Freeport-McMoRan Copper & Gold Inc. Reports Third-Quarter and Nine-Month 2012 Results

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Freeport-McMoRan Copper & Gold Inc. Reports Third-Quarter and Nine-Month 2012 Results

PHOENIX--(BUSINESS WIRE)-- Freeport-McMoRan Copper & Gold Inc. (NYS: FCX) :

  • Net income attributable to common stock for third-quarter 2012 was $824 million, $0.86 per share, compared with net income of $1.1 billion, $1.10 per share, for third-quarter 2011. Net income attributable to common stock for the first nine months of 2012 was $2.3 billion, $2.41 per share, compared with $3.9 billion, $4.10 per share, for the first nine months of 2011.
  • Consolidated sales from mines for third-quarter 2012 totaled 922 million pounds of copper, 202 thousand ounces of gold and 21 million pounds of molybdenum, compared with 947 million pounds of copper, 409 thousand ounces of gold and 19 million pounds of molybdenum for third-quarter 2011.
  • Consolidated sales from mines for the year 2012 are expected to approximate 3.6 billion pounds of copper, 1.0 million ounces of gold and 82 million pounds of molybdenum, including 930 million pounds of copper, 255 thousand ounces of gold and 20 million pounds of molybdenum for fourth-quarter 2012. Consolidated sales from mines for the year 2013 are expected to total 4.3 billion pounds of copper, 1.4 million ounces of gold and 90 million pounds of molybdenum.
  • Consolidated unit net cash costs (net of by-product credits) averaged $1.62 per pound of copper for third-quarter 2012, compared with $0.80 per pound for third-quarter 2011. Based on current 2012 sales volume and cost estimates and assuming average prices of $1,700 per ounce for gold and $11 per pound for molybdenum for fourth-quarter 2012, consolidated unit net cash costs (net of by-product credits) are estimated to average approximately $1.50 per pound of copper for the year 2012.
  • Operating cash flows totaled $526 millionfor third-quarter 2012 (net of $765 million in working capital uses and other tax payments) and $2.5 billion (net of $1.5 billion in working capital uses and other tax payments) for the first nine months of 2012, compared with $1.8 billion for third-quarter 2011 (including $256 million of working capital sources and other tax payments) and $5.9 billion (net of $126 million in working capital uses and other tax payments) for the first nine months of 2011. Based on current 2012 sales volume and cost estimates and assuming average prices of $3.70 per pound for copper, $1,700 per ounce for gold and $11 per pound for molybdenum for fourth-quarter 2012, operating cash flows are estimated to approximate $4.0 billion for the year 2012 (net of an estimated $1.4 billion in working capital uses and other tax payments).
  • Capital expenditures totaled $971 million for third-quarter 2012 and $2.5 billion for the first nine months of 2012, compared with $717 million for third-quarter 2011 and $1.7 billion for the first nine months of 2011. Capital expenditures are expected to approximate $3.6 billion for the year 2012, including $2.2 billion for major projects and $1.4 billion for sustaining capital.
  • At September 30, 2012, consolidated cash totaled $3.7 billionand total debt totaled $3.5 billion.

Freeport-McMoRan Copper & Gold Inc. (NYS: FCX) reported third-quarter 2012 net income attributable to common stock of $824 million, $0.86 per share, compared with $1.1 billion, $1.10 per share, for third-quarter 2011. Third-quarter 2012 net income included net credits for adjustments to Cerro Verde's deferred income taxes and to FCX's environmental obligations and related litigation reserves totaling $168 million ($0.18 per share), compared with net charges totaling $73 million ($0.07 per share) for third-quarter 2011. For the first nine months of 2012, FCX reported net income attributable to common stock of $2.3 billion, $2.41 per share, compared with $3.9 billion, $4.10 per share, for the first nine months of 2011.

James R. Moffett, Chairman of the Board, and Richard C. Adkerson, President and Chief Executive Officer, said, "Our global team continues to focus on execution of our plans to achieve efficient and safe production, effective cost management, investment in financially attractive projects and identification of additional reserves and resources. Our third quarter results reflect production growth in North America and Africa, offset by anticipated lower ore grades in Indonesia. As we look forward, we are on track to achieve meaningful increases in our production of copper as we return to higher grade ores at Grasberg and through the execution of brownfield expansions in the Americas and Africa, expected to add one billion pounds of copper annually over the next three years. We are positive about the long-term fundamentals of the metals we produce, our geographically diverse portfolio of large-scale operations with long-lived reserves and mineral resources and the strong track record of our team to execute our plans."

SUMMARY FINANCIAL AND OPERATING DATA

 Three Months Ended  Nine Months Ended 
September 30,September 30,
 2012  20112012  2011
Financial Data (in millions, except per share amounts)
Revenuesa$4,417$5,195$13,497$16,718
Operating income$1,411c$2,150c$4,456c$7,843c
Net income attributable to common stockb$824c,d$1,053c,d$2,298c,d,e$3,920c,d,e
Diluted net income per share of common stock$0.86c,d$1.10c,d$2.41c,d,e$4.10c,d,e
Diluted weighted-average common shares outstanding

953

955

953

955
Operating cash flows$526f$1,835f$2,509f$5,874f
Capital expenditures$971$717$2,518$1,749
 
Mining Operating Data
Copper (millions of recoverable pounds)
Production

938

951

2,658

2,868
Sales, excluding purchases

922

947

2,676

2,875
Average realized price per pound$3.64$3.60$3.63$3.94
Site production and delivery costs per poundg$2.03$1.71$2.00$1.65
Unit net cash costs per poundg$1.62$0.80$1.46$0.84
Gold (thousands of recoverable ounces)
Production

204

385

7071,202
Sales, excluding purchases

202

409

7561,245
Average realized price per ounce$1,728$1,693$1,666$1,565
Molybdenum (millions of recoverable pounds)
Production

20

23

6165
Sales, excluding purchases

21

19

6260
Average realized price per pound$13.62$16.34$14.79$17.57
 

a. Includes the impact of adjustments to provisionally priced sales recognized in prior periods (refer to the "Consolidated Statements of Income" on page IV for further discussion).

b. FCX defers recognizing profits on intercompany sales until final sales to third parties occur (refer to the "Consolidated Statements of Income" on page IV for a summary of net impacts from changes in these deferrals).

c. Includes net (credits) charges for adjustments to environmental obligations and related litigation reserves totaling $(85) million ($(68) million to net income attributable to common stockholders or $(0.07) per share) for third quarter 2012, $29 million ($23 million to net income attributable to common stockholders or $0.02 per share) for third-quarter 2011, $(19) million ($(16) million to net income attributable to common stockholders or $(0.02) per share) for the first nine months of 2012 and $78 million ($63 million to net income attributable to common stockholders or $0.07 per share) for the first nine months of 2011.

d. The 2012 periods include a net credit of $100 million, net of noncontrolling interests ($0.11 per share) associated with adjustments to Cerro Verde's deferred income taxes. The 2011 periods include a charge of $50 million, net of noncontrolling interests ($0.05 per share) for additional taxes associated with Cerro Verde's election to pay a special mining burden during the remaining term of its current stability agreement. For further discussion refer to the supplemental schedule, "Provision for Income Taxes," on page XXVI, which is available on FCX's website, "www.fcx.com."

e. Includes losses on early extinguishment of debt totaling $149 million ($0.16 per share) for the first nine months of 2012 and $60 million ($0.06 per share) for the first nine months of 2011.

f. Includes working capital (uses) sources and other tax payments of $(765) million for third-quarter 2012, $256 million for third-quarter 2011, $(1.5) billion for the first nine months of 2012 and $(126) million for the first nine months of 2011.

g. Reflects per pound weighted-average site production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, excluding net noncash and other costs. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page VII, which is available on FCX's website, "www.fcx.com."

OPERATIONS

Consolidated. Third-quarter 2012 consolidated copper sales of 922 million pounds were higher than the July 2012 estimate of 885 million pounds primarily reflecting higher production from North America and Africa and the timing of sales in South America. Third-quarter 2012 consolidated gold sales of 202 thousand ounces were lower than the July 2012 estimate of 225 thousand ounces primarily because of changes to mine plans at the Grasberg mine in Indonesia, which delayed access to higher grade material, and a slower than expected ramp-up at the Deep Ore Zone (DOZ) underground mine. Third-quarter 2012 consolidated copper and gold sales were lower than third-quarter 2011 sales of 947 million pounds of copper and 409 thousand ounces of gold primarily reflecting lower ore grades in Indonesia, partly offset by increased sales in North America and Africa.

Third-quarter 2012 consolidated molybdenum sales of 21 million pounds were higher than the July 2012 estimate of 20 million pounds and third-quarter 2011 sales of 19 million pounds.

Consolidated sales from mines for the year 2012 are expected to approximate 3.6 billion pounds of copper, 1.0 million ounces of gold and 82 million pounds of molybdenum, including 930 million pounds of copper, 255 thousand ounces of gold and 20 million pounds of molybdenum for fourth-quarter 2012. Expected gold sales for 2012 are approximately 50,000 ounces less than the July 2012 estimates because of lower gold production at Grasberg.

As anticipated, consolidated average unit net cash costs (net of by-product credits) of $1.62 per pound of copper in third-quarter 2012 were higher than unit net cash costs of $0.80 per pound in third-quarter 2011 primarily because of lower volumes in Indonesia (Indonesia unit net cash costs were $1.65 per pound in third-quarter 2012, compared with a net credit of $0.48 per pound in third-quarter 2011), lower by-product credits and higher mining costs.

Quarterly unit net cash costs will vary with fluctuations in sales volumes and average realized prices for gold and molybdenum. Assuming average prices of $1,700 per ounce of gold and $11 per pound of molybdenum for fourth-quarter 2012 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for FCX's copper mining operations are expected to average approximately $1.50 per pound of copper for the year 2012. The impact of price changes for fourth-quarter 2012 on consolidated unit net cash costs would approximate $0.004 per pound for each $50 per ounce change in the average price of gold and $0.004 per pound for each $2 per pound change in the average price of molybdenum. Assuming consistent commodity price assumptions, unit net cash costs for 2013 are expected to be lower than 2012 because of projected increased copper and gold volumes at Grasberg.

North America Copper Mines. FCX operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Tyrone and Chino in New Mexico. All of the North America mining operations are wholly owned, except for Morenci. FCX records its 85 percent joint venture interest in Morenci using the proportionate consolidation method. In addition to copper, certain of FCX's North America copper mines (Sierrita, Bagdad, Morenci and Chino) also produce molybdenum concentrates.

Operating and Development Activities. FCX has completed projects to increase production at its North America copper mines, including restarting certain mining and milling operations and increasing mining rates at Morenci and Chino. Ramp up activities at Chino are continuing, with annual production of approximately 250 million pounds of copper targeted in 2014. FCX continues to evaluate a number of opportunities to invest in additional production capacity at several of its North America copper mines. Exploration results in recent years indicate the potential for significant additional sulfide development in North America.

At Morenci, FCX is engaged in a project to expand mining and milling capacity to process additional sulfide ores identified through exploratory drilling. The approximate $1.4 billion project is targeting incremental annual production of approximately 225 million pounds of copper in 2014 through an increase in milling rates from the current level of 50,000 metric tons of ore per day to approximately 115,000 metric tons of ore per day and mining rates from the current level of 700,000 short tons per day to 900,000 short tons per day. FCX has received material permits and has commenced engineering and initial construction, and procurement activities are in progress.

Operating Data. Following is summary consolidated operating data for the North America copper mines for the third quarters and first nine months of 2012 and 2011:

 Three Months Ended  Nine Months Ended
September 30,September 30,
 2012  20112012  2011
Copper (millions of recoverable pounds)
Production3373221,005917
Sales, excluding purchases3313071,030914
Average realized price per pound$3.58$4.05$3.66$4.19
 
Molybdenum (millions of recoverable pounds)
Productiona8102727
 
Unit net cash costs per pound of copper:
Site production and delivery, excluding adjustments$1.97$1.86$1.88$1.80
By-product credits, primarily molybdenumb(0.32)(0.55)(0.37)(0.52)
Treatment charges 0.12  0.11  0.12  0.10 
Unit net cash costsc$1.77 $1.42 $1.63 $1.38 
 

a. Reflects molybdenum production from certain of the North America copper mines. Sales of molybdenum are reflected in the Molybdenum division (refer to page 9).

b. Molybdenum credits reflect volumes produced at market-based pricing and also include tolling revenues at Sierrita.

c. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page VII, which is available on FCX's website, "www.fcx.com."

Consolidated copper sales volumes from North America of 331 million pounds in third-quarter 2012 were higher than third-quarter 2011 sales of 307 million pounds primarily reflecting increased production at the Chino mine.

FCX expects sales from the North America copper mines to approximate 1.3 billion pounds of copper for the year 2012, compared with 1.2 billion pounds of copper in 2011.

Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.77 per pound of copper in third-quarter 2012 were higher than unit net cash costs of $1.42 per pound in third-quarter 2011 reflecting lower molybdenum credits and increased mining rates, partly offset by higher copper volumes.

FCX estimates that average unit net cash costs (net of by-product credits) for the North America copper mines would approximate $1.67 per pound of copper for the year 2012, based on current sales volume and cost estimates and assuming an average molybdenum price of $11 per pound for fourth-quarter 2012. North America's average unit net cash costs for 2012 would change by approximately $0.01 per pound for each $2 per pound change in the average price of molybdenum for fourth-quarter 2012.

South America Mining. FCX operates four copper mines in South America - Cerro Verde in Peru and El Abra, Candelaria and Ojos del Salado in Chile. FCX owns a 53.56 percent interest in Cerro Verde, a 51 percent interest in El Abra, and an 80 percent interest in both the Candelaria and Ojos del Salado mining complexes. All operations in South America are consolidated in FCX's financial statements. South America mining includes open-pit and underground mining. In addition to copper, the Cerro Verde mine produces molybdenum concentrates, and the Candelaria and Ojos del Salado mines produce gold and silver.

Operating and Development Activities. During 2011, FCX commenced production from El Abra's sulfide ores. Production from the sulfide ore is expected to approximate 300 million pounds of copper per year, replacing the currently depleting oxide copper production.

At Cerro Verde, FCX is engaged in a large-scale concentrator expansion. The approximate $4.4 billion project would expand the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. An environmental impact assessment was filed in fourth-quarter 2011. Permitting is in an advanced stage and engineering and procurement of long-lead items is in progress. FCX expects to commence construction in 2013.

FCX is also engaged in pre-feasibility studies for a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results at El Abra indicate the potential for a significant sulfide resource.

Operating Data. Following is summary consolidated operating data for the South America mining operations for the third quarters and first nine months of 2012 and 2011:

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 Three Months Ended  Nine Months Ended
September 30,September 30,
 2012  20112012  2011
Copper (millions of recoverable pounds)
Production311325908969
Sales308322895965
Average realized price per pound$3.68$3.45$3.63$3.82
 
Gold (thousands of recoverable ounces)
Production20255773
Sales21235672
Average realized price per ounce$1,736$1,664$1,678$1,556
 
Molybdenum (millions of recoverable pounds)
Productiona2268