<Page>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
2001 FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001 Commission File Number: 1-14066
SOUTHERN PERU COPPER CORPORATION
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3849074
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2575 East Camelback Rd. Phoenix, AZ 85016
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (602) 977-6500
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of Each Class on which registered
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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 /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best 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. / /
As of February 28, 2002, there were of record 14,103,157 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 $156 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 Annual Meeting to be held on
April 25, 2002.
Part IV: Exhibit index is on page B1 through B3.
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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. Southern Peru Copper
Corporation was reorganized into a holding company structure effective January
2, 1996, upon completion of a public offer to exchange newly issued Common Stock
for outstanding labor shares of the Company's Peruvian Branch ("Labor Shares")
called "Investment Shares" as of December 31, 1998. Effective December 31, 1998,
the Company's predecessor and wholly owned operating subsidiary, Southern Peru
Limited, was merged into the Company.
The Company, incorporated in 1952 was reorganized in 1955 and has conducted
copper mining operations since 1960. Pursuant to Peruvian law, the Company
conducts its operations in Peru through a registered branch (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 as well as its predecessor. 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 its
holdings of SPCC to Southern Peru Holdings Corporation, a wholly owned
subsidiary of ASARCO. On November 17, 1999, Grupo Mexico S.A. de C.V. ("Grupo
Mexico") acquired all the holdings of ASARCO following a tender offer and
purchase of all outstanding common stock of ASARCO.
At December 31, 2001 the stockholders in the Company were Southern Peru Holdings
Corporation, a subsidiary of ASARCO (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 availability of
materials, equipment, required permits or approvals and financing, the
occurrence of unusual weather or operating conditions, lower than expected ore
grades, the failure of equipment or processes to operate in accordance with
specifications, labor relations, environmental risks as well as political and
economic risk associated with foreign operations. Results of operations are
directly affected by metals prices on commodity exchanges, which can be
volatile.
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Additional business information follows:
COPPER BUSINESS
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 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: Based on the information monitored by the Company's
operating decision makers to manage the business, the Company has identified
that its operations are within one reportable segment. Accordingly, financial
information on industry segments is omitted because, apart from the principal
business of producing copper, the Company has no other industry 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 the largest
mining company in Peru and one of the 10 largest private sector copper mining
companies in the world.
OVERVIEW
Copper production increased 0.5% to 755 million pounds in 2001. In addition, the
Company processed 86 million pounds from purchased concentrates. This increase
was principally due to higher ore grades and recovery at the Toquepala
concentrator despite a loss of production of 30.6 million pounds at the Cuajone
mine due to lower ore grades and a four-day stoppage caused by lack of energy
and damages to certain of the facilities as a consequence of the June 23, 2001
earthquake in the south of Peru. Improved operations at the Ilo smelter
increased by 2001 blister copper production by 10% to 718.4 million pounds, a
new production record at the smelter. Also, improved operations at the Ilo
refinery increased cathode production 5% to 611.3 million pounds, another new
production record at this facility.
The Toquepala concentrator expansion and modernization project reached 61%
completion at the end of December 2001, with an investment of $28.1 million out
of the $69.5 million budgeted. When this project reaches completion at the end
of August 2002, the Toquepala concentrator milling capacity would increase from
45,000 tons to 60,000 tons per day. This increase in production represents an
annual increase of 122,815 tons of concentrates to be processed at the Ilo
smelter. The SX/EW expansion Phase II, reached 100% completion at the end of
October 2001, with an investment of $17.8 million out of the $22.5 million
budgeted. The Cuajone upgraded leaching facilities reached 74% completion at the
end of December 2001, with an investment of $4.1 million out of the $12.0
million budgeted. When this project is finished in April 2002, production would
increase from 13.6 tons to 18 tons per day. The Company's plan is to continue
the modernization of the Ilo smelter, to improve production through the
implementation of better technology, to comply with all environmental
regulations and to further develop strategies for the best utilization of its
financial resources. The expansion program at Cuajone and Ilo will further
improve productivity, reduce operating costs, increase copper production and is
expected to significantly increase the capture of sulfur dioxide in excess of
92%.
MINING OPERATIONS
Total mined copper production at SPCC increased 0.5% in 2001, compared with
2000, due
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to higher production at the Toquepala mine.
Cuajone production decreased 7.8% in 2001 to 364 million pounds of copper due
principally to lower ore grades. Concentrator throughput for the year was 30.2
million tons of ore producing 612 thousand tons of copper concentrates.
Toquepala mine production increased 16.2% in 2001 to 271 million pounds of
copper due to higher ore grades and recovery. The Toquepala concentrator milled
17.1 million tons of ore. Together, the two mines produced 3.8 million ounces of
silver and 18.4 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 54,400 tons in 2001 compared to 56,100 in 2000. This
represents 3.6 million pounds lower copper produced with respect to 2000
production. The decrease is mainly due to lower pregnant solution (PLS) grades.
ORE RESERVES
SPCC has identified substantial geologic resources. In October 1999, the Company
reported a substantial increase in proven and probable ore reserves at the
Toquepala mine. At year-end 2001, probable concentrator reserves totaled 658
million tons with an average copper grade of 0.74% at Toquepala and 1,183
million tons with an average copper grade of 0.64% at Cuajone. In addition, the
Company has a total of 1,793 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 increased concentrates processed by 2.8% in 2001, reaching 1.165
million tons, a new production record. Smelting of SPCC concentrates decreased
by 1.6%, while smelting of third party concentrates increased by 78.6% to
111,306 tons. As a result, blister production increased to 328,241 tons in 2001
compared to 295,848 in 2000. The production in 2001 represents a new production
record.
SPCC's total refined copper production increased 3.4% to 731.2 million pounds in
2001 from 707.3 million pounds in 2000. Refined production from the Ilo refinery
reached 611.3 million pounds in 2001, an increase of 4.7% from 2000 due to
current efficiency gains at the plant. Production from the SX/EW plant decreased
to 120.0 million pounds of copper, a 2.9% decrease over prior year due to lower
pregnant solution (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.
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EXPANSION AND MODERNIZATION PROGRAM
The expansion and modernization programs announced in prior years are underway.
The Phase II of the Toquepala SX/EW plant expansion project was completed. This
will incorporate 300,000 square meters of leaching areas and maintain the copper
production levels at the Toquepala SX-EW plant. The project was completed in
October 2001, with an investment of $17.8 million out of $22.5 million budgeted.
In November 2001, the improvements at the Lime plant were concluded. The Lime
production increased from 182 to 227 tons per day, and the requirements of the
Environmental Compliance and Management Plan (known by its Spanish acronym,
PAMA) applicable to the Lime plant were satisfied. The investment to-date is
$7.0 million out of a total budget of $9.0 million. There are still pending some
improvements at the Coquina mine, to comply with PAMA regulations and to enhance
the availability of the Lime plant.
The Cuajone leaching facilities expansion project is being developed to expand
the leaching pads and the grinding plant. This will allow the plant to produce
18 tons per day of copper contained in solution for treatment at the solvent
extraction plant in Toquepala. As of December 2001, the total project was 74%
complete and is expected to enter into operation during the second quarter of
2002. The investment to-date is $4.1 million out of a total budget of $12.0
million.
The Toquepala concentrator modernization and expansion project is also in
process. Once it is completed it will increase the concentrator's milling
capacity to 60,000 tons per day. As of December 2001, the total project was 61%
complete, with engineering completed and construction 23% completed. The total
investment at the end of 2001 was $28.1 million out of the $69.5 million
budgeted. The commencement of operations is scheduled for the third quarter of
2002.
The Company continued the detailed feasibility studies for the Ilo smelter
modernization and expansion project. The goal is to introduce the most efficient
technology, proven in other metallurgical facilities, looking not only to comply
with Peruvian environmental standards, but also to provide economic and
financial returns.
The Company is expecting a proposal from AUSMELT, an Australian company, to be
evaluated together with the other two proposals received, from Mitsui and from
Kvaerner. The alternatives may provide an opportunity to increase the smelter's
capacity to 1.83 million tons and improve SO2 capture to more than PAMA's 92%
requirement.
The project is scheduled to commence later in the year if the proper conditions
are met, including obtaining the required financing.
The Company's objective is to comply with the Peruvian environmental regulations
before 2007, as established by the PAMA agreement signed with the Peruvian
Government and, at the same time, with the increase of smelter production
capacity, contribute to the mining development of SPCC and of Peru.
Moreover, at the end of 2001, SPCC initiated a feasibility study to expand
production capacity at the Ilo refinery's electrolytic plant by 80,000 tons per
year to eventually reach total production of 360,000 tons of cathodes annually.
EXPLORATION
During 2001 the Company continued developing the Los Chancas project, having
reached 22,136 meters of diamond drilling. Evaluation of the deposit continues
together with metallurgical tests and a more intensive drilling program to
confirm results that indicate resources of up to 200 million tons with a copper
ore grade of 1.0%, 0.07% molybdenum and 0.12 grams of gold per ton.
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SPCC has a 44.245% interest in the Tantahuatay Project. Estimated resources are
18.6 million tons with 0.68 grams of gold per ton in the zone of oxides for
Tantahuatay 2; and 12.6 million tons with 0.93 grams of gold per ton in the zone
of oxides for Cienaga; totaling a resource of 31.2 million tons with a grade
average of 0.78 grams of gold per ton and 9.5 grams of silver per ton. Results
of the metallurgical leaching tests for the gold zone show recoveries of 80%. It
is projected that an additional diamond drilling program and metallurgical tests
will be performed. The Company owns 175,155 hectares of mineral rights and has
89,638 additional hectares of mineral rights through joint ventures and option
contracts with third parties.
The Company has obtained encouraging results due to its exploration activities
with possibilities to develop other projects in prospective areas in different
parts of the country, including the north of Peru. Additional exploration in
these areas will continue during 2002.
ENVIRONMENT
The Company's activities are subject to Peruvian laws and regulations. As part
of these regulations, SPCC submitted in 1996 the Environmental Compliance and
Management Plan (known by its Spanish acronym, PAMA) to the Peruvian Government.
The PAMA included 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 bring the
existing operations to the environmental standards established by the
government. By the end of 2001, twenty-five of such projects were already
completed.
The Smelter Expansion and Modernization Project represents the largest and most
significant project the Company will undertake under the PAMA.
The Company continued the detailed feasibility studies for the Ilo smelter
modernization and expansion project. The goal is to introduce the most efficient
technology, proven in other metallurgical facilities, looking not only to comply
with Peruvian environmental standards but also to provide economic and financial
returns.
The Company is expecting a proposal from AUSMELT, an Australian company, to be
evaluated together with the other two proposals received, from Mitsui and from
Kvaerner. The two proposals under consideration comply with the Company's
requirements. That is, to employ proven technology that will provide both good
economic return and exceed the requirements of current environmental
regulations. The alternatives may provide an opportunity to increase the
smelter's capacity to 1.83 million tons and improve SO2 capture to more than the
PAMA's 92% requirement.
The objective of the Company is to comply with the Peruvian environmental
regulations before 2007, as established by the PAMA agreement signed with the
Peruvian Government and, at the same time, with the increase of smelter
production capacity, contribute to the mining development of SPCC and of Peru.
The project is scheduled to commence later in the year if the proper conditions
are met, including obtaining the required financing.
Starting in November of 1995, Southern Peru established and continues to operate
under the Supplementary Control Program (SCP), a voluntary effort, by which the
smelter production is curtailed during periods of adverse meteorological
conditions. During 2001, in conjunction with the operation of the smelter's
sulfuric acid plant that produced over 355,000 tons, this program has
contributed to improve the quality of air in Ilo. In addition to the
environmental programs dealing with air quality issues, the Company continues to
have good results with the remediation programs in both the Ite bay and the slag
removal program on the beaches to the north of the smelter.
In 2001 SPCC's laboratories obtained the ISO/IEC Guide 25 accreditation for
water testing from the Canadian Council of Standards. Additionally, the Company
has submitted to the Peruvian environmental authorities the pertinent spill
response plans for the three operating units, Toquepala, Cuajone and Ilo. The
Company also has
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purchased spill response equipment for land and ocean and is training personnel
to handle said equipment.
Environmental capital expenditures for the period 1997-2001 exceeded $145
million. As soon as the Smelter Expansion and Modernization project begins, the
Company foresees significant environmental capital expenditures starting in
2002. Approximately $80 million have been budgeted for the smelter project in
2002.
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 2001, 2000, and 1999, 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. A substantial portion of SPCC's
copper sales is made under annual contracts to industrial users. Silver is sold
under annual contracts or in spot 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
Substantially all of the Company's metal production is sold under annual
contracts. To the extent not sold under annual contracts, production can be sold
on commodity exchanges or in spot sales. Final sales values 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, 2001 the Company employed 3,726 persons, about 57% of whom were
covered by labor agreements with nine labor unions. There were no labor strikes
in 2001.
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.
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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 contains
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 has increased somewhat
from its 1996 level, while the Company has benefited by avoiding significant
capital expenditures required to meet the needs of the expanded operations.
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 $8.9 million in 2001, $5.6 million in 2000 and $41.6 million in
1999. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Environmental Matters" which is herein incorporated by
reference.
CONCESSIONS
The Company has concessions from the Peruvian government for its exploration,
exploitation, extraction and/or production operations (collectively, the
"Concessions"). The Concessions are in full force and effect under applicable
Peruvian laws, and the Company believes 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 2001 were approximately $1.5
million.
REPUBLIC OF PERU
Substantially 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.
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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,
2001, 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 from 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:
<Table>
<Caption>
PERU UNITED STATES
---- -------------
Toquepala Mine -- southern Peru (1960) Executive Offices -- Phoenix, AZ
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
</Table>
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
provides housing, hospitals and schools for employees and their families.
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METAL PRODUCTION STATISTICS
<Table>
<Caption>
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Copper Production
MINES (contained copper in thousands of pounds)
Toquepala 270,619 232,886 256,387
Cuajone 363,951 394,548 379,995
SX/EW 119,993 123,602 109,225
- -----------------------------------------------------------------------------------------------------------------
Total Mines 754,563 751,036 745,607
- -----------------------------------------------------------------------------------------------------------------
SMELTER (contained copper in thousands of pounds)
SPCC concentrates 636,844 606,965 605,150
Purchased concentrates 86,800 45,267 32,986
- -----------------------------------------------------------------------------------------------------------------
Total Smelter 723,644 652,232 638,136
- -----------------------------------------------------------------------------------------------------------------
REFINERIES (thousands of pounds of copper)
Ilo 611,254 583,658 552,738
SX/EW 119,993 123,602 109,225
- -----------------------------------------------------------------------------------------------------------------
Total Refineries 731,247 707,260 661,963
- -----------------------------------------------------------------------------------------------------------------
COPPER SALES (thousands of pounds)
Refined 612,138 582,724 553,246
In blister 84,302 57,775 66,169
Concentrates - 17,083 21,433
SX/EW 120,688 123,258 109,024
- -----------------------------------------------------------------------------------------------------------------
Total sales of copper 817,128 780,840 749,872
- -----------------------------------------------------------------------------------------------------------------
LME average price (cents
per pound) 72 82 71
COMEX average price (cents
per pound) 73 84 72
Molybdenum
(thousands of pounds contained in concentrate)
MINES
Toquepala 9,035 8,243 6,993
Cuajone 9,377 7,639 5,070
- -----------------------------------------------------------------------------------------------------------------
Total produced 18,412 15,882 12,063
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Sales of molybdenum
in concentrate 18,511 16,043 11,836
- -----------------------------------------------------------------------------------------------------------------
Metals Week Dealer
Oxide mean price ($/lb.) $ 2.36 $ 2.55 $ 2.65
</Table>
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<Table>
Silver (thousands of ounces)
- -------------------------------------------------------------------------------------------------------------------------------
SMELTER (in blister)
Ilo - SPCC Concentrates 3,829 4,188 3,378
- -------------------------------------------------------------------------------------------------------------------------------
REFINERY
Ilo 3,452 3,343 2,796
- -------------------------------------------------------------------------------------------------------------------------------
SALES OF SILVER
Refined 3,498 3,454 2,739
In blister 453 411 497
In concentrates - 110 -
- -------------------------------------------------------------------------------------------------------------------------------
Total sales of silver 3,951 3,975 3,236
- -------------------------------------------------------------------------------------------------------------------------------
COMEX average price ($/oz.) $ 4.36 $ 4.97 $ 5.22
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
COPPER RESERVES
<Table>
<Caption>
Average Metal Production
Mineral Copper Contained Metal
Reserves Content (000s Pounds)
(000s Tons) (%) -----------------------------------------
12/31/01 12/31/01 2001 2000 1999
------------- -------- ---- ---- ----
Toquepala Sulfide 658,433 0.74 270,600 232,900 256,400
Leachable 1,732,229 0.19 111,480 112,941 100,916
Cuajone Sulfide 1,182,766 0.64 364,000 394,500 380,000
Leachable 61,041 0.43 8,513 10,661 8,309
</Table>
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 Securities and
Exchange Commission. 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:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Ore Average Mill Average Mill Average Mill
Milled Recovery Ore Milled Recovery Rate Ore Milled Recovery
(000s Tons) Rate (%) (000s Tons) (%) (000s Tons) Rate (%)
-------------- -------------- -------------- --------------- -------------- --------------
Toquepala 17,130 89.68% 16,276 85.93% 16,220 87.03%
Cuajone 30,221 81.41% 30,475 79.75% 28,607 72.31%
</Table>
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The following productive capacity is provided:
<Table>
<Caption>
Defined Capacity (a)
--------------------
Ilo Smelter 290,300 Tons
Ilo Refinery 245,000 Tons
Toquepala - SX/EW 56,250 Tons
</Table>
(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 emissions restraints.
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A12
ITEM 3. LEGAL PROCEEDINGS
Reference is made to the information under the caption "Litigation" in Financial
Statement Footnote 18 "Commitments and Contingencies" on page A48 incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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A13
Executive Officers of the Registrant
Set forth below are the executive officers of the Company, their ages as of
February 06, 2002, and their positions.
<Table>
<Caption>
Name Age Position
---- --- --------
German Larrea Mota-Velasco 48 Chairman of the Board, CEO and Director
Oscar Gonzalez Rocha 63 President and General Director
Daniel Tellechea Salido 56 Vice President, Finance
Genaro Larrea Mota-Velasco 41 Vice President, Commercial
Douglas E. McAllister 52 General Counsel
Hans A. Flury 50 Secretary
Hector Garcia de Quevedo Topete 51 Treasurer
Ernesto Duran Trinidad 48 Comptroller
</Table>
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 and Chief Executive Officer of Grupo Mexico(holding)
and Grupo Minero Mexico (mining division) since 1994 and of Grupo Ferroviario
Mexicano (railroad division), since 1997. 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 GONZALEZ ROCHA, President and General Director of SPCC since December
1999 and Director since November 1999. 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 since 1988 and a Director of
ASARCO Incorporated from November 1999 to present.
DANIEL TELLECHEA SALIDO, Vice President, Finance of SPCC since December
1999 and Director since November 1999. Managing Director for Administration and
Finance of Grupo Mexico since 1994 and an Alternate Director since 1998.
Managing Director of Mexicana de Cobre, S.A. de C.V. from 1986 to 1993 and
Director, Executive Vice President and Chief Financial Officer of ASARCO
Incorporated from February 15, 2001 to present. Previously he was a Director and
Vice President and Chief Financial Officer of ASARCO Incorporated from November
1999 until February 14, 2001.
GENARO LARREA MOTA-VELASCO, Vice President, Commercial of SPCC since
December 1999 and Director since November 1999. Commercial Managing Director of
Grupo Mexico from 1994 to August 30, 2001 and a Director of Grupo Mexico from
1994 to date. He is Director, and President of ASARCO Incorporated from
September 1, 2001 to present. Previously he was a Director and Vice President
and Chief Commercial Officer of ASARCO Incorporated from November 1999 to August
30, 2001.
DOUGLAS E. MCALLISTER, General Counsel of the Company since July 25, 2001.
He is Vice President, General Counsel and Secretary of ASARCO Incorporated since
February 15, 2001 and was its Vice President of Government and Public Affairs
from April 1999 to February 15, 2001. Mr. McAllister was Director, Government
and Public Affairs of ASARCO Incorporated from December 1996 to March 1999.
HANS A. FLURY, Secretary of the Company since July 25, 2001. Director of
Legal Affairs of the Company in Peru since November 1999. He was Vice
President (Legal-Peru) of the Company from July 1989 to November 1999.
HECTOR GARCIA DE QUEVEDO TOPETE, Treasurer of SPCC and Director since May
9, 2000. He has also been Managing Director for Grupo Mexico, S.A. de C.V. since
1999. He was Advisor to the Chairman and Chief Executive Officer of Grupo Mexico
from 1994 to 1998.
<Page>
A14
ERNESTO DURAN TRINIDAD, COMPTROLLER. 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.
IN MEMORIAM
HECTOR CALVA RUIZ, 63, passed away on November 19, 2001. He was Vice President,
Exploration and Projects of SPCC since December 19, 1999 and a Director since
November 19, 1999. He was Managing Director for Exploration and Projects of
Grupo Mexico since 1997 and an Alternate Director since 1998. Previously, he was
Managing Director of Industrial Minera Mexico, SA de C.V. from 1984 to 1997 and
Director of ASARCO Incorporated from November 19, 1999 until November 2001.
<Page>
A15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At December 31, 2001, there were 2,830 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 PCUC1 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.
<Table>
<Caption>
2001 2000
---- ----
--------------------------------------------------------------------------------------------------------------
Quarters 1st 2nd 3rd 4th Year 1st 2nd 3rd 4th Year
--------------------------------------------------------------------------------------------------------------
Dividend per
Share $0.143 $0.098 $0.0466 $0.0723 $0.3599 $ 0.06 $ 0.05 $ 0.056 $ 0.174 $ 0.340
Stock market price
NYSE:
High $15.10 $14.70 $ 12.06 $ 11.97 $ 15.10 $ 16-7/16 $ 13.00 $ 15-7/8 $ 15-1/2 $16-7/16
Low $12.44 $12.35 $ 9.30 $ 8.42 $ 8.42 $ 12-9/16 $ 11.00 $11-5/16 $ 12-1/8 $ 11.00
BVL:
High $15.00 $14.56 $ 13.35 $ 11.80 $ 15.00 $ 16.16 $ 12.95 $ 15.84 $ 15.30 $ 16.16
Low $12.75 $13.35 $ 9.40 $ 8.45 $ 8.45 $ 12.52 $ 11.00 $ 11.35 $ 12.40 $ 11.00
</Table>
On January 29, 2002, a dividend of $0.0738 per share, totaling $5.9 million was
declared payable March 8, 2002. The Company's dividend policy continues to be
reviewed at Board of Directors' meetings, taking into consideration the current
intensive capital investment program and 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-Liquidity and Capital Resources" and Note 13 to the
Consolidated Financial Statements of the Company.
<Page>
A16
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA
(in millions, except per share and employee data)
The selected historical financial data presented below as of and for the five
years ended December 31 2001, are derived from our consolidated financial
statements, which have been audited by Arthur Andersen LLP (years 2001 and 2000)
and PricewaterhouseCoopers (year 1999, 1998 and 1997), independent public
accountants. 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 the consolidated financial statements and notes thereto included
elsewhere in this report.
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
CONSOLIDATED STATEMENT OF EARNINGS:
Net sales $ 658 $ 711 $ 585 $ 628 $ 814
Operating costs and expenses(1) 569 561 539 558 577
Operating income 89 150 46 70 237
Minority interest of investment shares in
Income of Peruvian Branch 1 2 - - 4
Extraordinary loss from early
extinguishment of debt 2.1 - - - -
Net earnings $ 47 $ 93 $ 29 $ 55 $ 186
PER SHARE AMOUNTS:
Net earnings - basic and diluted $ 0.58 $ 1.16 $ 0.37 $ 0.68 $ 2.32
Dividends paid $ 0.36 $ 0.34 $ 0.15 $ 0.51 $ 1.26
CONSOLIDATED BALANCE SHEET:
Total assets $1,821 $ 1,771 $ 1,545 $ 1,526 $ 1,561
Cash and marketable securities 213 149 11 198 331
Total debt 396 347 223 234 248
Stockholders' equity 1,209 1,192 1,126 1,109 1,098
CONSOLIDATED STATEMENT OF CASH FLOWS:
Cash provided from operating activities $ 198 $ 184 $ 91 $ 187 $ 278
Dividends paid 29 27 12 41 101
Capital expenditures 161 132 250 259 184
Depreciation and depletion 76 77 74 61 47
CAPITAL STOCK:
Common shares outstanding 14.1 14.1 14.1 13.9 14.2
NYSE Price - high $15.10 $16 7/16 $18-1/16 $16-11/16 $ 21-1/8
- low $ 8.42 $ 11.00 $ 8-7/16 $ 8-3/4 $ 12-3/4
Class A common shares outstanding 65.9 65.9 65.9 65.9 65.9
Book value per share $15.12 $ 14.90 $ 14.07 $ 13.88 $ 13.71
P/E ratio 26.07 12.84 38.03 13.88 5.77
FINANCIAL RATIOS:
Current assets to current liabilities 1.9 3.3 2.4 4.2 5.6
Debt as % of capitalization 24.5% 22.4% 16.3% 17.2% 18.2%
Employees (at year end) 3,726 3,682 3,844 4,557 4,829
</Table>
Notes to five year selected financial and statistical data
<Page>
A17
(1) Includes provision for workers' participation of $5.9 million, $12.1
million, $3.4 million, $10.6 million, and $14.4 million in the years ended
December 31, 2001, 2000, 1999, 1998 and 1997, respectively.
<Page>
A18
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
OVERVIEW
The Company's business is affected by the factors outlined below which should be
considered in reviewing the financial position, results of operations and cash
flows of the Company for the periods described herein.
INFLATION AND DEVALUATION OF THE PERUVIAN NEW SOL: The functional currency of
the Peruvian Branch is the US Dollar. A portion 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 in Peru is not offset by a
corresponding devaluation of the new sol, 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 of the new sol. The recent inflation and devaluation rates are as
follows:
<Table>
<Caption>
Years ended December 31, 2001 2000 1999
---- ---- ----
Peruvian Inflation/(Deflation) Rate (0.1)% 3.7% 3.7%
New Sol/Dollar (Revaluation) Devaluation Rate (2.3)% 0.5% 11.2%
</Table>
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 (the Branch)
consists of substantially all the assets and liabilities of Southern Peru Copper
Corporation (SPCC) 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
EXPOSICION A LA INFLACION (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 PROJECT: Expansion and modernization programs
announced in prior years are underway.
The Company continued the detailed feasibility studies for the Ilo smelter
modernization and expansion project. The goal is to introduce the most efficient
technology, proven in other metallurgical facilities, looking not only to comply
with Peruvian environmental standards but also to provide economic and financial
returns. The Company is expecting a proposal from AUSMELT, an Australian
company, to be evaluated together with the other two proposals received, from
Mitsui and from Kvaerner. The alternatives may provide an opportunity to
increase the smelting capacity to 1.83 million tons of concentrates, and to
increase the capture of sulfur dioxide in excess of 92%. The project is
scheduled to commence later in the year if the proper conditions are met,
including obtaining the required financing.
The alternatives received to-date fulfill the Company requirements to use the
most efficient proven technology, to provide economic returns and exceed the
requirements of current environmental standards. The Company continues to
evaluate the economic terms and the financial and tax benefits for new
investments that would allow the Company to position this new smelter as the
largest and most environmentally efficient smelter in the Americas. The
Company's objectives are to comply with the Peruvian environmental
<Page>
A19
requirements well before 2007, the target date in the Company's PAMA committed
to with the Peruvian Government while, at the same time, allowing for an
increased capacity that would contribute to the mining development of Peru and
SPCC.
The Toquepala Concentrator expansion and modernization project reached 61%
completion at the end of December 2001, with an investment of $28.1 million out
of the $69.5 million budgeted. When this project reaches completion at the end
of August 2002, the Toquepala concentrator milling capacity would increase from
45,000 tons to 60,000 tons per day. This increase in production represents an
annual increase of 122,815 tons of concentrates to be processed at the Ilo
smelter. The SX/EW expansion Phase II, reached 100% completion at the end of
October 2001, with an investment of $17.8 million out of the $22.5 million
budgeted. The Cuajone upgraded leaching facilities reached 74% completion at the
end of December 2001, with an investment of $4.1 million out of the $12.0
million budgeted. When this project is finished in April 2002, production would
increase from 13.6 tons to 18 tons per day.
Moreover, at the end of 2001, SPCC initiated a feasibility study to expand
production capacity at the Ilo refinery's electrolytic plant by 80,000 tons per
year to eventually reach total production of 360,000 tons of cathodes annually.
METAL PRICE SENSITIVITY: There is market risk arising from the volatility 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 hedging programs or changes in the past
production, metal price sensitivity factors would indicate the following
estimated change in earnings per share resulting from metal price changes in
2001. Estimates are based on 80.0 million shares outstanding.
<Table>
<Caption>
Copper Silver Molybdenum
------ ------ ----------
Change in Metal Price $0.01/lb. $1.00/oz. $1.00/lb.
Annual Change in Earnings per Share $0.06 $0.03 $0.11
</Table>
RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999
SPCC reported 2001 net earnings of $46.6 million, or diluted earnings per share
of $0.58, compared with net earnings of $92.9 million, or diluted earnings per
share of $1.16 in 2000 and net earnings of $29.4 million, or diluted earnings
per share of $0.37 in 1999. This represents a 49.9% decrease in net earnings in
2001 over the prior year.
The decrease in net earnings in 2001 compared with 2000 is primarily a result of
lower copper prices, despite higher production, and reduced costs. The average
price of copper in 2001 on the London Metal Exchange decreased by 10 cents per
pound from 82 cents in 2000 to 72 cents per pound in 2001, and COMEX copper
prices decreased by 11 cents per pound from 84 cents in 2000 to 73 cents per
pound in 2001.
The Company's net earnings for 2001 decreased by 49.9% over 2000 results. While
average copper prices decreased 12%, total sales in 2001 decreased by only 7.5%
due to increased sales volumes and better sales terms. In addition, cost cutting
programs significantly reduced costs in 2001. Administrative expenses were
reduced by $3.9 million, from $34.8 million in 2000 to $30.9 million in 2001.
Operating breakeven cost was reduced by 2.1 cents per pound from 51.4 cents in
2000 to 49.3 cents in 2001. This represents a 4.1% reduction in 2001.
NET SALES: Net sales in 2001 were $657.5 million, compared with $711.1 million
in 2000 and $584.5 million in 1999. Sales decreased in 2001 by $53.6 million,
largely as a result of lower copper prices, which could not be offset by higher
sales volumes. Copper sales volumes were 36.3 million pounds higher in 2001
compared with 2000.
<Page>
A20
Sales increased in 2000 by $126.5 million from 1999, largely as a result of
higher copper prices. Copper sales volumes were 31.0 million pounds higher in
2000 compared with 1999.
At December 31, 2001, there were 37.6 million pounds of copper sales recorded at
a provisional price of 66 cents 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.
<Table>
<Caption>
Price/Volume Data 2001 2000 1999
---- ---- ----
Average Metal Prices
Copper (per pound - LME) $0.72 $0.82 $0.71
Copper (per pound - COMEX) 0.73 0.84 0.72
Molybdenum (per pound) 2.36 2.55 2.65
Silver (per ounce - COMEX) 4.36 4.97 5.22
</Table>
<Table>
<Caption>
Sales Volume (in thousands) 2001 2000 1999
---- ---- ----
Copper (pounds) 817,128 780,840 749,872
Molybdenum (pounds)(1) 18,511 16,043 11,836
Silver (ounces) 3,951 3,975 3,236
</Table>
(1) The Company's molybdenum production is sold in concentrate form. Volume
represents pounds of molybdenum contained in concentrates.
FINANCIAL INSTRUMENTS: The Company may use 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.
Copper: Depending on market fundamentals and other conditions, the Company may
purchase put options to reduce or eliminate the risk of price declines below the
option strike price on a portion of its anticipated future sales. Put options
purchased by the Company establish a minimum sales price for the production
covered by such put options and permit the Company to participate in price
increases above the option price. Options are carried at fair value with
unrealized gains or losses recognized in current earnings. Depending upon market
conditions, the Company may either sell options it holds or exercise the options
at maturity. Realized gains or losses from the sale or exercise of options, are
recognized in the period in which the underlying production is sold and are
reported as a component of the underlying transaction.
During the years ended December 31, 2001 and 2000 the Company held no copper put
options.
Fuel swaps: the Company may enter into fuel swap agreements to limit the effect
of increases in fuel prices on its production cost. A fuel swap establishes a
fixed price for the quantity of fuel covered by the agreement. Fuel swaps are
carried at fair value with unrealized gain or losses recognized in current
earnings. The difference between the published price for fuel and the price
established in the contract for the month covered by the swap is recognized in
production costs. During the year ended December 31, 2000, the Company entered
into a fuel swap arrangement for which production costs would have been $18.8
million higher, if this exposure had not been
<Page>
A21
hedged. During the year ended December 31 2001, the Company had no fuel swap
agreements.
Foreign currency: The Company may use foreign currency swaps to limit the
effects of exchange rate changes on future cash flow obligations denominated in
foreign currencies. A currency swap establishes a fixed dollar cost for a fixed
amount of foreign currency required at a future date. Foreign currency swaps are
carried at fair value with unrealized gain or losses recognized in current
earnings. The difference between the published price for foreign currency and
the price established in the contract for the month covered by the swap is
recognized as part of the underlying transaction.
During the years ended December 31, 2001 and 2000, the Company settled currency
swap agreements on a portion of its capital costs contracted in Euros for which
there was a loss of approximately $2.2 million and $4.8 million.
During the year ended December 31, 2001 there were no currency swap agreements.
COST OF SALES: Cost of sales was $452.6 million in 2001, $441.5 million in 2000
and $410.1 million in 1999. The increase of $11.1 million in 2001 includes the
higher cost of copper processed and sold from purchased concentrates, and the
higher cost of company mined copper as a result of the increase in volume sold
and fuel cost.
The increase of $31.3 million in 2000 was principally due to the higher sales
volume of copper produced, as well as higher power and fuel costs.
ADMINISTRATIVE AND OTHER: Administrative and other expenses were $30.9 million
in 2001, $34.9 million in 2000 and $47.5 million in 1999. The decrease of $4.0
million in 2001 was principally due to lower legal and other professional fees,
materials and other administrative expenses. The decrease of $12.6 million in
2000 was principally due to a decrease in personnel and a reduction in costs
relating to retirement incentive programs for foreign contract employees.
OTHER EXPENSES: Depreciation and depletion expense was $76.3 million in 2001,
compared with $77.4 million in 2000 and $74.2 million in 1999. The decrease in
2001 was mainly due to capitalization of $2.8 million of mine stripping. The
increase in 2000 includes depreciation of the expanded SX/EW plant at Toquepala
as well as additional mining equipment needed for the Cuajone mine expansion.
Exploration expense was $8.4 million, $7.7 million, and $7.2 million in 2001,
2000 and 1999, respectively. The increase in 2001 reflects the increase of
drilling programs at the Company's exploration projects.
EXTRAORDINARY LOSS: 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 ($2.2
million net of income tax) for commission fee related to this credit line was
expensed as an extraordinary item in 2001.
NON-OPERATING ITEMS: Interest income was $16.9 million in 2001 compared with
$3.5 million in 2000 and $7.8 million in 1999. The increases in 2001 reflect the
higher amounts of excess cash invested.
Other income was $4.8 million in 2001, compared with $2.3 million in 2000 and
$3.6 million in 1999. Other income in 2001, 2000 and 1999 includes mainly
miscellaneous camps, schools and medical services to third parties, and scrap
sales.
Total interest expense was $47.3 million in 2001, compared with $26.9 million in
2000 and $25.2 million in 1999. The increase reflects the interest cost of the
$400 million draw-down of the Company's credit facility in March 30, 2001. In
2001, 2000 and 1999, the Company capitalized $8.0 million, $11.0 million and
$7.3 million of interest, respectively, principally related to expenditures for
the expansion program.
<Page>
A22
TAXES ON INCOME: Taxes on income were $21.2 million, $44.6 million and $9.7
million for 2001, 2000 and 1999, respectively, and include $9.9 million, $43.1
million and $11.6 million of Peruvian income taxes and $11.3 million, $1.5
million and $(1.9) million, for U.S. federal and state taxes for 2001, 2000 and
1999, 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 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 record 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 fair market value.
MINORITY INTEREST OF INVESTMENT SHARES (PREVIOUSLY KNOWN AS LABOR SHARES):
Minority interest of investment shares was $0.7 million in 2001, compared with
$2.0 million in 2000 and zero in 1999. The provision for minority interest of
investment shares represents an accrual of 1.5%, 1.5% and 1.7% for 2001, 2000
and 1999, respectively, of the Branch's after-tax earnings. The reduction in the
percentage of minority interest of investment shares is a result of purchases of
investment shares by the Company.
CASH FLOWS - OPERATING ACTIVITIES: Net cash provided from operating activities
was $198.4 million in 2001, compared with $183.6 million in 2000 and $90.5
million in 1999. The increase in 2001 was primarily attributable to $81.9
million higher cash provided by operating assets and liabilities, partially
offset by a decrease in earnings of $46.4 million and a decrease of $18.3
million of deferred income taxes.
Cash provided by operating assets and liabilities includes a decrease of $123.1
million in accounts receivable due to lower copper prices in 2001 and the
collection of pending tax drawback from the Peruvian Government, a decrease in
inventories of $18.7 million offset by an increase of $27.5 million of other
operating assets and liabilities, and $31.7 million of accounts payable and
accrued liabilities.
Other operating assets and liabilities decreased $10.0 million in 2001 compared
to $39.7 million in 2000 due mainly to a decrease of $28.5 million of prepaid
Peruvian tax.
Accounts payable and accrued liabilities decreased $11.1 million in 2001
compared to an increase of $20.6 million in 2000.
The increase of cash in 2000 compared to 1999 was primarily attributable to an
earnings increase of $ 63.5 million, and $31.4 million lower use of cash for
operating assets and liabilities, which includes a $44.6 million increase in
accounts receivable due to higher copper prices in 2000 and a $16.5 million
decrease in inventories of purchased concentrates, refined copper, and supplies.
Other operating assets and liabilities increased $39.7 million in 2000 compared
to ($3.1) million in 1999 basically due to $34.7 million of prepaid Peruvian
taxes and $6.3 million of net book value of abandoned assets and other
write-offs.
Accounts payable and accrued liabilities increased $20.6 million in 2000
compared to $4.4 million in 1999, mainly due to $9.6 million in workers'
participation, $0.8 million of interest expense, salary and wages, and $5.8
million of other items.
CASH FLOWS - INVESTING ACTIVITIES: Net cash used for investing activities was
$161.0 million in 2001 compared with $131.2 million in 2000 and $227.5 million
in 1999. Capital expenditures in 2001 were $161.0 million, compared with $131.7
million in 2000 and $250.3 million in 1999.
Capital expenditures in 2001, 2000 and 1999 reflect the Company's expansion and
modernization program and capitalization of mine stripping.
<Page>
A23
The Company's planned capital expenditures in 2002 are estimated to be
approximately $194 million, which include expenditures related to the
modernization and expansion of the Ilo smelter, expansion of the Toquepala
concentrator, expansion in the leaching section of the SX/EW plant in Cuajone
and the completion of the Torata River flooding control.
CASH FLOWS - FINANCING ACTIVITIES: Financing activities provided cash of $28.0
million in 2001 compared with $88.9 million in 2000 and a use of cash of $27.5
million in 1999. Financing activity in 2001 included net debt incurred of $48.8
million, dividend payments of $28.8 million; escrow deposits drawdowns of $9.3
million, and purchases of investment shares of $0.9 million.
Financing activity in 2000 included dividend payments of $27.2 million, net debt
incurred of $124.7 million, and purchases of investment shares of $1.5 million.
LIQUIDITY AND CAPITAL RESOURCES:
FINANCING: In December 2001, the Company received authorization from the
Comision Nacional Supervisora de Empresas y Valores (CONASEV) to increase from
$200 million to $750 million the issuance of bonds in the Peruvian market. Under
this program, on July 20, 2000, the Company issued bonds for $30 million at a
nominal fixed rate of 8.75%. On December 7, 2000 the Company issued bonds for an
additional $20 million at the same rate; in both cases, with a seven-year
maturity. On December 20, 2001, the Company sold to investors in Peru bonds for
$73.1 million, with maturities ranging from March 2005 to December 2011. The
bonds have an interest rate of LIBOR plus 3.0% and were issued through SPCC's
Peruvian Branch. On February 27, 2002, the Company sold to investors in Peru
bonds for $25.9 million, with maturities ranging from May 2005 to February 2012.
The bonds have an interest rate of LIBOR plus 3.0% and were issued also through
SPCC's Peruvian Branch. Proceeds from the sale of the bonds will be used to
finance a portion of SPCC's expansion and modernization program. The goal of
this new facility is to extend the maturity of SPCC's current debt obligations
and to reduce financing costs.
The Peruvian market bond program approved in December 2001, contains financial
covenants, including a limitation on the payment of dividends to stockholders of
up to 50% of its net income for any fiscal year.
In March 1999, the Company concluded a $100 million, 15-year loan agreement with
Mitsui and Co., Ltd. The applicable interest for this loan is Japanese LIBO rate
plus 1.25%. This facility provides additional committed financing for SPCC's
modernization and expansion program and was fully disbursed as of December 31,
2000.
In 1997, the Company entered into a $600 million, seven-year loan facility with
a group of international financial institutions. The facility consisted of a
$400 million term loan and a $200 million revolving credit line. The interest
rate during years four and five of the agreement on any loans outstanding was
LIBOR plus 2.00% per annum for term loans and LIBOR plus 2.25% for revolving
credit loans. A commitment fee of 0.5% per annum was payable on the undrawn
portion of the facility. The term loan of $400.0 million, which was disbursed in
March 2001, was prepaid and cancelled in full on December 17, 2001. A breakage
fee of $0.1 million was paid in connection with this prepayment. The unamortized
balance of $3.1 million ($2.2 million net of income tax) for the commission fee
was expensed as an extraordinary item in 2001.
At December 31, 2000, the Company had a loan outstanding with Corporacion Andina
de Fomento (CAF) of $3.9 million with interest based on LIBOR, and an
outstanding loan from the United States Export-Import Bank (EXIM) of $2.9
million, with interest at a 6.43% fixed rate. Both loans were payable in
semi-annual installments through 2001. These loans have been cancelled as at
December 31, 2001. At December 31, 2001, the Company had outstanding borrowings
of $396.0 million, compared with $347.2 million at December 31, 2000.
The former financing agreements contained covenants that limited the payment of
dividends to stockholders. Under the most restrictive covenant, the Company
could pay
<Page>
A24
dividends to stockholders equal to 50% of the net income of the Company for any
fiscal quarter as long as such dividends were paid by June 30 of the following
year. Net assets of the Company unavailable for the payment of dividends would
have totaled $1.2 billion at December 31, 2001. The loan agreements containing
these limitations on the payment of dividends were prepaid and cancelled as of
December 31, 2001. In accordance with the most restrictive covenant of the
Company's loan agreements, additional indebtedness of $813.4 million would have
been permitted at December 31, 2001.
The Mitsui and Co., Ltd. credit agreement is collateralized by pledges of
receivables of 24,000 tons of copper per year. The EXIM Bank credit agreement
was collateralized by pledges of receivables from 7,000 tons of copper per year,
which starting on June 1, 2001, upon the cancellation of the EXIM Bank Credit
Agreement, were added to the pledge under the Mitsui credit agreement. The
pledged tonnage under the Mitsui loan agreement currently totals 31,000 tons.
The CAF loan was collateralized by liens on the SX/EW facility. The SENS and the
seven year loan facility required that most of the collections of export copper
sales be deposited into a trust account in the United States. Twenty percent of
these collections were used as collateral for the outstanding SENS with the
balance of the collections remitted directly to the Company. The excess funds in
the collateral account were remitted to the Company, if all financial
requirements were met. As part of these agreements, the Company had to maintain
three-month and six-month collection ratios, as defined (aggregate collections
as a specified multiple of debt service). Both facilities required escrow
deposits of three months debt service. In addition, certain of the agreements
require the Company to maintain a minimum stockholders' equity of $750 million,
specific ratio of debt to equity, and an interest coverage test. 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 one of the financing
agreements. The Company was in compliance with the various loan covenants at
December 31, 2001. Included in Other assets are $8.6 million held in escrow
accounts as required by the Company's loan agreements. The funds were released
from escrow as scheduled loan repayments were made.
Also, in 1997, the Company privately placed $150 million SENS in the United
States and international markets. These notes, which had been registered with
the Securities and Exchange Commission, had an average maturity of seven years,
due from May 2000 to May 2007, and were priced at par with a coupon rate of
7.9%. On February 1, 2002 the Company prepaid and cancelled the balance of the
$150 million Secured Export Notes. A premium of $11.4 million was paid related
to this prepayment, which is being expensed in the first quarter of 2002 as an
extraordinary item.
In addition, in 1997, the Company sold bonds for $50 million, due June 2004 to
investors in Peru. The bonds have a fixed interest rate of 8.25%.
The Company expects that it will meet its cash requirements for 2002 and beyond
from internally generated funds, cash on hand, and from additional external
financing.
At December 31, 2001 the Company's debt as a percentage of total capitalization
(the total of debt, minority interest of investment shares and stockholders
equity) was 24.5% as compared with 22.4% at December 31, 2000. At December 31,
2001, the Company's cash and marketable securities amounted to $212.9 million
compared to $149.1 million at December 31, 2000.
DIVIDENDS AND CAPITAL STOCK
The Company paid dividends to stockholders of $28.8 million, or $0.36 per share,
in 2001, $27.2 million, or $0.34 per share, in 2000, and $12.2 million, or $0.15
per share, in 1999. Distributions to the investment share minority interest were
$0.5 million, $0.5 million, and $0.2 million in 2001, 2000 and 1999,
respectively.
On January 29, 2002 a dividend of $0.0738 per share, totaling $5.9 million, was
declared, payable March 8, 2002. The Company's dividend policy continues to be
reviewed at Board of Directors' meetings, taking into consideration the current
intensive
<Page>
A25
capital investment program, such as the expansion of mines,
concentrator/leach plant, smelter, and future cash flow generated from
operations.
At the end of 2001 and 2000, 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 14,103,157 common shares were outstanding at December 31, 2001
and 14,100,192 shares were outstanding at December 31, 2000.
ENVIRONMENTAL MATTERS
The activities of the Company are subject to Peruvian laws and regulations. SPCC
submitted in 1996 the Environmental Compliance and Management Plan (known by its
Spanish acronym, PAMA) to the Peruvian Government as part of such regulations.
The PAMA included 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 bring the
existing operations to the established environmental standards. By the end of
year 2001, twenty-five of such projects were already completed.
The Smelter Expansion and Modernization Project represents the largest and most
significant project in which the Company will undertake under the PAMA. The
Company is expecting a proposal from AUSMELT, an Australian company, to be
evaluated together with the other two proposals received, from Mitsui and from
Kvaerner. The project is scheduled to commence later in the year if the proper
conditions are met, including obtaining the required financing. The two options
under consideration comply with the Company's requirements. That is, to employ
proven technology that will provide both a good economic return and exceed the
requirements of current environmental regulations. The alternatives may provide
an opportunity to increase the smelter's capacity to 1.83 million tons and
improve SO2 capture to more than the PAMA's 92% requirement.
Starting in November of 1995, Southern Peru established and continues to operate
the Supplementary Control Program (SCP), a voluntary effort, by which the
smelter production is curtailed during periods of adverse meteorological
conditions. For the year 2001, in conjunction with the operation of the
smelter's sulfuric acid plant that produced over 355,000 tons, this program has
contributed to improve air quality in Ilo. In addition to the environmental
programs dealing with air quality issues, the Company continues to have good
results with the remediation programs in both the Ite bay and the slag removal
program on the beaches to the north of the smelter.
In 2001, SPCC submitted the Spill Response Plans to the Peruvian Government for
the three operating areas. Both ocean and land response equipment were
purchased, and personnel training will continue through 2002.
Capital expenditures in connection with environmental projects were
approximately $8.9 million in 2001, $5.6 million in 2000 and $41.6 million in
1999. The Company foresees significant environmental capital expenditures
starting in 2002, once the Smelter Expansion and Modernization Project begins.
Approximately $80 million have been budgeted for the smelter project in 2002.
IMPACT OF NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the Company has adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". Neither the
cumulative effect nor the adoption of these statements were material to the
financial statements as of and for the year ended December 31, 2001.
In September 2001, The Financial Accounting Standards Board (FASB) issued SFAS
No. 142 "Goodwill and Other Intangible Assets". This statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB
<Page>
A26
Opinion No. 17, Intangible Assets. The provisions of this statement are required
to be applied, starting with fiscal years beginning after December 15, 2001, to
all goodwill and other intangible assets recognized in its financial statements
at that date. Impairment losses for goodwill and indefinite-lived intangible
assets that arise due to the initial application of this statement (resulting
from a transitional impairment test) are to be reported as resulting from a
change in accounting principles. Goodwill and intangible assets acquired after
June 30, 2001 will be subject immediately to the non-amortization and
amortization provisions of this statement. The Company adopted this statement
effective January 1, 2002 and its implementation will not materially affect its
results of operations or financial condition.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligation", which will be required to be adopted effective January 1, 2003.
SFAS No. 143 establishes standards for accounting for an obligation associated
with the retirement of long-lived tangible assets. Management is assessing the
impact of this statement on the results of operations and financial position.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
statement supersedes FASB statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of business (as previously defined in that
Opinion). This statement also amends ARB No. 51, Consolidated Financial
Statements, to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. Management does not believe the
adoption of this statement will have a material impact on the operations or
financial condition of the Company.
CAUTIONARY STATEMENT
Forward-looking statements in this report and in other Company statements
include statements regarding expected commencement dates of mining or metal
production operations, projected quantities of future metal production,
anticipated production rates, operating efficiencies, costs and expenditures as
well as projected demand or supply for the Company's products. Actual results
could differ materially depending upon factors including the availability of
materials, equipment, required permits or approvals and financing, the
occurrence of unusual weather or operating conditions, lower than expected ore
grades, the failure of equipment or processes to operate in accordance with
specifications, labor relations, environmental risks as well as political and
economic risk associated with foreign operations. Results of operations are
directly affected by metals prices on commodity exchanges that can be volatile.
<Page>
A27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
<Table>
<Caption>
For the years ended December 31, 2001 2000 1999
(in thousands, except for per share amounts) ---- ---- ----
Net sales:
Stockholders and affiliates $ 28,222 $ 107,855 $ -
Others 629,299 603,202 584,546
--------------------------------------------
Total net sales 657,521 711,057 584,546
Operating costs and expenses:
Cost of sales 452,648 441,476 410,134
Administrative and other 30,904 34,853 47,453
Depreciation and depletion 76,285 77,447 74,237
Exploration 8,461 7,700 7,156
--------------------------------------------
Total operating costs and expenses 568,298 561,476 538,980
--------------------------------------------
Operating income 89,223 149,581 45,566
Interest income 16,875 3,525 7,840
Interest expense (39,323) (15,878) (17,881)
Other income 4,773 2,306 3,610
--------------------------------------------
Earnings before taxes on income and minority interest
of investment shares 71,548 139,534 39,135
Taxes on income 22,142 44,648 9,740
Minority interest of investment shares in income of
Peruvian Branch 696 1,969 (10)
--------------------------------------------
Earnings before extraordinary loss 48,710 92,917 29,405
Extraordinary loss from early extinguishment of debt
net of income tax benefits of $967 2,159 - -
--------------------------------------------
Net earnings $ 46,551 $ 92,917 $ 29,405
============================================
Per common share amounts:
Earnings before extraordinary losses $ 0.61 $ 1.16 $ 0.37
Extraordinary loss from early extinguishment of debt (0.03) - -
-------------- ---------------- ------------
Net earnings - basic and diluted $ 0.58 $ 1.16 $ 0.37
Dividends paid $ 0.36 $ 0.34 $ 0.15
Weighted average shares outstanding-basic 80,002 80,001 79,862
Weighted average shares outstanding-diluted 80,004 80,003 79,892
</Table>
The accompanying notes are an integral part of these financial statements.
<Page>
A28
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED BALANCE SHEET
<Table>
<Caption>
At December 31, 2001 2000
(Dollars in thousands) ---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 212,857 $ 149,088
Accounts receivable:
Trade 78,101 85,866
Other 3,726 56,591
Inventories 101,030 114,931
Prepaid taxes 24,794 31,014
Other current assets 6,137 4,357
-----------------------------------
Total current assets 426,645 441,847
Net property 1,376,777 1,298,130
Other assets 17,995 30,581
-----------------------------------
Total assets $1,821,417 $1,770,558
===================================
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 122,914 $ 24,339
Accounts payable:
Trade 42,397 55,042
Other 11,220 13,115
Other current liabilities 44,422 39,884
-----------------------------------
Total current liabilities 220,953 132,380
-----------------------------------
Long-term debt 273,121 322,914
Deferred income taxes 88,615 94,891
Other liabilities 15,252 14,253
-----------------------------------
Total non-current liabilities 376,988 432,058
-----------------------------------
Commitments and Contingencies (Note 18)
Minority interest of investment shares in the
Peruvian Branch 14,021 14,465
-----------------------------------
STOCKHOLDERS' EQUITY
Common stock, par value $0.01;
shares authorized: 34,099,167;
shares issued: 14,330,093 143 143
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 947,830 930,071
Treasury stock, at cost, common shares,
2001 - 226,936; 2000 - 229,901 (4,922) (4,963)
-----------------------------------
Total Stockholders' Equity 1,209,455 1,191,655
-----------------------------------
Total Liabilities, Minority Interest
and Stockholders' Equity $1,821,417 $1,770,558
===================================
</Table>
The accompanying notes are an integral part of this balance sheet.
<Page>
A29
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<Table>
<Caption>
For the years ended December 31, 2001 2000 1999
(Dollars in thousands) ---- ---- -----
OPERATING ACTIVITIES
Net earnings $ 46,551 $ 92,917 $ 29,405
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and depletion 76,285 77,447 74,237
Provision for deferred income taxes (3,253) 15,047 21,792
Minority interest of investment shares 696 1,969 (10)
Extraordinary loss 2,159 - -
Cash provided from (used for) operating assets and
liabilities:
Accounts receivable 60,899 (62,157) (17,536)
Inventories 13,900 (4,760) (21,220)
Accounts payable and accrued liabilities (11,080) 20,592 4,405
Other operating assets and liabilities 9,974 39,650 (3,114)
Foreign currency transaction loss 2,292 2,889 2,543
------------------------------------------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 198,423 183,594 90,502
------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (161,048) (131,745) (250,254)
Purchase of held-to-maturity investments - - (54,990)
Proceeds from held-to-maturity investments - - 77,142
Sales of investments and property 83 542 609
------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (160,965) (131,203) (227,493)
------------------------------------------------
FINANCING ACTIVITIES
Debt incurred 473,121 148,000 2,000
Debt repaid (424,339) (23,272) (13,683)
Escrow deposits on long-term loans 9,291 (6,659) (67)
Dividends paid to common stockholders (28,792) (27,200) (12,152)
Distributions to minority interests (462) (460) (226)
Purchases of investment shares (851) (1,512) (3,379)
------------------------------------------------
NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES 27,968 88,897 (27,507)
------------------------------------------------
Effect of exchange rate changes on cash (1,657) (2,796) (854)
------------------------------------------------
Increase (decrease) in cash and cash equivalents 63,769 138,492 (165,352)
Cash and cash equivalents, at beginning of year 149,088 10,596 175,948
------------------------------------------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 212,857 $149,088 $10,596
================================================
</Table>
The accompanying notes are an integral part of these financial statements.
<Page>
A30
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<Table>
<Caption>
For the years ended December 31, 2001 2000 1999
(Dollars in thousands) ---- ---- ----
CAPITAL STOCK:
COMMON STOCK:
Balance at beginning and end of year $ 143 $ 143 $ 143
-----------------------------------------------
CLASS A COMMON STOCK:
Balance at beginning and end of year 659 659 659
-----------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning and end of year 265,745 265,745 265,745
-----------------------------------------------
TREASURY STOCK:
Balance at beginning of year (4,963) (4,963) (5,184)
Used for corporate purposes 41 - 221
-----------------------------------------------
Balance at end of year (4,922) (4,963) (4,963)
-----------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 930,071 864,354 847,229
Net earnings 46,551 92,917 29,405
Dividends paid (28,792) (27,200) (12,152)
Stock awards - - (128)
------------------------------------------------
Balance at end of year 947,830 930,071 864,354
------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $1,209,455 $1,191,655 $1,125,938
================================================
</Table>
The accompanying notes are an integral part of these financial statements.
<Page>
A31
SOUTHERN PERU COPPER CORPORATION
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of consolidation:
The consolidated financial statements of Southern Peru Copper Corporation and
Subsidiaries (the "Company") include the accounts of significant subsidiaries in
which the Company has voting control, and are prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP).
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Use of estimates:
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue recognition:
Substantially all of the Company's copper is sold under annual contracts.
Revenue is recognized primarily in the month product is delivered to customers
based on prices as provided in sales contracts. When the price is not
determinable at the time of shipment to customers, revenue is recognized based
on prices prevailing at the time of shipment with final pricing generally
occurring within three months of shipment. Revenues with respect to these sales
are adjusted in the period of settlement to reflect final pricing and in periods
prior to settlement to reflect any decline in market prices, which may occur
between shipment and settlement. The Company sells copper in blister and refined
form at industry standard commercial terms. Net sales include the invoiced value
of copper, silver, molybdenum, acid, and gains from the sale or settlement of
copper put options.
Cash equivalents and marketable securities:
Cash equivalents include all highly liquid investments with maturity of three
months or less, when purchased. Marketable securities include short-term liquid
investments with a maturity of more than three months, when purchased, and are
carried at cost, which approximates market.
Inventories:
Metal inventories are carried at the lower of average cost or market. Costs
incurred in the production of metal inventories exclude general and
administrative costs. Supplies inventories are carried at average cost less a
reserve for obsolescence.
Property:
Assets are valued at the lower of cost or net realizable value. In accordance
with SFAS No. 121,"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", the Company reviews long-lived assets and
certain identifiable intangibles related to those assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Any impairment loss on such assets, as well as
long-lived assets and certain identifiable intangibles to be disposed of, is
measured as the amount by which the carrying value of the assets exceeds the
fair value of the assets (less disposal costs, if applicable).
The Company evaluates the carrying value of assets based on undiscounted future
cash flows considering expected metal prices based on historical metal prices
and price trends.
<Page>
A32
Betterments, renewals, costs of bringing new mineral properties into production,
and the cost of major development programs at existing mines are capitalized as
mineral land. Maintenance, repairs, normal development costs at existing mines,
and gains or losses on assets retired or sold are reflected in earnings as
incurred. Buildings and equipment are depreciated on the straight-line method
over estimated lives from 5 to 40 years or the estimated life of the mine if
shorter. Depletion of mineral land is computed by the units-of-production method
using proven and probable ore reserves.
Exploration:
Tangible and intangible costs incurred in the search for mineral properties are
charged against earnings when incurred.
Hedging Activities:
Derivative instruments may be used to manage exposure to market risk from
changes in commodity prices, interest rates or the value of the Company's assets
and liabilities. 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.
The Company may purchase put options or create synthetic put options to reduce
or eliminate the risk of metal price declines below the option strike price on a
portion of its anticipated future sales. Options are carried at fair value with
unrealized gains or losses recognized in current earnings. Realized gains or
losses from the sale or exercise of options, are recognized in the period in
which the underlying hedged production is sold.
Swap Agreements:
Fuel swap agreements limit the effect of changes in the price of fuel. Fuel
swaps are carried at fair value with unrealized gains or losses recognized in
current earnings. The differential to be paid or received as fuel prices change
is recorded as a component of cost of sales in the period the swap covers.
Foreign Currency:
The Company may use foreign currency swaps to limit the effects of exchange rate
changes on future cash flow obligations denominated in foreign currencies. A
currency swap establishes a fixed dollar cost for a fixed amount of foreign
currency required at a future date. Foreign currency swaps are carried at fair
value with unrealized gains or losses recognized in current earnings. The
difference between the published price of foreign currency and the price
established in the contract for the month covered by the swap is recognized as
part of the underlying transaction.
Stock-Based Compensation:
The Company applies the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Currency Translation:
The Company is domiciled in Peru but its functional currency is the US dollar.
The consolidated financial statements include the accounts of the Company's
Peruvian Branch ("Branch"). The Branch maintains its books of account in new
Soles. In accordance with SFAS No. 52, the books of the Branch are remeasured
into the US dollar. The resulting remeasurement adjustments are recorded to
income.
Impact of New Accounting Standards:
Effective January 1, 2001, the Company has adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" and SFAS No. 138 "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". Such adoption
did not have a material impact on the consolidated financial statements as of
December 31, 2001.
<Page>
A33
In September 2001, The Financial Accounting Standards Board (FASB) issued SFAS
No. 142 "Goodwill and Other Intangible Assets". This statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, Intangible Assets. The provisions of
this statement are required to be applied, starting with fiscal years beginning
after December 15, 2001, to all goodwill and other intangible assets recognized
in its financial statements at that date. Impairment losses for goodwill and
indefinite-lived intangible assets that arise due to the initial application of
this statement (resulting from a transitional impairment test) are to be
reported as resulting from a change in accounting principles. Goodwill and
intangible assets acquired after June 30, 2001 will be subject immediately to
the non-amortization and amortization provisions of this statement. The Company
adopted this statement effective January 1, 2002 and its implementation will not
materially affect its results of operations or financial condition.
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligation", which will be required to be adopted effective January 1, 2003.
SFAS No. 143 establishes standards for accounting for an obligation associated
with the retirement of long-lived tangible assets. Management is assessing the
impact of this statement on our results of operations and financial position.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
supersedes FASB statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of business (as previously defined in that Opinion).
Management does not believe the adoption of this statement will have a material
impact on the operations or financial condition of the Company.
2. Foreign Exchange
The functional currency of the Company is the U.S. dollar. The Company's sales,
cash, trade receivables, fixed asset additions, trade payables and debt are
primarily dollar-denominated. A portion of the operating costs of the Company is
denominated in Peruvian soles.
Gains and (losses) resulting from foreign currency transactions are included in
"Cost of sales" and amounted to $(2.3) million, $(2.9) million, and $(2.5)
million in 2001, 2000 and 1999, respectively.
3. Restructuring Charges
The Company's 1999 results include a $5.6 million pre-tax charge ($3.6 million
after-tax and workers' participations) for severance costs associated with the
Company's ongoing cost reduction program. The severance costs accrued are for
337 employees at the Company's locations in Peru and Miami, Florida.
Approximately $3.8 million of the provision is included as a cost of sales
deduction on the Company's statement of earnings, and a $1.8 million is included
in administrative expense as it relates to non-operating personnel. This accrual
was paid in full in 1999.
4. Administrative Reorganization
The Company's 1999 results include an $8.4 million pre-tax charge ($5.4 million
after-tax and workers' participations) associated with the severance cost of the
early termination of foreign contract employees. The severance costs accrued are
<Page>
A34
for 55 terminated employees at the Company's location in Peru. Approximately
$5.8 million of the provision is included as a cost of sales deduction on the
Company's statement of earnings and $2.6 million is included in administrative
expense as it relates to non-operating personnel. Payments in the amount of $5.5
million and $2.9 million were made in the years 2000 and 1999, respectively.
5. Taxes on Income
The components of the provision for taxes on income are as follows:
<Table>
<Caption>
For the years ended December 31, 2001 2000 1999
(in millions) ---- ---- ----
U.S. Federal and state
Current $ 10.3 $ 0.5 $ (2.5)
Deferred 1.0 1.0 0.6
---------------------------------------------------
11.3 1.5 (1.9)
---------------------------------------------------
Foreign:
Current 14.2 29.1 (9.5)
Deferred (4.3) 14.0 21.1
---------------------------------------------------
9.9 43.1 11.6
---------------------------------------------------
Total provision for income taxes $ 21.2 $ 44.6 $ 9.7
===================================================
</Table>
Total taxes paid were $4.5 million, $0.9 million, and $1.2 million in 2001,
2000, and 1999, respectively.
<Page>
A35
Reconciliation of the statutory income tax rate to the effective income tax rate
is as follows:
<Table>
<Caption>
For the years ended December 31, 2001 2000 1999
---- ---- ----
Peruvian income tax at maximum
statutory rates 30.0% 30.0% 30.0%
U.S. income tax at statutory rate 35.0 35.0 35.0
Utilization of foreign tax credits (29.0) (22.7) (30.2)
Percentage depletion (4.8) (11.8) (5.2)
Income not deductible(taxable) in Peru (3.8) 0.9 (1.8)
Reversal of taxes previously accrued - - (5.1)
Other 3.6 0.6 2.2
---------------------------------------------------
Effective income tax rate 31.0% 32.0% 24.9%
===================================================
</Table>
Temporary differences and carryforwards, which give rise to, deferred tax
assets, liabilities and related valuation allowances are as follows:
<Table>
<Caption>
Deferred tax assets (liabilities)
At December 31, 2001 2000
(in millions) ---- ----
Current:
Accounts receivable $ 1.8 $ 4.0
Other 0.1 0.1
--------------------------------------
Net deferred tax assets 1.9 4.1
--------------------------------------
Non-current:
Foreign tax credit carryforwards 5.0 4.3
AMT credit carryforwards 13.1 13.6
Property, plant and equipment (86.6) (93.7)
Other (2.0) (1.2)
Valuation allowance for deferred tax assets (18.1) (17.9)
--------------------------------------
Net deferred tax liabilities (88.6) (94.9)
--------------------------------------
Total net deferred tax liabilities $(86.7) $(90.8)
======================================
</Table>
The net deferred tax liabilities above reflect deferred tax assets of $30.9
million and $32.2 million, before valuation allowance, and deferred tax
liabilities of $99.5 million and $105.1 million at December 31, 2001 and
December 31, 2000, respectively.
At December 31, 2001, the foreign tax credit carryforward available to reduce
possible future U.S. income tax amounted to approximately $5 million expiring as
follows: $3.1 million in 2003, $1.2 million in 2004 and $0.7 million in 2006.
Foreign tax credit carryforwards amounting to approximately $0 million and $15.6
million expired in 2001 and 2000, respectively. Foreign tax credit carryforwards
amounting to approximately $10.5 million were utilized in 2000. Foreign tax
credit carryforwards amounting to approximately $0.7 million were created in
2001. Amounts utilized and expired in 2000 have previously been entirely offset
by a valuation allowance. Foreign tax credits created in 2001 were also offset
by a valuation allowance.
The Company has not recorded the benefit of foreign tax credit carryforwards
because of both the expiration dates and the rules governing the order in which
such credits are utilized. The Company also has not recorded a benefit for the
Alternative Minimum Tax (AMT) credits, which are not available to reduce AMT.
Because of limitations on both percentage depletion and foreign tax credits
under the AMT, the Company expects an AMT liability for the foreseeable future.
In 2001, due to the foreign sourced income limitation, foreign tax credits do
not completely offset the regular tax liability. Therefore, for 2001, AMT
credits are used to offset regular tax liability. While such credits do not
expire, it is unlikely they will continue to be utilized in the future.
Accordingly, a valuation allowance has been established for the full amount of
the foreign tax credit carryforward and the AMT credit carryforward.
<Page>
A36
On December 30, 2000, the transitory Peruvian Government issued a decree, which
included, among other things, a reduction in the statutory income tax rate for
reinvested earnings in 2001, from 30% to 20%. The Company did not qualify for
the reduced rate in 2001.
Additionally, on August 28, 2001, Peru's newly elected Congress established a
new tax rate of 27% on all earnings plus a 4.1% rate on distributed earnings
starting in 2002. Under this provision, as a branch, SPCC's earnings are deemed
distributed at the closing of the fiscal year.
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 market value.
6. Net Sales
<Table>
<Caption>
Net sales by country were as follows:
For the years ended December 31, 2001 2000 1999
(in millions) ---- ---- ----
United States $291.8 $342.8 $155.0
Italy 57.1 42.3 46.7
Switzerland 40.9 20.6 -
United Kingdom 88.7 90.8 122.8
Japan 74.8 76.0 52.4
Foreign - Other 104.2 138.6 207.6
---------------------------------------------
Net sales $657.5 $711.1 $584.5
=============================================
</Table>
At December 31, 2001, there were 37.6 million pounds of copper sales recorded at
a provisional price of 66 cents per pound.
Under the terms of a forward sales contract with Union Miniere as amended
through December 31, 1999, the Company is required to supply Union Miniere,
through its agent, S.A. SOGEM N.V., with 16,300 tons of blister copper annually
for a ten-year period from January 1, 2000 through December 31, 2009. The price
of the copper, contained in blister, supplied under the contract is determined
based on the LME monthly average settlement price, less a refining allowance,
which is negotiated annually.
Under the terms of a sales contract with Mitsui & Co. Ltd. (Mitsui), the Company
is required to supply Mitsui with 48,000 tons of copper cathodes annually for a
fifteen-year period through December 31, 2013. If the shipment destination is
Asia, the pricing of the cathodes is based upon the LME monthly average
settlement price, however, if destination of shipments is the United States, the
pricing of the cathodes is based upon the COMEX monthly average settlement plus
a producer premium, which is agreed upon annually based on world market terms.
Ninety thousand tons related to a prior contract (period 1994-2000) will be
supplied as follows: 48,000 in 2014 and 42,000 in 2015.
Business Reporting Segments: Based on the information monitored by the Company's
operating decision makers to manage the business, the Company has identified
that its operations are within one reportable segment. Accordingly, financial
information on industry segments is omitted because, apart from the principal
business of producing copper, the Company has no other industry segment.
<Page>
A37
7. Financial Instruments
Hedging Activities: 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.
Copper: Depending on market fundamentals and other conditions, the Company may
purchase put options to reduce or eliminate the risk of price declines below the
option strike price on a portion of its anticipated future sales. Put options
purchased by the Company establish a minimum sales price for the production
covered by such put options and permit the Company to participate in price
increases above the option price. Options are carried at fair value with
unrealized gains or losses recognized in current earnings. Depending upon market
conditions, the Company may either sell options it holds or exercise the options
at maturity. Realized gains or losses from the sale or exercise of options, net
of unamortized acquisition costs, are recognized in the period in which the
underlying production is sold and are reported as a component of the underlying
transaction.
During the years ended December 31, 2001 and 2000 the Company held no copper put
options.
Fuel swaps: the Company may enter into fuel swap agreements to limit the effect
of increases in fuel prices on its production cost. A fuel swap establishes a
fixed price for the quantity of fuel covered by the agreement. Fuel swaps are
carried at fair value with unrealized gains or losses recognized in current
earnings. The difference between the published price for fuel and the price
established in the contract for the month covered by the swap is recognized in
production costs.
During the years ended December 31, 2000 and 1999 the Company entered into a
fuel swap arrangement for which production costs would have been $18.8 million
and $10.7 million higher, if this exposure had not been hedged.
During the year ended December 31 2001, the Company had no fuel swap agreements.
Foreign currency: The Company selectively uses foreign currency swaps to limit
the effects of exchange rate changes on future cash flow obligations denominated
in foreign currencies. A currency swap establishes a fixed dollar cost for a
fixed amount of foreign currency required at a future date. Foreign currency
swaps are carried at fair value with unrealized gains or losses recognized in
current earnings. The difference between the published price for foreign
currency and the price established in the contract for the month covered by the
swap is recognized as part of the underlying transaction.
During the years ended December 31, 2001 and 2000, the Company settled currency
swap agreements on a portion of its capital costs contracted in Euros for which
there was a loss of approximately $2.2 million and $4.8 million.
As of December 31, 2001, there were no currency swap agreements.
For certain of the Company's financial instruments, including cash and cash
equivalents, marketable securities, accounts receivables and accounts payable
the carrying amounts approximate fair value due to their short maturities.
Consequently, such financial instruments are not included in the following table
that provides information about the carrying amounts and estimated fair values
of other financial instruments:
<Page>
A38
<Table>
<Caption>
At December 31, 2001 2000
(in millions) --------------------------- ----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------- --------- --------- ---------
Assets:
Currency swap agreements $ - $ - $ - $ (1.1)
Liabilities:
Long-term debt 396.0 399.9 347.2 326.1
</Table>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Currency swap agreements: Fair value is based on quoted market prices.
Long-term debt: Fair value is based on the quoted market prices for the same or
similar issues.
8. Workers' Participation
Provisions for workers' participation are calculated at 8% of pre-tax earnings
and are included in "Cost of sales" on the earnings statement. The current
portion of this participation, which is accrued during the year, is based on
Branch taxable income and is distributed to workers following determination of
final results for the year. During the years ended December 31, 2001, 2000 and
1999, the workers' participation expense was $5.9 million, $12.1 million and
$3.4 million, respectively. $4.3 million and $9.7 million were distributed for
2001 and 2000, respectively. No distribution was made for 1999.
9. Minority Interest of Investment Shares (Previously known as "Labor Shares")
The minority interest of the Investment Shares is based on the earnings of the
Company's Peruvian Branch.
The Company acquired 0.2 million, 0.4 million and 0.8 million investment shares
at a cost of $0.9 million, $1.5 million and $3.4 million in the years 2001, 2000
and 1999, respectively. The carrying value of the minority interest purchased
was reduced by $0.7 million, $1.0 million and $2.1 million in 2001, 2000 and
1999, respectively, and the excess paid over the carrying value was assigned
primarily to proven and probable sulfide and leachable ore reserves and
mineralized material and is being amortized based on production. As a result of
these acquisitions, the remaining investment shareholders hold a 1.47% interest
in the Branch at December 31, 2001, and are entitled to a pro rata participation
in the cash distributions made by the Company. The investment shares are
recorded as a minority interest in the Company's financial statements.
10. Inventories
<Table>
<Caption>
At December 31, 2001 2000
(in millions) ---- ----
Metals:
Finished goods $ 1.8 $ 1.9
Work-in-process 45.9 46.0
Supplies, net of reserves 53.3 67.0
----------------------------
Total inventories $101.0 $114.9
----------------------------
</Table>
<Page>
A39
11. Property
<Table>
<Caption>
At December 31, 2001 2000
(in millions) ---- ----
Buildings and equipment $1,932.6 $1,836.6
Mineral land 487.0 421.5
Land, other than mineral 4.1 2.8
-----------------------------
Total property 2,423.7 2,260.9
Accumulated depreciation and depletion 1,046.9 962.8
-----------------------------
Net property $1,376.8 $1,298.1
=============================
</Table>
12. Other Current Liabilities
<Table>
<Caption>
At December 31, 2001 2000
(in millions) ---- ----
Accrued workers' participation $ 4.4 $ 9.6
Accrued severance pay, current portion 1.5 1.6
Salaries and wages 8.1 7.4
Taxes on income 29.2 19.8
Other 1.2 1.5
-----------------------------
Total other current liabilities $ 44.4 $39.9
=============================
</Table>
13. Debt and Available Credit Facilities
<Table>
<Caption>
Long-term debt at December 31, 2001 2000
(in millions) ---- ----
6.43% EXIM Bank credit agreement paid in 2001 $ - $ 2.9
9.2%(10.04% in 2000) CAF credit agreement paid in 2001 - 3.9
7.9% Secured Export Notes (SENS) due
2007, paid in 2002 122.9 140.4
8.25% Corporate bonds due 2004 50.0 50.0
8.75% Corporate bonds due 2007 50.0 50.0
4.94% Corporate bonds due 2005-2011 73.1 -
3.17% (7.61% in 2000) MITSUI credit agreement due 2013 100.0 100.0
-----------------------------
Total debt 396.0 347.2
Less, current portion 122.9 24.3
-----------------------------
Total long-term debt $ 273.1 $ 322.9
=============================
</Table>
Interest paid by the Company (excluding amounts capitalized of $8.0 million,
$11.0 million and $7.3 million in 2001, 2000 and 1999, respectively) was $34.5
million, $12.3 million and $15.3 million in 2001, 2000 and 1999, respectively.
Aggregate maturities of the borrowings outstanding at December 31, 2001, are as
follows (in millions):
<Table>
February 2002 $ 122.9
March-December 2002 -
2003 -
2004 60.0
2005 20.4
2006 20.4
Thereafter 172.3
-----------
Total $ 396.0
===========
</Table>
In December 2001, the Company received authorization from the Comision Nacional
Supervisora de Empresas y Valores (CONASEV) to increase from $200 million to
$750
<Page>
A40
million the issuance of bonds in the Peruvian market. The goal of this new
facility is to extend the maturity of SPCC's current debt obligations and to
reduce financing costs. Under this program, on July 20, 2000, the Company issued
bonds for $30 million at a nominal fixed rate of 8.75%. On December 7, 2000 the
Company issued additional bonds for $20 million at the same rate; in both cases,
the maturity is seven years. In December 2001 the Company sold to investors in
Peru bonds for $73.1 million, with maturities ranging from March 2005 to
December 2011. The bonds have an interest rate of LIBOR plus 3.0% and were
issued through SPCC's Peruvian Branch. On February 27, 2002, the Company sold to
investors in Peru bonds for $25.9 million, with maturities ranging from May 2005
to February 2012. The bonds have an interest rate of LIBOR plus 3.0% and were
issued also through SPCC's Peruvian Branch. Proceeds from the sale of the bonds
will be used to finance a portion of SPCC's expansion and modernization program.
The Peruvian market bond program approved in December 2001, contains financial
covenants, including a limitation on the payment of dividends to stockholders of
up to 50% of its net income for any fiscal year.
In March 1999, the Company concluded a $100 million, 15-year loan agreement with
Mitsui and Co., Ltd. The applicable interest for this loan is Japanese LIBO rate
plus 1.25%. This facility provides additional committed financing for SPCC's
modernization and expansion program, and was fully disbursed as of December 31,
2001.
In 1997, the Company entered into a $600 million, seven-year loan facility with
a group of international financial institutions. The facility consisted of a
$400 million term loan and a $200 million revolving credit line. The interest
rate during years four and five of the agreement on any loans outstanding was
LIBOR plus 2.00% per annum for term loans and LIBOR plus 2.25% for revolving
credit loans. A commitment fee of 0.5% per annum was payable on the undrawn
portion of the facility. The term loan of $400.0 million, which was disbursed in
March 2001, was prepaid and cancelled in full on December 17, 2001. A breakage
fee of $0.1 million was paid in connection with this prepayment. The unamortized
balance of $3.1 million ($2.2 million net of income tax) for the commission fee
was expensed as an extraordinary item in 2001.
Also, in 1997, the Company privately placed $150 million SENS in the United
States and International markets. These notes, which had been registered with
the Securities and Exchange Commission had an average maturity of seven years,
due from May 2000 to May 2007, and were priced at par with a coupon rate of
7.9%. On February 1, 2002 the Company prepaid and cancelled the balance of the
$150 million Secured Export Notes. A premium of $11.4 million was paid related
to this prepayment and is being expensed in the first quarter of 2002 as an
extraordinary item.
At December 31, 2000 the Company had a loan outstanding with Corporacion Andina
de Fomento (CAF) of $3.9 million with interest based on LIBOR, and an
outstanding loan from the United States Export-Import Bank (EXIM) of $2.9
million, with interest at a 6.43% fixed rate. Both loans were payable in
semi-annual installments through 2001. These loans have been paid and fully
cancelled as at December 31, 2001.
At December 31, 2001, the Company had outstanding borrowings of $396.0 million,
compared with $347.2 million at December 31, 2000.
The former financing agreements contained covenants that limited the payment of
dividends to stockholders. Under the most restrictive covenant, the Company
could pay dividends to stockholders equal to 50% of the net income of the
Company for any fiscal quarter as long as such dividends were paid by June 30 of
the following year. Net assets of the Company unavailable for the payment of
dividends would
<Page>
A41
have totaled $1.2 billion at December 31, 2001. The loan agreements containing
these limitations on the payment of dividends were prepaid and cancelled as of
December 31, 2001. In accordance with the most restrictive covenant of the
Company's loan agreements, additional indebtedness of $813.4 million would have
been permitted at December 31, 2001.
The Mitsui and Co., Ltd. credit agreement is collateralized by pledges of
receivables of 24,000 tons of copper per year. The EXIM Bank credit agreement
was collateralized by pledges of receivables from sales of 7,000 tons of copper
per year. Starting June 1, 2001 once the EXIM Bank loan was fully paid, these
7,000 tons were pledged to Mitsui and Co., Ltd. under the credit agreement. The
pledged tonnage under the Mitsui loan agreement currently totals 31,000 tons.
The CAF loan was collateralized by liens on the SX/EW facility. The SENS and the
seven-year loan facility required that most of the collections of export copper
sales be deposited into a trust account in the United States. Twenty percent of
these collections were used as collateral for the outstanding SENS with the
balance of the collections remitted directly to the Company. The excess funds in
the collateral account were remitted to the Company, if all financial
requirements were met. As part of these agreements, the Company had to maintain
three-month and six-month collection ratios, as defined (aggregate collections
as a specified multiple of debt service). Both facilities required escrow
deposits of three months debt service. In addition, certain of the agreements
require the Company to maintain a minimum stockholders' equity of $750 million,
specific ratio of debt to equity, and an interest coverage test. 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 one of the financing
agreements. The Company was in compliance with the various loan covenants at
December 31, 2001. Included in other assets at December 31, 2001 and 2000 are
$8.6 million and $17.9 million, respectively, held in escrow accounts as
required by the Company's loan agreements. The funds were released from escrow
as scheduled loan repayments were made.
The balance of capitalized debt issuance costs was $4.9 million in 2001, $8.3
million in 2000 and $10.3 million in 1999. Amortization charged to interest
expense was $5.4 million, $2.2 million and $2.2 million in 2001, 2000 and 1999
respectively.
<Page>
A42
14. Benefit Plans
The Company has a noncontributory defined benefit pension plan covering salaried
employees in the United States and certain employees in Peru. Benefits are based
on salary and years of service. The Company's funding policy is to contribute
amounts to the plans sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974, plus such
additional amounts as the Company may determine to be appropriate. Plan assets
are invested in commingled stock and bond funds.
Effective October 31, 2000 the Board of Directors amended the pension plan to
suspend the accrual of benefits.
The components of net periodic benefit costs are as follows:
<Table>
<Caption>
For the years ended December 31, 2001 2000 1999
(in millions) ---- ---- ----
Service cost $ - $ - $ 0.5
Interest cost 0.7 0.7 0.7
Expected return on plan assets (0.8) (1.0) (0.9)
Curtailment loss - 1.1 -
Amortization of prior service cost - - 0.1
Amortization of transitional obligation - - 0.2
------------------------------------------------
Net periodic benefit cost $ (0.1) $ 0.8 $ 0.6
================================================
</Table>
The change in benefit obligation and plan assets and a reconciliation of funded
status are as follows:
<Table>
<Caption>
At December 31, 2001 2000
(in millions)
Change in Benefit Obligation
Projected benefit obligation at beginning of year $ 9.7 $ 10.5
Service cost - 0.1
Interest cost 0.8 0.7
Curtailment gain (loss) (1.3)
Benefits paid (0.9) (0.8)
Actuarial gain (loss) 0.7 0.5
-------------------------------------
Projected benefit obligation at end of year $ 10.3 $ 9.7
=====================================
Change in Plan Assets
Fair value of plan assets at beginning of year $ 10.8 $ 12.3
Actual return on plan assets 0.4 (0.6)
Benefits paid (0.9) (0.8)
Administrative expenses (0.1) (0.1)
-------------------------------------
Fair value of plan assets at end of year $ 10.2 $ 10.8
=====================================
Reconciliation of Funded Status
Funded status $ (0.1) $ 1.1
Unrecognized actuarial loss (0.2) (1.5)
-------------------------------------
Net amount reflected in consolidated
Balance Sheet $ (0.3) $ (0.4)
=====================================
Weighted Average Assumptions:
Discount rate 7.25% 7.75%
Expected long-term rate of return on plan assets 8.0 % 8.0 %
Rate of Compensation Increase 4.0 % 4.0 %
</Table>
<Page>
A43
Post-retirement Benefits:
The post-retirement health care plan for retired salaried employees eligible for
Medicare was adopted by the Company on May 1, 1996. Secondary coverage under the
Company's plan is available for all retired salaried employees who permanently
reside in the United States and who contribute amounts as defined by the plan.
The plan is unfunded.
Effective October 31, 2000, the health care plan for retirees was terminated and
the Company informed retirees that they would be covered by the post-retirement
health care plan of ASARCO Incorporated, which offers substantially the same
benefits and requires the same contributions.
The components of net periodic benefit costs are as follows:
<Table>
<Caption>
For the years ended December 31, 2001 2000 1999
(in millions)
Service cost $ - $ 0.1 $ 0.1
Interest cost 0.1 0.1 0.1
Curtailment loss - 0.5 -
Amortization of prior service cost - - 0.1
-------------------------------------------------
Net periodic benefit cost $ 0.1 $ 0.7 $ 0.3
=================================================
</Table>
<Page>
A44
The change in benefit obligation and plan assets and a reconciliation of funded
status are as follows:
<Table>
<Caption>
At December 31(in millions) 2001 2000
Change in Benefit Obligation
Benefit obligation at beginning of year $ 1.3 $ 1.1
Interest cost 0.1 0.1
Curtailments loss - 0.2
Benefits paid (0.1) (0.1)
Actuarial loss 0.3 -
-------------------------------------
Benefit obligation at end of year $ 1.6 $ 1.3
=====================================
Reconciliation of Funded Status
Funded status $(1.6) $(1.3)
Unrecognized actuarials loss 0.3 -
-------------------------------------
Postretirement benefit obligation $(1.3) $(1.3)
=====================================
Weighted-Average Assumptions
Discount rate 7.25% 7.75%
</Table>
The annual assumed rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rate) is assumed to be 10% for 2002. This rate
decreases 1% per year until it reaches 5% in 2007. The health care cost trend
rate assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point
would increase the accumulated postretirement benefit obligation costs for 2001
by $0.1 million and the service and interest cost components of net periodic
postretirement benefit would have an insignificant change. Decreasing the
assumed health care cost trend rates by one percentage point in each year would
decrease the accumulated postretirement benefit obligation for 2001 by $0.1
million and the service and interest cost components of net periodic
postretirement benefit costs would have an insignificant change.
<Page>
A45
Employee Savings Plan:
The Company maintained an employee savings plan for employees working in the
United States and expatriate employees in Peru, which permits employees to make
contributions by payroll deduction pursuant to section 401(k) of the Internal
Revenue Code. The plan provided for a Company matching contribution equal to 50%
of the first 6% of employee contributions. In connection with the required
match, the Company's contributions charged against earnings were $0.02 million
and $0.1 million in the years 2000 and 1999, respectively.
Effective November 15, 2000 the savings plan was terminated and no further
contributions from employees or the Company were accepted after that date. The
plan received a final letter of determination from the Internal Revenue Service
and is proceeding with the distribution of assets to plan participants.
15. Stockholders' Equity
Common Stock:
The stockholders of the Company at December 31, 2001 were:
<Table>
<Caption>
Percent of
Total Number
Shares of Shares
------------------- -----------------
Class A Common Shares:
Southern Peru Holdings
Corporation (A subsidiary of
Grupo Mexico) 43,348,949 54.2%
Cerro Trading Company, Inc. 11,378,088 14.2
Phelps Dodge Overseas Capital
Corporation 11,173,796 14.0
------------------- ---------------
Total Class A 65,900,833 82.4
Common Shares Outstanding 14,103,157 17.6
------------------- ---------------
Total 80,003,990 100.0%
=================== ===============
</Table>
Class A common shares are entitled to five votes per share. Common shares are
entitled to one vote per share.
Stock Options:
The Company has two stockholder approved plans, a Stock Incentive Plan and a
Directors' Stock Award Plan. The Stock Incentive Plan provides for the granting
of nonqualified or incentive stock options, as defined under the Internal
Revenue Code of 1986, as amended, as well as for the award of restricted stock
and bonuses payable in stock. The price at which options may be granted under
the Stock Incentive Plan shall not be less than 100% of the fair market value of
the common stock on the date of grant in the case of incentive stock options, or
50% in the case of other options. In general, options are not exercisable for
six months and expire after 10 years from the date of grant.
Options granted may provide for Stock Appreciation Rights (SAR). A SAR permits
an optionee, in lieu of exercising the option, to receive from the Company
payment of an amount equal to the difference between the market value of the
stock on the date of election of the SAR and the purchase price of the stock
under the terms of the option.
The authorized number of shares under the Stock Incentive Plan is 1,000,000 of
which 300,000 may be awarded as restricted stock. At December 31, 2001, 645,060
shares are available for future grants under this plan (645,060 shares at
December 31, 2000). The weighted average remaining contractual life of stock
option's outstanding as of December 31, 2001 was 5.1 years.
<Page>
A46
The Directors' Stock Award Plan provides that directors who are not compensated
as employees of the Company will be automatically awarded 200 shares of common
stock upon election and 200 additional shares following each annual meeting of
stockholders thereafter. Under the directors' plan, 100,000 shares have been
reserved for awards. At December 31, 2001, 20,000 have been awarded under this
plan.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation cost has
been recognized for awards under the stock incentive plan. If compensation cost
for the Company's Stock Incentive Plan had been determined based on the fair
value at the grant date for awards in 2001, 2000 and 1999, consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
<Table>
<Caption>
(in millions, except per share amounts) 2001 2000 1999
---- ---- ----
Earnings before extraordinary losses $48.7 $92.9 $29.4
Extraordinary loss from early extinguishment of debt (2.1) - -
Net earnings - as reported 46.6 92.9 29.4
Net earnings - pro forma 46.6 92.9 29.1
Earnings per share (Basic and diluted) - as reported 0.58 1.16 0.37
Earnings per share (Basic and diluted) - pro forma 0.58 1.16 0.36
</Table>
For purposes of computing earnings per share, basic and diluted, the dilutive
effect of stock options on common shares outstanding is as follows:
<Table>
<Caption>
Weighted average common shares outstanding: 2001 2000 1999
(in millions) ---- ---- ----
Basic and diluted 80.0 80.0 79.9
</Table>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 1999: dividend yield of nil; expected volatility of 48.0%; risk-free
interest rate of 4.8%; and expected life of 7.1 years. There were no options
granted in 2001 and 2000.
Stock option activity over the past three years under the Stock Incentive Plan
was:
<Table>
<Caption>
Weighted
Number of Average Option Price
Shares Price (Range Per Share)
-------------- ------------------ -----------------------
Outstanding at January 1, 1999 250,935 $14.88 $12.78 to $17.06
Granted 92,550 9.75 8.78 to 14.37
Exercised (141,865) 10.99 8.78 to 14.37
Cancelled or expired (36,780) 12.38 8.78 to 16.25
--------------
Outstanding at January 1, 2000 164,840 15.28 8.78 to 17.06
Granted -
Exercised (3,235) 14.07 8.78 to 16.19
Cancelled or expired (5,010) 11.27 8.78 to 16.25
--------------
Outstanding at January 1, 2001 156,595 15.30 8.78 to 17.06
Granted -
Exercised (1,715) 14.29 13.46 to 14.45
Cancelled or expired (650) 10.32 8.78 to 12.78
--------------
Outstanding and Exercisable at
December 31, 2001 154,230 15.24 8.78 to 17.06
==============
</Table>
<Page>
A47
16. Related Party Transactions
Grupo Mexico, the majority (54.2%)indirect stockholder of the Company and its
affiliates, provide various support services to the Company. In 2001, these
activities were principally related to accounting, legal, tax, financial,
treasury, human resources, price risk assessment and hedging, purchasing,
procurement and logistics, sales, and administrative support services. Grupo
Mexico is reimbursed for these support services. The total amount paid by the
Company to Grupo Mexico for such services in 2001 and 2000 was $7 million in
each year. In 1999, the Company paid $0.8 million to ASARCO, a 54.2% stockholder
at the time, for tax, treasury, and administrative support services provided to
the Company.
The Class A Common Stockholders and/or their affiliates, purchase copper
products from the Company from time to time at prices determined on an
arm's-length basis by reference to the LME and COMEX market price for copper at
such time. Management believes these transactions to be on terms as favorable as
could be obtained from unaffiliated parties. The Company expects that its policy
of determining prices for related party transactions on an arm's-length basis by
reference to the LME or COMEX market prices for copper at the time of any such
transaction will be continued.
Minera Mexico Internacional, Inc., a subsidiary of Grupo Mexico and ASARCO
purchased copper products from SPCC during 2001 in the amounts of $10.4 million
and $26.3 million in 2000. ASARCO had no purchases from SPCC in 1999.
Additionally, in 2001, the Company purchased from ASARCO ten used 200-ton Le
Torneau haulage trucks for the Toquepala mine for a total purchase price of $5.2
million, including spare parts. In compliance with Peruvian regulations related
to the importation of used vehicles, the trucks were independently appraised at
fair market value at the time of the purchase.
Phelps Dodge Refining Corporation, affiliate of Phelps Dodge and Phelps Dodge
Corporation, affiliated companies of a shareholder of SPCC, purchased ($0.3)
million of copper products from the Company in 2001. They had purchases of $68.3
million in 2000 and had no purchases in 1999.
Cerro Wire and Cable Co., and other affiliated companies of The Marmon Group,
Inc., an affiliated company of one of the shareholders of SPCC, purchased $18.1
million of copper products from the Company in 2001. They had purchases of $13.2
million in 2000 and had no purchases in 1999.
The Company contracted an aggregate of approximately $2.2 million, $7.8 million,
and $8.3 million, in 2001, 2000 and 1999, respectively, for shipping services to
and from Peru by Compania Sud-Americana de Vapores, S.A. ("CSAV"), and a
subsidiary company. CSAV is a company indirectly controlled by Quemchi, S.A. Mr.
Jaime Claro is Vice Chairman of Electro and Quemchi, S.A., and his direct and
indirect family interests in both companies exceed 10%. Mr. Claro is also
Chairman of Chilean Line Inc., which is the agent for and is owned by CSAV.
The Company believes that the foregoing transactions were entered into on
arm's-length basis on terms as favorable as could be obtained from other third
parties. It is anticipated that in the future the Company will enter into
similar transactions with the same parties.
<Page>
A48
As of December 31, 2001, the Company had receivables of $8.7 million and $8.6
million related to sales of copper in the years 2000 and 2001 to ASARCO and
Minera Mexico International Inc. (MMI), respectively. Also as of such date, the
Company had receivables of $0.8 million, related to the purchase of concentrates
in the year 2001 made from Mexicana de Cobre (MC), resulting from the final
liquidation of the sale. Of those amounts, receivables of $8.0 million, $5.9
million and $0.8 million from ASARCO, MMI and MC, respectively, were due on
December 31, 2001. Additionally, receivables of $0.7 million due from ASARCO and
$2.7 million due from MMI will mature in March 2002.
As of March 8, 2002 the Company had collected $5.2 million, $3.6 million and
$0.8 million from ASARCO, MMI and MC, respectively. ASARCO and MMI each have
agreed with the Company that they will pay the outstanding balances of $3.5
million and $5.0 million before June 30, 2002, or in the future through a
reduction in dividends and management fees.
As of December 31, 2001, the Company had a payable to ASARCO of $2.0 million
related to the purchase of the used haulage trucks, account that formed part of
the collection of March 8, 2002 mentioned above.
17. Concentration of Risk
The Company operates two copper mines; a smelter and two refineries in Peru and
substantially all of its assets are located there. There can be no assurances
that the Company's operations and assets that are subject to the jurisdiction of
the Government of Peru may not be adversely affected by future actions of such
government. Substantially all of the Company's products are exported from Peru
to customers principally in Europe, Asia, South America and the United States.
Financial instruments, which potentially subject the Company to a concentration
of credit risk, consist primarily of cash and cash equivalents, marketable
securities and trade accounts receivable.
The Company invests or maintains available cash with various high-quality banks,
principally in the U.S., Canada and Peru, or in commercial paper of highly rated
companies. As part of its cash management process, the Company regularly
monitors the relative credit standing of these institutions, and by policy,
limits the amount of credit exposure to any one institution. At December 31,
2001, the Company had invested 44.98% of its cash equivalents and marketable
securities with Peruvian banks, out of which 34.65% was invested with one
institution.
During the normal course of business, the Company provides credit to its
customers. Although the receivables resulting from these transactions are not
collateralized, the Company has not experienced significant problems with the
collection of receivables.
The largest ten trade receivable balances accounted for 73.6% of the trade
accounts receivable at December 31, 2001, of which one customer represented
17.3%.
18. Commitments and Contingencies
In September 1996, the Company announced a two-stage project, which includes an
expansion of the Cuajone mine and an expansion and modernization of the copper
smelter at Ilo. At present, total capital cost for this project is estimated at
$870 million, budgeted to be spent through the year 2006.
The Cuajone mine expansion was completed in 1999. Additional equipment was
received during year 2000.
<Page>
A49
The second stage of the program, the expansion and modernization of the Ilo
smelter is expected to be completed by the year 2006 at an estimated cost of
$672 million.
As a result of the expansion program, electric power requirements will increase
significantly, requiring the construction of substantial additional generating
capacity. In 1997, the Company sold its existing power plant to an independent
power company for $33.6 million. In connection with the sale, a power purchase
agreement was also completed, under which the Company agreed to purchase its
power needs for twenty years commencing in 1997.
Environmental:
Company activities are subject to Peruvian laws and regulations. SPCC submitted
in 1996 the Environmental Compliance and Management Plan (known by its Spanish
acronym, PAMA) to the Peruvian Government as part of such regulations. The PAMA
included 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 bring the existing
operations to the established environmental standards. By the end of 2001,
twenty-five of such projects were already completed.
The Smelter Expansion and Modernization Project represents the largest and most
significant project the Company will undertake under the PAMA.
The Company continued the detailed feasibility studies for the Ilo smelter
modernization and expansion project. The goal is to introduce the most efficient
technology, proven in other metallurgical facilities, looking not only to comply
with Peruvian environmental standards but also to provide economic and financial
returns.
The Company is expecting a proposal from AUSMELT, an Australian company, to be
evaluated together with the other two proposals received, from Mitsui and from
Kvaerner. The two options under consideration comply with the Company's
requirements. That is, to employ proven technology that will provide both a good
economic return and exceed the requirements of current environmental
regulations. The alternatives may provide an opportunity to increase the
smelter's capacity to 1.83 million tons and improve SO2 capture to more than the
PAMA's 92% requirement. The project is scheduled to commence later in the year
if the proper conditions are met, including obtaining the required financing.
Starting in November of 1995, Southern Peru established and continues to operate
the Supplementary Control Program (SCP), a voluntary effort, by which the
smelter production is curtailed during periods of adverse meteorological
conditions. For the year 2001, in conjunction with the operation of the
smelter's sulfuric acid plant that produced over 355,000 tons, this program has
contributed to improve air quality in Ilo. In addition to the environmental
programs dealing with air quality issues, the Company continues to have good
results with the remediation programs in both the Ite bay and the slag removal
program on the beaches to the north of the smelter.
In 2001, SPCC submitted to the government the Spill Response Plans for the three
operating areas. Both ocean and land response equipment were purchased, and
personnel training will continue during 2002.
Environmental capital expenditures for the period 1997-2001 exceeded $145
million. As soon as the Smelter Expansion and Modernization project begins, the
Company foresees significant environmental capital expenditures starting in
2002. Approximately $80 million have been budgeted for the smelter project in
2002.
<Page>
A50
Litigation:
In April 1996, the Company was served with a complaint filed in Peru by
approximately 800 former employees, for unspecified amounts, seeking the
delivery of substantial number of investment shares (formerly called "labor
shares") of its Peruvian Branch plus dividends. In October 1997, the Superior
Court of Lima nullified a decision of a court of first instance, which had been
adverse to the Company. The Superior Court remanded the case for a new trial.
Plaintiffs filed an extraordinary appeal before the Peruvian Supreme Court. The
Supreme Court may grant discretionary review in limited cases. In March 1999,
the Company received official notification that the Superior Court had denied
plaintiffs' extraordinary appeal and affirmed the decision of the Supreme Court
of Lima, which remanded the case to the lower court for further proceedings. In
December 1999, the lower court decided against the Company, ordering the
delivery of the investment shares and dividends to the plaintiffs. The Company
appealed this decision in January 2000. On October 10, 2000, the Superior Court
of Lima affirmed the lower court's decision, which had been adverse to the
Company. On appeal by the Company, the Peruvian Supreme Court annulled the
proceedings noting that the civil courts lacked jurisdiction and that the matter
had to be decided by a labor court. The case is now pending before a labor court
of first instance in Lima.
There is also pending against the Company a similar lawsuit filed by 127
additional former employees, for unspecified amounts. In the third quarter of
1997, the court of first instance dismissed their complaint. Upon appeal filed
by the plaintiffs, the Superior Court of Lima, in the third quarter of 1998,
nullified the lower court's decision on technical ground and remanded the case
to the lower court for further proceedings. In December 1999, the lower court
dismissed the complaint against the Company. Plaintiffs appealed this decision
in January 2000 before the Superior Court. By the end of year 2000 the Superior
Court rejected the appeal. Plaintiffs have filed an extraordinary appeal before
the Supreme Court. The Supreme Court may grant discretionary review in limited
cases.
In February 2002, the Company received notice that approximately 3,000
additional former employees intended to file a similar lawsuit, for unspecified
amounts, seeking the delivery of a substantial number of investment shares. The
Company does not have sufficient information to assess the merits of this new
claim but intends to challenge its validity.
On December 28, 2000, a lawsuit was filed against the Company in the federal
court in New York City. The lawsuit seeks unspecified compensatory and punitive
damages for alleged personal injuries to eight persons resident in Peru arising
from alleged releases into the environment from Company's operations in Peru.
The lawsuit is similar to a suit filed in 1995 in Texas, for unspecified
amounts, which was dismissed in 1996 by a U. S. district judge. That ruling was
affirmed unanimously by a three-judge federal appeals court. The court made it
clear that the claims of Peruvian residents should be tried in the courts of
Peru, not in the United States.
It is the opinion of management that the outcome of the legal proceedings
mentioned, as well as other miscellaneous litigation and proceedings now
pending, will not materially adversely affect the financial position of the
Company and its consolidated subsidiaries. However, it is possible that
litigation matters could have a material effect on quarterly or annual operating
results, when they are resolved in future periods.
<Page>
A51
19. Quarterly data (unaudited)
QUARTERS
(in millions, except per share data)
<Table>
<Caption>
2001 2000
---- ----
1st 2nd 3rd 4th Year 1st 2nd 3rd 4th Year
===================================================================================================
Net sales $ 162.4 $162.8 $171.5 $160.8 $657.5 $163.1 $ 157.0 $ 185.1 $ 205.9 $711.1
Operating
Income $ 28.5 $ 19.8 $ 19.9 $ 21.0 $ 89.2 $ 26.7 $ 29.3 $ 44.8 $ 48.8 $149.6
Net earnings before
extraordinary loss $ 15.7 $ 7.5 $ 11.6 $ 13.9 $ 48.7 $ 16.5 $ 18.0 $ 27.8 $ 30.6 $ 92.9
Net earnings per share:
Basic and diluted $ 0.20 $ 0.09 $ 0.14 $ 0.15 $ 0.58 $ 0.21 $ 0.22 $ 0.35 $ 0.38 $ 1.16
Dividend per share $ 0.14 $ 0.10 $ 0.05 $ 0.07 $ 0.36 $ 0.06 $ 0.05 $ 0.056 $ 0.174 $ 0.34
</Table>
<Page>
A52
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern Peru Copper Corporation:
We have audited the accompanying consolidated balance sheets of Southern Peru
Copper Corporation and subsidiaries as of December 31, 2001 and 2000, and the
related statements of earnings, stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of Southern
Peru Copper Corporation and subsidiaries as of December 31, 1999, were audited
by other auditors whose report dated March 10, 2000 expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southern Peru Copper
Corporation and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Phoenix, Arizona
March 20, 2002
<Page>
A53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Southern Peru Copper Corporation
In our opinion, the accompanying consolidated statements of earnings, cash flows
and changes in stockholders' equity present fairly, in all material respects,
the results of operations and cash flows of Southern Peru Copper Corporation and
its subsidiaries (the "Company") for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of the Company for any period
subsequent to December 31, 1999.
PricewaterhouseCoopers LLP
Denver, Colorado
March 10, 2000
<Page>
A54
PART III
Items 10, 11, 12, and 13
Reference is made to the Section captioned "Executive Officers of the
Registrant" on pages A-13 to A-14. Information in response to the disclosure
requirements specified by these items appears under the captions and pages of
the 2002 Proxy Statement indicated below:
<Table>
<Caption>
Proxy Statement
Item Required Information Proxy Statement Section Pages
- ---- -------------------- ----------------------- ---------------
10. Directors and Executive Nominees for Election as Directors 3 - 6
Officers Representing Common Stock and Nominees
for Election as Directors Representing
Class A Common Stock
11. Executive Compensation Committee Reports on Executive 10-14
Compensation through Employment
Agreements
Compensation of Directors 17-18
12. Security Ownership Security Ownership of Certain Beneficial 6 - 9
Owners and beneficial Ownership of
Management
13. Certain Relationships 16-17
and Related Transactions Certain Transactions
</Table>
The information referred to above is incorporated herein by reference.
<Page>
A55
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The following financial statements of Southern Peru Copper Corporation and
its subsidiaries are included at the indicated pages of the document as stated
below:
<Table>
<Caption>
Form
10 - K
Pages
------
Consolidated Statement of Earnings for the years ended
December 31, 2001, 2000 and 1999 A27
Consolidated Balance Sheet at December 31, 2001 and 2000 A28
Consolidated Statement of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 A29
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 2001, 2000 and 1999 A30
Notes to Consolidated Financial Statements A31-A51
Report of Independent Accountants A52-A53
</Table>
2. Financial Statement Schedules
Financial Statement Schedules are omitted, as they are not required or are
not applicable, or the required information is shown in the financial statements
or notes thereto.
3. Exhibits
3.1 Restated Certificate of Incorporation, filed December 29, 1995
3.2 Certificate of Decrease, filed February 29, 1996
3.3 Certificate of Increase, filed February 29, 1996
3.4 Certificate of Decrease, filed March 24, 1997
3.5 Certificate of Increase, filed March 24, 1997
3.6 Certificate of Amendment of Restated Certificate of
Incorporation, filed January 18, 2002
3.7 By-Laws, as last amended on February 3, 1998
10.1 Form of Agreement Among Certain Stockholders of the Company.
10.2 First Amendment to the Agreement Among Certain Stockholders of
Southern Peru Copper Corporation
10.3 Tax Stability Agreement, dated August 8, 1994, between the
Government of Peru and the Company regarding SX/EW facility (and
English translation)
10.4 Incentive Compensation Plan of the Company.
10.5 Supplemental Retirement Plan of the Company, as amended and
restated as of November 4, 1999.
10.6 Stock Incentive Plan of the Company.
<Page>
A56
10.7 Form of Directors Stock Award Plan of the Company.
10.8 Deferred Fee Plan for Directors, as amended and restated as of
November 4, 1999.
10.9 Form of Agreement Accepting Membership in the Plan, containing
text of Retirement Plan and Trust for Selected Employees.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Accountants (Arthur Andersen LLP).
23.2 Consent of Independent Accountants
(PricewaterhouseCoopers, LLP).
The exhibits listed as 10.4 through 10.9 above are the management contracts or
compensatory plans or arrangements required to be filed pursuant to Item 14(c)
of Form 10-K.
(B) Reports on Form 8-K filed in the fourth quarter of 2001 and the first
quarter of 2002:
None
(C) Exhibits - The exhibits to this Form 10-K are listed on the Exhibit
Index on page B1 through B3. Copies of the following exhibits are filed
with this Form 10-K:
3.6 Certificate of Amendment of Restated Certificate of Incorporation
filed January 18, 2002
21.1 Subsidiaries of the Company
23.1 Consent of Independent Accountants (Arthur Andersen, LLP)
23.2 Consent of Independent Accountants (PricewaterhouseCoopers, LLP)
99.9 Representation required by SEC release 33-8070
Copies of exhibits may be acquired upon written request to the Secretary and the
payment of processing and mailing costs.
<Page>
A57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York.
SOUTHERN PERU COPPER CORPORATION
(Registrant)
By:/s/ Oscar Gonzalez Rocha
------------------------
Oscar Gonzalez Rocha
President and General Director
Date: March 25, 2002
Pursuant to requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ German Larrea Mota-Velasco Chairman of the Board,
- ------------------------------ Chief Executive Officer
German Larrea Mota-Velasco and Director (principal
executive officer)
/s/ Oscar Gonzalez Rocha President and General
- ------------------------- Director
Oscar Gonzalez Rocha
/s/ Daniel Tellechea Salido Vice President, Finance
- --------------------------- and Director (principal
Daniel Tellechea Salido financial officer)
/s/ Ernesto Duran Trinidad Comptroller (principal
- --------------------------- accounting officer)
Ernesto Duran Trinidad
DIRECTORS
/s/ German Larrea Mota-Velasco /s/ Genaro Larrea Mota-Velasco
- ------------------------------ ------------------------------
German Larrea Mota-Velasco Genaro Larrea Mota-Velasco
/s/ Manuel Calderon Cardenas /s/ John F. McGillicuddy
- --------------------------- ------------------------
Manuel Calderon Cardenas John F. McGillicuddy
- --------------- ----------------------
Jaime Claro Robert A. Pritzker
/s/ Hector Garcia de Quevedo /s/ Jaime Serra Puche
- ---------------------------- ---------------------
Hector Garcia de Quevedo Jaime Serra Puche
/s/ Xavier Garcia de Quevedo /s/ Daniel Tellechea Salido
- ---------------------------- ---------------------------
Xavier Garcia de Quevedo Daniel Tellechea Salido
/s/ Oscar Gonzalez Rocha
- --------------------------- ---------------------
Oscar Gonzalez Rocha J. Steven Whisler
- --------------------
Manuel J. Iraola
Date: March 25, 2002
<Page>
B1
Southern Peru Copper Corporation
Exhibit Index
<Table>
<Caption>
Sequential
Exhibit Page
Number Document Description Number
- ---------- -------------------- ------
3. Certificate of Incorporation and By-Laws
3.1 Restated Certificate of Incorporation, filed
December 29, 1995
(Filed as Exhibit 3.1 to the Company's 1995 Annual Report on
Form 10-K and incorporated herein by reference)
3.2 Certificate of Decrease, filed February 29, 1996
(Filed as Exhibit 3.2 to the Company's 1995 Annual Report on
Form 10-K and incorporated herein by reference)
3.3 Certificate of Increase, filed February 29, 1996
(Filed as Exhibit 3.3 to the Company's 1995 Annual Report on
Form 10-K and incorporated herein by reference)
3.4 Certificate of Decrease, filed March 24, 1997
(Filed as Exhibit 3.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997 and
incorporated herein by reference)
3.5 Certificate of Increase, filed March 24, 1997
(filed as Exhibit 3.5 to the Company's Quarterly Report for
the quarter ended March 31, 1997 and incorporated herein by
reference)
3.6 Certificate of Amendment of Restated Certificate of
Incorporation, filed January 18, 2002
3.7 By-Laws, as last amended on February 3, 1998
(Filed as Exhibit 3.6 to the Company's 1997 Annual Report
on Form 10-K and incorporated herein by reference)
10. Material Contracts
10.1 Form of Agreement Among Certain Stockholders of the Company
(Filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-4, as amended by Amendments No. 1 and 2
thereto, File No 33-97790 (the "Form S-4"), and incorporated
herein by reference)
10.2 First Amendment to the Agreement Among Certain
Stockholders of Southern Peru Copper Corporation (Filed as
an exhibit to the Company's Report on Form 10-Q for the
third quarter of 2001 and incorporated herein by reference)
<Page>
B2
<Caption>
Sequential
Exhibit Page
Number Document Description Number
- ------ -------------------- ------
10.3 Tax Stability Agreement, dated August 8, 1994, between the
Government of Peru and the Company regarding SX/EW facility
(and English translation)
(Filed as Exhibit 10.3 to the Company's Form S-4 and
incorporated herein by reference)
10.4 Incentive Compensation Plan of the Company
(Filed as Exhibit 10.11 to the Company's Form S-4 and
incorporated herein by reference)
10.5 Supplemental Retirement Plan of the Company, as amended and
restated as of November 4, 1999
(Filed as Exhibit 10.4 to the Company's 1999 Annual Report
on Form 10-K and incorporated herein by reference)
10.6 Stock Incentive Plan of the Company
(Filed as an Exhibit to the Company's Registration Statement
on Form S-8 dated March 25, 1996 (Registration No. 333-2736)
and incorporated herein by reference)
10.7 Form of Directors Stock Award Plan of the Company
(Filed as Exhibit 10.16 to the Company's Form S-4 and
incorporated herein by reference)
10.8 Deferred Fee Plan for Directors, as amended and restated as
of November 4, 1999
(Filed as Exhibit 10.7 to the Company's 1999 Annual Report
on Form 10-K and incorporated herein by reference)
10.9 Form of Agreement Accepting Membership in the Plan,
containing text of Retirement Plan and Trust for Selected
Employees (Filed as Exhibit 10.17 to the Company's Form S-4
and incorporated herein by reference)
21.1 Subsidiaries of the Company
23.1 Consent of Independent Accountants
(Arthur Andersen, LLP)
23.2 Consent of Independent Accountants
(PricewaterhouseCoopers, LLP)
99.9 Representation required by SEC release 33-8070
</Table>