Document V3gVJydp99XZbO40mExGOwM3p

FILE NAME: Kennecott (KENN) DATE: 1962 DOC#: KENN009 DOCUMENT DESCRIPTION: Kennecott Copper Corp Annual Report 1962 O.IVILAND PUBLIO LIBRAR) BUSINESS INF. BUR. CORPORATION FILE KENNECOTT COPPER CORPORATION ANNUAL REPORT 1962 B o a rd o f D ire c to rs Charles D. Dickey, Chairman, Committee on Trust Matters, Morgan Guaranty Trust Company of New York L eland B. Flint, President, Zions First National Bank, Salt Lake City, Utah **J. Peter Grace, President, W. R. Grace &Company Albert 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. Stuart Keefer, President, The Okonite Company Carl K. Lenz, President, Kennecott Sales Corporation William F. Macklailr, Senior Partner, Law Firm of Macklaier, Chisholm, Smith, Davis, Anglin &Laing F rank R. Milliken, President, Kennecott Copper Corporation Walter H. Page, Vice President, Morgan Guaranty Trust Company of New York Clifton W. Phalen, President, New York Telephone Company Edward L. Steiniger, President, Sinclair Oil Corporation R obert G. Stone, Trustee Charles G. Stradella, Retired A lbert E. T hiele, Partner, Guggenheim Brothers Wm. Thayer Tutt, President, Broadmoor Hotel, Inc. M edley G. B. Whelpley, Retired ** Member of Executive Committee Transfer Agents Morgan G uaranty T rust Company of New York, New York, N. Y. Boston Safe D eposit and T rust Company, Boston. Mass. R e g istra rs Bankers T rust Company, New York, N. Y. F irst National Bank of Boston, Boston, Mass. KENNECOTT COPPER CORPORATION Executive Offices: 161 East 42nd Street, N ew York 17, N . Y. FORTY-EIGHTH ANNUAL REPORT-- YEAR ENDED DECEMBER 31. 1962 C o n te n ts PAGE B O A R D O F D I R E C T O R S .................................Inside F r o n t C o v e r R E S U L T S A T A G L A N C E ......................................................... 2 P R E S I D E N T 'S L E T T E R ......................................................... 3 R E V I E W O F O P E R A T I O N S ................................................... 5 COPPER M I N I N G ............................................................................. 5 WESTERN MINING DIVISIONS................................................... 5 BRADEN COPPER COMPANY................................................... 6 OTHER M I N I N G ............................................................................. 8 QUEBEC IRON AND TITANIUM CORPORATION . . . 8 TINTIC DIVISION....................................................................... 8 TIN AND ASSOCIATED MINERALS LIMITED . . . 8 FABRICATING.................................................................................. 10 CHASE BRASS & COPPER CO., INCORPORATED . . . 10 THE OKONITE COMPANY........................................................ 10 EXPLORATION AND DEVELOPMENT . . . . 12 R E S E A R C H ........................................................................................ 12 M IN IN G............................................................................................... 12 FABRICATING.................................................................................. 14 LEDGEMONT LABORATORY........................................................ 14 E M P L O Y E E R E L A T I O N S ........................................................ 14 COMMUNITY AND PUBLIC RELATIONS . . . 16 O R G A N I Z A T I O N C H A N G E S ........................................... 17 F I N A N C I A L R E V I E W ............................................................... 18 Eq u ity in O p e r a t i o n s o f U n c o n s o l i d a t e d Subsidiaries 21 W o r k i n g C a p i t a l ............................................................................... 23 Sc he dul e o f I n v e s t m e n t s ............................................................ 24 Fi na n ci a l S t a te m e n t s ...................................................................2 6 O F F I C E R S A N D E X E C U T I V E S ............................................... 29 H I S T O R I C A L T A B L E ...................................................................30 W O R L D W I D E O P E R A T I O N S ......................................................32 The annual m eeting of stockholders of Kennecott Copper Corporation w ill be held Tuesday, May 7, 1963, in The S tatler H ilton H otel, 7th Avenue and 33rd Street, New York City. A form al notice of the m eeting and proxy statem ent, together w ith a fo rm of proxy, w ill be m ailed to sto c k h o ld e rs on o r a b o u t A p ril 5, 1963, at w h ic h tim e pro xie s w ill be solicited by the m anagem ent. Cover: The silver, black, gold and copper stripes decorating the cover re p re s e n t th e c o lo rs o f K e n n e c o tt's m a jo r m in e ra ls -- s ilv e r, m o lyb d e n ite and gold, a ll b y-p ro d ucts o f th e C o rp o ra tio n 's p rin c ip a l p ro d u ct, copper. RESULTS AT A GLANCE SALES AND OTHER INCOME ........................................... . . . . COSTS AND EXPENSES (EXCEPT TAXES) ...................... . . . . TAXES OF ALL TYPES ........................................................... . . . . DOLLARS PER SHARE ........................................... . . . . 1962 $513,803,000 $358,721,000 $ 89,427,000 $8.09 1961 $506,809,000 $351,529,000 $ 93,383,000 $8.45 NET IN C O M E ................................................................................................. DOLLARS PER SHARE ........................................... . . . . . DISTRIBUTIONS TO STOCKHOLDERS................................ . . . . DOLLARS PER SHARE ........................................... ..................... $ 65,655,000 $5.94 $ 55,265,000 $5.00 $ 61,897,000 $5.60 $ 55,265,000 $5.00 DEPRECIATION AND R ETIR E M E N TS ........................... ...................... CAPITAL EXPENDITURES................................................ ...................... $ 20,570,000 $ 31,386,000 $ 18,555,000 $ 32,892,000 NET WORTH-- BOOK V A L U E ........................................... ..................... DOLLARS PER SHARE ...................................... ..................... AVERAGE NUMBER OF E M P LO Y E ES ........................... ...................... NUMBER OF STOCKHOLDERS ...................................... ...................... 2 $757,348,000 $68.52 26,133 93,976 $748,478,000 $67.72 26,885 92,297 PRESIDENT S LETTER Earnings To the Stockholders: Consolidated net income of Kennecott and its wholly owned subsidiaries for the year 1962 was $5.94 per share compared with $5.60 for 1961. Net income would have been approximately the same for the two years were it not for a tax adjustment. Earnings from Kennecott's domestic mining operations were below 1961 be cause of lower sales and increased costs. Earnings of Braden Copper Company for the year were off for the same reasons and because of higher Chilean income tax rates. The decline in domestic and foreign mining income was offset largely by the performance of our fabricating subsidiaries which showed a profit rather than the loss experienced in 1961. Sales, Production and Price Copper sales of 555,334 tons were lower than in the year 1961. By Septem ber we had accumulated a reasonable copper inventory. Beginning that month production was curtailed to bring it into line with sales. Copper production of 575.208 tons was about the same as in 1961, when there were important work stoppages at Braden and Utah. The average price received for copper in 1962 was 30.0 cents per pound com pared with 29.3 cents in 1961. Utah Expansion Program Although copper producing capacity in the free world is adequate at the present time, world consumption of the metal has expanded at a rate of more than 3 per cent a year over the past decade, and it is expected that the use of copper will continue to grow in the future. To meet these expanding needs of our customers and to supply new require ments, the Directors at their February, 1963 meeting voted to increase the pro ductive capacity of the Utah Copper Division by approximately 100.000 tons of copper a year. This program will cost approximately $100 million and should be completed in four to five years. Utah would then have a capacity of about 300,000 tons of copper a year. By-product production of molybdenite, gold, and silver also will be increased. The program envisages not only increased ore output at the mine itself, but provides for substantial expansion of the production of relatively low-cost precipi tate copper from leaching the Utah Division's large mine dumps. Dividends As has been indicated in previous reports to stockholders, Braden's earnings have been reduced substantially during the past two years because of higher Chilean tax rates and increased costs. The Utah expansion and projects being considered 3 Basic Research Laboratory Braden Copper Company Outlook at other properties involve major expenditures. In light of these circumstances, the Directors at the February, 1963 meeting declared a dividend of $1.00 per share instead of the $1.25 paid the previous quarter. Dividends over the past five years have averaged approximately 89 per cent of earnings, which is abnormally high. During this period dividend payments and capital expenditures made in connection with the Company's integration, plant improvement and expansion programs have exceeded its cash flow. The Corpora tion's cash and short term securities have declined from $232 million to $103 million during this period. The Ledgemont basic research laboratory building has been erected and is now being equipped. When completed later this year the laboratory will be staffed by 60 scientists and technicians who will engage in the search for fundamental knowl edge of materials through the application of solid state physics. In December, 1962, His Excellency Jorge Alessandri, President of the Repub lic of Chile, visited the United States. His visit was warmly received and was suc cessful in advancing Chile-United States relations. It will be recalled that three years ago we considered a major investment at our Chilean subsidiary, Braden Copper Company, which, if carried out, would have increased its productive capacity importantly. However, changed circumstances caused abandonment of the project. In our meeting with the President, discussions took place regarding conditions which would make possible a series of modest investments over a period of years to increase copper output and improve employee housing and other com munity services at the property. Further discussions of such a program and the governing investment conditions are continuing in Chile. As previously mentioned we believe the long range outlook for copper is good. The demand for the metal is expected to increase, and Kennecott has the ore reserves necessary to expand copper output and share in this future growth. The 1963 outlook for the copper industry seems reasonably good at this time. Adequate demand appears assured for the first six months, and economic forecasts for both this country and Europe, which together consume approximately 90 per cent of the free world's copper, indicate that a satisfactory year should be experi enced by the industry. By order of the Board of Directors, March 5, 1963 4 P resident REVIEW OF OPERATIONS Copper M ining Production in 1962 was slightly above the total for the preceding year as noted in the accompanying table which provides details regarding output at the various Divisions. In September the production rate at all Divi sions was brought into line with sales by reducing opera tions from seven operating days per week to six days. The grade of ore mined in the four domestic mines of Kennecott in 1962 averaged .810 per cent copper, against .831 per cent the year before. At Braden Cop per Company in Chile, the ore grade was 1.957 per cent as compared to 1.909 per cent in 1961. More complete information on the trend in ore content is provided in the Historical Table on page 31. Utah Copper Division became the first mine in the world to mine more than 100,000.000 tons of ore and waste in a calendar year. In 1962 this Division moved more than 102,000.000 tons, enough material to fill over 1,000,000 railroad ore cars. Utah likewise established a new world daily mining record of 283,873 tons of combined ore and waste. Two divisional daily records of ore and waste mined were set -- 110,883 tons at Nevada, and 86.929 tons at Ray. The yield of valuable by-products, molybdenite, gold, and silver, was as follows: Molybdenite (000 Pounds) Gold (Fine Ounces) Silver (Fine Ounces) 1962 . . 1961 . . 25,429 25,814 361,847 363,586 3,152,801 2,926,993 WESTERN MINING DIVISIONS Concentrated efforts were directed at achieving im proved operating methods and procedures in order to offset the steadily rising costs of manpower, services and equipment, and higher costs resulting from increased stripping and lower grade ore. At Chino Mines Division, the skip haulage system inaugurated early in 1962 permitted resumption of min ing in the bottom of the pit and the development of lower mining levels. The new system reduced ore production costs substantially by eliminating a part of the long and slower rail haulage. The remainder of the train facilities will be replaced in 1963 by the more economical truck haulage. Precipitating plant production increased 30 per cent, totaling 28,663 tons of copper compared to 22,000 tons in 1961. The new molybdenite plant, on stream at year-end, will increase recovery of that mineral in 1963. Nevada Mines Division developed a practicable leaching process during 1962 which is expected to yield about 3 per cent of the copper produced during the next five years at a cost somewhat below that for the pit copper. The mine loading and haulage fleet was mod ernized and costs will be reduced by replacing 25 small trucks with twelve 65-ton trucks and two 4-cubic yard shovels with one 8-cubic yard shovel. Development at Ray Mines Division of a new well and acquisition of additional electric power for the con centrator resulted in an all-time high in copper produc tion despite the third successive year of drought. Test D ivisions Chino Mines . . . . Nevada Mines . . . Ray Mines . . . . Utah Copper . . . . Total Domestic . . . C h ile a n .................... Grand Total . . . . Total Copper Produced From All Sources (Net Tons) 1962* 1961* 73,683 43,369 66,475 210,375 73,808 46,496 64,361 216,504 393,902 401,169 181,306 173,269 575,208 574,438 Ore M ined and M illed (Net Tons) 1962 1961 7,071,800 7,176,488 7,695,757 29,175,000 7,123,800 7,488,056 7,428,104 27,839,700 51,119,045 49,879,660 11,537,521 10,748,794 62,656,566 60,628,454 Pounds of Copper Per Ton of Ore M ined 1962 1961 18.2 17.7 15.5 15.7 18.3 18.0 15.4 16.2 Avg. 16.2 16.6 39.1 38.2 Avg. 20.4 20.4 * P ro d u c tio n s ta tis tic s are given on a re fin e d basis. The 1961 fig u re s p re v io u s ly re p o rte d on a s m e lte d basis have been re s ta te d on a refined basis fo r purposes of com parison. 5 applications related to centralized pit operations control, including closed circuit industrial television for monitor ing shovel loading and citizens band radio communica tions for the entire truck fleet, showed promise. At the Utah Copper Division a sharp increase in pre cipitate copper production from 9,438 tons in 1961 to 16,678 tons in 1962 resulted from expansion of water circulation systems to increase the flow and the copper content of leach solutions. Construction of the new $5 million incoming materials handling facilities at the smelter was completed and full operation of the system was attained in November. In September, 1962, as reported in detail to stock holders in the third quarter statement, the Corporation entered into an agreement with United States Smelting Relining and Mining Company to acquire land and min ing rights adjacent to Kennecott's Utah pit. BRADEN COPPER COMPANY Production rates were maintained at equipment ca pacity until operations were cut in September to a 6-day week to meet market conditions. European markets continued to purchase virtually the entire output of the Chilean Division. Sales consisted of 42 per cent fire refined copper ("3-Star" brand), 27 per cent electrolytic, and 31 per cent blister. Projects authorizing capital expenditures of almost $7 million were started early in the year. These projects will provide additional productive capacity from instal lation of an impounding dam for industrial water for the concentrator which lacks sufficient water during the win ter months for normal operations; additional tailings flume capacity, and other processing equipment in the concentrator. Improvements also will be made to two of the three Company hospitals. Funds are being made available to the Chilean Housing Authority to finance the construction of housing for subsequent sale to Braden personnel. As in 1961, these expenditures offset the obligation to purchase non-interest bearing Chilean Gov ernment bonds required under the Reconstruction Bill adopted following the disastrous earthquakes of 1960. A new office building was erected for the Comptrol ler's Department in Rancagua, Chile, to provide ade- 6 On February 15, 1963, the Board of Directors approved a plan to expand the production facilities at Utah Copper Division. The prin cipal projects will be: The conversion of the waste haulage sys tem at the mine from railroad to a truck system, thereby providing greater flexi bility in the operations at the upper levels. The expansion of the mine dump leach ing system by the construction of the necessary reservoirs, pipelines, pumping stations, and precipitation plants to in crease the production of precipitate cop per to 6,000 tons per month. The expansion of the railroad ore haul age facilities from the mine to the con centrators by providing additional loco motives and ore cars. The construction of a crushing and grind ing plant to process the additional mine tonnage. The construction of a 9-mile spur rail road from the present main line to the new crushing plant facility. Modifications to the Utah smelter to eliminate the present roasting of concen trates and provide for the direct charging of these concentrates to the reverbera tory furnaces. The development of additional process ing water for the concentrators and the mine leaching system. Construction will start immediately with completion being scheduled for 1967. This program will require the investment of almost $100 million and will increase the capacity of the Utah Copper Division by about 100,000 short tons of copper per year. The production of other products found in the ore, such as molybdenite, gold, silver, and selenium, will be increased proportionately. The recently announced $100 million expan sion program at Utah Copper Division will emphasize increase of the production of the relatively low-cost precipitate copper. The upper photograph shows square ponds (lower left and right center) holding water used to leach copper from the dumps. A s illustrated in the drawing, water filters down through the dumps and collects some of the remaining copper. The water is trapped and the copper removed in a precipitation plant. The de copperized water is returned to the dumps to repeat the process. COPPER PRECIPITATE TO SMELTER 7 One of the new 65-Ion capacity trucks at Nevada Mines Division being loaded by a giant shovel which averages up to 12,000 tons o f material per shift. quate space for electronic data processing equipment for cost recording and analysis. Upon completion of the building, the entire accounting system was standardized. A new copper precipitation plant was placed in oper ation at the start of the year to treat a portion of the overflow from the tailings storage area. In view of the satisfactory costs achieved, an addition is being con templated to provide capacity equal to the total volume of effluents. It is estimated that 2,500 tons of copper per year will be obtained eventually from this installa tion. It also will solve a troublesome community prob lem created by unsubstantiated concern over possible contamination of irrigation water by the effluents. Other M ining QUEBEC IRON AND TITANIUM CORPORATION Sales of this Canadian subsidiary, two-thirds owned by Kennecott, were slightly higher in 1962, as compared to the previous year, but net income fell from $4,959,500 (CdnCy) in 1961 to $3,269,400 (CdnCy) in 1962 as the result of a strike which began August 28. Approxi mately $1 million (CdnCy) of the reported income was occasioned by a change in sales policy whereby previ ously consigned inventories were sold to the former consignee. Q.I.T. is not making provision for Canadian income taxes since taxable income is presently offset by allowable deductions. When such deductions have been fully utilized, this Company's earnings may be reduced materially by the impact of Canadian income taxes. Repayment of advances previously provided by the parent companies continued during the year. Of the $750,000 (USCy) repayment made in 1962, Kennecott received $500,000. Reduction plant operations were maintained at the full capacity of all eight furnaces until production was halted by the strike. The production figures for the past five years were as follows: 1962 . . 1961 . . 1960 . . 1959 . . 1958 . . Ore treated 665,851 1,032,122 863,726 559,205 375,832 Titanium slag produced 269,150 413,715 345,213 217,589 144,029 Iron produced 184,991 277,107 221,945 145,990 105,248 The market for slag remained firm and the volume of Sorelmetal sold for ductile iron and other high quality foundry applications increased. However, the sales price of low carbon iron, which accounted for 26 per cent of the tonnage of iron sold, declined as a result of low prices of steel melting scrap in world markets. The installation of the 50,000 KVA transformer an nounced in the 1961 Annual Report was completed during 1962. This will provide additional power for operation of the furnaces at increased throughput. Pro curement of semi-automatic charging devices for all furnaces was completed, but installation was delayed because of the strike. On the basis of an agreement with the National Lead Company, a full-scale smelting test of National Lead's Norwegian ilmenite concentrate was carried out during the early part of 1962. The test demonstrated that smelting of the Norwegian ore could be carried out with Q.I.T.'s process. Further engineering and economic studies relative to the possibility of construction of a smelter in Norway are in progress. TINTIC DIVISION The Tintic Division was organized during the year to initiate, early in 1963, mining of direct smelting leadsilver ore in the East Tintic, Utah, lease where under ground exploration disclosed commercial grade ore at the Burgin Mine. At the year-end, work was proceeding on the re habilitation of the adjacent Apex shaft to provide the ventilation connection and second opening necessary for further work. Work on a production shaft, approximately 1,500 feet deep, will start during the first quarter of 1963. TIN AND ASSOCIATED MINERALS LIMITED This Nigerian subsidiary, in which Kennecott holds a 76 per cent interest, shipped 830,800 pounds of columbite in 1962 compared with 520,000 pounds in the previous year. However, a 15 per cent decline in the price of columbite during the year more than offset the improved sales volume and caused a nominal loss. The steady growth during the past three years in sales of ferrocolumbium, which is made from columbite, 8 is expected to continue in 1963. Nevertheless, no sig nificant improvement in demand for columbite is fore seen until the present excessive stocks have been reduced to a normal level. Fabricating CHASE BRASS & COPPER CO., INCORPORATED Although the volume of mill products shipped in 1962 increased over the total for 1961, competitive pres sure on prices continued, and the spread between pro duction costs and selling prices declined steadily through out the year. Prices for copper water tube showed the first signs of strengthening late in 1962 and small gen eral increases in other products were announced at the turn of the year. Imports and overcapacity remained adverse factors for the industry. A highly-automated semi-continuous unit for casting billets and other shapes at low operating cost was in stalled at the Chase Metal Works. A larger Chase Metals Service building was erected in Detroit to provide additional warehouse space. A wide range of alloys and forms of metals is stocked to meet the daily needs of the metal-working industries, the building trades, and for general plant maintenance in this important industrial area. Sales of the Rhenium Division were approximately triple the amount for the preceding year. Market de velopment and sales promotion produced several poten tial fields of application for rhenium and rhenium alloy wire, strip, and tubing. Potential users, as a result of Chase's efforts in this field, now have a dependable source of supply of both rhenium metal powder and fabricated products. Executive headquarters of Chase Brass, formerly in Waterbury, Connecticut, were moved to Cleveland, Ohio, at the year-end in order to bring the offices closer to the Company's principal markets. The Waterbury office building of the Company has been sold. Chase Brass & Copper Co., together with 10 other firms and 7 individuals, was indicted by a Federal Grand Jury in September, 1962, for alleged violation of Section 1 of the Sherman Act. The indictment charged that the defendants engaged in an unlawful agreement to fix and maintain prices on brass mill tube and pipe. No individual associated with Chase was indicted. Chase entered a plea of not guilty and trial is expected later this year. A companion civil complaint also has been served by the Government against the companies and individuals named in the Federal Grand Jury indictment. The policy of Kennecott and its subsidiaries has been, and continues to be, that of strict compliance with the letter and spirit of all laws of the United States, of the individual states, and of other jurisdictions where the Company docs business. THE OKONITE COMPANY Volume in terms of both pounds of product shipped and dollar sales was about the same in 1962 as the preceding year. Nevertheless, this manufacturer of wire and cable products moved from a loss to a profit posi tion principally as a result of a Company-wide profit im provement plan. Other efforts were made to strengthen the Company's competitive position. An $8 million expansion program was undertaken at the Paterson, New Jersey, plant to provide facilities for manufacturing extra-high-voltage cables now being specified by the power and light util ities. Already 25 per cent complete, this plant is sched uled to start producing cable for America's first com mercial 345.000-volt underground circuit by late sum mer 1963. New equipment installed at the Phillipsdale, Rhode Island, plant is now producing Alpeth and Stalpeth plas tic or paper insulated telephone cables, much in demand by the telephone industry. The marketing division was reorganized. The prod uct manager concept was adopted and headquarters sales service groups were decentralized to speed pricing and delivery information to the field. The addition of a large warehouse at North Brunswick, New Jersey, a new Dal las distributing center, and additional sales offices in Memphis, Mobile and Indianapolis also improved cus tomer service. Strong interest was aroused in the trade press and among electrical contractors by the introduction of the Okoclad Type ALS self-contained wiring system which eliminates the need for conduit. Other new lines in clude Okoflex industrial cords, plastic instrument tubing 10 A striking photograph of the converter aisle in A rizona's new est smelter at Kennecott's Ray Mines Division. Sixty-seven feet above the floor of the aisle, in a glass-enclosed space beneath the steel beams, electric motors, wheels, wiring and switches that make up the powerful crane, an operator gets a bird's-eye view of the operations. Daily he moves hundreds of tons of molten copper in huge ladles to and from the furnaces. and Type UR high-voltage cables for underground resi dential distribution circuits. The world's longest 115,000-volt oil-filled subma rine power cable, built at Paterson in 1962, is success fully operating across Puget Sound, between the main land and the Olympic Peninsula, serving the Bremerton, Washington, area. Another manufacturing accomplish ment was the giant 8000-volt portable cable, over S c inches in diameter, now supplying power to the worldrecord 115-cubic-yard shovel of the Peabody Coal Company. The 1959 Federal antitrust suit charging that Kennecott's acquisition of The Okonite Company violated Section 7 of the Clayton Act and seeking to undo the acquisition, is expected to come to trial this fall. EXPLORATION AND DEVELOPMENT Kennecott exercised options in May to purchase or lease certain lands in Missouri where lead deposits occur. Exploration of the area, initiated in 1953, has resulted in the discovery of a district containing large tonnages of good grade lead ore. Drilling is continuing on adjacent property held under option. During the same month Kennecott and American Agricultural Chemical Company announced the forma tion of the North Carolina Phosphate Corporation to explore and possibly develop a large phosphate deposit in North Carolina. Kennecott's Exploration Department became interested in this area in 1957 and had retained a number of options acquired during the earlier period of activity. By the end of 1962, the jointly-owned com pany had more than 16,000 acres under control. Seventy holes were drilled during 1962 and the material from them was tested in a pilot plant. An economic evalua tion of all information obtained to date is now in prog ress. Other companies have acquired phosphate-bearing ground in this area. Underground drilling of the Safford, Arizona, cop per deposit was completed during 1962. Operation of a pilot leaching plant which had been testing the feas ibility of this process on bulk samples obtained from the underground workings also was concluded. A com prehensive economic evaluation of the deposit is now being made. Work at Santa Isabel, Puerto Rico, consisting largely of drilling, produced encouraging results. Drilling also will be undertaken in 1963 at a number of prospects in British Columbia, Alaska, Washington and Arizona. RESEARCH The research activities carried on at our laboratories yielded various developments during the year which are expected to prove beneficial to the Company's operating efficiency. MINING Repeated references have been made in this Report to leaching of copper from mine dumps. This process treats material that is too low in copper content to justify sending it to the concentrator as milling ore. In dump leaching, solutions sprayed over the dumps perco late down through them and dissolve the copper. The solutions are collected at the bottom of the dumps by gathering systems. The dissolved copper is precipitated by iron in one form or another and then the decopperized solution is returned to the dumps to repeat the cycle. The Kennecott Research Center, in analyzing the amount of copper existing at the mine dumps of the Company's various properties, approached the problem as a completely new project. It developed the idea that many factors were involved such as temperature of solu tions, bacteria, control of oxygen, and iron salt relation ships. From the experiments undertaken, many new concepts were developed which have been reported by our staff in technical papers. New precipitating plant designs also are being developed which will permit greater recovery of low-cost copper precipitates at our operations. In the electrolytic refining of copper from the smelt ers, slimes containing precious and other metals fall to the bottom of the electrolytic tanks. These must be processed for the recovery of gold, silver, platinum, pal ladium, selenium, tellurium and other by-products. A more efficient and lower-cost process for bettering metal recovery from slimes was developed in 1962. A com mercial facility embodying this new process is being in- 12 (Top) Electricity at 5000 volts will be transmitted by this 4-inch metal-clad industrial power cable shown in final production stage at The Okonite Company's plant in North Brunswick, N. J. (Center) Giant v.v. pigmy-- Two "extension cords" made by The Okonite Company. The small low voltage cord is used for portable tools, the 5%-inch diameter 8000-volt cable powers the world's largest electric shovel. (Left) The multi-conductor portable cable supplied by The Okonite Company for the world's largest electric shovel carries sufficient power to serve a city of 10,000 people. stalled at the Utah refinery and is scheduled to go into operation in mid-1963. FABRICATING The Chase Research Laboratory Division has devel oped, after three years' work, a new process for making free cutting brass rod with superior machining charac teristics. This development has had wide customer ac ceptance. An edge conditioned and film insulated copper strip for testing in the manufacture of newly-developed stripwound transformers has been produced. In conjunction with International Copper Research Association, Inc., the Chase Research Laboratory Divi sion developed for architectural and decorative purposes a protective coating which will preserve the natural colors of copper and copper-base alloys indefinitely in indoor applications. The new coating can be applied to copper products already in use, as well as to newly fabricated metal. It makes possible an important expansion in in terior uses of copper in such fields as architecture, build ers' hardware, automotive trim, and marine hardware, and in costume jewelry. Studies of exterior applications of the coating also are underway. The Okonite Research Division has developed a new cable insulation with superior heat and corona resistance as compared to other rubber or plastic insulations cur rently used. Other developments include a high voltage X-ray cable with a 20 per cent smaller diameter, a new thin wall rubber insulation for small diameter wire for signal and control purposes, and a new magnet wire for high temperature applications, LEDGF.MONT LABORATORY Construction of the new Ledgemont basic research laboratory was completed late in 1962. The distribution of disciplines among the scientific research staff will be approximately one-third chemists, one-third physicists and one-third metallurgists. The laboratory will engage in a search for fundamental knowledge of materials through both theoretical and experimental programs. The broad areas of interest will be in solid state physics, chemistry, metallurgy, electrical science, and the funda mental structure and properties of materials. While it will not be restricted to the investigation of any particular category of materials, it is probable that metals, alloys, and inorganic materials will be of continuing interest. EMPLOYEE RELATIONS During 1962 the average number of employees at Kennecott and its wholly owned subsidiaries totaled 26,133 as compared to 26,885 the preceding year. This figure excludes employees of partially owned subsidiaries. TRAINING Heightened efficiency and expanded opportunities for employees are goals of a variety of training programs, on and off the job, sponsored by Kennecott at all levels of employment. These programs include apprentice train ing, supervisory training, tuition aid, and management training programs. The apprentice courses for developing and improving job related skills had 234 employees enrolled and pro duced 37 graduates. Supervisors' training classes were conducted for first-line foremen and department heads. Over 500 employees voluntarily participated in the Tuition Aid Program and completed 892 courses. This program reimburses an employee for a major portion of the expense of a course successfully completed at an approved educational institution, provided such study is directly related to his present or possible future work. To further develop competency and broaden outlook, selected managerial personnel attended advanced and middle management courses given by leading universities and professional associations in various parts of the coun try. In line with the Company's recruitment program, contacts with universities were strengthened in order to obtain the best prospects available. COMMUNICATIONS Keeping personnel informed about plant develop ments and corporate policies and actions continues to be a key activity. The latest innovation has been the adoption at Utah, Chino and Nevada Divisions of an automatic telephone answering service, designed to promote better understanding of the Company's objectives and enlist 14 The new Chase Metals Service building in Detroit was erected to provide space for the slocks of alloys and metals needed for servicing this prime industrial area. A utomated run-around conveyor for copper tube coils at 60-inch diameter draw blocks at Chase's Babbitt Road Plant in Cleveland. Outlet end of continuous strip annealer in the Upson Road Plant, Cleveland, of Chase Brass. 15 employee cooperation. Personnel, and in some cases the members of the community, may dial a number and re ceive brief recorded messages pertinent to employee and Company interests. The popularity of this service was evidenced by the thousands of telephone calls made to receive these messages which are changed frequently, sometimes daily. SUGGESTIONS The Suggestions System and Patent Plan, designed to reward employees for ideas increasing plant production and efficiency and improving Kennecott's competitive position, resulted in a total of 3,468 suggestions being submitted in 1962. Of this number, 988 were adopted and eligible employees received a total of $48,000 in awards. The resultant annual savings which these sug gestions represented to Kennecott were estimated at $130,000. Eighteen patents were applied for and granted during 1962 and 31 were pending at the close of the year. SAFETY For the fifteenth consecutive year, Braden Copper Company won the Inter-American Safety Council's award for the lowest accident frequency rate, an un paralleled record in mining history. The Utah Copper Division's smelter set a new safety record for the non-ferrous smelting industry. As a result of receipt of various National Safety Council honors dur ing the year, the Ray Mines Division earned more awards for safety than any other industrial firm in the state of Arizona. Chase Brass & Copper Co. plants in Cleveland and in Waterbury, Connecticut, each operated with the lowest accident frequency rate in their history. The safety program is pursued off the job as well. An example was the Western Mining Divisions' campaign promoting the use of safety belts by automobile drivers. LABOR RELATIONS New two-year contracts running until mid-1964 and covering approximately 9,600 employees were negotiated at the Chino, Nevada, Ray and Utah Divisions without any work stoppages. The settlements were comparable to the pattern established earlier in the copper industry and provided for wage increases as well as fringe benefit im provements. A new contract terminating January 20, 1965, was negotiated early in 1963 at Kennecott Refining Corpora tion, Anne Arundel County, Maryland. A 15-month contract ending June 30, 1963, was reached at Braden Copper Company after an eight-day strike. The Caletones smelter was shut down for 11 days in August as a result of an illegal walkout but over-all production was not materially affected. At the Sorel reduction plant of the Quebec Iron and Titanium Corporation, negotiations were broken off about a month after the old contract expired and a strike began August 28. The major issues in dispute concerned management's rights to operate the plant efficiently. Labor agreements were open for negotiation at the fabricating subsidiaries during the year. Two-year settle ments were reached in the fall at The Okonite Company's plants. New one-year contracts expiring in the second half of 1963 were signed at Chase Brass & Copper Co.'s Cleveland works. COMMUNITY AND PUBLIC RELATIONS During 1962 the Company continued to participate in community programs and to sponsor civic, educational and cultural activities in areas where our facilities are located in the United States and Chile. Typical examples include sponsorship of a university economic workshop, a natural resources workshop for high school teachers, a university round table science discussion series, and two university metallurgical research programs. Efforts were made to keep the public and government circles informed, through the use of television, radio, plant visits and local advertising, of Company attitudes, actions and policies with respect to air pollution, public lands, water conservation, labor negotiations, taxes, the national stockpile, economic questions, and other prob lems of general interest. Company representatives addressed civic and profes sional groups where opportunity was afforded to acquaint a broad sector of public opinion with the Company's activities and its viewpoint on local and national ques tions. Employees in increasing numbers were invited to prepare articles for presentation before national technical 16 organizations or for publication in leading professional and trade journals. The scholarship and fellowship program carried on at the local and state levels made it possible for the Com pany to maintain close liaison with educational circles and provide it with the opportunity to interest outstanding young men in our organization. ORGANIZATION CHANGES Charles G. Stradella, retired president of General Motors Acceptance Corporation, was elected a member of the Board of Directors in September. In February, 1963, Paul B. Jessup, formerly Secre tary, was appointed Director of Corporate Relations, a new department responsible for employee, stockholder, governmental, educational, and public relations, and Malcolm R. Wilkey became Secretary and Associate General Counsel. Mr. Jessup has been associated with Kennecott since 1953. Mr. Wilkey was recently a partner in a Houston, Texas, law firm, and formerly an Assistant Attorney General of the United States. George F. Sharrard, formerly with Wyandotte Chem ical Company, assumed the newly-created position of Director of Industrial and Market Research in January, 1963, and John Wehncke, formerly Vice President, Brandis Goldschmidt, Inc., New York, was named Assistant Sales Manager, Kennecott Sales Corporation. In January, Frederick A. Egner was named Assistant Treasurer and Marvin Lyding was appointed Assistant Comptroller. Mr. Egner has been with Kennecott since 1954 and Mr. Lyding since 1938. Seymour S. Jackson, Vice President, Administration, retired November 1 after 36 years of service to Kennecott and its subsidiaries. John D. East, Assistant to the President, with Ken necott since 1951, retired December 1. In June, 1962, the Board of Directors o f Kennecott Copper Corporation, held its monthly meeting in Salt Lake City, permitting its members to visit the Bingham Canyon mine. L eft to right: J. P. O'Keefe, General Manager, Utah Copper Division; V. S. Barlow, Mines Plant Superintendent; Robert G. Stone, Albert E. Thiele, Cart K. Lenz, and William Thayer Tun, Directors; F. C. Green, former Assistant to the General Manager, Western Mining Divisions; R. Stuart Keefer, Director; Ray F. Gough, General Superintendent o f M ining and Concentrating, Utah Copper Division; Leland B. Flint, M. M . Hardin, and Albert Green, Directors; W. H. Burt, General Superintendent o f Smelting and Refining, Utah Copper Division; Frank R. Milliken, President, Kennecott Copper Corporation, and Director; John C. Kinnear, Jr., General Manager, Western M ining Divisions; C. D. Michaelson, Vice President (Mining); M edley G. B. Whelpley, Charles D. Dickey, and Clifton W. Phaien, Directors; Paul B. Jessup. Director o f Corporate Relations; Walter H. Page, Director. Li FINANCIAL REVIEW EARNINGS AND DIVIDENDS Net earnings rose $3,758,000 to $65,655,000 or $5.94 per share in 1962 from $61,897,000 or $5.60 per share in 1961, an increase of 34 cents per share. The improvement in earnings is attributable to an ad justment of prior year taxes. In the absence of firm plans for major capital expend itures, a high percentage of earnings was again paid out in dividends. As in 1961, $1.25 per share was dis tributed in each quarter of 1962, making a total of $5.00 for the year. DELIVERIES AND PRICES Delivery of 555,334 tons of copper in 1962 as com pared with 591,734 tons in 1961 represents a decline of 6.2 per cent. The average price per pound received by Kennecott was 30 cents, an increase of 2.4 per cent above the 29.3 cents average for 1961. Both of these changes were consistent with general industry conditions. The price levels attained for electrolytic copper dur ing 1961 held throughout 1962. The U. S. producers' price remained steady at 31 cents and the London Metal Exchange price stayed very close to 29.3 cents per pound for the entire year. SALES AND COST OF GOODS SOLD As a result of increased sales by fabricating subsid iaries, sales of metals and fabricated metal products again exceeded one-half billion dollars. The decrease in tons of primary copper sold would otherwise have reduced total sales below 1961. Instead, 1962 saw a rise of $6,385,000 which carried sales to $507,387,000. Cost of goods sold, however, rose by $10,525,000 as increased unit costs reduced profit margins. In the United States mining costs were influenced by slightly lower ore grade and higher prices of labor and supplies. Improved efficiencies offset most of these factors. In Chile, however, operating efficiencies could not keep pace with increases in wages and material costs. CHILEAN DIVISION (BRADEN COPPER COMPANY) Inflation continued with a 26 per cent increase in cost of living during the year compared to 10 per cent in 1961. On January 15, 1962 a dual system of exchange was reestablished. The free bank rate, at which the Com pany is required to purchase escudos for its current op erating needs, was held at 1.05 escudos to the dollar until October 15, 1962 when it was permitted to fluctu ate in accordance with supply and demand. At that time the rate increased to 1.40 escudos to the dollar and it gradually rose to a rate of 1.62 at December 31, 1962. On the other hand the so-called broker's rate fluctuated considerably during the year and closed at 2.33 escudos to the dollar. TAXES United States and foreign taxes on income applicable to 1962 operations declined in approximately the same proportion as income before taxes. The apparent greater decline of these taxes as shown on the Consoli dated Statements of Income and Earned Surplus is oc casioned by an adjustment in 1962 of certain taxes charged in the prior year. Total taxes per share amounted to $8.09 in 1962 and $8.45 in 1961. The provision for all taxes for the year 1962 and the comparable figures for 1961 are summarized as follows: U n ite d S tates an d F o reig n taxes o n i n c o m e ............................................. O th e r ta x es in c lu d e d in o p e ra tin g co sts an d o th e r acco u n ts . . . T o t a l .................................................................... 1962 $ 6 3 ,9 5 1 ,4 6 5 2 5 ,4 7 6 .4 6 2 $ 8 9 .4 2 7 .9 2 7 1961 $7 0 ,3 5 6 .2 9 4 2 3 ,0 2 7 ,2 7 7 $93 383.571 T a x e s p e r s h a r e ...................................... $8 .0 9 $ 8 .4 5 The amount of United States Federal income taxes payable in the year 1963 applicable to 1962 will be re 18 duced by approximately $600,000 as a result of the application of the investment credit provided by the Revenue Act of 1962. This credit is available up to 7 per cent of expenditures made by the Company for cer tain tangible property during the year 1962 and will be reflected in net income over the productive lives of the related property. Where advantageous, the new depreciation rules promulgated by the Internal Revenue Service on July 11, 1962 will be applied in computing taxes to be paid on 1962 income. The effect of the application of the new depreciation rules is to defer taxes that would or dinarily be payable in 1963. This deferral has no effect on income for the year since the Company will continue to depreciate its assets on the basis of estimated useful life for financial report purposes. The amount of de ferred taxes is shown on the Balance Sheet under the caption, "Deferred U. S. Income Taxes." The period of deferral will vary with the lives of the assets to which the rules have been applied. For the most part the 1962 expenditures in the United States covered programs initiated prior to 1962, such as the smelter modification at Garfield, Utah, and the con struction of the Ledgemont Laboratory at Lexington, Massachusetts. By the year-end the materials handling phase of the smelter modification was operative and the construction of the basic research laboratory was com plete. The major project initiated in 1962, the $8 million expansion and modernization of Okonitc's Paterson plant, was about 25 per cent complete at December 31, 1962. It is scheduled for completion by July, 1963. A total of $4,967,000 was expended on capital pro grams in Chile in 1962, including construction of addi tional facilities to alleviate the low-water periods which restrict milling operations at the Braden division. Depreciation and retirements rose again in 1962 to $20,570,000, although the amount provided was con siderably less than the $31,386,000 required for capital outlays. PROPERTY, PLANT, AND EQU IPM EN T In 1962 capital expenditures continued at about the same pace as 1961 with a total of $31,386,000 spent during the year, contrasted with $32,892,000 spent in the previous year. GOVERNMENT AND OTHER SHORT-TERM SECURITIES At December 31, 1962, the Company's holdings in government and other short-term securities aggregated $79,025,000. Of this amount, $65,592,000 represented NET INCOME A N D AM O U N T DISTRIBUTED TO STOCKHOLDERS - PER SHARE OF STOCK Kennecott Copper Corporation During the period cov ered by this chart, 75 per cent of net income was distributed to stock holders. The remaining 25 per cent was rein vested in the business. 1942 '43 '44 '45 '46 '47 '48 '49 *50 '51 '52 '53 '54 '55 '56 '57 '58 '59 '60 '61 1962 19 A view o f the newly completed $5 million incoming materials handling facilities at the Utah Copper Division smelter. obligations of the United States Government, with the balance comprising certificates of deposit and prime finance company commercial paper. The approximate market value of the securities at December 31, 1962. was $78,988,000. and the average maturity of the port folio was slightly less than seven months. INVESTMENTS At year-end long-term investments of $84,199,000 represented a net increase of $925,000 over the previous year-end. Of particular significance was the Company's investment during 1962 of $899,000 in North Carolina Phosphate Corporation, bringing the total invested in this company to $1,643,000. The nature of this invest ment is mentioned on page 12 in this Report. In 1962 Quebec Iron and Titanium Corporation re paid $500,000 of the funds previously advanced by Kcnnccott. An initial repayment of the same amount occurred in 1961. Page 24 shows the details of the Company's invest ments. Percentages of ownership are shown for uncon solidated subsidiaries. Where pertinent, market values as well as cost are shown for other investments. EQUITY IN UNCONSOLIDATED SUBSIDIARIES Kennecott's equity in unconsolidated subsidiaries at December 31, 1962 totaled $59,298,000 as compared with $58,243,000 the same date a year ago. Our invest ment in these subsidiaries at December 31, 1962 amounted to $49,762,000. Based on unaudited reports, the 1962 earnings of these firms declined from the previous year. In the case of Quebec Iron and Titanium Corporation, 1962 earnings dropped substantially as the result of the strike. The accompanying tabulation shows Kennecott's equity in these earnings. Cash distributions from unconsolidated subsidiaries totaling $706,000 for 1962 and $711,000 for 1961 re 20 spectively, are included as dividends in the consolidated statements of income and earned surplus. EXECUTIVE INCENTIVE-COMPENSATION AWARDS Based on the provisions of the plan, $387,000 was available for award to executive employees who gave outstanding service to the Kennccott enterprise in 1962. Awards were made to 20 employees in the amount of $160,000. The unused balance of $227,000 cannot be utilized for further incentive-compensation awards and reverts to general funds. PENSION PROGRAMS The Company and its consolidated subsidiaries main tain several pension programs to alford retirement bene fits for employees. During 1962, $5,425,000 was pro vided for the maintenance of pension programs. At year- end there were 19,404 employees for whom funding of retirement benefits was being accomplished. In addition, there were 43 employees who were covered by other retirement arrangements in the United States and Chile for whom no current funding of benefits is being pro vided. Benefits of $3,270,000 were disbursed during the year with $3,023,000 paid from trust funds and $247,000 paid by the Company. At year-end there were 2,981 retired employees receiving pensions through these pro grams. STOCKHOLDERS The 11,053,051 outstanding shares of Kennecott were held by 93,976 stockholders on November 28, 1962. This is the largest number of stockholders the Company has ever had and represents an increase of 1,679 stock holders over a year earlier. Equity in O perations of Unconsolidated Subsidiaries Percentage of O wnership Quebec Iron and Titanium Corporation.................... . 6 6 % Tin and Associated Minerals Lim ited......................... . 76 Quebec Columbium L im it e d .................................... . 45.9 Garfield Chemical and Manufacturing Corporation . . 50 The Superior Wire Cloth Company.............................. . 92.8 Kenbestos Mining Company Lim ited......................... - 95 * Q. I. T. is n o t m a k in g p ro v is io n fo r C a n a d ia n in c o m e ta x e s s in c e ta x a b le in c o m e is p re s e n tly o ffs e t by allow able deductions. When such deductions have been fu lly u tilize d , th is C om pany's earnings may be reduced m a te ria lly by the im p a ct of C anadian incom e taxes. K e nnecott's E q uity in P rofits or (Losses) 1962 1961 $2,024,000* $3,178,100* (50,600) (169,100) In Development Stage 420,600 511,800 20,100 21,700 In Development Stage $2,414,100 $3,542,500 21 GRADE OF COPPER ORE M IN ED The above charts depict the trend in grade of copper ore mined at the domestic properties and at Braden Copper Company. The chart below shows the annual allowances for depreciation of plant and equipment as compared to the amounts expended for new plant and equipment. The difference was obtained by reinvesting a portion of net income. EXPENDITURES FOR PLANT A N D EQUIPMENT COMPARED WITH A M O U N T PROVIDED FOR PLANT DEPRECIATION 85.254 1942 '43 '44 '45 '46 '47 '48 '49 '50 '51 '52 '53 '54 '55 '56 '57 '58 '59 '60 '61 1962 22 MILLIONS OF DOLLARS W orking C a p ital Summary of Changes which Accounted for the Increase in Working Capital Working Capital-- December 31, 1961 . . . . Additions: Net income for the y e a r....................................... Earned surplus adjustm ents-- net charge . . Increase in long-term d e b t.................................. Depreciation of plant and equipment . . . Investment tax credit on 1962 capital additions Deferred U. S. income t a x e s ............................ Deductions: D istributions to stockholders............................ Expenditures for plant and equipment . . . Patents acquired (included in deferred charges) Deferred waste fa cilitie s acquired . . . . Net increase in in v e s tm e n ts ............................ Net change in other a c c o u n ts............................ Net increase in working c a p ita l............................ Working Capital-- December 31, 1962 . . . . ( ) Denotes red figure. $65,654,728 (1,519,005) 5,540,000 20,570,323 597,357 __ 5,542,088 $96,385,491 $55,265,255 31,385,973 2,105,000 4,478,741 925,722 (4,296,461) $89,864,230 $244,132,087 6,521,261 $250,653,348 PRICES OF COPPER IN THE UNITED STATES A N D O N THE LO N D O N METAL EXCHANGE J fHAM I JASONDJ FMAMJJ A S O ND J F MA MJJ A S ON D 1960 1961 1962 The U. S. price is the price of electrolytic copper delivered at customers' plants in the U. S. The L.M.E. price on which most of Kennecott's foreign sides are based is the monthly average of settlement quotations for electro lytic copper on the London Metal Exchange, converted at the rate of $2.80 per . 23 S chedule of Investm ents (E xcluding Securities Carried as Current Assets) UNCONSOLIDATED SUBSIDIARIES: Quebec Iron and Titanium Corporation-- stock and advances (66%%) Tin and Associated Minerals Limited-- stock and advances (76% ). Quebec Columbium Limited-- stock and advances (45.9%) . . (controlled through voting arrangement) Garfield Chemical and Manufacturing Corporation-- stock (50%) . (controlled through operating arrangement) The Superior Wire Cloth Company-- stock (92.8% )................................ Kenbestos Mining Company Limited-- stock and advances (95%) . OTHER INVESTMENTS (having market quotations): Kaiser Aluminum & Chemical Corporation-- 1,925,000 shares of common s t o c k ................................................ Molybdenum Corporation of America-- 120,116 shares of common stock; 14,285 stock warrants . . . Compahia de Acero del Pacifico-- 1,274,955 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 . North Carolina Phosphate Corporation-- stock Miscellaneous in ve stm e n ts................................ Balance-- December 31, 1962 . . Market Value (Dec. 31, 1962) $68,096,875 2,821,517 434,954 $71,353,346 $45,000,000 1,652,562 1,266,045 240,000 206,200 1,397,552 $49,762,359 $18,800,000 3,134,852 350,000 $22,284,852 $ 6,846,475 1.655.000 1.350.000 1,642,789 658,202 $12,152,466 $84,199,677 24 FINANCIAL STATEMENTS KENNECO TT COPPER CORPORATION KENNECOTT COPPER CORPORATION AND WHOLLY OWNED SUBSIDIARIES C o n solid ate d S tate m e nts of Incom e and Earned S urplus _ _ For the Years Ended December 31, 1962 and 1961 Sales of metals and metal p r o d u c t s ................................................................... Dividends, interest and m iscellaneous................................................................... Cost of goods s o ld .................................................................................................... Depreciation and r e t ir e m e n ts .............................................................................. Selling and general adm inistrative e x p e n s e s ................................. ..... Shut-down expenses during s trik e s ............................................................. Research, exploration and m isce lla n e o u s.................................................. ..... - Provision for U. S. and foreign taxes on i n c o m e ............................................ Net income . . . . . . . . . . . . . . . . Earned surplus at beginning of y e a r ................................................................... Exploration expenses previously w ritten off now c a p it a li z e d ...................... Deductions: Additional U. S. and Chilean taxes on income assessed against prior years' earnings .......................................................................................................... Adjustment of exploration expenses previously c a p ita liz e d ...................... D istributions to stockholders, $5 per s h a r e .................................................. Earned surplus at end of y e a r ............................................ 1962 $507,386,940 6,416,302 513,803,242 337,001,410 20,570,323 20,025,601 358,970 6,240,745 384,197,049 129,606,193 63,951,465 65,654,728 482,555,132 436,663 548,646,523 1961 $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 61,896,860 475,897,969 1,506,602 539,301,431 1,385,326 570,342 55,265,255 57,220,923 $491,425,600 1,481,044 -- 55,265,255 56,746,299 $482,555,132 See Notes to F ina ncial S tatem ents. 26 KENNECOTT COPPER CORPORATION AND WHOLLY OWNED SUBSIDIARIES C onsolidated B alance Sheets December 31,1962 and 1961 ASSETS Current Assets: C a s h ................................................................................................................. U. S. Government and other short-term securities, at c o s t ...................... Accounts receivable, less re s e rv e s ................................................................. Metals and metal p r o d u c ts ............................................................................ Ores and concentrates, at c o s t ...................................................................... Materials and supplies, at or below c o s t ...................................................... Accounts receivable, n o n c u r r e n t ...................................................................... Investments, at or below c o s t................................................................................. Deferred charges, prepayments, etc..................................................................... Mining p r o p e r tie s ................................................................................................. Plants, equipment and other p ro p e rtie s ............................................................ Reserves for depreciation....................................................................................... LIABILITIES Current Liabilities: Notes payable, due within one y e a r ............................................................ Accounts p a y a b le ............................................................................................ Taxes accrued ................................................................................................. Long-term d e b t ....................................................................................................... Deferred U. S. income ta x e s ................................................................................. Sundry reserves and deferred c r e d its ................................................................. CAPITAL Capital stock, no par value: Authorized 12,000,000, outstanding 11,053,051 shares Stated c a p i t a l ................................................................................................. Capital s u r p lu s ...................................................................................................... Earned surplus ...................................................................................................... 1962 1961 $ 24,099,857 79,025,115 44,930,399 108,263,649 7,409,125 37,898,440 301,626,585 3,925,250 84,199,677 7,130,051 161,353,980 536,381,524 (263,646,504) $830,970,563 $ 24,643,924 81,266,941 45,617,002 99,806,924 7,173,576 39,447,296 297,955,663 5,887,875 83,273,955 6,165,188 158,277,546 512,519,497 (249,662,177) $814,417,547 $ 2,843,333 25,976,418 22,153,486 50,973,237 12,080,000 5,542,088 5,027,086 $ 1,460,000 25,700,704 26,662,872 53,823,576 6,540,000 5,576,287 74,806,424 191,116,128 491,425,600 $830,970,563 74,806,424 191,116,128 482,555,132 $814,417,547 See Notes to Financial Statem ents. 27 Notes to Financial Statem ents --------------------- in v en to r ies: Inventories of metals and metal products are carried 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 inventories of the fabricating divisions. MINING p r o p e r t i e s : 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 con sidered necessary. EQUITY IN UNCONSOLIDATED SUBSIDIARIES: Refer to comments and tabulation on pages 20 and 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 ex change rates; property accounts and investments, etc., at the rates of exchange in effect at date of acquisition; related depre ciation reserves are based on U. S. dollar costs. Foreign cur rency amounts have been included in the statements of income at the U. S. dollar equivalents determined at the exchange rates in effect at the lime of the related transactions. Approximately 10 per cent of net current assets and approxi mately 13 per cent of all other assets shown in the consolidated balance sheet at December 31. 1962 represent assets of consoli dated subsidiaries which are located outside the United States (principally in Chile) and the related net income represents ap proximately 15 per cent of consolidated net income. The Com pany's investments in unconsolidated subsidiaries and affiliates are almost entirely in foreign countries, principally Canada. LONG-TERM DEBT: At December 31, 1962, long-term debt consisted of the following: 4*/2% promissory note of The Okonite Com pany, payable in annual instalments of $460,000 from 1963 through 1975 and $560,000 in 1976; the 1963 instalment is included in current notes payable $6,080,000 4Vi % promissory note of Kennecott Copper Corporation due September 21, 1964 . . . 6,000,000 $12,080,000 DEFERRED INCOME TAXES: In computing depreciation for 1962 Federal income tax pur poses, the Company and certain of its subsidiaries have adopted the new "Guideline Lives" permitted by the Internal Revenue Service and, in some instances, have adopted accelerated de preciation methods for 1962 additions to plants and equipment. The resultant reduction in Federal income taxes has been re flected under the caption Deferred U. S. Income Taxes in the accompanying balance sheet. A u d ito rs ' C e rtific a te LYBRAND, ROSS BROS. & MONTGOMERY Certified Public Accountants To the Directors and Stockholders of KENNECOTT COPPER CORPORATION: We have examined the consolidated balance sheet of Kennecott C opper C orporation and W holly O wned Subsidiaries as of December 31, 1962 and the related statement 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 circum stances. We previously made a similar examination for the year 1961. In our opinion, the accompanying consolidated balance sheets and statements of income and earned surplus present fairly the consolidated financial position of Kennecott Copper Corporation and Wholly Owned Subsidiaries at December 31, 1962 and 1961 and the results of their operations for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. New York, January 31, 1963 LYBRAND, ROSS BROS. & MONTGOMERY 28 Parent Company and Principal Subsidiaries O fficers and Executives Frank R. Milliken. President C. Harry Burgess, Vice President (Exploration) C. D. Michaelson, Vice President (Mining) Paul A. Bailly, President, Bear Creek Mining Company C. J. Sullivan, President, Kennco Explorations, (Canada) Limited Paul Dashine, Manager of Technical Services M. D. Ayers, Director of Engineering John C. Kinnear, Jr.. General Manager Western Mining Divisions E. A. Slover, General Manager Chino Mines Division M. J. O'Shaughnessy, General Manager Nevada Mines Division Leslie G. Jenness, Vice President ( Research) Robert G. Rhett, Director of Purchasing A. P. Morris, General Manager Ray Mines Division Leon J. Souren, Director of Traffic G eorge F. Sharrard. Director of Industrial and Market Research Paul B. J essup, Director of Corporate Relations J. P. O'Keefe, General Manager Utah Copper Division I. G. Pickering, Refinery Manager Kcnnecott Refining Corporation Arthur S. Cherouny, Director of Employee Relations Lester Ziffren, Director of Public Relations Robert H. Lounsbury, General Counsel Malcolm R. Wilkey, Secretary and Associate General Counsel Gordon B. Russell, Treasurer and Comptroller F. A. Egner. Assistant Treasurer W. R. Kimsey, Assistant Comptroller Marvin Lyding, Assistant Comptroller Robert L. Ward, Assistant Comptroller Kennecott Sales Corporation C. K. Lenz, President J. H. Boyd, Vice President F. B. McKown, Vice President Braden Copper Company Frank R. Milliken, President C. D. Michaelson, Vice President R. M. Haldeman, Vice President (In Chile) B. E. G rant, General Manager (In Chile) Carlos T olosa, Business Manager (In Chile) Malcolm R. Wilkey, Secretary Gordon B. Russell, Treasurer and Comptroller Quebec Iron and Titanium Corporation (Two-thirds owned by Kennecott Copper Corporation and one-third by The New Jersey Zinc Company) William L. Walsh, President Lindsay F. Johnson, Vice President J. M. Herndon, General Manager Chase Brass & Copper Co., Incorporated G lenn F. Bakken, President William F. Aylard, Vice President (Technical) H erman H. Kremer. Vice President ( Metals Service Division) Robert C. Smith, Treasurer Richard R. Quay, Secretary The Okonite Company R. Stuart Keefer, President David W. Nurse, Vice President ( Manufacturing) Elliott M. Nesvig, Vice President (Marketing) Dr. Robert B. Blodgett, Director of Research Raymond V. T esta, Treasurer and Comptroller Nevada Northern Railway Company Paul Dashine, President H. M. Peterson, Vice President and General Superintendent Gordon B. Russell, Treasurer 29 Historical Table 1943-1962 YEAR COPPER ORE MINED AND MILLED (000 NET TONS) Operating In fo rm a tio n 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 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 62,657 MATERIAL REMOVED TO DUMPS (000 NET TONS) 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 75,506 107,340 120,047 124,018 IN THE U. S. (NET TONS) 472,913 406,107 329,239 203,489 369,256 350,330 296,649 418,123 430,187 444,582 429,052 338,749 370,487 402,309 387,291 318,732 235,228 384,088 401,169 393,902 COPPER PRODUCED IN CHILE (NET TONS) 164,276 174,688 164,899 93,725 138,472 164,252 139,592 157,910 171,247 184,813 140,347 108,330 156,228 179,896 172,707 191,578 182,017 187,221 173,269 181,306 TOTAL (NET TONS) 637,189 580,795 494,138 297,214 507,728 514,582 436,241 576,033 601,434 629,395 569,399 447,079 526,715 582,205 559,998 510,310 417,245 571,309 574,438 575,208 TOTAL COPPER SOLD (NET TONS) 640,810 601,721 485,226 280,330 509,829 538,345 407,999 589,694 605,473 634,360 524,322 509,754 533,820 495,219 552,944 543,845 434,566 540,598 591,734 555,334 Financial Inform ation 30 YEAR 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 TOTAL REVENUE (000 DOLLARS) COST OF GOODS SOLD EXCL. TAXES (000 OOLLARS) DEPRECIATION AND RETIREMENTS (000 DOLLARS) $266,589 253,651 211,217 157,025 318,820 351,100 249,438 400,153 455,485 476,740 482,808 429,131 555,939 578,067 480,200 404,998 444,903 503,341 506,809 513,803 $ 158,039 157,569 143,567 104,503 159,804 185,181 157,798 231,206 254,708 287,957 269,416 261,429 252,392 250,435 275,653 250,961 263,909 273,655 303,450 311,526 $ 8,774 8,513 14,685 4,132 4,958 5,230 5,234 6,815 7,268 8,509 9,244 8,734 8,905 8,120 10,610 10,351 12,429 17,177 18,555 20,570 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) $ 41,312 35,481 13,512 11,163 49,723 52,344 24,247 58,726 83,036 73,580 90,069 54,323 122,429 138,072 80,368 55,286 63,263 85,633 70,356 63,951 $ 8,051 7,712 6,507 5,586 8,719 10,346 10,591 12,825 15,144 14,716 18,798 16,976 20,785 22,900 22,813 21,073 22,210 21,294 23,027 25,476 $ 5,447 5,512 2,692 8,594 3,734 4,192 3,458 2,420 3,982 5,827 6,527 9,763 25,912 15,386 11,504 7,206 25,752 28,220 29,524 26,625 $ 44,966 38,864 30,254 23,047 91,882 93,807 48,110 88,161 91,347 86,151 88,754 77,906 125,516 143,154 79,252 60,121 57,340 77,362 61,897 65,655 Retroactive to 1961 Copper Produced is reported on a refined basis. Net Income figures are as reported annually to stockholders, w ith out adjustm ent fo r surplus charges and credits. KENNECOTT COPPER CORPORATION AND WHOLLY OWNED SUBSIDIARIES PRICE RECEIVED FOR COPPER (CENTS PER LB.) MOLYBDENITE PRODUCED (000 POUNDS) 11.7 11.7 11.6 14.0 21.0 21.9 19.5 21.0 24.4 24.3 28.0 28.0 36.6 41.6 28.9 25.4 30.0 31.0 29.3 30.0 2 4 ,5 7 2 25,071 2 1 ,4 3 7 12,335 25,777 2 2 ,2 5 3 19,895 29,407 30,837 3 4 ,4 8 0 3 5 ,2 2 4 2 8 ,2 0 0 3 1 ,9 6 0 3 2 ,5 3 8 2 8 ,7 5 6 23,626 2 0 ,9 6 7 27,426 25,814 25,429 GOLD PRODUCED (FINE OUNCES) 344,357 3 1 3 ,3 8 6 258,556 155,749 391,497 3 3 8 ,2 2 8 296,818 450,174 430,515 4 3 0 ,1 3 9 4 8 7 ,3 3 5 387,039 414,444 403,381 3 7 7 ,3 6 7 3 1 3 ,3 8 0 2 4 0 ,1 7 9 396,839 3 6 3 ,5 8 6 3 6 1 ,8 4 7 SILVER PRODUCED (FINE OUNCES) 3 ,05 9 ,2 8 6 2 ,6 9 3 ,5 5 8 2 , 183,964 1,3 0 5 ,2 8 3 3, 128,766 2 ,8 2 3 ,0 6 8 2 ,384,043 3 ,586,763 3 ,4 4 1 ,5 4 9 3 ,6 7 9 ,0 3 5 3 ,9 1 1 ,9 2 8 2 ,8 5 2 ,7 4 4 3 ,4 4 5 ,7 6 2 3 ,213,559 3 ,295,170 2 ,821,364 2, 167,469 3 ,7 0 0 ,7 8 4 2 ,926,993 3 , 152,801 AVERAGE NUMBER OF EMPLOYEES 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 26,133 GRADE OF COPPER ORE MINED IN THE U. S. (PER CENT) IN CHILE (PER CENT) .996 1.005 .995 .965 .960 .946 .955 .958 .987 .952 .942 .943 .914 .843 .839 .851 .816 .809 .831 .810 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 1.957 CAPITAL EXPENDITURES (000 DOLLARS) YEAR 9,768 6,370 2,990 9,900 12,037 10,329 18,023 13,960 13,126 1 4 ,9 0 8 16,170 8 ,7 4 8 16,006 2 1 ,2 4 4 2 7 ,3 3 2 3 9 ,6 6 7 8 5 ,2 5 4 2 5 ,3 4 2 3 2 ,8 9 2 3 1 ,3 8 6 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 TOTAL $ 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 5.94 NET INCOME PER SHARE BY QUARTERS 1st 2nd 3rd $ 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 1.69 $ .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 1.62 $ .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 .96 4th $ 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 1.67 DISTRIBUTED TO STOCKHOLDERS (000 DOLLARS) PER SHARE $ 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 55,265 $ 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 5.00 TOTAL ASSETS (000 DOLLARS) $ 489,774 490,270 464,800 459,670 540,612 575,420 560,283 631,487 687,473 703,532 747,630 730,867 793,221 833,998 807,452 825,678 802,839 807,554 814,418 830,971 CAPITAL AND SURPLUS (000 DOLLARS) BOOK VALUE PER SHARE $ 398,145 4 0 9 ,9 5 5 4 1 2 ,8 7 5 4 0 8 ,8 6 8 4 5 7 ,4 6 3 4 9 7 ,6 8 3 502,507 551,667 578,084 600,567 620,593 6 3 7 ,8 9 3 679,542 7 2 3 ,2 0 0 737,521 764,909 755,931 741,821 7 4 8 ,4 7 8 7 5 7 ,3 4 8 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 68.52 YEAR 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 N et In c o m e p e r S h a re a n d B o o k V a lu e p e r S h a re are ba sed on n u m b e r o f s h a re s o u ts ta n d in g at D e c e m b e r 3 1 s t o f e a ch year. 31 KENNECOTT worldwide operations EXECUTIVE O FFICES New York, N. Y. () H E A D O F F IC E S Western Mining Divisions, Salt Lake City, Utah Braden Copper Company, Santiago, Chile Chase Brass & Copper Co., Incorporated, Cleveland, Ohio The Okonite Company, Passaic, New Jersey (|) O F F IC E S OF FOREIGN SA L E S A G E N T S Birmingham, England Frankfurt, Germany Geneva, Switzerland Paris, France Turin, Italy M IN ES AND PLANTS Kennecott Copper Corporation Chino Mines Division, Hurley, New Mexico Nevada Mines Division, McGill, Nevada Ray Mines Division, Hayden, Arizona Utah Copper Division, Salt Lake City, Utah T intic Division, Eureka, Utah Subsidiaries Braden Copper Company, Sewell, Chile Chase Brass & Copper Co., Incorporated, Cleveland, Ohio Chase Brass & Copper Co., Incorporated, Waterbury, Connecticut Kennecott Refining Corporation, Anne Arundel County, Maryland The Okonite Company, Passaic, New Jersey The Okonite Company, Paterson, New Jersey The Okonite Company, New Brunswick, New Jersey The Okonite Company, Phillipsdale, Rhode Island Quebec Iron and Titanium Corporation, Sorel, Canada Tin and Associated Minerals, Ltd., Jos, N. Nigeria LABO RATO RIES Kennecott Copper Corporation Kennecott Research Center, Salt Lake City, Utah Ledgemont Laboratory Lexington, Massachusetts Subsidiaries Chase Brass & Copper Co., Incorporated, Waterbury, Connecticut The Okonite Company, Passaic, New Jersey (E) E X P L O R A T IO N O F F IC E S Bear Creek Mining Company Denver, Colorado Lares, Puerto Rico Salem, Missouri Salt Lake City, Utah Spokane, Washington Tucson, Arizona Kennco Explorations, (Canada) Limited, Toronto, Ontario, Canada Kennco Explorations, (Western) Limited, Vancouver, British Columbia, Canada Kenbestos Mining Company Limited, Thessaloniki, Greece THE O KO NITE COM PANT WAREHOUSES, SALES AND SERVICE O FFICES Atlanta, Georgia Birmingham, Alabama Boston, Massachusetts Chicago, Illinois Cincinnati, Ohio Cleveland, Ohio Dallas, Texas Denver, Colorado Detroit, Michigan Houston, Texas Indianapolis, Indiana Kansas City, Missouri Los Angeles, California Memphis, Tennessee Milwaukee, Wisconsin Minneapolis, Minnesota Mobile, Alabama New Orleans, Louisiana Passaic, New Jersey Philadelphia, Pennsylvania Pittsburgh, Pennsylvania Portland, Oregon St. Louis, Missouri Salt Lake City, Utah South San Francisco, California Syracuse, New York C H A S E B R A S S & C O P P E R CO., IN C O R P O R A T E D WAREHOUSES, SALES AND SERVICE O FFICES Albany, New York Atlanta, Georgia Baltimore, Maryland Boston, Massachusetts Charlotte, North Carolina Chicago, Illinois Cincinnati, Ohio Cleveland, Ohio Dallas, Texas Denver, Colorado Detroit (Madison Heights), Michigan Houston, Texas Indianapolis, Indiana Kansas City, Missouri Los Angeles, California Miami, Florida Milwaukee, Wisconsin Minneapolis, Minnesota New Orleans, Louisiana New York (Maspeth, L. I.), New York Philadelphia, Pennsylvania Providence, Rhode Island Rochester, New York St. Louis, Missouri Seattle, Washington South San Francisco, California Waterbury, Connecticut 32 P R IN T E D IN U S A