Freeport swings to profit in Q3 on costs, gold price
Phoenix-based Freeport-McMoRan reported a US$217mn profit for the third quarter of 2016, compared to a US$3.38bn loss a year earlier, as cost-cutting, stronger gold prices and higher copper production offset lower copper prices.
Sales rose to US$3.88bn in the quarter from US$3.38bn in 3Q15, the company said in a statement.
Cash costs fell to US$1.14/lb copper from US$1.52/lb a year ago, while its cash position climbed to US$1.11bn through September 30 from US$233mn a year earlier and trimmed its debt to US$19.0bn from US$20.7bn. Freeport plans to raise US$6.60bn from the sale of oil and gas assets this year.
The company increased copper production to 1.22Blb from 1Mlb, while gold output rose to 308,000oz from 281,000oz and molybdenum slid to 19Mlb from 23Mlb. Copper prices fell to US$2.18/lb from US$2.38/lb the previous year, while gold rose to US$1,327/oz from US$1,117/oz.
The South American operations, which include Freeport's 53.56%-controlled Cerro Verde mine in Peru and a 51% stake in El Abra, contributed 317Mlb copper, up from 204Mlb a year ago, and 5Mlb molybdenum, up from 1Mlb. Freeport sold its Candelaria/Ojos del Salado mines in November 2014 and announced production cuts at El Abra.
The company's US$4.60bn expansion of Cerro Verde has been completed and is ramping up. Capex was US$494mn in the quarter, with US$333mn spent on mining projects. Freeport plans to invest a total US$2.80bn this year, US$1.60bn of that on mining projects.
"We've been very tough on capital at this point," CEO Richard Adkerson said on a conference call to discuss the financial results. "We expect to generate free cashflow over the next several quarters because we're going to constrain capital spending until the market warrants new investments."
The company, which plans to cut 350Mlb in copper output and 34Mlb of molybdenum this year, said 2016 sales are expected to be 4.8Mlb copper, 1.26Moz gold and 73Mlb molybdenum. South American copper sales are expected at 1.3Blb compared with 871Mlb in 2015.
Markets
Slumping copper markets reflect the global economic slowdown and slower Chinese growth, but surplus of the metal is lower than predicted and disruptions at operations could shift the market into a deficit in a short period, said Adkerson.
Supply growth rates are not sustainable as new projects are completed and long periods of low prices will impact future supply, he said. Consulting firm Wood MacKenzie cites a US$3.30/lb copper price to be able to build new mines, he said.
"World class mines are extremely rare," Adkerson said. "Even with all this investment, finding new mines is extremely tough."
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