which it designated legal professionals for service of process purposes and a ruling on this brief was issued on June 2, 2010. No other procedural action has taken place since then. Notwithstanding the foregoing, and since due to the judgment rendered on February 3, 2005, Ferromex’s right to sue again was safeguarded, it should be underscored that Ferromex is still entitled to recover the relevant amounts and therefore, at present, the draft of the new complaint to be filed is under review.

ii. For the period running from September 1 to December 31, 2001, during which the sum claimed (at nominal value) amounts to a total of Ps21.0 million. After several actions were filed and remedies were sought by both parties, a final and conclusive judgment was rendered that found partially in favor of Ferromex. Nevertheless, both parties filed for appeal, the appeals were dismissed and the final judgment upheld. Both parties filed for constitutional relief under a direct amparo action. Ferromex was granted relief while relief was denied to KCSM. The amparo was granted to Ferromex in order for defendant to be sentenced to pay the legal costs and expenses incurred both at the trial and appellate levels, and therefore, by a ruling issued on November 4, 2009, the amparo judgment became final and conclusive, upholding the judgment rendered at the trial level in full but sentencing defendant to pay legal costs and expenses at both jurisdictional levels. Finally, by ruling issued on January 26, 2010, it was determined not to grant KCSM constitutional relief, and ordered that the case be sent to archives and finally closed. On August 12, 2010 a motion was filed claiming the settlement of the amount of interest accrued. On September 3, 2010, the trial Court issued a judgment and approved the proposal for the settlement of interest filed by Ferromex and KCSM was ordered to pay Ps8.0 million. On September 14, 2010, Ferromex filed an additional motion claiming settlement of default interest accrued from August 13, 2010 to September 9, 2010. On October 12, 2010, the trial Court issued an interlocutory judgment to resolve on the matter and approved the proposal for the settlement of interest filed by Ferromex. KCSM appealed this interlocutory judgment. With a brief filed on October 29, 2010, KCSM submitted to the Court a deposit voucher in an amount of Ps8.1 million, thus complying with judgments rendered on September 3, and October 12, 2010, settling the full amount KCSM was adjudged to pay by way of interest. Ferromex filed a brief dated November 4, 2010 acknowledging payment by KCSM. The original of the deposit voucher was delivered to the Ferromex on November 18, 2010. This matter has been settled and closed. iii. On September 19, 2006, Ferromex filed an ordinary commercial action against KCSM, seeking that accounts be rendered for the period running from January 2002 to December 2004, and claiming payment for the resulting amounts. As a result of this action both parties filed various legal remedies, as follows: Ferromex filed an appeal for rehearing against the ruling that admitted KCSM’s cross-appeal; in August 2009, the Chamber granted Ferromex’s appeal for rehearing and dismissed KCSM’s cross-appeal filed against the ruling ordering discontinuance. By a ruling issued on December 11, 2009, The Second Collegiate Court in Civil Matters of the First Circuit granted Ferromex constitutional relief under a writ of amparo against the ruling that illegally ordered discontinuance of the action at the trial level. By a ruling issued on February 10, 2010, Ferromex filed a motion to charge KCSM for failure to respond to the motion under which KCSM was notified that Ferromex had petitioned for non-admission of the evidence submitted by KCSM. On the 24th of that same month, KCSM appealed the ruling issued on the motion. By a brief filed on March 2, 2010, Ferromex petitioned for the Court to admit closing arguments and on March 24, both Ferromex and KCSM submitted their briefs containing their closing arguments. By a judgment issued on May 12, 2010, the Court found in favor of KCSM and released it from making any payment on the amounts claimed by Ferromex. By a ruling dated May 31, 2010, the appeal filed by Ferromex against the judgment rendered at the trial level was admitted and process was served upon KCSM to reply within a term of 3 work days. KCSM filed its brief dated June 7, 2010 in response to Ferromex’s bill of exceptions in the appeal proceeding. On June 10, 2010 the Court ruled that KCSM had submitted its answer to the exceptions and ordered that the appeal be remitted to the First Chamber in Civil Matters of the Superior Court of Justice of the Federal District for processing. By judgment rendered on October 7, 2010, the First Chamber admitted the appeal filed by Ferromex and overturned the May 12, 2010 judgment of the trial Court, ordering KCSM to render the accounts as sought by Ferromex. On November 9. 2010, KCSM filed for constitutional relief, under a direct amparo action against the judgment rendered on October 7, 2010. This action was brought before the jurisdiction of the Second Collegiate Court in Civil Matters of the First Circuit under case file D. C. 780/2010. On December 13, 2010 the action reached the sentencing stage. A final, executory judgment was rendered on April 7, 2011 and KCSM was granted constitutional relief in the amparo, and thus the First Chamber in Civil Matters was ordered to overturn the judgment rendered on October 7, 2010 and render judgment in substitution thereof adhering to the specified guidelines. By judgment rendered on May 9, 2011 the First Chamber in Civil Matters acted on the executory judgment dated April 7, 2011 and upheld the final judgment rendered on May 12, 2010 y the Ninth Court in case 754/2006 and ordered Ferromex to pay legal costs and expenses at both jurisdictional levels. On June 1, 2011 Ferromex brought a new direct amparo action for cons

titutional relief against this judgment with the Second Collegiate Court in Civil Matters of the First Circuit, under case file D. C. 414/2011. By an executory judgment issued on July 14, 2011, the afore mentioned Court resolved to deny Ferromex this relief, and thus the judgment which releases KCSM and orders Ferromex to pay legal costs and expenses became final and conclusive.

b. Actions for annulment against several official communications issued by the Ministry of Communications and Trans

portation (SCT) on trackage rights, and interconnection and terminal services. Currently three of these actions are being108 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 109 processed before the Federal Court of Administrative and Fiscal Justice (Spanish acronym TFJFA), the Supreme Court of Justice, the Collegiate Courts and the SCT. The Company is awaiting for rulings be issued on these actions.

c. Action for annulment filed by KCSM. - Amendment to the FERROMEX Title to Concession. On October 18, 2006, the SCT published in the Official Gazette of the Federation the Amendment to the FERROMEX Title to the Concession of Ferrocarril Pacífico Norte (former name of Ferromex). KCSM objected to this amendment and filed an action for its an

nulment. The parties, after litigating this matter at the various jurisdictional levels, decided to both file, on February 22, 2010, briefs to abandon action as a result of the agreement they had reached. The case was addressed by the Court at a session held on August 4, 2010, and the Chamber en banc, ruled for dismissal and non-suit as a result of the voluntary discontinuance of the parties.

d. Inquiry into Monopolistic Practices IO-02-2006. - By means of official communication No. DGIPMAR

CI-10-096-2008-001 dated January 14, 2008, the Federal Commission of Economic Competition (COFECO) reques

ted that Ferrocarril Mexicano, S. A. de C. V. and other companies submit sundry information, which Ferromex submit

ted on February 28, 2008. COFECO served Notices of Probable Responsibility to the companies which had participated in the stock acquisitions reported by Infraestructura y Transportes México, S. A. de C. V. (ITM) and Infraestructura y Transportes Ferroviarios, S. A. de C. V. (ITF) from November 2005 onwards. In November 2008 the stage for the offering of evidence in response to the Notice of Probable Responsibility came to a close and both KCSM and the companies against whom action was filed were granted a term to submit their arguments. On November 26 arguments were filed with COFECO. On January 22, 2009, a ruling was issued in this inquiry proceeding. On January 30, 2009, COFECO notified Ferromex of its ruling finding that the Company together with other companies were responsible for monopolistic practices and imposed monetary sanctions, the one imposed on Ferromex amounting to Ps82.2 million and GFM amounted to Ps0.7 million.

The entities subject to this inquiry appealed for reconsideration. Ferromex, KCSM and COFECO have all continued with different legal actions. By ruling issued on June 9, 2009, COFECO decided to uphold its ruling of January 22, 2009. This decision was challenged by an amparo action (Case File 887/2009). The Federal Court of Fiscal and Administrative Justice remanded a certified copy of the ruling issued in administrative proceeding no. 3825/07- 17-05-8, in which ITM and ITF are plaintiffs, by which the challenged ruling was annulled, that is to say, it is to be understood that COFECO has no objection in regard to the mergers carried out by plaintiffs. On September 28, 2010 the processing of the amparo action began. On December 17, 2010 the judgment at the trial level was published that was rendered by the Sixth District Court in Administrative matters dismissing the amparo action. On December 28, 2010, a motion for review was filed against this decision. Acting on a ruling issued on July 12, 2011, published on the 13th of this same month, the Thirteenth Collegiate court took cognizance of the review motion filed under case file RA (262/2011. By a ruling issued on 2011 the case was turned over to Mr. José Ángel Mandujano Gordillo as drafting judge. On August 23, 2011 Mr. Guillermo Fajardo was designated to act as drafting court clerk. The review and study of the case has not yet started.

e. Federal Administrative Action, Case file 3825/2007-17-05-8, ITM and ITF acting as plaintiffs, the former holding 74% of Ferromex’s outstanding stock through GFM. Plaintiffs challenged by means of this action the resolution dated November 8, 2006 by which the COFECO board acting en banc in respect of case file RA-21-2006 reviewed under a joinder of actions, ruled on motions for reconsideration filed by ITM and ITF, upholding the resolution not to authorize the concen

trations dated June 22, 2006, rendered in case file CNT-132-2005 reviewed under joinder of actions, and the resolution contained in official communication dated November 16, 2006, by which the COFECO board, acting en banc, tried to clarify the manner in which the resolution rendered in case file RA-21-2006 was voted.

On February 2, 2007, an action for annulment was filed with the TFJFA and the case was assigned to the Fifth Regional Metropolitan Chamber. The action was admitted to be heard by a ruling issued on June 4, 2007 and the matter was assigned to the High Chamber for it to consider whether or not to exercise its authority to assert its jurisdiction. The High Chamber decided to exercise this authority over the matter in question. The action was resolved at its session held on May 12, 2010, and concluded that under the Federal Law of Economic Competition, the COFECO had to find that the acquisition of Ferrosur by ITM and ITF should be authorized, that is, it was to be considered that the COFECO had no objection to this transaction. This finding was notified to all parties involved. On November 29, 2010 ITM and ITF were given notice that the authority had filed an action for reconsideration against the May 12 judgment. On February 1, 2011 the action for reconsideration filed by COFECO was turned over to the First Collegiate Circuit Court in Administrative Matters under case file R. F. 68/2011. On March 25, 2011 the action was dismissed and therefore the May 12 ruling issued by the High Court was upheld. On April 1, 2011, the findings of fact and conclusions of this judgment were pu

blished. The High Court issued a ruling on April 4, 2011, acknowledging receipt of the judgment rendered by the First Collegiate Court. This matter is closed. The COFECO has not yet complied with the executory judgment, since it has not yet issued the certificate documenting that the concentration is not objected.

f. Indirect Litigation. These are actions in which Ferromex is a codefendant by virtue of labor actions filed against Ferro

carriles Nacionales de México (FNM), which due to their particular characteristics cannot be quantified. Nevertheless any financial impact they may have has to be absorbed by the entity in charge of the liquidation of FNM or by the Federal Government, under terms previously agreed upon.

g. Direct Litigation. These are labor-related actions filed against Ferromex and/ o Ferrosur as defendant. The amount of the entry recorded would have to be settled in the event the actions are lost and should there be no possibility of110 GRUPO MÉXICO ANNUAL REPORT reaching a settlement. The amounts of the indemnities paid during 2011 and 2010 on labor-related actions were $4.8 and $0.3, respectively.

As of December 31, 2011 and 2011, Ferromex considers that it has adequately assessed its accounts payable and its receivables and therefore it has not provided for an additional estimate to cover any potential positive or negative diffe

rentials arising as a result of the negotiations and legal actions described above.

24. Su bs equent e v ent s

The Company evaluated subsequent events after December 31, 2011, and through March 30, 2012, the date these consolida

ted financial statements were available for issuance, and determined any events or transactions occurring during this period that would require recognition or disclosure are appropriately addressed in these consolidated financial statements.

i. In January 26, 2012, the Bankruptcy Court entered judgment in favor of the Company in the net amount of $82.75 related to a claim against Sterlite (USA), Inc., and Sterlite Industries (India) Ltd., (collectively, “Sterlite”) for breach of an asset purchase agreement to acquire assets of the Company. The $82.75 the Company was awarded includes $102.75 in interest damages, $30 in additional professional fees, less $50 representing a letter of credit Sterlite posted as security, which was previously drawn by the Company in November 2009. The judgment is open for appeal to seek reconsideration. The Company has not recorded a gain in the consolidated financial statements as of and for the year ended December 31, 2011, related to this judgment.

ii. On January 26, 2012, the Grupo Mexico Board of Directors authorized a dividend of $0.40 cents per share to be paid on February 20, 2012.