Freeport’s Adjusted Earnings Miss Estimates as Costs Rise

Freeport-McMoRan Copper & Gold Inc. (FCX), the biggest publicly traded copper producer, reported third- quarter profit that missed analysts’ estimates for the first time in 17 quarters as costs rose and gold sales fell more than expected.

Net income dropped 22 percent to $824 million, or 86 cents a share, from $1.05 billion, or $1.10, a year ago, Phoenix-based Freeport said today in a statement. Earnings excluding credits for environmental adjustments and tax claims were 68 cents a share, trailing the 73-cent average estimate of 21 analysts surveyed by Bloomberg.

Net cash costs rose to $1.62 a pound of copper from 80 cents in the third quarter of 2011, according to the statement Costs were higher mainly because of lower volumes in Indonesia, the company said.

“The miss was largely attributable to higher-than-expected production costs across all divisions, continuing a trend seen across the sector,” Tony Robson, an analyst at BMO Capital Markets in London, said in a note today.

Revenue declined 15 percent to $4.42 billion, beating the $4.36 billion average of 13 estimates. Copper sales totaled 922 million pounds, compared with 947 million pounds a year earlier and a July 19 forecast of 885 million pounds. Brian Yu, an analyst at Citigroup Inc. in San Francisco, had estimated sales of 888 million pounds.

Gold Sales

Gold sales fell 51 percent to 202,000 ounces, missing a July forecast of 225,000 ounces, Freeport said. Gold volumes reflected changes to the mine plan at the company’s Grasberg operation in Indonesia and a slower-than-expected ramp-up at the site’s Deep Ore Zone underground project.

“There’s a little bit of a shortfall there on the gold side but nothing really shocking there coming out of the quarter,” Kuni Chen, an analyst at CRT Capital Group LLC in Stamford, Connecticut, said by telephone.

Freeport’s Indonesian operations had sales of 195 million pounds of copper and 384,000 ounces of gold in the third quarter, compared with 253 million pounds and 384,000 ounces a year ago.

The Grasberg mine was halted for more than two weeks in the first quarter and required “extensive repairs” after violence flared among employees in the aftermath of a three-month strike last year, Freeport said. Grasberg, which has the world’s largest recoverable copper reserves, accounted for 19 percent of Freeport’s revenue last year.

Copper Prices

Copper for delivery in three months on the London Metal Exchange averaged $7,720.85 a metric ton in the quarter, 14 percent less than a year earlier on concern that an economic slowdown in China, the biggest consumer of the metal, would weaken demand.

Freeport cut its forecast for 2012 gold sales to 1 million ounces. Copper sales are still expected to be 3.6 billion pounds this year and may rise 19 percent, to 4.3 billion pounds, in 2013, the company said. It also forecast sales of 1.4 million ounces of gold and 90 million pounds of molybdenum next year.

Freeport, which operates mines in Indonesia, Africa and the Americas, plans to increase annual copper output by more than 25 percent in the next three years, Chief Executive Officer Richard Adkerson said July 19.

The shares fell 1.5 percent to $40.58 at the close in New York.

To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net

To contact the editor responsible for this story: Steven Frank at sfrank9@bloomberg.net

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