FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996 Commission File Number 1-10040
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CYPRUS AMAX MINERALS COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 36-2684040
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9100 East Mineral Circle, Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
(303) 643-5000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
Number of shares of common stock outstanding as of May 14, 1996, was 93,081,881
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shares.
This report contains 23 pages.
1
PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS EXCEPT PER SHARE DATA)
(Unaudited)
Three Months
Ended March 31,
-----------------------------
1996 1995/(1)/
------------ -------------
REVENUE $ 684 $ 807
------ ------
COSTS AND EXPENSES
Cost of Sales 477 560
Selling and Administrative Expenses 31 27
Depreciation, Depletion, and Amortization 72 77
Exploration Expense 7 5
------ ------
TOTAL COSTS AND EXPENSES 587 669
------ ------
INCOME FROM OPERATIONS 97 138
OTHER INCOME (EXPENSE)
Interest Income 6 5
Interest Expense (42) (30)
Capitalized Interest 19 7
Earnings on Equity Investments and Other 2 -
------ ------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 82 120
Income Tax Provision (20) (25)
Minority Interest - 2
------ ------
NET INCOME 62 97
Preferred Stock Dividends (5) (5)
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INCOME APPLICABLE TO COMMON SHARES $ 57 $ 92
====== ======
EARNINGS PER COMMON SHARE
Primary $ .62 $ 1.00
====== ======
Fully Diluted $ .62/(2)/ $ .94
====== ======
AVERAGE COMMON SHARES OUTSTANDING
Primary 93.1 92.8
Fully Diluted 102.9 102.7
See accompanying notes to consolidated financial statements.
/(1)/1995 has been restated to reflect the consolidation of Amax Gold effective
January 1, 1995.
/(2)/Fully diluted earnings per share were less than 3 percent dilutive.
2
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS EXCEPT SHARE AMOUNTS)
(Unaudited)
March 31, December 31,
ASSETS 1996 1995
----------- -------------
CURRENT ASSETS
Cash and Cash Equivalents $ 181 $ 191
Accounts and Notes Receivable, Net 307 320
Inventories 482 447
Prepaid Expenses 97 119
Deferred Income Taxes 10 13
------ ------
Total Current Assets 1,077 1,090
PROPERTIES - At Cost, Net 4,860 4,601
OTHER ASSETS 531 505
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Total Assets $6,468 $6,196
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 255 $ 109
Current Portion of Long-Term Debt 51 63
Accounts Payable 146 157
Accrued Payroll and Benefits 87 98
Accrued Royalties and Interest 65 55
Accrued Closure, Reclamation and Environmental 65 63
Other Accrued Liabilities 97 115
Taxes Payable, Other Than Income Taxes 66 58
Income Taxes Payable 67 61
Dividends Payable 19 19
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Total Current Liabilities 918 798
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NONCURRENT LIABILITIES AND DEFERRED CREDITS
Long-Term Debt 1,857 1,734
Capital Lease Obligations 141 143
Deferred Employee and Retiree Benefits 416 412
Deferred Closure, Reclamation and Environmental 329 348
Deferred Income Taxes 65 58
Other 162 170
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Total Noncurrent Liabilities and Deferred Credits 2,970 2,865
------ ------
MINORITY INTEREST 172 168
SHAREHOLDERS' EQUITY
Preferred Stock, $1 Par Value,
20,000,000 Shares Authorized:
$4.00 Series A Convertible Stock, $50 Stated Value,
4,666,667 Authorized, 4,664,783 Issued and Outstanding
in 1996 and 1995 5 5
Series A Preferred Stock, 500,000 Shares
Authorized, None Issued or Outstanding
Common Stock, Without Par Value,
150,000,000 Shares Authorized,
Issued 96,030,183 in 1996 and 96,030,198 in 1995 1 1
Paid-In Surplus 2,950 2,956
Accumulated Deficit (426) (465)
Other 6 2
------ ------
2,536 2,499
Treasury Stock at Cost, 2,878,145 Shares in 1996
and 3,066,615 Shares in 1995 (66) (70)
Loan to Savings Plan (62) (64)
------ ------
Total Shareholders' Equity 2,408 2,365
------ ------
Total Liabilities and Shareholders' Equity $6,468 $6,196
====== ======
See accompanying notes to consolidated financial statements.
3
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(Unaudited)
Three Months
Ended March 31,
-------------------
1996 1995/(1)/
------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 62 $ 97
Depreciation, Depletion, and Amortization 72 77
Deferred Income Taxes 10 3
Gain on Sale of Assets (9) 1
Changes in Assets and Liabilities Net of Effects
from Businesses Acquired/Sold (40) -
Other 7 13
----- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 102 191
----- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (255) (122)
Payments for Businesses Purchased (70) -
Capitalized Interest (19) (7)
Advances to and Investments in Affiliates (9) (62)
Proceeds from Sale of Assets 10 7
Cash Effect of Consolidating Amax Gold - 37
----- ----------
NET CASH USED FOR INVESTING ACTIVITIES (343) (147)
----- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from Issuance of Long-Term Debt 127 40
Net Borrowings on Short-Term Debt 149 -
Payments on Debt and Other Obligations (21) (17)
Proceeds from Issuance of Stock for Employee Benefits 1 -
Dividends Paid (23) (23)
Dividends to Minority Interests (2) (2)
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NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 231 (2)
----- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10) 42
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 191 139
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 181 $ 181
===== ==========
See accompanying notes to consolidated financial statements.
/(1)/1995 has been restated to reflect the consolidation of Amax Gold effective
January 1, 1995.
4
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
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The accompanying interim unaudited financial statements include all adjustments
which are, in the opinion of management, necessary for a fair presentation.
Results for any interim period are not necessarily indicative of the results
that may be achieved in future periods. The financial information as of this
interim date should be read in conjunction with the financial statements and
notes thereto contained in Cyprus Amax's Annual Report on Form 10-K for the year
ended December 31, 1995. Additionally, the first quarter of 1995 has been
restated to reflect the consolidation of Amax Gold effective January 1, 1995.
NOTE 2. INVENTORIES
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Inventories detailed by component are summarized below (in millions):
(Unaudited)
March 31, December 31,
1996 1995
----------- ------------
Component
In-Process Ores, Concentrates,
and Other $ 214 $ 212
Finished Goods 185 156
Materials and Supplies 83 79
----- -----
$ 482 $ 447
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NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
The estimated fair values for financial instruments under SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments," are made at discrete
points in time based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. At March 31, 1996, the
net carrying value of financial instruments approximated a $1,441 million
liability, whereas the fair value approximated a $1,525 million liability. The
difference in fair value is primarily due to lower interest rates.
NOTE 4. CONTINGENCIES
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Cyprus Tohono Mining Company was informed in late 1995 by the office of the
Assistant U.S. Attorney in Tucson, Arizona that an action was being considered
under federal environmental laws against Cyprus Tohono Corporation and certain
of its employees. The facts giving rise to this matter involved a break in the
process line at Tohono occurring in 1992. It is not possible to state with
reasonable certainty at this time what action will be taken by the government.
In April 1994, Cyprus Amax was notified by the Department of Justice ("DOJ")
that the government would seek civil penalties for alleged violations of the
Federal Clean Water Act in the operation of Cyprus Amax's Bagdad, Miami, and
Sierrita mines in Arizona. Agreement as to the principles of a settlement
regarding civil penalties was reached in early 1996 with the EPA and DOJ for all
three locations which will not have a material impact on the Company.
Cyprus Miami and other companies, in conjunction with the Arizona Department of
Environmental Quality's Water Quality Assurance Revolving Fund program,
continued remediation and assessment of groundwater quality at Pinal Creek near
Miami, Arizona throughout 1995. The ongoing program, initiated in 1989, has
resulted in continued improvement of subsurface water quality in the area.
While the adequacy of current remedial efforts and the allocation of
expenditures among responsible parties will not be known until the assessment
phase is completed or beyond, the 1993 completion of risk assessment studies
allowed further
5
definition of probable costs for continued study and ongoing treatment. Cyprus
Miami also is a defendant in a lawsuit brought by certain Miami and Globe area
landowners claiming damages relating to allegedly impaired ground water quality
in the Pinal Creek area. It is not possible at this time to reasonably estimate
a loss, if any, that may result from the lawsuit because of the preliminary
nature of discovery in the case and because of the preliminary status of the
related ongoing remedial assessment. A reasonable estimate of any future
material obligations, if any, is expected to be possible by 1997.
At March 31, 1996, Cyprus Amax had accruals of approximately $395 million for
expected future mine closure, reclamation, and environmental remediation
liabilities. Total reclamation costs for Cyprus Amax at the end of current mine
lives are estimated at about $550 million. Additionally, the cost range of
reasonably possible outcomes for sites where remediation costs are estimable is
from $60 million to $300 million of which approximately $83 million was reserved
at March 31, 1996. Work on these sites is expected to be substantially
completed in the next several years, subject to the inherent delays involved in
the process. Remediation costs that could not be reasonably estimated at March
31, 1996, are not expected to have a material impact on the financial condition
and ongoing operations of the Company.
6
NOTE 5. INFORMATION BY INDUSTRY SEGMENT
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Cyprus Amax operates in three principal industry segments -- Copper/Molybdenum,
Coal, and Other -- which supply mineral products primarily to the construction,
automobile, steel, and utility industries and gold to banks and other bullion
dealers. The financial information for these segments is presented below (in
millions):
(Unaudited)
Three Months
Ended March 31,
-------------------------------
1996 1995/(1)/
------------- ----------------
Segment Revenue
Copper/Molybdenum $ 340 $ 462
Coal 285 302
Other 59 43
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$ 684 $ 807
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Segment Operating Income (Loss)
Copper/Molybdenum $ 86 $ 128
Coal 22 31
Other 4 (6)
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112 153
Corporate (15) (15)
Interest, Net (17) (18)
Earnings on Equity Investments and Other 2 -
----- ----------
Income Before Income Taxes
and Minority Interest 82 120
Income Tax Provision (20) (25)
Minority Interest - 2
----- ----------
Net Income $ 62 $ 97
===== ==========
/(1)/1995 has been restated to reflect the consolidation of Amax Gold effective
January 1, 1995.
7
REVIEW BY INDEPENDENT ACCOUNTANTS
- ---------------------------------
The financial information as of March 31, 1996, and for the three-month periods
ended March 31, 1996 and 1995, included in Part I pursuant to Rule 10-01 of
Regulation S-X has been reviewed by Price Waterhouse LLP, the Company's
independent accountants, in accordance with standards established by the
American Institute of Certified Public Accountants. Price Waterhouse LLP's
report is included as page 9 of this quarterly report.
Price Waterhouse LLP does not carry out any significant or additional audit
tests beyond those which would have been necessary if its report had not been
included in this quarterly report. Accordingly, such report is not a "report" or
"part of a registration statement" within the meaning of Sections 7 and 11 of
the Securities Act of 1933 and the liability provisions of Section 11 of such
Act do not apply.
8
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of Cyprus Amax Minerals Company
We have reviewed the accompanying consolidated balance sheet of Cyprus Amax
Minerals Company and its subsidiaries as of March 31, 1996, and the related
consolidated statements of operations and of cash flows for the three-month
periods ended March 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1995, and the related
consolidated statements of operations, of shareholder's equity, and of cash
flows for the year then ended (not presented herein), and in our report dated
February 14, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of December 31, 1995, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
Price Waterhouse LLP
Denver, Colorado
May 15, 1996
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- -------------------------------------------------------------------------
FINANCIAL CONDITION
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RESULTS OF OPERATIONS
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CYPRUS AMAX MINERALS COMPANY reported consolidated net income of $62 million,
or 62 cents per share, on revenue of $684 million for the first quarter of 1996,
compared to 1995 earnings of $97 million, or $1.00 per share, on revenue of $807
million. Lower 1996 first quarter earnings resulted from lower copper,
molybdenum and coal realizations and adverse weather which affected Eastern and
Midwestern coal operations, partially offset by lower copper cost of sales and
higher sales of produced copper.
Three Months Ended
March 31,
------------------
SELECTED RESULTS (In millions except per share data) 1996 1995
-------- --------
Revenue $ 684 $ 807
Net Income $ 62 $ 97
Earnings Per Share $ .62 $1.00
The 1996 first quarter revenue of $684 was $123 million lower than the
comparable 1995 quarter because of 16 cents per pound lower copper realizations,
$1.98 per pound lower molybdenum realizations, 79 cents per ton lower coal
realizations and lower molybdenum sales.
Segment income is earnings before corporate overhead, interest, equity and
other, income taxes, and minority interest.
COPPER/MOLYBDENUM
Three Months Ended
March 31,
------------------
SELECTED RESULTS (In millions) 1996 1995
-------- -------
Revenue $ 340 $ 462
Segment Operating Income $ 86 $ 128
COPPER/MOLYBDENUM earned $86 million during the first quarter, compared to
earnings of $128 million in the 1995 period. Earnings reflected lower
molybdenum results of $35 million and 12 percent lower copper realizations,
partially offset by five cents per pound lower costs of copper sold and 12
million pounds higher sales of produced copper.
First quarter copper realizations averaged $1.17 per pound, 16 cents lower than
in the 1995 quarter. Cyprus Amax has price protection programs in place with
copper put options for 1996 and both put and synthetic put options for 1997
which ensure a minimum average realization on an LME basis of 90 cents per pound
on 525 million pounds for the remainder of 1996, and 96 cents per pound on
approximately 700 million pounds for 1997. In the first quarter of 1996, a
price protection program was established by El Abra to ensure a minimum average
realization on an LME basis of 90 cents in 1997 on approximately 400 million
pounds with a cap of $1.25 per pound on approximately 145 million pounds.
Cyprus Amax's share of El Abra is 51 percent.
10
Three Months Ended
March 31,
------------------
OTHER OPERATING DATA (In millions except as noted) 1996 1995
-------- --------
Copper Sales Volume, Pounds 198 203
Produced Copper Sold, Pounds 172 160
Copper Production, Pounds 173 159
Average Copper Realization, $/Pound $1.17 $1.33
Cost of Sales, $/Pound $ .77 $ .82
Net Cash Cost, $/Pound $ .70 $ .49
Full Cost, $/Pound $ .79 $ .59
Bagdad
- ------
Production - Pounds 54 53
Material Mined - Tons 16.1 15.0
Ore Mined - Tons 8.1 7.9
Stripping Ratio .99 .90
Ore Milled - Tons 7.5 7.6
Ore Grade - % .39 .39
Miami
- -----
Production - Pounds 34 25
Material Mined - Tons 26.1 17.4
Ore Mined - Tons 7.7 5.8
Stripping Ratio 2.37 2.03
Ore Grade - % .48 .48
Sierrita
- --------
Production - Pounds 57 57
Material Mined - Tons 24.9 18.7
Ore Mined - Tons 9.9 10.5
Stripping Ratio 1.47 .72
Ore Milled - Tons 9.9 10.0
Ore Grade - % .29 .30
Molybdenum Sales - Pounds 16 22
Produced Molybdenum Sold - Pounds 16 22
Molybdenum Production - Pounds 14 20
Average Realization - $/Pound 5.65 7.63
Henderson
- ---------
Production - Pounds 7 11
Material Mined - Tons 1.5 2.1
Ore Milled - Tons 1.5 2.1
Ore Grade - % .26 .31
During the quarter, Cyprus Amax sold 172 million pounds of produced copper, 12
million pounds more than in the 1995 first quarter. Cost of sales decreased
five cents per pound from the 1995 period to 77 cents per pound for the first
quarter of 1996. This change reflects higher inventoried molybdenum by-product
credits mostly in the fourth quarter of 1995, lower smelting and refining costs
and lower sulfide costs partially offset by higher solvent extraction costs at
Miami and Tohono.
First quarter net cash costs for copper equalled 70 cents per pound compared to
49 cents per pound for the first quarter of 1995. A 20 cent reduction in
molybdenum by-product credits to 17 cents per pound in the
11
first quarter of 1996 compared to 37 cents per pound in 1995 was primarily
responsible for this variance. Higher solvent extraction solution feed grades
and flow rates at Cerro Verde and higher flow rates at Miami offset the expense
of higher stripping rates at Miami and Sierrita. Cash costs at Cerro Verde
declined by 14 percent in the quarter compared to the same period in 1995.
Copper production totalled 173 million pounds for the quarter compared to 159
million pounds in 1995. Increased production at Miami of 35 percent and Cerro
Verde of nearly 50 percent accounted for the majority of this improvement
reflecting higher flow rates through the solvent extraction plants. Cyprus
Amax's 1996 copper production should reach about 750 million pounds.
During the quarter, both the smelter and refinery at Miami operated above
expectations and the smelter throughput exceeded design capacity. On May 1,
1996, a smelter turnaround commenced to perform normal annual maintenance. Full
production is scheduled to resume by mid-May.
Management expects copper demand in 1996 to increase by two percent led by
growth in North America and Southeast Asia. Management also expects World-wide
supply to likely rise by greater than five percent with strong growth in Chile
and Japan partially offset by lower exports from the former East Bloc.
Molybdenum operations earned $15 million for the first quarter of 1996 compared
to $50 million for the year earlier period. Production of 14 million pounds was
comparable to the fourth quarter 1995, but decreased from 20 million pounds in
the first quarter 1995. Produced sales increased to 16 million pounds from 15
million pounds in the fourth quarter 1995, but decreased from 22 million pounds
for the first quarter 1995. First quarter 1996 realizations, including
downstream products, averaged $5.65 per pound compared to $7.63 per pound during
the first quarter of 1995. During the 1996 quarter, world spot molybdenum oxide
prices averaged $4.12 per pound.
COAL
Three Months Ended
March 31,
------------------
SELECTED RESULTS (In millions) 1996 1995
-------- --------
Revenue $ 285 $ 302
Segment Operating Income $ 22 $ 31
Coal reported first quarter earnings of $22 million compared to 1995 first
quarter earnings of $31 million. Lower earnings principally reflect lower
realizations due to the expiration of a long-term contract in Kentucky and the
renegotiated terms of a contract with PSI Energy, Inc. Additionally, adverse
weather in the East and Midwest and lower production at Twentymile in Colorado
due to completion of mining in the Southwest district and establishment of the
first longwall panel in the new East Mine district had a negative effect on
earnings of approximately $9 million. Partially offsetting these impacts was
lower depreciation as a result of the 1995 coal write-down and 50 percent higher
shipments in Pennsylvania reflecting strong demand.
12
Three Months Ended
SELECTED OPERATING DATA March 31,
---------------------
1996 1995
--------- --------
Sales Volume - Millions of Tons
- -----------------------------------------
Eastern Mines 6.9 6.6
Western Mines - Powder River Basin 8.9 9.0
Western Mines - Other 2.2 2.7
------ ------
Total Sales 18.0 18.3
------ ------
Oakbridge Equity Share 1.5 1.5
Average Realization - $/Ton $15.32 $16.11
Domestic Average Contract Price - $/Ton $14.78 $17.20
Domestic Average Spot Price - $/Ton $17.81 $12.28
Oakbridge Contract Price - $/Ton $28.75 $24.95
Oakbridge Spot Price - $/Ton $27.85 $20.34
Average Cost of Sales - $/Ton $14.35 $14.49
Average Cash Cost - $/Ton $12.27 $12.11
Average Unit Cost - $/Ton $13.78 $14.13
Clean Production - Millions of Tons
- -----------------------------------------
Pennsylvania 2.7 2.1
Kentucky 1.1 1.2
West Virginia 1.7 1.6
Midwest 1.9 2.2
Wyoming - Powder River 8.9 9.0
Colorado 1.4 2.5
Utah 0.8 0.6
------ ------
Total Production 18.5 19.2
------ ------
Oakbridge Equity Share 1.4 1.4
The 1996 first quarter average realization was $15.32 per ton and the average
cost of sales declined to $14.35 per ton, yielding a profit margin of 97 cents
per ton and cash margin of $3.05 per ton in the quarter. This compares to an
average realization of $16.11, an average cost of sales of $14.49 and a profit
margin of $1.62 per ton and cash margin of $4.00 per ton for the first quarter
of 1995. Average realizations decreased 79 cents per ton due primarily to the
expiration of the major long-term utility contract in Kentucky at the end of
1995, the renegotiated contract with PSI Energy, Inc., and a higher proportion
of high ash coal sales at lower realizations in West Virginia.
Coal production of 20 million tons was one million tons lower than in 1995,
while coal sales of 20 million tons in the first quarter of 1996 were comparable
to the first quarter of 1995. Severe winter weather in the eastern U.S. in
January 1996 included record snowfalls and a subsequent rapid thaw. These
events caused localized flooding and high water on many of the region's coal
transporting rivers, disrupting operations and shipments in the East in the
first half of the first quarter. Additionally, production at Twentymile
decreased due to completion of mining in the Southwest district and
establishment of the first longwall panel in the new East Mine district. During
the quarter, Cyprus Amax coal mines set five monthly production records.
The cold weather in the East and Midwest strengthened demand in the first
quarter and the abundant hydropower in the West has dampened demand slightly.
During the first quarter of 1996, there were no significant transportation
problems.
13
Cyprus Amax's equity share in Oakbridge's earnings, which is reported in
Earnings on Equity Investments and Other, improved $4 million from a $1 million
loss in 1995 to $3 million income in 1996 resulting from 22 percent higher
realizations.
In February 1996, Cyprus Amax acquired a 50 percent interest in the Springvale
underground coal mine in New South Wales, Australia. Cyprus Amax's share of
production initially should be about 1 to 1.5 million tons per year, with sales
both to the domestic Australia electric generating market and to Pacific Rim
export coal markets.
Cyprus Amax expects 1996 production to reach approximately 86 million tons
compared to 81 million tons in 1995, including Cyprus Amax's share of production
from Oakbridge and Springvale.
OTHER MINERALS
Three Months Ended
March 31,
------------------
SELECTED DATA (In millions) 1996 1995
-------- --------
Segment Operating Income (Loss) $ 4 $ (6)
===== =====
Lithium $ 7 $ 6
Amax Gold (2) (4)
Businesses Sold/Non-Operating (2) (2)
Exploration 1 (6)
----- -----
Total $ 4 $ (6)
===== =====
Lithium
Sales Volumes - Millions of Lbs. Carbonate Equiv. 11.1 8.5
Gold (including 51% and 42% ownership share
for 1996 and 1995, respectively, of Amax Gold)
Sales Volumes - Thousands of Ounces 32 24
Gold Price - $/Ounce 412 406
OTHER MINERALS, which includes Lithium, Amax Gold, Exploration, and Businesses
Sold/Non-Operating, had combined earnings for the first quarter of 1996 of $4
million compared to a loss of $6 million in 1995. Lithium earned $7 million, $1
million more than 1995, due primarily to strong lithium carbonate sales volumes.
Exploration income of $1 million was $7 million higher than in 1995, resulting
from a gain on the sale of Cerro Quema, an exploration project in Panama.
Amax Gold's loss was $2 million compared to a $4 million loss in 1995. The
improvement results from a four percent decrease in unit cost and slightly
higher realizations. As previously announced, Amax Gold reached agreement with
its lenders to restructure its $250 million Fort Knox financing with the support
of Cyprus Amax. Potential borrowings under an existing $100 million double
convertible line of credit (DOCLOC) and $150 million in guarantees comprise
Cyprus Amax support of the restructured facility. As part of the renegotiated
agreement, the lenders have waived certain restrictive covenants and the new
agreement provides flexibility for Amax Gold necessary to complete Fort Knox and
to meet other corporate obligations.
As previously announced, Amax Gold projected capital cost increases at Fort
Knox. Updated reviews indicate total project capital costs are expected to be
$370 million, not including $26 million of capitalized interest. Project start-
up is now expected in early 1997. Amax Gold will consider various options for
additional funding. In addition, Cyprus Amax intends to make additional needed
financing available to Amax Gold.
14
CORPORATE
Corporate expense of $15 million for the first quarter was comparable to 1995.
INTEREST, EQUITY, AND OTHER expense of $15 million for the 1996 first quarter
was $3 million lower than the 1995 quarter. Net interest expense of $17 million
for the first quarter of 1996 was $1 million lower than the same period in 1995.
Interest expense and capitalized interest both increased $12 million to $42
million and $19 million, respectively, due to the financing and ongoing
construction at El Abra, Fort Knox and Kubaka. Interest income increased $1
million to $6 million in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had a solid financial condition with a ratio of
long-term debt to total capitalization of 45.4 percent, a ratio of current
assets to current liabilities of 1.2 to 1.0, and a cash balance of $181 million.
At December 31, 1995, the comparable ratios were 44.2 percent and 1.4 to 1.0,
respectively. Cyprus Amax's non-cash working capital decreased $123 million
from a positive $101 million at December 31, 1995, due primarily to a $134
million increase in the current portion of long-term debt and short-term debt.
The increase in the current portion of long-term debt was attributable to a $70
million bridge loan for the acquisition of Springvale and $80 million of short-
term borrowing on lines of credit. In addition, an $80 million line of credit
for Cerro Verde development was completed. At March 31, 1996, $20 million had
been borrowed.
The Company's cash balance decreased from $191 million at year-end to $181
million at March 31 due primarily to capital expenditures of $255 million, and
payments for businesses purchased of $70 million offset by cash provided by
continuing operations of $102 million and a net increase in debt of $255
million. In addition to the $134 million increase in the short-term portion of
debt, long-term debt increased $121 million. This increase was primarily due to
an increase in El Abra debt of $57 million, Fort Knox of $50 million, and Kubaka
of $35 million.
Capital expenditures, excluding capitalized interest, were $255 million for the
first quarter. Copper expenditures of $140 million included $64 million for the
El Abra project and $50 million for the Cerro Verde project. Coal expenditures
of $46 million were primarily for sustaining and replacement capital. Other
Minerals capital expenditures included Amax Gold's expenditures of $41 million
primarily for the Fort Knox and Refugio projects. Total capital spending for
1996 is projected to be approximately one billion dollars with over 48 percent,
19 percent, and 30 percent spent on Copper, Coal and Amax Gold projects,
respectively.
For the full year 1996, Cyprus Amax expects to spend approximately $112 million
for reclamation, remediation, and environmental compliance.
During the first quarter of 1996, Amax Gold announced that more difficult site
conditions, design enhancements, and expanded excavation work at the Fort Knox
project will result in higher project capital costs. Updated reviews indicate
total project capital costs are expected to be approximately $370 million,
excluding capitalized interest of $26 million. This compares to the original
estimate of $256 million. Project start-up is now expected in early 1997.
Cyprus Amax has entered into an agreement with Amax Gold to provide certain
financing arrangements. Under the restructured Fort Knox loan facility, Cyprus
Amax has guaranteed $150 million and potential borrowings under the existing
$100 million double-convertible line of credit (DOCLOC I). Such guaranty would
terminate if and when conditions of economic completion, as defined in the loan
agreement, are satisfied.
Cyprus Amax has also made available to Amax Gold a Demand Loan Facility to be
used primarily to fund additional capital costs at Fort Knox and for general
corporate purposes. Cyprus Amax intends to make additional needed financing
available to Amax Gold; however, Cyprus Amax has no obligation to make any
advance under the Demand Loan Facility. In return for the increased financial
support, Cyprus Amax will
15
receive certain fees and the interest differential resulting from the reduced
rate negotiated with the Fort Knox lenders, as well as a security interest in
certain Amax Gold assets, including Fort Knox. All interest, fees and the
repayment of any Demand Loans made to Amax Gold will be payable at the option of
Cyprus Amax either in cash or shares of Amax Gold common stock, subject to Amax
Gold's shareholders approval.
Also, in the first quarter, Amax Gold announced that the capital costs of the
Kubaka gold project are expected to be higher than original estimates. Total
capital construction costs are now expected to approximate $228 million. Amax
Gold is evaluating the impact of these cost increases on the project and the
acquisition of Kubaka from Cyprus Amax. Subject to satisfactory resolution of
these issues, Cyprus Amax expects the transaction to be completed later this
year.
During 1996, Cyprus Amax expects to be able to provide sufficient funds for
general corporate purposes, including capital expenditures, acquisitions, and
financial restructuring through internally generated funds and existing or new
financings.
Cyprus Amax paid regular dividends of 20 cents per share on its common stock and
$1.00 per preferred share during the quarter. At March 31, 1996, 93,152,038
shares of the Company's common stock were outstanding.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this report
are forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from projected results. Such forward-
looking statements include statements regarding expected commencement dates of
mining or metal production operations, projected quantities of future metal
production, and anticipated production rates, costs and expenditures as well as
projected demand or supply for the products the Company produces, which will
affect both sales levels and prices realized by the Company. Factors that could
cause actual results to differ materially include, among others: risks and
uncertainties relating to general domestic and international economic and
political conditions, the cyclical and volatile prices of copper, molybdenum,
gold and other minerals, the political and economic risks associated with
foreign operations, unanticipated ground and water conditions, unanticipated
grade and geological problems, metallurgical and other processing problems,
availability of materials and equipment, the timing of receipt of necessary
governmental permits, the ability to retain and obtain favorable coal contracts,
the occurrence of unusual weather or operating conditions, force majeure events,
lower than expected ore grades, the failure of equipment or processes to operate
in accordance with specifications or expectations, labor relations, accidents,
delays in anticipated start-up dates, environmental risks, the results of
financing efforts and financial market conditions, and other risk factors
detailed in the Company's Securities and Exchange Commission filings. Many of
such factors are beyond the Company's ability to control or predict. Readers are
cautioned not to put undue reliance on forward-looking statements. The Company
disclaims any intent or obligation to update publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.
16
PART II--OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
See Note 4 to Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
(a) The annual meeting of shareholders was held on May 1, 1996.
(b) This information is omitted pursuant to instruction 3.
(c) Set forth below are the votes cast for the election of Directors:
For Withheld
---------- ---------
Allen Born 72,172,663 2,005,645
Linda G. Alvarado 72,431,176 1,747,132
George S. Ansell 72,456,630 1,721,678
Michael A. Morphy 72,420,440 1,757,868
Ambassador Rockwell A. Schnabel 72,482,999 1,695,309
The shareholders also voted to approve the Annual Incentive Plan for Executive
Officers and Designated Management. Votes cast in favor were 67,162,299,
against were 6,039,260, abstaining were 976,072, and non votes were 676. The
shareholders voted to approve the Amended & Restated Stock Plan for Non-Employee
Directors. Votes cast in favor were 54,786,216, against were 18,492,434,
abstaining were 897,265, and non votes were 2,392.
The shareholders voted to approve the appointment of Price Waterhouse LLP as
Independent Accountants. Votes cast in favor were 72,034,829, against were
1,851,077, abstaining were 292,401. Additionally, the shareholders voted down
the shareholder proposal relating to elimination of a classified board. Votes
cast in favor were 32,842,402, against were 31,896,157, abstaining were
1,734,096, and non votes were 7,705,653. The shareholders voted down the
shareholder proposal relating to an independent nominating committee. Votes cast
in favor were 19,264,430 against were 43,059,954, abstaining were 3,007,255, and
non votes were 8,846,669.
(d) Not applicable.
17
ITEM 5. OTHER INFORMATION
- --------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) The following Exhibits are filed as part of this Quarterly Report on Form
10-Q:
Exhibit
Number Document
------- ----------------------
(11) Statement re computation of per share
earnings.
(15) Letter re unaudited financial information.
(27) Financial data schedule.
(b) No Current Report on Form 8-K was filed during the quarter ended March 31,
1996.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYPRUS AMAX MINERALS COMPANY
----------------------------
Registrant
Date: May 15, 1996 /s/ John Taraba
----------------- -----------------------------
John Taraba
Vice President and Controller
(Principal Accounting Officer)
19