<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
[Mark One]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-10040
CYPRUS AMAX MINERALS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-2684040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9100 East Mineral Circle
Englewood, Colorado 80112
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 303-643-5000
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, without par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
9-7/8% Notes due June 13, 2001 New York Stock Exchange
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 filers 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 voting stock held by non-affiliates, based on a
closing price of $28 5/8 as of March 27, 1996, was approximately $2,641,400,000.
Number of shares of common stock outstanding as of March 27, 1996, was
93,061,185.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 1996 Annual Meeting
to be filed within 120 days after the fiscal year (Part III).
<PAGE>
CYPRUS AMAX MINERALS COMPANY
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
On November 15, 1993, AMAX Inc. (Amax) merged with and into Cyprus Minerals
Company (Cyprus) to create one of the world's largest natural resource
companies. Cyprus Amax Minerals Company (Cyprus Amax or the Company) is a
diversified mining company engaged, directly or through its subsidiaries and
affiliates, in the exploration for and extraction, processing, and marketing of
mineral resources. Cyprus Amax operates in three principal industry segments:
Copper/Molybdenum; Coal; and Other (which includes lithium, Amax Gold,
businesses sold/non-operating, and exploration). Cyprus Amax is a leading copper
and coal producer, and the world's largest producer of molybdenum and lithium,
with a significant position in gold via its 51 percent interest in Amax Gold
Inc. (AGI). Cyprus Amax was incorporated in Delaware in 1969 and operates
primarily in the United States. As of December 31, 1995, Cyprus Amax employed
approximately 9,700 employees. Its principal office is located at 9100 East
Mineral Circle, Englewood, Colorado 80112.
A description of Cyprus Amax's major properties and operations is set forth
below. Except as otherwise stated, data are expressed in short tons of 2,000
pounds and troy ounces of 31.103 grams. Except as otherwise stated, the term
"reserves" when used herein refers to proved and probable reserves for copper,
molybdenum, gold, and coal, and proved reserves for lithium. Reserve estimates
were prepared by Cyprus Amax's engineers. Information regarding Cyprus Amax's
mineral reserves and selected operating statistics is included in the
Supplemental Information to the Consolidated Financial Statements on pages 74
and 75 of this report. In addition, data related to Cyprus Amax's industry
segments and foreign and domestic operations and export sales are included in
"Management's Discussion and Analysis of Results of Operations and Financial
Condition", pages 30 through 41, and in Note 18 to the Consolidated Financial
Statements on pages 71 and 72. Except as otherwise stated, Cyprus Amax has
physical access to its properties and conventional sources of power adequate to
carry on its business currently as conducted.
The terms Cyprus Amax or the Company when used herein may refer collectively
to the parent Cyprus Amax Minerals Company and its subsidiaries and affiliates,
or to one or more of them, depending upon the context.
1
<PAGE>
COPPER/MOLYBDENUM SEGMENT
Cyprus Amax explores for, mines, processes, and markets copper and
molybdenum and certain other by-product minerals. Production information at
Cyprus Amax's principal mine operations in the Copper/Molybdenum segment is
summarized in the following tables for the years 1995 and 1994. The 1995 year-
end ore reserve information is as follows:
<TABLE>
<CAPTION>
Ore Reserves December 31, 1995
- ------------ ------------------------------------------------------------------------
Proved and Probable
Ore Reserves/(1)/ Average Grade Saleable Product
------------------- ------------------- -------------------
(Millions Copper Molybdenum Copper Molybdenum
Operation of Tons) ------ ---------- ------ ----------
--------- % % (Millions of Lbs.)
<S> <C> <C> <C> <C> <C>
Bagdad 1,050 .38 .021 6,514 299
Sierrita/Twin Buttes 943 .27 .030 4,062 381
Miami 244 .46 - 1,424 -
Tohono 12 .51 - 68 -
El Abra/(2)/ 448 .54 - 3,703 -
Cerro Verde/(3)/ 649 .66 .021 6,657 116
Mineral Park 67 .23 - 198 -
Henderson 168 - .227 - 684
Climax 145 - .233 - 587
----- ------ ------
3,726 22,626 2,067
===== ====== ======
</TABLE>
- --------
/(1)/Mine extraction losses and dilution have been taken into account in the
calculation of mineable ore reserves shown.
/(2)/Represents Cyprus Amax's 51 percent interest in El Abra's ore reserves.
/(3)/Represents 100 percent of Cerro Verde's ore reserves.
<TABLE>
<CAPTION>
Mine Statistics 1995 1994
------------------------------ --------------------------------
Material Ore Stripping Material Ore Stripping
Mined/(1)/ Mined Ratio/(2)/ Mined/(1)/ Mined Ratio/(2)/
---------- ----- ----------- ---------- ----- ----------
Operation (Millions of Tons) (Millions of Tons)
---------
<S> <C> <C> <C> <C> <C> <C>
Bagdad 62 31 1.02 66 29 1.28
Sierrita/Twin Buttes 90 41 1.14 76 40 .83
Miami 95 35 1.74 83 31 1.71
Tohono 27 8 2.24 11 5 .97
Cerro Verde/(3)/ 19 4 3.36 8 3 1.75
Henderson 8 8 - 5 5 -
--- --- --- ---
Total 301 127 249 113
=== === === ===
</TABLE>
- --------
/(1)/Includes ore and waste mined on a wet short ton basis.
/(2)/Represents the ratio of waste to ore mined.
/(3)/Acquired March 20, 1994.
2
<PAGE>
<TABLE>
<CAPTION>
Ore Processed Statistics
1995 1994
------------------------------------- --------------------------------------
Ore Grade Ore Grade
------------------- -------------------
Ore Processed Copper Molybdenum Ore Processed Copper Molybdenum
------------------ ------ ---------- ------------------ ------ ----------
(Millions of Tons) (Percent) (Millions of Tons) (Percent)
Operation
---------
<S> <C> <C> <C> <C> <C> <C>
Bagdad - Mill 29 .38 .023 27 .42 .024
- - Leach 5 .14 - 13 .16 -
Sierrita/Twin Buttes
- - Mill 41 .32 .040 39 .35 .041
- - Leach 12 .11 - 7 .12 -
Miami - Leach 35 .47 - 31 .39 -
Tohono - Leach 8 .48 - 5 .52 -
Cerro Verde - Leach 4 1.08 - 3 1.17 -
Henderson - Mill 8 - .271 5 - .301
--- ---
Total 142 130
</TABLE>
<TABLE>
<CAPTION>
Production 1995 1994
------------------- --------------------
Copper Molybdenum Copper Molybdenum
------ ---------- ------ ----------
(Millions of Pounds) (Millions of Pounds)
Operation
---------
<S> <C> <C> <C> <C>
Bagdad 208 10 205 9
Sierrita/Twin Buttes 240 24 253 22
Miami 129 - 119 -
Tohono 34 - 24 -
Cerro Verde 64 - 32 -
Henderson - 39 - 26
Other/(1)/ 12 2 15 -
--- -- --- --
Total 687 75 648 57
=== == === ==
</TABLE>
- --------
/(1)/Includes Pinos Altos, Mineral Park and Climax.
CYPRUS CLIMAX METALS COPPER/MOLYBDENUM OPERATIONS
In 1995, Cyprus Amax produced 687 million pounds of copper and 75 million
pounds of molybdenum from its copper and molybdenum operations. During 1995, the
Company continued development of the El Abra prospect in Chile and expansion of
the Cerro Verde property in Peru, continued fleet modernization at Sierrita, and
further optimized the smelter and new electrorefinery at Miami.
Bagdad
At the Bagdad mine in northwestern Arizona, Cyprus Amax mines primarily
copper sulfide ore and produces copper concentrates with significant molybdenum
and minor silver by-products. The operation consists of an open pit mine, an
approximately 85,000 ton per day sulfide ore concentrator producing copper and
molybdenum concentrates, and an oxide and low grade sulfide ore dump leaching
system with a solvent extraction-electrowinning (SX-EW) plant producing copper
cathode. In 1995, Bagdad produced 31 million pounds, or 15 percent of its total
copper production, as electrowon copper cathode, and sulfide copper production
was essentially the same as 1994. In 1995, the Bagdad concentrator milled
approximately 29 million tons of ore, up 2 million tons from 1994 due to
improved performance of expanded mill equipment. Cyprus Amax owns the mine
property under patented mining claims and owns the tailings areas under Arizona
state patents.
3
<PAGE>
Sierrita/Twin Buttes
Cyprus Amax operates its adjacent Sierrita and Twin Buttes properties in
south central Arizona as one consolidated operation. Cyprus Amax owns the
Sierrita copper and molybdenum mine, which consists of an open pit mine, a
115,000 ton per day sulfide ore concentrator, a molybdenum recovery plant, and
two molybdenum roasters. Sierrita's facilities are located on patented and
unpatented mining claims and fee land owned by Cyprus Amax. Copper ore mined at
Sierrita is processed at Sierrita into copper and molybdenum concentrates.
Sierrita also uses an oxide and low grade sulfide ore dump leaching system with
an SX-EW plant to produce copper cathode. Total Sierrita/Twin Buttes electrowon
copper cathode production in 1995 totalled 29 million pounds, or 12 percent of
its total copper production. In 1995, approximately 45 percent of Cyprus Amax's
molybdenum concentrate production was processed through Sierrita's on-site
roasters. The resulting molybdenum oxide and related products are either
packaged for shipment to customers worldwide or transported to other Cyprus Amax
facilities for further processing.
Cyprus Amax leases the Twin Buttes open pit copper mine under a 15-year
lease entered into in March 1988. Material from Twin Buttes formerly was
transported to Sierrita for processing via a six-mile conveyor system; however,
sulfide ore from Twin Buttes was depleted in early 1994. Additional Sierrita ore
production is replacing the Twin Buttes ore in the mill. Currently, a small
amount of leachable material is being moved from Twin Buttes and trucked to
Sierrita for heap leaching. This material is expected to be depleted by the end
of the first quarter 1996.
Miami
The Miami operations consist of an open pit mine producing acid soluble
copper ore for heap leaching operations, an SX-EW plant producing copper
cathode, a smelter, an electrolytic refinery, and a rod plant. The facilities
are located near Miami, Arizona, on a combination of fee property owned by
Cyprus Amax, patented and unpatented mining and mill site claims, and private
and state leases. Miami's 1995 production of 129 million pounds of copper
cathode from the leaching and SX-EW operations was 8 percent greater than 1994
production. Expansion of the SX-EW production capacity to 160 million pounds was
completed during 1995.
The smelter processed 584,000 tons of copper concentrate in 1995, 24 percent
greater than in 1994. During early 1995, the off-take gas cooling hood was
replaced, which allowed the smelter to operate above design capacity of 650,000
tons of concentrate per year in the fourth quarter of 1995. Construction of the
new electrorefinery was completed and start-up occurred on schedule in the
fourth quarter of 1994. By the fourth quarter of 1995, the refinery was
operating near design capacity. With installation of the new hood and completion
of construction of the new 380 million pounds per year electrorefinery, Cyprus
Amax became self-sufficient in domestic copper smelting and refining.
The Miami rod plant operated above rated capacity during 1995, producing
over 280 million pounds of copper rod.
Cerro Verde
In March 1994, Cyprus Amax acquired approximately 91.5 percent of the common
stock of Sociedad Minera Cerro Verde S.A. (Cerro Verde) at a cost of
approximately $31 million. In early 1996, Compania de Minas Buenaventura S.A., a
long-established Peruvian mining concern, notified Cyprus Amax of the exercise
of their option to acquire ten percent of Cyprus' interest in Cerro Verde, which
decreases Cyprus Amax's interest to approximately 82 percent. The Peruvian
government previously owned and operated the mine. Cerro Verde owns the
underlying mining concessions which contain nearly 650 million tons of reserves
as well as over 15,000 acres of mining concessions. The operation,
4
<PAGE>
located approximately 30 kilometers southwest of Arequipa, Peru, consists of two
open pits, the Cerro Verde and the Santa Rosa, a heap leach operation, and an
SX-EW plant. The mine currently has capacity to produce approximately 65 million
pounds of electrowon copper cathode and is upgrading and expanding its
facilities to be able to produce at an annual rate of about 100 million pounds
of cathode after mid-year 1996. A new copper oxide deposit called Cerro Negro
was discovered in 1995 about 5 kilometers west of the Cerro Verde open pit.
Definition drilling and engineering studies are in progress to ascertain
potential to further increase production of copper from leach ores. In 1995,
Cerro Verde produced approximately 64 million pounds of copper cathode. In 1995,
approximately 4 million tons of ore were processed through primary, secondary,
and tertiary crushers and placed on leach pads after agglomeration. The
feasibility study for development of the sulfide mill at Cerro Verde will
continue through 1996. Studies to date indicate development of a mill operation
is viable following the current leach project, although Cyprus Climax is
exploring options to justify accelerated development of the sulfide deposit.
El Abra
In June 1994, Cyprus Amax acquired 51 percent of El Abra from Corporacion
Nacional del Cobre de Chile (Codelco) at a cost of $330 million. The remaining
49 percent was retained by Codelco, a state-owned enterprise. El Abra holds
mining concessions over more than 33,000 acres of land in the copper-rich Second
Region of northern Chile. Cyprus Amax's share of identified leach reserves is
about 450 million tons. The feasibility study for the El Abra oxide project was
completed, and construction started in February 1995. Construction of the
project is proceeding ahead of schedule. Production is scheduled to begin in the
fourth quarter of 1996, and by late first quarter 1997 Cyprus Amax's share of
annualized production is expected to be about 250 million pounds of cathode
copper. Based on drilling to date, the project is expected to have a life of 17
years. It is anticipated that further drilling could add reserves to this
project which would increase annual production and/or extend mine life, and a
new porphyry copper-molybdenum deposit on land under option near El Abra was
discovered in 1995. El Abra also contains sulfide ore, with currently identified
geologic resources of about 500 million tons, creating opportunity for
expansion. In addition, there is good exploration potential for additional
deposits on the mining concessions.
Henderson
Cyprus Amax owns the underground Henderson mine near Empire, Colorado. The
operation consists of an underground block caving mine where molybdenite ore is
mined and transported to a conventional sulfide mill. The concentrator is
capable of operating at a rate of 28,000 tons of ore per day, producing
molybdenum sulfide concentrates containing up to 58 percent molybdenum. Both the
mine and mill are located on fee land owned by Cyprus Amax. Most of the
concentrates are shipped to the Company's Fort Madison roasting and chemicals
processing facility in Iowa where a number of different products are made for
final sale to customers. A portion of Henderson's production is sold directly to
customers as molybdenum sulfide. In 1995, Henderson produced 39 million pounds
of molybdenum from 8 million tons of ore. In the last half of 1995, production
from the Henderson mine decreased in response to business conditions.
Climax
Cyprus Amax owns the Climax mine near Leadville, Colorado. Historically, the
operation consisted of both an underground and open pit mine and an 18,000 ton
per day concentrator. The property, owned in fee by Cyprus Amax, occupies more
than 14,000 acres. In response to strong customer demand in early 1995, the
Climax mine produced over two million pounds of molybdenum from April through
August of 1995. The mine was returned to standby status, as increased production
from third parties became available to consumers.
5
<PAGE>
Other Operations
Cyprus Amax's other copper operations include the Tohono operation in south
central Arizona, which consists of a test open pit producing acid-soluble ore
for heap leaching and an SX-EW plant producing copper cathode. The facility is
located on reservation lands leased from the Tohono O'Odham Nation. Cyprus Amax
is investigating various alternatives for large scale copper production through
open pit mining and heap leaching technology. In 1995, Tohono produced about 34
million pounds of copper. Tohono also has two concentrate roasters which have
been on care-and-maintenance status since the fourth quarter of 1993. The Pinos
Altos copper mine in southwest New Mexico exhausted its ore reserves and closed
during the third quarter of 1995. The mine and mill produced nearly eight
million pounds of copper in concentrate in 1995. Cyprus Amax operates the
Mineral Park mine, an in-place leach and precipitate operation which was
converted to an SX-EW operation in 1994 capable of producing six to eight
million pounds of copper per annum. SX-EW production at Mineral Park commenced
in early 1995 and totalled three million pounds. The mine is located in
northwest Arizona on fee land owned by Cyprus Amax and on unpatented mining
claims and mill sites. Cyprus Amax also owns a molybdenum operation and
potential copper resource near Tonopah, Nevada, including an open pit mine and
related mining equipment. The facility, located on fee land owned by Cyprus Amax
and on unpatented federal mining claims and mill sites, is on care-and-
maintenance status. Cyprus Amax owns and operates a rod plant located in
Chicago, Illinois. This facility is located on fee land owned by Cyprus Amax and
in 1995 produced 290 million pounds of high quality continuous cast copper rod.
Cyprus Amax leases office space in Tempe, Arizona, for copper and molybdenum
administration and sales and leases space for small sales offices in Pittsburgh,
Pennsylvania; Dusseldorf, Germany; and Tokyo, Japan.
Conversion Facilities
Molybdenum Conversion Facilities. Cyprus Amax processes molybdenum
--------------------------------
concentrates at its conversion plants in the United States and Europe into such
products as technical grade molybdic oxide, ferromolybdenum, pure molybdic
oxide, ammonium molybdates, and molysulfide powder. The Company operates
molybdenum roasters at the Sierrita, Arizona; Fort Madison, Iowa; and Rotterdam,
Netherlands plants. The molybdenum roasting facilities at Sierrita and Fort
Madison currently are operating at levels sufficient to support customer
requirements. Rotterdam currently is operating as a toll roasting facility.
The Fort Madison Conversion Plant is located in Fort Madison, Iowa. The
facilities consist of a molybdenum roaster, a sulfuric acid plant, a
metallurgical (technical oxide) packaging facility, and a chemical conversion
plant which includes a wet chemicals plant and sublimation equipment. In the
chemical plant, technical grade oxide is further refined into various high
purity molybdenum chemicals for a wide range of uses by chemical and catalyst
manufacturers. Fort Madison produces ammonium dimolybdate, pure molybdic oxide,
ammonium heptamolybdate, ammonium octamolybdate, sodium molybdate, sublimed pure
oxide, and molybdenum sulfide.
Specialty Metals. In the fourth quarter of 1995, Cyprus Amax sold the assets
----------------
of Climax Specialty Metals and Specialty Chemicals.
6
<PAGE>
Equity Interests
Metals Recovery. Cyprus Amax has a 50% partnership interest with an
---------------
affiliate of Shell Oil Company in a spent catalyst recycling operation located
in Braithwaite, Louisiana. Recoverable products include vanadium, molybdenum,
alumina trihydrate, and nickel-cobalt. The partnership's activities also include
the recycling of chrome/aluminum sludge from metal finishing.
Copper Processing
In 1995, Cyprus Amax processed 584,000 tons of Cyprus Amax domestic copper
concentrates at its own facilities, or 80 percent of its 1995 copper concentrate
production. The balance of Cyprus Amax's 1995 copper concentrate production was
treated under arrangements with third parties or sold as copper concentrates.
Copper/Molybdenum Marketing Arrangements
Cyprus Amax has the capacity to produce about 600 million pounds per year of
continuous cast copper rod at its Miami, Arizona and Chicago, Illinois rod
mills. This capability gives Cyprus Amax a value-added copper product and access
to a broader customer base. Approximately 22 percent of Cyprus Amax's total
copper sales were for non-United States markets. Substantially all of Cyprus
Amax's copper metal production is committed under sales agreements with metals
fabricators at prices which fluctuate with commodity exchange quotations. Cyprus
Amax continued to provide price protection, which ensures a minimum average
realization on a London Metals Exchange (LME) basis of an average 89 cents per
pound on 700 million pounds for 1996, and an average 96 cents per pound (LME
basis) on 525 million pounds for the first nine months of 1997. Additionally, in
December 1994, Cyprus Amax sold forward 1996 production of 56 million pounds at
an average price of $1.10 per pound.
Of Cyprus Amax's 723 million pounds of produced copper sales in 1995, 46
million pounds were sold as concentrate, 176 million pounds as cathode, and 501
million pounds as rod. Comparable figures for 1994 were 645 million pounds of
produced copper sold, of which 96 million pounds were sold as concentrate, 133
million pounds as cathode, and 416 million pounds as rod.
Molybdenum oxide is used primarily in the steel industry for corrosion
resistance, strengthening, and heat resistance. Molybdenum chemicals are used in
a number of diverse applications including: as catalysts for petroleum refining;
as a feedstock for pure molybdenum metal used in electronics; and in lubricants.
As is customary, a substantial portion of Cyprus Amax's expected 1996 molybdenum
production is committed for sale throughout the world pursuant to annual and
spot sale agreements.
7
<PAGE>
COAL SEGMENT
Cyprus Amax mines, cleans, markets, and sells coal to electric utilities and
industrial users. The following table shows capacity, quality characteristics,
and reserves for Cyprus Amax's domestic coal operations for 1995. Eighty-five
percent of year-end 1995 developed domestic coal reserves mined with existing
facilities meet the 2.5 pounds sulfur dioxide standard in 1995. Seventy-four
percent of these reserves satisfy the 1.2 pounds standard effective in 2000.
<TABLE>
<CAPTION>
Year-End 1995 Reserves
(Millions of Tons)
---------------------------------------
Annual Total
Coal Capacity Average Average Average Mineable with Require Proved
Operating (Millions Btu Contained Recovery Existing New and Probable
Unit Type of Tons) per Pound Sulfur % % Facilities Facilities Reserves
- ---------- ----------- ---------- ------------- --------- -------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania underground 8-9 13,000-13,200 1.2-3.0 70-90 187 69 256
West Virginia surface and 7 11,700-14,000 0.6-1.8 60-100 69 24 93
underground
Kentucky surface and 6-7 11,300-13,000 0.8-1.7 65-100 65 13 78
underground
Midwest surface and 9-12 11,000-11,500 0.6-4.0 65-100 104 616 720
underground
Wyoming surface 38 8,270-8,515 0.3-0.4 100 1,061 - 1,061
Colorado underground 11 10,600-11,250 0.4-0.6 100 99 - 99
Utah underground 4 11,400-12,000 0.5-0.6 90-100 16 73 89
_____ ____ _____
1,601 795 2,396
===== ==== =====
</TABLE>
In 1995, Cyprus Amax produced 75 million tons of coal and sold 78 million
tons. In addition, Cyprus Amax's share (42 percent) of Oakbridge Limited
represented 6 million tons of production and 6 million tons of shipments.
Production from Cyprus Amax's coal operations is shown in the table below:
<TABLE>
<CAPTION>
Coal Production
----------
Operating Unit 1995 1994
-------------- ---- ----
(Millions of Tons)
<S> <C> <C>
Pennsylvania 8 7
West Virginia 6 6
Kentucky 5 5
Midwest 8 9
Wyoming 36 36
Colorado 9 9
Utah 3 3
-- --
Total Domestic 75 75
Oakbridge
(Equity share) 6 4
-- --
81 79
== ==
</TABLE>
Additionally, the average sales prices for 1995 and 1994 are shown in the table
below:
<TABLE>
<CAPTION>
Average Sales Price
----------------------------
Contract Spot
------------- ------------
1995 1994 1995 1994
----- ----- ---- ----
($/Ton) ($/Ton)
<S> <C> <C> <C> <C>
Total Domestic 17.15 18.19 13.45 12.08
Oakbridge (Equity share) 26.52 23.64 23.96 19.77
</TABLE>
8
<PAGE>
COAL OPERATIONS
Pennsylvania
The Emerald and Cumberland mines are contiguous underground operations
located in the southwestern part of Pennsylvania. A multi-year program is
underway to re-equip and expand Cumberland. In October 1994, a new longwall
system was commissioned to improve productivity and increase production. During
1995, longwall panel development section equipment was upgraded. Both mines are
in the Pittsburgh coal seam and are mined utilizing the longwall mining method
and the reserves are owned by Cyprus Amax. Coal is processed through preparation
plants and is transported by rail and river barge to utilities in the Northeast
and Midwest. The hourly workforce at both mines is represented by the United
Mine Workers of America (UMWA). Several pieces of major mining equipment,
including the Cumberland longwall, are leased. The remainder of the mining
equipment is owned.
West Virginia
The Kanawha River operations, located approximately 25 miles east of
Charleston, West Virginia, consist of the Stockton and Cannelton 140 underground
mines and the Dunn and Armstrong Creek surface mines. The underground mines
utilize continuous miners; the surface mines employ trucks, electric shovels,
hydraulic excavators, and endloaders. The Dunn surface mine restarted a dragline
in mid-1994. Both raw and processed coal of various qualities are marketed to
electric utilities and industrial customers; transportation is primarily by
barge. The Maple Meadow mine produces high grade, low volatile metallurgical
coal from an underground mine located in Raleigh County, West Virginia.
Processed coal from the Maple Meadow mine is transported by rail to steel mills
in North America. The West Virginia operations also include a small preparation
plant in McDowell County. The hourly workforce at all operations is represented
by the UMWA. Mining is conducted on owned property and under private leases.
Mining equipment is both owned and leased.
Kentucky
Mountain Coals operates the Star Fire surface mine located in eastern
Kentucky. The adjacent Lost Mountain mine was closed in 1995, and is presently
undergoing reclamation. Star Fire is a mountaintop removal and contour stripping
operation using a dragline, shovel, and trucks to extract five seams of coal.
Mining operations are conducted on fee coal properties and private coal leases
with both owned and leased equipment. A preparation plant is used to wash a
portion of the production. The hourly workforce is represented by the UMWA. A
major long-term utility contract expired at the end of 1995. In anticipation of
the contract expiration, the Lost Mountain operation was phased out and the mine
plan for Star Fire was revised to significantly reduce future operating costs.
Star Fire continues to supply a second long-term utility contract. In addition
to Star Fire, there is an underground mine and preparation plant (Pine Mountain)
producing approximately 1.5 million tons of coal per year utilizing a contract
miner. Transportation from the Kentucky operations is by rail.
Midwest
Midwest operations consist of three surface mines and a large underground
mine located in southern Indiana and Illinois plus a small dragline operation in
Tennessee. The Chinook mine (located in Clay and Vigo counties of west central
Indiana) uncovers two seams of coal with a large dragline. The Delta mine
(Williamson and Saline Counties in Illinois) recently changed from a large
dragline to an Addcar highwall miner supported by shovel-truck overburden
removal. These mines process coal through preparation plants and ship it by unit
train to nearby utility customers. Almost all of the production from Chinook and
Delta is dedicated under long-term contracts. The Minnehaha mine in Sullivan
County, Indiana was sold in December 1995. The Sycamore surface mine is a
shovel-truck operation in Knox
9
<PAGE>
County, Indiana from which coal is trucked to utility and industrial accounts.
The Wabash underground mine is located in Wabash County, Illinois. Continuous
miners access the Illinois #5 seam and coal is conveyed to the surface and
processed prior to shipment. The facility's major contract customer is located
ten rail mines from the mine. A new long-term contract with this customer, which
provides for a reduction in price with a move toward market price by the year
2000, was executed in August 1995. The Ayrshire mine (located in Warrick County,
Indiana) is reclaiming areas that were formerly surface mined. There are
remaining reserves at this site which have potential for future mining on a
small scale. Hourly employees at the Indiana and Illinois mines are represented
by the UMWA. The Skyline mine is located in Sequatchie County, Tennessee. The
coal is uncovered by a mid-sized dragline and is transported raw to utility and
industrial customers, primarily by truck. Throughout the Midwest, surface and
mineral rights are controlled through fee ownership and private leases. Mining
equipment is predominantly owned, although a portion is leased.
Colorado
Cyprus Amax operates two underground mines in the Colorado operating unit:
Twentymile and Shoshone. A third mine, Empire, was idled in December 1995.
Mining is conducted on a combination of private, state, and federal coal leases.
All operations use the longwall mining method. The coal is shipped on a
predominantly raw basis to utility and industrial plants in the West, Midwest,
and Southeast. The Twentymile and Empire mines are located in northwestern
Colorado; the hourly workforce at Empire is represented by the UMWA. The
Shoshone mine is located in southern Wyoming. The Empire longwall equipment plus
a portion of the longwall and several items of mobile mining equipment at
Twentymile are leased. The remaining equipment is owned.
Wyoming
In the Powder River Basin, Cyprus Amax operates two of the nation's largest
surface mines -- the Belle Ayr and Eagle Butte mines, which are located near
Gillette, Wyoming. The open pit method of mining is used at both mines with
shovels and large haul trucks used to remove both overburden and coal. Coal is
crushed prior to shipment. Unit trains move coal to utilities in most regions of
the country with the majority sold under long-term contracts. Most mining
equipment is owned. Surface rights are held through fee ownership while reserves
are primarily controlled through federal and state leases.
Utah
The Utah operating unit consists of the Plateau mine located near Price,
Utah, which mines underground reserves utilizing a longwall mining system.
Plateau owns its production equipment, including a preparation plant, but leases
coal reserves, mainly from the federal government. Plateau sells raw and
processed coal, plus a blended product. Plateau's coal is transported from the
mine by rail primarily to utility customers in the West and to Pacific Rim
markets through West Coast ports.
Construction of the Willow Creek mine located near Price, Utah was approved
during the fourth quarter of 1995. Site preparation has commenced and facilities
construction will proceed over the next eighteen months. Longwall start-up is
projected for mid-1998. Willow Creek's production will be marketed to Pacific
Rim customers through West Coast ports. A portion of the production is also
expected to be sold to Western and Midwestern utility customers.
Australia
Cyprus Amax's wholly owned subsidiary, Cyprus Australia Coal of Sydney,
Australia, owns a 42 percent interest and is the operator of Oakbridge Limited
of Australia. Cyprus Amax increased its interest in Oakbridge from approximately
40 percent in early 1995 through privatization of the company and the purchase
of minority shareholders' interests. Oakbridge is a major independent coal
producer
10
<PAGE>
with six mines in New South Wales which produce approximately 13 million tons
annually. Proved and probable reserves total 372 million tons of which Cyprus
Amax's equity share is 159 million tons.
Almost all of Oakbridge's production is exported to the Pacific Rim. Sales
generally are made through agents under long-term "evergreen" contracts which
provide for annual price negotiations. The sales mix is approximately 70 percent
steam coal and 30 percent metallurgical product. Expansion plans are underway to
increase annual production to more than 15 million tons to supply growing
markets and to reduce the need for purchased blend coals.
In February 1996, Cyprus Amax acquired a 50 percent interest in the
Springvale underground coal mine in New South Wales, Australia for $70 million.
Cyprus Amax's share of annual production is projected to be 1 to 1.5 million
tons and will be sold to both domestic Australia electric generating markets and
the Pacific Rim coal markets.
Coal Marketing Arrangements
Almost all of Cyprus Amax's coal sales are steam coal to electric utilities.
Approximately 86 percent of Cyprus Amax's 1995 coal sales were made under
contracts with an initial duration of one year or longer (term contracts). This
percentage is expected to be approximately the same in 1996. These contracts are
priced using a combination of cost pass-through, base price plus cost index
escalation and/or market adjustments. While such contracts generally are more
advantageous than sales on the spot market, they can be subject to periodic
renegotiation of price and quantity. Most contracts also are subject to partial
or complete suspension by the customer or producer during certain force majeure
events, such as damage to the customer's plant or work stoppages. In the event
of successful enforceability challenges, price/quantity renegotiations, or the
occurrence of force majeure events, and upon the expiration of term contracts in
accordance with their terms, Cyprus Amax would be required to seek alternative
purchasers for the coal through spot market sales or replacement contracts.
Currently, the applicable spot price for much of the coal presently subject to
such contracts is below the contract price.
At December 31, 1995, Cyprus Amax had term contracts covering an aggregate
of approximately 565 million tons, including 67 million tons to be delivered in
1996. About 15 percent of contracted coal is under agreements which expire
before 2000; the remainder is committed under contracts which expire between
2000 and 2020. To maintain current average margins as contracts expire, Cyprus
Amax will need to sign new contracts, extend existing contracts, shift volume to
operations with advantageous production costs, and reduce mining costs at mines
supplying above market price contracts. In 1995, revenues from five coal supply
contracts accounted for approximately 30 percent of total coal revenues, with
the largest individual contract contributing 10 percent of coal revenues. One of
these contracts, supplied from the Kentucky operations and representing 8
percent of coal revenues, expired at the end of 1995.
Eastern Markets. Shipment levels at Cyprus Amax's Pennsylvania, West
---------------
Virginia, and Kentucky units increased during 1995 in spite of weak demand into
the third quarter due to unusually mild weather. Exports to Europe from
Pennsylvania and West Virginia increased in comparison to the prior year.
Eastern and Midwestern utilities continue to increase purchases of coals from
this region which meet the sulfur dioxide requirements of Phase I of the Clean
Air Act Amendments of 1990 (see "Coal-Clean Air Act Amendments of 1990"), and
which provide competitive delivered fuel costs. Due to their coal quality
characteristics, location and cost competitiveness, Cyprus Amax's Eastern
operations are well positioned to increase their sales to domestic utilities and
export customers.
Midwest Markets. Shipments in 1995 from Cyprus Amax's Midwest unit declined
---------------
from 1994 levels due primarily to reduced sales and production from the
Minnehaha mine.
11
<PAGE>
Overall coal demand from the Midwest is expected to decline over the next
several years due to continuing uncertainties over the long-term suitability of
the high sulfur coals produced in Illinois and Indiana. These uncertainties
result from provisions of the Clean Air Act Amendments of 1990, state regulatory
requirements and other proposed legislation which would require utilities to
lower emissions levels (see "Coal-Clean Air Act Amendments of 1990"). However,
coal is, and is expected to continue to be, the major energy source for
generating electrical power in the Midwest. Cyprus Amax holds several long-term
contracts with terms extending beyond 2000 that call for deliveries to major
regional utility plants. These contracts provide a tonnage base which is
expected to support current operating levels at Cyprus Amax's Midwest unit
through approximately 2000.
Western Markets. Shipments for 1995 from Cyprus Amax's Colorado, Wyoming,
---------------
and Utah units collectively increased slightly from 1994 levels as a result of
improved rail service and increased exports to the Pacific Rim. Interest by
utilities in Powder River Basin and high Btu Colorado coals continued to
strengthen, but did not match 1994's demand surge in advance of the January 1,
1995 effective date of Phase I of the Clean Air Act Amendments of 1990. Steady
future demand growth for Western low sulfur coals is predicted, with a likely
acceleration just prior to the year 2000, when the Phase II sulfur dioxide
requirements become effective. Western railroads have invested heavily in
equipment and expanded trackage; shipping capacity has largely caught up with
demand. Although the Powder River Basin has been historically affected by
overcapacity, Cyprus Amax's seven major long-term coal supply agreements provide
a production base for the Wyoming unit. These contracts expire between 1998 and
2020 with over 50 percent of the annual tonnage committed until 2013.
Clean Air Act Amendments of 1990. Title IV of the Clean Air Act Amendments
--------------------------------
of 1990 is intended to reduce acid precipitation by mandating reductions in
sulfur and nitrous oxides from electric generating stations. The law adopted a
goal of achieving, by the year 2000, nationwide reductions of 10 million tons of
sulfur dioxide and 2 million tons of nitrous oxides from 1980 levels. Phase I
affected 110 power plants in the Midwest, the Southeast, and the East, starting
January 1, 1995. Phase II, beginning January 1, 2000, will affect almost all
power plants in the United States. While the base emissions standard under Phase
I is 2.5 pounds of sulfur dioxide for every million Btus of fuel burned and is
reduced to 1.2 pounds per million Btus under Phase II, the actual sulfur content
of coal required by utilities may vary widely due to various options available
to utilities to comply with the Clean Air Act Amendments. These include
installing emissions controls (scrubbers) on existing facilities, switching to
alternative fuels, closing facilities, and/or buying and selling emissions
allowances.
The compliance strategies which utilities will follow cannot be predicted
with certainty due to the multiple options available, the extended compliance
time frames, and the unique characteristics of each utility system. Cyprus Amax
believes, however, that its overall business and financial condition will not be
affected materially by the Clean Air Act Amendments because of its diverse
portfolio of mines and products, shipments to plants with scrubbers in place,
and strategic steps taken over the last several years in anticipation of the
enactment of acid precipitation legislation. The Amendments are expected to
increase the demand for and value of Cyprus Amax's low sulfur reserves in the
Powder River Basin, Colorado, Utah, and central Appalachia since many utilities
are expected to comply with the new emissions standards by switching to lower
sulfur coal. The effects on Cyprus Amax's Illinois Basin high sulfur reserves
cannot be predicted with any degree of certainty until utility compliance plans
become more firm. Approximately 25 percent of Cyprus Amax's Midwest shipments
are to plants that are not materially affected by the Clean Air Act Amendments
because they already have scrubbers in place. An additional 40 to 50 percent are
committed to regional utilities which Cyprus Amax believes have a high
probability of continuing use of Cyprus Amax coals through at least Phase I.
12
<PAGE>
OTHER MINERALS SEGMENT
LITHIUM OPERATIONS
Cyprus Amax is a major producer of lithium with production facilities in
Nevada, North Carolina, Tennessee, Virginia, and Chile. Lithium and lithium
compounds are used in such things as the smelting of aluminum and manufacture of
ceramics, glass, greases, high performance batteries, synthetic rubber,
plastics, and pharmaceuticals.
Cyprus Amax owns 100 percent of a Chilean limited partnership which holds a
brine deposit and owns a lithium carbonate processing facility in northern
Chile. Lithium brine is recovered from the brine deposit and concentrated in
solar evaporation ponds. The concentrated brine is then converted into lithium
carbonate at the processing facility. Reserves available to Cyprus Amax are
determined by a contract with the Chilean government. As of December 31, 1995,
Cyprus Amax reserves amounted to 201,000 tons of elemental lithium which is
equivalent to approximately 2.1 billion pounds of lithium carbonate. Production
during 1995 was 29 million pounds of lithium carbonate which was approximately 3
million pounds above name-plate capacity. In addition, Cyprus Amax produces
potash from by-product salts generated at its brine operation in northern Chile.
Production and sales totalled 84,000 tons in 1995. All potash sales to a major
Chilean chemical company are made under long-term contacts which expire in years
1996 through 2004.
At the Silver Peak facility in Nevada, Cyprus Amax also produces lithium
carbonate from salt brines. The solar pond system and related plant for chemical
conversion of the concentrated brine into lithium carbonate are situated on
approximately 17,000 acres of patented and unpatented placer mining claims.
Reserves at December 31, 1995, totalled 41,400 tons of elemental lithium which
is equivalent to approximately 214 million pounds of lithium carbonate. During
1995, Silver Peak operated approximately 20 percent below its long-term
production capacity, producing 9.5 million pounds of lithium carbonate.
During 1994, Cyprus Amax began construction of a new lithium hydroxide
production facility at its Silver Peak operation which will replace its existing
hydroxide plant located at Sunbright, Virginia. This new plant is targeted to be
operational by the end of the first quarter of 1996. Cyprus Amax will continue
to operate its plant at Sunbright, Virginia, for the conversion of lithium
carbonate to lithium hydroxide until the new facility at Silver Peak is
completed. The plant at Sunbright is located on a combination of owned and
leased land.
Cyprus Amax also operates a butyllithium production facility in New
Johnsonville, Tennessee, located on fee land owned by Cyprus Amax. A 50 percent
expansion of this plant was completed during 1994.
Cyprus Amax also owns manufacturing facilities for various lithium chemicals
and lithium metal casting located on 1,006 acres of fee and leased land in Kings
Mountain, North Carolina. An open pit mine and lithium carbonate processing
facility at Kings Mountain were shut down in 1991, and during 1994 and 1995, the
lithium carbonate processing facility was dismantled. Future production from the
146,000 tons of elemental lithium at Kings Mountain will depend on new or
improved markets, the depletion of other reserves, and construction of new
processing facilities. In 1994, lithium administration and sales, research and
development, and certain lithium metal and alloy production activities were
moved from leased properties in Exton and Malvern, Pennsylvania, and
consolidated with the Kings Mountain production facilities. Limited research
activities and production continue at the leased commercial property in Exton.
The Malvern office has been subleased.
13
<PAGE>
Lithium Marketing Arrangements
Cyprus Amax sells lithium carbonate, lithium hydroxide, butyllithium,
lithium chloride, lithium bromide, and a variety of other lithium chemical,
metal, and metal alloy products to such diverse markets as aluminum smelting,
ceramics, lubricants, specialty glass, synthetic rubber, plastics, batteries,
alloys, and pharmaceuticals. The various lithium products are sold under a
combination of long- and short-term contracts. Sales to one customer accounted
for 15 percent of lithium revenue in 1995.
GOLD OPERATIONS
In the November 1993 Cyprus merger with Amax, Cyprus Amax retained a 40
percent interest in Amax Gold. During 1994, Cyprus Amax increased its holdings
to 42 percent. During 1995, Cyprus Amax increased its ownership in Amax Gold
from 42 percent to 51 percent by exercising its option to convert an $80 million
loan into Amax Gold Common Stock. Amax Gold and its subsidiaries are engaged in
the mining and processing of gold and silver ore and in the exploration for, and
acquisition and development of, gold-bearing properties, principally in North
and South America and Russia. Amax Gold was incorporated in Delaware in 1987 and
reincorporated in 1995.
In April 1994, Cyprus Amax and Amax Gold entered into an agreement whereby
the Company provided AGI with a $100 million double-convertible line of credit.
The outstanding indebtedness under the line of credit may be repaid by AGI with
the issuance of AGI convertible preferred stock. Both companies have conversion
rights to convert the line of credit into Amax Gold Common Stock at a max-imum
price of $8.265 per share and a minimum price of $5.854 per share. As of
December 31, 1995, $5 million was outstanding under this line of credit. Certain
amounts have been made available to Amax Gold as support for the Fort Knox and
Refugio loans. See "Subsequent Events" discussion on page 20.
During the first quarter of 1995, Cyprus Amax signed a loan agreement
whereby the Company provided AGI with an additional $80 million in double-
convertible revolving credit (DOCLOC II). During the third quarter, Cyprus Amax
exercised its option to convert $80 million of the then-outstanding borrowings
to Amax Gold Common Stock at a conversion price of $5.362 per share. This, along
with payment in stock of interest due under DOCLOC II, increased Cyprus Amax's
ownership of Amax Gold to approximately 51 percent.
In 1994, Cyprus Amax established a joint exploration agreement with Amax
Gold to explore for gold. The agreement provides Cyprus Amax a 75 percent
interest and Amax Gold a 25 percent interest in the gold prospects resulting
from future exploration. Amax Gold has a right of first refusal from Cyprus Amax
to purchase and develop gold deposits, and Cyprus Amax has a similar right with
respect to base metals. Each party funds work in proportion to its interest, and
Cyprus Amax provides staffing and management. Properties held by the parties
prior to January 1, 1994, are excluded from the joint agreement.
Amax Gold's operating properties consist of a 50 percent interest in the
Refugio Mine in Chile; an indirect 90 percent interest in the Guanaco Mine in
Chile; a 100 percent interest in the Hayden Hill Mine in Lassen County,
California; a 100 percent interest in the Sleeper Mine in Humboldt County,
Nevada; and a 100 percent interest in the Wind Mountain Mine in Washoe County,
Nevada. In addition, Amax Gold owns a 100 percent interest in the Fort Knox
Project near Fairbanks, Alaska, and a 62.5 percent joint venture interest in the
Haile Project in Lancaster County, South Carolina.
All of Amax Gold's operating properties are open pit mines. Except for
mining equipment under the control of the contract miner at Guanaco and Refugio,
Amax Gold owns its mining and processing equipment, which is maintained in good
operating condition. Ore is processed by milling or heap leaching. Milling is
the traditional process for recovering gold from ore. After ore is crushed, the
gold
14
<PAGE>
and silver are concentrated and then smelted into dore which is shipped to
refiners for further processing. The milling process is typically used for
higher recovery oxide and sulfide ores.
Heap leaching is a lower cost processing method principally applied to
oxidized ores. The heap leach recovery rate is generally lower than for milling.
In the heap leaching process, crushed and/or run-of-mine ore is loaded onto
impermeable leach pads. The ore is irrigated with a weak cyanide solution which
penetrates the ore, dissolving the gold and silver. The "pregnant" solution is
collected and pumped through activated carbon or a Merrill Crowe zinc
precipitation plant to remove the metals from the solution. After the gold and
silver is stripped from the carbon or processed from the zinc precipitate, it is
smelted into dore which is shipped to refiners for final processing.
Production information at Amax Gold's principal mine operations is
summarized in the following tables for the years 1995 and 1994. The 1995 year-
end ore reserve information is as follows:
<TABLE>
<CAPTION>
Ore Reserves December 31, 1995
- ------------ ------------------------------------------------------
Proved and Probable Gold Content
Ore Reserves (Thousands of Ounces)
------------------- ---------------------
(Thousands AGI's Cyprus Amax's
Operation of Tons) Average Grade Share Share
--------- ---------- ------------- ------ -------------
<S> <C> <C> <C> <C>
Refugio/(1)/ 117,976 0.029 1,672 853
Guanaco/(2)/ 4,858 0.078 378 193
Hayden Hill 10,202 0.027 273 139
Sleeper 867 0.055 48 24
Fort Knox 161,835 0.025 4,094 2,088
Haile 8,736 0.089 488 249
_______ _____ -----
304,474 6,953 3,546
======= ===== =====
</TABLE>
/(1)/Represents Amax Gold's 50 percent interest in Refugio's ore reserves.
/(2)/Represents 100 percent of Guanaco's ore reserves.
<TABLE>
<CAPTION>
Mine Statistics 1995 1994
- --------------- -------------------------------- ----------------------------------
Tons Ore Ore Tons Ore Ore
Mined Processed Grade Mined Processed Grade
----- --------- ----- ----- --------- ------
(Millions of Tons) (Ounces/Ton) (Millions of Tons) (Ounces/Ton)
<S> <C> <C> <C> <C> <C> <C>
Operation
---------
Guanaco-Leach 13 2 0.069 13 2 0.060
Hayden Hill-Leach 9 6 0.024 13 5 0.017
Sleeper-Mill ) 1 0.095 ) 1 0.110
)) 14 )) 19
- -Leach ) 3 0.018 ) 5 0.016
__ __ __ __
36 12 45 13
== == == ==
</TABLE>
<TABLE>
<CAPTION>
Production 1995 1994
- ---------- -------------------- --------------------
Gold Silver Gold Silver
---- ------ ---- ------
(Thousands of Ounces) (Thousands of Ounces)
<S> <C> <C> <C> <C>
Guanaco 71 268 58 296
Hayden Hill 80 227 66 138
Sleeper 82 99 107 143
Wind Mountain 5 7 10 73
___ ___ --- ---
238 601 241 650
=== === === ===
</TABLE>
15
<PAGE>
Refugio Mine
In January 1993, Amax Gold acquired a 50 percent interest in the Refugio
project, consisting of three gold deposits located in the Maricunga Mining
District in central Chile, approximately 75 miles east of Copiapo. The property
is held by Compania Minera Maricunga (CMM), a Chilean contractual mining
company, which is indirectly owned 50 percent by Amax Gold and 50 percent by
Bema Gold Corporation (Bema), a publicly traded company based in Vancouver,
British Columbia.
Construction of the Refugio Mine was substantially completed by year end
1995 with the development of an open pit mine and a three-stage crushing and
heap leach operation capable of processing 33,000 tons of ore per day (11.9
million tons per year). Production is expected to commence early in 1996. Carbon
adsorption, stripping, and electrowinning are being used to recover gold from
the leach solutions. Electrowon cathodes will be smelted to dore bars for
shipment. Production from the Verde deposit is estimated to range from 200,000
to 250,000 ounces of gold per year for approximately 9.5 years of which Amax
Gold's share would be 50 percent. Facilities include a permanent camp with
access to the site from Copiapo provided by existing roads. Power is supplied by
on-site, diesel-powered generators.
The Refugio property position comprises approximately 14,500 acres,
consisting of mineral rights, surface rights, and water rights sufficient to
allow development of the project. The principal ore deposit is held by mining
claims which are owned by CMM. Essentially all of the mineral rights surrounding
the claims are held by a joint venture formed by Bema and the former owner of
the Refugio claims. CMM has agreements in place with this joint venture that
will allow CMM to mine any extensions of major ore deposits found on CMM
property that extend onto surrounding mineral rights and to use the surrounding
areas for project needs. Surface rights that cover the known mineralization and
the proposed facilities are owned or controlled by CMM under leases from the
Chilean Army. Water extraction rights, expected to be sufficient to supply the
project, are owned by CMM.
Amax Gold, through its 50 percent ownership of CMM, is responsible for
payment of a net smelter return royalty to the former owners of the Refugio
property that is expected to average 2.5 percent of Amax Gold's share of
production from the currently defined ore reserves. A sliding scale net smelter
return royalty related to net profits and ranging from 2.5 to 5 percent is
payable on Amax Gold's share of any production in excess of current reserves.
Guanaco Mine
Amax Gold owns a 90 percent interest in and operates the Guanaco Mine, which
is located in the Guanaco Mining District in northern Chile approximately 145
miles southeast of Antofagasta, Chile. Under existing shareholder arrangements,
Amax Gold receives 100 percent of production until certain conditions are met.
Management currently does not believe these conditions will be met, therefore,
100 percent of Guanaco's reserves have been included in Amax Gold's reserve
table. The operation consists of an open pit mine, heap leach facilities capable
of processing up to 2.4 million tons of ore per year and permanent camp
facilities. The facility includes three stages of crushing, permanent pad heap
leaching, and Merrill Crowe zinc precipitation of gold. Amax Gold has retained
an experienced mining contractor to drill, blast, load, and transport all ore
and waste. The mining contractor provides its own equipment. Access to the Mine
from Antofagasta is provided by the Pan American Highway (approximately 120
miles south) and a gravel surface road (approximately 25 miles east). Power is
supplied by an on-site power plant. The water supply for mine operations comes
primarily from multiple wells adjacent to the minesite and from nearby surface
springs which also provide potable water.
The Guanaco property position is comprised of approximately 25,000 acres,
consisting of mineral claims leased from Empresa Nacional de Mineria (ENAMI), an
entity of the Chilean government, and certain other mineral rights. Nearly all
of the reserves are located on land covered by the ENAMI lease. The ENAMI lease
expires in 2006, and may be extended by Amax Gold for additional five-year terms
thereafter. The lease is subject to royalties varying with the level of
production, with the royalty on gold
16
<PAGE>
ranging from a 7 percent gross royalty to a 3 percent gross royalty plus a 2
percent net profits royalty; there is a gross royalty of 2 percent for all other
metals. The property remains subject to a 1.1 percent net smelter return royalty
to the minority owners for metals other than gold.
The Guanaco Mine began production in April 1993. Production was hampered in
1993 by ordinary start-up delays and initial crusher throughput problems and in
1994 by process water shortages which were resolved in the fourth quarter.
During 1995, despite continued problems with crusher throughput, production at
Guanaco increased primarily due to higher grades and recoveries. Management is
implementing further operational efficiencies and cash production costs are
expected to decrease as a result.
Hayden Hill Mine
Amax Gold owns 100 percent of the Hayden Hill Mine in Lassen County,
California, approximately 120 air miles northwest of Reno, Nevada. The Hayden
Hill operation is an open pit mine with two pits, heap leach pads, and tailings
disposal facilities. Amax Gold controls approximately 6,300 acres through
ownership of federal patented and unpatented mining claims and fee lands and a
long-term lease of federal unpatented mining claims. Access to the Mine is
provided by a county road that connects to a state highway. Power for operations
is purchased from the local rural electric association. Water for mining and
processing operations is provided by two wells located in close proximity to the
Mine. Potable water is supplied by truck. Approximately 75 percent of the
current reserves are subject to a gross receipts net smelter return royalty
ranging from 2 percent to 5 percent.
The Mine began production in June 1992. Milling operations were discontinued in
1993 due to the lack of an adequate supply of high-grade mill ore.
Sleeper Mine
The Sleeper Mine, located in Humboldt County, Nevada, approximately 28 air
miles north of Winnemucca, is 100 percent-owned by Amax Gold. The operation
includes an open pit mine, mill, heap leach pads, and tailings disposal
facilities. Current facilities occupy approximately 2,000 acres of unpatented
mining claims. Access to the mine is provided by a gravel road that connects to
a paved public highway. Power is purchased from the local rural electric
association. Water for mining and processing operations at Sleeper is provided
by a well system that dewaters the pits, and potable water is supplied by truck.
No royalties are payable on production from the Sleeper Mine.
The property was discovered by an Amax geologist in 1982 and development of
the mine was completed in March 1986. Gold production in 1996 is expected to
decrease from 1995 levels as mining is expected to be completed in 1996, with
production from residual leaching continuing into 1997.
Wind Mountain Mine
Mining operations at Amax Gold's 100 percent-owned Wind Mountain Mine were
completed in January 1992. The leach pads have not been irrigated with cyanide
solution since the second quarter of 1994, and production from residual leaching
was completed in 1995. Any additional gold recovered in the final detoxification
process in 1996 will be credited against reclamation costs. Reclamation is
expected to be completed during 1996.
Fort Knox Project
Amax Gold owns a 100 percent interest in the Fort Knox Project, located in
the Fairbanks Mining District, 15 miles northeast of Fairbanks, Alaska. Access
to the property is provided by paved highway for 21 miles from the City of
Fairbanks and then for five miles by unpaved two-wheel drive road.
17
<PAGE>
The Fort Knox Project covers approximately 41,000 acres and consists of two
state mining leases, approximately 1,400 state mining claims, and 7 patented
federal mining claims and the mineral rights to 38 patented federal mining
claims. The Fort Knox property is held by deeds, mining leases, option
agreements, and mining locations. The leases and option agreements have
expiration dates ranging from 1996 to 2014, with provisions for extension in
some cases. The current reserve is located on approximately 1,150 acres of land
held under a state mining lease which expires in 2014 and which may be renewed
for a period not to exceed 55 years. This lease is subject to a 3 percent
royalty based on net income payable to the State of Alaska. Claims surrounding
the current reserve are subject to net smelter return royalties ranging from 3
percent to 6 percent on the state mining claims, and both a 1 percent net
smelter return royalty, and a 10 percent overriding net profits interest on
certain of the patented federal mining claims.
Construction and development plans include an open pit mine, a conventional
36,000 tons per day (13.1 million tons per year) process plant, a tailings
storage facility, and a water supply reservoir. Process water is being supplied
from a water reservoir constructed downstream from the tailings pond. The
process facilities are designed as a "zero discharge system". Power is supplied
by the public utility serving the area over a distribution line which was paid
for by Amax Gold. The mine and plant are designed to operate year round and to
produce approximately 300,000 to 350,000 ounces of gold per year with the higher
rates expected during the early years. Current plans anticipate project start-up
around the beginning of 1997.
In the first quarter of 1996, Amax Gold announced that due to difficult site
conditions, design enhancements and expanded excavation work, the capital costs
at Fort Knox are expected to exceed Amax Gold's original estimate of $256
million. The increase is anticipated to be at least $75 million and final
estimates for completion are being developed. Additionally, to ensure timely
completion of Fort Knox, the Cyprus Amax project development and construction
group has been seconded to Amax Gold, and along with Amax Gold personnel, will
be responsible for the construction and completion of these projects. Amax Gold
has restructured with its lenders the $250 million financing for the Project
which was completed in November 1995. As support to the restructured facility,
Cyprus Amax has guaranteed $150 million and potential borrowings under the
existing $100 million double-convertible line of credit (DOCLOC I). Cyprus Amax
intends to make additional needed financing available to Amax Gold. The lenders
have waived certain restrictive covenants and reduced the interest rate. In
return for the increased financial support, Cyprus Amax will receive certain
fees, the interest differential and a security interest in certain Amax Gold
assets. See further discussion on page 20, "Subsequent Events."
Haile Project
Amax Gold owns a 62.5 percent joint venture interest in the Haile Project in
Lancaster County, South Carolina. The remaining 37.5 percent interest is owned
by Piedmont Mining Company, Inc. (Piedmont). Amax Gold is currently considering
the sale of its interest in Haile.
The Haile Project covers approximately 3,600 acres and consists entirely of
fee property, which is either owned by the venture participants, leased from
third parties or controlled by purchase agreements. The known reserves are
contained partly on property that is jointly owned by Amax Gold and Piedmont and
partly on property that is leased from a third party under a lease expiring in
1996, with provisions for extension until 2001. The leased property is presently
burdened by a 4 percent net smelter return royalty; however, the lease and the
royalty would be extinguished upon consummation of the purchase agreement
covering the leased property at such time as all material permits for a new
surface gold mine at the site have been received.
Gold Marketing Arrangements
Gold has two principal uses: product fabrication and bullion investment.
Fabricated gold has a wide variety of end uses, including jewelry manufacture
(the largest fabrication component), electronics, dentistry, industrial and
decorative uses, medals, medallions, and official coins. Amax Gold sells all of
18
<PAGE>
its refined gold to banks and other bullion dealers, using a variety of hedging
techniques, and substantially all of Amax Gold's 1995 sales were export sales
made in Europe.
Amax Gold employs a number of hedging techniques with the objective of
mitigating the impact of downturns in the gold market and providing adequate
cash flow for operations while maintaining significant upside potential in a
market upswing. During 1995 and 1994, Amax Gold's hedging efforts resulted in
average realized prices of $406 an ounce and $401 an ounce, respectively,
compared to the average COMEX price of approximately $384 an ounce for both 1995
and 1994.
Kubaka Project
In mid-1993, a joint stock company, in which Cyprus Amax participates along
with Russian partners, was awarded a concession covering the Kubaka gold deposit
located in Magadan Province, Russia. Cyprus Amax is the manager of the joint
stock company and at December 31, 1995, Cyprus Amax had a 50 percent interest.
In the fourth quarter of 1995, Cyprus Amax announced its intent to sell its
interest in the Russian Kubaka gold mine project to Amax Gold for 16 million
shares of Amax Gold Common Stock. Closing is expected in the second quarter of
1996, subject to Amax Gold shareholder approval. This sale will increase Cyprus
Amax's ownership in AGI to approximately 58 percent.
The Kubaka Project is a development stage, open pit, mill recovery project
located approximately 200 miles south of the Arctic Circle and 600 miles
northeast of the major port city of Magadan. Construction of the Project is
underway and has been funded by $80 million in equity contributions by Cyprus
Amax and the Russian partners and $100 million in project financing. Cyprus
Amax's share of reserves at December 31, 1995 and annual production will be
approximately 1.2 million ounces and 150,000 ounces, respectively. Production is
anticipated to commence in 1997 with cash costs averaging $184 per ounce and
full costs averaging $260 per ounce. In March 1996, Amax Gold announced that the
capital costs to complete the Kubaka project are expected to exceed the original
estimates. These increases reflect a possible delay in start-up and certain
higher local costs and contingency provisions. Final project estimates are
currently being developed.
The following table sets forth the proved and probable reserves at the
Kubaka Project.
KUBAKA PROJECT
PROVED AND PROBABLE ORE RESERVES
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Gold Content
---------------------
Gold (Thousands of Ounces)
Tons Average Grade Cyprus Amax's
(Thousands) (Ounces/Ton) Total 50% Share
----------- ------------- ----- ---------
<S> <C> <C> <C> <C>
Mill Ore 5,4730 .460 2,506 1,253
</TABLE>
OIL AND GAS OPERATIONS
On March 31, 1994, Cyprus Amax disposed of its Oil and Gas business through
the sale of Amax Oil and Gas to Union Pacific Resources Company. Amax Oil and
Gas was a wholly-owned subsidiary and was engaged in the production and
marketing of natural gas, crude oil, and natural gas liquids, with reserves
primarily in the United States.
IRON ORE
On September 30, 1994, Cyprus Amax sold its Northshore iron ore mine and
processing facilities and the adjacent power plant to Cleveland-Cliffs Inc.
These facilities are located in northern Minnesota. During 1994, Cyprus Amax's
iron ore operations produced and sold 2.6 million long tons of iron ore pellets.
19
<PAGE>
EXPLORATION
Cyprus Amax conducts an international exploration program for copper and
gold. It seeks a range of opportunities from early stage generative exploration
through advanced opportunities and acquisitions. The company has active projects
in the United States, Canada, Mexico, Panama, Peru, Chile, Australia, Indonesia,
Russia, and continues to seek opportunities in other parts of the world as well.
Exploration also is conducted around its developing and producing mines to find
and delineate ore which could extend the lives of those operations. (See "Other
Minerals Segment, Amax Gold" for discussion of Cyprus Amax's exploration joint
venture agreement with Amax Gold.)
EQUITY AND OTHER
AMAX GOLD
During 1995, Cyprus Amax increased its ownership in Amax Gold from 42
percent to 51 percent. As a result, Amax Gold was consolidated, whereas it was
accounted for as an equity investment in prior years. See further discussion in
"Other Minerals Segment, Amax Gold".
OAKBRIDGE LIMITED
During 1995, Cyprus Amax increased its interest in Oakbridge Limited from 40
percent to 42 percent. Cyprus Amax's investment in Oakbridge is accounted for on
the equity method. See further discussion in "Coal Segment, Australia".
SUBSEQUENT EVENTS
In March 1996, Amax Gold announced that more difficult site conditions at
the Fort Knox project, design enhancements, and expanded excavation work will
result in higher project capital costs. See further discussion on page 17, "Fort
Knox Project."
Cyprus Amax has entered into an agreement with Amax Gold to provide certain
financing arrangements. Under the Fort Knox restructured loan facility, Cyprus
Amax has guaranteed $150 million and potential borrowings under the existing
$100 million double-convertible line of credit (DOCLOC I). Such guaranty will
terminate on achievement of economic completion projected for June 1998.
Cyprus Amax has also made available to Amax Gold a Demand Loan Facility to
be used primarily to fund additional costs at Fort Knox and for general
corporate purposes. Cyprus Amax intends to make additional needed financing
available to Amax Gold, however, Cyprus Amax has no obligation to make any
advance under the Demand Loan Facility. In return for the increased financial
support, Cyprus Amax will receive certain fees and the interest differential
resulting from the reduced rate negotiated with the Fort Knox lenders, as well
as a security interest in certain Amax Gold assets, including Fort Knox. All
interest, fees and the repayment of any Demand Loans made to Amax Gold will be
payable at the option of Cyprus Amax either in cash or shares of Amax Gold
common stock, subject to Amax Gold's shareholders approval.
Also in the first quarter, Amax Gold announced that the capital costs of the
Kubaka gold project are expected to be higher than original estimates. See
further discussion on page 19, "Kubaka Project."
20
<PAGE>
COMPETITIVE CONDITIONS
All of Cyprus Amax's products are sold in highly competitive markets.
Marketing of Cyprus Amax's products is influenced by price, materials
substitution, product quality, transportation costs, general economic
conditions, imports, and competition in all markets. Cyprus Amax competes with
numerous other copper, molybdenum, coal, lithium, and gold producers.
Copper, molybdenum, and gold sales generally are characterized by cyclical
and volatile prices, little product differentiation, and strong competition.
Prices are influenced by production costs of domestic and foreign competitors,
worldwide economic conditions, world supply/demand balances, inventory levels,
the United States dollar exchange rate, and other factors. Copper and molybdenum
prices also are affected by the demand for end-use products in, for example, the
construction, automotive, durable goods, and steel industries.
While the long-term demand for copper appears to be growing, especially in
less developed countries, it can be affected adversely by substitution of
materials such as aluminum, plastics, and optical fibers. Copper is an
internationally-traded commodity, and its price is determined in the terminal
markets of two major metals exchanges: the Commodities Exchange, Inc. in New
York City (COMEX) and the London Metal Exchange (LME). These prices broadly
reflect the worldwide balance of copper supply and demand, but prices also are
influenced by speculative activities. COMEX copper prices averaged $1.35 per
pound in 1995, up 28 cents per pound from 1994. Consumption for copper continued
to grow for the tenth consecutive year in 1995, with estimated 1995 growth of
two percent to 11.3 million short tons. Copper supply increased by a little over
four percent to 11.1 million short tons. The supply of copper in the world is
determined largely by development and production decisions of those entities
controlling mines and reserves. Some major foreign producers have cost
advantages resulting from higher ore grades, lower labor rates, and less
stringent environmental requirements.
Molybdenum demand depends heavily on worldwide steel industry consumption.
Molybdenum prices gradually increased through 1993 and the first three quarters
of 1994 as demand slowly strengthened in response to improving worldwide
economic conditions. Prices rose rapidly to 15-year highs during the fourth
quarter of 1994 as a result of accelerated demand, reduced exports from Chinese
producers, and producer inventory reductions earlier in the year. Continuing the
1994 trend, 1995 molybdenum demand in the Western World rose to record levels
supported by overall world economic strength, with the highest growth rates
occurring in stainless steel and chemical applications. Production of molybdenum
products increased worldwide in late 1994 and early 1995 in response to stronger
customer demand and higher prices. Reflecting a tight supply/demand balance and
low producer inventories, world spot molybdenum oxide prices increased in late
1994 and peaked in early 1995. Cyprus Amax responded to increased customer
demand by increasing production at its Henderson mine and reopening its Climax
surface mine early in the second quarter of 1995. The Climax mine produced over
two million pounds from April through August 1995 and was returned to standby
status in August, as increased production from third parties became available to
consumers. During the second half of 1995, the supply/demand picture was more
balanced, with world spot molybdenum oxide prices averaging about $4.65 per
pound and Cyprus Climax molybdenum realizations averaging $6.34 per pound. A
substantial portion of world molybdenum production is a by-product of copper
mining, which is relatively insensitive to molybdenum price levels.
Among factors that affect competition in Cyprus Amax's coal markets are coal
quality, the cost levels of other coal producers, the cost and availability of
transportation, government regulations including the Clean Air Act Amendments of
1990, the time and expenditures required to develop new coal mines, taxes, the
weather, and the cost of alternative fuels. Sales of coal to utilities are
affected by the demand for electricity. Coal prices are sensitive to caloric
value (Btu) and sulfur content and to a particular user's quality requirements.
Coal prices generally are less volatile than metals prices, since coal typically
is sold under term contracts at fixed prices subject to escalation, de-
escalation, and
21
<PAGE>
renegotiation. In line with increases in coal production, an increasing amount
of Cyprus Amax's coal is now being sold in spot markets or under shorter term
contracts.
Competition in the sale of lithium products is based on price and quality.
Cyprus Amax produces approximately 50 percent of the world's supply of lithium
carbonate. Cyprus Amax has a number of competitors from western countries in the
lithium marketplace, as well as competition from lithium products from China and
the Commonwealth of Independent States (C.I.S.). In addition, new competitors
are expected to enter certain lithium markets over the next 2-5 years.
Gold prices fluctuate and may be affected by numerous factors beyond Cyprus
Amax's control, including expectations for inflation, the exchange rate of the
United States dollar and other world currencies, global demand, political and
economic conditions, and production costs in major gold producing regions,
including South Africa and the C.I.S. Gold prices also are affected by worldwide
production levels, which have increased in recent years, and by inventory sales
by central banks of foreign countries. In addition, the price of gold sometimes
is subject to rapid short-term changes because of speculative activities.
Certain of Cyprus Amax's reserves, facilities, and markets are located in
foreign countries. Such foreign reserves, facilities, and markets may be
affected adversely by exchange controls, currency fluctuations, ownership
limitations, expropriation, taxation, and laws or policies of particular
countries, as well as the laws and policies of the United States affecting
foreign trade, investment, and taxation.
22
<PAGE>
ENVIRONMENTAL MATTERS
Laws and regulations currently in force which do or may affect Cyprus Amax's
domestic operations include the Federal Clean Water Act, the Clean Air Act of
1970 and Clean Air Act Amendments of 1990, the National Environmental Policy Act
of 1969, the Solid Waste Disposal Act (including the Resource Conservation and
Recovery Act of 1976), the Federal Surface Mining Control and Reclamation Act,
the Toxic Substances Control Act, the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), the environmental protection
regulations of various governmental agencies (e.g., the Environmental Protection
Agency regulations, the Bureau of Land Management surface management
regulations, Forest Service regulations, and Department of Transportation
regulations), laws and regulations with respect to permitting of land, and
various state laws and regulations concerned with mining techniques, reclamation
and remediation of mined lands and other properties, air and water pollution,
and solid waste disposal. Similar laws and regulations do or may affect Cyprus
Amax's overseas operations. Cyprus Amax expects to be able to comply in all
material respects with all existing environmental laws and regulations. Current
and future regulations do and may require significant expenditures for
compliance which may increase Cyprus Amax's mine development and operating
costs.
Reference is made to additional information concerning environmental matters
in "Management's Discussion, Environmental" on page 39 of this report and Note
14 to the Consolidated Financial Statements on pages 67 and 68.
23
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Cyprus Tohono Mining Company was informed in late 1995 by the office of the
Assistant U.S. Attorney in Tucson, Arizona that an action was being considered
under federal environmental laws against Cyprus Tohono Corporation and certain
of its employees. The facts giving rise to this matter involve a break in a
process line at the Tohono Mine occurring in 1992. It is not possible to state
with reasonable certainty at this time what action, if any, will be taken by the
government.
In April 1994, Cyprus Amax was notified by the Department of Justice (DOJ)
that the government would seek civil penalties for alleged violations of the
Federal Clean Water Act in the operation of Cyprus Amax's Bagdad, Miami, and
Sierrita mines in Arizona. Agreement as to the principles of a settlement
regarding civil penalties was reached in early 1996 with the EPA and DOJ for all
three locations which will not have a material impact on the Company.
Cyprus Miami and other companies, in conjunction with the Arizona Department
of Environmental Quality's Water Quality Assurance Revolving Fund program,
continued remediation and assessment of groundwater quality at Pinal Creek near
Miami, Arizona throughout 1995. The ongoing program, initiated in 1989, has
resulted in continued improvement of subsurface water quality in the area. While
the adequacy of current remedial efforts and the allocation of expenditures
among responsible parties will not be known until the assessment phase is
completed or beyond, the 1993 completion of risk assessment studies allowed
further definition of probable costs for continued study and ongoing treatment.
Cyprus Miami is also a defendant in a lawsuit brought by certain Miami and Globe
area landowners claiming damages relating to allegedly impaired groundwater
quality in the Pinal Creek area. It is not possible at this time to reasonably
estimate a loss, if any, that may result from the lawsuit because of the
preliminary nature of discovery in the case and because of the preliminary
status of the related ongoing remedial assessment. A reasonable estimate of any
future material obligations, if any, is expected to be possible by 1997.
Cyprus Amax and its subsidiaries have been advised by the EPA and several
state environmental agencies that they may be liable under the CERCLA or similar
state laws and regulations for costs of responding to environmental conditions
at a number of sites which have been or are being investigated by the EPA or
states to establish whether releases of hazardous substances have occurred and,
if so, to develop and implement remedial actions. Cyprus Amax has been named as
a potentially responsible party (PRP) or has received EPA requests for
information for several sites. For all sites, Cyprus Amax had an aggregate
reserve of approximately $87 million at December 31, 1995, for its share of the
estimated liability. Liability estimates are based on an evaluation of, among
other factors, currently available facts, existing technology, presently enacted
laws and regulations, Cyprus Amax's experience in remediation, other companies'
remediation experience, Cyprus Amax's status as a PRP, and the ability of other
PRPs to pay their allocated portions. The cost range of reasonably possible
outcomes for all sites is estimated to be from $60 million to $300 million, and
work on these sites is expected to be substantially completed in the next
several years, subject to the inherent delays involved in the process.
Remediation costs that could not be reasonably estimated at December 31, 1995,
are not expected to have a material impact on the financial condition and
ongoing operations of the Company. Cyprus Amax believes certain insurance
policies partially cover these claims; however, some of the insurance carriers
have denied responsibility and Cyprus Amax is litigating coverage. Further,
Cyprus Amax believes that it has other potential claims for recovery from third
parties, including the U.S. Government and other PRPs, as well as liability
offsets through lower cost remedial solutions. However, neither insurance
recoveries nor other claims or offsets have been recognized in the financial
statements unless such offsets are considered probable of realization.
At December 31, 1995, Cyprus Amax's accruals for deferred closure, shutdown
of closed operations, and reclamation totalled approximately $325 million.
Reclamation is an ongoing activity and a cost associated with Cyprus Amax's
mining operations. Accruals for closure and final reclamation
24
<PAGE>
liabilities are established on a life of mine basis. The Cyprus Amax Coal
reclamation reserve component of $178 million is largely a result of reclamation
obligations incurred for replacing soils and revegetation of mined areas as
required by provisions and permits pursuant to the Surface Mining Control and
Reclamation Act. The Copper/Molybdenum and Other reclamation reserve components
are $126 million and $21 million, respectively, and include costs for site
stabilization, cleanup, long-term monitoring, and water treatment costs as
expected to be required largely by state laws and regulations as well as by
sound environmental practice. Total reclamation costs for Cyprus Amax at the end
of current mine lives is estimated at about $550 million.
Cyprus Amax believes that it has adequate reserves such that none of these
matters is expected to have a material adverse effect on its business or
financial condition, results, and cash flows, and is unaware of any additional
environmental matters which, based on information currently known to Cyprus
Amax, would have a material effect upon the Company's financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1995.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and titles of the executive officers of
Cyprus Amax as of March 27, 1996:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Milton H. Ward 63 Chairman, President and Chief Executive Officer
Jeffrey G. Clevenger 46 Senior Vice President, Copper
Gerald J. Malys 51 Senior Vice President and Chief Financial Officer
Garold R. Spindler 48 Senior Vice President, Coal
David H. Watkins 51 Senior Vice President, Exploration
Philip C. Wolf 48 Senior Vice President, General Counsel and Secretary
Robin J. Hickson 52 Vice President, Engineering and Development
Francis J. Kane 37 Vice President Investor Relations and Treasurer
John Taraba 47 Vice President and Controller
</TABLE>
Mr. Ward was elected Chairman of the Board, President and Chief Executive
Officer on May 14, 1992, and served as Chairman for the period November 15, 1993
through November 15, 1995. Mr. Clevenger was elected to his current position on
January 27, 1993, and Mr. Malys was elected Senior Vice President effective
October 31, 1988, and Chief Financial Officer effective August 1, 1989. Mr.
Spindler was elected to his current office on January 3, 1995, and Mr. Watkins
assumed his current office on February 1, 1994. Mr. Wolf was elected to his
current office on November 13, 1993. Mr. Hickson was appointed to his current
office on November 20, 1994. Mr. Kane assumed his current office on January 11,
1994. Mr. Taraba was elected to his current office on October 31, 1988.
Messrs. Malys, Wolf, and Taraba have been engaged full-time in the business
of Cyprus Amax and its subsidiaries for more than the past five years. Prior to
joining Cyprus in May 1992, Mr. Ward had been President and Chief Operating
Officer of Freeport-McMoRan Inc. and Chairman and Chief Executive Officer of
Freeport-McMoRan Copper & Gold Inc. since 1984. Mr. Clevenger held various
management positions at Phelps Dodge Corporation since 1979. Mr. Malys was Vice
President and Corporate Controller from 1985 to 1988, and Senior Vice President
Financial and Information Services from 1988 to 1989, when he assumed his
current position. Prior to joining Cyprus Amax Coal, Mr. Spindler had been
associated with Pittston Coal Company, serving as President and Chief Executive
Officer since 1990. Prior to joining Cyprus Amax in 1994, Mr. Watkins occupied
various management positions at Minnova Inc. from 1977 until 1991 when he was
elected President and Director.
25
<PAGE>
Mr. Watkins served as Vice President and Director at Metall Mining Corporation
from 1991 until 1993. Mr. Wolf previously served as chief legal officer from
1984 through 1987. Mr. Wolf had operating responsibility for Cyprus' talc,
lithium, gold and iron ore operations during the period from 1987 until 1993
when he assumed his current position. Mr. Hickson joined Cyprus Amax in 1993 as
Senior Vice President of Cyprus Climax Metals Company. Before joining Cyprus
Amax, Mr. Hickson was President of Freeport-McMoRan's Research and Engineering
Company. Prior to joining Cyprus Amax in 1994, Mr. Kane served as Associate
Director, Relationship Officer for Bear, Stearns & Co. Inc. since 1990. From
1989 to 1990, Mr. Kane served as Manager of Capital Markets and Exposure
Management for United Technologies Corporation. Mr. Taraba held various
positions in Cyprus' financial departments from 1982 until 1988, when he assumed
his current position.
Each executive officer holds office subject to removal at any time by the
Board of Directors of Cyprus Amax.
26
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
Information required by this item is included in "Stock Market
Information" on page 76 of this report.
THE INFORMATION REQUIRED BY ITEMS 6 THROUGH 8 IS INCLUDED ON THE PAGES OF THIS
REPORT SET FORTH BELOW.
APPLICABLE PAGES
FORM 10-K ITEM NUMBER OF THIS REPORT
--------------------- ----------------
ITEM 6. SELECTED FINANCIAL DATA........................................28-29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.............................30-41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................42-75
a. Quarterly Results..........................................73
b. Mineral Reserves and Selected Operating Statistics.........74-75
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
27
<PAGE>
<TABLE>
<CAPTION>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In millions except as noted and per share
data)
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
REVENUE $3,207 $2,788 $1,763 $1,641 $1,657 $1,866 $1,790 $1,327 $ 795 $ 811
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
COSTS AND EXPENSES
Cost of Sales 2,108 2,071 1,333 1,286 1,323 1,423 1,241 921 628 639
Selling and Administrative Expenses 143 111 70 77 97 81 103 92 61 67
Depreciation, Depletion, and
Amortization 296 253 145 128 119 118 94 64 54 56
Write-Downs 445 10 - 410 35 82 4 9 - -
Merger and Reorganization Expenses - 13 33 29 - - - - - -
Exploration Expense 33 23 25 19 21 14 15 12 9 8
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
Total Costs and Expenses 3,025 2,481 1,606 1,949 1,595 1,718 1,457 1,098 752 770
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
INCOME (LOSS) FROM OPERATIONS 182 307 157 (308) 62 148 333 229 43 41
OTHER INCOME (EXPENSE)
Interest Income 24 17 7 3 5 8 13 6 2 4
Interest Expense (137) (107) (42) (19) (22) (19) (12) (15) (11) (16)
Capitalized Interest 43 16 1 3 5 - - - - -
Earnings (Loss) on Equity Investments
and Other 8 (12) 7 (8) 4 (13) (7) (2) (1) -
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 120 221 130 (329) 54 124 327 218 33 29
Income Tax (Provision) Benefit (3) (55) (31) 83 (11) (13) (92) (49) (7) (8)
Minority Interest 7 - 1 - - - - 1 - -
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
INCOME (LOSS) FROM CONTINUING OPERATIONS 124 166 100 (246) 43 111 235 170 26 21
Income From Operations of Discontinued
Oil and Gas Division, Net of
Applicable Taxes of $2 - 9 - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES/(1)/ 124 175 100 (246) 43 111 235 170 26 21
Cumulative Effect of Accounting
Changes/(2)/ - - - (88) - - (70) - - -
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
NET INCOME (LOSS) 124 175 100 (334) 43 111 165 170 26 21
Preferred Stock Dividends (19) (18) (2) (11) (15) (15) (15) (6) - -
------ ------ ------ ------ ------ ------ ------ ------ ----- -----
INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 105 $ 157 $ 98 $ (345) $ 28 $ 96 $ 150 $ 164 $ 26 $ 21
====== ====== ====== ====== ====== ====== ====== ====== ===== =====
</TABLE>
* In 1995, the Company consolidated Amax Gold Inc. based on an increased
ownership position. The 1995 results included an after-tax charge of $338
million to recognize the write-downs of certain coal assets and provisions
for associated liabilities.
* On November 15, 1993, Amax was merged into Cyprus, and therefore the 1994
results included a full year of Amax operations for revenue of $888 million
whereas the 1993 results included Amax for the 47-day period following the
merger. The 1994 results also included after-tax gains of $13 million for
various special items. The merger contributed revenue of $140 million for
1993, and the impact on earnings was immaterial, excluding indirect merger
expenses.
* The 1993 results also included $104 million revenue and $75 million after-tax
gain from the sale of Cyprus' LTV bankruptcy claims and $25 million after tax
for indirect merger expenses. Cyprus sold its interest in the Selwyn and
Golden Cross gold mines in the second quarter 1993 which had contributed
approximately $30 million and $25 million to revenue annually, respectively.
* In mid-1992, Cyprus sold its talc operations, which had contributed
approximately $80 million to annual revenue since 1988. Talc earnings were
immaterial except for after-tax write-downs of approximately $24 million in
1991 reflecting the pending sale. A copper scrap processing facility that was
sold in late 1992 had approximately $65 million in annual revenue and
immaterial earnings since its acquisition in 1989.
* In 1989, Cyprus made several acquisitions, including certain talc operations
and Cyprus Northshore iron ore operations, which have been subsequently sold.
In 1988, Cyprus acquired the Cyprus Miami copper operations and the lithium
operations. In 1986, Cyprus acquired its Sierrita copper/molybdenum mine.
28
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA (CONTINUED)
(In millions except as noted and per share data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------- ------ ------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Primary Earnings (Loss) Per
Common Share
Income (Loss) From Continuing
Operations/(1)/ $ 1.13 $ 1.59 $ 1.85 $(6.31) $ 0.72 $ 2.38 $ 5.67 $ 4.21 $ 0.68 $ 0.54
Income From Operations of
Discontinued Oil and Gas Division - .10 - - - - - - - -
Cumulative Effect of Accounting
Changes/(2)/ - - - (2.15) - - (1.80) - - -
------ ------- ------- ------- ------- ------- ------- ------- -------- --------
NET INCOME (LOSS) $ 1.13 $ 1.69 $ 1.85 $(8.46) $ 0.72 $ 2.38 $ 3.87 $ 4.21 $ 0.68 $ 0.54
====== ======= ======= ======= ======= ======= ======= ======= ======== ========
Cash Dividends Per Common Share $ 0.80 $ 0.90 $ 0.80 $ 0.85 $ 0.80 $ 0.80 $ 0.73 $ 0.20 $ - $ -
====== ======= ======= ======= ======= ====== ======= ======= ======== ========
CONSOLIDATED BALANCE SHEET DATA
Cash and Cash Equivalents $ 191 $ 139 $ 96 $ 116 $ 98 $ 39 $ 44 $ 163 $ 8 $ 60
Working Capital $ 292 $ 423 $ 41 $ 336 $ 299 $ 336 $ 251 $ 343 $ 243 $ 235
Total Assets $6,196 $ 5,407 $ 5,618 $ 1,709 $ 1,984 $ 1,919 $ 1,841 $ 1,651 $ 1,148 $ 1,106
Long-Term Debt $1,734 $ 1,191 $ 1,278 $ 232 $ 239 $ 246 $ 108 $ 120 $ 115 $ 115
Capital Lease Obligations $ 143 $ 200 $ 69 $ - $ - $ - $ - $ - $ - $ -
Shareholders' Equity $2,365 $ 2,329 $ 2,217 $ 923 $ 1,290 $ 1,284 $ 1,294 $ 1,204 $ 850 $ 817
====== ======= ======= ======= ======= ======= ======= ======== ======== ========
OTHER FINANCIAL DATA
Book Value Per Common Share $23.62 $ 23.39 $ 22.49 $ 21.22 $ 30.23 $ 30.33 $ 28.69 $ 25.62 $ 21.95 $ 21.34
Long-Term Debt/Total
Capitalization 44.2% 37.4% 37.8% 20.1% 15.6% 16.1% 7.7% 9.1% 12.0% 12.3%
Current Ratio 1.4:1 1.7:1 1.0:1 2.2:1 2.0:1 2.5:1 2.0:1 2.6:1 3.5:1 3.4:1
Cash Provided by Operations $ 675 $ 110 $ 74 $ 143 $ 285 $ 199 $ 304 $ 271 $ 62 $ 85
======= ======= ======= ======= ======= ======= ======= ======= ======= ========
STOCK PRICE - COMMON STOCK/(3)/
High $32 1/8 $33 1/8 $36 3/8 $32 $25 3/8 $28 1/2 $33 $24 $20 $ 16 1/2
Low $24 1/4 $23 7/8 $21 1/4 $18 1/2 $17 1/2 $13 7/8 $21 3/8 $13 1/8 $ 9 3/8 $ 9 1/2
======= ======= ======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
/(1)/ Financial information reflects an after-tax charge of $338 million for
the write-down of certain coal assets and provision for associated liabilities
in 1995; an after-tax gain of $13 million for various special items for 1994;
an after-tax charge for 1993 indirect merger costs of $25 million; an after-tax
gain of $75 million in 1993 for the sale of LTV bankruptcy claims; and write-
downs and other provisions of $315 million in 1992, $32 million in 1991, and
$63 million in 1990. In addition, 1992 includes an after-tax charge of $23
million for reorganization expense.
/(2)/ In 1992, Cyprus adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Cumulative effect adjustments are
presented net of tax. Also in 1992, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." In 1990, Cyprus adopted SFAS No. 96,
"Accounting for Income Taxes," retroactive to January 1, 1989. In adopting
SFAS No. 96, Cyprus recorded a cumulative $70 million charge for periods prior
to January 1, 1989.
/(3)/ Stock prices prior to June 1989 have been restated to reflect the stock
split.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1995
Cyprus Amax earned $124 million in 1995, or $1.13 per share, compared to 1994
earnings of $175 million, or $1.69 per share, and 1993 earnings of $100 million,
or $1.85 per share. The 1995 results included an after-tax charge of $338
million to recognize the write-downs of certain coal assets and provisions for
associated liabilities recorded in the third quarter. The 1994 results included
a net $13 million after-tax gain for several special items. The 1993 results
included $25 million of after-tax indirect expenses resulting from the merger
with Amax and $75 million of after-tax income from the sale of Cyprus' LTV
bankruptcy claims. On November 15, 1993, Amax merged with and into Cyprus, with
Cyprus being the surviving corporation, and was renamed Cyprus Amax Minerals
Company (Note 3).
Excluding the write-downs and special items, the 1995 earnings were $462
million, or $4.77 per share, compared to 1994 earnings of $162 million, or $1.55
per share, and 1993 earnings of $50 million, or $.90 per share.
<TABLE>
<CAPTION>
SELECTED RESULTS (In millions except per share data)
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Revenue $3,207 $2,788 $1,763
Net Income $ 124 $ 175 $ 100
Earnings per Share $ 1.13 $ 1.69 $ 1.85
NOTE: SUPPLEMENTAL DATA (In millions)
1995 1994 1993
------ ------ ------
Special Items, Net of Tax $ (338) $ 13 $ 50
Net Income Excluding Special Items $ 462 $ 162 $ 50
</TABLE>
The earnings improvement in 1995, excluding write-downs, resulted from 24 cents
per pound higher copper realizations, improved primary molybdenum earnings of
$122 million, 78 million pounds higher sales of produced copper, and 7 cents per
pound lower copper cost of sales. Improved earnings in 1994 compared to 1993
resulted from higher copper realizations of 15 cents per pound, improved primary
molybdenum earnings, lower copper cost of sales of 3 cents per pound, and the
inclusion of Amax operations for a full year.
The 1995 revenue of $3,207 million was 15 percent higher than 1994 revenue of
$2,788 million because of 24 cents per pound higher copper realizations and
$3.76 per pound higher molybdenum realizations. Revenue in 1994 of $2,788
million was 58 percent higher than the 1993 revenue of $1,763 million because of
the inclusion of revenue from the former Amax operations of $888 million for a
full year, higher copper realizations of 15 cents per pound, higher copper sales
of 79 million pounds, and higher molybdenum realizations of 95 cents per pound,
partially offset by the absence of the $104 million sale of the LTV bankruptcy
claims.
The supplemental data presented herein is provided to explain further the
Company's current operating results. Special Items on a consolidated basis are
presented net of tax benefit or provision and are not necessarily infrequent or
unusual in the mining industry.
30
<PAGE>
SEGMENT RESULTS
Segment operating income is earnings before corporate overhead, interest, equity
and other, income taxes, and minority interest. This discussion should be read
in conjunction with the Consolidated Financial Statements on pages 44 to 47, the
information on write-downs and reorganization costs in Note 5 and industry
segments in Note 18 to the Consolidated Financial Statements, and the
supplemental information on mineral reserves and selected operating statistics.
<TABLE>
<CAPTION>
SUMMARY RESULTS (In millions)
1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
Segment Operating Income (Loss)
Copper/Molybdenum $ 584 $ 206 $ 55
Coal (308) 106 142
Other (37) 40 20
------ ----- -----
Total Segment Operating Income $ 239 $ 352 $ 217
====== ===== =====
NOTE: SUPPLEMENTAL DATA (In millions)
1995 1994 1993
----- ----- -----
Segment Earnings (Loss) Excluding Special Items:
Copper/Molybdenum $ 584 $ 219 $ 55
Coal 137 116 41
Other (37) 1 20
------ ----- -----
Total Segment Earnings $ 684 $ 336 $ 116
====== ===== =====
</TABLE>
Copper/Molybdenum earned a record $584 million, $378 million higher than 1994
earnings of $206 million. Earnings improved due to higher copper realizations,
improved primary molybdenum earnings, higher sales of produced copper, and lower
copper cost of sales. Coal reported a segment operating loss of $308 million in
1995 compared to 1994 earnings of $106 million. The 1995 loss included a $445
million pretax charge for write-downs of certain coal assets and provisions for
associated liabilities. The increase in current year operating earnings,
excluding the 1995 write-downs and 1994 special items, was due to two million
tons higher sales in 1995, primarily in Pennsylvania and West Virginia, a gain
of $6 million from asset sales, and a slightly improved profit margin. The
Other segment (Lithium, Amax Gold (AGI), Iron Ore, Businesses Sold/Non-
Operating, and Exploration) reported a loss of $37 million compared to operating
income of $40 million in 1994. Lithium earned a record $28 million in 1995, $5
million higher than 1994. Amax Gold's operating loss for 1995 was $14 million.
Effective January 1, 1995, Cyprus Amax began consolidating Amax Gold due to its
increased ownership position. In 1994 and 1993, Amax Gold was accounted for on
the equity method. The Northshore iron ore mine, which was sold in September
1994, had 1994 earnings of $34 million including a $28 million pretax gain on
the sale of the business. Exploration expense of $33 million was $21 million
higher than the 1994 expense. The increase was due to the absence of an $11
million pretax gain on the sale of Cyprus Amax's interest in an Australian
exploration project in 1994, the consolidation of Amax Gold, and the Company's
increased efforts in searching for new opportunities in gold and copper.
31
<PAGE>
<TABLE>
<CAPTION>
COPPER/MOLYBDENUM
SELECTED COPPER/MOLYBDENUM DATA (In millions)
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Revenue $1,720 $1,327 $ 831
Segment Operating Income $ 584 $ 206 $ 55
Total Copper Production, Lbs. 687 648 632
Total Copper Sales, Lbs. 828 831 752
Produced Copper Sales, Lbs. 723 645 647
Total Molybdenum Production, Lbs. 75 57 28
Total Molybdenum Sales, Lbs. 68 90 36
Produced Molybdenum Sales, Lbs. 68 77 36
Average Copper Sales Realization, $/Lb. $ 1.33 $ 1.09 $ .94
Copper Cost of Sales, $/Lb. $ .71 $ .78 $ .81
Copper Net Cash Costs, $/Lb. $ .57 $ .69 $ .72
Copper Full Mine Costs, $/Lb. $ .66 $ .77 $ .77
Average Molybdenum Realization, $/Lb. $ 7.53 $ 3.77 $2.82
</TABLE>
The Copper/Molybdenum segment reported record operating income of $584 million
in 1995, $378 million higher than 1994 earnings of $206 million. The increase
was attributed to 24 cents per pound higher copper realizations, an increase in
primary molybdenum earnings of $122 million, 78 million pounds higher sales of
produced copper, 7 cents per pound lower copper cost of sales, and the absence
of a 1994 pretax charge of $13 million for workforce reduction programs at Miami
and Bagdad.
<TABLE>
<CAPTION>
NOTE: SUPPLEMENTAL DATA (In millions)
1995 1994 1993
----- ------ -----
<S> <C> <C> <C>
Special Items $ - $ (13) $ -
Segment Earnings Excluding Special Items $ 584 $ 219 $ 55
</TABLE>
Copper realizations in 1995 averaged $1.33 per pound for the year compared to
$1.09 in 1994. Cyprus Amax has in place copper put options for 1996 and both
put and synthetic put options for 1997 which will ensure a minimum average
realization on an LME basis of 89 cents per pound on 700 million pounds for
1996, and 96 cents per pound on 525 million pounds for the first nine months of
1997. Additionally, in 1994 Cyprus Amax sold forward 1996 production of 56
million pounds with prices averaging $1.10 per pound.
For the year, net cash costs decreased to 57 cents compared to 69 cents per
pound in 1994. The reduction primarily reflects higher molybdenum by-product
credits of 31 cents per pound compared to 14 cents in 1994, higher solvent
extraction solution feed grades, and lower conversion costs. Partially
offsetting was an increase in material mined in preparation for a 15 percent
production increase at Miami and for a 45 percent production increase at Cerro
Verde in 1996. In addition, costs increased due to a higher stripping ratio at
Sierrita, slightly lower ore grade at Bagdad and Sierrita, and certain increased
costs influenced by higher copper prices. Excluding the Tohono evaluation
project, which increased average costs company-wide by 4 cents per pound, full
year 1995 cash costs would have been 53 cents per pound.
32
<PAGE>
Cost of sales declined 7 cents per pound to 71 cents in 1995 primarily due to
higher molybdenum by-product credits generated throughout 1995 and lower
conversion costs, partially offset by higher leaching and sulfide costs. Also,
for the year 1995, the Arizona copper mines increased mining and milling
productivity (tons per manshift) by 14 percent.
Production at Cerro Verde doubled and at Miami increased by ten percent, pushing
total copper production to 687 million pounds for the year compared to 648
million pounds in 1994. Cyprus Amax expects copper production to increase to
approximately 750 million pounds in 1996 and to one billion pounds in 1997, with
El Abra's initial production beginning in late 1996.
Demand for copper continued to grow for the tenth consecutive year in 1995.
While not at the unusually high rate in 1994, 1995 consumption growth of about
two percent was consistent with longer term growth rates. During the first half
of 1995, combined LME and COMEX inventories dropped 45 percent to their lowest
level in five years. Exchange inventories rose marginally in the third quarter,
and during the fourth quarter of 1995, combined LME and COMEX inventories rose
by 41 percent. The year-end 1995 levels are comparable to year-end 1994 levels,
although it is believed that consumer and producer inventories decreased during
1995.
This rate of exchange inventory increase is not expected to continue during the
first half of 1996 given seasonally strong demand experienced during this
period. Demand is forecast to increase in 1996 by slightly over two percent,
led by growth in North America and Southeast Asia. Supply is likely to rise by
about five percent, with strong growth in Chile partially offset by lower
exports from the former East Bloc.
Total copper sales in 1995 of 828 million pounds were comparable to 1994 sales
of 831 million pounds. Produced copper sales of 723 million pounds for 1995
were 78 million pounds higher than 1994 produced sales of 645 million pounds due
to a 39 million pound increase in production and sales of 39 million pounds from
inventory.
At Tohono, a test leach program, which should be completed during 1996, is
underway to evaluate the feasibility of an open pit and SX-EW copper operation.
In March 1994, Cyprus Amax acquired approximately 91.5 percent of the shares of
Sociedad Minera Cerro Verde, S.A. (Cerro Verde), a producing copper mine in
southern Peru, at a cost of approximately $31 million. In early 1996, a
Peruvian mining concern exercised its option to acquire ten percent of Cyprus
Amax's interest in Cerro Verde. The expansion and modernization program
continued in 1995 as production from the SX-EW process climbed to 64 million
pounds. Around mid-1996, Cerro Verde is expected to be producing at the design
rate of 105 million pounds annually. An important new discovery of an oxide
resource nearby called Cerro Negro shows considerable promise for development.
Drilling to date indicates 80 million tons that can possibly be exploited by SX-
EW technology, with potential production as early as late 1996. The feasibility
study for development of a sulfide mill at Cerro Verde will continue through
1996. Studies to date indicate development of a mill operation is viable
following the current leach project, although Cyprus Climax is exploring options
to justify accelerated development of the sulfide deposit.
In June 1994, Cyprus Amax acquired a 51 percent interest in El Abra, a
significant copper deposit in Chile, at a cost of $330 million. The total
commitment to develop this world-class leachable oxide copper operation is about
$1 billion. This will include approximately $300 million of subordinated
shareholder loans from Cyprus Amax and approximately $750 million of project
financing, which is guaranteed by Cyprus Amax until project completion.
Construction commenced in February 1995 with mechanical completion expected in
the third quarter of 1996, initial production projected in the fourth quarter of
1996, and full production late in the first quarter of 1997. El Abra is
expected to produce annually about 250 million pounds of copper (Cyprus Amax's
share). Cyprus Amax expects initial cash
33
<PAGE>
costs through the year 2000 to be about 35 cents per pound, with low 40 cent
cash costs on average through the first ten years of production.
Primary molybdenum operations earned $153 million in 1995 compared to $31
million in 1994. Production increased to 75 million pounds from 57 million
pounds, and sales decreased to 68 million pounds from 90 million pounds in 1994
which included 13 million pounds of purchased material. Cyprus Amax molybdenum
realizations in 1995 averaged $7.53 per pound compared to $3.77 per pound in
1994. Reflecting a tight supply/demand balance and low producer inventories,
world spot molybdenum oxide prices increased in late 1994 and peaked in early
1995. During the second half of the year, the supply/demand picture was more
balanced, with world spot molybdenum oxide prices averaging about $4.65 per
pound and Cyprus Climax molybdenum realizations averaging $6.34 per pound.
Continuing the 1994 trend, molybdenum demand in the Western World rose to record
levels in 1995, supported by overall world economic strength with the highest
growth rates occurring in stainless steel and chemicals. While Japan has
continued its slow recovery, molybdenum consumption there has continued to grow,
sustained by their exports throughout Asia. Molybdenum consumption by all end-
use applications rose again in 1995. Production of molybdenum products
increased worldwide in late 1994 and early 1995 in response to this stronger
consumer demand and higher prices. Chemical products continue to show demand
strength in almost every application, and overall 1996 molybdenum demand is
expected to approach 1995 levels.
Changes in worldwide supply and demand and the related market perceptions can
have a major impact on copper and molybdenum prices. Therefore,
Copper/Molybdenum segment earnings can be expected to fluctuate. Each $.10 per
pound change in the segment's average annual copper realization or production
cost would have resulted in a change in pretax income of approximately $70
million at the 1995 production and sales levels. Put options in place for 1996
would partially offset the exposure to significant price decreases. For
molybdenum, each $1.00 per pound change in average annual molybdenum realization
or production cost would have resulted in a change in pretax income of
approximately $70 million at 1995 production and sales levels.
34
<PAGE>
<TABLE>
<CAPTION>
COAL
SELECTED COAL DATA (In millions)
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenue $1,298 $1,248 $ 697
Segment Operating Income (Loss) $ (308) $ 106 $ 142
Coal Production, Tons
- Consolidated Coal Mines 75.2 75.1 26.9
- Oakbridge (42% Share) 5.5 4.1 2.3
Coal Sales, Tons
- Eastern Mines 29.4 28.0 13.1
- Powder River Basin 35.7 35.5 4.6
- Western Mines 12.5 12.1 10.0
------ ------ ------
Total Sales 77.6 75.6 27.7
- Oakbridge (42% Share) 6.1 5.1 2.9
Average Realization, $/Ton $16.25 $16.12 $20.80
Average Cost of Sales, $/Ton $14.73 $14.69 $19.51
Average Cash Costs, $/Ton $12.19 $12.21 $17.09
Average Unit Costs, $/Ton $14.34 $14.40 $18.92
</TABLE>
Coal reported a segment operating loss of $308 million for the year compared to
operating income of $106 million in 1994. The 1995 results included a $445
million pretax charge for write-downs of certain coal assets and provisions for
associated liabilities for the Wabash and Kentucky operations. The 1994 results
included a $10 million pretax write-down of the Orchard Valley mine. The 1993
results included a pretax gain of $104 million on the sale of Cyprus' LTV
bankruptcy claims.
<TABLE>
<CAPTION>
NOTE: SUPPLEMENTAL DATA (In millions)
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Special Items $(445) $ (10) $ 101
Segment Earnings Excluding Special Items $ 137 $ 116 $ 41
</TABLE>
Excluding the Special Items, Coal earnings reached a record $137 million in
1995, $116 million in 1994, and $41 million in 1993. Higher operating earnings
in 1995 are attributable to an additional two million tons of sales, primarily
in Pennsylvania and West Virginia, a gain of $6 million from asset sales, and a
slightly improved profit margin. Operating earnings in 1994, compared to 1993,
were higher due primarily to the addition of Amax operations and significant
improvement in Cyprus Amax's Eastern operations.
In the third quarter of 1995, a $445 million pretax charge was recorded to write
down certain coal assets and to provide for associated liabilities. On August
9, 1995, Amax Coal signed a new definitive coal contract with PSI Energy, Inc.
that settled arbitration matters and disputes related to the prior contract.
Amax Coal and PSI Energy had been in arbitration for several years over various
matters related to the prior contract. Terms of the new agreement call for a
reduction in price with a move toward market price by the year 2000. The new
contract provides an eight-year extension of the term and grants Amax Coal
operating flexibility which resulted in a new mine plan and will assist in cost
reduction efforts. Although reserves increased 20 million tons due to the
revised mine plan, a pretax write-down of the carrying value of the Wabash
mine's assets of $310 million was recorded in the third quarter.
35
<PAGE>
Additionally, the coal market outlook for Mountain Coals operations in eastern
Kentucky reflects weak demand and lower prices, ongoing transportation and coal
quality disadvantages compared to other regions of Central Appalachia, and the
expiration of long-term contracts in 1995 and 1998. Over the last few years,
regional spot prices have declined significantly, which prompted adoption of a
revised mine plan to reduce costs. Under the revised mine plan, certain
operations eventually will be closed and changes in mining methods will be made
at other operations. Coal reserves were reduced by approximately 114 million
tons and, considering the expected continuation of current weak market
conditions, the Company wrote down its assets in Kentucky in the third quarter.
Coupled with certain accruals required as a result of the revised mine plan and
certain operational changes at other coal operations, a pretax charge of $135
million was recorded. The Wabash and Kentucky write-downs were calculated in
accordance with SFAS No. 121.
Coal production of 81 million tons and sales of 84 million tons in 1995 were 2
million tons and 3 million tons higher, respectively, than in 1994. During the
year, Cyprus Amax coal mines established 17 monthly production records. In
achieving a new monthly record in December, the Twentymile mine in Colorado
reclaimed the world record for monthly production from a single longwall
underground mine. Eleven of twenty-one domestic coal operations set annual
production records in 1995. The Company expects that 1996 production will
increase to about 85 million tons, including Cyprus Amax's 42 percent share of
Oakbridge Limited in Australia.
The 1995 average realization was $16.25 per ton, and the average cost of sales
was $14.73 per ton. This resulted in a profit margin of $1.52 per ton for the
year and cash margins of $4.06 per ton. This compares to an average realization
of $16.12, an average cost of sales of $14.69, yielding a profit margin of $1.43
and cash margins of $3.91 per ton for the full year 1994.
Demand during the fourth quarter of 1995 remained favorable and has continued
strong in early 1996 due to the cold weather in the Midwest and East. Utility
inventories are at normal levels in early 1996, while growth in demand for
compliance Western coals has leveled off. During the fourth quarter there were
no significant transportation problems, and in the future Cyprus Amax expects
western railroad rates to be very competitive, which would be expected to
enhance the market penetration of the Powder River Basin and Colorado low sulfur
coals further South and East. The weather in the East during January 1996
produced record snowfalls, and a subsequent rapid thaw caused localized flooding
and high water on many of the region's coal transporting rivers. January
production and shipments from the eastern operating regions, especially surface
mines in West Virginia, Kentucky, and Illinois were negatively affected by this
unusual weather.
Over 90 percent of Cyprus Amax coal is marketed to electric utilities with the
vast majority of customers in the United States. During 1995, Cyprus Amax
committed to 11 contracts, ranging from 2 to 10 years, for cumulative tons of
more than 13 million, with annual tonnage of 6 million in 1996. In excess of 85
percent of 1996 domestic production is committed for sale, with approximately 84
percent to be shipped under contracts with an initial term of at least one year.
Cyprus Amax's coal reserves totalled 2.6 billion tons (including Cyprus Amax's
share of Oakbridge) at December 31, 1995. Domestic reserves of 1.6 billion tons
are developed and assigned to operating mines and are comprised of approximately
74 percent compliance coal, 11 percent low sulfur coal, and the remainder high
sulfur coal. The compliance and low sulfur reserves satisfy the less than 2.5
pound sulfur dioxide Phase I (low sulfur) standard of the Clean Air Act, and the
developed compliance reserves satisfy the less than 1.2 pound sulfur dioxide
Phase II (compliance) standard, which will become effective in 2000. With this
large reserve base of compliance and low sulfur coal, in addition to diverse
geographical locations, Cyprus Amax believes that it has the resources and
market access to be a long-term competitive coal company.
36
<PAGE>
Additionally, through its interest in Oakbridge in Australia, Cyprus Amax has a
significant presence in the rapidly growing market for utility steam coal in the
Pacific Rim countries of Japan, Taiwan, and Korea. During 1995, Oakbridge's
production increased by two million tons due to the successful startup of the
South Bulga underground mine, which established itself as the most productive
longwall operation in Australia. Additionally, Oakbridge projects expansion of
its existing mines from present production of 13 million tons to over 16 million
tons by 1997. Also, in February 1996, Cyprus Amax acquired a 50 percent
interest in the Springvale underground coal mine in New South Wales, Australia
for $70 million. Cyprus Amax's share of production is projected to be 1 to 1.5
million tons per year which will be sold to both domestic Australia electric
generating markets and the Pacific Rim coal markets.
During the fourth quarter of 1995, the Company approved the construction of the
Willow Creek mine located near Price, Utah. Site preparation has commenced and
facilities construction will proceed over the next eighteen months. The mine is
designed to produce five million tons per year, and the longwall is projected to
start up in the second quarter of 1998.
<TABLE>
<CAPTION>
OTHER
SELECTED RESULTS (In millions)
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Lithium $ 28 $ 23 $ 22
Amax Gold (14) - -
Iron Ore - 34 13
Businesses Sold/Non-Operating (18) (5) 10
Exploration (33) (12) (25)
----- ----- -----
Segment Operating Income (Loss) $ (37) $ 40 $ 20
===== ===== =====
NOTE: SUPPLEMENTAL DATA (In millions)
Special Items $ - $ 39 $ -
</TABLE>
Other, which includes Lithium, Amax Gold, Iron Ore, Businesses Sold/Non-
Operating, and Exploration had a combined loss for 1995 of $37 million compared
to earnings of $40 million in 1994. Lithium earned a record $28 million in
1995, $5 million higher than in 1994, resulting from strong lithium carbonate
and downstream product sales, cost containment measures, and the results of
major reengineering efforts begun during 1994. Once completed these efforts
will result in the consolidation of U.S. operating locations. The Company
believes the global markets for lithium will remain strong in 1996.
Amax Gold's operating loss was $14 million for the year. During the year,
Cyprus Amax increased its ownership in Amax Gold from 42 percent to 51 percent
by exercising its option to convert an $80 million loan into Amax Gold Common
Stock. Additionally, in the fourth quarter of 1995, Cyprus Amax announced its
intent to sell its interest in the Russian Kubaka gold mine project to Amax Gold
for approximately 16 million shares of Amax Gold Common Stock. Closing is
expected in the second quarter of 1996. This sale will increase Cyprus Amax's
ownership in AGI to approximately 58 percent. For 1995, Amax Gold produced 238
thousand ounces of gold compared to 1994 production of 241 thousand ounces of
which Cyprus Amax's share was 108 thousand ounces and 96 thousand ounces,
respectively. Amax Gold's average realized price was $406 per ounce in 1995 and
$401 in 1994. AGI's average cash operating costs were reduced to $326 per ounce
in 1995 from $340 per ounce in 1994.
Construction of Refugio in Chile was completed in late 1995, with commercial
production beginning in the first quarter of 1996. Annual gold production is
expected to total over 100 thousand ounces for Amax Gold's account.
Construction began at the Fort Knox project in Alaska in March 1995 and
commercial
37
<PAGE>
production is expected in late 1996. The annual gold production is
estimated at more than 350 thousand ounces for the first five years of
production and more than 300 thousand ounces annually for the life of the mine.
Development of the Kubaka mine in Russia is well underway, with commercial
production expected to begin in early 1997. Amax Gold's initial annual share of
production is expected to be nearly 200 thousand ounces and average more than
150 thousand ounces annually over the first five years of its seven-year mine
life.
Cyprus Amax sold its Northshore iron ore mine and power plant in 1994. Iron Ore
earnings in 1994 were $34 million including the $28 million pretax gain on the
sale of the business in September 1994. Iron Ore earnings in 1993 were $13
million.
Businesses Sold/Non-Operating loss increased to $18 million in 1995 due to
increased environmental expense and other adjustments related to the 1994 sale
of oil and gas assets, as well as employee retirement costs for certain
nonoperating entities. Businesses Sold/Non-Operating loss in 1994 of $5 million
was unfavorable compared to 1993 due to the sale of South Pacific gold
operations in the first half of 1993.
Exploration expense of $33 million was $21 million higher than the 1994 expense
of $12 million due to the absence of an $11 million pretax gain on the sale of
the Company's interest in an Australian exploration project recorded in 1994,
the consolidation of Amax Gold in 1995, and increased efforts in searching for
new opportunities in gold and copper. Exploration expenditures primarily
related to projects in Canada, Australia, Peru, the United States, Panama,
Indonesia, Africa/Eurasia, Mexico, and Chile.
CORPORATE AND OTHER
Corporate expenses for 1995 were $57 million or $12 million higher than the same
period in 1994. The increase for the year primarily is due to an increased
provision for incentive compensation, higher outside costs for process
improvement projects, severance costs, and cost inflation.
Corporate expenses for 1994 totalled $45 million compared to $60 million in
1993. Excluding the merger and reorganization costs of $30 million, 1993
corporate expenses totalled $30 million. Expenses increased in 1994 due to the
incremental cost of the combined Cyprus Amax entity, an increase in stock
appreciation rights and incentive compensation, and cost inflation.
For 1995, net interest expense of $70 million decreased $4 million from 1994.
Interest expense increased $30 million to $137 million due to securing financing
for El Abra, Fort Knox, and Cerro Verde, higher interest expense associated with
the 1994 mining equipment sale-leaseback, and the placement of 7 3/8 percent
Notes. Capitalized interest increased $27 million to $43 million due to the
ongoing construction at El Abra, Fort Knox, and Kubaka. Additionally, interest
income increased by $7 million to $24 million in 1995. Net interest expense of
$74 million for 1994 increased $40 million compared with 1993 reflecting the
Amax debt assumed in the merger. In addition, capitalized interest increased $15
million versus 1993 due to El Abra mine development and the construction of the
Miami refinery.
Equity earnings of $8 million improved $20 million from 1994 primarily due to
the consolidation of Amax Gold's 1995 loss and an $8 million improvement in
Oakbridge's earnings to $7 million. Oakbridge's earnings improvement reflects
12 percent per ton higher realizations, 2 million tons higher sales, and
generally improved productivity. The loss on equity investments was $12 million
in 1994 compared to equity earnings of $8 million in 1993. Cyprus Amax's equity
share in Oakbridge's and Amax Gold's 1994 losses were $1 million and $12
million, respectively.
Income tax expense of $3 million for the full year 1995 reflects utilization of
investment tax credits.
38
<PAGE>
While general inflation rates have remained steady at about three percent over
the past three years, inflation has continued to affect costs. Higher costs for
compensation, benefits, and environmental compliance, coupled with inflation of
certain supplies and service costs, continue to increase mine operating costs.
Most of Cyprus Amax's products are commodities and therefore do not perform
consistently with inflation. The Company is continuing specific programs,
employing capital, and leveraging purchases to more than offset these increases,
as well as implementing quality improvement programs to increase productivity
and reduce costs.
ENVIRONMENTAL
During 1995, Cyprus Amax spent approximately $125 million for reclamation,
remediation, and environmental compliance compared to 1994 environmental
expenditures of about $107 million. About $19 million of the total 1995
spending was for capital expenditures, and $56 million was charged against
reserves. Environmental expenditures in 1996 are expected to total about $110
million with the decrease largely attributable to the completion of several
environmental projects in 1995.
At December 31, 1995, Cyprus Amax had short-term and long-term accruals of
approximately $411 million for expected mine closure, reclamation, and
environmental remediation liabilities compared to accruals of $399 million at
year-end 1994. The change from 1994 primarily is due to an increase in
reclamation reserves in Coal and the consolidation of Amax Gold's reclamation
reserves, somewhat offset by lower reserves remaining in Copper/Molybdenum and
for Superfund-type sites. Significant components of the year-end 1995 accrual
include $86 million for environmental remediation at Superfund and other similar
sites and $325 million for future reclamation and for closure of discontinued or
previously sold operations.
The reserves for future reclamation and closure include $178 million for the
Coal, $126 million for Copper/Molybdenum, and $ 21 million for Other. A
significant element of the Copper/Molybdenum segment reserves is $50 million for
the Climax mine, down from $59 million at the end of 1994 due to charges against
the reserve for tailings capping and water management work in 1995.
Cyprus Amax has been advised by the Environmental Protection Agency ("EPA") and
several state environmental agencies that it may be liable under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
or similar state laws and regulations ("Superfund"), for costs of correcting
environmental hazards at a number of sites which have been or are being
investigated by the EPA or states. The Company has estimated the cost range of
reasonably possible outcomes for all sites to be $60 million to $300 million, of
which $86 million is considered probable and has been accrued at December 31,
1995. Certain Superfund-type sites and mine reclamation liabilities are
discussed in Note 14 to the Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cyprus Amax remains in good financial position with a ratio of long-term debt to
total capitalization of 44.2 percent, a ratio of current assets to current
liabilities of 1.4 to 1.0, and a cash balance of $191 million at December 31,
1995.
During 1995, $697 million was generated from operating activities, before
changes in working capital; $598 million from financings of El Abra, Fort Knox,
Cerro Verde, Refugio, and Kubaka; $250 million from placement of notes from the
Company's universal shelf; and $77 million from the sale of assets. Those
sources of funds were sufficient to finance the cash requirements of $92 million
for dividends, capital expenditures of $929 million, production payments of $258
million, and advances primarily to El Abra of $145 million.
39
<PAGE>
In June 1995, Cyprus Amax finalized $750 million in project financing for
construction and development of the El Abra copper mine project in Chile.
Cyprus Amax also has funded an additional $276 million in subordinated debt for
the project. The project financing consists of $500 million being provided by
Japanese and German companies, all on a 12-year term, and a second consortium of
commercial banks syndicating $250 million on a 10-year term. Cyprus Amax has
guaranteed completion of the oxide mine. In addition, the U.S. Export/Import
Bank has committed to provide up to $150 million of funding once the project is
completed. At December 31, 1995, $519 million of borrowings were outstanding on
the senior financing arrangements of which Cyprus Amax's proportionally
consolidated share was $265 million.
Cerro Verde completed a $110 million line of credit in Peru, which is guaranteed
by Cyprus Amax. At December 31, 1995, $75 million had been borrowed under this
line of credit.
During 1995, the partners in the Kubaka gold project in Russia, of which Cyprus
Amax owns 50 percent, signed project financing loan agreements with the U.S.
Overseas Private Investment Corporation (OPIC) and the European Bank for
Reconstruction and Development totalling $100 million for mine development.
Cyprus Amax has guaranteed the debt. Additionally, OPIC is providing political
risk insurance. At December 31, 1995, $30 million had been borrowed of which
Cyprus Amax's share was $15 million. An additional $40 million was borrowed in
January 1996 of which the Company's share was $20 million.
In February 1995, Compania Minera Maricunga, a 50 percent-owned subsidiary of
Amax Gold, borrowed $85 million for the Refugio project in Chile. Amax Gold and
the other 50 percent owner are guarantors on a several and proportionate basis
until completion tests are achieved, at which time the loan becomes non-recourse
to Amax Gold. At December 31, 1995, the full amount was outstanding of which
Amax Gold's portion was $43 million.
In October 1995, Amax Gold finalized a loan agreement for $250 million to be
used for construction of the Fort Knox project and repayment of certain existing
indebtedness. Cyprus Amax has agreed, under the Fort Knox loan agreement, to
maintain and make available to Amax Gold $70 million under a double-convertible
line of credit until completion of Fort Knox and $100 million after completion.
At December 31, 1995, $200 million had been borrowed on the Fort Knox loan. An
additional $34 million was borrowed in January 1996. Amax Gold announced in
February 1996 that due to more difficult site conditions at the Fort Knox
project, design enhancements and expanded excavation work will result in higher
project costs in the range of $50 to $75 million. As a result, Amax Gold is
reviewing the status of the project with its lender and is working to resolve
certain issues pertaining to compliance with or amendment of its financing
arrangements.
In May 1995, Cyprus Amax placed $250 million of 7 3/8 percent Notes due 2007
from its 1994 universal shelf. The majority of the proceeds were used to prepay
$213 million of the coal production payments. In August 1995, Cyprus Amax filed
a universal shelf registration statement with the Securities and Exchange
Commission that permits the Company to sell an aggregate of up to $600 million
of securities. This shelf registration is intended to promote Cyprus Amax's
financial flexibility and the ability to access markets on a timely basis. As of
December 31, 1995, there were no drawdowns on the shelf, and there are no
current plans to utilize the shelf unless market opportunities or additional
cash requirements occur.
Non-cash working capital decreased to $101 million during 1995 from $284 million
in 1994. Short-term debt and the current portion of long-term debt increased by
$104 million primarily due to the Cerro Verde borrowings of $75 million, and net
line of credit borrowings of $25 million, partially offset by repayment of coal
production payments of $21 million. Accounts payable and accrued liabilities
increased $74 million primarily due to the consolidation of Amax Gold and $20
million associated with the coal write-downs.
40
<PAGE>
In 1995 capital expenditures, excluding capitalized interest, totalled $929
million, with over $600 million being invested in the five major development
projects. Total capital for Copper/Molybdenum was about $540 million, of which
construction costs at El Abra for the continued development of the oxide ore
body were $319 million and capital expenditures at Cerro Verde for the SX-EW and
leach expansion were $64 million. Major expenditures at the Arizona copper
mines included $34 million for mining equipment.
Coal capital expenditures of $135 million included $30 million for the
development of the Twentymile East Mine district and Emerald expansion and the
remainder for sustaining and replacement capital. Other capital expenditures
included Amax Gold's expenditures of $206 million primarily for the Fort Knox
and Refugio projects.
Capital spending in 1996 is expected to be approximately $450 million for the
four remaining major development projects, $250 million for sustaining capital
and cost reduction, and potentially $150 million for various additional
equipment and projects, totalling $850 million. Copper/Molybdenum capital
expenditures are estimated at $435 million. Major expenditures include about
$125 million for continued development of the oxide ore body at El Abra and
about $110 million for the SX-EW and leach plant expansion and mining equipment
at Cerro Verde. In addition, approximately $55 million will be spent at the
Arizona operations for purchasing additional mining equipment, $15 million for
acid plant optimization at Miami, and a new crusher and conveyor system at
Sierrita. Coal expects to spend approximately $195 million in 1996, including
$44 million in Utah primarily for the development of the Willow Creek mine and
$40 million in Colorado primarily for a new longwall and conveyance equipment to
improve productivity. Amax Gold's capital expenditures are estimated at $200
million, with approximately $160 million for continued development of the Fort
Knox project and $40 million for the Kubaka project.
In 1994 and 1995, Cyprus Amax signed two Revolving Credit Agreements (DOCLOC I
and II) with AGI whereby the Company would provide AGI with $180 million in
revolving credits which may be repaid with the issuance of AGI Convertible
Preferred Stock. Both companies have conversion rights that permit conversion
of the outstanding loan balance into Amax Gold Common Stock at stated conversion
prices. During the third quarter of 1995, Cyprus Amax exercised options under
the 1995 $80 million double-convertible revolving credit agreement with Amax
Gold to convert the $80 million of outstanding borrowings to common stock.
This, along with payment in stock of interest due under DOCLOC II, increased
Cyprus Amax's ownership of Amax Gold to approximately 51 percent.
During 1996, Cyprus Amax expects to be able to provide sufficient funds for
general corporate purposes, including capital expenditures and acquisitions,
through internally generated funds and existing or new borrowings. Cyprus Amax
paid regular dividends of $.80 per common share and $4.00 per preferred share
during 1995.
41
<PAGE>
REPORT OF MANAGEMENT
The management of Cyprus Amax Minerals Company is responsible for the integrity
and objectivity of the financial statements and other financial information
contained in this Annual Report. The financial statements were prepared in
accordance with generally accepted accounting principles and include estimates
that are based on management's best judgment.
Cyprus Amax maintains an internal control system which includes formal policies
and procedures designed to provide reasonable assurance that assets are
safeguarded and transactions are properly recorded and executed in accordance
with management's authorization. Cyprus Amax's internal audit function audits
compliance with the internal control system and issues reports to Cyprus Amax's
management and the Audit Committee of the Board of Directors.
Cyprus Amax's financial statements have been audited by Price Waterhouse LLP,
whose appointment is ratified yearly by the shareholders at the annual
shareholders' meeting. Price Waterhouse LLP conducted their audit in accordance
with generally accepted auditing standards. These standards include an
evaluation of internal accounting controls in establishing the scope of audit
testing necessary to allow them to render an independent professional opinion on
the fairness of Cyprus Amax's financial statements.
The Audit Committee of the Board of Directors, composed solely of directors who
are not Cyprus Amax employees, meets periodically with representatives of
management and Price Waterhouse LLP to review their work and ensure that they
are properly discharging their responsibilities.
/s/ Milton H. Ward
Milton H. Ward
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Gerald J. Malys
Gerald J. Malys
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ John Taraba
John Taraba
Vice President and Controller
(Principal Accounting Officer)
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Cyprus Amax Minerals Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity, and of cash
flows present fairly, in all material respects, the financial position of Cyprus
Amax Minerals Company and its subsidiaries at December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Notes 2 and 5 to the financial statements, Cyprus Amax adopted
in 1995 the provisions of Statement of Financial Accounting Standards No. 121
for the impairment of long-lived assets.
/s/ Price Waterhouse LLP
Denver, Colorado
February 14, 1996
43
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
(In millions except per share data) 1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
REVENUE $3,207 $2,788 $1,763
------- ------- -------
COSTS AND EXPENSES
Cost of Sales 2,108 2,071 1,333
Selling and Administrative Expenses 143 111 70
Depreciation, Depletion, and Amortization 296 253 145
Write-Downs 445 10 -
Merger and Reorganization Expenses - 13 33
Exploration Expense 33 23 25
------- ------- -------
TOTAL COSTS AND EXPENSES 3,025 2,481 1,606
------- ------- -------
INCOME FROM OPERATIONS 182 307 157
OTHER INCOME (EXPENSE)
Interest Income 24 17 7
Interest Expense (137) (107) (42)
Capitalized Interest 43 16 1
Earnings (Loss) on Equity Investments and Other 8 (12) 7
------- ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 120 221 130
Income Tax Provision (3) (55) (31)
Minority Interest 7 - 1
------- ------- -------
INCOME FROM CONTINUING OPERATIONS 124 166 100
Income from Operations of Discontinued Oil and
Gas Division, Net of Applicable Taxes of $2 - 9 -
------- ------- -------
NET INCOME 124 175 100
Preferred Stock Dividends (19) (18) (2)
------- ------- -------
INCOME APPLICABLE TO COMMON SHARES $ 105 $ 157 $ 98
======= ======= =======
EARNINGS PER COMMON SHARE
Primary and Fully Diluted/(1)/
Income From Continuing Operations $ 1.13 $ 1.59 $ 1.85
Income From Operations of Discontinued Oil and
Gas Division, Net of Taxes - .10 -
------ ------ ------
$ 1.13 $ 1.69 $ 1.85
====== ====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Primary 93 93 53
Fully Diluted 103 102 54
</TABLE>
/(1)/ Fully diluted earnings per share were anti-dilutive in 1995 and 1994 and
were less than three percent different than primary earnings per share in
1993.
The accompanying notes are an integral part of these statements.
44
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31 (In millions except share amounts) 1995 1994
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 191 $ 139
Accounts and Notes Receivable, Net 320 350
Inventories 447 453
Prepaid Expenses 119 73
Deferred Income Taxes 13 26
------- -------
Total Current Assets 1,090 1,041
------- -------
PROPERTIES - At Cost, Net 4,601 3,925
OTHER ASSETS 505 441
------- -------
TOTAL ASSETS $6,196 $5,407
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 109 $ 13
Current Portion of Long-Term Debt 63 55
Accounts Payable 157 144
Accrued Payroll and Benefits 98 92
Accrued Royalties and Interest 55 36
Accrued Closure, Reclamation, and Environmental 63 31
Other Accrued Liabilities 115 111
Taxes Payable Other Than Income Taxes 58 61
Income Taxes Payable 61 57
Dividends Payable 19 18
------- -------
Total Current Liabilities 798 618
------- -------
NONCURRENT LIABILITIES AND DEFERRED CREDITS
Long-Term Debt and Production Payments 1,734 1,191
Capital Lease Obligations 143 200
Deferred Employee and Retiree Benefits 412 405
Deferred Closure, Reclamation, and Environmental 348 368
Deferred Income Taxes 58 125
Other 170 167
------- -------
Total Noncurrent Liabilities and Deferred Credits 2,865 2,456
------- -------
COMMITMENTS AND CONTINGENCIES (NOTES 14 AND 16) - -
MINORITY INTEREST 168 4
------- -------
SHAREHOLDERS' EQUITY
Preferred Stock, $1 Par Value, 20,000,000 Shares Authorized:
$4.00 Series A Convertible Stock, $50 Stated Value,
4,664,783 Shares Issued in 1995 and 4,666,635 in 1994 5 5
Common Stock, Without Par Value, 150,000,000 Shares Authorized,
96,030,198 Shares Issued in 1995 and 96,026,546 in 1994 1 1
Paid-In Surplus 2,956 2,961
Accumulated Deficit (465) (496)
Other 2 7
------- -------
2,499 2,478
Treasury Stock at Cost, 3,066,615 Shares in 1995
and 3,460,078 in 1994 (70) (80)
Loan to Savings Plan (64) (69)
------- -------
Total Shareholders' Equity 2,365 2,329
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,196 $5,407
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
45
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1995 1994 1993
-------- ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income from Continuing Operations $ 124 $ 166 $ 100
Adjustments to Reconcile Net Income to Net
Cash Provided by Continuing Operations:
Depreciation, Depletion, and Amortization 296 253 145
Write-Downs 445 10 -
Deferred Income Taxes (67) (30) 20
Gain on Sales of Assets and LTV Claims (13) (43) (109)
Issuance of Stock for Employee Benefits 6 20 8
Other, Net 27 39 11
Changes in Assets and Liabilities Net of Effects from
Businesses Acquired/Sold:
(Increase) Decrease in Receivables 24 (21) (36)
(Increase) Decrease in Inventories 8 (9) 47
Increase in Prepaid Expenses (28) (29) (25)
Decrease in Current Liabilities (26) (100) (57)
Increase in Other Assets (15) (35) (17)
Decrease in Other Liabilities (106) (70) (13)
-------- ------ ------
NET CASH PROVIDED BY CONTINUING OPERATIONS 675 151 74
-------- ------ ------
Net Income from Discontinued Operations - 9 -
Adjustments to Reconcile Net Income to Net Cash
Used for Discontinued Operations:
Depreciation, Depletion, and Amortization - 14 -
Changes in Assets and Liabilities - (64) -
-------- ------ ------
NET CASH USED FOR DISCONTINUED OPERATIONS - (41) -
-------- ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 675 110 74
-------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (929) (359) (266)
Payments for Businesses Purchased - (361) (167)
Capitalized Interest (43) (16) -
Advances to and Investments in Affiliates (145) (75) -
Proceeds from Sales of Assets and LTV Claims 77 915 285
Cash Effect of Consolidating Amax Gold Inc. 37 - -
-------- ------ ------
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES (1,003) 104 (148)
-------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale Leaseback - 156 -
Net Proceeds from Issuance of Long-Term Debt 770 - 394
Payments on Long-Term Debt (118) (186) (65)
Net Borrowings on Short-Term Debt 125 151 -
Payments on Short-Term Debt (29) (151) (222)
Production Payments (258) (42) (7)
Payments on Capital Lease Obligations (13) (5) (1)
Purchase of Treasury Stock - - (5)
Proceeds from Issuance of Stock for Employee Benefits 3 7 2
Dividends Paid (92) (101) (42)
Dividends to Minority Interests (8) - -
-------- ------ ------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 380 (171) 54
-------- ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 52 43 (20)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 139 96 116
-------- ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 191 $ 139 $ 96
======== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
46
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- ------------------- Loan to
Shares Net Shares Paid-In Accumulated Treasury Savings
(In millions) Outstanding Amount Outstanding Amount Surplus Deficit Other Stock Plan
----------- ------ ----------- ------ -------- ------------ ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1992 - $ - 47 $ 1 $1,725 $ (622) $ - $ (100) $ (80)
Net Income 100
Dividends
Preferred Stock, Series A (2)
Common Stock (47)
Common Stock Issued for
Employee Benefit Plans, Exercise of
Stock Options and Change of Control 5 5
Shares Issued in Connection with
Merger
Preferred Stock, Series A 5 5 229
Common Stock 44 1,008 (3)
Purchase of Common Stock (5)
Foreign Currency Translation
Adjustment (2)
----------- ------ ----------- ------ -------- ------------ ------ --------- --------
December 31, 1993 5 5 91 1 2,962 (571) (2) (103) (75)
Net Income 175
Dividends
Preferred Stock, Series A (17)
Common Stock (83)
Common Stock Issued for
Employee Benefit Plans, Exercise of
Stock Options and Change of Control 1 (1) 23 6
Unrealized Gain on Securities
Available for Sale 1
Foreign Currency Translation
Adjustment 8
----------- ------ ----------- ------ -------- ------------ ------ --------- --------
DECEMBER 31, 1994 5 5 92 1 2,961 (496) 7 (80) (69)
NET INCOME 124
DIVIDENDS
PREFERRED STOCK, SERIES A (19)
COMMON STOCK (74)
COMMON STOCK ISSUED FOR
EMPLOYEE BENEFIT PLANS AND
EXERCISE OF STOCK OPTIONS 1 (5) 10 5
UNREALIZED LOSS ON SECURITIES
AVAILABLE FOR SALE (3)
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (2)
----------- ------ ----------- ------ -------- ------------ ------ --------- --------
DECEMBER 31, 1995 5 $ 5 93 $ 1 $2,956 $ (465) $ 2 $ (70) $ (64)
=========== ====== =========== ====== ======== ============ ====== ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
47
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS
Cyprus Amax Minerals Company (Cyprus Amax or the Company) is a diversified
mining company engaged, directly or through its subsidiaries and affiliates, in
the exploration for and extraction, processing, and marketing of mineral
resources. Cyprus Amax operates in three principal industry segments:
Copper/Molybdenum, Coal, and Other (which includes Lithium and Amax Gold).
The Copper/Molybdenum segment explores for, mines, processes, and markets copper
and molybdenum and certain other by-product minerals in North and South America.
The Company operates three major copper mines in Arizona, one in Peru, and one
primary molybdenum mine in Colorado. Additionally, the Company operates two
copper rod plants, a copper smelter, and a refinery in the United States. The
Company also processes molybdenum concentrates at its conversion plants in the
United States and Europe into such products as technical grade molybdic oxide,
ferromolybdenum, pure molybdic oxide, and other chemicals. In June 1994, Cyprus
Amax acquired a 51 percent interest in El Abra, a significant copper deposit in
Chile. Construction commenced in February 1995, with initial production
projected in the fourth quarter 1996 and full production late in the first
quarter of 1997. El Abra should produce annually about 250 million pounds of
copper (Cyprus Amax's share), or about 25 percent of the total projected Cyprus
Amax production for 1997. Substantially all of Cyprus Amax's copper metal
production is committed under sales agreements with metal fabricators at prices
which fluctuate with commodity exchange quotations, and approximately 15 percent
of copper/molybdenum sales were for export markets. The Company uses various
price protection programs to ameliorate the adverse effect of low prices for its
copper production for the subsequent one to two year period. Sales to one
customer in 1995 accounted for 11 percent of copper and molybdenum revenue. The
Company does not believe that the loss of any one customer would have a material
adverse effect on the results of Cyprus Amax, and since copper and molybdenum
are internationally traded, the sales should be readily replaced.
The Coal segment mines, cleans, markets, and sells coal to electric utilities
and industrial users. The majority of the Company's coal is produced in the
United States and sold to domestic electric utilities under term contracts, with
an initial term of at least one year. Coal is typically sold under term
contracts at fixed prices subject to escalation, de-escalation, and
renegotiation. As Cyprus Amax increases its coal production, an increasing
amount will be sold in spot markets or under shorter term contracts. Sales to
one customer in 1995 accounted for 12 percent of coal revenue. Loss of any one
customer would not have a material adverse effect on the results of Cyprus Amax.
The Coal segment has 21 domestic operating mines of which 13 are governed by
union contracts. This accounts for approximately 57 percent of Coal's employees
and 36 percent of production. The contract with the United Mine Workers of
America, which covers all the union coal sites except Empire, Mountain Coals,
and Sycamore, expires in August of 1998; however, in December 1996 the union has
the right to renegotiate wages and pensions, and both parties have the right to
renegotiate health care benefits.
The Lithium division is a major producer of lithium with production facilities
in the United States and Chile. Lithium and lithium compounds are sold
worldwide to such diverse businesses as aluminum smelting, ceramics, lubricants,
specialty glass, synthetic rubber, plastics, batteries, alloys, and
pharmaceuticals. The various lithium products are sold under a combination of
long- and short-term contracts, with approximately 55 percent sold in foreign
markets. Sales to one customer accounted for 15 percent of lithium revenue in
1995. Loss of any one customer would not have a material adverse effect on the
results of Cyprus Amax.
Cyprus Amax owns 51 percent of Amax Gold Inc. (Amax Gold or AGI) which is
engaged in the mining and processing of gold and silver ore and in the
exploration for, and acquisition and development of, gold-bearing properties,
principally in North, Central, and South America. Amax Gold completed
construction of the Refugio gold project in Chile in late 1995 with production
beginning early in 1996, and annual gold production is expected to total over
100 thousand ounces. Also, projects under construction include Fort Knox in
Alaska and Kubaka in Russia; commercial production is expected to commence in
late 1996 and early 1997, respectively. Fort
48
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Knox's annual production is expected to be more than 350 thousand ounces during
the first five years, and Kubaka's production should average more than 150
thousand ounces per year over the first five years of its seven-year mine life.
In the fourth quarter of 1995, Cyprus Amax announced its intent to sell its
interest in the Kubaka gold mine project to Amax Gold, with closing expected
early in 1996. Amax Gold sells all of its refined gold to banks and other
bullion dealers, utilizing a variety of hedging techniques, and the majority of
its 1995 sales were export sales made to Europe. The profitability of Amax
Gold's operations is significantly affected by the market price of gold, which
historically has fluctuated widely and is affected by numerous factors.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The financial statements include the accounts of
Cyprus Amax Minerals Company and related entities which it controls.
Investments in companies over which the Company can exercise significant
influence but not control, are accounted for using the equity method.
Investments in joint ventures are accounted for using proportionate
consolidation, consistent with accepted mining industry practice. Also, as the
result of the execution of certain financing arrangements which led to an
increased ownership position in Amax Gold to 51 percent, Cyprus Amax
consolidated Amax Gold effective January 1, 1995.
EARNINGS PER SHARE - Primary earnings per common share are determined by
dividing net income as reduced by preferred stock dividends by the weighted
average number of common shares outstanding during the year. Fully diluted
earnings per share are determined by dividing net income by the weighted average
number of common shares and common stock equivalents outstanding plus shares
which would be issued upon conversion of the preferred stock.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents. Overdrafts representing outstanding checks in excess of funds on
deposit are classified as accounts payable.
INVENTORIES - Inventories are carried at the lower of current market value or
cost. Coal product inventories and materials and supplies inventories are
generally valued on the basis of average costs. Molybdenum and Gold inventories
are computed on the last-in, first-out (LIFO) method. The costs of all other
product inventories are determined on the first-in, first-out (FIFO) method.
PROPERTIES - Costs for mineral rights and certain tangible assets, and mine
development costs incurred to expand capacity of operating mines, develop new
ore bodies, or develop mine areas substantially in advance of current production
are capitalized and generally charged to operations on the units-of-production
method. Mobile mining equipment and most other assets are depreciated on a
straight-line basis over their estimated useful lives. Interest costs for the
construction or development of significant long-term assets are capitalized and
amortized over the related assets' estimated useful lives or the life of the
mine, whichever is shorter. Gains or losses upon retirement or replacement of
equipment and facilities are credited or charged to income.
IMPAIRMENT OF LONG-LIVED ASSETS - In the third quarter of 1995, Cyprus Amax
adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" (Note 5). SFAS No. 121 prescribes that an impairment loss is recognized in
the event that facts and circumstances indicate that the carrying amount of an
asset may not be recoverable, and an estimate of future undiscounted cash flows
is less than the carrying amount of the asset. Impairment is recorded based on
an estimate of future discounted cash flows.
EXPLORATION - Expenditures incurred in the search for mineral deposits and the
determination of the commercial viability of such deposits are charged against
income as incurred.
49
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES - The provision for income taxes includes federal, state, and
foreign income taxes currently payable and deferred based on currently enacted
tax laws. Deferred income taxes are provided for the tax consequences of
differences between the financial statement and tax basis of assets and
liabilities.
Deferred income taxes have not been provided on the Company's share of
undistributed earnings of foreign subsidiaries and unconsolidated affiliates
because the Company considers such earnings to be reinvested indefinitely. It
is not practical to estimate the amount of taxes that might be payable on the
eventual remittance of such earnings. On remittance, certain countries impose
withholding taxes that, subject to certain limitations, would generate tax
credits that would substantially reduce any U.S. tax.
TRANSLATION OF FOREIGN CURRENCIES - Amounts in foreign currencies are translated
into U.S. dollars using the translation procedures specified in SFAS No. 52.
When local functional currency is translated to U.S. dollars, the effects are
recorded as a separate component of shareholders' equity. For foreign
subsidiaries with U.S. dollar functional currency, the effects of remeasurement
are included in income. Exchange gains and losses arising from transactions
denominated in a foreign currency are translated at average exchange rates and
included in income.
HEDGING PROGRAMS -The Company's use of derivative financial instruments is
principally limited to management of interest rate and commodity price risks.
The Company may use price protection programs to reduce or eliminate the risk of
metal price declines on a portion of its future copper or gold sales. Premiums
paid are amortized during the period in which the options are exercisable. Gains
and losses on such transactions are matched to product sales and charged or
credited to sales revenue when that product is sold.
The Company may enter into interest rate swap agreements or options to limit the
effect of increases in interest rates on floating debt or to take advantage of
lower rates on fixed debt. The differences to be paid or received on these
agreements are included in interest expense as incurred.
RECLAMATION AND ENVIRONMENTAL COSTS - Minimum standards for mine reclamation
have been established by various governmental agencies which affect certain
operations of the Company. Certain reclamation is performed and expensed on an
ongoing basis as mining operations are performed. The remaining reclamation
costs are related to mine closure and are accrued and charged against income on
a units-of-production basis over the life of the mine. Cyprus Amax is subject
to various environmental regulations. Environmental liabilities are accrued on
an ongoing basis when such losses are probable and reasonably estimable and
reflect management's best estimates of future obligations. Costs of future
expenditures for environmental remediation obligations are not discounted to
their present value.
STOCK-BASED COMPENSATION - SFAS No. 123, "Accounting for Stock-Based
Compensation," was issued in 1995 with a disclosure effective date of fiscal
years beginning after December 15, 1995. Cyprus Amax has elected that upon
adoption in 1996, it will continue to measure compensation cost using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and will make pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting as defined in SFAS No. 123 had been applied.
USE OF ESTIMATES - The preparation of Cyprus Amax's consolidated financial
statements in conformity with generally accepted accounting principles requires
Cyprus Amax's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes. The more
significant areas requiring the use of management estimates relate to mineral
reserves, reclamation and environmental obligations, postemployment,
postretirement and other employee benefit liabilities, valuation allowances for
deferred tax
50
<PAGE>
CYRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
assets, fair value of financial instruments, future cash flows associated with
assets, and useful lives for depreciation, depletion, and amortization. Actual
results could differ from those estimated.
NOTE 3: MERGER
On November 15, 1993, Amax Inc. (Amax) merged with and into Cyprus, with Cyprus
being the surviving corporation, and was renamed Cyprus Amax Minerals Company.
In the merger, each share of Common Stock of Amax was converted into one-half
share of Common Stock of Cyprus Amax, resulting in the issuance of 44,351,093
shares. Each share of Amax $4.00 Series A Convertible Preferred Stock was
converted into two-thirds share of Convertible Preferred Stock of Cyprus Amax
and into one-third share of Preferred Stock of Alumax Inc. (Alumax), resulting
in the issuance of 4,666,653 shares of Cyprus Amax Preferred Stock. Immediately
prior to the merger, Amax distributed to its common shareholders one-half share
of Common Stock of Alumax per share of Amax Common Stock and 21.8 million shares
of Amax Gold Inc. Common Stock. As a result, Cyprus Amax retained 31.3 million
shares of Amax Gold or approximately 40 percent.
The merger was accounted for using the purchase method of accounting and,
accordingly, the results of the merged Amax businesses have been included in the
accompanying consolidated financial statements from the date of the merger. The
purchase price was allocated based on estimated fair market values at the date
of acquisition. Assets acquired were $3.9 billion, and liabilities assumed
totalled $2.7 billion.
The 44.4 million shares of Cyprus Amax Common Stock issued in the merger were
valued at $1 billion, and the 4.7 million shares of Preferred Stock were valued
at $233 million. Transaction costs associated with the merger, primarily for
severance and change of control costs, settlement of Amax options, and other
financial expenses were $160 million in 1993, of which $25 million was expensed.
NOTE 4: BUSINESS ACQUISITIONS AND DISPOSITIONS
On October 31, 1995, Cyprus Amax sold substantially all of the assets of the
Climax Specialty Metals Division of Climax Performance Materials Corporation to
CSM Industries, Inc.
On September 30, 1994, Cyprus Amax sold its Northshore iron ore mine and
processing facilities and the adjacent power plant to Cleveland-Cliffs Inc. for
cash proceeds of $94 million. The terms of the sale included possible
contingent payments to Cyprus Amax.
On June 28, 1994, Cyprus Amax acquired a 51 percent interest in Sociedad
Contractual Minera El Abra, which owns the mineral rights to the El Abra copper
deposit in Chile, for $330 million.
On March 31, 1994, Cyprus Amax sold its wholly owned subsidiary, Amax Oil & Gas,
Inc., to Union Pacific Resources Company for approximately $819 million in gross
proceeds or $680 million in after-tax net proceeds. During the first quarter of
1994, Amax Oil & Gas, Inc. reported income from discontinued operations of $9
million after tax and earnings per share of $.10.
On March 21, 1994, Cyprus Amax acquired approximately 91.5 percent of the shares
of Sociedad Minera Cerro Verde, S.A., which owns and operates a producing copper
mine in Peru, at a cost of approximately $31 million.
During 1993, Cyprus acquired McIlwraith McEacharn Ltd. of Sydney, Australia,
which owns a 40 percent interest in Oakbridge Limited of Australia. Cyprus also
acquired U.S. Steel Mining Co., Inc.'s Cumberland mine in Greene County,
Pennsylvania.
51
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the fourth quarter of 1993, Cyprus sold its Thompson Creek mine and mill in
Idaho which was on a standby status. In the first half of 1993, Cyprus sold its
interests in two gold mines, the Selwyn mine in Australia and the Golden Cross
mine in New Zealand. The Company also sold its beryllium and barite assets and
its 40 percent interest in the Bismark zinc mine in Mexico. The results of the
dispositions were not material to the 1993 consolidated financial statements.
NOTE 5: WRITE-DOWN OF ASSETS AND REORGANIZATION COSTS
In the third quarter of 1995, a $445 million pretax charge was recorded to write
down certain coal assets and to provide for associated liabilities. On August
9, 1995, Amax Coal signed a new definitive coal contract with PSI Energy, Inc.
that settled arbitration matters and disputes related to the prior contract.
Amax Coal and PSI Energy had been in arbitration for several years over various
matters related to the prior contract. Terms of the new agreement call for a
reduction in price with a move toward market price by the year 2000. The new
contract provides an eight-year extension of the term and grants Amax Coal
operating flexibility which resulted in a new mine plan and will assist in cost
reduction efforts. Although reserves increased 20 million tons due to the
revised mine plan, a pretax write-down of the carrying value of the Wabash
mine's assets of $310 million was recorded in the third quarter.
Additionally, the coal market outlook for Mountain Coals operations in eastern
Kentucky reflects weak demand and lower prices, ongoing transportation and coal
quality disadvantages compared to other regions of Central Appalachia, and the
expiration of long-term contracts in 1995 and 1998. Over the last few years,
regional spot prices have declined significantly, which prompted adoption of a
revised mine plan to reduce costs. Under the revised mine plan, certain
operations eventually will be closed and changes in mining methods will be made
at other operations. Coal reserves were reduced by approximately 114 million
tons and, considering the expected continuation of current weak market
conditions, the Company wrote down its assets in Kentucky in the third quarter.
Coupled with certain accruals required as a result of the revised mine plan and
certain operational changes at other coal operations, a pretax charge of $135
million was recorded. The Wabash and Kentucky write-downs were calculated in
accordance with SFAS No. 121.
In the third quarter of 1994, a $13 million pretax charge for workforce
reduction programs was recorded for two copper mines. Additionally, a $10
million pretax write-down was recorded for the anticipated closure of the
Orchard Valley coal mine.
NOTE 6: INVENTORIES
Inventories detailed by component and industry segment are summarized below:
<TABLE>
<CAPTION>
At December 31 (In millions) 1995 1994
----- -----
<S> <C> <C>
Component
Ores, Concentrates and Other
In-Process Inventories $ 212 $ 193
Finished Goods 156 182
Materials and Supplies 79 78
----- -----
$ 447 $ 453
===== =====
</TABLE>
52
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
At December 31 (In millions) 1995 1994
----- -----
<S> <C> <C>
Industry Segment
Copper/Molybdenum $ 276 $ 288
Coal 113 132
Other 58 33
----- -----
$ 447 $ 453
===== =====
</TABLE>
The excess of estimated replacement cost over the LIFO basis was $50 million at
December 31, 1995 and $34 million at December 31, 1994.
53
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
NOTE 7: PROPERTIES
At December 31 (In millions) 1995 1994
-------- --------
<S> <C> <C>
Copper/Molybdenum $ 3,029 $ 2,475
Coal 2,869 2,727
Other 1,035 188
-------- --------
6,933 5,390
Less: Accumulated Depreciation, Depletion,
Amortization, and Write-downs (2,332) (1,465)
-------- --------
Net Properties $ 4,601 $ 3,925
======== ========
Net Properties consists of the following:
Property, Plant, and Equipment $ 2,684 $ 1,688
Reserves/Mineral Rights, Sales Contracts 1,917 2,237
-------- --------
Net Properties $ 4,601 $ 3,925
======== ========
NOTE 8: DEBT
At December 31 (In millions) 1995 1994
------- -------
10 1/8% Notes, Due 2002 $ 150 $ 150
9 7/8% Notes, Due 2001 300 300
8 3/8% Debentures, Due 2023 150 150
7 3/8% Notes, Due 2007 250 -
6 5/8% Notes, Due 2005 250 250
Capital Lease Obligations,
Interest Rates Range from 8.4% to 12.0%,
Due from 1996 through 2005 167 208
Production Payments, 7.0% for 1995, Due 1996 25 283
El Abra Project Financing, 7.1% for 1995, Due from 1997
through 2006 265 -
Fort Knox Financing, 8.3% for 1995, Due from 1997
through 2001 200 -
Refugio Project Financing, 5.4% for 1995, Due from 1996
through 2001 43 -
Kubaka Project Financing, 8.8% for 1995, Due from 1997
through 2001 15 -
Other 91 63
-------- --------
1,906 1,404
Add: Unamortized Net Premium 34 42
-------- --------
1,940 1,446
Less: Current Portion (63) (55)
-------- --------
Long-Term Debt and Capital Lease Obligations $ 1,877 $ 1,391
======== ========
</TABLE>
Scheduled debt maturities (in millions), excluding capital lease obligations,
as of December 31, 1995, for the next five years are $39, $62, $105, $108, and
$108 for 1996, 1997, 1998, 1999, and 2000, respectively.
54
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In April 1990, Cyprus issued $150 million of 10 1/8 percent Notes, due in 2002.
Interest on the Notes is paid semi-annually on April 1 and October 1. In the
event of both a Designated Event and a Rating Decline (as defined in the
agreement), each holder of a Note may require the Company to redeem the holder's
Notes, in whole or in part, at 100 percent of the principal amount plus accrued
interest to the date of redemption.
In February 1993, the Company issued $150 million of 8 3/8 percent Debentures
due in 2023 (the "Debentures"). The Debentures bear interest payable semi-
annually on February 1 and August 1 of each year. The Debentures are not
redeemable prior to February 1, 2003. On and after such date, at the option of
the Company, the Debentures may be redeemed in whole or in part at 103.73
percent of the principal amount, together with any accrued and unpaid interest,
declining at the rate of .375 percent per year to February 1, 2013, and at 100
percent thereafter. The Debentures are general unsecured obligations of the
Company and rank senior in right of payment to all subordinated securities.
In October 1993, the Company issued $250 million of 6 5/8 percent Notes due
October 15, 2005, at a discount, priced at 99.392 percent to yield 6.70 percent.
Interest on the Notes is paid semi-annually on October 15 and April 15. The
Notes are not redeemable by the Company prior to maturity.
The 9 7/8 percent Notes due June 13, 2001, are not redeemable prior to maturity
and are secured by certain principal property of the Company. The interest is
paid semi-annually on June 13 and December 13. This debt was assumed in the
Cyprus and Amax merger and was fair valued to reflect the current interest rate.
The premium is amortized over the term of the Notes and is reflected as a
reduction in interest expense.
In December 1994, the Company closed a sale-leaseback transaction for mobile
mining equipment and a longwall mining system with proceeds of $156 million (see
Note 16). Proceeds from this transaction were used to retire $150 million of 14
1/2 percent Notes due in December 1994.
In the second quarter of 1995, the partners in the Kubaka gold project, of which
Cyprus Amax currently owns 50 percent, signed project financing loan agreements
totalling $100 million for mine development. Cyprus Amax has guaranteed the
debt. At December 31, 1995, $30 million had been borrowed, of which Cyprus
Amax's share was $15 million.
In May 1995, the Company placed $250 million of 7 3/8 percent Notes due May 15,
2007, priced at 99.372 percent to yield 7.45 percent. Interest on the Notes is
paid semi-annually on May 15 and November 15. The Notes are not redeemable by
the Company prior to maturity. The proceeds were used primarily to prepay $213
million of production payments.
In June 1995, the Company finalized $750 million (senior debt) in project
financing for construction and development of the El Abra copper mine project in
Chile. The financing consists of $500 million being provided by Japanese and
German companies, all on a 12-year term, and a second consortium of commercial
banks syndicating $250 million on a 10-year term. The Company has guaranteed
completion of the oxide mine. At December 31, 1995, $519 million of borrowings
were outstanding on this financing arrangement of which Cyprus Amax's
proportional share was $265 million. The weighted average interest rate on this
debt at December 31, 1995, was 7.1 percent. The loan agreements specify debt
coverage ratios and place certain restrictions on the payment by El Abra on
dividends, payments under subordinated loans, and other distributions in respect
of ownership interests and subordinated debt. No such restricted payments may
be made before the later of physical completion and payment of the first
installment of senior debt which will take place either in November 1997 or May
1998 depending on when the project achieves physical completion. As of December
31, 1995, subsidiaries involved in the project held $635 million in restricted
net assets.
55
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In February 1995, Compania Minera Maricunga, a 50 percent-owned subsidiary of
Amax Gold, borrowed $85 million denominated in gold under the Refugio financing
arrangement with a group of banks. Amax Gold's 50 percent share is 111,841
ounces at $380 per ounce or $43 million. Amax Gold and the other 50 percent
owner are guarantors on a several and proportionate basis until completion tests
are achieved, at which time the loan becomes non-recourse to Amax Gold. Cyprus
Amax has designated $25 million of the double-convertible line of credit (DOCLOC
I) as support for the Refugio loan.
In October 1995, Amax Gold finalized a loan agreement for $250 million to be
used for construction of the Fort Knox project and repayment of certain existing
indebtedness. The loan is a six year term loan with repayments beginning in
1997, and up to $125 million can be drawn in gold. As of December 31, 1995,
Amax Gold had borrowed $37 million in gold and $163 million in currency. The
loan is collateralized by the assets and production of the Fort Knox and Hayden
Hill properties and the stock of the subsidiaries owning the Guanaco and Sleeper
properties. The loan agreement places restrictions on proceeds of future equity
offerings and borrowings, restricts dividends, and requires certain net worth
and cash flow ratios to be maintained. In addition, AGI is required to maintain
gold reserve minimums and to hedge a portion of future production in order to
obtain specified cash flows. Cyprus Amax has agreed, under the Fort Knox loan
agreement, to maintain and make available $70 million under DOCLOC I until
completion of Fort Knox and $100 million after completion. At December 31,
1995, $200 million had been borrowed on the Fort Knox loan.
At December 31, 1995, the Company had $109 million of short-term debt
outstanding, of which $75 million was attributable to a $110 million line of
credit for Cerro Verde finalized in the second quarter and guaranteed by the
Company. The average interest rate for 1995 was 10.4 percent. In addition, $34
million was outstanding on short-term credit lines from banks. At December 31,
1994, $13 million was outstanding on short-term credit lines from banks.
In December 1993, the Company entered into a revolving credit agreement (the
"Revolving Credit Agreement") with a group of banks. The Revolving Credit
Agreement provides for a $1 billion line of credit with interest rates to be
determined, at the option of the Company, by a competitive bid process or at a
fixed margin over various indices. The Revolving Credit Agreement was amended
in August 1995 to lower interest rates and commitment fees and extend the
agreement for five years. The Revolving Credit Agreement contains certain
covenants with which the Company is currently in compliance. At December 31,
1995 and 1994, the Company had no loans outstanding under the Revolving Credit
Agreement.
NOTE 9: DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
Cyprus Amax's use of derivative financial instruments is principally limited to
management of interest rate and commodity price risks.
INTEREST RATE PROTECTION AGREEMENTS - Occasionally, interest rate swap
agreements are used to recharacterize interest rates from fixed to floating
rates or vice-versa. In the fourth quarter of 1993, the Company entered into
interest rate swap agreements, which expire in November 1996, that effectively
convert $200 million of its fixed rate borrowings into floating rate
obligations. The floating rate is reset semi-annually. Cyprus Amax is
currently paying a weighted average floating interest rate of 5.8 percent which
is 1.1 percent higher than the average fixed interest rate that would have been
paid on the amount of $200 million. The Company has no plans to buy out these
agreements.
Additionally, in 1995 Amax Gold entered into interest rate swap option
agreements to reduce the impact of changes in interest rates on its Fort Knox
financing facility. AGI purchased interest rate swap options with the right to
pay a fixed rate of 6.6 percent at an average term of 3.6 years on a principal
amount of $160 million and
56
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
sold interest rate swap options with the obligation to pay a fixed rate of 5.7
percent at an average term of 3.4 years on a principal amount of $170 million.
Based on the interest rates at December 31, 1995, Amax Gold would pay
approximately $1 million to terminate these agreements. However, because of
requirements of the Fort Knox loan, Amax Gold has no intention of closing these
contracts.
PRICE PROTECTION PROGRAMS - The Company and Amax Gold may use price protection
programs to reduce or eliminate the risk of metal price declines on a portion of
their future copper or gold sales. These agreements include copper and gold
put options, copper synthetic put options, gold call and compound options, and
copper and gold forward sales. Put options purchased by Cyprus Amax or Amax
Gold establish a minimum sales price for the sales covered by such put options
and permit the Company or AGI to participate in price increases above the strike
price. Amax Gold also sells put options which give them the obligation to sell
at predetermined prices. Synthetic put options are established by entering into
a forward sale and purchasing a call option for the same quantity of the
relevant metal and for the time period relating to such forward sale. Amax Gold
also purchases and sells call options which give them the right or obligation to
purchase or sell gold at a predetermined price.
Cyprus Amax has entered into copper put options for 1996 and both put and
synthetic put options for 1997 to ensure a minimum average realization on an LME
basis of 89 cents per pound on 700 million pounds of copper for 1996 and 96
cents per pound on 525 million pounds of copper for the first nine months of
1997. Additionally, in 1994 Cyprus Amax sold forward 1996 production of 56
million pounds, averaging $1.10 per pound.
Amax Gold has entered into forward sales contracts, spot deferred forward sales,
and put and call options. Historically AGI has been allowed by its
counterparties on spot deferred forward sales contracts to defer the delivery of
gold under a forward sales contract to a later date at a renegotiated market
price. Amax Gold has forward sales contracts, primarily on a spot deferred
forward basis, for 453 thousand ounces of gold at $410 per ounce for early 1996.
Amax Gold also has various option contracts outstanding at December 31, 1995: a
net long position on call options of 149 thousand ounces and a net long position
on put options of 742 thousand ounces of gold.
CREDIT RISK - Cyprus Amax is exposed to credit losses in the event of
nonperformance by counterparties to financial instruments, but does not expect
any counterparties to fail to meet their obligations. The Company generally
does not obtain collateral or other security to support financial instruments
subject to credit risk but monitors the credit standing of counterparties.
57
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair values for financial instruments under SFAS No. 107 are
determined at discrete points in time based on relevant market information.
These estimates involve uncertainties and cannot be determined with precision.
The estimated fair values of the Company's financial instruments, as measured on
December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
At December 31 (In millions) 1995 1994
----------------- -------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 191 $ 191 $ 139 $ 139
Long-Term Receivables 196 191 63 63
Price Protection Contracts 38 39 13 (5)
Long-Term Debt and
Production Payments (1,759) (1,896) (1,238) (1,225)
Other Financial Instruments - (4) - (29)
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS, RECEIVABLES, ACCOUNTS PAYABLE, AND SHORT-TERM DEBT:
the carrying amounts approximate fair value because of the short maturity of
those instruments.
LONG-TERM RECEIVABLES: the fair value is estimated based on expected discounted
future cash flows.
PRICE PROTECTION CONTRACTS: are reported at cost and expensed as they expire.
The fair value of the options is estimated based on the spot price, while the
fair value of the forward sales is estimated based on the quoted market price
for the contracts at December 31, 1995.
LONG-TERM DEBT AND PRODUCTION PAYMENTS: the fair value of long-term debt is
estimated based on the quoted market prices for the same or similar issues
offered to the Company for debt of similar maturities. The carrying amount of
production payments approximates fair value based on current market quotes for
contracts with similar terms.
OTHER FINANCIAL INSTRUMENTS: includes interest rate swap agreements, interest
rate swap options, letters of credit, and financial guarantees written. The
fair value of interest rate swap agreements is estimated by obtaining quotes
from financial institutions and represents the cost to buy out the swaps at
December 31, 1995 and 1994. Letter of credit fair value is based on fees
currently charged for similar agreements or on the estimated cost to terminate
them. The fair value of financial guarantees written is based on the estimated
cost to settle the obligations with counterparties at the reporting date. The
Company has provided completion guarantees on certain project financing
agreements of its subsidiaries. Upon compliance with the completion
requirements, these obligations become non-recourse to Cyprus Amax. Since the
guarantees were an integral part of obtaining project financing and no explicit
cost was incurred or benefit received, no market exists for these project
guarantees and, accordingly, fair value cannot be determined.
58
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: INCOME TAXES
Income from Continuing Operations before Income Taxes and Minority Interest
consists of the following:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
--------- ------ ------
<S> <C> <C> <C>
Domestic $ 102 $ 190 $124
Foreign 18 31 6
--------- ------ ------
$ 120 $ 221 $130
========= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Income tax provision is composed of:
(In millions) 1995 1994 1993
--------- ------ ------
<S> <C> <C> <C>
Current - Federal $ 56 $ 62 $ 1
- State 5 20 5
- Foreign 9 5 5
--------- ------ ------
70 87 11
--------- ------ ------
Deferred - Federal (56) (37) 17
- State (11) 7 3
- Foreign - - -
--------- ------ ------
(67) (30) 20
--------- ------ ------
$ 3 $ 57 $ 31
========= ====== ======
</TABLE>
The total income tax provision is included in the financial statements as
follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Income Tax Provision $ 3 $ 55 $ 31
Discontinued Operations - 2 -
----- ----- -----
$ 3 $ 57 $ 31
===== ===== =====
</TABLE>
The deferred tax (assets)/liabilities are comprised of the tax effect of the
following at December 31:
<TABLE>
<CAPTION>
(In millions) 1995 1994
------ ------
<S> <C> <C>
Reclamation Liabilities $ (79) $ (41)
Postretirement Benefits (232) (213)
Capitalized Lease Obligations (58) (58)
Accrued Liabilities (187) (168)
Net Operating Loss Carryforwards (41) (62)
Investment Tax Credit Carryforwards (17) (41)
State Tax Deduction (18) (22)
Minimum Tax Credit Carryforwards (238) (168)
Other (4) -
----- -----
Total Deferred Tax Assets (874) (773)
Valuation Allowance 133 119
----- -----
Net Deferred Tax Assets (741) (654)
----- -----
Properties 773 739
Prepaid Expenses 11 14
----- -----
Total Deferred Tax Liabilities 784 753
----- -----
Total $ 43 $ 99
===== =====
</TABLE>
59
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has approximately $17 million of investment tax credit carryforwards
expiring from 1996 and beyond, and $238 million of minimum tax credit
carryforwards which do not expire. There is a net operating loss carryforward
for regular tax of $99 million and a $52 million net operating loss carryforward
for alternative minimum tax purposes. A valuation allowance of $133 million has
been recorded against these benefits.
The increase in the valuation allowance of $14 million relates to increased
minimum tax credit carryforwards not expected to be realized.
The following is a reconciliation between the amount determined by applying the
federal statutory rate of 35 percent to Pretax Income Excluding Minority
Interests and the Income Tax Provision:
<TABLE>
<CAPTION>
(In millions)
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Income Taxes at Statutory Rate $ 42 $ 77 $ 46
Increases (Decreases) Resulting from:
Percentage Depletion (16) (36) (16)
State Income Taxes, Net of Federal Benefit (3) 13 6
Foreign Income Taxes, Net of Credit
or Federal Benefit 4 - 5
Equity Investments - 4 (10)
Tax Carryforwards Used (25) - -
Other, Net 1 (3) -
------ ------ ------
Income Tax Provision $ 3 $ 55 $ 31
====== ====== ======
</TABLE>
60
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: PREFERRED STOCK TRANSACTIONS
The $4.00 Series A Convertible Preferred Stock is convertible into Common Stock
at any time at a conversion price of $24.209 per share. The Series A
Convertible Preferred Stock has a stated value of $50.00 per share and carries a
cumulative dividend payable quarterly. The Series A Convertible Preferred Stock
is redeemable at the option of the Company, in whole or in part, at any time
beginning at $52.40 per share on and after December 18, 1996, and declining to
$50.00 per share on and after December 18, 2002.
In 1989, the Board of Directors of Cyprus Amax declared a dividend of one
Preferred share purchase right for each outstanding share of Common Stock in
connection with the redemption of then existing rights. Each share of Common
Stock issued in the merger was accompanied by one Preferred share purchase
right. In addition, the Rights Agreement was amended to provide that any
transaction consummated due to the merger did not result in any adjustment to
the rights and did not cause the rights to be unexercisable or unredeemable. If
the rights become exercisable following the occurrence of certain specified
events, each right will entitle the holder, within certain limitations, to
purchase two-thirds of one one-hundredth of a share of Series A Junior
Participating Preferred Stock for $93.33 subject to certain anti-dilution
adjustments. If a person or group acquires 10 percent of Common Stock, every
other holder of a right will be entitled to buy at the right's then-exercise
price a number of shares of Common Stock having a value of twice such exercise
price. After the threshold is crossed, the rights become non-redeemable, except
that, prior to the time a person or group acquires 50 percent or more of the
Common Stock, the rights other than those held by such person or group can be
exchanged at a ratio of one share of Common Stock for each right. In the event
of certain extraordinary transactions, including mergers, the rights entitle
holders to buy at the right's then-exercise price equity in the acquiring
company having a value of twice such exercise price. The rights do not have any
voting rights nor are they entitled to dividends. The rights are redeemable by
Cyprus Amax at $.0067 each until a person or group acquires 10 percent of Common
Stock or until the rights expire on February 28, 1999. In addition, on May 24,
1993, the Board of Directors increased the number of authorized shares of the
Series A Junior Participating Preferred Stock from 500,000 shares to 1,500,000
shares of which none were issued or outstanding at December 31, 1995.
61
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (C0NTINUED)
NOTE 12: EMPLOYEE BENEFIT PLANS
PENSION PLANS
Cyprus Amax has a number of defined benefit pension plans covering most of its
employees. Benefits are based on either the employee's compensation prior to
retirement or stated amounts for each year of service with the Company. Cyprus
Amax makes annual contributions to these plans in accordance with the
requirements of the Employee Retirement Income Security Act of 1974 ("ERISA").
Plan assets consist of cash and cash equivalents, equity and fixed income
securities, and real estate.
Net annual pension cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31 (In millions) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service Cost $ 8 $ 10 $ 6
Interest Cost 20 18 11
Actual (Gain) Loss on Plan Assets (37) 4 (7)
Deferred Gain (Loss) 21 (21) (4)
Other 2 2 2
------ ------ ------
$ 14 $ 13 $ 8
====== ====== ======
</TABLE>
The following table sets forth the funded status of the plans:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
ASSETS ACCUMULATED Assets Accumulated
EXCEED BENEFITS exceed benefits
ACCUMULATED EXCEED accumulated exceed
At December 31 (In millions) BENEFITS ASSETS benefits assets
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation $ 63 $ 157 $ 31 $ 143
============ ============ ============ ============
Accumulated Benefit Obligation $ 69 $ 166 $ 35 $ 152
============ ============ ============ ============
Projected Benefit Obligation $ (72) $(187) $ (36) $(171)
Plan Assets at Fair Value 82 145 49 121
------------ ------------ ------------ ------------
Plan Assets Greater Than (Less Than)
Projected Benefit Obligation 10 (42) 13 (50)
Unrecognized Net Loss 4 32 3 13
Unrecognized Prior Service Cost 1 7 1 8
Unrecognized Transition Credit (1) - (2) -
------------ ------------ ------------ ------------
Prepaid/(Accrued) Pension Cost $ 14 $ (3) $ 15 $ (29)
============ ============ ============ ============
</TABLE>
Prepaid pension cost of $11 million is included in Prepaid Expenses on the
Consolidated Balance Sheet at December 31, 1995. A net accrued pension
obligation of $14 million was recorded in Accrued Payroll and Benefits at
December 31, 1994.
The significant actuarial assumptions at December 31 were as follows:
<TABLE>
<CAPTION>
(In percents) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rate of Increase in Future Compensation Levels 5.25 6.75 5.50
Expected Long-Term Rate of Return on Assets 9.00 9.00 9.00
Discount Rate 7.25 8.75 7.50
</TABLE>
62
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (C0NTINUED)
Net periodic pension cost is determined using the assumptions as of the
beginning of the year, and the funded status is determined using the assumptions
as of the end of the year.
Substantially all domestic employees not covered under the plans administered by
Cyprus Amax are covered under multi-employer defined benefit plans administered
by the United Mine Workers of America. Contributions by Cyprus Amax to these
multi-employer plans, which are expensed when paid, are based primarily upon
hours worked and amounted to $4 million in 1995 and 1994 and $1 million in 1993.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the Company's defined benefit pension plans, the Company has
plans that provide postretirement medical benefits and life insurance benefits.
The medical plans provide benefits for most employees who reach normal, or in
certain cases, early retirement age while employed by the Company. The
postretirement medical plans are contributory, with annual adjustments to
retiree contributions, and contain certain other cost-sharing features such as
deductibles and coinsurance.
Net periodic postretirement benefit cost consists of the following components:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Service Cost $ 5 $ 5 $ 4
Interest Cost 26 26 10
Net Amortization (3) (1) -
------ ------ -----
Net Periodic Postretirement Benefit Cost $ 28 $ 30 $ 14
====== ====== =====
</TABLE>
The following table sets forth the plans' combined status:
<TABLE>
<CAPTION>
At December 31 (In millions) 1995 1994
------ ------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $ 317 $ 253
Fully Eligible Active Plan Participants 19 21
Other Active Plan Participants 47 43
------ ------
Total Accumulated Postretirement Benefit Obligation 383 317
Plan Assets at Fair Value - -
------ ------
Accumulated Postretirement Benefit Obligation
in Excess of Plan Assets $ 383 $ 317
====== ======
Accumulated Postretirement Benefit Obligation $(383) $(317)
Unrecognized Prior Service Cost (7) (6)
Unrecognized Net (Gain) Loss 10 (52)
------ ------
Accrued Postretirement Benefit Cost $(380) $(375)
====== ======
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1995 and 1994,
consisted of a current liability of $22 million and $19 million, respectively,
included in Accrued Payroll and Benefits, and a long-term liability of $358
million and $356 million, respectively, included in Deferred Employee and
Retiree Benefits.
The weighted average annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) for medical benefits is 11 percent
for 1996 and is assumed to decrease gradually (one-half percent per year) to 4.5
percent by the year 2009 and remain at that level thereafter. Increasing the
assumed health care cost trend rate by one percentage point in each year would
increase the accumulated postretirement benefit obligation for
63
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the medical plans as of December 31, 1995, by $38 million and the aggregate of
the service cost and interest cost components of net periodic postretirement
benefit cost for 1995 by $3 million.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1995, 1994, and 1993, was
7.25 percent, 8.75 percent, and 7.50 percent, respectively. The change in the
discount rate resulted in a $71 million unrecognized net loss in 1995.
In addition, health care and life insurance benefits of certain retirees are
covered by multi-employer benefit trusts established by the United Mine Workers
of America and the Bituminous Coal Operators Association, Inc. Current and
projected operating deficits of these trusts led to the passage of the Coal
Industry Retiree Health Benefit Act of 1992 (the "Act"). The Act established a
new multi-employer benefit trust called the United Mine Workers of America
Combined Benefit Fund (the "Fund") that will provide health and life insurance
benefits to all beneficiaries of the earlier trusts who were receiving benefits
as of July 20, 1992. The Act provides for the assignment of beneficiaries to
former employers and the allocation of any unassigned beneficiaries to
enterprises using a formula included in the legislation. The Company has chosen
to account for its obligation under the Act on a cash basis in accordance with
established accounting guidance. The 1995 contributions to the Fund totalled $1
million. The 1993 contributions to the Fund totalled $2 million and covered
both 1993 and 1994.
The Company also has a number of postemployment plans covering severance,
disability income, and continuation of health and life insurance for disabled
employees. At December 31, 1995 and 1994, the accumulated postemployment
benefit liability consisted of a current amount of $6 million and $2 million,
respectively, included in Accrued Payroll and Benefits and $41 million and $28
million, respectively, included in Deferred Employee and Retiree Benefits.
NOTE 13: COMMON STOCK PLANS
SAVINGS PLANS
Cyprus Amax sponsors a savings plan (the "Savings Plan") covering substantially
all of its non-represented employees which includes an employee stock ownership
feature (Leveraged ESOP). In February 1990, the Savings Plan acquired 4,245,810
shares of Cyprus Amax's unissued Common Stock at an acquisition price of $22.375
per share. The Savings Plan financed the purchase of shares with a $95 million
interest-bearing promissory note payable to Cyprus Amax. The loan to the
Savings Plan bears interest at 9 3/4 percent per annum and matures on February
1, 2010 and is serviced by Cyprus Amax's contribution to the Savings Plan and
dividends paid on the Cyprus Amax Common Shares purchased with the proceeds of
the loan. Cyprus Amax intends to contribute the greater of 75 percent of
employee matchable contributions or the minimum per the promissory note. The
expense related to the Savings Plan is based upon the shares allocated method.
Shares are released for allocation to participants, based on a predetermined
formula, as loan payments are made. The amount contributed for 1995 was $8
million and for 1994 and 1993 was $7 million. The amount of interest incurred
by the Savings Plan for the Leveraged ESOP was $8 million in 1995 and for 1994
and 1993 was $9 million. The interest expense offset of the Leveraged ESOP due
to dividends on allocated and unallocated shares was $3 million in 1995 and 1993
and $4 million in 1994. The aggregate compensation expense related to the
Savings Plan amounted to $6 million in 1995 and $5 million in 1994 and 1993.
Leveraged ESOP shares are treated as shares outstanding for purposes of
calculating EPS.
64
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the number of shares held in the Leveraged ESOP
at year-end:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Allocated Shares 898,172 758,430 693,300
Committed to be Released Shares 9,683 8,909 11,713
Suspense Shares 2,836,500 3,089,631 3,335,902
</TABLE>
Prior to 1995, Cyprus Amax sponsored other defined contribution plans which have
been merged into the Savings Plan. Contributions associated with these plans
were $5 million for 1994 and $1 million for 1993.
Amax Gold sponsors a thrift plan covering substantially all of its full-time
non-represented employees. Amax Gold contributes Amax Gold Common Stock to the
plan at seventy-five percent of the first six percent of base pay contributed by
each participant. Amax Gold contributions were $1 million in 1995 and 1994.
MANAGEMENT INCENTIVE PLANS
Under the Management Incentive Program ("the Program"), key employees of Cyprus
Amax may be granted options to purchase Common Stock at fair market value as of
the grant date. These options are in the form of either incentive stock options
or non-qualified options and may be granted with stock appreciation rights
(SARs). SARs permit holders to surrender exercisable options in exchange for a
payment, in either shares or cash, determined by the amount by which the market
price of the shares on the dates the rights are exercised exceeds the grant
price.
Options granted under the Program are exercisable after completion of the
specified period of continuous employment stated in the terms of the grant and
expire at the end of ten years after the date of grant. Additionally, under the
Management Incentive Program certain employees may be granted restricted shares
of Common Stock. Restricted stock is subject to forfeiture if the recipient
terminates employment.
Under the Program, the Company may grant in any year up to 1.2 percent of the
number of shares of Common Stock outstanding (plus the cumulative number of
carried-forward shares) as stock options or restricted stock awards, up to a
limit of five million shares issued as statutory options.
Under the 1993 Key Executive Long Term Incentive Plan, the Company may grant in
any year up to one-half percent of the number of shares of Common Stock
outstanding (plus the cumulative number of carried-forward shares) as restricted
stock awards. Key executives may receive restricted stock awards and cash
incentive payments based on the rate of return received by investors in the
Company's stock, compared to that of its peers. As of December 31, 1995,
405,109 cumulative shares were awarded and 751,870 shares were authorized and
unissued. On January 2, 1996, an additional 155,600 shares were awarded.
Cyprus Amax maintains a stock plan for non-employee directors which grants each
eligible director 500 shares of Common Stock each year until a maximum of 35,000
shares in the aggregate have been granted. As of December 31, 1995, 22,000
cumulative shares have been granted.
65
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (C0NTINUED)
The following table summarizes stock option activity under the Company's
management incentive plans:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- ---------------------------- ----------------------------
NUMBER OPTION PRICE Number Option Price Number Option Price
OF SHARES PER SHARE of Shares Per Share of Shares Per Share
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of Year 3,052,850 $ 8.67 - $35.75 3,303,560 $ 8.67 - $35.75 1,855,250 $ 8.67 - $31.06
Granted 297,500 $25.44 - $27.56 807,955 $26.00 - $31.13 615,400 $24.19 - $35.75
Assumed Amax Options - - - - 1,317,715 $17.72 - $26.65
Exercised (231,484) $25.69 - $31.31 (961,412) $ 8.67 - $31.06 (393,475) $10.79 - $31.06
Cancelled (199,750) $17.72 - $35.75 (97,253) $17.72 - $35.75 (91,330) $18.54 - $35.75
--------- --------- ---------
Outstanding at End of Year 2,919,116 $ 8.67 - $35.75 3,052,850 $ 8.67 - $35.75 3,303,560 $ 8.67 - $35.75
========= ========= =========
Exercisable at End of Year 2,211,207 $ 8.67 - $35.75 2,384,993 $ 8.67 - $35.75 3,303,560 $ 8.67 - $35.75
========= ========= =========
Available for Grant at End of Year 1,237,084 441,786 66,376
========= ========= =========
</TABLE>
66
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14: CONTINGENCIES
Cyprus Amax had outstanding letters of credit totalling $66 million at December
31, 1995, primarily for reclamation, dragline leases, and insurance programs for
workers compensation, general liability, and automobiles. Cyprus Amax has
guaranteed the portion of project financing attributed to certain joint venture
partners totalling $276 million at December 31, 1995.
Cyprus Tohono Mining Company was informed in late 1995 by the office of the
Assistant U.S. Attorney in Tucson, Arizona that an action was being considered
under federal environmental laws against Cyprus Tohono Corporation and certain
of its employees. The facts giving rise to this matter involve a break in a
process line at Tohono occurring in 1992. It is not possible to state with
reasonable certainty at this time what action will be taken by the government.
In April 1994, Cyprus Amax was notified by the Department of Justice ("DOJ")
that the government would seek civil penalties for alleged violations of the
Federal Clean Water Act in the operation of Cyprus Amax's Bagdad, Miami, and
Sierrita mines in Arizona. Agreement as to the principles of a settlement
regarding civil penalties was reached in early 1996 with the EPA and DOJ for all
three locations which will not have a material impact on the Company.
Cyprus Miami and other companies, in conjunction with the Arizona Department of
Environmental Quality's Water Quality Assurance Revolving Fund program,
continued remediation and assessment of groundwater quality at Pinal Creek near
Miami, Arizona throughout 1995. The ongoing program, initiated in 1989, has
resulted in continued improvement of subsurface water quality in the area.
While the adequacy of current remedial efforts and the allocation of
expenditures among responsible parties will not be known until the assessment
phase is completed or beyond, the 1993 completion of risk assessment studies
allowed further definition of probable costs for continued study and ongoing
treatment. Cyprus Miami also is a defendant in a lawsuit brought by certain
Miami and Globe area landowners claiming damages relating to allegedly impaired
groundwater quality in the Pinal Creek area. It is not possible at this time to
reasonably estimate a loss, if any, that may result from the lawsuit because of
the preliminary nature of discovery in the case and because of the preliminary
status of the related ongoing remedial assessment. A reasonable estimate of any
future material obligations, if any, is expected to be possible by 1997.
Cyprus Amax or its subsidiaries have been advised by the EPA and several state
environmental agencies that they may be liable under the CERCLA or similar state
laws and regulations for costs of responding to environmental conditions at a
number of sites which have been or are being investigated by the EPA or states
to establish whether releases of hazardous substances have occurred and, if so,
to develop and implement remedial actions. Cyprus Amax has been named as a
potentially responsible party ("PRP") or has received EPA requests for
information for several sites. For all sites, Cyprus Amax had an aggregate
reserve of approximately $86 million at December 31, 1995, for its share of the
estimated liability. Liability estimates are based on an evaluation of, among
other factors, currently available facts, existing technology, presently enacted
laws and regulations, Cyprus Amax's experience in remediation, other companies'
remediation experience, Cyprus Amax's status as a PRP, and the ability of other
PRPs to pay their allocated portions. The cost range of reasonably possible
outcomes for all sites is estimated to be from $60 million to $300 million, and
work on these sites is expected to be substantially completed in the next
several years, subject to the inherent delays involved in the process.
Remediation costs that could not be reasonably estimated at December 31, 1995,
are not expected to have a material impact on the financial condition and
ongoing operations of the Company. Cyprus Amax believes certain insurance
policies partially cover these claims; however, some of the insurance carriers
have denied responsibility and Cyprus Amax is litigating coverage. Further,
Cyprus Amax believes that it has other potential claims for recovery from third
parties, including the U.S. Government and other PRPs, as well as liability
offsets through
67
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
lower cost remedial solutions. However, neither insurance recoveries nor other
claims or offsets have been recognized in the financial statements unless such
offsets are considered probable of realization.
At December 31, 1995, Cyprus Amax's accruals for deferred closure, shutdown of
closed operations, and reclamation totalled approximately $325 million.
Reclamation is an ongoing activity and a cost associated with Cyprus Amax's
mining operations. Accruals for closure and final reclamation liabilities are
established on a life of mine basis. The Cyprus Amax Coal reclamation reserve
component of $178 million is largely a result of reclamation obligations
incurred for replacing soils and revegetation of mined areas as required by
provisions and permits pursuant to the Surface Mining Control and Reclamation
Act. The Copper/Molybdenum and Other reclamation reserve components are $126
million and $21 million, respectively, and include costs for site stabilization,
cleanup, long-term monitoring, and water treatment costs as expected to be
required largely by state laws and regulations as well as by sound environmental
practice. Total reclamation costs for Cyprus Amax at the end of current mine
lives is estimated at about $550 million.
Cyprus Amax believes that it has adequate reserves such that none of these
matters is expected to have a material adverse effect on its business or
financial condition, results, and cash flows, and is unaware of any additional
environmental matters which, based on information currently known to Cyprus
Amax, would have a material effect upon the Company's financial condition or
results of operations.
NOTE 15: RELATED PARTY TRANSACTIONS
In October 1995, Cyprus Amax announced its intent to sell its 50 percent
interest in the Russian Kubaka gold mine project to Amax Gold. The $95 million
purchase price will be paid in Amax Gold Common Stock with 11.8 million shares
at closing and 4.2 million shares upon commencement of commercial production,
which is expected to occur in the first quarter 1997. This will increase Cyprus
Amax's ownership to approximately 58 percent, subject to shareholder approval.
In addition, Amax Gold will make contingent payments to Cyprus Amax in the event
it acquires the right to mine other reserves in the Russian Federation. Closing
is expected in early 1996.
In April 1994, Cyprus Amax and Amax Gold entered into an agreement whereby the
Company has provided AGI with a $100 million double-convertible line of credit.
The outstanding indebtedness under the line of credit may be repaid by AGI with
the issuance of AGI convertible preferred stock. Both companies have conversion
rights to convert the line of credit into Amax Gold Common Stock at a maximum
price of $8.265 per share and a minimum price of $5.854 per share. As of
December 31, 1995, $5 million was outstanding under this line of credit.
Certain amounts have been made available to Amax Gold as support for the Fort
Knox and Refugio loans (Note 8).
In February 1995, Cyprus Amax signed a commitment letter whereby the Company
provided AGI with an additional $80 million in double-convertible revolving
credit (DOCLOC II). During the third quarter, Cyprus Amax exercised its option
to convert $80 million of the then outstanding borrowings to Amax Gold Common
Stock at a conversion price of $5.362 per share. This, along with payment in
stock of interest due under DOCLOC II, increased Cyprus Amax's ownership of Amax
Gold to approximately 51 percent.
In 1994, Cyprus Amax established a joint exploration agreement with Amax Gold to
explore for gold. The agreement provides Cyprus Amax a 75 percent interest and
Amax Gold a 25 percent interest in the gold prospects resulting from future
exploration. Amax Gold has a right of first refusal from Cyprus Amax to
purchase and develop gold deposits, and Cyprus Amax has a similar right with
respect to base metals. Each party funds work in proportion to its interest,
and Cyprus Amax provides staffing and management.
68
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1995, the subordinated loans outstanding to Oakbridge Ltd. from
Cyprus Amax totalled $39 million, of which $21 million is convertible to
Oakbridge Common Stock on certain terms and conditions.
On June 28, 1994, Cyprus Amax acquired a 51 percent interest in Sociedad
Contractual Minera El Abra, which owns the mineral rights to the El Abra copper
deposit in Chile, for $330 million. Development of the mine will require an
investment estimated at approximately $1 billion. Funding of the investment to
develop the oxide reserves included approximately $300 million of subordinated
shareholder loans from Cyprus Amax, and in June 1995 Cyprus Amax finalized $750
million in project financing. Cyprus Amax has guaranteed completion of the
oxide mine. As of December 31, 1995, $276 million of subordinated notes were
outstanding.
NOTE 16: LEASES AND MINERAL ROYALTY OBLIGATIONS
Cyprus Amax leases mineral interests and various other types of properties,
including draglines, shovels, longwalls, offices, computing services, and
miscellaneous equipment. Certain of the Company's mineral leases require
minimum annual royalty payments, whereas others provide only for royalties based
on production.
Accrued minimum royalties that are not expected to be recovered from future coal
production consist of the following at December 31:
<TABLE>
<CAPTION>
(In millions) 1995 1994
------ ------
<S> <C> <C>
Minimum Future Royalties $ 98 $ 105
Less Imputed Interest (26) (32)
------ ------
Present Value of Payments 72 73
Less Current Portion Included in Accrued
Royalties and Interest (7) (7)
------ ------
Long-Term Portion Included in Other
Noncurrent Liabilities and Deferred Credits $ 65 $ 66
====== ======
</TABLE>
The Company's property held under capital leases, included in property, plant,
and equipment, consists of the following:
<TABLE>
<CAPTION>
(In millions) 1995 1994
------ -------
<S> <C> <C>
Mining Equipment $ 186 $ 199
Less Accumulated Depreciation (64) (29)
------ -------
$ 122 $ 170
====== =======
</TABLE>
69
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarized below as of December 31, 1995, are future minimum rentals and
royalties under noncancellable leases:
<TABLE>
<CAPTION>
Operating Mineral Capital
(In millions) Leases Royalties Leases
--------- --------- --------
<S> <C> <C> <C>
1996 $ 33 $ 20 $ 38
1997 26 22 37
1998 18 21 39
1999 14 21 60
2000 13 17 22
After 2000 24 56 27
--------- --------- --------
Total Payments $128 $157 $223
========= ========= ========
Less Imputed Interest (56)
--------
Present Value of Lease Payments 167
Less Current Portion (24)
--------
Capital Lease Obligations $143
========
</TABLE>
Rentals and mineral royalties charged to expense were as follows:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Rental Expense $ 48 $ 53 $ 38
Mineral Royalties $ 72 $ 47 $ 37
</TABLE>
NOTE 17: CASH FLOW INFORMATION
The Consolidated Statement of Cash Flows provides information about changes in
cash and cash equivalents which have a maturity of three months or less when
acquired. Net Cash Provided by Operating Activities reflects cash payments for
interest and income taxes as shown below:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
----- ------ ------
<S> <C> <C> <C>
Interest Paid (Net of Interest Capitalized
and Interest Rate Swap Payments/Receipts) $ 81 $ 113 $ 59
Income Taxes Paid, Net $ 60 $ 35 $ 62
Supplemental Disclosures of Non-Cash Transactions (excluding Amax merger):
</TABLE>
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Fair Value of Assets Acquired, Other Than Cash
and Cash Equivalents $ - $ 379 $ 188
Liabilities Assumed - (18) (50)
----- ----- -----
Cash Payments $ - $ 361 $ 138
===== ===== =====
Sale of Businesses in Exchange for Common Stock $ - $ 22 $ -
Receipt of AGI Common Stock as Repayment
of Notes Receivable (Note 15) $ 81 $ 21 $ -
Capital Lease Obligation - Sale-Leaseback $ - $ 144 $ -
</TABLE>
70
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 18: INFORMATION BY INDUSTRY SEGMENT
Cyprus Amax operates in three principal industry segments - Copper/Molybdenum,
Coal, and Other - which supply mineral products primarily to the construction,
automobile, steel, and utility industries, and gold to banks and other bullion
dealers. The financial information for these segments is presented below:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
------------ ------- -------
<S> <C> <C> <C>
SEGMENT REVENUE
Copper/Molybdenum $ 1,720 $1,327 $ 831
Coal 1,298 1,248 697
Other 189 213 235
------------ ------- -------
$ 3,207 $2,788 $1,763
============ ======= =======
SEGMENT OPERATING INCOME (LOSS)
Copper/Molybdenum $ 584 $ 206 $ 55
Coal (308)/(1)/ 106 142
Other (37) 40 20
------------ ------- -------
239 352 217
Corporate (57) (45) (60)
Interest, Net (70) (74) (34)
Earnings (Loss) on Equity Investments and Other 8 (12) 7
------------ ------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 120 221 130
Income Tax Provision (3) (55) (31)
Minority Interest 7 - 1
------------ ------- -------
INCOME FROM CONTINUING OPERATIONS 124 166 100
Income From Operations of Discontinued Oil and Gas
Division, Net of Applicable Taxes of $2 - 9 -
------------ ------- -------
NET INCOME $ 124 $ 175 $ 100
============ ======= =======
</TABLE>
/(1)/Includes a $445 million pretax charge to recognize the write-down of
certain coal assets and provisions for associated liabilities (Note 5).
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
------------ ------- -------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Copper/Molybdenum $ 3,060 $2,487 $1,857
Coal 1,947 2,325 2,454
Other/(1)/ 939 266 980
Corporate 250 329 327
----------- ------ ------
$ 6,196 $5,407 $5,618
=========== ====== ======
CAPITAL EXPENDITURES
Copper/Molybdenum $ 599 $ 234 $ 190
Coal 163 116 65
Other/(1)/ 265 16 20
Corporate 5 13 2
----------- ------ ------
$ 1,032 $ 379 $ 277
=========== ====== ======
</TABLE>
71
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18: INFORMATION BY INDUSTRY SEGMENT (CONTINUED)
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
DEPRECIATION, DEPLETION, AND AMORTIZATION
Copper/Molybdenum $ 118 $ 87 $ 63
Coal 146 153 56
Other/(1)/ 29 11 25
Corporate 3 2 1
----- ----- -----
$ 296 $ 253 $ 145
===== ===== =====
EXPORT SALES
Copper/Molybdenum $ 265 $ 173 $ 143
Coal 51 42 24
Other/(1)/ 91 16 16
----- ----- -----
$ 407 $ 231 $ 183
===== ===== =====
</TABLE>
/(1)/Increase in 1995 amounts primarily relates to the Consolidation of Amax
Gold.
Financial information by geographic location for the past three years is
presented below:
<TABLE>
<CAPTION>
(In millions) 1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
REVENUE
Domestic $3,032 $2,647 $1,688
Foreign 175 141 75
------ ------ ------
$3,207 $2,788 $1,763
====== ====== ======
OPERATING INCOME
Domestic $ 221 $ 317 $ 205
Foreign 18 35 12
------ ------ ------
$ 239 $ 352 $ 217
====== ====== ======
IDENTIFIABLE ASSETS
Domestic $4,900 $4,636 $5,495
Foreign 1,296 771 123
------ ------ ------
$6,196 $5,407 $5,618
====== ====== ======
</TABLE>
72
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTERLY RESULTS (UNAUDITED) 1995
- -------------------------------------------------------------------------
First Second Third Fourth
(In millions except per share data) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 807 $ 875 $ 786 $739
Segment Operating Income (Loss) $ 153 $ 198 $ (252) $140
Net Income (Loss) $ 97 $ 134 $ (203) $ 96
Income (Loss) Applicable to
Common Shares $ 92 $ 130 $ (208) $ 91
- -------------------------------------------------------------------------
Earnings (Loss) Per Common Share $1.00 $1.39 $(2.23) $.98
- -------------------------------------------------------------------------
1994
- -------------------------------------------------------------------------
Revenue $ 588 $ 697 $ 771 $732
Segment Operating Income $ 58 $ 73 $ 98 $123
Net Income $ 28 $ 32 $ 48 $ 67
Income Applicable to Common Shares $ 23 $ 28 $ 44 $ 63
- -------------------------------------------------------------------------
Earnings Per Common Share $ .25 $ .30 $ .47 $.68
- -------------------------------------------------------------------------
</TABLE>
Third quarter 1995 results included an after-tax charge of $338 million due to
the write-down of certain coal assets and provisions for associated liabilities.
Third quarter 1994 results included after-tax gains of $13 million for various
special items.
73
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION (CONTINUED)
MINERAL RESERVES AND SELECTED OPERATING STATISTICS (UNAUDITED)
The following table presents reserve information of Cyprus as of December 31,
1991-1992, Cyprus Amax as of December 31, 1993 through 1995, and selected
operating statistics for the years then ended. Proved reserves represent those
reserves that, under presently anticipated conditions, will be commercially
recoverable from known mineral deposits with a high degree of certainty. Proved
and probable reserves include reserves that are less well defined than proved
reserves but which have been indicated to exist on the basis of geological and
engineering data. Reserve estimates were prepared by Cyprus Amax's engineers.
Reserves of entities proportionately consolidated are shown at Cyprus Amax's
ownership percentage.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ------------ ------ ------
<S> <C> <C> <C> <C> <C>
COPPER/MOLYBDENUM
Proved and Probable Ore Reserves
Copper - United States (million tons) 1,443/(1)/ 1,593 1,598 1,617 995
Average Grade (percent) .38 .38 .38 .38 .41
Copper - South America (million tons) 1,097 1,101/(6)/ - - -
Average Grade (percent) .61 .61 - - -
Molybdenum (million tons) 313 322 316/(9)/ 17 139
Average Grade (percent) .232 .232 .228 .116 .113
Copper and Molybdenum (million tons) 874 830 901 945 513
Copper Average Grade (percent) .28 .28 .30 .30 .31
Molybdenum Average Grade (percent) .028 .029 .032 .032 .033
Saleable Product (billion pounds)
Copper 22.6 23.8 13.7 14.3 8.8
Molybdenum 2.1 2.1 2.0 0.8 0.8
Production (million pounds)
Copper 687 648 632 662 644
Molybdenum 75 57 28 40 36
Average Sales Price (per pound)
Copper $ 1.33 $ 1.09 $ .94 $ 1.04 $ 1.06
Molybdenum $ 7.53 $ 3.77 $ 2.82 $ 2.65 $ 2.83
----------- ----------- ------------ ------ ------
COAL
Proved and Probable Reserves
(million tons) 2,396/(2)/ 2,538 2,681/(10)/ 664 745
Production (million tons) 75 75/(7)/ 27/(10)/ 19 17
Average Sales Price (per ton) $ 16.25 $ 16.12 $ 20.80 $23.88 $24.63
----------- ----------- ------------ ------ ------
LITHIUM
Proved Ore Reserves
Lithium (thousand tons) 389 393 397 387 391
Production
Lithium Carbonate (million pounds) 38 32 32 34 32
List Price (per pound)
Lithium Carbonate $ 2.03 $ 2.03 $ 1.96 $ 1.91 $ 1.83
----------- ----------- ------------ ------ ------
GOLD
Amax Gold (100%)
Proved and Probable Reserves
(million contained ounces) 7.0/(3)/ - - - -
Production (thousand contained ounces) 238 - - - -
Average Sales Price (per ounce) $ 406 - - - -
Amax Gold (Cyprus Amax Share)
Proved and Probable Reserves
(million contained ounces) - 3.0/(3)/ 3.0/(3)/ - -
Kubaka (Cyprus Amax Share)
Proved and Probable Reserves
(million contained ounces) 1.2/(4)/ 1.0 1.0 - -
</TABLE>
74
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----- ---------- ----- ---- ----
<S> <C> <C> <C> <C> <C>
EQUITY COMPANIES/(5)/
Proved and Probable Reserves
Coal (million tons)
Oakbridge (100%) 372.3 423.8/(8)/ 358.7 - -
Cyprus Amax Share (42%) 158.7 170.8 143.5 - -
----- ---------- ----- ---- ----
</TABLE>
/(1)/ Copper reserves in the United States decreased due to 89 million tons of
production and a decrease in reserves at Bagdad due to changes to the
block model, design changes and economic changes, partially offset by an
increase at Sierrita due to additional discovery of reserves.
/(2)/ Decrease due primarily to new mine plans at the Kentucky operations, the
sale of Minnehaha, and 1995 production, partially offset by an increase in
Wyoming due to a lease acquired from the Bureau of Land Management.
/(3)/ Increase due to Cyprus Amax's increased ownership position which led to
consolidation in 1995. Prior to 1995, Amax Gold was accounted for on an
equity method basis.
/(4)/ In the third quarter 1995, Amax Gold agreed to purchase Kubaka from Cyprus
Amax. The sale should be completed in early 1996.
/(5)/ Reserves for Equity Companies are shown at 100 percent for the operation
or company. Cyprus Amax has a beneficial ownership equivalent to its
percentage ownership in the venture which is shown on a separate line.
/(6)/ Represents Cerro Verde and El Abra reserves purchased in 1994.
/(7) /Coal production increased in 1994 due to a full year of production from
former Amax mines.
/(8)/ Oakbridge reserves increased due to acquiring additional leases at
Ellalong/Pelton.
/(9)/ Molybdenum reserves increased because of the addition of the Amax
properties, partially offset by the sale of Thompson Creek.
/(10)/The addition of over 2 billion tons to coal reserves in 1993 was due
mostly to the merger with Amax and the acquisition of the Cumberland mine
in Pennsylvania. Production from former Amax operations was 6.4 million
tons for the period November 15 through year end.
75
<PAGE>
STOCK MARKET INFORMATION
Cyprus Amax Common Stock is traded on the New York Stock Exchange (NYSE) under
the symbol "CYM." The ranges of actual trade prices by quarters for the Common
Stock, as reported by the NYSE, are set forth below.
<TABLE>
<CAPTION>
ACTUAL TRADE PRICES
Common Stock
-----------------------------------------
1995 1994
-----------------------------------------
Period High Low High Low
-----------------------------------------
<S> <C> <C> <C> <C>
1st Quarter $29 7/8 $24 3/4 $33 1/8 $26 3/8
2nd Quarter $29 $25 3/8 $31 5/8 $25 3/4
3rd Quarter $32 1/8 $27 $32 1/2 $28 3/8
4th Quarter $28 1/2 $24 1/4 $31 5/8 $23 7/8
</TABLE>
In addition to its Common Stock, Cyprus Amax has 4,664,783 shares of $4.00
Series A Convertible Preferred Stock outstanding as of February 26, 1996. These
shares are held by two registered shareholders. Each share of Series A
Convertible Preferred Stock carries the right to receive a dividend of $4.00 per
year. Dividends are paid out of funds legally available when and if declared by
the Board of Directors. Due to the limited number of shareholders, there is no
market for these shares.
During 1995, Cyprus Amax declared cash dividends amounting to $.80 and $4.00 per
share on its Common Stock and Series A Convertible Preferred Stock,
respectively. During 1994, Cyprus Amax declared cash dividends amounting to
$.90 and $4.00 per share on its Common Stock and Series A Convertible Preferred
Stock, respectively. On February 15, 1996, the Board of Directors of Cyprus
Amax declared dividends of $.20 per share of the Common Stock for shareholders
of record on April 10, 1996, and a regular quarterly dividend of $1.00 per share
of Series A Convertible Preferred Stock for shareholders of record on February
26, 1996. The Board of Directors will continue to evaluate the Company's
performance and the appropriateness of dividends. It is currently anticipated
that dividends will continue to be paid during 1996.
The closing trade price per share of the Common Stock on February 26, 1996, as
reported by the NYSE was $26 1/8. As of February 26, 1996, the number of
registered shareholders of Cyprus Amax Common Stock was approximately 45,000.
76
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information about the Directors of the Company required by this item is
located in Cyprus Amax's Proxy Statement for the 1996 Annual Meeting to be filed
within 120 days after the end of the fiscal year. Information about the
Executive Officers of the Company required by this item appears in Part I of
this Annual Report on Form 10-K.*
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1996 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1996 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1996 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
- ------------
* References in this Annual Report on Form 10-K to material contained in
Cyprus Amax's Proxy Statement for the 1996 Annual Meeting to be filed
within 120 days after the fiscal year incorporate such material into
this Report by reference.
77
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are filed as part of this Report:
1. Financial Statements are included on the pages of this report as set
forth below:
<TABLE>
<CAPTION>
PAGES IN THIS
FORM 10-K
-----------------------------
<S> <C>
Report of Independent Accountants..................................... 43
Consolidated Statement of Operations for each of the three years in
the period ended December 31, 1995.................................. 44
Consolidated Balance Sheet at December 31, 1995 and 1994.............. 45
Consolidated Statement of Cash Flows for each of the three years
in the period ended December 31, 1995............................... 46
Consolidated Statement of Shareholders' Equity for each of the three
years in the period ended December 31, 1995......................... 47
Notes to Consolidated Financial Statements............................ 48-72
2. Financial Statement Schedule:
PAGES IN THIS
FORM 10-K
-----------------------------
Report of Independent Accountants on Financial Statement
Schedule............................................................ 85
For the three years in the period ended December 31, 1995:
Schedule VIII -- Valuation and Qualifying Accounts and
Reserves............................................................ 86
</TABLE>
Schedules not included in this Form 10-K have been omitted because they are
not applicable or the required information is shown in the financial statements
in the 1995 Annual Report or notes thereto. Separate financial statements of 50
percent or less owned companies accounted for by the equity method have been
omitted since, if considered in the aggregate, they would not constitute a
significant subsidiary.
78
<PAGE>
3. The following exhibits are filed with this Annual Report on Form 10-
K. The exhibit numbers correspond to the numbers assigned in Item
601 of Regulation S-K.
EXHIBIT
NUMBER DOCUMENT
------ --------
2 Agreement and Plan of Reorganization and Merger between Cyprus
Minerals Company and AMAX Inc., incorporated by reference from
Exhibit 1 to the Report on Form 8-K dated May 27, 1993.
3 (a) Certificate of Incorporation, as amended through the date
of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 3(a) to the Annual
Report on Form 10-K for the period ended December 31,
1989, and from Exhibit 3.1 to the Report on Form 8-K dated
November 30, 1993.
(b) By-Laws, as amended through the date of signing of this
Annual Report on Form 10-K, incorporated by reference from
Exhibit 3(b) to the Annual Report on Form 10-K for the
period ended December 31, 1991, and from Exhibit 3.2 to
the Report on Form 8-K dated November 30, 1993.
4 (a) Form of Indenture between Cyprus Minerals Company and
United States Trust Company, as Trustee (including form of
the Notes), relating to the 10 1/8% Notes due 2002,
incorporated by reference from Exhibit 4(a) to the
Registration Statement on Form S-3, File No. 33-33869.
(b) Form of Indenture between Cyprus Minerals Company and
Ameritrust Texas National Association, as Trustee
(including form of the Debentures), relating to the 8 3/8%
Debentures due 2023 and 6 5/8% Notes due 2005,
incorporated by reference from Exhibit 4.1 to the Report
on Form 8-K dated January 28, 1993, and Exhibit 4.2 to the
Report on Form 8-K dated October 21, 1993.
(c) Form of Indenture between Cyprus Amax Minerals Company and
the First Bank of Chicago, as Trustee (including form of
the Notes), relating to the 7 3/8% Notes due 2007
incorporated by reference from the Registration Statement
on Form S-3, File 33-54097.
79
<PAGE>
EXHIBIT
NUMBER DOCUMENT
------- --------
4 (d) Rights Agreement between The Chase Manhattan Bank, N.A.
and Cyprus Minerals Company, dated February 23, 1989, as
amended through the date of signing of this Annual Report
on Form 10-K, incorporated by reference from Exhibit 2 to
the Report on Form 8-K dated January 29, 1990; Exhibit 4
to the Report on Form 8-K dated January 29, 1990; Exhibit
1 to the Report on Form 8-K dated June 29, 1993; and from
Exhibit 8 to the Report on Form 8-K dated December 14,
1995.
(e) Certificate of Adjustment dated as of January 22, 1990,
incorporated by reference from Exhibit 3 to the Report on
Form 8-K dated January 29, 1990.
(f) Certificate of Designations of Series A Junior
Participating Preferred Stock, incorporated by reference
from Exhibit 3(a) to the Annual Report on Form 10-K for
the period ended December 31, 1988, and from Exhibit 7 to
the Report on Form 8-A/A dated June 29, 1993.
(g) Certain instruments with respect to long-term debt of the
Registrant have not been filed as Exhibits to this Report
since the total amount of securities authorized under any
such instrument does not exceed 10% of the total assets of
the Registrant and its subsidiaries on a consolidated
basis. The Registrant agrees to furnish a copy of each
such instrument to the Securities and Exchange Commission
upon request.
10 Material Contracts (except for director and executive
contracts and compensatory plans and arrangements, includes
only those contracts filed with this Annual Report on Form 10-
K and does not include other contracts which previously have
been filed by the registrant and which either remain to be
performed in whole or in part at or after the filing of this
Annual Report on Form 10-K, or were entered into not more than
two years before the date of this Annual Report on Form 10-K).
(a) Amended and Restated Employment Agreement between Cyprus
Amax Minerals Company and Milton H. Ward.
(b) Cyprus Amax Minerals Company Executive Officer Separation
Policy, as amended through the date of signing of the
Annual Report on Form 10-K, incorporated by reference from
Exhibit 10(m) to the Annual Report on Form 10-K for the
period ended December 31, 1993, and including the
additional amendments filed with this report.
80
<PAGE>
EXHIBIT
NUMBER DOCUMENT
------- --------
10 (c) Contracts regarding employment between Cyprus Minerals
Company and certain executive officers, incorporated by
reference from Exhibit 10(i) to the Annual Report on Form
10-K for the period ended December 31, 1993, and
including the Clarifying Addendum filed with this report.
(d) 1993 Key Executive Long-term Incentive Plan between
Cyprus Minerals Company and certain executive officers.
(e) Deferred Compensation Plan for Selected Employees of
Cyprus Amax Minerals Company, incorporated by reference
from Exhibit 10(i) to the Annual Report on Form 10-K for
the period ended December 31, 1994.
(f) Deferred Compensation Plan for Non-Employee Directors of
Cyprus Amax Minerals Company, incorporated by reference
from Exhibit 10(c) to the Annual Report on Form 10-K for
the period ended December 31, 1994.
(g) Full Retirement Benefit Plan for Certain Salaried
Employees, as amended through the date of signing of the
Annual Report on Form 10-K, incorporated by reference
from Exhibit 10(c) to the Annual Report on Form 10-K for
the period ended December 31, 1988; Exhibit 10(c) to the
Annual Report on Form 10-K for the period ended December
31, 1989; Exhibit 10(b) to the Annual Report on Form 10-K
for the period ended December 31, 1990; and Exhibit 10(b)
to the Annual report on Form 10-K for the period ended
December 31, 1992; and Exhibit 10(d) to the Annual Report
on Form 10-K for the period ended December 31, 1994.
(h) Restorative retirement plans, as amended through the date
of signing of the Annual Report on Form 10-K,
incorporated by reference from Exhibit 10(c) to the
Annual Report on Form 10-K for the period ended December
31, 1986; Exhibit 10(c) to the Annual Report on Form 10-K
for the period ended December 31, 1989; Exhibit 10(b) to
the Annual Report on Form 10-K for the period ended
December 31, 1990; and Exhibit 10(a) to the Annual Report
on Form 10-K for the period ended December 31, 1992; and
Exhibit 10(e) to the Annual Report on Form 10-K for the
period ended December 31, 1994.
(i) Excess Defined Contribution Plan, as restated through the
date of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 10(f) to the
Annual Report on Form 10-K for the period ended December
31, 1994.
81
<PAGE>
EXHIBIT
NUMBER DOCUMENT
------- --------
10 (j) Stock Purchase Agreement dated March 1, 1994, between Amax
Coal Company and Union Pacific Resources Company, incorporated
by reference from Exhibit 7(c-2) to the Report on Form 8-K
dated March 31, 1994.
(k) Amended and Restated 1988 Stock Option Plan of Cyprus Amax
Minerals Company, incorporated by reference to Exhibit 99 to
the Registration Statement on Form S-8 dated November 12,
1993.
(l) Change of Control Employment Agreements between Cyprus Amax
Minerals Company and certain executive officers, incorporated
by reference from Exhibit 10(j) to the Annual Report on Form
10-K for the period ended December 31, 1993.
(m) 1994 Management Incentive Program of Cyprus Amax Minerals
Company and its Participating Subsidiaries, incorporated by
reference from Exhibit 10(l) to the Annual Report on Form 10-K
for the period ended December 31, 1993.
(n) Cyprus Amax Minerals Company 1995 Bonus Incentive Program,
incorporated by reference from Exhibit 10(a) to the Annual
Report on Form 10-K for the period ended December 31, 1994.
(o) Stock Plan for Non-Employee Directors of Cyprus Minerals
Company, incorporated by reference to Exhibit 28 to the Report
on Form 10-Q for the quarter ended September 30, 1992.
(p) Amended and Restated Management Incentive Program of Cyprus
Minerals Company and its Participating Subsidiaries,
incorporated by reference to Exhibit 28 to the Registration
Statement on Form S-8, File No. 33-53794.
(q) Cyprus Minerals Company Nonqualified Retirement Plan for Non-
Employee Directors, incorporated by reference from Exhibit
10(c) to the Annual Report on Form 10-K for the period ended
December 31, 1990.
11 Statement re computation of per share earnings.
21 Subsidiaries of the Registrant.
82
<PAGE>
EXHIBIT
NUMBER DOCUMENT
------- --------
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.
99 Financial Statements comprising the Annual Report of the Cyprus
Amax Minerals Company Savings Plan and Trust.*
- ------------
* To be filed by amendment within 180 days of the plan's fiscal year end,
in accordance with Rule 15d-21.
(b) The following 8-Ks were filed during the last quarter of the period
covered by this Report on Form 10-K:
A current report on Form 8-K dated December 14, 1995, reporting the
fourth amendment to the Rights Agreement between Cyprus Amax
Minerals Company and Society National Bank, as Rights Agent.
83
<PAGE>
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 ON THE 27 DAY OF MARCH
1996.
CYPRUS AMAX MINERALS COMPANY
(REGISTRANT)
By /s/ Gerald J. Malys
--------------------
GERALD J. MALYS
Senior Vice President and Chief
Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 27, 1996.
SIGNATURES TITLES
---------- ------
/s/ Milton H. Ward Chairman of the Board, Director,
------------------- President, and Chief Executive Officer
MILTON H. WARD
/s/ Allen Born Vice Chairman of the Board and Director
---------------
ALLEN BORN
/s/ Gerald J. Malys Senior Vice President and Chief
-------------------- Financial Officer
GERALD J. MALYS (Principal Financial Officer)
/s/ John Taraba Vice President and Controller (Principal
---------------- Accounting Officer)
JOHN TARABA
/s/ Linda G. Alvarado Director
----------------------
LINDA G. ALVARADO
/s/ George S. Ansell Director
---------------------
GEORGE S. ANSELL
/s/ William C. Bousquette Director
--------------------------
WILLIAM C. BOUSQUETTE
/s/ Thomas V. Falkie Director
---------------------
THOMAS V. FALKIE
/s/ Ann Maynard Gray Director
---------------------
ANN MAYNARD GRAY
/s/ James C. Huntington, Jr. Director
-----------------------------
JAMES C. HUNTINGTON, JR.
/s/ Michael A. Morphy Director
----------------------
MICHAEL A. MORPHY
/s/ Rockwell A. Schnabel Director
-------------------------
ROCKWELL A. SCHNABEL
/s/ Theodore M. Solso Director
----------------------
THEODORE M. SOLSO
/s/ John Hoyt Stookey Director
----------------------
JOHN HOYT STOOKEY
/s/ James A. Todd, Jr. Director
-----------------------
JAMES A. TODD, JR.
/s/ Billie B. Turner Director
---------------------
BILLIE B. TURNER
84
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Cyprus Amax Minerals Company:
Our audits of the consolidated financial statements referred to in our report
dated February 14, 1996, appearing on page 43 of this report also included an
audit of the Financial Statement Schedule listed in Item 14(a) of this Form 10-
K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
February 14, 1996
85
<PAGE>
SCHEDULE VIII
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------
CHARGED CHARGED
BALANCE AT TO TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
MATERIAL AND SUPPLIES INVENTORY OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
- ---------------------------------------- ---------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1995
Deducted from asset accounts:
Reserve for material and supplies
inventory $23 $7 $2 $(8) $24
==== ==== ==== ==== ====
1994
Deducted from asset accounts:
Reserve for material and supplies
inventory $21 $1 $7 $(6) $23
==== ==== ==== ==== ====
1993
Deducted from asset accounts:
Reserve for material and supplies
inventory $33 $1 $- $(13)/(1)/ $21
==== ==== ==== ==== ====
DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE
- ----------------------------------------
1995
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current $ 5 $2 $3 $ (2) $ 8
Reserve for doubtful accounts and
notes receivable-noncurrent 5 - - - 5
---- ---- ---- ---- ----
Total $10 $2 $3 $ (2) $13
==== ==== ==== ==== ====
1994
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current $ 2 $- $3 $ - $ 5
Reserve for doubtful accounts and
notes receivable-noncurrent 5 - 1 (1) 5
---- ---- ---- ---- ----
Total $ 7 $- $4 $ (1) $10
==== ==== ==== ==== ====
1993
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current $ 2 $- $1 $ (1) $ 2
Reserve for doubtful accounts and
notes receivable-noncurrent 5 - 3 (3) 5
---- ---- ---- ---- ----
Total $ 7 $- $4 $ (4) $ 7
==== ==== ==== ==== ====
</TABLE>
- ------------
/(1)/ Amount includes the elimination of reserves for operations sold or shut
down ($4 million); remainder represents deductions for transfers, usage,
returns, and obsolescence due to the material and supply inventory
reduction program.
86
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DOCUMENT
------- --------
10 Material Contracts (except for director and executive contracts
and compensatory plans and arrangements, includes only those
contracts filed with this Annual Report on Form 10-K and does not
include other contracts which previously have been filed by the
registrant and which either remain to be performed in whole or in
part at or after the filing of this Annual Report on Form 10-K, or
were entered into not more than two years before the date of this
Annual Report on Form 10-K).
(a) Amended and Restated Employment Agreement between Cyprus Amax
Minerals Company and Milton H. Ward.
(b) Cyprus Amax Minerals Company Executive Officer Separation
Policy, as amended through the date of signing of the Annual
Report on Form 10-K, incorporated by reference from Exhibit
10(m) to the Annual Report on Form 10-K for the period ended
December 31, 1993 and including the additional amendments
filed with this report.
(c) Contracts regarding employment between Cyprus Minerals
Company and certain executive officers, incorporated by
reference from Exhibit 10(i) to the Annual Report on Form 10-
K for the period ended December 31, 1993, and including the
Clarifying Addendum filed with this report.
(d) 1993 Key Executive Long-term Incentive Plan between Cyprus
Amax Minerals Company and certain executive officers.
11 Statement re computation of per share earnings.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.
- ------------
(b) The following 8-Ks were filed during the last quarter of the period
covered by this Report on Form 10-K:
A current report on Form 8-K dated December 14, 1995, reporting the
fourth amendment to the Rights Agreement between Cyprus Amax Minerals
Company and Society National Bank, as Rights Agent.
87
<PAGE>
EXHIBIT 10(a)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
BETWEEN CYPRUS AMAX MINERALS COMPANY
AND MILTON H. WARD
88
<PAGE>
CYPRUS AMAX MINERALS COMPANY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement") is entered
into as of this 1st day of January, 1996, by and between Cyprus Amax Minerals
Company (the "Company"), a Delaware corporation, and Milton H. Ward ("Mr.
Ward").
RECITALS
--------
Whereas, Mr. Ward and the Company have extinguished their Employment
Agreement dated as of May 14, 1992; and
Whereas, the Board of Directors of the Company has decided that it is
desirable to retain for the Company the benefit of Mr. Ward's services as
Chairman of the Board of Directors of the Company, and President and Chief
Executive Officer of the Company and to contract with him regarding the same;
and
Whereas, Mr. Ward desires to contract formally with the Company with respect
to his employment as Chairman of the Board of Directors of the Company and as
President and Chief Executive Officer of the Company;
Now, therefore, in consideration of the undertakings and the payments herein
set forth, the Company and Mr. Ward mutually agree as follows:
1. ENGAGEMENT. The Company hereby agrees to engage Mr. Ward as an employee
----------
of the Company to serve as Chairman of the Board of Directors of the Company
and President and Chief Executive Officer of the Company until December 31,
2000 and to continue his engagement as an employee during the term of
employment set forth in Section 3 of this Agreement, and Mr. Ward hereby
agrees to accept such employment upon the terms and conditions set forth
herein. Mr. Ward acknowledges that the Company will seek to find a successor
to Mr. Ward during the Employment Period to serve as Chief Executive Officer
of the Company. In the event that the Company replaces Mr. Ward as Chief
Executive Officer during the Employment Period, then Mr. Ward's employment
shall be deemed terminated; however, without prejudice to his rights
pursuant to Section 3(B), Mr. Ward agrees to continue as Chairman at no
additional compensation (other than regular board fees) until the earlier of
December 31, 2000 or the first anniversary of his successor's appointment as
Chief Executive Officer of the Company.
2. COMPENSATION.
------------
(a) For all services rendered to the Company during the term of this
Agreement, Mr. Ward shall receive a salary (the "Salary") at an annual rate
not less than the higher of: (i) $1,000,000.00; or (ii) Mr. Ward's then
current Base Salary. Such Salary shall be paid to Mr. Ward on the same dates
and in the same increments as salaries are paid to other employees in
accordance with established Company practices.
"Base Salary" as used in this Agreement shall mean, as of any date of
determination, the annual rate of compensation being paid to Mr. Ward for
services performed by Mr. Ward for the Company, excluding amounts payable to Mr.
Ward or for his account under Company benefit plans or programs including
without limitation retirement, savings, vacation, life insurance, medical,
dental and disability plans of programs) or under Company special compensation
plans or programs (including without limitation bonus and stock option or stock
grant plans of programs). Mr. Ward's Base Salary shall be reviewed no less
frequently than annually. Any increase in Base Salary shall become effective at
such time as the Board of Directors in its sole discretion shall determine.
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<PAGE>
(b) Mr. Ward shall be eligible to participate in each generally applicable
Company benefit plan or program (including without limitation retirement,
savings, vacation, life insurance, medical, dental and disability plans or
programs) and in each Company special compensation plan or program
(including without limitation bonus and stock option or stock grant plans of
programs) to the extent provided by the terms and conditions of each plan or
program. In particular, Mr. Ward's target cash bonus each year shall be 100
percent of his then current Base Salary, to be based upon accomplishment of
objectives to be agreed between Mr. Ward and the Board of Directors. Except
as provided in Section 3(B), nothing in this Agreement is intended to limit
the discretion of the Company or the Board of Directors in administration of
the special compensation plans or any future plans or programs.
(c) Mr. Ward shall be granted as of January 2, 1996, a nonqualified stock
option to purchase 1,000,000 shares of the Company's common stock with an
exercise price equal to $26.4375 (the "Option"). The Option shall vest and
become exercisable with respect to 333,333 shares on December 31, 1998, with
respect to an additional 333,333 shares on December 31, 1999 and with
respect to the final 333,334 shares on December 31, 2000, provided that the
Option shall vest and become immediately exercisable upon a termination of
Mr. Ward's employment by Mr. Ward or the Company entitling Mr. Ward to
payments pursuant to Section 3(B) (a "Qualifying Termination") or upon a
Change of control (as defined in the Company's Management Incentive
Program).
(d) Mr. Ward shall be eligible to participate in the Company's KELTIP
with a guideline award of 50,000 shares, with the actual award to be made to
Mr. Ward being determined by the Compensation Committee.
(e) Mr. Ward shall be entitled to a supplemental retirement benefit (the
"SERP") equal to x times y/20 minus z where x equals 60% of Mr. Ward's Final
Average Pay, y equals two times Mr. Ward's years (or partial years) of
service with the Company and z equals any other qualified or nonqualified
defined benefit retirement benefits payable to Mr. Ward either by the
Company or any previous employer. The SERP shall vest in five equal annual
installments commencing on December 31, 1996, provided that the SERP shall
become immediately vested upon a Qualifying Termination or upon a Change of
Control (as defined in the Company's Management Incentive Program). For
purposes of the SERP, "Final Average Pay" means the average annual base
salary and annual bonus paid to Mr. Ward in the highest three consecutive
years of completed service with the Company. Actuarial determinations with
respect to the SERP shall be made by the Company's actuaries.
3. TERM. Unless terminated earlier pursuant to the terms of this Section 3,
----
and except for provisions of this Agreement which by their terms survive
termination of this Agreement, the term of this agreement shall be until
December 31, 2000 (the "Employment Period").
(a) Termination.
-----------
(i) Termination of Employment by Company for Breach of Covenant,
------------------------------------------------------------
Termination by Mr. Ward's Resignation, Retirement, Disability, or Death.
------------------------------------------------------------------------
Mr. Ward's employment and this Agreement may be terminated by the action of
the Board of Directors of the Company upon 30 days' written notice
specifying that the basis for termination is a breach of any of his
covenants in Section 4 of this Agreement. In the event of termination of
employment by the action of the Board of Directors of the Company for such
breach, or in the event of Mr. Ward's (a) resignation, (b) retirement (as
defined in the Company's benefits plans or payroll practices), (c) death, or
(d) disability (which shall be deemed to include only an incapacitating
condition which in the Company's reasonable judgment will materially and
adversely interfere with Mr. Ward's performance of his assigned duties for a
period in excess of six months), then, as of the date of such termination
for breach of covenant, resignation, retirement, death, or determination of
disability, the Company shall
90
<PAGE>
no longer have any further obligation to pay the Salary or, except as
otherwise provided herein, other compensation otherwise required by Section
2 of this Agreement.
(ii) Termination of Employment for Any Other Reason. Mr. Ward's
----------------------------------------------
employment and this Agreement may be terminated by action of the Board of
Directors upon 30 days' written notice specifying that the basis for
termination is any reason other than (a) resignation, (b) retirement, (c)
death, (d) disability, or (e) termination for breach of covenant (all as
defined in Section 3(A)(i) of this Agreement), which reasons may include
without limitation the Board of Directors' choice of another executive to
perform Mr. Ward's duties, or the reorganization of the Company or its
management.
(iii) No Other Rights of Termination. This Agreement can be
------------------------------
terminated by the Company or the Board of Directors only as provided in
Section 3(A)(i) and (ii) above.
(b) Benefits upon Termination. In the event Mr. Ward's employment is
-------------------------
terminated by the Company due to death or disability (as defined in Section
3(A)(i); or by action of the Board of Directors pursuant to Section
3(A)(ii); or in the event that Mr. Ward chooses to terminate his employment
within 30 days after any one or more of the following changes by the Company
or the Board of directors in his terms of employment; a reduction in Base
Salary below $1,000,000.00, an action of the Board of Directors pursuant to
which Mr. Ward ceases to serve as Chairman of the Board and Chief Executive
Officer, or an action of the Board of Directors pursuant to which Mr. Ward
ceases to serve as President of the Company without his written consent:
(i) The Company shall pay Mr. Ward, immediately upon termination of
Mr. Ward's employment:
(1) a lump sum amount which shall be computed on the basis of the
definition of actuarial equivalent specified in the Retirement Plan for
Salaried Employees of Cyprus Amax Minerals Company ("Retirement Plan"),
equal to the additional retirement benefit that would have been received by
Mr. Ward under the Retirement Plan as if he had remained employed until
December 31, 2000, and
(2) the full benefit that would have been received under the SERP, the
Cyprus Amax Minerals Company Full Retirement Benefit Plan for Certain
Salaried Employees, Cyprus Amax Minerals Company Restorative Benefits Plan
for Salaried Employees, and Cyprus Amax Minerals Company 415 Limitation Plan
for Salaried Employees, or such benefits under successor plans, if
applicable, in each case calculated for all purposes as if Mr. Ward had
remained in the employment of the Company until December 31, 2000 and as if
Mr. Ward retired as of that date and elected to receive payment immediately
upon termination. Such calculation of benefit shall be based on the higher
of the average of the final five complete calendar years of Mr. Ward's
compensation preceding termination or Mr. Ward's compensation for the
calendar year preceding the year of termination, as the term "compensation"
is defined in the applicable plans, plus in either case the value in each
year of any and all restricted stock granted to Mr. Ward pursuant to Section
3(B), of the now ineffective Employment Agreement dated as of May 14, 1992
between Mr. Ward and Cyprus Minerals Company valued as of the date of
vesting, provided, however, that for purposes of determining benefits
payable pursuant to the SERP, calculations of benefits shall be determined
by reference to Final Average Pay. For purposes of computing the additional
benefit under the Full Retirement Benefit Plan, the additional Full
Retirement Benefit Plan credited service computation will include the
additional period of Benefit Service deemed to have been credited under the
Retirement Plan for purposes of computing the additional benefits under the
Retirement Plan.
(ii) The Company shall also pay to Mr. Ward, immediately upon
termination of Mr. Ward's employment, a cash payment equal to the amount of
his then current Base Salary from the date of termination until December 31,
2000, plus a bonus payment both for the period prior to termination of
employment in respect of which no bonus has yet been paid and for the period
from the date of
91
<PAGE>
termination until December 31, 2000, calculated at the average of the annual
bonus payments previously paid to him for the prior three years. Such
payments shall be in lieu of any and all payments to which Mr. Ward would
otherwise be entitled under the Salaried and Non-Represented Hourly
Severance Plan or any successor plan or policy.
(iii) Mr. Ward shall be entitled to outplacement services provided by
a firm of Mr. Ward's choice at a cost to the Company of up to fifteen
percent of then current Base Salary plus one year of bonus computed as
provided in Section 3(B)(ii). Further, commencing upon termination, Mr. Ward
shall be entitled to receive any and all welfare benefits applicable to
retirees, as though Mr. Ward had been eligible to retire and had retired as
of the termination date at the age and with the years of service used to
calculate the additional retirement benefit, pursuant to Section 3(B)(i)
above.
(iv) This Section 3(B) shall not in any way duplicate any benefit,
or alter the manner in which or time at which benefits are paid, pursuant to
any qualified plans maintained by the Company.
In the event that benefits are paid to Mr. Ward under Section
3(B)(i)(b) of this Agreement, this Agreement shall, effective as of the date
payment is made to Mr. Ward under this Agreement, operate as an amendment of
each of the Cyprus Amax Minerals Company Full Retirement Benefit Plan for
Certain Salaried Employees, the Cyprus Amax Company Restorative Benefits Plan
for Salaried Employees, and the Cyprus Amax Minerals Company 415 Limitation Plan
for Salaried Employees, which amendment provides that payment of such benefits
under this Agreement, to the extent such payments are equal to or in excess of
the benefits accrued and payable under the respective Plan as of the date of Mr.
Ward's termination of employment triggering such payment of benefits under this
Agreement, constitute payment and satisfaction in full of any obligation the
Company may have to pay benefits under the respective Plan.
(v) To the extent legal counsel designated by the Company (which
counsel may or may not be an employee of the Company) shall have determined
that in his or her opinion to do so would neither (a) conflict, in effect,
with the Management Incentive Program or any successor plan nor (b) violate
or create any valid claim under any law or regulation (including any rule of
any securities market) applicable to either the Company or Mr. Ward, the
Company shall permit Mr. Ward to exercise stock options granted pursuant to
the Program, or any successor plan, or stock appreciation rights, if any,
granted in tandem with those options, for a period which shall end three
years following such date of termination. Unless the matters shall have
already been determined in a manner which the Company deems dispositive, if
the Company gives notice of termination to Mr. Ward under Section 3(A)(ii)
of this Agreement or receives notice of termination from Mr. Ward under
Section 3(B) of this Agreement, the Company shall promptly request legal
counsel to determine the matters specified in the preceding sentence and no
payment, if any, shall be made to Mr. Ward pursuant to this paragraph (v)
until such determination shall have been received by the Company.
Notwithstanding the first textual paragraph of this Section 3, Section
3(B), together with other Sections of this Agreement to the extent cross
reference therein, shall survive any termination of this Agreement by the
Company pursuant to 3(A)(ii).
Following such termination, the referenced provisions shall remain in
effect until the Company and Mr. Ward may otherwise mutually agree.
4. MR. WARD'S COVENANTS. While employed by the Company pursuant to this
--------------------
Agreement, Mr. Ward agrees to perform faithfully and competently the duties
of Chairman of the Board of Directors, President and Chief Executive Officer
of the Company, and such other duties as may be requested by the Board of
Directors, which duties shall be commensurate generally with his duties as
of the
92
<PAGE>
date of this Agreement, and to perform such services as typically are
performed by persons holding such positions in comparable companies. Mr.
Ward agrees to devote his full time and all of his attention and skill
faithfully, diligently, and loyalty to the proper performance of his duties
hereunder. Mr. Ward agrees to comply with all applicable laws and
regulations materially affecting his position of which he is aware and to
follow all lawful directions of the Company's Board of Directors. During the
term of this Agreement, Mr. Ward agrees not to serve in any capacity with
another company, partnership, or organization, or to retain any fees,
income, profit, or compensation therefrom, if such activities would violate
any conflict-of-interest policy adopted by the Company or if such company,
partnership, or organization is a competitor of the Company in any of its
operations.
Mr. Ward agrees that he will not divulge or appropriate for his own
use, or for the use of any third party, any confidential, proprietary or
sensitive information of a material nature (including without limitation, trade
secrets, know-how, technical data including computer programs, financial data,
customer or vendor lists, personnel information, planning data and projections,
and any information received from third parties under disclosure restrictions),
discovered, developed, or obtained by him during the course of his employment,
concerning methods, processes, designs, equipment, and operating procedures of
the Company, which confidentiality requirement shall survive the termination of
this Agreement and Mr. Ward's employment hereunder for a period of three years.
Mr. Ward hereby acknowledges the Company's right to possession of and title in
and to all papers, documents, or other materials prepared by Mr. Ward or
provided to him by reason of his employment by the Company. Upon termination of
his employment, Mr. Ward shall promptly deliver to the Company all materials
relating to the business of the Company which are in his possession or are under
his control.
The Company and Mr. Ward agree that the remedies available at law for
any breach by Mr. Ward of his covenants in this Section 4 will be inadequate and
that the Company also shall be entitled to injunctive relief in any action
brought to enforce those covenants.
5. SUCCESSORS. This Agreement, and the rights and obligations created hereby,
----------
shall be binding upon and shall inure to the benefit of Cyprus Amax Minerals
Company and all of its successors and assigns (whether by merger or
otherwise).
6. ATTORNEY'S FEES AND INTEREST. The Company shall reimburse Mr. Ward for
----------------------------
any and all reasonable attorney's fees and expenses incurred by Mr. Ward in
litigation in respect of this Agreement in which a final determination is
made that the Company has breached any provision of the Agreement, and shall
pay to Mr. Ward any and all prejudgment interest awarded for delayed
payments by the Company under the Agreement.
7. NO DUPLICATION OF PAYMENTS. The payments provided in Sections 3(B)(i), (ii)
--------------------------
and (iii) hereof are not intended to be in addition to similar payments and
benefits made under any other agreement, including any employment agreement
covering a change of control. Accordingly, in such circumstances Mr. Ward
shall be entitled to the larger of the payments and the better of the
benefits under this Agreement or any other employment agreement but not to
both.
8. MISCELLANEOUS.
-------------
(a) The Agreement shall supersede any and all prior agreements of contracts
between Mr. Ward and the Company concerning the subject matter hereof,
including without limitation that letter agreement dated as of May 9, 1992
and that Employment Agreement dated as of May 14, 1992 between the parties
hereto.
(b) This Agreement may be rescinded, revoked, or amended only by a written
instrument signed by both parties, with the approval of the Board of
Directors. The failure of either party to insist
93
<PAGE>
upon strict compliance with any of the terms, conditions, and covenants
hereof shall not be deemed a waiver of that or any similar right or power at
any subsequent time.
(c) The Company may withhold from any amounts payable under this Agreement
such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(d) Nothing in this Agreement shall be interpreted to limit the right of the
Company to amend or terminate any existing or future benefit plan or
program.
(e) Any written notice required or permitted to be given hereunder is
sufficient if sent by registered mail or delivered by hand, to the Company
at its main place of business, or to Mr. Ward at his home address as
reflected in Company records.
(f) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of
this Agreement.
(g) This Agreement is to be governed and construed in accordance with the
laws of the state of Colorado, excluding any conflict of laws or provisions
thereof which would cause the laws of any other state to be applicable
hereto.
IN WITNESS WHEREOF, Mr. Ward has signed this Agreement, and the Company has
caused its duly authorized representative to sign this Agreement, in each case
as of the date first written above.
CYPRUS AMAX MINERALS COMPANY
By: /s/ Thomas V. Falkie
----------------------
Thomas V. Falkie
Chairman, Compensation and
Benefits Committee
/s/ Milton H. Ward
--------------------
Milton H. Ward
94
<PAGE>
EXHIBIT 10(b)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
EXECUTIVE OFFICER SEPARATION POLICY
95
<PAGE>
CYPRUS AMAX MINERALS COMPANY
EXECUTIVE OFFICER SEPARATION POLICY
1. SCOPE
This Policy applies to Executive Officers listed on Schedule A, which is
attached, and which may be revised from time to time by action of the
Compensation and Benefits Committee of the Board of Directors
("Committee"). In no event shall the Chairman, President, and Chief
Executive Officer of Cyprus Amax Minerals Company ("Cyprus Amax") be a
participant in this Policy. Any Executive Officer covered under this
Policy may be excluded by action of the Committee.
2. TERMINATION OF EMPLOYMENT
2.1 Terminations Which Give Rise to Separation Benefits Under This
--------------------------------------------------------------
Policy.
-------
(a) elimination of position and/or responsibilities;
(b) consolidation of department, offices or divisions;
(c) reorganization;
(d) mergers, acquisitions or abandonment of properties;
(e) a material diminution of position, authority, duties or
responsibilities;
(f) requirement to relocate more than fifty miles from current
location;
(g) reduction in base salary of more than 10 percent or a
material reduction in employee benefits unless such a
reduction is generally applicable to all other Executive
Officers.
2.2 Terminations Which Do Not Give Rise to Separation Benefits Under
----------------------------------------------------------------
This Policy.
-----------
(a) termination for good cause;
(b) termination for disability;
(c) termination because of retirement;
(d) termination on a voluntary basis for reasons other than 2.1
(e through g) above.
3. SEPARATION BENEFITS
(a) If the Executive Officer's employment is terminated under circumstances
as described in Section 2.1 above, entitling the Executive Officer to
Separation Benefits, Cyprus Amax shall pay to the Executive Officer, as
soon as administratively feasible subsequent to Cyprus Amax's receipt of
a timely release, which has been executed by the Executive Officer, and
which is no longer revocable, a Separation Benefit equal to one year of
the Executive Officer's base salary plus the Executive Officer's Target
Annual Bonus. The Executive Officer shall also be eligible for a prorata
bonus for the year of termination at the Committee's discretion.
Provided, however, that any Executive Officer who is a participant in
another agreement or arrangement which, upon termination, will provide
benefits similar to those under Section 3(a) of this Agreement, shall not
be entitled to the benefits under Section 3(a).
(b) The Executive Officer shall be entitled to outplacement services provided
by a firm of the Executive Officer's choice at a cost to Cyprus Amax of
up to 15 percent of the Executive Officer's then current Base Salary plus
Annual Bonus. Further, commencing upon termination, the Executive Officer
shall be entitled to receive medical benefits (excluding dental) and life
insurance for one year following date of termination. Provided, however,
that any Executive Officer who is a participant in another agreement
96
<PAGE>
or arrangement which, upon termination, will provide benefits
similar to those under Section 3(b) of this Agreement, shall not be
entitled to the benefits under Section 3(b).
4. OTHER BENEFITS PAYABLE
The Separation Benefits described in Section 3, except to the extent
provided for under any other agreement or arrangement to which the Executive
Officer is party to, shall be payable in addition to, and not in lieu of,
all other accrued or vested or earned but deferred compensation, rights,
options, or other benefits which may be owed to the Executive Officer
following termination, including but not limited to accrued vacation, amount
of benefits payable under any bonus or other compensation plans, stock
option program, disability plan, contractual retirement benefits, or similar
successor plans.
5. BINDING OF SUCCESSORS
This Policy shall bind any successor corporation, whether direct or
indirect, by purchase, merger, consolidation, or otherwise, in the same
manner and to the same extent that Cyprus Amax would be obligated under this
Policy.
6. AMENDMENT AND TERMINATION
This Policy may be amended or terminated, at any time, by the Committee.
7. EMPLOYMENT STATUS
This Policy does not constitute a contract of employment or impose on Cyprus
Amax any obligation to retain the Executive Officer as an employee.
8. TAX WITHHOLDING
Cyprus Amax may withhold from any amounts payable under this Policy such
federal, state, or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
9. POLICY
This Policy shall be governed and construed in accordance with the laws of
the State of Colorado, excluding any conflict of laws or provisions thereof
which would cause the laws of any other state to be applicable thereto.
10. VALIDITY AND SEVERABILITY
The invalidity or unenforceability of any provision of this Policy shall not
affect the validity or enforceability of any other provision of the Policy.
11. ADMINISTRATION AND CLAIMS
This Policy shall be administered by the Committee and the Committee shall
have sole discretion in carrying out its responsibilities.
97
<PAGE>
SCHEDULE A
OF THE
CYPRUS AMAX MINERALS COMPANY
EXECUTIVE OFFICER SEPARATION POLICY
Pursuant to Section 1 of the Cyprus Amax Minerals Company Executive Officer
Separation Policy, this Policy shall apply to the following incumbents and
positions as of June 21, 1995:
Gerald J. Malys Senior Vice President and Chief Financial Officer
Jeffrey G. Clevenger President, Cyprus Climax Metals
Gerold R. Spindler President, Cyprus Amax Coal
Philip C. Wolf Senior Vice President, General Counsel and Secretary
Robin J. Hickson President, Engineering and Construction
David H. Watkins Senior Vice President, Exploration
John Taraba Vice President and Controller
Francis J. Kane Vice President, Investor Relations and Treasurer
Gerard H. Peppard Vice President, Human Resources
98
<PAGE>
EXHIBIT 10(c)
CYPRUS AMAX MINERALS COMPANY
MATERIALS CONTRACTS
CLARIFYING ADDENDUM TO EMPLOYMENT AGREEMENTS
99
<PAGE>
CYPRUS AMAX MINERALS COMPANY
CLARIFYING ADDENDUM
THIS CLARIFYING ADDENDUM (the "Addendum") is made this 2nd day of May,
1995, by agreement between Cyprus Amax Minerals Company (the "Company") and
_______________ (the "Employee"), and is intended to clarify the intent of the
parties with respect to certain provisions of the Agreement, dated
______________, 19__, between Cyprus Minerals Company and its successor, the
Company, and the Employee (the "Agreement").
NOW, THEREFORE, the parties agree to the following clarifications with
respect to the calculation of benefits described in Section 3 (i) of the
Agreement:
1. BENEFICIARY DESIGNATION. The following beneficiary designation procedure
-----------------------
shall be followed:
(a) The Employee may designate the beneficiary or beneficiaries who shall
receive, on or after the Employee's death, the benefits payable under
Section 3 (i) of the Agreement. Such designation shall be made by executing
and filing with the Company a written instrument in such form as may be
prescribed by the Company for that purpose. The Employee may revoke or
change, at any time and from time to time, any beneficiary designation
previously made. Such revocations and/or changes shall be made by executing
and filing with the Company a written instrument in such form as may be
prescribed by the Company for that purpose.
(b) No designation, revocation, or change of beneficiary shall be valid and
effective unless filed with the Company.
(c) Unless the Employee establishes to the satisfaction of the Company that
he has no spouse, he may not designate a beneficiary other than his spouse
unless his spouse executes a written instrument whereby such spouse
consents not to receive such benefit.
(d) If the Employee has no beneficiary, if the Employee's beneficiary(ies)
predecease the Employee, or if the beneficiary(ies) cannot be located by
the Company, the interest of the deceased Employee shall be paid to the
Employee's estate.
2. CALCULATION OF LUMP SUM PAYMENT. The following procedure shall be used to
-------------------------------
calculate lump sum payments under Section 3 (i) of the Agreement:
(a) At the time the Employee terminates from employment with eligibility
for a future benefit from the Retirement Plan for Salaried Employees of
Cyprus Amax Minerals Company (the "Retirement Plan"), the Company shall
make an "interim" payment to the Employee. This interim payment shall be
based on an estimate of the projected benefits the Employee will receive
from the Retirement Plan and the related estimated additional benefits
under the Agreement based on the facts and circumstances at the time the
estimates are made.
(b) When the Employee attains the earliest retirement age (or would have
attained such age but for death) which was used to calculate the interim
payment, the Company shall recalculate the benefits under the Agreement
using the benefit actually paid, if any, from the Retirement Plan. If such
recalculation results in an amount under the Agreement that is larger than
the interim payment previously paid to the Employee, the Company shall make
an additional payment under the Agreement to make up the difference between
the interim payment and the recalculated amount.
100
<PAGE>
3. COMPENSATION. The term "compensation" as used to calculate the lump sum
------------
payment under Section 3 (i) of the Agreement is hereby amended and redefined
as amounts earned by the Employee during the relevant period used to
determine applicable compensation, regardless of when such amounts are
actually paid to the Employee.
IN WITNESS WHEREOF, the Employee has hereunto set his hand and, pursuant to
the authorization from its Board of Directors, the Company has caused these
presents to be executed in its name on its behalf, all as of the day and year
first written above.
EMPLOYEE
_______________________________
CYPRUS AMAX MINERALS COMPANY
By: ___________________________
101
<PAGE>
EXHIBIT 10(d)
CYPRUS AMAX MINERALS COMPANY
1993 KEY EXECUTIVE LONG-TERM INCENTIVE PLAN
102
<PAGE>
CYPRUS MINERALS COMPANY
1993 KEY EXECUTIVE LONG-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of this Cyprus Minerals Company 1993 Key Executive
-------
Long-Term Incentive Plan is to enhance the long-term performance of
Cyprus Minerals Company by rewarding key executives of the Company for
the sustained creation of incremental value for the Company's
shareholders. This Plan provides an opportunity for key executives to
receive restricted stock awards and cash incentive payments based on the
rate of return received by investors in the Company's stock, compared to
that of its peers. This Plan also provides a means for the Company to
attract and retain high quality management talent.
2. DEFINITIONS. For purposes of this Plan, the following definitions shall
-----------
apply:
2.1 "ACCELERATED VESTING" means the lapse of Restrictions pursuant to
-------------------
Section 8.2 on part or all of the Restricted Shares included in an
award.
2.2 "BOARD" means the Board of Directors of the Company.
-----
2.3 "CAUSE" means the failure of a Participant to perform his or her
-----
duties of employment in a competent and diligent manner, in compliance
with applicable law and in accordance with the policies of the Company
and the lawful direction of the Board and executive management.
2.4 "CHANGE OF CONTROL" means the happening of any of the following
-----------------
events:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20 percent or more of either
(i) the then outstanding shares of Common Stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control:
(i) any acquisition directly from the Company, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction described in clauses (i), (ii)
and (iii) of paragraph (3) of this Section 2.4; or
(2) Individuals who, as of January 1, 1993, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to January 1, 1993 whose election, or
nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(3) Approval by the shareholders of the Company of a reorganization,
merger or consolidation (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting
103
<PAGE>
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 80 percent of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of
such transaction owns the Company through one or more subsidiaries)
in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (ii) no Person (excluding any employee benefit plan
(or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or
indirectly, 20 percent or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from
such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business Combination
and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(4) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which
following such sale or other disposition, (A) more than 80 percent
of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such sale
or other disposition, in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (B) less than 20 percent of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by any Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation), except to the
extent that such Person owned 20 percent or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities prior
to the sale or disposition and (C) at least a majority of the
members of the board of directors of such corporation were members
of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such sale or
other disposition of assets of the Company or were elected,
appointed or nominated by the Board.
2.5 "CODE" means the Internal Revenue Code of 1986, as amended from
----
time to time.
2.6 "COMMITTEE" means the Compensation and Benefits Committee of the
---------
Board. The Committee shall consist of three or more members who shall be
appointed by the Board, each of whom shall qualify as a "disinterested
person" within the meaning of that term as defined in Rule 16b-3
promulgated pursuant to the Exchange Act.
2.7 "COMMON STOCK" means the common stock of the Company.
------------
2.8 "COMPANY" means Cyprus Minerals Company and any "subsidiary
-------
corporation" of Cyprus Minerals Company, whether now or hereafter
existing, as defined in Section 424(f) of the Code.
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<PAGE>
2.9 "DEFERRED CASH INCENTIVE" means an award that may entitle the
-----------------------
Participant to receive a cash payment pursuant to Section 9 of this
Plan. Each award of Restricted Shares under this Plan shall be made with
a companion award of a Deferred Cash Incentive.
2.10 "DISABILITY" means an incapacitating condition which in the
----------
reasonable judgment of the Committee will materially and adversely
interfere with the Participant's performance of his or her assigned
duties for a period in excess of six months.
2.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
2.12 "FAIR MARKET VALUE" means the closing price of a company's common
-----------------
stock on a given day on the principal exchange or national automated
quotation system on which the common stock is traded or quoted, or in
the absence of reliable information as to such closing price, such other
price as may be determined by the Committee.
2.13 "INITIAL AWARD VALUE" means, with respect to any award of
-------------------
Restricted Shares, the price per share of the Common Stock on the date
on which the Restricted Stock award is made, calculated as the average
of the reported highest and lowest sales prices per share on the
principal exchange or national automated quotation system on which the
Common Stock is traded or quoted, or in the absence of reliable
information as to such prices, such other price as may be determined by
the Committee.
2.14 "PARTICIPANT" means an employee of the Company designated by the
-----------
Committee to participate in this Plan.
2.15 "PEER GROUP" means a group of companies selected from time to time
----------
by the Committee against which the Company's Total Shareholder Return
shall be compared for purposes of determining Accelerated Vesting and
payment of Deferred Cash Incentives.
2.16 "PERCENTILE RANKING" means the Company's percentile ranking in
------------------
Total Shareholder Return relative to companies in the Peer Group in
respect of a Performance Cycle. Such Percentile Ranking will be
determined in accordance with procedures approved by the Committee.
2.17 "PERFORMANCE CYCLE" means with respect to the Company or with
-----------------
respect to any member of the Peer Group, a period of thirty-six (36)
consecutive calendar months commencing on January 1 of a specified year.
The first Performance Cycle commenced January 1, 1993, and a new
Performance Cycle shall commence on each anniversary thereof.
2.18 "PLAN" means this Cyprus Minerals Company 1993 Key Executive Long-
----
Term Incentive Plan.
2.19 "RESTRICTED SHARES" means Shares awarded pursuant to Section 5 of
-----------------
this Plan, subject to the Restrictions.
2.20 "RESTRICTIONS" means the restrictions set forth in Section 7.
------------
2.21 "RETIREMENT" means a Termination of Service by retirement under
----------
the normal, mandatory, disability, age plus service or consent
provisions of the applicable retirement plan of the Company, or any
other Termination of Service for which retirement benefits or their
equivalent are paid.
2.22 "SECURITIES ACT" means the Securities Act of 1933, as amended from
--------------
time to time.
2.23 "SERVICE" refers to full-time employment with the Company and
-------
such part-time employment with the Company as may be approved by the
Committee.
105
<PAGE>
2.24 "SHARE" means one share of Common Stock, as adjusted in accordance
-----
with Section 10 of the Plan.
2.25 "TAX RATE" means the combined effective federal, state and local
--------
income tax rate deemed to be in effect for all Participants from time to
time. The Committee shall establish such rate from time to time and such
rate shall be uniformly applied to all Participants.
2.26 "TERMINATION OF SERVICE" means a termination of Service from the
----------------------
Company for any reason, whether voluntary or involuntary, including
without limitation death, Retirement or Disability.
2.27 "TOTAL SHAREHOLDER RETURN" means the compound annual rate of
------------------------
return from investing in a company's common stock over a Performance
Cycle from stock price appreciation and dividends and other
distributions provided to shareholders of such company during the
Performance Cycle. Total Shareholder Return shall be calculated by (1)
assuming that one share of common stock of the company is purchased on
the first day of the Performance Cycle at a price equal to the average
Fair Market Value of the common stock for the ninety (90) trading days
immediately prior to the first day of the Performance Cycle; (2)
assuming that additional shares (or portions of shares) are purchased
with any dividends or other shareholder distributions on the initial
share and on shares accumulated through the assumed reinvestment of
dividends and other distributions, with such purchases being made on the
dividend or other distribution payment date at a price equal to the Fair
Market Value of the company's common stock on that date; (3) calculating
the number of shares of the company's common stock that would be
accumulated under clauses (1) and (2) over the Performance Cycle,
adjusting, as necessary, for any stock splits or similar events; (4)
multiplying the number calculated in clause (3) by the average Fair
Market Value of the company's common stock for the final ninety (90)
trading days of the Performance Cycle; and (5) determining the compound
annual rate of growth that represents the difference between the Fair
Market Value determined in clause (1) and the amount determined in
clause (4).
3. SHARES SUBJECT TO AWARD.
-----------------------
The total number of Restricted Shares which may be awarded pursuant to this
Plan during each fiscal year (the "maximum annual awards") shall be the sum
of (i) 0.5 percent of the number of outstanding Shares (excluding treasury
Shares) as of the end of the immediately preceding fiscal year plus (ii) the
cumulative number of carryforward Shares (as defined below) from all prior
fiscal years (including the immediately preceding fiscal year) which shall
not yet have been used to make awards in any intervening period. The number
of "carryforward Shares" from each fiscal year (the "Accumulation Year")
ending on or after December 31, 1993, shall be the amount, if any, by which
(i) 0.5 percent of the number of outstanding Shares (excluding treasury
Shares) as of the end of the fiscal year immediately preceding the
Accumulation Year exceeds (ii) the number of Restricted Shares awarded
pursuant to this Plan during the Accumulation Year. Any determination of the
maximum annual awards for any fiscal year, including any determination of the
number of carryforward Shares from any prior fiscal year, shall take into
account and be appropriately adjusted for any intervening changes in
capitalization as provided in Section 10.2.
4. ADMINISTRATION. This Plan shall be administered by the Committee. Subject to
--------------
the provisions of this Plan, the Committee shall have the authority, in its
sole discretion: (1) to determine, in accordance with Section 2.13, the
Initial Award Value of Restricted Shares to be awarded; (2) to determine, in
accordance with Sections 5 and 8.3, the Participants to whom, and the date or
dates on which, Restricted Shares and companion Deferred Cash Incentives
shall be awarded and the number of Shares to be represented by each award;
(3) to interpret and administer this Plan; (4) to prescribe, amend and
rescind rules and regulations relating to this Plan; (5) to determine the
terms and provisions of each award (awards need not be uniform) and to amend
the terms of any outstanding award in any manner not inconsistent with this
Plan, provided that no such amendment
106
<PAGE>
which may adversely affect the Participant holding such award shall become
effective without the written consent of the Participant; (6) to accelerate
the time at which Restrictions will lapse or to remove any of such
Restrictions; (7) to authorize any person to execute on behalf of the Company
any instrument required to effect an award approved by the Committee; (8) to
make all other determinations deemed necessary or advisable for the
administration of this Plan; and (9) to change the relationship between Total
Shareholder Return and Accelerated Vesting if an event occurs that materially
influences the Total Shareholder Return of the Company or a member of the
Peer Group and is deemed by the Committee to be extraordinary and out of the
control of management.
All decisions, determinations and interpretations of the Committee shall
be final and binding on all Participants.
5. PARTICIPATION.
-------------
5.1 PARTICIPANTS. Participation in this Plan is limited to key
------------
employees of the Company, who, in the opinion of the Committee, have the
opportunity through their individual roles and positions to influence
materially the Company's long-range performance. Such employees will be
designated as Participants by the Committee. In determining who shall
participate in this Plan, the Committee shall take into consideration an
employee's title, duties and past and potential contributions to the success
of the Company. New Participants may be added at any time at the discretion
of the Committee.
5.2 DISCRETIONARY NATURE OF AWARDS. Each award and the number of
------------------------------
Restricted Shares included in each award, shall be entirely in the discretion
of the Committee and nothing herein contained shall be construed to give any
person any right to participate in this Plan or to receive any such award,
subject however to Section 8.3. Neither the existence of this Plan nor any
award hereunder shall create any right to continued employment of any
Participant by the Company, nor shall it interfere, in any way, with the
Participant's right or the Company's right to terminate the employment
relationship between the Company and the Participant at any time, with or
without Cause.
6. AWARD AGREEMENTS, CERTIFICATES, AND RIGHTS.
------------------------------------------
6.1 AWARD AGREEMENTS. Each award shall be evidenced by a written
----------------
agreement which shall contain such terms and conditions consistent with
this Plan as the Committee may determine.
6.2 CERTIFICATES FOR SHARES.
-----------------------
(a) As soon as practicable after the receipt by the Company of an
award agreement executed by the Participant as provided in
Section 6.1 and of a stock power endorsed by the Participant in
blank with respect to the Restricted Shares covered by the
agreement, unless a later date for issuance of stock
certificates is provided in the award agreement, the Company
shall cause to be issued a stock certificate, registered in the
name of the Participant, evidencing the Restricted Shares
awarded by the agreement. Each such certificate shall bear a
legend substantially in the following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the restrictions,
terms and conditions (including forfeiture and restrictions
against transfer) contained in the Cyprus Minerals Company
1993 Key Executive Long-Term Incentive Plan and an Agreement
entered into between the registered owner of such shares and
Cyprus Minerals Company or one of its participating
subsidiaries. A copy of the Plan and Agreement is on file in
the office of the Secretary of Cyprus Minerals Company, 9100
East Mineral Circle, Englewood, Colorado."
107
<PAGE>
Such legend shall not be removed from any stock certificate
until the lapse or removal of the Restrictions on all of the
Restricted Shares evidenced by such certificate.
(b) As an alternative to delivering any stock certificate to the
Participant pursuant to Section 6.2(a) above, any certificate
evidencing Restricted Shares, together with a stock power,
shall be deposited by the Company with a custodian designated
by the Company. The Company shall cause such custodian to issue
to the Participant a receipt evidencing any stock certificate
held by it registered in the name of such Participant.
(c) The Participant shall not be deemed for any purpose to be, or
have any rights as, a shareholder of the Company with respect
to any Restricted Shares awarded except if, as and when a stock
certificate is issued therefor and then only from the date such
certificate is issued. No adjustment shall be made for
dividends or distributions or other rights for which the record
date is prior to the date such stock certificate is issued.
(d) As soon as practicable after the lapse or removal of the
Restrictions on any Restricted Shares, the Company shall cause
to be issued in the Participant's name a stock certificate
evidencing such Restricted Shares, free of the legend provided
in Section 6.2(a), and shall cause such stock certificate to be
delivered to the Participant, upon surrender to the Company of
the previously issued certificate(s) representing the same
Restricted Shares.
6.3 RIGHTS OF A SHAREHOLDER. Upon and following the date a certificate
-----------------------
for Restricted Shares is issued to a Participant (except following a
forfeiture of the Restricted Shares as set forth in Section 7), the
Participant shall have all of the rights of a shareholder including but
not limited to the right to receive all dividends paid on such Shares
(reduced by any amounts the Company may be required to withhold for
taxes) and the right to vote such Shares. Any securities or other
property (excluding cash in payment of normal dividends) that may be
distributed with respect to the Restricted Shares shall be received and
held by the Participant (or by the custodian, as applicable) subject to
the same Restrictions as the Restricted Shares.
7. TERM AND CONDITIONS OF RESTRICTIONS. Restricted Shares awarded to a
-----------------------------------
Participant shall be subject to the following Restrictions:
(a) None of the Restricted Shares may be sold, assigned,
transferred, pledged or otherwise encumbered, except as
otherwise specifically provided, until the Restrictions either
lapse in accordance with Section 8 and the terms of the award
agreement, or are removed by the Committee in accordance with
Section 7(b) or otherwise in its sole discretion.
(b) All of the Restricted Shares shall be forfeited and shall be
returned to the Company and all rights of the Participant to
such Restricted Shares shall terminate without any payment of
consideration by the Company upon (1) any voluntary Termination
of Service except for reason of Retirement and (2) any
involuntary Termination of Service for reason of Cause.
In the event of a Participant's Retirement, death, Disability
or involuntary Termination of Service without Cause, the
Participant, or the Participant's beneficiary, shall be
entitled to retain the Restricted Shares and any related
Deferred Cash Incentive, subject to all of the Restrictions
imposed on such Restricted Shares in accordance with this Plan
and the award agreement, as if the Participant were still in
the Service of the Company. The Company shall determine whether
such Restricted Shares have become taxable to the Participant,
or the Participant's beneficiary, and if such have become
108
<PAGE>
taxable, the Committee shall remove the Restrictions from the
number of Restricted Shares estimated by the Committee in good
faith in its sole discretion to be sufficient to pay such income
tax liability.
A Termination of Service which occurs in connection with the sale
or disposition of a subsidiary or other business unit of the
Company shall be deemed to be an involuntary termination without
Cause.
8. RESTRICTION PERIOD.
------------------
8.1 LAPSE OF RESTRICTIONS IF NO ACCELERATION. If all
----------------------------------------
Restrictions imposed on the Restricted Shares included in an award
shall not have previously lapsed or shall not have been removed by the
Committee, such Restrictions will immediately lapse on the day
following the tenth (10th) anniversary of the date of award.
8.2 ACCELERATION OF LAPSE OF RESTRICTIONS. All Restrictions
-------------------------------------
imposed on Restricted Shares included in any award shall lapse, in
whole or in part, as determined by the Company's Percentile Ranking for
each Performance Cycle of the four consecutive Performance Cycles
commencing on January 1 of the calendar year in which such award is
made.
Following the end of each Performance Cycle, the Percentile Ranking of
the Company shall be calculated. Based on the Company's Percentile
Ranking, all Restrictions shall lapse by Accelerated Vesting for all or
part of each award for which the Performance Cycle applicable to such
award has been completed, in accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF AWARD ON WHICH
RESTRICTIONS LAPSE (BASED ON
ORIGINAL AMOUNT OF AWARD) PERCENTILE RANKING
------------------------- ------------------
<S> <C>
None Below the 50th%
20% 50th% and above but below 60th%
33-1/3% 60th% and above but below 70th%
50% 70th% and above but below 80th%
75% 80th% and above but below 90th%
100% 90th% and Above
</TABLE>
The number of Shares for which Restrictions lapse shall be rounded to
the nearest whole number of Shares. The Committee in its discretion
shall determine the effective date of any Accelerated Vesting pursuant
to this Section 8.2, provided such effective date shall follow as
closely as practicable the final determination of the Company's
Percentile Ranking for that Performance Cycle.
Any portion of an award with respect to which Restrictions do not lapse
based on the Company's Percentile Ranking at the end of one Performance
Cycle applicable to such award shall again be subject to Accelerated
Vesting at the end of the subsequent Performance Cycle, provided that no
such Accelerated Vesting shall occur in respect of any Restricted Shares
remaining subject to Restrictions after the Percentile Ranking has been
determined for the fourth consecutive Performance Cycle.
8.3 SUPPLEMENTAL AWARDS. In the event that the Company's Total
-------------------
Shareholder Return for any Performance Cycle would result in the lapse
of Restrictions with respect to a greater portion of the Restricted
Shares than remains in the award, the difference will be awarded to the
Participant in the year following such Performance Cycle, if such
Participant is in the Service of the Company on the date such awards are
made in such year, if such Participant is awarded other Restricted
Shares under this Plan in such year, and if such award does not
contravene Section 3 or any other provision of
109
<PAGE>
this Plan. There shall be only one supplemental award with respect to
any one Restricted Shares award.
8.4 LAPSE OF RESTRICTIONS UPON A CHANGE OF CONTROL. Notwithstanding any
----------------------------------------------
other provision of this Plan to the contrary, in the event of a Change
of Control (as described in Section 2.4), the Restrictions applicable to
any Restricted Shares shall lapse to the full extent of the original
award.
9. DEFERRED CASH INCENTIVE.
------------------------
9.1 AWARD CONCEPT. If a Participant has received an award of
-------------
Restricted Shares with respect to which Restrictions have lapsed
pursuant to Section 8.2 or 8.4, he or she shall receive payment of a
Deferred Cash Incentive award. Such payment will be equal in amount to
the aggregate Initial Award Value of the Restricted Shares with respect
to which Restrictions have lapsed multiplied by the Tax Rate in effect
when the Restrictions shall have lapsed, divided by 1.00 minus such Tax
Rate. The Deferred Cash Incentive shall be paid by the Company within
fifteen (15) days of the date the Restrictions shall have lapsed.
9.2 RESTRICTION ON DEFERRED CASH INCENTIVE AVAILABILITY. No Deferred
---------------------------------------------------
Cash Incentive will be payable in connection with any portion of an
award with respect to which Restrictions do not lapse pursuant to
Section 8.2 or 8.4.
10. ADJUSTMENTS FOR COMPANY CHANGES.
-------------------------------
10.1 RIGHTS AND POWERS RESERVED. The existence of any outstanding
--------------------------
award of Restricted Shares shall not affect in any way the right or
power of the Company or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, any merger or consolidation
of the Company, any issue or sale of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock of the
Company, any sale or transfer of all or any part of the assets or
business of the Company, the liquidation or dissolution of the Company
or any other corporate act or proceeding, whether of a similar character
or otherwise. Except as expressly provided in this Plan, the issue or
sale by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash, property, labor
or services, either upon direct sale or the exercise of rights or
warrants to subscribe therefor or upon conversion of shares or
obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or Initial Award Value of Restricted
Shares then subject to any outstanding award.
10.2 CHANGES IN CAPITALIZATION. In the event that the Committee shall
-------------------------
determine that any dividend or other distribution (whether in the form
of cash, Shares of Common Stock, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization,
merger, consolidation, split-up, spin-off, combination, repurchase, or
exchange of Shares of Common Stock or other securities of the Company,
issuance of warrants or other rights to purchase Shares of Common Stock
or other securities of the Company, or other similar corporate
transaction or event affects the Shares of Common Stock such that an
adjustment, in the discretion of the Committee, is appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under this Plan, then the Committee shall,
in such manner as it may deem equitable, adjust any or all of (i) the
number and type of Shares of Common Stock (or other securities or
property) which thereafter may be made the subject of awards (ii) the
number and type of Shares of Common Stock (or other securities or
property) subject to outstanding awards, and (iii) the Initial Award
Value with respect to any outstanding awards, or, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding award;
provided, that the number of Restricted Shares subject to any award
denominated in Shares shall always be a whole number.
110
<PAGE>
11. AMENDMENT AND DISCONTINUANCE.
----------------------------
11.1 AMENDMENTS. The Board may from time to time amend this Plan, or
----------
any provisions thereof, except that:
(a) The maximum limitation with respect to the number of Restricted
Shares that may be awarded in any fiscal year shall not be amended.
The basis for computing the Deferred Cash Incentives shall not be
amended in a manner that increases the amount of such awards.
(b) No persons other than key executives of the Company shall be
eligible to participate in the Plan.
(c) Section 2.6 may not be amended (unless required in order to conform
the definition of "disinterested person" to that at the time
required by the Securities and Exchange Commission), nor may the
authority of the Committee be reduced.
(d) No Restricted Shares or Deferred Cash Incentive awarded to any
Participant before any amendment shall be adversely affected without
such Participant's consent.
(e) This Section 11.1 may not be amended.
11.2 DISCONTINUANCE. The Board may suspend or discontinue this Plan in
--------------
whole or in part, but any such suspension or discontinuance shall not
affect Restricted Shares or Deferred Cash Incentives awarded prior
thereto.
12. COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS.
---------------------------------------------
12.1 LEGAL REQUIREMENTS. No certificate for Shares distributable
------------------
pursuant to this Plan shall be issued and delivered unless the issuance
of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of the
Securities Act, the Exchange Act, and the requirements of the exchanges
on which the Common Stock may, at the time, be listed.
12.2 INVALIDITY. If any provision of this Plan or any award is or
----------
becomes invalid, illegal, or unenforceable in any jurisdiction, or as to
any person, or would disqualify this Plan or any award under any law or
regulation deemed applicable by the Committee (including regulations
under Section 16 of the Exchange Act), such provision shall be construed
or deemed amended to conform to applicable laws and regulations, or if
it cannot be so construed or deemed amended without, in the
determination of the Committee, materially altering the intent of this
Plan or the award, such provision shall be stricken as to such
jurisdiction or person and the remainder of this Plan or the award shall
remain in full force and effect.
12.3 MODIFICATIONS. The Committee shall have the authority to adopt
-------------
such modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of foreign countries in which the
Company may operate to assure the viability of the benefits of awards
made to Participants employed in such countries and to meet the intent
of this Plan.
13. MISCELLANEOUS PROVISIONS.
------------------------
13.1 WITHHOLDING. The Committee may require that upon the lapse or
-----------
removal of Restrictions the Participant pay to the Company any federal,
state and local tax withholding obligations of the Company, if
applicable. The Company may deduct from the amount payable to the
Participant as a Deferred Cash Incentive Award, or any other amounts
payable to the Participant under any other
111
<PAGE>
circumstances, up to the full amount of any federal, state and local tax
withholding obligations of the Company in respect of both the Deferred
Cash Incentive and the related Shares as to which Restrictions have
lapsed. The Company may at its sole option withhold Shares up to the
full amount of such withholding obligations valued at the average of the
reported highest and lowest sales prices per share on the date on which
the Restrictions lapse or are removed.
13.2 RESTRICTIONS ON TRANSFER. Restricted Shares, Deferred Cash
------------------------
Incentives, and any rights or privileges pertaining thereto shall not be
transferable other than by will or the laws of descent and distribution
or, if the terms of an award permit, pursuant to a qualified domestic
relations order (as defined for purposes of Rule 16b-3 of the Exchange
Act). Any Participant to whom Restricted Shares are awarded may
designate a beneficiary who shall have the right, in the event of death,
to receive the Restricted Shares and any Deferred Cash Incentive payment
the Participant would otherwise be entitied to receive after the
Participant's death. A Participant may, subject to such limitations as
may be prescribed by the Committee, designate one or more persons
primarily or contingently as beneficiaries in writing upon forms
supplied by and delivered to the Company, and may revoke such
designations in writing. If a Participant fails effectively to designate
a beneficiary, then either the Participant's estate or the person to
whom the Restricted Shares or Deferred Cash Incentive are transferred by
will or the laws of descent and distribution shall be deemed to be the
Participant's beneficiary.
13.3 UNSECURED STATUS OF CLAIM. Participants and their beneficiaries,
-------------------------
heirs, successors and assigns shall have no legal or equitable rights,
interests or claims in any specific property or assets of the Company.
No assets of the Company shall be held under any trust for the benefit
of Participants, their beneficiaries, heirs, successors or assigns, or
held in any way as collateral security for the fulfillment of the
Company's obligations under this Plan. The Company's obligations under
this Plan shall be merely that of an unfunded and unsecured promise of
the Company to pay benefits in the future.
13.4 INUREMENT OF RIGHTS AND OBLIGATIONS. The rights and obligations
-----------------------------------
under this Plan and any awards made pursuant to this Plan shall inure to
the benefit of, and shall be binding upon the Company, its successors
and assigns, and the Participants and their beneficiaries and heirs.
112
<PAGE>
APPENDIX
--------
The examples appearing in this Appendix to the Cyprus Minerals Company 1993 Key
Executive Long-Term Incentive Plan are illustrative of certain provisions in the
Plan, but are not a part of the Plan.
SECTION 8.2 ACCELERATING LAPSE OF RESTRICTION.
---------------------------------
EXAMPLE: Assume that the original award totalled 1,000 Shares and that
-------
Restrictions lapsed with respect to 50 percent of the award following
the first Performance Cycle. In such case, a Percentile Ranking of at
least the 50th percentile during the subsequent three Performance Cycles
would result in the vesting of all or a portion of the remaining 500
Restricted Shares associated with the award.
SECTION 8.3 SUPPLEMENTAL AWARDS.
-------------------
EXAMPLE: Assume that Restrictions have lapsed with respect to 500 Shares
-------
of a 1,000 Share award dated January 1, 1993. A subsequent performance
test indicates that Restrictions should lapse with respect to 75 percent
of the original award (i.e., 750 Shares). The Participant's next regular
award would be increased by 250 Restricted Shares. No additional
supplemental award above those 250 Restricted Shares would be made with
respect to the January 1, 1993 award.
SECTION 9.1 AWARD CONCEPT.
-------------
EXAMPLE: If the Tax Rate is 35 percent, and a Participant holds an award
-------
of 1,000 Restricted Shares at an Initial Award Value of $30.00 per
Share, and Restrictions have lapsed by Accelerated Vesting for 500 of
such Shares, the Deferred Cash Incentive payable to such Participant
will be $8,076.92 (500 Shares times $30.00 per Share times .35, divided
by 1.00 minus .35).
113
<PAGE>
EXHIBIT 11
CYPRUS AMAX MINERALS COMPANY
COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net Income.......................... $124 $175 $100
Preferred Stock Dividends........... (19) (18) (2)
-------- -------- --------
Income Applicable to Common Shares.. $105 $157 $ 98
======== ======== ========
Primary:
Average Common Shares Outstanding. 92.9 92.4 53.0
======== ======== ========
Fully Diluted:
Average Common Shares Outstanding. 92.9 92.4 53.0
Common Stock Equivalents-Options.. .2 .4 .2
Conversion of Series A Preferred
Stock........................... 9.6 9.6 1.3
-------- -------- --------
Fully Diluted Average Common
Shares Outstanding.............. 102.7 102.4 54.5
======== ======== ========
Earnings Per Share:
Using Average Common Shares
Outstanding..................... $1.13 $1.69 $1.85
======== ======== ========
Using Fully Diluted Average Common
Shares Outstanding/(1)/......... $1.21 $1.71 $1.84
======== ======== ========
</TABLE>
- ----------
/(1)/ Fully diluted earnings per share were anti-dilutive in 1995 and 1994 and
less than three percent different than primary earnings per share in 1993.
114
<PAGE>
EXHIBIT 21
CYPRUS AMAX MINERALS COMPANY
________________________________________
SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY/(1)/ LAWS OF
- ------------------------------------------------------------------
<S> <C>
Cyprus Metals Company Delaware
Cyprus Climax Metals Company Delaware
Climax Molybdenum Company Delaware
Climax Molybdenum Marketing Corporation Delaware
Climax Molybdenum GmbH Germany
Climax Molybdenum S.R.L. Italy
Climax Performance Materials Corporation Delaware
Molytech S.A. France
Cyprus Amax Finance Chile Corporation Delaware
Cyprus Bagdad Copper Corporation Delaware
Cyprus Climax Metals GmbH West Germany
Cyprus Copper Marketing Corporation Delaware
Cyprus El Abra Corporation Delaware
Sociedad Contractual Minera El Abra - (51%) Chile
Cyprus Miami Mining Corporation Delaware
Cyprus Mineral Park Corporation Delaware
Cyprus Pima Mining Company - (75.01%) California
Cyprus Pinos Altos Corporation Delaware
Cyprus Rod Chicago Corporation Delaware
Cyprus Sierrita Corporation Delaware
Cyprus Tohono Corporation Delaware
Cyprus Tonopah Mining Corporation Delaware
Sociedad Minera Cerro Verde S.A. - (91.7%) Peru
Cyprus Exploration and Development Corporation Delaware
Cyprus Gold Exploration Corporation Delaware
Pinon Exploration Corporation Colorado
Cyprus Gold Company Delaware
Cyprus Copperstone Gold Corporation Delaware
Cyprus Gold Australia Corporation Delaware
Cyprus Magadan Gold Corporation Delaware
Omolon Gold Mining Company - (50%) Russia
Cyprus Specialty Metals Company Delaware
Cyprus Foote Mineral Company Pennsylvania
Minera Cyprus Chile Limitada/(2)/ Chile
Foote Mineral Company Limitada/(3)/ Chile
Sociedad Chilena de Litio Limitada/(4)/ Chile
Cyprus Mines Corporation/(5)/ Delaware
Amax Metals Recovery Inc. Delaware
Amax Realty Development, Inc. Delaware
Ametalco Inc. New York
Ametalco Limited England
Ametalco U.K. England
Climax Molybdenum U.K. Limited England
Climax Canada Ltd. Delaware
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY/(1)/ LAWS OF
- ------------------------------------------------------------------
<S> <C>
Climax Molybdenum B.V. Netherlands
Climax Molybdenum AB Sweden
Gold Hill Mining and Milling Company Colorado
Mt. Emmons Mining Company Delaware
Silver Springs Ranch, Inc. Colorado
Amax Energy Inc. Delaware
Amax Zinc (Newfoundland) Limited Delaware
Castle Oaks Corporation Colorado
Cyprus Amax Coal Company Delaware
Amax Coal Company Delaware
Amax Coal Holding Company Delaware
Amax Gold Inc. - (51%)/(6)/ Delaware
AGI Chile Credit Corp., Inc. Delaware
Amax Gold (B.C.) Ltd. Canada
Fairbanks Gold Ltd. Canada
Melba Creek Mining, Inc. Alaska
Amax Gold Exploration Canada Ltd. Canada
Amax Gold Exploration, Inc. Delaware
Amax Gold de Chile Limitada Chile
Amax Gold Refugio, Inc. Delaware
Compania Minera Maricunga - (50%) Chile
Amax Precious Metals, Inc. Delaware
Amax Russia Corporation Delaware
Fairbanks Gold Mining, Inc. Delaware
Guanaco Mining Company, Inc. Delaware
Amax Gold de Chile Limitada/(7)/ Chile
Compania Minera Amax Guanaco - (90%) Chile
Haile Mining Company, Inc. Delaware
Lancaster Mining Company, Inc. Delaware
Lassen Gold Mining, Inc. Delaware
Luning Gold Inc. Nevada
Nevada Gold Mining, Inc. Delaware
Wind Mountain, Inc. Delaware
Yankeetown Dock Corporation - (60%) Indiana
Amax Coal Sales Company Delaware
Amax Coal West, Inc. Delaware
Amax Land Company Delaware
Ayrshire Land Company Delaware
Beech Coal Company Delaware
Cannelton Inc. Delaware
Cannelton Industries, Inc. West Virginia
Dunn Coal & Dock Company West Virginia
Maple Meadow Mining Company Delaware
Cannelton Land Company Delaware
Cannelton Sales Company Delaware
Cyprus Amax Coal Holding Company Delaware
Cyprus Amax Coal Sales Corporation Delaware
Cyprus Australia Coal Company Delaware
McIlwraith McEacharn Pty Limited Australia
McIwraith Mining Pty Limited Australia
Oakbridge Pty Limited - (42%) Australia
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY/(1)/ LAWS OF
- ------------------------------------------------------------------
<S> <C>
Cyprus Coal Equipment Company Delaware
Cyprus Cumberland Coal Corporation Kentucky
Cyprus Cumberland Resources Corporation Delaware
Cyprus Emerald Resources Corporation Delaware
Cyprus Empire Corporation Delaware
Cyprus Freeport Resources Corporation Delaware
Cyprus Kanawha Corporation Delaware
Cyprus Mountain Coals Corporation Delaware
Cyprus Orchard Valley Coal Corporation - (85%) Delaware
Cyprus Shoshone Coal Corporation Delaware
Cyprus Southern Realty Corporation Kentucky
Cyprus Western Coal Company Delaware
Cyprus Plateau Mining Corporation Delaware
Cyprus Yampa Valley Coal Corporation Delaware
Colorado Yampa Coal Company Delaware
Twentymile Coal Company Delaware
Grassy Cove Coal Mining Company Delaware
Meadowlark Inc. Delaware
Roaring Creek Coal Company Delaware
</TABLE>
- ----------
/(1)/ 57 subsidiaries and 4 50-percent or less owned companies accounted for by
the equity method are not named in the Exhibit. Such subsidiaries and
affiliate companies, considered in the aggregate, do not constitute a
significant subsidiary.
/(2)/ 90.33 percent owned by Cyprus Foote Mineral Company and 9.67 percent
owned by Cyprus Exploration and Development.
/(3)/ 50 percent owned by Cyprus Foote Mineral Company and 50 percent owned by
Cyprus Specialty Metals Company.
/(4)/ 55 percent owned by Cyprus Foote Mineral Company and 45 percent owned by
Foote Mineral Company Limitada.
/(5)/ This subsidiary also conducts business under the division name Emerald
Mines Company.
/(6)/ 32 percent owned by Amax Coal Company, 19 percent owned by Cyprus Amax
Minerals Company, and 49 percent publicly traded.
/(7)/ 50 percent owned by Amax Gold Exploration, Inc. and 50 percent owned by
Guanaco Mining Company, Inc.
117
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
February 14, 1996, appearing on page 43 of this Form 10-K in the following:
(a) Registration Statements on Form S-8 (No. 33-1600, No. 33-22939 and No.
33-53792) with respect to Cyprus Amax Minerals Company Savings Plan and
Trust.
(b) Registration Statements on Form S-8 (No. 33-1603, No. 33-21501 and No.
33-53794) with respect to the Management Incentive Program of Cyprus Amax
Minerals Company and its participating subsidiaries.
(c) Registration Statement on Form S-8 (No. 33-52812) with respect to the
Stock Plan for Non-Employee Directors of Cyprus Amax Minerals Company.
(d) Registration Statement on Form S-8 (No. 33-51011) with respect to the
1988 Amended and Restated Stock Option Plan of Cyprus Amax Minerals Company.
(e) Registration Statement on Form S-8 (No. 33-61141) with respect to the
Cyprus Amax Minerals Company Thrift Plan for Bargaining Unit Employees.
(f) Prospectus constituting part of the Registration Statement on Form S-3
(No. 33-36413) with respect to the Cyprus Amax Minerals Company Savings Plan
and Trust.
(g) Prospectus constituting part of the Registration Statement on Form S-3
(No. 33-54097), as amended, with respect to Cyprus Amax Minerals Company and
Cyprus Amax Finance Corporation.
(h) Prospectus constituting part of the Registration Statement on Form S-3
(No. 33-54097) with respect to Cyprus Amax Minerals Company $250 million
7-3/8 percent Notes due May 15, 2007
(i) Prospectus constituting part of the Registration Statement on Form S-3
(No. 33-62145) with respect to Cyprus Amax Minerals Company and Cyprus Amax
Finance Corporation $600 million Shelf Registration.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Denver, Colorado
March 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 191
<SECURITIES> 0
<RECEIVABLES> 251
<ALLOWANCES> 6
<INVENTORY> 447
<CURRENT-ASSETS> 1,090
<PP&E> 6,933
<DEPRECIATION> 2,332
<TOTAL-ASSETS> 6,196
<CURRENT-LIABILITIES> 798
<BONDS> 1,877
0
5
<COMMON> 1
<OTHER-SE> 2,359
<TOTAL-LIABILITY-AND-EQUITY> 6,196
<SALES> 3,148
<TOTAL-REVENUES> 3,207
<CGS> 2,849
<TOTAL-COSTS> 2,992
<OTHER-EXPENSES> 33
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 70<F1>
<INCOME-PRETAX> 120
<INCOME-TAX> 3
<INCOME-CONTINUING> 124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.21
<FN>
<F1>Net of interest income, $24 million, and capitalized interest, $43 million.
</FN>
</TABLE>
