The improvement reflects the mining of higher-grade ore, which is expected to extend into 2003.
Grasberg is wholly owned by PT Freeport Indonesia (PT-FI), in which Freeport holds a 90.6% interest and the Indonesian government, the remainder. British base metals giant
During the recent third quarter, PT-FI enjoyed better-than-expected production of 510.3 million lbs. (231,500 tonnes) copper, 1.1 million oz. gold and 1.4 million oz. silver. Comparable output in the third quarter of 2001 was 389.9 mil- lion lbs. (176,900 tonnes) copper, 887,700 oz. gold and 1 million oz. silver.
In the first nine months of 2002, PT-FI produced 1,325 million lbs. (601,000 tonnes) copper, 2.1 million oz. gold and 3.4 million oz. silver, compared with 1,237 million lbs. (561,200 tonnes) copper, 2.8 million oz. gold and 3.4 million oz. silver a year earlier.
Although the average tonnage milled per day fell by almost 25,000 tonnes, to 219,000 tonnes, during the quarter, grades and recoveries improved dramatically. Copper values jumped to 1.31.% from 0.96% and recoveries improved to 90.8% from 85.3%; gold grades rose to 1.85 from 1.36 grams per tonne while recoveries eased up slightly to 90.1%; and silver grades soared to 4.01 from 3.03 grams as recoveries surged to 65.9% from 58.9%.
The mine set a quarterly record of 1.1 million oz. in gold sales, and a daily production record of 23,000 oz. gold.
PT-FI remains the world’s lowest-cost copper producer. Average net cash production costs, including gold and silver credits, were actually negative, for a credit of US10 per lb. copper during the third quarter, compared with a cost of US5 per lb. a year earlier.
Freeport attributes the improvement to lower unit production and delivery costs (US33 per lb. copper in 2002 versus US41 in 2001) and improved gold credits (63 per lb. copper in 2002 versus US55 in 2001).
PT-FI’s average realized copper price was US67 per lb. during the third quarter (compared with US65.4 a year earlier) and US69.7 during the first three quarters of the year (US69).
About half of PT-FI’s concentrate production is sold to its affiliated smelters, Atlantic Copper and PT Smelting.
Spanish smelter
Atlantic Copper, Freeport’s flagship smelter in Spain, treated 258,200 tonnes of concentrate in the third quarter, up from 240,100 tonnes a year earlier. However, both copper cathode and anode output were off slightly, at 74,600 tonnes and 61,500 tonnes, respectively, owing to lower concentrate grades.
PT-FI’s 25%-owned Indonesian smelting unit, PT Smelting, treated 192,200 tonnes of concentrate in the third quarter, up from 178,800 tonnes a year earlier.
Company-wide, Freeport-McMoRan earned US$61.5 million (or US39 per share) in the third quarter on revenue of US$539,000, compared with US$4.2 million (US3 per share) on revenue of US$441,000 in the corresponding period of 2001.
For the first nine months of 2002, Freeport-McMoRan made a profit of US$63 million (US43 per share) on revenue of US$1.3 billion, down from US$78.6 million (US54 per share) on revenue of US$1.4 billion a year earlier.
Between the two periods the average number of outstanding common shares swelled 30.6% to 188.9 million. On Sept. 30, 2002, debt and mandatorily redeemable preferred stock (net of cash and investments) totalled US$2.52 billion, or about US$100 million less than at the end of 2001.
Fourth-quarter copper sales are expected to approach 415 million lbs. (188,410 tonnes), whereas gold sales are projected at 630,000 oz. Total sales for the year should amount to 1.5 billion lbs. (681,000 tonnes) copper and 2.25 million oz. gold.
Unit net cash production costs will likely average less than US10 per lb. copper for 2002, assuming a gold price of US$320 per oz. and gold sales of 2.25 million oz.
Attacks
The question of security still hangs heavily over Freeport — an American firm operating in the world’s most populous Muslim country — particularly in the wake of two recent bursts of violence against Westerners in Indonesia.
In late August, a convoy of expatriates and Indonesians who worked at Grasberg was ambushed by a heavily armed band along a remote road near the town of Tembagapura, where most Grasberg staff live. The assault left two American expatriates and one Indonesian dead, and of the 10 injured, eight were Americans.
Then in mid-October, Islamic terrorists blew up the Kuta Resort’s Sari Club in Bali, a frequent holiday destination for expats working in Indonesia. Most of the more than 188 victims were Australian.
In a recent conference call, Freeport-McMoRan Chairman James Moffett tried to assure analysts that his company remains stable in spite of these attacks:
“Other than this incident of August 31, [and] especially with the [resulting] heightened security, we believe that our Grasberg operation is one of the safest in the world because of its remote location. Because of that, we will continue to operate through these interesting and emotional times until the world figures out how to start living together in a peaceful situation.”
Moffett said he believes the Indonesian government “will protect the vital assets of the country, which include, in their statements, oil and gas and mining assets — and they mentioned, in particular, Freeport.
“Grasberg’s a story of the best orebody in the world, performing at its record in the third quarter in a world that’s got a lot of distractions — both the volatile acts that are going on around the globe, and on and off Wall Street. There’s not much more you can say about this team of people and this orebody than the results of this quarter, [and] we look forward to the rest of the year.”
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