Cyprus Amax Minerals Company
Cyprus Amax Minerals Company
Employees: 10,000 (1997)
Sales: $2.8 billion (1996)
Stock Exchanges: New York
SICs: 1021 Copper Ore Mining; 1222 Bituminous Coal Underground Mining; 1221 Bituminous Coal & Lignite Surface Mining; 1061 Ferroalloy Ores Except Vanadium
Established in 1993 through the merger of Cyprus Minerals Company and Amax Inc., Cyprus Amax Minerals Company is the largest U.S.-owned mining company. Cyprus Amax is the world leader in the production of molybdenum and lithium and a leading producer of copper and coal. Cyprus also produces iron ore and gold. The company operates in 24 states and on six continents, conducting base and precious metals exploration worldwide.
Late 1960s Origins of Cyprus
The Cyprus Minerals Company first appeared in July 1985 as a spinoff of 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, which were all 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 $1 to 60 cents a pound.
Cyprus experienced extensive losses in 1984 and 1985. Ironically, these losses induced cost cutting that put Cyprus in a position to grow once it became independent from Amoco, which decided to spin it off in July 1985. “As a spin-off,” 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.”
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, and 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 them, 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 write-downs totaled $675.7 million. Nevertheless, Barr told Barren’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.
Profitable in the 1980s
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 its officers had hoped. The coal operation had been on its way to a very good year, but the LTV Corporation filed for Chapter 11 protection in U.S. Bankruptcy Court 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 Barron’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 Pinos 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, began a process of vertical integration. The company was nearly self-sufficient in smelting, resulting in huge cost-savings.
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 operation in Queensland. 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 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 1991 Barr retired. Board member Calvin A. Campbell, Jr., became chairman and Chester B. Stone, Jr., who had previously been chief financial officer and senior vice-president 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 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. For the year, the company reported earnings of $92.5 million on $1.6 billion in revenue.
Merging with Amax: The 1990s and Beyond
One year after Ward took the helm, Cyprus announced a deal described as “what may be the single largest transaction in this history of mining”: a merger with Amax Co., a mining company based in New York with interests in coal and gold. The combined company, to be named Cyprus Amax, would have revenues of $2.8 billion and more than 26,000 employees—though that number was expected to drop by half through streamlining—and would be capable of producing more than 70 million tons of coal a year. Ward stressed the economies that could be achieved by combining operations. The companies agreed to spin off Amax’s Alumax aluminum division as a separate company; however, the 40 percent stake in Amax Gold, a small exploration company, was considered a valuable property. “Gold is an important commodity in our portfolio and one we plan to grow over the next few years,” said Ward. “We want to be a major gold producer.” In December 1993 Cyprus Amax signed an agreement with the Republic of Guinea on Africa’s Gold Coast to explore and develop that country’s gold reserves. A few weeks later, Vice-President Al Gore announced backing for Cyprus Amax’s Siberian mining efforts from the Overseas Private Investment Corp., an agency formed to help U.S. firms invest in the states of the former U.S.S.R.
In January 1995, Cyprus Amax announced that as a result of surging molybdenum prices it planned to reopen the historic Climax molybdenum mine in California, which had been closed since 1987. Commentator Janet Day noted at the time that the fortunes of molybdenum—which is used in stainless steel and other alloys—are closely tied to those of the steel industry, with the resulting life cycle for mines like Climax: “Boom, bust. Up, down. Open, closed.” And indeed, the mine closed again just four months later in response to a drop in molybdenum prices from $15 to $5.75 a pound.
Cyprus Amax continued to pursue its aggressive schedule for cost cutting and increased production, with headcount already reduced by 2,000 since the merger. In July the company finalized financing for its 51 percent share of the El Abra copper mine in Chile; the rest was owned by Codelco, the Chilean state copper company. Ward called E1 Abra “the centerpiece of Cyprus Amax Minerals’ copper strategy into the 21st century and the key to our production goal of more than one billion pounds of copper annually.” Its investment in the mine was more than $1 billion. In 1996 a sudden drop in copper prices to their lowest prices in two years forced Cyprus Amax to withdraw a stock offering of 12 million shares and drastically affected second-quarter earnings. For the first half of the year the company reported earning $115 million on sales of $1.4 billion, down from $231 million on sales of $1.7 billion in 1995. In October tragedy struck, as a tunnel collapsed at Cyprus Amax’s El Abra copper mine in Chile, killing four workers. The Chilean state mining service severely criticized the mine for having substandard safety measures, noting that there had been three other deaths at the mine earlier in the year. The mine achieved its first commercial production of copper in December.
At the end of the year Cyprus Amax’s revenues and earnings were both down from 1995, with earnings of $151 million on revenues of $2.8 billion. According to Ward, increased production was “more than overshadowed by lower prices for all of our products.” Ward also announced that the company would seek to reduce its stake in Amax Gold.
Cyprus Amax began 1997 on a high note, announcing an agreement to acquire 80 percent of the Kansanshi copper mine in Zambia. Shortly thereafter, however, the company was forced to spend $80 million on environmental cleanup at two of its Arizona mines. “It is not uncommon for mining companies to have environmental charges,” said Jeff Middleswart, an analyst with David W. Tice & Associates, and “Cyprus is pretty decent about environmental cleanup, so I’m not overly concerned.” Next Cyprus notified 611 employees of mine neer Keensburg, Illinois, that the mine might close if the company could make more money by selling its only supply contract to another producer, and first quarter earnings dropped eight percent, to $57 million. Ward continued to stress the company’s very real accomplishments and huge potential, noting that the E1 Abra mine had begun producing ahead of schedule, the company’s Refugio mine in Chile began production n 1996, the Fort Knox mine in Alaska had poured its first gold and was nearing commercial production, the Kubaka mine in Alaska would be pouring its first commercial gold in the first quarter of 1997, and the Twentymile mine near Steamboat Springs had doubled production in 1996.
Algeo, David, “Cyprus Cancels Stock Sale,” Denver Post, June 18, 1996.
Day, Janet, “Climax a Veteran of Boom, Bust,” Denver Post, April 23, 1995.
Mark, Imogen, “Deaths Deepen Fears at Chile Copper Mine,” Financial Times, October 19, 1996.
Norman, James R., “Will the Bargain Still Be a Bargain?,” Forbes, June 11, 1990.
Rosenberg, Hilary, “Richer Vein,” Barron’s, April 21, 1986.
Rounds, Michael, “Cyprus Minerals Reports 1992 Earnings of $92.5 Million before Special Charges of $426.1 Million,” PRNewswire, January 26, 1993.
Smith, Kerri S., “Cyprus Cleanup Tab,” Denver Post, January 22, 1997.
Wells, Garrison, “Mining Merger On-of-a-Kind Deal,” Denver Business Journal, May 28, 1993.
—updated by Paula Kepos