Vancouver — Sagging commodity prices have dented the bottom line of the world’s second-largest copper producer.
Phoenix-based
“We’ve seen the price of copper fall from US80 per lb. in March to US65 in early September,” laments Chief Executive Officer J.S. Whisler. “With the tragic events of Sept. 11, not only has the near-term economic outlook deteriorated in North America, but we also have seen economic malaise spread to Europe and other regions.”
Cash flow from operating activities totalled US$99.9 million in the quarter, dramatically lower than the US$148.6 million of a year ago.
“Demand for our manufactured products has suffered in most of the markets we serve,” Whisler adds. “This has resulted in a a US$158 million decrease in operating income [compared with the third quarter of 2000].”
Copper production company-wide amounted to 248,400 tonnes of copper in the third quarter, compared with 273,000 tonnes a year ago. The decrease reflects both the transition to mine-for-leach production at the Morenci operation in Arizona and curtailment of operations in New Mexico. Copper sales between the two third quarters fell to 267,400 from 267,600 tonnes.
During the first nine months of 2001, the mining and metals division incurred a loss of of US$69.1 million before one-time charges of US$10 million, compared with year-earlier income of US$203.8 million before one-time charges of US$5.9 million.
The company’s molybdenum operations suffered an operating loss of US$6.1 million during the quarter, compared with income of US$1.8 million a year earlier. The decrease resulted from lower average realized prices and higher unit production costs. Production of moly slipped to 5,400 from 5,850 tonnes between the two third quarters, while sales remained essentially flat at 5,940 tonnes. The price of molybdenum oxide shrank to US$2.42 from US$2.66 per lb. (or US$5,335 from US$5,864 per tonne).
At Sept. 30, total debt stood at US$2.99 billion, compared with US$2.97 billion at the end of the second quarter.
Along the way, the major has announced plans to cut annual copper production by 220,000 tonnes and scale back North American black carbon output by 54,000 tonnes. The reductions will put 1,440 people out of work.
“We are facing one of the more extraordinary and uncertain economic climates in the past 30 years,” says Whisler. “Phelps Dodge consistently has taken aggressive action to shape its future, and we are determined to continue to chart a successful course independent of variables we do not control.”
The major intends to close the Chino mine in New Mexico and the Miami mine in Arizona, which will result in production cuts of 66,000 and 45,000 tonnes, respectively. Meanwhile, the Sierrita and Bagdad operations in Arizona will be reduced to half their normal capacity.
“The copper market, with its reduced demand, currently is out of balance by more than 500,000 tonnes,” says Whisler. “We already have taken 300,000 tonnes, or more than 18 per cent, of our annual copper production off-line, and with [the planned reductions], we will have reduced production by one third since early 1999.”
In addition, Phelps Dodge will scrap its quarterly dividend, which should result in net cash savings of US$40 million per year.
The copper market responded quickly to the news, with prices for December delivery climbing US1.85 to US64.35 per lb. (US$1,419 per tonne). Spot October copper on the Comex division of the New York Mercantile Exchange was up US1.20 at US63.30 per lb. (US$1,395.50 per tonne).
The copper price recently hit a 14-year low of US$1,342 per tonne, reflecting oversupply and weak demand.
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