Phelps Dodge ends dismal year (February 11, 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), compared with a profit of US$8.1 million (US10 per share) in the corresponding period of 2000. Not including one-time items, the company lost US$79.2 million (US$1.01 a share) in the recent quarter, and revenue declined sharply to US$901.2 million, compared with US$1.1 billion in the last three months of 2000.

“Depressed metal prices and generally poor global economic environments continue to effect our earnings,” says President J.S. Whisler.

The loss was ameliorated by a US$39.9 million gain from the sale of the company’s half-interest in the Sossego project in Brazil and a US$23.5-million gain from issuance settlements on environmental liability claims. On the other hand, these gains were offset by a US$18.5-million charge in the quarter for previously announced cuts in facilities and staff.

The company is 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.

The Phoenix-based miner’s austerity measures in the fourth quarter reduced the cost of producing a pound of copper to US68, or US7 lower than in the third quarter. By the end of 2003, the company hopes to reduce that still further to US60 per lb.

For 2001, Phelps Dodge lost US$297.5 million (US$3.79 per share), compared with a profit of US$72.3 million (US92 per share) in 2000. Operating cash flow plunged to US$302.7 million from US$511.2 million between the two periods, and total debt rose to US$2.85 billion from US$2.69 billion.

The major’s bottom line was battered by low copper prices, which averaged US66 per lb. in the fourth quarter and US73 per lb. for the whole year — a significant drop from the US86 and US82 per lb. recorded in the corresponding periods of the previous year.

Phelps Dodge produced 298,400 tons copper in the recent fourth quarter, compared with 292,500 tons a year earlier. However, production for the year dropped to 1.16 million tons, compared with 1.2 million tons in 2000. The drop is attributed to lower production from the Chino operations in New Mexico and operational changes at the Morenci operations in Arizona.

Looking ahead to the first quarter of 2002, the company expects incur a loss (before nonrecurring items) of US$1.30-1.45 per share.