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 June 30, 1995 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)
No Change
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(Former name, address, and former fiscal year,
if changed since last report)
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 August 10, 1995, was
92,915,916 shares.
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This report contains 22 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) (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1995 1994 1995 1994
------ ------ ------ ------
REVENUE $875 $697 $1,682 $1,285
COSTS AND EXPENSES
Cost of Sales 563 544 1,121 991
Selling and Administrative Expenses 43 24 70 50
Depreciation, Depletion, and Amortization 78 60 155 123
Exploration Expense 8 5 14 11
------ ------ ------ ------
TOTAL COSTS AND EXPENSES 692 633 1,360 1,175
------ ------ ------ ------
INCOME FROM OPERATIONS 183 64 322 110
OTHER INCOME (EXPENSE)
Interest Income 7 7 11 10
Interest Expense (32) (25) (62) (52)
Capitalized Interest 9 1 15 2
Equity Investments and Other 3 (3) 3 (2)
------ ------ ------ ------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 170 44 289 68
Income Tax Provision (37) (12) (62) (17)
Minority Interest 1 - 4 -
------ ------ ------ ------
INCOME FROM CONTINUING OPERATIONS AND
MINORITY INTEREST 134 32 231 51
Income from Operations of Discontinued Oil and Gas
Division, Net of Applicable Taxes of $2 - - - 9
------ ------ ------ ------
NET INCOME 134 32 231 60
Preferred Stock Dividends (4) (4) (9) (10)
------ ------ ------ ------
INCOME APPLICABLE TO COMMON SHARES $ 130 $ 28 $ 222 $ 50
====== ====== ====== ======
EARNINGS PER COMMON SHARE
Primary $ 1.39 $ .30 $ 2.39 $ .55
Fully Diluted $ 1.31 $ .30/(1)/ $ 2.27 $ .55/(1)/
AVERAGE COMMON SHARES OUTSTANDING
Primary $ 92.8 $ 92.3 $ 92.8 $ 92.3
Fully Diluted $102.7 $ 102.3 $102.7 $ 102.3
See accompanying notes to financial statements.
/(1)/Fully diluted earnings per share were anti-dilutive.
-2-
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS EXCEPT SHARE AMOUNTS)
(Unaudited)
June 30, December 31,
ASSETS 1995 1994
----------- -------------
CURRENT ASSETS
Cash and Cash Equivalents $ 186 $ 139
Accounts and Notes Receivable, Net 398 350
Inventories 447 453
Prepaid Expenses 75 73
Deferred Income Taxes 13 26
------ ------
Total Current Assets 1,119 1,041
PROPERTIES - At Cost, Net 4,413 3,925
OTHER ASSETS 509 441
------ ------
Total Assets $6,041 $5,407
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 151 $ 21
Current Portion of Production Payments 71 47
Accounts Payable 129 144
Accrued Payroll and Benefits 108 92
Accrued Royalties and Interest 37 36
Other Accrued Liabilities 139 142
Taxes Payable, Other Than Income Taxes 59 61
Income Taxes Payable 77 57
Dividends Payable 23 18
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Total Current Liabilities 794 618
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NONCURRENT LIABILITIES AND DEFERRED CREDITS
Long-Term Debt 1,310 955
Production Payments - 236
Capital Lease Obligations 196 200
Deferred Employee and Retiree Benefits 417 405
Deferred Closure, Reclamation, and Environmental 351 368
Deferred Income Taxes 127 125
Other 165 171
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Total Noncurrent Liabilities and Deferred Credits 2,566 2,460
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Minority Interest 174 -
------ ------
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, 4,666,635 Issued and Outstanding 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 96,029,944 in 1995 and 96,026,546 in 1994 1 1
Paid-In Surplus 2,955 2,962
Accumulated Deficit (316) (496)
Foreign Currency Translation Adjustment 2 6
------ ------
2,647 2,478
Treasury Stock at Cost, 3,171,513 Shares in 1995
and 3,460,078 Shares in 1994 (73) (80)
Loan to Savings Plan (67) (69)
------ ------
Total Shareholders' Equity 2,507 2,329
------ ------
Total Liabilities and Shareholders' Equity $6,041 $5,407
====== ======
See accompanying notes to financial statements.
-3-
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(Unaudited)
Six Months
Ended June 30,
-------------------
1995 1994
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income from Continuing Operations $ 231 $ 51
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used for) Continuing Operations:
Depreciation, Depletion, and Amortization 155 123
Deferred Income Taxes 2 13
Gain on Sale of Assets (2) -
Changes in Assets and Liabilities Net of Effects
from Businesses Acquired/Sold (51) (314)
Other 15 32
----- -----
Net Cash Provided by (Used for) Continuing Operations 350 (95)
Net Cash Provided by Discontinued Operations - 14
----- -----
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 350 (81)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (323) (182)
Payments for Businesses Purchased - (362)
Capitalized Interest (15) (2)
Advances to Affiliates (131) (29)
Proceeds from Sale of Assets 21 796
Cash Effect of Consolidating Amax Gold, Inc. 37 -
----- -----
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (411) 221
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net Borrowings on Line of Credit 99 150
Payments on Line of Credit - (50)
Net Proceeds from Issuance of Long-Term Debt 288 -
Payments on Debt and Other Obligations (231) (62)
Proceeds from Issuance of Stock for Employee Benefits 1 5
Payments to Minority Interests (3) -
Dividends Paid (46) (46)
----- -----
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 108 (3)
----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 47 137
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 139 96
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 186 $ 233
===== =====
See accompanying notes to financial statements.
-4-
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO 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, 1994.
NOTE 2. CONSOLIDATION OF AMAX GOLD INC.
- ----------------------------------------
At June 30, 1995, Cyprus Amax had loaned Amax Gold Inc. $35 million under the
1995 $80 million double convertible revolving credit agreement (DOCLOCII). In
mid-July 1995, Cyprus Amax exercised its option under DOCLOCII to convert the
$35 million borrowing to common stock. This increased Cyprus Amax's ownership
of Amax Gold Inc. from 42 percent to approximately 47 percent. Cyprus Amax has
determined that consolidation of Amax Gold is appropriate due to the execution
of certain financing arrangements which may lead to an increased ownership
position. The consolidation was effective as of January 1, 1995, and the first
quarter results have been restated.
NOTE 3. INVENTORIES
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Inventories detailed by component are summarized below (in millions):
(Unaudited)
June 30, December 31,
1995 1994
----------- ------------
Component
In-Process Ores, Concentrates,
and Other $ 193 $ 193
Finished Goods 164 182
Materials and Supplies 90 78
$ 447 $ 453
NOTE 4. 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 June 30, 1995, the
net carrying value of financial instruments approximated a $968 million
liability, whereas the fair value approximated a $1,078 million liability. The
difference in fair value is primarily due to lower interest rates as of June 30,
1995, compared to rates on the Company's debt.
NOTE 5: CONTINGENCIES
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On August 9, 1995, a new coal contract was executed between Amax Coal Company
and PSI Energy, Inc. to replace an existing contract and to settle arbitration
matters related to the existing contract. Terms of the contract will result in
a write-down in the third quarter of the carrying value of Wabash mine's
assets. See Note 7: Subsequent Events.
-5-
On November 8, 1993, Cyprus Amax was notified by the United States Department of
Justice that it was under investigation for possible violations of the antitrust
laws of the United States regarding its molybdenum business. In June 1995,
Cyprus Amax was informed that the preliminary investigation into molybdenum
pricing was closed without further action.
In April 1994, Cyprus Amax was notified by the Department of Justice that the
government will be seeking civil penalties for alleged violations of the Federal
Clean Water Act in the operation of Cyprus Amax's Bagdad, Miami, and Sierrita
mines located in Arizona. These governmental actions relate to findings of
violations and orders issued by the Environmental Protection Agency (EPA) to
these operations in late 1992 and early 1993. The violations are alleged to
have occurred between April 1989 and January 1993. The relief sought by the EPA
under these findings of violation and orders was penalties and corrective action
to comply with the Clean Water Act.
In January 1995, Cyprus Foote Mineral Company (Cyprus Foote) agreed to sign a
Consent Order with the State of Ohio and Shieldalloy Metallurgical Corporation
(Shieldalloy) related to alleged contamination of Shieldalloy's Cambridge, Ohio,
operating site with slag containing elevated levels of naturally occurring
radionuclides. The slag is alleged to have been produced from Foote Mineral
Company's (FMC) operation of the Cambridge ferroalloy plant from the early 1950s
to 1987 when the plant was sold by Foote to Shieldalloy. FMC's sale of the
ferroalloy facility to Shieldalloy predated Cyprus' 1988 acquisition of FMC's
stock. The Consent Order requires Cyprus Foote to participate with Shieldalloy
in funding the development of a remedial investigation and feasibility study to
be completed in early 1996. On July 11, 1995, the state of Ohio filed the
anticipated Complaint for Injunctive Relief and Civil Penalties alleging soil
and water contamination with hazardous substances and related charges. The
parties to the complaint entered into a consent order which provides for Cyprus
Foote to participate with Shieldalloy in funding the continuing development of a
remedial investigation and feasibility study to be completed in early 1996.
Cyprus Amax received an EPA Unilateral Administrative Order in 1994 pursuant to
Section 106 of the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) requiring it to participate in a cleanup of soils with
elevated metals levels in the city of Bartlesville, Oklahoma, as well as to
participate in funding a remedial investigation and feasibility study. A Cyprus
Amax subsidiary built and operated a zinc smelter near Bartlesville in the early
1900s. Cyprus Amax is one of several identified potentially responsible parties
(PRPs) at this site and is participating in a PRP group in an effort to minimize
its immediate costs to comply with the EPA order. On August 7, 1995, Cyprus
Amax and the state of Oklahoma entered into a Consent Agreement and Final Order
implementing the second phase of the residential soil cleanup program.
In late 1994, Cyprus Amax, along with a number of other PRPs, received a
Unilateral Administrative Order for Removal Action pursuant to Section 106 of
CERCLA with regard to materials stockpiled at the Colorado School of Mines
Research Institute Creekside Superfund site, located in Golden, Colorado. The
EPA alleges that these materials result from various research operations at the
facility and that Cyprus Amax contributed materials to the site for research.
Cyprus Amax is participating with the state of Colorado and a number of other
entities in completing a remedial investigation and feasibility study for this
site.
In 1994, Cyprus Amax received several Orders from the Bureau of Land Management
(BLM) in Roswell, New Mexico, alleging Cyprus Amax's continuing responsibility
for closure and reclamation of the Horizon Potash Mine near Carlsbad, New
Mexico. Amax sold its interest in the mine in 1991, and Horizon abandoned the
site in 1993. Cyprus Amax is vigorously pursuing its legal defenses to this
potential liability and has held discussions with the BLM as to possible
settlement.
At June 30, 1995, Cyprus Amax had accruals of approximately $380 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 $70 million to $230 million of
-6-
which approximately $100 million was reserved at June 30, 1995. Work on these
sites is expected to be substantially completed within the next five years,
subject to delays inherent in the process. Remediation costs that could not be
reasonably estimated at June 30, 1995, are not expected to have a material
impact on the financial condition and ongoing operations of the Company.
NOTE 6. 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. The financial information for these
segments is presented below (in millions):
(Unaudited) (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------- ---------------
1995 1994 1995 1994
----- ----- ------ ------
Segment Revenue
Copper/Molybdenum $ 482 $ 302 $ 943 $ 589
Coal 342 337 644 602
Other 51 58 95 94
----- ----- ------ ------
$ 875 $ 697 $1,682 $1,285
===== ===== ====== ======
Segment Income
Copper/Molybdenum $ 169 $ 35 $ 297 $ 71
Coal 38 34 69 59
Other (9) 4 (15) 1
----- ----- ------ ------
198 73 351 131
Corporate (15) (9) (29) (21)
Interest, Net (16) (17) (36) (40)
Equity Investments and Other 3 (3) 3 (2)
----- ----- ------ ------
Income Before Income Taxes and
Minority Interest 170 44 289 68
Income Tax Provision (37) (12) (62) (17)
Minority Interest 1 - 4 -
----- ----- ------ ------
Income from Continuing Operations 134 32 231 51
Income from Operations of Discontinued Oil and Gas
Division, Net of Applicable Taxes of $2 - - - 9
----- ----- ------ ------
Net Income $ 134 $ 32 $ 231 $ 60
===== ===== ====== ======
-7-
NOTE 7: SUBSEQUENT EVENTS
- -------------------------
On August 9, 1995, a new coal contract was executed between Amax Coal Company
and PSI Energy, Inc. to replace an existing contract and to settle arbitration
matters related to the existing contract. Terms of the contract will result in
a write-down of the carrying value of Wabash mine's assets in the third quarter.
Additionally, over the last few years, a continual decline in the market prices
of Kentucky coal has prompted adoption of a revised mine plan to reduce costs in
response to these changes. Therefore, a write-down of Kentucky assets and
mineral reserves plus other miscellaneous write-downs will be recorded in the
third quarter. Both of these write-downs have been calculated in accordance with
the new accounting pronouncement on impairment of long-lived assets, which
indicates a pre-tax write-down of more than $400 million.
-8-
REVIEW BY INDEPENDENT ACCOUNTANTS
- ---------------------------------
The financial information as of June 30, 1995, and for the three-month and six-
month periods ended June 30, 1995 and 1994, 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 10 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.
-9-
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 June 30, 1995, and the related
consolidated statements of operations and of cash flows for the three-month and
six-month periods ended June 30, 1995 and 1994. 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, 1994, 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 17, 1995, 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, 1994, 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
August 11, 1995
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- -------------------------------------------------------------------------
FINANCIAL CONDITION
- -------------------
RESULTS OF OPERATIONS
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CYPRUS AMAX MINERALS COMPANY reported consolidated net income of $134 million,
or $1.39 per share, on revenue of $875 million, compared to 1994 earnings of $32
million, or 30 cents per share, on revenue of $697 million.
Three Months Six Months
SELECTED RESULTS Ended June 30, Ended June 30,
-------------- --------------
(In millions except per share data) 1995 1994 1995 1994
------- ----- ------ ------
Revenue $ 875 $ 697 $1,682 $1,285
Net Income $ 134 $ 32 $ 231 $ 60
Earnings Per Share $1.39 $ .30 $ 2.39 $ .55
The 1995 revenue of $875 million was up $178 million from the comparable 1994
quarter primarily because of 35 cents per pound higher copper realizations,
$5.91 per pound higher molybdenum realizations and higher produced copper sales,
partially offset by lower molybdenum sales.
For the first six months, Cyprus Amax earned $231 million or $2.39 per share,
compared to 1994 earnings for the period of $60 million or 55 cents per share.
Segment income is earnings before corporate overhead, interest, equity and
other, income taxes, and minority interest.
COPPER/MOLYBDENUM
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
SELECTED RESULTS (In millions) 1995 1994 1995 1994
------ ------ ------ ------
Revenue $ 482 $ 302 $ 943 $ 589
Segment Operating Income $ 169 $ 35 $ 297 $ 71
Copper/Molybdenum earned a record $169 million during the second quarter, which
was approximately four times higher than the 1994 comparable period. Earnings
increased due primarily to 35 cents per pound higher copper realizations, seven
cents per pound lower copper cost of sales, $47 million higher molybdenum
results, and 15 percent higher produced copper sales.
Second quarter copper realizations averaged $1.33 per pound, 35 cents higher
than the 1994 quarter. Copper puts at June 30, 1995, will ensure a minimum
average realization on an LME basis of $1.05 per pound on 250 million pounds for
the balance of 1995, and 90 cents per pound on 700 million pounds for 1996.
Comex copper prices continued to remain high throughout the quarter reflecting a
strong underlying demand worldwide. This reflects continued strength in
southeast Asia, Latin America, and Europe. Combined LME/Comex inventories have
decreased 45 percent in the first six months of 1995.
-11-
Three Months Six Months
SELECTED OPERATING DATA Ended June 30, Ended June 30,
------------------------------ ------------------------------
(In millions except as noted) 1995 1994 1995 1994
-------------- -------------- ------------- -------------
Produced Copper Sold, Pounds 199 173 359 329
Copper Production, Pounds 169 162 328 313
Copper Sales Volume, Pounds 225 224 427 422
Average Copper Realization, $/Pound $1.33 $ .98 $1.33 $ .97
Cost of Sales, $/Pound $ .70 $ .77 $ .76 $ .75
Net Cash Cost, $/Pound $ .47 $ .71 $ .48 $ .70
Full Cost, $/Pound $ .55 $ .79 $ .57 $ .77
Bagdad
- ------
Production - Pounds 47 46 101 95
Material Mined - Tons 16.2 16.8 31.3 33.3
Ore Mined - Tons 7.6 7.3 15.5 14.1
Stripping Ratio 1.14 1.31 1.02 1.36
Ore Milled - Tons 7.4 6.9 15.0 13.5
Ore Grade - % .38 .38 .39 .40
Miami
- -----
Production - Pounds 32 29 57 59
Material Mined - Tons 24.8 22.1 42.2 43.1
Ore Mined - Tons 10.0 8.0 15.7 16.5
Stripping Ratio 1.49 1.76 1.68 1.61
Ore Grade - % .42 .39 .44 .37
Sierrita
- --------
Production - Pounds 60 66 117 132
Material Mined - Tons 21.5 18.0 40.1 36.6
Ore Mined - Tons 9.7 9.7 20.1 19.5
Stripping Ratio 1.16 .85 .93 .85
Ore Milled - Tons 9.9 9.4 20.0 18.8
Ore Grade - % .33 .38 .32 .37
Molybdenum Sales - Pounds 16 21 38 40
Molybdenum Production - Pounds 21 13 41 27
Average Realization - $/Pound 9.55 3.64 8.46 3.58
Henderson
- ---------
Production - Pounds 10.9 5.4 22.3 10.8
Material Mined - Tons 2.2 .9 4.3 1.9
Ore Milled - Tons 2.2 .9 4.3 1.9
Ore Grade - % .28 .31 .29 .31
During the quarter, Cyprus Amax sold 199 million pounds of produced copper, 26
million pounds more than in the 1994 second quarter due primarily to a 17
million pound concentrate sale in June 1995. Cost of sales declined seven cents
per pound from the 1994 period to 70 cents per pound for the second quarter of
1995, due primarily to higher molybdenum by-product credits, partially offset by
higher SX-EW costs at Tohono associated with continued evaluation and higher
sulfide cost at Sierrita and Bagdad.
-12-
Cyprus Amax set a record for the lowest net cash cost for copper in a quarter of
47 cents per pound, which was 24 cents below the 71 cents per pound for the
second quarter of 1994. Excluding the Tohono project, which increased average
costs segment-wide by five cents per pound, second quarter 1995 cash costs would
have been 42 cents per pound. The lower cash costs primarily reflect higher by-
product credits for molybdenum of 45 cents per pound in the 1995 second quarter
compared to 15 cents per pound in 1994, higher Bagdad and Sierrita mill
throughput, and lower conversion costs, partially offset by lower ore grade and
increased stripping at Sierrita.
Copper production totalled 169 million pounds for the quarter, seven million
pounds higher than in 1994. The Company expects that 1995 production will reach
about 675 million pounds.
Primary molybdenum operations earned $52 million for the second quarter compared
to $5 million for the 1994 period. Production increased to 21 million pounds
from 13 million pounds, while sales decreased to 16 million pounds for the
second quarter of 1995 from 21 million pounds in the 1994 second quarter. Sales
for the first six months of 1995 were two million pounds lower than the same
period in 1994 due to lower customer demand. Additionally, the 1995 second
quarter realizations averaged $9.55 per pound compared to $3.64 per pound during
the 1994 quarter. During the second quarter 1995, spot market prices declined
and third quarter product realizations are expected to be lower than the second
quarter.
Production of molybdenum products worldwide expanded in late 1994 and early 1995
in response to strong customer demand and higher prices. This increased
production and somewhat weakened demand in the second quarter led Cyprus Amax to
announce in mid-July that the Climax mine will return to stand-by status.
In June 1995 Cyprus Amax was informed by the U.S. Department of Justice's
Antitrust Division that its preliminary investigation into molybdenum pricing
was closed without further action. This probe arose at the time of the Cyprus
and Amax merger in November 1993.
For the first six months, Copper/Molybdenum earnings were $297 million compared
to $71 million in 1994. The higher earnings primarily reflect 36 cents higher
average copper realizations, improved molybdenum results of $94 million, and 10
percent higher produced copper sales or 30 million pounds.
COAL
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
SELECTED RESULTS (In millions) 1995 1994 1995 1994
------ ------ ------ ------
Revenue $ 342 $ 337 $ 644 $ 602
Segment Operating Income $ 38 $ 34 $ 69 $ 59
COAL reported second quarter earnings of $38 million compared to 1994 second
quarter earnings of $34 million. The 1995 second quarter earnings included a $4
million gain on the sale of surplus equipment. Second quarter's average
realization was $16.74 per ton, and the average cost of sales was $15.30 per
ton. This resulted in a profit margin of $1.44 per ton and cash margins were a
record $4.28 per ton.
-13-
Three Months Six Months
Ended June 30, Ended June 30,
---------------- --------------
SELECTED OPERATING DATA 1995 1994 1995 1994
-------- ------ ------ ------
Sales Volume - Millions of Tons
- -----------------------------------------
Eastern Mines 7.7 7.8 14.2 13.5
Western Mines - Powder River Basin 8.5 9.1 17.5 17.6
Western Mines - Other 3.3 3.1 6.1 5.6
------ ------ ------ ------
Total Sales 19.5 20.0 37.8 36.7
------ ------ ------ ------
Oakbridge Equity Share 1.6 1.2 3.1 2.4
Average Realization - $/Ton $16.74 $16.39 $16.44 $15.97
Domestic Average Contract Price - $/Ton $17.33 $18.34 $17.27 $18.33
Domestic Average Spot Price - $/Ton $15.00 $12.65 $13.77 $11.64
Oakbridge Contract Price - $/Ton $25.24 $23.29 $25.10 $23.63
Oakbridge Spot Price - $/Ton $21.06 $20.96 $20.71 $20.12
Average Cost of Sales - $/Ton $15.30 $14.78 $14.91 $14.48
Average Cash Cost - $/Ton $12.46 $12.25 $12.28 $11.84
Average Unit Costs - $/Ton $14.99 $14.62 $14.57 $14.22
Clean Production - Millions of Tons
- -----------------------------------------
Pennsylvania 2.2 2.0 4.3 3.8
Kentucky 1.2 1.3 2.5 2.3
West Virginia 1.6 1.6 3.3 2.9
Midwest 2.1 2.3 4.3 4.6
Wyoming - Powder River 8.5 9.1 17.5 17.6
Colorado 2.0 2.3 4.4 4.6
Utah .8 .9 1.4 1.9
------ ------ ------ ------
Total Production 18.4 19.5 37.7 37.7
====== ====== ====== ======
Oakbridge Equity Share 1.2 1.0 2.7 2.0
Cyprus Amax expects that softer coal demand experienced in the first half will
return to normal levels in the second half of 1995, as utilities work off
increased inventories created by decreased demand in the first half due to a
mild winter and cool spring. Utility inventories have recovered to a large
degree from the low levels of 1994 due to the mild weather and improved
transportation. A strong demand for compliance Western coals continues. During
the second quarter, the western U.S. rail systems have experienced some
deterioration in service due to renewed flooding problems in the Missouri and
Mississippi River basins, however the railroads expect normal operations by mid-
July. The eastern U.S. continues to experience barge shortages due primarily to
the flooding on the upper Mississippi; however, the barge and rail problems have
improved since the first quarter.
Coal production of 18 million tons in the second quarter was one million tons
lower than in 1994 primarily because of reduced longwall utilization at Empire
due to mine development and lower production at Minnehaha constrained by weak
sales. However, during the second quarter of 1995, six productivity records
were set at six operations. In particular, during June the Cumberland mine in
Pennsylvania set a new worldwide single longwall production record, breaking the
previous record set at the Company's Twentymile mine in Colorado. The Company
expects that 1995 production will be approximately 86 million tons compared to
80 million tons in 1994, including Cyprus Amax's share of Oakbridge's
production. Additionally, Cyprus Amax acquired an additional federal coal lease
containing 166 million tons in the Powder River Basin.
-14-
In mid-July 1995, Amax Coal Company signed a letter agreement with PSI Energy,
Inc. with the objective of executing a new coal contract to replace the existing
contract and to settle arbitration matters related to the current contract. On
August 9, 1995, a new contract was executed that calls for a reduction in price
with a move toward market price by 2000 and an extended term. This grants Amax
Coal operating flexibility that will assist in cost reduction efforts and has
resulted in a new mine plan. The net effect will require a write-down of the
carrying value of Wabash mine's assets in the third quarter. Additionally, over
the last few years, a continual decline in the market prices of Kentucky coal
has prompted adoption of a revised mine plan to reduce costs in response to
these changes. Therefore, a write-down of Kentucky assets and mineral reserves
plus other miscellaneous assets will be recorded in the third quarter. Both of
these write-downs have been calculated in accordance with the new accounting
pronouncement on impairment of long-lived assets, which indicates a pre-tax
write-down of more than $400 million.
Cyprus Amax's 43 percent equity share in Oakbridge's earnings, which is reported
in Equity, Investments, and Other, was $2 million compared to the $2 million
loss in the comparable 1994 period. This reflects higher production, generally
improved productivity, and higher realizations. Effective April 1, 1995,
Oakbridge finalized price settlements with customers raising realizations by
approximately $6.00 per ton ($US) or approximately 18 percent. The new longwall
system commissioned at South Bulga last year has now made this the most
productive underground coal mine in Australia.
For the first six months, Coal earned $69 million compared to $59 million for
the first half of 1994. The increased earnings primarily reflect 2 million tons
higher sales and the $4 million gain on the sale of surplus equipment. During
the first six months of 1995, Coal operations reduced the workforce by
approximately seven percent for general cost cutting efforts and in response to
weak demand at several operations.
OTHER MINERALS
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
SELECTED RESULTS (In millions) 1995 1994 1995 1994
---------- ---------- ---------- ----------
Segment Operating Income $ (9) $ 4 $ (15) $ 1
======== ======= ========= =======
Lithium $ 8 $ 6 $ 14 $ 10
Amax Gold (2) - (6) -
Iron Ore - 3 - 4
Businesses Sold/Non-Operating (7) - (9) (2)
Exploration Expense (8) (5) (14) (11)
--------- -------- --------- -------
Total $ (9) $ 4 $ (15) $ 1
SELECTED OPERATING DATA (In millions)
Lithium
Sales Volumes - Millions of Lbs.
Carbonate Equiv. 8.7 7.8 17.2 16.5
Gold
Sales Volumes - Thousands of Ounces 28 28 51 52
Gold Price - $/Ounce 406 402 406 402
-15-
OTHER MINERALS, which includes Lithium, Amax Gold, Exploration, and Businesses
Sold/Non-Operating, had a $9 million loss for the second quarter of 1995
compared to earnings of $4 million for 1994. Lithium had record earnings of $8
million, $2 million more than 1994 due to record sales and lower costs. Amax
Gold's loss was $2 million for the second quarter which is now reported on a
consolidated basis because of the execution of certain financing arrangements
which are expected to lead to an increased ownership position. Exploration
expense of $8 million was $3 million higher than last year due to increased
activity. In addition, the absence of Iron Ore's 1994 earnings of $3 million
due to its sale and a $4 million settlement for a business previously sold
contributed to the change in earnings.
The year-to-date loss for Other Minerals equalled $15 million compared to $1
million earnings in the first six months of 1994 due primarily to the absence of
iron ore earnings of $4 million, higher exploration, consolidation of Amax
Gold's operating loss, and the settlement mentioned above.
CORPORATE expenses for the second quarter were $15 million or $6 million higher,
and for the first half of 1995 were $29 million, or $8 million higher, than the
same periods in 1994 due primarily to higher outside services, severance costs,
and an increased provision for incentive compensation.
INTEREST, EQUITY, AND OTHER expense was $13 million for the 1995 second quarter
compared to expense of $20 million for 1994. Net interest expense of $16
million for the second quarter of 1995 was $1 million less than the same period
in 1994 due primarily to capitalized interest for the El Abra development.
Year-to-date interest, equity, and other expense of $33 million was $9 million
lower than in 1994 due primarily to increased interest income, higher
capitalized interest, and the absence of equity losses for Amax Gold, which is
now reported on a consolidated basis and is included in Other Minerals.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company maintained its strong financial condition with
long-term debt as a percentage of total capitalization of 37.5 percent, a ratio
of current assets to current liabilities of 1.4 to 1.0, and a cash balance of
$186 million at June 30. At December 31, 1994, the ratios were 37.4 percent and
1.7 to 1.0, respectively, which do not reflect the consolidation of Amax Gold
Inc. Cyprus Amax's non-cash working capital decreased $145 million from $284
million at December 31, 1994, to $139 million at June 30, 1995, due primarily to
a $154 million increase in the current portion of long-term debt. This increase
is attributable to $99 million of short-term borrowing on lines of credit, $27
million of short-term debt related to the consolidation of Amax Gold Inc., and
$24 million of Coal production payments being classified as current as they were
prepaid in July 1995.
The Company's cash balance increased from $139 million at year-end to $186
million at June 30, due primarily to cash provided by continuing operations of
$350 million, an increase in net debt of $156 million, and a $37 million cash
effect from consolidating Amax Gold Inc., partially offset by capital
expenditures of $323 million and advances primarily to the El Abra copper mine
project in Chile of $131 million.
In May 1995, Cyprus Amax placed $250 million of 7-3/8 percent Notes due 2007
from its universal shelf. The majority of the proceeds were used to prepay $213
million of the coal production payments. At present, $250 million of the shelf
remains available to be drawn down.
For the first six months of 1995, capital expenditures, excluding capitalized
interest, were $323 million. Copper capital expenditures of $192 million
included $86 million for the El Abra project and $22 million for the Cerro Verde
project. Coal capital expenditures of $64 million were primarily for sustaining
and replacement capital. Other Minerals capital expenditures included Amax
Gold's expenditures of $60 million primarily for the Fort Knox and Refugio
projects. Total capital spending for 1995 is projected to be approximately one
billion dollars, with over 62 percent, 16 percent, and 21 percent spent on
Copper, Coal, and Amax Gold projects, respectively.
-16-
For the full year 1995 Cyprus expects to spend approximately $130 million for
reclamation, remediation, and environmental compliance.
In June 1995, Cyprus Amax finalized $750 million in project financing for
construction and development of the El Abra copper mine project in Chile.
Cyprus Amax also has funded an additional $300 million in subordinated debt for
the project. The financing will consist of three parts, the first portion for
$500 million being provided by Japanese and German companies, all on a 12-year
term. A second consortium of commercial banks is syndicating $250 million on a
10-year term. Cyprus Amax has guaranteed completion of the oxide mine. In
addition, the U.S. Export/Import Bank has committed to provide up to $150
million of funding once the project is completed. At June 30, 1995, there were
no borrowings on this financing arrangement and as of mid-August 1995, $150
million had been borrowed.
Cerro Verde completed a $110 million line of credit in Peru, which is guaranteed
by Cyprus Amax. At June 30, 1995, and as of mid-August 1995, $49 million had
been borrowed under this line of credit. Additionally, the partners in the
Kubaka gold project in Russia, of which Cyprus Amax owns 50 percent, signed
project financing loan agreements totalling $100 million for mine development.
To date, there have been no borrowings under this agreement.
At June 30, 1995, Cyprus Amax had loaned Amax Gold Inc. $35 million under the
1995 $80 million double convertible revolving credit agreement (DOCLOCII). In
mid-July 1995, Cyprus Amax exercised its option under the DOCLOCII agreement to
convert the $35 million borrowing to common stock. This increased Cyprus Amax's
ownership of Amax Gold to approximately 47 percent. As of August 7, 1995, an
additional $20 million has been borrowed under DOCLOCII which has not been
converted to common shares.
During 1995, Cyprus Amax expects to be able to provide sufficient funds for
general corporate purposes, including capital expenditures and acquisitions
through internally generated funds and existing or new borrowings.
Cyprus Amax paid a regular quarterly dividend of 20 cents per share on its
Common Stock and $1.00 per preferred share during the quarter. At June 30,
1995, 92,858,431 shares of the Company's Common Stock were outstanding.
-17-
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
Amax Coal Company and Cyprus Amax Minerals Company, and PSI Energy, Inc. have
been engaged in arbitration and related litigation in Indiana regarding the
Wabash mine long-term coal contract. On August 9, 1995, a new coal contract was
executed between Amax Coal Company and PSI Energy, Inc. to replace the existing
contract and to settle arbitration matters related to the existing contract.
Terms of the contract will result in a write-down in the third quarter
of the carrying value of Wabash mine's assets. See Note 7: Subsequent Events.
On November 8, 1993, Cyprus Amax was notified by the United States Department of
Justice that it was under investigation for possible violations of the antitrust
laws of the United States regarding its molybdenum business. In June 1995,
Cyprus Amax was informed that the preliminary investigation into molybdenum
pricing was closed without further action.
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
- ------------------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
- --------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) The following Exhibits are being filed as part of this Quarterly Report on
Form 10-Q:
Page in
Sequential
Exhibit Numbering
Number Document System
- --------- -------------------------------------------------- ----------
(11) Statement re computation of per share earnings.
(15) Letter re unaudited interim financial information.
(27) Financial data schedule.
(b) No Current Report on Form 8-K was filed during the quarter ended June 30,
1995.
-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: August 11, 1995 /s/ JOHN TARABA
------------------- ----------------------------
Vice President and
Controller
-19-