Freeport back on track at Grasberg

Vancouver — Safe and improved access to higher-grade ore has helped Freeport-McMoRan Copper & Gold (FCX-N) boost profits at its vast Grasberg mine complex in Indonesia’s Papua province.

The New Orleans-based company reported net income of US$212.5 million for the fourth quarter of 2004, a major improvement over net earnings of US$200,000 a year earlier.

The mine produced 423.7 million lbs. copper and 629,000 oz. gold during the latest quarter, up from 160.4 million lbs. copper and 264,300 oz. gold a year earlier. The jump in quarterly profits and production reflects the ability to mine higher-grade material that had been rendered inaccessible because of an open-pit slippage incident in 2003.

Freeport posted net profits of US$156.8 million for 2004, down slightly from US$154.2 million a year earlier. The company predicts an even better year ahead, for both profits and production.

Chairman James Moffett estimates sales in 2005 will total 1.5 billion lbs. copper and 2.9 million oz. gold, representing a 50% increase for copper and a 100% increase for gold. He noted that much of the credit goes to the company’s operating team, which restored safe access to the higher-grade ore after the slippage incident.

Production costs fell significantly in the last quarter of 2004 to an average of US17 per lb. copper, including gold and silver credits, from US39 per lb. a year earlier.

Assuming copper prices average US$1.35 per lb. and gold prices average US$420 per oz. this year, Freeport projects that its gold credits would offset its cash production costs at Grasberg in 2005. This would result in net cash production costs of zero cents for every pound of copper produced after gold and silver credits.

Freeport is also buoyed by recent exploration at Grasberg, which boosted year-end proven and probable reserves (net of 2004 production) to 2.8 billion tonnes averaging 1.09% copper, plus 0.98 gram gold and 3.87 grams silver per tonne. Of particular note is the Deep MLZ deposit, which hosts 146 million tonnes averaging 1.22% copper and 0.95 gram gold.

This year, Freeport will test extensions of the MLZ and Deep MLZ deposits, try to expand resources at Deep Grasberg, and explore reconnaissance targets along the Wanagon and Idenberg fault trends. The company has budgeted US$12 million to fund its share of these work programs.

Freeport reduced its net debt by US$330 million last year, leaving total debt at about US$1.95 billion.