Freeport-McMoRan Copper & Gold Inc. (FCX) reported a profit of $1.1 billion or $1.10 per share in the third quarter of 2011 versus $1.2 billion or $1.24 per share in the same quarter of 2010. The profit missed the Zacks Consensus Estimate by 2 cents per share.
Revenues in the quarter were $5.20 billion versus $5.15 billion in the prior-year quarter, surpassing the Zacks Consensus Estimate of $5.01 billion. Consolidated sales from mines totaled 947 million pounds of copper, 409,000 ounces of gold and 19 million pounds of molybdenum compared with 1.1 billion pounds of copper, 497,000 ounces of gold and 17 million pounds of molybdenum in the second quarter of 2010.
Consolidated unit net cash costs (net of by-product credits) averaged 80 cents per pound of copper compared with 82 cents per pound in the third quarter of 2010. Operating income slumped to $2.1 billion from $2.5 billion in the year-ago quarter.
Freeport-McMoRan had cash and cash equivalents of $5.13 billion as of September 30, 2011 compared with $3.74 billion as of December 31, 2010.
Freeport-McMoRan’s operating cash flows totaled $1.8 billion for third-quarter 2011 compared with $1.3 billion for third-quarter 2010. Capital expenditures totaled $717 million for third-quarter 2011 compared with $350 million for third-quarter 2010.
As of September 30, 2011, total debt approximated $3.5 billion and consolidated cash approximated $5.1 billion. During the first nine months of 2011, FCX repaid $1.2 billion in debt and paid common stock dividends totaling $1.2 billion.
Labor Problem
During third-quarter 2011, production and sales of copper and gold were adversely affected by labor disruptions at PT Freeport Indonesia (PT-FI). The estimated impact on third-quarter 2011 production, including the eight-day strike in July 2011 and the ongoing strike that commenced on September 15, 2011, totaled approximately 70 million pounds of copper and 100 thousand ounces of gold.
Without the strike, third-quarter 2011 sales from Grasberg would have exceeded the forecasted production and sales resulting from higher grade ore previously scheduled to be mined in future periods. PT-FI has developed revised operating plans to produce and ship concentrates at modified levels with a reduced workforce and sold concentrate from inventory during third-quarter 2011, which partly mitigated the lower production levels.
The union has notified PT-FI that it intends to extend the strike to November 15, 2011. PT-FI continues to seek to end the strike, which has no legal basis, and to conclude negotiations, on a fair and reasonable basis, for the bi-annual renewal of its collective labor agreement. PT-FI's compensation practices are highly competitive in Indonesia, and PT-FI has agreed to accept the recommendations of the government-appointed mediator for a generous increase in wages and other benefits.
Exploration Activities
FCX is conducting exploration activities near its existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts, where it currently operates.
Favorable exploration results indicate opportunities for significant future potential reserve additions in North and South America and in the Tenke Fungurume minerals district. The drilling data in North America continues to indicatethe potential for expanded sulfide production.
Exploration spending for the year 2011 is expected to approximate $250 million, compared with $113 million in 2010. Exploration activities will continue to focus primarily on the potential for future reserve additions in FCX's existing minerals districts.
Guidance
Freeport-McMoRan’s consolidated sales from mines for the year 2011 are expected to approximate 3.8 billion pounds of copper, 1.6 million ounces of gold and 78 million pounds of molybdenum, including 915 million pounds of copper, 305 thousand ounces of gold and 18 million pounds of molybdenum for fourth-quarter 2011.
Based on current 2011 sales volume and cost estimates and assuming average prices of $1,600 per ounce for gold and $14 per pound for molybdenum for fourth-quarter 2011, consolidated unit net cash costs (net of by-product credits) are estimated to average $0.95 per pound of copper for the year 2011.
Based on current 2011 sales volume and cost estimates and assuming average prices of $3.25 per pound for copper, $1,600 per ounce for gold and $14 per pound for molybdenum for fourth-quarter 2011, operating cash flows are estimated to approximate $7 billion for the year 2011. Capital expenditures are expected to approximate $2.6 billion for the year 2011, including $1.4 billion for major projects and $1.2 billion for sustaining capital.
Headquartered in Phoenix, Arizona, Freeport-McMoRan Copper & Gold Inc. is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; as well as the smelting and refining of copper concentrates.
The company conducts its operations primarily through its principal operating subsidiaries, PT Freeport Indonesia, Freeport-McMoRan Corporation (formerly Phelps Dodge) and Atlantic Copper. Its major competitors include Newmont Mining Corp. (NEM) and Southern Copper Corp. (SCCO). It currently retains Zacks #4 Rank on its stock, which translates to short-term rating of Sell.
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