to our shareholders utah construction & mining co enjoyed the finest year in its 66 year history earnings were at an all-time high the backlog of un filled mineral sales contracts was at a record level and the net addition of new construction work during the year was the highest ever im portant progress was made in initiating several major activities which will greatly enhance the outlook for your company's growth in earnings this report is intended to give you a detailed account of the financial results a review of current operations and a better understanding of your company's latest undertakings and prospects in fiscal year 1965 each of the company's principal operations recorded improved earnings over last year consolidated net income was 12,016,491 or 2.56 a share up 50 from 1.70 a share last year and 0.29 a share above the heretofore record results of 1961 on september 22 the regular quarterly dividend was increased from 0.20 a share to 0.25 and was accompanied by a year-end extra of 0.15 this brought cash dividends for the fiscal year to 1.00 compared with 0.95 paid in 1964 and 0.30 paid ten years ago dividends have now been paid without interruption for 35 years and increased in each of the past fifteen years at year end con solidated net worth totaled 76,356,454 long term debt amounted to 29,303,810 and will be increased to finance the requirements of expansion as negotiations underway at year-end are now com pleted to provide an additional 15 million in term loan borrowings your company's earnings level reflects its expanding mining op erations these have evolved in the relatively brief period since world war ii from a single contract mining venture into an expe rienced organization now operating on three continents and con ducting mineral exploration and development activities over a more extensive area diversified interests in iron ore uranium coal and copper represent the company's major source of current earnings and the principal direction of new activities which are currently underway or will take place in the near future iron ore production both domestic and foreign responded this year to a sustained high level of steel production in the united states and abroad and earnings of the company's mining operations in the state of utah and those of its peruvian affiliate marcona min ing company were in excess of last year marcona is investing 23,000,000 in new plant and facilities for which utah has the construction contract this will increase the affiliate's pelletizing ca pacity from one million to more than three million tons per year and should also increase its profitability by enabling a further shift to pellet production from other types of beneficiated products reflecting marcona's increased production the consolidated earn ings of the sales and shipping affiliate cia san juan s.a are also materially higher than last year san juan carriers ltd a wholly owned subsidiary of cia san juan is responsible for the ocean transportation of marcona's production to steel users abroad this subsidiary enjoys an unusual advantage in the shipping industry in that the utilization of vessels it owns or has under time charter is assured by long-term delivery contracts between san juan and steel producing customers throughout the world on the basis of these assured movements the company has been able to undertake com plementary backhaul arrangements for petroleum and other bulk commodities reducing iron ore transportation costs and increasing the profit from vessel operations san juan carriers fleet of modern ore vessels is again being expanded to accommodate the rising pro duction at san nicolas peru and shipments of iron ore from mt goldsworthy in australia starting in 1966 the company's uranium production is sold to the atomic energy commission under a contract which was revised to extend deliveries through 1970 in 1965 earnings from uranium were lower than in 1964 because of a rescheduling of shipments a write-off attributable to the discontinuance of the shirley basin underground operations and the closing of a mine owned by another company whose output was milled by lucky me however overall gross revenues from uranium are expected to be a significant source of earnings until the end of 1970 when the contract expires at that time your com pany will still have substantial reserves for sale to u.s and foreign governments as well as to private industry with profit levels de pending upon the prices obtainable and the prevailing demand for uranium due to increased coal production the company's navajo mine in new mexico recorded higher profits than last year since 1963 when utah made its initial delivery under a 35-year contract to pro vide coal to arizona public service company's four corners gen erating plant this operation has become a major source of income because of its tremendous potential for expansion it is regarded as one of your company's most valuable assets through its interest in pima mining company the company has been participating in a very favorable copper market which has prevailed throughout the year under the influence of higher prices and full production pima's earnings advanced to the highest level since the affiliate's first year of operations in 1957 furthermore pima is expanding its facilities at a cost of 21,000,000 the affili ate's milling capacity will have been tripled by the summer of 1966 the engineering and construction work being performed by utah these expanded processing facilities will permit the utilization of pima's lower grade ore reserves and materially increase the affiliate's future earnings construction performance — both at home and abroad — was im proved over the prior two years the construction industry as a whole has been marked by intense competition for several years and this condition which still prevails has had an adverse effect upon the earnings of both the industry and your company conse quently earnings from construction activities are still below expec tations particularly in relation to some earlier years and to the company's level of investment in these undertakings even so the gain in construction earnings over last year has been encouraging and prospects for the coming year are for a continuation of this fa vorable trend the company's year-end 140,643,019 backlog of uncompleted work compares to 84 1 22,7 1 1 at the end of the preced ing year it is comprised of 5 1 % negotiated and fee work however as was indicated last year progress on the manapouri tailrace tun nel project in new zealand has been seriously impeded by unfore seen labor and operating difficulties and losses were recorded again this year on balance though the diversity and size of the com pany's backlog gives us good reason for encouragement the company's land development operations have performed exceptionally well this year because of profitable sales from the ex isting inventory of residential and commercial land and the sale of some matured investment properties earnings from this phase of operations were at record levels however if this performance is to continue new properties must be acquired this is a difficult task because the apparent profit potential for new land ventures has been reduced by increased competition for desirable real estate high carrying costs and rising development costs new developments notwithstanding this year's achievement of all-time record earn ings the most outstanding developments for your company are two new sales contracts which were entered into during the year and another which is now being negotiated these will lead to the expansion of utah's present mining program and are expected to have a substantial and sustained impact on the level and depend ability of future earnings in january it was announced that the company along with cyprus mines corporation and consolidated gold fields australia pty ltd will be producing over a seven-year period 1 6'/z million tons of iron ore for sale to japan from the mt goldsworthy iron ore deposit in western australia sales and shipping arrangements under the contract will be handled by cia san juan meanwhile the joint venture has progressed satisfactorily and the 52,000,000 project is proceeding on schedule with utah performing the construction work this project represents an important source of new earnings to utah not only through the existing contract but also in the deposit's poten tial for added production and sales to europe as well as to japan in the years ahead the may signing of a letter of intent for one of the largest sales of coking coal ever made to the japanese steel industry marked the initial benefit from four years of exploration and development work in queensland australia after the close of the fiscal year a con ditional contract was executed for the sale of zv2 million tons of coking coal from the blackwater deposit which will produce about 137,000,000 in revenue over a ten-year period the basic remain ing condition before the contract is fully effective is the successful testing of a bulk sample now in progress hopefully this project is only the first step in the development of other deposits in the 2,444 square miles on which utah has an authority to prospect in the bowen basin region of queensland the most recent and important phase of utah's expanding min ing operations is a prospective contract which was in the negotiating stage at the close of the company's fiscal year under its terms utah would supply coal from the company's navajo mine for a wz mil lion kilowatt generating facility adjacent to the arizona public serv ice company's power plant and utah's mine in the four corners area of new mexico six of the fifteen public utility members of the western energy supply and transmission associates or west have announced that this installation is scheduled to become the first stage of a twenty-year program for the creation of 36 million kilowatts of new generating capacity and transmission network the first 755,000 kilowatt unit is scheduled to go on stream in february of 1969 and the second six months later in august present annual coal production of 2vi million tons would be increased to 8v2 mil lion tons under a contract running for a minimum period of 35 years if negotiations are successfully concluded the annual pro duction would make utah's navajo coal mine the largest in the united states to provide for even greater levels of power production at this site in october the company amended its mining lease with the navajo tribe to include the addition of lands containing approxi mately 150 million tons of coal reserves bringing utah's navajo reserves of strippable coal to 750 million tons and our total mine able reserves in the rocky mountain states to well over a billion tons it is utah's aim to develop a lasting and growing association with the public utility industry for your company has the unique capacity to become an important supplier of both uranium and coal for the production of electrical power during the year the company's management was strengthened by the addilion to the board of directors of mr ernest c arbuckle and mr alf e brandin and by the election of messrs john s an derson and edwin c demoss as vice presidents the performance of our organization has been outstanding and the results of the year give testimony to this fact the company's accomplishments in 1965 combined with the groundwork laid for future years give us added confidence in our organization and growing optimism for the opportunities which lie ahead lj chairman of the b president and general mat e w littlefield