Cyprus, Amax spawn mega mining company

The merger of two of the largest mining companies in the U.S. is expected to create one of the largest in the world.

Amax (NYSE) and Cyprus Minerals (NYSE) are proposing to merge into a new entity, Cyprus-Amax, with assets of about US$5 billion and 1992 pro forma revenues of about US$2.8 billion.

Cyprus Chairman Milton Ward will become co-chairman, president and chief executive officer of Cyprus-Amax while Amax Chairman Allen Born will become co-chairman as well as chairman of the executive committee. The merger will create opportunities that neither company could achieve separately and will result in lower operating and overhead costs, Ward said.

“The combined companies will be operated in a manner to achieve the lowest possible costs with anticipated annual savings of at least US$100 million. We will take the very best of both companies and create a flat organization with the flexibility to move quickly and aggressively in pursuit of our other growth goals.”

The new company, to be based in Englewood, Colo., will be the second-largest producer of copper and of coal in the U.S., with significant positions in oil and gas, gold, lithium, molybdenum and iron ore. The merger is expected to close in the third quarter.

Cyprus produced more than 660 million lb. copper last year from mines in Arizona and has minable reserves of about 2.6 billion tons. It recently spent more than US$90 million to become self-sufficient in copper smelting and has a US$200-million capital program under way to reduce production costs. Amax and Cyprus both have coal mines and the new company’s annual production is expected to reach 70 million tons. About 70% of that will be shipped under long-term contracts. Reserves total three billion tons. Amax Gold, in which Cyprus-Amax will hold a 40% interest, produces about 250,000 oz. annually from mines in the U.S., Chile and New Zealand. Reserves are estimated at 8.6 million oz. Cyprus-Amax will have some less-advanced gold prospects in Australia and Panama and stands to acquire several high-grade deposits which Cyprus is negotiating to obtain in various parts of the world.

Prior to the merger, Amax will spin off its aluminum producer, Alumax, into a publicly held, independent company. All Alumax shares will be distributed to Amax shareholders. At the same time, Amax will distribute a 28% interest in Amax Gold (NYSE) to Amax shareholders. (About 38% of Amax Gold is publicly held).

“This combination will enable Amax shareholders to realize the true values of our metals and energy companies,” Born said. “Shareholders will receive stock in Alumax, in Amax Gold and in Cyprus-Amax, thereby continuing to hold their original investments in industries which offer outstanding potential for growth.”

The agreement, yet to be approved by both companies, provides for Amax shares to be exchanged for those of Cyprus based on a ratio of 0.5 Cyprus share for each Amax share. This ratio could be adjusted, depending on the trading price of Amax shares, for 20 days before the merger closes. At the end of April, Amax had 87.9 million shares outstanding, while Cyprus had about 47.3 million.