Phelps Dodge slashes production (November 02, 1998)

Succumbing to the pressures of low metal prices, Phelps Dodge (PD-N) has decided to cut copper production at three mines.

The company will curtail production at two mines in New Mexico and one in Chile. The move is expected to result in a decrease of almost 100,000 tons annually and the loss of nearly 700 jobs.

At the Chino operation, near Hurley, N.M., Phelps Dodge intends to slash production by as much as 35,000 tons and eliminate 300 jobs before year-end. The company warns that unless prices improve, it may have to implement further cutbacks or close the operation entirely.

Nearby, at Hanover, N.M., the company will discontinue mining at the Cobre underground operation. The entire operation is to be closed by mid-1999, resulting in the loss of 35,000 tons of production and 200 jobs.

In Chile, the company will immediately close the Ojos del Salado underground copper mine near Copiapo. This is expected to result in the loss of 22,000 tons of production and 180 jobs.

“These steps are required to align our business with current market conditions, ensuring the company’s long-term success and protecting the jobs of the 7,000 employees who remain with Phelps Dodge Mining,” says Timothy Snider, the company’s president.

The loss of production represents more than 10% of the company’s estimated annual production in 1999, as well as a smaller portion in 1998. For the third quarter, Phelps Dodge cranked out 220,600 tons of copper worldwide.

Copper prices have stayed below US80 cents per lb. for the past several months, and spot prices on the Commodity Exchage of New York were hovering around US75 cents per lb. at presstime.

“We are dealing with the lowest annual average copper price of the century, on an inflation-adjusted basis,” Snider says.

The company earned only US$28.6 million (or 49 cents per share) during the recent third quarter, compared with US$104.2 million ($1.74 per share) in the corresponding period of 1997. Earnings included an after-tax gain of US$8.3 million (14 cents per share) from the completion of the sale of the subsidiary Accuride.

During the first nine months of this year, Phelps Dodge earned US$232.7 million (US$3.98 per share), compared with US$376.5 million ($6.07 per share) in the year-ago period.