Freeport stock tanks on disappointing Q1 earnings, Indonesia fears

25th April 2018 By: Henry Lazenby - Creamer Media Deputy Editor: North America

VANCOUVER (miningweekly.com) – US diversified miner Freeport McMoRan’s (FCX’s) NYSE-listed stock lost as much as 17% on Tuesday following disappointing first-quarter financial results and a lowered copper production outlook.

Phoenix, Arizona-based Freeport’s president and CEO Richard Adkerson expressed shock and disappointment at new environmental claims from the Indonesian Environment and Forestry Ministry, at a time when the company is locked in drawn-out negotiations with the government to secure long-term export rights for its copper/gold concentrates produced at the giant Grasberg mine, believed to be the world’s second-largest mine by output.

The ministry has indicated that it wants to introduce changes to the way in which Freeport manages the tailings from Grasberg, which involves transport by river from the high-altitude mine, to a suitable storage pad located downstream, where it is developing farming projects in collaboration with locals – a system that has been in use for 20 years, Adkerson pointed out.

“We had an agreement with the government that over the life of the mine, we would retain 50% of the tailings on land. They are now saying it should be 95%, which just cannot be done,” Adkerson advised during the company’s first-quarter conference call.

Freeport has agreed to divest a 51% stake in the mine to the government, which currently owns 9.36% of subsidiary Freeport Indonesia (PT-FI). But the new environmental requirements comes at a sensitive time when FCX needs to make investments into the Grasberg underground mine, as the openpit phase is nearing depletion later this year.

FCX also noted that it is still in talks with Indonesia's government to restore stability to its Grasberg operations "and looks forward to reaching a mutually positive resolution”.

The market was expecting more positive news from FCX on reaching a deal with government, and in its absence, this resulted in a bloodbath for FCX’s NYSE-listed equity, which closed down 14.5% on Tuesday at $16.08 a share.

FCX also advised that PT-FI continues to review its mine plan for the Deep Mill Level Zone underground owing to increased seismic activity. This will result in a slower start-up to full production to manage stress encountered in the early phase of cave development, the company said.

For the three months ended March, FCX reported consolidated sales of 993-million pounds of copper, up 23% year-on-year, which dovetailed a higher average realised price of $3.11/lb. FCX’s gold sales more than tripled to 610 000 oz but came in below January's forecast of 675 000 oz. Molybdenum sales of 24-million pounds were flat over the comparable period a year earlier.

FCX lowered its full-year copper production guidance to 3.8-billion pounds from 3.9-billion, and advised that its copper cash cost is now expected to top $1.01/lb of copper – up from $0.97/lb forecast previously.

Adjusted net income attributable to shareholders more than tripled to $679-million, or $0.46 a share, which fell short of average analyst forecasts calling for earnings of $0.56 a share.

Revenues improved by 45.7% year-on-year to $4.87-billion, which itself was short of analyst forecasts for $4.94-billion.

FCX advised investors that it has identified a significant resource at its fully owned Lone Star project located near its Safford operation, in Arizona, and has started an initial project to develop the Lone Star oxide ores with first production expected by the end of 2020. FCX expects Lone Star production to average 200-million pounds a year of copper, with a 20-year mine life.