Phelps takes writedown as prices plummet

A US$61-million writedown related to restructuring has wiped out Phelps Dodge‘s (PD-N) slender second-quarter earnings of US$1.2 million (or 2 cents per share), leading the company to post a loss of US$58.7 million ($1.01 per share) for the 3-month period.

Performance during the second quarter of 1999 is down from the same period in 1998, when the company earned US$40.4 million (69 cents per share).

For the first half of 1999, Phelps Dodge posted a net loss of US$60.5 million ($1.05 per share), compared with net earnings of US$204.1 million ($3.49 per share) in the first half of last year, which included an after-tax gain of US$122.9 million ($2.09 per share) related to the sale of a subsidiary.

The writedown stems from a decision in June to halt production at two high-cost copper mines and to restructure its wire and cable assets.

The production cuts affect the Hidalgo smelter in New Mexico, which Phelps Dodge will close. Also to be shut down is one of two concentrators at the Morenci complex in Arizona. Capacity at its refinery in El Paso, Tex., will be cut by half.

Phelps Dodge made the cuts, totaling 75,000 tons, despite “slightly better than break-even performance at a copper price of US65 cents per lb.” during the first six months of the year.

According to Chairman Douglas Yearley, the cuts “convey our intention not only to make the changes necessary to address existing market conditions, but to develop operational flexibility to position our company for long-term growth.”

For the second quarter, the company’s share of copper production totalled 198,700 tons, compared with 218,600 tons in the similar period of 1998. For the first six months of the year, Phelps Dodge produced 408,000 attributable tons, compared with 437,600 tons in the first half of 1998.

Low copper prices in the first six months of 1999 drove operational cashflow down to US$46 million, less than half of the US$109 million recorded by the company in the similar period of 1998.

Sales also were down, to US$691 million in the first quarter and US$1.35 billion in first half of the year. Over the corresponding periods last year, sales stood at US$794 million and US$1.59 billion, respectively.

As part of the restructuring plan, Phelps Dodge will shut down wire and cable plants in New Jersey, Kentucky and Venezuela, and manufacturing plants in Ecuador. In the Philippines, the company will suspend by the end of the year operations at a carbon black plant. It also sold a fluorspar mine in South Africa.