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Freeport Profit Beats Estimates as Sales Top Forecast
Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, reported second-quarter profit that topped analysts’ estimates because of higher-than-forecast sales of the metal.
Earnings excluding some one-time items were $1.49 a share, Phoenix-based Freeport said today in a statement. Analysts projected profit of $1.26, the average of 18 estimates in a Bloomberg survey. Net income rose to $649 million, or $1.40 a share, from $588 million, or $1.38, a year earlier. The shares climbed as much as 6.3 percent in New York.
Chief Executive Officer Richard Adkerson, 63, is increasing output at operations where the company slowed production in the past two years as the global economic slowdown cut demand. Consolidated copper sales were 914 million pounds, 10 percent more than the 830 million pounds Freeport forecast in April.
“Operationally we are very, very pleased with what’s happening,” Anthony Rizzuto, a New York-based analyst with Dahlman Rose & Co., said today in a telephone interview.
The company’s average net cash cost to produce a pound of copper in the quarter was 97 cents, less than the $1.10 that Rizzuto expected. He recommends buying the company’s shares.
“The variance to the April 2010 estimate primarily reflects favorable production performance in North and South America and Indonesia and the timing of shipments,” the company said in the statement.
Possible Buyback
Freeport may consider buying back its shares as it accumulates cash after reducing its debt from the March 2007 acquisition of Phelps Dodge International Corp.
“Our tradition has been to return excess cash to shareholders,” Adkerson told investors and analysts today on a conference call.
Freeport rose $1.74, or 2.7 percent, to $66.06 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have fallen 18 percent this year.
Global demand for copper is stronger than signaled by economic indicators, Adkerson said on the call.
“We feel very, very positive about copper,” he said. “Our order books are filling up more strongly than they have in some time.”
Freeport is evaluating projects in North America, Africa, Asia and South America to boost copper production.
The miner’s second-quarter revenue increased 4.9 percent to $3.86 billion. Freeport forecasts full-year sales of 3.8 billion pounds of copper and 1.8 million ounces of gold, unchanged from its projections in April. The company raised its forecast for 2010 molybdenum sales by 1.6 percent to 63 million pounds.
Deferred Mining
In Indonesia, Freeport plans to defer the mining of about 130 million pounds of copper and 270,000 ounces through 2014 at its Grasberg mine for safety reasons, Adkerson said on the call.
“The ore is still there and we’re still going to get it,” he said. “It is a question of timing.”
The company is working in the Democratic Republic of Congo to resolve issues with the government over Freeport’s 57.8 percent-owned Tenke Fungurume copper and cobalt operations in Katanga province.
“We’re operating under our contract,” Adkerson said. “We believe we’re closing in on these discussions about our contract review.”
To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net.
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