Phelps Dodge tallies another loss

Vancouver As copper prices continue to linger near lows not seen since 1987, Arizona-based Phelps Dodge (PD-N) is busy driving down operating costs in an effort to trim losses.

“While the difficult global economic environment and weak metal prices continue to affect adversely our financial results," says company President, J. S. Whisler, "we continue to make progress through our Quest for Zero lean production and operating improvement program."

The world’s second largest producer reported a net loss of US$55.9 million, or US$0.67 per share in the latest quarter ended Sept. 30, compared with a loss of US$100.4 million, or US$1.28 a share, in last year’s quarter. Sales came in at US$941.2 million; up modestly from the US$937 million tallied in the same period last year. Cash flow from operations also saw some improvement climbing to US$121.6 million in the quarter from US$99.9 million recorded last year.

“Our cash flow from operating activities remained strong during the quarter at more than US$121 million, yet we still have much to do to manage the company to profitability," says Whisler.

Phelps Dodge realized an average copper price of US$0.69 per lb. in the quarter; a slight improvement from the US$0.67 recorded in the third quarter of 2001 but less than the US$0.73 tallied in the second quarter of the year.

"The average copper price during the third quarter fell US$0.04 per lb. in comparison to the second quarter," adds Whisler, "but we were able to offset partially the price decline by reducing our copper production costs by approximately US$0.03 per lb. during the quarter."

The latest in a string of losses was impacted by a series of after-tax, extraordinary charges totalling US$24 million, or US$0.27 per share. Included in the charges was a US$26.6 million hit for the early payment of debt and a US$22.2 million special charge associated with temporary closure of two wire and cable facilities. The charges were offset by a US$28.1 million special tax benefit.

For the first nine months of the year, the major recorded a loss of US$120 million, or US$1.52 per share, compared with a loss of US$196.7 million or US$2.51 per share in the same period of 2001. Sales dropped significantly to US$2.8 billion from US$3.1 billion hit in the first nine months of 2001. The 9% drop is attributed to lower sales volumes of copper, wire and cable, and specialty chemicals.

Cash flow from operations rang in at US$301.3 million, compared with US$177.2 million in the corresponding 2001 period. Driving the gain was improved operating performance at its mining division and a US$59 million income tax receivable associated with the carryback of 2001 net operating losses based on the Job Creation and Worker Assistance Act of 2002.

The company produced 254,200 tons of copper at a cash cost of US$0.51 per lb., compared with 273,700 tons at US$0.61 per lb. in the third quarter of 2001. The decrease in copper output is a result of curtailments implemented in Jan. Copper sales fell to US$267 million from 294.7 million hit in the third quarter of 2001.

Helping the battered bottom line was a US$16 million profit generated from Molybdenum sales. The price for the metal averaged US$4.71 per lb., a marked improvement from the US$2.42 per lb. realised last year.

The company’s total debt at Sept. 30 rang in at US$2.2 billion, compared with $2.8 billion at the end of 2001.