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FILE NAME: Kennecott (KENN) DATE: 1961 Dec 31 DOC#: KENN007 DOCUMENT DESCRIPTION: Kennecott Copper Corp Annual Report 1961 K en n ecott COPPER CORPORATION Annual Report 1961 FORTY-SEVENTH A N N U A L REPORT for the year ended D ecem ber 31, 19 6 1 KENNECOTT COPPER CORPORATION G en erai Offices: 161 East 42nd Street, New York 17, N. Y. Contents Page PR ESID EN T'S L E T T E R ...................................................................2 R E S U L T S AT A G L A N C E .................................................................. 4 REVIEW OF MINING O P E R A T I O N S .........................................5 C o p p e r .............................................................................................. 5 WESTERN DIVISIONS.................................................................. 5 BRADEN .................................................................................... 7 O th e r M in in g O p e r a t i o n s ............................................................8 TINTIC D I V I S I O N .........................................................................8 TIN AND ASSOCIATEDMINERALS. LTD..................................... 8 QUEBEC COLUMBIUM, LTD................................................ 8 E x p l o r a t i o n and D e v e l o p m e n t ............................................... 8 R e s e a r c h ......................................................................................... 11 F A B R I C A T I N G ................................................................................... 12 CHASE BRASS & COPPER CO., INCORPORATED . . . 12 THE OKONITE C O M P A N Y ................................................... 13 O k on ite D iv estiture S u i t ..........................................................13 I N V E S T M E N T S ...................................................................................13 QUEBEC IRON AND TITANIUM CORPORATION . . 13 EMPLOYEE R E L A T I O N S ................................................................ 14 E M P L O Y E E S .............................................................................14 MANPOWER DEVELOPMENT ................................................... 14 C O M M U N IC A T IO N S ................................................................ 14 UNION R E L A T I O N S ................................................................15 SU G G E S T IO N S .............................................................................15 S A F E T Y ......................................................................................... 16 PUBLIC R E L A T I O N S .......................................................................16 ORGANIZATION C H A N G E S ......................................................... 17 FINANCIAL R E V I E W ...................................................................... 18 Equity in Operations of Unconsolidated S u b s i d i a r i e s ............................................................................ 21 W o r k in g C a p i t a l ............................................................................ 23 S c h e d u le o f I n v e s t m e n t s ......................................................... 24 F in a n c ia l S t a t e m e n t s ................................................................25 BOARD OF D I R E C T O R S ................................................................29 HISTORICAL T A B L E ...................................................................... 30 O FFICERS AND E X E C U T I V E S ...................................................32 The a n n u a l m e e t i n g of stockholders of Kennecott Copper Corporation will be held at 11:00 a. m. (Eastern Daylight Time), Tuesday, May 1, 1962 in the Terrace Ballroom of The Statler Hilton Hotel, 7th Avenue and 33rd Street, New York City. A formal notice of the meeting and proxy state ment, together with a form of proxy, will be mailed to stockholders on or about March 30, 1962, at which time proxies will be solicited by the management. President's Letter TO THE STOCKHOLDERS: Earnings and Dividends Consolidated earnings of Kennecott and wholly-owned subsidiaries in 1961 amounted to $5.60 per share as compared with $7.00 reported in 1960. Although domestic business improved and earnings from our Western Mining Divisions exceeded those of 1960, earn ings were substantially lower at the Braden Division in Chile because of additional taxes, higher costs, lower prices, and reduced volume. Dividends to the stockholders were $5.00 per share, the same amount as paid in 1960. Copper Demand and Price With the gradual and progressive increase in industrial activity in the United States in 1961, copper industry deliveries to domestic fabricators increased from 1,279,745 to 1,425,535 tons, highest since 1956. Deliveries to foreign fabricators reached a new alltime record of 2,328,355 tons, up slightly from 1960. This free world apparent consump tion of copper at 3,753,890 tons was in reasonable balance with 1961 refined production, estimated at 3,704,368 tons. (Figures quoted as compiled by Copper Institute). This production figure is not representative of capacity in the industry, since some producers (including Kennecott) cut back operations early in the year, and substantial tonnage also was lost because of strikes. To date, the improvement in United States industrial activity is continuing, and European demand remains at a high level. Some buying may be the result of inventory accumulation in anticipation of possible labor difficulties or political unrest in some pro ducing areas. Kennecott's total shipments to domestic and foreign customers in 1961 increased 51,100 tons to 591,700 compared with 540,600 in 1960. United States deliveries in creased 27% , but shipments to foreign fabricators decreased 17% , reflecting in part the lesser tonnage available due to strikes at Braden. The domestic producers price was 29 cents at the beginning of 1961, moving up to 31 cents in May. This compared with a 33-cent producers price effective in 1960 until October. The London Metal Exchange quotation showed a somewhat wider spread in 1961, ranging from an average low of 27.6 cents in January to 30.3 cents in May as com pared with a 1960 high of 33.1 cents. The over-all average price received by Kennecott for copper in 1961 was 29.3 cents, down from the average of 31 cents in 1960. Our domestic price is currently 31 cents, with the LME price about 29(4 cents. Mining Operations All properties were operated at capacity during the year except for normal vacation shut-downs, a 21-day strike at the Utah Division, the two illegal strikes totaling 50 days at Braden, and the cut-back to six-day operations at domestic divisions in February and March to relate production to demand at that time. 2 During the year the new ore haulage tunnel at the Utah Division was placed in oper ation. Work continued on the incoming materials handling equipment at the Utah Smelter, and this phase of smelter modification will be in use in 1962. Extension of pre cipitation facilities at Utah and Chino will permit greater precipitate copper production from those properties. The new skip-haulage system at Chino, erected during 1961, started operations shortly after the year-end and will permit ore production from lower levels of the mine at a lesser cost. As the result of investments made at Braden in 1961, operations can be maintained at close to capacity throughout the year with improved copper recovery from the ore. F abricating Subsidiaries Although volume of mill products produced and sold by Chase Brass & Copper was somewhat higher in 1961 than in the previous year, highly competitive conditions con tinued in the industry with an adverse effect upon earnings of this subsidiary. At Okonite. Kennecott's wire and cable subsidiary, equally competitive conditions prevailed with a similar effect upon earnings. At Chase new equipment and a revised selling program should improve its position. New products developed by Okonite and some new facilities should also improve the situation at this subsidiary. Quebec Iron and Titanium Corporation This partially-owned subsidiary made a particularly good showing in 1961 with sales up over 13% and net profit up 60% . With two years of profitable operations it was pos sible to begin repayment of the advances made by the parent companies over past years. The outlook for Q. I. T.'s products is satisfactory, and technical improvements are permitting greater production from existing facilities. 1962 At this time the outlook for the copper industry in 1962 appears reasonably satisfac tory. Adequate demand for the first half seems assured, and in this country a good level of industrial production in the last six months could offset any current stock-piling. Labor contracts at Braden expire this month, and negotiations are now under way. At the Western Mining Divisions contracts with our principal unions expire at the end of June. By order of the Board of Directors, March 1, 1962. President. Results at a Glance 1960 ? Sales and Other I n c o m e .......................................... $506,809,000 Costs and Expenses (except T axes).......................... $351,529,000 Taxes of All T y p e s .................................................... $ 93,383,000 Dollars per S h a r e ........................................................ $8.45 $503,341,000 $319,052,000 $106,927,000 $9.67 Net In c o m e ............................................................... $ Dollars per S h a r e ........................................................ Distributions to Stockholders..................................... $ Dollars per S h a r e ........................................................ 61,897,000 $5.60 55,265,000 $5.00 $ 77,362,000 $7.00 $ 55,265,000 $5.00 Depreciation and R e tire m e n ts ............................... Capital E x p e n d itu re s ............................................... $ 18,555,000 $ 32,892,000 $ 17,177,000 $ 25,342,000 Net Worth-- Book V a l u e .......................................... Dollars per S h a r e ...................................................... Average Number of E m p lo yee s....................................... Number of S to ckh o ld e rs................................................. $748,478,000 $67.72 26,885 92,297 $741,821,000 $67.11 27,205 91,675 4 Review o f Mining Operations COPPER As shown in the accompanying table, total cop per production in 1961 was slightly below that of 1960, with domestic production at the highest level since 1956, almost offsetting a decline in Chilean production. Strikes during the year, lasting 50 days at Braden in Chile and 21 days at the Utah Division, together with a planned reduction in the work week during part of the first quarter at our domes tic divisions, limited production to the amount shown. Of particular interest is the improvement in copper production at the Chino and Ray Divisions, the latter property producing 33% more copper than its average for the past six years as the result of expansion plans now substantially completed. Reversing slightly the trend of recent years, the copper content of the ore mined in the United States in 1961 due to a temporary situation at Chino was higher than that of 1960. Production of important by-products-- molyb denite, gold and silver-- was as follows: Molybdenite (000 Pounds) Gold ( Fine Ounces) Silver ( Fine Ounces) 1961 1960 25,814 27,426 363,586 396,839 2,926,993 3,700,784 Westerii D ivisions The new skip hoist installation at the Chino Division was completed and under test by the year-end. On February 1, 1962, it was placed in production status and will move 2,000 tons of Divisions ChinoMines. . . . Nevada Mines . . . Ray Mines . . . UtahCopper Total Domestic . . . Chilean . . . Grand Total . . Total Copper Produced FromAll Sources (Net Tons) 1961 1960 74,465 45,840 64,170 210,606 62,725 47,439 58,799 215,125 395,081 175,893 384,088 187,221 570,974 571,309 Ore Mined and Milled (Net Tons) 1961 1960 7,123,800 7,488,056 7,428,104 27,839,700 7,274,700 7,354,606 6,526,814 28,060,300 Poundsof Copper Per Tonof Ore Mined 1961 1960 17.7 14.8 15.7 15.8 18.0 18.0 16.2 16.2 49,879,660 49,216,420 Avg. 16.6 16.2 10,748,794 11,518,005 38.2 39.9 60,628,454 60,734,425 Avg. 20.4 20.7 5 When pits reach depths that are excessive for ore haulage by rail or truck, " skip" or incline hoists are sometimes employed to bring material to the tup of the pit. Kennecott has two such hoists, the most recently installed being the one at the Chino Mines Division (shown in the accompanying photograph., which makes possible more economical mining at lower levels in the pit. The hoist consists of two 40-ton cars, nr "skips." working in balance, traveling up and down the sides of the pit on a 1400-foot track. The bins at the bottom are loaded by trucks, and the skips, in turn, are loaded from the bins. As a loaded skip is hoisted to the unloading station at the top of the pit. an empty skip rolls down for loading. Ore from the unloading stations is carried to the mill by electric trains as in the past. material per hour. As shown above, the grade of ore at Chino in 1961 was substantially higher than in 1960 and above the over-all average of the mine. The continuing expansion of precipita tion facilities (for recovering copper from waste dumps) made possible the recovery of 22,000 tons of copper in 1961, an 18% increase over the precipitate production in the previous year. Dur ing 1962 a new molybdenite recovery circuit and extension to the copper flotation circuit will be constructed at Chino, increasing recoveries of both molybdenite and copper. At the Nevada Division, with a reduced work force, new records were established in the ton nage moved and the ore milling rate. The skip hoist installed in 1959 has now moved over 9 million tons of material at a considerable saving over prior methods of haulage. Process control improvements at the mill and new' waste heat boilers and coal preparation facilities at the smelter are among projects now under construc tion. A new record in ore and waste handled and cop per production was also set in 1961 at the Ray Division, despite a serious water shortage encoun tered in the summer months, occasioned by two abnormally dry years in succession. Steps are being taken to locate additional sources of water, and this program, together with facilities for re claiming process water, will alleviate the problem in the future. All elements of the expansion pro gram at this division are now operating satisfac torily and are handling in excess of the planned mining and milling capacity. At the Utah Division regular haulage through the 5490 level tunnel began on May 27, 1961. This $11 million project w'as undertaken to re duce the cost of transporting ore from the lower levels of the mine. Work continued during the year on conversion of the smelter, and it is ex pected that the first phase, replacement of the incoming materials handling facilities, will be in operation during the second quarter of 1962. Engineering studies on additional planned modi fication of the smelter are under way, but no large expenditures are contemplated in the immediate future. Leaching experiments arc being con ducted at the mine to determine the advantages of controlled acidity of leaching water and bac terial oxidation on copper recovery from the dumps. The Kennecott Refining Corporation, which started operations in 1959, has been able to refine the tonnages available to it from Kennecott's vari ous divisions. Marked progress was made during the year in eliminating the mechanical problems inherent in the start-up of a new plant. The con tinuous casting of billets, ranging from 3 inches to 5 inches in diameter, is now being carried on at a rate of 3,000 tons per month. During the year all divisions continued to ap ply, where possible, instrument control and mech anization mentioned in past reports. Emphasis has been placed on metallurgical improvements, methods improvement, and manpower utilization to reduce over-all costs. Computers entered into operations to a greater extent during 1961, and these activities will be extended in the future. They are being used in payroll, materials and supply, and other related applications. Computers are also being used in so-called " critical-path scheduling" for new construction and in rebuilding of major units, such as rever beratory furnaces. Most effective use of man power, time and material, and specialized equip ment is assured by these programs. Braden As in recent past years practically all of Braden's production was consumed in European markets. Braden 3 Star Brand and Braden Blister copper accounted for more than 69% of sales in 1961. Mine, mill, and smelter tonnages were substan tially lower than in the previous year, the result 7 of illegal strikes in May and August, which halted production for a total of 50 days. In August, for the iirst time in recent years, all of the large cop per mining companies' workmen were on strike together in support of contract negotiations at only one property. During 1961 capital investments of approxi mately $6 million were made, the effect of which will increase the capacity to produce copper by some 11,200 tons annually. Two coordinated projects were completed during the year to accom plish this increase. One, the physical tie-in with the local electric utility will permit close to capac ity operations year-round by supplying power to supplement the company's hydro-electric plants. The other is a chemical treatment plant designed to recover copper from the mill tailings water. These expenditures will also eliminate the obli gation for 1961 to purchase noninterest bearing Chilean Government bonds required under the special reconstruction bill, passed following the disastrous earthquakes of 1960 and outlined in last year's report. Other expenditures, approximating $4 million, provided additional housing, new office facilities, and railroad equipment. OTHER MINING OPERATIONS Tintic Division In the continued development of the silver, lead, and zinc property at East Tintic, Utah, sinking of the inclined shaft was slowed by caving ground, heat, and water. Consequently, the opening and sampling of the major ore-bearing zones, which occur below the water table, have not as yet been accomplished. However, drilling continued to in dicate additional ore. Tin and Associated M inerals, Ltd. The earnings of this partially-owned Kennecott subsidiary, located in Nigeria, were adversely af fected in 1961 by declining demand and lower prices for columbite. The company shipped 520,000 lbs. of this product during the year compared with 840,000 lbs. in 1960. An improvement in demand for columbite de veloped late in the year as a result of increased consumption of ferrocolumbium by several major steel companies which produce low carbon colum bium steels. It is expected that most of T.A.M.'s 1962 columbite production, approaching one mil lion pounds, will be sold. Quebec Columbium, Ltd. Exploration drilling at this property, in which Kennecott holds a 45.9% interest, was continued in 1961 to define further the known ore deposits. In view of the present ample supply of columbium concentrates from other sources, production at this property is not justified at this time. The com pany was placed on an inactive basis at the end of the year. EXPLORATION AND DEVELOPMENT The company's exploration efforts continued throughout the year with most of the program be ing undertaken in the United States and Canada. Prospecting for base metals through the cen turies has led to the discovery of most of the orebodies which are easily recognizable in rock outcrops at the surface of the earth. It is presently necessary, therefore, to seek indirect evidence of the presence of deposits beneath the surface. To this end investigations are being conducted in the vicinity of known mining districts in quest of clues more subtle than those which have been used in the past. Included in the indications being sought are physical and chemical data which lend them selves to statistical analysis. It is expected that such information will be useful in reconnaissance for hidden deposits in the western United States and Canada to supplement the present practices 8 Disposal of waste tailings (the powdered material from which the copper has been extracted) is a problem of major magnitude. The tailings are disposed of by pumping them into " ponds," which are veritable lakes. The photograph above is of the tailings pond at our Ray Division in Arizona. Framework for the incoming materials handling equipment at the Utah Smelter rises against the skyline. This is part of the modification project to convert the smelter to individual Company use. 9 of geologic mapping, geochemical analysis, and geophysical surveys. Because indirect evidence does not reveal the presence of a mineral deposit with the same pre cision as do outcrops of the orebody itself, much more drilling is required for discovery and test ing. Diamond drilling was carried out at numer ous sites, and results warranted more drilling in 1962 at several of them, including copper pros pects at Santa Isabel, Puerto Rico, and Galore Creek, British Columbia. At the Saflord, Arizona, copper deposit, the de velopment shaft was completed in April, 1961, and 3,000 feet of underground workings were driven from the shaft into and w'ithin the orebody. From these workings an extensive program of un derground diamond drilling is under way; the ob jective of this drilling is to delineate in further detail the extent, grade, and mineralogical nature of the orebody. Bulk sampling of ore mined in these workings has supplied material which is cur rently being processed in a pilot plant recently erected at the property. The data thus gained will be essential for planning methods of mining and treatment when the time comes for the property to be equipped for production. On the basis of the information acquired to date, however, the com pany does not expect to put the property into pro duction in the near future. RESEARCH Research and development on the leaching of copper from mine waste was intensified during the past year. As a result of joint efforts of research, engineering, and operating personnel, the amount of copper recovered by leaching has been in creased, and much information acquired to fur ther improve the effectiveness of this operation. Methods to produce iron to be used for precipita tion are being developed, and procedures to im prove iron utilization are under study. These and other programs are directed toward increasing the amount of copper to be produced in this manner. Studies through pilot plant scale operations utilizing oxygen in the smelting of concentrates were continued through 1961, and data are being processed and evaluated. Further investigations and pilot plant operation of electrolytic tank house slimes processing, seeking to improve by-product Architect's rendering of Kennecott's new center for basic research being constructed at Lexington, Massachu setts. Here scientists will be concerned with the acquisition of fundamental knowledge and the discovery of new scientific facts, particularly in the field of metals. 4 A recent view of the immense Bingham Mine at the Utah Copper Division. In the center of the photograph may be seen the entrance to the 18,000-foot haulage tunnel placed in operation in 1961. This $11,000,000 project greatly reduces the cost of transporting ore from the lower levels of the mine. 11 metal recovery and processing costs, were well ad vanced. A program for basic research was initiated dur ing the past year. This endeavor will emphasize solid state physics of metals and is aimed at ob taining fundamental knowledge and the discovery of new scientific facts pertaining to the metals in dustry. The construction of a laboratory on a site in Lexington, Massachusetts, has been started and is expected to be completed near the end of 1962. A building to be used as executive offices is avail able, and the recruiting of personnel has started. FABRICATING SUBSIDIARIES Chase B rass & Copper Co., Incorporated, Volume of mill products shipped in 1961 was somewhat greater than the totals of 1960. How ever, despite the improved demand and a decline in foreign imports, competitive pressure on prices continued in the industry. Equipment improvement has contributed to cost reduction and quality advances in Chase's operations. A second smaller twin-tube reducing mill was placed in operation at our Chase Metal Works in Waterbury. This completes the first step in providing for the low cost production of brass and copper tubing under 2 inches in diam eter. Modernization of certain hi-speed tube draw ing equipment in the Cleveland plant was com pleted this year. Programs were initiated at both the Cleveland Mill and Chase Metal Works to pro vide improvements in metal casting facilities. More extensive use of electronic testing equip ment has improved over-all quality of Chase products. A large number of pressure tubes of zirconium alloy for a nuclear reactor were completed. This A view of the new twin-tube reducing mill recently installed at the Chase Metal Works in Waterbury. 12 required the use of previously developed tech niques in extrusion, butt-welding and cold draw ing. The same skills were used in the production of zirconium alloy tubes of nonuniform diameters to be used in the testing of pressure tubes in another nuclear reactor. A reorganization of Chase's marketing activi ties was effected during the year. In order to bet ter serve specialized customers, the Chase Metal Service Division was established to handle ware house sales; the Chase Mill Division will sell mill products directly to large industrial customers, and a separate sales division will concentrate on products for the plumbing, heating, and cooling trades. The Okonite Company Volume in terms of both pounds of product shipped and dollar sales declined from 19o0. In addition, profit margins on many of Okonite's products were sharply afTected by present com petitive conditions in the industry. Emphasis during the year was placed on pro grams for improving facilities and equipment to meet these competitive conditions. Machinery for making Alpeth and Stalpeth plastic or paper insulated telephone cables was ordered for the Rhode Island plant. This will broaden Okonite's communications cable product line and enable it to obtain a more substantial share of business from the growing telephone industry. Warehouse facilities were erected at the North Brunswick, New Jersey, plant to improve product distribution. Present research equipment is being augmented by miniature manufacturing facilities that will permit production and testing of prototype cables under controlled conditions. Used as a pilot plant, these will accelerate development of new and im proved cable insulations and coverings. Of particular interest was a SI million order received by Okonite from the Puget Sound Power and Light Company for a 115,000-volt oil-filled submarine power cable. Now in production, four of its sections, each nearly three miles long, are the longest lengths ever produced in the United States. Two other unusual orders involved high frequency dielectric cables for the nation's " Early Warning System" and a S^-inch diameter port able power feeder for the Peabody Coal Com pany's new 115-cubic yard shovel. Reports from the Cornell Testing facility continue to show that the pioneer 345,000-volt cable possesses remark able stability. A substantial order for this prod uct has been received. New products recently introduced include a line of lower-priced instrument control tubing utilizing plastic, an aluminum-sheathed wiring system for industrial and commercial usage, and a new cable sheathing material for high-temperature application. O K O N I T E DIVESTITURE SUIT The suit brought against Kennecott in 1959 by the Department of Justice, charging that the acquisition of The Okonite Company violated Sec tion 7 of the Clayton Act and asking that Kenne cott be required to divest itself of Okonite, con tinued in the pre-trial stage during 1961. A date for trial has not yet been set. INVESTMENTS Quebec Iron and Titanium Corporation In 1961 sales of this subsidiary, two-thirds owned by Kennecott, increased 13.37% over the previous year with net profit up 60% from $3,097,690 to $4,959,500 (Canadian cy.) Do minion income taxes on these earnings were offset by allowable depreciation and other deductions, a condition which should continue for several years. During the year Q. I. T. made the first repayment of advances previously provided by the parent 13 companies. Of the $750,000 repayment made, Kennecott received $500,000. To meet the increased sales demand, produc tion was maintained at full capacity of all eight furnaces and exceeded the record established in 1960 by 20% . The production figures in gross tons for the past five years are as follows: 1961 1960 1959 1958 1957 Ore treated 1,032,122 863,726 559,205 375,832 560,049 Titanium slag produced 413,715 345,213 217,589 144,029 231,179 Iron produced 277,107 221,945 145,990 105.248 167,437 The market for slag continues strong, and the use of high-carbon Sorelmetal for ductile iron is expanding. There has been some pressure on the price of low-carbon iron which, in effect, must compete in world markets with high-grade melt ing scrap. The rebuilding of one of the original furnaces and the installation of a third kiln and cooler were completed during the year. Semi-automatic charging and the development of improved tech niques have made it possible to operate the fur naces in excess of original design capacities. Additional power required for furnace operation at higher levels is being provided by installation of a 50,000 KVA transformer, which on comple tion in 1962 will increase slag capacity to 456.000 tons per year, iron to 315,000 tons, and total ore thru-put capacity to 1,200,000 tons. Construction of a titanium pigment plant by British Titan Products (Canada) Limited at Sorel is well underway and is expected to start produc tion using Q. I. T. slag in the latter half of 1962. Two new pigment manufacturing plants in Europe which were designed to use slag also are nearing completion and began to receive slag in 1961. Atlas Steels, Ltd., has announced plans to con struct at Sorel a $40 million plant for production of stainless steel sheet and strip. It is contemplated that this operation will use Q. I. T. low-carbon molten iron as base material. When completed, this plant will be the third in or near Sorel. in addi tion to many steel and foundry operations in Can ada which are being supplied with raw material by Q. I. T. Agreement has been reached with National Lead Company whereby Q. I. T. will conduct a joint engineering evaluation of the treatment of Norwegian ilmenite concentrate to produce ti tanium slag and iron. EMPLOYEE RELATIONS E m ployees The average number employed during 1961 was 26,885 compared with 27,205 during 1960. These figures exclude employees of subsidiaries only partly-owned by Kennecott. Manpower Development The increasing complexity of new problems brought on by changing technology requires con tinuous upgrading and updating of knowledge and skills of managers and employees alike. To that end, both on and off-the-job training and educa tional activities were pursued vigorously during the year. In 1961 our apprentice programs graduated 39 employees. At year end there were 211 employees in training under such programs. Under the Tuition Aid Program approximately 1,100 courses were taken voluntarily by 538 em ployees, some of whom obtained undergraduate and advanced degrees. A number of our man agers, engineers, and other specialists partici pated in company-sponsored courses or seminars conducted at various universities. C om m un ication s Throughout the year employees have been kept informed about matters that affect them and 14 Kennecott's First Inventor-Suggester. Inventor Don G. Marsh, a machinist at the Nevada Mines Division, became the first em ployee to be granted a patent under the Employee Suggestion and Patent Plan. Mr. Marsh is shown here explaining how his impact absorbing device reduces breakage of conveyor belt idler supports. the success of the Corporation. A wide variety of methods and media were employed, including radio, television, employee-supervisor meetings, company magazines, bulletin boards, and special messages to the homes of employees. Union Relations In early 1961 new 15-month agreements re placing those that had expired on December 31, 1960, were completed at Braden, our Chilean sub sidiary, without work interruption. Later in the year illegal walkouts halted production on two occasions-- from May 20 to June 12 and from August 17 to September 9. Settlements for one-year terms w'ere reached in contracts expiring in June and July at Chino, Nevada, and Ray, without a strike, and at Utah, after a 21-day shutdown. These settlements re quired negotiations with 39 separate bargaining units affiliated with a total of 18 different inter national unions. The shutdown at Utah was caused by the strike of one small union after agreements with 17 other unions had been reached. Ultimate ly, the striking union settled on the same basis as all the others. At the Kennecott Refining Corporation in Maryland, although the labor agreement expired on December 31, 1961, employees continued to w'ork. A new contract terminating on January 20, 1963, was signed early in January, 1962. At the Chase Brass & Copper Company, new one-year agreements were concluded for the Cleveland Plant in August and for the Waterbury Plant early in January, 1962. The agreements at the latter plant had expired in November. All of our major labor contracts will be under negotiation during 1962. The contracts at Braden expire at the end of March, and those at the West ern Mining Divisions in June and July. The re maining contracts at subsidiary companies termi nate during the last half of the year. Negotiations this year, as has been the case in the past, will involve a number of complex and difficult problems, and again the solutions will not be easy to find. The Company will continue to give full consideration to the best interests of all those affected-- employees, stockholders, cus tomers, suppliers, and the public. Suggestions The Suggestion and Patent Plan continues to provide a means whereby eligible employees are rewarded for their good ideas. During 1961 out of a total of 4,424 suggestions submitted under the Plan, 906 were put into effect, resulting in an estimated annual saving to the Corporation of $144,837. For these adopted ideas employees re ceived a total of $50,604 in awards. Throughout the Corporation a total of 9 pat ents were applied for and granted with another 33 pending as of year-end. Employees will continue to be encouraged to develop and submit ideas that will improve the performance of the company. 15 Safety The never-ending campaign to eliminate all accidents continued to show favorable results, particularly in our mining divisions. The Nevada, Ray, and Utah Divisions set alltime low records. Numerous awards from the National Safety Council resulted from these and other records. At all domestic mining divisions, based on nation-wide statistics, the severity and frequency rates remain below those for all manu facturing, and are far below such rates for sur face mining. At Braden safety education and accident pre vention efforts were rewarded by records that won the first place award of the Inter-American Safety Off-The-Job Safety Training Saves A Child's Life. Mrs. Ray F. (Faye) Gough, left, with Mrs. Ronald Jorgensen and her son Lance, 1 year, whom Mrs. Gough saved with mouth-to-mouth resuscitation. Mrs. Gough obtained her knowledge of this life saving technique as a result of neighborhood training sessions organized by her husband. During the " Family Night" project Mr. Gough, General Superin tendent of Mining and Concentrating at the Utah Copper Division, utilized a film and other materials loaned by Kennecott. Council for the fourteenth consecutive year. Emphasis on the need for off-the-job accident prevention to reduce lost income and to elimi nate disabilities from such causes has paid off. Numerous cases can be cited where employees were saved from suffering off-the-job injuries by wearing safety shoes, safety glasses, or other pro tective equipment. PUBLIC RELATIONS A sustained effort to develop a public awareness of the decreasing copper content in our ore, of the issues involved in labor negotiations, and the benefits accruing to local areas through taxes, pay rolls and purchases of supplies was carried on by the Public Relations Departments in the United States and Chile. All media were enlisted to extend the program of information and community relations as broad ly as possible, stressing Kennecott's recognition of its responsibility as a member of the commu nity interested in the progress of the cities, states, and countries where its operations are located. At the same time the company's position with re gard to the recurring problems of air and water pollution, water conservation, and tailings dis posal was clarified in communications to the pub lic in affected locales. Contact with educational groups and schools was stepped up with the utilization of booklets, plant visits, visual aids, and other educational material. Public speaking activities of company personnel before civic groups and technical and professional organizations were intensified in order to develop a wider understanding of com pany problems and achievements. The potential limitations to exploration possi bilities embodied in the proposed " Wilderness Bill," outlined in the dividend statement of Sep tember 22, 1961, were emphasized in testimony before congressional committees and in company publications. 16 ORGANIZATION CHANGES With the retirement of Charles R. Cox as Presi dent of Kennecott Copper Corporation, Frank R. .VIiHiken was elected as his successor on April 21, 1961. Mr. Cox continued as a Director and Mem ber of the Executive Committee until his untimely death in January, 1962. Mr. Milliken, prior to his election to the presi dency, was Executive Vice President of the Cor poration, assuming that position and membership on the Board of Directors in May, 1958. During the year Edmond A. Guggenheim and Charles Sawyer, kennecott Directors since 1916 and 1953 respectively, retired from the Board. In March Edward L. Steiniger, President of Sin clair Oil Corporation, and Albert Green, Vice President of the Murry and Leonie Guggenheim Foundation, were elected Directors. On May 31, L. W. Shelton, General Purchasing Agent, retired after 34 years of dedicated service with kennecott in the United States and South America. Named to succeed him was Robert G. Rhett who joined the company in March, 1960. Mr. Rhett had previous experience in purchasing and administrative activities in the United States and South America. Ralph E. Taylor, General Traffic Manager, re tired November 30, after a faithful career of 43 years with the company. He was succeeded by Leon J. Souren who entered kennecott's ranks in 1936 and became Assistant Traffic Manager in 1959. Dr. Ewan W. Fletcher, formerly with the Massa chusetts Institute of Technology, was named Di rector of kennecott's new basic research program to be carried out at the laboratory now under con struction at Lexington, Mass. On September 29 Charles D. Michaelson, Gen eral Manager, Western Mining Divisions, was ap pointed Vice President, Mining. Mr. Michaelson joined Kennecott in 1948 as General Superintend ent of Braden Copper Company, Kennecott's Chilean subsidiary. John C. Kinnear, Jr., former ly General Manager, Nevada Mines Division, was appointed to succeed Mr. Michaelson. M. J. O'Shaughnessy, formerly Assistant General Man ager, was named General Manager at Nevada Mines Division. Also on September 29 Gordon B. Russell, Comptroller since 1952, was appointed Treasurer and Comptroller. Mr. Russell joined Kennecott in 1941. James R. Simpson, formerly Treasurer, was named Assistant Secretary of the Corporation. Mr. Simpson is a Director of Kaiser Aluminum & Chemical Corporation. In December, 1961, Paul Dashine, formerly an executive with various mining and manufacturing enterprises, joined Kennecott in the newly-created position of Manager of Technical Services. 1891 CHARLES R. COX 1962 On January 18 Charles R. Cox, retired President of Kennecott. was killed in an accidental fall from a train. At the time of his death. Mr. Cox was 70 years of age. His passing was a cause of deep sor row to his many friends in and out of the company. His long experience, wise judgment, and coura geous leadership will be missed by all. 17 Financial Review D ivid en d s During 1961 Kennecott paid a dividend of $1.25 per share in each quarter. As in 1960, cash distributions for the year totaled $5.00 per share. These distributions in 1961 represented 89% of earnings. Over the past twenty years 75% of Kennecott's net income was paid out to stock holders. Earnings Net income in 1961 amounted to $61,896,860 or $5.60 per share. Compared with 1960 earn ings of $77,362,412 or $7.00 per share, net in come in 1961 was down 20% . In Chile addi tional taxes, higher costs, lower prices, and re duced volume all served to decrease earnings. Net income from the sale of Chilean production in 1961 was less than half of what it was in 1960. In the United States increased sales tonnages gave business a brighter tone. Lower prices were more than ofTset by good volume. Deliveries and Prices Kennecott's deliveries of copper in 1961 topped every year since 1952 when the Korean War was stimulating the demand for copper. The 591,734 tons sold in 1961 surpassed 1960 de liveries by almost 10%. The improvement was due entirely to better sales in the domestic mar ket. Deliveries to Europe actually declined slight ly because of production losses resulting from strikes in Chile. Despite a general increase in tons sold by cop per producers during 1961, prices rose only modestly from their January lows. In the United States the producers price recovered only half of the ground lost from its 1960 high of 33$. It climbed from 29$ early in the year to the present 31$ per pound by the middle of the year. Like wise on the London Metal Exchange, 1961 month ly averages made only a partial recovery toward the 1960 high of 33.1$. They rose from 27.6c in January, 1961, to 30.3$ in May and then ran close to 28.8$ for the remainder of the year. Under the circumstances of heavy demand matched by adequate supplies, prices did not move up drastically. They firmed and stabilized. The net result for Kennecott was a drop in the average price received per pound of copper from 31.0$ in 1960 to 29.3$ in 1961. Sales and Cost of Goods Sold Sales and other income in 1961 advanced to $506,809,412. The 10% increase in copper ton nage sold more than made up for the drop in aver age price to push revenues $3,468,754 ahead of 1960. With 1961 sales dollars depending more on tons sold and less on price per pound, the cost of goods sold rose substantially. Domestic produc tion costs per pound of copper held fairly steady in spite of rising pay scales, but in Chile wage in creases were too great to be offset by operating economies. Chilean Division (Braden Coj)per Company) The government of Chile continued to fight against the forces of inflation. The 10% rise in cost of living during 1961 was not as moderate as 18 the 1960 rise of 5% . Nevertheless, it represents a distinct improvement over the 32% and 33% increases recorded in 1958 and 1959. Throughout the year 1961 the exchange rate remained at 1.05 escudos to the dollar. Hence rising escudo costs for Chilean labor and supplies resulted in an increased dollar cost for copper pro duced. A second rate for escudos was established on January 15, 1962, and at the end of its first week this free brokers' rate was 1.35 escudos to the dollar. Thus far Braden is still required to purchase escudos for its current operating needs at the lower rate of 1.05 to the dollar. In 1961 the economy of Chile suffered from a number of strains and the government was forced to seek further revenue. Income tax rates for Braden, already the highest in the world for a cop per producer, were increased through two addi tional taxes. If it were not for these new taxes, Braden would be reporting 43% more income than it now does. The laws enacting these taxes give the President of Chile discretionary power to suspend them in future years. Because of the several adverse factors in 1961 Braden supplied only 18.0% of Kennecott's net earnings as compared with 30.5% in 1960. Taxes The percentage of consolidated, pretax earn ings set aside for income taxes rose only slightly in 1961. Compared with 1960 the effective Chilean tax rate was higher but applicable to a smaller share of the income. Total tax provisions for the year 1961 amounted to $8.45 per share as compared with $9.67 in 1960. U nited S tates and for eign taxes on incom e . O th er ta x e s in c lu d e d in o p eratin g co sts and other accounts . . . 1961 $ 7 0 ,3 5 6 ,2 9 4 2 3 .0 2 7 ,2 7 7 1960 $ 85,632,636 2 1 .2 9 4 .8 4 3 T o t a l ........................................ $ 9 3 .3 8 3 .5 7 1 $ 1 0 6 ,9 2 7 ,4 7 9 Taxes-- Per Share . . $8.45 $9.67 M I L L I O N S OF D O L L A R S This chart shows the amount provided each year for depreciation of plant and equipment in comparison with the amount expended for new plant and equipment. The difference must be obtained by reinvesting a portion of net income. 19 At the Utah Copper Division, largest of Kennecott's operating units, a data processing system is used to maintain the accounting records resulting from 7,500 employees and 40,000 different supply items at four major plant locations in the Salt Lake area. These tax figures do not include the $1,481,044 additional tax assessments paid against Chilean income mainly for the year 1957. Since review of that tax year for Braden had been completed in 1958, this belated assessment is charged directly to earned surplus. Through legal proceedings the company is trying to reverse this action of the Chilean taxing authorities. The United States Internal Revenue Service is still conducting its review of Kennecott's 1956 domestic income tax return. Examinations for the company and its wholly-owned subsidiaries have been completed through 1955. Property, Plant and Equipment Capital expenditures proceeded in 1961 at a slightly faster rate than in 1960. The 1961 total of $32,892,121 supplied a wide variety of tools and facilities. These expenditures provide a minor increase in production, but their principal aim is to keep Kennecott competitive in the copper mar kets of the world. At the Utah Copper Division a major project is the modification of the smelter acquired in 1959. At the Chino Mines Division work on the new skip hoist was completed at the end of the year. Operation of the $2,250,000 unit began early in 1962. In Chile steps were taken to provide supple mentary sources of power so that production can be maintained close to plant capacity throughout the year. Depreciation and retirements increased again in 1961. They rose to $18,555,444 as compared with $17,176,787 in 1960. The continued in crease in depreciation charges reflects the fact that newly acquired facilities have been added to the depreciation rolls. 20 Government and Other Short-Term Securities At the year-end the company's short-term in vestment portfolio amounting to $ d l,266.941 was made up principally of United States Government obligations and prime finance company commer cial paper. The average maturity of the securi ties was less than nine months, and the approxi mate market value at December 31, 1961, was 131,094,000. in vestm en ts Long-term investments at December 31, 1961, amounted to 83,273,955, very little changed from the end of the previous year. During the course of 1961 Kennecott increased its holdings in The Superior Wire Cloth Company from 68% to 93% . On the other hand, it liquidated entirely its investment in Kenranda Pesquisas Minerais. This Brazilian company had been set up solely to search for mineral deposits in Brazil. Of special interest in 1961 was the reduction of investment in Quebec Iron and Titanium Cor poration. This decrease resulted from repayment by Q. I. T. of 5500,000, a portion of the funds previously advanced by Kennecott. As the first such repayment, it symbolizes Q. I. T.'s coming of age. The nature and status of investments at the yearend is shown in the schedule on page 24. The first part of this schedule lists investments in firms controlled by Kennecott but owned only to the extent indicated. Unlike wholly-owned subsidi aries, these firms do not have their accounts in cluded in the consolidated financial statements of Kennecott Copper Corporation, hence the title, unconsolidated subsidiaries. Equity in Unconsolidated Subsidiaries Kennecott's investment in unconsolidated subsidiaries at December 31, 1961, came to S50.170.220. At the same date Kennecott's equity E(juity in Operations o f Unconsolidated Subsidiaries Percentage of Ownership Kennecott'i5Equity in Profits or (Losses) 1961 I960 Quebec Iron and Titanium Corporation Tin and Associated Minerals Limited . Quebec Columbium Limited Garfield Chemical and Manufacturing C orp oration ....................................... Kenranda Pesquisas Minerais . . . The Superior Wire Cloth Company (68.1% owned in 1960) . . . . Kenbestos Mining Company Limited . * Operations discontinued in 1961. 66% % 76 45.9 50 60 92.8 95 $3,178,100 $2.071,570 (169,100) 180,996 In Development Stage 1,115.500 * 663,250 (46,631) 21,700 56,198 In Development Stage $4,146,200 $2.925,383 21 in the net worth of these firms amounted to an even larger sum, 58,243,400. Cash distributions from unconsolidated sub sidiaries are included in income with dividends received. Their contribution to dividend income for 1961 is $710,620. Kennecott's equity in the 1961 net profits of these firms, based on unaudited reports, is shown in the accompanying tabulation to be 4,146,200. Not only is this figure well in excess of dividends received in 1961 but also 42% greater than Kennecott's 2,925,383 share in their 1960 profits. The improvement is due to better profits at Quebec Iron and Titanium Cor poration. Executive Incentive-Compensation Awards Of the 354,514 available from 1961 earnings, 312,500 was awarded as incentive compensation. The remaining $42,014 is no longer available for such a purpose. The 1961 awards went to 32 employees in rec ognition of their contribution in a notable degree to the success of the company. Pension Program s The company and its consolidated subsidiaries maintain several pension programs to afford future retirement benefits for employees. During 1961, $7,672,411 was provided for the maintenance of pension programs. At year end there were 20,717 employees for whom funding of retirement bene fits was being accomplished. In addition, there were 145 employees who were covered by other retirement arrangements in the United States and Chile for whom no current funding of benefits is being provided. Benefits of $3,020,562 were disbursed during the year with $2,662,566 paid from trust funds and $357,996 paid by the Company. At year-end there were 2.673 retired employees receiving pen sions through these programs. Stockholders Kennecott's 11,053,051 outstanding shares were held by 92,297 stockholders on November 28, 1961. This is the largest number of stock holder members the Kennecott family has ever had and compares with 91,675 a year earlier. The U. S. price is the price received by Kennecott and other major U. S. producers for electrolytic copper delivered at consumers' plants in the U. S. The L. M. E. price is that on which most of Kennecott's foreign sales are based and the price on which most foreign producers base their sales. The L. M. E. figures used in the chart represent the average of settlement quotations for electrolytic copper on the London Metal Exchange, converted at the rate of $2.80 to 1. 22 DELIVERIES OF REFINED COPPER TO FABRICATORS IN 1961 Cmpaais IN U S A . 1,426,000 loo t CHpiMtj OUTSIDE U-S.A. 2,328,000 font CiapMils TOTAL FREE W O R LD * 3,754,000 torn * Eaduding Norw ay, Sweden, Finland and Japan Figure are ihoM at co u nlriei reporting 10 The Copper Im iiiu ie. In 1961 Kennecott's domestic properties accounted for 23.9 per cent of all refined copper shipped to fabri cators in the U. S. In 1961 Kennecott's domestic and foreign properties accounted for 10.7 per cent of all refined copper shipped to fabricators outside the U. S. In 1961 Kennecott's domestic and foreign properties accounted for 15.8 per cent of all refined copper shipped to fabricators throughout the free world. Working Capital Summary of changes which accounted for the decrease in working capital Working Capital-- December 31, 1960 ...................... Additions: Net income for the y e a r ........................................... Exploration expenses previously written off now c a p it a liz e d ............................................................ Depreciation of plant and equipment...................... Deductions: Distributions to sto c k h o ld e rs................................. Expenditures for plant and equipment . . . . Additional Chilean income taxes assessed against prior years' e a r n in g s ........................................... Net change in investm en ts...................................... Net change in other a c c o u n t s ................................. Net decrease in working c a p i t a l ................................. Working Capital-- December 31, 1 9 6 1 ...................... $61,896,860 1,506.602 18,555,444 $81,958,906 $55,265,255 32,892,121 1,481,044 (592,048) (3,457,014) $85,589,358 $247,762,539 3,630,452 $244,132,087 23 Schedule o f Investments (Excluding Securities Carried as Current Assets) U nconsolidated S ubsidiaries: Quebec Iron and Titanium Corporation-- stock and advances (6 6 % % ) Tin and Associated Minerals Limited-- stock and advances (7 6 % ) . Quebec Columbium Limited-- stock and advances ( 4 5 . 9 % ) ...................... (controlled through voting arrangement) Garfield Chemical and Manufacturing Corporation-- stock (5 0 % ) . (controlled through operating arrangement) The Superior Wire Cloth Company-- stock ( 9 2 . 8 % ) ................................. Kenbestos Mining Company Limited-- stock and advances (9 5 % ) . Ot h e r I n v e s t m e n t s : (having market quotations) Kaiser Aluminum & Chemical Corporation-- 1,925,000 shares of common s t o c k ............................ Molybdenum Corporation of America-- 118,926 shares of common stock; 14,285 stock warrants . . Compania de Acero del Pacifico-- 1,135,139 shares of Series " B" common stock; 40,000 shares of Series " D" preferred s to c k ....................................................... Other Investments: (no market quotations) J. W. Galbreath & Company-- notes receivable . Western Phosphates, Inc.-- stock and advances Allied-Kennecott Titanium Corporation-- stock Miscellaneous investm ents................................. Market Value $63,043,750 3,547,194 421,355 $67,012,299 Balance-- December 31, 1961 $45,500,000 1,652,562 1,266,045 240,000 206,200 1,305,413 $50,170,220 $18,800,000 3,134,830 350,000 $22,284,830 $ 6,694,914 1.655.000 1.350.000 1,118,991 $10,818,905 $83,273,955 24 K E N N E C O T T COPPER CORPORATION Financial Statements 1961 25 KENNECOTT COPPER CORPORATION AND WHOLLY-OWNED SUBSIDIARIES Consolidated Statements o f Income and Earned Surplus for the years ended DECEMBER 31, 1961 AND 1960 1961 1960 1 CONSOLIDATED STATEMENTS OF INCOME Sales and other income: Sales of metals and metal products.................................................................. Dividends, interest and miscellaneous............................................................. Costs and expenses: Cost of goods s o l d .............................................................................................. Depreciation and re tire m e n ts........................................................................ Selling and general administrative expenses.................................................. Shut-down expenses during strik es.................................................................. Research, general exploration and prospecting, and miscellaneous c h a rg e s.............................................................................................................. Provision for U. S. and foreign taxes on i n c o m e ............................................ Net i n c o m e .................................................................................. $501,002,097 5,807,315 $506,809,412 $326,476,484 18,555,444 19,998,791 3,223,300 6,302,239 $374,556,258 $132,253,154 70,356,294 $ 61.896,860 $496,483,102 6,857,556 $503,340,658 $294,949,995 17,176,787 20,278,209 1,883,850 6,056,769 $340,345,610 $162,995,048 85,632,636 $ 77,362,412 CONSOLIDATED STATEMENTS OF EARNED SURPLUS Balance at beginning of y e a r ............................................................................. Net income for y e a r ............................................................................................. Exploration expenses previously written off now c a p it a liz e d ...................... Deduct: Additional Chilean income taxes assessed against prior years' earnings . Loss on disposal of South African investments............................................ Distributions to stockholders. $5 per s h a r e .................................................. Balance at end of y e a r.................................................................. See Notes to Financial Statements. $475,897,969 61,896.860 1.506.602 $539,301,431 $ 1,481,044 -- 55,265,255 $ 56,746,299 $482,555,132 $490,008,393 77,362.412 -- $567,370,805 $ 36,207,581 55.265.255 $ 91,472,836 $475,897,969 26 KENNECOTT COPPER CORPORATION AND WHOLLY-OWNED SUBSIDIARIES Consolidated Balance Sheets December 3i, i96i and i960 1961 1960 ASSETS Current assets: C a s h ................................................................................................................ $ 24,643,924 U. S. Government and other short-term securities, at co st........................... 81,266,941 Accounts receivable, less r e s e r v e s ...................................................................... 45,617,002 Metals and metal p r o d u c t s ................................................................................. 99,806,924 Ores and concentrates, at c o s t ...................................................................... Materials and supplies, at or below c o s t ...................................................... 7,173,576 39,447,296 Accounts receivable, n o n cu rren t...................................................................... 5297,955,663 5,887,875 Investments, at or below c o s t ........................................................................... Deferred charges, prepayments, etc.................................................................... Mining prop erties................................................................................................ Plants, equipment and other p ro p e rtie s........................................................... 83.273,955 9,118,004 158,277,546 509,566,681 Reserves for d e p re c ia tio n ..................................................................................... (249.662.177) S814.417.547 LIABILITIES Current liabilities: Notes payable, due within one y ear................................................................ Accounts p a y a b l e ........................................................................................... Taxes a c c r u e d ................................................................................................ 4M>% promissory note of The Okonite Company........................................... Sundry reserves and deferred credits............................................................... $ 1,460,000 25,700,704 26.662,872 $ 53.823,576 6.540.000 5,576,287 $ 29,584,667 86.717,267 34,759,666 101,810,791 8.264,925 39,899,400 $301,036,716 7,850,500 83,866.003 10.026,728 156,157,475 486,414,471 (237,797,797) $807,554,096 $ -- 25,776,016 __ 27.498461 $ 53,274,177 7,000,000 5.459,398 CAPITAL Capital stock, no par value: Authorized 12,000,000, outstanding 11,053,051 shares Stated capital...................................................................................................... Capital su rp lu s...................................................................................................... Earned su rp lu s...................................................................................................... See Notes to Financial Statements. 74,806,424 191,116,128 482.555,132 S814.417,547 74,806,424 191,116,128 475,897,969 $807,554,096 27 Historical Table 1942-1961 O p eratin g Inform ation F in a n c ia l Inform ation 30 Year 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 Copper Ore M ined and M ille d (000 Net Tons) 56.458 59.515 51.023 42.421 27,502 48.154 46.971 39.816 55.018 56.168 59,015 56.147 44.611 51.589 61.203 58.292 50.628 42.577 60,734 60.628 Maieriai Removed to Dumps (000 N e t Tons) 49.261 48.902 40,865 41,858 30.137 48.468 58.467 56.158 78.612 87.318 81.673 79,746 66.715 74.641 98.955 100.859 72.419 75.506 107,340 120.047 In th e U. S. (Net Tons) 470.581 472.913 406.107 329.239 203.489 369.256 350,330 296,649 418.123 430.187 444.582 429,052 338,749 370.487 402,309 387.291 318.732 235.228 384,088 395.081 Copper Produced In C h ile (Net Tons) 161.800 164.276 174.608 164.899 93.725 138.472 164.252 139.592 157.910 171.247 184.813 140.347 108.330 156.228 179.896 172.707 191.578 182,017 187.221 175.893 Total (Net Tons) 632.381 637.189 580,795 494.138 297.214 507.728 514.582 436.241 576.033 601.434 629.395 569.399 447.079 526.715 582.205 559.998 510.310 417.245 571.309 570.974 T o ta l C op per Sold (Net Tons) 649,475 640.810 601,721 485,226 280.330 509.829 538.345 407.999 589.694 605,473 634.360 524.322 509,754 533.820 495.219 552.944 543.845 434.566 540.598 591,734 > Year Total Revenue (000 D ollars) Cost of Goods Sold Excl. Taxes (000 Dollars) D e preciation and R e tire m e nts (000 Dollars) U. S. and F o re ig n Incom e Taxes (000 D ollars) Taxes Other Than U. S. and Foreign Inc. (000 D ollars) O th er C o s ts (000 D ollars) Net Incom e (000 D ollars) 1942 1943 1944 1945 $261,043 266.589 253.651 211.217 $151,591 158.039 157.569 143.567 $ 6.680 8,774 8.513 14.685 $ 43.071 41,312 35.481 13,512 $ 7,669 8.051 7.712 6.507 $ 3.211 5.447 5,512 2.692 $ 48.821 44.966 38.864 30,254 1946 157.025 104.503 4.132 11.163 5,586 8.594 23.047 1947 318.820 159.804 4.958 49,723 8.719 3.734 91,882 1948 351.100 185.181 5.230 52.344 10.346 4.192 93.807 i 1949 249.438 157.798 5,234 24,247 10,591 3.458 48.110 ^ 1950 400.153 231,206 6.815 58,726 12.825 2.420 88.161 1951 455.485 254.708 7.268 83.036 15.144 3.982 91.347 1952 476.740 287.957 8.509 73,580 14.716 5.827 86.151 1953 482.808 269.416 9.244 90.069 18.798 6.527 88,754 1954 1955 1956 1957 429,131 555,939 578.067 480.200 261.429 252.392 250.435 275.653 8.734 8.905 8.120 10.610 54.323 122.429 138.072 80.368 16.976 9.763 77.906 20.785 25.912 125,516 22.900 15.386 143.154 j 22.813 11.504 79.252 1958 1959 1960 1961 404.998 444.903 503.341 506.809 250.961 263.909 273.655 303,450 10.351 12.429 17.177 18,555 55.286 21.073 7.206 60.121 J 63.263 85.633 22.210 21.294 25.752 28.220 57.340 77.362 i 70,356 23.027 29,524 61,897 Net income figures are as reported annually to stockholders, w ithout adjustm ent fo r surplus charges and credits. KENNECOTT COPPER CORPORATION AND WHOLLY-OWNED SUBSIDIARIES Consolidated Balance Sheets December 3 1, i96i and i960 ASSETS Current assets: C a s h ................................................................................ U. S. Government and other short-term securities, at cost Accounts receivable, less r e s e r v e s ................................ Metals and metal p r o d u c t s ........................................... Ores and concentrates, at c o s t ...................................... Materials and supplies, at or below c o s t ...................... Accounts receivable, n o n cu rren t..................................... Investments, at or below c o s t ........................................... Deferred charges, prepayments, etc.................................... Mining prop erties................................................................ Plants, equipment and other p ro p e rtie s........................... Reserves for d e p re c ia tio n ................................................ LIABILITIES Current liabilities: Notes payable, due within one year . . . . Accounts p a y a b l e ........................................... Taxes a c c r u e d ................................................ 4!/>% promissory note of The Okonite Company Sundry reserves and deferred credits . . . . CAPITAL Capital stock, no par value: Authorized 12,000,000, outstanding 11,053,051 shares Stated capital...................................................................... Capital su rp lu s...................................................................... Earned su rp lu s...................................................................... See Notes to Financial Statements. 1961 I960 $ 24,643,924 81,266,941 45.617,002 99,806,924 7,173,576 39,447,296 3297,955.663 5,887.875 83.273,955 9,118,004 158,277,546 509,566,681 (249,662.177) 3814.417.547 $ 29,584,667 86.717,267 34,759,666 101,810,791 8.264.925 39,899,400 $301,036,716 7,850,500 83,866.003 10,026,728 156,157,475 486,414,471 (237,797.797) $807^554,096 $ 1,460,000 25,700,704 26.662,872 S 53,823,576 6.540,000 5,576,287 $ -- 25,776,016 __ 27,498,161 $ 53,274,177 7,000,000 5,459.398 74,806,424 191,116,128 482.555,132 $814,417,547 74,806,424 191,116,128 475,897,969 $807,554,096 27 Notes to Financial Statements Inventories: Inventories of metals and metal products are car ried at the lower of cost or market. In general, cost is computed on a " first-in, first-out'' method, but a " last-in. first-out" method is used for certain inven tories of the fabricating divisions. Minin? Properties: Over the years the ore reserves have increased as a result of development work and improvements in methods of recovery of metals which make possible the treatment of lower grades of ore. Accordingly, no provisions for depletion have been considered necessary. Equity in Unconsolidated Subsidiaries: Refer to comments and tabulation on page 21. Foreign Currency Amounts: Foreign currency amounts have been included in the balance sheets at the U. S. dollar equivalents appropriate to the accounts translated: current assets and current liabilities at year-end exchange rates; property accounts and investments, etc., at the rates of exchange in effect at date of acquisition; related depreciation reserves are based on U. S. dollar costs. Foreign currency amounts have been included in the statements of income at the U. S. dollar equivalents determined at the exchange rates in effect at the time of the related transactions. Approximately 7% of net current assets and ap proximately 13% of all other assets shown in the consolidated balance sheet at December 31, 1961 represent assets of consolidated subsidiaries which are located outside the United States (principally in Chile) and the related net income represents approxi mately 18% of consolidated income. The Company's investments in unconsolidated subsidiaries and affil iates are almost entirely in foreign countries, prin cipally Canada. Lonp-Term Debt: The 414 % promissory note of The Okonite Com pany is payable in annual instalments of $460.000 from 1962 through 1975 and $560,000 in 1976. The $460.000 instalment due in 1962 is included in cur rent liabilities at December 31, 1961. Auditors' Certificate L ybran d , R o ss B ro s. & M o n tg o m er y , Certified Public Accountants To the Directors and Stockholders o j K e n n e c o t t C o p p e r C o r p o r a t io n : We have examined the consolidated balance sheet o f K e n n e c o t t Co p p e r C o r po r a tio n and W h o l l y -Ow ned S u b sid ia r ie s as of December 31, 1961 and the related statements of income and earned surplus for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previ ously made a sim ilar examination for the year 1960. In our opinion, the accompanying consolidated balance sheets and state ments of income and earned surplus present fairly the consolidated financial position of Kennecott Copper Corporation and Wholly-Owned Subsidiaries at December 31, 1961 and 1960 and the results of their operations for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. L ybrand, R oss B ros. & M ontgomery New York, February 16,1962. 28 Board of Directors * " C harles D. D ic k ey , Chairman, Committee on Trust Matters, Morgan Guaranty Trust Company of New York L eland B. F lin t, Chairman oj Executive Committee and Vice Chairman of Board of Directors, Zions First National Bank. Salt Lake City, Utah * * J . P eter Grace, President, W. R. Grace & Company A lbert Green, Vice President, The Murry and Leonie Guggenheim Foundation and The Murry and Leonie Guggenheim Dental Clinic (Charitable Organizations) M. M. Hardin, President, American Gypsum Company R. S tuart K ee fe r , President, The Okonite Company Carl K. L enz, President, Kennecott Sales Corporation William F. M acklaier, Senior Partner, Law Firm of Macklaier, Chisholm, Smith. Davis, Anglin &Laing " " F rank R. M il l ik e n , President, Kennecott Copper Corporation Walter H. Pace, Vice President, Morgan Guaranty Trust Company of New York C lifton W. P h a len , President, New York Telephone Company E dward L. S teiniger, President, Sinclair Oil Corporation " 'R obert G. S tone, Trustee * " A lbert E. T h ie l e , Partner, Guggenheim Brothers Wm . T hayer T utt, President, Broadmoor Hotel, Inc. " " M edley G. B. Wh e l p l e y , Retired * * Member oj Executive Committee TRANSFER AGENTS Morgan G uaranty T rust C o. of N. Y., New York, N. Y. B oston S a fe D epo sit and T rust C ompany, Boston, M ass. REG ISTRA RS B ankers T rust Company, New York, N. Y. F irst National B ank of B oston, Boston, Mass. 29 O perating Inform ation F in an c ial Inform ation 30 Historical Table 1942-1961 f Copper Ore Mined Material Removed - Copper Produced Total and Milled to Dumps In the U. S. In C h ile Total Copper Sold Year (000 Net Tons) (000 Net Tons) (Net Tons) (Net Tons) (Net Tons) (Net Tons) 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 56.458 59.515 51,023 42.421 27.502 48.154 46.971 39.816 55,018 56.168 59.015 56.147 44.611 51.589 61.203 58.292 50,628 42.577 60.734 60.628 49,261 48.902 40,865 41.858 30.137 48.468 58,467 56,158 78,612 87,318 81,673 79,746 66,715 74,641 98,955 100.859 72.419 75,506 107,340 120.047 470.581 472.913 406,107 329.239 203.489 369.256 350,330 296.649 418,123 430.187 444.582 429,052 338,749 370.487 402,309 387,291 318.732 235.228 384,088 395,081 161,800 164.276 174,688 164,899 93,725 138.472 164.252 139.592 157.910 171.247 184.813 140.347 108.330 156.228 179.896 172,707 191,578 182,017 187,221 175,893 632,381 637.189 580,795 494.138 297.214 507.728 514.582 436.241 576.033 601,434 629.395 569.399 447,079 526.715 582.205 559.998 510.310 417.245 571.309 570.974 649.475 640.810 601,721 485,226 280.330 509.829 538.345 407.999 589,694 605,473 634.360 524.322 509,754 533.820 495.219 552,944 543.845 434.566 540.598 591,734 Year Total Revenue (000 Dollars) Cost of Goods Sold Excl. Taxes (000 Dollars) Depreciation and R e tir e m e n ts (000 Dollars) U.S. and Foreign Income Taxes (000 Dollars) Taxes Other Than U. S. and Foreign Inc. (000 Dollars) Other Costs (000 Dollars) Net Income (000 Dollars) 1942 1943 1944 1945 $261,043 266.589 253.651 211.217 $ 151,591 158.039 157.569 143.567 $ 6.680 8.774 8,513 14.685 $ 43.071 41,312 35,481 13,512 $ 7.669 8.051 7,712 6,507 $ 3.211 5,447 5,512 2,692 $ 48,821 44.966 38.864 30,254 1946 1947 1948 1949 157.025 318.820 351,100 249.438 104.503 159.804 185,181 157.798 4.132 4.958 5,230 5,234 11,163 49,723 52,344 24,247 5,586 8.719 10.346 10,591 8.594 3.734 4.192 3.458 23,047 91.882 93.807 48.110 1950 1951 1952 1953 400.153 455.485 476.740 482.808 231.206 254.708 287.957 269.416 6.815 7.268 8.509 9.244 58,726 83.036 73,580 90.069 12.825 15.144 14,716 18.798 2.420 3.982 5,827 6.527 88.161 91.347 86.151 88,754 1954 1955 1956 1957 429.131 555.939 578.067 480.200 261.429 252.392 250,435 275,653 8.734 8.905 8.120 10.610 54,323 122.429 138,072 80.368 16.976 20.785 22,900 22.813 9,763 25.912 15.386 11,504 77.906 125,516 143.154 79,252 1958 404.998 250.961 10,351 55,286 21,073 7.206 1959 444.903 263.909 12.429 63.263 22.210 25,752 1960 503.341 273.655 17.177 85,633 21.294 28.220 \ 1961 506.809 303,450 18,555 70,356 23,027 29,524 Net income figures are as reported annually to stockholders, w ith o u t adjustm ent for surplus charges and credits. 60.121 57,340 77.362 61,897 KENNECOTT COPPER CORPORATION AND WHOLLY-OWNED SUBSIDIARIES Price Received for Copper (Cents per Lb.) M o ly b d e n it e Produced (000 Pounds) 11.7 23.818 11.7 24.572 11.7 25.071 11.6 21,437 14.0 12.335 21.0 25.777 21.9 22.253 19.5 19,895 21.0 29.407 24.4 30.837 24.3 34.480 28.0 35.224 28.0 28.200 36.6 31.960 41.6 32.538 28.9 28.756 25.4 23.626 30.0 20.967 31.0 27.426 29.3 25,814 Gold Produced (Fine Ounces) 333.158 344.357 313.386 258.556 155.749 391.497 338.228 296.818 450,174 430.515 430.139 487.335 387.039 414.444 403.381 377.367 313.380 240.179 396.839 363.586 Silver Produced (Fine Ounces) 2.650.206 3.059.286 2.693.558 2.183.964 1.305.283 3.128,766 2.823.068 2.384,043 3.586.763 3.441.549 3.679.035 3.911.928 2.852,744 3,445,762 3.213,559 3.295,170 2.821.364 2.167.469 3.700.784 2.926.993 Average Number of Employees 28.797 29.005 27.143 24.526 23.483 25.887 26.210 24.807 26.152 26.594 26.898 28.024 25,474 27.158 27.886 26.752 23.041 27.231 27.205 26.885 Grade of Copper Ore Mined IntheU .S. (Per Cent) In Chile (Per Cent) 1.042 .996 1.005 .995 .965 .960 .946 .955 .958 .987 .952 .942 .943 .914 .843 .839 .851 .816 .809 .831 2.179 2.079 2.269 2.203 2.133 2.110 2.220 2.140 2.090 2.110 2.151 2.106 2.110 2.046 2.014 1.963 1.948 1.938 1.993 1.909 Capital Expenditures (000 Dollars) 8.164 9.768 6.370 2.990 9.900 12.037 10.329 18.023 13.960 13.126 14.908 16.170 8.748 16.006 21.244 27.332 39.667 85.254 25,342 32,892 Year 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 Total $ 4.51 4.15 3.59 2.79 2.13 8.49 8.67 4.45 8.15 8.44 7.96 8.20 7.20 11.60 13.23 7.32 5.44 5.19 7.00 5.60 Net Income Per Share By Quarters 1st 2nd 3rd $ .94 1.16 1.02 .78 .26 1.90 2.14 1.51 1.55 2.33 2.03 2.15 1.70 2.68 4.08 2.57 1.05 2.03 1.65 1.46 $1.09 .90 .97 .73 .16 2.36 2.32 .64 1.94 2.32 1.73 2.03 2.19 3.37 4.16 1.99 1.02 2.29 2.21 1.82 $1.14 .98 .90 .47 .59 2.20 2.33 .83 2.20 1.90 2.03 1.87 1.47 1.53 2.48 1.45 1.34 .99 1.82 1.04 4th $1.34 1.11 .70 .81 1.12 2.03 1.88 1.47 2.46 1.89 2.17 2.15 1.84 4.02 2.51 1.31 2.03 ( .12) 1.32 1.28 uistnbutea io Stockholders (000 Dollars) Per Share $ 32,465 32.465 27.054 27.054 27.054 43.287 54.108 43.287 59,519 64.930 64.930 64.930 64.930 83.868 100.100 64.930 54.340 66.318 55.265 55.265 $3.00 3.00 2.50 2.50 2.50 4.00 5.00 4.00 5.50 6.00 6.00 6.00 6.00 7.75 9.25 6.00 5.00 6.00 5.00 5.00 Total Assets (000 Dollars) $469,550 489.774 490.270 464.800 459.670 540.612 575.420 560,283 631.487 687.473 703.532 747.630 730.867 793.221 833.998 807,452 825.678 802.839 807,554 814.418 Capital and Surplus (000 Dollars) $385,644 398.145 409.955 412,875 408.868 457.463 497.683 502.507 551.667 578.084 600,567 620.593 637.893 679,542 723.200 737.521 764.909 755.931 741.821 748.478 Book Value Per Share 35.64 36.79 37.88 38.15 37.78 42.27 45.99 46.44 50.98 53.42 55.50 57.35 58.95 62.79 66.83 68.15 69.20 68.39 67.11 67.72 Net Income per Share and Book Value per Share are based on number of shares outstanding at December 31st of each year. Year 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 31 Parent Company Officers and Executives F rank R . M illik f.n , President J ohn D. E ast. Assistant to the President C. H arry B ijrcess. Vice President (Exploration) R obert H. L o unsbury. General Counsel P al l Da sh in e, Manager of Technical Services M. D. A yers, Director of Engineering L eslie G. J en n ess, Vice President (Research) R obert G. R h e tt. General Purchasing Agent L eon J . S ouren, General Traffle Agent S . S. J ackson, Vice President (Administration) P aul B. J essu p, Secretary A rthur S. C herouny, Director of Employee Relations E. M. H arris, J r., Associate Counsel C. D. M ich a elson , Vice President (Mining) G ordon B. R u sse ll, Treasurer & Comptroller F . A. E gner, Assistant Treasurer W. R. K im sey , Assistant Comptroller J ames R. S im pso n . Assistant Secretary M arvin L ydinc, Assistant Comptroller L ester Zif fr e n , Director of Public Relations R obert L. Ward, Assistant Comptroller J ohn C. K inn ear, J r., General Manager, Western Mining Divisions E . A. S lover, General Manager Chino Mines Division A. P. M orris. General Manager Ray Mines Division M. J. O'S h a ug h n essy, General Manager Nevada Mines Division J . P. O 'K e e fe , General Manager Utah Copper Division I. G. P ickering, Refinery Manager, Kennecott Refining Corporation Principal Subsidiaries Kennecott Sales Corporation Chase B rass & C opper Co., Incorporated C. K. L enz, President J. H. B oyd, Vice President J. M. K een e, J r., Vice President F. B. M cK own, Vice President B raden C opper Com pany F rank R. M il l ik e n , President R. M. H aldem an, Vice President (In Chile) G lenn P. B a k k en , President William H. P resto n, Executive Vice President William F. A ylard, Vice President (Technical) G ilbert R. B outin, Vice President (Operations) H erman H. K rem er, Vice President (Metal Service Division) P aul M. T hom as, Vice President (Metal Sales) R obert C. S m ith , Treasurer R ichard R. Quay, Secretary B. E. Grant. General Manager (In Chile) The Okonite Com pany C arlos T olosa, Business Manager (In Chile) R. S tuart K eefer, President P aul B. J essu p, Secretary G ordon B. R u sse l l , Treasurer & Comptroller D avid W. N urse, Vice President (Manufacturing) E lliott M. N esvig, Vice President (Marketing) C h a rles M. K ir k la n d , Vice President Quebec Iron and Titanium Corporation S teph en A. Wilso n , Vice President, Secretary and General Counsel (Two-thirds owned by Kennecott Copper D r. R obert B. B lodgett, Director of Research Corp. and one-third by The New Jersey R aymond V. T esta, Treasurer and Comptroller Zinc Company) W illiam L. Wa lsh , President Nevada Northern Railw ay Com pany \ S . S. J ackso n, President L indsay F. J o h n so n, Vice President H. M. P eterson, Vice President and J . M. H erndon, General Manager General Superintendent 32 P R I N T E D IN U . S . A .