Lower grades push Freeport to a loss

Vancouver Freeport McMoRan Copper & Gold (FCX-N) posted a fourth-quarter loss on decreased production resulting from the mining of lower ore grades at the mighty Grasberg copper-gold mine in Indonesia.

The New Orleans-based company tabled a net loss of US$2.1 million, or US$0.01 per share in the quarter ended Dec.31, 2001. This compares to a profit of US$58.1 million or US$0.40 a share a year earlier. Revenues fell to US$412.3 million in the latest quarter, from US$529.9 million tallied in the corresponding period of 2000.

The company sold 325.3 million lbs. of copper and 500,200 oz. of gold during the fourth quarter, compared with 443.3 million lbs. of copper and 724,000 oz. of gold in the same period of 2000.

For the year, Freeport earned US$76.5 million, or US$0.53 per share, compared with $39.5 million, or US$0.26 per share in 2000. Operating cash flow remained impressive at US$509 million, compared with US$516 million in 2000. Average realized prices for copper tallied US $0.69 per lb. in 2001, compared with the US$0.82 per lb received in 2000.

Located in Indonesia’s eastern most province of Irian Jaya, the Grasberg operation posted a record-low net cash production cost, including gold-silver credits, of US$0.07 per lb. of copper for 2001. In the fourth quarter, costs came in at US$0.21 per lb. Gold recovery tallied 89.5% for the year, with the fourth quarter recording a record 91.6%.

Freeport expects to sell about 300 million lbs. of copper and 275,000 oz. of gold in the first quarter, reflecting the continued mining of lower ore grades in the first half of 2002. Going forward, the company sees higher copper production but declining gold production when compared with 2001. Freeport forecasts sales of 1.5 billion lbs. of copper and 2 million oz. of gold in 2002, compared with the 1.4 billion lbs. of copper and a record 2.6 million oz. of gold recorded in 2001.

" We will continue to focus on aggressive initiatives to reduce our cash cost and outlays in today’s low commodity price environment as we work to maximize cash flows from this great Grasberg mine" says the company’s Chief Executive Officer, James Moffett.

The company’s wholly owned Spanish smelting unit, Atlantic Copper recorded an operating loss of US$2.2 million in the fourth quarter, compared with operating income of US$15 million in the 2000 period. For the entire year, Atlantic Copper had an operating loss of US$16 million, compared with US$1.7 million for 2000. The higher losses in 2001 are attributed to a scheduled 27-day maintenance turnaround in April.PT Smelting, Freeport’s 25%-owned Indonesian smelting unit, recorded an operating income of US$2 million, US$500,000 to Freeport, during the fourth quarter, compared with a US$6.6 million charge, US$3.7 million to Freeport in the 2000 quarter.

Year-end proven and probable recoverable reserves, net of 2001 production, were 2.6 billion tonnes grading 1.13% copper, 1.05 grams gold and 3.72 grams silver per tonne. Based on a joint venture agreement with Rio Tinto (RTP-N), The London-based major has a 40% interest in future production from reserves above those reported at December 31, 1994. Net of Rio Tinto’s share, Freeport’s share of proven and probable reserves at December 31, 2001 equate into 39.4 billion lbs. of copper, 50.2 million ozs. of gold and 114.5 million ozs. of silver.