PT Freeport Indonesia eyes century of mining

PT Freeport Indonesia eyes century of mining

TIMIKA, Irian Jaya (Reuters): A slump in world prices of copper and gold will hit PT Freeport Indonesia's bottom line this year but the firm still hopes to be mining in New Guinea when the new century dawns.

In plush offices a stone's throw from virgin jungle, chief financial officer Steve Jones says Freeport should still be digging for metal in Indonesia's Irian Jaya province in 2050, based on ore reserves so far discovered.

The chances are there is a lot more ore out there in the highest mountains between the Himalayas and the Andes.

"I think somebody will be mining from here 50 years from now. In 100 years, I think it is quite possible," Jones told Reuters in an interview.

Asia's economic crisis in the last two years has hit demand for copper in the last two years. At the same time new sources came on stream in Chile.

Copper prices slumped to 60 cents per pound this year, while gold prices also went down to as low as $2.60 per ounce. Both have recovered, but Freeport's bottom line was not spared, nor that of its parent, Freeport McMoRan Copper & Gold Inc.

"We don't hedge either of our commodities so we are subject to the cyclicality of the commodity cycle. In '99 both of them hit all-time lows," said Jones. "Copper will be down slightly. Gold will be down significantly.

As the slump hit in 1998, New Orleans-based Freeport McMoRan reported net income of $118 million, down $90 million on the previous year. Freeport McMoRan owns 81 percent of Freeport Indonesia and is overwhelmingly dependent on income from its operation in Irian Jaya.

Bad sentiment on Indonesia also hit the company's share price in the United States. Attracting funds into Indonesia has been difficult even for a massively profitable venture like Freeport, Jones said.

Exploration and some other budgets have been cut back, but Freeport will still repay $270 million in debt in 1999.

Even at record low prices, Freeport's surreal operation at an elevation of over 4,000 meters (13,120 ft) was still yielding operating profits of well over 200 percent.

"Given what commodity prices have been I think our results this year will be quite good compared to last year," Jones said. "In terms of net income they will be down slightly. In terms of operating cash flow they will be up."

The mine currently yields more than two million tons of concentrate per year, which yields around 800,000 tons of copper metal. Gold production in 1999 will be around 2.3 million ounces, Jones said. It also produces a small amount of silver.

Next year's copper production will be around the same, he said. Gold will be down slightly due to a lower gold content in the next layers of ore.

Current prices have been fluctuating around 80 cents per pound for copper and $2.80 an ounce for gold and predictions are both will go up, but Freeport will not be banking on that.

"We are not going to do an exploration that will require prices any higher than that. The pessimism about the prices has changed. But we would not plan on prices for our commodities going back to $1.30 for copper or $3.50 for gold."

What may change is the amount of ore processed. Current capacity is around 200,000 to 220,000 tons a day. Production is 90 percent from the massive Grasberg pit, where ore is stripped off, sent to a mill where it is crushed and treated, then piped to the coast as a concentrate which is shipped to smelters.

Jones says the firm is looking at adding additional capacity for another 50,000 to 60,000 tons of ore a day, but no firm plans have been set.