FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 1-10122
Magma Copper Company
(Exact name of registrant as specified in its charter)
Delaware 86-0219794
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 N. Oracle Rd., Suite 200
Tucson, Arizona 85704
(Address of Principal executive offices) (Zip Code)
(602) 575-5600
(Registrant's telephone number, including area code)
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
at September 30, 1994: 46,011,159
<PAGE>
MAGMA COPPER COMPANY
Form 10-Q
For the Quarter Ended September 30, 1994
INDEX
Page
Number
Part I - Financial Information
Item 1 - Financial Statements
Introduction to the Financial Statements 1
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 2
Consolidated Statements of Operations-
Three months and nine months ended
September 30, 1994 and 1993 3
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1994 and 1993 4
Notes to Consolidated Financial Statements 5
Report of Independent Public Accountants 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results
of Operations 9
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K 15
Signature 16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The financial statements for the three months and the nine months ended
September 30, 1994 and 1993 include, in the opinion of the Company, all
adjustments (which consist only of normal recurring adjustments) necessary to
present fairly the results of operations for such periods. Results of
operations for the three months and nine months ended September 30, 1994, are
not necessarily indicative of results of operations which will be realized
for the year ending December 31, 1994. The financial statements should be
read in conjunction with the Company's Form 10-K, for the year ended December
31, 1993.
The financial statements included herein have been subjected to a
review, in accordance with the standards established by the American
Institute of Certified Public Accountants, by Arthur Andersen LLP, the
registrant's independent public accountants.
<PAGE>
<TABLE>
MAGMA COPPER COMPANY
Consolidated Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
Assets 1994 1993
------ ------------- ------------
<S> <C> <C>
Current Assets:
Cash $ 114,494 $ 230,414
Marketable securities 203,639 108,890
Accounts receivable 65,450 51,090
Inventories:
Metals 75,419 53,676
Materials and supplies 25,640 25,045
Prepaid expenses 14,661 10,883
--------- ---------
Total current assets 499,303 479,998
--------- ---------
Net Property, Plant and Mine
Development 910,032 866,361
--------- ---------
Other 12,609 4,428
--------- ---------
Total Assets $1,421,944 $1,350,787
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 19,525 $ 17,952
Accrued liabilities 121,828 89,208
Current portion of long-term debt 5,703 12,395
Income taxes payable 320 --
--------- ---------
Total current liabilities 147,376 119,555
--------- ---------
Accrued Pension, Retirement and
Other Liabilities 63,180 62,208
Deferred Income Taxes 97,899 96,592
Long-Term Debt 387,840 392,260
Commitments and Contingencies
Stockholders' Equity:
Cumulative convertible preferred
stock, Series D 20 20
Cumulative convertible preferred
stock, Series E 20 20
Common stock 460 457
Capital in excess of par value 624,267 620,282
Retained earnings 103,885 62,059
Unearned stock grant compensation (3,003) (2,666)
--------- ---------
Total stockholders' equity 725,649 680,172
--------- ---------
Total Liabilities and
Stockholders' Equity $1,421,944 $1,350,787
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MAGMA COPPER COMPANY
Consolidated Statements of Operations
(In thousands, except per share amounts)
<CAPTION>
Three Months Nine months
ended September 30, ended September 30,
------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $227,074 $211,877 $622,140 $596,632
Cost of sales:
Cost of products sold (165,175) (166,571) (464,964) (489,058)
Depreciation, depletion
and amortization (18,993) (18,798) (53,859) (48,509)
Selling, general and
administrative (5,416) (5,682) (16,353) (15,985)
Exploration, research
and development (3,184) (2,494) (9,533) (6,017)
------- ------- ------- -------
Income from operations 34,306 18,332 77,431 37,063
Other income (expense):
Interest expense (6,715) (9,105) (18,778) (28,248)
Interest income 1,334 2,189 8,211 6,658
Other (204) 675 525 3,358
------- ------- ------- -------
Income before income taxes and
cumulative effect of accounting
change 28,721 12,091 67,389 18,831
Income tax provision (6,400) (3,332) (16,847) (5,084)
------- ------- ------- -------
Income before cumulative effect
of accounting change 22,321 8,759 50,542 13,747
Cumulative effect of accounting
change, net of tax -- -- -- (888)
------- ------- ------- -------
Net income $ 22,321 $ 8,759 $ 50,542 $ 12,859
======= ======= ======= =======
Preferred stock dividends (2,906) (891) (8,718) (891)
------- ------- ------- -------
Net income available for
common stock $ 19,415 $ 7,868 $ 41,824 $ 11,968
======= ======= ======= =======
Earnings per share of common
stock, primary:
Income before cumulative
effect of accounting
change $ .45 $ .18 $ 1.03 $ .29
Cumulative effect of accounting
change, net of tax -- -- -- (.02)
------- ------- ------- -------
Net income $ .45 $ .18 $ 1.03 $ .27
Preferred stock dividends (.06) (.01) (.18) (.02)
------- ------- ------- -------
Earnings per share of common
stock $ .39 $ .17 $ .85 $ .25
======= ======= ======= =======
Average common shares
outstanding, primary 49,313 47,597 49,095 48,278
Earnings per share of common
stock, fully diluted:
Net income $ .35 $ .16 $ .80 $ .25*
======= ======= ======= =======
Average common shares outstanding,
fully diluted 63,409 53,144 63,444 50,148
* The Company's convertible preferred stock is not included in the
calculation as its effects are antidilutive.
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MAGMA COPPER COMPANY
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Nine months
ended September 30,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Net income $ 50,542 $ 12,859
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 53,859 48,509
Gain (loss) on sale of assets 26 (1,394)
Other 1,873 1,258
------- -------
106,300 61,232
------- -------
Change in certain assets and liabilities:
(Increase) decrease in:
Accounts receivable (14,359) (24,171)
Inventories (20,909) (3,424)
Prepaid expenses (3,778) (31)
Increase (decrease) in:
Accounts payable and accrued expenses 34,192 (5,239)
Income taxes payable 320 (13,372)
Accrued pension, retirement
and other liabilities 972 4,264
Deferred income taxes 1,307 (2,158)
------- -------
Net change in certain assets and liabilities (2,255) (44,131)
------- -------
Net cash provided by operating activities 104,045 17,101
------- -------
Cash flows from investing activities:
Capital expenditures (99,345) (89,497)
Marketable securities (94,748) 31,904
Proceeds from sale of assets 362 2,058
Other (8,107) (1,788)
------- -------
Net cash used by investing activities (201,838) (57,323)
------- -------
Cash flows from financing activities:
Long-term debt repayment (7,151) (1,000)
Long-term lease financing (3,960) (2,170)
Debt issuance costs (402) (942)
Issuance of common stock under stock plans 1,254 278
Issuance of common stock from warrants exercised 935 183
Issuance of preferred stock (85) 96,536
Preferred stock dividend (8,718) (891)
------- -------
Net cash provided (used) by financing activities (18,127) 91,994
------- -------
Net increase (decrease) in cash (115,920) 51,772
Cash at the beginning of the period 230,414 121,057
------- -------
Cash at the end of the period $114,494 $172,829
======= =======
Marketable securities 203,639 89,202
------- -------
Total cash and marketable securities $318,133 $262,031
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for -
Interest, net of amounts capitalized $ 17,344 $ 24,923
Income taxes $ 14,963 $ 20,008
Supplemental schedule of non-cash investing
and financing activities:
Purchase of property financed by note
payable and leases $ -- $ 8,928
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<TABLE>
<PAGE>
MAGMA COPPER COMPANY
Notes to Consolidated Financial Statements
Note 1 -- Basis of Consolidation
The accompanying consolidated financial statements include the accounts
of Magma Copper Company and its wholly-owned subsidiaries ("Magma" or the
"Company"). All material intercompany activity has been eliminated. Certain
amounts previously reported have been reclassified to conform to the current
presentation in the accompanying consolidated financial statements.
Note 2 -- Inventories
The components of inventories are as follows (in thousands):
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
Metals in process, net $ 56,107 $ 37,454
Finished goods 19,312 16,222
------- -------
Metals 75,419 53,676
Materials and supplies, net 25,640 25,045
------- -------
$101,059 $ 78,721
======= =======
</TABLE>
Note 3 -- Income Taxes
SFAS 109, "Accounting for Income Taxes", requires use of the liability
method for providing deferred income taxes, which generally records deferred
taxes for transactions reported in different years for financial reporting
and tax purposes.
In calculating income taxes, the Company has benefitted from deductions
for percentage depletion. In general, the Company's cumulative percentage
depletion deductions exceed cost basis of depletable properties, resulting in
current percentage depletion being treated as a permanent difference. The
effect of this permanent difference causes the effective tax rate to be
generally lower than the statutory tax rate.
The Company has recorded a provision for income taxes of $16,847,000 in
the first nine months of 1994. The provision for income taxes differs from
the amounts computed by applying the federal statutory tax rate to the net
income before taxes, as follows:
<PAGE>
<TABLE>
<CAPTION>
For the nine months ended
September 30, 1994
---------------------------
Dollars Tax Rate
(In millions) (percentage)
------------ -----------
<S> <C> <C>
Income tax provision
at federal
statutory rate $(23,586) (35)%
Percentage depletion 8,979 13
State tax (2,240) (3)
------- ---
Total provision $(16,847) (25)%
======= ===
</TABLE>
Note 4 -- Commitments and Contingencies
Recently, two individuals served the Company in a purported class action
lawsuit in federal district court in Arizona against the Company and two
other mining companies on behalf of a putative property owner class and a
putative medical monitoring class that live adjacent to Pinal Creek and/or
the Miami Wash downstream from mining properties currently operating by the
Company and another mining company. The complaint seeks response costs under
the federal Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") for alleged contamination of plaintiffs' drinking and domestic
use water because of groundwater contamination attributed to releases of
hazardous substances from the defendants' property. The complaint also seeks
common law damages for alleged loss of property value and increased risk of
adverse health effects, medical monitoring costs, and punitive damages. The
Company intends to vigorously defend this lawsuit.
The Company is from time to time involved in various legal proceedings
of a character normally incident to its business, including various claims
and pending actions against the Company seeking damages in large amounts or
clarifications of legal rights. Although there can be no assurance in this
regard, the Company does not believe that adverse decisions in any pending or
threatened proceedings, or any amounts which it may be required to pay by
reason thereof, would have a material adverse effect on the financial
condition or results of operations of the Company.
Note 5 -- Capitalized Interest
During the first nine months of 1994 and 1993, $13,115,000 and
$3,710,000, respectively, of interest cost was capitalized on certain long-
term projects. The total amount of interest cost incurred was $31,893,000
and $31,958,000 for the first nine months of 1994 and 1993, respectively.
Note 6 -- Disclosure About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash. The carrying amount approximates fair value.
Marketable Securities. In the first quarter of 1994 the Company adopted
SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities".
<PAGE>
Accordingly, certain of the Company's investments with an average maturity of
less than 2 years have been classified as available-for-sale securities and
are reported at their estimated fair value, based on quoted market prices for
those or similar investments. The Company utilizes the specific
identification method in computing realized gains and losses.
During the three month period ended September 30, 1994, the Company
received $10.0 million in proceeds from available-for-sale securities
resulting in no realized gains or losses. During the nine month period ended
September 30, 1994, the Company received $122.1 million in proceeds from
available-for-sale securities, including realized gains of $0.7 million and
realized losses of $0.2 million.
The Company anticipates selling a substantial portion of its marketable
securities to finance Tintaya and other projects. Accordingly, a provision
to recognize all unrealized holding losses was recorded during the third
quarter of 1994 in the amount of $2.5 million and offset against interest
income. Therefore, the change in unrealized holding losses, net of tax, for
the three month and nine month periods ended September 30, 1994 was $(1.7)
million and $0, respectively.
Long-Term Debt. The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues or
on the current rates offered to the Company for debt of the same remaining
maturities.
Price Protection Contracts. From time to time the Company enters into
options and futures contracts or fixed price forward sales agreements as a
hedge against lower copper prices. The carrying amount of these contracts
reflects the cost of the option premiums which will be amortized ratably as
the contracts expire. The fair value of these contracts is estimated based
on quotes from brokers and market prices at September 30, 1994.
The estimated fair values of the Company's financial instruments as of
September 30, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- -------
<S> <C> <C>
Cash $114,494 $114,494
Marketable securities 203,639 203,639
Long-term debt (includes
current portion) 393,543 418,012
Copper price protection
contracts 12,265 ( 21,373)
</TABLE>
The fair value estimates are made at discrete points in time based on
relevant market information and information about the financial instruments.
These estimates may be subjective in nature and involve uncertainties and
significant judgment and therefore cannot be determined with precision.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Magma Copper Company:
We have reviewed the accompanying condensed consolidated balance sheet
of MAGMA COPPER COMPANY (a Delaware corporation) and subsidiaries as of
September 30, 1994, and the related condensed consolidated statements of
operations for the three-month and nine-month periods ended September 30,
1994 and 1993 and the condensed consolidated statements 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 reviews 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 reviews, we are not aware of any material modifications
that should be made to the financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Magma Copper Company
and subsidiaries as of December 31, 1993, (not presented herein), and in our
report dated January 27, 1994, we expressed an unqualified opinion on that
balance sheet. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1993, is fairly
stated, in all material respects, in relation to the balance sheet from which
it has been derived.
Arthur Andersen LLP
Tucson, Arizona,
October 14, 1994.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL POSITION
Net income for the nine months ended September 30, 1994 was $50.5
million compared to $12.9 million for the same period in 1993. This increase
was primarily due to increased sales volume of Magma source copper and lower
unit costs in 1994, as well as the effects of the extraordinary rains and
flooding in Arizona during the first quarter of 1993. The rains and flooding
reduced pounds of copper sold and increased production costs which reduced
after-tax earnings for the first nine months of 1993 by $15.5 million.
Net cash provided by operating activities was $104 million during the
first nine months of 1994 compared to $17 million during the same period in
1993. This difference was due to higher earnings and timing differences in
payments for copper purchases and forward sales partially offset by increased
purchased copper inventory as a result of higher copper prices.
The Company's cash position and cash flow from operations were used to
fund capital expenditures of $99 million for the nine months ended September
30, 1994 as compared to $89 million for the same period in 1993.
Working capital at September 30, 1994 was $352 million (including $318
million in cash and marketable securities) compared to $360 million
(including $339 million in cash and marketable securities) at December 31,
1993.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Results of Operations for the Nine Months Ended September 30, 1994
As Compared with the Nine Months Ended September 30, 1993
Total sales increased 4% to $622 million in 1994 from $597 million in
1993. Sales of copper increased in 1994 to $556 million from $538 million in
1993 due to higher realized copper price for the Company's sales of purchased
copper.
Sales of other metal by-products and acid increased $6 million as a
result of higher prices for gold, silver, molybdenum and acid. Treatment
tolls earned increased $1.3 million as a result of an increase in volume of
material being processed on a toll basis.
Cost of products sold decreased by 5% to $465 million in 1994 from $489
million in 1993 due to improved unit production costs in 1994 and the effects
of the extraordinary rains and flooding in Arizona during the first quarter
of 1993. The lower overall unit production costs were partly offset by
increased sales volume of Magma source copper. The following table sets
forth the volume of copper sold in relation to the components that make up
cost of products sold:
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
(In millions)
1994 1993
-------- --------
<S> <C> <C>
Pounds sold from:
Magma sources 443.3 419.7
Purchased 129.2 153.5
----- -----
Total pounds of copper sold 572.5 573.2
===== =====
Toll Processing Pounds:
Returned as cathode 52.5 49.2
Returned as anode 20.6 15.2
Cost of Products Sold:
Magma sources $307.7 $324.4
Purchased 123.0 127.6
Tolling 10.4 9.3
Other 23.9 27.8
----- -----
Total cost of products sold $465.0 $489.1
===== =====
Per Pound Cost of Products Sold:
Magma Sources
Before credits $ .69 $ .77
Credits (1) (.11) (.09)
----- -----
Net $ .58 $ .68
===== =====
(1) Deductions for rod premiums, profit on by-products and custom
processing.
</TABLE>
Depreciation, depletion and amortization expense increased $5.4
million to $53.9 million in 1994 from 1993 as a result of increased sales
volume from Magma sources and depreciation of new assets.
Exploration, research and development costs increased $3.5 million as
a result of increased foreign and domestic exploration.
Interest expense decreased $9.5 million to $18.8 million in 1994 due
to interest capitalized on the Company's expansion projects.
Interest income increased $1.6 million to $8.2 million in 1994 as a
result of larger balances of cash and marketable securities than during the
same period in 1993.
Other income decreased $2.8 million to $0.5 million in 1994 due to the
completion of townsite sales in the first quarter of 1994.
The Company's provision for income taxes of $16.8 million for 1994 and
$5.1 million for 1993 reflects higher income in the current period.
At December 31, 1993, the Company adopted SFAS 112, "Employers'
Accounting for Postemployment Benefits". The Company elected to adopt this
statement early and to record the entire cumulative adjustment in the year of
<PAGE>
adoption. Under SFAS 112, $0.9 million (after tax) was charged to first
quarter 1993 earnings.
Net income in 1994 was $50.5 million, or $.80 per share fully diluted,
compared to $12.9 million, or $.25 per share in 1993. After dividends on
preferred stock, $41.8 million in 1994 was available for common stockholders,
or $.85 per share, compared to $12.0 million or $.25 per common share in
1993.
Results of Operations for the Three Months Ended September 30, 1994
As Compared with the Three Months Ended September 30, 1993
Total sales increased 7% to $227 million in 1994 from $212 million in
1993. Sales of copper increased in 1994 to $203 million, from $189 million
in 1993 due to a $.09 higher realized copper price.
Revenue from other sales increased $1.3 million as a result of an
increase in volume of material processed on a toll basis.
Cost of products sold decreased by $1.4 million to $165 million in
1994 due to lower volume of copper sold offset by higher cost of purchased
concentrates as a result of higher copper prices. The following table sets
forth the volume of copper sold in relation to the components that make up
cost of products sold:
<TABLE>
<CAPTION>
Three months ended
September 30,
(In millions)
1994 1993
------- -------
<S> <C> <C>
Pounds sold from:
Magma sources 145.2 157.9
Purchased 47.3 49.0
----- -----
Total pounds of copper sold 192.5 206.9
===== =====
Toll Processing Pounds:
Returned as cathode 24.3 12.1
Returned as anode 7.3 13.5
Cost of Products Sold:
Magma sources $101.9 $116.3
Purchased 51.1 38.8
Tolling 4.6 3.0
Other 7.6 8.5
----- -----
Total cost of products sold $165.2 $166.6
===== =====
Per Pound Cost of Products Sold:
Magma Sources
Before credits $ .70 $ .74
Credits (1) (.12) (.11)
----- -----
Net $ .58 $ .63
===== =====
(1) Deductions for rod premiums, profit on by-products and custom
processing.
</TABLE>
<PAGE>
Exploration, research and development costs increased $0.7 million to
$3.2 million due to increased foreign exploration.
Interest expense decreased $2.4 million to $6.7 million as a result
of interest capitalized on the Company's expansion projects.
Other income (loss) decreased $.9 million to $(.2) million in 1994 due
to the completion of townsite sales in the first quarter of 1994.
The Company's provision for income taxes of $6.4 million for 1994 and
$3.3 million for 1993 reflects higher income in the current period.
Net income in 1994 was $22.3 million or $.35 per share fully diluted,
compared to $8.8 million, or $.16 per share, in 1993. After dividends on
preferred stock, $19.4 million in 1994 was available for common stockholders,
or $.39 per share, compared to $7.9 million or $.17 per common share in 1993.
CAPITAL RESOURCES AND LIQUIDITY
The Company's earnings for the nine months ended September 30, 1994
before interest, taxes, depreciation, depletion and amortization ("EBITDA")
were $132 million, compared to $89 million in 1993, primarily the result of
lower current production costs and the effects of the extraordinary rains in
Arizona during the first quarter of 1993. Net cash provided by operating
activities was approximately $104 million and capital expenditures were $99
million. Cash and marketable securities at September 30, 1994 were $318
million. At that date the amount of available borrowings under the Company's
revolving credit agreement was $300 million.
The Company maintains an ongoing price protection program to ensure
adequate cash flow to meet operating expenses, service debt obligations and
to facilitate development of capital projects. Its price protection program
for the fourth quarter of 1994 includes forward sales of 60.7 million pounds
of copper, representing approximately 40% of its anticipated production, at
a price of $.82 per pound. At September 30, 1994, the price per pound of
high-grade copper on the Comex was $1.13. For 1995, the Company has put into
place forward sales commitments and put options covering approximately 7% and
93%, respectively, of its anticipated production (exclusive of its Tintaya
project, see below), creating a minimum realized price per pound of copper of
approximately $.86 on this production.
Recent Developments
On October 6, 1994, the Government of Peru declared Magma Copper
Company the winning bidder in the privatization of Empresa Minera Especial
Tintaya S.A., which owns one of the largest operating mining projects in
Southern Peru. Closing of the purchase is scheduled for November 30, 1994.
At closing, Magma will pay $218 million in cash and deliver $55 million face
value of Peruvian government debt (which currently trades at a discount to
face value) to acquire the project. In addition, the Company will be
required to make at least $85 million in capital expenditures over the next
five years on this project.
Based upon information provided to the Company in connection with the
acquisition, the Tintaya Project contains nearly 2 billion pounds of
recoverable copper. The project currently consists of an open pit mine which
has established reserves of 58 million tonnes of 1.78% sulfide copper ore.
<PAGE>
Current operations process 1.75% copper sulfide ore at the rate of 8,000
tonnes per day, producing approximately 110 million pounds of copper per
year. Over the next two years the Company intends to expand the mining rate
to 10,000 tonnes of ore per day, which would boost sulfide ore production to
135 million pounds of copper per year. The Company also intends to do a
feasibility study to evaluate how best to exploit a proven and probable
mineral resource estimated at 21.7 million tonnes of 1.57% oxide copper ore.
Based upon a preliminary analysis of the oxide orebody at Tintaya, the
Company believes that the project could support an SX-EW operation capable of
producing 70 million pounds of copper per year. The Company also believes
that if it is successful in expanding the current rate of sulfide production
and in establishing SX-EW production to achieve total copper production of
200 million pounds per year, Tintaya should be able to reduce its net cash
operating costs to the 50 cents per pound range.
Although the Company made an extensive evaluation of the Tintaya
Project prior to its acquisition, there are certain risks inherent in the
acquisition and operation of foreign properties including the risk of
political instability, the possibility of adverse economic or tax reforms,
restrictions on the repatriation of funds and currency risks. The Company is
pursuing measures to mitigate some of these risks.
Construction on Magma's Robinson Mine began on October 12, 1994,
following final approval of the project by the Bureau of Land Management (the
"BLM"). The BLM issued its final Environmental Impact Statement (the "EIS")
and approved the Company's Plan of Operation on September 9, 1994. Although
one appeal relating to the EIS was filed during the 30-day appeal period, the
Company believes it is without merit and it has had no effect on the BLM's
decision or the Company's construction activities at the minesite.
Production is expected to begin in the first quarter of 1996.
Currently, Robinson has defined copper and gold ore reserves of 252
million tons of 0.553% copper sulfide ore and 0.0102 ounces per ton of gold,
containing 2.1 billion pounds of recoverable copper and 1.8 million ounces of
gold. When the operation reaches planned production, the Company expects
Robinson to produce 135 million pounds of copper, 110 thousand ounces of gold
and 325 thousand ounces of silver annually over a 16-year period at a net
cash operating cost of less than $0.50 per pound.
The Robinson Project is expected to have an initial capital cost of
approximately $300 million. The funds will be used to purchase equipment,
construct a concentrator and develop the ore reserves. Based upon the results
of preliminary studies, the Company believes that the Robinson mine has
significant potential for further increases in production and ore reserves.
In addition to current cash balances, operating cash flow and
available borrowing capacity under its revolving line of credit, the Company
is reviewing a number of financing alternatives in connection with its
development of the Tintaya and Robinson mines and other capital projects.
During the first half of 1993 the Company's Pinto Valley and Superior
Mining Divisions were adversely affected by significant rainfalls which
caused flooding, water containment structural failures and operating
difficulties, as well as technical violations of various permitting
conditions and state surface water quality standards. The Company agreed to
enter into a consent decree with appropriate regulatory authorities to settle
all claims relating to this matter. The terms of the Settlement are being
reviewed by the Court. The Company expects the Settlement to be approved and
<PAGE>
finalized in the fourth quarter of 1994. Under the settlement, the Company
would pay fines totalling $625,000, and contribute monies towards or perform
several supplemental environmental projects costing approximately $200,000.
In addition, the Company expects to spend $8 million during 1994 and 1995 to
upgrade and expand its tailings and water containment facilities at these
divisions; these costs are being capitalized and will be amortized over the
remaining mine life.
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Statement re computation of per share
earnings.
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated October 6, 1994 relating to
the Company's Tintaya Project in Peru and Robinson Mine in
Nevada.
<PAGE>
Signature
---------
Pursuant to the requirement 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.
MAGMA COPPER COMPANY
Date: November 2, 1994
By: /s/ Douglas J. Purdom
--------------------------------
Douglas J. Purdom
Vice President and
Chief Financial Officer
(Principal Accounting
and Financial Officer)
<TABLE>
MAGMA COPPER COMPANY EXHIBIT 11
Computation of Per Share Earnings
(In thousands, except per share amounts)
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
------------------- -------------------
1994 1993 1994 1993
Primary ------- ------ ------- -------
-------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 49,313 47,597 49,095 48,278
Earnings used in per common
share computation:
Net income $22,321 $ 8,759 $50,542 $12,859
Preferred stock dividends (2,906) (891) (8,718) (891)
------ ------ ------ ------
Net income available
for common stock $19,415 $ 7,868 $41,824 $11,968
====== ====== ====== ======
Earnings per share:
Income before cumulative
effect of accounting change
and preferred stock dividends $ .45 $ .18 $ 1.03 $ .29
Cumulative effect of
accounting change,net of tax -- -- -- (.02)
------ ------ ------ ------
Net income $ .45 $ .18 $ 1.03 $ .27
====== ====== ====== ======
Preferred stock dividends (.06) (.01) (.18) (.02)
------ ------ ------ ------
Earnings per share of
common stock $ .39 $ .17 $ .85 $ .25
====== ====== ====== ======
Assuming full dilution
- ----------------------
Weighted average common
shares outstanding 63,409 53,144 63,444 50,148
Earnings used in per common
share computation:
Net income $22,321 $ 8,759 $50,542 $12,859
Earnings per share:
Net income $ .35 $ .16 $ .80 $ .25
Computation of weighted average
shares outstanding-fully diluted
---------------------------------
Primary weighted average
shares outstanding 49,313 47,597 49,095 48,278
Assuming full dilution:
Conversion of Series D Preferred
Stock (2 million shares at
3.448 conversion rate) 6,896 5,547 6,896 1,870
Conversion of Series E Preferred
Stock (2 million shares at
3.5945 conversion rate) 7,189 -- 7,189 --
Incremental shares 11 -- 264 --
------ ------ ------ ------
Fully diluted weighted
average shares outstanding 63,409 53,144 63,444 50,148
====== ====== ====== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATION
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 114,494
<SECURITIES> 203,639
<RECEIVABLES> 65,450
<ALLOWANCES> 0
<INVENTORY> 101,059
<CURRENT-ASSETS> 499,303
<PP&E> 1,081,807
<DEPRECIATION> 171,775
<TOTAL-ASSETS> 1,421,944
<CURRENT-LIABILITIES> 147,376
<BONDS> 387,840<F1>
<COMMON> 460
0
40
<OTHER-SE> 725,649
<TOTAL-LIABILITY-AND-EQUITY> 1,421,944
<SALES> 622,140
<TOTAL-REVENUES> 622,140
<CGS> 464,964
<TOTAL-COSTS> 518,823<F2>
<OTHER-EXPENSES> 25,886<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,778
<INCOME-PRETAX> 67,389
<INCOME-TAX> 16,847
<INCOME-CONTINUING> 50,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,542
<EPS-PRIMARY> .85
<EPS-DILUTED> .80
<FN>
<F1>REFLECTS THE COMPANY'S NON-CURRENT LONG-TERM DEBT.
<F2>TOTAL COSTS REFLECTS THE COMPANY'S COST OF GOODS SOLD AND DEPRECIATION,
DEPLETION AND AMORTIZATION COSTS.
<F3>OTHER-EXPENSES REFLECTS SELLING, GENERAL AND ADMINISTRATION COMBINED WITH
EXPLORATION, RESEARCH AND DEVELOPMENT COSTS.
</FN>
</TABLE>
