Copper-miner Freeport upbeat on outlook for '09
miningweekly.com
By: Liezel Hill
22nd April 2009
TORONTO (miningweekly.com) – After gritting its teeth for the last six months through painful cutbacks, lay-offs and project deferrals, the world's biggest publicly traded copper-miner is feeling pretty good about its prospects for the rest of this year, president and CEO Richard Adkerson said on Wednesday.
Phoenix-based Freeport-McMoRan Copper & Gold reported net income of $43-million for the first quarter – almost one-half the profit posted a year earlier – after the average realised copper price dropped by 53% year-on-year.
But Adkerson said that the real indication of the firm's performance over the quarter lies in its cash cost figures, which were 38% lower than in the first quarter of 2008, and have fallen by 36% since the third quarter.
Especially at its North American operations, Freeport has acted quickly to cut back on higher-cost production of copper and molybdenum, reduce its payroll and aggressively manage costs at the operations that are still running.
The firm has also taken advantage of declining input costs for things like diesel, electricity and acid.
“We are doing what we have to do to make our operations cash flow positive,” Adkerson said.
In Indonesia, at the huge Grasberg copper/gold mine, Freeport has also benefited from higher gold grades being mined, so much so, that gold revenue completely offset the cost of copper production in the first quarter.
The firm is hoping to mine similarly high gold grades in the fourth quarter, which would help boost revenue and lower costs for the full year.
“All things being equal”, the company could report improved earnings figures for each of the remaining three quarters of this year, Adkerson told analysts and investors on a conference call.
The firm, which uses its gold and molybdenum production to offset copper costs, has forecast unit net cash costs for 2009 of $0,70/lb, but the final figure could be even lower, depending on gold grades at Grasberg.
In the second quarter, the firm expects to mine slightly less copper than in the second quarter, but gold output will increase to 650 000 oz of gold, compared with 545 000 oz in the first three months of the year.
Freeport shares gained 1% on Wednesday, to $41,13 apiece by 15:46 in New York. The stock rose as high as $42,73 a share earlier in the day.
CAUTIOUS ON RECOVERY, POSITIVE ON CHINA
Despite recent gains in copper prices, linked to Chinese buying, Freeport remains cautious about the copper market in the short term.
The firm will need to see “robust” recovery in the economies of the US, Europe and Japan before it considers restarting curtailed production in North America, Adkerson said.
“China is very important, and very supportive, but we will need to see recovery in the developed world and have a robust marketplace, to have the confidence” to bring the operations back on line, he said.
Once the decision is made to restart operations, it will take some time before production ramps up to where it was before the curtailments, particularly at the Morenci and Safford operations, in Arizona.
"If we were to make the decision, let's say, in the second half of '09, then it's a couple of years," he said.
"And the longer that goes [on], the longer that lag time will be."
However the company would have the option to pursue expansions currently on hold, to increase production more quickly if it decided to.
Although Chinese buying patterns will create volatility in the copper prices in the short term, the purchases are backed by real economic growth and infrastructure development in China that will support demand for the metal in the longer term, Adkerson said.
"We think a lot of the activity in China is clearly sustainable," he said.
"As developing world economies begin to recover and as China and the undeveloped world builds infrastructure, the world is going to have strong demand for copper and the industry will be challenged to meet that demand." |
