Item 1. Business

Overview

        The Doe Run Resources Corporation (Doe Run and together with its subsidiaries, the Company) is a producer of non-ferrous and precious metals with operations in the United States and Peru. The Company is the largest integrated lead producer in North America and the largest primary lead producer in the western world. The Company's business in the United States includes an integrated primary lead operation, a secondary lead operation and lead fabrication operations. In Peru, Doe Run's indirect subsidiary, Doe Run Peru S.R.L. (Doe Run Peru), operates the La Oroya smelter (La Oroya), one of the largest polymetallic processing facilities in the world producing an extensive product mix of non-ferrous and precious metals, including silver, copper, zinc, lead and gold. Doe Run Peru also has a copper mining and milling operation (Cobriza) in Peru. These operations will be discussed in greater detail in the "Overview" sections below. See "Item 8. Financial Statements and Supplementary Data—Note 17 to the Company's Consolidated Financial Statements", for detailed operating segment information. The Company's business does not involve significant: 1) seasonal fluctuations, 2) unusual working capital requirements, 3) order backlog or 4) federal contracting.

Financial Condition

        The Company's auditors have issued unqualified opinions on the 2003 audited financial statements of the Company and of Doe Run Peru that express doubt about the Company's and Doe Run Peru's ability to continue as going concerns due to, among other things, liquidity concerns, defaults under loan agreements, uncertainties related to environmental and litigation matters, as well as recurring losses that are discussed in "Item 8. Financial Statements and Supplementary Data—Note 2 to the Company's Consolidated Financial Statements" and "Item 8. Financial Statements and Supplementary Data—Note 18 to Doe Run Peru's Consolidated Financial Statements".

        The Company continues to deal with challenges posed by the market for its metal products and feed supply shortages in Peru. In the U.S., a declining demand for lead, mainly due to the movement of lead consuming industries from the U.S. to lower labor cost areas of the world, particularly China, has affected the domestic metal market. Imports of lead-acid batteries from Mexico, China, South Korea, and Brazil, displacing U.S. production, are expected to continue into 2004. These challenges also include the effects of increasing metal production in China, which has affected the global demand for concentrates. These challenges have affected the results of operations and liquidity for the U.S. and Doe Run Peru. See discussion of market issues and their impact in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations— Liquidity ." See discussion of feed supply issues in "Doe Run Peru— Raw Materials" .

Restructuring

        On October 29, 2002, Doe Run completed a consensual restructuring (the Restructuring) of its previously outstanding 11.25% Senior Notes due 2005, Floating Interest Rate Senior Notes due 2003 and 11.25% Senior Secured Notes due 2005 (collectively, Old Notes) by exchanging notes with a principal amount of $294.8 million for new notes with a face amount of $175.8 million due November 1, 2008 (the Notes) and issuing warrants entitling holders of the Notes to purchase approximately 39% of the aggregate outstanding common stock of Doe Run (the Warrants). The Warrants expire on October 29, 2012 and are exercisable at any time after November 1, 2008. The effect of the Restructuring was to reduce the face amount of notes outstanding by $119.0 million and defer principal and interest payments. See "Item 7. Management's Discussion of Financial Condition and Results of Operations— Restructuring and Long-Term Debt " for a discussion of the Restructuring. Pursuant to the Restructuring, Doe Run's Board of Directors was expanded from one to three with one

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(the Independent Director) selected by holders of the majority of the Warrants (Majority Warrantholders) pursuant to an Investor Rights Agreement. The powers granted to the Independent Director by the Investor Rights Agreement may have a significant impact on the operation of the Company's business as well as its strategic direction. See "Item 5. Market for Registrant's Common Equity and Related Stockholder Matters" for a discussion of the Investor Rights Agreement and "Item 10. Directors and Executive Officers of the Registrant" for information on the Directors.

Corporate structure

        All of Doe Run's issued and outstanding capital stock is indirectly owned by The Renco Group, Inc. (Renco). Renco is owned by trusts established by Mr. Ira Leon Rennert, Renco's Chairman and Chief Executive Officer, for himself and members of his family. As a result of such ownership, Mr. Rennert controls the Company and its subsidiaries, subject to the provisions of the Investor Rights Agreement discussed above.

        Doe Run owns 100% of Doe Run Cayman Ltd. (Doe Run Cayman), a Cayman Islands corporation. Doe Run Cayman owns in excess of 99% of the interest in Doe Run Peru, with a de minimis number of shares owned by present and former employees of both Doe Run Peru and Empresa Minera del Centro del Peru S.A. (Centromin) as required by Peruvian law. Centromin is the Peruvian government entity whose subsidiary previously owned La Oroya. That subsidiary was purchased on October 23, 1997 by Doe Run Peru.

Overview—U.S. Operations

        The Company's primary lead operation in the U.S. consists of two primary smelters, which obtain concentrates from the Company's four operating mills, supplemented from time to time with concentrates purchased in the open market. The Company indefinitely suspended operations at one of these smelters in November 2003. (See further discussion in "Item 7. Management's Discussion and Analysis— Recent Events ".) The mills are supplied with ore mined from five production shafts along approximately 40 miles of the Viburnum Trend in southeastern Missouri, one of the world's most productive lead deposits. As of October 31, 2003, the Company's U.S. ore reserves consisted of approximately 48 million proven and probable tons, containing average grades of 5.51% lead, 1.25% zinc and .29% copper.

        The Company also operates in southeastern Missouri the world's largest secondary lead smelter where it produces lead metal from recycled lead-acid batteries and other lead bearing materials.

        The Company, through its subsidiary, Fabricated Products, Inc. (FPI), produces value-added lead products such as lead oxide, lead sheet and lead bricks at facilities in Arizona, Washington and Texas. These operations permit the Company to participate in and manage the entire lead life cycle from mining lead ore, to producing refined lead metal, to fabricating value-added lead products, to recycling batteries and other materials containing lead. See discussion in "Item 7. Management's Discussion and Analysis— Recent Events " for discussion of the status of certain of these operations subsequent to the end of the fiscal year.

        In fiscal 2003, the Company's U.S. operations delivered approximately 424,000 tons of refined lead metal and lead alloy products, including lead recycled for customers (tolling), representing approximately 21% of North American consumption and 7% of western world consumption.

        Approximately 64% of the U.S. operation's sales for the fiscal year ended October 31, 2003 (2003) were to battery manufacturers or their suppliers. Historically the lead-acid battery has been the dominant technology for automotive and other starting, lighting and ignition (SLI) batteries. Management believes this will continue to be the case for the foreseeable future because of its cost competitiveness, recyclability and existing infrastructure. Refined lead is also used in products such as

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computer and television screens, ammunition, and stationary batteries used as backup power sources and rolled and extruded lead products used in radiation shielding and roofing materials.

        Fluctuations in lead and other non-ferrous metal prices can have a material effect on the results of operations, financial condition and liquidity of the Company. These prices are affected by numerous factors beyond the Company's control, including expectations for inflation, speculative activities, global and regional demand and production, political and economic conditions and production costs in major producing regions. The aggregate effect of these factors is impossible for the Company to predict. See " Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations— Results of Operations " for a detailed discussion of the markets for lead and other metals affecting the Company's results of operations. The Company, by taking advantage of its extensive polymetallic ore resources and smelting assets, is somewhat able to reduce the impact of metal price volatility through adjustments to its mining, milling and smelting plans. In addition, sales from tolling services, by-products and fabricated products provide the Company with sources of revenue largely independent of lead prices.

Overview—Doe Run Peru

        The Doe Run Peru operations consist of the La Oroya smelting complex, acquired in October 1997, and the Cobriza copper mine and mill acquired in August 1998. La Oroya's unique combination of non-ferrous metal smelters, refineries and by-product circuits enable it to process complex polymetallic concentrates and to produce high quality finished metals and by-products. In 2003, La Oroya was one of Peru's largest exporters, exporting approximately 91% of its total sales to North America, Europe and Asia, as well as other Latin American countries. Its customers include end-users of non-ferrous and precious metals and metal by-products, as well as international metal trading companies.

        La Oroya's operations smelt and refine complex concentrates obtained from Cobriza and from unaffiliated mining operations. La Oroya typically purchases concentrate feedstock pursuant to contracts under which the cost of concentrates is based on a percentage of the non-ferrous metal and precious metal content of the concentrates, reduced by treatment and refining charges to process the concentrates and penalties for impurities within the concentrates, such as arsenic, antimony and bismuth, which the smelter can process and sell as by-products. Non-ferrous metal prices are generally established by reference to international metal markets, primarily the London Metal Exchange (LME). Treatment charges are negotiated with concentrate sellers, generally based on world terms. They are affected by numerous factors beyond the Company's control including: expectations for inflation, global and regional demand for smelter capacity, availability and quality of concentrates and production costs in major producing regions. The aggregate effect of these factors is impossible for the Company to predict. La Oroya's ability to process the impurities in copper and lead concentrates allows Doe Run Peru to charge a penalty for processing these concentrates. These penalties are significant to Doe Run Peru, and La Oroya is one of only four smelters in the western world that can process these types of concentrates.

        La Oroya derives its operating profit primarily from treatment charges, refining charges and penalties on concentrates purchased. The smelter pays for the majority of the metal contained in the concentrates purchased, but metallurgical recoveries are typically greater than the percentage of metal content paid for. Therefore, it generates a portion of its operating profit from sales of the metals produced from these excess recoveries. Additional operating profit is generated from the sale of by-products, as well as from premiums over market prices received on its refined metal sales.

        The markets for La Oroya's products are global and demand depends upon world wide economic conditions. Given the diversity of its products and by-products, Doe Run Peru's financial performance is not solely dependent upon any single product or by-product. Also, because the La Oroya smelter is

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primarily a processor of complex concentrates that are purchased based on market prices, its financial performance is less sensitive than the Company's U.S. operations to the volatility of metal prices. However, La Oroya's operating results are sensitive to the level of treatment and refining charges and penalties received for concentrates processed and the availability of economically suitable concentrate feed. See "Doe Run Peru Operations Raw Materials" for a discussion of treatment charges and difficulties encountered in obtaining adequate feed supply.

        Doe Run Peru's financial condition and results of operations could be adversely affected by changes in economic or other policies of the Peruvian government, including reversal of the trend toward privatization, or other political or economic developments in Peru.

        Recently, Peru has experienced a certain level of political unrest and, if this political unrest were to increase significantly, Doe Run Peru's financial condition and results of operations may be adversely affected.

The Company's U.S. Operations

Products and Services

        The principal products produced by the Company's U.S. operations include refined lead from primary and secondary sources, lead, zinc and copper concentrates, fabricated lead products and other by-products. Historically, the majority of lead concentrates produced have been used to feed Doe Run's primary smelters. The Company also generates revenue from tolling fees received for recycling spent lead-acid batteries and other lead-bearing materials for its customers. The following table sets forth net sales for the Company's products and services:

        For the year ended October 31, 2003, exports represented approximately 6% of the U.S. operations' net sales. For the years ended October 31, 2002, and 2001, exports were approximately 1% of the U.S. operations' net sales.

Customers

        The Company's U.S. operations had approximately 150 lead metal customers including the six largest lead-acid battery manufacturers in the world. These six customers accounted for approximately 33% of U.S. net sales in fiscal 2003. The loss of any of the Company's large customers or curtailment of purchases by these customers could have a material adverse effect on the results of operations, financial condition and liquidity of the Company.

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Competition

        The Company is the largest integrated lead producer in North America and the largest primary producer in the western world. It is also the third largest secondary lead producer in North America and the fourth largest in the world. The Company's U.S operations compete primarily in the North American market where its major competitors are three primary lead producers and nine secondary lead producers. Competition within the North American market is based primarily on quality, price, service, timely delivery and reliability. Because lead is generally sold on a delivered basis with freight charges included, the Company's central U.S. location typically allows it to have transportation costs significantly lower than its major competitors with operations outside of North America. Due to its location, the Company also is able to provide its customers just-in-time delivery at a lower cost than most of its competitors. In addition, management believes the Company's primary and secondary production capacities and focus on the lead business as its core business provide the Company with additional competitive advantages. In response to a declining domestic metal market, as battery manufacturers move production overseas, Doe Run has reduced its lead metal production and is selling some of its production as lead concentrates, and competing in the global market for concentrates. See discussion of operation changes in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations— Recent Events " and a discussion of the current market for metal and concentrates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations— Results of Operations ."

Raw Materials

        Lead concentrates are supplied by the Company's mining operations and, from time to time, purchased from third parties. For a discussion of the Company's mineral reserves, see "Item 2. Properties— Ore Reserves ." At current production levels, the Company's U.S. mining operations produce all of the concentrates required by its primary smelter. The Company's U.S. operations utilize various other raw materials, principally spent batteries, coke, chemicals and reagents, which are secured from external sources, primarily on the basis of competitive bid. The Company believes that it has adequate sources of these raw materials to meet its present production needs.

Power

        The primary electric power source for the majority of the Company's U.S. operations is Ameren UE, a public utility headquartered in St. Louis, Missouri. The Viburnum-35 mine and Glover primary smelter obtain their electric power from Black River Electric Cooperative, a public utility located in Southeastern Missouri. Natural gas and propane are secured from external sources, primarily under contracts that are awarded on the basis of competitive bidding, whose prices fluctuate with the market for natural gas and petroleum, respectively. The Company believes that it has adequate power sources to meet its present production needs.

Environmental Matters

        The Company's U.S. operations are subject to numerous federal, state and local environmental laws and regulations governing, among other things, air emissions, wastewater discharge, solid and hazardous waste treatment, storage, and disposal and remediation of releases of hazardous substances. In common with much of the mining industry, the Company's facilities are located on sites that have been used for heavy industrial purposes for decades and may require remediation. Environmental laws and regulations may become more stringent in the future which could increase costs of compliance. See "Item 8. Financial Statements and Supplementary Data—Note 20 to the Company's Consolidated Financial Statements".

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Exploration

        The Company continues to explore for additional reserves within the Viburnum Trend, located in southeastern Missouri, one of the world's most productive lead ore districts. Current exploration is focused on surface and underground drilling in and adjacent to the operating mines for the purpose of discovering new ore reserves, as well as delineating previously drilled ores for mining purposes. In addition, drilling work is being pursued in most of the mines to access ore beyond the present mining areas. The Company, also holds exploration tracts outside the Viburnum Trend in the U.S. and through a subsidiary, in the Republic of South Africa. In Missouri, 50 miles east of the Viburnum trend, the Company has conducted pre-development work on a lead-zinc-cobalt deposit. In South Africa, the Company has conducted pre-feasibility work on a lead and zinc deposit approximately 100 miles from Kimberly, in the Northern Cape province. These properties are currently being held with minimal cost pending further economic evaluation. In fiscal 2003, 2002 and 2001, the Company's U.S. operations spent $3.8 million, $3.0 million and $3.8 million, respectively, on exploration activities, including $2.7 million, $1.6 million and $2.4 million, respectively, outside the Viburnum Trend.

Safet y

        Throughout its operations, the Company strongly emphasizes providing employees a safe working environment through extensive training to ensure safe work practices and worker knowledge of proper equipment operation. In the U.S., the Company's mining and milling operations are regulated by the Mine Safety and Health Administration of the Department of Labor (MSHA) and its smelting and fabricating operations are regulated by the Occupational Safety and Health Administration of the Department of Labor (OSHA). The Company believes it has achieved safety results that are among the best in its industry classifications. In 2003, the employees of the mining and milling operations continued their outstanding safety performance. The internal lost-time injury rate was about 2.5 times better than the national average for the underground metal mining industry. In fiscal 2003, the Fletcher mine, the Herculaneum smelter and FPI completed the year with no lost time injuries.

Employees

        As of October 31, 2003, the Company had 325 active salaried employees and 1,033 active hourly employees in the United States, of which Local 7450 of the United Steelworkers of America (USWA) represented 137 hourly employees at the Company's Glover smelter. Doe Run has a three-year agreement with the union that expires in May 2005. An election was held February 13, 14 and 15, 2003 to determine whether approximately 465 hourly and non-exempt salaried employees at the mining operations would be represented by the United Mine Workers of America. On February 24, 2003, the National Labor Relations Board certified that the mining operations' employees chose not to be represented by the United Mine Workers of America. Doe Run received a notice on March 31, 2004 that a petition had been filed under the National Labor Relations Act by the United Mine Workers of America to represent the hourly employees at the mining operations. An election was held May 17 - 20, 2004. The Company was advised on May 24, 2004 that the mining operations' employees chose not to be represented by the United Mine Workers of America.

Doe Run Peru

Products

        La Oroya's principal products are refined silver, copper, zinc, lead and gold. In addition, La Oroya produces a variety of by-products, including bismuth, indium, tellurium, antimony, cadmium, selenium, sulfuric acid, zinc-silver concentrate, zinc sulfate, copper sulfate, arsenic trioxide and others. The

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following table sets forth net sales, excluding sales to Doe Run, for each of La Oroya's principal products.

Customers

        La Oroya had approximately 332 customers in 2003, including a wide variety of industrial and international trading companies, of which the five largest accounted for approximately 45% of its net sales. In 2003, approximately 91% of net sales were exported, with sales to North American countries representing approximately 37% of net sales, followed by Latin America, Asia and Europe with approximately 19%, 18% and 16% of net sales, respectively. Substantially all of La Oroya's 2003 metal sales were pursuant to contractual agreements, typically one year or less. Such contracts generally set forth minimum volumes and pricing mechanisms. Substantially all of La Oroya's sales are denominated in U.S. dollars.

Competition

        La Oroya's unique combination of non-ferrous metal smelters, refineries and by-product circuits are capable of processing complex concentrates into high quality base and precious metals. Only three other facilities in the western world have the capability to treat lead and copper concentrates containing high antimony, arsenic, bismuth and precious metal values in addition to a variety of residues. Chinese smelters, who can also process complex concentrates, are competing with Doe Run Peru in the market for concentrates—see discussion of market below in " Raw Materials ".

Raw Materials

        La Oroya's primary raw material is concentrate feedstock. In addition, Doe Run Peru's process consumes various other raw materials, principally coal and fluxes.

        Copper.     During 2003, approximately 64% of the copper concentrates processed at La Oroya were obtained from the Peruvian domestic market. Approximately 27% of La Oroya's total copper concentrate feed comes from Cobriza. In fiscal 2004, La Oroya expects to obtain approximately 69% of its copper concentrates from the Peruvian domestic market, with Cobriza supplying approximately 27% of the total requirement. The balance is expected to be obtained primarily from neighboring Latin American countries. La Oroya requires approximately 81,000 tons of copper metal contained in concentrates to produce at capacity.

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        Zinc.     All of the zinc concentrates processed at La Oroya, during 2003, were secured from the Peruvian domestic market. La Oroya requires approximately 90,000 tons of zinc metal contained in concentrates per year to maximize production capacity.

        Lead.     Approximately 95% of La Oroya's 2003 lead concentrates were obtained from the Peruvian domestic market. The smelter requires approximately 137,000 tons of lead contained in concentrates per year to produce at capacity.

        Feed Supply.     Low lead, zinc and copper prices over the past five years have reduced available concentrate supplies as miners have cutback production in response to the low price environment, making concentrate supplies very tight. Smelters competing for concentrates in this tight market have driven treatment charges and penalties down significantly in recent years. Most of La Oroya's copper, lead and zinc concentrate feed supplies are secured from a small number of suppliers in the Peruvian domestic market. Due to the proximity of the smelter to these suppliers, it is economically advantageous for Doe Run Peru to acquire its concentrates from Peruvian suppliers. However, tightness in the global market for concentrates has caused intense competition from buyers outside of Peru, especially China, for all concentrates, including the complex concentrates which may have been previously undesireable for some smelters. This intense competition has adversely affected concentrate availability and treatment charges received. In addition, the effects of low metals prices have caused some of La Oroya's suppliers to suffer financial distress, which in some cases has led to production shortfalls and negatively impacted raw material supply at the smelter. Currently, La Oroya has secured approximately 86% of its concentrate requirements for fiscal 2004, through material supplied by Cobriza and contracts with independent suppliers. For the year ended October 31, 2003, approximately 27% of the La Oroya smelter's copper concentrate requirements were met by Cobriza, representing 100% of Cobriza's output. While La Oroya has contracted for 86% of its concentrate requirements for fiscal 2004, and recent metal price improvements and other factors have improved the financial condition of the smelter's traditional suppliers, in light of current market conditions, it remains possible that the smelter could experience difficulties obtaining economically suitable concentrate feed supply. Failure to secure economically suitable concentrate could have a material impact on La Oroya's performance.

        Water.     Water for the La Oroya facility is obtained from three main sources: the Mantaro River, the Tishgo River and the Cuchimachay Spring. Management believes these three sources, in addition to numerous adjacent springs and wells provide adequate water supplies for the facility.

        Power.     La Oroya receives electric power from Empresa de Electricidad de los Andes S.A., (Electroandes), a local electric power company owned by PSGE Global Inc. The smelting complex consumes approximately 63 megawatts of ongoing load, which represents approximately one-third of the capacity of Electroandes. La Oroya has a supply contract with Electroandes, which expires in July 2008. Management believes this agreement provides sufficient power at satisfactory rates. Most of Cobriza's electrical power is also provided by Electroandes. Cobriza's requirements do not represent a significant portion of Electroandes' capacity. Electroandes is not the only source of electricity in the areas where Doe Run Peru operates.

        Other.     At La Oroya, an oxygen plant supplies oxygen for the oxy-fuel burners of the reverberatory furnace of the copper smelter and for the blast furnaces of the lead smelter. The oxygen plant was installed in 1994 with a capacity of 344 tons per day. It was owned by a local bank and leased to Doe Run Peru under a sale and leaseback agreement, which ended in February 2004. At that time, ownership of the plant reverted back to Doe Run Peru pursuant to a bargain purchase option. Coal is imported to produce coke used in the lead circuit blast furnaces. Fluxes consumed in the smelting process are supplied primarily by Doe Run Peru controlled mining concessions near La Oroya. Doe Run Peru also purchases silica and pyrite fluxes containing precious metals. Management believes that its sources of these materials are adequate to support operations for the foreseeable future.

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Environmental Matters

        Modern environmental legislation has been introduced only in the last decade in Peru. For mining and metallurgical activities, the Ministry of Energy and Mines (MEM) is the principal regulatory authority. The MEM has issued "maximum permissible limits" for liquid effluent and air emissions. In addition, the National Environmental Council coordinates government regulations and policies, including the air quality standards for Peru. The Directorate General of Environmental Health (DIGESA), a division of the Ministry of Health, issues wastewater discharge permits based on standards governing receiving water quality. Peruvian law requires all new mining or metallurgical operations, and existing operations that are undergoing an expansion of over 50% of installed capacity, to submit to the MEM an Environmental Impact Study.

        For mining and metallurgical operations in existence prior to 1994, concession holders (i.e. owner/operators) were required to submit to the MEM a Preliminary Environmental Assessment (EVAP) that identified environmental impacts after twelve months of baseline monitoring. Based on the results of the EVAP, the operator submitted to the MEM an Environmental Remediation and Management Program (PAMA) that consisted of an environmental impact analysis, monitoring plan and data, mitigation measures and closure plan. The PAMA also sets forth the actions and corresponding annual investments the concession holder agrees to undertake in order to achieve compliance with the applicable standards prior to expiration of the PAMA (ten years for smelters, such as La Oroya's operations, and five years for any other type of mining or metallurgical operation, like Cobriza). Once approved, the PAMA functions as the equivalent of an operating permit with which the operator must comply. After expiration of the PAMA, the operator must comply with all applicable standards and requirements. Mining, metallurgical and processing operators must present annual sworn statements to the MEM that describe their operations and resultant emissions. In addition, Peruvian environmental law allows operators to sign with the Peruvian government an Environmental Stability Agreement, which allows operators to be exempt from changes in environmental regulations, particularly permissible limits of emission, during the life of the PAMA, except for certain closure requirements.

        La Oroya's operations historically and currently exceed some of the applicable MEM maximum permissible limits pertaining to air emissions, and wastewater effluent quality. The PAMA projects, which are more fully discussed below, have been designed to achieve compliance with these requirements prior to the expiration of the PAMA on December 31, 2006. No assurance can be given that implementation of the PAMA projects is feasible or that their implementation will achieve compliance with the applicable legal requirements by the end of the PAMA period. In January 2002, Doe Run Peru received permission from the MEM to change certain PAMA projects and the timing of their completion. However, there can be no assurance that the Peruvian government will not, in the future, require compliance with additional environmental regulations that could adversely affect Doe Run Peru's business, financial condition or results of operations.

        Under the Subscription Agreement, pursuant to which Doe Run Peru acquired La Oroya, Centromin agreed to indemnify Doe Run Peru against environmental liability arising out of its prior operations and their apportioned share of any other complaint related to emissions. Performance of the indemnity has been guaranteed by the Peruvian government through the enactment of Supreme Decree No. 042-97-PCM. However, there can be no assurance that Centromin will satisfy its environmental obligations and investment requirements, including those in its PAMA, or that the guarantee will be honored. Any failure by Centromin to satisfy its environmental obligations could adversely affect Doe Run Peru's business, financial condition or results of operations.

        As part of the acquisitions of La Oroya and Cobriza, Doe Run Peru entered into certain agreements with MEM to expand and modernize their operations, including expenditures to comply with environmental regulations in Peru, such as those governing the treatment, handling and disposal of solid wastes, liquid effluent discharges and gaseous emissions. Principal projects related to

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environmental matters at the La Oroya smelter include: 1) building sulfuric acid plants for the metal circuits,—including some process changes that may be necessary to ensure compliance, 2) water and sewage treatment facilities, and 3) slag and slimes handling equipment and disposal facilities. Expenditures related to the projects specified in the PAMA and related process changes are currently estimated to be $168.3 million for fiscal 2004 through fiscal 2007.

        The PAMA provides a specific plan for achieving the applicable MEM maximum permissible limits pertaining to air emissions and wastewater effluent quality. However, the specific projects included in the PAMA may be modified and amended as to the actual design and timing to be implemented, provided compliance with the applicable maximum permissible limits is achieved by December 31, 2006. Although the PAMA currently requires Doe Run Peru to construct certain sulfuric acid plants estimated to cost approximately $107.5 million in order to reduce emissions, Doe Run Peru is also proceeding with efforts to identify alternative methods of achieving compliance. These efforts include, but are not limited to, reducing or curtailing production from a portion of the plant thus eliminating the need for the equipment presently contemplated and replacing it with another alternative. These efforts must take into consideration the impacts on profitability and liquidity, as well as other economic impacts. Doe Run Peru intends to submit a request to MEM in the second quarter of 2004 to modify the requirements of the existing PAMA for the La Oroya Smelter. There can be no assurance that the Peruvian government will approve these alternatives or that they will achieve compliance in the timeframe required by the PAMA. If the La Oroya smelter does not operate within the current PAMA limits after December 31, 2006, Doe Run Peru could be forced to cease operations at the La Oroya smelter.

        The Cobriza mine has a separate PAMA in which Doe Run Peru committed to complete projects to manage tailings, mine drainage, sewage and garbage. Doe Run Peru has spent approximately $10.0 million under the PAMA as of October 31, 2003. On July 3, 2002, the government of Peru enacted the Supreme Decree No. 022-2002-EM, extending the PAMA for all companies not yet in compliance with their PAMA for a period of not less than 12 months, and up to 18 months if approved by MEM. Companies not in compliance at the end of the extension period would have an additional period to close their operations. Doe Run Peru has received approval from MEM to extend the date of required compliance with the PAMA to April of 2004 and has a request pending to extend the compliance period for the full 18 months allowed under the Supreme Decree. Doe Run Peru now believes that it will complete its PAMA requirements by June of 2004 including a mine water treatment system and by making a surface paste fill from tailings. If the extension is not granted, Doe Run Peru may be subject to legal redress most likely in the form of fines, which, Doe Run Peru believes will not be material. Ore reserves are now estimated to be approximately 4 years at current production rates and space has been identified to store the associated tailings.

Exploration

        Current mine exploration is focused on underground drilling in the operating mines for the purpose of discovering new ore reserves. Regional exploration is ongoing on Doe Run Peru landholdings in the Cobriza region. Geological mapping, surface sampling, as well as airborne and ground geophysical methods are being utilized in the search for new ore bodies.

Safety

        In Peru, the MEM is responsible for regulations enacted to minimize accidents. It conducts annual inspections to ensure compliance with numerous safety standards. The Peruvian operations maintain a high regard for safety and health. Doe Run Peru's Cobriza operation completed the fiscal year with no lost time accidents and by October 31, 2003, the La Oroya smelter had completed nearly five million employee hours without a lost time accident.

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        During 2003, the Cobriza mine experienced a fatal accident that involved a contractor's employee. Management has thoroughly investigated this incident and reinforced the appropriate safety procedures with the workforce and its contractors.

Employees

        As of October 31, 2003, Doe Run Peru's employees included 841 active salaried employees, 2,296 active hourly employees, and 957 contractors. Management believes its relations with employees are good. There are three unions for hourly employees and three unions for salaried employees. The principal union representing 66% of the hourly employees is the Sindicato de Trabajadores Metalúrgicos La Oroya (La Oroya Metallurgic Workers Union). The Sindicato de Trabajadores Ferroviarios La Oroya (La Oroya Railway Workers Union) and the Sindicato de Trabajadores Cobriza (Cobriza Workers Union) represent 3% and 12%, respectively, of the hourly workers. The remaining hourly workers, 19%, are not affiliated with a union. On July 26, 2003, Doe Run Peru entered into a five-year labor agreement with the hourly unions at La Oroya. The salaried employees are represented by the Sindicato de Empleados Yauli-La Oroya (Yauli-La Oroya Employees Union), representing 34% of the salaried employees and by the Sindicato de Empleados Ferroviarios La Oroya (La Oroya Railway Employees Union), representing 3% of salaried employees and by the Sindicato de Empleados Cobriza (Cobriza Employees Union), representing 4% of salaried employees. The remaining salaried employees, 59%, are not affiliated with a union. On January 6, 2003, Doe Run Peru entered into five-year labor agreements with the two unions representing the salaried employees at La Oroya. On July 21, 2003, Doe Run Peru entered into a five-year labor agreement with the two unions representing the salaried and hourly employees at Cobriza.