Freeport project spending could reach $10bn in 5 years
miningweekly.com
By: Liezel Hill
20th January 2011
TORONTO (miningweekly.com) – Phoenix-based Freeport-McMoRan Copper & Gold could spend between $8-billion and $10-billion over the next five years if all the projects it is considering are approved, CEO Richard Adkerson said on Thursday.
The company is “aggressively” looking for ways to expand or extend production across its asset portfolio, to take advantage of strong prices and demand for copper, gold and molybdenum, he said.
While Freeport is mainly focused on organic growth, the firm will look at “opportunistic” acquisitions, although deals will need to be big ones to catch the group's eye, chairperson James 'Jim Bob' Moffet told analysts and investors on a conference call.
The company ended 2010 with $3,7-billion in cash and cash equivalents and is forecasting an operating cash flow of about $8-billion in 2011.
While Freeport would not struggle to access debt if it decided to move on a big acquisition, the company expects to cover its capital spending requirements from internal cash, Adkerson said.
Freeport-McMoRan is the second-biggest copper producer after Chile's Codelco, and the biggest publicly traded copper miner. It is also a top molybdenum producer and ranked ninth in terms of gold production in 2010, according to estimates from GFMS.
The company expects to sell 3,85-billion pounds of copper, 1,4-million ounces of gold and 70-million pounds of molybdenum in 2011, from mines in North and South America, Indonesia and Africa.
Freeport cut back sharply on production - especially at higher cost mines in the US - when demand and prices fell in late 2008, and Adkerson was reluctant to bring production bank on line last year until he was certain that demand growth was sustainable.
The company is now working at full steam to ramp up curtailed production, and also has a long list of projects being implemented, planned or considered.
The $8-billion to $10-billion estimate includes the remaining spending on a project to process sulphide ore at the El Abra mine in Chile, which is about 80% complete, as well as about $500-million a year on development at the big Grasberg mine, in Indonesia, and the rest would be spent on new growth projects, CFO Kathleen Quirk said.
Freeport is working on a feasibility study for a significant concentrator expansion project to either double or triple capacity at the Cerro Verde operation in Peru, and should have the study completed before midyear, Adkerson said.
At the big Tenke Fungurume mine, in the Democratic Republic of Congo, the company plans to increase the copper production rate to 290-million pounds a year in 2011, and sees the potential to add another 100-million to 200-million pounds a year on top of that in the next two or three years.
Other potential projects include a major new mill to process sulphide ore at Morenci, a new mill at El Abra and future sulphide development at Tenke Fungurume.
DEALS, DIVIDENDS
At current copper prices, Freeport is earning “extraordinary margins”, which means the company is also pulling increasing levels of cash flow, Adkerson noted.
How does the company plan to put the cash to work? Freeport already announced a dividend increase on October 21, followed by news last month that it will pay a $1,00 a share special dividend on December 30, and has approved a two-for-one share split.
And Adkerson indicated that the firm will continue to look at returning cash to shareholders.
“Because we are now an investment-grade rated company with all the credit rating agencies, the banks are very amenable to talk about financings if we need it, we won't have any need of keeping significant cash in the company, so that allows the board to think about dividends and stock buy-backs,” he said.
“That's the subject of ongoing discussions.”
As far as potential acquisitions go, dealmaking is not a strategic focus for the company, but it will be “opportunistic” when attractive assets do come up, he said.
Freeport won't necessarily be limited to copper and molybdenum if it does move on acquisitions, he said.
Moffet reiterated that the group is not looking to add smaller projects by acquisition.
“Big projects are our target, because that's the only thing that is going to add value to the size of the resources that we have.”
CLIMAX RESTART
Adkerson said that Freeport has yet to make a decision on starting production at its Climax molybdenum project in Colorado, where construction was halted in November 2008.
However, the firm is moving ahead with construction work in the meantime, so that it will have the option to begin production as soon as early 2012, if market conditions warrant.
There is about $450-million left to spend of the $700-million project, and Freeport expects to spend $350-million this year, Adkerson said.
Molybdenum is used to strengthen steel. Prices for the metal fell from levels around $32/lb in the third quarter of 2008, down to as low as $8/lb in April 2009.
The price has since recovered to above $17/lb.
Freeport announced fourth-quarter earnings of $1,55-billion on Thursday, an increase of 60% compared with a year earlier.
Shares in the company fell 3,7%, to $110,90 in New York, after the firm said copper and gold sales would be lower this year, and amid a hefty decline in the copper price on Thursday. |
