**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-Q**

**2007Second Quarter**

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

| For Quarter Ended **June 30,  2007** |   | Commission file  number **1-14066** |
|--------------------------------------|--------|-------------------------------------|

** **

**SOUTHERN COPPER CORPORATION**

(Exact name ofregistrant as specified in its charter)

| **Delaware**                                             | ** ** | **13-3849074**       |
|----------------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                         |       | (I.R.S. Employer     |
|  incorporation or organization)                     |       | Identification  No.) |
|                                                     |       |                 |
| **11811  North Tatum Blvd. Suite 2500 Phoenix, AZ**      | ** ** | **85028**            |
| (Address of  principal executive offices)                |       | (Zip Code)           |
|                                                     |       |                 |
| Registrant’s  telephone number, including area code |       | **(602)  494-5328**  |

 

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

|  |   | Yes x |   | No o |   |   |
|--|--------|------------|--------|-----------|--------|--------|

 

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

| Large accelerated  filer x |   | Accelerated  filer o |   | Non-accelerated  filer o |
|---------------------------------|--------|---------------------------|--------|-------------------------------|

 

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

|  |   | Yes o |   | No x |   |   |
|--|--------|------------|--------|-----------|--------|--------|

 

As of July 31, 2007 therewere outstanding 294,465,650shares of Southern Copper Corporation common stock, par value $0.01 per share.

 

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Southern CopperCorporation

INDEX TO FORM 10-Q
| Part I. Financial  Information:                          |   | Page No.                                                                                           |
|----------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|
|                                                     |   |                                                                                               |   |   |
| Item. 1                                                  |   | Condensed Consolidated Financial Statements  (unaudited)                                           |   |   |
|                                                     |   |                                                                                               |   |   |
|                                                     |   | Condensed Consolidated Statement of Earnings three and  six months ended June 30, 2007 and 2006    |   | 3 |
|                                                     |   |                                                                                               |   |   |
|                                                     |   | Condensed Consolidated Balance Sheet June 30, 2007 and  December 31, 2006                          |   | 4 |
|                                                     |   |                                                                                               |   |   |
|                                                     |   | Condensed Consolidated Statement of Cash Flows three  and  six months ended June 30, 2007 and 2006 |   | 5-6 |
|                                                     |   |                                                                                               |   |   |
|                                                     |   | Notes to Condensed Consolidated Financial Statements                                               |   | 7-33 |
|                                                     |   |                                                                                               |   |   |
| Items 2 and 3.                                           |   | Management’s  Discussion and Analysis of Financial  Condition and Results of Operations       |   | 34-50 |
|                                                     |   |                                                                                               |   |   |
| Item 4.                                                  |   | Controls and  Procedures                                                                           |   | 51 |
|                                                     |   |                                                                                               |   |   |
| Report of Independent Registered Public Accounting  Firm |   | 52                                                                                                 |
|                                                     |   |                                                                                               |   |   |
| Part II. Other Information:                              |   |                                                                                               |
|                                                     |   |                                                                                               |   |   |
| Item  1.                                                 |   | Legal  Procedures                                                                                  |   | 53 |
|                                                     |   |                                                                                               |   |   |
| Item  1a.                                                |   | Risk  factors                                                                                      |   | 53 |
|                                                     |   |                                                                                               |   |   |
| Item  6.                                                 |   | Exhibits                                                                                           |   | 54 |
|                                                     |   |                                                                                               |   |   |
| Signatures                                               |   |                                                                                               |   | 55 |
|                                                     |   |                                                                                               |   |   |
|                                                     |   | List of Exhibits                                                                                   |   | 56 |
|                                                     |   |                                                                                               |   |   |
| Exhibit 31.1                                             |   | Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                           |   |   |
|                                                     |   |                                                                                               |   |   |
| Exhibit 31.2                                             |   | Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                           |   |   |
|                                                     |   |                                                                                               |   |   |
| Exhibit 32.1                                             |   | Certification  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                           |   |   |
|                                                     |   |                                                                                               |   |   |
| Exhibit 32.2                                             |   | Certification  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                           |   |   |
|                                                          |        |                                                                                                    |  |  |  |

 

2

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Part I — FINANCIALINFORMATION

Item 1.  Condensed Consolidated Financial Statements

Southern CopperCorporation

CONDENSEDCONSOLIDATED STATEMENT OF EARNINGS

(Unaudited)
| ** **                                                                                     | ** ** | **3 Months Ended** | ** ** | **6 Months Ended** | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                     | ** ** | **June, 30**            | ** ** | **June 30,**            | ** ** |
| ** **                                                                                     | ** ** | **2007**                     | ** ** | **2006**                     | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                                     | ** ** | **(in thousands)**      | ** ** |
| Net sales                                                                                      |       | $                            | 1,826,462  |                         | $          | 1,276,749 |   | $ | 3,184,799 |   | $ | 2,398,040 |   |
|                                                                                           |       |                         |       |                         |       |   |   |   |   |
| Operating costs and  expenses:                                                                 |       |                         |       |                         |       |   |   |   |   |
| Cost of sales  (exclusive of depreciation, amortization and depletion shown separately  below) |       | 562,334                      |       | 521,788                      |       | 1,028,979 |   | 928,732 |   |
| Selling, general  and administrative                                                           |       | 25,907                       |       | 23,313                       |       | 49,706 |   | 47,329 |   |
| Depreciation,  amortization and depletion                                                      |       | 84,466                       |       | 77,982                       |       | 158,564 |   | 131,085 |   |
| Exploration                                                                                    |       | 8,553                        |       | 4,636                        |       | 14,971 |   | 9,209 |   |
| Total operating costs  and expenses                                                            |       | 681,260                      |       | 627,719                      |       | 1,252,220 |   | 1,116,355 |   |
|                                                                                           |       |                         |       |                         |       |   |   |   |   |
| Operating income                                                                               |       | 1,145,202                    |       | 649,030                      |       | 1,932,579 |   | 1,281,685 |   |
|                                                                                           |       |                         |       |                         |       |   |   |   |   |
| Interest expense                                                                               |       | (30,982                      | )          | (28,202                      | )          | (60,788 | ) | (51,109 | ) |
| Capitalized interest                                                                           |       | 1,477                        |       | 6,511                        |       | 6,443 |   | 11,606 |   |
| Loss on derivative  instruments                                                                |       | (55,512                      | )          | —                       |       | (76,692 | ) | — |   |
| Loss on debt  prepayments                                                                      |       | —                       |       | (860                         | )          | — |   | (860 | ) |
| Other income (expense)                                                                         |       | 5,010                        |       | 8,466                        |       | 25,672 |   | 7,488 |   |
| Interest income                                                                                |       | 18,076                       |       | 14,303                       |       | 40,004 |   | 23,608 |   |
| Earnings before income taxes  and minority interest                                            |       | 1,083,271                    |       | 649,248                      |       | 1,867,218 |   | 1,272,418 |   |
|                                                                                           |       |                         |       |                         |       |   |   |   |   |
| Income taxes                                                                                   |       | 354,416                      |       | 207,864                      |       | 585,090 |   | 407,736 |   |
| Minority interest                                                                              |       | 2,893                        |       | 2,104                        |       | 4,484 |   | 3,827 |   |
|                                                                                           |       |                         |       |                         |       |   |   |   |   |
| Net earnings                                                                                   |       | $                            | 725,962    |                         | $          | 439,280 |   | $ | 1,277,644 |   | $ | 860,855 |   |
|                                                                                           |       |                         |       |                         |       |   |   |   |   |
| Per common share  amounts:                                                                     |       |                         |       |                         |       |   |   |   |   |
| Net earnings basic and  diluted                                                                |       | $                            | 2.465      |                         | $          | 1.492 |   | $ | 4.339 |   | $ | 2.923 |   |
| Dividends paid                                                                                 |       | $                            | 1.500      |                         | $          | 1.375 |   | $ | 3.200 |   | $ | 2.750 |   |
| Weighted average common  shares  outstanding (basic and diluted)                          |       | 294,465                      |       | 294,461                      |       | 294,465 |   | 294,461 |   |

 

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

3

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Southern CopperCorporation

CONDENSEDCONSOLIDATED BALANCE SHEET

(Unaudited)
| ** **                                                                                      | ** ** | **June 30,**       | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                                                                      | ** ** | **2007**                | ** ** | **2006**              | ** ** |
| ** **                                                                                      | ** ** | **(in thousands)** | ** ** |
| ASSETS                                                                                          |       |                    |       |                  |       |
| Current assets:                                                                                 |       |                    |       |                  |       |
| Cash and cash equivalents                                                                       |       | $                       | 1,013,614  |                  | $          | 1,022,778 |   |
| Marketable securities                                                                           |       | 340,000                 |       | 280,000               |       |
| Accounts receivable trade (less allowance for  doubtful accounts: 2007 - $5,916; 2006 - $5,948) |       | 559,209                 |       | 560,227               |       |
| Accounts receivable other                                                                       |       | 75,445                  |       | 43,569                |       |
| Accounts receivable other, from affiliates                                                      |       | 4,390                   |       | 2,630                 |       |
| Inventories                                                                                     |       | 471,202                 |       | 413,652               |       |
| Deferred income tax - current portion                                                           |       | 33,700                  |       | 65,638                |       |
| Prepaid and other current assets                                                                |       | 44,493                  |       | 54,383                |       |
| Total current assets                                                                            |       | 2,542,053               |       | 2,442,877             |       |
|                                                                                            |       |                    |       |                  |       |
| Property, net                                                                                   |       | 3,578,464               |       | 3,538,295             |       |
| Leachable  material, net                                                                        |       | 248,791                 |       | 231,516               |       |
| Intangible  assets, net                                                                         |       | 116,968                 |       | 118,107               |       |
| Deferred income  tax- non-current portion                                                       |       | —                  |       | 14,549                |       |
| Other assets,  net                                                                              |       | 43,068                  |       | 31,070                |       |
| Total Assets                                                                                    |       | $                       | 6,529,344  |                  | $          | 6,376,414 |   |
|                                                                                            |       |                    |       |                  |       |
| LIABILITIES                                                                                     |       |                    |       |                  |       |
| Current  liabilities:                                                                           |       |                    |       |                  |       |
| Current portion of long-term debt                                                               |       | $                       | 160,000    |                  | $          | 10,000 |   |
| Accounts payable                                                                                |       | 289,709                 |       | 271,064               |       |
| Accrued income taxes                                                                            |       | 112,989                 |       | 226,047               |       |
| Due to affiliated companies                                                                     |       | 3,351                   |       | 3,581                 |       |
| Accrued workers’ participation                                                             |       | 157,854                 |       | 299,892               |       |
| Interest                                                                                        |       | 36,530                  |       | 37,140                |       |
| Other accrued liabilities                                                                       |       | 37,192                  |       | 11,847                |       |
| Total current liabilities                                                                       |       | 797,625                 |       | 859,571               |       |
|                                                                                            |       |                    |       |                  |       |
| Long-term debt                                                                                  |       | 1,363,232               |       | 1,518,111             |       |
| Deferred income  taxes                                                                          |       | 258,167                 |       | 194,759               |       |
| Non-current  taxes payable                                                                      |       | 50,902                  |       | —                |       |
| Other  liabilities                                                                              |       | 57,909                  |       | 111,196               |       |
| Asset retirement  obligation                                                                    |       | 12,664                  |       | 12,183                |       |
| Total non-current liabilities                                                                   |       | 1,742,874               |       | 1,836,249             |       |
|                                                                                            |       |                    |       |                  |       |
| Commitments and  Contingencies (Note J)                                                         |       |                    |       |                  |       |
|                                                                                            |       |                    |       |                  |       |
| MINORITY  INTEREST                                                                              |       | 15,196                  |       | 13,989                |       |
|                                                                                            |       |                    |       |                  |       |
| STOCKHOLDERS’  EQUITY                                                                      |       |                    |       |                  |       |
| Common stock                                                                                    |       | 2,949                   |       | 2,949                 |       |
| Additional  paid-in capital                                                                     |       | 773,502                 |       | 772,693               |       |
| Retaining  earnings                                                                             |       | 3,342,200               |       | 3,010,307             |       |
| Other  accumulated comprehensive loss                                                           |       | (23,286                 | )          | (22,332               | )          |
| Treasury stock                                                                                  |       | (121,716                | )          | (97,012               | )          |
| Total Stockholders’ Equity                                                                 |       | 3,973,649               |       | 3,666,605             |       |
|                                                                                            |       |                    |       |                  |       |
| Total  Liabilities, Minority Interest and Stockholders’ Equity                             |       | $                       | 6,529,344  |                  | $          | 6,376,414 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

4

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Southern CopperCorporation

CONDENSEDCONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)
| ** **                                                                             | ** ** | **3 Months Ended  June 30,** | ** ** | **6 Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                             | ** ** | **2007**                                    | ** ** | **2006**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                             | ** ** | **(in thousands)**                     | ** ** |
| OPERATING ACTIVITIES                                                                   |       |                                        |       |                                        |       |   |   |   |   |
|                                                                                   |       |                                        |       |                                        |       |   |   |   |   |
| Net earnings                                                                           |       | $                                           | 725,962    |                                        | $          | 439,280 |   | $ | 1,277,644 |   | $ | 860,855 |   |
| Adjustments to  reconcile net earnings to net cash provided from operating activities: |       |                                        |       |                                        |       |   |   |   |   |
| Depreciation,  amortization and depletion                                              |       | 84,466                                      |       | 77,982                                      |       | 158,564 |   | 131,085 |   |
| Capitalized  leachable material                                                        |       | (19,568                                     | )          | —                                      |       | (40,029 | ) | — |   |
| Remeasurement  loss(gain)                                                              |       | 5,249                                       |       | (11,954                                     | )          | 567 |   | (11,382 | ) |
| Provision for  deferred income taxes                                                   |       | 38,094                                      |       | (3,477                                      | )          | 58,340 |   | 16,235 |   |
| Loss on  marketable securities                                                         |       | 29,388                                      |       | —                                      |       | 29,388 |   | — |   |
| Unrealized loss  on derivative instruments                                             |       | 39,029                                      |       | 1,818                                       |       | 61,717 |   | 1,818 |   |
| Minority  interest                                                                     |       | 2,892                                       |       | 2,104                                       |       | 4,483 |   | 3,827 |   |
|                                                                                   |       |                                        |       |                                        |       |   |   |   |   |
| Cash provided from  (used for) operating assets and liabilities:                       |       |                                        |       |                                        |       |   |   |   |   |
| Accounts  receivable                                                                   |       | (95,037                                     | )          | (159,597                                    | )          | (14,003 | ) | (135,233 | ) |
| Inventories                                                                            |       | (14,566                                     | )          | (25,193                                     | )          | (57,550 | ) | (65,496 | ) |
| Accounts payable  and accrued liabilities                                              |       | (76,484                                     | )          | (173,874                                    | )          | (321,633 | ) | (252,694 | ) |
| Other operating  assets and liabilities                                                |       | (70,551                                     | )          | (14,297                                     | )          | 40,273 |   | 21,434 |   |
| Net cash provided by  operating activities                                             |       | 648,874                                     |       | 132,792                                     |       | 1,197,761 |   | 570,449 |   |
|                                                                                   |       |                                        |       |                                        |       |   |   |   |   |
| INVESTING ACTIVITIES                                                                   |       |                                        |       |                                        |       |   |   |   |   |
| Capital  expenditures                                                                  |       | (93,962                                     | )          | (87,603                                     | )          | (178,992 | ) | (230,720 | ) |
| Purchase of  marketable securities                                                     |       | —                                      |       | —                                      |       | (100,000 | ) | — |   |
| Sales of  marketable securities                                                        |       | 40,000                                      |       | —                                      |       | 40,000 |   | — |   |
| Loss on sale of  marketable securities                                                 |       | (29,388                                     | )          | —                                      |       | (29,388 | ) | — |   |
| Other                                                                                  |       | (145                                        | )          | 3,814                                       |       | 736 |   | 2,003 |   |
| Net cash used for  investing activities                                                |       | (83,495                                     | )          | (83,789                                     | )          | (267,644 | ) | (228,717 | ) |
|                                                                                   |       |                                        |       |                                        |       |   |   |   |   |
| FINANCING ACTIVITIES                                                                   |       |                                        |       |                                        |       |   |   |   |   |
| Debt repaid                                                                            |       | (5,000                                      | )          | (21,510                                     | )          | (5,000 | ) | (21,510 | ) |
| Debt incurred                                                                          |       | —                                      |       | 389,192                                     |       | — |   | 389,192 |   |
| Dividends paid  to common stockholders                                                 |       | (441,683                                    | )          | (404,877                                    | )          | (942,267 | ) | (809,754 | ) |
| Distributions to  minority interest                                                    |       | (1,405                                      | )          | (1,886                                      | )          | (3,164 | ) | (4,871 | ) |
| Other                                                                                  |       | 216                                         |       | (7,704                                      | )          | 277 |   | (7,046 | ) |
| Net cash used for  financing activities                                                |       | (447,872                                    | )          | (46,785                                     | )          | (950,154 | ) | (453,989 | ) |
|                                                                                   |       |                                        |       |                                        |       |   |   |   |   |
| Effect of exchange rate  changes on cash and cash equivalents                          |       | 7,257                                       |       | 23,105                                      |       | 10,873 |   | 37,204 |   |
|                                                                                   |       |                                        |       |                                        |       |   |   |   |   |
| Increase (decrease) in  cash and cash equivalents                                      |       | 124,764                                     |       | 25,323                                      |       | (9,164 | ) | (75,053 | ) |
| Cash and cash  equivalents, at beginning of period                                     |       | 888,850                                     |       | 775,627                                     |       | 1,022,778 |   | 876,003 |   |
| Cash and cash equivalents, at end of period                                            |       | $                                           | 1,013,614  |                                        | $          | 800,950 |   | $ | 1,013,614 |   | $ | 800,950 |   |

 

5

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| ** **                                         | ** ** | **3 Months Ended  June 30,** | ** ** | **6 Months Ended  June 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                         | ** ** | **2007**                                    | ** ** | **2006**                                    | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                         | ** ** | **(in thousands)**                     | ** ** |
| Supplemental  disclosure of cash flow information: |       |                                        |       |                                        |       |   |   |   |   |
| Cash paid during  the period for:                  |       |                                        |       |                                        |       |   |   |   |   |
| Interest                                           |       | $                                           | 15,019     |                                        | $          | 2,533 |   | $ | 21,505 |   | $ | 21,948 |   |
| Income taxes                                       |       | $                                           | 296,822    |                                        | $          | 420,311 |   | $ | 561,333 |   | $ | 568,735 |   |
| Workers  participation                             |       | $                                           | 127,415    |                                        | $          | 62,063 |   | $ | 298,851 |   | $ | 158,903 |   |

 

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

6

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Southern CopperCorporation

NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A.          Inthe opinion of Southern Copper Corporation, (the “Company”, “Southern Copper”or “SCC”), the accompanying unaudited condensed consolidated financial statementscontain all adjustments (consisting only of normal recurring adjustments)necessary to present fairly the Company’s financial position as of June 30,2007 and the results of operations and cash flows for the three and six monthsended June 30, 2007 and 2006.  Thecondensed consolidated financial statements for the three and six month periodsended June 30, 2007 and 2006 have been subjected to a review byPricewaterhouseCoopers, the Company’s independent registered public accountingfirm, whose report dated August 2, 2007, is presented on page 52.  The results of operations for the three andsix months ended June 30, 2007 and 2006 are not necessarily indicative of theresults to be expected for the full year. The December 31, 2006 balance sheet data was derived from auditedfinancial statements, but does not include all disclosures required bygenerally accepted accounting principles in the United States of America.  The accompanying condensed consolidatedfinancial statements should be read in conjunction with the consolidated  financial statements at December 31, 2006 andnotes included in the Company’s 2006 annual report on Form 10-K.

B.             Changein Accounting Principle - Adoption of FIN 48:

Financial Accounting Standards Board(FASB) Interpretation No. 48 “Accounting for Uncertainty in Income Taxes”, (FIN48) was issued in July 2006 and interprets FASB Statement of FinancialAccounting Standards (SFAS) No. 109.  FIN48 replaces SFAS No.5 with respect to accounting for all tax positions, bothcertain and uncertain.  FIN 48 becameeffective for the Company on January 1, 2007 and prescribes a comprehensivemodel for the recognition, measurement, financial statement presentation anddisclosure of uncertain tax positions taken or expected to be taken in a tax return.  FIN 48 provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure and transition.

The Company classifies income tax-relatedinterest and penalties as income taxes in the financial statements.

The total amount of unrecognized taxbenefits as of the January 1, 2007 date of adoption of FIN 48 was $32.0million.  This amount related entirely toU.S. income tax matters.  The Company hasno unrecognized Peruvian or Mexican tax benefits.  The cumulative effect of the implementationof FIN 48 on retained earnings was a net reduction of $3.5 million.  There were no material changes to the amountof unrecognized tax benefits during the six months ended June 30, 2007.

The amount of unrecognized tax benefitsthat, if recognized, would affect the effective tax rate was $25.4 million atadoption and did not materially change by June 30, 2007.

As of the January 1, 2007 adoption of FIN48, the Company’s liability for uncertain tax positions included accrued interestof $13.9 million.  The liability includedno accrued penalties because management expects no penalties to apply to theresolution of any of its uncertain tax positions.  The amount of the increase in accruedinterest during the six months ended June 30, 2007 was not material.

7

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Various tax positions are currently underreview by the U.S. Internal Revenue Service (“IRS”) Appeals Office.  It is not likely that this review will resultin a cash payment within twelve months of June 30, 2007.

Such positions include the determinationof appropriate depreciation periods for fixed assets, the capitalization ofcosts to the copper inventory inherent in leachable dumps, and depletiondeductions.

As of the January 1, 2007 adoption of FIN48, management did not expect that a final resolution of the IRS review wouldresult in a significant change in the Company’s liability.  The Company’s reasonable expectations aboutfuture resolutions of uncertain items did not materially change during the sixmonths ended June 30, 2007.

The following tax years remain open toexamination and adjustment by the Company’s three major tax jurisdictions:

Peru:                                                  2003 and allfollowing years (years 1997 through 2002 have been examined by the Peruviantaxing authority and the issues raised are being contested; no new issues canbe raised for these years).

U.S.:                                                    1997 and allfollowing years

Mexico:                                   2001 and allfollowing years

In May 2007 the FASB published FASB Staff Position (FSP) FIN 48-1, “Definitionof Settlement on FASB Interpretation No. 48” This FSP amends FIN 48 to provide a guidance on how an enterprise shoulddetermine whether a tax position is effectively settled for the purpose ofrecognizing previously unrecognized tax benefits.  This FSP makes a number of conforming changesthroughout FIN-48 to the term “*ultimate settlement”*or “*ultimately settled”*:  When the term was used to describerecognition that term is replaced with “*effectively settled”*and when the term is used to describe measurement that term is replaced with “settlement”or “settled”.  FSP FIN 48-1 has not hadan effect on the Company’s financial results.

C.             MarketableSecurities:

Commencing in 2006the Company began making short term investments (90 days to 1 year) inleveraged, indexed instruments.  Themarketable securities were as follows (in millions):
|                                                                                                                                                                                                       | ** ** | **Face Value**         | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| **Investment**                                                                                                                                                                                        | ** ** | **June 30, 2007** | ** ** | **December 31, 2006 ** | ** ** |
| 3-month note,  issued December 12, 2006, with extensions every 3 months up to a maximum of  12 months, and with an interest rate of 7%; established by a pool of Mexican  and Peruvian bond issues.   |       | $                           | 200.0      |   | $ | 200.0 |   |
| 3-month note,  issued January 19, 2007, with extensions every 3 months up to a maximum of 12  months, and with an interest rate of 7.25%; established by a pool of Mexican  and Peruvian bond issues. |       | 100.0                       |       | 100.0 |   |
| 180-day note,  maturing June 12, 2007 with an interest rate of 6%, with barrier range of  $37.669 and $69.957 of SCC stock price, NYSE symbol PCU.                                                    |       | —                      |       | 40.0 |   |
| 180-day note, maturing June 28, 2007 with an interest  rate of  6%, with barrier range of $38.738 and $71.942  of SCC stock price, NYSE  symbol PCU. (1)                          |       | 20.0                        |       | 20.0 |   |
| 300-day note, maturing December 24, 2007 with an  interest  rate of 3.6%, with barrier range of $50.00  and $75.00 of SCC stock price,  NYSE symbol PCU.                          |       | 20.0                        |       | 20.0 |   |
|                                                                                                                                                                                                  |       | $                           | 340.0      |   | $ |  380.0 |   |

----

(1) Redeemed on July 3,2007.

8

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Some of these investment instruments are indexedto SCC common stock prices while others are leveraged and indexed to certainbond pools.  Both types of instrumentscould cause the principal of the investment to be reduced if the establishedranges are breached.  Since the notes arenot principal protected the Company may lose part or all of the initial investment.  These instruments have been deemed to containembedded derivatives and have been subject to valuation using a binomialmodel.  Through June 30, 2007, theCompany has recorded an estimated loss of $93.2 million related to these investments.  The amount of the realized loss was $29.4million on an investment of $40.0 million which matured in June 2007. Theunrealized portion of $63.8 million includes $13.8 million realized on aninvestment, which matured on June 28, 2007 and was redeemed on July 3, 2007,and is recorded in other accounts payable. The loss recorded in the three months and six months ended June 30, 2007of $58.9 million and $81.6 million, respectively, is included as loss on derivativeinstruments in the condensed consolidated statement of earnings.  A loss on these investments of $11.6 millionwas recorded in the fourth quarter 2006 results.

In the first three and six monthsof 2007 the Company earned interest of $6.3 million and $12.4 million on theseinvestments, respectively, which were recorded in interest income in thecondensed consolidated statement of earnings.

D.            Inventorieswere as follows:

(in millions)
|                                             | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Metals at lower  of average cost or market: |       |                    |       |                        |       |
| Finished goods                              |       | $                       | 133.3      |                        | $          | 116.1 |   |
| Work-in-process                             |       | 131.0                   |       | 121.9                       |       |
| Supplies at  average cost                   |       | 206.9                   |       | 175.7                       |       |
| Total inventories                           |       | $                       | 471.2      |                        | $          | 413.7 |   |

 

E.              Incometaxes:

The income tax for the six months ended June 30, 2007 and 2006 was$585.1 million and $407.7 million, respectively.  These provisions include income taxes forPeru, Mexico and the United States.  Theeffective tax rates for the 2007 and 2006 periods are 31.3% and 32.0%,respectively.  A decrease of 1% in thestatutory Mexican tax rate contributed to the decrease in the 2007 effectiveincome tax rate.  In addition, a taxinflation adjustment and the effect of currency conversion adjustment in ourMexican operations also contributed to the reduction in the effective tax rate.

F.              ProvisionallyPriced Sales:

At June 30, 2007, the Company has recorded provisionally priced salesof 141.6 million pounds of copper, at an average forward price of $3.42 perpound.  Also

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the Company has recorded provisionally priced sales of 4.4 millionpounds of molybdenum at the June 30, 2007 market price of $32.25 perpound.  These sales are subject to finalpricing based on the average monthly LME or COMEX copper prices and DealerOxide molybdenum prices in the future month of settlement.

Following are the provisionally priced copper and molybdenum salesoutstanding at June 30, 2007:

| Copper  (million lbs.) | ** ** | **Priced at** | ** ** | **Month of  Settlement** | ** ** |
|-----------------------------|------------|--------------------|------------|-------------------------------|------------|
| 45.8                        |       | 3.464149           |       | July 2007                     |       |
| 10.9                        |       | 3.456500           |       | August 2007                   |       |
| 12.2                        |       | 3.435960           |       | September 2007                |       |
| 12.3                        |       | 3.420090           |       | October 2007                  |       |
| 22.4                        |       | 3.401030           |       | November 2007                 |       |
| 33.0                        |       | 3.379260           |       | December 2007                 |       |
| 5.0                         |       | 3.357040           |       | January 2008                  |       |
| 141.6                       |       | 3.423721           |       |                          |       |

 

| Molybdenum  (million lbs.) | ** ** | **Priced at** | ** ** | **Month of  Settlement** | ** ** |
|---------------------------------|------------|--------------------|------------|-------------------------------|------------|
| 1.9                             |       | 32.25              |       | July 2007                     |       |
| 1.6                             |       | 32.25              |       | August 2007                   |       |
| 0.9                             |       | 32.25              |       | September 2007                |       |
| 4.4                             |       | 32.25              |       |                          |       |

 

Management believes that the final pricing of these sales will not havea material effect on the Company’s financial position or results of operations.

G.             DerivativeInstruments

The Company occasionally uses derivative instruments to manage itsexposure to market risk from changes in commodity prices and interest rate riskexposure.  The Company does not enterinto derivative contracts unless it anticipates a future activity that islikely to occur that will result in exposing the Company to market risk.

Copper and zinc derivatives:

From time to time theCompany has entered into derivative instruments to protect a fixed copper, orzinc price for a portion of our metal sales.

In the second quarter of 2007 and 2006 the Companyentered into copper collar and swaps contracts to protect a portion of its 2007and 2006 sales of copper production. Related to the settlement of these copperswap contracts the Company recorded a gain of $3.3 million and a loss of $257.9million in the second quarter of 2007 and 2006, respectively. These gains andlosses were recorded in net sales in the condensed consolidated statement ofearnings. The Company did not hold any zinc derivative contracts in the firsttwo quarters of 2007 and 2006.

At June 30, 2007 the Company has copper collarcontracts to protect 146.2 million pounds of copper production for the July -December 2007 period at weighted average minimum and maximum LME prices of$3.20 per pound and $4.07 per pound, respectively. If the price falls below theminimum LME price, the Company will be in a gain position. If the price exceedsthe maximum LME price, the Company will be in a loss position. In addition, theCompany has copper swap contracts to

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protect 7.9 million pounds of copper production forthe July-August 2007 period at an average COMEX price of $3.71 per pound ofcopper.

Gas swaps:

The Company established long swap contracts for900,000 MMBTUs with a fixed price of $7.525 in the first six months of 2007 and900,000 MMBTUs with a fixed price of $4.2668 per MMBTU in the second quarterand first six months of 2006.  Related tothese contracts, the Company recorded a loss of $0.9 million in the first sixmonths of 2007 and gains of $1.3 million and $3.6 million, in the secondquarter and first six months of 2006, respectively, which were included in theproduction cost.  At June 30, 2007, we did not hold any open gas swap contract.

Exchange rate derivatives, U.S. dollar/Mexican peso contracts:

Because more than 85% of our sales collections in Mexico are in USdollars and many of our costs are in Mexican pesos, during 2006 the Companyentered into zero-cost derivative contracts with the purpose of protecting,within a range, against an appreciation of the Mexican peso to the USdollar.  In these contracts if theexchange rate settles at or below the barrier, the Company does not sell USdollars, if the exchange rate settles above the barrier price established inthe contract the Company sells US dollars at the strike price established inthe contract.

In the second quarter and first half of 2007 the exercise of thesezero-cost derivative contracts resulted in gains of $2.6 million and $4.1million, respectively, which was recorded as gain on derivative instruments inthe condensed consolidated statement of earnings.

At June 30, 2007 the Company held the following exchange ratederivative operations:
| **Notional Amount  (millions)** | ** ** | **Due Date, Weekly  expiration during** | ** ** | **Strike Price  (Mexican  Pesos/U.S.  Dollars)** | ** ** | **Barrier Price  (Mexican  Pesos/U.S.  Dollars)** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------------|------------|
| $ 26.0                          |       | 3rd Quarter 2007                                       |       | 11.15                                                 |       | 10.675                                                 |       |
| $ 26.0                          |       | 3rd Quarter 2007                                       |       | 11.52                                                 |       | 11.15                                                  |       |
| $ 26.0                          |       | 3rd Quarter 2007                                       |       | 11.90                                                 |       | 11.54                                                  |       |
| $ 48.0                          |       | 4th Quarter 2007                                       |       | 11.35                                                 |       | 10.65                                                  |       |
| $ 48.0                          |       | 4th Quarter 2007                                       |       | 11.65                                                 |       | 11.35                                                  |       |
| $ 54.0                          |       | 1st Quarter 2008                                       |       | 11.60                                                 |       | 11.28                                                  |       |
| $ 54.0                          |       | 1st Quarter 2008                                       |       | 11.28                                                 |       | 10.70                                                  |       |

 

At June 30, 2007, the fair value of the above listed exchange ratederivative contracts is a gain of $2.1 million which was recorded as gain onderivative instruments in the condensed consolidated statement ofearnings.  Each notional amount includesa group of weekly transactions that have the same strike and barrier price.

Dual currency notes:

Inthe second quarter and first six months of 2007 the Company invested $440.0million and $560.0 million, respectively, in dual currency notes which providedan above market interest return subject to a barrier range of the Mexicanpeso/US dollar exchange rates.  Theseinvestments matured in the first and second quarters of 2007.

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Relatedto these investments, in the second quarter of 2007 the Company realized anexchange loss of $1.3 million, which was recorded as a loss on derivativeinstruments in the condensed consolidated statement of earnings.

TheCompany also earned interest income of $1.7 million and $2.1 million in thesecond quarter and first half of 2007, respectively, which was recorded asinterest income in the condensed consolidated statement of earnings.

Therewere no open positions at June 30, 2007.

Additionally,the Company holds embedded derivatives which are described in note C “MarketableSecurities.”

H.            AssetRetirement Obligation:

In2005 the Company added an estimated asset retirement obligation for its miningproperties in Peru, as required by the Mine Closure Law, enacted in 2003 andregulated in 2005.  In accordance withthe law a conceptual mine closure plan, without costs, was submitted to thePeruvian Ministry of Energy and Mines (“MEM”) in August 2006.  According to regulations, the plan is subjectto review by MEM for 45 days.  After theMEM review the Company will have 90 days to prepare and resubmit the mineclosure plan, including costs, which will then be subject to MEM approval andopen to public discussion and comment in the area of the Companyoperations.  The Company is stillawaiting MEM’s initial review.  However,as of June 30, 2007, the Company has made an estimated provision of $6.1million for this liability in its financial statements, but believes that thisestimate should be viewed with caution, pending final approval of the mineclosure plan.

Theclosure cost recognized for this liability includes the estimated cost requiredat the Peruvian operations, based on the Company’s experience, and includescost at the Ilo smelter, the tailing disposal, and dismantling the Toquepalaand Cuajone concentrators, and the shops and auxiliary facilities.  Based on this, we recorded an additionalasset retirement liability in 2005 of $5.2 million, which increased ourpreviously recorded asset retirement liability to $11.2 million. This increasednet property by $4.6 million.

Thefollowing table summarizes the asset retirement obligation activity for thefirst six months of 2007 and 2006 (in millions):
|                                  | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Balance as of  January 1,        |       | $        | 12.2       |     | $          | 11.2 |   |
| Additions,  changes in estimates |       | —   |       | —   |       |
| Accretion  expense               |       | 0.5      |       | 0.5      |       |
| Balance as of June 30,           |       | $        | 12.7       |     | $          | 11.7 |   |

 

I.                 RelatedParty Transactions:

Receivable and payablebalances with affiliated companies and related parties are shown below (inmillions):
|                                                              | ** ** | **As of**          | ** ** |
|--------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                   | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
| Affiliate  receivable:                                       |       |                    |       |   |   |
| Mexico Proyectos y Desarrollos S.A. de C. V. and  affiliates |       | $                       | 4.2        |   | $ | 2.6 |   |
| Other                                                        |       | 0.2                     |       | — |   |
| Total                                                        |       | $                       | 4.4        |   | $ | 2.6 |   |
|                                                         |       |                    |       |   |   |
| Affiliate  payable:                                          |       |                    |       |   |   |
| Grupo Mexico S.A.B. de C.V.                                  |       | $                       | 2.1        |   | $ | 0.4 |   |
| Ferrocarril Mexicano S.A. de C. V.                           |       | 0.7                     |       | 3.2 |   |
| Sempertrans France Belting Tech                              |       | 0.3                     |       | — |   |
| Other                                                        |       | 0.3                     |       | — |   |
| Total                                                        |       | $                       | 3.4        |   | $ | 3.6 |   |

 

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The Company has entered into certain transactions in the ordinarycourse of business with parties that are controlling shareholders or theiraffiliates.  These transactions includethe lease of office space, air transportation and construction services andproducts and services relating to mining and refining.  The Company lends and borrows funds amongaffiliates for acquisitions and other corporate purposes.  Thesefinancial transactions bear interest and are subject to review and approval bysenior management, as are all related party transactions.  It is our policy that the Audit Committee ofthe Board of Directors shall review all related party transactions.  The Company is prohibited from entering orcontinuing a material related party transaction that has not been reviewed andapproved or ratified by the Audit Committee.

Grupo Mexico, the Company’s ultimate parent and the majority indirectstockholder of the Company, and its affiliates provide various services to theCompany.  These activities were principallyrelated to accounting, legal, tax, financial, treasury, human resources, pricerisk assessment and hedging, purchasing, procurement and logistics, sales andadministrative, and other support services. Grupo Mexico is paid for these support services by the Company.  The total amount paid by the Company to GrupoMexico for such services in the first six months of 2007 and 2006 was $6.9million.  The Company expects to continueto pay $ 13.8 million per year for these services in future years.

The Company’s Mexican operations paid fees of $7.0 million and $8.9million in the first six months of 2007 and 2006, respectively, primarily forfreight services provided by Ferrocarril Mexicano, S.A. de C.V., a subsidiaryof Grupo Mexico.

In addition, the Company’s Mexican operations paid fees of $7.1 millionand $14.6 million in the first six months of 2007 and 2006, respectively, forconstruction services provided by Mexico Constructora Industrial S.A. de C.V.,an indirect subsidiary of Grupo Mexico.

The Larrea family controls a majority of the capital stock of GrupoMexico, and has extensive interests in other businesses, including oil drillingservices, construction, and real estate. The Company engages in certain transactions in the ordinary course ofbusiness with other entities controlled by the Larrea family relating to miningand refining services, the lease of office space, and air transportation andconstruction services.  In connectionwith this, the Company paid fees of $1.4 million and $0.9 million in the firstsix months of 2007 and 2006, respectively, for maintenance services provided byMexico Compañia de Productos Automotrices S.A. de C.V., a company controlled by the Larrea family.  Additionally, in the third quarter of2006, one of our Mexican subsidiaries provided a short-term interest bearingloan of $10.6 million to Mexico Transportes Aereos, S.A. de C.V. (“MexTransport”)for the purchase of an airplane, which was paid in the first quarter of 2007,Mextransport, a company controlled by the Larrea family, provides aviationservices to our Mexican operations.  OurMexican subsidiaries have provided a guaranty for a new $10.8 million loansecured by MexTransport.  The guarantyprovided to MexTransport is backed up by the transport services provided byMexTransport to the Company’s Mexican subsidiaries.  The Company also paid fees of $0.4 million inthe first six months of 2007 to MexTransport.

TheCompany purchased $2.9 million and $2.5 million in the first six months of 2007and 2006, respectively, of industrial materials from companies in which Mr.Carlos Gonzalez 

13

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hasa proprietary interest.  Mr. CarlosGonzalez is the son of SCC’s Chief Executive Officer.  In addition, the Company purchased $0.5million and $0.3 million in the first six months of 2007 and 2006,respectively, of industrial material from companies in which Mr. AlejandroGonzalez is employed as a sales representative. Mr. Alejandro Gonzalez is the son of SCC’s Chief Executive Officer

It is anticipated that in the future the Company willenter into similar transactions with such parties.

J.                Employee BenefitPlan:

SCC Defined Benefit Pension Plan-

The components of the net periodic benefit costs forthe six months ended June 30 are as follows ($ in millions):
|                                 | ** ** | **2007** | ** ** | **2006(1)** | ** ** |
|---------------------------------|------------|----------|------------|-------------|------------|
|                            |       |     |       |        |       |
| Interest cost                   |       | $        | 0.3        |        | $          | 0.3 |   |
| Expected return  on plan assets |       | (0.3     | )          | (0.3        | )          |
| Amortization of  net loss       |       | —   |       | —      |       |
| Net periodic benefit  cost      |       | $        | —     |        | $          | — |   |

----

(1)             2006quarter based on average of annual amount.

SCC Post-retirement Health Care Plan-

The components of the net period benefit costs for the post-retirementhealth care plan for the six months ended June 30, 2007 and 2006 areindividually, and in total, less than $0.1 million.

Minera Mexico Pension Plans-

The components of the net periodic benefit costs for the six monthended June 30 are as follows ($ in millions):
|                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
|                            |       |     |       |     |       |
| Interest cost                   |       | $        | 0.9        |     | $          | 0.9 |   |
| Service cost                    |       | 1.0      |       | 1.0      |       |
| Expected return  of plan assets |       | (1.0     | )          | (1.0     | )          |
| Net periodic benefit  cost      |       | $        | 0.9        |     | $          | 0.9 |   |

 

Minera Mexico Post-retirement Health Care Plan-

The components of the net periodic cost for the sixmonths ended June 30, 2007 and 2006 are as follows ($ in millions):
|                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------|------------|----------|------------|----------|------------|
|                       |       |     |       |     |       |
| Interest cost              |       | $        | 1.2        |     | $          | 1.1 |   |
| Service cost               |       | 0.2      |       | 0.2      |       |
| Net periodic benefit  cost |       | $        | 1.4        |     | $          | 1.3 |   |

 

14

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K.            ComprehensiveIncome:
|                                                | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                     | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                     | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net income                                     |       | $                                | 725,962    |                           | $          | 439,280 |   | $ | 1,277,644 |   | $ | 860,855 |   |
| Other  comprehensive income (loss) net of tax: |       |                             |       |                           |       |   |   |   |   |
| (Realized)unrealized  gain on investments      |       | 2                                |       | 607                            |       | (954 | ) | 1,708 |   |
| Comprehensive income                           |       | $                                | 725,964    |                           | $          | 439,887 |   | $ | 1,276,690 |   | $ | 862,563 |   |

 

Therealized (unrealized) gains on investment activity in the 2007 periods are dueto the realized gains on the sale of our investment in Promotora y Operadora deInfraestructura, S.A. de C.V, formerly known as Grupo Tribasa S.A. de C.V.(TRIBASA), a Mexican construction company. The 2006 activity was due to theunrealized gain on this investment.

L.              Commitmentsand Contingencies

Peruvian Operations

Regional development contribution:

On December 28, 2006, the Company’s Peruvian branch signed a contractwith the Peruvian government that commits the Company to make annualcontributions for five years for the regional development of Peru.  This has been in response to an appeal by thepresident of Peru to the mining industry. The Company, as well as the mining industry, has responded positively tohelp with this cause.  The programsenvisioned will focus initially on nutrition for young children and expectantmothers, education and health services. The Company has a program of contributions, starting in 2007 with acontribution of $16.1 million, calculated based on 2006 Peruvian earnings afterincome tax.  In accordance with theagreement, the contribution from 2006 earnings was segregated from the Branch’sresources by April 30, 2007.  The fundswere deposited with a separate entity, the “Asociación Civil Ayuda del Cobre”which will make disbursements for approved investments in accordance with theagreement.  The following four years’contributions could increase or decrease depending on copper prices. If thecopper price drops below $1.79 per pound the contribution will cease.   The Company made a provision of $6.4 millionin the first six months of 2007 based on Peruvian branch earnings.

Royalty charge:

In June 2004, the Peruvian Congress enacted legislation imposing aroyalty charge to be paid by mining companies in favor of the regionalgovernments and communities where mining resources are located.  Under this law, the Company is subject to a1% to 3% royalty, based on sales, applicable to the value of the concentratesproduced in our Toquepala and Cuajone mines. The Company made provisions of $27.2 million and $28.2 million in thefirst six months of 2007 and 2006, respectively, for this royalty.  These provisions are included in “Cost ofsales (exclusive of depreciation, amortization and depletion)” in the condensedconsolidated statement of earnings.

In 2005, a Constitutional Tribunal ruled the law constitutional andadditionally stated that the royalty charge applies to all concessions held inthe mining industry, implying that those entities with tax stability contractsare subject to this charge.  In 1996, theCompany entered into a tax stability contract with the Peruvian government (a “Guaranteeand Promotional Measures for Investment Contract”), relating to our solventextraction and electrowinning (“SX/EW”) production, which agreement  

15

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purports to, among other things, fix tax rates and other chargesrelating to such production.  The Companybelieves that the Constitutional Tribunal’s interpretation relating to entitieswith tax stability contracts is incorrect and intends to protest the impositionof the royalty charge on SX/EW production, when and if assessed.  Provisions made by the Company for theroyalty charge do not include approximately $17.9 million of additionalpotential liability relating to its SX/EW production from June 30, 2004 throughJune 30, 2007.

Power purchase agreement:

In 1997, SCC sold its Ilo power plant to an independent power company,Enersur S.A. (“Enersur”).  In connectionwith the sale, a power purchase agreement was also completed under which SCCagreed to purchase all of its power needs for its Peruvian operations fromEnersur for twenty years, commencing in 1997.

In 2003 the agreement was amended releasing Enersur from its obligationto construct additional capacity to meet the Company’s increased electricityrequirements.  SCC believes it cansatisfy the need for increased electricity requirements from other sources,including local power providers.

Environmental matters:

The Company has instituted extensive environmental conservation programsat its mining facilities in Peru and Mexico. The Company’s environmental programs include water recovery systems toconserve water and minimize impact on nearby streams, reforestation programs tostabilize the surfaces of the tailings dams, and the implementation ofscrubbing technology in the mines to reduce dust emissions.

Peruvian operations:

The Company’s operations are subject to applicable Peruvianenvironmental laws and regulations.  ThePeruvian government, through its Ministerio de Energia y Minas (the Ministry ofEnergy and Mines, or “MEM”) conducts annual audits of the Company’s Peruvianmining and metallurgical operations. Through these environmental audits, matters related to environmentalcommitments, compliance with legal requirements, atmospheric emissions, andeffluent monitoring are reviewed.  TheCompany believes that it is in material compliance with applicable Peruvianenvironmental laws and regulations.

In accordance with Peruvian regulations, in 1996 SCC submitted itsPrograma de Adecuación y Manejo Ambiental (the Environmental Compliance andManagement Program, known by its Spanish acronym, PAMA) to the MEM. Athird-party environmental audit was conducted in order to elaborate the PAMA.  The PAMA applied to all current operationsthat did not have an approved environmental impact study at the time.  SCC’s PAMA was approved in January 1997 andcontained 34 mitigation measures and projects necessary to (1) bring theexisting operations into compliance with the environmental standardsestablished by the MEM and (2) identify areas impacted by operations that wereno longer active and needed to be reclaimed. By the end of the first quarter of 2007, all PAMA related projects werecompleted.

With the smeltermodernization project, the Company increased sulfur capture over the 92%requirement established by the PAMA.  Thenew smelter maintains production at current levels.  We are currently eliminating someglitches in the process to reach maximum production.  The nominal and design capacity for theIsasmelt furnace was reached in less than 45 days; compared with other smeltingfurnaces using this technology, the start-up of the Ilo smelter has beenachieved in the shortest time.  Also, thesulfur capture during the second quarter was over the 92% required by Peruvianregulations.

16

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As of June 30, 2007, spending on this project was $570.5 million,including $58.5 million of capitalized interest.

In 2003, the Peruvian Congress published a new law announcing futureclosure and remediation obligations for the mining industry.  The law was amended in 2004 and again in2005.  The current modificationestablishes that mining companies must submit their mine closure plans withinone year of publication of final regulations. In August 2005 final regulations were published and the Companyinitiated the preparation of the required mine closure plan.  This plan, in its final form, will include theestimated cost required for the Peruvian operations, including cost at the Ilosmelter and refinery, tailings disposal, and the dismantling of the Toquepalaand Cuajone concentrators, shops and auxiliary facilities.

The conceptual plan, without costs, was submitted to MEM in August 2006and, according to regulations, is subject to review by MEM for 45 days.  After the MEM review (which is still pending)the Company will have 90 days to prepare and resubmit the mine closure plan,including costs, which is then subject to approval by MEM and open to publicdiscussion and comment in the area of the Company’s operations.  Additionally, the law requires companies toprovide financial guarantees to insure that remediation programs arecompleted.  The Company believes theliability for these asset retirement obligations cannot currently be preciselymeasured, or estimated, until the Company has completed its final mine closureplan and is reasonably confident that it will be approved by MEM in mostmaterial respects.  However, the Companyhas made a preliminary estimate of this liability and has recorded such amountin its financial statements.  As of June30, 2007, the Company has recorded $6.1 million for this liability.  The Company believes that this estimate shouldbe viewed with caution, pending final approval of its mine closure plan.

For the Company’s Peruvian operations, environmental capitalexpenditures were $21.1 million and $86.4 million in the first six months of2007 and 2006, respectively.

Mexican operations:

The Company’s operations are subject to applicable Mexican federal, stateand municipal environmental laws, to Mexican official standards, and toregulations for the protection of the environment, including regulationsrelating to water supply, water quality, air quality, noise levels andhazardous and solid waste.  Some of theselaws and regulations are relevant to legal proceedings pertaining to theCompany’s San Luis Potosi copper facilities.

The principal legislation applicable to the Company’s Mexican operationsis the federal Ley General del Equilibrio Ecologico y la Proteccion al Ambiente(the “General Law of Ecological Balance and Environmental Protection”, or the “EnvironmentalLaw”), which is enforced by the Procuraduria Federal de Proteccion al Ambiente(“Federal Bureau of Environmental Protection” or the “PROFEPA”).  The PROFEPA monitors compliance withenvironmental legislation and enforces Mexican environmental laws, regulationsand official standards.  PROFEPA mayinitiate administrative proceedings against companies that violateenvironmental laws, which in the most egregious cases may result in thetemporary or permanent closing of non-complying facilities, the revocation ofoperating licenses and/or other sanctions or fines.  Also, according to the Codigo Penal Federal (FederalCriminal Code), the PROFEPA must inform corresponding authorities regardingenvironmental non-compliance.

Mexican environmental regulations have become increasingly stringentover the last decade, and this trend is likely to continue and has beeninfluenced by the environmental treaty entered into by Mexico, United Statesand Canada in connection with NAFTA in February 1999.  However, the Company’s management does notbelieve that continued compliance with the Environmental Law or Mexican Stateenvironmental laws will have a material adverse effect on the Company’sbusiness, properties, results of operations, financial condition or prospectsor will result in material capital 

17

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expenditures.  Although theCompany believes that all of its facilities are in material compliance withapplicable environmental, mining and other laws and regulations, the Companycannot assure that future laws and regulations would not have a materialadverse effect on the Company’s business, properties, results of operations,financial condition or prospects.

Due to the proximity of certain facilities of Minera Mexico to urbancenters, the authorities may implement certain measures that may impact orrestrain the operation of such facilities.

For the Company’s Mexican operations, environmental capital expenditureswere $12.8 million and $2.5 million in the first six months of 2007 and 2006,respectively.

Litigation matters:

Peruvian operations:

Garcia-Ataucuri and Others vs. SCC: In April 1996, the Company was served with a complaint filed in Peru byapproximately 800 former employees seeking the delivery of a substantial numberof “labor shares” (acciones laborales) of its Peruvian Branch plus dividends onsuch shares, to be issued in a proportional way to each former employee inaccordance with their time of work with SCC’s Branch in Peru.

The Company conducts its operations in Peru through a registeredBranch.  Although the Branch has neithercapital nor liability separate from that of the Company, under Peruvian law itis deemed to have an equity capital for purposes of determining the economicinterest of the holders of the labor shares. The labor share litigation is based on claims of former employees forownership of labor shares issued during the 1970s until 1989 under a formerPeruvian mandated profit sharing system. In 1971, the Peruvian Governmentenacted legislation providing that workers in the mining industry wouldparticipate in the pre-tax profits of the enterprises for which they worked ata rate of 10%.  This participation wasdistributed 40% in cash and 60% as an equity interest in the enterprise. Underthe law, the equity participation was originally delivered to the “MiningCommunity”, an organization representing all workers.  The cash portion was distributed to theworkers after the close of the year.  Theaccrual for this participation was (and continues to be) a current liability ofthe Company, until paid.  In 1978, thelaw was amended and the equity distribution was calculated at 5.5% of pre-taxprofits and was made to individual workers of the enterprise in the form of “laborshares” to be issued in Peru by the Peruvian Branch of SCC.  These labor shares represented an equityinterest in the enterprise.  In addition,according to the 1978 law, the equity participations previously distributed tothe “Mining Community” were returned to the Company and redistributed in theform of labor shares to the individual employees or former employees.  The cash participation was adjusted to 4.0%of pre-tax earnings and continued to be distributed to employees following theclose of the year.  Effective in 1992,the law was amended to its present status, and the workers’ participation inpre-tax profits was set at 8%, with 100% payable in cash.  The equity participation component waseliminated from the law.

In 1995, the Company offered to exchange new common shares of theCompany for the labor shares issued under the prior Peruvian law.  Approximately 80.8% of the issued laborshares were exchanged for the Company’s common shares, greatly reducing theminority interest on the Company’s balance sheet.  What remains of the workers’ equityparticipation is now included in the consolidated balance sheet under thecaption “Minority Interest”.

In relation to the issuance of “labor shares” by the Branch in Peru, theCompany is a defendant in the following lawsuits:

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1) As stated above, in April 1996, the Company was served with acomplaint filed in Peru by approximately 800 former employees, (Garcia Ataucuriand others vs. SCC), seeking the delivery of 38,763,806.80 “labor shares”(acciones laborales) (or S/. 3,876,380,679.56), as required by Law # 22333, tobe issued in a proportional way to each former employee or worker in accordancewith their time of work with SCC’s Branch in Peru, plus dividends on suchshares.  The amount claimed correspondsto the total number of labor shares for all of the Company’s Peruvianworkers.  In December 1999, a civil courtof first instance of Lima decided against the Company, ordering the delivery ofthe labor shares and dividends to the plaintiffs.  The Company appealed this decision in January2000.  On October 10, 2000, the SuperiorCourt of Lima affirmed the lower court’s decision, which had been adverse tothe Company.  On appeal by the Company,the Peruvian Supreme Court annulled the proceeding noting that the civil courtslacked jurisdiction and that the matter had to be decided by a laborcourt.  On March 8, 2002, Mr. GarcíaAtaucuri restated the claim to comply with Peruvian labor law and procedurerequirements, and increased the number of plaintiffs to approximately 958ex-workers.  The lower labor judgedismissed the lawsuit in January 2005 on procedural grounds without deciding onthe merits of the case.  In March 2005,the plaintiffs appealed to the Lima Labor Superior Court.  The Superior Court annulled the appeal due toprocedural defects and remanded the case to the lower court for furtherproceedings.  The lower court, on motionsfrom the plaintiffs, reinstated the appeal of the dismissal of the case ofseven plaintiffs that had cured the procedural defects. As of June 30, 2007,the case remains open with no further new developments.

2) Additionally, on May 10, 2006, the Company was served with a newcomplaint filed in Peru, this time by 44 former employees, (Cornejo Flores andothers vs. SCC), seeking delivery of (1) labor shares (or shares of whateverother current legal denomination)corresponding to years 1971 to December31,1977 (we understand the plaintiffs are seeking the same 38,763,806.80 laborshares mentioned in the prior lawsuit), that should have been issued inaccordance with Law # 22333, plus interest” and (2) labor shares resulting fromcapital increases made by the Branch in 1980 “ for the amount of the workers’participation of S/.17,246,009,907.20, equivalent to 172,460,099.72 laborshares”, plus dividends.  On May 23,2006, the Company answered this new complaint, denying the validity of theclaim. As of June 30, 2007 the case remains in the discovery stage.

The Company asserts that the claims are without merit and that the laborshares were distributed to the former employees in accordance with the profitsharing law then in effect.  We do notbelieve that an unfavorable outcome is reasonably possible.  The Company has not made a provision forthese lawsuits because it believes that it has meritorious defenses to theclaims asserted in the complaints.

Mineria Integral S.A.C.:

In January 2007, the Company was served with three claims filed in Peruby Mineria Integral S.A.C.  The claimsallege that the Company has trespassed on certain mining rights of theplaintiff, in Ilo, Department of Moquegua, and seek that the Company desistfrom the trespass and pay compensation in the amount of $49,139,476.  The Company believes that theseadministrative procedures are without merit and is vigorously defending itselfagainst these actions.

Class actions

Three purported class action derivative lawsuits have been filed in theDelaware Court of Chancery (New Castle County) late in December 2004 and earlyJanuary 2005 relating to the acquisition of Minera Mexico by SCC.  On January 31, 2005, the three actions LemonBay, LLP v. Americas Mining Corporation, et 

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al., Civil Action No. 961-N, Therault Trust v. Luis Palomino Bonilla, etal., and Southern Copper Corporation, et al., Civil Action No. 969-N, and JamesSousa v. Southern Copper Corporation, et al., Civil Action No. 978-N wereconsolidated into one action titled, In re Southern Copper CorporationShareholder Derivative Litigation, Consol. C. A. No. 961-N and the complaint filed in Lemon Bay was designated asthe operative complaint in the consolidated lawsuit.  The consolidated action purports to bebrought on behalf of the Company’s common stockholders.

The consolidated complaint alleges, among other things, that the acquisitionof Minera Mexico is the result of breaches of fiduciary duties by the Company’sdirectors and is not entirely fair to the Company and its minoritystockholders.  The consolidated complaintseeks, among other things, a preliminary and permanent injunction to enjoin theacquisition, the award of damages to the class, the award of damages to theCompany and such other relief that the court deems equitable, includinginterest, attorneys’ and experts’ fees and costs.  The Company believes that this lawsuit iswithout merit and is vigorously defending itself against this action.

The Company’s management believes that the outcome of the aforementionedlegal proceeding will not have a material adverse effect on the Company’sfinancial position or results of operations.

Mexican operations-

The Mexican Geological Services (MGS) Royalties:

In August 2002, MGS (formerly named Council of Mineral Resources (“COREMI”))filed with the Third Federal District Judge in Civil Matters, an actiondemanding from Mexcobre the payment of royalties since 1997.  In December 2005, Mexcobre signed anagreement with MGS.  Under the terms ofthis agreement the parties established a new procedure to calculate the royaltypayments applicable for 2005 and the following years, and the Company paid inJanuary 2006, $6.9 million of royalties for 2005 and $8.5 million as payment onaccount of royalties from the third quarter 1997 through the last quarter of2004.  We estimate that the payment madeon January 11, 2006 will cover 100% of the royalty payments required for 2004and prior periods.  On January 22, 2007the Third Federal District Judge issued a ruling regarding the payment relatedto the period from the third quarter of 1997 through the fourth quarter of2004.  This ruling was appealed by bothparties in February 2007. The appeal is still pending.  The Company believes that the payment made onaccount for this period is correct.

On an ongoing basis the Company will be required to pay a 1% royalty onLa Caridad’s copper production value after deduction of treatment and refiningcharges and certain other carrying costs.

San Luis Potosi Facilities:

The municipality of San Luis Potosi has granted DesarrolladoraIntersaba, S.A. de C.V. (“Intersaba”), licenses for use of land and constructionof housing and/or commercial zones in the former Ejido Capulines zone, wherethe residential project “Villa Magna” is expected to be developed in the nearfuture.

The “Villa Magna” residential project will be developed within an areathat IMMSA’s Risk Analysis approved by SEMARNAT (the federal environmentalauthority), has secured as a safeguard and buffer zone due to the use by IMMSAof anhydrous ammonia gas.

Based on the foregoing, IMMSA has initiated two different actionsregarding this matter.  First, againstthe municipality of San Luis Potosi, requesting the annulment of theauthorization and licenses granted to Intersaba to develop “Villa Magna” within

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the zinc plant’s safeguard and buffer zone; and second, filed beforeSEMARNAT for the declaration of a safeguard and buffer zone surrounding IMMSA’szinc plant.

In August 2006, the first action was resolved by a Federal Court, whichdenied IMMSA’s request. In September 2006, IMMSA sumbmitted its final appeal tothe Supreme Court of Justice and in February 2007, the court ruled againstIMMSA.

IMMSA believes that while this outcome was adverse to its interests, theconstruction of the “Villa Magna” housing and commercial development will not,in itself, affect the operations of IMMSA’s zinc plant.

Intersaba has filed a lawsuit against IMMSA, requesting payment ofdamages in the amount of approximately $11.0 million supposedly caused by IMMSAduring these proceedings.  IMMSA intendsto vigorously defend against this lawsuit.

In addition to the foregoing, IMMSA has initiated a series of legal andadministrative procedures against the Municipality of San Luis Potosi due toits refusal to issue IMMSA’s use of land permit (*licencia deuso de suelo*) in respect to its zinc plant.  A federal judge ruled that IMMSA’s use ofland permit should be granted.

Tax contingency matters-

The Company is regularly audited by federal, state and foreign taxauthorities, both, in the United States and internationally.  The amount of unrecognized tax benefitsresulting from uncertain tax positions has been developed in consultation withlegal and tax counsel and in accordance with the requirements of FIN 48, whichwas adopted effective January 1, 2007, see Note B above.

U.S. Internal Revenue Service (IRS)

IRS audits can result in proposed assessments.  In 2002, the IRS issued a preliminary Noticeof Proposed Adjustment for the years 1994 through 1996.  In 2003, the Company settled these differenceswith the IRS and made a payment of $4.4 million, including interest.  The years 1994 through 1996 are now closed tofurther adjustment.

In the second quarter of 2007, the IRS completed field audit work forthe years 2003 and 2004. Issues raised were the same as those pendingresolution from prior audits. No new issues were raised and no new federalaudits have been scheduled.

During the audit of the tax years 1997 through 1999, the IRS questionedthe Company’s accounting policy for determination of useful lives fordepreciable property, the calculation of deductible and creditable Peruviantaxes, the methodology of capitalizing interest and the capitalizing of certaincosts (drilling, blasting and hauling) into inventory value as items for possibleadjustment.  In 2003, the Company and theIRS jointly requested technical advice from the IRS National Office to helpresolve the inventory value dispute.  In2005 the National Office of the IRS responded to the request for technicaladvice with the issuance of a technical advice memorandum (TAM).  This TAM allowed the IRS to close the fieldaudit work for the audit cycles 1997 through 1999 and 2000 through 2002.  The TAM accepts the position of the IRS fieldoffice and concludes that the Company is required to capitalize the drilling,blasting and hauling costs of material transported to its leach dumps based onthe weight of material moved, without regard to metal content orrecoverability.

In October 2005, the Company filed two formal protests, covering theyears 1997 through 2002, with the IRS to appeal the proposed changes withrespect to the TAM conclusion, as well as other items of adjustment proposed bythe IRS field audit group.

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These other adjustments include the methodology of capitalizing interest,the determination of useful lives for depreciable property, the calculation ofdeductible and creditable Peruvian taxes and the established service feebetween the Company and related parties. Discussions with the Appeals Office representatives have begun and theparties have agreed to working through the protested issues and concluding theappeals process as soon as practicable. During the quarter ending June 30, 2007 the Company and the IRScontinued to exchange information aimed at settling the disputes.

On June 12, 2007 the Company filed a formal protest with the IRS toappeal the proposed changes raised from the 2003 and 2004 audit.  Although no new issues were identified, theapplication of the prior cycle issues to new years did give rise to additionalproposed adjustments. The resulting liability amounts for these probableproposed adjustments were included within the FIN 48 liability.

Peruvian operations:

In Peru the Superintendencia Nacional de Administracion Tributaria (“SUNAT”),the Peruvian Tax Administration, regularly audits the Company.  These audits can result in proposedassessments.

In 2002, the Company received assessments and penalties from SUNAT forfiscal years 1996 through 1999, in which several deductions taken weredisallowed.  After appeal, the Companysettled many of the issues with SUNAT in 2003. However, the portion of the assessment related to the disallowance offinancial expenses is still pending resolution. In addition, the Company has not recognized a liability for penaltiesand interest related to the portion of the assessments settled in 2003 or forthe pending assessment related to financial expenses, as it considers that theyare not applicable.  The status of thesepending issues as well as other tax contingencies is as follows:

a)Year 1996:  With regard to the appeal ofthe penalty related to fiscal year 1996, the Company was required to issue aletter of credit to SUNAT of $3.4 million, which was issued in July 2003.  This deposit is recorded in other assets inthe condensed consolidated balance sheet. The Company was not required to issue a deposit for the appeal of theassessments and rulings with respect to any other year.  In February 2004, the Peruvian tax courtdenied the Company’s appeal. Consequently, in April 2004, the Company filed a lawsuit against thePeruvian tax court and SUNAT before the Superior Court of Peru.  In September 2005, the Superior Courtdeclared the Company’s claim valid. SUNAT appealed this decision to the Peruvian Supreme Court in Lima.  In December 2006, the Peruvian Supreme Courtconfirmed the opinion of the lower court that declared valid SPCC’s claim.  SUNAT has not appealed this decisionand in March 2007 issued a resolution in favor of SPCC’s claim. The Company isawaiting the refund of $3.4 million plus interest.

b)Year 1997:  In November 2002, with regardto the penalty issued by SUNAT related to fiscal year 1997, the Peruvian taxcourt indicated that the penalty needed to be modified and declared thepreviously issued penalty null. Consequently, SUNAT issued a new penalty in December 2003.  This penalty had been protested beforeSUNAT.  The Company’s appeal before thePeruvian tax court related to the assessments (pertaining to the deduction ofcertain financial expense) for fiscal year 1997 was denied.  In May 2003, the Company filed a lawsuitbefore the Superior Court against SUNAT and the Peruvian tax court, seeking thereversal of the ruling of the tax court. In July 2005 the Superior Court decided in favor of the Company andremanded the case to SUNAT for a new pronouncement.  SUNAT has appealed the court’s decision tothe Peruvian Supreme Court in Lima.  InDecember 2006, the Supreme Court declared null the lower court’s opinion andremanded the case back to the lower court for final resolution.

In March 2007 the lower court declared null the original resolutionsissued by SUNAT and the tax court, found in SPCC’s favor, and ordered SUNAT toaccept the 1997 interest deduction. SUNAT has appealed this decision. This decision, if it 

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is affirmed on appeal, is very important for SPCC as assessmentsrelated to the years 1998 through 2001 are based on SUNAT’s disallowance ofsimilar interest expense deductions.

c) Years 1998 and 1999: In August 2006, SUNAT ruled on the part of the1998/1999 issues related to payment of commissions to certain financialinstitutions.  The ruling resolved oneissue in favor of the Company and other issues against the Company.  The Company has appealed before the Peruviantax court the portion of the claim decided against the Company.

In July 2007, SUNAT ruled on the remaining 1998/1999 issues related tofinancial deductions. The ruling resolved one issue in favor of the Company andother issue against the Company. The Company will continue to contest theadverse portion of this ruling.

d) Years 2000 and 2001: In December 2004 and January 2005, the Companyreceived assessments and penalties from SUNAT for fiscal years 2000 and 2001,in which certain deductions taken by the Company were disallowed.  SUNAT has objected to the Company’s method ofdeducting vacation pay accruals in 2000, a deduction in 2000 for a fixed assetwrite-off, as well as certain other deductions in both years.  The Company has appealed these assessmentsand resolution is still pending. Additionally, the Company received penalties and assessments from SUNATrelating to treatment of foreign exchange differences for 2000 and 2001.  The Company has appealed these assessmentsbefore the Peruvian tax court and resolution is still pending.

In June 2006, a tax court decision was published with regards to anothercompany, which states that profits related to foreign exchange differences neednot be included in calculations for monthly advance tax payments.  The tax court has indicated that thisdecision is applicable to all future cases that are similar. In view of this,the Company expects that the portion of the 2000/2001 tax assessment related toforeign exchange difference will be removed from the assessment.

In September 2006, SUNAT declared invalid the Company’s claim related tothe income tax rate applied to commissions paid to certain financialinstitutions.  The Company has appealedSUNAT’s decision before the Peruvian tax court.

e) Year 2002: In December 2006, the Company received assessments andpenalties from SUNAT for fiscal year 2002 disallowing the income tax rateapplied to services received from non domiciled companies and certaindeductions taken.  In February 2007, theCompany filed a protest before SUNAT regarding these assessments.

Mexican Operations:

MM is regularly examined by the Servicios de Administracion Tributaria (“SAT”),the Mexican tax administration.  Theseexaminations can result in proposed assessments.

a) Year 1995: In March 2001, SAT issued an assessment related to the1995 tax year, disallowing certain deductions related to the Company’s housingand local travel expenses.  The Companyhas appealed this assessment.  The taxcourt ruled against the Company.  InMarch 2007, SAT made the final liquidation of MM’s consolidated income tax andthe Company paid $0.9 million.  With thispayment the case is closed.

b) Year 1999:  In May 2005 SATissued an assessment against MM claiming that MM understated the asset valueused in the determination of the asset tax.  In addition, SAT claimed that MM improperlyreduced its consolidated results through the consolidation of two subsidiaries.

MM believes that the 1999 SAT assessment is not legal.  Accordingly, in July 2005, MM filed a nullitymotion with the Metropolitan Regional Tax Court, Exchequer Division, 

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against the assessment, which is currently at the stage of submission ofexpert and documentary evidence.

Labor matters:

In recent years the Company has experienced a number of strikes or otherlabor disruptions that have had an adverse impact on its operations andoperating results.

During 2006, there were a number of work stoppages at some of theCompany’s Mexican operations.  While someof these work stoppages were of a short-term nature with little or no productionloss, others have been more disruptive. A strike at the La Caridad copper mine in Sonora began in the firstquarter of 2006 and ended in July 2006. A strike at the San Martin polymetallic complex in Zacatecas commencedin the first quarter of 2006 and ended in May 2006.  Workers at the Cananea copper mine went on astrike on June 1, 2006, returning to work six weeks later on July 17,2006.  These work stoppages were declaredillegal by the Mexican authorities.  OnJune 9, 2006, the Company announced the closing of the La Caridad mine aspicketing workers made it impossible to continue operations.  As a result of these strikes, the Companydeclared “force majeure” on certain of its June and July copper contracts.  On July 14, 2006, with the approval of alabor court, the Company dismissed the La Caridad workers. Individual workagreements, and the collective union contract, were terminated in compliancewith the provisions of the ruling rendered by federal labor authorities. OnJuly 26, 2006, the installations were returned to the Company and the Companycommenced to hire workers to resume operations. In July 2006, the Company reopened the La Caridad mine and in the fourthquarter of 2006 restored production to 100% capacity.

Collective bargaining agreements with the Company’s nine Peruvian laborunions were due to expire in 2007. As a result, on April 28, 2007 theworkers of a newly unified workers union at our Peruvian smelter in Iloinitiated a strike to demand better wages and benefits.  In addition, on April 30, 2007 Peru’s largestmining union launched a nationwide strike to demand better job benefits.  The workers at our two Peruvian mines joinedthe nationwide miners’ strike and also supported the unified Ilo union.  The labor minister declared the strikeinappropriate and the workers returned to work after five days when thenationwide strike was resolved by the government.  The workers received guarantees from thegovernment over working conditions and contracts.

On June 9, 2007 the workers of the Toquepala employees union signed afive year and nine month collective bargaining agreement with the Company. Thisagreement includes a salary increase of 11% retroactive to December 1, 2006.

On June 23, 2007 the unionized workers at some of our Peruvian operationsinitiated a strike demanding better wages and benefits.  At the request of the Peruvian laborauthorities, the workers returned to work after five days to restartnegotiations with the Company.

During these brief strikes at the Peruvian operations, the Companycontinued normal operations with the support of staff and administrativepersonnel and contractors.

On July 11, 2007 the workers of four Peruvian unions, the Ilo workersunion, the refinery employees union, and the unified workers of Toquepala andCuajone unions, signed a six year agreement with the Company. These agreementsinclude a salary increase of 41.67% over the six years, 11% of which is for thefirst year retroactive to December 1, 2006. In addition, each worker willreceive a one time payment of approximately $5,000 upon subscribing.

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Related to our Mexican operations, ten of theeleven collective bargaining agreements were satisfactorily negotiated. TheCompany expects to complete negotiation with the remaining union in August.

On July 30, 2007 three of our Mexican miningunits, Cananea, Taxco and San Martín, suspended operations due to workstoppages organized by a minority of the units’ workers. Based on severalprocedural shortcomings, the Company considers that these stoppages areillegal. The Company has asked the authorities to promptly declare these workstoppages illegal.

Mine accident:

On February 19, 2006 an explosion occurred at the IMMSA unit’s Pasta deConchos coal mine, located in San Juan de Sabinas, Coahuila, Mexico. Immediatelythereafter and for 14 months, IMMSA conducted a comprehensive rescueeffort.  Federal and local governmentalhelp and support was received.  As aresult of the accident eight miners were injured and 65 perished.

Both the Coahuila Public District Attorney (Procurador de Justicia) andthe Federal Attorney’s Office (Procuraduria Federal de la Republica) initiatedinvestigations to establish the causes of the accident and the responsibleparty.  A local judge at San Juan deSabinas ordered five mine representatives to stand trial for the accident.  On April 16, 2007 the judge terminated thecase due to the indemnification for damages to the families of thevictims.  Recovery efforts have stoppeddue to increased hazards and potential health risks for the recovery workers.Federal labor officials are evaluating the conditions of the mine.

Other legal matters:

The Company is involved in various other legal proceedings incidental toits operations, but the Company does not believe that decisions adverse to itin any such proceedings individually or in the aggregate would have a materialadverse effect on its financial position or results of operations.

Our direct and indirect parent corporations, including AMC and GrupoMexico, have from time to time been named parties in various litigationsinvolving Asarco.  In August 2002 theU.S. Department of Justice brought a claim alleging fraudulent conveyance inconnection with AMC’s then-proposed purchase of SCC from Asarco.  That action was settled pursuant to a ConsentDecree dated February 2, 2003.  In March2003, AMC purchased its interest in SCC from Asarco.  In October 2004, AMC, Grupo Mexico, Mexicanade Cobre and other parties, not including SCC, were named in a lawsuit filed inNew York State court in connection with alleged asbestos liabilities, whichlawsuit claims, among other matters, that AMC’s purchase of SCC from Asarcoshould be voided as a fraudulent conveyance. The lawsuit filed in New York State court was stayed as a result of theAugust 9, 2005 Chapter 11 bankruptcy filing by Asarco, as described below.  On February 2, 2007 a complaint was filed byAsarco, the debtor in possession, alleging many of the matters previouslyclaimed in the New York State lawsuit, including that AMC’s purchase of SCCfrom Asarco should be voided as a fraudulent conveyance.  While Grupo Mexico and its affiliates believethat these claims are without merit, we cannot assure you that these or futureclaims, if successful, will not have an adverse effect on the Company’s parentcorporation or the Company.  Any increasein the financial obligations of the Company’s parent corporation, as a resultof matters related to Asarco or otherwise could, among other effects, result inthe Company’s parent corporation attempting to obtain increased dividends orother funding from the Company.  In 2005,certain subsidiaries of Asarco filed bankruptcy petitions in connection withalleged asbestos liabilities.  In July2005, the unionized workers of Asarco commenced a work stoppage.  As a result of various factors, including theabove-mentioned work stoppage, on August 9, 2005 Asarco 

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filed a voluntary petition for relief under Chapter 11 of the U.S.Bankruptcy Code before the U.S. Bankruptcy Court in Corpus Christi, Texas.  Asarco’s bankruptcy case is being joined withthe bankruptcy cases of its subsidiaries. Asarco’s bankruptcy could result in additional claims being filedagainst Grupo Mexico and its subsidiaries, including SCC, Minera Mexico or itssubsidiaries.

M.         Segmentand Related Information:

The Company operates in a single industry, namely mining copper.  Prior to the April 1, 2005 acquisition ofMinera Mexico, the Company determined that its operations in Peru fell withinone segment.  With the acquisition ofMinera Mexico the Company continues to operate principally in one industry, themining of copper.  However, because ofthe demands of managing operations in two countries, effective April 1, 2005Company management views the new Southern Copper as having three operating segmentsand manages the Company on the basis of these segments.  Additionally, in mining copper, the Companyproduces a number of by-products, most important of which are molybdenum,silver and zinc.  The significantincrease in the price of molybdenum over recent years has had an importantimpact on the Company’s earnings. Nevertheless, the Company continues to manage its operations on thebasis of the three copper segments. Added to the segment information is the information regarding theCompany’s molybdenum sales.  The segmentsidentified by the Company are:

1.               Peruvianoperations, which include the Toquepala and Cuajone mine complexes and thesmelting and refining plants, industrial railroad and port facilities whichservice both mines.

2.               Mexicanopen pit copper mines, which include La Caridad and Cananea mine complexes andthe smelting and refining plants and support facilities which service bothmines.

3.               Mexicanunderground mining operations, which include five underground mines thatproduce zinc, copper, silver and gold, a coal and coke mine, and severalindustrial processing facilities for zinc and copper.  This group is identified as the IMMSA unit.

The Chief Operating Officer of the Company focuses on operating incomeas a measure of performance to evaluate different segments, and to makedecisions to allocate resources to the reported segments.

Financial information relating to Southern Copper’s segments is asfollows:

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| ** **                                                             | ** ** | **Three Months Ended June 30, 2007  (in millions)** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **Mexican  Open Pit**                                                        | ** ** | **Mexican  IMMSA Unit** | ** ** | **Peruvian  Operations** | ** ** | **Corporate  and other  Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                   |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Net sales outside of  segments                                         |       | $                                                                                 | 688.3      |   | $ | 184.3 |   | $ | 953.9 |   | $ | — |   | $ | 1,826.5 |   |
| Intersegment sales                                                     |       | 78.2                                                                              |       | 29.3 |   |   |   | (107.5 | ) | — |   |
| Cost of sales  (exclusive of depreciation, amortization and depletion) |       | 209.4                                                                             |       | 107.5 |   | 358.1 |   | (112.7 | ) | 562.3 |   |
| Selling, general and  administrative expense                           |       | 10.5                                                                              |       | 7.3 |   | 10.1 |   | (2.0 | ) | 25.9 |   |
| Depreciation,  amortization and depletion                              |       | 44.0                                                                              |       | 9.9 |   | 30.0 |   | 0.6 |   | 84.5 |   |
| Exploration                                                            |       | 1.8                                                                               |       | 2.1 |   | 4.7 |   | — |   | 8.6 |   |
| Operating income                                                       |       | $                                                                                 | 500.8      |   | $ | 86.8 |   | $ | 551.0 |   | $ | 6.6 |   | 1,145.2 |   |
| Less:                                                                  |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Interest, net                                                          |       |                                                                              |       |   |   |   |   |   |   | (11.4 | ) |
| Loss on  derivative instruments                                        |       |                                                                              |       |   |   |   |   |   |   | (55.5 | ) |
| Other income  (expense)                                                |       |                                                                              |       |   |   |   |   |   |   | 5.0 |   |
| Taxes on income                                                        |       |                                                                              |       |   |   |   |   |   |   | (354.4 | ) |
| Minority  interest                                                     |       |                                                                              |       |   |   |   |   |   |   | (2.9 | ) |
| Net earnings                                                           |       |                                                                              |       |   |   |   |   |   |   | $ | 726.0 |   |
|                                                                   |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Capital expenditure                                                    |       | $                                                                                 | 41.9       |   | $ | 2.8 |   | $ | 49.0 |   | $ | 0.3 |   | $ | 94.0 |   |
| Property, net                                                          |       | $                                                                                 | 1,585.7    |   | $ | 259.2 |   | $ | 1,665.0 |   | $ | 68.6 |   | $ | 3,578.5 |   |
| Total assets                                                           |       | $                                                                                 | 3,239.9    |   | $ | 712.7 |   | $ | 3,134.3 |   | $ | (557.6 | ) | $ | 6,529.3 |   |

 
| ** **                                                             | ** ** | **Three Months Ended June 30, 2006  (in millions)** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **Mexican  Open Pit**                                                        | ** ** | **Mexican  IMMSA Unit** | ** ** | **Peruvian  Operations** | ** ** | **Corporate  and other  Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                   |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Net sales outside of  segments                                         |       | $                                                                                 | 336.5      |   | $ | 153.5 |   | $ | 786.7 |   | $ | — |   | $ | 1,276.7 |   |
| Intersegment sales                                                     |       | 63.7                                                                              |       | 8.3 |   | — |   | (72.0 | ) |   |   |
| Cost of sales  (exclusive of depreciation, amortization and depletion) |       | 200.7                                                                             |       | 86.8 |   | 286.7 |   | (52.4 | ) | 521.8 |   |
| Selling, general and  administrative expense                           |       | 8.5                                                                               |       | 5.2 |   | 9.7 |   | (0.1 | ) | 23.3 |   |
| Depreciation,  amortization and depletion                              |       | 50.1                                                                              |       | 7.2 |   | 20.3 |   | 0.4 |   | 78.0 |   |
| Exploration                                                            |       | 0.1                                                                               |       | 1.3 |   | 3.2 |   | — |   | 4.6 |   |
| Operating income                                                       |       | $                                                                                 | 140.8      |   | $ | 61.3 |   | $ | 466.8 |   | $ | (19.9 | ) | 649.0 |   |
| Less:                                                                  |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Interest, net                                                          |       |                                                                              |       |   |   |   |   |   |   | (7.3 | ) |
| Loss on debt  prepayment                                               |       |                                                                              |       |   |   |   |   |   |   | (0.9 | ) |
| Other income  (expense)                                                |       |                                                                              |       |   |   |   |   |   |   | 8.5 |   |
| Taxes on income                                                        |       |                                                                              |       |   |   |   |   |   |   | (207.9 | ) |
| Minority  interest                                                     |       |                                                                              |       |   |   |   |   |   |   | (2.1 | ) |
| Net earnings                                                           |       |                                                                              |       |   |   |   |   |   |   | $ | 439.3 |   |
|                                                                   |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Capital expenditures                                                   |       | $                                                                                 | 37.2       |   | $ | 11.8 |   | $ | 38.6 |   | $ | — |   | $ | 87.6 |   |
| Property, net                                                          |       | $                                                                                 | 1,588.7    |   | $ | 272.5 |   | $ | 1,552.5 |   | $ | 28.8 |   | $ | 3,442.5 |   |
| Total assets                                                           |       | $                                                                                 | 2,531.6    |   | $ | 561.5 |   | $ | 3,101.0 |   | $ | (569.8 | ) | $ | 5,624.3 |   |

 

27

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| ** **                                                             | ** ** | **Six Months Ended June 30, 2007  (in millions)** | ** ** |
|------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **Mexican  Open Pit**                                                      | ** ** | **Mexican  IMMSA Unit** | ** ** | **Peruvian  Operations** | ** ** | **Corporate  and other  Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                   |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Net sales  outside of segments                                         |       | $                                                                               | 1,202.0    |   | $ | 312.8 |   | $ | 1,670.0 |   | $ | — |   | $ | 3,184.8 |   |
| Intersegment  sales                                                    |       | 147.9                                                                           |       | 51.5 |   | — |   | (199.4 | ) | — |   |
| Cost of sales  (exclusive of depreciation, amortization and depletion) |       | 397.7                                                                           |       | 172.1 |   | 662.4 |   | (203.3 | ) | 1,028.9 |   |
| Selling, general  and administrative expense                           |       | 20.9                                                                            |       | 12.8 |   | 20.1 |   | (4.1 | ) | 49.7 |   |
| Depreciation,  amortization and depletion                              |       | 87.0                                                                            |       | 17.7 |   | 53.3 |   | 0.6 |   | 158.6 |   |
| Exploration                                                            |       | 2.6                                                                             |       | 4.0 |   | 8.4 |   | — |   | 15.0 |   |
| Operating income                                                       |       | $                                                                               | 841.7      |   | $ | 157.7 |   | $ | 925.8 |   | $ | 7.4 |   | 1,932.6 |   |
| Less:                                                                  |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Interest, net                                                          |       |                                                                            |       |   |   |   |   |   |   | (14.4 | ) |
| Loss on derivative instruments                                         |       |                                                                            |       |   |   |   |   |   |   | (76.7 | ) |
| Other income (expense)                                                 |       |                                                                            |       |   |   |   |   |   |   | 25.7 |   |
| Taxes on income                                                        |       |                                                                            |       |   |   |   |   |   |   | (585.1 | ) |
| Minority interest                                                      |       |                                                                            |       |   |   |   |   |   |   | (4.5 | ) |
| Net earnings                                                           |       |                                                                            |       |   |   |   |   |   |   | $ | 1,277.6 |   |
|                                                                   |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Capital  expenditure                                                   |       | $                                                                               | 62.3       |   | $ | 9.5 |   | $ | 80.4 |   | $ | 26.8 |   | $ | 179.0 |   |
| Property, net                                                          |       | $                                                                               | 1,585.7    |   | $ | 259.2 |   | $ | 1,665.0 |   | $ | 68.6 |   | $ | 3,578.5 |   |
| Total assets                                                           |       | $                                                                               | 3,239.9    |   | $ | 712.7 |   | $ | 3,134.3 |   | $ | (557.6 | ) | $ | 6,529.3 |   |

 
| ** **                                                             | ** ** | **Six Months Ended June 30, 2006  (in millions)** | ** ** |
|------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                             | ** ** | **Mexican  Open Pit**                                                      | ** ** | **Mexican  IMMSA Unit** | ** ** | **Peruvian  Operations** | ** ** | **Corporate  and other  Eliminations** | ** ** | **Consolidated** | ** ** |
|                                                                   |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Net sales  outside of segments                                         |       | $                                                                               | 725.4      |   | $ | 270.1 |   | $ | 1,402.5 |   | $ | — |   | $ | 2,398.0 |   |
| Intersegment  sales                                                    |       | 159.6                                                                           |       | 25.4 |   | — |   | (185.0 | ) |   |   |
| Cost of sales  (exclusive of depreciation, amortization and depletion) |       | 384.6                                                                           |       | 161.7 |   | 554.2 |   | (171.8 | ) | 928.7 |   |
| Selling, general  and administrative expense                           |       | 16.3                                                                            |       | 9.0 |   | 19.0 |   | 3.0 |   | 47.3 |   |
| Depreciation,  amortization and depletion                              |       | 76.8                                                                            |       | 14.1 |   | 40.1 |   | 0.1 |   | 131.1 |   |
| Exploration                                                            |       | 0.6                                                                             |       | 3.0 |   | 5.6 |   | — |   | 9.2 |   |
| Operating income                                                       |       | $                                                                               | 406.7      |   | $ | 107.7 |   | $ | 783.6 |   | $ | (16.3 | ) | 1,281.7 |   |
| Less:                                                                  |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Interest, net                                                          |       |                                                                            |       |   |   |   |   |   |   | (15.9 | ) |
| Loss on derivative instruments                                         |       |                                                                            |       |   |   |   |   |   |   | (0.9 | ) |
| Loss on debt prepayment                                                |       |                                                                            |       |   |   |   |   |   |   | 7.5 |   |
| Other income (expense)                                                 |       |                                                                            |       |   |   |   |   |   |   | (407.7 | ) |
| Taxes on income                                                        |       |                                                                            |       |   |   |   |   |   |   | (3.8 | ) |
| Minority interest                                                      |       |                                                                            |       |   |   |   |   |   |   | $ | 860.9 |   |
| Net earnings                                                           |       |                                                                            |       |   |   |   |   |   |   |   |   |
|                                                                   |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                                  |       | $                                                                               | 88.0       |   | $ | 19.6 |   | $ | 123.1 |   | $ | — |   | $ | 230.7 |   |
| Property, net                                                          |       | $                                                                               | 1,588.7    |   | $ | 272.5 |   | $ | 1,552.5 |   | $ | 28.8 |   | $ | 3,442.5 |   |
| Total assets                                                           |       | $                                                                               | 2,531.6    |   | $ | 561.5 |   | $ | 3,101.0 |   | $ | (569.8 | ) | $ | 5,624.3 |   |

 

28

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Sales value per segment:
| ** ** | ** ** | **Three Months Ended June 30, 2007  (in millions)** | ** ** |
|------------|------------|-----------------------------------------------------------------------------------|------------|
| ** ** | ** ** | **Mexican  Open Pit**                                                        | ** ** | **Mexican  IMMSA Unit** | ** ** | **Peruvian  Operations** | ** ** | **Intersegment  Elimination** | ** ** | **Consolidated** | ** ** |
|       |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Copper     |       | $                                                                                 | 607.3      |   | $ | 36.1 |   | $ | 749.3 |   | $ | (79.2 | ) | $ | 1,313.5 |   |
| Molybdenum |       | 129.1                                                                             |       | — |   | 161.3 |   | — |   | 290.4 |   |
| Other      |       | 30.1                                                                              |       | 177.5 |   | 43.3 |   | (28.3 | ) | 222.6 |   |
| Total      |       | $                                                                                 | 766.5      |   | $ | 213.6 |   | $ | 953.9 |   | $ | (107.5 | ) | $ | 1,826.5 |   |

 
| ** ** | ** ** | **Three Months Ended June 30, 2006  (in millions)** | ** ** |
|------------|------------|-----------------------------------------------------------------------------------|------------|
| ** ** | ** ** | **Mexican  Open Pit**                                                        | ** ** | **Mexican  IMMSA Unit** | ** ** | **Peruvian  Operations** | ** ** | **Intersegment  Elimination** | ** ** | **Consolidated** | ** ** |
|       |       |                                                                              |       |   |   |   |   |   |   |   |   |
| Copper     |       | $                                                                                 | 375.3      |   | $ | 32.8 |   | $ | 640.0 |   | $ | (63.2 | ) | $ | 984.9 |   |
| Molybdenum |       | 1.7                                                                               |       | — |   | 125.5 |   | — |   | 127.2 |   |
| Other      |       | 23.2                                                                              |       | 129.0 |   | 21.2 |   | (8.8 | ) | 164.6 |   |
| Total      |       | $                                                                                 | 400.2      |   | $ | 161.8 |   | $ | 786.7 |   | $ | (72.0 | ) | $ | 1,276.7 |   |

 
| ** ** | ** ** | **Six Months Ended June 30, 2007  (in millions)** | ** ** |
|------------|------------|---------------------------------------------------------------------------------|------------|
| ** ** | ** ** | **Mexican  Open Pit**                                                      | ** ** | **Mexican  IMMSA Unit** | ** ** | **Peruvian  Operations** | ** ** | **Intersegment  Elimination** | ** ** | **Consolidated** | ** ** |
|       |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Copper     |       | $                                                                               | 1,065.3    |   | $ | 51.2 |   | $ | 1,308.0 |   | $ | (147.3 | ) | $ | 2,277.2 |   |
| Molybdenum |       | 228.0                                                                           |       | — |   | 274.6 |   | — |   | 502.6 |   |
| Other      |       | 56.6                                                                            |       | 313.1 |   | 87.4 |   | (52.1 | ) | 405.0 |   |
| Total      |       | $                                                                               | 1,349.9    |   | $ | 364.3 |   | $ | 1,670.0 |   | $ | (199.4 | ) | $ | 3,184.8 |   |

 
| ** ** | ** ** | **Six Months Ended June 30, 2006  (in millions)** | ** ** |
|------------|------------|---------------------------------------------------------------------------------|------------|
| ** ** | ** ** | **Mexican  Open Pit**                                                      | ** ** | **Mexican  IMMSA Unit** | ** ** | **Peruvian  Operations** | ** ** | **Intersegment  Elimination** | ** ** | **Consolidated** | ** ** |
|       |       |                                                                            |       |   |   |   |   |   |   |   |   |
| Copper     |       | $                                                                               | 792.7      |   | $ | 57.6 |   | $ | 1,123.1 |   | $ | (148.3 | ) | $ | 1,825.1 |   |
| Molybdenum |       | 35.7                                                                            |       | — |   | 225.8 |   | — |   | 261.5 |   |
| Other      |       | 56.6                                                                            |       | 237.9 |   | 53.6 |   | (36.7 | ) | 311.4 |   |
| Total      |       | $                                                                               | 885.0      |   | $ | 295.5 |   | $ | 1,402.5 |   | $ | (185.0 | ) | $ | 2,398.0 |   |

 

Geographic breakdown of Southern Copper’s sales is asfollows:
| ** **                                 | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **(in millions)**                          | ** ** |
| ** **                                 | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| United States                              |       | $                                               | 472.0      |                                          | $          | 470.2 |   | $ | 904.0 |   | $ | 861.9 |   |
| Europe                                     |       | 410.6                                           |       | 493.3                                         |       | 626.6 |   | 757.7 |   |
| Mexico                                     |       | 474.0                                           |       | 276.8                                         |       | 734.6 |   | 531.2 |   |
| Peru                                       |       | 31.0                                            |       | 30.2                                          |       | 52.4 |   | 55.4 |   |
| Latin America  (excluding Mexico and Peru) |       | 249.6                                           |       | 171.3                                         |       | 435.5 |   | 289.5 |   |
| Asia                                       |       | 186.0                                           |       | 92.9                                          |       | 428.4 |   | 160.2 |   |
| Derivative  instruments                    |       | 3.3                                             |       | (257.9                                        | )          | 3.3 |   | (257.9 | ) |
| Total                                      |       | $                                               | 1,826.5    |                                          | $          | 1,276.7 |   | $ | 3,184.8 |   | $ | 2,398.0 |   |

 

29

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Major Customer Segment Information:

For the six months ended June 30, 2007, the Company had revenue fromtwo copper customers of the Mexican and Peruvian operations, which amounted to24.1% of total revenue; revenues from one of these customers amounted to 14.6%of total revenue. In addition, the Company had revenue from two molybdenumcustomers of the Peruvian and Mexican operations, which amounted to 13.1% oftotal revenues; these customers represent 82.9% of the Company’s molybdenumsales value.

N.            Impactof New Accounting standards:

In February 2007 the FASB published SFAS No. 159, *“The FairValue Option for Financial Assets and Financial liabilities”.*  This Statement permits entities to choose tomeasure many financial instruments and certain other items at fair value thatare not currently required to be measured at fair value.  The objective is to improve financialreporting by providing entities with the opportunity to mitigate volatility inreported earnings caused by measuring related assets and liabilitiesdifferently without having to apply complex hedge accounting provisions.  This Statement is expected to expand the useof fair value measurement, which is consistent with the Board’s long-termmeasurement objectives for accounting for financial instruments.

This Statementalso establishes presentation and disclosure requirements designed tofacilitate comparisons between entities that choose different measurementattributes for similar types of assets and liabilities.  This Statement does not affect any existingaccounting literature that requires certain assets and liabilities to becarried at fair value.  This Statementdoes not establish requirements for recognizing and measuring dividend income,interest income, or interest expense. This Statement does not eliminate disclosure requirements included inother accounting standards, including requirements for disclosures about fairvalue measurements included in FASB Statements No. 157, *Fair Value Measurements,*and No. 107, *Disclosures about Fair Value of FinancialInstruments.*

SFAS 159 will be effective for all the companies after the beginning ofa reporting entity’s first fiscal year that begins after November 15,2007.  The Company is currentlyevaluating the impact of this statement will have on its financial position orresults of operations.

O.            Stockholders Equity:

Treasury Stock:

Activity in treasurystock in the six month period ended June 30, 2007 is as follows:

| Southern Copper common  shares               |   |     |     |
|----------------------------------------------|--------|----------|----------|
| Balance as of December 31, 2006              |   | $        | (4,466   | ) |
| Purchase of shares                           |   | —   |     |
| Used for corporate purposes                  |   | 101      |     |
| Balance as of June 30, 2007                  |   | (4,365   | )        |
|                                         |   |     |     |
| Parent Company  (Grupo Mexico) common shares |   |     |     |
| Balance as of December 31, 2006              |   | (92,603  | )        |
| Used for corporate purposes                  |   | 217      |     |
| Dividend received                            |   | (24,965  | )        |
| Balance as of June 30, 2007                  |   | (117,351 | )        |
|                                         |   |     |     |
| Treasury stock  balance as of June 30, 2007  |   | $        | (121,716 | ) |

 

30

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In the first six monthsof 2007, the Company distributed 4,000 shares of Southern Copper to directorsunder the Directors’ Stock Award Plan.

In the first six months of 2007 the Company awarded 4.7 million sharesof Grupo Mexico under the employee stock purchase plan.  In addition, the Company received dividendsfrom Grupo Mexico shares amounting to $25.0 million, which were added to thetreasury stock balance and credited to other income (expenses) in our condensedconsolidated statement of income.

Directors Stock AwardPlan:

The Company established astock award compensation plan for certain directors who are not compensated asemployees of the Company.  Under thisplan, participants will receive 400 shares of common stock upon election and400 additional shares following each annual meeting of stockholders thereafter.  200,000 shares of Southern Copper commonstock have been reserved for this plan. At June 30, 2007 and 2006, 71,600 and 67,200 shares, respectively, havebeen granted under this plan.  The fairvalue of the award is measured each year at the date of the grant.  For the six months ended June 30, 2007 and2006, the stock based compensation expense under this plan equaled $0.3 millionand $0.3 million, respectively.

Employee Stock Purchase Plan:

In January 2007, the Company offered to eligibleemployees a stock purchase plan (the “Employee Stock Purchase Plan”) through atrust that acquires shares of Grupo Mexico stock for sale to its employees, andemployees of subsidiaries, and certain affiliated companies.  The purchase price is established at theapproximate fair market value on the grant date.  Every two years employees will be able toacquire title to 50% of the shares paid in the previous two years.  The employees will pay for shares purchasedthrough monthly payroll deductions over the eight year period of the plan.  At the end of the eight year period, theCompany will grant the participant a bonus of 1 share for every 10 sharespurchased by the employee.

If Grupo Mexico pays dividends on shares during theeight year period, the participants will be entitled to receive the dividend incash for all shares that have been fully purchased and paid as of the date thatthe dividend is paid.  If the participanthas only partially paid for shares, the entitled dividends will be used toreduce the remaining liability owed for purchased shares.

In the case of voluntary resignation of the employee,the Company will pay to the employee the difference between the fair marketvalue of the shares at the date of termination of employment, and the purchaseprice.  When the fair market value of theshares is higher than the purchase price, the Company will apply a deductionover the amount to be paid to the employee based on the following schedule.

| If the resignation occurs during: | ** ** | **% Deducted** | ** ** |
|-------------------------------------------------------|------------|---------------------|------------|
| 1st 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                  | %          |

 

In the case of involuntary termination of the employee,the Company will pay to the employee the difference between the fair marketvalue of the shares at the date of termination of employment, and the purchaseprice.  When the fair market value of

31

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the shares is higher than the purchase price, theCompany will apply a deduction over the amount to be paid to the employee basedon the following schedule.

| If the termination occurs during: | ** ** | **% Deducted** | ** ** |
|-------------------------------------------------------|------------|---------------------|------------|
| 1st 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 ordeath of the employee, the Company will render the buyer or his legalbeneficiary, the shares effectively paid as of the date of retirement or death.

For the six months endedJune 30, 2007, the stock based compensation expenses under this plan was $1.2million.  As of June 30, 2007, there was$15.8 million of unrecognized compensation expense under this plan which isexpected to be recognized over a period of 8 years.

The following tablepresents the stock award activity for the six months ended June 30, 2007:

|                                        | ** ** | **Shares** | ** ** | **Unit Weighted  Average Grant  Date Fair Value** | ** ** |
|----------------------------------------|------------|------------|------------|-----------------------------------------------------------------------|------------|
| Outstanding  shares at January 1, 2007 |       | —     |       | —                                                                |       |
| Granted                                |       | 4,714,698  |       | $                                                                     | 3.5        |   |
| Exercised                              |       |       |       | —                                                                |       |
| Forfeited                              |       | —     |       | —                                                                |       |
| Outstanding shares at  June 30, 2007   |       | 4,714,698  |       | $                                                                     | 3.5        |   |

 

Executive Stock PurchasePlan:

Grupo Mexico also offersa stock purchase plan for certain members of its executive management and theexecutive management of its subsidiaries and certain affiliated companies.Under this plan, participants will receive incentive cash bonuses which areused to purchase up to 750,000 shares of Grupo Mexico over an eight yearperiod. The fair value of the award is estimated on the date of grant and isrecognized as compensation expense over a weighted average requisite serviceperiod of eight years. The Company recorded $0.5 million, net of tax, incompensation expense in the first six months of 2007.  As of June 30, 2007, there was $3.2 millionof unrecognized compensation cost, related to this plan, which is expected tobe recognized over a weighted average period of eight years.

The following tablepresents the stock award activity for the six months ended June 30, 2007:

|                                        | ** ** | **Shares** | ** ** | **Unit Weighted  Average Grant  Date Fair Value** | ** ** |
|----------------------------------------|------------|------------|------------|-----------------------------------------------------------------------|------------|
| Outstanding  shares at January 1, 2007 |       | 750,000    |       | $                                                                     | 2.3        |   |
| Granted                                |       | —     |       | —                                                                |       |
| Exercised                              |       | (67,500    | )          | 2.3                                                                   |       |
| Forfeited                              |       | —     |       | —                                                                |       |
| Outstanding shares at  June 30, 2007   |       | 682,500    |       | $                                                                     | 2.3        |   |

 

32

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P.              Subsequent events:

On July 26, 2007 the Board of Directors approved a quarterly dividendof $1.60 per share, totaling $471.1 million, to be paid on August 31, 2007 toshareholders of record as of August 14, 2007.

33

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Part I Item 2 and 3.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITIONAND RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Our business is primarilythe production and sale of copper.  Inthe process of producing copper, a number of valuable metallurgical by-productsare recovered, such as molybdenum, zinc, silver, lead and gold, which we alsoproduce and sell.  Market forces outsideof our control largely determine the sales prices for our products.  Our management, therefore, focuses on copperproduction cost control, production enhancement and maintaining a prudent andconservative capital structure to improve profitability.  We believe we achieve these goals throughcapital spending programs, exploration efforts and cost reductionprograms.  Our aim is to remainprofitable during periods of low copper prices and to maximize financialperformance in periods of high copper prices.

Ournet income and earnings per share for the three months ended June 30, 2007 were$726.0 million and $2.465 per share and for the three months ended 2006 were$439.3 million and $1.492 per share. Net income and earnings per share for thesix months ended June 30, 2007 were $1,277.6 million and $4.339 per share andfor the six months ended 2006 were $860.9 million and $2.923 per share. Theincrease in net earnings in both periods was favorably impacted by higherprices for copper and our principal byproducts. Additionally, higher copper sales volumes improved the second quarterand first six months of 2007 as compared to the second quarter and the firstsix months of 2006.  Strike activity atsome of our Mexican operations reduced sales volumes in 2006.  We completed the Ilo smelter modernizationearly in the first quarter of 2007 and are currently eliminating some glitchesin the process to reach maximum production. The nominal and design capacity for the Isasmelt furnace was reached inless than 45 days; compared with other smelting furnaces using this technology,the start-up of the Ilo smelter has been achieved in the shortest time.  Also, the sulfur capture during the secondquarter was over the 92% required by Peruvian regulations.

We discuss below severalmatters that we believe are important to understand our results of operationsand financial condition.  These mattersinclude, (i) our “operating cash costs” as a measure of our performance, (ii)metal prices, (iii) business segments, (iv) the effects of inflation and otherlocal currency issues and (v) our expansion and modernization program. Thisdiscussion should be read in conjunction with the management discussion andanalysis of financial condition and results of operations at December 31, 2006included in the Company’s 2006 annual report on Form 10-K.

Operating Cash Costs:An overall benchmark used by us and a common industry metric to measureperformance is operating cash costs per pound of copper produced.  Operating cash cost is a non-GAAP measurethat does not have a standardized meaning and may not be comparable tosimilarly titled measures provided by other companies.  A reconciliation of our operating cash costper pound to the cost of sales (including depreciation, amortization anddepletion) as presented in the statement of earnings, is presented under the subheading“Non-GAAP Information Reconciliation”, below. We have defined operating cash cost per pound as cost of sales(including depreciation, amortization and depletion); plus selling, general andadministrative charges, treatment and refining charges; less byproducts revenueand sales premiums, depreciation, amortization and depletion, worker’sparticipation and other miscellaneous charges, the Peruvian royalty charge andthe change in inventory levels; divided by total pounds of copper produced andpurchased by us.  In our calculation ofoperating cash cost per pound of copper produced, we credit against our coststhe revenues from the sale of byproducts, principally molybdenum, zinc andsilver and the

34

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premiums over marketprice that we receive on copper sales. We account for the byproduct revenue in this way because we consider ourprincipal business to be the production and sale of copper.  We believe that our Company is viewed by theinvestment community as a copper company, and is valued, in large part, by theinvestment community’s view of the copper market and our ability to producecopper at a reasonable cost.  We alsoinclude copper sales premiums as a credit, as these amounts are in excess ofpublished copper prices.  The increase inrecent years in the price of molybdenum has had a significant effect on ourtraditional calculation of cash cost and its comparability betweenperiods.  Accordingly, we present cashcosts with and without crediting the byproducts revenues against our costs.

We exclude from ourcalculation of operating cash cost depreciation, amortization and depletion,which are considered non-cash expenses. Exploration is considered a discretionary expenditure and is alsoexcluded.  Workers’ participationprovisions are determined on the basis of pre-tax earnings and are alsoexcluded.  Additionally excluded fromoperating cash cost are items of a non-recurring nature, and the new Peruvianroyalty. In periods prior to 2006 we have also excluded the portion of minestripping costs that we have capitalized.

Our operating cash costsper pound, as defined, are presented in the table below, for the three and sixmonths ended June 30, 2007 and 2006.  Wepresent cash costs with and without the inclusion of by-product revenues.

|                                                                                   | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                        | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                                                        | ** ** | **(in cents per pound)**         | ** ** |
| Cash cost per  pound of copper produced and purchased                             |       | (29.5                                           | )          | 40.5                                          |       | (12.1 | ) | 30.2 |   |
| Cash cost per pound of  copper produced and purchased without by-products revenue |       | 132.0                                           |       | 149.8                                         |       | 127.4 |   | 132.0 |   |

 

As seen on the chartabove, our per pound cash cost for the second quarter and six months of 2007when calculated with by-products revenue is a credit of 29.5 cents and 12.1cents respectively, compared with a debit of 40.5 cents and 30.2 cents in thesecond quarter and six months of 2006, respectively.  The increase in the byproducts credit in both2007 periods was due to higher prices for molybdenum, zinc and silver, as wellas the higher production of molybdenum and silver in both periods, and thehigher production of zinc in the second quarter of 2007. Production of zinc inthe six month 2007 period was about one percent lower than in the first sixmonths of 2006. See page 39 for the average metal prices for these periods. Thehigher byproduct production in 2007 was principally a return to normal, as 2006production was reduced due to extensive strikes at some of our Mexicanproperties.

Our cash costs, excludingby-product revenues, were lower by 17.8 cents and 4.6 cents per pound in thesecond quarter and six months of 2007, respectively, than the comparable 2006periods, principally because in 2006 it was necessary to purchase additionalcopper concentrates to meet our smelting requirements as consequence of theillegal work stoppages.  As we includethe cost of purchased material in our operating cash cost, the impact of thismaterial increased our per pound operating cash cost by 30.5 and 12.5 cents inthe second quarter and first six months of 2006, respectively.

Metal Prices.  The profitability of our operations isdependent on, and our financial performance is significantly affected by, theinternational market prices for the products we produce, especially for copper,molybdenum, zinc and silver.  Metalsprices historically have been subject to wide fluctuations and are affected bynumerous factors beyond our control. These factors, which affect each commodity to varying degrees, includeinternational economic and political conditions, levels of supply and

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demand, the availabilityand cost of substitutes, inventory levels maintained by producers and othersand, to a lesser degree, inventory carrying costs and currency exchangerates.  In addition, the market prices ofcertain metals have on occasion been subject to rapid short-term changes due tospeculative activities.

We are subject to marketrisks arising from the volatility of copper and other metal prices.  Assuming that expected metal production andsales are achieved, that tax rates are unchanged, giving no effect to potentialhedging programs, metal price sensitivity factors would indicate the followingchange in estimated 2007 earnings resulting from metal price changes:
| ** **                                                    | ** ** | **Copper** | ** ** | **Molybdenum** | ** ** | **Zinc** | ** ** | **Silver** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|----------------|------------|----------|------------|------------|------------|
| Change in metal prices (per pound, except silver - per ounce) |       | $0.01      |       | $1.00          |       | $0.01    |       | $1.00      |       |
| Annual change in net earnings (in millions)                   |       | $8.2       |       | $19.3          |       | $1.7     |       | $11.0      |       |

 

Business segments.Our Company operates in a single industry, the copperindustry.  With the acquisition of MineraMexico in April 2005, we determined that to effectively manage our business weneeded to focus on three segments.  Thesesegments are our Peruvian operations, our Mexican open-pit operations and ourMexican underground operations, known as our IMMSA unit.  Our Peruvian operations include the Toquepalaand Cuajone mine complexes and the smelting and refining plants, industrialrailroad and port facilities which service both mines.  Our Mexican open-pit operations include LaCaridad and Cananea mine complexes, the smelting and refining plants andsupport facilities which service both mines. Our IMMSA unit includes five underground mines that produce zinc, lead,copper, silver and gold, a coal and coke mine, and several industrialprocessing facilities for zinc, copper and silver.

Segment information isincluded in our review of “Results of Operations” and also in Note M of ourCondensed Consolidated Financial Statements.

Inflation and Devaluationof the Peruvian Nuevo Sol and the Mexican Peso.  Our functional currency is the U.S.dollar.  Portions of our operating costsare denominated in Peruvian nuevos soles and Mexican pesos.  Since our revenues are primarily denominatedin U.S. dollars, when inflation/deflation in Peru or Mexico is not offset by achange in the exchange rate of the nuevo sol or the peso, respectively, to thedollar, our financial position, results of operations and cash flows could beadversely affected in our wage adjustments. In addition, the dollar value of our net monetary assets denominated innuevos soles or pesos can be affected by devaluation of the nuevo sol or thepeso, resulting in a remeasurement loss in our financial statements.

For the three and sixmonths ended June 30, 2007 and 2006, inflation and devaluation rates were asfollows:
| ** **                                         | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                         | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Peru:                                              |       |                                            |       |                                          |       |   |   |   |   |
| Inflation rate                                     |       | 1.2                                             | %          | (0.2                                          | )%         | 1.8 | % | 1.4 | % |
| Nuevo sol/dollar  (appreciation)/ devaluation rate |       | (0.5                                            | )%         | (2.9                                          | )%         | (0.9 | )% | (5.0 | )% |
|                                               |       |                                            |       |                                          |       |   |   |   |   |
| Mexico:                                            |       |                                            |       |                                          |       |   |   |   |   |
| Inflation rate                                     |       | (0.4                                            | )%         | (0.2                                          | )%         | 0.6 | % | 0.7 | % |
| Peso/dollar  (appreciation)/ devaluation rate      |       | (2.3                                            | )%         | 4.1                                           | %          | (0.8 | )% | 6.4 | % |

 

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Expansion andModernization Program.

The Ilo smelter modernization project was completed inJanuary 2007.  We are currentlyeliminating some glitches in the process to reach maximum production.  The nominal and design capacity for the Isasmelt furnace wasreached in less than 45 days; compared with other smelting furnaces using thistechnology, the start-up of the Ilo smelter has been achieved in the shortesttime.  Also, the sulfur capture duringthe second quarter was over the 92% required by Peruvian regulations.  Additionally, the Company’s crushing andconveying project at the Toquepala mine is in full production.  The primary crusher and associated overlandconveying system are fully operational; construction of the operating ramp haddisplaced 51.6 millions tons of material and was completed in the secondquarter of 2007.

We plan to construct a new SX/EW plant at the Cananeamine with a 33,000 mtpy capacity. Proposals for an engineering, procurement and construction managementcontract have been received and are being analyzed. In conjunction with thisproject, we are developing a crushing and conveying system project with a 15million mtpy capacity.

Regarding the expansionprojects at the Cananea mine, the concentrator expansion is under a technical andeconomic evaluation.  The expandedconcentrator would add 33,000 tons of copper content per year and would beginproduction in 2009.  In parallel, due toimproving molybdenum grades, the Company also plans to build a molybdenum plantto produce concentrates with approximately 4,000 tons of molybdenum content peryear. We have completed the basic engineering and we are analyzing alternativesof the detailed engineering.

Regarding the Company’sexploration activities, the pre-feasibility study at Los Chancas, acopper-molybdenum property in southern Peru is in progress and we expect it tobe completed in the third quarter of 2007. Additionally, a feasibility study for Tia Maria, a copper oxide depositin the department of Arequipa, Peru is in process.  This study should be completed by the thirdquarter of 2007. In addition to these Peruvian properties, we are planning todevelop our Mexican properties at El Arco in Baja California and Angangueo inMichoacan. We expect to go forward with the development, as well as theexpansion of our operating properties, once we believe that the necessaryfinancial and governmental requisites have been obtained.

ACCOUNTING ESTIMATES

Our discussion andanalysis of financial condition and results of operations are based on ourcondensed consolidated financial statements, which have been prepared inaccordance with US GAAP.  Preparation ofthese condensed consolidated financial statements requires our management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosures of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts of revenues and expensesduring the reporting periods.  Managementmakes its best estimate of the ultimate outcome for these items based onhistorical trends and other information available when the financial statementsare prepared.  Changes in estimates arerecognized in accordance with the accounting rules for the estimate, which istypically in the period when new information becomes available tomanagement.  Areas where the nature ofthe estimate makes it reasonably possible that actual results could materiallydiffer from amounts estimated include: ore reserves, revenue recognition,estimated mine stripping ratios, leachable material and related amortization,the estimated useful lives of fixed assets, asset retirement obligations,litigation and contingencies, valuation allowances for deferred tax assets, taxpositions, fair value of financial instruments and inventory obsolescence.  We base our estimates on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances.  Actual resultsmay differ from these estimates under different assumptions or conditions.

37

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RESULTS OF OPERATIONS

The following highlightskey financial and operating results for three and six months ended June 30,2007 and 2006:
| ** **                                   | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                   | ** ** | **(dollars in millions)**             | ** ** |
| ** **                                   | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Statement of  Earnings Data                  |       |                                            |       |                                          |       |   |   |   |   |
|                                         |       |                                            |       |                                          |       |   |   |   |   |
| Net sales                                    |       | $                                               | 1,826.5    |                                          | $          | 1,276.7 |   | $ | 3,184.8 |   | $ | 2,398.0 |   |
| Operating costs  and expenses                |       | (681.3                                          | )          | (627.7                                        | )          | (1,252.2 | ) | (1,116.3 | ) |
| Operating income                             |       | 1,145.2                                         |       | 649.0                                         |       | 1,932.6 |   | 1,281.7 |   |
| Non-operating  income (expense)              |       | (61.9                                           | )          | 0.3                                           |       | (65.4 | ) | (9.3 | ) |
| Earnings before  taxes and minority interest |       | 1,083.3                                         |       | 649.3                                         |       | 1,867.2 |   | 1,272.4 |   |
| Taxes on income                              |       | (354.4                                          | )          | (207.9                                        | )          | (585.1 | ) | (407.7 | ) |
| Minority  interest                           |       | (2.9                                            | )          | (2.1                                          | )          | (4.5 | ) | (3.8 | ) |
| Net earnings                                 |       | $                                               | 726.0      |                                          | $          | 439.3 |   | $ | 1,277.6 |   | $ | 860.9 |   |

 

Mine copper productionamounted to 351.0 million pounds in the second quarter of 2007, an increase of28.1% compared with the second quarter of 2006. This increase of 77.1 million pounds included 84.0 million pounds fromthe Mexican open pit operations, 1.9 million pounds from the Mexicanunderground mines and a decrease of 8.8 million pounds from the Peruvian openpit mines.

The increase of 84.0million pounds in production from the Mexican open-pit mines included 70.7million pounds from the La Caridad mine and 13.3 million pounds from theCananea mine.  In the second quarter of2006, strike activity halted production at the La Caridad. In 2007, La Caridadoperated at normal capacity. The increase of 13.3 million pounds at Cananea wasthe result of higher ore and PLS grades. The decreased production at the Peruvian mines came principally from theToquepala mine, which decreased by 10.7 million pounds, and was the result oflower ore grades and mill recoveries in the 2007 period, and from a 0.4 millionpound decrease at Cuajone.  Thesedecreases were partially reduced by a 2.3 million pound increase in ourPeruvian SX/EW production, principally due to the processing of copper sulfatepurchased from third parties.  Theincrease of 1.9 million pounds at the Mexican underground mines was due largelyto an increase of 1.6 million pounds at the San Martin mine. In 2006, SanMartin lost 46 production days due to strike.

Molybdenum productionincreased to 8.6 million pounds in the second quarter of 2007 from 5.1 millionpounds in the second quarter of 2006. This increase in production was the result of a 3.5 million poundincrease at La Caridad, while molybdenum production at our Peruvian operationsremained stable.

Mine zinc productionincreased 3.5 million pounds in the second quarter of 2007 to 73.6 millionpounds compared with 70.1 million pounds in the second quarter of 2006. This5.0% increase in production was due to higher strike-free production at SanMartin and improvements in grade and recovery at our other zinc mines.

The table below outlinesthe average metal prices during the three and six months periods ended June 30,2007 and 2006:

38

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Average Metals Prices
| ** **                              | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **% Change** | ** ** | **2007** | ** ** | **2006** | ** ** | **% Change** | ** ** |
| Copper ($ per  pound — LME)   |       | $                                               | 3.47       |                                          | $          | 3.27 |   | 6.1 | % | $ | 3.08 |   | $ | 2.76 |   | 11.6 | % |
| Copper ($ per  pound — COMEX) |       | $                                               | 3.46       |                                          | $          | 3.37 |   | 2.7 | % | $ | 3.08 |   | $ | 2.81 |   | 9.6 | % |
| Molybdenum ($ per pound)           |       | $                                               | 30.41      |                                          | $          | 24.22 |   | 25.6 | % | $ | 28.11 |   | $ | 23.23 |   | 21.0 | % |
| Zinc ($ per  pound — LME)     |       | $                                               | 1.66       |                                          | $          | 1.49 |   | 11.4 | % | $ | 1.61 |   | $ | 1.26 |   | 27.8 | % |
| Silver ($ per ounce —  COMEX) |       | $                                               | 13.32      |                                          | $          | 12.22 |   | 9.0 | % | $ | 13.31 |   | $ | 10.96 |   | 21.4 | % |

 

Net Sales.  Net sales in the second quarter of 2007increased $549.7 million to $1,826.5 million from $1,276.7 million in thecomparable period in 2006.  Net sales inthe first six months of 2007 increased $786.8 million to $3,184.8 million from$2,398.0 million in the comparable period in 2006.  The increases in net sales were principallythe result of higher copper, zinc, molybdenum and silver prices and highersales volumes and a gain on derivative instruments in the second quarter andsix months of 2007 of $3.3 million.  Losson copper derivative instruments decreased net sales by $257.9 million in boththe second quarter and the first six months of 2006, respectively.

The table below presentsinformation regarding the volume of our copper sales by segment for the threeand six months ended June 30, 2007 and 2006:

Copper Sales (millionpounds):
| ** **                     | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Copper:                        |       |                                            |       |                                          |       |   |   |   |   |
|  Peruvian operations      |       | 209.9                                           |       | 208.4                                         |       | 420.9 |   | 395.5 |   |
|  Mexican open-pit         |       | 158.2                                           |       | 129.9                                         |       | 331.6 |   | 304.4 |   |
|  Mexican IMMSA unit       |       | 9.7                                             |       | 9.4                                           |       | 16.9 |   | 19.1 |   |
|  Intersegment elimination |       | (21.6                                           | )          | (18.5                                         | )          | (46.7 | ) | (55.8 | ) |
| Total copper sales             |       | 356.2                                           |       | 329.2                                         |       | 722.7 |   | 663.2 |   |

 

The table belowpresents information regarding the volume of sales by segment of oursignificant by-products for the three and six months ended June 30, 2007 and2006:

By-product Sales:
| **(in million pounds except silver - in  million ounces)** | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                    | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Peruvian  operations                                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Molybdenum contained in concentrates                                                          |       | 5.1                                             |       | 5.2                                           |       | 9.3 |   | 10.9 |   |
| Zinc - refined and in concentrate (1)                                                         |       | 11.8                                            |       | —                                        |       | 23.2 |   | 10.5 |   |
| Silver                                                                                        |       | 0.8                                             |       | 1.3                                           |       | 2.2 |   | 2.9 |   |
|                                                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Mexican open-pit                                                                              |       |                                            |       |                                          |       |   |   |   |   |
| Molybdenum contained in concentrates                                                          |       | 4.0                                             |       | —                                        |       | 7.8 |   | 1.6 |   |
| Zinc - refined and in concentrate                                                             |       | —                                          |       | —                                        |       | — |   | 9.5 |   |
| Silver                                                                                        |       | 1.1                                             |       | 1.2                                           |       | 2.1 |   | 2.6 |   |
|                                                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Mexican IMMSA  unit                                                                           |       |                                            |       |                                          |       |   |   |   |   |
| Zinc - refined and in concentrate                                                             |       | 69.8                                            |       | 60.5                                          |       | 134.0 |   | 134.2 |   |
| Silver                                                                                        |       | 3.4                                             |       | 3.0                                           |       | 5.7 |   | 5.9 |   |

 

39

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|                                 |   |   |   |   |   |   |   |   |   |
|--------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Intersegment  elimination            |   |   |   |   |   |   |   |   |   |
| Zinc - refined and in concentrate    |   | (11.5  | )      | — |   | (21.6  | )      | (13.9  | )      |
| Silver                               |   | (0.2   | )      | (0.6   | )      | (0.5   | )      | (1.7   | )      |
|                                 |   |   |   |   |   |   |   |   |   |
| Total by-product  sales              |   |   |   |   |   |   |   |   |   |
| Molybdenum contained in concentrates |   | 9.1    |   | 5.2    |   | 17.1   |   | 12.5   |   |
| Zinc - refined and in concentrate    |   | 70.1   |   | 60.5   |   | 135.6  |   | 140.3  |   |
| Silver                               |   | 5.1    |   | 4.9    |   | 9.5    |   | 9.7    |   |

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(1)             Asof 2006, the Peruvian operations purchased zinc products from IMMSA and theMexican open-pit operations for resale to its customers through our commercialcompany in the United States.

At June 30, 2007, theCompany has recorded provisionally priced sales of 141.6 million pounds of copper,at an average forward price of $3.42 per pound. Also the Company has recorded provisionally priced sales of 4.4 millionpounds of molybdenum at an average price of $32.25 per pound.  These sales are subject to final pricingbased on the average monthly LME or COMEX copper prices and Dealer Oxidemolybdenum prices in the future month of settlement, which will occur largelyin the remaining six months of 2007.

Management believes thatthe final pricing of these sales will not have a material effect on the Company’sfinancial position or results of operations.

Operating Costs andExpenses. Operating costs and expenses were $681.3 million inthe second quarter of 2007 compared with $627.7 million in the second quarterof 2006.  Cost of sales (exclusive of depreciation,amortization and depletion) for the three months ended June 30, 2007 was $562.3million compared with $521.8 million in the comparable 2006 period.

The increase in cost ofsales in the second quarter 2007, as compared to the second quarter of 2006, isprincipally due to $57.5 million of higher production cost as a consequence ofthe higher strike-free production in our Mexican operations offset by areduction of $113.2 million in purchases of copper concentrates on the openmarket made in 2006 due to the strike activities.  Other factors increasing cost of salesinclude an increase in workers participation of $27.5 million, a loss intranslation difference of $17.2 million mainly due to the appreciation of theMexican peso against the US dollar, a consumption of inventory of $32.1 millionand $11.3 million of higher sales expenses mainly due to the sale of copperconcentrates. The start up of the modernization of the Ilo smelter in early2007 created a backlog of concentrates which were subsequently sold. Inaddition, we sold concentrates from our Mexican mines due to scheduled repairsat the La Caridad smelter.

Operating costs andexpenses were $1,252.2 million in the first six months of 2007 compared with$1,116.3 million in the first six months of 2006.  Cost of sales (exclusive of depreciation,amortization and depletion) for the six months ended June 30, 2007 was $1,029.0million compared with $928.7 million in the comparable 2006 period.

The increase in cost ofsales in the six-month 2007 period is principally due to $68.2 million ofhigher production cost as a consequence of the higher strike-free production inour Mexican operations offset by a reduction of $92.2 million in purchases ofcopper concentrates on the open market made in 2006 due to the strikeactivities.  Other factors increasingcost of sales include an increase in workers’ participation of $37.3 million, aloss in translation difference of $12.1 million mainly due to the appreciationof the Mexican peso, a consumption of initial inventory of $33.2 million and$22.6 million of higher sales expenses, mainly due to the sale of copperconcentrates.

40

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Depreciation,amortization and depletion for the three months and six months ended June 30,2007, were $84.5 million and $158.6 million, respectively compared with $78.0million and $131.1 million in the comparable periods of 2006.  The increases of $6.5 million and $27.6million are mainly attributable to higher depreciation in our Peruvian operationsdue to the start-up of the modernized Ilo smelter and higher amortization ofcapitalized leach material.

Selling andadministrative expenses for the six months ended June 30, 2007, were $49.7million compared with $47.3 million in the first six months of 2006.  The increase of $2.4 million is mainlyattributable to $0.9 million of higher salaries and wages, $1.1 million ofhigher fees for consulting and other services.

Non-Operating Income(Expense):  Interestexpense in the second quarter and the first six months of 2007 wereapproximately 9.9% and 18.9% higher, respectively, than the comparable 2006periods.  These increases are the resultof higher average debt levels in 2007.

Interest income was $18.1million and $40.0 million in the second quarter and first six months of 2007,compared to $14.3 million and $23.6 million in the second quarter and first sixmonths of 2006.  These increases wereprincipally the result of higher cash balances in the periods and higher ratesof interest earned.

The loss on derivativeinstruments was $55.5 million and $76.7 million in the second quarter and firstsix months of 2007. These losses consist of the following (in millions):
| ** **                                                     | ** ** | **Three Months Ended  June 30, 2007** | ** ** | **Six Months Ended  June 30, 2007** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Loss on  marketable securities (1)                             |       | $                                                         | (58.9      | )                                                       | $          | (81.6 | ) |
| Loss on dual  currency notes                                   |       | (1.3                                                      | )          | (1.3                                                    | )          |
| Gain on exchange  rate derivatives, U.S. dollar / Mexican peso |       | 4.7                                                       |       | 6.2                                                     |       |
| Net loss                                                       |       | $                                                         | (55.5      | )                                                       | $          | (76.7 | ) |

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(1) The amount of the realizedloss was $29.4 million on an investment of $40.0 million which matured in June2007; the unrealized portion is $63.8 million, including $13.8 million realizedon an investment redeemed on July 3, 2007, with a June 28, 2007 maturity date.These unrealized losses are recorded in other accounts payable in the condensedconsolidated balance sheet.  A loss onthese investments of $11.6 million was recorded in the fourth quarter 2006results.

For additionalinformation please see Notes C, Marketable securities and G, Derivativeinstruments to the Condensed Consolidated Financial Statements.

Other income (expense)was $5.0 million and $25.7 million in the second quarter and first six monthsof 2007 compared to $8.5 million and $7.5 million in the second quarter andfirst six months of 2006. These increases were principally the result of $10.6million and $25.0 million of dividends received from Grupo Mexico related tothe Grupo Mexico shares maintained in treasury stock in the second quarter andthe first six months of 2007, respectively. The second quarter and first sixmonths of 2007 also includes $4.5 million and $6.4 million, respectively, ofthe Peruvian contribution to the regional development.

Taxes on income:The income tax for the six months ended June 30, 2007 and 2006 was $585.1million and $407.7 million, respectively. These provisions include income taxes for Peru, Mexico and the UnitedStates.  The effective tax rates for the2007 and 2006 periods are 31.3% and 32.0%, respectively.  A decrease of 1% in the statutory Mexican

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tax rate contributed tothe decrease in the 2007 effective income tax rate.  In addition, a tax inflation adjustment andthe effect of currency conversion adjustment in our Mexican operations alsocontributed to the reduction in the effective tax rate.

Segment Results Analysis

Peruvian Open PitOperations

The following table setsforth net sales, operating cost and expenses and operating income for ourPeruvian open pit operations segment, for the three and six months ended June30, 2007 and 2006:
| ** **                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                    | ** ** | **(in millions)**                          | ** ** |
| Net sales                     |       | $                                               | 953.9      |                                          | $          | 786.7 |   | $ | 1,670.0 |   | $ | 1,402.5 |   |
| Operating costs  and expenses |       | (402.9                                          | )          | (319.9                                        | )          | (744.2 | ) | (618.9 | ) |
| Operating income              |       | $                                               | 551.0      |                                          | $          | 466.8 |   | $ | 925.8 |   | $ | 783.6 |   |

 

Net sales in the secondquarter 2007 increased $167.2 million to $953.9 million from $786.7 million inthe comparable period of 2006.  Net salesin the first six months of 2007 increased $267.5 million to $1,670.0 millionfrom $1,402.5 million in the first half of 2006.  The increase in net sales is principally theresult of higher copper prices.  Coppersales volume increased in 2007, principally as a result of the sale of copper concentrates.  Molybdenum sales volume decreased in the 2007period due to lower production; however sales value increased due to highermolybdenum sales prices.  Additionally,the second quarter of 2007 includes a gain on copper derivatives of $1.6million compared with a loss of $138.4 million in the second quarter of 2006.

Operating cost andexpenses in the second quarter of 2007 increased by $83.0 million to $402.9million from 319.9 million in the second quarter of 2006, principally due tohigher cost of sales.  Cost of sales(exclusive of depreciation, amortization and depletion) for the three monthsended June 30, 2007 was $358.1 million compared to $286.7 million in the sameperiod of 2006.  The increase in cost ofsales includes $54.7 million of metals purchased mainly from our Mexican operations,$3.8 million of higher workers’ participation, $8.2 million of higherproduction cost and $8.9 million of higher sales expenses mainly due to thesale of concentrates. These amounts were reduced by $2.8 million of lowermining royalties.

Operating cost andexpenses in the first half of 2007 increased by $125.3 million to $744.2million from $618.9 million in the first half of 2006, principally due tohigher cost of sales.  Cost of sales(exclusive of depreciation, amortization and depletion) for the six monthsended June 30, 2007 was $662.4 million compared to $554.2 million in the sameperiod of 2006.  The increase in cost ofsales includes $77.1 million of metals purchased from our Mexican operations,$9.1 million of higher workers’ participation and $21.3 million of higher salesexpenses due to the sale of concentrates.

Mexican Open PitOperations

The following table setsforth net sales, operating cost and expenses and operating income for ourMexican open pit operations segment for the three and six months periods endedJune 30, 2007 and 2006:

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| ** **                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                    | ** ** | **(in millions)**                          | ** ** |
| Net sales                     |       | $                                               | 766.5      |                                          | $          | 400.2 |   | $ | 1,349.9 |   | $ | 885.0 |   |
| Operating costs and  expenses |       | (265.7                                          | )          | (259.4                                        | )          | (508.2 | ) | (478.3 | ) |
| Operating income              |       | $                                               | 500.8      |                                          | $          | 140.8 |   | $ | 841.7 |   | $ | 406.7 |   |

 

Net sales in the secondquarter of 2007 increased $366.3 million to $766.5 million from $400.2 millionin the second quarter of 2006.  Net salesin the first half of 2007 increased $464.9 million to $1,349.9 million from$885.0 million in the first half of 2006. The increase in net sales in both periods is due to higher sales volume,higher metal prices and gains on copper derivatives. Production and sales werereduced in the 2006 periods due to illegal strikes at our mines. Metal priceswere also higher in the 2007 periods. In addition, the net sales for the 2006second quarter and six months periods included copper derivative losses of$119.6 million; in the comparable periods of 2007 net sales included a copperderivative gain of $1.7 million.

Operating cost andexpenses in the second quarter of 2007 increased by $6.3 million to $265.7million from $259.4 million in the second quarter of 2006, principally due tohigher cost of sales.  Cost of sales(exclusive of depreciation, amortization and depletion) increased $8.7 millionto $209.4 million from $200.7 million in 2006. The increase in cost of sales was the result of a number of factors,including, increased production and sale of mined metal, which increased costof sales by $75.7 million, net of the reduction of $118.1 million of the costof copper purchased from third parties. Strikes in the 2006 periods reduced ourproduction and necessitated the purchase of third party material. Additionally,cost of sales increased as a result of a translation difference loss of $28.0million due to revaluation of the Mexican peso against US dollar, higherworkers’ participation of $15.3 million, higher sales expenses of $2.4 million,and higher mine royalties of $5.3 million.

Operating cost andexpenses in the first half of 2007 increased by $29.9 million to $508.2 millionfrom $478.3 million in the first half of 2006, principally due to higher costof sales and higher depreciation, amortization and depletion.  Cost of sales (exclusive of depreciation,amortization and depletion) increased $13.1 million to $397.7 million from$384.6 million in 2006.  The increase incost of sales was principally due to $114.2 million of higher production andsales of mined metal as a consequence of the higher strike-free production, netof $141.7 million of lower copper concentrates purchased from third parties.Additionally, cost of sales increased by a loss in translation difference of$25.0 million due to the revaluation of the Mexican peso against US dollar andhigher workers’ participation of $21.3 million. The increase in depreciation,amortization and depletion is mainly due to the amortization of capitalizedleach material.

Mexican UndergroundOperations (IMMSA)

The following table setsforth net sales, operating cost and expenses and operating income for our IMMSAsegment, for the three and six months periods ended June 30, 2007 and 2006:
| ** **                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                    | ** ** | **(in millions)**                          | ** ** |
| Net sales                     |       | $                                               | 213.6      |                                          | $          | 161.8 |   | $ | 364.3 |   | $ | 295.5 |   |
| Operating costs  and expenses |       | (126.8                                          | )          | (100.5                                        | )          | (206.6 | ) | (187.8 | ) |
| Operating income              |       | $                                               | 86.8       |                                          | $          | 61.3 |   | $ | 157.7 |   | $ | 107.7 |   |

 

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Net sales in the secondquarter 2007 increased $51.8 million to $213.6 million from $161.8 million inthe comparable period of 2006.  Net salesin the first six months of 2007 increased $68.8 million to $364.3 million from$295.5 million in the comparable period. The increase in net sales is principally due to higher market prices andhigher volume. Illegal work stoppages at the San Martin mine in 2006 reducedproduction and sales volume.

Operating cost andexpenses in the second quarter of 2007 increased by $26.3 million to $126.8million from $100.5 million in the second quarter of 2006.  Cost of sales (exclusive of depreciation,amortization and depletion) increased $20.7 million to $107.5 million in thesecond quarter of 2007 from $86.8 million in the second quarter of 2006principally due to $20.4 million of higher production and sales of mined metal,net of $8.2 million of lower purchases of metals from third parties, and $4.2million of higher workers’ participation.

Operating costs andexpenses in the first half of 2007 increased by $18.8 million to $206.6 millionfrom $187.8 million in the first six months of 2006.  Cost of sales (exclusive of depreciation,amortization and depletion) increased $10.4 million to $172.1 million in thefirst half of 2007 from $161.7 million in the first half of 2006 principally dueto $10.9 million of higher production and sales of mined metal, net of $5.9million of lower purchases of metals from third parties, and $3.0 million ofhigher workers’ participation.

Intersegment Eliminationsand Adjustments

The net sales, operatingcosts and expenses and operating income displayed above will not be directlyequal to amounts in our condensed consolidated statement of earnings becausethe adjustments of intersegment operating revenues and expenses must be takeninto account.  Please see Note M of thefinancial statements.

CASH FLOW

The following table showsthe cash flow for the three and six months ended June 30, 2007 and 2006:
| ** **                                   | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                   | ** ** | **(in millions)**                          | ** ** |
| Net cash  provided from operating activities |       | $                                               | 648.9      |                                          | $          | 132.8 |   | $ | 1,197.8 |   | $ | 570.4 |   |
| Net cash used  for investment activities     |       | $                                               | (83.5      | )                                             | $          | (83.8 | ) | $ | (267.6 | ) | $ | (228.7 | ) |
| Net cash used for  financing activities      |       | $                                               | (447.9     | )                                             | $          | (46.8 | ) | $ | (950.2 | ) | $ | (454.0 | ) |

 

Second Quarter:  Net cash provided by operating activities was$648.9 million in the second quarter of 2007, compared with $132.8 million inthe 2006 period.  The increase of $516.1million was due to an increase in net earnings which increased by $286.7 and bya net reduction in working capital of $116.4 million mostly due to income taxprovision and $58.9 million of an increase in accounts payable due to theadjustment to fair value of marketable securities.

Net cash used ininvesting activities was $83.5 million in the second quarter of 2007 compared with$83.8 million in the second quarter of 2006 and included $94.0 million forcapital expenditures less $10.6 million received on the redemption of bondswith a face value of $40.0 million.  Thecapital expenditures included investments at our Peruvian operations of $9.3 millionfor the Ilo smelter modernization project and $39.7 million for variousother replacement expenditures.  Inaddition, we spent $45.0 million for replacement assets at our Mexicanoperations, of which $41.9 million was

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for our Mexican open pitoperations, $2.8 million for our IMMSA unit and $0.3 million for our Mexicancorporate office.  In the second quarterof 2006, cash used for investment activities was $83.8 million; this amountincludes capital spending of $87.6 million, $23.1 million of which was spent inthe Ilo smelter modernization project, $15.5 million for other replacementexpenditures in Peru and $49.0 million for replacement expenditures at ourMexican operations, of which $37.2 million was for replacement equipment at ourMexican open pit operations and $11.8 million for our IMMSA unit.

Net cash used infinancing activities in the second quarter of 2007 was $447.9 million, comparedwith $46.8 million in the second quarter of 2006.  The second quarter of 2007 includes adividend distribution of $441.7 million and a $5.0 million debt payment.  The second quarter of 2006 includes adividend distribution of $404.9 million and $367.7 million of net debtincurred.

Six Months:  Net cash provided by operating activities was$1,197.8 million in the first six months of 2007 compared with $570.4 millionin the same period of 2006.  The increaseof $627.4 million was principally due to $416.8 million of higher earnings and$79.7 million of a decrease in working capital mainly due to workers’participation and income tax and $81.6 million of increase in accounts payabledue to the adjustment to fair value of marketable securities.

Net cash used ininvesting activities was $267.6 million in the first six months of 2007 comparedwith $228.7 million in the first six months of 2006 and included $179.0 millionfor capital expenditures, $100 million for the purchase of marketablesecurities, less $10.6 million received on the redemption of marketablesecurities.  The capital expendituresincluded investments at our Peruvian operations of $21.1 million for the Ilosmelter modernization project and $59.3 for various other replacementexpenditures.  In addition, we spent$98.6 million for replacement assets at our Mexican operations, of which $62.3million was at our Mexican open pit operations, $9.5 million at our IMMSA unitand $26.8 million for our Mexican corporate office.  In the first half of 2006, cash used forinvesting activities was $228.7 million; this amount includes capital spendingof $230.7 million, $86.4 million of which was spent in the Ilo smeltermodernization project, $36.7 million for other replacement expenditures in Peruand $107.6 million for replacement expenditures for our Mexican operations, ofwhich $88.0 million was for our Mexican open pit operations and $19.6 millionfor our IMMSA unit.

Net cash used infinancing activities in the first six months of 2007 was $950.2 million,compared with $454.0 million in the first six months of 2006.  The first six months of 2007 include adividend distribution of $942.3 million and a debt payment of $5.0million.  The first six months of 2006include a dividend distribution of $809.8 million and net debt incurred of$367.7 million.

LIQUIDITY AND CAPITALRESOURCES

On June 1, 2007, theCompany paid a quarterly dividend of $1.50 per share, totaling $441.7million.  On July 26, 2007, the Board ofDirectors approved a quarterly dividend of $1.60 per share, totaling $471.1million, to be paid on August 31, 2007, to shareholders of record as of August14, 2007.

We expect that we willmeet our cash requirements for 2007 and beyond from internally generated funds,cash on hand and from additional external financing, if required.  At June 30, 2007 the Company’s debt as apercentage of total capitalization (the total of debt, minority interest andstockholders’ equity) was 27.6% as compared with 29.2% at December 31,2006.  At June 30, 2007, the Company’scash and cash equivalent amounted to $1,013.6 million compared to $1,022.8million at December 31, 2006.

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NON-GAAP INFORMATIONRECONCILIATION

Reconciliation ofoperating cash cost to GAAP cost of sales in millions of dollars and cents perpound.
| ** **                                                                 | ** ** | **Three Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                                        | ** ** | **2006** | ** ** |
| ** **                                                                 | ** ** | **$ million**                              | ** ** | **¢ per  pound** | ** ** | **$ million** | ** ** | **¢ per  pound** | ** ** |
| CASH COST                                                                  |       |                                            |       |   |   |   |   |   |   |
| Cost of sales  (including depreciation, amortization and depletion) - GAAP |       | $                                               | 646.8      |   | 181.9 |   | $ | 599.8 |   | 198.3 |   |
| Add:                                                                       |       |                                            |       |   |   |   |   |   |   |
| Selling, general  and administrative expenses                              |       | 25.9                                            |       | 7.3 |   | 23.3 |   | 7.7 |   |
| Treatment and  refining charges                                            |       | 16.5                                            |       | 4.6 |   | 4.5 |   | 1.5 |   |
| Less:                                                                      |       |                                            |       |   |   |   |   |   |   |
| By-products  revenue                                                       |       | (574.0                                          | )          | (161.5 | ) | (330.4 | ) | (109.3 | ) |
| Depreciation,  amortization and depletion                                  |       | (84.5                                           | )          | (23.8 | ) | (78.0 | ) | (25.8 | ) |
| Workers’  participation                                               |       | (101.7                                          | )          | (28.6 | ) | (74.4 | ) | (24.6 | ) |
| Royalty charge  and other                                                  |       | (27.1                                           | )          | (7.5 | ) | (47.9 | ) | (15.7 | ) |
| Inventory change                                                           |       | (6.6                                            | )          | (1.9 | ) | 25.5 |   | 8.4 |   |
| Operating cash  cost                                                       |       | (104.7                                          | )          | (29.5 | ) | 122.4 |   | 40.5 |   |
|                                                                       |       |                                            |       |   |   |   |   |   |   |
| Add by-product  revenue                                                    |       | 574.0                                           |       | 161.5 |   | 330.4 |   | 109.3 |   |
|                                                                       |       |                                            |       |   |   |   |   |   |   |
| Operating cash  cost, without by-product revenue                           |       | $                                               | 469.3      |   | 132.0 |   | $ | 452.8 |   | 149.8 |   |
|                                                                       |       |                                            |       |   |   |   |   |   |   |
| Total pounds of copper  produced and purchased (in millions)               |       | 355.5                                           |       |   |   | 302.4 |   |   |   |

 
| ** **                                                                 | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| ** **                                                                 | ** ** | **$ Million**                            | ** ** | **¢ per  pound** | ** ** | **$ million** | ** ** | **¢ per  pound** | ** ** |
| CASH COST                                                                  |       |                                          |       |   |   |   |   |   |   |
| Cost of sales  (including depreciation, amortization and depletion) - GAAP |       | $                                             | 1,187.5    |   | 163.6 |   | $ | 1,059.8 |   | 162.5 |   |
| Add:                                                                       |       |                                          |       |   |   |   |   |   |   |
| Selling, general  and administrative expenses                              |       | 49.7                                          |       | 6.8 |   | 47.3 |   | 7.3 |   |
| Treatment and  refining charges                                            |       | 35.5                                          |       | 4.9 |   | 16.7 |   | 2.6 |   |
| Less:                                                                      |       |                                          |       |   |   |   |   |   |   |
| By-products  revenue                                                       |       | (1,012.5                                      | )          | (139.5 | ) | (663.8 | ) | (101.8 | ) |
| Depreciation,  amortization and depletion                                  |       | (158.6                                        | )          | (21.9 | ) | (131.1 | ) | (20.1 | ) |
| Workers’  participation                                               |       | (173.1                                        | )          | (23.8 | ) | (136.0 | ) | (20.9 | ) |
| Royalty charge  and other                                                  |       | (42.4                                         | )          | (5.8 | ) | (55.7 | ) | (8.6 | ) |
| Inventory change                                                           |       | 26.4                                          |       | 3.6 |   | 59.7 |   | 9.2 |   |
| Operating cash  cost                                                       |       | (87.5                                         | )          | (12.1 | ) | 196.9 |   | 30.2 |   |
|                                                                       |       |                                          |       |   |   |   |   |   |   |
| Add by-product  revenue                                                    |       | 1,012.5                                       |       | 139.5 |   | 663.8 |   | 101.8 |   |
|                                                                       |       |                                          |       |   |   |   |   |   |   |
| Operating cash  cost, without by-product revenue                           |       | $                                             | 925.0      |   | 127.4 |   | $ | 860.7 |   | 132.0 |   |
|                                                                       |       |                                          |       |   |   |   |   |   |   |
| Total pounds of copper  produced and purchased (in millions)               |       | 725.8                                         |       |   |   | 652.0 |   |   |   |

 

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Impact of New AccountingStandards

Please see note N to ourcondensed consolidated financial statements.

Quantitative andQualitative Disclosure about Market Risk

A portion of our outstanding debt bears interest at variable rates andaccordingly is sensitive to changes in interest rates.  Interest rate changes would also result ingains or losses in the market value of our fixed rate debt portfolio due todifferences in market interest rates and the rates at the inception of the debtagreements.  Based upon our indebtednessat December 31, 2006, a change in interest rates of one percent (or 100 basispoints) would impact net income and cash flows by $0.7 million annually.

We are also exposed to market risk associated with changes in foreigncurrency exchange rates as certain costs incurred are in currencies other thanour functional currency.  To manage thevolatility related to the risk, we may enter into forward exchange contracts,currency swaps or other currency hedging arrangements.  We have only had limited involvement withderivative instruments and do not use them for trading purposes.

We are subject to market risks arising from the volatility of copper andother metal prices. Assuming that expected metal production and sales areachieved, that tax rates are unchanged, and giving no effects to potentialhedging programs metal price sensitivity factors would indicate estimatedchange in net earnings resulting from metal price changes in 2007 as providedin the table below.
| ** **                                                  | ** ** | **Copper** | ** ** | **Molybdenum** | ** ** | **Zinc** | ** ** | **Silver** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|----------------|------------|----------|------------|------------|------------|
| Change in metal  prices (per pound except silver-per ounce) |       | $          | 0.01       |           | $          | 1.00     |       | $          | 0.01       |   | $ | 1.00 |   |
| Change in net earnings  (in millions)                       |       | $          | 8.2        |           | $          | 19.3     |       | $          | 1.7        |   | $ | 11.0 |   |

 

We occasionally usesderivative instruments to manage our exposure to market risk from changes incommodity prices, interest rate and exchange rate risk exposures and to enhancereturn on assets.  We generally do notenter into derivative contracts unless it anticipates a future activity that islikely to occur that will result in exposing us to market risk.

Copper and zinc derivatives:

From time to time weenter into derivative instruments to protect a fixed copper, or zinc price fora portion of our metal sales.

In the secondquarter of 2007 and 2006 we entered into copper collar and swaps contracts toprotect a portion of its 2007 and 2006 sales of copper production. Related tothe settlement of these copper swap contracts we recorded a gain of $3.3million and a loss of $257.9 million in the second quarter of 2007 and 2006,respectively. These gain and losses were recorded in net sales in the condensedconsolidated statement of earnings. We did not hold any zinc derivativecontracts in the first two quarters of 2007 and 2006.

At June 30, 2007we held copper collar contracts to protect 146.2 million pounds of copperproduction for the July-December 2007 period at weighted average minimum andmaximum prices of $3.20 per pound and $4.07 per pound, respectively.  If the price falls below the minimum LMEprice, the Company will be in a gain position. If the price exceeds the maximumLME price, the Company will be in a loss position.  In addition we

47

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have copper swapcontracts to protect 7.9 million pounds of copper production for theJuly-August 2007 period at an average fix price of $3.71 per pound of copper.

Gas swaps:

Weestablished long swap contracts for 900,000 MMBTUs with a fixed price of $7.525in the first six months of 2007 and 900,000 MMBTUs with a fixed price of$4.2668 per MMBTU in the second quarter and first six months of 2006.  Related to these contracts, we recorded aloss of $0.9 million in the first six months of 2007 and gains of $1.3 millionand $3.6 million, in the second quarter and first six months of 2006,respectively, which were included in the production cost.  At June 30, 2007, we did not hold any open gas swap contract.

Exchange ratederivatives, U.S. dollar / Mexican peso contracts:

Because more than 85% ofour sales collections in Mexico are in US dollars and many of our costs are inMexican pesos, during 2006 we entered into zero-cost derivative contracts withthe purpose of protecting, within a range, against an appreciation of theMexican peso to the US dollar.  In thesecontracts if the exchange rate settles at or below the barrier, we do not sellUS dollars, if the exchange rate settles above the barrier price established inthe contract we sell US dollars at the strike price established in thecontract.

In the second quarter andfirst half of 2007 the exercise of these zero-cost derivative contractsresulted in gains of $2.6 million and $4.1 million, respectively, which wasrecorded as gain on derivative instruments in the condensed consolidatedstatement of earnings.

At June 30, 2007 we heldthe following exchange rate derivative operations:
| **Notional Amount  (millions)** | ** ** | **Due Date, Weekly  expiration during** | ** ** | **Strike Price  (Mexican  Pesos/U.S.  Dollars)** | ** ** | **Barrier Price  (Mexican  Pesos/U.S.  Dollars)** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------------|------------|
| $ 26.0                          |       | 3rd Quarter 2007                                       |       | 11.15                                                 |       | 10.675                                                 |       |
| $ 26.0                          |       | 3rd Quarter 2007                                       |       | 11.52                                                 |       | 11.15                                                  |       |
| $ 26.0                          |       | 3rd Quarter 2007                                       |       | 11.90                                                 |       | 11.54                                                  |       |
| $ 48.0                          |       | 4th Quarter 2007                                       |       | 11.35                                                 |       | 10.65                                                  |       |
| $ 48.0                          |       | 4th Quarter 2007                                       |       | 11.65                                                 |       | 11.35                                                  |       |
| $ 54.0                          |       | 1st Quarter 2008                                       |       | 11.60                                                 |       | 11.28                                                  |       |
| $ 54.0                          |       | 1st Quarter 2008                                       |       | 11.28                                                 |       | 10.70                                                  |       |

 

At June 30, 2007, thefair value of the above listed exchange rate derivative contracts is a gain of$2.1 million which was recorded as gain on derivative instruments in thecondensed consolidate statement of earnings. Each notional amount includes a group of weekly transactions that havethe same strike and barrier price.

Dual currency notes:

In the second quarter and first six months of 2007 Weinvested $440 million and $560.0 million, respectively, in dual currency noteswhich provided an above market interest return subject to a barrier range ofthe Mexican peso/US dollar exchange rates. These investments matured in the first and second quarters of 2007.  Related to these investments, in the secondquarter of 2007 we realized an exchange loss of $1.3 million, which wasrecorded as a loss on derivative instruments in the condensed consolidatedstatement of earnings.

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We also earned interest income of $1.7 million and $2.1million in the second quarter and first half of 2007, respectively, which wasrecorded as interest income in the condensed consolidated statement ofearnings.

There were no open positions at June 30, 2007.

Marketable Securities:

Commencing in 2006we began making short term investments (90 days to 1 year) in leveraged,indexed instruments.  The marketablesecurities were as follows (in millions):
| **Investment**                                                                                                                                                                                   | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| 3-month note,  issued December 12, 2006 with extensions every 3 months up to a maximum of 12  months, with an interest rate of 7%, established by a pool of Mexican and  Peruvian bond issues.   |       | $                           | 200.0      |                            | $          | 200.0 |   |
| 3-month note,  issued January 19, 2007 with extensions every 3 months up to a maximum of 12  months, with an interest rate of 7.25%, established by a pool of Mexican and  Peruvian bond issues. |       | 100.0                       |       | 100.0                           |       |
| 180-day note,  maturing June 12, 2007 with an interest rate of 6%, with barrier range of  $37.669 and $69.957 of SCC stock price, NYSE symbol PCU.                                               |       | —                      |       | 40.0                            |       |
| 180-day note,  maturing June 28, 2007 with an interest rate of 6%, with barrier range of  $38.738 and $71.942 of SCC stock price, NYSE symbol PCU.(1)                                            |       | 20.0                        |       | 20.0                            |       |
| 300-day note,  maturing December 24, 2007 with an interest rate of 3.6%, with barrier range  of $50.00 and $75.00 of SCC stock price, NYSE symbol PCU.                                           |       | 20.0                        |       | 20.0                            |       |
|                                                                                                                                                                                             |       | $                           | 340.0      |                            | $          | 380.0 |   |

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(1)             Redeemedon July 3, 2007.

Someof these investment instruments are indexed to SCC common stock prices whileothers are leveraged and indexed to certain bond pools.  Both types of instruments could cause theprincipal of the investment to be reduced if the established ranges arebreached.  Since the notes are notprincipal protected we may lose part or all of the initial investment.  These instruments have been deemed to containembedded derivatives and have been subject to valuation using a binomialmodel.  Through June 30, 2007, we have recordedan estimated loss of $93.2 million related to these investments.  The amount of the realized loss was $29.4million on an investment of $40.0 million which matured in June 2007; theunrealized portion is $63.8 million, including $13.8 million realized on aninvestment redeemed on July 3, 2007, with a June 28, 2007 maturity date. Theseunrealized losses are recorded in other accounts payable.  The loss recorded in the three months and sixmonths ended June 30, 2007 of $58.9 million and $81.6 million, respectively, isincluded as loss on derivative instruments in the condensed consolidatedstatement of earnings.  A loss on theseinvestments of $11.6 million was recorded in the fourth quarter 2006 results.

In the first three and six months of 2007 we earned interest of $6.3million and $12.4 million on these investments, respectively, which wererecorded in interest income in the condensed consolidated statement ofearnings.

Cautionary Statement:

Forward-lookingstatements in this report and in other Company statements include statementsregarding expected commencement dates of mining or metal production operations,projected quantities of future metal production, anticipated production 

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rates, operatingefficiencies, costs and expenditures as well as projected demand or supply forthe Company’s products.  Actual resultscould differ materially depending upon factors including the risks anduncertainties relating to general U.S. and international economic and politicalconditions, the cyclical and volatile prices of copper, other commodities andsupplies, including fuel and electricity, availability of materials, insurancecoverage, equipment, required permits or approvals and financing, theoccurrence of unusual weather or operating conditions, lower than expected oregrades, water and geological problems, the failure of equipment or processes tooperate in accordance with specifications, failure to obtain financialassurance to meet closure and remediation obligations, labor relations,litigation and environmental risks as well as political and economic riskassociated with foreign operations. Results of operations are directly affected by metal prices on commodityexchanges that can be volatile.

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Item 4.  Controls and Procedures

EVALUATION OF DISCLOSURECONTROLS AND PROCEDURES

As of June 30, 2007, theCompany carried out an evaluation, under the supervision and with theparticipation of the Company’s Disclosure Committee and the Company’smanagement, including the Chief Executive Officer and the Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures (as such term is defined in Rules 13a-15(e)and 15d-15(e) under the Securities Exchange Act of 1934, as amended).  Based upon that evaluation, the ChiefExecutive Officer and the Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are effective in timely alerting them tomaterial information relating to the Company (including its consolidatedsubsidiaries) required to be included in the Company’s periodic SEC filings.

CHANGES IN INTERNALCONTROLS OVER FINANCIAL REPORTING

There was no change inthe Company’s internal controls over financial reporting (as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of1934, as amended) that occurred during the quarter ended June 30, 2007 that hasmaterially affected, or is reasonably likely to materially affect, the Company’sinternal controls over financial reporting.

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REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directorsand Shareholders of Southern Copper Corporation:

We have reviewed theaccompanying consolidated condensed balance sheet of Southern CopperCorporation and its subsidiaries as of June 30, 2007, and the relatedconsolidated condensed statements of earnings for the six-month periods endedJune 30, 2007 and June 30, 2006 and the consolidated condensed statement ofcash flows for the six month periods ended June 30, 2007 and June 30, 2006.These interim financial statements are the responsibility of the Company’smanagement.

We conducted our reviewin accordance with the standards of the Public Company Accounting OversightBoard (United States).  A review ofinterim financial information consists principally of applying analyticalprocedures and making inquiries of persons responsible for financial andaccounting matters.  It is substantiallyless in scope than an audit conducted in accordance with the standards of thePublic Company Accounting Oversight Board (United States), the objective ofwhich is the expression of an opinion regarding the financial statements takenas a whole.  Accordingly, we do notexpress such an opinion.

Based on our review, weare not aware of any material modifications that should be made to theaccompanying consolidated condensed interim financial statements for them to bein conformity with accounting principles generally accepted in the UnitedStates of America.

We previously audited inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated balance sheet as of December 31, 2006 and therelated consolidated statement of earnings, changes in stockholders ́ equity andof cash flows for the year then ended (not presented herein), and in our reportdated February 28, 2007 we expressed an unqualified opinion on thoseconsolidated financial statements.  Inour opinion, the information set forth in the accompanying consolidatedcondensed balance sheet as of December 31, 2006, is fairly stated in allmaterial respects in relation to the consolidated balance sheet from which ithas been derived.
| PricewaterhouseCoopers |
|------------------------|
|                   |
| México, D.F.      |
|                   |
| August 2, 2007         |

 

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PART II - OTHERINFORMATION

Item 1. - LegalProcedures

The information providedin Note L to the condensed consolidated financial statements contained in PartI of this Form 10-Q, is incorporated herein by reference.

Item 1a.  Risk Factors

Set forth below arecertain changes from the risk factors previously disclosed in SCC’s Form 10-Kfor the year ended December 31, 2006 filed on February 26, 2007 with theSecurities and Exchange Commission.

***Wemay be adversely affected by labor disputes.***

On April 28, 2007 theworkers of a newly unified workers union at our Peruvian smelter in Iloinitiated a strike to demand better wages and benefits.  In addition, on April 30, 2007 Peru’s largestmining union launched a nationwide strike to demand better job benefits.  The workers at our two Peruvian mines joinedthe nationwide miners’ strike and also supported the unified Ilo union.  The labor minister declared the strikeinappropriate and the workers returned to work after 5 days when the nationwidestrike was resolved by the government. The workers received guarantees from the government over workingconditions and contracts.  Also, SPCCsigned a general agreement indicating the terms under which the review of theunified union contracts will take place.

On June 23, 2007 theunionized workers at some of our Peruvian operations initiated a strikedemanding better wages and benefits.  Atthe request of the Peruvian labor authorities, the workers returned to workafter five days to restart negotiations with the Company.

During this brief strikethe Company continued normal operations with the support of staff andadministrative personnel and contractors. However, we cannot assure you that we will not experience strikes orother labor-related work stoppages in the future that could have a materialadverse effect on our financial condition and results of operations.

In June and July of 2007,five of the eight unions at the Company’s Peruvian operations signed collectivebargaining agreements expiring in 2013. Negotiations continue with theremaining three unions. Related to our Mexican operations, ten of the elevencollective bargaining agreements were satisfactorily negotiated. The Companyexpects to complete negotiation with the remaining union in August.

OnJuly 30, 2007 three of our Mexican mining units, Cananea, Taxco and San Martín,suspended operations due to work stoppages organized by a minority of the units’workers. Based on several procedural shortcomings, the Company considers thatthese stoppages are illegal. The Company has asked the authorities to promptlydeclare these work stoppages illegal.

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Item 6. - Exhibits
| Exhibit No. | ** ** | **Description  of Exhibit**                                                                                                                                                      |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                             |
| 31.1        |       | Certification Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                         |
|        |       |                                                                                                                                                                             |
| 31.2        |       | Certification Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                         |
|        |       |                                                                                                                                                                             |
| 32.1        |       | Certification Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, 18 U.S.C., Section 1350. This document is being  furnished in accordance with SEC Release No. 33-8238. |
|        |       |                                                                                                                                                                             |
| 32.2        |       | Certification Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, 18 U.S.C., Section 1350. This document is being  furnished in accordance with SEC Release No. 33-8238. |

 

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PART II — OTHERINFORMATION

SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                |   | SOUTHERN COPPER  CORPORATION  (Registrant) |
|----------------|--------|--------------------------------------------|
|           |   |                                       |
|           |   |                                       |
|           |   |                                       |
|           |   |                                       |
|           |   | /s/ Oscar Gonzalez Rocha                   |
|           |   | Oscar Gonzalez  Rocha                      |
|           |   | President and  Chief Executive Officer     |
|           |   |                                       |
| August 3, 2007 |   |                                       |
|           |   |                                       |
|           |   |                                       |
|           |   |                                       |
|           |   | /s/ Jose N. Chirinos                       |
|           |   | Jose N. Chirinos                           |
|           |   | Comptroller and  Chief Financial Officer   |
|           |   |                                       |
| August 3, 2007 |   |                                       |

 

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SOUTHERN COPPERCORPORATION

List of Exhibits
| Exhibit No. | ** ** | **Description  of Exhibit**                                                                                                                                                      |
|-------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |       |                                                                                                                                                                             |
| 31.1        |       | Certification Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                         |
|        |       |                                                                                                                                                                             |
| 31.2        |       | Certification Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                         |
|        |       |                                                                                                                                                                             |
| 32.1        |       | Certification Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, 18 U.S.C., Section 1350. This document is being  furnished in accordance with SEC Release No. 33-8238. |
|        |       |                                                                                                                                                                             |
| 32.2        |       | Certification Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002, 18 U.S.C., Section 1350. This document is being  furnished in accordance with SEC Release No. 33-8238. |

 

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