Freeport issues Q2 production warning

Heavy rainfall at its Grasberg mine in Irian Jaya, Indonesia, and a delay in accessing higher grade ore has forced Freeport McMoRan Copper & Gold (FCX-N) to significantly lower its forecasts for production and sales volumes for the first half of the year.

The New Orleans-based major says that while it has not suffered significant property damage due to the severe weather, the rains did hinder production and delay concentrate shipments.

At the same time, there were also delays in accessing anticipated higher-grade ore that will now be exploited over the next few quarters.

As a result, Freeport expects to report second-quarter sales of about 350 million lbs. copper (compared with a previously projected 400 million lbs.) and about 390,000 oz. gold (previously projected to be 550,000 oz.).

For the six months ended June 30, 2002, Freeport estimates copper sales of about 650 million lbs. and gold sales of about 730,000 ounces.

When Freeport releases its second-quarter financials on July 18, it hopes to have received some relief in the form of higher realized copper and gold prices.

Looking forward, Freeport expects significantly higher copper and gold production for the remainder of 2002 and into next year, which will allow the company to meet its beginning-of-the-year sales projections of 1.5 billion lbs. copper and 2.1 million oz. gold.

The company also warned that its second-quarter net income will be further hit by the weakening of the U.S. dollar in relation to the euro, which forces Freeport to translate pension obligations of its Spanish subsidiary, Atlantic Copper, to a higher U.S. dollar value and to recognize a non-cash charge of approximately US$9 million (or US6 per share) to the second quarter net income.