By John W. Miller And Chelsey Dulaney
U.S. copper miner Freeport-McMoRan Inc. reported a steep
fourth-quarter loss Tuesday and reneged on a previous
debt-reduction target because of falling commodity prices, but it
predicted a strong rebound in copper markets after 2015.
The Phoenix-based company, which controls almost 10% of global
production, said it would ramp up copper output by 26% next year.
It also said it would respond to lower oil prices by curbing
spending on oil-and-gas projects in its recently expanded energy
business.
Freeport posted a loss of $2.85 billion, or $2.75 a share,
compared with a profit of $707 million, or 68 cents a share, a year
earlier. The quarter included $3.1 billion in net charges, mainly
on the impairment of its oil and gas properties. Revenue fell 11%
to $5.24 billion.
Despite the recent expansion into oil and gas, Freeport is still
focused on copper, deriving more than 60% of its revenue from the
metal, which is used for pipes and wiring and is essential to
almost all economic growth.
Copper markets sagged in the fourth quarter on sluggish global
demand. The average price Freeport charges customers fell 10.9% to
$2.95 a pound. Oil prices sank 15.8% from a year earlier.
Chief Executive Richard Adkerson compared the current
commodity-market swings to those seen in the depths of the global
recession in late 2008. However, "the long-term fundamentals" of
copper are strong, he said, adding that Freeport's strength is its
long-term reserves. As prices go up, these will kick into high
gear, generating cash flows, he said. Freeport expects to produce
5.4 billion pounds in 2016, up from 4.3 billion pounds this
year.
Mr. Adkerson said that, with uncertain markets, 2015 would be a
year of some adjustments. Freeport has cut its 2015 capital budget
by $2 billion, mostly oil and gas related, and said it is prepared
to make further cuts. The company said it is searching for outside
funding for its oil and gas business as it looks to shield itself
from plummeting commodity prices.
The company expanded into oil and gas with 2013 acquisitions of
energy explorers McMoRan Exploration and Plains Exploration
Production, in deals valued at $9 billion.
Those transactions helped inflate Freeport's debt to $19 billion
at the end of 2014. The company had set a debt target of $12
billion by the end of 2016. With commodity prices at current
levels, that target was now unrealistic, Mr. Adkerson said.
Lower energy prices do have one big benefit: restraining costs.
Freeport said its average unit cash cost for producing copper will
increase only 2 cents to $1.53 per pound this year.
Copper demand should increase 28% in the next 10 years, while
production at existing mines will fall 17%, creating a need for new
sources of supply, Mr. Adkerson said, citing a recent study by
WoodMackenzie.
One analyst called that demand scenario too optimistic and said
it would depend on growth of Chinese demand as the country
transitions to a more consumption-oriented economic model. Freeport
is counting on Chinese demand for copper to grow around 5%, while
it could be in the low single digits, said Dan Rohr of Morningstar
Inc.
Another risk for Freeport is that its two lowest cash-cost mines
are in politically volatile countries--Indonesia and the Democratic
Republic of Congo. In Indonesia, last year, Freeport battled with
the government over export taxes. To resolve the issue, the company
had to agree to help build a $2.3 billion smelter and sell a 20%
stake in its local subsidiary. In the war-torn DRC, output at
Freeport's Tenke Fungurume copper mine now makes up around 10% of
the company's total production.
Write to John W. Miller at john.miller@wsj.com and Chelsey
Dulaney at Chelsey.Dulaney@wsj.com
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