MAGMA COPPER ANNOUNCES COMPANY-WIDE REORGANIZATION,
CONTEMPLATES POTENTIAL NON-CASH ACCOUNTING ADJUSTMENTS
INCLUDING EARLY ADOPTION OF NEW ACCOUNTING PRINCIPLES
TUCSON, Ariz., Nov. 15 /PRNewswire/ -- Magma Copper Company (AMEX: MCU) said today that it is nearing completion of a company- wide reorganization which was initiated following the 1988 recapitalization in which Magma became an independent company and which reflects its newly decentralized management and operating structure. As part of the reorganization, Magma earlier this week announced the formation of Magma Metals Company to manage all of its smelting, refining, sales and marketing activities. In connection with the reorganization, Magma is considering certain non-cash accounting adjustments, including the early adoption of SFAS 96 and SFAS 106, a one-time charge for all or a portion of the capitalized mine development costs related to its Kalamazoo orebody and other items related to the reorganization.
Magma would recognize one-time adjustments of $90 million and $23 million, respectively, for early adoption of FASB Statements 96 ("Accounting for Income Taxes") and 106 ("Employer's Accounting for Post-Retirement Benefits Other Than Pensions"), both of which must be implemented by the end of 1993. The FASB 96 adjustment is primarily a result of former parent Newmont Mining's utilization of Magma's tax deductions. Magma's investment in the Kalamazoo orebody is $148 million, all of which was incurred prior to the 1988 Recapitalization. Magma has discussed, in public filings since 1987, the possibility of a write-down of its historic investment in the Kalamazoo orebody. Following these accounting adjustments, Magma may also implement an accounting treatment known as a "quasi-reorganization" under which it would adjust certain assets and liabilities. Magma expects that, even if it were to write-off the entire $148 million, the net effect of all of the adjustments and the quasi-reorganization would result in stockholders' equity of no less than $400 million compared to $562 million at Sept. 30, 1991.
Magma emphasized that the potential accounting adjustments would have no impact on its cash balances or cash flow, which has enabled Magma to reduce its debt, net of cash, by $167 million over the past three years. The reviews required to determine exact adjustment amounts, if any, are expected to be completed by year- end. The adjustments would not result in any event of default under Magma's unsecured credit agreement or its publicly traded debt issues.
According to J. Burgess Winter, president & chief executive officer, "Magma has been completely revitalized since the 1988 Recapitalization when it became an independent company. The accounting adjustments under consideration would provide the investment community with a clearer picture of Magma's future performance. We have made enormous progress over the past three years, in large part due to a new, experienced senior management team with decentralized management responsibilities, historic labor relations breakthroughs, increases in production, decreases in cash operating costs and the expansion and modernization of our world class smelting and refining complex. As a result, Magma is now well-positioned to take advantage of several exciting opportunities, including development of the recently-acquired Robinson Mining District."
Winter said that Magma has increased copper production from its own sources by approximately 30 percent, from 401 million pounds in 1988 to an estimated 521 million pounds in 1991, and has reduced its overall net operating cash costs per pound from $0.78 per pound in 1988 to an estimated $0.70 per pound in 1991. In addition, Magma completed a $166 million expansion and modernization of its smelting and refining complex in 1988, which has increased electrorefined copper cathode production 39 percent from 414 million pounds in 1988 to an estimated 575 million pounds in 1991, and has reduced smelting and refining costs to a level which the company believes to be the lowest in North America and among the lowest in the world. Achievement of full smelting capacity has enabled Magma to significantly expand its business of smelting and refining copper concentrates on a custom basis for third parties.
Winter continued, "In just the past few months, several other substantial labor relations breakthroughs have occurred. In July, gainsharing programs were implemented and Magma's labor unions agreed to cooperate in expanding the use of high performance teams throughout the entire San Manuel Underground Mine and other operations. In October, Magma and its labor unions ratified an unprecedented, fifteen-year labor agreement which eliminates the possibility of a strike or lockout for close to eight years."
Magma and its unions recently completed a successful experiment using high performance teams in a small upper portion of the Kalamazoo orebody. The use of high performance teams, which redesign their own work methods, and operate on a more self-directed basis, has significantly cut operating costs and boosted productivity.
Because of the favorable outlook for a stable and more productive workforce, Magma is performing a study, the continuation of which was dependent on the new labor contract, to determine the feasibility of developing and mining from the lower portion of the Kalamazoo orebody. Full-scale development of the Kalamazoo orebody was suspended during 1988, and general exploitation of the orebody is not included in Magma's current long-range mine plan. Under existing conditions the San Manuel Underground Mine is scheduled to be closed in 1997. However, if specific performance goals and cost reductions are achieved by the end of 1992, Magma may be able to justify as much as $90 million in capital expenditures over the years 1993 through 1997 to develop the Kalamazoo orebody which would extend the life of the San Manuel mine by at least 11 years with expected annual copper production of 170 million pounds.
As part of the feasibility study, Magma is reviewing $148 million in capitalized mine development costs incurred by Newmont prior to the 1988 recapitalization. Even if as a result of the study Magma determines to develop the lower Kalamazoo, Magma may still determine that all or a portion of the historic capitalized mine development costs may be unrecoverable and may need to be adjusted.
In addition to Kalamazoo, Magma has several other exciting opportunities. Magma recently acquired a 100 percent interest in the Robinson Mining District, near Ely, Nev. The company believes that Robinson is a world class copper and gold orebody. Based upon preliminary studies, Magma believes that Robinson could produce, on an annual basis, approximately 150 million pounds of copper and 80,000 ounces of gold for 15 years. Magma also believes that the production costs at Robinson will be substantially less than at its other mining facilities. Magma estimates that the cost of developing Robinson will be approximately $230 million. Magma is also studying further expansion of its smelting and refining complex to take advantage of high smelting and refining charges due to a worldwide shortage of smelting and refining capacity. Magma believes that it could expand its existing smelter facility by 20 percent to 720 million pounds of copper annually for approximately $60 million, about one-third the cost per ton of new capacity, and could complete the project within two years, about one-half the time required to build a new facility.
A final component of Magma's reorganization is the creation of a new wholly-owned subsidiary, Magma Metals Company, which will be responsible for smelting and refining Magma and custom concentrates and for the marketing and sales of all products. John Champagne, currently vice president of marketing & sales, was named president of Magma Metals.
Magma, one of the largest primary copper producers in the United States, produces high-quality copper cathode and rod for sale to customers worldwide. Magma has operations in San Manuel, Miami, Superior and Humboldt, Arizona and Ely, Nevada. Corporate headquarters are in Tucson.
/CONTACT: Richard P. Johnson, corporate treasurer of Magma Copper, 602-575-5670/
(MCU) CO: Magma Copper Company ST: Arizona IN: MNG SU: SE -- SD002 -- 1353 11/15/91 08:02 EST