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Regarding the smelter emissions, the third phase of the Ilo smelter modernization has started and is scheduled for completion by 2007. In July 2003, the Company awarded Fluor/Xstrata the contract to provide the technology and basic engineering for the expansion and modernization of the Ilo smelter. The selected proposal meets SPCC’s requirements, i.e., us- ing proven technology (ISASMELT from Australia) and complying with the current environmental regulations. It is estimated that the construction of the project will be completed before January 2007, the deadline established in the PAMA. This represents the largest capital investment project for SPCC. The cost of the project was previously estimated to exceed $600 mil- lion. The new estimated cost to complete this project is $320 million. 

Since 1995, and while this project is under construc- tion, SPCC is applying an emissions curtail program that has allowed it to comply with the annual SO$_{2}$ air qual- ity standard (established by the MEM in 1996) in the densely populated areas whithin the city of Ilo, and has been able to reduce breaches to the 24-hr air quality standard for the year 2004 to four episodes. Once the modernized smelter starts operating, no environmental risks are foreseen regarding this issue. 

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

Two major remediation projects were identified in the PAMA. One related to the old tailings conveyance and disposal sites, and the other, to the smelter reverberato- ry slag mentioned above. Environmental commitments regarding the tailings remediation have been fulfilled, and the slag program has an 88% completion, as re- ported by the government auditors. In the foreseeable future, the only reclamation/remediation plans concur- rent with operations are the ones already included in the PAMA. 

On October 14, 2003, the Peruvian Congress published a new law announcing future closure and remediation obligations for the mining industry. On March 14, 2004, the Peruvian Ministry of Energy and Mines (MEM) published proposed regulations for this law. 

The law was amended on May 28, 2004. The amended law, as published, announced a requirement for exist- ing mining operations to present the MEM with a Mine Closure Plan, within one year, or before October 15, 2004. Since the regulations have not been approved, on October 15, 2004, SPCC submitted the MEM a no- tice stating that based on current legislation the Com- pany was unable to make a reasonable estimate of its closure obligation. It is expected that final regulations detailing requirements will be published by the second quarter of 2005, and the Company will be required to submit its Mine Closure Plan thereafter. The law requires companies to provide financial guarantees to insure that remediation programs are completed. The Company anticipates that, when in force, this law will increase its asset retirement obligations and require future expenditures and amortizations over the life of the mine to satisfy its requirements. The liability for these asset retirement obligations cannot be presently measured, or reasonably estimated, based on the pro- posed generalities of this law. The Company is study- ing the impact of the law on its results, but it cannot reasonably estimate the effect until final regulations are published. 

Environmental capital expenditures for the period 2000-2004 exceeded $81 million. The Company fore- 

The third phase of the Ilo smelter modernization has started and is scheduled to be completed by 2007. 

sees significant environmental capital expenditures in 2005. Approximately $171 million have been budgeted for the smelter project in 2005. 

