Labor strife at Grasberg cuts into Freeport's profits

January 20, 2012

The long and sometimes violent labor strife at the Grasberg Mine in Indonesia took a toll on mine owner Freeport-McMoRan Copper & Gold which reported a 60-percent drop in fourth-quarter profits. However, the company still beat Wall Street estimates and its shares inched up.

Freeport McMoRan said it was working to restore operations at the Grasberg Mine after a three-month strike. But the company did not indicate when it would lift a force majeure in effect there, although it has resumed some shipments of copper concentrate, Reuters reported.

It also said that this year it expects to sell less gold than in 2011.

Freeport-McMoRan Chief Executive Richard Adkerson acknowledged the company had been through a difficult time with the strike at Grasberg and another at Cerro Verde in Peru. But now they have been resolved, he said, Freeport could focus on expanding mining projects, which he forecast would increase copper production by 25 percent in the next four years.

Global markets “do reflect the concerns about the situation in Europe and the situation of relatively low growth in the United States,” Adkerson said, but he gave a positive outlook for copper.

“Markets are tight worldwide, the inventories have come down recently by 25 percent during the fourth quarter. China continues to be strong despite concerns ... about credit tightening and inflation factors there.

“We’re seeing fairly positive outlook, actually by our downstream customers in the United States and certain sectors are strong including automobiles and export-related sectors and there's some improvement even in the construction business,” Adkerson told Wall Street analysts on a conference call.

During the fourth quarter, the price of copper rose about 8 percent, but overall in 2011, it was 25 percent lower than the year before.

Freeport, whose revenue dropped about 25 percent from the 2010 fourth quarter, said its average realized copper price in the 2011 quarter was $3.42/lb, this is down from $4.18/lb in the previous year. In addition, costs rose to $1.57/lb from 53 cents, contributing to the earnings drop, Reuters reported.

The impact of the Grasberg strike, which included shipment disruption from a sabotaged pipeline, was evident in the production numbers Freeport released.

Chief Financial Officer Kathleen Quirk said the company estimated it lost 165 million lbs of copper and 170,000 oz of gold in the fourth quarter and 235 million lbs of copper and 275,000 oz of gold for the full year 2011.

Consolidated sales from all its mines in the fourth-quarter totaled 823 million lbs of copper and 133,000 oz of gold.

That was down sharply from 941 million lbs of copper and 590,000 oz of gold in the 2010 fourth quarter.

In its earnings release, Freeport said net income was $640 million, or 67 cents per share, compared with $1.5 billion, or $1.63 per share, in the same quarter of 2010.

The Phoenix, Arizona-based company said revenue fell to $4.1 billion from $5.6 billion, partly due to lower sales prices of metals. It sold gold on average for $1,656 per ounce in the quarter, which was higher than $1,398 in the 2010 quarter but down from $1,693 in the third quarter.

Freeport forecast consolidated sales from mines of about 3.8 billion lbs of copper for 2012, up from 3.7 billion lbs in 2011. It said gold production would total 1.2 million oz, below the 1.4 million oz last year.

For the first quarter, Freeport said it expects 875 million lbs of copper, 425,000 oz of gold and 20 million lbs of molybdenum.



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