SOUTHERN PERU COPPER CORP/ - 10-K Annual Report

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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
--------------------------------------- -----------------------
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.

A5

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

A6

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:

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

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Silver (thousands of ounces)

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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

- -------------------------------------------------------------------------------------------------------------------------------

COPPER RESERVES

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:

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The following productive capacity is provided:

(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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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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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.

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.

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.

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.

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.

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.

Notes to five year selected financial and statistical data

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.

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:

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

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.

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.

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.

(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

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.

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.

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

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

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

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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS

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

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Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED BALANCE SHEET

The accompanying notes are an integral part of this balance sheet.

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Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS

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

A30

Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

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

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.

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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.

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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

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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.