Edgar Filing: SOUTHERN PERU COPPER CORP/

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

2003 FORM 10-K/A

(Amendment No. 3)

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

For the fiscal year ended December 31, 2003

Commission File Number: 1-14066

SOUTHERN PERU COPPER CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		13-3849074
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2575 East Camelback Rd. Phoenix, AZ		85016
(Address of principal executive offices)		(Zip code)
Registrant’s telephone number, including area code: (602) 977-6500

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

	Title of each class		Name of each exchange on which registered
	Common Stock, par value $0.01 per share		New York Stock Exchange
			Lima 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 ý

No o

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 knowledge of the registrant, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Act of 1934). Yes ý No o

As of February 29, 2004, there were of record 14,113,552 shares of Common Stock, par value $0.01 per share, outstanding, and the aggregate market value of the shares of Common Stock (based upon the closing price on such date as reported on the New York Stock Exchange - Composite Transactions) of Southern Peru Copper Corporation held by non affiliates was approximately $533 million. As of the above date, there were also 65,900,833 shares of Class A Common Stock, par value $0.01 per share, outstanding. Class A Common Stock is convertible on a one-to-one basis into Common Stock.

PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:

Part III:	Proxy statement in connection with the 2004 Annual Meeting of Stockholders.

Part IV:	Exhibit index is on page B1 through B2.

Southern Peru Copper Corporation

FORM 10–K/A

For the Year Ended December 31, 2003

Explanatory Note

This amendment on Form 10-K/A is being filed to amend the Annual Report on Form 10-K of Southern Peru Copper Corporation for the fiscal year ended December 31, 2003, originally filed with the Securities and Exchange Commission on March 12, 2004 and amended on Form 10-K/A on April 14, 2004 and June 25, 2004. The purpose of this amendment is to amend portions of Item 1, Item 2, Item 7 and Item 8 of our Form 10-K. While we are amending only certain portions of our Form 10-K, for convenience and ease of reference, we are filing the entire Form 10-K, except for the exhibits, in an amended and restated format. Unless stated otherwise, all information contained in this amendment is as of December 31, 2003. We have not updated the disclosure contained in our Form 10-K to reflect any events that have occurred since that date.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized.

	Southern Peru Copper Corporation
	By: /s/ Oscar González Rocha
	Oscar González Rocha
	President and Chief Executive Officer

Dated: February 25, 2005

PART I

Item 1. Business

THE COMPANY

The Company, an integrated producer of copper, operates mining, smelting and refining facilities in the southern part of Peru.

The Company, incorporated in 1952 was reorganized in 1955, 1996 and 1998 and has conducted copper mining operations since 1960. Pursuant to Peruvian law, the Company conducts its operations in Peru through a registered branch (the “Peruvian Branch” or the “Branch”). The Branch is not a corporation separate from the Company. It is, however, an establishment, registered pursuant to Peruvian law, through which the Company holds assets, incurs liabilities and conducts operations in Peru. Although it has neither its own capital nor liability separate from that of the Company, it is deemed to have an equity capital for purposes of determining the economic interest of holders of Investment Shares. Investment Shares are non-voting ownership interests distributed to workers in accordance with former Peruvian laws. The Branch comprises substantially all the assets and liabilities of the Company associated with its copper operations in Peru.

Throughout this report, unless the context otherwise requires, the terms “Southern Peru”, “SPCC” and “the Company” refer to the present corporation and its consolidated subsidiaries. In addition, throughout this report, unless otherwise noted, all tonnages are in metric tons. To convert to short tons, multiply by 1.102. All distances are in kilometers. To convert to miles, multiply by 0.62137. All ounces are troy ounces.

On November 15, 1999, ASARCO Incorporated (“ASARCO”) transferred all of the stock of SPCC owned by it to Southern Peru Holdings Corporation, a wholly owned subsidiary of ASARCO. On November 17, 1999, Grupo México S.A. de C.V. (“Grupo Mexico”) acquired substantially all of the stock of ASARCO following a tender offer and purchase of all outstanding common stock of ASARCO.

On March 31, 2003, Southern Peru Holdings Corporation sold all its stock in the Company to Americas Mining Corporation (“AMC”), the parent of ASARCO. Immediately after the transaction, the shares were transferred to SPHC II Incorporated, a subsidiary of AMC, and were pledged to a group of financial institutions. Pursuant to a financing agreement, AMC has agreed to comply with financial covenants, involving SPCC, including covenants requiring the maintenance of minimum stockholders’ equity, specific debt to equity ratios and interest rate coverage ratios.

At December 31, 2003 the stockholders of record in the Company were SPHC II Incorporated, a subsidiary of Grupo Mexico (54.2%), Cerro Trading Company, Inc. (14.2%), Phelps Dodge Overseas Capital Corporation (14.0%) and common stockholders (17.6%).

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 risks and uncertainties relating to general U.S. and international economic and political conditions, the cyclical and volatile prices of copper, other commodities and supplies, including fuel and electricity, availability of materials, insurance coverage, equipment, required permits or approvals and financing, the occurrence of unusual weather or operating conditions, lower than expected ore grades, water and geological problems, the failure of equipment or processes to operate in accordance with specifications, failure to obtain financial assurance to meet

closure and remediation obligations, labor relations, litigation and 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.

Additional business information follows:

COPPER BUSINESS

The Company also produces refined copper using the solvent extraction/electrowinning (“SX/EW”) technology. Silver, molybdenum and small amounts of other metals are contained in copper ore as by-products. Silver sold is recovered in the refining process or as an element of blister copper. Molybdenum is recovered from copper concentrate in a molybdenum by-product plant.

Business Reporting Segments: The Company’s operations are within one reportable segment.

REVIEW OF OPERATIONS

SPCC operates the Toquepala and Cuajone mines, high in the Andes, approximately 984 kilometers southeast of Lima. It also operates a smelter and refinery west of the mines at the Pacific Ocean Coast City of Ilo, Peru. SPCC is one of the largest mining companies in Peru and one of the 10 largest private sector copper mining companies in the world.

PRODUCTS

The copper operations of the Company involve mining, milling and flotation of copper ore to produce copper concentrates, the smelting of copper concentrates to produce blister copper, and the refining of blister copper to produce copper cathodes. The Company also produces refined copper using the SX/EW technology. Molybdenum, silver, and small amounts of other metals are contained in copper ore as by-products. Silver sold is recovered in the refining process or as an element of blister copper. Molybdenum is recovered from copper concentrate in a molybdenum by-product plant.

COPPER AND MOLYBDENUM PRODUCTION PROCESS

The process of producing copper starts at the open pit mines of Toquepala and Cuajone. The first step is drilling and blasting (using explosives) the rock material containing copper. Ore is loaded onto trucks using electric shovels. Material with a copper grade over 0.4% is loaded onto rail cars and sent to the milling circuit, where giant rotating crushers reduce the size of the rocks to less than ¾ of an inch. The ore is then sent to the ball and bar mills, which grind it to the consistency of fine powder. The finely ground powder is agitated in a water and reagents solution and is then transported to flotation cells. Air is pumped into the cells producing a froth, which carries the copper mineral to the surface but not the waste rock. The waste rock is called tailings. Tailings are sent to thickeners where water is recovered. The remaining tailings are sent to Quebrada Honda, the Company´s tailings storage facility.

The bulk concentrated copper (copper and molybdenum) is processed in the molybdenum plant which is floated in the Rougher circuit. The underflow of this circuit constitutes the final copper concentrates. The overflow is processed in cleaning cells, flotation in Agitair cells and columnar flotation. The final molybdenum concentrate is overrated to enlarge the percentage of solid, then the product is filtered and dried; finally, is packaged and weighed for its delivery. The produced molybdenum concentrates has 54% to 55% molybdenum content with a 7.5% average humidity.

Recovered copper, which now has the consistency of froth, is filtered and dried to produce copper concentrates, with an average content of 27% copper. Concentrates from both mines are then shipped by rail to the smelter at Ilo, in the Pacific coast.

At the smelter, the concentrates are blended with flux, and then sent to the reverberatory furnaces and the El Teniente converter, producing copper matte and slag (basically iron and other impurities). Copper matte contains approximately 35% copper and the matte of the El Teniente converter contains approximately 73% copper. Copper matte is then sent to the converters, where the material is oxidized in two steps:

a) the iron sulfides in the matte are oxidized using silica, producing a slag, which is returned to the reverberatory furnaces,

b) the copper contained in the matte sulfides is then oxidized to produce copper that, after casting, is called blister copper, containing 99.3% copper. Some of the blister production is sold to customers; the remainder is sent to the refinery.

Blister copper is smelted again in a furnace, to produce copper anodes with a content of 99.8% copper. Anodes are then suspended in tanks containing sulfuric acid and copper sulfate. A low electrical current is passed through the anodes and chemical solution and the dissolved copper is deposited on very thin copper starting sheets to produce copper cathodes. Copper cathodes contain approximately 99.99% copper. During this process, silver, gold, and other metals (palladium, platinum, selenium, etc.) along with other impurities settle on the bottom of the tank. The anodic mud (slime) is processed at the precious metal plant where silver and gold are recovered.

The Company also produces low cost refined copper, using SX-EW technology. During the SX-EW process, low-grade mineral is leached with sulfuric acid to allow for copper content recovery. The acid and copper solution is then agitated with a solvent that contains chemical additives, which attract copper ions. As the solvent is lighter than water, it floats to the surface carrying with it the copper content. The solvent is then separated using an acid solution, freeing the copper. The acid solution with the copper is then moved to the electrolytic extraction tanks, where copper is transformed to cathodes, similarly to the refining process carried out at the Ilo refinery.

OVERVIEW

Mine copper production for the full-year 2003 increased 8.1% to 826 million pounds. In addition, the Company processed 6.7 million pounds of copper from purchased concentrates compared with 66 million pounds in 2002. The increase in SPCC production was principally due to the higher Toquepala concentrator capacity and higher Cuajone ore grade and copper recovery at the Cuajone concentrator. SX/EW copper production decreased by 11.2 million pounds, because of lower grades of PLS (Pregnant Leaching Solution).

The Toquepala concentrator expansion and modernization project was completed in September 2002, with an investment of $68.1 million out of an approved budget of $69.5 million. With the completion of this project the Toquepala concentrator milling capacity increased from 45,000 tons per day to 60,000 tons per day. This increased production now gives SPCC the ability to fill the Ilo smelter with its own concentrate production.

In 2003, the Ilo smelter processed 1.18 million tons of concentrates, the same as in 2002. Improved operations at the Ilo refinery increased cathodes production by 0.8% to 626.1 million pounds, a new production record at this facility.

In July 2003, the Company awarded a contract to provide the technology and basic engineering for the expansion and modernization of Ilo smelter to Fluor/Xstrata. The selected proposal meets with SPCC’s requirements, which are the use of proven technology (the ISASMELT from Australia) and compliance with the current environmental regulations. It is estimated that the construction of the project will be completed before January 2007, the deadline established in the Company’s agreement with the Peruvian government.

MINING OPERATIONS

Total mined copper production at SPCC’s Toquepala and Cuajone mines increased 11.3% in 2003, compared with 2002, due to higher production at both mines.

Cuajone production increased 9.7% in 2003 to 406.8 million pounds of copper due principally to higher ore grades and better recovery. The Cuajone concentrator throughput for the year was 29.8 million tons of ore resulting in the production of 710 thousand tons of copper concentrates.

Toquepala mine production increased 13.5% in 2003 to 313.9 million pounds of copper due to increased throughput in the year. The Toquepala concentrator, with its capacity expansion completed in September 2002, milled 21.2 million tons of ore. Together, the two mines produced 4.3 million ounces of silver and 19.9 million pounds of molybdenum as by-products.

SX/EW OPERATIONS

The SX/EW facility at Toquepala produces refined copper from solutions obtained by leaching low-grade ore stored at the Toquepala and Cuajone mines. The facility produced 105.3 million pounds of copper in 2003 compared to 116.5 million pounds in 2002, a decrease of 11.2 million pounds of copper. The decrease is mainly due to lower grades of PLS (Pregnant Leaching Solution).

In 2003, the Board of Directors approved a leach dump project at Toquepala. The project includes the installation of a crushing, conveying and spreading system at the Toquepala leach dumps. The project is estimated to be completed in mid-2005 at a budgeted cost of $69.7 million. As of December 31, 2003 $2.2 million has been expended on this project. The project is expected to reduce to production costs for SPCC’s leaching facilities and will largely eliminate costly truck haulage in the process.

ORE RESERVES

SPCC has identified substantial geologic resources. In 1999, the Company reported a substantial increase in proven and probable ore reserves at the Toquepala mine. At year-end 2003, probable concentrator reserves totaled 619.6 million tons with an average copper grade of 0.74% at Toquepala and 1,123.3 million tons with an average copper grade of 0.64% at Cuajone. In addition, the Company has a total of 1,791 million tons of leachable ore at Toquepala and Cuajone that can be processed by the SX/EW operation.

SMELTING AND REFINING OPERATIONS

The Ilo smelter processed 1.18 million tons of concentrates, the same as in 2002. Smelting of SPCC concentrates increased by 8.0%, while smelting of third party concentrates decreased by 87,639 tons. As a result, blister production decreased to 314,900 tons in 2003, compared to 316,500 tons in 2002.

SPCC’s total refined copper production decreased 0.8% to 731.4 million pounds in 2003 from 737.5 million pounds in 2002. Refined production from the Ilo refinery reached 626.1 million pounds in 2003, an increase of 0.8% from 2002 due to current efficiency gains at the plant. Production from the SX/EW plant decreased to 105.3 million pounds of copper, a 9.7% decrease from the prior year due to lower PLS grades.

SPCC’s Ilo smelter provides feed for the refinery. Blister copper produced by the smelter exceeds the refinery’s capacity and the excess is sold to other refineries around the world.

EXPANSION AND MODERNIZATION PROGRAM

For a description of the Company’s Expansion and Modernization Program see “Expansion and Modernization Program” on page 18.

EXPLORATION

During 2003, the Company continued with its drilling program at the Los Chancas project. Diamond drilling of 27,908 meters was completed out of the 27,000 meters projected. A second and final phase of metallurgical tests is in process, results indicate resources of 200 million tons, with a copper ore grade of 1.0%, 0.07% molybdenum and 0.12 grams of gold per ton. These results do not represent resources that have been determined to be proven or probable. This project is in its final stage. During 2004 a pre-feasibility study will be initiated in order to complete the information and determine the final resource.

During 2003 the Company performed hydrological and evaluation studies for the Tantahuatay project to prepare for the pre-feasibility work for gold recovery. Total indicated resources are 27.1 million tons, with an average content of 0.89 grams of gold per ton and 13.0 grams of silver per ton. These results do not represent resources that have been determined to be proven or probable. SPCC has a 44.245% interest in the Tantahuatay project.

The Company’s extensive exploration program throughout Peru continued in 2003. During 2003 a diamond-drilling program of 11,265 meters was completed out of the 15,000 meters planned, to identify resources of copper and gold. This program has been executed at the Arampal prospect (3,198 meters), the Pucay prospect (3,186 meters) and the Tía María Project (4,881 meters).

In 2003 the Company acquired several Chilean exploration properties from an affiliate. The acquisitions are part of the Company’s strategy to increase ore reserves through exploration in Latin American countries other than Peru. The properties, containing over 35,000 hectares of mining rights, show potential for copper, gold and silver and will be extensively tested during 2004.

Currently, the Company has direct control of 158,377 hectares of mineral rights and has control over 20,454 hectares of mineral rights through joint ventures with other companies.

PRINCIPAL PRODUCTS AND MARKETS

The principal 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. Silver is used for photographic, electrical and electronic products and, to a lesser extent, brazing alloys and solder, jewelry, coinage, silverware and catalysts. Molybdenum is used to toughen alloy steels and soften tungsten alloy and is also used in fertilizers, dyes, enamels and reagents.

During 2003, 2002 and 2001, substantially all of the Company’s copper production was exported from Peru and sold to customers in Europe, the Far East, the United States and elsewhere in the Americas. Approximately, 96.2%, 95.6% and 95.5% of the Company’s copper production for the years 2003, 2002 and 2001, respectively, was exported from Peru. A substantial portion of SPCC’s copper sales are made under annual contracts to industrial users. Silver is sold under annual contracts or in market sales and molybdenum is sold in concentrate form to merchants and other refiners under annual contracts. Most customers receive shipments on a monthly basis at a constant volume throughout the year. As a result, there is little seasonality in SPCC sales volumes.

BACKLOG OF ORDERS

Approximately 90%, 93% and 94% of the Company’s metal production for the years 2003, 2002 and 2001, respectively, was sold under annual or longer-term contracts. To the extent not sold under annual contracts, production was sold on commodity exchanges or in market sales. Final sales prices are determined based on prevailing commodity prices

for the quotation period, generally being the month of, the month prior to or the month following the actual or contractual month of shipment or delivery according to the terms of the contract.

COMPETITIVE CONDITIONS

Competition in the copper market is principally on a price and service basis, with price being the most important consideration when supplies of copper are ample. The Company’s products compete with other materials, including aluminum and plastics.

EMPLOYEES

At December 31, 2003 the Company employed 3,566 persons, about 58% of whom were covered by labor agreements with nine labor unions. There were no labor strikes in 2003. There were fourteen days of labor strikes in the fourth quarter of 2002 in the Toquepala area.

ENERGY MATTERS AND WATER RESOURCES

Electric power for the Company’s operating facilities is generated by two thermal electric plants owned and operated by Enersur S.A., one located adjacent to the Ilo smelter (diesel and waste heat boilers plant) and the other to the south of the port of Ilo (coal plant).

Power generation capacity is currently 344 megawatts. In addition, the Company has 9 megawatts of power generation capacity from two small hydro-generating installations at Cuajone. Power is distributed over a 224-kilometer closed loop transmission circuit.

In 1997, the Company sold its Ilo power plant to Enersur S.A. and entered into a 20-year power purchase agreement. The power purchase agreement contained provisions obligating Enersur S.A. to construct additional capacity upon notice to meet the Company’s increased electricity requirements from the planned expansion and modernization. The parties also entered into an agreement for the sharing of certain services between the power plant and the Company’s smelter at Ilo. Under this agreement, the Company’s cost of power increased somewhat from its 1996 level, but the Company has benefited by avoiding significant capital expenditures thought then to be required to meet the needs of the expanded operations.

In March 2003, the Company agreed to amend the power purchase agreement, resolving certain issues that arose between the parties and reducing power costs for the remaining life of the agreement. A new contract, documenting this agreement, was executed in June 2003. The new agreement releases Enersur S.A. from the obligation to construct additional capacity upon notice to meet the Company’s increased electricity requirements from the expansion and modernization program. The Company made a one-time contractual payment to Enersur S.A. of $4.0 million in the second quarter of 2003 associated with the termination of the original power purchase agreement. SPCC believes it can satisfy the need for increased electricity requirements from other sources, including local power providers.

SPCC has water concessions for well fields at Huaitire and Titijones and surface water rights from the Suches Lake, which are sufficient to supply the needs of its two operating units, Toquepala and Cuajone. At Ilo, the Company has desalinization plants that produce water for industrial and domestic use.

ENVIRONMENTAL MATTERS

Capital expenditures in connection with environmental projects were approximately $2.1 million in 2003, $2.5 million in 2002 and $8.9 million in 2001. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk, - Environmental Matters”.

CONCESSIONS

The Company has 241,200.618 hectares in concessions from the Peruvian Government for its exploration, exploitation, extraction and/or production operations (collectively, the “Concessions)”, as per the following schedule:

(in Hectares)	Toquepala	Cuajone	Ilo	Other	Total

Plants	300.00	456.00	420.50		1,176.50

Operations	40,698.71	30,822.66	12,910.79		84,432.16

Exploration				155,591.96	155,591.96

Total	40,998.71	31,278.66	13,331.29	155,591.96	241,200.62

The Company believes that the Concessions are in full force and effect under applicable Peruvian laws and that it is in compliance with all material terms and requirements applicable to the Concessions. The Concessions have indefinite terms, subject to payment by SPCC of concession fees of up to $3 per hectare annually for the mining concessions and a fee based on nominal capacity for the processing concessions. Fees paid during 2003, 2002 and 2001 were approximately $1.0 million, $1.0 million and $1.1 million, respectively. SPCC has two types of mining concessions: metallic and non-metallic concessions. SPCC has also water concessions for well fields at Huaitire and Titijones and surface water rights from the Suches Lake, which are sufficient to supply the needs of its two operating units, Toquepala and Cuajone.

REPUBLIC OF PERU

All of the Company’s revenues are derived from the Toquepala mine, the Cuajone mine, the SX/EW facility and the smelter and refinery at Ilo, all of which are located within a 48-kilometer radius in the southern part of Peru. Risks attendant to the Company’s operations in Peru include those associated with economic and political conditions, effects of currency fluctuations and inflation, effects of government regulations and the geographic concentration of the Company’s operations.

INTERNET ADDRESS

The Company’s Internet address is www.southernperu.com. The Company’s 2002 annual report on Form 10-K, both in Spanish and English, has been available on the Company’s website since April 2003. Commencing with the Form 8-K dated March 14, 2003, the Company has made available free of charge on www.southernperu.com its annual, quarterly and current reports, as soon as reasonably practical after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (“SEC”). However, the information found on the Company’s website is not part of this or any other report.

Item 2. Properties

FACILITIES

The Company’s principal executive offices are located at 2575 East Camelback Road, Suite 500, Phoenix, AZ, 85016 and at Avenida Caminos del Inca No. 171, Chacarilla del Estanque, Santiago de Surco, Lima 33, Peru. At December 31, 2003, the Company through its Peruvian Branch, has 100% interest in the Toquepala and Cuajone mines, the SX/EW facility, the Ilo smelter, the sulfuric acid plant and the Ilo refinery and operates them pursuant to concessions form the Peruvian Government. See Item 1 “Business Concessions”. The Company owns, through the Branch, its offices in Lima. Its offices in Phoenix are located in space leased to it by ASARCO. The Company believes that its existing properties are in good condition and suitable for the conduct of its business.

The offices and the Company’s major facilities, together with production commencement dates, are listed below:

PERU		UNITED STATES
Toquepala Mine — Southern Peru (1960)		Executive Offices — Phoenix, AZ (2000)
Cuajone Mine — Southern Peru (1976)
SX/EW Facility — Southern Peru (1995)
Ilo Smelter — Ilo, Peru (1960)
Ilo Refinery — Ilo, Peru (1994-SPCC)
Acid Plant — Ilo, Peru (1995)
Executive Offices — Lima, Peru (1977)

The Company also owns and operates a railroad connecting the mines at Cuajone and Toquepala with the smelting and refining facilities and a port at Ilo, which are located approximately 196 rail kilometers from the two mine sites, which are at elevations ranging from 3,220 to 3,330 meters. In addition, the Company owns homes, hospitals and schools, which have been included in fixed assets, in order to provide services for employees and their families.

METAL PRODUCTION STATISTICS

	2003		2002		2001

Copper Production

MINES (contained copper in thousands of pounds)
Toquepala	313,878		276,513		270,619
Cuajone	406,814		370,834		363,951
SX/EW	105,283		116,524		119,993
Total Mines	825,975		763,871		754,563

SMELTER (blister copper in thousands of pounds)
SPCC concentrates	687,727		632,910		636,844
Purchased concentrates	6,552		64,836		86,800
Total Smelter	694,279		697,746		723,644

REFINERIES (thousands of pounds of copper)
Ilo	626,126		620,974		611,254
SX/EW	105,283		116,524		119,993
Total Refineries	731,409		737,498		731,247

COPPER SALES (thousands of pounds)
Refined	625,266		621,197		612,138
In blister	61,863		68,619		84,302
Concentrates	35,586		—		—
SX/EW	104,371		115,826		120,688
Total sales of copper	827,086		805,642		817,128

LME average price (cents
per pound)	81		71		72

COMEX average price (cents per pound)	81		72		73

Molybdenum (thousands of pounds contained in concentrate)
MINES
Toquepala	9,156		9,292		9,035
Cuajone	10,730		9,048		9,377
Total produced	19,886		18,340		18,412

Sales of molybdenum in concentrate	19,953		18,178		18,511

Metals Week Dealer Oxide mean price ($/lb.)	$	5.32	$	3.77	$	2.36

Silver (thousands of ounces)

	2003		2002		2001
SMELTER (in blister)
Ilo - SPCC Concentrates	4,270		3,710		3,829

REFINERY
Ilo	3,599		3,660		3,452

SALES OF SILVER
Refined	3,615		3,645		3,498
In blister	365		389		453
In concentrates	212		—		—
Total sales of silver	4,192		4,034		3,951

COMEX average price ($/oz.)	$	4.89	$	4.60	$	4.36

COPPER RESERVES

		Mineral Reserves (000s Tons) 12/31/03	Average Copper Content (%) 12/31/03	Metal Production Contained Metal (000s Pounds)
		Mineral Reserves (000s Tons) 12/31/03	Average Copper Content (%) 12/31/03	2003	2002	2001

Toquepala	Sulfide	619,638	0.74	313,900	276,500	270,600
	Leachable	1,732,229	0.18	93,624	105,100	111,480

Cuajone	Sulfide	1,123,264	0.64	406,800	370,800	364,000
	Leachable	58,552	0.41	11,659	11,424	8,513

The Company has ongoing exploration programs in Peru.

The Company calculates its ore reserves by methods generally applied within the mining industry and in accordance with the regulations of the SEC. All mineral reserves are estimated quantities of proven and probable ore that under present and anticipated conditions may be economically mined and processed by the extraction of their mineral content.

The following ore production information is provided:

	2003		2002		2001
	Ore Milled (000s Tons)	Average Mill Recovery Rate (%)	Ore Milled (000s Tons)	Average Mill Recovery Rate (%)	Ore Milled (000s Tons)	Average Mill Recovery Rate (%)

Toquepala	21,208	89.63	17,595	90.81	17,130	89.68	%
Cuajone	29,798	83.13	29,756	81.19	30,221	81.41	%

The Company’s engineering department reviews reserve computations. In addition, the Company periodically engages independent consultants to review its mine planning procedures.

Each year, or when we have changes in assumptions, the engineering department reviews in detail and validates the calculations. Changes in assumptions could be price, result of in-field drilling, new geotechnical parameters and other.

The following productive capacity is provided:

		Defined Capacity (a)
Ilo Smelter		290,300 Tons
Ilo Refinery		245,000 Tons
Toquepala – SX/EW		56,250 Tons

(a) SPCC’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 emission restraints.

Item 3. Legal Proceedings

Reference is made to the information under the caption “Litigation” in Financial Statement Footnote 19 “Commitments and Contingencies” on Page 55.

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

None.

Executive Officers of the Registrant

Set forth below are the executive officers of the Company, their ages as of February 6, 2004, and their positions:

Name	Age	Position
German Larrea Mota-Velasco	50	Chairman of the Board, Chief Executive Officer and Director
Oscar González Rocha	65	President and General Director
Héctor García de Quevedo Topete	53	Vice President, Finance, Chief Financial Officer and Treasurer
Remigio Martinez Muller	60	Vice President, Exploration
Vidal Muhech Dip	63	Vice President, Projects
Armando Ortega Gómez	43	Vice President, Legal, General Counsel and Secretary
Mario Vinageras Barroso	48	Vice President, Commercial
Ernesto Duran Trinidad	50	Comptroller

German Larrea Mota-Velasco, Chairman of the Board and Chief Executive Officer of SPCC since December 1999 and Director since November 1999. Chairman of the Board of Directors, President and Chief Executive Officer of Grupo Mexico (holding) since 1994; Chairman of the Board of Directors and Chief Executive Officer of Grupo Minero Mexico (mining division) since 1994, and of Grupo Ferroviario Mexicano (railroad division), since 1997. Chairman of the Board and Chief Executive Officer of Empresarios Industriales de Mexico since 1992. Previously Executive Vice Chairman of Grupo Mexico and member of the Board of Directors since 1981. Chairman and Chief Executive Officer of ASARCO Incorporated from November 1999 to present, and its President from November 1999 to January 2000.

Oscar González Rocha, President, General Director and Chief Operating Officer of SPCC since December 1999 and Director since November 1999. Director of Grupo Mexico from 2002 to present. Managing Director for Mexicana de Cobre, S.A. de C.V. from 1986 to 1999 and of Mexicana de Cananea, S.A. de C.V. from 1990 to 1999. Alternate Director of Grupo Mexico from 1988 until April 2002. Director of ASARCO Incorporated from November 1999 to present.

Héctor García de Quevedo Topete, Vice President, Finance and Chief Financial Officer since October 2003. Mr. García has been Treasurer of SPCC and Director since May 9, 2000. He has also been Managing Director of Special Matters for Grupo Mexico S.A. de C.V. since 1999. Director of Grupo Mexico since April 2002. He was Advisor to the Chairman and Chief Executive Officer of Grupo Mexico from 1994 to 1998.

Remigio Martinez Muller, Vice President, Exploration since April 25, 2002. He has been Corporate Director of Exploration of Grupo Mexico since 2002. From 1990 to 2001 he was Associate Director of Exploration of Mexicana de Cobre S.A. de C.V. Mr. Martinez has held several managerial positions within Grupo Mexico and its predecessor ASARCO Mexicana, including the position of Mine Geologist, Chief of Projects, Chief of Geology of Mines and Manager of Explorations.

Vidal Muhech Dip, Vice President, Projects of the Company since April 25, 2002. He has been Corporate Director of Engineering and Construction of Grupo Mexico since April 1995. Previously, he was Director of Engineering and Construction of Industrial Minera Mexico S.A. de C.V. from 1985 to 1995.

Armando Ortega Gomez. Mr. Ortega has been Vice President-Legal and Secretary of the Company since April 25, 2002 and a Director since August 2002. He has been General Counsel of SPCC since October 2003. Previously, he was Assistant Secretary of the Company from July 25, 2001 to April 25, 2002. He has been General Counsel of Grupo Mexico since May 2001. He is also an Assistant Secretary of Grupo Mexico and ASARCO. Previously, he headed the Unit on International Trade Practices of the Ministry of Economy of Mexico with the rank of Deputy Vice Minister from 1997 to May 2001, and was

negotiator for international matters for said Ministry from 1988 to May 2001.

Mario Vinageras Barroso, Vice President, Commercial of the Company since April 25, 2002. He has been Commercial Director of Grupo Mexico (currently Industrial Minera Mexico S.A. de C.V.) since September 1994 and Corporate Director of Sales of Grupo Mexico since June 1, 2000.

Ernesto Duran Trinidad, Comptroller of SPCC since December 1999. Comptroller of Grupo Mexico S.A. de C.V. from 1994 to date. Comptroller of Mexicana de Cobre S.A. de C.V. from 1983 to 1993.

PART II

Item 5. Market For Registrant’s Common Equity and Related Stockholder Matters

At December 31, 2003, there were 2,714 holders of record of the Company’s Common Stock. SPCC’s Common Stock is traded on the New York Stock Exchange (“NYSE”) and the Lima Stock Exchange. (“BVL”). The SPCC Common Stock symbol is PCU on the NYSE and PCU1 on the BVL.

The table below sets forth the cash dividends paid per share of capital stock and the high and low stock prices on both the NYSE, and the BVL for the periods indicated.

	2003										2002
Quarters	1st		2nd		3rd		4th		Year		1st		2nd		3rd		4th		Year
Dividend per Share	$	0.092	$	0.114	$	0.1353	$	0.2255	$	0.5668	$	0.0738	$	0.04	$	0.156	$	0.089	$	0.3588

Stock market Price
NYSE:
High	$	16.17	$	16.20	$	22.88	$	48.85	$	48.85	$	13.20	$	15.54	$	15.08	$	14.60	$	15.54
Low	$	14.60	$	14.42	$	15.52	$	22.03	$	14.42	$	10.82	$	13.10	$	12.85	$	13.25	$	10.82

BVL:
High	$	16.50	$	16.10	$	22.80	$	48.50	$	48.50	$	12.90	$	15.35	$	15.00	$	14.50	$	15.35
Low	$	14.70	$	14.50	$	15.85	$	22.00	$	14.50	$	10.81	$	13.00	$	12.96	$	13.70	$	10.81

On February 3, 2004, a dividend of $0.27 per share, totaling $21.6 million was declared payable March 9, 2004. The Company’s dividend policy continues to be reviewed at Board of Directors’ meetings, taking into consideration the current intensive capital investment program and expected future cash flow generated from operations.

For a description of limitations on the ability of the Company to make dividend distributions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk - Liquidity and Capital Resources” and Note 14 to the Consolidated Financial Statements of the Company.

Equity Compensation Plan Information at December 31, 2003:

Plan Category	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance
	(a)	(b)		(c)
Stock incentive plan	122,100	$	15.54	645,060
Directors’ stock award plan	N/A	N/A		74,000

For further information on the Company’s equity compensation plans see “Note 16 - Stockholders’ Equity” to the Company’s financial statements included in Item 8.

Item 6. Selected Financial Data

FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA

The selected historical financial data presented below as of and for the five years ended December 31 2003, includes certain information that has been derived from our consolidated financial statements. The selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk” and the consolidated financial statements and notes thereto which have been audited by PricewaterhouseCoopers (years 2003 and 1999), Deloitte & Touche (2002) and Arthur Andersen LLP (years 2001 and 2000), independent public accountants and included elsewhere in this report.

(in millions, except per share and employee data)		2003			2002			2001			2000			1999
Consolidated Statement of Earnings:
Net sales		$	798		$	665		$	658		$	711		$	585
Operating costs and expenses (1)		581			546			569			561			539
Operating income		217			119			89			150			46
Minority interest of investment shares in		1			1			1			2			—
Cumulative effect of the change in accounting principle		2			—			—			—			—
Net earnings		$	119		$	61		$	47		$	93		$	29

Per Share Amounts:
Net earnings – basic and diluted		$	1.49		$	0.76		$	0.58		$	1.16		$	0.37
Dividends paid		$	0.57		$	0.36		$	0.36		$	0.34		$	0.15

Consolidated Balance Sheet:
Total assets		$	1,931		$	1,752		$	1,823		$	1,771		$	1,545
Cash and marketable securities		295			148			213			149			11
Total debt		349			299			396			347			223
Stockholders’ equity		1,315			1,241			1,209			1,192			1,126

Consolidated Statement of Cash Flows:
Cash provided from operating activities		$	191		$	130		$	151		$	161		$	63
Dividends paid		45			21			29			27			12
Capital expenditures		50			77			114			109			223
Depreciation, amortization and depletion		74			68			76			77			74

Capital Stock:
Common shares outstanding		14.1			14.1			14.1			14.1			14.1
NYSE Price	• high	$	48.85		$	15.54		$	15.10		$	16 7/16		$	18-1/16
	• low	$	14.42		$	10.82		$	8.42		$	11.00		$	8-7/16
Class A common shares outstanding		65.9			65.9			65.9			65.9			65.9
Book value per share		$	16.44		$	15.71		$	15.12		$	14.90		$	14.07
P/E ratio		31.65			20.67			26.07			12.84			38.03

Financial Ratios:
Current assets to current liabilities		2.5			3.1			1.9			3.3			2.4
Debt as% of capitalization		20.9		%	19.3		%	24.5		%	22.4		%	16.3		%
Employees (at year end)		3,566			3,575			3,726			3,682			3,844

Notes to five-year selected financial and statistical data

(1) Includes provision for workers’ participation of $17.8 million, $8.5 million, $5.9 million, $12.1 million and $3.4 million in the years ended December 31, 2003, 2002, 2001, 2000 and 1999, respectively. Workers’ participation is required under Peruvian law and is calculated at 8% of pre-tax earnings.

Item 7 and 7.A - Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk

EXECUTIVE OVERVIEW

The business of the Company is the production and sale of copper in a socially conscious manner. In the process of producing copper a number of valuable metallurgical by-products are recovered, these also are sold by SPCC. The sales prices for Company products are largely determined by market forces outside of the Company’s control. Company management, therefore, focuses on cost control and production enhancement to improve profitability. The Company achieves these goals through capital spending programs, exploration efforts and cost reduction programs. This focus enables SPCC to remain profitable during periods of low copper prices and to maximize results in periods of high copper prices. In 2003 the Company saw the average copper price increase by about 10 cents per pound from the preceding year. Indeed, the copper price ended 2003 at $1.05 per pound, about 35 cents above the December 31, 2002 copper price. Through early 2004 the copper price has further increased, (average of $1.18 per pound through February).

An overall benchmark used by the Company and a common industry metric to measure performance is its operating cash costs per pound of copper produced. Operating cash cost is a non-GAAP measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies. A reconciliation of SPCC’s cash cost per pound to the Cost of sales (including depreciation, amortization and depletion) as presented in the statement of earnings is also presented. Operating cash cost per pound has been defined by the Company as the total production cost, including the cost of purchased copper, freight and sales expenses, administrative expenses, revenues for the sale of by-products such as molybdenum and silver, and premiums on copper sales divided by total pounds of copper produced by SPCC. SPCC includes in its calculation of operating cash cost per pound of copper produced, revenues from the sale of by-products, principal of which are molybdenum and silver. The Company includes these credits because it considers its principal business the production and sale of copper. The Company believes that it is viewed by the investment community as a copper company, and is valued, in large part, by the investment community’s view of the copper market and SPCC’s ability to produce copper at a reasonable cost. The recent surge in price of molybdenum, however, has had a significant effect on the Company’s traditional calculation of cash cost and its comparability between periods. Accordingly, the Company is presenting cash costs with and without the inclusion of all by-products revenues. SPCC excludes from its calculation of operating cash cost depreciation, amortization and depletion, exploration, workers’ participation provisions and items of a non-recurring nature. Depreciation, amortization and depletion are considered non-cash expenses. Exploration is considered a discretionary expenditure and is also excluded. Workers’ participation provisions are determined on the basis of pre-tax earnings and are also excluded.

The Company’s operating cash cost, as defined, and the reconciliation to Cost of sales as presented on the statement of earnings, for the three years ended December 31, 2003 is as follows:

	2003	2002	2001
	(in cents per pound)
Cash cost per pound of copper produced	39.9	45.6	49.3
Cash cost per pound of copper produced (without by-products revenue)	58.1	57.8	58.4

A reconciliation of the Company’s operating cash costs per pound to GAAP cost of sale is presented on page 31.

The cost reduction in 2003 is to a large extent attributable to the increase in the molybdenum sales price in the past years. The credit to the above costs for molybdenum sales amounted to 13.0 cents per pound, 7.3 cents per pound and 4.3 cents per pound, in 2003, 2002 and 2001, respectively

Significant goals and records achieved in 2003 include; 1) the Toquepala concentrator produced 506,236 tons of concentrate, a new production record; 2) the Cuajone concentrator also produced a new record, with the production of 710,004 tons of concentrate; 3) the Cuajone mine increased molybdenum production to 4,867 tons an increase of 18.6% over 2002, a new production record; and 4) the Ilo refinery produced 284,006 tons of electrolytic copper, yet another new production record.

In addition, the Company has environmental programs at its operations. Capital spending include those projects, which enhance production and improve cost performance, as well as those which improve the environmental performance of the Company. In 2003, the Company resolved differences with the Peruvian Ministry of Energy and Mines (“MEM”) over the Ilo smelter modernization and selected a contractor for the project. The project is moving forward and, is expected to be completed before January 2007, the deadline agreed to with MEM. In addition, the Company continues to operate the Supplementary Control Program at Ilo, a voluntary effort, whereby smelter operations are curtailed during periods of adverse weather conditions.

SPCC has maintained exploration programs for a number of years. In 2003, the scope of the programs was expanded to include sites outside of Peru. The Company acquired a number of interesting sites in Chile and in the future would consider exploration in other Latin American areas if promising sites were located.

Company management believes that its profit goals and its environmental agenda are better served by policies engendering harmonious relations with the neighboring communities and with strong open ties with the SPCC team - workers, supervisors and management. Accordingly, the Company has community involvement programs at its operating locations. The Company provides services to local citizens, as well as support for agricultural, cultural and educational programs. The Company maintains active employee training programs and strives to enhance the work experience of its staff.

Inflation and Devaluation of the Peruvian New Sol: The functional currency of the Company is the US dollar. Portions of the Company’s operating costs are denominated in Peruvian new soles. Since the revenues of the Company are primarily denominated in U.S. dollars, when inflation/deflation in Peru is not offset by a change in the exchange rate of the new sol to the dollar, the financial position, results of operations and cash flows of the Company could be adversely affected. The value of the net assets of the Company denominated in new soles can be affected by devaluation on the new sol. The recent inflation and devaluation rates are as follows:

Years ended December 31	2003		2002		2001

Peruvian Inflation/(Deflation) Rate	2.5	%	1.5	%	(0.1	)%

New Sol/Dollar (change in exchange rate year to year)	(1.5	)%	2.0	%	(2.3	)%

Peruvian Branch: The consolidated financial statements included herein are prepared in U.S. dollars and in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Peruvian Branch consists of substantially all the assets and liabilities of Southern Peru associated with its copper operations in the Republic of Peru. The Branch is registered with the Peruvian Government as a branch of a foreign mining company. The results of the Branch are consolidated in the financial statements of the Company.

For Peruvian reporting purposes, the Branch maintains its books of account in new soles and prepares financial information in accordance with accounting principles generally accepted in Peru (“Peruvian GAAP”). Peruvian GAAP requires the inclusion in the financial statements of the Branch of the Resultado por Exposición a la Inflación (Result of Exposure to Inflation), which seeks to account for the effects of inflation by adjusting the value of non-monetary assets and liabilities and equity by a factor corresponding to wholesale price inflation rates during the period covered by the financial statements. Monetary assets and liabilities are not so adjusted.

Expansion and Modernization Program:

Toquepala concentrator expansion: In September 2002, the Company completed the expansion of the Toquepala concentrator raising mineral processing capacity from 45,000 tons per day to 60,000 tons per day. The concentrator milled 21.2 million tons of ore in 2003, compared to 17.6 million tons in 2002. As a result SPCC’s use of third party concentrate decreased from 97,042 tons in 2002 to 9,403 tons in 2003. Spending on the project, through 2003 amounted to $68.1 million. The Company expects to spend $3.2 million in 2004 to further enhance this project.

Ilo refinery: In 2002, the Company completed a feasibility study to expand production capacity at the Ilo refinery to 360,000 tons per year, an increase of 80,000 tons per year over current capacity. While the study’s results were favorable a decision to move ahead with this project is on hold pending the completion of previously committed projects.

Toquepala leach dump project: On January 30, 2003, the Board of Directors approved the Toquepala leach dump project. The project includes the installation of a crushing,

conveying and spreading system at the Toquepala leach dumps. The project is estimated to be completed in mid-2005 at a budgeted cost of $69.7 million. As of December 31, 2003 $2.2 million has been expended on this project. The project is expected to reduce production costs for SPCC’s leaching facilities by eliminating costly truck haulage in the process.

Auxiliary dams - Quebrada Honda: The construction of auxiliary dams at Quebrada Honda is in process. It includes the construction of three auxiliary dams, which will prevent decanted water of the Quebrada Honda embankment reservoir from entering the Quebrada Santallana; these dams will also serve as initial dams in case SPCC decides to increase the embankment volume of the Quebrada Honda dam. The project has an approved budget of $7.0 million, of which $3.8 million has been expended through 2003.

Tailings disposal project: Research studies for tailings disposal at Toquepala and Cuajone continue. New alternatives, including the use of new reagents and the installation of new equipment, using new techniques, are under consideration. The goal of the project remains the enhancement of the recovery and reuse of water resources, which will improve production costs and conserve scarce resources. Through 2003 the Company has expended $1.0 million out of an approved budget of $4.0 million.

Smelter modernization: The Company’s largest outstanding capital investment project is the Ilo smelter modernization. The project is part of the Company’s Environmental Compliance and Management Program (known by its Spanish acronym, PAMA), which was approved by the Peruvian government in 1997. The project will modernize the smelter and is targeted to capture no less than 92 percent of the sulfur dioxide emissions, in compliance with PAMA requirements. The project originally encompassed a two-phase approach to reach a final deadline for completion by January 2007. In the third quarter of 2003 the MEM accepted a modification proposed by the Company to complete the smelter modernization in one-phase within the final deadline originally established in the PAMA.

In July 2003, the Company awarded the contract to provide the technology and basic engineering for the modernization of the Ilo smelter to Fluor/Xstrata. The selected proposal meets with SPCC’s requirements, which are the use of proven technology (the ISASMELT from Australia) and comply with the current environmental regulations. It is estimated that the construction of the project will be completed before January 2007, the deadline established in the PAMA. The cost of the project was previously estimated to exceed $600 million, but after the completion of the basic engineering by Fluor/Xstrata, the new estimated cost to complete this project is $320 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company has discussed the following critical accounting policies with its audit committee.

Southern Peru Copper Corporation’s discussion and analysis of its financial condition and results of operations, as well as quantitative and qualitative disclosures about market risks, are based upon its consolidated financial statements, which have been prepared in accordance with US GAAP. Preparation of these financial statements requires Southern Peru’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include: revenue recognition; ore reserves; capitalized mine stripping and related estimated mine stripping ratios; the estimated useful lives of fixed assets, asset retirement obligations; litigation and

contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition: Approximately 90%, 93% and 94% for the years 2003, 2002 and 2001, respectively, of the Company’s metal production was sold under annual or longer-term contracts. Revenues derived from product sales are recognized upon the transfer of title of the inventories to customers, which coincides with the shipment of products to customers in satisfaction of orders. As of December 31, 2003, the Company believes that an allowance for doubtful accounts on product sales is not required as losses from uncollectible accounts receivable from customers have historically been insignificant and the Company believes all of its customers have the ability and intent to pay such amounts.

For certain of the Company’s sales of copper and molybdenum products, customers are given the option to select a monthly average LME or COMEX price (as is the case for sales of copper products) or the monthly average proprietary market price estimate of Platt’s Metals Week (as is the case for sales of molybdenum products), ranging between one and three months subsequent to the shipment. In such cases, revenue is recorded at a provisional price at the time of the shipment, based on LME or COMEX market prices for copper sales, and the industry trade publication’s proprietary market price estimate for molybdenum. The provisionally priced sales are adjusted to reflect market prices at the end of each month until a final adjustment is made to the price of the shipments upon settlement with our customers pursuant to the terms of the contract. In the years ended December 31, 2003 and 2002, the final adjustment related to the provisionally priced contracts for sales during the last quarter of the previous year totaled $9.2 million and ($0.6) million. We believe the final adjustment related to the provisionally priced contracts for the sales in the last quarter of the year ended December 31, 2003 will substantially exceed the adjustments in prior years as the price of copper has continued to rise during the first quarter of 2004.

These provisional pricing arrangements are accounted for as an embedded derivative instrument under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“FASB 133”) as amended. As of December 31, 2003, 2002 and 2001, the years in which the Company accounted for such embedded derivatives in accordance with the provisions of FASB 133, the estimated fair values of these embedded derivative instruments, which corresponds to the month-end provisional pricing adjustments noted above, amounted to $9.2 million, ($0.6) million and $0.3 million, respectively, and are included in accounts receivable on the balance sheets.

Ore Reserves: Southern Peru periodically reevaluates estimates of its ore reserves, which represent the Company’s estimate as to the amount of unmined copper remaining in its existing mine locations that can be produced and sold at a profit. Such estimates are based on engineering evaluations derived from samples of drill holes and other openings, combined with assumptions about copper market prices and production costs. The Company’s current ore reserve estimates utilize a three year average price per pound of copper assumption and actual production cost data as of the most recent reserves declarations, which were made in 1998 for the Cuajone mine and in 1999 for the Toquepala mine. The three-year price of copper used in determining 2003 ore reserves was 76 cents per pound. Prior to 2003, the Company utilized a 90 cents per pound copper price in its ore reserve estimates, which the Company believes to be a valid price assumption over an extended period. At December 31, 2003 the three-year average price per pound of copper was 75 cents and is being used to determine ore reserves for 2004. At December 31, 2003 the remaining lives of the Company mines are 29 years and 33 years, for the Toquepala and Cuajone mine, respectively.

The reserves estimates have been adjusted for actual production since the most recent reserve declarations. Many companies declare their ore reserves on an annual basis. The Company believes that ore reserves determined by its method closely approximates the ore reserve quantities if they were determined as of December 31, 2003.

Southern Peru uses its ore reserve estimates in determining the amount of mine stripping capitalized, units of production amortization of capitalized mine stripping depletion of mineral land and amortization of intangible asset mineral land.

Mine Stripping Ratios: In carrying out its mining operations, the Company is required to remove waste materials to access mineral deposits. Because the concentration of mineral deposits is not evenly distributed throughout the mines; there are periods during the life of the mine where the Company mines more (or better quality) reserves as compared to waste removed, and periods during which the Company mines less (or lower quality) reserves as compared to waste removed.

For each of its existing mines in the production stage, the Company’s mine engineers have calculated a life-of-mine stripping ratio which represents the Company’s estimate of the total amount of waste to be incurred divided by the estimated total proven and probable reserves at each mine. The mine stripping ratios are used to determine the amount of mine production costs to be charged against earnings. In periods when the actual ratio of waste to mineral ore extracted exceeds the life-of-mine stripping ratios, the Company capitalizes production costs associated with mining operations in proportion to the excess waste mined. Such capitalized costs are included in net capitalized mine stripping, and are amortized using the units of production method. Copper resources contained in piles of leachable materials that have been extracted from the mines are not included in the determination of units of production amortization. Conversely, in periods when the actual ratio of waste to mineral ore mined is less than the life-of-mine stripping ratios, the Company reduces the net capitalized mine stripping asset proportionally with a charge to amortization expense. During periods the Company is stripping at the higher rates, increased mining costs associated with the higher tonnages are incurred. Costs of this nature are necessary in a mining operation to insure the availability of mineable ore in future periods.

The Company understands that the SEC is currently evaluating methods for accounting for mine stripping costs. In addition, the Company is aware that in recent public comments, the SEC has expressed unfavorable views towards the Company’s method of accounting for mine stripping costs. However, the Company believes that its method of accounting for mine stripping costs, which effectively results in the smoothing of production costs over the lives of its mines, accurately reflects the results and operations of its mining operations and also facilitates improved matching of revenues and related expenses.

During 2003, 2002 and 2001 the Company’s stripping ratio was higher than the life-of-mine stripping ratio for both the Toquepala and Cuajone mines; which resulted in the capitalization of mine costs associated with the additional waste mined. If the Company were to have expensed all production costs associated with its mining operations as incurred, net operating cost expenses would have increased by $40.1 million, $52.1 million and $47.4 million, for the years ended December 31, 2003, 2002 and 2001, respectively.

Estimated life-of-mine stripping ratios for each of the Company’s mines for the years ended December 31, 2003, 2002 and 2001, were as follows:

	Life-of-Mine Stripping Ratio
	Toquepala	Cuajone
2003	3.25	1.19
2002	3.01	1.31
2001	3.06	1.34

The life of mine-stripping ratios for both mines changed at year-end 2003 and 2002 because of changes in the copper price assumption used and because of changes obtained from mine plan studies to calculate the ore reserves. At year-end 2003, 2002 and 2001,

the Company used a per pound copper price of $0.75, $0.76 and $0.90, respectively. Beginning with year-end 2002 the Company began using the three-year average COMEX copper price; in earlier years the Company used a $0.90 per pound price to calculate ore reserves. In addition, in 2003 SPCC implemented recommendations from a mine plan study, which changed the 2003 stripping ratios.

Estimated Useful Lives of Assets: Estimated useful lives of the Company’s fixed assets are based on periodic evaluation by the Company’s management and engineers. Changes in such estimates could significantly affect, among other things, the Company’s operating costs and net income. During the first quarter of 2002, the Company changed the estimated useful lives of certain machinery and equipment to reflect additional information as to historical experience. This change was accounted for prospectively and resulted in a reduction to depreciation expense of approximately $12.7 million in 2002.

Asset Retirement Obligation: The Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” in 2003. This statement requires the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. The liability is measured at discounted fair value and is adjusted to its present value in subsequent periods as accretion expense is recorded. In order to determine the amount of the liability the Company must estimate the cost of fulfilling the retirement obligation. The Company calculates this estimated obligation using available facts, existing technology, current laws and regulations, current costs, and expected costs as determined by Company engineers. This estimation is also based on inflation assumptions using the US CPI (consumer price index) and using the Company’s risk free credit rate (which is based on the Company’s credit status).

Litigation and Contingencies: The Company is currently involved in certain legal and tax proceedings. As discussed in Note 19 and Note 4 of our consolidated financial statements as of December 31, 2003, we have accrued our estimate of the probable costs for the resolution of these claims. This estimate has been developed in consulting legal and tax counsel handling our defense in these matters and is based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. We do not believe these proceedings will have a material adverse effect on our consolidated financial position or results of operations.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

SPCC reported net earnings as follows:

For the years ended December 31,	2003			2002			2001

Net earnings - $ in millions	$	119.2		$	60.6		$	46.6

% increase (decrease) from prior year	96.7		%	30.0		%	(99.4		)%

Earnings per share	$	1.49		$	0.76		$	0.58

The increase in net earnings in 2003 is due principally to higher copper and molybdenum prices and to higher sales volume of copper and molybdenum. Copper prices on the LME and COMEX were about ten cents higher in 2003 and ended the year about 35 cents higher then the 2002 year-end price. The volume of copper sold increased by 21.5 million pounds and the volume of SPCC produced copper increased by 62.1 million pounds. The contribution of molybdenum to net sales increased to $104.9 million in 2003 from $59.4 million in 2002, attributable to a 41% increase in price and an increase of almost 10% in volume. The 2003 results were reduced by a $10.1 million deferred tax charge recorded in the fourth quarter of 2003 to reflect a 3% increase in the Peruvian income tax rate for years after 2003. U.S. GAAP requires that deferred taxes be recorded based on the enacted tax rate expected to apply to taxable income in the period in which the temporary differences are expected to be settled. Operating break-even cost was reduced by 5.7 cents per pound in 2003 to 39.9 cents per pound in 2003 from 45.6 cents per pound in 2002. This reduction is an improvement of 12.5% in 2003.

The increase in net earnings in 2002 compared with 2001 is due to the increase in metal prices for molybdenum and silver, the more important by-products of the Company, despite a slight decrease in copper prices and volume. In addition, cost cutting programs, such as the retirement in force program, reduced administrative and production costs in 2002. Operating break-even cost was reduced by 3.7 cents per pound to 45.6 cents per pound in 2002 from 49.3 cents per pound in 2001. This reduction represents a 7.5% improvement over 2001.

Interest expense decreased $24.9 million in 2002 as a significant amount of Company debt was prepaid in early 2002. Interest income also decreased as cash previously available for investing was utilized in the debt prepayment. The decrease in interest income in 2002 as compared to 2001 was $14.1 million.

Net Sales: Net sales in 2003 were $798.4 million, compared with $664.6 million in 2002, an increase in 2003 of $133.8 million. The increase is mainly due to higher sales prices and higher sales volumes for copper and molybdenum.

Copper sales volume in 2003 increased by 21.5 million pounds as SPCC production increased because of the Toquepala mill expansion completed in the second half of 2002 and due to higher ore grades and recoveries at the Cuajone mine. Sales of SPCC mined copper actually increased by 62.1 million pounds, and the Company’s need for third party concentrates was reduced. The average copper price increased by approximately 10 cents per pound in 2003, as copper prices increased significantly in the fourth quarter of 2003. The year-end per pound price of copper on the LME and the COMEX was $1.05 and $1.04, respectively, at December 31, 2003, compared to $0.69 and $0.70, respectively, at December 31, 2002. Molybdenum sales increased in 2003, as the price increased by 41% and sales volume was higher by 1.8 million pounds.

Net sales in 2002 were $664.6 million, compared with $657.5 million in 2001. The increase of $7.1 million is mainly due to higher molybdenum prices in 2002, which increased net sales by approximately $25 million, reduced by lower copper prices and a 11.5 million reduction in pounds of copper sold, in part due to a strike in the fourth

quarter of 2002 which reduced copper production by 5 million pounds.

At December 31, 2003 there were 22.5 million pounds of copper sales recorded at a provisional price of $1.05 per pound. Also the Company has recorded 3.7 million pounds of molybdenum sales at a provisional price of $7.60 per pound.

Prices: Sales prices for the Company’s metals are established principally by reference to prices quoted on the London Metal Exchange (“LME”), the New York Commodity Exchange (“COMEX”) or published in Platt’s Metals Week for dealer oxide mean prices for molybdenum products.

Price/Volume Data	2003		2002		2001

Average Metal Prices:
Copper (per pound - LME)	$	0.81	$	0.71	$	0.72
Copper (per pound - COMEX)	0.81		0.72		0.73
Molybdenum (per pound)	5.32		3.77		2.36
Silver (per ounce - COMEX)	4.89		4.60		4.36

Sales Volume (in thousands):
Copper (pounds)	827,086		805,642		817,128
Molybdenum (pounds) (1)	19,953		18,178		18,511
Silver (ounces)	4,192		4,034		3,951

(1) The Company’s molybdenum production is sold in concentrate form. Volume represents pounds of molybdenum contained in concentrates.

Provisional pricing arrangements: For certain of the Company’s sales of copper and molybdenum products, customers are given the option to select a monthly average LME or COMEX price (as is the case for sales of copper products) or the proprietary market price estimate of Platt’s Metals Week (as is the case of molybdenum products), ranging between one and three months subsequent to the shipment. In such cases, revenue is recorded at a provisional price at the time of shipment, based on LME/COMEX market prices for copper sales, and the Platt’s proprietary market price estimate for molybdenum. The provisionally priced sales are adjusted to reflect market prices at the end of each month until a final adjustment is made to the price of the shipments upon settlement with our customers pursuant to the terms of the contract.

These provisional pricing arrangements are accounted for as an embedded derivate instrument under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“FASB 133”) as amended. As of December 31, 2003, 2002, and 2001 the estimated fair values of these embedded derivative instruments, which correspond to the month end provisional pricing adjustments noted above, amounted to $9.2 million, ($0.6) million and $3.0 million, respectively, and are included in accounts receivable on the balance sheets.

From time to time, the Company uses derivative instruments to manage its exposure to market risk from changes in commodity prices. Derivative instruments which are designated as hedges must be deemed “highly” effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Any ineffectiveness of the hedge is reported in current earnings.

In past years the Company has used copper put options to reduce the risk of copper price declines on a portion of its anticipated sales. In addition, the Company entered into fuel swap arrangements, to limit the effect of increases in fuel price on production cost, and foreign currency swaps to limit the effects of exchange rate changes on future cash flow obligations denominated in foreign currency. For the years ended December 31, 2003, 2002 and 2001 the Company held no copper put options or fuel swap arrangements.

The Company held no currency swap agreements for 2003 and 2002. During the year ended December 31, 2001, the Company took physical settlement for its currency swap agreements related to a portion of its capital costs contracted in Euros for which there was a loss of approximately $2.2 million. As a result of accepting Euros in settlement of these currency swap arrangements, the Company acquired and held Euros as part of its cash balances in 2003 and 2002. Due to these cash balances in Euros, the Company recognized exchange gains of $2.5 million and $2.7 million in 2003 and 2002, respectively. The Company utilized its Euro cash balances in the first quarter of 2003.

Cost of sales: Cost of sales (exclusive of depreciation, amortization and depletion) was $468.5 million in 2003, $442.5 million in 2002 and $452.6 million in 2001. In 2003, the Company’s cost of sales was $26.0 million higher than the prior year. Sales of Company produced copper increased by 62.1 million pounds while sales of copper processed from third party concentrate decreased by 40.6 million pounds. The significant factors causing the 2003 increase were higher fuel and power costs in 2003 including a one time payment of $4.0 million to Enersur S.A., the Company’s power provider, and an increase of $9.5 million for workers participation, a cost based on a percentage of pre-tax earnings, which increases as Company profits increase.

The decrease of $10.2 million in 2002 against 2001 includes the lower volume of copper processed and sold from purchased concentrates, and the lower cost of Company mined copper as a result of a decrease in volume sold and lower operating costs.

Other Expenses: Depreciation, amortization and depletion expense was $73.6 million in 2003, compared with $67.8 million in 2002 and $76.3 million in 2001. The increase in 2003 was mainly due to capitalization and depreciation of new projects. The decrease in 2002 was mainly due to a change made to the estimated useful lives of certain fixed assets, this reduced depreciation expense in 2002 by $12.7 million. This decrease was somewhat offset by an adjustment to fixed assets which resulted in a $3.7 million pre-tax charge to depreciation, such adjustment resulted from an analysis of fixed assets which identified this difference.

Exploration expense was $12.3 million, $7.8 million and $8.5 million in 2003, 2002 and 2001, respectively. The increase in 2003 was principally due to the Company’s purchase of exploration properties for $3.7 million from ASARCO, a company indirectly owned by SPCC’s majority stockholder. The Company used an independent appraisal firm to determine the value of these properties. As the properties have not yet reached the development stage, the cost of this acquisition was charged to earnings as an exploration expense.

Non-Operating Items: Interest income was $3.4 million in 2003 compared with $2.8 million in 2002 and $16.9 million in 2001. The increase in 2003 reflects higher amounts of invested cash. The decrease in 2002 reflects lower amount of invested cash. In early 2002, the Company used $121 million of its excess cash to prepay long-term debt. The Company invests principally in short-term securities.

Other income (expense) was $(0.1) million in 2003, compared with $(9.8) million in 2002 and $1.6 million in 2001. Other income (expense) generally includes miscellaneous camp and school income and medical services to third parties, as well as scrap sales. The 2002 amount includes an $11.4 million penalty, paid in connection with the prepayment, in 2002, of the balance of the Company’s Secured Export Note financing. The Company decided to incur the penalty in retiring this debt because the penalty offset the present value of the amount of interest that would have been due over the term of the debt. Further, in retiring the debt, the Company was then permitted to avail itself of potentially more attractive long-term financing in the future.

Total interest cost was $17.7 million in 2003, compared with $21.0 million in 2002 and $47.3 million in 2001. In 2003, 2002 and 2001, the Company capitalized $4.5 million, $6.6 million and $8.0 million of interest, respectively, related to expenditures for the expansion program. The decrease in 2003 and 2002 interest expense is due to lower

debt levels and lower interest rates. In February 2002 the Company prepaid $121 million of its long-term debt. In connection with this prepayment, an unamortized balance of $1.0 million of deferred loan commissions was expensed in 2002.

A prepayment penalty of $0.1 million was paid in connection with the prepayment made in December 2001 of the $400 million credit line facility disbursed in March 2001. The unamortized balance of $3.1 million of commission fee related to this credit line was charged as other expenses in 2001.

Taxes on Income: Taxes on income were $85.0 million, $36.1 million and $21.2 million for 2003, 2002 and 2001, respectively, and include $78.7 million, $33.9 million and $9.9 million of Peruvian income taxes, $6.3 million, $2.2 million and $11.3 million for U.S. federal and state taxes for 2003, 2002 and 2001, respectively. U.S. income taxes are primarily attributable to investment income as well as limitations on use of foreign tax credits in determining the alternative minimum tax.

The effective tax rates were 41.1%, 37.0% and 31.0% for the years ended December 31, 2003, 2002 and 2001, respectively. The increase in the 2003 effective tax rate from the 2002 effective tax rate is primarily due to the increase in the carrying value of deferred taxes as the result of the enacted income tax rate increase from 27% to 30% in Peru. The 2002 effective tax rate increased from the 2001 effective tax rate as the result of the Peruvian tax on net income deemed distributed and the diminished utilization of foreign tax credits, partially offset by the benefit of a 2002 reduction from 30% to 27% in the statutory income tax rate.

On December 23, 2003, the Peruvian government established a new tax rate of 30% for years beginning after 2003. Although this new rate does not affect the current taxes payable, the change in the tax rate does require that the deferred Peruvian assets and liabilities be revalued at the tax rate expected to apply when these assets and liabilities are realized. Accordingly, the Company recorded a charge of $10.1 million as additional tax deferred expense for the rate change.

The Company obtains income tax credits in Peru for value-added taxes paid in connection with the purchase of capital equipment and other goods and services employed in its operations and records these credits as a prepaid expense. Under current Peruvian law, the Company is entitled to use the credits against its Peruvian income tax liability or to receive a refund. The carrying value of these Peruvian tax credits approximates their net realizable value.

Minority Interest of Investment Shares: Minority interest of investment shares was $1.2 million in 2003, compared with $0.9 million in 2002 and $0.7 million in 2001. The provision for minority interest of investment shares represents 0.7%, 0.8% and 1.5% for 2003, 2002 and 2001, respectively, of the Branch’s after-tax earnings. The reduction in the percentage of minority interest of investment shares in 2002 was the result of purchases of investment shares by the Company. The acquisition of the investment shares has been accounted for as the purchase of a minority interest. The excess purchase price over the cost of the shares of $0.2, $2.0 million and $0.2 million, in 2003, 2002 and 2001, respectively, has been allocated to intangible assets-mining concessions on the Company’s balance sheet.

Cash Flows - Operating Activities: Net cash provided from operating activities was $191.0 million in 2003, compared with $130.2 million in 2002 and $151.0 million in 2001. The increase of $60.7 million in 2003 was principally attributable to improved cash earnings, largely generated by production increases and improvement in metal prices. Expenditures for capitalized mine stripping decreased in 2003, by $11.9 million, from the prior year. During 2003 the contribution from operating assets and liabilities decreased by $37.1 million from the prior year. The decrease was primarily a result of the higher metal prices at year-end 2003, the LME copper price was $1.05 at December 31, 2003, compared with $0.69 at December 31, 2002, which increased the accounts receivable balances at year-end 2003. The accounts receivable increase reduced cash flow by $28.9 million in 2003, as compared to an increase of $16.2 million

in 2002. The contribution to cash flow from the decrease in inventory was $6.0 million more in 2003 than 2002. In addition, the increase in accounts payable and accrued liabilities increased 2003 cash flow by $23.2 million more than 2002. Accruals for income taxes and workers participations were much higher in 2003, as SPCC’s earnings increased. An increase in prepaid taxes reduced 2003 cash flow by $3.0 million, in 2002 the decrease in prepaid taxes added $18.2 million to 2002 cash flow.

The decrease in 2002, of $20.8 million, was principally attributable to $24.5 million lower cash provided by operating assets and liabilities, partially offset by the increase in earnings of $14.0 million, less an increase of $4.6 million in capitalized mine stripping and a decrease of $8.4 million in depreciation, depletion and amortization expense. In 2002, the Company changed the estimated useful lives of certain fixed assets, which reduced depreciation expense by $12.7 million. The decrease in cash provided by operating assets and liabilities was caused by a decrease in the cash flow from accounts receivable of $44.7 million and from inventories of $4.7 million. The decrease was reduced by increased cash flow contributions from accounts payable and accrued liabilities of $13.6 million, and prepaid taxes of $12.0 million. In 2001 the Company collected a pending tax drawback from the Peruvian Government, which enhanced the 2001 cash flow from accounts receivable.

Cash Flows - Investing Activities: Net cash used for investing activities was $49.8 million in 2003 compared with $76.6 million in 2002 and $113.5 million in 2001. Capital expenditures in 2003, 2002 and 2001 reflect the Company’s expansion and modernization program. Capital expenditures for the years 2002 and 2001 were higher than 2003 and included principally the investment in the Toquepala concentrator expansion of $38.8 million and $28.1 million respectively. Additionally the Company expended $17.4 million in 2001 for the expansion of the Toquepala SX/EW facility. The Company’s budgeted capital expenditures for 2004 are $290.1 million, which includes $83.9 million for the Ilo smelter modernization, $54.4 million for the Toquepala leach dump project and $123.7 million for additions and replacement of equipment at the Company’s three operating areas.

Cash Flows - Financing Activities: Financing activities provided cash of $3.8 million in 2003 and $28.0 million in 2001. In 2002, financing activities used cash of $120.3 million.

In 2003, the Company issued $50 million in bonds in the Peruvian market. Proceeds from these bonds will be used to help finance the Company’s capital programs. Dividends paid during the year amounted to $45.3 million and represented 50% of the earnings on which they were paid. In addition, the Company paid $0.4 million to holders of investment shares. The Company also purchased investment shares for $0.6 million.

Financing activities used cash of $120.3 million in 2002 and included debt payments of $122.9 million, including a prepayment of $121 million, new debt incurred of $25.9 million and escrow funds of $7.2 million returned to the Company. In addition, the Company paid dividends of $21.5 million to common stockholders and $0.3 million to holders of investment shares. The Company also purchased investment shares for $8.7 million.

LIQUIDITY AND CAPITAL RESOURCES:

Financing: In 2001, the Company was authorized by the Comision Nacional Supervisora de Empresas y Valores (“CONASEV”) to issue up to $750 million of bonds in the Peruvian market. The goal of this bond facility is to support the Company’s expansion and modernization program, by extending maturity of the Company’s debt obligations and by reducing financing costs. In February 2002, the Company sold to investors in Peru bonds for $25.9 million, at an interest rate of LIBOR plus 3%, with maturities ranging from May 2005 to February 2012. In 2003, the Company sold to investors in Peru bonds for $50 million with maturities ranging from January 2005 to May 2010. These bonds were sold in two tranches of $25 million each and have interest rates of LIBOR plus

2.375% and LIBOR plus 2.3125%. Prior to 2002, $123.1 million of bonds were sold under this program with maturities ranging from March 2005 to December 2011. Total issuances under the program now total $199 million. The interest rates on these bonds are adjusted on a quarterly basis. Proceeds from the sale of these bonds are being used to finance a portion of the Company’s capital spending program.

In 1999, the Company entered a $100 million, 15-year loan agreement with Mitsui maturing in 2013. The interest rate for this loan is the Japanese LIBO rate plus 1.25% (Japanese LIBO rate at December 31, 2003 was 1.23%). This facility provided additional committed financing for SPCC’s modernization and expansion program, and was fully disbursed as of December 31, 2001. The Mitsui credit agreement is collateralized by pledges of receivables of 31,000 tons of copper per year.

At December 31, 2003 the Company had outstanding borrowings of $349 million, compared with $299 million at December 31, 2002.

Both the Mitsui agreement and the Peruvian bond program require the Company to maintain a minimum stockholders’ equity of $750 million, and a specific ratio of debt to equity. Reduction of Grupo Mexico’s direct or indirect voting interest in the Company to less than a majority would constitute an event of default under the Mitsui agreement. The Peruvian bond program contains a limitation on the payment of stockholder dividends of no more than 50% of net income for any fiscal year. The Company was in compliance with the various financing agreements at December 31, 2003.

On March 31, 2003, Southern Peru Holdings Corporation, the 54.2% direct stockholder of the Company, and a subsidiary of ASARCO, sold all its stock in the Company to AMC, the parent of ASARCO. Immediately after the transaction, the shares were transferred to SPHC II Incorporated, a subsidiary of AMC, and were pledged to a group of financial institutions. Pursuant to a financing agreement, AMC has agreed to comply with financial covenants, involving SPCC, including covenants requiring the maintenance of minimum stockholders’ equity of $900 million, adjusted to include 50% of earnings after 2002, cash proceeds from equity offerings and stockholder contributions, specific debt to equity ratios and interest coverage ratios. At December 31, 2003 the Company was in compliance with these covenants.

The Company expects that it will meet its cash requirements for 2004 and beyond from internally generated funds, cash on hand, and from additional external financing if required.

At December 31, 2003, the Company’s debt as a percentage of total capitalization (the total of debt, minority interest of investment shares and stockholders equity) was 20.9% as compared with 19.3% at December 31, 2002. At December 31, 2003, the Company’s cash and marketable securities amounted to $295.5 million, compared to $147.5 million at December 31, 2002.

Contractual Obligations: The following table summarizes SPCC’s significant contractual obligations as of December 31, 2003 (in millions):

			Payments due by Period
	Total		2004		2005 to 2006		2007 to 2008		2009 and Thereafter

Long-term debt	$	349.0	$	60.0	$	65.5	$	116.4	$	107.1
Commitment to purchase energy	1,490.6		93.4		188.8		201.3		1,007.1
Capital purchase obligations	320.6		75.6		235.0		10.0		—
Total	$	2,160.2	$	229.0	$	489.3	$	327.7	$	1,114.2

Please refer to Note 14 of the Company’s financial statements to see a description of the Company’s long-term debt arrangements and credit facilities.

The Company has a commitment to purchase power from Enersur S.A. until 2017. Amounts

indicated on the above table are based on power costs in 2003, which are subject to change as energy generation costs change, and the Company’s forecasted power requirements through the life of the agreements change, (See also Energy Matters and Water Resources under Item 1, on page 6).

Under the Company’s PAMA (See Environmental Matters on page 30) SPCC has committed to bring operations to environmental standards established by the government of Peru. The capital purchase obligation in the above table is for the estimated cost of completing the Ilo smelter modernization, the remaining obligation under the Company’s PAMA.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

A portion of our outstanding debt bears interest at variable rates and accordingly is sensitive to changes in interest rates. Interest rate changes would result in gains or losses in the market value of our debt portfolio due to differences in market interest rates and the rates at the inception of the debt agreements. Based upon SPCC’s indebtedness at December 31, 2003 a 100 basis point interest change would impact net income and cash flows by $2.4 million annually.

The Company is also exposed to market risk associated with changes in foreign currency exchange rates as certain costs incurred are in currencies other than the Company’s functional currency. To manage the volatility related to this risk, the Company may enter into forward exchange contracts. The Company has only had limited involvement with derivative instruments and does not use them for trading purposes.

There is market risk arising from the volatility and price sensitivity of copper prices. Assuming that expected metal production and sales are achieved, that tax rates are unchanged, that the number of shares outstanding is unchanged, and giving no effect to potential hedging programs or changes in the past production, metal price sensitivity factors would indicate the following increase in estimated 2003 earnings per share resulting from metal price increases in 2003. Estimates are based on 80.0 million shares outstanding.

	Copper		Silver		Molybdenum
Change in Metal Price	$	0.01	$	1.00	$	1.00
Annual Change in Earnings per Share	$	0.06	$	0.03	$	0.13

DIVIDENDS AND CAPITAL STOCK

The Company paid dividends to stockholders of $45.4 million or $0.57 per share in 2003, $28.7 million, or $0.36 per share in 2002, and $28.8 million or $0.36 per share, in 2001. Distributions to the investment share minority interest were $0.4 million, $0.3 million and $0.5 million in 2003, 2002 and 2001, respectively.

On February 3, 2004 a dividend of $0.27 per share, totaling $21.6 million, was declared, payable March 9, 2004. The Company’s dividend policy continues to be reviewed at Board of Directors’ meetings, taking into consideration the current intensive capital investment program, including the smelter modernization, and expected future cash flow generated from operations.

At the end of 2003 and 2002, the authorized and outstanding capital stock of the Company consisted of 65,900,833 shares of Class A common stock par value $0.01 per share; and 34,099,167 authorized shares of common stock, par value $0.01 per share, of which 14,112,942 common shares were outstanding at December 31, 2003 and 14,107,587 shares were outstanding at December 31, 2002.

ENVIRONMENTAL MATTERS

The Company’s activities are subject to Peruvian laws and regulations. The Peruvian Government, through its Ministry of Energy and Mines (MEM), conducts seven annual audits of SPCC’s mining and metallurgical operations. Through these environmental audits, all matters relating to environmental commitments, compliance with legal requirements, as well as atmospheric emissions and effluent monitoring are reviewed. The Ilo operations (smelter and refinery) are audited three times a year and the operations at the Toquepala and Cuajone mines, are audited twice a year. The Company has not incurred any material non-compliances under any environmental laws or regulations.

Pursuant to Peruvian law, in 1996, SPCC submitted the Environmental Compliance and Management Program (known by its Spanish acronym, PAMA) to the Peruvian Government. A thorough third party environmental audit was conducted in order to elaborate the PAMA. The PAMA applied to all current operations that did not have an approved environmental impact study at the time. SPCC’s PAMA was approved in January 1997 and it contains 34 mitigation measures and projects necessary to: (1) bring the existing operations to the environmental standards established by the government, and (2) identify areas impacted by the operations that were no longer active and needed to be reclaimed or remediated.

By the end of 2003, thirty-one of such projects were completed, including all PAMA commitments relating to the Company’s operations in Cuajone and Toquepala. The three pending PAMA projects all belong to the Ilo smelter operations. The primary areas of environmental concern are: (1) Smelter reverberatory slag eroded from the slag deposits up until 1994, and (2) atmospheric emissions from the Ilo smelter.

The slag remediation program is progressing as scheduled and is expected to be completed by 2007. Once the program is completed, we do not forsee any further environmental risks.

With respect to the smelter emissions, the third phase of the Ilo smelter modernization has started and is scheduled to be completed by 2007. In July 2003, the Company awarded the contract to provide the technology and basic engineering for the modernization of the Ilo smelter to Fluor/Xstrata. The selected proposal meets with SPCC’s requirements, which are to use of proven technology (the ISASMELT from Australia) and comply with the current environmental regulations. It is estimated that the construction of the project will be completed before January 2007, the deadline established in the PAMA. This represents the biggest outstanding capital investment project for SPCC. The cost of the project was previously estimated to exceed US $600 million. The new estimated cost to complete this project is US $320 million. Beginning in 1995, and continuing while the smelter project is under construction, SPCC established an emissions curtailment program that has allowed SPCC to comply with the annual SO2 air quality standards (established by the MEM in 1996) in the populated areas of the city of Ilo, and has reduced violations to the 24-hr air quality standard for the year 2004 to four episodes. Once the modernized smelter starts operating, we do not forsee any environmental risks.

Two major remediation projects were identified in the PAMA. One related to the old tailings conveyance and disposal sites, and the other, to the Smelter reverberatory slag mentioned above. Environmental commitments regarding the tailings remediation have been fulfilled, and the slag program is 88% complete, as reported by the government auditors. In the foreseeable future, the only reclamation/remediation plans concurrent with operations are the ones already included in the PAMA.

On October 14, 2003 the Peruvian Congress published a new law announcing future closure and remediation obligations for the mining industry. The MEM is required to issue further guidance regarding the details of the new law. MEM was required to publish within 60 business days, or by January 9, 2004, a draft of regulations necessary to implement this law, and within three months, or by April 9, 2004, final regulations. Further guidance has not yet been issued by MEM. The new law, as published, announced a requirement for existing mining operations to present to the MEM a Mine Closure Plan, within six months, or before April 15, 2004. It is expected that the regulations, once published, will provide a new deadline. The law will require companies to provide financial guarantees to insure that remediation programs are completed. The Company anticipates that this law will increase its asset retirement obligation and require future expenditures to satisfy its requirements. The liability for these asset retirement obligations cannot currently be measured, or reasonably estimated, based on the generalities of the law. The Company is studying the impact this law will have on its results, but does not expect to be able to estimate the effect until regulations are published.

The Company has on hand sufficient funds to commence the project but significant additional funds will be necessary for its completion. The Company has an approved Peruvian bond program of $750 million, of which $199 million has been issued. There can be no assurance that the entire Ilo smelter project can be financed with Peruvian resources. The Company plans to finance the portion of the cost that is not financed in Peru with funds from operations or by placing additional financing in the international market.

Environmental capital expenditures for the period 1999-2003 exceeded $59 million. The Company foresees significant environmental capital expenditures in 2004. Approximately $84 million has been budgeted for the smelter project in 2004.

IMPACT OF NEW ACCOUNTING STANDARDS

For a description of the impact of new accounting standards see Note 1, “Summary of Significant Accounting Policies - Impact of New Accounting Standards” on pages 40 to 41.

NON-GAAP INFORMATION RECONCILIATION

Reconciliation of operating cash cost to GAAP cost of sales in millions of dollars and cents per pound.

	2003					2002					2001
	$ million			¢ per unit		$ million			¢ per unit		$ million			¢ per unit

Cost of Sales (including depreciation, amortization and depletion) - GAAP	$	542.0		67.0		$	510.3		63.1		$	528.9		64.2

Add:
Administrative and other	27.2			3.4		27.6			3.4		30.9			3.8
Treatment and refining charges	2.3			0.3		3.5			0.4		5.1			0.6

Less:
By-products revenue	(147.9		)	(18.3	)	(99.1		)	(12.2	)	(74.6		)	(9.1	)
Depreciation, amortization and depletion	(73.6		)	(9.1	)	(67.8		)	(8.4	)	(76.3		)	(9.3	)
Worker’s participation and other	(18.0		)	(2.2	)	(4.7		)	(0.6	)	(7.8		)	(0.9	)
Inventory change	(9.7		)	(1.2	)	(1.0		)	(0.1	)	(0.2		)	(0.0	)
Operating Cash Cost	$	322.4		39.9		$	368.8		45.6		$	406.0		49.3
Deduct by-products revenue	147.9			18.3		99.1			12.2		74.6			9.1
Operating Cash Cost, without by-product revenue	$	470.3		58.1		$	467.9		57.8		$	480.6		58.4

Total pounds of copper produced and purchased, in millions				808.9					809.0					823.4

Item 8. Financial Statements and Supplementary Data

Southern Peru Copper Corporation

and Subsidiaries

CONSOLIDATED STATEMENT OF EARNINGS

For the years ended December 31, (in thousands, except for per share amounts)	2003			2002			2001
Net sales:
Stockholders and affiliates	$	5,214		$	9,137		$	29,968
Others	793,192			655,513			627,553
Total net sales	798,406			664,650			657,521
Operating cost and expenses:
Cost of sales (exclusive of depreciation, amortization and depletion, shown separately below)	468,453			442,477			452,648
Administrative and other	27,247			27,574			30,904
Depreciation, amortization and depletion	73,579			67,840			76,285
Exploration	12,293			7,766			8,461
Total operating costs and expenses	581,572			545,657			568,298

Operating income	216,834			118,993			89,223

Interest income	3,363			2,796			16,875
Interest expense	(13,165		)	(14,415		)	(39,323		)
Other income (expense)	(133		)	(9,840		)	1,647

Earnings before taxes on income, minority interest and cumulative effect of the change in accounting principle	206,899			97,534			68,422

Taxes on income	84,969			36,122			21,175

Minority interest of investment shares	1,158			857			696

Earnings before cumulative effect of the change in accounting principle	120,772			60,555			46,551

Cumulative effect of the change in accounting principle, net of income tax benefit of $0.6 million	1,541			—			—

Net earnings	$	119,231		$	60,555		$	46,551

Per common share amounts:
Earnings before cumulative effect of the change in accounting principle	$	1.51		$	0.76		$	0.58
Cumulative effect of the change in accounting principle, net of income tax	(0.02		)	—			—
Net earnings – basic and diluted	$	1.49		$	0.76		$	0.58
Dividends paid	$	0.57		$	0.36		$	0.36

Weighted average shares outstanding-basic	80,012			80,005			80,002
Weighted average shares outstanding-diluted	80,017			80,009			80,004

The accompanying notes are an integral part of these financial statements.

Southern Peru Copper Corporation

and Subsidiaries

CONSOLIDATED BALANCE SHEET

At December 31, (Dollars in thousands)	2003			2002
ASSETS
Current assets:
Cash and cash equivalents	$	295,472		$	147,537
Accounts receivable:
Trade
Stockholders and affiliates	5,756			4,957
Other trade	81,610			52,722
Other	1,872			2,666
Inventories	76,692			91,880
Prepaid taxes	9,577			6,558
Other current assets	4,972			4,552
Total current assets	475,951			310,872
Net property	1,118,202			1,136,979
Capitalized mine stripping costs, net	215,207			181,558
Intangible assets	109,007			112,017
Other assets	12,385			10,820
Total assets	$	1,930,752		$	1,752,246
LIABILITIES
Current liabilities:
Current portion of long-term debt	$	60,000		$	—
Accounts payable:
Trade	39,868			30,175
Other	8,454			9,202
Other current liabilities	78,875			61,417
Total current liabilities	187,197			100,794

Long-term debt	289,043			299,043
Deferred income taxes	110,075			88,566
Other liabilities	15,854			14,792
Asset retirement obligation	5,267			—
Total non-current liabilities	420,239			402,401

Commitments and Contingencies (Note 19)

Minority interest of investment shares	7,913			7,676

STOCKHOLDERS’ EQUITY
Common stock, par value $0.01; shares authorized: 34,099,167; shares issued: 14,324,248	143			143
Class A Common stock, par value $0.01; shares issued and authorized: 65,900,833	659			659
Additional paid-in capital	265,745			265,745
Retained earnings	1,053,528			979,649
Treasury stock, at cost, common shares, 2003 — 211,306; 2002 — 222,506	(4,672		)	(4,821		)
Total Stockholders’ Equity	1,315,403			1,241,375
Total Liabilities, Minority Interest and Stockholders’ Equity	$	1,930,752		$	1,752,246

The accompanying notes are an integral part of these financial statements.

Southern Peru Copper Corporation

and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS

For the years ended December 31, (Dollars in thousands)	2003			2002			2001

OPERATING ACTIVITIES
Net earnings	$	119,231		$	60,555		$	46,551
Cumulative effect of the change in accounting principle, net of income tax	1,541			—			—
Adjustments to reconcile net earnings to net cash provided from operating activities:
Depreciation, amortization and depletion	73,579			67,840			76,285
Remeasurement (gain) loss	(2,256		)	(2,256		)	2,292
Capitalized mine stripping	(40,195		)	(52,054		)	(47,430		)
Provision for deferred income taxes	23,602			3,920			(3,253		)
Minority interest of investment shares	1,158			857			696

Cash provided from (used for) operating assets and liabilities:
Accounts receivable	(28,862		)	16,222			60,899
Inventories	15,188			9,151			13,900
Accounts payable and accrued liabilities	25,786			2,535			(11,080		)
Other operating assets and liabilities	5,233			5,236			5,913
Prepaid taxes	(3,019		)	18,236			6,220
NET CASH PROVIDED FROM OPERATING ACTIVITIES	190,986			130,242			150,993

INVESTING ACTIVITIES
Capital expenditures	(49,834		)	(76,866		)	(113,618		)
Sales of investments and property	55			226			83
NET CASH USED FOR INVESTING ACTIVITIES	(49,779		)	(76,640		)	(113,535		)

FINANCING ACTIVITIES
Debt incurred	50,000			25,922			473,121
Debt repaid	—			(122,914		)	(424,339		)
Escrow deposits on long-term loans	89			7,244			9,291
Dividends paid to common stockholders	(45,352		)	(21,494		)	(28,792		)
Distributions to minority interests	(408		)	(305		)	(462		)
Purchases of investment shares	(526		)	(8,745		)	(851		)
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES	3,803			(120,292		)	27,968

Effect of exchange rate changes on cash	2,925			1,370			(1,657		)

Increase (decrease) in cash and cash equivalents	147,935			(65,320		)	63,769
Cash and cash equivalents, at beginning of year	147,537