Jan. 16 (Bloomberg) -- Freeport-McMoRan Copper & Gold Inc., owner of the world's largest gold mine, said fourth-quarter profit fell more than analysts expected because of lower production and metals prices.

Net income fell to $441.6 million, or $1.99 a share, from $478.3 million, or $2.19, a year earlier, New Orleans-based Freeport said today in a statement. Freeport was forecast to earn $2.11 a share, the average estimate of 15 analysts surveyed by Bloomberg. Sales rose to $1.64 billion from $1.49 billion.

Chief Executive Officer Richard Adkerson said he plans to complete the $25.5 billion takeover of copper producer Phelps Dodge Corp. in the first quarter. He wants to reduce Freeport's dependence on the Grasberg mine in Indonesia, where gold output dropped 54 percent and copper production fell 8.1 percent.

The profit decline ``demonstrates why Freeport needs Phelps Dodge for stability and diversification,'' Carol Levenson, director of research at independent bond analyst Gimme Credit Publications Inc., said in a report.

Freeport's net income suffered from adjustments to metals sales from prior quarters, which reduced net income by $37.6 million, or 17 cents a share. Copper prices, while higher than a year ago, have plunged 36 percent since reaching a record high in May, and gold has dropped 15 percent from a 26-year high.

``Copper sales are not final until they reach their destination and are accepted, and they are priced based on the market rate at that time,'' spokesman William Collier said in an e-mail.

Shares of Freeport fell $1.61, or 2.9 percent, to $53.40 at 4:19 p.m. in New York Stock Exchange composite trading. The stock has dropped 14 percent in the past year.

Late Price Drop

``The primary driver behind the fourth-quarter shortfall appears to be lower-than-estimated realized copper price,'' Credit Suisse analysts led by David Gagliano said in a report.

Freeport said it got about $2.88 a pound for copper in the quarter. Credit Suisse had expected $3.23. The difference reflected the decline in copper prices in December, ``when Freeport books the majority of approximately 80 percent of its quarterly shipments,'' Gagliano said.

Freeport's Grasberg mine in Indonesia is the world's biggest gold mine and the second-largest copper mine. Copper output at the Indonesian unit fell to 435 million pounds from 474 million pounds, and gold production plunged to 514,000 ounces from 1.1 million.

``The sequencing in mining areas with varying ore grades causes fluctuations in the timing of ore production, resulting in varying quarterly and annual sales of copper and gold,'' Freeport said in the statement.

Copper Outlook

The company said it sold copper at an average $2.88 a pound, up 43 percent, and gold for about $627.71 an ounce, up 27 percent. The prices may be adjusted ``over the next several months,'' the company said.

``We feel very good about the long-term fundamentals of the copper business'' because of economic growth in China, Europe and Japan, and positive signs in the U.S., Freeport's Adkerson said in a conference call with analysts. ``Supply-side surprises are likely to continue to be negative.''

Freeport expects it to sell 1.1 billion pounds of copper and 1.8 million ounces of gold this year. From 2007 to 2011, sales will average about 1.2 billion pounds of copper and 1.8 million ounces of gold, the company said.

``We would be looking at potential opportunities to monetize our values out of Freeport's existing gold stream,'' Adkerson said. ``That might involve some sort of derivative transactions and so forth. You should not look for us to be doing any kind of forward selling of copper.''

Smaller Reserves

Freeport's share of the Grasberg's reserves as of Dec. 31 dropped 4 percent to 38.7 billion pounds of copper from a year earlier. Its gold reserves fell 6.4 percent to 41.1 million ounces.

Freeport agreed to buy Phoenix-based Phelps Dodge for $88 in cash and 0.67 of a share for each Phelps share. That values Phelps Dodge, the world's third-largest copper producer, at $124.86 a share.

``We have been very pleased with the response with the major shareholders of both companies,'' Adkerson said. ``We feel very positive about the response and remain confident that the deal we negotiated with Phelps Dodge will proceed as under current terms and the deal will be approved by shareholders.''

Chile's state-owned Codelco is the largest copper producer by 2005 output, followed by BHP Billiton Ltd.

To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net.

Last Updated: January 16, 2007 16:29 EST