GRUPO MÉXICO S.A.B. DE C.V.

EDIFICIO PARQUE REFORMA

CAMPOS ELÍSEOS 400 COL. LOMAS DE CHAPULTEPEC C.P. 11560 MÉXICO, D.F. TEL.: 52 (55) 1103.5000

www.gmexico.com.mx

unlimited ‘09‘09‘09 results Annual Report CONTENTS

Highlights 02 Letter to Investors 05 Sales 12 Mining Division 18 Copper 20 Molybdenum 29 Zinc 30 Precious Metals 34 Investments, Projects and Explorations 44 Environmental Actions 62 Community Responsibility 68 Health and Safety 74 Mines by Geographic Location 76 Transportation Division 80 Principal Routes by Geographic Location 90 Infrastructure Division 96 Grupo México Foundation 100 Financial Analysis and Discussion 112 Corporate Structure 140 Board of Directors 149 Highlights

2006 2007 2008 2009 Real Var. % 2006 2007 2008 2009 Real Var. % Sales Volumes * 2009 / 2008 Stock Information ** 2009 / 2008 Copper (tons) 632,873 603,530 505,540 514,946 2 Total Shares Outstanding (thousands) 2,576,863 2,571,449 7,610,000 7,785,000 2 Zinc (tons) 127,496 114,200 100,318 104,103 4 EBITDA per Share 0.47 0.52 0.38 0.28 (26) Silver (ounces) 19,792,863 18,130,220 14,999,735 18,474,000 23 Cash Flow per Share 0.31 0.36 0.24 0.21 (13) Gold (ounces) 55,749 48,290 47,229 63,491 34 Earnings per Share 0.20 0.21 0.14 0.12 (14) Molybdenum (tons) 11,753 16,304 16,510 18,590 13 Book Value 0.51 0.60 0.55 0.65 18

Average Price (dollars) Financial Ratios Copper (COMEX) (pound) 3.09 3.22 3.13 2.35 (25) Operating Margin 52% 52% 41% 36% (12) Zinc (LME) (pound) 1.49 1.47 0.85 0.75 (12) Operating Margin plus Depreciation 57% 58% 48% 44% (8) Silver (COMEX) (pound) 11.54 13.39 14.97 14.67 (2) Current Assets to Current Liabilities (times) 2.9 3.1 2,8 2.7 (4) Gold (LF) (ounce) 604.04 697.35 870.95 973.44 12 Total Liabilities to Total Assets 40% 37% 36% 47% 31 Molybdenum (MW DEALER OXIDE) (pound) 24.38 29.91 28.42 10.91 (62) Debt / Capital + Debt 34% 31% 28% 40% 43 EBITDA / Interests (times) 22.74 23.23 17.56 16,01 (9) Railroad Division Statistics Tons transported (thousands of tons) 47,777 47,571 48,217 46,556 (3) Employees 18,931 19,061 18,928 23,002 22 Net ton-kilometers (millions) 39,087 40,458 40,186 39,205 (2) Cars loaded (thousands of units) 734.5 719.5 730.2 688.0 (6) Annual Inflation Mexico 4% 4% 7% 4% (43) Balance Sheet (millions of dollars) United States 3% 4% 0% 3% 100 Current Assets 3,687 4,271 3,068 4,405 44 Peru 1% 4% 7% 0% (100) Fixed Assets 4,518 4,734 4,862 6,655 37 Total Assets 8,916 9,745 8,788 12,462 42 Exchange Rate at Year End Bank Debt 2,067 2,067 1,688 3,418 102 Mexico (peso/dollar) 10.88 10.87 13.54 13.06 (4) Total Liabilities 3,603 3,632 3,160 5,888 86 Peru (peso/dollar) 3.20 3.00 3.14 2.89 (8) Equity Capital 3,967 4,660 4,319 5,089 18 Average Exchange Rate Earnings (millions of dollars) Mexico (peso/dollar) 10.90 10.93 11.14 13.51 21 Total Sales 6,359 7,078 6,033 4,827 (20) Peru (peso/dollar) 3.28 3.13 2.93 3.01 3 Cost of Sale 2,593 2,791 2,958 2,564 (13) Operating Profit plus Depreciation (EBITDA) 3,628 4,078 2,897 2,126 (27) Net Profit 1,530 1,631 1,076 888 (17)

Cash Flow (millions of dollars) From Operations 2,158 2,683 2,082 1,394 (33) Applied to Financing Activities (499) (1,472) (2,197) 985 (145) Expressed according to US GAAP Total Cash Flow 1,659 1,211 (115) 2,379 2,432 Allocated to Investments (968) (513) (785) (2,801) 248 * Throughout this report, all tons are metric and all ounces are troy.

Cash Flow after Investments 691 698 (900) (422) (53) ** Referring to 7,785,000,000 shares.

02 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 03 LETTER TO INVESTORS

For Grupo México, 2009 was a year of challenges while at the same time a year of encourage- ment and hope. We were particularly hard hit by the global financial crisis in the last quarter of 2008 and the first quarter of 2009. This difficult circumstance was experienced by the world's economy with few exceptions, notably China. But we also observed a gradual but confident re- covery in copper prices, after falling over 60% on the international markets. By year end, copper was being quoted at over US$3.00 per pound, giving a year average of US$2.35 per pound, only 25% lower than its price in 2008.

The company also experienced terrible times on the markets and with analysts due to the chal- lenge of the Asarco situation. There were times when Southern Copper Corporation and Grupo México shares were discounted at 60%. However by year end, Grupo México has taken full control of Asarco, adding close to 200,000 tons of copper to its annual production.

Improved prices and resolved risks encouraged the company to now also see a clear and favor- able solution to the problems at Cananea, the largest copper mine in Mexico. The labor courts approved the termination of labor relations at this important reserve.

Also, our railroad companies were successful with the points to a broad agreement between the various railroad companies that will generate more competition, greater clarity, and more investment, and thus greater value for Grupo México.

2009, without doubt, was a year of contrast, but with a very attractive outcome for investors who have found the company to be a quality investment. We have good reason to expect good things in 2010, despite ongoing global efforts to emerge from one of the world's most serious Aerial view. Toquepala, Peru economic crisis.

04 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 05 In 2009, Grupo México's total sales were US$4.827 billion, 20% lower than 2008, which The Company reported an operating flow, EBITDA, of US$2.126 billion, 27% lower than 2008, reported sales at US$6.033 billion. The reduced revenues reflect the financial crisis and placing the EBITDA margin at 44% in 2009 with net earnings of US$887 million, 17% lower lower demands for metals and transportation services and the growth expectations of the than the US$1.076 billion reported for 2008. During 2009, Grupo México paid out a total equal global economy. to US$478 million in dividends.

On the whole, the evolution of the metals prices towards the end of 2009 and the fore- As of December 31, 2009 the total consolidated debt of Grupo México was US$3.4181 billion, cast for 2010, lead us to believe that the market is still demanding with relatively strong which on deducting a cash and cash equivalent balance of US$1.3583 billion represents a net prices at close to $3.00 per pound, average. The company's railroads experienced a 15% debt of US$2.0598 billion and despite the increased debt related to the ASARCO reincorpora- drop in sales, while the contribution of the Transportation and Infrastructure divisions to tion, US$1.5 billion, Grupo México maintains a reasonable long term amortization schedule. total revenues was 21% with the mining division representing the remaining 79% of the During 2009, Grupo México and its subsidiaries maintained their investment grade credit total Grupo México revenues. The outlook of a growth of over 4% in Mexico and even ratings due to due to their low debt profile, strong liquidity position, and a manageable amor- greater in Peru and the US is encouraging for improved metals prices and demand for tization schedule. services in 2010. The most important aspects in the Mining Division for 2009 were the consolidation of ASARCO Cost reductions improved the Company's results in 2009, adding to this a brief reduction into the company and improved company operations that surpassed production goals. in the price of inputs such as electricity, diesel, and steel. The total cost of sale was 13% lower in 2009, US$2.564 billion compared to US$2.958 billion in 2008. The companies On December 9, Grupo México contributed US$705 million from its cash and secured fi- of Grupo México are more productive and more efficient. nancing for US$1.500 billion to capitalize Asarco with US$2.205 billion. In addition, Asarco contributed US$1.357 billion from its cash to make a total payment to creditors for US$3.562 Grupo México's consolidated investment program as of December 31, 2009 was 19.1% billion. Additionally, Asarco issued a note to its asbestos creditors for US$280 million. This than 2008, investing US$624 million compared to the US$746 million invested in 2008, investment releases Asarco from all legal contingencies settling all claims brought during of which US$441 million was allocated to the Mining Division and US$183 million to the the Chapter 11 process, including environmental liabilities, asbestos-related claims, and Transportation and Infrastructure Divisions. financial liabilities.

06 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 07 Regarding efficiency, compared to 2007 the Company produced 1.5% more copper, 14% more The operating cost, including labor, materials, indirect expenses, and car hire lowered 12%, molybdenum, 3.3% more zinc, 8.2% more silver, and 1% more gold. As of December 31, the from US$693 million reported in 2008 to US$607 million in 2009. incorporation of ASARCO included an additional 10,000 tons of copper to the total produced by Grupo México. Ferromex has maintained its investment rhythm. In 2009, US$123.7 million were invested for a cumulative of US$1.6338 billion invested from 1998 to 2009. These investments were made With the reconsolidation of ASARCO, Inc. into the company's production, we also now in- principally in track, track machinery, telecommunications equipment, and also investments in corporate Asarco's reserves into those of our mining companies. As of December 31, 2009 yards and terminals, with which Ferromex continues with its investment program, which has Grupo México's reserves totaled 74 million tons of copper content, the largest in the world. resulted in increased train speed and improved operating safety and efficiency. This fact, more than any other, allows us to undertake an ambitious expansion program with our own reserves but we are also in an excellent position should opportunities present for In February 2010, a pro-competition agreement was signed between Ferrosur and KCSM ex- acquisitions or mergers that would significantly increase the value of the company for its tending KCSM's access to the states of Puebla, Tlaxcala, and Veracruz. In exchange, KCSM has stockholders. withdrawn its objections to the concentration of Ferrosur by ITM.

Referring to the Transportation and Infrastructure Divisions, the drop in demand due to The financial information for Ferrosur is presented under the participation method therefore it global financial weakness was clearly felt. Ferromex reported revenues of $914 million, 15% is not consolidated with Grupo México. Ferrosur's cumulative sales for 2009 were US$223.4 lower than 2008, with an average run of 842.1 kilometers, resulting in a total of 39.205 billion million, 10.4% lower than the US$249.3 million reported for 2008. The volume transported in net tons-kilometer, 2.4% below 2008. The automotive and cement sectors headed this reduction 2009 increased 2.0%, moving 6.833 billion net tons-kilometer compared to 6.693 billion net in freight transportation. tons-kilometer in 2008. The cumulative EBITDA as of December 31, 2009 was US$62.1 million, compared to US$64.4 million for 2008. Net earnings were US$18.5 million in 2009, 27.3% The operating profit was 25% lower, reporting US$191 million for 2009. EBITDA as of Decem- below that reached in 2008. Ferrosur's debt as of December 31, 2009 was US$146.9 million, ber 31, 2009 was US$276.4 million, 21.1% below 2008, placing the EBITDA margin at 30.2% which on deducting a cash and cash equivalent balance of US$59.4 million, represents a net in terms of sales. Net earnings dropped from US$160.7 million in 2008 to US$142.1 million in debt of US$87.5 million. 2009, a decrease of 12%.

08 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 09 Revenues from services for México Compañía Constructora during 2009 reached $23.4 The companies of Grupo México have invested US$52 million in equipment, training, and envi- million. At the end of 2008, MCC was awarded a tender by the CFE (power company) for the ronmental operations. We have promoted 776 actions of social wellbeing and projects that have construction of two deviation tunnels on the Grijalva River, worth $569.4 million pesos, which in the great impact on the community, representing an investment of close to US$19.5 million. Note- future will help prevent natural disasters in the region. Work began January 9, 2009 and is expected worthy are San Luis Potosí with an investment of US$6.8 million in a Wastewater Treatment Plant to by September 15, 2010. As of December 31, the project reported an advance of 47%, on schedule. and Participemos por Cananea, a social program that supported 36 infrastructure projects in 2009 to improve schools and facilities, among others, and 57 social development projects benefiting Anticipating the imminent recovery of the global petrochemical industry and increased demand for young adults, children, women providers, the physically challenged, the elderly, and other groups oil drilling and extraction services and equipment, Grupo México finalized its purchase of PEMSA in Mexico. In Peru, a modern Hospital and Hospice were inaugurated in Huanuara, in the province for US$240 million. This acquisition is aligned with our strategy to increase participation in the of Candarave, Tacna, representing an investment of US$450,000. infrastructure sector.

Grupo México has once again met its commitment to its investors and the communities and countries In addition, the transaction will generate synergies with the current range of construction and en- where it operates and is making advances in its strategic goals to position itself as a global leader in gineering services the Company offers. PEMSA has been serving Pemex for over 49 years and copper production, infrastructure expansion, and freight transportation. has drilling platforms for both land and sea. Additionally, PEMSA provides value added services in the industry, such as cementation, engineering, and directional or slant drilling. The company also drills water wells for the mining industry in Mexico. In 2009, PEMSA revenues were reported at $90.9 million, with EBITDA at US$30.2 million and net earnings of US$15.3 million.

A constant in the day to day work of the companies of Grupo México is that our production activi- ties be accompanied by a clear commitment to the environment and to safety. Our companies have Germán Larrea Mota Velasco proven their broad social responsibility to their neighbor communities. Chairman of the Board

10 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 11 Efforts Results

13% cost reduction

The company now produces more at lower costs in the mining sector.

12 \ Annual Report 2009 \ Grupo México Sales

Consolidated net sales for Grupo México reached US$4.827 billion in 2009, compared ered as the year went on. Therefore sales also decreased, 15%, due to the lower to the over US$6.033 billion reported for 2008. The financial crisis experienced dur- freight volumes and a slightly lesser drop in the cost of sale of 13%. The railroad ing the third and fourth quarters of 2008 is accentuated in the first quarter of 2009. contributed 19% to the total sales of Grupo México. Average copper prices in the first quarter of 2009 were US$1.55 per pound and ended the year averaging at US$3.00 per pound during the last quarter. The average It is important to mention that company sales have a promising outlook for 2010 copper price for the year was US$2.35 per pound, 25% lower than 2008. This prin- and 2011 because of improved prices and production. Prices are still subject to cipally explained by the drop in sales. the same pressures of demand and difficulties of offering. China's urbanization process, the largest demand of the Asian economies, and a gradual recovery of the The sales figures do not express, however, important aspects in the efficiency of US economy show a market with high demand. The natural and social difficulties the company. For example, production increased for copper (2%), molybdenum the world's largest copper producers experience do not offer flexibility to adjust to (13%), zinc (4%), silver (23%), and gold (34%) and also the cost of sale was 13% this demand. Most copper market analysts concur with this opinion. below that for 2008. The company is therefore producing more at lower costs in the mining sector. Meanwhile, railroad sales also show signs of recovery due to the anticipated growth of l e f t the Mexican economy. In 2009, Mexico's GDP fell 6.8% though the Domestic Product Economy Class Chepe Train. In terms of railroad transportation, freight volumes decreased 2.4% due to a fall of r i g h t is expected to grow 4% in 2010. This projection leads us to believe that it is feasible Tunnel construction on the over 15% during the first quarter of 2009 though a portion of this loss was recov- Grijalva River, Chiapas. that freight and sales will improve during the course of the year.

14 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 15 Total Sales Sales (millions of dollars)

Product Volume in tons Thousands of dollars 8,000 2008 2009 Var.% 2008 2009 Var.% 7,078 7,000 6,359 6,033 6,000 Copper 505,540 514,946 2 3,263,477 2,699,279 (17) 5,189

5,000 4,827 Zinc 100,318 104,103 4 196,383 175,923 (10) 4,000 Silver (ounces) 14,999,735 18,474,000 23 207,557 281,220 35 3,000

2,000 Molybdenum 16,510 18,590 13 798,070 436,673 (45)

1,000 Gold (ounces) 47,229 63,491 34 40,306 62,128 54 0 Lead 20,229 21,303 5 43,375 34,338 (21) 05 06 07 08 09 Sulfuric Acid 1,502,000 1,551,785 3 172,239 78,366 (55)

Other Products 216,882 146,504 (32)

Cars Loaded (thousands of units) 730.2 688.0 (6) 1,095,185 912,913 (17)

Total Sales $ 6,033,474 $ 4,827,344 (20)

PARTICIPATION IN SALES BY PRODUCT Participation in Sales by Region

08 09 08 09

b.c. d. b. c. b. b.

e. d. c. c.

f. a. a. g. e. d. a. a. f. d. h. g. h. i. i. e. e.

a. 55% Copper a. 56% Copper a. 37% Mexico a. 39% Mexico b. 1% Gold b. 3% Zinc b. 17% Latin America b. 18% Europe c. 2% Others c. 1% Lead c. 18% Europe c. 7% Asia d. 3% Silver d. 19% Transportation Service d. 4% Asia d. 13% Latin America e. 18% Transportation Service e. 1% Gold e. 24% United States e. 23 % United States f. 1% Lead f. 6% Silver g. 3% Sulfuric Acid g. 2% Sulfuric Acid h. 14% Molybdenum h. 9% Molybdenum i. 3% Zinc i. 3% Others

16 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 17 Efforts Results

0.36 dollars per pound

SCC's cash costs were 0.36 per pound.

In 2009, Grupo México's production of molybdenum equals practically 10% of the world's production of molybdenum.

SCC has the largest copper reserves in the world (55.4 million tons).

18 \ Annual Report 2009 \ Grupo México MINING DIVISION SOUTHERN COPPER CORPORATION (SCC)

Southern Copper Corporation and Asarco LLC are the mining companies of Grupo México. Southern has operations in Mexico and Peru, and field explorations in Chile. SCC consolidates the results for the mining operations. In 2009, SCC repre- sents 81% of the sales of Grupo México. The remaining 19% is contributed by the Transportation and Infrastructure Divisions. Asarco has operations in Arizona and Texas, operating three mines, one smelting plant, and one refinery.

Copper

Copper represented 55% of SCC's revenues in 2009 and was sold on the four ma- jor markets: US(24%), EU (18%), Mexico (37%), and Latin America (17%), which posted a drop in the case of the US and a significant increase in Mexican sales, reflecting the impact of the financial crisis in the US market.

Consolidated copper production was 496,000 tons in 2009, which compared to the 488,929 tons produced in 2008 represents an increase of 1.45%, due prin- cipally to the return of Asarco to the operations of Grupo México. Copper sales Leaching cathodes. decreased 17.31%, from US$3.264 billion in 2008 to US$2.699 billion in 2009, Toquepala, Peru

20 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 21 principally as a result of the drop in average copper prices, which were 26% lower We believe the investor community sees SCC as a copper company and it is valued, than in 2008 and weaker grades. largely, by the vision held by the copper market investment community and our capacity to produce copper at a reasonable cost. We also include premiums on Smelter production was very similar to that of 2008, but reported cost reductions of copper sales as a credit, as these amounts are higher than the published copper close to 25%. In terms of refineries, SCC reported a slight decrease compared to prices. However, the rise that molybdenum prices have experienced over the past 2008, 2%, but costs were 18% lower than the previous year. few years, just as silver and zinc prices have increased, has had a significant effect on our traditional calculation of the cash cost and the possibility of comparing these Cash Cost period to period. An indicator we use, and which is common practice in the mine industry, to mea- sure performance is the cash cost per pound of copper produced. Our cash cost is Our cash cost does not include depreciation, amortization, or depletion, as these are a measure that is not found in the GAAP as it has no standardized significance and considered non-monetary costs. Exploration is considered a discretionary cost and cannot be compared with similar measures provided by other companies. We have is also excluded. The provisions for employee profit sharing are computed based on defined our per pound cash cost as the cost of sale (exclusive of depreciation, earnings before taxes and are also excluded. The cash cost does also not include amortization, and depletion); plus administrative expenses, charges for treatment non-recurring entries or Peruvian royalties. and refining, less revenues from byproducts and sales premiums, divided by the total pounds of copper produced and purchased by us. In our calculation of the SCC continued to reduce its cash cost, from US$163.3 per pound of copper (before cash cost per pound of copper produced we credit revenues from the sale of by- byproducts) in 2008 to US$134.50 cents per pound of copper in 2009. The per products, principally molybdenum, zinc, and silver, and market pricing premiums pound cash costs, as defined previous, were US$0.36 per pound of copper pro- gained from copper sales against our costs. We account for our revenues from duced as of December 31, 2009, which compares with US$0.34 per pound of copper byproducts in this manner as we consider our principal business to be production produced the previous year. and sale of copper.

22 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 23 SCC - CASH COST PER LB OF COPPER PRIMARY MINED COPPER (CONCENTRATES + SX/EWS) (THOUSANDS OF TONS) 1.2

1.0 800 0.8 700 0.6

600 785.2 0.4 0.36 500 0.22 605.7 0.2 592.2 0.03 0.16 400 0.0 496

-0.17 488.9 300

(US$/LB) -0.30 05 06 07 08 09 200

100

0 05 06 07 08 09

SX/EWS 151.0 99.6 94.0 70.2 64.2

CONCENTRATORS 634.2 506.1 498.2 418.7 431.8

COPPER PRICES AND INVENTORY SMELTED COPPER REFINED COPPER (THOUSANDS OF TONS) (REFINERIES + SX/EWS) (THOUSANDS OF TONS)

400.00 600.0 350.00 509.0 800 800 500.0 300.00 700

700 674.6 322.17 313.36 308.94 400.0 250.00 588.3 600 600 721.6

200.00 386.0 235.42 300.0 512.5 500 496.6 500 150.00 168.23 464.1

252.0 237.0 200.0 573.2 400 400 100.00 199.0

100.0 459.2 451.4 50.00 300 300 445.7

DOLLAR CENTS/POUND 0.00 0.0 THOUSANDS OF METRIC TONS 200 200 05 06 07 08 09 100 100

0 0 NY COMEX PRICES 05 06 07 08 09 05 06 07 08 09 NY COMEX PLUS LONDON LME INVENTORIES

SX/EWS 151.0 99.6 94.0 70.2 64.2

REFINERIES 570.6 473.6 351.7 389.0 387.2

24 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 25 PRIMARY MINED COPPER PRODUCTION AND RESERVES 2009 SMELTER COPPER PRODUCTION 2009

Production Ore Copper Ore Reserves Thousands of tons Processed Content Millions of Tons Years Mexico Thousands of Tons Ore Copper Content % In Operation La Caridad 139.6 Mexico San Luis Potosi 19.1 Concentrator: Subtotal 158.7 La Caridad 33,099 102.5 4,105.8 9.07 0.22 124 Cananea - - 6,384.4 24.77 0.39 - Peru Underground Mines 3,010 5.6 78.5 0.31 0.40 13 to 21 Ilo 345.5 Subtotal 36,109 108.1 10,568.7 34.15 SX/EWs United States * La Caridad 35,093 23.2 378.6 0.75 0.20 11 Hayden 8.3 Cananea - - 1,930.0 2.61 0.14 - Total 512.5 Subtotal 35,093 23.2 2,308.6 3.36

Peru Concentrator: Cuajone 32,049 189.0 2,764.8 12.94 0.47 86 Toquepala 21,700 127.1 3,734.3 17.25 0.46 172 REFINED COPPER PRODUCTION 2009 Subtotal 53,749 316.1 6,499.1 30.19 SX/EWs:* Thousands of tons Cuajone 11 - 18.2 0.09 0.47 - Mexico Toquepala 86,692 38.0 1,645.5 1.65 0.10 19 La Caridad Refinery 117.1 Subtotal 86,703 38.0 1,663.7 1.74 SX/EWs 23.2 Subtotal 140.3 United States ** Concentrator: Peru Mission 991 4.4 203.4 0.95 0.47 13 Ilo Refinery 262.2 Ray 810 3.1 363.9 2.24 0.62 25 SX/EWs 38.0 Subtotal 300.2 Subtotal 1,801 7.5 567.3 3.19 SX/EWs United States * Ray 2,071 2.0 277.9 0.82 0.30 10 Amarillo Refinery 7.8 Silver Bell 382 1.1 155.9 0.51 0.33 25 SX/EWs 3.1 Subtotal 2,453 3.1 433.8 1.33 Subtotal 10.9 Total 451.4 Total Concentrator 91,659 431.7 17,605.0 67.45 Total SX/EWs 124,249 64.3 4,406.1 6.43 Gran Total 215,908 496.0 22,011.0 73.88 **

* Solutions with leached copper from Cuajone are sent to the SX/EW Plant at Toquepala. ** Includes ASARCO's production December 10-31, 2009. *** The reserves are valued at US$1.80 per pound of copper, except for ASARCO, which were valued at US$1.25.

26 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 27 SEMI-MANUFACTURED COPPER PRODUCTION 2009 Primary Mined Molybdenum (thousands of tons)

Thousands of tons 20 18.7 Wire Rod 18 16.4 Mexico 16 16.2 14.8 La Caridad 60.1 14 12 11.8 United States * 10 Amarillo 2.8 8 Total 62.9 6 4 Cake 2 United States 0 Amarillo 0.5 05 06 07 08 09 Total 63.4

* Includes ASARCO's production December 10-31, 2009.

Finished product. Wire Rod Plant, Mexicana de Cobre.

Molybdenum Molybdenum Prices

35.00

Molybdenum continues to be Company's princi- duction increased from 16,510 tons in 2008 to 18,590 30.00 31.5 29.91 pal byproduct. Average molybdenum prices reached tons in 2009, representing an increase of 13%. Once 25.00 28.42 US$10.91 per pound, representing a fall of 61.61%, again the mine at La Caridad was important in achiev- 20.00 24.38 15.00 compared to the average price of US$28.42 for 2008. ing this result. 10.00 Its specialized use and the lack of a formal market to 10.91 5.00 measure transactions and inventories makes it difficult Molybdenum production represented 9% of sales in 0.00 dollars / pound to estimate future behavior, however towards the end of 2009. The total processed ore production was 86,848 05 06 07 08 09 the year prices underwent an interesting turnaround. tons, with 18,700 tons of ore content and 10.5403 bil- MW Dealer Oxide Prices lion tons are held in reserves.

Without doubt, the most significant increase in produc- tion in 2009 was in molybdenum. Molybdenum pro-

28 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 29 Molybdenum Mining Production and Reserves 2009 Zinc Prices and Inventories

180.00 500.0 Ore Molybdenum Ore Reserves 160.00 148.57 147.07 399.0 Production Processed Content 140.00 391.0 400.0 Thousands of Tons Millions of Tons Grade % 120.00 300.0 Mines 100.00 254.0 80.00 Mexico 168.23 85.04 200.0 60.00 75.08 62.68 La Caridad 33,099 9.8 4,105.8 0.028 40.00 100.0 20.00 88.0 89.0 dollar cents / pound 0.00 0.0 thousands of metric tons Peru 05 06 07 08 09

Toquepala 21,700 3.6 3,734.3 0.022 London LME Prices Cuajone 32,049 5.3 2,764.8 0.017 London LME Inventories Subtotal 53,749 8.9 6,499.1

Total 86,848 18.7 10,604.9

Zinc Primary Mined Zinc REFINED ZINC (THOUSANDS OF TONS) (THOUSANDS OF TONS)

Zinc sales in 2009 were US$175.9 million, 10.42% lower than the US$196.4 million reported for 2008. Of the metals most affected by the financial crisis, zinc is one of

150 143.6 120 136.6

the most significant. However this result does not recognize the 4% increase in zinc 101.5 98.7 121.0

100 95.4 110.4 90.8 production, 104,103 tons in 2009, which compares favorably to the 100,318 tons 106.9 100 80 produced in 2008. 60 45.3 50 40

Average zinc prices in 2009 were US$75.08 per pound, 11.7% lower than the price 20 obtained in 2008, at US$85.04 per pound. 0 0

05 06 07 08 09 05 06 07 08 09

30 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 31 Primary Mined Zinc Production and Reserves 2009

Ore Zinc Ore Reserves Production Processed Content Millions Grade Years Thousands Of Tons of Tons % in Operation Mines

Mexico

Charcas 1,161.9 62.0 4.9 4.35 4

Santa Barbara 1,542.1 32.9 25.0 2.52 16

San Martin - - 13.3 2.13 28

Taxco - - 3.0 5.21 27

Santa Eulalia 306.2 15.5 2.2 6.44 7

Total 3,010.2 110.4 48.4

REFINED ZINC PRODUCTION

Thousands of tons

Refineries

Mexico

San Luis Potosi 98.7

Electrolytic Zinc Plant. San Luis Potosi

32 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 33 Efforts Results

62 million in gold sales

Gold sales were 54.14% higher than 2008. PRECIOUS METALS

Gold prices on the national and international markets were very favorable over the year, posting an average price of US$973.44 per ounce; growth that is explained by the fact that although we are in the midst of a global economic crisis and recession, gold is tradition- ally seen as a safe haven. Gold prices rose 11.77% compared to 2008, which posted prices of around $870.95 per ounce.

Gold production sold was 63,491 ounces, 34% higher than sales for the previous year of 47,229 ounces. Sales were 54.14% higher than 2008 at US$62 million, compared to US$40 million.

Silver sales reported a significant increase from US$207.557 million to US$281.220 mil- lion, representing a 35.33% increase. Silver production sold rose from 15 million ounces to 18 million ounces in 2009. Average silver prices were US$14.67 per ounce, slightly under the average price for 2008 at US$14.97 per ounce. This favorable result is due to increased production at similar price conditions.

There are currently 17.2787 billion tons in reserves for these metals. Underground Mine. Charcas, San Luis Potosi

36 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 37 Panoramic. Mina Santa Bárbara, Chihuahua

Primary Mined Gold REFINED GOLD PRIMARY MINED SILVER REFINED SILVER (THOUSANDS OF OUNCES) (THOUSANDS OF OUNCES) (MILLIONS OF OUNCES) (MILLIONS OF OUNCES)

40 50

20 19.0 12 35 41.6 10.1 32.4 10.0 40 40.9 10 16.2

30 15.2 27.7 15 8.0 13.3 25 31.6 8 30 7.4 22.6 27.0 12.3 26.3 20 6.2 10 6 15.1

15 14.9 20 4 10 5 10 5 2

0 0 0 0 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09

38 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 39 GOLD PRICES AND INVENTORIES SILVER AND GOLD MINE PRODUCTION AND RESERVES 2009

1,200.00 10,000.0 9,007.0 Content Silver Ore 8,535.0 9,000.0 8,000.0 Production (ounces) Reserves 900.00 7,178.0 7,535.0 7,365.0 973.44 7,000.0 Millions Grade 870.95 6,000.0 Gold Silver of Tons Gr/Ton 600.00 697.35 5,000.0 604.04 168.23 4,000.0 445.05 3,000.0 300.00 Mines 2,000.0

1,000.0 Mexico 0.00

DOLLARS/OUNCE 0.0 THOUSANDS OF TROY OUNCES Concentrators 05 06 07 08 09 La Caridad 4,437 2,051,603 4,105.8 3.1 NY COMEX PRICES Cananea - - 6,384.4 3.1 NY COMEX INVENTORIES Underground Mines 3,136 6,778,180 48.4 93.0

Subtotal 7,573 8,829,783 10,538.6

SILVER PRICES AND INVENTORIES Peru Toquepala 3,047 1,787,903 3,734.3 4.9 20.00 140.0 134.0 128.0 18.00 120.0 118.0 Cuajone 4,453 2,583,859 2,764.8 5.0 111.0 120.0 16.00 100.0 Subtotal 7,500 4,371,762 6,499.1 14.00 14.97 14.67 12.00 80.0 13.39 10.00 60.0 11.54 8.00 168.23 40.0 United States * 6.00 7.32 30.0 4.00 Mission - 100,150 203.4 5.3 20.0 2.00 Ray - 24,017 363.9 1.5

DOLLARS/OUNCE 0.00 0.0 MILLIONS OF TROY OUNCES l e f t Subtotal - 124,167 567.3 05 06 07 08 09 Leaching. Cuajone, Peru. Total 15,073 13,325,712 17,605.0 r i g h t NY COMEX PRICES Complejo La Caridad NY COMEX INVENTORIES Hermosillo, Sonora * Includes ASARCO's production December 10-31, 2009.

40 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 41 SMELTER PRODUCTION OF SILVER AND GOLD 2009

Ounces

Gold Silver

San Luis Potosi 44,432 8,286,049

Caridad 39,208 8,736,803

Ilo 17,625 4,835,825

Hayden * 1,929 370,827

Total 103,194 22,229,504

* Includes ASARCO's production December 10-31, 2009.

REFINERY PRODUCTION OF SILVER AND GOLD 2009

Ounces

Gold Silver

Refineries

La Caridad 30,558 6,504,832

Ilo 10,994 3,269,594

Amarillo * - 235,215

Total 41,552 10,009,641

* Includes ASARCO's production December 10-31, 2009.

Drilling in recess. Santa Barbara, Chihuahua

42 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 43 Efforts Results

624 million invested in 2009

Another US$2.80 billion in authorized investments over the next three years.

On starting up Cananea, additional investments planned in Sonora and Baja California for up to US$5.840 billion INVESTMENTS AND PROJECTS

Grupo México is committed to the growth of its mining sector. Therefore although 2009 was a year of economic crisis, investments were made totaling US$624 million, noting those made in the Tía María projects and in the Expansion of the concentrator at Toquepala; and also those allocated to developing projects in 2009, such as the construction of a byproduct treatment plant at the metallurgic complex in La Caridad, the modernization of the Lye Plant at Agua Prieta, the construction of a sea terminal for sulfuric acid at Ilo, and increasing the capacity of the storage system for future tailings at Toquepala and Cuajone.

In addition, on January 28, 2010 and in order to increase the production capac- ity of copper and molybdenum by 342,000 and 6,600 tons, respectively, the Board of Directors approved an investment program of US$2.800 billion over the next three years. Noteworthy among the projects involved are the continu- Panoramic View. Complejo La Caridad. ation of the Tía María projects and the Toquepala Expansion, and also the Ex- Hermosillo, Sonora

46 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 47 2009 Projects pansion of the concentrator at Cuajone, the Expansion of the concentrator at La MExico Caridad, and the construction of an electrical power plant near our metallurgic complex in La Caridad. Byproduct Treatment Plant Representing an investment of US$16.0 million, the construction and startup of Lastly, SCC is planning to invest up to US$5.840 billion. Noteworthy are the proj- a byproduct treatment plant at the metallurgic complex in La Caridad was com- ects to expand Cananea and El Arco, which will increase annual copper production pleted in 2009. This plant was awarded first place in a national contest to promote by up to 460,000 tons, and the construction of a new Smelter and Refinery to be lo- waste recycling. cated in Guaymas, Sonora to process the concentrates brought from both Cananea and El Arco. Lye Plant Representing a total investment of US$20.8 million, the Lye Plant at Agua Prieta, Following is a description of the principal projects undertaken in 2009, our on- located 100 kilometers north of the La Caridad mine, was completely modernized going projects, approved by the Board of Directors, and those planned and pend- l e f t to comply with environmental regulations and fully satisfies the lye needs of the System strips, Deposits Leachable. ing approval. Toquepala, Peru operations in Mexico. r i g h t . Operations Mina Cuajone, Peru

48 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 49 PerU 31, 2009, US$43.7 million has been invested in this project, of an estimated total US$66.0 million. Construction of the Sea Terminal for Sulfuric Acid at Ilo As a complementary project to the modernization of the smelter at Ilo, a sea ter- Ongoing projects approved by the Board of Directors minal was built to ship the sulfuric acid produced at the smelter directly. As of December 31, 2009, this project reported an advance of 98.0% and is expected to MExico be completed during the first quarter of 2010. The terminal will alleviate the cur- rent logistical congestion at Ilo. Expansion of La Caridad This project will increase the current milling capacity at the concentrator from Tailing Disposal System at Quebrada Honda 90,000 to 120,000 tons per day, which will require the current mining rate to be This project consists of increasing the height of the current dam at Quebrada Honda increased. Annual copper production will be increased by 40,000 tons. This proj- to store future tailings from Toquepala and Cuajone. The construction of the prin- ect requires a total investment of US$230 million, US$77 million of which will be cipal civil, mechanical, and electrical works for the main and lateral dams was invested in 2010. completed in 2009 and all major equipment and materials have been purchased. The equipment to build the lateral and main dams was rented, one portion in December Electrical Power Plant l e f t 2008 and another in March 2009. Although some questions remain in order to reach Acid Plant, Foundry. This project consists of the construction of a combined cycle electrical power Ilo, Peru the design capacity, the first phase of the project reports a 99.8% advance and is Ri g h t plant that will have one gas and one steam turbine and a capacity of 250 MW. Panoramic, Complejo expected to be fully completed during the first quarter of 2010. As of December La Caridad, Sonora The plant will be located in Sonora, 17 kilometers north of the city of Nacozari de

50 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 51 García. The plant will cover the Grupo México's cur- this project. As of December 31, 2009, US$280 million Expansion of the Toquepala Concentrator rent power needs in Sonora and will be left ready for a has been disbursed. The approved budget for 2010 The expansion of the concentrator at Toquepala is expected to increase an- second phase that would double its capacity to cover includes the purchase of equipment and initial con- nual copper production by 100,000 tons and molybdenum production by future needs. struction works, such as access roads and platforms. 3,100 tons.

Under Grupo México's ongoing commitment to the The project detail engineering has been started and As of December 31, 2009, the Company had invested US$90.3 million in this environment, the plant will be designed under the the construction works are awaiting the approval of project. During 2009, one 320-ton truck, two 49HR drillers and a second 73 highest standards of quality to reduce atmospheric the Environmental Impact Study. The Company is cubic yard digger were put into operation. The extension of the electrical "push emissions. working on obtaining the approval for this study, back" substation was also completed and put into operation. The project detail however the Public Hearing required, where the local engineering was started in December 2009. The Environmental Impact Study is PerU community can voice concerns, has not yet been com- ongoing and is expected to be completed during the first quarter of 2010. pleted. First, in August 2009, the Public Hearing held Tía María was interrupted and not completed; then, the hearing Expansion of the Cuajone Concentrator This mining project is located in the Arequipa region of scheduled for February 15, 2010 was postponed. The The expansion of the concentrator at Cuajone will increase the mining and mill- Peru and will produce 120,000 tons of electrolyte cop- Company is currently working with the Ministry of En- ing capacity, accelerating production, to increase annual copper production by l e f t per cathodes. US$934 million has been approved for ergy and Mines (MINEM) to reschedule the hearing. Panoramic Mina approximately 50,000 tons. Tia Maria, Peru r i g h t Panoramic Mina Toquepala, Peru

52 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 53 Planned projects pending approval As part of this project, water sources were identified in 2009 for the leaching operation and six holes were diamond drilled to a depth of 2,640 meters. The In addition to the ongoing projects, Grupo México has a series of projects that are Company is currently investing in the purchase of the lands necessary for the waiting for the right time to be approved and started. These include: development of this project.

Cananea Expansion The most recent drilling indicates copper ore material with grades of between This project consists of the construction of a new concentrator with a daily capac- 0.50% - 0.70%, extending 270 meters below previously known deposits. ity of 100,000 metric tons, two electrolyte leaching plants, with their respective crushers (Quebalix), and a molybdenum plant. This expansion will increase an- New Smelter and Refinery nual copper concentrate production by 188,000 tons and copper cathode produc- A new smelter and refinery will be built in Guaymas, Sonora to serve the smelting and tion by 82,000 tons. refining needs of the expansions at Cananea and El Arco. The smelter and refinery will have copper production capacities of 350,000 and 330,000 tons, respectively. El Arco This project is located in the state of Baja California in Mexico. It consists of a large copper deposit that contains ore material estimated at over 1.3 billion EXPLORATIONS tons; where a concentrator plant with a daily capacity of 100,000 tons and an electrolyte leaching plant will be built. This project will produce 155,000 tons In addition to the exploratory drilling programs at the existing mines, we are cur- of copper concentrate, 35,000 tons of copper cathode, and 105,000 ounces of rently conducting explorations to locate ore deposits in other places. Following are Panoramic Mina. La Caridad, Sonora gold annually. the most significant exploration projects:

54 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 55 Overview Toquepala, Peru

MExico Buenavista meters were drilled resulting in the identification of 23 million tons of coal resources in Buenavista is located in the state of Sonora, Mexico, our concession Nueva Rosita No. 16. Due to budget restrictions, the exploration tasks Angangueo adjacent to the ore deposit at Cananea. Drilling and for this project were postponed during 2008 and part of 2009. To define the mineral- Angangueo is located in the state of Michoacán in metallurgic studies have shown that the site contains ized areas for the development of an open pit mine in the zone, only 6,338 meters were Mexico. A 13 million ton ore deposit has been identi- 36 million tons of mineral material with a content of 29 drilled in 2009. fied here through diamond drilling. Tests show the ore grams of silver per ton, 0.69% copper and 3.3% zinc. deposit contains mineral material with 0.16 grams of A new evaluation study would suggest that Buenavista Los Chalchihuites gold, 262 grams of silver per ton, 0.79% lead, 0.97% could represent a deposit with economic value. Dur- The Los Chalchihuites project is located in the state of Zacatecas. This site contains copper, and 3.5% zinc. Our environmental impact ing 2007, 2,100 meters were drilled to refresh the ore a contact deposit with a mixture of lead oxides and sulfurs, copper, zinc, and silver. A study was approved in 2005 and we are in the process resources and obtain material for metallurgic testing. drilling program at the end of the 1990's defined identified 16 million tons of ore mate- of obtaining approval for the use of the lands. In 2009 Results have confirmed the previous geological inter- rial with a content of 96 grams of silver per ton, 0.36% lead, 0.69% copper, and 3.08% we continued negotiations with the state of Micho- pretations of the mineralized areas. No advance was zinc. Preliminary metallurgic testing show this ore may be recovered by a leaching, acán to purchase various properties that are essential made during 2008 or 2009 due to the strike at Cananea. precipitation, and flotation process. In 2009, we started a prefeasibility study that is to the operation. expected to be completed by the end of 2010. Coahuila Coal The prefeasibility study completed in 2009 showed An intense diamond drilling exploration program was Pilares that the Angangueo project needs further drilling into conducted in Coahuila, identifying two additional In 2008, we purchased the 49% interest of Freeport-McMoran’s in Minera Pilares S.A. the vein. The subsequent simulation project has indi- areas: Esperanza, with a potential of over 30 million de C.V. (“Minera Pilares”), receiving 100% of the property. Minera Pilares is located in cated that Angangueo could represent a deposit with tons of coal on site; and, Guayacán, with a potential the state of Sonora, 10 kilometers from the city of Nacozari de García and six straight economic value. of 15 million tons of coal on site. During 2007, 5,767 kilometers from our mine at La Caridad. The cleaning and preparation tasks to access

56 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 57 the El Porvenir tunnel started at the end of 2008. Calculations indicated the presence sists of a porphoritic deposit of copper and molybdenum. The prefeasibility study of 52.9 million tons of ore material with a copper content of 0.92%. As the previous and preliminary design study for the pit estimated ore resources of 355 million tons calculations of ore material had been based on rotary drilling, in 2009, 9,509 meters of ore with a content of 0.62% copper, 0.05% molybdenum, and 0.039 grams of were diamond drilled. A new calculation of ore material based on this latest drilling gold per ton. In 2009, as part of the complementary studies to define the ore reserves will be performed in 2010. Heavy medium metallurgic tests were also performed on in the deposit, 40,244 meters were diamond drilled. Geotechnical studies will be the core of this drilling and preliminary results indicate the pre-concentration by this continued in 2010 as part of the feasibility study. method could be viable at Pilares. We expect to complete the results from this testing during the second half of 2010. Tantahuatay This project is located in the department of Cajamarca in the north of Peru. In 2009, Sierra de Lobos the feasibility studies focused on evaluating the possibility of recovering gold from This project is located to the southwest of León, Guanajuato. It consists of a copper the upper layer of the deposit, where it is estimated there are 27.1 million tons of and zinc deposit with grades that vary between 0.5% and 1.0% copper and between ore material with an average content of 13.0 grams of silver and 0.89 grams of gold 5% and 7% zinc, in addition to a small presence of gold and silver. The drilling of per ton. An environmental impact study was prepared in 2009 and approved by the 1,636 meters in 2008 confirms the presence of copper and zinc, however a deposit Peruvian authorities. In addition, a construction permit was obtained for the mine with economic value has yet to be identified. As a result of changes in our investment and industrial complex. SCC has a 44.25% interest in this project. priorities, no advance was made on this project in 2009, though we expect to the project to be reactivated in 2010. Other prospects in Peru We continued to explore the surroundings around the Tía María Project in 2009, and PerU also the southern region of Peru.

Los Chancas In 2010 we will be developing a diamond drilling program for approximately

Overview Cuajone, Peru This project is located in the department of Apurímac, in the south of Peru. It con- 21,000 meters for various projects, including: Cobrecancha, copper and gold

58 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 59 prospect, located on the central coast of Peru; Los Huallas, copper and molyb- drilled, completing the exploration phase. We will evaluate the results in 2010 to denum prospect, located in the region of Ayacucho; and Clara, copper and gold determine the next steps to be taken on this project. prospect located in the region of Arequipa. We are also continuing the exploration program for defined projects in Tacna and Arequipa, and also programs in the Ticnamar various mineralized areas of Peru. The Ticnamar prospect is located in the north of Chile. It has been explored as a por- phoritic copper-molybdenum deposit. In 2009, 3,671 meters were diamond drilled. Chile In 2010, an additional 5,000 meters will be diamond drilled.

El Salado Other prospects in Chile The El Salado prospect is located in the north of Chile (Atacama region) and corre- sponds to an ore body with copper and gold. In 2009, 3,387 meters were diamond For 2010, we have scheduled 11,500 meters of drilling in the north of Chile for drilled, concluding the exploration phase. We will evaluate the results in 2010 to the following prospects: Catanave (gold-silver epithermal); Santa Marta (copper- determine the next steps to be taken on this project. molybdenum porphoritic) and San Benito (porphoritic copper-molybdenum veins).

Resguardo de la Costa The Resguardo de la Costa prospect is also located in the Atacama region. It con- sists of an ore body with copper and gold. In 2009, 1,378 meters were diamond l e f t a n d r i g h t Investigations, Peru

60 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 61 Efforts Results

63.5 million invested

Million invested in Environmental Actions and Community Responsibility

The Wastewater Treatment Plant in San Luis Potosí will benefit 32,000 people.

“Participemos por Cananea” helped develop 35 infrastructure projects and 57 social development projects. ENVIRONMENTAL ACTIONS

All our plants have the latest technology and comply with environmental standards.

Mexico

San Luis Potosí Wastewater Treatment Plant A Wastewater Treatment Plant was built with an investment of close to US$6.8 million that will supply the water needs of the Zinc Plant in San Luis Potosí. This plant has a microfiltration stage that is the largest and most modern in Latin America and also an inverse osmosis stage. It will produce high quality water for the plant's processes, better for production than the well water it will replace and it will also free up clean water for the city. As San Luis Potosí is one of the regions with the least amount of available water in Mexico, both the financial and liquid savings are of great importance as these will ensure the continuity of our operations.

Nursery. San Luis Potosi

64 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 65 Redirecting water from the tailings dam to the concentrator plant at Peru the La Caridad mine As part of our water and energy saving efforts, we have substantially modified the The two main environmental projects in Peru are: pipeline that carries water for reuse at La Caridad. As of December, this project re- • Dust and emission recovery systems at Ilo. ported 18% less pipeline, reducing the total length by 3 kilometers. The total project • Reservoir works at Quebrada Honda. will reduce the length of the pipeline from 16,400 meters to 10,443, representing a savings of 5,957 meters, or 35.3% of the previous trajectory. Also, by avoiding vari- Company operations are subject to Peruvian environmental laws and regulations. ous curves and reducing the trajectory, we will be able to save a significant amount The Peruvian government, through the Ministry of Energy and Mines ("MINEM"), of energy once the project has been completed. This project will reduce the mine's conducts annual audits on the Company's mine and metallurgic operations in Peru. demand for energy and fresh water and will also significantly reduce friction and the These environmental audits include aspects such as environmental commitments, consequent need to repair the pipeline. compliance with legal requirements, atmospheric emissions, and emission controls.

Clean Industry Certification Program In 2003, the Peruvian Congress published a new law stipulating obligations for future We have continued to implement the Integral Environmental Management System closures and remediation in the mine industry. In compliance with this law, the Compa- in Mexico and the unification of this system with the quality assurance and safety ny has submitted a conceptual closure plan to the MINEM, which has been made avail- systems has been started. This voluntary certification program is endorsed and rec- l e f t able for public consult at Company offices. The MINEM approved the Closure Plan in Wastewater Treatment Plant. ognized by the signatory countries of the Free Trade Agreement (Mexico, US, and San Luis Potosi the latter half of 2009. As part of this Closure Plan, the Company will provide guarantees r i g h t Canada). Almost all our units have ISO 14000 certification. Environmental actions, Peru to ensure there are sufficient funds available to meet the obligation to remove assets.

66 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 67 COMMUNITY RESPONSIBILITY

Mexico Participate in Cananea Cananea, with its great human capital, 31-month labor dispute, and strains on the local To ensure an excellent relationship with the community, in 2009 Grupo México renewed its economy and social weave concerns Grupo México, who opted to suggest and execute a connection strategy with the community, based on a methodology that favors the proactive sustainable initiative to activate the economy and strengthen the community. and responsible participation of the local community through the Social Development Plan that was implemented at Company operating plants and units. Various investments have been made over the last 2 years to conduct activities through- out the city. Resources were distributed following the presentation of projects in response The actions taken over the year represent new ties with our workforce and neighbor com- to the “Participemos por Cananea” program and most of these resources were invested munities, under a framework of corporate social responsibility, an essential as of the in local providers. In parallel, a Community Committee representative of the local area company's structure. was created and is responsible for overseeing the process and the transparency of the program, and the Community Center created, "Casa de Encuentro" is bursting with activity The principal areas for participation and programs developed were: social ties, social from dawn to dusk. opportunities and community development, community relations, and encouraging social l e f t a n d r i g h t and economic development. Workshops Program The program includes: Participate in Cananea Cananea, Sonora 35 educational infrastructure projects that include improving sports, sanitation, and recre-

68 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 69 ational facilities in terms of security (floors, windows, perimeter fencing) and quality Peru (roofing, technology, and equipment) and encouraging learning (support for librar- ies). The measured impact of these projects has been 13,397 people benefited, in- Southern Copper promotes the sustainable development of its neighbor com- cluding children, teachers, and their families. Ninety percent of the people involved munities through the Ayuda del Cobre organization, which manages and invests believe these projects offer them a benefit either personally, for their family, or for voluntary contribution funds in sustainable development social projects. The mine their community. (The total population of Cananea is 33,000). company created a local fund in 2009 with US$2,551,621.36 and a regional fund with US$9,798,226.02 to benefit the regions of Tacna and Moquegua. 57 social development projects, directed at young adults, children, women pro- viders, the physically challenged, the elderly, and other groups. These projects Southern Copper developed the following programs in Peru in 2009: create community spaces and social interaction emphasizing aspects such as cul- ture, sports, the environment, recreation, community participation, skill building • The construction or improvement of canals and water reservoirs in Candarave and leadership development, health and wellbeing, and the formation of social through an agreement of cooperation with the Fondo Nacional de Cooperación networks. Over 11,380 people have benefited from these projects. Local providers (FONCODES) (National Cooperation Fund). The farmers, residents, and author- have been assisted and the economic prosperity has benefited, to date, over 40 ities of Candarave expressed their enthusiasm over this agreement, which also businesses in the city. includes the participation of the municipalities of Huanuara and Quilahuani. l e f t Participate in Cananea, Cananea, Sonora r i g h t 1. Security Workshops, Peru. 2. Peru Environmental Actions

70 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 71 • The Nutrition Program "Southern formando comunidades saludables" (PRONUT) • We continued to deliver computer equipment, school furniture, blackboards, continued with success through fieldwork in the High Andean communities and libraries to the schools in the Candarave districts of Cairani, Camilaca, in the province of Candarave (Tacna region). The goal is to reduce the levels Candarave, Huanuara, and Huaytire. These educational supports also included of anemia and intestinal parasites in children under 5 years of age among the other schools located in the Moquegua region. target communities and increase their medium and long term educational and professional potential. • The Mini-Hospital and Medical Hospice were inaugurated in Huanuara, in the province of Candarave (Tacna region) and are fully equipped thanks to the Vol- • An Agreement of Co-participation was signed between Southern Peru and the untary Contribution of Southern Peru with a total investment of approximately Ministry on Women and Social Development (MIMDES). The inter-institutional US$448,058.41. The President of the Republic of Peru, Dr. Alan García Pérez cooperation agreement commits a co-participative amount of US$351,841.02, of participated in the ceremony. which the company will contribute US$29,314.63 to equip 12 wawa wasi (tem- porary childcare facilities to support mothers or families that work), in the dis- tricts of Huanuara and Quilahuani, with the support of the local municipalities.

l e f t Mini Hospital and Medical Residence of guano, Peru. Ri g h t Reforestation Campaign, Peru

72 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 73 HEALTH AND SAFETY

“For everyone's safety”, is the principle applied in the slogan for Campaña Cero, - Under the XVIII International Convention on Mining, the Mexican Mining Chamber implemented at all Grupo México mine units to create awareness among personnel CAMIMEX awarded the Casco de Plata 2008 to the Mexicana de Cobre Precious on safety through training and supervision to reduce the accident rate. Metals Plant, the highest award given to obtaining the best safety rates in the plants and smelters division with up to 500 employees division. - A system was developed capable of managing information for the various health, hygiene, and safety processes to facilitate follow-up on compliance with current - Specifically the company's underground mines, (Charcas, Santa Bárbara, and regulations and corporate controls committed to SARBOX; SIASST, and PASST. Santa Eulalia) implemented "A" safety processes in adherence of the requirements The Occupational Health and Safety Information System will be available for all for each unit. Safety practices were reinforced with this process. mine properties.

l e f t Security Brigade, Minera Mexico r i g h t Security Practices at Work.

74 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 75 GEOGRAPHIC MINING LOCATION

Minera México SPCC Phoenix

MINES: Smelters, Refineries, MINeS: and other plants: SILVER BELL ray AMARILLO HAYDEN MEXICANA DE COBRE MEXICANA DE COBRE CUAJONE MISSION La Caridad, Sonora La Caridad, Sonora Copper, Silver, Molybdenum and Gold AGUA PRIETA Cananea C o p p e r, m o l y b d e n u m , g o l d a n d s i l v e r Copper Smelting Electrolytic Copper Refinery TOQUEPALA Copper Electroplating Plant Copper, Silver, Molybdenum and Gold LA CARIDAD EL ARCO MEXICANA DE CANANEA Sulfuric Acid Plant BUENAVISTA Cananea, Sonora Wire Rod Plant SANTA Copper, Gold and Silver Planta de Metales Preciosos EULALIA NUEVA ROSITA Agua Prieta, Sonora lime Plant Smelters, refineries and other SANTA plants: BÁRBARA Chalchiuites INDUSTRIAL MINERA MÉXICO SAN MARTÍN Charcas, San Luis Potosí MEXICANA DE CANANEA ILO charcas Silver, Copper, Lead and Zinc Cananea, Sonora Copper Smelting san luis potosÍ San Martín, Zacatecas Electroplating plants Sulfuric Acid Plant Silver, Lead, Zinc and Copper Copper Electrolytic Copper Refinery ANGANGUEO Santa Eulalia, Chihuahua Precious Metals Plant Silver, Lead and Zinc MÉXICO, D.F. Santa Bárbara, Chihuahua INDUSTRIAL MINERA MÉXICO TAXCO gold, Silver, Copper, Lead and Zinc San Luis Potosí, San Luis Potosí TOQUEPALA Taxco, Guerrero Copper Smelting Electroplating Plant Copper gold, Silver, Lead and Zinc Sulfuric Acid Plant Nueva Rosita, Coahuila Electrolytic Zinc Refinery Coal Nueva Rosita, Coahuila Coking Plant

Principal EXPLORATION OR AMERICAS MINING CORPORATION DEVELOPMENT PROJECTS:

El Arco, B.C. MINeS: Copper and Gold Angangueo, Mich. Mission, Arizona: gold, Silver, Lead and Zinc gold, Silver, Copper and Molybdenum Buenavista, Sonora Silver Bell, Arizona Silver, Copper and Zinc Copper Chalchihuites, Zacatecas Ray, Arizona Silver, Copper and Zinc gold, Silver and Copper

Smelters, refineries AND OTHER PLANTS:

TANTAHUATAY Hayden, Arizona Cast Copper and Sulfuric Acid Amarillo, Texas SIMBOLOGY LOS CHANCAS Copper Refinery, Precious Metals MINES LIMA Nickel, Selenium, Tellurium CUAJONE PLANTS TOQUEPALA TÍA MARÍA MAIN OFFICE

OFFICES ILO

EXPLORATIONS

CATANAVE

SIERRA ASPERA 76 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 77 EL SALADO ESPERANZA RESUMEN PRODUCCIÓN MINERA*

2009 Distribution Tons 2009** 2008 2007 2006 2005 *** Copper Concentrates 1,683,646 1,643,178 1,918,281 1,884,549 2,348,120 Copper content Concentrates 431,772 418,726 498,207 506,085 634,211 Copper Content ESDES (Cathodic) 64,249 70,203 93,975 99,575 150,985 Total Content Copper Mine 496,021 488,929 592,182 605,660 785,196

Copper Smelter Content 512,493 496,595 464,110 588,330 674,565 Copper Refinery 387,187 389,070 351,740 473,656 570,597 Refined Copper (+ ESDES Refineries) 451,436 459,273 445,715 573,231 721,582

Refined copper wire rod become 62,852 76,283 96,607 96,580 203,398 Refined copper become Planchon 491 - - - 18,840

Zinc Concentrates 199,083 194,035 222,762 252,143 264,314 Zinc content Concentrates 110,430 106,920 121,013 136,592 143,609 Zinc Refinery 98,688 95,420 90,766 45,279 101,523

Lead Concentrates 40,406 38,312 39,130 38,896 38,543 Lead content Concentrate 22,492 20,445 19,382 19,081 19,545

Gold in concentrates (ounces) 15,073 14,948 22,602 27,680 32,444 Gold Refinery (ounces) 41,552 26,323 26,995 31,590 40,940

Silver in concentrates (ounces) 13,325,712 12,315,630 15,228,905 16,171,597 19,032,917 Refinery Silver (ounces) 10,009,641 7,357,221 6,196,670 8,041,927 10,145,584

Molybdenum content Concentrates 18,687 16,390 16,208 11,837 14,803

Coal 238,209 296,814 97,446 215,302 664,102 Coke 72,016 70,317 63,455 55,728 44,406 Sulfuric Acid 1,761,682 1,698,905 1,610,717 1,145,463 1,550,473 Cadmium 609 647 634 408 706 Arsenic trioxide - - 653 1,595 1,664 Lime 63,360 86,379 102,754 71,482 121,356

* Figures expressed in metric tonnes except where noted. ** ASARCO production includes 10 to December 31, 2009. Sweeper machine. *** Includes production of ASARCO to August 9, 2005. Charity Complex, Sonora

78 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 79 Efforts Results

123.7 million invested in 2009

US$123.7 million invested in 2009, for a cumulative of US$1.6338 billion invested 1998 - 2009. TRANSPORTATION DIVISION INFRAESTRUCTURA Y TRANSPORTES MÉXICO (ITM)

Grupo Ferroviario Mexicano-Ferrocarril Mexicano (GFM-Ferromex) As a result of the severe economic crisis that began at the end of 2008, the results Ferromex began operations in 1998 and is currently the largest railroad operator posted for 2009, compared to the previous year, were affected both operatively and in Mexico, both in terms of coverage and fleet size. Ferromex operates the rail- from conversion, due to the devaluation of the pesos caused by the crisis. road network with the largest coverage in Mexico (8,110.5 km of track), covering approximately 71% of the geographical area of the country and almost 80% of Ferromex reported revenues of US$914 million for 2009, 15% lower than 2008, Mexico's industrial and commercial centers. This coverage includes the princi- with an average run of 842.1 kilometers, resulting in a total of 39.205 billion net pal agricultural regions and the three most important urban centers in Mexico tons-kilometer, 2.4% below 2008. (Mexico City, Monterrey, and Guadalajara). Ferromex has the largest railroad fleet in the country with 567 locomotives and 11,745 cars. In 2009, US$123.7 million was invested for a cumulative investment of US$1.6338 billion from 1998 to 2009. These investments were made principally in track, track Ferromex has 5 options for border crossings and communication with 6 important ports: machinery, telecommunications equipment, and also investments in yards and ter- 4 on the Pacific and 2 others on the Gulf of Mexico, which are essential to the Mexi- minals, with which Ferromex continues with its investment program, which has Rail Yard Escobedo. Monterrey, Nuevo Leon can infrastructure and result in attractive offerings for importer and exporter customers. resulted in increased train speed and improved operating safety and efficiency.

82 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 83 EBITDA as of December 31, 2009 was US$276.4 million, 21.1% below 2008, plac- The diverse nature of the business base offers Ferromex Diversification of Sales by Segment ing the EBITDA margin at 30.2% in terms of sales. The operating profit was 25% a certain degree of stability in terms of the seasonal lower, reporting US$191 million for 2009. Net earnings dropped from US$160.7 nature of some sectors, such as the agricultural sector, i. j. k. h. l. million in 2008 to US$142.1 million in 2009, a decrease of 12%. which is compensated by continual flows from other g. sectors, such as the cement, minerals, and chemical f. The operating cost, including labor, materials, indirect expenses, and car hire products sector. Since it began operations, Ferromex a. lowered 12%, from US$693 million reported in 2008 to US$607 million in 2009. has implemented new operating practices and made e. This decrease includes an increase in cost of US$43.3 million for diesel, pow- significant capital expenditures to reduce costs in the d. er, steel, and spare parts, although this was mitigated by a conversion effect of long term and improve operating efficiency. c. b. (US$129.2) million.

Debt a. 30% Agricultural b. 10% Industrial National and International Freight Service As of December 31, 2009, GFM - Ferromex held a debt c. 9% Minerals Ferromex provides national and international freight services using unit, direct, of US$368.1 million, which after deducting a cash and d. 9% Diesel surcharges & others e. 8% Automotive and intermodal trains. These services may include interlineal traffics received, cash equivalent balance of US$145 million, represents f. 8% Chemicals g. 6% Energy delivered, pass-through, or local traffic. Ferromex owns approximately 36% of a net debt of US$223.1 million; debt amortizations h. 5% Cement i. 5% Steel products the cars it operates and the remaining cars are owned by private railroad compa- were carried out during the year for US$40 million. The j. 4% Intermodal k. 3% Car Hire nies, local and foreign (principally from the United States and, to a lesser extent, profile of debt maturing 2010 – 2013 is at levels of l. 3% Others from Canada). US$32 million annually.

Business During 2009, 85% of Ferromex's revenues were from the following business seg- ments: agricultural, minerals, industrial products, cement, chemicals and fertilizers, intermodal, energy, metals, and automotive. Other revenues include diesel surcharge 9%, revenues from car hire 3%, revenues from passenger service 1%, and other miscellaneous services 2%.

84 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 85 Diversification of Sales (Millions US$)) ter deducting a cash and cash equivalent balance of by Segment GFM - Ferromex 2009 2008 US$59.4 million, represents a net debt of US$87.5 million. US$42.2 million were invested in capital j. Investment in Fixed Assets i. k. h. l. g. Track 50.7 83.3 expenditures in 2009, for a cumulative of US$172.8

Yards & Terminals 9.7 5.4 million invested 2006 – 2009. f. a. Bridges, Tunnels & Drains 3.7 7.3

Engine Units 26.1 15.2 The financial information for Ferrosur is presented un- e. Telecommunications Equipment 5.6 13.2 der the participation method therefore it is not consoli- d. Automotive Equipment 3.4 3.6 dated with Grupo México, however if Ferrosur were to b. c. Rolling Stock 3.4 22.9 consolidate with Grupo México, sales for the transpor-

Lands 0.1 9.2 tation division would then total US$1.1371 billion and a. 26% Agricultural b. 12% Industrial Investment Projects 5.2 8.7 the EBITDA would reach US$338.5 million. c. 9% Diesel surcharges d. 9% Minerals Track Machinery 2.4 1.7 e. 4% Automotive The volume transported in 2009 increased 2.0%, f. 19% Chemicals Others 13.4 3.9 g. 1% Energy moving 6.833 billion net tons-kilometer compared to h. 7% Cement Total Fixed Assets 123.7 174.4 i. 5% Steel products 6.693 billion net tons-kilometer in 2008. j. 4% Intermodal k. 3% Car Hire l. 3% Others Ferrosur Ferrosur's sales were US$223.4 million in 2009, 10.4% below the US$249.3 million reported for 2008. EBITDA for 2009 was US$62.1 million, compared to US$64.4 mil- lion in 2008. Net earnings were US$18.5 million in 2009, 27.3% below that reached in 2008. Ferrosur's debt as of December 31, 2009 was US$146.9 million, which af-

86 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 87 Intermodal México Texas Pacífico Transportation LTD Sales for 2009 reached $256.4 million pesos, reporting net earnings of 27.1 million. Investments of US$23.8 million were approved in 2009 under a program of co- Despite the adverse economic conditions prevailing in the country in 2009, Inter- investment with the Texas State Government to improve the railroad infrastructure modal México sales were slightly higher than 2008, adding new services to replace and take advantage of the potential for development in Southwest Texas. those that did not produce. These projects will be completed during the 3rd quarter of 2010 and will complete Intermodal México continues to strengthen its presence in value added railroad ser- the infrastructure improvements on this 616 kilometer line, which will be strategic vices, with loading and unloading services and door to door delivery for customers for cross border traffic and will also support trade between Texas and Northwest that do not have railroad facilities. Mexico, as it connects with Ferromex in Ojinaga, Chihuahua and with UP, BNSF, and FWWR. IMEX has consolidated in the logistical coordination and provision of trucking ser- l e f t a n d r i g h t vices, including the south of California, complementing the Inter-Pacific railroad Loading and unloading Intermodal Terminal. service from Mexico City to Mexicali that Ferromex provides. Guadalajara, Jalisco

88 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 89 Principal Routes by Geographic Location PRINCIPAL ROUTES

albuquerque

san phoenix diego FERROMEX: calexico mexicali tucson ft.worth dallas THE ENVIRONMENT AND SUSTAINABLE DEVELOPMENT el paso nogales ciudad sierra blanca juárez san angelo jct

b.hill new alpine orleans presidio houston iowa ojinaga hermosillo Our Environmental Commitment chihuahua piedras eagle negras pass guaymas Grupo México's Transportation Division has an accumulated investment in envi- corpus christi ronmental infrastructure of $97,729,698 as of 2009, over US$7.6 million invested cd. frontera escalón in 3 water treatment plants at locomotive shops, drain separations at 13 shops, TO POLOBAMPO torreón monterrey saltillo 25 fueling stations, construction of 17 hazardous waste storage facilities, and the durango infrastructure necessary to prevent soil contamination, such as trays and carpets

mazatlán felipe pescador to contain and absorb hydrocarbons at the fueling stations, as well as the replace- pto.altamira san luis tampico aguascalientes potosí progreso ment of diesel and oil tanks, containment dams, etc.

viborillas guadalajara Ferromex and Ferrosur met all their environmental commitments with the Pro- huehuetoca veracruz colima valle de SIMBOLOGY manzanillo méxico curaduría Federal de Protección al Ambiente (PROFEPA) (Mexican Environmental coatzacoalcos FERROMEX Protection Agency) in 2009. TRACKAGE RIGHTS TFM salina cruz FERROSUR Environmental audits were conducted during 2009 to renew the "Clean Industry SHORT LINES Certification" issued by the PROFEPA for the locomotive shops at Guadalajara, TP TEXAS PACIFIC UP UNION PACIFIC the car repair shop at Guadalajara, and the fueling and locomotive zone in BNSF BNSF Torreón, Coahuila.

90 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 91 Of all the water consumed in 2009, over 25% (32,073 m3) was treated and reused Investments made (in pesos) in 2009 were: $3.3 million to maintain the environ- for washing locomotives. mental infrastructure, $ 1.46 million to construct an oily drainage system, decanting system, and the installation of fiberglass trays to prevent soil contamination at the Electricity consumption Ferrosur shop in Coatzacoalcos, Veracruz. The decanting system in the fueling zone Over the past few years, Ferromex and Ferrosur have been gradually replacing at Irapuato was replaced with one that is more modern and efficient at a cost of 2.17 inefficient equipment with equipment that has advanced technology for energy million and 1.9 million was invested in fiberglass trays for the fueling zone at Mexi- consumption and savings. cali to prevent soil contamination from hydrocarbons during locomotive fueling. The total investment in 2009 was over 12 million pesos. In 2009, we invested close to US$62,000 in the purchase of 82 solar panels that feed the light indicators at track switches. Light switches were replaced with mo- Water consumption tion sensors and obsolete air conditioning equipment was replaced. Responsible water consumption by Ferromex and Ferrosur in their operations continued to be one of the most significant commitments of these companies. Fuel consumption Consumption in 2009 was 140,207 m3, compared to the 140,388 m3 consumed In 2009, we reduced the diesel consumption of our locomotives by 3.5% compared l e f t in 2008, representing a reduction of .13%, thanks to the shutting down of clan- Roundhouse. to 2008, when 12,612,535 gigajoules were consumed compared to 12,036,623 this Guadalajara, Jalisco destine pipelines connected to the company's networks and the replacement of r i g h t year. This achievement is the result of improved logistical efficiencies in our opera- Aerial View Patio. obsolete pipes. Guadalajara, Jalisco tions which translated into better fuel performance per ton/kilometer.

92 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 93 In terms of handling waste, in 2009 we reduced waste by 20% due to reduced freight transported and better employee practices. Used oil was sent to authorized cement plants to be used as an alternative fuel and old locomotive batteries were sent for recycling, while the remaining waste was incinerated.

Biodiversity In 2009, Ferromex signed an agreement of understanding with the World Wild- life Foundation (WWF) and other leading Mexican companies to participate in the preservation of wildlands, and also maintaining the biodiversity necessary for a sustainable global life and economy. The objectives of this agreement include restoration of depleted wildlands, the long-term protection of wildlands, and the promotion of environmental education on the environmental services provided by ecosystems, among others. Projects will be defined during the course of 2010 where each company will decide and select those that meet their particular interests.

GE Evolution Locomotive

94 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 95 Efforts Results

240 million to purchase Pemsa

The recent acquisition of Pemsa will help us to take advantage of opportunities for growth in the Mexican oil sector. INFRASTRUCTURE DIVISION

Mexico Construction Company Mexico Drilling Company (PEMS)

In 2008, México Compañía Constructora was awarded a tender by the CFE (power Anticipating the imminent recovery of the global petrochemical industry and company) for the construction of two deviation tunnels on the Grijalva River, which increased demand for oil drilling and extraction services and equipment, Grupo in the future will help prevent natural disasters in the region. Work began January México finalized its purchase of PEMSA for US$240 million. This acquisition is 9, 2009 and is expected to be completed in September 2010. aligned with our strategy to increase participation in the infrastructure sector.

México Compañía Constructora will continue to seek out projects. This division has In 2009, Compañía Perforadora México (Pemsa) revenues were reported at $90.9 the technical capacity and the experience to participate in future tenders given the l i f t million, with EBITDA at US$30.2 million and earnings of US$15.3 million. Panoramic View Tunnel, strong growth that Mexico and Latin America will see in large infrastructure projects. Río Grijalva, Chiapas r i g h t Operations Pemsa

98 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 99 Efforts Results

3 major Foundation programs

The Foundation's three major programs during 2009 were: Social Program, Environmental Program, and Culture and Arts Program. GRUPO MEXICO FOUNDATION

Since the start of the Grupo México Foundation, we have been seeking to integrate Alliances: all of Grupo México's social, environmental, and cultural efforts. – The program “Bécalos” provides educational scholarships to young students and teachers based on the following objectives: It has been a year of initiatives and searches for opportunities for action and al- • Favor quality in the education provided in Mexico. liances with other Charity Organizations, State Governments, and Companies • Encourage equality in education and ongoing training for teachers. to multiply benefits, interests, and resources resulting in significant changes in • Expand the horizon of opportunity for good, low-income students and teachers. quality of life. Based on these efforts, the Foundation has created three major programs: – Empresarios por la Educación Básica: This Organization offers various train- ing and leadership courses for elementary school teachers and parents at Social Program public schools. Education: we work on projects that increase the quality of education and offer l e f t opportunities for personal growth not only for people in need, but anyone who is Workshops with the community. Community support: we support the work of those that promote and undertake r i g h t striving to make a change in their lives and in Mexico. Support to the community. projects that provide the tools necessary for a family or group to form integrated

102 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 103 communities where there is peace and harmony, and where there are also oppor- for cancer survivors through the Círculo de Ganadores (Winners Circle). The tunities for education, health, and employment. center also performed 20 bone marrow transplants.

Alliances: Environmental Program – Un techo para mi país: This Organization strives to eradicate extreme poverty in our Working on the restoration and improvement of the environment both in and outside continent. Their work is directed at building "emergency" and "low-income hous- of Mexico is a priority interest for us, because caring for the ecological balance is ing", and also the development of community health and education programs, fundamental and essential for our present and our future. The Grupo México Foun- production development, and legal advice to "create" sustainable communities. dation's Environmental Program is focused on two areas of interest and support: water and reforestation. We support and promote projects related to the care and Health: We support all Organizations that offer health brigades, prevention cam- rationed use of water in all its forms. Similarly, the Grupo México Foundation uses paigns, education, and information on various illnesses. the trees and plants from its nurseries at the company's operating units to support reforestation campaigns, while we also foster alliances with other organizations to Alliances: support and promote projects that preserve our natural surroundings. – The ABC Cancer Center began operations in January 2009, offering chemo- therapy and radiation therapy and support for cancer patients. In 2009, the Alliances: center provided 6,624 radiation therapy sessions to 279 patients and 340 – We are a Founding Sponsor of the supplement Equilibrio, to join with the efforts l e f t Support campuses patients received 1,803 chemotherapy treatments. The center also provided of companies and Organizations whose only purpose is to encourage and pro- r i g h t Nursery San Luis Potosi educational courses to cancer patients and their families, including support mote ecological awareness to improve and preserve our natural surroundings.

104 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 105 – BETA DIVERSIDAD AC: In collaboration with Beta, we created the Grupo México In parallel, we use the infrastructure of Cinemex and MMCinemas for various Foundation Environmental Fund, whose primary purpose is the recovery and promotion and support projects. preservation of various Ecological Parks recharging watertables that provide between 2% and 7% water; contributing to mitigating the current problem of Benefit premieres: We hold various movie premieres where all ticket sales are the scarcity of clean water in Mexico. donated to an active charity organization.

Culture and Arts Program Alliances: The purpose of the Culture and Arts Program is to support representative projects – Fundación Venga y Oiga, A.C.: This organization assists low-income people that emphasize traditional Mexican values and identity. of all ages with hearing problems, hearing loss, and partial or total deafness. Their support includes diagnostic tests, providing hearing aids, rehabilitation Artistic and cultural diffusion both in and outside of Mexico: We encour- therapies, and implants. age the development and awareness of Mexican Popular Art and we support pro- posals that develop artistic and cultural activities in various regions of the country. – Comedor Santa María: The primary purpose of this organization is to meet the basic food needs of children 0 to 16 years of age. This support is complement- This year we supported and directly promoted Mexican handicrafts from the Alto ed with human values and a dignified and loving treatment. The organization is Paploapan region in the state of Oaxaca to expand and preserve the work of Mexican also looking for new opportunities to help these children to grow up to become artisans and to also contribute to improving their quality of life and the wellbeing productive members of society. of their community. Cologne, La Caridad, Sonora

106 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 107 – Asociación Mexicana para las Naciones Unidas – Deportes para Compartir donations received are delivered to various Organizations that help those most This organization is affiliated with the United Nations and its mission is to cre- in need. For example, we collected donations through the various MMCinemas ate awareness for the United Nations values on childhood in Mexico, through theaters in the State of Sonora to support the efforts of the Sonora Red Cross in a sports program offered at public and private schools. aiding victims of Hurricane Jimena.

– Asociación Morelense de Lucha contra el Cáncer de Mama: This organization Spreading the social message: We encourage and create awareness for the supports low-income breast cancer sufferers who do not have access to medi- work of various organizations through Cinemex and MMCinemas theaters. Ac- cal services and/or are on waiting lists at public hospitals to receive treatment tions such as these aid in gaining recognition for the commitment of the people for their illness. working for those most in need. Through these efforts we have found that there are many who promote and create awareness for the charity work being done Integral movie theater campaigns: We take advantage of every aspect of in Mexico; we have worked together with advertising agencies, public relations movie theaters to raise money and promote specific projects for an Organization. firms, filmmakers, creative teams, and many other collaborators. On the one hand mass awareness is created for the work of the Organization and on the other, the public is invited to join their cause. Diffusion: – With the Comisión Nacional de Áreas Naturales Protegidas CONANP (Na- Disaster response: Movie theaters are used as donation receiving centers to tional Commission on Protected Areas), Cineminuto (short films) was dis- l e f t support those who have been affected by various natural disasters, and we also Adult Education tributed to theaters to inform on the 9 ecosystems in the different Protected r i g h t open our ticket offices to anyone wanting to contribute through donations. All Workshops with the community Areas nationally.

108 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 109 l e f t a n d r i g h t : Youth Encounter

– Nuestros Niños: Organization that supports low- promotion of new Mexican films through Red Car- • Instituto Minerva • Asociación Franciscana, IAP income mothers by providing daycare while the pet events and distribution at various Cinemex and • Universidad de Sonora • Fundación ProNiños de la Calle, A.C. mothers go out to work. Support is given through MMCinemas establishments. Our collaborations help • Heróicpo Cuerpo de Bomberos • Fundación Universidad Nacional a program of integral development and care that Mexican cinema achieve the success it deserves. In • Asilo San José Autónoma, A.C. includes preschool education, meals, and medi- parallel, we sponsor various Mexican films, contrib- • Desarrollo y Superación A. C. • Hogar y Caridad Sonorense, A.C. cal attention. uting to the ongoing effort to raise the prestige and • Fundación ABC, Grupo México donated the Ra- • Centro Educacional La Caridad level of Mexican productions. diation Therapy Department to the Cancer Center • Colegio de Bachilleres del Estado de Sonora – SEDENA: Department of National Defense cam- • Nuestros Niños, IAP • Gobierno de Sonora paign to recognize and create awareness for the Other Organizations Supported: • Empresarios por la Educación Básica • Educación Popular Sofía Barat, A.C. work of the armed forces in benefit of the public. • Fundación Mexicana para la Salud • Probosque de Chapultepec • Escuela Preparatoria de Nacozari • Comedor Santa María • Acajungla, A.C. • Escuela Preparatoria Esqueda – Mexican Red Cross: Campaign to promote the • Centro de Cultura Ambiental de los Viveros de Mexican Red Cross National Donation Campaign Coyoacán in March and April 2010, and also their 100th • Damnificados Huracán Guaymas The Grupo México Foundation completed all this work Throughout this first year we have been able to better Anniversary. • Proyecto Comedor de los pobres during its first year of operations. It should be noted focus our work while evaluating the real impact and • City of Cananea. “Proyecto, jóvenes encuentro” that we the operation of the Grupo México Foundation benefit for organizations that approach Grupo México Support for Mexican cinema: We are committed • Fundación Nikola Tesla, A.C. we have contributed to making the social efforts and re- seeking assistance. to Mexican talent, which is why in support of our lo- • Jardín de Niños Valle del Cobre sponsibility of the whole of Grupo México more efficient. cal arts and culture, we promote and encourage the • Jardín de Niños de Cananea We eliminated parallel tasks and duplication of efforts.

110 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 111 Efforts Results

09 Financial Results

Grupo México paid out a total of $5.302 billion pesos in dividends during 2009. FINANCIAL ANALYSIS AND DISCUSSION

This analysis and discussion presents a review of the consolidated financial results for company has mines, metallurgic plants, and exploration projects in Mexico, Grupo México, S.A.B. de C.V. and subsidiaries (“GMexico” or the “Company”) (BMV: Peru, and Chile. SCC stockholders are Grupo México 80.0% and other stock- GMEXICOB). The audited financial results for the twelve months ended December 31, holders 20.0%. The company also wholly owns the subsidiary Asarco, which 2009 are compared to the same period for the previous year. was reincorporated into GMexico on December 9, 2009, after emerging from Chapter 11 proceedings. Asarco has 3 mines and 1 smelting plant in Arizona Grupo México is a holding company whose main activities are in the mining-met- and 1 refinery in Texas. allurgic industry, and include the exploration, exploitation, and benefit of metallic and non-metallic minerals, and freight and multimodal railroad services, and also (II) The transportation division is represented and controlled by GMexico's sub- infrastructure projects, grouped under the following subsidiaries: sidiary Infraestructura y Transportes México, S.A. de C.V. (“ITM”), whose principal subsidiaries are Grupo Ferroviario Mexicano, S.A. de C.V. (“GFM”), (I) The mining division of GMexico is represented and controlled by its sub- Ferrocarril Mexicano, S.A. de C.V. (“Ferromex”), and Ferrosur, S.A. de C.V. sidiary Americas Mining Corporation (“AMC”), which consolidates the op- (“Ferrosur”). Ferromex is the largest railroad company with the most exten- erations of Southern Copper Corporation (“SCC”) in Mexico and Peru, and sive coverage in Mexico. Ferromex has a network of 8,111 kilometers of track Asarco LLC (“Asarco”) in the United States. SCC is one of the world's largest covering approximately 71% of Mexico. Ferromex lines connect to five bor- integrated copper producers, producing copper, molybdenum, zinc, silver, der points with the United States, and also to four ports on the Pacific Coast

gold, and lead. SCC trades on the New York and Lima stock exchanges. The La Caridad, Sonora and two on the Gulf of Mexico. Ferromex is controlled by Grupo México,

114 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 115 holding 55.5%, Union Pacific 26%, and Grupo Carso-Sinca Inbursa 18.5%. On projects. Consutec engages in integral project engineering activities. GMex- November 24, 2005, Grupo México incorporated Ferrosur through Infraestructura ico acquired 20% of the capital shares in PEMSA and the remaining 80% is y Transportes Ferroviarios, S.A. de C.V. (“ITF”); this acquisition is reported in the subject to the condition of obtaining the approval of the Federal Competition financial statements under the participation method. Ferrosur has a track network Bureau. PEMSA offers oil and water drilling services and related value added of 1,813 kilometers covering the central and southeastern part of the country, serv- services such as cementation engineering and directional or slanted drilling. ing principally the states of Tlaxcala, Puebla, Veracruz, and Oaxaca, and has ac- cess to the ports of Veracruz and Coatzacoalcos on the Gulf of Mexico. Ferrosur All figures in this report were prepared according to US GAAP and are expressed is controlled by Grupo México, holding 74.99%, and Grupo Carso-Sinca Inbursa in US dollars (“$”), except where indicated otherwise, and as of December 31, with 25.01%. Grupo México also controls Intermodal México, S.A. de C.V. 2009. Therefore all percentage changes are expressed in real terms. The conver- sion from Mexican pesos to US dollars is included for reference purposes only, (III) The infrastructure division of GMexico is represented by its subsidiaries México applying the exchange rate set by the Bank of Mexico for settling obligations, Constructora Industrial, S.A. de C.V. (“MCI”), México Compañía Constructora, S.A. which was 13.0587 pesos per dollar on December 31, 2009. de C.V. (“MCC”), Servicios de Ingeniería Consutec, S.A. de C.V., and Compañía Perforadora México, S.A. de C.V. (“PEMSA”). MCI and MCC are wholly owned by This report may contain forward-looking statements and such statements are to be

GMexico, and engage in engineering, procurement, and infrastructure construction interpreted as estimates prepared by the Company in good faith. These forward- Sightseeing train Chep

116 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 117 looking statements reflect the opinions of Company Management based on cur- rently available information. Actual results are subject to future and uncertain events that may have a material impact on the actual performance of the Company.

STOCK EXCHANGE LISTING

GMexico is a publicly traded company, whose shares have been quoted on the Bolsa Mexicana de Valores (BMV) (Mexican Stock Exchange) since 1978, under the listing code: GMEXICOB.

Grupo México is represented by 7,785,000,000 common series "B" shares, fully subscribed and paid. As of December 31, 2009, the company has 7,785,000,000 common series "B" shares outstanding.

SCC shares are quoted on the New York Stock Exchange (NYSE) and the Lima Stock Exchange (BVL), under the listing code: SCCO on both exchanges. Follow- ing the approval of the Board of Directors given on January 10 of this year, the listing code changed from “PCU” to SCCO on February 17, in an effort to increase Cathodes in spring. recognition of SCC shares and project SCC's global presence. Ilo, Peru

118 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 119 Mine Production & Sales

Mining Division January-December Variance 2009 2008 % Copper (m.t.)) Production 496,022 488,929 7,093 1.5 SCC 485,376 488,929 (3,553) (0.7) Asarco 10,646 - 10,646 100.0 Sales 515,209 505,538 9,671 1.9 Moldeo ánodos. Ilo, Perú SCC 507,015 505,538 1,477 0.3 Barras de plata Asarco 8,194 - 8,194 100.0 Molybdenum* (m.t.)) Production 18,687 16,390 2,297 14.0 SCC 18,687 16,390 2,297 14.0 Sales 18,591 16,509 2,082 12.6 METALS PRICES SCC 18,591 16,509 2,082 12.6 Zinc* (m.t.)) Copper LME Copper Comex Molybdenum Zinc Lead Silver Gold Metals Prices: Production 110,430 106,920 3,510 3.3 ($/lb) ($/lb) ($/lb) ($/lb) ($/lb) ($/oz) ($/oz) SCC 110,430 106,920 3,510 3.3 1Q 2009 1.56 1.57 8.75 0.53 0.53 12.63 908.71 Sales 103,838 100,317 3,521 3.5 2Q 2009 2.12 2.15 9.10 0.67 0.68 13.75 921.51 SCC 103,838 100,317 3,521 3.5 Silver (thousands oz) 3Q 2009 2.66 2.67 14.5 0.80 0.87 14.76 960.06 Production 13,324 12,316 1,008 8.2 4Q 2009 3.02 3.03 11.29 1.00 1.04 17.56 1101.64 SCC 13,202 12,316 886 7.2 Average 2009 2.34 2.35 10.91 0.75 0.78 14.67 972.98 Asarco 122 - 122 100.0 Sales 18,474 15,000 3,475 23.2 SCC 18,169 15,000 3,170 21.1 1Q 2008 3.54 3.53 33.01 1.10 1.31 17.62 926.78 Asarco 305 - 305 100.0 2Q 2008 3.83 3.8 32.76 0.96 0.15 17.17 895.95 Sulfuric Acid (m.t.) Production 1,737,277 1,698,905 38,372 2.3 3Q 2008 3.48 3.45 33.27 0.80 0.87 14.92 869.58 SCC 1,737,277 1,698,905 38,372 2.3 4Q 2008 1.77 1.75 14.64 0.54 0.56 10.15 794.53 Asarco 24,405 - 24,405 100.0 Average 2008 3.16 3.13 28.42 0.85 0.72 14.97 871.71 Sales 1,551,786 1,502,399 49,387 3.3 SCC 1,545,027 1,502,399 42,628 2.8 Asarco 6,759 - 6,759 100.0 Variance 4Q09 vs. 4Q08 70.6% 73.1% -22.9% 85.2% 84.2% 73.0% 38.7% Gold* (oz) Variance YE09 vs. YE08 -25.9% -24.9% -61.6% -11.8% 7.8% -2.0% 11.6% Production 15,088 14,950 137 0.9 SCC 15,088 14,950 137 0.9 Sales 63,491 47,197 16,294 34.5

1. Anode casting. 2. Silver bars. (*) Asarco does not produce this mineral.

120 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 121 Complex. La Caridad, Sonora Thickeners tanks, Toquepala, Peru

Consolidated Results

Consolidated net sales for Grupo México in 2009 natural gas for metallurgic processes at our Mexican The operating profit reached US$1.715 billion in On January 29, the Board of Directors approved a reached US$4.827 billion, compared to US$6.033 operations, diesel for our mine equipment and locomo- 2009, 30.9% lower than 2008; while the operating US$3.910 billion Investment Program over three years. billion in 2008. This 20% decrease is attributed prin- tives), electricity, water, and operating materials, such flow, EBITDA was US$2.138 billion, 26% lower than US$2.950 billion will be invested in the Mining Divi- cipally to a drop in metals prices that was accentuated as explosives, steel, tires, reagents, and safety equip- 2008, placing the EBITDA margin at 44.3% for 2009. sion, US$576 million in the Transportation Division, from September 2008 on and continued into the first ment for our mines. Also, there was an increase in the and US$384 million in the Infrastructure Division. months of 2009. The transportation and infrastructure cost of parts and preventive maintenance to guarantee Net earnings for 2009 were $887 million, 18% lower divisions reported decreased sales by 6.2% com- the proper and continued functioning of equipment. than the previous year, representing a total equal to STOCK DIVIDENDS pared to 2008; representing 21% of total revenues, 18% of sales. while the mining division represented the remaining Although the prices for our principal supplies and During 2009, Grupo México paid out a total of $5.302 79% of Grupo México's total revenues. materials may experience variances that our beyond INVESTMENT IN FIXED ASSETS billion pesos in dividends. The following table shows our control, the Company will continue strict efforts the per share dividend amounts paid out for each quar- Cost reductions continue to improve the Company's re- to reduce costs, optimize processes, and increase The consolidated investment program of Grupo Méx- ter over the last two years, and also their equivalent sults. The cost of sale decreased 13.3% from $2.958 productivity; and will also continued its disciplined ico as of December 31, 2009 decreased 19.1% to when the dividend payment was made with new shares. billion in 2008 to $2.564 billion at close 2009. This de- approach to consumption and expense, which has al- $624 million, compared to the $746 million invested crease is due principally to benefits from the exchange lowed the company to maintain its position as one of in 2008, of which $441 million were allocated to the rate, increased productivity, operating efficiencies, and the best low cost leading copper producers in terms Mining Division and $183 million to the Transporta- lower prices for fuel (such as oil for vats and generators, of cost per pound produced tion and Infrastructure divisions.

122 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 123 2009

MX$/share Date of Payment

First Quarter* 0.12 May 11, 2009

Second Quarter* 0.25 August 19, 2009

Third Quarter 0.17 November 25, 2009

Cuarto Trimestre 0.14 March 12, 2010

2008

MX$/share Date of Payment

First Quarter 0.33 May 9, 2008

Second Quarter* 0.39 August 22, 2008

Third Quarter* 0.24 November 14, 2008

Fourth Quarter 0.11 February 27, 2009

(*) A dividend payment in shares was authorized in the first quarter of 2009 at one per 100 shares, and another in the second quarter of 2009 at one per 75 shares.

A combination cash and share dividend payment was authorized in the second quarter of 2008, at $8.28 per share, plus one share per 150 shares. A dividend payment in shares was authorized in the third quarter of 2008 ....

Our dividend policy continues to be reviewed by the Board of Directors, considering the current capital expenditure program and the future cash flow our operations are expected to generate.

CONSOLIDATED NET DEBT

As of December 31, 2009, the total consolidated debt of Grupo México was $3.4181 billion, which after deducting the cash and cash equivalent balance of $1.3593 bil- lion, represents $2.0598 billion in net debt and despite the increased debt due to Toquepala, Perú Asarco, Grupo México maintains a manageable long term amortization schedule.

124 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 125 DEBT DETAILS

Credit Total Balance Final Millions US$ Interest Rate Limit Available Dec 31 09 Maturity

Americas Mining Corporation

Southern Peru Holdings Corp. $ 331.4 $ 331.4 $ 331.4 Libor 3m+3.75% 9-Dec-14 AMC Syndicated Loan Tranche A $ 850.0 $ 850.0 $ 841.0 TIIE 28+4.25% 9-Dec-14 AMC Syndicated Loan Tranche B MXN* $ 190.6 $ 190.6 $ 190.6 Libor 3m+3.75% 9-Dec-14 AMC Syndicated Loan Tranche C USD $ 130.0 $ 130.0 $ 126.7 TIIE 28+4.25% 9-Dec-14 AMC Syndicated Loan Tranche C MXN* Total $ 1,502.0 $ 1,502.0 $ 1,489.7

ASARCO Mexicana de Cobre Night view

Asbestos Creditors Note $ 280.0 $ 280.0 $ 280.0 6.00% 9-Dec-10 DEBT MATURITY Southern Copper Corporation

The total consolidated debt of GMexico has an amortization schedule that does not 30 year Yankee Bond Series "B" $ 125.0 $ 125.0 $ 56.4 9.25% 01-Abr-28 Mitsui Loan $ 100.0 $ 100.0 $ 40.0 Libor 6m+1.25% 15-Dec-13 present a difficult financial burden for the Company. The average debt amortiza- 10 year Bonds Maturing 2015 $ 200.0 $ 200.0 $ 200.0 6.38% 27-Jul-15 tions per year between 2010 and 2014 will be $83 million. The maturity schedule 30 year Bonds Maturing 2035 $ 1,000.0 $ 1,000.0 $ 1,000.0 7.50% 27-Jul-35 for the debt is as follows: Total $ 1,425.0 $ 1,425.0 $ 1,296.4

GFM - Ferromex Capital Amortization Schedule - December 31, 2009

Securities Certificates* $ 221.6 $ 221.6 $ 114.9 9.03% 28-Oct-22 Securities Certificates* $ 147.7 $ 147.7 $ 76.6 TIIE 28 +0.34% 7-Nov-14 1,200 1,000 Banamex* $ 87.6 $ 87.6 $ 61.4 8.18% 15-Sep-15 1,000 Banamex* $ 18.6 $ 18.6 $ 11.7 8.25% 15-Mar-14 800 BOFA-Eximbank $ 39.5 $ 39.5 $ 17.4 Libor 3m+0.09% 25-Jul-13 600 BNP Paribas-EXIMBANK $ 24.4 $ 24.4 $ 14.3 Libor 6m+0.08% 26-Nov-14 400 HSBC-EDC $ 4.2 $ 4.2 $ 2.5 Libor 6m+0.40% 26-Nov-14 200 218 111 128 99 73 56 66 53 5 Caylon $ 19.8 $ 19.8 $ 15.1 Libor 3m+0.40% 15-Jun-16 0 0 0 millions of dollars 0 Caylon-Eximbank $ 70.8 $ 70.8 $ 54.2 Libor 3m+0.00% 15-Jun-16 2011 2012 2013 2015 2014 2010 2016 2028 2022 2035 Total $ 634.2 $ 634.2 $ 368.1 2017 - 20212017 2023 - 2027 * Loan contracted in pesos, however the table shows the equivalent in dollars at the exchange rate of 13.0587 2029 - 2034

126 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 127 DERIVATIVE INSTRUMENTS

GMexico uses derivative instruments to manage its exposure to market risks due Minera México entered into futures contracts for dol- GFM holds an interest rate derivative for a $69.3 mil- to variances in the prices for basic products, interest rates, and exchange rates. lars to cover a minimal portion of its needs for pesos lion loan, which reports an unfavorable valuation as of GMexico does not generally subscribe derivative contracts, except when there for company operations in Mexico. These contracts December 31, 2009 and 2008 of $0.6 million and $2.3 is an anticipation of a future activity that would expose GMexico subsidiaries to have expired and as of December 31, 2009, SCC does million, respectively. market risks, with and on the prior approval of the risk committee, audit commit- not have any exchange rate contracts. As of 2009 close, tee, and the board of directors. these contracts posted book earnings of $4.2. SCC be- CREDIT PROFILE lieves this position will not have a negative effect as the GMexico contracted the following financial derivatives through its two divisions, Company earns its revenues in dollars, as is the nature During 2009, Grupo México and its subsidiaries main- Mining and Transportation: of the commodities industry. tained their respective “investment grade” credit ratings, due to their low debt profile, strong liquidity position, Mining Division. The subsidiary SCC contracted coverage to: a) protect prices Transportation Division. The subsidiary GFM entered and a manageable amortization schedule. on a portion of its copper sales; b) fix the energy rates for part of its production into an interest rate derivative to cover a bank loan. costs; and c) protect part of its operating costs in the face of an appreciation of the On November 20, 2009, Fitch confirmed its credit Mexican peso against the US dollar. The Transportation Division follows the accounting ratings of “BBB-” for GMéxico, AMC, and Grupo Fer- policy that the financial assets and liabilities result- roviario Mexicano, and “BBB” for Southern Copper In the mining division, the transactions corresponding to the protection programs ing from any type of financial instrument, except for Corporation (“SCC”). Also, in December 2008, Stan- for metals prices are accounted for in adherence of the guidelines provided by investments in financial instruments held to term, are dard & Poor’s y Fitch confirmed their ratings of “MXAA” SFAS No. 133 and adjusted to fair market value based on the metals prices as of valued at their fair value and reported in the balance and “AAMX”, respectively for Ferrocarril Mexicano, for l e f t the last day in the respective reporting period with the gain or loss being reported 1.Electrolytic Zinc Plant. sheet. The effects of the valuation of a financial asset the debt issues FERROMX 07 and FERROMX 07-2. San Luis Potosi in the net sales on the consolidated statement of income. SCC did not enter into 2.Underground Mine, Charcas. or liability are recognized in the results for the cor- San Luis Potosi any copper collar contracts for 2009. r i g h t responding period. Patio Outlet. Guadalajara, Jalisco

128 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 129 Major Mining Asset

Arizona

Ray Hayden Smelter Silver Bell Amarillo Refinery Mission

Tucson Corporate Office Texas

Standard & Moody´s Fitch Ratings Poor´s ASARCO

Grupo México On December 9, Grupo México contributed US$705 million from its cash and International Rating - BBB- BBB- secured financing for US$1.500 billion to capitalize Asarco with US$2.205 billion. In addition, Asarco contributed US$1.357 billion from its cash to make a total Americas Mining Corporation payment to creditors for US$3.562 billion. Additionally, Asarco issued a note to International Rating - BBB- BBB- its asbestos creditors for US$280 million.

Southern Copper Corporation This investment releases Asarco from all legal contingencies settling all claims International Rating Baa2 BBB- BBB brought during the Chapter 11 process, including environmental liabilities, asbes- US$1 billion Bonos Baa2 BBB- BBB tos-related claims, and financial liabilities. Local Rating - - BBB

It should be noted that no creditor incurred loss on this transaction, all debts were Minera México paid in full and with their respective interests, meeting the initial objective of un- Local Rating - - BBB dergoing Chapter 11, which was to determine the real liabilities in order to settle International Rating Baa3 - BBB these and to have a company that is free of contingency liabilities. Secured Bond Baa3 - BBB

Significant Mine Assets.- Asarco has significant mining assets, such as the Ray, Ferromex Mission, and Silver Bell mines in Arizona, and also refining and smelting plants l e f t Long Term Local Rating - MXAA AA(Mex) Refinery. Ilo, Per in Amarillo, Texas, and Hayden, Arizona. These assets will contribute an estimated r i g h t International Rating - - BBB- Silver Bell. Phoenix, Arizona annual copper production of 220,000 tons, representing a 44% increase in produc-

130 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 131 Asarco Highlights

Dec. 10- 4Q09 Year

(Thousands of dollars) 31, 09 2009 2009

Copper Production (metric tons) 10,646 46,361 185,898

Copper Sold (metric tons) 8,194 50,846 200,958

Sales 67,327 371,106 1,164,942

Cost of Sale 37,718 222,574 784,962

Operating Profit 29,609 127,770 312,100

EBITDA 28,537 141,863 360,233

EBITDA Margin (%) 42.4% 38.2% 30.9%

Net Earnings 22,395 193,633 195,004

Investments / Capex 1,750 3,058 53,305

Cash Cost Asarco continued with the initiatives to reduce cash costs, lowering its cost of 196 tion for GMexico. Asarco is currently the 3rd largest duction 10,646 tons of copper, 122,068 oz of silver, cents per pound of copper in 2008 to 174 cents per pound of copper in 2009. copper producer in the United States. The Company and 24,405 tons of sulfuric acid, as GMexico only is working to obtain greater synergies and operating consolidated the Asarco operation for 22 days starting improvements to maximize the value generated by December 10, 2009. these assets. BUS$1.024 billion fiscal benefit.- The invest- 2.30 Asarco has reserves of approximately 5 million tons ment in the reorganization of Asarco gives GMexico 2.15 of copper content, equal to close to 30 years of opera- a US$1.024 billion fiscal benefit, recoverable over the tion. GMexico is currently implementing an extensive coming quarters, therefore the net cost of this opera- 2.00 1.96 re-engineering initiative to achieve greater operating tion was US$1.181 billion. At the average copper price efficiency for its assets, reduce unit costs, and also of US$3.25 per pound projected by traders for 2010, 1.74 1.70 detect opportunities for growth. Asarco will generate EBITDA of approximately US$550 1.50 million in 2010, implying for the transaction a very at-

l e f t 1.40

For the purposes of consolidation, as of year-end tractive valuation at 1.8 times EBITDA. (us$/lb) Silver Bell. 2009, Asarco contributed to GMexico's mining pro- Phoenix, Arizona 07 08 09 2010 E

132 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 133 Transportation Division Ferromex - Railroad Freight

Infraestructura y Transportes México 45,000 900,000 Ferromex completed 11 years of operations in 2009, reporting (ITM) Highlights 40,000 800,000 significant growth in freight 35,000 700,000 volumes and net tons-kilometer January - December Variance 30,000 600,000 transported. (Thousands of dollars) 2009 2008 US$000 % 25,000 500,000 20,000 Vol. Transported (millions ton/km) 39,205 40,186 (981) (2.4) 400,000 15,000 Sales 920,056 1,083,293 (163,237) (15.1) 10,000 300,000 Cost of Sale 608,937 694,158 (85,221) (12.3)

5,000 200,000 CARS Operating Profit 190,130 253,691 (63,561) (25.1) 99 00 01 02 03 04 05 06 07 08 09 EBITDA 272,813 352,228 (79,415) (22.5) Cars net tons-km (millions) EBITDA Margin (%) 29.7% 32.5%

Net Earnings 121,107 154,412 (33,305) (21.6)

Investments - Capex 124,233 176,490 (52,257) (29.6) GFM Financials

Transportation Division Resources $1,083 $996

Item Ferromex Ferrosur Total $914

Track Network (Km) 8,111 1,813 9,924

Locomotives 567 153 720 352

Cars 11,745 4,316 16,061 324 281 276

Employees 6,953 1,938 8,891 176 124

Productivity (Millions net tons-km / employee) 5.6 3.5

07 08 09

NET REVENUES EBITDA CAPEX

134 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 135 FERROSUR

Ferrosur Highlights

Year Variance

(Thousands of dollars) 2009 2008 US$ %

Vol. Transported (millions ton/km) 6,833 6,693 140 2.1

Sales 223,433 249,291 (25,858) (10.4)

Cost of Sale 156,912 168,017 (11,105) (6.6)

Operating Profit 35,299 41,482 (6,183) (14.9)

EBITDA 62,121 64,373 (2,252) (3.5)

EBITDA Margin (%) 27.8% 25.8%

Net Earnings 18,502 25,447 (6,945) (27.3)

Investments - Capex 42,205 25,443 16,763 65.9

Note: ITM does not consolidate Ferrosur under CFC instruction.

Ferrosur Railroad Freight

300,000 6,800

6,400 260,000

6,000 220,000 5,600

5,200 180,000

4,800 140,000 The operating profit dropped 25%, reporting US$191 million for 2009. EBITDA as 4,400 RAIL CARS of December 31, 2009, was US$276.4 million, 21.1% lower than 2008, placing the TON-KM 4,000 100,000 EBITDA margin at 30.2% in terms of sales. Net earnings fell from US$160.7 million 05 06 07 08 09 in 2008 to US$142.1 million in 2009, a decrease of 12%. Tourist Train Chepe RAILCARS TONS-KM NET (MILLION)

136 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 137 Ferrosur Financials $249 $245 $223 69 64 62 45 42 25

07 08 09

NET REVENUES EBITDA CAPEX

OPERATING PROFIT - NET EARNINGS (MILLIONS OF DOLLARS)

5,000

4,000 3,675 3,285 3,000 2,481 2,243 2,000 1,715 1,631 1,530 1,076 1,063

1,000 888

0 05 06 07 08 09 COPPER PRICE 168.23 308.94 322.17 313.36 235.42 CTS/POUND

UOPERATING PROFIT Roundhouse Locomotive Workshop. NET EARNINGS Guadalajara, Jalisco

138 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 139 CORPORATE STRUCTURE

MINING DIVISION TRANSPORTATION DIVISION INFRASTRUCTURE DIVISION

100% 74.9% 100% Americas Mining Infrastructure and Mexico Projects Corporation (AMC) Transport Mexico and Developments (ITM) 25.1%

26% 80% 100% 100% 74% Infrastructure Southern Copper asarco Grupo Ferroviario and Rail Mexicano Corporation Transportation

100% 100% 100% 100% 100% 100% Mexico Division Division FERROSUR FERROMEX PEMSA Construction Mexico Peru Company

* Ferrosur not consolidate their results in Grupo Mexico La Caridad, Sonora

140 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 141 FIXED ASSETS EQUITY CAPITAL OPERATING PROFIT PER SHARE (MILLIONS OF DOLLARS) (MILLIONS OF DOLLARS) (DOLLARS)

7,000

6,655 5,250 5,089 0.60

6,000 4,660

4,500 4,319 0.50 0.48 3,967 0.43 5,000 4,862 4,734 3,750 4,518 3,206

4,132 0.40

4,000 3,000 0.32 0.30 0.29 3,000

2,250 0.22

0.20 2,000 1,500

1,000 750 0.10

0 0 0 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09

The book value refers to 7,785,000,000 shares and the per share earnings refers to 7,695,575,324 shares.

CURRENT ASSETS AND LIABILITIES (MILLIONS OF DOLLARS)

4,500 4,405 4,271

4,000

3,687 PER SHARE EARNINGS 3,500 (DOLLARS) 3,068 3,000 0.25 2,500 2,335 0.21

2,000 0.20 0.20 1,661

1,500 1,392 1,263 1,101 1,006

0.15 0.14 1,000 0.14 0.12 0 0.10 05 06 07 08 09

2.32 2.92 3.07 2.79 2.65 TIMES 0.5

CURRENT ASSETS 0 CURRENT LIABILITIES 05 06 07 08 09

142 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 143 EQUITY CAPITAL AND TOTAL ASSETS BOOK VALUE PER SHARE (MILLIONS OF DOLLARS) (DOLLARS)

13,000 12,462 0.70

12,000 0.65 11,000 0.60 0.60 0.55

10,000 9,745 0.51

8,916 0.50

9,000 8,788

8,000 0.41 7,477 7,000 0.40 6,000

5,089 0.30

5,000 4,660 4,319

4,000 3,967

3,206 0.20 3,000 2,000 0.10 1,000 0 0 05 06 07 08 09 05 06 07 08 09

EQUITY CAPITAL

TOTAL ASSETS

EQUITY CAPITAL AND TOTAL LIABILITIES EBITDA / INTERESTS (MILLIONS OF DOLLARS) (TIMES)

6,000 5,888 25 23.23 22.74 5,089 5,000

4,660 20 4,319 17.56 3,967

4,000 16.01 3,632 3,603 15 3,206 13.92 3,160 3,090 3,000 10 2,000

5 1,000

0 0 05 06 07 08 09 05 06 07 08 09

EQUITY CAPITAL

TOTAL LIABILITIES

144 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 145 DEBT / CAPITAL + DEBT NET DEBT (MILLIONS OF DOLLARS) (MILLIONS OF DOLLARS)

9,000 4,000 8,507 3,418 8,000 3,000 2,665 2,060 2,067 2,066 7,000 6,727 1,940

2,000 1,785 1,719 6,007 1,688 6,034 6,000 1,358 1,264 1,000 4,824

5,000 455 126 4,000 0 3,418 3,000 -1,000 -97 2,067 2,067 -598 2,000 1,688 1,618 -2,000 1,000

0 -3,000 05 06 07 08 09 05 06 07 08 09

TOTAL DEBT 34 34 31 28 40 % CASH AND BANKS DEBT NET DEBT CAPITAL + DEBT

EBITDA PER SHARE CASH FLOW PER SHARE (DOLLARS) (DOLLARS)

0.60 0.40 0.36 0.52 0.50 0.31 0.47 0.30 0.40 0.24 0.38 0.23 0.34 0.21 0.30 0.20 0.28

0.20 0.10 0.10

0 0 05 06 07 08 09 05 06 07 08 09

146 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 147 BOARD OF DIRECTORS

GRUPO MÉXICO

Members of the Board of Directors Executive Officers

Germán Larrea Mota Velasco Genaro Larrea Mota Velasco Juan Rebolledo Gout Chairman Vice-Chairman Vice-President, International Relations

Emilio Carrillo Gamboa Claudio X. González Daniel Muñiz Quintanilla Alfredo Casar Pérez Prudencio López Martínez Chief Financial and Administrative Officer Valentín Diez Morodo Antonio Madero Bracho Juan I. Gallardo Thurlow José Mendoza Fernández Alberto de la Parra Zavala Xavier García de Quevedo Topete Fernando Ruiz Sahagún General Counsel Oscar González Rocha Agustín Santamarina Rafael Ríos García Alberto de la Parra Zavala Vicente Grau Alonso General Director of Corporate Securit Secretary to the Board of Directors Alternate Secretary Ricardo Arce Castellanos Corporate Director of New Business

MÉXICO PROYECTOS Y DESARROLLOS, S.A. de C.V.

Xavier García de Quevedo Topete Executive President

Federico Schroeder Contreras Vice-President, Engineering and Construction

Julio Larrea Mena Chief Executive Officer, México Constructora Industrial

Felipe Pérez López Chief Executive Officer, Perforadora México

Open pit Mine. Cuajone, Peru

148 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 149 FERROCARRIL MEXICANO, S.A. de C.V. SOUTHERN COPPER CORPORATION

Members of the Board of Directors Executive Officers Members of the Board of Directors Executive Officers

Germán Larrea Mota Velasco Genaro Larrea Mota Velasco Alfredo Casar Pérez Germán Larrea Mota Velasco Oscar González Rocha Chairman Vice-Chairman Executive President Chairman Executive President

Alfredo Casar Pérez Robert D. Naro Rogelio Vélez López de la Cerda Genaro Larrea Mota Velasco Xavier García de Quevedo Topete Jaime Corredor Esnaola Agustín Santamarina Vázquez Chief Executive Officer Vice-Chairman Executive President Xavier García de Quevedo Topete James R. Young Claudio X. González Laporte Rogelio Vélez López de la Cerda Lorenzo Reyes Retana Márquez Padilla Emilio Carrillo Gamboa Genaro Guerrero Díaz-Mercado Robert M. Knight Jr. Chief Operations Officer Alfredo Casar Pérez Chief Financial Officer Xavier García de Quevedo Topete Alberto de la Parra Zavala Christian Lippert Helguera Terrence Mc. Dermott Oscar González Rocha Daniel Chávez Carreón Secretary Alternate Secretary Chief Commercial Officer Daniel Muñiz Quintanilla Chief Operating Officer Minera Mexico Harold S. Handelsman Octavio Ornelas Esquinca Armando Ortega Gómez Mauricio Perón-Perrin Chief Financial and Luis Miguel Palomino Bonilla Director General Operations Southern Administrative Officer Gilberto Perezalonso Cifuentes Copper, Peru Juan Rebolledo Gout Carlos Ruiz Sacristán Remigio Martínez Muller Alberto de la Parra Zavala Vice-President, Exploration OTHER SUBSIDIARIES Vidal Muhech Dip PRINCIPALES FUNCIONARIOS Vice-President, Projects MÉXICO CONSTRUCTORA FERROSUR, S.A. de C.V. INTERMODAL MÉXICO, S.A. de C.V. INDUSTRIAL, S.A. de C.V. ASARCO LLC Armando F. Ortega Gómez General Counsel and Alfredo Casar Pérez Julio Larrea Mena Secretary to the Board Hilario Gabilondo Picollo Xavier García de Quevedo Topete Executive President Chief Executive Officer Chief Executive Officer Executive President José N. Chirinos Fano Rogelio Vélez López de la Cerda Comptroller Manuel Ramos Rada Chief Executive Officer Chief Operations Officer

Oscar González Barrón Chief Financial officer

Jorge Lazalde Psihas General Counsel

150 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 151 Grupo México, S. A. B. de C. V. and Subsidiarias

Consolidated Financial Statements for the Years Ended

December 31, 2009 and 2008 and Independent Auditors’

Report Dated April 14, 2010 Table of contents Page

Independent Auditors’ Report 2 Consolidated Balance Sheets 4 Consolidated Statements of Incomes 5 Consolidated Statements of Stockholders’ Equity 6 Consolidated Statement of Cash Flows 8 Notes to Consolidated Financial Statements 10 Independent Auditors’ Report to the Board of Directors and Stockholders of Grupo México, S.A.B. de C.V.

We have audited the accompanying consolidated balance sheet of Grupo México, plan became effective, wherein the Company, through its subsidiary, Americas S. A. B. de C. V. and subsidiaries (collectively referred to as the “Company”) as of Mining Corporation, acquired control over Asarco and settled substantially all December 31, 2009, and the related consolidated statements of income, changes of Asarco’s liabilities and claims. This transaction was accounted for as a bu- in stockholders’ equity and cash flows for the year then ended. These financial siness combination as required under accounting principles generally accepted statements are the responsibility of the Company's management. Our responsi- in the United States of America, whereby the net assets acquired were stated at bility is to express an opinion on these financial statements based on our audit. fair value. The consolidated financial statements for the year ended December 31, 2009, are included for comparison purposes, and were audited by other auditors whose In our opinion, such consolidated financial statements present fairly, in all mate- report, dated April 29, 2009, expressed an unqualified opinion. rial respects, the financial position of Grupo México, S.A.B. de C.V. and subsidia- ries as of December 31, 2009, and the results of their operations, changes in their We conducted our audit in accordance with auditing standards generally accepted stockholders’ equity and their cash flows for the year then ended, in conformity in Mexico. Those standards require that we plan and perform the audit to obtain with accounting principles generally accepted in the United States of America. reasonable assurance about whether the financial statements are free of material misstatement and that they are prepared in accordance with accounting principles The accompanying consolidated financial statements have been translated into generally accepted in the United States of America. An audit includes examining, English for the convenience of users. on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the financial reporting standards used and significant estimates made by management, as well as evaluating the Galaz, Yamazaki, Ruiz Urquiza, S. C. overall financial statement presentation. We believe that our audit provides a Member of Deloitte Touche Tohmatsu reasonable basis for our opinion.

As discussed in Note 1 to the accompanying financial statements, the unconsoli- dated subsidiary, Asarco LLC (“Asarco”), operated under the provisions of Chap- ter 11 of the bankruptcy code of the United States of America through November C. P. C. Luis Javier Fernandez Barragán 17, 2009, on which date the Company’s plan for the reorganization of Asarco was confirmed by the respective court. On December 9, 2009, the reorganization April 14, 2010

2 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 3 Grupo México, S. A. B. de C. V. and Subsidiaries Grupo México, S. A. B. de C. V. and Subsidiaries Consolidated Balance Sheets Consolidated Statements of Income As of December 31, 2009 and 2008 (In thousands of U.S. dollars) For the years ended December 31, 2009 and 2008 (In thousands of U.S. dollars, except for income per share amounts)

Assets 2009 2008 2009 2008 Current assets: Cash and cash equivalents $ 1,358,315 $ 1,785,413 Income: Short-term investments 198,004 172,402 Net sales $ 3,799,858 $ 4,938,289 1,556,319 1,957,815 Service revenue 1,027,486 1,095,185 Accounts receivable trade (less allowance for doubtful accounts 4,827,344 6,033,474 2009 - $8,559 and 2008 - $9,197) 629,524 200,740 Costs and operating expenses: Other accounts receivable 428,437 276,055 1,057,961 476,795 Cost of sales (exclusive of depreciation, amortization and depletion) 2,539,224 2,921,391 Administrative expenses 137,708 178,466 Inventories – Net 904,320 489,280 Depreciation, amortization and depletion 410,551 415,779 Prepaid expenses and other 104,015 62,537 Deferred income tax 782,799 81,912 Exploration 24,604 36,990 Total current assets 4,405,414 3,068,339 3,112,087 3,552,626 Property, plant and equipment – Net 6,575,469 4,780,995 Concession titles – Net 79,830 81,294 Income from operations 1,715,257 2,480,848 Investments in shares of associated companies and other unconsolidated subsidiaries 302,669 281,563 Leachable material – Net 142,866 156,294 Intangible assets 246,797 278,705 Net comprehensive financing cost: Deferred income tax 458,356 83,106 Interest expense 133,536 165,368 Other assets 250,538 57,958 Total assets $ 12,461,939 $ 8,788,254 Interest capitalized (2,156) (6,776) Interest income (97,329) (121,971) Liabilities and Stockholders' Equity Foreign exchange loss (gain) (22,088) 97,971

Current liabilities: (Gain) loss on derivative instruments (4,695) 76,722 Current portion of long-term debt $ 570,039 $ 49,615 Other (income) expense 10,288 (7,424) Accounts payable and accrued liabilities 922,341 679,773 Income tax payable 124 151,333 17,556 203,890 Employee statutory profit sharing 168,271 220,222 Total current liabilities 1,660,775 1,100,943 Income before income taxes 1,697,701 2,276,958 Long-term debt 2,848,071 1,638,716 Labor liabilities 491,434 61,318 Income tax 556,502 792,405 Deferred income tax 727,307 197,892 Long-term taxes payable 26,201 70,266 Other liabilities and reserves 134,529 90,522 Equity in the results of associated companies Total liabilities 5,888,317 3,159,657 and other unconsolidated subsidiaries 17,326 31,711

Stockholders' equity: Stockholders' equity of Grupo Mexico, S. A. B. de C. V.: Consolidated net income 1,158,525 1,516,264 Common stock (shares authorized and issued: 2009 and 2008 7,785,000,000) 2,003,496 1,970,602 Reserve for shares purchase 369,050 131,815 Additional paid-in capital 9,043 9,043 Less: non controlling interes income (270,528) (440,217) Treasury stock (346,049) (351,049) Accumulated other comprehensive loss (127,862) (167,016) Net income attributable to Grupo Mexico, S. A. B. de C. V. $ 887,997 $ 1,076,047 Retained earnings 3,180,909 2,725,555 Stockholders' equity of Grupo Mexico, S. A. B. de C. V. 5,088,587 4,318,950 Non controlling interest 1,485,035 1,309,647 Income per share attributable to Grupo Mexico, S. A. B. de C. V. $ 0.12 $ 0.14 Total stockholders' equity 6,573,622 5,628,597

Total liabilities and stockholders' equity $ 12,461,939 $ 8,788,254 Weighted average shares outstanding $ 7,695,575 $ 7,681,266

The accompanying notes are part of these consolidated financial statements. The accompanying notes are part of these consolidated financial statements.

4 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 5 Grupo México, S. A. B. de C. V. and Subsidiaries Consolidated Statements of Stockholders’ Equity For the years ended December 31, 2009 and 2008 (In thousands of U.S. dollars)

Additional Accumulated Stockholders' equity Outstanding shares Reserve for shares paid-in Treasury other comprehensive Retained of Grupo Mexico, Non controlling in thousands Common stock purchase capital stock loss earnings SAB de CV interest Total

Balances as of January 1, 2008 7,714,347 $ 1,991,746 $ 171,224 $ 9,043 $ (139,031) $ (3,905) $ 2,583,769 $ 4,612,866 $ 1,518,088 $ 6,130,954

Retained earnings capitalization - - 27,539 - - - (27,539) - - - Purchase of own shares (155,414) (33,373) (155,248) (188,621) - (188,621) Dividends paid in shares (reserve for purchase of shares) 51,066 12,229 88,280 - - - (100,509) - - - Dividends paid in shares (treasury stock) - - - - 136,052 - (136,052) - - - Dividends paid (670,161) (670,161) (434,919) (1,105,080) Treasury stock increase - - - - (348,070) - - (348,070) - (348,070) Comprehensive result: Consolidated net income ------1,076,047 1,076,047 440,217 1,516,264 Other - - - - - (163,111) - (163,111) (213,739) (376,850) - - - - - (163,111) 1,076,047 912,936 226,478 1,139,414

Balances as of December 31, 2008 7,609,999 1,970,602 131,815 9,043 (351,049) (167,016) 2,725,555 4,318,950 1,309,647 5,628,597

Retained earnings capitalization - - 52,429 - - - (52,429) - - - Dividends paid in shares (reserve for purchase of shares) - - - - 61,364 - (61,364) - - - Dividends paid in shares (treasury stock) 175,001 32,894 184,806 - - - (217,700) - - - Dividends paid ------(101,150) (101,150) (97,354) (198,504) Acquisition of non controlling interest ------(142,211) (142,211) Treasury stock increase - - - - (56,364) - - (56,364) - (56,364) Comprehensive result: Consolidated net income ------887,997 887,997 270,528 1,158,525 Other - - - - - 39,154 - 39,154 144,425 183,579 - - - - - 39,154 887,997 927,151 346,050 1,270,201

Balances as of December 31, 2009 7,785,000 $ 2,003,496 $ 369,050 $ 9,043 $ (346,049) $ (127,682) $ 3,180,909 $ 5,088,587 $ 1,485,035 $ 6,573,622

The accompanying notes are part of these consolidated financial statements.

6 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 7 Grupo México, S. A. B. de C. V. and Subsidiaries Consolidated Statements of Cash Flows For the years ended December 31, 2009 and 2008 (In thousands of U.S. dollars)

2009 2008 2009 2008 Operating: Financing: Consolidated net income $ 1,158,525 $ 1,516,264 Proceeds from debt 1,500,000 - Charges (credits) not requiring (providing) resources: Debt repaid (49,016) (321,114) Equity in the results of associated companies and other Dividends paid (198,505) (1,343,661) unconsolidated subsidiaries (17,326) (31,711) Repurchase of shares of subsidiary - (384,656) Provisions for voluntary retirements, pensions, seniority Acquisition of noncontrolling interest (142,211) (148,070) premiums and medical services 8,399 8,983 Other assets (125,061) - Depreciation, amortization and depletion 410,551 414,820 Amortization of concession titles and deferred charges Net resources used in financing activities 985,207 (2,197,501) Foreign exchange losses 39,154 7,926 (Decrease) increase in cash and cash equivalents (422,224) (906,341) Deferred income tax and employees' Effect of exchange rate changes on cash and statutory profit sharing 24,086 (116,593) cash equivalents (4,874) (1,443) Loss on derivative investments - 56,815 (427,098) (907,784) Loss on short-term investments - 10,339 Cash and cash equivalents at beginning of year 1,785,413 2,693,196 Gain on sale of property (6,429) (29,778) Capitalized leachable material - (2,246) Cash and cash equivalents at end of year $ 1,358,315 $ 1,785,413 1,616,960 1,834,818 Changes in current assets and liabilities: Supplemental disclosure of cash flow information: Accounts receivable (586,072) 307,351 Cash paid during the year for: Inventories (312,883) (7,663) Interest $ 121,651 $ 184,574 Accounts payable, accrued liabilities and other liabilities 676,076 (38,853) Income taxes $ 602,833 $ 1,002,449 Net resources provided by operations 1,394,081 2,095,653 Employee statutory profit sharing $ 198,268 $ 321,089

Investing: Supplemental information of non-cash operating, Additions to property and equipment (599,564) (713,465) investing and financing activities: Acquisition of shares of ASARCO (2,152,489) - Decrease in pension and other Purchase of marketable securities (23,651) (85,066) post-retirement benefits $ 9,913 $ 2,628 Net proceeds from short-term investments - 21,537 Purchase of own shares – Net - (88,122) Increase treasury stock (56,364) - Sale of property 30,556 60,613 Net resources used in investing activities (2,801,512) (804,493) The accompanying notes are part of these consolidated financial statements.

8 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 9 Grupo México, S. A. B. de C. V. and Subsidiaries ITF. Due to this result, ITM and ITF started a legal proceeding to through the purchase of 20% of its total capital stock representing Notes to Consolidated Financial Statements revoke the above mentioned ruling proposed by the Federal Tax 100% of the shares with voting rights. and Administrative Justice Court. As of the date of these consoli- For the years ended December 31, 2009 and 2008 dated financial statements, the outcome of this legal proceeding The main operation of MCI and MCC is the direct or indirect (In millions of U.S. dollars) is uncertain. Because of the aforementioned circumstances, and construction of engineering works in public and private infra- as long as the said authorization remains pending, investments in structure projects, including hydroelectric and storage dams Ferrosur will be presented under the equity method in GMEXICO's and irrigation areas, highways, thermoelectric plants, railroad consolidated financial statements. projects, mining projects, manufacturing plants, petrochemical plants and housing projects. ITM, through its wholly owned subsidiary GFM, was formed to participate in the privatization of the Mexican Railway System. The PEMSA’s main operation is oil well drilling, and providing integral 1. Nature of business facility. These operations also include five underground mining main subsidiary of GFM is Ferromex, which is engaged in pro- maintenance services. To date, PEMSA has provided services to facilities producing lead, zinc and copper concentrates, a zinc re- viding freight and multi-modal railroad services, as well as, any Pemex for more than 49 years, and is owner of drilling platforms Nature of business - The operating companies that comprise fining facility, a coal mine and a coke plant. activity that supports and is related to this activity, including land on land and sea. Additionally, PEMSA provides cementation engi- Grupo México, S. A. B. de C. V. and subsidiaries (collectively “the transportation, storage and other complementary railroad trans- neering and directional drilling services. PEMSA also drills water Company” or GMEXICO) are in the metallurgical mining, freight Asarco is primarily engaged in the exploration, mining and pro- portation services. The Mexican Federal Government granted Fer- wells for the mining industry in Mexico. This investment is part railway and infraestruct ure services industries. They engage in cessing of copper through its operation of three major open- romex a 50-year concession (exclusive for 30 years) to operate the of the Company’s strategy of increasing its participation in the in- the exploration, mining and processing of metallic and nonme- pit mines, two smelting facilities, one of which is currently on branches known as North-Pacific and the Ojinaga-Topolobampo frastructure industry and expanding its catalog in engineering and tallic minerals, the mining of coal, provide multi-use and freight standby, two solvent extraction/electro winning (SX-EW) facilities Short Line. The concession is renewable, subject to certain condi- construction services. railway services and provide infrastructure services. and a refining facility. Operations in the United States of America tions, for a similar period. In addition, the Mexican Federal Govern- (“U.S”.) also include a lead smelter facility. ment also sold certain fixed assets and the materials necessary to Significant Events – The Company’s mining operations are contained in a company operate Ferromex, plus 25% of the shares of Ferrocarril y Terminal known as Americas Mining Corporation (“AMC”), which in turn The Company’s railway system operations are contained in a com- del Valle de México, S. A. de C. V. (“FTVM”), the entity responsible i. Restructuring of ASARCO – On August 9, 2005, ASARCO is parent company of Southern Copper Corporation (“SCC”) and pany known as Infraestructura y Transportes México, S. A. de C. V. for operating the México City Terminal. In August 1999, Ferromex filed a voluntary request for reorganization under Chapter 11 Asarco Inc. (“Asarco”). (“ITM”), which is 75% owned, while the remaining 25% is owned obtained the rights to operate the Nogales -Nacozari Short Line of the US Bankruptcy Code (“Chapter 11”) with the Southern by Sinca Inbursa, S. A. B. de C. V and Grupo Carso, S. A. B. de concession for 30 years, renewable for a period not exceeding 50 District Bankruptcy Court of Texas, Corpus Christi Division SCC and subsidiaries are an integrated producer of copper and C. V. ITM controls 74% of Grupo Ferroviario Mexicano, S. A. de years, beginning on September 1, 1999. GFM accounts for this (the “Bankruptcy Court”), as a result of several asbestos law- other minerals, and operates mining, smelting and refining fa- C. V. (“GFM”), which in turn owns 100% of Ferrocarril Mexicano, 25% investment in FTVM under the equity method. In addition, suits filed against it. cilities in Peru and Mexico. SCC and subsidiaries conducts its S. A. de C. V. (“Ferromex”). The remaining 25% of GFM is owned ITM through its subsidiary Ferrosur operates the Southeast Rail- primary operations in Peru through a registered branch (“the by Union Pacific. road track concession granted by the government. Subsequently, the Bankruptcy Court approved the formation Branch”). The Branch is not a corporation separate from SCC. The of the Board of Directors composed of three directors; two Company's Mexican operations are conducted through Minera On November 24, 2005, the Company reported that its ITM sub- The operations under MM, ITM, GFM and their respective independent and one representing GMEXICO. This resulted México, S. A. de C. V. and subsidiaries (“MM”). sidiary, through its recently incorporated subsidiary Infraestruc- subsidiaries are collectively referred to as the "Mexican Opera- in the effective loss of control of ASARCO, for which reason tura y Transportes Ferroviarios, S. A. de C. V. (“ITF”), acquired tions". The operations under the Branch are referred to as the GMEXICO deconsolidated ASARCO for financial reporting The Branch is mainly an integrated producer of copper and other 99.99% of the capital stock of Ferrosur, S. A. de C. V. (“Ferrosur”) "Peruvian Operations". purposes. During the bankruptcy proceedings, ASARCO minerals through the operation of two mining facilities, a smelting owned by Sinca Inbursa, S. A. de C. V. (“Sinca”) and Grupo Con- operated as a debtor-in-possession under the jurisdiction facility, a solvent extraction/electro winning (SX/EW) facility and a dumex, S. A. de C. V. (GCondumex). In accordance with Statement The infrastructure sector operations are realized by Mexico of the Bankruptcy Court in accordance with the applicable refining facility, all in the southern of Peru. of Financial Accounting Standards (“SFAS”) No. 141, "Business Proyectos y Desarrollos, S. A. d e C. V. (“MPD”), which owns provisions of the Bankruptcy Code. Combinations", it is necessary to have the Federal Antitrust Com- 99% of capital stocks of Mexico Compañía Constructora, S. A. de MM and its subsidiaries are primarily engaged in the exploration, mission's final authorization before the Company can consolidate C. V. (“MCC”) and Mexico Constructora Industrial, S. A. de C. V. Confirmation of the plan mining and processing of copper in Mexico through the operation the acquired company. On November 8, 2006, the Federal Anti- (“MCI”), and by Compañía Perforadora México, S. A. P. I. de C. V. On November 13, 2009, the Bankruptcy Court confirmed the of two major open-pit mines, two smelting facilities and a refining trust Commission denied the consolidation between Ferrosur and (“PEMSA”), which company was acquired on December 31, 2009 Reorganization Plan submitted by Americas Mining Corporation

10 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 11 (“AMC”), a subsidiary of GMEXICO. The plan went into effect on reimbursement of taxes to ASARCO, estimated at approximately operations and other valuation methods established in industry standards. As of the date of issuance of these financial statements, man- December 9, 2009 (the "Effective Date") and basically includes the $61 million, including accumulated interest and (5) the provision agement had still not yet finalized the fair value of the net assets acquired or the final allocation of the consideration for the acquisition, following provisions: (1) an agreement with all of the creditors of of an operating capital line of credit for $200 million to finance the but expects to finish the allocation of the valuation as soon as possible, at the latest by December 9, 2010. ASARCO for civil liability claims related to asbestos whereby such continued activities of ASARCO. claims would be channeled for payment to an asbestos trust in ac- The following table shows a summary of the consideration transferred by GMEXICO and the preliminary fair values of the assets and liabil- cordance with article 524 (g) of the Bankruptcy Code, in exchange Acquisition and Push-down Accounting ities acquired and noncontrolling interest that were recognized on the Acquisition Date and accounted for using acquisition accounting. for a total and unconditional final settlement in favor of ASARCO On December 10, 2009, (the "Acquisition Date”) GMEXICO com- and affiliated companies, which will prevent current and future plied with its obligations under the plan, received 100% of the claimants from filing asbestos claims against ASARCO, (2) a glob- equity and reassumed control over the reorganized ASARCO. Consideration al agreement with all of the creditors for environmental claims, who GMEXICO accounted for the (re)acquisition as a business ac- Cash $ 705,100 received the total payment, including interest, after the application quisition using the acquisition method, which measures the con- Proceeds from bank note payable 1,500,00 was filed, as well as certain inactive properties that were transferred sideration transferred at fair value and is computed as the sum Tax liability assumed 147,426 to trusts for their remediation and restoration, (3) an agreement of the fair values for the assets transferred by the acquirer at the Fair value of consideration $ 2,352,526 with the bondholders for the total payment of principal and interest, acquisition date, the liabilities incurred by the acquirer and the Recognized amounts of assets acquired and liabilities assumed: plus additional charges, and (4) full payment of claims for general participation in the equity issued by the acquirer. The fair value Financial assets 2,064,831 unsecured debts plus the related interest. for the consideration transferred does not include the transaction Inventories (induding leachable materials) 475,162 costs incurred by the acquirer to carry out the business com- Property, plant and equipment 1,510,512 All due and payable debts were fully satisfied, settled and dis- bination. AMC recognized the identifiable assets acquired, the Goodwill related to the assembled workforce 15,556 charged at the Effective Date. Furthermore, the amount of ap- liabilities assumed and any noncontrolling interest held at fair Financial liabilities (1,771,536) proximately $283 million was allocated to a reserve fund on the value at the Acquisition Date. In addition, GMEXICO measured Total identifiable net assets 2,294,525 Effective Date for future payments; the Deficient Claim Reserve the fair value of certain other assets and liabilities related to the Noncontrolling interests (76,565) (“DCR”), which is established in the Parent Company Manage- acquisition, specifically the mining assets of the ASARCO, under Value beyond proven and probable reserves 134,566 ment Plan (“PPA”) to fully settle general debts which have not the guidelines for mining companies involved in a business com- Fair value of net assets acquired $ 2,352,526 been approved by the Bankruptcy Court until they are admitted bination; i.e., the value beyond the proven and probable reserves and approved by the Court. The reorganized ASARCO is still li- (“VBPP”) and other intangible assets, including the goodwill re- able under the PPA for the total amount of any deficiency in the lated to the workforce. iii. Acquisition of PEMSA – On December 31, 2009, the Company acquired control over PEMSA, which was owned by the principal payment of debts and is entitled to any remnant of the DCR when shareholder of GMEXICO, at a price of $48 million. The equity acquired represents 20% of the common stock of PEMSA, including the debts have been fully settled. GMEXICO and the PPA believe Subsequently, GMEXICO elected to apply “push-down accounting” 100% of the voting stock. The Company expects to acquire the remaining 80% of the stock for $192 million once the respective that the amount reserved will be sufficient and that any differences the recognition for accounting purposes of the acquiring compa- approval has been obtained from the authorities. As this transaction involves companies under common control, the financial state- would be immaterial. ny’s basis for the assets and liabilities of the acquired company, ments of the subsidiary acquired were consolidated retrospectively from the first period presented for purposes of comparability. in the acquired company’s separate financial statements, which is The confirmed reorganization plan is based on GMEXICO receiv- permitted under current practices when the acquirer obtains control ing 100% of the equity of the reorganized ASARCO, and on the and 100% of the equity of the entity acquired (regardless of wheth- 2. Basis of presentation: discharge of any claim by any creditor and by ASARCO against er such entity is registered with the US Securities and Exchange GMEXICO and affiliates, in exchange for contributing new value Commission ("SEC"). Under the SEC guidelines for "push-down a. Consolidation principles - The accompanying financial statements include the consolidation of the financial statements of to the ASARCO, which consists of (1) sufficient cash to finance accounting", the acquisition price is allocated to the assets and GMEXICO (as parent and holding company) and its subsidiaries, over which the Company exercises control. These consolidated the plan, approximately $3,630 million, of which $1,430 million liabilities acquired based on their fair value at the acquisition date. financial statements were prepared under U.S. GAAP. represents the Company’s cash on hand at the Effective Date, (2) issuance of a promissory note for $280 million, (payable to the as- The estimated fair values of the assets and liabilities acquired were The consolidated balance sheet as of December 31, 2008 and related consolidated statements of income, changes in stockholders' bestos trust), (3) discharge of the claims of AMC against ASARCO determined based on information provided by an independent ap- equity and cash flows for the year then ended, have been adjusted retroactively to conform their presentation to the new require- for the reimbursement of $147.4 million for taxes on ASARCO's praiser contracted by the Company through its subsidiary, and ments established in ASC-810 (in the previous accounting literature, SFAS 160 “Noncontrolling Interests in Consolidated Financial earnings, (4) discharge of the lawsuit filed against AMC for the included estimates of the future cash flows of ASARCO from its Statements”) for the presentation of noncontrolling interest.

12 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 13 Grupo México, S. A. B. de C. V.’s direct consolidated subsidiaries are shown below: ITM and ITF functional currency is the Mexican peso. Therefore, the entities use the current rate translation method to translate its fi- nancial statements in to U.S. dollars. Under the current rate method, all assets and liabilities are translated using the year-end exchange rate while stockholders’ equity continues to be translated at historical exchange rates. The components of the statements of operations, Ownership Ownership including foreign exchange gains and losses recorded in Mexican pesos as a result of fluctuations in the rate of exchange between the Percentage Percentage Mexican pesos and the U.S. dollars, are translated at the average exchange rate for the period. The effect of changes in the exchange Company 2009 2008 Activity rates on the translation is reflected as a component of accumulated other comprehensive income within stockholders' equity. The gains and (losses) from foreign currency transactions are shown in the consolidated statements of operations. Americas Mining Corporation (AMC) 100% 100% Exploration and extraction of minerals. Infraestructura y Transportes Freight and multimodal railway The consolidated financial statements should not be construed as representations that Mexican pesos had been, could have been or may Mexico, S. A. de C. V. (ITM) 74.9% 74.9% services be converted in the future into U.S. dollars at such rates or any other rates.

Compañía Perforadora Mexico, Drilling and maintenance of Relevant exchange rates used in the preparation of these consolidated financial statements were as follows: S. A. P. I. de C. V. (PEMSA) 20% * - oil wells

México Proyectos y Desarrollos, Public and private infrastructure 2009 2008 S. A. de C. V. (MPD) 100% 100% and construction Mexican pesos (Ps) per one U.S. dollar: Grupo México Servicios, S. A. Administrative and personnel Current exchange rate at December 31 Ps. 13.0587 Ps. l3.5383 de C. V. (GMS) 98% 98% services Weighted average exchange rate for the year ended Ps. 12.8555 Ps. 11.1383 * The 20% of the shares owned by the Company include all shares with voting rights. Peruvian nuevos soles (Pns) per one U.S. dollar: Current exchange rate at December 31 Pns. 2.8651 Pns. 3.142 Weighted average exchange rate for All significant intercompany transactions and balances have been eliminated in consolidation. the year ended Pns. 3.0130 Pns. 3.116

The permanent investments in the entities in which control is held are consolidated in these financial statements because they grant the power to govern the entity's financial and operational policies. The investments over which the Company does not have significant b. Use of estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make esti- control are recognized by the equity method. mates 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. Signifi- Foreign currency financial statements – In accordance with local laws, the Peruvian branch keeps its accounting books in Peruvian cant items subject to such estimates and assumptions include: ore reserves that are the basis for future cash flow estimates and nuevos soles; and MM and ITM in Mexican pesos. amortization calculations; environmental, reclamation, closure and retirement obligations; estimates of recoverable copper in mill and leach stockpiles; asset impairments (including estimates of future cash flows); bad debts; inventory obsolescence; deferred In the mining operations, the functional currency is the U.S. dollar, therefore, foreign currency assets and liabilities are remeasured into and current income tax; valuation allowances for deferred tax assets; reserves for contingencies and litigation; and fair value of U.S. dollars at current exchange rates except for non-monetary items such as inventory, property, plant and equipment, intangible assets, financial instruments. The Company bases its estimates on the historical experience and on various other assumptions that are other assets and stockholders' equity which are remeasured at historical exchange rates. Revenues and expenses are generally translated believed to be reasonable under the circumstances. Actual results could differ from those estimates. at actual exchange rates in effect during the period, except for those items related to balance sheet amounts that are remeasured at his- torical exchange rates. Gains and losses from foreign currency remeasurement are included in earnings of the period. 3. Significant accounting policies: The gains and (losses) resulting from foreign currency transactions related to mining operations are included in “Cost of sales (exclusive of depreciation, amortization and depletion)”. A summary of the significant accounting policies used in the preparation of the accompanying consolidated financial statements follows:

14 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 15 a. Revenue recognition - Substantially all of the Company's copper is sold under annual or other longer-term contracts. Revenue is e. Inventories - Metal inventories, consisting of work-in-process and finish goods, are carried at the lower of average cost or market. recognized when title passes to the customer. The passing of title is based on terms of the contract, generally upon shipment. Copper Costs incurred in the production of metal inventories exclude general, sales and administrative costs. revenue is determined based on the monthly average of prevailing commodity prices according to the terms of the contracts. The Company provides allowances for doubtful accounts based upon historical bad debt, claims experience and periodic evaluation of Work-in-process inventories represent materials that are in the process of being converted into a saleable product. Conversion specific customer accounts. processes vary depending on the nature of the copper ore and the specific mining operation. For sulfide ores, processing includes milling and concentrating and results in the production of copper and molybdenum concentrates. For certain of the Company's sales of copper and molybdenum products, customer contracts allow for pricing based on a specified month subsequent to shipping, generally ranging between one and six months subsequent to shipment. In such cases, revenue is Finished goods include saleable products (e.g., copper concentrates, copper anodes, blister copper, copper cathodes, copper rod, recorded at a provisional price at the time of shipment. The provisionally priced copper sales are adjusted to reflect forward cop- molybdenum concentrates and other metallurgical products). per prices listed at the end of each month in the London Metal Exchange (“LME”) or in the Commodities Exchange in New York (“COMEX”), until a final adjustment is made to the price of the shipments upon settlement with customers pursuant to the terms of Supplies inventories are carried at average cost less a reserve for obsolescence. the contract. In the case of molybdenum sales, for which there are no published forward prices, the provisionally priced sales are adjusted to reflect the market prices at the end of each month until a final adjustment is made to the price of the shipments upon f. Property, plant and equipment - Property, plant, mining and railway equipment are recorded at acquisition cost, net of accumu- settlement with customers pursuant to the terms of the contract. lated depreciation and amortization.

These provisional pricing arrangements are accounted for separately from the contract as an embedded derivative instrument under Cost includes major expenditures for improvements and replacements, which extend the useful lives or increase capacity and interest SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended (SFAS No. 133). costs associated with significant capital additions. Maintenance, repairs, normal development costs at existing mines and gains or losses on assets retired or sold are reflected in earnings as incurred. The Company sells copper in concentrate, rod, anode, cathode, blister and refined form at industry standard commercial terms. Net sales include the invoiced value and corresponding fair value adjustment of the related forward contract of copper, zinc, silver, Buildings and equipment are depreciated on the straight-line method over their estimated lives ranging from 5 to 40 years or the molybdenum, acid and other metals. estimated life of the mine if shorter.

ITM and subsidiaries recognize revenue as transportation services in the period services are rendered as the shipment moves The Mexican railway operation uses the straight-line method based on the estimated useful lives of the assets ranging from 4 to from origin. 50 years.

PEMSA, MCC and MCI recognize revenues based on the “percentage of completion” method, which records revenue according to g. Mine development - Mine development includes primarily the cost of acquiring land rights to an exploitable ore body, pre- the cost incurred to date as a percentage of the total estimated costs required to finish the project. production stripping costs at new mines that are commercially exploitable, costs associated with bringing new mineral properties into production, and removal of overburden to prepare unique and identifiable areas outside the current mining area for such future If the current cost estimate exceeds the total revenue contracted, a loss is recognized in the results of the period. production. Mine development costs are amortized on a unit of production basis over the remaining life of the mines. b. Shipping and handling fees and costs - Amounts billed to customers for shipping and handling, are classified as sales. Amounts There is a diversity of practices in the mining industry in the treatment of drilling and other related costs to delineate new incurred for shipping and handling are included in cost of sales (exclusive of depreciation, amortization and depletion). ore reserves. The Company follows the practices delineated in the following two paragraphs in its treatment of drilling and related costs. c. Cash equivalents - Cash and cash equivalents consist mainly of bank deposits in checking accounts and short-term investments with original maturities less than 3 months. Cash is stated at nominal value and cash equivalents are valued at fair value. Drilling and other associated costs incurred in the Company's efforts to delineate new resources, whether near-mine or Greenfield are expensed as incurred. These costs are classified as mineral exploration costs. Once the Company determines through feasibility d. Short-term investments - The Company accounts for short-term investments in accordance with ASC 320-10 “Investments Debt studies that proven and probable reserves exist and that the drilling and other associated costs embody a probable future benefit that and Equity Securities Recognition” (in prior literature SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securi- involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflow, then the ties). The Company determines the appropriate classification of all short-term investments as held-to-maturity, available-for-sale costs are classified as mine development costs. These mine development costs incurred prospectively to develop the property are or trading at the time of purchase and re-evaluates such classifications as of each balance sheet date. Unrealized gains and losses capitalized as incurred, until the commencement of production, and are amortized using the units of production method over esti- on available-for-sale investments, net of taxes, are reported as a component of accumulated other comprehensive income (loss) in mated life of the ore body. During the production stage, drilling and other related costs incurred to maintain production are included stockholders’ equity, unless such loss is deemed to be of a permanent nature. in production cost in the period in which they are incurred.

16 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 17 Drilling and other related costs incurred in the Company's efforts to delineate a major expansion of reserves at an existing production The Company updates its estimate of ore reserves at the beginning of each year. In this calculation the Branch and MM use current property are expensed as incurred. Once the Company determines through feasibility studies that proven and probable incremental metal prices which are defined as the average metal price over the preceding 3 years. The current per pound of copper price used by reserves exist and that the drilling and other associated costs embody a probable future benefit that involves a capacity, singly or the Branch and MM, as defined, was $2.9 and $3.15 at the end of 2009 and 2008, respectively. in combination with other assets, to contribute directly or indirectly to future net cash inflow, then the costs are classified as mine development costs. These incremental mine development costs are capitalized as incurred, until the commencement of production The ore reserve estimates are used to determine the amortization of mine development and intangible assets. and amortized using the units of production method over the estimated life of the ore body. A major expansion of reserves is one that increases total reserves at a property by approximately 10%. o. Leachable material - Mexicana de Cananea, S.A. de C.V. (Mexcananea) capitalizes the cost of materials with low copper content extracted during the mining process (leachable material), which is collected in areas known as leaching dumps. The amortization of For the years ended December 31, 2009 and 2008 the Company did not capitalize any drilling and related costs. The net balances of the capitalized costs is determined based on the depletion period of the leaching dumps, which is estimated to be 5 years. capitalized mine development costs at December 31, 2009 and 2008 were $43.7 million and $46.4 million, respectively. p. Exploration - Tangible and intangible costs incurred in the search for mineral properties are charged against earnings when incurred. h. Capitalization of railway improvements and maintenance - Railway improvements and maintenance are capitalized when the components of more than 20% of a track section are changed. The capitalized items are depreciated at an average rate between 3.3% q. Income tax - Provisions for income tax are based on taxes payable or refundable for the current year and deferred taxes on tempo- and 6.6%. When maintenance or repairs do not require changing the components of more than 20% of one section of a track, the rary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities cost is expensed as incurred. and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates applicable to the period in each jurisdiction in which the deferred tax assets and i. Capitalization of overhauls - Regular maintenance and repair costs are expensed as incurred. The costs of a locomotive over- liabilities are expected to be realized and settled as prescribed in ASC 740 “Income Tax” (prior authoritative literature SFAS No. 109 hauls, which extend the useful life, are capitalized and amortized over a term ranging from 4 to 10 years, depending on the type "Accounting for Income Taxes" SFAS 109). As changes in tax laws or rates are enacted in each jurisdiction, deferred tax assets and of overhaul. liabilities are adjusted in income in the period that the change is enacted. Deferred income tax assets are reduced by any benefits that, in the Company's opinion, are more likely not to be realized. j. Concession titles - Concessions titles are recorded at their adjudication cost. Amortization is calculated using the straight-line method, based on the remaining estimated useful life of the fixed assets under concession, which was an average of 30.3 years (as A valuation allowance is provided for those deferred tax assets for which it is more likely than not that the related benefits will not be determined by independent experts), as of the date the concessions were granted. realized. In determining the amount of the valuation allowance, the Company considers estimated future taxable income as well as feasible tax planning strategies in each jurisdiction. If the Company determines that it will not realize all or a portion of its deferred k. Asset retirement obligations (reclamation and remediation costs) - The fair value of a liability for asset retirement obliga- tax assets, the Company will increase its valuation allowance with a charge to income tax expense. Conversely, if the Company deter- tions is recognized in the period in which the liability is incurred. The liability is measured at fair value and is adjusted to its present mines that it will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, value in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs are capitalized as part of the all or a portion of the related valuation allowance will be reduced with a credit to income tax expense. carrying value of the related long-lived assets and depreciated over the asset's useful life. The Company's operations involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple l. Intangible assets - Intangible assets arise from excess of the purchase price over the fair value of the net assets and liabilities of ac- jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various juris- quired businesses and engineering development. Intangible assets are recorded at acquisition cost, net of accumulated amortization, dictions and resolution of disputes arising from federal, state, and international tax audits. The Company recognizes liabilities for and are amortized according to the estimated production units over the remaining lives of the mines. Intangible assets are reviewed anticipated tax audit issues in the U.S. and other tax jurisdictions based on the estimate of whether, and the extent to which, additional for impairment when events or changes in circumstances indicate that the net asset value may not be recovered. taxes will be due. As of January 1, 2008, the Company adopted ASC 740 Income Tax (prior authoritative literature FASB Interpretation No.48 "Accounting for Uncertainty in Income Taxes" (FIN 48)), an interpretation of SFAS No. 109. FIN 48 establishes the guidance m. Debt issuance costs - Debt issuance costs, which are included in other assets, are amortized using the effective interest method to account for uncertain tax benefits. The Company adjusts these tax reserves in light of changing facts and circumstances; however, over the term of the related debt. due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the tax liabilities. If the Company's estimate of tax liabilities proves to be less than the ultimate n. Ore reserves - The Company periodically evaluates estimates of its ore reserves, which represent the Company's estimate as to assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded the amount of unmined copper remaining in its existing mine locations that can be produced and sold at a profit. Such estimates are amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the based on engineering evaluations derived from samples of drill holes and other openings, combined with assumptions about copper liabilities are no longer necessary. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in market prices and production costs at each of the respective mines. income tax expense.

18 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 19 r. Derivative financial instruments - The Company utilizes certain types of derivative financial instruments to enhance its ability to 1. A valuation technique that uses: manage risks that exist as part of its ongoing business operations and to enhance its return on Company's assets. Derivative contracts are reflected as assets or liabilities in the consolidated balance sheet at their fair value. The estimated fair value of the derivatives is based a. The quoted price of the identical liability when traded as an asset. on market and/or dealer quotations and in certain cases valuation modeling. From time to time, the Company has entered into copper b. Quoted prices for similar liabilities or similar liabilities when traded as assets. and zinc swap contracts to protect a fixed copper and zinc price for portions of its metal sales, hedging contracts to fix power prices for a portion of its production costs, interest rate swap agreements to hedge the interest rate risk exposure on certain of its bank obligations 2. Another valuation technique that is consistent with the principles of Topic 820. Two examples would be an income approach, such as with variable interest rates, currency swap arrangements to ensure Mexican peso/U.S. dollar conversion rates. Gains and losses related a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the to copper and zinc hedges are included in net sales, gain and losses related to power costs are included in cost of sales, all other gains reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. and losses on derivative contracts are included in "Loss on derivative instruments" in the consolidated statement of operations. The amendments in this Update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include s. Asset impairments - The Company evaluates its long-term mining and railway assets when events or changes in economic cir- a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. cumstances indicate that the carrying amount of such assets may not be recoverable. These evaluations in case of mining segment are based on business plans that are prepared using a time horizon that is reflective of the Company's expectations of metal prices The amendments in this Update also clarify that both a quoted price in an active market for the identical liability at the measurement over its business cycle. The Company uses an estimate of the future undiscounted net cash flows of the related asset or asset group date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted over the remaining life to measure whether the assets are recoverable and measure any impairment by reference to fair value. price of the asset are required are Level 1 fair value measurements. The guidance provided in this Update is effective for the Company beginning in the fourth quarter of 2009. The Company does not expect any material impact on its financial position. Due to the illegal work stoppage the Company has performed an impairment analysis on the assets at the Cananea mine. The Com- pany continues to provide periodic maintenance to the assets and expects to begin operations at this mine in the near future. The On June 30, 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2009-01 (“ASU Company determined through its impairment analysis that no impairment exists as of December 31, 2009. Should estimates of future No. 2009-01”) to amend topic Accounting Standard Codification 105 (“ASC-105”) “Generally Accepted Accounting Principles” an copper and molybdenum prices decrease significantly, impairment could result. amendment based on Statement of Financial Accounting Standard No. 168 “the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”. This amendment establishes the “FASB Accounting Standards Codifica- According to the annual impairment tests, the Company determined that no impairment exists as of December 31, 2009 and 2008. tion” (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and t. Investment in shares of associated companies and other non-consolidated subsidiaries - investment in shares of associ- Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. ated companies is valued according to the equity method. Under this method, the acquisition costs are initially recognized based on The Codification is effective for interim and annual periods ending on or after September 15, 2009. the net fair value of the entities’ identifiable assets and liabilities as of the date of acquisition. Such value is subsequently adjusted for the portion related both to comprehensive income (loss) of the associated company and the distribution of earnings or capital Starting with this ASU, the FASB only will issue ASUs which will not be considered as authoritative in their own right and will serve reimbursements thereof. The participation over associated and non-consolidated subsidiaries results are presented separately in the only to update the Codification. income and other comprehensive income statements. In June 30 2009, the Company adopted the following pronouncements from FASB which form part of the codification. u. Other comprehensive income - Comprehensive income is the change in equity during a period, except those resulting from investments by owners and distributions to owners. During the years ended December 31,2009 and 2008, the components of “other In May 2009, the FASB issued topic ASC 855 “Subsequent Events” (prior authoritative literature FAS 165 “Subsequent Events”) comprehensive income” were the consolidated net income for the year, the cumulative translation adjustment, the additional mini- to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before mum liability for employee benefit obligations, unrealized gain on equity securities, the adjustments necessary to adopt ASC 715 financial statements are issued or are available to be issued. In particular, this topic sets forth: the period after the balance sheet “Retirement Benefits” (prior authoritative literature SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other date during which management of a reporting entity should evaluate events or transactions that may occur for potential recogni- Postretirement Plans") and the adjustments related to treasury stock valuation. tion or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or v. Adoption of new accounting principle - transactions that occurred after the balance sheet date. This topic introduces the concept of financial statements being available In August 2009, the FASB issued Accounting Standards Update No. 2009-05, “Fair Value Measurements and Disclosures (Topic to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that 820)”. This amendment to the FASB Accounting Standards Codification provides clarification that in circumstances in which a quoted date, that is, whether that date represents the date the financial statements were issued or were available to be issued. This topic price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more is effective for interim or annual reporting periods ending after June 15, 2009 and therefore became effective for the Company of the following techniques: as of June 30, 2009.

20 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 21 In April 2009, the FASB issued ASC 825-10-50 “Disclosure about Fair Value of Financial Instruments” (formerly FASB issued Staff sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of Position (“FSP”) FAS 107-1) to require disclosures about fair value of financial instruments for interim reporting periods of publicly disaggregation and about inputs and valuation techniques used to measure fair value. This ASU amends guidance on employers’ dis- traded companies as well as in annual financial statements. This ASC also amends ASC 270 “Interim Financial Reporting” (formerly closures about postretirement benefit plan assets under ASC 715, Compensation – Retirement Benefits, to require that disclosures be APB Opinion No. 28), to require those disclosures in summarized financial information at interim reporting periods. This ASC applies to provided by classes of assets instead of by major categories of assets. The guidance in the ASU is effective for the first reporting period all financial instruments within the scope of ASC 825-10-15 and requires disclosing in the body or in the accompanying notes, the fair (including interim periods) beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for of financial position. Fair value information disclosed shall be presented together with the related carrying amount in a form that makes interim periods within those fiscal years. In the period of initial adoption, entities will not be required to provide the amended disclosures clear whether the fair value and carrying amount represents assets or liabilities and how the carrying amount is reported in the statement for any previous periods presented for comparative purposes. However, those disclosures are required for periods ending after initial of financial position. Also the entity shall disclose the methods and significant assumptions used to estimate the fair value of financial adoption. Early adoption is permitted. instruments and shall describe their changes, if any, in the period. This ASC is effective for interim reporting periods ending after June 15, 2009 and therefore became effective for the Company as of June 30, 2009. Please see disclosures required in Note 17, “Financial instruments.” In April 2009, the FASB issued ASC 320-10-65 (formerly FSP FAS 115-2 and FAS 124-2 “Recognition and Presentation 4. Short-term investment: of Otherthan- temporary Impairments”) and ASC 820-10-65-4 (formerly FSP FAS 157-4 “Determining Fair Value when the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions that are not Orderly”). These FASB The balance of short-term investments was as follows:n: Staff positions are effective for interim reporting periods ending after June 15, 2009 and therefore became effective for the Company as of June 30, 2009. 2009 2008 On January 1, 2009 the Company adopted the following pronouncements released by FASB which now form part of the codification. Investment: Short-term investments with a weighted average interest rate On March 19, 2008 the FASB issued ASC 815-10-50 “Disclosures about Derivative Instruments and Hedging Activities” (formerly FAS of 0.63 in 2009 and 1.85% in 2008. $ 198.0 $ 172.4 No. 161). This ASC improves financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The adoption of this statement has not had a material effect on the Company’s financial position or results of operations. Short-term investments in securities consist of available for sale securities issued by public companies. The Company has a diversi- fied portfolio of investments. In December 2007, the FASB published ASC 805 “Business Combinations” (formerly SFAS No. 141-R). This statement improves the reporting of information about a business combination and its effects. This statement establishes principles and requirements for how In 2009, the Company earned interest of $18.2 million related to these investments which were recorded as interest income in the the acquirer will recognize and measure the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the consolidated statement of income and comprehensive income. In addition, in 2009, the Company redeemed $43.8 million of these acquisition. Also, the statement determines the recognition and measurement of goodwill acquired in the business combination or a gain investments. from a bargain purchase, and finally, determines the disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The Company has adopted this pronouncement on January 1, 2009. 5. Inventories Recently issued accounting pronouncements On June 12, 2009, the FASB issued ASC 860-10 (SFAS No. 166, Accounting for Transfer of Financial Assets – an amendment of FASB Statement No. 140), which eliminates the concept of a qualifying special purpose entity (“QSPE”) and modifies the derecognition provi- 2009 2008 sions of a previously issued accounting standard. FASB ASC 860-10 (SFAS No. 166) also required additional disclosures which focus Metals and minerals on the transferor’s continuing involvement with the transferred assets and the related risks retained. FASB ASC 860-10 (SFAS No. 166) Finished goods $ 134.0 $ 46.7 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. Work-in-process 426.9 135.8 Early adoption is prohibited. The Company is in the process of determining the impact of adopting this new accounting principle on its 560.9 182.5 consolidated financial position, results of operations and cash flows. Materials and Supplies 343.4 306.8 Inventories - Net $ 904.3 $ 489.3 On January 21, 2010, the FASB issued ASU 2010-06. The ASU amends ASC 820, Fair Value Measurements and Disclosures (SFAS No. 157) to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases,

22 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 23 6. Property, plant and equipment Ferromex is entitled to use, and has the obligation to maintain in good condition, the rights of way, railroad tracks, buildings and maintenance facilities, title to those assets and facilities; however, lies with the Federal Mexican Government and all rights over those assets must be returned to the Federal Mexican Government upon termination of the concession term. 2009 2008 Buildings and equipment $ 7,577.8 $ 6,311.4 8. Investments in associated companies and other non-consolidated subsidiaries Locomotives and freight cars 654.7 629.8 The investments in associated companies were as follows: Rails and structures 469.0 447.6 Train yards and terminals 124.4 107.4

Rolling stock 270.6 157.5 Equity in the results Rig 16.4 58.1 Investment at December 31, from the year ended 9,112.9 7,711.8 (in millions) December 31, (in millions) Less - accumulated depreciation, amortization and depletion (4,261.3) (3.948.4) Associated companies % 2009 2008 2009 2008 4,851.6 3,763.4 Ferrosur 75 $ 277.7 $ 255.3 $ 15.3 $ 26.5 Land, other than mineral 853.4 285.1 Construction in progress 870.5 732.5 FTVM 25 7.9 8.7 2.0 4.7 Property, plant and equipment - Net $ 6,575.5 $ 4.781.0

TTX Company .64 9.1 8.8 0.5

Depreciation expense for the years ended December 31, 2009 and 2008 amounted to $361.4 million and $338.01 million, Other 8.0 8.8 - - respectively.

Investments $ 302.7 $ 281.6 $ 17.3 $ 31.7

7. Concession titles The acquisition of Ferrosur was accounted on November 24, 2005 using the "purchase method", pursuant to the provisions of ASC Concessions are comprised of the following: Business Combinations (prior authoritative literature SFAS No. 141 "Business combinations"), issued by FASB. These provisions establish that when applying the purchase method, the cost of the acquired entity is compared to the assigned amounts (fair value) of assets acquired and liabilities assumed. The allocated fair values were determined by means of independent appraisals, public 2009 2008 information on market prices and management's estimations. North-Pacific railroad track $ 109.4 $ 105.5 Nogales-Nacozari short railroad track 1.6 0.2 As a consequence of the application of this method, the Company recorded $57.8 million ($57.0 million nominal value) excess in Ojinaga-Topolobampo short railroad track 0.2 1.5 cost of the acquired entity over the net of the amounts allocated to assets acquired and liabilities assumed (goodwill). As mentioned Overhauls 19.0 18.6 in Note 1, the investment in Ferrosur was accounted for by the equity method due to the uncertainty surrounding whether the acquisi- 130.2 125.8 tion will be authorized by COFECO. Accumulated amortization (50.4) (44.5) Concession titles - Net $ 79.8 $ 81.3 As of December 31, 2009 and 2008, Ferrosur is the only subsidiary of ITF and it is mainly engaged in providing freight multi-modal railroad services and auxiliary services, as well as any activity that directly supports and is related to this purpose, including any other supplementary activities to railroad transportation services. Amortization charged to 2009 and 2008 income amounted to $4.2 million and $5.1 million, respectively. The Mexican Federal Government awarded Ferrosur a 50-year concession to operate the Southeast Railroad Track (exclusive for 30 years), The value of the North-Pacific Railway concession title was determined by deducting the value of the tangible assets received from the renewable for a similar period, subject to certain conditions. The Mexican Federal Government also sold certain fixed assets and the materi- price paid for the Ferromex shares, net of the liability arising from the capital lease of 24 locomotives that Ferrocarriles Nacionales als necessary to operate the railroad, plus 25% of FTVM shares. In addition, in December 2005, Ferrosur obtained the rights to operate the de México (“FNM”) had entered into with Arrendadora Internacional, S. A. de C. V. (liquidated since 2001). Oaxaca-South short line concession for 30 years, renewable for a period not exceeding 50 years, beginning on December 1, 2005.

24 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 25 Ferrosur has the right to use and the obligation to maintain in good conditions the trackage rights, railways, buildings and mainte- Amortization of intangibles was $2.4 million and $1.7 million for the years ended December 31, 2009 and 2008, respectively. The estimated nance facilities, as well as the ferryboat terminal. Ownership of those assets and facilities is retained by the Mexican Federal Govern- aggregate amortization expense for intangibles is $12.2 million for the years 2010 through 2014, approximately $2.4 million per year. ment and all of the rights over those assets will revert to the Mexican Federal Government at the end of the concessions.

GFM owns 25% of the capital stock of FTVM, the entity responsible for operating the Mexico City Terminal. The general guidelines 11. Maintenance agreements for the opening of the investment of the Mexican railroad system stipulate that each of the companies associated with a terminal will own 25% of the capital of such terminal. The financial position and results of operations of FTVM as of and for the years ended GFM has executed one maintenance and repairs agreement with Lámparas General Electric, S. de R. L. de C. V. (“GE”), an agreement December 31, 2009 and 2008 are not material to the consolidated financial statements of the Company. with GE Transportation Systems México, S. A. de C. V. (“GETS”), an agreement with Alstom Mexicana, S. A. de C. V. (“ALSTOM”) and an agreement with EMD Locomotive Company de México, S.A. de C.V. (“EMDL”) to provide repair and maintenance services, as In December 2008, GFM acquired 100 shares of TTX Company, whose main activity is providing haulage equipment to its members, well as the major repairs of Ferromex's locomotives, as follows: mainly type I railroads from the U.S.

Number of Terms of the agreement 9. Capitalized leachable material cost Supplier Locomotives Initial Date Expiration Date GE 252 February 2006 February 2012 GETS 160 May 1999 December 2026 2009 2008 ALSTOM 120 November 2004 December 2009 Capitalized leachable material $ 417.4 $ 378.1 EMDL 15 June 2026 June 2006 Accumulated amortization (274.5) (221.8) Total 547 Leachable material – Net $ 142.9 $ 156.3

GFM is entitled to cancel some of the maintenance agreements, in which case, it would assume the respective cost of early ter- Amortization of leachable material is included in "Depreciation, amortization and depletion" and amounted to $52.7 million and $67.7 mination. Regarding the GE agreement that will expire in February 2012, GFM does not anticipate a decision to early terminate million in 2009 and 2008, respectively. the agreement.

The Company's policy of deferring leachable material increased operating costs by $44.1 million and $57.6 million in 2009 and 2008, The GETS agreement for 160 locomotives includes two separate fleets (AC-4400 and ES-4400AC); the AC-4400 agreement, expir- respectively, as compared to what such amounts would have been if the Company expensed leachable material costs as incurred. ing in June 2024, provides that GFM cannot cancel the agreement until July 1, 2009 and a penalty would have to be paid ranging from $2.0 million in 2009 to $0.13 million in June 2024. The 100 ES-4400AC (EVO) locomotives agreement states that cancelation results in a penalties ranging from $2.7 million in the year 2010 to $0.17 million in 2026. 10. Intangible assets The ALSTOM agreement specifies that in case of an early termination, GFM would pay starting from the second year of operation, a $0.10 million charge for expenses incurred in the termination of agreements with personnel assigned to ALSTOM, which shall 2009 2008 decrease $0.02 million per year, and the acquisition by GFM of materials. Mining concessions $ 121.2 $ 121.2 Mine engineering and development studies 6.0 6.0 The EMDL agreement shall only be terminated in advance as of July 1, 2011. If GFM decides to conclude the contract between July 127.2 127.2 1, 2011 and June 30, 2012, GFM must pay the equivalent of 15 months of average billing, amount which shall be reduced by one Accumulated amortization (30.4) (30.1) month per year. 96.8 97.1 Goodwill 150.0 181.6 Maintenance and repairs - With respect to the locomotive's maintenance and repair work, pursuant to the agreements; GFM must Intangible assets $ 246.8 $ 278.7 make monthly payments based on certain fees that include mainly preventive and corrective maintenance. These fees are recorded

26 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 27 as maintenance expense in results of operations at the time such services are received. At December 31, 2009 and 2008, GFM paid AMC, SCC & MM / Mining segment $42.6 million and $41.4 million, respectively. Long-term debt:

Overhauls - Overhauls are capitalized to property and equipment as incurred. 2009 2008 AMC 12. long-term debt Syndicated loan in dollars and pesos equivalent to 1,500 million, with maturities in 2012 and 2014 $ 1,489.7 $ - At December 31, 2009 and 2008, the Company was in compliance with the guarantees and restrictions established by the debt Asarco agreements which include financial covenants and restrictions on contracting additional debt and on certain capital expenditures, the Note with a maturity of one year and quarterly payments consolidated debt was as follows: at a rate of 6%. 280.0 - SCC: 6.375% Notes due 2015 ($200 million face amount, less 2009 2008 unamortized discount of $0.8 and $0.9 million AMC $ 1,489.7 $ - at December 31, 2009 and 2008 respectifively) 199.2 199.1 Asarco 280 - 7.500% Notes due 2035 ($1,000 million face amount, less SCC 1,223.9 1,233.6 unamortized discount of $15.5 million and $15.8 million GFM/ITM 368.1 398.3 at December 31, 2009 and 2008, respectively) 984.7 984.5 MM 56.4 56.4 2.47% Mitsui credit agreement due 2013 (Japanese LIBOR Total notes payable 3,418.1 1,688.3 rate plus 1.25% (3.75% at December 31, 2008)) 40.0 50.0 Less - Current portion (570.0) (49.6) MM: Long-term debt $ 2,848.1 $ 1,638.7 9.250% Yankee Bonds - Series "B" due 2028 56.4 56.4 Total debt 3,050.0 1,290.0 Less - Current portion (537.9) (10.0) The maturities of notes payable as of December 31, 2009 were as follows: Long-term debt 2,512.1 $ 1,280.0

Maturity 2009 In 1998, MM issued $500 million of unsecured debt, which are referred to as Yankee bonds. These bonds were offered in two series: 2010 $ 570.9 Series "A" for $375 million, with an interest rate of 8.250% and a 2009 maturity, and Series "B" for $125 million, with an interest rate of 2011 437.6 9.250% and a 2028 maturity. During 2008, SCC repurchased $68.6 million of the Series "B" bonds and with this purchase SCC paid a 2012 375.4 premium of $16.6 million which were included in the consolidated statement of operations on the line "Loss on debt prepayments". In 2013 285.0 2009, MM paid $150.0 million of remaining balance of its Series "A" Yankee bonds. Whit this payment the Series "A" Yankee bonds were 2014 206.1 fully repaid. The bonds contain a covenant requiring MM to maintain a ratio of EBITDA to interest expense of not less than 2.5 to 1.0 as Thereafter 1,544.0 such terms are defined by the facility. At December 31, 2009, MM is in compliance with this covenant. $ 3,418.1 In 1999, SCC entered into a $100 million, 15-year loan agreement with Mitsui. The interest rate for this loan is the Japanese LIBOR rate plus 1.25% (Japanese LIBOR for this loan at December 31, 2009 was 1.2175%). The Mitsui credit agreement is collateralized by pledges of receivables on 31,000 tons of copper per year. The Mitsui agreement requires SCC to maintain a minimum stockholders' equity of $750 million and a specific ratio of debt to equity. Reduction of GMEXICO's direct or indirect voting interest in SCC to less than a majority would constitute an event of default under the Mitsui agreement. At December 31, 2009, SCC is in compliance with these covenants.

28 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 29 In July 2005 SCC issued $200 million 6.375% Notes due 2015 at a discount of $1.1 million and $600 million 7.500% Notes due 2035, at Total debt maturities do not include the debt discount valuation account of $16.1 million. a discount of $5.3 million. The notes are senior unsecured obligations of SCC. SCC capitalized $8.8 million of costs associated with this facility and are included in "Other assets" on the consolidated balance sheet. The net proceeds from the issuance and sale of the notes were At December 31, 2009 and 2008, "Other assets" included $5.3 million and $5.9 million, respectively, held in escrow accounts as required principally used to repay outstanding indebtedness of the SCC and the balance was used for general corporate purposes. SCC filed a Reg- by the SCC's loan agreements. The funds are released from escrow as scheduled loan repayments are made. istration Statement on Form S-4 with respect to these Notes in October, 2005. In January, 2006, SCC completed an exchange offer for $200 million, 6.375% Notes due 2015 and $600 million, 7.500% Notes due 2035. In the exchange offer, $197.4 million of the 6.375% old notes At December 31, 2009 and 2008, the balance of capitalized debt issuance costs was $10.9 million and $11.2 million, respectively. due 2015 were tendered in exchange for an equivalent amount of new notes and an aggregate of $590.5 million of the 7.500% old notes due Amortization charged to interest expense was $0.5 million and $0.6 million in 2009 and 2008, respectively. 2035 were tendered in exchange for an equivalent amount of new notes. The indentures relating to the notes contain certain covenants, in- cluding limitations on liens, limitations on sale and leaseback transactions, rights of the holders of the notes upon the occurrence of a change ITM & GFM / Railway segment of control triggering event, limitations on subsidiary indebtedness and limitations on consolidations, mergers, sales or conveyances. All of these limitations and restrictions are subject to a number of significant exceptions, and some of these covenants will cease to be applicable Long-term debt contracts in U.S. dollar: 2009 2008 before the notes mature if the notes attain an investment grade rating. At December 31, 2009 SCC is in compliance with these covenants. Loan from BNP PARIBAS (BNP) and Export-Import Bank (EXIM), with maturities every three months up to July 25, 2013, subject to an interests On May 9, 2006, SCC issued an additional $400 million 7.500% Notes due 2035. These notes are in addition to the $600 million of exist- at the LIBOR rate for three months plus 0.09% (1) $ 17.4 $ 22.0 ing 7.500% Notes due 2035 that were issued in July 2005. The current transaction was issued at a spread of +240 basis points over the 30-year U.S. Treasury bond. The original issue in July 2005 was issued at a spread of +315 basis points over the 30-year U.S. Treasury Loan from HSBC Bank pie and Export Development Canada (EDC), with bond. The notes were issued at a discount of $10.8 million. SCC capitalized $3.2 million of cost associated with this facility and is included maturities every six months up to November 26, 2014, subject in "Other assets" on the consolidated balance sheet. SCC used proceeds from the May 2006 issuance for its expansion programs. to an interests at the LIBOR rate for six months plus 0.08% (2) 14.3 17.2

The notes issued in July 2005 and the new notes issued in May 2006 are treated as a single series of notes under the indenture, including Loan from HSBC, with maturities every six months up to November 26, for purposes of covenants, waivers and amendments. SCC has registered these notes under the Securities Act of 1933, as amended. 2014, subject to an interests at the LIBOR rate for six months plus 0.40% (2) 2.5 3.0

On December 9, 2009, AMC contracted a syndicated loant for $1,500 million with BBVA Bancomer, S.A. Institución de Banca Múltiple, Loan from CALYON and EXIM with maturities every three months up to June 15, Grupo Financiero BBVA Bancomer acting as broker. The credit is divided into three tranches; Tranche A for $385.7 million, generating in- 2016, subject to an interests at the LIBOR rate for three months without spread (3) 54.2 62.4 terest at the LIBOR rate plus a margin of between 3.5 and 6.0 points, with quarterly repayments from 2010 up to 2012, which may be fully or partially pre-paid at any time; Tranche B for a Mexican peso amount equivalent to $850 million, and; Tranche C for $134.3 million and Loan from CALYON with maturities every three months up to June 15, a Mexican peso amount equivalent to $130 million. Tranches B and C generate interest at the LIBOR rate plus a margin of between 4.0 2016, subject to an interests at the LIBOR rate for three and 6.5 points for US dollars, and the TIIE (Interbank Interest Rate) plus a margin of between 4.0 and 6.5 points for Mexican pesos. Both months plus 0.40% to 0.50% (3) 15.2 17.4 tranches require quarterly repayments from 2010 until 2014. Tranches B and C cannot be prepaid before the maturity of Tranche A. Loan from Bank of America N.A. (BOFA) with the guarantee of EXIM, with Aggregate maturities of the outstanding borrowings at December 31, 2009, are as follows: payments every six months up to August 2009, subject to an interests at the LIBOR rate for six months plus 0.1% (4) - 8.0

Year 2009 Loan from BANAMEX and EXIM with maturities every three months up 2010 $ 537.9 to September 15, 2015, subject to an interest at the fixed rate of 8.18% (5) 61.4 61.4 2011 257.9 2012 257.9 Loan from BANAMEX with maturities every three months up to March 15, 2013 257.9 2014, subject to an interest at the fixed rate of 8.25% (5) 11.7 14.0 2014 257.9 Debt paper (Certificados Bursátiles) (6) 191.4 184.7 Thereafter 1,480.5 368.1 398.3 Total $ 3,050.0 Less - Current portion (32.1) (39.6) Long-term debt $ 336.0 $ 358.7

30 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 31 Long-term debt matures as follows: Ferromex had issued debt paper under these programs with the following features and whose balances are as follows:

Maturity 2009 December 31, Date of Maturity (in millions) 2010 $ 32.1 Issuance Transaction Date Annual Rate (%) 2009 2008 2011 32.1 FERROMX -07 Nov 16, 2007 7-Nov-2014 T1IE 28 days +0.34% $ 76.6 $ 73.9 2012 32.1 FERROMX -07-2 Nov 16, 2007 28-Oct-2022 Fixed rate of 9.03% 114.9 110.8 2013 32.1 $ 191.5 $ 184.7 Thereafter 239.7 $ 368.1 The loans and the debt paper establish certain covenants for GFM, which at December 31, 2009 had been fulfilled.

(1) In order to secure the loans from BNP and EXIM on December 30, 2004 and on January 27, 2005, an irrevocable trust guarantee was set up, with Banco Nacional de The interests paid during 2009 and 2008 were $22.5 millions and $44.5, respectively. México, S. A. (BANAMEX) as the trustee, GFM as the trustor, EXIM as the trust beneficiary in the first instance and BNP as trust beneficiary in the second instance, for which GFM pledged the rights of 25 acquired locomotives that gave rise to these loans, as well as the titles and interest on the guarantees provided to the trustee. The average annual rates for the years ended on December 31, 2009 and 2008 were: 6-month LIBOR 1.12% and 3.05%, 3-month LIBOR of 0.69% and 2.91% and TIIE for 28 days 4.06% and 7.50%, respectively. (2) Loans from HSBC Bank pcl - EDC and HSBC, respectively contracted for the purchase of 15 SD70ACe locomotives, which are pledged for these loans.

(3) Loans from CALYON - EXIM and CALYON, respectively contracted for the purchase of 40 locomotives, which are pledged for these loans. 13. Asset retirement obligation

On March 17, 2008, GFM contracted an interest rate derivative with BBVA Bancomer, S. A. (BANCOMER) for a notional amount of $69.3 million to cover the CALYON - SCC maintains an estimated asset retirement obligation for its mining properties in Peru, as required by the Peruvian Mine Closure EXIM and CALYON loans. Ferromex is jointly liable and guarantor of the GFM derivative. GFM is required to pay interest at an annual fixed rate of 2.8% on both loans, Law. In accordance with the requirements of this law SCC submitted closure plans to the Peruvian Ministry of Energy and Mines and BANCOMER has the option to cancel the fixed rate on March 16, 2010, in which case, the variable rates noted in the previous page, less 0.30%, would remain in (“MEM”). These plans have been open to public discussion in the areas of SCC’s operations and in 2009 were approved by MEM. As effect. At December 31, 2009 the interest rate derivative which resulted on a loss of $0.6 ($2.3 million in 2008) was recorded on "Loss on derivative instruments" in part of the closure plans, commencing in January 2010 SCC is required to provide annual guarantees of $2.6 million over a 34 year the consolidated statement of operations. The effect of variation between the contracted rate and the derivative rate in 2009 was unfavorable by $1.3 million. period to furnish the funds for the asset retirement obligation. In the near-term future SCC has pledged the value of its Lima office complex as support for this obligation. The accepted value of the Lima office building for this purpose is $17 million. In 2009, SCC (4) In order to secure the loans from BOFA - EXIM, an irrevocable trust guarantee was set up, with BANAMEX as the trustee, Ferromex as the trustor, EXIM as the trust has adjusted its original retirement obligation to record the liability established in its mine closure plans. beneficiary in the first instance and BOFA as trust beneficiary in the second instance, for which Ferromex yielded to the trust the rights to 35 acquired locomotives that gave rise to this loan, as well as the titles and interest on the guarantees provided to the trustee. The closure cost recognized for this liability includes the estimated cost required at the Peruvian operations, based on SCC's experi- ence, also includes cost at the Iio smelter, the tailing disposal, dismantling the Toquepala and Cuajone concentrators, and the shops (5) Loans from BANAMEX - EXIM and BANAMEX, contracted to settle in advance the bridge loan from BANAMEX, used for the purchase of 60 locomotives, which are and auxiliary facilities. pledged for these loans. The following is a reconciliation of the asset retirement obligation: In the loans (1) to (3) and (5) Ferromex signed as guarantor.

(6) Debt paper program (Certificados Bursátiles): 2009 2008 Balance at January 1 $ 18.0 $ 13.1 On November 13, 2007, the Mexican Securities and Exchange Commission (CNBV), authorized to Ferromex a new program to issue debt paper in the aggregated Additions, changes in estimates 27.9 4.1 amount of $5,000 million Mexican pesos (nominal value), during a period of four years. Incremental Costs 3.0 0.8 Balance at December 31 $ 48.9 $ 18.0

32 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 33 14. Employee statutory profit sharing The Larrea family directly or indirectly controls the majority of the Company's common stock, because they are shareholders in Empresarios Industriales de México, S.A. de C.V., the holding company of GMEXICO and have considerable shareholdings in other The Company's operations in Peru and Mexico are subject to statutory workers' participation. businesses, such as entertainment, construction, aviation and real estate services. As part of its normal business, the Company performs certain transactions with other entities controlled by the Larrea family related to mining and refining services, office leas- In Peru, the provision for workers' participation is calculated at 8% of pre-tax earnings. The current portion of this participation, ing, air transportation and construction. In relation to the above, the Company paid 59.4 million pesos (equivalent to $4.4 million) which is accrued during the year, is based on Branch's taxable income and is distributed to workers following determination of final and 52.4 million pesos (equivalent to $4.7 million) in 2009 and 2008, respectively, for services involving maintenance and sale of results for the year. In Mexico, workers' participation is determined using the guidelines established in the Mexican Income Tax Law vehicles by México Compañía de Productos Automotrices, S. A. de C. V., a company controlled by the Larrea family. Furthermore, at a rate of 10% of pre-tax earnings. México Transportes Aéreos, S. A. de C. V. (MexTransport), a company controlled by the Larrea family, provides aviation services to the Mexican operations. The provision for workers' participation is included in "Cost of sales (exclusive of depreciation, amortization and depletion)" and "Administrative expenses" in the consolidated statement of operations. For the years ended December 31, 2009 and 2008, workers' The Mexican subsidiaries have provided surety for a new loan of 118.0 million pesos (equivalent to 10.8 million) obtained by participation expense was $185.2 million and $230.6 million, respectively. MexTransport. The surety granted to MexTransport is backed by the transportation services which MexTransport provides to the Company's Mexican subsidiaries. The Company paid 90.3 million pesos and 82.6 million pesos (equivalent to $ 6.7 million and Mexican law requires companies to pay their employees 10% of taxable profit each year. The profit sharing arrangement has deferred $6.1 million) in 2009 and 2008, respectively, to MexTransport for aviation services. tax consequences to the extent that basis differences exist between financial reporting and income tax reporting. Prior years' losses are not deductible in calculating profit sharing. Profit sharing expense is deductible in arriving at taxable income. SCC and subsidiaries purchase $5.4 million and $4.0 million in 2009 and 2008, respectively, of industrial materials from Higher Tecnology, S.A.C, in wich Mr. Carlos González has a proprietary interest, SCC paid fees of $0.3 million and $0.8 million in 2009 and The components of the net deferred employees' statutory profit sharing liability were as follows: 2008, respectively, for maintenance services provided by Servicios y Fabricaciones Mecánicas, S.A.C. a company in wich Mr Carlos González has proprietary interest, Mr Carlos González is the son of SCC’s Chief Executive Officer.

2009 2008 SCC and subsidiaries purchased $0.6 and $0.7 million in 2009 and 2008 respectively, of industrial material from Sempertrans France Inventories $ (2.3) $ (5.0) Belting Technology, in wich Mr. Alejandro González is employed as a sales representative. SCC also purchase $0.1 million and $0.5 Non-deductible reserves 10.8 40.0 million in 2009 and 2008, respectively, of industrial material from PIGOBA, S.A. de C.V., a company in wich Mr Alejandro González Other - (1.3) has a proprietary interest. Mr Alejandro González is the son of SCC´s Chief Executive Officer Property, plant and equipment (26.4) (41.7) eferred charges (13.5) (18.0) SCC and subsidiaries purchased $0.9 million and $2.2 million in 2009 and 2008, respectively, of industrial material and services Otros 3.2 1.2 from Breaker, S.A. de C.V., a company in wich Mr. Jorge González has a proprietary interest. Mr Jorge González is the son in law of Total deferred employees' statutory profit sharing liability $ (28.2) $ (24.8) SCC´s Chief Executive Officer.

ITM paid lease office space of $1.3 million in 2009 and 2008 to Inmobiliaria Bosques de Ciruelos, S.A. de C.V., a company controlled 15. Related party transactions by the Larrea family.

The Company has entered into certain transactions in the ordinary course of business with parties in which the Company is the It is anticipated that in the future the company will enter into similar transactions with the same parties. controlling shareholder or with its affiliates. These transactions include the lease of office space, air transportation and construction services and products and services relating to mining and refining. The Company lends and borrows funds among affiliates for ac- quisitions and other corporate purpose. These financial transactions bear interests and are subject to review and approval by senior 16. Benefit plans management, as are all related party transactions. It is the Company’s policy that the Audit Committee and the Board of Directors shall review all related party transactions. The Company is prohibited from entering or continuing a material related party transaction that SCC has two noncontributory defined benefit pension plans covering former salaried employees in the U.S. and certain former em- has not been reviewed and approved or ratified by the Audit Committee. ployees in Peru. Also, SCC also has a post retirement health care plan.

34 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 35 Peru/Defined Benefit Pension Plan - The following table summarizes the changes in accumulated other comprehensive income for the year ended December 31, related to the Effective on October 31, 2000, the SCC's Board of Directors amended the qualified pension plan to suspend the accrual of benefits. defined benefit pension plan, net of income tax:

The components of net periodic benefit costs calculated in accordance with ASC 715 “Compensation -Retirement Benefits” (in prior literature SFAS No.87 “Employer Accounting for Pensions”), using December 31, as a measurement date, consist of the following: 2009 2008 Reconciliation of accumulated other comprehensive income: Accumulated other comprehensive income at beginning of plan year $ 2.2 $ 1.8 2009 2008 Net loss/(gain)amortized during the year (*) (*) Interest cost $ 0.7 $ 0.7 Net loss/(gain)occurring during the year 0.1 0.4 Expected return on plan assets (0.6) (0.5) Net adjustment to accumulated other comprehensive income 0.1 0.4 Amortization of net loss 0.1 (*) Accumulated other comprehensive income at end of plan year $ 2.3 $ 2.2 Net periodic benefit cost $ 0.2 $ 0.2 (*) Less than $0.1 million. (*) Less than $0.l million

The assumptions used to determine the pension obligation and seniority premiums as of year end and net cost in the ensuing The change in benefit obligation and plan assets and a reconciliation of funded status are as follows: year are:

2009 2008 2009 2008 Change in benefit obligation: Discount rate 5.50% 6.30% Projected benefit obligation at beginning of year $ 11.4 $ 11.6 Interest cost 0.7 0.6 Expected long-term rate of return on plan asset 4.50% 4.50% Benefits paid (0.9) (0.9) ctuarial gain (loss) 0.9 0.1 The scheduled maturities of the benefits expected to be paid in each of the next five years, and thereafter, are as follows: Projected benefit obligation at end of year $ 12.1 $ 11.4 Change in plan assets: Fair value of plan assets at beginning of year $ 12.9 $ 12.4 Expected Actual return on plan assets 1.2 (0.1) Año Beneficit payments Employer contributions 3.3 1.5 (in millons) Benefits paid (0.9) (0.9) 2010 $ 0.9 Fair value of plan assets at end of year $ 16.5 $ 12.9 2011 0.9 Funded Status at end of year: $ 4.4 $ 1.5 2012 0.9 2013 0.9 2014 0.9 2015 to 2017 4.6 Total $ 9.1

36 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 37 SCC's funding policy is to contribute amounts to the qualified plan sufficient to meet the minimum funding requirements set forth in the ASC 715 amounts recognized in statement of financial position consists of: Employee Retirement Income Security Act of 1974, plus such additional amounts as SCC may determine to be appropriate. Plan assets are invested in stock and bond funds. 2009 2008 SCC's policy for determining asset mix-targets includes periodic consultation with recognized third party investment consultants. The Current liabilities $ (0.1) $ (0.1) expected long-term rate of return on plan assets is updated periodically, taking into consideration asset allocations, historical returns and Non-current liabilities (1.9) (1.8) the current economic environment. Based on these factors, SCC expect it's assets will earn an average of 4.5% per annum assuming it’s Total $ (2.0) $ (1.9) long-term mix will be consistent with it’s current mix and an assumed discount rate of 6.30%. The fair value of plan assets is impacted by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ. ASC 715 amounts recognized in accumulated other comprehensive income consists of: Peru/Post-retirement Health Care Plan -

SCC adopted the post-retirement health care plan for retired salaried employees eligible for Medicare on May 1, 1996. The plan is 2009 2008 unfunded. Net loss $ 1.1 $ 1.0 Prior service credit (0.2) (0.2) Effective on October 31, 2000, the health care plan for retirees was terminated and SCC informed retirees that they would be covered by Total (net of income tax) $ 0.9 $ 0.8 the then in effect post-retirement health care plan of Asarco, which offered substantially the same benefits and required the same con- tributions.Asarco is no longer managing the plan. SCC has assumed management of the plan and is currently providing health benefits to retirees. The plan is accounted in accordance with ASC 715 (prior authoritative literature SFAS No. 106, "Employers' Accounting for The following table summarizes the changes in accumulated other comprehensive income for the year ended December 31, related to the Postretirement Benefits Other Than Pensions", as amended by SFAS No. 158.) post-retirement health care plan, net of income tax:

The change in benefit obligation and a reconciliation of funded status are as follows: 2009 2008 Reconciliation of accumulated other comprehensive income: 2009 2008 Accumulated other comprehensive income at beginning of plan year $ 0.5 $ 0.1 Change in benefit obligation: Net loss /(gain) occurring during the year 0.1 0.4 Benefit obligation at beginning of year $ 1.9 $ 1.3 Net loss/gain amortized during the year (*) (*) Interest cost 0.1 0.1 Net adjustment to accumulated other comprehensive income (0.1) 0.4 Benefits paid (0.1) (0.1) Accumulated other comprehensive income at end of plan year $ 0.6 $ 0.5 Actuarial (gain) loss 0.1 0.6

Benefit obligation at end of year $ 2.0 $ 1.9 The discount rates used in the calculation of other post-retirement benefits and cost as of December 31, 2009 and 2008 were 6.30% and 6.25%, respectively. Change in plan assets: Fair value of plan assets at beginning of year Employer contributions $ 0.1 $ 0.1 Benefits paid (0.1) (0.1) Fair value of plan assets at end of year $ - $ - Funded status at end of year $ (2.0) $ (1.9)

38 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 39 The benefits expected to be paid in each of the next five years, and thereafter, are as follows: MM has established for its union employees a non-contributory defined benefit pension plan. This plan is in addition to benefits granted by IMSS.

The components of net periodic benefit costs calculated in accordance with ASC 715 “Compensation retirement benefits” (in prior litera- Expected ture SFAS No. 87 “Employers Accounting for Pensions”), using December 31 as measurement date, consist of the following: Year Benefit Payments (in millions) 2010 $ 0.1 2009 2008 2011 0.1 Interest cost $ 1.5 $ 2.0 2012 0.1 Service cost 1.8 2.4 2013 0.1 Expected return on plan assets (2.2) (2.9) 2014 0.1 Amortization of transition assets, net (0.1) (0.1) 2015 to 2017 0.7 Amortization of net actuarial loss (0.1) (0.7) Total $ 1.2 Amortization of prior services cost 0.2 0.2 Net periodic benefit cost $ 1.1 $ 0.9

For measurement purposes, 6.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2009. The rate is assumed to decrease gradually to 4.5% for 2015 and remain at that level thereafter. The change in benefit obligation and plan assets are as follows:

Assumed health care cost trend rates can have a significant effect on the amount reported for the health care plan. A one percentage-point change in assumed health care trend rate would not have a significant effect. 2009 2008 Change in benefit obligation: Mexican Operations Projected benefit obligation at beginning of year $ 26.9 $ 39.8 Service cost 1.8 2.4 MM/Defined Benefit Pension Plans - Interest cost 1.5 2.0 Minera Mexico has established for its salaried employees a defined contribution benefit pension plan. This plan is in addition to Actuarial (loss) gain, neta 1.8 (4.7) benefits granted by the Instituto Mexicano de Seguro Social (IMSS). Under this plan, MM will make yearly matching contributions Settlements - 1.0 equaling 3% of participating employee’s base salary. Related to this, MM recorded a contribution expense of $1.0 million and Benefits paid (0.4) (6.8) $0.7 million in 2009 and 2008, respectively. The defined contribution plan liability was $2.5 million and $2.4 million in 2009 and Curtailment (0.1) - 2008, respectively. Inflation adjustment 1.0 (6.8) Projected benefit obligation at end of year $ 32.5 $ 26.9 The benefits earned in MM defined benefit plan are based on salaries adjusted by inflation. As Mexico has experienced a period of low inflation in recent years, the benefits earned from the IMSS have exceeded those earned from the MM noncontributory defined benefit plan. Due to this fact, and due to the fact that the MM wants to assure the economic well being of its retired employees, MM decided in 2009 2008 2006 to create a new defined contribution plan. Certain groups of salaried employees agreed to transfer from the non-contributory de- Change in plan assets: fined benefit plan to the new defined contribution plan. Benefits earned by participating employees as of January 1, 2006 were transferred Fair value of plan assets at beginning of year $ 26.7 $ 40.2 into the new defined contribution plan. The initial transfer of benefits from the non-contributory defined benefit plan to the new defined Actual return on plan assets 12.1 (5.6) contribution plan equaled $13.7 million. Transfer of assets (0.6) (0.7) Benefits paid (0.4) (0.5) The change in plan was accounted for as a settlement under ASC 715 “Compensation retirement benefits” (in prior literature SFAS Inflation adjustment 1.0 (6.7) 88, “Employee’s Accounting for Settlements and Curtailments of Deferred Benefit Pension Plans and for Termination Benefits”). MM Fair value of plan assets at end of year $ 38.8 $ 26.7 recorded a $1.7 million settlement gain in relation to the change in plan. Funded status $ 6.3 $ (0.2)

40 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 41 ASC 715 amounts recognized in accumulated other comprehensive income consists of: 2009 2008 Weighted average discount rate 8.0% 8.0% Expected long-term rate of return on plan asset 8.0% 8.0% 2009 2008 Rate of increase in future compensation level 0.0% 4.5% Net gain $ (6.7) $ (1.6) Prior service cost 0.7 0.7 These rates are based on Mexican pesos as pension plan payments will be paid in Mexico. Transition asset (0.1) (0.1) Total (net of income tax of $3.8 million and $0.6 million, respectively) $ (6.1) $ (1.0) The benefits expected to be paid in each of the next five years, and thereafter, are as follows:

The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, 2009 and Expected 2008, respectively related to Minera Mexico’s defined benefit pension plan, net of income tax: Year Benefit Payments (in millions) 2010 $ 26.3 As of December 31. (in millions) 2011 0.7 2009 2008 2012 0.7 Reconciliation of accumulated other comprehensive income: 2013 0.7 Accumulated other comprehensive income at beginning of plan year $ (1.0) $ (3.8) 2014 0.8 Amortization of transition obligation - 0.1 2015 to 2017 4.9 Prior services cost amortized during the year (0.1) (0.2) Total $ 34.1 Net loss amortized during the year 0.1 0.4 Net (gain) loss occurring during the year (5.1) 2.2 Currency exchange rate changes - 0.3 MM's policy for determining asset mix targets includes periodic consultation with recognized third party investment consultants. The Net adjustment to accumulated other comprehensive income (5.1) 2.8 expected long-term rate of return on plan assets is updated periodically, taking into consideration assets allocations, historical returns Accumulated other comprehensive income at end of plan year $ (6.1) $ (1.0) and the current economic environment. The fair value of plan assets is impacted by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ.

The following table summarizes the amounts in accumulative other comprehensive income amortized and recognized as a component of The plan assets are invested without restriction in active markets and are accessible when required and are therefore considered as level net periodic benefit cost, net of income tax: 1, in accordance with ASC 820.

The following table represents the asset mix of the investment portfolio: As of December 31, (in millions) 2009 2008 Amortization of transition asset $ (0.1) $ (0.1) 2009 2008 Amortization of net losses (0.1) (0.7) Asset category: Amortization of prior services cost - 0.2 Equity securities 72% 83% Total amortization expenses $ - $ (0.6) Treasury bills 28% 17% 100% 100%

The assumptions used to determine the pension obligation and seniority premiums as of year-end and net cost in the ensuing year were: The amount of contributions that MM expects to be paid to the plan during 2010 is not material.

42 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 43 MM/Post-retirement health care plan – The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, 2009 and 2008, respectively, related to the MM post retirement health care plan, net of income tax: The components of net period benefit costs are as follows:

2009 2008 2009 2008 Reconciliation of accumulated other comprehensive income: Interest cost $ 4.3 $ 4.8 Accumulated other comprehensive income at beginning of plan year $ 20.7 $ 27.2 Service cost 0.4 0.6 Amortization of net gain (0.3) - Amortization of net loss 0.5 0.7 Amortization of transition obligation (0.9) (1.0) Amortization of transition obligation 1.5 1.6 Net gain occurring during the year (4.8) (0.4) Net periodic post-retirement benefit costs $ 6.7 $ 7.7 Currency exchange rate changes 0.8 (5.1) Net adjustment to accumulated other comprehensive income (5.2) (6.5) Accumulated other comprehensive income at end of plan year $ 15.5 $ 20.7 The change in benefit obligation and a reconciliation of funded status are as follows:

The following table summarizes the amounts in accumulated other comprehensive income amortized and recognized as a component of 2009 2008 net periodic benefit cost, net of income tax: Change in benefit obligation: Projected benefit obligation at beginning of year $ 54.0 $ 63.3 Service cost 0.4 0.6 2009 2008 Interest cost 4.3 4.8 Amortization of prior service cost $ 0.9 $ 1.6 Actuarial (loss) gain, net (7.7) 0.1 Amortization of net losses 0.3 0.7 Benefits paid - (1.6) Total amortization expenses $ 1.2 $ 2.3 Currency exchange rate adjustment 2.0 (13.2) Projected benefit obligation at end of year $ 53.0 $ 54.0 Funded status $ (53.0) $ (54.0) Discount rates used in the calculation of other post-retirement benefits and costs as of December 31, 2009 and 2008 was 8.0% in both periods.

ASC-715 amounts recognized in accumulated other comprehensive income consists of: The benefits expected to be paid in each of the next five years, and thereafter, are as follows:

2009 2008 Expected Net loss $ 4.3 $ 9.1 Year Benefit Payments Transition obligation 11.2 11.6 (in millions) Total (net of income tax of $9.5 million and $16.7 million, respectively) $ 15.5 $ 20.7 2010 $ 3.7 2011 3.9 2012 4.1 2013 4.4 2014 4.6 2015 to 2017 33.4 Total $ 54.1

44 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 45 For measurement purposes, a 2.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2009 to substantially all retirees. The plans are unfunded but exist as general corporate obligations. The post-retirement health care plans and remains at that level thereafter. have a June 30 fiscal year-end.

An increase in other benefit cost trend rates have a significant effect on the amount of the reported obligations as well as component cost The measurement date used for the ASARCO to determine benefit obligations was December 31, 2009, and is based on census data of the other benefit plan. One percentage-point change in assumed other benefits cost trend rates would have the following effects: provided as of the beginning of the fiscal years of such plans. No events have occurred that would have a significant impact on those calculations and measurements.

One percentage point The following table presents a summary of the labor liabilities in million: (in millions) Increase Decrease Effect on total service and interest cost components $ 5.1 $ 4.0 Change in Projected Pension Pension Post-retire Post-retire Effect on the post-retirement benefit obligation $ 53.9 $ 48.1 Benefit Obligation Period Benefis Benefis Healt Care Healt Care ended December 31, 2009 Salaried Hourly Salaried Hourly Total

American Operations Benefit Obligation at December 10 $ 205.8 $ 239.1 $ 43.0 $ 244.5 $ 732.4 ASARCO - Pension Plans of defined benefits Service cost 0.2 0.3 0.6 1.1 Interest cost 0.7 0.8 0.1 0.8 2.4 Pension plans Actural (gain)/loss (4.4) (5.5) (0.8) (5.1) (15.8) ASARCO maintains two noncontributory, defined benefit pension plans covering substantially all its domestic employees. Benefits for Benefis paid (0.8) (2.2) (0.5) (0.4) (3.9) salaried plans are based on salary and years of service. Hourly plans are based on negotiated benefits and years of service. Pension costs Benefit Obligation are determined annually, by independent actuaries. ASARCO funding policy is to contribute amounts to the plans sufficient to meet the at December 31 $ 201.5 $ 232.5 $ 41.8 $ 240.4 $ 716.2 minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional tax-deductible Accumulated amounts as may be advisable under the circumstances. Plan assets are invested principally in commingled stock funds, mutual funds Benefit Obligation $ 187.7 $ 231.9 and securities issued by the United States Government. The Pensions have a June 30 fiscal year-end.

The measurement date used to determine benefit obligations for ASARCO was December 31, 2009, and is based on census data provided Change in Plan Assets Pension Pension Post-retire Post-retire as of the beginning of the fiscal years of such plans. No events have occurred that would have a significant impact on those calculations Period ended December Benefis Benefis Healt Care Health Care and measurements. The following are the economic assumptions used in determining estimates for the combined pension plans: 31, 2009 Salaried Hourly Salaried Hourly Total

Fair Value of Plan Assets December 10 - 31, at December 10 $ 128.8 $ 150.9 $ - $ - $ 279.7 2009 Actual return on plan Discount rate 5.75% assets 1.6 1.8 - - 3.4 Salary growth rate 4.00% Employer contributions - - 0.4 0.4 0.4 Inflation rate 3.00% Benefis paid (0.8) (2.2) (0.4) (0.4) (3.4) Administrative expenses - - - - - Fair Value og Plan Assets Post-Retirement Benefits at Decem 31 $ 129.6 $ 150.5 $ - $ - $ 280.1 Funded Status et Contributory postretirement health care coverage under ASARCO health plans is provided to substantially all U.S. retirees not eligible for December 31 $ (71,9) $ (81,9) $ (41.9) $ (240.l) $ (195.9) Medicare. A cost-sharing Medicare supplement plan is available for retired salaried employees and life insurance coverage is provided

46 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 47 Amounts recognized in the accompanying consolidated balance sheets consist of: Weighted-average assumptions used to determine net period benefit costs:

Pension Pension Post-retire Post-retire Period ended December Benefis Benefis Healt Care Health Care Pension Pension Post-retire Post-retire 31, 2009 Salaried Hourly Salaried Hourly Total Benefits Benefits Health Care Health Care Period ended December 31, 2009 Salaried Hourly Salaried Hourly Current lianilities $ - $ - $ (3.0) $ (9.2) $ (12.2) Discount rate 5.55% 5.55% 5.10% 5.70% Non-current liabilities (71.9) (81.9) (38.9) (231.1) (424.0) Expected return on as sets 8.25% 8.25% N/A N/A Rate of compensation increase 4.00% 4.00% N/A N/A Net amount recognized $ (71.9) $ (81.9) $ (41.9) $ (240.3) $ (436.2)

ASARCO investment policy is to actively manage certain asset classes where potential exists to outperform the broader market while Amounts recognized in accumulated other comprehensive income consists of: maintaining acceptable risk levels inherent in specific benchmarks used to measure performance for each asset class. To develop an expected long-term rate of return on assets assumption, ASARCO considered the historical returns and the future expectations for returns for each asset class as well as the target asset allocation of the pension portfolio. Pension Pension Post-retire Post-retire Period ended December Benefis Benefis Healt Care Health Care ASARCO policy for determining asset allocation targets includes periodic consultation with recognized third party investment consul- 31, 2009 Salaried Hourly Salaried Hourly Total tants. The fair value of plan assets is impacted by general market conditions. If actual returns on plan assets vary from the expected returns, actual results could differ. Net loss $ (5.4) $ (6.5) $ (0.8) $ (5.1) $ (17.9) Prior service cost - - - - - The following table summarizes the actual asset allocations for the Successor and Predecessor companies defined benefit pen- sion plan: Net amount recognized $ (5.4) $ (6.5) $ (0.8) $ (5.1) $ (17.9)

Period ended December 31 2009 The components of net periodic benefit cost are as follows for the periods ended: US equity composite 29.5% International equity composite 24.2% Pension Pension Post-retire Post-retire Emerging markets composite 7.2% Period ended December Benefis Benefis Healt Care Health Care Fixed income composite 23.4% 31, 2009 Salaried Hourly Salaried Hourly Total Hedge fund composite 8.0% Cash composite 7.7% Service const $ 0.2 $ 0.3 $ $ 0.6 $ 1.1 Total asset allocation 100.0% Interest cost 0.7 0.8 0.1 0.8 2.4 Expected return on plan assets (0.6) (0.8) - - (1.4) Recognized actuarial (gain)/loss - - - - - Investments in commingled “composite” funds are recorded at fair value based on the net asset value of the fund as provided by the Amortization of prior service cost - - - - - fund manager or general partner. Investments in these funds are specific to asset allocation strategies. The classifications include both Total net periodic benefit cost $ 0.3 $ 0.3 $ 0.1 $ 1.4 $ 2.1 direct investments in debt and equity securities as well as investments in privately held entities that manage an underlying portfolio of marketable debt and equity securities.

48 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 49 For measurement purposes, a 9.5%, and a 10.0% annual rate of increase in the per capita cost of covered health care is assumed for The Company projects the following benefit payments to be paid by the combined plans: 2009 and 2008, for both the Salaried and Hourly plans respectively. The rates are assumed to decrease until reaching 5% in 2018 and 2018, respectively. Pension Benefits Post-retirement Health Care

Assument Health Care Cost Trend 2010 $ 24.6 $ 12.2 Rates at December 31, 2009 Salaried Hourly 2011 25.6 13.4 2012 26.6 14.6 Health care trend assum ed for next year 9.50% 9.50% 2013 27.6 15.6 Ultimate health care cost trend rate 5.00% 5.00% 2014 28.6 16.6 Year that the rate reaches the ultímate trend rate 2018 2018 2015 - 2019 157.6 97.6 $ 290.7 $ 170.0

The health care cost trend rate assumptions have a significant effect on the amounts for Post-retirement Health Care costs and obliga- tions, as shown in the following tables: Employee Savings Plan

The Company maintains employee savings plans for salaried and hourly employees that permit employees to make contributions by Salaried Hourly payroll deductions pursuant to section 401(k) of the Internal Revenue Code. 1% increase $ 0.5 $ 3.7 The Company matches contributions up to 6% of compensation. In connection with the required match, the Company’s contributions 1% decrease (0.5) (3.0) charged against earnings were $2.8 in 2009.

Effect on post-retirement obligation Copper Basin 401(k) Plan 1% increase $ 5.8 $ 33.4 1% decrease (4.7) (27.4) Copper Basin also maintains a defined contribution plan that permits eligible employees to make contributions by payroll deductions pursuant to Section 401(k) of the Internal Revenue Code. During 2008, the Company amended the plan to include a matching contribu- tion up to 6% of compensation, and the contributions charged against earnings in 2009 were $0.9. Cash Inflows and Outflows ITM (Railway division) - Defined Benefit Pension Plans The Company contributed approximately $17.6 to the pension plans in 2009 and expects to contribute approximately $24.6 to the combined pension plans in 2010. In ITM and subsidiaries the liabilities and costs pertaining to the seniority premiums, which employees are entitled after 15 years of service are recognized on the basis of actuarial studies performed by independent experts. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Act”) was reflected as of December 31, 2009, assum- ing that the Company will continue to provide a prescription drug benefit to retirees that is at least the actuarially equivalent to Medicare ITM has also established plans to cover dismissal indemnities on the basis of actuarial studies, performed by independent experts. At Part D. The benefit payments listed in the following table are shown net of the expected Medicare Part D subsidy. 2009 and 2008 laborliabilities were immaterial

Corporate Services -

Grupo México Servicios, S. A. de C. V. (GMS, direct subsidiary of GMEXICO) provides various professional services to its affiliates. Currently GMS has 57 executive and as of December 31, 2009 and 2008 the labor liabilities were immaterial.

50 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 51 17. Stockholders' equity At an Ordinary Stockholders' Meeting held on April 30, 2007, the stockholders declared a dividend amounting to $709.9 million ($7,716.5 million Mexican pesos). On January 25, 2008, the Company paid dividends amounting to $211.3 million ($2,314 million As of December 31, 2009 and 2008, the Company paid common and outstanding stock consists of 7,785,000,000 and 7,609,999,000, Mexican pesos) corresponding to this declaration. The remaining $498.6 million ($5,402.5 million Mexican pesos) were paid in 2007. respectively, fully paid and subscribed shares, corresponding to fixed capital Series "B", Class I. Variable capital is limited to ten times the amount of the minimum fixed capital. Series "B" consists of ordinary voting stock representing 100% of all Class I and Class II voting stock. At least 51% of the shares com- prising this Series must be subscribed by private individuals or companies considered to be Mexican investors, as established by the At an Ordinary Stockholders' Meeting held on April 30, 2009, the Company's stockholders approved a cash dividend amounting to Ley General de Sociedades Mercantiles. $101.1 million equivalent to 0.17 peso cents per share, and a dividend in shares equivalent to 1 share per each 75 current shares, amounting $149.7 million which $144.5 million comes from the reserve for purchase of shares account up to spend it all and the Dividends paid are not subject to income tax if the dividends come from the Net Tax Profit Account (CUFIN, for its acronym in Spanish). remaining $5.2 million were paid from treasury stocks. Any dividends paid in excess of this account are subject to a tax equivalent to 38.89%. The tax is payable by the Company and may be credited against its income tax in the same year or in the following two years. Dividends paid from previously taxed profits are not subject Also, during 2009, pursuant to the resolutions taken in the Ordinary Stockholders’ Meeting on April 2008, the Board of Directors to tax withholding or additional tax payment. In the event of a capital reduction, any excess of stockholders' equity over capital contribu- approved the payment of two dividends in shares amounting 129.2 million, which were paid as follows: on February 27, 2009, a tions, the latter restated in accordance with the provisions of the Income Tax Law, is accorded the same tax treatment as dividends. dividend was paid equivalent to one share per each 75 current shares, amounting to $56.1 million applied to the treasury stock ac- count and on May 11, 2009, the Company paid a dividend equivalent to one share per 100 current shares amounting $73.1 million At December 31, 2009 and 2008, the CUFIN amounted to $2,309.7 million and $2,003.8 million, respectively. coming from the Reserve for purchase of shares. Appropriated Retained Earnings: - As of December 31, 2009, the Company set aside $1.8 billion of unremitted earnings, of its At an Extraordinary Stockholders' Meeting held on April 30, 2008, the stockholders declared a three-for-one split of the Com- Mexican subsidiary, MM, as appropriated retained earnings. It is the Company's intention to indefinitely invest these funds in Mexico. pany's outstanding common stock of the series "B". The split increased the number of shares outstanding to 7,785,000,000 from These amounts are earmarked for the Company's Mexican expansion program. 2,595,000,000 effective June 19, 2008. All share and per share amounts have been retroactively adjusted to reflect the stock split in 2008 consolidated financial statements. Treasury Stock - Included in treasury stock are shares of the Company and SCC's common stock carried at cost. Activity in treasury stock was as follows: During 2009, the Company, through AMC, purchased approximately 4.9 million shares of SCC's common shares. As a result of this transaction, the Company's ownership of SCC's outstanding capital stock increased to 80%. 2009 2008 At an Ordinary Stockholders' Meeting held on April 30, 2008, the Company's stockholders' declared a dividend amounting to GMEXICO common shares $458.91 million ($4,715.1 million Mexican pesos). The payments were realized as follows: Balance as of January 1 $ 351 $ 139 Other activity, including received dividends, interest and currency translation effect – Net (5) 212 Amount in millions Mexican pesos Amount in millions Balance as of December 31 $ 346 $ 351 Date of Mexican pesos per share of U.S. dollars

April 25, 2009 2,570.3 $ 1.00 $ 245.1 At December 31, 2009 and 2008, treasury stock is composed of 34,596,086 and 29,696,086 shares, respectively, of SCC's common stock August 1, 2009 2,144.8 0.28 213.8 with a cost of $460.7 million and $389 million, respectively. At December 31, 2009 and 2008, treasury stock is composed of GMEXICO's $ 4,715.1 $ $458.9 137,724,215 shares and 234,507,729 shares with a cost of $134.9 million and $116.3 million, respectively. During 2009, the Company agreed to pay dividends in shares, from the shares of the treasury stock for 97,965 thousand shares equivalent to $101 million.

In addition, the stockholders declared a dividend in kind for $236.6 million, which was paid as follows: on August 1, 2008, a dividend In 2008, SCC's Board of Directors authorized a $500 million share repurchase program. During 2009 SCC purchased 4.9 million shares of 1 share for each 150 outstanding shares was paid from the Reserve for purchase of shares account, for $100.5 million ($1,029.2 of its common stock at a cost of $71.99 million this shares are included in the Treasury Stock. During 2008, SCC purchased 28.5 million million Mexican pesos) and on October 31, 2008, a dividend of 1 share for each 35 outstanding shares was paid from the treasury shares of its common stock at a cost of 384.7 million. These shares will be available for general corporate purposes. SCC may purchase stock account, for $136.1 million ($1,780.6 million Mexican pesos). additional shares from time to time, based on market conditions and other factors. This repurchase program has no expiration date and may be modified or discontinued at any time.

52 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 53 The shares of SCC are used for general corporate purposes, including, among others, for awards under the Directors' Stock Award Plan. In the case of involuntary termination of the employee, the Company will pay to the employee the difference between the fair market value GMEXICO's shares are used to grant awards under both the Employee Stock Purchase Plan and the Executive Stock Purchase Plan. of the shares at the date of termination of employment and the purchase price. When the fair market value of the shares is higher than the purchase price, the Company will apply a deduction over the amount to be paid to the employee based on the following schedule. Directors Stock Award Plan - SCC established a stock award compensation plan for the directors who are not compensated as SCC's employees. Under this plan, the participants will receive 1,200 shares of common stock upon election and 1,200 additional shares following each annual meeting of stockholders thereafter. 600,000 SCC's shares common stocks have been reserved for this plan. At If the termination occurs during: % Deducted December 31, 2009 and 2008, 241,200 shares and 229,200 shares, have been awarded under this plan, respectively. 1 st year after the grant date 100% Reserve for purchase of shares - In April 2005, the Company established a reserve of $201.7 million for the repurchase of shares, of 2nd year after the grant date 95% which $10 million will be included in the Company´s Treasury Stock for future sales to its employees. On April 30, 2009 at an Ordinary 3rd year after the grant date 90% Stockholders' Meeting, the stockholders agreed to increase the reserve for purchase of shares by $52.4 million ($27.5 million in 2008), 4th year after the grant date 80% of which $8.2 million ($10.6 million in 2008) will be included in Treasury Stock. During 2009, the Company did not purchase own- 5th year after the grant date 70% shares , in 2008 purchased 155,414 thousands of shares which amounted to $188.6 million. In 2009 and 2008, the Company decided 6th year after the grant date 60% to pay dividends in shares, which come from the Reserve for purchase of shares account, for $175,000 and 51,066 thousands of shares, 7th year after the grant date 50% equivalent to $221,130 and $100.5 million.

Employee Stock Purchase Plan - In January 2007, the Company offered eligible employees a stock purchase plan (the Employee In case of retirement or death of the employee, the Company will render the buyer or his legal beneficiary, the shares effectively paid as Stock Purchase Plan) through a trust that acquires shares of the Company's stock for sale to its employees, subsidiaries and certain of the date of retirement or death. affiliated companies. The purchase price is established at the approximate fair market value on the grant date. Every two years employees will be able to acquire title to 50% of the shares paid in the previous two years. The employees will pay for shares purchased through The stock based compensation expenses under this plan was $2.1 million in both periods. As of December 31, 2009, there was $10.7 mil- monthly payroll deductions over the eight year period of the plan. At the end of the eight year period, the Company will grant the partici- lion of unrecognized compensation expenses under this plan, which is expected to be recognized over the remaining five years period. pant a bonus of 1 share for every 10 shares purchased by the employee. The following table presents the stock award activity for the years ended December 31, 2009 and 2008: If the Company pays dividends on shares during the eight year period, the participants will be entitled to receive the dividend in cash for all shares that have been fully purchased and paid as of the date that the dividend is paid. If the participant has only partially paid for shares, the entitled dividends will be used to reduce the remaining liability owed for purchased shares. Unit weighted average grant date fair value In the case of voluntary resignation of the employee, the Company will pay to the employee the purchase price applying a deduction Shares in dollars based on the following schedule: Outstanding shares at January 1, 2008 14,504,151 $ 1.17 Granted If the resignation occurs during: % Deducted Exercised (23,655) $ 1.17 Forfeited 96,515 1 st year after the grant date 90% 2nd year after the grant date 80% Outstanding shares at Decmber 31, 2008 14,577,011 $ 1.16 3rd year after the grant date 70% Granted 4th year after the grant date 60% Exercised (2,700,588) $ 1.16 5th year after the grant date 50% Forfeited 319,798 $ 1.16 6th year after the grant date 40% 7th year after the grant date 20% Outstanding shares at December 31, 2009 11,556,625 $ 1.16

54 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 55 Executive Stock Purchase Plan - The Company also offers a stock purchase plan for certain members of executive management and For the year ended December 31. 2009 the executive management of its subsidiaries and certain affiliated companies. Under this plan, the participants will receive incentive Mexico U.S. Peru Total cash bonuses which are used to purchase up to 2,250,000 shares of the Company over an eight year period. The fair value of the award (in millions) is estimated on the date of grant and is recognized as compensation expense over a weighted average requisite service period of eight years. the Company recorded $0.1 million and $1.3 million net of tax, in compensation expense in 2009 and 2008, respectively. As of Income tax: December 31, 2009, there was $1.9 million of unrecognized compensation cost, related to this plan, which is expected to be recognized U.S. Federal and state: over the remaining period of six years. Current $ 59.8 $ (34.6) $ 25.2 Deferred (15.1) 33.4 18.3 The following table presents the stock award activity for the years ended December 31, 2009 and 2008: $ 44.7 $ (1.2) $ 43.5 Income tax: Unit weighted average Current $ 202.4 $ 316.7 $ 519.1 grant date Deferred (15.2) 9.2 (6.0) Shares fair value in dollars 187.2 325.9 513.1

Outstanding shares at January 1, 2008 1,372,500 $ 0.77 Total provision for Granted income tax $ 187.2 $ 44.7 $ 324.7 $ 556.6 Exercised (675,000) $ 0.77 Forfeited -

Outstandings shares at December 31, 2008 697,500 $ 0.77 For the year ended December 31. 2008 Mexico U.S. Peru Total Granted - (in millions) Exercised - $ 0.77 Forfeited - Income tax: U.S. Federal and state: Outstandings shares at December 31, 2009 697,500 $ 0.77 Current $ 0.1 $ (29.9) $ (29.8) Deferred (15.1) (15.1)

18. Income tax, asset tax and flat tax $ 0.1 $ (45.0) $ (44.9) Income tax: The components of the provision (benefit) for each jurisdiction for current and deferred income tax in 2009 and 2008 were Current $ 373.9 $ 546.9 $ 920.8 as follows: Deferred (88.4) (6.6) (95.0) 285.5 540.3 825.8

Total provision for income tax $ 285.5 $ 0.1 $ 495.3 $ 780.9

56 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 57 The reconciliation of the statutory income tax rate to the effective tax rate is as follows: 2009 2008

Foreign tax credit carryforward 28.8 52.8 2009 2008 Repurchase of industrial action 29.4 - Expected tax 35.0% 35.0% Setting prices and sales 2.7 - Effect of income taxed at a rate other than the statutory rate 3.3 2.0 Unrealized loss on short-term investment 2.2 Depletion (5.8) (6.0) Reserves 108.1 135.2 Dividends 1.9 - Tax loss carryforwards 27.3 25.3 Permanent differences 2.8 1.5 Capital loss carryforward 30.5 28.6 Peru tax on net income deemed distributed 2.3 2.3 Valuation allowance (30.5) (28.6) Increase (decrease) in valuation allowance (0.9) 0.1 Effect on U.S. tax Peruvian deferred tax liabilities 65.2 - Difference in foreign tax base 1.6 - Other 47.7 19.8 Decrease in unrecognized tax benefits for Total deferred tax assets 1,406.9 246.4 uncertain tax positions (5.3) (4.4) Liabilities: Other (2.1) 4.4 Property and equipment (723.0) (210.4) Effective income tax rate 32.8% 34.9% Acquisition accounting effect (102.5) - Plan benefits to employees (7.3) - Deferred charges (13.2) (51.0) The Company files income tax returns in three jurisdictions, Peru, México and U.S. each of which has a different statutory rate for 2009. Outside basis tax liability (19.8) - For the two years presented above the statutory income tax rate for Peru was 30%, for México the statutory tax rate was 28% and for the Mexican tax consolidated dividends (22.6) - U.S. the statutory tax rate was 35%. The expected tax rate used above is the statutory tax rate for U.S. Other (4.7) (17.8) Total deferred tax liabilities (893.1) (279.2) For all of the years presented, both SCC and the Company filed separate tax returns in their respective tax jurisdictions. Although the tax rules and regulations imposed in the separate tax jurisdictions may vary significantly, similar permanent items exist, such as items Total net deferred tax liabilities $ 513.8 $ (32.8) which are nondeductible or nontaxable. Some permanent differences relate specifically to SCC, such as the allowance in the U.S. for percentage depletion. At December 31, 2009 and 2008, SCC has a capital loss carryforward of 1.9 and 28.6 million related to closed derivative transactions. Temporary differences and carryforwards that gave rise to deferred tax liabilities, assets and related valuation allowances were This capital loss carryforward will expire in 2011 and 2012 if it is not used against taxable capital gains before then. The Company has as follows: placed a full valuation allowance of $30.5 million on the deferred tax asset related to this capital loss carryforward because the Com- pany's management believes it is not more likely than not that the benefit of this capital loss carryforward will be realized.

2009 2008 Also, as of December 31, 2009, AMC and its subsidiary Asarco have tax losses and tax credits for $ 1,024 million generated due to the exit from the Chapter 11, which may be used to offset future taxes. Assets: Inventories $ 113.3 $ (0.5) The Company and Mexican Subsidiaries/Mexico Liabilities for bankruptcy 238.9 - In accordance with Mexican tax law, effective in 2009, the Company and its Mexican subsidiaries are subject to income tax and fiat tax. Effects of operating loss 566.1 - The income tax rate is 28% in 2009 and 2008, and will increase to 30% in 2010 to 2012, 29% in 2013 and 28% in 2014. Postretirement benefit obligations 105.3 - Pension obligations 57.5 - As of 2007 the Company and some of its Mexican subsidiaries (mainly corporate companies and the railway segment) obtained autho- Capitalized exploration expenses 16.6 11.6 rization to file a consolidated income and asset tax return.

58 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 59 MM prepares a consolidated income tax return, which includes all of its subsidiaries. Additionally, MM's subsidiaries file individual Accounting for Uncertainty in Income Taxes income tax returns. The variation of unrecognized tax benefits were as follows: On December 7, 2009 modifications were published to the LISR, effective as of 2010, which establish that: a) the payment of ISR derived from the benefits of the tax consolidation regime obtained in the years 1999 through 2004 must be made on an installment basis from 2010 until 2015 and b) the tax derived from the benefits obtained under the tax consolidation regime for 2005 and subsequent years (in millions) must be paid during the sixth through 10th years after that in which the respective benefit was obtained. The payment of the tax derived 2009 2008 from the benefits of the tax consolidation regime obtained in the years 1982 (the year in which such regime began to be applied) to1998 could be requested in certain cases established in applicable tax provisions. The total payment of income taxes for the effect of the tax Opening balance $ 64.9 $ 136.3 consolidation regime is Ps. 106.6 million. This amount includes an additional liability in 2009 for $22.6 million, recognized in 2009 Adjustment to unrecognized tax benefits at implementation results in the consolidated statement of income as a result of the amendment to the tax consolidation regime. Increases: Tax positions in prior period (15.5) 11.6 IETU - Revenues, as well as deductions and certain tax credits, are determined based on cash flows of each fiscal year. The IETU rate is Current period tax positions (17.2) 17.6 17% and 16.5%, in 2009 and 2008, respectively; and 17.5% as of 2010. The Asset Tax Law was repealed upon enactment of the IETU Decreases: - - Law; however, under certain circumstances, IMPAC paid in the ten years prior to the year in which ISR is paid, may be recovered, accord- Tax positions in prior period - - ing to the terms of the law. In addition, as opposed to ISR, the parent and its subsidiaries will incur IETU on an individual basis. Recognition of benefits from resolution of issues with IRS - (90.2) Those related to settlements with taxing authorities (1.5) (10.4) The Company's management according to their financial and tax projections, determined that income tax will be higher than the IETU tax, so the Company did not recognized any deferred flat tax arising from IETU temporary differences. Ending balance $ 30.7 $ 64.9 Saldo final $ 30.7 $ 64.9 AMC and SCC/U.S. and PERU

U.S. Tax Matters The decrease in the 2009 unrecognized tax benefit of $34.2 million relates primarily to the completion of the audits for the tax years U.S. income taxes are not accrued for the unremitted earnings of foreign subsidiaries that have been or are intended to be invested indefinitely. 1997-2002 and individually insignificant increases and decreases in the current and prior year tax positions. The Company has not established a U.S. deferred tax liability for $1.8 billion in unremitted earnings as of December 31, 2009. It is not practi- cable to estimate an amount of tax that could be payable if there was a remittance of the earnings that are to be permanently reinvested. At December 31, 2009 and 2008, the amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $19.0 million and $18.4 million, respectively, which were related entirely to U.S. Income tax matters. The Company has no unrecognized At December 31, 2009, the foreign tax credit (FTC) carryforward available to reduce possible future U.S. income tax amounted to ap- Peruvian or Mexican tax benefits. proximately $28.8 million. All FTC's generated in 2009 can be carried forward for 10 years. They will expire without benefit, if they are not utilized by 2019. There are no other U.S. tax credits available for carryforward or carryback. As of December 31, 2009 and 2008, the liability for uncertain tax positions included accrued interest and penalties of $6.6 million and $5.4 million, respectively. Without the benefit of these carryovers, in 2008 the Company would have had to pay a U.S. current cash tax of approximately $50 million on the dividend income in 2008. The additional U.S. tax on the dividend from Mexico is the result of the rate differential between the U.S. In 2008 and 2009 the Company and the IRS made an agreement about the audit results of the tax forms of the years 1997 to 2004 federal tax rate and the Mexican effective tax rate. presented in U.S. The Company paidin cash 11.4 million to IRS to conclude the fiscalization and aproximatetly 18.3 million of finance expenses related to this issue. Peruvian Tax Matters- The tax years 2005, 2006 and 2007 are currently under IRS field examination, which commenced in November 2009. The Company SCC obtains income tax credits in Peru for value-added taxes paid in connection with the purchase of capital equipment and other goods does not expect that any of the open years will result in a cash payment within the preceding twelve months of December 31, 2009. and services employed in its operations and records these credits as a prepaid expense. Under current Peruvian law, SCC is entitled to The Company's reasonable expectations about future resolutions of uncertain items did not materially change during the year ended use the credits against its Peruvian income tax liability or to receive a refund. The carrying value of these Peruvian tax credits approxi- December 31, 2009. mates their net realizable value.

60 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 61 The following tax years remain open to examination and adjustment by the Company's three tax jurisdictions: appealed these audit adjustments in a written protest filed with the IRS Appellate division in October 2005. However, the IRS Appellate division has indefinitely postponed its consideration of the protest due to the fact that the IRS audit adjustments would simply reduce net operating loss carryovers and would not result in any additional federal income tax liabilities. Peru: 2007-2009 (the years of 1997-2006 that have been examined by the tax system and the objections are being refuted, no further objections can be made for these years) Tax Refund Claim U.S.: 2005 and all future years. Mexico: 2002 and all following years During May 2003, ASARCO NJ, filed a tax refund claim with the IRS, based on the carry back of specified liability losses, within the meaning of Internal Revenue Code Section 172(f). The claim carried back losses from: (1) the taxable years ended December 31, 1994 and 1995 to the taxable year ended December 31, 1987; (2) the taxable year ended December 31, 1998 to the taxable year ended At December 31,2009, even the corporative companies, ITM and it subsidiaries do not report un recognized tax benefits. This condition December 31, 1988; and (3) the taxable year December 31, 1999 to the taxable year ended December 31, 1989. is evaluated periodically. During 2005, a tentative agreement was reached and subsequently approved by the IRS regarding the amount of the refund which is ASARCO Tax matters approximated $40 million before interest of approximately $21 million

ASARCO is a single member limited liability company and is treated as a disregarded entity for federal and some state income tax pur- As a result of adopting guidance for the accounting treatment of uncertainty in income taxes, the ASARCO recorded an increase in its poses. For the period ended December 31, 2009, the Parent was the Company’s sole member. The Company’s operating results will be liability for unrecognized tax benefits of $91 million including accrued interest and penalties payable of $52 million. included in the consolidated tax return of the Parent for the period ended December 31, 2009. At December 31, 2009, certain tax loss and tax credit carryforwards were available with $2.4 expiring from 2011 through 2030 and Tax Sharing Agreement $8.7 with unlimited expiration date.

Because it is a disregarded entity for federal income tax purposes, ASARCO is not liable for income taxes. Instead, the Parent of the consolidated group is liable under applicable federal tax law for the taxes attributable to income and gains generated by ASARCO and 19. Business segment: its subsidiaries. The Company's segments are organized using the management approach by industry and geographical region, resulting in the ASARCO, and the Parent are parties to a Tax Sharing Agreement entered into effective January 22, 2004, as amended by the First Amend- reportable segments listed below. The MM (open pit and underground operations) produce copper, with production of by-products ment to Tax Sharing Agreement, entered into effective February 17, 2005 (the “TSA”), which requires ASARCO to make payments to the of molybdenum, silver and other material, SCC include integrated copper extraction, smelting and refining operations, produce cop- Parent in respect of tax attributable to taxable income and gain generated by ASARCO and its subsidiaries (the “LLC Subgroup”). Under per, with production of by-products of molybdenum, silver and other material, mainly in Peru. AMC's balances are originated from the TSA, this obligation is generally determined as if a separate tax return had been prepared by the LLC Subgroup. mining operations performed in the U.S. ITM carries out railway transportation activities through its main subsidiary GFM mainly in Mexico. If any net operating losses (“NOLs”), tax credits or other tax benefits (collectively, the “Tax Benefits”) are generated by the LLC Subgroup, the Parent is permitted, under applicable tax law, to utilize those Tax Benefits to offset any Parent taxable income. The TSA does not Information by segments is shown in the same format used by the Company's management to evaluate each business. An operating require the Parent to pay or reimburse ASARCO for the use of those Tax Benefits. However, such Tax Benefits are applied in subsequent segment is defined as a component of the Company dedicated to business activities from which the Company generates income and years as a reduction in taxable income of the LLC Subgroup for purposes of determining and, thus, will reduce, ASARCO’s tax reimburse- incurs costs and expenses, with respect to which information for decision-making is prepared and in respect of which the Company's ment obligation under the TSA in such subsequent years. management evaluates the allocation of resources periodically. The accounting policies of the segments are described in the sum- mary of significant accounting policies. Tax Audits Impacting Prior Years The Company assesses the performance by segment based on the operating income or (loss) before these expenses. The Federal income tax returns of the Company’s predecessor, ASARCO NJ, for the 1997-2000 tax years were examined by the Internal Revenue Service (“IRS”) and audit adjustments were made that increased taxable income of ASARCO NJ for such years. ASARCO NJ

62 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 63 The most significant data by business segment in 2009 and 2008 were as follows (in millions): 2008 Total mining MM SCC AMC segments Railway Infraestructure Corporate Total

2009 Total mining Sales of product MM SCC AMC segment Railway Infrastructure Corporate Total and services $ 2,027 $ 2,824 $ $ 4,851 $ 1,090 $ 92 $ - $ 6,033

Sales of product Operating income and services $ 1,498 $ 2,236 $ 66 $ 3,800 $ 920 $ 107 $ - $ 4,827 (loss) $ 676 $ 1,525 $ (3) $ 2,198 $ 254 $ 29 $ - $ 2,481

Operating income Administrative (loss) $ 468 $ 1,017 $ 16 $ 1,501 $ 190 $ 24 $ - $ 1,715 expenses $ 62 $ 40 $ 4 $ 106 $ 52 $ 4 $ 20 $ 178

Administrative Depreciation and expenses $ 41 $ 38 $ 7 $ 86 $ 45 $ 4 $ 3 $ 138 amortization $ 213 $ 114 $ $ 327 $ 83 $ 6 $ - $ 416

Depreciation and Comprehensive amortization $ 194 $ 129 $ 10 $ 333 $ 76 $ 2 $ - $ 411 financing result $ (17) $ 68 $ 14 $ 65 $ 29 $ - $ (57) $ 37

Comprehensive Net income (loss) $ 460 $ 1,407 $ (841) $ 1,026 $ 154 $ 6 $ (110) $ 1,076 financing result $ 6 $ (97) $ (11) $ (102) $ (14) $ - $ 81 $ (34) Total assets, not

Net income (loss) $ 338 $ 596 $ 654 $ 654 $ 121 $ 6 $ 107 $ 888 including investment in shares of

Total assets, not associated including companies $ 3,605 $ 2,912 $ (560) $ 5,957 $ 896 $ 1,654 $ - $ 8,507 investment in shares of Total liabilities $ 614 $ 1,743 $ 105 $ 2,462 $ 563 $ 24 $ 53 $ 3,102 associated companies $ 3,030 $ 3,033 $ 4,133 $ 10,195 $ 1,558 $ 227 $ 179 $ 12,159 Net investment in property, plant $

Total liabilities $ 423 $ 1,746 $ 3,325 $ 5,493 $ 474 $ (22) $ (57) $ 5,888 and equipment $ 1,957 $ 1,847 $ $ 3,804 $ 922 55$ - $ 4,781 Capital expenditures $ (214) $ (302) $ $ (516) $ (176) $ (19) $ - $ (711)

Net investment in property, plant

and equipment $ 1,943 $ 2,026 $ 1,506 $ 5,475 $ 996 $ 104 $ - $ 6,576

Capital expenditures $ (130) $ (284) $ (2) $ (417) $ (124) $ (52) $ - $ (592)

64 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 65 The Company made direct sales to customers and rendered railway transportation services in the following areas:: Copper and zinc swaps:

During 2009 SCC did not enter into any of these instruments. In 2008, SCC entered into copper collar and swaps contracts to protect a 2009 portion of its sales of copper production as follows: (in millions) Country MM SCC ASARCO Railway Infraestructure Total 2008 U.S. $ 473 $ 553 66 $ $ $ 1,092 Mexico 857 $ 920 107 1,884 Collar contracts:: Europe 99 788 887 Pounds (in millions) 220.50 Peru - 113 113 Average LME cap price $ 4.23 China and Asia 24 290 314 Average LME floor price $ 3.40 Latin America, except Swap contracts: Mexico and Peru 45 492 537 Pounds (in millions) 175.10 Weighted average COMEX prince $ 3.87 Grand total $ 1,498 $ 2,236 $ 66 $ 920 $ 107 $ 4,827

Related to the settlement of these copper collar and swap contracts, SCC recorded a gain of $137.0 million in 2008. These gains were 2008 recorded in net sales on the consolidated statement of operations. Also, these gains were recorded in net earnings in operating activities (in millions) of the consolidated statement of cash flow. Country MM SCC Railway Infraestructure Total Transactions under these metal price protection programs are not accounted for as hedges under SFAS No. 133 and are adjusted to fair U.S. $ 657 $ 768 $ - $ - $ 1,425 market value based on the metal prices as of the last day of the respective reporting period with the gain or loss recorded in net sales on Mexico 1,088 - 1,090 92 2,,270 the Consolidated statement of operations. Europe 196 912 - - 1,108 Peru - 130 - - 130 Gas swaps: China and Asia - 238 - - 238 In 2009 and 2008, SCC entered into gas swap contracts to protect part of its gas consumption as follows: Latin America, except Mexico and Peru 86 776 - - 862

Grand total $ 2,027 $ 2,824 $ 1,090 $ 92 $ 6,033 2009 2008

Gas volume (MMBTs) 306,000 460,000 Fix price $ 3.6350 $ 8.2175 20. Derivative instruments: Loss (in million) $ - $ (0.9)

The Company uses derivative instruments to manage its exposure to market risk from changes in commodity prices, interest rate and exchange rate risk exposures. The Company does not enter into derivative contracts unless it anticipates a future activity that is likely The losses obtained were included in the production cost. At December 31, 2009 SCC did not hold any open gas swap contracts. to occur that will result in exposing the Company to market risk.

66 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 67 Interest Rate Swaps: Each notional amount includes a group of underlying amount transactions that have the same strike and barrier price. SCC did not hold any interest rate swap contracts during 2009 and 2008 and does not hold any open position as of December 31, 2009. The exercise of these zero-cost derivative contracts resulted in a realized loss of $4.2 million in 2009 and gains of $17.8 million in Exchange Rate Derivatives, U.S. Dollar / Mexican Peso Contracts: 2008, respectively which were recorded as loss on derivative instruments on the consolidated statement of operations.

Because more than 85% of SCC's sales collections in Mexico are in U.S. dollars and many of its costs are in Mexican pesos, SCC entered into zero-cost derivatives contracts with the purpose of protecting, within a range, against an appreciation of the Mexican peso 21. Financial instruments: to the U.S. dollar. At December 31, 2009 SCC held two types of exchange rate derivative contracts. ASC-820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The In the first type of exchange rate derivative contract, if the exchange rate settles at or below the barrier price, SCC does not sell U.S. hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measure- dollars, if the exchange rate settles above the barrier price and below the strike price established in the contract, SCC sells the notional ments) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS amount of U.S. dollars settling in the week at the strike price. If the exchange rate settles above the strike price established in the contract, No. 157 are described below: SCC sells double the underlying amount of U.S. dollars settling in the week at the strike price established in the contract. At December 31, 2009, SCC held the following contracts of this type: Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 - Inputs that are observable, either directly or indirectly, but do not qualify as Level 1 inputs. (i.e., quoted prices for similar Strike Price Barrier Price assets or liabilities) Notional Amount Underlying amount Due Date, Weekly (Mexican (Mexican Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobserv- (millions) (millions) expiration until Pesos/U.S. Dollars) Pesos/U.S. Dollars) able (i.e., supported by little or no market activity).

$ 15.0 $ 1.25 March 11,2009 11.25 10.60 The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable (other than accounts receivable associated with provisionally priced sales) and accounts payable approximate fair value due to their short maturities. Con- sequently, such financial instruments are not included in the following table that provides information about the carrying amounts Each notional amount includes a group of underlying amount transactions that have the same strike and barrier price. and estimated fair values of other financial instruments:

In the second type of exchange rate derivative contract, if the exchange rate is less than or equal to the strike price, SCC sells U.S. dollars in an amount equal to the underlying amount for the expiration period at the strike price. The difference between the strike price and the 2009 2008 market exchange rate is considered a gain to SCC. The total accumulated gain over the life of the contract cannot exceed 200 cents per Mexico U.S. and Peru Mexico U.S. and Peru U.S. dollar transacted in the first contract and 500 cents per U.S. dollar transacted in the second contract. If the exchange rate is above Carrying Carrying Carrying Carrying the strike price, SCC sells U.S. dollars in an amount equal to two times the underlying amount for the expiration period at the strike price Fair value value Fair value value Fair value value Fair value value and the loss does not reduce the accumulated gain. At December 31, 2009, SCC held the following contracts of this type: Assets: Accounts receivables associated with

Precio de ejercicio provisionally Nocional Amount Underlying Amount Exercise price princed sales $ (36.6) $ 8.5 $ (60.7) $ 3.6 $ (36.6) $ (36.6) $ (60.7) $ (60.7) (million) (million) Due period Due date Pesos/dollars) Short-term investment $ 175.1 $ 175.1 $ 22.9 $ 22.9 $ 110.0 $ 110.0 $ 62.4 $ 62.4 Treasury stock $ 1,272.9 $ 356 $ - $ - $ 753.7 $ 351.0 $ $ Liabilities: From January 13, 2009 to Long termn debt: $ 15.0 $ 2.5 Monthly June 11, 2009 10.59 Mining Segment $ 59.1 $ 56.4 $ 1,228.5 $ 1,240.0 $ 62.5 $ 56.4 $ 976.1 $ 1,250.0 From January 2, 2009 to Railway Segment $ 368.1 $ 368.1 $ - $ - $ 379.9 $ 398.4 $ - $ - $ 85.0 $ 2.5 Weekly August 21 of 2009 10.53

68 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 69 Fair values of assets and liabilities measured at fair value on a recurring basis were calculated as of December 31, 2009 as follows 2009 2008 (in millions): Balance at beginning of period $ 11.0 $ 17.0 Unrealized gain (loss) 0.3 (3.6) Purchase, sales, issuance and settlements (net) (5.4) (8.2) Quoted princes in Transfers in/out of Level 3 (2.8) 5.8 Balance at active markets for Significant other Significant December identical assets observable inputs unobservable inputs Balance at end of period $ 3.1 $ 11.0 31, 2009 (Level 1) (Level 2) (Level3) Assets: Short-term investments $ 22.9 $ - $ 19.8 $ 3.1 The total amount of unrealized gains (losses) for the period was included in other income (expenses) in the consolidated statement Provisionally priced sales: of earnings for December 31, 2009. Copper 4.1 - 4.1 - Molybdenum (16.2) - (16.2) - Total $ 10.8 -$ 7.7 $ 3.1 22. Concentration of risk

scc The Company’s short-term investments are classified as Level 2 because they are valued using quoted prices for similar investments. The Company classifies investments within Level 3 of the valuation hierarchy in certain cases where there is limited activity or less observ- SCC operates four open-pit copper mines, five underground poly metal mines, three smelters and eight refineries in Peru and Mexico able inputs to the valuation. Investments classified within Level 3 include corporate bonds, asset backed obligations, and mortgage- and substantially all of its assets are located in these countries. There can be no assurances that the Company’s operations and assets backed securities. that are subject to the jurisdiction of the governments of Peru and Mexico will not be adversely affected by future actions of such governments. Much of the Company’s products are exported from Peru and Mexico to customers principally in United States, Europe, Derivatives are valued using internal models that use as their basis readily observable market inputs, such as time value, forward interest Asia and South America. rates, volatility factors, and current and forward market prices for foreign exchange rates. The Company generally classifies these instru- ments within Level 2 of the valuation hierarchy. Such derivatives include foreign currency, copper and zinc derivatives. Financial instruments, which potentially subject the Company to a concentration of credit risk, consist primarily of cash and cash equivalents, short-term investments and trade accounts receivable. The fair value of the plan assets is valued using quoted market prices; such value is classified within Level 1 of the fair value hierarchy. SCC invests or maintains available cash with various banks, principally in the United States, Mexico, Europe and Peru, or in commer- Fair value for long term debt is based on quoted market prices classified as Level 1 in the fair value hierarchy. The Mitsui loan is based cial papers of highly-rated companies. As part of its cash management process, SCC regularly monitors the relative credit standing on the present value of the cash flow discounted at 9% which is the Company’s weighted average cost of capital, this fair value is clas- of these institutions. At December 31, 2009, SCC had invested its cash equivalents as follows: sified as Level 3 in the fair value hierarchy.

The Company’s accounts receivables associated with provisionally priced sales of copper are valued using quoted market prices based Country % of total cash % invested in one institution on the forward price on the LME) or on the COMEX. Such value were initially classified within Level 2 of the fair value hierarchy, as the underlying sales contracts are not traded in active markets. Similarly, molybdenum prices are established by reference to the publication Abroad 65.6% 30.6% Platt’s Metals Week and are considered Level 2 in the fair value hierarchy. Peru 18.0% 86.2% Mexico 16.4% 77.8% The table below sets forth a summary of changes in the fair value of the Company’s Level 3 short-term investments (corporate bond, asset backed obligations, and mortgage backed securities) for the years ended on December 31, 2009 and 2008 (in millions). During the normal course of business, SCC provides credit to its customers. Although the receivables resulting from these transac- tions are not collateralized, SCC has not experienced significant problems with the collection of receivables.

70 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 71 SCC is exposed to credit loss in cases where the financial institutions with which it has entered into derivative transactions (commodity, 23. Commitments: foreign exchange and currency/interest rate swaps) are unable to pay when they owe funds as a result of protection agreements with them. To minimize the risk of such losses, SCC only uses highly-rated financial institutions that meet certain requirements. SCC also Railway segment periodically reviews the creditworthiness of these institutions to ensure that they are maintaining their ratings. SCC does not anticipate a. Ferromex's operations are subject to Mexican federal and state laws, and to regulations related to environmental protection. Under that any of the financial institutions will default on their obligations. these laws, guidelines have been issued concerning air, soil and water pollution, and studies have been carried out concerning environmental impact, noise control and hazardous residues. The Environment and Natural Resources Ministry (SEMARNAT for its SCC’s largest customers as percentage of accounts receivable and total sales were as follows: acronym in Spanish) may impose administrative and criminal sanctions against companies that breach environmental laws and it has authority to partially or entirely close any facilities that fail to comply with such regulations.

2009 2008 2007 The responsibility to regenerate soil, subsoil and underground aquifer layers as a result of any damage caused by ITM operations, through February 18, 1998, lies with FNM and in a subordinated manner with the Mexican Federal Government. ITM has taken certain Accounts receivable trade as of December 31 measures to prevent the pollution indicated in environmental audits performed by FNM, which served as the basis for preparing 19 Five largest customers 37.4% 61.7% 45.4% agreements with the Federal Bureau of Environmental Protection (PROFEPA, for its - acronym in Spanish), addressing 1,281 activi- Largest customer 11.2% 21.5% 22.4% ties to be carried out within a three year term, beginning from April 1999, 100% of which had been completed as of December 31, 2003. As of December 31, 2009, 6 administrative files are open with the PROFEPA, in four of which fines are expected to be levied Total sales in year upon Ferromex (in accordance with the law, these may range from 20,000 to 50,000 minimum wages). Nevertheless, based on the Five largets customers 35.1% 35.8% 39.6% evidence submitted, they are not expected to be significant. The other two events refer to spills in which the normal decontamination Largest customer 8.5% 10.6% 12.4% work will be carried out. In this regard, neither one is significant, because environmental events, which require an investment in excess of $50,000 dollars are covered by environmental damage insurance policies.

Asarco Under the terms of the concession, the Mexican Federal Government has the right to receive payments from Ferromex equal to 0.5% of the gross revenue during the first 15 years of the concession and 1.25% during the remaining years of the concession. In the years ASARCO operates copper mines, smelters and refineries in the United States. Financial instruments, which potentially subject ASARCO ended on December 31, 2009 and 2008, such payments amounted to $59.2 million and 60.1 million, respectively. to a concentration of credit risk, consist primarily of cash and cash equivalents, marketable securities and trade accounts receivable. Ferromex leases the building where its main offices are located, the lease agreement is for ten years beginning from April 1, 2003. In ASARCO invests or maintains available cash with various high quality banks principally in the United States and Canada, or in com- addition, Ferromex leases certain equipment, such as hoppers, boxcars, flatcars and tanker cars. mercial paper of highly rated companies. As part of its cash management process, the Company regularly monitors the relative credit standing of these institutions and, by policy, limits the amount of credit exposure to any one institution. Commitments for minimum payments under lease agreements for the following years are as follows:

During the normal course of business, ASARCO provides credit to its customers. Although the receivables resulting from the ordinary transactions with customers are not collateralized, ASARCO has not experienced significant problems with the collection of its trade Dollars Pesos Equivalente Total in receivables. Additionally, ASARCO maintains an insurance policy that provides for recoveries up to 90% of covered account balances in (thousands) (thousands) (thousands) Dollars default, subject to the policies provisions. 2010 $ 33,341 $ 12,567 $ 962 $ 34,303 ASARCO sells its products to a broad customer base. Mitsui, the 25% minority owner of SBM, has a right of first refusal for their 25% 2011 26,787 12,338 945 27,732 proportionate share of the copper produced by SBM. The remaining 75% is sold through ASARCO´s normal customer base and on the 2012 13,147 12,143 930 14,077 spot market. Mitsui generally exercises this right and, for the year ended December 31, 2009, revenues from Mitsui accounted for ap- 2013 7,769 12,129 929 ,8,698 proximately 10% of ASARCO´s total revenues. If Mitsui discontinues exercising its right of first refusal, ASARCO does not believe this 2014 Thereafter 4,811 8,390 642 5,453 would have a material adverse effect on results, since other customers and markets are readily available. Total $ 85,855 $ 57,567 $ 4,408 $ 90,263

72 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 73 In January 1998, Ferromex entered into a fuel purchase agreement with PEMEX, under which Ferromex is required to purchase, at The credits indicated establish certain restrictions and obligations, which have been satisfactorily fulfilled as of December 31, market value, a minimum of 15,725 cubic meters and a maximum of 31,850 cubic meters of diesel per month, although this limit 2009 and 2008. may be exceeded, without any repercussion, in conformity to the modifying agreement which became effective since April 17, 2007. At the same time, in the modifying agreement which became effective from June 29, 2008, the purchase agreement has effect during Mining segment four years and its validity will be extended for two years, and at the end of this two years period it will be renewed every year. PERU b. ITM provides surety for its indirect subsidiary Ferrosur in relation to: SCC's operations are subject to American and Peruvian laws and regulations. I. A syndicated credit with different banks performed on June 6, 2006 by Citibank, N.A., which consists of the following segments: Power purchase agreement: - $789 million generating interest at the 28 day TIIE rate plus 0.575% with quarterly repayments from June 6, 2010 until In 1997, SCC sold its Ilo power plant to an independent power company, Enersur. In connection with the sale, a power purchase agree- June 6, 2013. ment was also completed under which SCC agreed to purchase from Enersur all of its power needs up to 245 megawatts of capacity for its Peruvian operations for twenty years, commencing in 1997. In 2003 the agreement was amended releasing Enersur from its obliga- - $564 million generating interest at the 28 day TIIE rate plus 0.475%, with maturity on June 6, 2011. tion to construct additional capacity to meet SCC´s increased electricity requirements and changing the power tariff as called for in the original agreement. - $25 million thousands, generating interest at the three month LIBOR rate plus 0.55%, with quarterly repayments from June 6, 2010 until June 6, 2013. SCC has recently signed a Memorandum of Understanding (“MOU”) with Enersur regarding its power supply agreement. The MOU contains new economic terms that the Company believes better reflect current economic conditions in the power industry and in Peru. - $25 million thousands, generating interest at the three-month LIBOR rate plus 0.45%, with maturity on June 6, 2011. SCC expects to obtain savings in its future power costs. The new economic conditions agreed in the MOU have been applied by Enersur to its invoices to SCC since May 2009. Additionally, the MOU includes an option for providing power for the Tia Maria project. The MOU II. Credit with Bank of América, N. A. with collateral of the US Export-Import Bank for $1,117 thousands ($ 3,352 thousands in also established a time frame in which Enersur and SCC must negotiate in good faith to settle certain pending issues, including agreeing 2008), generating interest at the six-month LIBOR rate plus 0 1%, with monthly maturities up to March 2010. on a power purchase agreement for the Tia Maria Project. If the parties do not settle such pending issues, SCC will be free to negotiate with third parties. However, SCC could lose the economic benefit negotiated in the MOU. III. On September 29, 2006, Ferrosur contracted two Cross Currency Swaps (CCS) for liabilities denominated in US dollars, with a notional amount of US$25,000 thousands each, maturing on June 6, 2011 and 2013, respectively. The CCS fix an exchange MEXICO rate of Ps.10.9950 per $1.00, to cover the payment of principal and interest on two loans, denominated in such currency for the amount of US$25,000 thousands each. The CCS also changed the interest payment profile from a three-month US-LIBOR rate + Long-Term Sales Contracts: 0.45% and 0.55% to a 28 day TIIE rate + 0.61% and .71%. The derivatives have the same maturity as the liabilities hedged. Under the terms of a sales contract with Molimex, S. A. de C. V., MM is required to supply Molimex with 11,700 and 14,700 tons of Molybdenum concentrate annually in 2010 and 2011, respectively. The pricing of the molybdenum concentrate is based on the Comex Furthermore, on that same date Ferrosur contracted two Interest Rate Swaps (IRS) with maturity in September 2009, in which it High Grade 1st Position accordingly with the Platt Metals Week publication plus a producer premium, which is agreed upon annually converts the variable rate received from the CCS to a fixed rate of 8.62% and 8.74% on $274,875, respectively. The CCS and based on world market terms. IRS were designated collectively as cash flow hedge instruments during 2006 and 2007. In the year 2008 and up to September 2009, the date on which they matured, the IRS were recognized as cash flow hedges. ASARCO

On June 6, 2007 Ferrosur contracted two IRS whereby it pays fixed interest rates and receives variable interest rates. One of the Lease contracts: swaps, whose notional amount is $789 million, matures on June 6, 2013, while the other, with a notional amount of $564 million ma- Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year, in the aggregate tures on June 6, 2011 (in both cases the notional amount and the dates of maturity match the risk positions.) During 2009, ITM paid are as follows: interest rates of 8.51% and 8.37%, respectively, for the IRS and received a weighted average interest rate of 6.117% and 6.373%.

74 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 75 Period ended December 31 Thousand dollars Mexican operations MM’s operations are subject to applicable Mexican federal, state and municipal environmental laws, to Mexican official standards, and 2010 $ 7,642 to regulations for the protection of the environment, including regulations relating to water supply, water quality, air quality, noise levels 2011 7,666 and hazardous and solid waste. 2012 6,791 2013 3,636 The principal legislation applicable to MM’s operations is the Federal General Law of Ecological Balance and Environmental Protection, 2014 1,09 which is enforced by the Federal Bureau of Environmental Protection (“PROFEPA”). PROFEPA monitors compliance with environmental Thereafter 462 legislation and enforces Mexican environmental laws, regulations and official standards. PROFEPA may initiate administrative proceed- Total $ 27,288 ings against companies that violate environmental laws, which in the most extreme cases may result in the temporary or permanent closing of non-complying facilities, the revocation of operating licenses and/or other sanctions or fines. Also, according to the Federal Criminal Code, PROFEPA must inform corresponding authorities regarding environmental noncompliance. Total rental expense in the period ended December 31, 2009 was $3.6 ASARCO guarantees 100% of an operating lease of Silver Bell Mining, which is 75% owned by ASARCO. For 2009, $363 is related to the Silver Bell Mining lease. Mexican environmental regulations have become increasingly stringent in recent years, and this trend is likely to continue and has been influenced by the environmental treaty entered into by Mexico, United States and Canada in connection with NAFTA in 1999. However, The Company has entered into several lease agreements for mining equipment and has options to purchase that equipment. The MM’s management does not believe that continued compliance with the federal environmental law or Mexican state environmental laws options are at fixed prices prior to expiration of the leases and at fair market value upon expiration. The leases have been accounted will have a material adverse effect on the MM’s business, properties, results of operations, financial condition or prospects or will result for as operating leases. in material capital expenditures. Although the MM believes that all of its facilities are in material compliance with applicable environ- mental, mining and other laws and regulations, the MM cannot assure that future laws and regulations would not have a material adverse effect on the MM’s business, properties, and results of operations, financial condition or prospects. 24. Contingencies Due to the proximity of certain MM’s plants to urban centers, is possible that the authorities implement actions which could have an The company in involved in varios legal procedures originated of the normal operations. The principal contingencies and legal pro- impact over the operations of such plants or even stop the operations. cedures are described below: Litigation matters: scc and MM Peruvian operations Environmental matters: Garcia Ataucuri and Others against SCC’s Peruvian Branch (“SCC’s Peruvian Branch”, “Branch” or “Peruvian Branch”) - SCC and MM has instituted extensive environmental conservation programs at its mining facilities in Peru and Mexico. SCC and In April 1996, the Branch was served with a complaint filed in Peru by approximately 800 former employees seeking the delivery of a MM’s environmental programs include, among other features, water recovery systems to conserve water and minimize impact on substantial number of its “labor shares” (acciones laborales) plus dividends on such shares, to be issued in a proportional way to each nearby streams, reforestation programs to stabilize the surface of the tailings dams and the implementation of scrubbing technology former employee in accordance with their time of employment with SCC’s Peruvian Branch. in the mines to reduce dust emissions. SCC conducts its operations in Peru through its Peruvian Branch, a registered branch. Although the Peruvian Branch has neither capital Peruvian operations nor liability separate from that of SCC, under Peruvian law it is deemed to have an equity capital for purposes of determining the eco- SCC’s operations are subject to applicable Peruvian environmental laws and regulations. The Peruvian government, through the nomic interest of the holders of the labor shares. The labor share litigation is based on claims of former employees for ownership of labor MEM conducts annual audits of SCC’s Peruvian mining and metallurgical operations. Through these environmental audits, matters shares issued during the 1970s until 1979 under a former Peruvian mandated profit sharing system. In 1971, the Peruvian government related to environmental commitments, compliance with legal requirements, atmospheric emissions, and effluent monitoring are enacted legislation providing that workers in the mining industry would participate in the pre-tax profits of the enterprises for which reviewed. SCC believes that it is in material compliance with applicable Peruvian environmental laws and regulations. they worked at a rate of 10%. This participation was distributed 40% in cash and 60% as an equity interest in the enterprise. Under the law, the equity participation was originally delivered to the “Mining Community”, an organization representing all workers in the mining In 2003 the Peruvian congress published a new law announcing future closure and remediation obligations for the mining industry. industry. The cash portion was distributed to the workers after the close of the year. The accrual for this participation was (and continues In accordance with the requirements of this law SCC has submitted the required closure plans to MEM and were open to public to be) a current liability of SCC, until paid. In 1978, the law was amended and the equity distribution was calculated at 5.5% of pre-tax discussion in the areas of SCC’s operations. These closure plans were approved by MEM in the second half of 2009. As part of the profits and was made to individual workers of the enterprise in the form of “labor shares” to be issued in Peru by the Peruvian Branch of closure plan, SCC will provide guarantees to ensure that sufficient funds will be available for the asset retirement obligation. SCC. These labor shares represented an equity interest in the enterprise. In addition, according to the 1978 law, the equity participations

76 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 77 previously distributed to the “Mining Community” were returned to the Branch and redistributed in the form of labor shares to the indi- the prior lawsuit), that should have been issued in accordance with Law No. 22333, plus interest and (2) labor shares resulting from vidual employees or former employees. The cash participation was adjusted to 4.0% of pre-tax earnings and continued to be distributed capital increases made by the Branch in 1980 “for the amount of the workers’ participation of S/.17,246,009,907.20, equivalent to to employees following the close of the year. Effective in 1992, the law was amended to its present status, and the workers’ participation 172,460,099.72 labor shares”, plus dividends. On May 23, 2006, the Branch answered this new complaint, denying the validity of in pre-tax profits was set at 8%, with 100% payable in cash. The equity participation component was eliminated from the law. the claim. As of December 31, 2009 the case remains open with no new developments.

In 1995, SCC offered to exchange new shares of Common Stock of SCC for the labor shares issued under the prior Peruvian law. Ap- iii. On June 27, 2008, the Branch was served with a new complaint filed in Peru, this time by 82 former employees, (Alejandro Zapata proximately 80.8% of the issued labor shares were exchanged for SCC’s shares of Common Stock, greatly reducing the minority interest, Mamani and others vs. SCC’s Peruvian Branch), seeking delivery of labor shares (or shares of whatever other current legal denomina- now called non-controlling interest, on SCC’s balance sheet. What remains of the workers’equity participation is now included on the tion) corresponding to years 1971 to December 31, 1977 (the plaintiffs are seeking the same 38,763,806.80 labor shares mentioned consolidated balance sheet under the caption “Non-controlling interest.” in the two previous labor share lawsuits), that should have been issued in accordance with Law No. 22333, plus interest, and labor shares resulting from capital increases, plus dividends. The Branch answered this new complaint, denying the validity of the claim. In relation to the issuance of “labor shares” by the Branch in Peru, the Branch is a defendant in the following lawsuits: As of December 31, 2009 the case remains open with no new developments. i. As stated above, in April 1996, the Branch was served with a complaint filed in Peru by approximately 800 former employees, (Garcia iv. Additionally, in January 2009, the Branch was served with a new complaint filed in Peru, this time by 12 former employees (Arenas Ataucuri and others vs. SCC’s Peruvian Branch), seeking the delivery of 38,763,806.80 “labor shares” (acciones laborales), now Rodriguez and others —represented by Mr. Cornejo Flores- vs. SCC’s Peruvian Branch) seeking delivery of labor shares (or shares “investment shares” (acciones de inversion) (or Nuevos Soles (“S/.”) 3,876,380,679.56), as required by Law No. 22333, to be issued of whatever other current legal denomination) corresponding to years 1971 to December 31, 1977 (the plaintiffs are seeking the in a proportional way to each former employee or worker in accordance with their time of employment with SCC’s Peruvian Branch, same 38,763,806.80 labor shares mentioned in the three previous labor share lawsuits), that should have been issued in accordance plus dividends on such shares. In 2000, the Branch appealed an adverse decision of an appellate civil court, affirming a decision of with Law No. 22333, plus interest, and labor shares resulting from capital increases, plus dividends. The Branch answered this new a lower civil court, to the Peruvian Supreme Court. On September 19, 2001, the Peruvian Supreme Court annulled the proceedings complaint, denying the validity of the claim. As of December 31, 2009 the case remains open with no new developments. noting that the civil courts lacked jurisdiction and that the matter had to be decided by a labor court. SCC asserts that the labor shares were distributed to the former employees in accordance with the profit sharing law then in effect. SCC In October 2007, in a separate proceeding initiated by the plaintiffs, the Peruvian Constitutional Court nullified the September 19, has not made a provision for these lawsuits because it believes that it has meritorious defenses to the claims asserted and that a loss is 2001 Peruvian Supreme Court decision and ordered the Supreme Court to decide again on the merits of the case accepting or deny- not probable. ing the Branch’s 2000 appeal. Exploraciones de Concesiones Metalicas S.A.C. - In August 2009 a new lawsuit was filed against SCC’s Branch by the former In May 2009, the Supreme Court rejected the 2000 appeal of the Branch affirming the adverse decision of the appellate civil court and stockholders of Exploraciones de Concesiones Metalicas S.A.C. (“Excomet”). The plaintiffs allege that the acquisition of their shares lower civil court. While the Supreme Court has ordered SCC’s Peruvian Branch to deliver the labor shares and dividends to the former in Excomet by the Branch is null and void because the $2 million purchase price paid by the Branch for the shares of Excomet was not employees of SCC’s Peruvian Branch it has clearly stated that SCC’s Peruvian Branch may prove, by all legal means, its assertion that fairly negotiated by the plaintiffs and the Branch. In 2005, the Branch acquired the shares of Excomet after lengthy negotiations with the labor shares and dividends were distributed to the former employees in accordance with the profit sharing law then in effect, an the plaintiffs, and after the plaintiffs, which were all of the stockholders of Excomet, approved the transaction in a general stockholders’ assertion which SCC’s Peruvian Branch continues to make. meeting. Excomet was at the time owner of a mining concession which forms part of the Tia Maria project. SCC asserts that the lawsuit is without merit and is vigorously defending against this lawsuit. On June 9, 2009 SCC’s Peruvian Branch filed an extraordinary appeal before a civil court in Peru seeking the nullity of the 2009 Supreme Court decision and other protective measures. The civil court has now rendered a favorable decision suspending the Mexican operations enforcement of the Supreme Court decision, among other reasons, because, as was indicated above, the Supreme Court decision The Mexican Geological Services (“MGS”) Royalties - In August 2002, MGS (formerly named Council of Mineral Resources or had clearly stated that SCC’s Peruvian Branch may prove, by all legal means, its assertion that the labor shares and dividends were “COREMI”) filed with the Third Federal District Judge in Civil Matters, an action demanding from Mexcobre (La Caridad) the payment distributed to the former employees in accordance with the profit sharing law then in effect. In view of this and the recent civil court of royalties since 1997. In December 2005, Mexcobre signed an agreement with MGS. Under the terms of this agreement the parties decision, SCC´s Peruvian Branch continues to analyze the manner in which the Supreme Court decision may be enforced and what established a new procedure to calculate the royalty payments applicable for 2005 and the following years, and MM paid in January financial impact, if any, said decision may have. 2006, $6.9 million of royalties for 2005 and $8.5 million as payment on account of royalties from the third quarter 1997 through the last quarter of 2004. On January 22, 2007 the Third Federal District Judge issued a ruling regarding the payment related to the period from ii. On May 10, 2006, the Branch was served with a second complaint filed in Peru, this time by 44 former employees, (Cornejo Flores the third quarter of 1997 through the fourth quarter of 2004. This ruling was appealed by both parties in February 2007. The appeal was and others vs. SCC’s Peruvian Branch), seeking delivery of (1) labor shares (or shares of whatever other current legal denomination) lost by MM in October 2007. The Company filed a protective action (Amparo) before the Ninth Collegiate Civil Tribunal which rendered corresponding to years 1971 to December 31, 1977 (the plaintiffs are seeking the same 38,763,806.80 labor shares mentioned in a negative ruling on August 27, 2008.

78 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 79 On October 23, 2009 the Third Federal District Judge in Civil Matters issued a ruling directing MM to pay royalties and legal interest In the last eight years the Cananea mine has experienced nine labor stoppages totaling more than 1,000 days of inactivity through De- from the last quarter of 2004 to the third quarter of 2007. On December 17, 2009 MGS and Mexcobre signed a judicial agreement under cember 31, 2009. MM has tried unsuccessfully to resolve the current labor stoppage that obstructs production at Cananea. In the second which terms both parties agreed to settle the dispute with a payment of $19.0 million in installements through year 2010. With this quarter 2008 the Board of Directors offered all Cananea employees a severance payment in accordance with the collective bargaining judicial agreement approved by the judge the case is definitively concluded. agreement and applicable law. This was offered in order to award the employees a significant severance payment that allows them to choose the labor alternative that is best for each of them. During 2008, under this plan a group of employees was terminated at a cost San Luis de Potosí Facilities – On September 25, 2009, MM announced that its subsidiary, IMMSA, Desarrolladora Intersaba, S.A. to MM of $15.2 million, which was recorded in cost of sales on the consolidated statement of earnings. There were no termination de C.V. (“INTERSABA”) and the municipality of San Luis Potosí had reached an agreement by means of which IMMSA agrees to change payments made in 2009. In accordance with SFAS No. 112, MM has estimated a liability of $35.1 million, which was recorded on the the technology in order to stop using anhydrous ammonia gas in the production process at its San Luis zinc plant. The San Luis Potosi consolidated balance sheet. municipality also confirmed that local regulations permit IMMSA to use the land of its plants for industrial purposes. On March 20, 2009 MM notified the Mexican Federal Labor Court of the termination of all the individual labor contracts of the Cananea As part of the agreement, INTERSABA and the municipality of San Luis Potosi agreed to donate an area that was considered by IMMSA as workers, including the collective bargaining agreement with the Union. This decision was based upon a finding by the Mexican mining a buffer zone, in order for IMMSA to construct a park for the recreation of the San Luis population. Also IMMSA and INTERSABA agreed authorities that confirmed that the Cananea mine was in a force majeure situation since it was unable to operate due to severe dam- to settle all litigation between them relating to land permits and buffer zone. ages caused by striking workers. On April 14, 2009, the Mexican Federal Labor Court issued a resolution approving the termination of Cananea’s labor relationships with individual and unionized employees, as well as the termination of its collective bargaining agreement The Ejidal Commissariat of the “Ejido Pilares de Nacozari”, initiated a protective action (Amparo) against the second expropriation decree with its employees and with the National Mining and Metal Workers Union. This ruling has been challenged before federal tribunals. (by means of which 2.322 hectares were expropriated for public use), ignoring the judicial settlement reached with MM on this matter. Most of individual challenges by unionized workers have been resolved by a federal judge, dismissing their complaint. The case pre- The judicial settlement was ratified in January 2006. This case was resolved by a federal tribunal, which dismissed the Ejido case. sented by the Union is pending to be resolved.

Pasta de Conchos Accident – Mrs. Martinez, the wife of a miner, who died in the Pasta de Conchos accident, initiated a protective MM, the state of Sonora and the Mexican federal government are working to restore the necessary legal and safety conditions to resume action against the negative ruling issued by the Ministry of Economy denying her request to launch a procedure to cancel IMMSA’s coal operations at Cananea. On February 11, 2010 a Mexican Federal Labor court ruled that the damages caused to the Cananea mine by the concessions, which she argued the accident should trigger. neglect and sabotage of striking workers since the commencement of the labor stopagges in July 2007 resulted in force majeure, thus providing legal basis for the termination of individual and unionized employees by MM. MM expects due compliance of the referred The First District Administrative judge flatly dismissed the case, but this ruling was later reviewed by an appeals court. In August 2009, ruling by the relevant federal and state authorities and looks forward to recovering control of the Cananea mine. the court definitely dismissed Mrs. Martinez’s case on the grounds of lack of standing. Due to the lengthy work stoppage MM has performed an impairment analysis on the assets at the Cananea mine. MM has de- Labor matters: termined through its impairment analysis that no impairment exists as of December 31, 2009. Should estimates of future copper and molybdenum prices decrease significantly, such determination could change. During 2009, MM continued providing periodic Peruvian Operations maintenance to the assets. Approximately 62% of SCC’s Peruvian labor force was unionized at December 31, 2009, represented by eight separate unions. Three of these unions, one at each major production area, represent the majority of SCC’s workers. The collective bargaining agreements for these Additionally, the Taxco and San Martin mines have been on strike since July 2007. On December 10, 2009 a federal tribunal confirmed the unions last through February 2010. SCC has started negotiations with them on February 5, 2010. Additionally, there are five smaller legality of the San Martin strike. It is expected that operations at these mines will remain suspended until these labor issues are resolved. unions, representing the balance of workers. Collective bargaining agreements for this group are in force through November 2012. Other legal matters: During 2009 there were no strikes at the SCC’s Peruvian operations. In 2008, strikes in support of a mining federation strike occurred at SCC’s operating areas, during which operations were near to normal. Class actions: Three purported class action derivative lawsuits have been filed in the Delaware Court of Chancery (New Castle County) late in December 2004 and early January 2005 relating to the acquisition of Minera Mexico by SCC. On January 31, 2005, the three Mexican operations actions Lemon Bay, LLP v. Americas Mining Corporation, et al., Civil Action No. 961-N, Therault Trust v. Luis Palomino Bonilla, et al., Approximately 76% of the Mexican labor force was unionized at December 31, 2009, represented by two separate unions. Under Mexi- and Southern Copper Corporation, et al., Civil Action No. 969-N, and James Sousa v. Southern Copper Corporation, et al., Civil Action can law, the terms of employment for unionized workers is set forth in collective bargaining agreements. Mexican companies negotiate No. 978-N were consolidated into one action titled, In re Southern Copper Corporation Shareholder Derivative Litigation, Consol. Civil the salary provisions of collective bargaining agreements with the labor unions annually and negotiate other benefits every two years. Action No. 961-N and the complaint filed in Lemon Bay was designated as the operative complaint in the consolidated lawsuit. The MM conducts negotiations separately at each mining complex and each processing plant. consolidated action purports to be brought on behalf of the SCC’s common stockholders.

80 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 81 The consolidated complaint alleges, among other things, that the acquisition of Minera Mexico is the result of breaches of fiduciary ASARCO duties by SCC’s directors and is not entirely fair to SCC and its minority stockholders. The consolidated complaint seeks, among other things, a preliminary and permanent injunction to enjoin the acquisition, the award of damages to the class, the award of damages to Environmental remediation - ASARCO is working with federal and state agencies to resolve environmental issues. ASARCO accrues SCC and such other relief that the court deems equitable, including interest, attorneys’ and experts’ fees and costs. The defendants for the related costs about environmental remediation at December 31, 2009, amount 21.5 million. The main environmental contingency believe that this lawsuit is without merit and are vigorously defending against the action. of ASARCO is because of the high metal emission levels of the melt plant located in Hayden, Az, U.S., reason why, the authorities require to improve an environmental remediation plan for the ground polluted with metals. In June 2008, ASARCO established and funded 15 SCC’s direct and indirect parent corporations, including AMC and Grupo Mexico, have from time to time been named parties in various million for this plan. ASARCO considers that the environmental radiation is mainly complete at December 31, 2009 and 8 million must lawsuits involving Asarco, including a previously reported fraudulent conveyance lawsuit brought by Asarco in connection with AMC’s be recovered from the funds given. purchase of SCC’s interest from Asarco. As a result of the completion of the reorganization of Asarco and the exiting of Asarco from Chapter 11, this lawsuit has been satisfactorily resolved. Other obligations - As of December 31, 2009, ASARCO had $5 million of standby letters of credit, of which $0.8 million was outstanding and $4.2 million was available with a Chase Bank financing facility. ASARCO had outstanding surety bonds totaling SCC is involved in various other legal proceedings incidental to its operations, but the Company does not believe that decisions adverse $15.1 million at December 31, 2009. These bonds are primarily associated with reclamation, closure and environmental obliga- to it in any such proceedings, individually or in the aggregate, would have a material adverse effect on its financial position or results of tions, self-insurance bonds primarily for workers’ compensation of and other miscellaneous bonds. The underlying liabilities operations. Additionally, the Company does not believe that the outcome of the purported class action derivative lawsuit would have a associated with the above referenced financial assurances are reflected in the consolidated balance sheet as environmental material adverse effect on its financial position, results of operations or its cash flows. remediation obligations.

Other commitments: ASARCO is a defendant in lawsuits in Arizona, the earliest of which commenced in 1975, involving the United States, Native Americans and other Arizona water users. These suits seek damages for usage and alleged contamination of ground water. The lawsuits could affect Regional development contribution – In December 2006, SCC’s Peruvian Branch signed a contract with the Peruvian government ASARCO’s use of water at its Ray Complex, Mission Complex and other Arizona operations. The Company is also involved in multiple committing SCC to make annual contributions for five years to support the regional development of Peru. This was in response to an suits and claims against it arising from such matters as workers’ compensation claims and employment-related claims among other mat- appeal by the president of Peru to the mining industry. The contributions are being used for social benefit programs and were deposited ters. Management has analyzed the issues and made its best estimate to settle these matters; accordingly $2.1 million has been recorded with a separate entity, Copper Assistance Civil Association (Asociación Civil Ayuda del Cobre) which will make disbursements for ap- as of December 31, 2009 as contingent liabilities on the accompanying balance sheet. proved investments in accordance with the agreement. Future contributions could increase or decrease depending on copper prices. The commitment of the Branch is for a total of 1.25% of its annual earnings, after Peruvian income tax. If the average annual LME copper At December 31, 2009 ASARCO had recorded $157.7million in Other current liabilities and accruals related to contingent liabilities as price is below $1.79 per pound the contribution will cease. discussed above.

The following table summarizes the non-deductible contributions made by the Company and the 2009 provision based on Peruvian ITM earnings (in millions). Negotiations with a Mexican railway system operator - The company has net receivable balances with Kansas City Southern México, S.A de C.V. (KCSM) before TFM, S. A. de C. V.,(TFM) for transactions carried out from 1998 through 2009. Negotiations have Year of payment Based on Total been finalize amounts receivable and payable by segment (interline traffic, trackage rights and haulages). As of December 31, 2009 and 2008, the net receivable balances are $26.6 and $28.9, respectively. As of December 31, 2009 Ferromex and their consultants have not 2007 2006 16.1 recorded any liability to cover any legal resolution mentioned below: 2008 2007 18.9 2009 2008 12.7 Legal and administrative procedures - The Company is involved in several legal actions in the normal course of its business. 2010 2009 9.1 However, the Company’s management and its legal advisor believe that any individual or collective decisions related to these procedures will not have an adverse material effect on its financial position or results of operations. The main lawsuits in which the Company is involved are as follows: Royalty charge – In June 2004, the Peruvian Congress enacted legislation imposing a royalty charge to be paid by mining compa- nies. Under this law, SCC is subject to a 1% to 3% royalty, based on sales, applicable to the value of the concentrates produced at the a. Ordinary commercial actions against Kansas City Southern México, S.A. de C.V. (“KCSM” formerly TFM, S.A. de C.V., “TFM”). Toquepala and Cuajone mines. The expense for this concept as of December 31, 2009 and 2008 amounts 43.7 million and 53.9 million, Ferromex filed three actions against KCSM, requesting the Court’s determination on the amounts to be paid as consideration for respectively and is included in the consolidated statement of earnings. trackage rights, and interline traffic and interconnection services:

82 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 83 1. For the period running from February 19, 1998 to August 31, 2001, the amounts claimed at the time action was filed (nominal both parties filed various legal remedies, which were, Ferromex filed an appeal for rehearing against the ruling that admitted value) were for a total of Ps81,303 thousands. After being processed at all court levels, Ferromex was denied constitutional relief KCSM’s cross-appeal; on August 17, 2009 KCSM replied to Ferromex’s motion. By means of an interlocutory judgment dated under a writ of “amparo”, and although its right to sue again was safeguarded, it was ordered to pay legal costs and expenses. August 26, 2009. The Chamber granted Ferromex’s appeal for rehearing and dismissed KCSM’s cross-appeal filed against the Both parties filed various appeal actions. On June 17, 2009 the trial Court and the Fifth Chamber in Civil Matters were notified of ruling ordering discontinuance. By a ruling issued on December 11, 2009, The Second Collegiate Court in Civil Matters of the the judgment by which Ferromex was ordered to pay legal costs and expenses in an approximate amount of $6.2. Both Ferromex First Circuit granted Ferromex constitutional relief under a writ of amparo against the ruling that illegally ordered discontinuance and KCSM filed additional legal actions. of the action at the trial level.

By ruling issued by the Trial Court on August 14, 2009, Ferromex was ordered to pay the amounts on which judgment was In a court order of February 10, 2010, Ferromex charged KCSM with default of appearance for failing to respond to a court re- rendered, and was forewarned that should it fail to do so, attachment would be ordered. On September 11, 2009, the proceed- quest sent with the request for dismissal of evidence, and on February 24 KCSM filed an appeal against such order. In a letter of ing to serve process, demand payment, and carry out attachment took place at the Ferromex facilities, and payment was made March 2, 2010, Ferromex requested that the lawsuit move on to the presentation of arguments and on March 24 both Ferromex with a cashier’s check in the amount of $2.6 and for the shortfall, property was designated for attachment. By a brief dated and KCSM submitted their closing arguments. September 17, 2009, both parties requested by mutual agreement to stay all pending and ancillary proceedings and seizure of the attached property, since they had undertaken conciliatory talks. The court ordered the stay of proceedings. By a brief filed b. Actions for annulment against several official communications issued by the Ministry of Communications and Transportation (SCT) on December 10, 2009, KCSM requested that proceedings be resumed claiming that Ferromex had acted counter to the then on trackage rights, and interconnection and terminal services. Currently eight of these actions are being processed before the Fed- on-going negotiations, and as a consequence it requested that an official communication be sent to Banco Nacional de México, eral Court of Administrative and Fiscal Justice, the Supreme Court of Justice, the Collegiate Courts and the SCT. The Company is S.A. (“Banamex”) for it to freeze the funds in Ferromex’s account up to the amount not yet settled on the sums ordered to be paid awaiting that rulings be issued on these actions. in the relevant ancillary proceeding for legal costs and expenses. On January 7, 2010, Banamex acted on the Court order and withdrew $3.5 from the frozen account, thus settling payment on legal costs and expenses; the bank account was unfrozen that c. Action for annulment filed by KCSM.- Amendment to the Ferromex Title to Concession. On October 18, 2006, the SCT published in same day. The total amount of $6.2 that was disbursed is recorded in Other Expenses as of December 31, 2009. In a letter dated the Official Gazette of the Federation the Amendment to the Ferromex Title to Concession of Ferrocarril Pacífico Norte (former name January 19, 2010 KCSM requests that the deposit receipt be delivered to it, and a ruling is issued on the 22nd of that month. In of Ferromex). KCSM objected to this amendment and filed an action for annulment of this action. Ferromex was summoned as an a verdict of January 19, 2010, whose final document was prepared on March 5, 2010, in the indirect amparo lawsuit 802/2008, interested third party. KCSM was denied stay of the action being contested upon which it filed for relief under a writ of amparo which the ancillary proceeding for determination of damages and lost profits filed by KCSM was resolved and Ferromex was instructed was granted to it. Ferromex filed a motion for review which was admitted, the judgment of the lower court was revoked and KCSM to pay the amount of $196.3, which was set as surety for the definitive suspension, on March 16, 2010, a letter signed by both was denied relief under the amparo. In October 2008 Ferromex submitted arguments that were added to those of the other parties parties was filed in which KCSM waives collection of such amount of money and Ferromex expresses its agreement with such (KCSM and SCT), thus bringing the proceedings to a close. The Chamber hearing the case considered that the matter should be forgiveness of debt, without reserving any right that may be exercised in the future. In a letter dated March 25, 2010 Ferromex decided that the Superior Chamber of the Court of Administrative and Fiscal Justice, and therefore sent an official communication discontinues the appeals filed in the verdict enforcement period. to the latter to exercise its power of attraction, which it did decide to exercise. On November 3, 2009, the ruling declaring that the court had jurisdiction on the matter was sent for signature by the Presiding Judge. 2. For the period from September 1 to December 31, 2001, the sum claimed (at nominal value) amounts to a total of $1.6. After several actions were filed by both parties, a final and conclusive judgment was rendered that found partially in favor of Fer- On February 22, 2010, letters of discontinuance were filed by KCSM and Ferromex as a result of the agreement executed between romex. Nevertheless, both parties filed for appeal, the appeals were dismissed and the final judgment upheld. Both parties filed the parties, which have been agreed upon and have yet to be notified to the parties. for constitutional relief under a direct amparo action. Hearings were scheduled for October 21, 2009, at which Ferromex was granted relief while relief was denied to KCSM. The amparo was granted to Ferromex in order for defendant to be sentenced to d. Inquiry into Monopolistic Practices IO-02-2006.- By means of official communication No. DGIPMARCI-10-096-2008-001 dated pay the legal costs and expenses incurred both at the trial and appellate levels, and therefore, by a ruling issued on November 4, January 14, 2008, the Federal Commission of Economic Competition (COFECO) requested that Ferrocarril Mexicano, S.A. de C.V. 2009, the amparo judgment became final and conclusive, upholding the judgment rendered at the trial level in full but sentenc- and other companies submit sundry information, which FXE submitted on February 28, 2008. COFECO served Notices of Probable ing defendant to pay legal costs and expenses at both jurisdictional levels. Responsibility to the companies which had participated in the mergers reported by Infraestructura y Transportes México, S.A. de C.V. and Infraestructura y Transportes Ferroviarios, S.A. de C.V. in November 2005. In November 2008 the stage for the offering of Finally, through an agreement of January 26, 2010, it is evident that the court does not provide relief for or protect KCSM and evidence in response to the Notice of Probable Responsibility came to a close and both KCSM and the companies against whom instruction is given to file the case as closed. No ancillary proceeding has been proposed for the settlement of interest, and no action was filed were granted a term to submit their arguments. On November 26 arguments were filed with COFECO. demand has been made for settlement of the principal which the defendant was instructed to pay. On January 22, 2009, a ruling was issued in this inquiry proceeding. On January 30, 2009, COFECO notified Ferromex of its ruling 3. On September 19, 2006, Ferromex filed an ordinary commercial action against KCSM, seeking that accounts be rendered for the finding that the Company together with other companies were responsible for monopolistic practices and imposed monetary sanc- period running from January 2002 to December 2004, and claiming payment for the resulting amounts. As a result of this action tions, the one imposed on Ferromex amounting to $6.0 and GFM amounting to $54. The entities subject to this inquiry appealed for

84 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 85 reconsideration. Ferromex, KCSM and COFECO have all continued with different legal actions. By ruling issued on June 9, 2009, one of the codefendants, and in a ruling of the 24th consent was withheld subject to the presentation of different documents. In a notice of which was served on the 15th of the same month, COFECO decided to uphold its ruling of January 22, 2009. Currently letter of March 1, 2010 KCSM provided documents and requested a ruling in accordance with the waiver by the parties involved. several experts have submitted and ratified their reports (appointed by Ferromex, KCSM and COFECO, among others). An amparo During the month of March 2010, different parties expressed their consent to the discontinuance, reaching an understanding to that was presented against this resolution (Exp. 887/2009) effect and withholding their discontinuance of the legal action until the rest of the codefendants respond to the court request sent to them with such petition. At this report date, some judges have already ratify their sentence (Ferromex, KCSM, COFECO, etc). The constitutional hearing scheduled for December 28, 2009, was postponed without taking the new date because the case file was not ready. By ruling issued f. Indirect lawsuits - These lawsuits are those in which Ferromex is included in labor claims filed against FNM. These indirect lawsuits on December 28, 2009, the report duly grounded in fact and law submitted by Commissioners in full of COFECO was admitted, by cannot be quantified, but the possible economic impact would be absorbed by the Federal Government, in accordance with the terms which they request, inter alia, that the writ of amparo be denied to petitioners and to uphold the ruling being challenged that was previously agreed. issed on June 9, 2009. g. Direct lawsuits - These lawsuits are those in which Ferromex is sued directly. The related amount will be liable in the case that the Ina ruling of January 14, 2010, the Executive Secretary of the COFECO submitted his explanatory report and the COFECO made Company losses the lawsuits and there will not be possibility of negotiation. Indemnifications paid in 2009 and 2008, in connection several statements about irregularities in the certifications requested in accordance with article 152 of the Amparo Law. On January with labor claims amounted to $2.1 million and $3.5 million, respectively. 26 the Federal Judiciary Board appointed the economics expert, Attorney at Law Manuel Arilla Vila, and through an agreement of March 23 the expert report was submitted and ratified, and its content was favorable to the Plaintiff. Currently the case is pending As of December 31, 2009 and 2008, the Company believes that accounts receivable and payable are estimated adequately; and and the constitutional hearing has yet to be held. therefore, has not recorded an additional reserve to cover the possible adverse or favorable results of the negotiations and lawsuits mentioned above. e. Ordinary commercial action filed by KCSM against Ferromex and other companies. KCSM filed to declare null and void the stock purchase agreement regarding the shares representing the capital stock of Ferrosur, S.A. de C.V., dated November 24, 2005, entered into by Infraestructura y Transportes Ferroviarios, S.A. de C.V. (ITF) and Líneas Feroviarias de México, S.A. de C.V. (LFM), as buyers 25. Subsequent events and Grupo Condumex, S.A. de C.V. and Sinca Inbursa, S.A. de C.V., Sociedad de Inversión de Capitales, as sellers, and requesting in addition the annulment of all acts and consequences deriving from such transaction. Ferromex was served process on March 25, Bond release - On April 13, 2010, SCC issued unguaranteed debt amounting to $1,500 on international markets. The debt consists 2008. Several actions have been undertaken by the parties involved. of bonds with principal amount ing to $400 with an interest rate of 5.375% due in 2020 and bonds with principal amounting to $1,100 with an interest rate of 6.750 due in 2040. The proceeds of this issuance will be used for corporate purposes. In January 2009, KCSM filed an indirect amparo action against the judgment rendered in December 2008 which dismissed the ap- peal filed against the ruling denying the existence of passive lis consortium required among co-defendants. This amparo action was PEMSA acquisition - in February 5, 2010, the Company got the authorization from COFECO to acquire PEMSA, so the Company admitted under case file no. (3/2009). KCSM offered supervening evidence (Resolution of January 22, 2009 issued by COFECO); purchased the remaining 80% of PEMSA shares for $192 million . co-defendants filed a motion for revocation against the ruling that admitted KCSM supervening evidence. On June 25, 2009, a ruling was issued admitting KCSM’s supervening evidence consisting of a Ruling issued by the Federal Commission of Competition on Ferromex agreement - On February 9, 2010 Ferromex and KCSM signed an agreement that establishes, among other things, June 9, 2009. An amparo was presented against this resolution (Exp. 887/2009) the terms and conditions in conformity with which there will be granted reciprocally the use of certain trackage rights and haul- age rights, including Guadalajara, Monterrey, Altamira and Aguascalientes, as well as the amount of the consideration that they A ruling was issued on September 2, 2009 admitting the brief filed by KCSM by which it offers as supervening evidence the resolu- will have to pay each one for the use of the mentioned trackage rights from January 2009. The Company considers that the tion issued in the amparo action 1095/2008 (petitioner: Sinca Inbursa, S.A. de C.V., Sociedad de Inversion de Capitales) being difference between the agreed upon rates effective in 2009 and those that were used to estimate the amounts recognized in the processed before the Tenth District Court in Administrative Matters in the Federal District. By briefs filed on September 9, 2009, accounting records is not material. co-defendants filed their brief in regard to the supervening evidence submitted by KCSM, having complied in a timely manner. On December 15, 2009, the Fourth District Court in Civil Matters in the Federal District commenced trial in order for evidence to be Additionally, the mentioned agreement establishes the consideration that the parties will have to pay reciprocally for interconnection proposed and introduced, and allowed the parties 40 days to do so. The term to object documents expired on December 21 and to services (interline traffic) provided which go into effect on various dates during 2009. offer evidence on December 31, Ferromex and co-defendants offered the evidence they deemed relevant. The signing of this agreement ends certain legal controversies that exist between the parties in relation with these matters. Regard- On February 8, 2010, a ruling was issued regarding the evidence offered by the parties, and the deadline was established for its ing transactions carried out previous to the agreement, the parties agreed to continue negotiating amounts for trackage rights, haul- submission. In a letter filed on February 23, 2010, to its own detriment KCSM waived the legal action filed against each and every age rights and interconnection services of interconnection (interlineal traffics) that they will pay reciprocally, and in the case that

86 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 87 (Ferrosur), signed a pro-competitive agreement that extends KCSM's access to the facilities in Puebla and Tlaxcala states and to the current infrastructure in the port of Veracruz. In virtue of this agreement, KCSM withdraws its objections to Ferrosur's concentration on the part of ITM, the division of infrastructure and transport of Grupo Mexico.

Ferromex considers that with this agreement, major efficiencies will be achieved in the railway system, which will result in better service for the users and, in addition, confirms the pro-competitive effect of ITM’s acquisition of Ferrosur, which with the agreement reached with KCSM, awaits favorable resolution.

Debt prepayments - on March 8, 2010, the Company prepaid $300 million of the syndicated credit obtained for ASARCO restruc- ture plan described in Note 1. Those prepayments were done to the Tranches as follows:

Tranche Prepayment (million)

“A” $ 152.7 “C” 51.5 “C” 95.8

$ 300.0

Also, on the date of these financial statements, ASARCO has prepaid $ 240 of the $ 280 promissory note maturing in Decem- ber 2010.

DESIGN: DESIGN CENTERTM

88 \ Annual Report 2009 \ Grupo México Grupo México \ Annual Report 2009 \ 89