FCX Freeport McMoRan Inc

By John W. Miller and Tess Stynes 

Freeport-McMoRan Inc. on Tuesday posted a $4.2 billion quarterly loss, mostly due to the declining book value of its oil and gas assets, but said it would continue to ramp up copper production despite stagnating prices.

Phoenix-based Freeport, the U.S.'s biggest mining company by market value, said revenue fell 15% to $3.5 billion from $4.1 billion in the same quarter a year ago. It took $3.8 billion in charges "to reduce the carrying value of oil and gas properties."

The company lost $2.5 billion in the same quarter a year ago, part of a streak of six straight losing quarters.

Freeport, a major global copper mining company, said it would remain focused on reducing its debt, which stood at $20.8 billion at the end of the quarter.

"You should not be this leveraged," Chief Executive Richard Adkerson told analysts on a conference call Tuesday. When prices decline as part of a commodity downturn, "having this kind of debt is a killer," he said.

Mr. Adkerson declined to discuss continuing asset sale negotiations, but said he felt "real good" about the talks. Freeport has agreed to sell $1.4 billion worth of assets this year, including selling a 13% stake in its Morenci copper mine in Arizona for $1 billion.

Freeport said Tuesday it would cut 25% of the oil and gas workforce -- or 325 jobs -- as part of an overall restructuring in that business, and expected to post a related charge of around $40 million in the second quarter. The company said Tuesday it is evaluating options for the oil-and-gas business, including possible asset sales or joint-venture arrangements.

Freeport made a big bet on oil and gas in 2013 when it bought McMoRan Exploration Co. and Plains Exploration & Production Co., which drill off the coast of California and in the Gulf of Mexico, for a total of $9 billion. The purchase, which loaded the company with debt, was followed by a steep decline in energy prices.

The pressure on Freeport grew when activist investor Carl Icahn disclosed the purchase of a stake last August. Since Mr. Icahn disclosed his initial investment last August, Freeport has suspended its dividend, cut capital spending, and announced the resignation of longtime chairman James R. Moffett, an oil wildcatter who also developed the Grasberg mine in Indonesia, one of its so-called super mines.

Freeport is still staking its future on its big copper mines, which remain profitable.

The company said Tuesday it expects to increase copper sales to five billion pounds in 2016, up around 25% from 2015, even though prices continue to putter between $2 and $2.5 per pound, half their level of five years ago. The company sold 1.1 billion pounds of copper in the first quarter, up 15% from 960 million pounds over the same period in 2015.

Freeport attributed the increase to its Cerro Verde complex in southern Peru, another super mine, reaching full capacity in the first quarter. One of the top mines in the world, Cerro Verde is expected to produce over a billion pounds of copper in 2016, over 2% of global production.

That expansion is also a big part of why Freeport said it had reduced unit cash costs per pound to $1.38 from $1.64 a year ago, "primarily reflecting higher copper sales volumes in South America and the impact of ongoing cost reduction initiatives."

Keeping costs down is key. "Mining projects have long tails, and once you get past any significant investment, you have to finish," says Charles Bradford of Bradford Research, Inc. "But after you get these things finished, you can sometimes find efficiencies you hadn't built into your original cost model."

Write to John W. Miller at john.miller@wsj.com and Tess Stynes at tess.stynes@wsj.com

(END) Dow Jones Newswires

April 26, 2016 14:24 ET (18:24 GMT)

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