Freeport-McMoRan Earnings Surpass Estimates on Energy Sales

Apr 24, 2014 9:47 am ET

(Updates with copper sales in fifth paragraph)

April 24 (Bloomberg) -- Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, reported first-quarter earnings that beat analysts’ estimates as energy sales helped offset lower copper sales from Indonesia.

Net income fell to $510 million, or 49 cents a share, from $648 million, or 68 cents, a year earlier, the Phoenix-based company said today in a statement. Profit excluding one-time items topped the 42-cent average of 20 estimates compiled by Bloomberg. Sales climbed to $4.99 billion from $4.58 billion.

Freeport, which also produces gold and molybdenum, last year acquired two oil and natural gas companies in transactions valued at about $9 billion, excluding assumed debt. The energy unit sold 16.1 million barrels of oil equivalent in the first quarter, beating the company’s January 2014 forecast of 15.3 million.

“Our first-quarter results reflect solid operating performance in our North America, South America and Africa mining operations and a meaningful contribution from our oil and gas business, partly offset by the effects of reduced output from Indonesia and lower copper prices,” the company said in the statement. The increased oil and gas output mainly reflects “strong performance in the Gulf of Mexico and stable production from California,” Freeport said.

Lower Costs

Freeport’s results were also helped by lower average costs to produce copper. Copper cash costs were $1.54 per pound, compared with $1.57 per pound a year earlier. That excludes 6 cents per pound of fixed costs related to the impact of export restrictions on the company’s Indonesian operations, Freeport said. Jorge Beristain, an analyst at Deutsche Bank AG, had estimated net cash costs of $1.78 per pound.

The company’s copper sales in the first quarter were 871 million pounds, compared with 954 million a year earlier and its January estimate of 1 billion. The average of three analysts’ estimates was for 904.7 million pounds. The company reported gold sales of 187,000 ounces, compared with 214,000 in the first quarter of 2013.

Lower copper and gold sales were mainly caused by reduced volumes from Indonesia, where the company cut operating levels at its Grasberg mine by about 50 percent and is in talks with the government to resolve a dispute after the country introduced new restrictions and duties on mineral exports.

Export Approval

The company is still waiting for authorization from Indonesia to export copper concentrate, a semi-processed raw material, Freeport said. Indonesia’s Energy and Mineral Resources Ministry had planned to issue a recommendation to the Trade Ministry today for units of Freeport and Newmont Mining Corp. to be allowed to resume concentrate exports, R. Sukhyar, director general of coal and minerals at the energy ministry, said in Jakarta.

Freeport reduced its 2014 sales forecasts to 4.3 billion pounds of copper and 1.6 million ounces of gold, from 4.4 billion and 1.7 million ounces in January. The estimates assume exports resume from Indonesia next month.

The company raised its forecast for oil and gas sales to 64.2 million barrels of oil equivalent, from 60.7 million.

Freeport said it’s continuing to consider options to reduce debt, which more than doubled following the acquisitions last year of Plains Exploration & Production Co. and McMoRan Exploration Co. Consolidated debt was $20.9 billion at the end of the first quarter, the company said today.

Freeport “will seek opportunities to accelerate its deleveraging plans through potential asset sales, joint venture transactions or other monetizations and is engaged in discussions with a number of third parties to achieve this objective.”

The company may also take further steps to reduce spending and other costs “in response to market conditions,” it said.

The average copper price in the quarter was $3.19 a pound for futures on the Comex in New York, 12 percent lower than the same period of 2013. Gold averaged $1,292 an ounce in the quarter, 21 percent less than a year earlier.

--With assistance from Aoyon Ashraf in Toronto.