Magma Copper Company
Magma Copper Company
Magma Copper Company
Sales: $819 million
Stock Exchanges: New York
SICs: 1021 Copper Ores
Magma Copper Company is one of the largest copper producers in the United States. The company’s 1992 copper output of 566.8 million pounds included its two primary products, high-quality copper cathode and high-quality copper rod from both magma mines and custom sources. Copper rod, about half of Magma’s copper production, is the fundamental raw material of the copper wire and cable industry. Magma owns and operates three copper mines in southeastern Arizona: an underground copper sulfide mine and open pit copper oxide mine at San Manuel; an open pit copper sulfide mine at Pinto Valley; and an underground copper sulfide mine at Superior. The San Manuel and Pinto Valley sites are home to facilities for leaching and solvent extraction-electrowinning (SX-EW), a chemical method for processing copper. At San Manuel, Magma operates the largest flash furnace in the world. This smelting and refining complex, operated by the company’s Magma Metals Company subsidiary, is the most modern in the United States and represents close to one-fourth of the nation’s smelting capacity. The smelter is capable of processing more than one million tons of copper concentrate per year, enabling Magma to process not only all of its own copper output, but also copper from outside sources, either purchased or on a custom basis. In addition to copper, Magma produced 5.2 million pounds of molybdenum, a metal used in strengthening steel, and residues containing 106,000 troy ounces of gold and 2.7 million troy ounces of silver in 1992.
In 1877, production began at the Silver Queen Mine in the Hastings Pioneer Mining District in the Arizona territory. This district later became Superior, and it was here that Magma Copper Company was organized in 1910, holding the Silver Queen mining property. The company’s founder was Colonel William Boyce Thompson, a mining engineer turned Wall Street trader, who went on to create Newmont Mining Corporation eleven years later as a holding company for his collection of mining investments, his holding in Magma prominent among them. Magma’s underground mine at Superior first went into production in 1912. In 1914, the Magma Arizona Railroad Company was founded, linking the Superior site with the Southern Pacific Railroad system about 28 miles away. Magma’s first smelter was constructed at Superior in 1924.
Magma gradually rose through the ranks during the 1930s and 1940s, and by 1950 was the eighth largest copper producer in the United States. The company was working only the Superior mine during this period, and its ascent was possible because of the exceptional richness of Superior’s ore, which was 6.0 percent copper. It was Magma’s acquisition and subsequent development of San Manuel over the next several years, however, that truly launched Magma into a position of prominence in the copper industry. The area around San Manuel had been a center of mining activity since late in the nineteenth century. In 1879, gold and silver mines had been started in the Old Hat District around Mammoth, and molybdenum and vanadium mines appeared at Tiger between 1915 and 1920. The Tiger mines were purchased in 1934 by St. Anthony Mining Company, which soon began producing lead and zinc there. During the early 1940s, the federal government began to take an interest in the area, hoping to address war-time copper needs. The War Production Board in 1942 investigated for copper in the Mammoth area, and exploration drilling was undertaken at Red Hill in the San Manuel region by the U.S. Bureau of Mines from 1943 to 1945.
In 1944, Magma consolidated and purchased the bulk of the San Manuel mineral claims, and began its own program of drilling and exploration. Underground exploration and development at San Manuel began four years later. It soon became clear that San Manuel was a major copper discovery, containing what was estimated at the time as 480 million tons of copper ore, with the existence of further orebodies nearby suspected. The cost of developing the mine, plant, community, and railroad was estimated at $111 million, and to help offset this, Magma borrowed $94 million from the U.S. government in 1952. Construction on the surface plant began the following year.
Magma’s assets by the end of 1952 were $6.2 million. The company’s capital structure in the first half of the 1950s was simple, consisting entirely of just under one million shares of outstanding common stock, 40 percent of which was owned by Newmont Mining, Lazard Freres, and company management. Magma’s activities during this period were almost entirely confined to two pursuits, copper production at Superior and development of the San Manuel mine. In 1953, the development of a new ore bed in the Superior mine allowed Magma to increase its production by about 50 percent over the previous year. This increase in output, accompanied by record copper prices, led to earnings that year of $3.48 per share, compared to 58 cents per share in 1952.
Production at San Manuel began in 1956, with the first stopes undercut and the start-up of smelting operations there. With the flow of copper from San Manuel’s 500 million-ton reserves, Magma soon jumped from eighth to fourth-largest among copper producers in the United States. Nevertheless, because of the vast sums being poured into the development of San Manuel, Magma’s potential as a big money-earner appeared to be years away from fruition. Dividends had been suspended in 1949, shortly after the acquisition of San Manuel, and their reinstatement did not seem likely until the huge government loan could be retired, an event not scheduled to occur until 1973. Between 1956 and 1962, the value of Magma common stock was cut in half.
Nevertheless, Magma’s potential was recognized by the management of Newmont Mining. In 1962, Newmont acquired 784,842 additional shares of Magma stock, offering Magma stockholders three-fourths of a share of Newmont preferred stock for each Magma share. Added to the 285,961 Magma shares that Newmont already owned, this gave Newmont 80.6 percent ownership of Magma. The acquisition was part of Newmont president Plato Malozemoff s strategy of domestic investment, thereby reducing the company’s reliance on foreign holdings, particularly those in southern Africa. Over the years, the share of Newmont’s income originating abroad had grown to well over 50 percent. As part of the deal, Malozemoff was able to refinance Magma’s government loan, enabling Magma to resume paying dividends. Following the acquisition, the Justice Department charged Newmont, Magma, and Phelps Dodge with antitrust violations, based on interlocking directorships and Magma’s 3 percent interest in Phelps Dodge. Newmont was ordered to divest Magma. This order was successfully dodged, however, and Newmont satisfied the Justice Department by getting rid of its Phelps Dodge holdings and removing the Phelps Dodge directors from its own board.
Magma continued to increase its production capacity throughout the 1960s. In 1965, expansion at San Manuel raised its daily ore output from 30,000 to 40,000 tons. In 1968, Magma purchased the Kalamazoo, Arizona copper property of the Houston-based Quintana Minerals Ltd. for $27 million. The purchase of the Kalamazoo orebody roughly doubled the size of Magma’s copper reserves up to one billion tons. The Kalamazoo mine was located about a mile west of San Manuel, and although its size and composition were much like those of San Manuel, its ore lay much deeper, beginning at about 2,500 feet below the surface. The acquisition was a three-way deal, with Quintana receiving about 42,000 shares and $15 million from Magma, plus about $5 million and 72,000 shares from Newmont. Newmont in turn received 170,000 shares of Magma common stock. Magma’s net income was $10.9 million in 1968, lower than expected due to strikes in the copper industry.
Magma was fully merged into Newmont Mining Corporation in 1969. In return for each share of Magma, minority stockholders received .85 share of newly issues Newmont convertible preferred stock valued at $4.50 per share. The merger, which made Magma a wholly owned subsidiary of Newmont, contributed to Newmont’s shift toward reliance on domestic income. By 1970, 65 percent of Newmont’s net income originated in the United States and Canada, and also thanks to Magma, three-fourths of its revenues were provided by copper. Magma’s 1969 earnings jumped to $26.2 million, more than double the previous year. The company’s copper output for that year was 113,000 tons.
In March of 1970, construction was started on a new electrolytic copper refinery at San Manuel. The refinery’s capacity was to be 200,000 tons per year, and construction and engineering on the $30 million project were to be provided by Bechtel Corporation. Meanwhile, an additional $100 million was being poured into the expansion of San Manuel’s smelting and concentrating facilities, as well as upgrades at the Superior site. In 1971, Magma president Wesley P. Goss announced that the Superior smelter, which had closed in July of that year due to a strike, would not be reopened. As expansion at San Manuel progressed, larger amounts of copper concentrate produced at Superior were shipped to San Manuel for processing. By consolidating smelting operations at San Manuel, Magma saved the cost of altering the aging Superior smelter to meet antipollution regulations.
Magma made the transition beginning in 1972 from producing only anode copper to producing commercial cathode and continuous copper rod, and also became fully integrated, processing all of the copper that it produced. The company’s ore processing capacity was expanded in 1972 from 40,000 to 60,000 tons per day. Under company president Wayne Burt, who took over in 1972, the sum invested in San Manuel, including mining costs, processing facilities, company town, and six-mile railroad from the mine to the mill, had reached a total of $460 million by the end of 1977. A world record 300 million tons of copper ore hoisted from underground had been produced at San Manuel through Magma’s deep-level block caving system by 1978. By that year, mining at San Manuel, which had begun at 1,475 feet, had reached a depth of 2,375 feet. And two-thirds of the mine’s reserve had not yet been tapped, not to mention the nearby Kalamazoo orebody which was still in the early stages of development. In 1978, with worldwide copper consumption at a record pace, Magma’s earnings rose to $13 million, up from $701,000 the previous year, on sales of $274 million, compared to $236 million in 1977. Magma sold 172,000 tons of copper in 1978, an increase of 18.6 percent. The Superior division, reopened since 1973 with a new mine plant in operation, was operating at capacity, and San Manuel slightly below capacity throughout 1978. By 1980, Magma had captured seven to ten percent of the domestic copper rod market. Magma’s position in the industry was somewhat unique, in that it sold its entire production to outside users on annual contracts, while competitors such as Phelps Dodge and Kennecott were selling theirs to fabricating subsidiaries, and others such as Asarco were smelting and refining copper produced elsewhere. Magma’s major customers included GK Technologies’ General Cable Co. and Western Electric Co., a unit of AT&T. These two companies combined accounted for about 16 percent of Magma’s sales in 1979.
By 1980, Magma was among the lowest-cost producers of copper in the United States, with a net cost, adjusted for byproduct credits, of about 70 cents a pound. These byproducts included over 44,000 ounces of gold, 1 million ounces of silver, and 3.3 million pounds of contained molybdenum sold in 1979. In 1980, Magma’s production was slowed by a four-month labor strike beginning in July, as well as 16 days of lost production at San Manuel due to an underground mine fire. Nevertheless, by 1981, copper production at Magma was back up to over 65,000 tons per day, working the mills to capacity and keeping the refinery operating at 85 percent of its 215,000 ton per year capacity. About three-fourths of Magma’s refined copper output was converted to copper rod at the company’s continuous cast mill.
The Superior Division of Magma was shut down once again in 1982 for economic reasons. This time the mine would remain idle until 1990. In 1983, Gordon Parker succeeded Hurt as Magma’s president and chief executive officer. Burt retained his positions as chair of Magma’s board and senior vice-president of operations at Newmont. Parker had been a Newmont vice-president since 1981, and had been with the company since 1959, primarily working in the company’s southern African operations. In 1984, Magma purchased the Hawthorne Works continuous cast copper rod mill in Cicero, Illinois from AT&T Technologies. The purchase increased Magma’s rod capacity to about 300,000 tons per year.
Development began in 1985 on the open pit oxide mine at San Manuel, and operations there commenced the following year. These operations included dump leaching of waste and a solvent extraction/electrowinning (SX-EW) plant. Newmont recapitalized Magma in 1986, and the Pinto Valley operation was contributed to Magma as an operating division. Pinto Valley, located five miles west of Miami, Arizona, was an open pit sulfide mine, with facilities capable of producing 260,000 tons of concentrates containing 80,000 tons of copper per year.
In 1987, Newmont spun off Magma to its stockholders. One share of Magma common stock was issued for each outstanding Newmont share. Newmont, which retained 15 percent interest in Magma, was in the process of selling off properties in the aftermath of a failed takeover attempt. By spinning off Magma, Newmont accomplished two things. It saved itself the cost of bringing San Manuel up to environmental standards, an ongoing struggle that had contributed to operating losses at Magma since 1980; and it essentially removed Newmont from the volatile copper industry, allowing the company to concentrate almost exclusively on its gold operations.
Magma recorded its first profit in nine years in 1988, as copper prices rebounded to $1.50 a pound from a low of 60 cents the year before. The company earned over $56 million, after posting a $41 million loss in 1987. Revenue grew about 50 percent to $607 million. The company’s new flash furnace at San Manuel, the largest in the world, went into production in 1988. With a capacity of over one million tons of copper concentrate per year, the smelter represented about 21 percent of the smelting capacity in the United States. In April of 1988, Magma’s CEO Brian Woolfe died suddenly. His successor was J. Burgess Winter, formerly a senior vice-president at BP Minerals America. In 1989, Magma bought back its remaining shares held by Newmont as part of a recapitalization plan.
Magma set company records in several areas in 1990. Net income was over $84 million, a 44 percent increase over 1989. The company’s refined copper output for the year was 469.8 million pounds, not including custom smelting. Another record was set by the production of 115.7 million pounds of copper using the SX/EW process, 24 percent higher than the 1989 figure. 1990 also brought the formation of Magma Gold Ltd., a subsidiary for the possible expansion into gold mining activities, particularly at the McCabe mine in Humboldt, Arizona.
Operations were also resumed at the Superior mine in 1990, ending eight years of closure due to high operating costs and low productivity.
In 1991 Magma gained 100 percent ownership of the Robinson mining district, an operating copper and gold orebody containing large copper reserves located near Ely, Nevada. Magma gained 100 percent ownership the following year. Magma had purchased a majority interest in Robinson late in 1990. The more recent purchase gave Magma the 41 percent share previously held by minority partner Alta Gold Co., based in Salt Lake City, for $29 million. A January 1992 feasibility study indicated that Robinson could potentially contribute 125 million pounds of copper and 86,500 ounces of gold per year at a relatively low cost over 16 years of mine life. In October of 1991, Magma management and ten labor unions representing its work force signed a new agreement that was revolutionary both in its content and in the process that led to its creation. The most notable aspect of the contract was its length, fifteen years, including a guarantee of eight years with no work stoppages. The contract negotiations utilized a unique worker participation program, in which work-redesign teams composed of both workers and managers were organized to address specific problems.
The new labor agreement gives Magma an edge over its competition as the twentieth century draws to a close. With ore reserves in place sufficient to carry the company into the next century, Magma’s position in the industry appears secure, thanks largely to its gigantic smelting and refining facility at San Manuel. Much will depend upon Magma’s ability to develop international sources for concentrate feed for the smelter as well as bring the Robinson property on line and proceed with other ore reserve development projects.
Magma Metals Co.; Magma Gold Ltd.; Magma Nevada Mining Co.; Magma Arizona Railroad Company; San Manuel Arizona Railroad Company; Magma Limited Partners Co.
“San Manuel Development Will Make Magma 4th Largest U.S. Copper Mine,” Barron’s, January 4, 1954; “Newmont Mining Boosts Magma Holdings to 80.6% Through Exchange Offer,” Wall Street Journal May 10, 1962; “Fair Exchange,” Forbes, May 1, 1963; “Newmont Mining Enjoys a Richer Dividend Take,” Barron’s, September 28, 1964; “Magma Copper Agrees to Buy Arizona Tract of Quintana Minerals,” Wall Street Journal, March 19, 1968; “Acquisition by Newmont of the Rest of Magma is Approved by Holders,” Wall Street Journal, May 6, 1969; “Magma Starts Building $30 Million Gopper Refinery in Arizona,” Engineering and Mining Journal, April 1970; “Newmont Mining a Sound Value,” Financial World, July 1, 1970; “Magma Copper Co.,” Engineering and Mining Journal, September 1971; Jackson, Dan, “Block Caving Keeps San Manuel Competitive,” Engineering and Mining Journal, June 1978; “Magma Sales, Earnings Increase in ‘78,” American Metal Market, April 6, 1979; Crown, Judith, “Magma Garners 7-10% of US Copper Rod Market,” American Metal Market, June 3, 1980; “Efficiency, Byproducts Ease Magma’s Costs,” American Metal Market, April 24, 1981; “Gordon Parker Elected Magma President, CEO,” American Metal Market, December 20, 1983; Jordan, Carol, “Magma Buys AT&T’s Copper Rod Facility,” American Metal Market, October 4, 1984; Bair, Karen, “Newmont Spin Off of Magma Becomes Effective March 20,” American Metal Market, March 12, 1987; Slovak, Julianne, “Magma Copper Co.,” Fortune, December 5, 1988; “Magma Posts Turnaround in ‘88,” American Metal Market, February 8, 1989; Ray, Keith “Magma Copper Sets Up Gold Mining Subsidiary,” American Metal Market, October 30, 1990; “Magma Copper Sets ‘90 Net Mark,” American Metal Market, February 4, 1991; “Magma Buys Alta Shares,” American Metal Market, October 2, 1991; Miller, William H., “Metamorphosis in the Desert,” Industry Week, March 16, 1992; Magma Copper Company 1991 Annual Report, Tuscon, Arizona: Magma Copper Company, 1992.
—Robert R. Jacobson