Grasberg woes cause Freeport to miss revised guidance

ONGOING disputes at the troubled Grasberg mine in Indonesia, the world’s largest copper and gold mine, have crippled the operation in the latest quarter with production falling short of its revised guidance as volumes more than halved and costs doubled.
Grasberg woes cause Freeport to miss revised guidance Grasberg woes cause Freeport to miss revised guidance Grasberg woes cause Freeport to miss revised guidance Grasberg woes cause Freeport to miss revised guidance Grasberg woes cause Freeport to miss revised guidance

Owned 90.64% by Phoenix-based Freeport McMoRan, the site was shut down for three weeks on February 23 due to an ongoing dispute following a three-month strike last year, but problems continue to plague the mine.

Only last month Freeport was forced to slash its first quarter production guidance by 80 million pounds of copper and 125,000 ounces of gold to 795Mlb of copper and 300,000oz of gold, but figures for the latest three-month period tell a different story.

A total of 123Mlb of copper and 229,000oz of gold was produced in the March quarter at unit net cash costs after gold and silver credits of US33c per pound of copper, versus volumes of 68Mlb of copper and 149,000oz of gold at net cash costs after credits of $3.57/lb copper in the December three-month period and 284Mlb of copper and 441,000oz of gold at net cash costs after credits of 16c/lb in the corresponding period of last year.

Sales for the quarter reached 134Mlb of copper and 266,000oz of gold and compare to 50Mlb of copper and 102,000oz of gold in the December quarter and 278Mlb of copper and 454,000oz of gold in the corresponding March quarter of last year.

For the year, Freeport expects sales to reach 800Mlb of copper and 1Moz of gold at unit net cash costs (net of gold and silver credits) of $1.11/lb copper versus last year's result of 846Mlb of copper and 1.3Moz of gold.

The latter reflects mining of a lower grade section of the mine and will push unit net cash costs higher due to reduced gold credits.

Freeport estimates unit net cash costs for the balance of the year will change by about 5c/lb for each $50/oz change in the average price of gold.

However, in future years it expects unit net cash costs to decline significantly because of higher projected copper and gold volumes at it transitions to underground mining.

With several projects in progress in the Grasberg minerals district, primarily related to the development of large-scale, high-grade underground orebodies located beneath and nearby the existing open pit, volumes are expected to ramp up to around 240,000 tonnes of ore per day from 2016.

The average burn rate by Freeport over the next five years is expected to be $700 million per annum with the high-grade Big Gossan mine to hit its straps of 7000t of ore per day next year.

Substantial progress has also been made in developing infrastructure and underground workings that will enable access to the underground ore bodies with work on terminal infrastructure and mine access for the Grasberg Block Cave and Deep Mill Level Zone ore bodies in progress.

Globally, including its operations in North and South America, Freeport also missed its sales estimates achieving first quarter sales of 827Mlb of copper and 288,000oz of gold compared to the expected 875Mlb of copper and 425,000oz of gold.

Production in the latest quarter reached 833Mlb of copper and 252,000oz of gold at unit net cash costs of $1.26/lb of copper.

Its North American Copper Mines arm produced 337Mlb of copper and 10Mlb of molybdenum in the latest period with sales of 338Mlb of copper at unit net cash costs of $1.51/lb versus 341Mlb of copper and 8Mlb of molybdenum and sales of 333Mlb of copper at unit net cash costs of $1.48/lb copper in the December quarter.

Volumes from South America reached 293Mlb of copper, 19,000oz of gold and 2Mlb of molybdenum with sales of 286Mlb of copper and 19,000oz of gold at unit net cash costs of $1.40/lb copper compared to 337Mlb of copper, 28,000oz of gold and 2Mlb of molybdenum and sales of 357Mlb of copper and 29,000oz of gold at unit net cash costs of $1.44/lb copper in the previous quarter.

African volumes kicked in a further 80Mlb of copper and 6Mlb of cobalt with sales of 69Mlb of copper and 5Mlb of cobalt at unit net cash costs of $1.25/lb copper versus 77Mlb of copper and 7Mlb of molybdenum with sales of 83Mlb of copper and 6Mlb of molybdenum and unit net cash costs of $1.30/lb in the December quarter.

Consolidated cash on hand for Freeport at the end of March was $4.5 billion with debt of $3.5B.

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