Grasberg fires on all cylinders

Vancouver New Orleans-based Freeport McMoRan Copper & Gold (FCX-N) ended 2002 on a strong note with cash production costs plunging at its mighty Grasberg copper-gold mine in Indonesia.

“We set multiple operating records throughout the year and strengthened our position as a premier mining company,” says Freeport’s Chief Executive Officer, James Moffett. ” Our low-cost, high-volume operations allowed us to generate significant cash flows and reduce net debt in 2002 by nearly $280 million, strengthening our financial position."

The company earned US$64.1 million, or US$0.41a share in the fourth quarter, compared to a a loss of US$2.1 million, or US$0.01 a share, in the fourth-quarter of 2001. Revenue for the quarter soared to US$571 million from US$412.3 million a year ago. Driving the improvement was a lowering of cash production costs at its Grasberg operation, along with higher realized gold and copper prices.

Located in Indonesia’s eastern most province of Irian Jaya, the Grasberg operation posted record copper production, while reamining the world’s lowest cost producer. In the fourth quarter, unit net cash production costs came in at US$0.03 per lb., compared with US$0.21 in the fourth quarter of 2001 and US$0.08 per lb for all of 2002, compared with a record setting US$0.07 in 2001.

For the year, Freeport tallied net income of US$127.1 million, or US$0.87 per share, compared with 2001 net income of US$76.5 million or US$0.53 per share. Operating cash flow followed suite, rising to US$208.5 million in the fourth quarter and US$512.7 million for the year. The company used the free cash flow to pay down debt to the tune of US$147.9 million for fourth quarter and US$278.2 million for the year.

Freeport sold 427.1 million lbs. of copper and 678,300 ozs of gold during the fourth quarter, compared with 325.3 million lbs. of copper and 500,200 ozs. of gold in the same period of 2000. For the year, Freeport produced an impressive 1.52 billion lbs of copper and 2.3 million oz of gold, compared with 1.39 billion lbs of copper and 2.6 million oz of gold. Benefiting the company was a higher realized price for both copper and gold. The average price of copper came in at US$0.70 per lb., while gold averaged US$323 per oz in the fourth quarter. This compares to a copper price of US$0.65 per lb and US$277 per oz of gold received in the fourth quarter of 2001.

Copper grades averaged 1.23% in the latest quarter, compared with 0.89% last year and for 2002 copper grades averaged 1.14%, compared with 1% in 2001.In the fourth quarter of 2002, ore milled averaged 1.44 grams gold per tonne, compared with 1.03 grams gold in the fourth quarter of 2001. For the year, gold production and sales declined from the 2001 period as gold ore grades averaged 1.24 grams gold, compared with 1.41 grams gold in 2001.

Looking ahead, Freeport expects to sell 1.4 billion lbs of copper and 2.6 million oz of gold in 2003 with sales of 370 million lbs of copper and 580,000 ozs of gold in the first quarter.

During 2002, proven and probable reserves at the Grasberg mining complex totaled 86.6 million tonnes grading were 2.6 billion tonnes grading 1.12% copper, 1.02 grams gold and 3.73 grams silver. Based on a joint venture agreement with Rio Tinto (RTP-N), The London-based major has a 40% interest in future production from reserves above those reported at December 31, 1994. Net of Rio Tinto’s share, Freeport’s share of proven and probable reserves at December 31, 2002 was 39.4 billion lbs of copper, 48.5 million ozs of gold and 110.9 million ozs of silver. Freeport holds a 90.6% equity interest in Freeport Indonesia’s share of proven and probable reserves.