Freeport-McMoRan Reports Q3 Copper Sales Of 932 Million Pounds

PHOENIX, AZ Freeport-McMoRan Inc. President and CEO said, "We are pleased to report strong quarterly results throughout our global operations and a positive outlook for future results. Our focus on cost management combined with free cash flow generation have enabled us to continue to strengthen our balance sheet and successfully execute our strategy. Our shareholders are well positioned to benefit from our highly attractive portfolio of copper assets and improving copper market conditions. We are encouraged by continued progress in our active negotiations with the Indonesian government regarding our long-term operating rights in Indonesia and remain focused on managing our long-term business for the benefit of shareholders."

Third-quarter 2017 copper sales of 932 million pounds were slightly below the July 2017 estimate of 940 million pounds and 16 percent lower than third-quarter 2016 sales of 1.1 billion pounds. The variance to the year-ago period primarily reflects anticipated lower ore grades in North America and Indonesia and the timing of shipments. Gold sales in the third quarter of 355 thousand ounces were lower than the July 2017 estimate of 375 thousand ounces, primarily reflecting the timing of shipments. Third-quarter 2017 gold sales were higher than third-quarter 2016 sales of 317 thousand ounces, primarily reflecting anticipated higher ore grades from Indonesia. The third-quarter 2017 molybdenum sales of 22 million pounds approximated the July 2017 estimate of 22 million pounds and were higher than third-quarter 2016 sales of 16 million pounds.

Sales volumes for the year 2017 are expected to approximate 3.7 billion pounds of copper, 1.6 million ounces of gold and 94 million pounds of molybdenum, including 1.0 billion pounds of copper, 625 thousand ounces of gold and 23 million pounds of molybdenum in fourth-quarter 2017.

FCX operates seven open-pit copper mines in North America – Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. In addition to copper, molybdenum concentrate, gold and silver are also produced by certain of FCX’s North America copper mines. All of the North America mining operations are wholly owned, except for Morenci. FCX records its 72 percent undivided joint venture interest in Morenci using the proportionate consolidation method.

The company also has significant undeveloped reserves and resources in North America and a portfolio of potential long-term development projects. Future investments will be undertaken based on the results of economic and technical feasibility studies, and are dependent on market conditions. FCX continues to study opportunities to reduce the capital intensity of its long-term development projects. Through exploration drilling, FCX has identified a significant resource at its wholly owned Lone Star project located near the Safford operation in eastern Arizona. Initial production from the Lone Star oxide ores could begin in 2021 using existing infrastructure at the adjacent Safford operation. Total estimated capital costs, including mine equipment and pre-production stripping, approximates $850 million. Production from the Lone Star oxide ores would average approximately 200 million pounds of copper per year with an approximate 20-year mine life. The project would also advance the potential for development of a larger-scale district opportunity. FCX has obtained regulatory approvals for this project and is assessing the timing to commence pre-stripping activities. FCX is conducting additional drilling as it continues to evaluate longer term opportunities available from the significant sulfide potential in the Lone Star/Safford minerals district.

North America’s consolidated copper sales volumes of 347 million pounds in third-quarter 2017 were lower than third-quarter 2016 sales of 458 million pounds, primarily reflecting anticipated lower ore grades and the timing of shipments. North America copper sales are estimated to approximate 1.5 billion pounds for the year 2017, compared with 1.8 billion pounds in 2016.

The company operates two copper mines in South America – Cerro Verde in Peru (in which FCX owns a 53.56 percent interest) and El Abra in Chile (in which FCX owns a 51 percent interest). These operations are consolidated in FCX’s financial statements. In addition to copper, the Cerro Verde mine produces molybdenum concentrate and silver.

The Cerro Verde expansion project commenced operations in September 2015 and achieved capacity operating rates during first-quarter 2016. Cerro Verde’s expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. The project expanded the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day. FCX continues to evaluate a major expansion at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results at El Abra indicate a significant sulfide resource, which could potentially support a major mill project similar to facilities recently constructed at Cerro Verde. Future investments will depend on technical studies, which are being advanced, economic factors and market conditions.

In August 2017, FCX and the Indonesian government reached an understanding on a framework that would resolve PT-FI’s long-term operating rights. This framework, which requires definitive documentation and FCX Board of Directors and partner approvals, includes (i) conversion from the Contract of Work (COW) to a new operating license (IUPK) providing PT-FI with long-term operating rights through 2041, (ii) Indonesian government certainty of fiscal and legal terms during the term of the IUPK, (iii) PT-FI commitment to construct a new smelter in Indonesia within five years of reaching a definitive agreement, and (iv) divestment of 51 percent of PT-FI shares to Indonesian participants at fair market value. The divestment will be structured so that FCX will retain control over operations and governance of PT-FI. The parties continue to negotiate documentation on a comprehensive agreement for PT-FI’s extended operations and to reach agreement on timing, process and governance matters relating to the divestment. The parties have a mutual objective of completing the required documentation during 2017. In October 2017, the Indonesian government extended PT-FI’s export rights to December 31, 2017, while negotiations to document a long-term agreement based on the agreed framework continue. Until a definitive agreement is reached, PT-FI has reserved all rights under its COW, including pursuing arbitration under the dispute resolution provisions.

PT-FI is currently mining the final phase of the Grasberg open pit, which contains high copper and gold ore grades. PT-FI expects to mine high-grade ore over the next several quarters prior to transitioning to the Grasberg Block Cave underground mine in early 2019. PT-FI has several projects in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to produce large-scale quantities of copper and gold following the transition from the Grasberg open pit. Assuming a definitive agreement is reached to support PT-FI’s long-term investment plans, estimated annual capital spending on these projects would average $1.0 billion per year ($0.8 billion per year net to PT-FI) over the next five years. Considering the long-term nature and size of these projects, actual costs could vary from these estimates. In response to market conditions and Indonesian regulatory uncertainty, timing of these expenditures continues to be reviewed. If PT-FI is unable to reach a definitive agreement with the Indonesian government on its long-term mining rights, FCX intends to reduce or defer investments significantly in its underground development projects and pursue arbitration under its COW.