Freeport-McMoRan stock down on capex cut, dividend

NEW YORK (Reuters) - Freeport-McMoRan Copper & Gold Inc (FCX.N) suspended its dividend, slashed capital expenditure by more than half and lowered copper output because of the recent slump in metal prices and its shares fell by more than 20 percent.

The announcement came just four months after the company had raised its annual dividend while riding a wave of record prices for copper and other metals, and 21 months since taking over Phelps-Dodge -- a bigger mining rival it acquired in a bold $25.9 billion deal.

"We are doing this to respond to the fact of dropping commodity prices," Chief Executive Officer Richard Adkerson told Wall Street analysts on a conference call.

"What we have to deal with presently is a huge, dramatic change in revenue," he said, noting that copper, which was selling for around $4 per pound in July, is now below $1.60.

Adkerson said the company had contingency plans if the copper price fell below $1.50, and even as he spoke, the price in New York hovered just above that level.

Freeport's moves on capital expenditure and the dividend will position the company to take advantage of an expected global economic turnaround which would once again send metal prices soaring, Adkerson said.

"We see a long-term positive market for copper."

Shares of Freeport were down $4.62, or 21.17 percent, at $17.20 in afternoon trading on the New York Stock Exchange.

But despite the reaction on Wall Street, some analysts on the call saw the company's action as positive, and even congratulated Adkerson on his "tough decisions."

"They are definitely battening down the hatches to preserve liquidity," said Brian Hicks, co-manager of U.S. Global Investors' Global Resources Fund (PSPFX), which has $663 million in assets under management, around a quarter in mining and basic materials

"But in the longer term, if there is (economic) recovery, it bodes well as copper supply will be constrained further (and prices will rise)."

Hicks said Freeport's action could lead the way for other miners to cut expenditure and suspend dividends. He noted Freeport had a strong balance sheet, with no pending debt repayments, unlike rival Rio Tinto (RIO.L) (RIO.AX), which "is having difficulty deleveraging its balance sheet."

In a statement, Freeport, which previously projected 2008 annual copper sales of 4 billion pounds, said it will reduce copper production by about 200 million pounds, or 5 percent, in 2009 and by about 500 million pounds, or 11 percent, in 2010.

Molybdenum volumes will be cut by 13 percent next year and 30 percent in 2010, it said.

Freeport is reviewing its copper mining operations, mostly in the United States, to identify reductions in costs and plans to more than halve its 2009 capital expenditure budget to $1.1 billion from a prior estimate of $2.3 billion.

The move to suspend the annual dividend of $2 per share, which it announced in July, will save the company about $755 million on an annual basis, Freeport said.

Asked on the call, if Freeport would consider borrowing to pay the dividend, Adkerson said: "We will use our credit facility to manage the timing of cash flows, but not for dividends or long-term financing."

He also said the company expected a substantial amount of the $6 billion goodwill from the Phelps Dodge acquisition would likely be written-off in "very significant" non-cash charges in the fourth quarter.

The latest cost-cutting measures come just a few weeks after the company, the world's largest publicly traded copper producer, said it was delaying the restart of its Climax molybdenum mine and cutting production by 25 percent at the Henderson molybdenum mine. Both mines are in Colorado.

Freeport also said it would delay expansions at the Sierrita and Bagdad copper mines in Arizona and push back the restart of its Miami mine in the state, cutting about $370 million in planned capital costs.

Last month, the company also said it would cut more than 600 jobs at its U.S. mining operations to lower costs.

But Adkerson insisted the company's major Tenke Fungurume copper/cobalt project in Democratic Congo was going ahead and expected to begin production in the second half od next year.

Phoenix, Arizona-based Freeport had reduced its debt by more than $10 billion since March 2007 when it acquired Phelps Dodge. Its debt at September 30 was $7.2 billion.

(Reporting by Euan Rocha and Steve James; Editing by Lisa Von Ahn, Derek Caney and Matthew Lewis)