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Phelps Dodge planning to scale its operations back in 3 states

PHOENIX (AP) — Phelps Dodge Corp. announced plans Monday to cut back operations in Arizona, New Mexico and Colorado during the coming months and warned employees that more layoffs could occur this summer, partly because of higher electricity costs.

The company laid off 85 workers as it suspended its milling operation and part of its mining operation in Hurley, N.M. Another 44 employees were reassigned to other positions.

Phelps Dodge also renewed its layoff notices for 2,265 other employees at facilities in Tyrone, N.M.; Green Valley, Ariz.; and Bagdad, Ariz.

Beginning in June, the Phoenix-based company will begin temporarily scaling back production at those sites, mandating that eligible employees take paid vacations so it can shorten or eliminate shifts. Others will be deployed on maintenance projects, said company spokeswoman Susan Suver.

"That will create what we think is an inconvenience versus the hardship of being without a job," she said.

Industry analysts lauded the decision as a way for Phelps Dodge to save jobs and be flexible amid power uncertainty in the West.

"Short of having 100 percent production of power, I think this is a very viable option and one that is likely to be pursued by other manufacturers," said Anthony B. Rizzuto Jr., a senior metals analyst with Bear Stearns in New York.

The company also is building a 40-megawatt power plant in New Mexico and has negotiated an additional 60-megawatt power contract with firm prices, although details have not been released.

Rizzuto said he was concerned that costs incurred in the contract may be high.

Phelps Dodge, the world's second-largest copper producer behind Chile's Codelco, will have reduced its copper production by 175 million pounds for the year once all the temporary cuts have been completed. Rizzuto said the estimated 11 percent reduction from last year is not as high as many in the industry hoped.

"The expectations were that we would see a significant sized curtailment that would take out production and lessen supply, but that's not the case here," he said.

Phelps Dodge, which employs 15,500 people in 27 countries, had 2000 sales of $4.5 billion.