Cyprus Minerals Company

views updated

Cyprus Minerals Company

9100 East Mineral Circle
P.O. Box 3299
Englewood, Colorado 80155-3299
U.S.A.
(303) 643-5000
Fax: (303) 643-5642

Public Company
Incorporated: 1969 as Amoco Minerals Co.
Employees: 7,000
Sales: $1.64 billion
Stock Exchanges: New York
SICs: 1021 Copper Ore Mining; 1222 Bituminous Coal Underground Mining; 1221 Bituminous Coal and Lignite Surface Mining

Cyprus Minerals Company is the second largest U.S. copper producer, a world leader in molybdenum production, a top 20 U.S. coal producer, and the world’s leading producer of lithium. Cyprus also produces iron ore and gold. It operates in 24 states and seven countries and conducts base and precious metals exploration worldwide.

The Cyprus Minerals Company first appeared in July of 1985 as a spinoff from the Amoco Corporation. The company’s history, however, dates back to 1969 when Amoco created Amoco Minerals Company to handle mineral rights. In 1979, that subsidiary’s president, Kenneth J. Barr, acquired Cyprus Mines Corporation, which then mined copper, talc, calcium carbonate, and kaolin and explored for uranium, gold, and molybdenum. Amoco kept the Cyprus name and in the early 1980s built it into a large concern that produced coal, copper, and industrial minerals.

In 1980 Amoco created Cyprus Coal, a subsidiary that, in turn, acquired coal mines in Colorado, Pennsylvania, and Kentucky. The coal operation was immediately profitable, and Donald P. Bellum installed efficient longwalls, draglines, shovels, and haul trucks to reduce costs. At some mines, these efforts cut costs by as much as 40 percent. By 1985, coal accounted for 56 percent of Cyprus’s $706 million in sales.

Cyprus Industrial Minerals handled talc, limestone, calcium carbonate, clay, and barite—products in production before the Amoco takeover.

Cyprus’s third subsidiary was Cyprus Metals which mined copper for construction and molybdenum for steel and lubricants. Under Amoco, Cyprus Metals expanded Cyprus Mines’ Baghdad copper mine in Arizona and built the Thompson Creek molybdenum mine—which was later shut down—in Challice, Idaho. Each facility was an efficient producer but each suffered when prices dipped in 1983 and 1984. In the last half of 1984 metals lost $70.8 million due to slackening molybdenum demand and copper prices, which had fallen from one dollar to 60 cents a pound.

Cyprus experienced extensive losses in 1984 and 1985. Ironically the cost cutting these losses induced put Cyprus in a position to grow once it became independent from Amoco, which decided to spin it off in July of 1985. “As a spin-off,” then-Chairman John C. Duncan wrote in Cyprus’s 1985 report, “we emerged with low debt, well equipped and in a very strong position relative to our competitors.”

Once independent Barr began expanding the company. Almost immediately, Cyprus bought coal mines in Utah, Colorado, and Virginia, increasing coal capacity to over 18 million tons. “The companies wanted to get out of this business,” Barr told Barron ‘s, “and we were able to help them out with a good deal for ourselves.”

In succeeding years, Barr would acquire and make profitable many unwanted operations, so many that Forbes called him a “junk pitcher” and lauded him for “acquiring . . . almost dead or dying U.S. mining properties for pennies on the dollar and [bringing] them back to life.”

At this point, most of Cyprus’s operations were producing a profit—Cyprus reported operating revenues of $32 million in its first six months. Three businesses, however, looked unlikely to ever return their investment. Rather than carry these investments, the company decided to sell a barge operation, close and upgrade the Baghdad copper mine, and write down the company’s entire $398 million investment in the Thompson Creek molybdenum mine. In all, 1985 asset write-downs totaled $675.7 million. Nevertheless, Barr told Barron ‘s, “I see a good, steady earnings picture.” The sacrifice was ultimately profitable. With lower depreciation and amortization costs and more efficient operations at Baghdad, Cyprus reported 1986 profits of $21.1 million on sales of $811 million.

In 1986 Cyprus Metals recorded its first profits in more than three years, and in March Barr added to its strength by acquiring the Sierrita copper and molybdenum mine near Tucson, Arizona. Sierrita made Cyprus the third-largest copper producer in the United States and the third-largest producer of molybdenum in the world.

Cyprus Coal also finished in the black, though not quite as profitably as officials had hoped. The coal operation had been on its way to a very good year, but the LTV Corporation filed in U.S. Bankruptcy Court for Chapter 11 protection and canceled long-term contracts with the Emerald and Knox Creek mines. This caused second half losses, and led Cyprus to sell Knox Creek early in 1987. On the positive side, Cyprus’s Plateau mine in Utah, its Empire mine in Colorado, and several recently acquired mines in Kentucky achieved higher profits.

Though Cyprus was becoming quite successful in its core businesses, Barr felt that new products, especially gold, would enhance shareholder value. “It’s one of those areas that adds value in the minds of investors,” he told Barren’s. “A gold company carries a greater price to earnings multiple than a copper company.”

Barr established Cyprus Gold late in 1985, and, in 1986, that subsidiary began identifying prospects. Concentrating on proper ties with the potential to produce gold at cash costs of less than $200 per ounce, the company located four gold ore bodies in Australia and one in the United States. In 1987 Cyprus’s board advanced Cyprus Gold $25 million to pursue these investments through joint ventures.

Although they did begin gold production at Gidgee in Australia and Copperstone in Arizona, gold was far from the only forum Barr and Duncan used to expand Cyprus in 1987. Among other subsidiaries, Cyprus Coal acquired the Shoshone coal mine in Wyoming, while Cyprus Metals acquired the Casa Grande copper mine in Arizona, the Piños Altos copper mine in New Mexico, and Metec, a New Jersey producer of specialty molybdenum products.

For 1987, profits reached $26.2 million, though sales fell to $795.3 million. Much of the improved profits picture came from Cyprus Metals, which, through acquisitions, had increased capacity by more than 50 percent and was benefiting from copper prices, which soared above $1.40 a pound that December. But while metals operating profits doubled, coal profits suffered from a soft market and industrial mineral profits fell to $2.9 million, despite further reorganization.

In 1988 Cyprus’s growth campaign swung into high gear. The company bought a Colorado coal mine and acquired ARCO’s inactive Tonopah, Nevada molybdenum mine—which was later shut down—making Cyprus the largest molybdenum producer in the United States. The following year Cyprus acquired an 82 percent interest in Foote Mineral Company, the world’s largest producer of lithium, a material used in Pharmaceuticals, greases, ceramics, aluminum alloys, and high-performance batteries.

Financing for all this expansion came from soaring copper prices, and Barr did not neglect to expand this most profitable area. In 1988 Cyprus acquired the Arizona assets of the Inspiration Consolidated Copper Company and signed a long-term lease at the Twin Buttes mine, which was adjacent to Sierrita in Arizona. The Inspiration copper company was renamed Cyprus Miami. New assets included a smelter, a refinery, and a rod plant, and Cyprus, which had become the second-largest copper producer in the United States, would now begin the process of vertical integration. The company was nearly self-sufficient in smelting, a big cost cutter.

High copper and molybdenum prices led to 1988 earnings of $170 million ($6.31 a share) on sales of $1.3 billion. There were, however, two setbacks. Cyprus Gold was hurt by start-up problems and coal profits fell to $8.2 million due to reduced contract prices and a $6.1 million charge for closing three Kentucky mines.

In 1989, copper prices remained high and copper production grew 28 percent to 594 million pounds. In total, copper accounted for nearly 90 percent of that year’s record $250.1 million in profits. However, while the copper was bringing in substantial income, management was becoming aware of problems with costs and price fluctuations. Cyprus’s copper costs were high for the industry, and costs rose even further in the final quarter of 1989 when the company unsuccessfully tried to mix ore from four different pits at Sierrita and Twin Buttes. If copper prices fell, Cyprus would find itself in trouble.

Furthermore, Cyprus’s other products were barely contributing. Operating earnings from lithium and talc fell almost 50 percent to $26.7 million. Cyprus Gold lost $1.7 million because of low prices, and the coal company, which battled inefficiency and low prices, was only marginally profitable.

Cyprus officials worked to squeeze more profits from these other businesses. They exchanged shares in three small Australian mines for a larger interest in a more efficient Queensland, Australia operation. They also consolidated some Kentucky operations and closed some costly Kentucky coal mines.

But while attention was beginning to focus on efficiency, acquisitions were by no means finished. In 1989 Cyprus entered two new businesses when Barr leased the inactive Groundhog zinc mill in Deming, New Mexico and paid $52 million for the Reserve Mining Company’s Babbit iron mine and processing plant in Silver Bay, Minnesota. Since Reserve’s mine had been idle since LTV’s 1986 bankruptcy, Cyprus had to spend an additional $30 million on capital improvements to bring it up to speed. By March of 1993 the mine was up for sale.

In 1990 Cyprus zeroed in on costs, budgeting $200 million to increase efficiency. Copper had earned most of the company’s $111 million in 1990 profits and remained very profitable. To keep it so, the company installed larger haul trucks and a power shovel at Sierrita and took steps to correct problems with metal recovery, stripping, conveyors, and ore grade at Twin Buttes. At Miami, it began a $100 million smelter expansion and modernization project, which would make the company self-sufficient in smelting and reduce overall copper production costs.

Cyprus Coal suffered from cost increases despite state-of-the-art long wall equipment at Twentymile and Emerald and good longwall equipment at Plateau and Empire. At Shoshone, failed longwall machinery led to $25 million worth of repairs, and at Kanawha lower reserves and higher reclamation costs led to $31 million in writedowns.

Most of Cyprus’s other products seemed to be in a down cycle. A Molybdenum glut caused $50 million in losses at the Tonopah mine, which Cyprus put on a care and maintenance basis. Lithium production shifted to a low-cost Chilean operation where the company completed a $9 million expansion. Talc suffered from the maturing product life cycle of Airways Vapor and needed to return to what the company called “acceptable levels of profitability.”

In February of 1991 Barr retired. Board member Calvin A. Campbell, Jr., became chairperson and Chester B. Stone, Jr., who had previously been chief financial officer and senior vicepresident for coal and iron ore, became president and chief executive officer.

That year a worldwide economic slowdown dragged earnings down to $42.7 million on sales of $1.9 billion. Copper prices fell one-third from their 1988 high, molybdenum prices remained depressed, and spot coal prices continued to decline. Despite lower prices, copper continued to lead the way, combining with molybdenum to report operating earnings of $132 million on revenues of $905.7 million. Coal finished $4 million in the black despite falling prices and a strike at the Empire mine in Colorado. What dragged profits down were $37.6 million in combined losses from lithium, gold, iron ore, zinc, and talc, including a $35 million pretax writedown for the sale of the company’s talc business.

In early February 1992, Stone announced his retirement as president and CEO, and Campbell assumed both of those posts. Campbell was an interim choice but by no means a caretaker. “There’s so much to be done at Cyprus and the things that have to be done have to be done now,” he told the New York Times. Indeed copper, coal, and other minerals were all losing money by mid-1992 and needed immediate attention.

Campbell outlined his strategy for the company in Cyprus’s 1991 annual report. He planned to narrow the company’s focus to copper and coal and possibly one other material. Moreover, he aimed to develop low cost international sources of copper, increase marketing expertise, and reduce costs by a variety of means, including reducing staff. By mid-March Campbell announced plans to review the cost of goods and services and lay off 25 percent of the company’s headquarters staff.

In April of 1992, Cyprus named Milton H. Ward chair and chief executive. Ward almost immediately wrote down $315 million in assets and told security analysts, according to the New York Times, that he would update the company’s mining equipment and narrow Cyprus from eight commodities to three or four, including copper, coal, and lithium.

As Cyprus Minerals headed into 1993, it hoped to grow through carefully selected acquisitions. The company also planned such internal improvements as an increase in its coal-producing capacity and a heightened dedication to environmental responsibility.

Principal Subsidiaries

Cyprus Coal Co.; Cyprus Western Coal Co.; Cyprus Yampa Valley Coal Corp.; Colorado Yampa Coal Co.; Twenty-Mile Coal Co.; Cyprus Mountain Coals Corp.; Buckhorn Processing Co.; MCI Mining Corp.; Cyprus Metals Co.; Sociedad Chilena de Litio Limitada; Minera Bismark S.A. de C.V.