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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[Mark One]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to__________
Commission File Number 1-10040
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CYPRUS AMAX MINERALS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-2684040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9100 East Mineral Circle
Englewood, Colorado 80112
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 303-643-5000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, without par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
9 7/8% Notes due June 13, 2001 New York Stock Exchange
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
_____ _____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates, based on a
closing price of $11 1/16 as of March 18, 1999, was approximately $986,402,000.
-----------
Number of shares of common stock outstanding as of March 18, 1999, was
90,453,579.
- ----------
DOCUMENTS INCORPORATED BY REFERENCE
1998 Annual Report to Shareholders (Parts I, II, and IV). Proxy
Statement for the 1999 Annual Meeting to be filed within 120 days after the
fiscal year (Part III).
CYPRUS AMAX MINERALS COMPANY
PART I
To the extent the Company makes forward-looking statements, actual results
may vary materially therefrom. All of the information set forth in this Form
10-K, including without limitation the Risk Factors described herein, and all of
the information incorporated by reference, should be considered and evaluated.
Items 1 and 2. Business and Properties
Cyprus Amax Minerals Company (Cyprus Amax or the Company) is a diversified
mining company engaged, directly or through its subsidiaries and affiliates, in
the exploration for and extraction, processing, and marketing of mineral
resources. For 1998 Cyprus Amax's operating segments were Copper/Molybdenum,
Coal, Lithium, Exploration, and All Other (which included Gold and Businesses
Sold/Non-Operating). Cyprus Amax is a leading copper and coal producer, the
world's largest producer of molybdenum, and was the world's largest producer of
lithium and had a significant position in gold via its 58.8 percent interest in
Amax Gold Inc. (Amax Gold or AGI). Cyprus Amax was incorporated in Delaware in
1969 and operates primarily in the United States. As of December 31, 1998,
Cyprus Amax employed approximately 7,200 employees. Its principal office is
located at 9100 East Mineral Circle, Englewood, Colorado 80112.
On June 1, 1998, Amax Gold completed its merger with Kinross Gold Corporation
(Kinross). Cyprus Amax's 58.8 percent of Amax Gold Common Stock was converted
into Kinross shares at a rate of approximately 0.8 of a share of Kinross Common
Stock for each share of Amax Gold. Additionally, Cyprus Amax purchased about
$135 million of Kinross Gold Common Stock for cash and the repayment of Amax
Gold debt. At the time of the merger, Cyprus Amax owned approximately 31
percent of Kinross. Beginning June 1, 1998, Cyprus Amax reported its investment
in Kinross on an equity basis. On June 29, 1998, Cyprus Amax sold 11 of its
Appalachian and Midwest coal properties to Coal Ventures, Inc. (AEI) of Ashland,
Kentucky. On October 13, 1998, Cyprus Amax sold its Lithium segment to an
affiliate of Chemetall GmbH, a specialty chemicals unit of Metallgesellshaft AG.
On October 22, 1998, Cyprus Amax's Board of Directors approved the engagement
of Salomon Smith Barney to undertake a possible sale of Cyprus Amax Coal Company
(Coal Company). Cyprus Amax will seek to maximize the value of the Coal Company
through a sale or the establishment of a Master Limited Partnership Trust,
although there can be no assurances that a transaction will be consummated. The
sale process is proceeding, and firm bids are expected around the end of the
first quarter of 1999. Proceeds from this transaction are expected to be used
to reduce debt, fund the share buyback program, continue to significantly
strengthen Cyprus Amax's financial position, and support growth opportunities in
its core mining business.
A description of Cyprus Amax's major properties and operations is set forth
below. Except as otherwise stated, data are expressed in short tons of 2,000
pounds and troy ounces of 31.103 grams. Except as otherwise stated, the term
"reserves" when used herein refers to proved and probable reserves for copper,
molybdenum, coal, and gold, and proved reserves for lithium. Reserve estimates
were prepared by Cyprus Amax's engineers. Information regarding Cyprus Amax's
mineral reserves and selected operating statistics are incorporated by reference
from page 55 of the 1998 Annual Report to Shareholders (1998 Annual Report). In
addition, data related to Cyprus Amax's operating segments and foreign and
domestic operations and export sales are incorporated by reference from
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" (Management's Discussion), pages 20 through 30 in the 1998 Annual
Report, and from Note 18 to the Consolidated Financial Statements on pages 51
through 53 in the 1998 Annual Report. Except as otherwise stated, Cyprus Amax
has physical access to its properties and conventional sources of power adequate
to carry on its business as currently conducted.
The terms Cyprus Amax or the Company when used herein may refer collectively
to the parent Cyprus Amax Minerals Company and its subsidiaries and affiliates,
or to one or more of them, depending upon the context.
2
COPPER/MOLYBDENUM SEGMENT
Cyprus Amax explores for, mines, processes, and markets copper and
molybdenum primarily in North and South America. Production information at
Cyprus Amax's principal mine operations in the Copper/Molybdenum segment is
summarized in the following tables for the years 1998 and 1997. The 1998 year-
end ore reserve information is as follows:
Ore Reserves December 31, 1998
- ------------ ----------------------------------------------------------------------------------
Proven and
Probable
Ore Reserves(1) Average Grade Saleable Product
---------------- --------------------------- --------------------------
(Millions Copper Molybdenum Copper Molybdenum
-------- ------------- ----------- -----------
Operation of Tons) (%) (%) (Millions of Lbs.)
- --------------
Bagdad 771 .37 .022 4,820 223
Sierrita/Twin Buttes 1,104 .27 .030 4,885 491
Miami 191 .41 - 926 -
El Abra(2) 493 .47 - 3,538 -
Cerro Verde(3) 703 .64 .021 7,018 116
Henderson 191 - .212 - 712
Climax 145 - .233 - 593
----- ------ -----
3,598 21,187 2,135
===== ====== =====
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(1) Mine extraction losses and dilution have been taken into account in the
calculation of mineable ore reserves shown.
(2) Represents Cyprus Amax's 51 percent interest in El Abra's ore reserves.
(3) Represents 100 percent of Cerro Verde's ore reserves.
Mine Statistics 1998 1997
- --------------- -------------------------------------------- ---------------------------------------------
Material Ore Stripping Material Ore Stripping
Mined(1) Mined Ratio(2) Mined(1) Mined Ratio(2)
--------- ------ ---------- ----------- --------- ------------
(Millions of Tons) (Millions of Tons)
Operation
- ----------------------
Bagdad 62 30 1.08 77 31 1.47
Sierrita/Twin Buttes 90 58 .81 97 57 .99
Miami 92 29 2.23 102 32 2.23
Tohono - - - 4 3 .28
Cerro Verde 37 10 2.59 39 10 3.04
El Abra 43 38 .01 31 31 -
Henderson 7 7 - 8 8 -
--- --- --- ---
Total 331 172 358 172
=== === === ===
- ------
(1) Includes ore and waste mined on a wet short ton basis.
(2) Represents the ratio of waste to ore mined.
3
Ore Processed Statistics
- -----------------------------
1998 1997
------------------------------------------- --------------------------------------------------
Ore Grade Ore Grade
---------------------- -------------------------
Ore Processed Copper Molybdenum Ore Processed Copper Molybddenum
--------------- ------ ----------- ------------- ------ ------------
(Millions of Tons) (Percent) (Millions of Tons) (Percent)
Operation
- -----------
Bagdad - Mill 30 .38 .024 31 .43 .018
- Leach - - - 1 .27 -
Sierrita/Twin Buttes - Mill 41 .26 .036 41 .29 .032
- Leach 19 .28 - 16 .22 -
Miami - Leach 29 .36 - 32 .46 -
Tohono - Leach - - - 3 .56 -
Cerro Verde - Leach 10 .81 - 10 .81 -
El Abra 38 .77 - 31 .93 -
Henderson - Mill 7 - .240 8 - .262
--- ---
Total 174 173
=== ===
Production 1998 1997
---------- ----------------------------- -----------------------------
Copper Molybdenum Copper Molybdenum
------ ----------- ------ -----------
(Millions of Pounds) (Millions of Pounds)
Operation
---------
Bagdad 215 9 246 6
Sierrita/Twin Buttes 226 22 246 20
Miami 164 - 156 -
Tohono 8 - 27 -
Cerro Verde 130 - 122 -
El Abra(1) 224 - 218 -
Henderson - 30 - 37
Mineral Park - - 3 -
--- ---- ----- -----
Total 967 61 1,018 63
=== ==== ===== =====
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(1) Represents Cyprus Amax's 51 percent share of production.
Cyprus Climax Metals Copper/Molybdenum Operations
In 1998 Cyprus Amax produced 967 million pounds of copper and 61 million
pounds of molybdenum from its copper and molybdenum operations. During 1998
the Company established new annual copper production records at the El Abra
mine in Chile, the Cerro Verde leach operation in Peru, and at the Miami
copper operation in Arizona.
Bagdad
At the Bagdad mine in northwestern Arizona, Cyprus Amax mines primarily
copper sulfide ore and produces copper concentrates with significant
molybdenum and minor silver by-products. The operation consists of an open pit
mine, an approximate 85,000 ton per day sulfide ore concentrator producing
copper and molybdenum concentrates, and an oxide leaching system with a
solvent extraction-electrowinning (SX-EW) plant producing copper cathode. In
1998 Bagdad produced 22 million pounds, or 10 percent of its total copper
production, as electrowon copper cathode, and sulfide copper production was
193 million pounds. During 1998 in response to reduced copper and molybdenum
market prices, the mill was operated at a lower throughput rate. The mill
achieved a high recovery helping to overcome lower grade ore. Cyprus Amax owns
the mine property under patented mining claims and owns the tailings areas
under Arizona state patents.
4
Sierrita
Cyprus Amax operates its Sierrita properties in south central Arizona as one
consolidated operation. Cyprus Amax owns the Sierrita copper and molybdenum
mine, which consists of an open pit mine, an approximate 115,000 ton per day
sulfide ore concentrator, a molybdenum recovery plant, and two molybdenum
roasters. Sierrita's facilities are located on patented and unpatented mining
claims and fee land owned by Cyprus Amax. Copper ore mined at Sierrita is
processed into copper and molybdenum concentrates. Sierrita also uses an oxide
and low grade sulfide ore dump leaching system with an SX-EW plant to produce
copper cathode. Sierrita's electrowon copper cathode production in 1998 totaled
48 million pounds, or 21 percent of its total copper production and sulfide
copper production was 178 million pounds. In 1998 approximately 51 percent of
Cyprus Amax's molybdenum concentrate production was processed through Sierrita's
on-site roasters. The resulting molybdenum oxide and related products are
either packaged for shipment to customers worldwide or transported to other
Cyprus Amax facilities for further processing.
Miami
The Miami operations consist of an open pit mine producing acid soluble
copper ore for heap leaching operations, an SX-EW plant producing copper
cathode, a smelter, an electrolytic refinery, and a rod plant. The facilities
are located near Miami, Arizona, on a combination of fee property owned by
Cyprus Amax, patented and unpatented mining and mill site claims, and private
and state leases. Miami's 1998 production of 164 million pounds of copper
cathode from the leaching and SX-EW operations was 5 percent greater than 1997
production, setting an annual record for the second consecutive year. The
smelter processed 605,000 tons of copper concentrate in 1998, up slightly from
1997. The electrorefinery produced 380 million pounds of copper cathode, 14
percent greater than in 1997, which was an annual record. The Miami rod plant
operated above rated capacity during 1998, producing 306 million pounds of
copper rod, or 4 percent higher than 1997, and setting a production record for
the last two years.
Cerro Verde
In March 1994, Cyprus Amax acquired approximately 91.5 percent of the common
stock of Sociedad Minera Cerro Verde S.A. (Cerro Verde) at a cost of
approximately $31 million. The Peruvian government previously owned and operated
the mine. In 1996 Compania de Minas Buenaventura S.A., a long-established
Peruvian mining concern, exercised its option to acquire 10 percent of Cyprus
Amax's interest in Cerro Verde, which decreased Cyprus Amax's interest to
approximately 82 percent. Cerro Verde owns the underlying mining concessions,
which contain about 703 million tons of reserves as well as over 15,000 acres of
mining concessions. The operation, located approximately 30 kilometers southwest
of Arequipa, Peru, consists of two open pits, the Cerro Verde and the Santa
Rosa, a heap leach operation, and an SX-EW plant. In 1996 facilities were
expanded and upgraded, and the mine currently has design capacity to produce
approximately 115 million pounds of electrowon copper cathode. In 1998 Cerro
Verde produced approximately 130 million pounds of copper cathode, 13 percent
over current design capacity. In 1998 approximately 10 million tons of ore were
processed through primary, secondary, and tertiary crushers and placed on leach
pads after agglomeration. Studies to date for development of the sulfide mill at
Cerro Verde indicate development of a mill operation is viable following the
current leach project. Cyprus Climax is exploring options to justify accelerated
development of the sulfide deposit.
El Abra
In June 1994, Cyprus Amax acquired 51 percent of El Abra from Corporacion
Nacional del Cobre de Chile (Codelco) at a cost of $330 million. The remaining
49 percent was retained by Codelco, a state-owned enterprise. El Abra holds
mining concessions over more than 33,000 acres of land in the copper-rich Second
Region of northern Chile. Cyprus Amax's share of identified leach reserves is
about 493 million tons at December 31, 1998. Construction started in February
1995, and commercial operations began in December 1996. Drilling
5
since commencement of operations has added almost 20 percent more reserves to
this operation, which will increase annual production and/or extend mine life.
El Abra also contains sulfide ore, with currently identified geologic resources
of about 800 million tons, creating further opportunity for expansion. In
addition, there is exploration potential for additional deposits on the mining
concessions. In 1998 Cyprus Amax's share of El Abra's production was 224 million
pounds of copper. In October 1997, El Abra replaced its original financing by
putting in place a $1 billion project refinancing. In December 1997, El Abra met
all the requirements of its loan completion agreement under the $1 billion
project refinancing, releasing Cyprus Amax from the completion guarantee
obligation. The refinancing included $200 million of a Cyprus Amax guarantee
that will be reduced proportionally over the term of the loan, and at December
31, 1998, $179 million was guaranteed.
Henderson
Cyprus Amax owns the underground Henderson mine near Empire, Colorado. The
operation consists of an underground block caving mine where molybdenite ore is
mined and transported to a conventional sulfide mill. The concentrator is
capable of operating at a rate of 32,000 tons of ore per day, producing
molybdenum disulfide concentrates containing up to 58 percent molybdenum. Both
the mine and mill are located on fee land owned by Cyprus Amax. Most of the
concentrates are shipped to the Company's Fort Madison roasting and chemicals
processing facility in Iowa where a number of different products are made for
final sale to customers. A portion of Henderson's production is sold to
customers as molybdenum disulfide. In 1998 Henderson produced 30 million pounds
of molybdenum from 7 million tons of ore. Henderson is currently constructing
the Henderson 2000 project, which will replace the existing 20-year-old
underground and surface rail transportation system with a modern conveyor. The
project will also develop a new lower level of the mine utilizing a more
efficient high lift cave mining method. It is anticipated that the project will
be on-stream in October 1999 following a several months installation shutdown.
Climax
Cyprus Amax owns the Climax molybdenum mine near Leadville, Colorado.
Historically, the operation consisted of both an underground and open pit mine
and an 18,000 ton per day concentrator. The underground mine has been inactive
while the open pit mine and concentrator are on standby. The property, owned in
fee by Cyprus Amax, occupies more than 14,000 acres.
Other Operations
Cyprus Amax's other copper operations include the Tohono operation in south
central Arizona, which consists of a test open pit, heap leach pads, and a SX-EW
plant producing copper cathode. The facility is located on reservation lands
leased from the Tohono O'Odham Nation. Mining of ore ceased in July 1997, but
production of copper continued from existing leach pads until February 1999 when
the facility was placed on a care and maintenance status. Various alternatives
for large scale copper production through open pit mining and heap leach
technology will be reevaluated when copper prices recover. In 1998 Tohono
produced about 8 million pounds of copper. In September 1997, Cyprus Amax sold
the Mineral Park mine to Equatorial Mining, N.L., an Australian firm.
Production from the mine for the period owned in 1997 was 3 million pounds.
Cyprus Amax also owns a molybdenum resource near Tonopah, Nevada. The resource
is located on fee land owned by Cyprus Amax and on unpatented federal mining
claims and mill sites. Cyprus Amax also sold the copper ore body at Tonopah to
Equatorial Mining, N.L. in September 1997. Cyprus Amax owns and operates a rod
plant located in Chicago, Illinois. This facility is located on fee land owned
by Cyprus Amax and in 1998 produced 380 million pounds of high quality
continuous cast copper rod, setting a new annual production record.
Cyprus Amax leases office space in Tempe, Arizona, for copper and molybdenum
administration and sales and leases space for small sales offices in Pittsburgh,
Pennsylvania; Dusseldorf, Germany; London, England; and Tokyo, Japan.
6
Conversion Facilities
Cyprus Amax processes molybdenum concentrates at its conversion plants in the
United States and Europe into such products as technical grade molybdic oxide,
ferro molybdenum, pure molybdic oxide, ammonium molybdates, and molysulfide
powder. The Company operates molybdenum roasters at the Sierrita, Arizona; Fort
Madison, Iowa; and Rotterdam, The Netherlands, plants. The molybdenum roasting
facilities at Sierrita and Fort Madison currently are operating at levels
sufficient to support customer requirements. A conversion plant is located in
Rotterdam, The Netherlands. The facility consists of one molybdenum roaster and
a small chemical conversion plant. The plant is operated primarily as a tolling
facility.
The Fort Madison Conversion Plant is located in Fort Madison, Iowa. The
facilities consist of two molybdenum roasters, a sulfuric acid plant, a
metallurgical (technical oxide) packaging facility, and a chemical conversion
plant, which includes a wet chemicals plant and sublimation equipment. In the
chemical plant, technical grade oxide is further refined into various high
purity molybdenum chemicals for a wide range of uses by chemical and catalyst
manufacturers. Fort Madison produces ammonium dimolybdate, pure molybdic oxide,
ammonium heptamolybdate, ammonium octamolybdate, sodium molybdate, sublimed pure
oxide, and molybdenum disulfide. The Company produces ferro molybdenum and
molybdenum disulfide at its conversion plant located in Stowmarket, United
Kingdom, for both European and worldwide customers. The plant is operated as
both an internal and external customer tolling facility.
Equity Interests
Metals Recovery. Cyprus Amax has a 50 percent partnership interest with an
---------------
affiliate of Shell Oil Company in a spent catalyst recycling operation located
in Braithwaite, Louisiana. Recoverable products include vanadium, molybdenum,
alumina trihydrate, and nickel-cobalt. In 1998 Cyprus Amax reached an agreement
with the Shell Oil affiliate to shut down the operation in late 1999 and
dissolve the partnership.
Copper Processing
In 1998 Cyprus Amax processed 605,000 tons of Cyprus Amax domestic copper
concentrates at its own facilities, or 93 percent of its 1998 copper concentrate
production. The balance of Cyprus Amax's 1998 copper concentrate production was
treated under arrangements with third parties or sold as copper concentrates.
Copper/Molybdenum Marketing Arrangements
Cyprus Amax has the capacity to produce about 700 million pounds per year of
continuous cast copper rod at its Miami, Arizona, and Chicago, Illinois, mills.
This capability gives Cyprus Amax a value-added copper product and access to a
broader customer base. Approximately 30 percent of Cyprus Amax's total copper
sales were for non-United States markets. Substantially all of Cyprus Amax's
copper metal production is committed under sales agreements with metals
fabricators at prices that fluctuate with commodity exchange quotations. From
time-to-time Cyprus Amax enters into copper price protection programs. As of
February 28, 1999, Cyprus Amax had no copper price protection programs in place
for 1999 or future years.
Of Cyprus Amax's 966 million pounds of produced copper sales in 1998, 66
million pounds were sold as concentrate, 384 million pounds as cathode, and 516
million pounds as rod. Comparable figures for 1997 were 1,030 million pounds of
produced copper sold, of which 124 million pounds were sold as concentrate, 378
million pounds as cathode, and 528 million pounds as rod.
Molybdenum oxide is used primarily in the steel industry for corrosion
resistance, strengthening, and heat resistance. Molybdenum chemicals are used
in a number of diverse applications including: as catalysts for petroleum
refining; as a feedstock for pure molybdenum metal used in electronics; and in
lubricants. A
7
substantial portion of Cyprus Amax's expected 1999 molybdenum
production is committed for sale throughout the world pursuant to annual
agreements.
8
COAL SEGMENT
Through its subsidiaries, Cyprus Amax mines, cleans, markets, and sells coal
to electric utilities and industrial users. The following table shows capacity,
quality characteristics, and reserves for Cyprus Amax's domestic coal operations
for 1998. Seventy-two percent of year-end 1998 developed domestic coal reserves
mined with existing facilities satisfy the 1.2 pound Clean Air Act Amendments
standard effective in 2000.
Annual
Coal Capacity Average Average Average
Operating (Millions Btu Contained Recovery
Unit Type of Tons) per Pound Sulfer % %
- -------------- ----------- --------- ------------- ----------- --------
Pennsylvania underground 12 13,000-13,200 1.2-3.0 70-90
Midwest underground 1-2 11,000-11,200 1.45-1.60 80-90
Wyoming surface 42 8,270-8,515 0.3-0.4 100
Colorado underground 11 10,600-11,250 0.4-0.6 100
Utah underground 5 11,400-12,400 0.4-0.6 90-100
Year-End 1998 Reserves
(Millions of Tons)
- ---------------------------------------------------
Mineable Total
with Require Proved
Existing New and Probable
Facilities Facilities Reserves
- ------------ ------------- ---------------
423 357 780
35 - 35
945 - 945
151 - 151
105 - 105
----- ----- -----
1,659 357 2,016
===== ===== =====
Cyprus Amax's 50 percent interest in the Springvale mine in Australia
represents annual capacity of 2 million tons with a reserve base of 41 million
tons. Cyprus Amax's equity share of Oakbridge Limited reserves at December 31,
1998, were 140 million tons.
In 1998 Cyprus Amax produced 72 million tons and sold 73 million tons of
coal. In addition, Cyprus Amax's share (48 percent) of Oakbridge Limited
represented 5 million tons of production and 6 million tons of shipments.
Production from Cyprus Amax's coal operations is shown in the table below:
Coal Production
---------------------------
Operating Unit 1998 1997
-------------- ------- -------
(Million of Tons)
Pennsylvania 12 11
West Virginia 2 7
Kentucky 2 7
Midwest 2 4
Wyoming 41 41
Colorado 10 10
Utah 2 2
---- ----
Total Domestic 71 82
---- ----
Springvale 1 1
Oakbridge (Equity share) 5 5
---- ----
Total Australian 6 6
---- ----
Total 77 88
==== ====
Additionally, the average sales prices for 1998 and 1997 are shown in the table
below:
Average Sales Price
-------------------------------------------------------------------
Contract Spot
---------------------------- ----------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(US$/Ton) (US$/Ton)
Total Domestic 11.54 13.71 18.75 17.59
Total Australian 19.80 24.28 16.26 20.36
9
Coal Operations
On June 29, 1998, Cyprus Amax sold 11 of its Appalachian and Midwest coal
properties to Coal Ventures, Inc. (AEI) of Ashland, Kentucky. This sale included
the West Virginia, Kentucky, Tennessee, and the majority of the Midwest
operations.
Pennsylvania
The Emerald and Cumberland mines are contiguous underground operations
located in the southwestern part of Pennsylvania. Both mines are in the
Pittsburgh coal seam and are mined utilizing the longwall mining method. The
reserves are owned by Cyprus Amax affiliates. Coal is processed through
preparation plants and is transported by rail and river barge to utilities in
the Northeast and Midwest. The hourly workforce at both mines is represented by
the United Mine Workers of America (UMWA), and the current contract expires in
April 2003. Several pieces of major mining equipment, including the Cumberland
longwall, are leased. The remainder of the mining equipment is owned. Cyprus
Amax also controls significant undeveloped contiguous reserves in the
Pittsburgh, Freeport, and Sewickley seams.
West Virginia
The Kanawha River operations, located approximately 25 miles east of
Charleston, West Virginia, consisted of the Stockton and Cannelton 150
underground mines and the Dunn and Armstrong Creek surface mines. The
underground mines utilized continuous miners; the surface mines employed trucks,
electric shovels, hydraulic excavators, endloaders, and a dragline at one of the
properties. Both raw and processed coal of various qualities were marketed to
electric utilities and industrial customers; transportation was primarily by
barge. The Maple Meadow underground mine in Raleigh County, West Virginia, was
closed in November 1997 due to depletion of economic reserves. The Maple Meadow
preparation plant was sold in July 1998. The West Virginia operations also
included a small preparation plant in McDowell County. The hourly workforce at
all operations was represented by the UMWA. Mining was conducted on owned
property and under private leases. Mining equipment was both owned and leased.
The Kanawha River operations and the McDowell County preparation plant were sold
to AEI in June 1998.
Kentucky
Cyprus Mountain Coals operated the Star Fire surface mine located in eastern
Kentucky. Star Fire was a mountaintop removal and contour stripping operation
using an Addcar highwall miner, dragline, shovel, and trucks to extract five
seams of coal. Mining operations were conducted on fee coal properties and
private coal leases with both owned and leased equipment. A preparation plant
was used to wash a portion of the production. The hourly workforce was
represented by the UMWA. Cyprus Cumberland Coal owned two underground mines and
preparation plants (Pine Mountain and Straight Creek) and a surface mine
(Straight Creek). All three mines were operated by independent contract miners.
Transportation from the Kentucky operations was by rail. These mines were sold
to AEI in June 1998.
Midwest
Midwest operation consists of an underground mine in southern Illinois. The
Wabash underground mine is located in Wabash County, Illinois. Continuous
miners access the Illinois #5 seam, and processed coal is shipped by rail to
utility customers. In February 1997, Cyprus Amax assigned the Wabash coal
supply contract to another coal company for an undisclosed amount of cash plus
future payments. The mine was downsized in April 1997 and continues in
operation at a reduced production level. Following a June 1996 agreement to
restructure its long-term coal supply agreement for a cash payment, the Delta
surface mine in southern Illinois was closed and is presently undergoing
reclamation. The Ayrshire mine (located in Warrick County, Indiana) is largely
complete in reclaiming areas that were formerly surface mined. Hourly employees
at the Indiana and Illinois mines are represented by the UMWA, and the current
contract expires in April 2003. Throughout the
10
Midwest, surface and mineral rights are controlled through fee ownership and
private leases. Mining equipment is predominantly owned, although a portion is
leased.
Prior to the sale to AEI in June 1998, Cyprus Amax owned the Chinook,
Sycamore, and Skyline surface mines. Chinook was a dragline operation in west
central Indiana that supplied washed coal by rail, primarily to a nearby
utility, under a long-term contract. Sycamore was a shovel-truck operation in
Knox County, Indiana from which coal was trucked to utility and industrial
accounts. Skyline was a dragline operation in Sequatchie County, Tennessee from
which coal was supplied to utility and industrial customers, primarily by truck.
Hourly employees at Chinook and Sycamore were represented by the UMWA.
Colorado
Cyprus Amax affiliates operate two underground mines in the Colorado
operating unit: Twentymile and Shoshone. A third mine, Empire, has been idle
since December 1995. Mining is conducted on a combination of private, state,
and federal coal leases. All operations use the longwall mining method. The
coal is shipped on a predominantly raw basis to utility and industrial plants in
the West, Midwest, and Southeast. The Twentymile and Empire mines are located
in northwestern Colorado. The Shoshone mine is located in southern Wyoming.
Shoshone is projected to deplete its reserves in mid-2000. A portion of the
longwall supports at Shoshone and several items of mobile mining equipment at
Twentymile are leased. The remaining equipment is owned.
Wyoming
In the Powder River Basin, Amax Coal West operates two of the nation's larger
surface mines -- the Belle Ayr and Eagle Butte mines, which are located near
Gillette, Wyoming. The open pit method of mining is used at both mines with
shovels and large haul trucks used to remove both overburden and coal. Coal is
crushed prior to shipment. Unit trains move coal to utilities in most regions
of the country with the majority sold under contracts with an initial term of at
least one year. Most mining equipment is owned. Surface rights are held
through fee ownership while reserves are primarily controlled through federal
and state leases.
Utah
The Utah operating unit, which is incorporated as Cyprus Plateau Mining
Corporation, consists of the Willow Creek and Star Point underground mines both
located near Price, Utah. Star Point completed longwall mining in the third
quarter of 1997 and continues to operate as needed using continuous miners.
Star Point owns its production equipment, including a preparation plant, but
leases coal reserves, mainly from the federal government.
Longwall start-up at the newly constructed Willow Creek mine commenced in
mid-July 1998, with commercial production achieved on October 1, 1998. On
November 25, 1998, an underground mine fire occurred at Willow Creek. There
were no injuries, and all employees were safely evacuated and the mine was
sealed in a remarkably short period of time. There was minimal damage to the
mine and longwall, and continuous miner production is projected to restart in
late March 1999. The majority of the Willow Creek workforce has been
temporarily assigned to the nearby Star Point mine where production has been
expanded to partially mitigate the absence of production from Willow Creek. The
losses that have and are being incurred are expected to be partially offset by
insurance recoveries expected to be realized in 1999 and 2000.
Production from both mines, consisting of raw, washed, and blended products,
is transported by rail to utility customers, primarily in the West, and to West
Coast ports for export to Pacific Rim utility markets, primarily in Japan.
11
Springvale
Cyprus Amax, through its Cyprus Australia Coal subsidiary, owns 50 percent of
the Springvale underground mine located near Lithgow, New South Wales,
Australia. The operation uses the longwall mining method. Springvale's output
is sold raw to the nearby Mount Piper generating plant of Pacific Power under a
long-term coal supply contract and spot orders. The Springvale workforce is
represented by the Construction, Forestry, Mining Employees Union (CFMEU) under
a labor agreement that expires in December 1999.
Oakbridge
Cyprus Amax's wholly-owned subsidiary, Cyprus Australia Coal of Sydney,
Australia, owns a 48 percent interest in, and is the operator of Oakbridge
Limited of Australia. Cyprus Amax's ownership interest increased from 41 percent
to 48 percent in January 1998 through the purchase of the shareholdings of one
of Oakbridge's other four owners. Oakbridge is a major independent coal producer
in New South Wales with annual production of approximately 9 to 10 million tons.
The number of operating mines has been reduced from six to three due to selling
two mines and idling a third mine resulting from weak coal export selling
prices, uncompetitive operating costs, and problematic mining conditions. Over
75 percent of Oakbridge's production is from the two mines and coal preparation
plant comprising the Bulga complex, which is located in the Hunter Valley. The
third remaining mine is Baal Bone located in the western coal fields.
Oakbridge's workforce is represented by CFMEU under labor agreements unique to
each mine that expire between October 1999 and January 2000. Proved and probable
reserves total 291 million tons, of which Cyprus Amax's equity share is 140
million tons at December 31, 1998.
Almost all of Oakbridge's production is exported to the Pacific Rim. Sales
generally are made through agents under long-term "evergreen" contracts, which
provide for annual price negotiations. The sales mix is approximately 75
percent steam coal and 25 percent metallurgical product.
North Goonyella
In December 1997, Cyprus Australia Coal was awarded a four year contract to
manage the operation of the North Goonyella mine located in Queensland,
Australia. North Goonyella is owned by affiliates of Sumitomo Corporation and
produces a hard coking coal by longwall underground mining methods. During the
term of the contract, Cyprus Australia Coal has the option to purchase an equity
interest in the mine. Cyprus Australia Coal has entered into an agreement with
the mine's owners to waive its equity purchase option, and cease its management
role effective March 17, 1999.
Coal Marketing Arrangements
Approximately 92 percent of Cyprus Amax's coal production is steam coal sold
to domestic electric utilities. Over 90 percent of Cyprus Amax's 1998 coal sales
were made under contracts with an initial duration of one year or longer (term
contracts). These contracts are priced using a combination of base price plus
cost index escalation and/or market adjustments. While such contracts generally
are more advantageous than sales on the spot market, they can be subject to
periodic renegotiation of price and quantity. Most contracts also are subject
to partial or complete suspension by the customer or producer during certain
force majeure events, such as damage to the customer's plant or work stoppages.
In the event of successful enforceability challenges, price/quantity
renegotiations, or the occurrence of force majeure events, and upon the
expiration of term contracts in accordance with their terms, Cyprus Amax would
be required to seek alternative purchasers for the coal through spot market
sales or replacement contracts. Currently, the applicable spot price for a
portion of the coal currently subject to such contracts is below the contract
price.
At December 31, 1998, Cyprus Amax had term contracts covering an aggregate of
approximately 405 million tons, including approximately 59 million tons to be
delivered in 1999. About 9 percent of contracted coal is under agreements that
expire before 2002; the remainder is committed under contracts that expire
between
12
2002 and 2020. To maintain current average margins as contracts expire,
Cyprus Amax will need to sign new contracts, extend existing contracts, shift
volume to operations with advantageous production costs, and reduce mining costs
at mines supplying above market price contracts. In 1998 revenues from five
coal supply contracts accounted for approximately 22 percent of total coal
revenues, with the largest individual contract contributing 7 percent of coal
revenues.
Eastern Markets. Shipments from Cyprus Amax's Pennsylvania mines increased
----------------
by seven percent in 1998 as highly competitive, high Btu coals from northern
Appalachia supplied a larger share of electric generation in the Midwest and
Northeast. Due to their quality characteristics, location, and cost
competitiveness, Cyprus Amax's Pennsylvania operations are well positioned to
increase sales to domestic utilities and export customers. Demand is expected to
increase with electric power generation, but may be affected by the sulfur
dioxide and nitrogen oxide emission requirements of the Clean Air Act
Amendments of 1990 (see "Coal - Clean Air Act Amendments of 1990").
Midwest Markets. In recent years, Cyprus Amax has significantly reduced its
----------------
dependence on sales of high sulfur Illinois Basin coals. Shipments from the
Wabash mine, Cyprus Amax's only operating Midwest mine, decreased to less than
1.4 million tons in 1998. Overall demand for Illinois Basin coal is expected to
continue to decline as a result of the Clean Air Act Amendments and depletion of
low cost reserves. Electric generation in the Midwest is being fueled to a
greater extent by lower cost, high Btu eastern coals and low sulfur western
coals.
Western Markets. Shipments from Cyprus Amax's Wyoming, Colorado, and Utah
----------------
mines increased by three percent in 1998 in response to continued strong
domestic and export demand for these low sulfur coals. The Powder River Basin
(PRB), accounting for over half of Cyprus Amax's production, is the nation's
largest and fastest growing coal producing region. Demand for PRB and other
western coals is expected to accelerate in 1999 and 2000 as electric generators
comply with Phase II of the Clean Air Act Amendments. Additionally, utilities
are relying on high Btu Colorado and Utah coals during peak demand periods to
increase electric output from existing generating capacity. Western railroads
have invested heavily in equipment and track expansions. Railroad performance
and cycle times improved in 1998.
Although the Powder River Basin has been historically affected by
overcapacity, three of Cyprus Amax's term supply agreements account for nearly
50 percent of 1998 production and represent a solid production base for the
Wyoming unit. These contracts expire between 2006 and 2020.
Clean Air Act Amendments of 1990. Title IV of the Clean Air Act Amendments
---------------------------------
of 1990 is intended to reduce acid precipitation by mandating reductions in
sulfur and nitrous oxides from electric generating stations. The law adopted a
goal of achieving, by the year 2000, nationwide reductions of 10 million tons of
sulfur dioxide and 2 million tons of nitrous oxides from 1980 levels. Phase I
affected 110 power plants in the Midwest, the Southeast, and the East, starting
January 1, 1995. Phase II, beginning January 1, 2000, will affect almost all
power plants in the United States. While the base emissions standard under
Phase I is 2.5 pounds of sulfur dioxide for every million Btus of fuel burned
and is reduced to 1.2 pounds per million Btus under Phase II, the actual sulfur
content of coal required by utilities may vary widely due to various options
available to utilities to comply with the Clean Air Act Amendments. These
include installing emissions controls (scrubbers) on existing facilities,
switching to alternative fuels, closing facilities, and/or buying and selling
emissions allowances.
The compliance strategies that utilities will follow cannot be predicted with
certainty due to the multiple options available, the extended compliance time
frames, and the unique characteristics of each utility system. Cyprus Amax
believes, however, that its overall business and financial condition will not be
affected materially by the Clean Air Act Amendments because of its diverse
portfolio of mines and products, shipments to plants with scrubbers in place,
and strategic steps taken over the last several years in anticipation of Phase
II of the Clean Air Act Amendments. The Amendments are expected to increase the
demand for and value of Cyprus Amax's low-sulfur reserves in the Powder River
Basin, Colorado, and Utah, since many utilities are expected to comply with the
tighter emissions standards by switching to lower sulfur coal. Approximately 40
percent of
13
Cyprus Amax's higher sulfur coals, produced in Pennsylvania and
Illinois, will be shipped in 1999 and 2000 to plants currently equipped with
scrubbers. Additional scrubber installations have been announced by electric
generators and are anticipated in the Midwest and Northeast to comply with Phase
II.
The Federal Environmental Protection Agency announced in 1998 a proposal to
require electric generators in 22 eastern states to reduce nitrogen oxide
emissions by 85 percent during the annual five month ozone season, starting May
2003. The impact of this proposal on the coal industry and Cyprus Amax cannot
be predicted with certainty as utilities may comply through investments in
control technologies, switching to alternative fuels, reducing output from some
facilities, or purchasing emission allowances. To date, eight states have
challenged the EPA proposal by filing suit in federal court in the District of
Columbia.
LITHIUM SEGMENT
Lithium Operations
Cyprus Amax was a major producer of lithium with production facilities in
Nevada, North Carolina, Tennessee, and Chile. Lithium and lithium compounds
were used in various applications such as the smelting of aluminum and the
manufacture of ceramics, glass, greases, high performance batteries, synthetic
rubber, plastics, and pharmaceuticals. On October 13, 1998, Cyprus Amax sold
its Lithium segment to an affiliate of Chemetall GmbH, a specialty chemicals
unit of Metallgesellshaft AG.
Cyprus Amax owned 100 percent of a Chilean limited partnership that held a
brine deposit and owned a lithium carbonate processing facility in northern
Chile. Lithium brine was recovered from the brine deposit and concentrated in
solar evaporation ponds in the Salar de Atacama. The concentrated brine was
then converted into lithium carbonate at the La Negra processing facility
outside of Antofagasta. During 1997 Cyprus Amax constructed a lithium chloride
plant, which began production in the first half of 1998. Production during the
period owned in 1998 was 21.4 million pounds of lithium carbonate.
At the Silver Peak facility in Nevada, Cyprus Amax also produced lithium
carbonate from salt brines. The solar pond system and related plant for
chemical conversion of the concentrated brine into lithium carbonate were
situated on approximately 17,000 acres of patented and unpatented placer mining
claims. During the period owned in 1998, Silver Peak operated at its long-term
solar pond production capacity, which produced 10.5 million pounds of lithium
carbonate. Additionally, Silver Peak produced 4.6 million pounds of lithium
hydroxide during the period owned in 1998.
Cyprus Amax operated a butyllithium production facility in New Johnsonville,
Tennessee, located on 98 acres of fee land owned by Cyprus Amax. In addition to
butyllithium, this plant produced other organo-metallic lithium specialty
chemicals.
Cyprus Amax also owned manufacturing facilities for various lithium chemicals
and lithium metal casting located on 926 acres of fee and leased land in Kings
Mountain, North Carolina. Lithium administration and sales, research and
development, and certain lithium metal, alloy, and pharmaceutical production
activities were also conducted at the Kings Mountain production facilities.
Lithium Marketing Arrangements
Cyprus Amax sold lithium carbonate, lithium hydroxide, butyllithium, lithium
chloride, lithium bromide, and a variety of other lithium chemical, metal, and
metal alloy products to such diverse markets as aluminum smelting, ceramics,
lubricants, specialty glass, synthetic rubber, plastics, batteries, alloys, and
pharmaceuticals. The various lithium products were sold under a combination of
long- and short-term contracts.
14
EXPLORATION SEGMENT
In 1998 Cyprus Amax shifted its exploration focus to copper. It seeks a
range of opportunities from early stage generative exploration through advanced
opportunities and acquisitions. The company has active projects in the United
States, Mexico, Peru, Chile, Australia, Papua New Guinea, and Zambia and
continues to seek opportunities in other parts of the world as well.
Exploration also is conducted around its developing and producing mines to find
and delineate ore that could extend the lives of those operations. (See "All
Other Segment, Gold Operations" for discussion of Cyprus Amax's exploration
joint venture agreement with Kinross, formerly with Amax Gold.)
In regards to the Kansanshi copper project, incorporated by reference from
page 22 from "Management's Discussion", a 30 day extension was granted from
March 14, 1999 to mid-April 1999 for the decision deadline to continue on into
Phase II. Cyprus Amax will continue to work towards renegotiating the $10
million Phase II payment during this time.
ALL OTHER SEGMENT
Gold Operations
Amax Gold and its subsidiaries were engaged in the mining and processing of
gold and silver ore and in the exploration for, and acquisition and development
of, gold-bearing properties, principally in the Americas, Russia, Australia, and
Africa. On June 1, 1998, Amax Gold completed its merger with Kinross. Cyprus
Amax's 58.8 percent share of Amax Gold Common Stock was converted into Kinross
shares at a rate of 0.8 of a share of Kinross Common Stock for each share of
Amax Gold. Cyprus Amax also purchased $135 million of Kinross Common Stock for
cash and the repayment of Amax Gold debt. At the time of the merger, Cyprus
Amax owned approximately 31 percent of Kinross and received warrants to buy
approximately an additional 10 million shares of Kinross. This merger resulted
in the deconsolidation of Amax Gold, and beginning June 1, 1998, Cyprus Amax's
investment in Kinross was reported on an equity basis.
Amax Gold's operating properties consisted of a 100 percent interest in the
Fort Knox mine near Fairbanks, Alaska; a 50 percent interest in the Kubaka mine
in the Magadan Oblast situated in Far East Russia; a 50 percent interest in the
Refugio mine in Chile; a 90 percent interest in the Guanaco mine in Chile; and a
100 percent interest in the Hayden Hill mine in Lassen County, California.
Mining at Guanaco and Hayden Hill was completed during 1997, although residual
leaching continued during 1998 at both mines. The Company also owned a 50
percent interest in the Sleeper mine in Humboldt County, Nevada, and a 100
percent interest in the Wind Mountain mine in Washoe County, Nevada, which are
in reclamation. In addition, Amax Gold owned a 62.5 percent joint venture
interest in the Haile Project in Lancaster County, South Carolina.
All of the former Amax Gold's operating properties were open pit mines.
Except for mining equipment owned by contract miners at Refugio and mobile
mining equipment leased at Fort Knox, Amax Gold owned its mining and processing
equipment, which was maintained in good operating condition. Ore was processed
by milling or heap leaching. Milling is the traditional process for recovering
gold from ore. After ore is crushed, the gold and silver are concentrated and
then smelted into dore, which is shipped to refiners for further processing. The
milling process is typically used for higher recovery from oxide and sulfide
ores.
Heap leaching is a lower-cost processing method principally applied to
oxidized ores. The heap-leach recovery rate is generally lower than for
milling. In the heap leaching process, crushed and/or run-of-mine ore is loaded
onto leach pads. The ore is irrigated with a weak cyanide solution that
penetrates the ore, dissolving the gold and silver. The pregnant solution is
collected and pumped through activated carbon or a Merrill Crowe zinc
precipitation plant to remove the metals from the solution. After the gold and
silver is stripped from the carbon or processed from the zinc precipitate, it is
smelted into dore, which is shipped to refiners for further processing.
15
For the five months ended May 31, 1998, and the year ended December 31, 1997,
Amax Gold produced 336,000 ounces and 730,000 ounces, respectively, of gold and
sold 346,000 ounces and 721,000 ounces, respectively.
At December 31, 1998, Cyprus Amax had a 30 percent equity investment in
Kinross. Kinross is a Canadian gold company, which in addition to the mines
acquired in the Amax Gold merger also operates five gold mines. Four of the
mines are located in Canada and the United States and one is located in
Zimbabwe. The North American operations are the Hoyle Pond mine in Timmins,
Ontario; the Macassa mine in Kirkland Lake, Ontario; the DeLamar mine in Idaho;
and the Candelaria mine in Nevada (which is primarily a silver producer). The
Zimbabwean operations are at the Blanket mine. For the full year 1998, Kinross
produced 824,000 ounces of gold, and Cyprus Amax's equity share of Kinross'
reserves at December 31, 1998, was 2.3 million ounces of contained gold.
Gold Marketing Arrangements
Gold has two principal uses: product fabrication and bullion investment.
Fabricated gold has a wide variety of end uses, including jewelry manufacture
(the largest fabrication component), electronics, dentistry, industrial and
decorative uses, medals, medallions, and official coins. Prior to the merger,
Amax Gold sold all of its refined gold to banks and other bullion dealers, using
a variety of hedging programs, and the majority of its pre-merger 1998 sales was
to Europe.
In June 1998, Cyprus Amax established joint exploration agreements with
Kinross to explore for base and precious metals. The agreements provide Cyprus
Amax a 75 percent interest and Kinross a 25 percent interest in the base and
precious metals prospects resulting from future exploration. This agreement
covers Pastoria, Mexico, Cordillera Negra, Peru, and Eyre Peninsula, Australia.
Each party funds work in proportion to its interest, and Cyprus Amax provides
staffing and management. This agreement replaced a comparable joint exploration
agreement established in 1994 with Amax Gold that was dissolved as a result of
the merger with Kinross.
EQUITY AND OTHER
Oakbridge Limited
During 1998 Cyprus Amax's ownership interest in Oakbridge Limited was 48
percent. In January 1998, Cyprus Amax increased its ownership from 41 percent
to 48 percent through the purchase of Ban-Pu's 7 percent shareholding. Cyprus
Amax's investment in Oakbridge Limited is accounted for using the equity method.
See further discussion in "Coal Segment, Oakbridge".
In 1998 Cyprus Amax acquired approximately 31 percent in Kinross through the
Amax Gold merger with Kinross. Cyprus Amax's investment in Kinross is accounted
for using the equity method. At December 31, 1998, Cyprus Amax owned
approximately 30 percent of Kinross. See further discussion in "All Other
Segment, Gold Operations".
RISK FACTORS
The Company's business operations are subject to a number of risks and
hazards inherent in the mining industry, including but not limited to those
summarized below, which materially and adversely may affect the Company's
business, financial conditions, results of operations, cash flows, the
anticipated development of existing properties and reserves and of future
projects, production quantities and rates, overall costs and expenditures, and
expected production commencement dates. The Company is also subject to a number
of risks not specific to the mining industry, including but not limited to
general economic and financial market conditions and Year 2000 problems.
16
Metals Price Volatility
A significant portion of the Company's 1998 revenues were derived from the
sale of metals such as copper and molybdenum and, to a lesser extent, gold
through the Company's majority owned subsidiary Amax Gold, which was merged with
Kinross on June 1, 1998. Thus, the Company's business, financial condition,
results of operations, and cash flows are very sensitive to changes in the
prices of these commodities. Metals prices fluctuate widely and are affected by
numerous factors beyond the Company's control or ability to predict, including
but not limited to domestic and international economic and political conditions,
industry inventory levels and capacity, global and regional demand and
production, the availability and costs of substitute materials, speculative
activities, and inflationary expectations. While the Company historically has
used limited financial risk management techniques to reduce a portion of the
Company's exposure to the volatility of market prices, there can be no assurance
that it will continue to do so or that it will be able to do so effectively in
the future. In addition, depending upon the specific techniques employed,
market conditions and other factors, such activities could reduce the earnings
or cash flow that the Company otherwise would realize or result in losses.
Operating and Project Development Risks
The Company's business operations are subject to risks and hazards inherent
in the mining industry, including but not limited to unanticipated grade and
other geological problems, water conditions, surface or underground conditions,
metallurgical and other processing problems and mechanical equipment performance
problems, the unavailability of materials and equipment, accidents, labor force
and force majeure factors, unanticipated transportation costs and delays and
weather conditions, prices and production levels of by-products, and potential
political instabilities of foreign governments, any of which materially and
adversely can affect, among other things, the development of properties,
production quantities and rates, costs and expenditures, and production
commencement dates.
In the case of development projects, there generally is no operating history
upon which to base estimates of future operating costs and capital requirements.
The economic feasibility of any individual project is based upon, among other
things: the interpretation of geological data obtained from drill holes and
other sampling techniques; feasibility studies, which derive estimates of cash
operating costs based upon anticipated tonnage and grade of ore to be mined and
processed; the configuration of the ore body; expected recovery rates of metals
from the ore; comparable facility and equipment costs; anticipated climatic
conditions; estimates of labor productivity; and other factors. Such
development projects also are subject to the successful completion of final
feasibility studies, issuance of necessary permits, and receipt of adequate
financing. Accordingly, uncertainties related to operations are magnified in
the case of development projects.
As a result of the forgoing risks, among other things, expenditures on any
and all projects, actual production quantities and rates, and cash operating
costs materially and adversely may be affected and may differ materially from
anticipated expenditures, production quantities and rates, and costs, just as
estimated production dates may be delayed materially, in each case, especially
to the extent development projects are involved. Any such events materially and
adversely can affect the Company's business, financial condition, results of
operations, and cash flows.
17
Reliance on Coal Contracts
A substantial portion of the Company's coal is sold pursuant to long-term
coal supply contracts that are significant to the stability and profitability of
the Company's operations. During 1998 a majority of the company's revenues from
coal sales resulted from sales under contracts with an initial term of more than
one year. Some of the Company's contracts currently have prices that exceed the
price at which such coal could be sold in the spot market. The loss of certain
of its long-term contracts could have a material adverse effect on the Company's
business, financial condition, results of operations, and cash flow. Most of
the Company's coal contracts with an initial term of more than one year are
subject to price adjustment provisions that, subject to certain limits, permit
an increase or decrease periodically in the contract price. Some of the
Company's coal supply contracts also contain price re-opener provisions that
provide for the periodic upward or downward adjustment of contract prices; such
provisions can lead to disputes with customers and potential modifications or
early termination of the contract.
Competitive Conditions
All of Cyprus Amax's products are sold in highly competitive markets.
Marketing of Cyprus Amax's products is influenced by price, materials
substitution, product quality, transportation costs, general economic
conditions, imports, and competition in all markets. Cyprus Amax competed with
numerous other copper, molybdenum, coal, lithium, and gold producers.
Copper, molybdenum, and gold sales generally are characterized by cyclical
and volatile prices, little product differentiation, and strong competition.
Prices are influenced by production costs of domestic and foreign competitors,
worldwide economic conditions, world supply/demand balances, inventory levels,
the United States dollar exchange rate, and other factors. Copper and
molybdenum prices also are affected by the demand for end-use products in, for
example, the construction, transportation, and durable goods markets.
While the long-term demand for copper has been growing, it can be affected
adversely by substitution of materials such as aluminum, plastics, and optical
fibers. Copper is an internationally traded commodity, and its price is
determined on two major metals exchanges: the Commodities Exchange, Inc. in New
York City (COMEX) and the London Metal Exchange (LME). These prices broadly
reflect the worldwide balance of copper supply and demand, but also are
influenced by speculative activities. COMEX copper prices averaged 75 cents per
pound in 1998, down 29 cents per pound from 1997. Western World refined copper
consumption rose for the thirteenth consecutive year in 1998, with estimated
growth of two percent. Copper production increased at a slightly higher rate.
Copper inventories rose and prices fell sharply as the supply exceeded demand.
The supply of copper is determined largely by development and production
decisions of those entities controlling mines and reserves and availability of
secondary materials. Some major foreign producers have cost advantages
resulting from higher ore grades, lower labor rates, and less stringent
environmental requirements.
Molybdenum demand depends heavily on worldwide steel industry consumption
and, to a lesser extent, on chemical applications. World molybdenum consumption
remained at record levels in the first half of 1998 continuing the growth trend
begun in 1994. In the second half of 1998, molybdenum consumption was
negatively impacted as a result of the Asian crisis. Overall 1998 molybdenum
worldwide consumption declined an estimated four percent primarily in
metallurgical applications. The molybdenum market remained over supplied during
the second half of 1998, and production curtailments were announced in China and
at three primary mines in North America during the fourth quarter. Western
World metallurgical spot molybdenum oxide prices in 1998 averaged about $3.40
per pound against a 1997 average of about $4.30 per pound. Cyprus Climax
molybdenum realizations averaged $4.95 per pound in 1998 and $5.50 per pound in
1997, with realizations positively impacted by higher-valued molybdenum chemical
products. Cyprus Climax staged about a 3 million pound build up of molybdenum
inventories in 1998 to satisfy customer requirements during the transition from
rail to conveyor haulage associated with the Henderson 2000 project. A
substantial portion of world molybdenum production is a by-product of copper
mining, which is relatively insensitive to molybdenum price levels. Exports to
the Western World, especially from China, can also influence competitive
conditions.
18
Among factors that affect competition in Cyprus Amax's coal markets are coal
quality, the cost levels of other coal producers, the cost and availability of
transportation, government regulations including the Clean Air Act Amendments of
1990, the time and expenditures required to develop new coal mines, taxes, the
weather, and the cost of alternative fuels. Sales of coal to utilities are
affected by the demand for electricity. Coal prices are sensitive to caloric
value (Btu) and sulfur content and to a particular user's quality requirements.
Coal prices generally are less volatile than metals prices, since coal typically
is sold under term contracts at fixed prices subject to escalation, de-
escalation, and renegotiation. In line with increases in coal production, an
increasing amount of Cyprus Amax's coal is now being sold under shorter term
contracts or in spot markets.
Competition in the sale of lithium products was based on price and quality.
Prior to the sale of the Lithium business, Cyprus Amax had a number of
competitors from western countries in the lithium marketplace, as well as
competition from lithium products from China and the Commonwealth of Independent
States (C.I.S.).
Environmental Matters
The mining and mineral processing industries are subject to extensive
regulations for the protection of the environment in the United States and
foreign countries, including but not limited to regulations relating to air and
water quality, mine reclamation, remediation, solid and hazardous waste handling
and disposal, and the promotion of occupational safety. These laws often
require parties to fund remedial action or to pay damages regardless of fault.
Environmental laws also often impose liability with respect to divested or
terminated operations, even if the operations were divested or terminated many
years ago. As a result, the Company generally is required to engage in
substantial remedial and investigatory activities, including but not limited to
assessment and clean-up work. Although the Company believes that it has
adequate reserves with respect to environmental matters, there can be no
assurance that the amount of capital expenditures and other costs and expenses
which will be required to complete remedial actions and otherwise to comply with
applicable environmental laws will not exceed the amounts reflected in the
Company's reserves or will not have a material adverse effect on the Company's
business, financial condition, results of operations, or cash flows. From time-
to-time the Company is cited for noncompliance with applicable environmental
laws and regulations. However, the Company expects to be able to comply in all
material respects with existing laws and regulations.
The mining operations of the Company also are subject to inspection and
regulation by the United States and foreign governments under a variety of laws
and regulations. Current and future regulations or regulatory interpretations
do or may require significant expenditures for compliance that may increase the
Company's mine development and operating costs and may require the Company to
modify or curtail its operations. The Company cannot predict the likely impact
of future or pending legislation on its business, financial condition, results
of operations, or cash flows.
Reference is made to additional information concerning environmental matters
in "Management's Discussion, Environmental" on page 26 of the 1998 Annual Report
and Note 14 to the Consolidated Financial Statements on pages 47 and 48 of the
1998 Annual Report, which information is incorporated herein by reference and
Item 3: Legal Proceedings in this Form 10-K.
19
Reserve Levels
There are a number of uncertainties inherent in estimating quantities of
reserves, including many factors beyond the control of the Company. The reserve
data set forth herein or incorporated by reference are in large part estimates
only. No assurance can be given that the volume and grade of reserves recovered
and rates of production will not be less than anticipated. Declines in the
market price of a particular metal or in coal also may render reserves
containing relatively lower grades of mineralization, or reduced quality of
coal, uneconomic to exploit. If the price realized by the Company for a
particular commodity were to decline substantially below the price at which ore
reserves were calculated for a sustained period of time, the Company potentially
could experience reductions in reserves and asset write-downs. Under certain
such circumstances, the Company may discontinue the development of a project or
mining at one or more of its properties. Further, changes in operating and
capital costs and other factors, including but not limited to short-term
operating factors such as the need for sequential development of ore bodies and
the processing of new or different ore grades, may materially and adversely
affect reserves.
Competition for Properties; Exploration Risks
Since mines have limited lives based on proven ore reserves, the Company
continually seeks to replace and expand its reserves. Mineral exploration, at
both newly acquired properties and existing mining operations, is highly
speculative in nature, involves many risks, and frequently is nonproductive.
Once mineral deposits are discovered, it may take a number of years from initial
preparatory work until production is possible, during which time the economic
feasibility of production may change. Substantial expenditures are required to
establish ore reserves through drilling to determine metallurgical processes
required for extraction from ore and, in the case of new properties, to
construct mining and processing facilities.
The Company encounters strong competition from other mining companies in
connection with the acquisition of properties producing or capable of producing
metals and coal. As a result of this competition, some of which is with
companies with greater financial resources than the Company, the Company may be
unable to acquire attractive mining properties on terms it considers acceptable.
In addition, there are a number of uncertainties inherent in any program
relating to the location of economic ore reserves, the development of
appropriate metallurgical processes, the receipt of necessary governmental
permits, and the construction of mining and processing facilities. Accordingly,
there can be no assurance that the Company's acquisition and exploration
programs will yield new reserves to replace and expand current reserves.
Foreign Operations
Certain of the Company's reserves and facilities at December 31, 1998, are
located in foreign countries, including Chile, Peru, Australia, Canada, the
Netherlands, and the United Kingdom. Such foreign reserves and facilities may
be materially and adversely affected by exchange controls, currency
fluctuations, ownership limitations, expropriation, taxation and laws or
policies of particular countries, as well as the laws or policies of the United
States affecting foreign trade, investment, and taxation. The Company also may
be affected materially and adversely by the policies and practices of
multinational political or financial institutions.
Item 3. Legal Proceedings
Cyprus Tohono Corporation 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 involve a break in a
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.
As the Pinal Creek Group, Cyprus Miami Mining Corporation and other companies
continued remediation and assessment of ground water quality throughout 1998 in
the shallow alluvial aquifers along Pinal Creek near
20
Miami, Arizona. The removal, remediation, and assessment work is being conducted
in accordance with the requirements of the Arizona Department of Environmental
Quality's Water Quality Assurance Revolving Fund program. In addition, the
remedial and removal action is consistent with the National Contingency Plan
prepared by the Environmental Protection Agency ("EPA") as required by the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA").
The ongoing removal, remediation, and assessment program, initiated in 1989, has
resulted in continued improvement of the sub-surface water quality in the area.
In November 1997, Cyprus Miami, as a member of the Pinal Creek Group, joined
with the State of Arizona in seeking approval of the District Court for the
entry of a Consent Decree resolving all matters related to an enforcement action
contemplated by the State of Arizona with respect to the ground water matter. On
August 13, 1998, the court approved the Decree that commits Cyprus Miami and the
other Pinal Creek Group members to complete the remediation work outlined in the
remedial action plan that was submitted to the State in May 1997. Following
approval of the Consent Decree, Cyprus Miami undertook a comprehensive
reassessment of expected costs for completing the Pinal Creek removal and
remediation project. This reassessment resulted in Cyprus Miami recording an
additional $80 million accrual in the fourth quarter of 1998, bringing the Pinal
Creek remediation reserve to approximately $111 million at December 31, 1998.
Cyprus Miami has commenced contribution litigation against other parties
involved in this matter and has asserted claims against certain of its past
insurance carriers. While significant recoveries are expected, Cyprus Miami
cannot reasonably estimate the amount and, therefore, has not taken potential
recoveries into consideration in the recorded reserve.
Cyprus Amax or its subsidiaries have been advised by the EPA and several
state environmental agencies that they may be liable under CERCLA or similar
state laws and regulations for costs of responding to environmental conditions
at a number of sites that have been or are being investigated by the EPA or
states to establish whether releases of hazardous substances have occurred and,
if so, to develop and implement remedial actions. Cyprus Amax has been named as
a potentially responsible party ("PRP") or has received EPA requests for
information for several sites. For all sites, Cyprus Amax had an aggregate
reserve of approximately $160 million at December 31, 1998, for its share of the
estimated liability. Liability estimates are based on an evaluation of, among
other factors, currently available facts, existing technology, presently enacted
laws and regulations, Cyprus Amax's experience in remediation, other companies
remediation experience, Cyprus Amax's status as a PRP, and the ability of other
PRPs to pay their allocated portions. The cost range of reasonably possible
outcomes for all sites is estimated to be from $140 million to $470 million, and
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 December 31, 1998,
are not expected to have a material impact on the financial condition and
ongoing operations of the Company. Cyprus Amax believes certain insurance
policies partially cover these claims; however, some of the insurance carriers
have denied responsibility, and Cyprus Amax is litigating coverage. Further,
Cyprus Amax believes that it has other potential claims for recovery from third
parties, including the U.S. Government and other PRPs, as well as liability
offsets through lower cost remedial solutions. However, neither insurance
recoveries nor other claims or offsets have been recognized in the financial
statements unless such offsets are considered probable of realization.
At December 31, 1998, Cyprus Amax's accruals for deferred closure, shutdown
of closed operations, and reclamation totaled approximately $237 million.
Reclamation is an ongoing activity and a cost associated with Cyprus Amax's
mining operations. Accruals for closure and final reclamation liabilities are
established on a life-of-mine basis. The Copper/Molybdenum reclamation reserve
component is $127 million and includes costs for site stabilization, clean-up,
long-term monitoring, and water treatment costs as expected to be required
largely by state laws and regulations as well as by sound environmental
practice. The Coal reclamation reserve component of $110 million is largely a
result of reclamation obligations incurred for replacing soils and revegetation
of mined areas as required by provisions and permits pursuant to the Surface
Mining Control and Reclamation Act. Total reclamation costs for Cyprus Amax at
the end of current mine lives is estimated at about $443 million.
Cyprus Amax believes that it has adequate reserves such that none of these
matters or contingencies is expected to have a material adverse effect on its
business or financial condition, results, and cash flows and is
21
unaware of any additional environmental matters or contingencies that, based on
information currently known to Cyprus Amax, would have a material effect upon
the Company's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1998.
Item 4A. Executive Officers of the Registrant
Set forth below are the names, ages, and titles of the executive officers of
Cyprus Amax as of March 19, 1999:
Name Age Office
- ------------------------- --- ----------------------------------------------------
Milton H. Ward 66 Chairman, President and Chief Executive Officer
Jeffrey G. Clevenger 49 Executive Vice President
Garold R. Spindler 51 Executive Vice President
Gerald J. Malys 54 Senior Vice President and Chief Financial Officer
David H. Watkins 54 Senior Vice President, Exploration
Philip C. Wolf 51 Senior Vice President, General Counsel and Secretary
Robin J. Hickson 55 Vice President, Engineering and Development
Farokh S. Hakimi 50 Vice President and Treasurer
John Taraba 50 Vice President and Controller
Mr. Ward was elected Chairman of the Board, President and Chief Executive
Officer on May 14, 1992, and served as Co-Chairman for the period November 15,
1993, through November 15, 1995. Mr. Clevenger was elected to his current
position on January 1, 1998, and Mr. Malys was elected Senior Vice President
effective October 31, 1988, and Chief Financial Officer effective August 1,
1989. Mr. Spindler was elected to his current office on January 1, 1998, and
Mr. Watkins assumed his current office on February 1, 1994. Mr. Wolf was
elected to his current office on November 13, 1993, and Mr. Hickson was
appointed to his current office on November 20, 1994. Mr. Hakimi assumed his
current office on January 1, 1998, and Mr. Taraba was elected to his current
office on October 31, 1988.
Messrs. Ward, Clevenger, Malys, Wolf, Hakimi, and Taraba have been engaged
full-time in the business of Cyprus Amax and its subsidiaries for more than the
past five years. Prior to joining Cyprus Amax in May 1992, Mr. Ward had been
President and Chief Operating Officer of Freeport-McMoRan Inc. and Chairman and
Chief Executive Officer of Freeport-McMoRan Copper & Gold Inc. since 1984. Mr.
Clevenger held various management positions at Phelps Dodge Corporation since
1979 until he joined Cyprus Amax in 1992. From 1993 until 1998, Mr. Clevenger
held the position of Senior Vice President, Copper. Prior to joining Cyprus Amax
Coal, Mr. Spindler had been associated with Pittston Coal Company, serving as
President and Chief Executive Officer since 1990 until he joined Cyprus Amax
Coal and held the position of Senior Vice President, Coal from 1995 until 1998,
when he assumed his current position. Prior to joining Cyprus Amax in 1994, Mr.
Watkins served as Vice President and Director at Metall Mining Corporation from
1991 until 1993. Mr. Wolf has served in his current position for more than five
years. Mr. Hickson joined Cyprus Amax in 1993 as Senior Vice President of
Cyprus Climax Metals Company. Before joining Cyprus Amax, Mr. Hickson was
President of Freeport-McMoRan's Research and Engineering Company. Mr. Hakimi
held various positions in Cyprus Amax's Treasury group and Cyprus Amax Coal's
Marketing and Planning and Economics group until 1997, when he assumed his
current position. Mr. Taraba held various positions in Cyprus Amax's financial
departments from 1982 until 1988, when he assumed his current position.
Each executive officer holds office subject to removal at any time by the
Board of Directors of Cyprus Amax.
22
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
Information required by this item is incorporated by reference from "Stock
Market Information" on page 56 in the 1998 Annual Report.
The information required by Items 6 through 8 is incorporated by reference from
the pages of the Company's 1998 Annual Report set forth below.
Applicable Pages
Form 10-K Item Number in the 1998 Annual Report
---------------------- -------------------------
Item 6. Selected Financial Data........................... 18-19
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition................ 20-30
Item 8. Financial Statements and Supplementary Data....... 31-55
a. Quarterly Results............................. 54
b. Mineral Reserves and Selected Operating
Statistics.................................... 55
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
23
PART III
Item 10. Directors and Executive Officers of the Registrant
The information about the Directors of the Company required by this item is
located in Cyprus Amax's Proxy Statement for the 1999 Annual Meeting to be filed
within 120 days after the end of the fiscal year. Information about the
Executive Officers of the Company required by this item appears in Part I of
this Annual Report on Form 10-K.*
Item 11. Executive Compensation
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1999 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1999 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1999 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
- ------------
* References in this Annual Report on Form 10-K to material contained in Cyprus
Amax's Proxy Statement for the 1999 Annual Meeting to be filed within 120
days after the fiscal year incorporate such material into this Report by
reference.
24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following financial statements are filed as part of this Report:
1. Financial Statements included in the 1998 Annual Report and
incorporated by reference:
Pages in 1998
Annual Report
-------------
Report of Independent Accountants..................................... 31
Consolidated Statement of Operations for each of the three years in
the period ended December 31, 1998................................... 32
Consolidated Balance Sheet at December 31, 1998 and 1997.............. 33
Consolidated Statement of Cash Flows for each of the three years
in the period ended December 31, 1998................................ 34
Consolidated Statement of Shareholders' Equity for each of the three
years in the period ended December 31, 1998.......................... 35
Notes to Consolidated Financial Statements............................ 36-53
2. Financial Statement Schedule:
Pages in This
Form 10-K
-------------
Report of Independent Accountants on Financial Statement
Schedule............................................................. 32
For the three years in the period ended December 31, 1998:
Schedule II - Valuation and Qualifying Accounts and
Reserves............................................................. 33
Schedules not included in this Form 10-K have been omitted because they are
not applicable or the required information is shown in the financial statements
in the 1998 Annual Report or notes thereto. Separate financial statements of 50
percent or less owned companies accounted for by the equity method have been
omitted because the registrant's proportionate share of the income from
continuing operations before income taxes is less than 20 percent of the
respective consolidated amount, and the investment in and advances to each
company is less than 20 percent of consolidated total assets.
25
3. The following exhibits are filed with this Annual Report on Form 10-K.
The exhibit numbers correspond to the numbers assigned in Item 601 of
Regulation S-K.
Exhibit
Number Document
------ --------
2 Agreement and Plan of Reorganization and Merger between Cyprus Minerals
Company and AMAX Inc., incorporated by reference from Exhibit 1 to the
Report on Form 8-K dated May 27, 1993.
3 (a) Restated Certificate of Incorporation, incorporated by reference
from Exhibit 3(a) to the Annual Report on Form 10-K for the period
ended December 31, 1997.
(b) By-Laws, as amended through the date of signing of this Annual
Report on Form 10-K, incorporated by reference from Exhibit 3(b) to
the Annual Report on Form 10-K for the period ended December 31,
1991, and from Exhibit 3.2 to the Report on Form 8-K dated November
30, 1993.
4 (a) Rights Agreement between Cyprus Amax Minerals Company and the Bank
of New York, dated as of February 28, 1999, which includes the form
of Right Certificate as Exhibit A and the Summary of Rights to
Purchase Shares as Exhibit B, incorporated by reference to Form 8-A
filed February 24, 1999.
(b) Form of Indenture between Cyprus Minerals Company and United States
Trust Company, as Trustee (including form of the Notes), relating
to the 10 1/8% Notes due 2002, incorporated by reference from
Exhibit 4(a) to the Registration Statement on Form S-3, File No.
33-33869.
(c) Form of Indenture between Cyprus Minerals Company and Ameritrust
Texas National Association, as Trustee (including form of the
Debentures), relating to the 8 3/8% Debentures due 2023 and 6 5/8%
Notes due 2005, incorporated by reference from Exhibit 4.1 to the
Report on Form 8-K dated January 28, 1993, and Exhibit 4.2 to the
Report on Form 8-K dated October 21, 1993.
(d) Form of Indenture between Cyprus Amax Minerals Company and the
First Bank of Chicago, as Trustee (including form of the Notes),
relating to the 7 3/8% Notes due 2007 incorporated by reference
from the Registration Statement on Form S-3, File 33-54097.
(e) Certificate of Designations of Series A Junior Participating
Preferred Stock, incorporated by reference from Exhibit 3(a) to the
Annual Report on Form 10-K for the period ended December 31, 1988,
and from Exhibit 7 to the Report on Form 8-A/A dated June 29, 1993.
26
Exhibit
Number Document
------ --------
(f) Certain instruments with respect to long-term debt of the
Registrant have not been filed as Exhibits to this Report since the
total amount of securities authorized under any such instrument
does not exceed 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis. The Registrant agrees to
furnish a copy of each such instrument to the Securities and
Exchange Commission upon request.
10 Material Contracts (except for director and executive contracts and
compensatory plans and arrangements, includes only those contracts
filed with this Annual Report on Form 10-K and does not include other
contracts which previously have been filed by the registrant and which
either remain to be performed in whole or in part at or after the
filing of this Annual Report on Form 10-K, or were entered into not
more than two years before the date of this Annual Report on Form
10-K).
(a) Stock Purchase and Sale Agreement, dated May 28, 1998, between
Cyprus Amax Coal Company and AEI Holding Company, Inc.
(b) Management Incentive Program of Cyprus Amax Minerals Company, as
amended through the date of signing of this Annual Report on Form
10-K, incorporated by reference to Exhibit 10(b) to the Annual
Report on Form 10-K for the period ended December 31, 1997, and
Exhibit 10(b) to the Annual Report on Form 10-K for the period
ended December 31, 1998.
(c) Stock Plan for Non-Employee Directors of Cyprus Amax Minerals
Company, as amended and restated through the date of signing of
this Annual Report on Form 10-K, incorporated by reference to
Exhibit 28 to the Report on Form 10-Q for the quarter ended
September 30, 1992, the additional amendments incorporated by
reference from Exhibit 10(a) to the Annual Report on Form 10-K for
the period ended December 31, 1996, and Exhibit 10(c) to the Annual
Report on Form 10-K for the period ended December 31, 1998.
(d) Contracts regarding employment between Cyprus Minerals Company (now
Cyprus Amax Minerals Company) and certain executive officers,
incorporated by reference from Exhibit 10(i) to the Annual Report
on Form 10-K for the period ended December 31, 1993, Exhibit 10(c)
to the Annual Report on Form 10-K for the period ended December 31,
1995, and Exhibit 10(d) to the Annual Report on Form 10-K for the
period ended December 31, 1998.
(e) 1993 Key Executive Long-term Incentive Plan between Cyprus Amax
Minerals Company and certain executive officers, as amended through
the date of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 10(d) to the Annual Report
on Form 10-K for the period ended December 31, 1995, and Exhibit
10(e) to the Annual Report on From 10-K for the period ended
December 31, 1998.
(f) Deferred Compensation Plan for Non-Employee Directors of Cyprus
Amax Minerals Company, as amended through the date of signing of
27
Exhibit
Number Document
------ --------
this Annual Report on Form 10-K, incorporated by reference from
Exhibit 10(c) to the Annual Report on Form 10-K for the period
ended December 31, 1994, and Exhibit 10(f) to the Annual Report on
Form 10-K for the period ended December 31, 1998.
(g) Excess Defined Contribution Plan, as amended and restated through
the date of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 10(f) to the Annual Report
on Form 10-K for the period ended December 31, 1994, and Exhibit
10(g) to the Annual Report on Form 10-K for the period ended
December 31, 1998.
(h) Deferred Compensation Plan for Selected Employees of Cyprus Amax
Minerals Company, as amended through the date of signing of this
Annual Report on Form 10-K, incorporated by reference from Exhibit
10(i) to the Annual Report on Form 10-K for the period ended
December 31, 1994 and Exhibit 10(h) to the Annual Report on
Form 10-K for the period ended December 31, 1998.
(i) Stock Purchase and Sale Agreement, dated April 25, 1998, by and
among Cyprus Amax Minerals Company, Cyprus Foote Mineral Company,
Cyprus Specialty Metals Company, and Foote Acquisition Corporation,
incorporated by reference to Form 8-K filed October 28, 1998.
(j) Supplemental Agreement, dated October 13, 1998, to Stock Purchase
and Sale Agreement, dated April 25, 1998, by and among Cyprus Amax
Minerals Company, Cyprus Foote Mineral Company, Cyprus Specialty
Metals Company, and Foote Acquisition Corporation, incorporated by
reference to Form 8-K filed October 28, 1998.
(k) Tax Sharing and Indemnification Agreement, dated October 13, 1998,
by and between Cyprus Amax Minerals Company, Cyprus Specialty
Metals Company, Cyprus Foote Mineral Company, and Foote Acquisition
Corporation, incorporated by reference to Form 8-K filed October
28, 1998.
(l) Cyprus Amax Minerals Company Supplemental Executive Retirement
Plan, incorporated by reference to Exhibit 10(a) to the Annual
Report on Form 10-K for the period ended December 31, 1997.
(m) Merger Agreement, dated February 9, 1998, by and among Kinross Gold
Corporation, Kinross Merger Corporation, and Amax Gold, Inc.,
incorporated by reference to Exhibit 10.25 to Amax Gold Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1997.
(n) Stockholder Agreement, dated as of February 9, 1998, by and among
Kinross Gold Corporation, Kinross Merger Corporation, Cyprus Amax
Minerals Company, Amax Energy Inc., Cyprus Gold Company, and Amax
Gold Inc., incorporated by reference to Amendment No. 17 to
Statement on Schedule 13D with respect to the common stock of Amax
Gold Inc.
28
Exhibit
Number Document
------ --------
(o) Investor Agreement, dated as of February 9, 1998, by and between
Kinross Gold Corporation and Cyprus Amax Minerals Company,
incorporated by reference to Amendment No. 17 to Statement on
Schedule 13D with respect to the common stock of Amax Gold Inc.
(p) Annual Incentive Plan for Executive Officers and Designated
Management, incorporated by reference from Exhibit 10(b) to the
Annual Report on Form 10-K for the period ended December 31, 1996.
(q) Amended and Restated Employment Agreement between Cyprus Amax
Minerals Company and Milton H. Ward, incorporated by reference from
Exhibit 10(a) to the Annual Report on Form 10-K for the period
ended December 31, 1995.
(r) Cyprus Amax Minerals Company Executive Officer Separation Policy,
as amended through the date of signing of the Annual Report on Form
10-K; incorporated by reference from Exhibit 10(m) to the Annual
Report on Form 10-K for the period ended December 31, 1993, and
Exhibit 10(b) to the Annual Report on Form 10-K for the period
ended December 31, 1995.
(s) Full Retirement Benefit Plan for Certain Salaried Employees, as
amended through the date of signing of the Annual Report on Form
10-K, incorporated by reference from Exhibit 10(c) to the Annual
Report on Form 10-K for the period ended December 31, 1988; Exhibit
10(c) to the Annual Report on Form 10-K for the period ended
December 31, 1989; Exhibit 10(b) to the Annual Report on Form 10-K
for the period ended December 31, 1990; Exhibit 10(b) to the Annual
report on Form 10-K for the period ended December 31, 1992; and
Exhibit 10(d) to the Annual Report on Form 10-K for the period
ended December 31, 1994.
(t) Amended and Restated 1988 Stock Option Plan of Cyprus Amax Minerals
Company, incorporated by reference to Exhibit 99 to the
Registration Statement on Form S-8 dated November 12, 1993.
(u) Change of Control Employment Agreements between Cyprus Amax
Minerals Company and certain executive officers, incorporated by
reference from Exhibit 10(j) to the Annual Report on Form 10-K for
the period ended December 31, 1993.
11 Statement re computation of per share earnings.
13 1998 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
29
Exhibit
Number Document
------ --------
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
99 Financial Statements comprising the Annual Report of the Cyprus Amax
Minerals Company Savings Plan and Trust and Thrift Plan for Bargaining
Unit Employees.*
- ------------
* To be filed by amendment within 180 days of the plan's fiscal year end, in
accordance with Rule 15d-21.
(b) The following 8-Ks were filed during the last quarter of the period
covered by this Report on Form 10-K:
A Form 8-K was filed during the quarter ended December 31, 1998 in
regards to the sale of Cyprus Amax's Foote lithium subsidiary to an
affiliate of Chemetall GmbH.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the 19th day of
March 1999.
Cyprus Amax Minerals Company
(Registrant)
By /s/ Gerald J. Malys
-------------------------------
Gerald J. Malys
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 19, 1999.
Signatures Titles
---------- ------
/s/ Milton H. Ward Chairman of the Board, Director, President,
-------------------
Milton H. Ward and Chief Executive Officer
/s/ Gerald J. Malys Senior Vice President and Chief Financial
--------------------
Gerald J. Malys Officer (Principal Financial Officer)
/s/ John Taraba Vice President and Controller (Principal
----------------
John Taraba Accounting Officer)
/s/ Linda G. Alvarado Director
----------------------
Linda G. Alvarado
/s/ George S. Ansell Director
---------------------
George S. Ansell
/s/ Allen Born Director
---------------
Allen Born
/s/ William C. Bousquette Director
--------------------------
William C. Bousquette
/s/ Thomas V. Falkie Director
---------------------
Thomas V. Falkie
/s/ Ann Maynard Gray Director
---------------------
Ann Maynard Gray
/s/ Rockwell A. Schnabel Director
-------------------------
Rockwell A. Schnabel
/s/ Theodore M. Solso Director
----------------------
Theodore M. Solso
/s/ John Hoyt Stookey Director
----------------------
John Hoyt Stookey
/s/ James A. Todd, Jr. Director
-----------------------
James A. Todd, Jr.
/s/ Billie B. Turner Director
---------------------
Billie B. Turner
31
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Cyprus Amax Minerals Company:
Our audits of the consolidated financial statements referred to in our report
dated February 11, 1999, appearing on page 31 of the 1998 Annual Report to
Shareholders of Cyprus Amax Minerals Company (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Denver, Colorado
February 11, 1999
32
SCHEDULE II
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Year Ended December 31
(Millions of Dollars)
Additions
-------------------------
Balance Charged Charged Balance
at to to at
Beginning Costs and Other End of
Material and Supplies Inventory of Year Expenses Accounts Deductions Year
- ---------------------------------------------- ----------- ---------- ----------- ------------ -----------
1998
Deducted from asset accounts:
Reserve for material and supplies
inventory................................... $ 18 $ 2 $ 1 $ (6) $ 15
========= ========= ========= ========= =========
1997
Deducted from asset accounts:
Reserve for material and supplies
inventory................................... $ 18 $ 1 $ (1) $ - $ 18
========= ========= ========= ========= =========
1996
Deducted from asset accounts:
Reserve for material and supplies
inventory................................... $ 24 $ 2 $ 3 $ (11) $ 18
========= ========= ========= ========= =========
Doubtful Accounts and Notes Receivable
- --------------------------------------
1998
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.................... $ 7 $ - $ - $ (1) $ 6
Reserve for doubtful accounts and
notes receivable-noncurrent................. 5 - - - 5
--------- --------- --------- --------- ---------
Total...................................... $ 12 $ - $ - $ (1) $ 11
========= ========= ========= ========= =========
1997
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.................... $ 6 $ 1 $ - $ - $ 7
Reserve for doubtful accounts and
notes receivable-noncurrent................. 5 - - - 5
--------- --------- --------- --------- ---------
Total...................................... $ 11 $ 1 $ - $ - $ 12
========= ========= ========= ========= =========
1996
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.................... $ 8 $ - $ - $ (2) $ 6
Reserve for doubtful accounts and
notes receivable-noncurrent................. 5 - - - 5
--------- --------- --------- --------- ---------
Total...................................... $ 13 $ - $ - $ (2) $ 11
========= ========= ========= ========= =========
33
INDEX TO EXHIBITS
Exhibit
Number Document
- --------- --------
10 Material Contracts (except for director and executive contracts and
compensatory plans and arrangements, includes only those contracts
filed with this Annual Report on Form 10-K and does not include other
contracts which previously have been filed by the registrant and which
either remain to be performed in whole or in part at or after the
filing of this Annual Report on Form 10-K, or were entered into not
more than two years before the date of this Annual Report on Form
10-K).
(a) Stock Purchase and Sale Agreement, dated May 28, 1998, between
Cyprus Amax Coal Company and AEI Holding Company, Inc.
(b) Management Incentive Program of Cyprus Amax Minerals Company, as
amended through the date of signing of this Annual Report on Form
10-K, incorporated by reference to Exhibit 10(b) to the Annual
Report on Form 10-K for the period ended December 31, 1997, and
Exhibit 10(b) to the Annual Report on Form 10-K for the period
ended December 31, 1998.
(c) Stock Plan for Non-Employee Directors of Cyprus Amax Minerals
Company, as amended and restated through the date of signing of
this Annual Report on Form 10-K, incorporated by reference to
Exhibit 28 to the Report on Form 10-Q for the quarter ended
September 30, 1992, the additional amendments incorporated by
reference from Exhibit 10(a) to the Annual Report on Form 10-K for
the period ended December 31, 1996, and Exhibit 10(c) to the Annual
Report on Form 10-K for the period ended December 31, 1998.
(d) Contracts regarding employment between Cyprus Minerals Company (now
Cyprus Amax Minerals Company) and certain executive officers,
incorporated by reference from Exhibit 10(i) to the Annual Report
on Form 10-K for the period ended December 31, 1993, Exhibit 10(c)
to the Annual Report on Form 10-K for the period ended December 31,
1995, and Exhibit 10(d) to the Annual Report on Form 10-K for the
period ended December 31, 1998.
(e) 1993 Key Executive Long-term Incentive Plan between Cyprus Amax
Minerals Company and certain executive officers, as amended through
the date of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 10(d) to the Annual Report
on Form 10-K for the period ended December 31, 1995, and Exhibit
10(e) to the Annual Report on From 10-K for the period ended
December 31, 1998.
(f) Deferred Compensation Plan for Non-Employee Directors of Cyprus
Amax Minerals Company, as amended through the date of signing of
this Annual Report on Form 10-K, incorporated by reference from
Exhibit 10(c) to the Annual Report on Form 10-K for the period
ended December 31, 1994, and Exhibit 10(f) to the Annual Report on
Form 10-K for the period ended December 31, 1998.
(g) Excess Defined Contribution Plan, as amended and restated through
the date of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 10(f) to the Annual Report
on Form 10-K for the period ended December 31, 1994, and Exhibit
10(g) to the Annual Report on Form 10-K for the period ended
December 31, 1998.
34
(h) Deferred Compensation Plan for Selected Employees of Cyprus Amax
Minerals Company, as amended through the date of signing of this
Annual Report on Form 10-K, incorporated by reference from
Exhibit(i) to the Annual Report on Form 10-K for the period ended
December 31, 1994 and Exhibit 10(h) to the Annual Report on
Form 10-K for the period ended December 31, 1998.
11 Statement re computation of per share earnings.
13 Annual Report to Shareholders
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
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(b) The following 8-Ks were filed during the last quarter of the period
covered by this Report on Form 10-K:
A Form 8-K was filed during the quarter ended December 31, 1998 in
regards to the sale of Cyprus Amax's Foote lithium subsidiary to an
affiliate of Chemetall GmbH.
35