UPDATE 1-Freeport adds copper cuts, long-term demand strong
Mon Jan 26, 2009 4:54pm EST
reuters.com
(Recasts, updates with Freeport's metal production, expansion plans, CEO quotes)
By Carole Vaporean
NEW YORK, Jan 26 (Reuters) - Freeport-McMoRan Copper and Gold Inc increased production cuts at its already-curtailed Morenci copper mine in Arizona because sharp declines in copper prices forced it to trim costs, the world's No. 2 copper producer said Monday after releasing fourth quarter earnings.
In the long run, however, Chief Executive Richard Adkerson said Freeport (FCX.N) will be well positioned to take advantage of a rapid pickup in demand for its copper and molybdenum once China and other countries renew infrastructure development.
At Morenci, the copper giant said, it would reduce mining and crushed leach rates by 50 percent, compared with a 25 percent curtailment announced in December, along with a series of other operating reductions and deferred start-ups.
"The major step we've taken with our new plan going into 2009 versus December was a further significant reduction of our operating rates at our flagship mine at Morenci in Arizona," Adkerson told analysts on a call following its results report.
The production cuts were intended to reduce costs at its expensive North American operations sufficiently to generate positive cash flow at a $1.25 per lb copper price.
COMEX March copper futures tumbled from $4.00 a lb in July to a four-year low at $1.2550 a lb in late December.
The rapid decline in metals prices forced Phoenix, Arizona-based Freeport to take a huge write-down, resulting in a $13.9 billion loss compared with a $414 million profit in the 2007 quarter, as it aligned asset values with current prices and costs.
The company also said trimmed its expected copper sales volumes to 3.9 billion lbs in 2009 and 3.8 billion lbs in 2010, down 9 percent and 17 percent respectively from October forecasts. Molybdenum sales are seen falling by 25 percent in 2009 and by 40 percent in 2010 from October estimates to 60 million lbs in both years. [ID:nN26370152]
Freeport expects gold sales will increase to 2.2 million ounces in both 2009 and 2010.
The price of molybdenum has also taken a steep dive, losing nearly two-thirds of its record 2007 high near $30 a lb. Freeport said it sold molybdenum this week at $9.38 a lb.
In December, the company also slashed capital expenditures by more than half, but of the remaining 2009 budget $700 million will go toward its massive Tenke Fungurume copper/cobalt project in Democratic Congo and to its underground mine development in Indonesia. [ID:N26394717]
Despite the non-cash net loss, Freeport's Adkerson said he thinks demand for metal will remain strong longer term.
Citing near-flat copper supply in 2008 and falling ore grades and operational issues at existing mines around the world, the CEO said, "We continue to feel confident about the outlook for our commodities."
Once the global economy begins to recover, China and other developing countries will need metal to build infrastructure.
"We're going to be positioned to take advantage of that," Adkerson said.
Noting that Freeport will take a stepped approach to its production cuts, Adkerson said it could restart some operations fairly quickly if economic demand should suddenly pick up.
"There will be some lag, but we're doing this with a view for how we could ramp up as quickly as possible," he said, adding that it could be possible to increase its copper sales target to four billion lbs next year.
Asked whether Freeport was exploring possible acquisitions, Adkerson said, "Right now, we've been focused on our current imperative of adjusting our capital programs and operations to the new cost structure. But as we go forward we will be looking at all alternatives." (Editing by Jim Marshall) |
