Phelps Dodge ends dismal year (January 30, 2002)

Vancouver — Poor demand and weak prices plagued the balance sheet of the world’s second-largest copper producer in 2001.

Phelps Dodge (PD-N) posted a fourth-quarter loss of US$78.3 million, or US$1 per share. This marks a reversal of fortunes for the company, which posted a profit of US$8.1 million, or US$0.1 per share a year earlier. Stripping out one-time items, the company lost US$79.2 million, or US$1.01 a share in the quarter ended Dec. 31, 2001. Revenues declined sharply to US$901.2 million from US$1.10 billion in the fourth quarter of 2000.

“Depressed metal prices and generally poor global economic environments continue to affect our earnings,” says the company’s president, J. Steven Whisler.

Helping to limit the losses was a US$39.9 million gain from the sale of the company’s 50% stake in the Sossego project in Brazil and a US$23.5 million gain from issuance settlements on environmental liability claims. These gains were offset by a US$18.5 million charge in the quarter for previously announced cuts in its facilities and staff. The company is in the process of cutting 1,500 jobs, mostly from its Tyrone operation in New Mexico, while slicing output in an effort to drain copper inventories. The move trims 220,000 tonnes of annual copper production.

“Although copper market fundamentals appear to be positioned for an economic recovery,” adds Whisler, “we cannot wait for higher copper prices to improve our financial results.”

The Phoenix-based miner’s cost cutting program drove the unit cost to produce a lb. of copper down to US68, a US7 per lb improvement over the third quarter.

“We are continuing to pursue aggressively our target of all-in US60 per lb by the end of 2003,” says Whisler.

For the year, Phelps Dodge lost US$297.5 million, or US$3.79 per share, compared with a profit of US$72.3 million or US$0.92 per share for 2000. Operating cash flow plunged to US$302.7 million from US$511.2 million tallied in 2000. The company’s total debt at Dec. 31, 2001 stood at US$2.85 billion, up from US$2.69 billion a year earlier.

Hitting the major’s bottom line is lower copper prices, which averaged US66 per lb and US73 per lb for the fourth quarter and full year, respectively. A significant drop from the US86 and US82 per lb recorded in the same periods of 2000.

The major saw its copper production increase to 298,400 tons during the quarter from 292,500 tons recorded a year earlier. However, for the year production dropped to 1.16 million tons from the 1.2 million tons tallied in 2000. The drop is attributed to lower production from the Chino operations in New Mexico and operational changes at its Morenci operations in Arizona.

Looking ahead to this year, the company warned that it expects to record a net loss before nonrecurring items of between US$1.30 per share and US$1.45 per share in the first quarter.

Along with extensive copper operations, the major is the world’s largest producer of continuous-cast copper rod and molybdenum, as well as one of the largest producers of carbon black and magnet wire.