Grasberg gold boosts Freeport

Vancouver — The second quarter of 2003 was a stellar one for Freeport-McMoRan Copper & Gold (FCX-N), which earned US$57.4 million (or US37 per share) in the three months ended June 30.

The figure marks an almost ten-fold jump over the US$5.6 million (US4-per-share) profit of the corresponding period last year. Revenue between the two periods rocketed to US$609.5 million from US$408 million, while cash flow soared to US$229.9 million.

Driving the gains were record gold production and lower unit costs at the mighty Grasberg copper-gold mine in Indonesia’s Papua province. The operation produced 401,200 million lbs. copper and 858,400 oz. gold during the second quarter, compared with 374,500 million lbs. and 444,200 oz. in the year-earlier period. Benefiting the company was an average realized price for gold of US$347.69 per oz, compared with a price of US$308.76 received in the second quarter of 2002. The average price of copper remained the same at US75 per lb.

The copper grade averaged 1.24% copper during the quarter, compared with 1.14% copper a year earlier, while recoveries increased to 89.8% from 87.1%. The gold grade between the two periods jumped to 1.95 grams from 0.98 gram gold per tonne, while gold recovery rates were 87.9%, compared with 86.3%.

Underground mining, which currently accounts for 23% of the mill’s output, got a boost with the ramp-up of daily production at the Deep Ore zone to 35,000 tonnes. The move propelled the company to a new underground mining record of 50,200 tonnes per day. The move towards underground mining is significant because the open-pit reserves are slated for depletion in 2014.

The Grasberg operation remained the world’s lowest-cost producer, with net cash costs ringing in at US16 per lb. copper, compared with US18 a year earlier.

London-based Rio Tinto (RTP-N) has a 40% interest in future production from Grasberg’s reserves above those reported at the end of 1994.

Proven and probable reserves total 2.6 billion tonnes grading 1.12% copper, plus 1.02 grams gold and 3.73 grams silver per tonne. Net of Rio Tinto’s share, Freeport Indonesia’s share of proven and probable reserves amounts to 39.4 billion lbs. copper, 48.5 million oz. gold and 110.9 million oz. silver. Freeport-McMoRan holds a 90.6% equity interest in Freeport Indonesia.

For 2003, Freeport expects to produce 1.4 billion lbs. copper and 2.6 million oz. gold.