Freeport Has 2nd-Qtr Profit as Metal Production Soars
Freeport Has 2nd-Qtr Profit as Metal Production Soars
Claudia Carpenter
Bloomberg/New York
Freeport-McMoRan Copper & Gold Inc., owner of the world's
biggest gold mine, had its fourth straight profitable quarter on
increased output from Indonesia and higher metal prices.
Second-quarter net income was US$190.4 million, or 91
U.S.cents a share, compared with a net loss of $38.2 million, or
30 U.S.cents, a year earlier, New Orleans-based Freeport said
today in a statement. Per-share results were after payment of
preferred dividends. Sales surged 86 percent to $902.9 million.
Chief Executive Richard Adkerson boosted copper sales by 53
percent and gold sales by 76 percent after landslides disrupted
Grasberg mine operations in Indonesia two years ago. Copper
prices on average gained 25 percent, and gold rose 9.8 percent.
The company declared a special dividend of 50 cents a share to be
paid Sept. 30.
"Copper inventories are very low, China continues to consume
copper at higher rates and the U.S. economy is doing reasonably
well," Adkerson said in an interview. "Underlying fundamentals
are very strong."
Freeport, China's Jiangxi Copper Co. and other producers are
benefiting as economic growth in China and the U.S. stokes demand
for electrical wires and pipes. Global copper inventories in
warehouses approved by the London Metal Exchange have plunged 45
percent this year, to the lowest in 31 years.
Freeport was forecast to earn 87 U.S.cents a share in the
second quarter, the average estimate of 14 analysts surveyed by
Thomson Financial.
Shares of Freeport rose 11 cents to $38.76 at 4:01 p.m. in New
York Stock Exchange composite trading. They are up 9.7 percent in
the past year.
Adkerson, 59, said Freeport will generate $1.2 billion in cash
this year from higher prices and output with $179.7 million spent
on common-stock dividends in the first half. The company's
special dividend, the third since December, will be paid Sept.
30.
"We like to see companies with excess cash flow that take that
cash and do things that increase shareholder value such as buying
back stock and paying dividends," said Ivan Feinseth, director of
research at Matrix USA Inc. in New York, who rates Freeport a
"strong buy."
Freeport sold copper on average at $1.53 a pound, up from
$1.22, and its average gold prices rose to $428.23 an ounce from
$387.97, the company said.
"Copper consumption remains higher than expected," Adkerson
said. "There are reports that the physical market for gold is
good."
Freeport sold 313.7 million pounds of copper, less than the
340 million forecast by the company at the end of the first
quarter. Gold sales were 616,400 ounces, below the projection of
650,000 ounces. Output was lower than anticipated partly because
of "unplanned downtime for mill maintenance," the company said.
Freeport lowered its estimate of its share of production from
Grasberg this year to 1.47 billion pounds of copper and 2.8
million ounces of gold. The previous estimate was 1.5 billion
pounds of copper and 2.9 million ounces of gold.
Grasberg is expected to produce about 3.5 million ounces of
gold this year and 800,000 metric tons of copper, the second-
highest after BHP Billiton Ltd.'s Escondida mine in Chile,
Freeport executives said in a May 16 presentation to analysts.
Special Dividends
"As the company continues to experience strong cash flows due
to the relatively high metal price environment, we believe
further dividend increases or supplemental dividends are
possible," BMO Nesbitt Burns analyst Victor Lazarovici said in a
note to clients today.
Revenue in the second quarter of 2004 was $486.3 million.
Net income in the first half was $335.9 million, or $1.62 a
share, compared with a net loss of $57.6 million, or 39
U.S.cents, a year earlier.
Freeport owns almost 91 percent of Grasberg, and the
government of Indonesia owns the rest. Freeport bought out the
rest of PT Indocopper Investama in 2002 after the owner, Mohamad
"Bob" Hasan, was unable to pay loans. PT Aneka Tambang, a gold
and nickel miner 65 percent owned by Indonesia's government, is
considering buying the government's 9.36 percent interest in the
mine, Adkerson said. Any sale would be done at a "fair market
value," he said.