Lower output whacks Freeport earnings

True to its warning two weeks ago, Freeport McMoRan Copper & Gold‘s (FCX-N) bottom line has been heavily dented by heavy rainfall and lower head grades at its Grasberg mine in Indonesia.

For the second quarter, the company reports net income applicable to common stock of US$5.6 million (US4 cents per share), down sharply from the net income of US$36.3 million (US25 cents) during the year-ago quarter.

Revenues plummeted to US$408,000 from US$538,259 between the two periods, while operating cash flow fell to US$132 million.

(Freeport’s 2002 results reflect its 90.6% interest in its Indonesian mining unit, PT Freeport Indonesia (PT-FI), compared with a its 85.9% stake during 2001.)

PT-FI recorded sales of 350.4 million lbs. copper and 393,700 oz. gold during the second quarter, compared with 389.8 million lbs. copper and 813,600 oz. gold during the same period last year.

Average unit net cash production costs, including gold and silver credits, were US18 per lb. copper during the second quarter, compared to US0 per lb. for the second quarter of 2001.

For the six months ended June 30, 2002, Freeport reports net income applicable to common stock of US$1.4 million on US$801 million in revenues, compared with US$74.3 million on US$985 million in revenues during the same period last year.

As detailed in its earnings warning, Freeport is blaming the disappointing results on rains that hindered production and delayed concentrate shipments, as well as on delays in mining access to higher-grade material.

These higher-grade portions of the Grasberg pit are now being mined, which should allow Freeport to have a much stronger second half.

“Ore grades and sales volumes are expected to be much higher for the second half of 2002 and we expect the second half gold sales to be twice the first half levels, which will significantly enhance our second half results,” said Chairman James Moffett in a release.

For the third quarter, PT-FI estimates sales of 420 million lbs. copper and 800,000 oz. gold, and total sales for 2002 of 1.5 billion lbs. copper and 2.2 million oz. gold.

Freeport expects to generate about US$500 in operating cash flow during the second half of 2002, which allow the company to reduce its net debt load of US$2.6 billion by over US$225 million.

Atlantic Copper, Freeport’s 100%-owned Spanish smelting unit, treated 242,500 tonnes of concentrate in the second quarter, up from the 195,300 tonnes treated in the year-ago quarter, when there was a scheduled, month-long maintenance shutdown.

The sinking U.S. dollar forced Freeport to translate about 75 million euros of historical pension obligations at Atlantic Copper to a higher U.S. dollar value and to recognize a non-cash charge of US$9 million (or US6 per share) to second-quarter income.