High metal prices hike profit for Freeport

Phoenix-based Freeport-McMoRan Copper and Gold Inc. posted a banner year in 2010 because of high metal prices, which has the company ramping up production at several mines.

The company reported Thursday that profit for the fourth quarter was up 50 percent from a year earlier and that profit for the year was $5.5 billion, up 57 percent from 2009.

Freeport earned $3.25 per share during the quarter, topping the average analyst estimate of $2.88.

But the company's stock price still fell Thursday after the company said that copper and gold production would drop this year as it digs through a low concentration of ore at its major mine in Indonesia.

Commodities in general fell Thursday because of fears that demand in China could slow. Activity there has been fueling metal prices.

The company expects to produce 3.85 billion pounds of copper this year, compared with 3.9 billion in 2010, and 1.4 million ounces of gold, down from 1.9 million ounces in 2010.

The company's copper production in Arizona is going to increase this year, officials said, with previously announced expansions at its Morenci, Miami and Safford operations.

"We are making great progress in the restart-optimization projects we have previously talked about," CEO Richard Adkerson said.

"We also are aggressively working on identifying major growth projects. We have a very significant opportunity to create value for our company by investing in our existing developments and reserves."

Copper prices are down slightly from the $4.49-per-pound record they hit earlier this month. The metal closed at $4.27 a pound Thursday.

"With copper prices in excess of $4 . . . we are earning extraordinary margins," Adkerson said. "We would like to turn on the spigot and produce more copper today. We can't do that. The time it takes to drill for resources, get permits, get water and power, it is a double-edged sword. We can't (produce more quickly), and others can't either, and that leads to high prices."

Freeport could spend $8 billion to $10 billion in the next five years on expansions and new mills, including in Arizona, officials said.

Stock analysts on a conference call with Freeport officials Thursday asked if the company would use some of its cash to buy rivals.

"I'm just wondering what Freeport's thoughts are for (mergers and acquisitions), and would you remain copper-focused?" asked analyst Jorge Beristain from Deutsche Bank.

Adkerson replied that although Freeport thoughtfully considers many buyout offers, the company has significant copper reserves around its existing mines that offer the best expansion opportunities.

In a positive sign for its Arizona mines, Adkerson said that of the new copper reserves Freeport discovered and listed on its balance sheets in 2010, about 80 percent came from the U.S.

"You have to go back many years to hear people in the industry and investment community talk about the poor assets located in the southwest U.S.," Adkerson said. "That simply is not the case in the context of the markets we face today."

Analyst Charles Bradford of Affiliated Research Group asked if Freeport executives were concerned about states raising their taxes or royalties on mining amid the weak economy.

Adkerson responded that he was meeting Thursdayafternoon with Arizona Gov. Jan Brewer to talk about the company's Arizona expansions.

"Here in Arizona, where most of our significant operations are, there is a significant budget deficit," he said. "But the real focus is on job creation."

He also said that because Freeport owns most of its properties, rather than operate on federal land, changes being discussed for federal mining rules won't apply to many of the company's mines.

Freeport shares closed Thursday down $4.26, or 3.7 percent, at $110.90.

by Ryan Randazzo The Arizona Republic Jan. 21, 2011 12:00 AM





High metal prices hike profit for Freeport