Freeport hunkers down to reduce costs at Grasberg

In light of lower metal prices, Freeport McMoRan Copper & Gold (FCX-N) intends to implement new operating plans at its Grasberg copper-gold mine in Irian Jaya, Indonesia.

The company plans to focus its efforts on reducing costs at Grasberg in 1998, while increasing production and sales. Using economies of scale, it hopes to push costs down by keeping throughput high. The company is in the process of boosting throughput at the mine beyond 200,000 tonnes per day. By the second half of the year, it should be processing 230,000 tonnes per day, and has planned a fifth expansion of the mill complex that would raise throughput to 300,000 tonnes per day.

The company is looking at installing an ore hoisting or inclined conveyor system to raise high-grade ore to the newly expanded mill complex at the 2,900-metre level, rather than constructing a fifth concentrator mill at the 2,500-metre level, which had been considered.

Production for 1998 is expected to be up sharply to 1.7 billion lbs. copper and 2.7 million oz. gold, increases of 18% and 13%, respectively, over the previous year. Freeport’s share should total 1.4 billion lbs. copper and 2.2 million oz. gold, with the remainder attributed to its partner, London-based Rio Tinto (RTP-N).

Freeport notes that copper output could be slightly lower in 1999, and gold output might drop by 10%.

Freeport expects to produce copper below US40cents per lb. in 1998, down 22% from US$51cents in 1997. After gold credits, cash costs of producing copper would be below US20cents per lb. To achieve this, the company will lay out US$100 million in capital expenditures (excluding interest costs) to complete the fourth concentrator expansion. As much as US$200 million is earmarked for other long-term projects and to sustain operations.

To make up for low metal prices and the increased expenditures outlined above, Freeport cut general and administrative expenses by 38% to US$75 million in 1997. No further cuts are planned for 1998.