* Copper weak in developed world; long-term positive-CEO
* Freeport increases its capital expenditure budget
* Company to look for opportunities to grow dividend
By Carole Vaporean
NEW YORK, Feb 25 Freeport-McMoRan Copper and Gold Inc (FCX.N) plans to use its strong cash position to increase exploratory drilling, pay down debt, raise shareholder dividends and restart deferred development projects in 2010.
Sticking to the second largest copper miner's mantra, Chief Executive Richard Adkerson said Thursday Freeport will grow internally rather than pay a premium for outside assets.
"It would be difficult to find acquisitions that compete economically with our internal investment opportunities," he told a Morgan Stanley Global Basic Materials Conference.
While Freeport's business remains weak in the United States, Japan and Europe, he said, its long-term copper outlook is positive.
"When you add in any recovery in the developed world with the opportunity in China and other developing countries, you get a positive outlook for copper demand in the long run," Adkerson said.
With projected 2010 operating cash flow of $5.3 billion Freeport increased its capital expenditure budget to $1.7 billion from $1.6 billion in 2009, targeting mine projects in North and South America, with $100 million pegged for exploration in the four continents on which it operates.
Freeport will also look at ways to return cash to shareholders through dividends and share buyback programs.
"We have growth projects that are significant. We're planning next steps and where to invest. We have reinstated the dividend and we believe we have the opportunity to grow the dividend as we go forward," Adkerson told investors.
Freeport has completed the first phase of construction at its huge Tenke Fungurume copper and cobalt mine project in the Democratic Republic of Congo and the mine was operating at design capacity for copper, the executive said.
"We're getting there for cobalt. It is a complicated circuit for cobalt recovery, an agitated leach process. And it's a challenging place to do business," he said.
In the 2009 fourth quarter, Freeport began a feasibility study for Tenke's next phase of expansion, which could increase capacity by as much as 50 percent of current output levels.
It plans to complete the study by mid-2010.
Tenke, a greenfield project far from any infrastructure, came on stream last year, producing 70,000 tonnes of copper.
Freeport has had to build roads, buildings and other infra-structure before it could begin mining.
"We can see it growing. For it to grow, we have to get our situation with the government on better footing. This contract revisitation process, that has been going on now for a couple of years, needs to be completed in a way that allows us to have the confidence to invest additional capital," said Adkerson.
On Feb. 3, a World Bank official said the Democratic Republic of Congo expects to finalize talks with Freeport over jointly owned Tenke "in a week or so." The government had reviewed 61 mining licenses, approved 43 and rejected 17 in attempt to transform its mining sector. Freeport's contract is the only one outstanding. [ID:nWEA8189]
On Thursday, Freeport's spokesman said, the company "continues to work cooperatively, with the DRC government to resolve the ongoing contract review, but cannot predict the timing or outcome of the process."
Among Tenke's significant logistical issues, Freeport must transport production 3,000 kilometers (1,900 miles) by truck.
"For it to grow to a world-class mine, we have to have rail access to that project. We are working with the government and talking about it," the mining executive said.
He added that while Tenke possesses ample opportunity, "There are barriers to developing those resources and that creates a lot of uncertainty." (Editing by Walter Bagley)