- Net loss attributable to common stock totaled $72 million, $0.05 per share, in second-quarter 2019. After adjusting for net charges of $14 million, $0.01 per share, second-quarter 2019 adjusted net loss attributable to common stock totaled $58 million, $0.04 per share.
- Consolidated sales totaled 807 million pounds of copper, 189 thousand ounces of gold and 24 million pounds of molybdenum in second-quarter 2019.
- Consolidated sales for the year 2019 are expected to approximate 3.3 billion pounds of copper, 0.8 million ounces of gold and 94 million pounds of molybdenum, including 830 million pounds of copper, 230 thousand ounces of gold and 25 million pounds of molybdenum in third-quarter 2019.
- Several positive milestones were achieved during second-quarter 2019 related to the underground production ramp-up in the Grasberg minerals district, which is expected to produce large-scale quantities of copper and gold in future years.
- Average realized prices in second-quarter 2019 were $2.75 per pound for copper, $1,351 per ounce for gold and $13.15 per pound for molybdenum.
- Average unit net cash costs in second-quarter 2019 were $1.92 per pound of copper and are expected to approximate $1.75 per pound of copper for the year 2019.
- Operating cash flows totaled $554 million (including $308 million of working capital sources and timing of other tax payments) in second-quarter 2019 and $1.1 billion (including $281 million of working capital sources and timing of other tax payments) for the first six months of 2019. Based on current sales volume and cost estimates, and assuming average prices of $2.75 per pound for copper, $1,400 per ounce for gold and $12.00 per pound for molybdenum for the second half of 2019, operating cash flows are expected to approximate $1.9 billion (including $0.3 billion of working capital sources and timing of other tax payments) for the year 2019.
- Capital expenditures totaled $0.6 billion (including approximately $0.4 billion for major mining projects) in second-quarter 2019 and $1.25 billion (including approximately $0.7 billion for major mining projects) for the first six months of 2019. Capital expenditures for the year 2019 are expected to approximate $2.6 billion, including $1.6 billion for major mining projects primarily associated with underground development activities in the Grasberg minerals district in Indonesia and development of the Lone Star copper leach project in Arizona.
- At June 30, 2019, consolidated debt totaled $9.9 billion and consolidated cash totaled $2.6 billion. FCX had no borrowings and $3.5 billion available under its revolving credit facility at June 30, 2019.
- On June 26, 2019, FCX declared a quarterly cash dividend of $0.05 per share on its common stock, which will be paid on August 1, 2019.
Freeport-McMoRan Inc. (NYSE: FCX) reported net losses attributable to common stock of $72 million ($0.05 per share) in second-quarter 2019 and $41 million ($0.03 per share) for the first six months of 2019. After adjusting for net charges of $14 million ($0.01 per share), adjusted net loss attributable to common stock totaled $58 million ($0.04 per share) in second-quarter 2019. For additional information, refer to the supplemental schedule, “Adjusted Net (Loss) Income,” on page VII, which is available on FCX’s website, “fcx.com.”
Richard C. Adkerson, President and Chief Executive Officer, said, “We are pleased to report that execution of the underground ramp-up at Grasberg is advancing according to plan and recent milestones are encouraging as we target increasing volumes and cash flows from the Grasberg minerals district. We are also progressing our Lone Star copper leach project in Arizona and remain optimistic about the long-term opportunities for this large resource. We are focused on enhancing value for shareholders through our well-defined strategy of maximizing the value of our existing resource base through rigorous cost management, productivity and technology, successful execution of the underground ramp-up at Grasberg, generating cash flows to increase shareholder returns and creating value organically from our large undeveloped resource position in a disciplined manner.”
SUMMARY FINANCIAL DATA
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| (in millions, except per share amounts) | ||||||||||||||||
| Revenuesa,b | $ | 3,546 | $ | 5,168 | $ | 7,338 | $ | 10,036 | ||||||||
| Operating incomea | $ | 33 | $ | 1,664 | $ | 354 | $ | 3,123 | ||||||||
| Net (loss) income from continuing operations | $ | (74 | ) | $ | 1,039 | $ | 1 | $ | 1,867 | |||||||
| Net (loss) income attributable to common stockc,d | $ | (72 | ) | $ | 869 | $ | (41 | ) | $ | 1,561 | ||||||
| Diluted net (loss) income per share of common stock: | ||||||||||||||||
| Continuing operations | $ | (0.05 | ) | $ | 0.59 | $ | (0.03 | ) | $ | 1.08 | ||||||
| Discontinued operations | — | — | — | (0.01 | ) | |||||||||||
| $ | (0.05 | ) | $ | 0.59 | $ | (0.03 | ) | $ | 1.07 | |||||||
| Diluted weighted-average common shares outstanding | 1,451 | 1,458 | 1,451 | 1,458 | ||||||||||||
| Operating cash flowse | $ | 554 | $ | 1,309 | $ | 1,088 | $ | 2,678 | ||||||||
| Capital expenditures | $ | 629 | $ | 482 | $ | 1,251 | $ | 884 | ||||||||
| At June 30: | ||||||||||||||||
| Cash and cash equivalents | $ | 2,623 | $ | 3,894 | $ | 2,623 | $ | 3,894 | ||||||||
| Total debt, including current portion | $ | 9,916 | $ | 11,277 | $ | 9,916 | $ | 11,277 | ||||||||
a. For segment financial results, refer to the supplemental schedules, “Business Segments,” beginning on page X, which are available on FCX’s website, “fcx.com.”
b. Includes (unfavorable) favorable adjustments to prior period provisionally priced concentrate and cathode copper sales totaling $(83) million ($(35) million to net loss attributable to common stock or $(0.02) per share) in second-quarter 2019, $23 million ($9 million to net income attributable to common stock or $0.01 per share) in second-quarter 2018, $58 million ($23 million to net loss attributable to common stock or $0.02 per share) for the first six months of 2019 and $(70) million ($(31) million to net income attributable to common stock or $(0.02) per share) for the first six months of 2018. For further discussion, refer to the supplemental schedule, “Derivative Instruments,” on page IX, which is available on FCX’s website, “fcx.com.”
c. Includes net (charges) gains of $(14) million ($(0.01) per share) in second-quarter 2019, $16 million ($0.01 per share) in second-quarter 2018, $(50) million ($(0.03) per share) for the first six months of 2019 and $27 million ($0.02 per share) for the first six months of 2018 that are described in the supplemental schedule, “Adjusted Net (Loss) Income,” on page VII, which is available on FCX’s website, “fcx.com.”
d. FCX defers recognizing profits on intercompany sales until final sales to third parties occur. For a summary of net impacts from changes in these deferrals, refer to the supplemental schedule, “Deferred Profits,” on page IX, which is available on FCX’s website, “fcx.com.”
e. Net of working capital sources (uses) and timing of other tax payments of $308 million in second-quarter 2019, $(192) million in second-quarter 2018, $281 million for the first six months of 2019 and $(213) million for the first six months of 2018.
SUMMARY OPERATING DATA
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| Copper (millions of recoverable pounds) | |||||||||||||||||
| Production | 776 | 1,014 | 1,556 | 1,966 | |||||||||||||
| Sales, excluding purchases | 807 | 989 | 1,591 | 1,982 | |||||||||||||
| Average realized price per pound | $ | 2.75 | $ | 3.08 | $ | 2.78 | $ | 3.10 | |||||||||
| Site production and delivery costs per pounda | $ | 2.26 | $ | 1.69 | $ | 2.21 | $ | 1.68 | |||||||||
| Unit net cash costs per pounda | $ | 1.92 | $ | 0.96 | $ | 1.85 | $ | 0.97 | |||||||||
| Gold (thousands of recoverable ounces) | |||||||||||||||||
| Production | 160 | 746 | 326 | 1,345 | |||||||||||||
| Sales, excluding purchases | 189 | 676 | 431 | 1,286 | |||||||||||||
| Average realized price per ounce | $ | 1,351 | $ | 1,274 | $ | 1,315 | $ | 1,291 | |||||||||
| Molybdenum (millions of recoverable pounds) | |||||||||||||||||
| Production | 25 | 24 | 48 | 46 | |||||||||||||
| Sales, excluding purchases | 24 | 24 | 46 | 48 | |||||||||||||
| Average realized price per pound | $ | 13.15 | $ | 12.89 | $ | 12.93 | $ | 12.42 |
a. Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, before net noncash and other costs. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XIII, which are available on FCX’s website, “fcx.com.”
Consolidated Sales Volumes
Second-quarter 2019 copper sales of 807 million pounds were in line with the April 2019 estimate of 800 million pounds, with higher copper volumes from North America and South America offsetting lower copper volumes from PT Freeport Indonesia (PT-FI). Mine sequencing changes in the Grasberg open pit resulted in lower second-quarter 2019 gold sales of 189 thousand ounces, compared with the April 2019 estimate of 265 thousand ounces of gold. During second-quarter 2019, PT-FI opened an additional area to extend mining in the Grasberg open pit into third-quarter 2019 and potentially longer. The mine sequencing changes in the open pit delayed access to the high-grade material previously expected to be produced during second-quarter 2019.
Second-quarter 2019 copper and gold sales were lower than second-quarter 2018 sales primarily reflecting anticipated lower mill rates and ore grades as PT-FI transitions mining from the open pit to underground.
Second-quarter 2019 molybdenum sales of 24 million pounds approximated the April 2019 estimate of 25 million pounds and second-quarter 2018 sales of 24 million pounds.
Consolidated sales volumes for the year 2019 are expected to approximate 3.3 billion pounds of copper, 0.8 million ounces of gold and 94 million pounds of molybdenum, including 830 million pounds of copper, 230 thousand ounces of gold and 25 million pounds of molybdenum in third-quarter 2019. As PT-FI transitions mining from the open pit to underground, metal production is expected to improve by 2021.
Consolidated Unit Costs
Consolidated average unit net cash costs (net of by-product credits) for FCX’s copper mines were $1.92 per pound of copper in second-quarter 2019. As anticipated, average unit net cash costs were higher than the second-quarter 2018 average of $0.96 per pound, primarily reflecting lower sales volumes as PT-FI transitions mining from the open pit to underground. Unit net cash costs were 15 percent higher than the April 2019 estimate because of production deferrals in the Grasberg open pit.
Assuming average prices of $1,400 per ounce of gold and $12.00 per pound of molybdenum for the second half of 2019 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for copper mines are expected to average $1.75 per pound of copper for the year 2019, (including $1.67 per pound of copper for the second half of 2019). The impact of price changes on consolidated unit net cash costs for the year 2019 would approximate $0.01 per pound for each $50 per ounce change in the average price of gold and $0.015 per pound for each $2 per pound change in the average price of molybdenum for the second half of 2019. Quarterly unit net cash costs vary with fluctuations in sales volumes and realized prices, primarily for gold and molybdenum. FCX expects consolidated unit net cash costs to decline by 2021 following a ramp-up period at PT-FI.
MINING OPERATIONS
North America Copper Mines. FCX operates seven open-pit copper mines in North America – Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. In addition to copper, certain of FCX’s North America copper mines produce molybdenum concentrate, gold and silver. All of the North America mining operations are wholly owned, except for Morenci. FCX records its 72 percent undivided joint venture interest in Morenci using the proportionate consolidation method.
Operating and Development Activities.FCX has significant undeveloped reserves and resources in North America and a portfolio of potential long-term development projects. Future investments will be undertaken based on the results of economic and technical feasibility studies, and are dependent on market conditions. FCX continues to pursue projects to enhance productivity through innovative technologies and to study opportunities to reduce the capital intensity of its potential long-term development projects.
Through exploration drilling, FCX has identified a significant resource at its wholly owned Lone Star project located near the Safford operation in eastern Arizona. An initial project to develop the Lone Star leachable ores commenced in 2018, with first production expected by the end of 2020. Initial production from the Lone Star leachable ores is expected to average approximately 200 million pounds of copper per year, with the potential for future expansion options. Total capital costs for the initial project, including mine equipment and pre-production stripping, are expected to approximate $850 million and will benefit from the utilization of existing infrastructure at the adjacent Safford operation. As of June 30, 2019, approximately $480 million has been incurred for this project. The project also advances exposure to a significant sulfide resource. FCX expects to incorporate recent positive drilling and ongoing results in its future development plans.
Operating Data. Following is summary consolidated operating data for the North America copper mines:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| Copper (millions of recoverable pounds) | |||||||||||||||||
| Production | 370 | 354 | 706 | 702 | |||||||||||||
| Sales, excluding purchases | 369 | 361 | 689 | 745 | |||||||||||||
| Average realized price per pound | $ | 2.78 | $ | 3.12 | $ | 2.80 | $ | 3.14 | |||||||||
| Molybdenum (millions of recoverable pounds) | |||||||||||||||||
| Productiona | 9 | 8 | 16 | 15 | |||||||||||||
| Unit net cash costs per pound of copperb | |||||||||||||||||
| Site production and delivery, excluding adjustments | $ | 2.05 | $ | 1.94 | $ | 2.05 | $ | 1.89 | |||||||||
| By-product credits | (0.26 | ) | (0.25 | ) | (0.26 | ) | (0.22 | ) | |||||||||
| Treatment charges | 0.11 | 0.10 | 0.11 | 0.10 | |||||||||||||
| Unit net cash costs | $ | 1.90 | $ | 1.79 | $ | 1.90 | $ | 1.77 | |||||||||
a. Refer to summary operating data on page 3 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at the North America copper mines.
b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XIII, which are available on FCX’s website, “fcx.com.”
North America’s consolidated copper sales volumes totaled 369 million pounds in second-quarter 2019 and 361 million pounds in second-quarter 2018. North America copper sales are estimated to approximate 1.4 billion pounds for the year 2019.
Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.90 per pound of copper in second-quarter 2019 were slightly lower than forecast, but higher than second-quarter 2018 unit net cash costs of $1.79 per pound, primarily reflecting higher mining rates, maintenance activities and higher cost of consumables, primarily sulphuric acid.
Average unit net cash costs (net of by-product credits) for the North America copper mines are expected to approximate $1.91 per pound of copper for the year 2019, based on achievement of current sales volume and cost estimates and assuming an average molybdenum price of $12.00 per pound for the second half of 2019. North America’s average unit net cash costs for the year 2019 would change by approximately $0.02 per pound for each $2 per pound change in the average price of molybdenum for the second half of 2019.
South America Mining. FCX operates two copper mines in South America – Cerro Verde in Peru (in which FCX owns a 53.56 percent interest) and El Abra in Chile (in which FCX owns a 51 percent interest). These operations are consolidated in FCX’s financial statements. In addition to copper, the Cerro Verde mine produces molybdenum concentrate and silver.
Operating and Development Activities. Cerro Verde’s expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. Cerro Verde’s concentrator facilities have continued to perform well, with average mill throughput rates of 407,700 metric tons of ore per day in second-quarter 2019. Debottlenecking projects and additional initiatives to enhance operating rates continue to be advanced.
FCX continues to evaluate a large-scale expansion at El Abra to process additional sulfide material and to achieve higher recoveries. El Abra’s large sulfide resource could potentially support a major mill project similar to facilities constructed at Cerro Verde. Technical and economic studies continue to be advanced to determine the optimal scope and timing for the project.
Operating Data. Following is summary consolidated operating data for South America mining:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| Copper (millions of recoverable pounds) | |||||||||||||||||
| Production | 281 | 313 | 580 | 606 | |||||||||||||
| Sales | 287 | 312 | 577 | 602 | |||||||||||||
| Average realized price per pound | $ | 2.72 | $ | 3.07 | $ | 2.75 | $ | 3.09 | |||||||||
| Molybdenum (millions of recoverable pounds) | |||||||||||||||||
| Productiona | 7 | 7 | 15 | 13 | |||||||||||||
| Unit net cash costs per pound of copperb | |||||||||||||||||
| Site production and delivery, excluding adjustments | $ | 1.92 | $ | 1.77 | $ | 1.82 | $ | 1.78 | |||||||||
| By-product credits | (0.28 | ) | (0.22 | ) | (0.31 | ) | (0.24 | ) | |||||||||
| Treatment charges | 0.18 | 0.18 | 0.19 | 0.19 | |||||||||||||
| Royalty on metals | 0.01 | 0.01 | 0.01 | 0.01 | |||||||||||||
| Unit net cash costs | $ | 1.83 | $ | 1.74 | $ | 1.71 | $ | 1.74 | |||||||||
a. Refer to summary operating data on page 3 for FCX’s consolidated molybdenum sales, which includes sales of molybdenum produced at Cerro Verde.
b. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XIII, which are available on FCX’s website, “fcx.com.”
South America’s consolidated copper sales volumes of 287 million pounds in second-quarter 2019 were lower than second-quarter 2018 copper sales volumes of 312 million pounds, primarily reflecting lower ore grades and recovery rates at Cerro Verde. Sales from South America mining are expected to approximate 1.2 billion pounds of copper for the year 2019.
Average unit net cash costs (net of by-product credits) for South America mining of $1.83 per pound of copper in second-quarter 2019 were higher than unit net cash costs of $1.74 per pound in second-quarter 2018, primarily reflecting lower copper volumes.
Average unit net cash costs (net of by-product credits) for South America mining are expected to approximate $1.68 per pound of copper for the year 2019, based on current sales volume and cost estimates and assuming an average price of $12.00 per pound of molybdenum for the second half of 2019.
Indonesia Mining. PT-FI’s assets include one of the world’s largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PT-FI produces copper concentrate that contains significant quantities of gold and silver. FCX has a 48.76 percent ownership interest in PT-FI and manages its mining operations. PT-FI is consolidated in FCX’s financial statements. As a result of the December 2018 transaction regarding PT-FI’s long-term mining rights and share ownership, FCX’s economic interest in PT-FI is expected to approximate 81 percent through 2022.
Operating and Development Activities. PT-FI continues to mine the final stages of the Grasberg open pit. During second-quarter 2019, PT-FI opened an additional area to extend mining in the Grasberg open pit into third-quarter 2019 and potentially longer. The mine sequencing changes in the open pit delayed access to the high-grade material previously expected to be produced during second-quarter 2019, but are expected to meet previous estimates for copper and gold production for the year 2019. PT-FI will continue to monitor geotechnical conditions to determine the extent of mining in the open pit. Material not mined from the open pit is expected to be available to be mined from the Grasberg Block Cave underground mine.
During second-quarter 2019, PT-FI achieved important milestones related to the development of its large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to produce large-scale quantities of copper and gold following the transition from the Grasberg open pit. PT-FI’s estimated annual capital spending on underground mine development projects is expected to average $0.7 billion per year for the four-year period 2019 through 2022, net of scheduled contributions from PT Indonesia Asahan Aluminium (Persero) (PT Inalum). In accordance with applicable accounting guidance, aggregate costs (before scheduled contributions from PT Inalum), which are expected to average $0.9 billion per year for the four-year period 2019 through 2022, will be reflected as an investing activity in FCX’s cash flow statement, and contributions from PT Inalum will be reflected as a financing activity. Considering the long-term nature and size of these projects, actual costs could vary from these estimates.
Grasberg Block Cave. PT-FI has commenced extraction of ore from the Grasberg Block Cave underground mine, which is the same ore body historically mined from the surface in the Grasberg open pit. During second-quarter 2019, undercutting, drawbell construction and ore extraction activities in the Grasberg Block Cave underground mine exceeded expectations. Ore extraction from the Grasberg Block Cave underground mine averaged 7,400 metric tons of ore per day in second-quarter 2019 and is expected to ramp up to 15,000 metric tons of ore per day by the end of 2019. Monitoring data on cave propagation in the Grasberg Block Cave underground mine is providing increased confidence in growing production rates over time. As existing drawpoints mature and additional drawpoints are added, cave expansion is expected to accelerate production rates from an average of 30,000 metric tons of ore per day in 2020 to 130,000 metric tons of ore per day in 2023 from five production blocks spanning 335,000 square meters.
Deep Mill Level Zone (DMLZ). The DMLZ underground mine, located east of the Grasberg ore body and below the Deep Ore Zone (DOZ) underground mine, has commenced production. Hydraulic fracturing operations have been effective in managing rock stresses and pre-conditioning the cave following mining-induced seismic activity experienced in 2017 and 2018. In second-quarter 2019, undercutting and drawbell construction were in line with expectations, and ore extraction exceeded expectations. Ore extraction from the DMLZ underground mine averaged 7,700 metric tons of ore per day in second-quarter 2019 and is expected to ramp up to 11,000 metric tons of ore per day by the end of 2019. Ongoing hydraulic fracturing operations combined with continued undercutting and drawbell openings in the two production blocks are expected to expand the cave, supporting higher production rates that are expected to average 28,000 metric tons of ore per day in 2020 and 80,000 metric tons of ore per day in 2022 from three production blocks.
Estimates of timing of future production continue to be reviewed and may be modified as additional information becomes available.
In connection with the extension of PT-FI’s mining rights from 2031 to 2041, PT-FI committed to construct a new smelter in Indonesia by December 21, 2023. A site for the new smelter has been selected and ground preparation is in progress. Engineering and front-end engineering and design for the selected process technology are ongoing, with construction of the smelter expected to begin in 2020. The preliminary capital cost estimate for the project is in the $3 billion range, and PT-FI is pursuing financing, commercial and potential partner arrangements for this project. The economics of PT-FI’s share of the new smelter will be shared by PT-FI’s shareholders according to their respective share ownership percentages.
Operating Data. Following is summary consolidated operating data for Indonesia mining:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||||||||
| Copper (millions of recoverable pounds) | |||||||||||||||||
| Production | 125 | 347 | 270 | 658 | |||||||||||||
| Sales | 151 | 316 | 325 | 635 | |||||||||||||
| Average realized price per pound | $ | 2.71 | $ | 3.05 | $ | 2.77 | $ | 3.07 | |||||||||
| Gold (thousands of recoverable ounces) | |||||||||||||||||
| Production | 154 | 740 | 316 | 1,335 | |||||||||||||
| Sales | 185 | 671 | 420 | 1,274 | |||||||||||||
| Average realized price per ounce | $ | 1,350 | $ | 1,274 | $ | 1,314 | $ | 1,291 | |||||||||
| Unit net cash costs (credits) per pound of coppera | |||||||||||||||||
| Site production and delivery, excluding adjustments | $ | 3.40 | $ | 1.33 | $ | 3.24 | $ | 1.34 | |||||||||
| Gold and silver credits | (1.69 | ) | (2.76 | ) | (1.75 | ) | (2.67 | ) | |||||||||
| Treatment charges | 0.26 | 0.26 | 0.28 | 0.25 | |||||||||||||
| Export duties | 0.07 | 0.18 | 0.08 | 0.16 | |||||||||||||
| Royalty on metals | 0.11 | 0.22 | 0.14 | 0.22 | |||||||||||||
| Unit net cash costs (credits) | $ | 2.15 | $ | (0.77 | ) | $ | 1.99 | $ | (0.70 | ) | |||||||
a. For a reconciliation of unit net cash costs (credits) per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XIII, which are available on FCX’s website, “fcx.com.”
PT-FI’s consolidated sales of 151 million pounds of copper and 185 thousand ounces of gold in second-quarter 2019 were lower than second-quarter 2018 sales of 316 million pounds of copper and 671 thousand ounces of gold, reflecting anticipated lower mill rates and ore grades as it transitions mining from the open pit to underground.
Consolidated sales volumes from PT-FI are expected to approximate 0.6 billion pounds of copper and 0.8 million ounces of gold in 2019. PT-FI will continue to monitor geotechnical conditions to determine the extent of mining in the Grasberg open pit. As PT-FI transitions mining from the open pit to underground, metal production is expected to improve by 2021.
During the first half of 2019, PT-FI utilized its approved export quota of approximately 180,000 dry metric tons of concentrate for the current export period, which expires March 8, 2020. PT-FI has requested approval from the Indonesian government to increase its export quota for the current export period for expected higher production volumes associated with changes to PT-FI’s production plan. PT-FI expects to receive approval during third-quarter 2019.
Because of the fixed nature of a large portion of PT-FI’s costs, unit net cash costs can vary significantly from quarter to quarter depending on copper and gold volumes. PT-FI’s unit net cash costs (including gold and silver credits) of $2.15 per pound of copper in second-quarter 2019, compared with unit net cash credits of $0.77 per pound in second-quarter 2018, primarily reflected lower copper and gold volumes.
Assuming an average gold price of $1,400 per ounce for the second half of 2019 and achievement of current sales volume and cost estimates, unit net cash costs (including gold and silver credits) for PT-FI are expected to approximate $1.55 per pound of copper for the year 2019, (including $1.14 per pound of copper for the second half of 2019). PT-FI’s unit net cash costs for the second half of 2019 are expected to benefit from access to higher grade ore from the Grasberg open pit. PT-FI’s unit net cash costs for the year 2019 would change by approximately $0.04 per pound for each $50 per ounce change in the average price of gold for the second half of 2019.
PT-FI’s projected sales volumes and unit net cash costs for the year 2019 are dependent on a number of factors, including operational performance, mine sequencing changes, timing of shipments and export quotas.
Molybdenum Mines. FCX has two wholly owned molybdenum mines in Colorado – the Henderson underground mine and the Climax open-pit mine. The Henderson and Climax mines produce high-purity, chemical-grade molybdenum concentrate, which is typically further processed into value-added molybdenum chemical products. The majority of the molybdenum concentrate produced at the Henderson and Climax mines, as well as from FCX’s North America and South America copper mines, is processed at FCX’s conversion facilities.
Operating and Development Activities. Production from the Molybdenum mines totaled 9 million pounds of molybdenum in both second-quarter 2019 and 2018. Refer to summary operating data on page 3 for FCX’s consolidated molybdenum sales and average realized prices, which includes sales of molybdenum produced at the Molybdenum mines and from FCX’s North America and South America copper mines.
Unit net cash costs for the Molybdenum mines averaged $9.15 per pound of molybdenum in second-quarter 2019 and $8.36 per pound in second-quarter 2018. Based on current sales volume and cost estimates, average unit net cash costs for the Molybdenum mines are expected to approximate $9.60 per pound of molybdenum for the year 2019.
For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX’s consolidated financial statements, refer to the supplemental schedules, “Product Revenues and Production Costs,” beginning on page XIII, which are available on FCX’s website, “fcx.com.”
Mining Exploration Activities. FCX’s mining exploration activities are generally associated with its existing mines, focusing on opportunities to expand reserves and resources to support development of additional future production capacity. A drilling program to further delineate the Lone Star resource continues to indicate significant additional mineralization in this district, with higher ore grades than FCX’s other North America copper mines. Exploration results continue to indicate opportunities for significant future potential reserve additions in North America and South America. Exploration spending is expected to approximate $75 million for the year 2019, compared with $78 million in 2018.
CASH FLOWS, ASSET SALES, CASH and DEBT
Operating Cash Flows. FCX generated operating cash flows of $554 million (including $308 million of working capital sources and timing of other tax payments) in second-quarter 2019 and $1.1 billion (including $281 million of working capital sources and timing of other tax payments) for the first six months of 2019.
Based on current sales volume and cost estimates, and assuming average prices of $2.75 per pound of copper, $1,400 per ounce of gold and $12.00 per pound of molybdenum for the second half of 2019, FCX’s consolidated operating cash flows are estimated to approximate $1.9 billion (including $0.3 billion of working capital sources and changes in timing of other tax payments) for the year 2019. The impact of price changes during the second half of 2019 on operating cash flows would approximate $185 million for each $0.10 per pound change in the average price of copper, $20 million for each $50 per ounce change in the average price of gold and $55 million for each $2 per pound change in the average price of molybdenum.
Capital Expenditures. Capital expenditures totaled $0.6 billion in second-quarter 2019 (including approximately $0.4 billion for major mining projects) and $1.25 billion for the first six months of 2019 (including approximately $0.7 billion for major mining projects).
Capital expenditures are expected to approximate $2.6 billion for the year 2019, including $1.6 billion for major mining projects primarily associated with underground development activities in the Grasberg minerals district and development of the Lone Star project, and exclude estimates associated with the new smelter in Indonesia. A large portion of the capital expenditures relate to projects that are expected to add significant production and cash flow in future periods, enabling FCX to generate operating cash flows exceeding capital expenditures in future years. FCX has cash on hand and the financial flexibility to fund these expenditures and will continue to be disciplined in deploying capital.
Asset Sales. In second-quarter 2019, FCX entered into an agreement to sell its cobalt refinery in Kokkola, Finland, and related cobalt cathode precursor business for total consideration of approximately $150 million, plus working capital at the time of closing. FCX and its partners will retain Freeport Cobalt’s remaining cobalt business. The transaction is expected to close by year-end 2019, and FCX expects to report a gain on the transaction. In addition to customary closing conditions, including regulatory approvals, prior to completing the transaction, Freeport Cobalt is required to be segregated into two separate businesses. FCX evaluated the criteria required for assets held for sale classification and concluded that this transaction did not meet all of the criteria at June 30, 2019.
Cash. Following is a summary of the U.S. and international components of consolidated cash and cash equivalents available to the parent company, net of noncontrolling interests’ share, taxes and other costs at June 30, 2019 (in billions):
| Cash at domestic companies | $ | 1.6 | ||
| Cash at international operations | 1.0 | |||
| Total consolidated cash and cash equivalents | 2.6 | |||
| Noncontrolling interests’ share | (0.4 | ) | ||
| Cash, net of noncontrolling interests’ share | $ | 2.2 | ||
| Withholding taxes and other | — | a | ||
| Net cash available | $ | 2.2 | ||
a. Rounds to less than $0.1 billion.
Debt. At June 30, 2019, FCX’s consolidated debt totaled $9.9 billion, with a related weighted-average interest rate of 4.7 percent. FCX had no borrowings, $13 million in letters of credit issued and $3.5 billion available under its revolving credit facility at June 30, 2019.
In May 2019, FCX amended its $3.5 billion revolving credit facility to, among other things, extend $3.26 billion of the facility by one year to April 20, 2024. The remaining $240 million matures on April 20, 2023.
FINANCIAL POLICY
On June 26, 2019, FCX declared a quarterly cash dividend of $0.05 per share on its common stock, which will be paid on August 1, 2019 to shareholders of record as of July 15, 2019. The declaration of dividends is at the discretion of the Board of Directors (Board) and will depend upon FCX’s financial results, cash requirements, future prospects and other factors deemed relevant by the Board.
WEBCAST INFORMATION
A conference call with securities analysts to discuss FCX’s second-quarter 2019 results is scheduled for today at 10:00 a.m. Eastern Time. The conference call will be broadcast on the Internet along with slides. Interested parties may listen to the conference call live and view the slides by accessing “fcx.com.” A replay of the webcast will be available through Friday, August 24, 2019.
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FCX is a leading international mining company with headquarters in Phoenix, Arizona. FCX operates large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum. FCX is one of the world’s largest publicly traded copper producers.
FCX’s portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits; and significant mining operations in North America and South America, including the large-scale Morenci minerals district in Arizona and the Cerro Verde operation in Peru. Additional information about FCX is available on FCX’s website at “fcx.com.”
Cautionary Statement and Regulation G Disclosure: This press release contains forward-looking statements in which FCX discusses its potential future performance. Forward-looking statements are all statements other than statements of historical facts, such as projections or expectations relating to ore grades and milling rates; production and sales volumes; unit net cash costs; operating cash flows; capital expenditures; FCX’s expectations regarding its share of PT-FI’s net (loss) income and future cash flows through 2022; PT-FI’s development, financing, construction and completion of a new smelter in Indonesia; PT-FI’s compliance with environmental standards under the framework established by Indonesia’s Ministry of Environment and Forestry; exploration efforts and results; development and production activities, rates and costs; liquidity; tax rates; export quotas and duties; the impact of copper, gold and molybdenum price changes; the impact of deferred intercompany profits on earnings; reserve estimates; consummation of the pending Freeport Cobalt transaction; and future dividend payments, share purchases and sales. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be,” ”potential” and any similar expressions are intended to identify those assertions as forward-looking statements. The declaration of dividends is at the discretion of the Board and will depend on FCX’s financial results, cash requirements, future prospects, and other factors deemed relevant by the Board.
FCX cautions readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause FCX’s actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, supply of and demand for, and prices of, copper, gold and molybdenum; mine sequencing; changes in mine plans; production rates; timing of shipments; results of feasibility studies; potential inventory adjustments; potential impairment of long-lived mining assets; satisfaction of customary closing conditions, including receipt of regulatory approvals to consummate the pending Freeport Cobalt transaction; the potential effects of violence in Indonesia generally and in the province of Papua; the Indonesian government’s approval of an increase in PT-FI’s export quota for the current export period ending March 8, 2020, and extension of PT-FI’s export license after March 8, 2020; risks associated with underground mining; satisfaction of requirements in accordance with PT-FI’s special mining license (IUPK) to extend mining rights from 2031 through 2041; industry risks; regulatory changes; political and social risks; labor relations; weather- and climate-related risks; environmental risks; litigation results; cybersecurity incidents; and other factors described in more detail under the heading “Risk Factors” in FCX’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (SEC).
Investors are cautioned that many of the assumptions upon which FCX’s forward-looking statements are based are likely to change after the forward-looking statements are made, including for example commodity prices, which FCX cannot control, and production volumes and costs, some aspects of which FCX may not be able to control. Further, FCX may make changes to its business plans that could affect its results. FCX cautions investors that it does not intend to update forward-looking statements more frequently than quarterly notwithstanding any changes in its assumptions, changes in business plans, actual experience or other changes, and FCX undertakes no obligation to update any forward-looking statements.
This press release also contains certain financial measures such as adjusted net (loss) income and unit net cash costs (credits) per pound of copper and molybdenum, which are not recognized under U.S. generally accepted accounting principles. As required by SEC Regulation G, reconciliations of these measures to amounts reported in FCX’s consolidated financial statements are in the supplemental schedules of this press release, which are also available on FCX’s website, “fcx.com.”
Original Article: https://www.businesswire.com/news/home/20190724005439/en/Freeport-McMoRan-Reports-Second-Quarter-Six-Month-2019-Results
