FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994 Commission File Number 1-10040
------------------ -------
CYPRUS AMAX MINERALS COMPANY
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2684040
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9100 East Mineral Circle, Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
(303) 643-5000
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(Registrant's telephone number, including area code)
No Change
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(Former name, address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
___
Number of shares of common stock outstanding as of November 10, 1994, was
92,546,182 shares.
This report contains 25 pages.
-1-
PART I. FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
- - ------------------------------
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS EXCEPT PER SHARE DATA)
(Unaudited) (Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- ------------------
1994 1993 1994 1993
------ ------ ------ ------
REVENUE $771 $394 $2,057 $1,222
COSTS AND EXPENSES
Cost of Sales 582 313 1,576 921
Selling and Administrative Expenses 23 13 70 39
Depreciation, Depletion, Amortization
and Write-downs 75 30 198 85
Exploration Expense 5 8 17 18
---- ---- ------ ------
TOTAL COSTS AND EXPENSES 685 364 1,861 1,063
---- ---- ------ ------
INCOME FROM OPERATIONS 86 30 196 159
OTHER INCOME (EXPENSE)
Interest Income 3 1 12 4
Interest Expense (27) (8) (79) (22)
Capitalized Interest 7 - 9 -
Equity Investments and Other (5) (3) (7) 1
---- ---- ------ ------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 64 20 131 142
Income Tax Provision (16) (6) (32) (34)
---- ---- ------ ------
INCOME FROM CONTINUING OPERATIONS 48 14 99 108
Income from Operations of Discontinued Oil and Gas
Division, Net of Applicable Taxes of $2 - - 9 -
---- ---- ------ ------
NET INCOME 48 14 108 108
Preferred Stock Dividends (4) - (14) -
---- ---- ------ ------
INCOME APPLICABLE TO COMMON SHARES $ 44 $ 14 $ 94 $ 108
==== ==== ====== ======
EARNINGS PER COMMON SHARE $.47 $.30 $ 1.01 $ 2.28
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 92.5 47.3 92.5 47.3
See accompanying notes to financial statements.
-2-
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN MILLIONS EXCEPT SHARE AMOUNTS)
(Unaudited)
September 30, December 31,
ASSETS 1994 1993
------------- ------------
CURRENT ASSETS
Cash and Cash Equivalents $ 231 $ 96
Accounts and Notes Receivable, Net 335 392
Inventories 456 462
Prepaid Expenses 64 58
------------- ------------
Total Current Assets 1,086 1,008
PROPERTIES - At Cost, Net 3,944 4,334
OTHER ASSETS 369 283
------------- ------------
Total Assets $5,399 $5,625
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 166 $ 175
Current Portion of Production Payments 46 42
Accounts Payable 120 192
Accrued Payroll and Benefits 120 98
Accrued Royalties and Interest 53 118
Other Accrued Liabilities 115 163
Taxes Payable 146 159
Dividends Payable 18 20
------------- ------------
Total Current Liabilities 784 967
------------- ------------
NONCURRENT LIABILITIES AND DEFERRED CREDITS
Long-Term Debt 957 995
Production Payments 249 283
Capital Lease Obligations 58 69
Deferred Employee and Retiree Benefits 442 435
Deferred Closure, Reclamation, and Environmental 340 358
Deferred Income Taxes 120 172
Other 161 129
------------- ------------
Total Noncurrent Liabilities and Deferred Credits 2,327 2,441
------------- ------------
SHAREHOLDERS' EQUITY
Preferred Stock, $1 Par Value,
20,000,000 Shares Authorized:
$4.00 Series A Convertible Stock, $50 Stated Value,
4,666,667 Authorized, 4,666,653 Issued and Outstanding 5 5
Series A Preferred Stock, 500,000 Shares
Authorized, None Issued or Outstanding - -
Common Stock, Without Par Value,
150,000,000 Shares Authorized,
Issued 96,026,729 in 1994 and 96,027,224 in 1993 1 1
Paid-In Surplus 2,961 2,961
Accumulated Deficit (527) (572)
------------- ------------
2,440 2,395
Treasury Stock at Cost, 3,500,147 Shares in 1994
and 4,491,112 Shares in 1993 (81) (103)
Loan to Savings Plan (71) (75)
------------- ------------
Total Shareholders' Equity 2,288 2,217
------------- ------------
Total Liabilities and Shareholders' Equity $5,399 $5,625
============= ============
See accompanying notes to financial statements.
-3-
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(Unaudited)
Nine Months
Ended September 30,
-------------------
1994 1993
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income from Continuing Operations $ 99 $ 108
Adjustments to Reconcile Net Income to Net Cash
Provided by Continuing Operations:
Depreciation, Depletion, Amortization, and Write-downs 198 85
Deferred Income Taxes 27 12
Gain on Sale of Assets (39) (109)
Changes in Assets and Liabilities Net of Effects
from Businesses Acquired/Sold (302) (65)
Other 35 12
------ ------
Net Cash Provided by Continuing Operations 18 43
------ ------
Net Income from Discontinued Operations 9 -
Adjustments to Reconcile Net Income to Net Cash
Provided by Discontinued Operations:
Depreciation, Depletion, and Amortization 14 -
Changes in Assets and Liabilities Net of Effects
from Businesses Acquired/Sold (7) -
Other (2) -
------ ------
Net Cash Provided by Discontinued Operations 14 -
NET CASH PROVIDED BY OPERATING ACTIVITIES 32 43
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (282) (198)
Payments for Businesses Purchased (361) (137)
Capitalized Interest (9) -
Advances, Net to Affiliates (21) -
Proceeds from Sale of Assets 910 183
------ ------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 237 (152)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on Line of Credit 150 -
Payments on Line of Credit (150) -
Net Proceeds from Issuance of Long-Term Debt - 147
Payments on Debt and Other Obligations (72) (12)
Proceeds from Issuance of Stock for Employee Benefits 7 3
Purchase of Treasury Stock - (5)
Dividends Paid (69) (28)
------ ------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (134) 105
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 135 (4)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 96 90
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 231 $ 86
====== ======
See accompanying notes to financial statements.
-4-
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
- - ------------------------------
The accompanying interim unaudited financial statements include all normal
recurring adjustments which are, in the opinion of management, necessary for a
fair presentation. Results for any interim period are not necessarily
indicative of the results that may be achieved in future periods. The financial
information as of this interim date should be read in conjunction with the
financial statements and notes thereto contained in Cyprus Amax's Annual Report
on Form 10-K for the year ended December 31, 1993.
NOTE 2. INVENTORIES
- - --------------------
Inventories detailed by component are summarized below (in millions):
(Unaudited)
September 30, December 31,
1994 1993
-------------- ------------
Component
In-Process Ores, Concentrates,
and Other $ 188 $ 203
Finished Goods 188 166
Materials and Supplies 80 93
----- -----
$ 456 $ 462
===== =====
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
- - --------------------------------------------
The estimated fair values for financial instruments under SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments," are made at discrete
points in time based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. At September 30, 1994,
the carrying value of financial instruments approximates fair value.
NOTE 4. ACQUISITIONS AND DISPOSITIONS
- - --------------------------------------
On September 30, 1994, Cyprus Amax sold its Northshore iron ore mine and
processing facilities and the adjacent power plant to Cleveland-Cliffs Inc. for
cash proceeds of $94 million. The terms of the sale also include contingent
payments to Cyprus Amax.
On June 28, 1994, Cyprus Amax acquired a 51 percent interest in Sociedad
Contractual Minera El Abra, which owns the mineral rights to the El Abra copper
deposit in Chile, for $330 million. Development of this significant deposit
will require a total investment of approximately $1 billion.
On March 31, 1994, Cyprus Amax sold its wholly-owned subsidiary, Amax Oil & Gas,
Inc., to Union Pacific Resources Company for approximately $819 million in gross
proceeds or $680 million after-tax net proceeds. During the first quarter of
1994, Amax Oil & Gas, Inc. reported income from discontinued operations of $9
million after tax and earnings per share of 10 cents. Since the majority of
Amax Oil & Gas, Inc.'s assets were acquired in the merger of Cyprus Minerals
Company and AMAX, Inc. on November 15, 1993, there is no comparable 1993
financial information.
On March 21, 1994, Cyprus Amax acquired 91.5 percent of the shares of Sociedad
Minera Cerro Verde, S.A., which owns and operates a producing copper mine in
Peru at a cost of approximately $31 million. The
-5-
initial capital program for Cerro Verde is expected to be $130 million,
including expanding SX-EW production and upgrading mine equipment. Cyprus Amax's
additional future investment commitment for Cerro Verde is $345 million which is
conditional based upon a favorable feasibility study to develop a modern milling
facility, favorable copper prices, a stable political environment, and other
conditions.
NOTE 5: CONTINGENCIES
- - ----------------------
Arbitration is pending relating to the Public Service of Indiana long-term coal
sales contract at the Cyprus Amax Wabash mine. By agreements signed in July and
October 1994, the Company and Public Service of Indiana have resolved all of the
outstanding claims for damages relating to past coal sales. The Company will
continue to defend its position in arbitration and the limited litigation.
While Cyprus Amax is not able to predict the outcome of this matter at this
time, based upon facts currently known to it, Cyprus Amax does not believe that
the ultimate resolution of any remaining matters will have a material adverse
effect on its financial condition.
On November 8, 1993, Cyprus Amax was notified by the United States Department of
Justice that it is under investigation for possible violations of the antitrust
laws of the United States regarding its molybdenum business. While Cyprus Amax
is unable to predict the outcome of this investigation, based upon facts
currently known to it, the resolution of this matter is not expected to have a
material adverse effect on the Company's financial condition.
Cyprus Amax had outstanding letters of credit totaling $82 million at September
30, 1994, primarily for insurance and reclamation. Cyprus Amax had guaranteed
debt totaling $29 million at September 30, 1994.
At September 30, 1994, Cyprus Amax's long-term accrual for deferred closure,
reclamation, and environmental remediation liabilities totaled approximately
$340 million which included $240 million for future reclamation, $78 million for
environmental remediation at Superfund and other sites, and $22 million for
closure of discontinued or previously sold operations. Cyprus Amax's $240
million reclamation reserve is primarily for operating facilities. Total
reclamation costs for Cyprus Amax at the end of current mine lives are estimated
at about $500-550 million.
The cost range of reasonably possible outcomes for sites where remediation costs
are estimable is from $60 million to $200 million and work on these sites is
expected to be substantially completed within the next five years, subject to
the inherent delays involved in the process. Costs at sites that could not be
estimated at September 30, 1994, 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.
Generally, neither insurance recoveries nor other claims or offsets have been
recognized in the liabilities reported.
-6-
Note 6. Information by Industry Segment
- - ----------------------------------------
Cyprus Amax operates in three principal industry segments -- Coal, Copper, and
Other Minerals which supply mineral products primarily to the utility,
construction, automobile, and steel industries. The financial information for
these segments is presented below (in millions):
(Unaudited) (Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1994 1993 1994 1993
------ ------ ------ ------
Segment Revenue
Coal $ 332 $ 132 $ 934 $ 457
Copper 345 205 935 598
Other Minerals 94 57 188 167
------ ------ ------ ------
$ 771 $ 394 $2,057 $1,222
====== ====== ====== ======
Segment Income
Coal $ 12 $ 4 $ 70 $ 127
Copper 44 29 115 33
Other Minerals 42 3 44 16
------ ------ ------ ------
98 36 229 176
Corporate (12) (6) (33) (17)
Interest, Net (17) (7) (58) (18)
Equity Investments and Other (5) (3) (7) 1
------ ------ ------ ------
Income from Continuing Operations
Before Income Taxes 64 20 131 142
Income Tax Provision (16) (6) (32) (34)
------ ------ ------ ------
Income from Continuing Operations 48 14 99 108
Income from Operations of Discontinued Oil and Gas
Division, Net of Applicable Taxes of $2 - - 9 -
------ ------ ------ ------
Net Income $ 48 $ 14 $ 108 $ 108
====== ====== ====== ======
-7-
REVIEW BY INDEPENDENT ACCOUNTANTS
- - ---------------------------------
The financial information as of September 30, 1994, and for the three-month and
nine-month periods ended September 30, 1994, included in Part I pursuant to Rule
10-01 of Regulation S-X has been reviewed by Price Waterhouse LLP, the Company's
independent accountants, in accordance with standards established by the
American Institute of Certified Public Accountants. Price Waterhouse LLP's
report is included as page 9 of this quarterly report.
Price Waterhouse LLP does not carry out any significant or additional audit
tests beyond those which would have been necessary if its report had not been
included in this quarterly report. Accordingly, such report is not a "report"
or "part of a registration statement" within the meaning of Sections 7 and 11 of
the Securities Act of 1933 and the liability provisions of Section 11 of such
Act do not apply.
-8-
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of Cyprus Amax Minerals Company
We have reviewed the accompanying consolidated balance sheet of Cyprus Amax
Minerals Company and its subsidiaries as of September 30, 1994, and the related
consolidated statements of operations for the three-month and nine-month periods
ended September 30, 1994 and 1993, and of cash flows for the nine-month periods
ended September 30, 1994 and 1993. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1993, and the related
consolidated statements of operations, of shareholder's equity, and of cash
flows for the year then ended (not presented herein), and in our report dated
March 1, 1994, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of December 31, 1993, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
Price Waterhouse LLP
Denver, Colorado
November 10, 1994
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- - -------------------------------------------------------------------------
FINANCIAL CONDITION
- - -------------------
RESULTS OF OPERATIONS
- - ---------------------
CYPRUS AMAX MINERALS COMPANY reported 1994 third quarter earnings of $48
million, or 47 cents per share, on revenue of $771 million, compared to 1993
earnings of $14 million, or 30 cents per share, on revenue of $394 million. The
1994 results include the impact of the merger with AMAX Inc. completed November
15, 1993, and several special items recorded in the third quarter (after tax) as
follows:
. $21 million gain on the sale of the Iron Ore business;
. $9 million gain on the sale of Cyprus Amax's interest in an Australian
exploration project;
. $9 million charge for workforce reduction programs at two copper operations;
. $8 million charge for a write-down of the Orchard Valley coal mine due to
closure.
Excluding the special items, the 1994 third quarter earnings were $35 million or
33 cents per share. Improved third quarter 1994 earnings resulted from higher
copper realizations of 20 cents per pound, lower copper cost of sales of three
cents per pound, and better molybdenum results of $9 million, partially offset
by lower produced copper sold of 24 million pounds.
Three Months Nine Months
SELECTED RESULTS Ended September 30, Ended September 30,
(In millions except per share data) ------------------- -------------------
1994 1993 1994 1993
--------- -------- --------- --------
Revenue $ 771 $ 394 $2,057 $1,222
Net Income $ 48 $ 14 $ 108 $ 108
Earnings Per Share $ .47 $ .30 $ 1.01 $ 2.28
The 1994 revenue of $771 million was up $377 million from the comparable 1993
quarter primarily because of the inclusion of the former Amax businesses. Also
contributing to higher revenues were gains on the sale of non-core businesses of
$39 million, $.20 per pound higher copper realizations of $29 million, and
higher moly realizations.
For the first nine months, Cyprus Amax earned $108 million or $1.01 per share,
compared to 1993 earnings of $108 million or $2.28 per share, which included $75
million or $1.59 per share from the sale of LTV bankruptcy claims. Excluding
the special items, the 1994 nine month earnings were $95 million or 88 cents per
share and the 1993 nine month earnings equalled $33 million or 69 cents per
share.
On September 30, 1994, Cyprus Amax sold its Northshore iron ore mine and
processing facilities and the adjacent power plant to Cleveland Cliffs for cash
proceeds of $94 million including working capital. The terms of the sale also
include contingent payments to Cyprus Amax in the event of certain possible
future actions by the buyer. In the last two years, sales of non-core assets by
Cyprus Amax have generated more than $1.3 billion gross proceeds which are being
reinvested for the improvement and expansion of copper, coal and gold
businesses.
Segment income is earnings before corporate overhead, interest, equity and
other, and income taxes.
-10-
COAL
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
SELECTED RESULTS (in millions) 1994 1993 1994 1993
--------- -------- --------- --------
Revenue $ 332 $ 132 $ 934 $ 457
Segment Operating Income $ 12 $ 4 $ 70 $ 127
COAL reported third quarter earnings of $12 million compared to 1993 third
quarter earnings of $4 million. The increase in earnings resulted from the
merger with AMAX, Inc. partially offset by a $10 million pretax write-down of
Orchard Valley due to closing the mine on October 15. Third quarter 1994
earnings also were temporarily affected by unfavorable mining conditions at the
Pennsylvania mines and vacations and lower average realizations in the Midwest.
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
SELECTED OPERATING DATA 1994 1993 1994 1993
--------- -------- --------- --------
Sales Volume - Millions of Tons
- - -------------------------------
Eastern Mines 7.4 3.1 20.9 7.8
Western Mines - Powder River Basin 9.0 - 26.6 -
Western Mines - Other 3.7 2.4 9.3 6.9
-------- ------- -------- -------
Total Sales 20.1 5.5 56.8 14.7
-------- ------- -------- -------
Oakbridge Equity Share 1.3 1.4 3.7 1.7
Average Realization - $/Ton $16.10 $22.78 $16.02 $23.12
East Average Contract Price - $/Ton $32.56 $30.67 $31.95 $30.42
East Average Spot Price - $/Ton $22.02 $22.25 $22.68 $22.29
West - Powder River Basin Contract
Price - $/Ton $ 7.30 $ - $ 7.31 $ -
West - Powder River Basin Spot Price
- $/Ton $ 3.41 $ - $ 3.37 $ -
West - Other Average Contract Price -
$/Ton $18.43 $19.83 $18.49 $20.20
West - Other Average Spot Price - $/Ton $14.28 $14.27 $13.80 $14.25
Average Cost of Sales - $/Ton $15.34 $23.05 $14.78 $21.85
Average Unit Costs - $/Ton $14.88 $22.73 $14.44 $21.64
Clean Production - Millions of Tons
- - --------------------------------------
Pennsylvania 1.6 1.3 5.4 3.2
Kentucky 1.3 1.3 3.6 3.3
West Virginia 1.6 .3 4.5 1.0
Midwest 2.2 - 6.8 -
Wyoming - Powder River 9.0 - 26.6 -
Colorado 2.3 1.3 6.9 4.1
Utah .9 1.0 2.8 2.8
-------- ------- -------- -------
Total Production 18.9 5.2 56.6 14.4
======== ======= ======== =======
Oakbridge Equity Share 1.0 1.4 3.0 1.7
-11-
An average realization of $16.10 per ton, with average cost of sales of $15.34
per ton, yielded a profit margin of 76 cents per ton. Cash margins exceeded
$3.50 per ton, and coal generated more than $70 million of cash flow in the
third quarter of 1994.
Overall, demand in the coal market should remain strong for the remainder of
1994. On a national basis, utility coal inventories remain well below
historical standards, and utilities should continue to rebuild inventories well
into 1995. Rail service in the Powder River Basin and Northwest Colorado has
not kept pace with customer orders, which should help fuel strong demand well
into 1995. The railroads are acquiring additional locomotives and rolling
stock, as well as adding crews. Industry expects shipping delays in the West
may ameliorate by mid-to-late 1995. Markets for low sulfur eastern coals remain
strong due to the impending compliance date for Phase I of the Clean Air Act.
Demand for high sulfur coals has declined, and displacement of these coals by
low sulfur eastern and western coals continues. As a result, prices for high
sulfur coals have declined. Some higher cost mines which produce higher sulfur
coal have been idled or closed.
In the third quarter, Cyprus Amax committed to 21 contracts of one year or more
in duration representing 42 million tons on various terms, including escalating
prices, and extending as long as the next ten years. Eleven of these contracts
will supply 35 million tons of coal from our Western operations, and ten
contracts will supply seven million tons from our Eastern operations. On an
annual basis, these agreements represent over four million tons of sales in 1994
and over ten million tons in 1995.
As a result of the merger, coal production and sales of 20 million tons and 21
million tons, respectively, in the third quarter were both 14 million tons
higher than in 1993. However, the third quarter shipments, particularly in the
Powder River Basin, have been affected by rail traffic congestion, lack of
crews, and shortages of locomotives and railcars in the Western railroads.
During the quarter, despite significant scheduled vacations, Cyprus Amax coal
mines set eight monthly production records at five operations. This brings to
21 the number of production records established during the first nine months of
1994. Twentymile set a new world record for monthly coal production from a
single longwall underground mine during October 1994. Additionally, company-wide
productivity in Coal improved 12 percent during the first nine months of 1994
over full year 1993.
The Coal division produced 60 million tons through the third quarter of 1994 and
is in excellent position to achieve 1994 production of 80 million tons. Coal
earned $70 million for the first nine months compared to $23 million (excluding
the 1993 pretax gain of $104 million on the sale of the LTV claim) for the nine
months of 1993 primarily as a result of the merger with AMAX Inc., partially
offset by the $10 million Orchard Valley write-down.
COPPER
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
SELECTED RESULTS (in millions) 1994 1993 1994 1993
--------- -------- --------- --------
Revenue $ 345 $ 205 $ 935 $ 598
Segment Operating Income $ 44 $ 29 $ 115 $ 33
COPPER, including molybdenum, earned $44 million during the third quarter,
compared to $29 million in the 1993 period. Earnings were higher primarily due
to higher copper realizations, lower costs of copper sold, and improved
molybdenum results, partially offset by lower produced copper sales and a $13
million pretax charge for workforce reduction programs at Miami and Bagdad.
Excluding special items, earnings in the period were the highest since 1990.
-12-
For the first nine months, Copper's earnings were $115 million compared to $33
million in 1993. The higher earnings primarily reflect higher realizations of
seven cents per pound, lower cost of goods sold of five cents per pound,
improved molybdenum results of $23 million, and the absence of rain-related
costs of $15 million pretax that occurred in 1993.
Third quarter copper realizations averaged $1.14 per pound, 20 cents higher than
the 1993 quarter. Cyprus Amax remains optimistic about the outlook for copper,
but continued buying copper puts to provide price protection. These puts ensure
a minimum average realization on a London Metals Exchange (LME) basis of an
average of 86 cents per pound (LME basis) on 700 million pounds for 1995, and an
average of 89 cents per pound (LME basis) on 275 million pounds for the first
half of 1996.
Comex copper prices have increased throughout the quarter reflecting robust
underlying demand not only domestically, but also worldwide. This reflects
continued strong U.S. demand, a resurgence of demand in Europe, continued
strength in southeast Asia supported by improving demand in Japan, and buying by
investment funds. Comex inventories are at a four year low and combined
LME/Comex inventories have decreased 47 percent in the first nine months of
1994.
Three Months Nine Months
SELECTED OPERATING DATA Ended September 30, Ended September 30,
(In millions except as noted) ------------------- -------------------
1994 1993 1994 1993
--------- --------- --------- --------
Produced Copper Sold, Pounds 147 171 477 451
Copper Production, Pounds 163 158 475 458
Copper Sales Volume, Pounds 205 191 626 542
Average Copper Realization, $/Pound $ 1.14 $ .94 $ 1.02 $ .95
Cost of Sales, $/Pound $ .79 $ .82 $ .76 $ .81
Net Cash Cost, $/Pound $ .71 $ .69 $ .70 $ .75
Full Cost, $/Pound $ .80 $ .74 $ .78 $ .79
Bagdad
- - ------
Production - Pounds 51 61 146 161
Material Mined - Tons 17.2 17.3 50.5 49.3
Ore Mined - Tons 7.6 6.6 21.7 20.8
Stripping Ratio 1.26 1.56 1.33 1.33
Ore Milled - Tons 6.9 6.5 20.3 19.4
Ore Grade - % .41 .59 .41 .54
Miami
- - -----
Production - Pounds 30 28 89 85
Material Mined - Tons 20.5 17.2 63.6 42.3
Ore Mined - Tons 6.3 8.5 22.8 20.5
Stripping Ratio 2.27 1.03 1.79 1.07
Ore Grade - % .44 .32 .39 .35
Sierrita/Twin Buttes
- - --------------------
Production - Pounds 60 64 192 193
Material Mined - Tons 20.0 17.0 56.6 53.2
Ore Mined - Tons 10.6 8.2 30.1 26.2
Stripping Ratio -
Sierrita/Twin Buttes .89 .96 .84 .96
Ore Milled - Tons 10.0 8.9 28.8 26.5
Ore Grade - % .32 .38 .36 .39
-13-
Three Months Nine Months
SELECTED OPERATING DATA (Continued) Ended September 30, Ended September 30,
(In millions except as noted) ------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
Molybdenum Sales - Pounds 22 8 62 25
Produced Moly Sold - Pounds 18 8 52 25
Molybdenum Production - Pounds 14 7 41 19
Average Metals Week Dealer
-----------
Oxide Price - $/Pound 3.52 2.40 3.17 2.22
Henderson
- - ---------
Production - Pounds 7.0 - 17.8 -
Material Mined - Tons 1.2 - 3.1 -
Ore Milled - Tons 1.2 - 3.1 -
Ore Grade - % .52 - .51 -
During the quarter, Cyprus Amax sold 147 million pounds of produced copper, 24
million pounds less than in the 1993 third quarter because of reduced smelter
throughput and lower production of electrorefining cathodes in preparation for
transition to the new refinery, which began production in mid-October 1994.
Cost of sales declined three cents per pound from the 1993 period to 79 cents
per pound for the third quarter of 1994 due to higher by-product credits for
molybdenum, lower mining costs which reflect the realization of significant
efficiencies from the mine fleet modernization program and personnel reductions,
partially offset by higher milling costs.
Copper production totalled 163 million pounds for the quarter, five million
pounds higher than in 1993, primarily due to the addition of Cerro Verde and
Tohono production of nine million pounds each, partially offset by lower Bagdad
and Sierrita production. Copper production in the third quarter of 1994 was
affected by August and September rains in Arizona which diluted solutions at
Miami, and by lower throughput at Bagdad related to expansion of the newly
installed water flush crushing system, as optimization efforts continue. At our
recently acquired Cerro Verde mine, test heaps have been constructed and work is
underway to determine optimal operating practices for maximum copper recovery.
Also, specific, on-going management actions are focussed on the crushing stage
of operations at Bagdad. With the positive effects of these modifications, 1994
production is expected to reach approximately 650 million pounds and costs
should be reduced. Additionally, our Arizona mines have increased mining
productivity 31 percent and milling productivity 21 percent. Restructuring at
the Copper division has entered a new phase, and we are eliminating a total of
200 additional positions at the Miami and Bagdad mines. This action should
result in future cost savings of about $10 million annually.
Third quarter net cash costs for copper equalled 71 cents per pound, two cents
higher than the 69 cents per pound for the third quarter of 1993. Cash costs at
the three major Arizona mines were 68 cents per pound despite lower ore grades
at Bagdad and Sierrita, and a higher stripping ratio at Miami. Inclusion of
leaching costs for evaluation of the Tohono project and the development program
at Cerro Verde added approximately three cents per pound to company-wide cash
copper costs during the quarter. These effects were offset partially by higher
by-product credits for molybdenum and higher mill throughput at Sierrita and
Bagdad.
The smelter operated above planned capacity when no gas offtake or transformer
problems occurred. The transformers have been replaced, and reworked hood
modifications allowed much improved performance in October and should permit
satisfactory operation until the modified hood is installed.
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Molybdenum operations earned $7 million for the third quarter. With the
merger's addition of the Henderson mine, production increased to 14 million
pounds from seven million pounds, and sales increased to 22 million from eight
million pounds for the third quarter of 1994 compared to the 1993 period. The
majority of the Company's molybdenum production is sold under contracts having
quarterly pricing mechanisms. Strong demand has resulted in a drawdown of
higher-cost inventories acquired in the Amax merger. Increased production and
the reengineering of operations at the Henderson mine and all downstream
operations have significantly reduced costs. Since September 30, 1994, the
Company has continued to experience strong demand and the Company anticipates
increased realizations if this demand continues.
OTHER MINERALS
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
SELECTED RESULTS (In millions) 1994 1993 1994 1993
------ ------ ------ ------
Segment Operating Income $ 42 $ 3 $ 44 $ 16
====== ====== ====== ======
Lithium $ 7 $ 5 $ 18 $ 18
Iron Ore 30 5 34 9
Businesses Sold/Non-Operating
(Gold, Barite, Other) (1) 1 (3) 7
Exploration Expense 6 (8) (5) (18)
------ ------ ------ ------
Total $ 42 $ 3 $ 44 $ 16
====== ====== ====== ======
SELECTED OPERATING DATA (In millions)
Lithium
Sales Volumes - Millions of Lbs.
Carbonate Equiv. 7.6 7.2 24.1 23.5
Iron Ore
Sales Volumes - Thousands of Long Tons 1,044 1,299 2,599 2,434
Gold
Sales Volumes - Thousands of Ounces 24 6 76 101
(including 42% equity share of Amax Gold)
Gold Price - $/Ounce 400 374 401 354
OTHER MINERALS, which includes Lithium, Gold, Iron Ore, and Exploration,
contributed combined earnings for the third quarter of 1994 of $42 million,
compared to $3 million for 1993. Lithium earned $7 million, which was record
quarterly earnings and $2 million higher than 1993. The Northshore iron ore
operation earned $30 million for the quarter, including a $28 million pretax
gain on the sale of this operation. Exploration earned $6 million, primarily
from the $12 million pretax gain on the sale of our interest in an Australian
exploration project.
Year-to-date earnings for Other Minerals equalled $44 million, or $28 million
more than in the first nine months of 1993, due primarily to the gain on the
sale of the Iron Ore business.
CORPORATE expenses for the third quarter were $12 million, or $6 million higher,
and for the first nine months of 1994 were $33 million, or $16 million higher,
than the same periods in 1993. Changes in stock appreciation rights (SARs)
accounted for $2 million of the quarter change and $7 million for the nine
months change, attributable to Cyprus Amax's higher stock price in 1994. Other
expenses increased for the quarter and first nine months due to the incremental
cost of the combined Cyprus Amax entity.
INTEREST, EQUITY, AND OTHER expense was $22 million for the 1994 third quarter
compared to expense of $10 million for 1993. Higher interest expense primarily
reflected the assumption of Amax Inc.'s long-term debt resulting from the
merger. Cyprus Amax's equity share in Oakbridge's loss and Amax Gold's loss
totalled
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$1 million and $3 million, respectively. Year-to-date interest, equity, and
other expense of $65 million was $48 million higher than in 1993 primarily
because of increased interest of $40 million and Cyprus Amax's equity share of
$7 million of losses from Amax Gold.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1994, Cyprus Amax maintained its strong financial condition
with long-term debt as a percentage of total capitalization of 34.5 percent and
a ratio of current assets to current liabilities of 1.4 to 1.0. At December 31,
1993, the comparable ratios were 36.6 percent and 1.0 to 1.0, respectively. The
decrease in the debt to total capitalization ratio resulted from the retirement
of $72 million of debt.
The Company's cash balance increased from $96 million at year-end to $231
million at September 30 primarily due to the sale of the oil and gas business
for after-tax net proceeds of approximately $680 million, the sale of iron ore
assets for after-tax net proceeds of approximately $90 million, partially offset
by a $330 million payment for El Abra mineral interest, capital expenditures of
$282 million, and the $63 million net payment for settlement of the Minerals
Management Service coal royalty. Cash provided by continuing operations was
$18 million which included non-debt working capital increases of $151 million.
Included in working capital changes is the $63 million net royalty settlement,
income tax payments of $57 million, and net interest payments of $70 million.
For the first nine months of 1994, capital expenditures for Copper and Coal were
$171 million and $80 million, respectively. In Copper, the new electrorefinery
at Miami accounted for $60 million of spending while Coal's capital spending was
primarily for cost reduction, sustaining and replacement capital. Total capital
spending in 1994 excluding acquisitions is projected to be approximately $400
million, with over 60 percent spent on copper projects.
On June 28, 1994, Cyprus Amax acquired a 51 percent interest in Sociedad
Contractual Minera El Abra, which owns the mineral rights to the El Abra copper
deposit in Chile, for $330 million. Development of the mine will require an
investment estimated at approximately $1 billion. Funding of the billion dollar
investment to develop the oxide reserves will include approximately $300 million
of subordinated shareholder loans contributed by Cyprus Amax and approximately
$700 million of limited recourse debt financing, which will be arranged by
Cyprus Amax. On March 21, 1994, Cyprus Amax acquired 91.5 percent of the shares
of Sociedad Minera Cerro Verde, S.A., which owns and operates a producing copper
mine in Peru at a cost of approximately $31 million. The initial capital
program for Cerro Verde is expected to be $130 million, including expanding SX-
EW production and upgrading mine equipment. Cyprus Amax's additional future
investment commitment for Cerro Verde is $345 million, which is conditional
based upon a favorable feasibility study to develop a modern milling facility,
favorable copper prices, a stable political environment, and other conditions.
Cyprus Amax expects to fund the growth of its core businesses partly through the
sale of selected, non-strategic assets, such as the sale of Oil & Gas and the
September 30, 1994, sale of its Northshore iron ore mine and processing
facilities. Also, in June 1994 Cyprus Amax filed a "universal shelf"
registration statement with the Securities and Exchange Commission that will
enable the Company to sell an aggregate of up to $500 million of equity and/or
debt securities. The current portion of debt and interest scheduled for
repayment in the fourth quarter 1994 is $161 million and $50 million,
respectively. The outlays will be funded from cash reserves and operating cash
flows.
For the full year 1994 Cyprus expects to spend approximately $100 million for
reclamation, remediation, and environmental compliance.
On April 15, 1994, Cyprus Amax and Amax Gold Inc. (AGI) entered into an
agreement whereby the Company will provide AGI with a $100 million double
convertible line of credit. The outstanding
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indebtedness under the line of credit may be repaid by AGI with the issuance of
AGI convertible preferred stock, which in turn could be converted into AGI
common stock at $8.265 per share. This represents approximately 12.1 million AGI
shares. As of September 30, 1994, AGI had no outstanding debt under this line of
credit.
Additionally, in August 1994 AGI repaid a $26 million loan from Cyprus Amax. In
January 1994 the Cyprus Amax Board of Directors approved the purchase of three
million shares of AGI common stock as repayment of $21 million of the amounts
outstanding under such note. AGI shareholder approval for these transactions
was received in July 1994, and following the issuance of the stock, Cyprus Amax
owns approximately 42 percent of AGI.
Cyprus Amax paid a regular quarterly dividend of 20 cents per share on its
Common Stock and $1.00 per preferred share during the quarter. At September 30,
1994, 92,526,582 shares of the Company's Common Stock were outstanding.
-17-
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- - --------------------------
See Note 5 to Financial Statements.
ITEM 2. CHANGES IN SECURITIES
- - ------------------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- - ----------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------------------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION
- - --------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - -----------------------------------------
(a) The following Exhibits are being filed as part of this Quarterly Report on
Form 10-Q:
Page in
Sequential
Exhibit Numbering
Number Document System
- - --------- -------------------------------------------------- ----------
(11) Statement re computation of per share earnings. 19
(15) Letter re unaudited interim financial information. 21
(27) Financial data schedule. 23
(b) No Current Report on Form 8-K was filed during the quarter ended September
30, 1994.
-18-
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYPRUS AMAX MINERALS COMPANY
----------------------------
Registrant
Date: November 10, 1994 /s/ JOHN TARABA
---------------------- --------------------------------------
John Taraba
Vice President and
Controller
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