Freeport loss doubles as low prices bite

TORONTO (miningweekly.com) – US diversified miner Freeport McMoRan has booked a $3.8-billion write-down of the carrying value of its oil and gas properties, on the back of lower West Texas Intermediate prices.

The company reported a net loss attributable to common stock totalling $4.2-billion, or $3.35 a share, for first-quarter ended March 31.

After adjusting for net charges totalling $4-billion, or $3.19 a share, the company recorded a net loss attributable to common stock of $197-million, $0.16 a share, beating analyst forecasts of losing $0.18 a share.

During the period Freeport’s debt load crept up to $20.8-billion from $20.4-billion a year earlier. Consolidated cash totalled $331 million and as at March 31, Freeport had $3-billion available under its $3.5-billion credit facility.

Under pressure from activist investor Carl Icahn, Freeport had made progress since the start of the year on its asset divestment programme, which had raised $1.4-billion in announced transactions. Freeport expected to report further progress in the current quarter.

“We believe the quality and scale of our assets provide opportunities for significant debt reduction while retaining a substantial business with attractive low-cost, long-lived reserves and resources that will enable our shareholders to benefit from improved conditions in the future,” president and CEO Richard Adkerson stated.

The company advised that its continued to advance discussions for the sale of certain interests in its mining and oil and gas assets to accelerate its debt reduction initiatives.

It revealed a plan to cut about a quarter of workers in its oil and gas business after it could not realise any alternatives for the unit. It had booked a charge of about $40-million in the second quarter related to the job cuts and other restructuring costs.

Consolidated revenues fell 15% year-over-year to $3.53-billion.

STRONG OPERATIONS
First-quarter 2016 consolidated copper sales totalled 1.1-billion pounds were in line with guidance and were higher than first-quarter 2015 sales of 960-million pounds, mainly reflecting higher volumes from Cerro Verde, in Peru.

Gold sales hit 201 000 oz, lower than during the first-quarter of 2015 sales of 263 000 oz, reflecting lower ore grades and recoveries.

Consolidated average unit net cash costs (net of by-product credits) declined to $1.38/lb copper from $1.64/lb in the year-ago quarter, mainly owing to higher copper sales volumes in South America and the impact of ongoing cost cutting initiatives.

Average realised price per ounce for gold rose to $1 227 in the quarter, from $1 186 a year ago, while average realised price per pound for copper declined to $2.17 from $2.72 in the previous-year quarter.

Freeport also reported consolidated molybdenum sales of 17-million pounds, below the January estimate of 19-million pounds and first-quarter 2015 sales of 23-million pounds, mainly reflecting lower demand and reduced volumes from the Henderson molybdenum mine.

During the period, the company’s oil and gas segment produced 12.1-million barrels of oil equivalents (MMBOE), including 8.3-million barrels (MMBbls) of crude oil, 19.6-billion cubic feet of natural gas and 0.6 MMBbls of natural gas liquids, down when compared with first-quarter 2015 sales of 12.5 MMBOE and the January estimate of 12.4-MMBOE.

Freeport expanded into the oil and gas sector in 2013, having acquired Plains Exploration and McMoRan Exploration for $19-billion, including debt. The deals proved unpopular with investors owing to the big contributions to the company's heavy debt load, while oil prices at $44/bl on Tuesday had declined by about 65% since 2013.

Freeport’s energy division included assets in the Deepwater Gulf of Mexico, onshore and offshore assets in California and in the Haynesville natural gas shale formation, along with other natural gas assets in Louisiana.

Freeport expected copper sales five-billion pounds, 1.85-million ounces of gold, 71-million pounds of molybdenum and 54.4 MMBOE this year.

The company expected higher copper grades from its massive Grasberg operation, in Indonesia, during the second half of the year to result in about 55% of total copper sales, and 80% of consolidated gold sales to be weighted to the second half of the year.

Freeport’s NYSE-listed stock were subject to high trading volumes on Tuesday, climbing 1.5% to $11.52 apiece in early afternoon trading.