Higher gold prices boost Freeport

Vancouver The first quarter of 2003 proved to be a good one for the operator of the World’s largest copper-gold mine. New Orleans-based Freeport-McMoRan Copper & Gold (FCX-N) earned US$49.2 million, or US$0.33 per share, in the three months ended March 31.

The gain, which was boosted US$9.1 million, or US$0.05 per share thanks to a change in accounting retirement obligations, reverses a loss of US$4.2 million, or $0.03 per share, tallied in the same period a year ago.

"Our first quarter results reflect the continued excellent performance of our Grasberg operations," says the company’s Chief Executive opfficer, James R. Moffett. "The strength of our asset base was demonstrated by the successful completion of over $1 billion in financing transactions during the quarter, which significantly enhanced our financial position."

Situated in Papua province in Indonesia, Grasberg produced 388,800 million lbs. of copper and 579,600 ozs of gold during the first quarter, compared with 296,700 million lbs. of copper and 335,800 ozs. of gold in the same period of 2002. Benefiting the company was an average realized price for gold of US$341.55 per oz, compared with a price of US$289.51 received in the first quarter of 2001. The average price of copper remained the same at US$0.73 per lb.

The higher metal output by Freeport’s Indonesian mining unit is attributed to higher-grade ore and improved rates of recovery. The copper grade averaged 1.15% copper during the quarter, compared with 0.9% copper last year, while recoveries increased to 88.4% from 85.5% in the first quarter of 2002. The gold grade jumped to 1.26 grams gold per tonne from 0.73 gram gold in last year’s quarter. Gold recovery rates came in at 86.2%, a marked improvement from the 85.5% tallied last year.

Underground mining, which currently marks 21% of the mill output, got a boost during the quarter with the ramp-up of production at the Deep Ore zone to 35,000 tonnes per day. The move propelled the company to a new underground mining record of 50,000 tonnes per day. The move towards underground mining is signifcant in the open pit mining is slated for depletion in 2014.

The Grasberg operation remained the world’s lowest cost producer with net cash costs ringing in at US$0.07 per lb of copper, compared with US$0.30 in the same period last year.

"If we have a continuation of today’s gold price," says company president, Richard Adkerson, "our gold revenues offset all our production costs for 2003, resulting in zero net cash costs."

As a single operation company, Freeport continues to look at other projects for diversification.

"We monitor all over the World," adds Moffet "But we are not going to marry our very unique mine with other low-grade deposits and turn a silk purse into a sows ear."

London-based Rio Tinto (RTP-N) has a 40% interest in future production from Grasberg’s reserves above those reported at the end of 1994.

Proven and probable reserves total 2.6 billion tonnes grading 1.12% copper, plus 1.02 grams gold and 3.73 grams silver per tonne. Net of Rio Tinto’s share, Freeport Indonesia’s share of proven and probable reserves amount to 39.4 billion lbs. copper, 48.5 million oz. gold and 110.9 million oz. silver. Freeport-McMoRan holds a 90.6% equity interest in Freeport Indonesia.

For 2003, Freeport expects to produce 1.4 billion lbs of copper and 2.6 million ozs of gold.