Document zd8EG0X13GRLkvGrNymaRjM0B

_^ & o rvj- Co-Ni4^r\j-*oocn.ur\3` ASARCO Incorporated is one of the world's leading producers of nonferrous metals, principally silver, copper, lead and zinc. The Company was or ganized in 1899 as American Smelting and Refining Company, and the cur rent name was adopted in 1975. Asarco operates mines in the United States, Canada and Peru. In addition to mining and treating ore from its own mines, Asarco is a custom smelter and refiner of nonfer- rous metal ores mined by others. In 1986, ores and concentrates pur chased from others or processed for them on toll accounted for about 86% of the silver, 88% of the copper, and 81% of the lead produced by Asarco's primary plants. Asarco also produces nonmetallic minerals.Coal and limestone are mined in the United States, and the Company has an indirect interest in asbestos mines in Canada. Asarco is a major producer of sul furic acid which is produced as a by product of the environmental control systems at the Company's smelters. It also produces zinc oxide, an important raw material in the manufacture of rub ber tires and paint. Other subsidiaries and affiliated companies produce specialty chemicals and manufacture alloys, electronic solders, fluxes, cath odic protection anodes, other metal products and asbestos-cement and PVC pipe. Asarco has substantial interests in three of the world's great mining companies: M.I.M. Holdings Limited (MIM) in Australia, Southern Peru Copper Corporation (SPCC) and Mexico Desarrollo Industrial Minero, S.A. (MEDIMSA). MIM is engaged in Queensland in the production of cop per, silver, lead and zinc from its Mount Isa mine and of coal from three large surface mines. Outside of Australia, MIM operates a lead and silver refinery in England, has a 32.1% interest in Asarco, and important interests in metal-producing companies in Can ada and West Germany. SPCC oper ates two mines held under mining concessions from the Peruvian gov ernment covering deposits located on the western slopes of the Andes and operates a copper smelter located 60 miles away on Peru's Pacific coast. MEDIMSA is a holding company for several operating companies in Mexico engaged in mining, milling, smelting and refining of nonferrous metals and their by-products and in the production of coal, coke and fluorspar. Asarco and its associated com panies together in 1986 accounted for about 16% of Free World mine production of silver, 8% of copper, 13% of lead and 8% of zinc. CONTENTS Letter to Stockholders Asarco at a Glance Noteworthy Events of 1986 Metal Markets Mineral Reserves Metal Production Financial Review Financial Statements Business Segments Auditors' Report Officers and Directors Corporate Information Insi Back Cover Note: All tonnages in this annual report are expressed in short tons. All ounces are troy ounces. Dollar amounts are expressed in U.S. dollars unless otherwise indicated. "Asarco" or "The Company" includes Asarco and its consolidated subsidiaries. FINANCIAL HIGHLIGHTS 1 FOB THE YEAR Net sales ........................... Earnings (Loss) before taxes ana extraordinary items: Operations, exclusive of income from rights offering by M I.M Holdings Limited and unusual items...................... Income from rights offering by M I.M. Holdings Limited......... Equity in results of nonconsolidated associated companies Earnings (Losses), excluding foreign exchange translation gains and losses ... Foreign exchange translation gains (losses) . . Subtotal........................... Unusual items(a) ...................... Total. ... Earnings (Loss) before extraordinary items. . Extraordinary items (b) Net earnings (loss) .... Primary net earnings (loss) per common share Earnings (Loss) before extraordinary items Extraordinary items (b) ........... Net earnings (loss). Cash dividends per share. Common........................ Preferred Series A Preferred Series B Convertible Preferred Convertible Exchangeable Capital expenditures Depreciation and depletion AT YEAR-END Total assets Total debt (c) ... Redeemable preferred stock . Convertible exchangeable preferred stock. .................... Preferred shares outstanding Series A.................................... Series B Convertible Convertible Exchangeable. . . Common stockholders' equity ... Common shares outstanding............. Asarco's pro rata interest in its shares held by M I.M Holdings Limited Book value per common share (d) Common stockholders of record Employees (average for year) (3) For 1985 rkJ 19H4 mha in note ? ot i;ti,-jnr m Sfaiommlc Tno Hem ".pm-v.-m--., ;> esiiniainn roc; ot < iovh) .,no -r^inf: tow niHMuf-'i'.Innnr) pmm!-. 1986 98? 198- 1??? ! 98. (dollars anc. snares in tnousancts. except pm snaie amounts' S1.056.538 SI. 166.921 Si.325 129 S' 512 236 Si .350.69? (16,164) 8,999 (35.723) -- (87.363i - '9.320 (90 491) T 404 (2,029) 22,600 20,571 -- 13.406 9,140 -- 9,140 (24.900) 5.200 (19.700) (4.500) (59.923) (62.184) -- (62.184) (7.783) 39.500 31 717 (254.000) (309.646) (306.080) -- (306.080) 15 501 42 400 57 901 ?- OO 1 58 329 58 329 (7.120: 50.700 43.580 (1 1.0001 (50.507) (38.704) (35.376) (74.080) (0.46) -- (0.46) -- 7.00 6.25 2.70 94.745 53,030 (2 871 -- (2 87) -- 7.00 6 25 25.768 57.243 SI ,840,314 475,593 140,000 SI .745 432 472.636 140.000 86,250 -- 1,550 1.250 862 S 655.274 32,236 1 550 1.250 S 641,479 32.047 3,862 S23.09 19,100 7,000 Cl, ,, . ( Htii nor ; Ti.jr 4.555 S23 33 20.800 8.200 r. , .............. Vi1 '* .rV.'./;.;;.,'.:'. (12.56) -- (12 56! 0.30 7 00 6 25 ... 34,570 64.147 1 54 -- 1 0 40 7 00 6 25 105 1 72 54.956 (2 40) (1.46) (3 BB) 0 50 7 00 6 25 145.052 60.94 7 $1,945,893 579.532 140.000 $2,227,130 537.956 140 000 $2 .153.064 563 731 140.000 _ 1.550 1.250 1.550 1.250 1.550 1.250 $ 692.588 28.375 $1,024,657 28.254 $ 967.068 27.352 2.467 $26 73 23.800 10.000 2 4 1 r, $39 66 20 600 9 900 2.401 $38 76 30.500 10.900 , .............................^ ........ ............................. - !" : N'kj /''..if' o . (iio ' i ' i > '< ' ?i t,, M 1 r/ i ! \l I t TO ASARCO STOCKHOLDERS Nineteen eighty-six was a better year tor Asarco Not satisfactory, but better. On a reported earnings basis, the Company was profitable for the first time since 1983. earning enough dur ing the last two quarters of the year to overcome the substantial losses recorded in the first half. On an operating basis, however, the Company was not profitable After eliminating the accounting effects of foreign currency translation gains and non-operating income from inventory sales and other transactions, the Com pany was not in the black for the year or in either of the last two quarters We are. however, well along in our program of restoring Asarco to profita bility on an operating basis at currenl metal prices. A year ago when we de veloped the program Asarco was gen erating substantial and growing losses and there seemed little likelihood that a metal market recovery would turn the situation around. In the preceding four years the Company had closed and written off its high-cost plants and mines and had cut capital spending to the bone. It was clear by late 1985. however, that this was not enough It was also evident that as a result of the closure in recent years of morethan half of the copper mines in the U.S. and a number of domestic and foreign silver-lead mines, Asarco's po sition as a custom smelter and refiner of ores and concentrates from other people's properties was increasingly vulnerable. The strategy we developed was to cut costs further in our operations, eliminate all but essential support ser vices, and change our marketing pro gram so as to improve the profitability of current sales We also concluded that the Company's management structure should be simplified and ts management systems improved -inally, we felt that we should seek ways of reducing the Company's dependence on short-term arrangenents for feed for its smelting and efining business We have said a good deal during the ourse of 1986 about our cost-reducon program. At its inception, we estitated that savings of as much as $35 --lillion could be achieved without ad versely impacting Asarco s productive capabilities. By mid-summer we haa developed sufficient confidence in the program to raise our estimate to S75 million, and towards year-end to $85 million. The program has involved an exami nation. with outsiae professional help, of all aspects of our business Organi zational charts were redrawn and re sponsibilities redefined, eliminating as many as seven layers of management in certain parts of the Company The research, engineering and environ mental science departments were reduced in size and combined to form a single technical services unit in Salt Lake City Exploration activities were reduced in North America and reorganized so as to be self-funding in Australia. Other support services were cut again by substantial amounts Lower employment levels and better than anticipated investment results enabled the Company to reduce its pension costs. Labor agreements with unions rep resenting the workers at Asarco s principal domestic copper operations were renegotiated in mid-1986 and with the union representing certain of the Company's silver and lead proper ties in early 1987 The new agreements called for wage reauctions and sus pension of automatic cost-of-living ad justments for the three-vear terms of the contracts The Company aiso has sought and received substantial re ductions in charges for transportation services and energy After careful study we concluded that the results of the Company s sales program for copper and lead could be improved by increasing the proportion of sales made on an annual contract basis for specified delivery points In 1986 a little more than half of the Company's lead was sold under such contracts, and in 1987 more than three-quarters of the Company's antic ipated supplies of lead and copper have been sold under annual contract In addition, a new sales organization was formed to market sulfuric acid wnicn is now procuceo m substantia, quantities as a d* -product of tne en vironmental control systems at tne Company s sme.ters In early 1987 we began installing new job evaluation and periormance management systems which were de veloped m conjunction with the organ,zational restructuring in 1986 These systems snould provide for a closer linking ot pay ieveis to relevant external job markets ano when appropriate to individual periormance These changes, togetner with the simpleorganization ana clearer definition ot individual responsibilities, should, we beiieve, improve the performance ot management a: ail levels In mid-1986 Asarco sold a new issue of convertible excnangeable preferred stock and common stock warrants, raising in the process approximately $93 million in new equity In eariv 1987 the Company completed the sale of $107 million of fixea-rate debt which refinanced severa, issues of floatingrate, fax-exempt debt These two financings were very helpful in improv ing the Company s liquidity and debt malur.'tv schedule In late 1986 Asarco purchased the Ray copper mine ana smelter and the Ozark lead mine which it has renamed the Sweetwater mine These are two low-cost mining properties which also represent important strategic steps in assuring secure sources of material for the Company's smelting and refining plants With ihe purchase of Ray. Asarco can now provide 60% of the copper concentrates required by its operating smelters The Sweetwater mine, together with the Company's new West Fork mine, which is ex pected to reach full production in 1987 can provide all of the feed required by Ihe Glover lead smelter The Sweet water mine has been shut down and maintained on standby since 1983. and we have no plans to open it in 1987 as sufficient materials are cur rently under contract for Glover Looking to fhe future, our priorities are to complete the task of restoring Asarco's existing business to solid profitability at currenl metal prices That task will continue to occupy a substantial portion of our time ana attention in 1987. We will also seek op portunities to extend the use of existing assets and technical skills into new business areas. Beyond this effort, in a manner consistent with the Company's financial capacity, we will seek new opportunities in related basic indus tries which may be less vulnerable to the trade and economic pressures which have led to the prolonged reces sion in nonferrous metals This has been an extraordinarily dif ficult year for Asarco people. A great many have retired or otherwise left the Company as a result of the necessary cost-reduction programs and most of those who have remained have done so at reduced wages. It has also been a very exciting year. Asarco is an old company undergoing a process of change and renewal. A new culture is emerging, and it is one which we think s better suited to today's more comoetitive environment The Board of Directors of Asarco ,<n me in thanking you, our sharehold;rs, for your support during this diffi cult period. We believe that better mes lie ahead. or the Board of Directors, 3 icharddeJ Osborne, hairman tbruary 27 1987 Chairman Richard deJ. Osbcrne (lowest step, right) and executives reporting directly to him. Clockwise from Mr Osborne: John R. Corbett, vice president, industrial relations and personnel. George W Anderson, executive vice president; Robert J. Bothwell. vice president, sales; Alexander J Gillespie. Jr. vice chairman: Robert J Muth. vice president, government and public allairs; Francis R. McAllister, vice president, finance and administration, and Thomas C. Osborne, executive vice president 4 ASARCO AT A GLANCE MINES1 SMELTERS AND REFINERIES CHEMICALS AND MANUFACTURING Silver Caeur: Wallace. Idaho Galena. Wallace. Idaho Troy: Troy. Montana Quiruvilca (Corporacion Mmera Nor Peru S A ) (Also Copper. Lead and Zinc): Peru Gold Aquarius*: i immins. Ontario. Canada Wiluna (Asarco Australia Ltd.): Wiluna. Western Australia Copper Mission Complex: Sahuarita. Arizona (includes Eisenhower, Mission. Pima and San Xavier mines) Ray: Hayden. Arizona Silver Bell*; Silver Bell, Ariz Lead and Zinc Leadville: Leadville. Colo Sweetwater*; Reynolds County Missouri West Fork": Reynolds County Missouri Quioma (Compama Mmera Ouioma S.A ). Bolivia Zinc Coy; Jefferson County. Tennessee Immel; Knox County, Tennessee New Market: Jefferson County. Tennessee Young: Jefferson County Tennessee Tin (Compama Minera Ouioma S.A.); Bolivia Berenguela* Cerro Grande Asbestos (LAB and company limited) Thetford Mines district of Quebec. Canada Coal (Midland Coal Company) Rapatee: Middlegrove. Ill Crushed Stone,Sand, Concrete and Agricultural Limestone (American Limestone Company) Knoxville. Tennessee Copper Amarillo. Texas (Refinery) El Paso. Texas (Smelter) Hayden. Arizona (Smelter) Ray. Hayden. Arizona (Smelter*) (Electrowinning Plant) Silver and Gold Amarillo. Texas (Refinery) Lead East Helena. Montana (Smelter) El Paso*. Texas (Smelter) Glover. Missouri (Smelter. Refinery) Omaha. Nebraska (Refinery) Zinc Corpus Christi*. Texas (Refinery) Bismuth Omaha. Nebraska Cadmium, High Purity Metals Denver. Colorado Palladium and Platinum (Crude) Amarillo, Texas Selenium Amariilo. Texas Tellurium Amarillo. Texas Antimony Oxide Omaha. Nebraska Cadmium Oxide, Sulfide, Powder and C.P. Litharge Denver. Coloraao Specialty Chemicals (Enthone. Incorporated) Chicago. Illinois West Haven. Connecticut Sulfuric Acid Corpus Christi* Texas East Helena. Montana El Paso. Texas Hayden. Arizona Zinc Oxide Hillsboro, Illinois Asbestos-Cement and PVC Pipe (Capco Pipe Company. Inc ' Van Buren. Arkansas Evansville. Indiana (PVC Pipe) Litchfield. Illinois (PVC Pipe) Cathodic Protection (Federated Metals Corporation) Houston. Texas Matamoros. Mexico Industrial and Electronic Solders and Fluxes (Fry's Metals Inc ) (200) Alpha Metals. Jersey City. New Jersey. Chicago, Illinois. Federated-Fry Altoona. Pennsylvania San Francisco California Lead Fabrication (Lone Star Lead Construction Corp ) Houston, Texas Metal Products and Alloys (Federated Genco Limned) (60%) Burlington. Ontario Canada Monlreal. Qucdoc. Canada m 'On SlHficJti. r, ,r, \h<r.v- *Lifru!*K] prom/.Jif it (p* .front 1IWF i ,r*.l of J I it f .Mr * ( , j ' < ASSOCIATED COMPANIES M.I.M. Holdings Limited (373%) Queensland. Australia Coinnsviiip tGoa)) Mount isa (Copper Lead. Zinc Silver) . Newianas (Coal! Oakv Creek tCoan (79% MIM interest) Townsville (Copper Refinery) Western Australia Agnew' (Nicxei) (40% MIM interest) Northtieet Engiano Britannia Refined Metals Limited (Lead and Silver Retmeries. Secondary Lead Plant) Dattem. West Germany (Zinc Refinery) (50% MIM interest) (Zinc Products) (33%% MIM interest) Mexico Desarrolio Industrial Minero, S.A. (MEDIMSA) (34%) Eleven mines, live metallurgical plants throughout Mexico (Copper, Lead. Zinc. Silver Gold. Coal. Coke. Fluorspar) Southern Peru Copper Corporation (52 3%) Cuaione (Copper. Silver, Molybdenum) Toquepala (Copper. Silver. Molybdenum) Im (Copper Smeller) '<< - *,r 7' ?.tl ii*' Ofl J > |i I' H NOTEWORTHY EVENTS OF 1986 ' Major Mine Acquisitions Assure Supplies of Concentrates for Asarco Smelters ; In November, Asarco purchased the Ray Mines . Division from Kennecott Cor poration. The Ray mine, lo cated in Arizona produces 75.000 tons per year of cop per in concentrates and 30.000 tons per year of leached copper in the form of electrowon cathodes and precipitates. The purchase also included the Ray cop per smelter which is pres; ently not operating. Since late 1983, the Ray mine con centrates have been pro cessed at Asarco's nearby Hayden copper smelter. Asarco also will complete . the consolidation of all min eral interests in its Mission copper mining complex near Tucson in April 1987 when it .acquireslor $1.0 million Anamax Mining Company's inter est in operating equipment and mineral reserves owned by Eisenhower Mining Com pany, a partnership of Anamax and Asarco. In 1985 Asarco had acquired the Pima mine, the only other of the four mines comprising the Mission open pit that was . not Asarco-controlled. These moves substantially increase Asarco's ore reserves at Mission. Acquisition of the Ray mine more than doubles Asarco's domestic copper mining capacity and enables the Company's mines to pro vide 60% of the copper con centrates treated at Asarco's operating smelters. Also, should conditions in the mar kets for concentrates and copper metal warrant, the Ray smelter can treat up to 400,000 tons per year of copper concentrates. The Ray smelter is modern and cost-efficient and complied with all significant environ mental regulations when it last operated in 1982. For the Ray Mines pur chase, Asarco paid Kenne cott $72 million in cash plus participation by Kennecott in future revenues of the Ray Unit resulting from increases in the price of copper. The price participation will be 25% of incremental revenues resulting from Comex cop per prices in excess of 68 cents a pound adjusted for cost inflation. The participa tion will be in effect for a 10-year period beginning in November 1988 and is limited to aggregate payments of $65 million. In 1987 Asarco plans to modernize the solvent ex traction/electrowinning plant at Ray at a cost of $1.1 mil lion. This will increase this plant's capacity to 40,000 tons per year of electrowon cathodes, eliminate the ex isting precipitation plant and further reduce the already low production costs. In December, Asarco pur chased the Missouri lead mine of the Ozark Lead Company division from Ken necott Corporation and re named it the Sweetwater Unit after the name of the princi pal ore body. The Sweet water Unit is capable of producing annually 100,000 tons of lead and 8,000 tons of zinc in concentrates. The operation was shut down in 1983 and has been main tained since then on a standby basis. In July, Asarco decided to bring its new West Fork lead mine, also in Missouri, into full production by mid-1987 at an additional cost of $3.3 million. The mine had started up on a limited production basis in September 1985. At full capacity, West Fork will be able to produce an nually 51,000 tons of lead, 7500 tons of zinc and 175,000 ounces of silver in concentrates. These two events provide the mine capacity to supply all of the lead concentrates required by Asarco's nearby Glover lead smelter and refin ery, which had been sup plied by the Ozark mine prior to its shutdown. For the im mediate future, however, the Glover Plant will continue to be adequately supplied by West Fork and raw materials under contract, and Asarco does not plan to reopen the Sweetwater mine. For the Sweetwater Unit, Asarco paid $850,000 plus assumption of certain liabili ties and participation by Kennecott in 25% of future revenues of the unit resulting from sales of lead at prices in excess of 29 cents a pound adjusted for cost inflation. The price participation will be in effect for a 10-year pe riod beginning two years af ter production resumes and will be limited to aggregate payments of $10 million. i tI i, Mining and Exploration The Wiluna gold mining joint venture in Western Australia completed con struction in December of an expanded treatment plant to process annually 440.000 tons of ore from its open-pit mine and 880.000 tons of tailings from old dumps ---remaining from previous maerground mining. In OcJber. the joint venture had acquired the tailings dumps -- and an existing tailings treat - ment plant. Commencing early in 1987 the A$14-million plant is expected to produce 52.000 ounces of gold annually During the year. Asarco reorganized its mining and exploration activities in Australia The Wiluna joint venture agreement was re negotiated in February to convey a 25% interest to Asarco s partner for $4 0 million, thus leaving each partner with a 50% interest Ownership of Asarco's inter est was transferred to a new public company. Asarco Australia Ltd Subsequently. Asarco Australia Ltd. sold 25% of its shares to Austra lian Diversified Resources Ltd . a venture capital com pany. for A$6 6 million Asarco Australia is actively pursuing exploration pro grams for gold and other metals in Australia and adjacent areas, including exploration of large tracts of prospective gold tenements in Western Australia The Wiluna project is managed by Asarco Australia s partner in the joint venture At the Rock Creek project, applications tor patents lor the mineral rights to a large silver-copper ore body were completed and will be sub rrntted to the federal govern ment m March 1987 Baseline environmental studies were also completed and work i 6 NOTEWORTHY EVEN TS O F 1 986 (con: d 1 commenced on the operat ing permit application The Rock Creek project is located in northwestern Montana near the Troy mine The Tennessee zinc mines operated intermittently m order to control inventories of zinc concentrates during the period of weak demand before the zinc market im proved in the second half of the year Asarco placed the New Market mine on stand by status from January 31 to September 15 and sus pended operations at the Young. Immel and Coy mines from March 28 to June 16. As previously scheduled, the Columbus zinc oxide plant, which used Tennessee zinc concentrates as raw mate rial. ceased production permanently in April A second zinc oxide plant, in Hillsboro. Illinois, continues in operation Asarco sold its 25% inter est in the Little River joint venture which had operated a lead-zinc mine in New Brunswick. Canada. The mine ceased production in 1983 and Asarco wrote off its investment in 1984. Under the sales agreement, Asarco will receive a royalty on future production if the mine reopens within the next 10 years LAB and company limited, a limited partnership in which Lac d'Amiante du Quebec. Ltee (LAO), a wholly owned subsidiary of Asarco. has a 33%% inter est. consolidated all asbes tos-producing operations, including LAQ's. in the Thetford Mines area of Quebec asofJuivl The new entity significantly improved overall operations through rationali zation of facilities and was profitable during its first six months. However, world mar kets for asbestos remained depressed due to reduced demand, oversupply from overseas sources, and the foreign exchange problems of many consuming countries metai Tne antimony meta! piant at El Paso has since suspenaed operations As in 1985. operations at East Helena were hamperec by a shortage of lead con centrates resulting from the closing of mines which previ ously supplied the plant The plant curtailed production to five days a week on April 19 and resumed seven-day-aweek operations on August i Smelting and Refining At the modernized Hayden copper smelter, production was 66% greater than in 1982. the last full year of operation prior to installation of the new oxygen flash fur nace. despite a three-week shutdown in February to re pair furnace brickwork The furnace will be shut down again late in the first guarter of 1987 for modifications costing $1.5 million which are expected to extend furnace refractory life, increase throughput, and consider ably lengthen the periods between maintenance shut downs Hayden s output of copper anodes is shipped to the Amarillo Copper Refinery, which produced a record 439.600 tons of refined cop per in 1986 The East Helena lead smelter made good progress in developing a more efficient and less costly method of recovering antimony from silver-copper-antimony con centrates produced at the Coeur and Galena silver mines in Idaho Since May these concentrates have been treated at East Helena instead of being shipped to the El Paso Plant where the antimony was recovered as Labor Relations Asarco reached new three-year labor agreements without work stoppages at its principal domestic copper operations. The agreements became effective on July i and include a first-year wage reduction of $3.50 per hour, suspension of cost-of-living adjustments, and minor reductions in benefits. They also provide a wage resto ration of $0 75 per hour on July 1 1987 and an addition al restoration of $1.00 per hour on July 1. 1988 In early 1987 a three-year agreement effective Febru ary 1 was reached with the union representing workers at the East Helena lead smelter and Omaha lead re finery. the Globe high purity metals plant in Denver, and the Galena silver mine in Idaho The agreement in cludes a first-year wage re duction of $3 30 per hour, suspension of cost-of-living adjustments (COLA) for the term of the agreement, and minor reductions in benefits Also. 65 cents per hour ot a total 75 cents per hour of COLA accumulated since 1984 was rolled into the wage base The agreement pro vides a wage restoration of 70 cents per hour plus a 5- cent COLA rO'i-n m me see one vear ot tne contract arm a wage restoration ot 93 cents per nour plus another 5-cen: COLA roli-in in tne tnira year of tne contract Technical Services The new Technical Ser vices Center began opera tion in Salt Lake Citv It comprises the former centio engineering, central re searen and environments1 sciences departments The center provides engineering environmental, applied re search and assets protection (security) services as well ns analytical laboratory support to Asarco operations It also offers these services com mercially to industry and government A U S. patent was granted to Asarco in December on a process for manufacturing high-strength battery grid's from rolled antimomal lead alloys on a high-speed, con tinuous production line Until now antimony-lead alloys have required a less efficient grid casting process The new process should signifi cantly reduce the cost ol producing batteries contain ing antimomal lead grids, and Asarco is working with a leading battery manufacturer to further develop the process Financial In August, Asarco com pleted the sale in a public: ottering of 3,450.000 S2.25 Depositary Convertible Exchangeable Preferred Shares, offered at $25 per share and 3.375.000 Com mon Stock Purchase War rants offered at $3125 |k:i warrant The nel proceed;; ol 7 $92.3 million from these sales were used principally to reduce debt. In early 1987 the Company completed the sale of $107 million of fixed-rate debt which refinanced several issues of floating-rate, taxexempt debt M.I.M. Holdings Lim ited, Asarco's associated company in Australia, an nounced a rights offering in February to raise A$200 million. Asarco, which then had a 44% interest in MIM. exchanged its rights to pur chase 44.2 million ordinary shares of MIM for 6.3 million new shares thus diluting its interest to 377%. While the transaction resulted in no receipt or outlay of cash by Asarco, it did result in a 39.0-million credit to Asarjo s first quarter earnings and an additional $16 4-million credit to stockholders equity. When MIM increased its common stock owner ship in Asarco to 32 4% in October 1985, Asarco had agreed to reduce its interest m MIM to 40% within three years, and this transaction satisfied that commitment Subsequently. MIM issued additional shares in connec tion with a small acquisition, further diluting Asarco's in terest to 373% Associated Companies MIM in Australia was prof itable in its fiscal year ended June 30 after reporting a loss in the previous fiscal year MIM maximized production while containing costs, thereby achieving a 10% in crease in sales revenue while costs of sales rose only 1.3% MIM continued to re port operating profits during the first half of its 1986/87 fiscal year. MIM continued its diversi fication program by acquir ing a 25% participation in a holding company formed to purchase a 31% interest in Cominco Ltd., a Canadian company whicn is one of tne world s largest producers of zinc. Cominco also pro duces substantial quantities of lead, copper and fertil izers MIM also created a new company named High lands Gold Limited to hold its 33 \h% interest in the Porgera gold prospect and other as sets in Papua New Guinea. As exploration progresses. Porgera is emerging as an important gold property. Southern Peru Copper Corporation had a smaller net loss than in 1985 due to more favorable tax and cur rency exchange effects However. pre-tax operating earnings were significantly lower because of lower ore grades, some strike activity compared to a strike-free 1985. and lower copper prices Also, operating earnings continued to be adversely impacted by infla tion-driven cost increases combined with an exchange rate in Peru that remained frozen for the entire year The govemmp-; nas announced tna: tv.', oevaiuc tne Peru vian currency m 1987 at tne rate of 2 2'% per month Asarco s eauitv m tne earnings ct MEDIMSA ir Mexico mcreaseo in spae of lower meta; prices The ef fects of the lower prices were oliset toy tne drop in tne value of tne peso and by measures taken to control operating and admmistralive expenses which increased considerably less than the rate of inflation Mine pro duction of suver. zmc. copper and lead Denefitted from the start-up in the first quarter of the new- Rosario mine and the expanaed facilities at the Charcas mine. Refined silver proouction increased by 15% and electrolytic zinc production ov 20% over 1985 The magnitude of the combined impaci of Asarco and its associated compa nies on world mining is shown in tne accompanying charts i iB ! fc I * 8 METAL MARKETS Silver Average Domestic Sales Price ' (Dollars Pei Ounce) 25 1986 Oomestic Consumption 0 77 I I I I I I . I I'86 . In current dollars In 886 dollars, adjusted for inflation using the GNP deflator Hmty&Hanren Price a Photogiaphic/45% 0 Electrical & Electronic Products/27% c. S*lterware6% d. Jewelry/G% e. Brazing Alloys & Sokfeo5% f. Corns & Medallions/4% g CaalySs/2% It. MiscellawousS% Source Bureau of Mines, U S. Deoartment ot the tntenor Estimate Caseo on fus 9 merited 886 -Copper Average Domestic Sates Price ;(Cents Per Pound) 0" "--vs: l*.-. 1986 Domestic Consumption By Use Vv- UettsWeekU^. Producer Price. Qftode Compos Basis a. Building & Construction/41% ft. Electric & Electronic Products/24% c. Industrial Machinery & Equipment/14% d. Transportation/11% a Consumer & General Products/10% Source: Copper Denelopmeri Association. Estimate based on first 11 months ot 1986. Silver The average price of silver in 1986 was the lowest since 1978. As quoted by Handy & Harman, stiver prices aver aged S5 47 an ounce in 1986. 11% lower than the 1985 average of $614 The high for the year of $6.20 was reached on January 27 and the low of $4.87 on May 20 Allhough the excess of world silver production over con sumption narrowed signifi cantly in 1986. a lack of speculative interest ana large overhanging stocks of silver had a more pro nounced effect on silver prices. Free World mine produc tion of silver fell to 325 million ounces in 1986 from 330 million ounces in 1985, due primarily to the closing for economic reasons of two large domestic silver mines which had a combined out put of 9 million ounces in 1985 Also, world production of silver from secondary sources, such as scrap and old coins, fell in 1986 to 80 million ounces. 29% below 1985 output This. too. reflected low silver prices which made it unattractive to sell scrap silver and caused an estimated 5-millionounce drop in exports of secondary silver from India Free World consumption of silver increased 2.4% over 1985 to 383 million ounces, spurred by growing usage in the photographic and electronics industries, which in the United States account for about 72% of consump tion. and in jewelry and com memorative coins Although these latter two categories account for only 10% of do mestic silver usage, they represented 50% ot the growth in U S silver con sumption in 1986. As a result, the surplus ol Free Weed stiver outpul ovtv oemanc narrowed to 22 mniion ounces in 19S6 Inis comoares to a surplus o: 7' million ounces in 1985 anc over 50 million ounces m each ot tne live preceding years nowever inese statis tics oo not include demand by investors for silver in small bars wn.cn is believed to nave been substantial Looking ahead, the sur plus ot silver output over demand should continue to narrow in 1987. Neither mine nor secondary production is nkelv to increase unless there is a substantial in crease m silver prices. Con sumption should benefit trom expected mooest economic expansion in the Free World ana tne growing worldwide popularity ot silver jewelry and commemorative coins In tnis country alone the new one-ounce American Eagle silver com introduced by the U S Mint in November is in great aemand and is ex pected to consume 5 to 10 million ounces per year ol government stockpile silver Also, the U S Congress has authorized the minting ot 10 million 0.77-ounce silver coins in 1987 to commemo rate the Bicentennial of the U S Constitution Copper Free World stocks of re fined copper continued to fall in 1986 for the third consecu tive year. Following a total de cline ot 700.000 tons in 1984 and 1985. stocks held by reliners and fabricators and on the commodity exchanges in New York and London drop ped an additional 150,000 tons in 1986 to a level that in prior periods of economic re covery would have caused concern among consumers about availability However, in receni years consumers 9 seem to have learned to op erate on leaner inventories by employing computerized inventory control methods based on '`just-in-time" delivery. Free World copper con sumption increased slightly in 1986*to 8.1 million tons from 8.0 million tons in 1985 Demand in the United States, however, fell nearly 2%. Demand for domestic brass mill products was generally satisfactory, but this was offset by weaker demand in some wire and cable markets. Output of refined copper in the Free World increased for the second consecutive year to 8.0 million tons, al most 4% higher than two years ago. Thus, the shortfall of production relative to consumption continued to narrow. Had it not been for strong exports of 280,000 tons of refined copper to socialist countries, the draw down in stocks would have been considerably less in 1986. Over three-fourths of the exports were to China, which in recent years has re quired increasing quantities of imported copper With the perception among copper users that shortages of copper are not imminent despite the relatively strong market fun damentals and with a contin ued lack of interest in copper among speculators, copper prices remained in the dol drums. Asarco's average copper price for the year dropped to 64.9 cents a pound from 66.3 cents in 1985. Asarco's copper prices remained within a rel atively narrow range of 60 to 70.5 cents a pound through out 1986. Copper supply and denand are expected to be in balance in 1987 as Free World refined production increases slightly. This as sumes a continuation of the relatively strong level of de mand which has prevailed since 1984. Inventories of refined copper, therefore, are expected to remain at the level of year-end 1986 With the world copper market in such delicate bal ance. it is vulnerable to dis ruptions m supply due to strikes or other causes, such as occurred in the lead and zinc markets in 1986. There is little spare copper mine capacity in the Free World that can be brought back into production quickly and economically to mitigate the effects of such disruptions. Lead and Zinc The markets for lead and zinc were buoyed during 1986 by major production in terruptions. causing supply to fall short of demand. Free World output of re fined lead fell to 4 3 million tons. 4% below the record level of 1985. while consump tion held steady at 4 4 million tons. There was further ero sion in demand for lead by gasoline additive producers, but this was offset by in creased demand from the battery industry, by far the largest market for lead The supply shortfall was filled by a drawdown in re fined lead stocks In the United States, inventories of refined lead held by domes tic primary producers de clined from 89,000 tons at the beginning of 1986 to 29,000 tons at year-end These inventories had reached nearly 130,000 tons during the middle of 1985. The improved market fun damentals led to a sharp re bound in lead prices during the second half of 1986 Asarco's lead price opened 'tt .** vv-s-yS.**#) *-*,<; V ^^AupustSOCCMIgh6fad04MrBaOBri(f-a'liSigii'-'*'' : !/!. MSHoWmurucWetaifimmjlifilwnnBfcurretau rrrfW_h*_w_l ___ - -. V. -.T 10 METAL MARKETSicontd ) the year at 18.5 cents a pound and fell to a low of 1775 cents in February. Thereafter, it improved slowly to near the 20-cent level in the second quarter and then advanced strongly to a clos ing level of 28 cents a pound at year-end. The domestic producer price for lead aver aged 21.8 cents a pound for all of 1986 compared to the 1985 average of 19.1 cents, a 12-year low. Similarly, supply disrup tions caused Free World pro duction of refined zinc to drop to 5.3 million tons in 1986, nearly 2% below the record level of 1985. The production interruptions' occurred in the second half of 1986 and coincided with a rebound in demand. Free World consumption of slab zinc increased 2.8% in 1986 to a record 5.4 million tons, due largely to a 6% jump in domestic usage of zinc for galvanizing of steel. The sheet galvanizing industry continued to demand in creasing quantities of zinc to provide corrosion protection to steel in numerous applica tions. By the end of 1986, Free World stocks of slab zinc were at the lowest level so far in this decade. The combination of lower production and higher con sumption led to a strong re covery of zinc prices, which had fallen sharply in late 1985 and early 1986. The domes tic slab zinc price rose from 30 cents a pound at the start of 1986 to 50 cents late in the year before softening to the mid-40 cent range at yearend following the settlement of a strike at a major Cana dian zinc refinery. Neverthe less, because zinc prices were much stronger in the first half of 1985 than in the corresponding period of 1986, the average domestic producer zinc price declined to 38.0 cents a pound in 1986 from 40.3 cents in 1985 The low year-end inven tory levels of lead and zinc throughout the Free World should provide some sup port to both markets in 1987. The disruptions in produc tion of lead and zinc were over for the most part by the end of 1986 Therefore, the strength of demand is ex pected to determine the course of the lead and zinc markets in 1987. The lead market depends heavily on the battery indus try, which in 1986 accounted for nearly three-fourths of do mestic consumption. Since demand for replacement au tomotive batteries, the larg est part of the lead-acid battery market, is weatherrelated, it is difficult to fore cast. Demand for zinc in 1987 is expected to continue to benefit from increasing consumption by the galvan izing sector. MINERAL RESERVES--1 986(a) 11 I asarco Coeur. . . Galena Troy - Mission Complex Ray. Silver Bell. - . Quiruvilca . . Leadville . Sweetwater West Fork Ouioma. Tennessee ...................................... Aquarius . . Wiluna Cerro Grande (Tin) . Berenguela (Tin).................................... Asarco Associated Interest Company's (%) Interest (%) 50 37.5 75 100(b) 100(c) 100 80 50 100(c) 100 51 100 100 37.5(d) 51 51 Mineral Reserves (Thousands of tons) 700 1.037 39.55S 275 752 69-1.547 20.955 4,585 977 25 445 11,293 493 6 749 205 830 57 97 Silver (oz/ton) 19 75 15 64 1 54 0 15 0 07 6 50 2 46 0 30 4.80 LAB and company limited (Asbestos) ... Midland Coal .... ASSOCIATED COMPANIES(a) M.I.M. Holdings Limited Mount Isa ................................... Copper.................... Silver-Lead-Zinc Hilton(f)....................... Agnew (Nickel) ... Mine # 1. Mine #2 (Undeveloped) Coal Collinsville ........................... Newlands Oaky Creek. .. Undeveloped Reserves . 33.3(e) 100 37 3 100 100 40 100 100 79 60 51 762 20 130 137 789 54 013 79.366 1 014 33.510 281 089 281 089 655 874 2.904 587 4 30 4 02 Southern Peru Copper Corporation Toquepala . . Cuajone.................... MEDIMSA(h) 52 3 34 100 91 100 100 745 308 490 91 373 a g (a) Mineral reserves are as ot December 31. 1986. except tor M i M holdings wmch am an jurm , represent the proven and probable portion ot controlled mineral deposits Reserve?. am estimated uuji:ii! anticipated Cdnditions may be economically mined and processed tor the extraction ot innr mineral route optioned, leased, or held under government concession (b) Mission Complex comprises the Mission. Eisenhower. Pima and San Xavier mines me urn? norr, whim at. general partnership operated by Asarco which lies between the Mission, and San xfw e* mm*.-, total h:m;i 0.14 oz./ton silver, and 0 68% copper Included are reserves ot 10.287 000 tons containing 0 3.5 o.' ton m agreement, are scheduled to be delivered to Asarco in April 1987. Asarco w:i. acaune tor Si 0 mnnon me of the Anamax Mining Company, as a result ot Anamax's exercise of an option to terminate me parmershi; (c) Purchased trom the Kennecotl Corporation, a subsidiary ot 7ne Standard Oi Compan, Rav Mme. Uivr:,,o formerly Ozark mine, purcnased December 30. 1986 (d) Wiluna is a joint venture which is 50% owned by Asarco Australia Ltd a 7:>%-own<`ri supsium'v ot As.irc the Wiluna joint venture (6) Effective July 1. 1986. the Company's wnolly owned subsidiary. Lao n Anuanm du Guenon L transl to a newly formed partnership. LAB and company limited tor a 33' % limited partnership nii.m .i Min' partnership interest in LAB and company limited (l) Reserves make no allowance tor material not recoverable bv established mining nr.K.ticm (9) Ores from Southern Peru's mines contain small amounts ot stiver In me year ending Decomtm 3! IdHh 2.564,000 ounces ot silver (h) MEDIMSA and its subsidiaries nave concessions granted bv mo Mu'can G we'nmer/ *i -i.- ,, designated areas The proven and probable reserves are as published by Mf.uiMSA tm me- i.onr ores currently being mined at its various units In its operations year ended Decernr.)*-" V t(thS nu- \ (. ounces of silver. 19.000 ions ot copper. 64.000 rons of lead and 159 00U tons ot . r*, soe'-'m, Average Mineral Content Copper <%> 0 90 0 56 0 T5 0 62 0 70 66 1 08 0 1? 0 04 Lead (%) Zinc (o) 4 54 - e: p.: r. 3. ' 5 r: 7 2. Gold (oz ton) 0 tV 0 27 0' Other C') 1 l>6 1 0' 3 03 3 -10 5 65 O4' h ' 2 96 2 On 0 80 0 86 I ML lii ol [(,, Lunin .d :t*'-j! i it in U I MUf' nod 1 13"., t >b! ' a ut me l . mb, J .b lOff. .list .' | >ii." .imU .md tr m i iwim'(t [ ivnliowbr r. ;i nod |i in1 (.unl.jiriiiKj >< to,. iKjrinro.tH', : iMi'ri'IMHII ml**ri',! `i .in-1 :i in-.,| fipcra'.iuir ....... I ............ J >b .* . ! ' o V Ob'1 r/; : it/';/. METAL PRODUCTION MINES Coeur *966 1965 19S- Asarco Interest <%) 50 < a; Ore Milled (Tons) * 55 000 151.000 144.000 Silver (Ounces) 2 743 000 2.628.000 2 485 000 Metal Produced (In concentrates) Copper (Tons) 1 200 1.200 ' .200 Lead (Tons) Zinc (Tons) Gold (Ounces) ;u4 324 306 Tin (Tons) Gaiena Trov MisstOti ComD'G' 1966 *935 1964 1986 '965 1984 1966 1933 1984 37 5ta> 75(b) 100(Ci 201.000 200,000 209,000 3 122.000 2.843.000 3.033 000 9.928.000 9.807.000 10 343.000 3 995 OQu 4 ' 03 000 d 19J 000 4 076 000 3 638 000 4 ,269 00C 1.296.000 ' .073.000 58 7 000 1 -00 1.200 1 400 19 000 16 800 19 000 61.600 59 000 56.900 433 585 r '4 * 7 r, Ra> Sacator, Sliver Bel: 1966 1984 '986 963 '964 100(d! lOOie' 100(1) 1.073.000 1 000.000 - 2.272 000 37.000 33.000 102.000 7 700 4,500 3 600 4 400 16 400 4 79 Ouituvtica *'9oc '965 1964 80 (Q > 419.000 438.000 395.000 2 609 000 2 035.000 ' 780 000 1.100 2.900 2 700 3 900 3.900 3.900 12 000 '1 20C' 1.000 1.671 2.587 2.500 Leadvilie 1966 198" 1964 50 (at 220.000 2'7.000 214 000 392.000 344.000 363.000 7.500 6.700 6 700 1 4 500 13 300 14 500 1" 700 17.195 17.9.50 West Fork 1986 1965 100(h) 304.000 72.000 182.000 2 000 33 600 3 900 7 200 100 Buchans '964 49 I'n 102.000 244.000 1.600 4 600 7 800 1.140 Little Rive' '984 25 ip 144 000 466 000 14.900 Quiorna ' 9o6 1965 198a 51 (ki 04 000 25.000 131 000 52 00( - 1 500 1.200 1 600 ' 300 lennessee 1986 1985 1984 10011! 1 949 000 1 566 000 2 878 000 4 7 700 37.500 67 300 Wiiuna Berenquela, Cerro Grande '986 1986 1985 19H4 37 bimi 51 Ik) 816 000 52.000 60.000 45.000 8.983 382 299 203 Total 19oc 1965 1984 18 239.000 15 418.00(r 20 804.000 15 333 00c 13 954.000 14 877 00'.: 9:3.300 HO 500 103 700 45.000 10.OOU 16 400 81.400 63 700 101 900 30.932 20.686 37.991 382 299 203 Note AH lipufus represent enure amount., not Asarco s snare. unitms mneiwise noted in) Operated bv Asarc.o under tease and ion: venture arrangements in Coeur ana LeaJvi * Asarco has a Mb interest m operating expenses and protits or losses in Galena Asa'co receives 75% or net r -rows remaining alter 'oval v odvmenir. !.rm si c up's. m ot hu hi mg protits pefo'e depletion depreciation. and Idaho taxes lDj Operated uv Asarco under a 'ease aoteemeni Asnrco retains 75%, m net proceed--. .itir: opmaiuirj expenses but belou- depletion. depreciation and income taxes ic) Mission Complex campuses Mission i isennowpr San Xavier and A -ma mines l. is**'-m ,< genera' partnership operated Ov Asarco Inu properly is held under Slate of Arizona leases, part of which reo'esentimj 3 \ 1 nnmnn lorv, of ore aver dpi up u i ^ i.opiv'1' was contributed fo tne partnership bv Asarco Production include!' on;v Asarco s share of Eisennowef in Ape. t9b7. Asarco ws acaum.- Uo $, 1 u rim mom ir>. ua-.r'ce oi me ( is-nrlower (jenpra1 partnership hom mo Anamax Mining Company Iprminairnq the naMri*-r--,rrp Shu /a.-m ,vui portions o' Mission anu bumi are f-re.-j uncm' :orupli:rrr> tease;, under wnirh lessor nas retained a royally imprest (dl Purchased November 1 H ' 9Hh from h--'M :t;r'** (5 >rp- iranort a suostdee v nt Tim Ljt.'i?;-': r Companv broouelion is tor penoo suOS'-'quent lo purchase dale fej Operation Closed m Apn1 5 9H-1 (Jue to rj*'P<e:ion ot ore ms'eves (() Concentrate production suso-mried A!(ij:j-;: igh-i -in:, prec.ipiSim r/.fdvi , .(m- pjk-1 (q I Operated under a Peru.inn i jw -risn>;' ' .i.esston o% Cor por ace i Mum ,r a Nor Pi ci. C ,i:\ K(r ov:o - ,ut isulMty of a ww,ny owvf '<;d Ai;arC() subsidi/jf y lh) portion of the mini; i; he'd unrjt a m : q i* *rni ieus'mjr n tf -r wi'-i'f i ' n.i . n*lari .,.i>i<ns (ipeiat'nrrs tiave tj*?*.*"> d mirn'etJ production tjasis sinr.i: StdM-up :n Set)ternP`-r I9K5 f'} OP'.iraled frv Asart/,. ijnpie ^ r < <-lunar".j- ii..>-m' - mi-, r , i j r p.-' t e,-r; tmi i ,1 pie reserves <}t Operated nv 2b%-owi'ed l iMm; Hi ver join; .nil," Asn" n v.-rr < \> uv: / --i r f >* *i l pH-'. Operations wen* suspended V-pten>t>ei t9H4 with only possan ore pionur.iinn in p.jh.1 As.jn.r,i so -1 nr. ; Pee' j Operated ov <t {^o.wid'> up;pimatHJ.u s' rp's >: 195 J i. ca 'ied o ,i win, i,o.<.-j Asau., ,;>s.< i.d'. Upr-ealujus at tn<- Oum,n.d (rmiu: we<- sust'rjr'rJcd in 19HA tJ j In 198G. Oder alums at three i )Mt>e lour rt-: , wen- susper idnd lor t a <ind * .* ie-na t u- > it in n .* - -r end rji ran *r ariri aline tm j' lri rrnr n.- a*m. * susprmded toi enjht rnrjntns mroucjh lh'* third deader Oner^uur.s .r ' unt..-swis'S"s,:JreU =" 1 98;;e . fmi Operated as a jornt venture wtMSh IS `,<1 nd , C , e' o Ai/.Sm ,.j , :c I J :r , . ,1 ASdn ;. (jpr;ra[ions started ot; ' Mu/ 19H*. METAL PRODUCTION 13 SMELTERS (a) Blister Copper (D.i (Tons) El Paso Hayden . . Hayden-Ray(d) Tacoma . .. Total Lead Bullion (Tons; East Helena El Paso (1) Glover (g) Defined Capacity (c) 115.000 175.000 110.000 (e r 400.000 75.000 95.000 105.000 1986 100.200 186.500 -- -- 266 700 50.800 _ 132.500 1985 94.200 166.900 -- 8.30C 269.400 65.600 33.700 123.500 1984 90.000 80.000 -- 58.000 228.000 69.300 48 200 86 100 Total 275 000 183.300 222.800 203.600 (a) Ah smelters ana refineries are ownea dv Asarco (bl An intermediate product containing approximately 98% C0DD6' (c) Asarco's eslimate ol aciuai capacity unoer norma: opefating conditions w4n allowance for normal downtime for repairs ana maintenance ana based on me average metai content of inout material for me tnree years shown No aotusiment is made tor snutdowns or production curtailments aue to strikes or a" Quality emissions restraints (O) Purchased on November 18. 1986 from Kennecott Corporation a suosiaiarv ot The Standard Oil Company Smelter operations nave oeen suspended smce 1982. Refinery operations are represented oy a solvent extraction e'ectiowmnmg plani producing eiectrowon cathodes (e) Smelting operations were permanently ciosec m March 1985 (f j El Paso lead department operations were indefinitely suspended m August 1985 due to tackol taw material affecting production of me Omana refine-;ig) Glover s higher man capacity production in 1966 and 1965 resulted irom rngntr grade of available raw material ana uninterrupted operations witn minima downtime for repairs ana maintenance REFINERIES (a)________ Denne;: Capacir. it '98,. Silver (Ounces) Amariiio {h'i Coddpi (Tons) AmaritiO havae^-Rav(d; Total Codpp' Lead nonsi Omana (11 GiOver igl 60.000 000 32 4'.. 000 356.000 36 000 492.000 4%* Ul".' 44' 60v 156 002 110.000 20- ' ' 1 7 500 Total Leao Line lions') Cor DUS Cnrisii |i1 Line Oxide (0 (Tons' Coiumous HillSDOlO o oo 266 00C (k: 22 002- f- "0'.' o bi7v lota' Zinc Oxide Gold (Ounces i Amarifc 22 00-0 COO 00*. 2 2iA i' Spi-.s-eiivr ep'r-oDdouacntrioianrdawecm-maetenria!'lsf9rSi o;rikJ .. _... i. r Plant operations were suspended been temporarily suspended Oao::u- 198.' ; Meta'' content ol ?>nc oxicie ir- Znic oxide operations were tvn * 08: 1964 4 2 205 200 40 336 000 4-4 20, 34,, 40v 4)4 200 340 400 *03 ' 22 00; 225 SO.' 1 * * 600 0* 600 W 400 * 2 600 3' 40v` 1 b * 00 3 ;h\ 20 6;X V 001 1 100 20 KV 22i *>k 000 60b .n.b .U-- .v bi"i m.i.; in--;; ASSOCIATED COMPANIES yi.i.M. foldings (1) .outtietn 'eru (mj 1986 1985 1984 1986 1985 1984 Asarco Interest (%) 37 3 52 3 Silver (Ounces) 19.230.000 18 192.000 17.755.000 2.564.000 2 798.000 2 471.000 1EDIMSA (n) 1986 1985 1984 34 0 25,635.000 22 866.000 21.230,000 Copper Hons) 185 300 190 700 1 79 000 271.000 300.000 277.000 33 100 34,300 39 600 Lead (Ton.si 224 700 218 200 228 50G 69.300 83.000 75.600 Zinc (Tons' 223 700 226 300 216 700 140 000 164 000 145 200 Go1:: <0.:> ' Moarboenttr' (Pounds' '' x.l . t . , 1 ' : b. !;>' 60 600 62.700 46 900 8 443 00b 8 142 ()() 6 793 000 '" `_1 ,-o: 'iiir.ite:. 1 '' r< . k.j-:- ..rn. , j : , 'Mt|> j[ ....'. n L'mer rn**M! ....... r .SARCO REFINED METAL PRODUCTION BY SOURCE Silver COPDP' Mines Cusiom Toll Mines Custom Wi M*lV;b 186 185. . . . )84.............. 183 . >82. . 14% 12 15 14 17 64% 74 71 69 70 22 o 14 14 17 13 12=0 13 26 28 30 67, 71 54 48 33 ?1% ir> 20 24 37 19", 3 3 3. tes--Material from Asarco mines stom--Materials purchased Irom others --Materials refined tor and reiurned to others urous Chnsti plant suspended producl/on irom October 1982 through Mav 1964 ana suspicion operation', inociim'--:. L * \n 1 CuV*>m 69". 83, 6.5 70 07' Am* ms-. i.,,- 15"- 14 30 51 1.) cits Mine-'. Cusiom 31% 83 44 69., 17 56 INERAL PRODUCTION AND METAL PRICE INFORMATION ie production information presented below represents Asarco's beneficial share of mine production as sei forth on page 12 5lal price information is presented on pages 8 and 9 of this annual report_______ ineral Produced (in thousands) -- rer (ounces) . oper (tons) . 1 (tons) . . (tons) d (ounces) .... -- -iestos (tons) 41 (tons) 1986 9 276 89 0 40 5 71 8 15 0 80 2 Tj90 ft 1986 8 523 79 4 1' 1 64 0 1 1 f; 13? 5 :,H8 7 1984 8 91! 0(, i ; 37 ' If, . 1-U.< 1 i '-m3 7, 7 74 101 4 `') i i Si h : ; - -6'. 1982 33/ 10f) !j 11 3 04 O 13 0 1510 ' 005 (i 14 FINANCIAL REVIEW OVERVIEW During 1984. 1985 and 1986 Asarco's earnings were ad versely affected by generally lower prices for ns mapr metal products and by the reduced spread between the cost to Asarco of acquiring metal concentrates from others for pro cessing and the payments it receives upon sale of the re fined metal. In 1986 Asarco reported net earnings of $9,140,000. compared with a net loss of $62,184,000 in 1985 afterpn unusual charge of $4,500,000 and a net loss of $306,080,000 in 1984 after unusual charges of $254,000,000. Operating cost reductions achieved in the period 1981 1985 reached an annual level of $115 million by the end of the period. However, these reductions were more than offset by the decline in metals prices and processing fees, which re duced the Company's annual revenues by more than $180 million during the same period. In late 1985. the Company began a new cost-reduction program aesipned to achieve further annual cost savings, currently estimated to be $85 million per year The program involves an examination of all aspects of the Company s business The organization was reduced in size. The research, engineering ana environmen tal science departments were combined ana reauced Ex ploration activities were reduced in North America and reorganized so as to be self-funding in Australia. Lower em ployment levels and better than anticipated investment results enabled the Company to reduce itsoension costs. Labor agreements with the unions representing workers at the Company's copper plants were renegotiated in mid-1986 ano with the unions representing workers at the Company s silver and lead properties in early 1987. The Company sought and received substantial reductions in charges for transportation services and energy The Company made two acquisitions of mining properties in 1986: the Ray copper property in Arizona and the Sweet water lead property in Missouri These acquisitions improved the Company's ability to supply its smelters and refineries with concentrates from its own mines The purchase of the Ray and Sweetwater properties for $79 2 million was the prin cipal reason the Company had a negative internal cash flow of $84.437000 in 1986. During 1985. the Company had a positive internal cash flow of $23,108,000. contrasted to a negative internal cash flow in each of the four previous years Net proceeds of $92.3 million from an issuance of con vertible exchangeable preferred stock and common stock purchase warrants in mid-1986 were used primarily to reduce debt Total debt outstanding was $475,593,000 at the end of 1986 compared with $472,636,000 at the end of 1985 and S579.532.000 at the end of 1984, Total debt levels at the end of 1986 and 1985 were lower than any year-end since 1981 SALES Asarco records as a sale ol products the full market value of metals, ores and concentrates produced from its own mines and for materials purchased for treatment on a custom basis, whereas it records as a sale of services only the processing fees charged for treating similar materials on a loll basis Sales of products and services were $1,056,538,000 in 1986 compared with $1,166,921,000 in 1985 and $1,325,129,000 in 1984 The 1986 decline was caused primar ily by a decline in the volumes of silver, zinc and asbestos sold, which more than offset an increase in the volumes of copper and lead sold The 1985 sales decline was caused primarily by the declines in silver and lead prices and by lower processing fees, although the quantity of copper, silver, lead and zinc sold by Asarco in 1985 was higher than in 1984 Lower sales of asbestos, coal and recycled metals in 1985 also contributed to the sales decline Sales of services for the treatment of materials in Asarco's smelters and refiner ies on a toll basis decreased to $21,585,000 in 1986 com pared with $23,853,000 in 1985 and $30,653,000 in 1984. The full market value of materials treated on a toll basis at average prices in effect during the year was $182 million in 1986. $153 million in 1985 and $188 million in 1984 In 1986 sales of services declined primarily because ot the decrease in toll lead treated at the Company's Glover lead plant In 1985 loll processing fees per ton declined and a greater proportion of material was purchased on a custom basis 15 resulting in the decrease in sales of services. In addition. U.S. mine closings and curtailments in 1984 and 1986 re duced the amount of silver-bearing lead material available for toll treatment. COSTS The Company's cost-reduction program and LIFO-valued in ventory profits improved income from products and services in both 1986 and 1985. Costs of products and services decreased 11% in 1986 from 1985, while sales decreased only 9%. As a result, income from products and services increased 1% to $109,085,000. Costs of products and services decreased 15% in 1985 from 1984, while sales dropped 12%. As a re sult, income from products and services increased 31%, or $25,382,000, to $107786,000. Operating results for 1986 in cluded a $26.9 million decrease in the cost of goods sold resulting from profits realized on the liquidation of excess LIFO-valued inventory; this compared with a $14.6 million decrease in 1985 and no decrease in such costs from LIFO valued inventory liquidations in 1984. Total selling, adminis trative, research and exploration expenses were reduced 17% in 1986 and 11% in 1985. million in 1986 compared with $700 million in 1985 and S800 million in 1984. The declines m 1986 and 1985 were aue to low metal prices. NET EARNINGS (LOSS) For the year ended December 31. 1986. the Company re ported net earnings of $9,140,000. but a loss of $0 46 per common share after providing for preferred dividends, com pared with a net loss of $62,184,000. or $2.87 per common share, for 1985 and a net loss of $306,080,000. or $12 56 per common share, tor 1984. Items affecting 1986 results were $8,999,000 of income from a rights offering by MIM $3,136,000 of income from the placement of a 25% common stock interest in an Australian subsidiary and a charge of $4,248,000 for bad debts expense The 1985 net loss in cluded an unusual pre-tax charge of $4.5 million of costs to be incurred in closing the Company s Columbus, Ohio, zinc ASSOCIATED COMPANIES Asarco accounts for its nonconsolidated associated compa nies by recording only its equity interest in the results of nese companies. Asarco's equity in the results of its associated companies, principally M.I.M. Holdings Limited in Australia (MIM). South ern Peru Copper Corporation (SPCC) and Mexico Desarrollo Industrial Minero, S.A. (MEDIMSA), was a profit of $20.6 mil lion in 1986 compared with a loss of $19.7 million in 1985 and a profit of $31.7 million in 1984 The results of MIM, SPCC and MEDIMSA were adversely affected by low prices for nonferrous metals in each of these years. Equity in earnings of the associated companies was af fected by foreign currency translation gains of $22.6 million in 1986, $5.2 million in 1985, and $39.5 million in 1984 Trans lation gains resulted from the decline in the exchange rates for the Australian Dollar, Peruvian Inti and Mexican Peso in relation to the U.S. Dollar. In 1985, there were substantial offsetting translation losses related to debt of MIM denomi nated in Japanese Yen, Swiss Francs, Deutschmarks and British Pounds Sterling, all of which increased in value rela tive to the U.S. Dollar in late 1985. In both 1986 and 1984. Asarco would have reported a loss from its equity in earnings of associated companies in the absence of foreign currency translation gains. From August 1985 to January 1987 the exchange rate of the Peruvian Inti relative to the U.S. Dollar was fixed, which meant that the full effect of the high local inflation rate was reflected in SPCC's domestic costs. SPCC's costs remained high throughout the period also because of high internal fuel oil prices which have been maintained at levels approxi mately double world prices For a discussion of Peruvian ' 'reign currency controls applicable to SPCC. see Note 7 the Notes to the Financial Statements. Asarco's proportionate interest in the sales of the associ ated companies, which is not reflected in the Company's sales revenues referred to earlier, was approximately $600 FINANCIAL REVIEW icon; a.; oxide plant in 1986 The 1984 net loss included unusual pre tax charges of $254 million related to the closure or suspen sion of operations at several facilities, including a copper smelter, several zinc processing plants, a copper mine, a lead-zinc mine and certain oil and gas properties. CASH FLOW Cash flow provided from or used for operations was a positive $30,361,000 for 1986 compared with a positive $27500.000 for 1985 and a deficit of $9,391,000 in 1984 Dividends from the associated companies were $70 mil lion in 1986, $4.9 million in 1985 and $32.9 million in 1984. SPCC paid a dividend of $18.5 million to Asarco in 1984 but paid no dividends in 1986 and 1985. Depreciation and depletion expense, based on units of production, was $53 million in 1986, $572 million in 1985 and $64.1 million in 1984. The 1986 decrease resulted principally from suspension of operations of the Company's El Paso. Texas, lead smelter. The 1985 decrease was primarily attribut able to reductions in depreciable assets due to the 1984 write-offs described above. Working capital, exclusive of cash, marketable securities and debt, increased $9.1 million in 1986 compared with a decrease of $45.6 million in 1985 and a decrease of $12.1 million in 1984. The increase in working capital in 1986 was primarily due to an increase in inventories as a result of a change in the manner of sale of Troy mine concentrates and raw materials inventories acquired in the Ray Mines acquisi tion. The decline in working capital in 1985 resulted princi pally from liquidations of metal inventory and a change in sales policy which reduced the collection time of accounts receivable. In 1984, accounts receivable declined due to lower prices for copper and silver. The Company paid no dividends on its common stock in 1986 and 1985. Dividends on the common stock of $7750.000, or $0.30 per share, were paid in 1984. Dividends on preferred stock of $20,992,000 were paid in 1986 com pared with dividends of $18,663,000 in each of the years 1985 and 1984. The increase in dividends in 1986 resulted from an issue of convertible exchangeable preferred stock in mid-1986. Property expenditures were $94.7 million in 1986, includ ing the acquisitions of the Ray and Sweetwater units for $79.2 million and other expenditures of $15.5 million, compared with total expenditures of $25.8 million in 1985 and $34.6 million in 1984. The other expenditures in 1986 included de velopment costs of the Aquarius gold mine and underground development of the West Fork mine. The 1985 expenditures included development costs of the West Fork mine, acquisi tion of the Pima mine and expenditures for the Hayden Plant Expenditures for 1984 included the Hayden modernization project completed in 1984. LIQUIDITY Cash and marketable securities increased $15.0 million in 1986. compared with increases of $3.0 million in 1985 and $0.8 million in 1984 Total debt increased $3 0 million com pared with a decrease of $106.9 million in 1985 and an in crease of $41.6 million in 1984 The weighted average interest rate on all Company indebtedness was 8.6% m 1986, 8 8% in1985 and 9.9% in 1984 compared with the average prime rate during tnose periods of 8 3%, 9 9%. ana 12 0%. respectively At December 31. 1986. the Company s percentage of debt-to-capitalization was 35.0%. compared to 377% at December 31, 1985 and 41.0% at December 31. 1984 A; December 31. 1986, the Company would have been permit ted to borrow an additional $150.9 million under the debt limitation covenants of its existing loan agreements At that date, $155 million was available under its $350-miliion revolv ing credit agreement In 1987. the Company expects that it will meet cash requirements for operations and capital ex penditures from internally generated funds and. it necessary, from borrowings under its revolving credit agreement Under the terms of its revolving creait agreement, the Company is required to maintain tangible net worth in excess of $675 million through March 31. 1988. increasing to $700.0 million through March 31. 1991. and S725.0 million thereafter At December 31. 1986. the Company s tangible net worth was $869.5 million. Under the terms of the revolving credit agree ment. senior debt cannot exceed 75% of tangible net worth until March 31, 1988, and 65% of tangible worth thereafter CAPITAL STOCK In mid-1986 the Company sold 3.450.000 $2.25 depositary convertible exchangeable preferred shares and 3.375.000 common stock purchase warrants in a public offering The net proceeds of $92.3 million were primarily used to retire debt In 1985. the Company sold in a public offering 3.450.000 newly issued common shares Asarco realized net proceeds from the sale of $75 7 million which were used to reduce debt On January 1. 1985. the Company instituted a salary re duction program under which shares of Asarco common stock equal in market price to the amount of each month's salary reduction were issued to a trust for employees. The stock was distributed to employees at the end of September 1986 after the program was terminated A total of 107979 shares of common stock were issued during 1986 under provisions of the Company's Salary Adjustment Program and 81.241 shares were contributed to the Asarco Employees Savings Plan A total of 32.236,063 shares were outstanding at year-end 1986 compared to 32.046.843 shares at year-end 1985 RETIREMENT PLANS In 1985, the Company adopted the principles of Statement of Financial Accounting Standards No. 87 and, accordingly, changed the actuarial cost method for determining pension costs, valuing plan assets and recognizing income to the required "projected unit credit method " Net pension costs included in operating results for Company-administered pen sion plans amounted to credits of $13.3 million in 1986 and $79 million in 1985, and an expense of $15.5 million in 1984 The credits to income in 1986 and 1985 result principally from investment performance and personnel reductions The value of the Company's trusteed pension plan assets as of December 31, 1986 were $400 9 million and the related projected benefit obligations were $314 2 million Retirement Plans are further discussed in Note 14 of the Notes to the Financial Statements ASA R CO INCORPORATED AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS For The Years Ended December 31. Sales of products................................... ... ........................... Sales of services.................................................................. Total sales of products and services........................ Cost of products and services................................................. Income from products and services ............................... Other income: Income from rights offering by M.I.M, Holdings Limned . Income from sale of subsidiary capital stock.................... Miscellaneous....................................................................... Total other income............................................... Other deductions Selling, administrative and other expense...................... Bad debts expense..................................................... Depreciation and depletion expense . .................. Exploration expense................................................... Research expense......................................................................... Interest expense - ........................................................ Unusual items................................................... Total other deductions ...................... Earnings (Loss) before equity in results of nonconsolidated associated companies................................. ........................... Equity in earnings (losses) of nonconsolidated associated companies Earnings (Loss) before taxes on income Taxes on income................................................... .. Net Earnings (Loss) Dividends on preferred shares Net Earnings (Loss) Applicable to Common Shares Primary Net Earnings (Loss) Per Common Share Cash Dividends Per Share: Common................................................................ Preferred: Series A.......................................... Series B Convertible............... Convertible Exchangeable. See notes to financial statements 1986 1935 laoliars in tncusanas except pei snare amounts i 1984 $1,034,953 21,585 1.056,538 947,453 109.085 SI.143.068 23.853 1 166.921 1.059.135 10". 786 SI.294.476 30.653 1.325 129 1.242.725 82.404 8,999 3,136 13,295 25,430 -- -- 13.768 13 768 - - 8.682 8.682 35,110 4,248 53.030 4,250 3,979 41,063 -- 141,680 40.000 868 57.243 6.141 6.034 46.991 4.500 161 777 41.541 421 64,147 10.231 6.738 55.371 254.000 432.449 (7,165) 20,571 13,406 4,266 9,140 21,962 $ (12,822) $ (0.46) 140.223) (19 700) (59.923) 2.261 (62.184) 18.663 S (80.847) S (2.87) (341.363) 31.717 (309.646) (3.566) (306.080) 18,663 $ (324.743) S (12.56) $ --S S 0.30 7.00 7 00 7.00 6.25 6 25 6.25 2.70 --- 18 ASARCO INCORPORATED AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEET At December 31. ASSETS Current Assets: Cash.................. ............................................ Marketable securities (at cost, which approximates market) Accounts and notes receivable. Trade, less allowance for doubtful accounts Other ........................ Inventories................................................................ Materials and supplies (average cost or less).................. Prepaid expenses............................................................ Total Current Assets............................................ Investments in Nonconsolidated Associated Companies (Equity Method)................................................... Property: Buildings and equipment............................................ Mineral land.............................................................. Land, other than mineral. . . ... .. . Other................................................................... Total Property ................................................... Less: Accumulated depreciation and depletion . .. Net Property..................................................... Other Assets TOTAL ASSETS..................................................... LIABILITIES Current Liabilities: Notes payable: Bank loans..................................................... Long-term debt due within one year ... Accounts payable Trade............................... - . . . Other............. ........................... Accrued liabilities: Salaries and wages Taxes on income. . . Other taxes ... .................. ... ........... Currrent portion of reserves for plant closings . . Other current liabilities ... Total Current Liabilities .................. Long-Term Debt Deferred Income Taxes Reserves for Plant Closings Accrued Liabilities and Other Reserves TOTAL LIABILITIES............................................... Contingencies (Note 10) PREFERRED STOCK Authorized--10.000.000 shares without par value. Redeemable--2,800.000 shares issued and outstanding Convertible Exchangeable--862.500 shares issued and outstanding............................... ... COMMON STOCKHOLDERS' EQUITY Authorized--80.000.000 common shares without par value Issued 34.928,223 shares.................. . .. Additional Capital Retained Earnings...................................... Treasury Stock (at cost)--common shares 1986--2.692.160: 1985--2.881.380 Asarco's cost and pro rata interest in the cost of its shares held by M I M. Holdings Limited TOTAL LIABILITIES. PREFERRED STOCK AND COMMON STOCKHOLDERS'EQUITY . bee nor<?s to n:iarci?jf siaiefnor-N 1986 $ 1985 (dollars in tnousands)' 11,192 40,020 S 14.644 21.518 $ 177,996 23,720 201,716 104.027 50,641 4,737 412,333 S 210.917 18.333 229.250 81.551 46.107 6.004 399.074 615,845 576.000 1,379,233 166,547 33,316 35,713 1,614,809 848,167 766,642 45,494 $1,840,314 1.330.008 171.701 26.681 35 967 1.564 357 835 410 728.947 41.411 $1,745,432 $ 7,216 5,892 171,393 22,574 9,914 9,776 9,662 5 13,108 193,967 29,352 15,252 13,897 265,576 462,485 57,575 82,360 90,794 958,790 S 24 806 12.338 183.534 22 029 1 L476 9 444 10 134 $ 37.146 205.563 31.054 16.349 10.363 300.475 435.490 54.986 98.302 74,700 963.953 140,000 86,250 502,355 7,965 426,123 (151,484) (129,685) 655,274 $1,840,314 140.000 -- 502.355 15.402 438.473 (162.131) (152.620) 641.479 $1,745,432 ASARCO INCORPORATED AND CONSOLIDATED SUBSIDIARIES r CONSOLIDATED STATEMENT OF CHANGES t 19IN FINANCIAL POSITION For the Years Ended December 31. SOURCES (USES) OF CASH Operations: Net earnings (loss)............................................................................................. Noncash elements in net earnings (loss) Depreciation and depletion........................................ ......................... Deterred income taxes.......................................................... .................. Nonconsolidated associated companies: Equity in (earnings) losses........................................ ......................... Dividends received....................................................................................... Income from rights offering by M 1 M Holdings Limited...................... Reserves for plant closings and other items ... .................................... Cash provided from (used for) operations.................. ... Cash Dividends Declared and Paid: Common shares................................................................ ......................... Preferred shares.............................................. .................................... Cash used for dividends............................... ............. Investment Activities: lnvestments.net...................... ........................... Asarco's cost and pro rata interest in the cost of its shares held by M.I.M. Holdings Limited..................................................... Book value in excess of amount realized under the rights offering by M.I.M Holdings Limited.......................................................... ... Property. Acquisition cost of the Ray Mines Division.... Obligations assumed net of working capital purchased Property acquired Other property expenditures Other, net.................. .. Cash used for investment activities . . .. Working Capital, Exclusive of Cash, Marketable Securities and Current Debt: Accounts and notes receivable ........................ Inventories. . . Other current assets...................................... Accounts payable................................................... Other current liabilities Cash provided from (used for) working capital Internal Cash Flow Financing Activities: Bank loan repayments, net ... . Long-term debt incurred................................. Long-term debt retired................................. Debt proceeds released from escrow for construction Proceeds from sale of 862.500 convertible exchangeable preferred shares Proceeds from sale of 3.375.000 common stock purchase warrants Proceeds from sale of 3.450.000 common shares. . Treasurystocktransactions.net. External cash flow Net change in cash and marketable securities Cash and marketable securilies. beginning of year Cash and marketable securities, end of year 1986 1985 1984 1COiiars m thousands) S 9.140 S (62.184) S(306.080! 53,030 2.064 57,243 (/3) 64.147 (12.790) (20,571) 7.000 (8.999) (11,303) 30,361 19 700 4,891 -- 7.923 27.500 (31.717) 32.867 -- 244.182 (9.391) -- (20.992) (20.992) -- (IS.663) 1.18.663) (7.750) (18.663) (26.413) (17,871) 22,935 (5,966) (73,320) (1.495) (74,815) (19,930) 10,911 (84.736) 51.168 (51.749) -- t25 768) (4.942) (31.291) (176) (1.534) .. (34.570) 6.856 (29.424) 27,534 (22,476) (3,267) (11,596) 735 (9,070) (84,437) 27.072 57,819 7.025 (15.364) (30.990) 45.562 23.108 23.642 51,650 6.480 (60.459) (9.249) 12.064 (53.164) (17,592) 62,037 (41,488) 1,104 82,348 9,950 _ 3,128 99,487 15,050 36,162 $ 51.212 (1.009) 220,778 (325,297) 4,156 75.716 5.828 M9.828) 8.280 32 882 S 36 162 (9.124) 92.302 (41.602) 9.397 __ 3,040 54.013 849 32,038 5 32.882 See noles to financial statements 20 ASAP, CO iNCu^PORATED ATJD CONiSOL>DATc.D SUBS^Di ARilc CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY For The Years Ended December 3T 1986 1985 (collars m thousands) 1984 Common Stock Balance at beginning of year- 1986--34.928.223 shares. 1985 and 1984-- 31.478.223 shares............................................... Sale of 3.450.000 shares ........................ Balance at end of year: 1986 and 1985--34. 928.223 shares. 1984-- 31.478.223 shares.......................................... Additional Capital Balance at beginning of year...................... Charge for treasury stock sold and used . ...................................... Book value in excess of amount realized under the rights offering by M.I.M. Holdings Limited ................ Net proceeds from saie of 3.375.000 common stock purchase warrants Issue costs of convertible exchangeable preferred stock Balance at end of year................................................................... Retained Earnings Balance at beginning of year........................ Foreign currency adjustment ... Net earnings (loss)........... Cash dividends declared and paid. On common shares................................. On preferred shares............................. ...................... Adjustment for Asarco's pro rata interest in its dividends on common shares paid to M I.M. Holdings Limited . Balance at end of year . . . ._........................ Treasury Stock Balance at beginning of year.................... Purchased........................... ............................... Used for additional compensation, stock option, bonus, savings and salary adjustment plans ............................. Balance at end of year: 1986--2,692.160 shares. 1985--2.881.380 shares. 1984--3.103,487 shares................................. Pro Rata interest Asarco's cost and pro rata interest in the cost of its shares held by M I.M Holdings Limited............................... Total Common Stockholders'Equity See notes to financial statements S 502,355 -- 502.355 15,402 (7,519) (5.966) 9,950 (3,902) 7,965 438,473 99 9,140 -- (20,992) (597) 426.123 (162,131) -- 10,647 (151,484) (129,685) S 655,274 S 426.639 75.716 502.355 22.072 (6.670) -- - -- 15.402 519.37? (57) (62 184) - (18.663) - 438.473 (174.629) (25) 12.523 (162,131) (152.620) S 641.479 S 426.639 - 426.639 25.651 (3.579) 22 072 852.952 (1.082) (306.080) (8.490) (18.663) 740 519.377 (181.248) (3) 6.622 (174.629) (100.871) $ 692.588 NOTES TO FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES jnciples of consolidation: The consolidated financial state rs include all significant subsidiaries of which the Comny has voting control. Significant investments of 20% or u-e in the capital stock of associated companies and sub'iaries of which the Company does not have voting control Je accounted for by the equity method Other investments e carried at cost or less. iventories: Company-owned metals processed by smelters, 'ineries and other metal plants are valued at the lower of j_in, first-out cost (LIFO) or market. Other inventories are kjed' at the lower of first-in. first-out cost (FIFO) or market >foperty: Assets are valued at cost or less. Betterments, enewals, costs of bringing new mineral properties into pro duction, and the costs of maior development programs at existing mines are capitalized. Maintenance, repairs, devel opment costs to maintain production at existing mines, and gains or losses on assets retired or sold are reflected in earnings as incurred. Plant assets are depreciated over their estimated useful lives, generally by the umt-of-production method. Mine asset depreciation and depletion are com puted generally on the unit-of-production method using proven and probable ore reserves Exploration: Tangible and intangible costs incurred in the search for mineral properties are generally charged against Barnings when incurred When a commercial ore body is discovered, the related exploration costs previously charged against earnings are credited to earnings and capitalized in "Property." Oil and gas activities are accounted for by the successful-efforts method Investment and energy tax credits: Such credits are ac counted for by the flow-through method Retirement plans: In 1985, the Company adopted the princi ples of "Statement of Financial Accounting Standards No 87. Employers' Accounting for Pensions." which requires the use Of the projected unit credit actuarial method for financial re porting purposes. Prior to 1985, the Company used the ag gregate cost method for financial reporting purposes and Continues to use that method for funding purposes 2. UNUSUAL ITEMS (in millions) Fourth quarter 1985 operating results were charged with $4.5 for the permanent shutdown in 1986 of the Company 's Zinc oxide plant in Columbus, Ohio. Operating results for 1984 include total unusual charges of $276.0, partially offset by a credit of $22.0 from changes to estimated costs for previous plant closings. The 1984 unusual charges include costs associated with the permanent shutdown of the Com pany's Tacoma, Washington, copper smelter: the write-down and indefinite suspension of operations at the Company's yorpus Christi, Texas, zinc plant and write-down of related 2inc fuming and zinc oxide facilities at other plants, the writeltf and future holding costs of the Sacaton underground I??PPer mine in Arizona: the write-down of the Company's ^454 interest in the Little River joint venture, which owns a Canadian lead-zinc mine: the permanent closing of a metal ecycling plant in Houston. Texas, of Federated Metals Cor poration, a wholly owned subsidiary: and the write-down of 0|i ar>d gas assets. 3. TAXES ON INCOME (in millions) Earnings (Loss) Betore Taxes on income From domestic operations From foreign operations Total '98c- $' '3 " ' S 13 4 193 c. Si38 9i C?r 0: Si59 9s 1984 Si343 5' 33 9 S( 309 6'. Tax Expense (Credit). Current US Foreign and slate Deferred US Foreign and stale Total 199r 5 :: 1? ' $4 3 19S3 $ 34 (0 1 i S3 3 1984 S:9 33 (9 2! (3 61 S(3 Reconciliation of Statutory Income Tax Rate U S. siatutorv income tax rate Undistributed equity earnings on which tax was not provided at the siatutorv rate Foreign taxes and tax credits Investment lax credits Depletion Minimum tax Net operating tosses not ului/ed and carried forward Other Taxes on income-effective rate 198e 4o 0% 1985 (46 01% 1984 (46 OV 10 1 53 (33 3' 3" 31 B% 11 4 47 (3 Bi 36 7 (0.21 3 8% (1 0i 13 2 93 (2 0! 06 26 2 (141 (i dc Deferred Tax Expense (Credits') Depreciation expense versus ta> deduction Tax deductions lor curreni mine development costs versus amorti zation of capitalized cosls on books Estimated costs of mine and plant closings versus lax deductions Undistributed equity earnings on which tax is accrued Pension expense versus tax deduction Capitalized mieresl cosls versus ta> deduction Utilization ot net operating losses Reversal (Use) ol investment and foreign tax credits Other Total 198b $(2 4| (1 3l 69 '7 58 12 ?l 11 0) (4 3< $2 : 1985 1984 $(0 7) $ 04 15 63 (4 1) 77 (2 8) (8 0) $(0 11 02 (3 7) 4.6 22 (0 71 (68 8) 59 7 (6 7) $M28j Tax Carryforwards At December 31. 1986. cumulative unused net operating loss (NOL) carryforwards on a tax and book basis amount to $211.6 and $211.7 respectively If not used, the NOL carryfor wards will expire between 1998 and 2001. At December 31. 1986. expiration dates and amounts of unused investment and energy tax credits and foreign tax credits are as follows. Expiraiion Dates investment Tax Credits Ta> Basis Book Basis Foreign Tax Credns Tax Basis Book Basis 1987. 1988. 1989 1990 1991 . . 1992 ic 2001. . . . s - 37 11.2 66 40? S- - 37 11.2 66 40.7 S 5.2 8.5 56 12 14 - S 5.2 138 60 1.2 32 - As a consequence of the Tax Reform Act of 1986. the above listed investment tax credit carryforwards will decline in ag gregate value on a tax and book basis by 17.5% if used m 1987 and by 35.0% if used thereafter. 4. PRIMARY EARNINGS (LOSS) PER COMMON SHARE Earnings or loss per common share are calculated by using the weighted average number of common shares outstand ing after deducting the Company's pro rata interest in its shares held by M l M. Holdings Limited Weighted average number ot Asarco snares outstanding (000; Asarco's oro rata, weighted average interest in its shares held by M I M Holdings Limited (000) . . . ' 1986 32 148 4.025 1985 1984 31136 28.321 3,008 2.463 The effect of the Company's Common Stock equivalents (warrants and shares under option) and Convertible Pre ferred Stock on the calculation of primary earnings (loss) per common share was anti-dilutive. 5. FOREIGN CURRENCY (in millions) The net transaction gains (losses) included in determining pre-tax earnings were' 1986--$24.0: 1985--$8 7; and 1984--$44.0. The major portion of the gains or losses are reflected in "Equity in earnings (losses) of nonconsolidated associated companies" 6. INVENTORIES (in millions) At December 31. Inventories ol smellers, refineries and other metal plants LIFO cost ot tnarkel Provisional cosl of metals received tor whicn prices have not yet been lixeo Mine inventories at FIFO cosl or market Other Total 1986 $ 139 32 9 46 4 108 $104 0 1985 $20 6 20 1 33 7 72 set fj Replacement cost exceeos inventories valued at LIFO cost by approximately $118 4 (1985--$1501 j Year-end inventories used in determining cost of sales were' 1986--$104.0 1985--581 6. 1984-S~139 4. 1983$191.0. Liquidations of LIFO inventories resulted in pre-tax earnings of 526.9 in 1986 and $14 6 in 1985 7. INVESTMENTS IN NONCONSOLIDATED ASSOCIATED COMPANIES Asarco has substantial interests in associated companies in Australia. Mexico and Peru wmch are principally engaged m mining, smelting and refining nonferrous metals These companies are M.I.M Holdings Limited (MIM), Mexico Desarrolio Industrial Minero. S A (MEDIMSA). and Southern Peru Copper Corporation (SPCC) MIM also has maior coal mining operations. The fiscal year for MIM ends June 30 MEDIMSA and SPCC report operating results on a calendaryear basis ending December 31. Taxes have not been provided on the undistributed earn ings of associated companies more tnan 50%-owned and accounted for on the equity metnod wnere earnings have been reinvested indefinitely At December 31. 1986. the cu mulative amount of equity in such undistributed earnings on which income taxes have not been provided is $200.9 million. At December 31. 1986. "Investments in nonconsolidated associated companies'' included Asarco s equity of $187.5 million in SPCC's restricted net assets of $358 5 million which restriction results from foreign currency controls es tablished in the third quarter of 1986 bv the government of Peru These controls suspend for a period of two years certain cash remittances of foreign exchange from Peru by companies operating in Peru as discussed below SOUTHERN PERU COPPER CORPORATION Peruvian law gives workers in mining companies an increasing participa tion in profits and management advisory committees and an interest in liquidation proceeds. Profit participation is dis tributed in cash and in the form of ownership shares and interest-bearing obligations issued by the Peruvian branch of SPCC. At the end ot 1986. the workers participation in the Peruvian branch of SPCC was approximately 10.6%. Eventu ally. through participation in tuture earnings, this percentage could increase to 33Vh% In general, the effect of Peru's new foreign currency con trol law on SPCC tor the two-year period is that it suspends cash remittances from SPCC's Peruvian branch to its cor porate office in the United States for earnings, depreciation and repatriation of capital, but permits cash remittances for certain loans, expenses and imports M.l M. HOLDINGS LIMITED At December 31, 1986, Asarco owned 37.3% (1985--44.0%) ot MIM's common shares and MIM owned 10,353.363(1985-- 10.353,363) common shares or 32.1% (1985-- 32 3%) of Asarco This reciprocal share holding results in Asarco having a pro rata interest of 12.0% (1985--14.2%) in its own shares Thus, the Company s MIM investment carrying value and common stockholders' equity have been reduced by the cost to MIM of this pro rata inter est in the Asarco shares Asarco s equity in earnings of MIM excludes any Asarco dividends included m MIM earnings 23 The Company's MIM investment carrying value and retained earnings are adjusted to reflect Asarco s pro rata interest in its dividends paid to MIM. In the first quarter of 1986. MIM made a rights offering to its shareholders, entitling each shareholder to purchase one common share of MIM at AS2.00 per share for each five common shares held. In the same period. Asarco disposed of its rights to purchase 44.2 million common shares of MIM for 6.4 million common shares of MIM This action reduced Asarco's interest in MIM from 44.0% to 377%. thereby satis fying a provision of an agreement entered into m October 1985, whereby Asarco was to reduce its interest in MIM to 40% within three years. In the second quarter of 1986. MIM issued additional common shares for a minor acquisition and thereby further reduced Asarco's interest in MIM from 377% to 373%. In October 1985. MIM purchased from a major shareholder of Asarco, 4,245.800 Asarco common shares at a cost of $23 per share plus expenses Details of the investment are as roiows cn millions! Numoer ot MIM common snares owneo Asarco Carrying vaiue Cosi ot snares neia Eauilv m undistributed earnings Adiusimenl tor Asarco s pro iata cumu ain-.interest in Asarco dividends paid io MiM Eduitv in premium over oook vaiue rea ice:: under a (ignis ottering Ov MIN' Asarco s pro rata inleresi in the cost oi its sr:are:. neid oy MIM Nei carrying value ' 9tn 227 6 S ?J r 34.: : .53 :~ " nyn > , * r~ T $202 u Major Investments Accounted for by the Equity Method (a) (in millions) Financial Position Current assets Current liabilities . .. Working capital Property-net .. Deferred foreign exchange fluctuations Other assets Long-term debt. Other liabilities .. Deterred income taxes Minority interest Net assets .. Asarco's Interest Asarco's Investment Market Value MIM June 30, 1986 (b) S 451 0 (1863) 264 7 1.639 9 SPCC MEDIMSA Dec. 31, Dec. 31. 1986 1985 $222 8 (64 3) (b) $123 2 (36 9) 158.5 471 9 86 3 213 4 320.3 289.2 (1.342 1) (17 3i (89.9) - 21 (29 It (112 7i 148 0) 30 (83 9; (0 9! (0 3) $1,064 8 $442 7 $217 6 at December 31,1986 37 3% 52 3% $ 262 6 $223 3 344 2(c) id) 34 OS $ 115.6 (d) (a) Asarco s mveslments in nonconsoiidatea associated companies camea on the equity method include otner companies m addition to tnose shown above Equity in earnings (tosses) for mose companies not separately ciiscioseo which are included in the Consolidated Statement of Earnings were 198b--$(0 3) 1985--$0 4. and 1984--S(0 4) Dividends received were 198C--SO 9 1985$0 4. and 1984--$10 (b) Translated into U S dollars at rates in effect at Decemoer 31 1986 MiMAustralian $1 = US$0 6580 (rate at June 30 1986 was A$l -- US$0 6663; MEDIMSA-Mexican MN$i - US$0 0011 Mexican government controlled rale tor commercial transactions (rate at December 31 1985 was MN$i -USS0 0097) The capsule financial positions of MIM and MEDIMSA are as reported unam Australian and Mexican accounting standards respectively (c) Represents value of Asarco's investment m common stock oasea upon trv; December 31. 1986, closing market price on tne Sydney (Australia) Sfoo Exchange Value is not necessarily indicative of an amount teai'/ab'^ m 'mevent of a sale (d) Quoted market prices on Asarco s investments iff common stnc* .m- not available since the shares are not publicly traded (e) Translated at the monthly averaoe exchange rate The fmanci-i- mlhrmuimM f)' MIM and MEDIMSA is as reported under Australian and Mexican at (.ounimg standards, respectively MIM SPCC MEDIMSA Net Sales 100% 1986 1985 1984 Net Earnings (Loss) 100% 1986 1985 1984 Equity Earnings (Loss) Reported by Asarco 1986 1985 1984 Dividends to Asarco 1986 1985 1984 for the Years Ended December 31. u2, C0 9u9 r! 0t>: 5 S99-- ; 336 : 316 0 ((*) {*! S291 , 919 9 991 5 h" $ :m 1v 0 sne-;' 120 5' 65 U1' m 5 19 9 25 8 69 .1 u;> $ 19 9 (9 5 99 6 c 6' 46 9r SlUJ 0) M2 U) 1 r, $ 18 .6 lb' 5 1l 9 ] . 8' $ 9 ;* lit Results to; 1? monmc ended bubininhu: .v mgs on a one-guade; cioiav bas tonsil-, its equity tn e.im (g: Equity emninq-j reported bv Asarco 'riciudf k.i>f;am jdiur.fmenfs to conform with United States reporting standards Significant adjustment;, include tho ei:oqn tion m 1986 ot $13 4 m net foreign exchange gams M98S $73 1984 $38 6). the $1 7 capitalization of interest cost m 1984 a $4 y cost ol sales charge in l98fi tor h<Qh historical cost inventory produced prior m devaluation ot the Australian dotiai (1986 $90 6) the elimination ol $i -1 m 1981.11985 $5 6) resulting from Changes m the economic fives or certam (jopreoAb'u assorts in accordance with MiM s review pcmcy. and the $15 9 e'lni-nuiiO'i m t98ti ot MIM's reported exhnnr dmary 'OSS from the amortization of deterred unreal.zed exchange losses pen cipauyonU S doilar-denominated debt (m Under Mexican accounting siandarns a\r-ompan.e:, ,ee rerjipred to present financial statements on an intMtuuii'ns'svi oavs A:, ruuiiit of MEDiMDA s use nt mtiatiun nr.couMiing an,; -/*, ,>in v- rr t lulled Status re porting standard:; Asaron ha;, mr rea sea i :i--r OM'-mdi m, '.i.,tr,> of Ml [ JiMSA s earnings by $5 3 in l9Ht>, $(6 5i m 1986 A'-d $/1;> "i 198-1 tor the rjiltereni.e between intiAtinn-b.isud versus tuston-..j sum Imsl-J tuiHhuMi slaiernents inacfcM-O'- fgre,gn u/ctiang*-tj.ens of $ f9r... : b 0 u> 1986 and$;';' S 1984 resu'lmg horn torn.on cn"enc/ h r .'Afro'. y,..fo 9'i.rigm/eg try As.\u i. I no 1986 lran:;!ati(;n gam WA'- Oh'mt bv `"m.matir ' .t Ml (JiMSA si . j ( nt. |.i,n ; ':*:.hang-: ovum net of ia 8. ACQUISITION OF THE RAY MINES DIVISION On November 18. 1986. the Company purcnased tne assets of the Ray Mines Division, located in Arizona, from Kennecott Corporation, a subsidiary of The Standard Oil Company The purchase price was $72.0 million in cash plus assumption of certain liabilities. Asarco's costs associated with the acqui sition, and participation by Kennecott in an amount equal to 25% of the incremental revenues generated by the Ray mine from Comex copper price increases above 68 cents a pound adjusted for cost inflation The price participation will be limited to a 10-vear period beginning November 1986 ana will also be iimited in tne aggregate to S65 0 million, Such payments will be capitalized as an additional property cost The assets acquired are principally comprised of an oper ating open-pit copper mine, its related facilities ana equip ment. and a copper smelter which is not presently operating The purchase price was allocated to tne assets acauired based on their fair values at tne aate of acquisition For sev eral years prior to its acquisition dv Asarco. the Rav Mines Division had sold its copper concentrate production to Asarco 9. DEBT AND AVAILABLE CREDIT FACILITIES (in millions) Long-Term DeD! al Decemoer 31. $350 0 revolving credit agreement dated OctoOer 1985 fultv available unti: June 30 1988. and declining tnereatier in Quarterly amounts ot approximately S22 0 until March 31 1992 7'/h% notes i authorized S70.0J due April 1 199-L prepaid in Juiv 1986 9:'/-:% Sinking Fund Debentures tauinonzed S'00 0) due 2000. Sinking Fund payments ot S6 0 reauired annua:.'. Debentures nave oeen purcnasea covering payments througn 1993 $69 3 Industrial Development Authority of the Countv ot Gita. Arizona Pollution Control Revenue Relundmg Bond Series 1985. due 2006 Obligations under Nueces River Aulnornv (lexasi 7 '-% Environmental Improvement Revenue Bonds Series 1976--A and B (authorized S55 01 due 2006 Payable in annual installments ot $1 3 commencing in 2004: $3 0- 2005 with balance payable at maturity Obligations under Lewis and dark County (Moniana) 6 Pollution Control Bonds 1976 Senes (authorized S370) due 2006 Payable m annual installments ot SO 6 commencing in 1992 through 2005 with balance payable at maturity Otherobliganons (various rates ana maturities: 4:/r% Twenty-Five Year Suoordmated Debentures tauinonzed S50 0) awe 1988 Sinning Funa payment of Si 2 required in 1987 witn balance pavab'e at matwriK Total long-term aebi Less, amounts due within one year Long-term debt - not due within one yea: 1986 S198 0 69 9 37 0 87 -I ,, 468 4 b9 S-Sti2 b 1985 $13' 0 36 6 b\ 69 3 O'* - 37 (' 88 1 6 f 44 7 8 1? 8 $-135 5 At December 31. 1986. total debt maturities were 1987-- $5.9. 1988--$6.9: 1989--$2 8. 1990--$2.5, 1991--S2.4 and $447.9 thereafter. Borrowings under the $350.0 revolving credit agreement bear interest, at Asarco's option, through June 30. 1988. at either the prime rate. %% over LIBOR (London Interbank Offering Rate), or %% over the CD Rate (the interest rate on certificates of deposit of certain major commercial banks), gradually increasing thereafter to 1 % over prime. 1 '/*% over LIBOR or 1 Vr% over the CD Rate after March 31. 1991 The Company has agreed to pay a commitment fee of Y-% per annum on the unused portion An informal agreement also exists with respect to the maintenance of additional com pensating balances equal to 3% of the loan commitment and additional compensating balances of 2% on loan com mitments used in excess of $300.0 The highest level of borrowings during 1986 under the above-mentioned facilities was $210.0 (1985--$270.0) At December 31.1986. $195.0 (1985--$137 0) was out standing at a weighted average interest rate of 7,0% (1985--8.9%). Borrowings averaged $174 0 for 1986 (1985--$195 1). with a weighted average interest rale of 8.0% (1985--9.0%) The $69.3 Industrial Development Authority of the County of Gila. Arizona. Pollution Control Revenue Refunding Bond agreement gave the Company the option to borrow funds either through a tax-exempt variable-rate loan agreement or through the tax-exempt demand note market. Borrowings under the former bore interest at 73% of the prime rate with a '/?% per annum commitment tee payable on unused por tions. while borrowings under the latter bore interest at the current tax-exempt demand note rate At the Company's option, the interest rate can be converted to a fixed rate of interest, not to exceed 20%. at any time Prior to the interest conversion date, the Company has the option of redeeming the bonds at par The bonds were supported by an irrevoc able letter of credit, on which there was a '7% per annum fee. expiring on January 15. 1990 In order to provide for the remarketing of the bonds, the Company entered into a remarketing agreement on which tnere was a '/% fee per annum In addition, the Company was paying '/>% per annum facing fee on the outstanding principal balance The outstanding balances under tne above Gila County (Arizona) Pollution Control Revenue Refunding Bond had a weighted average interest rate at December 31. 1986. of 4 9% (1985 - 7 0%) ana a weighted average mleresl rate for 1 25 1986of 5.1% (1985--5.3%) At December 31. 1986. the obliga cated Commencement Ba\ area lacoma Washington tion was financed entirely with tax-exempt demand notes (1982): tne Richer Minina Fieia in Niortneastem OKianoma In January 1987. the Company converted the $69.3 bond (1982). the Yak drainage tunnel iccateo near tne Company s issue from a variable interest rate to a fixed interest rate of mine in Leadvilie. Colorado (1983) and lean ana zinc mining 0.9% and also terminated the bank support agreements for areas in Southeastern Cherokee County. Kansas (1985) the issue. The Company's debt agreements contain a number of These notices, issued under authority granted to the EPA by the Comprehensive Environmental Response. Compensation restrictive financial covenants. The Company is required and Liability Act of 1980 (CERCLA) tne supertuna" law. to maintain a tangible net worth of at least $675.0 through state that EPA believes Asarco is potentianv a responsible March 31, 1988, increasing to $700.0 through March 31. 1991. party as defined by CERCLA for such releases and mav be and $725.0 thereafter. On December 31. 1986. the Compa liable for the costs, if any. necessary to correct the problems ny's tangible net worth equaled $869.5. Another financial at these locations. In 1983. the area arouna the Company s | covenant prohibits the Company from incurring after October East Helena smelter was listed tor studv under CERCLA In ! 31,1985, cumulative operating losses in excess of $70.0. January 1987 the State of Texas listed parts of Federated The agreement defines cumulative operating losses incurred Metals' former Houston plant site on the state's "Supertuna ; after October 31,1985, as net losses excluding foreign ex Registry." Corrective action is being unaertaken by the EPA change translation gains or losses related to M.I.M Holdings at the Picher Mining Field site. The Company has insufficient Limited, unusual items and extraordinary items, reduced by information to determine whether corrective aciion at any 50% of the proceeds from any sale of Company common or of the other sites is necessary under CERCLA and. it so preferred stock. At December 31. 1986. the Company would whether it has any liability with respect thereto Several other be permitted to incur $98.8 of future operating losses as parties have been advised of their potential liability for the defined by the covenant The Company's senior debt is not Picher Mining Field. Leadvilie and Tacoma sites The Com permitted to exceed the lesser of 75% of tangible net worth pany has received notices at two other sues m winch it or $650.0 until March 31. 1988. and 65% of tangible net worth believes its aggregate financial exposure will be modest thereafter. Under the most restrictive loan agreement cove In 1983. the State of Colorado filed two lawsuits against nants at December 31, 1986, the Company could have bor Asarco. under CERCLA and state law. in federal court in rowed $150.9 in addition to its then-outstanding indebtedness Colorado, alleging emissions of hazardous substances from The Company has entered into three agreements to fix the the Company's Globe Plant in Denver, and from the Yak drain rate on a portion of its variable rate debt. The first two agree age tunnel, referred to above The suns claim substantial ments became effective in 1983 and -1984 with durations of damages for each release into the environment, and the state 10 years each, and require the Company to make an average law claims seek to compel clean-up ot the sites In Septem fixed interest payment of 12.8% per annum on an agreed ber 1985. the court, in ruling on a motion in the Globe case, principal amount of $12.4 against receipt of interest pay found the Company liable for two minor releases from the ments based on a floating rate at LIBOR on the same agreed plant without permitting the Company to submit evidence principal amount. The third interest rate exchange agreement that the releases did not occur The court also ruled in that became effective April 26. 1986. and has a duration of seven case that under CERCLA the state could recover for damage years, requiring the Company to make fixed interest pay to private lands, including the plant site, as well as tor dam ments of 8.2% per annum on an agreed principal amount of age to publicly owned lands. In connection with the action, $100.0 against receipt of interest payments floating at LIBOR the state and the Company have entered into a |omt program on the same agreed principal amount. The effect of these to study the environmental impact of the plant site. The study agreements is recorded in operating results as LIBOR is nearing completion. In addition, in December 1986 the moves above or below the fixed rates the Company has State of Colorado Department of Health served on the Com agreed to pay. LIBOR averaged 70% during 1986 (8 4%-- pany an order alleging non-compliance by the Globe Plant 1985; .10.8%--1984) resulting in $1.7 ($0.5--1985; $0.1 -- with State Hazardous Waste Management requirements The 1984) of additional interest expense to the Company under Company has requested an administrative hearing sched such agreements. uled for April 1987 Additional parties have been joined as Asarco also has short-term bank loans outstanding. The third-party defendants in the Yak drainage tunnel case, and highest level of borrowings was $18.3 (1985--$50.4. 1984-- in August 1986. the state brought a similar action in state $50.9). At December 31, 1986, $72 (1985--$24.8; 1984-- court seeking remedial action under state law. This action $272) was outstanding at a weighted average interest has been stayed by the court. Also m August 1986, the fed rate of 8.6% (1985--9.2%: 1984--8.8%). Borrowings eral government brought a similar action m federal court averaged $15.1 (1985--$241; 1984--$35.0) for the year, seeking remedial action under CERCLA A motion to consoli with a weighted average interest rate of 79% (1985--10.6%. date this case with the other federal court action is pending 1984--11.8%). In 1983. Wickland Oil Terminals, a California corporation, 10. LITIGATION sued Asarco and the State Lands Commission of California in federal district court in California seeking as to Asarco a Asarco received notices from the United States Environmen- declaration thal Asarco is solely responsible for clean-up al Protection Agency (EPA) concerning releases or threal- costs due to emissions from the slag piles at the site ot ened releases of hazardous substances, pollutants or other Asarco s former Selby. California, smelter and $400,000 iri contaminants al the following locations, in the years indi damages for CERCLA response costs allegedly incurred by Wickland at the site. Asarco's interest in the Selby site was sold to Wickland in 1977 and the site has been listed by the State ot California as having the potential of requiring reme dial action as a result of hazardous substances found at the site. All claims in the action were dismissed by the dis trict court, but the dismissal was reversed by the United States Court of Appeals for the Ninth Circuit The case was remanded to the district court for further proceedings Lac d'Amiante du Quebec. Ltee (LAQ). a wholly owned subsidiary of Asarco, as of December 31, 1986, was one of several defendants in 522 lawsuits brought by 587 primary and 465 secondary plaintiffs in the state or federal courts in 21 states. The primary plaintiffs seek substantial money damages for alleged personal injury or death allegedly caused by exposure to asbestos fibers. The secondary plaintiffs seek recovery for damages caused by the injury or death of another. In some instances, both primary and sec ondary plaintiffs also seek punitive damages. Asarco is a defendant or a co-defendant with LAQ in 20 cases brought by 20 primary and 14 secondary plaintiffs. As of December 31. 1986, LAQ has settled, and LAQ and Asarco have been dis missed from, a total of approximately 1,928 asbestos per sonal injury lawsuits brought by approximately 5.532 primary and approximately 2,239 secondary plaintiffs. Asarco has settled one lawsuit brought by one primary and one second ary plaintiff. LAQ is a defendant along with numerous other companies in lawsuits seeking removal or containment of asbestos-con taining products in buildings. One such action brought in federal court in Philadelphia. Pennsylvania, has been certi fied to proceed on behalf of a class of all public school districts and private primary and secondary educational in stitutions in the United States. In addition, as of December 31. 1986. LAQ was in 56 additional lawsuits: three other pur ported nationwide class actions (hospitals, colleges and universities, private buildings under lease to the federal gov ernment), three purported statewide class actions (Pennsyl vania schools, Pennsylvania public buildings. California homeowners), and 50 actions brought on behalf of 165 indi vidual school districts in six states, public buildings in 11 cities, counties, states and universities, and one private reha bilitation center. In general, each of these actions also seeks substantial actual and punitive damages. LAQ has been dismissed from 11 such actions, and Asarco has been dismissed from nine actions in which it was named. As of December 31, 1986. Capco Pipe Company, Inc. (Capco), a wholly owned subsidiary of Asarco, was a defen dant or third-party defendant in 10 actions brought by 14 dockworkers in federal court in Texas. These actions allege personal injury or wrongful death from exposure to imported asbestos while unloading ships In addition, Capco has been sued in lawsuits alleging wrongful death or injury to three other persons due to exposure to asbestos-containing products In 1983, LAQ sued three insurers in federal court in New Jersey for (1) a declaration of rights and obligations under various umbrella and excess liability insurance policies as to claims asserted against it for personal injury and property damage alleged to have resulted from asbestos sold by LAQ, and (2) damages in excess of $7 million In 1985. the court granted LAQ s motion for partial summary juaament lump that LAQ's insurance policies snouio oe interpretea to pro vide it with the comprehensive continuous tneorv ot cover age. which it sought, for its asDestos-reiatea personal injury and property damage litigation In 1986. the court ruled that the insurers have defense-cost obligations in addition to tneir policy limits. In 1985. Asarco was servea with writs joining it as an additional defendant in 49 lawsuits brought during the period 1981 through 1984 by 49 individuals, and in most cases their spouses, in state court in Philadelphia Pennsylvania The lawsuits are for alleged personal injuries due to workplace exposure to lead, other heavy metals and chemicals at a secondary lead smelter in Philadelphia Asarco is a defen dant in lawsuits brought by five other plaintiffs seeking damages for personal injury or death allegedly caused by exposure to lead In 1978. the Gila River Indian Community filed an action in the federal district court in Arizona against numerous water users, including Asarco and other mining companies, chal lenging the right of the defendants to use "waters of the San Pedro River Watershed." including the Company's use at its Hayden smelter and at farming operations located in that area. In 1980, in General Adjudication proceedings initiated by Asarco. the court ordered that tne determination of the water rights be made in state court witn the damage and injunctive portions of the Indian claims to be retained in fed eral court but abated pending the state court determinations The Company has been made a party to similar General Adjudication proceedings regarding tne Salt River Watershed and the Gila River Watershed which potentially affect water used at the Company s Arizona copper mines. It is expected that each of these proceedings will take several years to reach trial The Ray Unit formerly obtained from the Gila River Indian Community by settlement the right to use sufficient water for its operations upon payment ot specified amounts The Settlement Agreement has been assigned to the Company subject to the tribe's consent which has been requested The Ray Unit is also involved m the San Pedro water litigation described above While Asarco is unable lo estimate the ultimate dollar amount of exposure to loss, n is the opinion ot Asarco's management that the outcome of the suits and proceedings mentioned, and other miscellaneous litigation and proceed ings now pending, will not materially adversely affect the operations or the financial position of Asarco and its consoli dated subsidiaries 11. REDEEMABLE PREFERRED STOCK At December 31. 1986 and 1985. Asarco had outstanding 1.550.000 shares of Series A Cumulative Preferred Stock and 1.250.000 shares of Series B Cumulative Convertible Pre ferred Stock The Series A is a 15-year sinking fund preferred with an annual dividend ot $700 per share The Series B is a convertible 15-year sinking fund preiened with an annual div idend of $6.25 per share and convertible into common stock at $45.19 per share as ot December 31. 1986 (initially convert ible in 1981 at $60 00 per share) The terms of the preferred shares prohibit payment of divi dends on common shares in the event that dividends on the preferred shares have not been paid. The Company is re quired to redeem annually, at S50 per share, 155.000 shares of Series A beginning in 1987 and 178.572 shares of Series B beginning in 1990. If payment on preferred stock of either six quarterly dividends or two mandatory redemption payments are in arrears, the preferred stockholders of all issues, voting separately as a single class, have the right to elect two direc tors to the Company's Board of Directors. At December 31, 1986, aggregate annual redemption requirements in millions were $77 in 1*987 through 1989, $16.7 in 1990 through 1991 and S83.5 thereafter. 12. CONVERTIBLE EXCHANGEABLE PREFERRED STOCK In a third quarter 1986 public offering, the Company sold 3,450,000 shares of $2.25 Depositary Convertible Ex changeable Preferred Stock, each representing ownership of one-fourth of a share, or a total of 862.500 shares, of $9 Convertible Exchangeable Preferred Stock. The net pro ceeds of $82.3 million were used to repay debt. The Convertible Exchangeable Preferred Stock has a liquidation preference of $100 per share in an involuntary liquidation, or $100 plus a premium per share in a voluntary liquidation. The preferred stock is convertible into common stock at the option of the holder at any time at a conversion price of $15 per share of common stock, subject to adjust ment in certain events, and will be exchangeable, as a whole, at the option of the Company on any dividend date beginning August 15,1989, for the Company's 9% Convertible Subordi nated Debentures due 2011 The debentures will also be convertible into common stock of the Company at the option of the holders. If payment of six quarterly dividends on any series of preferred stock is in arrears, the preferred stock holders of all series, voting separately as a class, have the right to elect two additional directors to the Company's Board of Directors 13. COMMON STOCKHOLDERS' EQUITY In a third quarter 1986 public offering of preferred stock, the Company also sold 3.375.000 common stock purchase warrants at a price of $3'/8 per warrant. The $10.0 million net proceeds may be used to purchase a portion of the Com pany's outstanding redeemable preferred stock, and at December 31. 1986. were invested in marketable securities. Each warrant gives the holder the right to purchase one share of common stock of the Company at a cash price of $16.09. subiect to adjustment unaer certain conditions, until August 15.1991. when the warrants expire During 1985. the Company solo in a public offering 3.450.000 newly issued common snares at S22 '-s per share, thereby generating cash proceeds of S75 7 million which were used to reduce bank borrowings unaer existing revolv ing credit and term loan agreements Stockholders approved in 1985 an amendment to the Company s Certificate of Incorporation increasing the author ized number of common shares from 40.000.000 shares to 80.000.000 shares. The Company purchased for corporate purposes 1.012 common shares in 1985 (1984--100 snares) In 1986. 189.220 common shares (1985--223119 shares. 1984-- 120.402 shares) were used for additional compensation, stock option, bonus, savings ana salary adjustment plans "Retained Earnings' at December 31, 1986. included un distributed earnings of $185 7 million tor nonconsolidated subsidiaries and $4679 million for all other investments ac counted for by the equity method. At December 31. 1986. "Retained Earnings" included Asarco s equity of $193.2 mil lion in restricted net assets of a nonconsolidated associated company, as described in note 7 ana a consolidated Peru vian subsidiary The restriction results from foreign currencv controls established in fhe third quarter of 1986 by the gov ernment of Peru. "Retained Earnings' has been reduced by cumulative foreign currency adjustments of $5 4 million at December 31. 1986 ($5.5 million--1985: $5 4 million--1984) Stock Options Under a stockholder-approved, common stock option plan, as amended, options when granted are exercisable within 10 years and al a price equivalent to fair market value on date of grant Options granted may be non qualified or incentive stock options, as defined under current provisions of the Internal Revenue Code Stock options for 734.153 shares were outstanding at December 31. 1986. at prices ranging from $14,70 to $41 63 per share The Plan permits the granting of "Stock Appreciation Rights " (SARs) to officers holding options An SAR permits an optionee, in lieu of exercising his option, to receive from the Company payment in an amount equal to the difference between the market value of the stock on the date of exercise of the SAR and the purchase price of the stock under the terms of the option At December 31. 1986, twenty-seven indi viduals held SARs covering options for 385.565 shares, rang ing in price from $20.57 to $41 63 per share, exercisable as either regular stock options or SARs Shares under ihe plan. December 31 1984 Granted at $21.94 Exercised at $18 75 lo $22.32 Cancelled al $21 94 to $41 63 Expired al $18 75 to $41 63 Shares under the plan. December 31 1985 Granted at $14 70 to $20 57 Cancelled at $20 57 to $41.63 Expired at $18.75 lo $4163 Shares under the plan. December 31 1986 Authorized 1 815,663 1 815.663 1 815 663 Numoer of Shares Granted Regular 899 93? 135 800 (26 840) 110 200) 347.080 4 no 998 692 143 800 117 307) (13.999) 351 195 1 1 r 1 186 30: 190 Exercised SAR 25.836 20,838 23.836 lolal 372.923 4 110 37 7 033 3 77 035 14. RETIREMENT PLANS (in millions) The Company and its subsidiaries maintain several non contributory, defined-benefit pension plans covering sub stantially all employees. Normal retirement age is 65. but provision is made for earlier retirement. Benefits for salaried plans are based on salary and years of service, while hourly plans are based on negotiated benefits and years of service In December 1985. the Company adopted, retroactive to January 1. 1985, the principles of "Statement of Financial Accounting Standards No. 87 Employers' Accounting for Pensions." Accordingly, the Company changed its actuarial method for financial reporting purposes from the aggregate cost method to the projected unit credit method which attrib utes an equal portion of total projected benefits to each year of employee service. In addition. SFAS 87 required a change in gain or loss recognition on the valuation of plan assets versus the projected plan benefit obligations. The effect of the changes resulting from the adoption of SFAS 87 reduced 1985 pension expense by $16.0 and increased the accumu lated benefit obligations of Company-administered pension plans by $71.6 The actuarial computations, using the projected unit credit method, assumed: a discount rate on benefit obliga tions in 1985 and 1986 of 9% declining to 8% at December 31, 1986: an expected long-term rate of return on plan assets of 10%: and annual salary increases of 6% over the average remaining service lives of salaried employees under the plans. Variances between actual experience and assump tions for costs and returns on assets are amortized over the average remaining service lives of-employees in the plans The Company continues to use the aggregate cosl method in determining its annual funding requirements tor its largest pension plans The aggregate cost method treats current changes in pension benefits, which are affected by credited past employment services, as future costs to be funded from future earnings. Thus, under this actuarial method there is no unfunded prior-service liability. The actu arial computations used with this method assume an interest rate return on plan assets of 8% (7'/2%--1985 and 1984): and 6% annual salary increases over the average remaining service lives of salaried employees under the plans Cost variances resulting from changes in other assumptions are spread over the average remaining service lives of the plans' participants. Actual investment income in 1986 was immedi ately recognized and in 1985 and 1984 was averaged over three years. Benefits under the hourly plans are not based on wages and therefore no benefit escalation assumption be yond negotiated increases is allowed by I.R.S. regulations. Net pension costs (credits) included in operating results for Company-administered pension plans amounted to $(13.3) in 1986, $(79) in 1985 and $15.5 in 1984 The net pension credits in 1986 and 1985 were comprised of: _________ 1986 1985 Service cosl .... Interest cosl on projected benefit obligations Return on plan assets Amortization of excess plan net assets at adoption of SFAS 87 Other items . .. $ 47 26? (372) (4 5) 12 5) $ 47 25 8 (31 Oi (4 5) (2 3) Total net pension credits $(13 3) S (79) The taoie of actuanaiiv comoutea benefit obligations ana trusteed net assets tor Compam -administered pension plans is presented below at Deeemoer 31 1986 and Decem ber 31. 1985 Plan assets are stated at fair value ana are composed primarily of U S Treasury obligations and group annuity contracts with major insurance companies at De cember 31. 1986. At December 2f. 1985. plan assets were composed primarily of corporate equity and aebt securities and group annuity contracts w:tn major insurance compa nies. Unrecogmzea net excess p:an assets ana previously accrued but unfunaed pension costs at the adoption ot SFAS 87 are being amortized against net pension costs over trip remaining service lives ot employees or approximately 12 years Lk'C 3* I98e her 81 199:-* Actuarial present value ot oeneO obligations Vested Nonvested S 2HJ 3 Ci V1 $ J.YU 7 h Toiai accumulated benefit obligations $ 291 2 $ 2(59 9 Projected benefit obligations kh services rendered to date Plan net assets al tan vaiuo Excess ot pian assets over protected oenetf! oonaations Unrecognized net gams Unrecognized net excess roan assets and previously accrued but untunaec pension costs to be amor iized Net prepaid iaccrued) pension cost- $ 2M 2 1400 9! 86 7 (32 l > M9 (>) ; :> (i $ 291 2 (372 3) HI 1 (39 7) (M 11 $ (12 7) The hourly employees ol the Company s coal mining operations are covered by a muitiemplover defined-benetit pension plan which is administered bv the United Mine Workers Operating results were charged with $0 9 in 1986 (1985--$0 9: 1984--$1 4) representing the Company's contributions to the plan In addition, the Company and certain of its consolidated subsidiaries provide post-retirement health care and lite in surance benefits for retired employees Employees may be come eligible for these benefits it they retire while working tor the Company These benefits are generally expensed upon receipt ot life insurance premium invoices or upon receipt ol valid health care claims Post-retirement benefit costs were expensed in the amount ot $3 8 in 1986. $3.9 in 1985 and $4.1 in 1984 15. BUSINESS SEGMENTS Asarco and its subsidiaries operate principally in the pri mary metals industry The Company carries on other impot tant operations in two industry segments, asbestos and coal Operations in primary metals (copper, silver, lead, gold, zinc and related by-products) involve the mining, smelting and refining and selling of primary metals from nonterrous ores and concentrates Until June 30. 1986. as bestos operations were carried on principally by a wholly owned subsidiary in Canada where the asbestos fiber was mined and sold for international delivery Effective Business Segments nn millions! 1986 Sales ot products and services Intersegment sates . Total revenue Income (Loss) from products and services Depreciation and depletion Other income and deductions tai Earnings (Loss) before equity in results ot nonconsondatea associated companies Equity in earnings of nonconsoliaated associated companies Earnings (Loss) before taxes on income Identifiable assets Property expenditures .. Primar, Meiaif. S 909 r 02 S 9`0-: 5 94 9 (46 6i (37 6> 10 7 5 10 r S1.0H 3 92 7 Asbestos 569.6 S69 6 S 26 (1 7) (2 2! (1 3) S (! 3t $50 5 02 Coa Si5 6 S15 6 S 0.6 (1 6l (0 8' (1 6 sue. $3S 2 04 Ofv 5 6` c S 62. 5 :0 y :2v 2 c 5v 5 56 5 39 t. 09 Corncva\e lota c. ill) S n i' S (0 i . (0 6! 119 9) 51.056 5 $1 056 6 S 109 :. 153 0) (63 3> 120 6' JO 6 $ S700 ' 05 (7 2' 20 6. 5 13 4 Si.840 8 9-1 7 1985 Sales ol products and services Intersegment sales . . Total revenue Income (Loss) trom products and services Depreciation and depletion Other income and deductions (b) Earnings (Loss) before eauity in results of noncansolidated associated companies Equity in losses of nonconsolidatea associated companies Earnings (Loss) before taxes on income Identifiable assets Property expenditures St.008 6 8 $1.009 6 S 90 2 (50 0) (49 9i 19 7! S (9 75 955 6 22 5 S77 5 S77 5 S 89 (2 4] (3 7! 28 S 28 561 4 10 sir. 8 $15 8 S 12 (1 9! (0 6,. 11 5> S (1 5> $4 1 6 15 S 64 8 5 66 2 ji j^ g >2 [ : 2.' S 46 t n- (2 O' J l2 0t 3 tl) 11 133 91 (34 O'- 1 IQ 7) 5 i53 '' i 5636 3 01 $1 166 9 S' 166 9 $ 107 8 (57 2) (90 Hi (40 2! 119 71 $ (59 9! $ i 743 4 25 8 1984 Sales of products ana services (ui Intersegment sales SI.087 3 38 S94 4 531 n c, .. - < 1 4 7) $1,325 1 Total revenue St .09! 2 594 4 $31 6 $H2 i- 2 (4 71 $1,325 t Income from products and services Depreciation and depletion Other income and deductions lb) $ 52 4 (55 71 (278 7) SI 4 0 (2 3) 14 5l S 78 (3 21 M 31 ' 5` !7 3 (30 6 S 01 (44 5t $ 8? 4 (64 1) (359 61 Earnings (Loss) before eouity in results ol nonconsolidated associated companies Equity m earnings of nonconsoliaated associated companies Earnings (Loss) before taxes on income (282 0) S (282 0) 72 57 33 S 33 (25 4 S (25 4 (44 4 i 31 7 $112 7) (341 3) 31 7 $ 1309 6) Identifiable assets Property expenditures Si.068 0 24.8 $66 6 10 $45 6 02 S 59 i 33 $706 6 53 $1.945 9 34 6 (a) Tne Primary Metals segment includes income ol $3 I from the sale ot a 25% interest'in an Australian exploration and mining MjbMa.n, r- 'meriy wholly owned till- Corporate segment includes income ol $9 0 trom a ngms ottering bvMIM Holding:j i imited as described in note 7 (b) inciuaes unusual pre-tax charges, as described m note 2. as follows 1985 $4 5 m Primary Meta is 1984 S22H 7 m Pnrrin rf'Mi:!,i.'.,v i 525 A m Uthet (c> In 1984 a maior customer accounted for Primary Metars revenue ot $148 2 (d) The "Other segment includes certain businesses that historical'-,' nave nev'*' been r epoded au separate:..ogmont , in IhHh. ...... . tne 10% earnings criterion tor separate disclosure due lo a substantia1 improvement n cnnv/idated n.-Mjtt At. cordmg'y si;Par.it-d considered appropriate m these circumstance'. nt these businesses exceeded -'urn ol MK.n businet,ses is not 30 July 1. 1986, the Company's wholly owned subsidiary trans ferred Cdntrol and use of Its asbestos mining operations to a newly formed partnership for a 33'/3% limited partnership interest. The partnership resulted from an industry-wide ra tionalization of asbestos mining in Canada Also included in the asbestos segment is a wholly owned subsidiary which produces and markets in the U S. asbestos-cement pipe and polyvinyl chloride pipe. Coal production is sold principally to midwestern public utilities and industrial users Total revenue by industry segment, including both sales to unaffiliated customers and intersegment sales, is accounted for at the current market price when sold. "Income from prod ucts and services" consists of total revenue less operating expenses. The computation of "Income from products and services" excludes "Other income." "Other deductions" and "Equity in earnings (losses) of nonconsolidated associated companies." General corporate administrative expenses are allocated among the segments generally in proportion to their operating expenses. Most research and exploration expenses are attributable to the primary metals segment. Identifiable assets by industry are those assets directly used in the operations of each segment. Corporate assets are principally cash, marketable securities and investments Export sales of products and services, primarily to Europe, were $128.6 million in 1986, $151.3 million in 1985 and $1378 million in 1984. It is not practicable to furnish information with respect to tne relative profitability ot saies ot oroaucts and services to customers in toreign countries At December 31. 1986. the book vaiue ot Asarco s invest ment in nonconsolidated associateo companies with primary operations outside the United States amounted to approxi mately $6073 million In addition, at December 31 1986. the identifiable assets attributable to foreign locations amounted to approximately $116 0 million, of wench S53.3 million were in Canada There can be no assurance that operations ana assets of Asarco and nonconsoliaated associated compa nies that are subtect to the jurisdiction of foreign governments may not be adversely affected by future actions by such governments. Primary Metal Sales, excluding intersegment saies (in millions) Copper Silver Leap Goia Zinc Services Otner loiai primary metai sale-.- 19b0 $4 74 3 150 5 SO 9 60? 05 0 120 - S9CV ~ 1955 S 4(h) 7 0-13 0 63 4 63 8 28 0 03 ? 119" S', 008 8 1984 S 423 <' 312 0 71 8 i0? : too 30 3 130 0 S1 08 .1 16. UNAUDITED QUARTERLY DATA (in millions, except per share amounts) Sales of producis and services Income from producis and services (a) . . Earnings (Loss) Defore taxes on income (b) (c) Net earnings (loss) . Primary net earnings (loss) per common share is: 1986 1986 $291 6 $260 7 13 5 29 l (28 9) (29 2) (14 0) (14 1 i (1 22) (0 70) 2nd 1986 1985 $257 4 S305 9 26 7 29 0 (5 2) (7 6) (15 5) (16 0i (0 43) (0 711 Quaners 3rd 1986 1985 S252 r $291 4 30 0 162 18 5 (6 9l 176 (7 2) 0 42 10 40) 1980 $254-8 38 y 29 0 28 3 0 77 1985 $308 9 lolfii 1986 1986 $1.056 6 $1,166 9 33 5 109 1 107 6 123 5) 13 4 (59 9) 1 ?4 9) 9 1 (62 21 (1 06) (0 40) (2 87) (a) Includes the recognition ol ore-lax promts trom me Jioutaaiton ot L iFG inventor of 0 .n tne second Quarter iy8t- SB n quarter 1986 and $14 6 m tne lourtn quarter 1985 (b) First Quarter 1986 includes income ol $3 6 Irom the saie ol a joint venture interest m tne Wnuna gold protect if' AusKh'm Knirm $3 1 irom the sate ol a 25% interest in an Australian exploration and mmuty suusiaiary tomiefiy wnanv owned (c) Reler to note 2 on 'Unusual Items ' toac, $u 9 m me lourm 19Bb includes income ot AUDITORS' REPORT To the Board of Directors and Stockholders of ASARCO Incorporated We have examined the consolidated balance sheets ol ASARCO Incorporated and Consolidated Subsidiaries as of December 31, 1986 and 1985, and the related consolidated statements of earnings, changes in financial position and changes in common stockholders' equity for each of the three years in the period ended December 31. 1986. Our examinations were made in accordance with generally ac cepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing pro cedures as we considered necessary in the circumstances. In our opinion, the consolidated financial statements referred to above present fairly the financial position of ASARCO Incorporated and Consolidated Subsidiaries at December 31,1986 and 1985. and the results of their opera tions and the changes in their financial position tor eacn of the three years in the perioa ended December 31. 1986 in conformity with generally accepteo accounting principles consistently applied, except tor tne change, with wnich we concur, made as of January 1. 1985, in tne method ot ac counting for pension costs, as aescnoea in Note 14 to the consolidated financial statements 1251 Avenue of the Americas New York. New York January 30. 1987 COOPERS & LYBRAND EXECUTIVE OFFICERS Richard de J. Osborne Alexander J. Giliespie. Jr George W Anderson Thomas C. Osborne William A. Benms Robert J Bothwell. Jr. Richard L. Brown. Jr. John R Corbett Augustus B. Kinsolving Robert J. Kupsch W. Scott Latimer Francis R. McAllister Stephen P McCandless Robert J. Muth Ronald J O'Keefe Harold E. Kelshaw. Jr. Chairman of the Board. Chief Executive Officer and President Vice Chairman Executive Vice President Executive Vice President Vice President (Administration) Vice President (Sales) Vice President (Exploration) Vice President (Industrial Relations and Personnel) Vice President. Secretary and General Counsel Vice President (Mining) Vice President (Ore) Vice President (Finance and Administration) Vice President and Treasurer Vice President (Government and Public Affairs) Controller General Auditor DIRECTORS Richara ae J. Osborne Willard C. Butcher Fletcher L. Byrom Sir James Foots David C. Garfield Alexander J Gillespie. Jr James R Greene Ralph L Hennebach Harry Holiday. Jr Louis W. Menk Michael T Nelligan Sir Bruce Watson Cnairman of tne Boarc Cnief Executive Otrice' ana President Cnairman ot the Boarc and Chip/ Executive Ohicer. The Chase Mannattan Bank NA Former Chairman ot tne Boaro KODpers Comoanv inc Director, various corpora,sons Former Cnairman and Chief Executive Otucer. M l M Holdings Limited now Deputy Cnairman ot the Board. M I.M Holdings Limned Chairman ot the Board. Westoac Banking Corporation Former President. Ingersoil-Rand Company Vice Chairman Director and Consultant to various international corporations, tormet President. American Express Bank Former Cnairman of the Board and Chief Executive Officer Former Chairman ot the Board and Chief Executive Officer Armco Inc Former Chairman ot the Board and Chief Executive Officer. Burlington Northern Inc. and International Harvester Corporation. Director, various corporations President and Chief Executive Officer. Don Ward & Co . former Chairman ot the Board. President and Chief Executive Officer Ideal Basic Industries. Inc Chairman ot the Board and Chief Executive Officer. M I M. Holdings Limited COMMITTEES OF THE BOARD CORPORATE INFORMATION Finance The Finance Committee reviews the plans of management relating to the Company's financial condition and present and prospective cash requirements and debt and equity financings out of the ordinary course of business. Fletcher L. Byrom. Chairman Willard C. Butcher Louis W. Menk Richard de J. Osborne Audit The Audit Committee recommends engagement of indepen dent auditors and reviews the plan and results of the audit. The Committee also reviews the Company's internal auditing function and the accounting and financial policies and pro cedures. The implementation and maintenance of the Com pany's system of internal control are recognized as primarily the responsibilities of management. James R. Greene, Chairman David C. Garfield Harry Holiday, Jr. Michael T Nelligan Pension Advisory The Pension Advisoiy Committee reviews pension fund matters and gives reports and recommendations on the subject to the Board of Directors. Louis W. Menk, Chairman David C. Garfield Alexander J. Gillespie, Jr. James R. Greene Ralph L. Hennebach Organization and Compensation The Organization and Compensation Committee considers and makes recommendations to the Board with respect to the nomination of directors and their compensation and com mittee assignments. It also considers organization matters and makes recommendations to the Board with respect to e ection of officers. The Committee determines compensa tion and benefits of officers, reviews compensation and benetits policy and administers the Company's additional and incentive compensation plans. Willard C. Butcher, Chairman Fletcher L. Byrom Harry Holiday, Jr. Michael T Nelligan Annual Meeting The annual meeting of stockholders of ASARCO Incorporated will be held on Wednesday, April 22.1987 at 2:00 p.m. in the Ground Floor Auditorium, 1 Chase Manhattan Plaza, New Mark, NY A transcript of the proceedings will be available after June 2.1987 to any stockholder upon request to the Secretary. The request should specify a proper purpose, and should include payment of $10.00 to cover the cost of postage and reproduction. Form 10-K Many of the Securities and Exchange Commission infor mation requirements are contained in this 1986 Annual Report. A copy of Asarco's 1986 Form 10-K (excluding exhibits) will be available after May 1.1987 upon request to the Treasurer. General Office 180 Maiden Lane, New 'fork, NY 10038 Corporate Office 28 West State Street, Trenton, NJ 08608 Transfer Agent and Registrar Morgan Shareholder Services Trust Company 30 West Broadway. New fork, NY 10007-2192 Stockholder Services Office 180 Maiden Lane, New fork, NY 10038 Phone 212-510-2000 Stock Exchange Listing The principal market for Asarco's Common Stock is the New fork Stock Exchange. The Stock Exchange symbol for Asarco Common Stock is AR. The principal market for Asarco's $2.25 Depositary Converti ble Exchangeable Preferred Shares is also the New fork Stock Exchange. The symbol is ARPr. The principal market for Asarco's Common Stock Purchase Warrants is NASDAQ and the symbol is ASRCW. Common Stock Price Ranges and Dividends Per Share 1986 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Stock Prices High Low 227/e 221/. 1774 1774 187e 14% 10 13% 1985 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 277a 27% 247b 197e 17% 20 19% 15% Dividends Per Common Share _____ ____ _____ -- -- ASARCO Incorporated 180 Maiden Lane : New York, New York 10038