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UPDATE 3-Freeport profit drops on low gold sales
October 22, 2012 / 12:45 PM / in 5 years

UPDATE 3-Freeport profit drops on low gold sales

* Gold production slumps at Grasberg mine in Indonesia

* Sees output rising next year as ore quality improves

* Company still dealing with labor issues

* Shares down 2.6 percent

By Steve James

Oct 22 (Reuters) - Freeport-McMoRan Copper & Gold Inc’s third-quarter profit fell sharply, missing Wall Street estimates, due mostly to a 50 percent drop in gold sales, much of it because of low production at its Grasberg mine in Indonesia, the company said on Monday.

Freeport trimmed its forecast for gold production this year but said it expects a big jump in both gold and copper output next year, when it will be mining higher-grade ores at Grasberg.

Gold output from the mine, on the Indonesian island of Papua, was hurt as the company worked through a layer of lower-grade ores. The mine was also crippled by a strike last year and is slowly returning to full production.

Freeport shares fell 2.6 percent to $40.08 in afternoon trading on the New York Stock Exchange.

Chief Executive Officer Richard Adkerson told Wall Street analysts on a conference call the company was continuing to deal with labor issues at Grasberg, “but we’re making progress with that.” He did not elaborate.

As a result of the strike, the company had to carry out repairs at the underground section of Grasberg. “Those have taken more time than we expected,” Adkerson said, noting the mine was currently processing 50,000 tons of rock per day instead of the full 80,000 tons capacity.

“We’re not as far along as we expected. That was high grade material that would have gone into our mill so that’s affected the volumes of copper and gold that we had available to us,” said Adkerson.

“As we go forward into 2013, we will be mining at lower reaches of the pit and that will give us access to higher grade material and you’ll see that reflected in our numbers,” he said.

Discussing copper markets, Adkerson said they were focused on China, which is an important demand driver for the metal used in wiring.

“There’s a lot of skepticism about Chinese growth rates at 7.5 percent or slightly above that,” he said, noting Beijing is taking steps to stabilize the economy, provide incentives for consumers and invest in infrastructure.

“We are continuing to see a positive situation in China and ... very strong competitive demand for our copper,” Adkerson said.

U.S. copper demand is being boosted by the automobile industry and housing data has been more positive, he said. “While growth in the U.S. today is certainly lower than the business community expected a year ago, we’re seeing some positive aspects to copper demand in the marketplace.”

Adkerson also told analysts Freeport is considering floating its Indonesian subsidiary on the Jakarta stock exchange.

In its earnings release, Freeport said third-quarter consolidated gold sales fell by more than half, to 202,000 ounces from 409,000 ounces a year earlier. Copper output was down slightly to 922 million pounds from 947 million pounds.

As a result, quarterly revenue dropped 15 percent to $4.4 billion, even as copper and gold prices rose from the 2011 quarter. Spot gold ended the third quarter at $1,770 per ounce, up 9 percent from a year earlier. Copper was up 16 percent to $8,205 per tonne, according to Thomson Reuters data.

Freeport’s net earnings were $824 million, or 86 cents per share, down from $1.1 billion, or $1.10 per share, a year earlier, the Phoenix-based company said.

Excluding credits for adjustments to deferred income taxes in Peru and some environmental obligations and related litigation, earnings were 68 cents per share. On that basis, analysts’ average forecast was 73 cents, according to Thomson Reuters I/B/E/S.

The company maintained its 2012 estimate for copper sales of 3.6 billion pounds, but it lowered the gold sales estimate to 1.0 million ounces from 1.1 million ounces.

Next year, it expects consolidated sales of 4.3 billion pounds of copper, 1.4 million ounces of gold and 90 million pounds of molybdenum.

In the 2012 fourth quarter, it expects consolidated sales of 930 million pounds of copper, 255,000 ounces of gold and 20 million pounds of molybdenum.

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