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FILE NAME: Kennecott (KENN) DATE: 1957 Dec 30 DOC#: KENN003 DOCUMENT DESCRIPTION: Kennecott Copper Corp Annual Report 1957 BOARO6 q 334-S * fc3 7 9 i f Kennecott Copper Corporation Report 1957 ^ V elano-public lirpadw businessJj[T0RMATI0W BUREAi, WHERE COPPER, IS USED For 5,000 years copper has been an indispensable metal, and today its uses are more extensive than ever. It is the best commercial conductor of electricity, is corrosion resistant, has great heat conductivity, and is easily worked and joined. Because of the beauty of copper and its alloys, the metal has extensive uses in the home. The figures in the diagram represent the approximate percentages of total copper consumption that are used for the indicated purposes. Data from Copper & Brass Research Association Motor Vehicles 8% Communication 5% Household Appliances 3% Railroad and Marine 3% Electronics 2% Scientific Equipment 2% Military 17% Miscellaneous 4% KENNECOTT 4 3 rd ANNUAL REPORT COPPER CORPORATION FO R THE Y E A R E N D E D D EC EM BER 31, 1957 General Offices: 161 East 42nd St., New York 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 MI NI NG D I V I S I O N S ..............................................................................................................5 K E N N E C O T T RE F I NI N G C O R P O R A T I O N ............................................................... 9 E X P L O R A T I O N .....................................................................................................................9 R E S E A R C H .......................................................................................................................... 11 ORANGE F R E E STATE GOLD MI NI NG C O M P A N I E S ......................................12 TI N AND ASSOCIATED MI NERALS L I M I T E D ..................................................... 13 FABRI CATI NG S U B S I D I A R I E S ....................................................................................1 4 QUEBE C IRON AND T I T A N I UM C O R P O R A T I O N ................................................15 A L L I E D- K E N NE COT T T I T A N I U M C O R P O R A T I O N ......................................16 INDUSTRI AL AND PUBLI C R E L A T I O N S ............................................................ 18 ORGANIZATION C H A N G E S .......................................................................................... 2 0 F I N A N C I A L R E V I E W .......................................................................................................... 2 1 S U M M A R Y OF RESULTS---- P E R S H A R E ...........................................................2 2 SCHEDULE O F I N V E S T M E N T S ........................................................................... 2 3 FI NANCI AL S T A T E M E N T S ...........................................................................................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 ............................................................................3 2 t X w u i A M f f Copptu Corporation U.+V Itu THE C O V ER : The International Geophysical Year has focused attention upon scientific methods designed to disclose secrets hidden in the depths of the earth. Kennecott is em ploying geophysical techniques in the search for ore deposits that exist beneath the earth's surface and seldom present visible evidence of their existence. The device being towed by the plane pictured on the cover induces an elec tromagnetic field in the ground, as represented by the white dashed lines. Changes in this field caused by metallic ore bodies are recorded by special equipment in the plane. Through the use of these geophysical devices, exploration geologists can traverse in one day areas that would require months of work on the surface. P R E S I D E N T 'S LETTER To the Stockholders: Net income after taxes in 1957 was $79,251,667, as compared with $143,154,210 in the record year 1956. Per share earnings for the two years were $7.32 and $13.23, respectively. The amount distributed to stockholders in 1957 was $6.00 a share versus $9.25 in 1956. The average price received for our copper in 1957 was 28.9 cents a pound, as compared with 41.6 cents in the previous year. In 1957 we operated at capacity (except at Ray, Arizona). This was possible because we were able not only to dispose of our Chilean production in Europe, plus a substantial carry-over from the prior year, but some of our domestic production as well. We stopped selling domestic copper to Europe when the European price fell below 25 cents a pound, in the belief that the copper was worth more in the ground. Total sales of copper in 1957 were 552,944 tons, as compared with 495,219 tons in 1956. The increase was due entirely to increased foreign sales. Normally we sell approximately 20 per cent of our copper in the foreign market and 80 per cent in the United States; in 1957 this sales pattern changed, and 40 per cent of our copper was sold in the foreign market and only 60 per cent in the U. S. The domestic demand for copper in 1957 declined substantially. Our deliveries to fabricators decreased by 19 per cent. This was due to reduced buying of copper by a number of the most important copper-consuming indus tries, including the electrical, construction and automobile industries. Whereas cash and government securities shown on the balance sheet amount to $231,907,457, we have committed approximately $100,000,000 2 for the company's program of integration of its copper producing facilities, and for expansion. This amount includes provision for the new smelter and additional mine and mill facilities at the Ray Mines Division, the new elec trolytic refinery in the East, increased power facilities at Utah and Chino, and acquisition of the mining properties of Consolidated Coppermines Corpo ration adjacent to the properties of our Nevada Mines Division. Further com mitments not included in the above amount to approximately $29,000,000, the largest item of which is for additional investment in Allied-Kennecott Titanium Corporation. Thus, total monies committed to date amount to approximately $129,000,000. You will notice in reading the Review of Operations section of this report the important improvements in operations, and in manpower and materials utilization that have been accomplished. This effort has been essential to counteract the effects of rising costs of labor and materials. By order of the Board of Directors, March 10, 1958 President Th e a n n u a l m e etin g of stockholders of Kennecott Copper Corporation will be held at 11:00 a. m. (Eastern Daylight Time), Tuesday, May 6, 1958 in the Grand Ballroom of the Biltmore Hotel, Madison Avenue and 43rd 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 4, 1958, at which time proxies will be solicited by the management. 3 RESULTS AT A GLANCE 1957 Copper Produced (Net T o n s )....................... Copper Sold (Net T o n s ) ....................... Average Copper Price Received . . . Total Revenue .............................................. Total T a x e s .................................................... Total Taxes-- Per S h a r e ............................. 559,998 552,944 28.9c $480,200,000 $103,181,000 $9.53 1956 582,205 495,219 41.6c $578,067,000 $160,972,000 $14.87 Net In c o m e .................................................... Net Income-- Per S h a r e ............................. D istributed to S to c k h o ld e rs ....................... D istributed to Stockholders-- Per Share . Retained Earnings ......................................... Expenditures for Plant and Equipment . $ 79,252,000 $7.32 $ 64,930,000 $6.00 $ 14,322,000 $ 27,332,000 $143,154,000 $13.23 $100,100,000 $9.25 $ 43,054,000 $ 21,244,000 W orking C a p i t a l ........................................ Ratio Current Assets to Current Liabilities Net Worth Book V a lu e ............................. Book Value Per S h a r e ............................. Average Number of Employees . . . . Num ber of S to ckh o ld e rs............................. $329,330,000 6.0 to 1 $737,521,000 $68.15 26,752 90,264 $328,370,000 4.0 to 1 $723,200,000 $66.83 27,886 89,596 4 REVIEW OF OPERATIONS All Divisions MINING DIVISIONS In 1957 Kennecott concentrated its efforts on increasing the efficiency of operations so that the company could remain competitive in the face of lower copper prices and rising costs of labor, materials and services. During the year, organization analyses, im proved methods, and increased mechanization resulted in substantial savings. The use of new types of drills and the adoption of a recent development in blasting, whereby ammonium nitrate and fuel oil are used instead of con ventional explosives, permitted reduced ore and waste breaking costs. Mine haulage improve ments, including a new access tunnel, skip hoist installations, and replacement of trucks with larger, more efficient units, were com pleted or in progress. In the mills, the com parison of grinding, classifying and flotation procedures and equipment was continued; this work has led to improved metallurgical results in either metal recoveries or product grades. Total ore mined and milled during the year was about 5 per cent less than in the previous year, and copper produced was less by about 4 per cent. The following table shows the amounts of copper produced and of ore mined and milled at the different divisions. Divisions Chino Mines . . Nevada M in e s . . Ray Mines . . . Utah Copper . . Total Domestic . Chilean . . . . Grand Total . . Total Copper Production From all Sources (Net Tons) 1957 1956 63,454 31,823 56,879 235,135 387,291 172,707 559,998 69,629 31,274 53,248 248,158 402,309 179,896 582,205 Ore Mined and Milled (Net Tons) 1957 1956 7,310,978 4,390,275 4,751,463 30,919,900 47,372,616 10,919,452 58,292,068 7,945,386 4,316,148 5,852,742 32,321,100 50,435,376 10,767,314 61,202,690 5 Production of the important by-products molybdenite, gold, silver and selenium was as follows: Molybdenite Cold (Tons) (Ounces) Silver (Ounces) Selenium (Pounds) 1957 14,378 377,367 3,295,170 68,600 1956 16,269 403,381 3,213,559 148,455 Changes in the amounts produced of molyb denite, gold and silver were due to changes in the amount of ore milled and the metal content; the reduced amount of selenium produced was due to a decline in demand. Domestic Divisions The lower amount of ore mined and copper produced at the domestic divisions in 1957 was due to fewer days operated, principally because of shut downs for scheduled major maintenance. The copper content of ore mined at the different domestic divisions in 1957 and in 1956 was as follows: Pounds of Copper Per Ton o f Ore Mined Division 1957 1956 Chino Mines . . . . . 16.3 17.4 Nevada Mines . . . . . 17.3 16.4 Ray Mines . . . . . . 19.0 18.1 Utah Copper . . . . . 16.5 16.6 Average . . . . . 16.8 16.9 The nature of our open pit mining is such that as a pit is expanded a larger amount of waste per ton of ore has to be removed. As a result, the stripping ratio increased from 1.96 tons of waste per ton of ore in 1956 to 2.13 tons of waste in 1957. In December it was decided to reduce pro duction approximately 12 per cent at the Utah, Nevada and Chino divisions by reduc ing operations from a 7 days a week basis to 6 days a week, starting in January 1958. 6 (The Ray division was placed on a 6 days a week basis in April.) Chino M ines Division-- This division operated throughout 1957 on a 7 days a week basis, with the exception of 12 days when the power plant, mill and smelter were shut down for major maintenance. On the upper levels of the pit the removal of waste by truck rather than train has been found to be the lower cost method, and during 1957 the necessary trucks were provided for that purpose. To meet increased power re quirements the capacity of the power plant is being increased by 15,625 kilowatts. Churn drills and wagon drills are being replaced by rotary drills and tractor mounted air drills, respectively, with greatly increased drilling efficiencies. N evada M ines Division-- Operations were suspended from June 30 until July 7 to permit installation of new car-dumping equipment. Otherwise, the division operated throughout the year on a 7 days a week basis. The irregular nature of the ore body at this division complicates mining procedures, and results in comparatively high costs. Neverthe less, progress was made in 1957 in increasing efficiency of operations and reducing costs. Among the steps being taken to reduce costs is the installation of a skip hoist system, which will eliminate costly train haulage from the lower levels of the Liberty pit. An important development was the recent acquisition by Kennecott of the White Pine County properties of Consolidated Coppermines Corporation. These properties are con tiguous to those of the Nevada Mines Divi sion, and this division milled and smelted the Coppermines' ore under contract. Operation by Kennecott of the two properties as one will permit a reduction in production costs and pro vide an increase in the ore reserves. The new smelter under construction for the Ray Mines Division with the completed 600-foot stack. L-P-F plant is in right foreground. R ay M ines D ivision--O n April 7, 1957 operations at this division were reduced from 7 days a week to 6 days, to eliminate overtime in the face of a shortage of manpower. In ad dition, the division was shut down from Octo ber 7 to October 20 for major maintenance. Despite this reduction in the number of days operated and the lesser amount of ore mined, the division produced more copper than in 1956, principally because of the increased pro duction of low-cost precipitate copper obtained by leaching the caved areas of the old under ground mine; production of copper from this source increased from 14,934 tons in 1956 to 17,712 tons in 1957. The installation for increasing by 12 per cent the amount of copper recovered from the ore of this division was placed in operation during the year. The object of the process, known as the leach-precipitate-float (L-P-F) process, is to recover a larger amount of the copper present in the ore in the form of oxides (in addition to that present in the form of sulphides, which is readily recoverable by the ordinary flotation process). Initial operation indicated that certain modifications in equip ment and materials handling procedures would be required for maximum efficiency. These changes are being made. Results to date con firm the expectation that the process will per mit additional recovery amounting to two pounds of copper per ton of ore. 7 Plans for expanding the productive capacity of this division by 20,000 tons of copper an nually include (1) enlarging the pit and re locating various surface facilities, and (2) ex panding the capacity of the mill. Plans also provide for the construction of a smelter to process the copper concentrates and precipi tates produced at this division. (Smelting is presently done by a custom smelter on a costplus basis.) Completion of the program will mean additional personnel, and some 600 new houses are being erected. Construction of the smelter is well advanced and it is expected that it will be completed by the middle of 1958. Relocation of surface facilities to permit en largement of the pit is well advanced and should be completed by early 1959. Expansion of the mill should be completed by the middle of 1959. The entire program will cost in the neighborhood of $40,000,000. Utah Copplr Division-- Operations at this division were maintained throughout the year on a 7 days a week basis, with the exception of a period of eight days when the mine and mill were shut down during installation of new car-dumping equipment. One of the principal projects for holding down mining costs is the $11,000,000 ore haulage tunnel which is being driven to permit getting out the ore from the lower levels of the mine without hauling it considerable distances upgrade. Construction of the tunnel is cur rently nearing the half way mark. When com pleted, the tunnel will be 18,000 feet long and will accommodate standard-size electric loco motives and 100-ton ore cars. Engineering work was completed on another major project to increase the capacity of the present power plant. This is adequate for current needs but does not provide for future requirements. Bigger shovels, steeper grades, and longer hauls all mean greater power 8 consumption. Consequently, construction will start soon on a $16,000,000 expansion at the central power plant. The project will increase power capacity from 100,000 kilowatts to 175,000 kilowatts and produce power at re duced cost per kilowatt hour. The new addi tion should be in operation early in 1960. Chilean Division (Braden Copper Co.) Power generation, dependent upon annual precipitation, determines productive capacity at this division. In 1957, favorable climatic conditions made possible a near record of ore mined and milled, despite a two-week strike coincident with negotiation of new labor con tracts. The ore contained 39.3 pounds of cop per per ton in 1957, as compared with 40.3 pounds in 1956. At the concentrating plant, the replacement of old flotation machines with equipment of more modern design, begun in 1956, has been largely completed. The improvement in copper recov ery has exceeded expectations. Other favorable results are ease of operation, lower power con sumption, and reduced maintenance costs. Chile continues to make progress in combat ing the inflation which has so long plagued that country. The recommendations of the Klein-Saks Mission, first applied in 1956, called for limitations in bank credit, the curb ing of imports, and reduced government ex penditures. The recommendations were aimed at slowing inflation through a flexible approach rather than attempting to halt it by rigid con trols. The results thus far have been encourag ing. As compared with the year 1955 when the cost of living increased 84 per cent, the increase in 1956 was 38 per cent, and that in 1957 was 17 per cent. The sharp drop in copper prices has seri ously affected Chile's economy. The income tax paid by the large copper producers is that country's chief source of dollar revenue. The fact that these taxes in 1957 were substantially lower than in 1956 is making more difficult Chile's efforts to combat inflation. KENNECOTT REFINING CORPORATION Announcement has been made of the plan to build a new electrolytic refinery in the East to provide the capacity needed to meet the increased demand for electrolytically refined in preference to fire refined copper. The refin ery will be owned and operated by a recently formed subsidiary, Kennecott Refining Corpo ration. The original plan called for an installa tion with an initial capacity of 7,000 tons a month, costing approximately $20,000,000. Under contracts of many years standing much of Kennecott's smelting and electrolytic refining has been done by the American Smelt ing and Refining Company. However, in Feb ruary 1958 an agreement was reached whereby Kennecott's refining commitments to that com pany will be reduced to 6,000 tons per month July 1, 1960, and terminated at the end of 1965. This agreement has permitted an in crease in the initial capacity of our Eastern refinery to 16,500 tons a month. The larger plant will cost approximately $30,000,000 and will employ approximately 570 people. It will be located in Anne Arundel County, Maryland, and 200 acres of land on the Patapsco River have been acquired for the site. Plans call for buildings and equip ment incorporating the latest techniques in electrolytic refining, copper casting including the continuous casting of billets, and materials handling. Operations are scheduled to begin in 1959. Some of the copper from Kennecott's do mestic mines, as well as copper from our Chilean subsidiary, will be used to supply the enlarged plant. The refinery will furnish elec trolytic copper for markets in both Europe and the United States. New 18,000 foot ore haulage tunnel at the Utah Copper Division. It will eliminate costly uphill haulage from lower pit levels. EXPLORATION Over the long term it is evident that re quirements for mineral products will steadily increase. In the case of copper, the problem of supply is complicated by the continuing decline in the quantity of copper available from each ton of ore mined. It is important to realize that despite the present surplus of metal, the output from existing mines and ex tensions will be inadequate to meet future de mands of industry. New deposits must be discovered to take up the increased load and replace deposits that become mined out. Because the exposed surface of the earth in accessible areas has been studied and pros pected for generations, and the easy-to-find 9 The KENNECOTT FAM ILY. . . w h at it's com p osed of CHINO MINES DIVISION NEW MEXICO NEVADA MINES DIVISION Ne v a d a RAY MINES DIVISION ARIZONA UTAH COPPER DIVISION UTAH BRADEN COPPER COMPANY CHILE (100% owned) KENNECOTT REFINING CORPORATION MARYLAND (1 0 0 % owned) CHASE BRASS & COPPER CO. INC. CONNECTICUT AND OHIO (1 0 0 % owned) KENNECOTT WIRE AND CABLE COMPANY RHODE ISLAND (1 0 0 % owned) QUEBEC IRON AND TITANIUM CORP. QUEBEC (6 6 -2 /3 % owned) TIN & ASSOCIATED MINERALS LTD. NIGERIA (5 2 % owned) ALLIED KENNECOTT TITANIUM CORP. NORTH CAROLINA (5 0 % owned) GARFIELD CHEMICAL AND MANUFACTURING CORP. UTAH (5 0 % owned) MERRIESPRUIT (ORANGE FREE STATE) GOLD MINING CO. LTD. UNION OF SOUTH AFRICA (4 9 % ownedH) QUEBEC COLUMBIUM LTD. QUEBEC (4 6 % owned) VIRGINIA ORANGE FREE STATE GOLD MINING CO. LTD. UNION OF SOUTH AFRICA (3 5 % owned) tElectrolytic requirements are met by refineries in the U. S. Not owned by Kennecott but a substantial part of the output is for Kennecott account. (Same refinery serves both Nevada and Ray Divisions.) P la n t under construction. Plant under design. Mine presently under water and not producing. flAssuming full conversion privileges are exercised. I Ore treatm ent method under development. Company railroads are used p rincipa lly for hauling ore from mine to m ill. In addition, in Nevada and Chile they are common carriers. Products of Chase Brass & Copper Co. Inc. are distributed through a system of 27 warehouses in cities throughout the country. These warehouses also handle the products o f Kennecott Wire and Cable Company. In addition to the above indicated ownership in affiliates, Kennecott holds for investment 1 3 .1% o f the common stock of Kaiser Aluminum and Chemical Corporation, 7 .3 % of the common stock of the Molybdenum Corporation of America, and 2 5 .0% o f the common stock of Western Phosphates, Inc. mineral deposits have largely been located, the search for new mines today must be under taken by scientifically trained specialists cap able of interpreting geophysical data that may serve as a guide to mineral deposits with no surface indication. Such techniques, and one method is depicted on the cover of this report, have become everyday tools of our exploration teams. However, it must be remembered that this is a relatively new science. Although progress has been rapid in the last few years, the development of mines from the many initial discoveries by this method does not occur overnight. Each discovery must undergo careful testing before it can be re garded as an addition to reserves. At present we have four copper deposits and two deposits of other minerals in this stage of development. During 1958 such testing will be more exten sive than in 1957. Exploration of the large concession obtained last year in the Canadian Arctic and pros pected jointly with the Hudson's Bay Company, revealed only one small, although relatively high-grade, copper ore body. With the excep tion of the claims covering this discovery, the concession was relinquished. As this deposit is remote from present transportation, further development of the Northwest Territories must occur before production would be feasible. In Greece a small pilot plant was con structed at the asbestos property described in last year's Annual Report; samples of the product are currently being shipped to con sumers of raw asbestos fiber for testing. Drill ing proved the deposit to be the largest so far discovered in Europe. Our exploration activities must be wide spread and, consequently, two new exploration subsidiaries were established during the year -- Kenranda Pesquisas Minerais, S.A., in Bra zil, and Compaa Minera Kenmex, S.A., in Mexico. Normal exploration activities were continued in other parts of the world, as well as the U. S. and Canada. RESEARCH The primary objective of our Western Re search Center is to improve the recovery of metals from Kennecott's ores. The develop ment of new or improved processes for the extraction of metals not only lowers operating costs but also increases the reserves. The testing of the L-P-F process to increase the amount of copper recovered per ton of ore at the Ray Mines Division was mentioned in last year's Annual Report. The successful completion of this work suggested three things; (1) that pyrite could be recovered from the mill tailings at the Utah Copper Division, (2) that the pyrite could be used in the production of sponge iron, and (3) that sponge iron could be used instead of de-tinned scrap in precipitating copper from the mine dumps so lution. During 1957 pilot plant testing was directed toward determining the technical feas ibility of the procedure. The entire problem of dump leaching is exceedingly important because of the low-cost copper that is produced in this way. Among other research projects of impor tance in operations are the study of methods for developing sufficient water of good quality to assure an adequate mill supply at the Utah Copper Division, and for improving the puri fication of the electrolyte in the refinery m order to produce electrolytic copper of maxi mum purity. The latter of these projects is now undergoing plant scale tests. In the previous Annual Report it was noted that the columbium ore of Quebec Columbium Limited is complex in character. During the past year considerable study has been given to the possibilities of the flotation process for concentrating columbium bearing minerals. A flotation reagent was discovered which is 11 selective to these minerals, and which has per mitted the recovery of concentrates containing up to 10 per cent columbium oxide. Consider able work was done on the production of mar ketable products from this concentrate. In 1957 there was continued the study of methods for improving the marketable prod ucts obtained from the columbium ore of this company's 52 per cent owned columbium property in Nigeria. A smelting procedure was developed by which the concentrate was con verted to a carbide containing the equivalent of 80 per cent columbium oxide. By chlorinat ing the carbide there has been produced a high-purity columbium pentachloride, which is used in producing columbium metal. Reference was made in the previous year's report to the investigation of the recovery of thorium and the production of a concentrate of zirconium and hafnium, which elements are contained in the Nigerian ore. These studies are being continued. In 1956 arrangements were made with Hor izons Titanium Corporation for the use of patent rights and technological "know-how" in the production of zirconium and hafnium by electrolysis of fused salt baths. Construc tion of a large scale pilot plant was completed on September 1, 1957. Since that date the unit has been in operation, producing zir conium metal. At the research laboratory of Chase Brass and Copper Company a new copper alloy has been developed. The new alloy is a high strength material and is highly resistant to stress cracking, in contrast to many other high strength materials. The attractive properties result from a carefully controlled combination of working and heat treatments. One use for the new alloy is in the production of bolts and fasteners. As the result of experience acquired in work with the newer metals, a marked improvement 12 in processing relatively large cupro-nickel tubes has been made. This development has involved the design and configuration of tools, and the development of improved lubricants. This accomplishment has resulted in a wider range of tubing available for sale. ORANGE FREE STATE GOLD MINING COMPANIES Virginia Progress at Virginia Orange Free State Gold Mining Co. Ltd., in which company Kennecott has a 35 per cent equity interest, is reflected by the following figures. 1957 1956 1955 Gold: Ore Milled (Net Tons) . Grade of Ore (Dwt per Ton) Gold Recovered (Ounces) . . 1,187,000 5.512 316,452 1,016.000 4.853 236,739 734,000 4.452 156,183 U ranium : Slimes Treated (Net Tons) . 1,543,495 1,479,394 -- Grade of Slimes (Lbs. per Ton) 0.591 0.522 -- Uranium Oxide Recovered (Pounds) . . 766,884 598,682 -- Sulphuric A cid: Pyrite Burned (Net Tons) . Sulphuric Acid Produced (Net Tons) . 104,326 115,209 100,973 78,966 109,914 86,429 The increase in the amount of gold and ura nium oxide recovered in 1957 as compared with 1956 was relatively greater than the increase in the amount of ore milled and slimes treated because of the higher metals content of the ore. The mill operated throughout the year on an uninterrupted schedule averaging approxi- mutely 100,000 tons of ore a month. This rate will be increased to 125,000 tons late in 1958 upon completion of a second hoist ing shaft and an extension of the mill. Development work on the reef was retarded by an excessive number of water-bearing fis sures being encountered. These fissures re quired sealing off by cementation prior to driving through them. The underground water situation in many mines in the Orange Free State has presented serious problems. Unaudited earnings figures for 1957, compared with the final figures for 1956 are as follows: Working Profit: 1957 From Gold . . 814,020 From Uranium Oxide 2,058,025 From Sulphuric Acid 298,616 Total Working Profit 3,170,661 1956 487,371 1,334,051 288,842 2,110,264 Less Interest Charges on Gold Loans . Less Uranium and Sul phuric Acid Loan Repayment Install ments ...................... 256.636 775,568 267,166 557,973 Total . . . . 1,032,204 825,139 Net Profit . . . . 2,138,457 1,285,125 Kennecott received interest payments in 1957 amounting to $490,080 on its holdings of the company's debentures and loan stocks. The profit for the year was appropriated for capital expenditures to increase capacity of mine and mill, to develop added ore reserves, and to increase pumping capacity to 15,000,000 gallons per day. Merriespruit Stockholders were advised by a special letter dated April 17, 1957 of plans to dewater the Merriespruit mine, which was flood ed in November 1956. The work of dewatering will be accom plished by driving a 15,000-foot haulageway from one of the lower levels of the adjacent Virginia mine to a point 500 feet below the bottom of the flooded Merriespruit mine. The mine will then be tapped from below by dia mond drilling, the water drawn into the haul ageway, and pumped to the surface through Virginia's pumping system. Compared to de watering through the Merriespruit shaft, this procedure will be safer for personnel carrying out the work, will not endanger the Virginia mine in any way and will permit acquiring con siderable development information as the haul ageway is driven through the gold bearing reef. By the end of the year the haulageway had been driven 800 feet; progress was retarded by water-bearing fissures. According to present plans, the dewatering operation will not be completed before 1960. The necessary funds are being made available through the sale of housing owned by the Merriespruit company. Upon completion of dewatering, and with the additional development information ac quired in the process, the situation with re gard to further action will be considered. TIN AND ASSOCIATED MINERALS LIMITED An interest in this company, which operates a columbium and tin property at Odegi in northern Nigeria, was acquired by Kennecott in September 1955. The products of the mine are columbite concentrate and tin concentrate. Columbite concentrate is used in making ferrocolumbium, an additive of stainless steels and high temperature alloys. This property continues to be operated at a loss. In 1957 consumers showed increasing pref erence for columbium-stabilized stainless steels as compared with competitive materials. How ever, due to cutbacks in the production of jet 13 engines containing columbium-bearing metals, and a reduction in the sale of columbium-bear ing stainless steels and super-alloys for other uses, the production of ferrocolumbium de clined substantially. Columbium consumption in nuclear energy applications was disappoint ing in the light of earlier forecasts. These con ditions and the previous cessation of govern ment stockpiling resulted in a decline in both price and demand for columbite concentrate. Improved sales of columbite concentrate are anticipated due (1) to increased use in pre vious applications because of the assured availability of the product, and (2) to the development of new uses in both the ferrous and non-ferrous fields, including use of colum bium alloys for withstanding high tempera tures, such as those encountered in jet engines, gas turbines, and guided missiles. FABRICATING SUBSIDIARIES Chase Brass & Copper Co. Inc. In 1957 the volume of business of Chase Brass & Copper Company as measured by pounds of brass mill products shipped was 7 per cent below that of the previous year. Total dollar sales in 1957 were 21 per cent below those of 1956 because of decreased 14 volume and lower prices. Major factors in the decrease in business were reduced buying of brass mill products by automobile com panies, and the slow-down in residential con struction. Imports continued to be a factor in the sale of brass mill products. Following the trend of recent years, imports of brass mill products again increased in 1957, amounting to 6 per cent of total domestic production. During the year the decision was made to close down permanently Chase's Waterbury Manufacturing Division. This division, which has lost money for several years, produced plumbing goods, wrought and cast fittings for water tube, and screw machine parts. The plant had high labor costs and, in addition, was old and inefficient. It was found that Chase could more profitably divest itself of the business, disposing of the equipment to prospective purchasers of brass mill products, than to modernize the plant and continue the division in operation. To date Chase has been successful in replacing the amount of mill products formerly used by the Manufac turing Division by an equivalent amount of business from other manufacturers. Efficiency of operations at the new Cleve land strip mill was increased by installation of a continuous strip annealing line, which combines three finishing operations, viz., pre cleaning, bright annealing and pickling. The installation is unique in the brass industry, being the first in which strip is heated by means of high velocity convection, which in creases speed of production and improves quality of anneal. Chase has become established as a major source of fabricated zirconium alloy, used in the production of atomic reactors. The re search department has filled orders from build ers of reactors and has produced tubes in the 3-5 inch range. The market for zirconium The new continuous strip annealer at Chase Brass & Copper Company. This machine, the first of its kind, performs three finishing operations at high speed and with superior quality of product. alloy tubing is expected to increase substan tially in the next several years. The company's system of branch offices and warehouses was improved by the opening of two new warehouses better to serve the needs of customers-- a 73,000 square foot building at Maspeth, N. Y., and a 66,000 square foot structure in San Francisco. Kennecott Wire and Cable Company The demand for electrical and communica tion wire and cable declined substantially in the second half of 1957. Because of falling copper prices customers tended to use up their inventories of wire and cable, and be cause of high money rates tended to postpone expansion projects. In 1957 shipments by this company in pounds were 21 per cent less than in 1956. The dollar value of shipments was 35 per cent less. Kennecott Wire and Cable Company used the period of slackened demand to improve the efficiencies of organization and equipment in readiness for the expected increase in de mand for its products. Plant layout was im proved and new equipment was installed which will increase capacity and reduce costs. QUEBEC IRON AND TITANIUM CORPORATION In June 1956 this company placed in op eration its new plant for upgrading and pre 15 treating the ore prior to charging into the electric furnaces. In 1957 the expected bene fits of the new facilities were fully realized in increased productive capacity and substantially decreased maintenance costs. Other contribu tions to increased efficiency during 1957 were improved methods of furnace operation and tapping, handling titanium slag, and desul phurizing the iron. The production figures in gross tons for the last four years are as follows: Y ear Titanium Slat; Produced Iron Produced Ore T reated 1954 . . . 109,786 1955 . . . 145,343 1956. . . 195,156 1957. . . 231,179 80,859 103,531 142,745 167,437 252,457 323,680 464,651 560.049 In 1957 production reached design capacity for the first time since the inception of opera tions. The production increases of 18 per cent in 1957 over the previous year were due chiefly to the effect of pre-treated ore in increasing furnace efficiency. The program begun early in 1957 of con structing three additional furnaces and aux iliary facilities was well under way by the end of the year. Furnace number 6 was placed in operation in December and furnaces 7 and 8 will be in operation by the end of 1958. The shipping and unloading dock at Sorel is being doubled in size to permit the accommodation of two ships at one time. During 1957 the demand for slag and iron equalled productive capacity. Virtually all of the slag was purchased by producers of tita nium pigment. The company's iron, known in the trade as Sorelmetal, was sold in Europe as a high grade remelt iron for specialty steels, and in the domestic market for foundry use, chiefly for ductile iron. Its acceptance as a high purity base for this purpose is encourag 16 ing in view of the growing importance of the latter material. Ore has been sold for use as an aggregate in high density concrete for coating underwater oil and gas lines and for shielding nuclear reactors. On October 1, 1957 the assets of Quebec Iron and Titanium Corporation, originally or ganized in the State of Delaware, were trans ferred to a new corporation of the same name organized under the laws of the Province of Quebec, Canada. This does not affect the com pany's operations or ownership and represents a change only in the company's legal status. However, the reorganization of Q.I.T. as a Quebec corporation will enable the company to conduct its business, primarily a Canadian mining operation, with increased efficiency. It is expected that it will improve and facilitate relations with Dominion and Provincial author ities, with other Canadian companies and with employees. In December Quebec Iron and Titanium Corporation received the 1957 Chemical En gineering Biennial Achievement Award, as one of a group of chemical and metallurgical companies which have made substantial prog ress in the development, production and utili zation of "Atomic Age" metals. Specifically, the award to Q.I.T. was made in recognition of the company's success in developing a com mercial process for producing titanium slag. For 1957 the company operated for the first time at 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. ALLIED -KENNECOTT TITANIUM CORPORATION In 1956 announcement was made of the formation by Kennecott Copper Corporation The treatment plant of Quebec Iron and Titanium Corporation. The sixth furnace has just been completed and the seventh is under construction; the eighth will be erected at the left. and Allied Chemical & Dye Corporation of an equally owned company Allied-Kennecott Ti tanium Corporation. The announced purpose of the company was to produce and sell titan ium metal. In 1957 a 1500-acre plant site on the Cape Fear River near Wilmington, North Carolina was acquired. Since the company was formed there has been a marked decline in demand for titanium metal. The principal use of titanium has been in the manufacture of military aircraft. About the middle of 1957 the Defense Department cut back the production of aircraft and changed the emphasis from aircraft to guided missiles, in which the use of titanium is yet to be determined. Also by m id-1957 the Government's obligations for buying titanium for the national stockpile were nearing com pletion. As a result, there will be considerable excess titanium capacity for the next year or two. In order to stimulate demand it will be necessary to develop lower cost methods of production and fabrication. For this reason before constructing the plant, Allied-Kenne cott is doing further development work on the process for producing titanium sponge, as well as on improved methods of melting and fabricating. At the same time the company is studying the market, with particular emphasis on commercial uses of the metal. The company's confidence in titanium's ul timate place as an important new metal re mains undiminished. Because of its high strength-weight ratio and corrosion resistant properties, new uses for the metal will continue to develop in the chemical processing, pulp and paper, marine, electronic, aviation and automotive industries. It is reasonable to expect that within the next ten years the use of titanium will increase several-fold over the record consumption of 1956. 17 Suspended over the edge of a mine bench, a television cameraman shoots operations at the famous Utah pit during a nation-wide telecast. INDUSTRIAL AND PUBLIC RELATIONS Labor Relations The first year of the period covered by the three-year labor agreements between Kennecott and the unions at the domestic mining divisions was completed in mid-1957. Wage increases of 7 cents per hour became effective at that time. Similar increases are called for in 1958. Special efforts were made during the year to strengthen day-to-day working re 18 lationships with all unions to effect safer and more efficient operations. At our Chilean subsidiary, Braden Copper Company, a two-week strike began on April 1, 1957, the termination date of the labor con tract. A new contract, which includes a wage increase within the limits prescribed by law, was negotiated. This increase, part of which had become effective during the life of the expired contract in accordance with the costof-living clause included therein, amounted to approximately 30 per cent (80 per cent of the cost-of-living increase during the period). The new contract, which also provides cost-of-living escalation, runs until June 30, 1958. The three-year agreements at the Waterbury metal works plant of Chase Brass & Copper Company will remain in effect until September 15, 1958. At Chase's Cleveland plant labor contracts are in effect which will expire in August of this year. As noted elsewhere in this report, the Waterbury Manufacturing Division of Chase is in the process of liquida tion. Satisfactory agreements were reached with the unions at this location providing for contract modifications to permit orderly shut down procedures. Kennecott Wire and Cable Company con tinued to operate under the terms of threeyear contracts which were signed in 1956. These contracts will expire on July 1, 1959. Contracts covering mine employees of the Quebec Iron and Titanium Corporation ex pired in April 1957 and, even though new agreements have not yet been reached, work has continued without interruption. Employees at the company's treatment plant are covered by a two-year contract which will be in effect until December 5, 1958. Tuition Aid Plan A Tuition Aid Plan was inaugurated in 1957 to encourage employees to take job- related studies at approved colleges, universi ties, trade schools or business and professional schools. The primary objective of the plan is to improve corporate performance by giving technical personnel an opportunity to increase their knowledge and to keep up-to-date with latest developments, and by encouraging em ployees to prepare themselves for advancement within the organization. Upon successful completion of approved courses, employees will be reimbursed to the extent of two-thirds the cost of registration, tuition fees, required books and laboratory fees. Suggestion System The Suggestion System and Patent Plan, which was instituted at our domestic mining divisions in the early part of the year, has been extended to our fabricating subsidiaries. The plan has met with enthusiastic response as evi denced by the more than 6,500 suggestions received from employees and the approxi mately 800 adopted and put in effect. Training Training programs continued to play an im portant part in the company's industrial rela tions activities. Courses designed to aid the employee in the development of job-related skills and to increase his knowledge of basic company and industry problems were pre sented at all domestic properties. These courses are specifically adapted to help the employee improve his job efficiency and effectiveness. Communications The communications programs instituted early in the year are now fully operative at all domestic mining properties. The programs permit two-way communication between man agement and employees at all levels. Other communication tools including plant and su pervisory publications are geared to supple ment this effort. Safety Improvement in accident prevention was achieved at our domestic locations, with divi sion records being established at two proper ties. The cooperation of employees and the unions in this important phase of our activities was noteworthy. For the tenth consecutive year Braden Cop per Company won the first-place award of the Inter-American Safety Council for mining companies. Raising the National Safety Council's pennant, awarded for outstanding safety performance, at Chino Mines Di vision. Left to right: G. J. Ballmer, mine superintendent; W. H. Snell, mine safety engineer; Baltazar Sandoval, carpenter; J. K. Richardson, assistant general manager; Manuel T. Gutierrez, machinist; Joe McCormick, tinner; and W. H. Goodrich, general manager. Training courses in safe operating proce dures were continued for employees at all divisions and fabricating subsidiaries. Safety programs sponsored by the company ex tended beyond instruction in safety on-the-job, and included safe driving and safety-at-home education. Employees The average number of employees at Kennecott and its wholly-owned subsidiaries dur ing 1957 was 26,752. This compares with 27,886 in 1956. Employees of partially owned subsidiaries or of companies performing con tract services for any of the divisions or sub sidiaries are not included in this figure. Public Relations Public relations activities at each of the divisions and subsidiaries continue to be geared to the basic objectives of presenting the company story-- its activities, problems, personnel and accomplishments. Facts con cerning the company were disseminated by the use of all available media. Special tours of our operating areas by technical organiza tions, civic groups, and the general public grew in number and interest during 1957. The sale of company housing to employees at our western mining divisions is proceeding to completion. As a final step in the company's withdrawal from ownership of its western com munity properties, deeds for certain facilities and land have been given to churches, schools and other community associations. The man agement of these community organizations was assumed by appropriate groups in each town at the time the company made its residences available for purchase by employees. Through its contributions program, the company continued its active support of civic, cultural and recreational associations, particu larly in the communities where it operates. 20 Kennecott's national program of scholarships and fellowships was maintained, supplemented by regional programs in each of its areas of operation. Advertising Kennecott's national advertising has been continued with a "No Substitute Can Do What Copper Does" program appearing in leading consumer magazines, and a campaign devoted to adequate wiring appearing in homemakers' magazines. A major campaign on behalf of copper tube has been conducted by our fabri cating subsidiary, Chase Brass & Copper Com pany, in addition to that company's regular program. A well integrated program of product pub licity carried on by Chase has stimulated edi torial support for copper and copper products. Copper's many advantages both to industry and to consumers have been pointed out. ORGANIZATION CHANGES Effective June 26, 1957 Peter S. Barno was appointed Vice President (Public and Indus trial Relations) of Chase Brass & Copper Company in place of Rodney Chase, who re tired May 1st. Prior to becoming associated with the Chase company, Mr. Barno was Di rector of Industrial Relations of the Studebaker-Packard Corporation. It is with deep regret that we record the death on July 15 of Rodney Chase, retired vice president in charge of public and indus trial relations of Chase Brass & Copper Com pany. For 37 years Mr. Chase served his company with distinction. His death brought profound sorrow to his associates and friends, and was a great loss to the community. FINANCIAL REVIE Income and Dividends Operations for the year 1957 resulted in consolidated net income of $79,251,667 or $7.32 per share, compared with 1956 con solidated net income of $143,154,210 or $13.23 per share. Reduction in the average price received for copper during 1957 as compared to 1956 was the major factor causing the decrease in net income. Cash distributed to stockholders during 1957 amounted to $6.00 per share-- the same as was paid in each year since 1951 with the exception of 1955 and 1956 when greater earnings, resulting from unusually high copper prices, permitted larger distributions to stock holders. Copper Sales and Prices Early in 1957 Kennecott entered the Euro pean market with electrolytically refined copper in a major effort to avoid further inventory ac cumulation and to boost lagging sales. The success of this endeavor is clearly evident from the 12 per cent increase in copper deliveries, which rose from 495,219 tons in 1956 to 552,944 tons in 1957 despite a decrease in domestic business. Throughout 1957, however, the price of copper continued its steady decline from the abnormally high levels of 1956. The history of the U. S. producers' prices since January 1, 1955 is shown in the following table: Cents Per 1955 Pound Jan. 1 . . . 30 Feb. 1 . . . 33 Mar. 31 . . 36 Aug. 24 . . 40 Sept. 1 . . . 43 1957 Feb. 1 . Feb. 19 June 20 Aug. 8 . Sept. 4 . Cents Per Pound . 34 . 32 . 2914 . 28'/z . 27 1956 Feb. 21 . . 46 July 11 . . . 40 Oct. 29. . . 36 1958 Jan. 14 . . 25 In Europe, where Kennecott increased its share of business, the price of copper fell even faster and farther than it did in the United States. The combined result was a 31 per cent drop in the company's average price of copper from 41.6 cents in 1956 to 28.9 cents in 1957. Cost Reduction Program Due to the continued rise in labor rates and material prices and a further drop in the grade of ore processed, the average cost of copper sold during 1957 increased. In view of this and the continued fall in the price of copper, the company has intensified its efforts to check these rising costs. A cost reduction program has already achieved significant benefits and promises still more in the year ahead. 21 SUMMARY OF RESULTS Per Share of Capital Stock Outstanding Sales and Other Income . . . Consolidated Net Income before Taxes . Provision for U. S. and Foreign Taxes on Income . Consolidated Net Income after Taxes . Distributed to Stockholders . . Capital Expenditures . . . Depreciation and Retirements . Book V a l u e ........................... 1957 $44.37 14.75 7.43 7.32 6.00 2.53 0.98 68.15 1956 $53.42 25.99 12.76 13.23 9.25 1.96 0.75 66.83 1957 ........................... *1956 ........................... Before Surplus Adjustments. Net Incom e Per Share --by Quarters 1st 2nd 3rd 4th $2.57 4.08 $1.99 4.16 $1.45 2.48 $1.31 2.51 Chilean Division In Chile the government's anti-inflationary program has had some success in reducing that nation's rate of inflation. Nonetheless, by United States standards, peso prices continued to rise at a rapid rate. The corresponding rise in the peso costs of the Chilean division, how ever, once again was met by an increase in the exchange rate favorable to the dollar. In 1957 the company was able to purchase its peso requirements at an average of 616 pesos to the dollar as compared with 374 pesos to the dollar during the previous year. In 1957 the Chilean division accounted for 34 per cent of the total copper deliveries and 24 per cent of the consolidated net income. Taxes At December 31, 1957, the U. S. Internal Revenue Service had not yet completed its examination for the year 1951. This review was completed early in the month of January 22 1958, and the company's provision for such taxes was found to be adequate. It is believed that examinations of subsequent years will not result in additional assessments in excess of amounts previously provided. The provision for all taxes in 1957 and 1956 is summarized as follows: U. S. and foreign taxes on income Other taxes in cluded in oper ating costs or other accounts 1957 $ 80,368,103 22,813,171 $103,181,274 1956 $138,072,046 22,899,942 $160,971,988 Taxes-- Per Share $9.53 $14.87 Government and Other Short-term Securities During the year 1957 the company main tained its policy of investing cash not required immediately in the company's operations prin cipally in short-term U. S. Government securi ties. At the year's end our total investment in government and other short-term securities, shown on the balance sheet at cost, amounted to $209,061,526 compared to approximate market value of $210,197,000. Of the total cost, $197,216,087 represents the investment in securities of the United States Government, the balance comprising principally investments in commercial paper, and securities of United States Government agencies and municipal governments. Investments A statement is presented which details the principal investments held by the company at the year's end in the amount of $122,510,600. This represents an increase of $3,329,066 dur ing 1957. The major changes in our portfolio are summarized as follows: A further advance of $1,600,000 was made to Quebec Iron and Titanium Corporation. An additional investment of $303,556 was made in the securities of the Molybdenum Corporation of America by the exercise of rights to acquire common stock and warrants. An initial investment of $1,000,000 was made in the stock of Allied-Kennecott Tita nium Corporation. Garfield Chemical & Manufacturing Cor poration repaid the remaining balance of $500,000 advanced to that company for plant expansion. Property, Plant and Equipment Expenditures Total capital expenditures for replacement, modernization of equipment and continuing progress of the Kennecott integration program during 1957 were $27,332,260 as compared to $21,244,275 in 1956. Of the total, $1,440,800 was spent by the fabricating divisions. Depreciation and retirement of plant and equipment amounted to $10,610,278, of which SCHEDULE OF INVESTMENTS (E xcluding Securities Carried as C urrent Assets) 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 receivable............................................ Molybdenum Corporation of America-- stock and stock warrants . Western Phosphates, Inc.-- stock and advances................................. Tin and Associated Minerals Limited-- stock and advances . . . Quebec Columbium Limited-- stock and advances........................... Allied-Kennecott Titanium Corporation-- s t o c k ............................ Compania de Acero del Pacifico-- sto c k ............................................ Garfield Chemical & Manufacturing Corporation-- stock . . . . Other miscellaneous in v e stm e n ts....................................................... Balance-- December 31, 1957 ...................................... $ 43,000,000 25,251,243 21,159,116 18,800,000 3,823,546 3,134,806 1,655,000 1,449,760 1,038.380 1,000,000 350,000 240,000 1,608,749 $122,510,600 23 $1,409,811 was for accelerated amortization of facilities covered by certificates of necessity. Amounts authorized as yet unexpended total $99,769,000. In addition to the construction of the new electrolytic refinery in Maryland, which accounts for $30,000,000 of this total, there are several other major projects in prog ress at the various divisions and subsidiaries of the company. Of primary importance among such projects are additional power facilities at the Utah and Chino divisions, continuation of expansion and integration at the Ray Mines Division started in 1956, modernization of the Braden Copper Company plant, and acquisi tion of the properties of Consolidated Coppermines Corporation in Nevada. Pension Trusts The company and its consolidated subsidi aries contributed $9,106,000 during the year to the several pension trust funds which were established to provide employee pensions. At December 31, 1957 the pension plans which are related to these trust funds covered 19,775 employees and 1,558 retired employees. Dur ing the year $1,674,000 was withdrawn from the trusts to pay pension allowances. Executive Incentive-Compensation Plan The amount of 1957 earnings available under the Executive Incentive-Compensation Plan for distribution to key executive em ployees was $361,547. A total of 31 such employees were granted awards aggregating $295,000. The unused balance of the earnings originally available for award, $66,547, re mains as corporate earnings and is no longer available for payment under the plan. Stockholders On November 29, 1957 the 10,821,653 shares of Kennecott stock outstanding were held by 90,264 stockholders, as compared with 89,596 on November 30, 1956. This number does not include many additional stockholders whose stock is registered in the names of brokers and nominees. INTERESTING FACTS REGARDING KENNECOTT'S METALS 1. Your 14 carat gold ring is about twothirds gold and one-third copper. 2. Selenium is a much better conductor of electricity in the light than in the dark. 3. At 1800 degrees Fahrenheit, columbium metal will stand five times as great a stress as many steels. 4. The American five-cent piece contains three-times as much copper as nickel. 5. Thorium can be converted into uranium233 to produce nuclear energy. 6. Zirconium is a vital element in the power plants of our atomic submarines. 7. In 1957 U. S. consumption of new copper was about 15 pounds per capita as com pared with less than 2 pounds for the rest of the world. 24 AUDITORS' CERTIFICATE L oomis, Su ffer n & F ernald Certified Public Accountants 80 BROAD STREET NEW YORK 4 To the Directors and Stockholders of Kennecott Copper Corporation: February 19, 1958. We have examined the Consolidated Balance Sheet of Kennecott Copper Corporation and its consolidated subsidiaries as of December 31, 1957 and the related Statements of Income and Surplus for the year then ended. We had pre viously made a similar examination for the year 1956. 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, 1957 and December 31, 1956 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. Loomis, Suffern & F ernald Certified Public Accountants. 25 K ENN EC O TT COPPER CO RPORATIO N and CO NSO LIDATED SU B SID IA R IE S CONSOLIDATED STATEMENTS of INCOME and EARNED SURPLUS FOR THE YEARS ENDED DECEMBER 31, 1957 and 1956 Consolidated Statement of Income Sales and other income: Sales of metals and metal p r o d u c t s ........................................... Dividends, interest and m iscellan eo u s..................................... Costs and expenses: Cost of goods sold and other operating e x p e n s e s ..................... Depreciation and re tire m e n ts..................................................... General administrative and corporate expenses not included in operating or other expenses..................................................... Shut-down expenses during strikes................................................ Interest on tax settlem ents.......................................................... Sundry charges for research, exploration and other deductions not included in operating or other ex p en ses........................... Net income before taxes separately stated b e lo w ..................................................... Provision for U. S. and foreign taxes on income................................ Net income (without deduction for depletion of m in es)........................................... 1957 $467,958,212 12,241,308 $480,199,520 $298,466,187 10,610,278 4,070,967 245,625 22,109 7,164,584 $320,579 750 $159,619,770 80,368,103 $ 79,251,667 1956 $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 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 ...................................... See "Notes" on page 28. 26 $478,883,929 79,251,667 $558,135,596 64,929,918 $493,205,678 $435,226,106 143,154,210 603,903 $578,984,219 100,100,290 $478,883,929 ENNECO TT COPPER CO RPO R ATIO N and CO NSO LIDATED SU BSID IA R IES CONSOLIDATED BALANCE SHEET 1957 A ssets Current assets: C a s h ........................................................................... U. S. government and other short-term securities . Accounts receivable, less reserv es........................... Metals and metal products on hand and receivable . 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 investments-- at or below c o s t ..................................................... Deferred charges for stripping and mine development . . . . 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 ........................................................... 1957 1956 $ 22,845,931 209,061,526 ( 28,165,462 97,186,816 4,426,057 33,134,089 $394,819,881 $ 26,095,971 248,766,596 36,102,302 88,528,741 4,428,514 32,714,934 $436,637,058 122,510,600 6,209,435 4,447,766 483,520,052 ! (204,055,638)1 $807,452,096 119,181,534 10,363,040 4,665,913 458,398,356 (195,248,304) $833,997,597 Liabilities Current liabilities: Accounts payab le........................................................... Treatment, refining and delivery charges accrued . . Taxes accrued ................................................................ 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 su rp lu s..................................................... Consolidated earned surplus (without deduction for depletion of now-operating m i n e s ) ................................................................ See "Notes" on page 28. $ 18,126,914 6,535,645 40,827,533 $ 65,490,092 4,440,562 53,199,636 191,116,128 493,205,678 $807,452,096 $ 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 27 K EN N EC O TT COPPER C O R PO R A TIO N and CO N SO LID A TED SU B SID IA R IE S N O T E S 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 elimination 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 Kennecott stock issued or cash paid to acquire the securities of the corporation which now own or heretofore owned such properties. The securities of corporations not wholly-owned are included as "Investments." This is the same basis which has been applied in the con solidated statements for prior years. The accounting basis here used for mines and other properties and investments is not intended as a repre sentation of actual present values or prospective 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. 28 Ltd. is carried at cost in the balance sheet. No reduc tion or reserve has been recorded in connection with the flooding of the mine, since decision as to its future awaits the results of dewatering and exploration pro grams presently being pursued. STRIPPING AND DEVELOPMENT: Deferred charges for stripping and mine develop ment represent expenditures heretofore made which are being charged off ratably against appropriate tonnages. 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 without de duction for depletion of now-operating mines (for which mines depletion for Federal income tax pur poses is allowable on a percentage of income basis). Facilities fully amortized under emergency certif icates 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 $1,409,811 for 1957 and $1,637,732 for 1956. CONTINGENT LIABILITIES: The known contingent liabilities at December 31, 1957 were for commitments under leases and for purchases and sales, service and agency contracts and pension obligations, construction contracts, un insured workmen's liability, taxes and claims, all of which arose in the ordinary course of business; and for the purchase or guarantee of securities of others. Certain matters in litigation have not reached a stage which enables a statement to be made as to what liability, if any, may exist. No substantial loss is anticipated as a result of contingent liabilities. r: ) J --9m i Si tk ;M ' mI ' f* Jfel& t ' E W' A p, f \l A Left to right: (Standing) Tutt, Stone, Havemeyer, Drinker, Sawyer, Flint, Hardin, Thiele; (Sitting) Dickey, Whitney, Jessup (Secretary), Cox, Sloan, Guggenheim, Whelpley, Page. BOARD OF DIRECTORS `Charles R. Cox, President, Kennecott Copper Corporation ` C harles D. Dickey, Chairman, Executive Committee, J. P. Morgan & Co. Incorporated H f.nry S. Drinker, Lawyer; Member o f the Firm, Drinker Biddle & Reath Leland B. F lint, President and General Manager, Flint Dis tributing Company ` E dmond 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 avemeyer, Chairman o f the Board-- Retired, Brooklyn Eastern District Terminal; Member, Trust Advisory Board, The Chase Manhattan Bank Arthur W. Page, Director, American Telephone and Tele graph Company, Westinghouse Electric Corpora tion, and Continental Oil Company Charles Sawyer, Lawyer; Member o f the Firm, Taft, Stettinius& Hollister ` Alfred P. Sloan, Jr., Honorary Chairman, General Motors Corporation Robert G. Stone, Trustee; Special Partner, Hayden, Stone & Co. A lbert E. T hiele, Partner, Guggenheim Brothers ` Charles L. T utt, President, Broadmoor Hotel, Inc.; Chair man of the Board, The First National Bank of Colo rado Springs ` M edley G. B. Whelpley, Director, United States Rubber Company; Trustee, American Surety Company ` G eorge Whitney, Director, J. P. Morgan & Co. Incorporated *Member of Executive Committee. TRANSFER AGENTS J. P. Morgan &Co. Incorporated, New York, N. Y. Boston Safe D eposit and T rust Company, Boston, Mass. REGISTRARS Bankers T rust Company, New York, N. Y. F irst N ational Bank of Boston, Boston, Mass. 29 KENNECOTT COPPER CORPORATION and CONSOLIDATE! HISTORICAL TABLE Year 1940 1941 1942 1943 1944 1945 1946 1947 OPERATING 1948 INFORMATION 1949 1950 1951 1952 1953 1954 1955 1956 1957 Copper Ore Mined and Milled (000 Net Tons) Material Removed to Dumps (000 Net Tons) In the U. S. (Net Tons) 43,785 52,025 56,458 59,515 51,023 42,421 27,502 48,154 46,971 39,816 55,018 56,168 59,015 56,147 44,611 51,589 61,203 58,292 46,551 51,181 49,261 48,902 40,865 41,858 30,137 48,468 58,467 56,158 78,612 87,318 81,673 79,746 66,715 74,641 98,955 100,859 360,883 409,825 470,581 472,913 406,107 329,239 203,489 369,256 350,330 296,649 418,123 430,187 444,582 429,052 338,749 370,487 402,309 387,291 Copper Prooucea In Chile (Net Tons) 120,358 145,179 161,800 164,276 174,688 164,899 93,725 138,472 164,252 139,592 157,910 171,247 184,813 140,347 108,330 156,228 179,896 172,707 Total (Net Tons) 481,241 555,004 632,381 637,189 580,795 494,138 297,214 507,728 514,582 436,241 576,033 601,434 629,395 569,399 447,079 526,715 582,205 559,998 Total Copper Sold (Net Tons) 473,776 583,290 649,475 640,810 601,721 485,226 280,330 509,829 538,345 407,999 589,694 605,473 634,360 524,322 509,754 533,820 495,219 552,944 Operating Depreciation U. S. and Taxes Other Total Costs and Foreign Than U. S. and Other Net Revenue Excl. Taxes Retirements Income Taxes Foreign Inc. Costs Income Year (000 Dollars) (000 Dollars) (000 Dollars) (000 Dollars) (000 Dollars) (000 Dollars) (000 Dollarsl 1940 1941 1942 1943 1944 1945 1946 1947 FINANCIAL 1948 1949 INFORMATION 1950 1951 1952 1953 1954 1955 1956 1957 $178,585 239,708 261,043 266,589 253,651 211,217 157,025 318,820 351,100 249,438 400,153 455,485 476,740 482,808 429,131 555,939 578,067 480,200 $ 98,894 135,855 151,591 158,039 157,569 143,567 104,503 159,804 185,181 157,798 231,206 254,708 287,957 269,416 261,429 252,392 250,435 275,653 $ 5,395 7,449 6,680 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 $ 18,919 34,268 43,071 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 $ 6,146 7,757 7,669 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 $ 5,394 5,127 3,211 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 $ 43,837 49,252 48,821 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 Notes: Gold produced does not include production of mines of Orange Free State companies. Total Revenue includes Sales and Other Income. 30 Depreciation and Retirements include amortization of emergency facilities. SUBSIDIARIES 1940-1957 Molybdenite Produced (000 Pounds) 18,105 19,285 23,818 24,572 25,071 21,437 12,335 25,111 22,253 19,895 29,407 30,837 34,480 35,224 28,200 31,960 32,538 28,756 Gold Produced (Fine Ounces) 260,341 284,089 333,158 344,357 313,386 258,556 155,749 391,497 338,228 296,818 450,174 430,515 430,139 487,335 387,039 414,444 403,381 377,367 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 3,295,170 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 26,752 Grade of Copper Ore Mined In th e U .S . (Per Cent) In Chile (Per Cent) 1.062 1.044 1.042 .996 1.005 .995 .965 .960 .946 .955 .958 .987 .952 .942 .943 .914 .843 .839 2.135 2.105 2.179 2.079 2.269 2.203 2.133 2.110 2.220 2.140 2.090 2.110 2.151 2.106 2.110 2.046 2.014 1.963 Capital Ex penditures (C00 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 27,332 Year 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 Distributed to itockholders BDB Dollars) Net Income Per Share Distributed to Stockholders Per Share Total Assets (000 Dollars) Cash and Government Securities (000 Dollars) Current Assets (000 Dollars) Current Liabilities (000 Dollars) Capital and Surplus (000 Dollars) $ 29,760 35,170 32,465 32,465 27,054 27,054 27,054 43,287 54,108 43,287 59,519 64,930 64,930 64,930 64,930 83,868 100,100 64,930 $ 4.05 4.55 4.51 4.15 3.59 2.79 2.13 8.49 8.67 4.45 8.15 8.44 7.96 8.20 7.20 11.60 13.23 7.32 $2.75 3.25 3.00 3.00 2.50 2.50 2.50 4.00 5.00 4.00 5.50 6.00 6.00 6.00 6.00 7.75 9.25 6.00 $394,647 436,083 469,550 489,774 490,270 464,800 459,670 540,612 575,420 560,283 631,487 687,473 703,532 747,630 730,867 793,221 833,998 807,452 $ 86,809 126,469 155,932 174,879 194,398 187,502 173,786 240,281 254,318 194,654 224,831 253,734 253,991 250,763 248,785 274,028 274,863 231,907 $149,182 194,424 220,973 241,489 248,243 246,061 240,328 315,081 335,767 284,847 325,507 368,037 368,175 385,298 358,379 409,381 436,637 394,820 $ 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 65,490 $353,682 369,288 385,644 398,145 409,955 412,875 408,868 457,463 497,683 502,507 551,667 578,084 600,567 620,593 637,893 679,542 723,200 737,521 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 68.15 Year 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 31 KENNECOTT COPPER CORPORATION OFFICERS AND EXECUTIVES OF PARENT COMPANY 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. Chfrouny, Director of Industrial and Public Relations E. S. Hann, Treasurer S. S. Jackson, Counsel Robert C. Sullivan, Assistant Counsel Leslie G. Jenness, Vice President ( Research) Paul B. Jessup, Secretary F rank R. Milliken, Vice President (Mining) J. P. Caulfield, Assistant to Vice President (Mining) G ordon B. Russell, Comptroller W. R. Kimsey, Assistant Comptroller L. W. Shelton, GeneraI 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. K i n n e a r , J r.. GeneraI Manager Nevada Mines Division L. F. Pett, General Manager Utah Copper Division OF PRINCIPAL SUBSIDIARIES KENNECOTT SALES CORPORATION C. K. Lenz, President F. B. McKown, Vice President C. N. Whitaker, Vice President BRADEN COPPER COMPANY Charles R. Cox, President Frank R. Milliken, Vice President R. M. Hai.deman, Vice President and General Manager ( In Chile) B. E. G rant, Assistant General Manager (In Chile) Carlos Tolosa. Business Manager (In Chile) E. S. Hann, Treasurer Paul B. J essup, Secretary NEVADA NORTHERN RAILWAY COMPANY S. S. Jackson, President H. M. Peterson, General Superintendent CHASE BRASS & COPPER CO. INC. G lenn P, Bakken. President Walter L. Smith. Vice President (Operations) G eorge B. Moseley, Vice President (Sales) Peter S. Barno, Vice President (Public and Industrial Relations) Robert C. Smith. Treasurer Richard R. Quay, Secretary KENNECOTT WIRE AND CABLE COMPANY A. F. Sheldon, President W. G. Barney, Vice President E. S. Rising, Vice President and Sales Manager J. A. T hornton, Secretary and Treasurer QUEBEC IRON AND TITANIUM CORP. (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 H ecvilyuaed w ater supply and dnun age line* for born*. outbuilding* and hnmea nend th e com bination of durability, resistance to corrosion and m echanical ctrength th at copper gives. Copper's ahility to conduct electricity tar b e tte r th an any o th er non-precious m etal, m akes it essential to (arm w iring for light and power, electric generators and m otors, tractor ignition system s, and copper lightning rod installations. In agriculture, as in so m any o th er fields, copper alw ays gives something extra no su b stitu te can m atch 1 K E N N EC O TT COPPER CO RPO RA TIO N ^ a _ i a . w CHASE BRASS k COPPER CO.* KENNECOTT WIRE k CABLE CO. Vital arteries fo r o ur atom ic u nd erseas fleet Na u t il u s a n d s e a w o l p are now at se a. ska te is being readied fo r co m m issio n in g . T r it o n , s k ip ja c k a n d m o re to co m e m ak e up o u r fleel a ! a to m ic-pow ered s u b m a rin e s, T h e ir b u ild ei, G e n e ra l D ynam ics C o rp o ra tio n 's E lectric Boal D iv i sion, m akes extensive use of C hase copper and capper alloy tubes aboard these ships You'll find lu r u u l C hase copper and copper alloys in each subm arine-chosen for the sam e quality that can help you to betier products at lower cost. For tube, wire, sheet and strip m ade from Kennecott copper, cal I Chase today-locally, or at W aterbury 20, C o n n ecticu t C H A M B R A SS A C O PR IR CO. KBNNKCOTT C O P R IR CORR. c u lti c o m i u i c a r n i iti li U l t i - iL i * \iup-ari u l t i ta d i i K .il t i c lu n i.i ti Im i , , i * 4 l a a i t a r . Im i. il h latin i t r e caalt l t , a l i t i H i a lt In n i C ard ojr n. "tlatt" 1 llll(-10MIM i.M iw in.1. Otri C n u km min p a d o cli m Hw m a ,rw r, al u l a .l lu .cliaa t 1 c e r il i u a i l l . The miracle of electronics depends on copper as on no other m etal Fur cupper beat carries th e electrical im pulses th at activ ate the cam ples p arts of radio and TV aela. radar and nonar eq uipm ent, in tric a te 'brain m ach in es" and co u n tle ss o th e r ele c tro n ic devices C opper a nd its Hoya, too, m ake possible m o re econom ical m ass production of th e s e m odern m arvels. No o th e r com m ercial m etal can be form ed, m ac h in e d a nd solder-connected so easily, i Kennecott Copper Corporation In electronics, as in so m any other fields, no substitute esn do w hat cupper does! F a b n c s I lD g Subsidiarias: Cftatt Bra A Copper Co. * KennrcuU Wire and Cabte Co. KENNECOTT'S ADVERTISING continued during 1957 to discuss the indispensability of copper (above). Field by field, the unusual prop erties and user advantages of copper are detailed, tied together by the slogan "No Substitute Can Do What Copper Does." Another Kennecott campaign (not illustrated here) is the "Skimpy Wiring" program which points out the need for adequate wiring for modern electri cal living. The whole electrical industry is solidly behind this Housepower idea. Kennecott advertising gave it the first real consumer impetus. Kennecott's fabricating subsidiary, Chase Brass & Copper Co., in its "case histories" campaign (left) tells industry how Chase customers use the tried and true virtues of copper, brass and bronze to secure better products and longer product life. Another Chase campaign (not illustrated here) tells consumers about the owner benefits of Chase copper water tube ... "the Lifelines of the Home" ... for plumbing and drainage, for heating and cooling. KENNECOTT COPPER CORPORATION 1957 ANNUAL REPORT