Freeport McMoRan Copper and Gold Inc. (FCX) is scaling back
copper and molybdenum operations and reducing capital expenditures
in response to sharply lower prices in late 2008, yet it remains
"confident" about longer-term prospects for the commodities and its
business, a company official said Monday.
Speaking in a Webcast following the release of fourth-quarter
earnings, Richard C. Adkerson, president and chief executive
officer, said there are ongoing limitations in global copper
supplies. He also suggested that developing nations such as China
can be expected to continue consuming copper to develop
infrastructure as the world economy recovers.
Freeport, the world's largest publicly traded copper company,
reported a fourth-quarter loss of $13.9 billion, or $36.78 a share,
in a turnaround from its net income of $414 million, or $1.05 a
share, in the fourth quarter of 2007.
However, special items totaled $14 billion. Of this, $13.1
billion reduces the carrying value of inventories, long-lived
assets and goodwill from the March 2007 acquisition of Phelps
Dodge. The non-cash charges were required by accounting rules due
to lower commodity prices, officials said.
When adjusting for all special items, fourth-quarter adjusted
net income totaled $23 million, or 6 cents a share.
Freeport said copper prices averaged $3.61 a pound during the
first nine months of 2008, then fell to a four-year low of $1.26 in
December. Molybdenum declined to $8.75 in November after averaging
$33 a pound in the first nine months.
In response, the company said copper output will be reduced in
2009 to 3.9 billion pounds, or 9% from the 4.3 billion estimate
made in October. Freeport anticipates a further reduction to 3.8
billion pounds in 2010, compared with the October expectation of
4.6 billion.
For molybdenum, expectations are for 2009 output of 60 million
pounds, revised down from 80 million pounds as of October.
Budgeted exploration spending will be cut to $75 million in 2009
from $248 million in 2008. Capital expenditures will be cut from
$2.7 billion last year to $1.3 billion in 2009 and $1 billion in
2010.
Projected gold sales were not impacted by the company's revised
plans and are expected to be around 2.2 million ounces in both 2009
and 2010, Freeport said.
"We are taking steps to limit capital expenditures and drive our
cost of operations down so that we are cash-flow positive, even at
low prices," said Adkerson.
But while global copper inventories are rising at a time of low
prices, Adkerson said, this nevertheless has been limited by
certain ongoing supply constraints.
"When we look at where our business is and what we're doing to
be responsive to these conditions, we continue to feel confident
about the long-run outlook for our commodity," Adkerson said.
Global mine supply in 2008 was virtually flat compared with
2007, he said.
"Underlying all of this current economic downturn is the basic
problem that the industry is challenged to find new supplies of
copper, and the copper that is being produced by existing mines is
being limited by falling grades and operational issues and other
factors," Adkerson said.
Freeport may have written down the value of its inventories, but
the company still has the same assets.
"We haven't walked away from any of our resources or any of our
growth opportunities," he said. "It points to a bright future for
our company.
"These current market conditions will be supportive of the
long-run outlook for copper and molybdenum. In the long run, as
China and the developing world continue to acquire infrastructure,
and as the global economies recover, we are going to be positioned
to take advantage of that."
Most of the cuts in Freeport's 2009 copper output will be at
North American operations, Adkerson said. This previously projected
output was trimmed by 360 million pounds.
"This allows us to take North American operations and put their
costs down at a level that is cash-flow positive at $1.25 copper,"
he said.
Consolidated sales from mines in the fourth quarter totaled
1.197 billion pounds of copper, which was 36% higher than in the
fourth quarter of 2007 and slightly higher than the December 2008
estimate of 1.165 billion pounds. Fourth-quarter gold sales of
462,000 ounces were nearly three times higher than in the fourth
quarter of 2007 and 16% higher than the December estimate of
400,000.
Freeport said consolidated sales of copper and gold were higher
than a year ago, mainly because of higher ore grades at the
Grasberg mine, and topped the December estimates, mainly because of
slightly higher production and the timing of shipments.
Meanwhile, fourth-quarter molybdenum sales of 12 million pounds
were lower than the year-ago period sales of 19 million due to
slowing demand and revised mine plans.
For all of 2008, sales totaled 4.1 billion pounds of copper, 1.3
million ounces of gold and 71 million pounds of molybdenum.
The company reported preliminary copper reserves at the end of
2008 rose to 102 billion pounds from 93.2 billion at the end of
2007. Molybdenum reserves rose to 2.48 billion from 2.04 billion,
while gold reserves fell to 40 million ounces from 41 million.
Higher gold output in 2009 and recently strong prices means the
byproduct credit for gold should essentially cover all of
Freeport's copper-mining costs in Indonesia, Adkerson said.
For 2009, the company listed site-production and deliveries
costs at its Indonesia copper operations of $1.10 a pound, with
royalties of 6 cents and treatment charges of 20 cents. This totals
$1.36 for copper, but the byproduct credit is $1.37 a pound,
meaning a negative unit cash cost of a penny a pound for
copper.
For all copper operations around the world, after byproduct
credits, the unit cash cost is estimated at 71 cents a pound, down
from $1.16 last year. The 2009 estimates include $1.17 at North
American operations ($1.33 in 2008) and $1 in South America ($1.14
in 2008).
-By Allen Sykora, Dow Jones Newswires; 541-318-8765;
allen.sykora@dowjones.com
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