Freeport third-quarter profit up 27%

Phoenix-based Freeport-McMoRan Copper and Gold Inc. continues to ramp up activity at its mines to take advantage of high copper prices, which boosted its third-quarter profits.

Freeport increased production at its mines in Indonesia, South America and Africa in the past quarter, while production dropped at its North American mines.

The company is investing heavily into North America, including Arizona, but production for the region fell 12 percent for the quarter because of maintenance at a crusher at the Bagdad mine west of Prescott and lower ore grades at Safford, in Graham County, officials said.

Production at its Morenci mine in Greenlee County is being increased to 635,000 metric tons of ore per day from about 450,000 per day, although production for the quarter was down slightly from a year earlier.

The mill that was stopped at the Morenci mine in 2008 amid low copper prices also has been restarted.

"We are placing our highest priority in growth and expansion plans," President and CEO Richard Adkerson said.

Freeport also is spending $40 million and has resumed mining at its Miami mine east of Phoenix in Gila County, where activity was previously reduced.

Freeport is spending $150 million at the Safford property to build a sulfur burner, which will produce acid the company uses in some of its copper production.

"This will allow us to manage our sulfur purchases," Adkerson said. "Construction is going very well."

It also restarted its Chino mine in New Mexico that was mostly shuttered in 2008 except for limited copper production from piles of ore that had already been dug up. That project is costing $150 million.

"The economics for this are very attractive at today's copper prices," Adkerson said. "It's not until 2013 until you see the full impact of Chino (in Freeport's operating results). It takes time to ramp up. There is a significant amount of time from when you make a decision to make an investment, make the investment and see the results."

Third-quarter profits of $1.2 billion, or $2.49 per share, were a 27 percent improvement over the same quarter last year, when profit was $925 million, or $2.07 per share.

The company dug slightly more copper from its mines around the world during the quarter, but the real boost came from higher realized copper prices. Freeport sold its copper for an average of $3.50 per pound during the quarter, compared with $2.75 per pound in the same quarter last year.

That 75-cent difference is considerable, as the company produced 1.04 billion pounds of the metal during the quarter.

"The financial results speak for themselves," Adkerson said.

Gold production from its Indonesian mine declined but the company reported that was planned as part of the mine's sequencing.

Freeport's revenue rose 24 percent to $5.2 billion for the quarter.

Analysts, who usually focus on ongoing operations, expected the company to earn $2.12 per share on revenue of $4.6 billion.

Adkerson said prices are high because global copper demand is strong, including in the U.S., "even in the face of weak economic data and consumer confidence."

"There was a lot of expectation this year we would see a drop-off in imports of copper to China, and that has not happened," he said. "The country continues to invest in infrastructure. We are very encouraged by the Chinese story."

The company also announced its annual dividend would increase to $2 per share from $1.20 per share, with the first quarterly payment expected Feb. 1.

Analysts who follow Freeport's stock were pleased with the results, asking many questions during a conference call with executives as to whether the company would spend its cash on acquisitions, new projects or dividends.

"The (Barclays Capital) global metals and mining team continues to regard Freeport as the best way to gain exposure to what we believe is substantial upside risk to the copper price," Barclays analyst Peter Ward wrote in a Thursday memo.

Freeport shares closed Thursday up $1.08, or 1.13 percent, to $96.43.

Ward has a $130 price target on the stock. "We do not believe that Freeport's current share price appropriately discounts a high probability of sustainably stronger copper prices," he wrote.

by Ryan Randazzo The Arizona Republic Oct. 22, 2010 12:00 AM




Freeport third-quarter profit up 27%