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Kennecott Copper Corporation - Lehman Brothers Collection

Kennecott Copper Corporation

List of Deals

Kennecott's foundations lie with Stephen Birch, a mining engineer who in 1901 acquired the rights to a sizable chunk of promising copper property near the Kennicott Glacier in Alaska. Birch sought financial backing from the Havemeyer family, J.P. Morgan, and the Guggenheim family. At that time, the Guggenheims were the most powerful force in the industry, controlling the vast majority of copper reserves and nearly all of the smelting capacity in the western United States. Morgan and the Guggenheims formed the Kennecott Mines Company to develop mining operations on the claims purchased from Birch, and Birch was named general manager of the organization. In 1907 Morgan and the Guggenheims, calling themselves the Alaska Syndicate, purchased the Alaska Steamship Co., a large fishing fleet; the Beatson Copper Co. of LaTouch Island, Alaska; and most importantly, 200 miles of right-of-way on which they completed a $25 million railroad that led to the copper mine.

The mine at Kennicott, however, appeared to contain only about twenty years' worth of copper ore. In addition, the high cost of building the Copper River and Northwestern Railroad had required the sale of millions of dollars in stocks and bonds. In 1915, to dilute the railroad's cost and find new ventures for the capital produced by the Alaskan mine, Kennecott Copper Corporation was incorporated out of the various financial interests involved. By this time, the Guggenheims were already actively working copper mines in Chile and Utah. Upon Kennecott's creation, they merged their Braden Copper Co. property in Chile, as well as 25 percent of the Utah Copper Co., into Kennecott. These moves gave Kennecott possession of Braden's El Teniente, the world's largest underground mine, in the Chilean Andes. In 1936 Kennecott acquired the remainder of Utah Copper Co. and its huge Bingham copper pit, which would become the heart of Kennecott's operations for decades to come.

Unlike many new companies, Kennecott made money every year in its early history. The company did not suffer its first operating loss until 1932, at the bottom of the Depression. World War I created a high demand for all metals, and when it ended, the copper industry found itself stuck in high gear, overproducing in the face of slowed demand. Kennecott was able to remain profitable mainly because production at the Alaskan site was among the cheapest in the industry, including extremely low labor costs. During the late 1920s and early 1930s Kennecott's only significant acquisitions were the Chase Companies Inc. and American Electrical Works. The company began to seek out new markets in the late 1930s, but made no significant gains. Kennecott was bailed out around that time, as was the copper industry in general, by greatly increased demand for copper in preparation for entry into World War II.

Through the first half of the 1940s, the war kept production moving at a healthy pace, and Kennecott's operating revenues reached a peak of $265 million in 1943. When the war ended, however, the company's continued growth depended on its willingness to diversify and explore new geographical and geological arenas. The company began to focus primarily on oil, gold, and titanium. In 1945 Kennecott and Continental Oil formed a joint prospecting and drilling venture. By this time, Kennecott was already a major U.S. gold producer, since that metal is often a natural byproduct of copper mining. The company did not go looking for gold directly until 1947, when it sent its exploration chief, Anton Gray, to South Africa in search of gold. This action resulted in the creation of the Kennecott-Anglovaal Exploration Co., Ltd., a joint gold-exploration firm. More important was the company's venture into the titanium business. Titanium is found in ilemite, one of the most abundant minerals in the earth's surface. Ilemite had been discovered in parts of Quebec in the early 1940s, and Kennecott began its search in the region in 1944. Two years later, Kennecott's explorers, led by Gray, discovered the largest ilemite deposit in the world, over 100 million tons, at Lake Tio in eastern Quebec. The company spent a half million dollars finding, claiming, and measuring the mine. In 1948 Quebec Iron and Titanium Corp. was formed, with Kennecott controlling two-thirds interest and New Jersey Zinc Co., which had been exploring the area as well, owning the remaining share.

By 1952 Kennecott was the biggest copper producer in the United States; 46 percent of the nation's primary copper output was produced by Kennecott that year. With the Braden mine in Chile, the company accounted for about 25 percent of the entire copper production of the free world. That year, Kennecott's operating revenue reached $470 million. Through the 1950s the company continued its expansion into other metals and oil. In 1953 Kennecott purchased the Kaiser Aluminum and Chemical Corp., as well as a 76 percent interest in a Nigerian firm, Tin and Associated Minerals Ltd. In 1957 the company joined forces with Allied Chemical and Dye Corp. to launch Allied-Kennecott Titanium Corp., formed to build a North Carolina plant to produce and sell titanium. Unfortunately, this company dissolved seven years later. In 1958 Kennecott attempted to vertically integrate into the wire and cable-fabricating field with the purchase of Okonite Co. This idea was thwarted when, in 1966, Kennecott was forced to sell Okonite at a loss due to perceived antitrust violations. Despite setbacks, Kennecott's earnings remained solid during the 1950s, thanks largely to a steady flow of cheaply produced copper from the seemingly bottomless Bingham mine.

In 1962 the company launched a $110 million program to expand domestic copper production by 28 percent over five years. A new corporate division was organized two years later, the purpose of which was to develop new mining properties. These new operation included a lead, zinc, and silver mine in Utah, a lead mine in Missouri, and a Canadian molybdenum mine. In 1967 Kennecott sold 51 percent of the El Teniente mine to the government of Chile for $80 million. This proved to be a prescient move, as Chilean President Salvador Allende nationalized the country's copper mines in 1971, stripping Kennecott of its partial ownership of El Teniente.

In 1968 Kennecott undertook its most aggressive diversification project yet, the acquisition of Peabody Coal Co., the largest producer of coal in the United States. Three years later, however, the Federal Trade Commission (FTC) ordered Kennecott to divest itself of Peabody, on the grounds that the company should have diversified by either starting up its own coal operation or by acquiring a smaller one. The FTC argued that purchasing Peabody eliminated a potential competitor from the field. Kennecott fought the ruling for several years, investing over $500,000 in Peabody. Peabody did not prove to be especially profitable for Kennecott, however, and the company finally complied with the FTC in 1977.

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