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Freeport trades lower on earnings miss as production falls

SAG mills at Freeport's Grasberg mine, in Indonesia

SAG mills at Freeport's Grasberg mine, in Indonesia

Photo by Freeport-McMoRan

25th October 2017

By: Henry Lazenby

Creamer Media Deputy Editor: North America

     

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TORONTO (miningweekly.com) – The NYSE-listed equity of the world’s second-largest publicly traded copper miner by market capitalisation traded as much as 3.87% lower on Wednesday, despite confidently beating earnings forecasts, as lower-than-expected output weighed on investor sentiment.

For the three months ended September 30, headline earnings – which typically exclude special items – came in at $492-million, or $0.34 a share, beating an average of 18 Wall Street analyst forecasts calling for profit of $0.31 a share, and reflecting a 162% year-on-year improvement on the $0.13 a share recorded in the comparable period a year earlier.

Net income attributable to common stock totalled $280-million, $0.19 a share, compared with $217-million, or $0.16 a share a year earlier.

“Our focus on cost management combined with free cash flow generation have enabled us to continue to strengthen our balance sheet and successfully execute our strategy. Our shareholders are well positioned to benefit from our highly attractive portfolio of copper assets and improving copper market conditions. We are encouraged by continued progress in our active negotiations with the Indonesian government regarding our long-term operating rights in Indonesia and we remain focused on managing our long-term business for the benefit of shareholders,” stated president and CEO Richard Adkerson in a news release.

Phoenix, Arizona-based Freeport reported revenues of $4.31-billion – also above analyst estimates of $4.08-billion.

Third-quarter copper sales of 932-million pounds were slightly below the July 2017 estimate of 940-million pounds and 16% lower than third-quarter 2016 sales of 1.1-billion pounds, impacted by lower ore grades in North America and Indonesia and the timing of shipments.

Gold sales of 355 000 oz were also below the July estimate of 375 000 oz, mainly owing to the timing of shipments. Third-quarter gold sales were higher than in the same period of 2016, when 317 000 oz were sold, mainly reflecting higher ore grades at the giant Grasberg mine, in Indonesia.

Freeport also reported molybdenum sales of 22-million pounds, which were in line with expectations, and higher than third-quarter 2016 sales of 16-million pounds.

Average realised prices were $2.94/lb for copper – up from 2.19/lb a year earlier, $1 290/lb for gold and $9.22/lb for molybdenum during the period.

Average unit net cash costs were $1.21/lb, which were 6.14% higher when compared with the prior-year period.

Operating cash flows totalled $1.2-billion (including $45-million in working capital sources and changes in tax payments).

In September, Freeport redeemed $543-million of senior notes, resulting in cash interest savings of about $35-million a year. At September 30, consolidated cash totalled $5-billion and consolidated debt totalled $14.8-billion, compared with $4.2-billion of consolidated cash and $16-billion of consolidated debt at December 31, 2016. FCX had no borrowings and $3.5-billion available under its revolving credit facility at the end of the period.

INDONESIAN NEGOTIATIONS
The company advised that its Indonesian unit PT-FO continues to actively engage with Indonesian government officials to address regulatory changes that conflict with its contractual rights in a manner that provides long-term stability for PT-FI’s operations and investment plans.

In August, Freeport and the Indonesian government reached an understanding on a framework that would resolve PT-FI’s long-term operating rights. This framework, which requires definitive documentation and board and partner approvals, includes the conversion from the contract of work (COW) to a new operating licence (IUPK) providing PT-FI with long-term operating rights through to 2041; Indonesian government certainty of fiscal and legal terms during the term of the IUPK; PT-FI’s commitment to construct a new smelter in Indonesia within five years of reaching a definitive agreement, and the divestment of 51% of PT-FI shares to Indonesian participants at fair market value. The divestment will be structured so that FCX will retain control over operations and governance of PT-FI.

Freeport reported that the parties continue to negotiate documentation on a comprehensive agreement for PT-FI’s extended operations and to reach agreement on timing, process and governance matters relating to the divestment. The parties have a mutual objective of completing the required documentation before year-end.

In October 2017, the Indonesian government extended PT-FI’s export rights to December 31, while negotiations to document a long-term agreement based on the agreed framework continue.

Until a definitive agreement is reached, PT-FI has reserved all rights under its COW, including pursuing arbitration under the dispute resolution provisions.

Freeport confirmed its full-year sales volume forecast of 3.7-billion pounds of copper, 1.6-million ounces of gold and 94-million pounds of molybdenum, including one-billion pounds of copper, 625 000 oz of gold and 23-million pounds of molybdenum in the fourth-quarter.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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