Grasberg mine, Indonesia
Photo by: Reuters
VANCOUVER (miningweekly.com) – The NYSE-listed stock of US diversified miner Freeport-McMoRan (FCX) on Wednesday nosedived after the company threatened to reduce output and cut staff at its Grasberg mine, in Indonesia.
The Phoenix, Arizona-based miner said that if it had not obtained approval to export concentrate by mid-February, it would be forced to implement measures that would see production at the massive Grasberg operation throttled to about 40% of capacity, reduce its workforce, lower costs and suspend future investments on its underground development projects and new smelter.
The Indonesian government has moved to ban concentrate exports earlier this month from the country, as it seeks to force miners to add more value domestically and export refined products, as opposed to concentrated ores. The new regulations allow the continuation of copper concentrate exports for a five-year period through to January 2022, subject to various conditions, including conversion from a contract of work to a special operating licence, commitment to complete a smelter construction in five years and payment of export duties to be determined by the Ministry of Finance.
The company confirmed that as of Wednesday, subsidiary PT Freeport Indonesia (PT-FI) had not obtained approval to export concentrate. PT-FI has requested that concentrate exports be permitted while the new licence and stability agreement are negotiated. It is also discussing the applicability of export duties and divestment requirements with government.
FCX stressed that under its contract of work, PT-FI was not required to pay export duties on concentrate or to conduct further divestments.
According to FCX, for each month of delay in obtaining approval to export, PT-FI's share of output is projected to be reduced by about 70-million pounds of copper and 100 000 oz of gold.
FCX reported consolidated sales of 4.65-billion pounds of copper, 1.1-million ounces of gold and 74-million pounds of molybdenum for the full year 2016. The company forecast lower 2017 copper output at 4.1-billion pounds of copper, but higher gold and molybdenum production at 2.2-million ounces and 92-million pounds, respectively. Its first-quarter guidance incudes one-billion pounds of copper, 460 000 oz of gold and 23-million pounds of molybdenum.
Average realised prices were $2.47/lb for copper, $1 174/oz for gold and $8.27/lb for molybdenum for fourth-quarter ended December. Average unit net cash costs were $1.20/lb of copper for the fourth-quarter and $1.26/lb for the year. Unit net cash costs are expected to average $1.06/lb of copper during 2017.
DEBT REDUCTION
At December 31, the company’s consolidated debt totalled $16-billion and consolidated cash totalled $4.2-billion, compared with consolidated debt of $20.3-billion and consolidated cash of $177-million a year earlier. The company also had no borrowings and $3.5-billion available under its revolving credit facility at year-end.
During 2016, FCX implemented initiatives to restore its balance sheet strength through raising $6.6-billion through asset sales, cash flow from operations and raising $1.5-billion in at-the-market sales of common shares to reduce consolidated debt, net of cash, by $8.4-billion.
FCX reported adjusted earnings of $0.25 a share, missing analyst forecasts calling for $0.33 a share. Revenues totalled $4.38-billion, up marginally year-over-year.
While North American stock markets rallied to record highs on Wednesday, FCX’s stock fell 7% to an intraday low of $15.81 apiece.