<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, 1996
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 $24 1/2 as of March 18, 1997, was approximately
$2,264,600,000.
Number of shares of common stock outstanding as of March 18, 1997, was
93,323,929.
DOCUMENTS INCORPORATED BY REFERENCE
1996 Annual Report to Shareholders (Parts I, II, and IV).
Proxy Statement for the 1997 Annual Meeting to be filed within 120 days after
the fiscal year (Part III).
================================================================================
<PAGE>
CYPRUS AMAX MINERALS COMPANY
============================
PART I
To the extent the Company makes forward-looking statements, actual results
may vary materially therefrom. All of the information set forth in this Form
10-K, including without limitation the Risk Factors described herein, and all of
the information incorporated by reference, should be considered and evaluated.
Items 1 and 2. Business and Properties
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 53 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, 1996, Cyprus Amax
employed approximately 11,000 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, coal, and gold, 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 are incorporated by reference
from page 53 of the 1996 Annual Report to Shareholders (1996 Annual Report). In
addition, data related to Cyprus Amax's industry segments and foreign and
domestic operations and export sales are incorporated by reference from
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" (Management's Discussion), pages 24 through 31 in the 1996 Annual
Report, and from Note 18 to the Consolidated Financial Statements on page 51 in
the 1996 Annual Report. 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 primarily in North, Central and South America. Production
information at Cyprus Amax's principal mine operations in the Copper/Molybdenum
segment is summarized in the following tables for the years 1996 and 1995. The
1996 year-end ore reserve information is as follows:
<TABLE>
<CAPTION>
Ore Reserves December 31, 1996
- ------------ --------------------------------------------------------------------------------------
Proven and Average Grade Saleable Product
Probable ----------------------------------- ----------------------------
Ore Reserves/(1)/ Copper Molybdenum Copper Molybdenum
----------------- -------------- ------------------ -------- -----------------
Operation (Millions (%) (%) (Millions of Lbs.)
--------- of Tons)
<S> <C> <C> <C> <C> <C>
Bagdad 1,012 .38 .021 6,247 289
Sierrita/Twin Buttes 892 .27 .030 3,709 358
Miami 229 .42 - 1,169 -
El Abra/(2)/ 448 .53 - 3,673 -
Cerro Verde/(3)/ 648 .65 .021 6,626 116
Mineral Park 67 .23 - 193 -
Henderson 206 - .215 - 763
Climax 145 - .233 - 587
----- ------ -----
3,647 21,617 2,113
===== ====== =====
</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 1996 1995
- ----------------------- ------------------------------- -------------------------------
Material Ore Stripping Material Ore Stripping
Mined/(1)/ Mined Ratio/(2)/ Mined/(1)/ Mined Ratio/(2)/
---------- ----- ---------- ---------- ----- ----------
(Millions of Tons) (Millions of Tons)
Operation
---------
<S> <C> <C> <C> <C> <C> <C>
Bagdad 71 30 1.26 62 31 1.02
Sierrita/Twin Buttes 99 40 1.22 90 41 1.14
Miami 104 30 2.50 95 35 1.74
Tohono 19 10 .95 27 8 2.24
Cerro Verde 26 8 2.51 19 4 3.36
El Abra/(3)/ 3 3 - - - -
Henderson 7 7 - 8 8 -
--- --- --- ---
Total 329 128 301 127
=== === === ===
</TABLE>
- ------------
/(1)/ Includes ore and waste mined on a wet short ton basis.
/(2)/ Represents the ratio of waste to ore mined.
/(3)/ From commercial start-up in December 1996.
2
<PAGE>
<TABLE>
<CAPTION>
Ore Processed Statistics
- ------------------------
1996 1995
---------------------------------------- --------------------------------------------
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 31 .39 .016 29 .38 .023
- Leach 4 .23 - 5 .14 -
Sierrita/Twin Buttes - Mill 40 .29 .033 41 .32 .040
- Leach 12 .17 - 12 .11 -
Miami - Leach 30 .52 - 35 .47 -
Tohono - Leach 10 .54 - 8 .48 -
Cerro Verde - Leach 8 .93 - 4 1.08 -
El Abra 3 .95 - - - -
Henderson - Mill 7 - .302 8 - .271
--- ---
Total 145 142
=== ===
</TABLE>
<TABLE>
<CAPTION>
Production 1996 1995
---------- ----------------------- --------------------
Copper Molybdenum Copper Molybdenum
------ ---------- ------ ----------
(Millions of Pounds) (Millions of Pounds)
Operation
---------
<S> <C> <C> <C> <C>
Bagdad 222 6 208 10
Sierrita/Twin Buttes 231 19 240 24
Miami 144 - 129 -
Tohono 39 - 34 -
Cerro Verde 105 - 64 -
El Abra/(2)/ 21 - - -
Henderson - 31 - 39
Other/(1)/ 6 - 12 2
--- -- --- --
Total 768 56 687 75
=== == === ==
</TABLE>
- ------------
/(1)/ Includes Pinos Altos, Mineral Park and Climax.
/(2)/ Represents Cyprus Amax's 51 percent share of production.
Cyprus Climax Metals Copper/Molybdenum Operations
In 1996, Cyprus Amax produced 768 million pounds of copper and 56 million
pounds of molybdenum from its copper and molybdenum operations. During 1996,
the Company completed development of the El Abra project in Chile and expansion
of Cerro Verde leach operation in Peru 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 leaching system with a solvent extraction-
electrowinning (SX-EW) plant producing copper cathode. In 1996, Bagdad produced
27 million pounds, or 12 percent of its total copper production, as electrowon
copper cathode, and sulfide copper production was 10 percent greater than in
1995. In 1996, the Bagdad concentrator milled approximately 31 million tons
of ore, up 2 million tons from 1995 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 1996 totalled 35 million pounds, or 15 percent of
its total copper production. In 1996, approximately 52 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
has replaced the Twin Buttes ore in the mill.
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 1996 production of 144 million pounds of copper
cathode from the leaching and SX-EW operations was 12 percent greater than 1995
production.
The smelter processed 633,000 tons of copper concentrate in 1996, 8 percent
greater than in 1995 and a new record for Miami. This allowed the new
electrorefinery to produce 343 million pounds of copper cathode, 20 percent
greater than 1995.
The Miami rod plant operated above rated capacity during 1996, producing 276
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 1996, Compania de Minas Buenaventura S.A., a
long-established Peruvian mining concern, exercised their option to acquire 10
percent of Cyprus' interest in Cerro Verde, which decreased 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, 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 project to expand
and upgrade facilities was substantially completed in 1996. The mine currently
has capacity to produce approximately 115 million pounds of electrowon copper
cathode. A new copper oxide deposit called Cerro Negro was discovered in 1995
about 5 kilometers west of the Cerro Verde open pit, but on the concession.
Definition drilling and engineering studies are in progress to ascertain
potential to further increase production of copper from leach ores. In 1996
Cerro Verde produced approximately 105 million pounds of copper cathode, and in
the second half of 1996, Cerro Verde operated at the 115 million pound
annualized rate. In 1996 approximately 8 million tons of ore were processed
through primary, secondary, and tertiary crushers and placed on leach pads after
agglomeration. Studies for development of the sulfide mill at Cerro Verde are
continuing. Studies
4
<PAGE>
to date indicate development of a mill operation is viable following the current
leach project. 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 proceeded ahead of schedule and commercial operations began in
December of 1996 with Cyprus Amax's share of production being 21 million pounds.
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. El Abra also contains sulfide ore,
with currently identified geologic resources of about 500 million tons, creating
further 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 32,000 tons of ore per day, producing
molybdenum disulfide 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 to
customers as molybdenum disulfide. In 1996, Henderson produced 31 million pounds
of molybdenum from 7 million tons of ore.
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 2 million pounds of molybdenum from April through
August of 1995. The mine was placed on standby status in August 1995.
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. In December
1996, Cyprus Amax decided to temporarily suspend operations at Tohono while it
investigates various alternatives for large scale copper production through open
pit mining and heap leaching technology. Production of copper will continue from
existing leach tailings, exposed ore and existing leach pads. In 1996, Tohono
produced about 39 million pounds of copper. Tohono also has two concentrate
roasters which have been on care-and-maintenance status since the fourth quarter
of 1993. Cyprus Amax operates the Mineral Park mine, an in-place leach operation
which was converted to an SX-EW operation in 1994 capable of producing 6 to 8
million pounds of copper per annum. SX-EW production at Mineral Park commenced
in early 1995 and 1996 production totalled 5 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
5
<PAGE>
molybdenum facility 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 has signed a letter
of intent with Equitorial Mining N.L., an Australian minerals company to grant
Equitorial the option to purchase the copper ore body at Tonopah and the Mineral
Park operation. 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 1996
produced 359 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
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 two molybdenum
roasters, 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 disulfide.
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 1996, Cyprus Amax processed 633,000 tons of Cyprus Amax domestic copper
concentrates at its own facilities, or 93 percent of its 1996 copper concentrate
production. The balance of Cyprus Amax's 1996 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 670 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 19 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 maintains a price protection program which ensures a minimum net
average realization on a London Metals Exchange (LME) basis of 96 cents per
pound (LME basis) on 550 million pounds for 1997. During 1996 Cyprus Amax sold
150 million pounds of 1997 copper price protection contracts generating $21
million of proceeds, which will increase copper realizations and income during
the periods in 1997 to which the original contracts were applicable.
Additionally, a price protection program for El Abra (51% owned by Cyprus Amax)
ensures a minimum average net realization
6
<PAGE>
of 90 cents per pound (LME basis) in 1997 on approximately 400 million pounds
with a cap of $1.25 per pound on approximately 145 million pounds.
Of Cyprus Amax's 744 million pounds of produced copper sales in 1996, 74
million pounds were sold as concentrate, 200 million pounds as cathode, and 470
million pounds as rod. Comparable figures for 1995 were 723 million pounds of
produced copper sold, of which 90 million pounds were sold as concentrate, 176
million pounds as cathode, and 457 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
1997 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 1996. Eighty-seven
percent of year-end 1996 developed domestic coal reserves mined with existing
facilities meet the 2.5 pounds sulfur dioxide standard in 1996. Seventy-six
percent of these reserves satisfy the 1.2 pounds standard effective in 2000.
<TABLE>
<CAPTION>
Year-End 1996 Reserves
(Millions of Tons)
-------------------------------------
Annual Mineable Total
Coal Capacity Average Average Average 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 10-11 13,000-13,200 1.2-3.0 70-90 176 326 502
West Virginia surface and 8 11,700-14,000 0.6-1.8 60-100 61 24 85
underground
Kentucky surface and 6-7 11,300-13,000 0.8-1.7 65-100 63 10 73
underground
Midwest surface and 6-7 11,000-11,500 0.6-4.0 65-100 69 405 474
underground
Wyoming surface 42 8,270-8,515 0.3-0.4 100 1,025 - 1,025
Colorado underground 11 10,600-11,250 0.4-0.6 100 114 - 114
Utah underground 4 11,400-12,000 0.5-0.6 90-100 70 - 70
----- --- -----
1,578 765 2,343
===== === =====
</TABLE>
Cyprus Amax's 50 percent interest in the Springvale mine in Australia
represents annual capacity of 2 million tons with a reserve base of 47 million
tons. Cyprus Amax's equity share of Oakbridge Limited reserves at December 31,
1996 were 141 million tons.
In 1996, Cyprus Amax produced 76 million tons of coal and sold 78 million
tons. In addition, Cyprus Amax's share (41 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>
Production
Coal ------------
Operating Unit 1996 1995
- -------------- ---- ----
(Millions of Tons)
<S> <C> <C>
Pennsylvania 9 8
West Virginia 8 6
Kentucky 5 5
Midwest 6 8
Wyoming 36 36
Colorado 8 9
Utah 3 3
-- --
Total Domestic 75 75
-- --
Springvale 1 -
Oakbridge (Equity share) 6 6
-- --
Total Australian 7 6
-- --
Total 82 81
== ==
</TABLE>
Additionally, the average sales prices for 1996 and 1995 are shown in the table
below:
<TABLE>
<CAPTION>
Average Sales Price
-----------------------------
Contract Spot
------------- -------------
1996 1995 1996 1995
----- ----- ----- -----
($/Ton) ($/Ton)
<S> <C> <C> <C> <C>
Total Domestic 15.66 17.15 14.95 13.45
Oakbridge (Equity share) 29.23 26.52 24.85 23.96
</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. During 1996,
the preparation plant was expanded. Both mines are in the Pittsburgh coal seam
and are mined utilizing the longwall mining method and the reserves are owned by
Cyprus Amax affiliates. 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.
Cyprus Amax also controls significant undeveloped contiguous reserves in the
Pittsburgh, Freeport and Sewickley seams.
West Virginia
The Kanawha River operations, located approximately 25 miles east of
Charleston, West Virginia, consist of the Stockton and Cannelton 145 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, endloaders, and a dragline at one of the properties. 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. Star Fire is a mountaintop removal and contour stripping operation
using an Addcar highwall miner, 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, Cyprus Cumberland
owns an underground mine and preparation plant (Pine Mountain) and a surface
mine (Straight Creek); both are operated by independent contract miners.
Transportation from the Kentucky operations is by rail.
Midwest
Midwest operations consists of two surface mines in Indiana and a large
underground mine in southern Illinois. The Chinook mine (located in Clay and
Vigo counties of west central Indiana) uncovers two seams of coal with a large
dragline, and ships washed coal by rail to nearby utility and industrial
customers. Almost all of its production is dedicated under a long-term
contract. The Sycamore surface mine is a shovel-truck operation in Knox 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 processed coal is shipped ten miles by
rail to the mine's major long-term contract utility customer. In February 1997,
Cyprus Amax assigned the Wabash coal supply contract to another coal company for
an undisclosed amount of cash plus future payments. Future operations at the
Wabash mine are under evaluation. The mine may be closed or continue in
operation at a significantly reduced tonnage level.
9
<PAGE>
Following a June 1996 agreement to restructure its long-term coal supply
agreement for a cash payment, the Delta surface mine in southern Illinois was
closed and is presently undergoing reclamation. The Ayrshire mine (located in
Warrick County, Indiana) is reclaiming areas that were formerly surface mined.
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 affiliates operate two underground mines in the Colorado
operating unit: Twentymile and Shoshone. A third mine, Empire, has been idle
since 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 several items of mobile mining equipment at Twentymile are
leased. The remaining equipment is owned.
Wyoming
In the Powder River Basin, Amax Coal West 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 contracts with an initial term of at
least one year. 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.
Plateau's construction of the Willow Creek mine located near Price, Utah
commenced during the fourth quarter of 1995. Site preparation and facilities
construction is expected to be completed in 1997. Underground development
started in September 1996. Longwall start-up is projected for early 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.
Springvale
Cyprus Amax, through its Cyprus Australia Coal subsidiary, owns 50 percent of
the Springvale underground mine located near Lithgow, New South Wales,
Australia. The operation uses the longwall mining method. Most of Springvale's
output is sold raw to the nearby Mount Piper generating plant of Pacific Power
under a long-term coal supply contract. Additional production is washed and
exported, primarily to a Korean electric utility.
10
<PAGE>
Oakbridge
Cyprus Amax's wholly owned subsidiary, Cyprus Australia Coal of Sydney,
Australia, owns a 41 percent interest and is the operator of Oakbridge Limited
of Australia. Oakbridge is a major independent coal producer with six mines in
New South Wales which produce approximately 14 million tons annually. Proved and
probable reserves total 341 million tons of which Cyprus Amax's equity share is
141 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.
Coal Marketing Arrangements
Almost all of Cyprus Amax's coal sales are steam coal to electric utilities.
Approximately 84 percent of Cyprus Amax's 1996 coal sales were made under
contracts with an initial duration of one year or longer (term contracts). This
percentage is expected to be approximate 90 percent in 1997. 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, 1996, Cyprus Amax had term contracts covering an aggregate of
approximately 510 million tons, including 77 million tons to be delivered in
1996. About 16 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 11 percent of coal revenues.
Eastern Markets. Shipment levels at Cyprus Amax's Pennsylvania, West
----------------
Virginia, and Kentucky units increased during 1996 due to continued strong
demand for these coals. Exports to Europe from 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 1996 from Cyprus Amax's Midwest unit declined
----------------
from 1995 levels due primarily to the closure of the Delta mine and reduced
production at the Wabash mine.
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
11
<PAGE>
(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.
Western Markets. Shipments for 1996 from Cyprus Amax's Colorado, Wyoming,
----------------
and Utah units collectively decreased slightly from 1995 levels mainly due to
the idling of the Empire mine. Interest by utilities in Powder River Basin and
high Btu Colorado coals continues to strengthen and increased Cyprus Amax
shipments from these regions are anticipated in 1997. 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 six 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. With the 1996 restructuring of the contract supplied from the
Delta mine and the recent assignment of the Wabash contract, Cyprus Amax has
significantly reduced its dependence on sales of high sulfur Illinois Basin
coals. Over 50 percent of Cyprus Amax's remaining Midwest shipments are to a
scrubber equipped generating plant. Additionally, shipments from the Skyline
mine meet the Phase II sulfur dioxide standard.
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, 1996,
Cyprus Amax reserves amounted to 198,000 tons of elemental lithium which is
equivalent to approximately 2.1 billion pounds of lithium carbonate. Production
during 1996 was 31 million pounds of lithium carbonate which was approximately 5
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 81,000 tons in 1996. All potash sales to a major
Chilean chemical company are made under long-term contacts which expire in years
1998 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, 1996, totalled 39,700 tons of elemental lithium which
is equivalent to approximately 205 million pounds of lithium carbonate. During
1996, Silver Peak operated approximately 20 percent in excess of its long-term
production capacity, producing 14.2 million pounds of lithium carbonate.
During 1996, Cyprus Amax completed construction of a new lithium hydroxide
production facility at its Silver Peak operation which will replace its existing
hydroxide plant located at Sunbright, Virginia. The new plant started up during
the second quarter of 1996. Cyprus Amax operated the Sunbright, Virginia plant
until August 1996 at which time the facility was closed.
Cyprus Amax also operates a butyllithium production facility in New
Johnsonville, Tennessee, located on 98 acres of fee land owned by Cyprus Amax.
In addition to butyllithium, this plant produces other organo-metallic lithium
specialty chemicals.
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 reserves at Kings Mountain will depend on
new or improved markets, the depletion of other reserves, and construction of
new processing facilities. Lithium administration and sales, research and
development, and certain lithium metal and alloy production activities are also
conducted at the Kings Mountain production facilities.
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 18 percent
of lithium revenue in 1996.
13
<PAGE>
Gold Operations
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 the Americas, Russia, Australia and
Africa. Amax Gold was incorporated in Delaware in 1987 and reincorporated in
1995. During 1994, Cyprus Amax ownership interest in Amax Gold was 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. During 1996, Cyprus Amax increased its ownership interest to
53 percent by exercising its option to convert to stock, outstanding interest
and a guarantee fee related to financing arrangements. In 1997, Amax Gold is
considering merger partners and other business combinations that will build on
its operational strengths and exploration opportunities.
In 1996, Amax Gold renegotiated its $250 million Fort Knox loan agreement.
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. The lenders waived certain restrictive covenants and reduced the
interest rate. In return for the increased financial support, Cyprus Amax
receives certain fees, the interest differential, and security interest in
certain Amax Gold assets. Additionally during 1996, Cyprus Amax provided Amax
Gold with a demand loan facility to fund additional costs at the Fort Knox
project and for general corporate purposes, with such funding to be provided at
the discretion of Cyprus Amax. At December 31, 1996, Cyprus Amax had loaned
Amax Gold $130 million.
In October 1995, Cyprus Amax announced its intent to sell its 50 percent
interest in the Russian Kubaka gold mine project to Amax Gold. Amax Gold
received shareholder approval for the acquisition in December 1996 and expects
to acquire the project in early 1997. 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 early 1997. The transfer of all 16 million shares will increase Cyprus
Amax's ownership to approximately 59 percent. 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.
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 maximum
price of $8.265 per share and a minimum price of $5.854 per share. As of
December 31, 1996, no borrowings were 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 Note 7 to the Consolidated Financial Statements on
pages 40 and 41 of the 1996 Annual Report.
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.
14
<PAGE>
Amax Gold's operating properties consist of a 50 percent interest in the
Refugio Mine in Chile; a 90 percent interest in the Guanaco Mine in Chile; and
a 100 percent interest in the Hayden Hill Mine in Lassen County, California.
The Company also owns 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, which are in reclamation. In addition, Amax Gold owns a 100
percent interest in the Fort Knox mine 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 owned by contract miners at Guanaco and Refugio and mobile
mining equipment leased by Amax Gold at Fort Knox, 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 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
that 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 further processing.
Mine statistics and production information at Amax Gold's principal mine
operations is summarized in the following tables for the years 1996 and 1995.
The 1996 year-end ore reserve information is as follows:
<TABLE>
<CAPTION>
Ore Reserves December 31, 1996
- ------------ -------------------------------------------------------------------
Proved and Probable Gold Content
Ore Reserves (AGI's Share) (Thousands of Ounces)
-------------------------- ---------------------
(Thousands AGI's Cyprus Amax's
Operation of Tons) Average Grade Share Share
- --------- --------- ------------- ----- -----
<S> <C> <C> <C> <C>
Fort Knox 161,315 0.025 4,079 2,142
Refugio/(1)/ 53,602 0.029 1,558 818
Guanaco/(2)/ 2,673 0.045 119 62
Hayden Hill 5,635 0.029 164 86
Haile 5,460 0.089 488 256
------- ----- -----
228,685 6,408 3,364
======= ===== =====
</TABLE>
/(1)/Represents Amax Gold's 50 percent interest in Refugio's ore reserves.
/(2)/Represents 100 percent of Guanaco's ore reserves.
/(3)/Represents Amax Gold's 62.5 percent interest in Haile's ore reserves.
<TABLE>
<CAPTION>
Mine Statistics 1996 1995
- --------------- ---------------------------- -------------------------------
Tons Ore Ore Tons Ore Ore
Operation Mined Processed Grade Mined Processed Grade
- --------- ----- --------- ----- ----- --------- -----
(Millions of Tons) (Ounces/Ton) (Millions of Tons) (Ounces/Ton)
<S> <C> <C> <C> <C> <C> <C>
Refugio 3 2 0.031 - - -
Guanaco-Leach 13 2 0.070 13 2 0.063
Hayden Hill-Leach 8 6 0.028 9 6 0.024
Sleeper-Mill 1 0.069 1 0.095
-Leach } 1 - 0.020 } 14 3 0.018
--- -- ---- --
25 11 36 12
=== == ==== ==
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Production 1996 1995
- ---------- ------------------- -------------------
Gold Silver Gold Silver
---- ------ ---- ------
(Thousands of Ounces) (Thousands of Ounces)
<S> <C> <C> <C> <C>
Refugio 31 3 - -
Guanaco 96 360 71 268
Hayden Hill 103 321 80 227
Sleeper 38 36 82 99
Wind Mountain - - 5 7
--- --- --- ---
268 720 238 601
=== === === ===
</TABLE>
Refugio Mine
Amax Gold owns a 50 percent interest in the Refugio mine, located in the
Maricunga Mining District in central Chile, approximately 75 miles east of
Copiapo. The property, situated between 13,800 feet and 14,800 feet above sea
level, is held by Compania Minera Maricunga (CMM), a Chilean contractual mining
company 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 completed in early 1996 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, or 11.9 million tons
per year. The mine and plant are expected to produce 200,000 to 250,000 ounces
of gold per year, of which Amax Gold's share would be 50 percent. Production
commenced in April 1996; however, start-up was delayed due to mechanical
problems with the secondary and tertiary crushers and the collapse of fill
underlying the fine ore storage bin. Placement of ore on the pads, leaching and
gold production continued until resolution of these issues in the third quarter
of 1996 and the mine achieved commercial production on October 1, 1996. Amax
Gold retained an experienced mining contractor with its own equipment to drill,
blast, load, and transport all ore and waste. Carbon adsorption, stripping, and
electrowinning are being used to recover gold from the leach solutions.
Electrowon cathodes are smelted to dore bars for shipment. Facilities include a
permanent camp with access to the site from Copiapo provided by road. Power is
supplied by on-site, diesel-powered generators. Water extraction rights expected
to be sufficient to supply the mine are owned by CMM.
The Refugio property position comprises approximately 14,500 acres,
consisting of mineral rights, surface rights, and water rights expected to be
sufficient for the mine. 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 its major ore deposits extending onto
surrounding mineral rights and to use the surrounding areas for project needs.
CMM owns or controls surface rights covering the known mineralization and the
currently anticipated mining operation under leases from the Chilean Army, which
expire in 2001 and 2005 and may be extended for an additional ten years.
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. An additional 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,
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 approximately 2.4 million tons of ore per year and
permanent camp facilities. The facility
16
<PAGE>
includes three stages of crushing, permanent pad heap leaching, and Merrill
Crowe zinc precipitation of gold. Amax Gold has retained an experienced mining
contractor with its own equipment to drill, blast, load, and transport all ore
and waste. 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 nearby wells and from nearby surface
springs, which also provide potable water.
The Guanaco Mine began production in April 1993. Production was hampered in
1994 by initial crusher throughput problems, as well as by process water
shortages, which were resolved in the fourth quarter of 1994. During 1995,
despite continued problems with crusher throughput, production at Guanaco
increased primarily due to higher grades and recoveries. The crusher problems
were resolved in 1996, which resulted in significantly improved production.
Mining is expected to be completed in mid-1997 with residual leaching continuing
into 1998. However, based on a detailed study of the continuity of ore, costs
and production rates, a $36 million pre-tax write-down was recorded during the
fourth quarter of 1996.
The Guanaco property position consists 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, which 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 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.
Hayden Hill Mine
Amax Gold owns 100 percent of the Hayden Hill Mine in Lassen County,
California, approximately 120 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, which has an indefinite term. 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. Mining is expected
to be completed in late 1997 with residual leaching continuing into 1998.
Approximately 75 percent of the current reserves are subject to a gross
receipts net smelter return royalty ranging from 2 percent to 5 percent.
Sleeper Mine
The Sleeper Mine, located in Humboldt County, Nevada, approximately 28 miles
north of Winnemucca, is 100 percent-owned by Amax Gold. Gold production in 1996
decreased from 1995 levels due to completion of mining as planned in the first
quarter of 1996. Milling was completed in August of 1996 and operations were
completed at the end of the third quarter. Reclamation activities, partially
funded through continued residual leaching, have commenced at Sleeper and are
expected to be substantially completed by 2000. 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
is provided by a well system that is currently being used to fill the pits, and
potable water is supplied by truck. No royalties are payable on production from
the Sleeper Mine.
17
<PAGE>
Fort Knox Mine
Amax Gold owns a 100 percent interest in the Fort Knox mine, located in the
Fairbanks Mining District, 15 miles northeast of Fairbanks, Alaska.
The Fort Knox mine covers approximately 47,000 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 current reserve is located on approximately 1,150 acres of land
held under a state mining lease that expires in 2014 and may be renewed for a
period not to exceed 55 years. This lease is subject to a 3 percent royalty
payable to the State of Alaska based on net income. The remaining Fort Knox
property is held by deeds, a second mining lease, an option agreement, and
mining claim locations. The second mining lease expires in 2009, and Amax Gold
plans to exercise the option agreement in 1997. 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.
Fort Knox reached mechanical completion in November 1996, and construction
was essentially completed in early 1997. The first gold bars were poured on
December 20, 1996. As of the end of February 1997, approximately $365 million
had been spent on construction, including capitalized interest. The operation
includes an open pit mine, a conventional 36,000 tons per day (13.1 million tons
per year) mill and process plant, a tailings storage facility and a fresh water
reservoir to supply process water. The process facilities are designed as a
zero discharge system. Power is supplied by the public utility serving the area
over a distribution line paid for by Amax Gold. Access is provided by paved
highway for 21 miles from Fairbanks and then for five miles by unpaved road.
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 rated
expected during the early years.
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 has not made a decision
to develop the Haile property and is considering various options with respect to
its interest in Haile.
The Haile Project covers approximately 3,600 acres and consists entirely of
fee property, that is either owned by the venture participants, leased from
third parties under leases that can be extended to 2001 or controlled by
purchase agreements. The leased property is subject to a 4 percent net smelter
return royalty.
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
its refined gold to banks and other bullion dealers, using a variety of hedging
programs, and the majority of its 1996 sales were to 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 1996 and 1995, Amax Gold's hedging efforts resulted in
average realized prices of $412 an ounce and $406 an ounce, respectively,
compared to the average COMEX price of approximately $388 an ounce for 1996 and
$384 an ounce for 1995.
18
<PAGE>
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, 1996, Cyprus Amax had a 50 percent interest.
Amax Gold shareholders approved the acquisition of Cyprus Amax's 50 percent
ownership interest in the Kubaka gold mine, and the transaction is expected to
be completed in early 1997. Cyprus Amax will receive 11.8 million shares of
Amax Gold stock upon completion of the transaction and another 4.2 million
shares when the Kubaka mine reaches commercial production. The transfer of all
16 million shares will increase Cyprus Amax's ownership in Amax Gold to
approximately 59 percent.
Kubaka is an open pit, mill recovery, gold mine located in the Russian Far
East, approximately 200 miles south of the Arctic Circle and 600 miles northeast
of the major port city of Magadan. The Kubaka mine's remote location in this
sub-Arctic region requires planning for operations in extreme cold and providing
all services and facilities on site. Cyprus Amax's share of reserves at December
31, 1996 and annual production will be approximately 1.3 million ounces and
150,000 ounces, respectively. The first gold was poured at Kubaka during
February 1997 and commercial production is expected to commence in mid-1997 with
anticipated cash costs averaging approximately $185 per ounce.
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, 1996
<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 4,949 0.540 2,665 1,332
</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.
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, Honduras, Peru, Chile,
Australia, Indonesia, Russia, and Zambia 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.)
19
<PAGE>
EQUITY AND OTHER
Amax Gold
Prior to 1995, Amax Gold was accounted for as an equity investment. During
1995, Cyprus Amax increased its ownership in Amax Gold from 42 percent to 51
percent and in 1996 to 53 percent. As a result, Amax Gold was consolidated in
1995 and 1996. See further discussion in "Other Minerals Segment, Amax Gold".
Oakbridge Limited
During 1996, Cyprus Amax ownership interest in Oakbridge Limited was 41
percent. Cyprus Amax's investment in Oakbridge is accounted for on the equity
method. See further discussion in "Coal Segment, Oakbridge".
20
<PAGE>
RISK FACTORS
The Company's business operations are subject to a number of risks and
hazards inherent in the mining industry, including but not limited to those
summarized below, which materially and adversely may affect the Company's
business, financial conditions, results of operations and cash flows and the
anticipated development of existing properties and reserves and of future
projects, production quantities and rates, overall costs and expenditures and
expected production commencement dates. The Company is also subject to a number
of risks not specific to the mining industry, including but not limited to
general economic and financial market conditions.
METALS PRICE VOLATILITY
A significant portion of the Company's revenues are derived from the sale
of metals such as copper and molybdenum and, to a lesser extent, gold through
the Company's majority owned subsidiary Amax Gold. Thus, the Company's
business, financial condition, results of operations and cash flows are very
sensitive to changes in the prices of these commodities. Metals prices
fluctuate widely and are affected by numerous factors beyond the Company's
control or ability to predict, including but not limited to domestic and
international economic and political conditions, industry inventory levels and
capacity, global and regional demand and production, the availability and costs
of substitute materials, speculative activities and inflationary expectations.
While the Company historically has used limited financial risk management
techniques to reduce a portion of the Company's exposure to the volatility of
market prices, there can be no assurance that it will continue to do so or that
it will be able to do so effectively in the future. In addition, depending upon
the specific techniques employed, market conditions and other factors, such
activities could reduce the earnings or cash flow which the Company otherwise
would realize or result in losses.
OPERATING AND PROJECT DEVELOPMENT RISKS
The Company's business operations are subject to risks and hazards inherent
in the mining industry, including but not limited to unanticipated grade and
other geological problems, water conditions, surface or underground conditions,
metallurgical and other processing problems and mechanical equipment performance
problems, the unavailability of materials and equipment, accidents, labor force
and force majeure factors, unanticipated transportation costs and weather
conditions, prices and production levels of by-products, and potential political
instabilities of foreign governments, any of which materially and adversely can
affect, among other things, the development of properties, production quantities
and rates, costs and expenditures and production commencement dates.
In the case of development projects, there generally is no operating
history upon which to base estimates of future operating costs and capital
requirements. The economic feasibility of any individual project is based upon,
among other things: the interpretation of geological data obtained from drill
holes and other sampling techniques; feasibility studies, which derive estimates
of cash operating costs based upon anticipated tonnage and grade of ore to be
mined and processed; the configuration of the ore body; expected recovery rates
of metals from the ore; comparable facility and equipment costs; anticipated
climatic conditions; estimates of labor productivity and other factors. Such
development projects also are subject to the successful completion of final
feasibility studies, issuance of necessary permits and receipt of adequate
financing. Accordingly, uncertainties related to operations are magnified in
the case of development projects.
As a result of the forgoing risks, among other things, expenditures on any
and all projects, actual production quantities and rates, and cash operating
costs materially and adversely may be affected and may differ materially from
anticipated expenditures, production quantities and rates, and costs, just as
estimated production dates may be delayed materially, in each case, especially
to the extent development projects are involved. Any such events materially and
adversely can affect the Company's business, financial condition, results of
operations and cash flows.
RELIANCE ON COAL CONTRACTS
A substantial portion of the Company's coal is sold pursuant to long-term
coal supply contracts which are significant to the stability and profitability
of the Company's operations. During 1996, a majority of the company's revenues
from coal sales resulted from sales under contracts with an initial term of more
than one year. Some of the Company's contracts currently have prices which
exceed the price at which such coal could be sold in the spot market. The loss
of certain of its long-term contracts could have a material adverse effect on
the Company's business, financial condition, results of operations and cash
flow. Most of the Company's coal contracts with an initial term of more than
one year are subject to price adjustment provisions which, subject to certain
limits, permit an increase or decrease periodically in the contract price. Some
of the Company's coal supply contracts also contain price re-opener provisions
which provide for the periodic upward or downward adjustment of contract prices;
such provisions can lead to disputes with customers and potential modifications
or early termination of the contract.
21
<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, transportation and durable goods markets.
While the long-term demand for copper has been 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 on 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 also are influenced by speculative activities. COMEX
copper prices averaged $1.06 per pound in 1996, down 29 cents per pound from
1995. Western world copper consumption rose for the eleventh consecutive year
in 1996, with estimated 1996 growth of 4 percent. Copper production increased
by a little over 6 percent. In addition, exports to China increased
significantly in 1996 while imports from Eastern Europe fell marginally. At
year end copper was in relatively tight supply. 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
and to a lesser extent on chemical applications. Molybdenum demand in the
Western World is near the record levels of 1995, supported by overall world
economic strength. Reflecting a more balanced supply/demand picture and lower
inventories, world spot molybdenum oxide prices recovered toward the end of 1996
but remained substantially below the cyclical peak of early 1995. World spot
molybdenum oxide prices in 1996 averaged about $3.80 per pound against a 1995
average of about $8.00/lb. Cyprus Climax Molybdenum realizations averaged $5.25
per pound in 1996 and $7.53 per pound in 1995, with an increased proportion of
1996 sales coming from higher valued molybdenum chemical products. A
substantial portion of world molybdenum production is a by-product of copper
mining, which is relatively insensitive to molybdenum price levels. Imports to
the west, especially from China, can also influence competitive conditions. In
addition, Molycorp has announced the reopening in late 1996 of its New Mexico
mine.
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 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.
During 1996, Cyprus Amax produced 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 and will be entering certain lithium markets in
the near future. As a result, an overcapacity situation has developed
primarily in the lithium carbonate markets which has resulted in the erosion of
prices.
22
<PAGE>
ENVIRONMENTAL MATTERS
The mining and mineral processing industries are subject to extensive
regulations for the protection of the environment in the United States and
foreign countries, including but not limited to regulations relating to air and
water quality, mine reclamation, remediation, solid and hazardous waste handling
and disposal and the promotion of occupational safety. These laws often require
parties to fund remedial action or to pay damages regardless of fault.
Environmental laws also often impose liability with respect to divested or
terminated operations even if the operations were divested of terminated many
years ago. As a result, the Company generally is required to engage in
substantial remedial and investigatory activities, including but not limited to
assessment and clean up work. Although the Company believes that it has
adequate reserves with respect to environmental matters, there can be no
assurance that the amount of capital expenditures and other costs and expenses
which will be required to complete remedial actions and otherwise to comply with
applicable environmental laws will not exceed the amounts reflected in the
Company's reserves or will not have a material adverse effect on the Company's
business, financial condition, results of operations or cash flows. From time
to time the Company is cited for noncompliance with applicable environmental
laws and regulations. However, the Company expects to be able to comply in all
material respects with existing laws and regulations.
The mining operations of the Company also are subject to inspection and
regulation by the United States and foreign governments under a variety of laws
and regulations. Current and future regulations or regulatory interpretations
do or may require significant expenditures for compliance which may increase the
Company's mine development and operating costs and may require the Company to
modify or curtail its operations. The Company cannot predict the likely impact
of future of pending legislation on its business, financial condition, results
of operations or cash flows.
Reference is made to additional information concerning environmental
matters in "Management's Discussion, Environmental" on page 29 of the 1996
Annual Report and Note 14 to the Consolidated Financial Statements on pages 48
and 49 of the 1996 Annual Report, which information is incorporated herein by
reference and Item 3: Legal Proceedings in this Form 10-K.
RESERVE LEVELS
There are a number of uncertainties inherent in estimating quantities of
reserves, including many factors beyond the control of the Company. The reserve
data set forth in or incorporated by reference are in large part estimates only.
No assurance can be given that the volume and grade of reserves recovered and
rates of production will not be less than anticipated. Declines in the market
price of a particular metal or in coal also may render reserves containing
relatively lower grades of mineralization, or reduced quality of coal,
uneconomic to exploit. If the price realized by the Company for a particular
commodity were to decline substantially below the price at which ore reserves
were calculated for a sustained period of time, the Company potentially could
experience reductions in reserves and asset write-downs. Under certain such
circumstances, the Company may discontinue the development of a project or
mining at one or more of its properties. Further, changes in operating and
capital costs and other factors, including but not limited to short-term
operating factors such as the need for sequential development of ore bodies and
the processing of new or different ore grades, may materially and adversely
affect reserves.
COMPETITION FOR PROPERTIES; EXPLORATION RISKS
Since mines have limited lives based on proven ore reserves, the Company
continually seeks to replace and expand its reserves. Mineral exploration, at
both newly acquired properties and existing mining operations, is highly
speculative in nature, involves many risks and frequently is nonproductive.
Once mineral deposits are discovered, it may take a number of years from initial
preparatory work until production is possible, during which time the economic
feasibility of production may change. Substantial expenditures are required to
establish ore reserves through drilling to determine metallurgical processes
required for extraction from ore and, in the case of new properties, to
construct mining and processing facilities.
The Company encounters strong competition from other mining companies in
connection with the acquisition of properties producing or capable of producing
metals and coal. As a result of this competition, some of which is with
companies with greater financial resources than the Company, the Company may be
unable to acquire attractive mining properties on terms it considers acceptable.
In addition, there are a number of uncertainties inherent in any program
relating to the location of economic ore reserves, the development of
appropriate metallurgical processes, the receipt of necessary governmental
permits and the construction of mining and processing facilities. Accordingly,
there can be no assurance that the Company's acquisition and exploration
programs will yield new reserves to replace and expand current reserves.
FOREIGN OPERATIONS
Certain of the Company's reserves and facilities are located in foreign
countries, including Chile, Peru, Russia, Australia, Canada, the Netherlands and
the United Kingdom. Such foreign reserves and facilities may be materially and
adversely affected by exchange controls, currency fluctuations, ownership
limitations, expropriation, taxation and laws or policies of particular
countries, as well as the laws or policies of the United States affecting
foreign trade, investment and taxation. The Company also may be affected
materially and adversely by the policies and practices of multinational
political or financial institutions.
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 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. During 1996, Consent Decrees were entered and civil
penalties were paid resolving the alleged violations.
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 ground water quality at Pinal Creek near
Miami, Arizona throughout 1996. The ongoing program, initiated in 1989, has
resulted in continued improvement of subsurface water quality in the area.
While the long-term remedial action plan is not scheduled for submittal to the
State of Arizona for approval until late 1997, completion of risk assessment
studies and the evaluation of remedial action alternatives has provided
information which allows an estimate of Cyprus Amax costs for completing the
remedial action. As a result of this new information, approximately $50 million
was recorded for the Pinal Creek remediation reserve at December 31, 1996.
Cyprus Miami has commenced contribution litigation against other parties
involved in this matter and has asserted claims against certain of its past
insurance carriers. While significant recoveries are expected, Cyprus Miami
cannot reasonably estimate the amount of recoveries and, therefore, has not
taken potential recoveries into consideration in the provision.
In December 1996, Cyprus Amax received a Unilateral Administrative Order For
Removal Response Activities from the U.S. EPA requiring the removal of asbestos-
containing material at the Horizon Potash Mine located near Carlsbad, New
Mexico. Cyprus Amax is complying with the order and expects to complete the
removal work by late 1997 along with completing other building demolition and
reclamation at the Horizon site in accordance with a settlement agreement with
the Bureau of Land Management. Horizon Potash acquired Amax Potash and its
facilities in 1992, abandoned the site in 1993, and entered Chapter 7 bankruptcy
proceedings.
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 had received EPA requests for
information for several sites. For all sites, Cyprus Amax had an aggregate
reserve of approximately $117 million at December 31, 1996, 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 $80 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, 1996,
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.
24
<PAGE>
At December 31, 1996, Cyprus Amax's accruals for deferred closure, shutdown
of closed operations, and reclamation totalled approximately $308 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 $169 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 $115
million and $23 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 $580 million.
Cyprus Amax believes that it has adequate reserves such that none of these
matters or contingencies is expected to have a material adverse effect on its
business or financial condition, results, or 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, 1996.
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 19, 1997:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Milton H. Ward 64 Chairman, President and Chief Executive Officer
Jeffrey G. Clevenger 47 Senior Vice President, Copper
Gerald J. Malys 52 Senior Vice President and Chief Financial Officer
Garold R. Spindler 49 Senior Vice President, Coal
David H. Watkins 52 Senior Vice President, Exploration
Philip C. Wolf 49 Senior Vice President, General Counsel and Secretary
Robin J. Hickson 53 Vice President, Engineering and Development
Francis J. Kane 38 Vice President Investor Relations and Treasurer
John Taraba 48 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 Co-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. 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
25
<PAGE>
served as Vice President and Director at Metall Mining Corporation from 1991
until 1993. 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. 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 incorporated by reference from "Stock
Market Information" on page 54 in the 1996 Annual Report.
The information required by Items 6 through 8 is incorporated by reference from
the pages of the Company's 1996 Annual Report set forth below.
<TABLE>
<CAPTION>
Applicable Pages
Form 10-K Item Number in the 1996 Annual Report
--------------------- -------------------------
<S> <C> <C>
Item 6. Selected Financial Data..................................... 22-23
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................... 24-31
Item 8. Financial Statements and Supplementary Data................. 32-53
a. Quarterly Results....................................... 52
b. Mineral Reserves and Selected Operating Statistics...... 53
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
</TABLE>
27
<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 1997 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 1997 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 1997 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 1997 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 1997 Annual Meeting to be filed within 120
days after the fiscal year incorporate such material into this Report by
reference.
28
<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 included in the 1996 Annual Report and
incorporated by reference:
<TABLE>
<CAPTION>
Pages in 1996
Annual Report
-------------
<S> <C>
Report of Independent Accountants...................................... 21
Consolidated Statement of Operations for each of the three years in
the period ended December 31, 1996.................................... 32
Consolidated Balance Sheet at December 31, 1996 and 1995............... 33
Consolidated Statement of Cash Flows for each of the three years
in the period ended December 31, 1996................................. 34
Consolidated Statement of Shareholders' Equity for each of the three
years in the period ended December 31, 1996........................... 35
Notes to Consolidated Financial Statements............................. 36-51
<CAPTION>
2. Financial Statement Schedule:
Pages in This
Form 10-K
---------
<S> <C>
Report of Independent Accountants on Financial Statement
Schedule............................................................. 36
For the three years in the period ended December 31, 1996:
Schedule II - Valuation and Qualifying Accounts and
Reserves............................................................. 37
</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 1996 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.
29
<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 6/8%
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.
(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; Exhibit 8 to the Report on Form 8-K dated December 14,
1995; and Exhibit 9 to the Report on From 8-A/A dated March 6,
1997.
30
<PAGE>
Exhibit
Number Document
------ --------
(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 Stock Plan for Non-Employee Directors of
Cyprus Amax Minerals Company, as amended through the date of
signing of the Annual Report on Form 10-K, incorporated by
reference to Exhibit 28 to the Report on Form 10-Q for the quarter
ended September 30, 1992, and including the additional amendments
filed with this report.
(b) Annual Incentive Plan for Executive Officers and Designated
Management.
(c) Amended and Restated Employment Agreement between Cyprus Amax
Minerals Company and Milton H. Ward, incorporated by reference
from Exhibit 10(a) to the Annual Report on Form 10-K for the
period ended December 31, 1995.
(d) 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 Exhibit 10(b) to the Annual Report on Form 10-K for the period
ended December 31, 1995.
31
<PAGE>
Exhibit
Number Document
------ --------
10 (e) 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 Exhibit 10(c) to the Annual Report on
Form 10-K for the period ended December 31, 1995.
(f) 1993 Key Executive Long-term Incentive Plan between Cyprus
Minerals Company and certain executive officers, incorporated by
reference from Exhibit 10(d) to the Annual Report on Form 10-K for
the period ended December 31, 1995.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) Excess Defined Contribution Plan, as restated through the date of
signing of this Annual Report on Form 10-K, incorporated by
32
<PAGE>
Exhibit
Number Document
------ --------
reference from Exhibit 10(f) to the Annual Report on Form 10-K for
the period ended December 31, 1994.
(l) 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.
(m) 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.
(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) 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.
(p) 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.
13 1996 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
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.
33
<PAGE>
Exhibit
Number Document
------ --------
(b) The following 8-Ks were filed during the last quarter of the period
covered by this Report on Form 10-K:
No report on From 8-K was filed during the last quarter of the period
covered by this Report on Form 10-K.
34
<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 19 day of March
1997.
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 19, 1997.
Signatures Titles
---------- ------
/s/ Milton H. Ward Chairman of the Board, Director, President,
------------------- and Chief Executive Officer
Milton H. Ward
/s/ Gerald J. Malys Senior Vice President and Chief Financial
-------------------- Officer (Principal Financial Officer)
Gerald J. Malys
/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/ Allen Born Director
---------------
Allen Born
/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
35
<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 12, 1997, appearing on page 21 of the 1996 Annual Report to
Shareholders of Cyprus Amax Minerals Company (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) 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 12, 1997
36
<PAGE>
SCHEDULE II
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
of Year Expenses Accounts Deductions Year
---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Material and Supplies Inventory
- -------------------------------
1996
Deducted from asset accounts:
Reserve for material and supplies
inventory........................ $24 $2 $3 $(11) $18
=== == == ==== ===
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
=== == == ==== ===
Doubtful Accounts and Notes Receivable
- --------------------------------------
1996
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current......... $ 8 $- $- $ (2) $ 6
Reserve for doubtful accounts and
notes receivable-noncurrent...... 5 - - - 5
--- -- -- ---- ---
Total.......................... $13 $- $- $ (2) $11
=== == == ==== ===
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
=== == == ==== ===
</TABLE>
37
<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 Stock Plan for Non-Employee Directors of
Cyprus Amax Minerals Company, as amended through the date of
signing of the Annual Report on Form 10K, incorporated by
reference to Exhibit 28 to the Report on Form 10-Q for the
quarter ended September 30, 1992, and including the additional
amendments filed with this report.
(b) Annual Incentive Plan for Executive Officers and Designated
Management.
11 Statement re computation of per share earnings.
13 Annual Report to Shareholders.
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:
No report on Form 8-K was filed during the last quarter of the period
covered by this Report on Form 10-K.
38
<PAGE>
EXHIBIT 10(A)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
AMENDED AND RESTATED STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS OF
CYPRUS AMAX MINERALS COMPANY
39
<PAGE>
AMENDED AND RESTATED STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS OF CYPRUS AMAX MINERALS COMPANY
SECTION 1.
PURPOSE. The purpose of this Amended and Restated Stock Plan for Non-
-------
Employee Directors of Cyprus Amax Minerals Company is to provide certain
incentives and compensation to eligible directors of Cyprus Amax Minerals
Company and to encourage the highest level of director performance by providing
such directors with a proprietary interest in the Company's success and
progress.
SECTION 2.
DEFINITIONS. For purposes of this Plan, the following terms shall have the
-----------
following meanings:
(a) "ADMINISTRATOR" means one or more individuals appointed in
-------------
accordance with Section 9(a).
(b) "BENEFICIARY" means a person or persons designated by the
-----------
Participant to receive, in the event of the Participant's death, any unexercised
Option held by the Participant which is vested in accordance with Section
6(b)(4). A Participant may, subject to such limitations as may be prescribed by
the Administrator, 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 legal representative of the
Participant's estate or the person to whom the Option is transferred by will or
the laws of descent and distribution shall be deemed to be the Participant's
beneficiary.
(c) "BOARD" means the Board of Directors of the Company.
-----
(d) "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% or more of either (A) the then outstanding shares
of Common Stock (the "Outstanding Company Common Stock") or (B) 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: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition by any corporation
pursuant to a transaction described in Sections 2(d)(3)(A), 2(d)(3)(B) and
2(d)(3)(C); or
(2) Individuals who, as of January 1, 1996, 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, 1996, 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
40
<PAGE>
(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, (A) 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 Business Combination beneficially own, directly or
indirectly, more than 80% 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, (B) 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% 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 (C) 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 (A) a
complete liquidation or dissolution of the Company or (B) 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, (i) more than 80% 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, (ii) less than 20%
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% or more of the
Outstanding Company Common Stock or Outstanding Company Voting Securities prior
to the sale or disposition and (iii) 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.
(e) "CHANGE OF CONTROL PRICE" means the highest price per share paid
-----------------------
in any transaction reported on the New York Stock Exchange Composite Index or
paid or offered in any bona fide transaction related to a potential or actual
change in control of the Company at any time during the preceding 60-day period
as determined by the Administrator.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
----
(g) "COMMITTEE" means the Compensation and Benefits Committee of the
---------
Board of Directors.
(h) "COMMON STOCK" means the Common Stock, no par value per share, of
------------
the Company.
41
<PAGE>
(i) "COMPANY" means Cyprus Amax Minerals Company.
-------
(j) "EFFECTIVE DATE" means the date described in Section 12.
--------------
(k) "ELIGIBLE DIRECTOR" means any member of the Board who, on the
-----------------
date of the grant of Shares or the date of the grant of an Option, is not an
officer or an employee of the Company or any of the Company's subsidiaries or
affiliates and is a director of the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "FAIR MARKET VALUE" means, for purposes of the Plan, unless
-----------------
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, with respect to the date of determination, the average of the
reported highest and lowest sale prices per Share on the New York Stock Exchange
(or if the Common Stock is not then listed on the New York Stock Exchange, on
such other exchange or exchanges where the Common Stock is then listed) with
respect to the date of determination or in the absence of reported sales on such
date, the average of such reported highest and lowest sale prices per Share on
the next preceding date on which reported sales occurred. If the Common Stock is
not listed upon any established exchange, such fair market value will be the
average of the prices in the over-the-counter markets (reported from the NASDAQ
System) or, if the Common Stock is not traded on that day, on the next preceding
date on which reported sales occurred, provided, that if the Administrator
determines that such price is not representative of the true fair market value
due to the level of trading volume or otherwise, the Administrator may determine
the "fair market value per Share" in a reasonable manner consistent with the
Code and taking into account information about sale, bid and asked prices for
the common stock of the Company in the markets where such stock is then traded
or eligible for trading. If the Common Stock is not traded publicly on the date
of determination, its "fair market value per share" shall be determined by the
Administrator in such manner as the Administrator may deem appropriate.
(n) "OPTION" means any option to purchase shares of Common Stock
------
granted pursuant to Section 6.
(o) "PARTICIPANT" means an Eligible Director to whom Shares have been
-----------
awarded or an Option has been granted under the Plan.
(p) "PLAN" means the Stock Plan for Non-Employee Directors of Cyprus
----
Amax Minerals Company, as amended and restated and as set forth herein.
(q) "SHARES" means one or more shares of Common Stock.
------
SECTION 3.
SHARES SUBJECT TO PLAN.
-----------------------
(a) The aggregate total of the number of Shares for which Options may
be granted during each fiscal year and the total number of Shares which may be
awarded during the same fiscal year ("Maximum Annual Grants and Awards") shall
be the sum of (1) 1/16th of 1% of the number of outstanding shares of Common
Stock of the Company (excluding treasury shares) as of the end of the
immediately preceding fiscal year plus (2) 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 grants and
awards in any intervening period. The number of "carryforward shares" from all
fiscal years ending on or before December 31, 1995, collectively shall be
13,000. The number of "carryforward shares" from each fiscal year (the
"Accumulation Year") ending on or after December 31, 1996, shall be the amount,
if any, by which (1) 1/16th of 1% of the number of outstanding shares of Common
Stock of the Company (excluding treasury shares) as of the end of the fiscal
year immediately preceding the Accumulation
42
<PAGE>
Year exceeds (2) the total of the number of Shares for which Options were
granted during the Accumulation Year and the number of Shares granted during the
Accumulation Year. Any determination of the Maximum Annual Grants and 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
8(b).
(b) The Shares granted under the Plan may be either authorized but
unissued shares or treasury shares, as determined from time to time by the
Board.
SECTION 4.
ELIGIBILITY. Only Eligible Directors are eligible to be granted Shares and
-----------
granted Options under the Plan.
SECTION 5.
GRANTS OF SHARES.
----------------
(a) Each Eligible Director on July 1, 1992, shall be granted 500
Shares on that date, and annually thereafter each Eligible Director on July 1
shall be granted 500 Shares.
(b) Each grant of the Shares shall be evidenced by a written
agreement duly executed and delivered by or on behalf of the Company and the
Participant, if such an agreement is required by the Company to assure
compliance with all applicable laws and regulations.
SECTION 6.
GRANTS OF OPTIONS. All Options granted under the Plan shall be non-
-----------------
qualified stock options, that is, options that do not qualify as incentive stock
options under section 422 of the Code.
(a) NUMBER OF OPTIONS. After the Effective Date, for as long as the
-----------------
Plan remains in effect, each Eligible Director shall be granted an Option of
2,000 Shares of Common Stock on July 1 of each fiscal year; provided however,
that an individual who ceases to be a member of the Board on or prior to such
date shall not be entitled to receive a grant of Options for that fiscal year.
(b) TERMS AND CONDITIONS. Options granted under the Plan shall be
--------------------
subject to the terms and conditions described below and shall be subject to such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Board or the Administrator shall deem desirable. Each Option shall be
evidenced by and subject to the terms of a written agreement duly executed and
delivered by or on behalf of the Company and the Participant, which shall
specify the terms and conditions applicable to the Option.
(1) Option Price. The price per share at which Options may be
------------
exercised shall be determined by the Board or the Administrator, but shall not
be less than 100% of the Fair Market Value of a Share on the date the Option is
granted.
(2) Option Term. The expiration date of each Option shall be
-----------
determined by the Board or the Administrator, but in no event shall the
expiration date be later than ten (10) years and one day after the date the
Option is granted.
(3) Restrictions on Transfer. Options 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 a grant so permit,
pursuant to a qualified domestic relations order (as defined for purposes of
Rule 16b-3 of the Exchange Act) and shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's guardian or
legal representative. Any Eligible
43
<PAGE>
Director to whom an Option is granted may designate a Beneficiary as provided in
Section 2(b) who shall have the right to exercise the Option after death.
(4) Vesting--Required Period of Service. Any Option granted on
-----------------------------------
July 1, 1996, shall become vested and shall be exercisable as follows: 50% of
the Shares represented by the Option shall be exercisable by the Participant to
whom the Option has been granted after such Participant shall have completed a
period of not less than one year of continuous service as a member of the Board
immediately following the date on which the Option is granted. The remainder of
the Option granted on July 1, 1996, shall become vested and shall be exercisable
after the Participant completes a period of not less than two years of
continuous service as a member of the Board immediately following the date on
which the Option is granted.
Notwithstanding the foregoing, any Option granted after July 1,
1996, shall be exercisable by the Participant to whom the Option has been
granted after such Participant shall have completed the period of continuous
service as a member of the Board, if any, immediately following the date on
which the Option is granted as shall be specified in the terms of the grant.
Notwithstanding any other provision of this Subsection 6(b)(4),
(A) 100% of the Shares represented by any Option
granted to a Participant who dies while actively serving as a member of the
Board shall immediately vest and shall be exercisable by the Participant's
Beneficiary as of the date of the Participant's death to the full extent of
the grant, and
(B) the Board or the Administrator has sole discretion
to accelerate the vesting of Shares represented by any Option granted to a
Participant who retires or becomes disabled.
(5) Exercise of Option. After completing the required period of
------------------
service as a member of the Board, an Option may be exercised according to its
terms during the balance of the Option period, except as otherwise provided in
this Section. The Option may be exercised only by the Participant to whom it is
granted, except as otherwise provided in Sections 8 and 9.
(6) Payment for Shares and Method of Exercise. The Participant
-----------------------------------------
may exercise a vested Option in whole or in part at any time during the option
term by delivering to the Company written notice of exercise specifying the
number of Shares to be purchased and the option price therefor. The notice of
exercise shall be accompanied by payment in full of the option price. Payment of
the option price may be made (A) in cash or by check payable to the Company or
(B) to the extent determined by the Board or Administrator on or after the date
of grant, in Shares duly owned by the Participant (and for which the Participant
has good title free and clear of any liens and encumbrances) or (C) by reduction
in the number of Shares issuable upon such exercise, based, in each case, on the
Fair Market Value of the Common Stock on the last trading date preceding the
date of exercise. Upon payment in full of the option price and satisfaction of
the other conditions provided herein, a stock certificate representing the
number of shares of Common Stock to which the Participant is entitled shall be
issued and delivered to the Participant.
(7) Retirement. If the Participant retires after completing the
----------
required period of service as provided in Section 6(b)(4), the Option (or any
unexercised portion thereof) shall be exercisable by the Participant, but only
within the period specified in the terms of grant, which period shall end not
earlier than three years, or such other period that is specified in terms of the
grant, after the date of retirement but, in any event not later than the
expiration of the option term of the Option.
(8) Disability. If a disability prevents a Participant from
----------
performing the duties of a director, any Option (or any unexercised portion
thereof) held by such Participant which
44
<PAGE>
is vested in accordance with Section 6(b)(4), may thereafter by exercised by the
Participant after such date the Participant is determined by the Board or
Administrator to be disabled until the earlier of three years, or such other
period that is specified in the terms of the grant, but in any event not later
than the expiration of the option term of such Option.
(9) Death.
-----
(A) Except as provided in Subsections (A), (B) and (C)
and unless otherwise determined by the Board or the Administrator on or
after the date of grant, if a Participant ceases to be a member of the
Board by reason of death, any Option (or the unexercised portion thereof)
held by such Participant at the date of death and which is vested in
accordance with Section 6(b)(4) may thereafter be exercised by the
Participant's Beneficiary until the earlier of three years, or such other
period that is specified in terms of the grant, after the Participant's
date of death, but in any event not later than the expiration of the option
term of such Option.
(B) If a Participant dies after retirement but before
the expiration of the period specified in the terms of grant during which
any Option may be exercised in part or in full, then the Option (or the
unexercised portion thereof) which is vested in accordance with Section
6(b)(4) shall be exercisable by the Beneficiary of the Participant during
the remainder of the exercise period following retirement as described in
Subsection (7) above plus three months but, in any event, not later than
the expiration of the option term of the Option.
(C) If a Participant dies after becoming disabled but
before the expiration of the period specified in the terms of grant during
which any Option may be exercised in part or in full, then the Option (or
the unexercised portion thereof) which is vested in accordance with Section
6(b)(4) shall be exercisable by the Beneficiary of the Participant during
the remainder of the exercise period following disability as described in
Subsection (8) above plus three months but, in any event, not later than
the expiration of the option term of the Option.
(10) Other Termination. Unless otherwise determined by the Board
-----------------
or the Administrator on or after the date of grant, if a Participant ceases to
be a member of the Board for any reason other than death, retirement or
disability, any Option (or the unexercised portion thereof) which is vested in
accordance with Section 6(b)(4) held by such Participant may be exercised until
the earlier of 30 days after such date or the expiration of the option term of
such Option.
(11) Other Terms. The Option agreement may contain such other
-----------
terms, provisions and conditions as may be determined by the Board or the
Administrator so long as those terms, provisions and conditions are not
inconsistent with the provisions of the Plan. The terms of any Option agreement
need not be uniform with the terms of any other Option agreement.
(12) Change of Control. Notwithstanding the foregoing, upon a
-----------------
Change of Control, all Options granted hereunder shall immediately vest and
shall become exercisable to the full extent of the original grant. If a
Participant ceases to be a member of the Board at or after a Change of Control,
other than by reason of death, disability, or retirement, any Option (or
unexercised portion thereof) held by such Participant shall be exercisable for
six months and one day following the date the Participant ceases to be a member
of the Board, but in any event not later than the expiration date of the Option.
(c) Rights as Shareholders. A Participant shall not be deemed to be
----------------------
the holder of Common Stock, or have any of the rights of a holder of Common
Stock, with respect to shares subject to an Option, until the Option is
exercised and a stock certificate representing such shares of Common Stock is
issued to the Participant.
45
<PAGE>
SECTION 7.
REGULATORY COMPLIANCE AND LISTING. The issuance or delivery of any of the
---------------------------------
Shares may be postponed by the Company for such period as may be required to
comply with any applicable requirements under Federal or state securities laws,
any applicable listing requirements of any national securities exchange, and
requirements under any other law or regulation applicable to the issuance or
delivery of such Shares would constitute a violation of any provision of any law
or of any regulation of any governmental authority or any national securities
exchange.
SECTION 8.
ADJUSTMENT FOR COMPANY CHANGES.
-------------------------------
(a) RIGHTS AND POWERS RESERVED. The existence of any outstanding
--------------------------
Option shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, recapitalization,
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, 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 price of shares of Common Stock then subject to
any outstanding Option.
(b) CHANGES IN CAPITALIZATION. In the event that the Administrator
-------------------------
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 warrant
or the rights to purchase shares of Common Stock or other securities of the
Company, or the similar corporate transaction or event affects the shares of
Common Stock such than an adjustment is determined by the Board or the
Administrator to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under this
Plan, then the Administrator shall, in such manner as it may deem equitable,
adjust any or all of (1) the number and type of shares of common stock (or other
securities or property) which thereafter may be made the subject of awards, (2)
the number and type of shares of common stock (or other securities or property)
subject to outstanding grants and awards, and (3) the grant, purchase, or
exercise price with respect to any grant or award, or, if deemed appropriate,
make provision for a cash payment to the holder of any outstanding grant or
award; provided, however, that the number of Shares subject to any grant or
award denominated in shares shall always be a whole number.
SECTION 9.
ADMINISTRATION.
---------------
(a) APPOINTMENT OF ADMINISTRATOR. An Administrator, which may be one
----------------------------
or more individuals, shall be appointed from time to time by the Chief Executive
Officer of the Company or his duly authorized delegate in order to administer
the Plan as provided herein.
(b) RIGHTS AND DUTIES OF ADMINISTRATOR. The Administrator, on behalf
----------------------------------
of the Participants and their Beneficiaries, shall enforce the Plan in
accordance with its terms, shall be charged with the general administration of
the Plan, and shall have all powers necessary to accomplish those purposes,
including, but not by way of limitation, the following:
46
<PAGE>
(1) to interpret the provisions of the Plan and to determine the
terms and conditions of grants;
(2) to compute and certify the amount and kind of benefits
payable to Participants and their Beneficiaries;
(3) to maintain or to designate any person or entity to maintain
all the necessary records for the administration of the Plan;
(4) to make and publish such rules for the regulation of the
Plan as are consistent with the terms hereof;
(5) to provide for disclosure of such information and filing or
provision of such reports and statements to Participants or Beneficiaries under
this Plan as the Administrator deems appropriate; and
(6) subject to the limitations imposed under Section 10, to
amend the Plan or any Option previously granted to the extent such authority to
amend the Plan or any Option previously granted is delegated to it by the Board.
All interpretations and decisions and other actions of the Administrator shall
be conclusive and final on all persons interested in the Plan, except to the
extent otherwise specifically indicated herein. The Administrator may appoint
one or more agents, and delegate thereto such powers and duties in connection
with the administration of the Plan as the Administrator may from time to time
prescribe. To the extent of any such delegation, the delegate shall have the
duties, powers, authority and discretion of the Administrator.
(c) AUTHORITY OF BOARD. Notwithstanding any provision contained in
------------------
the Plan regarding the delegation of authority to the Administrator or any other
person with respect to the operation and administration of the Plan, the Board,
acting in its sole discretion, may at any time exercise its authority under the
terms of the Plan to act on behalf of the Company.
SECTION 10.
AMENDMENT AND TERMINATION OF THE PLAN.
--------------------------------------
(a) The Board or its duly authorized delegate from time to time may
amend the Plan, provided that:
(1) no amendment which would materially increase the benefits
accruing to Participants, increase the number of securities which may be issued
under the Plan, or materially modify the requirements as to eligibility to
participate in the Plan shall become effective without approval of the amendment
by the shareholders,
(2) no other amendment shall become effective without approval
of the amendment by the shareholders, if shareholder approval is required to
enable the Plan to satisfy any applicable statutory or regulatory requirements
(including Rule 16b-3 under the Exchange Act), or if the Company, on the advice
of counsel, determines that shareholder approval is otherwise necessary or
desirable, and
(3) amendments to any provisions of the Plan describing the
eligible directors, stating the number of Shares to be granted, or specifying
the time of the grants shall not be made more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules promulgated thereunder.
47
<PAGE>
(b) The Board or its duly authorized delegate from time to time may
amend the terms of any Option that was previously granted or is yet to be
granted, in any manner, so long as such amendment is not inconsistent with the
terms of the Plan, and provided that no such amendment shall impair the rights
of any Participant (or Beneficiary if the Participant is deceased), without such
Participant's (or Beneficiary's) written consent.
(c) The Board may terminate the Plan at any time, but such
termination shall not affect Options granted or shares awarded prior thereto.
SECTION 11.
MISCELLANEOUS.
--------------
(a) NO RIGHT TO CONTINUE AS DIRECTOR. Nothing in the Plan nor the
--------------------------------
grant of any Shares or Option shall be deemed (1) to confer upon any person the
right to continue as a director of the Company or (2) to create any obligation
on the part of the Board to nominate any director for reelection by the
Company's shareholders or (3) to limit the rights of the shareholders to remove
any director.
(b) OTHER PLANS.
-----------
(1) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
(2) No income of a Participant attributable to this Plan shall
be included in the director's earnings for purposes of any benefit plan in which
the director may be eligible to participate, unless otherwise determined by the
Board or Administrator, or unless otherwise provided by the terms of such other
benefit plan.
(c) PAYMENT OF TAXES. The Company shall have the right to require,
----------------
prior to the issuance or delivery of any Shares, payment by a Participant of
any taxes required by law with respect to the issuance or delivery of such
Shares.
(d) UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
-----------------------
"unfunded" plan for incentive compensation. With respect to any payment not yet
made to a Participant by the Company, nothing contained herein shall give the
Participant any rights that are greater than those of a general creditor of the
Company.
(e) GOVERNING LAW. To the extent not superceded by federal law, the
-------------
Plan and actions taken in connection herewith shall be governed and construed in
accordance with the laws of the State of Colorado.
(f) LIABILITY OF BOARD MEMBERS. No member of the Board nor any
--------------------------
employee of the Company or any of its subsidiaries shall be liable for any act
or action hereunder, whether of omission or commission, by any other member or
employee or by any agent to whom duties in connection with the administration of
the Plan have been delegated or, except in circumstances involving bad faith,
gross negligence or fraud, for anything done or omitted to be done by himself.
(g) COSTS. The Company shall bear all expenses incurred in
-----
administering the Plan, including expenses related to the issuance of Common
Stock upon exercise of Options.
(h) SEVERABILITY. If any provision of this Plan or any grant or
------------
award is or becomes invalid, illegal, or unenforceable in any jurisdiction, or
as to any person, or would disqualify this Plan or any grant or award under any
law or regulation deemed applicable by the
48
<PAGE>
Board or Administrator, 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 Board or the Administrator,
materially altering the intent of this Plan or the grant or award, such
provision shall be stricken as to such jurisdiction or person and the remainder
of this Plan or the grant or award shall remain in full force and effect.
(i) SUCCESSORS. The Plan shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company.
(j) HEADINGS AND CONSTRUCTION. Section headings contained in this
-------------------------
Plan are included for convenience only and are not to be used in construing or
interpreting the Plan. Except where otherwise clearly indicated by context, the
masculine shall include the feminine and the singular shall include the plural,
and vice-versa.
SECTION 12.
EFFECTIVE DATE OF THE PLAN. The Plan was adopted by the Company's
--------------------------
shareholders to be originally effective as of July 1, 1992. The Plan as amended
and restated herein shall become effective as of July 1, 1996, subject to
obtaining prior approval of the Plan by the Company's shareholders. If such
shareholder approval is not obtained, the Plan as amended and restated herein
shall be null and void but the Plan, as in effect immediately prior to such
amendment and restatement, shall continue in full force and effect.
49
<PAGE>
EXHIBIT 10(B)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
ANNUAL INCENTIVE PLAN FOR
KEY EXECUTIVE OFFICERS AND
DESIGNATED MANAGEMENT
50
<PAGE>
APPENDIX A
DESCRIPTION OF MATERIAL PROVISIONS OF ANNUAL INCENTIVE PLAN
FOR EXECUTIVE OFFICERS AND DESIGNATED SENIOR MANAGEMENT
In June 1995, the Board of Directors (the "Board") of Cyprus Amax Minerals
Company (the "Company") adopted an Annual Incentive Plan (the "Annual Incentive
Plan"). The Company is seeking shareholder approval of the material provisions
of the Annual Incentive Plan, as required by Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), to enable the Company to deduct,
for federal income tax purposes, certain awards to be paid under the Annual
Incentive Plan. If shareholder approval is not obtained, certain awards under
the Annual Incentive Plan may not be deductible for income tax purposes.
PURPOSES OF THE ANNUAL INCENTIVE PLAN
The Annual Incentive Plan provides for cash bonuses to certain officers and
key employees of the Company. The Annual Incentive Plan is intended to further
motivate the Company's employees to achieve certain objective, performance-based
goals and to enhance the Company's ability to attract and retain individuals of
exceptional talent upon whom, in large measure, the sustained progress, growth
and profitability of the Company depend.
ADMINISTRATION OF THE ANNUAL INCENTIVE PLAN
The Annual Incentive Plan shall be administered by the Compensation and
Benefits Committee (the "Compensation Committee") of the Board, all of which
members shall qualify as "outside directors" within the meaning of Section
162(m) of the Code.
The Compensation Committee shall have sole discretion in the administration
and operation of the Annual Incentive Plan and its decisions shall be conclusive
and binding on all parties.
ELIGIBLE PARTICIPANTS
Participants in the plan are chosen at the discretion of the Compensation
Committee. All officers and other Senior Management personnel of the Company are
eligible to participate in the Annual Incentive Plan, although no officer or
other Senior Management personnel is automatically entitled to participate in
the Annual Incentive Plan in any performance year.
AWARDS
Awards will be made as soon as practicable after each fiscal year with
respect to the immediately preceding fiscal year (the "performance year").
Awards will be subject to certification by the Compensation Committee before
payment.
Awards will be paid in cash from an annual incentive pool (the "Incentive
Pool") equal to 1.5% of the Company's consolidated Income From Continuing
Operations Before Income Taxes for the performance year, adjusted to exclude
write-downs, merger and reorganization expenses, and gains and losses from asset
sales ("any others"). Subject to the provisions described under "Limitations on
Awards" below, if
51
<PAGE>
any amount of the Incentive Pool is not paid out with respect to a performance
year, that amount will be carried over to the Incentive Pool for the following
performance years.
BASIS FOR AWARDS
The performance-based criteria shall be based on various Company, business
unit and individual objectives established in the first 90 days of each
performance year. The target awards shall be based on a percentage of each
participant's base salary as fixed at the time such target awards are set. The
Compensation Committee shall determine, as soon as practicable after the end of
the performance year, whether each of the participants has achieved his
performance-based criteria and is therefore eligible to receive his targeted
award. The award to any participant may be increased or decreased by up to 100%
by the Compensation Committee, provided that the sum of awards to all
participants shall not exceed the total amount of the Incentive Pool.
AWARDS TO COVERED EMPLOYEES
Maximum awards to each of the participants who are expected to be, as
determined by the Compensation Committee, "covered employees" within the meaning
of Section 162(m) of the Code (i.e. the CEO and the four most highly compensated
officers of the Company, other than the CEO at the end of a performance year)
shall equal 10% of the Incentive Pool except for the CEO, whose award shall
equal 50% of the Incentive Pool. The Compensation Committee shall have the
discretion to reduce, but not increase, any award payable to a covered employee.
LIMITATIONS ON AWARDS
The failure of any participant to receive his maximum award shall not
result in an increase in any other covered employee's award.
TERMINATION OF EMPLOYMENT
A participant in the Annual Incentive Plan who is discharged for cause or
who terminates his employment prior to the end of the performance year shall
forfeit his right to receive any award under the Annual Incentive Plan. A
participant who is terminated for any other reason prior to the end of the
performance year will be eligible to receive a pro rata percentage of the
participant's target award (equal, on a percentage basis, to the percentage of
days the participant was employed during the performance year) if the criteria
for the award is achieved. Such a pro rata award shall be paid at the time the
award would have otherwise been paid.
AMENDMENT AND TERMINATION
The Compensation Committee may terminate, suspend or amend the Annual
Incentive Plan from time to time. The Compensation Committee may, but is not
required to, seek shareholder approval of such amendments to ensure that the
awards paid under the Annual Incentive Plan are deductible for federal income
tax purposes under Section 162(m). The Annual Incentive Plan shall continue
until terminated by the Compensation Committee, Board of Directors or
shareholders.
52
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
Under present federal income tax law, participants in the Annual Incentive
Plan will realize ordinary income equal to the amount of the award received in
the year of receipt. Such income will be subject to applicable income and
employment tax withholding by the Company. The Company will receive a deduction
for the amount constituting ordinary income to the participant provided that the
Annual Incentive Plan satisfies the requirements of Section 162(m) of the Code,
which limits the deductibility of compensation under federal income tax law. It
is the Company's intention that the Annual Incentive Plan be adopted and
administered in a manner which maximizes the deductibility of compensation for
the Company under Section 162(m) to the extent practicable and consistent with
the Company's business considerations.
Approval of payment of awards under this Plan is not intended to limit the
Company's ability to adopt or continue other compensation arrangements.
If the material provisions are not approved by shareholders, no awards will
be paid under the Annual Incentive Plan to Executive Officers subject to 162(m).
In this case, the Committee may decide to pay Executive Officers cash bonuses
using different criteria from the current bonuses provided for here. In
addition, such amounts may not be tax deductible by the Company.
53
<PAGE>
EXHIBIT 11
CYPRUS AMAX MINERALS COMPANY
COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net Income.................................................. $ 77 $ 124 $ 175
Preferred Stock Dividends................................... (19) (19) (18)
------- ------- -------
Income Applicable to Common Shares.......................... $ 58 $ 105 $ 157
======= ======= =======
Primary:
Average Common Shares Outstanding......................... 93.2 92.9 92.4
Fully Diluted:
Average Common Shares Outstanding......................... 93.2 92.9 92.4
Common Stock Equivalents--Options......................... .1 .2 .4
Conversion of Series A Preferred Stock.................... 9.6 9.6 9.6
------- ------- -------
Fully Diluted Average Common Shares Outstanding........... 102.9 102.7 102.4
======= ======= =======
Earnings Per Share:
Using Average Common Shares Outstanding................... $ 0.62 $ 1.13 $ 1.69
Using Fully Diluted Average Common Shares Outstanding/(1)/ $ 0.75 $ 1.21 $ 1.71
</TABLE>
/(1)/ Fully diluted earnings per share were anti-dilutive in 1996, 1995, and
1994.
54
<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)
<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, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, 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 Note 2 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 12, 1997
21
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In millions except as noted and per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data
Revenue $ 2,843 $ 3,207 $ 2,788 $ 1,763 $ 1,641 $ 1,657 $ 1,866 $ 1,790
------- ------- ------- ------- ------- ------- ------- -------
Costs and Expenses
Cost of Sales 2,074 2,108 2,071 1,333 1,286 1,323 1,423 1,241
Selling and Administrative Expenses 128 143 111 70 77 97 81 103
Depreciation, Depletion, and Amortization 339 296 253 145 128 119 118 94
Write-Downs and Special Charges 116 445 10 - 410 35 82 4
Merger and Reorganization Expenses - - 13 33 29 - - -
Exploration Expense 34 33 23 25 19 21 14 15
------- ------- ------- ------- ------- ------- ------- -------
Total Costs and Expenses 2,691 3,025 2,481 1,606 1,949 1,595 1,718 1,457
------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) From Operations 152 182 307 157 (308) 62 148 333
Other Income (Expense)
Interest Income 28 24 17 7 3 5 8 13
Interest Expense (189) (137) (107) (42) (19) (22) (19) (12)
Capitalized Interest 83 43 16 1 3 5 - -
Earnings (Loss) on Equity Investments and Other 3 8 (12) 7 (8) 4 (13) (7)
------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) From Continuing Operations
Before Income Taxes and Minority Interest 77 120 221 130 (329) 54 124 327
Income Tax (Provision) Benefit (11) (3) (55) (31) 83 (11) (13) (92)
Minority Interest 11 7 - 1 - - - -
------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) From Continuing Operations 77 124 166 100 (246) 43 111 235
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)/ 77 124 175 100 (246) 43 111 235
Cumulative Effect of Accounting Changes /(2)/ - - - - (88) - - (70)
------- ------- ------- ------- ------- ------- ------- -------
Net Income (Loss) 77 124 175 100 (334) 43 111 165
Preferred Stock Dividends (19) (19) (18) (2) (11) (15) (15) (15)
------- ------- ------- ------- ------- ------- ------- -------
Income (Loss) Applicable to Common Shares $ 58 $ 105 $ 157 $ 98 $ (345) $ 28 $ 96 $ 150
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
1988 1987
------- ------
<S> <C> <C>
Consolidated Statement of Operations Data
Revenue $ 1,327 $ 795
------- ------
Costs and Expenses
Cost of Sales 921 628
Selling and Administrative Expenses 92 61
Depreciation, Depletion, and Amortization 64 54
Write-Downs and Special Charges 9 -
Merger and Reorganization Expenses - -
Exploration Expense 12 9
------- ------
Total Costs and Expenses 1,098 752
------- ------
Income (Loss) From Operations 229 43
Other Income (Expense)
Interest Income 6 2
Interest Expense (15) (11)
Capitalized Interest - -
Earnings (Loss) on Equity Investments and Other (2) (1)
------- ------
Income (Loss) From Continuing Operations
Before Income Taxes and Minority Interest 218 33
Income Tax (Provision) Benefit (49) (7)
Minority Interest 1 -
------- ------
Income (Loss) From Continuing Operations 170 26
Income From Operations of Discontinued Oil and
Gas Division, Net of Applicable Taxes of $2 - -
------- ------
Income (Loss) Before Cumulative Effect
of Accounting Changes /(1)/ 170 26
Cumulative Effect of Accounting Changes /(2)/ - -
------- ------
Net Income (Loss) 170 26
Preferred Stock Dividends (6) -
------- ------
Income (Loss) Applicable to Common Shares $ 164 $ 26
======= ======
</TABLE>
. The 1996 results included an after-tax charge of $61 million associated with
the Copper/Molybdenum segment primarily for environmental remediation, and
costs to temporarily close the Tohono mine. Additionally, Amax Gold wrote
down its Guanaco mine in Chile and recorded an unrelated favorable tax
adjustment, which reduced Cyprus Amax's after-tax earnings by $13 million.
. 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.
22
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA (Continued)
(In millions except as noted and per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Per Share Data
Primary Earnings (Loss) Per Common Share
Income (Loss) From Continuing Operations /(1)/ $ 0.62 $ 1.13 $ 1.59 $ 1.85 $ (6.31) $ 0.72
Income From Operations of Discontinued Oil
and Gas Division - - .10 - - -
Cumulative Effect of Accounting Changes /(2)/ - - - - (2.15) -
------- ------- ------- ------- ------- -------
Net Income (Loss) $ 0.62 $ 1.13 $ 1.69 $ 1.85 $ (8.46) $ 0.72
======= ======= ======= ======= ======= =======
Cash Dividends Per Common Share $ 0.80 $ 0.80 $ 0.90 $ 0.80 $ 0.85 $ 0.80
Consolidated Balance Sheet Data
Cash and Cash Equivalents $ 193 $ 191 $ 139 $ 96 $ 116 $ 98
Working Capital $ 304 $ 292 $ 423 $ 41 $ 336 $ 299
Total Assets $ 6,786 $ 6,196 $ 5,407 $ 5,618 $ 1,709 $ 1,984
Long-Term Debt $ 2,415 $ 1,734 $ 1,191 $ 1,278 $ 232 $ 239
Capital Lease Obligations $ 139 $ 143 $ 200 $ 69 $ - $ -
Shareholders' Equity $ 2,360 $ 2,365 $ 2,329 $ 2,217 $ 923 $ 1,290
Other Financial Data
Book Value Per Common Share $ 23.43 $ 23.62 $ 23.39 $ 22.49 $ 21.22 $ 30.23
Long-Term Debt/Total Capitalization 52.0% 44.2% 37.4% 37.8% 20.1% 15.6%
Current Ratio 1.4:1 1.4:1 1.7:1 1.0:1 2.2:1 2.0:1
Cash Provided by Operations $ 269 $ 675 $ 110 $ 74 $ 143 $ 285
Stock Price - Common Stock /(3)/
High $ 29 $ 32 1/8 $ 33 $ 36 3/8 $ 32 $ 25
Low $ 19 $ 24 1/4 $ 23 $ 21 1/4 $ 18 1/2 $ 17 1/2
<CAPTION>
1990 1989 1988 1987
------ ------ ------ ------
<S> <C> <C> <C> <C>
Per Share Data
Primary Earnings (Loss) Per Common Share
Income (Loss) From Continuing Operations /(1)/ $ 2.38 $ 5.67 $ 4.21 $ 0.68
Income From Operations of Discontinued Oil
and Gas Division - - - -
Cumulative Effect of Accounting Changes /(2)/ - (1.80) - -
------- ------- ------- -------
Net Income (Loss) $ 2.38 $ 3.87 $ 4.21 $ 0.68
======= ======= ======= =======
Cash Dividends Per Common Share $ 0.80 $ 0.73 $ 0.20 $ -
Consolidated Balance Sheet Data
Cash and Cash Equivalents $ 39 $ 44 $ 163 $ 8
Working Capital $ 336 $ 251 $ 343 $ 243
Total Assets $ 1,919 $ 1,841 $ 1,651 $ 1,148
Long-Term Debt $ 246 $ 108 $ 120 $ 115
Capital Lease Obligations $ - $ - $ - $ -
Shareholders' Equity $ 1,284 $ 1,294 $ 1,204 $ 850
Other Financial Data
Book Value Per Common Share $ 30.33 $ 28.69 $ 25.62 $ 21.95
Long-Term Debt/Total Capitalization 16.1% 7.7% 9.1% 12.0%
Current Ratio 2.5:1 2.0:1 2.6:1 3.5:1
Cash Provided by Operations $ 199 $ 304 $ 271 $ 62
Stock Price - Common Stock /(3)/
High $ 28 1/2 $ 33 $ 24 $ 20
Low $ 13 7/8 $ 21 3/8 $ 13 1/8 $ 9 3/8
</TABLE>
/(1)/ Financial information reflects an after-tax charge of $74 million for
environmental remediation liabilities, costs to temporarily close a
copper mine, the write-down of the net assets of the Guanaco gold mine,
and an unrelated favorable tax adjustment for Amax Gold in 1996; 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.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations for the Three Years Ended December 31, 1996
Cyprus Amax earned $77 million in 1996, or 62 cents per share, compared with
1995 earnings of $124 million, or $1.13 per share, and 1994 earnings of $175
million, or $1.69 per share. The 1996 results included an after-tax charge of
$61 million primarily for environmental remediation at the Miami, Arizona,
operation and costs to temporarily close the Tohono mine in Arizona. In
addition, Amax Gold wrote down its Guanaco mine and recorded an unrelated
favorable tax adjustment that reduced Cyprus Amax's after-tax earnings by $13
million. The 1995 results included an after-tax charge of $338 million to
recognize the third quarter write-downs of certain coal assets and provisions
for associated liabilities. The 1994 results included a net $13 million after-
tax gain for several special items.
Excluding the write-downs and special items, the 1996 earnings were $151
million, or $1.42 per share, compared with 1995 earnings of $462 million, or
$4.77 per share, and 1994 earnings of $162 million, or $1.55 per share.
<TABLE>
<CAPTION>
Selected Results (In millions except per share data)
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Revenue $2,843 $3,207 $2,788
Net Income $ 77 $ 124 $ 175
Earnings per Share $ .62 $ 1.13 $ 1.69
<CAPTION>
Note: Supplemental Data (In millions)
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Special Items, Net of Tax $ (74) $ (338) $ 13
Net Income Excluding Special Items $ 151 $ 462 $ 162
</TABLE>
The decrease in earnings in 1996, excluding special items, reflected 29 cents
per pound lower copper realizations, $2.28 per pound lower molybdenum
realizations and 56 cents per ton lower coal realizations. The earnings
improvement in 1995, excluding write-downs, resulted from 24 cents per pound
higher copper realizations, 78 million pounds higher produced copper sales, 7
cents per pound lower copper cost of sales, and improved primary molybdenum
earnings of $122 million.
The 1996 revenue of $2,843 million was 11 percent lower than 1995 revenue of
$3,207 million because of lower copper and molybdenum realizations. Revenue in
1995 was 15 percent higher than the 1994 revenue of $2,788 million because of
higher copper and molybdenum realizations.
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.
Segment Results
Segment operating earnings is income 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 32 to 35, the
information on write-downs and special charges in Note 4 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)
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Segment Operating Earnings (Loss)
Copper/Molybdenum $ 151 $ 584 $ 206
Coal 90 (308) 106
Other (32) (37) 40
------ ------ -----
Total Segment Operating Earnings $ 209 $ 239 $ 352
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
Note: Supplemental Data (In millions)
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Segment Earnings (Loss) Excluding Special Items:
Copper/Molybdenum $ 231 $ 584 $ 219
Coal 90 137 116
Other 4 (37) 1
----- ----- -----
Total Segment Earnings $ 325 $ 684 $ 336
===== ===== =====
</TABLE>
Copper/Molybdenum earned $151 million, $433 million less than the $584 million
it earned in 1995. The 1996 earnings included an $80 million pretax charge
primarily for environmental remediation activities, costs to temporarily close
the Tohono mine, and other adjustments in the primary molybdenum business.
Earnings, excluding the 1996 special items, declined due to lower copper and
molybdenum realizations, and higher copper cost of sales due to lower molybdenum
by-product credits. Coal reported earnings for 1996 of $90 million compared
with a segment operating loss of $308 million in 1995. The 1995 loss included a
$445 million pretax charge for write-downs of certain coal assets and provisions
for associated liabilities. The decrease in current year operating earnings as
compared to 1995 excluding the write-downs was due to a year-end 1995 coal
contract expiration and renegotiation at Kentucky operations, which negatively
affected 1996 earnings by $39 million; adverse weather in the East and Midwest;
and poor mining conditions and lower realizations at the Wabash mine. The Other
segment (lithium, Amax Gold (AGI), iron ore, exploration, and businesses
sold/non-operating) reported a combined loss of $32 million compared with a loss
of $37 million in 1995. The 1996 loss included a $36 million write-down of the
net asset value of
24
<PAGE>
Guanaco mine in Chile. Lithium earned a record $30
million in 1996, 9 percent more than the previous record of $28 million set in
1995. Amax Gold's operating loss for 1996, including the write-down, was $36
million, compared with $14 million in 1995. Exploration expense of $20 million
was $13 million lower than the 1995 expense due to gains relating to the sale of
Cerro Quema, an exploration project in Panama, and certain other small
properties.
Copper/Molybdenum
Selected Copper/Molybdenum Data (In millions)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenue $1,331 $1,720 $1,327
Segment Operating Earnings $ 151 $ 584 $ 206
Total Copper Production, Lbs. 768 687 648
Total Copper Sales, Lbs. 893 828 831
Produced Copper Sales, Lbs. 744 723 645
Total Molybdenum Production, Lbs. 56 75 57
Total Molybdenum Sales, Lbs. 63 68 90
Produced Molybdenum Sales, Lbs. 63 68 77
Average Copper Realization, $/Lb. $ 1.04 $ 1.33 $ 1.09
Copper Cost of Sales, $/Lb. $ .81 $ .71 $ .78
Copper Net Cash Costs, $/Lb. $ .71 $ .57 $ .69
Copper Full Mine Costs, $/Lb. $ .80 $ .66 $ .77
Average Molybdenum Realization, $/Lb. $ 5.25 $ 7.53 $ 3.77
</TABLE>
Copper/Molybdenum reported segment earnings of $151 million for 1996 compared
with $584 million in 1995. During the fourth quarter, Copper/Molybdenum
recorded an $80 million pretax charge primarily for environmental remediation
activities at its Miami, Arizona, copper mine for long term clean-up efforts at
Pinal Creek. The charge also included costs to temporarily suspend operations
at the Tohono mine near Casa Grande, Arizona, and certain other minor
adjustments in the primary molybdenum business. Currently, plans and project
economics are being developed to evaluate the feasibility of mining the
significant copper resource at Tohono. Until a decision is made, the mine will
draw down current leach inventory and will be placed on stand-by status.
Excluding the special items, the Copper/Molybdenum segment reported earnings of
$231 million in 1996, $353 million less than 1995 earnings of $584 million. The
decrease was attributed to 29 cents per pound lower copper realizations, $2.28
per pound lower molybdenum realizations, and 10 cents per pound higher copper
cost of sales due to lower molybdenum by-product credits. The 1994 results
included a pretax charge of $13 million for workforce reduction programs at
Miami and Bagdad.
Note: Supplemental Data (In millions)
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- ------
<S> <C> <C> <C>
Special Items $ (80) $ - $ (13)
Segment Earnings Excluding Special Items $ 231 $ 584 $ 219
</TABLE>
Copper realizations in 1996 averaged $1.04 per pound for the year, compared with
$1.33 in 1995. Cyprus Amax has price protection programs in place that will
ensure a minimum net average realization on an LME basis of 96 cents per pound
on 550 million pounds for 1997. During 1996 Cyprus Amax sold 150 million pounds
of 1997 copper price protection contracts generating $21 million of proceeds,
which will increase copper realizations and income during the periods in 1997 to
which the original contracts were applicable. Cyprus Amax periodically may
elect to buy or sell copper price protection contracts to mitigate the risk of
metal price declines on a portion of its future copper sales. Additionally, the
price protection program for El Abra ensures a minimum net average realization
on an LME basis of 90 cents in 1997 on approximately 400 million pounds with a
cap of $1.25 per pound on approximately 145 million pounds. Cyprus Amax's share
of El Abra is 51 percent.
For the year 1996, net cash costs, before molybdenum credits, improved five
cents per pound compared with the full year 1995, primarily because of lower
production costs at Cerro Verde, lower smelting and refining costs, and the
lower cost production from El Abra in December 1996. Reflecting lower
molybdenum prices, by-product credits were 19 cents per pound lower. Total 1996
net cash costs were 71 cents per pound, compared with 57 cents per pound in
1995.
Cost of sales increased 10 cents per pound from 1995 to 81 cents per pound for
1996 due to lower molybdenum by-product credits. Copper production totalled 768
million pounds for the year, 81 million pounds more than in 1995 due to a 64
percent increase in production at Cerro Verde, the addition of El Abra
production in December 1996, and a 20 million pound increase from domestic
operations. Cyprus Amax expects copper production to increase to one billion
pounds in 1997.
Demand for copper continued to grow for the eleventh consecutive year in 1996.
The year-end 1996 combined LME and Comex inventories of 168,000 short tons were
down over 50 percent from year-end 1995 levels.
Total Cyprus Amax copper sales in 1996 of 893 million pounds were 8 percent
higher than the 1995 sales of 828 million pounds. Produced copper sales of 744
million pounds for 1996 were 21 million pounds higher than 1995 produced sales
of 723 million pounds due to an 81 million pound increase in production and an
inventory increase.
25
<PAGE>
The Cerro Verde mine in Peru, 82 percent owned by Cyprus Amax, completed its
expansion in mid-1996, and during the fourth quarter it operated above its
expanded design capacity of 105 million annual pounds. The Cerro Verde mine
produced 105 million pounds in 1996. The Cerro Negro oxide deposit, which lies
adjacent to the current Cerro Verde leach pad, continues to show considerable
promise for development. Additional studies are in progress with completion
expected in late 1997. Additionally, in early 1996, Compania de Minas
Buenaventura S.A., a Peruvian mining concern, exercised its option to acquire 10
percent of Cyprus Amax's interest in Cerro Verde which decreased Cyprus Amax's
share to 82 percent.
The El Abra mine, owned 51 percent by Cyprus Amax, achieved commercial
operations on December 1, 1996. The total commitment to develop this world-
class leachable oxide copper operation was about $1 billion, and the project was
completed on budget and about seven months ahead of schedule. During its first
month of commercial production, El Abra produced 42 million pounds, of which
Cyprus Amax's share was 21 million pounds. El Abra is expected to produce
annually about 250 million pounds of copper (Cyprus Amax's share).
Molybdenum operations, excluding special items, earned $58 million in 1996
compared with $153 million in 1995. Production decreased to 56 million pounds
from 75 million pounds, and sales decreased to 63 million pounds from 68 million
pounds in 1995. Realizations in 1996 averaged $5.25 per pound compared with
$7.53 per pound in 1995.
Molybdenum demand in the Western World was somewhat weaker compared with the
record levels of 1995 primarily reflecting lower stainless steel requirements.
Chemical products continue to show demand strength in almost every application.
Estimates for Western World production in 1996 are about 10 percent lower than
1995, and world molybdenum inventories appear to have declined throughout the
year.
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 cent
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 $77 million at 1996 production and sales levels. Put options in
place for 1997 would partially offset the exposure to significant price
decreases. For molybdenum, each $1.00 per pound change in average annual
molybdenum margin would have resulted in a change in pretax income of
approximately $60 million at 1996 production and sales levels. The impact on
profits is delayed about three months on about 50 percent of Cyprus molybdenum
production since the profit on by-product production is recognized when copper
inventories are sold.
Coal
Selected Coal Data (In millions)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenue $1,284 $1,298 $1,248
Segment Operating Earnings (Loss) $ 90 $ (308) $ 106
Coal Production, Tons
- Consolidated Coal Mines 76.4 75.2 75.1
- Oakbridge (41% Share) 5.7 5.5 4.1
Coal Sales, Tons
- Eastern Mines 29.1 29.4 28.0
- Powder River Basin 35.6 35.7 35.5
- Western Mines 12.3 12.5 12.1
- Springvale .9 - -
------ ------ ------
Total Sales 77.9 77.6 75.6
- Oakbridge (41% Share) 6.2 6.1 5.1
Average Realization, $/Ton $15.69 $16.25 $16.12
Average Cost of Sales, $/Ton $14.90 $14.73 $14.69
Average Cash Costs, $/Ton $13.03 $12.19 $12.21
Average Unit Costs, $/Ton $15.10 $14.34 $14.40
</TABLE>
Coal reported segment operating earnings of $90 million for the year compared
with an operating loss of $308 million in 1995. 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.
Note: Supplemental Data (In millions)
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ ------
<S> <C> <C> <C>
Special Items $ - $(445) $ (10)
Segment Earnings Excluding Special Items $ 90 $ 137 $ 116
</TABLE>
Excluding the Special Items, Coal earnings were $90 million in 1996, a record
$137 million in 1995, and $116 million in 1994. The lower operating earnings in
1996 were due to a year-end 1995 contract expiration and renegotiation at
Kentucky operations, which negatively affected 1996 earnings by $39 million;
adverse weather in the East and Midwest; and poor mining conditions and lower
realizations at the Wabash mine. Higher operating earnings in 1995 are
attributable to an additional 2 million tons of sales, primarily in Pennsylvania
and West Virginia, a gain of $6 million from asset sales, and a slightly
improved profit margin.
26
<PAGE>
Coal production, including Cyprus Amax's 41 percent share of Oakbridge, Ltd., of
82 million tons and sales of 84 million tons in 1996 were 1 million tons higher
and equal to the 1996 period, respectively. Eleven mines set annual production
records in 1996. The Company expects that 1997 production will increase to
about 93 million tons, including Cyprus Amax's share of Oakbridge, Ltd. in
Australia.
The 1996 average realization was $15.69 per ton and the average cost of sales
was $14.90 per ton. This resulted in a profit margin of 79 cents per ton for
the year and a cash margin of $2.66 per ton. This compares with an average
realization of $16.25 and an average cost of sales of $14.73, yielding a profit
margin of $1.52 per ton and a cash margin of $4.06 per ton for 1995.
In February 1996, Cyprus Amax acquired a 50 percent interest in the Springvale
underground coal mine in New South Wales, Australia, for $70 million. The
production from Springvale is sold mainly to the domestic Australian electric
generating market. The Pacific Rim export coal market is a target for expanded
production.
The development of the Willow Creek mine in Utah is progressing on schedule and
within budget. Approximately $50 million of the $130 million project was spent
through 1996, and completion is expected in early 1998. It is anticipated that
annual production will be approximately 5 million tons.
Demand during 1996 remained strong, and United States coal production in 1997 is
expected to be 2 to 3 percent higher than 1996. Cyprus Amax expects Western
railroad rates to be competitive and to enhance the market penetration of the
Powder River Basin and Colorado low sulfur coals further south and east.
More than 90 percent of Cyprus Amax coal is marketed to electric utilities with
the vast majority of customers in the United States. During 1996, Cyprus Amax
committed to 13 contracts, ranging from one to 10 years, for cumulative tons of
approximately 30 million, with annual tonnage of 10 million in 1997. In excess
of 90 percent of 1997 domestic production is committed for sale, with
approximately 91 percent to be shipped under contracts with an initial term of
at least one year.
Cyprus Amax's coal reserves totalled 2.5 billion tons (including Cyprus Amax's
41 percent share of Oakbridge) at December 31, 1996. Domestic reserves of 1.6
billion tons are developed and assigned to operating mines and are comprised of
approximately 76 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.
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 1996 Oakbridge's
production of 6 million tons (Cyprus Amax's 41 percent share) was slightly
higher than 1995 production. The mines generally operated well, however, full
year results were constrained by weak spot coal selling prices and higher
demurrage expense.
In June 1996, Cyprus Amax reached an agreement in which Central Illinois Public
Service Company ("CIPS") would discontinue coal purchases from the Delta mine in
Illinois and pay Cyprus Amax Minerals $70 million under a restructured
agreement. Cyprus Amax ceased shipping coal from Delta and closed the mine in
August 1996 due to its high cost structure and limited marketing opportunities.
In February 1997, Cyprus Amax received the $70 million payment.
In February 1997, Cyprus Amax announced that its subsidiary, Amax Coal Company,
had entered into a preliminary agreement, which is expected to lead to the
assignment of a coal supply agreement for its Wabash mine. This transaction is
not expected to have a significant impact on 1997 earnings. The annual earnings
impact of the future cash payments is expected to exceed the mine's 1996
earnings. Under the coal supply agreement, Wabash was committed to supply up to
3.6 million tons of coal annually to PSI Energy, Inc.
Other
Selected Results (In millions)
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Lithium $ 30 $ 28 $ 23
Amax Gold (36) (14) -
Iron Ore - - 34
Exploration (20) (33) (12)
Businesses Sold/Non-Operating (6) (18) (5)
----- ----- -----
Segment Operating Earnings (Loss) $ (32) $ (37) $ 40
===== ===== =====
Note: Supplemental Data (In millions)
Special Items $(36) $ - $ 39
===== ===== =====
</TABLE>
Other Minerals, which includes Lithium, Amax Gold, Iron Ore, Exploration, and
Businesses Sold/Non-Operating, reported a combined loss for the year of $32
million, including special items, compared with a loss of $37 million
27
<PAGE>
in 1995. In the fourth quarter of 1996, Amax Gold wrote down the net asset value
of the Guanaco mine in Chile by $36 million. Other Minerals had a combined loss
for 1995 of $37 million compared with earnings of $40 million in 1994. The 1994
results included special items of $39 million, reflecting gains on the sale of
Northshore and an exploration project.
Lithium earned a record $30 million in 1996, 9 percent more than the previous
record of $28 million set in 1995. This resulted from strong lithium carbonate
and downstream product sales. Due to an increased supply of lithium carbonate
added to the market late in 1996, realizations have decreased in early 1997.
Including the above-mentioned write-down, Amax Gold's 1996 operating loss was
$36 million. Amax Gold's operating results, excluding the write-down, were
essentially break-even for the year 1996 compared with a $14 million loss for
1995. The improvement resulted from a 10 percent increase in sales volumes,
slightly higher realizations, and 9 percent lower unit costs.
In November 1996, Cyprus Amax increased its ownership in Amax Gold from 51
percent to 52.5 percent by exercising its option to convert to stock,
outstanding interest and a guarantee fee related to financing arrangements. For
1996 Amax Gold produced 268,000 ounces of gold compared with 1995 production of
238,000 ounces and 1994 production of 241,000 ounces. Amax Gold's average
realized price was $412 per ounce in 1996, $406 per ounce in 1995, and $401 per
ounce in 1994. AGI's average cash operating costs were reduced to $255 per
ounce in 1996 from $313 per ounce in 1995 and $329 per ounce in 1994.
Construction of the Refugio mine in Chile was completed in 1996; however, start-
up was delayed by mechanical problems with the secondary and tertiary crushers
and a collapse in the fill underlying the fine ore storage bin. These issues
were resolved in the third quarter of 1996, and the mine commenced commercial
production on October 1, 1996. The Refugio mine operated above plan for the
fourth quarter of 1996, producing 31,000 ounces for Amax Gold's account.
Construction of the Fort Knox mine near Fairbanks, Alaska, was essentially
completed in early 1997, and commercial production is expected in early 1997.
During December, Fort Knox poured its first gold. Additionally, Amax Gold
shareholders approved the acquisition of Cyprus Amax's 50 percent ownership
interest in the Kubaka gold mine in Russia, and the transaction is expected to
be completed in early 1997. Cyprus Amax will receive 11.8 million shares of
Amax Gold stock upon completion of the transaction and another 4.2 million
shares when the Kubaka mine reaches commercial production. The transfer of all
16 million shares will increase Cyprus Amax's ownership interest in Amax Gold to
approximately 59 percent. The first gold was poured at Kubaka during February
1997. With the addition of these mines, Amax Gold should produce, starting in
the second quarter of 1997, at an annual rate of nearly 700,000 ounces.
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.
Exploration expense of $20 million in 1996 was $13 million lower than last year
due to gains relating to the sale of Cerro Quema, an exploration project in
Panama, and certain other small properties. Exploration expenditures primarily
funded projects in Peru, Indonesia, Australia, Canada, the United States,
Mexico, Chile, Central America, and Africa/Eurasia. In January 1997, Cyprus
Amax announced an agreement with Zambia Consolidated Copper Mines to acquire 80
percent of the Kansanshi copper mine and deposit. Cyprus Amax expects to
finalize the agreement in March 1997.
Businesses Sold/Non-Operating loss decreased to $6 million in 1996 from $18
million in 1995 due to the absence of environmental expenses and other
adjustments related to the 1994 sale of oil and gas assets.
Corporate and Other
Corporate expenses of $57 million for 1996 were comparable to 1995. Corporate
expenses for 1995 were $57 million or $12 million higher than the same period in
1994, primarily due to an increased provision for incentive compensation, higher
outside costs for process improvement projects, severance costs, and inflation.
Net interest expense, after capitalized interest and interest income, increased
$8 million to $78 million in 1996. Interest expense increased $52 million to
$189 million due to increased borrowings for El Abra, Fort Knox, Cerro Verde,
and Kubaka, and a full year of interest expense on the 7 3/8 percent Notes
issued in May 1995. Capitalized interest increased $40 million to $83 million
due to the continued construction at El Abra, Fort Knox, and Kubaka. Interest
income increased by $4 million to $28 million in 1996. For 1995, net interest
expense of $70 million decreased $4 million from 1994, due to higher interest
income of $7 million.
Equity earnings of $3 million in 1996 declined $5 million from 1995 primarily
due to lower metal prices that affected a 50 percent owned metals recovery
operation in Louisiana. Oakbridge's equity earnings of $7 million for 1996 were
comparable to 1995 earnings. Equity earnings of $8 million for 1995 improved
$20 million from 1994 earnings primarily due to the consolidation of Amax Gold's
1995 loss and an $8 million improvement in Oakbridge's results to $7 million.
Income tax expense, including special items, was $11 million for the full year
1996, which included a favorable tax adjustment of $10 million recorded by Amax
Gold. Income tax expense was $3 million for the full year 1995, which reflected
utilization of investment tax credits.
28
<PAGE>
While general inflation rates have remained steady at about 3 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 whose price changes are not
related generally to 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. During 1996, Cyprus Amax embarked on a company-wide quality
and efficiency initiative, Quest 21, that is improving our systems and processes
and is expected to further reduce costs.
Environmental
During 1996, Cyprus Amax spent approximately $154 million for reclamation,
remediation, and environmental compliance compared with 1995 environmental
expenditures of about $125 million. About $39 million of the total 1996
spending was for capital expenditures, and $76 million of the total spending was
charged to reserves. About $16 million of the 1996 environmental expenditures
are Cyprus Amax's share of costs for the installation of pollution control
devices and other special environmental measures for the El Abra copper project.
Environmental expenditures in 1997 are expected to total about $125 million with
the decrease from 1996 spending largely attributable to the completion of
construction at El Abra.
At December 31, 1996, Cyprus Amax had short-term and long-term accruals of
approximately $424 million for expected mine closure, reclamation, and
environmental remediation liabilities compared with accruals of $411 million at
year-end 1995. Significant components of the year-end 1996 accrual include $117
million for environmental remediation at Superfund and other similar sites.
The reserves for future reclamation and closure include $169 million for Coal,
$115 million for Copper/Molybdenum and $23 million for Other. Significant
elements of the reclamation and closure reserves include $51 million for the
Climax molybdenum mine and $32 million for the Delta coal mine.
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 that 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 $80 million to $300 million, of
which $117 million is considered probable and has been accrued at December 31,
1996. Certain Superfund-type sites and mine reclamation liabilities are
discussed in Note 14 to the Consolidated Financial Statements.
Liquidity and Capital Resources
At December 31, 1996, Cyprus Amax's long-term debt was 52 percent of total
capitalization, its current assets to current liabilities ratio was 1.4 to 1.0,
and its cash balance was $193 million.
During 1996, $397 million was generated from operating activities, before
changes in working capital; $396 million from financings relating to El Abra,
Fort Knox, Cerro Verde, Kubaka, and Springvale; $350 million from the newly
placed five-year term loan facility; $150 million from the sale of copper,
molybdenum, and coal receivables; and $21 million from the sale of copper price
protection contracts. Those sources of funds were sufficient to finance cash
requirements for capital expenditures of $856 million, interest payments of $193
million, dividend payments of $93 million, and the acquisition of Springvale for
$70 million.
In December 1996, Cyprus Amax obtained a five-year $350 million term loan, which
can be prepaid at the Company's option. The funds were used for the completion
of the 1996 capital program, including repayment of certain short-term debt. At
December 31, 1996, the full amount had been borrowed.
In October 1996, Cyprus Amax sold $150 million of its copper, molybdenum, and
coal receivables. The funds were primarily used for the 1996 capital program.
During the second quarter of 1996, Springvale obtained financing for $88 million
to cover the acquisition cost plus near-term capital and working capital needs.
At December 31, 1996, the full amount had been borrowed.
In 1996, Amax Gold renegotiated its $250 million Fort Knox loan agreement. 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. The lenders waived certain restrictive covenants and reduced the
interest rate. In return for the increased financial support, Cyprus Amax
receives certain fees, the interest differential, and a security interest in
certain Amax Gold assets. At December 31, 1996, the full amount had been
borrowed.
Additionally during 1996, Cyprus Amax provided Amax Gold with a demand loan
facility to fund additional costs at the Fort Knox project and for general
corporate purposes, with such funding to be provided at the discretion of Cyprus
Amax. At December 31, 1996, Cyprus Amax had loaned Amax Gold $130 million. In
November 1996, Cyprus Amax received
29
<PAGE>
2,771,098 shares from Amax Gold as payment of a $10 million guaranty and
financing fee and interest and interest differential payments. As a result of
this transaction, Cyprus Amax increased its ownership in Amax Gold to 52.5
percent.
In 1995, Cyprus Amax obtained $750 million in project financing for construction
and development of the El Abra copper mine project in Chile. The project
financing consists of $500 million provided by Japanese and German companies,
all on a 12-year term, and $250 million provided by a consortium of commercial
banks on a 10-year term. Cyprus Amax has guaranteed completion of the oxide
mine. At December 31, 1996, $750 million of borrowings were outstanding on this
financing arrangement of which Cyprus Amax's proportionally consolidated share
was $383 million.
During 1996, $89 million was repaid on the Cerro Verde $110 million short-term
line of credit in Peru, of which $37 million had been borrowed during 1996.
This line of credit is guaranteed by Cyprus Amax. In addition, $9 million was
outstanding on an additional $10 million short-term line of credit. At December
31, 1996, $22 million remained outstanding under this line of credit. During
1996, Cerro Verde completed two additional lines of credit in Peru, for $80
million each, which are guaranteed by Cyprus Amax. At December 31, 1996, $80
million, reflected as long-term, had been borrowed on one of the lines of
credit.
During 1995, the partners in the Kubaka gold project in Russia, of which Cyprus
Amax has a 50 percent ownership interest, 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. In
January 1997, an additional $30 million was obtained for project financing
bringing the total project financing to $130 million. Cyprus Amax has
guaranteed both debts until economic completion tests are achieved. OPIC is
also providing political risk insurance. During 1996, Omolon Gold Mining
Company, the joint venture, borrowed $14 million, and Cyprus Amax has guaranteed
the debt. At December 31, 1996, $114 million had been borrowed of which Cyprus
Amax's proportionally consolidated share was $57 million.
In 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. At
December 31, 1996, $76 million was outstanding, of which Amax Gold's portion was
$38 million.
The Company has a revolving credit agreement that provides a $1 billion line of
credit and at December 31, 1996, the Company had no loans outstanding.
Non-cash working capital increased to $111 million during 1996 from $101 million
in 1995. Short-term debt and the current portion of long-term debt decreased by
$57 million, primarily due to the repayment of Cerro Verde borrowings of $41
million and the repayment of coal production payments of $25 million.
Inventories increased primarily due to the commencement of El Abra commercial
production in December 1996, which increased product inventory and materials and
supplies inventory, a build up in copper inventory, partially offset by a
drawdown in molybdenum inventories. Accounts and notes receivable decreased
$104 million primarily due to the sale of copper, molybdenum, and coal
receivables.
In 1996 capital expenditures excluding capitalized interest, totalled $856
million, with $490 million invested in the five major development projects.
Total capital expenditures for Copper/Molybdenum were about $397 million, of
which construction costs at El Abra for the continued development of the oxide
ore body were $135 million and capital expenditures at Cerro Verde for the SX-EW
and leach expansion were $116 million. Major expenditures at the Arizona copper
mines included $25 million for the acid plant optimization at Miami and the new
crusher and conveyor system at Sierrita.
Coal capital expenditures of $195 million included $39 million for the
development of the Twentymile East Mine district and a new longwall and
conveyance system, approximately $37 million for development of the Willow Creek
mine in Utah, and the remainder for sustaining and replacement capital. Other
capital expenditures included Amax Gold's expenditures of $173 million primarily
for the Fort Knox project and $12 million for the Refugio project.
Additionally, $54 million was spent on the Kubaka project.
Capital spending in 1997 is expected to decrease significantly to approximately
$400 million. Copper/Molybdenum capital expenditures are estimated at $160
million, with approximately $25 million at El Abra and Cerro Verde, $8 million
at Sierrita for the new crusher and conveyor system, $13 million for initial
expenditures at Henderson to replace ore trains with conveyors, and the
remainder for sustaining and replacement capital at the Arizona mines and
deferred stripping. Coal expects to spend approximately $125 million in 1997,
including $60 million in Utah primarily for the continued development of the
Willow Creek mine. Amax Gold's capital expenditures are estimated at $70
million, with approximately $40 million for continued development of the Fort
Knox project and $30 million for the Kubaka project.
With capital spending expected to decrease in 1997 and with the anticipated
higher copper production and lower costs, Cyprus Amax expects to generate
sufficient funds for general corporate purposes, capital expenditures, and to
begin to pay down debt. Cyprus Amax paid regular dividends of $.80 per common
share and $4.00 per preferred share during 1996.
30
<PAGE>
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
With the exception of historical matters, the matters discussed in this report
are forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from projected results. In addition,
other written or oral statements which constitute forward-looking statements
have been made and may in the future be made by or on behalf of the Company.
Such forward-looking statements include statements regarding expected
commencement dates of mining or metal production operations, projected
quantities of future metal production, estimated reserves and recovery rates,
and anticipated production rates, costs and expenditures as well as projected
demand or supply for the products the Company produces, which will affect both
sales levels and prices realized by the Company. Factors that could cause actual
results to differ materially include, among others: risks and uncertainties
relating to general domestic and international economic and political
conditions, the cyclical and volatile prices of copper, molybdenum, gold and
other minerals, the risks associated with having or not having price protection
programs, the political and economic risks associated with foreign operations,
unanticipated ground and water conditions, unanticipated grade and geological
problems, metallurgical and other processing problems, availability of materials
and equipment, the timing of receipt of necessary governmental permits, the
ability to retain and obtain favorable coal contracts, the occurrence of unusual
weather or operating conditions, force majeure events, lower than expected ore
grades, the failure of equipment or processes to operate in accordance with
specifications or expectations, labor relations, accidents, delays in
anticipated start-up dates, environmental risks, the results of financing
efforts and financial market conditions, and other risk factors detailed in the
Company's Securities and Exchange Commission filings. Many of such factors are
beyond the Company's ability to control or predict. Readers are cautioned not
to put undue reliance on forward-looking statements. The Company disclaims any
intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.
31
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
(In millions except per share data) 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenue $2,843 $3,207 $2,788
------ ------ ------
Costs and Expenses
Cost of Sales 2,074 2,108 2,071
Selling and Administrative Expenses 128 143 111
Depreciation, Depletion, and Amortization 339 296 253
Write-Downs and Special Charges 116 445 10
Merger and Reorganization Expenses - - 13
Exploration Expense 34 33 23
------ ------ ------
Total Costs and Expenses 2,691 3,025 2,481
------ ------ ------
Income From Operations 152 182 307
Other Income (Expense)
Interest Income 28 24 17
Interest Expense (189) (137) (107)
Capitalized Interest 83 43 16
Earnings (Loss) on Equity Investments and Other 3 8 (12)
------ ------ ------
Income From Continuing Operations
Before Income Taxes and Minority Interest 77 120 221
Income Tax Provision (11) (3) (55)
Minority Interest 11 7 -
------ ------ ------
Income From Continuing Operations 77 124 166
Income From Operations of Discontinued Oil and
Gas Division, Net of Applicable Taxes of $2 - - 9
Net Income 77 124 175
Preferred Stock Dividends (19) (19) (18)
------ ------ ------
Income Applicable to Common Shares $ 58 $ 105 $ 157
====== ====== ======
Earnings Per Common Share
Primary and Fully Diluted/(1)/
Income From Continuing Operations $0.62 $1.13 $1.59
Income From Operations of Discontinued Oil and
Gas Division, Net of Taxes - - .10
------ ------ ------
$0.62 $1.13 $1.69
Weighted Average Common Shares Outstanding
Primary 93 93 93
Fully Diluted 103 103 102
</TABLE>
/(1)/ Fully diluted earnings per share were anti-dilutive in 1996, 1995 and
1994.
The accompanying notes are an integral part of these statements.
32
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31 (In millions except share amounts) 1996 1995
-------- --------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 193 $ 191
Accounts and Notes Receivable, Net 216 320
Inventories 495 447
Prepaid Expenses 145 119
Deferred Income Taxes - 13
-------- --------
Total Current Assets 1,049 1,090
-------- --------
Properties - At Cost, Net 5,226 4,601
Other Assets 511 505
-------- --------
Total Assets $ 6,786 $ 6,196
======== ========
Liabilities and Shareholders' Equity
Current Liabilities
Short-Term Debt $ 36 $ 109
Current Portion of Long-Term Debt 79 63
Accounts Payable 142 157
Accrued Payroll and Benefits 94 98
Accrued Royalties and Interest 41 55
Accrued Closure, Reclamation, and Environmental 61 63
Other Accrued Liabilities 143 115
Taxes Payable Other Than Income Taxes 61 58
Income Taxes Payable 69 61
Dividends Payable 19 19
-------- --------
Total Current Liabilities 745 798
-------- --------
Noncurrent Liabilities and Deferred Credits
Long-Term Debt 2,415 1,734
Capital Lease Obligations 139 143
Deferred Employee and Retiree Benefits 412 412
Deferred Closure, Reclamation, and Environmental 363 348
Deferred Income Taxes 44 58
Other 151 170
-------- --------
Total Noncurrent Liabilities and Deferred Credits 3,524 2,865
-------- --------
Commitments and Contingencies (Notes 14 and 16) - -
Minority Interest 157 168
-------- --------
Shareholders' Equity
Preferred Stock, $1 Par Value, 20,000,000 Shares Authorized:
$4.00 Series A Convertible Stock, $50 Stated Value,
4,664,302 Shares Issued in 1996 and 4,664,783 in 1995 5 5
Common Stock, Without Par Value, 150,000,000 Shares Authorized,
96,031,139 Shares Issued in 1996 and 96,030,198 in 1995 1 1
Paid-In Surplus 2,952 2,956
Accumulated Deficit (481) (465)
Other 5 2
-------- --------
2,482 2,499
Treasury Stock at Cost, 2,788,535 Shares in 1996
and 3,066,615 in 1995 (64) (70)
Loan to Savings Plan (58) (64)
-------- --------
Total Shareholders' Equity 2,360 2,365
-------- --------
Total Liabilities and Shareholders' Equity $ 6,786 $ 6,196
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (In millions) 1996 1995 1994
---------- ---------- -------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income from Continuing Operations $ 77 $ 124 $ 166
Adjustments to Reconcile Net Income to Net
Cash Provided by Continuing Operations:
Depreciation, Depletion, and Amortization 339 296 253
Write-Downs and Special Charges 116 445 10
Deferred Income Taxes 13 (67) (30)
Gain on Sales of Assets (41) (13) (43)
Issuance of Stock for Employee Benefits 6 6 20
Other, Net 13 27 39
Changes in Assets and Liabilities Net of Effects from
Businesses Acquired/Sold:
(Increase) Decrease in Receivables 146 24 (21)
(Increase) Decrease in Inventories (61) 8 (9)
Increase in Prepaid Expenses (25) (28) (29)
Decrease in Current Liabilities (17) (26) (100)
Increase in Other Assets (1) (15) (35)
Decrease in Other Liabilities (125) (106) (70)
----------- ----------- ----------
Net Cash Provided by Continuing Operations 440 675 151
----------- ----------- ----------
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 440 675 110
----------- ----------- ----------
Cash Flows from Investing Activities
Capital Expenditures (856) (929) (359)
Payments for Businesses Purchased (70) - (361)
Capitalized Interest (83) (43) (16)
Advances to and Investments in Affiliates (12) (145) (75)
Proceeds from Sales of Assets 63 77 915
Cash Effect of Consolidating Amax Gold Inc. - 37 -
----------- ----------- ----------
Net Cash Provided by (Used for) Investing Activities (958) (1,003) 104
----------- ----------- ----------
Cash Flows from Financing Activities
Proceeds from Sale-Leaseback 24 - 156
Net Proceeds from Issuance of Long-Term Debt 722 770 -
Payments on Long-Term Debt (14) (118) (186)
Net Borrowings on Short-Term Debt 526 125 151
Payments on Short-Term Debt (596) (29) (151)
Production Payments (25) (258) (42)
Payments on Capital Lease Obligations (18) (13) (5)
Proceeds from Issuance of Stock for Employee Benefits 1 3 7
Dividends Paid (93) (92) (101)
Dividends to Minority Interests (7) (8) -
----------- ----------- ----------
Net Cash Provided by (Used for) Financing Activities 520 380 (171)
----------- ----------- ----------
Net Increase in Cash and Cash Equivalents 2 52 43
Cash and Cash Equivalents at Beginning of Year 191 139 96
----------- ----------- ----------
Cash and Cash Equivalents at End of Year $ 193 $ 191 $ 139
=========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
34
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
---------------------- ----------------------
Shares Net Shares Paid-In Accumulated
(In millions) Outstanding Amount Outstanding Amount Surplus Deficit
----------- -------- ----------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993 5 $ 5 91 $ 1 $ 2,962 $ (571)
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)
Unrealized Gain on Securities
Available for Sale
Foreign Currency Translation Adjustment
------ ------ ------- ----- ------- --------
December 31, 1994 5 5 92 1 2,961 (496)
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)
Unrealized Loss on Securities
Available for Sale
Foreign Currency Translation Adjustment
------ ------ ------- ----- ------- --------
December 31, 1995 5 5 93 1 2,956 (465)
Net Income 77
Dividends
Preferred Stock, Series A (19)
Common Stock (74)
Common Stock Issued for
Employee Benefit Plans and
Exercise of Stock Options (4)
Unrealized Gain on Securities Available for Sale
Foreign Currency Translation Adjustment
------ ------ ------- ----- ------- --------
December 31, 1996 5 $ 5 93 $ 1 $ 2,952 $ (481)
====== ====== ======= ===== ======= ========
<CAPTION>
Loan to
Treasury Savings
(In millions) Other Stock Plan
------- ---------- --------
<S> <C> <C> <C>
December 31, 1993 $ (2) $ (103) $ (75)
Net Income
Dividends
Preferred Stock, Series A
Common Stock
Common Stock Issued for
Employee Benefit Plans, Exercise of
Stock Options, and Change of Control 23 6
Unrealized Gain on Securities
Available for Sale 1
Foreign Currency Translation Adjustment 8
------ ------- ------
December 31, 1994 7 (80) (69)
Net Income
Dividends
Preferred Stock, Series A
Common Stock
Common Stock Issued for
Employee Benefit Plans and
Exercise of Stock Options 10 5
Unrealized Loss on Securities
Available for Sale (3)
Foreign Currency Translation Adjustment (2)
------ ------- ------
December 31, 1995 2 (70) (64)
Net Income
Dividends
Preferred Stock, Series A
Common Stock
Common Stock Issued for
Employee Benefit Plans and
Exercise of Stock Options 6 6
Unrealized Gain on Securities Available for Sale 1
Foreign Currency Translation Adjustment 2
------ ------- ------
December 31, 1996 $ 5 $ (64) $ (58)
------ ------- ------
</TABLE>
The accompanying notes are an integral part of these statements.
35
<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, Amax Gold and
Exploration).
The Copper/Molybdenum segment explores for, mines, processes, and markets copper
and molybdenum primarily in North, Central and South America. The Company
operates three major copper mines in Arizona, one in Chile, 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, and commercial production began
on December 1, 1996. 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 12
percent of copper/molybdenum sales were for export markets. Sales to one
customer in 1996 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 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.
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 1996 accounted for 11 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 19 domestic operating mines of which 11 are governed by
union contracts. Union representation accounts for approximately 55 percent of
Coal's employees and 34 percent of domestic 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.
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 26 percent of United States
produced lithium sold in foreign markets. Sales to one customer accounted for 18
percent of lithium revenue in 1996. Loss of any one customer would not have a
material adverse effect on the results of Cyprus Amax.
Cyprus Amax owns 52.5 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, Russia, Australia, South
Pacific and Africa. Construction of Refugio in Chile was completed in early
1996; however, start-up was delayed due to mechanical problems with the
secondary and tertiary crushers and unstable fill underlying the fine ore
storage bin. These issues were resolved in the third quarter of 1996 and the
mine obtained commercial production on October 1, 1996. The Refugio mine
operated above plan for the fourth quarter of 1996, producing 31,000 ounces.
Construction of the Fort Knox mine near Fairbanks, Alaska began in March 1995
and commercial production is expected in early 1997. During December, Fort Knox
poured its first gold and full production is anticipated by mid-1997.
Additionally, Amax Gold shareholders approved the acquisition of Cyprus Amax's
50 percent owned Kubaka gold mine in Russia, and the transaction is expected to
be completed in early 1997. This will increase Cyprus Amax's ownership interest
in Amax Gold to approximately 59 percent. The first gold was poured at Kubaka
during February 1997. With the addition of these mines, Amax Gold should
produce, starting in the second quarter of 1997, at an annual rate of nearly
700,000 ounces. Amax Gold sells all of its refined gold to banks and other
bullion dealers, utilizing a variety of hedging programs, and the majority of
its 1996 sales were 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.
36
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 a
result of an increased ownership position in Amax Gold, 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.
Accounts Receivable - Cyprus Amax entered into an agreement in November 1996 to
sell coal, copper, and molybdenum receivables on an ongoing basis. Cyprus
Amax's accounts and notes receivable at December 31, 1996 were net of $150
million of receivables sold.
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 charged to operations generally 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". 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.
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 could 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.
37
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 - During 1996 the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." Cyprus Amax has elected to measure
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Note 13 to the Consolidated Financial Statements contains a summary of the
disclosures of pro forma 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 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: Business Acquisitions and Dispositions
On February 13, 1996, Cyprus Amax acquired a 50 percent interest in the
Springvale underground coal mine in New South Wales, Australia at a cost of
approximately $70 million.
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. In early 1996, a Peruvian
mining concern exercised its option to acquire ten percent of Cyprus Amax's
interest in Cerro Verde, which decreased Cyprus Amax's interest to approximately
82 percent.
38
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4: Write-Down of Assets and Special Charges
In the fourth quarter of 1996, an $80 million pretax charge was recorded
primarily for environmental remediation activities, principally at the Miami,
Arizona copper mine, costs to temporarily close the Tohono mine, near Casa
Grande, Arizona and adjustments in the primary molybdenum business.
In addition, during the fourth quarter of 1996, a $36 million pretax charge was
recorded by Amax Gold to write-down the net assets of the Guanaco gold mine in
Chile as a result of a detailed study of the continuity of ore, costs and
production rates.
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. In 1995,
Amax Coal signed a new coal contract with PSI Energy, Inc. that settled
arbitration matters and called for a reduction in price with a move toward
market price by the year 2000. The new contract provided an eight-year
extension of the term. This resulted in a pretax write-down of the carrying
value of the Wabash mine's assets of $310 million. Additionally, the coal market
outlook for Mountain Coals operations in eastern Kentucky reflected weak demand
and lower prices and the expiration of long-term contracts in 1995 and 1998.
This prompted adoption of a revised mine plan in 1995 to reduce costs. Coal
reserves were reduced and the Company wrote down its Kentucky operations by $135
million pretax.
Note 5: Inventories
Inventories detailed by component and industry segment are summarized below:
<TABLE>
<CAPTION>
At December 31 (In millions) 1996 1995
----- -----
Component
<S> <C> <C>
Ores, Concentrates and Other
In-Process Inventories $ 237 $ 212
Finished Goods 161 156
Materials and Supplies 97 79
----- -----
$ 495 $ 447
===== =====
Industry Segment
Copper/Molybdenum $ 321 $ 276
Coal 112 113
Other 62 58
----- -----
$ 495 $ 447
===== =====
</TABLE>
The excess of estimated replacement cost over the LIFO basis was $36 million at
December 31, 1996 and $50 million at December 31, 1995.
Note 6: Properties
<TABLE>
<CAPTION>
At December 31 (In millions) 1996 1995
------- -------
<S> <C> <C>
Copper/Molybdenum $ 3,432 $ 3,029
Coal 3,134 2,869
Other 1,347 1,035
------- -------
7,913 6,933
Less: Accumulated Depreciation, Depletion,
Amortization, and Write-downs (2,687) (2,332)
------- -------
Net Properties $ 5,226 $ 4,601
======= =======
Net Properties consists of the following:
Property, Plant, and Equipment $ 2,858 $ 2,383
Reserves/Mineral Rights, Sales Contracts 2,368 2,218
------- -------
Net Properties $ 5,226 $ 4,601
======= =======
</TABLE>
39
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7: Debt
<TABLE>
<CAPTION>
At December 31 (In millions) 1996 1995
------- -------
<S> <C> <C>
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 250 250
6 5/8% Notes, Due 2005 250 250
Cyprus Amax Term Loan Facility, 6% for 1996,
Due 2001 350 -
Capital Lease Obligations,
Interest Rates Range from 8.4% to 12.0%,
Due from 1996 through 2005 173 167
Production Payments, 6.3% for 1996, Due 1996 - 25
El Abra Project Financing, 6.9% for 1996, Due from 1998
through 2006 383 265
Fort Knox Financing, 6.1% for 1996, Due from 1997
through 2001 250 200
Refugio Project Financing, 6.9% for 1996, Due from 1996
through 2001 38 43
Kubaka Project Financing, 9.1% for 1996, Due from 1997
through 2001 50 15
Cerro Verde Financing, 5.9% for 1996, Due 1999 80 -
Springvale Financing, 6.7% for 1996, Due from 1998
through 2006 88 -
Other 93 91
------- -------
2,605 1,906
Add: Unamortized Net Premium 28 34
------- -------
2,633 1,940
Less: Current Portion (79) (63)
------- -------
Long-Term Debt and Capital Lease Obligations $2,554 $1,877
======= =======
</TABLE>
Scheduled debt maturities (in millions), excluding capital lease obligations, as
of December 31, 1996, for the next five years are $51, $162, $212, $130, and
$785 for 1997, 1998, 1999, 2000, and 2001, respectively.
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. In January 1997, an additional $30
million was obtained for project financing bringing the total project financing
to $130 million. Cyprus Amax has guaranteed both debts until economic
completion tests are achieved. During 1996 Omolon Gold Mining Company, the
joint venture, borrowed $14 million and Cyprus Amax has guaranteed the debt. At
December 31, 1996, $114 million had been borrowed, of which Cyprus Amax's share
was $57 million. Project financing accounts for $50 million of the $57 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 obtained $750 million 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 $250 million provided by a consortium of
commercial banks on a 10-year term. The Company has guaranteed completion of
the oxide mine. At December 31, 1996, $750 million of borrowings were
outstanding on this financing arrangement of which Cyprus Amax's proportional
share was $383 million. The weighted average interest rate on this debt at
December 31, 1996, was 6.9 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, 1996, subsidiaries involved in the project held $675 million in restricted
net assets.
In February 1995 Compania Minera Maricunga, a 50 percent-owned subsidiary of
Amax Gold, obtained $85 million in financing denominated in gold, to build the
Refugio mine 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. The loan is a five year amortizing
term loan that can be transferred between gold and U.S. dollars. At December
31, 1996, Amax Gold's 50 percent share of the outstanding debt is $38 million.
In October 1995, Amax Gold obtained $250 million for construction of the Fort
Knox mine 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, 1996, Amax Gold had borrowed $37 million in
gold and $213 million in U.S. dollar 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. In March 1996, Amax
40
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gold renegotiated the loan agreement due to projected higher capital costs at
Fort Knox and Cyprus Amax has guaranteed the loan until economic completion of
the Fort Knox mine.
In March 1996 the Company finalized a loan agreement for $80 million to be used
to modernize the Cerro Verde copper project in Peru, of which Cyprus Amax owns
82 percent. The weighted average interest rate on this debt during 1996 was 5.9
percent. As of December 31, 1996, $80 million had been borrowed. The debt is
payable February 1999.
In June 1996 the Company obtained $70 million Australian ($56 million U.S.
dollars) to finance the purchase of 50 percent of the Springvale coal mine in
Australia. The weighted average interest rate of this debt for 1996 was 6.6
percent. The debt is payable from December 1998 through June 2006. In March
1996, the Company finalized a loan agreement for $61 million Australian of which
$41 million Australian ($32 million U.S. dollars) was outstanding as of December
31, 1996. The weighted average interest rate was 6.8 percent during 1996. The
debt is payable December 1998.
In December 1996 the Company finalized a $350 million Term Loan Agreement to be
used for general corporate purposes. The interest rate on this debt as of
December 31, 1996, was 6 percent. The debt is payable December 2001.
At December 31, 1996, the Company had $36 million of short-term debt
outstanding, of which $31 million was attributable to Cerro Verde's $120 million
short-term lines of credit, guaranteed by the Company. The average interest
rate for 1996 was 6 percent. In addition, $6 million was outstanding on short-
term credit lines from banks. At December 31, 1995, $75 million was outstanding
on Cerro Verde's line of credit and $34 million was outstanding on short-term
credit lines from banks.
As of December 1996, the Company had a revolving credit agreement (the
"Revolving Credit Agreement") that provides 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 contains certain covenants with which the Company is currently in
compliance. At December 31, 1996 and 1995, the Company had no loans outstanding
under the Revolving Credit Agreement.
Note 8: 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 expired in November 1996, that effectively
converted $200 million of its fixed rate borrowings into floating rate
obligations.
Additionally, Amax Gold has entered into interest rate swap option agreements to
reduce the impact of changes in interest rates. At December 31, 1996, Amax Gold
had interest rate swaps and swap option sales contracts that if exercised
between February 1997 and April 1998 would obligate Amax Gold to pay a fixed
rate of 5.7 percent over an average term of 1.6 years on a principal amount of
$190 million. Swap options due to expire in January 1997 were sold to offset
$20 million of swap contracts that if exercised would reduce Amax Gold's
obligation to pay a fixed rate of 5.6 percent on a principal amount of $170
million. Amax Gold also purchased swap options with the right to pay 6.7 percent
over an average term of two years on a principal amount of $150 million. Gains
or losses realized on these contracts will be amortized over the term of the
loan. Amax Gold would break even if required to terminate these interest rate
swap agreements, given market interest rates at December 31, 1996. Due to the
requirements placed on Amax Gold as a condition of its Fort Knox borrowings,
Amax Gold does not expect to close these contracts.
Interest rate forward contracts have been entered into on $300 million of El
Abra's senior debt, at a blended fixed rate of 5.83 percent amortized over
three, four and five years.
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 it the obligation to buy at
predetermined prices. Synthetic put options are
41
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 it the
right to purchase or obligation to sell gold at a predetermined price.
Cyprus Amax has entered into copper price protection contracts for 1997 to
ensure a minimum average realization on an LME basis of 96 cents per pound on
550 million pounds of copper for 1997. During 1996, Cyprus Amax sold 150 million
pounds of 1997 copper price protection contracts generating $21 million of
proceeds, which will increase copper realizations and income during the periods
in 1997 to which the original contracts were applicable. Cyprus Amax
periodically may elect to sell or buy copper price protection contracts to
mitigate the risk of metal price declines on a portion of its future copper
sales. Additionally, the price protection program for El Abra ensures a minimum
net average realization on an LME basis of 90 cents in 1997 on approximately 400
million pounds with a cap of $1.25 per pound on approximately 145 million
pounds. Cyprus Amax's share of El Abra is 51 percent.
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 spot deferred 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 316 thousand ounces of gold at $440 per ounce
for early 1997. Amax Gold also has various option contracts outstanding at
December 31, 1996: a net long position on call options of 83 thousand ounces
and a net long position on put options of 355 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.
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, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
At December 31 (In millions) 1996 1995
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 193 $ 193 $ 191 $ 191
Long-Term Receivables 215 211 196 191
Price Protection Contracts 42 92 38 39
Long-Term Debt and
Production Payments (2,415) (2,479) (1,759) (1,896)
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents: 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, 1996 and 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.
42
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9: Income Taxes
Income from Continuing Operations before Income Taxes and Minority Interest
consists of the following:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Domestic $ 61 $ 102 $ 190
Foreign 16 18 31
------ ------ ------
$ 77 $ 120 $ 221
====== ====== ======
<CAPTION>
Income tax provision is composed of:
(In millions) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current - Federal $ (12) $ 56 $ 62
- State - 5 20
- Foreign 9 9 5
------ ------ ------
(3) 70 87
------ ------ ------
Deferred - Federal 20 (56) (37)
- State (5) (11) 7
- Foreign (1) - -
------ ------ ------
14 (67) (30)
------ ------ ------
$ 11 $ 3 $ 57
====== ====== ======
</TABLE>
The total income tax provision is included in the financial statements as
follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Income Tax Provision $ 11 $ 3 $ 55
Discontinued Operations - - 2
----- ----- -----
$ 11 $ 3 $ 57
===== ===== =====
</TABLE>
The deferred tax (assets)/liabilities are comprised of the tax effect of the
following at December 31:
<TABLE>
<CAPTION>
(In millions) 1996 1995
-------- ------
<S> <C> <C>
Reclamation Liabilities $ (62) $ (79)
Postretirement Benefits (268) (232)
Capitalized Lease Obligations (60) (58)
Accrued Liabilities (294) (187)
Net Operating Loss Carryforwards (100) (41)
Investment Tax Credit Carryforwards (18) (17)
State Tax Deduction (20) (18)
Minimum Tax Credit Carryforwards (276) (238)
Other (2) (4)
------- -----
Total Deferred Tax Assets (1,100) (874)
Valuation Allowance 181 133
------- -----
Net Deferred Tax Assets (919) (741)
------- -----
Properties 970 773
Prepaid Expenses 5 11
------- -----
Total Deferred Tax Liabilities 975 784
------- -----
Total $ 56 $ 43
======= =====
</TABLE>
Deferred Tax Assets of $9 million and $2 million are included in Other Assets on
the Consolidated Balance Sheet at December 31, 1996 and December 31, 1995,
respectively. Deferred Tax Liabilities of $21 million are included in Income
Taxes Payable on the Consolidated Balance Sheet at December 31, 1996.
The Company has approximately $18 million of investment tax credit carryforwards
expiring from 1997 and beyond and $276 million of minimum tax credit
carryforwards which do not expire. There is a net operating loss carryforward
for regular tax of $171 million and an $82 million net operating loss
carryforward for alternative minimum tax purposes. The Company also had Chilean
net operating loss carryforwards of $185 million ($100 million relates to Amax
Gold) that do not expire. A valuation allowance of $181 million has been
recorded against all of these benefits.
The increase in the valuation allowance of $48 million relates to increased
minimum tax credit carryforwards and regular tax net operating losses 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)
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Income Taxes at Statutory Rate $ 27 $ 42 $ 77
Increases (Decreases) Resulting from:
Percentage Depletion (12) (16) (36)
State Income Taxes, Net of Federal Benefit (10) (3) 13
Foreign Operations 10 4 -
Equity Investments - - 4
Tax Carryforwards Used (2) (25) -
Other, Net (2) 1 (3)
----- ----- -----
Income Tax Provision $ 11 $ 3 $ 55
===== ===== =====
</TABLE>
Note 10: 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.
43
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 1996.
Note 11: 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) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service Cost $ 11 $ 8 $ 10
Interest Cost 20 20 18
Actual (Gain) Loss on Plan Assets (33) (37) 4
Deferred Gain (Loss) 13 21 (21)
Other 3 2 2
----- ----- -----
$ 14 $ 14 $ 13
===== ===== =====
</TABLE>
The following table sets forth the funded status of the plans:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ----------------------
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 $ 208 $ 17 $ 63 $ 157
===== ===== ==== =====
Accumulated Benefit Obligation $ 228 $ 17 $ 69 $ 166
===== ===== ==== =====
Projected Benefit Obligation $(248) $ (17) $(72) $(187)
Plan Assets at Fair Value 258 2 82 145
----- ----- ---- -----
Plan Assets Greater Than
(Less Than) Projected Benefit
Obligation 10 (15) 10 (42)
Unrecognized Net Loss 15 1 4 32
Unrecognized Prior Service Cost 9 (1) 1 7
Unrecognized Transition Credit (1) - (1) -
----- ----- ---- -----
Prepaid/(Accrued) Pension Cost $ 33 $ (15) $ 14 $ (3)
===== ===== ==== =====
</TABLE>
Prepaid pension cost of $19 million and $11 million is included in Prepaid
Expenses on the Consolidated Balance Sheet at December 31, 1996 and 1995,
respectively. An accrued pension obligation of $1 million was recorded in
Accrued Payroll and Benefits at December 31, 1996.
The significant actuarial assumptions at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(In percents) ---- ---- ----
<S> <C> <C> <C>
Rate of Increase in Future Compensation Levels 5.75 5.25 6.75
Expected Long-Term Rate of Return on Assets 9.00 9.00 9.00
Discount Rate 7.75 7.25 8.75
</TABLE>
44
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 1996, 1995, and 1994.
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>
1996 1995 1994
(In millions) ------ ------ ------
<S> <C> <C> <C>
Service Cost $ 5 $ 5 $ 5
Interest Cost 26 26 26
Net Amortization (1) (3) (1)
----- ----- -----
Net Periodic Postretirement Benefit Cost $ 30 $ 28 $ 30
===== ===== =====
</TABLE>
The following table sets forth the plans' combined status:
<TABLE>
<CAPTION>
1996 1995
At December 31 (In millions) ------ ------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $ 275 $ 317
Fully Eligible Active Plan Participants 26 19
Other Active Plan Participants 44 47
----- -----
Total Accumulated Postretirement Benefit Obligation 345 383
Plan Assets at Fair Value - -
----- -----
Accumulated Postretirement Benefit Obligation
in Excess of Plan Assets $ 345 $ 383
===== =====
Accumulated Postretirement Benefit Obligation $(345) $(383)
Unrecognized Prior Service Cost (6) (7)
Unrecognized Net (Gain) Loss (32) 10
----- -----
Accrued Postretirement Benefit Cost $(383) $(380)
===== =====
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1996 and 1995,
consisted of a current liability of $22 million included in Accrued Payroll and
Benefits, and a long-term liability of $361 million and $358 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 9 percent
for 1997 and is assumed to decrease gradually (one-half percent per year) to
4.25 percent by the year 2010 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 the medical
plans as of December 31, 1996, by $10 million and the aggregate of the service
cost and interest cost components of net periodic postretirement benefit cost
for 1996 by $2 million.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1996, 1995, and 1994, was
7.75 percent, 7.25 percent, and 8.75 percent, respectively. The change in the
discount rate resulted in a $36 million unrecognized net gain as of December 31,
1996.
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 1996, 1995, and 1994 contributions to the
Fund were each $1 million.
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, 1996 and 1995, the accumulated postemployment
benefit liability consisted of a current amount of $4 million and $6 million,
respectively, included in Accrued Payroll and Benefits and $34 million and $41
million, respectively, included in Deferred Employee and Retiree Benefits.
45
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 12: 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 1996 was $9 million, 1995 was $8 million, and 1994 was $7
million. The amount of interest incurred by the Savings Plan for the Leveraged
ESOP was $8 million in 1996 and 1995 and $9 million in 1994. The interest
expense offset of the Leveraged ESOP due to dividends on allocated and
unallocated shares was $3 million in 1996 and 1995 and $4 million in 1994. The
aggregate compensation expense related to the Savings Plan amounted to $6
million in 1996 and 1995 and $5 million in 1994. Leveraged ESOP shares are
treated as shares outstanding for purposes of calculating earnings per share.
The following table sets forth the number of shares held in the Leveraged ESOP
at year-end:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Allocated Shares 1,042,763 898,172 758,430
Committed to be Released Shares 6,744 9,683 8,909
Suspense Shares 2,589,446 2,836,500 3,089,631
</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.
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 1996, 1995 and
1994.
Note 13: Stock-Based Compensation Plans
At December 31, 1996, the Company has three stock-based compensation plans,
which are described below. The Company applies APB Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plan. The compensation cost that
has been charged against income for its performance-based plan was $1.2 million
and $1.5 million for 1996 and 1995, respectively. Had compensation cost for the
Company's three stock based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the method
of SFAS No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Net Income
As Reported $ 77 $ 124
Pro Forma $ 71 $ 123
Primary Earnings Per Share
As Reported $ .62 $ 1.13
Pro Forma $ .56 $ 1.12
Fully Diluted Earnings Per Share
As Reported $.62/(1)/ $1.13/(1)/
Pro Forma $.56/(1)/ $1.12/(1)/
</TABLE>
/(1)/Fully diluted earnings per share were anti-dilutive in 1996 and 1995.
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.
46
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend payment of
$.80 per share per year; expected volatility of 30 and 31 percent; risk-free
interest rates of 5.34 and 7.31 percent; and expected lives of 3.37 years.
A summary of the status of the Company's fixed stock option plan as of
December 31, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Weighted- Weighted-
Shares Average Shares Average
Fixed Options (000) Exercise Price (000) Exercise Price
- ------------- ------ -------------- --------- ---------------
<S> <C> <C> <C> <C>
Outstanding at
Beginning of Year 2,919 $ 28 3,051 $ 27
Granted 1,762 26 297 27
Exercised (108) 22 (231) 21
Forfeited (340) 29 (198) 30
------ ---------
Outstanding at
End of Year 4,233 $ 27 2,919 $ 28
====== ==========
Options Exercisable
at Year End 2,141 2,213
Weighted-Average
Fair Value of
Options Granted
During the Year $ 6.48 $ 6.90
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ----------------------------------
Number Weighted-Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- --------------- --------------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$16.61-$24.75 818,763 4.47 years $23.18 777,763 $23.21
$25.44-$26.13 671,008 6.29 25.91 506,279 25.93
$26.44-$26.44 1,685,050 9.01 26.44 - -
$27.56-$31.13 616,621 6.91 29.00 414,721 29.69
$35.75-$35.75 441,750 6.12 35.75 441,750 35.75
--------- ------ ------ ---------- --------------
$16.61-$35.75 4,233,192 7.09 27.07 2,140,513 27.69
--------- ------ ------ ---------- --------------
</TABLE>
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, 1996, 560,709
cumulative shares were awarded and 1,061,087 shares were authorized and
unissued. On January 2, 1997, an additional 155,900 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. In 1996 this plan was
amended and restated and then approved by shareholders and is now known as the
Amended and Restated Stock Plan for Non-Employee Directors. This amended Plan
revised the maximum number of shares that may be awarded and stock options that
may be granted under the Plan. The aggregate number of shares that may be
awarded and options that may be granted will equal the sum of 1/16 of 1 percent
of the number of shares of common stock outstanding as of the end of the
immediately preceding fiscal year plus the cumulative number of carryforward
shares from all prior fiscal years not previously used to make grants and
awards. Prior to being amended, the Plan provided that a maximum of 35,000
shares of common stock could be issued under the Plan. As of December 31, 1996,
28,500 cumulative shares have been granted and 26,000 stock options awarded.
47
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14: Contingencies
Cyprus Amax had outstanding letters of credit totalling $67 million at December
31, 1996, 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 $432 million at December 31, 1996.
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. During 1996, Consent Decrees were entered and civil
penalties were paid resolving the alleged violations.
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 ground water quality at Pinal Creek near
Miami, Arizona throughout 1996. The ongoing program, initiated in 1989, has
resulted in continued improvement of subsurface water quality in the area. While
the long-term remedial action plan is not scheduled for submittal to the State
of Arizona for approval until late 1997, completion of risk assessment studies
and the evaluation of remedial action alternatives has provided information
which allows an estimate of Cyprus Amax costs for completing the remedial
action. As a result of this new information, approximately $50 million was
recorded for the Pinal Creek remediation reserve at December 31, 1996. Cyprus
Miami has commenced contribution litigation against other parties involved in
this matter and has asserted claims against certain of its past insurance
carriers. While significant recoveries are expected, Cyprus Miami cannot
reasonably estimate the amount of recoveries and, therefore, has not taken
potential recoveries into consideration in the provision.
In December 1996, Cyprus Amax received a Unilateral Administrative Order For
Removal Response Activities from the U.S. EPA requiring the removal of asbestos-
containing material at the Horizon Potash Mine located near Carlsbad, New
Mexico. Cyprus Amax is complying with the order and expects to complete the
removal work by late 1997 along with completing other building demolition and
reclamation at the Horizon site in accordance with a settlement agreement with
the Bureau of Land Management. Horizon Potash acquired Amax Potash and its
facilities in 1992, abandoned the site in 1993, and entered Chapter 7 bankruptcy
proceedings.
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 had received EPA requests for
information for several sites. For all sites, Cyprus Amax had an aggregate
reserve of approximately $117 million at December 31, 1996, 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 $80 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, 1996,
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, 1996, Cyprus Amax's accruals for deferred closure, shutdown of
closed operations, and reclamation totalled approximately $308 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 $169 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 $115
million and $23 million, respectively,
48
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $580
million.
Cyprus Amax believes that it has adequate reserves such that none of these
matters or contingencies 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 1996, Amax Gold renegotiated its $250 million Fort Knox loan agreement. 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. The lenders waived certain restrictive covenants and reduced the
interest rate. In return for the increased financial support, Cyprus Amax
receives certain fees, the interest differential, and security interest in
certain Amax Gold assets. Additionally during 1996, Cyprus Amax provided Amax
Gold with a demand loan facility to fund additional costs at the Fort Knox
project and for general corporate purposes, with such funding to be provided at
the discretion of Cyprus Amax. At December 31, 1996, Cyprus Amax had loaned
Amax Gold $130 million. In November 1996, Cyprus Amax received 2,771,098 shares
from Amax Gold as repayment of the guaranty and financing fee and interest and
interest differential payments. As a result of this transaction, Cyprus Amax
increased its ownership to 52.5 percent.
In October 1995, Cyprus Amax announced its intent to sell its 50 percent
interest in the Russian Kubaka gold mine project to Amax Gold. Amax Gold
received shareholder approval for the acquisition in December 1996 and expects
to acquire the project in early 1997. 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 early 1997. The transfer of all 16 million shares will increase Cyprus
Amax's ownership to approximately 59 percent. 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.
In February 1995, Cyprus Amax agreed to provide AGI with an additional $80
million in double-convertible revolving credit (DOCLOC II). During 1995, Cyprus
Amax converted $80 million of the outstanding borrowings to Amax Gold Common
Stock at a conversion price of $5.362 per share.
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, 1996, no borrowings were 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 7).
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.
At December 31, 1996, the subordinated loans outstanding to Oakbridge Ltd. from
Cyprus Amax totalled $35 million, of which $21 million is convertible to
Oakbridge Common Stock on certain terms and conditions.
In June 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 required an investment of
approximately $1 billion. Funding of the investment to develop the oxide
reserves included approximately $300 million of subordinated shareholder loans
from Cyprus Amax, and $750 million in project financing. Cyprus Amax has
guaranteed completion of the oxide mine. As of December 31, 1996, $295 million
of subordinated notes were outstanding.
49
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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) 1996 1995
------ ------
<S> <C> <C>
Minimum Future Royalties $ 85 $ 98
Less Imputed Interest (20) (26)
------ ------
Present Value of Payments 65 72
Less Current Portion Included in Accrued
Royalties and Interest (9) (7)
------ ------
Long-Term Portion Included in Other
Noncurrent Liabilities and Deferred Credits $ 56 $ 65
====== ======
</TABLE>
The Company's property held under capital leases, included in property, plant,
and equipment, consists of the following:
<TABLE>
<CAPTION>
(In millions) 1996 1995
----- ------
<S> <C> <C>
Mining Equipment $ 211 $ 186
Less Accumulated Depreciation (89) (64)
----- -----
$ 122 $ 122
===== =====
</TABLE>
Summarized below as of December 31, 1996, are future minimum rentals and
royalties under noncancellable leases:
<TABLE>
<CAPTION>
Operating Mineral Capital
(In millions) Leases Royalties Leases
---------- --------- -------
<S> <C> <C> <C>
1997 $ 31 $ 23 $ 42
1998 23 22 44
1999 17 23 65
2000 16 20 28
2001 13 16 11
After 2001 22 58 26
------ ------ ------
Total Payments $122 $162 $216
====== ======
Less Imputed Interest (43)
------
Present Value of Lease Payments 173
Less Current Portion (34)
------
Capital Lease Obligations $139
======
</TABLE>
Rentals and mineral royalties charged to expense were as follows:
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Rental Expense $ 51 $ 48 $ 53
Mineral Royalties $ 68 $ 72 $ 47
</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) 1996 1995 1994
------ ----- ------
<S> <C> <C> <C>
Interest Paid (Net of Interest Capitalized
and Interest Rate Swap Payments/Receipts) $ 110 $ 81 $ 113
Income Taxes Paid, Net $ 6 $ 60 $ 35
Supplemental Disclosures of Non-Cash Transactions:
<CAPTION>
(In millions) 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Fair Value of Assets Acquired, Other Than Cash
and Cash Equivalents $ 75 $ - $ 379
Liabilities Assumed (5) - (18)
----- ----- -----
Cash Payments $ 70 $ - $ 361
===== ===== =====
Sale of Businesses in Exchange for Common Stock $ 1 $ - $ 22
Receipt of AGI Common Stock as Repayment of
Guaranty, Notes Receivable and Interest (Note 15) $ 15 $ 81 $ 21
Capital Lease Obligation - Sale-Leaseback $ 24 $ - $ 144
</TABLE>
50
<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) 1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Segment Revenue
Copper/Molybdenum $ 1,331 $ 1,720 $ 1,327
Coal 1,284 1,298 1,248
Other 228 189 213
---------- --------- ---------
$ 2,843 $ 3,207 $ 2,788
========== ========= =========
Segment Operating Income (Loss)
Copper/Molybdenum $ 151/(1)/ $ 584 $ 206
Coal 90 (308)/(3)/ 106
Other (32)/(2)/ (37) 40
---------- --------- ---------
209 239 352
Corporate (57) (57) (45)
Interest, Net (78) (70) (74)
Earnings (Loss) on Equity Investments and
Other 3 8 (12)
---------- --------- ---------
Income From Continuing Operations
Before Income Taxes and Minority Interest 77 120 221
Income Tax Provision (11) (3) (55)
Minority Interest 11 7 -
---------- --------- ---------
Income From Continuing Operations 77 124 166
Income From Operations of Discontinued Oil and
Gas Division, Net of Applicable Taxes of $2 - - 9
---------- --------- ---------
Net Income $ 77 $ 124 $ 175
========== ========= =========
</TABLE>
/(1)/Includes an $80 million pretax charge for environmental remediation
liabilities and costs to temporarily close the Tohono mine (Note 4).
/(2)/Includes a $36 million pretax charge to write-down the net assets of the
Guanaco gold mine (Note 4).
/(3)/Includes a $445 million pretax charge to recognize the write-down of
certain coal assets and provisions for associated liabilities (Note 4).
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Identifiable Assets
Copper/Molybdenum $3,258 $3,060 $2,487
Coal 1,933 1,947 2,325
Other/(1)/ 1,190 939 266
Corporate 405 250 329
------ ------ ------
$6,786 $6,196 $5,407
====== ====== ======
Capital Expenditures
Copper/Molybdenum $ 449 $ 599 $ 234
Coal 186 163 116
Other/(1)/ 283 265 16
Corporate 23 5 13
------ ------ ------
$941 $1,032 $ 379
====== ====== ======
</TABLE>
Note 18: Information by Industry Segment (Continued)
<TABLE>
<CAPTION>
(In millions) 1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Depreciation, Depletion, and Amortization
Copper/Molybdenum $ 135 $ 118 $ 87
Coal 163 146 153
Other/(1)/ 38 29 11
Corporate 3 3 2
----- ----- -----
$ 339 $ 296 $ 253
===== ===== =====
Export Sales
Copper/Molybdenum $ 162 $ 253 $ 157
Coal 76 51 42
Other/(1)/ 75 56 16
----- ----- -----
$ 313 $ 36 $ 215
===== ===== =====
</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) 1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenue
Domestic $2,636 $3,032 $2,647
Foreign 207 175 141
------ ------ ------
$2,843 $3,207 $2,788
====== ====== ======
Operating Income
Domestic $ 203 $ 221 $ 317
Foreign 6 18 35
------ ------ ------
$ 209 $ 239 $ 352
====== ====== ======
Identifiable Assets
Domestic $4,825 $4,900 $4,636
Foreign 1,961 1,296 771
------ ------ ------
$6,786 $6,196 $5,407
====== ====== ======
</TABLE>
51
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarterly Results (Unaudited) 1996
- --------------------------------------------------------------------------------
First Second Third Fourth
(In millions except per share data) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 684 $ 740 $ 665 $ 754
Segment Operating Income (Loss) $ 112 $ 96 $ 51 $ (49)
Net Income (Loss) $ 62 $ 53 $ 14 $ (52)
Income (Loss) Applicable to Common Shares $ 57 $ 48 $ 9 $ (57)
- --------------------------------------------------------------------------------
Earnings (Loss) Per Common Share $ .62 $ .52 $ .10 $ (.61)
- --------------------------------------------------------------------------------
<CAPTION>
1995
- --------------------------------------------------------------------------------
<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
- --------------------------------------------------------------------------------
</TABLE>
Fourth quarter 1996 results included an after-tax charge of $74 million for
environmental remediation liabilities, costs to temporarily close a copper mine,
the write-down of the net assets of the Guanaco gold mine, and an unrelated
favorable tax adjustment for Amax Gold.
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.
52
<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,
1992, Cyprus Amax as of December 31, 1993 through 1996, 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>
1996 1995 1994 1993 1992
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Copper/Molybdenum
Proved and Probable Ore Reserves
Copper - United States (million tons) 1,366 1,443 1,593 1,598 1,617
Average Grade (percent) .37 .38 .38 .38 .38
Copper - South America (million tons) 1,096 1,097 1,101/(7)/ - -
Average Grade (percent) .60 .61 .61 - -
Molybdenum (million tons) 351/(1)/ 313 322 316/(10)/ 17
Average Grade (percent) .223 .232 .232 .228 .116
Copper and Molybdenum (million tons) 834 874 830 901 945
Copper Average Grade (percent) .27 .28 .28 .30 .30
Molybdenum Average Grade (percent) .030 .028 .029 .032 .032
Saleable Product (billion pounds)
Copper 21.6 22.6 23.8 13.7 14.3
Molybdenum 2.1 2.1 2.1 2.0 0.8
Production (million pounds)
Copper 768 687 648 632 662
Molybdenum 56 75 57 28 40
Average Realized Price (per pound)
Copper $ 1.04 $ 1.33 $ 1.09 $ .94 $ 1.04
Molybdenum $ 5.25 $ 7.53 $ 3.77 $ 2.82 $ 2.65
Coal
Proved and Probable Reserves
(million tons) 2,390/(2)/ 2,396/(4)/ 2,538 2,681/(11)/ 664
Production (million tons) 76 75 75/(8)/ 27/(11)/ 19
Average Realized Price (per ton) $ 15.69 $ 16.25 16.12 $ 20.80 $23.88
Lithium
Proved Ore Reserves
Lithium (thousand tons) 384 389 393 397 387
Production
Lithium Carbonate Equivalents (million pounds) 45 38 32 32 34
Gold
Amax Gold (100% in 1996 and 1995 and
Cyprus Amax share in 1994 and 1993)
Proved and Probable Reserves
(million contained ounces) 6.4/(5)/ 7.0/(5)/ 3.0/(5)/ 3.0/(5)/ -
Production (thousand contained ounces) 268 238 - - -
Average Realized Price (per ounce) $ 412 $ 406 - - -
Kubaka (Cyprus Amax Share)
Proved and Probable Reserves
(million contained ounces) 1.3/(3)/ 1.2 1.0 1.0 -
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Equity Companies/(6)/
Proved and Probable Reserves
Coal (million tons)
Oakbridge (100%) 341.4 372.3 423.8/(9)/ 358.7 -
Cyprus Amax Share (41.3%) 141.0 158.7 170.8 143.5 -
------ ------ ------ ------ ------
</TABLE>
/(1)/ Molybdenum reserves increased due to additional reserves at Henderson
from development of a deeper elevation level.
/(2)/ Coal reserves decreased due to 76 million tons of production, the write-
off of the undeveloped Midwest reserves of approximately 210 million
tons, and the addition of approximately 257 million tons in
Pennsylvania.
/(3)/ The sale of Kubaka to Amax Gold is expected to be completed in early
1997.
/(4)/ 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.
/(5)/ Due to Cyprus Amax's increased ownership position in 1995, Amax Gold is
fully consolidated. Prior to 1995, Amax Gold was accounted for on an
equity method basis.
/(6)/ 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.
/(7)/ Represents Cerro Verde and El Abra reserves purchased in 1994.
/(8)/ Coal production increased in 1994 due to a full year of production from
former Amax mines.
/(9)/ Oakbridge reserves increased due to acquiring additional leases at
Ellalong/Pelton.
/(10)/ Molybdenum reserves increased because of the addition of the Amax
properties, partially offset by the sale of Thompson Creek.
/(11)/ 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.
53
<PAGE>
EXHIBIT 21
CYPRUS AMAX MINERALS COMPANY
____________________________
SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY LAWS OF
- -------------------------------------------------------- -------
<S> <C>
Cyprus Metals Company Delaware
Cyprus Climax Metals Company Delaware
Byner Cattle Company Nevada
Copper Market, Inc. Arizona
Climax Molybdenum Company Delaware
Climax Molybdenum Marketing Corporation Delaware
Climax Molybdenum GmbH Germany
Climax Molybdenum S.R.L. Italy
Cyprus Amax del Peru Corporation Delaware
Cyprus Amax Finance Chile Corporation Delaware
Cyprus Bagdad Copper Corporation Delaware
Cyprus Christmas Mine Corporation Delaware
Cyprus Climax Metals GmbH Germany
Cyprus Copper Marketing Corporation Delaware
Cyprus El Abra Corporation Delaware
Sociedad Contractual Minera El Abra - (51%)/(A)/ Chile
Cyprus Lac Minera Limitada/(B)/ Chile
Cyprus Miami Mining Corporation Delaware
Cyprus Mineral Park Corporation Delaware
Cyprus Pima Mining Company - (75.01%)/(C)/ 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. - (82.5%)/(D)/ Peru
Cyprus Gold Company Delaware
Cyprus Copperstone Gold Corporation Delaware
Cyprus Gold Australia Corporation Delaware
Cyprus Magadan Gold Corporation Delaware
Omolon Gold Mining Company - (50%)/(E)/ Russia
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY LAWS OF
- -------------------------------------------------------- -------
<S> <C>
Cyprus Exploration and Development Corporation Delaware
Cyprus Amax China Corporation Delaware
Cyprus Amax Ghana Corporation Delaware
Cyprus Amax Indonesia Corporation Delaware
PT Cyprus Amax Indonesia/(F)/ Indonesia
Cyprus Amax Indonesia Holdings, Limited Bermuda
Cyprus Amax Zambia Corporation Delaware
Cyprus Amax Zimbabwe Corporation Delaware
Cyprus Canada, Inc. Canada
Cyprus Gold Exploration Corporation Delaware
Cyprus Metals Exploration Corporation Delaware
Cyprus Minera de Panama, S.A. Panama
Minera Cyprus Antacori Corporation Delaware
Rio Blanco Exploration, LLC - (50%)/(G)/ Colorado
Compania Mexicana de Exploracion Cyprus, S.A. de C.V. Mexico
Cyprus Metals Australia Corporation Delaware
Cyprus Mexico Corporation Delaware
Cyprus Minera de Chile, Inc. Delaware
Cyprus Urals Corporation Delaware
Cyprus Zinc Corporation Delaware
Minera Cuicuilco S.A. de C.V. Mexico
Servicios Cyprus S.A. de C.V. Mexico
Cyprus Specialty Metals Company Delaware
Cyprus Foote Mineral Company Pennsylvania
Minera Cyprus Chile Limitada/ (H)/ Chile
Foote Mineral Company Limitada/(I)/ Chile
Sociedad Chilena de Litio Limitada/(J)/ Chile
Cyprus Mines Corporation Delaware
Cyprus Amax Minerals Japan Corporation Delaware
Amax Metals Recovery, Inc. Delaware
Amax Nickel Overseas Ventures, Inc. Delaware
Amax Specialty Metals (Canada) Limited Canada
Ametalco (Toronto) Limited Canada
Ametalco (Vancouver) Limited Canada
American Metal Climax, Inc. Delaware
Ametalco Inc. New York
Ametalco Limited England
Ametalco U.K. England
Climax Molybdenum U.K. Limited England
Climax Canada Ltd. Delaware
Climax Molybdenum B.V. The Netherlands
Gold Hill Mining and Milling Company Colorado
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY LAWS OF
- ------------------------------------------------- -------
<S> <C>
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
Alliance Power Marketing, Inc. 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 - (41.3%)/(K)/ Australia
Cyprus Springvale Pty Limited Australia
Cyprus Coal Development Corporation Delaware
Cyprus Coal Equipment Company Delaware
Cyprus Consolidated Resources Corporation 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 River Processing Corporation 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
Pennsylvania Services Corporation Delaware
Amax Coal Company Delaware
Yankeetown Dock Corporation- (60%)/(L)/ 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
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY LAWS OF
- ---------------------------------------------------------------- -------
<S> <C>
Cannelton Sales Company Delaware
Meadowlark Inc. Delaware
Grassy Cove Coal Mining Company Delaware
Roaring Creek Coal Company Delaware
Bentley Coal Company Partnership
Skyline Coal Company Partnership
Kentucky Prince Coal Company Partnership
Amax Gold Inc.- (52.5%)/(M)/ Delaware
AGI Chile Credit Corp., Inc. Delaware
Amax Gold (B.C.) Ltd. Delaware
Fairbanks Gold Ltd. B.C.
Electrum Resources Corp Alaska
Melba Creek Mining, Inc. Alaska
Amax Gold Exploration Canada, Ltd. Canada
Amax Gold Exploration, Inc. Delaware
Amax Gold de Chile Limitada (50%)/(N)/ Chile
Amax Gold Refugio, Inc. Delaware
Compania Minera Maricunga (50%)/(O)/ Chile
Amax Precious Metals, Inc. Delaware
Amax Russia Corporation Delaware
Fairbanks Gold Mining, Inc Delaware
Morrison Knudsen Fort Knox Project Limited, LLC (1%)/(P)/ Ohio
Guanaco Mining Company, Inc. Delaware
Compania Minera Amax Guanaco (90%)/(Q)/ Chile
Haile Mining Company Delaware
Lancaster Mining Company, Inc. Delaware
Lassen Gold Mining, Inc. Delaware
Luning Gold Inc. Nevada
Nevada Gold Mining, Inc, Delaware
Waihi Financing Limited/(R)/ New Zealand
Martha Holdings Limited New Zealand
Waihi Resources Limited New Zealand
Waihi Mines Limited New Zealand
Martha Mining, Ltd. (33.51%)/(S)/ New Zealand
Wind Mountain Mining, Inc. Delaware
Amax Canada Development Limited Canada
Amax de Chile, Inc. Delaware
Amax Exploration, Inc. Delaware
Amsalar Inc. Delaware
Amax Exploration (Ireland), Inc. Delaware
Amax Investment (France), Inc. Delaware
Amax Research and Development Delaware
Amax Resources Brazil, Inc. Delaware
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY LAWS OF
- ---------------------------------------------------- -------
<S> <C>
Amax Arizona, Inc. Nevada
Amax Copper , Inc. Delaware
Amax Realty Development, Inc. Delaware
Amax Specialty Coppers Corporation Delaware
Amax Specialty Metals (Driver), Inc. Delaware
Blackwell Zinc Company, Inc. New York
Cyprus Amax Finance Corporation Delaware
Missouri Lead Smelting Company Delaware
</TABLE>
/(A)/ 49% owned by Corporacion Nacional del Cobre de Chile
/(B)/ 50% owned by Amax de Chile, Inc.
/(C)/ 24.99% held by BHP Minerals International, Inc.
/(D)/ 8.3% owned by employees, 9.2% owned by Compania de Minas Buenaventura
S.A.
/(E)/ 50% owned by five Russian joint venture partners
/(F)/ 95% owned by Cyprus Amax Indonesia Corporation, 5% owned by Cyprus Gold
Australia Corporation
/(G)/ 50% owned by Newcrest International Pty. Limited
/(H)/ 90.33% owned by Cyprus Foote Mineral Company, 9.67% owned by Cyprus
Exploration and Development Corporation
/(I)/ 50% owned by Cyprus Specialty Metals Company, 50% owned by Cyprus Foote
Mineral Company
/(J)/ 55% owned by Cyprus Foote Mineral Company, 45% owned by Foote Mineral
Company Limitada
/(K)/ 25.6% owned by Tomen Corporation, 23.6% owned by Nippon Oil (Australia)
Pty Limited, 6.7% owned by Ban-Pu Australia Pty Limited, 2.9% owned by
Kawasho Corporation. One fully paid "A" class ordinary share owned by
McIllwraith Mining Pty Limited
/(L)/ 40% owned by Peabody Coal Company
/(M)/ 47% publicly traded, 53% owned by Amax Energy Inc. and Cyprus Amax
Minerals Company
/(N)/ 50% owned by Amax Gold Exploration Inc. and 50 % owned by Guanaco Mining
Company, Inc.
/(O)/ 50% owned by Bema Gold (Bermuda) Limited
/(P)/ 99% owned by Morrison Knudsen Corporation
/(Q)/ 10% owned by CORFO
/(R)/ All outstanding preference shares owned by ACM (New Zealand), Limited
/(S)/ 32.98% owned by AUAG Resources Limited, 33.51% owned by Welcome Gold
Mines Limited
5
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
February 12, 1997, appearing on page 21 of the 1996 Annual Report to
Shareholders of Cyprus Amax Minerals Company, which is incorporated in this
Annual Report on 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.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 36 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Denver, Colorado
March 19, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 193
<SECURITIES> 0
<RECEIVABLES> 14
<ALLOWANCES> 5
<INVENTORY> 495
<CURRENT-ASSETS> 1,049
<PP&E> 7,914
<DEPRECIATION> 2,688
<TOTAL-ASSETS> 6,786
<CURRENT-LIABILITIES> 745
<BONDS> 2,554
0
5
<COMMON> 1
<OTHER-SE> 2,354
<TOTAL-LIABILITY-AND-EQUITY> 6,786
<SALES> 2,757
<TOTAL-REVENUES> 2,843
<CGS> 2,530
<TOTAL-COSTS> 2,657
<OTHER-EXPENSES> 34
<LOSS-PROVISION> (1)
<INTEREST-EXPENSE> 78<F1>
<INCOME-PRETAX> 77
<INCOME-TAX> 11
<INCOME-CONTINUING> 77
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.75
<FN>
<F1>Net of interest income, $28 million, and capitalized interest, $83 million.
</FN>
</TABLE>
