UPDATE: Freeport-McMoRan 2Q Net Income Doubles As Metal Prices Shine - WSJ.com

NEW YORK (Dow Jones)--Freeport-McMoRan Copper & Gold Inc.'s (FCX) second-quarter earnings more than double on soaring metal prices and double-digit sales growth.

Freeport posted a net profit of $1.37 billion, or $1.43 a share, up from $664 million, or 70 cents a share, a year earlier. Revenue rose 50% to $5.81 billion.

The world's largest listed copper producer reported strong results in recent quarters on surging copper prices, which continue to draw support from China's strong demand for raw materials.

Meanwhile, record-high gold prices have become the company's largest revenue source, as an uncertain global economic landscape thrusts investors to seek safety in the precious metal.

"One of the reasons that the [copper] price is so strong throughout the industry is that [raising production] takes time," Chief Executive Richard Adkerson said on the company's conference call.

Freeport has doubled its exploration budget from last year to $250 million and the company is pursuing a number of expansion projects across its mining operations. Freeport expects to boost its copper output to a forecast 4.2 billion pounds in 2013, from an expected 3.9 billion pounds in 2011.

This includes a recently completed ramp up of mining and milling rates at the its flagship Morenci copper mine in Arizona. Morenci's mining rates increased to 635,000 metric tons a day and mill rates to 50,000 metric tons a day.

"Morenci, which many thought is on its last legs, is really about half way through its life," Adkerson said, adding that the company is targeting an additional copper output of 225 million pound a year at the mine by 2014. The company expects to complete a feasibility study on the expansion by this year end.

A similar expansion is planned for the Cerro Verde copper mine in Peru, where mining rates will more than double to 850,000 tons a day and milling rates will be tripled to 360,000 tons a day. The expansion will cost around $3.5 billion and increase Cerro Verde's output to 600 million pounds of copper and 15 million pounds of molybdenum a year. Freeport owns 51% of Cerro Verde.

Freeport says plans for the expansion are on track despite a surprise change in government in early June when Peru's Ollanta Humala won the presidential runoff on a platform of higher mining taxes.

"The election was a surprise. Humala wasn't expected to win," Adkerson said, adding "we're not discouraged with where we stand."

At the Grasberg copper and gold mine in Indonesia, Freeport is timing the switch from open-pit mining to underground operations in the coming years.

"It's not a radical change from what we're experiencing now, and it's still a high-volume, low-cost asset," Adkerson said.

Grasberg output suffered a setback due to an eight-day illegal strike. Around 35 million pounds of copper and 60,000 ounces of gold production were lost, which is reflected in the company's production data.

"This is the first stoppage we've had of this kind in over 40 years," Adkerson said. "We've always been able to cooperate with our workers...we pay the highest levels of worker compensation in Indonesia," he added.

Freeport has began talks with the union on a new two-year labor agreement. The current deal expires in October, Adkerson said.

The company has also restarted its Climax molybdenum mine in Colorado during the second quarter. Molybdenum is used to make stainless steel harder and more resistant to corrosion and keeps cutlery from bending and car exhausts from corroding.

Construction at Climax was suspended in October 2008 in response to falling molybdenum prices and a steep decline in steel demand. The mine, near Leadville, Colo., is the world's largest and cheapest molybdenum mine.

"We have made the decision to restart Climax...we are now taking steps to be able to start up the operations," ramping up output to 20 million pounds of molybdenum a year in 2013, Adkerson said.

The decision to restart the mine comes as molybdenum prices have yet to recover to prerecession highs, and at a time when a number of Freeport's competitors are also eyeing molybdenum projects.

"We want to get out ahead of some of these projects to help us maintain our market share and market leadership," Adkerson said.

Molybdenum ore is found both individually and in combination with copper, thus the metal is often produced as a byproduct of copper mining.

Adkerson described Climax as the "best molybdenum development project in the world" and said the mine will support Freeport's "leading position as the world's lowest cost and largest moly[bdenum] producer." Freeport-McMoRan, which also mines molybdenum at its Henderson underground mine, is the world's largest producer of molybdenum, and the world's largest listed copper-mining company.

Engineering work at the mine is complete, and construction is 75% complete, Adkerson said.

Freeport forecasts annual molybdenum sales to increase to 77 million pounds in 2011 and 80 million pounds in 2012, from 67 million pounds in 2010, as the Climax project comes on line.

Strong earnings prompted the company in April to declare a 50-cent per-share special dividend on top of its normal quarterly payments. That came in addition to last year's $1-a-share special dividend and a two-for-one stock split. Shares have more than quintupled since December 2008.

The most recent quarter's results include a charge of six cents a share on early extinguishment of debt. The year-ago period included a five-cent charge a share on early extinguishment of debt.

Analysts polled by Thomson Reuters most recently forecast earnings of $1.33 a share on revenue of $5.61 billion.

Copper production grew 4% while gold production rose 11%. Molybdenum output increased 29%.

Realized prices of gold were 22% higher, while copper prices were up 38%.

Shares were recently down 69 cents, or $1.20, at $55.23. Through Wednesday's close, the stock has climbed 69% over the past 12 months.

by Tatyana Shumsky Dow Jones NewsWires The Wall Street Journal Jul 21, 2011




UPDATE: Freeport-McMoRan 2Q Net Income Doubles As Metal Prices Shine - WSJ.com