Vancouver — Legal settlements and writedowns for idled mining operations in the fourth quarter highlighted a terrible financial year for the world’s second-largest copper producer.
The Phoenix-based company reported a US$187.8-million (US$2.12- per-share) after-tax charge in the quarter, largely due to a drop in the value of its idled Cobre mine and Hidalgo smelting operation in New Mexico and the Ajo copper mine in Arizona.
The company also incurred a US$43.5-million charge to settle a lawsuit filed by RAG American Coal. The suit pertained to sale of Phelps Dodge’s coal business to RAG.
The charges come on the heels of an investigation by the U.S. Securities & Exchange Commission into whether the company properly accounted for closed mines. Phelps Dodge says it may be required to take additional charges in prior and current periods to resolve these issues. It also reduced shareholder equity by US$150 million to shore up its employee pension plan, which was underfunded by US$222 million at the end of 2002.
Before the one-time charges, Phelps Dodge’s fourth-quarter loss amounted to US$33.8 million (US42 per share). Sales rang in at US$895.5 million — down modestly from US$901.2 million a year earlier.
On the bright side, the company decreased its implied unit cost of copper production by US6 per lb., or 8%, while repaying US$740 million of debt (partially facilitated by a US$600-million equity issuance).
The major predicts copper prices will average US73 per lb. in the first quarter of 2003, rising later in the year in response to a modest supply deficit in the market.
Molybdenum prices are expected to average US$3.50-4.00 per lb. in the first quarter, reflecting a market deficit and tight supplies of concentrates.
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