Asarco Inc · 10-K405 · For 12/31/97

Filed On 3/16/98   ·   SEC File 1-00164   ·   Accession Number 7649-98-2

Annual Report -- [X] Reg. S-K Item 405   ·   Form 10-K
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Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- [X] Reg. S-K Item 405               128    646K 
 2: EX-27       Financial Data Schedule                                1      5K 

10-K405   ·   Annual Report -- [X] Reg. S-K Item 405
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      SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549

1997 FORM 10-K

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

For the fiscal year ended December 31, 1997        Commission file number 1-164 
                         -----------------                               -----

 ASARCO Incorporated

(Exact name of registrant as specified in its charter)

New Jersey                                        13-4924440  
(State or other jurisdiction of                         (I.R.S. Employer        
incorporation or organization)                        Identification No.)     

180 Maiden Lane, New York, N. Y. 10038
 (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code       (212) 510-2000         

 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                          Name of each exchange on
Title of each class                            which registered     
Common Stock, without par value                  New York Stock Exchange        

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.                                              

                                          Yes   X        No_____

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]                                                                 

As of February 27, 1998, there were of record 39,642,592 shares of Common Stock,
without par value, outstanding,  and the aggregate market value of the shares of
Common  Stock  (based upon the closing  price of Asarco  Common Stock on the New
York Stock Exchange - Composite  Transactions)  of ASARCO  Incorporated  held by
nonaffiliates was approximately $0.9 billion.                                   

PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:              

Part III:    Proxy statement in connection with the Annual Meeting to be held on
April 29, 1998.                                       
Part IV:     Exhibit index is on pages C1 through C4.                           

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A1                                                                              

PART I

Item 1. Business                                                                

Asarco,  a New  Jersey  corporation  organized  in 1899,  is one of the  world's
leading  producers of nonferrous  metals,  principally  copper,  lead,  zinc and
silver.  Asarco also produces  specialty  chemicals and  aggregates.  Asarco has
developed one of the largest copper ore reserve  positions in the industry.  The
Company's  copper business  includes  integrated  mining,  smelting and refining
operations  in North America and in Peru through its  subsidiary,  Southern Peru
Copper  Corporation.  The Company also operates a fully integrated lead business
in Missouri,  a custom lead smelting  business,  a silver mining  business and a
zinc mining business.                                                           

Enthone-OMI, a whollyowned subsidiary,  operates a worldwide specialty chemicals
business  focused on functional and decorative  coatings for the electronics and
metal  finishing   industries.   American   Limestone   Company,  a  whollyowned
subsidiary, produces construction aggregates.                                   

All tonnages are in short tons.  All ounces are troy ounces.  Dollar amounts are
in U.S. dollars unless otherwise  indicated.  "Asarco" or "the Company" includes
Asarco and subsidiaries.                                                        

Reference is made to the following  Financial  Statement  footnotes  included in
this report: Investments in Note 6, and Business Segments in Note 13.           

Additional business information follows:                                        

PRIMARY METALS

Principal Products and Markets
Copper Business                                                                 

The  primary  domestic  uses of  copper  are in the  building  and  construction
industry, electrical and electronic products and, to a lesser extent, industrial
machinery and equipment, consumer products and the automotive and transportation
industries. A substantial portion of Asarco's copper sales are made under annual
contracts to industrial users.                                                  

Asarco Copper Business                                                          

Asarco is one of the world's leading producers of copper. In 1997, production of
copper  from mines  managed by Asarco was 1.4  billion  pounds,  6.8% of western
world copper mine production.  Asarco's beneficial interest in copper production
in 1997 was 977 million pounds.                                                 

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A2                                                                              

Asarco's  copper  business  includes its integrated  copper  operations in North
America,  which accounted for 63% of its beneficial  copper  production in 1997,
and an  integrated  copper  business  in Peru  conducted  through a  54.1%-owned
subsidiary,  Southern Peru Copper Corporation  (SPCC). The North American copper
business  includes  the  Mission and Ray mines in  Arizona;  copper  smelters in
Hayden,  Arizona and El Paso,  Texas; and a copper refinery in Amarillo,  Texas.
Asarco also owns a 49.9% interest in Montana Resources'  copper-molybdenum  mine
in Butte,  Montana, a 75% interest in the Silver Bell copper mine in Arizona and
an 86.7%  interest in the Minto mine project,  a new  copper-gold  mine which is
currently  under  development  in the Yukon  Territory,  Canada.  The  Company's
Peruvian copper business,  operated by SPCC,  includes the Toquepala and Cuajone
mines, the Ilo smelter and the Ilo refinery, all located in the southern part of
Peru.                                                                           

The  Company's  beneficial  interest  in  mined  copper  production  in 1997 was
slightly  below the record  production of 1.0 billion  pounds  achieved in 1996.
Production declined in 1997 due to lower throughput as a result of the increased
hardness of ore principally at the North American copper  operations.  Partially
offsetting  this  decline in  production  was  increased  production  of solvent
extraction/electro-winning  (SX/EW)  copper  at Ray  and at  Silver  Bell  which
started up in July 1997. Production at SPCC increased in 1997 due to operational
improvements at the Cuajone concentrator and higher SX/EW production. Production
at the SX/EW plant now exceeds its original design capacity.                    

The Company's beneficial interest in refined copper production in 1997 set a new
record  of  1.4  billion  pounds.   The  increase  was  a  result  of  operating
improvements  at  the  Amarillo  refinery,  increased  capacity  at  SPCC's  Ilo
refinery, and the SX/EW production increases.                                   

Ore Reserves                                                                    

One of the strengths of Asarco's copper business is its large copper ore reserve
position. The Company's beneficial interest in copper ore reserves at the end of
1997 was 3.4 billion tons  containing 38 billion pounds of copper.  Ore reserves
are the key to a mining company's future and Asarco's position, which represents
a composite life of 38 years at current  production rates, is one of the best in
the industry.                                                                   

Copper Market                                                                   

Demand  for  copper in 1997 was at a record  level for the 12th  straight  year.
Despite this robust demand,  western world copper inventories  increased in 1997
principally  as a result of a slowdown in the rate of growth in  Southeast  Asia
and  reduced  imports  by China  which drew down its  inventories  to meet their
internal  requirements.  The copper price declined  significantly  in the second
half of the year,  ending the year at a four year low of 77 cents per pound. The
Company  believes that supply and demand will be in balance in 1998 and that the
price should recover from the oversold condition at year end 1997.              

In 1997,  the copper price  averaged  $1.04 per pound on the New York  Commodity
Exchange  (COMEX),  $1.09 per pound for the first three  quarters  and $0.87 per
pound in the fourth quarter.  In 1996, the copper price averaged $1.06 per pound
on the COMEX.                                                                   

The average price on the London Metal Exchange (LME) was $1.03 in 1997, compared
with $1.04 in 1996.                                                             

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A3                                                                              

The outlook for continued growth in copper demand is very favorable.  Increasing
intensity of use of copper in industrialized countries continues to fuel demand.
In the last 10 years, the use of copper in the average  automobile has increased
over 55% to 61 pounds  per car,  reflecting  the  greater  use of  sophisticated
electronics and motorized  equipment.  The average new home in the United States
now contains 439 pounds of copper,  about 15% greater than 10 years ago. Today's
modern  homes  are  being  wired  for  multiple   phone  lines,   intercoms  and
entertainment  systems and increased  electric  power  requirements.  Commercial
buildings   require  even  greater   amounts  of  copper   wiring  to  meet  the
telecommunications and energy needs of business.                                

In the world's  developing  economies,  copper is an essential  building  block.
Electric power generation and distribution,  as well as  telecommunications  and
transportation projects all require large amounts of copper.                    

Demand  for copper has grown at a 4.0%  annual  average  rate over the last five
years.  No change is foreseen in the need for copper  that might  diminish  this
robust growth in demand for the foreseeable future. While economic  disruptions,
like the recent monetary crisis in Southeast Asia, may temporarily slow the rate
of growth, the underlying long-term fundamentals continue to look promising.    

Expansion of Low-Cost Copper                                                    

The Company's recent strategic focus has been the development of additional low-
cost sources of copper  production.  The Company was active on three projects in
1997  and  its  exploration   efforts  are  beginning  to  identify   additional
opportunities  for the future.  In 1997,  these  projects  included  work on the
expansion  of  the  Cuajone  mine,   part  of  the  $1  billion   expansion  and
modernization  project at SPCC, the startup of the Silver Bell SX/EW  operation,
and the development of the Minto copper project now planned for startup in 2000.

The Cuajone  mine is being  expanded  and will  increase  SPCC's  annual  copper
production by 19%, or 130 million  pounds.  The Ilo smelter is being  modernized
and  expanded to increase  capacity  and to enhance  environmental  performance.
These  projects  will be  completed in stages  between  1998 and 2003.  In 1997,
financing  for the project  was  arranged.  The first  stage,  the $245  million
expansion  of the  Cuajone  mine,  is expected  to be  completed  in early 1999.
Construction activities are underway and are on schedule.                       

The Ilo smelter is being modernized in stages. Construction of a new acid plant,
designed  to  increase  the  capture  of  sulfur  emissions,  is  scheduled  for
completion  in 1998.  Installation  of a new  smelting  furnace  and  associated
environmental  controls  will  be  completed  in  2001,  and  completion  of the
converting section is expected in 2003.  Engineering work on the smelter project
is nearing  completion and final decisions on the construction  schedule will be
made in 1998.                                                                   

These projects  remain  attractive at current low copper prices and,  therefore,
the  Company  is  proceeding  with  its  plans to  expand  its  low-cost  copper
operations in Peru.                                                             

Construction  and  development of a new SX/EW  operation at the Silver Bell mine
was completed in mid-1997. Since start-up, the project, in which the Company has
a 75% interest,  has produced at its planned annual rate of 36 million pounds of
copper.                                                                         

Development  of the Minto mine in Yukon  Territory,  Canada,  is  scheduled  for
completion in 2000. The mine, in which Asarco has an 86.7% interest, is expected
to produce 27 million pounds of copper and 10,000 ounces of gold annually.      

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North American Copper Operations                                                

There  were a number  of  significant  accomplishments  at the  Company's  North
American copper operations in 1997.                                             

Ore grades at the Mission mine  improved as a result of a full year's  operation
of the  higher-grade  underground  mine  which  began  production  in  mid-1996.
Construction was completed in late summer of a large overland  conveyor designed
to move 58 million  tons of waste per year at  Mission.  The system  will reduce
total waste removal costs by eight cents per ton, or $9.5 million per year.     

Production at the Ray Complex's Hayden  concentrator was curtailed in the fourth
quarter of 1996 to reduce  concentrate  inventory.  Inventory levels returned to
normal and the Hayden  concentrator  was restarted in May. The Ray mine replaced
its remaining eleven  170-ton-capacity  trucks with five  240-ton-capacity  haul
trucks in late 1997.                                                            

Cathode copper  production from the SX/EW operation at the Ray mine increased 5%
in 1997 following application of a new leaching technology for low-grade sulfide
material.  The new  leaching  process  provides  both a quicker  leach cycle and
higher copper recovery.                                                         

The Hayden smelter  processed a record level of concentrates in 1997 as a result
of improved  equipment  availability  and a more  consistent and higher grade of
concentrates  processed.  Modernization of the smelter's gas handling system and
the process  control system began in 1997 and is expected to be completed in the
second  quarter of 1998.  These  improvements  are expected to further  increase
production rates and reduce operating costs.                                    

The El Paso, Texas copper smelter,  which uses CONTOP flash smelting technology,
also set a record for  concentrates  smelted in 1997.  In the fourth  quarter of
1997,  production  rates were 10% over the original  design  capacity.  Improved
equipment  availability and modifications to the Contop furnace feed system were
the primary reasons for the production improvements.                            

The Amarillo copper  refinery  achieved record copper cathode and rod production
and further  improved the quality of its  product.  Amarillo  also  received its
second three-year ISO 9002 certification.                                       

Peruvian Copper Operations                                                      

Asarco  conducts its Peruvian  copper  operations  through SPCC, in which Asarco
holds a 54.1% equity  interest.  SPCC's common shares are listed on the New York
Stock  Exchange and the Lima Stock  Exchange.  SPCC owns a 97.8% interest in its
Peruvian Branch, which comprises  substantially all of SPCC's operations.  Labor
shares which were issued to SPCC's  workers  under prior  Peruvian law represent
the remaining  interest in the Branch. At the end of 1997,  Asarco's  beneficial
interest in SPCC's operations, after the labor share interest, was 53.0%.       

In 1997,  SPCC  produced  686 million  pounds of copper  from its mines,  a 1.1%
increase over 1996. Asarco's beneficial share of this production was 363 million
pounds of copper.  SPCC also produced 9.4 million  pounds of molybdenum  and 3.1
million ounces of silver.                                                       

In 1997,  copper production at the Cuajone mine increased 2.6% from 1996, to 341
million pounds,  as a result of higher ore grades. At the Toquepala mine, copper
production  was 247 million  pounds,  slightly lower than in 1996 as a result of
lower ore grades. The Toquepala  concentrator  achieved record annual throughput
partially offsetting the effect of the lower ore grades.                        

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A5                                                                              

SPCC also  produced 98 million  pounds of copper from its  low-cost  SX/EW plant
located at  Toquepala,  23% higher than the design  capacity  of the plant.  The
SX/EW  facility  produces  refined copper  cathodes from solutions  leached from
low-grade ores stockpiled at both the Toquepala and Cuajone mines.              

The Ilo smelter  processed 1.2 million tons of concentrates  in 1997,  producing
639 million pounds of copper in blister. SPCC began an expansion of the sulfuric
acid plant at the  smelter in 1996 to  increase  the  capture of sulfur  dioxide
emissions  from 18% to 30%.  The project is on schedule  for  completion  in the
first quarter of 1998 and should further improve air quality.                   

The  production  capacity of the Ilo copper  refinery was  increased  20%, or 82
million pounds in 1996. Production in 1997 reached a record 513 million pounds. 

Specialty Chemicals and Aggregates Businesses                                   

In recent  years  Asarco has sought to develop  businesses  which will provide a
source of earnings from non-metals operations.                                  

Specialty Chemicals                                                             

Enthone-OMI  is a worldwide  supplier  of  specialty  chemicals  used to produce
functional  and decorative  coatings on metals and plastics for the  electronics
and metal  finishing  industries.  It markets  its  products  from 30  locations
throughout  North  America,  Europe  and  Asia.   Enthone-OMI's  pre-tax  profit
increased 21% in 1997, to a record $29.4 million.                               

Asarco's  involvement in the specialty  chemicals business started 40 years ago,
in 1957, with the acquisition of Enthone,  Inc., a small, regional company based
in New Haven, Connecticut. For three decades, Enthone focused its efforts on the
United States,  with overseas  activities  being handled by licensees.  In 1988,
Asarco  significantly  expanded the  business  through the  acquisitions  of OMI
International  and, in 1989, the Imasa Group in Europe.  To gain greater control
of its business in key growth  markets,  Enthone-OMI  has made eight  subsequent
acquisitions  including  acquisition  of the minority  interests of  Enthone-OMI
(Singapore)  in 1995,  and an  additional  interest in 1996 in Hua-Mei,  a joint
venture in the Peoples Republic of China,  bringing  Enthone-OMI's  ownership to
51%.  Enthone-OMI  has also  acquired  Industrias  Oxy  Metal,  S.A.,  a Mexican
specialty chemicals business, STS, a small Swiss specialty chemicals company and
Blasberg  Oberflachentechnik GmbH, a highly respected German specialty chemicals
company.                                                                        

Enthone-OMI has also generated  internal growth by investing heavily in research
and product and market development. These acquisitions and investments have made
Enthone-OMI a global  participant in the specialty  chemicals  business and have
resulted in a compound annual growth rate of 23.6% in pre-tax profit since 1988.

Technical   innovation  and  marketing   effectiveness   were  the  key  factors
contributing to a fourth  consecutive year of record sales and earnings in 1997.
Contributing to the growth was strong global market  acceptance for new products
providing  improved  corrosion  resistance  for  automotive   components,   high
performance coatings for printed circuit boards and electronic  components,  and
advanced   technology   for   manufacturing    semi-conductor   chips.   A   new
state-of-the-art  manufacturing  facility and technical  center in Singapore was
completed in June to support growth in the ASEAN region.                        

All of  Enthone-OMI's  facilities  are  ISO  9001  or  9002  certified  and  the
s'Hertogenbosch, Netherlands and Norrkoping, Sweden facilities were the first to
receive ISO 14001 certification for environmental management systems in 1997.   

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Aggregates                                                                      

American  Limestone Company,  a wholly owned subsidiary,  produces  construction
aggregates,  ready mixed  concrete  and  agricultural  limestone at locations in
Tennessee  and  Virginia.  Aided by  favorable  weather and a good  construction
market in the Southeast in 1997,  American Limestone  increased sales by 15% and
recorded its fourth  consecutive year of record earnings with pre-tax profits of
$13.8  million.  Since  1989,  American  Limestone's  earnings  have  grown at a
compound annual growth rate of 14%.                                             

Asarco has also made several modest-sized investments in the aggregates business
since 1989, however,  most of American Limestone's earnings growth has been from
expansions and increased volumes from its original properties and from good cost
control.  Demand for aggregates in American  Limestone's market area is expected
to continue to be strong in 1998.                                               

Lead Operations                                                                 

The primary  domestic uses of lead are for automotive  and industrial  batteries
and, to a lesser extent,  for lead oxide for glass,  solder and other industrial
uses.  A  substantial  portion of  Asarco's  lead  sales are made  under  annual
contracts to industrial users.  Remaining lead sales are sold as an intermediate
product to lead refineries outside the United States.                           

Asarco's lead business  includes its integrated  Missouri lead mining,  smelting
and refining business and a custom smelting business in East Helena, Montana.   

Asarco's  Missouri  lead  business  consists  of two  mines  and a  smelter  and
refinery. The Company's Sweetwater and West Fork mines provide approximately 90%
of the feed for the Glover  smelter and  refinery  with the balance  coming from
purchased lead concentrates.  Zinc is an important co-product of the lead mining
operations.  Production  of mined lead and zinc  declined in 1997  compared with
recent  years  due to lower ore  grades.  In 1997,  the  Company  completed  its
modernization project at the Glover smelter and refinery. With the completion of
this project,  the Glover facility met all federal ambient air standards in 1997
and increased refined lead production by 4.5% over the prior year.              

Asarco's custom lead business consists of its East Helena, Montana lead smelter.
The  Company  permanently  closed  its  Omaha  lead  refinery  in June  1997 and
continues  to work with the City of Omaha and the State of  Nebraska  to convert
the site into a park.  The Company now sells the lead  bullion  produced at East
Helena to refineries located outside the United States. The custom lead business
depends on the availability of precious  metal-bearing lead materials  primarily
from U.S.  and Latin  American  mines.  While the custom lead  business  was not
profitable in 1997, the closure of the Omaha  refinery and process  improvements
at East Helena improved operating results during the last half of the year.     

In 1997, the Company completed a modernization  project at East Helena. The East
Helena plant met all federal ambient air standards for 1997.                    

The  Leadville  mine in Colorado is 60% owned and managed by Asarco and produces
lead,  zinc and silver.  In January  1997,  the mine was reopened  after a brief
period on standby. The mine was not profitable in 1997 due to low metal prices. 

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A7                                                                              

Lead Market                                                                     

About 65% of lead  consumption is used in storage  batteries for automobiles and
other  equipment.  World wide  consumption of refined lead has grown steadily in
recent years at an annual rate of 2.7%.  Lead is the preferred  material for the
cost-effective  storage  of  energy in  batteries.  The  consumption  of lead in
television screens and in X-ray shielding has also been growing in recent years.

Silver Operations                                                               

The  principal  uses for  silver  in the  United  States  are for  photographic,
electrical and electronic  products and, to a lesser extent,  brazing alloys and
solder, jewelry, coinage, silverware and catalysts. Silver is sold under monthly
contracts or in spot sales principally to industrial users.                     

Asarco owns a 50% interest in Silver  Valley  Resources  which owns and operates
the Coeur and Galena mines in Wallace,  Idaho. The Coeur mine resumed operations
in mid-1996 after a five-year  standby  period.  In May 1997,  operations at the
Galena  mine  were  resumed.  A  development  program,  begun in 1995,  has been
successful in identifying additional higher-grade silver reserves.              

The Company also owns a 75% interest in the Troy,  Montana  silver-copper  mine,
which currently is on standby.  The Company plans to restart Troy in conjunction
with the  development of the nearby Rock Creek  silver-copper  deposit which has
been in the  permitting  process  since 1987. In 1997,  the Company  submitted a
draft supplemental  environmental impact statement for Rock Creek and expects to
receive an approved final  environmental  impact statement in 1998 and operating
permits in 1999.                                                                

Silver Market                                                                   

Since  1979,  demand  for silver has grown  73%.  Consumption  of silver,  which
primarily is used for photographic materials, electronics and jewelry, has grown
to more than 830 million  ounces  annually.  Since  1990,  demand for silver has
exceeded  mine  production  and by the third  quarter of 1997 the surplus of 875
million  ounces of silver  accumulated in the 1980s was finally  consumed.  With
consumption  currently  exceeding  production by a  substantial  margin and with
reduced worldwide inventories, the outlook is favorable for the silver price.   

Zinc Operations                                                                 

Zinc is primarily used in the United States to make  galvanized  metal products,
zinc-based  alloys,  brass  products,  zinc  oxide,  rolled  zinc and for  other
industrial  uses.  The  Company's  zinc  production  is  sold  in  the  form  of
concentrates under contracts of one to three years duration.                    

The Company operates four zinc mines near Knoxville, Tennessee. It also produces
zinc as a co-product at its Missouri and Leadville mines.  Production in 1997 of
zinc in Tennessee  was below 1996 levels,  due to a 42-day  strike in the fourth
quarter.                                                                        

Despite  this work  stoppage,  financial  results  of the  Tennessee  operations
improved  in 1997  due to  higher  zinc  prices.  New  Market,  one of the  four
Tennessee  mines,  was placed on  standby in the fourth  quarter of 1996 and its
operations are expected to remain suspended in 1998.                            

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A8                                                                              

Zinc Market                                                                     

Zinc is used primarily as a protective  coating  material in construction and in
transportation  and  electrical  equipment.  A 1996 supply  deficit  resulted in
higher zinc prices during much of 1997.  Growth in Western World zinc demand has
averaged 3.4% over the last five years.                                         

Specialty Metals                                                                

The Company  operates a specialty  metals business at its Globe plant in Denver,
Colorado. In 1997, the Company completed the transformation of the business from
processing of  intracompany  secondary  materials  into a stand-alone  specialty
metals operation.  The Globe plant, which produces  litharge,  bismuth compounds
and high purity  metals,  was  profitable in 1997 and the Company  expects it to
continue its growth.                                                            

Environment, Safety and Health                                                  

Protection of the environment is one of Asarco's principal operating objectives.
The Company has made and continues to make substantial  investments to deal with
environmental issues associated with historical Company operations.  The Company
has  also  put in place  policies,  practices  and  procedures  to meet  today's
environmental standards.                                                        

Nearly  two  years  ago,  the  Company  initiated  a  discussion  with  the U.S.
Environmental Protection Agency to establish a voluntary compliance framework to
resolve  environmental  matters on a nationwide basis and eliminate the time and
expense of dealing with issues individually  through negotiation and litigation.
In early  1998,  an  agreement  was  reached on most  outstanding  issues in the
Company's copper and lead mining, smelting and refining operations in the United
States.  The agreement also  establishes a basis for the Company and Federal and
state agencies to work together in the future.                                  

The Company has adopted a comprehensive  Environmental  Management System (EMS).
This system integrates  environmental  management  procedures into the operating
management  systems of the  Company.  Under EMS Company  facilities  are audited
regularly to assure conformity with EMS, employees receive annual  environmental
awareness  training  and  practices  have  been  established  to deal  with  the
environmental responsibilities of each of the Company's operations.             

The agreement  includes new capital projects totaling $61.5 million that resolve
issues that have been under study at the Ray mine and East Helena  smelter.  The
largest capital project, $55 million over six years,  provides for the extension
of an existing tunnel at the Ray mine which diverts Mineral Creek around the Ray
mine workings.  The project will have a positive effect on future  operations as
well as on the environment.  Asarco also agreed to pay penalties of $6.4 million
to resolve  past  disputed  issues.  These  penalties  are  covered by  existing
environmental reserves.                                                         

Asarco has also been  active in  developing  and  installing  new  environmental
technologies.  Storm water recycling systems, dust suppression equipment and gas
collection facilities have been installed at a number of locations.  The Company
has  developed an innovative  biotreatment  process for mine water and developed
low-impact  land  reclamation  methods  using cattle to fertilize  and stabilize
soils.                                                                          

This  investment  of time and capital is paying off. For example,  Asarco was in
full compliance in 1997 with new restrictive  standards for air emissions at its
decades-old lead smelters in Missouri and Montana.                              

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A9                                                                              

Asarco is also very active in  remediating  environmental  conditions at current
and former operating properties.  Many of these projects are done in cooperation
with state and Federal government  agencies.  Asarco is working with communities
in Omaha,  Nebraska and Tacoma,  Washington to transform  its former  industrial
sites into parks and new commercial  centers.  In 1997, Asarco spent $63 million
on remediation work related to historic operations.                             

Safety and Health                                                               

The safety and health of its  employees  is Asarco's  most  important  operating
objective.  A Corporate Safety and Health Review Committee sets safety standards
for each unit's  operations,  monitors  performance and administers  recognition
programs  which reward  safety  excellence.  In 1997, a portion of each salaried
operating  employee's  incentive  compensation  was  directly  linked  to  their
operating  unit's  safety  and health  performance.  The  program  has been very
successful.                                                                     

In 1997,  there were 28% fewer lost work day injuries in the Company's  domestic
mines and 37% fewer lost work day injuries in its domestic  plants.  The Company
believes  that a safe and healthy  workplace  is an  essential  goal.  While the
programs in place have improved safety performance,  management will continue to
focus  attention on safety and health issues and will  continue  with  extensive
training,  education  programs and  recognition  programs  with the objective of
creating an accident-free workplace.                                            

Exploration                                                                     

Asarco's  exploration effort is focused on the identification and acquisition of
advanced  gold,  copper and silver  exploration  projects.  In 1997, the Company
spent  $32  million  on an  active  mineral  exploration  program.  Over  90% of
expenditures were directed at projects outside the United States, principally in
French Guiana, Chile, Peru, Bolivia and Australia. Work in the United States was
mostly directed at identifying  additional  reserves at the Company's  operating
properties.                                                                     

In French  Guiana,  Asarco has  interests in five large project areas with known
gold  anomalies.  Drilling at the Company's  100% owned Camp Caiman  project has
identified  a  near-surface  gold deposit  within a five-mile  long gold in soil
anomaly associated with a major structural zone. A resource of 18.6 million tons
of ore with a grade of 0.08  ounces  of gold per ton has been  identified.  This
resource contains 1.5 million ounces of gold. Gold mineralization at Camp Caiman
is open-ended and the drilling  program is continuing.  To assist the company in
meeting  its  environmental  and  social  responsibilities  in the  Camp  Caiman
project, an expert, independent Advisory Committee has been created.            

Thought  to be the  first  of its kind in the  mining  industry,  the  committee
includes   persons  with  recognized   expertise  in  conservation  of  tropical
environments.  To date the Committee has provided  independent review and advice
on  environmental  and issues  associated with  exploration and preliminary mine
planning.                                                                       

Evaluation  of the San  Bartolome  silver  project  near Cerro Rico de Potosi in
Bolivia is at an advanced  stage.  A minable  reserve of 11 million  tons of ore
with a grade of 4.0 ounces of silver per ton,  containing some 44 million ounces
of silver  has been  identified.  There is  excellent  potential  to add to this
reserve.                                                                        

SPCC has been pursuing  copper and gold  exploration  targets in Peru.  The most
advanced  project is the  Tantahuaty  copper-gold  project in northern  Peru, in
which SPCC has a 44% interest and is the  operator.  Drill  results to date have
been encouraging at this porphyry type deposit.  Further drilling is planned for
1998.                                                                           

Asarco has recently  increased its  exploration  activities in Chile and several
properties in northern Chile are being  examined and drilled.  The most advanced
project is a  moderate-sized  oxide copper  deposit where  drilling to confirm a
minable reserve is underway.                                                    

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A10                                                                             

 BACKLOG OF ORDERS

Substantially  all of the  Company's  metal  production  is  sold  under  annual
contracts. To the extent not sold under annual contracts, production can be sold
on  commodities  exchanges  or to  merchants  or consumers on a spot sale basis.
Final sales values are determined  based on prevailing  commodity prices for the
scheduled month of delivery or shipment according to the terms of the contracts.
The backlog for other product classes and services is not material.             

COMPETITIVE CONDITIONS

In the  United  States  and  abroad,  Asarco  and  its  foreign  nonconsolidated
associated  companies are subject to  competition  from other  nonferrous  metal
producers. Asarco's metal products also compete with other materials,  including
aluminum, stainless steel, plastics, glass and wood.                            

Competition  in nonferrous  metals is  principally on a price and service basis,
with  price  being  by far the most  important  consideration.  In  construction
aggregates,  geographic  location  of  facilities  in  relation  to the point of
consumption,  and price are by far the most important  competitive  factors.  In
specialty  chemicals,  Asarco competes against a substantial number of large and
small companies both in the United States and overseas.                         

 EMPLOYEES

At December 31, 1997,  Asarco excluding SPCC,  employed about 6,900 persons,  of
whom about 3,700 were covered by contracts  with various  unions,  most of which
were affiliated with the AFL-CIO. At December 31, 1997 SPCC employed about 4,900
persons, substantially all of whom were covered by labor contracts.             

ENERGY MATTERS

Asarco's energy  requirements are met from a variety of sources,  including fuel
oil, diesel fuel,  gasoline,  natural gas, coke and electric power. Asarco has a
large number of contracts of varying  duration for its energy  needs,  typically
negotiated  on an  individual  basis  from time to time.  Generally,  substitute
sources are available except where  requirements are guaranteed by local utility
companies.  No reductions or interruptions  of any operations  because of energy
shortages were experienced in 1997.                                             

ENVIRONMENTAL, SAFETY AND HEALTH MATTERS

Asarco's operations are subject to environmental  regulation by various federal,
state, local, and foreign  governments.  Asarco's principal  involvement in this
area concerns  compliance by its existing and former operations with federal and
state air and water  quality  and solid and  hazardous  waste  regulations.  The
Company  believes that its operations  are currently in  substantial  compliance
with applicable environmental laws and regulations.                             

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A11                                                                             

The Company anticipates  spending $53 million for environmental  control capital
expenditures at its operating units in 1998.  Capital  expenditures by Asarco at
its  operating   mines,   smelters  and  refineries  in  order  to  comply  with
environmental  standards  in the past  three  years  have  been  (in  millions):
1997-$64;1996-$71;  1995-$93. Recurring costs associated with managing hazardous
substances and environmental  issues in ongoing operations including interest on
environmental  improvement  bonds  and other  debt  incurred  for  environmental
control    facilities,    reduced    pre-tax    earnings   by   (in   millions):
1997-$113;1996-$113; 1995-$103.                                                 

Environmental  matters,  including a  discussion  of the  Company's  reserve for
closed plants and  environmental  costs, are set forth in the  Contingencies and
Litigation Note 8 to the Financial Statements and in Management's Discussion and
Analysis of Operations and Financial  Condition and are  incorporated  herein by
reference.                                                                      

On January 23, 1998,  the Company,  the United States  Department of Justice and
the  Environmental   Protection  Agency  ("EPA")  announced  the  signing  of  a
multi-region  voluntary  agreement covering many environmental  issues affecting
the Company's  United States  operations.  Two consent  decrees  containing  the
agreement  have been  filed in the United  States  District  Courts in  Phoenix,
Arizona  and  Helena,  Montana,  and are  subject  to  approval  by both  courts
following  public  comment.  The  agreement  includes a commitment  to undertake
capital  expenditures  totaling  $61.5  million  and  will  cover  a  number  of
operational  changes to resolve disputed compliance issues at the Company's Ray,
Arizona mine and East  Helena,  Montana  smelter.  A  significant  aspect of the
agreement is an Asarco-initiated Environmental Management System, which combines
operational and environmental systems,  policies and practices.  The Company has
agreed to pay  penalties  of $6.4 million  applicable  to past issues at Ray and
East Helena without an admission of wrongdoing or liability.                    

On March 24,  1995,  EPA issued a Record of Decision  ("ROD") for the  Company's
Tacoma smelter site in Tacoma, Washington, under the Comprehensive Environmental
Response,  Compensation and Liability Act of 1980 ("CERCLA" or "Superfund"). The
smelter site is part of the  Commencement  Bay Superfund site. The ROD calls for
excavation  and  disposal  of  soils,  and  demolition   debris  in  an  on-site
containment  facility,  capping of the site,  demolition of remaining buildings,
replacement  of the surface water  drainage  system and diversion of groundwater
and off-site  surface water. A Consent Decree between the Company and the EPA to
carry out the ROD was entered by the United States  District Court on January 3,
1997. Remediation pursuant to the Consent Decree is proceeding.                 

At  Ruston,  Washington,  an area  which is also  part of the  Commencement  Bay
Superfund site, on May 2, 1995, a Consent Decree between the Company and EPA was
entered by the United States District Court in Tacoma,  Washington,  pursuant to
which the Company agreed to sample and, if necessary,  remediate the residential
area surrounding the Tacoma smelter site. To date, approximately 470 residential
and  right-of-way  properties  have been  remediated.  The Company is  currently
working with EPA on a proposed plan for the  remediation of off-shore  sediments
in this area. Remaining issues at the Commencement Bay Superfund site, which has
hundreds of potentially responsible parties ("PRP"), will not be addressed until
additional studies are completed.                                               

In November 1994, at the Bunker Hill  Superfund  site in Idaho,  the Company and
two other mining companies entered into a Consent Decree with the EPA, which was
approved by the United States  District  Court.  The companies  have  remediated
approximately  1,217 residential  properties as well as other areas,  commercial
properties  and  rights  of way.  Remediation  of  additional  yards  and  other
properties continues.                                                           

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A12                                                                             

On March 22, 1996, the United States government filed an action in United States
District  Court in Boise,  Idaho,  against the  Company  and three other  mining
companies  under  CERCLA and the federal  Clean  Water Act for  alleged  natural
resource  damages to the Coeur  d'Alene  River  Basin in Idaho.  The  government
contends that the  defendants  are liable for damages to natural  resources in a
1,500  square mile area caused by mining and  related  activities  that they and
others  undertook  over  approximately  the period between the mid-1800s and the
mid-1960s.  The action also seeks a declaration  that  defendants are liable for
restoration of the area. The Company  believes,  and has been advised by outside
legal counsel,  that it has strong legal  defenses to the lawsuit.  In 1996, the
court granted a motion to  consolidate  this case with a prior  similar  lawsuit
filed by the Coeur  d'Alene  Tribe.  In August 1997,  the United  States filed a
motion to add to the lawsuit several companies,  including certain  subsidiaries
of the  Company.  In February  1998,  the EPA  announced it intends to conduct a
Remedial Investigation/Feasibility Study to assist in developing a comprehensive
remediation plan for the Coeur d'Alene River Basin.                             

In September 1997, the Nebraska  Department of Environmental  Quality approved a
Remedial  Action Work Plan submitted by the Company for  remediation of the site
of the Company's  former Omaha,  Nebraska,  lead  refinery,  which had suspended
operations on June 1, 1996.                                                     

In 1994, at the Leadville Superfund site in Colorado,  a Consent Decree with the
EPA and other potentially  responsible  parties was entered by the United States
District Court.  The Consent Decree resolved many of the liability issues at the
site.  Final  remedy  selection  must  await  the  issuance  of the ROD which is
expected in 1998.  Through  the end of 1997 the Company has spent  approximately
$43 million for remediation at the site.  Remaining issues at Leadville will not
be addressed until additional studies are completed.                            

In 1997, at the East Helena Superfund site in Montana, the Company completed the
remediation of  approximately  25 residences at a cost of  approximately  $1.439
million.  This brings the total number of residential  properties  remediated to
date to 564. Additional  properties are expected to require  remediation,  which
together with proposed community protection measures, is estimated to require an
expenditure of approximately $2.1 million over the next five years.             

EPA issued,  on June 14, 1996, a Unilateral  Administrative  Order directing the
Company and the other  potentially  responsible  parties to implement the remedy
specified  in the  Record of  Decision  of the Mine  Operable  Unit of the Butte
Montana Superfund site issued on September 29, 1994.                            

In 1997, at the Globe proposed  Superfund  site in Denver,  Colorado the Company
completed the remediation of approximately 187 properties, including residences,
commercial  properties and open spaces, at a cost of approximately  $4.1 million
pursuant to a Consent  Decree with the State of Colorado and a  settlement  of a
lawsuit entered in 1993.  This brings the total number of properties  remediated
to date to  approximately  549.  Remediation  has also started at the plant site
itself.  Remediation  of additional  properties and the plant site will continue
for the next several years.                                                     

In 1995,  the Company  completed and presented to the  Washington  Department of
Ecology ("Ecology")a remedial  investigation and feasibility study report of the
Company's  former smelter site in Everett,  Washington.  In early 1997,  Ecology
issued an  Enforcement  Order to the  Company  pursuant  to which the Company is
performing  additional  studies and  remediation  at the site. In late 1997, the
Company, Ecology, the City of Everett, two citizens' groups, a county, and other
interested  parties began mediation  process  regarding the remediation plan for
the site. It is anticipated that Ecology will issue a remediation plan some time
in 1998. The Company is investigating claims presented by several area residents
and some  governmental  entities  for  alleged  costs or  damages  based on soil
contamination.                                                                  

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A13                                                                             

In October  1996,  the Company  responded to an August 30, 1996  General  Notice
Letter from the EPA and offered to perform certain investigation and remediation
activities at the Circle Smelting site in Beckemeyer,  Illinois, an area where a
subsidiary of the Company  previously  operated a zinc  smelter.  Pursuant to an
Administrative   Consent  Order,  effective  August  1,  1997,  the  Company  is
implementing the  investigation  and the remediation that it offered to perform.
Additionally  the Company is negotiating  with another  potentially  responsible
party for liability contribution.                                               

In September 1997, the Company entered into an  Administrative  Order on Consent
to conduct an  Engineering  Evaluation/Cost  Analysis  ("EE/CA")  for the portal
discharge from the Company's former Gem mine in the Coeur D'Alene River Basin in
Idaho,  which drains to a tributary of the Coeur d'Alene River.  The Company has
agreed to implement the remedy selected by the EE/CA process.                   

In July 1997,  the  Company  received a notice  from the  United  States  Forest
Service that it may be  potentially  liable for  environmental  remediation at a
site in California where it appears a predecessor  company had leased a mine for
approximately one year in the early 1900s.                                      

The Company and certain of its subsidiaries  are cooperating with  environmental
authorities  to undertake  studies of certain  other sites and  remediate  where
necessary.                                                                      

In addition to the sites described above,  the Company and certain  subsidiaries
received notices of potential  liability  pursuant to CERCLA and various similar
state laws from the EPA or other federal and state agencies  regarding  numerous
other sites.  At several of those sites the Company's  liability  will likely be
minor.                                                                          

In 1997, the Company also received notices from EPA regarding alleged violations
of the federal Resources Conservation and Recovery Act ("RCRA") at the Company's
Encycle/Texas  facility and the federal Clean Water Act ("CWA") at the Tennessee
Mines facilities; no specific penalty amounts have been demanded.               

In July 1996, the Company filed a lawsuit in State Court in Nebraska challenging
the right of the state to exercise  direct  enforcement of the National  Ambient
Air Quality Standard ("NAAQS") for lead applicable to the Company's Omaha plant;
however,  no further  action is anticipated  because of the Company's  suspended
operations at the facility in June 1996.                                        

SIPs designed to achieve  compliance by January 6, 1997 with the EPA ambient air
quality  standard  for lead of 1.5  micrograms  per cubic meter of air have been
developed  and  approved  in each state in which  Asarco  has a lead  smelter or
refinery. Final EPA approval of each plan is expected in the near future.       

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A14                                                                             

The Company is studying means of compliance with RCRA through process changes at
its  facilities,  where  feasible,  to  manage  the  wastes  not  excluded  from
regulation.   Mine  tailings,  slag,  and  slag  tailings  from  primary  copper
processing,  calcium  sulfate  wastewater  treatment  plant  sludge from primary
copper  processing,  and slag from  primary  lead  processing  at the  Company's
operations are excluded from RCRA regulation.  The Company is a party to a court
approved Consent Decree with the Missouri  Department of Natural  Resources,  in
which the Company has  implemented  certain  process  changes and is  conducting
sampling  and  testing to remain in  compliance  with RCRA  requirements  at its
Glover smelter.  The Company has successfully  completed all submittals required
by  the  Consent  Decree  and is  awaiting  the  state's  response  to its  Site
Assessment Investigation Workplan.                                              

Asarco is subject to federal and state laws and regulations  pertaining to plant
and mine safety and health conditions, including the Federal Occupational Safety
and Health Act of 1970 and Mine Safety and Health Act of 1977.  Asarco has made,
and is likely to  continue  to make,  expenditures  to comply with such laws and
regulations.                                                                    

CAUTIONARY STATEMENT

Forward-looking  statements  in this  report  and in  other  Company  statements
include  statements  regarding  expected  commencement  dates of mining or metal
production   operations,   projected  quantities  of  future  metal  production,
anticipated production rates, operating efficiencies,  costs and expenditures as
well as projected  demand or supply for the Company's  products.  Actual results
could differ  materially  depending upon factors  including the  availability of
materials,   equipment,   required  permits  or  approvals  and  financing,  the
occurrence of unusual weather or operating  conditions,  lower than expected ore
grades,  the failure of equipment or  processes  to operate in  accordance  with
specifications,  labor relations,  environmental  risks as well as political and
economic risk  associated  with foreign  operations.  Results of operations  are
directly affected by metals prices on commodity exchanges which can be volatile.

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A15                                                                             

Item 2. Properties                                                              

ASARCO Worldwide Operations                                                     

METALS                                                                          

COPPER MINES                                                                    
Mission;  Sahuarita, Arizona                                                    
Montana Resources; Butte, Montana                                               
Ray; Hayden, Arizona                                                            
Silver Bell; Silver Bell, Arizona                                               
Minto; Yukon Territory, Canada                                                  
Cuajone; Peru                                                                   
Toquepala; Peru                                                                 

COPPER PLANTS                                                                   
Amarillo, Texas (Refinery)                                                      
El Paso, Texas (Smelter)                                                        
Hayden, Arizona (Smelter)                                                       
Ray; Hayden, Arizona                                                            
(Electrowinning Plant)                                                      
Silver Bell; Arizona (SX/EW)                                                    
Ilo; Peru (Smelter, Refinery)                                                   
Toquepala; Peru (SX/EW)                                                         

LEAD MINES                                                                      
Leadville; Leadville, Colorado                                                  
Sweetwater; Reynolds County, Missouri                                           
West Fork; Reynolds County, Missouri                                            

LEAD PLANTS                                                                     
East Helena, Montana (Smelter)                                                  
Glover, Missouri (Smelter, Refinery)                                            

ZINC MINES                                                                      
Coy; Jefferson County, Tennessee                                                
Immel;  Knox County, Tennessee                                                  
New Market; Jefferson County, Tennessee (2)                                     
Young;  Jefferson County, Tennessee                                             
Leadville; Leadville, Colorado                                                  
Sweetwater; Missouri                                                            
West Fork; Missouri                                                             

SILVER MINES                                                                    
Silver Valley Resources; Wallace, Idaho                                         
Troy; Troy, Montana (2)                                                         
Leadville; Leadville, Colorado                                                  
Mission; Sahuarita, Arizona                                                     
Ray; Hayden, Arizona                                                            
Montana Resources; Butte, Montana                                               
Cuajone and Toquepala, Peru                                                     

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A16                                                                             

SILVER AND GOLD PLANTS                                                          
Amarillo (Refinery), Texas                                                      
Ilo (Refinery), Peru                                                            

MOLYBDENUM MINES                                                                
Montana Resources; Butte, Montana                                               
Cuajone; Peru                                                                   
Toquepala; Peru                                                                 

SPECIALTY CHEMICALS                                                             
Enthone-OMI                                                                     
North America                                                                   
Bridgeview, Illinois                                                        
West Haven, Connecticut                                                     
Orange, Connecticut                                                         
Warren, Michigan                                                            
Toronto, Canada                                                             
Mexico City, Mexico                                                         

Europe                                                                          
Barcelona, Spain                                                            
s-Hertogenbosch, Netherlands                                                
Woking, United Kingdom                                                      
Milan, Italy                                                                
Marne-La-Vallee, France                                                     
Luien, Austria                                                              
Solingen, Germany                                                           
Norrkoping, Sweden                                                          
Geneva, Switzerland                                                         

Pacific Rim                                                                     
Melbourne, Australia                                                        
Tsuen Wan, Hong Kong                                                        
Singapore                                                                   
Shen Zhen, People's Republic                                                
of China                                                                
Yokohama, Japan                                                             
Taipei, Taiwan                                                              
Penang, West Malaysia                                                       

AGGREGATES                                                                      
American Limestone Company, Inc.                                                
(Construction Aggregates,                                                   
Concrete, Agricultural Limestone)                                         
Knoxville, Tennessee                                                        
Tri-Cities, Tennessee                                                       
Nashville, Tennessee                                                        
Abingdon, Virginia                                                          

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A17                                                                             

ENVIRONMENTAL SERVICES                                                          
Encycle/Texas, Inc.                                                             
Corpus Christi, Texas                                                       
Hydrometrics, Inc.                                                              
Helena, Montana                                                             
East Helena, Montana                                                        
Billings, Montana                                                           
Kalispell, Montana                                                          
Spokane, Washington                                                         
Tacoma, Washington                                                          
Ruston, Washington                                                          
Kellogg, Idaho                                                              
Denver, Colorado                                                            
Tucson, Arizona                                                             
El Paso, Texas                                                              

OTHER                                                                           

Specialty Metals                                                                
Denver, Colorado                                                                

INVESTMENTS                                                                     

Grupo Mexico, S.A. de C.V. (8.2% ownership)                                     
Thirteen mines, nine metallurgical                                              
plants throughout Mexico,                                                   
including: La Caridad and Cananea                                           
(Copper, Lead, Zinc, Silver, Gold,                                          
Coal, Coke, Fluorspar, Sulfuric Acid)                                       

(1)   Beneficial  interest for this  operation is shown in the Mineral  Reserves
tables starting on page A19                                         

(2)   On standby                                                                

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A18                                                                             

Southern Peru Copper Corporation                                                

SPCC  operates  two open pit mines  under  concessions  granted by the  Peruvian
government.                                                                     

Silver Valley Resources                                                         

In 1995,  Asarco and Coeur d'Alene Mines Corporation  established  Silver Valley
Resources,  a  corporation  owned 50% by each,  to  consolidate  the  companies'
interest  in the Coeur and Galena  silver  mines in Idaho.  The Couer mine began
production in May 1996 and the Galena mine began production in June 1997. Asarco
has an  equity  interest  in  Silver  Valley  Resources  profits  or  losses  in
proportion to the 50% related ownership interest.                               

Silver Bell                                                                     

In 1996, Asarco and Mitsui & Co. Ltd., established Silver Bell L.L.C., a limited
liability  corporation  owned  75% by Asarco  and 25% by  Mitsui & Co.  Asarco's
interest in Silver Bell L.L.C.  profits and losses is in  proportion  to its 75%
related ownership interest.                                                     

Leadville                                                                       

Leadville is operated by Asarco under a joint venture agreement.  Asarco and its
joint venture partner share operating  results in proportion to their respective
ownership  interests,  except that Asarco bears 100% of losses, if any in excess
of cumulative profits generated since October 1991.                             

Troy                                                                            

Troy is operated by Asarco under a lease  agreement.  Asarco  retains 75% of net
proceeds after operating expenses but before depletion,  depreciation and income
taxes.  The Troy mine was temporarily  shut down commencing in April 1993 due to
depressed silver prices.                                                        

Mission                                                                         

A portion of the mine is held under  long-term  leases in which the lessors have
retained a royalty interest.                                                    

West Fork                                                                       

A portion  of the mine is held under a  long-term  lease in which the lessor has
retained a royalty interest.                                                    

Investments                                                                     

In 1997,  Asarco sold all of its  unrestricted  shares of Grupo Mexico,  S.A. de
C.V. Asarco currently owns 8.2% of Grupo Mexico,  which operates  thirteen mines
under concessions granted by the Mexican government.                            

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A19                                                                             

The following production information is provided:                               

                                                        · Enlarge/Download Table

MILL PRODUCTION                  1997                           1996                         1995               
---------------                  ----                           ----                         ----               
                                       Avg Mill                      Avg Mill                       Avg Mill    
                      Ore Milled       Recovery      Ore Milled      Recovery       Ore Milled    Recovery Rate 
                         (000s           Rate           (000s          Rate        (000s Tons)         (%)      
ASARCO                   Tons)           (%)            Tons)           (%)                                     
                     -------------- --------------- -------------- -------------- --------------- --------------
                                                                                                                
Domestic                                                                                                        
  Mission                14,822            83.8         15,192           85.9          14,803           83.6    
  Mission South           7,341            83.0          7,616           82.5           7,346           82.7    
  Hayden                                                                                                        
   Concentrator           8,295            80.8          8,975           81.5           8,452           78.4    
  Ray Concentrator       11,223            82.3         12,687           82.4          13,216           82.7    
  Montana Resources      15,219            89.8         15,990           87.2          14,853           90.9    
  Leadville (a)             202            88.6            131           95.1             219           91.4    
  Sweetwater              1,403            98.4          1,271           98.3           1,269           98.1    
  West Fork               1,025            96.8          1,007           97.2           1,005           97.7    
  Tennessee               2,173            91.4          2,823           92.4           3,206           92.6    
Other                                                                                                           
  Quiruvilca (b)              -               -              -              -             291           82.1    
SPCC (c)                                                                                                        
----                                                                                                            

Toquepala                18,998            87.9         18,609           84.2          16,937           89.0    
Cuajone                  21,719            87.0         21,249           81.7          21,378           84.3    

Productive Capacity (d)                                                         

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                       Defined                                     Defined 
Smelter                Capacity     Refineries                     Capacity
                                                                           
Anode Copper (tons)                 Copper (tons)                          
  El Paso                  115,000    Amarillo                      483,000
  Hayden                   175,000    Ray (SX-EW)                    40,000
                           -------                                         
                                      Silver Bell, L.L.C. (SX-EW)    18,000
    Total                  290,000    Ilo - SPCC (c)                247,000
Blister Copper (tons)                 Toquepala (SX/EW)(c)           40,000
                                                                    -------
  Ilo - SPCC (c)           320,000      Total                       828,000

Lead Bullion (tons)                 Lead (tons)                            
  East Helena               75,000    Omaha (e)                           -
  Glover                   130,000    Glover                        130,000
                           -------                                         
    Total                  205,000                                         

                                    Silver (000s ounces)                   
                                      Amarillo                       60,000
                                    Gold (ounces)                          
                                      Amarillo                      600,000

(a)      1997 reflects Asarco's beneficial interest in Leadville at 100%.       

(b)      Asarco sold its 80% interest in Quiruvilca in August 1995.             

(c)      Asarco  consolidated  SPCC  effective  January  1, 1995.  The  minority
         interest in SPCC,  represented by Labor Shares in its Peruvian  Branch,
         results in Asarco having a beneficial  interest  which is less than its
         equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
      at December 1997, 52.6% at December 1996 and 52.3% at December 1995.

(d)      Asarco's estimate of actual capacity under normal operating  conditions
         with  allowance  for normal  downtime for repairs and  maintenance  and
         based on the  average  metal  content of input  material  for the three
         years  shown.  No  adjustment  is  made  for  shutdowns  or  production
  curtailments due to strikes or air quality emissions restraints.

(e)      Asarco  ceased  refining lead at its Omaha,  Nebraska  refinery in June
1996.                                                         

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A20                                                                             

METAL PRODUCTION STATISTICS                                                     

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COPPER                                   Mineral    Average                                                    
                                        Reserves    Mineral                   Metal Production                 
                              Asarco      (000s     Content                   Contained Metal                  
                               Int.       Tons)       (%)                      (000s Pounds)                   
                                                                               -------------                   
                                (%)     12/31/97    12/31/97        1997             1996            1995      
                                ---     --------    --------        ----             ----            ----      
                                                                                                               
MINES                                                                                                          
Domestic                                                                                                       
   Mission Complex                 100     514,091        .70        252,300          261,200        224,600   
   Ray                             100     969,689        .62        230,700          273,200        260,400   
   Ray leachable                   100     189,037        .44         73,400           70,200         70,200   
   Montana Resources              49.9     499,438        .33         91,400          104,800        112,800   
   Silver Bell L.L.C.            75(a)     178,892        .38         19,300            4,800          6,800   
   Troy (b)                         75                                     -                -              -   
                                                               ------------------------------------------------
     Total Domestic                                                  667,100          714,200        674,800   
                                                               ------------------------------------------------
SPCC (c)                                                                                                       
   Toquepala-sulfide           53.0(d)     313,149        .83        246,800          252,900        256,200   
          -leachable           53.0(d)     664,887        .19         87,900           88,600         10,000   
   Cuajone-sulfide             53.0(d)   1,422,339        .64        340,600          332,000        291,000   
          -leachable           53.0(d)      14,972        .95         10,200            4,600              -   
Other                                                                                                          
   Quiruvilca-Peru (e)                                                     -                -          1,200   
   Minto                          86.7       7,176       2.13              -                -              -   
                                                               ------------------------------------------------
                                                                     685,500          678,100        558,400   
                                                               ------------------------------------------------
Asarco Beneficial Production                                         977,400        1,015,900        898,400   
                                                               ------------------------------------------------

SMELTERS                                                                                                       
   El Paso                         100                               239,500          230,000        253,000   
   Hayden                          100                               423,900          429,800        387,000   
   SPCC - Ilo                  53.0(d)                               638,700          633,600        634,400   
                                                               ------------------------------------------------
      Total                                                        1,302,100        1,293,400      1,274,400   
                                                               ------------------------------------------------
Asarco Beneficial Production                                       1,001,900          991,800        956,400   

REFINERIES                                                                                                     
  Amarillo                         100                               984,600          945,600        966,800   
  Ray (SX/EW)                      100                                73,400           70,200         70,200   
  Silver Bell L.L.C. (SX/EW)     75(a)                                18,200                -              -   
  SPCC - Ilo                   53.0(d)                               513,300          439,600        432,400   
    Toquepala (SX/EW)          53.0(d)                                98,100           93,200         10,000   
                                                               ------------------------------------------------
   Total                                                           1,687,600        1,548,600      1,479,400   
                                                               ------------------------------------------------
Asarco Beneficial Production                                       1,394,200        1,295,000      1,258,000   
                                                               ------------------------------------------------


(a)      Asarco's  interest  in Silver  Bell was 100% until  February  1996 when
         Asarco  sold a 25%  interest to Mitsui & Co.,  Ltd.  Silver Bell L.L.C.
commenced SX/EW operations in July 1997.                      

(b)      Troy is currently on standby.                                          

(c)      In addition to the proven and probable ore reserves, SPCC is evaluating
         370 million tons of  mineralized  reserves with an average copper grade
of 0.62%.                                                     

(d)      Asarco  consolidated  SPCC  effective  January  1, 1995.  The  minority
         interest in SPCC,  represented by Labor Shares in its Peruvian  Branch,
         results in Asarco having a beneficial  interest  which is less than its
         equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
      at December 1997, 52.6% at December 1996 and 52.3% at December 1995.

(e)      Asarco sold its 80% interest in Quiruvilca in August 1995.             

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A21                                                                             

METAL PRODUCTION STATISTICS (continued)                                         

LEAD                                                                            

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                                              Mineral       Average                                                 
                                              Reserves      Mineral                    Metal Production             
                                 Asarco     (000s Tons)     Content                     Contained Metal             
                                  Int.                        (%)                        (000s Pounds)              
                                                                       ---------------------------------------------
                                  (%)         12/31/97      12/31/97       1997           1996           1995       
                              --------------------------------------------------------------------------------------
                                                                                                                    
MINES                                                                                                               
Domestic                                                                                                            
   Leadville                          100(a)        407          2.72         9,500          6,500         10,000   
   Sweetwater                         100        11,724          4.28       113,900        106,900        124,400   
   West Fork                          100         5,033          5.00       107,600        107,100        110,000   
                                                                       ---------------------------------------------
      Total Domestic                                                        231,000        220,500        244,400   
Other                                                                                                               
   Quiruvilca-Peru (b)                                                            -              -          7,800   
                                                                       ---------------------------------------------
      Total                                                                 231,000        220,500        252,200   
                                                                       ---------------------------------------------

Asarco Beneficial Production                                                231,000        217,900        246,600   
                                                                       ---------------------------------------------

SMELTERS                                                                                                            
   East Helena                        100                                   116,600        124,900        127,800   
   Glover                             100                                   254,200        243,300        271,600   
                                                                       ---------------------------------------------
      Total                                                                 370,800        368,200        399,400   
                                                                       ---------------------------------------------

REFINERIES                                                                                                          
   Omaha (c)                          100                                         -         51,400        140,800   
   Glover                             100                                   254,200        243,300        271,600   
                                                                       ---------------------------------------------
      Total                                                                 254,200        294,700        412,400   
                                                                       ---------------------------------------------


(a)      1997 reflects Asarco's beneficial interest in Leadville at 100%.       

(b)      Asarco sold its 80% interest in Quiruvilca in August 1995.             

(c)      Asarco ceased refining lead at its Omaha, Nebraska refinery in June    
1996.                                                         

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A22                                                                             

METAL PRODUCTION STATISTICS (continued)                                         

ZINC                                                                            

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                                               Mineral       Average                                             
                                              Reserves       Mineral                Metal Production             
                                Asarco       (000s Tons)     Content                Contained Metal              
                                  Int                          (%)                   (000s Pounds)               
                                                                        -----------------------------------------
                                   (%)         12/31/97       12/31/97       1997         1996         1995      
                              -----------------------------------------------------------------------------------
                                                                                                                 
MINES                                                                                                            
Domestic                                                                                                         
   Leadville                           100(a)          407        9.01        23,600       18,300        30,800  
   Sweetwater                          100          11,724         .35         2,700       13,800        24,400  
   West Fork                           100           5,033         .99        14,700       14,400        21,800  
   Tennessee                           100           6,102        3.06       104,900      132,700       154,200  
                                                                         ----------------------------------------
      Total Domestic                                                         145,900      179,200       231,200  
Other                                                                                                            
   Quiruvilca-Peru (b)                                                             -            -        25,200  
                                                                         ----------------------------------------
      Total                                                                  145,900      179,200       256,400  
                                                                         ----------------------------------------

Asarco Beneficial Production                                                 145,900      171,900       238,800  
                                                                         ----------------------------------------

MOLYBDENUM                                                                                                       
                                                                                1997         1996          1995  
                                                                         ----------------------------------------

MINES                                                                                                            
Domestic                                                                                                         
   Mission                             100         514,091         .02             -          800           900  
   Montana Resources                  49.9         499,438         .03        10,300       11,000        10,200  
                                                                         ----------------------------------------
       Total Domestic                                                         10,300       11,800        11,100  
                                                                         ----------------------------------------

SPCC (d)                                                                                                         
   Toquepala                          53.0(c)         313,149         .07      6,100        4,500         3,700  
   Cuajone                            53.0(c)       1,422,339         .03      3,300        4,200         4,300  
                                                                         ----------------------------------------
       Total                                                                   9,400        8,700         8,000  
                                                                         ----------------------------------------

Asarco Beneficial Production                                                  10,100       10,900        10,000  
                                                                         ----------------------------------------


(a)      1997 reflects Asarco's beneficial interest in Leadville at 100%.       

(b)      Asarco sold its 80% interest in Quiruvilca on August 31, 1995.         

(c)      Asarco  consolidated  SPCC  effective  January  1, 1995.  The  minority
         interest in SPCC,  represented by Labor Shares in its Peruvian  Branch,
         results in Asarco having a beneficial  interest  which is less than its
         equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
      at December 1997, 52.6% at December 1996 and 52.3% at December 1995.

(d)      In addition to the proven and probable ore reserves, SPCC is evaluating
         370 million tons of  mineralized  reserves  with an average  molybdenum
grade of 0.03%.                                               

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A23                                                                             

METAL PRODUCTION STATISTICS (continued)                                         

SILVER                                                                          

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                                              Mineral        Average                                            
                                              Reserves       Mineral               Metal Production             
                                 Asarco     (000s Tons)      Content               Contained Metal              
                                  Int.                      (oz/Ton)              (000s troy ounces)            
                                                                       -----------------------------------------
                                  (%)         12/31/97      12/31/97        1997         1996          1995     
                              ----------------------------------------------------------------------------------
                                                                                                                
MINES                                                                                                           
Domestic                                                                                                        
   Silver Valley Resources             50          1,607        19.48         3,436         1,651          -    
   Leadville                       100(a)            407         1.67           250           176        347    
   Mission                            100        514,091          .16         2,169         1,981      2,604    
   Montana Resources                 49.9        499,438          .07           858           822        680    
   Ray                                100              -            -           424           480        839    
   Sweetwater                         100         11,724          .13            83           176        272    
   Troy (b)                            75         11,996         1.42             -             -          -    
   West Fork                          100          5,033          .25           171           175        232    
                                                                        ----------------------------------------
      Total Domestic                                                          7,391         5,461      4,974    

SPCC                                                                                                            
   Toquepala                      53.0(c)        313,149            -         1,474         1,412      1,557    
   Cuajone                        53.0(c)      1,422,339            -         1,671         1,685      1,401    
Other                                                                                                           
   Quiruvilca-Peru (d)                                                            -             -      1,621    
   San Bartolome                      100         10,700         3.97             -             -          -    
   Minto                             86.7          7,176          .27             -             -          -    
                                                                        ----------------------------------------
      Total                                                                  10,536         8,558      9,553    
                                                                        ----------------------------------------

Asarco Beneficial Production                                                  6,901         5,778      7,273    
                                                                        ----------------------------------------

REFINERIES                                                                                                      
   Amarillo                           100                                    20,330        30,842     37,265    
   SPCC-Ilo                       53.0(c)                                     2,462         2,218      2,519    
                                                                        ----------------------------------------
     Total                                                                   22,792        33,060     39,784    
                                                                        ----------------------------------------

Asarco Beneficial Production                                                 21,629        32,004     38,530    
                                                                        ----------------------------------------


(a)      1997 reflects Asarco's beneficial interest in Leadville at 100%.       

(b)      Troy is currently on standby.                                          

(c)      Asarco  consolidated  SPCC  effective  January  1, 1995.  The  minority
         interest in SPCC,  represented by Labor Shares in its Peruvian  Branch,
         results in Asarco having a beneficial  interest  which is less than its
         equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
      at December 1997, 52.6% at December 1996 and 52.3% at December 1995.

(d)      Asarco sold its 80% interest in Quiruvilca in August 1995.             

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A24                                                                             

All  mineral  reserves  represent  100% of the  reserves  for that  mine and the
percentage  ownership of Asarco are separately  indicated.  All mineral reserves
are at December  31,  1997.  Reserves  are  estimated  quantities  of proven and
probable ore that under present and  anticipated  conditions may be economically
mined and processed for the  extraction  of their  mineral  content.  Controlled
mineral   deposits   include  those  owned,   directly  or  indirectly   through
subsidiaries,  partnerships or joint ventures,  optioned,  leased, or held under
government concession.                                                          

All production  figures represent entire amounts of operations,  including those
under lease, joint venture, government concessions or operated by subsidiaries. 

Other Operations                                                                

The principal  activities  included in the business segment entitled "All Other"
are  those  of  Encycle/Texas,   Inc.  and  Hydrometrics,   Inc.,   wholly-owned
subsidiaries  in  the  environmental   services  business,  a  specialty  metals
business, and income and expenses associated with facilities previously operated
by the Company. None of these operations constitute a significant portion of the
total operations of the Company.                                                

Item 3.  Legal Proceedings                                                      

Reference is made to the  Contingencies  and Litigation  Note 8 to the Financial
Statements incorporated herein by reference.  The following is additional detail
with respect to the litigation referred to in Note 8.                           

Texas Litigation                                                                

In 1996, a lawsuit was filed in state  district  court in San  Patricio  County,
Texas, against Asarco and two of its wholly-owned  subsidiaries,  Encycle,  Inc.
and Encycle/Texas  Inc. and ten other defendants by approximately 679 plaintiffs
who  allegedly  own  property  and  reside  near a landfill  in  Sinton,  Texas.
Plaintiffs  seek  compensatory  and  punitive  damages for  personal  injury and
property damage allegedly caused by defendants'  disposal of toxic and hazardous
wastes at the landfill.  In December 1997, a similar lawsuit was filed on behalf
of 23 additional plaintiffs.  The landfill at issue is the same one that was the
subject  of a  previous  lawsuit  in Duval  County,  Texas by nearby  residents,
settlement of which was reported on Form 10-K for 1995.                         

In 1994, the Company and one of its  wholly-owned  subsidiaries,  Encycle/Texas,
Inc., were sued in state court in Nueces County,  Texas in three purported class
actions on behalf of persons  residing  in  neighborhoods  around the  Company's
Corpus Christi,  Texas property.  These actions seek  compensatory  and punitive
damages for diminution of property values, annoyance, loss of use and enjoyment,
loss of income from commercial uses,  remediation costs, emotional distress, and
medical  monitoring due to alleged  contamination  of plaintiffs'  properties by
metals emitted from the Corpus Christi  facility.  In 1994, two additional suits
alleging contamination of plaintiffs' properties by metals emitted by the Corpus
Christi  facility  were filed  against the  Company and two of its  wholly-owned
subsidiaries, Encycle, Inc. and Encycle/Texas, Inc. and several other defendants
in state court in Duval County,  Texas.  In one suit, 20 plaintiffs  who resided
and owned  property  near the Corpus  Christi  facility  seek  compensatory  and
punitive damages for diminution in property values,  personal  injuries,  mental
anguish,  lost wages,  medical  expenses and medical  monitoring.  In the second
suit,  two  plaintiffs who owned and operated a business near the Corpus Christi
facility seek compensatory and punitive damages for diminution of property value
and loss of profits.  In April 1996, one additional suit alleging  contamination
of plaintiffs'  properties by metals emitted by the Corpus Christi  facility was
filed  against  the Company and two of its  wholly-owned  subsidiaries  in state
court in Nueces County, Texas. This suit seeks compensatory and punitive damages
and equitable relief for diminution of property values and remediation costs.   

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A25                                                                             

In 1993,  the State of Texas  notified the Company that it and ten other persons
are PRPs with respect to the Col-Tex  Refinery State  Superfund site in Mitchell
County,  Texas where the Company stored diesel fuel in the mid-1970's.  In 1996,
the State of Texas  notified the Company  that it is no longer  considered a PRP
and that it has dismissed this claim.  The Company has also been named as one of
several  defendants in 14 lawsuits  filed by or on behalf of  approximately  366
persons who have lived or owned property near the Col-Tex  Refinery site seeking
compensatory and punitive  damages for alleged wrongful death,  personal injury,
and property  damage.  In 1997,  the Company was  dismissed  from three of those
lawsuits involving approximately 170 individuals.                               

In 1994,  the Company  received  notice from the State of Texas that it is a PRP
for the  remediation of the site of a former  pesticide  manufacturing  plant in
Hunt County,  Texas owned and operated by a former  customer of the Company.  In
addition,  the Company has been named as one of a number of  defendants  in nine
lawsuits  filed in  various  Texas  State  District  Courts  by or on  behalf of
approximately 2,281 individuals who live or lived near the site for compensatory
and  punitive  damages,  including  damages for alleged  personal  injuries  and
property  damage,  due to alleged  exposure to arsenic products that the Company
sold to the manufacturer at the site. The bankruptcy  filing of the owner of the
former  pesticide  plant has  resulted  in all of these  actions  being  stayed,
removed to federal court and transferred to the United States District Court for
the  Northern  District  of Texas.  Also,  in 1995,  the  Company was named as a
third-party defendant in a suit, pending in the United States District Court for
the Northern  District of Texas, for  contribution  under CERCLA and Texas state
law involving approximately 15 parties alleged to be responsible for remediation
of a railroad property adjacent to the site.                                    

In May 1997, the Company and five other defendants, mostly metal companies, were
sued in state court in El Paso County,  Texas, by approximately  360 plaintiffs,
including  approximately 200 minors,  seeking  compensatory and punitive damages
for alleged  personal  injury,  death and property  damage  resulting from toxic
chemical discharges into the air, water and soil from the defendants' facilities
in El Paso.                                                                     

Asbestos Litigation                                                             

While no one personal  injury  action is exactly like any other,  the  following
three  pending  lawsuits  are  typical  of  those in  which  employees  of other
companies  allege death or injury  resulting  from alleged  exposure to asbestos
fiber  supplied  by Lac  d'Amiante  du  Quebec,  Ltee  ("LAQ"),  a  wholly-owned
subsidiary of the Company, and other suppliers to their employers' manufacturing
operations:                                                                     

1) In the action In Re Gada, Docket No.  L-6100-97,  pending since June 10, 1997
in  the  Superior  Court  of  New  Jersey,   Middlesex  County,  13  cases  were
consolidated for purposes of discovery in June 1997. These 13 actions involve 13
primary and 6  secondary  plaintiffs  who have sued LAQ and 23 other  defendants
that  allegedly  supplied  asbestos  fiber or  asbestos  containing  products to
Johns-Manville's  Manville, New Jersey facility for substantial compensatory and
punitive  damages for death or  injuries  allegedly  resulting  from the primary
plaintiffs'  exposure to asbestos  fiber while  employed at that  facility.  The
claims of eight of the primary  plaintiffs were dismissed as to LAQ on September
15, 1997. The plaintiffs  allege a broad range of respiratory and other injuries
including  disabling  lung  changes,   asbestosis,   cancer,  and  mesothelioma.
Liability  is alleged on theories  of strict  liability,  negligence,  breach of
warranty,  misrepresentation,  ultra hazardous activity and conduct, conspiracy,
concert  of  action,  market  share or  enterprise  liability,  and  alternative
liability.  The thrust of the complaint is that the defendants,  individually or
collectively,  failed to warn the primary  plaintiffs  of the  possible  hazards
associated  with  inhalation  of asbestos  fibers  while  working  with or being
exposed to such fibers.                                                         

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A26                                                                             

2) In Darlene  Turner and Patricia  Foret,  Individually  and on Behalf of Their
Father,  Robert Foret, Sr. v. Raymond Plauche,  etc., et al., Case No. 94-13057,
pending  since  August 24,  1994 in the Civil  District  Court for the Parish of
Orleans  of the State of  Louisiana,  the heirs of Mr.  Foret sued LAQ and three
other defendants that allegedly  supplied asbestos fiber or asbestos  containing
products  to the  National  Gypsum  plant  in New  Orleans,  Louisiana.  A fifth
defendant was an officer of National Gypsum that plaintiffs allege was negligent
in not  providing  Mr.  Foret with a safe  place to work.  The  plaintiffs  seek
substantial  compensatory  and punitive  damages for Mr. Foret's death from lung
cancer and other diseases that allegedly  resulted from his exposure to asbestos
fiber while employed at National Gypsum.  The thrust of the complaint is similar
to the In Re Gada case.                                                         

3) In Haines v. Aetna Casualty Co., et al., Docket No. L-5918-95,  pending since
July 13, 1995 in the Superior Court of New Jersey,  Camden  County,  one primary
and one secondary  plaintiff  sued LAQ and six other  defendants  that allegedly
supplied asbestos fiber or asbestos containing products to New York Shipbuilding
& Drydock Co. in Chester,  Pennsylvania and  Owens-Corning  Fiberglas in Berlin,
New Jersey. The plaintiffs demand substantial  compensatory and punitive damages
for asbestosis allegedly resulting from primary plaintiff's exposure to asbestos
fiber while employed at these facilities. The thrust of the complaint is similar
to the In Re Gada case.                                                         

In addition to these personal  injury lawsuits  arising out of alleged  asbestos
exposure  to  employees  of  other  companies  using  asbestos  fiber  in  their
manufacturing  operations,  included in the asbestos product liability  lawsuits
pending against LAQ and Asarco are numerous lawsuits arising from products (such
as insulation and brake linings)  manufactured by others.  These cases typically
allege a failure  to warn of  possible  health  hazards  associated  with  those
products  and  proceed on theories  similar to those  asserted in the In Re Gada
case.  In many  such  cases  LAQ and  Asarco,  having  never  manufactured  such
products,  have  obtained  dismissals.  Typical of lawsuits in which  plaintiffs
allege asbestos exposure due to products manufactured by others are:            

1) Tronlone  v.  Garlock,  Inc.,  et al.,  Index No.  95-120163,  pending  since
September  8,  1995 in the  Supreme  Court of the  State of New  York,  New York
County,  in which the  executrix  for the decedent Mr.  Tronlone sued LAQ and 22
other  defendants  that  allegedly  supplied  asbestos and  products  containing
asbestos to his employers.  The plaintiff demands  substantial  compensatory and
punitive  damages  for Mr.  Tronlone's  death  from  unspecified  injuries  that
allegedly resulted from his exposure to asbestos.                               
The thrust of the complaint is similar to the In Re Gada case.                  

2) Roger Adkins et al. v. Owens Corning  Fiberglas  Corporation,  et al.,  Civil
Action Nos.  95-C-3049 to  95-C-3064,  95-C-3138  and  95-C-3139,  pending since
November 3, 1995 in the Circuit Court of Kanawha County, West Virginia, in which
eighteen primary and fourteen secondary plaintiffs sued LAQ, Asarco and 33 other
defendants that allegedly supplied asbestos and products  containing asbestos to
the  primary   plaintiffs'   employers.   The  plaintiffs   demand   substantial
compensatory  and punitive damages for injuries  allegedly  resulting from their
exposure to asbestos.  The thrust of the  complaint is similar to the In Re Gada
case.                                                                           

3) Abbott, et al. v. Pittsburgh Corning Corporation,  et al., Case No. 97-28510,
pending since May 28, 1997 in the District Court of Harris County,  Texas, 125th
Judicial  District,  in which  2,512  primary  plaintiffs  and  1,954  secondary
plaintiffs sued Asarco,  LAQ, and 58 other  defendants  that allegedly  supplied
asbestos and products containing asbestos to the primary plaintiffs'  employers.
The plaintiffs demand substantial compensatory and punitive damages for injuries
allegedly resulting from their exposure to asbestos. The thrust of the complaint
is similar to the In Re Gada case.                                              

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A27                                                                             

Pogorzelski  v.  Amtorg  Trading  Corporation,  et al.,  described  in Item 3 of
Asarco's  1996 Form  10-K,  was  settled by LAQ as to all  remaining  plaintiffs
during May 1997.  Aaron, et al. v. Abex  Corporation,  et al., also described in
the same Item 3 was dismissed as to Asarco and its wholly-owned subsidiary Capco
Pipe Company,  Inc.  ("Capco") in June, 1997 with respect to the remaining 1,576
primary  plaintiffs.  As of December 31, 1997, Capco was a defendant in 27 cases
brought by 102 primary plaintiffs.                                              

In 1991, the Judicial Panel on Multidistrict Litigation transferred all asbestos
cases pending in federal court to a multi-district litigation ("MDL 875") in the
United  States  District  Court for the  Eastern  District of  Pennsylvania  for
coordinated and consolidated  pretrial  proceedings.  Cases containing less than
one percent of LAQ's primary plaintiffs are affected by this action.            

During January 1996, LAQ and nine former managerial and supervisory employees of
Capco  were sued in two  separate  state  court  actions in Alabama by 53 former
Capco  employees  seeking  substantial  compensatory  and  punitive  damages for
injuries  and death  allegedly  caused by  workplace  exposure  to  asbestos  on
theories of product  liability and negligence.  Since that time eight additional
former  Capco  employees  have  been  added to the  litigation  through  amended
complaints. During January 1998, plaintiffs' counsel amended their complaint for
a fifth  time to add Capco as a  defendant  with  respect to one  plaintiff  not
alleged to have been a Capco employee.                                          

On March 3, 1996, Asarco was served with a complaint in a purported class action
filed in state court in West Virginia  that also names as defendants  LAQ and 49
other  companies.  The action is allegedly  brought on behalf of a class of over
50,000  persons who were exposed to asbestos at West Virginia work sites and who
are  allegedly  at  increased  risk of  developing  cancer.  The case  seeks the
establishment of a medical monitoring fund. The case was subsequently removed to
federal court by three of the defendants  and was thereafter  transferred to MDL
875.  The Company and LAQ intend to oppose the  lawsuit.  Additionally,  in June
1995,  Capco was served with a complaint  in a purported  class  action filed in
Illinois  state court in Cook County that also names 139 other  defendants.  The
class  action is allegedly  brought on behalf of a  nationwide  class of persons
claiming to be at an increased risk of developing asbestos-related diseases as a
result of asbestos exposure.  Capco and nearly all the other defendants moved to
dismiss the case,  and their  motions were granted by the court in October 1996.
An appeal has been filed by plaintiffs.                                         

On February 25, 1997, LAQ was served with a complaint in Ohio state court naming
63  defendants  in a purported  class action  filed  allegedly on behalf of over
50,000   persons   who   claim  to  have  an   increased   risk  of   developing
asbestos-related diseases, and who fear they will contract cancer as a result of
their exposure to asbestos or asbestos-containing end products while employed at
Ohio worksites.  The complaint seeks damages and a medical  monitoring  fund. In
October 1997,  dismissal of this action as to all defendants was approved by the
Court.                                                                          

On February 2, 1998, Asarco was served by defendant Owens-Corning with a writ to
join over 360  additional  defendants,  including  LAQ and Asarco,  in a medical
monitoring class action filed in 1996 in Pennsylvania state court.              

As of December 31, 1997,  LAQ,  Asarco and Capco have settled or been  dismissed
from a total of approximately 7,210 asbestos personal injury lawsuits brought by
approximately 86,933 primary and 53,592 secondary plaintiffs.                   

With  respect  to  the  actions  relating  to  asbestos-containing  products  in
structures  reported in Note 8  Contingencies  and  Litigation  to the Financial
Statements, the following supplemental information is provided:                 

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A28                                                                             

A purported  statewide class action involving public buildings in cities seeking
substantial  compensatory  and punitive  damages  from LAQ was  dismissed by the
trial court in February 1997 and plaintiffs' appeal is pending.  LAQ has settled
five  and  been  dismissed  from  another  82  actions  involving   asbestos  in
structures.  Asarco has been  dismissed  from all twelve actions in which it has
been named.                                                                     

Environmental Litigation                                                        

In  September  1997,  the Company was sued in United  States  District  Court in
Nebraska in a purported  class  action.  The  complaint was brought on behalf of
classes  alleged to number in excess of 10,000  persons  owning and in excess of
15,000 persons renting  property in Nebraska and Iowa located within  boundaries
of up to approximately  five miles from the Company's former Omaha plant, and on
behalf  of a  medical  monitoring  class  alleged  to number in excess of 30,000
persons.  The action asserts claims of trespass,  nuisance,  negligence,  strict
liability,  unjust  enrichment,  medical  monitoring and under CERCLA due to the
alleged  contamination  of soils by airborne  releases from the plant, and seeks
compensatory  damages for diminution in property value and loss of use, punitive
damages,  a declaratory  judgment of liability for future  response  costs,  and
creation of a medical monitoring fund.                                          

In October 1997, the Company was sued in state court in Denver,  Colorado,  in a
purported  class action  brought on behalf of property  owners and other persons
residing  in  approximately  300  homes  located  within  one mile  south of the
Company's Globe plant. The action asserts claims of trespass,  private nuisance,
negligence,   and  strict  liability  allegedly  due  to  the  contamination  of
properties  by  emissions  from the plant,  and seeks  compensatory  damages for
diminution in property value and loss of use, as well as punitive  damages.  The
Company has removed  the action  from state court to federal  district  court in
Denver. A motion to remand to state court is pending.                           

On October 24, 1996, a citizens' suit was brought  against the Company  alleging
water discharge  permitting  violations  under the CWA and violations of RCRA at
the Company's Omaha, Nebraska lead refinery. On August 5, 1996, in response to a
notification by the plaintiffs' attorney that he intended to file this suit, the
Nebraska  Department of  Environmental  Quality ("NDEQ") advised the plaintiffs'
attorney that it believed that he had not "alleged sufficient facts under either
the CWA or RCRA to warrant the finding of a violation  of either  act." The NDEQ
further advised that it "does not perceive a need to take an enforcement  action
against Asarco at this time because the Company is presently  cooperating in the
voluntary  remediation  of its site." The Company  believes  that the lawsuit is
without merit and is vigorously defending it.                                   

In February 1997, the Company was named as a third-party  defendant in a lawsuit
filed in state court in King County,  Washington  asserting claims for indemnity
and  contribution  under  Washington's  Model Toxic  Control  Act.  The case was
settled in the first quarter of 1998.                                           

In 1995,  the  Company  was sued in  federal  court in Tacoma,  Washington  by a
retirement home with 200 residents and 21 acres of property  seeking damages for
diminution of property value,  response costs and attorneys'  fees. In September
1996, the suit was dismissed on the grounds that  plaintiffs  claims were barred
by lack of subject matter jurisdiction,  lack of actual and substantial damages,
or by the applicable statute of limitations. An appeal is pending.              

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A29                                                                             

In June 1996, the Company was sued in state court in Salt Lake City,  Utah along
with numerous other companies alleged to have been engaged in mining or smelting
in the Bingham Canyon area of Utah.  Plaintiffs,  thirty-six individuals alleged
to be members of four  families  that  resided in homes  located in the historic
flood plains of the Bingham Creek,  seek  compensatory  and punitive damages for
personal injury,  fear of cancer and wrongful death allegedly caused by exposure
to toxic wastes including arsenic, lead and cadmium, from the defendants' mining
and smelting activities in the area.                                            

Other Litigation                                                                

In June  1993,  the  Company  was  sued by two of its  liability  insurers,  the
Insurance  Company of North America and California Union Insurance  Company,  in
state court in New  Brunswick,  New Jersey for a  declaration  that the insurers
have no insurance obligation for environmental  matters for which the Company is
seeking coverage. The plaintiff insurance companies also included Asarco's other
liability  insurers in the  lawsuit,  and those  insurers  have  sought  similar
declaratory  relief.  Asarco has filed cross  claims and  counterclaims  in this
lawsuit seeking a court declaration that insurance coverage of its environmental
matters does exist. The Company has settled with certain of these insurers,  and
in January 1997 summary judgment dismissing Asarco's claims was granted in favor
of most other insurers.  The litigation  continues as to the remaining  insurers
and the Company has appealed the granting of summary judgment.                  

Opinion of Management                                                           

The  opinion  of  management  regarding  the  outcome of legal  proceedings  and
environmental contingencies,  set forth in the Contingencies and Litigation Note
8 to the Financial Statements,  is based on considerations  including experience
relating to previous court judgments and  settlements and remediation  costs and
terms. The financial viability of other potentially responsible parties has been
considered  when  relevant  and no credit  has been  assumed  for any  potential
insurance  recoveries  when not deemed  probable.  The Company  considered  such
factors in  establishing  its  environmental  reserve in December of 1990 and in
determining modifications to its reserve in each year thereafter.               

See also  Item 1,  "Environmental,  Safety  and  Health  Matters,"  for  further
information  concerning  pending legal or administrative  proceedings  involving
Asarco.                                                                         

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

None.                                                                           

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A30                                                                             

EXECUTIVE OFFICERS OF ASARCO AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS 
                                               (As of February 27, 1998)

                                                        · Enlarge/Download Table

                                                                                               Officer 
Name                    Office and Experience                                             Age     Since
----                    ---------------------                                             ---     -----
                                                                                                       
Richard de J. Osborne        1998  Chairman of the Board and Chief Executive Officer     63       1975 
                        1993-1998  Chairman of the Board, President and                                
                                     Chief Executive Officer                                           

Francis R. McAllister        1998  President and Chief Operating Officer                 55       1978 
                        1993-1998  Executive Vice President, Copper                                    
                                     Operations                                                        

Kevin R. Morano              1998  Executive Vice President and Chief Financial Officer  44       1993 
                        1993-1998  Vice President, Finance and Chief                                   
                                     Financial Officer                                                 
                             1993  General Manager, Ray Complex                                        

Augustus B. Kinsolving  1996-1998  Vice President and General Counsel                    58       1983 
                        1993-1995  Vice President, General Counsel                                     
                                     and Secretary                                                     

Robert J. Muth          1993-1998  Vice President, Government and                        64       1977 
                                     Public Affairs                                                    

Robert M. Novotny       1993-1998  Vice President, Lead, Zinc,                           49       1988 
                                     Silver and Aggregates                                             

William L. Paul         1997-1998  Vice President, Commercial                            47       1996 
                        1993-1996  Manager, Omaha Plant                                                

Gerald D. Van Voorhis   1993-1998  Vice President, Exploration                           59       1992 

Michael O. Varner       1993-1998  Vice President, Environmental                         56       1993 
                                     Operations                                                        
                             1993  General Manager, Western Metals                                     

David B. Woodbury       1993-1998  Vice President, Human Resources                       57       1993 

Robert Ferri            1995-1998  Secretary                                             50       1995 
                        1993-1995  Associate General Counsel                                           

William Dowd            1995-1998  Controller                                            48       1995 
                        1993-1995  Assistant Controller                                                

Christopher F. Schultz  1997-1998  Treasurer                                             46       1997 
                        1993-1997  Assistant Treasurer                                                 

James L. Wiers          1993-1998  General Auditor                                       53       1987 


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A31                                                                             

                                                     PART II
Item 5 - Market for Registrant's Common Stock and Related Stockholder Matters   

At December  31,  1997,  there were 7,636  common  stockholders  of record.  The
principal  market for Asarco's Common Stock is the New York Stock Exchange.  The
Stock Exchange symbol for Asarco's common stock is AR. High and low stock prices
and dividends for last two years were:                                          

                                                        · Enlarge/Download Table
                                                                                                                              
                                                                                                                              
                                            1997                                                   1996                       
                     -----------------------------------------------------  --------------------------------------------------
QUARTERS                1st        2nd       3rd        4th       Year         1st        2nd        3rd       4th       Year 
                     -----------------------------------------------------  --------------------------------------------------
                                                                                                                              
Dividends paid                                                                                                                
 per common share       .20        .20       .20        .20       .80          .20        .20        .20       .20        .80 

Stock market price:                                                                                                           
      High             32-1/2    32-1/4       34      31-7/8       34         35-1/4     35-7/8    27-7/8       28      35-7/8
      Low              25-1/8    26-1/2       30      21-3/4     21-3/4       27-1/2     27-5/8    23-3/4     24-1/8    23-3/4

Item 6 - Selected Financial Data                                                

FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA (in millions, except per share
and employee data)                                                              

                                                        · Enlarge/Download Table
                                                                                                                     
                                                                                                                     
                                                     1997        1996           1995(f)       1994         1993      
                                                     ----        ----           ----          ----         ----      
                                                                                                                     
Consolidated Statement of Earnings                                                                                   
Sales                                                 $2,721       $2,717       $3,198        $2,032       $1,736    
Operating income (loss)                                  275(a)       303(d)       487(g)         18(h)      (110)(j)
Earnings (loss) before minority interests, equity                                                                    
  earnings and cumulative effect of change in                                                                        
  accounting principles                                                                                              
                                                         234          226          299            17          (97)   
Minority interests                                       (91)         (88)        (130)           (1)          (1)   
Equity earnings, net of taxes                             -(b)         -(b)          -(b)         48           27    
Net earnings                                            143(c)       138(e)        169            64(i)        16(k) 
Per common share:                                                                                                    
  Net earnings - Basic                             $    3.42     $   3.24     $   4.00    $    1.53      $   0.38    
  Net earnings - Diluted                           $    3.42     $   3.23     $   3.98    $    1.52      $   0.38    
Dividends to common stockholders                   $    0.80     $   0.80     $   0.70    $    0.40      $   0.50    
Consolidated Statement of Cash Flows                                                                                 
Cash provided from (used for)                                                                                        
 operating activities                                 $  321       $  267       $  489       $  (10)       $   39    
Dividends to common stockholders                          34           34           30           17            21    
Capital expenditures                                     322          286          338           98           112    
Depreciation and depletion                               131          119          119           83            81    
Consolidated Balance Sheet                                                                                           
--------------------------                                                                                           
Total assets                                          $4,110       $4,120       $4,327       $3,291        $3,153    
Inventories - replacement cost in excess of LIFO                                                                     
  inventory costs                                         86          115          137          143           114    
Total cash and marketable securities                     416          193          281           18            13    
Total debt                                               879          814        1,122          933           901    
Common stockholders' equity                            1,694        1,737        1,707        1,517         1,472    
Common Stock                                                                                                         
------------                                                                                                         
Common shares outstanding                               39.7         42.8         42.6         42.1          41.7    
Price-high                                               $34      $35-7/8      $36-1/2      $34-7/8       $28-5/8    
     -low                                            $21-3/4      $23-3/4      $24-3/8      $21-3/8       $16-5/8    
Book value per common share                           $42.71       $40.56       $40.11       $36.04        $35.27    
Price/Earnings ratio                                    6.56         7.68         8.01        18.65         60.92    
Dividends to common stockholders as a percent of                                                                     
  earnings                                             23.4%        24.7%        17.5%        26.2%        133.2%    
Financial Ratios                                                                                                     
Current assets to current liabilities                                                                                
                                                         2.3          1.8          1.9          1.6           1.5    
Debt as a % of capitalization                           28.3%        26.7%        34.1%        38.1%         38.0%   
Debt as a % of capitalization, net of excess cash                                                                    
                                                        20.2%        24.1%        32.1%        38.1%         38.0%   
Employees (at year-end)                               11,800       11,800       12,200        8,000         8,500    

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A32                                                                             

Notes to Five-Year Selected Financial and Statistical Data                      

(a)      Environmental  charges of $20.2 include third quarter  charges of $30.0
         to increase reserves for closed plant and environmental matters, offset
entirely by anticipated insurance recoveries.                 
(b)      Net earnings  from  investments  accounted for by the equity method are
included in earnings (above).                                 
(c)      Includes a $47.6 after-tax gain ($73.3 pre-tax) from the sale of shares
of Grupo Mexico.                                              
(d)      Includes a $15.0 pre-tax  charge  ($67.7 in charges  offset by $52.7 in
         insurance  settlements  and  other  recoveries)  for  closed  plant and
environmental matters.                                        
(e)      Includes a $39.0  after-tax  gain ($60.1  pre-tax) from the sale of the
         Company's  remaining  interest in MIM and a $7.2  after-tax gain ($11.1
         pre-tax) from the sale of a 25% interest in the  Company's  Silver Bell
project.                                                      
(f)      On April 5, 1995, the Company  acquired an additional 10.7% interest in
         Southern  Peru  Copper  Corporation  (SPCC) for $116.4  increasing  its
         ownership from 52.3% to 63%. The additional shares acquired enabled the
         Company to elect a majority of the directors of SPCC. As a result,  the
         Company has consolidated SPCC in its financial  statements based on its
         52.3%  ownership,   effective  January  1,  1995,  and  63%  ownership,
         effective  April 5, 1995.  The  Company  previously  accounted  for its
investment in SPCC by the equity method.                      
(g)      Includes a $139.4  pre-tax  charge to add to the Company's  reserve for
         closed  plant  and   environmental   matters,   to  provide  for  asset
         impairments  and plant  closures and to write down  certain  in-process
inventory to net realizable value.                            
(h)      Includes a $65.5  pre-tax  charge to add to the  Company's  reserve for
closed plant and environmental matters.                       
(i)      Includes a $31.9  after-tax  gain ($58.5  pre-tax) from the sale of the
Company's remaining interest in Asarco Australia Limited.     
(j)      Includes a $37.6 pre-tax  charge for the valuation of  inventories  and
         additions to reserves for closed plant and environmental  matters, $9.2
         of LIFO profits and $8.2 of previously unrecognized losses of Nor Peru.
(k)      Includes $26.4 (net of taxes of $0.4) of previously unrecognized equity
         earnings  of SPCC and a gain of $86.3 as the  result of the  cumulative
effect of a change in accounting principle at SPCC.           

Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations                                                                   

Asarco  reported 1997 net earnings of $143.4  million,  or diluted  earnings per
share of $3.42. Earnings for 1997 include after-tax gains totaling $47.6 million
($73.3 million  pre-tax),  or $1.13 per share,  from the sale of shares of Grupo
Mexico, S.A. de C.V. (Grupo Mexico), Mexico's largest mining company.           

Net  earnings  in  1996  and  1995  were  $138.3  million  and  $169.2  million,
respectively.  Results for 1996  included  an  after-tax  gain of $39.0  million
($60.1 million pre-tax) from the sale of the Company's  interest in MIM Holdings
Limited (MIM), an Australian based mining company,  and a $7.2 million after-tax
gain ($11.1  million  pre-tax)  from the sale of a 25% interest in the Company's
Silver Bell  project.  Results for 1995 included a special  after-tax  charge of
$79.5  million  ($122.3  million  pre-tax)  related to the  termination  of lead
refining  operations  at the Company's  Omaha,  Nebraska  plant,  adoption of an
accounting   principle  regarding  the  impairment  of  long-lived  assets,  and
additions to the Company's  reserve for costs associated with previously  closed
plants.                                                                         

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A33                                                                             

The  Company's  earnings are heavily  influenced by the prices for its metals as
established  on U.S. and  international  commodity  exchanges.  Asarco's  fourth
quarter 1997  earnings  reflect the sharp  decrease in copper  prices which took
place during the final months of 1997.  Asarco announced in January 1998 that it
has instituted a company-wide  cost reduction  program to respond to the decline
in metal prices. The program,  which has already been implemented,  includes the
purchase  of  higher  productivity   equipment,   reductions  in  personnel  and
reductions in general and administrative expenses,  purchased services and other
operating costs. In total,  the cost reduction  program is expected to result in
savings of $50 million in 1998,  and improve net  earnings by  approximately  80
cents per share.  The Company  provided for the severance costs  associated with
this program in the fourth quarter of 1997.                                     

Asarco made significant  progress in 1997 in achieving its long-term  objectives
of  growing  its  copper  business,   developing  its  specialty  chemicals  and
aggregates  businesses,  realizing  value from its investments in foreign mining
companies,  reducing debt,  repurchasing stock to enhance shareholder value, and
improving and enhancing its safety, health and environmental performance:       

      The Company's  beneficial  interest in mined copper production in 1997 was
     977.4  million  pounds.  While  1997  production  was down  3.8%  from 1996
     primarily due to lower ore grades at the Company's  North  American  copper
     operations and the partial  curtailment of the Hayden  concentrator  at the
     Ray mine in  Arizona  during  the early part of 1997,  the  Company's  mine
     copper production is more than double that produced by the Company in 1985.

      In July 1997,  the Company began  production of refined  copper at its new
     solvent  extraction/electrowinning (SX/EW) facility at the Silver Bell mine
     in Arizona.  The new SX/EW plant,  in which Asarco has a 75%  interest,  is
     designed  to produce 36 million  pounds of  refined  copper  annually.  The
     plant,  which  started up on  schedule,  has been  producing  copper at its
designed capacity.                                                    

      In the second and third  quarters  of 1997,  the  Company  sold all of its
     unrestricted shares of Grupo Mexico for $322.5 million.  The sales resulted
     in an after-tax  gain of $47.6  million.  With the sale of the Grupo Mexico
     shares,  the  Company has  monetized  the last of its  historical  minority
     investments.  The proceeds from the Grupo Mexico sale,  and the MIM sale in
     1996, have enabled the Company to strengthen its balance sheet,  reduce its
interest expense, and undertake a major share repurchase program.     

      Following  the  initial  sale of Grupo  Mexico  shares in June  1997,  the
     Company  undertook a $100 million  share  repurchase  program.  In December
     1997,  the Company  completed  the program after  repurchasing  3.3 million
     shares and reduced the number of its  outstanding  shares by  approximately
7.7% to slightly under 40 million shares.                             

      Southern Peru Copper Corporation  (SPCC) arranged  long-term  financing at
     favorable rates for its $1 billion expansion program.  The program includes
     a 50% increase in  production  at SPCC's  Cuajone mine which is expected to
     add  130  million  pounds  to  SPCC's  annual  copper  production,  and the
     modernization of its Ilo smelter.  The expansion at Cuajone is currently on
schedule and is expected to be completed in the first quarter of 1999.

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A34                                                                             

      In 1997,  the  Company's  specialty  chemicals and  aggregates  businesses
     continued  their strong growth.  Each of these  businesses  achieved record
     earnings,  totaling  over  $43  million  before  tax,  a  level  which  now
     contributes  significantly to Asarco's results,  particularly at the bottom
     of the metal market cycle. In specialty chemicals, technical innovation and
     marketing   effectiveness  were  key  factors   contributing  to  a  fourth
     consecutive  year of record sales and earnings.  In  aggregates,  favorable
     weather and a good construction  market in the Southeast increased sales by
15%.                                                                  

In April 1995,  the Company  acquired an additional  10.7%  interest in SPCC and
consolidated  SPCC's results in its financial  statements  effective  January 1,
1995.  The  Company's  ownership  of SPCC was  52.3% at  January  1,  1995,  and
increased to 63.0% effective April 5, 1995. The Company had previously accounted
for its investment in SPCC by the equity method.  In November 1995, SPCC offered
to exchange new common shares for labor shares issued by its Peruvian  Branch to
workers  under prior law in Peru.  These labor  shares,  which are traded on the
Lima Stock  Exchange,  represented a 17.3% interest in the Peruvian Branch which
comprises  substantially  all of the  operations of SPCC in Peru.  The offer was
concluded  in  December  1995,  with 80.8% of the labor  shares  tendered.  As a
result,  SPCC owned 96.7% of the Branch at December  31,  1995.  At December 31,
1997 and 1996,  SPCC  owned  97.8% and  97.2%,  respectively  of the Branch as a
result of open market  purchases of labor shares.  The Company's equity interest
in SPCC at December  31,  1997 and 1996 was 54.1% and at  December  31, 1995 was
54.0%,  and its voting interest was 63.1%,  62.6% and 61.0%,  respectively.  The
Company's  beneficial  economic  interest in the  operations of SPCC, net of the
remaining  labor  shares  interest,  was 53.0%,  52.6% and 52.3% at December 31,
1997, 1996 and 1995, respectively.                                              

Sales:  Sales were $2.7 billion in 1997 and 1996,  and $3.2 billion in 1995.  In
1997,  sales reflect higher  copper,  specialty  chemicals and aggregates  sales
volumes offset by the lower metal prices in 1997 compared to 1996 and lower lead
and silver sales volumes due to the  termination  of refining  operations at the
Omaha,  Nebraska refinery in June 1996. The decrease in 1996 sales compared with
1995 was principally  attributable to a 29 cent reduction in the average selling
price of copper  partially  offset by higher  copper sales  volumes.  The higher
copper sales volume in 1996 was mainly due to a full year of sales of production
from SPCC's SX/EW plant and higher copper  concentrate sales partially offset by
lower sales due to the termination of refining operations at the Omaha, Nebraska
refinery in June 1996.                                                          

Price/volume data:                                                              

                                                                · Download Table

Average Metal Prices                     1997     1996     1995
--------------------                     ----     ----     ----
                                                               
Copper (per pound - COMEX)            $  1.04  $  1.06  $  1.35
Copper (per pound - LME)                 1.03     1.04     1.33
Lead (per pound - LME)                   0.28     0.35     0.29
Silver (per ounce - Handy & Harman)      4.89     5.18     5.19
Zinc (per pound - LME) (1)               0.60     0.47     0.47
Molybdenum (per pound - Metals                                 
               Week Dealer Oxide)(1)     4.18     3.61     7.42

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A35                                                                             

                                                                · Download Table

Metal Sales Volume                       1997       1996       1995 
------------------                       ----       ----       ---- 
                                                                    
Copper     (000s pounds)                                            
  Asarco                             1,113,300  1,103,700  1,006,800
  SPCC                                 744,000    694,300    646,600
  Consolidated                       1,857,300  1,798,000  1,653,400

  Asarco Beneficial Interest (2)(3)  1,502,800  1,467,500  1,332,600

Lead       (000s pounds)                                            
  Asarco                               255,000    295,800    394,000

Silver     (000s ounces)                                            
  Asarco                                19,883     26,955     38,086
  SPCC                                   3,086      3,110      3,761
  Consolidated                          22,969     30,065     41,847

  Asarco Beneficial Interest (2)        21,511     28,584     39,987

Zinc       (000s pounds) (1)                                        
  Asarco                               145,970    200,456    240,230

Molybdenum (000s pounds) (1)                                        
  Asarco                                 5,346      6,470      5,685
  SPCC                                   9,398      8,813      8,402
  Consolidated                          14,744     15,283     14,087

  Asarco Beneficial Interest (2)        10,307     11,088      9,896

         (1)      The Company's  zinc and  molybdenum  production is sold in the
                  form of  concentrates.  Volume  represents  pounds of zinc and
     molybdenum metal contained in those concentrates.

         (2)      SPCC  presented at 100%.  Asarco  consolidated  SPCC effective
                  January  1, 1995.  Asarco's  beneficial  interest  in SPCC was
                  53.0% at December  31,  1997,  52.6% at December  31, 1996 and
52.3% at December 31, 1995.                 

         (3)      Effective  February,  1996,  Asarco's  beneficial  interest in
Silver Bell L.L.C. is 75%.                  

Substantially  all of the Company's  copper and most of its lead  production are
sold as  refined  metal  under  annual  contracts.  To the extent not sold under
annual  contracts,  production  may be sold on a spot sale basis.  The Company's
zinc  production and the balance of its lead  production are sold in the form of
concentrates and bullion under contracts of one to three years duration.  Silver
and  gold  are  sold  under  monthly  contracts  or in spot  sales.  Revenue  is
recognized  primarily  in the month  product is shipped  to  customers  based on
prices as provided in sales contracts.  Certain subsidiaries,  principally SPCC,
recognize  revenue  based  on  prices  prevailing  at the  time of  shipment  to
customers  with  final  pricing  generally  occurring  within  three  months  of
shipment.  Revenues  with  respect to these sales are  adjusted in the period of
settlement  to reflect  final  pricing  and in periods  prior to  settlement  to
reflect  any  decline in market  prices  which may occur  between  shipment  and
settlement.                                                                     

Hedging and Trading  Activities:  The Company may use derivative  instruments to
manage its exposure to market risk from changes in  commodity  prices,  interest
rates or the value of its assets and liabilities.  Derivative  instruments which
are  designated  as  hedges  must be  deemed  effective  at  reducing  the  risk
associated  with the exposure  being hedged and must be designated as a hedge at
the inception of the contract.                                                  

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A36                                                                             

Hedging:  Depending on the market  fundamentals of a metal and other conditions,
the Company may purchase put options or create  synthetic  put options to reduce
or eliminate the risk of metal price declines below the option strike price on a
portion of its  anticipated  future  production.  Put options  purchased  by the
Company  establish a minimum sales price for the production  covered by such put
options  and permit the  Company to  participate  in price  increases  above the
option price.  The cost of options is amortized on a straight-line  basis during
the  period  in  which  the  options  are  exercisable.  Depending  upon  market
conditions, the Company may either sell options it holds or exercise the options
at  maturity.  Gains or losses  from the sale or  exercise  of  options,  net of
unamortized  acquisition  costs,  are  recognized  in the  period  in which  the
underlying  production is sold. The Company also uses futures contracts to hedge
the  effect of price  changes  on a portion  of the  metals it sells.  Gains and
losses on futures  contracts  are  reported  as a  component  of the  underlying
transaction.  Earnings include gains from option sales and exercises,  primarily
related to copper, of $25.8 million in 1997 and $27.1 million in 1996 and losses
of $5.6 million in 1995.                                                        

At December 31, 1997, the Company held the following copper put options:        
(in millions, except per pound amounts)                                         

                                                                · Download Table

                                                                   Percent of
                               Strike Price Per  Unamortized Cost   Estimated
        Pounds   Period              Pound                         Production
        ------   ------              -----                         ----------
                                                                             
Asarco     44.0     1/98-3/98          $0.95            $0.7          26%    

SPCC       44.0     1/98-3/98          $0.95            $0.6          27%    


Trading: As part of its price protection program,  the Company may use synthetic
put  options  which  consist  of a call  option  and a forward  sale on the same
quantity of metal.  Price protection  programs  utilizing  synthetic puts may be
implemented  in steps.  In cases where the step approach is used,  the Company's
objective is to take advantage of current market conditions to minimize its cost
while at the same time limiting the Company's  exposure should market conditions
change  before  the  synthetic  put  is  completed.  Until  a  synthetic  put is
completed,  any calls not matched  with a forward sale are marked to market with
the gain or loss, if any,  recorded in earnings.  Earnings include gains of $0.5
million in 1997 from the sale or exercise of call options. Earnings also include
gains of $3.6 million in 1997 and losses of $0.1 million in 1996 from unrealized
mark to market  adjustments.  At December 31, 1997, the Company held copper call
options  covering an aggregate of 140.3 million  pounds of copper,  a portion of
which are  exercisable  in each quarter of 1998 at an average strike price of 97
cents. The carrying value of these calls at December 31, 1997 was $0.4 million. 

Gains and Losses:  The recognized  pre-tax gains (losses) of the Company's metal
hedging and trading activities, were as follows:                                

                                                        · Enlarge/Download Table

For the years ended December 31,        1997               1996                1995        
                                        ----               ----                ----        
(in millions)                                                                              
                                                                                           
Metal                                                                                      
-----                                                                                      
Copper                                   $ 28.7           $ 26.9             $ (5.7)       
Zinc                                        1.2             (0.1)              (0.1)       
Silver                                        -              -                  0.5        
Lead                                          -              0.2               (0.3)       
                                  ================== ================== ===================
  Net Gain (Loss)                        $ 29.9           $ 27.0             $ (5.6)       
                                  ================== ================== ===================

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A37                                                                             

Interest Rate Swaps: The Company may enter into interest rate swap agreements to
limit the  effect of  increases  in the rates on any  floating  rate  debt.  The
differential is recorded in interest expense.  In 1995, the Company entered into
three swap agreements,  expiring 1998 to 2000, with an aggregate notional amount
of $115.0 million.  The effect of these agreements is to limit the interest rate
exposure to 6.6% on $100  million of the  Company's  revolving  credit loans and
6.8% on its $15 million, 5 year term loan. As a result of these swap agreements,
interest expense was increased by $0.6 million in 1997, $0.7 million in 1996 and
$0.2 million in 1995.                                                           

Cost of Products and Services: Cost of products and services was $2.1 billion in
1997 and 1996 and $2.3 billion in 1995.  In 1997,  cost of products and services
reflects higher sales volumes of copper produced from purchased  concentrates at
SPCC,  higher  power  costs  at  SPCC  and  increased  specialty  chemicals  and
aggregates  sales volumes  offset by lower  purchases of refined  copper to meet
customer  commitments  and  lower  lead  and  silver  sales  volumes  due to the
termination of refining operations at the Company's Omaha,  Nebraska refinery in
June 1996.  Cost of products and services was reduced by $16.7  million in 1997,
$5.3  million in 1996 and $0.7 million in 1995 as a result of  liquidation  of a
portion of the Company's LIFO inventories.                                      

As a  result  of  its  $1  billion  expansion  program,  SPCC's  electric  power
requirements   will  increase   significantly   requiring  the  construction  of
substantial  additional generating capacity. In the second quarter of 1997, SPCC
sold its existing  power plant to an independent  power  company.  In connection
with the sale, a power purchase  agreement was also completed,  under which SPCC
will  purchase its power needs for the next twenty years.  Under the  agreement,
SPCC's cost of power will increase somewhat from its 1996 level,  however,  SPCC
will avoid the significant  capital  expenditures that would be required to meet
the needs of expanded  operations and its power costs will be favorably affected
by benefits available to independent power companies in Peru.                   

The decrease in cost of sales in 1996  compared  with 1995 was mainly due to the
termination of refining operations at the Company's Omaha,  Nebraska refinery in
June 1996. In addition,  higher mine production at SPCC in 1996 reduced its need
to supplement its production with higher cost outside concentrate purchases.    

Other Expenses:  Depreciation  and depletion  expense was $130.8 million in 1997
compared with $118.6 million in 1996 and $118.8 million in 1995. The increase in
1997 over 1996  reflects a full year's  depreciation  of the sulfuric acid plant
and additional  assets  related to the Cuajone and Toquepala  mines in Peru, and
the Silver Bell mine in Arizona,  which  commenced  its new SX/EW  operations in
July 1997. In 1996, a full year of  depreciation  of the SX/EW plant in Peru was
offset by lower depreciation from domestic operations.                          

The increase in research and  exploration  costs year over year is primarily due
to higher exploration  spending on prospects located in French Guiana,  Peru and
Chile.                                                                          

At December 31, 1996,  the Company  applied the American  Institute of Certified
Public  Accountants:  Statement  of Position  96-1,  "Environmental  Remediation
Liabilities" (SOP 96-1), which provides  authoritative  accounting guidance with
regard to  recognizing,  measuring  and  disclosing  environmental  liabilities.
Environmental  and other closed plant  charges were $20.2 million in 1997 ($50.4
million in charges  offset by $30.2 million in  anticipated  insurance and other
recoveries), and $15.0 million in 1996 ($67.7 million in charges offset by $52.7
million in  insurance  and other  recoveries)  including  $10.0  million for the
effect of the application of SOP 96-1.                                          

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A38                                                                             

Nonoperating Items: Interest expense was $74.2 million in 1997, $76.4 million in
1996 and $92.0  million in 1995.  The  decrease  year over year  reflects  lower
average  borrowings  due to the use of proceeds  from the sale of the  Company's
interest  in MIM in the  second  quarter of 1996 and the sale of shares of Grupo
Mexico in the second and the third quarters of 1997.                            

The  increase in other income in 1997 from 1996  reflects a dividend  from Grupo
Mexico and higher equity  earnings,  principally  from Silver Valley  Resources.
Included in other income are dividends from MIM in 1996 and 1995.               

Taxes on Income:  The  Company's  effective tax rate is lower than the statutory
rate  primarily  because of the  percentage  depletion  and  dividends  received
deductions which are permitted for U.S. tax purposes. The effective tax rate was
lower in 1997 compared with 1996  principally due to tax incentives  approved by
the Government of Peru in connection  with the expansion of SPCC's Cuajone mine.
The  Company's  tax  expense  includes  substantial  foreign  taxes,   primarily
attributable to SPCC's Peruvian  Branch.  Subject to certain  limitations  these
taxes have been applied as credits to reduce U.S.  federal  income tax otherwise
due.                                                                            

The Company has recorded a $119.0  million  benefit for tax net  operating  loss
carryforwards   at  December  31,  1997.   The  Company   believes   that  these
carryforwards,  which  expire in years 2008  through  2010,  will reduce  future
federal  income taxes  otherwise  payable.  The  effective tax rate was slightly
higher  in 1996  compared  with  1995  principally  due to the  decrease  in the
percentage depletion deduction as a result of lower mine earnings.              

Cash Flows - Operating  Activities:  Net cash provided from operating activities
was  $321.3  million in 1997  compared  with  $267.3  million in 1996 and $489.1
million in 1995.  The  increase in 1997 from 1996 is  primarily a result of cash
provided from  operating  assets and  liabilities  which  reflects a decrease in
accounts  receivable due to the decline in copper prices during the final months
of  1997  and  proceeds   received  from   insurance   settlements   related  to
environmental liabilities.                                                      

Cash from 1996 operating activities as compared to 1995 reflected lower earnings
due to lower copper prices. Other cash used for operating assets and liabilities
included  payments by SPCC in 1996 of income  taxes and  workers'  participation
accrued in 1995. These uses of cash were partially  offset by proceeds  received
from insurance settlements related to environmental  matters. Cash provided from
operating  assets  and  liabilities  in 1995 is  principally  a result  of lower
inventory levels and accrual of higher income taxes in 1995.                    

Cash Flows - Investing  Activities:  Net cash used for investing  activities was
$167.3 million in 1997, compared with cash provided of $93.8 million in 1996 and
cash used of $296.8  million in 1995.  The increase in capital  expenditures  in
1997 from 1996  reflects  the  expansion  project  at the  Cuajone  mine.  Other
investing  activities in 1997 included  proceeds of $322.5 million from the sale
of shares of Grupo Mexico  partially  offset by the  investment  of the proceeds
from SPCC financing activities in held-to-maturity investments.                 

The decrease in capital  expenditures  in 1996 from 1995 reflects the completion
of  construction  of  SPCC's  SX/EW and  sulfuric  acid  plants  in 1995.  Other
investing  activities in 1996 included the sale of MIM stock,  the sale of a 25%
interest in the Company's Silver Bell project, and proceeds from the maturity of
held-to-maturity investments, primarily at SPCC.                                

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A39                                                                             

Investing  activities  in 1995  included  the  purchase of an  additional  10.7%
interest in SPCC, the effect of consolidating  SPCC's opening cash balance as of
January 1, 1995,  and the release of restricted  cash. The release of restricted
cash  represents  the  withdrawal  by SPCC of funds  deposited  with the Central
Reserve  Bank of Peru under an  agreement  pursuant  to which SPCC agreed to use
such funds in an investment program over five years from 1992 through 1996.     

The  Company's  planned  capital  expenditures  in  1998  are  estimated  to  be
approximately $367 million. Included in 1998 spending are expenditures related  
to the expansion of SPCC's Cuajone mine.                                        

Liquidity and Capital  Resources:  At December 31, 1997, the Company's debt as a
percentage of total  capitalization  (the total of debt,  minority interests and
equity) was 28.3%,  compared  with 26.7% at the end of 1996 and 34.1% at the end
of 1995.  Consolidated debt at the end of 1997, including the debt of SPCC, none
of which is  guaranteed  by Asarco,  was $878.9  million,  compared  with $814.3
million in 1996 and $1,121.9 million in 1995. Additional  indebtedness permitted
under the terms of the Company's most  restrictive  covenants was $868.6 million
at December  31,  1997.  In addition,  under the most  restrictive  covenants of
SPCC's loan agreements,  SPCC would have been permitted additional  indebtedness
of $849.7 million at December 31, 1997.                                         

The increase in debt in 1997  reflects  the private  placement by SPCC of $150.0
million of Secured Export Notes in the United States and  international  markets
and the sale by SPCC of $50.0  million of 8.25% bonds due 2004 to  investors  in
Peru,  offset by the  portion of the  proceeds  from the sale of shares of Grupo
Mexico not used to purchase  Company stock.  The secured export notes which were
issued with an average maturity of seven years and a final maturity in 2007 were
priced at par with a coupon rate of 7.9%.                                       

The Company has two revolving credit  agreements that permit borrowings of up to
$850 million.  One facility for $350 million expires in April 1999 and the other
facility for $500 million  expires in May 2002.  The  borrowings  bear  interest
based on LIBOR,  the CD rate or the prime rate. At December 31, 1997, there were
no outstanding borrowings under either agreement.                               

In the second  quarter of 1997,  SPCC  entered  into a $600  million  seven-year
credit  agreement  with a group of  international  financial  institutions.  The
agreement  consists of a $400  million  term loan  facility  and a $200  million
revolving credit facility. The interest rate during the first three years of the
agreement on any loans  outstanding is LIBOR plus 1.75% per annum for term loans
and LIBOR plus 2.00% for revolving  credit loans.  No amounts have been drawn by
SPCC under this  agreement as of December 31, 1997.  SPCC's loan  agreements are
not  guaranteed by Asarco.  The funds raised in 1997,  the loan facility of $600
million and internal  funds are expected to provide the Company with  sufficient
resources for the $1 billion expansion program at SPCC.                         

Some of SPCC's financing agreements contain covenants which limit the payment of
dividends to  stockholders.  Under the most restrictive  covenant,  SPCC may pay
dividends to stockholders  equal to 50% of its net income for any fiscal quarter
as long as such  dividends  are  paid  by June 30 of the  following  year.  As a
result,  at December 31, 1997,  $572.8 million of SPCC's net assets  included in
the  Company's  Consolidated  net  assets  are  unavailable  for the  payment of
dividends.                                                                      

Financing  activities in 1997 also included the repurchase of 3.3 million shares
of the Company's stock for  approximately  $100 million which reduced the number
of outstanding shares by approximately 7.7% to slightly under 40 million shares.

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A40                                                                             

The Company has on file with the Securities and Exchange  Commission a universal
shelf registration  statement covering the future issuance of up to $300 million
in equity and debt  securities.  The  Company  has no  immediate  plans to issue
securities  and the  registration  is intended  to provide the Company  with the
flexibility to access the capital markets when appropriate.                     

In the  second  quarter  of  1995,  the  Company  sold  $150  million  of 8 1/2%
debentures  due May 1, 2025.  The Company used the  proceeds to repay  revolving
credit bank borrowings.  Borrowings  under the revolving credit  agreements were
used to fund  the  purchase  of an  additional  10.7%  interest  in SPCC and for
general corporate purposes.                                                     

In January 1998,  the Company  closed on a refinancing  of three tax exempt debt
issues  and called for the  redemption  of the  existing  bonds.  The  aggregate
principal  amount of the  refinancing  was $132.8  million.  The  refinancing is
expected to reduce the Company's  annual  interest costs by  approximately  $3.3
million.                                                                        

The Company's  cash and  marketable  securities at December 31, 1997 were $415.9
million  including $331.1 million held by SPCC. The Company expects that it will
meet its cash  requirements in 1998 and beyond from internally  generated funds,
cash on hand and from borrowings under its revolving  credit  agreements or from
additional debt or equity financing.                                            

Dividends and Capital Stock:  The Company paid dividends to common  stockholders
of $33.6 million, or 80 cents per share, in 1997, $34.2 million, or 80 cents per
share,  in 1996 and $29.6 million,  or 70 cents per share, in 1995. In addition,
SPCC paid  dividends  of $49.4  million to  minority  interests  in 1997,  $58.3
million in 1996 and $33.8 million in 1995.  At the end of 1997,  the Company had
39,663,000 common shares issued and outstanding, compared with 42,824,000 at the
end of 1996 and 42,571,000 at the end of 1995.                                  

Closed  Facilities  and  Environmental  Matters:  Reserves for closed plants and
environmental  matters totaled $122.1 million and $128.3 million at December 31,
1997 and 1996, respectively.  The Company anticipates that expenditures relating
to  these  reserves  will  be  made  over  the  next  several  years.  Net  cash
expenditures against these reserves were $63.1 million in 1997, $54.1 million in
1996 and $95.8 million in 1995.                                                 

On January 23, 1998,  the Company,  the United States  Department of Justice and
EPA announced the signing of a multi-region voluntary agreement covering a broad
range of environmental  issues affecting the Company's United States operations.
The two  consent  decrees  containing  the  agreement  have been filed in United
States District Courts in Phoenix,  Arizona and Helena,  Montana and are subject
to approval by both courts following public comment.  Pursuant to the agreement,
which  resolves  numerous  issues  that  were  being  negotiated  and  litigated
separately,  the Company will undertake capital construction  projects amounting
to $61.5 million, to be spent over six years, and pay penalties of $6.4 million.

In 1995, the Company  decided not to make a $40 million  investment  which would
have been  required  to meet  State and EPA  environmental  requirements  at its
Omaha,  Nebraska  refinery.  As a result,  the Company  terminated lead refining
operations at Omaha in June 1996. The special charges taken in 1995 included the
write-off of the  remaining  book value of the assets at Omaha,  a provision for
severance and legal expenses,  expected  cleanup and demolition costs associated
with the  termination of lead refining  operations and the write-down of certain
in-process inventory to net realizable value.                                   

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A41                                                                             

Impact of New  Accounting  Standard:  In June  1997,  the  Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 130,
"Reporting  Comprehensive  Income." This statement which is effective for fiscal
years  beginning  after  December 15, 1997  requires the Company to make certain
disclosures but has no impact on the Company's financial statements.            

Other:  The Company has implemented a program to identify and resolve the effect
of Year 2000  issues on the  integrity  and  reliability  of its  financial  and
operational  systems.  In addition,  the Company is also  communicating with its
principal customers,  suppliers and service providers to ensure Year 2000 issues
will not have an adverse impact on the Company. The costs of achieving Year 2000
compliance are not expected to have a material impact on the Company's business,
operations or its financial condition.                                          

Cautionary  Statement:  Forward-looking  statements  in this report and in other
Company statements include statements  regarding expected  commencement dates of
mining or metal  production  operations,  projected  quantities  of future metal
production,  anticipated  production rates,  operating  efficiencies,  costs and
expenditures as well as projected  demand or supply for the Company's  products.
Actual  results could differ  materially  depending  upon factors  including the
availability  of  materials,   equipment,  required  permits  or  approvals  and
financing, the occurrence of unusual weather or operating conditions, lower than
expected  ore  grades,  the  failure of  equipment  or  processes  to operate in
accordance with specifications,  labor relations, environmental risks as well as
political  and economic  risk  associated  with foreign  operations.  Results of
operations are directly  affected by metals prices on commodity  exchanges which
can be volatile.                                                                

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A42                                                                             

Item 8 - Financial Statements and Supplementary Data                            

                                                 ASARCO Incorporated
                                                and Subsidiaries
                                          CONSOLIDATED STATEMENT OF EARNINGS

                                                        · Enlarge/Download Table

(in thousands, except per share amounts)                                                                              
                                                                                                                      
For the years ended December 31,                                  1997                1996                 1995       
                                                                  ----                ----                 ----       

Sales of products and services                                $ 2,721,048          $ 2,716,784          $ 3,197,753   
                                                        -------------------- -------------------- --------------------

Operating costs and expenses:                                                                                         
 Cost of products and services                                  2,114,554            2,109,395            2,313,194   
 Selling, administrative and other                                137,657              132,779              130,871   
 Depreciation and depletion                                       130,802              118,569              118,827   
 Research and exploration                                          43,186               37,609               25,881   
 Provision for asset impairments and plant closures                                                                   
                                                                        -                    -               45,564   
 Environmental and other closed plant charges, net of                                                                 
    recoveries                                                     20,160               14,993               76,274   
                                                        -------------------- -------------------- --------------------
Total operating costs and expenses                              2,446,359            2,413,345            2,710,611   
                                                        -------------------- -------------------- --------------------

Operating income                                                  274,689              303,439              487,142   
Interest expense                                                  (74,247)             (76,442)             (91,954)  
Other income                                                       33,845               29,084               26,424   
Gain on sale of investments and other interests                                                                       
                                                                   73,281               71,158                    -   
                                                        -------------------- -------------------- --------------------
Earnings before taxes on income and minority interests                                                                
                                                                  307,568              327,239              421,612   
Taxes on income                                                    73,571              100,572              122,916   
                                                        -------------------- -------------------- --------------------

Earnings before minority interests                                233,997              226,667              298,696   
Minority interests in net earnings of consolidated                                                                    
  subsidiaries                                                    (90,605)             (88,331)            (129,543)  
                                                        ==================== ==================== ====================
Net earnings                                                  $   143,392          $   138,336          $   169,153   
                                                        ==================== ==================== ====================

Per share amounts:                                                                                                    
  Net earnings:                                                                                                       
   Basic                                                      $      3.42          $      3.24          $      4.00   
   Diluted                                                    $      3.42          $      3.23          $      3.98   

  Dividends to common stockholders                            $      0.80          $      0.80          $      0.70   

  Weighted average common shares outstanding:                                                                         
   Basic                                                           41,903               42,711               42,326   
   Diluted                                                         41,976               42,769               42,458   


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

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A43                                                                             

                                                 ASARCO Incorporated
                                                and Subsidiaries
                                                CONSOLIDATED BALANCE SHEET

                                                        · Enlarge/Download Table

(Dollars in thousands)                                                                                                   
At December 31,                                                                            1997                 1996     
                                                                                           ----                 ----     
                                                                                                                         
ASSETS                                                                                                                   
Current assets:                                                                                                          
  Cash and cash equivalents                                                          $   210,559          $   192,408    
  Marketable securities                                                                  205,317                1,039    
  Accounts receivable:                                                                                                   
     Trade, net of allowance for doubtful accounts of $8,121 and $8,129                  375,904              462,141    
   Other                                                                                  71,062               78,419    
  Inventories                                                                            362,119              383,281    
  Other assets                                                                            74,967               67,856    
                                                                              -------------------------------------------
     Total current assets                                                              1,299,928            1,185,144    
                                                                              -------------------------------------------
Investments:                                                                                                             
  Available-for-sale and other cost                                                      126,843              442,707    
  Equity                                                                                  61,337               59,787    
                                                                              -------------------------------------------
     Total investments                                                                   188,180              502,494    
                                                                              -------------------------------------------

Property, net                                                                          2,418,810            2,274,088    
Other assets including intangibles, net                                                  203,484              158,623    
                                                                              -------------------------------------------
        Total Assets                                                                 $ 4,110,402          $ 4,120,349    
                                                                              ===========================================
LIABILITIES                                                                                                              
Current liabilities:                                                                                                     
  Bank loans                                                                         $       204          $    15,913    
  Current portion of long-term debt                                                       28,712               39,815    
  Accounts payable:                                                                                                      
     Trade                                                                               289,234              379,406    
     Other                                                                                63,605               57,198    
  Salaries and wages                                                                      35,788               32,427    
  Taxes on income                                                                         62,565               57,695    
  Reserve for closed plant and environmental matters                                      43,238               38,128    
  Other                                                                                   50,131               51,975    
                                                                              -------------------------------------------
     Total current liabilities                                                           573,477              672,557    
                                                                              -------------------------------------------

Long-term debt                                                                           849,991              758,583    
Deferred income taxes                                                                    118,289              173,245    
Reserve for closed plant and environmental matters                                        78,827               90,205    
Postretirement benefit obligation                                                        104,491               99,945    
Other liabilities and reserves                                                           157,543               93,163    
                                                                              -------------------------------------------
     Total non-current liabilities                                                     1,309,141            1,215,141    
                                                                              -------------------------------------------

Contingencies                                                                                                            

MINORITY INTERESTS                                                                       533,911              495,706    
                                                                              -------------------------------------------

PREFERRED STOCKHOLDERS' EQUITY                                                                                           
Authorized - 10,000,000 shares without par value; none issued                                 -                    -     
COMMON STOCKHOLDERS' EQUITY                                                                                              
Authorized - 80,000,000 common shares without par value: Issued shares: 1997                                             
    and 1996 - 45,039,878                                                                679,991              679,991    
Unrealized gain on securities reported at fair value, net of tax                          11,654               56,311    
Retained earnings                                                                      1,159,799            1,066,191    
Treasury stock (at cost) - common shares 1997 - 5,377,339; 1996 - 2,216,015             (157,571)             (65,548)   
                                                                              -------------------------------------------
     Total Common Stockholders' Equity                                                 1,693,873            1,736,945    
                                                                              ===========================================
        Total Liabilities, Minority Interests, Preferred and Common                                                      
              Stockholders' Equity                                                   $ 4,110,402          $ 4,120,349    
                                                                              ===========================================


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

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A44                                                                             

                                             ASARCO Incorporated
                                            and Subsidiaries
                                        CONSOLIDATED STATEMENT OF CASH FLOWS

                                                        · Enlarge/Download Table

(Dollars in thousands)                                                                                                            

For the years ended December 31,                                                 1997               1996              1995        
                                                                                 ----               ----              ----        

                                                                                                                                  
OPERATING ACTIVITIES                                                                                                              
Net earnings                                                                     $ 143,392         $ 138,336          $ 169,153   
Adjustments  to  reconcile  net  earnings to net cash  provided  from (used for)                                                  
  operating activities:                                                                                                           
  Depreciation and depletion                                                       130,802           118,569            118,827   
  Provision (benefit) for deferred income taxes                                    (12,074)           26,302                 97   
  Treasury stock used for employee benefits                                          3,272             5,707              4,775   
  Undistributed equity earnings                                                     (3,934)             (438)              (460)  
  Net (gain) loss on sale of investments and property                              (69,671)          (72,321)             4,124   
  Provision for asset impairment                                                         -                 -             34,864   
  Increase (decrease) in reserves for closed plant                                                                                
    and environmental matters                                                       (6,268)           12,807             (6,878)  
  Minority interests                                                                90,605            88,331            129,543   
  Cashprovided  from (used for)  operating  assets and  liabilities,  net of the                                                  
      consolidation of SPCC:                                                                                                      
      Accounts receivable                                                           88,416           (27,200)           (36,867)  
      Inventories                                                                   19,376           (23,742)            48,842   
      Accounts payable and accrued liabilities                                     (87,981)           49,193             19,671   
      Other operating assets and liabilities                                        27,527           (41,527)             8,915   
      Foreign currency transaction (gains) losses                                   (2,196)           (6,739)            (5,536)  
                                                                           ------------------ ----------------- ------------------
Net cash provided from operating activities                                        321,266           267,278            489,070   
                                                                           ------------------ ----------------- ------------------

INVESTING ACTIVITIES                                                                                                              
Capital expenditures                                                              (322,436)         (286,474)          (337,831)  
Sale of property                                                                    47,426            20,109              9,966   
Purchase of investments                                                            (12,650)           (5,800)            (4,513)  
Sale of available-for-sale securities                                              417,831           371,058             20,953   
Purchase of available-for-sale securities                                          (93,945)          (46,513)           (23,203)  
Proceeds from held-to-maturity investments                                           1,036            42,455             76,877   
Purchase of held-to-maturity investments                                          (204,590)           (1,002)           (76,375)  
Release of restricted cash                                                               -                 -             60,450   
Acquisition of additional interest in SPCC                                               -                 -           (116,444)  
Consolidation of the opening cash balance of SPCC                                        -                 -             93,348   
                                                                           ------------------ ----------------- ------------------
Net cash (used for) provided from investing activities                            (167,328)           93,833           (296,772)  
                                                                           ------------------ ----------------- ------------------

FINANCING ACTIVITIES                                                                                                              
Debt incurred                                                                      283,024            53,303            234,449   
Debt repaid                                                                       (218,184)         (360,847)          (162,892)  
Escrow deposits on long-term loans                                                 (15,364)          (10,064)            10,809   
Net treasury stock transactions                                                    (99,561)            1,146              6,754   
Purchase of minority interest                                                       (7,272)           (5,280)                 -   
Distributions to minority interests                                                (49,417)          (58,295)           (33,828)  
Contributions from minority interests                                                1,863             4,000                  -   
Dividends paid to common stockholders                                              (33,604)          (34,174)           (29,645)  
                                                                           ------------------ ----------------- ------------------
Net cash (used for) provided from financing activities                            (138,515)         (410,211)            25,647   
Effect of exchange rate changes on cash                                              2,728             3,108              2,134   
                                                                           ------------------ ----------------- ------------------
Increase (decrease) in cash and cash equivalents                                    18,151           (45,992)           220,079   
Cash and cash equivalents at beginning of year                                     192,408           238,400             18,321   
                                                                           ================== ================= ==================
Cash and cash equivalents at end of year                                         $ 210,559         $ 192,408          $ 238,400   
                                                                           ================== ================= ==================


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

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A45                                                                             

                                           ASARCO Incorporated
                                          and Subsidiaries
                                          CONSOLIDATED STATEMENT OF CHANGES IN
                                           COMMON STOCKHOLDERS' EQUITY

                                                        · Enlarge/Download Table

(Dollars in thousands)                                                                           
                                                                                                 

For the years ended December 31,                 1997              1996                1995      

COMMON STOCK                                                                                     
Balance at beginning and end of year                                                             
  45,039,878 shares                            $  679,991        $  679,991          $  679,991  
                                         ------------------ ----------------- -------------------

UNREALIZED GAIN ON SECURITIES REPORTED                                                           
  AT FAIR VALUE                                                                                  
Balance at beginning of year                       56,311           131,600              91,627  
Net increase (decrease) in fair value             (44,657)          (75,289)             39,973  
                                         ------------------ ----------------- -------------------
Balance at end of year                             11,654            56,311             131,600  
                                         ------------------ ----------------- -------------------

RETAINED EARNINGS                                                                                
Balance at beginning of year                    1,066,191           976,107             853,169  
Net earnings                                      143,392           138,336             169,153  
Dividends paid to common stockholders             (33,604)          (34,174)            (29,645) 
Treasury stock issued at less than cost            (4,266)           (7,813)            (15,656) 
Foreign currency adjustment                       (11,914)           (6,265)               (914) 
                                         ------------------ ----------------- -------------------
Balance at end of year                          1,159,799         1,066,191             976,107  
                                         ------------------ ----------------- -------------------

TREASURY STOCK                                                                                   
Balance at beginning of year                      (65,548)          (80,214)           (107,400) 
Purchased                                        (101,366)             (568)             (1,130) 
Used for corporate purposes                         9,343            15,234              28,316  
                                         ------------------ ----------------- -------------------
Balance at end of year                           (157,571)          (65,548)            (80,214) 
                                         ------------------ ----------------- -------------------
  1997 - 5,377,339 shares                                                                        
  1996 - 2,216,015 shares                                                                        
  1995 - 2,469,125 shares                                                                        

TOTAL COMMON STOCKHOLDERS' EQUITY              $1,693,873        $1,736,945          $1,707,484  
                                         ================== ================= ===================

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

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A46                                                                             
ASARCO Incorporated and Subsidiaries      

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      

(1) Summary of Significant Accounting Policies                                  

Principles of  Consolidation:  The consolidated  financial  statements of Asarco
Incorporated   and  Subsidiaries   include  all  significant   wholly-owned  and
majority-owned subsidiaries.  Investments over which the Company has significant
influence  but does not have  voting  control  are  accounted  for by the equity
method.  Certain  prior year  amounts have been  reclassified  to conform to the
current year's presentation.                                                    

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.             

Cash Equivalents:  Cash equivalents include all highly liquid investments with a
maturity of three months or less, when purchased.                               

Marketable   Securities:   Marketable   securities   include  short-term  liquid
investments with a maturity of more than three months,  when purchased,  and are
carried at cost, which approximates market.                                     

Inventories:  Company-owned metals processed by domestic smelters and refineries
are valued at the lower of last-in,  first-out  (LIFO) cost or market.  Southern
Peru Copper  Corporation  (SPCC)  in-process and refined metal  inventories  are
valued at the lower of average cost or market.  All other inventories are valued
at the lower of first-in, first-out (FIFO) or average cost or market.           

Property:  Assets are valued at cost or net realizable value. In accordance with
SFAS No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
Long-Lived  Assets To Be Disposed Of," the Company  reviews  long-lived  assets,
certain  identifiable  intangibles  and  goodwill  related  to those  assets for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying  amount of the assets may not be  recoverable.  The impairment  loss on
such assets, as well as long-lived assets and certain  identifiable  intangibles
to be disposed of, is measured as the amount by which the carrying  value of the
assets  exceeds  the  fair  value  of  the  assets  (less  disposal   costs,  if
applicable).                                                                    

The Company evaluates the carrying value of assets based on undiscounted  future
cash flows and for its metals segment also considers expected metal prices based
on historical metal prices and price trends.                                    

Betterments, renewals, costs of bringing new mineral properties into production,
and the cost of major development  programs at existing mines are capitalized as
mineral land. Maintenance,  repairs, normal development costs at existing mines,
and gains or losses on assets  retired  or sold are  reflected  in  earnings  as
incurred.  Plant  assets are  depreciated  over their  estimated  useful  lives,
generally by the units-of-production  method. Depreciation and depletion of mine
assets are computed generally by the units-of-production method using proven and
probable ore reserves. SPCC computes depreciation on its buildings and equipment
using the  straight-line  method over estimated lives from 5 to 40 years, or the
estimated life of the mine, if shorter.                                         

Goodwill  is  amortized  over the  mine  life up to a  maximum  of 40 years on a
units-of-production  basis  or up to 40  years  on a  straight-line  basis,  for
non-mining assets.                                                              

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A47                                                                             

Revenue  Recognition:  Substantially all of the Company's copper and most of its
lead production are sold as refined metal under annual contracts.  To the extent
not sold under annual  contracts,  production  may be sold on a spot sale basis.
The Company's zinc production and the balance of its lead production are sold in
the form of  concentrates  and  bullion  under  contracts  of one to three years
duration.  Silver and gold are sold under  monthly  contracts  or in spot sales.
Revenue is  recognized  primarily  in the month  product is shipped to customers
based  on  prices  as  provided  in  sales  contracts.   Certain   subsidiaries,
principally  SPCC,  recognize  revenue based on prices prevailing at the time of
shipment to customers with final pricing generally occurring within three months
of shipment.  Revenues with respect to these sales are adjusted in the period of
settlement  to reflect  final  pricing  and in periods  prior to  settlement  to
reflect  any  decline in market  prices  which may occur  between  shipment  and
settlement.                                                                     

Financial Instruments:  The Company may use derivative instruments to manage its
exposure to market risk from changes in commodity prices,  interest rates or the
value of its assets and liabilities. Derivative instruments which are designated
as hedges must be deemed  effective  at reducing  the risk  associated  with the
exposure  being hedged and must be designated as a hedge at the inception of the
contract.                                                                       

Depending  on the  market  fundamentals  of a metal  and other  conditions,  the
Company may  purchase put options or create  synthetic  put options to reduce or
eliminate  the risk of metal price  declines  below the option strike price on a
portion of its anticipated future  production.  The cost of options is amortized
on a straight-line basis during the period in which the options are exercisable.
Gains or  losses  from the  sale or  exercise  of  options,  net of  unamortized
acquisition  costs, are recognized in the period in which the underlying  hedged
production is sold. The Company also uses futures  contracts to hedge the effect
of price  changes  on a portion  of the  metals it  sells.  Gains and  losses on
futures contracts are reported as a component of the underlying transaction.    

As part of its price  protection  program,  the  Company may use  synthetic  put
options  which  consist of a call option and a forward sale on the same quantity
of metal.  Each  component of a synthetic put option may be purchased or sold at
different  times.  In those cases where the forward sale  component has not been
entered  into or has been  offset,  call  options are  accounted  for as trading
activities and the carrying values of such call options are marked to market and
any related adjustments are recorded in net earnings.                           

The Company may enter into interest rate swap  agreements to limit the effect of
increases in the interest rates on any floating rate debt. The  differential  is
accrued as interest rates change and is recorded in interest expense.           

Exploration:  Tangible and  intangible  costs incurred in the search for mineral
properties are charged against earnings when incurred.                          

Environmental  Remediation Costs: The Company provides for costs associated with
environmental   remediation   obligations  when  such  costs  are  probable  and
reasonably  estimable and generally not later than completion of the remediation
feasibility  study.  Such accruals are adjusted as new  information  develops or
circumstances  change  and  are  not  discounted.  Recoveries  of  environmental
remediation costs from other parties are recorded as assets when the recovery is
deemed probable.  The American  Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental  Remediation Liabilities" (SOP 96-1),
in October 1996. SOP 96-1 provides authoritative guidance on specific accounting
issues in connection with  recognizing,  measuring and disclosing  environmental
remediation  liabilities.  The Company has applied the provisions of SOP 96-1 as
of December 31, 1996.                                                           

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A48                                                                             

Taxes on Income:  Deferred  income taxes reflect the future tax  consequences of
differences  between the tax bases of assets and liabilities and their financial
reporting  amounts at each year end.  No U.S.  deferred  income  taxes have been
provided for the income tax liability which would be incurred on repatriation of
the undistributed  earnings of the Company's  consolidated  foreign subsidiaries
and the undistributed earnings of SPCC prior to 1993 because the Company intends
indefinitely  to reinvest  these  earnings  outside the United  States.  General
business credits are accounted for by the flow-through method.                  

Subsidiary  Stock Issuance:  Gains or losses arising from the sale of previously
unissued  shares to an unrelated  party by a subsidiary  are  recognized  in net
earnings to the extent that the net book value of the shares owned by the parent
after the sale exceeds or is lower than the net book value per share immediately
prior to the sale of the shares by the subsidiary.                              

Stock Based  Compensation:  In 1996 the Company  elected to apply the disclosure
only  provisions  of  Statement  of Financial  Accounting  Standards  No. 123,  
"Accounting for Stock-Based Compensation."                                      

Impact of New Accounting  Standards:  In 1997, the Company adopted Statements of
Financial  Accounting  Standards  No. 128,  "Earnings  per Share" and No. 131,  
"Disclosure about Segments of an Enterprise and Related  Information." Neither  
statement had a material impact on the Company's financial statements.          

In June 1997, the Financial Accounting Standards Board issued Statement of      
Financial Accounting Standards No. 130, "Reporting  Comprehensive  Income." This
statement  which is effective for fiscal years beginning after December 15, 1997
requires  the  Company  to make  certain  disclosures  but has no  impact on the
Company's financial statements.                                                 

(2) Interest in Southern Peru Copper Corporation:                               

Acquisition of Additional Interest:                                             

On April 5, 1995, the Company  acquired an additional 10.7% interest in SPCC for
$116.4  million,  increasing its ownership  from 52.3% to 63.0%.  The additional
shares  acquired  enabled the Company to elect a majority  of the  directors  of
SPCC. As a result,  the Company  consolidated  SPCC in its financial  statements
based on its 52.3%  ownership,  effective  January 1, 1995, and 63.0% ownership,
effective April 5, 1995. The Company previously  accounted for its investment in
SPCC by the equity method.  The acquisition has been accounted for as a purchase
transaction. The excess of the purchase price over the Company's interest in the
net book value of SPCC  attributable to the shares acquired of $46.4 million has
been  assigned to proven and  probable  sulfide  reserves,  proven and  probable
leachable  reserves and  mineralized  material and is being  amortized  based on
production.                                                                     

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A49                                                                             

The  table  below  summarizes   unaudited  pro  forma  consolidated  results  of
operations of Asarco for the year ended December 31, 1995,  assuming that Asarco
had acquired an additional 10.7% of the outstanding  stock of SPCC on January 1,
1995. The unaudited pro forma  financial  information  is based on  management's
estimates  and  assumptions  and does not purport to represent  the results that
actually would have occurred if the acquisition  had, in fact, been completed on
the date assumed.                                                               

                                                                · Download Table

Pro Forma Results of Operations:                 
                                                 
For the year ended December 31,           1995   
                                          ----   
(in millions, except per share amounts)          
Sales of products and services           $3,197.8
Net earnings                               $172.2
Net earnings per common share (Basic)       $4.07
Net earnings per common share (Diluted)     $4.05

Common Share Exchange Offer:                                                    

On December 29, 1995, SPCC completed an offer to exchange its common stock,  par
value of $0.01 per share, for any and all labor shares of the Peruvian Branch of
SPCC.  These  labor  shares,  which  are  traded  on the  Lima  Stock  Exchange,
represented   a  17.3%   interest  in  the  Peruvian   Branch  which   comprises
substantially  all of the operations of SPCC in Peru. The offer allowed  holders
of the labor shares in the Branch to exchange four Series-1 Labor shares or five
Series-2 Labor shares for one share of common stock.  Common shares are entitled
to one vote per share.  In connection with the offering,  the Company  exchanged
its  shares of SPCC for  Class A shares  which are  entitled  to five  votes per
share.  As a result of this  transaction,  Asarco's  equity interest in SPCC was
reduced to approximately  54.0% at December 31, 1995 (54.1% at December 31, 1997
and 1996) and the Company's  economic interest in the assets of SPCC, net of the
remaining  labor share  interest was 52.3% at December 31, 1995 (53.0% and 52.6%
at December 31, 1997 and 1996,  respectively).  The Company's voting interest in
SPCC was 61.0% at December  31,  1995 (63.1% and 62.6% at December  31, 1997 and
1996,  respectively).  The common shares issued in exchange for the labor shares
are listed on both the New York Stock  Exchange  and Lima  Stock  Exchange.  The
exchange  of common  shares  for labor  shares  was  accounted  for by SPCC as a
purchase of a minority  interest.  The value of the common  stock  issued in the
exchange  (based on the average per share trading  value for the three  business
days ending  January 9, 1996) plus issuance costs exceeded the carrying value of
the minority  interests  acquired by $82.0 million,  net of tax. Of this amount,
$4.1  million was  assigned to metal  inventory on hand at December 31, 1995 and
charged to earnings in 1996.  The  remaining  amount was  assigned to proven and
probable  sulfide  reserves,   proven  and  probable   leachable   reserves  and
mineralized material and is being amortized based on production.  Asarco's share
of the  increase in value ($30.4  million,  net of tax) has been  eliminated  in
consolidation.                                                                  

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A50                                                                             

(3) Other Income (Expense)                                                      

                                                        · Enlarge/Download Table

For the years ended December 31,        1997             1996              1995       
                                        ----             ----              ----       
(in millions)                                                                         
                                                                                      
Interest income                            $ 20.7         $ 20.0            $ 16.5    
Equity earnings                               8.9            4.5               2.3    
Dividends from MIM                              -            5.3               9.2    
Dividends from Grupo Mexico                   5.4              -                 -    
Other                                        (1.2)          (0.7)             (1.6)   
                                  ================= ================ =================
  Total                                    $ 33.8         $ 29.1            $ 26.4    
                                  ================= ================ =================

(4) Taxes on Income                                                             

Certain  subsidiaries  that  have  been  consolidated  for  financial  reporting
purposes,  principally SPCC, are not includible in Asarco's consolidated federal
income tax return.  The following  tables  combine the separate  provisions  for
income taxes that have been determined for each company, in accordance with SFAS
No. 109:                                                                        

Earnings (loss) before taxes on income and minority interests were:             

                                                        · Enlarge/Download Table

For the years ended December 31,            1997            1996              1995     
                                            ----            ----              ----     
(in millions)                                                                          
                                                                                       
Domestic operations                     $  42.9           $  40.3          $  24.7     
Foreign operations                        264.7             286.9            396.9     
                                  =====================================================
Total                                   $ 307.6           $ 327.2          $ 421.6     
                                  =====================================================

Tax Expense (Benefit):                                                          

The components of the provision (benefit) for taxes on income were:             

                                                                · Download Table

For the years ended December 31,        1997          1996          1995    
                                        ----          ----          ----    
(in millions)                                                               
                                                                            
U.S. Federal:                                                               
  Current                             $  24.4        $  3.4        $  4.1   
  Deferred                               (4.8)         14.5          (3.1)  
                                  ------------------------------------------
U.S. Federal                             19.6          17.9           1.0   
                                  ------------------------------------------
Foreign and State:                                                          
  Current                                61.3          70.9         118.7   
  Deferred                               (7.3)         11.8           3.2   
                                  ------------------------------------------
Foreign and State                        54.0          82.7         121.9   
                                  ==========================================
Total income tax                      $  73.6        $100.6        $122.9   
                                  ==========================================

Total taxes paid were: 1997 - $54.2 million; 1996 - $134.4 million; 1995 - $65.8
million.                                                                        

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A51                                                                             

Reconciliation of Statutory Income Tax Rate:                                    

                                                        · Enlarge/Download Table

For the years ended December 31,                      1997           1996           1995    
                                                      ----           ----           ----    
                                                                                            
U.S. statutory income tax rate                        35.0%          35.0%          35.0%   
Adjustment for entities for which no U.S. tax                                               
  is required                                         (2.3)          (1.1)          (0.3)   
Percentage depletion                                  (9.5)          (9.6)         (12.3)   
Dividends from non-includible subsidiaries            11.4           10.4           11.0    
Dividends received deduction                          (9.4)          (8.5)          (8.8)   
Foreign taxes                                         16.9           24.6           28.3    
Foreign tax credit                                   (13.5)         (20.5)         (25.2)   
Reversal of taxes previously accrued                  (2.1)             -             -     
Other                                                 (2.6)           0.4            1.5    
                                               =============================================
Effective income tax rate                             23.9%          30.7%          29.2%   
                                               =============================================

Temporary  differences and carryforwards which give rise to deferred tax assets,
liabilities and related valuation allowances were:                              

                                                        · Enlarge/Download Table

Deferred Tax Assets (Liabilities)                                                      
  At December 31,                                              1997            1996    
                                                               ----            ----    
                                                                                       
  (in millions)                                                                        
  Current:                                                                             
  Reserve for closed plant and environmental matters          $   7.2         $  12.4  
  Inventories                                                     5.3             6.6  
  Other                                                           6.6             5.4  
                                                      ---------------------------------
  Net deferred tax asset                                      $  19.1         $  24.4  
                                                      ---------------------------------
  Noncurrent:                                                                          
  Tax effect of regular net operating losses                  $ 119.0         $ 168.2  
  Reserve for closed plant and environmental matters             22.2            33.1  
  Postretirement benefit obligation                              36.6            35.0  
  Alternative minimum tax credit carryforwards                   28.3            16.2  
  Foreign tax credit carryforwards                                  -            69.4  
  Previously taxed income                                         6.1             5.3  
  Capitalized leases                                             21.1            25.6  
  Pension obligation                                            (17.5)          (19.8) 
  Property, plant and equipment                                (314.1)         (308.6) 
  Investments - Grupo Mexico                                    (12.8)         (120.4) 
  Other                                                          (7.2)           (1.1) 
  Valuation allowance for deferred tax assets                       -           (76.2) 
                                                      ---------------------------------
  Net deferred tax liability                                   (118.3)         (173.3) 
                                                      =================================
  Total net deferred tax liability                           $  (99.2)        $(148.9) 
                                                      =================================

At December  31,  1997,  the Company had $339.9  million of net  operating  loss
carryforwards  which  expire,  if unused,  in years 2008  through 2010 and $28.3
million of alternative  minimum tax credits which are not subject to expiration.
These net operating loss  carryforwards and alternative  minimum tax credits are
available  solely to Asarco and not to SPCC.  The  Company  believes  that these
carryforwards  will be available to reduce future federal income tax liabilities
and has recorded the tax benefit of these  carryforwards as noncurrent  deferred
tax assets.  The Company's net operating loss  carryforwards  for state purposes
are not  significant  and,  therefore,  have not been  recorded as deferred  tax
assets.                                                                         

The decrease in the  valuation  allowance of $76.2  million from 1996 to 1997 is
attributable to the  utilization of foreign tax credits and alternative  minimum
tax credits by SPCC in 1997.                                                    

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A52                                                                             

In the first quarter of 1997,  the  Government  of Peru approved a  reinvestment
allowance  for a program of SPCC to expand the Cuajone  mine.  The  reinvestment
allowance  provides SPCC with tax  incentives in Peru and, as a result,  certain
U.S.  tax  credit  carryforwards,  for  which no  benefit  had  previously  been
recorded,  were realized. The reduction in the effective tax rate as a result of
the reinvestment allowance for the twelve months ended December 31, 1997 lowered
consolidated  tax  expense  by  approximately  $14.7  million.  Pursuant  to the
reinvestment allowance SPCC has received tax deductions in Peru in amounts equal
to  the  cost  of the  qualifying  property  (approximately  $245  million).  As
qualifying  property is acquired,  the financial statement carrying value of the
qualifying  property will be reduced to reflect the tax benefit  associated with
the reinvestment allowance  (approximately $73 million). As a result,  financial
statement  depreciation  expense  related  to the  qualifying  property  will be
reduced over its useful life (approximately 15 years).                          

U.S.  deferred tax liabilities  have not been provided on  approximately  $272.0
million  in 1997  ($270.8  million  in 1996  and  $257.6  million  in  1995)  of
undistributed  earnings of foreign  subsidiaries and  nonconsolidated  companies
more than 50% owned,  because assets representing those earnings are permanently
invested.  It is not  practicable  to determine  the amount of income taxes that
would be payable upon remittance of assets that represent  those  earnings.  The
amount of foreign  withholding  taxes that would be payable upon  remittance  of
assets that represent those earnings is approximately $1.2 million in 1997 ($1.2
million in 1996 and $0.5 million in 1995).                                      

(5) Inventories                                                                 

                                                        · Enlarge/Download Table

At December 31,                                                                   1997            1996    
                                                                                 ----            ----     
(in millions)                                                                                             
                                                                                                          

Inventories of smelters and refineries at lower of LIFO cost or market                                    
                                                                               $   7.4         $  10.3    
Provisional cost of metals received from suppliers for which prices have                                  
     not yet been fixed                                                           51.5            44.5    
Mine inventories at lower of FIFO cost or market                                  88.9           105.8    
Metal inventory at lower of average cost or market                                45.6            49.5    
Materials and supplies at lower of average cost or market                                                 
                                                                                 138.2           141.0    
Other                                                                             30.5            32.2    
                                                                          ================ ===============
         Total                                                                 $ 362.1         $ 383.3    
                                                                          ================ ===============

Replacement cost exceeds  inventories valued at LIFO cost by approximately $86.4
million in 1997 (1996-$115.2 million).  Liquidation of LIFO inventories resulted
in pre-tax  earnings  of $16.7  million in 1997,  $5.3  million in 1996 and $0.7
million in 1995.                                                                

(6) Investments                                                                 

During 1997 the Company sold 106.3  million  shares of Grupo Mexico for proceeds
of $322.5  million,  resulting in a pre-tax gain of $73.3 million ($47.6 million
after-tax).  At December 31, 1997, the value of the Company's remaining interest
in Grupo  Mexico is $78.9  million  representing  the  exercise  price of shares
subject  to an option  granted  as part of the  restructuring  of the  Company's
investment  in 1994.  These  shares are  carried on the books of the  Company at
$50.2  million.  The  Company's  results for the year ended 1996 include a $60.1
million  pre-tax gain ($39.0 million  after-tax) on the sale of its 15% interest
in MIM Holdings  Limited (MIM) and an $11.1  million  pre-tax gain ($7.2 million
after-tax)  on the sale of a 25%  interest  in its Silver  Bell  copper  mine to
Mitsui & Co.                                                                    

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A53                                                                             

In accordance with the provisions of SFAS No. 115, available-for-sale securities
are  carried at fair  value.  Unrealized  gains at  December  31,  1997 of $11.6
million (net of deferred taxes of $6.3 million),  compared with unrealized gains
of $56.3 million (net of deferred  taxes of $30.3 million) at December 31, 1996,
were included as a component of stockholders' equity.                           

Available-for-sale and other cost investments:                                  

                                                        · Enlarge/Download Table

At December 31,                             Unrealized Holding                          
(in millions)                 Cost          Gains          (Losses)         Total       
                              ----          -----          --------         -----       
                                                                                        
1997                                                                                    
Available-for-sale:                                                                     
  Equity securities        $  25.3         $  17.5           $    -         $  42.8     
  Debt securities             30.3             0.4                -            30.7     
Cost investments:                                                                       
  Grupo Mexico                50.2               -                -            50.2     
  Other                        3.1               -                -             3.1     
                     ================= ================ =============== ================
Total                      $ 108.9         $  17.9           $    -         $ 126.8     
                     ================= ================ =============== ================

1996                                                                                    
Available-for-sale:                                                                     
  Grupo Mexico             $ 249.1         $  79.6           $    -         $ 328.7     
  Equity securities           23.9             7.1                -            31.0     
  Debt securities             28.3               -             (0.1)           28.2     
Cost investments:                                                                       
  Grupo Mexico                50.2               -                -            50.2     
  Other                        4.6               -                -             4.6     
                     ================= ================ =============== ================
Total                      $ 356.1         $  86.7           $(0.1)         $ 442.7     
                     ================= ================ =============== ================

Gross  realized  gains  on  available-for-sale  securities  in 1997  were  $76.0
million,  compared with gross realized gains of $60.1 million and losses of $1.1
million in 1996,  and gross  realized  losses of $0.3 million in 1995.  The debt
securities have maturity dates ranging from 1999 to 2027. The unrealized holding
gains and losses,  excluding realized gains and losses,  included as a component
of  stockholders'  equity  increased  $7.3 million in 1997 and  decreased  $56.9
million in 1996. The average cost method has been used to determine the realized
gain or loss on securities sold.                                                

(7) Property                                                                    

                                                                · Download Table

At December 31,                       1997                  1996     
                                      ----                  ----     
(in millions)                                                        
                                                                     
Buildings and equipment            $ 3,762.8             $ 3,617.2   
Capital leases-equipment               123.7                 122.4   
Mineral land                           701.0                 645.0   
Land, other than mineral                70.4                  70.6   
Other                                    6.2                   6.1   
                          --------------------- ---------------------
  Total property                     4,664.1               4,461.3   
Accumulated depreciation            (2,245.3)             (2,187.2)  
                          ===================== =====================
  Property, net                    $ 2,418.8             $ 2,274.1   
                          ===================== =====================

Accumulated  depreciation  applicable to  capitalized  leases  amounted to $81.6
million in 1997 and $72.0 million in 1996.                                      

In the first  quarter of 1996,  the  Company  recorded  a pre-tax  gain of $11.1
million  ($7.2  million  after-tax)  on the sale of a 25% interest in its Silver
Bell project.                                                                   

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A54                                                                             

In accordance  with SFAS No. 121,  "Accounting  for the Impairment of Long-Lived
Assets  and for  Long-Lived  Assets  To Be  Disposed  Of," the  Company  reviews
long-lived  assets,  certain  identifiable  intangibles and goodwill  related to
those assets for impairment whenever events or changes in circumstances indicate
that the carrying  amount of the assets may not be  recoverable.  The impairment
loss on such  assets,  as well as  long-lived  assets and  certain  identifiable
intangibles  to be disposed  of, is measured as the amount by which the carrying
value of the assets exceeds the fair value of the assets (less  disposal  costs,
if applicable).                                                                 

The Company terminated lead refining operations at its Omaha,  Nebraska plant in
1996 because of the  substantial  investment  which would have been  required to
meet state and U.S. EPA imposed environmental  requirements.  As a result of the
decision to  terminate  lead  refining at the Omaha  plant,  in 1995 the Company
recorded a pre-tax charge of $25.6 million, which represented the total carrying
value of the net property of the Omaha refinery at December 31, 1995.           

The Company also  recorded at December 31, 1995 a pre-tax  charge to earnings of
$9.2 million in  accordance  with SFAS No. 121 with respect to the assets at its
waste recycling  subsidiary in Corpus  Christi,  Texas (Encycle) and an obsolete
mill. The impairment loss on Encycle's  assets was the result of prior operating
losses.                                                                         

(8) Contingencies and Litigation                                                

The Company is a defendant in lawsuits in Arizona  involving the United  States,
Native  Americans  and other  Arizona  water users  contesting  the right of the
Company and numerous  other  individuals  and entities to use water and, in some
cases,  seeking  damages  for water usage and  alleged  contamination  of ground
water.  The lawsuits could affect the Company's use of water at its Ray Complex,
Mission Complex and other Arizona operations.                                   

The Company and certain  subsidiaries  are  defendants in four  purported  class
actions and fourteen  other lawsuits in Texas seeking  substantial  compensatory
and punitive damages for personal injury and contamination of property allegedly
caused by present  and former  operations  in Texas,  and  product  sales of the
Company and its subsidiaries.  Most of the cases name additional corporations as
defendants.                                                                     

The Company and two  subsidiaries,  at December 31, 1997,  are defendants in 661
lawsuits  brought  by 8,333  primary  and  2,469  secondary  plaintiffs  seeking
substantial  compensatory  and  punitive  damages for  personal  injury or death
allegedly  caused by exposure to asbestos.  Two of these  lawsuits are purported
statewide  class actions brought on behalf of classes of persons who are not yet
known to have asbestos related injury.  One of these lawsuits has been dismissed
subject to appeal. One subsidiary was dismissed from one lawsuit seeking damages
for  removal or  containment  of  asbestos-containing  products  in  structures.
Plaintiffs have appealed. In addition,  the Company and certain subsidiaries are
defendants in product  liability  lawsuits  involving  various  other  products,
including metals.                                                               

In September and October 1997,  separate  purported class actions were commenced
against  the  Company  in  Omaha,  Nebraska  and in  Denver,  Colorado,  seeking
compensatory  and punitive  damages for alleged  contamination  of properties by
emissions  from the Company's  former Omaha plant and the Globe plant in Denver.
The actions are pending in federal district court in Omaha and Denver.          

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A55                                                                             

In March 1996,  the United  States  government  filed an action in United States
District  Court in Boise,  Idaho,  against the  Company  and three other  mining
companies  under the  Comprehensive  Environmental  Response,  Compensation  and
Liability Act of 1980 ("CERCLA" or "Superfund")  and the federal Clean Water Act
for alleged natural  resource damages to the Coeur d'Alene River Basin in Idaho.
The  government  contends that the  defendants are liable for damages to natural
resources  in a 1,500  square mile area caused by mining and related  activities
that they and  others  undertook  over  approximately  the  period  between  the
mid-1800s and the mid-1960s. The action also seeks a declaration that defendants
are liable for  restoration  of the area.  The  Company  believes,  and has been
advised by outside  legal  counsel,  that it has strong  legal  defenses  to the
lawsuit.  In 1996,  the court granted a motion to  consolidate  this case with a
prior,  similar  lawsuit filed by the Coeur d'Alene  Tribe.  In August 1997, the
United States filed a motion to add to the lawsuit several companies,  including
certain subsidiaries of the Company.                                            

The Company and  certain of its  subsidiaries  have  received  notices  from the
United  States  Environmental  Protection  Agency  ("EPA") and the United States
Forest  Service  that  they  and  in  most  cases  numerous  other  parties  are
potentially  responsible to remediate  alleged hazardous  substance  releases at
certain  sites  under  CERCLA.  In  addition,  the  Company  and  certain of its
subsidiaries  are defendants in lawsuits brought under CERCLA or state laws that
seek substantial damages and remediation.                                       
Remedial action is being undertaken by the Company at some of the sites.        

On January 23, 1998,  the Company,  the United States  Department of Justice and
EPA announced the signing of a multi-region voluntary agreement covering a broad
range of environmental  issues affecting the Company's United States operations.
The two  consent  decrees  containing  the  agreement  have been filed in United
States District Courts in Phoenix,  Arizona and Helena,  Montana and are subject
to approval by both courts following public comment.  Pursuant to the agreement,
which  resolves  numerous  issues  that  were  being  negotiated  and  litigated
separately,  the Company will undertake capital construction  projects amounting
to $61.5 million, to be spent over six years, and pay penalties of $6.4 million.

In  connection  with the matters  referred to above,  as well as at other closed
plants and sites where the Company is working with Federal and state agencies to
resolve  environmental  issues,  the Company  accrues for these losses when such
losses are probable and reasonably estimable.  Such accruals are adjusted as new
information  develops or  circumstances  change and are not  discounted to their
present  value.  Recoveries of  environmental  remediation  costs from insurance
carriers  and other  parties are  recorded as assets when the recovery is deemed
probable.                                                                       

Reserves for closed plants and environmental  matters totaled $122.1 million and
$128.3  million  at  December  31,  1997 and  1996,  respectively.  The  Company
anticipates that  expenditures  relating to these reserves will be made over the
next several  years.  Net cash  expenditures  against these  reserves were $63.1
million in 1997, $54.1 million in 1996 and $95.8 million in 1995.               

The effect on pre-tax earnings of  environmental  and other closed plant charges
was $20.2 million in 1997 ($50.4  million in charges  offset by $30.2 million in
anticipated  insurance and other  recoveries),  and $15.0 million in 1996 ($67.7
million in charges  offset by $52.7 million in insurance  and other  recoveries)
including  $10.0  million  for the  effect of the  application  of the  American
Institute  of  Certified  Public   Accountants:   Statement  of  Position  96-1,
"Environmental Remediation Liabilities".                                        

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A56                                                                             

Future environmental  related expenditures cannot be reliably determined in many
circumstances  due to the  early  stages  of  investigation,  the  uncertainties
relating to specific  remediation methods and costs, the possible  participation
of other potentially  responsible  parties and changing  environmental  laws and
interpretations.  Similarly,  due to the  uncertainty  of the  outcome  of court
proceedings,  future  expenditures  related  to  litigation  cannot be  reliably
determined.  It is the  opinion  of  management  that the  outcome  of the legal
proceedings and environmental  contingencies  mentioned, and other miscellaneous
litigation and proceedings now pending, will not materially adversely affect the
financial position of Asarco and its consolidated  subsidiaries.  However, it is
possible that litigation and environmental  contingencies  could have a material
effect on  quarterly  or annual  operating  results,  when they are  resolved in
future periods.  This opinion is based on  considerations  including  experience
related to previous court judgments and  settlements  and remediation  costs and
terms. The financial viability of other potentially responsible parties has been
considered  when  relevant  and no credit  has been  assumed  for any  potential
insurance recovery when not deemed probable.                                    

(9) Debt and Available Credit Facilities                                        

                                                        · Enlarge/Download Table

Long-Term Debt                                                                       
At December 31,                                          1997             1996       
                                                         ----             ----       
(in millions)                                                                        
                                                                                     
Revolving credit agreements                              $     -         $   45.0    
Pollution control bonds, 1997/2006 - rates from                                      
   6 3/4% to 8.9%                                          155.0            155.6    
Capital lease obligations, 1997/2006 - rates from                                    
   7.3% to 12.0%                                            61.8             74.8    
7% Notes due 2001                                           50.0             50.0    
7 3/8% Notes due 2003                                       99.7             99.6    
7 7/8% Debentures due 2013                                  99.7             99.7    
8 1/2% Debentures due 2025                                 149.0            148.9    
6.8% term loan due 2000                                     15.0             15.0    
6.43% EXIM Bank credit agreement                            20.4             26.3    
Mitsui credit agreement - LIBOR +2.87%                         -             45.0    
CAF credit agreement - average 9.4%                         27.5             35.3    
7.9% Secured Export Notes due 2007                         150.0                -    
8.25% Bonds due 2004                                        50.0                -    
Other                                                         .6              3.2    
                                                   ----------------- ----------------
Total debt                                                 878.7            798.4    
   Less current portion                                     28.7             39.8    
                                                   ================= ================
      Long-term debt                                     $ 850.0          $ 758.6    
                                                   ================= ================

Interest paid by the Company (excluding  amounts  capitalized of $5.5 million in
1997,  $2.8 million in 1996 and $3.3 million in 1995) was $74.4 million in 1997,
$78.1 million in 1996 and $89.2 million in 1995.                                

Maturities of debt  instruments and future minimum payments under capital leases
are:                                                                            

                                                                · Download Table

At December 31,           Debt Instruments                 Capital Leases       
                          ----------------                 --------------       
(in millions)                                                                   
                                                                                
1998                            $    37.0                        $    18.3      
1999                                 14.4                             16.5      
2000                                 39.0                             27.6      
2001                                 75.0                              4.3      
2002                                 20.1                              2.5      
Thereafter                          631.4                              4.9      
   Less interest                        -                            (12.3)     
                  ================================== ===========================
                                $   816.9                        $    61.8      
                  ================================== ===========================

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A57                                                                             

The Company has two revolving credit  agreements that permit borrowings of up to
$850.0  million,  all of which was available at December 31, 1997.  One facility
for $350 million  expires in April 1999 and the other  facility for $500 million
expires in May 2002. The borrowings bear interest based on LIBOR, the CD rate or
the prime rate.  Rates may vary based upon the Company's  debt rating.  Facility
fees  are  payable  on the full  amount  of the $350  million  and $500  million
revolving credit agreements at 0.2% and 0.125% per annum, respectively.         

In April 1997, SPCC entered into a $600 million seven-year credit agreement with
a group of international  financial  institutions.  The agreement  consists of a
$400 million term loan facility and a $200 million  revolving  credit  facility.
The  interest  rate during the first three years of the  agreement  on any loans
outstanding  is LIBOR  plus  1.75% per annum for term loans and LIBOR plus 2.00%
for revolving credit loans. A commitment fee of 0.5% per annum is payable on the
undrawn  portion of the facility.  No amounts have been drawn by SPCC under this
agreement as of December 31, 1997.                                              

In May 1997,  SPCC privately  placed $150 million of Secured Export Notes in the
United States and international markets. These notes were issued with an average
maturity of seven years and a final maturity in 2007 and were priced at par with
a coupon rate of 7.9%. In addition,  in June 1997 SPCC sold $50 million of 8.25%
bonds due June 2004 to investors in Peru.                                       

Some of SPCC's financing agreements contain covenants which limit the payment of
dividends to  stockholders.  Under the most restrictive  covenant,  SPCC may pay
dividends to stockholders  equal to 50% of its net income for any fiscal quarter
as long as such  dividends  are  paid  by June 30 of the  following  year.  As a
result,  at December 31, 1997,  $572.8 million of SPCC's net assets  included in
the Company's consolidated net assets are unavailable for payment of dividends. 

In April 1995, the Company issued $150 million face amount of 8 1/2%  Debentures
due in May 2025. In July 1995,  the Company  entered into a term loan  agreement
for $15 million  maturing in August  2000.  Concurrent  with the term loan,  the
Company  entered into a five year  interest rate swap  agreement  resulting in a
fixed interest rate of 6.8% on the principal  amount.  Proceeds of the loan were
used primarily to prepay $13.5 million of 8 3/4% pollution control revenue bonds
at par value plus a premium of 1.5% in the third  quarter of 1995.  The  Company
also concluded  interest rate swap  agreements in July 1995 resulting in a fixed
interest rate of 6.6% on $100 million of its revolving credit loans.            

Under the most  restrictive  terms of the credit  agreements,  the Company  must
maintain  a tangible  net  worth,  as  defined,  of at least $1 billion  and the
percentage of current assets to current liabilities,  as defined, cannot be less
than 125%.  Tangible  net worth,  as defined,  was $1.7  billion at December 31,
1997, and the percentage of current assets to current  liabilities,  as defined,
was 156%. In accordance with the most restrictive covenants of these agreements,
additional  indebtedness  of $868.6  million  would  have been  permitted  as of
December 31, 1997. In addition,  under the most restrictive  covenants of SPCC's
loan  agreements,  SPCC would have been  permitted  additional  indebtedness  of
$849.7                                                                          
million at December 31, 1997.                                                 

In January 1998,  the Company  closed on a refinancing  of three tax exempt debt
issues  and called for the  redemption  of the  existing  bonds.  The  aggregate
principal  amount of the  refinancing  was $132.8  million.  The  refinancing is
expected to reduce the Company's  annual  interest costs by  approximately  $3.3
million.                                                                        

Consolidated  debt  includes the debt of SPCC,  none of which is  guaranteed  by
Asarco.                                                                         

The weighted average interest rate on short term borrowings was 7.4% at December
31, 1997, and 8.1% at December 31, 1996.                                        

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A58                                                                             

(10)  Commitments                                                               

The  Company  has  entered  into  several  sale-leaseback  agreements  of mining
equipment and has options to purchase this  equipment.  The options are at fixed
prices  prior  to  expiration  of the  leases  and at  fair  market  value  upon
expiration. The leasebacks have been accounted for as operating leases.         

The book  value and  associated  depreciation  of the  equipment  sold have been
removed from the Company's  property  accounts.  Any profit on the sale has been
deferred and will be amortized  into net  earnings in  proportion  to the rental
charged over the lease term.                                                    

Minimum future rental  payments  under  non-cancelable  operating  leases having
remaining terms in excess of 1 year as of December 31, 1997 for each of the next
5 years and in the aggregate are:                                               

                                                                · Download Table

Year                 Amount (in millions)          
----                 --------------------          
                                                   
1998                        $ 20.6                 
1999                          19.4                 
2000                          18.8                 
2001                          18.4                 
2002                          16.3                 
Thereafter                   100.6                 
            ---------------------------------------
                            $194.1                 
            ---------------------------------------

Total rental expense was $14.6 million in 1997,  $13.3 million in 1996 and $10.9
million in 1995.                                                                

The Company's operating lease obligations include a lease by Silver Bell Mining,
L.L.C., a 75% owned subsidiary,  of its SX/EW facility.  The gross rentals under
the lease  which are  guaranteed  by the  Company  are $85.8  million.  Under an
agreement with the owner of the 25% interest, the Company will be reimbursed for
25% of any payments  made by the Company  under this  guarantee.  Production  of
refined copper at the plant began in July, 1997.                                

As a  result  of  its  $1  billion  expansion  program,  SPCC's  electric  power
requirements   will  increase   significantly   requiring  the  construction  of
substantial  additional generating capacity. In the second quarter of 1997, SPCC
sold its existing  power plant to an independent  power  company.  In connection
with the sale, a power purchase  agreement was also completed,  under which SPCC
will  purchase its power needs for the next twenty years.  Under the  agreement,
SPCC's cost of power will increase somewhat from its 1996 level,  however,  SPCC
will avoid the significant  capital  expenditures that would be required to meet
the needs of expanded  operations and its power costs will be favorably affected
by benefits available to independent power companies in Peru.                   

(11) Stockholders' Equity                                                       

The Company  purchased  3,371,618 of its common shares in 1997 (17,364 shares in
1996 and 34,729 shares in 1995). In 1997,  210,294 common shares (270,474 shares
in 1996 and 503,392 shares in 1995) were used for employee benefit plans.       

Retained earnings at December 31, 1997 includes  undistributed earnings of $20.0
million for  investments in 50% or less owned  entities  previously or currently
accounted  for by the  equity  method.  Retained  earnings  includes  cumulative
foreign currency  adjustments of $8.3 million at December 31, 1997 ($3.7 million
at December 31, 1996 and $9.9 million at December 31,  1995).  In 1996, a credit
of $0.6 million was recognized in determining the gain from  cumulative  foreign
currency adjustments on the sale of the Company's interest in MIM.              

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A59                                                                             

Stock Options:  The Company has three stockholder approved plans, the 1996 Stock
Incentive  Plan, a Stock  Incentive  Plan prior to 1996 and a Stock Option Plan.
The 1996 Stock  Incentive Plan replaced the prior Stock  Incentive Plan which in
turn had  replaced the Stock  Option  Plan.  Future  options can only be granted
under the 1996 Stock Incentive Plan.  Unexpired options issued under prior plans
will continue to be governed by, and  exercised  under the Stock Option Plan and
the Stock  Incentive  Plan.  The 1996  Stock  Incentive  Plan  provides  for the
granting of  nonqualified  stock options,  Incentive  Stock Options,  as defined
under the Internal Revenue Code of 1986, as amended,  as well as limited rights,
restricted stock,  bonuses or other  compensation  payable in stock, other stock
based awards and dividend equivalents. The price at which options may be granted
under  the 1996  Stock  Incentive  Plan  shall not be less than 100% of the fair
market  value of the Common  Stock,  on the date of grant.  In general,  options
expire  after 10 years and are not  exercisable  for six months from the date of
grant.  Compensation  cost charged against  earnings for restricted stock awards
under the above plans was $1.0  million in 1997,  $1.1  million in 1996 and $0.7
million in 1995. Retained earnings have been reduced by $8.4 million at December
31, 1997 ($7.1 million at December 31, 1996) for unearned  compensation  related
to restricted stock awards.                                                     

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting  Standards  No.  123,  "Accounting  for  Stock-Based   Compensation."
Accordingly, no compensation cost has been recognized for awards under the stock
option plans.  If  compensation  cost for the Company's stock incentive plan had
been  determined  based on the fair  value at the grant date for awards in 1997,
1996 and 1995, consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
(not  including  the earnings  effect of options  granted by SPCC for its stock,
which is immaterial) indicated below:                                           

                                                        · Enlarge/Download Table

In millions, except per share amounts                                     1997      1996    1995   
                                                                          ----      ----    ----   
                                                                                                   
Net earnings - as reported                                                  $143.4  $138.3  $169.2 
Net earnings - pro forma                                                    $141.0  $136.7  $167.7 
Earnings per share (Basic)- as reported                                     $ 3.42  $ 3.24  $ 4.00 
Earnings per share (Diluted)- as reported                                   $ 3.42  $ 3.23  $ 3.98 
Earnings per share (Basic)- pro forma                                       $ 3.36  $ 3.20  $ 3.96 
Earnings per share (Diluted)- pro forma                                     $ 3.36  $ 3.20  $ 3.95 

For purposes of computing  earnings per share,  basic and diluted,  the dilutive                   
effect of stock options on common shares outstanding is as follows:                                

Weighted Average Common Shares Outstanding:                                  1997    1996     1995 
                                                                             ----    ----     ---- 
(in millions)                                                                                      
  Basic                                                                      41.9    42.7     42.3 
  Dilutive effect of stock options                                            0.1     0.1      0.1 
                                                                            -----    -----    -----
  Diluted                                                                    42.0    42.8     42.4 
                                                                            =====    =====    =====

The fair value of each option  grant is  estimated  on the date of grant using a
Black-Scholes  option-pricing  model  with the  following  assumptions  used for
grants in 1997:  dividend  yield of 2.9%  (2.6% - 1996,  2.4% - 1995);  expected
volatility  of 29.2% (28.4% - 1996,  27.6% - 1995);  risk-free  interest rate of
6.5% (5.43% - 1996,  7.8% - 1995);  and expected lives of 7.0 years in 1997, 6.9
in 1996 and 1995.                                                               

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A60                                                                             

The total number of shares that may be optioned or awarded  under the 1996 Stock
Incentive  Plan is 478,165  shares as of December 31, 1997,  (475,076  shares at
December  31,  1996)  plus an  additional  number of shares on January 1 of each
calendar year for the 10 year duration of the Stock  Incentive Plan equal to one
percent of the number of shares of the Company's Common Stock outstanding on the
immediately  preceding  December 31. The weighted average remaining  contractual
life of stock options  outstanding as of December 31, 1997 was 6.6 years.  Stock
option  activity  over the past three years under the Stock  Incentive  Plan and
Stock Option Plan was:                                                          

                                                        · Enlarge/Download Table

                                                                    Weighted                           
                                                  Number of         Average          Option Price      
                                                    shares           Price        (range per share)    
                                                                                                       
Outstanding at                                                                                         
  January 1, 1995                                        880,116          $25.41       $20.57 to $29.38
Granted                                                  216,200          $29.19       $26.63 to $32.57
Exercised                                               (304,321)         $25.00       $20.57 to $29.19
Canceled or expired                                       (9,026)         $25.96       $21.94 to $29.19
                                                         ---------                                     

Outstanding at                                                                                         
  January 1, 1996                                        782,969          $26.60       $20.57 to $32.57
Granted                                                  253,000          $31.20       $31.13 to $34.38
Exercised                                                (39,306)         $26.01       $20.57 to $29.19
Canceled or expired                                       (6,300)         $25.85       $20.57 to $31.13
                                                         ---------                                     

Outstanding at                                                                                         
  January 1, 1997                                        990,363          $27.81       $22.31 to $34.38
Granted                                                  370,450          $27.49       $27.50 to $31.97
Exercised                                                (71,815)         $26.47       $22.31 to $29.19
Canceled or expired                                      (24,600)         $27.14       $22.31 to $31.13
                                                        ----------                                     

Outstanding and exercisable at December 31, 1997       1,264,398          $27.88       $22.31 to $34.38

In 1989, the Company adopted a Shareholder  Rights plan, which expires on August
7, 1999, and declared a dividend of one Right for each of its common shares.  In
January 1998, the Company  extended the  Shareholder  Rights plan,  with certain
minor  modifications,  for an  additional  ten year  period  effective  upon the
earlier of the  expiration of the existing  Rights plan or the redemption of the
existing  Rights.  In certain  circumstances,  if a person or group  becomes the
beneficial owner of 15% or more of the outstanding  common shares,  with certain
exceptions,  these rights vest and entitle the holder to certain share  purchase
rights.  In  connection  with the  Rights  dividend,  800,000  shares  of Junior
Participating  Preferred Stock were authorized for issuance upon exercise of the
Rights.                                                                         

(12) Benefit Plans                                                              

Pension benefits:                                                               

The Company  maintains  several  noncontributory,  defined benefit pension plans
covering  substantially all domestic employees.  Benefits for salaried plans are
based on  salary  and years of  service.  Hourly  plans are based on  negotiated
benefits and years of service.                                                  

The Company's funding policy is to contribute amounts to the plans sufficient to
meet the  minimum  funding  requirements  set forth in the  Employee  Retirement
Income Security Act of 1974, plus such additional tax deductible  amounts as may
be advisable under the  circumstances.  Plan assets are invested  principally in
commingled stock funds, mutual funds and securities issued by the United States.

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A61                                                                             

Net pension costs consisted of:                                                 

                                                        · Enlarge/Download Table

For the years ended December 31,                      1997           1996           1995    
                                                      ----           ----           ----    
(in millions)                                                                               
                                                                                            
Service cost                                         $ 9.1          $ 8.6          $ 6.3    
Interest cost on projected benefit obligations        12.7           11.0            9.8    
Actual return on plan assets                         (41.0)         (21.8)         (30.8)   
Net amortization and deferral                         26.9           10.7           21.0    
                                                ============== ============== ==============
Net pension costs                                    $ 7.7          $ 8.5          $ 6.3    
                                                ============== ============== ==============

The actuarial present value of benefit obligations and funded status for the    
Company's plans were:                                                           

                                                        · Enlarge/Download Table

At December 31,                                        1997                        1996                    
(in millions)                                        Plans with    Plans with Assets   Plans with Accum.   
                                                  Assets Exceeding  Exceeding Accum.  Benefit Obligation   
                                                   Accum. Benefit       Benefit      Exceeding Assets (a)  
                                                     Obligation        Obligation                          
                                                                                                           
Assets and obligations:                                                                                    
  Vested benefit obligation                                $163.5            $139.4                $ 5.3   
  Nonvested benefits                                          8.5               7.8                  0.5   
                                                  ---------------------------------------------------------
  Accumulated benefit obligation                            172.0             147.2                  5.8   
Plan assets at fair value                                   227.5             174.3                  5.0   
                                                  ---------------------------------------------------------
Plan assets in excess of (less than) accumulated                                                           
     benefit obligation                                                                                    
                                                           $ 55.5            $ 27.1               $(0.8)   
                                                  =========================================================

Projected benefit obligation (PBO)                         $204.0            $175.4                $ 7.2   
Plan assets at fair value                                   227.5             174.3                  5.0   
                                                  ---------------------------------------------------------
Plan assets in excess of (less than) PBO                                                                   
                                                             23.5              (1.1)                (2.2)  
  Prior service cost                                         16.3              18.1                 (0.1)  
  Initial net plan obligation                                 2.4               0.9                  2.1   
  Effect of changes in assumptions and actuarial                                                           
     gains and losses                                                                                      
                                                            (11.9)              8.6                 (0.2)  
  Minimum liability                                             -                 -                 (0.5)  
                                                  ---------------------------------------------------------
Pension asset (liability) reflected in                                                                     
     consolidated balance sheet                                                                            
                                                           $ 30.3            $ 26.5                $(0.9)  
                                                  =========================================================

Actuarial assumptions:                                                                                     
Discount Rate                                                7.0%              7.0%                 7.0%   
Expected long-term rate of return on plan assets (b)        10.0%             10.0%                 8.0%   
Expected annual salary increases                             4.0%              4.0%                 4.0%   


(a) Plans maintained by SPCC.                                                   

(b) The  expected  long-term  rate of  return  on plan  assets is 8.0% for plans
maintained by SPCC.                                                     

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A62                                                                             

Postretirement benefits:                                                        

Noncontributory  postretirement  health care  coverage  under the Asarco  Health
Plan, is provided to substantially  all U.S. retirees not eligible for Medicare.
A cost  sharing  Medicare  supplement  plan is  available  for retired  salaried
employees and life insurance coverage is provided to substantially all retirees.
The tables below exclude the postretirement benefit obligation of SPCC, which is
immaterial.                                                                     

Net periodic postretirement benefit costs include:                              

                                                        · Enlarge/Download Table

For the years ended December 31,                                                     1997            1996           1995   
(in millions)                                                                        ----            ----           ----   

                                                                                                                           
Service cost                                                                         $ 3.5           $ 3.4         $  2.4  
Interest cost                                                                          8.1             8.0            8.5  
Amortization of loss                                                                   1.2             1.3              -  
                                                                             =============== =============== ==============
        Net periodic postretirement benefit costs                                    $12.8           $12.7         $ 10.9  
                                                                             =============== =============== ==============

The following sets forth the plan's status  reconciled with amounts  reported in                                           
the Consolidated Balance Sheet:                                                                                            

At December 31,                                                                                  1997           1996       
(in millions)                                                                                    ----           ----       

                                                                                                                           
Accumulated postretirement benefit obligation (APBO):                                                                      
     Retirees                                                                                  $ 58.2         $ 60.7       
     Fully eligible active plan participants                                                     21.7           20.0       
     Other plan participants                                                                     42.9           41.1       
                                                                                           -------------- --------------   
Total APBO                                                                                      122.8          121.8       
Item not yet recognized in earnings:                                                                                       
 Effect of changes in assumptions and actuarial gains and losses                                (18.3)         (21.9)      
                                                                                           ============== ==============   
      Postretirement benefit obligation                                                        $104.5         $ 99.9       
                                                                                           ============== ==============   

The annual  assumed rate of increase in the per capita cost of covered  benefits
(i.e.,  health  cost trend rate) is 6% for 1997 and is assumed to decrease to 5%
by 1999 and remain at that  level  thereafter.  The health  care cost trend rate
assumption  has a  significant  effect on the  amounts  reported.  For  example,
increasing the assumed  health care cost trend rates by one percentage  point in
each year would increase the accumulated  postretirement  benefit  obligation at
December 31, 1997, by $10.8 million, and the net periodic postretirement benefit
costs  for 1997 by $1.2  million.  The  discount  rate used in  determining  the
accumulated  postretirement  benefit  obligation was 7% at December 31, 1997 and
1996. The plans are unfunded.                                                   

Employee Savings Plan:                                                          

The Company  maintains  employee savings plans for salaried and hourly employees
which permit employees to make  contributions  by salary  reduction  pursuant to
section 401(k) of the Internal  Revenue Code. The Company matches  contributions
up to 3% of  compensation.  In connection with the required match, the Company's
contributions  charged against  earnings were $4.6 million in 1997, $4.5 million
in 1996 and $4.3 million in 1995.                                               

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A63                                                                             

(13) Business Segments                                                          

At December  31,  1997,  the Company  adopted  SFAS No. 131,  "Disclosure  About
Segments of an Enterprise and Related  Information." This statement  establishes
standards  for  reporting  information  about  operating  segments  and  related
disclosures about products and services,  geographic areas, and major customers.
Prior  year  amounts  have  been  restated  to  conform  to the  current  year's
presentation.                                                                   

The Company's copper segment includes  integrated mining,  smelting and refining
operations in North America and in Peru,  through its subsidiary,  Southern Peru
Copper  Corporation.  The  Company's  lead,  zinc and  precious  metals  segment
consists of a fully integrated lead business in Missouri, a custom lead smelting
business, a silver mining business and a zinc mining business.                  

Enthone-OMI,   a  wholly-owned  subsidiary,   operates  a  world-wide  specialty
chemicals  business  focused  on  functional  and  decorative  coatings  for the
electronics  and metal  finishing  industries.  American  Limestone  Company,  a
wholly-owned subsidiary, produces construction aggregates.                      

The  Company  also  maintains  an  active  exploration  effort  focused  on  the
identification  and acquisition of advanced gold, copper and silver  exploration
projects.  The segment labeled "All Other" includes  environmental  services,  a
specialty  metals business,  and income and expenses  associated with facilities
previously  operated by the  Company.  The  Company's  reportable  segments  are
separately  managed strategic  business units that offer different  products and
services.                                                                       

The  accounting  policies  of the  segments  are  described  in the  summary  of
significant accounting policies. The Company evaluates segment performance based
on operating  income or loss plus the equity in the net earnings of  investments
accounted  for  by  the  equity  method  attributable  to  each  segment,  where
applicable.  Corporate and general  administrative  expenses are allocated among
the segments generally in proportion to operating expenses.  Identifiable assets
are those directly used in the operations of each segment. Unallocated corporate
assets are principally cash, marketable securities,  and investments.  There can
be no  assurance  that  operations  and  assets of the  Company  subject  to the
jurisdiction  of foreign  governments  will not be affected  adversely by future
actions by such governments.                                                    

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A64                                                                             

Business Segments - Sales                                                       
(in millions)                                                                   

                                                        · Enlarge/Download Table

For the years ended December 31,                                                     1997            1996            1995   
                                                                                     ----            ----            ----   
By Reportable Segment                                                                                                       
                                                                                                                            
  Copper                                                                          $ 2,022         $ 1,968         $ 2,329   
  Lead, Zinc & Precious Metals                                                        304             357             489   
  Specialty Chemicals                                                                 324             319             309   
  Aggregates                                                                           54              47              44   
  All Other                                                                            17              26              27   
                                                                             =============== =============== ===============
Total                                                                             $ 2,721         $ 2,717         $ 3,198   
                                                                             =============== =============== ===============

By Country (a)                                                                                                              
  United States                                                                   $ 1,501         $ 1,529         $ 1,781   
  Japan                                                                               219             245             264   
  Italy                                                                               166             147             189   
  United Kingdom                                                                      146             153             157   
  The Netherlands                                                                     109             122             217   
  Foreign - Other                                                                     580             521             590   
                                                                             =============== =============== ===============
Total                                                                             $ 2,721         $ 2,717         $ 3,198   
                                                                             =============== =============== ===============

(a)      Revenues are attributed to countries based on location of customer.                                                

Business Segments - Earnings                                                                                                
(in millions)                                                                                                               
For the years ended December 31,                                                     1997            1996            1995   
                                                                                     ----            ----            ----   
By Reportable Segment (a), (b), (c)                                                                                         
  Copper                                                                          $   315         $   326         $   617   
  Lead, Zinc & Precious Metals                                                        (15)            (11)            (62)  
  Specialty Chemicals                                                                  29              24              24   
  Aggregates                                                                           14              10               8   
  Exploration                                                                         (32)            (27)            (15)  
  All Other (d)                                                                       (28)            (14)            (83)  
                                                                             --------------- --------------- ---------------
Total                                                                             $   283         $   308         $   489   
  Interest and other                                                                   33              23             (66)  
  Less:  Equity Earnings                                                               (9)             (4)             (2)  
                                                                             --------------- --------------- ---------------
Earnings before taxes on income and minority                                                                                
  interests                                                                       $   307         $   327         $   421   
                                                                             =============== =============== ===============

Depreciation and Depletion                                                                                                  
  Copper                                                                          $   108         $    99         $    96   
  Lead, Zinc & Precious Metals                                                         17              14              16   
  Specialty Chemicals                                                                   3               3               4   
  Aggregates                                                                            3               2               2   
  All Other                                                                             -               1               1   
                                                                             =============== =============== ===============
Total                                                                             $   131         $   119         $   119   
                                                                             =============== =============== ===============

Equity in results of non-consolidated companies                                                                             
  Copper                                                                          $     1         $     1         $     -   
  Lead, Zinc & Precious Metals                                                          3              (1)             (2)  
  Specialty Chemicals                                                                   5               4               4   
                                                                             =============== =============== ===============
Total                                                                             $     9         $     4          $    2   
                                                                             =============== =============== ===============

(a) Includes provision for asset impairment of $1.1 for Copper,  $36.3 for Lead,
Zinc & Precious Metals and $8.2 for All Other in 1995.                  
(b) Includes  LIFO  profits  of  $16.7  in  1997,  $5.3 in 1996 and $.7 in 1995 
primarily reported in the Copper and Lead, Zinc and Precious Metals     
segments.                                                               
(c) Includes equity in the net earnings of investees accounted for by the equity
method.                                                                 
(d) Includes  environmental  and other  closed  plant  charges of $20.2 in 1997,
$15.0 in 1996 and $76.3 in 1995.                                        

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A65                                                                             

Business Segments - Identifiable Assets                                         
(in millions)                                                                   

                                                                · Download Table

For the years ended December 31,          1997            1996            1995   
                                                                                 
By Reportable Segment                                                            
  Copper                               $ 3,009         $ 2,810         $ 2,728   
  Lead, Zinc & Precious Metals             427             401             360   
  Specialty Chemicals                      263             272             267   
  Aggregates                                32              32              31   
  Exploration                               15              11              11   
  All Other                                153             123              82   
                                  --------------- --------------- ---------------
Total Reportable Segments              $ 3,899         $ 3,649         $ 3,479   
Unallocated corporate assets               211             471             848   
                                  =============== =============== ===============
Total                                  $ 4,110         $ 4,120         $ 4,327   
                                  =============== =============== ===============

Long-Lived Assets                                                                
  United States                        $ 1,547         $ 1,820         $ 2,123   
  Peru                                     919             872             796   
  Foreign - Other                          142              84              75   
                                  =============== =============== ===============
Total                                  $ 2,608         $ 2,776         $ 2,994   
                                  =============== =============== ===============

Equity Method Investments                                                        
  Copper                               $     2         $     2         $     2   
  Lead, Zinc & Precious Metals               9               5               3   
  Specialty Chemicals                       50              53              57   
                                  =============== =============== ===============
Total                                  $    61         $    60         $    62   
                                  =============== =============== ===============

Capital Expenditures                                                             
  Copper                               $   295         $   233         $   287   
  Lead, Zinc & Precious Metals              18              42              30   
  Specialty Chemicals                        4               7               3   
  Aggregates                                 3               3               3   
  All Other                                  2               1              15   
                                  --------------- --------------- ---------------
Total                                  $   322         $   286         $   338   
                                  =============== =============== ===============

(14) Financial Instruments                                                      

Hedging:  The Company may use  derivative  instruments to manage its exposure to
market risk from changes in commodity prices, interest rates or the value of its
assets and liabilities.  Derivative  instruments  which are designated as hedges
must be deemed effective at reducing the risk associated with the exposure being
hedged and must be designated as a hedge at the inception of the contract.      

Depending  on the  market  fundamentals  of a metal  and other  conditions,  the
Company may  purchase put options or create  synthetic  put options to reduce or
eliminate  the risk of metal price  declines  below the option strike price on a
portion of its  anticipated  future  production.  Put options  purchased  by the
Company  establish a minimum sales price for the production  covered by such put
options  and permit the  Company to  participate  in price  increases  above the
option price.  The cost of options is amortized on a straight-line  basis during
the  period  in  which  the  options  are  exercisable.  Depending  upon  market
conditions, the Company may either sell options it holds or exercise the options
at  maturity.  Gains or losses  from the sale or  exercise  of  options,  net of
unamortized  acquisition  costs,  are  recognized  in the  period  in which  the
underlying  production is sold. The Company also uses futures contracts to hedge
the  effect of price  changes  on a portion  of the  metals it sells.  Gains and
losses on futures  contracts  are  reported  as a  component  of the  underlying
transaction.  Earnings include gains from option sales and exercises,  primarily
related to copper, of $25.8 million in 1997, $27.1 million in 1996 and losses of
$5.6 million in 1995.                                                           

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A66                                                                             

At December 31, 1997, the Company held the following copper put options:        
(in millions, except per pound amounts)                                         

                                                                · Download Table

                                                                   Percent of
                               Strike Price Per  Unamortized Cost   Estimated
        Pounds   Period              Pound                         Production
        ------   ------              -----        --------------   ----------
                                                                             
Asarco     44.0     1/98-3/98          $0.95            $0.7          26%    

SPCC       44.0     1/98-3/98          $0.95            $0.6          27%    


Trading: As part of its price protection program,  the Company may use synthetic
put  options  which  consist  of a call  option  and a forward  sale on the same
quantity of metal.  Price protection  programs  utilizing  synthetic puts may be
implemented  in steps.  In cases where the step approach is used,  the Company's
objective is to take advantage of current market conditions to minimize its cost
while at the same time limiting the Company's  exposure should market conditions
change  before  the  synthetic  put  is  completed.  Until  a  synthetic  put is
completed,  any calls not matched  with a forward sale are marked to market with
the gain or loss, if any,  recorded in earnings.  Earnings include gains of $0.5
million in 1997 from the sale or exercise of call options. Earnings also include
gains of $3.6 million in 1997 and losses of $0.1 million in 1996 from unrealized
mark to market  adjustments.  At December 31, 1997, the Company held copper call
options  covering an aggregate of 140.3 million  pounds of copper,  a portion of
which are  exercisable  in each quarter of 1998 at an average strike price of 97
cents. The carrying value of these calls at December 31, 1997 was $0.4 million. 

Gains and Losses:  The recognized  pre-tax gains (losses) of the Company's metal
hedging and trading activities, were as follows:                                

                                                        · Enlarge/Download Table

For the years ended December 31,        1997               1996                1995        
                                        ----               ----                ----        
(in millions)                                                                              
                                                                                           
Metal                                                                                      
-----                                                                                      
Copper                                   $ 28.7              $ 26.9              $ (5.7)   
Zinc                                        1.2                (0.1)               (0.1)   
Silver                                        -                   -                 0.5    
Lead                                          -                 0.2                (0.3)   
                                  ================== ================== ===================
  Net Gain (Loss)                        $ 29.9              $ 27.0              $ (5.6)   
                                  ================== ================== ===================

The Company may enter into interest rate swap  agreements to limit the effect of
increases in the interest rates on any floating rate debt. The  differential  is
accrued as interest  rates  change and is recorded in interest  expense.  During
1995,  the Company  entered into three swap  agreements,  expiring 1998 to 2000,
with an  aggregate  notional  amount  of  $115.0  million.  The  effect of these
agreements is to limit the interest rate exposure to 6.6% on $100 million of the
Company's  revolving credit loans and 6.8% on its $15 million, 5 year term loan.
As a result of these swap  agreements,  interest  expense was  increased by $0.6
million in 1997, $0.7 million in 1996 and $0.2 million in 1995.                 

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A67                                                                             

The estimated fair values of the Company's financial instruments are:           

                                                        · Enlarge/Download Table

       At December 31,                                              1997                             1996              
(in millions)                                            Carrying           Fair           Carrying          Fair      
                                                           Value            Value            Value           Value     
                                                                                                                       
               Assets:                                                                                                 
Cash and cash equivalents                                   $ 210.6         $ 210.6          $ 192.4         $ 192.4   

Marketable securities - held to maturity                                                                               
                                                            $ 205.3         $ 205.3          $   1.0         $   1.0   

Put options                                                 $   1.3         $  14.3                -               -   

          Call options                                      $   0.4         $   0.4          $   4.0         $   4.0   

          Investments:                                                                                                 
  Available-for-sale securities                             $  73.5         $  73.5          $ 387.9         $ 387.9   
  Restricted investment in Grupo Mexico (a)                                                                            
                                                               50.2            78.9             50.2            78.9   
                 Other                                          3.1              (b)             4.6              (b)  
                                                      ---------------- ---------------  --------------- ---------------
     Total investments                                      $ 126.8         $ 152.4          $ 442.7         $ 466.8   
                                                      ---------------- ---------------  --------------- ---------------

          Liabilities:                                                                                                 
Long-term debt (excluding capital lease obligations)        $ 816.9         $ 848.3          $ 723.6         $ 736.9   
Interest rate swaps                                               -          $ (0.6)               -          $ (0.8)  

                                                                              

(a)At  December  31, 1997 and 1996,  56.3  million  shares of Grupo  Mexico were
   subject to a fixed  price  option  which  limits the sale of the shares for a
   period of more than one year.  The fair value shown is equal to the  exercise
price of the option.                                                      

(b)No fair  value was  available  for these  investments  as they  represent  an
   interest in companies whose stock is not publicly traded.  Accordingly, it is
not practicable to determine the fair value of such securities.           

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:                                                                          

Cash and cash equivalents:  The carrying amount  approximates fair value because
of the short maturity of these instruments.                                     

Marketable  securities:  The  carrying  amount  and fair value are  reported  at
amortized cost, which approximates market, since these securities are to be held
to maturity.                                                                    

Put and call  options:  Fair  value is an  estimate  based  on  relevant  market
information  such as:  volatility  of similar  options,  futures  prices and the
contracted strike price. Call options held at December 31, 1997, which represent
trading  securities,  had an average fair value of $1.3 million  during the year
ended December 31, 1997.                                                        

Available-for-sale  securities  and interest rate swaps:  Fair value is based on
quoted market prices.                                                           

Long-term debt: The fair value is based on the quoted market prices for the same
or similar issues.                                                              

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A68                                                                             

Unaudited Quarterly Data                                                        
(in millions, except per share data)                                            

                                                        · Enlarge/Download Table

                                            1997                                                  1996                         
                                            ----                                                  ----                         
QUARTERS             1st     2nd(a)(b) 3rd(c)(d)      4th       Total      1st(e)    2nd(f)       3rd      4th(g)     Total    
                 ==============================================================================================================
                                                                                                                               

Sales               $ 715.6   $ 741.0    $ 661.3     $ 603.1    $2,721.0   $ 735.0    $ 682.5   $ 647.8   $ 651.5    $2,716.8  

Operating                                                                                                                      
income              $ 106.0   $  96.5    $  53.6     $  18.6    $  274.7   $  92.6    $  88.4   $  51.7   $  70.7    $  303.4  

Net earnings        $  40.6   $  51.9    $  45.8     $   5.1    $  143.4   $  35.7    $  72.4   $   5.9   $  24.3    $  138.3  

Dividends paid                                                                                                                 
per common share    $  0.20   $  0.20    $  0.20     $   .20    $   0.80   $  0.20    $  0.20   $  0.20   $  0.20    $   0.80  
Stock market                                                                                                                   
 price:                                                                                                                        
  High              $32-1/2   $32-1/4    $    34     $31-7/8    $     34   $35-1/4    $35-7/8   $27-7/8   $    28    $ 35-7/8  
  Low               $25-1/8   $26-1/2    $    30     $21-3/4    $ 21-3/4   $27-1/2    $27-5/8   $23-3/4   $24-1/8    $ 23-3/4  
Net earnings                                                                                                                   
 per  share:                                                                                                                   
  Basic             $  0.95   $  1.21    $  1.10     $  0.13    $   3.42   $  0.84    $  1.70   $  0.14   $  0.57    $   3.24  
  Diluted           $  0.94   $  1.20    $  1.09     $  0.13    $   3.42   $  0.83    $  1.69   $  0.14   $  0.57    $   3.23  


(a)     Includes a $13.4  after-tax  gain,  $20.7  pre-tax,  on the sale of 43.4
million shares of Grupo Mexico.                                 

(b)     Includes  a  $10.3  after-tax  gain,  $15.9  pre-tax,  as  a  result  of
liquidation of LIFO inventories.                                

(c)     Includes  a $34.2  after-tax  gain,  $52.6  pre-tax,  on the sale of the
Company's remaining unrestricted shares in Grupo Mexico.        

(d)     Includes a $30.0  pre-tax  charge to increase  reserves for closed plant
        and  environmental  matters,  offset  entirely by anticipated  insurance
recoveries.                                                     

(e)     Includes a $7.2  after-tax  gain,  $11.1  pre-tax,  on the sale of a 25%
        interest in the  Company's  Silver Bell  project.  (f)  Includes a $39.0
        after-tax gain,  $60.1 pre-tax,  on the sale of the Company's  remaining
        15.0%  interest in MIM. (g) Includes a pre-tax  charge of $0.6 ($53.3 in
        charges,  including $10.0 related to the application of SOP 96-1, offset
        by $52.7 in insurance and other  recoveries) for environmental and other
closed plant matters.                                           

Metals Price Sensitivity                                                        

Assuming that expected metal production and sales are achieved,  tax and royalty
rates are  unchanged,  that the number of shares  outstanding  is unchanged  and
giving no effect to results of other  business  segments,  hedging  programs  or
changes  in the costs of  production,  metal  price  sensitivity  factors  would
indicate the following  estimated  change in earnings per share  resulting  from
metal  price  changes  in  1998.  Estimates  are  based on 39.7  million  shares
outstanding.                                                                    

                                                        · Enlarge/Download Table

                                         Copper      Lead        Zinc      Silver     Molybdenum
                                                                                                
Change in Metal Price                1(cent)/lb.  1(cent)/lb. 1(cent)/lb.  $1/oz      $1/lb.    
Annual Change in Earnings per Share   17.5(cent)  4.8(cent)   1.9(cent)   13.6(cent)  14.1(cent)

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A69                                                                             

REPORT OF INDEPENDENT ACCOUNTANTS                                               

To the Board of Directors and Stockholders of ASARCO Incorporated               

We  have  audited  the  accompanying   consolidated  balance  sheets  of  ASARCO
Incorporated  and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated   statements  of  earnings,  cash  flows,  and  changes  in  common
stockholders'  equity for each of the three years in the period  ended  December
31, 1997.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.                                                 

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.          

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the  consolidated   financial   position  of  ASARCO
Incorporated  and  Subsidiaries  as of  December  31,  1997  and  1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity  with generally
accepted accounting principles.                                                 

                                                        COOPERS & LYBRAND L.L.P.

New York, New York                                                              
January 27, 1998                                                                

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A70                                                                             

Item 9. Changes in and  Disagreements  with  Accountants  on  Accounting  and   
Financial Disclosure.                                           

None                                                                            

PART III      

Items 10, 11, 12 and 13.                                                        

Reference is made to Executive Officers of Asarco and Business Experience During
the Past Five  Years on page A30.  Information  in  response  to the  disclosure
requirements  specified by these items  appears  under the captions and pages of
the 1998 Proxy Statement indicated below:                                       

                                                        · Enlarge/Download Table
                                                                                      Proxy Statement
                                                                                           Pages     
Item  Required Information               Proxy Statement Section                                     
                                                                                                     
10.   Directors and Executive                                                                        
        Officers                         Election of Directors                             2 - 5     
11.   Executive Compensation             Executive Compensation                                      
                                           through Option Exercises                                  
                                           and Fiscal Year-End                                       
                                           Values                                         11 - 13    
                                         Retirement Plans through                                    
                                           Employment Agreements                          14 - 19    
12.   Security Ownership                 Security Ownership of Certain Beneficial                    
                                             Owners through Common Stock Equivalents                 
                                                                                           7 - 9     
13.   Certain Relationships and Related                                                              
         Transactions.                   Certain Transactions                             19 - 20    

The information referred to above is incorporated herein by reference.          

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A71                                                                             
                                               PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.      

(a)  The following documents are filed as part of this report:                  

1. Financial Statements                                       

                The following  financial  statements of ASARCO  Incorporated and
its  subsidiaries  are included at the indicated pages of the document as stated
below:                                                                          

                                                                · Download Table

                                                     Form 10-K
                                                       Pages  
                                                              
   Consolidated Statement of Earnings for the years           
     ended December 31, 1997, 1996 and 1995             A42   

   Consolidated Balance Sheet at December 31,                 
     1997 and 1996                                      A43   

   Consolidated Statement of Cash Flows for the               
     years ended December 31, 1997, 1996 and 1995       A44   

   Consolidated Statement of Changes in Common                
     Stockholders' Equity for the years ended                 
     December 31, 1997, 1996 and 1995                   A45   

   Notes to Financial Statements                      A46-A68 

   Report of Independent Accountants                    A69   

2. Financial Statement Schedules                              

                                                     Form 10-K
                                                       Pages  
   Schedule II - Valuation and qualifying                     
       Accounts                                        B1-B3  


Schedules other than those listed above are omitted, as they are not required or
are not  applicable,  or the  required  information  is shown  in the  financial
statements or notes  thereto.  Columns  omitted from  schedules  filed have been
omitted because the information is not applicable. Any other information omitted
from schedules filed has been omitted due to immateriality.                     

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A72                                                                             

3. Exhibits                                                   

Exhibit                                         
No.                                         

    3.    Certificate of Incorporation and By-Laws

        (a)       Certificate of Incorporation - restated, filed May 4, 1970

          (b)       Certificate of Amendment to the Certificate of Incorporation
effective April 23, 1975                

          (c)       Certificate  of Amendment of  Certificate  of  Incorporation
executed April 14, 1981                 

          (d)       Certificate   of  Amendment  of  Restated   Certificate   of
Incorporation filed on May 6, 1985      

          (e)       Certificate  of Amendment of  Certificate  of  Incorporation
filed July 21, 1986                     

          (f)       Certificate   of  Amendment  of  Restated   Certificate   of
      Incorporation, as amended filed April 22, 1987

          (g)       Statement  of  Cancellation  filed  July  31,  1987  whereby
                    155,000  shares of Series A Cumulative  Preferred  Stock and
                    862,500 shares of $9.00 Convertible  Exchangeable  Preferred
Stock were cancelled                    

          (h)       Statement of  Cancellation  filed  November 20, 1987 whereby
                    1,026,900 shares of Series A Cumulative Preferred Stock were
cancelled                               

          (i)       Statement of  Cancellation  filed  December 18, 1987 whereby
                    1,250,000   shares  of  Series  B   Cumulative   Convertible
Preferred Stock were cancelled          

          (j)       Statement of Cancellation filed March 3, 1988 whereby 27,000
                    shares of Series A Cumulative Preferred Stock were cancelled

          (k)       Certificate   of  Amendment  of  Restated   Certificate   of
       Incorporation, as amended, filed August 7, 1989

(l)       By-Laws as last amended on June 26, 1991          

          4.        Instruments   defining  the  rights  of  security   holders,
including indentures                    

          (a)       There are currently various separate indentures,  agreements
                    or similar  instruments under which long-term debt of Asarco
                    is currently  outstanding.  The Registrant  hereby agrees to
                    furnish to the  Commission,  upon request,  a copy of any of
                    the  instruments  which  define  the  rights of  holders  of
                    long-term   debt   securities.   None  of  the   outstanding
                    instruments represent long-term debt securities in excess of
                 10% of the total assets of Asarco as of December 31, 1997

          (b)       Form of Rights Agreement dated as of July 26, 1989,  between
                    the Company and First  Chicago Trust Company of New York, as
                    Rights Agent,  defining the rights of  shareholders  under a
                    July 1989 Shareholders' Rights plan and dividend declaration

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A73                                                                             

          (c)       Rights  Agreement  Amendment dated as of September 24, 1992,
                    between the Company and The Bank of New York,  as  Successor
            Rights Agent under the Rights Agreement listed above

          (d)       Second Rights  Agreement  Amendment dated as of February 23,
                    1995,  between the Company and The Bank of New York deleting
                    certain  special  conditions  relating to MIM. The effect of
                    the  amendment  is to  apply  to  MIM  the  same  percentage
                    ownership   conditions   (15%)   that  apply  to  all  other
shareholders.                           

          (e)       Form of  Rights  Agreement  dated as of  January  28,  1998,
                    between  the  Company  and the Bank of New  York,  as Rights
                    Agent,  defining the rights of shareholders  under a January
                    1998 Shareholders' Rights plan and dividend declaration. The
                    effect of the 1998  Rights plan is to extend the 1989 Rights
plan, which expires in 1999.            

          (f)       Indenture  Agreement  dated as of February 1, 1993,  between
                    the Company and Bankers Trust Company, as Trustee,  covering
                    the issuance of debt securities registered by the Company in
April 1992 not to exceed $250 million   

          (g)       Indenture Agreement dated as of October 1, 1994, between the
                    Company and Chemical Bank, as Trustee, covering the issuance
                    of debt securities registered by the Company in October 1994
not to exceed $300 million              

10.       Material Contracts                                

    (a)       Stock Option Plan as amended through November 30, 1994

          (b)       Form of Amended  Employment  Agreement  dated  February  26,
                    1997,  between the Company and currently 12 of its executive
                    officers,   including  Messrs.   R.  de  J.  Osborne,   F.R.
                 McAllister, K.R. Morano, R.M. Novotny and A.B. Kinsolving

          (c)       Deferred Fee Plan for Directors,  as amended through January
28, 1998                                

          (d)       Supplemental   Pension   Plan  for   Designated   Mid-Career
     Officers, as amended through January 28, 1998

          (e)       Retirement  Plan  for  Non-Employee  Directors,  as  amended
                    through January 28, 1998.  Effective  December 31, 1995, the
                    Company   terminated   the  plan  for   current  and  future
directors.                              

          (f)       Directors'  Stock Award Plan, as amended through January 27,
1993                                    

          (g)       Stock  Incentive Plan adopted by the Company's  Shareholders
                  on April 25, 1990 and as amended through November 29, 1995

          (h)       Directors' Deferred Payment Plan, as amended through January
28, 1998                                

          (i)       Incentive  Compensation Plan for Senior Officers,  effective
January 1, 1996                         

 (j)       1996 Stock Incentive Plan, effective April 24, 1996

          (k)       Compensation  Deferral Plan, as amended  through January 28,
1998                                    

11.       Statement re Computation of Earnings Per Share    

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A74                                                                             

12.       Statement re Computation of Ratios                

21.       Subsidiaries of the Registrant                    

23.       Consent of Independent Accountants                

         The  exhibits  listed as 10(a)  through  (k)  above are the  management
         contracts or compensatory  plans or  arrangements  required to be filed
pursuant to Item 14(c) of Form 10-K.                          

(b)      Reports  of Form 8-K  filed in the  fourth  quarter  of 1997 and  first
quarter of 1998:                                              

         Current  report filed on March 2, 1998  containing a copy of the Rights
         Agreement  dated as of January  28,  1998,  between the Company and The
         Bank of New York, as Rights Agent,  defining the rights of shareholders
         under  a  January   1998   Shareholders'   Rights  plan  and   dividend
         declaration.  The effect of the 1998  Rights plan is to extend the 1989
Rights plan which expires in 1999.                            

(c)      Exhibits - The  exhibits  to this Form 10-K are  listed on the  Exhibit
         Index on pages C1 through  C5.  Copies of the  following  exhibits  are
filed with this Form 10-K:                                    
10(c)  Deferred Fee Plan for Directors                    
         10(d)  Supplemental Pension Plan for Designated Mid-Career Officers
10(e)  Retirement Plan for Non-Employee Directors         
10(h)  Directors' Deferred Payment Plan                   
10(k)  Compensation Deferral Plan                         
11.    Statement re Computation of Earnings Per Share     
12.    Statement re Computation of Ratios                 
21.    Subsidiaries of the Registrant                     
         23.    Consent of  Independent  Accountants is included on page A75
of this Annual Report on Form 10-K.         

Copies   of exhibits may be acquired  upon written  request to the Treasurer and
the payment of processing and mailing costs.                  

Individual  financial  statements of subsidiaries and 50%-or-less  owned persons
accounted for by the equity method have been omitted  because such  subsidiaries
and 50%-or-less owned persons considered in the aggregate as a single subsidiary
would not constitute a significant subsidiary.                                  

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A75                                                                             
    REPORT OF INDEPENDENT ACCOUNTANTS ON
        FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and                                                   
Stockholders of ASARCO Incorporated                                         

Our report on the consolidated  financial  statements of ASARCO Incorporated and
Subsidiaries has been included in this Form 10-K on page A69. In connection with
our  audits of such  financial  statements,  we have also  audited  the  related
financial  statement  schedule which appears on pages B1 through B3 of this Form
10-K.                                                                           

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.                                                               

COOPERS & LYBRAND L.L.P.

New York, New York                                                              
January 27, 1998                                                                

Item 14                                                                         
Exhibit 23                                                                      

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the  incorporation by reference in the  Prospectuses  constituting
part of the Registration  Statements on Form S-3 (File Nos.  33-45631,  33-55993
and 333-02359) and Form S-8 (File Nos. 2-83782,  2-67732,  33-34606,  333-16875,
333-18083, and 333-46181) of ASARCO Incorporated of our report dated January 27,
1998,  on  our  audit  of  the  consolidated   financial  statements  of  Asarco
Incorporated and  Subsidiaries,  which report appears on page A69 of this Annual
Report on Form 10-K.  We also consent to the  incorporation  by reference of our
report on our audit of the financial statement schedule, which appears above.   

We also  consent to the  reference  to our Firm as  experts in the  Prospectuses
referred to in the preceding paragraph only insofar as such reference relates to
our report  appearing on page A69 of this Annual  Report on Form 10-K and to our
report on the financial statement schedule which appears above.                 

COOPERS & LYBRAND L.L.P.

New York, New York                                                              
March 20, 1998                                                                  

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A76                                                                             
                                              SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.                           

Date: February 27, 1998                                                         

                                                         ASARCO Incorporated
                                                                (Registrant)

By_/s/ Richard de J. Osborne
 (Richard de J. Osborne,
 Chairman of the Board and
                                              Chief Executive Officer)

Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the dates indicated.                                      

                                                        · Enlarge/Download Table

(a)  Principal Executive Officer:                                                           
                                                                                            
     /s/ Richard de J. Osborne      Chairman of the Board                                   
     (Richard de J. Osborne)                                                                

(b)  Principal Financial Officer:                                                           

     /s/ Kevin R. Morano             Executive Vice President and                           
     (Kevin R. Morano)                Chief Financial Officer                               

(c)  Principal Accounting Officer:                                                          

     /s/ William Dowd                 Controller                                            
     (William Dowd)                                                                         

(d)  Directors:                                                                             

     /s/ Richard de J. Osborne                                     /s/ Willard C. Butcher   
     (Richard de J. Osborne)                                       (Willard C. Butcher)     

     /s/ Vincent A. Calarco                                        /s/ James C. Cotting     
     (Vincent A. Calarco)                                          (James C. Cotting)       

     /s/ David C. Garfield                                         /s/ E. Gordon Gee        
     (David C. Garfield)                                           (E. Gordon Gee)          

     /s/ James W. Kinnear III                                      /s/ Francis R. McAllister
     (James W. Kinnear III)                                        (Francis R. McAllister)  

     /s/ Kevin R. Morano                                           /s/ Martha T. Muse       
     (Kevin R. Morano)                                             (Martha T. Muse)         

     /s/ Michael T. Nelligan                                       /s/ John D. Ong          
     (Michael T. Nelligan)                                         (John D. Ong)            

     /s/ Manuel T. Pacheco                                         /s/ James Wood           
     (Manuel T. Pacheco)                                           (James Wood)             


Date: February 27, 1998                                                         

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B1                                                                              
 ASARCO Incorporated
AND SUBSIDIARIES
 Schedule II - Valuation and Qualifying Accounts
 FOR THE YEAR 1997
(in thousands)

                                                        · Enlarge/Download Table

      Column A         Column B                              Column C                              Column D             Column E
      --------         --------                              --------                              --------             --------

                                                            Additions                             Deductions                    
                                  --------------------------------------------------------------------------------------        
                                       Charged to                                                                               
                      Balance at    costs/expenses or                         Charged                                 Balance at
                      beginning        (credited)                            to other                                    end of 
Description           of period         to income          Description       accounts      Descriptions       Amount     period 
-----------           ---------         ---------          -----------       --------      ------------       ------     ------ 
                                                                                                                                

                                                                                        Accounts and notes                      
Deducted from assets                                                                    written off, net of                     
   on Balance Sheet:                                                                    recoveries            $1,432            
                                                                                                              ======            

                                                                                        Foreign currency                        
Allowance for                                                                           Translation                             
 doubtful accounts:     $8,129           $1,921                                         adjustment             $497       $8,121
                        ======           ======                                                                ====       ======

Current portion of                                     Net amount                                                               
     reserves for                                      transferred from                                                         
     closed plants                                     noncurrent reserve                                                       
     and                                               for closed  plants               Current                                 
     environmental                                     and enviornmental                charges to                              
     matters           $38,128                         matters                $61,819   reserves             $56,709     $43,238
                       =======                                                =======                        =======     =======

Non-current portion                                                                                                             
     of reserves for                                                                                                            
     closed plants                                                                      Net amount                              
     and                                                                                transferred to                          
     environmental                                                                      current                                 
     matters           $90,205           $50,441                                        liabilities          $61,819     $78,827
                       =======           =======                                                             =======     =======

Included in caption                                                                                                             
     "Other                                                                                                                     
     liabilities and                                                                                                            
     reserves" on                                      Increase in the                  Charges against                         
     Balance Sheet                                     reserve for                      the reserve for                         
     Other            $36,938            $7,590        Major Repairs                    Major Repairs         $771       $43,757
                      =======            ======                                                               ====       =======


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B2                                                                              
 ASARCO Incorporated
AND SUBSIDIARIES
 Schedule II - Valuation and Qualifying Accounts
 FOR THE YEAR 1996
(in thousands)

                                                        · Enlarge/Download Table

      Column A         Column B                             Column C                              Column D              Column E 
      --------         --------                             --------                              --------              -------- 

                                                            Additions                            Deductions                      
                                  -------------------------------------------------------------------------------------          
                                       Charged to                                                                                
                      Balance at     costs/expenses                          Charged                                   Balance at
                      beginning       or (credited)                         to other                                     end of  
Description           of period         to income          Description      accounts      Descriptions       Amount      period  
-----------           ---------         ---------          -----------      --------      ------------       ------      ------  
                                                                                                                                 

                                                                                       Accounts and notes                        
Deducted from assets                                                                   written off, net of                       
   on Balance Sheet:                                                                   recoveries            $1,151              
                                                                                                             ======              

Allowance for                                                                          Foreign currency                          
     Doubtful                                                                          translation                               
     accounts:          $7,409           $1,993                                        adjustment             $122        $8,129 
                        ======           ======                                                               ====        ====== 

Current portion of                                     Net amount                                                                
     reserves for                                      transferred from                                                          
     closed plants                                     noncurrent reserve                                                        
     and                                               for closed plants               Current                                   
     environmental                                     and environmental               charges to                                
     matters           $53,042                         matters               $39,983   reserves             $54,897      $38,128 
                       =======                                               =======                        =======      ======= 

Non-current portion                                                                                                              
     of reserves for                                                                                                             
     closed plants                                                                      Net amount                               
     and                                                                                transferred to                           
     environmental                                                                      current                                  
     matters           $62,484           $67,704                                        liabilities          $39,983     $90,205 
                       =======           =======                                                            =======      ======= 

Included in caption                                                                                                              
     "Other                                                                                                                      
     liabilities and                                                                                                             
     reserves" on                                      Increase in the                 Charges against                           
     Balance Sheet                                     reserve for                     the reserve for                           
   Other               $26,018           $13,774       Major Repairs                   Major Repairs         $2,854      $36,938 
                       =======           =======                                                             ======      ======= 

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B3                                                                              
 ASARCO Incorporated
AND SUBSIDIARIES
 Schedule II - Valuation and Qualifying Accounts
 FOR THE YEAR 1995
(in thousands)

                                                        · Enlarge/Download Table

      Column A         Column B                             Column C                              Column D               Column E
      --------         --------                             --------                              --------               --------

                                                            Additions                            Deductions                      
                                  -------------------------------------------------------------------------------------          
                                       Charged to                                                                                
                      Balance at     costs/expenses                          Charged                                   Balance at
                      beginning       or (credited)                         to other                                      end of 
Description           of period         to income          Description      accounts      Descriptions       Amount       period 
-----------           ---------         ---------          -----------      --------      ------------       ------       ------ 
                                                                                                                                 

                                                                                       Accounts and notes                        
Deducted from assets                                                                   written off, net of                       
   on Balance Sheet:                                                                   recoveries            $1,125              
                                                                                                             ======              

 Allowance for                                                                        Foreign currency                           
  doubtful                                                                            translation                                
  accounts:            $6,249           $2,189                                        adjustment              $(96)       $7,409 
                       ======           ======                                                                =====       ====== 

Current portion of                                     Net amount                                                                
     reserves for                                      transferred from                                                          
     closed plants                                     noncurrent reserve                                                        
     and                                               for closed plants               Current                                   
     environmental                                     and environmental               charges to                                
     matters           $55,946                         matters               $73,874   reserves             $76,778      $53,042 
                       =======                                               =======                        =======      ======= 

Non-current portion                                                                                                              
     of reserves for                                                                                                             
     closed plants                                                                     Net amount                                
     and                                                                               transferred to                            
     environmental                                                                     current                                   
     matters           $66,458           $69,900                                       liabilities          $73,874      $62,484 
                       =======           =======                                                            =======      ======= 

Included in caption                                                                                                              
     "Other                                                                                                                      
     liabilities and                                                                                                             
     reserves" on                                                                                                                
     Balance Sheet                                                                                                               
   Other               $28,435                                                                                           $26,018 
                       =======                                                                                           ======= 


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C1                                                                              
 ASARCO Incorporated
 EXHIBIT INDEX

                                                        · Enlarge/Download Table

Exhibit                                                                          Indexed
  No.                                               Description                  on Page
                                                                                        
3.           Certificate of Incorporation and By-Laws                                   

         (a)       Certificate of  Incorporation - restated,  filed May 4, 1970         
                   (Filed as an Exhibit to the Company's  1980 Annual Report on         
                   Form 10-K and incorporated herein by reference)                      

         (b)       Certificate of Amendment to the Certificate of Incorporation         
                   effective  April  23,  1975  (Filed  as an  Exhibit  to  the         
                   Company's  1980 Annual Report on Form 10-K and  incorporated         
                   herein by reference)                                                 

         (c)       Certificate  of Amendment of  Certificate  of  Incorporation         
                   executed  April  14,  1981  (Filed  as  an  Exhibit  to  the         
                   Post-Effective Amendment No. 8 to Registration Statement No.         
                   2-47616,  filed  April 30, 1981 and  incorporated  herein by         
                   reference)                                                           

         (d)       Certificate   of  Amendment  of  Restated   Certificate   of         
                   Incorporation  filed on May 6, 1985  (Filed as an Exhibit to         
                   the Company's  Quarterly Report on Form 10-Q for the quarter         
                   ended March 31, 1985 and incorporated herein by reference)           

         (e)       Certificate  of Amendment of  Certificate  of  Incorporation         
                   filed July 21,  1986  (Filed as an Exhibit to the  Company's         
                   Quarterly Report on Form 10-Q for the quarter ended June 30,         
                   1986 and incorporated herein by reference)                           

         (f)       Certificate   of  Amendment  of  Restated   Certificate   of         
                   Incorporation,  as amended filed April 22, 1987 (Filed as an         
                   Exhibit to the Company's 1987 Annual Report on Form 10-K and         
                   incorporated herein by reference)                                    

         (g)       Statement  of  Cancellation  filed  July  31,  1987  whereby         
                   155,000  shares of Series A Cumulative  Preferred  Stock and         
                   862,500 shares of $9.00 Convertible  Exchangeable  Preferred         
                   Stock were  cancelled  (Filed as an Exhibit to the Company's         
                   1987 Annual Report on Form 10-K and  incorporated  herein by         
                   reference)                                                           

         (h)       Statement of  Cancellation  filed  November 20, 1987 whereby         
                   1,026,900 shares of Series A Cumulative Preferred Stock were         
                   cancelled  (Filed as an Exhibit to the Company's 1987 Annual         
                   Report on Form 10-K and incorporated herein by reference)            

         (i)       Statement of  Cancellation  filed  December 18, 1987 whereby         
                   1,250,000   shares  of  Series  B   Cumulative   Convertible         
                   Preferred  Stock were cancelled  (Filed as an Exhibit to the         
                   Company's  1987 Annual Report on Form 10-K and  incorporated         
                   herein by reference)                                                 


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C2                                                                              
 ASARCO Incorporated
 EXHIBIT INDEX

                                                        · Enlarge/Download Table

Exhibit                                                                           Indexed
  No.                                                Description                  on Page
                                                                                         
          (j)       Statement of Cancellation filed March 3, 1988 whereby 27,000         
                    shares of Series A Cumulative Preferred Stock were cancelled         
                    (Filed as an Exhibit to the Company's  1987 Annual Report on         
                    Form 10-K and incorporated herein by reference)                      

          (k)       Certificate   of  Amendment  of  Restated   Certificate   of         
                    Incorporation, as amended, filed August 7, 1989 (Filed as an         
                    Exhibit to the Company's  Quarterly  Report on Form 10-Q for         
                    the quarter ended June 30, 1989 and  incorporated  herein by         
                    reference)                                                           

          (l)       By-Laws  as last  amended  on June  26,  1991  (Filed  as an         
                    Exhibit to the Company's 1991 Annual Report on Form 10-K and         
                    incorporated herein by reference.)                                   

4.       Instruments   defining  the  rights  of  security  holders,   including         
         indentures                                                                      

          (a)       There are currently various separate indentures,  agreements         
                    or similar  instruments under which long-term debt of Asarco         
                    is currently  outstanding.  The Registrant  hereby agrees to         
                    furnish to the  Commission,  upon request,  a copy of any of         
                    the  instruments  which  define  the  rights of  holders  of         
                    long-term   debt   securities.   None  of  the   outstanding         
                    instruments represent long-term debt securities in excess of         
                    10% of the total assets of Asarco as of December 31, 1997            

          (b)       Form of Rights Agreement dated as of July 26, 1989,  between         
                    the Company and First  Chicago Trust Company of New York, as         
                    Rights Agent,  defining the rights of  shareholders  under a         
                    July 1989 Shareholders' Rights plan and dividend declaration         
                    (Filed as an  Exhibit  to the  Company's  report on Form 8-K         
                    filed on July 28, 1989 and incorporated herein by reference)         

          (c)       Rights  Agreement  Amendment dated as of September 24, 1992,         
                    between the Company and The Bank of New York,  as  Successor         
                    Rights Agent under the Rights  Agreement listed above (Filed         
                    as an Exhibit to the  Company's  1992 Annual  Report on Form         
                    10-K and incorporated herein by reference)                           

          (d)       Second Rights  Agreement  Amendment dated as of February 23,         
                    1995, between the Company and The Bank of New York (Filed as         
                    an  Exhibit  to the  Company's  report  on Form 8-K filed on         
                    February 24, 1995, and incorporated herein by reference)             

          (e)       Form of  Rights  Agreement  dated as of  January  28,  1998,         
                    between  the  Company  and The Bank of New  York,  as Rights         
                    Agent,  defining the rights of shareholders' under a January         
                    1998  Stockholders'  Rights  plan and  dividend  declaration         
                    (filed  as an  Exhibit  to the  Company's  Form 8-K filed on         
                    March 2, 1998, and incorporated herein by reference)                 

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C3                                                                              
 ASARCO Incorporated
 EXHIBIT INDEX

                                                                · Download Table

Exhibit                                                                     Indexed
  No.                                          Description                  on Page
                                                                                   
         (f)  Indenture Agreement dated as of February 1, 1993 between the         
              Company and Bankers Trust Company, as Trustee,  covering the         
              issuance  of debt  securities  registered  by the Company in         
              April 1992,  not to exceed $250 million (Filed as an Exhibit         
              to the  Company's  1992  Annual  Report  on  form  10-K  and         
              incorporated herein by reference)                                    

         (g)  Indenture  agreement dated as of October 1, 1994 between the         
              Company and Chemical Bank, as Trustee  covering the issuance         
              of debt  securities  registered  by the  Company  in October         
              1994, not to exceed $300 million (Filed as an Exhibit to the         
              Company's  registration  statement  on  Form  S-3  filed  on         
              October 12, 1994, and incorporated herein by reference)              

10.           Material Contracts                                                   

         (a)  Stock  Option  Plan as last  amended on  November  30,  1994         
              (Filed as an Exhibit to the Company's  1994 Annual Report on         
              Form 10-K and incorporated herein by reference)                      

         (b)  Form of Amended  Employment  Agreement  dated  February  26,         
              1997,  between the Company and currently 12 of its executive         
              officers,   including  Messrs.   R.  de  J.  Osborne,   F.R.         
              McAllister,  K.R. Morano,  R.M. Novotny and A.B.  Kinsolving         
              (Filed as an Exhibit to the Company's  1996 Annual Report on         
              Form 10-K and incorporated herein by reference)                      

         (c)  Deferred Fee Plan for Directors,  as amended through January         
              28,  1998   C11-C15  (d)   Supplemental   Pension  Plan  for         
              Designated  Mid-Career Officers,  as amended through January         
              28, 1998 C16-C24                                                     

         (e)  Retirement  Plan  for  Non-Employee  Directors,  as  amended         
              through January 28, 1998.  Effective  December 31, 1995, the         
              Company   terminated   the  plan  for   current  and  future         
              directors.  C25-C30 (f)  Directors'  Stock  Award  Plan,  as         
              amended through January 27, 1993 (Filed as an Exhibit to the         
              Company's  1992 Annual Report on Form 10-K and  incorporated         
              herein by reference)                                                 

         (g)  Stock  Incentive Plan adopted by the Company's  Shareholders         
              on April 25,  1990,  as last  amended on  November  29, 1995         
              (Filed as an Exhibit to the Company's  1995 Annual Report on         
              Form 10-K and incorporated herein by reference)                      

         (h)  Director's Deferred Payment Plan, as amended through January         
              28, 1998 C31-C37 (i) Incentive  Compensation Plan for Senior         
              Officers,  effective  January 1, 1996 (Filed on Exhibit B to         
              the Company's 1996 Proxy  Statement  filed on March 12, 1996         
              and incorporated herein by reference)                                


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C4                                                                              
 ASARCO Incorporated
 EXHIBIT INDEX

                                                        · Enlarge/Download Table

Exhibit                                                                           Indexed
  No.                                                Description                  on Page
                                                                                         
          (j)       1996 Stock Incentive  Plan,  effective April 24, 1996 (Filed         
                    as an Exhibit to the  Company's  Registration  Statement  on         
                    Form S-8 filed on December 17, 1996, and incorporated herein         
                    by reference)                                                        

          (k)       Compensation  Deferral Plan as amended  through  January 28,         
                    1998 C38-C48 11.  Statement re  Computation  of Earnings Per         
                    Share C5                                                             

12.      Statement re Computation of Ratios C6                                           

21.      Subsidiaries of the Registrant C7-C10                                           

23.      Consent of  Independent  Accountants  is  included  on page A75 of this         
         Annual Report on Form 10-K.                                                     

Report on Form 11-K  relating  to the Savings  Plan for  Salaried  Employees  of
ASARCO Incorporated and Participating Subsidiaries is to be filed by amendment  
on Form 10-K/A.                                                                 

Copies of exhibits may be acquired upon written request to the Treasurer and the
payment of processing and mailing costs.                                        

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C5                                                                              

Exhibit 11 Statement re Computation of Earnings per Share                       

This calculation is submitted in accordance with regulation S-K item 601(b)(11).

Fully Diluted Earnings per Common Share                                         
(in thousands, except per share amounts)                                        

                                                        · Enlarge/Download Table

                                                                        For the years ended December 31,            

                                                                        1997             1996             1995      
                                                                                                                    
Net earnings (loss) applicable to common stock                         $143,392          $138,336        $169,153   
                                                                   =============== ================= ===============

Weighted average number of common shares outstanding                                                                
                                                                         41,903            42,711          42,326   
      Shares issuable from assumed excercise of Stock Options                                                       
                                                                             73                58             132   
                                                                   =============== ================= ===============
Weighted average number of common shares outstanding, as adjusted                                                   
                                                                         41,976            42,769          42,458   
                                                                   =============== ================= ===============

Diluted earnings per share:                                                                                         
    Net earnings (loss) applicable to common stock                        $3.42             $3.23           $3.98   
                                                                   =============== ================= ===============

Basic earnings per share:                                                                                           
    Net earnings (loss) applicable to common stock                        $3.42             $3.24           $4.00   
                                                                   =============== ================= ===============


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C6                                                                              

Exhibit 12 Statement re Computation of Consolidated Ratio of Earnings to Fixed  
Charges and Combined Fixed Charges and Preferred Share Dividend Requirements    
------------------------------------------------------------------------------  

                                                        · Enlarge/Download Table

                                      1997      1996          1995       1994       1993    
                                      ----      ----          ----       ----       ----    
                                                (Dollars in thousands)                      
                                                                                            
NET EARNINGS                         $143,392   $138,336     $169,153   $ 64,034   $ 15,619 
  Adjustments                                                                               
    Taxes on Income                    72,356     99,924      122,465      9,375    (36,503)
     Equity Earnings, Net of                                                                
          Taxes                        (7,706)    (3,837)      (1,837)   (47,653)   (27,384)
     Cumulative Effect of Change                                                            
       in Accounting Principle              -          -            -          -    (86,295)
     Dividends received from                                                                
       non-consolidated                                                                     
       companies                        5,209      4,047        1,828     14,301      1,676 
     Total Fixed Charges               84,972     83,553       99,516     66,377     64,359 
     Interest Capitalized              (5,515)    (2,839)      (3,256)      (869)    (4,010)
     Capitalized Interest Amortized     2,113      2,274        2,949      1,727      1,629 
     Minority interest                 90,605     88,331      129,543        809        693 
                                     --------   --------     --------   --------   -------- 
EARNINGS (LOSS)                      $385,426   $409,789     $520,361   $108,101   $(70,216)
                                     ========   ========     ========   ========   ======== 
FIXED CHARGES                                                                               
     Interest Expense                $ 74,247   $ 76,442     $ 91,954   $ 62,529   $ 57,321 
     Interest Capitalized               5,515      2,839        3,256        869      4,010 
     Imputed Interest Expense           5,210      4,272        4,306      2,979      3,028 
                                     --------   --------     --------   --------   -------- 
TOTAL FIXED CHARGES                  $ 84,972   $ 83,553     $ 99,516   $ 66,377   $ 64,359 
                                     ========   ========     ========   ========   ======== 
Ratio of Earnings to Fixed Charges       4.5         4.9          5.2        1.6        (a) 
                                     ========    ========     ========   ========   ========

(a)      For the year ended  1993  earnings  were  insufficient  to cover  fixed
charges by $134,575.                                          

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C7                                                                              

Item 14.     (c) Exhibit 21    Subsidiaries of the Registrant                   

                                                        · Enlarge/Download Table

                                                              Percentage of           
                                                            voting securities   Key to
                                                              owned or other    notes 
                                  Name of Company            bases of control   below 
                                                                                      
    PARENTS:  None                                                                    

    Registrant:  ASARCO Incorporated                                             (A)  

    SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES:                                      

1   Air Resources Corporation (Delaware)                  100.0                  (A)  
2   Alta Mining and Development Company (Utah)             62.4                  (C)  
3   American Limestone Company, Inc. (Delaware)           100.0                  (A)  
4   American Smelting and Refining Company (New Jersey)   100.0                  (C)  
5   AR Mexican Explorations Inc. (Delaware)               100.0                  (A)  
6      Minera San Bernardo, S.A. de C.V. (Mexico)             100.0              (A)  
7   AR Mexican Holdings, Inc. (Delaware)                  100.0                  (A)  
8      AR Specialty Chemicals, S. A. de C.V. (Mexico)         100.0              (A)  
9        Enthone-OMI de Mexico S.A. de C.V. (Mexico)               100.0         (A)  
10         Rafco Kemicals S.A. de C.V. (Mexico) (See 41)                17.0     (B)  
11  AR Silver Bell, Inc. (Delaware)                       100.0                  (A)  
12     Silver Bell Mining, L.L.C. (Delaware)                   75.0              (A)  
13  AR Montana Corporation (Delaware)                     100.0                  (A)  
14  Asarco Arizona, Inc. (Delaware)                       100.0                  (A)  
15  Asarco (Delaware) Incorporated (Delaware)             100.0                  (C)  
16  Asarco Exploration Company, Inc. (New York)           100.0                  (A)  
17     ASARCO Guyane Francaise S.A.R.L.                   100.0                  (A)  
18     Empresa Minera Manquiri S.R.L. (Bolivia) (See 94)   50.0                  (A)  
19  Asarco Exploration Company of Canada, Limited                                     
      (Canada)                                            100.0                  (A)  
20  Asarco Finance Limited (Bermuda)                      100.0                  (C)  
21  Asarco International Corporation (Delaware)           100.0                  (A)  
22  Asarco International Corp. FSC (Virgin Islands)       100.0                  (A)  
23  Asarco de Mexico (Delaware) Inc.                      100.0                  (C)  
24  Asarco Oil and Gas Company, Inc. (New York)           100.0                  (A)  
25  Asarco Peruvian Exploration Company (Delaware)        100.0                  (A)  
26  ASARCO Santa Cruz, Inc. (Delaware)                    100.0                  (A)  
27     Covington Land Company (Delaware)                      100.0              (A)  
28     CP Water Company (Arizona)                             100.0              (A)  
29  Asarco Trans-Ural Company (Delaware)                  100.0                  (C)  
30     Asarco Aginskoe, Inc. (Delaware)                       100.0              (C)  
31  BioTrace Laboratories, Incorporated (Utah)            100.0                  (C)  
32  Bridgeview Management Company, Inc. (New Jersey)      100.0                  (A)  
33  Compania Minera Asarco, S.A. (Chile)                  100.0                  (A)  
34  Copper Basin Railway, Inc. (Delaware)                  45.0                (B) (D)
35  Domestic Realty Company, Inc. (Montana)               100.0                  (A)  
36  Encycle, Inc. (Delaware)                              100.0                  (A)  
37     Hydrometrics, Inc. (Delaware)                          100.0              (A)  
38     Encycle/Texas, Inc. (Delaware)                         100.0              (A)  
39  Enthone, Incorporated (New York)                      100.0                  (A)  
40     Meltex, Inc. (Japan)                                    16.25           (B) (D)
41       Enthone-OMI (Singapore) Pte. Ltd. (Singapore)               1.6         (A)  
       (See 81)                                                                       
42     Rafco Kemicals, S.A. de C.V. (Mexico) (See 10)          34.0              (C)  
43  Enthone-OMI, Inc. (Delaware)                          100.0                  (A)  

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C8                                                                              

Form 10-K                                                                       

Item 14.    (c) Exhibit 21    Subsidiaries of the Registrant                    

                                                        · Enlarge/Download Table

                                                             Percentage of           
                                                           voting securities   Key to
                                                             owned or other    notes 
                                  Name of Company           bases of control   below 
                                                                                     

    SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES, cont'd:                             

44    Ebara-Udylite Co., Ltd. (Japan)                         45.0            (B) (D)
45    Electroplating Engineers of Japan Ltd. (Japan)          25.0            (B) (D)
     (See 72)                                                                        
46       Electroplating Engineers S.A. (Switzerland)               24.0       (B) (D)
        (see 48)                                                                     
47     Enthone-OMI (Australia) Pty. Ltd. (Victoria,          100.0              (A)  
         Australia)                                                                  
48     Enthone-OMI (Benelux) B.V. (The Netherlands)          100.0              (A)  
49       Electroplating Engineers S.A. (Switzerland)               20.0       (B) (D)
        (see 45)                                                                     
50       Enthone-OMI (France) S.A. (France) (See 53)               28.5         (A)  
51     Enthone-OMI (Canada) Inc. (Ontario, Canada)           100.0              (A)  
52     Enthone-OMI (Deutschland)GmbH (Germany)               100.0              (A)  
53      IMASA B.V. (The Netherlands)                         100.0              (A)  
54     Enthone-OMI (France) S.A. (France) (See 49)            71.5              (A)  
55     Enthone-OMI Holdings (U.K.) Ltd. (United           82.41                 (A)  
      Kingdom) (see 67)                                                              
56       AMZA Ltd. (Israel)                                        33.3       (B) (D)
57       Enthone-OMI (U.K.) Limited (United Kingdom)         100.0              (A)  
58       L.P.W. Chemie GmbH (Germany)                              49.0       (B) (D)
59         Blasberg Oberflaechentechnik GmbH (Germany)                100.0     (A)  
60         Galvano Production Chemie GmbH (Germany)                   100.0     (A)  
61         Nihon LPW K.K. (Japan)                                      40.0     (B)  
62     Enthone-OMI (Hong Kong) Company Limited (Hong           5.5              (A)  
      Kong) (See 78)                                                                 
63     Enthone-OMI (Italia) S.p.A. (Italy) (See 68)           51.6              (A)  
64     Enthone-OMI K.K. (Japan)                              100.0              (A)  
65     Enthone-OMI (Sverige) A.B. (Sweden)                   100.0              (A)  
66         IMASA Kemi A.B. (Sweden)                          100.0              (A)  
67     Enthone-OMI Holdings (Europe) S.A. (France)           100.0              (A)  
68      Enthone-OMI Holdings (U.K.) Ltd. (United                17.59           (A)  
        Kingdom) (See 54)                                                            
69       Enthone-OMI (Italia) S.p.A. (Italy) (See 62)              48.4         (A)  
70       Imasa A.G. (Switzerland)                                  40.0       (B) (D)
71       Internacional de Manufacturas Asociadas, S.A.            100.0         (A)  
        (Spain)                                                                      
72     OMI Holding S.A. (Switzerland)                        100.0              (A)  
73       Electroplating Engineers of Japan Ltd. (Japan)            25.0       (B) (D)
        (See 44)                                                                     
74       Enthone-OMI (Suisse) S.A. (Switzerland)                  100.0         (A)  
75     OMI International Corporation (Delaware)              100.0              (A)  
76       Enthone-OMI (Austria) GmbH (Austria)                     100.0         (A)  
77       Enthone-OMI (Espana) S.A. (Spain)                        100.0         (A)  

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C9                                                                              

Form 10-K                                                                       

Item 14.    (c) Exhibit 21    Subsidiaries of the Registrant                    

                                                        · Enlarge/Download Table

                                                               Percentage of           
                                                             voting securities   Key to
                                                               owned or other    notes 
                                  Name of Company             bases of control   below 

     SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES, cont'd:                              

                                                                                       
78        Enthone-OMI (Europe) Corporation (Delaware)               100.0           (A)
79        Enthone-OMI (Hong Kong) Company Limited (Hong              94.5           (A)
        Kong) (See 61)                                                                 
80          Hua-Mei Electroplating Technology Company Ltd.               51.0   (B) (D)
          (People's Rep.of China)                                                      
81          Hua-Mei (Tianjin) Electroplating Technology                  51.0   (B) (D)
             Company, Ltd.                                                             
82        Enthone-OMI (Singapore) Pte. Ltd. (Singapore)              98.4         (A)  
          (See 40)                                                                     
83          Enthone-OMI (Malaysia) SDN BHD (Malaysia)                   100.0     (A)  
84   Federated Metals Canada Limited (Canada)              100.0                  (A)  
85      Federated Genco Limited (Canada)                        60.0            (B) (D)
86   Federated Metals Corporation (New York)               100.0                  (A)  
87      LSLC Corp. (New York).                                 100.0              (C)  
88   Geominerals Insurance Company, Ltd. (Bermuda)         100.0                  (A)  
89   Grupo Mexico, S.A. de C.V. (Mexico)                     8.17               (B) (F)
90   Lac d'Amiante du Quebec, Ltee (Delaware)              100.0                  (A)  
91      LAQ Canada, Ltd. (Delaware)                                 100.0         (A)  
92   Mines Trading Company Limited (United Kingdom)        100.0                  (C)  
93   Mining Development Company (Delaware)                 100.0                  (A)  
94      Empresa Minera Manquiri S.R.L. (Bolivia) (See 18)   50.0                  (A)  
95   Minto Explorations Ltd. (British Columbia)             55.77                 (A)  
96   Mission Exploration Company (Delaware)                100.0                  (A)  
97        Lesarco, Inc. (Phillipines)                           30.0              (A)  
98   NCBR, Inc. (Delaware)                                 100.0                  (A)  
99   Neptune Mining Company (Delaware)                      52.2                (B) (D)
100  Northern Peru Mining Corporation (Delaware)           100.0                  (A)  
101  Silver Valley Resources Corporation (Delaware)         50.0                  (A)  
102  Southern Peru Copper Corporation (Delaware)            62.6                (A) (E)
103       Southern Peru Limited (Delaware)                 100.0                  (A)  
104         Fomenta, S.A. (Peru)                                99.50             (A)  
105           Pegasus Travels, S.A. (Peru)                           90.0         (A)  
106         Logistics Services Incorporated (Delaware)         100.0              (A)  
107           LSI-Peru, S.A. (Peru)                                  98.18        (A)  
108         Global Natural Resources Inc. (Delaware)           100.0              (C)  
109         Multimines Corporation (Delaware)                  100.0              (B)  
110         Multimines Insurance Company, Ltd. (Bermuda)       100.0              (A)  
111         Recursos e Inversiones Andinas, S.A. (Peru)         99.99             (A)  
112           Compania Minera Los Tolmos, S.A. (Peru)                98.05        (B)  
113  The International Metal Company (New York)            100.0                  (A)  
114  Tulipan Company, Inc. (Delaware)                       63.0                  (B)  


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C10                                                                             

Form 10-K                                                                       

 NOTES

(A) Included in financial statements of Registrant and consolidated subsidiaries
at December 31, 1997, filed as part of this Form 10-K.                          

(B)  Excluded  from  financial   statements  of  Registrant   and   consolidated
subsidiaries  filed as part of this Form  10-K,  except to the  extent  noted in
Notes  D,  E and  F.  These  companies  are  not  in  the  aggregate  considered
significant.                                                                    

(C) Inactive, having no assets or liabilities.                                  

(D)  Carried on the  equity  method.  None of the  50%-or-less  owned  companies
constitutes a significant subsidiary.                                           

(E) Effective January 1, 1995, Asarco consolidated the financial results of SPCC
in its financial statements. Previously, SPCC was accounted for under the equity
method.                                                                         

(F) Grupo Mexico is carried on the cost method.                                 

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C11                                                                             
 ASARCO INCORPORATED

 DEFERRED FEE PLAN FOR DIRECTORS
 As Last Amended on January 28, 1998

Section 1.    Effective Date. The effective date of the ASARCO Incorporated 
                Deferred  Fee Plan For  Directors  (the  "Plan"),  is January 1,
1982.                                           

Section 2.    Eligibility.   Any  Director  of  ASARCO  Incorporated  (the  
  "Company") is eligible to participate in the Plan.

Section 3.    Deferred   Compensation  Account.  A  deferred  compensation  
                account  shall be  established  for each  Director who elects to
                participate in the Plan. Each Director's  deferred  compensation
                account  shall  consist  of  a  cash   subaccount  and  a  stock
subaccount.                                     

Section 4.    Amount of Deferral.  A participant may elect to defer receipt 
                of  all  or  one-half  of  the   compensation   payable  to  the
                participant  for serving on the Board of Directors or committees
                of the Board of Directors of the Company. An amount equal to the
                compensation  deferred  will be  credited  to the  participant's
                deferred  compensation  account on the date such compensation is
otherwise payable.                              

Section 5.    Time of Election  of  Deferral.  The first  election to defer 
                compensation   received   during  the  calendar  year,  and  any
                subsequent  election modifying the prior election as provided in
                Section 10,  shall be effective  when made and,  with respect to
                the  percentage of  compensation  deferred,  shall only apply to
                compensation  not then  earned.  An  election,  as  subsequently
                modified,  shall continue in force with respect to  compensation
                earned  during such  calendar year until the Company is notified
                in  writing  that the  participant  no  longer  wishes  to defer
           compensation for future services on the Board of Directors.

Section 6.    Cash Subaccount.  Any compensation which a director elects to 
                defer pursuant to this Plan shall be credited to such Director's
                cash subaccount  unless such Director elects in writing that all
                or  a  portion  of  such  deferral  be  credited  to  his  stock
                subaccount  in  accordance  with  Section 7 of this  Plan.  Each
                deferred  compensation  cash  subaccount  will be credited  with
                interest  from  the date on which  deferred  compensation  would
                normally have been paid,  until payment,  at a rate equal to the
                prime rate of The Chase  Manhattan Bank (National  Association),
                on the first day of each calendar quarter in which such interest
                is  credited to the  participant's  deferred  compensation  cash
   subaccount. Interest shall be compounded quarterly.

Section 7.    Stock Election. A Director may elect in writing that all or a 
                portion,  in  increments  of  25%,  of  the  compensation  he is
                deferring  pursuant  to the Plan for any year be credited to his
                deferred  compensation  stock subaccount in lieu of his deferred
compensation cash subaccount.                   

        An  election by a Director  to have an amount  credited to his  deferred
compensation stock subaccount must be received by the Company prior to January 1
of the calendar  year during which the election is to be effective  and shall be
irrevocable  for the  entire  year.  Such  election  shall  remain in effect for
subsequent  years unless  changed prior to the January 1 of any such  subsequent
year. Notwithstanding the foregoing, however, any such election which is to take
effect in 1988 must be received by the Company  prior to April 1, 1988 and shall
be effective only for compensation earned on and after that date.               

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C12                                                                             

        A  bookkeeping  entry  shall be made of the  number  of whole  shares of
Company  common  stock which could be  purchased  at fair market  value with the
compensation  credited to such stock  subaccount on the day such amount normally
would have been paid to the Director.                                           

        The stock  subaccount  also shall be credited with a  bookkeeping  entry
indicating  the number of  additional  whole  shares which would be payable as a
stock dividend on the shares previously credited to the stock subaccount.       

        Any deferred  compensation  amounts which are insufficient to permit the
crediting of a whole share of Company  common stock and any amounts  which would
represent cash dividends on Company common stock credited to a stock  subaccount
shall be carried as a cash balance  bookkeeping  entry in such stock subaccount.
At such time as the cash  balance  equals at least the fair market  value of one
share of Company  common  stock,  the cash  balance  bookkeeping  entry shall be
converted  to an entry  representing  the number of  additional  whole shares of
Company  common  stock which could be  purchased  at fair market value with such
balance.  No  interest  shall be  credited  on any such  stock  subaccount  cash
balance.                                                                        

        For  purposes  of this  Section  7,  "fair  market  value" of a share of
Company common stock shall mean the average of the of the high and low prices of
a single share of Company  common  stock as reported by the Wall Street  Journal
for New York  Stock  Exchange-Composite  Trading  as of the  first  trading  day
coincident  with or next  following  the day as of  which  such  value  is to be
determined.                                                                     

        No  election  may be made  to  have  amounts  previously  credited  to a
Director's  deferred  compensation cash subaccount credited instead to his stock
subaccount, and no election may be made to have amounts previously credited to a
Director's stock subaccount credited instead to a cash subaccount.              

Section 8.     Value of Deferred  Compensation  Accounts.  The value of each  
                participant's  deferred  compensation  account shall include the
                compensation deferred pursuant to Section 4 which is credited to
                a Director's deferred compensation cash subaccount, the interest
                credited on such  compensation  pursuant to Section 6, the value
                of any shares of Company common stock credited to the Director's
                deferred  compensation  stock  subaccount  and the cash  balance
                credited to such stock subaccount,  less any payments m