Phelps Dodge trims losses (April 29, 2003)

Vancouver A change in the accounting of retirement benefits helped the world’s second largest copper producer narrow losses in the first quarter of 2003.

Phoenix-based Phelps Dodge (PD-N) posted a net loss of US$15 million, or US$0.21 a share in the three months ended March 31. This marks an improvement from the US$24.8 million, or US$0.32 a share, loss tallied in the corresponding period last year. Helping the bottom line was a US$9.5 million, or US$0.11 per share, special gain after taxes, primarily from the cumulative income effect from a change in accounting for asset retirement obligations.

"Our first quarter operating earnings before special items showed improvement compared with both the first and fourth quarters of 2002," says company President, J. Steven Whisler. "The principal contributor was a (US) 5 cents per pound improvement in the copper price."

Revenues hit US$978 million, from US$918.5 million recorded in the first quarter of last year.The 6% jump is attributed to higher copper prices, which averaged US$0.76 per lb in the quarter, up from the US$0.71 received a year earlier.

"Worldwide economic conditions, particularly in the manufacturing and capital goods sectors, remain soft and sluggish," states Whisler. "Demand for copper has clearly stabilized, but is not yet growing."

Cash flow from operations hit US$6.0 million, compared with US$110.2 million in the corresponding 2002 period. The shortfall is due to a US$48.6 million payment for an historic Cyprus Amax lawsuit and arbitration award; US$14.7 million increase in working capital associated with accounts receivable; and US$7.1 million drop in accounts receivable securitization proceeds.

The company’s mining division contributed US$655 million of the overall revenue during the quarter with production from its worldwide operations hitting 260,400 tons of copper, compared with production of 357,200 tons in the corresponding period last year. Molybdenum output also showed a modest gain, jumping to 11.5 million lbs, from 10.6 million lbs tallied last year. Molybdenum prices increased to US$4.06 per lb in the quarter from US$2.74 per lb in the first quarter of 2002.

On a global scale, North American and European copper consumption trends remained flat, while China "continues to be the bright spot, growing at double-digit rates."

Responding to the continued weak results and a poor economic outlook going forward, the company expects to record a loss of between US$0.30-to-0.40 a share in the second quarter. The forecast is based on a US$0.73 per lb copper price. Phelps Dodge also expects to record a US$10 million charge for taxes in the second quarter.

"While we are positioned to reap the benefits of a sustained recovery in copper prices," adds Whisler, "that recovery is not yet apparent."

Despite the weak demand for copper, Phelps, in partnership with Placer Dome (PDG-T) has made strides in developing a new technology to recover copper economically from chalcopyrite. In late March, the company began treating concentrate at its Bagdad copper leaching demonstration plant in Arizona. The new process, which bypasses the more traditional smelting-refining route, involves the leaching of chalcopyrite concentrates in a pressure leach vessel. The resulting copper-containing solutions are mixed with lower-grade stockpile leach solutions before being processed by solvent extraction and electrowinning (SX-EW).

"The Bagdad plant is the first commercial facility in the world to use pressure leaching to treat chalcopyrite concentrates," says Phelps Mining President, Timothy Snider. "It represents a major step forward in copper-extraction technology.”

The major started the US$40 million construction of the innovative plant back in Feb. 2002 with an aim of putting out 35 million lbs of copper cathode per year. ores.

The next development stage involves proving the technology’s reliability. If successful, the company could readily use the technology for several operations and future projects, including the exploitation of a number of large primary copper deposits at the Cerro Verde mine in Peru and the El Abra mine in Chile.