Steve James, New York – Freeport-McMoRan Copper & Gold Inc whose recent profits were hurt by lower output from its strike-hit Grasberg mine in Indonesia, expects production to return to normal there by the end of June.
The company also said it is cooperating with the Jakarta government, which is reviewing all mining contracts in the country, and is confident it has no obligation to divest part of its assets under existing agreements or a new mining law.
"We are seeing progress in returning to normal operations (at Grasberg)," Chief Executive Officer Richard Adkerson said of the vast copper and gold mine hit by a three-month strike last year and sporadic work interruptions in recent months.
The labor issues seriously affected production at the open-pit mine and, as a result, dented fourth-quarter 2011 earnings. On Thursday, Freeport reported its 2012 first-quarter profit dropped by almost one half and it slightly lowered its gold and copper production targets for the year.
During the first quarter, Freeport produced 123 million pounds of copper at Grasberg, less than half the 284 million pounds it recovered in the same quarter of 2011. Gold, too, was down, from 441,000 ounces in the 2011 quarter, to 229,000 ounces in the 2012 first quarter.
During a conference call with Wall Street analysts, Adkerson said the mill at Grasberg, which crushes mined rock, is operating at over 200,000 tons per day – up from 115,000 tons per day in the first quarter. Full operations around 240,000 tons are expected to be reached in the second quarter, he said.
Asked when Freeport would lift the force majeure it declared at the mine on the island of Papua, Adkerson said normal operations would have to return first. Under force majeure, a company is not bound by contractural obligations to customers.
"We are working very cooperatively with our customers to meet their needs. We do have a priority of providing (copper) concentrate to the ... smelter in Indonesia," he said. "So we will lift this as we get back to full production and resolve some of the uncertainty that we're facing in the first quarter."
Adkerson also sought to tamp down concern among investors about Freeport's operations in Indonesia, in light of the government review and changes in the mining law.
"We are in compliance with our Contract of Work (COW) during all of our years of operations since 1972 in Indonesia," he said. "We have no issues of noncompliance on either side. We have no divestiture obligations under our COW."
He said the new mining law provides for 20 percent divestiture obligations, "but we are under our existing COW, not a new mining law. "We are working cooperatively with the government and I'll say that we will continue to do so to be responsive to issues raised by the government in the context of protecting the values of our contract for our shareholders."
Adkerson noted that Freeport has contributed over $60 billion to Indonesia's GDP since 1992 and the company is investing $15 billion to develop underground operations at Grasberg, when the open-pit mine is depleted.
Earlier on Thursday, Freeport reported first-quarter net earnings were $764 million, or 80 cents per share, compared with $1.5 billion, or $1.57 per share, in the same quarter of 2011.
Excluding losses on debt repayment, profit was 96 cents per share. On that basis, analysts' average forecast was 86 cents, according to Thomson Reuters I/B/E/S. Revenue dropped to $4.61 billion from $5.71 billion.
The Phoenix, Arizona-based company, which also operates mines in Africa and North and South America, said first-quarter sales were 827 million pounds of copper and 288,000 ounces of gold. The totals were lower than January estimates of 875 million pounds of copper and 425,000 ounces of gold because of the lower Grasberg output.
Freeport said 2012 sales are expected to be 3.7 billion pounds of copper, 1.1 million ounces of gold and 81 million pounds of molybdenum – down about 100 million pounds of copper and 100,000 ounces of gold from its previous forecast.
Freeport expects second-quarter sales of 895 million pounds of copper, 235,000 ounces of gold and 20 million pounds of molybdenum. In afternoon trading on the New York Stock Exchange, Freeport shares were down 8 cents at $38.21.
During the first quarter, spot gold gained 8 percent – from $1,563.80 an ounce to $1,688.29 on March 30. Copper climbed 11 percent, with benchmark May COMEX futures moving up from $3.44 per pound to $3.82.