By John W. Miller and Tess Stynes
Freeport-McMoRan Inc. posted its second straight quarterly loss,
and said Thursday it was prepared to scale back operations if
commodity prices don't recover, even as it managed to keep costs
down at its copper mines.
The Phoenix-based miner, one of the world's biggest copper
producers, said it had a second-quarter loss of $1.85 billion, or
$1.78 a share, compared with a profit of $482 million, or 46 cents,
a year earlier. The latest loss was due to $2 billion in
write-downs related to oil-and-gas properties it acquired two years
ago, as well as other items. Revenue fell 23% to $4.25 billion.
"In 2008, we cut back operations at our high-cost mines," Chief
Executive Richard Adkerson said on a conference call. "And this
time we're prepared to take similar steps to respond to the
economy." For now, Freeport is keeping its full-year 2015 sales
guidance of 4.2 billion pounds of copper, 1.3 million ounces of
gold, and 52.3 million barrels of oil.
A downturn in commodity prices has hit miners across the board.
But Freeport is relatively fortunate to be mining copper and not
iron ore. Copper, which is used to make wiring for cars and
computers, and pipes for building, is scarcer than iron ore, a key
ingredient in steelmaking. And Freeport has managed to keep costs
at most of its mines far below current copper prices, helped by
lower oil prices, the strong dollar and mining in developing
countries.
For instance, Freeport's expected unit cash cost in Indonesia,
where it operates the massive Grassberg mine, is $1.08 per pound.
That's low enough to make money even with copper prices that are
down about 25% from a year ago at about $2.40 a pound.
By comparison, iron ore prices have fallen more than 40% in the
past year, to around $52 per ton, nearing production costs for many
miners.
Freeport said it charged an average of $2.71 per pound in the
latest quarter, down 14% from $3.16 a year ago. But it managed to
cut its overall consolidated cash cost for copper in the second
quarter by 13% to $1.50 per pound from $1.72.
That helped Freeport post a profit of 14 cents per share
excluding one-time charges, beating analysts' expectations for 7
cents a share.
The lid on costs also explains why Mr. Adkerson, even while
warning of cutbacks, is still committed to three massive building
projects. The expansions, in the Democratic Republic of Congo,
Arizona and Peru, are costing a total of $7.1 billion, and will add
a billion pounds of copper supply per year. Global copper
consumption last year was around 50 billion pounds. Freeport stuck
to 2015 capital expenditures estimates of $2.8 billion in its oil
and gas unit and $2.5 billion for all mining projects.
Over the next 10 years, copper demand is expected to grow 27%
while production from existing mines will fall 15%, according to
WoodMackenzie, a research firm and consultancy.
Last month, Freeport filed plans for an initial public of
oil-and-gas assets, about two years after it acquired Plains
Exploration & Production Co. and McMoRan Exploration Co. in
deals valued at a combined $9 billion.
The acquisitions provided the mining company with sizable assets
in the then-booming U.S. oil- and natural-gas-production business.
However in April, Freeport said it might spin off part of its
energy business after recording a hefty write-down in that
segment.
Write to John W. Miller at john.miller@wsj.com and Tess Stynes
at tess.stynes@wsj.com
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