Lower output whacks FCX earnings

True to its early-July warning, Freeport-McMoRan Copper & Gold (FCX-N) has seen its bottom line eroded by heavy rainfall and lower head grades at the Grasberg mine in Indonesia.

In the second quarter, net income applicable to common stock amounted to US$5.6 million (or US4 per share), down sharply from US$36.3 million (US25 per share) in the year-earlier period.

Revenue plummeted to US$408 million from US$538 million between the two periods, while operating cash flow fell moderately to US$132 million. (Freeport’s 2002 results reflect a 90.6% interest in its Indonesian mining unit, PT Freeport Indonesia, compared with a 85.9% stake in 2001.)

PT Freeport Indonesia recorded sales of 350.4 million lbs. copper and 393,700 oz. gold during the second quarter, compared with 389.8 million lbs. copper and 813,600 oz. gold during the corresponding period of 2001.

Average net cash production costs, including gold and silver credits, were US18 per lb. copper, compared with nil per lb. a year earlier.

Freeport blames the disappointing results on rains that hindered production and delayed shipments of concentrates, and on delays in mining higher-grade material in the Grasberg pit. These higher-grade portions of the Grasberg orebody are now being mined, which should result in a stronger second half.

“Ore grades and sales volumes are expected to be much higher for the second half of 2002, and we expect second-half gold sales to be twice [what they were in] the first half,” says Chairman James Moffett.

For the third quarter, PT Freeport Indonesia estimates sales of 420 million lbs. copper and 800,000 oz. gold. For all of 2002, total sales are anticipated to be 1.5 billion lbs. copper and 2.2 million oz. gold.

Freeport expects to generate about US$500 million in operating cash flow during the second half of 2002, which should allow the company to reduce, by at least US$225 million, its net debt load of US$2.6 billion.

The sinking U.S. dollar has forced Freeport to translate about 75 million euros of historical pension obligations at Atlantic Copper, Freeport’s wholly owned Spanish subsidiary, to a higher U.S. dollar value and to recognize a non-cash charge of US$9 million (US6 per share) to second-quarter income.