Document O3XMG51rXz4Q3woNGmJKM3baQ

FILE NAME: Kennecott (KENN) DATE: 1956 DOC#: KENN002 DOCUMENT DESCRIPTION: Kennecott Copper Corp Annual Report 1956 K e n n e co tt COPPER CORPORATION Hafnium Mil III I Palladium Titanium SPECTROSCOPIC BANDS OF K E N N E C O T T ' S METALS boards q 83*. 2* &379r Thorium rlON FILE I IN THE N E W S : Recent Important Applications of Copper, the Metal of 100,000 Uses This New York skyscraper has a face of richly beautiful bronze. It took 3,200.000 pounds of Copper's alloy to make the bronze curtain walls. This tail assembly of Army's "Red stone" Missile (Chrysler-made) con tains 125,000 feet of Copper wire, with 7,000 soldered connections. This scoop-shaped antenna is a link in the Air Force's "White Alice'' network in the frozen Arctic. As with all communications systems, Copper is a vital ingredient. The Mechanical Brain, the uncanny machine that re members and thinks, has arteries, veins and sinews of Copper. Months of written computation are handled in minutes by this electronic marvel.__________________ The world's most powerful atomic accelerator, now be ing built at the Brookhaven National Laboratory, will require almost a million pounds of Copper for ener gizing and cooling its half-mile ring of magnets. The Heat Pump, new thermal miracle, heats your home in winter and cools it in summer, using only outside air or deep-well water. Indispensable Cop per makes it run. The new transatlantic telephone cable depends on Copper to provide better voice transmission through long years of trouble-free service. Forty-second Annual Report Kennecott Copper Corporation FOR THE YEAR ENDED DECEMBER 31, 1866 G E N E R A L OFFICES: 161 E A ST 42nd ST., N E W YO RK 17, N . Y. CONTENTS PAGE P R E S I D E N T S L E T T E R ......................................................................................... 2 R E S U L T S A T A G L A N C E .................................................................................. 4 R E V I E W O F O P E R A T I O N S .................................................................................. 5 MINING DIVISIONS................................................................................................5 E X P L O R A T IO N .......................................................................................................9 R E S E A R C H .......................................................................... ...... . . . 10 ORANGE FREE STATE GOLD MINING COMPANIES................................. 12 TIN & ASSOCIATED MINERALS LTD................................................................. 14 FABRICATING SUBSIDIARIES......................................................................... 15 QUEBEC IRON AND TITANIUM CORPORATION........................................15 ALL1ED-KENNECOTT TITANIUM C O R P O R A T I O N ................................. 17 INDUSTRIAL AND PUBLIC R E L A T I O N S ..................................................... 17 ORGANIZATION CHANGES............................................................................... 2 0 F I N A N C I A L R E V I E W ............................................................................................. 21 SCHEDULE OF I N V E S T M E N T S .................................................................. 23 SUMMARY OF RESULTS----PER S H A R E ..................................................... 2 4 FINANCIAL STATEMENTS............................................................................... 2 6 B O A R D O F D I R E C T O R S .......................................................................................2 9 H I S T O R I C A L T A B L E ............................................................................................. 3 0 O F F I C E R S A N D E X E C U T I V E S .........................................................................32 The Cover --Spectroscopic Bands of Kennecott's Metals When metals are vaporized in an electric arc, they emit characteristic light vibrations which, when observed through the spectroscope, are resolved into various bands of color. The number of vibrations reaching the eye determines the color of the light. For example, red vibrates 400 trillion times a second whereas violet, at the other end of the spectrum, vibrates almost twice as fast. Each element has its own set of vibrations, as characteristic and individual as the score of a symphony. The measure of these vibrations helps the scientist identify the substances present in a given sample of ore, and the intensities of the various colors determine the amount of each substance present. The metallurgist uses the spectroscope to check the purity and composition of his product. The astronomer uses the spectroscope to ascertain the composition of distant stars. Since some of the elements-- like iron and titanium-- actually radiate thousands of color shades, only the most intense and distinctive appear in the bands shown on the cover. The drawings were executed by the well-known scientific artist, Captain Charles Bittinger with the guidance of Donald H. Menzel, Director of the Harvard College Observatory. President's Letter To the Stockholders: In 1956 your com pany earned $143.1 million after taxes, as compared with $125.5 million in the previous year. Per share earnings for the two years were $13.23 and $11.60, respectively. The amount distributed to stockholders in 1956 was $9.25 a share versus $7.75 in 1955. The average price received by Kennecott for its copper in 1956 was 41.6 cents a pound, as compared with 36.6 cents in the previous year. The year opened with the demand for copper exceeding the supply, due partly to the high level of general business activity, and partly to the buying of copper in anticipation of possible strikes in the industry. By the latter part of February the U. S. producers' price had advanced to 46 cents a pound. However, the strikes failed to materialize and by midyear the demand for cop per had declined. Moreover, the available supply was augmented as a result of new copper mines brought into production. By the end of October the price had fallen to 36 cents. Currently, the price is 32 cents which we believe will afford stability to the market, and discourage the substitution of other materials. Production of copper by Kennecott during 1956 amounted to 582,205 tons as compared with sales amounting to 495,219 tons. In the first two months of 1957 our sales were in excess of production. Our Chilean production was formerly sold as fire refined copper to brass mills in this country and Europe. However, the reduced demand for this product and the relatively strong demand from European wire and cable com panies for electrolytically refined copper brought a decision to electrolyze in the United States a portion of our Braden production and offer electrolytic wirebars for sale in Europe. This action proved successful and thus far we have sold the greater proportion of our estimated 1957 Chilean production. Other developments worthy of note were (1) the start of the program to increase capacity of our Ray Mines Division by 20,000 tons of copper an- 2 nually and the construction of our own smelter there at a total overall cost esti mated at $40,000,000, (2) the success of the new pre-treatment plant of Quebec Iron and Titanium Corporation and the decision to build three more furnaces, increasing the total to eight, and (3) your company's joint venture with Allied Chemical & Dye Corporation in the building of a $40,000,000 plant to produce titanium metal. An unfavorable development was the flooding of the mine of Merriespruit (Orange Free State) Gold Mining Company Ltd., in which your company has a substantial investment. The outlook for this country in 1957 is for further increases in personal incomes and consumer spending for durable and non-durable goods and services. Other factors will be the high rate of industrial plant investment, continued expansion of the public utilities, increased shipbuilding, the start of the Federal multi-billion dollar highway program and increased defense expenditures. All of these indicate a continued demand for the products of Kennecott. The long term outlook for all metals indicates an increasing demand. We believe we are entering a period when the newer metals, such as titanium, columbium and zirconium, are going to be in important demand and, con sequently, your company is increasing its interest in their production. How ever, the principal product of your company is copper and will continue to be for the foreseeable future. The need is for additional copper deposits, and it is mainly toward their discovery that our exploration program is directed. By order of the Board of Directors, March 13, 1957 President The annual meeting of stockholders of Kennecott Copper Corporation will be held at 11:00 a. m., (Eastern Daylight Time) Tuesday, May 7, 1957 in the Georgian Room of the Statler Hotel, 7th Avenue and 33rd Street, New York City. A formal notice of the meeting and proxy statement, together with a form of proxy, will be mailed to stockholders on or about April 5, 1957, at which time proxies will be solicited by the management. 3 Results at a Glance 1956 1955 Total Revenue ............................................................. Total T a x e s .................................................................... Total Taxes--Per Share ......................................... Net Incom e.................................................................... Net Income--Per S h a re ......................................... $578,067,000 $160,972,000 $14.87 $143,154,000 $13.23 $555,939,000 $143,214,000 $13.23 $125,516,000 $11.60 Distributions to Sto ckholders............................ $100,100,000 Distributions to Stockholders--Per Share . $9.25 Working C a p i t a l ....................................................... $328,370,000 Ratio Current Assets to Current Liabilities . 4.0 to 1 Net Worth--Book V a lu e ......................................... $723,200,000 Book Value--Per S h a r e ......................................... $66.83 Expenditures for Plant and Equipment . . $ 21,244,000 $ 83,868,000 $7.75 $297,293,000 3.7 to 1 $679,542,000 $62.79 $ 16,006,000 Copper Produced (Net T o n s ) ............................ Copper Sold (Net T o n s)......................................... Average Number of Employees . . . . Number of S to c k h o ld e rs .................................. 582,205 495,219 27,886 89,596 526,715 533,820 27,158 88,755 Review of Operations Mining Divisions ALL DIVISIONS In 1956 the total copper produced by Kennecott was 10.5 per cent more than in 1955. New labor agreements to replace those expiring in 1956 were successfully negotiated without interruption in production. The table below shows the amounts of copper produced, and of ore mined and milled at the different divisions. It is becoming necessary to handle larger amounts of material to recover a given amount of copper. At all divisions the grade of ore mined in 1956 was lower than that of the previous year. As a result, in order to increase copper production by 10.5 per cent, it was necessary to mine 18.6 per cent more ore. Division Chino Mines . Nevada Mines Ray Mines Utah Copper . Total Copper Production From All Sources (Net Tons) 1956 1955 69,629 31,274 53,248 248,158 63,490 27,177 48,983 230,837 Total Domestic . . 402,309 370,487 Chilean . . 179,896 156,228 Grand Total . . . 582,205 526,715 Ore Mined and Milled (Net Tons) 1956 1955 7,945,386 4,316,148 5,852,742 32,321,100 6,992,950 3,179,784 4,818,358 27,740,600 50,435,376 42,731,692 10,767,314 8,856,963 61,202,690 51,588,655 5 CHINO MINES DIVISION NEW MEXICO COPPER MINE CONCENTRATING MILL SMELTER FIRE REFINERY CHASE BRASS & COPPER CO. INC CONN. & OHIO (100% OWNED) 3 BRASS MILLS FABRICATING PLANT QUEBEC IRON AND TITANIUM CORPORATION CANADA (66'o% OWNED) IRON-TITANIUM MINE TREATMENT PLANT RAILROAD UTAH COPPER DIVISION COPPER MINE 2 CONCENTRATING MILLS SMELTER ELECTROLYTIC REFINERY RAILROAD NEVADA MINES DIVISION NEVADA COPPER MINE CONCENTRATING MILL SMELTER RAY MINES DIVISION ARIZONA COPPER MINE CONCENTRATING MILL SMELTER RAILROAD ELECTRi RAILROAD EFINERY BRADEN COPPER COMPANY c h ile 0 0 0 % o w n e d ) COPPER MINE FIRE REFINERY CONCENTRATING MILL SMELTER RAILROAD KENNECOTT WIRE AND CABLE COMPANY RHODE ISLAND (100% OWNED) ALLIED-KENNECOTT TITANIUM CORPORATION (50% OWNED) FABRICATING PLANT (25 Worehouses throughout the U. S.) TITANIUM PLANT TIN & ASSOCIATED MINERALS LTD. NIGERIA (52% OWNED) COLUMBIUM MINE 2 CONCENTRATING MILLS & VIRGINIA ORANGE FREE STATE GOLD MINING CO. LTD. UNION OF SOUTH AFRICA M (40% OWNED)t GOLD MINE CYANIDE MILL URANIUM OXIDE RECOVERY PLANT SULPHURIC ACID PLANT MERRIESPRUIT (ORANGE FREE STATE) GOLD MINING CO. LTD. UNION OF SOUTH AFRICA (49% OWNED)t t GOLD MINE CYANIDE MILL URANIUM OXIDE CONCENTRATING PLANT toot owned by Kennecott but a substantial part of the output is for Kennecott. (Some refinery serves both R Nevada and Ray.) B * P la n t under construction. P l a n t under design (Site in area east of Mississippi R iv e r presently being selected). A ssu m in g conversion of loan stock under present option right. A ssu m in g fu ll conversion of loan stock. QUEBEC COLUMBIUM LTD. CANADA (46% OWNED) COLUMBIUM DEPOSITftt GARFIELD CHEMICAL AND MANUFACTURING CORP. UTAH (50% OWNED) SULPHURIC ACID PLANT Company railroads are used principally for houlinf ore from mine to m ill. In oddition. in Nevada ant Chile they ore common carriers. Products of Kennecott Wire and Cable Compony on warehoused by Chase Brass & Copper Co. Inc. In addition to the above indicated ownership in affili otes, Kennecott holds for investment 13 .1 % of flu common stock of Kaiser Aluminum and Chemical Cor poration. 7 .3 % of the common stock of the Molyh denum Corporation of America, and 25 .0 % of tin Production of the important by-products molybdenite, gold, silver and selenium was as follows: Molybdenite Gold (Tons) (Ounces) Silver (Ounces) Selenium (Pounds) 1956 1955 16,269 403,381 3,213,559 148,455 15,980 414,444 3,445,762 91,962 DOMESTIC DIVISIONS The production of copper by the four do mestic mining divisions in 1956 was 8.6 per cent greater than in 1955 and the amount of ore mined increased by 18.0 per cent. The grade of ore mined at the different divisions was as follows: Pounds of Copper Per Ton of Ore Mined Division 1956 1955 Chino Mines . . . 17.4 18.2 Nevada Mines . . . . 16.4 18.8 Ray Mines . . . . . . 18.1 21.1 Utah Copper . . . . . 16.6 17.7 N evada M in es D ivision-- While ore re serves at this division are by no means ex hausted, they are relatively less than those of the other properties. In addition the irregular nature of the ore body complicates mining pro cedures and results in comparatively high costs. R ay M in es D ivision-- The installation be gun in December 1955 for increasing by 12 per cent the amount of copper recovered from the ore of this division was completed and is now ready to be placed in operation. The installation consists of facilities for leaching, R. L. Row e, N evada division, and one o f the new rotary drills which have m ade possible g rea tly in creased drilling e ffic ie n c ie s. At the domestic divisions it was necessary to increase the amount of waste material re moved per ton of ore mined. Whereas in 1955 this ratio of waste to ore was 1.75 to 1, in 1956 it was 1.96 to 1. In other words, in addition to the 50,000,000 tons of ore mined at the domestic divisions there were 100,000,000 tons of waste removed. The total of 150,000,000 tons of ore and waste material handled was the largest in any year in the his tory of the company. C hino M ines D ivision-- Exploratory drill ing since 1953 has established extensions of the previously outlined ore body which increase the reserves at this division and consequently the life of the mine. Approximately $2,250,000 has been appropriated for additional min ing equipment necessary to develop the new areas while maintaining the present rate of ore production and the required stripping ratio. 7 precipitating and flotation in the mill, and plants for producing the sponge iron and sul phuric acid needed in the process. The sponge iron is obtained by roasting and reducing pyrite recovered from the mill tailings; in this operation sulphur dioxide gas is generated which is used for producing the sulphuric acid. Progress has been made on the $40,000,000 program announced at the last annual meeting of stockholders for increasing the productive capacity of this division by 20,000 tons of cop per annually. Plans for relocating the various surface facilities to permit enlarging the pit, and for expanding the capacity of the mill are well advanced. Construction contracts are cur rently being let. The program also provides for the construction of a smelter to process the copper concentrates and precipitates produced at this division. This work has previously been done by a custom smelter on a cost-plus basis. Construction of the new smelter is under way and is scheduled for completion in 1958. A record tonnage of copper was produced at this division. The production of low-cost precipitate copper increased from 7,546 tons in 1955 to 14,934 tons as a result of leaching the caved areas of the old underground mine. Mill copper production in 1956 was as great as in 1955 despite the lower grade of ore, be cause a greater tonnage of ore was handled. 8 Mill metallurgy was improved by the finer grind made possible by the larger ball mill motors installed during the year. U tah C o p p e r D iv isio n -- There were a number of important developments during the year at this division. A new record was estab lished in tonnage of ore and waste handled. To permit access to a section of the pit where considerable ore reserves exist, substantial sec tions of the mine railroad and attendant fa cilities were relocated. The mining plan of this division calls for the continued deepening of the pit by de veloping lower levels as the ore on the up per levels is exhausted. In order to get out the ore from the lower levels without hauling it considerable distances upgrade, two tunnels through the mountain connecting the lower levels with the main ore haulage system have thus far been provided. It is now necessary to drive another tunnel at a level 350 feet be low that of the one completed in 1951. The tunnel will be 18,000 feet long and will cost approximately $12,937,000, including track age, electrification, railroad yard and rail con nections. Work was begun in October and it is estimated it will be completed in about three years. During the year the vertical casting installa tion at the refinery, completed late in 1955 to provide the larger shapes now in demand by customers, was placed in commercial operation. CHILEAN DIVISION (BRADEN COPPER CD.) Water availability for power generation and milling limits production with present facilities at this division. Each winter freezing weather reduces the amount of water available from melting snows. Moreover, when precipitation is below normal, water available from this source in the late summer is reduced. In 1956 underground water sources were developed to augment mill water supply, and power saving installations were made. Thus it was possible to increase the tonnage of ore treated by 21.6 per cent and the amount of copper produced by 15.1 per cent. The ore contained 40.3 pounds of copper per ton as compared with 40.9 pounds in 1955. At the concentrating plant, replacement of old flotation machines by equipment of modern design was begun. At the year's end about 40 per cent of the work had been completed, and the resultant improvement in the recovery of copper has exceeded expectations. Work has started on the construction of a contact-type sulphuric acid plant that will re place an old chamber-type plant and produce acid at a substantial reduction in unit cost. As a result of steps taken by the Govern ment of Chile progress was made in slowing down the inflation which has plagued the coun try for a number of years. The program in augurated in 1956 included limiting bank credits, curbing imports and reducing govern ment expenditures. The immediate aim was to slow the inflation through a flexible approach rather than to attempt to halt it by rigid con trols. The result during the first year was a 45 per cent increase in the cost of living as compared with increases in 1954 and 1955 of 71 and 84 per cent, respectively. Exploration The primary objective of the exploration program is the replacement and expansion of the company's reserves of copper ore. The program is divided into two parts, first, the development of reserves at existing mines and, second, the discovery of new deposits in other areas. Geological work continues at the oper ating properties and significant expansion of the known ore bodies has resulted. As reported last year, work was continued R. M . H a ld em an , G en e ra i M a n a g er of C hilean division re ceiving congratu lations from President Ib a n ez on winning a w ard of the In ter-A m erican S a fe ty C o u n cil fo r ninth con secutive year. at Glacier Peak, north and east of Seattle, Washington. During 1956 sufficient work was completed to warrant the acquisition of this property. This will mean the addition of a mod erate-sized copper ore body to your company's reserves. Combined operations of Kennecott and the Hudson's Bay Company have been concen trated in the region west of Hudson Bay, near Coronation Gulf in the Northwest Territories. The Canadian Government has granted an ex clusive minerals concession covering an area of 620 square miles, within which copper min eralization has been discovered in various for mations. Drilling of this discovery has been started and will be continued at an increased rate in 1957. Drilling to delineate the extent of copper 9 H e lico p te rs sa ve tim e in re a c h in g in a c c e ssib le a re a s w h e re K e n n e co ti is co n d u ctin g e x p lo ra tio n a ctiv itie s. showings on the claims acquired in New Brunswick in 1955 resulted in the discovery of a small body of copper ore. Drilling on other groups of claims has led to promising show ings of ores which are primarily lead and zinc, with only minor amounts of copper. A secondary objective of the exploration program is the discovery of minerals other than copper which Kennecott can mine and market at a profit, and thereby increase the diversification of its operations. Increased demand for long-fiber asbestos, especially in Europe, has resulted in the test ing of what may become a source of this material in Greece. Currently an extensive geological and diamond drilling program is under way to determine the extent of this asbestos deposit and the quality of its fiber. The value of asbestos depends upon length of fiber, its tensile strength, and purity; all of these factors must be determined by testing. Preliminary results of the investigation are sufficiently encouraging to warrant further drilling and testing during the ensuing year. 10 The Greek Government, after three years o! negotiation, has entered into an agreement with Kennecott which provides a favorable economic climate under which to develop and operate the deposit if further exploration proves this to be desirable. The entrance of Kennecott into the field of high-temperature alloy metallurgy prompted the company to investigate with the Molyb denum Corporation of America a columbium deposit discovered by that company at Oka, near Montreal, Canada, as mentioned in the 1955 annual report. Prelitninary exploration of this deposit was completed in 1956 and, as a result, Kennecott exercised its option to acquire an interest in the property. A new company, Quebec Columbium Limited, has been formed to investigate the possibilities of this important deposit. Research Our Western Research Center is responsible for improving the recovery of metals from Kennecott's ores, and for the study of certain ores from projects under consideration by the company's exploration department. An example of the former is the installation at Ray for increasing the amount of copper re covered from the ore of that division. Research was completed in 1956 on the development of a method for recovering the rare and valuable metal rhenium, which is contained in the molybdenite concentrate pro duced from Kennecott's copper ores. The metal is recovered in the form of ammonium perrhenate, which is reduced to metal in powder form and fabricated into strip and wire by Chase Brass and Copper Company. Work was continued on a process for re covering pyrite from the mill tailings of the Utah Copper Division. The pyrite would be used in the production of sponge iron, and the latter used instead of detinned scrap in copper precipitation. The results indicate that a good grade of pyrite concentrate can be se cured at a reasonable cost and pilot plant testing of the method will be undertaken shortly. The ore of Quebec Columbium Limited, in which Kennecott recently acquired an in terest, is complex in character and contains in addition to columbium, calcite, apatite, mica and magnetite. During 1956 research was conducted on methods of recovering marketable products from this ore. Studies are under way with respect to the further processing of columbium concentrate produced at the property in Nigeria in which Kennecott holds a majority interest. Also un der investigation are the recovery of thorium and the production of a marketable concen trate of zirconium and hafnium, all of which elements are contained in the Nigerian ore. The two latter metals have important applica tions in the construction of atomic power plants and reactors. An investigation of the economic produc tion of zirconium by electrolysis from fused salt baths has been initiated. Arrangements have been made with Horizons Titanium Cor poration for the use of patent rights and "know-how" for the production of zirconium and hafnium, and a large scale pilot plant is under construction. At the present time there is a scrap loss of about 75 per cent in the melting and fabrication of zirconium alloys. The recovery of zirconium from this scrap is an important phase of the project. Research at Chase Brass and Copper Com pany is directed towards the development of new uses of copper and its alloys, improve ment in quality of fabricated products, and development of methods of melting, alloying and fabricating the newer metals such as titanium, zirconium, columbium and rhenium in which Kennecott is interested. Reference was made in last year's annual report to the work done at Chase on the com mercial scale fabrication of zirconium and its alloys. As a part of this program many thou sands of pounds of zircaloy tubing were ex truded, using an improvement in the technique developed in the previous year. This tubing after cold processing to final size will become a vital part of the reactor core of the first civilian nuclear power plant in this country, now being built at Shippingport, Pennsylvania. In 1956 attention was concentrated on titanium, preparatory to Kennecott's entrance into the field of titanium metal. Studies of the fatigue resistant properties of titanium and titanium alloys at varying temperatures were completed, and the effect of heat treatment and impurities was investigated. Research on the melting and fabricating was continued as part of the program of determining produc tion costs and quality of products. Studies of S o la r fu rn a ce built by K e n n e co tt's research staff. Tem per a tu res in excess o f 5 0 0 0 F .r c a p a b le of m elting fire b rick , have been produced. 11 the design of melting and fabricating facilities were undertaken. The research department's activities in the development of the iodide process for pro ducing high-purity titanium metal, referred to in previous annual reports, have been sus pended pending Allied-Kennecott Titanium Corporation's studies as to costs and market potential. The study of the resistance of copper to cor rosion under adverse conditions was continued and new facts brought to light for eliminating specific forms of attack. A series of twentyyear exposure tests of various copper alloys in house flashings and gutters was completed. Study of the strength and stability of copper alloys when stressed for prolonged periods at elevated temperatures brought forth significant results during the year. Valuable information was developed on the effects on internal struc ture of the metals by the new and extremely fast methods of annealing. In a joint undertaking Kennecott and American Smelting and Refining Company have recently completed the pilot plant testing of a method for the continuous casting of copper. The new process has possibilities as a means of improving quality and reducing costs. Orange Free State Gold Mining Companies VIRGINIA At the mine of the Virginia Orange Free State Gold Mining Co. Ltd., in which Ken necott has a substantial interest, operations continued throughout the year without inter ruption and satisfactory progress was made in all departments. This mine began commercial operation in 1954, and a comparison of re sults is as follows: 12 Ore Milled (Net Tons) . Gold Recovered (Ounces) . . Uranium Oxide Recovered (Pounds) . 1956 1955 . 1,016,000 734,000 . 236,739 156,282 . 598,725 129,060 (4 mos.) 1954 148,000 55,729 0 The capacity of the cyanide mill was in creased from 75,000 tons a month to 108,000 tons by the middle of 1956, and a further extension in capacity to 125,000 tons is sched uled for completion by the middle of 1958. The plant for recovering uranium oxide from the tailings of the cyanide mill operated satis factorily throughout the year, making a major contribution to the company's income; the extension of the plant to provide additional capacity was completed in the Fall. Unaudited earnings figures for 1956 com pared with final figures for 1955, are as fol lows: Working Profit From Gold . . From Uranium Oxide From Sulphuric Acid Total Working Profit Less Interest Charges on Gold Loans . . Less Uranium and Sul phuric Acid Loan Repayment Install ments .................... Total . . . . Net Profit.................... 1956 518,894 1,272,477 288,092 2,079,463 266,733f 624,229 890,962f 1,188,501 f 1955 221,465 199,544 175,302 596,311 245,147 0 245,147 351,164 *The company's sulphuric acid plant supplies the acid requirements of uranium precipitation plants of other companies in the Orange Free State as well as its own. tEstimated Kennecott received interest payments in 1956 amounting to $490,080 on its holdings of the company's debentures and loan stock. Estimated profit for the year plus some local borrowings were appropriated for capital ex penditures. Earnings for the next few years will WHAT WE PRODUCE and WHERE IT COMES FROM UTAH Copper. Molybdenite, Selenium, G old, Silver. Tellurium, Platinum, Palladiu m . Sulphuric Acid NEVADA Copper. Gold, Silver. Plotinum, Palladium ARIZONA Copper, Silver NEW MEXICO Copper. Molybdenite * Plant under deiign. Site presently being selected * A Ore treatment method under development. t O*e alio Hafnium contains Zirconium, and Thorium RHODE ISLAND Electrical and W ire and Cable CONNECTICUT Products Fabricated of Copper and Copper A llo yij also Rheniunvand Products Fabricated of Rhenium, Zirconium and Titanium OHIO Products Fabricated of Copper and Copper Alloys AREA EAST OF MISSISSIPPI RIVER Titanium Tetrachloride, and Titanium Sponge and Billets * CANADA Titanium Slag and Iron Columbium Bearing Produch CHILE Copper. Molybdenite NIGERIA Tin Concentrate. Columbium Tantalum Concentrate UNION OF SOUTH AFRlC G old, Uranium O xide and Sulphuric Acid also be appropriated for capital expenditures to bring the mine and mill to planned capacity, to develop adequate ore reserves, and to provide necessary pumping equipment and auxiliary facilities for water problems. In considering the results of these opera tions, the following points should be kept in mind: 1. Provision for capital expenditures must be made from net profit, and only if there is a balance remaining may such balance be utilized for redemption of bonds and payment of dividends. 2. Inasmuch as profit from uranium op erations constitutes a major portion of the total net profit, it is important to note that the contract with the Union of South Africa Atomic Energy Com mission for delivery of uranium oxide expires June 30, 1966. 3. Under the present taxation laws in South Africa, pre-production and post production capital expenditures are allowed to be redeemed from profits before any income tax is payable. In consequence, capital expenditures may be treated as costs for tax purposes and losses are carried forward until the cumulative profit exceeds the total ex penditure. Pumping and surface disposal of under ground water has assumed great significance in this area. Evidence indicates that numerous underground fissures in which water is im pounded are interconnected over considerable distances making mines vulnerable to sudden inrushes of water which could occur without warning. Thus far Virginia has been fortunate in this regard and no major difficulties have been encountered. However, the mine's in stalled pumping capacity of 6,250,000 gallons a day is believed to be insufficient to afford 13 N ew electron ically con trolled 4-stand tandem m ill tor cold rolling co p p er or co p p er alloy strip at C h ase's C leveland p la n t. M ill ta k e s strip in 1 0 ,0 0 0 p o u n d c o ils a n d ro lls it to gouges a s fin e a s th ree o n e-th o u san d th s o f an inch a t top sp e e d o f 2 0 0 0 fe e t p e r m in ute, producing /he hig h est q u a lity fin is h . full protection against an emergency condi tion, and additional equipment to provide a total pumping capacity of 15,000,000 gallons a day is being installed. An associated problem common to all gold mines in Orange Free State is the disposal on the surface of the underground water pumped from the mine. This water is salty and unfit for human or livestock consumption, or agri cultural purposes and, consequently, cannot be released into the nearby river because of its polluting effects. The Virginia company has therefore been obliged to acquire considerable land areas to which the water is pumped for evaporation. MERRIESPRUIT At the Merriespruit (Orange Free State) Gold Mining Co. Ltd. in which Kennecott has made a substantial investment, mine de 14 velopment and the construction of the mill were completed late in 1955, and commer cial production was begun in March 1956. From then until November 571,000 tons of ore were milled and 140,545 ounces of gold produced, resulting in a working profit of 272,207 on the gold and an additional 45,971 on the by-product uranium oxide. Kennecott received interest payments in 1956 from the Merriespruit company amounting to $523,502 on its holdings of the company's debentures and loan stock. In November all operations were brought to a standstill by the flooding of the mine by underground water. A decision as to future action will depend on the results of an engi neering study now in progress. As soon as the decision is reached, stockholders will be informed by a special letter. Tin & Associated Minerals Ltd. This company, in which Kennecott ac quired a 52 per cent interest in September 1955, operates a columbium and tin property at Odegi on the northern plateau of Nigeria, Africa. In 1956 production amounted to 654,920 pounds of columbium concentrate and 259,400 pounds of tin concentrate, compared with 827,942 pounds and 486,552 pounds, re spectively, in 1955. Although 1955 fiscal year operations were profitable, a loss will occur for the 1956 fiscal year (ending March 31, 1957). Whereas in 1955 the price received for columbite per pound of contained metal oxides averaged over $4.00, the termination of United States Government columbite stock piling and purchase programs resulted in a price decrease in 1956 to about $1.25 a pound. Since the termination of Tin and Associ ated Minerals' contracts with the United States Government, Kennecott has been developing columbite sales through regular commercial channels. It is expected that markets will be developed which will permit profitable opera tion of this company in the future. Columbium is used in certain stainless steels and as a constituent of alloys for withstanding high temperatures, such as those required in the manufacture of jet engines and gas tur bines. The tin concentrate from this property is marketed in England. The ore also contains zirconium, thorium and hafnium, and devel opment of markets for these ingredients is progressing. Fabricating Subsidiaries CHASE BRASS & COPPER CO. INC. On February 1, 1956 a nine-week strike began at Chase-Waterbury involving two mills and about 3500 employees. During this period the demand for mill products was at a high level. The strike was settled on March 31st. Following the strike settlement, the demand for brass mill products gradually declined, and prices of the products also fell off reflecting the reductions in the price of copper. As a result of the lower prices and the ability of the mills to make prompt delivery, customers reduced their inventories, causing a substantial reduction in brass mill activity. However, by the turn of the year the demand was improving. In April 1956, the new mill at the Cleve land plant for producing small tube was placed in operation. The basic equipment in this addition consists of a 400-foot drawbench, capable of drawing five tubes simultaneously to lengths of 200 feet and auxiliary equipment for drawing tube of small diameter in coils to lengths in excess of 4000 feet. The wisdom of the investment in these small tube facilities was immediately evident from the reduced production costs which resulted. The installation of the new 4-stand tandem mill for rolling wide strip was completed late in 1956. The earliest production trials have indicated that the goals of tolerance, gauge and per cent of reduction will be achieved. On a trial basis strip 25 inches wide has been reduced from a gauge of .150 to less than .003 in two passes through the mill. KENNECDTT WIRE AND CABLE CD. The demand for the products of this sub sidiary continued at a high level throughout most of the year and an excellent distribution of products manufactured permitted utilizing the plant's equipment with a maximum of efficiency. Facilities added during the year include a new reel assembly shop, additional materials handling equipment, and a 33 per cent in crease in capacity of equipment for producing paper insulated telephone cable. These will aid the company in meeting the growing de mands for its products. A factor in the strong demand for wire and cable products is the continuing growth of this country's electric power and telephone companies, which look ahead to a long period of expansion. Quebec Iron and Titanium Corporation 1956 marked the turning point in the affairs of this two-thirds owned Kennecott subsidiary. Improved operating methods and the com pletion of a plant for upgrading and pre-treating the ore before introduction into the electric furnaces have resulted in smoother operation and a substantial reduction in costs. In addi tion, the demand for the company's products, titanium slag and a special grade of pig iron, has been steadily increasing. Construction of 15 A erial view o f Q .l.T . operation at So rel, Q u ebec. The electric fu rn ace plant a p p e a r s in th e b a c k g ro u n d a n d th e n ew p re-tre a tm e n t p la n t in th e fo r e g r o u n d . the pre-treatment plant was finished in May, and by June, production from all five furnaces reached capacity for the first time. The company's mining property was deemed to have begun commercial production for pur poses of Canadian income tax on July 1, 1956 in accordance with certification received from the Canadian National Department of Revenue. In the six months ended December 31st the operation resulted in a profit. Since Q.I.T. is not a wholly-owned subsidiary of Kennecott, the financial results are not reflected in the latter's consolidated statements. The production figures in gross tons for the last three years are as follows: Year Titanium Slag Produced 1954 . . . 109,786 1955 . . . 145,343 1956 . . . 195,156 Iron Produced 80,859 103,531 142,745 Ore Treated 252,457 323,680 464,651 At present the demand for titanium slag from the pigment industry exceeds the capacity 16 of the present five furnaces, and the demand for slag for production of titanium metal con tinues to develop. Engineering of three addi tional furnaces has been completed and con struction work has been started. Engineering of a new prototype furnace of advanced de sign is in progress in anticipation of further plant expansion. As previously pointed out this company produces a high quality pig iron, known in the trade as Sorelmetal, which contains only very small amounts of phosphorus and silicon and virtually no manganese. During 1956 marketing activities were concentrated on ob taining wider application by foundries, and as a result more than 50 in the United States and Canada are now using the metal. It has been found to be particularly suitable for use in the manufacture of ductile iron. In the upgrading of the ore prior to electric furnace treatment about 10 per cent is re moved in the form of tailings. These tailings may find acceptance as a substitute for fluorspar for fluxing purposes in open-hearth or electric steel operation. Mill trials are being conducted which show promise of developing a sizable market for this product. Aliied-Rennecatt Titanium Corporation In December announcement was made of the plans of Kennecott Copper Corporation and Allied Chemical & Dye Corporation to form an equally owned company to produce and sell titanium metal. This company has now been formed under the name of AlliedKennecott Titanium Corporation. The plant investment will be in the neighborhood of $40,000,000 and production of titanium in the form of billets is scheduled to begin late in 1958. A new continuous process developed by Allied Chemical will be employed in which sodium is used to reduce titanium tetrachloride to titanium sponge. Allied Chemical has also developed an improved process for manufac turing the titanium tetrachloride that permits the use of titanium slag as the raw material. Production facilities will include equipment for melting the titanium sponge to ingots and forging equipment for conversion of ingots to billets. The experience in melting and forging titanium developed by the Chase Brass and Copper Company will be utilized by the new company. Titanium can be produced by the sodium process at relatively low cost and of a purity that meets commercial requirements. The metal obtained by Kennecott's iodide process is higher in purity but costs somewhat more to produce and at present has a limited market. The market for titanium is expanding rapid ly. Sponge production in 1956 was double that of 1955, and a similar rate of increase is anticipated in 1957. Industrial and Public Relations LABOR RELATIONS Labor contracts at the domestic mining divisions expired during the year and were replaced by three-year agreements. This was accomplished without stoppages at any of the locations. The new contracts provide for wage increases of 10 cents per hour in 1956, 7 cents in 1957 and 7 cents in 1958. Other benefits, including improvements in the Hospital and Surgical, Group Insurance, and Pension Plans, will add approximately 9 cents per hour to the cost of the settlements over the three-year period. Labor agreements at our Chilean subsidi ary, Braden Copper Company, do not expire until March 31, 1957. There were no further interruptions of operations during the year after the employees' return to work on January 7, 1956 following a short strike protesting pro posed labor legislation. The company is pres ently negotiating new contracts with the unions. The Waterbury plant of Chase Brass and Copper Company was closed by a strike on February 1st. The strike was settled on March 31st. Terms provided by the labor contracts were substantially the same as had been of fered by the company prior to the calling of the strike. The new agreements will remain in effect until September 15, 1958. At Chase's Cleveland plant, contracts ex pired during the month of August. New twoyear agreements were signed providing wage increases and improvements in fringe benefits. No work stoppages were encountered at this plant. At Kennecott Wire and Cable Company, three-year contracts were negotiated. These contracts run until July 1, 1959. The contract covering Quebec Iron and Titanium Corporation mine employees expired in April, and a new one-year contract was 17 signed. Later in the year, the company reached agreement on a two-year contract, expiring December 5, 1958, with the union represent ing employees at the treatment plant. COMMUNICATION The scope and effectiveness of intra-com pany communication were studied during the year. As a result of the study, communication training programs have been instituted. The strengthening of communication tools, such as staff meetings, employee magazines, manage ment letters to employees, supervisory news letters and bulletin board announcements, has also been undertaken. TRAINING Training programs are in effect to assist employees in developing their skills and abili ties, and their knowledge of the company, the industry, and the American economy. Apprentice training, on-the-job refresher Sa/e o f h o u sin g , fo rm e rly o w n e d b y K e n n e c o tt, b ro u g h t a w ave o f hom e im provem ent and rem odeling am ong the em ployees who bought the houses. This hom e at the Chino division is b ein g given a seco n d story. training, and accident prevention courses are provided to help improve individual job effici encies. A broader educational course entitled "In Business with Kennecott" explains com pany operation and financial results through a detailed analysis of the annual report. SAFETY Efforts by the company and its employees to make our mines and plants safer places to work resulted in improvements in the accident frequency rates in 1956. Braden Copper Company, for the ninth successive year, won the first-place award of the Inter-American Safety Council. Merit awards from the National Safety Council were again earned by several units of our domestic mining and fabricating divisions. Company safety training is not confined to industrial activities. Emphasis is also placed on highway safety and safety in the home. Company personnel take an active part in support of community, state and national safety programs, often serving in roles of leadership on special safety committees. 5UGGE5TI0N SYSTEM AND PATENT PLAN An Employee Suggestion System and Pat ent Plan has been adopted to enable the com pany to benefit to a greater extent from the experience, knowledge and ingenuity of its employees. The plan is designed to encourage active interest and participation of employees in the development and submission of ideas which lead to improved practices. The plan provides cash awards for sug gestions and patentable ideas which result in reduced costs and or improved working con ditions. Such awards are equal to 25 per cent of the estimated first year's net savings, with a maximum of $25,000 for adopted sugges- 18 tions and $50,000 for patented ideas. All employees are eligible to participate in the program. However, cash awards for sugges tions by salaried personnel will be limited to suggestions outside the scope of their imme diately assigned responsibilities. Employees whose suggestions demonstrate unusual crea tive ability and interest in company activities will receive added recognition in salary and promotion consideration. It is expected that the company will realize important benefits from the plan. HOUSING The sale of company housing to employees at our Western mining locations was substan tially completed in 1956. This move has brought about the development of former com pany communities into municipalities in which there exist the same civic opportunities and re sponsibilities as elsewhere in this country. G rat ifying results are already noticeable. Pride of personal ownership is being evidenced by ad ditions and renovations to many of the homes. Participation by employees in community af fairs has been substantially increased. EMPLOYEES During 1956 the average number of em ployees at Kennecott and its wholly-owned subsidiaries was 27,886. This figure does not include the employees of partially owned sub sidiaries or of companies performing contract services for any of the divisions or subsidiaries. Kennecott is proud of the number of fathers and their sons who work for the company. At the Utah division alone there are over 1300 employees, members of father and son teams. Among such combinations is Gene Fullmer, the newly-crowned world's middleweight box ing champion, who has been an employee since 1949 and his father, who has a 32-year record with Kennecott. Em ployees' children receiving their a w ards as w inners of Prize Essay Contest sponsored by Utah division. In 1956 the Braden Company made avail able Salk vaccine to children of employees in Chile. The vaccine was obtained from the United States and was administered by the com pany's medical staff at no cost to employees. PUBLIC RELATIONS It is a major objective of the company to be a good citizen and neighbor in the communi ties in which it operates. During 1956 in furtherance of this policy the company in creased its support of charitable and service organizations. Members of management as sumed prominent roles in civic affairs and en couraged employees to become more closely identified with such activities. The company continued to utilize all avail able media in its public relations program. State-wide newspaper and magazine advertise ments were regularly used to present facts about the divisions and subsidiaries. Radio 19 broadcasts have become accepted facets of the company's public communications efforts. One of the divisions presents a weekly television show, and all divisions offer plant tours as a means of getting the company better and more favorably known. On the national level the company spon sored two advertising programs designed to promote the use of copper. A "No Substitute Can Do What Copper Does" theme was car ried in leading consumer publications through out the country. An "Adequate Wiring" series of advertisements appeared primarily in tech nical and trade publications. A product pub licity campaign has also been developed to lend support to the advertising programs. AID TO EDUCATION For a number of years Kennecott has spon sored a program of scholarships and fellow ships at schools in the United States and Canada with the following objectives: (1) to encourage the study of methods for discover ing, producing and using minerals and metals; (2) to aid in the development of management personnel; and (3) to help deserving students who do not have adequate financial resources. The program has been set up in the belief that a reservoir of able and intelligent men in train ing at both undergraduate and graduate levels is essential to the mining industry and to the industrial welfare of the country. Under the present program 37 scholarships and fellowships are granted each year. Scholar ship grants amount to $1,000 each and fellow ship grants to $2,000. Each time an award is made to a student, a similar grant is made to the college in recognition of the fact that tuition fees cover only a part of the school's costs of education. In addition to the aid extended under the above program, aid to education is given lo 20 cally by the various Kennecott divisions and subsidiaries. Such aid includes over 25 schol arships to deserving students, and awards for special projects to colleges and universities located in plant community areas. It is proposed that some enlargement of the program be made in 1957, and the neces sary recommendations are being presented to the Board of Directors. Organization Changes In February 1957 Robert M. Haldeman, General Manager and the chief executive officer of Braden Copper Company in Chile, was appointed Vice President of that company. Also in February Glenn P. Bakken, for merly Executive Vice President of Chase Brass & Copper Co. Inc., was elected President, vice R. C. Diehl resigned. John H. Gilbert, Treas urer of the company for many years, retired August 31, 1956 and Robert C. Smith, for merly Assistant Treasurer, was appointed in his place. Daniel Cowan Jackling On March 13, 1956 Daniel Cowan Jackling, "the father of modern porphyry copper min ing," died at his home near San Francisco at the age of 86. He proved that low grade cop per deposits could be mined profitably by large scale methods, thereby making available needed new reserves to replace the nation's dwindling supply of high grade ore. He was instrumental in forming the companies that later became Kennecott's western divisions and served for many years as a director of this company, and Managing Director of Mining Operations, re tiring in 1942. Financial Review INCOME and D IV ID EN D S Operations for the year 1956 resulted in consolidated net income of $143,154,210 or $13.23 per share, compared with 1955 con solidated net income of $125,516,291 or $11.60 per share. The increase in net income was due pri marily to the higher average price received for copper in 1956. Cash distributions to stockholders during 1956 amounted to $9.25 per share, an increase of $1.50 over the amount distributed in the prior year. COPPER PRICES During the last two years the U. S. producers' price has fluctuated as indicated in the fol lowing table: Cents Per Pound Cents Pet Pound Jan. Feb. Mar. Aug. Sep. 1-- 30 1-- 33 31-- 36 24-- 40 1-- 43 1956 Feb. 21-- 46 Jul. 11-- 40 Oct. 29-- 36 1957 Feb. 1-- 34 Feb. 19-- 32 W ith the growth in domestic consumption of copper, the United Stales has chan ge d from an exporter of copper to an importer. Since 1940 the country has been depending on imports for a substantial part of its co pp er needs. 21 The 1955 price increases occurred because of the excess of demand over supply, aggra vated by the strikes at U. S. and African cop per mines. The increase early in 1956 was the result of a high level of business activity plus buying by copper consumers in anticipation of possible strikes. The price decreases later in 1956 and early in 1957 were due to a decline in U. S. demand, and improved availability of copper both in the United States and Europe. Kennecott Capper Corporation SOURCE and USE OF FUNDS-- 1956 (Amounts in Millions of Dollars) Source and Amount Use and Amount Net Income 143 Distributed to Stockholders 100 Oeprec. & Amort. 18 Plant Expenditures 21 Increase in Investments 9 increase in Net Working Capital 31 Net Working Capitol: Dec. 31. 1955-- $297,293,005; Dec. 31, 1956-- $328,369,713 RISING COSTS Mining of lower grade ore and the greater amount of stripping handled were major fac tors in the increase. Wage increases and higher prices for goods and services purchased also contributed to rising costs. CHILEAN EXCHANGE RATES During the year the company purchased its required pesos at rates which averaged 374 pesos to the dollar. This compares with the average rate during the previous year of 157 pesos to the dollar. The more favorable rate enabled the company to meet the rising costs in Chile caused by inflationary trends. In 1956 the Chilean division accounted for 22 26 per cent of Kennecott's total deliveries of copper and 17 per cent of the consolidated net income. TAXES The combined U. S. and foreign taxes on income amounted to approximately 49 per cent of earnings before taxes. The company's Utah franchise tax contro versy covering the years 1942 through 1950 was settled during the year. The settlement was based on an interpretation of a decision of the Supreme Court of Utah. The principles of the decision were also applied to the years 1951 through 1955. Adequate provision had previously been made in the accounts to take care of the cost of the settlement for the years 1942 through 1955, which amounted to $ 1,198,700 after allowance for Federal income taxes. The audit by the Internal Revenue Service of the parent company's U. S. income tax re turns has been completed through the year 1950. The provision for all taxes in 1956 and 1955 is summarized as follows: U. S. and foreign taxes on income Other taxes in cluded in oper ating costs or other accounts . 1956 $138,072,046 22,899,942 $160,971,988 Taxes--Per Share $14.87 1955 $122,429,231 20,784,344 $143,213,575 $13.23 GOVERNMENT SECURITIES At the year-end our holdings in U. S. and Municipal Government Securities, shown at cost on the balance sheet, amounted to $248,766,596. This is made up of $1,000,000 Chicago, Illinois, PHA notes and the balance U. S. government securities. The market value of these securities at the same date was $247,- 318,616. The company has maintained its policy of investing primarily in short-term securities. INVESTMENTS A statement which shows details of principal investments of the company at the year-end is presented herewith. The total investments of $119,181,534 represents an increase over the balance at the end of 1955 of $9,548,104. Major changes which occurred during 1956 are as follows: A further advance of $3,900,000 was made to Quebec Iron and Titanium Cor poration during the year. An additional 1,500,000 registered un secured loan stock (19.7 per cent converti ble) of Merriespruit (Orange Free State) Gold Mining Company Limited was ac quired in July 1956. An investment of $594,527 was made in the stock of Quebec Columbium Limited. This acquisition represents Kennecott ownership (45.9 per cent) in this company organized dur ing the year to investigate the possibilities of the columbium deposit at Oka, Quebec, as described in the exploration section of this report. Our interest in Kennecott-Anglovaal Ex ploration Company, Limited was disposed of during the year for a nominal consideration. Other than a small amount of cash and re ceivables there were no assets of current value remaining at the time of disposal. PROPERTY, PLANT and EQUIPMENT EXPENDITURES Total capital expenditures for replacement and modernization of equipment and increased plant facilities during 1956 were $21,244,275 as compared to $16,006,374 in 1955. Of the total amount $17,152,141 was spent by the mining divisions and $4,092,134 by the fabricating divisions. Authorized expenditures Schedule of Investments (E x c lu d in g U. S. a n d M unicipal G o vern m en t S e cu rities) Quebec Iron and Titanium Corporation-- stock and advances . . Merriespruit (O.F.S.) Gold Mining Co. Ltd.-- stock and debentures Virginia O.F.S. Gold Mining Co. Ltd.-- stock and debentures . . Kaiser Aluminum & Chemical Corporation-- s t o c k ...................... J. W. Galbreath & Co.-- notes re c e iv a b le ...................................... Molybdenum Corporation of America-- s to c k ................................. Western Phosphates, Inc.-- stock and a d v a n c e s ........................... Tin & Associated Minerals Ltd.-- s t o c k ............................................ Garfield Chemical & Manufacturing Corporation-- stock and a d v a n c e s ........................................................................ Quebec Columbium Limited-- s to c k ................................................. Compania de Acero del Pacifico-- s t o c k ...................................... Other miscellaneous investm ents....................................................... $ 41,400,000 25,251,243 21,159,116 18,800,000 3,821,187 2,831,250 1,580,000 1,158,820 740,000 594,527 350,000 1,495,391 Balance-- December 31, 1956 $119,181,534 23 yet to be completed are $79,835,COO. Depreciation and retirement of plant and equipment amounted to $8,120,221 of which $1,637,732 was for accelerated amortization of facilities covered by certificates of necessity. PEN5I0N TRU5TS A total of 21,427 employees in the United States are now covered by pension plans, and 1,247 former employees received pension benefits approximating $871,300 in 1956. During the year the company deposited $6,893,000 into five pension trusts to pay for pension benefits. EXECUTIVE INCENTIVE-COMPENSATION PLAN Awards aggregating $535,000 were made to 36 key executive employees of the company and its subsidiaries who contributed in a nota ble degree to the success of the enterprise in 1956. These awards were made pursuant to the Executive Incentive-Compensation Plan approved by the stockholders at the annual meeting held May 1, 1956. The maximum amount available for awards for the year 1956 was $1,029,167 determined as prescribed in the plan. The difference be tween the amount awarded and the amount available was not charged against profits and consequently is not available for awards in sub sequent years. STOCKHOLDERS On November 30, 1956 the 10,821,653 shares of Kennecott stock outstanding were held by 89,596 stockholders, as compared with 88,755 on the same date the previous year. The actual number of Kennecott stockholders is greater than appears on the record because many holders register their stock in the names of nominees, the number of which is far less than the number of stockholders represented. In addition to the stockholders whose stock is registered in their own names or in the names of nominees, there are many thousands of other people indirectly interested in the com pany through equity holdings in enterprises owning Kennecott stock. Kennecott stock is widely distributed. Its owners reside in every state and in many for eign countries. There are 714 foreign resident stockholders of record, holding 315,191 shares equal to about 3 per cent of the total stock out standing. Seventy-seven per cent of the stock holders own less than one hundred shares each, and ninety-nine per cent own less than one thousand shares. Summary of Results PER SHARE OF CAPITAL STOCK OUTSTANDING Sales and Other I n c o m e .......................... Consolidated Net Income before Taxes . . Provision for U. S. and Foreign Taxeson Income Consolidated Net Income after Taxes . . . . Distributed to S to c k h o ld e rs..................... Capital E x p e n d itu re s ................................ Depreciation and R e t i r e m e n t s ............... Book V a l u e ................................................ $53.42 . . 9.25 1.96 0.75 66.83 1956 25.99 12.76 13.23* 1955 $51.37 22.91 11.31 11.60 7.75 1.48 0.82 62.79 ISe t In c o m e P er S h a re -- by Q uarters 1st 2n d 3rd 4th 1956 ............................ 1955 ............................ Before Surplus Adjustments. $4.08 2.68 $4.16 3.37 $2.48 1.53 $2.51 4.02 24 AUDITORS' CERTIFICATE L o o m is, Su f f e r n & F ernald Certified Public Accountants 80 BROAD STREET NEW YORK 4 To the Directors and Stockholders of KENNECOTT COPPER CORPORATION: February 21, 1957. We have examined the Consolidated Balance Sheet of Kennecott Copper Corporation and its consolidated subsidiaries as of December 31, 1956 and the related Statements of Income and Surplus for the year then ended. We had pre viously made a similar examination for the year 1955. Our examinations were 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. In our opinion, the accompanying Consolidated Balance Sheet and State ments of Income and Surplus, and the Notes thereto, present fairly the consolidated financial position of Kennecott Copper Corporation and its consolidated subsidiaries at December 31, 1956 and December 31, 1955 and the results of their operations for the years then ended, in conformity with generally accepted accounting prin ciples applied for each year on a basis consistent with that of the preceding year. L oom is, Su ffer n & F ernald Certified Public Accountants. 25 COPPER CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Income and Earned Surplus FOR THE YEARS ENDED DECEMBER 31, 1956 A N D 1955 1956 1955 C O N S O L I D A T E D S T A T E M E N T OF I NCOME Sales and other income: Sales of metals and metal p r o d u c t s ................................................. Dividends, interest and m isc e lla n e o u s............................................ Costs and expenses: Cost of goods sold and other operating e x p e n s e s ........................... Depreciation and r e tire m e n ts ............................................................ General administrative and corporate expenses not included in operating or other expenses............................................................ Shut-down expenses during s t r i k e s ................................................. Flood and rehabilitation expenses-- W a te r b u r y ........................... Interest on tax settlem en ts.................................................................. Sundry charges for research, exploration and other deductions not included in operating or other e x p e n s e s ...................................... Net income before taxes separately stated b e l o w ....................................................... Provision for U. S. and foreign taxes on i n c o m e ................................. Net income (without deduction for depletion of m i n e s ) ...................................... $567,004,258 11,062,994 $578,067,252 $273,335,227 8,120,221 4,707,145 2,347,031 -- 1,230,383 7,100,989 $296,840,996 $281,226,256 138,072,046 $143,154,210 $548,265,990 7,672,610 $555,938,600 $273,176,136 8,904,750 2,788,063 5,976,182 11,903,585 280,022 4,964,340 $307,993,078 $247,945,522 122,429,231 $125,516,291 CONSOLIDATED EARNED SURPLUS Balance at beginning of y e a r .................................................................. Net income for y e a r .................................................................................. Exploration expenses previously written off now capitalized . Distributions to sto ck h o ld ers.................................................................. Balance at end of y e a r ...................................... $435,226,106 143,154,210 603,903 $578,984,219 100,100,290 $478,883,929 $393,577,626 125,516,291 -- $519,093,917 83,867,811 $435,226,106 See "Notes" on page 28. 26 KENNECOTT COPPER CORPORATION AND CONSOLIDATED Consolidated Balance Sheet DECEMBER 31, 1956 A N D DECEMBER 31, 1955 ASSETS Current Assets: C a s h ..................................................................................................... U. S. and municipal government secu rities...................................... Accounts receivable, less reserv es..................................................... Metals and metal products on hand and re c e iv a b le ...................... Ore and concentrates on hand and in transit--at cost . . . . Materials and s u p p lie s ..................................................................... Investments in partly-owned affiliated corporations and other invest ments-- at or below c o s t ................................................................ Deferred charges for stripping and mine d ev elo p m en t..................... Other deferred charges, prepayments, refund claims, etc..................... Mining and other properties, plants and e q u ip m e n t........................... Reserves for d e p re c ia tio n ................................................................ 1956 1955 $ 26,095,971 248,766,596 36,102,302 88,528,741 4,428,514 32,714,934 $436,637,058 119,181,534 10,363,040 4,665,913 458,398,356 (195,248,304) $833,997,597 $ 24,220,377 249,807,553 49,485,270 54,541,412 2,267,200 29,059,109 $409,380,921 109,633,430 15,734,836 7,117,605 438,431,537 (187,077,482) $793,220,847 LIABILITIES Current Liabilities: Accounts payable................................................................................ Treatment, refining and delivery charges a c c r u e d ........................... Taxes a c c ru e d ..................................................................................... Sundry reserves and deferred c r e d i t s ................................................ Capital-- Kennecott Copper Corporation-- 10,821,653 shares of no par value outstanding (12,000,000 shares authorized): Stated c a p i t a l ................................................................................ Consolidated capital surplus........................................................... Consolidated earned surplus (without deduction for depletion of now-operating m i n e s ) ...................................................................... $ 20,223,825 6,114,612 81,928,908 $108,267,345 2,530,559 53,199,636 191,116,128 478,883,929 $833,997,597 $ 21,069,936 4,484,242 86,533,738 $112,087,916 1,591,061 53,199,636 191,116,128 435,226,106 $793,220,847 See "Notes" on page 28. 27 Notes To Financial Statements Basis of Consolidation: In consolidation, the accounts of Kennecott Cop per Corporation and all of its wholly-owned sub sidiaries have been included, after appropriate elimi nation or adjustment of intercompany accounts, in accordance with the accounts of the corporations consolidated except as to certain property accounts which have been adjusted to the basis of the Ken necott stock issued or cash paid to acquire the se curities of the corporations which now own or here tofore owned such properties. The securities of corporations not wholly-owned are included as "In vestments". This is the same basis which has been applied in the consolidated statements for prior years. The accounting basis here used for mines and other properties and investments is not intended as a representation of actual present values or prospec tive future values thereof. Foreign Currency Amounts: Foreign currency amounts are included at their U. S. dollar equivalents based on appropriate ex change rates. In no case was there any excess of funds or receivables in foreign currency beyond cur rent requirements. Inventories: Inventories of metals and metal products at the beginning and end of the year are carried at cost or market value, whichever is lower. In general, cost is computed on a "first-in, first-out" method, how ever certain inventories of the fabricating divisions are computed on a "last-in, first-out" method. Materials and supplies are valued at cost except for certain items which, because of expected limited value for use, are carried at less than cost. Investments: The investment of $25,251,243 in securities of Merriespruit (Orange Free State) Gold Mining Co. Ltd. is carried at cost in the balance sheet. No re duction or reserve has been recorded in connection with the flooding of the mine, since decision as to its future awaits the results of engineering study. Stripping and Development: Deferred charges for stripping and mine develop ment represent expenditures heretofore made which are being charged off ratably against appropriate ton nages. Similar expenditures in recent years have been included currently in operating costs. Mining and Other Properties, Plants and Equipment: The amounts for mining properties and income and surplus from their operations are stated with out deduction for depletion of now-operating mines (for which mines depletion for Federal income tax purposes is allowable on a percentage of income basis). Facilities fully amortized under emergency certifi cates but unretired are carried at cost in plant and equipment accounts, offset by amortization included in depreciation reserves. The charge in income ac count for depreciation and retirements includes amor tization of emergency facilities of $1,637,732 for 1956 and $1,749,656 for 1955. Contingent Liabilities: The known contingent liabilities at December 31, 1956 were for commitments under leases, for purchases and sales, contracts for services and con struction, pension obligations, uninsured liabilities, taxes and claims, all of which arose in the ordinary course of business. Certain matters in litigation have not yet reached the stage which enables state ment to be made as to what liability, if any, may exist. No substantial loss is anticipated as the result of contingent liabilities. 28 Kennecott Copper Corporation BOARD OF DIRECTORS C harles R. C ox, President, Kennecott Copper Corporation C harles D. D ickey, Chairman, Executive Committee, J. P. Morgan & Co. Incorporated H enry S. D rinker, Lawyer; Member o f the Firm, Drinker Biddle & Reath L eland B. F lin t, President and General Manager, Flint Distributing Company Edm ond A. G uggenheim , President, The Murry and Leonie Guggenheim Foundation, and The Murry and Leonie Guggenheim Dental Clinic M. M. H ardin, Partner, La Salle Mining Company H enry O. H avem eyer, Chairman of the Board, Brooklyn Eastern District Terminal; Trustee, American Surety Company A rthur W . P age, Director, American Telephone and Telegraph Company, Westinghouse Electric Corporation, and Continental Oil Company C harles Sawyer, Lawyer; Member of the Firm, Taft, Stettinius & Hollister A lfred P. Sloan, Jr., Honorary Chairman of the Board, General Motors Corporation R obert G. Sto ne, Trustee; Special Partner, Hayden, Stone & Co. A lbert E. T h iele, Partner, Guggenheim Brothers C harles L. T utt, Chairman of the Board, The First National Bank of Colorado Springs; President, Broadmoor Hotel, Inc. M edley G. B. W helpley, Business Consultant; Director, United States Rubber Company; Trustee, American Surety Company G eorge W hitn ey, Director, J. P. Morgan & Co. Incorporated EXECUTIVE COMMITTEE C harles R. Cox C harles D. D ickey A lfred P. Sloan, Jr . E dmond A. G uggenheim C harles L. T utt M edley G. B. W h elpley G eorge W hitney TRANSFER AGENTS J. P. M organ & Co. I ncorporated, New York, N. Y. Boston Safe D epo sit and T rust C o m pa n y , Boston, Mass. REGISTRARS Bankers T rust C o m pa ny, New York, N. Y. F irst N ational Bank of Boston, Boston, Mass. 29 Historical Table KENNECiUTT COPPER CORPORATION ANO CONSOLIDATED SU B S ID IA R IES Year 1940 1941 1942 1943 Copper Ore M ined and M illed (000 N et Tons) 43,785 52,025 56,458 59,515 to D umps (000 N et Tons) 46,551 51,181 49,261 48,902 In the U.S. (Net Tons) 360,883 409,825 470,581 472,913 Copper Produced In Chile (N et Tons) 120,358 145,179 161,800 164,276 Total (Net Tons) 481,241 555,004 632,381 637,189 Total Copper Sold (N et Tons) 4 7 3 ,7 7 6 583,290 649,475 640,810 1944 1945 1946 1947 51,023 42,421 27,502 48,154 40,865 41,858 30,137 48,468 406,107 329,239 203,489 369,256 174,688 164,899 93,725 138,472 580,795 494,138 297,214 507,728 601,721 485,226 280,330 509,829 1948 46,971 1949 39,816 1950 55,018 1951 56,168 58,467 56,158 78,612 87,318 350,330 296,649 418,123 430,187 164,252 139,592 157,910 171,247 514,582 436,241 576,033 601,434 538,345 407,999 589,694 605,473 OPERATING INFORMATION 1952 1953 1954 1955 1956 59,015 56,147 44,611 51,589 61,203 81,673 79,746 66,715 74,641 98,955 444,582 429,052 338,749 370,487 402,309 184,813 140,347 108,330 156,228 179,896 629,395 569,399 447,079 526,715 582,205 634,360 524,322 509,754 533,820 495,219 1940-1956 FINANCIAL INFORMATION 30 Year 1940 1941 1942 1943 Total Revenue (000 Dollars) $178,585 239,708 261,043 266,589 Operating Costs Excl. Taxes (000 Dollars) $ 98,894 135,855 151,591 158,039 Depreciation and R etirem en ts (000 Dollars) U .S.and Foreign Income Taxes (000 Dollars) $ 5,395 7,449 6,680 8,774 $ 18,919 34,268 43,071 41,312 Taxes Other Than U .S.and Foreign Inc. (000 Dollars) 6,146 7,757 7,669 8,051 O ther Net Costs Incom e (000 Dollars) (000 Dollars) $ 5,394 5,127 3,211 5,447 $ 43,837 49,252 48,821 44,966 1944 253,651 157,569 8,513 1945 211,217 143,567 14,685 1946 157,025 104,503 4,132 1947 318,820 159,804 4,958 35,481 13,512 11,163 49,723 7,712 6,507 5,586 8,719 5,512 2,692 8,594 3,734 38,864 30,254 23,047 91,882 1948 351,100 185,181 1949 249,438 157,798 1950 400,153 231,206 1951 455,485 254,708 5,230 5,234 6,815 7,268 52,344 24,247 58,726 83,036 10,346 10,591 12,825 15,144 4,192 3,458 2,420 3,982 93,807 48,110 88,161 91,347 1952 476,740 287,957 1953 482,808 269,416 1954 429,131 261,429 1955 555,939 252,392 1956 578,067 250,435 8,509 9,244 8,734 8,905 8,120 73,580 90,069 54,323 122,429 138,072 14,716 18,798 16,976 20,785 22,900 5,827 6,527 9,763 25,912 15,386 86,151 88,754 77,906 125,516 143,154 Notes: Gold produced does not include production of mines of Orange Free State companies. Total Revenue includes Sales and Other Income. Depreciation and Retirements include amortization of emergency facilities. Molybdenite Produced (000 Pounds) 18,105 19,285 23,818 24,572 25,071 21,437 12,335 25,777 22,253 19,895 29,407 30,837 34,480 35,224 28,200 31,960 32,538 Gold Produced (Fine Ounces) 260,341 284,089 333,158 344,357 313,386 258,556 155,749 391,497 338,228 296,818 450,174 430,515 430,139 487,335 387,039 414,444 403,381 Silver Produced (Fine Ounces) 2,227,420 2,335,819 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 Average Number of Employees 28,872 31,175 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 Grade of Copper Ore Mined In the U S. (Per Cent) In Chile (Per Cent) 1.062 1.044 1.042 .996 2.135 2.105 2.179 2.079 1.005 .995 .965 .960 2.269 2.203 2.133 2.110 .946 2.220 .955 2.140 .958 2.090 .987 2.110 .952 2.151 .942 2.106 .943 2.110 .914 2.046 .843 2.014 Capital Expenditures (000 Dollars) 6,543 6,559 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 Year 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 Distributed to Stockholders (000 Dollars) $ 29,760 35,170 32,465 32,465 Net Income Per Share $ 4.05 4.55 4.51 4.15 Distributed to Stockholders Total Assets Per Share (000 Dollars) $2.75 3.25 3.00 3.00 $394,647 436,083 469,550 489,774 27,054 3.59 2.50 490,270 27,054 2.79 2.50 464,800 27,054 2.13 2.50 459,670 43,287 8.49 4.00 540,612 54,108 8.67 5.00 575,420 43,287 4.45 4.00 560,283 59,519 8.15 5.50 631,487 64,930 8.44 6.00 687,473 64,930 64,930 64,930 83,868 100,100 7.96 8.20 7.20 11.60 13.23 6.00 703,532 6.00 747,630 6.00 730,867 7.75 793,221 9.25 833,998 Cash and Government Securities (000 Dollars) $ 86,809 126,469 155,932 174,879 194,398 187,502 173,786 240,281 254,318 194,654 224,831 253,734 253,991 250,763 248,785 274,028 274,863 Current Assets (000 Dollars) $149,182 194,424 220,973 241,489 248,243 246,061 240,328 315,081 335,767 284,847 325,507 368,037 368,175 385,298 358,379 409,381 436,637 Current Liabilities (000 Dollars) $ 33,490 50,990 61,631 66,850 53,432 30,212 30,370 62,696 56,993 37,306 76,885 105,728 99,310 123,425 88,631 112,088 108,267 Capital and Surplus 1000 Dollars) $353,682 369,288 385,644 398,145 409,955 412,875 408,868 457,463 497,683 502,507 551,667 578,084 600,567 620,593 637,893 679,542 723,200 Other Costs include provisions for Reserve for Contingencies as follows: 1940--$4,000,000; 1941-- $4,000,000; 1942--$2,000,000; 1943--$4,000,000; 1944--$4,000,000. In 1950 the $17,633,060 balance of Reserve for Contingencies was returned to Earned Surplus. Net Income figures are as reported annually to stockholders, without adjustment for surplus charges and credits. Book Value Per Share 32.68 34.12 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 Year 1940 1941 1942 .1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 31 Kennecott Copper Corporation OFFICERS AND EXECUTIVES Charles R. Cox, President M. D. Ayers, Assistant to the President John D. East, Assistant to the President James Boyd, Vice President (Exploration) F. W. Chambers, Director of Engineering A. S. Cherouny, Director of Industrial and Public Relations E. S. Hann, Treasurer S. S. Jackson, Counsel Robert C. Sullivan, Assistant Counsel OF PARENT COMPANY Leslie G. J enness, Vice President (Research) Paul B. Jessup, Secretary Frank R. Milliken, Vice President (Mining) J. P. Caulfield, Assistant to Vice President (Mining) Gordon B. Russell, Comptroller W. R. Kimsey, Assistant Comptroller L. W. Shelton, General Purchasing Agent R. E. Taylor, General Traffic Manager C. D. Michaelson, General Manager, Western Mining Divisions W. H. Goodrich, General Manager Chino Mines Division A. P. Morris, General Manager Ray Mines Division J. C. Kinnear, Jr., General Manager Nevada Mines Division L. F. Pett, General Manager Utah Copper Division OFFICERS AND EXECUTIVES OF PRINCIPAL SUBSIDIARIES Kennecott Sales Corporation C. K. Lenz, President and Sales Manager F. B. McKown, Vice President and Assistant Sales Manager C. N. Whitaker, Assistant Sales Manager Braden Copper Company Charles R. Cox, President Frank R. Milliken, Vice President R. M. H aldeman, Vice President and General Manager (In Chile) B. E. Grant, Assistant General Manager (In Chile) Carlos Tolosa, Business Manager (In Chile) E. S. Hann, Treasurer Paul B. J essup, Secretary Nevada Northern Railw ay Company S. S. Jackson, President H. M. Peterson, General Superintendent Chase Brass & Copper Co. Incorporated G lenn P. Bakken, President Walter L. Smith, Vice President (Operations) G eorge B. Moseley, Vice President (Sales) Rodney Chase, Vice President (Public and Industrial Relations) J. W. G ulliksen, Vice President (Waterbury Manufacturing Division) Robert C. Smith, Treasurer Richard R. Quay, Secretary Kennecott W ire and Cable Company A. F. Sheldon, President W. G. Barney, Vice President E. S. Rising, Vice President and Sales Manager J. A. Thornton, Secretary and Treasurer Quebec Iron and Titanium Corporation (Two-thirds owned by Kennecott Copper Corp. and one-third by The New Jersey Zinc Co.) William L. Walsh, President C. Howard G eorge, Vice President Roy B. Young, General Manager 32 KENNECOTT ADVERTISING The two advertisements at the right, above and below, are typical of those of the new campaign, which Kennecott started last fall in a number of national maga zines. The aim is to impress the general public, as well as indus trial users, with the unmatched qualities of copper as a time-test ed, indispensable metal in today's world. The campaign is planned also to help counteract certain trends toward the use of substitute materials. Another Kennecott campaign is designed to tell millions of homeowners to look to their wiring for happy electrical living. This ad equate wiring campaign is render ing a real service to the electrical industry. Also it is good business because bringing America's 35,000.000 under-wired homes up to par will require millions of pounds of copper. MEET SKIMPY WIRING in lighting... no substitute can do w hat copper d o es! Copper carri Ih* alacinoty Lhat povere alacinnl appliami badar ihaa iny orbar moia)relai metal Coppa. Ine, conduci bai baiai thari any cubar commimal mata! Ne othar deli'predella metal landa ileali ao readily te euch venaty of manufecuinn | operaDOni drixiog. brama, ahaping or aUmpiiig Thari >aao ubatimi uh all th qualitua al poppar ar Ita alkryi lo lactncaJ appllancae or la thoiuandi alotbr produca for modero lini)fi 0 E ennecott Copper Corporation fabManil*Sublana OwIn. Cca--Co..laaMIreaadCalli.Ca K E N N E C O TT C O P P E R C O R PO R A TIO N 795 6