Freeport-McMoRan Loss Widens, Unveils Job Cuts -- Update
April 26 2016 - 2:39PM
Dow Jones News
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)
Copyright (c) 2016 Dow Jones & Company, Inc.
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