The new chairman and chief executive officer of Cyprus Minerals (NYSE), Milton Ward, recently announced writedowns totalling US$415 million. The writedowns reflect weak markets for some of the company’s coal, molybdenum and iron ore business ventures.
The diversified company is based in Englewood, Colo., and produces copper, molybdenum, coal, lithium, gold, iron ore, zinc and barite. Despite the second-quarter charge, the company has US$1.6 billion of assets, a low debt-to-capitalization ratio of 19%, and strong operating cash flow at current copper prices.
The recent writedowns include pretax charges of US$182 million for Kentucky coal; US$86 million for the LTV coal claim; US$25 million for Empire coal; US$57 million for Thompson Creek molybdenum; US$31 million for Northshore iron ore; and US$34 million for various other provisions.
“After the charge, these businesses will reflect their current financial value, given today’s outlook for certain regional coal markets and for the steel industry in general,” Ward stated. “I believe that Cyprus must strive to make its businesses succeed despite weak markets. It is imperative that we continue to reduce costs, improve productivity, and adapt our actions to accommodate the marketplace.”
The coal writedowns reflect a weak market price outlook for Kentucky coal based on oversupply and soft demand. The company’s contracts expire in 1995 and 1998, and to maintain profitability, Cyprus said it will have to sign new contracts or extend existing contracts at prices above today’s market level.
The writedown of the Empire Colorado coal mine, operating at reduced levels following settlement of a recent strike, reflects weak demand and increased competition in western coal markets. As a result of these factors, the company expects to be able to economically mine only five million tons over the next several years.
Continued weakness in the worldwide steel business is linked to molybdenum prices reaching 20-year lows during the first half of this year. Because of these market conditions, and because of operating and reserve uncertainties caused by a recent mine slide, Cyprus is of the view that its Thompson Creek primary molybdenum mine in Idaho may not continue beyond the next few years.
The weak steel business also led to a writedown at the Northshore iron ore mine in Minnesota which was temporarily shut down last month because sales were significantly below expectations.
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