Phelps Dodge posts loss

Continued low copper prices dragged down earnings for Phelps Dodge (PD-N) in the last quarter of 1998.

The company reported a fourth-quarter loss of US$9.8 million (or 17 cents per share) before non-recurring charges of US$32 million.

The net loss for the quarter was US$41.8 million (or 72 cents per share), compared with earnings of US$32 million (54 cents per share) in the corresponding period of 1997.

Phelps Dodge Chairman Douglas Yearley says the turnaround in the fourth quarter was disappointing: “The principal cause of the loss was the sharp drop in copper prices.”

During the 3-month period, the average price of the red metal on the Commodity Exchange of New York was 70 cents per lb. While prices were down during the quarter, production was up, with the company’s share rising to 215,800 tons, up from 211,600 tons in the corresponding period of 1997.

For the year, Phelps Dodge reported net earnings of US$91.8 million ($1.57 per share) before non-recurring items. During the first quarter, the company recorded an after-tax gain of US$131.1 million from the sale of its Accuride subsidiary. Net income in 1998 after non-recurring items was US$190.9 million ($3.28 per share), compared with US$408.5 million ($6.63 per share) in 1997. Phelps Dodge produced 874,000 tons of copper in 1998, compared with 812,100 tons in the previous year.

“The outlook for earnings in 1999 is uncertain due to the variability of copper prices,” Yearly says. “At current copper prices, ranging from sixty-five to seventy cents [US] per lb., we believe the company should operate near break-even.”

If low prices persist, the company may be forced to make further production curtailments. In October, Phelps Dodge reduced production by 100,000 tons annually with a change in the mine plan at its Chino operation in New Mexico, the closure of the Cobre operation, also in New Mexico, and the closure of the Ojo del Salado mine in Chile. These cuts resulted in a loss of 700 jobs.

Last year, Phelps Dodge acquired a Brazilian carbon black business for US$220 million, plus an 85% interest in a Korean carbon black firm for US$73.1 million.