Phelps Dodge slashes output

Denver — As anticipated, Phelps Dodge (PD-N) will cut copper production at operations in New Mexico and Arizona in response to higher energy costs.

Most of the cutbacks will occur at the Chino operation in New Mexico, where the company plans to lay off 130 employees and reduce production by 135 million lbs. for the year. Lesser cutbacks will occur during the summer at three other mines.

As a result of the California energy crisis, electricity costs have jumped to three times their average price over the past five years. In the fourth quarter of 2000, costs were as high as US11 per kilowatt-hour, causing the cost of production to increase by US8 per lb.

At Chino, the concentrator will be shut down at least until the end of the year, and mining that would feed the concentrator will also be curtailed. The company will continue operating the smelter, as well as the solvent extraction-electrowinning (SX-EW) facilities, while mining will be limited to feeding the leach stockpiles. At least 85 permanent employees will be laid off, while another 44 will be re-assigned to positions currently held by contractors.

In 2000, the 66.7%-owned Chino operation produced 271 million lbs. copper, two-thirds of which came from the concentrator. As a result of the cutbacks, production in 2001 will be only about half that, with most of the copper produced by SX-EW.

At the Tyrone mine, also in New Mexico, Phelps Dodge expects to shut down operations during August, reducing the year’s production by 7 million lbs. copper. Production should return to normal levels in the following month.

Cutbacks at the Sierrita mine, in southern Arizona, will result in the loss of 14 million lbs. copper and 2 million lbs. molybdenum.

In northern Arizona, production will be cut by 19 million lbs., owing to a one-month suspension in July at the Bagdad mine.

Phelps Dodge expects to accomplish these month-long suspensions through a combination of modifying work obligations, shifting schedules and paid vacation time.

Along with the cutbacks in the copper sector, the company will also suspend a portion of its operations at the Henderson molybdenum mine in Colorado, resulting in a decrease of 3.5 million lbs.

In all, Phelps Dodge will lower production by 175 million lbs. copper and 7 million lbs. moly, representing a shortfall of more than 10% for both metals.

Market response is expected to be minimal, owing to increasing warehouse stockpiles; indeed, some analysts may be looking for even bigger cuts. In recent weeks, the spot price for copper on the Comex division of the New York Mercantile Exchange has fallen below US80 per lb.

Phelps Dodge has also negotiated a contract for an additional 60 MW and begun construction of a 40-MW power plant in New Mexico. The plant should be ready in August.

“These actions help mitigate our exposure to the spot power market, which accounts for 15% of our total southwestern U.S. electricity consumption, and its impact on our production costs,” says Phelps Dodge Chairman Steven Whisler.