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Plans for cost cuts raise hopes, worries

Guest author

Phelps Dodge Corp. says it will evaluate all its operations once its buyout of two other copper giants is complete.

That raised hopes for a stronger copper industry, but it also had workers their ranks already recently depleted by about one in four worried about jobs and shutdowns.

Late Tuesday, Phelps Dodge said Asarco Inc. had accepted its sweetened offer. Cyprus Amax Minerals Co. had taken the same step a week earlier.



The resulting combination will make Phelps Dodge the world’s largest copper producer and will consolidate virtually all of Arizona’s copper industry under one corporate roof.

Phelps Dodge already had said it can squeeze $200 million in annual cash savings out of the combination within two years.



Steve Whisler, president and chief operating officer, said Wednesday he’s confident of turning the combination into ”a very powerful cash generating machine.”

Acquisition of Cyprus Amax Minerals Co. and Asarco Inc. for a combined $2.9 billion is to close within two weeks.

The deal doubles Phelps Dodge’s copper reserves, to 143 billion pounds, and doubles annual production potential to 3.8 billion pounds, or about 15.6 percent of global capacity.

At the core of the new company, he said, are five outstanding properties, including Morenci and four in South American, that can produce 2 billion pounds of copper a year for an average of less than 50 cents a pound.

That gives the company great flexibility, Whisler said, in riding out tough times and holding back full production until markets improve.

Whisler said the company will begin to evaluate all operating properties with an eye to decisions about their future within 90 days.

”Our goal is to bring the best people, the best processes and the best ideas from all three companies to the combined operation,” he said.

Earlier this year, under pressure of overproduction and reduced demand that had dropped copper prices to about 61 cents a pound, Arizona’s employment within the industry was sliced from about 10,200 in January to about 7,400 now. Of those, about 7,300 are employed by the three firms that are merging.

”Obviously, there are opportunities to integrate operations. That was a key driver for these acquisitions,” Phelps Dodge spokesman Clay Allen said.

Allen said the company plans to shut the Cyprus Amax office in Tempe and Asarco’s Tucson office. Others said Phoenix-based Phelps Dodge probably would close Cyprus headquarters in Englewood, Colo., and Asarco’s in New York.

The company also might benefit in cutting ”marginal production,” said metals analyst Kurt Billick of San Francisco. He said that might further boost copper prices, now around 80 cents a pound, while further cutting costs.

Nyal Niemuth, a mining engineer with the Arizona Department of Mines and Mineral Resources, said he expects a lot of ”upper-level managers” at the Asarco and Cyprus properties to go ”down the road” but that closing properties isn’t a given.

The only thing that is certain, he said, is that Phelps Dodge will take an ”inside look” at all the properties and put its capital to the best use.


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