Losses mount for Phelps Dodge

Vancouver – Legal settlements and write-downs for idled mining operations in the fourth quarter ended a terrible financial year for the world’s second largest copper producer.

“Although 2002 was a challenging year, we made significant progress on several fronts,” says the Phelps Dodges’ (PD-N) company President, J. Steven Whisler. ” We decreased our implied unit cost of copper production by 6 cents per pound, or 8 percent. Our cash flow before financing activities was more than $200 million. We also strengthened our balance sheet by repaying $740 million of debt, partially facilitated by a $600 million equity issuance. “

Phelps Dodge reported a net loss of US$222 million, or US$2.54 per share in the latest quarter ended Dec. 31, compared with a loss of US$78.3 million, or US$1 a share, in last year’s quarter.

Driving the red ink was a US$187.8 million, or US$2.12 a share, after-tax charge in the fourth-quarter, largely due to the drop in the value of its idled Cobre mine and Hidalgo smelting operation in New Mexico and the Ajo copper mine in Arizona.

The company also incurred a US$43.5 million charge to settle a lawsuit filed by RAG American Coal over the sale of Phelps Dodge’s coal business to RAG.

The charges come on the heals of a U.S. Securities and Exchange Commission investigation into whether the company properly accounted for closed mines. Phelps Dodge may be required to take additional charges in prior and current periods to resolve these issues. The Phoenix-based major also reduced shareholder equity by US$150 million to shore up its employee pension plan, which was underfunded by US$222 million at the end of 2002.

Before the one time charges, Phelps Dodge’s fourth quarter loss tallied US$33.8 million, or US$0.42 per share. Sales rang in at US$895.5 million; down modestly from the US$901.2 million tallied in the same period last year.

Going forward, the company expects copper prices to average US$0.73 per lb. in the first quarter of 2003, rising later in the year due to a modest supply deficit in the market.

“Overall refined production is likely to grow around 2 percent compared to 2002 because of low raw material inventories in the system,” says Phelps Dodge’s senior vice president of marketing, Arthur Miele.

Molybdenum prices are expected to average $3.50-$4.00 a lb. in the first quarter due to a market deficit and tight supplies of concentrates.

“We enter 2003 with as much global economic and political uncertainty as 2002,” adds Whisler. “I am confident, however, that with the progress we made in 2002 and the plans we have put in place for 2003, we will continue our path to managing the company to profitability.”