___________________________________________________________________________
___________________________________________________________________________
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission file number 0-10122
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)
Registrant's telephone number, including area code: (520)575-5600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange
---------------------------- ------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
COMMON STOCK WARRANTS, NEW YORK STOCK EXCHANGE
$8.50 EXERCISE PRICE
5 5/8% CUMULATIVE CONVERTIBLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, SERIES D
6% CUMULATIVE CONVERTIBLE NEW YORK STOCK EXCHANGE
PREFERRED STOCK, SERIES E
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
____ ____
Indicate by check mark if disclosure of delinquent filings
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ x ]
Aggregate market value of the voting stock held by non-affiliates of
the registrant at March 1, 1995: $458,995,000. See Part III, Item
13-Certain Relationships and Related Transactions.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable date.
Number of shares of Common Stock, $.01 Par Value, outstanding
at March 1, 1995:46,105,143 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this
report in the Part(s) indicated:
Proxy statement for 1995 Annual Meeting of Stockholders - Part III.
___________________________________________________________________________
___________________________________________________________________________
TABLE OF CONTENTS
PART I
Page
Item 1. Business. . . . . . . . . . .. . . . . .. . .. . . 1
Item 2. Properties . . . . . . . . . .. . . . . .. . .. . . 17
Item 3. Legal Proceedings . . . . . . .. . . . . .. . .. . . 27
Item 4. Submission of Matters to a Vote of Security Holders . . 29
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters . . . . . .. . . . . .. . .. . . 30
Item 6. Selected Financial Data. . . . .. . . . . .. . .. . . 32
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . .. . .. . . 38
Item 8. Financial Statements and Supplementary Data .. . .. . . 46
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure. . . . .. . .. . . 80
PART III
Item 10. Directors and Executive Officers of the Registrant. . . 81
Item 11. Executive Compensation . . . . .. . . . . .. . .. . . 81
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . .. . . . . .. . .. . . 81
Item 13. Certain Relationships and Related Transactions . .. . . 81
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . .. . . . . .. . .. . . 81
Signatures . . . . . . . . . . . . . .. . . . . .. . .. . . 90
Part I
ITEM 1. BUSINESS
THE COMPANY
Magma Copper Company ("Magma" or the "Company") is a fully-integrated
producer of electrolytic copper and ranks among the largest U.S. copper
producers. Magma's principal products are high quality copper cathode and
copper rod, the latter being the basic feedstock of the copper wire and
cable industry. Magma's operations also produce gold and silver-bearing
residues, molybdenum disulfide and sulfuric acid as by-products. Excluding
custom processing, in 1994 Magma produced 595 million pounds of saleable
copper in concentrates and electrowon, and 4.9 million pounds of molybdenum
contained in molybdenum disulfide. Magma also produced residues containing
3.3 million ounces of silver and 77 thousand ounces of gold including gold
and silver in raw materials purchased from others in 1994.
The Company produces copper cathode both by traditional mining/
concentrating/smelting/refining methods and by leaching/solvent
extraction-electrowinning ("SX-EW") methods. The Company owns and operates
underground copper mines at San Manuel and Superior, an open-pit copper
mine at Pinto Valley and in situ leaching operations at San Manuel and
Pinto Valley. In addition, the Company operates a gold leaching facility
and is constructing a major copper operation at its Robinson mining
district. The Company also owns and operates an open-pit copper mine in
Peru at its 98.43% owned Magma Tintaya S.A. subsidiary.
Through its wholly-owned subsidiary, Magma Metals Company, Magma
operates the largest and most modern copper smelting and refining complex
in the United States. The smelter has a treatment capacity of 1.3 million
tons of copper concentrate per year, approximately 25% of total U.S.
smelting capacity. In addition to smelting and refining copper concentrate
from its own mines, the Company smelts and refines a substantial amount of
copper concentrate on a toll or purchase basis. The profits from
processing third party concentrate effectively reduce the Company's overall
cost of producing copper from its own mines.
The Company was originally incorporated in the State of Maine in 1910,
and was reincorporated in the State of Delaware in 1969. From 1968 until
March 1987, the Company was a wholly-owned subsidiary of Newmont Mining
Corporation ("Newmont"), a publicly traded natural resource company. In
March 1987, Newmont distributed 80% of Magma's outstanding common stock to
Newmont's shareholders, deposited 5% of such stock in a trust for issuance
from time to time to Magma employees and retained common and preferred
stock interests in the Company. The Company remained under the influence
of Newmont until November 1988, when Magma undertook a recapitalization in
which it purchased all of the equity interest held by Newmont.
The Company's principal office is in Tucson, Arizona. Its mailing
address is 7400 North Oracle Road, Suite 200, Tucson, Arizona 85704 and its
telephone number is (520) 575-5600.
RECENT DEVELOPMENTS
Tintaya Acquisition. On October 6, 1994, the government of Peru
declared the consortium of Magma Copper Company and its wholly-owned
subsidiary, Global Magma, Ltd., the winning bidder in the privatization of
Empresa Minera Especial Tintaya, S.A. ("Tintaya"), which owns one of the
largest operating mining projects in Peru. Closing of the purchase
occurred on November 29, 1994. At closing, Magma (together with its
wholly-owned subsidiary) purchased 98.43% of Tintaya, with Tintaya's
employees subscribing to purchase the remaining 1.57% interest in
accordance with an agreement with the Peruvian government. Magma paid $243
million for its interest in Tintaya and is required to make an additional
$85 million in capital expenditures at this project over the next 5 years.
Tintaya is a low-cost, open-pit copper mine and concentrator
operation. It has a large area of established ore reserves and has
excellent exploration potential. Magma has already identified what it
believes to be several highly prospective mineralized areas and is
conducting a major exploration program to prove up additional reserves. In
1993 and 1994 Tintaya produced 110 million pounds of copper in concentrate
per year at a cost of about $0.60 per pound of refined copper from an ore
reserve of 58 million tonnes of 1.78 percent sulfide copper ore, or
approximately two billion pounds of recoverable copper. Over the next two
years, Magma plans to increase production to 140 million pounds per year at
an estimated $0.55 per pound net cash operating cost. Magma is studying
the feasibility of developing a leaching SX-EW operation that could produce
70 million pounds of copper cathode per year from an oxide mineralized
resource of 21.7 million tonnes of 1.57 percent oxide copper. Based on the
feasibility study, the SX-EW operation may reduce net cash operating costs
from Tintaya to below $0.50 per pound and could expand the total annual
production rate from the Tintaya property to over 200 million pounds per
year in 1997.
Prior to its investment in Tintaya, the Company made an extensive
evaluation of the company, its operations and reserves, the legal,
political and business climates in Peru and other factors. In this
connection, investments in foreign companies often involve added risks of
political instability, the possibility of adverse economic or tax reforms,
inflationary conditions, the potential for restrictions on the repatriation
of funds, and currency risks. As part of its investment in Tintaya, the
Company and the government of Peru entered into a judicial stability
agreement and the Company assumed an existing tax stability agreement
between the government and Tintaya. These agreements between Magma or
Tintaya and the Republic of Peru constitute sovereign commitments which
provide, among other things, availability of foreign currency, remittance
abroad of profits and capital, the right to use or sell any product derived
from the Tintaya properties, tax and other non-discrimination stability and
dividend withholding tax stability. Although these agreements do not
eliminate all risk associated with its investment in Tintaya, the Company
believes that they will minimize a number of the risks typically associated
with an investment in a foreign property.
Robinson Permitting and Construction. Construction on the Robinson
Mine near Ely, Nevada, started on October 12, 1994. The Bureau of Land
Management issued the Final Environmental Impact Statement, Record of
Decision, and approved the Plan of Operation on September 9, 1994. On
October 11, a 30 day appeal period expired and the approval of the Plan of
Operation went into full effect. The project is expected to have an initial
capital cost of $300 million and is expected to begin production in the
first quarter of 1996.
Based upon drill and assay results, the Company believes that Robinson
has 252 million tons of proven/probable sulfide ore reserves with an
average grade of .551% copper and with.0102 ounces of gold per ton and 53
million tons of gold reserves with an average grade of .0086 ounces of gold
per ton. Robinson is expected to produce approximately 146 million pounds
of copper annually for 15 years through traditional
mining/concentrating/smelting/refining methods, 101,000 ounces of gold and
363,000 ounces of silver annually from sulfide copper ore and 16,000 ounces
of gold annually from leaching operations during this time period. A
metallurgical test program is currently under way to evaluate the
feasibility of processing Keystone dump material which contains in excess
of 69 million tons at a grade of .30% copper.
Smelter Expansion Completed. A smelter expansion was completed in the
first quarter of 1994 resulting in increased production, lower costs and
improved environmental performance. Smelter production is at levels above
the 720 million pounds of copper (in anode form) originally anticipated
when the project was first undertaken. This increase in capacity should
allow the Company to maintain its custom smelting business even with the
expected increase of Magma source copper when the Robinson Mining District
begins production.
Lower Kalamazoo Development. Development of the Lower Kalamazoo ore-
body at San Manuel is continuing with production expected to begin in 1997.
Through December 1994, $61 million has been expended on this project. When
developed, this orebody is expected to produce 2.1 billion pounds of copper
and will extend the current mining operations at San Manuel an additional
12 years.
Improved Operating Performance. Magma has increased copper production
from its own properties by approximately 48% from 402 million pounds in
1988 to 595 million pounds in 1994. Production from the leaching, solvent
extraction and electrowinning operations increased by 87% from 86 million
pounds in 1988 to 161 million pounds in 1994. Net cash operating costs of
copper sold have decreased from $.78 per pound ($.96 per pound adjusted for
inflation) in 1988 to $.58 per pound in 1994. Net cash operating costs per
pound represent (a) production costs of Magma source copper sold (excluding
depreciation, depletion and amortization) reduced by credits for
by-products and profits from custom processing divided by (b) total pounds
sold from Magma sources. The Company attributes the increase in production
and productivity and reduction in operating costs primarily to improved
labor relations and the use of innovative operating technology.
Revolving Credit Facility. On May 20, 1994, the Company renegotiated
its revolving credit agreement (the "Revolver"), increasing the amount
available from $200 million to $300 million. The Revolver, which expires
May 19, 1998, is provided by a consortium of eleven banks and is available
for general corporate purposes. Amounts outstanding under the Revolver may
bear interest at the London InterBank Offered Rate (LIBOR), the Certificate
of Deposit or the prime rate, as defined, plus a margin which may vary
depending on the credit rating of the Company. Currently, borrowings would
bear interest at the rate of LIBOR plus 0.7%. At December 31, 1994, there
were no amounts outstanding under the Revolving Credit Facility.
Under the terms of the Revolver, the Company must: (i) maintain a
consolidated net worth of not less than the sum of $450 million plus 50% of
consolidated net income for each fiscal year beginning with fiscal 1994 and
(ii) not permit the ratio of its consolidated debt to total capitalization
(debt and equity) to exceed 60%.
COPPER PRICE INFORMATION
Copper is an internationally traded commodity. The copper
prices established on the two major metals exchanges - The Commodity
Exchange, Inc. ("Comex") in New York and the London Metal Exchange ("LME")
- - broadly reflect the worldwide balance of copper supply and demand. The
profitability of the Company's operations is largely dependent upon the
worldwide market price for copper. A $0.01 per pound change in the average
price realized for the Company's 1994 output would have affected pre-tax
income by an estimated $6.0 million. Copper prices have historically been
subject to wide fluctuations and are affected by numerous factors beyond
the control of the Company, including international economic and political
conditions, levels of supply and demand, the availability and cost of
copper substitutes, inventory levels maintained by copper producers and
others and, to a lesser degree, inventory carrying costs (primarily
interest charges) and international exchange rates.
The following table of pertinent copper industry data contains Comex
high, low and average copper prices per pound and illustrates the historic
volatility of copper prices. Price data are given for the Comex
standard-grade copper contract for the years 1985-1989. Thereafter, prices
are given for contracts for delivery of high-grade copper cathode, which
replaced the standard-grade contract effective January 1, 1990.
<TABLE>
<CAPTION>
COMEX COPPER PRICES
($ per Pound)
High(1) Low(1) Average(1)(2)
------- ------ -------------
<C> <C> <C> <C>
1985 . . . . . . . . . . . . . . $ .66 $ .56 $ .61
1986 . . . . . . . . . . . . . . .69 .57 .62
1987 . . . . . . . . . . . . . . 1.46 .60 .78
1988 . . . . . . . . . . . . . . 1.63 .88 1.15
1989 . . . . . . . . . . . . . . 1.59 1.00 1.25
1990 . . . . . . . . . . . . . . 1.38 .96 1.19
1991 . . . . . . . . . . . . . . 1.20 .96 1.05
1992 . . . . . . . . . . . . . . 1.16 .94 1.03
1993 . . . . . . . . . . . . . . 1.07 .72 .85
High(1) Low(1) Average(2)
------- ------ ----------
1994:
First Quarter. . . . . . . . . . $ .94 $ .78 $ .87
Second Quarter . . . . . . . . . 1.13 .86 .99
Third Quarter. . . . . . . . . . 1.28 1.06 1.14
Fourth Quarter . . . . . . . . . 1.40 1.16 1.29
Year . . . . . . . . . . . . . 1.40 .78 1.07
________
(1) Source: American Metal Market (1985-86), Metals Week (1987-1994)
(2) Source: MET Research
</TABLE>
The Company's average realized price per pound of copper was $.98 in
1994, $.94 in 1993 and $1.00 in 1992. The Company's realized price per
pound includes a premium of several cents over the market price for copper
cathode to reflect net delivery and financing costs. The Company's price
for copper rod commands a premium over its price for copper cathode to
reflect the value added by additional processing.
The Company has instituted a copper price protection program to ensure,
regardless of the copper price, adequate cash flow for the completion of
several major capital projects which are important to its future. These
projects, Tintaya, Kalamazoo and Robinson, have or will increase Magma's
production and ore reserves and reduce overall cost per pound. The program
includes hedging using either the purchase of copper price put options or
forward sales of copper at a fixed price depending on copper market
conditions including price and volatility. As a result of the copper price
protection program, Magma's average copper price realized was nine cents
per pound greater (94 cents versus 85 cents) than the average Comex price
for 1993 and was nine cents per pound lower (98 cents versus $1.07) than
the market price in 1994. With the recent purchase of Tintaya, and
construction of the Kalamazoo and Robinson mines, the copper price
protection program was extended into early 1997. In contrast to 1994,
which included a significant amount of forward sales entered into at the
end of 1993, the program for 1995 and 1996 consists almost entirely of
copper price put options which lock in a copper price floor and operating
cash flow while retaining the upside potential of higher copper prices. As
a result of this program, which creates a copper price floor of 87 cents
and 93 cents for 1995 and 1996 respectively, Magma will be able to complete
its current strategic growth opportunities with moderate outside financing
and maintain its strong financial position and flexibility.
COMPETITION
The Company does not believe that it or any other copper producer can
individually exercise a material influence on the markets in which the
Company operates. The price of copper depends largely upon industrial
consumption and other market conditions beyond the Company's control. Many
foreign and domestic copper producers benefit from higher grade ore bodies
than those owned by the Company. Further, most foreign producers benefit
from lower labor rates than those of United States producers. Because of
their need for foreign exchange and the political impact layoffs might
have, some foreign producers have, in the past, maintained production
levels without regard to the condition of the world copper market or the
profitability of their mining operations.
The Company's custom smelting and refining operations compete with other
smelting and refining operations, primarily Japanese based companies, for
the treatment of copper concentrates. At present, certain foreign
governments impose a tariff on refined copper that protects smelting and
refining margins by increasing the price of finished cathode to domestic
consumers. As part of the General Agreement on Tariffs and Trade,
otherwise known as the GATT agreement, the Japanese government has agreed
to lower the tariff on refined copper from eight percent to three percent
ad valorem over a five year period from 1995-2000. The level of foreign
tariffs should impact the Company's ability to successfully bid for the
treatment of foreign concentrates.
The Company and other copper producers also compete with manufacturers
of other materials, including aluminum, stainless steel, plastics and fiber
optic cables. Should copper prices increase sharply, substitution of these
alternative materials for copper may occur.
PRODUCTS AND SALES
Products. Magma's principal products are high quality copper cathode
and copper rod, the latter of which is the basic feedstock of the copper
wire and cable industry. Approximately 56% of the copper sold by the
Company in 1994 was sold as copper cathode, 39% was sold in the form of
continuous cast rod, and the remaining 5% was sold in other forms. Copper
revenue in 1994 increased by 11% to $787.8 million, compared to $710.5
million in 1993, due to a $.04 increase in Magma's average realized price
per pound, as well as an increase in sales volume.
In addition to smelting and refining copper concentrate production from
its own mines, the Company processes a substantial amount of copper
concentrate on a toll or purchase basis. The profits from processing third
party concentrate effectively reduce the Company's overall cost of
producing copper from its own mines. The total quantities of copper
produced by the Company, copper smelted and refined on a custom basis and
copper sold by the Company from its own mines during each year in the
five-year period ended December 31, 1994 were as follows (in millions of
pounds):
<TABLE>
<CAPTION>
Custom Processing
Total ----------------------- Inventory Magma
Copper Toll Sales of Fluctuations Source
Year Produced(1) Customers Purchased(2) and Other(3) Copper Sales
---- ----------- ---------- ------------ ------------- -------------
<C> <C> <C> <C> <C> <C>
1994 888.6 (114.0) (170.9) (7.2) 596.5
1993 845.6 (92.2) (179.0) (16.1) 558.3
1992 767.8 (65.5) (158.6) 23.1 566.8
1991 703.2 (75.3) (114.2) 10.2 523.9
1990 675.5 (119.8) (98.3) 32.4 489.8
(1) Total refined and unrefined production, including custom processing.
(2) Sales from total purchased copper, including concentrate and other
purchases from third parties.
(3) Amounts include sales from purchased copper cathode.
</TABLE>
Magma's operations also produce gold and silver-bearing residues and
molybdenum disulfide as by-products. Revenue from gold sales in 1994,
including gold contained in raw materials purchased from others, was $29.5
million on sales of 77 thousand ounces. Revenue from silver sales in 1994,
including silver in raw materials purchased from others, was $17.0 million
on sales of 3.3 million ounces. Revenue from sales of molybdenum disulfide
in 1994 was $22.5 million on sales of 4.9 million pounds molybdenum
contained. The Company uses sulfuric acid produced in the smelting
process in its copper leaching operations and sells excess acid to third
parties.
Sales. The Company's sales strategy includes (i) expanding sales to
North American consumers, while preserving a core of long-term customer
relationships in Asia, (ii) custom smelting and refining of third party
concentrate to supplement feedstock to its smelter from Magma's own mines,
and (iii) maintaining an optimal mix of copper rod and copper cathode
sales.
The Company's export sales have declined in recent years primarily due
to increasing U.S. consumption and the recession in Japan. The Company is
maintaining its presence in the Asian markets by supplying cathode to major
fabricators on an annual and spot basis. The Company's export sales as a
percent of total revenues were 21%, 25% and 29% for the years ended
December 31, 1994, 1993 and 1992, respectively.
Customers. During 1994, the Company's copper was sold to approximately
sixty-three (63) customers. Sales of copper to the Company's largest
customer, a merchant trader, accounted for 22% of total revenues during the
year. Because copper is an internationally traded commodity, the Company
does not believe that the loss of any one customer would have a material
adverse effect on the results of its operations.
OPERATIONS
Overview. The Company conducts its copper mining, smelting and
refining operations in Arizona and Peru (acquired in November 1994). Its
mining operations are conducted through its San Manuel, Pinto Valley,
Superior and Tintaya Mining Divisions. Magma Metals Company, a
wholly-owned subsidiary, operates the smelting and refining complex and rod
plant and conducts the Company's commercial activities. The Company has
two subsidiaries which conduct railroad operations in support of its copper
mining operations. The Company also operates a gold leaching facility and
is constructing a major copper operation at its Robinson Mining District
near Ely, Nevada. The Company currently has two subsidiaries that are
conducting exploration activities in Mexico and Chile. A detailed
description of the Company's mining properties is included in Item
2-Properties.
Mining Operations. The San Manuel Mining Division mines and mills
copper sulfide ore principally from its underground mine. The underground
mine ranks as one of the world's largest in terms of production.
Approximately 215 million pounds of copper were produced from the mine in
1994. The Company employs block caving, which involves the undercutting or
removal of a horizontal slice of ore (a "stope block") that is large enough
so that the unbroken ore above the stope block falls into the undercut.
The ore is then drawn from the undercut and transported to the surface,
where it is processed at the San Manuel concentrator. The concentrate is
processed further at the Company's smelting and refining complex.
The San Manuel Mining Division also produces copper from oxide ore
heaps constructed during past open-pit operations by the Company. Copper
is produced through heap leaching and SX-EW processing, which are generally
lower in cost than copper obtained from sulfide ore through traditional
methods. The leaching operations utilize sulfuric acid produced as a
by-product from the Company's smelting process. The Company also maintains
an in situ leaching program in or around worked out portions of the San
Manuel open-pit and underground mines. During 1994, heap leaching and in
situ production at San Manuel totaled approximately 109 million pounds.
Heap leaching operations and in situ copper production will continue into
the future, even though open-pit mining operations have now been completed.
The Pinto Valley Mining Division conducts its operations through the
Pinto Valley and Miami Units. The Pinto Valley Unit mines copper sulfide
ore from its open-pit mine for both the concentrating/smelting/refining and
the leaching/SX-EW production methods. The Miami Unit conducts in situ
leaching at a closed underground mine, as well as leaching of concentrator
tailings. In 1994, copper produced by the Pinto Valley Mining Division
accounted for approximately 199 million pounds of the copper cathode
refined by the Company, of which 44 million pounds of copper cathode were
processed by the Division's two SX-EW facilities, and 155 million pounds
were processed at its concentrator and processed further at the Company's
smelting and refining complex.
The Superior Mining Division mines sulfide ore through traditional
underground stoping methods. Ore is delivered directly to the Division's
concentrator for processing. The concentrate is smelted and refined at San
Manuel. During 1994, the Superior Mining Division produced approximately
41 million pounds of copper.
Magma Tintaya S.A. mines sulfide ore through its open-pit operations.
The ore is processed into concentrate through its concentrator. The
Company purchased the mine and took control on November 29, 1994. During
December 1994, approximately 11 million pounds of copper were produced.
The following table sets forth the percentage of saleable copper
contained in production derived from each of the Company's mining
operations in 1994:
<TABLE>
<CAPTION>
San Manuel Pinto Valley Superior Tintaya Total
----------- ------------- ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Underground Mine
Concentrate 38% --% 7% -% 45%
Open-Pit Mine
Concentrate -- 26 -- 2 28
Open-Pit Mine
Dump Leaching (SX-EW) 18 5 -- -- 23
In Situ Leaching
(SX-EW) 2 2 -- -- 4
---- ---- ---- ---- ----
Total 58% 33% 7% 2% 100%
==== ==== ==== ==== ====
</TABLE>
In total, 27% of the Company's copper production was from lower cost
leaching/solvent extraction-electrowinning ("SX-EW") methods and 73% from
traditional mining/concentrating/smelting/refining methods.
Transportation. The Company has two Arizona subsidiaries which conduct
railroad operations. The San Manuel Arizona Railroad Company operates a
29-mile common carrier route from San Manuel which is ultimately linked to
the Santa Fe Southern Pacific Corporation railroad system. The Magma
Arizona Railroad Company operates a 28-mile common carrier route from the
area of Superior, Arizona to the same system.
Exploration. Magma Mexico Exploration Corporation and Magma Copper
Chile, Inc., both wholly-owned subsidiaries of the Company, are conducting
exploration activities in their respective countries.
Smelting. Copper concentrate is processed through the smelter and cast
into copper anodes. Sulfur dioxide offgases collected from the smelter and
converters are processed into sulfuric acid at the acid plants and are
either used in the Company's leaching operations or sold to third parties.
The major smelter components include: (i) an oxygen-enriched flash
furnace, (ii) an oxygen plant, and (iii) acid plants. The smelter has the
capacity to process 3,800 tons per day of new sulfide copper concentrate.
In 1994, the smelter processed approximately 1,208,000 tons of new sulfide
concentrate.
Refining. The refinery electrolytically refines the copper anode
produced in the smelter into copper cathode with a minimum 99.95% pure
copper content. In 1994, approximately 666 million pounds of copper anode
were refined. Precious metals, primarily gold and silver, are recovered in
residues at the end of the refining process and are sold to third parties.
Casting. The continuous cast copper rod mill, near the refinery, melts
copper cathodes and casts a bar which, in turn, is drawn into copper rod.
The rod mill has a nominal rated capacity, based upon a 5-day work week, of
approximately 300 million pounds of copper rod per year. In 1994,
approximately 306 million pounds of copper rod were produced at the rod
mill.
Custom Smelting & Refining. The Company smelted and refined, on a
custom basis (including tolled and purchased concentrates), approximately
403,000 tons of concentrates for, or purchased from, third parties during
1994. Magma is diversifying its sources of feedstock to include a number
of U.S. and foreign producers, in addition to Magma's own mines.
Process Materials and Resources. The principal process materials used
in the Company's operations are natural gas, lime, silica flux, flotation
reagents, water and sulfuric acid. The San Manuel Mining Division obtains
lime, silica fluxes and water required for operations from Magma's own
properties and properties leased from others. The Company's other
properties obtain lime requirements from third parties and can satisfy
their water requirements from either their own sources or from third
parties.
The acid plants contained within the Company's smelting and refining
complex convert sulfur dioxide gases to sulfuric acid, which is used in
leaching and refining at both the San Manuel Mining Division and Pinto
Valley Mining Division. The flash furnace included in the retrofitted
smelter uses the sulfur in the copper concentrate as its primary fuel
together with oxygen produced on site. Natural gas and oil are used as
auxiliary fuels.
Adequate supplies of natural gas, oil and the processing materials
obtained from the Company's operations and from third parties have been,
and are expected to continue to be available on a competitive basis.
EMPLOYEES
On December 31, 1994, the Company had 4,200 employees at its U.S.
operations, of whom 2,874 were hourly-rated employees and 1,326 were
salaried employees. The Company's hourly-rated employees are represented
by eight labor unions. The United Steelworkers of America ("USWA")
represents the greatest number of hourly employees at the San Manuel Mining
Division and Magma Metals Company. At the Pinto Valley Mining Division,
seven individual unions are jointly certified. Of these, the USWA has the
largest membership.
In October 1991, the Company and its labor unions executed a 15-year
collective bargaining agreement, more than eight months prior to the
expiration of the then existing contract. The agreement prohibits strikes
and lockouts for at least seven years. Hourly-rated employees have
received and will receive annual wage increases of $.25 to $.35 per hour in
each of the five years following 1991, some of which are dependent upon
Magma's quarterly earnings performance during such periods. In addition to
the hourly base wage rate, all employees, excluding executives and
corporate office employees, participate in divisional gainshare plans that
were initiated July 1, 1991. As a result of employee generated cost
reductions, improved productivity and better safety, quarterly financial
awards as a share of these savings/gains are paid to participants.
After the initial five-year period, the agreement will continue in
effect for an additional 10 years on the same terms and conditions unless
either party proposes a modification of the economic terms. If the parties
are unable to agree on the proposed modifications, they will be submitted
to an arbitration panel which will establish economic terms for a one-year
period. If during any five-year period after the initial term there are two
such arbitration proceedings, the agreement will terminate upon the
anniversary date of the second arbitration award.
As of December 31, 1994, Tintaya had 769 employees. Employees at
Tintaya are divided by law and union affiliation into three categories.
Management and professionals are one group (20%) and are not represented by
a union. The second group of union employees consists primarily of
technical and administrative assistants, but also includes some operating
and production positions (40%). The third group is comprised of union
workers who perform a variety of mine production and maintenance work
(40%).
Tintaya has two labor unions. Labor agreements have been signed with
both unions and are effective from September 30, 1994, to September 30,
1995. The settlements are consistent with labor agreements of other copper
producers in Peru. Tintaya enjoys very good labor relations with its
employees, and has not suffered a significant work stoppage since it began
operations in 1985.
The Company encourages the cooperation of management, its employees and
their unions, along with employee work re-design, employee involvement and
other programs, in an effort to reduce costs, improve productivity and
enhance employment security. The Company believes that its success in
these areas has been a major contributing factor in Magma's improving
operational performance.
LICENSES
The Company has a perpetual license from Southwire Company to use the
Southwire continuous copper rod casting system, including patented
processes and machines and related knowledge, at the Company's rod plant in
San Manuel, Arizona.
The Company has a perpetual license from Phelps Dodge Corporation to
use a patented cathode press which increases the strength of the copper
cathode produced at the Company's San Manuel refinery.
The Company has a perpetual license from MIM Technologies Marketing
Limited to use a patented process for the production of stainless steel
plates used in the processing of copper cathode in the Company's SX-EW
facility at San Manuel. The Company believes that the use of stainless
steel plates is more efficient than the use of copper plates as is standard
in other SX-EW plants.
The Company has a perpetual license from Outokumpu Oy to use the
Outokumpu process, including the Outokumpu flash furnace and related
knowledge, at the Company's retrofitted smelter at San Manuel. This
process allows the Company to recover almost 100% of smelter and converter
offgases generated in the smelting and converting process and yields
sulfuric acid for the Company's leaching activities.
ENVIRONMENTAL REGULATIONS
The mining and mineral processing industries are subject to extensive
regulation relating to the protection of the environment, including
regulations relating to air and water quality, mine reclamation,
remediation, solid and hazardous waste handling and disposal and the
promotion of occupational safety. The Company believes that it is
currently in material compliance with these laws and regulations.
Smelter Emissions and Air Pollution. The Federal Clean Air Act (the
"Act"), and implementing regulations thereunder, restrict smelter emissions
into the atmosphere. The Company retrofitted its smelter in 1988 to
achieve compliance with all existing sulfur dioxide and particulate matter
standards. The Company believes there were no exceedances of any state or
federal sulfur dioxide emission limits, nor were there violations of
national ambient air quality standards in 1994. Amendments to the Act,
which were signed into law in 1990 (the "1990 Amendments"), and Arizona
state air legislation passed in 1992 along with regulations currently under
consideration (the "Arizona Clean Air Act") may restrict smelter emissions
in the future. In this regard, the Company cannot predict at this time the
level of new emissions controls and related costs which may be required for
it to comply with standards governing emissions of sulfur dioxide,
particulates and hazardous air pollutants that are expected to be adopted
under the 1990 Amendments, or the Arizona Clean Air Act.
Federal regulations may require the stabilizing of mineral tailings to
reduce blowing dust and in 1994, a new Arizona law requiring surface
disturbance restoration (excluding open-pits) was enacted. In anticipation
of the possible effects that the laws and regulations relating to mining
disturbances might have at several of its mining divisions, the Company has
voluntarily covered selected tailings impoundments with either rock capping
or with fertile topsoil on which vegetation has been planted. In addition,
the Company is now implementing and testing an innovative reclamation
technology called Environmental Mine Practices and Cattle Treatment
("EMPACT") on tailings impoundments, mine waste rock dumps and other mine
facilities which utilizes cattle, hay and other organic matter to generate
soil media, stabilize surface disturbances and facilitate revegetation.
Air Pollution Control Costs. The Company makes expenditures for
environmentally related capital improvements on an ongoing basis. In 1988,
the Company spent $160.7 million, including financing costs, on an
environmentally related smelter retrofit. The Company borrowed $35.7
million from the Industrial Development Authority of the County of Pinal to
finance the construction of those portions of the smelter retrofit that
qualified as pollution control facilities under the relevant statutes. In
addition, in 1993 and 1994, the Company incurred $85 million of capital
improvements relating to the construction of the smelter's third acid train
facility and flue dust leach plant. These improvements have expanded the
capacity and improved the environmental performance of the smelter.
Currently, the Environmental Protection Agency is considering
modifications to the time periods in which ambient concentrations of sulfur
dioxide are measured. Proposed changes represent a significant increase in
stringency over the current standards. The Company believes that such
standards would be extreme and are unnecessary, and would not result in
substantial improvement in the air quality. Furthermore, the Company
believes that the cost-benefit ratio of complying with such regulations
would far exceed the expected benefits levels. It is actively engaged in
scientific studies to support its position and, along with other parties
that would be adversely affected by such requirements, is actively engaged
in this rulemaking process. However, if such rules are promulgated,
substantial costs to conduct monitoring and comply with regulations could
result.
Required Permits. Various federal, state and local laws and regulations
require the Company to maintain certain environmental permits for its
mining, concentrating and smelting operations. The Company believes it has
obtained all necessary environmental permits and licenses currently
required for its business.
The Company has filed applications in a timely fashion for renewal of,
or modifications to, each of the air quality operating permits previously
granted by the Arizona Department of Environmental Quality (the "ADEQ").
Under the Arizona Administrative Procedures Act, the ADEQ must allow the
Company to continue its operations under the expired permits until final
action on the application for the permits is taken.
Under regulations recently adopted by the Arizona Department of
Environmental Quality, the Company has filed, on November 1, 1994, an
application for a five-year operating permit for its San Manuel smelter and
related mineral processing facilities including the recently permitted
improvements. The permit is intended to meet the requirements for a major
air pollution source operating permit prescribed by Title V of the 1990
Amendments to the Act. Minor source (non-Title V) permit applications for
the mine/mill/leaching complex at the San Manuel Mining Division, the Miami
Unit at the Pinto Valley Mining Division, and Superior Mining Division
facilities will be filed when requested by ADEQ. Since ADEQ has yet to
issue permits under its new regulations, the Company cannot predict whether
it will incur additional costs, other than the costs for emissions testing
and similar application-related activities, to comply with requirements to
be imposed under the permits. However, while the permits are expected to
regulate some activities not currently regulated, the previous emission
limits and other operating standards which the facilities are subject to
are unchanged and as a result issuance of the permit is not expected to
result in any material increase in compliance costs.
Under water quality regulations adopted by the Arizona Department of
Environmental Quality, the Company is required to submit new applications
for certain existing facilities to obtain Aquifer Protection Permits for
its facilities in Arizona at San Manuel, Pinto Valley and Superior. Some
of these applications are required to be submitted during 1995. Since ADEQ
has yet to issue these permits, the Company cannot predict whether it will
incur additional costs. Costs to conduct additional monitoring, as well as
operating modifications which were previously not required under prior
regulations and permits may be included. However, the Company does not
expect permit conditions to increase compliance costs substantially.
The Company is currently in the process of constructing and developing
the Robinson Project near Ely, Nevada. Among the various permits and
approvals required, the Company was required to comply with requirements of
the Federal Land Policy Management Act ("FLPMA"), which requires the
prevention of undue and unnecessary degradation and reasonable reclamation
of surface disturbances on Federal lands. A portion of the project is on
Federal lands administered by the Bureau of Land Management ("BLM"), which
regulates mining activities on federal lands pursuant to FLPMA under its
Surface Management Regulations. Those regulations also require compliance
with other federal laws to protect the environment, including the National
Environmental Policy Act ("NEPA"). In early 1993, the BLM determined that
an Environmental Impact Statement ("EIS") was required to comply with NEPA.
On September 9, 1994, the BLM issued a Final Environmental Impact Statement
and Record of Decision approving the Company's plan of operations for
mining activities at the project. A 30 day appeal period for that decision
ended on October 11, 1994, at which time a third party filed an appeal.
However, no stay of the decision was requested, so the decision remained
in full force and effect. That appeal was subsequently withdrawn by the
appellant on January 31, 1995. Project construction commenced on October
12, 1994. All other federal, state and local permits required for project
construction and operation were previously obtained. Permit amendments or
additional permits may be required from time to time in the future to deal
with project additions, modifications and expansions.
Solid and Hazardous Waste. The mining and mineral processing industry
has, since 1980, been subject to the requirements of the Resource
Conservation and Recovery Act ("RCRA") which provides "cradle to grave"
regulation of certain solid wastes generated during processing. These
regulations prescribe methods for treatment, storage, transportation and
disposal of such solid wastes. The term "solid waste" includes hazardous
wastes and liquid and gaseous forms of materials, and in the minerals
industry, applies to broad categories of wastes such as chemical reagents,
sludges and spent materials. The Company properly disposes of all
hazardous waste used or generated at its operations and conducts
environmental audits of all third-party facilities utilized for such
disposal.
In September 1993, Magma received from the Environmental Protection
Agency ("EPA") a request for information pursuant to Section 104(e) of the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") regarding the Colorado School of Mines Research Institute
("CSMRI") Site. Upon receipt and review of the submitted information, the
EPA sent notice in January 1994 that it did not consider Magma to be a
potentially responsibility party ("PRP") at the CSMRI site. Subsequent to
that, Magma has received a letter from the EPA that based on additional
information Magma may be a PRP at the site. Since Magma did not own,
operate, generate, transport, or dispose of the material at issue, Magma
does not meet the legal requirements to be a PRP and therefore
ultimately expects to be removed from the PRP list for this site.
Groundwater. In late 1988, the ADEQ announced a project to address
acidic water drainage in the Globe-Miami, Arizona area, which includes the
Company's Pinto Valley Mining Division. The ADEQ subsequently issued a
record of decision in which it identified the affected area as the Pinal
Creek Water Quality Assurance Revolving Fund ("WQARF") site, and determined
that the Pinto Creek portion of the area, where the bulk of the Pinto
Valley Mining Division's operations are, will not be the subject of site
investigation or remediation efforts. The project relates to a plume of
subsurface contamination that has been under state and federal study since
1980. In 1986, the EPA issued to another area copper producer a finding of
violation and order regarding surfacing of acidic water related to this
subsurface plume. Magma, along with current and former copper producers,
has been engaging in voluntary pumping and treatment operations, which may
be intensified, with a view to reducing the contaminated plume. In
addition, the Company is voluntarily participating in remedial
investigation/feasibility study determinations with other interested
parties in this identified area. The cost of such activities is shared by
Magma and the other producers. Although the cost is not material on a
yearly basis, the Company cannot estimate the duration over which such
activities may have to take place, or whether the cost of the remedial
activities will increase as permanent cleanup activities are approved and
implemented.
The Company and two other companies sharing voluntary responsibility for
groundwater cleanup and the remedial investigation/feasibility study, have
sued, in an action in the Federal District Court of Arizona, other former
owners/operators of mining and mineral processing facilities in the Globe-
Miami areas to obtain reimbursement for all or a part of the amount already
expended in remedial actions and for any future costs incurred at the site.
Several of these defendants claim that the Company must indemnify them from
any liabilities at the site. The Company does not believe that these
claims have validity, and that even if the proponents of such claims
prevail, the Company believes it will not incur any material liability or
costs in relation to this matter, although there can be no assurance in
this regard.
Surface Water. The Superior and Pinto Valley Mining Divisions have been
issued permits by the EPA under the federal Clean Water Act ("CWA"). In
late 1992, the EPA and the ADEQ indicated that they would seek civil
penalties for violations of various CWA permit conditions and state surface
water quality standards at Superior and Pinto Valley that occurred from
1989 through 1992. As a result of severe rainfalls in late 1992 and early
1993, the Superior and Pinto Valley divisions suffered from flooding, water
containment structural failures and technical exceedances of permit
standards. On November 8, 1994, the court entered a Consent Decree in the
above-captioned enforcement action under the federal Clean Water Act.
Under the Consent Decree, Magma has paid $435,000 to the United States and
$240,000 to the State of Arizona as either penalties for violations or
payments in lieu of penalties for violations of federal and state clean
water laws. Pursuant to the Consent Decree, the Company has also
undertaken a significant upgrading of its water management facilities. The
Company has spent $8 million to correct and upgrade these facilities in
1993 and 1994 and anticipates spending an additional $6 million in 1995.
These costs are being capitalized and will be amortized over the remaining
mine life. Finally, the Company has agreed in the Consent Decree to
undertake investigation and possible surface water and groundwater
remediation of an area in which mining activities occurred until the early
1930's called the Old Dominion.
Recently, the Peruvian Government has begun the process of establishing
more effective institutions and legislation to support a modernized
environmental framework. New environmental mining regulations were
promulgated in January of 1994. This regulation establishes the
availability of environmental stability contracts, under which mines are
required to implement an approved adequation and environmental management
Program ("PAMA"). Provision for compliance is within ten years. Stability
contracts require industrial facilities to comply with environmental
performance standards by implementing overhaul projects and adopting a
third party environmental audit program. It is anticipated that the
Ministry of Energy and Mines ("MEM") will approve PAMA and administer an
environmental stability contract for Tintaya. Management does not believe
that this new legislation will significantly affect its operations.
Compliance with, or changes in the aforementioned federal and state
environmental laws and regulations or enactment, or promulgation of new
laws and regulations, could require the Company to modify or curtail its
operations or to incur substantial additional capital expenditures.
ITEM 2. PROPERTIES
Overview. The Company owns or has interests in approximately 32,500
acres of land in southeastern Arizona, where it currently conducts all of
its U.S. copper operations. It also owns 12,500 acres of land at its
Robinson Mining District near Ely, Nevada, where it conducts a gold
leaching operation and is developing a major copper project scheduled to be
in production during the first quarter of 1996. The Company's mineral
interests are held in fee or are derived from patented and unpatented
mining claims and mineral leases. The Company also owns water rights,
rights-of-way and interest in other leases.
On November 29, 1994, the Company acquired through privatization from
the government of Peru, Empresa Minera Especial Tintaya, S.A. Tintaya owns
a 39,600 acre area of established ore reserves with excellent exploration
potential and operates a low-cost, open-pit copper mine and concentrator
operation.
The Company's ore reserves are estimated by its engineering staff
utilizing standard techniques and standard modeling software, typically
with the assistance of independent mining consultants. These estimates are
based on expectations of geological, geomechanical, metallurgical and other
conditions, which may vary from those acctually encountered, with the
result that the tonnage and grade of ore recovered and rates of production
may be more or less than anticipated. Further, market price fluctuations
in copper, changes in operating and capital costs, orebody definition,
drilling and testing, and other factors affect ore reserves. In addition,
the Company is subject to the normal risks encountered in the mining
industry, such as unusual or unexpected geological formations, cave-ins,
flooding, fires and environmental issues.
The Company's mining operations are conducted by several divisions
described below and in Item 1-Business.
SAN MANUEL MINING DIVISION
The San Manuel Mining Division, near San Manuel, Arizona, 45 miles
northeast of Tucson, Arizona, is accessed by State Highway 77. Sulfide ore
is mined from the San Manuel orebody through underground block caving while
oxide ore is leached through heap leaching and in situ leaching. Cathode
copper is produced from leach solutions at the SX-EW plant using a solvent
extraction-electrowinning process. The Division utilizes a concentrator to
produce concentrate from sulfide ore which is further processed at the
Company's smelting and refining complex.
Investment in the Division's property, including plant and equipment,
totaled $230 million as of December 31, 1994. Electricity is provided by
the Arizona Public Service Company.
The San Manuel Mining Division ore reserves are contained on land held
by the Company under patented mining claims and mineral leases from the
State of Arizona. Approximately 2% of the sulfide ore deposit lies on land
leased from the State and is subject to production royalties. Mineral
leases will expire in the years 2003 through 2007, but the Company has a
preferential right to renew these leases for a term of twenty (20) years.
Currently there is no active production from state-leased land. Mining on
leased land is scheduled to resume in 1996. The Company owns or controls
through lease agreements, easements, and rights-of-way, surface use of
surrounding land in support of the mining operations.
Extraction of sulfide ore from the San Manuel underground mine began in
1956, and the mine now ranks as one of the world's largest underground
copper mines in terms of production.
The San Manuel and Kalamazoo orebodies are two faulted segments of what
was once a single, cylindrical-shaped shell of disseminated copper
mineralization about 7,700 feet long and 2,500 to 5,000 feet in diameter.
The shell varies in thickness from 100 to 1,000 feet and wraps around a
central low-grade core.
Ore reserves in the San Manuel orebody consist of both copper sulfide
and oxide ores with oxide ores confined to the upper reaches of the
orebody. Some chalcocite enrichment is present in minor amounts. Much of
the upper part of the orebody has been oxidized in varying degrees, mainly
to chrysocolla. The sulfide ore in both the Kalamazoo and San Manuel
orebodies consists essentially of disseminated chalcopyrite in quartz
monzonite and monzonite porphyry. The Lower Kalamazoo deposit is discussed
in Item 7 under Development Opportunities.
PINTO VALLEY MINING DIVISION
The Pinto Valley Mining Division had its beginning in the early 1900's.
The division started as Miami Copper Company in 1909. In 1960, the
Tennessee Corporation took over Miami Copper Company and, in 1963, Cities
Service Company acquired the Tennessee Corporation. In late 1982,
Occidental acquired Cities Service Company. By early 1983, Occidental
concluded a sale of the Miami operations to Newmont Mining Corporation
which contributed those assets to its new, wholly-owned subsidiary, Pinto
Valley Copper Corporation. In late 1986, Newmont merged Pinto Valley
Copper Corporation into Magma Copper Company and Pinto Valley Copper
Corporation became the Pinto Valley Mining Division of Magma Copper
Company.
Investment in the Division's property, including plant and equipment,
totaled $85 million as of December 31, 1994. Electricity is provided by
Salt River Project.
Mining is conducted through two units: the Pinto Valley Unit and the
Miami Unit. The Pinto Valley Unit mines copper sulfide ore from its
open-pit mine for both concentrating/smelting/refining and leaching/SX-EW
production methods, while the Miami Unit conducts in situ leaching of the
area of rubble above a closed underground mine and hydraulic
mining/leaching of concentrator tailings.
Pinto Valley Unit
The Pinto Valley mine is about six miles west of the town of Miami in
Gila County, Arizona. Substantially all the operations take place on land
owned by Magma. The land consists of patented mining claims, unpatented
mining claims and fee lands.
The Pinto Valley deposit is an orebody containing chalcopyrite, pyrite
and minor molybdenite as the only significant primary sulfide minerals.
These minerals occur in veins and microfractures, and less abundantly as
disseminated grains. As presently defined, the deposit is bounded by post
mineralization faults. On the south is the South Hill fault, on the east
is the Jewel Hill fault, and on the west is the Gold Gulch fault. Ore
reserves are estimated using standard techniques and standard modeling
software.
Mining and Concentrating of Copper Sulfide Ore. Sulfide ore from the
open-pit mine is processed at the Pinto Valley Unit's concentrator, which
produces copper concentrate containing approximately 28% copper and a
molybdenum disulfide by-product. The concentration process used is similar
to that used in the San Manuel Mining Division's concentrator. The copper
concentrate produced in the concentrator is trucked to San Manuel for
smelting and refining.
Dump Leaching of Copper Sulfide Ore. Low-grade copper-bearing waste
material which has been stripped from the open-pit mine and is classified
as leachable is transported to large sulfide ore dumps. The dumps are
sprayed with water and sulfuric acid which dissolve contained copper and
produce a pregnant leach solution. The pregnant leach solution is fed into
the SX-EW plant located near the dumps. The SX-EW plant has the capacity
to produce approximately 20 million pounds of copper cathode per year.
Essentially all of the sulfuric acid used in the Pinto Valley Unit's dump
leaching operation is produced by the Company.
Miami Unit
The Miami Unit is immediately north of the town of Miami. All
operations take place on Magma-owned land.
In Situ Leaching. The Miami Unit's underground mine ceased operation
in 1959 upon the depletion of all the copper ore that could be economically
mined using block caving methods. However, the area of rubble created by
the block caving has been used for in situ leaching of mixed oxide/sulfide
ore since 1941. The geographic area of the leaching operations was
expanded in 1986 and the sulfuric acid content of the leach solution was
increased. The copper bearing leach solution is processed in the SX-EW
plant near the underground mine. The plant has the capacity to produce 28
million pounds of copper cathode per year.
Miami No. 2 Tailings Project. Mill tailings associated with the old
Miami underground mine are reclaimed using hydraulic mining methods to
produce a slurry of tailings and water. Sulfuric acid is added to the
slurry to dissolve the copper contained therein and the resulting pregnant
leach solution is processed through the Miami Unit's SX-EW plant. The
remaining tailings are transported for disposal through an overland
pipeline to an abandoned pit. Production from the project is expected to
continue through 2000.
SUPERIOR MINING DIVISION
The Superior Mining Division is an underground operation near Superior,
Arizona, approximately 65 miles east of Phoenix via U.S. Highway 60.
Milling operations are conducted at the concentrator, north of Superior.
Ore is hoisted from mine working levels to the 500 foot level and then
carried by underground railroad to the concentrator at Superior.
The Superior Mining Division owns patented mining claims, unpatented
mining claims, and fee lands in the Superior area. Mine production is
currently from orebodies on patented mining claims. Exploration activities
are being conducted on patented and unpatented mining claims and under
state prospecting permits held by the Division.
The Magma Mine at Superior was in continuous operation by Magma or its
former parent from 1912 to 1982, when it was closed due to low productivity
and depressed copper prices. The current operation was reopened in late
1990.
The mine currently produces copper sulfide ore from underground using
the undercut and fill mining method at a rate of 1,500 tons per day. The
No. 9 shaft facilities, originally commissioned in 1972, were dewatered and
rehabilitated when the mine was reactivated in 1990. Since reactivation a
ramp system has been installed and utilizes mechanized mining equipment.
The flotation concentrator was erected in 1928. Additions and
modifications were made during the expansions of 1940 and 1970. When
reactivated in 1990, all pumping and piping was downsized in accordance
with the new mine plan. The crusher, ball mills, filter plant, and certain
ancillary equipment have been rehabilitated since startup.
Investment in the underground development, surface facilities, and
concentrator complex totaled $35 million as of December 31, 1994. Electric
power is supplied to the operation by Salt River Project.
The Superior Division is currently engaged in a feasibility study on
sulfide replacement ores in the vicinity of the No. 9 shaft which, if
successful, could extend mine life two years. The results of this study
are anticipated by mid-year 1995. Other studies on high grade copper veins
could support production beyond the two year time frame.
Ore in the Magma Mine is composed of the copper minerals chalcopyrite
and bornite, associated with the gangue minerals hematite, quartz and
calcite. Copper is the primary metal in the ore with silver and gold
occurring as by-products. Orebodies occur as massive replacement of
limestone by hematite, chalcopyrite and bornite and as vein-type orebodies,
which have been significant producers in the district in the past.
Current ore reserves occur in orebodies in several favorable horizons
within the limestone sequence and in vein structures. Ore reserves are
estimated using standard techniques and standard modeling software.
ROBINSON MINING LIMITED PARTNERSHIP
The Robinson Mining Limited Partnership, formerly the Kennecott Nevada
Mines Division, was acquired by Magma from the Kennecott Corporation and
Alta Gold through a series of transactions in 1990 and 1991. Investment in
this project totaled $119 million as of December 31, 1994. The Robinson
Mining District consists of 12,500 acres and is 8 miles west of Ely, Nevada
along State Highway 50. The patented mining claims and other real property
comprising this project are owned by the Robinson Mining Limited
Partnership of which Magma's wholly-owned subsidiary, Magma Nevada Mining
Company, is the general partner and Magma Limited Partner Company, also a
wholly-owned subsidiary, is the limited partner.
In June of 1993, the Bureau of Land Management (BLM) required the
preparation of an Environmental Impact Statement (EIS) as a precursor to
the final permitting of the Robinson Project. The EIS was completed
September 9, 1994 with a supportive Record of Decision by the BLM. Final
approval of the EIS and the ability to initiate construction under a mining
plan of operations was received October 11, 1994. Construction contracts
were awarded and work activities commenced at the site effective October
12, 1994. In addition, major equipment orders were released for
fabrication on October 12, 1994. As of December 31, 1994, contracts and
equipment totaling $228.1 million have been issued. Electricity is
provided by Mt. Wheeler Power Company under a 10 year contract.
Based on present estimates, copper ore production is scheduled to
commence early in the first quarter of 1996 at an average daily throughput
rate of 46,000 tons. The current capital estimate for the development of
the mine and construction of a sulfide processing facility is $300 million.
The property is expected to produce an average of 274,000 tons of
concentrate per year, containing 146 million pounds of copper, 101,000
ounces of gold and 363,000 ounces of silver from sulfide copper ore over a
fifteen year mine life. In addition to the copper sulfide operations, it
is projected that an average of 16,000 ounces of gold in the form of dore
will be produced annually over the life of the mine by heap leaching.
The Cretaceous porphyry system was emplaced into Paleozoic sedimentary
formations and faulted extensively. The various ore bodies, Liberty,
Veteran, Tripp, Ruth, Kimberly and Wedge, represent the fault slices of the
porphyry system.
MAGMA TINTAYA S.A.
In November 1994, the Company acquired through privatization from the
government of Peru, Empresa Minera Especial Tintaya, S.A. Empresa Minera
Asociada Tintaya S.A., was incorporated as a 100% state-owned company in
May, 1980, with a subsequent change of name to Empresa Minera Especial
Tintaya S.A. in August, 1981. Tintaya was established to produce copper
concentrates through the development and exploitation of ore deposits
located in the province of Espinar, Cuzco. Tintaya began its mining
activity on April 1, 1985. Production was initiated after an open-pit and
concentrator were developed on the site in the early 1980's with the
assistance of Canadian expertise, technology and equipment. After the
acquisition of 98.43% of its shares for $243.2 million on November 29,
1994, Empresa Minera Especial Tintaya S.A. became Magma Tintaya S.A.
The Tintaya concession (the "Concession"), granted from the Republic of
Peru, is 16 km from the town of Yauri. The Concession is within the
"Tintaya Bamba Copper Belt" of southeastern Peru which extends in a
northwest-southeast direction over a distance of 200-250 km between the
cities of Arequipa and Cuzco. The Copper Belt is a metallogenic region
related to plate tectonic movements that created the Andes mountains. The
belt contains a variety of non-ferrous metals including copper, lead, zinc,
gold and silver. Mineral occurrences are primarily copper or copper-gold
skarn deposits, hosted chiefly by the middle Cretaceous Ferrobamba
Limestone and adjacent Upper Cretaceous to early Tertiary granodiorite and
monzonite intrusive rocks related to the Abancay batholith. Although
Tintaya currently operates the only active copper mining operation in the
area, there are several concessions owned by private companies who may
exploit additional non-ferrous metal prospects.
The Concession is linked by the national road network to Cuzco (260 km)
and to the port of Matarani through Arequipa (370 km). Concentrate is
transported by road to either the Southern Peru Copper Corporation Smelter
at Ilo (595 kilometers) or to the port of Matarani. From Matarani, the
concentrates are shipped to overseas destinations including the Company's
San Manuel, Arizona smelting and refining complex.
Electric Power is supplied by Electro Sur Este S.A., a regional state
power company whose main power plant is the Macchu Picchu Hydro-electric
Power Station on the Urubamba River. In addition, Tintaya owns a diesel-
electric plant to provide backup power in the event of an emergency. The
plant is fully automated, and starts immediately in the event of a power
outage from Tintaya's main energy source. Operations water supply is
available from the nearby Salado River. Tintaya currently owns water
rights granted from the Republic of Peru, not only for current operations,
but also for planned expansions through the year 2004.
Total proven and probable reserves include 58 million metric tons of
sulfide milling ore at 1.78% copper from which 1.9 billion pounds of copper
will be recovered over the currently projected life of the mine. In
addition, there are 21.7 million metric tons of oxide material at 1.57%
copper for which copper recovery and economic feasibility will be
determined in 1995. The sulfide reserves and oxide resource occur in the
operating mine area (Tajo Abierto, Chabuca Sur, and Chabuca Este).
Exploration potential occurs adjacent to and below present reserves as well
as Coroccohuayco and Chabuca Norte (both advanced exploration projects) and
several locations throughout the Concession (grass roots projects). The
Tintaya concession also includes a concentrator and a stockpile of oxide
mineralized resource. With less than 10% of the 39,600 acres of land
encompassed within the Concession drilled to date, the Concession holds a
great deal of potential for further exploration opportunities. Ore
reserves are estimated using standard techniques and standard modeling
software by Division geology and engineering staff.
FLORENCE PROJECT
The Florence project consists of 10,000 private and state-leased acres
west of State Highway 79, north of Florence, Arizona. Magma's project team
completed a pre-feasibility study and has recommended in situ mining
followed by solvent extraction and electrowinning as the preferred methods
of development for this resource. A feasibility study begun in 1994 will
provide the detailed mine design, environmental permitting and facility
engineering necessary to advance the project to the construction stage.
The advancement of this project is part of Magma's long-term strategy to
increase copper production through the application of its SX-EW leaching
technologies.
<TABLE>
<CAPTION>
ORE RESERVES
(Estimated as of JANUARY 1, 1995)
Average Recoverable
PROVEN/PROBABLE Tons Grade Gold Copper Recoverable
RESERVES IN COMMITTED (in %Total oz per (lbs in Gold
MINE PLANS(1) thousands) Copper Ton thousands) (oz)
- --------------------- ---------- ---------- ------- ----------- ------------
<S> <C> <C> <C> <C>
SAN MANUEL
MINING DIVISION
Sulfide Mill Ore(2):
San Manuel
underground 49,092 0.619 526,253
Kalamazoo
underground
(to 2890 ft.
level) 37,546 0.600 390,134
Kalamazoo
underground
(to 3440
level) 202,605 0.612 2,147,319
Underground dev.
& Misc. muck 7,376 0.430 54,927
Heap Leach Ore:
Open-pit oxide 309 0.591 2,048
Residual in heaps 95,068
In situ Leach Ore(4) 196,824 0.556 657,070
---------
Total San Manuel
Mining Division 3,872,819
PINTO VALLEY
MINING DIVISION
Sulfide Mill Ore:
Open-pit(3) 177,740 0.392 1,216,962
Sulfide Dump
Leach Ore:
Leach Ore(3) 77,598 0.225 87,298
Remaining on
dumps 436,305 0.120 49,718
Miami #2 Tailings Ore 19,621 0.380 77,841
---------
Total Pinto Valley
Mining Division 1,431,819
SUPERIOR
MINING DIVISION
Underground
Sulfide Ore(2) 679 5.270 66,327
MAGMA TINTAYA S.A.
Open-pit sulfide 58,026(5) 1.780 1,965,155
ROBINSON MINING LIMITED PARTNERSHIP
Sulfide Mill Ore:
Open-pit mill ore 252,378 0.551 0.0102 2,327,139 1,666,290
Gold Leach Ore
in strip 53,400 0.0086 274,659
Total Robinson Mining --------- ---------
Limited Partnership 2,327,139 1,940,949
--------- ---------
TOTAL 9,663,259 1,940,949
========= =========
- ------------------
NOTES
(1) All reserves were determined and commitments made to mine plans based
upon a pricing assumption of approximately $.80 per pound of copper and
all recoverable pounds of copper in sulfide mill ore calculated with
96.5% smelter recovery.
(2) Grade of copper stated is a minable diluted grade.
(3) Grade stated is % net sulfide copper.
(4) Grade is estimated preleach grade; recoverable copper based on 50%
recovery of preleach, in place, acid soluble copper.
(5) Metric tons
</TABLE>
MINERALIZED ROCK
Magma also owns various other properties containing mineralized rock
that it believes could be brought into production should market conditions
warrant. Capital commitments, a favorable copper price, and in some
instances planning or technical innovations would be required before
operations could commence at these properties. These deposits are
estimated to contain the following mineralizations as of January 1, 1995.
<TABLE>
<CAPTION>
%Total
Location Tons (in thousands) Copper Gold Oz per Ton
- ---------- -------------------- --------- ---------------
<S> <C> <C> <C>
San Manuel Sulfide
San Manuel Pillar 121,000 0.63
San Manuel 2890 37,000 0.64
Kalamazoo Pillar 64,000 0.72
Kalamazoo 3980 93,000 0.77
Tiger(2) 6,000 0.0350
Pinto Valley
Slice 7/8(1)(2) 139,788 0.36
Miami
In Situ(2) 190,000 0.58
East 100,000 1.44
Copper Cities/Diamond
H dumps 104,000 0.20
Superior
North Country A-beds(2) 1,154 4.90 0.0220
Robinson
Material between
$0.80/$1.00 cones 115,252 0.61 0.0076
Keystone dump 68,645 0.30 0.0054
Cu oxide in strip 28,096 0.41 0.0080
Low Grade Cu sulfide
stockpile 72,746 0.25 0.0074
Liberty Phase III(2) 37,245 0.48 0.0074
Florence
Oxide(2) 368,160 0.34
Sulfide 330,000 0.39
Tintaya
Open-pit Oxide(2) 21,700(3) 1.57
Coroccohuayco 25,924(3) 2.10
(1) Grade % net sulfide copper
(2) At feasibility stage or in feasibility study
(3) Metric tons
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings of a character normally
incidental to its business, including claims and pending actions against the
Company seeking damages in large amounts or clarifications of legal rights.
In many cases, insurance or other indemnification protection afforded to the
Company relates to such claims. 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.
The Company is involved in legal proceedings pending in the Superior
Court of Maricopa County, Arizona to adjudicate water rights of the Gila
River system and source (the "Adjudication"). The Company's right to use
groundwater at its facilities is potentially at issue in this case. These
proceedings commenced in the 1970's and to date, over 62,000 claims have
been filed. Among the claimants to the largest amounts of surface water are
the United States, on behalf of itself and various Indian tribes, the State
of Arizona, various municipal water providers, agricultural irrigation
districts, and the Company. The Gila River Indian Community has asserted
claims against the Company for damages attributable to groundwater
withdrawals at San Manuel, but these claims have been stayed pending the
outcome of the Adjudication. The Company has filed a claim challenging the
Court's jurisdiction to adjudicate the Company's groundwater rights or
alternatively seeking to confirm its groundwater rights. In 1994, the
Superior Court set forth criteria for determining what groundwater would be
included in the Adjudication. That decision is being reviewed by the
Arizona Supreme Court. Its opinion on this issue is likely to be rendered
in early 1996.
On February 4, 1994, two individuals served the Company in a purported
class action lawsuit in federal district court 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 case is pending in the Federal
District Court of Arizona. 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 is vigorously defending this lawsuit.
As a condition of the purchase of the Florence property from Conoco Oil
Company, the Company was required to intervene in litigation instituted in
October 1925 by the Gila River Indian Community, and captioned United States
v. Gila Valley Irrigation District, et al., filed in the Tucson Division of
the United States District Court for the District of Arizona, (a/k/a "Globe
Equity No. 59"). In that action, the Gila River Indian Community seeks to
alter the administration of water rights above the Ashurst-Hayden Diversion
Dam, near Florence, on the Gila River. The Florence property is below
Ashurst-Hayden and some of the property is served by irrigation water from
Ashurst-Hayden. In November 1994 various issues involving water quality and
administration of the decree but not directly involving the Florence
property were presented to the court. A ruling is expected on these issues
in 1995.
The Company is currently involved in investigations by the Arizona State
Mine Inspector's office and the Federal Mine Safety and Health
Administration involving an accident occurring August 10, 1993, at the
Company's Superior Mining Division, in which four miners were fatally
injured ("the Accident"). The Accident occurred when several tons of ore
spilled into the manway compartment of the transfer raise in which the four
victims were working. In the fourth quarter of 1994, the Company reached a
tentative settlement with the principal agencies involved. As is customary
in these circumstances, the proposed settlement covered all civil and any
potential criminal claims and was circulated among various interested
parties, including the United States Attorney.
Following this action, in the first quarter of 1995, the United States
Attorney's office for the District of Arizona served a grand jury subpoena
upon the Company seeking information pertaining to this Accident. The
United States Attorney's office also notified the Company that it is a
subject and potential target of that investigation. The Company is in the
process of responding to the subpoena and is otherwise cooperating with the
government in this matter. Although it does not now know what action, if
any, the United States Attorney ultimately will take, other than to
investigate this incident, the Company does not believe that it was
criminally culpable in connection with the Accident.
See Item 1: Business-Environmental Regulations for information relating
to certain other legal proceedings pertaining to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No issues were submitted for a vote of stockholders during the
fourth quarter of 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock (trading symbol MCU) is traded on the New
York Stock Exchange ("NYSE"). The following table sets forth the high and
low last sale prices of the Common Stock, as reported by the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1994:
First Quarter . . . . . . . . $17 1/4 $12 7/8
Second Quarter. . . . . . . . 17 1/8 13 3/8
Third Quarter . . . . . . . . 18 3/4 15 1/4
Fourth Quarter. . . . . . . . 18 1/2 15
1993:
First Quarter . . . . . . . . $18 5/8 $13 1/4
Second Quarter. . . . . . . . 15 1/4 10 5/8
Third Quarter . . . . . . . . 12 1/4 8 7/8
Fourth Quarter. . . . . . . . 13 3/4 9
</TABLE>
On March 1, 1995, the closing sale price for the Company's Common
Stock, as reported by the NYSE, was $15 1/4 per share. On March 1, 1995,
there were approximately 4,719 stockholders of record of the Common Stock.
This figure does not reflect beneficial ownership of shares held in nominee
names.
At a Special Meeting of Stockholders on October 30, 1992, the
stockholders of the Company approved an amendment to the Restated
Certificate of Incorporation of the Company that reclassified and converted
each outstanding share of Class A Common Stock and Class B Common Stock into
one share of a single, new class of Common Stock. The new class of common
stock created by the amendment possesses one vote on all matters properly
coming before the stockholders, including elections of the Board of
Directors, is not subject to any transfer restrictions, and possesses no
veto power over the issuance of any other class of stock.
In December 1992, the Company offered to exchange 15.446825 shares of
its Common Stock for each share of its Series B Preferred Stock. On
December 29, 1992, each share of Series B Preferred Stock was exchanged,
resulting in an issuance of 14,133,047 shares of Common Stock. Prior to the
exchange, each share of Series B Preferred Stock was convertible into
14.285714 shares of Common Stock.
In recent years, the Company has not declared or paid cash dividends on
its Common Stock and has retained all profits to fund capital projects and
other expenses. The Company's dividend policy is reviewed from time to time
by its Board of Directors. Future dividend decisions will take into account
then current business results, cash requirements and the financial condition
of the Company. The indentures which govern the Company's 12% and 11 1/2%
Notes limit the amount the Company can pay as dividends, or use to make
distributions on or repurchase its capital stock. Further, covenants in the
Company's revolving credit facility require that the Company and its
subsidiaries maintain a minimum consolidated net worth and establish a
maximum ratio of debt to capitalization that may indirectly limit the
Company's ability to pay dividends.
Seven-year warrants (the "Common Stock Warrants") covering 4,112,765
shares of Common Stock were distributed by the Company on December 29, 1988
as dividends to Common Stockholders of record on December 12, 1988. Each
Common Stock Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $8.50 per share. The Common Stock
Warrants have traded on the NYSE since February 10, 1992. Prior to that
time, they were traded on the AMEX. During 1994 and 1993, the sales price
for the Common Stock Warrants ranged from $3 7/8 to $11 5/8. On March 1,
1995, the closing sale price of the Common Stock Warrants was $7 1/4.
Additionally, seven year warrants to purchase 1,000,000 shares of Common
Stock, exercisable at $8.50 per share, were issued with the Series B
Preferred Stock on November 30, 1988. These warrants are not listed or
traded on an exchange. All warrants are exercisable through November 30,
1995.
In July 1993, the Company issued $100 million, or 2.0 million shares, of
5 5/8 percent Cumulative Convertible Preferred Stock, Series D, with a
liquidation preference of $50.00 per share and a conversion rate of 3.448
(equivalent to a conversion price of $14.50 per share). Additionally, in
December 1993, the Company issued $100 million, or 2.0 million shares, of 6
percent Cumulative Convertible Preferred Stock, Series E, with a liquidation
preference of $50.00 per share and a conversion rate of 3.5945 (equivalent
to a conversion price of $13.91 per share). Dividends are paid quarterly on
both series of preferred stock issued in 1993. Dividends on the preferred
stock are senior in right of any dividends which may be declared on the
Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
(Dollar amounts in millions, except per share amounts)
The following selected financial data for each of the five years in the
period ended December 31, 1994 are derived from the Consolidated Financial
Statements audited by Arthur Andersen LLP, independent public accountants.
The report of Arthur Andersen LLP with respect to the financial position of
the Company and its subsidiaries as of December 31, 1994 and 1993, and the
results of the Company's operations and cash flows for each of the years
ended December 31, 1994, 1993 and 1992, appear elsewhere in this document.
The selected financial data should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations at Item 7 hereof and the Consolidated Financial Statements,
related notes thereto, and auditors' report included in Item 8 hereof. See
Index to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1994 1993 1992
---------- --------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Sales (2) . . . . . . . . . . . . . . . $ 889.6 $ 792.4 $ 819.5
Cost of products sold. . . . . . . . . (654.5) (639.4) (630.4)
Depreciation, depletion and
amortization . . . . . . . . . . . . (75.1) (65.4) (54.6)
Selling, general and
administrative (2). . . . . . . . . . (22.7) (22.1) (19.4)
Exploration, research and
development . . . . . . . . . . . . . (13.5) (9.3) (2.7)
Restructure expense. . . . . . . . . . -- (2.0) --
. . . . . . . . . . . . . . . . . . -------- -------- --------
Income (loss) from operations . . . 123.8 54.2 112.4
Net interest expense (3). . . . . . . . (14.3) (26.4) (35.8)
Other . . . . . . . . . . . . . . . . . .3 3.7 4.3
-------- -------- --------
Income (loss) before income
taxes, accounting change,
extraordinary item and preferred
stock dividends . . . . . . . . . 109.8 31.5 80.9
Income tax (provision) benefit . . . . (22.4) (8.7) (22.6)
-------- -------- --------
Income (loss) before extraordinary
item, accounting change and
preferred stock dividends . . . . 87.4 22.8 58.3
Premium on early repayment of debt,
net of tax (4) . . . . . . . . . . . -- -- (3.0)
Cumulative effect of accounting
change, net of tax . . . . . . . . . -- (.9) --
-------- -------- --------
Net income (loss) before
preferred stock dividends . . . . $ 87.4 $ 21.9 $ 55.3
======== ======== ========
Net income (loss)per common share,
assuming full dilution (5) . . . . . $ 1.38 $ .40 $ 1.19
======== ======== ========
Earnings before interest, taxes,
depreciation, and amortization
- "EBITDA"(6). . . . . . . . . . . . $ 199.2 $ 125.3 $ 171.3
Cash flow available for capital
expenditures (net income plus
depreciation, depletion,
amortization)(6) . . . . . . . . . . 162.5 90.2 112.9
BALANCE SHEET DATA (AT END OF PERIOD)(1):
Cash and marketable securities. . . . $ 88.2 $ 339.3 $ 242.2
Net property, plant and mine development 1,217.2 866.4 783.6
Total assets. . . . . . . . . . . . . 1,576.6 1,350.8 1,156.5
Long-term debt. . . . . . . . . . . . 386.8 392.3 395.0
Stockholders' equity (1). . . . . . . 760.1 680.2 465.4
__________
(1) Reflects the Non-Cash Accounting Adjustments related to the Restructure
and Quasi-Reorganization implemented at December 31, 1991.
(2) Certain freight costs have been reclassified as a deduction from revenue
rather than a selling expense. All years have been restated to reflect
this change.
(3) Excludes capitalized interest of $17.7 million for 1994 and $7.8 million
for 1993.
(4) In May 1992, the Company redeemed all $100 million of its Subordinated
Reset Debentures and paid a premium on the early repayment of this debt.
(5) There were no cash dividends paid or declared on common stock during any
of these periods.
(6) Before restructure expense, extraordinary item and accounting change.
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1991 1990
---------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Sales (2) $ 724.8 $ 754.2
Cost of products sold (585.7) (555.6)
Depreciation, depletion and
amortization (43.6) (33.4)
Selling, general and
administrative (2) (16.9) (14.2)
Exploration, research and
development (.9) (.1)
Restructure expense (203.2)(1) --
------- -------
Income (loss) from operations (125.5) 150.9
Net interest expense (3) (45.5) (50.0)
Other 2.4 7.8
-------- --------
Income (loss) before income
taxes, accounting change,
extraordinary item and preferred
stock dividends (168.5) 108.7
Income tax (provision) benefit 62.0 (26.0)
-------- --------
Income (loss) before extraordinary
item, accounting change and
preferred stock dividends (106.5) 82.7
Premium on early repayment of debt,
net of tax (4) -- --
Cumulative effect of accounting
change, net of tax (14.0) --
-------- --------
Net income (loss) before
preferred stock dividends $ (120.5) $ 82.7
======== ========
Net income (loss) per common share,
assuming full dilution (5) $ (4.22) $ 1.98
======== ========
Earnings before interest, taxes,
depreciation, and amortization
- "EBITDA"(6) $ 123.6 $ 192.1
Cash flow available for capital
expenditures (net income plus
depreciation, depletion,
amortization)(6) 78.0 116.1
BALANCE SHEET DATA (AT END OF PERIOD)(1):
Cash and marketable securities $ 91.3 $ 113.6
Net property, plant and mine development 766.2 713.0
Total assets 1,015.9 1,004.2
Long-term debt 340.9 362.9
Stockholders' equity (1) 409.1 447.2
- -----------------
(1) Reflects the implementation at December 31, 1991, of the Non-Cash
Accounting Adjustments.
(2) Certain freight costs have been reclassified as a deduction from
revenue rather than a selling expense. All years have been restated to
reflect this change.
(3) Excludes capitalized interest of $17.7 million for 1994 and $7.8
million for 1993.
(4) In May 1992, the Company redeemed all $100 million of its Subordinated
Reset Debentures and paid a premium on the early repayment of this
debt.
(5) There were no cash dividends paid or declared on common stock during
any of these periods.
(6) Before restructure expense, extraordinary item and accounting change.
</TABLE>
SELECTED OPERATING DATA
The following table sets forth selected operating information of the
Company for the periods indicated. (In millions of pounds, except as noted)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
COPPER PRODUCTION:
<S> <C> <C> <C>
San Manuel
Underground 214.8 219.3 219.7
Oxide open-pit (1) 97.9 100.2 86.3
In situ 10.9 17.3 23.8
Other 20.8 14.9 5.6
------- ------- -------
Total San Manuel 344.4 351.7 335.4
------- ------- -------
Pinto Valley
Sulfide open-pit 154.6 138.9 161.9
Pinto Valley leaching 20.0 18.4 18.2
Miami leaching 24.4 22.0 19.5
------- ------- -------
Total Pinto Valley 199.0 179.3 199.6
------- ------- -------
Tintaya (2)
Sulfide open-pit 10.9 -- --
------- ------- -------
Superior
Underground 41.1 32.4 24.5
------- ------- -------
Total copper production (3) 595.4 563.4 559.5
======= ======= =======
Per pound cost of products sold:
Magma sources
Before credits (4) $ .71 $ .76 $ .77
Credits (5) (.13) (.10) (.11)
------- ------- -------
Net $ .58 $ .66 $ .66
======= ======= =======
Concentrate smelted
(thousands of tons) (6) 1,208.0 1,076.0 1,060.1
New fine copper (7) 888.6 845.6 771.8
Rod Produced (8) 306.0 289.7 225.3
Gold contained in residues
and dore (thousands of
ounces)(9) 77.0 103.4 106.9
Silver contained in residues
(thousands of ounces) (9) 3,289.0 2,947.9 2,726.6
Molybdenum disulfide production
(pounds molybdenum contained) 4.9 4.8 5.2
_____________
(1) Oxide open-pit mining operations completed at the end of 1994.
(2) One month of operations, Tintaya acquired on November 29, 1994.
(3) Saleable copper contained in concentrates plus electrowon copper.
(4) 1993 costs were negatively impacted by heavy rains and flooding.
(5) Credits include net rod premiums and profits on by-products and custom
processing (including tolled and purchased concentrates).
(6) Includes all new sulfide concentrate smelted by the Company for
its own account and concentrate smelted for others on a custom basis.
(7) Includes all electrolytic copper produced by the Company for its own
account, refined copper produced for others on a custom basis and
shipments of unrefined copper.
(8) Includes all rod produced by the Company from its own electrolytic
copper production and from copper purchased by the Company, as well as
rod produced for others on a toll basis.
(9) Includes production from the Company's concentrates and the Company's
share of production from custom concentrates.
</TABLE>
SELECTED OPERATING DATA
The following table sets forth selected operating information of the
Company for the periods indicated. (In millions of pounds, except as noted)
<TABLE>
<CAPTION>
1991 1990
---------- ----------
<S> <C> <C>
COPPER PRODUCTION:
San Manuel
Underground 220.3 182.7
Oxide open-pit (1) 67.0 57.5
In situ 24.7 25.0
Other 3.9 3.3
Total San Manuel -------- --------
315.9 268.5
-------- --------
Pinto Valley
Sulfide open-pit 145.2 160.8
Pinto Valley leaching 15.2 14.0
Miami leaching 19.3 17.9
-------- --------
Total Pinto Valley 179.7 192.7
-------- --------
Superior
Underground 24.4 5.6
-------- --------
Total copper production (3) 520.0 466.8
======== ========
Per pound cost of products sold:
Magma sources
Before credits (4) $ .80 $ .84
Credits (5) (.09) (.11)
-------- --------
Net $ .71 $ .73
======== ========
Concentrate smelted
(thousands of tons) (6) 1,007.5 996.2
New fine copper (7) 707.2 682.9
Rod Produced (8) 208.9 282.3
Gold contained in residues
and dore (thousands of
ounces)(9) 69.1 33.8
Silver contained in residues
(thousands of ounces) (9) 2,856.4 1,895.9
Molybdenum disulfide production
(pounds molybdenum contained) 5.4 4.4
_____________
(1) Oxide open-pit mining operations completed at the end of 1994.
(2) One month of operations, Tintaya acquired on November 29, 1994.
(3) Saleable copper contained in concentrates plus electrowon copper.
(4) 1993 costs were negatively impacted by heavy rains and flooding.
(5) Credits include net rod premiums and profits on by-products and custom
processing (including tolled and purchased concentrates).
(6) Includes all new sulfide concentrate smelted by the Company for
its own account and concentrate smelted for others on a custom basis.
(7) Includes all electrolytic copper produced by the Company for its own
account, refined copper produced for others on a custom basis and
shipments of unrefined copper.
(8) Includes all rod produced by the Company from its own electrolytic
copper production and from copper purchased by the Company, as well as
rod produced for others on a toll basis.
(9) Includes production from the Company's concentrates and the Company's
share of production from custom concentrates.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In recent years the Company's operations have been characterized by
increased production, lower costs and improved productivity. Magma's operations
set a record for production of copper in 1994, producing 889 million pounds
compared to 846 million pounds in 1993. Net cash operating costs declined
by 8 cents per pound of copper in 1994, from an average cost of 66 cents in
1993 to 58 cents in 1994. Productivity improved 6% in 1994 as a result of
increased employee involvement. The Company also increased its ore
reserves from 7.8 billion pounds of recoverable copper in 1993 to 9.7
billion pounds in 1994 through the development of existing properties and
the acquisition of new properties.
On October 6, 1994, the government of Peru declared the consortium of
Magma Copper Company and its wholly-owned subsidiary, Global Magma, Ltd.,
the winning bidder in the privatization of Empresa Minera Especial Tintaya
S.A., which owns one of the largest operating mining projects in Peru.
Closing of the purchase occurred on November 29, 1994. At closing, Magma
(together with its wholly-owned subsidiary) purchased 98.43% of Tintaya,
with Tintaya's employees subscribing to purchase the remaining 1.57%
interest in accordance with an agreement with the Peruvian government.
Magma paid $243 million for its interest in Tintaya and is required to make
an additional $85 million in capital expenditures at this project over the
next 5 years.
Tintaya is a low-cost, open-pit copper mine and concentrator
operation. It has a large area of established ore reserves and has
excellent exploration potential. Magma has already identified several
highly prospective mineralized areas and is conducting a major exploration
program to prove up additional reserves. In 1993 and 1994 Tintaya produced
110 million pounds of copper in concentrate per year at a cost of about
$0.60 per pound of refined copper from an ore reserve of 58 million tonnes
of 1.78 percent sulfide copper ore, or approximately two billion pounds of
recoverable copper. Over the next two years, Magma plans to increase
production to 140 million pounds per year at a net cash operating cost
estimated at $0.55 per pound. Magma is studying the feasibility of a
leaching SX-EW operation that could produce 70 million pounds of copper
cathode per year from an oxide mineralized resource of 21.7 million tonnes
of 1.57 percent oxide copper. The SX-EW operation may reduce net cash
operating costs from Tintaya to below $0.50 per pound and could expand the
total annual production rate from the Tintaya property to over 200 million
pounds per year in 1997.
In addition, the Company obtained final approval to begin development
of its Robinson mine located near Ely, Nevada, and is continuing
development of its Lower Kalamazoo orebody. These mining operations are
expected to commence production in 1996 and 1997, respectively. The Company
also completed an expansion of its smelting and refining operations during
1994, resulting in increased production, lower costs and improved
environmental performance.
The following sets forth more detailed information regarding the
Company's operations and capital projects.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Magma achieved record net income in 1994 of $87.4 million, or $1.38
per share, compared to $21.9 million, or $0.40 per share in 1993. The rise
in earnings was attributed to further reductions in net cash operating
costs, increased pounds of copper sold and an increase in Magma's realized
price per pound of copper sold. Net cash operating costs declined by 8
cents per pound of copper in 1994, from an average cost of 66 cents in 1993
to 58 cents in 1994. Sales of Magma source copper increased by over 7
percent, or 39 million pounds in 1994, from 558 million pounds in 1993 to
597 million pounds in 1994. Magma also benefited from an increase in
realized price of copper sold, which increased by 4 cents per pound from 94
cents in 1993 to 98 cents in 1994. Earnings for 1993 were negatively
impacted by heavy rains and flooding that occurred during the first quarter
of 1993, which reduced after-tax earnings by $15.5 million, or 30 cents per
share, and increased costs by 3 cents per pound.
Comparing 1993 to 1992, net income, before restructuring expenses, an
accounting change and the effects of first quarter rains and flooding, was
$39.8 million, or $.76 per share, for 1993, compared to $58.3 million, or
$1.25 per share, for 1992. Earnings for 1993 were lower due primarily to a
decline in the average copper price realized by Magma from $1.00 per pound
in 1992 to $.94 per pound in 1993. After restructuring expenses,
an accounting change and the effects of first quarter rains and
flooding, Magma reported net income for 1993 of $21.9 million, or $.40 per
share. Magma's first quarter 1993 results were restated to recognize a
$0.9 million after-tax charge for the adoption of Statement of Financial
Accounting Standards No. 112, "Accounting for Postemployment Benefits"
(SFAS 112).
After deducting dividends on the 5 5/8% Series D Preferred Stock and
6% Series E Preferred Stock issued in July and December 1993, respectively,
earnings available to stockholders were $75.8 million ($1.54 per share) in
1994, compared to $19.4 million ($.40 per share) in 1993 and $42.7 million
($1.28 per share) in 1992.
Total Sales. Total 1994 sales were $889.6 million, a 12% increase
from 1993 sales of $792.4 million. The increase in sales was primarily a
result of higher copper prices and increased volume. Total sales for 1993
were 3% below 1992 sales of $819.5 million due to lower copper prices which
were partly offset by increased volume.
Copper Prices and Sales. Copper prices have historically been
subject to wide fluctuations and are dependent to a significant extent on
factors outside the control of the Company. The Company's average realized
price per pound of copper was $.98 in 1994, $.94 in 1993 and $1.00 in 1992.
In light of the historic volatility of the price of copper and the
Company's need to ensure sustained levels of cash flow to support
operations and facilitate capital projects, the Company has maintained a
copper price protection program during the past two years. The program
includes hedging through the use of put options, futures, swap contracts and
forward sales of copper at a fixed price. The approach used by the Company at
any given time has been dependent on market conditions, including the price and
volatility of these alternatives. As a result of this program, Magma's
average price per pound of copper sold was nine cents per pound greater
than the average Comex price in 1993 ($.94 versus $.85) and nine cents per
pound lower than the average price per pound in 1994 ($.98 versus $1.07).
For information relating to the Company's price protection program for 1995
and 1996, which features the use of put options, thereby preserving the benefit
of higher copper prices, see "Capital Resources and Liquidity" below.
The Company's realized price per pound also includes a premium of
several cents over the market price for copper cathode to reflect net
delivery and financing costs. The Company's price for copper rod commands
a premium over its price for copper cathode to reflect the value added by
additional processing.
The Company sold 774.3 million pounds of copper in 1994, compared to
764.4 million pounds in 1993 and 725.4 million pounds in 1992. Sales of
copper from Magma sources was negatively impacted in 1993 as the result of
Arizona's abnormally high rainfall earlier in the year. The following
table sets forth the volume of copper sold in relation to its sources:
<TABLE>
Pounds of Copper Sold By Source (in millions)
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Magma Sources 596.5 558.3 566.8
Purchased 177.8 206.1 158.6
----- ----- -----
Total 774.3 764.4 725.4
</TABLE>
Other Metal Sales and Treatment Tolls Earned. Sales of other metals
and metal by-products, sulfuric acid and treatment tolls earned in 1994
were $101.8 million, as compared to $81.9 million in 1993 and $83.3 million
in 1992. The increase for 1994 was attributable to higher prices for gold,
silver, molybdenum and sulfuric acid along with increased volume of
material smelted and refined for third parties on a toll basis. The
decrease from 1992 to 1993 was primarily attributable to lower gold sales
from the Company's Robinson Mining District and the closure of its McCabe
Mining Division, together with a weak market for acid sales. These
decreases were largely offset by higher purchased by-products that were
contained in custom concentrates processed by Magma and an increase in the
volume of toll material processed.
Cost of Sales. Cost of products sold during 1994 increased to $654.5
million, or 2%, from $639.4 million in 1993. This increase was due to
greater sales volume of copper sold and a higher unit cost of scrap and
copper concentrates purchased from third parties. This cost increase was
mostly offset by reduced unit production costs.
Cost of products sold during 1993 of $639.4 million was up 1% from
$630.4 million in 1992. Lower unit costs of Magma source copper contributed
to lower cost of products sold by $21 million in addition to lower volume
sold of $6 million. Higher sales volume of copper purchased or tolled from
third parties increased cost of sales by $28 million. Storm damage
resulting from Arizona's abnormally high rainfall in 1993 caused
a $14 million increase in cost of sales. However, cost of sales of
other metals decreased by $6 million.
Other. Depreciation, depletion and amortization expense totaled
$75.1 million in 1994 compared to $65.4 million in 1993. The increases
were largely due to increased production, the addition of Tintaya and
depreciation on the expansion of the smelting and refining complex and
computer system conversion that were put into service in early 1994.
The increase in selling, general and administrative expense for 1994
was due to the higher cost of insurance coverage. The increase for 1993
was a result of higher legal and consulting fees primarily relating to
business development activities and special projects.
The increase in exploration, research and development expenses in 1994
and 1993 was due to the Company's emphasis on increasing ore reserves in
the U.S. and other countries.
Interest expense in 1994 was $25.0 million, as compared to $35.0
million in 1993 and $45.3 million in 1992. These decreases reflect the
capitalization of interest in connection with the Company's major capital
projects.
Interest income was $10.7 million in 1994 as compared to $8.7 million
in 1993 and $9.5 million in 1992. The increase in 1994 was largely the
result of higher interest rates while the decrease in 1993 was the result
of lower interest rates. The decrease in other income for both 1994 and
1993 reflects decreasing townsite sales. During 1994 the Company completed
its program of selling townsite homes.
In the fourth quarter of 1993, the Company recorded a $2.0 million
charge for restructuring expenses related to workforce reductions as a part
of a major cost reduction program.
Preferred stock dividends were $11.6 million in 1994 compared to $2.5
million in 1993 and $12.6 million in 1992. In July 1993 the Company issued
$100.0 million Series D Preferred Stock and in December 1993 it issued
$100.0 million of Series E Preferred Stock. These securities pay quarterly
dividends at the annual rate of 5 5/8% and 6%, respectively. The decrease
in 1993 was the result of the 1992 conversion into Common Stock of the
Company's Series B Preferred Stock.
Effects of Inflation. Generally, production costs of the Company's
domestic operations, other than labor and energy costs, are not materially
affected by inflation. Recent low levels of inflation have not had a
material effect on the Company's operating costs.
Peru has experienced high levels of inflation in recent years. The
inflation rate in Peru, as measured by the Lima consumer price index, fell
from 7,650% in 1990 to 139.2% in 1991, 56.7% in 1992, 39.5% in 1993 and
13.0% in 1994. Although the Peruvian Government's stabilization plan has
significantly reduced inflation, there can be no assurance that domestic
inflation will not increase from its current level. However, nearly all of
Tintaya's sales and approximately 40% of its purchases have historically been
denominated in U.S. dollars and are not affected by local inflation.
DEVELOPMENT PROJECTS, CAPITAL RESOURCES & LIQUIDITY
Development Projects. Over the past several years, the Company has
made an exerted effort to expand and improve its smelting and refining
complex and to increase its ore reserves and production from Company
sources. The following sets forth a summary description of the Company's
more significant projects.
Smelting and Refining Complex. During the past year, the Company
completed an expansion and modernization of its smelting and refining
complex at a total capital cost of $85 million. The expansion of the
smelter should enable the Company to maintain its custom smelting and
refining for third parties even after its Robinson project begins copper
production.
Robinson. Construction on Magma's new Robinson mine started on
October 12, 1994 following final regulatory approval. The current project
will include a concentrator and open-pit mine and is expected to have a
capital cost of $300 million. Production is expected to begin in the first
quarter of 1996.
Based upon drill and assay results, the Company believes that Robinson
has 252 million tons of proven/probable sulfide ore reserves with an
average grade of .551% copper and with .0102 ounces of gold per ton, and 53
million tons of gold reserves with an average grade of .0086 ounces of gold
per ton. Robinson is expected to produce an average of approximately 146
million pounds of copper annually for 15 years through traditional
mining/concentrating/smelting/ refining methods, with 101,000 ounces of
gold and 363,000 ounces of silver as by-products. In addition, this
minesite is expected to produce an additional 16,000 ounces of gold
annually from leaching operations during this time period.
A metallurgical test program is currently under way to evaluate the
feasibility of processing Keystone dump material which contains in excess
of 69 million tons at a grade of .30% copper.
Lower Kalamazoo. The Company's Kalamazoo orebody, which is near its
San Manuel underground mine, is comprised of two levels, an upper level
which has been in production since 1990 and contains approximately 38
million tons of proven/probable ore reserves and a lower level which is
being developed and contains approximately 203 million tons of
proven/probable ore reserves. Based on the current mine plan, the Lower
Kalamazoo project is scheduled to produce 2.1 billion pounds of copper
during the period from 1997 to 2009.
Tintaya. In addition to its existing reserve base, the Tintaya
property bears significant exploration potential. Tintaya has implemented
a program to delineate, measure, and determine the feasibility of this
potential to support expanded, low cost production.
Tintaya plans to spend $10 million over the next two years on
sulfide exploration and development, primarily focused on demonstrating
additional sulfide ore in and around the current open pit. Approximately
11,000 meters of core drilling is planned in this effort. In addition,
Tintaya plans to reassess existing drill samples for gold, create a block
model for gold, and generate a high quality gold reserve estimate for the
property.
The currently delineated sulfide pit is expected to generate 21.7
million metric tons of oxidized skarn containing 1.57% copper during
stripping. Approximately half this amount has already been mined and
stockpiled. This mineralized material is not declared as a reserve at this
time because a feasibility study and mine plan have not yet been completed.
Tintaya intends to begin a feasibility study on the oxide material by the
end of 1995, designed to demonstrate the feasibility of producing 70
million pounds of SX-EW cathode per annum by leaching this material.
Florence. In July 1992, Magma completed the acquisition of a large
copper deposit near Florence, Arizona. Magma's project team completed a
pre-feasibility study and has recommended in situ mining followed by
solvent extraction and electrowinning as the preferred methods of
development for this resource. A feasibility study which began in 1994
will provide the detailed mine design, environmental permitting and
facility engineering necessary to advance the project to the construction
stage. This project is part of Magma's long-term strategy to increase
copper production through the application of its SX-EW leaching
technologies. Because evaluation of the Florence property is still in the
early stages, the Company has not yet made any determination of the cost to
develop the property.
Capital Resources and Liquidity. During 1994, the Company funded its
development projects through internally generated cash flow and existing
cash balances. In this regard, the Company's 1994 cash flow available for
capital expenditures (net income plus depreciation, depletion and
amortization) was $162.5 million, as compared to $90.2 million in 1993.
The increase was attributable to increased production, decreased costs and
higher copper prices in 1994. In addition, 1993 cash flow was adversely
affected by storm damage from Arizona's abnormally high rainfall which
occurred early in the year.
During 1994, the Company spent $243 million in direct acquisition costs
for the Tintaya mine and $149 million for other capital expenditures. These
capital expenditures included $19 million for upgrading its smelting and
refining complex, $32 million on the development of its Lower Kalamazoo orebody
and $29 million on development of its Robinson Mining District.
Reflecting these expenditures, the Company's cash and marketable
securities were $88 million at December 31, 1994, compared to $339 million
at December 31, 1993. Working capital, including cash and marketable
securities, was $115 million on December 31, 1994, compared to $360 million
at December 31, 1993.
The Company anticipates spending on the order of $700 million over the
next three years on its currently identified development projects, of which
$435 million is planned for 1995, $160 million for 1996 and the balance for
1997. Capital expenditures for 1995 on these projects include $212 million
on the development of the Robinson Mining District, $38 million on continued
development of the Lower Kalamazoo orebody, $30 million for upgrading mining
equipment at Tintaya and $25 million for in situ expansion at San Manuel.
All of these projects will be completed or substantially be completed by
the end of 1997.
During 1994, the Company generated $162.5 million in cash flow
available for capital expenditures based upon production from Company
sources totaling 595 million pounds of copper and an average realized price
of $.98 per pound. With the acquisition of the Tintaya property, which
will more than offset closure of its open-pit mine at San Manuel, the
Company anticipates that production from Company sources will increase in
1995. During the first quarter of 1995, copper price levels have exceeded
those achieved in 1994. With the anticipated increase in production and
assuming recent price and operating cost levels continue,
the Company expects that its cash flow available to support
capital expenditures, together with its existing cash balances ($88
million at December 31, 1994), will fund the capital expenditures planned
for 1995 through 1997. To protect against fluctuations in copper prices,
the Company has entered into put options and forward commitments more fully
described below. The Company believes that even if prices were to fall to
the levels covered by this price protection program, it would still be
able to fund a substantial portion of these expenditures during this
period from cash balances and operating cash flow, with the remainder to
be funded by its existing credit facilities, or alternative sources of
borrowings that the Company may seek.
In light of the historic volatility of copper prices, the Company uses
a combination of put options, futures, swap contracts and forward commitments
to assure cash flow from operations to facilitate its capital spending program.
For 1995, the Company purchased put option contracts covering 529 million
pounds of production at a London Metals Exchange ("LME") based strike price
of $.85 per pound. In addition, the Company purchased put options covering
121 million pounds at an LME based strike price of $.95 per pound. The
Company also entered into Commodity Exchange Inc. ("Comex") based swap
contracts covering 51 million pounds of production at an average price
of $1.03 per pound. When combined with the amortization of the option
premiums, the above contracts create a floor price for the Company's
production of approximately $.87 per pound for 1995. For 1996,
the Company purchased put options covering 676 million pounds of production,
creating a minimum realized price of approximately $.93 per pound. For
1997, the Company has purchased put options covering 66 million pounds of
first quarter production, creating a minimum realized price of approximately
$.92 per pound. In addition, the Company increased its revolving line of
credit from $200 million to $300 million in 1994.
The decision to complete ongoing projects or to undertake new projects
is subject to a variety of factors, which may include (depending on the
project), the price of copper, the completion of favorable feasibility
studies and permitting. There can be no assurance that the Company will
undertake all of these opportunities or that, if undertaken, they will
prove successful. If the Company is unable to replace its reserves from
the mine development projects being evaluated, or with other reserves
identified or acquired in the future, the Company's dependency upon third
party sources to supply copper concentrate to its smelting and refining
operations would increase.
Environmental Matters. The Company maintains and funds an ongoing
environmental auditing and compliance program. The program includes mine
reclamation and remediation, as well as technological improvements and
upgrades to its operating facilities.
The Company is participating in a remediation and assessment of ground
water quality at Pinal Creek near Miami, Arizona as part of the Arizona
Department of Environmental Quality's Process Water Quality Assurance
Revolving Fund Program. The Company and other companies sharing voluntary
responsibility for ground water clean up and a remedial investigation have
sued certain other mining companies with existing or prior operations in
the area to obtain reimbursement for all or part of the costs that have
been and will be incurred at the site. Some of these defendants have
counterclaimed against the Company asserting indemnification for the costs
and any liabilities relating to this project. Although the Company's costs
of remediation have not been material on a yearly basis, the Company cannot
estimate the duration over which such activities may have to take place, or
whether the cost of the remedial activities will increase as permanent
cleanup activities are approved and implemented. Although there can be no
assurance in this regard, the Company does not believe it will incur any
material liability or costs in relation to this matter.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MAGMA COPPER COMPANY AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants . . . . . . . . . . . . . . 47
Consolidated Financial Statements:
Consolidated Balance Sheets-December 31, 1994 and 1993 . . . . . 48
Consolidated Statements of Operations-for each
of the years ended December 31, 1994, 1993 and 1992. . . . . . . 50
Consolidated Statements of Changes in Stockholders'
Equity-for each of the years ended December 31, 1994,
1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . 51
Consolidated Statements of Cash Flows-for each of
the years ended December 31, 1994, 1993 and 1992 . . . . . . . . 55
Notes to Consolidated Financial Statements. . . . . . . . . . . 57
Consolidated Financial Statement Schedules at
and for the years ended December 31, 1994, 1993
and 1992:
Report of Independent Public Accountants. . . . . . . . . . 78
Schedule II-Valuation and Qualifying Accounts . . . . . . . 79
All other schedules are omitted as the information required is
immaterial or inapplicable or because the required information is included
in the Consolidated Financial Statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Magma Copper Company:
We have audited the accompanying consolidated balance sheets of Magma
Copper Company (a Delaware corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Magma Copper
Company and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As explained in Note L and Note K to the financial statements,
effective January 1, 1993, and January 1,1994, the Company changed its
methods of accounting for postemployment benefits and investments in debt
and equity securities, respectively.
ARTHUR ANDERSEN LLP
Tucson, Arizona,
January 27, 1995.
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1994 and 1993
(In thousands, except share information)
A S S E T S
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 72,849 $ 230,414
Marketable securities 15,388 108,890
Accounts receivable 101,058 51,090
Inventories:
Metals 96,186 53,676
Materials and supplies 40,814 25,045
Prepaid expenses 15,045 10,883
--------- ---------
Total current assets 341,340 479,998
--------- ---------
PROPERTY, PLANT AND MINE DEVELOPMENT:
Equipment and buildings 1,118,734 861,846
Less - accumulated depreciation (170,397) (106,886)
--------- --------
948,337 754,960
Mining claims and land, net of
accumulated depletion 171,872 53,336
Deferred mine development costs,
net of accumulated amortization 97,011 58,065
--------- ---------
Net property, plant and mine
development 1,217,220 866,361
--------- ---------
OTHER ASSETS 18,076 4,428
--------- ---------
TOTAL ASSETS $1,576,636 $1,350,787
========= =========
The accompanying notes are an integral part of
these consolidated balance sheets.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1994 and 1993
(In thousands, except share information)
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 34,101 $ 17,952
Accrued expenses:
Copper-bearing materials 55,740 14,755
Copper forward contracts 21,129 --
Payroll and employee benefits 38,283 24,377
Interest 8,413 9,367
Property taxes 7,710 7,559
Other 40,459 33,150
Short-term borrowings 15,000 --
Current portion of long-term debt 5,641 12,395
--------- ---------
Total current liabilities 226,476 119,555
--------- ---------
ACCRUED PENSION, RETIREMENT AND
OTHER LIABILITIES 67,934 62,208
LONG-TERM DEBT, net of current portion 386,802 392,260
DEFERRED INCOME TAXES 135,356 96,592
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series D cumulative convertible preferred
stock - $.01 par value: 2,000,000 shares
authorized, issued and outstanding
(aggregate liquidation preference
of $100,000,000) 20 20
Series E cumulative convertible preferred
stock - $.01 par value: 2,000,000 shares
authorized,issued and outstanding
(aggregate liquidation preference
of $100,000,000) 20 20
Common Stock - $.01 par value: 100,000,000
shares authorized, 46,085,000 shares issued
and outstanding at December 31, 1994,
45,717,000 shares issued and outstanding at
December 31, 1993 460 457
Capital in excess of par value 625,849 620,282
Retained earnings, since January 1, 1992 137,833 62,059
Unearned stock grant compensation (4,032) (2,666)
Unrealized loss on marketable securities (82) --
--------- ---------
Total stockholders' equity 760,068 680,172
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,576,636 $1,350,787
========= =========
The accompanying notes are an integral part of
these consolidated balance sheets.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the years ended December 31, 1994, 1993 and 1992
(In thousands, except per share amounts)
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Sales $889,620 $792,399 $ 819,471
Cost of sales:
Cost of products (654,545) (639,391) (630,418)
Depreciation, depletion and
amortization (75,100) (65,350) (54,639)
Selling, general and administrative
expense (22,677) (22,080) (19,434)
Exploration, research and development (13,525) (9,352) (2,611)
Restructure expense -- (2,030) --
------- ------- --------
Income from operations 123,773 54,196 112,369
Other income (expense):
Interest expense (25,044) (35,026) (45,275)
Interest income 10,733 8,654 9,517
Other 298 3,687 4,289
------- ------- --------
Income before income
taxes, extraordinary item
and cumulative effect of
accounting change 109,760 31,511 80,900
Income tax provision (22,364) (8,710) (22,599)
------- ------- --------
Income before extraordinary
item and cumulative effect of
accounting change 87,396 22,801 58,301
Extraordinary item:
Premium on early repayment of debt,
net of tax benefit of $1,980 -- -- (3,020)
Cumulative effect of accounting change,
net of tax benefit of $605 -- (888) --
------- ------- --------
Net income $ 87,396 $ 21,913 $ 55,281
======= ======= ========
Preferred stock dividends (11,624) (2,523) (12,610)
------- ------- --------
Net income available for
common stock $ 75,772 $ 19,390 $ 42,671
======= ======= ========
Primary earnings per share:
Income before extraordinary
item and accounting change $ 1.78 $ .47 $ 1.74
Premium on early repayment of debt,
net of tax -- -- (.09)
Cumulative effect of accounting
change, net of tax -- (.02) --
Preferred stock dividends (.24) (.05) (.37)
------- ------- --------
Net income per share
of common stock $ 1.54 $ .40 $ 1.28
======= ======= ========
Earnings per share assuming
full dilution:
Net income per share of
common stock $ 1.38 $ .40(1) $ 1.19
======= ======= ========
(1) The Company's convertible preferred stock is not included in the
fully diluted calculation as its effects are antidilutive.
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the years ended December 31, 1994, 1993 and 1992
(In thousands)
<CAPTION>
Preferred
Stock
---------
<S> <C>
Balance as of December 31, 1991 $ 9
Stock grants and options issued --
Stock options exercised --
Stock warrants exercised --
Stock grants earned --
Stock grants canceled --
Preferred stock dividend
Series B (930,000 shares) --
Preferred stock conversion
Series B (14,133,047 shares) (9)
Common stock conversion --
Net income --
---
Balance as of December 31, 1992 --
Stock grants and options issued --
Stock options exercised --
Stock warrants exercised --
Stock grants earned --
Stock grants canceled --
Preferred stock issued -
Series D (2,000,000 shares) 20
Preferred stock issued -
Series E (2,000,000 shares) 20
Cash dividends:
Series D Preferred
($1.15 per share) --
Series E Preferred
($.12 per share) --
Net income --
---
Balance as of December 31, 1993 40
Stock grants and options issued --
Stock options exercised --
Stock warrants exercised --
Stock grants earned --
Stock grants canceled --
Preferred stock issued -
Series D (2,000,000 shares) --
Preferred stock issued -
Series E (2,000,000 shares) --
Cash dividends:
Series D Preferred
($2.81 per share) --
Series E Preferred
($3.00 per share) --
Unrealized loss on marketable
securities --
Net income --
---
Balance as of December 31, 1994 $ 40
===
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the years ended December 31, 1994, 1993 and 1992
(In thousands)
<CAPTION>
Class A Class B
Common Common Common
Stock Stock Stock
------ ------- -------
<S> <C> <C> <C>
Balance as of December 31, 1991 $ -- $ 42 $259
Stock grants and options issued -- -- --
Stock options exercised -- -- --
Stock warrants exercised -- -- --
Stock grants earned -- -- --
Stock grants canceled -- -- --
Preferred stock dividend
Series B (930,000 shares) 13 -- --
Preferred stock conversion
Series B (14,133,047 shares) 141 -- --
Common stock conversion 301 (42) (259)
Net income -- -- --
--- --- ---
Balance as of December 31, 1992 455 -- --
Stock grants and options issued -- -- --
Stock options exercised 2 -- --
Stock warrants exercised -- -- --
Stock grants earned -- -- --
Stock grants canceled -- -- --
Preferred stock issued -
Series D (2,000,000 shares) -- -- --
Preferred stock issued -
Series E (2,000,000 shares) -- -- --
Cash dividends:
Series D Preferred
($1.15 per share) -- -- --
Series E Preferred
($.12 per share) -- -- --
Net income -- -- --
--- --- ---
Balance as of December 31, 1993 457 -- --
Stock grants and options issued -- -- --
Stock options exercised 1 -- --
Stock warrants exercised 2 -- --
Stock grants earned -- -- --
Stock grants canceled -- -- --
Preferred stock issued -
Series D (2,000,000 shares) -- -- --
Preferred stock issued -
Series E (2,000,000 shares) -- -- --
Cash dividends:
Series D Preferred
($2.81 per share) -- -- --
Series E Preferred
($3.00 per share) -- -- --
Unrealized loss on marketable
securities -- -- --
Net income -- -- --
--- --- ---
Balance as of December 31, 1994 $460 $ -- $ --
=== === ===
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the years ended December 31, 1994, 1993 and 1992
(In thousands)
<CAPTION>
Capital Stock
in Grant
Excess of Retained Compensa-
Par Value Earnings tion
--------- --------- --------
<S> <C> <C> <C>
Balance as of December 31, 1991 $409,905 $ -- $(2,504)
Stock grants and options issued 1,993 -- (1,993)
Stock options exercised 596 -- --
Stock warrants exercised 110 -- --
Stock grants earned -- -- 1,238
Stock grants canceled (138) -- 138
Preferred stock dividend
Series B (930,000 shares) 13,035 (12,610) --
Preferred stock conversion
Series B (14,133,047 shares) (132) -- --
Common stock conversion -- -- --
Net income -- 55,281 --
------- ------- ------
Balance as of December 31, 1992 425,369 42,671 (3,121)
Stock grants and options issued 996 -- (996)
Stock options exercised 515 -- --
Stock warrants exercised 187 -- --
Stock grants earned -- -- 1,362
Stock grants canceled (89) -- 89
Preferred stock issued -
Series D (2,000,000 shares) 96,516 -- --
Preferred stock issued -
Series E (2,000,000 shares) 96,788 -- --
Cash dividends:
Series D Preferred
($1.15 per share) -- (2,300) --
Series E Preferred
($.12 per share) -- (225) --
Net income -- 21,913 --
------- ------- ------
Balance as of December 31, 1993 620,282 62,059 (2,666)
Stock grants and options issued 3,489 -- (3,489)
Stock options exercised 1,253 -- --
Stock warrants exercised 945 -- --
Stock grants earned -- -- 2,102
Stock grants canceled (21) -- 21
Preferred stock issued -
Series D (2,000,000 shares) (20) -- --
Preferred stock issued -
Series E (2,000,000 shares) (79) -- --
Cash dividends:
Series D Preferred
($2.81 per share) -- (5,622) --
Series E Preferred
($3.00 per share) -- (6,000) --
Unrealized loss on marketable
securities -- -- --
Net income -- 87,396 --
------- ------- ------
Balance as of December 31, 1994 $625,849 $137,833 $(4,032)
======= ======= ======
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the years ended December 31, 1994, 1993 and 1992
(In thousands)
<CAPTION>
Unrealized
Unearned Dividend Loss On
Payable In Marketable
Common Stock Securities
----------------- -------------
<S> <C> <C>
Balance as of December 31, 1991 $ 1,366 $ --
Stock grants and options issued -- --
Stock options exercised -- --
Stock warrants exercised -- --
Stock grants earned -- --
Stock grants canceled -- --
Preferred stock dividend
Series B (930,000 shares) (1,366) --
Preferred stock conversion
Series B (14,133,047 shares) -- --
Common stock conversion -- --
Net income -- --
------ ----
Balance as of December 31, 1992 -- --
Stock grants and options issued -- --
Stock options exercised -- --
Stock warrants exercised -- --
Stock grants earned -- --
Stock grants canceled -- --
Preferred stock issued -
Series D (2,000,000 shares) -- --
Preferred stock issued -
Series E (2,000,000 shares) -- --
Cash dividends:
Series D Preferred
($1.15 per share) -- --
Series E Preferred
($.12 per share) -- --
Net income -- --
------ ----
Balance as of December 31, 1993 -- --
Stock grants and options issued -- --
Stock options exercised -- --
Stock warrants exercised -- --
Stock grants earned -- --
Stock grants canceled -- --
Preferred stock issued -
Series D (2,000,000 shares) -- --
Preferred stock issued -
Series E (2,000,000 shares) -- --
Cash dividends:
Series D Preferred
($2.81 per share) -- --
Series E Preferred
($3.00 per share) -- --
Unrealized loss on marketable
securities -- (82)
Net income -- --
------ ----
Balance as of December 31, 1994 $ -- $ (82)
====== ====
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
<TABLE>
MAGMA COPPER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the years ended December 31, 1994, 1993 and 1992
(In thousands)
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 87,396 $ 21,913 $ 55,281
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation, depletion and
amortization 75,100 65,350 54,639
(Gain) loss on sale of assets 32 (1,563) (1,385)
Restructure expense -- 2,030 --
Cumulative effect of accounting
change, net of taxes -- 888 --
Other 2,546 1,725 1,239
Change in certain assets and
liabilities:
(Increase) decrease in:
Accounts receivable (40,907) (19,431) 26,211
Inventories (37,880) 10,176 2,903
Prepaid expenses (4,440) (3,835) 881
Increase (decrease) in:
Accounts payable and accrued
expenses 96,280 (22,620) 26,512
Income taxes payable 1,692 (14,281) 14,280
Accrued pension, retirement
and other liabilities 3,695 7,694 (5,113)
Deferred income taxes (925) (1,062) 5,793
------- ------- -------
Total adjustments 95,193 25,071 125,960
------- ------- -------
Net cash provided by operating activities 182,589 46,984 181,241
------- ------- -------
Cash flows from investing activities:
(Purchase) sale of marketable
securities 93,414 12,216 (87,106)
Capital expenditures (149,402) (136,721) (57,479)
Acquisition of Tintaya (248,713) -- --
Proceeds from sale of assets 373 1,898 3,047
Other (13,687) (1,194) 952
------- ------- -------
Net cash used by investing activities (318,015) (123,801) (140,586)
------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt -- -- 139,000
Repayment of long-term debt (7,151) (1,000) (114,082)
Long-term lease financing (5,059) (3,464) --
Debt issuance costs (404) (885) (2,570)
Issuance of common stock under
stock plans 1,253 515 706
Issuance of common stock from
warrants exercised 945 187 --
Issuance of preferred stock (99) 193,344 --
Preferred stock dividend (11,624) (2,523) --
------- ------- -------
Net cash provided (used) by financing
activities (22,139) 186,174 23,054
------- ------- -------
Net increase (decrease) in cash (157,565) 109,357 63,709
Cash and cash equivalents at the
beginning of the year 230,414 121,057 57,348
------- ------- -------
Cash and cash equivalents at the
end of the year $ 72,849 $230,414 $121,057
======= ======= =======
Marketable securities 15,388 108,890 121,106
------- ------- -------
Total cash and marketable securities $ 88,237 $339,304 $242,163
======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest, net of amounts
capitalized $ 25,432 $ 41,216 $ 38,188
Income taxes, net 20,963 24,308 (798)
Supplemental schedule of non-cash
investing and financing transactions:
Purchase of property financed by note
payable and capitalized leases -- 11,265 17,003
The accompanying notes are an integral part of these
consolidated financial statements
</TABLE>
MAGMA COPPER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS
Magma Copper Company and its subsidiaries ("Magma" or the "Company")
are in the business of mining and concentrating nonferrous copper ore, and
smelting and refining its production as well as that of third parties. The
Company's primary product is electrolytic copper, most of which is sold as
either cathode or continuous-cast copper rod. By-products derived from the
treatment processes are sold to third parties.
The Company produces copper by both the traditional method
(mining/concentrating/smelting/refining) and by the leaching/solvent
extraction-electrowinning ("SX-EW") method. The Company owns and operates
underground sulfide and open-pit oxide and sulfide mines at San Manuel,
Miami and Superior, Arizona, Ely, Nevada (under construction) and southern
Peru (Tintaya). In addition to processing the Company's mined material,
the San Manuel smelter, refinery and rod casting facilities process third
party material on a custom basis, including tolled and purchased
concentrates.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries, as well as its majority-owned
subsidiary. The wholly-owned subsidiaries include: Magma Gold Ltd., Magma
Nevada Mining Company, Magma Arizona Railroad Company, San Manuel Arizona
Railroad Company, Magma Metals Company, Magma Limited Partner Co., Magma
Mexico Exploration Corporation, Magma Copper Chile, Inc., Magma Consulting
Inc. and Global Magma, Ltd. The Company's majority-owned subsidiary, Magma
Tintaya S.A., was acquired on November 29, 1994 as a stock purchase with
98.43% ownership. Operating results for the month of December, 1994 are
included in the consolidated financial statements. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
2. Property, Plant and Mine Development
Property, plant and mine development is stated at original historical
cost less accumulated depreciation, depletion and amortization, except for
certain assets which were restated in connection with a quasi-
reorganization recorded on December 31, 1991. Expenditures for property,
plant and equipment are capitalized. Maintenance and repairs are expensed
as incurred. Mine development expenditures incurred substantially in
advance of production or to develop new mines are capitalized.
Expenditures for mineral exploration or evaluations directed towards the
discovery of mineral resources are expensed as incurred, as are
expenditures for mine development costs which maintain current production
levels. The amount expensed for exploration, research and development was
$13.5 million, $9.4 million and $2.6 million in 1994, 1993 and 1992,
respectively.
Investments in property, plant and equipment are depleted or
depreciated over the estimated productive lives of the assets, using the
straight-line method. Deferred mine development costs are charged to
operations on the units-of-production method based on the estimated pounds
of copper ore to be recovered.
Included in "equipment and buildings" in the accompanying consolidated
balance sheets is $134,747,000 and $109,646,000 of construction-in-progress
at December 31, 1994 and 1993, respectively. Included in "deferred mine
development costs" is $53,476,000 and $21,353,000 of mine development-in-
progress at December 31, 1994 and 1993, respectively. The accumulated
amortization of deferred mine development costs was $18,863,000 and
$9,263,000 at December 31, 1994 and 1993, respectively. The accumulated
depletion of mining claims and land was $1,470,000 and $1,137,000 at
December 31, 1994 and 1993, respectively.
3. Inventories
Inventories of metals and materials and supplies are stated at the
lower of moving-average cost or estimated market value.
Inventories included in current assets were (in thousands):
December 31,
-------------------------
1994 1993
-------- --------
Metals in process $ 70,817 $ 37,454
Finished goods 25,369 16,222
------- -------
Subtotal-metals 96,186 53,676
Materials and supplies 40,814 25,045
------- -------
Total $137,000 $ 78,721
======= =======
4. Income Taxes
Deferred income taxes result from temporary differences in the
recognition of accounting transactions for tax and financial reporting
purposes. The principal temporary differences relate to depreciation and
amortization of mine development costs and certain financial reserves not
deductible for tax purposes until paid.
5. Method of Recording Sales and Treatment Toll Revenue
Revenue from sales of copper and acid is recorded when ownership of
the products is legally transferred to the customer. Certain copper sales
are provisionally priced and later adjusted in the month the sales prices
are contractually finalized. Revenue from by-products is recognized on a
production basis. Treatment toll revenue earned for the smelting of
concentrates is recorded in the month that the copper concentrates are
smelted. Treatment toll revenue earned for refining copper and rod
conversion is recorded in the period that the copper becomes returnable to
the customer.
6. Capitalized Interest
The Company capitalizes interest allocable to the construction of
major new facilities and deferred mine development until operations
commence. The Company capitalized $17,714,000 and $7,786,000 of interest
in 1994 and 1993, respectively. No interest was capitalized in 1992.
7. Earnings Per Share
Primary earnings per share is computed by dividing net income, less
dividends on preferred stock, by the weighted average number of common
shares outstanding and common shares payable as preferred stock dividends.
The weighted average number of primary common stock and common stock
equivalents outstanding during 1994, 1993 and 1992 were 49,167,000,
48,174,000 and 33,444,000, respectively.
Earnings per share assuming full dilution is computed by dividing net
income by the weighted average number of common shares outstanding,
including the potential dilutive effect of the Series D and Series E
Preferred Stock. For purposes of the computation, all the preferred stock
is included based on the weighted average converted shares outstanding. The
weighted average number of common stock and common stock equivalents
outstanding for 1994 and 1992, assuming full dilution, was 63,387,000 and
46,605,000, respectively. For 1993 preferred stock was antidilutive.
8. Stock Option and Stock Award Plans
The 1987 Stock Option and Stock Award Plan ("the 1987 Plan") was
established by contributing 5% of Magma's then outstanding stock (1,903,630
shares of Class B Common Stock) to a trust. The trust holds the shares
until used for direct grants or grants of stock options to key members of
Magma's management as directed by a committee ("the Committee") of
directors appointed by the Board of Directors. During 1989, the Committee
authorized the purchase by the trust of 54,300 shares of Class B Common
Stock from the open market for $390,000.
The Company's shareholders approved the adoption of the Magma Copper
Company 1989 Stock Option and Stock Award Plan ("the 1989 Plan") on June 1,
1989. The 1989 Plan is administered by the Committee. Under the 1989
Plan, the Committee has authority to determine the key employees to whom
and the time incentive awards in the form of stock options,
stock appreciation rights, restricted stock awards and performance
units may be granted.
Subject to certain exceptions set forth in the 1989 Plan, the
aggregate numbers of shares of the Company's Common Stock that may be the
subject of awards under the Plan is 2,000,000.
The Company's shareholders approved adoption of the Magma Copper
Company 1993 Stock Option and Stock Award Plan ("the 1993 Plan") on May 13,
1993. The 1993 Plan is administered by the Committee. Under the 1993
Plan, the Committee has authority to determine the key employees to whom
and the time incentive awards in the form of stock options, stock
appreciation rights, restricted stock awards, phantom stock rights,
performance units and performance shares may be granted.
Subject to certain exceptions set forth in the 1993 Plan, the
aggregate number of shares of the Company's common stock that may be the
subject of awards under the Plan is 2,250,000.
Options under the 1987 Plan primarily become exercisable over a three-
year vesting period, subject to certain restrictions, at the rate of one-
third per year. The options under the 1989 Plan become exercisable over a
three or four-year vesting period. Options granted under the 1993 Plan
become exercisable over a three-year vesting period.
The following table summarizes the activity related to stock options
under the plans:
<TABLE>
<CAPTION>
1987 Plan
-------------------------------------
1994 1993 1992
------ ------- -------
<S> <C> <C> <C>
Beginning of the year
Outstanding 46,588 60,588 63,088
Exercisable 46,588 60,588 63,088
During the year
Issued -- -- --
Exchanged -- -- --
Canceled -- -- --
Became exercisable -- -- --
Exercised 4,500 14,000 2,500
End of the year
Outstanding 42,088 46,588 60,588
Exercisable 42,088 46,588 60,588
Option prices $5.00-$10.1875
(For 1992-1994)
</TABLE>
<TABLE>
<CAPTION>
1989 Plan
---------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Beginning of the year
Outstanding 1,577,808 1,642,838 1,145,638
Exercisable 740,546 459,638 402,638
During the year
Issued 16,000 115,000 655,200
Exchanged -- -- --
Canceled 5,500 85,000 39,000
Became exercisable 381,456 375,938 176,000
Exercised 183,628 95,030 119,000
End of the year
Outstanding 1,404,680 1,577,808 1,642,838
Exercisable 938,374 740,546 459,638
Option prices $9.94-$13.25 $7.59-$9.38 $5.00-$13.25
</TABLE>
<TABLE>
<CAPTION>
1993 Plan
-------------------------
1994 1993
--------- ---------
<S> <C> <C>
Beginning of the year
Outstanding 203,000 --
Exercisable -- --
During the year
Issued 905,820 204,900
Exchanged -- --
Canceled 2,190 1,900
Became exercisable 68,614 --
Exercised 10,260 --
End of the year
Outstanding 1,096,370 203,000
Exercisable 58,354 --
Option prices $9.94-$13.25 $10.13
</TABLE>
Stock grants represent compensation to management for future periods and
are treated as a capital contribution to Magma as they vest.
Grants under the 1987 Plan vest over various terms. Most grants vest
over a three or four-year period.
Compensation expense under the 1987 Plan in the form of stock grants
earned for 1994, 1993 and 1992 was approximately $200,000, $500,000 and
$500,000, respectively.
Grants under the 1989 Plan primarily vest over a four-year period at 20%
in each of the first two years and at 30% in the last two years or 25% per
year over a four-year period. Compensation expense related to the 1989
Plan was approximately $34,000, $100,000 and $100,000 in 1994, 1993 and
1992, respectively.
The following table summarizes the activity under the stock grant plans:
<TABLE>
<CAPTION>
1987 Plan 1989 Plan
------------------------- ------------------------
1994 1993 1992 1994 1993 1992
------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Unearned at beginning
of year 83,350 156,250 267,900 20,240 39,480 69,440
Issued 39,305 7,000 28,000 72,745 -- --
Exchanged -- -- -- -- -- --
Canceled -- 500 800 -- -- 11,200
Vested 67,770 79,400 138,850 17,740 19,240 18,760
Unearned at end
of year 54,885 83,350 156,250 75,245 20,240 39,480
</TABLE>
Under the Company's 1989 Stock Option Plan for Non-Employee Directors,
options awarded for 1994, 1993 and 1992 were 4,848, 6,359 and 6,164,
respectively. Under this plan, the directors forego cash compensation in
exchange for discounted options. The average exercise price was $7.84,
$5.97 and $6.17 per share for 1994, 1993 and 1992, respectively.
At a meeting held on May 14, 1992, the Company's shareholders approved
the adoption of the 1992 Restricted Stock Plan for Non-Employee Directors;
8,000 grants of stock were awarded in 1992, 1993 and 1994, respectively.
9. Stock Warrants
The Company has warrants outstanding covering the purchase of 4,966,000
shares exercisable at $8.50 per share. The warrants are exercisable
through November 30, 1995.
10. Cash, Cash Equivalents and Marketable Securities
For purposes of the consolidated balance sheets and the consolidated
statements of cash flows, the Company considers all highly liquid
investments, purchased with a maturity of three months or less, to be cash
equivalents. Marketable securities are highly liquid investments,
primarily in United States treasury notes, purchased with maturities
greater than three months. These securities are considered available for
sale and are carried at market.
11. Short-Term Borrowings
Average amounts outstanding for short-term borrowings during the years
ended 1994 and 1993 were $9.3 million and $8.5 million at a weighted
average interest rate of 9.5% and 10.8%, respectively.
12. Restatements and Reclassifications
Certain amounts for 1993 and 1992 have been reclassified to conform
with 1994 reporting classifications.
NOTE C - MAJOR CUSTOMERS, EXPORT SALES AND SALES COMMITMENTS
During 1994, the Company's copper was sold to approximately sixty-three
(63) customers. Sales of copper to the Company's largest customer, a
merchant trader, accounted for 22% of total revenue during the year.
Because copper is an internationally traded commodity, the Company does not
believe that the loss of any one customer would have a material adverse
effect on the results of its operations.
The Company's export sales have declined in recent years primarily due
to increasing U.S. consumption and the recession in Japan. The Company is
maintaining its presence in the Asian markets by supplying cathode to major
fabricators on an annual and spot basis. Export sales as a percent of
total revenues were 21%, 25% and 29% for the years ended December 31, 1994,
1993 and 1992, respectively.
The Company has instituted a copper price protection program to insure,
regardless of the copper price, adequate cash flow for the completion of
several major capital projects which are important to its future. These
projects, Tintaya, Kalamazoo and Robinson, have or will increase Magma's
production and ore reserves and reduce overall cost per pound. The program
includes hedging using either the purchase of copper price put options or
forward sales of copper at a fixed price depending on copper market
conditions including price and volatility. As a result of the copper price
protection program, Magma's average copper price realized was nine cents
per pound greater (94 cents versus 85 cents) than the average Comex price
for 1993 and was nine cents per pound lower (98 cents versus $1.07) than
the market price in 1994. With the recent purchase of Tintaya, and
construction of Kalamazoo and Robinson in progress, the copper price
protection program was extended into early 1997. In contrast to 1994,
which included a significant amount of forward sales entered into at the
end of 1993, the program for 1995 and 1996 consists almost entirely of
copper price put options which lock in a copper price floor and operating
cash flow while retaining the upside potential of higher copper prices. As
a result of this program which creates a copper price floor of 87 cents and
93 cents for 1995 and 1996 respectively, Magma will be able to complete its
current strategic growth opportunities with moderate outside financing and
maintain its strong financial position and flexibility.
NOTE D - INCOME TAXES
During the fourth quarter of 1991, Magma adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109) and
retroactively restated its financial statements from January 1, 1987. SFAS
109 requires an asset and liability approach for financial accounting and
reporting for income tax purposes. This statement recognizes (a) the
amount of taxes payable or refundable for the current year and (b) deferred
tax liabilities and assets for the future tax consequences of events that
have been recognized in the financial statements or tax returns.
In August 1993 the Revenue Reconciliation Act of 1993 (the "Act") was
enacted by Congress. Under the Act, and effective as of January 1, 1993,
the top marginal corporate tax rate was increased from 34% to 35%. Under
SFAS 109 the cumulative impact of a change in tax rate is recognized as an
element of tax expense for the period of enactment. During the three month
period ended September 30, 1993, the Company recorded a one time charge to
tax expense of $2.8 million to reflect the impact of the change in
statutory rate.
In calculating income taxes, the Company has benefited 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.
During 1994 the Company's effective tax rate by quarter was as follows:
first quarter 27%, second quarter 27%, third quarter 22%, fourth quarter
13%. The aggregate effective tax rate for 1994 totaled 20%. During the
third and fourth quarters of 1994 the Company experienced a substantial
decrease in effective tax rate as deductions for percentage depletion
sheltered a greater proportion of book income realized after forward sales.
The components of the income tax provision consist of the
following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current Payable:
Federal $(22,787) $ (9,789) $(13,004)
State -- -- --
Foreign (501) -- --
------- ------- -------
(23,288) (9,789) (13,004)
------- ------- -------
Deferred:
Federal 5,696 2,970 (5,166)
State (4,396) (1,891) (4,429)
Foreign (376) -- --
------- ------- -------
924 1,079 (9,595)
------- ------- -------
$(22,364) $ (8,710) $(22,599)
======= ======= =======
</TABLE>
The provision for income taxes differs from the amounts computed
by applying the federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1994 1993 1992
-------------- --------------- ------------
Tax Tax Tax
Tax Rate Tax Rate Tax Rate
-------- ---- ------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Income tax provision
at federal
statutory rate $(38,416) (35)% $(11,028) (35)% $(27,507) (34)%
Percentage depletion 18,970 17 6,349 20 8,111 10
Change in federal tax
rate -- -- (2,800) (9) -- --
State tax, net (2,918) (2) (1,231) (4) (3,203) (4)
------- --- ------- --- ------- ---
$(22,364) (20)% $ (8,710) (28)% $(22,599) (28)%
======= === ======= === ======= ===
</TABLE>
The components of the net deferred tax liability are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liability relating to
property, plant and mine development $265,892 $201,462
------- -------
Deferred tax assets:
Financial reserves not yet deductible 40,363 42,759
Tax effect of net operating losses 22,042 17,501
Alternative minimum tax credits 75,048 51,527
Valuation allowance (6,917) (6,917)
------- -------
Deferred tax assets, net 130,536 104,870
------- -------
Net deferred tax liability $135,356 $ 96,592
======= =======
</TABLE>
At December 31, 1994, Magma has for federal income tax purposes
approximately $63 million of regular tax net operating loss carryforwards
which expire, if unused, in the years 2004 through 2006. Under the federal
alternative minimum tax system, Magma has no net operating loss
carryforwards. As a result of shorter carryforward periods and other
statutory differences, Magma has no net operating loss carryforwards for
state income tax purposes.
Magma also has alternative minimum tax credits aggregating
approximately $75 million which carryforward indefinitely for federal
income tax purposes. These credits can be used in the future to the extent
that Magma's regular tax liability exceeds its liability calculated under
the alternative minimum tax system.
The Company's deferred tax liability at December 31, 1994 includes
deferred taxes related to its foreign subsidiary. Foreign income taxes
have been provided to the extent the book basis of the foreign subsidiary's
assets exceed their tax basis. Currently management does not have specific
plans for reinvestment of foreign earnings nor do they plan to postpone
remittance indefinitely. Accordingly, U.S. taxes net of anticipated
foreign tax credits have also been provided for on the basis difference.
NOTE E - PENSION AND RETIREMENT PLANS
The Company and its subsidiaries have defined benefit pension and
retirement plans covering substantially all employees (the "Plans"). Plans
covering salaried employees provide pension benefits based on the
employee's compensation during the ten years before retirement. Plans
covering hourly employees provide pension benefits based on stated amounts,
for each year of service, and provide for supplemental benefits for
employees who retire with 30 years of service before age 65.
The Company's funding policy is to contribute annually the minimum
amount that can be deducted for federal income tax purposes. Total pension
and retirement plan costs were $1,740,000, $2,257,000 and $1,422,000 in
1994, 1993 and 1992, respectively.
The net periodic pension cost for 1994, 1993 and 1992 included the
following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Service cost $ 5,613 $ 4,932 $ 4,349
Interest cost 10,589 10,249 9,369
Less:
Return on assets (13,967) (12,261) (11,250)
Net amortization and deferral (495) (663) (1,046)
------ ------ -----
Annual pension cost $ 1,740 $ 2,257 $ 1,422
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Salaried Plan Hourly Plan
---------------- -----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Discount rates 8.5% 7.5% 8.5 7.5%
Rates of increase in
compensation levels 5.0% 4.25% N/A N/A
Expected long-term rate
of return on assets 9.5% 9.5% 9.5% 9.5%
Remaining amortization
period for unrecognized
net asset at
January 1, 1987 6 years 7 years 9 years 10 years
</TABLE>
On December 31, 1994 and 1993, the Plans' assets were invested in
fixed income instruments and equity securities.
The following tables set forth the Plans' funded status and amounts
recognized in the Company's consolidated balance sheets at December 31,
1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
Salaried Plan Hourly Plan
------------------ ---------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations:
Vested benefit
obligation $(25,200) $(21,423) $ (92,000) $ (97,190)
======= ======= ======== ========
Accumulated benefit
obligation $(29,119) $(25,125) $(101,500) $(106,802)
======= ======= ======== ========
Projected benefit
obligation for
services rendered
to date $(39,819) $(38,165) $(101,150) $(106,802)
Plan assets at
estimated fair value 29,092 26,348 114,751 124,453
------- ------- -------- --------
Projected benefit obligation
(in excess of) or less than
plan assets (10,727) (11,817) 13,601 17,651
Unrecognized net (gain)
or loss 5,259 4,459 (6,642) (10,558)
Unrecognized net asset from
January 1, 1987 (1,245) (1,453) (9,065) (10,072)
Unrecognized prior service
cost 1,546 1,915 7,398 8,056
------- ------- -------- --------
Prepaid (accrued) pension
cost $ (5,167) $ (6,896) $ 5,292 $ 5,077
======= ======= ======== ========
</TABLE>
During 1990, an amendment changed the benefit formula and the
definition of compensation used to compute the salaried employees' benefit.
These changes resulted in an increase in the projected obligation of
$3,100,000 which is accounted for as prior service cost and amortized over
13.9 years.
The Company provides executives with excess benefit and supplemental
benefit pension plans. Plan costs for 1994 including interest and
amortization of the transition obligation was $1,316,000. The projected
benefit obligation of these plans at December 31, 1994 was $5,884,000.
Funding is on a current basis and there are no plan assets.
The Company also sponsors postretirement medical and life insurance
benefit plans. The postretirement medical and life insurance plans cover
salaried and hourly employees with at least ten years of service prior to
retirement. The medical plan provides benefits for hospital coverage and
surgical fees up to a lifetime limit of $80,000. The life insurance plan
provides benefits to hourly employees of $4,000 and to salaried employees
based on their preretirement compensation.
The Company funds the postretirement benefit costs on a current basis
and there are no plan assets.
The net periodic postretirement benefit costs for 1994, 1993 and 1992
included the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -------
<S> <C> <C> <C>
Service costs $1,079 $1,005 $ 763
Interest costs 2,295 2,378 2,027
----- ----- -----
$3,374 $3,383 $2,790
===== ===== =====
</TABLE>
The following table sets forth postretirement amounts recognized in
the Company's consolidated balance sheets at December 31, 1994 and 1993 (in
thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $13,001 $13,279
Fully eligible actives 5,106 5,076
Other actives 13,133 12,182
Unrecognized transition
obligation 920 (1,778)
------ ------
Accrued postretirement cost $32,160 $28,759
====== ======
</TABLE>
The 1994 plan accounting assumes a health care cost trend rate for
pre-age 65 benefits of 13% and post-age 65 benefits of 10%. These rates
were assumed to decrease one percentage point each year to 5.5% and remain
at that level thereafter. The assumed discount rate and rate of increase
in compensation levels was 8.5% and 5.0%, respectively. The effect of a
one percentage point increase in the assumed health care cost trend rates
for each future year would increase the accumulated postretirement benefit
obligation as of December 31, 1994 by $4,232,000. The effect of this
change on the aggregate of the service and interest cost components of the
net periodic postretirement benefit costs would have been an increase of
$254,000 for 1994.
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
-------- --------
<C> <C> <C>
12% Senior Subordinated Notes (1) $200,000 $200,000
11 1/2% Senior Subordinated Notes (2) 125,000 125,000
Industrial Development Authority Bonds (3) 49,700 49,700
Promissory Note (4) 6,000 7,000
Non-interest-bearing Junior Subordinated Notes (5) -- 6,151
Capitalized Lease Obligations (6) 11,743 16,804
------- -------
Total debt 392,443 404,655
Less current portion (5,641) (12,395)
------- -------
Long-term portion $386,802 $392,260
======= =======
</TABLE>
At December 31, 1994, aggregate debt maturities are as follows for the
years ending December 31 (in thousands):
<TABLE>
<S> <C>
1995 . . . . . . . . . . . . . . . . . $ 5,641
1996 . . . . . . . . . . . . . . . . . 5,169
1997 . . . . . . . . . . . . . . . . . 3,324
1998 . . . . . . . . . . . . . . . . . 1,384
1999 . . . . . . . . . . . . . . . . . 1,225
Thereafter . . . . . . . . . . . . . . 375,700
-------
Total . . . . . . . . . . . . . . . $392,443
=======
</TABLE>
1. 12% Senior Subordinated Notes
In December 1991, the Company sold $200,000,000 of 12% Senior
Subordinated Notes ("12% Notes") due December 15, 2001. Interest on the
12% Notes is payable on June 15 and December 15 of each year.
The 12% Notes are redeemable at the option of the Company, at any time
or from time to time, on and after December 15, 1996 in whole or in part.
Redemption of the 12% Notes is at 106% of the principal amount thereof for
the twelve month period beginning on December 15, 1996, at 103% of the
principal amount thereof for the twelve month period beginning on December
15, 1997, and thereafter at 100% of the principal amount thereof. The
indenture pursuant to which the 12% Notes were issued contains, among other
restrictions, limitations on the incurrence of additional debt, payment of
cash dividends, distributions on and repurchases of the Company's capital
stock and loans or contributions to the capital of or investment in
Designated Subsidiaries, as defined by the Indenture.
2. 11 1/2% Senior Subordinated Notes
In January 1992, the Company issued $125,000,000 of 11 1/2% Senior
Subordinated Notes ("11 1/2% Notes") due January 15, 2002. Interest on the
11 1/2% Notes is payable January 15 and July 15 of each year.
The 11 1/2% Notes are redeemable at the option of the Company, at any
time or from time to time, on and after January 15, 1995 in whole or in
part. Redemption of the 11 1/2% Notes is at 108% of the principal amount
thereof for the twelve month period beginning on January 15, 1995, at 106%
of the principal amount thereof for the twelve month period beginning
January 15, 1996, at 104% of the principal amount thereof for the twelve
month period beginning January 15, 1997, at 102% of the principal amount
thereof for the twelve month period beginning January 15, 1998, and
thereafter at 100% of the principal amount thereof. The indenture pursuant
to which the 11 1/2% Notes were issued contains restrictions which are
similar in nature to the 12% Senior Subordinated Notes.
3. Industrial Development Authority Bonds
At December 31, 1994, Industrial Development Authority ("IDA") bonds
outstanding totaled $49,700,000. These bonds have been issued through the
Pinal County IDA, the locale of the Company's smelting and refining
facility. The interest rates on these bonds are based on the minimum rate
determined by the remarketing agent necessary to sell the bonds. The
effective interest rate on the bonds was approximately 2.8% for 1994, 2.3%
for 1993 and 4% for 1992.
Principal at December 31, 1994 is repayable as follows (in thousands):
<TABLE>
<S> <C>
December 31, 2009 $35,700
December 1, 2011 14,000
------
$49,700
======
</TABLE>
In December 1992, the Company refinanced maturing bonds totaling
$14,081,639 with a new $14,000,000 IDA bond issuance due December 1, 2011.
The proceeds of the original bond issues were used to provide funds to
finance certain pollution control facilities and retrofit the Company's
smelter.
4. Promissory Note
In July 1992, the Company purchased a major Arizona copper deposit.
In conjunction with this purchase, the Company signed an $8,000,000, 9.75%
Promissory Note ("Promissory Note") due in eight annual installments of
$1,000,000 commencing January 1993. The Promissory Note may be prepaid at
any time without penalty. The Promissory Note contains no significant
covenants; however, it is secured by a deed of trust on the property
purchased.
5. Non-Interest Bearing Junior Subordinated Notes
From March 1989 through March 1992, the Company issued non-interest-
bearing junior subordinated notes (the "Zero-Interest-Notes") in lieu of
quarterly cash dividends to holders of the Series B Preferred Stock (see
Note G-Preferred Stock). The Zero-Interest-Notes were retired on or about
May 4, 1994.
6. Capitalized Lease Obligations
The Company has capitalized lease obligations for heavy mining
equipment and a computer system. These leases have maturities from 1995
through 1999 and implicit rates ranging from 7.0% to 9.2%.
7. Revolving Credit Facility
In May 1994, the Company entered into a four-year $300 million
revolving credit agreement (the "Revolver"). The Revolver is provided by a
consortium of eleven banks and is available for general corporate purposes.
Amounts outstanding under the Revolver may bear interest at the London
InterBank Offered Rate (LIBOR), the Certificate of Deposit or the prime
rate, as defined, plus a margin which may vary depending on the credit
rating of the Company. Currently, borrowings would bear interest at the
rate of LIBOR plus 0.7%. An annual agency fee of $30,000 plus a commitment
fee (which also varies depending on the credit rating of the Company) of
1/4% per annum on the unused portion of the Revolver is payable by the
Company.
Under the terms of the Revolver, the Company must: (i) maintain a
consolidated net worth of not less than the sum of $450 million plus 50% of
consolidated net income for each fiscal year beginning with fiscal 1994 and
(ii) not permit the ratio of its consolidated debt to total capitalization
(debt and equity) to exceed 60%.
NOTE G - PREFERRED STOCK
The Company has 50,000,000 shares of authorized Preferred Stock. At
December 31, 1994, 5,112,765 shares (none issued or outstanding) had been
designated as Series C Convertible Preferred Stock ("Series C Preferred
Stock"); 2,000,000 shares (issued and outstanding) had been designated
as Series D Cumulative Convertible Preferred Stock ("Series D
Preferred Stock"); 2,000,000 shares (issued and outstanding) had been
designated as Series E Cumulative Convertible Preferred Stock, and
40,882,235 shares (none issued or outstanding) were undesignated. In 1988,
930,000 shares of the Series B Preferred Stock were issued in conjunction
with a recapitalization of the Company. The Series C Preferred Stock was
created for issuance upon conversion of the Series B Preferred Stock or
exercise of outstanding warrants, if, for any reason, the Company were
unable to issue Common Stock to satisfy applicable conversion or exercise
requirements. No Series C Preferred Stock is outstanding and the Company
is not presently aware of any reason that would require it to issue such
stock or preclude it from issuing Common Stock.
In December 1992, the Company offered to exchange 15.446825 shares of
its Common Stock for each share of its Series B Preferred Stock
outstanding. On December 29, 1992, each share of Series B Preferred Stock
was exchanged, resulting in an issuance of 14,133,047 shares of Common
Stock.
Each share of Series B Preferred Stock was entitled to cumulative
dividends in each of the first five years after issuance, paid quarterly,
at the rate of one share of Class B Common Stock per annum and, if the
market price of a share of Class B Common Stock at the time was less than
$10 plus an additional amount (payable, at the Company s option, in cash or
non-interest-bearing junior subordinated notes due five years from the
issuance date of the first of such notes issued), not to exceed $.625 per
quarter, equal to one quarter of the excess of $10 over the market value of
a share of Class B Common Stock. After November 1993, each share of Series
B Preferred Stock would have been entitled to receive dividends of $10 per
annum in cash.
In July 1993, the Company issued $100 million, or 2.0 million shares
of 5 5/8 % Cumulative Convertible Preferred Stock, Series D ("Series D
Preferred Stock") and in December 1993, the Company issued $100 million, or
2.0 million shares of 6% Cumulative Convertible Preferred Stock, Series E
("Series E Preferred Stock"). Both the Series D Preferred Stock and Series
E Preferred Stock have a liquidation preference of $50.00 per share and
dividends are payable quarterly at the annual rate of 5 5/8% and 6%,
respectively.
Each share of the Series D Preferred Stock and Series E Preferred
Stock is convertible at any time at the option of the holder into shares of
Common Stock of Magma Copper Company at a conversion rate of 3.448 and
3.5945 shares, (equivalent to a conversion price of $14.50 and $13.91 per
share of Common Stock) respectively, subject to adjustment under certain
conditions.
The Series D Preferred Stock and Series E Preferred Stock are not
redeemable prior to July 20, 1996 and December 1, 1996, respectively. On
and after the above dates, the Series D Preferred Stock and Series E
Preferred Stock are redeemable at the option of the Company, in whole or in
part, initially for $51.969 and $52.10 per share, respectively, and
thereafter at prices declining ratably annually to $50 per share in 2003,
plus, in each case, an amount equal to accrued and unpaid dividends to the
redemption date.
During 1994, the Company paid cash dividends on its Series D Preferred
Stock and Series E Preferred Stock totaling $5,622,000 and $6,000,000,
respectively.
NOTE H - COMMON STOCK
At a Special Meeting of Stockholders on October 30, 1992, Magma's
stockholders voted to amend the Company's Certificate of Incorporation to
reclassify and convert all shares of Class A Common Stock and Class B
Common Stock into a new, single class of Common Stock.
Each share of Common Stock created by the amendment possesses one vote
on all matters properly coming before stockholders, including elections of
the Board of Directors, and is not subject to any transfer restrictions,
and possesses no veto power over the issuance of any other class of stock.
NOTE I - COMMITMENTS AND CONTINGENCIES
1. Legal Matters
The Company is involved in legal proceedings of a character normally
incidental to its business, including substantial claims and pending
actions against the Company seeking recovery of alleged damages or
clarifications of legal rights, much of which is subject to insurance or
indemnity coverage. 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.
The Company is involved in legal proceedings (the "Adjudication")
regarding the allocation of water rights of the Gila River system and
source pending in the Superior Court of Maricopa County, Arizona. The
Company's right to use surface and groundwater at its San Manuel, Pinto
Valley and Superior operations and potentially at its Florence property, as
well as the rights of all other claimants to use water from the Gila River
system and source, is to be decided in this matter. Claims for damages for
the Company's withdrawal of ground water have been asserted by Indian
tribes, but have been stayed pending outcome of the Adjudication. A final
resolution of this litigation may not be made for several years.
Management believes that, despite this litigation, it will be able to
obtain water necessary for its mining operations.
2. Labor Contracts
On October 21, 1991 the Company and its labor unions executed a 15
year collective bargaining agreement. The agreement prohibits strikes and
lockouts for at least seven years. Hourly-rated employees have received
and will receive annual wage increases of $.25 to $.35 per hour in each of
the five years following 1991, some of which are dependent upon Magma's
quarterly earnings performance during such periods. After the initial
five-year period, the agreement will continue in effect for an additional
10 years on the same terms and conditions, unless either party proposes a
modification of the economic terms. If the parties are unable to agree on
the proposed modifications, they will be submitted to an arbitration panel
which will establish major economic terms for a one-year period in
accordance with certain specified criteria. If during any five-year period
after the initial term there are two such arbitration proceedings, the
agreement will terminate upon the anniversary date of the second
arbitration award. Under the agreement, teams of management, union
represented employees and their representatives are committed to work
together to, among other things, increase productivity and reduce costs.
NOTE J - LEASE COMMITMENTS
The Company leases railcars, haul trucks, other heavy mining equipment
and a computer system. Rent expense for the years ended December 31, 1994,
1993 and 1992 was $4,653,000, $4,464,000 and $4,833,000, respectively.
The following is a schedule of the future minimum lease payments for
the years ending December 31, (in thousands):
<TABLE>
<S> <C>
1995. . . . . . . . . . . $ 3,764
1996. . . . . . . . . . . 3,915
1997. . . . . . . . . . . 2,468
1998. . . . . . . . . . . 1,182
1999. . . . . . . . . . . 519
Thereafter . . . . . . . 4,177
------
$16,025
======
</TABLE>
NOTE K - DISCLOSURES 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 because of the
short maturity of those instruments.
Marketable Securities. In the first quarter of 1994 the Company
adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities".
Accordingly, certain of the Company's investments with an average
maturity of less than one year 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 twelve month period ended December 31, 1994, the Company
received $340.5 million in proceeds from available-for-sale securities,
including realized gains of $0.7 million and realized losses of $3.4
million.
The change in unrealized holding losses, net of tax, for the twelve
month period ended December 31, 1994 was $.1 million.
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. The Company enters into options, futures
and swap contracts, as well as fixed price forward sales agreements as part
of its ongoing price protection programs. For 1995, the Company purchased
put option contracts covering 529 million pounds of production at a London
Metals Exchange ("LME") based strike price of $.85 per pound. In addition,
the Company purchased put options covering 121 million pounds at an LME
based strike price of $.95 per pound. The Company also entered into
Commodity Exchange Inc. ("Comex") based swap contracts covering 51 million
pounds of production at an average price of $1.03 per pound. When combined
with the amortization of the option premiums, the above contracts create a
floor price for the Company's production of approximately $.87 per pound
for 1995. For 1996, the Company purchased put options covering 676 million
pounds of production, creating a minimum realized price of approximately
$.93 per pound. For 1997, the Company has purchased put options covering
66 million pounds of first quarter production, creating a minimum realized
price of approximately $.92 per pound.
Gold Swap Contracts. To protect a portion of the Robinson by-product
credit, the Company entered into Comex based swap contracts covering 30,000
ounces of gold per year during 1996, 1997 and 1998 at an average price of
$433, $460 and $490 per ounce, respectively. Through the execution of
these contracts the Company will receive or pay the difference between the
fixed prices and the average market prices at the time of the physical
sales.
The estimated fair values of the Company's financial instruments as of
December 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- --------
<S> <C> <C>
Cash $ 72,849 $ 72,849
Marketable securities 15,388 15,388
Long-term debt (includes current
portion) (392,443) (411,240)
Copper price protection contracts 25,679 (3,278)
Gold swap contracts -- 653
</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.
NOTE L - ADOPTION OF SFAS 112 - EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS
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 adoption. Under SFAS 112, $.9 million (after tax) was charged to first
quarter 1993 earnings.
NOTE M - STORM DAMAGE
The Company estimates that pre-tax earnings for 1993 were reduced by
$21 million ($15.5 million after tax) as a result of storm damage. The
largest cost was a writedown of inventory to net realizable value of $10
million caused by higher than normal production costs. Additionally, there
was a $4 million loss of production and $4 million of one-time rain related
repair costs. The Company's operating margin was reduced by $3 million as
the Company was unable to mine from the higher-grade area of its open-pit
mine at its Pinto Valley Mining Division. The Company is presently seeking
a recovery from its property and casualty insurer for property damage and
business interruption losses resulting from that storm damage.
NOTE N - Acquisition of Tintaya
On October 6, 1994, the government of Peru declared the consortium of
Magma Copper Company and its subsidiary, Global Magma, Ltd. the winning
bidder in the privatization of Empresa Minera Especial Tintaya S.A.,
("Tintaya") which owns one of the largest operating mining projects in
Peru. The consortium acquired 98.43% of the common stock of Tintaya on
November 29, 1994 for $243 million and a commitment to spend an additional
$85 million in capital expenditures over the next five years. The
acquisition was accounted for by the purchase method with the results of
operations of Tintaya included for the one month period ended December 31,
1994.
The following unaudited pro-forma combined financial data give effect
to the acquisition as if it had occurred on the first day of each period.
This pro-forma financial data is provided for comparative purposes only and
does not purport to be indicative of the results which would have been
obtained if the acquisition had been effected during the period presented.
The pro-forma financial information is based on the purchase method of
accounting and reflects adjustments to record the profits of acquired
inventories, conversion from Peruvian GAAP to U.S. GAAP, depreciation,
depletion and amortization of mine development costs on the adjusted asset
basis and adjust income taxes for the pro-forma adjustments.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
-------- --------
<S> <C> <C>
Total revenues $972,835 $862,493
Income before extraordinary
items 105,749 24,102
Net income 98,586 23,214
Primary earnings per share 1.77 .43
Earnings per share assuming
full dilution 1.56 .43 (1)
(1) The Company's convertible preferred stock is not included in the fully
diluted calculation as its effects are antidilutive.
NOTE O - SELECTED QUARTERLY FINANCIAL DATA (Information for all periods
shown below is unaudited).
Amounts for the three months ended March 31, 1993 have been
restated to reflect the adoption of SFAS 112 (see Note L). (In thousands,
except per share data)
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------
Three Months Ended
--------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . $175,532 $219,534 $227,074 $267,480
Income from operations. . . . . . 11,779 31,346 34,306 46,342
Income before preferred stock
dividends . . . . . . . . . . . 7,611 20,610 22,321 36,854
Net income. . . . . . . . . . . . 7,611 20,610 22,321 36,854
Net income available for
common stock . . . . . . . . . 4,705 17,704 19,415 33,948
Income per common share before
preferred stock dividends . . . .16 .42 .45 .75
Earnings per share of common
stock, primary. . . . . . . . . .10 .36 .39 .69
Earnings per share of common
stock, fully diluted . . . . . .10(1) .33 .35 .58
(1) The Company's convertible preferred stock is not included in the
fully diluted calculation as its effects are antidilutive.
</TABLE>
<TABLE>
<CAPTION>
1993
--------------------------------------
Three Months Ended
--------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
<S> <C> <C> <C> <C>
Sales $194,605 $190,150 $211,877 $195,767
Income from operations 6,359 12,372 18,332 17,133
Income before cumulative effect
of accounting change and
preferred stock dividends 276 4,712 8,759 9,054
Net income (loss) (612) 4,712 8,759 9,054
Net income (loss) available for
common stock (612) 4,712 7,868 7,422
Income per common share before
cumulative effect of
accounting change and
preferred stock dividends .01 .10 .18 .19
Earnings (loss) per share of
common stock, primary (.01) .10 .17 .16
Earnings (loss) per share of
common stock, fully diluted (.01) .10 .16 .16
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Magma Copper Company:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Magma Copper Company
and subsidiaries included in this Form 10-K, and have issued our report
thereon dated January 27, 1995. Our audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as
a whole. The schedule listed in the index to consolidated financial
statements of this Form 10-K is the responsibility of the Company's
management and is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Tucson, Arizona,
January 27, 1995.
<TABLE>
SCHEDULE II
MAGMA COPPER COMPANY
Valuation and Qualifying Accounts
For the years ended December 31, 1994, 1993 and 1992
(in thousands)
<CAPTION>
Balance Charged Charged Balance
at to Cost to at
Beginning and Other End of
of Period Expenses Accounts Deductions Period
--------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year Ended Dec. 31, 1994:
Reserves and allowances
deducted from
asset accounts:
SFAS 109 valuation
allowance $6,917 $ -- $ -- $ -- $6,917
Year Ended Dec. 31, 1993:
Reserves and allowances
deducted from
asset accounts:
SFAS 109 valuation
allowance $6,917 $ -- $ -- $ -- $6,917
Year Ended Dec. 31, 1992:
Reserves and allowances
deducted from
asset accounts:
SFAS 109 valuation
allowance $6,917 $ -- $ -- $ -- $6,917
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Additional information required by Part III (Items 10, 11, 12 and 13)
is incorporated by reference from the registrant's definitive proxy
statement which will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year covered by this
Form 10-K, provided, however, that the "Compensation Committee Report on
Executive Compensation" and the "Stock Performance Graph" contained in the
Proxy Statement are not incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) 1. Consolidated Financial Statements: Index on page 45 of this
Report.
2. Consolidated Financial Statement Schedules: Index on page 45 of
this Report.
3. Exhibits. The exhibits as indexed on pages 81 through 89 of
this Report are included as a part of this Form 10-K.
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed by the registrant during
the three months ended December 31, 1994:
The Company filed a report on Form 8-K, dated October 6, 1994,
to announce that the government of Peru declared Magma and its
subsidiary the winning bidder in the privatization of Empresa
Mineral Especial Tintaya S.A., which owns one of the largest
operating mining projects in Southern Peru. Magma also
announced that construction began at its Robinson Mine on
October 12, 1994, following final approval of the project by
the Bureau of Land Management.
The Company filed a report on Form 8-K, dated November 29,
1994, to announce the closing of the purchase of Empresa
Mineral Especial Tintaya S.A. ("Tintaya"). The Company also
stated that it would file the required financial information
for Tintaya (which was impracticable to provide at this time)
under Form 8-K/A before February 13, 1995.
The Company filed a report on Form 8-K/A-1 (filed February 7,
1995) dated November 29, 1994 to provide required financial
information for the Tintaya acquisition.
Exhibit
Number Description
2.1 Stock Purchase Agreement (Incorporated by reference;
previously filed as Exhibit
21. to the Registrant's Form
8-K dated November 29,
1994.)
3.1 Restated Certificate of Incorporation (Incorporated by reference;
of Magma Copper Company, dated previously filed as Exhibit
February 21, 1991 3.4 to the Registrant's
annual report on Form 10-K
for the fiscal year ended
December 31, 1990.)
3.2 Certificate of Correction to Restated (Incorporated by reference;
Certificate of Incorporation of previously filed as Exhibit
Magma Copper Company dated 3.2 to the Registrant's
February 27, 1992 annual report on Form 10-K
for the fiscal year ended
December 31, 1991.)
3.3 Certificate of Amendment to (Incorporated by reference;
Restated Certification of previously filed as Exhibit
Incorporation of Magma Copper 3.3 to the Registrant's
Company dated October 30, 1992 1992 Form 10-K.)
3.4 By-laws of Magma Copper Company (Incorporated by reference;
as amended to and including previously filed as Exhibit
July 22, 1992 3.4 to the Registrant's
1992 Form 10-K.)
4.0 Specimen Common Stock Certificate (Incorporated by reference;
previously filed as Exhibit
4.0 to the Registrant's
1992 Form 10-K.)
4.1 Specimen Warrant Certificate (Incorporated by reference;
previously filed as Exhibit
4.1 to the Registrant's 1988
Warrants Registration
Statement.)
4.2 Form of Warrant Agreement, dated (Incorporated by reference;
as of December 15, 1988, between previously filed as Exhibit
the Company and Manufacturers 4.2 to the Registrant's
Hanover Trust Company, as warrant 1988 Warrants Registration
agent Statement.)
Exhibit
Number Description
4.3 Form of Note Indenture for 12% (Incorporated by reference;
Senior Subordinated Notes due previously filed as Exhibit
2001, dated December 15, 1991 4 to the Registrant's
Current Report on Form 8-K
dated January 9, 1992.)
4.4 Specimen of 12% Note (Incorporated by reference;
previously filed as Article
Two of Exhibit 4 to the
Registrant's Current Report
on Form 8-K dated January 9,
1992.)
4.5 Form of 11.5% Note Indenture for (Incorporated by reference;
11.5% Senior Subordinated Notes previously filed as Exhibit
due 2002, dated January 15, 1992 28B to the Registrant's
Current Report on Form 8-K
dated January 17, 1992.)
4.6 Specimen of 11.5% Note (Incorporated by reference;
previously filed as Article
Two of Exhibit 28B to the
Registrant's Current Report
on Form 8-K dated January
17, 1992.)
4.7 Certificate of Designation of (Incorporated by reference;
Series B Preferred Stock previously filed as Exhibit
3.6 to the Registrant's
Registration Statement on
Form S-1, File No. 33-24960
(the "Copper Notes
Registration Statement").)
4.8 Amendment to Certificate of (Incorporated by reference;
Designation of Series B previously filed as Exhibit
Preferred Stock 3.6 to the Registrant's
Statement on Form S-1, File
No. 33-26294 (the "1988
Warrants Registration
Statement").)
4.9 Certificate of Decrease in (Incorporated by reference;
the Number of Authorized Shares previously filed as Exhibit
of Series B Preferred Stock 3.7 to the Registrant's
1992 Form 10-K.)
Exhibit
Number Description
4.10 Certificate of Designations of (Incorporated by reference;
Series D Preferred Stock previously filed as Exhibit
4.0 to the Registrant's
Current Report on Form 8-K
dated July 12, 1993.)
4.11 Specimen Series D Preferred (Incorporated by reference;
Stock Certificate previously filed as Exhibit
4.0 to the Registrant's Form
8-A dated July 8, 1993.)
4.12 Certificate of Designations of (Incorporated by reference;
Series E Preferred Stock previously filed as Exhibit
4.1 to the Registrant's
Form 8-A dated November 17,
1993.)
4.13 Specimen Series E Preferred Stock (Incorporated by reference;
Certificate previously filed as Exhibit
4.0 to the Registrant's
Form 8-A dated November 17,
1993.)
10.0 Performance Rights Agreement, (Incorporated by reference;
dated August 10, 1988, Between previously filed as Exhibit
Donald J. Donahue and Magma 10.34 to the Registrant's
Copper Company Copper Notes Registration
Statement.)
10.1 Tax-Matters Agreement, dated (Incorporated by reference;
as of March 6, 1987 between previously filed as 10I to
Newmont Mining Corporation and the Registrant's Form 10.)
Magma Copper Company
10.2 Tax Sharing Agreement between (Incorporated by reference;
Newmont Mining Corporation and previously filed as Exhibit
Magma Copper Company 10.15 to the Registrant's
1987 Form 10-K.)
10.3 Memorandum Agreement, dated (Incorporated by reference,
July 1, 1989, between Magma previously filed as Exhibit
Copper Company and the unions 40.0 to the Registrant's
comprising the Magma Unity Council 1989 Form 10-K.)
Exhibit
Number Description
10.4 Memorandum Agreement, dated (Incorporated by reference,
November 1, 1991, between Magma previously filed as Exhibit
Copper Company and the union 10.41 to the Registrant's
comprising the Magma Unity 1991 Form 10-K.)
Counsel
10.5 Reimbursement Agreement, dated (Incorporated by reference;
as of December 1, 1984 between previously filed as Exhibit
Magma Copper Company and National 10O to the Registrant's
Westminister Bank PLC, New York Form 10.)
Branch (Series 1984A Bonds)
10.6 Loan Agreement, dated as of (Incorporated by reference;
December 1, 1984, between The previously filed as Exhibit
Industrial Development Authority 10K to the Registrant's
of the County of Pinal and Magma Form 10.)
Copper Company Series 1984A Bonds)
10.7 Reimbursement Agreement, dated (Incorporated by reference;
as of December 1, 1984, between previously filed as Exhibit
Magma Copper Company and National 10L to the Registrant's
Westminster Bank PLC, New York Form 10.)
Branch (Series 1984 Bonds)
10.8 Loan Agreement, dated as of (Incorporated by reference;
December 1, 1984, between The previously filed as Exhibit
Industrial Development Authority 10M to the Registrant's
of the County of Pinal and Magma Form 10.)
Copper Company (Series 1984 Bonds)
10.9 Letter Agreement amending the (Incorporated by reference;
Reimbursement Agreement and previously filed as Exhibit
Guaranty, among the Company, 10.12 to the Registrant's
Newmont and National Westminster 1988 Warrants Registration
Bank PLC, dated November 30, 1988 Statement.)
10.10 Loan Agreement dated as of (Incorporated by reference;
December 1, 1992, between the previously filed as Exhibit
Industrial Development Authority 10.11 to the Registrant's
of the County of Pinal and Magma 1992 Form 10-K.)
Copper Company (Series 1992 Bonds)
10.11 Reimbursement Agreement, dated (Incorporated by reference;
as of December 1, 1992, between previously filed as Exhibit
Magma Copper Company and Banque 10.12 to the Registrant's
Nationale de Paris 1992 Form 10-K.)
Exhibit
Number Description
10.12 Trust Agreement, dated as of (Incorporated by reference;
March 10, 1987, among Newmont previously filed as Exhibit
Mining Corporation, First 10.23 to the Registrant's
Interstate Bank of Arizona and 1987 Form 10-K.)
Magma Copper Company
10.13 Amendment to Trust Agreement, (Incorporated by reference;
dated December 27, 1988, between previously filed as Exhibit
Newmont Mining Corporation, 27.0 to the Registrant's
Magma Copper Company and First 1988 Form 10-K.)
Interstate Bank of Arizona, N.A.
10.14 User License, dated as of (Incorporated by reference;
August 28, 1984, between previously filed as Exhibit
Southwire Company and Magma 10.26 to the Registrant's
Copper Company 1987 Form 10-K.)
10.15 License Agreement, dated as of (Incorporated by reference;
October 28, 1986, between previously filed as Exhibit
Outokumpu Oy and Magma Copper 10.27 to the Registrant's
Company 1987 Form 10-K.)
10.16 License Agreement, dated as of (Incorporated by reference;
February 1, 1986, between Phelps previously filed as Exhibit
Dodge Refining Corporation and 10.28 to the Registrant's
Magma Copper Company 1987 Form 10-K.)
10.17 License Agreement, dated as of (Incorporated by reference;
April 10, 1985, between MIM previously filed as Exhibit
Technology Marketing Limited 10.30 to the Registrant's
and Magma Copper Company 1987 Form 10-K.)
10.18 Purchase Agreement, dated (Incorporated by reference;
November 20, 1988, between previously filed as Exhibit
Magma Copper Company and 10.50 to the Registrant's
Warburg, Pincus Capital Company, Copper Notes Registration
L.P. Statement.)
10.19 Amendment to Purchase Agreement, (Incorporated by reference;
dated November 30, 1988, between previously filed as Exhibit
Magma Copper Company and Warburg, 10.27 to the Registrant's
Pincus Capital Company, L.P. 1988 Warrants Registration
Statement.)
Exhibit
Number Description
10.20 Registration Rights Agreement, (Incorporated by reference;
dated November 30, 1988, between previously filed as Exhibit
Magma Copper Company and Warburg, 10.29 to the Registrant's
Pincus Capital Company, L.P. 1988 Warrants Registration
Statement.)
10.21 Revolving Credit Facility (Incorporated by reference;
Agreement dated as of previously filed as Exhibit
May 20, 1994 10 to the Registrant's
Quarterly Report on Form
10-Q dated June 30,1994.)
10.22 Tax Stability Agreement (Incorporated by reference;
previously filed as Exhibit
10.1 to the Registrant's
Form 8-K/A-1 dated November
29, 1994.)
10.23 Judicial Stability Agreement (Incorporated by reference;
with the Consortium Magma previously filed as Exhibit
Copper Company - Global 10.2 to the Registrant's
Magma Ltd. Form 8-K/A-1 dated November
29, 1994.)
10.24 Judicial Stability Agreement (Incorporated by reference;
with Empresa Minera Especial previously filed as Exhibit
Tintaya, S.A. 10.3 to the Registrant's
Form 8-K/A-1 dated November
29, 1994.)
10.25 1987 Stock Option and Stock (Incorporated by reference;
Award Plan previously filed as Exhibit
10B to the Registrant's Form
10.)
10.26 Amendments to 1987 Stock (Incorporated by reference;
Option and Stock Award Plan previously filed as Exhibit
28.1 to the Registrant's
Quarterly Report on
Form 10-Q dated June 30,
1992.)
Exhibit
Number Description
10.27 1989 Stock Option and Stock (Incorporated by reference;
Award Plan previously filed as Exhibit
35.0 to the Registrant's
annual report on Form 10-K
for the fiscal year ended
December 31, 1989 (the "1989
Form 10-K.")
10.28 Amendments to 1989 Stock (Incorporated by reference;
Option and Stock Award previously filed as Exhibit
Plan 28.2 to the Registrant's
Quarterly Report on Form
10-Q dated June 30, 1992.)
10.29 1989 Stock Option Plan for (Incorporated by reference;
Non-employee Directors previously filed as Exhibit
10.27 to the Registrant's
1991 Form 10-K.)
10.30 Amendment to 1989 Stock Option (Incorporated by reference;
Plan for Non-Employee Directors previously filed as Exhibit
28 to the Registrant's
Quarterly Report on Form
10-Q dated September 30,
1991.)
10.31 Excess Benefit Plan (Incorporated by reference;
previously filed as Exhibit
10.28 to the Registrant's
1991 Form 10-K.)
10.32 Executive Supplemental Benefit (Incorporated by reference;
Plan previously filed as Exhibit
10.29 to the Registrant's
1991 Form 10-K.)
10.33 Amended and Restated Special Filed herewith
Executive Supplemental
Benefit Plan
10.34 Special Executive Deferred (Incorporated by reference;
Compensation Plan previously filed as Exhibit
10.31 to the Registrant's
1991 Form 10-K.)
Exhibit
Number Description
10.35 First Amendment to Special (Incorporated by reference;
Executive Deferred Compensation previously filed as Exhibit
Plan 10.33 to the Registrant's
1992 Form 10-K.)
10.36 Second Amendment to Special (Incorporated by reference;
Executive Deferred Compensation previously filed as Exhibit
Plan 10.34 to the Registrant's
1992 Form 10-K.)
10.37 Third Amendment to Special Filed herewith
Executive Deferred Compensation
Plan
10.38 Fourth Amendment to Special Filed herewith
Executive Deferred Compensation
Plan
10.39 1992 Restricted Stock Plan for (Incorporated by reference;
Non-Employee Directors previously filed as Exhibit
28.3 to the Registrant's
Quarterly Report on Form
10-Q dated June 30, 1992.)
10.40 Amendment to 1987 Stock Plan (Incorporated by reference;
for Non-Employee Directors previously filed as Exhibit
10.36 to the Registrant's
1992 Form 10-K.)
10.41 1993 Revised Incentive Compensation (Incorporated by reference;
Plan Guidelines previously filed as Exhibit
10.36 to the Registrant's
1993 Form 10-K.)
10.42 Chief Executive Officer (Incorporated by reference;
Supplemental Retirement Plan previously filed as Exhibit
10.38 to the Registrant's
1992 Form 10-K.)
10.43 Employment Agreement - (Generic (Incorporated by reference;
Copy) previously filed as Exhibit
10.38 to the Registrant's
1993 Form 10-K.)
10.44 Third Amendment to Employment (Incorporated by reference;
Agreement between J. B. Winter previously filed as Exhibit
and Magma Copper Company 10.39 to the Registrant's
1993 Form 10-K.)
Exhibit
Number Description
10.45 Retention and Severance Benefit (Incorporated by reference;
Agreement between Magma Copper previously filed as Exhibit
Company and J. B. Winter 10.40 to the Registrant's
1993 Form 10-K.)
10.46 Revised 1993 Long-Term Incentive (Incorporated by reference;
Plan guidelines previously filed as Exhibit
10.41 to the Registrant's
1993 Form 10-K.)
10.47 1993 Stock Option and Stock (Incorporated by reference;
Award Plan previously filed as Exhibit
4 to the Registrant's Form
S-8 Registration Statement,
File No. 33-64766.)
10.48 First amendment to the Magma (Incorporated by reference;
Copper Company Executive previously filed as Exhibit
Supplemental Benefit Plan 10.43 to the Registrant's
1993 Form 10-K.)
10.49 Second amendment to the Magma (Incorporated by reference;
Copper Company Executive previously filed as Exhibit
Supplemental Benefit Plan 10.44 to the Registrant's
1993 Form 10-K.)
11.0 Statement re: computation of Filed herewith
per share earnings
21.0 Subsidiaries of Magma Copper Filed herewith
Company
23.1 Consent of Independent Public Filed herewith
Accountants (Price Waterhouse)
23.2 Consent of Independent Public Filed herewith
Accountants (Arthur Anderson LLP)
27.0 Financial Data Schedule Filed herewith
99.0 Statement re: indemnification (Incorporated by reference;
of directors, officers and previously filed as Exhibit
controlling persons 28.0 to the Registrant's
1990 Form 10-K.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By:/s/ Donald J. Donahue
(Donald J. Donahue)
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on behalf of
the registrant in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board
/s/ Donald J. Donahue and Director March 9,1995
(Donald J. Donahue)
President, Chief Executive
Officer, Director
/s/ J. Burgess Winter (Principal Executive Officer) March 9,1995
(J. Burgess Winter)
Vice President and
/s/ Douglas J. Purdom Chief Financial Officer March 9,1995
(Douglas J. Purdom) (Principal Financial and
Accounting Officer)
/s/ Christopher W. Brody Director March 9,1995
(Christopher W. Brody)
/s/ Judd R. Cool Director March 9,1995
(Judd R. Cool)
/s/ John W. Goth Director March 9,1995
(John W. Goth)
/s/ John R. Kennedy Director March 9,1995
(John R. Kennedy)
/s/ Thomas W. Rollins Director March 9,1995
(Thomas W. Rollins)
/s/ Henry B. Sargent Director March 9,1995
(Henry B. Sargent)
/s/ Simon D. Strauss Director March 9,1995
(Simon D. Strauss)
/s/ H. Wilson Sundt Director March 9,1995
(H. Wilson Sundt)
/s/ John L. Vogelstein Director March 9,1995
(John L. Vogelstein)
AMENDED AND RESTATED
MAGMA COPPER COMPANY
SPECIAL EXECUTIVE SUPPLEMENTAL BENEFIT PLAN
AMENDED AND RESTATED
MAGMA COPPER COMPANY
SPECIAL EXECUTIVE SUPPLEMENTAL BENEFIT PLAN
Table of Contents
ARTICLE I
PREAMBLE. . . . . . . . . . . . . . . . 1
ARTICLE II
DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . 1
2.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Construction . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III
PARTICIPATION AND VESTING . . . . . . . . . . . 6
3.1 Eligibility and Participation. . . . . . . . . . . . . . . . . 6
3.2 Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
RETIREMENT BENEFITS. . . . . . . . . . . . . 7
4.1 Normal Retirement Benefit. . . . . . . . . . . . . . . . . . . 7
4.2 Early Retirement Benefit . . . . . . . . . . . . . . . . . . . 7
4.3 Separation Prior to Retirement . . . . . . . . . . . . . . . . 8
4.4 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Offset For Other Benefits. . . . . . . . . . . . . . . . . . . 9
4.6 Manner of Payment. . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Minimum Benefit. . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
SURVIVING SPOUSE BENEFIT. . . . . . . . . . . . 10
5.1 Pre-Retirement Death Benefit . . . . . . . . . . . . . . . . . 10
ARTICLE VI
SUPPLEMENTAL MEDICAL BENEFIT. . . . . . . . . . . 10
6.1 Eligibility for Supplemental Medical Benefit . . . . . . . . . 10
ARTICLE VII
PAYMENT LIMITATIONS. . . . . . . . . . . . . 11
7.1 Spousal Claims . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.4 Acquisition of the Company . . . . . . . . . . . . . . . . . . 12
ARTICLE VIII
FUNDING. . . . . . . . . . . . . . . . 14
8.1 Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Creditor Status. . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IX
ADMINISTRATION . . . . . . . . . . . . . . 15
9.1 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . 15
9.2 Claims for Benefits. . . . . . . . . . . . . . . . . . . . . . 16
9.3 Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.4 Receipt and Release of Necessary Information . . . . . . . . . 17
9.5 Overpayment and Underpayment of Benefits . . . . . . . . . . . 17
ARTICLE X
OTHER BENEFIT PLANS OF THE COMPANY . . . . . . . . . 17
10.1 Other Plans. . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XI
AMENDMENT AND TERMINATION OF THE PLAN . . . . . . . . 18
11.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.2 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.3 Continuation . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . . 18
12.1 No Reduction of Employer Rights. . . . . . . . . . . . . . . . 18
12.2 Provisions Binding . . . . . . . . . . . . . . . . . . . . . . 18
SCHEDULE A . . . . . . . . . . . . . . . 20
AMENDED AND RESTATED
MAGMA COPPER COMPANY
SPECIAL EXECUTIVE SUPPLEMENTAL BENEFIT PLAN
ARTICLE I
PREAMBLE
On January 14, 1991, MAGMA COPPER COMPANY (the "Company")
adopted the MAGMA COPPER COMPANY SPECIAL EXECUTIVE SUPPLEMENTAL
BENEFIT PLAN (the "Plan"). The Plan was amended by a First
Amendment dated January 1, 1993, and a Second Amendment dated
November 17, 1993. Pursuant to action of the Board of Directors of
the Company on November 16, 1994, the Plan is amended and restated
to increase retirement benefits provided thereunder, to restructure
such benefits as a separate pension benefit that is reduced by
certain other retirement-related benefits provided or funded by the
Company, and to incorporate in a single document the prior
amendments to this Plan. The Company sponsors certain broad-based
employee benefit plans covering its employees. Through this Plan,
the Company intends to provide additional benefits to a select
group of management or highly compensated employees of the Company.
Accordingly, it is intended that this Plan shall not constitute a
"qualified plan" subject to the limitations of section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), nor
shall it constitute a "funded plan", for purposes of such
requirements. It is also intended that this Plan shall be exempt
from the participation and vesting requirements of Part 2 of Title
I of the Employee Retirement Income Security Act of 1974, as
amended (the "Act"), the funding requirements of Part 3 of Title I
of the Act, and the fiduciary requirements of part 4 of Title I of
the Act by reason of the exclusions afforded plans which are
unfunded and maintained by an employer primarily for the purpose of
providing deferred compensation for a select group of management or
highly compensated employees.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions. When a word or phrase shall appear in this
Plan with the initial letter capitalized, and the word or phrase
does not commence a sentence, the word or phrase shall generally be
a term defined in this Section 2.1. The following words and
phrases with the initial letter capitalized shall have the meaning
set forth in this Section 2.1, unless a different meaning is
required by the context in which the word or phrase is used.
(a) "Act" - The Employee Retirement Income Security Act
of 1974, as amended from time to time.
(b) "Actuarially Equivalent" - Of equal current value as
of the date the benefit is calculated when computed on the
basis of the uniform actuarial procedures, assumptions,
factors and tables then used under the Retirement Plan for
determining actuarial equivalency.
(c) "Affiliate" - A corporation that is a member of a
controlled group of corporations (as defined in section 414(b)
of the Code) which includes the Company or any trades or
business (whether or not incorporated) which are in common
control (as defined in section 414(c) of the Code) with the
Company.
(d) "Board" - The Board of Directors of the Company.
(e) "Change in Control" - A change in ownership or
managerial control of the stock, assets or business of the
Company resulting from one (1) or more of the following
circumstances:
(i) On or after November 17, 1993, the shareholders
of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger
or consolidation which would result in the voting
securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities
of the surviving entity) more than sixty-five percent
(65%) of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or
consolidation; provided however, that a merger or
consolidation effected to implement a recapitalization of
the Company (or a similar transaction) in which no Person
other than Warburg, Pincus Capital Company, L.P.,
acquires thirty-five percent (35%) or more of the
Company's then outstanding voting securities shall not
constitute a Change in Control;
(ii) On or after November 17, 1993, a change in
ownership of the Company through a transaction or series
of transactions, such that any Person is or becomes the
Beneficial Owner, directly or indirectly, of securities
of the Company representing thirty-five (35%) or more of
securities of the combined voting power of the Company's
then outstanding securities; provided that, for such
purposes, any acquisition by the Company shall be
disregarded; and provided further that, in the event of
such a change in ownership, if Warburg, Pincus Capital
Company, L.P., as of the date of such change of ownership
and at all times thereafter, remains the Beneficial Owner
of a percentage interest in the Company equal to at least
ten percent (10%) more than any other Beneficial Owner of
the combined voting power of the Company's then
outstanding securities, no Change in Control shall be
deemed to have occurred unless (A) the majority of the
Board serving immediately prior to such Change in Control
shall deem a Change in Control to have occurred, or (B)
Warburg Pincus Capital Company, L.P., shall thereafter
cease to be the Beneficial Owner of a percentage
ownership interest in the Company equal to at least ten
percent (10%) more than any other Beneficial Owner of the
combined voting power of the Company's then outstanding
securities (and in such event, the Change in Control
shall be deemed to have occurred on the date Warburg,
Pincus Capital Company, L.P., ceases to be the Beneficial
Owner of such greater combined voting power);
(iii) A change in identity of a majority of the
members of the Board within any twenty-four (24) month
period; provided however, if such a change in the
identity of the members of the Board occurs following the
acquisition of fifty-one percent (51%) or more of the
Company's then outstanding voting securities by Warburg,
Pincus Capital Company, L.P., no Change in Control shall
be deemed to have occurred if such change of Board
membership was approved in writing (or by an approved
written resolution) by a majority of the Board and of the
Management Executive Committee serving immediately prior
to such change of Board membership. For purposes of this
Section 2.1(e)(iii), the term "Management Executive
Committee" shall mean a Committee appointed in writing by
the then-acting Chief Executive Officer of the Company,
comprised of corporate officers and such additional key
employees of the Company as the Chief Executive Officer
shall appoint from time to time. The Chief Executive
Officer may remove any member of the Management Executive
Committee by notice in writing delivered to such member
and the other members of the Management Executive
Committee;
(iv) The approval by the Board (or by the
shareholders if shareholder approval is required by
applicable law or under the terms of any relevant
agreement) of an agreement for the sale or disposition of
all or substantially all of the Company's assets or a
sale/leaseback of all or substantially all of the
Company's assets (with or without a purchase option);
(v) A transfer of all or substantially all of the
Company's assets pursuant to a partnership or joint
venture agreement where the Company's resulting interest
is or becomes fifty percent (50%) or less;
(vi) On or after November 17, 1993, the Board (or
the shareholders if shareholder approval is required by
applicable law or under the terms of any relevant
agreement) shall approve a plan of complete liquidation
of the Company; or
(vii) The execution or approval by the Board of
any agreement, the consummation of which would result in
one of the foregoing.
For purposes of this section 2.1(e), the term
"Beneficial Owner" shall have the same meaning as the term is
given in Rule 13d-3 under the Securities Exchange Act of 1934,
as amended, and the term "Person" shall have the meaning given
the term when used in section 13(d) and 14(d) of such act.
(f) "Code" - The Internal Revenue Code of 1986, as
amended from time to time.
(g) "Company" - Magma Copper Company, a Delaware
corporation.
(h) "Compensation" - All wages, salaries, cash bonuses
and other amounts of cash compensation paid to the Participant
during the Plan Year, excluding any compensation consisting of
awards under any Magma Copper Company Stock Option and Stock
Award Plan, the 1993 Magma Copper Company Long-Term Incentive
Plan (or any successor long term incentive plan) and the
exercise of any grant, option or right thereunder, and any
additional compensation paid pursuant to an Employment
Agreement between a Participant and the Company providing for
such additional compensation following a "Change in Control"
(as defined therein) by reason of the occurrence of a
"Termination Event" (as defined therein) due to a cause other
than "Good Reason" (as defined therein). "Compensation" shall
also include compensation deferred by a Participant under the
Deferred Compensation Plan and under the Salaried Savings Plan
of Magma Copper Company, but shall not include any other
contributions or any benefits under any "employee benefit
plan", as defined in the Act, sponsored by the Company or an
Affiliate.
(i) "Deferred Compensation Plan" - The Magma Copper
Company Special Executive Deferred Compensation Plan and any
other nonqualified deferred compensation plan or plans
established by the Company or an Affiliate for eligible
employees from time to time.
(j) "Disability" - Entitlement to benefits under the
Long-Term Disability Benefits Plan for Salaried Employees of
Magma Copper Company.
(k) "Effective Date" - August 1, 1990.
(l) "Employee" - Each salaried person receiving
remuneration, or who is entitled to remuneration, for services
rendered to the Company or to an Affiliate of the Company
participating in this Plan, in the legal relationship of
employer and employee. In addition, the term "Employee" shall
also include any former salaried person who is receiving
disability benefits under the Long Disability Benefits Plan
for Salaried Employees of Magma Copper Company and who is
participating in this Plan.
(m) "Executive Supplemental Benefit Plan" - The Magma
Copper Company Executive Supplemental Benefit Plan, as amended
from time to time.
(n) "Final Average Compensation" - The monthly average
of the Compensation paid to an Employee by the Company or an
Affiliate during the highest consecutive five (5) Plan Years
of his employment with the Company or an Affiliate within the
last ten (10) Plan Years of such employment, assuming, in the
case of Disability, that the Compensation of a Participant for
the Plan Year ending prior to the date his Disability
commenced shall continue in effect during Plan Years of
Disability. In the event that an Employee does not have five
(5) Plan Years of employment, "Final Average Earnings" shall
mean the average Compensation of the Employee during the
months of his Service.
(o) "Medical Plan" - The medical benefit plan or plans
established or maintained by the Company to provide medical
coverage to eligible salaried employees and their dependents.
(p) "Participant" - Each Employee who has been
designated for participation in of this Plan and whose
participation in this Plan has not terminated.
(q) "Plan" - The Magma Copper Company Special Executive
Supplemental Benefit Plan, as described in this Plan, and as
it may hereafter be amended.
(r) "Plan Administrator" - The individual or committee
appointed as such pursuant to Section 9.1.
(s) "Plan Year" - The fiscal year of this Plan shall be
the calendar year.
(t) "Retirement Plan" - The Retirement Plan for Salaried
Employees of Magma Copper Company, as amended from time to
time.
(u) "Service" - The completed months of employment of an
Employee with the Company or an Affiliate, measured from the
Employee's original hire date with the Company or an
Affiliate. In the event that an Employee was hired by an
Affiliate prior to its acquisition by the Company or an
Affiliate, the Employee's Service shall be deemed to have
commenced on the date of acquisition. A year of Service shall
be equal to twelve (12) or more completed months of
employment.
2.2 Construction. The Executive Supplemental Benefit Plan,
the Retirement Plan, the Deferred Compensation Plan and the Medical
Plan are functionally and operationally related to this Plan. This
Plan shall be interpreted in a manner consistent with such plans to
provide benefits contemplated hereunder in a comprehensive manner.
This Plan shall be construed together with such plans in order to
effectuate full payment of the benefits described hereunder but not
to duplicate benefits and shall be construed in a manner consistent
with the Company's intentions. If any provision of this Plan is
determined to be for any reason invalid or unenforceable, the
remaining provisions of this Plan shall continue in full force and
effect. All of the provisions of this Plan shall be construed and
enforced in accordance with the laws of the State of Arizona and
shall be administered according to the laws of such state, except
as otherwise required by the Act, the Code or other applicable
federal law. The masculine gender, where appearing in this Plan,
shall include the feminine gender, and vice versa. The term
"delivered to the Plan Administrator," as used in this Plan, shall
include delivery to a person or persons designated by the Plan
Administrator for the disbursement and the receipt of
administrative forms. Delivery shall be deemed to have occurred
only when the form or other communication is actually received.
Headings and subheadings are for the purpose of reference only and
are not to be considered in the construction of this Plan.
2.3 Effective Date. The Plan was originally effective
August 1, 1990. The effective date of this amendment and
restatement shall be November 16, 1994. The amount, right to and
form of benefits under the Plan, if any, of each person who is an
Employee on or after November 16, 1994, or of persons who are
claiming benefits through such an Employee, shall be determined
under this Plan. Except as expressly provided elsewhere in this
Plan, the amount, right to and form of benefits under the Plan, if
any, of each person who separated from employment with the Company
or an Affiliate prior to November 16, 1994, or of other persons who
are claiming benefits through such a former Employee, shall be
determined in accordance with the provisions of the Plan in effect
on the date of separation of his employment, except as may be
otherwise expressly provided under this Plan, unless he shall again
become an Employee on or after November 16, 1994.
ARTICLE III
PARTICIPATION AND VESTING
3.1 Eligibility and Participation. The Employees listed on
Schedule "A," attached hereto and incorporated herein by this
reference, shall be eligible to participate in this Plan on and
after November 16, 1994. After such date, the Compensation
Committee of the Board may designate such additional Employees to
participate in the Plan as it shall determine, in its sole and
absolute discretion.
The Employees listed on Schedule A shall automatically be
Participants in this Plan on November 16, 1994. Employees
subsequently added shall become participants as of the effective
date of their addition. In the event that an Employee listed on
Schedule A is also a participant in the Executive Supplemental
Benefit Plan, the benefits payable to the Employee pursuant to this
Plan will be coordinated with the benefits payable to the Employee
under the Executive Supplemental Benefit Plan in order to maximize
the total benefits payable to the Employee under both of such plans
but avoid duplication of benefits. An Employee who becomes a
Participant under this Plan and who separates from employment will
continue as an inactive Participant under this Plan until he has
received payment of all amounts payable to him under this Plan,
subject to Section 3.2. In the event that an Employee shall cease
active participation in the Plan because the Employee is no longer
described as a Participant listed on Schedule "A" pursuant to this
Section 3.1, participation in the Plan by the Employee shall cease,
but all years of Service credited to the Employee prior to the date
on which the Employee ceases participation shall remain credited
for purposes for determining any benefit under this Plan to which
the Employee (inactive Participant) may be entitled following his
separation from employment. In the event that such an Employee
becomes an active Participant again by reason of being listed on
Schedule "A", his Service following his prior cessation of
participation in the Plan shall be credited to the Participant, in
addition to the Service credited to the Participant as of his prior
cessation of active participation, for purpose of calculating the
Participant's benefits under this Plan.
3.2 Vesting. A Participant shall not become vested in any
benefit described in this Plan until he is credited with at least
ten (10) years of Service and has attained the age of forty-five
(45) years, or was hired after he attained the age of forty-five
(45) years and has attained the age of sixty-five (65) years,
except as provided in Section 4.6. In the event a Participant
shall separate from service prior to such date, he shall not be
entitled to any benefits under this Plan, except as provided in
Section 4.6.
ARTICLE IV
RETIREMENT BENEFITS
4.1 Normal Retirement Benefit. In the event that a
Participant shall retire from employment with the Company and its
Affiliates on or after attaining the age of sixty-five (65) years,
he shall be entitled to receive a normal retirement benefit,
commencing as of the first day of the month next following the date
of separation from employment with the Company and its Affiliates
due to retirement. The Participant's normal retirement benefit
shall be equal to two percent (2%) of Final Average Compensation,
multiplied by the years of Service credited to the Participant as
of the date of the Participant's separation from employment with
the Company and its Affiliates due to retirement, less the amount
of offset for other benefits described in Section 4.5. The benefit
of a Participant retiring as of any date subsequent to attainment
of the age of sixty-five (65) years shall be computed in the same
manner. The normal retirement benefit shall be paid in the manner
described in Section 4.6.
4.2 Early Retirement Benefit. In the event that a
Participant shall retire from employment with the Company and its
Affiliates on or after attaining the age of fifty-five (55) years
and being credited with ten (10) or more years of Service, but
prior to becoming entitled to a normal retirement benefit pursuant
to Section 4.1, the Participant shall be entitled to an early
retirement benefit, commencing not earlier than the first day of
the month next following the date of separation from employment
from the Company and its Affiliates due to retirement. A
Participant entitled to an early retirement benefit pursuant to
this Section 4.2 may postpone its commencement to the first day of
any month prior to the month in which the Participant shall attain
the age of sixty-five (65) years. The Participant's early
retirement benefit shall be equal to (a) two percent (2%) of Final
Average Compensation, multiplied by the years of Service credited
to the Participant as of the date of the Participant's separation
from employment with the Company and its Affiliates due to
retirement, reduced by (b) the early retirement commencement factor
described below, and less (c) the amount of offset for other
benefits described in Section 4.5. The early retirement
commencement factor shall be equal to four percent (4%) of the
benefit amount described in (a) above for each year, starting with
the year early retirement benefits commence to be paid, prior to
the date on which the Participant shall attain the age of sixty-two
years, for years between ages fifty-five (55) and sixty-two (62).
There shall be no reduction by an early retirement commencement
factor for retirement after attainment of the age of sixty-two (62)
years and prior to the attainment of the age of sixty-five (65)
years. The early retirement benefit shall be paid in the manner
described in Section 4.6. A Participant entitled to benefits under
this Section 4.2 may determine the month in which his early
retirement benefits shall commence following his separation from
employment. Such election shall be made in a manner acceptable to
the Plan Administrator.
4.3 Separation Prior to Retirement. In the event a
Participant shall separate from employment with the Company and its
Affiliates prior to becoming entitled to a benefit pursuant to
Section 4.1 or Section 4.2, but after attaining the age of forty-
five (45) years and being credited with ten (10) or more years of
Service, or was hired after he attained the age of forty-five (45)
years and has attained the age of sixty-five (65) years. the
Participant shall be entitled to a vested pension benefit,
commencing not earlier than the month following the month in which
the former Participant shall attain the age of fifty-five (55)
years. The vested pension benefit shall be computed in the same
manner as the early retirement benefit under Section 4.2. A
Participant entitled to benefits under this Section 4.3 may
determine the month in which payment of his vested pension benefits
shall commence following attainment of the age of fifty-five (55)
years. Such benefits may not commence prior to such date. Such
election shall be made in a manner acceptable to the Plan
Administrator. In the event a Participant shall separate from
employment with the Company and its Affiliates prior to (a) the
attainment of the age of forty-five (45) years and prior to being
credited with ten (10) years of Service, or (b) if he was hired
after he attained the age of forty-five (45) years, the date on
which he has attained the age of sixty-five (65) years,no benefit
shall be payable to such Participant under this Plan, unless a
benefit is payable pursuant to Section 4.7.
4.4 Disability Benefit. In the event that a Participant
shall become Disabled while in the employment of the Company and
its Affiliates prior to becoming eligible to receive a benefit
under Section 4.1 or 4.2, he shall continue as a Participant during
his period of Disability, and shall continue to accrue credit for
Service as though he was continuing in active employment during the
period of such Disability. The Participant may elect benefits
under Section 4.1, 4.2 or 4.3 at such time as he satisfies the age
and Service requirements thereunder, and, for such purpose shall be
deemed to have separated from employment as of the end of the month
prior to the date on which such benefits commence. Payment of
benefits to a Participant entitled thereto pursuant to this Section
4.4 shall commence not later than the month commencing after the
date on which the Participant attains the age of sixty-five (65)
years.
4.5 Offset For Other Benefits. Benefits payable under
Sections 4.1, 4.2, 4.3 or 4.4 shall be reduced by the amount of
benefits payable under the Retirement Plans under Article Four of
the Executive Supplemental Benefit Plan and/or as post-retirement
supplemental pension benefits under the provisions of any
employment agreement between the Company or an Affiliate and the
Participant that provides for such post-retirement supplemental
pension benefits. In the event that a benefit is paid under the
Retirement Plan and/or Article Four of the Executive Supplemental
Benefit Plan and/or a post-retirement supplemental pension benefit
under an employment agreement in a form other than that of monthly
annuity for the life of the Participant, the benefit so paid shall
be converted to the Actuarial Equivalent of such a life annuity,
for purposes of computing the reduction required by this Section
4.5. Such calculation shall be made by the Plan Administrator, in
his sole and absolute discretion.
4.6 Manner of Payment. Payment of benefits pursuant to
Section 4.1, 4.2 or 4.3, or to a Participant entitled to a benefit
pursuant to Section 4.4, shall be made in the form of a monthly
amount determined in accordance with the applicable section,
commencing at the time described in the applicable Section, and
continuing monthly through the month in which the Participant's
death shall occur. Alternatively, the Participant may elect that
a reduced monthly amount shall be paid to the Participant during
the life of the Participant and fifty percent (50%) of the reduced
monthly amount shall be paid to the Participant's surviving spouse
to whom the Participant was married at the date of the
Participant's death, commencing with the month following the date
of the Participant's death. Such payment to the surviving spouse
shall cease with the payment for the month in which the surviving
spouse's death shall occur. Such optional reduced monthly benefit
shall be Actuarially Equivalent to the lifetime annuity otherwise
payable to the Participant. Any such election shall be made in
accordance with procedures prescribed by the Plan Administrator, in
such Plan Administrator's sole and absolute discretion.
4.7 Minimum Benefit. Notwithstanding anything to the
contrary, in the event that the present value of Participant's
benefits under Articles IV and V of the Plan as it was in effect
prior to November 16, 1994, that were accrued by the Participant as
of such date shall exceed the benefit otherwise payable to the
Participant under the Plan pursuant to the other sections of this
Article IV, such accrued benefit, rather than the benefit described
in the other sections of this Article IV, shall be paid to the
Participant, in the manner prescribed by the Plan as in effect
prior to November 16, 1994. For purposes of determining and
comparing benefit values pursuant to this Section 4.7, the Plan
Administrator shall compute Actuarial Equivalency, in the Plan
Administrator's sole and absolute discretion.
ARTICLE V
SURVIVING SPOUSE BENEFIT
5.1 Pre-Retirement Death Benefit. In the event that a
Participant shall die while employed by the Company and its
Affiliates prior to retirement but after qualifying to elect
retirement benefits pursuant to Sections 4.1 or 4.2, the
Participant's surviving spouse to whom the Participant was married
on the date of the Participant's death shall be entitled to a
surviving spousal benefit, commencing with the month following the
date of the Participant's death and ending with the payment made
for the month in which such spouse's death shall occur. Such
amount shall be a monthly benefit payable for the remainder of such
spouse's life equal to fifty percent (50%) of the amount to which
the Participant would have been entitled had the Participant
retired on the date immediately prior to the date of his death, and
had elected the life only (non-optional) manner of benefit payment
pursuant to Section 4.6.
ARTICLE VI
SUPPLEMENTAL MEDICAL BENEFIT
6.1 Eligibility for Supplemental Medical Benefit. In the
event that a Participant shall die or shall retire after attaining
the age of fifty-five (55) years and being credited with at least
ten (10) years of Service, the retired Participant and his eligible
dependents, in the event of retirement, or the eligible dependents
at the time of the Participant's death, in the event of the
Participant's death shall be entitled to payment of medical
benefits in the same manner, within the same limits and
deductibles, and at the same coverages, levels and times as under
the Medical Plan as though the retired Participant had remained in
active employment, less any amounts payable under the Medical Plan
or any retiree medical benefit plan maintained by the Company.
Benefits under this Section 6.1 shall be coordinated with such
medical benefit plans and with federal and/or state health plans
and programs, including "Medicare" and "Medicaid" or their
equivalents, to preclude duplication of benefits.
In addition, in the event that the Participant or his spouse
is entitled to Supplemental Medical Benefits pursuant to Section
7.1 of the Executive Supplemental Benefit Plan, the supplemental
medical benefits provided pursuant to this Section 6.1 shall be
paid after the Participant or his spouse has exhausted the
supplemental medical benefits provided under the Executive
Supplemental Benefit Plan and has reached the limitations on such
benefits under Section 7.2 of the Executive Supplemental Benefit
Plan (payable with respect to any claim or in the aggregate).
Conversely, any supplemental medical benefits payable to a
Participant's eligible dependents pursuant to this Section 6.1
shall be immediately payable to or on behalf of such dependents
regardless of the participant's or his surviving spouse's
entitlement to supplemental medical benefits under Section 7.1 of
the Executive Supplemental Benefit Plan.
In making the medical benefit payments required by this
Section 6.1, the Plan Administrator shall utilize claims submission
and payment procedures similar to those used in the administration
of the Medical Plan. The Plan Administrator shall be under no
requirement to utilize uniform methods of benefit payment under
this Section 6.1 and may utilize any method described herein with
respect to a particular Participant as the Plan Administrator shall
determine, in his sole and absolute discretion.
In the event that the Plan Administrator elects to fund the
medical benefits payable under this Section 6.1 through the
purchase of an insurance contract or policy, the medical benefits
provided through such contract or policy shall be actuarially
equivalent in value to the medical benefits provided under the
Medical Plan as described in the first paragraph of this Section
6.1. The Plan Administrator and the Company shall not be
responsible for the invalidity of any contracts or policies due to
any action or inaction on the part of an insurer. The Company and
the Plan Administrator shall not be responsible for the failure on
the part of any insurer to make payments provided by a contract or
policy or for the action or inaction of any other person which may
render a contract or policy null and void or unenforceable, in
whole or in part. In the event of such occurrence, this Plan or
the Company (and the Plan Administrator) shall not be liable for
the benefits otherwise payable hereunder.
ARTICLE VII
PAYMENT LIMITATIONS
7.1 Spousal Claims. Any claim against benefits hereunder for
child support, spousal maintenance or alimony shall be treated
hereunder in the same manner as would a claim for corresponding
benefits under the Retirement Plan, or the Medical Plan in the case
of benefits pursuant to Section 6.1. Such a claim under this Plan
shall be subject to all claims, procedures, plan provisions and
restrictions of such plans, provided that such provisions shall be
administered under this Plan by the Plan Administrator with respect
to benefits provided hereunder, who may for such purposes delegate
his administrative powers to the plan administrators and/or claims
administrators of the Retirement Plan, or the Medical Plan, as
applicable.
7.2 Disability. If a person entitled to any payment
hereunder shall, in the sole judgment of the Plan Administrator, be
under a legal disability, or shall otherwise be unable to apply
such payment to his own interest and advantage, the Plan
Administrator, in the exercise of his discretion, may direct the
Company or provider or payor of the benefit to make any such
payment in any one (1) or more of the following ways: (a) directly
to such person, (b) to his legal guardian or conservator or (c) to
his spouse or to any person charged with the duty of his support,
to be expended for his benefit and/or that of his dependents. The
decision of the Plan Administrator shall in each case be final and
binding upon all persons in interest, unless the Plan Administrator
shall reverse his decision due to changed circumstances.
7.3 Assignment. Except as provided in Section 7.1, no
Participant or beneficiary of a Participant shall have any right to
assign, pledge, hypothecate, anticipate or any way create a lien on
any amounts payable hereunder. No amounts payable hereunder shall
be subject to assignment or transfer or otherwise be alienable,
either by voluntary or involuntary act, or by operation of law, or
subject to attachment, execution, garnishment, sequestration or
other seizure under any legal, equitable or other process, or be
liable in any way for the debts or defaults of Participants and
their beneficiaries.
7.4 Acquisition of the Company. In the event that a
Participant is "terminated" within two (2) years following a Change
in Control as described in Section 2.1, notwithstanding anything in
Articles IV, V or VI, the Company will distribute to such
Participant in a lump sum, or through the acquisition of an annuity
contract, an amount actuarially equivalent to the value of the
benefits promised under this Plan to which the Participant would be
entitled upon his normal retirement under the Retirement Plan. For
purposes of determining actuarial equivalency, an actuary shall be
selected by the Company who is mutually acceptable to the
Participant and the Company. The actuary shall use the actuarial
assumptions used in computing the expense of benefits under this
Plan for accounting purposes, and shall use such other necessary
actuarial assumptions as such actuary shall determine to be
reasonable and in common actuarial use. The determination of such
actuary shall be binding and conclusive on both the Company and the
participant.
The following examples illustrate the operation of this
Section 7.4:
(i) For purposes of the pension provided under
Article IV, the "terminated" Participant shall be treated
as if he qualifies for normal retirement benefits,
regardless of whether he actually qualifies for such
benefits. The Participant's retirement benefits shall be
calculated based on the Participant's credited Service as
of the date of his termination.
(ii) For purposes of the supplemental medical
benefits provided under Article VI, the "terminated"
Participant shall be treated as if he has attained age
fifty-five (55) and has been credited with ten (10) years
of Service and, thus, eligible for supplemental medical
benefits.
A participant will be "terminated" for purposes of this
Section 7.4 on the occurrence of one (1) or more of the following,
due to a cause other than "good reason":
(i) Dismissal from employment, other than on
account of Good Reason; or
(ii) The assignment to the Participant by the
Company of duties inconsistent with the Participant's
position, duties, responsibility and status with the
Company as in effect immediately prior to the Change in
Control, or a material change in the Participant's titles
or offices as in effect immediately prior to the Change
in Control or any removal of the Participant from or any
failure to reelect the Participant to any of such
positions except in connection with the termination of
his employment for "Good Reason"; for purposes of this
Plan, a mere change of title, position or reporting
relationship that does not result in a material
diminution in scope, status, duties and responsibilities
shall not constitute "termination," nor shall a isolated
insubstantial and inadvertent action not taken in bad
faith and with is promptly remedied after notice, nor
shall a promotion to a position of higher scope, status,
duties and responsibilities or a transfer to a position
of equal scope, status, duties and responsibilities
constitute "termination", as long as such transfer is
consistent with the Participant's training and
professional qualifications or is otherwise agreed to by
the Participant;
(iii) A reduction in the Participant's base
salary as in effect on the date hereof or as the same may
be increased from time to time during the course of his
employment with the Company, that is not implemented
correspondingly within the executive or officer class of
employees generally;
(iv) The Participant's relocation to any place
outside of the Untied States, except for required travel
by the Participant on the Company's business to an extent
substantially consistent with the Participant's business
travel obligations at the time of the Change in Control;
(v) Any material breach by the Company of any
provision of the Participant's written employment
agreement with the Company.
For purposes of this Section 7.4, the terms "good reason"
shall mean the Participant's death, Disability, retirement or
"dismissal for cause." "Dismissal for cause" shall mean dismissal
approved in good faith by three quarters (3/4ths) of the members of
the Board for:
(i) An act or acts of dishonesty on the part of the
Participant constituting a felony or serious misdemeanor
and resulting or intended to result directly or
indirectly in gain or personal enrichment at the expense
of the Company;
(ii) Substantial competition with the Company (such
as securing a customer or customers of the Company for a
competitor or recruiting employees of the Company for a
competitor) in a manner directly affecting the business
of the Company;
(iii) The participant's willful and continuing
refusal or failure to substantially perform the essential
functions of his employment with the Company (other than
failure due to Disability); for such purpose the term
"willful" shall mean done intentionally, knowingly, and
purposely, without reasonable justification therefor;
(iv) Gross negligence in the performance of the
Participant's materials and substantial duties of
employment with the Company;
(v) Conviction of a felony involving moral
turpitude.
(vi) A significant violation by the Participant of
those established policies and procedures of the Company
that were in effect on the date of the Change in Control
and were communicated to the Participant prior to the
Change in Control;
(vii) The continued failure of the Participant
to substantially perform the essential functions of the
Participant's employment with the Company (other than due
to Disability) after a written demand for substantial
performance is delivered to the Participant by the Chief
Executive Officer of the Company, which identifies the
manner in which the Participant has not substantially
performed the essential functions of his employment.
ARTICLE VIII
FUNDING
8.1 Funding. Benefits under this Plan shall be funded solely
by the Company and its corporate affiliates. Benefits hereunder
shall constitute an unfunded general obligation of the Company, but
the Company may create reserves, funds and/or provide for amounts
to be held in trust on the Company's behalf under the Magma Copper
Company Trust Fund for Executive Benefits. Payment of benefits may
be made by the Company, the Magma Copper Company Trust Fund for
Executive Benefits or through a service or benefit provider to the
Company or such Trust Fund. In the event of a "Change in Control",
as defined in Section 2.1, the Company will transfer to the Trustee
of the Magma Copper Company Trust Fund for Executive Benefits an
amount equal to the present value of the liability for benefits
accrued to the date of the Change in Control pursuant to Article IV
of the Plan. The present value of such benefits as of such date
shall be determined by the firm of actuarial consultants engaged by
the Company at least six (6) months prior to the date of the Change
in Control for purposes of determining liabilities under this Plan,
using such assumptions as were used in computing such liabilities
for financial reporting purposes by such actuarial consultants.
Such transfer shall be made not later than thirty (30) days after
the date of such Change in Control.
8.2 Creditor Status. A Participant and his beneficiary or
beneficiaries shall be general creditors of the Company with
respect to the payment of any benefit under this Plan, unless such
benefits are provided under a contract of insurance or an annuity
contract that has been delivered to the Participant, in which case
the Participant and his beneficiary or beneficiaries shall look to
the insurance carrier or annuity provider for payment, and not to
the Company. The Company's obligation for such benefit shall be
discharged by the purchase and delivery of such annuity or
insurance contract.
ARTICLE IX
ADMINISTRATION
9.1 Plan Administrator. The Plan will be administered by an
individual or committee appointed by the Board. As of the
Effective Date, the Plan Administrator is Marshall H. Campbell. In
the event such Plan Administrator shall resign (or any members of
a committee comprising the Plan Administrator shall resign) or if
the Board shall seek to remove the Plan Administrator (or any
members of such committee), the Compensation Committee of the Board
may appoint such successor or successors as shall be approved in
writing by three-fourths (2/4ths) of the Participants in this Plan
(as of the date of such resignation or removed). Members of the
Board and/or Participants in the Plan may serve as the Plan
Administrator (or as members of the committee servicing as the Plan
Administrator). In the event that the Plan Administrator shall be
a single individual who is a Participant hereunder, any decisions
of such Plan Administrator concerning his own benefits shall be
subject to review and revision by the Compensation Committee of the
Board.
The Plan Administrator shall have the power and the duty to
take all actions necessary and proper to carry out the provisions
of this Plan. In carrying out the duties and responsibilities of
the Plan Administrator, the Plan Administrator shall act for the
exclusive benefit of Plan Participants and shall construe this Plan
and perform his duties hereunder for the purpose of providing the
benefits promised under this Plan.
In administering this Plan, the Plan Administrator shall (a)
furnish copies of this Plan to all Participants, (b) inform
Participants as to the manner of making benefit elections under
this Plan and selecting modes of payment under this Plan and (c)
take whatever action is necessary in fulfilling the purposes and
intent of this Plan. The Plan Administrator is authorized and
empowered to promulgate any rules, regulations and schedules of
general applicability, and to adopt such forms which the Plan
Administrator deems necessary in order to carry out the purposes of
this Plan and to interpret the terms and conditions of this Plan;
provided, however, that no rule, regulation or interpretation shall
be contrary to the clearly expressed provisions of the Plan.
The Plan Administrator may prescribe rules and procedures for
allocation of fiduciary responsibilities among the agents appointed
by the Plan Administrator. Directions from the Plan Administrator
to fiduciaries, agents and service and/or benefit providers shall
be in writing. The Plan Administrator may appoint a person or
persons to act in the day to day administration of this Plan, which
persons may include Participants hereunder. The reasonable
expenses of the Plan Administrator, including any out-of-pocket
expenses and charges of the Plan Administrator, shall be paid by
the Company.
9.2 Claims for Benefits. In the event that a Participant,
his beneficiary, a retiree or a beneficiary of a retiree claims to
be eligible for benefits, or claims any rights hereunder, he must
complete and submit such claims forms and supporting documentation
as shall be required by the Plan Administrator, in his sole
discretion. All benefits provided in this Plan will be paid as
soon as practicable (following receipt of proof of entitlement, if
requested). Any Employee or other person claiming benefits,
eligibility, participation or any other right or benefit under the
Plan must file a written claim, setting forth the basis of the
claim, with the Plan Administrator. In connection with the
determination of a claim, or in connection with review of a denied
claim, the claimant may examine this Plan and any other pertinent
documents generally available to Participants relating to the
claim. A written notice of the disposition of any such claim shall
be furnished to the claimant within ninety (90) days after the
claim is filed with the Plan Administrator. Such notice shall
refer, if appropriate, to pertinent provisions of this Plan, shall
set forth in writing the reasons for denial of the claim if a claim
is denied (including references to any pertinent provisions of this
Plan) and, where appropriate, shall explain how the claimant can
perfect the claim. If a the claim is denied, in whole or in part,
the claimant shall also be notified in writing that a review
procedure is available. Thereafter, within ninety (90) days after
receiving the written notice of the Plan Administrator's
disposition of the claim, the claimant may request in writing, and
shall be entitled to, one (1) review meeting with the Plan
Administrator to present reasons why the claim should be allowed;
provided, however, that if a benefit claimed is explicitly excluded
by the terms of the Plan, a review will not be provided. The
claimant shall be entitled to be represented by counsel at this
review meeting. The claimant may also submit a written statement
of his claim and the reasons for requesting a review of the claim.
Such statement may be submitted in addition to, or in lieu of, the
review meeting with the Plan Administrator. If the claimant does
not request a review meeting within ninety (90) days after
receiving written notice of the Plan Administrator's disposition of
the claim, the claimant shall be deemed to have accepted the Plan
Administrator's written disposition, unless the claimant shall have
been physically or mentally incapacitated so as to be unable to
request review within the ninety (90) day period. A decision on
review of the claim by the Plan Administrator shall be made within
sixty (60) days after review, and a written copy of such decision
shall be delivered to the claimant. If special circumstances
require an extension of the ordinary period, the Plan Administrator
shall so notify the claimant. The Plan Administrator shall so
notify the claimant. In any event, if a claim is not determined
within one hundred twenty (120) days after submission for review,
it shall be deemed to be denied. The Plan Administrator shall have
the right to request of and receive from a claimant such additional
information, documents or other evidence as the Plan Administrator
may reasonably require. To the extent permitted by law, a decision
on review by the Plan Administrator shall be binding and conclusive
upon all persons whomsoever. To the extent permitted by law,
completion of the claims procedures described in this Section 9.2
shall be a mandatory precondition that must be complied with prior
to the commencement of a legal or equitable action by a person
claiming rights under the Plan. The Plan Administrator may, in his
sole discretion, waive these procedures as a mandatory condition to
such an action.
For purposes of administering claims presented pursuant to
this Section 9.2 for benefits under Article VI, the Plan
Administrator shall determine, in his sole discretion after
consultation with the attending physician or physicians of a
claimant or with a physician appointed by the Plan Administrator,
whether a charge or expense incurred by such claimant for which
payment is sought was medically necessary. In making such
decision, the Plan Administrator may refer to the regular medical
and disability benefit plans and programs of the Company. The
determination of the Plan Administrator shall be binding and
conclusive upon all persons whomsoever.
9.3 Withholding. Any taxes required to be withheld from
payments to Participants hereunder shall be deducted and withheld
by the Company, benefit provider or funding agent.
9.4 Receipt and Release of Necessary Information. In
implementing the terms of this Plan, the Plan Administrator may,
without the consent of or notice to any person, release to or
obtain from any other insuring entity or other organization or
person any information, with respect to any person, which the Plan
Administrator deems to be necessary for such purposes. Any
Participant or beneficiary claiming benefits under this Plan shall
furnish to the Plan Administrator such information as may be
necessary to determine eligibility for and amount of benefit, as a
condition of claiming and receiving such benefit.
9.5 Overpayment and Underpayment of Benefits. The Plan
Administrator may adopt, in his sole discretion, whatever rules,
procedures and accounting practices are appropriate in providing
for the collection of any overpayment of benefits. If a
participant or beneficiary receives an underpayment of benefits,
the Plan Administrator shall direct that immediate payment be made
to make up for the underpayment. If an overpayment is made to a
Participant or beneficiary, for whatever reason, the Plan
Administrator may, in his sole discretion, withhold payment of any
further benefits under the Plan until the overpayment has been
collected or may require repayment of benefits paid under this Plan
without regard to further benefits to which the Participant or
beneficiary may be entitled.
ARTICLE X
OTHER BENEFIT PLANS OF THE COMPANY
10.1 Other Plans. Nothing contained in this Plan shall
prevent a Participant prior to his death, or his spouse or
beneficiary after his death, from receiving, in addition to any
payments provided for under this Plan, any payments provided for
under the Retirement Plan, or which would otherwise be payable or
distributable to him, his surviving spouse or beneficiary under any
plan or policy of the Company or otherwise. Nothing in this Plan
shall be construed as preventing the Company or any of its
subsidiaries from establishing any other or different plans
providing for current or deferred compensation for employees.
Benefits provided under this Plan shall not constitute earnings or
compensation for purposes of determining contributions or benefits
under any plan of the Company intended to "qualify" under section
401 of the Code.
ARTICLE XI
AMENDMENT AND TERMINATION OF THE PLAN
11.1 Amendment. The Board may amend this Plan for the purpose
of precluding Participants from being taxable on amounts credited
hereunder prior to the date on which such amounts are distributed
and for the purpose of complying with applicable law. No amendment
or modification shall deprive a Participant, or person claiming
benefits under this Plan through a Participant, of any benefit
accrued under this Plan up to the date of amendment or
modification, or shall delete a benefit, benefit payment or mode of
computation of a benefit available to the Participant under this
Plan, except as may be required by applicable law. Any other
amendment shall not be effective unless the written consent of
three-fourths (3/4) of the Participants (participating in the Plan
as of the effective date of such amendment) is obtained.
11.2 Termination. The Board may terminate this Plan in whole
or in part at any time, provided that no such termination or
suspension shall deprive a participant, or person claiming benefits
under this Plan through a Participant, of any benefit accrued under
this Plan up to the date of suspension or termination.
11.3 Continuation. The Company intends to continue this Plan
indefinitely, but nevertheless assumes no contractual obligation
beyond the promise to pay the benefits described in this Plan.
ARTICLE XII
MISCELLANEOUS
12.1 No Reduction of Employer Rights. Nothing contained in
this Plan shall be construed as a contract of employment between
the Company and an employee, or as a right of any employee to be
continued in the employment of the Company, or as a limitation of
the right of the Company to discharge any of its employees, with or
without cause.
12.2 Provisions Binding. All of the provisions of this Plan
shall be binding upon all persons who shall be entitled to any
benefit hereunder, their heirs and personal representatives.
IN WITNESS WHEREOF, the Company has executed this Amended and
Restated Plan the 15th day of February, 1995.
MAGMA COPPER COMPANY
By: _________________________
Its: Vice President -
Human Resources
GW02/0162095
SCHEDULE A
Participants in Magma Copper Company
Special Executive Supplemental Benefit Plan
A. A. Brodkey
K. C. Brown
M. H. Campbell
J. F. Champagne
B. E. Disbury
F. E. Durazo
T. L. Jordan
J. D. McCain
D. R. McGregor
B. A. Mills
R. P. Mueller
D. S. Purdom
H. C. Smith
J. B. Winter
THIRD AMENDMENT TO THE
MAGMA COPPER COMPANY
SPECIAL EXECUTIVE DEFERRED COMPENSATION PLAN
On January 9, 1990, Magma Copper Company (the "Company")
adopted the MAGMA COPPER COMPANY SPECIAL EXECUTIVE DEFERRED
COMPENSATION PLAN (the "Plan). The Plan was subsequently amended
and restated on September 4, 1990. On December 14, 1990, the Plan
was again amended and restated to make changes requested by the
Internal Revenue Service. The Plan was thereafter amended by a
First Amendment on January 1, 1991, and a Second Amendment on
December 23, 1991. By this instrument, the Company hereby further
amends the Plan to revise the amount of the deferral percentage a
participant may defer.
1. This Third Amendment shall amend only those
provisions specifically mentioned herein, and those
provisions not so mentioned shall remain in full force
and effect.
2. Section (J) of Article Two is hereby amended by
deleting the last sentence thereof and adding in its
place the following:
As of January 1, 1993, the Plan Administrator
is Anita Z. Rich, (formerly: Anita Martinez).
3. Article Five is hereby amended in its entirety to
read as follows:
A Participant may elect to defer payment
of his base pay for services to be rendered
during the following calendar year according
to the participant's Deferred Compensation
Agreement. The Participant shall designate
for deferral a stated dollar amount, or a
designated full percentage of base pay. A
Participant who is not an officer of the
Company may designate a deferral amount or
percentage, not to exceed six percent (6%) (or
such other percentage up to one hundred
percent (100%) as the Committee in its sole
and absolute discretion may designate) of the
Participant's base pay for the calendar year.
A Participant who is an officer of the Company
may designate a deferral amount or percentage,
up to one hundred percent (100%) (or such
lesser percentage as the Committee, in its
sole and absolute discretion may designate) of
the Participant's base pay for the calendar
year. For each dollar of compensation so
deferred for the 1990 calendar year, and each
subsequent year, the Company will credit an
additional dollar to the Participant's account
maintained pursuant to Article Six; provided,
however, that the additional amount so
credited shall not exceed three percent (3%)
of the Participant's base pay for the
applicable calendar year. Effective for the
year ending December 31, 1989, the Company
will credit up to four percent (4%) of base
pay with respect to such deferrals to each
Participant's account maintained pursuant to
Article Six.
4. Except as amended hereby, the Company hereby ratifies the
terms of the Plan as amended and restated.
5. This Fourth Amendment, shall be effective January 1,
1993.
Dated 19
------------------, ----.
MAGMA COPPER COMPANY
By:
-------------------------------
Marshall H. Campbell
Its: Vice President, Human Resources
GW02/0162067
FOURTH AMENDMENT TO THE
MAGMA COPPER COMPANY
SPECIAL EXECUTIVE DEFERRED COMPENSATION PLAN
On January 9, 1990, Magma Copper Company (the "Company")
adopted the MAGMA COPPER COMPANY SPECIAL EXECUTIVE DEFERRED
COMPENSATION PLAN (the "Plan). The Plan was subsequently amended
and restated on September 4, 1990. On December 14, 1990, the Plan
was again amended and restated to make changes requested by the
Internal Revenue Service. The Plan was thereafter amended by the
First Amendment on January 1, 1991, the Second Amendment on
December 23, 1991, and the Third Amendment on January 1, 1993. By
this instrument, the Company desires to further amend the Plan.
1. This Amendment shall amend only the Sections of
the Plan set forth herein, and those Sections not amended
hereby shall remain in full force and effect.
2. Section 2(c) is hereby deleted and the
following Section 2(c) is hereby inserted in lieu
thereof:
"(c) "Change of Control" shall mean a change in
ownership or managerial control of the stock, assets or
business of the Company resulting from one (1) or more of
the following circumstances:
(i) On or after November 11, 1994, the
shareholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into
voting securities of the surviving entity) more than
sixty-five percent (65%) of the combined voting power of
the voting securities of the Company or such surviving
entity outstanding immediately after such merger or
consolidation; provided however, that a merger or
consolidation effected to implement a recapitalization of
the Company (or a similar transaction), in which no
Person other than Warburg, Pincus Capital Company, L.P.,
acquires thirty-five percent (35%) or more of the
Company's then outstanding voting securities shall not
constitute a Change in Control;
(ii) On or after November 11, 1994, a
change in ownership of the Company through a transaction
or series of transactions, such that any Person is or
becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing thirty-five (35%)
or more of the combined voting power of the Company's
then outstanding securities; provided that, for such
purposes, any acquisition by the Company shall be
disregarded; and provided further that, in the event of
such a change in ownership, if Warburg, Pincus Capital
Company, L.P., as of the date of such change of ownership
and at all times thereafter, remains the Beneficial Owner
of a percentage interest in the Company equal to at least
ten percent (10%) more than any other Beneficial Owner of
the combined voting power of the Company's then
outstanding securities, no Change in Control shall be
deemed to have occurred unless (A) the majority of the
Board serving immediately prior to such Change in Control
shall deem a Change in Control to have occurred, or (B)
Warburg, Pincus Capital Company, L.P., shall thereafter
cease to be the Beneficial Owner of a percentage
ownership interest in the Company equal to at least ten
percent (10%) more than any other Beneficial Owner of the
combined voting power of the Company's then outstanding
securities (and in such event, the Change of Control
shall be deemed to have occurred on the date Warburg,
Pincus Capital Company, L.P., ceases to be the Beneficial
Owner of such greater combined voting power);
(iii) A change in identity of a majority of
the members of the Board within any twenty-four (24)
month period; provided however, if such a change in the
identity of the members of the Board occurs following the
acquisition of fifty-one percent (51%) or more of the
Company's then outstanding voting securities by Warburg
Pincus Capital Company, L.P., no Change in Control shall
be deemed to have occurred if such change of Board
membership was approved in writing (or by an approved
written resolution) by a majority of the Board and of the
Management Executive Committee serving immediately prior
to such change of Board membership;
(iv) The approval by the Board (or by the
shareholders if shareholder approval is required by
applicable law or under the terms of any relevant
agreement) of an agreement for the sale or disposition of
all or substantially all of the Company's assets or a
sale/leaseback of all or substantially all of the
Company's assets (with or without a purchase option);
(v) A transfer of all or substantially
all of the Company's assets pursuant to a partnership or
joint venture agreement where the Company's resulting
interest is or becomes fifty percent (50%) or less;
(vi) On or after the date hereof, the
Board (or the shareholders if shareholder approval is
required by applicable law or under the terms of any
relevant agreement) shall approve a plan of complete
liquidation of the Company; or
(vii) The execution or approval by the
Board of any agreement, the consummation of which would
result in one of the foregoing.
For purposes of this section 2(c), the term "Beneficial Owner"
shall have the same meaning as the term is given in Rule 13d-3
under the Securities Exchange Act of 1934, as amended, and the term
"Person" shall have the meaning given the term when used in
sections 13(d) and 14(d) of such act. The term "Management
Executive Committee" shall mean a committee appointed in writing by
the then - acting Chief Executive Officer of the Company, comprised
of such corporate officers and additional key-employees of the
Company as the Chief Executive Officer of the Company shall appoint
from time to time. The Chief Executive Officer may remove any
member of the Management Executive Committee by notice in writing
delivered to such member and to the other members of Management
Executive Committee.
3. The following paragraph is hereby inserted at the end of
Article Six, to be the final paragraph thereof.
"In the event of a "Change in Control", as defined
in Section 2(c), the Company will transfer to the Trustee
of the Trust Fund an amount equal to the present value of
the liability for benefits accrued to the date of the
Change in Control pursuant to Articles Five, Six and
Seven, less amounts already contributed to the Trust
Fund. The present value of such benefits as of such date
shall be determined by the firm serving as the Company's
regular actuarial consultant prior to the change of
control or such other firm as may be designated by the
members of the board who constituted the Board of
Directors immediately prior to the Change in Control,
using such assumptions as were used in computing such
liabilities for financial reporting purposes by such
actuarial consultants. Such transfer shall be made not
later than thirty (30) days after the date of such Change
in Control.
4. Except as amended by this Fourth Amendment, which is
effective as of November 11, 1993, the Company ratifies the terms
of the Plan, as previously amended.
Dated 19
------------------, ----.
MAGMA COPPER COMPANY
By:
-----------------------------
Its:
-----------------------------
<TABLE>
Exhibit 11
MAGMA COPPER COMPANY
Computation of Per Share Earnings
<CAPTION>
PRIMARY
- -------
1994 1993 1992
------------ ----------- ------------
<S> <C> <C> <C>
Net income available
for common stock $75,772,000 $19,390,000 $42,671,000
Weighted average number
of primary shares
outstanding:
(i) Shares of Common Stock
outstanding at
January 1 45,717,000 45,591,000 30,150,000
(ii) Dividends on Series B
Preferred Stock,
payable in
Common Stock -- -- 1,163,000
(iii) Conversion of Series B
Preferred Stock,
to Common
Stock (14,133,000
shares), weighted
average -- -- 77,000
(iv) Stock warrants exercised 111,000 17,000 18,000
(v) Stock options exercised 195,000 111,000 127,000
(vi) Restricted stock grants
net of forfeitures 62,000 -- --
(vii) Common Stock equivalents
arising from assumed
conversion of
outstanding warrants
and options 3,082,000 2,455,000 1,909,000
---------- ---------- ----------
WEIGHTED AVERAGE NUMBER
OF PRIMARY SHARES
OUTSTANDING 49,167,000 48,174,000 33,444,000
========== ========== ==========
NET INCOME
PER SHARE $ 1.54 $ .40 $ 1.28
========== ========== ==========
</TABLE>
<TABLE>
Exhibit 11 (continued)
MAGMA COPPER COMPANY
Computation of Per Share Earnings
<CAPTION>
FULLY DILUTED
- -------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) $87,396,000 $21,913,000 $55,281,000
Primary weighted average
shares outstanding 49,167,000 48,174,000 33,444,000
(i) Conversion of Series B
Preferred Stock
(930,000 shares at
14.2857 conversion
rate) -- -- 13,286,000
(ii) Weighted average of
conversion premium -- -- 5,000
(iii) Dividends on Series B
Preferred Stock
payable in the form of
Common Stock -- -- (930,000)
(iv) Weighted average of primary
shares converted -- -- (77,000)
(v) Conversion of Series D
Preferred Stock (weighted
average 2 million shares
at 3.448 conversion
rate) 6,896,000 3,136,000 --
(vi) Conversion of Series E
Preferred Stock (weighted
average 2 million shares
at 3.5945 conversion) 7,189,000 611,000 --
(vii) Incremental shares from
assumed conversion of
outstanding warrants and
options 135,000 268,000 877,000
---------- ---------- ----------
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING,
ASSUMING FULL
DILUTION 63,387,000 52,189,000 46,605,000
========== ========== ==========
NET INCOME
per share $ 1.38 $ .40(1) $ 1.19
========== ========== ==========
(1) The Company's convertible preferred stock is not included in the fully
diluted calculations as its effects are antidilutive.
</TABLE>
Exhibit 21.0
SUBSIDIARIES OF MAGMA COPPER COMPANY
DOMESTIC CORPORATIONS
=====================
State of Business
Name Incorporation Name
- ----------------------------------- --------------- ------------
Magma Arizona Railroad Company Arizona MARRCO
San Manuel Arizona Railroad Company Arizona SMARRCO
Magma Gold, Ltd. Delaware Magma Gold
Magma Nevada Mining Company Delaware Magma Nevada
Magma Limited Partner Co. Delaware Magma Limited
Magma Metals Company Delaware Magma Metals
Magma Consulting, Inc. Delaware Magma Consulting
Magma Mexico Exploration
Corporation Delaware Magma Mexico
Magma Copper Chile, Inc. Delaware Magma Chile
FOREIGN CORPORATIONS
====================
County of Business
Name Incorporation Name
- ----------------------------------- --------------- ------------
Magma Tintaya S.A. Peru Magma Tintaya
Global Magma, Ltd. Cayman Islands Global Magma
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated April 5, 1994,
incorporated by reference in the Company's Form 10-K for the year
ended December 31, 1994, into the Company's previously filed
Registration Statement Nos. 33-19666 (Price Related Bonus Plan
for Salaried Employees), 33-21344 (1987 Stock Option and Stock
Award Plan), 33-35566 (1989 Stock Option and Stock Award Plan),
33-35569 (1989 Stock Option Plan for Non-Employee Directors), 33-
66500 (Employee Savings Plan), 33-66498 (Savings Plan for Hourly-
Rated Employees), 33-47910 (1992 Restricted Stock Plan for Non-
Employee Directors) and 33-64766 (1993 Stock Option and Stock
Award Plan) on Forms S-8, and Registration Statement Nos. 33-
26294 (Warrants to purchase 4,250,000 shares of Class B Common
Stock), 33-53021 (Shelf Registration of various Debt and Equity
Securities) and 33-52857 (Selling Shareholders Registration) on
Forms S-3. It should be noted that we have not audited any
financial statements of Empresa Minera Especial Tintaya S.A.
subsequent to December 31, 1993, or performed any audit
procedures subsequent to the date of our report.
Price Waterhouse
Lima - Peru
March 7, 1995.
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated January 27, 1995,
included in the Company's Form 10-K for the year ended December
31, 1994, into the Company's previously filed Registration
Statement Nos. 33-19666 (Price Related Bonus Plan for Salaried
Employees), 33-21344 (1987 Stock Option and Stock Award Plan),
33-35566 (1989 Stock Option and Stock Award Plan), 33-35569 (1989
Stock Option Plan for Non-Employee Directors), 33-66500 (Employee
Savings Plan), 33-66498 (Savings Plan for Hourly-Rated
Employees), 33-47910 (1992 Restricted Stock Plan for Non-Employee
Directors) and 33-64766 (1993 Stock Option and Stock Award Plan)
on Forms S-8, and Registration Statement Nos. 33-26294 (Warrants
to purchase 4,250,000 shares of Class B Common Stock), 33-53021
(Shelf Registration of various Debt and Equity Securities) and
33-52857 (Selling Shareholders Registration) on Forms S-3. It
should be noted that we have not audited any financial statements
of the Company subsequent to December 31, 1994, or performed any
audit procedures subsequent to the date of our report.
Arthur Andersen LLP
Tucson, Arizona
March 10, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 72,849
<SECURITIES> 15,388
<RECEIVABLES> 101,058
<ALLOWANCES> 0
<INVENTORY> 137,000
<CURRENT-ASSETS> 341,340
<PP&E> 1,407,950
<DEPRECIATION> 190,730
<TOTAL-ASSETS> 1,576,636
<CURRENT-LIABILITIES> 226,476
<BONDS> 386,802<F1>
<COMMON> 460
0
40
<OTHER-SE> 759,568
<TOTAL-LIABILITY-AND-EQUITY> 1,576,636
<SALES> 889,620
<TOTAL-REVENUES> 889,620
<CGS> 654,545
<TOTAL-COSTS> 729,645<F2>
<OTHER-EXPENSES> 36,202<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,044
<INCOME-PRETAX> 109,760
<INCOME-TAX> 22,364
<INCOME-CONTINUING> 87,396
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87,396
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.38
<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>
