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, 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)
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 8, 1996, was
93,200,562 shares.
This report contains 23 pages.
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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,
----------------- -----------------
1996 1995 1996 1995
------- ------ ------- --------
REVENUE $740 $875 $1,424 $1,682
------ ------ ------- -------
COSTS AND EXPENSES
Cost of Sales 546 563 1,023 1,121
Selling and Administrative Expenses 28 43 59 70
Depreciation, Depletion, and Amortization 72 78 145 155
Exploration Expense 10 8 17 14
------ ------ ------- -------
TOTAL COSTS AND EXPENSES 656 692 1,244 1,360
------ ------ ------- -------
INCOME FROM OPERATIONS 84 183 180 322
OTHER INCOME (EXPENSE)
Interest Income 7 7 13 11
Interest Expense (45) (32) (87) (62)
Capitalized Interest 21 9 40 15
Equity Investments and Other 1 3 3 3
------ ----- ------ ------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 68 170 149 289
Income Tax Provision (14) (37) (34) (62)
Minority Interest (1) 1 - 4
NET INCOME 53 134 115 231
Preferred Stock Dividends (5) (4) (9) (9)
INCOME APPLICABLE TO COMMON SHARES $ 48 $ 130 $ 106 $ 222
======= ======= ======= =======
EARNINGS PER COMMON SHARE
Primary $ .52 $ 1.39 $ 1.13 $ 2.39
Fully Diluted $ .52(1) $ 1.31 $ 1.13(1) $ 2.27
AVERAGE COMMON SHARES OUTSTANDING
Primary 93.2 92.8 93.2 92.8
Fully Diluted 102.9 102.7 102.9 102.7
See accompanying notes to financial statements.
(1)Fully diluted earnings per share were less than 3 percent dilutive.
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CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS EXCEPT SHARE AMOUNTS)
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
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CURRENT ASSETS
Cash and Cash Equivalents $ 172 $ 191
Accounts and Notes Receivable, Net 330 320
Inventories 486 447
Prepaid Expenses 101 119
Deferred Income Taxes 5 13
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Total Current Assets 1,094 1,090
PROPERTIES - At Cost, Net 5,062 4,601
OTHER ASSETS 521 505
Total Assets $6,677 $6,196
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 351 $ 109
Current Portion of Long-Term Debt 40 63
Accounts Payable 160 157
Accrued Payroll and Benefits 93 98
Accrued Royalties and Interest 55 55
Accrued Closure, Reclamation and Environmental 59 63
Other Accrued Liabilities 108 115
Taxes Payable, Other Than Income Taxes 59 58
Income Taxes Payable 52 61
Dividends Payable 23 19
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Total Current Liabilities 1,000 798
` ------- ----------
NONCURRENT LIABILITIES AND DEFERRED CREDITS
Long-Term Debt 1,964 1,734
Capital Lease Obligations 139 143
Deferred Employee and Retiree Benefits 410 412
Deferred Closure, Reclamation, and Environmental 323 348
Deferred Income Taxes 77 58
Other 156 170
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Total Noncurrent Liabilities and Deferred Credits 3,069 2,865
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MINORITY INTEREST 171 168
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, 4,664,542 and 4,664,783 Issued
and Outstanding in 1996 and 1995 5 5
Series A Preferred Stock, 1,500,000 Shares
Authorized, None Issued or Outstanding - -
Common Stock, Without Par Value,
150,000,000 Shares Authorized,
Issued 96,030,661 in 1996 and 96,030,198 in 1995 1 1
Paid-In Surplus 2,951 2,956
Accumulated Deficit (401) (465)
Foreign Currency Translation Adjustment 7 2
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2,563 2,499
Treasury Stock at Cost, 2,840,880 Shares in 1996
and 3,066,615 Shares in 1995 (65) (70)
Loan to Savings Plan (61) (64)
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Total Shareholders' Equity 2,437 2,365
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Total Liabilities and Shareholders' Equity $6,677 $6,196
======= ==========
See accompanying notes to financial statements.
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CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(Unaudited)
Six Months
Ended June 30,
-------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 115 $ 231
Depreciation, Depletion, and Amortization 145 155
Deferred Income Taxes 28 2
Gain on Sale of Assets (16) (2)
Changes in Assets and Liabilities Net of Effects
from Businesses Acquired/Sold (89) (51)
Other 15 15
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NET CASH PROVIDED BY OPERATING ACTIVITIES 198 350
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (518) (323)
Payments for Businesses Purchased (70) -
Capitalized Interest (40) (15)
Advances to and Investments in Affiliates (11) (131)
Proceeds from Sale of Assets 26 21
Cash Effect of Consolidating Amax Gold - 37
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NET CASH USED FOR INVESTING ACTIVITIES (613) (411)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from Issuance of Long-Term Debt 228 288
Net Borrowings on Short-Term Debt 325 99
Payments on Short-Term Debt (83) -
Payments on Debt and Other Obligations (25) (231)
Proceeds from Issuance of Stock for Employee Benefits 1 1
Dividends Paid (46) (46)
Dividends to Minority Interests (4) (3)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 396 108
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (19) 47
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 191 139
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 172 $ 186
======= =======
See accompanying notes to financial statements.
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CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
- -----------------------------
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.
NOTE 2. INVENTORIES
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Inventories detailed by component are summarized below (in millions):
(Unaudited)
June 30, December 31,
1996 1995
----------- ------------
Component
In-Process Ores, Concentrates,
and Other $ 223 $ 212
Finished Goods 175 156
Materials and Supplies 88 79
------ ------
$ 486 $ 447
====== ======
NOTE 3.FAIR VALUE OF FINANCIAL INSTRUMENTS
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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, 1996, the
net carrying value of financial instruments approximated a $1,535 million
liability, whereas the fair value approximated a $1,458 million liability. The
difference in fair value is primarily due to the volatility in the copper market
and a decrease in copper prices which have increased the value of the copper
price protection programs, partially offset by lower interest rates as of June
30, 1996, compared to rates on the Company's debt.
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. Consent Decrees have been entered and civil
penalties paid resolving the Miami and Sierrita alleged violations. Agreement
was reached in early 1996 with DOJ and EPA as to principles of a settlement
regarding civil penalties for the alleged Bagdad violations 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
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quality at Pinal Creek near Miami, Arizona. 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 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 June 30, 1996, Cyprus Amax had accruals of approximately $382 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 $80 million was reserved
at June 30, 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 June 30,
1996, are not expected to have a material impact on the financial condition and
ongoing operations of the Company.
NOTE 5. INFORMATION BY INDUSTRY SEGMENT
- ---------------------------------------
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) (Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ------------------
1996 1995 1996 1995
------ ------ ------- ------
Segment Revenue
Copper/Molybdenum $ 356 $ 482 $ 696 $ 943
Coal 326 342 611 644
Other 58 51 117 95
------ ------ ------- ------
$ 740 $ 875 $1,424 $1,682
====== ====== ======= =======
Segment Income
Copper/Molybdenum $ 71 $ 169 $ 157 $ 297
Coal 21 38 43 69
Other 4 (9) 7 (15)
------ ------ ------- -------
96 198 207 351
Corporate (12) (15) (27) (29)
Interest, Net (17) (16) (34) (36)
Equity Investments and Other 1 3 3 3
------ ------ ------- -------
Income Before Income Taxes and
Minority Interest 68 170 149 289
Income Tax Provision (14) (37) (34) (62)
Minority Interest (1) 1 - 4
Net Income $ 53 $ 134 $ 115 $ 231
====== ====== ======= =======
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REVIEW BY INDEPENDENT ACCOUNTANTS
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The financial information as of June 30, 1996, and for the three-month and six-
month periods ended June 30, 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 8 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.
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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, 1996, and the related
consolidated statements of operations and of cash flows for the three-month and
six-month periods ended June 30, 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 shareholders' 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
August 8, 1996
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
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FINANCIAL CONDITION
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RESULTS OF OPERATIONS
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CYPRUS AMAX MINERALS COMPANY reported consolidated net income of $53 million, or
52 cents per share, on revenue of $740 million, compared to 1995 earnings of
$134 million, or $1.39 per share, on revenue of $875 million. Lower second
quarter 1996 earnings largely were attributable to lower molybdenum and copper
realizations, and lower coal results.
Three Months Six Months
SELECTED RESULTS Ended June 30, Ended June 30,
-------------- --------------
(In millions except per share data) 1996 1995 1996 1995
------ ------ ------ ------
Revenue $ 740 $ 875 $1,424 $1,682
Net Income $ 53 $ 134 $ 115 $ 231
Earnings Per Share $ .52 $1.39 $ 1.13 $ 2.39
The 1996 second quarter revenue of $740 million was $135 million lower than the
comparable 1995 quarter primarily because of 24 cents per pound lower copper
realizations and $4.43 per pound lower molybdenum realizations.
For the first six months, Cyprus Amax earned $115 million or $1.13 per share,
compared to 1995 earnings for the period of $231 million or $2.39 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) 1996 1995 1996 1995
-------------- --------------
Revenue $ 356 $ 482 $ 696 $ 943
Segment Operating Income $ 71 $ 169 $ 157 $ 297
COPPER/MOLYBDENUM earned $71 million during the second quarter compared to
earnings of $169 million in the 1995 period. Earnings decreased primarily due
to lower molybdenum realizations of $5.12 per pound, $4.43 per pound lower than
the 1995 period. This lowered molybdenum earnings and also increased costs of
copper sold by 10 cents per pound primarily through lower molybdenum by-product
credits. In addition, copper realizations were 18 percent lower in the second
quarter of 1996.
Second quarter copper realizations averaged $1.09 per pound, 24 cents lower than
the similar quarter of 1995. Comparative realizations reflected the lower
copper market prices and quotational price adjustments during June to mark-to-
market copper concentrate and scrap transactions previously sold at provisional
forward prices.
Copper puts owned at June 30, 1996, will ensure a minimum net average
realization on an LME basis of 90 cents per pound on 350 million pounds for the
balance of 1996, and 96 cents per pound on 700 million pounds for 1997.
Additionally, the price protection program for El Abra ensures a minimum net
average
-9-
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.
Three Months Six Months
SELECTED OPERATING DATA Ended June 30, Ended June 30,
-------------- --------------
(In millions except as noted) 1996 1995 1996 1995
------ ------ ------ ------
Produced Copper Sold, Pounds 181 199 353 359
Copper Production, Pounds 184 169 357 328
Copper Sales Volume, Pounds 237 225 434 427
Average Copper Realization, $/Pound $1.09 $1.33 $1.13 $1.33
Cost of Sales, $/Pound $ .80 $ .70 $ .78 $ .76
Net Cash Cost, $/Pound $ .72 $ .47 $ .71 $ .48
Full Cost, $/Pound $ .79 $ .55 $ .79 $ .57
Bagdad
------
Production - Pounds 54 47 108 101
Material Mined - Tons 16.5 16.2 32.5 31.3
Ore Mined - Tons 7.5 7.6 15.5 15.5
Stripping Ratio 1.19 1.14 1.10 1.02
Ore Milled - Tons 7.4 7.4 14.9 15.0
Ore Grade - % .38 .38 .38 .39
Miami
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Production - Pounds 35 32 69 57
Material Mined - Tons 25.3 24.8 51.4 42.2
Ore Mined - Tons 7.2 10.0 15.0 15.7
Stripping Ratio 2.49 1.49 2.43 1.68
Ore Grade - % .57 .42 .52 .44
Sierrita
--------
Production - Pounds 57 60 114 117
Material Mined - Tons 24.1 21.5 49.0 40.1
Ore Mined - Tons 9.8 9.7 19.7 20.1
Stripping Ratio 1.29 1.16 1.38 .93
Ore Milled - Tons 10.0 9.9 19.9 20.0
Ore Grade - % .29 .33 .29 .32
Molybdenum Sales - Pounds 16 16 33 38
Molybdenum Production - Pounds 15 21 29 41
Average Realization - $/Pound 5.12 9.55 5.38 8.46
Henderson
---------
Production - Pounds 8.4 10.9 15.6 22.3
Material Mined - Tons 1.9 2.2 3.4 4.3
Ore Milled - Tons 1.9 2.2 3.4 4.3
Ore Grade - % .25 .28 .25 .29
During the quarter, Cyprus Amax sold 181 million pounds of produced copper.
This is 18 million pounds less than in the 1995 second quarter due to sales of
30 million pounds from inventory drawdowns in the 1995 quarter. Cost of sales
increased 10 cents per pound from the 1995 period to 80 cents per pound for the
-10-
second quarter of 1996 reflecting lower molybdenum by-product credits, partially
offset by lower smelting and refining costs.
Second quarter net cash costs, before molybdenum credits, were six cents lower
than in the 1995 second quarter, because of improved production at Cerro Verde
and lower smelting and refining costs, partially offset by increased tons mined
at Sierrita, Miami and Cerro Verde. Reflecting lower molybdenum prices, by-
product credits were 31 cents per pound lower. Total second quarter net cash
costs were 72 cents per pound.
Copper production totalled 184 million pounds for the quarter, 15 million pounds
higher than in 1995 primarily due to a 60 percent increase in Cerro Verde
production. The Company expects that 1996 production will exceed 750 million
pounds.
On May 1, 1996, a smelter turnaround at Miami commenced to perform normal annual
maintenance. Full production resumed in mid-May and in June the smelter
operated at above design capacity.
Primary molybdenum operations earned $18 million for the second quarter compared
to $52 million for the 1995 period. The 1996 second quarter realizations
averaged $5.12 per pound compared to $9.55 per pound during the 1995 quarter.
Production decreased to 15 million pounds from 21 million pounds, while sales of
16 million pounds for the second quarter of 1996 were comparable to the 1995
second quarter.
For the first six months, Copper/Molybdenum earnings were $157 million compared
to $297 million in 1995. The lower earnings primarily reflect 20 cents per
pound lower average copper realizations and $3.08 per pound lower molybdenum
realizations.
COAL
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
SELECTED RESULTS (In millions) 1996 1995 1996 1995
------ ------ ------ ------
Revenue $ 326 $ 342 $ 611 $ 644
Segment Operating Income $ 21 $ 38 $ 43 $ 69
COAL reported second quarter earnings of $21 million compared to 1995 second
quarter earnings of $38 million. The 1995 second quarter earnings included a $4
million gain on the sale of surplus equipment.
During the 1996 second quarter, the Emerald mine in Pennsylvania and the
Twentymile mine in Colorado incurred losses. Emerald encountered a sandstone
channel that was much more extensive than anticipated and this created mining
problems and lower output of coal. This situation and its related production
shortfalls should not recur since mining is now moving to another section of the
mine. Twentymile encountered start up delays in its first panel in the new East
Mine District. The new sophisticated state-of-the-art longwall experienced
start up problems, but now has demonstrated its high production capability.
This unit is designed to produce over 50 percent more coal than the longwall
that it replaced and when operating as expected it should increase this mine's
production to 9 million tons per year. Coal earnings also were affected by two
record-setting rainfalls at Delta, and, as previously reported lower
realizations from sales contract expirations and renegotiations. Partially
offsetting these impacts were lower depreciation, the sale of 475,000 tons of
stockpiled Shoshone coal, and improved spot realizations in Pennsylvania and
Kentucky.
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Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
SELECTED OPERATING DATA 1996 1995 1996 1995
------ ------ ------ ------
Sales Volume - Millions of Tons
- -------------------------------
Eastern Mines 7.3 7.7 14.2 14.2
Western Mines - Powder River Basin 8.3 8.5 17.2 17.5
Western Mines - Other 3.1 3.3 5.3 6.1
Springvale .4 - .4 -
------ ------ ------ ------
Total Sales 19.1 19.5 37.1 37.8
------ ------ ------ ------
Oakbridge Equity Share 1.7 1.6 3.2 3.1
Average Realization - $/Ton $16.55 $16.74 $15.97 $16.44
Domestic Average Contract Price - $/Ton $15.78 $17.33 $15.33 $17.27
Domestic Average Spot Price - $/Ton $18.40 $15.00 $17.98 $13.77
Australian Contract Price - $/Ton $29.79 $25.24 $30.05 $25.10
Australian Spot Price - $/Ton $23.14 $21.06 $23.55 $20.71
Average Cost of Sales - $/Ton $15.75 $15.30 $15.07 $14.91
Average Cash Cost - $/Ton $13.41 $12.46 $12.83 $12.28
Average Unit Costs - $/Ton $15.44 $14.99 $14.65 $14.57
Clean Production - Millions of Tons
- -----------------------------------
Pennsylvania 1.7 2.2 4.4 4.3
Kentucky 1.3 1.2 2.4 2.5
West Virginia 2.1 1.6 3.8 3.3
Midwest 1.8 2.1 3.7 4.3
Wyoming - Powder River 8.3 8.5 17.2 17.5
Colorado 1.6 2.0 3.0 4.4
Utah .7 .8 1.5 1.4
Springvale .3 - .3 -
------ ------ ------ ------
Total Production 17.8 18.4 36.3 37.7
====== ====== ====== ======
Oakbridge Equity Share 1.4 1.2 2.8 2.7
The 1996 second quarter average realization was $16.55 per ton and the average
cost of sales increased to $15.75 per ton, yielding a profit margin of 80 cents
per ton and cash margins of $3.14 per ton in the quarter. This compares to an
average realization of $16.74 per ton and an average cost of sales of $15.30 per
ton for the second quarter 1995 which resulted in a profit margin of $1.44 per
ton and cash margins of $4.28 per ton. Average cost of sales increased 45 cents
per ton primarily due to the sandstone intrusion encountered in Emerald. This
impact overshadowed improved costs at several locations, notably at the Mountain
Coals operation in Kentucky.
Coal production of 19 million tons in the second quarter was one million tons
lower than in 1995, while sales of 21 million tons were comparable to the second
quarter of 1995. During the second quarter of 1996, monthly production records
were set at four operations.
In June 1996, Cyprus Amax announced it had reached an agreement in principle
under which Central Illinois Public Service Company (CIPS) would discontinue
coal purchases from the Delta mine in Illinois and pay Cyprus Amax Minerals $70
million. This would result in a gain after provisions which is expected to be
recorded in the fourth quarter of 1996. Cyprus Amax will cease shipping coal
from Delta in July, however, Cyprus Amax retained the right to supply coal to
CIPS under certain circumstances. Future plans for Delta
-12-
are being evaluated, but it is likely that production will be phased out during
the next few months in the event the mine is unable to compete in the highly
competitive spot markets for Midwest high sulfur coals.
Additionally, in the second quarter of 1996, Twentymile signed a coal contract
with the government-owned electric utility in Mexico to supply 2.8 million tons
of coal over the next 18 months. This agreement represents the first contract
coal sale to Mexico by a Cyprus Amax Coal operation and the largest coal
purchase outside of Mexico for the Mexican utility company.
For the first six months, Coal earned $43 million compared to $69 million for
the first half of 1995. In addition to the above mentioned factors which
decreased earnings in the second quarter, the first quarter of 1996 also was
affected significantly by adverse weather in the East and Midwest.
Cyprus Amax's equity share in Oakbridge's earnings, which is reported in
Interest, Equity, and Other, was $1 million compared to earnings of $2 million
in the comparable 1995 period.
OTHER MINERALS
Three Months Six Months
Ended June 30, Ended June 30,
--------------- ---------------
SELECTED RESULTS (In millions) 1996 1995 1996 1995
------ ------ ------ ------
Segment Operating Income $ 4 $ (9) $ 7 $ (15)
====== ====== ====== ======
Lithium $ 8 $ 8 $ 15 $ 14
Amax Gold (1) (2) (3) (6)
Businesses Sold/Non-Operating - (7) (2) (9)
Exploration Expense (3) (8) (3) (14)
------ ------ ------ ------
Total $ 4 $ (9) $ 7 $ (15)
====== ====== ====== ======
SELECTED OPERATING DATA (In millions)
Lithium
Sales Volumes - Millions of Lbs.
Carbonate Equiv. 11.4 8.7 22.5 17.2
Gold
Sales Volumes - Thousands of Ounces 32 28 64 51
Realized Gold Price - $/Ounce 412 406 412 406
OTHER MINERALS, which includes Lithium, Amax Gold, Exploration, and Businesses
Sold/Non-Operating, had combined earnings of $4 million compared to a $9 million
loss for the second quarter of 1995. Lithium earned $8 million, which matches
the quarterly record set in the 1995 second quarter. Amax Gold's loss was $1
million for the second quarter compared to a $2 million loss in 1995. The
improvement results from a six percent decrease in unit cost and slightly higher
realizations. Exploration expense of $3 million was $5 million less than last
year due to the sale of certain minor properties.
The year-to-date earnings for Other Minerals equalled $7 million compared to a
$15 million loss in the first six months of 1995 primarily due to lower
exploration expenses of $11 million reflecting the above mentioned sales and the
sale of Cerro Quema in the first quarter. Also contributing were the absence of
a $4 million settlement recorded in 1995 for a business previously sold and
improved performance for Amax Gold of $3 million resulting from a decrease in
unit cost and slightly higher realizations.
In June 1996, Cyprus Amax Minerals Company and Amax Gold Inc. announced
formation of a joint venture with several Russian entities to evaluate and if
feasible develop a potentially large gold mine in the Ural
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Mountains of Russia. Contingent on the results of a feasibility study, expected
to commence in 1996, development of the Vorontsovka deposit could begin as early
as 1998 with surface mining operations commencing in 1999. The operating entity
for Vorontsovka will be Gold of the Northern Urals Joint Stock Company. Cyprus
Urals Corporation would own 49 percent and act as manager during construction
and operation of the mine. Cyprus Urals Corporation will be owned 75 percent by
Cyprus Amax Minerals and 25 percent by Amax Gold Inc. under a joint exploration
agreement established in 1994.
CORPORATE expenses for the second quarter were $12 million or $3 million lower,
and for the first half of 1996 were $27 million, or $2 million lower than the
same periods in 1995 primarily due to a decrease in stock appreciation rights.
INTEREST, EQUITY, AND OTHER expense was $16 million for the 1996 second quarter
compared to expense of $13 million for 1995. Net interest expense of $17
million for the second quarter of 1996 was $1 million higher than the 1995
period due to higher interest expense of $13 million offset by higher
capitalized interest of $12 million. Year-to-date interest, equity, and other
expense of $31 million was $2 million lower than in 1995 primarily due to higher
interest income of $2 million during the first half of 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's long-term debt as a percentage of total
capitalization is 46.3 percent, a ratio of current assets to current liabilities
of 1.1 to 1.0, and a cash balance of $172 million at June 30. At December 31,
1995, the ratios were 44.2 percent and 1.4 to 1.0, respectively. Cyprus Amax's
non-cash working capital decreased $179 million from a positive $101 million at
December 31, 1995, due primarily to a $219 million increase in the current
portion of debt. This increase is attributable to $170 million of short-term
borrowing on lines of credit and $84 million of borrowings for Cerro Verde
development, partially offset by a $25 million production payment.
The Company's cash balance decreased from $191 million at year-end to $172
million at June 30, due primarily to capital expenditures of $518 million,
payment for businesses purchased of $70 million, and dividend payments of $46
million, partially offset by cash provided by continuing operations of $198
million and an increase in net debt of $445 million.
For the first six months of 1996, capital expenditures, excluding capitalized
interest, were $518 million. Copper capital expenditures of $269 million
included $111 million for the El Abra project and $81 million for the Cerro
Verde project. Coal capital expenditures of $108 million were primarily for
sustaining and replacement capital and $46 million for the Twentymile East Mine
and Willow Creek. Other Minerals capital expenditures included Amax Gold's
expenditures of $92 million primarily for the Fort Knox and Refugio projects.
Total capital spending for 1996 is projected to be approximately one billion
dollars, with over 47 percent, 18 percent, and 31 percent spent on Copper, Coal,
and Amax Gold projects, respectively.
During the first quarter of 1996, Cyprus Amax 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.
Such guaranty would terminate if and when conditions of economic completion, as
defined in the loan agreement, are satisfied.
Cyprus Amax 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
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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.
For the full year 1996 Cyprus Amax expects to spend approximately $115 million
for reclamation, remediation, and environmental compliance.
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
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,
1996, 93,189,781 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. In addition,
other written or oral statements which constitute forward-looking statements
have been made and may in the future be made by or on behalf of the Company.
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 risks associated with
having or not having price protection programs, 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.
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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
- ------------------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
- --------------------------
None.
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,
1996.
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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 8, 1996 /s/ John Taraba
-------------- ---------------------------------
Vice President and
Controller
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