INTERVIEW: Freeport To Preserve Liquidity, Cut Capex -CEO
03 April 2009 - 10:16AM
Dow Jones News
Despite a partial rebound in international copper prices in
recent months, Freeport-Mcmoran Copper and Gold Inc. (FCX) will
maintain its conservative approach and aim to build up cash levels
in the face of continued economic uncertainty, the company's chief
executive said Thursday.
"We're focused on preserving liquidity, which is a strategic
asset right now," Freeport CEO Richard Adkerson said in an
interview with Dow Jones Newswires at the 8th Annual World Copper
Conference of business analysis and consultancy group CRU.
The U.S. mining company, the world's largest publicly traded
copper-producing company, moved "aggressively and quickly" to
curtail capital expenditures during the fourth quarter last year
when copper prices plunged, Adkerson said.
The economic slowdown has seen copper prices crash to around
$1.80 a pound this week from nearly $4 a pound in October. Prices
had dipped to about $1.20 a pound a few months ago and rebounded
slightly after China bought the metal at bargain prices to build
its strategic reserves.
Freeport made across-the-board cost cuts, suspended some
projects and adjusted operations at a number of mines to
concentrate on extracting higher-grade ore to lower its unit
costs.
The company also canceled stock dividends and generated $750
million in fresh capital through a new share issue this year.
While the measures have put Freeport on a more solid footing,
the company is prepared for further belt-tightening amid the
uncertain price outlook. "No one really knows" where prices may be
headed, the CEO said. "We have to be prepared for whatever
comes."
Among the targets of the cost cuts, the Climax molybdenum mine
project in the U.S was suspended, and production at the Henderson
mine in Colorado was cut by 25%.
However, Freeport is moving forward with plans to develop the
Tenke Fungurume copper and cobalt mine in Congo, which should be
producing at planned capacity during the second half of 2009,
Adkerson said.
The company's mineral production in 2009 and 2010 is expected to
be in line with the4 billion pounds it sold last year. That
production level will be almost 10% lower that what was planned for
2009, and down 10% to 15% from what was planned for 2010.
Adkerson said Freeport remains confident over the long-term
prospects for the sector due to demand from China and other
developing nations, while prices are expected to rebound when
developed economies recover.
China has been buying copper for its infrastructure development,
in addition to replenishing strategic reserves. Tight world
supplies of scrap copper have also led China to purchase more
cathode copper.
Strong copper demand isn't expected to return until developed
economies start their recovery. Until that happens, Adkerson said,
"It'll require a lot of thought" before Freeport returns to a
capacity-expansion phase.
Meantime, tight liquidity and credit conditions due to the
economic crisis could discourage major acquisitions in the
industry, Adkerson said, adding that Freeport isn't eyeing any
purchases at present. "(The company) is focusing on internal
growth...and has no plans to sell assets, nor buy any...but is
always alert to potential opportunities," he said.
Speculation has been rife that the copper-price volatility would
spur a wave of mergers and acquisitions as companies with healthy
reserve levels take advantage of the opportunity posed by companies
struggling with high debt levels and low metal prices.
Freeport will keep its focus on its copper business, the CEO
said, in view of the metal's long-term potential and its many
industrial uses, as well as increased investment demand for
energy-saving vehicles such as electric cars that require
significant copper use.
-By Shane Romig, Dow Jones Newswires; 54-11-4590-2438;
shane.romig@dowjones.com