Denver — Higher grades and better recovery rates at the giant Grasberg operation in Irian Jaya, Indonesia, resulted in a record- setting fourth quarter for
Copper and gold sales exceeded expectations for the New Orleans-based company, which earned US$58.1 million (or 40 per share) during the 3-month period. Earnings for the year totalled US$37.3 million (23 per share).
By comparision, earnings in the fourth quarter of 1999 amounted to US$39.5 million (26 per share), whereas income for all of that year was US$100.8 million (61 per share).
Copper grades were up 22% from the corresponding period in 1999, while gold grades improved 20%.
The company, through its principal mining unit, P.T. Freeport Indonesia Co. (PT-FI), limited throughput from the open pit to 200,000 tonnes per day after slippage in an overburden stockpile killed four contract employees in May. The operation returned to normal levels at the beginning of 2001.
In all, the Grasberg complex produced 524.1 million lbs. copper, 891,800 oz. gold and 1.3 million oz. silver during the fourth quarter, a strong improvement from the year-earlier period. By year-end, the mine had cranked out a total of 1.6 billion lbs. copper, 2.3 million oz. gold and 3.8 million oz. silver.
PT-FI’s share of fourth quarter sales, net of a percentage owed to joint-venture partner
By funding Grasberg’s latest expansions, Rio Tinto receives a 40% interest in production above 119,000 tonnes per day from the Block A area. During the fourth quarter, throughput from underground and open-pit sources averaged 220,500 tonnes per day.
PT-FI realized US81 per lb. for copper sales in the fourth quarter, on par with the year-ago period, though, for the year, copper averaged US82 per lb., up from US75 per lb. in 1999. Realized gold prices averaged US$268 per oz. in the fourth quarter and US$276 per oz. for the year, down from US$286 and US$276.50, respectively, in the previous fourth quarter and previous year.
Lowest-cost producer
Cash production costs amounted to US8.7 per lb. copper in the fourth quarter, net of gold and silver credits, confirming that Grasberg is still the world’s lowest-cost producer of the red metal. Total production costs, including depreciation and amortization, were US26.7 per lb.
For 2000, cash production costs averaged US23 per lb., up from US9.2 per lb. in 1999, whereas total production costs were US41 per lb., up from US$27.2 per lb. in 1999.
Grasberg generated US$211.1 million in operating cash flow for the company in the fourth quarter, and US$516 million for the year.
Freeport expects the higher grades that characterized the fourth quarter to continue throughout 2001, resulting in anticipated production of 1.6 billion lbs. copper and 3.1 million oz. gold. PT-FI’s share would be 1.4 billion lbs. copper and 2.4 million oz. gold.
Sales in the first quarter of 2001 should reach 350 million lbs. copper and 650,000 oz. gold. Capital expenditures for the year are pegged at US$215 million.
In 2000, Freeport added 202 million tonnes of new reserves to the complex, representing 2.7 billion recoverable pounds of copper and 4.5 million oz. gold. This brings the total, net of 2000 production, to 2.51 billion tonnes averaging 1.1% copper, plus 1.04 grams gold and 3.4 grams silver per tonne — equivalent to 50.9 billion lbs. copper, 63.7 million oz. gold and 139.6 million oz. silver.
PT-FI’s share of the reserves amounts to 38.9 billion lbs. copper, 50.3 million oz. gold and 108.5 million oz. silver. Rio Tinto retains a 40% share of future production from reserves above those reported after 1994, the date of its joint-venture arrangement with Freeport.
Additional resource
PT-FI has an additional resource of 102 million tonnes, representing 1 billion lbs. copper and 2 million oz. gold from the Ertsberg Surface Diorite resource, situated between the DOM deposit and the previously mined Ertsberg East deposit. Freeport believes this resource could be upgraded to reserve-status with additional drilling.
Considering its proximity to existing mine and milling facilities, the deposit could be brought into production as a small open-pit in a relatively short time.
Meanwhile, although Freeport is continuing to explore the Block A area around the mine, as well as Block B and the Eastern Mining and Nabire Bakri Mining contract-of-work areas, field exploration has been limited as a result of political unrest in the region.
Freeport’s operating units elsewhere performed well in the fourth quarter. Atlantic Copper, Freeport’s wholly owned Spanish smelting unit, reported an operating income of US$15 million, whereas P.T. Smelting, the company’s 25%-owned Indonesian smelting unit, operated slightly above its 200,000-tonne-per-year capacity.
The company is carrying on with its share-repurchase program, having bought 200,000 shares of common stock in early January. It has 9.3 million shares remaining under the program, and, since 1995, it has reduced outstanding shares by 33% to 55.5 million Class A shares and 88.5 million Class B shares.
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