Lower grades at Grasberg push Freeport into the red

Vancouver — Lower grades at the mighty Grasberg mine in Indonesia resulted in decreased production and a fourth-quarter loss for Freeport-McMoRan Copper & Gold (FCX-N).

The New Orleans-based company tabled a net loss of US$2.1 million (or US1 per share) for the three months ended Dec. 31, 2001, compared with a profit of US$58.1 million (US40 a share) in the corresponding period of 2000. Revenue between the two periods fell to US$412.3 million from US$529.9 million.

Freeport sold 147,500 tonnes copper and 500,200 oz. gold during the recent quarter, compared with 201,000 tonnes and 724,000 oz. a year earlier. The decrease reflects the fact that grades fell to 0.89% copper and 1.03 grams gold per tonne from 1.33% copper and 1.64 grams.

For the year, Freeport earned US$76.5 million (US53 per share), compared with $39.5 million (US26 per share) in 2000, though operating cash flow remained impressive at US$509 million, compared with US$516 million in 2000. Average realized prices for copper amounted to US69 per lb. in 2001, compared with the US82 in 2000.

“We will continue to focus on aggressive initiatives to reduce our cash cost and outlays in today’s low commodity price environment as we work to maximize cash flow from Grasberg,” says Chief Executive Officer James Moffett.

Situated in Indonesia’s easternmost province, Irian Jaya, the Grasberg operation posted a record-low net cash production cost, including gold-silver credits, of US7 per lb. copper for 2001. In the fourth quarter, costs came in at US21 per lb. Gold recovery amounted to 89.5% for the year, with 91.6% recorded for the fourth quarter, while copper recovery was 86.9% and 86.3%, respectively.

Freeport expects to sell 136,000 tonnes copper and 275,000 oz. gold in the first quarter, reflecting the continued mining of lower ore grades in the first half of 2002. In the months that follow, the company expects to produce more copper but less gold.

“Looking beyond 2002 into 2003, we will be returning to more normal ore grades, and we will expect gold sales in 2003 and in the succeeding three years to be more in line with what we achieved in 2001,” says Chief Financial Officer Richard Adkerson.

Freeport forecasts sales of 680,000 tonnes copper and 2 million oz. gold in 2002, compared with the 635,000 tonnes copper and a record 2.6 million oz. gold recorded in 2001.

Year-end proven and probable reserves, net of 2001 production, were 2.6 billion tonnes grading 1.13% copper, 1.05 grams gold and 3.72 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 Dec. 31, 1994. Net of Rio Tinto’s share, Freeport’s portion of the proven and probable reserves at the end of 2001 is 17.8 million tonnes copper, 50.2 million oz. gold and 114.5 million oz. silver.