2600 North Central Avenue
One of the largest copper miners in the world, Phelps Dodge Corporation produces 30 percent of the copper in the United States and operates several manufacturing businesses to insulate the company from the cyclicality of copper prices. Phelps Dodge's copper business is conducted through the company's Phelps Dodge Mining Company subsidiary, which also produces silver, gold, and other minerals as a byproduct of its copper operations. The manufacturing side of the company's business operates through a division called Phelps Dodge Industries, which has expanded aggressively during the 1990s. The manufacturing businesses include a ten percent interest in Accuride Corporation, a truck wheel and rim manufacturer; Columbian Chemicals Company, one of the world's largest producers of carbon black (used in inks and tires); Phelps Dodge Magnet Wire Co., the world's largest producer of magnet wire; and Phelps Dodge High Performance Conductors, which manufactures specialty conductors used by the automotive, computer, and aerospace industries.
In 1834 founder Anson Phelps, a New York entrepreneur thoroughly experienced in the import-export trade and well-connected in his targeted British market, formed Phelps, Dodge & Co. Along with his junior partners, sons-in-law William Dodge and Daniel James, Phelps supplied his English customers with cotton, replacing it on the homeward journey with tin, tin plate, iron, and copper, for sale to government, trade, and individual consumers in the United States. Before long, Phelps started a manufacturing company in Connecticut called the Ansonia Brass and Battery Company, and in 1845 he helped organize the Ansonia Manufacturing Company, which produced kettles, lamps, rivets, buttons, and other metal items.
Phelps steered his fledgling empire grimly through a seven-year panic that began during 1837. His reward came during the following 14 years of national prosperity, when large numbers of his products went west with new settlers, accompanied travelers on the rapidly expanding railroads, and provided a modicum of comfort for miners at the recently discovered Sierra Nevada gold deposits in California. Even broader markets came from such inventions as the McCormick reaper and the electric telegraph, whose need for cable wire would swell Phelps Dodge coffers well into the next century. By 1849 the company was capitalized at almost $1 million, and its profits were almost 30 percent.
Phelps's death in 1853 gave his son and each of his two sons-in-law a 25 percent interest in the business, with 15 percent going to a younger son-in-law. This second partnership was scarcely five years old when Anson Phelps, Jr., died. On January 1, 1859, the partnership was revised again, to increase the firm's capitalization to $1.5 million and to give William Dodge and Daniel James each a 28 percent share. With reorganization complete, the company turned its attention to developing industries like mining.
An interest in timber had begun in the mid-1830s, when Phelps, Dodge accepted timberlands in Pennsylvania in lieu of payment for a debt. Later it built the world's largest lumber mill there, establishing a timber agency in Baltimore, Maryland, to send its products to domestic and foreign customers.
Despite these diversifications, the principal interests of the company were still mercantile; however, through the advice of James Douglas, a mining engineer and chemical geologist, Phelps, Dodge was persuaded to take a large block of stock in the Morenci copper mine in what was then the Arizona Territory. Morenci was owned by the Detroit Copper Company, which exchanged the stock for a $30,000 loan. Douglas was also enthusiastic about prospects for another claim called Atlanta, situated in Arizona's Bisbee district, about 200 miles southwest of Morenci. In 1881 the company bought the Atlanta claim for $40,000.
Two years later Phelps, Dodge had a chance to purchase the adjoining Copper Queen mine, which was then producing about 300 tons of ore monthly. The partnership decided to buy Copper Queen when Douglas hit the main Atlanta lode in 1884, at almost the same time that a Copper Queen tunnel penetrated the lode from a different spot. Arizona mining operations at the time stuck strictly to the "rule of the apex," according to which a claim owner could follow a vein of ore onto another claim, if the deposit had come closest to the surface on his land. This had occurred with Copper Queen, and Phelps, Dodge, rather than risk losing this strike to the Copper Queen owners, purchased the Copper Queen mine, merging it with the Atlanta claim.
In August 1885 Phelps, Dodge & Co. decided to streamline its operations by incorporating the subsidiary Copper Queen Consolidated Mining Company in New York, with James Douglas as president. Cautiously, Douglas made no major acquisitions for ten years. Then, he bought the Moctezuma Copper Company in Sonora, Mexico, from the Guggenheim family. Two years later he purchased the Detroit Copper Company.
20th Century: A Focus on Copper
A large increase in domestic iron production during the 1890s plus a two cents tariff on each pound of imported tin plate instituted in 1890 combined to make profitable metal markets hard to find. These factors and the fast growth of the company's mining interests forced it to withdraw from most ventures other than copper mining and selling by 1906.
Phelps, Dodge still retained its Ansonia Brass and Copper Company, however, which had become one of the largest U.S. manufacturers of copper wire for the new telephone industry. Other products included brass wire, sheet copper, and rolled brass.
The shift to mining interests led to a need for another reorganization. In 1908 the old Phelps, Dodge & Co. partnership was dissolved, to be replaced by a corporation called Phelps, Dodge & Co., Inc. Capitalized at $50 million, the new concern consolidated all the various Phelps, Dodge mining interests--Copper Queen Consolidated Mining Company; Moctezuma Copper Company; Detroit Copper Mining Company; and Stag Cañon Fuel Company, a subsidiary consisting of coal and timber properties near Dawson, New Mexico, purchased in 1905 to supply the mines and smelters with fuel.
By now there were 10,000 employees working in the mines, the smelters, the company railroads, and other ventures. There was also competition from other mining companies, which were able to mine copper, but lacked smelting facilities for processing. To provide these competitors with more efficient service while handling the smelting for its own copper mines, Phelps, Dodge abandoned its old Bisbee smelter and erected a new one some 23 miles away.
Following the 1917 entry of the United States into World War I, demand for copper for munitions and communications exploded. The company smelters turned out 600 to 700 tons daily. Also in 1917, Phelps, Dodge & Co., Inc. transferred its assets and subsidiaries to Copper Queen Consolidated Mining Company. Copper Queen became the operating company and changed its name to Phelps Dodge Corporation.
With all enterprises operating at capacity, the Bisbee miners went on strike in July 1917. One factor was the powerlessness of mine managers to make policy decisions on behalf of top management in New York. Another was the shrinking supply of experienced workers, who were going into the military or being lured away by higher salaries and better working conditions.
The International Workers of the World (Wobblies) easily caught the attention of the miners working for Phelps Dodge. At issue were better working conditions, a wage increase to $6 per day, and abolition of the unpopular physical examination to which all applicants were subjected before obtaining a job. Many suspected the exam was a filter to exclude prospective miners with unpopular political affiliations.
When the strike was two weeks old, Phelps Dodge director Walter Douglas instructed an employee of the El Paso & Southwestern Railroad to transport about 1,200 strikers to Columbus, New Mexico, where they were to be turned loose. After the commander of a nearby army camp refused permission to unload the cars, the workers were released in a small Mexican town called Hermanas, where they lived at starvation level until two carloads of food arrived from the U.S. Army base at nearby El Paso, Texas. Though 25 participants in the Bisbee deportation were indicted, no particular blame was attached to any individual and the matter petered out.
The end of World War I brought a need for downscaling of all operations. Government warehouses were packed with more than 800 million pounds of copper, and more was coming in from Chilean mines at low cost. To counter these new challenges, Phelps Dodge and other large U.S. copper mining companies cut production and formed the Copper and Brass Research Association to seek out and promote new uses for copper. At the same time, the companies founded the Copper Export Association, pooling 400 pounds of copper for exclusive sale in foreign markets.
Suffering acutely from the postwar slump in demand was the Arizona Copper Company, with holdings adjoining the Phelps Dodge Morenci properties. Part of this company's assets was a huge deposit of low-grade ore that it could not afford to develop. Phelps Dodge bought Arizona Copper and merged it with its Morenci holdings in 1921, in exchange for 50,000 shares of capital stock.
By 1925 business expansion was demanding record amounts of copper. In that year almost 1.75 billion pounds of refined copper were produced all over the country. Arizona's contribution to this total was more than 800 million pounds, a quarter of which came from Phelps Dodge mines. The stock market crash in 1929 brought the bonanza to an end, however. Demand for copper dwindled everywhere, the price falling to 18 cents per pound from a high of 23 cents. Effects of the crash were felt immediately. Sales, $46.1 million in 1928, were down to $38.7 million in 1929, though net earnings were $4 million, up from $2.6 million the year before.
In April 1930 Walter Douglas resigned as chief executive of Phelps Dodge. In his stead came Louis S. Cates. Cates's first priority was to integrate the Phelps Dodge operations and to cut costs and allow for the Arizona tax of two cents on every pound of copper processed. Cates then, also in 1930, acquired the Nichols Copper Company, which had an electrolytic refinery on Long Island, New York.
In another important 1930 acquisition, Phelps Dodge bought National Electric Products Corporation, a large manufacturer of copper products for electrical and building purposes, with an annual capacity of more than 200,000 pounds of fabricated copper products and 150,000 pounds of steel. National Electric brought the company eight plants and a major interest in the Habirshaw Cable and Wire Corporation.
Cates reorganized all subsidiaries into two efficient organizations. The first, the National Electric Products Corporation, consisted only of the National Metal Molding division. This division's main interest was steel products, and it eventually reverted to its original owners by an exchange of stock. The second division was headed by a new subsidiary called the Phelps Dodge Copper Corporation. This division was charged with operating all the fabricating divisions including Habirshaw Cable and Wire.
Cates's next challenge was the long-operative Copper Queen mine, whose high-grade ore was becoming inaccessible and too expensive to mine. Phelps Dodge acquired the Calumet & Arizona Mining Company, a longstanding rival with Bisbee acreage adjoining Copper Queen. Overriding the objections of Calumet president Gordon Campbell, who resigned in April 1931, the purchase became final in September, giving Phelps Dodge title to a low-cost New Cornelia mine 150 miles away at Ajo, Arizona. Phelps Dodge consolidated the Calumet & Arizona and Copper Queen operations to reap economies of scale.
The Depression continued, however; the end of 1932 showed sales of just under $22 million, as opposed to $50.3 million in 1931. In an effort to pare costs and keep pace with lower demand, Cates cut production at the Copper Queen. He also suspended all operations at New Cornelia, and closed both the Stag Canyon coal operations and Morenci.
Nevertheless, Phelps Dodge bought the United Verde Copper Company despite a steep price of $20.8 million. With about 6,100 acres of claims in Arizona, United Verde proved its worth in 1937, when reserves of 6.9 millions tons of ore were produced. In 1937 the company went ahead with long-held plans to expand operations at Morenci, where a clay ore-body was prepared for open-pit copper mining, refining, and smelting, at a cost of $32.6 million.
By 1939 the Depression years were part of the company's history. Sales reached $75.5 million, yielding total income of $15.5 million, and the number of employees, recorded in mid-1938, reached about 9,000.
World War II once again found plants operating at maximum capacity. Stepping in for employees on military service, women and Navajo Indians ran the Morenci mine, smelting facilities, and refining plant. Typical of pay rates was the wage for rock-shoveling--64 cents per hour.
Once again operating at full capacity, Phelps Dodge supplied condenser tubes for the navy and cables for communications and electric power. Other orders were harder to fill--notably a specialized lead pipe in 50-mile lengths, which was laid under the English Channel to supply Britain's troops with gasoline for the Normandy invasion.
Already looking towards the war's end in 1944, the company began to build the Horseshoe Dam on the Verde River, about 55 miles northeast of Phoenix, Arizona, to allow for water conservation while filling the needs of its Morenci operations. Year-end 1944 sales figures of $168.1 million more than doubled the $80 million figure for 1940.
Post-World War II Expansion
By 1950 Phelps Dodge was the second largest domestic copper producer, contributing 30 percent of the country's output. It was also one of the world's top three, its position as a purely domestic supplier made even more secure by a two cents per pound import duty. Characteristic of the 1950s was government activism in the industry, partly as a result of the Korean War. At the end of 1950, the government instituted price controls for copper, placing a cap of 24.5 cents per pound. Other moves came as a result of a 1947 Federal Trade Commission study, emphasizing the surprisingly low level of competition in the industry, and intimating the power was concentrated in the hands of too few groups.
Though not specified by the report, there was also a feeling that copper resources could be exhausted, because copper companies were doing little to find additional reserves, and that this situation should be remedied. Negotiations between the government and the mining companies followed. Over the next two years, the country's copper-mining capabilities increased by 25 percent, thanks to seven new mines.
Phelps Dodge's contribution to this effort was the Lavender Pit mine, opened in 1954 to develop an extension of the Bisbee operations known as the Bisbee East orebody. As was the case with most of the companies, terms of the agreement were that the open-pit mine should be developed and equipped with a smelter at a cost of $25 million, entirely corporate-sponsored. In return, the company asked for a guarantee that the government would buy its copper at protected prices. By 1956 Lavender Pit produced 80.3 million pounds of copper.
Another important development was the Peruvian Project, a joint venture between Phelps Dodge and three other mining companies intended to provide ownership of three southern Peru mines, together containing an estimated one billion tons of low-grade ore. Phelps Dodge's 16 percent share of the costs was $24.3 million. The peak sales year of the 1950s was 1956, when sales reached $540.3 million, yielding a total income of $153.9 million.
At the end of the 1950s, the company spread its wings beyond its Canadian subsidiaries, venturing into several developing countries. A 51 percent interest in a 1957 enterprise called the Phelps Dodge Copper Products Corporation of the Philippines gave it a new source of insulated wire and cable for electrical use. Another venture blossomed in 1960, when the United States Underseas Cable Corporation was established jointly with several U.S. companies and a West German company. There was also a San Salvador affiliation called the Phelps Dodge Products de Centro America S.A., which manufactured electrical wire and cables for the Central American market.
Despite these overseas connections, however, Phelps Dodge kept its main activities in the United States. This policy protected its copper from politically inspired import tariffs, as well as from taxation, strike activity, and fluctuating prices found in foreign bases like Chile. By the end of 1963, this policy yielded $327 million in sales, from annual production reaching 261,400 tons.
Another advantage of domestic concentration was vertical integration. Now one of the country's three largest copper producers, Phelps Dodge through its fabricating subsidiaries provided outlets for its copper. This hedge against price swings also gave it immunity against purchasing at high prices to make sure that fabricating subsidiaries had an adequate copper supply.
By 1965 the price of copper rose from 34 cents to 36 cents per pound. Plastics, lead, aluminum, and zinc had advanced far enough to threaten long-term copper markets. Phelps Dodge president Robert Page felt it desirable to keep copper prices moderate enough to maintain demand for the metal.
Still, the new opportunities aluminum offered could not be ignored. In 1963 the company formed the Phelps Dodge Aluminum Products Corporation, offering aluminum wire and cable to complement the copper line. Though the aluminum enterprise produced 17 fabrication plants by 1970, the company foresaw little long-term profit in it, and therefore merged its company with the Consolidated Aluminum Corporation in 1971.
In July 1967 an industrywide strike began that lasted until the end of March 1968. The Phelps Dodge operations most affected were the Morenci, Ajo, and Bisbee mines, as well as the El Paso refinery. Run by a coalition of 14 unions led by the United Steelworkers of America, the strike called for companywide bargaining for all operations, regardless of competitive and geographic differences. Eventually, an average increase of $1.13 per hour in wages and benefits sent workers back to their jobs after the administration of U.S. President Lyndon B. Johnson intervened. Post-strike operations recommenced without raw-copper shortages, since most refiners were able to reuse scrap copper to augment their reserves.
Company chairman Robert Page handed the helm to George Munroe in 1969. Still holding the presidency--the office of chairman was abolished--Munroe oversaw the establishment of a new mine at Tyrone, New Mexico. Formerly known as Burro Mountain, this was a low-grade ore deposit that previously had been too expensive to work. New technology made the mine economically feasible, boosting total capacity by 20 percent annually. The expansion brought its reward; the decade ended with sales of $672.1 million.
In 1969 Phelps Dodge swapped 800,000 of its own shares for a 26 percent interest in Denver, Colorado-based Western Nuclear, Inc., a company concerned with uranium mining, milling, and exploration. Initially, an open-pit uranium mine and mill were erected near Spokane, Washington. Three years later, Western Nuclear became a wholly owned subsidiary, undergoing a $71 million expansion and modernization program to improve its production capacity at other facilities in Wyoming.
With the Clean Air Act of 1970, environmental concerns came to the fore. The most critical problem Phelps Dodge faced was at Douglas, Arizona, where its smelter regularly processed seven percent of the nation's annual copper production. By 1973 Arizona anti-pollution laws required $17 million worth of emission-control adaptations to this smelter, although the Environmental Protection Agency (EPA) was still undecided about its requirements. This left a strong possibility of conflict between state and federal regulations. Fears of a clash were dispelled when federal standards proved to be lower than those of Arizona; state regulators were still dissatisfied, despite the money spent on emission control equipment. Phelps Dodge officials protested, claiming that these expensive standards would force the company to shut the smelter down, putting almost 2,000 people out of work.
Because of sluggish demand and foreign competition, production cutbacks followed at a new mine called Metcalf, and at Morenci, Ajo, and Tyrone. The shift showed up in net income figures--$121.7 million for 1974, $46.3 million by the following year, and $17.9 million by 1977. The smelters kept operating 24 hours a day, however, to cope with the large amount of ore that had accumulated during the shutdown for the installation of pollution controls.
By 1978 there were voluble industry complaints that piecemeal EPA regulations made long-term antipollution planning impossible. The $2 billion initially spent plus frequent updating added about ten cents per pound to production costs, bringing the consumer's price for copper up to about 75 cents per pound.
Coupled with cheaper foreign competition and sluggish demand, this brought a business-cycle trough to the industry. Company executives blamed the crisis on the waning uranium market--Western Nuclear had lost its biggest customer, the Washington Public Power Supply System--the demand slump caused by the slowdowns in the automobile and housing industries, and environmental protection woes. Many outsiders felt it was time to expand Phelps Dodge interests beyond copper.
In the first quarter of 1982 the company revenues showed a $19.1 million deficit. In April Munroe laid off 3,800 workers and closed all four mines and three out of four smelters. He also instituted salary cuts at all levels, and reluctantly took on short-term debt to cover operating costs.
The following year the United Steelworkers instituted an industrywide strike. Kennecott Corporation, the country's top copper producer, settled quickly, exchanging a three-year wage freeze for a cost-of-living allowance reaching $1.87 per hour at six percent inflation. Using this settlement as a model, the strikers then approached Phelps Dodge management. The company counteroffered abolition of the cost-of-living allowance, a three-year wage freeze, and lower wages for new workers.
By the end of August 1983 the stalemate had led many workers to cross picket lines, despite sharp harassment from hard-line strikers. At Morenci, the company called in the National Guard, fomenting more resentment. The strike ended uneasily the following fall, with the company refusing to budge on its position, and the miners voting to decertify the 13 unions that had long been present at the mines and the smelters.
Now, management turned its attention to reorganization. First on the agenda was a strategy to reduce production costs to less than 65 cent per pound, and lessen dependence on copper. The economy drive began with the 1982 move of company headquarters to Phoenix. At the same time, the Morenci, Ajo, and Douglas smelters were closed and replaced by a state-of-the-art, $92 million solvent extracting-electrowinning plant at Morenci that produced 100 million pounds of copper annually by mid-1987. Electrowinning is a process of recovering metals from a solution through electrolysis.
Electrowinning capacity grew further in 1986, when the company built a $55 million plant after buying a two-thirds interest in New Mexico-based Chino Mines Company from Kennecott. In the same year, the company sold a 15 percent interest in the Morenci mine for $75 million. Also sold was the uranium-mining business.
1980s and 1990s: Diversification into Manufacturing
The 1986 purchase of Columbian Chemicals Company for $240 million diversified Phelps Dodge interests to include the manufacture of carbon blacks, used to strengthen tires and to make toner for copiers. Also providing profitable diversification was Accuride Corporation, a manufacturer of steel wheels and rims for trucks and trailers, which merged with the company in 1988 at a cost of $273 million. That same year, all operations were divided into two new operating divisions, headed by the Phelps Dodge Mining Company and Phelps Dodge Industries.
By the end of 1989, the company had an income of $267 million, on sales of $2.7 billion. A year later, net income leaped to $454.9 million, on sales of $2.6 billion, partly with the help of a joint venture between Phelps Dodge and Sumitomo Electric Industries, to sell magnet wire in the United States.
Although Phelps Dodge continued to expand its copper activities during the 1990s--particularly overseas--an emphasis was placed on developing the manufacturing side of the company's business during the decade. The acquisitions of Accuride, Columbian Chemicals and Hudson International during the latter half of the 1980s were important forays into new fields, creating a foundation the company would build on during the 1990s as the manufacturing division, operated under the control of Phelps Dodge Industries, took shape. The largest segment of the company's manufacturing business was wire and cable production, governed by Phelps Dodge Magnet Wire Co., the largest magnet wire producer in the world. Expansion of this business was achieved through acquisition and expansion, beginning in 1992 with the purchase of three Venezuelan wire and cable manufacturers and the establishment of a wire and cable plant in Thailand. Two years later, two magnet wire production facilities were acquired, one in El Paso, Texas, and the other in Laurinburg, North Carolina, to serve regional demand not met by the company's Hopkinsville, Kentucky plant, the largest magnet wire plant in the world. Capacity at the El Paso plant was doubled in 1996, followed by a commensurate increase in production at the Laurinburg facility in 1997.
The investment in the Phelps Dodge Industries division paid off handsomely in 1995, as the company's carbon black, truck wheel and rim, and wire and cable businesses each registered a record high in sales. For the year, record financial and production totals led to what Phelps Dodge's chairman, chief executive officer, and president, Douglas C. Yearley, described as "the best year in the 162-year history of our company." The progress achieved within the Phelps Dodge Industries division played an important part in engendering the banner year, but the company could not claim such a victory without realizing significant gains in its copper business, upon which it was heavily dependent. The average price of copper in 1995 surged to $1.35 per pound, 28 cents higher than the previous year, and Phelps Dodge reaped the benefits, registering record production totals at its Morenci, Candelaria, Chino, and Hidalgo mining facilities. On the heels of this resounding success, the company planned to focus its exploration efforts in South America, Africa, and the Far East, intending to increase its annual copper production total to two billion pounds during the ensuing five years.
In 1996, Phelps Dodge's manufacturing businesses continued to perform admirably, with the exception of Accuride Corporation, which suffered from weak demand for heavy wheels. Phelps Dodge's wire and cable business rallied forward, its progress highlighted by the company's first entry into the People's Republic of China through a joint venture called Phelps Dodge Yantai Cable Company that allowed Phelps Dodge to acquire, expand, and operate the power cable manufacturing facility in Yantai in the Shandong province. As this historic project began, the company initiated a three-year expansion program aimed at increasing Columbian Chemical's carbon black production capacity by 25 percent. Another notable development during the year was the acquisition of Nesor Alloy Corporation, which was combined with Hudson International Conductors to form Phelps Dodge High Performance Conductors, organized as the newest addition to the Phelps Dodge Industries division.
The late 1990s saw copper prices sag from 1995's level, but the company recorded meaningful progress in its manufacturing operations, helping to offset troubling developments in its mining activities. An uncertain regulatory environment concerning mining and exploration prompted Phelps Dodge to close its U.S. exploration offices. Falling copper prices forced the company to close a mine in Chile and another mine acquired in a $105 million hostile takeover of Cobre Mining Co. in 1998. Along with these closures, Phelps Dodge also sold 90 percent of Accuride to Kohlberg Kravis Roberts in 1998, gaining $480 million from the sale. On the positive side, Phelps Dodge opened a new wire magnet plant in Monterrey, Mexico, in 1998 and agreed to purchase the carbon black assets belonging to Brazil--based Copebras for $220 million. With these developments behind it, Phelps Dodge prepared for the 21st century, a company wed to its 18th-century roots in copper and consistently striving to expand its more modern aspect in manufacturing.
Principal Subsidiaries: Phelps Dodge Industries, Inc.; Accuride Corp. (10%); Columbian Chemicals Co.; Phelps Dodge High Performance Conductors; Phelps Dodge International Corp.; Phelps Dodge Magnet Wire Co.; Phelps Dodge Mining Company; Chino Mines Co. (67%); Compania Contractual Minera Candelaria (Chile) (80%); Compania Contractual Minera Ojos del Salado (Chile); Phelps Dodge Copper Products Co.; Phelps Dodge Exploration Corp.; Phelps Dodge Hidalgo, Inc.; Phelps Dodge Mining (Pty.) Ltd. (South Africa); Phelps Dodge Morenci, Inc. (85%); Phelps Dodge Refining Corp.; Phelps Dodge Tyrone, Inc.
Principal Divisions: Phelps Dodge Mining; Phelps Dodge Industries.