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.