Denver — Lower copper prices and a production shortfall hampered the second-quarter performance of
The net loss for the three months ended June 30 was US$110.5 million (or $1.41 per share), in line with the company’s estimates. In the corresponding period last year, the net loss was US$37.8 million (48 per share).
The loss included a US$41.7-million charge (53 per share) related to the company’s estimated income-tax payments for the year. Phelps Dodge revised its copper price outlook to US75 per lb. for the year, down from US85 per lb., resulting in a revised tax rate on international earnings that cannot be offset by losses at domestic operations. The new tax rate of 31% has been applied retroactively to first-quarter earnings, resulting in the tax charge in the second quarter.
Phelps Dodge’s share of production slipped slightly to 293,800 tons copper in the second quarter, while metal prices on the Comex division of the New York Mercantile Exchange averaged US75 per lb., down 7 from a year ago.
Copper sales dipped to 406,800 tons, down from 416,400 tons in the second quarter of 2000. As a result, revenue from the mining division was down to US$712.9 million in the second quarter. Revenue from Phelps Dodge Industries remained solid at US$350.6 million, though down from US$359 million a year ago, owing to the general economic slowdown.
Revenue amounted to $1.06 billion in the second quarter of 2001, down from a year-ago total of US$1.1 billion. However, quarterly cash flow from operations improved to US$87.2 million. The improvement is attributed to lower unit production costs combined with a reduction in energy costs.
For the first six months of the year, cash flow from operations reached US$77.3 million, down from US$164.5 million in the corresponding period in 2000.
Mine production for the first six months of 2001 slipped to 588,000 tons copper, in part because of a switch to heap leaching at the Morenci operation in Arizona. The curtailment of operations at the Chino complex in New Mexico contributed to the production shortfall.
Correspondingly, mining revenues sank to US$1.44 billion at an average copper price of US79 per lb., down from US$1.51 billion in the first half of 2000, when copper prices averaged US81 per lb.
Phelps Dodge posted a net loss of US$96.3 million ($1.23 per share) in the first half of 2001, compared with a year-earlier loss of US$18.4 million (23 per share).
Higher energy prices in the southwestern U.S. had an adverse effect on production costs in the first half. The company issued Worker Adjustment and Retraining Notification (WARN) statements to 2,350 workers in January, cautioning of possible shutdowns. In March, the layoff warnings were extended, though narrowed to just 1,000 workers. Now the company has decided to let the WARN statements expire on Aug. 9.
“The company will continue to monitor all economic and market conditions,” says Phelps Dodge Chairman Steven Whisler. “With a current copper price of less than seventy cents [U.S.] per pound and weak economic conditions, it is imperative we remain positioned to act quickly in the event that further weakening in the economy affects copper prices.”
In May, Phelps Dodge raised nearly US$900 million to repay short-term borrowings and current maturities on long-term debt. The offering included US$625 million in 8.75% notes due 2011 and US$275 million in 9.5% notes due 2031.
Debt at the end of the second quarter was US$2.97 billion, up from US$2.85 billion at the end of the first quarter.
The quarter also saw Phelps Dodge lower its quarterly dividend by 75% to US12.5 per share.
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