SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                 1997 FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1997        Commission file number 1-164
                          -----------------                               -----


                               ASARCO Incorporated

             (Exact name of registrant as specified in its charter)

         New Jersey                                        13-4924440
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                        Identification No.)

                     180 Maiden Lane, New York, N. Y. 10038
               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code       (212) 510-2000

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                 Name of each exchange on
      Title of each class                            which registered
Common Stock, without par value                  New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                                                  Yes   X        No_____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X] 

As of February 27, 1998, there were of record 39,642,592 shares of Common Stock,
without par value, outstanding,  and the aggregate market value of the shares of
Common  Stock  (based upon the closing  price of Asarco  Common Stock on the New
York Stock Exchange - Composite  Transactions)  of ASARCO  Incorporated  held by
nonaffiliates was approximately $0.9 billion.

PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:

Part III:    Proxy statement in connection with the Annual Meeting to be held on
             April 29, 1998.
Part IV:     Exhibit index is on pages C1 through C4.


<PAGE>





A1

                                     PART I

Item 1. Business

Asarco,  a New  Jersey  corporation  organized  in 1899,  is one of the  world's
leading  producers of nonferrous  metals,  principally  copper,  lead,  zinc and
silver.  Asarco also produces  specialty  chemicals and  aggregates.  Asarco has
developed one of the largest copper ore reserve  positions in the industry.  The
Company's  copper business  includes  integrated  mining,  smelting and refining
operations  in North America and in Peru through its  subsidiary,  Southern Peru
Copper  Corporation.  The Company also operates a fully integrated lead business
in Missouri,  a custom lead smelting  business,  a silver mining  business and a
zinc mining business.

Enthone-OMI, a whollyowned subsidiary,  operates a worldwide specialty chemicals
business  focused on functional and decorative  coatings for the electronics and
metal  finishing   industries.   American   Limestone   Company,  a  whollyowned
subsidiary, produces construction aggregates.

All tonnages are in short tons.  All ounces are troy ounces.  Dollar amounts are
in U.S. dollars unless otherwise  indicated.  "Asarco" or "the Company" includes
Asarco and subsidiaries.

Reference is made to the following  Financial  Statement  footnotes  included in
this report: Investments in Note 6, and Business Segments in Note 13.

Additional business information follows:


                                 PRIMARY METALS

                         Principal Products and Markets
Copper Business

The  primary  domestic  uses of  copper  are in the  building  and  construction
industry, electrical and electronic products and, to a lesser extent, industrial
machinery and equipment, consumer products and the automotive and transportation
industries. A substantial portion of Asarco's copper sales are made under annual
contracts to industrial users.


Asarco Copper Business

Asarco is one of the world's leading producers of copper. In 1997, production of
copper  from mines  managed by Asarco was 1.4  billion  pounds,  6.8% of western
world copper mine production.  Asarco's beneficial interest in copper production
in 1997 was 977 million pounds.



<PAGE>


A2

Asarco's  copper  business  includes its integrated  copper  operations in North
America,  which accounted for 63% of its beneficial  copper  production in 1997,
and an  integrated  copper  business  in Peru  conducted  through a  54.1%-owned
subsidiary,  Southern Peru Copper Corporation  (SPCC). The North American copper
business  includes  the  Mission and Ray mines in  Arizona;  copper  smelters in
Hayden,  Arizona and El Paso,  Texas; and a copper refinery in Amarillo,  Texas.
Asarco also owns a 49.9% interest in Montana Resources'  copper-molybdenum  mine
in Butte,  Montana, a 75% interest in the Silver Bell copper mine in Arizona and
an 86.7%  interest in the Minto mine project,  a new  copper-gold  mine which is
currently  under  development  in the Yukon  Territory,  Canada.  The  Company's
Peruvian copper business,  operated by SPCC,  includes the Toquepala and Cuajone
mines, the Ilo smelter and the Ilo refinery, all located in the southern part of
Peru.

The  Company's  beneficial  interest  in  mined  copper  production  in 1997 was
slightly  below the record  production of 1.0 billion  pounds  achieved in 1996.
Production declined in 1997 due to lower throughput as a result of the increased
hardness of ore principally at the North American copper  operations.  Partially
offsetting  this  decline in  production  was  increased  production  of solvent
extraction/electro-winning  (SX/EW)  copper  at Ray  and at  Silver  Bell  which
started up in July 1997. Production at SPCC increased in 1997 due to operational
improvements at the Cuajone concentrator and higher SX/EW production. Production
at the SX/EW plant now exceeds its original design capacity.

The Company's beneficial interest in refined copper production in 1997 set a new
record  of  1.4  billion  pounds.   The  increase  was  a  result  of  operating
improvements  at  the  Amarillo  refinery,  increased  capacity  at  SPCC's  Ilo
refinery, and the SX/EW production increases.


Ore Reserves

One of the strengths of Asarco's copper business is its large copper ore reserve
position. The Company's beneficial interest in copper ore reserves at the end of
1997 was 3.4 billion tons  containing 38 billion pounds of copper.  Ore reserves
are the key to a mining company's future and Asarco's position, which represents
a composite life of 38 years at current  production rates, is one of the best in
the industry.


Copper Market

Demand  for  copper in 1997 was at a record  level for the 12th  straight  year.
Despite this robust demand,  western world copper inventories  increased in 1997
principally  as a result of a slowdown in the rate of growth in  Southeast  Asia
and  reduced  imports  by China  which drew down its  inventories  to meet their
internal  requirements.  The copper price declined  significantly  in the second
half of the year,  ending the year at a four year low of 77 cents per pound. The
Company  believes that supply and demand will be in balance in 1998 and that the
price should recover from the oversold condition at year end 1997.

In 1997,  the copper price  averaged  $1.04 per pound on the New York  Commodity
Exchange  (COMEX),  $1.09 per pound for the first three  quarters  and $0.87 per
pound in the fourth quarter.  In 1996, the copper price averaged $1.06 per pound
on the COMEX.

The average price on the London Metal Exchange (LME) was $1.03 in 1997, compared
with $1.04 in 1996.



<PAGE>


A3

The outlook for continued growth in copper demand is very favorable.  Increasing
intensity of use of copper in industrialized countries continues to fuel demand.
In the last 10 years, the use of copper in the average  automobile has increased
over 55% to 61 pounds  per car,  reflecting  the  greater  use of  sophisticated
electronics and motorized  equipment.  The average new home in the United States
now contains 439 pounds of copper,  about 15% greater than 10 years ago. Today's
modern  homes  are  being  wired  for  multiple   phone  lines,   intercoms  and
entertainment  systems and increased  electric  power  requirements.  Commercial
buildings   require  even  greater   amounts  of  copper   wiring  to  meet  the
telecommunications and energy needs of business.

In the world's  developing  economies,  copper is an essential  building  block.
Electric power generation and distribution,  as well as  telecommunications  and
transportation projects all require large amounts of copper.

Demand  for copper has grown at a 4.0%  annual  average  rate over the last five
years.  No change is foreseen in the need for copper  that might  diminish  this
robust growth in demand for the foreseeable future. While economic  disruptions,
like the recent monetary crisis in Southeast Asia, may temporarily slow the rate
of growth, the underlying long-term fundamentals continue to look promising.


Expansion of Low-Cost Copper

The Company's recent strategic focus has been the development of additional low-
cost sources of copper  production.  The Company was active on three projects in
1997  and  its  exploration   efforts  are  beginning  to  identify   additional
opportunities  for the future.  In 1997,  these  projects  included  work on the
expansion  of  the  Cuajone  mine,   part  of  the  $1  billion   expansion  and
modernization  project at SPCC, the startup of the Silver Bell SX/EW  operation,
and the development of the Minto copper project now planned for startup in 2000.

The Cuajone  mine is being  expanded  and will  increase  SPCC's  annual  copper
production by 19%, or 130 million  pounds.  The Ilo smelter is being  modernized
and  expanded to increase  capacity  and to enhance  environmental  performance.
These  projects  will be  completed in stages  between  1998 and 2003.  In 1997,
financing  for the project  was  arranged.  The first  stage,  the $245  million
expansion  of the  Cuajone  mine,  is expected  to be  completed  in early 1999.
Construction activities are underway and are on schedule.

The Ilo smelter is being modernized in stages. Construction of a new acid plant,
designed  to  increase  the  capture  of  sulfur  emissions,  is  scheduled  for
completion  in 1998.  Installation  of a new  smelting  furnace  and  associated
environmental  controls  will  be  completed  in  2001,  and  completion  of the
converting section is expected in 2003.  Engineering work on the smelter project
is nearing  completion and final decisions on the construction  schedule will be
made in 1998.

These projects  remain  attractive at current low copper prices and,  therefore,
the  Company  is  proceeding  with  its  plans to  expand  its  low-cost  copper
operations in Peru.

Construction  and  development of a new SX/EW  operation at the Silver Bell mine
was completed in mid-1997. Since start-up, the project, in which the Company has
a 75% interest,  has produced at its planned annual rate of 36 million pounds of
copper.

Development  of the Minto mine in Yukon  Territory,  Canada,  is  scheduled  for
completion in 2000. The mine, in which Asarco has an 86.7% interest, is expected
to produce 27 million pounds of copper and 10,000 ounces of gold annually.



<PAGE>


A4

North American Copper Operations

There  were a number  of  significant  accomplishments  at the  Company's  North
American copper operations in 1997.

Ore grades at the Mission mine  improved as a result of a full year's  operation
of the  higher-grade  underground  mine  which  began  production  in  mid-1996.
Construction was completed in late summer of a large overland  conveyor designed
to move 58 million  tons of waste per year at  Mission.  The system  will reduce
total waste removal costs by eight cents per ton, or $9.5 million per year.

Production at the Ray Complex's Hayden  concentrator was curtailed in the fourth
quarter of 1996 to reduce  concentrate  inventory.  Inventory levels returned to
normal and the Hayden  concentrator  was restarted in May. The Ray mine replaced
its remaining eleven  170-ton-capacity  trucks with five  240-ton-capacity  haul
trucks in late 1997.

Cathode copper  production from the SX/EW operation at the Ray mine increased 5%
in 1997 following application of a new leaching technology for low-grade sulfide
material.  The new  leaching  process  provides  both a quicker  leach cycle and
higher copper recovery.

The Hayden smelter  processed a record level of concentrates in 1997 as a result
of improved  equipment  availability  and a more  consistent and higher grade of
concentrates  processed.  Modernization of the smelter's gas handling system and
the process  control system began in 1997 and is expected to be completed in the
second  quarter of 1998.  These  improvements  are expected to further  increase
production rates and reduce operating costs.

The El Paso, Texas copper smelter,  which uses CONTOP flash smelting technology,
also set a record for  concentrates  smelted in 1997.  In the fourth  quarter of
1997,  production  rates were 10% over the original  design  capacity.  Improved
equipment  availability and modifications to the Contop furnace feed system were
the primary reasons for the production improvements.

The Amarillo copper  refinery  achieved record copper cathode and rod production
and further  improved the quality of its  product.  Amarillo  also  received its
second three-year ISO 9002 certification.


Peruvian Copper Operations

Asarco  conducts its Peruvian  copper  operations  through SPCC, in which Asarco
holds a 54.1% equity  interest.  SPCC's common shares are listed on the New York
Stock  Exchange and the Lima Stock  Exchange.  SPCC owns a 97.8% interest in its
Peruvian Branch, which comprises  substantially all of SPCC's operations.  Labor
shares which were issued to SPCC's  workers  under prior  Peruvian law represent
the remaining  interest in the Branch. At the end of 1997,  Asarco's  beneficial
interest in SPCC's operations, after the labor share interest, was 53.0%.

In 1997,  SPCC  produced  686 million  pounds of copper  from its mines,  a 1.1%
increase over 1996. Asarco's beneficial share of this production was 363 million
pounds of copper.  SPCC also produced 9.4 million  pounds of molybdenum  and 3.1
million ounces of silver.

In 1997,  copper production at the Cuajone mine increased 2.6% from 1996, to 341
million pounds,  as a result of higher ore grades. At the Toquepala mine, copper
production  was 247 million  pounds,  slightly lower than in 1996 as a result of
lower ore grades. The Toquepala  concentrator  achieved record annual throughput
partially offsetting the effect of the lower ore grades.


<PAGE>


A5

SPCC also  produced 98 million  pounds of copper from its  low-cost  SX/EW plant
located at  Toquepala,  23% higher than the design  capacity  of the plant.  The
SX/EW  facility  produces  refined copper  cathodes from solutions  leached from
low-grade ores stockpiled at both the Toquepala and Cuajone mines.

The Ilo smelter  processed 1.2 million tons of concentrates  in 1997,  producing
639 million pounds of copper in blister. SPCC began an expansion of the sulfuric
acid plant at the  smelter in 1996 to  increase  the  capture of sulfur  dioxide
emissions  from 18% to 30%.  The project is on schedule  for  completion  in the
first quarter of 1998 and should further improve air quality.

The  production  capacity of the Ilo copper  refinery was  increased  20%, or 82
million pounds in 1996. Production in 1997 reached a record 513 million pounds.


Specialty Chemicals and Aggregates Businesses

In recent  years  Asarco has sought to develop  businesses  which will provide a
source of earnings from non-metals operations.

Specialty Chemicals

Enthone-OMI  is a worldwide  supplier  of  specialty  chemicals  used to produce
functional  and decorative  coatings on metals and plastics for the  electronics
and metal  finishing  industries.  It markets  its  products  from 30  locations
throughout  North  America,  Europe  and  Asia.   Enthone-OMI's  pre-tax  profit
increased 21% in 1997, to a record $29.4 million.

Asarco's  involvement in the specialty  chemicals business started 40 years ago,
in 1957, with the acquisition of Enthone,  Inc., a small, regional company based
in New Haven, Connecticut. For three decades, Enthone focused its efforts on the
United States,  with overseas  activities  being handled by licensees.  In 1988,
Asarco  significantly  expanded the  business  through the  acquisitions  of OMI
International  and, in 1989, the Imasa Group in Europe.  To gain greater control
of its business in key growth  markets,  Enthone-OMI  has made eight  subsequent
acquisitions  including  acquisition  of the minority  interests of  Enthone-OMI
(Singapore)  in 1995,  and an  additional  interest in 1996 in Hua-Mei,  a joint
venture in the Peoples Republic of China,  bringing  Enthone-OMI's  ownership to
51%.  Enthone-OMI  has also  acquired  Industrias  Oxy  Metal,  S.A.,  a Mexican
specialty chemicals business, STS, a small Swiss specialty chemicals company and
Blasberg  Oberflachentechnik GmbH, a highly respected German specialty chemicals
company.

Enthone-OMI has also generated  internal growth by investing heavily in research
and product and market development. These acquisitions and investments have made
Enthone-OMI a global  participant in the specialty  chemicals  business and have
resulted in a compound annual growth rate of 23.6% in pre-tax profit since 1988.

Technical   innovation  and  marketing   effectiveness   were  the  key  factors
contributing to a fourth  consecutive year of record sales and earnings in 1997.
Contributing to the growth was strong global market  acceptance for new products
providing  improved  corrosion  resistance  for  automotive   components,   high
performance coatings for printed circuit boards and electronic  components,  and
advanced   technology   for   manufacturing    semi-conductor   chips.   A   new
state-of-the-art  manufacturing  facility and technical  center in Singapore was
completed in June to support growth in the ASEAN region.

All of  Enthone-OMI's  facilities  are  ISO  9001  or  9002  certified  and  the
s'Hertogenbosch, Netherlands and Norrkoping, Sweden facilities were the first to
receive ISO 14001 certification for environmental management systems in 1997.




<PAGE>


A6

Aggregates

American  Limestone Company,  a wholly owned subsidiary,  produces  construction
aggregates,  ready mixed  concrete  and  agricultural  limestone at locations in
Tennessee  and  Virginia.  Aided by  favorable  weather and a good  construction
market in the Southeast in 1997,  American Limestone  increased sales by 15% and
recorded its fourth  consecutive year of record earnings with pre-tax profits of
$13.8  million.  Since  1989,  American  Limestone's  earnings  have  grown at a
compound annual growth rate of 14%.

Asarco has also made several modest-sized investments in the aggregates business
since 1989, however,  most of American Limestone's earnings growth has been from
expansions and increased volumes from its original properties and from good cost
control.  Demand for aggregates in American  Limestone's market area is expected
to continue to be strong in 1998.


Lead Operations

The primary  domestic uses of lead are for automotive  and industrial  batteries
and, to a lesser extent,  for lead oxide for glass,  solder and other industrial
uses.  A  substantial  portion of  Asarco's  lead  sales are made  under  annual
contracts to industrial users.  Remaining lead sales are sold as an intermediate
product to lead refineries outside the United States.

Asarco's lead business  includes its integrated  Missouri lead mining,  smelting
and refining business and a custom smelting business in East Helena, Montana.

Asarco's  Missouri  lead  business  consists  of two  mines  and a  smelter  and
refinery. The Company's Sweetwater and West Fork mines provide approximately 90%
of the feed for the Glover  smelter and  refinery  with the balance  coming from
purchased lead concentrates.  Zinc is an important co-product of the lead mining
operations.  Production  of mined lead and zinc  declined in 1997  compared with
recent  years  due to lower ore  grades.  In 1997,  the  Company  completed  its
modernization project at the Glover smelter and refinery. With the completion of
this project,  the Glover facility met all federal ambient air standards in 1997
and increased refined lead production by 4.5% over the prior year.

Asarco's custom lead business consists of its East Helena, Montana lead smelter.
The  Company  permanently  closed  its  Omaha  lead  refinery  in June  1997 and
continues  to work with the City of Omaha and the State of  Nebraska  to convert
the site into a park.  The Company now sells the lead  bullion  produced at East
Helena to refineries located outside the United States. The custom lead business
depends on the availability of precious  metal-bearing lead materials  primarily
from U.S.  and Latin  American  mines.  While the custom lead  business  was not
profitable in 1997, the closure of the Omaha  refinery and process  improvements
at East Helena improved operating results during the last half of the year.

In 1997, the Company completed a modernization  project at East Helena. The East
Helena plant met all federal ambient air standards for 1997.

The  Leadville  mine in Colorado is 60% owned and managed by Asarco and produces
lead,  zinc and silver.  In January  1997,  the mine was reopened  after a brief
period on standby. The mine was not profitable in 1997 due to low metal prices.




<PAGE>


A7

Lead Market

About 65% of lead  consumption is used in storage  batteries for automobiles and
other  equipment.  World wide  consumption of refined lead has grown steadily in
recent years at an annual rate of 2.7%.  Lead is the preferred  material for the
cost-effective  storage  of  energy in  batteries.  The  consumption  of lead in
television screens and in X-ray shielding has also been growing in recent years.


Silver Operations

The  principal  uses for  silver  in the  United  States  are for  photographic,
electrical and electronic  products and, to a lesser extent,  brazing alloys and
solder, jewelry, coinage, silverware and catalysts. Silver is sold under monthly
contracts or in spot sales principally to industrial users.

Asarco owns a 50% interest in Silver  Valley  Resources  which owns and operates
the Coeur and Galena mines in Wallace,  Idaho. The Coeur mine resumed operations
in mid-1996 after a five-year  standby  period.  In May 1997,  operations at the
Galena  mine  were  resumed.  A  development  program,  begun in 1995,  has been
successful in identifying additional higher-grade silver reserves.

The Company also owns a 75% interest in the Troy,  Montana  silver-copper  mine,
which currently is on standby.  The Company plans to restart Troy in conjunction
with the  development of the nearby Rock Creek  silver-copper  deposit which has
been in the  permitting  process  since 1987. In 1997,  the Company  submitted a
draft supplemental  environmental impact statement for Rock Creek and expects to
receive an approved final  environmental  impact statement in 1998 and operating
permits in 1999.

Silver Market

Since  1979,  demand  for silver has grown  73%.  Consumption  of silver,  which
primarily is used for photographic materials, electronics and jewelry, has grown
to more than 830 million  ounces  annually.  Since  1990,  demand for silver has
exceeded  mine  production  and by the third  quarter of 1997 the surplus of 875
million  ounces of silver  accumulated in the 1980s was finally  consumed.  With
consumption  currently  exceeding  production by a  substantial  margin and with
reduced worldwide inventories, the outlook is favorable for the silver price.


Zinc Operations

Zinc is primarily used in the United States to make  galvanized  metal products,
zinc-based  alloys,  brass  products,  zinc  oxide,  rolled  zinc and for  other
industrial  uses.  The  Company's  zinc  production  is  sold  in  the  form  of
concentrates under contracts of one to three years duration.

The Company operates four zinc mines near Knoxville, Tennessee. It also produces
zinc as a co-product at its Missouri and Leadville mines.  Production in 1997 of
zinc in Tennessee  was below 1996 levels,  due to a 42-day  strike in the fourth
quarter.

Despite  this work  stoppage,  financial  results  of the  Tennessee  operations
improved  in 1997  due to  higher  zinc  prices.  New  Market,  one of the  four
Tennessee  mines,  was placed on  standby in the fourth  quarter of 1996 and its
operations are expected to remain suspended in 1998.




<PAGE>


A8

Zinc Market

Zinc is used primarily as a protective  coating  material in construction and in
transportation  and  electrical  equipment.  A 1996 supply  deficit  resulted in
higher zinc prices during much of 1997.  Growth in Western World zinc demand has
averaged 3.4% over the last five years.


Specialty Metals

The Company  operates a specialty  metals business at its Globe plant in Denver,
Colorado. In 1997, the Company completed the transformation of the business from
processing of  intracompany  secondary  materials  into a stand-alone  specialty
metals operation.  The Globe plant, which produces  litharge,  bismuth compounds
and high purity  metals,  was  profitable in 1997 and the Company  expects it to
continue its growth.


Environment, Safety and Health

Protection of the environment is one of Asarco's principal operating objectives.
The Company has made and continues to make substantial  investments to deal with
environmental issues associated with historical Company operations.  The Company
has  also  put in place  policies,  practices  and  procedures  to meet  today's
environmental standards.

Nearly  two  years  ago,  the  Company  initiated  a  discussion  with  the U.S.
Environmental Protection Agency to establish a voluntary compliance framework to
resolve  environmental  matters on a nationwide basis and eliminate the time and
expense of dealing with issues individually  through negotiation and litigation.
In early  1998,  an  agreement  was  reached on most  outstanding  issues in the
Company's copper and lead mining, smelting and refining operations in the United
States.  The agreement also  establishes a basis for the Company and Federal and
state agencies to work together in the future.

The Company has adopted a comprehensive  Environmental  Management System (EMS).
This system integrates  environmental  management  procedures into the operating
management  systems of the  Company.  Under EMS Company  facilities  are audited
regularly to assure conformity with EMS, employees receive annual  environmental
awareness  training  and  practices  have  been  established  to deal  with  the
environmental responsibilities of each of the Company's operations.

The agreement  includes new capital projects totaling $61.5 million that resolve
issues that have been under study at the Ray mine and East Helena  smelter.  The
largest capital project, $55 million over six years,  provides for the extension
of an existing tunnel at the Ray mine which diverts Mineral Creek around the Ray
mine workings.  The project will have a positive effect on future  operations as
well as on the environment.  Asarco also agreed to pay penalties of $6.4 million
to resolve  past  disputed  issues.  These  penalties  are  covered by  existing
environmental reserves.

Asarco has also been  active in  developing  and  installing  new  environmental
technologies.  Storm water recycling systems, dust suppression equipment and gas
collection facilities have been installed at a number of locations.  The Company
has  developed an innovative  biotreatment  process for mine water and developed
low-impact  land  reclamation  methods  using cattle to fertilize  and stabilize
soils.

This  investment  of time and capital is paying off. For example,  Asarco was in
full compliance in 1997 with new restrictive  standards for air emissions at its
decades-old lead smelters in Missouri and Montana.



<PAGE>


A9

Asarco is also very active in  remediating  environmental  conditions at current
and former operating properties.  Many of these projects are done in cooperation
with state and Federal government  agencies.  Asarco is working with communities
in Omaha,  Nebraska and Tacoma,  Washington to transform  its former  industrial
sites into parks and new commercial  centers.  In 1997, Asarco spent $63 million
on remediation work related to historic operations.

Safety and Health

The safety and health of its  employees  is Asarco's  most  important  operating
objective.  A Corporate Safety and Health Review Committee sets safety standards
for each unit's  operations,  monitors  performance and administers  recognition
programs  which reward  safety  excellence.  In 1997, a portion of each salaried
operating  employee's  incentive  compensation  was  directly  linked  to  their
operating  unit's  safety  and health  performance.  The  program  has been very
successful.

In 1997,  there were 28% fewer lost work day injuries in the Company's  domestic
mines and 37% fewer lost work day injuries in its domestic  plants.  The Company
believes  that a safe and healthy  workplace  is an  essential  goal.  While the
programs in place have improved safety performance,  management will continue to
focus  attention on safety and health issues and will  continue  with  extensive
training,  education  programs and  recognition  programs  with the objective of
creating an accident-free workplace.

Exploration

Asarco's  exploration effort is focused on the identification and acquisition of
advanced  gold,  copper and silver  exploration  projects.  In 1997, the Company
spent  $32  million  on an  active  mineral  exploration  program.  Over  90% of
expenditures were directed at projects outside the United States, principally in
French Guiana, Chile, Peru, Bolivia and Australia. Work in the United States was
mostly directed at identifying  additional  reserves at the Company's  operating
properties.

In French  Guiana,  Asarco has  interests in five large project areas with known
gold  anomalies.  Drilling at the Company's  100% owned Camp Caiman  project has
identified  a  near-surface  gold deposit  within a five-mile  long gold in soil
anomaly associated with a major structural zone. A resource of 18.6 million tons
of ore with a grade of 0.08  ounces  of gold per ton has been  identified.  This
resource contains 1.5 million ounces of gold. Gold mineralization at Camp Caiman
is open-ended and the drilling  program is continuing.  To assist the company in
meeting  its  environmental  and  social  responsibilities  in the  Camp  Caiman
project, an expert, independent Advisory Committee has been created.

Thought  to be the  first  of its kind in the  mining  industry,  the  committee
includes   persons  with  recognized   expertise  in  conservation  of  tropical
environments.  To date the Committee has provided  independent review and advice
on  environmental  and issues  associated with  exploration and preliminary mine
planning.

Evaluation  of the San  Bartolome  silver  project  near Cerro Rico de Potosi in
Bolivia is at an advanced  stage.  A minable  reserve of 11 million  tons of ore
with a grade of 4.0 ounces of silver per ton,  containing some 44 million ounces
of silver  has been  identified.  There is  excellent  potential  to add to this
reserve.

SPCC has been pursuing  copper and gold  exploration  targets in Peru.  The most
advanced  project is the  Tantahuaty  copper-gold  project in northern  Peru, in
which SPCC has a 44% interest and is the  operator.  Drill  results to date have
been encouraging at this porphyry type deposit.  Further drilling is planned for
1998.

Asarco has recently  increased its  exploration  activities in Chile and several
properties in northern Chile are being  examined and drilled.  The most advanced
project is a  moderate-sized  oxide copper  deposit where  drilling to confirm a
minable reserve is underway.


<PAGE>


A10

                                BACKLOG OF ORDERS

Substantially  all of the  Company's  metal  production  is  sold  under  annual
contracts. To the extent not sold under annual contracts, production can be sold
on  commodities  exchanges  or to  merchants  or consumers on a spot sale basis.
Final sales values are determined  based on prevailing  commodity prices for the
scheduled month of delivery or shipment according to the terms of the contracts.
The backlog for other product classes and services is not material.


                             COMPETITIVE CONDITIONS

In the  United  States  and  abroad,  Asarco  and  its  foreign  nonconsolidated
associated  companies are subject to  competition  from other  nonferrous  metal
producers. Asarco's metal products also compete with other materials,  including
aluminum, stainless steel, plastics, glass and wood.

Competition  in nonferrous  metals is  principally on a price and service basis,
with  price  being  by far the most  important  consideration.  In  construction
aggregates,  geographic  location  of  facilities  in  relation  to the point of
consumption,  and price are by far the most important  competitive  factors.  In
specialty  chemicals,  Asarco competes against a substantial number of large and
small companies both in the United States and overseas.

                                    EMPLOYEES

At December 31, 1997,  Asarco excluding SPCC,  employed about 6,900 persons,  of
whom about 3,700 were covered by contracts  with various  unions,  most of which
were affiliated with the AFL-CIO. At December 31, 1997 SPCC employed about 4,900
persons, substantially all of whom were covered by labor contracts.


                                 ENERGY MATTERS

Asarco's energy  requirements are met from a variety of sources,  including fuel
oil, diesel fuel,  gasoline,  natural gas, coke and electric power. Asarco has a
large number of contracts of varying  duration for its energy  needs,  typically
negotiated  on an  individual  basis  from time to time.  Generally,  substitute
sources are available except where  requirements are guaranteed by local utility
companies.  No reductions or interruptions  of any operations  because of energy
shortages were experienced in 1997.


                    ENVIRONMENTAL, SAFETY AND HEALTH MATTERS

Asarco's operations are subject to environmental  regulation by various federal,
state, local, and foreign  governments.  Asarco's principal  involvement in this
area concerns  compliance by its existing and former operations with federal and
state air and water  quality  and solid and  hazardous  waste  regulations.  The
Company  believes that its operations  are currently in  substantial  compliance
with applicable environmental laws and regulations.



<PAGE>


A11

The Company anticipates  spending $53 million for environmental  control capital
expenditures at its operating units in 1998.  Capital  expenditures by Asarco at
its  operating   mines,   smelters  and  refineries  in  order  to  comply  with
environmental  standards  in the past  three  years  have  been  (in  millions):
1997-$64;1996-$71;  1995-$93. Recurring costs associated with managing hazardous
substances and environmental  issues in ongoing operations including interest on
environmental  improvement  bonds  and other  debt  incurred  for  environmental
control    facilities,    reduced    pre-tax    earnings   by   (in   millions):
1997-$113;1996-$113; 1995-$103.

Environmental  matters,  including a  discussion  of the  Company's  reserve for
closed plants and  environmental  costs, are set forth in the  Contingencies and
Litigation Note 8 to the Financial Statements and in Management's Discussion and
Analysis of Operations and Financial  Condition and are  incorporated  herein by
reference.

On January 23, 1998,  the Company,  the United States  Department of Justice and
the  Environmental   Protection  Agency  ("EPA")  announced  the  signing  of  a
multi-region  voluntary  agreement covering many environmental  issues affecting
the Company's  United States  operations.  Two consent  decrees  containing  the
agreement  have been  filed in the United  States  District  Courts in  Phoenix,
Arizona  and  Helena,  Montana,  and are  subject  to  approval  by both  courts
following  public  comment.  The  agreement  includes a commitment  to undertake
capital  expenditures  totaling  $61.5  million  and  will  cover  a  number  of
operational  changes to resolve disputed compliance issues at the Company's Ray,
Arizona mine and East  Helena,  Montana  smelter.  A  significant  aspect of the
agreement is an Asarco-initiated Environmental Management System, which combines
operational and environmental systems,  policies and practices.  The Company has
agreed to pay  penalties  of $6.4 million  applicable  to past issues at Ray and
East Helena without an admission of wrongdoing or liability.

On March 24,  1995,  EPA issued a Record of Decision  ("ROD") for the  Company's
Tacoma smelter site in Tacoma, Washington, under the Comprehensive Environmental
Response,  Compensation and Liability Act of 1980 ("CERCLA" or "Superfund"). The
smelter site is part of the  Commencement  Bay Superfund site. The ROD calls for
excavation  and  disposal  of  soils,  and  demolition   debris  in  an  on-site
containment  facility,  capping of the site,  demolition of remaining buildings,
replacement  of the surface water  drainage  system and diversion of groundwater
and off-site  surface water. A Consent Decree between the Company and the EPA to
carry out the ROD was entered by the United States  District Court on January 3,
1997. Remediation pursuant to the Consent Decree is proceeding.

At  Ruston,  Washington,  an area  which is also  part of the  Commencement  Bay
Superfund site, on May 2, 1995, a Consent Decree between the Company and EPA was
entered by the United States District Court in Tacoma,  Washington,  pursuant to
which the Company agreed to sample and, if necessary,  remediate the residential
area surrounding the Tacoma smelter site. To date, approximately 470 residential
and  right-of-way  properties  have been  remediated.  The Company is  currently
working with EPA on a proposed plan for the  remediation of off-shore  sediments
in this area. Remaining issues at the Commencement Bay Superfund site, which has
hundreds of potentially responsible parties ("PRP"), will not be addressed until
additional studies are completed.

In November 1994, at the Bunker Hill  Superfund  site in Idaho,  the Company and
two other mining companies entered into a Consent Decree with the EPA, which was
approved by the United States  District  Court.  The companies  have  remediated
approximately  1,217 residential  properties as well as other areas,  commercial
properties  and  rights  of way.  Remediation  of  additional  yards  and  other
properties continues.



<PAGE>


A12

On March 22, 1996, the United States government filed an action in United States
District  Court in Boise,  Idaho,  against the  Company  and three other  mining
companies  under  CERCLA and the federal  Clean  Water Act for  alleged  natural
resource  damages to the Coeur  d'Alene  River  Basin in Idaho.  The  government
contends that the  defendants  are liable for damages to natural  resources in a
1,500  square mile area caused by mining and  related  activities  that they and
others  undertook  over  approximately  the period between the mid-1800s and the
mid-1960s.  The action also seeks a declaration  that  defendants are liable for
restoration of the area. The Company  believes,  and has been advised by outside
legal counsel,  that it has strong legal  defenses to the lawsuit.  In 1996, the
court granted a motion to  consolidate  this case with a prior  similar  lawsuit
filed by the Coeur  d'Alene  Tribe.  In August 1997,  the United  States filed a
motion to add to the lawsuit several companies,  including certain  subsidiaries
of the  Company.  In February  1998,  the EPA  announced it intends to conduct a
Remedial Investigation/Feasibility Study to assist in developing a comprehensive
remediation plan for the Coeur d'Alene River Basin.

In September 1997, the Nebraska  Department of Environmental  Quality approved a
Remedial  Action Work Plan submitted by the Company for  remediation of the site
of the Company's  former Omaha,  Nebraska,  lead  refinery,  which had suspended
operations on June 1, 1996.

In 1994, at the Leadville Superfund site in Colorado,  a Consent Decree with the
EPA and other potentially  responsible  parties was entered by the United States
District Court.  The Consent Decree resolved many of the liability issues at the
site.  Final  remedy  selection  must  await  the  issuance  of the ROD which is
expected in 1998.  Through  the end of 1997 the Company has spent  approximately
$43 million for remediation at the site.  Remaining issues at Leadville will not
be addressed until additional studies are completed.

In 1997, at the East Helena Superfund site in Montana, the Company completed the
remediation of  approximately  25 residences at a cost of  approximately  $1.439
million.  This brings the total number of residential  properties  remediated to
date to 564. Additional  properties are expected to require  remediation,  which
together with proposed community protection measures, is estimated to require an
expenditure of approximately $2.1 million over the next five years.

EPA issued,  on June 14, 1996, a Unilateral  Administrative  Order directing the
Company and the other  potentially  responsible  parties to implement the remedy
specified  in the  Record of  Decision  of the Mine  Operable  Unit of the Butte
Montana Superfund site issued on September 29, 1994.

In 1997, at the Globe proposed  Superfund  site in Denver,  Colorado the Company
completed the remediation of approximately 187 properties, including residences,
commercial  properties and open spaces, at a cost of approximately  $4.1 million
pursuant to a Consent  Decree with the State of Colorado and a  settlement  of a
lawsuit entered in 1993.  This brings the total number of properties  remediated
to date to  approximately  549.  Remediation  has also started at the plant site
itself.  Remediation  of additional  properties and the plant site will continue
for the next several years.

In 1995,  the Company  completed and presented to the  Washington  Department of
Ecology ("Ecology")a remedial  investigation and feasibility study report of the
Company's  former smelter site in Everett,  Washington.  In early 1997,  Ecology
issued an  Enforcement  Order to the  Company  pursuant  to which the Company is
performing  additional  studies and  remediation  at the site. In late 1997, the
Company, Ecology, the City of Everett, two citizens' groups, a county, and other
interested  parties began mediation  process  regarding the remediation plan for
the site. It is anticipated that Ecology will issue a remediation plan some time
in 1998. The Company is investigating claims presented by several area residents
and some  governmental  entities  for  alleged  costs or  damages  based on soil
contamination.


<PAGE>


A13

In October  1996,  the Company  responded to an August 30, 1996  General  Notice
Letter from the EPA and offered to perform certain investigation and remediation
activities at the Circle Smelting site in Beckemeyer,  Illinois, an area where a
subsidiary of the Company  previously  operated a zinc  smelter.  Pursuant to an
Administrative   Consent  Order,  effective  August  1,  1997,  the  Company  is
implementing the  investigation  and the remediation that it offered to perform.
Additionally  the Company is negotiating  with another  potentially  responsible
party for liability contribution.

In September 1997, the Company entered into an  Administrative  Order on Consent
to conduct an  Engineering  Evaluation/Cost  Analysis  ("EE/CA")  for the portal
discharge from the Company's former Gem mine in the Coeur D'Alene River Basin in
Idaho,  which drains to a tributary of the Coeur d'Alene River.  The Company has
agreed to implement the remedy selected by the EE/CA process.

In July 1997,  the  Company  received a notice  from the  United  States  Forest
Service that it may be  potentially  liable for  environmental  remediation at a
site in California where it appears a predecessor  company had leased a mine for
approximately one year in the early 1900s.

The Company and certain of its subsidiaries  are cooperating with  environmental
authorities  to undertake  studies of certain  other sites and  remediate  where
necessary.

In addition to the sites described above,  the Company and certain  subsidiaries
received notices of potential  liability  pursuant to CERCLA and various similar
state laws from the EPA or other federal and state agencies  regarding  numerous
other sites.  At several of those sites the Company's  liability  will likely be
minor.

In 1997, the Company also received notices from EPA regarding alleged violations
of the federal Resources Conservation and Recovery Act ("RCRA") at the Company's
Encycle/Texas  facility and the federal Clean Water Act ("CWA") at the Tennessee
Mines facilities; no specific penalty amounts have been demanded.

In July 1996, the Company filed a lawsuit in State Court in Nebraska challenging
the right of the state to exercise  direct  enforcement of the National  Ambient
Air Quality Standard ("NAAQS") for lead applicable to the Company's Omaha plant;
however,  no further  action is anticipated  because of the Company's  suspended
operations at the facility in June 1996.

SIPs designed to achieve  compliance by January 6, 1997 with the EPA ambient air
quality  standard  for lead of 1.5  micrograms  per cubic meter of air have been
developed  and  approved  in each state in which  Asarco  has a lead  smelter or
refinery. Final EPA approval of each plan is expected in the near future.



<PAGE>


A14

The Company is studying means of compliance with RCRA through process changes at
its  facilities,  where  feasible,  to  manage  the  wastes  not  excluded  from
regulation.   Mine  tailings,  slag,  and  slag  tailings  from  primary  copper
processing,  calcium  sulfate  wastewater  treatment  plant  sludge from primary
copper  processing,  and slag from  primary  lead  processing  at the  Company's
operations are excluded from RCRA regulation.  The Company is a party to a court
approved Consent Decree with the Missouri  Department of Natural  Resources,  in
which the Company has  implemented  certain  process  changes and is  conducting
sampling  and  testing to remain in  compliance  with RCRA  requirements  at its
Glover smelter.  The Company has successfully  completed all submittals required
by  the  Consent  Decree  and is  awaiting  the  state's  response  to its  Site
Assessment Investigation Workplan.

Asarco is subject to federal and state laws and regulations  pertaining to plant
and mine safety and health conditions, including the Federal Occupational Safety
and Health Act of 1970 and Mine Safety and Health Act of 1977.  Asarco has made,
and is likely to  continue  to make,  expenditures  to comply with such laws and
regulations.


                              CAUTIONARY STATEMENT

Forward-looking  statements  in this  report  and in  other  Company  statements
include  statements  regarding  expected  commencement  dates of mining or metal
production   operations,   projected  quantities  of  future  metal  production,
anticipated production rates, operating efficiencies,  costs and expenditures as
well as projected  demand or supply for the Company's  products.  Actual results
could differ  materially  depending upon factors  including the  availability of
materials,   equipment,   required  permits  or  approvals  and  financing,  the
occurrence of unusual weather or operating  conditions,  lower than expected ore
grades,  the failure of equipment or  processes  to operate in  accordance  with
specifications,  labor relations,  environmental  risks as well as political and
economic risk  associated  with foreign  operations.  Results of operations  are
directly affected by metals prices on commodity exchanges which can be volatile.




<PAGE>


A15

Item 2. Properties

ASARCO Worldwide Operations

METALS

COPPER MINES
Mission;  Sahuarita, Arizona
Montana Resources; Butte, Montana
Ray; Hayden, Arizona
Silver Bell; Silver Bell, Arizona
Minto; Yukon Territory, Canada
Cuajone; Peru
Toquepala; Peru

COPPER PLANTS
Amarillo, Texas (Refinery)
El Paso, Texas (Smelter)
Hayden, Arizona (Smelter)
Ray; Hayden, Arizona
  (Electrowinning Plant)
Silver Bell; Arizona (SX/EW)
Ilo; Peru (Smelter, Refinery)
Toquepala; Peru (SX/EW)


LEAD MINES
Leadville; Leadville, Colorado
Sweetwater; Reynolds County, Missouri
West Fork; Reynolds County, Missouri

LEAD PLANTS
East Helena, Montana (Smelter)
Glover, Missouri (Smelter, Refinery)


ZINC MINES
Coy; Jefferson County, Tennessee
Immel;  Knox County, Tennessee
New Market; Jefferson County, Tennessee (2)
Young;  Jefferson County, Tennessee
Leadville; Leadville, Colorado
Sweetwater; Missouri
West Fork; Missouri


SILVER MINES
Silver Valley Resources; Wallace, Idaho
Troy; Troy, Montana (2)
Leadville; Leadville, Colorado
Mission; Sahuarita, Arizona
Ray; Hayden, Arizona
Montana Resources; Butte, Montana
Cuajone and Toquepala, Peru



<PAGE>


A16

SILVER AND GOLD PLANTS
Amarillo (Refinery), Texas
Ilo (Refinery), Peru


MOLYBDENUM MINES
Montana Resources; Butte, Montana
Cuajone; Peru
Toquepala; Peru


SPECIALTY CHEMICALS
Enthone-OMI
North America
  Bridgeview, Illinois
  West Haven, Connecticut
  Orange, Connecticut
  Warren, Michigan
  Toronto, Canada
  Mexico City, Mexico

Europe
  Barcelona, Spain
  s-Hertogenbosch, Netherlands
  Woking, United Kingdom
  Milan, Italy
  Marne-La-Vallee, France
  Luien, Austria
  Solingen, Germany
  Norrkoping, Sweden
  Geneva, Switzerland

Pacific Rim
  Melbourne, Australia
  Tsuen Wan, Hong Kong
  Singapore
  Shen Zhen, People's Republic
    of China
  Yokohama, Japan
  Taipei, Taiwan
  Penang, West Malaysia


AGGREGATES
American Limestone Company, Inc.
  (Construction Aggregates,
   Concrete, Agricultural Limestone)
  Knoxville, Tennessee
  Tri-Cities, Tennessee
  Nashville, Tennessee
  Abingdon, Virginia




<PAGE>


A17

ENVIRONMENTAL SERVICES
Encycle/Texas, Inc.
  Corpus Christi, Texas
Hydrometrics, Inc.
  Helena, Montana
  East Helena, Montana
  Billings, Montana
  Kalispell, Montana
  Spokane, Washington
  Tacoma, Washington
  Ruston, Washington
  Kellogg, Idaho
  Denver, Colorado
  Tucson, Arizona
  El Paso, Texas


OTHER

Specialty Metals
Denver, Colorado


INVESTMENTS

Grupo Mexico, S.A. de C.V. (8.2% ownership)
Thirteen mines, nine metallurgical
  plants throughout Mexico,
  including: La Caridad and Cananea
  (Copper, Lead, Zinc, Silver, Gold,
  Coal, Coke, Fluorspar, Sulfuric Acid)

(1)   Beneficial  interest for this  operation is shown in the Mineral  Reserves
      tables starting on page A19

(2)   On standby





<PAGE>


A18

Southern Peru Copper Corporation

SPCC  operates  two open pit mines  under  concessions  granted by the  Peruvian
government.

Silver Valley Resources

In 1995,  Asarco and Coeur d'Alene Mines Corporation  established  Silver Valley
Resources,  a  corporation  owned 50% by each,  to  consolidate  the  companies'
interest  in the Coeur and Galena  silver  mines in Idaho.  The Couer mine began
production in May 1996 and the Galena mine began production in June 1997. Asarco
has an  equity  interest  in  Silver  Valley  Resources  profits  or  losses  in
proportion to the 50% related ownership interest.

Silver Bell

In 1996, Asarco and Mitsui & Co. Ltd., established Silver Bell L.L.C., a limited
liability  corporation  owned  75% by Asarco  and 25% by  Mitsui & Co.  Asarco's
interest in Silver Bell L.L.C.  profits and losses is in  proportion  to its 75%
related ownership interest.

Leadville

Leadville is operated by Asarco under a joint venture agreement.  Asarco and its
joint venture partner share operating  results in proportion to their respective
ownership  interests,  except that Asarco bears 100% of losses, if any in excess
of cumulative profits generated since October 1991.

Troy

Troy is operated by Asarco under a lease  agreement.  Asarco  retains 75% of net
proceeds after operating expenses but before depletion,  depreciation and income
taxes.  The Troy mine was temporarily  shut down commencing in April 1993 due to
depressed silver prices.

Mission

A portion of the mine is held under  long-term  leases in which the lessors have
retained a royalty interest.

West Fork

A portion  of the mine is held under a  long-term  lease in which the lessor has
retained a royalty interest.

Investments

In 1997,  Asarco sold all of its  unrestricted  shares of Grupo Mexico,  S.A. de
C.V. Asarco currently owns 8.2% of Grupo Mexico,  which operates  thirteen mines
under concessions granted by the Mexican government.



<PAGE>



A19


The following production information is provided:

<TABLE>
<CAPTION>
MILL PRODUCTION                          1997                           1996                         1995
---------------                          ----                           ----                         ----
                                               Avg Mill                      Avg Mill                       Avg Mill
                              Ore Milled       Recovery      Ore Milled      Recovery       Ore Milled    Recovery Rate
                                 (000s           Rate           (000s          Rate        (000s Tons)         (%)
ASARCO                           Tons)           (%)            Tons)           (%)
                             -------------- --------------- -------------- -------------- --------------- --------------
<S>                            <C>            <C>             <C>            <C>            <C>             <C>
Domestic
  Mission                        14,822            83.8         15,192           85.9          14,803           83.6
  Mission South                   7,341            83.0          7,616           82.5           7,346           82.7
  Hayden
   Concentrator                   8,295            80.8          8,975           81.5           8,452           78.4
  Ray Concentrator               11,223            82.3         12,687           82.4          13,216           82.7
  Montana Resources              15,219            89.8         15,990           87.2          14,853           90.9
  Leadville (a)                     202            88.6            131           95.1             219           91.4
  Sweetwater                      1,403            98.4          1,271           98.3           1,269           98.1
  West Fork                       1,025            96.8          1,007           97.2           1,005           97.7
  Tennessee                       2,173            91.4          2,823           92.4           3,206           92.6
Other
  Quiruvilca (b)                      -               -              -              -             291           82.1
SPCC (c)
----

Toquepala                        18,998            87.9         18,609           84.2          16,937           89.0
Cuajone                          21,719            87.0         21,249           81.7          21,378           84.3
</TABLE>
Productive Capacity (d)
<TABLE>
<CAPTION>
                                      Defined                                                               Defined
     Smelter                          Capacity           Refineries                                         Capacity
     <S>                              <C>                <C>                                               <C>
     Anode Copper (tons)                                 Copper (tons)
       El Paso                            115,000          Amarillo                                          483,000
       Hayden                             175,000          Ray (SX-EW)                                        40,000
                                          -------
                                                           Silver Bell, L.L.C. (SX-EW)                        18,000
         Total                            290,000          Ilo - SPCC (c)                                    247,000
     Blister Copper (tons)                                 Toquepala (SX/EW)(c)                               40,000
                                                                                                             -------
       Ilo - SPCC (c)                     320,000            Total                                           828,000

     Lead Bullion (tons)                                 Lead (tons)
       East Helena                         75,000          Omaha (e)                                               -
       Glover                             130,000          Glover                                            130,000
                                          -------
         Total                            205,000

                                                         Silver (000s ounces)
                                                           Amarillo                                           60,000
                                                         Gold (ounces)
                                                           Amarillo                                          600,000
</TABLE>

(a)      1997 reflects Asarco's beneficial interest in Leadville at 100%.

(b)      Asarco sold its 80% interest in Quiruvilca in August 1995.

(c)      Asarco  consolidated  SPCC  effective  January  1, 1995.  The  minority
         interest in SPCC,  represented by Labor Shares in its Peruvian  Branch,
         results in Asarco having a beneficial  interest  which is less than its
         equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
         at December 1997, 52.6% at December 1996 and 52.3% at December 1995.

(d)      Asarco's estimate of actual capacity under normal operating  conditions
         with  allowance  for normal  downtime for repairs and  maintenance  and
         based on the  average  metal  content of input  material  for the three
         years  shown.  No  adjustment  is  made  for  shutdowns  or  production
         curtailments due to strikes or air quality emissions restraints.

(e)      Asarco  ceased  refining lead at its Omaha,  Nebraska  refinery in June
         1996.


<PAGE>


A20

METAL PRODUCTION STATISTICS
<TABLE>
<CAPTION>
COPPER                                                 Mineral        Average
                                                      Reserves        Mineral                    Metal Production
                                         Asarco         (000s         Content                    Contained Metal
                                          Int.          Tons)           (%)                       (000s Pounds)
                                                                                                  -------------
                                           (%)        12/31/97        12/31/97         1997             1996            1995
                                           ---        --------        --------         ----             ----            ----
<S>                                    <C>         <C>             <C>            <C>             <C>              <C>
MINES
Domestic
   Mission Complex                            100        514,091            .70         252,300          261,200        224,600
   Ray                                        100        969,689            .62         230,700          273,200        260,400
   Ray leachable                              100        189,037            .44          73,400           70,200         70,200
   Montana Resources                         49.9        499,438            .33          91,400          104,800        112,800
   Silver Bell L.L.C.                       75(a)        178,892            .38          19,300            4,800          6,800
   Troy (b)                                    75                                             -                -              -
                                                                                  ------------------------------------------------
     Total Domestic                                                                     667,100          714,200        674,800
                                                                                  ------------------------------------------------
SPCC (c)
   Toquepala-sulfide                      53.0(d)        313,149            .83         246,800          252,900        256,200
          -leachable                      53.0(d)        664,887            .19          87,900           88,600         10,000
   Cuajone-sulfide                        53.0(d)      1,422,339            .64         340,600          332,000        291,000
          -leachable                      53.0(d)         14,972            .95          10,200            4,600              -
Other
   Quiruvilca-Peru (e)                                                                        -                -          1,200
   Minto                                     86.7          7,176           2.13               -                -              -
                                                                                  ------------------------------------------------
                                                                                        685,500          678,100        558,400
                                                                                  ------------------------------------------------
Asarco Beneficial Production                                                            977,400        1,015,900        898,400
                                                                                  ------------------------------------------------

SMELTERS
   El Paso                                    100                                       239,500          230,000        253,000
   Hayden                                     100                                       423,900          429,800        387,000
   SPCC - Ilo                             53.0(d)                                       638,700          633,600        634,400
                                                                                  ------------------------------------------------
      Total                                                                           1,302,100        1,293,400      1,274,400
                                                                                  ------------------------------------------------
Asarco Beneficial Production                                                          1,001,900          991,800        956,400

REFINERIES
  Amarillo                                    100                                       984,600          945,600        966,800
  Ray (SX/EW)                                 100                                        73,400           70,200         70,200
  Silver Bell L.L.C. (SX/EW)                75(a)                                        18,200                -              -
  SPCC - Ilo                              53.0(d)                                       513,300          439,600        432,400
    Toquepala (SX/EW)                     53.0(d)                                        98,100           93,200         10,000
                                                                                  ------------------------------------------------
   Total                                                                              1,687,600        1,548,600      1,479,400
                                                                                  ------------------------------------------------
Asarco Beneficial Production                                                          1,394,200        1,295,000      1,258,000
                                                                                  ------------------------------------------------

</TABLE>
(a)      Asarco's  interest  in Silver  Bell was 100% until  February  1996 when
         Asarco  sold a 25%  interest to Mitsui & Co.,  Ltd.  Silver Bell L.L.C.
         commenced SX/EW operations in July 1997.

(b)      Troy is currently on standby.

(c)      In addition to the proven and probable ore reserves, SPCC is evaluating
         370 million tons of  mineralized  reserves with an average copper grade
         of 0.62%.

(d)      Asarco  consolidated  SPCC  effective  January  1, 1995.  The  minority
         interest in SPCC,  represented by Labor Shares in its Peruvian  Branch,
         results in Asarco having a beneficial  interest  which is less than its
         equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
         at December 1997, 52.6% at December 1996 and 52.3% at December 1995.

(e)      Asarco sold its 80% interest in Quiruvilca in August 1995.

<PAGE>


A21

METAL PRODUCTION STATISTICS (continued)

LEAD
<TABLE>
<CAPTION>
                                                           Mineral       Average
                                                           Reserves      Mineral                    Metal Production
                                              Asarco     (000s Tons)     Content                     Contained Metal
                                               Int.                        (%)                        (000s Pounds)
                                                                                    ---------------------------------------------
                                               (%)         12/31/97      12/31/97       1997           1996           1995
                                           --------------------------------------------------------------------------------------
<S>                                        <C>          <C>            <C>          <C>           <C>            <C>
MINES
Domestic
   Leadville                                       100(a)        407          2.72         9,500          6,500         10,000
   Sweetwater                                      100        11,724          4.28       113,900        106,900        124,400
   West Fork                                       100         5,033          5.00       107,600        107,100        110,000
                                                                                    ---------------------------------------------
      Total Domestic                                                                     231,000        220,500        244,400
Other
   Quiruvilca-Peru (b)                                                                         -              -          7,800
                                                                                    ---------------------------------------------
      Total                                                                              231,000        220,500        252,200
                                                                                    ---------------------------------------------

Asarco Beneficial Production                                                             231,000        217,900        246,600
                                                                                    ---------------------------------------------

SMELTERS
   East Helena                                     100                                   116,600        124,900        127,800
   Glover                                          100                                   254,200        243,300        271,600
                                                                                    ---------------------------------------------
      Total                                                                              370,800        368,200        399,400
                                                                                    ---------------------------------------------

REFINERIES
   Omaha (c)                                       100                                         -         51,400        140,800
   Glover                                          100                                   254,200        243,300        271,600
                                                                                    ---------------------------------------------
      Total                                                                              254,200        294,700        412,400
                                                                                    ---------------------------------------------

</TABLE>

(a)      1997 reflects Asarco's beneficial interest in Leadville at 100%.

(b)      Asarco sold its 80% interest in Quiruvilca in August 1995.

(c)      Asarco ceased refining lead at its Omaha, Nebraska refinery in June
         1996.



<PAGE>


A22

METAL PRODUCTION STATISTICS (continued)

ZINC
<TABLE>
<CAPTION>
                                                               Mineral       Average
                                                              Reserves       Mineral                Metal Production
                                                Asarco       (000s Tons)     Content                Contained Metal
                                                  Int                          (%)                   (000s Pounds)
                                                                                        -----------------------------------------
                                                   (%)         12/31/97       12/31/97       1997         1996         1995
                                              -----------------------------------------------------------------------------------
<S>                                           <C>           <C>             <C>          <C>          <C>          <C>
MINES
Domestic
   Leadville                                           100(a)          407        9.01        23,600       18,300        30,800
   Sweetwater                                          100          11,724         .35         2,700       13,800        24,400
   West Fork                                           100           5,033         .99        14,700       14,400        21,800
   Tennessee                                           100           6,102        3.06       104,900      132,700       154,200
                                                                                         ----------------------------------------
      Total Domestic                                                                         145,900      179,200       231,200
Other
   Quiruvilca-Peru (b)                                                                             -            -        25,200
                                                                                         ----------------------------------------
      Total                                                                                  145,900      179,200       256,400
                                                                                         ----------------------------------------

Asarco Beneficial Production                                                                 145,900      171,900       238,800
                                                                                         ----------------------------------------




MOLYBDENUM
                                                                                                1997         1996          1995
                                                                                         ----------------------------------------

MINES
Domestic
   Mission                                             100         514,091         .02             -          800           900
   Montana Resources                                  49.9         499,438         .03        10,300       11,000        10,200
                                                                                         ----------------------------------------
       Total Domestic                                                                         10,300       11,800        11,100
                                                                                         ----------------------------------------

SPCC (d)
   Toquepala                                          53.0(c)         313,149         .07      6,100        4,500         3,700
   Cuajone                                            53.0(c)       1,422,339         .03      3,300        4,200         4,300
                                                                                         ----------------------------------------
       Total                                                                                   9,400        8,700         8,000
                                                                                         ----------------------------------------

Asarco Beneficial Production                                                                  10,100       10,900        10,000
                                                                                         ----------------------------------------

</TABLE>
(a)      1997 reflects Asarco's beneficial interest in Leadville at 100%.

(b)      Asarco sold its 80% interest in Quiruvilca on August 31, 1995.

(c)      Asarco  consolidated  SPCC  effective  January  1, 1995.  The  minority
         interest in SPCC,  represented by Labor Shares in its Peruvian  Branch,
         results in Asarco having a beneficial  interest  which is less than its
         equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
         at December 1997, 52.6% at December 1996 and 52.3% at December 1995.

(d)      In addition to the proven and probable ore reserves, SPCC is evaluating
         370 million tons of  mineralized  reserves  with an average  molybdenum
         grade of 0.03%.



<PAGE>


A23

METAL PRODUCTION STATISTICS (continued)

SILVER
<TABLE>
<CAPTION>
                                                              Mineral        Average
                                                              Reserves       Mineral               Metal Production
                                                 Asarco     (000s Tons)      Content               Contained Metal
                                                  Int.                      (oz/Ton)              (000s troy ounces)
                                                                                       -----------------------------------------
                                                  (%)         12/31/97      12/31/97        1997         1996          1995
                                              ----------------------------------------------------------------------------------
<S>                                           <C>          <C>            <C>           <C>          <C>           <C>
MINES
Domestic
   Silver Valley Resources                             50          1,607        19.48         3,436         1,651          -
   Leadville                                       100(a)            407         1.67           250           176        347
   Mission                                            100        514,091          .16         2,169         1,981      2,604
   Montana Resources                                 49.9        499,438          .07           858           822        680
   Ray                                                100              -            -           424           480        839
   Sweetwater                                         100         11,724          .13            83           176        272
   Troy (b)                                            75         11,996         1.42             -             -          -
   West Fork                                          100          5,033          .25           171           175        232
                                                                                        ----------------------------------------
      Total Domestic                                                                          7,391         5,461      4,974

SPCC
   Toquepala                                      53.0(c)        313,149            -         1,474         1,412      1,557
   Cuajone                                        53.0(c)      1,422,339            -         1,671         1,685      1,401
Other
   Quiruvilca-Peru (d)                                                                            -             -      1,621
   San Bartolome                                      100         10,700         3.97             -             -          -
   Minto                                             86.7          7,176          .27             -             -          -
                                                                                        ----------------------------------------
      Total                                                                                  10,536         8,558      9,553
                                                                                        ----------------------------------------

Asarco Beneficial Production                                                                  6,901         5,778      7,273
                                                                                        ----------------------------------------

REFINERIES
   Amarillo                                           100                                    20,330        30,842     37,265
   SPCC-Ilo                                       53.0(c)                                     2,462         2,218      2,519
                                                                                        ----------------------------------------
     Total                                                                                   22,792        33,060     39,784
                                                                                        ----------------------------------------

Asarco Beneficial Production                                                                 21,629        32,004     38,530
                                                                                        ----------------------------------------

</TABLE>
(a)      1997 reflects Asarco's beneficial interest in Leadville at 100%.

(b)      Troy is currently on standby.

(c)      Asarco  consolidated  SPCC  effective  January  1, 1995.  The  minority
         interest in SPCC,  represented by Labor Shares in its Peruvian  Branch,
         results in Asarco having a beneficial  interest  which is less than its
         equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
         at December 1997, 52.6% at December 1996 and 52.3% at December 1995.

(d)      Asarco sold its 80% interest in Quiruvilca in August 1995.



<PAGE>



A24


All  mineral  reserves  represent  100% of the  reserves  for that  mine and the
percentage  ownership of Asarco are separately  indicated.  All mineral reserves
are at December  31,  1997.  Reserves  are  estimated  quantities  of proven and
probable ore that under present and  anticipated  conditions may be economically
mined and processed for the  extraction  of their  mineral  content.  Controlled
mineral   deposits   include  those  owned,   directly  or  indirectly   through
subsidiaries,  partnerships or joint ventures,  optioned,  leased, or held under
government concession.

All production  figures represent entire amounts of operations,  including those
under lease, joint venture, government concessions or operated by subsidiaries.

Other Operations

The principal  activities  included in the business segment entitled "All Other"
are  those  of  Encycle/Texas,   Inc.  and  Hydrometrics,   Inc.,   wholly-owned
subsidiaries  in  the  environmental   services  business,  a  specialty  metals
business, and income and expenses associated with facilities previously operated
by the Company. None of these operations constitute a significant portion of the
total operations of the Company.

Item 3.  Legal Proceedings

Reference is made to the  Contingencies  and Litigation  Note 8 to the Financial
Statements incorporated herein by reference.  The following is additional detail
with respect to the litigation referred to in Note 8.

Texas Litigation

In 1996, a lawsuit was filed in state  district  court in San  Patricio  County,
Texas, against Asarco and two of its wholly-owned  subsidiaries,  Encycle,  Inc.
and Encycle/Texas  Inc. and ten other defendants by approximately 679 plaintiffs
who  allegedly  own  property  and  reside  near a landfill  in  Sinton,  Texas.
Plaintiffs  seek  compensatory  and  punitive  damages for  personal  injury and
property damage allegedly caused by defendants'  disposal of toxic and hazardous
wastes at the landfill.  In December 1997, a similar lawsuit was filed on behalf
of 23 additional plaintiffs.  The landfill at issue is the same one that was the
subject  of a  previous  lawsuit  in Duval  County,  Texas by nearby  residents,
settlement of which was reported on Form 10-K for 1995.

In 1994, the Company and one of its  wholly-owned  subsidiaries,  Encycle/Texas,
Inc., were sued in state court in Nueces County,  Texas in three purported class
actions on behalf of persons  residing  in  neighborhoods  around the  Company's
Corpus Christi,  Texas property.  These actions seek  compensatory  and punitive
damages for diminution of property values, annoyance, loss of use and enjoyment,
loss of income from commercial uses,  remediation costs, emotional distress, and
medical  monitoring due to alleged  contamination  of plaintiffs'  properties by
metals emitted from the Corpus Christi  facility.  In 1994, two additional suits
alleging contamination of plaintiffs' properties by metals emitted by the Corpus
Christi  facility  were filed  against the  Company and two of its  wholly-owned
subsidiaries, Encycle, Inc. and Encycle/Texas, Inc. and several other defendants
in state court in Duval County,  Texas.  In one suit, 20 plaintiffs  who resided
and owned  property  near the Corpus  Christi  facility  seek  compensatory  and
punitive damages for diminution in property values,  personal  injuries,  mental
anguish,  lost wages,  medical  expenses and medical  monitoring.  In the second
suit,  two  plaintiffs who owned and operated a business near the Corpus Christi
facility seek compensatory and punitive damages for diminution of property value
and loss of profits.  In April 1996, one additional suit alleging  contamination
of plaintiffs'  properties by metals emitted by the Corpus Christi  facility was
filed  against  the Company and two of its  wholly-owned  subsidiaries  in state
court in Nueces County, Texas. This suit seeks compensatory and punitive damages
and equitable relief for diminution of property values and remediation costs.


<PAGE>


A25

In 1993,  the State of Texas  notified the Company that it and ten other persons
are PRPs with respect to the Col-Tex  Refinery State  Superfund site in Mitchell
County,  Texas where the Company stored diesel fuel in the mid-1970's.  In 1996,
the State of Texas  notified the Company  that it is no longer  considered a PRP
and that it has dismissed this claim.  The Company has also been named as one of
several  defendants in 14 lawsuits  filed by or on behalf of  approximately  366
persons who have lived or owned property near the Col-Tex  Refinery site seeking
compensatory and punitive  damages for alleged wrongful death,  personal injury,
and property  damage.  In 1997,  the Company was  dismissed  from three of those
lawsuits involving approximately 170 individuals.

In 1994,  the Company  received  notice from the State of Texas that it is a PRP
for the  remediation of the site of a former  pesticide  manufacturing  plant in
Hunt County,  Texas owned and operated by a former  customer of the Company.  In
addition,  the Company has been named as one of a number of  defendants  in nine
lawsuits  filed in  various  Texas  State  District  Courts  by or on  behalf of
approximately 2,281 individuals who live or lived near the site for compensatory
and  punitive  damages,  including  damages for alleged  personal  injuries  and
property  damage,  due to alleged  exposure to arsenic products that the Company
sold to the manufacturer at the site. The bankruptcy  filing of the owner of the
former  pesticide  plant has  resulted  in all of these  actions  being  stayed,
removed to federal court and transferred to the United States District Court for
the  Northern  District  of Texas.  Also,  in 1995,  the  Company was named as a
third-party defendant in a suit, pending in the United States District Court for
the Northern  District of Texas, for  contribution  under CERCLA and Texas state
law involving approximately 15 parties alleged to be responsible for remediation
of a railroad property adjacent to the site.

In May 1997, the Company and five other defendants, mostly metal companies, were
sued in state court in El Paso County,  Texas, by approximately  360 plaintiffs,
including  approximately 200 minors,  seeking  compensatory and punitive damages
for alleged  personal  injury,  death and property  damage  resulting from toxic
chemical discharges into the air, water and soil from the defendants' facilities
in El Paso.

Asbestos Litigation

While no one personal  injury  action is exactly like any other,  the  following
three  pending  lawsuits  are  typical  of  those in  which  employees  of other
companies  allege death or injury  resulting  from alleged  exposure to asbestos
fiber  supplied  by Lac  d'Amiante  du  Quebec,  Ltee  ("LAQ"),  a  wholly-owned
subsidiary of the Company, and other suppliers to their employers' manufacturing
operations:

1) In the action In Re Gada, Docket No.  L-6100-97,  pending since June 10, 1997
in  the  Superior  Court  of  New  Jersey,   Middlesex  County,  13  cases  were
consolidated for purposes of discovery in June 1997. These 13 actions involve 13
primary and 6  secondary  plaintiffs  who have sued LAQ and 23 other  defendants
that  allegedly  supplied  asbestos  fiber or  asbestos  containing  products to
Johns-Manville's  Manville, New Jersey facility for substantial compensatory and
punitive  damages for death or  injuries  allegedly  resulting  from the primary
plaintiffs'  exposure to asbestos  fiber while  employed at that  facility.  The
claims of eight of the primary  plaintiffs were dismissed as to LAQ on September
15, 1997. The plaintiffs  allege a broad range of respiratory and other injuries
including  disabling  lung  changes,   asbestosis,   cancer,  and  mesothelioma.
Liability  is alleged on theories  of strict  liability,  negligence,  breach of
warranty,  misrepresentation,  ultra hazardous activity and conduct, conspiracy,
concert  of  action,  market  share or  enterprise  liability,  and  alternative
liability.  The thrust of the complaint is that the defendants,  individually or
collectively,  failed to warn the primary  plaintiffs  of the  possible  hazards
associated  with  inhalation  of asbestos  fibers  while  working  with or being
exposed to such fibers.



<PAGE>


A26

2) In Darlene  Turner and Patricia  Foret,  Individually  and on Behalf of Their
Father,  Robert Foret, Sr. v. Raymond Plauche,  etc., et al., Case No. 94-13057,
pending  since  August 24,  1994 in the Civil  District  Court for the Parish of
Orleans  of the State of  Louisiana,  the heirs of Mr.  Foret sued LAQ and three
other defendants that allegedly  supplied asbestos fiber or asbestos  containing
products  to the  National  Gypsum  plant  in New  Orleans,  Louisiana.  A fifth
defendant was an officer of National Gypsum that plaintiffs allege was negligent
in not  providing  Mr.  Foret with a safe  place to work.  The  plaintiffs  seek
substantial  compensatory  and punitive  damages for Mr. Foret's death from lung
cancer and other diseases that allegedly  resulted from his exposure to asbestos
fiber while employed at National Gypsum.  The thrust of the complaint is similar
to the In Re Gada case.

3) In Haines v. Aetna Casualty Co., et al., Docket No. L-5918-95,  pending since
July 13, 1995 in the Superior Court of New Jersey,  Camden  County,  one primary
and one secondary  plaintiff  sued LAQ and six other  defendants  that allegedly
supplied asbestos fiber or asbestos containing products to New York Shipbuilding
& Drydock Co. in Chester,  Pennsylvania and  Owens-Corning  Fiberglas in Berlin,
New Jersey. The plaintiffs demand substantial  compensatory and punitive damages
for asbestosis allegedly resulting from primary plaintiff's exposure to asbestos
fiber while employed at these facilities. The thrust of the complaint is similar
to the In Re Gada case.

In addition to these personal  injury lawsuits  arising out of alleged  asbestos
exposure  to  employees  of  other  companies  using  asbestos  fiber  in  their
manufacturing  operations,  included in the asbestos product liability  lawsuits
pending against LAQ and Asarco are numerous lawsuits arising from products (such
as insulation and brake linings)  manufactured by others.  These cases typically
allege a failure  to warn of  possible  health  hazards  associated  with  those
products  and  proceed on theories  similar to those  asserted in the In Re Gada
case.  In many  such  cases  LAQ and  Asarco,  having  never  manufactured  such
products,  have  obtained  dismissals.  Typical of lawsuits in which  plaintiffs
allege asbestos exposure due to products manufactured by others are:

1) Tronlone  v.  Garlock,  Inc.,  et al.,  Index No.  95-120163,  pending  since
September  8,  1995 in the  Supreme  Court of the  State of New  York,  New York
County,  in which the  executrix  for the decedent Mr.  Tronlone sued LAQ and 22
other  defendants  that  allegedly  supplied  asbestos and  products  containing
asbestos to his employers.  The plaintiff demands  substantial  compensatory and
punitive  damages  for Mr.  Tronlone's  death  from  unspecified  injuries  that
allegedly resulted from his exposure to asbestos.
The thrust of the complaint is similar to the In Re Gada case.

2) Roger Adkins et al. v. Owens Corning  Fiberglas  Corporation,  et al.,  Civil
Action Nos.  95-C-3049 to  95-C-3064,  95-C-3138  and  95-C-3139,  pending since
November 3, 1995 in the Circuit Court of Kanawha County, West Virginia, in which
eighteen primary and fourteen secondary plaintiffs sued LAQ, Asarco and 33 other
defendants that allegedly supplied asbestos and products  containing asbestos to
the  primary   plaintiffs'   employers.   The  plaintiffs   demand   substantial
compensatory  and punitive damages for injuries  allegedly  resulting from their
exposure to asbestos.  The thrust of the  complaint is similar to the In Re Gada
case.

3) Abbott, et al. v. Pittsburgh Corning Corporation,  et al., Case No. 97-28510,
pending since May 28, 1997 in the District Court of Harris County,  Texas, 125th
Judicial  District,  in which  2,512  primary  plaintiffs  and  1,954  secondary
plaintiffs sued Asarco,  LAQ, and 58 other  defendants  that allegedly  supplied
asbestos and products containing asbestos to the primary plaintiffs'  employers.
The plaintiffs demand substantial compensatory and punitive damages for injuries
allegedly resulting from their exposure to asbestos. The thrust of the complaint
is similar to the In Re Gada case.



<PAGE>


A27

Pogorzelski  v.  Amtorg  Trading  Corporation,  et al.,  described  in Item 3 of
Asarco's  1996 Form  10-K,  was  settled by LAQ as to all  remaining  plaintiffs
during May 1997.  Aaron, et al. v. Abex  Corporation,  et al., also described in
the same Item 3 was dismissed as to Asarco and its wholly-owned subsidiary Capco
Pipe Company,  Inc.  ("Capco") in June, 1997 with respect to the remaining 1,576
primary  plaintiffs.  As of December 31, 1997, Capco was a defendant in 27 cases
brought by 102 primary plaintiffs.

In 1991, the Judicial Panel on Multidistrict Litigation transferred all asbestos
cases pending in federal court to a multi-district litigation ("MDL 875") in the
United  States  District  Court for the  Eastern  District of  Pennsylvania  for
coordinated and consolidated  pretrial  proceedings.  Cases containing less than
one percent of LAQ's primary plaintiffs are affected by this action.

During January 1996, LAQ and nine former managerial and supervisory employees of
Capco  were sued in two  separate  state  court  actions in Alabama by 53 former
Capco  employees  seeking  substantial  compensatory  and  punitive  damages for
injuries  and death  allegedly  caused by  workplace  exposure  to  asbestos  on
theories of product  liability and negligence.  Since that time eight additional
former  Capco  employees  have  been  added to the  litigation  through  amended
complaints. During January 1998, plaintiffs' counsel amended their complaint for
a fifth  time to add Capco as a  defendant  with  respect to one  plaintiff  not
alleged to have been a Capco employee.

On March 3, 1996, Asarco was served with a complaint in a purported class action
filed in state court in West Virginia  that also names as defendants  LAQ and 49
other  companies.  The action is allegedly  brought on behalf of a class of over
50,000  persons who were exposed to asbestos at West Virginia work sites and who
are  allegedly  at  increased  risk of  developing  cancer.  The case  seeks the
establishment of a medical monitoring fund. The case was subsequently removed to
federal court by three of the defendants  and was thereafter  transferred to MDL
875.  The Company and LAQ intend to oppose the  lawsuit.  Additionally,  in June
1995,  Capco was served with a complaint  in a purported  class  action filed in
Illinois  state court in Cook County that also names 139 other  defendants.  The
class  action is allegedly  brought on behalf of a  nationwide  class of persons
claiming to be at an increased risk of developing asbestos-related diseases as a
result of asbestos exposure.  Capco and nearly all the other defendants moved to
dismiss the case,  and their  motions were granted by the court in October 1996.
An appeal has been filed by plaintiffs.

On February 25, 1997, LAQ was served with a complaint in Ohio state court naming
63  defendants  in a purported  class action  filed  allegedly on behalf of over
50,000   persons   who   claim  to  have  an   increased   risk  of   developing
asbestos-related diseases, and who fear they will contract cancer as a result of
their exposure to asbestos or asbestos-containing end products while employed at
Ohio worksites.  The complaint seeks damages and a medical  monitoring  fund. In
October 1997,  dismissal of this action as to all defendants was approved by the
Court.

On February 2, 1998, Asarco was served by defendant Owens-Corning with a writ to
join over 360  additional  defendants,  including  LAQ and Asarco,  in a medical
monitoring class action filed in 1996 in Pennsylvania state court.

As of December 31, 1997,  LAQ,  Asarco and Capco have settled or been  dismissed
from a total of approximately 7,210 asbestos personal injury lawsuits brought by
approximately 86,933 primary and 53,592 secondary plaintiffs.

With  respect  to  the  actions  relating  to  asbestos-containing  products  in
structures  reported in Note 8  Contingencies  and  Litigation  to the Financial
Statements, the following supplemental information is provided:



<PAGE>


A28

A purported  statewide class action involving public buildings in cities seeking
substantial  compensatory  and punitive  damages  from LAQ was  dismissed by the
trial court in February 1997 and plaintiffs' appeal is pending.  LAQ has settled
five  and  been  dismissed  from  another  82  actions  involving   asbestos  in
structures.  Asarco has been  dismissed  from all twelve actions in which it has
been named.


Environmental Litigation

In  September  1997,  the Company was sued in United  States  District  Court in
Nebraska in a purported  class  action.  The  complaint was brought on behalf of
classes  alleged to number in excess of 10,000  persons  owning and in excess of
15,000 persons renting  property in Nebraska and Iowa located within  boundaries
of up to approximately  five miles from the Company's former Omaha plant, and on
behalf  of a  medical  monitoring  class  alleged  to number in excess of 30,000
persons.  The action asserts claims of trespass,  nuisance,  negligence,  strict
liability,  unjust  enrichment,  medical  monitoring and under CERCLA due to the
alleged  contamination  of soils by airborne  releases from the plant, and seeks
compensatory  damages for diminution in property value and loss of use, punitive
damages,  a declaratory  judgment of liability for future  response  costs,  and
creation of a medical monitoring fund.

In October 1997, the Company was sued in state court in Denver,  Colorado,  in a
purported  class action  brought on behalf of property  owners and other persons
residing  in  approximately  300  homes  located  within  one mile  south of the
Company's Globe plant. The action asserts claims of trespass,  private nuisance,
negligence,   and  strict  liability  allegedly  due  to  the  contamination  of
properties  by  emissions  from the plant,  and seeks  compensatory  damages for
diminution in property value and loss of use, as well as punitive  damages.  The
Company has removed  the action  from state court to federal  district  court in
Denver. A motion to remand to state court is pending.

On October 24, 1996, a citizens' suit was brought  against the Company  alleging
water discharge  permitting  violations  under the CWA and violations of RCRA at
the Company's Omaha, Nebraska lead refinery. On August 5, 1996, in response to a
notification by the plaintiffs' attorney that he intended to file this suit, the
Nebraska  Department of  Environmental  Quality ("NDEQ") advised the plaintiffs'
attorney that it believed that he had not "alleged sufficient facts under either
the CWA or RCRA to warrant the finding of a violation  of either  act." The NDEQ
further advised that it "does not perceive a need to take an enforcement  action
against Asarco at this time because the Company is presently  cooperating in the
voluntary  remediation  of its site." The Company  believes  that the lawsuit is
without merit and is vigorously defending it.

In February 1997, the Company was named as a third-party  defendant in a lawsuit
filed in state court in King County,  Washington  asserting claims for indemnity
and  contribution  under  Washington's  Model Toxic  Control  Act.  The case was
settled in the first quarter of 1998.

In 1995,  the  Company  was sued in  federal  court in Tacoma,  Washington  by a
retirement home with 200 residents and 21 acres of property  seeking damages for
diminution of property value,  response costs and attorneys'  fees. In September
1996, the suit was dismissed on the grounds that  plaintiffs  claims were barred
by lack of subject matter jurisdiction,  lack of actual and substantial damages,
or by the applicable statute of limitations. An appeal is pending.



<PAGE>


A29

In June 1996, the Company was sued in state court in Salt Lake City,  Utah along
with numerous other companies alleged to have been engaged in mining or smelting
in the Bingham Canyon area of Utah.  Plaintiffs,  thirty-six individuals alleged
to be members of four  families  that  resided in homes  located in the historic
flood plains of the Bingham Creek,  seek  compensatory  and punitive damages for
personal injury,  fear of cancer and wrongful death allegedly caused by exposure
to toxic wastes including arsenic, lead and cadmium, from the defendants' mining
and smelting activities in the area.


Other Litigation


In June  1993,  the  Company  was  sued by two of its  liability  insurers,  the
Insurance  Company of North America and California Union Insurance  Company,  in
state court in New  Brunswick,  New Jersey for a  declaration  that the insurers
have no insurance obligation for environmental  matters for which the Company is
seeking coverage. The plaintiff insurance companies also included Asarco's other
liability  insurers in the  lawsuit,  and those  insurers  have  sought  similar
declaratory  relief.  Asarco has filed cross  claims and  counterclaims  in this
lawsuit seeking a court declaration that insurance coverage of its environmental
matters does exist. The Company has settled with certain of these insurers,  and
in January 1997 summary judgment dismissing Asarco's claims was granted in favor
of most other insurers.  The litigation  continues as to the remaining  insurers
and the Company has appealed the granting of summary judgment.

Opinion of Management

The  opinion  of  management  regarding  the  outcome of legal  proceedings  and
environmental contingencies,  set forth in the Contingencies and Litigation Note
8 to the Financial Statements,  is based on considerations  including experience
relating to previous court judgments and  settlements and remediation  costs and
terms. The financial viability of other potentially responsible parties has been
considered  when  relevant  and no credit  has been  assumed  for any  potential
insurance  recoveries  when not deemed  probable.  The Company  considered  such
factors in  establishing  its  environmental  reserve in December of 1990 and in
determining modifications to its reserve in each year thereafter.

See also  Item 1,  "Environmental,  Safety  and  Health  Matters,"  for  further
information  concerning  pending legal or administrative  proceedings  involving
Asarco.


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

None.


<PAGE>



A30
     

EXECUTIVE OFFICERS OF ASARCO AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
                                                   (As of February 27, 1998)
<TABLE>
<CAPTION>
                                                                                                                        Officer
Name                                      Office and Experience                                                    Age     Since
----                                      ---------------------                                                    ---     -----
<S>                                 <C>              <C>                                                    <C>       <C>
Richard de J. Osborne                          1998  Chairman of the Board and Chief Executive Officer            63       1975
                                          1993-1998  Chairman of the Board, President and
                                                       Chief Executive Officer

Francis R. McAllister                          1998  President and Chief Operating Officer                        55       1978
                                          1993-1998  Executive Vice President, Copper
                                                       Operations

Kevin R. Morano                                1998  Executive Vice President and Chief Financial Officer         44       1993
                                          1993-1998  Vice President, Finance and Chief
                                                       Financial Officer
                                               1993  General Manager, Ray Complex                                            

Augustus B. Kinsolving                    1996-1998  Vice President and General Counsel                           58       1983
                                          1993-1995  Vice President, General Counsel
                                                       and Secretary

Robert J. Muth                            1993-1998  Vice President, Government and                               64       1977
                                                       Public Affairs

Robert M. Novotny                         1993-1998  Vice President, Lead, Zinc,                                  49       1988
                                                       Silver and Aggregates

William L. Paul                           1997-1998  Vice President, Commercial                                   47       1996
                                          1993-1996  Manager, Omaha Plant

Gerald D. Van Voorhis                     1993-1998  Vice President, Exploration                                  59       1992

Michael O. Varner                         1993-1998  Vice President, Environmental                                56       1993
                                                       Operations
                                               1993  General Manager, Western Metals

David B. Woodbury                         1993-1998  Vice President, Human Resources                              57       1993

Robert Ferri                              1995-1998  Secretary                                                    50       1995
                                          1993-1995  Associate General Counsel

William Dowd                              1995-1998  Controller                                                   48       1995
                                          1993-1995  Assistant Controller

Christopher F. Schultz                    1997-1998  Treasurer                                                    46       1997
                                          1993-1997  Assistant Treasurer

James L. Wiers                            1993-1998  General Auditor                                              53       1987

</TABLE>


<PAGE>


  
A31

                                                               PART II
Item 5 - Market for Registrant's Common Stock and Related Stockholder Matters

At December  31,  1997,  there were 7,636  common  stockholders  of record.  The
principal  market for Asarco's Common Stock is the New York Stock Exchange.  The
Stock Exchange symbol for Asarco's common stock is AR. High and low stock prices
and dividends for last two years were:
 <TABLE>
 <CAPTION>
                                                1997                                                   1996
                         -----------------------------------------------------  --------------------------------------------------
QUARTERS                    1st        2nd       3rd        4th       Year         1st        2nd        3rd       4th       Year
                         -----------------------------------------------------  --------------------------------------------------
<S>                      <C>           <C>       <C>        <C>       <C>       <C>        <C>          <C>      <C>        <C>
Dividends paid
 per common share           .20        .20       .20        .20       .80          .20        .20        .20       .20        .80

Stock market price:
      High                 32-1/2    32-1/4       34      31-7/8       34         35-1/4     35-7/8    27-7/8       28      35-7/8
      Low                  25-1/8    26-1/2       30      21-3/4     21-3/4       27-1/2     27-5/8    23-3/4     24-1/8    23-3/4
</TABLE>
Item 6 - Selected Financial Data

FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA (in millions, except per share
and employee data)
 <TABLE>
 <CAPTION>
                                                         1997           1996            1995(f)       1994         1993
                                                         ----           ----            ----          ----         ----
<S>                                                <C>            <C>             <C>           <C>          <C>
Consolidated Statement of Earnings
Sales                                                     $2,721          $2,717        $3,198        $2,032       $1,736
Operating income (loss)                                      275(a)          303(d)        487(g)         18(h)      (110)(j)
Earnings (loss) before minority interests, equity
  earnings and cumulative effect of change in
  accounting principles
                                                             234             226           299            17          (97)
Minority interests                                           (91)            (88)         (130)           (1)          (1)
Equity earnings, net of taxes                                 -(b)            -(b)           -(b)         48           27
Net earnings                                                143(c)          138(e)         169            64(i)        16(k)
Per common share:
  Net earnings - Basic                                 $    3.42        $   3.24      $   4.00    $    1.53      $   0.38
  Net earnings - Diluted                               $    3.42        $   3.23      $   3.98    $    1.52      $   0.38
Dividends to common stockholders                       $    0.80        $   0.80      $   0.70    $    0.40      $   0.50
Consolidated Statement of Cash Flows
Cash provided from (used for)
 operating activities                                     $  321          $  267        $  489       $  (10)       $   39
Dividends to common stockholders                              34              34            30           17            21
Capital expenditures                                         322             286           338           98           112
Depreciation and depletion                                   131             119           119           83            81
Consolidated Balance Sheet
--------------------------
Total assets                                              $4,110          $4,120        $4,327       $3,291        $3,153
Inventories - replacement cost in excess of LIFO
  inventory costs                                             86             115           137          143           114
Total cash and marketable securities                         416             193           281           18            13
Total debt                                                   879             814         1,122          933           901
Common stockholders' equity                                1,694           1,737         1,707        1,517         1,472
Common Stock
------------
Common shares outstanding                                   39.7            42.8          42.6         42.1          41.7
Price-high                                                   $34         $35-7/8       $36-1/2      $34-7/8       $28-5/8
     -low                                                $21-3/4         $23-3/4       $24-3/8      $21-3/8       $16-5/8
Book value per common share                               $42.71          $40.56        $40.11       $36.04        $35.27
Price/Earnings ratio                                        6.56            7.68          8.01        18.65         60.92
Dividends to common stockholders as a percent of
  earnings                                                 23.4%           24.7%         17.5%        26.2%        133.2%
Financial Ratios
Current assets to current liabilities
                                                             2.3             1.8           1.9          1.6           1.5
Debt as a % of capitalization                               28.3%           26.7%         34.1%        38.1%         38.0%
Debt as a % of capitalization, net of excess cash
                                                            20.2%           24.1%         32.1%        38.1%         38.0%
Employees (at year-end)                                   11,800          11,800        12,200        8,000         8,500
</TABLE>


<PAGE>


A32

Notes to Five-Year Selected Financial and Statistical Data

(a)      Environmental  charges of $20.2 include third quarter  charges of $30.0
         to increase reserves for closed plant and environmental matters, offset
         entirely by anticipated insurance recoveries.
(b)      Net earnings  from  investments  accounted for by the equity method are
         included in earnings (above).
(c)      Includes a $47.6 after-tax gain ($73.3 pre-tax) from the sale of shares
         of Grupo Mexico.
(d)      Includes a $15.0 pre-tax  charge  ($67.7 in charges  offset by $52.7 in
         insurance  settlements  and  other  recoveries)  for  closed  plant and
         environmental matters.
(e)      Includes a $39.0  after-tax  gain ($60.1  pre-tax) from the sale of the
         Company's  remaining  interest in MIM and a $7.2  after-tax gain ($11.1
         pre-tax) from the sale of a 25% interest in the  Company's  Silver Bell
         project.
(f)      On April 5, 1995, the Company  acquired an additional 10.7% interest in
         Southern  Peru  Copper  Corporation  (SPCC) for $116.4  increasing  its
         ownership from 52.3% to 63%. The additional shares acquired enabled the
         Company to elect a majority of the directors of SPCC. As a result,  the
         Company has consolidated SPCC in its financial  statements based on its
         52.3%  ownership,   effective  January  1,  1995,  and  63%  ownership,
         effective  April 5, 1995.  The  Company  previously  accounted  for its
         investment in SPCC by the equity method.
(g)      Includes a $139.4  pre-tax  charge to add to the Company's  reserve for
         closed  plant  and   environmental   matters,   to  provide  for  asset
         impairments  and plant  closures and to write down  certain  in-process
         inventory to net realizable value.
(h)      Includes a $65.5  pre-tax  charge to add to the  Company's  reserve for
         closed plant and environmental matters.
(i)      Includes a $31.9  after-tax  gain ($58.5  pre-tax) from the sale of the
         Company's remaining interest in Asarco Australia Limited.
(j)      Includes a $37.6 pre-tax  charge for the valuation of  inventories  and
         additions to reserves for closed plant and environmental  matters, $9.2
         of LIFO profits and $8.2 of previously unrecognized losses of Nor Peru.
(k)      Includes $26.4 (net of taxes of $0.4) of previously unrecognized equity
         earnings  of SPCC and a gain of $86.3 as the  result of the  cumulative
         effect of a change in accounting principle at SPCC.


Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations


Asarco  reported 1997 net earnings of $143.4  million,  or diluted  earnings per
share of $3.42. Earnings for 1997 include after-tax gains totaling $47.6 million
($73.3 million  pre-tax),  or $1.13 per share,  from the sale of shares of Grupo
Mexico, S.A. de C.V. (Grupo Mexico), Mexico's largest mining company.

Net  earnings  in  1996  and  1995  were  $138.3  million  and  $169.2  million,
respectively.  Results for 1996  included  an  after-tax  gain of $39.0  million
($60.1 million pre-tax) from the sale of the Company's  interest in MIM Holdings
Limited (MIM), an Australian based mining company,  and a $7.2 million after-tax
gain ($11.1  million  pre-tax)  from the sale of a 25% interest in the Company's
Silver Bell  project.  Results for 1995 included a special  after-tax  charge of
$79.5  million  ($122.3  million  pre-tax)  related to the  termination  of lead
refining  operations  at the Company's  Omaha,  Nebraska  plant,  adoption of an
accounting   principle  regarding  the  impairment  of  long-lived  assets,  and
additions to the Company's  reserve for costs associated with previously  closed
plants.



<PAGE>


A33

The  Company's  earnings are heavily  influenced by the prices for its metals as
established  on U.S. and  international  commodity  exchanges.  Asarco's  fourth
quarter 1997  earnings  reflect the sharp  decrease in copper  prices which took
place during the final months of 1997.  Asarco announced in January 1998 that it
has instituted a company-wide  cost reduction  program to respond to the decline
in metal prices. The program,  which has already been implemented,  includes the
purchase  of  higher  productivity   equipment,   reductions  in  personnel  and
reductions in general and administrative expenses,  purchased services and other
operating costs. In total,  the cost reduction  program is expected to result in
savings of $50 million in 1998,  and improve net  earnings by  approximately  80
cents per share.  The Company  provided for the severance costs  associated with
this program in the fourth quarter of 1997.

Asarco made significant  progress in 1997 in achieving its long-term  objectives
of  growing  its  copper  business,   developing  its  specialty  chemicals  and
aggregates  businesses,  realizing  value from its investments in foreign mining
companies,  reducing debt,  repurchasing stock to enhance shareholder value, and
improving and enhancing its safety, health and environmental performance:

      The Company's  beneficial  interest in mined copper production in 1997 was
     977.4  million  pounds.  While  1997  production  was down  3.8%  from 1996
     primarily due to lower ore grades at the Company's  North  American  copper
     operations and the partial  curtailment of the Hayden  concentrator  at the
     Ray mine in  Arizona  during  the early part of 1997,  the  Company's  mine
     copper production is more than double that produced by the Company in 1985.

      In July 1997,  the Company began  production of refined  copper at its new
     solvent  extraction/electrowinning (SX/EW) facility at the Silver Bell mine
     in Arizona.  The new SX/EW plant,  in which Asarco has a 75%  interest,  is
     designed  to produce 36 million  pounds of  refined  copper  annually.  The
     plant,  which  started up on  schedule,  has been  producing  copper at its
     designed capacity.

      In the second and third  quarters  of 1997,  the  Company  sold all of its
     unrestricted shares of Grupo Mexico for $322.5 million.  The sales resulted
     in an after-tax  gain of $47.6  million.  With the sale of the Grupo Mexico
     shares,  the  Company has  monetized  the last of its  historical  minority
     investments.  The proceeds from the Grupo Mexico sale,  and the MIM sale in
     1996, have enabled the Company to strengthen its balance sheet,  reduce its
     interest expense, and undertake a major share repurchase program.

      Following  the  initial  sale of Grupo  Mexico  shares in June  1997,  the
     Company  undertook a $100 million  share  repurchase  program.  In December
     1997,  the Company  completed  the program after  repurchasing  3.3 million
     shares and reduced the number of its  outstanding  shares by  approximately
     7.7% to slightly under 40 million shares.

      Southern Peru Copper Corporation  (SPCC) arranged  long-term  financing at
     favorable rates for its $1 billion expansion program.  The program includes
     a 50% increase in  production  at SPCC's  Cuajone mine which is expected to
     add  130  million  pounds  to  SPCC's  annual  copper  production,  and the
     modernization of its Ilo smelter.  The expansion at Cuajone is currently on
     schedule and is expected to be completed in the first quarter of 1999.


<PAGE>


A34

      In 1997,  the  Company's  specialty  chemicals and  aggregates  businesses
     continued  their strong growth.  Each of these  businesses  achieved record
     earnings,  totaling  over  $43  million  before  tax,  a  level  which  now
     contributes  significantly to Asarco's results,  particularly at the bottom
     of the metal market cycle. In specialty chemicals, technical innovation and
     marketing   effectiveness  were  key  factors   contributing  to  a  fourth
     consecutive  year of record sales and earnings.  In  aggregates,  favorable
     weather and a good construction  market in the Southeast increased sales by
     15%.

In April 1995,  the Company  acquired an additional  10.7%  interest in SPCC and
consolidated  SPCC's results in its financial  statements  effective  January 1,
1995.  The  Company's  ownership  of SPCC was  52.3% at  January  1,  1995,  and
increased to 63.0% effective April 5, 1995. The Company had previously accounted
for its investment in SPCC by the equity method.  In November 1995, SPCC offered
to exchange new common shares for labor shares issued by its Peruvian  Branch to
workers  under prior law in Peru.  These labor  shares,  which are traded on the
Lima Stock  Exchange,  represented a 17.3% interest in the Peruvian Branch which
comprises  substantially  all of the  operations of SPCC in Peru.  The offer was
concluded  in  December  1995,  with 80.8% of the labor  shares  tendered.  As a
result,  SPCC owned 96.7% of the Branch at December  31,  1995.  At December 31,
1997 and 1996,  SPCC  owned  97.8% and  97.2%,  respectively  of the Branch as a
result of open market  purchases of labor shares.  The Company's equity interest
in SPCC at December  31,  1997 and 1996 was 54.1% and at  December  31, 1995 was
54.0%,  and its voting interest was 63.1%,  62.6% and 61.0%,  respectively.  The
Company's  beneficial  economic  interest in the  operations of SPCC, net of the
remaining  labor  shares  interest,  was 53.0%,  52.6% and 52.3% at December 31,
1997, 1996 and 1995, respectively.


Sales:  Sales were $2.7 billion in 1997 and 1996,  and $3.2 billion in 1995.  In
1997,  sales reflect higher  copper,  specialty  chemicals and aggregates  sales
volumes offset by the lower metal prices in 1997 compared to 1996 and lower lead
and silver sales volumes due to the  termination  of refining  operations at the
Omaha,  Nebraska refinery in June 1996. The decrease in 1996 sales compared with
1995 was principally  attributable to a 29 cent reduction in the average selling
price of copper  partially  offset by higher  copper sales  volumes.  The higher
copper sales volume in 1996 was mainly due to a full year of sales of production
from SPCC's SX/EW plant and higher copper  concentrate sales partially offset by
lower sales due to the termination of refining operations at the Omaha, Nebraska
refinery in June 1996.

Price/volume data:
<TABLE>
<CAPTION>
    Average Metal Prices                                             1997               1996               1995
    --------------------                                             ----               ----               ----
    <S>                                                   <C>                <C>                <C>
    Copper (per pound - COMEX)                                    $  1.04            $  1.06            $  1.35
    Copper (per pound - LME)                                         1.03               1.04               1.33
    Lead (per pound - LME)                                           0.28               0.35               0.29
    Silver (per ounce - Handy & Harman)                              4.89               5.18               5.19
    Zinc (per pound - LME) (1)                                       0.60               0.47               0.47
    Molybdenum (per pound - Metals
                   Week Dealer Oxide)(1)                             4.18               3.61               7.42
</TABLE>


<PAGE>


A35
<TABLE>
<CAPTION>
    Metal Sales Volume                                               1997               1996               1995
    ------------------                                               ----               ----               ----
    <S>                                                   <C>                <C>                <C>
    Copper     (000s pounds)
      Asarco                                                     1,113,300          1,103,700          1,006,800
      SPCC                                                         744,000            694,300            646,600
      Consolidated                                               1,857,300          1,798,000          1,653,400

      Asarco Beneficial Interest (2)(3)                          1,502,800          1,467,500          1,332,600

    Lead       (000s pounds)
      Asarco                                                       255,000            295,800            394,000

    Silver     (000s ounces)
      Asarco                                                        19,883             26,955             38,086
      SPCC                                                           3,086              3,110              3,761
      Consolidated                                                  22,969             30,065             41,847

      Asarco Beneficial Interest (2)                                21,511             28,584             39,987

    Zinc       (000s pounds) (1)
      Asarco                                                       145,970            200,456            240,230

    Molybdenum (000s pounds) (1)
      Asarco                                                         5,346              6,470              5,685
      SPCC                                                           9,398              8,813              8,402
      Consolidated                                                  14,744             15,283             14,087

      Asarco Beneficial Interest (2)                                10,307             11,088              9,896
</TABLE>
         (1)      The Company's  zinc and  molybdenum  production is sold in the
                  form of  concentrates.  Volume  represents  pounds of zinc and
                  molybdenum metal contained in those concentrates.
                 
         (2)      SPCC  presented at 100%.  Asarco  consolidated  SPCC effective
                  January  1, 1995.  Asarco's  beneficial  interest  in SPCC was
                  53.0% at December  31,  1997,  52.6% at December  31, 1996 and
                  52.3% at December 31, 1995.

         (3)      Effective  February,  1996,  Asarco's  beneficial  interest in
                  Silver Bell L.L.C. is 75%.

Substantially  all of the Company's  copper and most of its lead  production are
sold as  refined  metal  under  annual  contracts.  To the extent not sold under
annual  contracts,  production  may be sold on a spot sale basis.  The Company's
zinc  production and the balance of its lead  production are sold in the form of
concentrates and bullion under contracts of one to three years duration.  Silver
and  gold  are  sold  under  monthly  contracts  or in spot  sales.  Revenue  is
recognized  primarily  in the month  product is shipped  to  customers  based on
prices as provided in sales contracts.  Certain subsidiaries,  principally SPCC,
recognize  revenue  based  on  prices  prevailing  at the  time of  shipment  to
customers  with  final  pricing  generally  occurring  within  three  months  of
shipment.  Revenues  with  respect to these sales are  adjusted in the period of
settlement  to reflect  final  pricing  and in periods  prior to  settlement  to
reflect  any  decline in market  prices  which may occur  between  shipment  and
settlement.


Hedging and Trading  Activities:  The Company may use derivative  instruments to
manage its exposure to market risk from changes in  commodity  prices,  interest
rates or the value of its assets and liabilities.  Derivative  instruments which
are  designated  as  hedges  must be  deemed  effective  at  reducing  the  risk
associated  with the exposure  being hedged and must be designated as a hedge at
the inception of the contract.


<PAGE>


A36

Hedging:  Depending on the market  fundamentals of a metal and other conditions,
the Company may purchase put options or create  synthetic  put options to reduce
or eliminate the risk of metal price declines below the option strike price on a
portion of its  anticipated  future  production.  Put options  purchased  by the
Company  establish a minimum sales price for the production  covered by such put
options  and permit the  Company to  participate  in price  increases  above the
option price.  The cost of options is amortized on a straight-line  basis during
the  period  in  which  the  options  are  exercisable.  Depending  upon  market
conditions, the Company may either sell options it holds or exercise the options
at  maturity.  Gains or losses  from the sale or  exercise  of  options,  net of
unamortized  acquisition  costs,  are  recognized  in the  period  in which  the
underlying  production is sold. The Company also uses futures contracts to hedge
the  effect of price  changes  on a portion  of the  metals it sells.  Gains and
losses on futures  contracts  are  reported  as a  component  of the  underlying
transaction.  Earnings include gains from option sales and exercises,  primarily
related to copper, of $25.8 million in 1997 and $27.1 million in 1996 and losses
of $5.6 million in 1995.

At December 31, 1997, the Company held the following copper put options:
(in millions, except per pound amounts)
<TABLE>
<CAPTION>
                                                                                                 Percent of
                                                     Strike Price Per     Unamortized Cost        Estimated
                        Pounds         Period              Pound                                 Production
                        ------         ------              -----                                 ----------
         <S>         <C>           <C>              <C>                  <C>                  <C>
         Asarco            44.0           1/98-3/98          $0.95               $0.7               26%

         SPCC              44.0           1/98-3/98          $0.95               $0.6               27%

</TABLE>
Trading: As part of its price protection program,  the Company may use synthetic
put  options  which  consist  of a call  option  and a forward  sale on the same
quantity of metal.  Price protection  programs  utilizing  synthetic puts may be
implemented  in steps.  In cases where the step approach is used,  the Company's
objective is to take advantage of current market conditions to minimize its cost
while at the same time limiting the Company's  exposure should market conditions
change  before  the  synthetic  put  is  completed.  Until  a  synthetic  put is
completed,  any calls not matched  with a forward sale are marked to market with
the gain or loss, if any,  recorded in earnings.  Earnings include gains of $0.5
million in 1997 from the sale or exercise of call options. Earnings also include
gains of $3.6 million in 1997 and losses of $0.1 million in 1996 from unrealized
mark to market  adjustments.  At December 31, 1997, the Company held copper call
options  covering an aggregate of 140.3 million  pounds of copper,  a portion of
which are  exercisable  in each quarter of 1998 at an average strike price of 97
cents. The carrying value of these calls at December 31, 1997 was $0.4 million.

Gains and Losses:  The recognized  pre-tax gains (losses) of the Company's metal
hedging and trading activities, were as follows:
<TABLE>
<CAPTION>
   For the years ended December 31,                           1997               1996                1995
                                                              ----               ----                ----
   (in millions)
   <S>                                                  <C>                <C>                <C>
   Metal
   -----
   Copper                                                      $ 28.7           $ 26.9             $ (5.7)
   Zinc                                                           1.2             (0.1)              (0.1)
   Silver                                                           -              -                  0.5
   Lead                                                             -              0.2               (0.3)
                                                        ================== ================== ===================
     Net Gain (Loss)                                           $ 29.9           $ 27.0             $ (5.6)
                                                        ================== ================== ===================
</TABLE>


<PAGE>


A37

Interest Rate Swaps: The Company may enter into interest rate swap agreements to
limit the  effect of  increases  in the rates on any  floating  rate  debt.  The
differential is recorded in interest expense.  In 1995, the Company entered into
three swap agreements,  expiring 1998 to 2000, with an aggregate notional amount
of $115.0 million.  The effect of these agreements is to limit the interest rate
exposure to 6.6% on $100  million of the  Company's  revolving  credit loans and
6.8% on its $15 million, 5 year term loan. As a result of these swap agreements,
interest expense was increased by $0.6 million in 1997, $0.7 million in 1996 and
$0.2 million in 1995.

Cost of Products and Services: Cost of products and services was $2.1 billion in
1997 and 1996 and $2.3 billion in 1995.  In 1997,  cost of products and services
reflects higher sales volumes of copper produced from purchased  concentrates at
SPCC,  higher  power  costs  at  SPCC  and  increased  specialty  chemicals  and
aggregates  sales volumes  offset by lower  purchases of refined  copper to meet
customer  commitments  and  lower  lead  and  silver  sales  volumes  due to the
termination of refining operations at the Company's Omaha,  Nebraska refinery in
June 1996.  Cost of products and services was reduced by $16.7  million in 1997,
$5.3  million in 1996 and $0.7 million in 1995 as a result of  liquidation  of a
portion of the Company's LIFO inventories.

As a  result  of  its  $1  billion  expansion  program,  SPCC's  electric  power
requirements   will  increase   significantly   requiring  the  construction  of
substantial  additional generating capacity. In the second quarter of 1997, SPCC
sold its existing  power plant to an independent  power  company.  In connection
with the sale, a power purchase  agreement was also completed,  under which SPCC
will  purchase its power needs for the next twenty years.  Under the  agreement,
SPCC's cost of power will increase somewhat from its 1996 level,  however,  SPCC
will avoid the significant  capital  expenditures that would be required to meet
the needs of expanded  operations and its power costs will be favorably affected
by benefits available to independent power companies in Peru.

The decrease in cost of sales in 1996  compared  with 1995 was mainly due to the
termination of refining operations at the Company's Omaha,  Nebraska refinery in
June 1996. In addition,  higher mine production at SPCC in 1996 reduced its need
to supplement its production with higher cost outside concentrate purchases.

Other Expenses:  Depreciation  and depletion  expense was $130.8 million in 1997
compared with $118.6 million in 1996 and $118.8 million in 1995. The increase in
1997 over 1996  reflects a full year's  depreciation  of the sulfuric acid plant
and additional  assets  related to the Cuajone and Toquepala  mines in Peru, and
the Silver Bell mine in Arizona,  which  commenced  its new SX/EW  operations in
July 1997. In 1996, a full year of  depreciation  of the SX/EW plant in Peru was
offset by lower depreciation from domestic operations.

The increase in research and  exploration  costs year over year is primarily due
to higher exploration  spending on prospects located in French Guiana,  Peru and
Chile.

At December 31, 1996,  the Company  applied the American  Institute of Certified
Public  Accountants:  Statement  of Position  96-1,  "Environmental  Remediation
Liabilities" (SOP 96-1), which provides  authoritative  accounting guidance with
regard to  recognizing,  measuring  and  disclosing  environmental  liabilities.
Environmental  and other closed plant  charges were $20.2 million in 1997 ($50.4
million in charges  offset by $30.2 million in  anticipated  insurance and other
recoveries), and $15.0 million in 1996 ($67.7 million in charges offset by $52.7
million in  insurance  and other  recoveries)  including  $10.0  million for the
effect of the application of SOP 96-1.



<PAGE>


A38

Nonoperating Items: Interest expense was $74.2 million in 1997, $76.4 million in
1996 and $92.0  million in 1995.  The  decrease  year over year  reflects  lower
average  borrowings  due to the use of proceeds  from the sale of the  Company's
interest  in MIM in the  second  quarter of 1996 and the sale of shares of Grupo
Mexico in the second and the third quarters of 1997.

The  increase in other income in 1997 from 1996  reflects a dividend  from Grupo
Mexico and higher equity  earnings,  principally  from Silver Valley  Resources.
Included in other income are dividends from MIM in 1996 and 1995.

Taxes on Income:  The  Company's  effective tax rate is lower than the statutory
rate  primarily  because of the  percentage  depletion  and  dividends  received
deductions which are permitted for U.S. tax purposes. The effective tax rate was
lower in 1997 compared with 1996  principally due to tax incentives  approved by
the Government of Peru in connection  with the expansion of SPCC's Cuajone mine.
The  Company's  tax  expense  includes  substantial  foreign  taxes,   primarily
attributable to SPCC's Peruvian  Branch.  Subject to certain  limitations  these
taxes have been applied as credits to reduce U.S.  federal  income tax otherwise
due.

The Company has recorded a $119.0  million  benefit for tax net  operating  loss
carryforwards   at  December  31,  1997.   The  Company   believes   that  these
carryforwards,  which  expire in years 2008  through  2010,  will reduce  future
federal  income taxes  otherwise  payable.  The  effective tax rate was slightly
higher  in 1996  compared  with  1995  principally  due to the  decrease  in the
percentage depletion deduction as a result of lower mine earnings.

Cash Flows - Operating  Activities:  Net cash provided from operating activities
was  $321.3  million in 1997  compared  with  $267.3  million in 1996 and $489.1
million in 1995.  The  increase in 1997 from 1996 is  primarily a result of cash
provided from  operating  assets and  liabilities  which  reflects a decrease in
accounts  receivable due to the decline in copper prices during the final months
of  1997  and  proceeds   received  from   insurance   settlements   related  to
environmental liabilities.

Cash from 1996 operating activities as compared to 1995 reflected lower earnings
due to lower copper prices. Other cash used for operating assets and liabilities
included  payments by SPCC in 1996 of income  taxes and  workers'  participation
accrued in 1995. These uses of cash were partially  offset by proceeds  received
from insurance settlements related to environmental  matters. Cash provided from
operating  assets  and  liabilities  in 1995 is  principally  a result  of lower
inventory levels and accrual of higher income taxes in 1995.

Cash Flows - Investing  Activities:  Net cash used for investing  activities was
$167.3 million in 1997, compared with cash provided of $93.8 million in 1996 and
cash used of $296.8  million in 1995.  The increase in capital  expenditures  in
1997 from 1996  reflects  the  expansion  project  at the  Cuajone  mine.  Other
investing  activities in 1997 included  proceeds of $322.5 million from the sale
of shares of Grupo Mexico  partially  offset by the  investment  of the proceeds
from SPCC financing activities in held-to-maturity investments.

The decrease in capital  expenditures  in 1996 from 1995 reflects the completion
of  construction  of  SPCC's  SX/EW and  sulfuric  acid  plants  in 1995.  Other
investing  activities in 1996 included the sale of MIM stock,  the sale of a 25%
interest in the Company's Silver Bell project, and proceeds from the maturity of
held-to-maturity investments, primarily at SPCC.



<PAGE>


A39

Investing  activities  in 1995  included  the  purchase of an  additional  10.7%
interest in SPCC, the effect of consolidating  SPCC's opening cash balance as of
January 1, 1995,  and the release of restricted  cash. The release of restricted
cash  represents  the  withdrawal  by SPCC of funds  deposited  with the Central
Reserve  Bank of Peru under an  agreement  pursuant  to which SPCC agreed to use
such funds in an investment program over five years from 1992 through 1996.

The  Company's  planned  capital  expenditures  in  1998  are  estimated  to  be
approximately $367 million. Included in 1998 spending are expenditures related
to the expansion of SPCC's Cuajone mine.

Liquidity and Capital  Resources:  At December 31, 1997, the Company's debt as a
percentage of total  capitalization  (the total of debt,  minority interests and
equity) was 28.3%,  compared  with 26.7% at the end of 1996 and 34.1% at the end
of 1995.  Consolidated debt at the end of 1997, including the debt of SPCC, none
of which is  guaranteed  by Asarco,  was $878.9  million,  compared  with $814.3
million in 1996 and $1,121.9 million in 1995. Additional  indebtedness permitted
under the terms of the Company's most  restrictive  covenants was $868.6 million
at December  31,  1997.  In addition,  under the most  restrictive  covenants of
SPCC's loan agreements,  SPCC would have been permitted additional  indebtedness
of $849.7 million at December 31, 1997.

The increase in debt in 1997  reflects  the private  placement by SPCC of $150.0
million of Secured Export Notes in the United States and  international  markets
and the sale by SPCC of $50.0  million of 8.25% bonds due 2004 to  investors  in
Peru,  offset by the  portion of the  proceeds  from the sale of shares of Grupo
Mexico not used to purchase  Company stock.  The secured export notes which were
issued with an average maturity of seven years and a final maturity in 2007 were
priced at par with a coupon rate of 7.9%.

The Company has two revolving credit  agreements that permit borrowings of up to
$850 million.  One facility for $350 million expires in April 1999 and the other
facility for $500 million  expires in May 2002.  The  borrowings  bear  interest
based on LIBOR,  the CD rate or the prime rate. At December 31, 1997, there were
no outstanding borrowings under either agreement.

In the second  quarter of 1997,  SPCC  entered  into a $600  million  seven-year
credit  agreement  with a group of  international  financial  institutions.  The
agreement  consists of a $400  million  term loan  facility  and a $200  million
revolving credit facility. The interest rate during the first three years of the
agreement on any loans  outstanding is LIBOR plus 1.75% per annum for term loans
and LIBOR plus 2.00% for revolving  credit loans.  No amounts have been drawn by
SPCC under this  agreement as of December 31, 1997.  SPCC's loan  agreements are
not  guaranteed by Asarco.  The funds raised in 1997,  the loan facility of $600
million and internal  funds are expected to provide the Company with  sufficient
resources for the $1 billion expansion program at SPCC.

Some of SPCC's financing agreements contain covenants which limit the payment of
dividends to  stockholders.  Under the most restrictive  covenant,  SPCC may pay
dividends to stockholders  equal to 50% of its net income for any fiscal quarter
as long as such  dividends  are  paid  by June 30 of the  following  year.  As a
result,  at December 31, 1997,  $572.8 million of SPCC's net assets  included in
the  Company's  Consolidated  net  assets  are  unavailable  for the  payment of
dividends.

Financing  activities in 1997 also included the repurchase of 3.3 million shares
of the Company's stock for  approximately  $100 million which reduced the number
of outstanding shares by approximately 7.7% to slightly under 40 million shares.



<PAGE>


A40

The Company has on file with the Securities and Exchange  Commission a universal
shelf registration  statement covering the future issuance of up to $300 million
in equity and debt  securities.  The  Company  has no  immediate  plans to issue
securities  and the  registration  is intended  to provide the Company  with the
flexibility to access the capital markets when appropriate.

In the  second  quarter  of  1995,  the  Company  sold  $150  million  of 8 1/2%
debentures  due May 1, 2025.  The Company used the  proceeds to repay  revolving
credit bank borrowings.  Borrowings  under the revolving credit  agreements were
used to fund  the  purchase  of an  additional  10.7%  interest  in SPCC and for
general corporate purposes.

In January 1998,  the Company  closed on a refinancing  of three tax exempt debt
issues  and called for the  redemption  of the  existing  bonds.  The  aggregate
principal  amount of the  refinancing  was $132.8  million.  The  refinancing is
expected to reduce the Company's  annual  interest costs by  approximately  $3.3
million.

The Company's  cash and  marketable  securities at December 31, 1997 were $415.9
million  including $331.1 million held by SPCC. The Company expects that it will
meet its cash  requirements in 1998 and beyond from internally  generated funds,
cash on hand and from borrowings under its revolving  credit  agreements or from
additional debt or equity financing.

Dividends and Capital Stock:  The Company paid dividends to common  stockholders
of $33.6 million, or 80 cents per share, in 1997, $34.2 million, or 80 cents per
share,  in 1996 and $29.6 million,  or 70 cents per share, in 1995. In addition,
SPCC paid  dividends  of $49.4  million to  minority  interests  in 1997,  $58.3
million in 1996 and $33.8 million in 1995.  At the end of 1997,  the Company had
39,663,000 common shares issued and outstanding, compared with 42,824,000 at the
end of 1996 and 42,571,000 at the end of 1995.

Closed  Facilities  and  Environmental  Matters:  Reserves for closed plants and
environmental  matters totaled $122.1 million and $128.3 million at December 31,
1997 and 1996, respectively.  The Company anticipates that expenditures relating
to  these  reserves  will  be  made  over  the  next  several  years.  Net  cash
expenditures against these reserves were $63.1 million in 1997, $54.1 million in
1996 and $95.8 million in 1995.

On January 23, 1998,  the Company,  the United States  Department of Justice and
EPA announced the signing of a multi-region voluntary agreement covering a broad
range of environmental  issues affecting the Company's United States operations.
The two  consent  decrees  containing  the  agreement  have been filed in United
States District Courts in Phoenix,  Arizona and Helena,  Montana and are subject
to approval by both courts following public comment.  Pursuant to the agreement,
which  resolves  numerous  issues  that  were  being  negotiated  and  litigated
separately,  the Company will undertake capital construction  projects amounting
to $61.5 million, to be spent over six years, and pay penalties of $6.4 million.

In 1995, the Company  decided not to make a $40 million  investment  which would
have been  required  to meet  State and EPA  environmental  requirements  at its
Omaha,  Nebraska  refinery.  As a result,  the Company  terminated lead refining
operations at Omaha in June 1996. The special charges taken in 1995 included the
write-off of the  remaining  book value of the assets at Omaha,  a provision for
severance and legal expenses,  expected  cleanup and demolition costs associated
with the  termination of lead refining  operations and the write-down of certain
in-process inventory to net realizable value.



<PAGE>


A41

Impact of New  Accounting  Standard:  In June  1997,  the  Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 130,
"Reporting  Comprehensive  Income." This statement which is effective for fiscal
years  beginning  after  December 15, 1997  requires the Company to make certain
disclosures but has no impact on the Company's financial statements.

Other:  The Company has implemented a program to identify and resolve the effect
of Year 2000  issues on the  integrity  and  reliability  of its  financial  and
operational  systems.  In addition,  the Company is also  communicating with its
principal customers,  suppliers and service providers to ensure Year 2000 issues
will not have an adverse impact on the Company. The costs of achieving Year 2000
compliance are not expected to have a material impact on the Company's business,
operations or its financial condition.


Cautionary  Statement:  Forward-looking  statements  in this report and in other
Company statements include statements  regarding expected  commencement dates of
mining or metal  production  operations,  projected  quantities  of future metal
production,  anticipated  production rates,  operating  efficiencies,  costs and
expenditures as well as projected  demand or supply for the Company's  products.
Actual  results could differ  materially  depending  upon factors  including the
availability  of  materials,   equipment,  required  permits  or  approvals  and
financing, the occurrence of unusual weather or operating conditions, lower than
expected  ore  grades,  the  failure of  equipment  or  processes  to operate in
accordance with specifications,  labor relations, environmental risks as well as
political  and economic  risk  associated  with foreign  operations.  Results of
operations are directly  affected by metals prices on commodity  exchanges which
can be volatile.



<PAGE>


A42

Item 8 - Financial Statements and Supplementary Data

                                                       ASARCO Incorporated
                                                        and Subsidiaries
                                            CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
<S>                                                         <C>                  <C>                  <C>
For the years ended December 31,                                      1997                1996                 1995
                                                                      ----                ----                 ----

Sales of products and services                                    $ 2,721,048          $ 2,716,784          $ 3,197,753
                                                            -------------------- -------------------- --------------------

Operating costs and expenses:
 Cost of products and services                                      2,114,554            2,109,395            2,313,194
 Selling, administrative and other                                    137,657              132,779              130,871
 Depreciation and depletion                                           130,802              118,569              118,827
 Research and exploration                                              43,186               37,609               25,881
 Provision for asset impairments and plant closures
                                                                            -                    -               45,564
 Environmental and other closed plant charges, net of
    recoveries                                                         20,160               14,993               76,274
                                                            -------------------- -------------------- --------------------
Total operating costs and expenses                                  2,446,359            2,413,345            2,710,611
                                                            -------------------- -------------------- --------------------

Operating income                                                      274,689              303,439              487,142
Interest expense                                                      (74,247)             (76,442)             (91,954)
Other income                                                           33,845               29,084               26,424
Gain on sale of investments and other interests
                                                                       73,281               71,158                    -
                                                            -------------------- -------------------- --------------------
Earnings before taxes on income and minority interests
                                                                      307,568              327,239              421,612
Taxes on income                                                        73,571              100,572              122,916
                                                            -------------------- -------------------- --------------------

Earnings before minority interests                                    233,997              226,667              298,696
Minority interests in net earnings of consolidated
  subsidiaries                                                        (90,605)             (88,331)            (129,543)
                                                            ==================== ==================== ====================
Net earnings                                                      $   143,392          $   138,336          $   169,153
                                                            ==================== ==================== ====================

Per share amounts:
  Net earnings:
   Basic                                                          $      3.42          $      3.24          $      4.00
   Diluted                                                        $      3.42          $      3.23          $      3.98

  Dividends to common stockholders                                $      0.80          $      0.80          $      0.70

  Weighted average common shares outstanding:
   Basic                                                               41,903               42,711               42,326
   Diluted                                                             41,976               42,769               42,458

</TABLE>
The accompanying notes are an integral part of these financial statements.



<PAGE>



A43

                                                       ASARCO Incorporated
                                                        and Subsidiaries
                                                   CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Dollars in thousands)
At December 31,                                                                            1997                 1996
                                                                                           ----                 ----
<S>                                                                           <C>                  <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                          $   210,559          $   192,408
  Marketable securities                                                                  205,317                1,039
  Accounts receivable:
     Trade, net of allowance for doubtful accounts of $8,121 and $8,129                  375,904              462,141
   Other                                                                                  71,062               78,419
  Inventories                                                                            362,119              383,281
  Other assets                                                                            74,967               67,856
                                                                              -------------------------------------------
     Total current assets                                                              1,299,928            1,185,144
                                                                              -------------------------------------------
Investments:
  Available-for-sale and other cost                                                      126,843              442,707
  Equity                                                                                  61,337               59,787
                                                                              -------------------------------------------
     Total investments                                                                   188,180              502,494
                                                                              -------------------------------------------

Property, net                                                                          2,418,810            2,274,088
Other assets including intangibles, net                                                  203,484              158,623
                                                                              -------------------------------------------
        Total Assets                                                                 $ 4,110,402          $ 4,120,349
                                                                              ===========================================
LIABILITIES
Current liabilities:
  Bank loans                                                                         $       204          $    15,913
  Current portion of long-term debt                                                       28,712               39,815
  Accounts payable:
     Trade                                                                               289,234              379,406
     Other                                                                                63,605               57,198
  Salaries and wages                                                                      35,788               32,427
  Taxes on income                                                                         62,565               57,695
  Reserve for closed plant and environmental matters                                      43,238               38,128
  Other                                                                                   50,131               51,975
                                                                              -------------------------------------------
     Total current liabilities                                                           573,477              672,557
                                                                              -------------------------------------------

Long-term debt                                                                           849,991              758,583
Deferred income taxes                                                                    118,289              173,245
Reserve for closed plant and environmental matters                                        78,827               90,205
Postretirement benefit obligation                                                        104,491               99,945
Other liabilities and reserves                                                           157,543               93,163
                                                                              -------------------------------------------
     Total non-current liabilities                                                     1,309,141            1,215,141
                                                                              -------------------------------------------

Contingencies

MINORITY INTERESTS                                                                       533,911              495,706
                                                                              -------------------------------------------

PREFERRED STOCKHOLDERS' EQUITY
Authorized - 10,000,000 shares without par value; none issued                                 -                    -
COMMON STOCKHOLDERS' EQUITY
Authorized - 80,000,000 common shares without par value: Issued shares: 1997
    and 1996 - 45,039,878                                                                679,991              679,991
Unrealized gain on securities reported at fair value, net of tax                          11,654               56,311
Retained earnings                                                                      1,159,799            1,066,191
Treasury stock (at cost) - common shares 1997 - 5,377,339; 1996 - 2,216,015             (157,571)             (65,548)
                                                                              -------------------------------------------
     Total Common Stockholders' Equity                                                 1,693,873            1,736,945
                                                                              ===========================================
        Total Liabilities, Minority Interests, Preferred and Common
              Stockholders' Equity                                                   $ 4,110,402          $ 4,120,349
                                                                              ===========================================

</TABLE>
The accompanying notes are an integral part of these financial statements.


<PAGE>



A44

                                                     ASARCO Incorporated
                                                      and Subsidiaries
                                          CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)

For the years ended December 31,                                                 1997               1996              1995
                                                                                 ----               ----              ----

<S>                                                                        <C>                <C>               <C>
OPERATING ACTIVITIES
Net earnings                                                                     $ 143,392         $ 138,336          $ 169,153
Adjustments  to  reconcile  net  earnings to net cash  provided  from (used for)
  operating activities:
  Depreciation and depletion                                                       130,802           118,569            118,827
  Provision (benefit) for deferred income taxes                                    (12,074)           26,302                 97
  Treasury stock used for employee benefits                                          3,272             5,707              4,775
  Undistributed equity earnings                                                     (3,934)             (438)              (460)
  Net (gain) loss on sale of investments and property                              (69,671)          (72,321)             4,124
  Provision for asset impairment                                                         -                 -             34,864
  Increase (decrease) in reserves for closed plant
    and environmental matters                                                       (6,268)           12,807             (6,878)
  Minority interests                                                                90,605            88,331            129,543
  Cashprovided  from (used for)  operating  assets and  liabilities,  net of the
      consolidation of SPCC:
      Accounts receivable                                                           88,416           (27,200)           (36,867)
      Inventories                                                                   19,376           (23,742)            48,842
      Accounts payable and accrued liabilities                                     (87,981)           49,193             19,671
      Other operating assets and liabilities                                        27,527           (41,527)             8,915
      Foreign currency transaction (gains) losses                                   (2,196)           (6,739)            (5,536)
                                                                           ------------------ ----------------- ------------------
Net cash provided from operating activities                                        321,266           267,278            489,070
                                                                           ------------------ ----------------- ------------------

INVESTING ACTIVITIES
Capital expenditures                                                              (322,436)         (286,474)          (337,831)
Sale of property                                                                    47,426            20,109              9,966
Purchase of investments                                                            (12,650)           (5,800)            (4,513)
Sale of available-for-sale securities                                              417,831           371,058             20,953
Purchase of available-for-sale securities                                          (93,945)          (46,513)           (23,203)
Proceeds from held-to-maturity investments                                           1,036            42,455             76,877
Purchase of held-to-maturity investments                                          (204,590)           (1,002)           (76,375)
Release of restricted cash                                                               -                 -             60,450
Acquisition of additional interest in SPCC                                               -                 -           (116,444)
Consolidation of the opening cash balance of SPCC                                        -                 -             93,348
                                                                           ------------------ ----------------- ------------------
Net cash (used for) provided from investing activities                            (167,328)           93,833           (296,772)
                                                                           ------------------ ----------------- ------------------

FINANCING ACTIVITIES
Debt incurred                                                                      283,024            53,303            234,449
Debt repaid                                                                       (218,184)         (360,847)          (162,892)
Escrow deposits on long-term loans                                                 (15,364)          (10,064)            10,809
Net treasury stock transactions                                                    (99,561)            1,146              6,754
Purchase of minority interest                                                       (7,272)           (5,280)                 -
Distributions to minority interests                                                (49,417)          (58,295)           (33,828)
Contributions from minority interests                                                1,863             4,000                  -
Dividends paid to common stockholders                                              (33,604)          (34,174)           (29,645)
                                                                           ------------------ ----------------- ------------------
Net cash (used for) provided from financing activities                            (138,515)         (410,211)            25,647
Effect of exchange rate changes on cash                                              2,728             3,108              2,134
                                                                           ------------------ ----------------- ------------------
Increase (decrease) in cash and cash equivalents                                    18,151           (45,992)           220,079
Cash and cash equivalents at beginning of year                                     192,408           238,400             18,321
                                                                           ================== ================= ==================
Cash and cash equivalents at end of year                                         $ 210,559         $ 192,408          $ 238,400
                                                                           ================== ================= ==================

</TABLE>
The accompanying notes are an integral part of these financial statements.


<PAGE>



A45

                                                    ASARCO Incorporated
                                                     and Subsidiaries
                                           CONSOLIDATED STATEMENT OF CHANGES IN
                                                COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands)
<S>                                                            <C>                <C>               <C>

For the years ended December 31,                                       1997              1996                1995

COMMON STOCK
Balance at beginning and end of year
  45,039,878 shares                                                  $  679,991        $  679,991          $  679,991
                                                               ------------------ ----------------- -------------------

UNREALIZED GAIN ON SECURITIES REPORTED
  AT FAIR VALUE
Balance at beginning of year                                             56,311           131,600              91,627
Net increase (decrease) in fair value                                   (44,657)          (75,289)             39,973
                                                               ------------------ ----------------- -------------------
Balance at end of year                                                   11,654            56,311             131,600
                                                               ------------------ ----------------- -------------------

RETAINED EARNINGS
Balance at beginning of year                                          1,066,191           976,107             853,169
Net earnings                                                            143,392           138,336             169,153
Dividends paid to common stockholders                                   (33,604)          (34,174)            (29,645)
Treasury stock issued at less than cost                                  (4,266)           (7,813)            (15,656)
Foreign currency adjustment                                             (11,914)           (6,265)               (914)
                                                               ------------------ ----------------- -------------------
Balance at end of year                                                1,159,799         1,066,191             976,107
                                                               ------------------ ----------------- -------------------

TREASURY STOCK
Balance at beginning of year                                            (65,548)          (80,214)           (107,400)
Purchased                                                              (101,366)             (568)             (1,130)
Used for corporate purposes                                               9,343            15,234              28,316
                                                               ------------------ ----------------- -------------------
Balance at end of year                                                 (157,571)          (65,548)            (80,214)
                                                               ------------------ ----------------- -------------------
  1997 - 5,377,339 shares
  1996 - 2,216,015 shares
  1995 - 2,469,125 shares

TOTAL COMMON STOCKHOLDERS' EQUITY                                    $1,693,873        $1,736,945          $1,707,484
                                                               ================== ================= ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.




<PAGE>


A46
                   ASARCO Incorporated and Subsidiaries

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

Principles of  Consolidation:  The consolidated  financial  statements of Asarco
Incorporated   and  Subsidiaries   include  all  significant   wholly-owned  and
majority-owned subsidiaries.  Investments over which the Company has significant
influence  but does not have  voting  control  are  accounted  for by the equity
method.  Certain  prior year  amounts have been  reclassified  to conform to the
current year's presentation.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Cash Equivalents:  Cash equivalents include all highly liquid investments with a
maturity of three months or less, when purchased.

Marketable   Securities:   Marketable   securities   include  short-term  liquid
investments with a maturity of more than three months,  when purchased,  and are
carried at cost, which approximates market.

Inventories:  Company-owned metals processed by domestic smelters and refineries
are valued at the lower of last-in,  first-out  (LIFO) cost or market.  Southern
Peru Copper  Corporation  (SPCC)  in-process and refined metal  inventories  are
valued at the lower of average cost or market.  All other inventories are valued
at the lower of first-in, first-out (FIFO) or average cost or market.

Property:  Assets are valued at cost or net realizable value. In accordance with
SFAS No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
Long-Lived  Assets To Be Disposed Of," the Company  reviews  long-lived  assets,
certain  identifiable  intangibles  and  goodwill  related  to those  assets for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying  amount of the assets may not be  recoverable.  The impairment  loss on
such assets, as well as long-lived assets and certain  identifiable  intangibles
to be disposed of, is measured as the amount by which the carrying  value of the
assets  exceeds  the  fair  value  of  the  assets  (less  disposal   costs,  if
applicable).

The Company evaluates the carrying value of assets based on undiscounted  future
cash flows and for its metals segment also considers expected metal prices based
on historical metal prices and price trends.

Betterments, renewals, costs of bringing new mineral properties into production,
and the cost of major development  programs at existing mines are capitalized as
mineral land. Maintenance,  repairs, normal development costs at existing mines,
and gains or losses on assets  retired  or sold are  reflected  in  earnings  as
incurred.  Plant  assets are  depreciated  over their  estimated  useful  lives,
generally by the units-of-production  method. Depreciation and depletion of mine
assets are computed generally by the units-of-production method using proven and
probable ore reserves. SPCC computes depreciation on its buildings and equipment
using the  straight-line  method over estimated lives from 5 to 40 years, or the
estimated life of the mine, if shorter.

Goodwill  is  amortized  over the  mine  life up to a  maximum  of 40 years on a
units-of-production  basis  or up to 40  years  on a  straight-line  basis,  for
non-mining assets.


<PAGE>


A47

Revenue  Recognition:  Substantially all of the Company's copper and most of its
lead production are sold as refined metal under annual contracts.  To the extent
not sold under annual  contracts,  production  may be sold on a spot sale basis.
The Company's zinc production and the balance of its lead production are sold in
the form of  concentrates  and  bullion  under  contracts  of one to three years
duration.  Silver and gold are sold under  monthly  contracts  or in spot sales.
Revenue is  recognized  primarily  in the month  product is shipped to customers
based  on  prices  as  provided  in  sales  contracts.   Certain   subsidiaries,
principally  SPCC,  recognize  revenue based on prices prevailing at the time of
shipment to customers with final pricing generally occurring within three months
of shipment.  Revenues with respect to these sales are adjusted in the period of
settlement  to reflect  final  pricing  and in periods  prior to  settlement  to
reflect  any  decline in market  prices  which may occur  between  shipment  and
settlement.

Financial Instruments:  The Company may use derivative instruments to manage its
exposure to market risk from changes in commodity prices,  interest rates or the
value of its assets and liabilities. Derivative instruments which are designated
as hedges must be deemed  effective  at reducing  the risk  associated  with the
exposure  being hedged and must be designated as a hedge at the inception of the
contract.

Depending  on the  market  fundamentals  of a metal  and other  conditions,  the
Company may  purchase put options or create  synthetic  put options to reduce or
eliminate  the risk of metal price  declines  below the option strike price on a
portion of its anticipated future  production.  The cost of options is amortized
on a straight-line basis during the period in which the options are exercisable.
Gains or  losses  from the  sale or  exercise  of  options,  net of  unamortized
acquisition  costs, are recognized in the period in which the underlying  hedged
production is sold. The Company also uses futures  contracts to hedge the effect
of price  changes  on a portion  of the  metals it  sells.  Gains and  losses on
futures contracts are reported as a component of the underlying transaction.

As part of its price  protection  program,  the  Company may use  synthetic  put
options  which  consist of a call option and a forward sale on the same quantity
of metal.  Each  component of a synthetic put option may be purchased or sold at
different  times.  In those cases where the forward sale  component has not been
entered  into or has been  offset,  call  options are  accounted  for as trading
activities and the carrying values of such call options are marked to market and
any related adjustments are recorded in net earnings.

The Company may enter into interest rate swap  agreements to limit the effect of
increases in the interest rates on any floating rate debt. The  differential  is
accrued as interest rates change and is recorded in interest expense.

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

Environmental  Remediation Costs: The Company provides for costs associated with
environmental   remediation   obligations  when  such  costs  are  probable  and
reasonably  estimable and generally not later than completion of the remediation
feasibility  study.  Such accruals are adjusted as new  information  develops or
circumstances  change  and  are  not  discounted.  Recoveries  of  environmental
remediation costs from other parties are recorded as assets when the recovery is
deemed probable.  The American  Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental  Remediation Liabilities" (SOP 96-1),
in October 1996. SOP 96-1 provides authoritative guidance on specific accounting
issues in connection with  recognizing,  measuring and disclosing  environmental
remediation  liabilities.  The Company has applied the provisions of SOP 96-1 as
of December 31, 1996.



<PAGE>


A48

Taxes on Income:  Deferred  income taxes reflect the future tax  consequences of
differences  between the tax bases of assets and liabilities and their financial
reporting  amounts at each year end.  No U.S.  deferred  income  taxes have been
provided for the income tax liability which would be incurred on repatriation of
the undistributed  earnings of the Company's  consolidated  foreign subsidiaries
and the undistributed earnings of SPCC prior to 1993 because the Company intends
indefinitely  to reinvest  these  earnings  outside the United  States.  General
business credits are accounted for by the flow-through method.

Subsidiary  Stock Issuance:  Gains or losses arising from the sale of previously
unissued  shares to an unrelated  party by a subsidiary  are  recognized  in net
earnings to the extent that the net book value of the shares owned by the parent
after the sale exceeds or is lower than the net book value per share immediately
prior to the sale of the shares by the subsidiary.

Stock Based  Compensation:  In 1996 the Company  elected to apply the disclosure
only  provisions  of  Statement  of Financial  Accounting  Standards  No. 123,
"Accounting for Stock-Based Compensation."

Impact of New Accounting  Standards:  In 1997, the Company adopted Statements of
Financial  Accounting  Standards  No. 128,  "Earnings  per Share" and No. 131,
"Disclosure about Segments of an Enterprise and Related  Information." Neither
statement had a material impact on the Company's financial statements.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting  Comprehensive  Income." This
statement  which is effective for fiscal years beginning after December 15, 1997
requires  the  Company  to make  certain  disclosures  but has no  impact on the
Company's financial statements.


(2) Interest in Southern Peru Copper Corporation:

Acquisition of Additional Interest:

On April 5, 1995, the Company  acquired an additional 10.7% interest in SPCC for
$116.4  million,  increasing its ownership  from 52.3% to 63.0%.  The additional
shares  acquired  enabled the Company to elect a majority  of the  directors  of
SPCC. As a result,  the Company  consolidated  SPCC in its financial  statements
based on its 52.3%  ownership,  effective  January 1, 1995, and 63.0% ownership,
effective April 5, 1995. The Company previously  accounted for its investment in
SPCC by the equity method.  The acquisition has been accounted for as a purchase
transaction. The excess of the purchase price over the Company's interest in the
net book value of SPCC  attributable to the shares acquired of $46.4 million has
been  assigned to proven and  probable  sulfide  reserves,  proven and  probable
leachable  reserves and  mineralized  material and is being  amortized  based on
production.



<PAGE>


A49

The  table  below  summarizes   unaudited  pro  forma  consolidated  results  of
operations of Asarco for the year ended December 31, 1995,  assuming that Asarco
had acquired an additional 10.7% of the outstanding  stock of SPCC on January 1,
1995. The unaudited pro forma  financial  information  is based on  management's
estimates  and  assumptions  and does not purport to represent  the results that
actually would have occurred if the acquisition  had, in fact, been completed on
the date assumed.
<TABLE>
<CAPTION>
          Pro Forma Results of Operations:
          <S>                                                                   <C>
          For the year ended December 31,                                            1995
                                                                                     ----
          (in millions, except per share amounts)
          Sales of products and services                                            $3,197.8
          Net earnings                                                                $172.2
          Net earnings per common share (Basic)                                        $4.07
          Net earnings per common share (Diluted)                                      $4.05
</TABLE>

Common Share Exchange Offer:

On December 29, 1995, SPCC completed an offer to exchange its common stock,  par
value of $0.01 per share, for any and all labor shares of the Peruvian Branch of
SPCC.  These  labor  shares,  which  are  traded  on the  Lima  Stock  Exchange,
represented   a  17.3%   interest  in  the  Peruvian   Branch  which   comprises
substantially  all of the operations of SPCC in Peru. The offer allowed  holders
of the labor shares in the Branch to exchange four Series-1 Labor shares or five
Series-2 Labor shares for one share of common stock.  Common shares are entitled
to one vote per share.  In connection with the offering,  the Company  exchanged
its  shares of SPCC for  Class A shares  which are  entitled  to five  votes per
share.  As a result of this  transaction,  Asarco's  equity interest in SPCC was
reduced to approximately  54.0% at December 31, 1995 (54.1% at December 31, 1997
and 1996) and the Company's  economic interest in the assets of SPCC, net of the
remaining  labor share  interest was 52.3% at December 31, 1995 (53.0% and 52.6%
at December 31, 1997 and 1996,  respectively).  The Company's voting interest in
SPCC was 61.0% at December  31,  1995 (63.1% and 62.6% at December  31, 1997 and
1996,  respectively).  The common shares issued in exchange for the labor shares
are listed on both the New York Stock  Exchange  and Lima  Stock  Exchange.  The
exchange  of common  shares  for labor  shares  was  accounted  for by SPCC as a
purchase of a minority  interest.  The value of the common  stock  issued in the
exchange  (based on the average per share trading  value for the three  business
days ending  January 9, 1996) plus issuance costs exceeded the carrying value of
the minority  interests  acquired by $82.0 million,  net of tax. Of this amount,
$4.1  million was  assigned to metal  inventory on hand at December 31, 1995 and
charged to earnings in 1996.  The  remaining  amount was  assigned to proven and
probable  sulfide  reserves,   proven  and  probable   leachable   reserves  and
mineralized material and is being amortized based on production.  Asarco's share
of the  increase in value ($30.4  million,  net of tax) has been  eliminated  in
consolidation.




<PAGE>


A50

(3) Other Income (Expense)
<TABLE>
<CAPTION>
For the years ended December 31,                             1997             1996              1995
                                                             ----             ----              ----
(in millions)
<S>                                                    <C>               <C>              <C>
Interest income                                                 $ 20.7         $ 20.0            $ 16.5
Equity earnings                                                    8.9            4.5               2.3
Dividends from MIM                                                   -            5.3               9.2
Dividends from Grupo Mexico                                        5.4              -                 -
Other                                                             (1.2)          (0.7)             (1.6)
                                                       ================= ================ =================
  Total                                                         $ 33.8         $ 29.1            $ 26.4
                                                       ================= ================ =================
</TABLE>

(4) Taxes on Income

Certain  subsidiaries  that  have  been  consolidated  for  financial  reporting
purposes,  principally SPCC, are not includible in Asarco's consolidated federal
income tax return.  The following  tables  combine the separate  provisions  for
income taxes that have been determined for each company, in accordance with SFAS
No. 109:

Earnings (loss) before taxes on income and minority interests were:
<TABLE>
<CAPTION>
For the years ended December 31,                                 1997            1996              1995
                                                                 ----            ----              ----
(in millions)
<S>                                                    <C>               <C>              <C>
Domestic operations                                          $  42.9           $  40.3          $  24.7
Foreign operations                                             264.7             286.9            396.9
                                                       =====================================================
Total                                                        $ 307.6           $ 327.2          $ 421.6
                                                       =====================================================
</TABLE>
Tax Expense (Benefit):

The components of the provision (benefit) for taxes on income were:
<TABLE>
<CAPTION>
For the years ended December 31,                                  1997          1996          1995
                                                                  ----          ----          ----
(in millions)
<S>                                                         <C>           <C>           <C>
U.S. Federal:
  Current                                                       $  24.4        $  3.4        $  4.1
  Deferred                                                         (4.8)         14.5          (3.1)
                                                            ------------------------------------------
U.S. Federal                                                       19.6          17.9           1.0
                                                            ------------------------------------------
Foreign and State:
  Current                                                          61.3          70.9         118.7
  Deferred                                                         (7.3)         11.8           3.2
                                                            ------------------------------------------
Foreign and State                                                  54.0          82.7         121.9
                                                            ==========================================
Total income tax                                                $  73.6        $100.6        $122.9
                                                            ==========================================
</TABLE>
Total taxes paid were: 1997 - $54.2 million; 1996 - $134.4 million; 1995 - $65.8
million.



<PAGE>


A51

Reconciliation of Statutory Income Tax Rate:
<TABLE>
<CAPTION>
For the years ended December 31,                                             1997           1996           1995
                                                                             ----           ----           ----
<S>                                                                   <C>            <C>            <C>
U.S. statutory income tax rate                                               35.0%          35.0%          35.0%
Adjustment for entities for which no U.S. tax
  is required                                                                (2.3)          (1.1)          (0.3)
Percentage depletion                                                         (9.5)          (9.6)         (12.3)
Dividends from non-includible subsidiaries                                   11.4           10.4           11.0
Dividends received deduction                                                 (9.4)          (8.5)          (8.8)
Foreign taxes                                                                16.9           24.6           28.3
Foreign tax credit                                                          (13.5)         (20.5)         (25.2)
Reversal of taxes previously accrued                                         (2.1)             -             -
Other                                                                        (2.6)           0.4            1.5
                                                                      =============================================
Effective income tax rate                                                    23.9%          30.7%          29.2%
                                                                      =============================================
</TABLE>

Temporary  differences and carryforwards which give rise to deferred tax assets,
liabilities and related valuation allowances were:

<TABLE>
<CAPTION>
Deferred Tax Assets (Liabilities)
  At December 31,                                                                     1997            1996
                                                                                      ----            ----
  <S>                                                                        <C>              <C>
  (in millions)
  Current:
  Reserve for closed plant and environmental matters                                 $   7.2         $  12.4
  Inventories                                                                            5.3             6.6
  Other                                                                                  6.6             5.4
                                                                             ---------------------------------
  Net deferred tax asset                                                             $  19.1         $  24.4
                                                                             ---------------------------------
  Noncurrent:
  Tax effect of regular net operating losses                                         $ 119.0         $ 168.2
  Reserve for closed plant and environmental matters                                    22.2            33.1
  Postretirement benefit obligation                                                     36.6            35.0
  Alternative minimum tax credit carryforwards                                          28.3            16.2
  Foreign tax credit carryforwards                                                         -            69.4
  Previously taxed income                                                                6.1             5.3
  Capitalized leases                                                                    21.1            25.6
  Pension obligation                                                                   (17.5)          (19.8)
  Property, plant and equipment                                                       (314.1)         (308.6)
  Investments - Grupo Mexico                                                           (12.8)         (120.4)
  Other                                                                                 (7.2)           (1.1)
  Valuation allowance for deferred tax assets                                              -           (76.2)
                                                                             ---------------------------------
  Net deferred tax liability                                                          (118.3)         (173.3)
                                                                             =================================
  Total net deferred tax liability                                                  $  (99.2)        $(148.9)
                                                                             =================================
</TABLE>

At December  31,  1997,  the Company had $339.9  million of net  operating  loss
carryforwards  which  expire,  if unused,  in years 2008  through 2010 and $28.3
million of alternative  minimum tax credits which are not subject to expiration.
These net operating loss  carryforwards and alternative  minimum tax credits are
available  solely to Asarco and not to SPCC.  The  Company  believes  that these
carryforwards  will be available to reduce future federal income tax liabilities
and has recorded the tax benefit of these  carryforwards as noncurrent  deferred
tax assets.  The Company's net operating loss  carryforwards  for state purposes
are not  significant  and,  therefore,  have not been  recorded as deferred  tax
assets.

The decrease in the  valuation  allowance of $76.2  million from 1996 to 1997 is
attributable to the  utilization of foreign tax credits and alternative  minimum
tax credits by SPCC in 1997.



<PAGE>


A52

In the first quarter of 1997,  the  Government  of Peru approved a  reinvestment
allowance  for a program of SPCC to expand the Cuajone  mine.  The  reinvestment
allowance  provides SPCC with tax  incentives in Peru and, as a result,  certain
U.S.  tax  credit  carryforwards,  for  which no  benefit  had  previously  been
recorded,  were realized. The reduction in the effective tax rate as a result of
the reinvestment allowance for the twelve months ended December 31, 1997 lowered
consolidated  tax  expense  by  approximately  $14.7  million.  Pursuant  to the
reinvestment allowance SPCC has received tax deductions in Peru in amounts equal
to  the  cost  of the  qualifying  property  (approximately  $245  million).  As
qualifying  property is acquired,  the financial statement carrying value of the
qualifying  property will be reduced to reflect the tax benefit  associated with
the reinvestment allowance  (approximately $73 million). As a result,  financial
statement  depreciation  expense  related  to the  qualifying  property  will be
reduced over its useful life (approximately 15 years).

U.S.  deferred tax liabilities  have not been provided on  approximately  $272.0
million  in 1997  ($270.8  million  in 1996  and  $257.6  million  in  1995)  of
undistributed  earnings of foreign  subsidiaries and  nonconsolidated  companies
more than 50% owned,  because assets representing those earnings are permanently
invested.  It is not  practicable  to determine  the amount of income taxes that
would be payable upon remittance of assets that represent  those  earnings.  The
amount of foreign  withholding  taxes that would be payable upon  remittance  of
assets that represent those earnings is approximately $1.2 million in 1997 ($1.2
million in 1996 and $0.5 million in 1995).


(5) Inventories
<TABLE>
<CAPTION>
At December 31,                                                                      1997            1996
                                                                                    ----            ----
(in millions)
<S>                                                                                <C>             <C>

Inventories of smelters and refineries at lower of LIFO cost or market
                                                                                  $   7.4         $  10.3
Provisional cost of metals received from suppliers for which prices have
     not yet been fixed                                                              51.5            44.5
Mine inventories at lower of FIFO cost or market                                     88.9           105.8
Metal inventory at lower of average cost or market                                   45.6            49.5
Materials and supplies at lower of average cost or market
                                                                                    138.2           141.0
Other                                                                                30.5            32.2
                                                                             ================ ===============
         Total                                                                    $ 362.1         $ 383.3
                                                                             ================ ===============
</TABLE>

Replacement cost exceeds  inventories valued at LIFO cost by approximately $86.4
million in 1997 (1996-$115.2 million).  Liquidation of LIFO inventories resulted
in pre-tax  earnings  of $16.7  million in 1997,  $5.3  million in 1996 and $0.7
million in 1995.

(6) Investments

During 1997 the Company sold 106.3  million  shares of Grupo Mexico for proceeds
of $322.5  million,  resulting in a pre-tax gain of $73.3 million ($47.6 million
after-tax).  At December 31, 1997, the value of the Company's remaining interest
in Grupo  Mexico is $78.9  million  representing  the  exercise  price of shares
subject  to an option  granted  as part of the  restructuring  of the  Company's
investment  in 1994.  These  shares are  carried on the books of the  Company at
$50.2  million.  The  Company's  results for the year ended 1996 include a $60.1
million  pre-tax gain ($39.0 million  after-tax) on the sale of its 15% interest
in MIM Holdings  Limited (MIM) and an $11.1  million  pre-tax gain ($7.2 million
after-tax)  on the sale of a 25%  interest  in its Silver  Bell  copper  mine to
Mitsui & Co.



<PAGE>


A53

In accordance with the provisions of SFAS No. 115, available-for-sale securities
are  carried at fair  value.  Unrealized  gains at  December  31,  1997 of $11.6
million (net of deferred taxes of $6.3 million),  compared with unrealized gains
of $56.3 million (net of deferred  taxes of $30.3 million) at December 31, 1996,
were included as a component of stockholders' equity.

Available-for-sale and other cost investments:
<TABLE>
<CAPTION>
At December 31,                                                    Unrealized Holding
(in millions)                                        Cost          Gains          (Losses)         Total
                                                     ----          -----          --------         -----
<S>                                         <C>               <C>              <C>             <C>
1997
Available-for-sale:
  Equity securities                               $  25.3         $  17.5           $    -         $  42.8
  Debt securities                                    30.3             0.4                -            30.7
Cost investments:
  Grupo Mexico                                       50.2               -                -            50.2
  Other                                               3.1               -                -             3.1
                                            ================= ================ =============== ================
Total                                             $ 108.9         $  17.9           $    -         $ 126.8
                                            ================= ================ =============== ================

1996
Available-for-sale:
  Grupo Mexico                                    $ 249.1         $  79.6           $    -         $ 328.7
  Equity securities                                  23.9             7.1                -            31.0
  Debt securities                                    28.3               -             (0.1)           28.2
Cost investments:
  Grupo Mexico                                       50.2               -                -            50.2
  Other                                               4.6               -                -             4.6
                                            ================= ================ =============== ================
Total                                             $ 356.1         $  86.7           $(0.1)         $ 442.7
                                            ================= ================ =============== ================
</TABLE>

Gross  realized  gains  on  available-for-sale  securities  in 1997  were  $76.0
million,  compared with gross realized gains of $60.1 million and losses of $1.1
million in 1996,  and gross  realized  losses of $0.3 million in 1995.  The debt
securities have maturity dates ranging from 1999 to 2027. The unrealized holding
gains and losses,  excluding realized gains and losses,  included as a component
of  stockholders'  equity  increased  $7.3 million in 1997 and  decreased  $56.9
million in 1996. The average cost method has been used to determine the realized
gain or loss on securities sold.


(7) Property
<TABLE>
<CAPTION>
At December 31,                                                      1997                  1996
                                                                     ----                  ----
(in millions)
<S>                                                      <C>                   <C>
Buildings and equipment                                           $ 3,762.8             $ 3,617.2
Capital leases-equipment                                              123.7                 122.4
Mineral land                                                          701.0                 645.0
Land, other than mineral                                               70.4                  70.6
Other                                                                   6.2                   6.1
                                                         --------------------- ---------------------
  Total property                                                    4,664.1               4,461.3
Accumulated depreciation                                           (2,245.3)             (2,187.2)
                                                         ===================== =====================
  Property, net                                                   $ 2,418.8             $ 2,274.1
                                                         ===================== =====================
</TABLE>

Accumulated  depreciation  applicable to  capitalized  leases  amounted to $81.6
million in 1997 and $72.0 million in 1996.

In the first  quarter of 1996,  the  Company  recorded  a pre-tax  gain of $11.1
million  ($7.2  million  after-tax)  on the sale of a 25% interest in its Silver
Bell project.



<PAGE>


A54

In accordance  with SFAS No. 121,  "Accounting  for the Impairment of Long-Lived
Assets  and for  Long-Lived  Assets  To Be  Disposed  Of," the  Company  reviews
long-lived  assets,  certain  identifiable  intangibles and goodwill  related to
those assets for impairment whenever events or changes in circumstances indicate
that the carrying  amount of the assets may not be  recoverable.  The impairment
loss on such  assets,  as well as  long-lived  assets and  certain  identifiable
intangibles  to be disposed  of, is measured as the amount by which the carrying
value of the assets exceeds the fair value of the assets (less  disposal  costs,
if applicable).

The Company terminated lead refining operations at its Omaha,  Nebraska plant in
1996 because of the  substantial  investment  which would have been  required to
meet state and U.S. EPA imposed environmental  requirements.  As a result of the
decision to  terminate  lead  refining at the Omaha  plant,  in 1995 the Company
recorded a pre-tax charge of $25.6 million, which represented the total carrying
value of the net property of the Omaha refinery at December 31, 1995.

The Company also  recorded at December 31, 1995 a pre-tax  charge to earnings of
$9.2 million in  accordance  with SFAS No. 121 with respect to the assets at its
waste recycling  subsidiary in Corpus  Christi,  Texas (Encycle) and an obsolete
mill. The impairment loss on Encycle's  assets was the result of prior operating
losses.


(8) Contingencies and Litigation

The Company is a defendant in lawsuits in Arizona  involving the United  States,
Native  Americans  and other  Arizona  water users  contesting  the right of the
Company and numerous  other  individuals  and entities to use water and, in some
cases,  seeking  damages  for water usage and  alleged  contamination  of ground
water.  The lawsuits could affect the Company's use of water at its Ray Complex,
Mission Complex and other Arizona operations.

The Company and certain  subsidiaries  are  defendants in four  purported  class
actions and fourteen  other lawsuits in Texas seeking  substantial  compensatory
and punitive damages for personal injury and contamination of property allegedly
caused by present  and former  operations  in Texas,  and  product  sales of the
Company and its subsidiaries.  Most of the cases name additional corporations as
defendants.

The Company and two  subsidiaries,  at December 31, 1997,  are defendants in 661
lawsuits  brought  by 8,333  primary  and  2,469  secondary  plaintiffs  seeking
substantial  compensatory  and  punitive  damages for  personal  injury or death
allegedly  caused by exposure to asbestos.  Two of these  lawsuits are purported
statewide  class actions brought on behalf of classes of persons who are not yet
known to have asbestos related injury.  One of these lawsuits has been dismissed
subject to appeal. One subsidiary was dismissed from one lawsuit seeking damages
for  removal or  containment  of  asbestos-containing  products  in  structures.
Plaintiffs have appealed. In addition,  the Company and certain subsidiaries are
defendants in product  liability  lawsuits  involving  various  other  products,
including metals.

In September and October 1997,  separate  purported class actions were commenced
against  the  Company  in  Omaha,  Nebraska  and in  Denver,  Colorado,  seeking
compensatory  and punitive  damages for alleged  contamination  of properties by
emissions  from the Company's  former Omaha plant and the Globe plant in Denver.
The actions are pending in federal district court in Omaha and Denver.



<PAGE>


A55

In March 1996,  the United  States  government  filed an action in United States
District  Court in Boise,  Idaho,  against the  Company  and three other  mining
companies  under the  Comprehensive  Environmental  Response,  Compensation  and
Liability Act of 1980 ("CERCLA" or "Superfund")  and the federal Clean Water Act
for alleged natural  resource damages to the Coeur d'Alene River Basin in Idaho.
The  government  contends that the  defendants are liable for damages to natural
resources  in a 1,500  square mile area caused by mining and related  activities
that they and  others  undertook  over  approximately  the  period  between  the
mid-1800s and the mid-1960s. The action also seeks a declaration that defendants
are liable for  restoration  of the area.  The  Company  believes,  and has been
advised by outside  legal  counsel,  that it has strong  legal  defenses  to the
lawsuit.  In 1996,  the court granted a motion to  consolidate  this case with a
prior,  similar  lawsuit filed by the Coeur d'Alene  Tribe.  In August 1997, the
United States filed a motion to add to the lawsuit several companies,  including
certain subsidiaries of the Company.

The Company and  certain of its  subsidiaries  have  received  notices  from the
United  States  Environmental  Protection  Agency  ("EPA") and the United States
Forest  Service  that  they  and  in  most  cases  numerous  other  parties  are
potentially  responsible to remediate  alleged hazardous  substance  releases at
certain  sites  under  CERCLA.  In  addition,  the  Company  and  certain of its
subsidiaries  are defendants in lawsuits brought under CERCLA or state laws that
seek substantial damages and remediation.
Remedial action is being undertaken by the Company at some of the sites.

On January 23, 1998,  the Company,  the United States  Department of Justice and
EPA announced the signing of a multi-region voluntary agreement covering a broad
range of environmental  issues affecting the Company's United States operations.
The two  consent  decrees  containing  the  agreement  have been filed in United
States District Courts in Phoenix,  Arizona and Helena,  Montana and are subject
to approval by both courts following public comment.  Pursuant to the agreement,
which  resolves  numerous  issues  that  were  being  negotiated  and  litigated
separately,  the Company will undertake capital construction  projects amounting
to $61.5 million, to be spent over six years, and pay penalties of $6.4 million.

In  connection  with the matters  referred to above,  as well as at other closed
plants and sites where the Company is working with Federal and state agencies to
resolve  environmental  issues,  the Company  accrues for these losses when such
losses are probable and reasonably estimable.  Such accruals are adjusted as new
information  develops or  circumstances  change and are not  discounted to their
present  value.  Recoveries of  environmental  remediation  costs from insurance
carriers  and other  parties are  recorded as assets when the recovery is deemed
probable.

Reserves for closed plants and environmental  matters totaled $122.1 million and
$128.3  million  at  December  31,  1997 and  1996,  respectively.  The  Company
anticipates that  expenditures  relating to these reserves will be made over the
next several  years.  Net cash  expenditures  against these  reserves were $63.1
million in 1997, $54.1 million in 1996 and $95.8 million in 1995.

The effect on pre-tax earnings of  environmental  and other closed plant charges
was $20.2 million in 1997 ($50.4  million in charges  offset by $30.2 million in
anticipated  insurance and other  recoveries),  and $15.0 million in 1996 ($67.7
million in charges  offset by $52.7 million in insurance  and other  recoveries)
including  $10.0  million  for the  effect of the  application  of the  American
Institute  of  Certified  Public   Accountants:   Statement  of  Position  96-1,
"Environmental Remediation Liabilities".



<PAGE>


A56

Future environmental  related expenditures cannot be reliably determined in many
circumstances  due to the  early  stages  of  investigation,  the  uncertainties
relating to specific  remediation methods and costs, the possible  participation
of other potentially  responsible  parties and changing  environmental  laws and
interpretations.  Similarly,  due to the  uncertainty  of the  outcome  of court
proceedings,  future  expenditures  related  to  litigation  cannot be  reliably
determined.  It is the  opinion  of  management  that the  outcome  of the legal
proceedings and environmental  contingencies  mentioned, and other miscellaneous
litigation and proceedings now pending, will not materially adversely affect the
financial position of Asarco and its consolidated  subsidiaries.  However, it is
possible that litigation and environmental  contingencies  could have a material
effect on  quarterly  or annual  operating  results,  when they are  resolved in
future periods.  This opinion is based on  considerations  including  experience
related to previous court judgments and  settlements  and remediation  costs and
terms. The financial viability of other potentially responsible parties has been
considered  when  relevant  and no credit  has been  assumed  for any  potential
insurance recovery when not deemed probable.

(9) Debt and Available Credit Facilities
<TABLE>
<CAPTION>
Long-Term Debt
At December 31,                                                                    1997             1996
                                                                                   ----             ----
(in millions)
<S>                                                                          <C>               <C>
Revolving credit agreements                                                        $     -         $   45.0
Pollution control bonds, 1997/2006 - rates from
   6 3/4% to 8.9%                                                                    155.0            155.6
Capital lease obligations, 1997/2006 - rates from
   7.3% to 12.0%                                                                      61.8             74.8
7% Notes due 2001                                                                     50.0             50.0
7 3/8% Notes due 2003                                                                 99.7             99.6
7 7/8% Debentures due 2013                                                            99.7             99.7
8 1/2% Debentures due 2025                                                           149.0            148.9
6.8% term loan due 2000                                                               15.0             15.0
6.43% EXIM Bank credit agreement                                                      20.4             26.3
Mitsui credit agreement - LIBOR +2.87%                                                   -             45.0
CAF credit agreement - average 9.4%                                                   27.5             35.3
7.9% Secured Export Notes due 2007                                                   150.0                -
8.25% Bonds due 2004                                                                  50.0                -
Other                                                                                   .6              3.2
                                                                             ----------------- ----------------
Total debt                                                                           878.7            798.4
   Less current portion                                                               28.7             39.8
                                                                             ================= ================
      Long-term debt                                                               $ 850.0          $ 758.6
                                                                             ================= ================
</TABLE>

Interest paid by the Company (excluding  amounts  capitalized of $5.5 million in
1997,  $2.8 million in 1996 and $3.3 million in 1995) was $74.4 million in 1997,
$78.1 million in 1996 and $89.2 million in 1995.

Maturities of debt  instruments and future minimum payments under capital leases
are:
<TABLE>
<CAPTION>
At December 31,                                     Debt Instruments                 Capital Leases
                                                    ----------------                 --------------
(in millions)
<S>                                         <C>                                <C>
1998                                                      $    37.0                        $    18.3
1999                                                           14.4                             16.5
2000                                                           39.0                             27.6
2001                                                           75.0                              4.3
2002                                                           20.1                              2.5
Thereafter                                                    631.4                              4.9
   Less interest                                                  -                            (12.3)
                                            ================================== ===========================
                                                          $   816.9                        $    61.8
                                            ================================== ===========================
</TABLE>


<PAGE>


A57

The Company has two revolving credit  agreements that permit borrowings of up to
$850.0  million,  all of which was available at December 31, 1997.  One facility
for $350 million  expires in April 1999 and the other  facility for $500 million
expires in May 2002. The borrowings bear interest based on LIBOR, the CD rate or
the prime rate.  Rates may vary based upon the Company's  debt rating.  Facility
fees  are  payable  on the full  amount  of the $350  million  and $500  million
revolving credit agreements at 0.2% and 0.125% per annum, respectively.

In April 1997, SPCC entered into a $600 million seven-year credit agreement with
a group of international  financial  institutions.  The agreement  consists of a
$400 million term loan facility and a $200 million  revolving  credit  facility.
The  interest  rate during the first three years of the  agreement  on any loans
outstanding  is LIBOR  plus  1.75% per annum for term loans and LIBOR plus 2.00%
for revolving credit loans. A commitment fee of 0.5% per annum is payable on the
undrawn  portion of the facility.  No amounts have been drawn by SPCC under this
agreement as of December 31, 1997.

In May 1997,  SPCC privately  placed $150 million of Secured Export Notes in the
United States and international markets. These notes were issued with an average
maturity of seven years and a final maturity in 2007 and were priced at par with
a coupon rate of 7.9%. In addition,  in June 1997 SPCC sold $50 million of 8.25%
bonds due June 2004 to investors in Peru.

Some of SPCC's financing agreements contain covenants which limit the payment of
dividends to  stockholders.  Under the most restrictive  covenant,  SPCC may pay
dividends to stockholders  equal to 50% of its net income for any fiscal quarter
as long as such  dividends  are  paid  by June 30 of the  following  year.  As a
result,  at December 31, 1997,  $572.8 million of SPCC's net assets  included in
the Company's consolidated net assets are unavailable for payment of dividends.

In April 1995, the Company issued $150 million face amount of 8 1/2%  Debentures
due in May 2025. In July 1995,  the Company  entered into a term loan  agreement
for $15 million  maturing in August  2000.  Concurrent  with the term loan,  the
Company  entered into a five year  interest rate swap  agreement  resulting in a
fixed interest rate of 6.8% on the principal  amount.  Proceeds of the loan were
used primarily to prepay $13.5 million of 8 3/4% pollution control revenue bonds
at par value plus a premium of 1.5% in the third  quarter of 1995.  The  Company
also concluded  interest rate swap  agreements in July 1995 resulting in a fixed
interest rate of 6.6% on $100 million of its revolving credit loans.

Under the most  restrictive  terms of the credit  agreements,  the Company  must
maintain  a tangible  net  worth,  as  defined,  of at least $1 billion  and the
percentage of current assets to current liabilities,  as defined, cannot be less
than 125%.  Tangible  net worth,  as defined,  was $1.7  billion at December 31,
1997, and the percentage of current assets to current  liabilities,  as defined,
was 156%. In accordance with the most restrictive covenants of these agreements,
additional  indebtedness  of $868.6  million  would  have been  permitted  as of
December 31, 1997. In addition,  under the most restrictive  covenants of SPCC's
loan  agreements,  SPCC would have been  permitted  additional  indebtedness  of
$849.7
 million at December 31, 1997.

In January 1998,  the Company  closed on a refinancing  of three tax exempt debt
issues  and called for the  redemption  of the  existing  bonds.  The  aggregate
principal  amount of the  refinancing  was $132.8  million.  The  refinancing is
expected to reduce the Company's  annual  interest costs by  approximately  $3.3
million.

Consolidated  debt  includes the debt of SPCC,  none of which is  guaranteed  by
Asarco.

The weighted average interest rate on short term borrowings was 7.4% at December
31, 1997, and 8.1% at December 31, 1996.


<PAGE>


A58

(10)  Commitments

The  Company  has  entered  into  several  sale-leaseback  agreements  of mining
equipment and has options to purchase this  equipment.  The options are at fixed
prices  prior  to  expiration  of the  leases  and at  fair  market  value  upon
expiration. The leasebacks have been accounted for as operating leases.

The book  value and  associated  depreciation  of the  equipment  sold have been
removed from the Company's  property  accounts.  Any profit on the sale has been
deferred and will be amortized  into net  earnings in  proportion  to the rental
charged over the lease term.

Minimum future rental  payments  under  non-cancelable  operating  leases having
remaining terms in excess of 1 year as of December 31, 1997 for each of the next
5 years and in the aggregate are:
<TABLE>
<CAPTION>
Year                                                                    Amount (in millions)
----                                                                    --------------------
<S>                                                            <C>
1998                                                                           $ 20.6
1999                                                                             19.4
2000                                                                             18.8
2001                                                                             18.4
2002                                                                             16.3
Thereafter                                                                      100.6
                                                               ---------------------------------------
                                                                               $194.1
                                                               ---------------------------------------
</TABLE>
Total rental expense was $14.6 million in 1997,  $13.3 million in 1996 and $10.9
million in 1995.

The Company's operating lease obligations include a lease by Silver Bell Mining,
L.L.C., a 75% owned subsidiary,  of its SX/EW facility.  The gross rentals under
the lease  which are  guaranteed  by the  Company  are $85.8  million.  Under an
agreement with the owner of the 25% interest, the Company will be reimbursed for
25% of any payments  made by the Company  under this  guarantee.  Production  of
refined copper at the plant began in July, 1997.

As a  result  of  its  $1  billion  expansion  program,  SPCC's  electric  power
requirements   will  increase   significantly   requiring  the  construction  of
substantial  additional generating capacity. In the second quarter of 1997, SPCC
sold its existing  power plant to an independent  power  company.  In connection
with the sale, a power purchase  agreement was also completed,  under which SPCC
will  purchase its power needs for the next twenty years.  Under the  agreement,
SPCC's cost of power will increase somewhat from its 1996 level,  however,  SPCC
will avoid the significant  capital  expenditures that would be required to meet
the needs of expanded  operations and its power costs will be favorably affected
by benefits available to independent power companies in Peru.


(11) Stockholders' Equity

The Company  purchased  3,371,618 of its common shares in 1997 (17,364 shares in
1996 and 34,729 shares in 1995). In 1997,  210,294 common shares (270,474 shares
in 1996 and 503,392 shares in 1995) were used for employee benefit plans.

Retained earnings at December 31, 1997 includes  undistributed earnings of $20.0
million for  investments in 50% or less owned  entities  previously or currently
accounted  for by the  equity  method.  Retained  earnings  includes  cumulative
foreign currency  adjustments of $8.3 million at December 31, 1997 ($3.7 million
at December 31, 1996 and $9.9 million at December 31,  1995).  In 1996, a credit
of $0.6 million was recognized in determining the gain from  cumulative  foreign
currency adjustments on the sale of the Company's interest in MIM.



<PAGE>


A59

Stock Options:  The Company has three stockholder approved plans, the 1996 Stock
Incentive  Plan, a Stock  Incentive  Plan prior to 1996 and a Stock Option Plan.
The 1996 Stock  Incentive Plan replaced the prior Stock  Incentive Plan which in
turn had  replaced the Stock  Option  Plan.  Future  options can only be granted
under the 1996 Stock Incentive Plan.  Unexpired options issued under prior plans
will continue to be governed by, and  exercised  under the Stock Option Plan and
the Stock  Incentive  Plan.  The 1996  Stock  Incentive  Plan  provides  for the
granting of  nonqualified  stock options,  Incentive  Stock Options,  as defined
under the Internal Revenue Code of 1986, as amended,  as well as limited rights,
restricted stock,  bonuses or other  compensation  payable in stock, other stock
based awards and dividend equivalents. The price at which options may be granted
under  the 1996  Stock  Incentive  Plan  shall not be less than 100% of the fair
market  value of the Common  Stock,  on the date of grant.  In general,  options
expire  after 10 years and are not  exercisable  for six months from the date of
grant.  Compensation  cost charged against  earnings for restricted stock awards
under the above plans was $1.0  million in 1997,  $1.1  million in 1996 and $0.7
million in 1995. Retained earnings have been reduced by $8.4 million at December
31, 1997 ($7.1 million at December 31, 1996) for unearned  compensation  related
to restricted stock awards.

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting  Standards  No.  123,  "Accounting  for  Stock-Based   Compensation."
Accordingly, no compensation cost has been recognized for awards under the stock
option plans.  If  compensation  cost for the Company's stock incentive plan had
been  determined  based on the fair  value at the grant date for awards in 1997,
1996 and 1995, consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
(not  including  the earnings  effect of options  granted by SPCC for its stock,
which is immaterial) indicated below:

<TABLE>
<CAPTION>
In millions, except per share amounts                                     1997              1996            1995
                                                                          ----              ----            ----
<S>                                                                 <C>                <C>             <C>
Net earnings - as reported                                                  $143.4          $138.3          $169.2
Net earnings - pro forma                                                    $141.0          $136.7          $167.7
Earnings per share (Basic)- as reported                                     $ 3.42          $ 3.24          $ 4.00
Earnings per share (Diluted)- as reported                                   $ 3.42          $ 3.23          $ 3.98
Earnings per share (Basic)- pro forma                                       $ 3.36          $ 3.20          $ 3.96
Earnings per share (Diluted)- pro forma                                     $ 3.36          $ 3.20          $ 3.95



For purposes of computing  earnings per share,  basic and diluted,  the dilutive
effect of stock options on common shares outstanding is as follows:

Weighted Average Common Shares Outstanding:                                  1997            1996             1995
                                                                             ----            ----             ----
(in millions)
  Basic                                                                      41.9            42.7             42.3
  Dilutive effect of stock options                                            0.1             0.1              0.1
                                                                            -----            -----            -----
  Diluted                                                                    42.0            42.8             42.4
                                                                            =====            =====            =====
</TABLE>

The fair value of each option  grant is  estimated  on the date of grant using a
Black-Scholes  option-pricing  model  with the  following  assumptions  used for
grants in 1997:  dividend  yield of 2.9%  (2.6% - 1996,  2.4% - 1995);  expected
volatility  of 29.2% (28.4% - 1996,  27.6% - 1995);  risk-free  interest rate of
6.5% (5.43% - 1996,  7.8% - 1995);  and expected lives of 7.0 years in 1997, 6.9
in 1996 and 1995.



<PAGE>


A60

The total number of shares that may be optioned or awarded  under the 1996 Stock
Incentive  Plan is 478,165  shares as of December 31, 1997,  (475,076  shares at
December  31,  1996)  plus an  additional  number of shares on January 1 of each
calendar year for the 10 year duration of the Stock  Incentive Plan equal to one
percent of the number of shares of the Company's Common Stock outstanding on the
immediately  preceding  December 31. The weighted average remaining  contractual
life of stock options  outstanding as of December 31, 1997 was 6.6 years.  Stock
option  activity  over the past three years under the Stock  Incentive  Plan and
Stock Option Plan was: 
<TABLE> 
<CAPTION>
                                                                             Weighted
                                                      Number of              Average                  Option Price
                                                        shares                Price                (range per share)
<S>                                               <C>                 <C>                     <C>
Outstanding at
  January 1, 1995                                            880,116               $25.41               $20.57 to $29.38
Granted                                                      216,200               $29.19               $26.63 to $32.57
Exercised                                                   (304,321)              $25.00               $20.57 to $29.19
Canceled or expired                                           (9,026)              $25.96               $21.94 to $29.19
                                                             ---------

Outstanding at
  January 1, 1996                                            782,969               $26.60               $20.57 to $32.57
Granted                                                      253,000               $31.20               $31.13 to $34.38
Exercised                                                    (39,306)              $26.01               $20.57 to $29.19
Canceled or expired                                           (6,300)              $25.85               $20.57 to $31.13
                                                             ---------

Outstanding at
  January 1, 1997                                            990,363               $27.81               $22.31 to $34.38
Granted                                                      370,450               $27.49               $27.50 to $31.97
Exercised                                                    (71,815)              $26.47               $22.31 to $29.19
Canceled or expired                                          (24,600)              $27.14               $22.31 to $31.13
                                                            ----------

Outstanding and exercisable at December 31, 1997           1,264,398               $27.88               $22.31 to $34.38
</TABLE>

In 1989, the Company adopted a Shareholder  Rights plan, which expires on August
7, 1999, and declared a dividend of one Right for each of its common shares.  In
January 1998, the Company  extended the  Shareholder  Rights plan,  with certain
minor  modifications,  for an  additional  ten year  period  effective  upon the
earlier of the  expiration of the existing  Rights plan or the redemption of the
existing  Rights.  In certain  circumstances,  if a person or group  becomes the
beneficial owner of 15% or more of the outstanding  common shares,  with certain
exceptions,  these rights vest and entitle the holder to certain share  purchase
rights.  In  connection  with the  Rights  dividend,  800,000  shares  of Junior
Participating  Preferred Stock were authorized for issuance upon exercise of the
Rights.


(12) Benefit Plans

Pension benefits:

The Company  maintains  several  noncontributory,  defined benefit pension plans
covering  substantially all domestic employees.  Benefits for salaried plans are
based on  salary  and years of  service.  Hourly  plans are based on  negotiated
benefits and years of service.

The Company's funding policy is to contribute amounts to the plans sufficient to
meet the  minimum  funding  requirements  set forth in the  Employee  Retirement
Income Security Act of 1974, plus such additional tax deductible  amounts as may
be advisable under the  circumstances.  Plan assets are invested  principally in
commingled stock funds, mutual funds and securities issued by the United States.



<PAGE>


A61

Net pension costs consisted of:
<TABLE>
<CAPTION>
For the years ended December 31,                                              1997           1996           1995
                                                                              ----           ----           ----
(in millions)
<S>                                                                          <C>            <C>            <C>
Service cost                                                                 $ 9.1          $ 8.6          $ 6.3
Interest cost on projected benefit obligations                                12.7           11.0            9.8
Actual return on plan assets                                                 (41.0)         (21.8)         (30.8)
Net amortization and deferral                                                 26.9           10.7           21.0
                                                                        ============== ============== ==============
Net pension costs                                                            $ 7.7          $ 8.5          $ 6.3
                                                                        ============== ============== ==============
</TABLE>
The actuarial present value of benefit obligations and funded status for the 
Company's plans were:
<TABLE>
<CAPTION>
At December 31,                                        1997                        1996
(in millions)                                        Plans with    Plans with Assets   Plans with Accum.
                                                  Assets Exceeding  Exceeding Accum.  Benefit Obligation
                                                   Accum. Benefit       Benefit      Exceeding Assets (a)
                                                     Obligation        Obligation
<S>                                               <C>              <C>               <C>
Assets and obligations:
  Vested benefit obligation                                $163.5            $139.4                $ 5.3
  Nonvested benefits                                          8.5               7.8                  0.5
                                                  ---------------------------------------------------------
  Accumulated benefit obligation                            172.0             147.2                  5.8
Plan assets at fair value                                   227.5             174.3                  5.0
                                                  ---------------------------------------------------------
Plan assets in excess of (less than) accumulated
     benefit obligation
                                                           $ 55.5            $ 27.1               $(0.8)
                                                  =========================================================

Projected benefit obligation (PBO)                         $204.0            $175.4                $ 7.2
Plan assets at fair value                                   227.5             174.3                  5.0
                                                  ---------------------------------------------------------
Plan assets in excess of (less than) PBO
                                                             23.5              (1.1)                (2.2)
  Prior service cost                                         16.3              18.1                 (0.1)
  Initial net plan obligation                                 2.4               0.9                  2.1
  Effect of changes in assumptions and actuarial
     gains and losses
                                                            (11.9)              8.6                 (0.2)
  Minimum liability                                             -                 -                 (0.5)
                                                  ---------------------------------------------------------
Pension asset (liability) reflected in
     consolidated balance sheet
                                                           $ 30.3            $ 26.5                $(0.9)
                                                  =========================================================

Actuarial assumptions:
Discount Rate                                                7.0%              7.0%                 7.0%
Expected long-term rate of return on plan assets (b)        10.0%             10.0%                 8.0%
Expected annual salary increases                             4.0%              4.0%                 4.0%

</TABLE>
(a) Plans maintained by SPCC.

(b) The  expected  long-term  rate of  return  on plan  assets is 8.0% for plans
    maintained by SPCC.



<PAGE>


A62

Postretirement benefits:

Noncontributory  postretirement  health care  coverage  under the Asarco  Health
Plan, is provided to substantially  all U.S. retirees not eligible for Medicare.
A cost  sharing  Medicare  supplement  plan is  available  for retired  salaried
employees and life insurance coverage is provided to substantially all retirees.
The tables below exclude the postretirement benefit obligation of SPCC, which is
immaterial.

Net periodic postretirement benefit costs include:
<TABLE>
<CAPTION>
For the years ended December 31,                                                     1997            1996           1995
(in millions)                                                                        ----            ----           ----
                              
<S>                                                                          <C>             <C>             <C>
Service cost                                                                         $ 3.5           $ 3.4         $  2.4
Interest cost                                                                          8.1             8.0            8.5
Amortization of loss                                                                   1.2             1.3              -
                                                                             =============== =============== ==============
        Net periodic postretirement benefit costs                                    $12.8           $12.7         $ 10.9
                                                                             =============== =============== ==============

The following sets forth the plan's status  reconciled with amounts  reported in
the Consolidated Balance Sheet:

At December 31,                                                                                  1997           1996
(in millions)                                                                                    ----           ----

<S>                                                                                        <C>            <C>
Accumulated postretirement benefit obligation (APBO):
     Retirees                                                                                  $ 58.2         $ 60.7
     Fully eligible active plan participants                                                     21.7           20.0
     Other plan participants                                                                     42.9           41.1
                                                                                           -------------- --------------
Total APBO                                                                                      122.8          121.8
Item not yet recognized in earnings:
 Effect of changes in assumptions and actuarial gains and losses                                (18.3)         (21.9)
                                                                                           ============== ==============
      Postretirement benefit obligation                                                        $104.5         $ 99.9
                                                                                           ============== ==============
</TABLE>

The annual  assumed rate of increase in the per capita cost of covered  benefits
(i.e.,  health  cost trend rate) is 6% for 1997 and is assumed to decrease to 5%
by 1999 and remain at that  level  thereafter.  The health  care cost trend rate
assumption  has a  significant  effect on the  amounts  reported.  For  example,
increasing the assumed  health care cost trend rates by one percentage  point in
each year would increase the accumulated  postretirement  benefit  obligation at
December 31, 1997, by $10.8 million, and the net periodic postretirement benefit
costs  for 1997 by $1.2  million.  The  discount  rate used in  determining  the
accumulated  postretirement  benefit  obligation was 7% at December 31, 1997 and
1996. The plans are unfunded.

Employee Savings Plan:

The Company  maintains  employee savings plans for salaried and hourly employees
which permit employees to make  contributions  by salary  reduction  pursuant to
section 401(k) of the Internal  Revenue Code. The Company matches  contributions
up to 3% of  compensation.  In connection with the required match, the Company's
contributions  charged against  earnings were $4.6 million in 1997, $4.5 million
in 1996 and $4.3 million in 1995.




<PAGE>


A63

(13) Business Segments

At December  31,  1997,  the Company  adopted  SFAS No. 131,  "Disclosure  About
Segments of an Enterprise and Related  Information." This statement  establishes
standards  for  reporting  information  about  operating  segments  and  related
disclosures about products and services,  geographic areas, and major customers.
Prior  year  amounts  have  been  restated  to  conform  to the  current  year's
presentation.

The Company's copper segment includes  integrated mining,  smelting and refining
operations in North America and in Peru,  through its subsidiary,  Southern Peru
Copper  Corporation.  The  Company's  lead,  zinc and  precious  metals  segment
consists of a fully integrated lead business in Missouri, a custom lead smelting
business, a silver mining business and a zinc mining business.

Enthone-OMI,   a  wholly-owned  subsidiary,   operates  a  world-wide  specialty
chemicals  business  focused  on  functional  and  decorative  coatings  for the
electronics  and metal  finishing  industries.  American  Limestone  Company,  a
wholly-owned subsidiary, produces construction aggregates.

The  Company  also  maintains  an  active  exploration  effort  focused  on  the
identification  and acquisition of advanced gold, copper and silver  exploration
projects.  The segment labeled "All Other" includes  environmental  services,  a
specialty  metals business,  and income and expenses  associated with facilities
previously  operated by the  Company.  The  Company's  reportable  segments  are
separately  managed strategic  business units that offer different  products and
services.

The  accounting  policies  of the  segments  are  described  in the  summary  of
significant accounting policies. The Company evaluates segment performance based
on operating  income or loss plus the equity in the net earnings of  investments
accounted  for  by  the  equity  method  attributable  to  each  segment,  where
applicable.  Corporate and general  administrative  expenses are allocated among
the segments generally in proportion to operating expenses.  Identifiable assets
are those directly used in the operations of each segment. Unallocated corporate
assets are principally cash, marketable securities,  and investments.  There can
be no  assurance  that  operations  and  assets of the  Company  subject  to the
jurisdiction  of foreign  governments  will not be affected  adversely by future
actions by such governments.



<PAGE>


A64

Business Segments - Sales
(in millions)
<TABLE>
<CAPTION>
For the years ended December 31,                                                        1997            1996            1995
                                                                                        ----            ----            ----
By Reportable Segment
<S>                                                                             <C>             <C>             <C>
  Copper                                                                             $ 2,022         $ 1,968         $ 2,329
  Lead, Zinc & Precious Metals                                                           304             357             489
  Specialty Chemicals                                                                    324             319             309
  Aggregates                                                                              54              47              44
  All Other                                                                               17              26              27
                                                                                =============== =============== ===============
Total                                                                                $ 2,721         $ 2,717         $ 3,198
                                                                                =============== =============== ===============

By Country (a)
  United States                                                                      $ 1,501         $ 1,529         $ 1,781
  Japan                                                                                  219             245             264
  Italy                                                                                  166             147             189
  United Kingdom                                                                         146             153             157
  The Netherlands                                                                        109             122             217
  Foreign - Other                                                                        580             521             590
                                                                                =============== =============== ===============
Total                                                                                $ 2,721         $ 2,717         $ 3,198
                                                                                =============== =============== ===============

(a)      Revenues are attributed to countries based on location of customer.

Business Segments - Earnings
(in millions)
For the years ended December 31,                                                        1997            1996            1995
                                                                                        ----            ----            ----
By Reportable Segment (a), (b), (c)
  Copper                                                                             $   315         $   326         $   617
  Lead, Zinc & Precious Metals                                                           (15)            (11)            (62)
  Specialty Chemicals                                                                     29              24              24
  Aggregates                                                                              14              10               8
  Exploration                                                                            (32)            (27)            (15)
  All Other (d)                                                                          (28)            (14)            (83)
                                                                                --------------- --------------- ---------------
Total                                                                                $   283         $   308         $   489
  Interest and other                                                                      33              23             (66)
  Less:  Equity Earnings                                                                  (9)             (4)             (2)
                                                                                --------------- --------------- ---------------
Earnings before taxes on income and minority
  interests                                                                          $   307         $   327         $   421
                                                                                =============== =============== ===============

Depreciation and Depletion
  Copper                                                                             $   108         $    99         $    96
  Lead, Zinc & Precious Metals                                                            17              14              16
  Specialty Chemicals                                                                      3               3               4
  Aggregates                                                                               3               2               2
  All Other                                                                                -               1               1
                                                                                =============== =============== ===============
Total                                                                                $   131         $   119         $   119
                                                                                =============== =============== ===============

Equity in results of non-consolidated companies
  Copper                                                                             $     1         $     1         $     -
  Lead, Zinc & Precious Metals                                                             3              (1)             (2)
  Specialty Chemicals                                                                      5               4               4
                                                                                =============== =============== ===============
Total                                                                                $     9         $     4          $    2
                                                                                =============== =============== ===============
</TABLE>
(a) Includes provision for asset impairment of $1.1 for Copper,  $36.3 for Lead,
    Zinc & Precious Metals and $8.2 for All Other in 1995.
(b) Includes  LIFO  profits  of  $16.7  in  1997,  $5.3 in 1996 and $.7 in 1995
    primarily reported in the Copper and Lead, Zinc and Precious Metals 
    segments.
(c) Includes equity in the net earnings of investees accounted for by the equity
    method.
(d) Includes  environmental  and other  closed  plant  charges of $20.2 in 1997,
    $15.0 in 1996 and $76.3 in 1995.


<PAGE>


A65

Business Segments - Identifiable Assets
(in millions)
<TABLE>
<CAPTION>
For the years ended December 31,                                                        1997            1996            1995
<S>                                                                             <C>             <C>             <C>
By Reportable Segment
  Copper                                                                             $ 3,009         $ 2,810         $ 2,728
  Lead, Zinc & Precious Metals                                                           427             401             360
  Specialty Chemicals                                                                    263             272             267
  Aggregates                                                                              32              32              31
  Exploration                                                                             15              11              11
  All Other                                                                              153             123              82
                                                                                --------------- --------------- ---------------
Total Reportable Segments                                                            $ 3,899         $ 3,649         $ 3,479
Unallocated corporate assets                                                             211             471             848
                                                                                =============== =============== ===============
Total                                                                                $ 4,110         $ 4,120         $ 4,327
                                                                                =============== =============== ===============

Long-Lived Assets
  United States                                                                      $ 1,547         $ 1,820         $ 2,123
  Peru                                                                                   919             872             796
  Foreign - Other                                                                        142              84              75
                                                                                =============== =============== ===============
Total                                                                                $ 2,608         $ 2,776         $ 2,994
                                                                                =============== =============== ===============

Equity Method Investments
  Copper                                                                             $     2         $     2         $     2
  Lead, Zinc & Precious Metals                                                             9               5               3
  Specialty Chemicals                                                                     50              53              57
                                                                                =============== =============== ===============
Total                                                                                $    61         $    60         $    62
                                                                                =============== =============== ===============

Capital Expenditures
  Copper                                                                             $   295         $   233         $   287
  Lead, Zinc & Precious Metals                                                            18              42              30
  Specialty Chemicals                                                                      4               7               3
  Aggregates                                                                               3               3               3
  All Other                                                                                2               1              15
                                                                                --------------- --------------- ---------------
Total                                                                                $   322         $   286         $   338
                                                                                =============== =============== ===============
</TABLE>

(14) Financial Instruments

Hedging:  The Company may use  derivative  instruments to manage its exposure to
market risk from changes in commodity prices, interest rates or the value of its
assets and liabilities.  Derivative  instruments  which are designated as hedges
must be deemed effective at reducing the risk associated with the exposure being
hedged and must be designated as a hedge at the inception of the contract.

Depending  on the  market  fundamentals  of a metal  and other  conditions,  the
Company may  purchase put options or create  synthetic  put options to reduce or
eliminate  the risk of metal price  declines  below the option strike price on a
portion of its  anticipated  future  production.  Put options  purchased  by the
Company  establish a minimum sales price for the production  covered by such put
options  and permit the  Company to  participate  in price  increases  above the
option price.  The cost of options is amortized on a straight-line  basis during
the  period  in  which  the  options  are  exercisable.  Depending  upon  market
conditions, the Company may either sell options it holds or exercise the options
at  maturity.  Gains or losses  from the sale or  exercise  of  options,  net of
unamortized  acquisition  costs,  are  recognized  in the  period  in which  the
underlying  production is sold. The Company also uses futures contracts to hedge
the  effect of price  changes  on a portion  of the  metals it sells.  Gains and
losses on futures  contracts  are  reported  as a  component  of the  underlying
transaction.  Earnings include gains from option sales and exercises,  primarily
related to copper, of $25.8 million in 1997, $27.1 million in 1996 and losses of
$5.6 million in 1995.


<PAGE>


A66

At December 31, 1997, the Company held the following copper put options:
(in millions, except per pound amounts)
<TABLE>
<CAPTION>
                                                                                                 Percent of
                                                     Strike Price Per     Unamortized Cost        Estimated
                        Pounds         Period              Pound                                 Production
                        ------         ------              -----           --------------        ----------
         <S>         <C>           <C>              <C>                  <C>                  <C>
         Asarco            44.0           1/98-3/98          $0.95               $0.7               26%

         SPCC              44.0           1/98-3/98          $0.95               $0.6               27%

</TABLE>
Trading: As part of its price protection program,  the Company may use synthetic
put  options  which  consist  of a call  option  and a forward  sale on the same
quantity of metal.  Price protection  programs  utilizing  synthetic puts may be
implemented  in steps.  In cases where the step approach is used,  the Company's
objective is to take advantage of current market conditions to minimize its cost
while at the same time limiting the Company's  exposure should market conditions
change  before  the  synthetic  put  is  completed.  Until  a  synthetic  put is
completed,  any calls not matched  with a forward sale are marked to market with
the gain or loss, if any,  recorded in earnings.  Earnings include gains of $0.5
million in 1997 from the sale or exercise of call options. Earnings also include
gains of $3.6 million in 1997 and losses of $0.1 million in 1996 from unrealized
mark to market  adjustments.  At December 31, 1997, the Company held copper call
options  covering an aggregate of 140.3 million  pounds of copper,  a portion of
which are  exercisable  in each quarter of 1998 at an average strike price of 97
cents. The carrying value of these calls at December 31, 1997 was $0.4 million.

Gains and Losses:  The recognized  pre-tax gains (losses) of the Company's metal
hedging and trading activities, were as follows:
<TABLE>
<CAPTION>
   For the years ended December 31,                           1997               1996                1995
                                                              ----               ----                ----
   (in millions)
   <S>                                                  <C>                <C>                <C>
   Metal
   -----
   Copper                                                      $ 28.7              $ 26.9              $ (5.7)
   Zinc                                                           1.2                (0.1)               (0.1)
   Silver                                                           -                   -                 0.5
   Lead                                                             -                 0.2                (0.3)
                                                        ================== ================== ===================
     Net Gain (Loss)                                           $ 29.9              $ 27.0              $ (5.6)
                                                        ================== ================== ===================
</TABLE>

The Company may enter into interest rate swap  agreements to limit the effect of
increases in the interest rates on any floating rate debt. The  differential  is
accrued as interest  rates  change and is recorded in interest  expense.  During
1995,  the Company  entered into three swap  agreements,  expiring 1998 to 2000,
with an  aggregate  notional  amount  of  $115.0  million.  The  effect of these
agreements is to limit the interest rate exposure to 6.6% on $100 million of the
Company's  revolving credit loans and 6.8% on its $15 million, 5 year term loan.
As a result of these swap  agreements,  interest  expense was  increased by $0.6
million in 1997, $0.7 million in 1996 and $0.2 million in 1995.



<PAGE>


A67

The estimated fair values of the Company's financial instruments are:
<TABLE>
<CAPTION>
       At December 31,                                               1997                                 1996
(in millions)                                             Carrying           Fair               Carrying          Fair
                                                            Value            Value                Value           Value
<S>                                                    <C>              <C>                  <C>             <C>
               Assets:
Cash and cash equivalents                                    $ 210.6         $ 210.6              $ 192.4         $ 192.4

Marketable securities - held to maturity
                                                             $ 205.3         $ 205.3              $   1.0         $   1.0

Put options                                                  $   1.3         $  14.3                    -               -

          Call options                                       $   0.4         $   0.4              $   4.0         $   4.0

          Investments:
  Available-for-sale securities                              $  73.5         $  73.5              $ 387.9         $ 387.9
  Restricted investment in Grupo Mexico (a)
                                                                50.2            78.9                 50.2            78.9
                 Other                                           3.1              (b)                 4.6              (b)
                                                       ---------------- ---------------      --------------- ---------------
     Total investments                                       $ 126.8         $ 152.4              $ 442.7         $ 466.8
                                                       ---------------- ---------------      --------------- ---------------

          Liabilities:
Long-term debt (excluding capital lease obligations)         $ 816.9         $ 848.3              $ 723.6         $ 736.9
Interest rate swaps                                                -          $ (0.6)                   -          $ (0.8)

 </TABLE> 

(a)At  December  31, 1997 and 1996,  56.3  million  shares of Grupo  Mexico were
   subject to a fixed  price  option  which  limits the sale of the shares for a
   period of more than one year.  The fair value shown is equal to the  exercise
   price of the option.

(b)No fair  value was  available  for these  investments  as they  represent  an
   interest in companies whose stock is not publicly traded.  Accordingly, it is
   not practicable to determine the fair value of such securities.

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and cash equivalents:  The carrying amount  approximates fair value because
of the short maturity of these instruments.

Marketable  securities:  The  carrying  amount  and fair value are  reported  at
amortized cost, which approximates market, since these securities are to be held
to maturity.

Put and call  options:  Fair  value is an  estimate  based  on  relevant  market
information  such as:  volatility  of similar  options,  futures  prices and the
contracted strike price. Call options held at December 31, 1997, which represent
trading  securities,  had an average fair value of $1.3 million  during the year
ended December 31, 1997.

Available-for-sale  securities  and interest rate swaps:  Fair value is based on
quoted market prices.

Long-term debt: The fair value is based on the quoted market prices for the same
or similar issues.


<PAGE>


A68

Unaudited Quarterly Data
(in millions, except per share data)
<TABLE>
<CAPTION>
                                            1997                                                  1996
                                            ----                                                  ----
QUARTERS             1st     2nd(a)(b) 3rd(c)(d)      4th       Total      1st(e)    2nd(f)       3rd      4th(g)     Total
                 ==============================================================================================================
<S>              <C>        <C>        <C>        <C>        <C>         <C>       <C>        <C>        <C>       <C>

Sales               $ 715.6   $ 741.0    $ 661.3     $ 603.1    $2,721.0   $ 735.0    $ 682.5   $ 647.8   $ 651.5    $2,716.8

Operating
income              $ 106.0   $  96.5    $  53.6     $  18.6    $  274.7   $  92.6    $  88.4   $  51.7   $  70.7    $  303.4

Net earnings        $  40.6   $  51.9    $  45.8     $   5.1    $  143.4   $  35.7    $  72.4   $   5.9   $  24.3    $  138.3

Dividends paid
per common share    $  0.20   $  0.20    $  0.20     $   .20    $   0.80   $  0.20    $  0.20   $  0.20   $  0.20    $   0.80
Stock market
 price:
  High              $32-1/2   $32-1/4    $    34     $31-7/8    $     34   $35-1/4    $35-7/8   $27-7/8   $    28    $ 35-7/8
  Low               $25-1/8   $26-1/2    $    30     $21-3/4    $ 21-3/4   $27-1/2    $27-5/8   $23-3/4   $24-1/8    $ 23-3/4
Net earnings
 per  share:
  Basic             $  0.95   $  1.21    $  1.10     $  0.13    $   3.42   $  0.84    $  1.70   $  0.14   $  0.57    $   3.24
  Diluted           $  0.94   $  1.20    $  1.09     $  0.13    $   3.42   $  0.83    $  1.69   $  0.14   $  0.57    $   3.23

</TABLE>
(a)     Includes a $13.4  after-tax  gain,  $20.7  pre-tax,  on the sale of 43.4
        million shares of Grupo Mexico.

(b)     Includes  a  $10.3  after-tax  gain,  $15.9  pre-tax,  as  a  result  of
        liquidation of LIFO inventories.

(c)     Includes  a $34.2  after-tax  gain,  $52.6  pre-tax,  on the sale of the
        Company's remaining unrestricted shares in Grupo Mexico.

(d)     Includes a $30.0  pre-tax  charge to increase  reserves for closed plant
        and  environmental  matters,  offset  entirely by anticipated  insurance
        recoveries.

(e)     Includes a $7.2  after-tax  gain,  $11.1  pre-tax,  on the sale of a 25%
        interest in the  Company's  Silver Bell  project.  (f)  Includes a $39.0
        after-tax gain,  $60.1 pre-tax,  on the sale of the Company's  remaining
        15.0%  interest in MIM. (g) Includes a pre-tax  charge of $0.6 ($53.3 in
        charges,  including $10.0 related to the application of SOP 96-1, offset
        by $52.7 in insurance and other  recoveries) for environmental and other
        closed plant matters.


Metals Price Sensitivity

Assuming that expected metal production and sales are achieved,  tax and royalty
rates are  unchanged,  that the number of shares  outstanding  is unchanged  and
giving no effect to results of other  business  segments,  hedging  programs  or
changes  in the costs of  production,  metal  price  sensitivity  factors  would
indicate the following  estimated  change in earnings per share  resulting  from
metal  price  changes  in  1998.  Estimates  are  based on 39.7  million  shares
outstanding.
<TABLE>
<CAPTION>
                                                          Copper         Lead         Zinc        Silver         Molybdenum
<S>                                                  <C>             <C>          <C>         <C>           <C>
Change in Metal Price                                 1(cent)/lb.     1(cent)/lb.  1(cent)/lb.    $1/oz          $1/lb.
Annual Change in Earnings per Share                    17.5(cent)     4.8(cent)    1.9(cent)     13.6(cent)      14.1(cent)
</TABLE>




<PAGE>


A69

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of ASARCO Incorporated

We  have  audited  the  accompanying   consolidated  balance  sheets  of  ASARCO
Incorporated  and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated   statements  of  earnings,  cash  flows,  and  changes  in  common
stockholders'  equity for each of the three years in the period  ended  December
31, 1997.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the  consolidated   financial   position  of  ASARCO
Incorporated  and  Subsidiaries  as of  December  31,  1997  and  1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity  with generally
accepted accounting principles.


                                                        COOPERS & LYBRAND L.L.P.


New York, New York
January 27, 1998




<PAGE>


A70

Item 9. Changes in and  Disagreements  with  Accountants  on  Accounting  and
        Financial Disclosure.

None

                                 PART III

Items 10, 11, 12 and 13.

Reference is made to Executive Officers of Asarco and Business Experience During
the Past Five  Years on page A30.  Information  in  response  to the  disclosure
requirements  specified by these items  appears  under the captions and pages of
the 1998 Proxy Statement indicated below:

<TABLE>
                                                                                                      Proxy Statement
                                                                                                           Pages
Item      Required Information                        Proxy Statement Section
<S>       <C>                                         <C>                                            <C>
10.       Directors and Executive
            Officers                                  Election of Directors                                2 - 5
11.       Executive Compensation                      Executive Compensation
                                                        through Option Exercises
                                                        and Fiscal Year-End
                                                        Values                                            11 - 13
                                                      Retirement Plans through
                                                        Employment Agreements                             14 - 19
12.       Security Ownership                          Security Ownership of Certain Beneficial
                                                          Owners through Common Stock Equivalents
                                                                                                           7 - 9
13.       Certain Relationships and Related
             Transactions.                            Certain Transactions                                19 - 20
</TABLE>



The information referred to above is incorporated herein by reference.



<PAGE>


A71
                                                            PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)  The following documents are filed as part of this report:

         1. Financial Statements

                The following  financial  statements of ASARCO  Incorporated and
its  subsidiaries  are included at the indicated pages of the document as stated
below:
<TABLE>
<CAPTION>
                                                                                                       Form 10-K
                                                                                                         Pages
<S>                <C>                                                                                <C>
                   Consolidated Statement of Earnings for the years
                     ended December 31, 1997, 1996 and 1995                                               A42

                   Consolidated Balance Sheet at December 31,
                     1997 and 1996                                                                        A43

                   Consolidated Statement of Cash Flows for the
                     years ended December 31, 1997, 1996 and 1995                                         A44

                   Consolidated Statement of Changes in Common
                     Stockholders' Equity for the years ended
                     December 31, 1997, 1996 and 1995                                                     A45

                   Notes to Financial Statements                                                        A46-A68

                   Report of Independent Accountants                                                      A69



         2.        Financial Statement Schedules

                                                                                                       Form 10-K
                                                                                                         Pages
                   Schedule II - Valuation and qualifying
                       Accounts                                                                          B1-B3

</TABLE>

Schedules other than those listed above are omitted, as they are not required or
are not  applicable,  or the  required  information  is shown  in the  financial
statements or notes  thereto.  Columns  omitted from  schedules  filed have been
omitted because the information is not applicable. Any other information omitted
from schedules filed has been omitted due to immateriality.




<PAGE>


A72

         3. Exhibits

                Exhibit
                  No.

                   3.    Certificate of Incorporation and By-Laws

          (a)       Certificate of Incorporation - restated, filed May 4, 1970

          (b)       Certificate of Amendment to the Certificate of Incorporation
                    effective April 23, 1975

          (c)       Certificate  of Amendment of  Certificate  of  Incorporation
                    executed April 14, 1981

          (d)       Certificate   of  Amendment  of  Restated   Certificate   of
                    Incorporation filed on May 6, 1985

          (e)       Certificate  of Amendment of  Certificate  of  Incorporation
                    filed July 21, 1986

          (f)       Certificate   of  Amendment  of  Restated   Certificate   of
                    Incorporation, as amended filed April 22, 1987

          (g)       Statement  of  Cancellation  filed  July  31,  1987  whereby
                    155,000  shares of Series A Cumulative  Preferred  Stock and
                    862,500 shares of $9.00 Convertible  Exchangeable  Preferred
                    Stock were cancelled

          (h)       Statement of  Cancellation  filed  November 20, 1987 whereby
                    1,026,900 shares of Series A Cumulative Preferred Stock were
                    cancelled

          (i)       Statement of  Cancellation  filed  December 18, 1987 whereby
                    1,250,000   shares  of  Series  B   Cumulative   Convertible
                    Preferred Stock were cancelled

          (j)       Statement of Cancellation filed March 3, 1988 whereby 27,000
                    shares of Series A Cumulative Preferred Stock were cancelled

          (k)       Certificate   of  Amendment  of  Restated   Certificate   of
                    Incorporation, as amended, filed August 7, 1989

          (l)       By-Laws as last amended on June 26, 1991

          4.        Instruments   defining  the  rights  of  security   holders,
                    including indentures

          (a)       There are currently various separate indentures,  agreements
                    or similar  instruments under which long-term debt of Asarco
                    is currently  outstanding.  The Registrant  hereby agrees to
                    furnish to the  Commission,  upon request,  a copy of any of
                    the  instruments  which  define  the  rights of  holders  of
                    long-term   debt   securities.   None  of  the   outstanding
                    instruments represent long-term debt securities in excess of
                    10% of the total assets of Asarco as of December 31, 1997

          (b)       Form of Rights Agreement dated as of July 26, 1989,  between
                    the Company and First  Chicago Trust Company of New York, as
                    Rights Agent,  defining the rights of  shareholders  under a
                    July 1989 Shareholders' Rights plan and dividend declaration



<PAGE>


A73

          (c)       Rights  Agreement  Amendment dated as of September 24, 1992,
                    between the Company and The Bank of New York,  as  Successor
                    Rights Agent under the Rights Agreement listed above

          (d)       Second Rights  Agreement  Amendment dated as of February 23,
                    1995,  between the Company and The Bank of New York deleting
                    certain  special  conditions  relating to MIM. The effect of
                    the  amendment  is to  apply  to  MIM  the  same  percentage
                    ownership   conditions   (15%)   that  apply  to  all  other
                    shareholders.

          (e)       Form of  Rights  Agreement  dated as of  January  28,  1998,
                    between  the  Company  and the Bank of New  York,  as Rights
                    Agent,  defining the rights of shareholders  under a January
                    1998 Shareholders' Rights plan and dividend declaration. The
                    effect of the 1998  Rights plan is to extend the 1989 Rights
                    plan, which expires in 1999.

          (f)       Indenture  Agreement  dated as of February 1, 1993,  between
                    the Company and Bankers Trust Company, as Trustee,  covering
                    the issuance of debt securities registered by the Company in
                    April 1992 not to exceed $250 million

          (g)       Indenture Agreement dated as of October 1, 1994, between the
                    Company and Chemical Bank, as Trustee, covering the issuance
                    of debt securities registered by the Company in October 1994
                    not to exceed $300 million

          10.       Material Contracts

          (a)       Stock Option Plan as amended through November 30, 1994

          (b)       Form of Amended  Employment  Agreement  dated  February  26,
                    1997,  between the Company and currently 12 of its executive
                    officers,   including  Messrs.   R.  de  J.  Osborne,   F.R.
                    McAllister, K.R. Morano, R.M. Novotny and A.B. Kinsolving

          (c)       Deferred Fee Plan for Directors,  as amended through January
                    28, 1998

          (d)       Supplemental   Pension   Plan  for   Designated   Mid-Career
                    Officers, as amended through January 28, 1998

          (e)       Retirement  Plan  for  Non-Employee  Directors,  as  amended
                    through January 28, 1998.  Effective  December 31, 1995, the
                    Company   terminated   the  plan  for   current  and  future
                    directors.

          (f)       Directors'  Stock Award Plan, as amended through January 27,
                    1993

          (g)       Stock  Incentive Plan adopted by the Company's  Shareholders
                    on April 25, 1990 and as amended through November 29, 1995

          (h)       Directors' Deferred Payment Plan, as amended through January
                    28, 1998

          (i)       Incentive  Compensation Plan for Senior Officers,  effective
                    January 1, 1996

          (j)       1996 Stock Incentive Plan, effective April 24, 1996

          (k)       Compensation  Deferral Plan, as amended  through January 28,
                    1998

          11.       Statement re Computation of Earnings Per Share


<PAGE>


A74

          12.       Statement re Computation of Ratios

          21.       Subsidiaries of the Registrant

          23.       Consent of Independent Accountants

         The  exhibits  listed as 10(a)  through  (k)  above are the  management
         contracts or compensatory  plans or  arrangements  required to be filed
         pursuant to Item 14(c) of Form 10-K.

(b)      Reports  of Form 8-K  filed in the  fourth  quarter  of 1997 and  first
         quarter of 1998:

         Current  report filed on March 2, 1998  containing a copy of the Rights
         Agreement  dated as of January  28,  1998,  between the Company and The
         Bank of New York, as Rights Agent,  defining the rights of shareholders
         under  a  January   1998   Shareholders'   Rights  plan  and   dividend
         declaration.  The effect of the 1998  Rights plan is to extend the 1989
         Rights plan which expires in 1999.

(c)      Exhibits - The  exhibits  to this Form 10-K are  listed on the  Exhibit
         Index on pages C1 through  C5.  Copies of the  following  exhibits  are
         filed with this Form 10-K:
           10(c)  Deferred Fee Plan for Directors
           10(d)  Supplemental Pension Plan for Designated Mid-Career Officers
           10(e)  Retirement Plan for Non-Employee Directors
           10(h)  Directors' Deferred Payment Plan
           10(k)  Compensation Deferral Plan
           11.    Statement re Computation of Earnings Per Share
           12.    Statement re Computation of Ratios
           21.    Subsidiaries of the Registrant
           23.    Consent of  Independent  Accountants is included on page A75
                  of this Annual Report on Form 10-K.

Copies   of exhibits may be acquired  upon written  request to the Treasurer and
         the payment of processing and mailing costs.


Individual  financial  statements of subsidiaries and 50%-or-less  owned persons
accounted for by the equity method have been omitted  because such  subsidiaries
and 50%-or-less owned persons considered in the aggregate as a single subsidiary
would not constitute a significant subsidiary.




<PAGE>


A75
                        REPORT OF INDEPENDENT ACCOUNTANTS ON
                              FINANCIAL STATEMENT SCHEDULE



To the Board of Directors and
  Stockholders of ASARCO Incorporated


Our report on the consolidated  financial  statements of ASARCO Incorporated and
Subsidiaries has been included in this Form 10-K on page A69. In connection with
our  audits of such  financial  statements,  we have also  audited  the  related
financial  statement  schedule which appears on pages B1 through B3 of this Form
10-K.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.


                            COOPERS & LYBRAND L.L.P.



New York, New York
January 27, 1998


Item 14
Exhibit 23


                       CONSENT OF INDEPENDENT ACCOUNTANTS


We consent to the  incorporation by reference in the  Prospectuses  constituting
part of the Registration  Statements on Form S-3 (File Nos.  33-45631,  33-55993
and 333-02359) and Form S-8 (File Nos. 2-83782,  2-67732,  33-34606,  333-16875,
333-18083, and 333-46181) of ASARCO Incorporated of our report dated January 27,
1998,  on  our  audit  of  the  consolidated   financial  statements  of  Asarco
Incorporated and  Subsidiaries,  which report appears on page A69 of this Annual
Report on Form 10-K.  We also consent to the  incorporation  by reference of our
report on our audit of the financial statement schedule, which appears above.

We also  consent to the  reference  to our Firm as  experts in the  Prospectuses
referred to in the preceding paragraph only insofar as such reference relates to
our report  appearing on page A69 of this Annual  Report on Form 10-K and to our
report on the financial statement schedule which appears above.


                            COOPERS & LYBRAND L.L.P.


New York, New York
March 20, 1998


<PAGE>


A76
                                                          SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date: February 27, 1998

                                                           ASARCO Incorporated
                                                                  (Registrant)


                          By_/s/ Richard de J. Osborne
                             (Richard de J. Osborne,
                            Chairman of the Board and
                                                   Chief Executive Officer)

Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
(a)          Principal Executive Officer:
<S>          <C>                                                               <C>
             /s/ Richard de J. Osborne      Chairman of the Board
             (Richard de J. Osborne)

(b)          Principal Financial Officer:

             /s/ Kevin R. Morano             Executive Vice President and
             (Kevin R. Morano)                Chief Financial Officer

(c)          Principal Accounting Officer:

             /s/ William Dowd                 Controller
             (William Dowd)

(d)          Directors:

             /s/ Richard de J. Osborne                                         /s/ Willard C. Butcher
             (Richard de J. Osborne)                                           (Willard C. Butcher)

             /s/ Vincent A. Calarco                                            /s/ James C. Cotting
             (Vincent A. Calarco)                                              (James C. Cotting)

             /s/ David C. Garfield                                             /s/ E. Gordon Gee
             (David C. Garfield)                                               (E. Gordon Gee)

             /s/ James W. Kinnear III                                          /s/ Francis R. McAllister
             (James W. Kinnear III)                                            (Francis R. McAllister)

             /s/ Kevin R. Morano                                               /s/ Martha T. Muse
             (Kevin R. Morano)                                                 (Martha T. Muse)

             /s/ Michael T. Nelligan                                           /s/ John D. Ong
             (Michael T. Nelligan)                                             (John D. Ong)

             /s/ Manuel T. Pacheco                                             /s/ James Wood
             (Manuel T. Pacheco)                                               (James Wood)

</TABLE>
Date: February 27, 1998


<PAGE>



 
B1
                               ASARCO Incorporated
                                AND SUBSIDIARIES
                 Schedule II - Valuation and Qualifying Accounts
                                FOR THE YEAR 1997
                                 (in thousands)
<TABLE>
<CAPTION>
      Column A           Column B                               Column C                              Column D             Column E
      --------           --------                               --------                              --------             --------

                                                               Additions                             Deductions
                                     --------------------------------------------------------------------------------------
                                          Charged to
                        Balance at     costs/expenses or                         Charged                                 Balance at
                        beginning         (credited)                            to other                                    end of
Description             of period          to income          Description       accounts      Descriptions       Amount     period
-----------             ---------          ---------          -----------       --------      ------------       ------     ------
<S>                  <C>             <C>                  <C>                 <C>          <C>                <C>         <C>
                                                                                           
                                                                                           Accounts and notes
Deducted from assets                                                                       written off, net of
   on Balance Sheet:                                                                       recoveries            $1,432
                                                                                                                 ======
                                                                                           
                                                                                           Foreign currency
Allowance for                                                                              Translation
 doubtful accounts:       $8,129            $1,921                                         adjustment             $497       $8,121
                          ======            ======                                                                ====       ======
     

                                                        
                                                          
                                                          
Current portion of                                        Net amount
     reserves for                                         transferred from
     closed plants                                        noncurrent reserve                                 
     and                                                  for closed  plants               Current
     environmental                                        and enviornmental                charges to
     matters             $38,128                          matters                $61,819   reserves             $56,709     $43,238
                         =======                                                 =======                        =======     =======

Non-current portion
     of reserves for                                                                       
     closed plants                                                                         Net amount
     and                                                                                   transferred to
     environmental                                                                         current
     matters             $90,205            $50,441                                        liabilities          $61,819     $78,827
                         =======            =======                                                             =======     =======

Included in caption
     "Other                                                                                
     liabilities and                                                                      
     reserves" on                                         Increase in the                  Charges against
     Balance Sheet                                        reserve for                      the reserve for
     Other              $36,938             $7,590        Major Repairs                    Major Repairs         $771       $43,757
                        =======             ======                                                               ====       =======

</TABLE>


<PAGE>


B2
                               ASARCO Incorporated
                                AND SUBSIDIARIES
                 Schedule II - Valuation and Qualifying Accounts
                                FOR THE YEAR 1996
                                 (in thousands)
<TABLE>
<CAPTION>
      Column A           Column B                              Column C                              Column D              Column E
      --------           --------                              --------                              --------              --------

                                                               Additions                            Deductions
                                     -------------------------------------------------------------------------------------
                                          Charged to
                        Balance at      costs/expenses                          Charged                                   Balance at
                        beginning        or (credited)                         to other                                     end of
Description             of period          to income          Description      accounts      Descriptions       Amount      period
-----------             ---------          ---------          -----------      --------      ------------       ------      ------
<S>                  <C>             <C>                  <C>                <C>          <C>                <C>         <C>
                                                                                          
                                                                                          Accounts and notes
Deducted from assets                                                                      written off, net of
   on Balance Sheet:                                                                      recoveries            $1,151
                                                                                                                ======
                         
             
Allowance for                                                                             Foreign currency
     Doubtful                                                                             translation
     accounts:            $7,409            $1,993                                        adjustment             $122        $8,129
                          ======            ======                                                               ====        ======


                    
                  
              
Current portion of                                        Net amount
     reserves for                                         transferred from
     closed plants                                        noncurrent reserve                                                       
     and                                                  for closed plants               Current
     environmental                                        and environmental               charges to
     matters             $53,042                          matters               $39,983   reserves             $54,897      $38,128
                         =======                                                =======                        =======      =======

Non-current portion
     of reserves for                       
     closed plants                                                                         Net amount            
     and                                                                                   transferred to
     environmental                                                                         current
     matters             $62,484            $67,704                                        liabilities          $39,983     $90,205
                         =======            =======                                                            =======      =======

Included in caption
     "Other                                                              
     liabilities and
     reserves" on                                         Increase in the                 Charges against
     Balance Sheet                                        reserve for                     the reserve for
   Other                 $26,018            $13,774       Major Repairs                   Major Repairs         $2,854      $36,938
                         =======            =======                                                             ======      =======
</TABLE>


<PAGE>


B3
                               ASARCO Incorporated
                                AND SUBSIDIARIES
                 Schedule II - Valuation and Qualifying Accounts
                                FOR THE YEAR 1995
                                 (in thousands)
<TABLE>
<CAPTION>
      Column A           Column B                              Column C                              Column D               Column E
      --------           --------                              --------                              --------               --------

                                                               Additions                            Deductions
                                     -------------------------------------------------------------------------------------
                                          Charged to
                        Balance at      costs/expenses                          Charged                                   Balance at
                        beginning        or (credited)                         to other                                      end of
Description             of period          to income          Description      accounts      Descriptions       Amount       period
-----------             ---------          ---------          -----------      --------      ------------       ------       ------
<S>                  <C>             <C>                  <C>                <C>          <C>                <C>         <C>
                       
                                                                                          Accounts and notes
Deducted from assets                                                                      written off, net of
   on Balance Sheet:                                                                      recoveries            $1,125
                                                                                                                ======            
                                                                                          
 Allowance for                                                                           Foreign currency
  doubtful                                                                               translation
  accounts:              $6,249            $2,189                                        adjustment              $(96)       $7,409
                         ======            ======                                                                =====       ======
     

                                                         
                                                          
                                                          
Current portion of                                        Net amount                                       
     reserves for                                         transferred from                                       
     closed plants                                        noncurrent reserve                                                       
     and                                                  for closed plants               Current
     environmental                                        and environmental               charges to
     matters             $55,946                          matters               $73,874   reserves             $76,778      $53,042
                         =======                                                =======                        =======      =======

Non-current portion
     of reserves for                                                                     
     closed plants                                                                        Net amount                               
     and                                                                                  transferred to                           
     environmental                                                                        current
     matters             $66,458            $69,900                                       liabilities          $73,874      $62,484
                         =======            =======                                                            =======      =======

Included in caption
     "Other
     liabilities and
     reserves" on
     Balance Sheet
   Other                 $28,435                                                                                            $26,018
                         =======                                                                                            =======

</TABLE>


<PAGE>





C1
                               ASARCO Incorporated
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit                                                                                                    Indexed
  No.                                                Description                                           on Page
<S>           <C>                                                                                        <C>
3.            Certificate of Incorporation and By-Laws

          (a)       Certificate of  Incorporation - restated,  filed May 4, 1970
                    (Filed as an Exhibit to the Company's  1980 Annual Report on
                    Form 10-K and incorporated herein by reference)

          (b)       Certificate of Amendment to the Certificate of Incorporation
                    effective  April  23,  1975  (Filed  as an  Exhibit  to  the
                    Company's  1980 Annual Report on Form 10-K and  incorporated
                    herein by reference)

          (c)       Certificate  of Amendment of  Certificate  of  Incorporation
                    executed  April  14,  1981  (Filed  as  an  Exhibit  to  the
                    Post-Effective Amendment No. 8 to Registration Statement No.
                    2-47616,  filed  April 30, 1981 and  incorporated  herein by
                    reference)

          (d)       Certificate   of  Amendment  of  Restated   Certificate   of
                    Incorporation  filed on May 6, 1985  (Filed as an Exhibit to
                    the Company's  Quarterly Report on Form 10-Q for the quarter
                    ended March 31, 1985 and incorporated herein by reference)

          (e)       Certificate  of Amendment of  Certificate  of  Incorporation
                    filed July 21,  1986  (Filed as an Exhibit to the  Company's
                    Quarterly Report on Form 10-Q for the quarter ended June 30,
                    1986 and incorporated herein by reference)

          (f)       Certificate   of  Amendment  of  Restated   Certificate   of
                    Incorporation,  as amended filed April 22, 1987 (Filed as an
                    Exhibit to the Company's 1987 Annual Report on Form 10-K and
                    incorporated herein by reference)

          (g)       Statement  of  Cancellation  filed  July  31,  1987  whereby
                    155,000  shares of Series A Cumulative  Preferred  Stock and
                    862,500 shares of $9.00 Convertible  Exchangeable  Preferred
                    Stock were  cancelled  (Filed as an Exhibit to the Company's
                    1987 Annual Report on Form 10-K and  incorporated  herein by
                    reference)

          (h)       Statement of  Cancellation  filed  November 20, 1987 whereby
                    1,026,900 shares of Series A Cumulative Preferred Stock were
                    cancelled  (Filed as an Exhibit to the Company's 1987 Annual
                    Report on Form 10-K and incorporated herein by reference)

          (i)       Statement of  Cancellation  filed  December 18, 1987 whereby
                    1,250,000   shares  of  Series  B   Cumulative   Convertible
                    Preferred  Stock were cancelled  (Filed as an Exhibit to the
                    Company's  1987 Annual Report on Form 10-K and  incorporated
                    herein by reference)

</TABLE>


<PAGE>


C2
                               ASARCO Incorporated
                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit                                                                                                     Indexed
  No.                                                Description                                            on Page
<S>           <C>                                                                                        <C>
          (j)       Statement of Cancellation filed March 3, 1988 whereby 27,000
                    shares of Series A Cumulative Preferred Stock were cancelled
                    (Filed as an Exhibit to the Company's  1987 Annual Report on
                    Form 10-K and incorporated herein by reference)

          (k)       Certificate   of  Amendment  of  Restated   Certificate   of
                    Incorporation, as amended, filed August 7, 1989 (Filed as an
                    Exhibit to the Company's  Quarterly  Report on Form 10-Q for
                    the quarter ended June 30, 1989 and  incorporated  herein by
                    reference)

          (l)       By-Laws  as last  amended  on June  26,  1991  (Filed  as an
                    Exhibit to the Company's 1991 Annual Report on Form 10-K and
                    incorporated herein by reference.)

4.       Instruments   defining  the  rights  of  security  holders,   including
         indentures

          (a)       There are currently various separate indentures,  agreements
                    or similar  instruments under which long-term debt of Asarco
                    is currently  outstanding.  The Registrant  hereby agrees to
                    furnish to the  Commission,  upon request,  a copy of any of
                    the  instruments  which  define  the  rights of  holders  of
                    long-term   debt   securities.   None  of  the   outstanding
                    instruments represent long-term debt securities in excess of
                    10% of the total assets of Asarco as of December 31, 1997

          (b)       Form of Rights Agreement dated as of July 26, 1989,  between
                    the Company and First  Chicago Trust Company of New York, as
                    Rights Agent,  defining the rights of  shareholders  under a
                    July 1989 Shareholders' Rights plan and dividend declaration
                    (Filed as an  Exhibit  to the  Company's  report on Form 8-K
                    filed on July 28, 1989 and incorporated herein by reference)

          (c)       Rights  Agreement  Amendment dated as of September 24, 1992,
                    between the Company and The Bank of New York,  as  Successor
                    Rights Agent under the Rights  Agreement listed above (Filed
                    as an Exhibit to the  Company's  1992 Annual  Report on Form
                    10-K and incorporated herein by reference)

          (d)       Second Rights  Agreement  Amendment dated as of February 23,
                    1995, between the Company and The Bank of New York (Filed as
                    an  Exhibit  to the  Company's  report  on Form 8-K filed on
                    February 24, 1995, and incorporated herein by reference)

          (e)       Form of  Rights  Agreement  dated as of  January  28,  1998,
                    between  the  Company  and The Bank of New  York,  as Rights
                    Agent,  defining the rights of shareholders' under a January
                    1998  Stockholders'  Rights  plan and  dividend  declaration
                    (filed  as an  Exhibit  to the  Company's  Form 8-K filed on
                    March 2, 1998, and incorporated herein by reference)
</TABLE>


<PAGE>


C3
                               ASARCO Incorporated
                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit                                                                                                     Indexed
  No.                                                Description                                            on Page
<S>           <C>                                                                                        <C>
          (f)       Indenture Agreement dated as of February 1, 1993 between the
                    Company and Bankers Trust Company, as Trustee,  covering the
                    issuance  of debt  securities  registered  by the Company in
                    April 1992,  not to exceed $250 million (Filed as an Exhibit
                    to the  Company's  1992  Annual  Report  on  form  10-K  and
                    incorporated herein by reference)

          (g)       Indenture  agreement dated as of October 1, 1994 between the
                    Company and Chemical Bank, as Trustee  covering the issuance
                    of debt  securities  registered  by the  Company  in October
                    1994, not to exceed $300 million (Filed as an Exhibit to the
                    Company's  registration  statement  on  Form  S-3  filed  on
                    October 12, 1994, and incorporated herein by reference)

10.                 Material Contracts
              
          (a)       Stock  Option  Plan as last  amended on  November  30,  1994
                    (Filed as an Exhibit to the Company's  1994 Annual Report on
                    Form 10-K and incorporated herein by reference)

          (b)       Form of Amended  Employment  Agreement  dated  February  26,
                    1997,  between the Company and currently 12 of its executive
                    officers,   including  Messrs.   R.  de  J.  Osborne,   F.R.
                    McAllister,  K.R. Morano,  R.M. Novotny and A.B.  Kinsolving
                    (Filed as an Exhibit to the Company's  1996 Annual Report on
                    Form 10-K and incorporated herein by reference)

          (c)       Deferred Fee Plan for Directors,  as amended through January
                    28,  1998   C11-C15  (d)   Supplemental   Pension  Plan  for
                    Designated  Mid-Career Officers,  as amended through January
                    28, 1998 C16-C24

          (e)       Retirement  Plan  for  Non-Employee  Directors,  as  amended
                    through January 28, 1998.  Effective  December 31, 1995, the
                    Company   terminated   the  plan  for   current  and  future
                    directors.  C25-C30 (f)  Directors'  Stock  Award  Plan,  as
                    amended through January 27, 1993 (Filed as an Exhibit to the
                    Company's  1992 Annual Report on Form 10-K and  incorporated
                    herein by reference)

          (g)       Stock  Incentive Plan adopted by the Company's  Shareholders
                    on April 25,  1990,  as last  amended on  November  29, 1995
                    (Filed as an Exhibit to the Company's  1995 Annual Report on
                    Form 10-K and incorporated herein by reference)

          (h)       Director's Deferred Payment Plan, as amended through January
                    28, 1998 C31-C37 (i) Incentive  Compensation Plan for Senior
                    Officers,  effective  January 1, 1996 (Filed on Exhibit B to
                    the Company's 1996 Proxy  Statement  filed on March 12, 1996
                    and incorporated herein by reference)

</TABLE>


<PAGE>


C4
                               ASARCO Incorporated
                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit                                                                                                     Indexed
  No.                                                Description                                            on Page
<S>           <C>                                                                                        <C>
          (j)       1996 Stock Incentive  Plan,  effective April 24, 1996 (Filed
                    as an Exhibit to the  Company's  Registration  Statement  on
                    Form S-8 filed on December 17, 1996, and incorporated herein
                    by reference)

          (k)       Compensation  Deferral Plan as amended  through  January 28,
                    1998 C38-C48 11.  Statement re  Computation  of Earnings Per
                    Share C5

12.      Statement re Computation of Ratios C6

21.      Subsidiaries of the Registrant C7-C10

23.      Consent of  Independent  Accountants  is  included  on page A75 of this
         Annual Report on Form 10-K.
</TABLE>

Report on Form 11-K  relating  to the Savings  Plan for  Salaried  Employees  of
ASARCO Incorporated and Participating Subsidiaries is to be filed by amendment
on Form 10-K/A.

Copies of exhibits may be acquired upon written request to the Treasurer and the
payment of processing and mailing costs.




<PAGE>


C5

Exhibit 11 Statement re Computation of Earnings per Share


This calculation is submitted in accordance with regulation S-K item 601(b)(11).


Fully Diluted Earnings per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                               For the years ended December 31,

                                                                               1997             1996             1995
<S>                                                                       <C>             <C>               <C>
Net earnings (loss) applicable to common stock                                $143,392          $138,336        $169,153
                                                                          =============== ================= ===============


Weighted average number of common shares outstanding
                                                                                41,903            42,711          42,326
      Shares issuable from assumed excercise of Stock Options
                                                                                    73                58             132
                                                                          =============== ================= ===============
Weighted average number of common shares outstanding, as adjusted
                                                                                41,976            42,769          42,458
                                                                          =============== ================= ===============

Diluted earnings per share:
    Net earnings (loss) applicable to common stock                               $3.42             $3.23           $3.98
                                                                          =============== ================= ===============

Basic earnings per share:
    Net earnings (loss) applicable to common stock                               $3.42             $3.24           $4.00
                                                                          =============== ================= ===============

</TABLE>


<PAGE>



C6


Exhibit 12 Statement re Computation of Consolidated Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Share Dividend Requirements   
------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                       1997          1996          1995           1994          1993
                                                       ----          ----          ----           ----          ----
                                                                     (Dollars in thousands)
<S>                                              <C>           <C>           <C>            <C>           <C>
NET EARNINGS                                          $143,392       $138,336     $169,153       $ 64,034      $ 15,619
  Adjustments
    Taxes on Income                                     72,356         99,924      122,465          9,375       (36,503)
     Equity Earnings, Net of
          Taxes                                         (7,706)        (3,837)      (1,837)       (47,653)      (27,384)
     Cumulative Effect of Change
       in Accounting Principle                               -              -            -              -       (86,295)
     Dividends received from
       non-consolidated
       companies                                         5,209          4,047        1,828         14,301         1,676
     Total Fixed Charges                                84,972         83,553       99,516         66,377        64,359
     Interest Capitalized                               (5,515)        (2,839)      (3,256)          (869)       (4,010)
     Capitalized Interest Amortized                      2,113          2,274        2,949          1,727         1,629
     Minority interest                                  90,605         88,331      129,543            809           693
                                                      --------       --------     --------       --------      --------
EARNINGS (LOSS)                                       $385,426       $409,789     $520,361       $108,101      $(70,216)
                                                      ========       ========     ========       ========      ========
FIXED CHARGES
     Interest Expense                                 $ 74,247       $ 76,442     $ 91,954       $ 62,529      $ 57,321
     Interest Capitalized                                5,515          2,839        3,256            869         4,010
     Imputed Interest Expense                            5,210          4,272        4,306          2,979         3,028
                                                      --------       --------     --------       --------      --------
TOTAL FIXED CHARGES                                   $ 84,972       $ 83,553     $ 99,516       $ 66,377      $ 64,359
                                                      ========       ========     ========       ========      ========
Ratio of Earnings to Fixed Charges                        4.5             4.9          5.2            1.6           (a)
                                                      ========        ========     ========       ========      ========
</TABLE>
(a)      For the year ended  1993  earnings  were  insufficient  to cover  fixed
         charges by $134,575.





<PAGE>



C7


Item 14.     (c) Exhibit 21    Subsidiaries of the Registrant

<TABLE>
<CAPTION>
                                                                                           Percentage of
                                                                                         voting securities         Key to
                                                                                           owned or other          notes
                                     Name of Company                                      bases of control         below
<S>    <C>                                                                           <C>                         <C>
       PARENTS:  None

       Registrant:  ASARCO Incorporated                                                                             (A)

       SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES:

1      Air Resources Corporation (Delaware)                                            100.0                        (A)
2      Alta Mining and Development Company (Utah)                                       62.4                        (C)
3      American Limestone Company, Inc. (Delaware)                                     100.0                        (A)
4      American Smelting and Refining Company (New Jersey)                             100.0                        (C)
5      AR Mexican Explorations Inc. (Delaware)                                         100.0                        (A)
6         Minera San Bernardo, S.A. de C.V. (Mexico)                                       100.0                    (A)
7      AR Mexican Holdings, Inc. (Delaware)                                            100.0                        (A)
8         AR Specialty Chemicals, S. A. de C.V. (Mexico)                                   100.0                    (A)
9           Enthone-OMI de Mexico S.A. de C.V. (Mexico)                                         100.0               (A)
10            Rafco Kemicals S.A. de C.V. (Mexico) (See 41)                                          17.0           (B)
11     AR Silver Bell, Inc. (Delaware)                                                 100.0                        (A)
12        Silver Bell Mining, L.L.C. (Delaware)                                             75.0                    (A)
13     AR Montana Corporation (Delaware)                                               100.0                        (A)
14     Asarco Arizona, Inc. (Delaware)                                                 100.0                        (A)
15     Asarco (Delaware) Incorporated (Delaware)                                       100.0                        (C)
16     Asarco Exploration Company, Inc. (New York)                                     100.0                        (A)
17        ASARCO Guyane Francaise S.A.R.L.                                             100.0                        (A)
18        Empresa Minera Manquiri S.R.L. (Bolivia) (See 94)                             50.0                        (A)
19     Asarco Exploration Company of Canada, Limited
         (Canada)                                                                      100.0                        (A)
20     Asarco Finance Limited (Bermuda)                                                100.0                        (C)
21     Asarco International Corporation (Delaware)                                     100.0                        (A)
22     Asarco International Corp. FSC (Virgin Islands)                                 100.0                        (A)
23     Asarco de Mexico (Delaware) Inc.                                                100.0                        (C)
24     Asarco Oil and Gas Company, Inc. (New York)                                     100.0                        (A)
25     Asarco Peruvian Exploration Company (Delaware)                                  100.0                        (A)
26     ASARCO Santa Cruz, Inc. (Delaware)                                              100.0                        (A)
27        Covington Land Company (Delaware)                                                100.0                    (A)
28        CP Water Company (Arizona)                                                       100.0                    (A)
29     Asarco Trans-Ural Company (Delaware)                                            100.0                        (C)
30        Asarco Aginskoe, Inc. (Delaware)                                                 100.0                    (C)
31     BioTrace Laboratories, Incorporated (Utah)                                      100.0                        (C)
32     Bridgeview Management Company, Inc. (New Jersey)                                100.0                        (A)
33     Compania Minera Asarco, S.A. (Chile)                                            100.0                        (A)
34     Copper Basin Railway, Inc. (Delaware)                                            45.0                      (B) (D)
35     Domestic Realty Company, Inc. (Montana)                                         100.0                        (A)
36     Encycle, Inc. (Delaware)                                                        100.0                        (A)
37        Hydrometrics, Inc. (Delaware)                                                    100.0                    (A)
38        Encycle/Texas, Inc. (Delaware)                                                   100.0                    (A)
39     Enthone, Incorporated (New York)                                                100.0                        (A)
40        Meltex, Inc. (Japan)                                                              16.25                 (B) (D)
41          Enthone-OMI (Singapore) Pte. Ltd. (Singapore)                                         1.6               (A)
          (See 81)
42        Rafco Kemicals, S.A. de C.V. (Mexico) (See 10)                                    34.0                    (C)
43     Enthone-OMI, Inc. (Delaware)                                                    100.0                        (A)
</TABLE>


<PAGE>


C8

Form 10-K

Item 14.    (c) Exhibit 21    Subsidiaries of the Registrant
<TABLE>
<CAPTION>
                                                                                           Percentage of
                                                                                         voting securities         Key to
                                                                                           owned or other          notes
                                      Name of Company                                     bases of control         below
<S>     <C>                                                                          <C>                         <C>


        SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES, cont'd:


44        Ebara-Udylite Co., Ltd. (Japan)                                                   45.0                  (B) (D)
45        Electroplating Engineers of Japan Ltd. (Japan)                                    25.0                  (B) (D)
         (See 72)
46           Electroplating Engineers S.A. (Switzerland)                                         24.0             (B) (D)
            (see 48)
47         Enthone-OMI (Australia) Pty. Ltd. (Victoria,                                    100.0                    (A)
             Australia)
48         Enthone-OMI (Benelux) B.V. (The Netherlands)                                    100.0                    (A)
49           Electroplating Engineers S.A. (Switzerland)                                         20.0             (B) (D)
            (see 45)
50           Enthone-OMI (France) S.A. (France) (See 53)                                         28.5               (A)
51         Enthone-OMI (Canada) Inc. (Ontario, Canada)                                     100.0                    (A)
52         Enthone-OMI (Deutschland)GmbH (Germany)                                         100.0                    (A)
53          IMASA B.V. (The Netherlands)                                                   100.0                    (A)
54         Enthone-OMI (France) S.A. (France) (See 49)                                      71.5                    (A)
55         Enthone-OMI Holdings (U.K.) Ltd. (United                                     82.41                       (A)
          Kingdom) (see 67)
56           AMZA Ltd. (Israel)                                                                  33.3             (B) (D)
57           Enthone-OMI (U.K.) Limited (United Kingdom)                                   100.0                    (A)
58           L.P.W. Chemie GmbH (Germany)                                                        49.0             (B) (D)
59             Blasberg Oberflaechentechnik GmbH (Germany)                                          100.0           (A)
60             Galvano Production Chemie GmbH (Germany)                                             100.0           (A)
61             Nihon LPW K.K. (Japan)                                                                40.0           (B)
62         Enthone-OMI (Hong Kong) Company Limited (Hong                                     5.5                    (A)
          Kong) (See 78)
63         Enthone-OMI (Italia) S.p.A. (Italy) (See 68)                                     51.6                    (A)
64         Enthone-OMI K.K. (Japan)                                                        100.0                    (A)
65         Enthone-OMI (Sverige) A.B. (Sweden)                                             100.0                    (A)
66             IMASA Kemi A.B. (Sweden)                                                    100.0                    (A)
67         Enthone-OMI Holdings (Europe) S.A. (France)                                     100.0                    (A)
68          Enthone-OMI Holdings (U.K.) Ltd. (United                                          17.59                 (A)
            Kingdom) (See 54)
69           Enthone-OMI (Italia) S.p.A. (Italy) (See 62)                                        48.4               (A)
70           Imasa A.G. (Switzerland)                                                            40.0             (B) (D)
71           Internacional de Manufacturas Asociadas, S.A.                                      100.0               (A)
            (Spain)
72         OMI Holding S.A. (Switzerland)                                                  100.0                    (A)
73           Electroplating Engineers of Japan Ltd. (Japan)                                      25.0             (B) (D)
            (See 44)
74           Enthone-OMI (Suisse) S.A. (Switzerland)                                            100.0               (A)
75         OMI International Corporation (Delaware)                                        100.0                    (A)
76           Enthone-OMI (Austria) GmbH (Austria)                                               100.0               (A)
77           Enthone-OMI (Espana) S.A. (Spain)                                                  100.0               (A)
</TABLE>


<PAGE>


C9

Form 10-K

Item 14.    (c) Exhibit 21    Subsidiaries of the Registrant
<TABLE>
<CAPTION>
                                                                                           Percentage of
                                                                                         voting securities         Key to
                                                                                           owned or other          notes
                                      Name of Company                                     bases of control         below

         SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES, cont'd:


<S>      <C>                                                                         <C>                          <C>
78            Enthone-OMI (Europe) Corporation (Delaware)                                       100.0                 (A)
79            Enthone-OMI (Hong Kong) Company Limited (Hong                                      94.5                 (A)
            Kong) (See 61)
80              Hua-Mei Electroplating Technology Company Ltd.                                       51.0         (B) (D)
              (People's Rep.of China)
81              Hua-Mei (Tianjin) Electroplating Technology                                          51.0         (B) (D)
                 Company, Ltd.
82            Enthone-OMI (Singapore) Pte. Ltd. (Singapore)                                      98.4               (A)
              (See 40)
83              Enthone-OMI (Malaysia) SDN BHD (Malaysia)                                           100.0           (A)
84       Federated Metals Canada Limited (Canada)                                      100.0                        (A)
85          Federated Genco Limited (Canada)                                                60.0                  (B) (D)
86       Federated Metals Corporation (New York)                                       100.0                        (A)
87          LSLC Corp. (New York).                                                         100.0                    (C)
88       Geominerals Insurance Company, Ltd. (Bermuda)                                 100.0                        (A)
89       Grupo Mexico, S.A. de C.V. (Mexico)                                             8.17                     (B) (F)
90       Lac d'Amiante du Quebec, Ltee (Delaware)                                      100.0                        (A)
91          LAQ Canada, Ltd. (Delaware)                                                         100.0               (A)
92       Mines Trading Company Limited (United Kingdom)                                100.0                        (C)
93       Mining Development Company (Delaware)                                         100.0                        (A)
94          Empresa Minera Manquiri S.R.L. (Bolivia) (See 18)                           50.0                        (A)
95       Minto Explorations Ltd. (British Columbia)                                     55.77                       (A)
96       Mission Exploration Company (Delaware)                                        100.0                        (A)
97            Lesarco, Inc. (Phillipines)                                                   30.0                    (A)
98       NCBR, Inc. (Delaware)                                                         100.0                        (A)
99       Neptune Mining Company (Delaware)                                              52.2                      (B) (D)
100      Northern Peru Mining Corporation (Delaware)                                   100.0                        (A)
101      Silver Valley Resources Corporation (Delaware)                                 50.0                        (A)
102      Southern Peru Copper Corporation (Delaware)                                    62.6                      (A) (E)
103           Southern Peru Limited (Delaware)                                         100.0                        (A)
104             Fomenta, S.A. (Peru)                                                        99.50                   (A)
105               Pegasus Travels, S.A. (Peru)                                                   90.0               (A)
106             Logistics Services Incorporated (Delaware)                                 100.0                    (A)
107               LSI-Peru, S.A. (Peru)                                                          98.18              (A)
108             Global Natural Resources Inc. (Delaware)                                   100.0                    (C)
109             Multimines Corporation (Delaware)                                          100.0                    (B)
110             Multimines Insurance Company, Ltd. (Bermuda)                               100.0                    (A)
111             Recursos e Inversiones Andinas, S.A. (Peru)                                 99.99                   (A)
112               Compania Minera Los Tolmos, S.A. (Peru)                                        98.05              (B)
113      The International Metal Company (New York)                                    100.0                        (A)
114      Tulipan Company, Inc. (Delaware)                                               63.0                        (B)

</TABLE>


<PAGE>


C10

Form 10-K

                                      NOTES

(A) Included in financial statements of Registrant and consolidated subsidiaries
at December 31, 1997, filed as part of this Form 10-K.

(B)  Excluded  from  financial   statements  of  Registrant   and   consolidated
subsidiaries  filed as part of this Form  10-K,  except to the  extent  noted in
Notes  D,  E and  F.  These  companies  are  not  in  the  aggregate  considered
significant.


(C) Inactive, having no assets or liabilities.


(D)  Carried on the  equity  method.  None of the  50%-or-less  owned  companies
constitutes a significant subsidiary.


(E) Effective January 1, 1995, Asarco consolidated the financial results of SPCC
in its financial statements. Previously, SPCC was accounted for under the equity
method.

(F) Grupo Mexico is carried on the cost method.





<PAGE>


C11
                               ASARCO INCORPORATED

                         DEFERRED FEE PLAN FOR DIRECTORS
                       As Last Amended on January 28, 1998


  Section 1.    Effective Date. The effective date of the ASARCO Incorporated
                Deferred  Fee Plan For  Directors  (the  "Plan"),  is January 1,
                1982.
                        

  Section 2.    Eligibility.   Any  Director  of  ASARCO  Incorporated  (the
                "Company") is eligible to participate in the Plan.
                        

  Section 3.    Deferred   Compensation  Account.  A  deferred  compensation
                account  shall be  established  for each  Director who elects to
                participate in the Plan. Each Director's  deferred  compensation
                account  shall  consist  of  a  cash   subaccount  and  a  stock
                subaccount.

  Section 4.    Amount of Deferral.  A participant may elect to defer receipt
                of  all  or  one-half  of  the   compensation   payable  to  the
                participant  for serving on the Board of Directors or committees
                of the Board of Directors of the Company. An amount equal to the
                compensation  deferred  will be  credited  to the  participant's
                deferred  compensation  account on the date such compensation is
                otherwise payable.

  Section 5.    Time of Election  of  Deferral.  The first  election to defer
                compensation   received   during  the  calendar  year,  and  any
                subsequent  election modifying the prior election as provided in
                Section 10,  shall be effective  when made and,  with respect to
                the  percentage of  compensation  deferred,  shall only apply to
                compensation  not then  earned.  An  election,  as  subsequently
                modified,  shall continue in force with respect to  compensation
                earned  during such  calendar year until the Company is notified
                in  writing  that the  participant  no  longer  wishes  to defer
                compensation for future services on the Board of Directors.

  Section 6.    Cash Subaccount.  Any compensation which a director elects to
                defer pursuant to this Plan shall be credited to such Director's
                cash subaccount  unless such Director elects in writing that all
                or  a  portion  of  such  deferral  be  credited  to  his  stock
                subaccount  in  accordance  with  Section 7 of this  Plan.  Each
                deferred  compensation  cash  subaccount  will be credited  with
                interest  from  the date on which  deferred  compensation  would
                normally have been paid,  until payment,  at a rate equal to the
                prime rate of The Chase  Manhattan Bank (National  Association),
                on the first day of each calendar quarter in which such interest
                is  credited to the  participant's  deferred  compensation  cash
                subaccount. Interest shall be compounded quarterly.

  Section 7.    Stock Election. A Director may elect in writing that all or a
                portion,  in  increments  of  25%,  of  the  compensation  he is
                deferring  pursuant  to the Plan for any year be credited to his
                deferred  compensation  stock subaccount in lieu of his deferred
                compensation cash subaccount.

        An  election by a Director  to have an amount  credited to his  deferred
compensation stock subaccount must be received by the Company prior to January 1
of the calendar  year during which the election is to be effective  and shall be
irrevocable  for the  entire  year.  Such  election  shall  remain in effect for
subsequent  years unless  changed prior to the January 1 of any such  subsequent
year. Notwithstanding the foregoing, however, any such election which is to take
effect in 1988 must be received by the Company  prior to April 1, 1988 and shall
be effective only for compensation earned on and after that date.



<PAGE>


C12

        A  bookkeeping  entry  shall be made of the  number  of whole  shares of
Company  common  stock which could be  purchased  at fair market  value with the
compensation  credited to such stock  subaccount on the day such amount normally
would have been paid to the Director.

        The stock  subaccount  also shall be credited with a  bookkeeping  entry
indicating  the number of  additional  whole  shares which would be payable as a
stock dividend on the shares previously credited to the stock subaccount.

        Any deferred  compensation  amounts which are insufficient to permit the
crediting of a whole share of Company  common stock and any amounts  which would
represent cash dividends on Company common stock credited to a stock  subaccount
shall be carried as a cash balance  bookkeeping  entry in such stock subaccount.
At such time as the cash  balance  equals at least the fair market  value of one
share of Company  common  stock,  the cash  balance  bookkeeping  entry shall be
converted  to an entry  representing  the number of  additional  whole shares of
Company  common  stock which could be  purchased  at fair market value with such
balance.  No  interest  shall be  credited  on any such  stock  subaccount  cash
balance.

        For  purposes  of this  Section  7,  "fair  market  value" of a share of
Company common stock shall mean the average of the of the high and low prices of
a single share of Company  common  stock as reported by the Wall Street  Journal
for New York  Stock  Exchange-Composite  Trading  as of the  first  trading  day
coincident  with or next  following  the day as of  which  such  value  is to be
determined.

        No  election  may be made  to  have  amounts  previously  credited  to a
Director's  deferred  compensation cash subaccount credited instead to his stock
subaccount, and no election may be made to have amounts previously credited to a
Director's stock subaccount credited instead to a cash subaccount.

 Section 8.     Value of Deferred  Compensation  Accounts.  The value of each
                participant's  deferred  compensation  account shall include the
                compensation deferred pursuant to Section 4 which is credited to
                a Director's deferred compensation cash subaccount, the interest
                credited on such  compensation  pursuant to Section 6, the value
                of any shares of Company common stock credited to the Director's
                deferred  compensation  stock  subaccount  and the cash  balance
                credited to such stock subaccount,  less any payments made under
                Section 9.

 Section 9.     Payment   of   Deferred   Compensation.   The  value  of  a
                participant's deferred compensation cash subaccount and deferred
                compensation  stock account shall be payable solely in cash. All
                payments of a participant's  deferred compensation account shall
                be made in a lump sum or in annual  installments  in  accordance
                with an election made by the  participant as provided in Section
                10. At a participant's  election,  such payments may commence on
                January 15 of any year  subsequent to the fourth year  following
                the year in which such fees are  earned,  provided,  that in all
                cases payment  shall  commence on the January 15 of the calendar
                year following termination of services as a Director.

        If the annual  installments are elected,  such payments shall be made on
each January 15 in  accordance  with the  participant's  election as provided in
Section 10. The amount of the first payment  attributable to the cash subaccount
shall be a  fraction  of the value of the  participant's  cash  subaccount,  the
numerator  of which is one and the  denominator  of which is the total number of
installments  elected,  and the  amount of each  subsequent  payment  shall be a
fraction of the value  (including  interest  earned) on the date  preceding each
subsequent  payment,  the numerator of which is one and the denominator of which
is the total number of  installments  elected  minus the number of  installments
previously paid.



<PAGE>


C13

        The amount of the first  payment  attributable  to the stock  subaccount
shall be a fraction of the value of the  participant's  stock subaccount  (based
upon the fair market value of the stock determined under Section 7 plus any cash
balance),  the  numerator  of which is one and the  denominator  of which is the
number of installments  elected, and the amount of each subsequent payment shall
be a fraction of the redetermined  value of the participant's  stock subaccount,
the numerator of which is one and the  denominator  of which is the total number
of installments elected minus the number of installments previously paid.

        If one lump sum payment is elected,  such  payment  shall be made on the
date  designated in accordance  with the  participant's  election as provided in
Section 10.

 Section 10.    Manner  of  Electing  Deferral  and  Payment;   Changes  in
                Election.  A participant  shall elect to defer  compensation  by
                giving  written  notice to the Company on a form provided by the
                Company, which notice shall include (1) the percentage amount to
                be deferred; (2) an election of a lump sum payment or the number
                of annual  installments  (not to exceed  ten) for the payment of
                the  deferred  compensation;  and (3) the  date of the  lump sum
                payment or of the first installment  payment, as appropriate.  A
                participant's  election shall remain in effect unless changed in
                the  manner  set forth  below.  A  participant  may  change  his
                election with respect to the  percentage of deferral at any time
                by  submitting a new written  notice to the  Company,  provided,
                that  such  a  changed  election  will  be  effective  only  for
                compensation  subsequently  earned  during the calendar  year to
                which the  election  applies.  All deferred  elections  shall be
                irrevocable as to compensation  previously earned and may not be
                changed as to the form or time of payments.  Notwithstanding the
                foregoing,  prior to the calendar year in which  payments  would
                otherwise  commence,  a  participant  may request  the  Company,
                subject  to the  discretion  of the  Company,  (i) to change his
                election  with  respect to the form and time of  payments of his
                cash subaccount  and/or (ii) to change his election with respect
                to the form and time of  payments  of his  stock  subaccount  in
                connection  with his  retirement or  termination  as a Director,
                provided,  that no such  change may  accelerate  the time of the
                initial  payment  date of any  deferred  amount,  or  delay  the
                scheduled  initial  payment  day for a period of less than three
                years.

 Section 11.    Designation of  Beneficiary.  A participant may designate a
                beneficiary  by giving written notice to the Company on the form
                described in Section 10. If no beneficiary  is  designated,  the
                beneficiary will be the  participant's  estate. If more than one
                beneficiary statement has been filed, the beneficiary designated
                in the statement bearing the most recent date will be deemed the
                valid beneficiary.

  Section 12.   Death of  Participant  or  Beneficiary.  In the  event of a
                participant's  death  before he has received all of the deferred
                payments  to which he is  entitled  hereunder,  the value of the
                participant's deferred compensation account shall be paid to the
                estate or designated  beneficiary of the deceased participant in
                one lump sum on the first  January 15 or July 15 following  such
                date of death,  or as soon as  reasonably  possible  after  such
                January 15 or July 15,  unless the  participant  has  elected to
                continue without change the schedule for payment of benefits.

        If the  distribution is to be made to a beneficiary and such beneficiary
dies before such distribution has been made, the amount of the distribution will
be paid to the estate of the beneficiary in one lump sum.



<PAGE>


C14

 Section 13.    Participant's Rights Unsecured. The right of any participant
                to receive future  installments under the provisions of the Plan
                shall be  contractual  in nature only,  however,  the amounts of
                such  installments  may be held in a trust,  the assets of which
                shall  be  subject  to  the  claims  of  the  Company's  general
                creditors in the event of  bankruptcy or  insolvency  only.  Any
                installment  paid from such  trust  shall  reduce  the amount of
                benefits owed by the Company.

 Section 14.    Statement   of  Account.   Statements   will  be  sent  to
                participants by the end of February of each year as to the value
                of  their  deferred  compensation  accounts  as of  the  end  of
                December of the preceding year.

 Section 15.    Assignability.  No right to receive payments hereunder shall
                be  transferable  or assignable by a participant or beneficiary,
                except  by will or  by the  laws of descent and distribution.
               

 Section 16.    Participation  in Other  Plans.  Nothing  in this Plan will
                affect  any right  which a  participant  may  otherwise  have to
                participate in any other  retirement plan or agreement which the
                Company may have now or hereafter.

 Section 17.    Change of Control.  (a)  Notwithstanding any other provision
                of this Plan,  in the event of a Change of Control  (as  defined
                below),  no  person  that  is  not a  participant  in  the  Plan
                immediately  prior to such Change of Control  shall be permitted
                to be a  participant  under the Plan  following  such  Change of
                Control.  Upon and after a Change of Control,  this Plan may not
                be  amended,  modified  or  terminated  if any  such  amendment,
                modification or termination  would adversely  affect any accrued
                benefits of a  participant  or his or her rights with respect to
                such accrued  benefits in the Plan,  unless any such  amendment,
                modification  or  termination  is consented to in writing by all
                such participants.  Upon a Change of Control,  payment of all of
                the  value of any and all  amounts  accrued  to the  participant
                hereunder  shall  be  made  to a  participant  immediately.  For
                purposes of  calculating  such  payment,  a  participant's  cash
                subaccount  and/or  stock  subaccount  shall be valued as of the
                date of the Change of Control.

(b)      Participants who are receiving annual installment  payments pursuant to
         Section 10 as of January 28, 1998, who do not consent to the provisions
         of this Section 17 within sixty (60) days of the date of notice of this
         amendment  shall  continue to receive  annual  installment  payments as
         elected pursuant to Section 10 hereof following a Change of Control.

(c)      For  purposes of this Plan,  a "Change of  Control"  shall be deemed to
         have occurred if:

                  (1) any "person",  as such term is used in Sections  13(d) and
         14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
         Act") (other than the Company,  any trustee or other fiduciary  holding
         securities  under  an  employee  benefit  plan of the  Company,  or any
         company  owned,  directly or  indirectly,  by the  stockholders  of the
         Company in substantially the same proportions as their ownership of the
         stock of the Company), is or becomes the "beneficial owner" (as defined
         in Rule 13d-3  under the  Exchange  Act),  directly or  indirectly,  of
         securities of the Company representing either 31% or more of the voting
         power of all classes of capital stock of the Company or 33-1/3% or more
         of the then outstanding common stock without par value, of the Company;



<PAGE>


C15

                  (2)  the  following   individuals  cease  for  any  reason  to
         constitute  a  majority  of  the  number  of  directors  then  serving:
         individuals who, on the date hereof,  constitute the Board of Directors
         of the  Company  and any new  director  (other  than a  director  whose
         initial  assumption  of  office  is in  connection  with an  actual  or
         threatened  election  contest,  including  but not limited to a consent
         solicitation,  relating to the  election of  directors  of the Company)
         whose  appointment  or election by the Board of Directors or nomination
         for election by the Company's  stockholders was approved or recommended
         by a vote of at least two thirds (2/3) of the  directors  then still in
         office  who  either  were   directors  on  the  date  hereof  or  whose
         appointment  or election or nomination  for election was  previously so
         approved or recommended;

                  (3) the  stockholders  of the  Company  approve  a  merger  or
         consolidation  of the Company or any direct or indirect  subsidiary  of
         the  Company  with any  other  company,  other  than  (i) a  merger  or
         consolidation  which  would  result  in the  voting  securities  of the
         Company  outstanding  immediately prior thereto continuing to represent
         (either  by  remaining  outstanding  or  being  converted  into  voting
         securities of the surviving entity or any parent thereof) more than 50%
         of the combined voting power of the voting securities of the Company or
         such  surviving  entity or any parent thereof  outstanding  immediately
         after such merger or  consolidation  or (ii) a merger or  consolidation
         effected  to  implement a  recapitalization  of the Company (or similar
         transaction)  in which no "person" (as defined  herein)  acquires  more
         than 50% of the combined voting power of the Company's then outstanding
         securities; or

         (4)  the  stockholders  of  the  Company  approve  a plan  of  complete
         liquidation  of the Company or an agreement for the sale or disposition
         by the Company of all or substantially all of the Company's assets.

 Section 18.    Amendment.  This Plan may at any time or from time to time
                be amended,  modified or terminated by the Board of Directors of
                the Company.  No amendment,  modification or termination  shall,
                without  the  consent of a  participant,  adversely  affect such
                participant's accruals in his deferred compensation account.

 Section 19.    Governing  Law. This  Agreement  shall be governed by and
                construed in accordance with the laws of the State of New York.
        


         IN WITNESS  WHEREOF,  the  Company  has caused  this  Amendment  to its
Deferred  Fee Plan for  Directors  to be duly  adopted and  executed by its duly
authorized  officers and its  corporate  seal affixed  hereto on the 28th day of
January, 1998.

                                                            ASARCO Incorporated



                                                           By:_________________
                                                                Vice President

Attest:


---------------------
Assistant Secretary

[SEAL]



<PAGE>


C16

                               ASARCO Incorporated

                            SUPPLEMENTAL PENSION PLAN

                       FOR DESIGNATED MID-CAREER OFFICERS

                      (As amended through January 28, 1998)


         WHEREAS, the Organization and Compensation  Committee (the "Committee")
of the Board of Directors of ASARCO Incorporated (the "Company" or "Asarco") has
been advised by its independent compensation consultants that executive officers
who join or have joined the Company in  mid-career,  and  subsequently  serve as
vice  president  or  higher  rank  for ten or more  years,  usually  do not have
sufficient  time before  retirement to accrue  benefits under  existing  pension
plans of the Company  adequate to their needs or  appropriate  to reflect  their
experience or employment  responsibilities,  and that a supplemental  retirement
benefits plan for such persons should be adopted to remove these inequities,  to
encourage the continued association of these executives with the Company, and to
assure that the Company is able to attract and retain  executives  with valuable
prior experience; and

         WHEREAS,  the Committee has  recommended the adoption of, and the Board
of  Directors  has  approved  and  decided  to adopt,  the  ASARCO  Incorporated
Supplemental  Pension Plan for  Designated  Mid-Career  Officers (the "Plan") to
permit the Company to provide  supplemental  retirement benefits to key officers
identified  by the Committee who  otherwise  would receive  retirement  benefits
which would not reflect their experience prior to employment with the Company or
would not be appropriate for the position of responsibility which they hold with
the Company.

         NOW,  THEREFORE,  the Company hereby adopts the Plan effective November
24, 1987.

1.       DEFINITIONS.

          1.1   Committee.   Committee  is  the  Organization  and  Compensation
                Committee of the Board of Directors of the Company. 

          1.2   Executive. Executive is an officer of the Company holding a rank
                of Vice  President or higher who is  determined by the Committee
                in its sole discretion to be a person who when first employed by
                the  Company   already  had  prior   business  or   professional
                experience which was valuable to the Company and relevant to the
                position for which he was employed. This term shall also include
                the  Executive's  spouse  in  the  event  benefit  payments,  as
                described  hereinafter,  to such spouse have commenced under the
                Plan. The terms  Executive or  Participant  shall have identical
                meaning in this Plan.

          1.3   Final  Compensation  Rate.  The Final  Compensation  Rate of the
                Executive   shall  mean  the   average  of  the  sixty   highest
                consecutive monthly amounts of his basic compensation,  bonuses,
                and payments he received for his trust  account each month under
                the Salary  Adjustment  Program and Contingent  Stock  Allotment
                Plan in the one hundred  twenty months  preceding his retirement
                or termination of employment prior to age 65. Basic compensation
                shall  include  any amount of salary or bonus  which is deferred
                under any deferred compensation plan of the Company, at the time
                the services giving rise to the deferred income are performed.


<PAGE>


C17

          1.4   Primary Insurance Amount.  The Primary Insurance Amount shall be
                the  Executive's  Primary  Insurance  Amount for social security
                purposes,  determined  on the  basis of the  Executive's  actual
                compensation  with  respect  to  years  of  employment  with the
                Company.  With respect to years of employment,  if any, prior to
                employment  with the Company,  the Committee  shall estimate the
                Executive's  income that is treated as wages for purposes of the
                Social  Security  Act. If the  Executive's  employment  with the
                Company  is  terminated  prior to age 65,  for  years  following
                termination of  employment,  it shall be assumed for purposes of
                calculating  the Primary  Insurance  Amount  that the  Executive
                earns  compensation  so as to  accrue  maximum  Social  Security
                benefits.

 2.             SUPPLEMENTAL  BENEFIT. All supplemental  benefits under the Plan
                shall be determined according to this Section 2.

          2.1   Net  Annual  Benefit.  The base  annual  benefit  payable to the
                Executive on or after age 65 shall be determined by  multiplying
                his  annualized  Final  Compensation  Rate by  0.55  (fifty-five
                percent).  This  amount  shall be  reduced by the sum of (i) the
                annual amount of any benefits accrued to the date of termination
                of employment with the Company (other than benefits attributable
                to pre- or post-tax  contributions  made by the Executive) which
                are payable,  which have been paid or which will become  payable
                to the  Executive  from any  defined  benefit or money  purchase
                pension plan (whether  qualified or nonqualified)  maintained by
                the  Company  or any other  employer  at any time,  and (ii) his
                annual Primary  Insurance Amount. In the event the Executive has
                received, is receiving, or is scheduled to receive benefits from
                another  such  pension plan in any form other than a single life
                annuity  (including  a single  sum  distribution  or a  variable
                annuity) or at a time other than when  benefits  commence  under
                this Plan, the benefits to be taken into account under (i) above
                shall  be  determined  in good  faith  by the  Company  based on
                actuarial  assumptions and factors reasonably utilized under the
                ASARCO Salaried  Retirement Plan (the "Salaried Plan") as of the
                date  of  determination,  or  to  the  extent  such  factors  or
                assumptions  do not  contemplate  a particular  situation  which
                arises  under this Plan,  based upon the factors  applied by the
                Pension Benefit Guaranty Corporation for purposes of determining
                the present  value of benefits upon  termination  of a plan with
                insufficient  assets.  In the event of a controversy  concerning
                the  calculation  of  benefits   described  in  (i)  above,  the
                Committee  shall in good faith  determine the amount of benefits
                pursuant to Section 5 of the Plan. The benefit  remaining  after
                this  reduction  shall  constitute  the  Executive's  Net Annual
                Benefit.

          2.2   Form and Timing of  Payment.  (a) Except as  otherwise  provided
                herein,  the benefit shall be payable to the Executive in a lump
                sum, payable as soon as practicable following the earlier of (i)
                the Date of Termination (as defined below),  or (ii) a Change of
                Control (as defined below) which lump sum shall be calculated as
                set forth in Section 2.3. Date of Termination shall mean the day
                upon which the Executive is first  eligible to receive  benefits
                at or  after  age 65 from  the  Salaried  Plan  (whether  or not
                benefits  have  actually  commenced  from such  plan)  except as
                provided under Sections 3.1 and 6 below;



<PAGE>


         C18

          (b)   An Executive may elect prior to the Date of Termination to defer
                (for a period  not to exceed  twenty  (20)  years)  the lump sum
                payment (the  "Deferral  Amount") to a future date or to convert
                the Deferral Amount to a series of scheduled installments.  Such
                an election  must be made at least  twelve (12) months  prior to
                the Date of  Termination,  except in the event of termination by
                reason of "disability"  (as defined for purposes of the Salaried
                Plan), in which case the election must be made prior to the Date
                of Termination.  Any such election may be changed, provided that
                no such  change  shall  be  given  effect  unless  it is made in
                writing  at  least  twelve  (12)  months  prior  to the  Date of
                Termination.  The Deferral  Amount  shall be deemed  invested in
                accordance  with an election to be made by the Executive in such
                funds  as  are  provided   under  the  Savings  Plan  of  ASARCO
                Incorporated  and  Participating  Subsidiaries  ("ASARCO Savings
                Plan"), except, however, that the ASARCO Common Stock Fund shall
                not be available as a deemed  investment under the Plan.  ASARCO
                will attempt to follow the Executive's  elections,  but will not
                be required  to do so.  Regardless  of whether  the  Executive's
                elections  are followed,  the Deferral  Amount shall be credited
                with deemed earnings, gains, losses, expenses and changes in the
                fair  market  value of such  Deferral  Amount as if  ASARCO  had
                followed such investment designations.  The Executive must elect
                in  writing  to have his  Deferral  Amount  deemed  invested  in
                increments of no less than 5%, in one or more of the  investment
                funds  described in the ASARCO Savings Plan.  Said election must
                total one hundred percent (100%) of his Deferral Amount.

          (c)   The  election  of  a  deemed   investment  option  is  the  sole
                responsibility  of  each  Executive.  Neither  ASARCO,  nor  the
                Committee,  nor any trustee of any trust that may be established
                in  connection  with the Plan are  authorized  or  permitted  to
                advise  (or  shall  have  any  liability  with  respect  to)  an
                Executive  as to the  election  of any  option or the  manner in
                which his Deferral Amount shall be deemed to be invested.

          (d)   Consistent  with this  Section  2, each  Executive  may elect in
                writing,  that a whole  percentage (no less than 5%) or specific
                dollar  amount  of his  deemed  investment  in any  fund  may be
                transferred to any other fund available under the ASARCO Savings
                Plan (except for the ASARCO  Common Stock Fund).  Such  election
                will be prospective only and will be permitted on a daily basis,
                in accordance  with rules,  if any, as shall be  established  by
                ASARCO.

          (e)   Notwithstanding  paragraphs (a) and (b) above,  an Executive may
                elect in writing to receive  single life annuity  payments under
                the Plan at  approximately  the same time as payments  are to be
                made to the Executive  under the Salaried Plan. Such an election
                must be made at least  twelve (12)  months  prior to the Date of
                Termination,  except  in the event of  termination  by reason of
                "disability"  (as defined for purposes of the Pension Plan),  in
                which  case  the  election  must be made  prior  to the  Date of
                Termination. Any such election may be changed , provided that no
                such change shall be given  effect  unless it is made in writing
                at least twelve (12) months prior to the Date of Termination.



<PAGE>


         C19

          (f)   At any time subsequent to an Executive's Date of Termination, an
                Executive  who made an election  pursuant to Section  2.2(b) may
                request  a  payment  of all or a  portion  of the  value  of his
                Deferral  Amount  not  yet  payable.  Such a  request  shall  be
                approved by the Committee only upon a finding that the Executive
                has suffered a severe financial hardship which has resulted from
                events beyond the Executive's  control ("Hardship  Event"),  and
                only in the amount  reasonably  needed to satisfy such  Hardship
                Event. Whether a Hardship Event has occurred shall be determined
                in accordance with Treasury  Regulation  Sections  1.457-2(h)(4)
                and (5). In the event such a payment is approved, payment of all
                or a portion of the value of the  Deferral  Amount shall be made
                as soon as practicable to the Executive.

          (g)   At any time subsequent to an Executive's Date of Termination, an
                Executive  who made an election  pursuant to Section  2.2(b) may
                elect the  acceleration  of  payment  of all or a portion of the
                value of an Executive's  Deferral Amount not yet payable subject
                to a 6% penalty of the payment  amount.  Payment of such amount,
                less such penalty (which shall be  forfeited),  shall be paid in
                cash in a  single  lump  sum as soon as  practicable  after  the
                requested payment date.

          (h)   Notwithstanding the foregoing,  subsequent to his or her Date of
                Termination,  an Executive who has made an election  pursuant to
                Section 2.2(b) may file an election to amend such prior election
                as to the time of any amount due and  payable at least 12 months
                subsequent  to such  amendment,  and to change  the form of such
                payments,  provided no such election may  accelerate any payment
                to a date earlier than 12 months from the date of amendment. The
                amended  form of  payment  may be a single  sum  payment  of any
                amounts not yet due and payable,  or annual  installments of any
                such amounts, or a combination  thereof,  with payments extended
                for no more  than 20 years  following  the  Executive's  Date of
                Termination.

          (i)   Upon the death of an  Executive  who has  elected an annuity
                form of payment  pursuant to Section  2.2(e)  above,  his or her
                surviving spouse, if any, at date of death ("Surviving  Spouse")
                shall receive 50% of the Net Annual Benefit described in Section
                2.1 above for his or her life.

          (ii)  Upon  the  death  of an  Executive  in  all  other  events,  the
                Executive's Surviving Spouse, if any, shall receive any benefits
                due the Executive  under this Plan at the same time, in the same
                form and in the same amount as the Executive would have received
                such benefits;  provided,  however,  that such Surviving  Spouse
                shall  be  entitled  to elect to  alter  the  timing  or form of
                benefit to the same extent the  Executive  could have so elected
                pursuant to Sections 2.2(b), 2.2(f), 2.2(g) or 2.2(h) above, and
                shall  be  entitled  to  direct  the  deemed  investment  of the
                Deferral  Amount in the same manner in which the Executive would
                have been entitled pursuant to Section 2.2(b).

          (iii) In the  event of the  death of an  Executive  described  in (ii)
                above who has no Surviving Spouse,  the benefit payable pursuant
                to (ii) above shall be paid as soon as  practicable  in a single
                sum to his beneficiary, or if none, to his estate.



<PAGE>


   C20

          2.3   Calculation of Lump Sum. The amount of the lump sum described in
                Section 2.2(a) shall be the lump sum equivalent value of the Net
                Annual  Benefit,  determined  by using the  following  actuarial
                assumptions  for the  Executive  (and spouse,  if married at the
                date of determination):

          Interest  Rate:  The  rate  will be the  yield on U.S.  Treasury  debt
                    obligations  with a  10-year  maturity.  The  rate  will  be
                    determined as of the Date of  Termination  or, if elected by
                    the  Participant  at least 12 calendar  months  prior to the
                    Date of  Termination,  the rate in  effect as of the date 12
                    calendar months prior to the Date of Termination.

          Mortality Table:  The  Mortality  Table  contained  in  U.S.  Internal
                    Revenue  Service  Revenue  Ruling  95-6  or  any  succeeding
                    Revenue  Ruling issued by the Internal  Revenue  Service for
                    use in applying the provisions of sections 415 and 417(e) of
                    the Internal Revenue Code.

         2.4      Eligibility for Benefit. Except for payments under Section 3.3
                  and in the case of a Change of Control (as  defined  below) no
                  benefit shall be payable unless the Executive  shall have been
                  in the employ of the Company as a Vice President or officer of
                  higher  rank for a period  of at least 10 years on his date of
                  termination of employment.

3.TERMINATION  OF  EMPLOYMENT  PRIOR  TO AGE  65.  If the  Executive  terminates
  employment prior to age 65, for any reason,  his rights and benefits under the
  Plan   will   be determined   in accordance with this Section 3.
  

          3.1       Benefit Commencement.  Except as provide in Section 6 upon a
                    Change of Control, the commencement date of benefit payments
                    shall be the day upon which the Executive is first  eligible
                    to  receive   benefits  from  the  Salaried  Plan  (and  the
                    Executive   shall   have  no  right  to  elect   any   other
                    commencement date); provided, however, that at the option of
                    the Company,  the Company may require  that the  Executive's
                    benefit commencement date shall be age 65, if later than the
                    date benefits would otherwise commence hereunder. The option
                    provided  to the  Company  herein  shall  not  be  exercised
                    unreasonably or in bad faith.

          3.2       Benefit Adjustment. If the Executive terminates prior to age
                    65 for  reasons  other  than  death or total  and  permanent
                    disability,  as determined by the Company's  physician,  his
                    Net Annual Benefit shall be reduced by 33/100 of one percent
                    (0.0033) for each month such termination  precedes the month
                    in which he attains age 65.



<PAGE>


C21

          3.3       Death and  Disability.  If the  employment  of the Executive
                    with  the  Company  terminates  prior  to age  65 but  after
                    completion  of at least 10 years  service  with the Company,
                    whether  or not as an  officer,  due to  reason of total and
                    permanent   disability,   as  determined  by  the  Company's
                    physician,  the  Executive  will be eligible  for  immediate
                    commencement  of  benefit  payments  pursuant  to Section 2.
                    Further,  no reduction in Net Annual  Benefits  will be made
                    under Section 3.2 above.  If the employment of the Executive
                    with the  Company  terminates  prior to the age 65 but after
                    completion  of at least 10 years  service  with the Company,
                    whether or not as an officer,  for the reason of death,  the
                    Executive's  Surviving Spouse, if any, shall be eligible for
                    50% of the  Executive's  Net  Annual  Benefit  set  forth in
                    Section 2.2 above, except that if the spouse is more than 60
                    months younger than the Executive,  such spouse's Net Annual
                    Benefit  shall be  reduced by 1/12 of 1% for each full month
                    by which the spouse is more than 60 months  younger than the
                    Executive; provided, however, that in determining the amount
                    of  such  survivor  benefit,  no  reduction  shall  be  made
                    pursuant  to  Section  3.2 for  the  early  commencement  of
                    benefits; and further provided, however, such benefits shall
                    be paid in accordance with Section 2.2 above.

          3.4       Company Consent.  Except for termination of employment under
                    Section 3.3 above or in the event of a Change of Control (as
                    defined  below),  if the  Executive  voluntarily  terminates
                    employment  with the  Company  prior to age 65  without  the
                    express,  written consent of the Company,  all rights of the
                    Executive to benefits  hereunder shall thereupon  terminate;
                    it being  understood that if the  Executive's  employment is
                    terminated at the Company's  request,  no benefits hereunder
                    shall be forfeited pursuant to this Section 3.4.

4.INDEMNIFICATION.  The  Company  shall pay any and all legal fees and  expenses
  incurred by the Executive in seeking to obtain or enforce any rights under the
  Plan,  provided that  Executive is  successful in obtaining or enforcing  such
  rights.

5.ADMINISTRATION.  Issues relating to the administration of the Plan and payment
  of benefits  thereunder  shall be  determined  in good faith by the  Committee
  pursuant to the terms of the Plan.

6.CHANGE OF CONTROL.  (a)  Notwithstanding  any other provision of this Plan, in
  the event of a Change of Control (as defined  below),  no person that is not a
  Participant in the Plan immediately prior to such Change of
  Control shall be permitted to be a Participant  under the Plan  following such
  Change of Control.  Upon and after a Change of  Control,  this Plan may not be
  amended,  modified  or  terminated  if any  such  amendment,  modification  or
  termination  would adversely  affect any accrued  benefits of a Participant or
  his or her rights with respect to such accrued benefit in the Plan, unless any
  such amendment,  modification or termination is consented to in writing by all
  such Participants.  Upon a Change of Control, the benefits under the Plan of a
  Participant  shall  vest at a rate of ten  percent  (10%)  for  each  year the
  Executive  served as a Vice  President or higher  (prorated for partial years)
  and the requirement of Sections 2.4, 3.1 and 3.4 shall be deemed waived.  Upon
  a Change of  Control,  all of the value of any and all  amounts  accrued  to a
  Participant  hereunder,  adjusted as required  under Section 3.2 assuming that
  the  Executive  terminated on the date of a Change of Control at age 55, shall
  be paid in a single  cash lump sum to the  Participant  immediately,  provided
  that in the case of an  Executive  who has not attained age 55, such amount be
  further reduced in accordance with the actuarial assumptions in Section 2.3.



<PAGE>


C22

          (b)       For  purposes of this Plan,  a "Change of Control"  shall be
                    deemed to have occurred if:

         (1) any "person",  as such term is used in Sections  13(d) and
         14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
         Act") (other than the Company,  any trustee or other fiduciary  holding
         securities  under  an  employee  benefit  plan of the  Company,  or any
         company  owned,  directly or  indirectly,  by the  stockholders  of the
         Company in substantially the same proportions as their ownership of the
         stock of the Company), is or becomes the "beneficial owner" (as defined
         in Rule 13d-3  under the  Exchange  Act),  directly or  indirectly,  of
         securities of the Company representing either 31% or more of the voting
         power of all classes of capital stock of the Company or 33-1/3% or more
         of the then outstanding common stock without par value, of the Company;

         (2) the  following  individuals  cease for any reason to  constitute  a
         majority of the number of directors then serving:  individuals  who, on
         the date hereof,  constitute  the Board of Directors of the Company and
         any new director  (other than a director  whose  initial  assumption of
         office is in connection with an actual or threatened  election contest,
         including  but not limited to a consent  solicitation,  relating to the
         election of directors of the Company) whose  appointment or election by
         the Board of Directors  or  nomination  for  election by the  Company's
         stockholders  was  approved  or  recommended  by a vote of at least two
         thirds  (2/3) of the  directors  then still in office  who either  were
         directors  on the date  hereof  or whose  appointment  or  election  or
         nomination for election was previously so approved or recommended;

         (3) the  stockholders  of the  Company  approve  a  merger  or
         consolidation  of the Company or any direct or indirect  subsidiary  of
         the  Company  with any  other  company,  other  than  (i) a  merger  or
         consolidation  which  would  result  in the  voting  securities  of the
         Company  outstanding  immediately prior thereto continuing to represent
         (either  by  remaining  outstanding  or  being  converted  into  voting
         securities of the surviving entity or any parent thereof) more than 50%
         of the combined voting power of the voting securities of the Company or
         such  surviving  entity or any parent thereof  outstanding  immediately
         after such merger or  consolidation  or (ii) a merger or  consolidation
         effected  to  implement a  recapitalization  of the Company (or similar
         transaction)  in which no "person" (as defined  herein)  acquires  more
         than 50% of the combined voting power of the Company's then outstanding
         securities; or

         (4) the  stockholders of the Company approve a plan
         of complete  liquidation of the Company or an agreement for the sale or
         disposition by the Company of all or substantially all of the Company's
         assets.

7.AMENDMENT.  The Plan may not be terminated or amended  except by action of the
  Board of  Directors  of the  Company,  and may not be amended to  terminate or
  reduce or adversely affect benefits to any Executive then participating in the
  Plan without the approval of such Executive.

8.FORFEITURE.  No forfeiture  provisions contained herein shall survive a Change
  of Control.



<PAGE>


C23

9.       GOVERNING LAW; BINDING EFFECT. The Plan shall be governed and construed
         and  enforceable in accordance  with the laws of the State of New York.
         If  the  Company  is  consolidated  or  merged  with  or  into  another
         corporation,  or if another entity purchases all, or substantially  all
         of the Company's  assets the surviving or acquiring  corporation  shall
         succeed to the Company's  rights and  obligations  under the Plan.  The
         Plan shall inure to the benefit  of, and shall be  enforceable  by, the
         Executive's    personal    or   legal    representatives,    executors,
         administrators, successors, heirs, devisees, and legatees.

10.      NATURE OF OBLIGATIONS.  The Company's obligations to pay benefits under
         the Plan shall be contractual in nature only;  however,  the amounts of
         such  payments  may be held in a trust,  the  assets of which  shall be
         subject to the claims of the Company's  general  creditors in the event
         of  bankruptcy  or  insolvency  only.  Any benefit paid from such trust
         shall reduce the amount of benefits owed by the Company.

11.      NOTICE.  Any notice or filing  required or permitted to be given to the
         Company shall be  sufficient  if in writing and hand  delivered or when
         sent by  Registered or Certified  mail to the  principal  office of the
         Company, directed to the attention of the Secretary of the Company. Any
         notice  to the  Executive  must be in  writing  and is  effective  when
         delivered  or when  mailed by  Registered  or  Certified  mail,  return
         receipt  requested,  postage  prepaid to the  Executive or his personal
         representatives at his last known address.

12.      EMPLOYMENT.  Nothing  contained  in  the  Plan  nor  any  action  taken
         hereunder shall be construed as a contract  guaranteeing  the Executive
         continued  status  as  an  employee.  Further,  if  the  Executive  has
         committed  willful  misconduct  in office  materially  injurious to the
         Company or has been convicted of a felony relating to conduct in office
         affecting the Company  constituting  willful violation of criminal law,
         any rights of the Executive under the Plan shall terminate.

13.      VALIDITY.  In the event  any  provision  of this Plan is held  invalid,
         void,  or  unenforceable,  the same  shall not  affect  in any  respect
         whatsoever the validity of any other provision of this Plan. Recipients
         in pay  status  as of  January  28,  1998,  who do not  consent  to the
         amendment to the Plan,  effective  January 28, 1998,  within sixty (60)
         days of the date of notice of the amendment  shall  continue to receive
         benefits  in the  event of a Change of  Control  under the terms of the
         Plan in effect on the date preceding January 28, 1998.

14.      ASSIGNMENT.   Executive  may  not  assign,  alienate,   anticipate,  or
         otherwise  encumber  any  rights,  duties  or  amounts  which he may be
         entitled to receive under the Plan. 

15.      PROTECTIVE PROVISIONS. The Executive shall cooperate in good faith with
         the Company in furnishing any and all information  reasonably requested
         by the Company in order to determine and  facilitate  benefit  payments
         under the Plan.

16.      GENDER,  SINGULAR AND PLURAL.  All pronouns in any  variations  thereof
         shall be deemed to refer to the  masculine  or feminine as the identity
         of the person or persons may require.  As the context may require,  the
         singular may be read as the plural and the plural as the singular.

17.      CAPTIONS.  The captions to the sections and  paragraphs of the Plan are
         for  convenience  only and shall not  control or affect the  meaning or
         construction of any of its provisions.


<PAGE>


C24

         IN WITNESS WHEREOF,  the Plan, as amended through January 28, 1998, has
been adopted by the Company upon the  recommendation  of the  Committee  and the
approval of its Board of Directors.


                                                     ASARCO Incorporated



                                                 By __________________________
                                                           Vice President

Attest:


------------------------
Assistant Secretary




<PAGE>


C25
                     ASARCO INCORPORATED RETIREMENT PLAN FOR
                             NON-EMPLOYEE DIRECTORS

                      (As Amended through January 28, 1998)


                         Effective as of January 27, 1988,  ASARCO  Incorporated
("ASARCO"  or  the  "Company")  hereby   establishes  the  ASARCO   Incorporated
Retirement Plan for
Non-Employee  Directors,  a  non-qualified  deferred  compensation  plan for the
exclusive  benefit of its non-employee  directors,  pursuant to authorization of
the Board of Directors of ASARCO.

                                    ARTICLE I
                                  INTRODUCTION

Section 1.1         Name  of  Plan.  The  name of the  plan is the  "ASARCO
                    Incorporated Retirement Plan for Non-Employee Directors." It
                    is also referred to as the "Plan." 

Section 1.2         Effective  Date.  The  effective  date  of the  Plan is
                    January 27, 1988. 

                                   ARTICLE II
                                   DEFINITIONS

Section 2.1        "Board" shall mean the Board of Directors of ASARCO.

Section 2.2        "Compensation Committee" shall mean the Organization and
                    Compensation Committee of the Board or its delegate.

Section 2.3        "Non-Employee Director" shall mean a director serving on
                    the Board of ASARCO who is not an  employee of ASARCO or any
                    of its subsidiaries or affiliated business entities.

Section 2.4         "Participant" shall mean a Non-Employee Director.

Section 2.5         "Plan Year" shall mean a calendar year.

Section 2.6         "Year of Service"  shall mean 365 days of  membership on
                    the  Board  both  before  and  after  the  Effective   Date;
                    provided,  however, that in no event shall membership on the
                    Board from the date of one annual meeting of stockholders of
                    ASARCO to the date of the next consecutive annual meeting of
                    such  stockholders  be  treated  as less  than  one  Year of
                    Service.  Membership  on the Board shall be  cumulative  for
                    periods of service on the Board which are not consecutive.

                                   ARTICLE III
                             BENEFITS UNDER THE PLAN

Section 3.1         Eligibility  to  Receive  Benefits  Under The  Plan.  A
                    Participant  under  this Plan shall be  eligible  to receive
                    benefits under this Plan only if, at the time of termination
                    from  service  on the  Board  or at  any  later  date,  such
                    Participant  has not  earned an  accrued  benefit  under any
                    qualified  retirement plan sponsored by ASARCO or any of its
                    subsidiaries  or  affiliated  businesses.  If a  Participant
                    earns an accrued benefit under any such qualified retirement
                    plan after payments under this Plan to the Participant  have
                    commenced, all future payments made from this Plan on behalf
                    of such Participant shall immediately be forfeited.


<PAGE>


C26

Section 3.2         Vesting of Benefits Under the Plan. A Participant  shall
                    be vested in benefits  provided under the Plan in accordance
                    with the following schedule:
                 

                         Years of Service                   Vested
                         as an ASARCO Director              Percentage
<TABLE>
<CAPTION>
                            <S>                                 <C>
                            less than 5                          0%
                            5 but less than 6                   50%
                            6 but less than 7                   60%
                            7 but less than 8                   70%
                            8 but less than 9                   80%
                            9 but less than 10                  90%
                            10 or more                         100%
</TABLE>

Section 3.3         Amount  of Annual  Benefit  Payable  Under The Plan.  A
                    vested Participant who is eligible to receive benefits under
                    this Plan shall be  entitled  to  receive an annual  benefit
                    equal to the amount of the annual retainer fee in effect for
                    service  on the  Board at the time  the  Participant's  most
                    recent service on the Board is  terminated.  Notwithstanding
                    the above,  the aggregate  annual  amount,  if any,  payable
                    during  the  remainder  of the  calendar  year in which  the
                    Participant  terminates  service  with the  Board,  shall be
                    equal to:

                 (a)The amount of the annual  retainer fee in effect at the time
                    of termination from the Board, minus

                 (b)The pro rata portion, if any, of the annual retainer fee for
                    the year the Participant's service is terminated, and during
                    which the Participant served in the capacity of a director.

Section 3.4         Form of  Benefit.  Except as  provided  in Section  3.5,
                    benefits payable to a Participant  shall be paid in the form
                    of a  quarterly  single life  annuity in an amount  equal to
                    one-fourth  of the annual  benefit  determined in accordance
                    with Section 3.3.
                       

                         In no event  shall any  benefits  be payable  under the
Plan after the death of a Participant.

Section 3.5         Time and Duration of Payments  Under the Plan.  Benefits
                    under  the  Plan  shall  commence  as of the last day of the
                    calendar quarter coincident with or next following the later
                    of the date the  Participant  attains age 65 or the date the
                    Participant  terminates  service  on the Board (the "Date of
                    Termination").  Such payments  shall be made on the last day
                    of each calendar quarter thereafter and shall continue until
                    the  last  day  of  the  calendar   quarter   preceding  the
                    Participant's death;  provided,  however, that a Participant
                    may,  (i) at least  twelve (12) months  prior to the Date of
                    Termination or (ii) in the event of termination by reason of
                    disability  (as determined by the  Compensation  Committee),
                    prior  to the  Date of  Termination,  elect  in  writing  to
                    receive  such  payments  in a lump sum,  payable  as soon as
                    practicable  following the later of the date the Participant
                    attains age 65 or the Date of Termination. Any such election
                    may be revoked,  provided that no such  revocation  shall be
                    given  effect  unless it is made in writing at least  twelve
                    (12) months prior to the Date of Termination.  The amount of
                    such  lump sum shall be the lump sum  equivalent  value of a
                    Participant's  benefits under the Plan,  determined by using
                    the following actuarial assumptions:


<PAGE>


         C27

Interest Rate:      The  rate  will be the  yield on U.S.  Treasury  debt
                    obligations  with a  10-year  maturity.  The  rate  will  be
                    determined as of the Date of  Termination  or, if elected by
                    the  Participant  at least 12 calendar  months  prior to the
                    Date of  Termination,  the rate in  effect as of the date 12
                    calendar months prior to the Date of Termination;  provided,
                    however,  if at the Date of Termination  the Participant has
                    not attained age 64, such  Participant  shall have the right
                    to elect,  up to the time of attaining  age 64, to apply the
                    rate in effect as of the date 12  calendar  months  prior to
                    the date that benefits commence under the Plan.

Mortality Table:    The  Mortality  Table  contained  in  U.S.  Internal
                    Revenue  Service  Revenue  Ruling  95-6  or  any  succeeding
                    Revenue  Ruling issued by the Internal  Revenue  Service for
                    use in applying the provisions of sections 415 and 417(e) of
                    the Internal Revenue Code.

                         Notwithstanding any other provision of this Plan to the
                         contrary, the Chairperson of the Compensation Committee
                         may,  in  his  or  her  sole  discretion,  direct  that
                         payments be made before such payments are otherwise due
                         if, for any reason  (including,  but not  limited to, a
                         change in the tax or revenue laws of the United  States
                         of America, a published ruling or similar  announcement
                         issued by the Internal  Revenue  Service,  a regulation
                         issued  by  the   Secretary  of  the  Treasury  or  his
                         delegate,  or  a  decision  by  a  court  of  competent
                         jurisdiction involving a Participant), it believes that
                         a Participant  has recognized or will recognize  income
                         for federal income tax purposes with respect to amounts
                         that are or will be payable  under the Plan before they
                         are paid. In making this determination, the Chairperson
                         shall  take into  account  the  hardship  that would be
                         imposed on the  Participant  by the  payment of federal
                         income taxes under such circumstances.

Section 3.6         Non-Assignability of Interests. The interests herein and
                    the  right  to  receive   benefits   hereunder  may  not  be
                    anticipated,   alienated,   sold,   transferred,   assigned,
                    pledged,  encumbered,  or  subjected  to any charge or legal
                    process,  and  if  any  attempt  is  made  to  do  so,  or a
                    Participant  becomes bankrupt,  the interests under the Plan
                    of the person affected may be terminated by the Compensation
                    Committee.

Section  3.7        No  Offsets.  Under no  circumstances  shall  ASARCO  be
                    entitled to offset benefits  payable pursuant to the Plan to
                    a Participant in any manner with respect to any claim it may
                    have against such Participant.



<PAGE>


C28

                                   ARTICLE IV
                               PLAN ADMINISTRATION

Section 4.1         Administration.  The Plan shall be  administered by the
                    Compensation  Committee.  The  Compensation  Committee shall
                    have  the  authority  to  interpret  the  Plan  and any such
                    interpretation  shall be final and  binding on all  parties.
                    The  Compensation  Committee  shall  have the  authority  to
                    delegate  the duties  and  responsibilities  of  maintaining
                    records,  issuing such regulations as it deems  appropriate,
                    and making distributions hereunder.


                                    ARTICLE V
                               CHANGE OF CONTROL,
                            AMENDMENT AND TERMINATION

Section 5.1         Change  of  Control.   (a)  Notwithstanding  any  other
                    provision of this Plan,  in the event of a Change of Control
                    (as defined  below),  no person that is not a participant in
                    the Plan  immediately  prior to such Change of Control shall
                    be permitted to be a  Participant  under the Plan  following
                    such Change of Control.  Upon and after a Change of Control,
                    this Plan may not be amended,  modified or terminated if any
                    such amendment,  modification or termination would adversely
                    affect any accrued  benefits of a Participant  or his or her
                    rights with  respect to such  accrued  benefits in the Plan,
                    unless any such  amendment,  modification  or termination is
                    consented  to in  writing by all such  Participants.  Upon a
                    Change of  Control,  payment  of all of the value of any and
                    all amounts  accrued to the  Participant  hereunder shall be
                    made to a Participant  immediately in a single cash lump sum
                    calculated  using the interest rate and the mortality  table
                    set forth in Section 3.5.

                (b) Participants   who  are  receiving   quarterly   installment
                    payments  pursuant to Section 3.4 as of January 28, 1998 who
                    do not consent to the provisions of this Section 5.1. within
                    sixty  (60)  days of the date of  notice  of this  amendment
                    shall continue to receive quarterly  installment payments as
                    elected pursuant to Section 3.4 hereof following a Change of
                    Control.

               (c) For  purposes of this Plan,  a "Change of Control"  shall be
                    deemed to have occurred if:

                           (1) any  "person",  as such term is used in  Sections
                         13(d) and 14(d) of the Securities Exchange Act of 1934,
                         as  amended  (the  "Exchange   Act")  (other  than  the
                         Company,   any  trustee  or  other  fiduciary   holding
                         securities  under  an  employee  benefit  plan  of  the
                         Company, or any company owned,  directly or indirectly,
                         by the stockholders of the Company in substantially the
                         same proportions as their ownership of the stock of the
                         Company),  is or  becomes  the  "beneficial  owner" (as
                         defined in Rule 13d-3 under the Exchange Act), directly
                         or   indirectly,   of   securities   of   the   Company
                         representing  either 31% or more of the voting power of
                         all classes of capital  stock of the Company or 33-1/3%
                         or more of the then  outstanding  common stock  without
                         par value, of the Company;



<PAGE>


C29
                           (2) the following individuals cease for any reason to
                         constitute a majority of the number of  directors  then
                         serving:   individuals   who,   on  the  date   hereof,
                         constitute  the Board of  Directors  of the Company and
                         any new director  (other than a director  whose initial
                         assumption of office is in connection with an actual or
                         threatened election contest,  including but not limited
                         to a consent solicitation,  relating to the election of
                         directors of the Company) whose appointment or election
                         by the Board of Directors or nomination for election by
                         the Company's  stockholders was approved or recommended
                         by a vote of at least two thirds (2/3) of the directors
                         then still in office who either were  directors  on the
                         date  hereof  or  whose   appointment  or  election  or
                         nomination  for election was  previously so approved or
                         recommended;

                           (3) the  stockholders of the Company approve a merger
                         or  consolidation  of  the  Company  or any  direct  or
                         indirect  subsidiary  of the  Company  with  any  other
                         company, other than (i) a merger or consolidation which
                         would  result in the voting  securities  of the Company
                         outstanding  immediately  prior  thereto  continuing to
                         represent  (either by  remaining  outstanding  or being
                         converted  into  voting  securities  of  the  surviving
                         entity  or any  parent  thereof)  more  than 50% of the
                         combined  voting power of the voting  securities of the
                         Company or such surviving  entity or any parent thereof
                         outstanding    immediately   after   such   merger   or
                         consolidation   or  (ii)  a  merger  or   consolidation
                         effected to implement a recapitalization of the Company
                         (or  similar  transaction)  in  which no  "person"  (as
                         defined herein)  acquires more than 50% of the combined
                         voting  power  of  the   Company's   then   outstanding
                         securities; or

                         (4) the  stockholders  of the Company approve a plan of
                         complete liquidation of the Company or an agreement for
                         the  sale  or  disposition  by  the  Company  of all or
                         substantially all of the Company's assets.

Section 5.2         Amendment  and  Termination.  The  Board  may  amend or
                    terminate  the  Plan  at any  time,  provided  that  no such
                    amendment or termination  shall adversely affect the amounts
                    payable under the Plan before the time of such  amendment or
                    termination  unless the  Participant  becomes  entitled to a
                    benefit  equal in value to such amount under another plan or
                    practice  adopted  by  ASARCO.   ASARCO  will  pay  for  all
                    distributions  made  pursuant to the Plan and for all costs,
                    charges and expenses  relating to the  administration of the
                    Plan.


                                   ARTICLE VI
                                  MISCELLANEOUS

Section 6.1         Limitation of Rights.  Neither the establishment of this
                    Plan, nor any  modification  hereof,  nor the payment of any
                    benefits  hereunder,  shall be  construed  as  giving to any
                    Participant  or other  person any legal or  equitable  right
                    against ASARCO, or any officer or employee  thereof,  except
                    as   herein   provided.   Under   no   circumstances   shall
                    participation  in the Plan be  construed  to confer upon any
                    individual the right to remain a member of the Board.



<PAGE>


C30

                         ASARCO's obligation to pay any benefits under this Plan
                         shall be  contractual  in  nature  only,  however,  the
                         amounts of such  benefits  may be held in a trust,  the
                         assets  of which  shall be  subject  to the  claims  of
                         ASARCO's  general  creditors in the event of bankruptcy
                         or  insolvency  only.  Any benefit paid from such trust
                         shall reduce the amount of benefits owed by ASARCO.

Section 6.2         Application  of  Payments.  If,  for  any  reason,  the
                    Compensation  Committee  shall  determine  that  it  is  not
                    desirable  because of the incapacity of the person who shall
                    be entitled to receive any payments hereunder,  to make such
                    payments directly to such person, the Compensation Committee
                    may apply such payment for the benefit of such person in any
                    way  that it  shall  deem  advisable  or may  make  any such
                    payment to any third  person  who,  in the  judgment  of the
                    Compensation  Committee,  will  apply such  payment  for the
                    benefit of the person entitled thereto. In the event of such
                    payment  ASARCO and the Board shall be  discharged  from all
                    further liability for such payment.

Section 6.3         Applicable   Law.  All  questions   pertaining  to  the
                    construction,  validity  and  effect  of the  Plan  shall be
                    determined in accordance with the laws of the 
                    United States and the laws of the State of New York.

         IN WITNESS WHEREOF the Plan, as amended through  January  28,1998,  has
been  adopted by the Company upon the  recommendation  of its  Organization  and
Compensation Committee and the approval of its Board of Directors.

                                                     ASARCO Incorporated



                                                  By __________________________
                                                            Vice President

Attest:


------------------------
Assistant Secretary



<PAGE>


C31
                               ASARCO Incorporated

                                 Amendment No. 1
                                       to
                        DIRECTORS' DEFERRED PAYMENT PLAN
                      (As amended through January 28, 1998)


         This  Amendment No. 1 to the ASARCO  Incorporated  Directors'  Deferred
Payment  Plan (the  "Plan"),  which was  originally  adopted  October 25,  1995,
restates and amends the text of the Plan,  effective as of January 28, 1998,  to
read as follows:

         Section 1. Effective Date. The effective date of the Plan as originally
adopted is October 25, 1995; the effective date of the Plan as hereby amended is
January 28, 1998.

         Section  2.  Eligibility.  Any  Director  of ASARCO  Incorporated  (the
"Company")  elected to the Board of Directors  after October 25, 1995 and who is
not an  employee of the Company is  eligible  to  participate  in the Plan.  The
following  transitional  provisions  applied to participation in the Plan by the
Company's  Directors  elected  prior to  October  25,  1995 who are not  Company
employees.

                  2.1      Directors  with ten or more years of Board service as
                           of October 25, 1995 shall  continue to be eligible to
                           receive   benefits  under  the  ASARCO   Incorporated
                           Retirement  Plan  for  Non-Employee   Directors  (the
                           "Directors'  Retirement Plan").  Such Directors shall
                           not  participate  in the Plan except as to the amount
                           of any  credits  to the  Plan  reallocated  from  the
                           Directors'  Retirement  Plan  pursuant to Section 2.4
                           below.

                  2.2      Directors  with at least five years but less than ten
                           years of Board service as of the date hereof shall be
                           eligible to accrue benefits under the Plan commencing
                           January  1,  1996  until  December  31 of the year in
                           which  they  attain   their   tenth   Board   service
                           anniversary  date,  or such  earlier or later date as
                           would cause the sum of such Director's credited years
                           of service under the Directors'  Retirement Plan plus
                           months of  credited  service  under the Plan to equal
                           ten  full  years of  service.  Such  Directors  shall
                           continue to be eligible to accrue  benefits under the
                           Directors'   Retirement   Plan  to  the  extent  such
                           benefits are accrued for benefit computation purposes
                           as  of  December   31,  1995,   and  may   reallocate
                           Directors'  Retirement  Plan  benefits  to this  Plan
                           pursuant to Section 2.4 below.



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C32
                  2.3      Directors  with less than five years of Board service
                           as of  December  31,  1995  shall  receive an initial
                           credit  under  the Plan  equal to 75  percent  of the
                           current annual cash retainer for Directors  times the
                           number of years (rounded to the nearest  quarter of a
                           year) of Board service as of December 31, 1995.  Such
                           Directors  shall  thereafter  be  eligible to receive
                           benefits  under the Plan through  their tenth year of
                           Board service (that is, until their tenth anniversary
                           date).  Such Directors  shall not be eligible for any
                           benefits under the Directors' Retirement Plan.

                  2.4      All  directors  who would have vested  benefits as of
                           December  31,  1995 under the  Directors'  Retirement
                           Plan (at least five years of Board  service)  will be
                           entitled  to  reallocate  to  their  account  in  the
                           Deferred Payment Plan by an election made on or prior
                           to December  31, 1995 the lump-sum  present  value of
                           their  accrued  pension  benefit as of  December  31,
                           1995.  For purposes of computing the lump sum present
                           value of accrued  pension  benefits at  December  31,
                           1995 and to discount such amount if it is reallocated
                           to the  Deferred  Payment  Plan prior to December 31,
                           1995,  a discount  rate of 6 percent  per annum,  the
                           10-year  Treasury  bill  interest  yield  rate  as in
                           effect on October 25, 1995 will be used.

                           Any such  election,  once made,  shall  terminate  an
                           electing director's benefits under the Directors' 
                           Retirement Plan.

                  2.5      Directors who commence  Board service after  December
                           31, 1995 shall be eligible to receive  benefits under
                           the Plan  through  their tenth year of Board  service
                           (that is, until their tenth anniversary date).

         Section 3. Deferred Payment  Account.  A deferred payment account shall
be established for each eligible Director. Each such Director's deferred payment
account  shall  consist of a stock  equivalent  subaccount  and, if the Director
elects to participate in the U.S.  Treasury bond equivalent  described  below, a
bond equivalent subaccount.

         Section 4. Amount of Deferral. The Company shall credit an amount equal
to 75 percent of a Director's annual cash retainer to the participant's deferred
payment  account.  These  credits  will be made  at the  time of each  quarterly
payment made of a Director's annual cash retainer for years beginning January 1,
1996.

         Section  5.  Time of  Credit.  Credits  to the  participant's  deferred
payment accounts shall be made by the Company on each date when the Company pays
the Director's  annual cash retainer.  Amounts  reallocated  from the Directors'
Retirement Plan to this Plan pursuant to Section 2.4 hereof shall be credited to
the Director's  account on the date the Director's  election is made pursuant to
Section 2.4.



<PAGE>


C33

         Section 6.  Stock  Election.  At least 50  percent  of each  Director's
deferred payment account shall be credited to the stock equivalent subaccount. A
Director may elect in writing  that  additional  amounts,  in  increments  of 25
percent,  of the  deferred  payment  account  shall  be  credited  to his  stock
equivalent subaccount.

         An election by a Director  under this Section 6 must be received by the
Company  prior to January 1 of the calendar year during which the election is to
be effective and shall be irrevocable  for the entire year.  Such election shall
remain in effect for  subsequent  years unless changed prior to the January 1 of
any such subsequent  year. If no such election is made,  amounts credited to the
deferred  payment account shall be allocated 100 percent to the stock equivalent
subaccount.

         A  bookkeeping  entry  shall be made on the  number of whole  shares of
Company  Common Stock which could be purchased at "fair market value" as defined
below  in this  Section  with  the  amount  credited  to such  stock  equivalent
subaccount  on the date as of which such  credit is made except that for amounts
reallocated to this Plan from the Directors'  Retirement  Plan, such fair market
value shall be  determined at the average of the high and low prices on New York
Stock Exchange - Composite  Transactions on the date of the Director's  election
pursuant to Section 2.4.

         The stock equivalent subaccount also shall be credited on each dividend
payment date with a bookkeeping  entry indicating the number of additional whole
shares  which could be  purchased  with the  dividend  on the shares  previously
credited to the stock equivalent subaccount.

         Any  deferred  payment  amounts  which are  insufficient  to permit the
crediting of a whole share of Company  Common Stock and any amounts  which would
represent cash dividends on Company Common Stock credited to a stock  equivalent
subaccount  shall be carried as a cash balance  bookkeeping  entry in such stock
subaccount.  At such time as the cash  balance  equals at least the fair  market
value of one share of Company Common Stock, the cash balance  bookkeeping  entry
shall be  converted  to an entry  representing  the number of  additional  whole
shares of Company  Common  Stock which could be  purchased  at fair market value
with such balance.  No interest  shall be credited on any such stock  equivalent
subaccount cash balance.

         For  purposes  of this  Section  6, "fair  market  value" of a share of
Company  Common  Stock  shall  mean the  average of the high and low prices of a
single share of Company  Common Stock as reported by the Wall Street Journal for
New York Stock  Exchange - Composite  Trading for the trading day next preceding
the day as of which such value is to be determined.

         No  election  may be made  to have  amounts  previously  credited  to a
Director's  bond  equivalent  subaccount  credited  instead  to his or her stock
equivalent  subaccount,  and no election may be made to have amounts  previously
credited to a Director's stock equivalent  subaccount credited instead to a bond
equivalent subaccount except that a Director who has elected pursuant to Section
9 or Section 12 to receive annual installments may, at least six months prior to
the date  such  payments  would  commence  or at least six  months  prior to the
effective date of election elect to transfer on the date such payments  commence
the fair market  value of the entire  stock  equivalent  subaccount  to the bond
equivalent subaccount.  Following retirement,  a Director may, by written notice
at least 30 days prior to any annual installment payment date, elect to transfer
any entire  remaining  balance in the stock  equivalent  subaccount  to the bond
equivalent subaccount.



<PAGE>


C34

         The stock equivalent subaccounts shall be adjusted to reflect any stock
split, stock dividend, recapitalization,  merger, consolidation,  reorganization
or other similar change in the Company's Common Stock.

         Section 7. Bond Equivalent Subaccount.  Each bond equivalent subaccount
will be credited with interest from the date of initial  credit until payment as
follows.  The bond  equivalent  subaccount  will be  credited at the end of each
calendar  quarter  with  interest  at the  yield  rate  for U.S.  Treasury  debt
obligations with a 10-year maturity  effective for the last business day in each
quarter. Amounts so credited will be added to the balance in such subaccount.

         Section  8.  Value of  Deferred  Payment  Accounts.  The  value of each
participant's  deferred  payment  account  shall  include  the  amount  which is
credited to a Director's bond equivalent  subaccount,  the interest  credited on
such  amount  pursuant  to Section 7, the value of any shares of Company  Common
Stock  credited  to the  Director's  stock  equivalent  subaccount  and the cash
balance  credited to such stock equivalent  subaccount,  all with respect to the
amount deferred pursuant to Section 4 and the amount,  if any,  reallocated from
the  Directors'  Retirement  Plan pursuant to Section 2.4, and less any payments
made under Section 9.

         Section  9.   Payment  of  Deferred   Compensation.   The  value  of  a
participant's  bond equivalent  subaccount and stock equivalent account shall be
payable solely in cash. All payments of a  participant's  deferred  compensation
account shall be made in a lump sum or in annual installments in accordance with
an election made by the  participant.  In all cases payment shall be made on the
date of termination of services as a Director unless payment on the next January
15 or annual installments are elected.

         If a lump sum payment is elected,  the participant shall have the right
to elect at least one year prior to the year of payment that all or part of such
lump sum  payment  shall be made on the  January 15 next  following  the year on
which such lump sum payment would otherwise occur.

         If annual  installments  are elected,  such  payments  shall be made in
accordance  with the  participant's  election.  The amount of the first  payment
attributable to the bond equivalent  subaccount shall be a fraction of the value
of the participant's bond equivalent  subaccount,  the numerator of which is one
and the  denominator of which is the total number of installments  elected,  and
the  amount  of  each  subsequent  payment  shall  be a  fraction  of the  value
(including interest earned) on the date preceding each subsequent  payment,  the
numerator  of which is one and the  denominator  of which is the total number of
installments elected minus the number of installments previously paid.

         The amount of the first payment  attributable  to the stock  equivalent
subaccount  shall  be a  fraction  of  the  value  of  the  participant's  stock
equivalent  subaccount (based upon the fair market value of the stock determined
under  Section 6 plus any cash  balance),  the numerator of which is one and the
denominator of which is the number of  installments  elected,  and the amount of
each  subsequent  payment shall be a fraction of the  redetermined  value of the
participant's stock equivalent subaccount, the numerator of which is one and the
denominator  of which is the total  number  of  installments  elected  minus the
number of installments previously paid.

         If one lump sum payment is elected,  such payment  shall be made on the
date designated in accordance with the participant's election.



<PAGE>


C35

         Section  10.  Changes  in  Election.  At least  one  year  prior to the
calendar year in which  payments would  otherwise  commence,  a participant  may
request the Company, subject to the discretion of the Company, (i) to change his
or her  election  with  respect  to the  time  of  payments  of his or her  bond
equivalent  subaccount and/or (ii) to change his or her election with respect to
the time of payments of his or her stock  equivalent  subaccount  in  connection
with his or her retirement or termination as a Director,  provided, that no such
change may  accelerate  the time of the  initial  payment  date of any  deferred
amount.

         Section 11. Change of Control.  (a) Notwithstanding any other provision
of this Plan, in the event of a Change of Control (as defined below),  no person
that is not a  participant  in the  Plan  immediately  prior to such  Change  of
Control shall be permitted to be a  participant  under the Plan  following  such
Change of  Control.  Upon and after a Change  of  Control,  this Plan may not be
amended,  modified  or  terminated  if  any  such  amendment,   modification  or
termination  would adversely affect any accrued benefits of a participant or his
or her rights with respect to such accrued benefits in the Plan, unless any such
amendment,  modification  or  termination is consented to in writing by all such
participants.  Upon a Change of Control,  payment of all of the value of any and
all amounts accrued to the participant  hereunder shall be made to a participant
immediately.  For purposes of calculating  such payment,  a  participant's  bond
equivalent  subaccount and/or stock equivalent  subaccount shall be valued as of
the date of the Change of Control.

                  (b)  Participants  who have deferred a lump sum payment or are
receiving annual  installment  payments  pursuant to Section 9 as of the date of
this  Amendment  No. 1 who do not consent to the  provisions  of this Section 11
within  sixty (60) days of notice of this  amendment  shall  continue to receive
annual installment  payments as elected pursuant to Section 9 hereof following a
Change of Control.

                  (c) For purposes of this Plan, a "Change of Control"  shall be
deemed to have occurred if:

                  (1) any "person",  as such term is used in Sections  13(d) and
         14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
         Act") (other than the Company,  any trustee or other fiduciary  holding
         securities  under  an  employee  benefit  plan of the  Company,  or any
         company  owned,  directly or  indirectly,  by the  stockholders  of the
         Company in substantially the same proportions as their ownership of the
         stock of the Company), is or becomes the "beneficial owner" (as defined
         in Rule 13d-3  under the  Exchange  Act),  directly or  indirectly,  of
         securities of the Company representing either 31% or more of the voting
         power of all classes of capital stock of the Company or 33-1/3% or more
         of the then outstanding common stock without par value, of the Company;

                  (2)  the  following   individuals  cease  for  any  reason  to
         constitute  a  majority  of  the  number  of  directors  then  serving:
         individuals who, on the date hereof,  constitute the Board of Directors
         of the  Company  and any new  director  (other  than a  director  whose
         initial  assumption  of  office  is in  connection  with an  actual  or
         threatened  election  contest,  including  but not limited to a consent
         solicitation,  relating to the  election of  directors  of the Company)
         whose  appointment  or election by the Board of Directors or nomination
         for election by the Company's  stockholders was approved or recommended
         by a vote of at least two thirds (2/3) of the  directors  then still in
         office  who  either  were   directors  on  the  date  hereof  or  whose
         appointment  or election or nomination  for election was  previously so
         approved or recommended;



<PAGE>


C36

                  (3) the  stockholders  of the  Company  approve  a  merger  or
         consolidation  of the Company or any direct or indirect  subsidiary  of
         the  Company  with any  other  company,  other  than  (i) a  merger  or
         consolidation  which  would  result  in the  voting  securities  of the
         Company  outstanding  immediately prior thereto continuing to represent
         (either  by  remaining  outstanding  or  being  converted  into  voting
         securities of the surviving entity or any parent thereof) more than 50%
         of the combined voting power of the voting securities of the Company or
         such  surviving  entity or any parent thereof  outstanding  immediately
         after such merger or  consolidation  or (ii) a merger or  consolidation
         effected  to  implement a  recapitalization  of the Company (or similar
         transaction)  in which no "person" (as defined  herein)  acquires  more
         than 50% of the combined voting power of the Company's then outstanding
         securities; or

         (4)  the  stockholders  of  the  Company  approve  a plan  of  complete
         liquidation  of the Company or an agreement for the sale or disposition
         by the Company of all or substantially all of the Company's assets.

         Section 12.  Designation of Beneficiary.  A participant may designate a
beneficiary by giving written notice to the Company. Attention: Secretary. If no
beneficiary is designated,  the beneficiary will be the participant's estate. If
more than one beneficiary  statement has been filed, the beneficiary  designated
in the  statement  bearing  the  most  recent  date  will be  deemed  the  valid
beneficiary.

         Section 13.  Death of  Participant  or  Beneficiary.  In the event of a
participant's  death before he or she has received all of the deferred  payments
to  which  he or she is  entitled  hereunder,  the  value  of the  participant's
deferred  payment account shall be paid to the estate or designated  beneficiary
of the deceased  participant  in one lump sum on the first January 15 or July 15
following  such date of death,  or as soon as  reasonably  possible  after  such
January 15 or July 15, unless the  participant  has elected to continue  without
change the schedule for payment of benefits.

         If the distribution is to be made to a beneficiary and such beneficiary
dies before such distribution has been made, the amount of the distribution will
be paid to the estate of the beneficiary in one lump sum.

         Section  14.   Participant's   Rights  Unsecured.   The  right  of  any
participant  to  receive  payments  under the  provisions  of the Plan  shall be
contractual in nature only, however, the Company reserves the right to establish
a trust to provide an alternative source of benefit payments under the Plan, the
assets  of  which  shall be  subject  to the  claims  of the  Company's  general
creditors in the event of bankruptcy or insolvency  only. Any payments paid from
such trust shall reduce the amount of benefits owed by the Company.

         Section  15.   Statement  of  Account.   Statements  will  be  sent  to
participants  by the end of  February  of each  year as to the  value  of  their
deferred payment accounts as of the end of December of the preceding year.

         Section 16. Assignability. No right to receive payments hereunder shall
be transferable or assignable by a participant or beneficiary, except by will or
by the laws of descent and distribution.

         Section  17.  Participation  in Other  Plans.  Nothing in the Plan will
affect any right which a participant  may otherwise  have to  participate in any
other retirement plan or agreement which the Company may have now or hereafter.



<PAGE>


C37

         Section 18.  Amendment.  This Plan may at any time or from time to time
be amended,  modified or terminated by the Board of Directors of the Company. No
amendment,   modification  or  termination  shall,  without  the  consent  of  a
participant, adversely affect such participant's balances in his or her deferred
payment account.

         Section 19.  Governing  Law.  This  Agreement  shall be governed by and
construed in accordance with the laws of the State of New York.


         IN WITNESS WHEREOF,  the Company has caused this Amendment No. 1 to its
Directors'  Deferred  Payment  Plan to be duly  adopted and executed by its duly
authorized  officers and its  corporate  seal affixed  hereto on the 28th day of
January, 1998.


                                                       ASARCO Incorporated



                                                        By:_________________
                                                             Vice President

Attest:


---------------------
Assistant Secretary


[SEAL]



<PAGE>


C38

                               ASARCO Incorporated
                           Compensation Deferral Plan

                      (as amended through January 28, 1998)


WHEREAS,   the  Board  of  Directors  of  ASARCO  Incorporated  (the  "Board  of
Directors")  has  adopted,  and the  stockholders  of ASARCO  Incorporated  have
approved,  an Incentive  Compensation  Plan for Senior  Officers (the "Incentive
Plan");

WHEREAS,  the Incentive Plan permits,  in the discretion of the Organization and
Compensation  Committee of the Board of Directors (the "Committee")  deferral of
payments within limits established by the Committee;

WHEREAS,  the Company (as hereinafter  defined) maintains a program known as the
Incentive  Compensation Award Plan for exempt salaried employees (the "Incentive
Compensation Plan"). The Incentive Compensation Plan is a flexible bonus program
based on targets of earnings,  performance levels and other  considerations that
are  determined  by the  Committee  (or the Board of  Directors,  in the case of
directors who are also  officers) each year taking into account  factors,  which
may include the results of the Company's operations,  its financial position and
the performance of each management group;

WHEREAS,  the Board of Directors  adopted the ASARCO  Incorporated  Supplemental
Savings  Plan  (  the  "Supplemental  Savings  Plan")  to  provide  supplemental
retirement benefits to those employees who are affected by Section 401(a)(17) of
the  Internal  Revenue  Code of 1986,  as amended (the  "Code"),  which  imposes
limitations on the amount of annual  compensation that may be taken into account
for all "tax-qualified" plan purposes;

WHEREAS,  the Board of Directors  deems it advisable to rename the  Supplemental
Savings Plan as the ASARCO Incorporated  Compensation Deferral Plan (the "Plan")
and amend and restate it, as set forth herein,  to include  deferrals to be made
under the Incentive Plan and the Incentive Compensation Plan; and

WHEREAS, the Committee has adopted the Plan as its administrative  guidelines to
permit the  deferral  of  compensation  pursuant to the  Incentive  Plan and has
recommended  to the Board of Directors the adoption of the Plan as its amendment
and restatement of the  Supplemental  Savings Plan to permit the continuation of
deferrals made  thereunder  and  additional  deferrals of salaries for employees
affected by Section  401(k)(3)  of the Code,  and to permit  deferrals of awards
made pursuant to the Incentive Compensation Plan, and the Board of Directors has
approved and decided to adopt the Plan as recommended.

NOW, THEREFORE,  the Board of Directors hereby renames the Supplemental  Savings
Plan  and  amends  and  restates  it in its  entirety  by  adopting  the  ASARCO
Incorporated Compensation Deferral Plan as herein after set forth.

                           Section 1 - Effective Date

The effective date of the ASARCO Incorporated  Compensation  Deferral Plan ( the
"Plan")  shall be February 1, 1995 except as to (i)  deferrals  of salaries  for
employees  affected  by  Section  401(k)(3)  of the  Code,  and  (ii)  incentive
compensation   deferrals  under  the  Incentive  Compensation  Plan  ("Incentive
Compensation  Plan") and the  Incentive  Compensation  Plan for Senior  Officers
("Incentive  Plan"), for which the effective date shall be December 1, 1996 (the
"Effective Date").



<PAGE>


C39
                             Section 2 - Eligibility

(a)      Salary Deferral
         For purposes of salary deferral,  any employee  eligible to participate
         in  the  Savings  Plan  of  ASARCO   Incorporated   and   Participating
         Subsidiaries ("Asarco Savings Plan") who:

         (i) had  compensation  from the  Company of at least  $80,000  (or such
         other  greater  limit  as  may  be   established   under  Code  Section
         414(q)(1)(B)(1))  (the "HCE Limit") for the calendar year preceding the
         year for which the election is effective, or

         (ii) has an  annualized  base salary  equal to or greater  than the HCE
         Limit for the year for which the election is effective, or

         (iii) had 1996 contributions  under the Asarco Savings Plan returned in
         1997 as a result of limitation imposed by Code Section 401(k)(3)

         shall  be  considered  an  "Eligible  Employee".  Except  as  otherwise
         provided herein ASARCO Incorporated and its Participating  Subsidiaries
         shall be referred to herein as the "Company".  Participating Subsidiary
         shall mean a  subsidiary  of ASARCO  Incorporated  that has adopted the
         Plan.

(b)      Incentive Compensation Deferral
         For purposes of incentive  compensation  deferrals  under the Incentive
         Compensation  Plan and the Incentive Plan, any exempt salaried employee
         of the  Company  who meets the  compensation  requirements  of  Section
         2(a)(i)  or  2  (a)  (ii)  above,  shall  be  considered  an  "Eligible
         Employee".

                            Section 3 - Participation

(a)      Election to Defer
         (1) Salary  Deferral.  To become a participant  in the salary  deferral
         component  of the Plan for a  particular  calendar  year,  an  Eligible
         Employee must elect,  prior to the beginning of such calendar  year, to
         defer  receipt of a percentage  of his base annual  salary to be earned
         during the calendar year (an Eligible Employee who has a valid election
         in  effect  under  this  section  3 shall be  referred  to  herein as a
         "Participant").   Such  an  election  shall  be  in  writing  on  forms
         prescribed  by  the   Committee,   which  election  shall  include  the
         percentage  amount to be deferred.  A  Participant's  election to defer
         with  respect to a calendar  year under this  subsection  (a)(1)  shall
         continue in effect for all  subsequent  calendar years until changed in
         accordance with subsection (e). An employee of the Company that becomes
         an Eligible  Employee  after the  Effective  Date may elect to become a
         Participant  in the  Salary  Deferral  component  of the  Plan  for the
         calendar  year in which he becomes an Eligible  Employee by electing to
         defer a  percentage  of his base  annual  salary  (in  accordance  with
         Section  3(b))  within 30 days of becoming an  Eligible  Employee.  The
         election will be effective on a prospective  basis  beginning  with the
         payroll  period  that  occurs as soon as  administratively  practicable
         following receipt of the election by the Committee.



<PAGE>


C40
         (2) Incentive  Compensation  Deferral.  To become a participant  in the
         Incentive  Compensation Deferral component of the Plan for a particular
         calendar year, an Eligible Employee must elect,  prior to the beginning
         of such calendar  year, to defer receipt of an amount not to exceed 100
         percent  of his  award  under  the  Incentive  Plan  or  the  Incentive
         Compensation  Plan,  or  both  as  the  case  may  be  (the  "Incentive
         Compensation  Award"),  declared  during the calendar year to which the
         election  relates.  Such an  election  shall  be in  writing  on  forms
         prescribed by the Committee as described in Section (3)(a) (1) above. A
         Participant's  election to defer with respect to a calendar  year under
         this  subsection  (a)(2)  shall  continue in effect for all  subsequent
         calendar years until changed in accordance with subsection (e).

(b)      Deferral Amount

         1) Salary Deferral. A Participant who meets the requirements of Section
         3(a)(1)  for a calendar  year may elect to have the  following  amounts
         (the  "Salary  Deferral  Amount")  credited  to his  account  for  such
         calendar year or portion  thereof during which an election is effective
         (the "Deferral Period"):

         (a) the Participant's elected salary deferral  contribution  percentage
         under the Asarco  Savings  Plan as in effect on January 1 of such year,
         multiplied  by the  Participant's  base annual  salary in excess of the
         Code Section  401(a)(17) limit, as adjusted from time to time ($150,000
         in 1996) (the "Compensation Limit"); provided,  however, that the total
         amount of Salary  Deferrals under this subsection  cannot exceed twelve
         percent  of the  Participant's  base  annual  salary  in  excess of the
         Compensation Limit; and

         (b)  the  product  of  (i)  multiplied  by  (ii),   where  (i)  is  the
         Participant's  elected salary deferral  contribution  percentage  under
         this  Plan  (not to  exceed  twelve  percent)  reduced  by the  maximum
         contribution  percentage  permitted  for highly  compensated  employees
         under the Asarco  Savings Plan due to the  limitations  imposed by Code
         Section  401(k)(3) or by the Plan  Administrator for the Asarco Savings
         Plan  for  such  calendar  year,   and,  (ii)  is  the  lesser  of  the
         Participant's  base  annual  salary  for such year or the  Compensation
         Limit.

         (2)  Incentive  Compensation  Deferral.  The amount of a  Participant's
         incentive  compensation  deferral  for a Deferral  Period  shall be any
         whole  dollar  amount or whole  percent of his  Incentive  Compensation
         Award declared  during the calendar year as elected by the  Participant
         (the "Incentive  Compensation Deferral Amount"). In the event the award
         declared is less than the dollar amount specified in the  Participant's
         election,  the full amount of the award  shall be deferred  (subject to
         Section 13).

(c)      Irrevocability of Election
         Subject  to the  provisions  of  subsection  (e) of this  Section  3, a
deferral election hereunder shall be irrevocable.



<PAGE>


C41

(d)      Employer Provided Benefit
         With respect to each Deferral  Period,  the Company shall make a deemed
         matching  contribution  equal  to  50%  of  each  Participant's  Salary
         Deferral Amount (each such deemed matching  contribution,  an "Employer
         Provided Benefit);  provided,  however, that no Participant's  Employer
         Provided  Benefit  with  respect  to a  particular  year may exceed the
         amount  by which 3% of such  Participant's  base  salary  for such year
         exceeds  the  matching   contribution   made  by  the  Company  on  the
         Participant's  behalf under the Asarco Savings Plan for such year. Each
         such  Employer  Provided  Benefit  shall be  deemed to be  invested  in
         accordance with the applicable  Participant's  investment election,  as
         provided in Section 4.

(e)      Change of Election
         A  Participant  may change his election to defer once in each  calendar
         year.  Such an  election  to  change  shall  be in  writing,  on  forms
         prescribed  by the  Committee.  Such change of election  shall first be
         effective for the calendar year following the election change date.

(f)      Special Incentive Awards
         Notwithstanding  anything to the contrary herein, the Committee, in its
         discretion, may provide for any amounts awarded to a Participant by the
         Board or the Committee as a special incentive award under the Incentive
         Compensation Plan to be deferred pursuant to the terms of this Plan and
         credited,  at the sole cost and expense of the Company,  on behalf of a
         Participant to a Participant's  Account (as defined below),  subject to
         the terms and limitations of the award ("Special Incentive Awards").

                    Section 4 - Deemed Investment Provisions

(a)      A Participant's Salary Deferral Amount, Incentive Compensation Deferral
         Amount,  Employer Provided Benefit and Special  Incentive  Compensation
         Awards (together,  the "Deferral  Amounts") shall be deemed invested in
         accordance  with  the  Participant's  election  in  such  funds  as are
         provided  under the Asarco  Savings  Plan,  except,  however,  that the
         Asarco Common Stock Fund shall not be available as a deemed  investment
         under the Plan.  The Company will  attempt to follow the  Participants'
         elections, but will not be required to do so. Regardless of whether the
         Participants'  elections are  followed,  the  Participant  Accounts (as
         defined in Section 5(a)) shall be credited with deemed earnings, gains,
         losses,  expenses  and  changes  in  the  fair  market  value  of  such
         Participant  Accounts as if the Company had  followed  such  investment
         designations.

(b)      At the time of the election to participate in the Plan, the Participant
         must elect in writing to have his Deferral Amounts deemed invested,  in
         increments of no less than 5%, in one or more of the  investment  funds
         described in Section 4(a). Said election must total one hundred percent
         (100%) of his Deferral Amounts.

(c)      Each  Participant may elect in writing that his future Deferral Amounts
         be deemed  invested  in a  proportion  different  from that  previously
         elected,  but the new election shall be  prospective  only and shall be
         made in  accordance  with  paragraph  (b) of this Section 4. Changes in
         such deemed  investments may be made by a Participant on a daily basis,
         in  accordance  with  rules,  if any,  as shall be  established  by the
         Committee.



<PAGE>


C42

(d)      The election of a deemed investment  option is the sole  responsibility
         of each Participant.  Neither the Company,  nor the Committee,  nor any
         trustee of any trust that may be  established  in  connection  with the
         Plan are authorized or permitted to advise (or shall have any liability
         with respect to) a Participant  as to the election of any option or the
         manner in which his Deferral Amounts shall be deemed to be invested.

(e)      Consistent with this Section 4, each  Participant may elect in writing,
         that a whole  percentage (no less than 5%) or specific dollar amount of
         his deemed  investment in any fund may be transferred to any other fund
         available  under the Plan.  Such election will be prospective  only and
         will be permitted on a daily basis,  in accordance  with rules, if any,
         as shall be established by the Committee.

                    Section 5 - Value and Payment of Benefits

(a)      Participant Account
         A bookkeeping  account shall be established in the financial records of
         the Company for each Participant ("Participant Account") to which there
         shall be credited for each year during which a deferral  election is in
         effect,  (i)  the  Participant's   Deferral  Amounts  and  (ii)  deemed
         investment   earnings  or  losses  arising   therefrom   based  on  the
         Participant's  elections  pursuant to Section 4, as in effect from time
         to time in accordance therewith.

(b)      Payment of Benefits
         Subject to paragraphs  (c) and (d) of this Section 5, each  Participant
         shall receive the value of his  Participant  Account in cash as elected
         under the Plan (subject to Section 13 and 14) as soon as practicable in
         the year  following  the  year of the  Participant's  early  or  normal
         retirement from the Company.  If a Participant  terminates service with
         the Company prior to qualifying for early retirement,  the value of his
         Participant   Account  will  be  distributed  as  soon  as  practicable
         following  the  termination  from service in cash as elected  under the
         Plan  (subject  to  Section  13).  In  the  event  of  the  death  of a
         Participant before receiving the value of his Participant Account, such
         distribution   shall  be  paid  to  his  beneficiary  or  beneficiaries
         designated pursuant to Section 6.

(c)      Financial Hardship of Participants
         Except as may otherwise be provided by the terms of a Special Incentive
         Award,  at any time  prior  to  commencement  of  payment  of  benefits
         pursuant to paragraph (b) of this Section 5, a Participant  may request
         a payment of all or a portion of the value of his Participant  Account.
         Such a request shall be approved by the  Committee  only upon a finding
         that the Participant has suffered a severe financial hardship which has
         resulted  from  events  beyond  the  Participant's  control  ("Hardship
         Event"),  and only in the  amount  reasonably  needed to  satisfy  such
         Hardship  Event.  Whether  a  Hardship  Event  has  occurred  shall  be
         determined  in  accordance  with Treasury  Regulation  Sections  1.457-
         2(h)(4)  and (5). In the event such a payment is  approved,  payment of
         all or a portion of the value of the Participant  Account shall be made
         as soon as practicable to the Participant.



<PAGE>


C43

(d)      Withdrawals
         (1) Adequate  Prior Notice.  Except as may otherwise be provided by the
         terms of a Special Incentive Award,  absent a Hardship Event, a request
         for a  payment  of all or a  portion  of the  value of a  Participant's
         Participant  Account  may be  made  by such  Participant  prior  to the
         payment  of  benefits  pursuant  to  paragraph  (b) of this  Section 5,
         subject to prior written  notice to the Committee (in  accordance  with
         such rules and on such forms as the Committee may prescribe) at least 1
         year prior to the requested payment date. Such payment shall be made in
         cash in a single  lump sum  (subject  to  Section 13 and 14) as soon as
         practicable after such requested payment date.

         (2) Other Withdrawals. Except as may otherwise be provided by the terms
         of a Special  Incentive  Award, and absent a Hardship Event or adequate
         prior notice (in accordance with paragraph (d)(1) above), a request for
         a  payment  of  all  or a  portion  of  the  value  of a  Participant's
         Participant  Account  may be  made  by such  Participant  prior  to the
         payment  of  benefits  pursuant  to  paragraph  (b) of this  Section 5,
         subject to a 6% penalty of the amount of the requested  payment,  which
         penalty  shall be deducted from the  requested  payment.  The requested
         payment, less such penalty,  shall be paid in cash in a single lump sum
         (subject  to  Section  13 and  14) as  soon as  practicable  after  the
         requested payment date.

(e)      Change of Election
         Notwithstanding  the  foregoing,  subsequent  to  his or  her  date  of
         termination,  a Participant  who has made an election  pursuant to this
         Section 3 may file an election  to amend such prior  election as to the
         time  of any  amount  due and  payable  at  least  twelve  (12)  months
         subsequent to such amendment,  and to change the form of such payments,
         provided no such election may  accelerate any payment to a date earlier
         than twelve (12) months from the date of amendment. The amended form of
         payment  may be a single  sum  payment of any  amounts  not yet due and
         payable,  or annual  installments of any such amounts, or a combination
         thereof.  The Deferral  Period or any further  deferral made under this
         Subsection  (e) may not  exceed  twenty  (20)  years  from  the date of
         termination of the Participant.


                     Section 6 - Designation of Beneficiary

A Participant may designate one or more  beneficiaries  by giving written notice
to the Committee on the form of Attachment I hereto or such other form as may be
provided by the Committee for that purpose.  If no beneficiary is so designated,
a  Participant's   beneficiary   will  be  the  legal   representative   of  the
Participant's estate. If more than one beneficiary statement has been filed, the
beneficiary or beneficiaries designated in the statement bearing the most recent
date will be deemed the valid beneficiary.




<PAGE>


C44

                   Section 7 - Participant's Rights Unsecured

This Plan shall be unfunded,  and the right of any Participant or beneficiary to
receive  payment under the  provisions  of the Plan shall be an unsecured  claim
against the general  assets of the Company,  and no provisions  contained in the
Plan shall be construed to give any  Participant  or  beneficiary  at any time a
security  interest in any Participant  Account or any asset of the Company.  The
liabilities of the Company to any  Participant  or  beneficiary  pursuant to the
Plan shall be solely those of a debtor pursuant to such contractual  obligations
as are  created  by the  Plan.  Amounts,  if any,  which may be set aside by the
Company for accounting  purposes may be held in trust, the assets of which shall
be  subject  to the  claims  of the  Company's  or the  employing  Participating
Subsidiary's  creditors,  as the case may be, in the event of the  Company's  or
applicable  Participating   Subsidiary's  bankruptcy  or  insolvency  only.  Any
Deferral  Amount paid from such trust shall  reduce the amount of such  benefits
owed by the Company, or the applicable Participating  Subsidiary. No Participant
or  beneficiary  shall have any right to, or control or  incidence  of ownership
with respect to, any such  amounts or any other  assets of the  Company,  or any
subsidiary of the Company.

                     Section 8 - Non-Alienation of Benefits

No benefit  payable under or interest in the Plan shall be subject in any manner
to anticipation,  alienation, sale, transfer, assignment, pledge, encumbrance or
charge (in each case, whether voluntary or involuntary),  and any such attempted
action  shall be void and no such  benefit  or  interest  shall be in any manner
liable for or subject to debts, contracts, liabilities,  engagements or torts of
any Participant,  former  Participant or beneficiary.  If a Participant,  former
Participant  or  beneficiary  shall  attempt  to  anticipate,   alienate,  sell,
transfer,  assign,  pledge,  encumber  or charge any  benefit  payable  under or
interest in the Plan in contravention of the foregoing  sentence,  the Committee
will disregard the attempted transfer, assignment, or other alienation, and will
pay the value of his Participant Account in accordance with the terms of Section
5.

                     Section 9 - Administration of the Plan

The Plan shall be  administered  by the Committee.  The Committee shall construe
and  interpret  the Plan and may  adopt  rules  and  regulations  governing  the
administration  of the Plan, as well as exercise any duties and powers conferred
on it by the  terms of the Plan.  The  Committee  shall  act by vote or  written
consent of a majority  of its members or  otherwise  as in  accordance  with its
general procedures as in effect from time to time.

                Section 10 - Amendment or Termination of the Plan

Except as provided in Section 14 hereof,  this Plan may at any time or from time
to time be amended,  modified or terminated  by the Board of  Directors.  In the
event that the Board of Directors  determines that it is inadvisable to continue
to maintain the Plan for any reason,  it may provide  that no further  deferrals
shall  be  allowed  under  this  Plan  and (a)  that  amounts  credited  to each
Participant  Account shall be paid out  immediately in a cash  lump-sum,  or (b)
provide that payments  shall  continue to be made pursuant to the  provisions of
Section 5 with  respect  to then  existing  Participant  Accounts,  which  shall
continue to be credited with deemed investment  earnings or losses in accordance
with Section 5 (a) until paid in full in accordance with Section 5.



<PAGE>


C45

     Section 11 - No Entitlement to Awards or Right of Continued Employment

Neither the establishment of the Plan nor the payment of any benefits  hereunder
nor any action of the Company,  a subsidiary  of the Company,  or the  Committee
shall be held or  construed  to confer  upon any  person  any legal  right to be
awarded any amounts under the Incentive Plan or the Incentive  Compensation Plan
or to continue in the employ of the Company or a subsidiary of the Company.  The
Company  and its  subsidiaries  expressly  reserve  the right to  discharge  any
Participant whenever the interest of any such company in its sole discretion may
so require without  liability to such company or the Committee  except as to any
rights which may be expressly conferred upon such Participant under the Plan.

      Section 12 - Discretion of Company, Board of Directors and Committee

(a)      Any  decision  made or action  taken by the  Company or by the Board of
         Directors or by the Committee  arising out of or in connection with the
         construction,  administration,  interpretation  and  effect of the Plan
         shall lie within the absolute  discretion of the Company,  the Board of
         Directors  or the  Committee,  as the case may be,  and shall be final,
         conclusive and binding upon all persons.

(b)      No member of the Board of Directors  or of the  Committee or officer or
         employee of the Company or its subsidiaries shall be liable for any act
         or action  hereunder,  whether of commission or omission,  taken by any
         other  member,  or by  any  officer,  agent,  or  employee,  except  in
         circumstances  involving  his bad faith for anything done or omitted to
         be done by himself.

                          Section 13 - Tax Withholding

There shall be deducted  from all deferrals or payments made under this Plan the
amount of any taxes  required  to be withheld by any  Federal,  state,  local or
foreign government, including any employment taxes required to be withheld under
Code Section 3121(v).  The Participants and their  beneficiaries,  distributees,
and  personal  representatives  will bear any and all Federal,  foreign,  state,
local or other income or other taxes imposed on amounts paid under the Plan, and
the Company may take  whatever  actions are  necessary and proper to satisfy all
obligations of such persons for payment of all such taxes.

                         Section 14 - Change Of Control

(a)      Notwithstanding  any other  provision  of this Plan,  in the event of a
         Change  of  Control  (as  defined  below),  no  person  that  is  not a
         Participant  in the Plan  immediately  prior to such  Change of Control
         shall be permitted to be a Participant  under the Plan  following  such
         Change of Control.  Upon and after a Change of  Control,  this Plan may
         not  be  amended,   modified  or  terminated  if  any  such  amendment,
         modification or termination would adversely affect any accrued benefits
         of a  Participant  or his or her rights  with  respect to such  accrued
         benefits  in the  Plan,  unless  any such  amendment,  modification  or
         termination is consented to in writing by all such Participants. Upon a
         Change  of  Control,  payment  of  all of the  value  of a  Participant
         Account, including any Special Incentive Award component thereof, shall
         be made to the Participant  immediately in a single cash lump sum prior
         to the payment of benefits  pursuant to Section 5. Participants who are
         in pay  status as of  January  28,  1998 and who do not  consent to the
         amendment to the Plan effective January 28, 1998 within sixty (60) days
         of the date of notice  of the  amendment,  shall  continue  to  receive
         benefits  in the  event of a Change of  Control  under the terms of the
         Plan as in effect on the date preceding  January 28, 1998. For purposes
         of this Section 14 the term "Company" shall mean ASARCO Incorporated.


<PAGE>


C46

(b)      For  purposes of this Plan,  a "Change of  Control"  shall be deemed to
         have occurred if:

         (1) any "person",  as such term is used in Sections  13(d) and 14(d) of
         the Securities  Exchange Act of 1934, as amended (the  "Exchange  Act")
         (other  than  the  Company,  any  trustee  or other  fiduciary  holding
         securities  under  an  employee  benefit  plan of the  Company,  or any
         company  owned,  directly or  indirectly,  by the  stockholders  of the
         Company in substantially the same proportions as their ownership of the
         stock of the Company), is or becomes the "beneficial owner" (as defined
         in Rule 13d-3  under the  Exchange  Act),  directly or  indirectly,  of
         securities of the Company representing either 31% or more of the voting
         power of all classes of capital stock of the Company or 33-1/3% or more
         of the  then  outstanding  common  stock,  without  par  value,  of the
         Company;

         (2) the  following  individuals  cease for any reason to  constitute  a
         majority of the number of directors then serving:  individuals  who, on
         the date hereof,  constitute  the Board of Directors of the Company and
         any new director  (other than a director  whose  initial  assumption of
         office is in connection with an actual or threatened  election contest,
         including  but not limited to a consent  solicitation,  relating to the
         election of directors of the Company) whose  appointment or election by
         the Board of Directors  or  nomination  for  election by the  Company's
         stockholders  was  approved  or  recommended  by a  vote  of  at  least
         two-thirds  (2/3) of the directors then still in office who either were
         directors  on the date  hereof  or whose  appointment  or  election  or
         nomination for election was previously so approved or recommended;

         (3) the  stockholders of the Company approve a merger or  consolidation
         of the Company or any direct or indirect subsidiary of the Company with
         any other company, other than (i) a merger or consolidation which would
         result in the voting securities of the Company outstanding  immediately
         prior thereto continuing to represent (either by remaining  outstanding
         or being  converted into voting  securities of the surviving  entity or
         any parent  thereof) more than 50% of the combined  voting power of the
         voting  securities  of the Company or such  surviving  entity or parent
         thereof  outstanding  immediately after such merger or consolidation or
         (ii) a merger or consolidation effected to implement a recapitalization
         of the  Company  (or  similar  transaction)  in which no  "person"  (as
         defined herein)  acquires more than 50% of the combined voting power of
         the Company's then outstanding securities; or

         (4)  the  stockholders  of  the  Company  approve  a plan  of  complete
         liquidation  of the Company or an agreement for the sale or disposition
         by the Company of all or substantially all of the Company's assets.

                            Section 15 - Severability

In the event any provision of this Plan would serve to invalidate the Plan, that
provision  shall be deemed to be null and void,  and the Plan shall be construed
as if it did not contain the particular provision that would make it invalid.



<PAGE>


C47

            Section 16 - Governing Law; Binding Effect; Miscellaneous

The Plan shall be governed and construed and  enforceable in accordance with the
laws of the State of New York, except as superseded by applicable Federal law.

If the Company is consolidated or merged with or into another corporation, or if
another entity purchases all, or  substantially  all of the Company's assets the
surviving or acquiring  corporation  shall succeed to the  Company's  rights and
obligations  under the Plan.  The Plan  shall  inure to the  benefit  of, and be
enforceable  by,  each  Participant,   the   Participant's   personal  or  legal
representatives,  executors,  administrators,  successors,  heirs, devisees, and
legatees, as the case may be.

Where  appearing in the Plan,  the  masculine  gender shall include the feminine
gender.

References  to the Code or to Treasury  Regulations  shall include any successor
provisions, amendments or substitutions thereto.

IN WITNESS WHEREOF, the Company has caused the ASARCO Incorporated  Compensation
Deferral  Plan to be duly adopted and executed by its duly  authorized  officers
and its corporate seal affixed hereon as of the 28th day of January, 1998.


ATTEST:                                     ASARCO Incorporated


_____________________                       By:______________________
Assistant Secretary                                       Vice President



<PAGE>


C48

                                  ATTACHMENT I


                               ASARCO Incorporated
                           Compensation Deferral Plan

                           DESIGNATION OF BENEFICIARY


In the event of my death  prior to my  retirement  from  employment  with ASARCO
Incorporated or its applicable subsidiary, or following my retirement but before
I have received all benefits payable to me under the Compensation  Deferral Plan
(the Plan"),  I hereby  designate,  for  purposes of Section 6 of the plan,  the
following  beneficiary (or  beneficiaries)  to receive the benefits,  if any, to
which I may be entitled under the plan.


Beneficiary or Beneficiaries:


Name/Address:                               Relationship:

-----------------------------------------------------------------

-----------------------------------------------------------------

-----------------------------------------------------------------

In the  event  that I wish  at a  later  date  to  designate  a  beneficiary  or
beneficiaries different from the designation election above a new designation of
beneficiary form will be completed by me.


-----------------------------               -------------------------
Signature                                                     Date



-----------------------------               -------------------------
Print Name                                    Social Security Number