Freeport to End Indonesia Strike - Analyst Blog
14 Dezember 2011 - 1:30PM
Zacks
A wage deal has been reached to end
a three-month strike at a giant gold and copper mine in Indonesia
owned by US company Freeport McMoRan Copper & Gold
Inc. (FCX).
As per Freeport Indonesia’s Union,
the two sides have agreed to pay 37% increase over two years
including 24% rise in its first year to end the longest-running
industrial dispute in Indonesia.
Around 8,000 of Freeport’s 23,000
workers in Indonesia’s Papua province have been on strike since
Sept. 15, crippling production at the Grasberg mine, which holds
the world’s largest gold and second-largest copper reserves.
Workers originally wanted a 20-fold increase, from a minimum of
$1.50 an hour to $30, but their demands steadily declined. The
strike has slashed production by 50%, prompting the company to
declare force majeure, a legal declaration of extraordinary
circumstances enabling it to avoid liability on existing orders, in
October. This move came after the company failed to deliver
shipments to some customers.
Even if workers return, it is
likely to take some days to ramp up production, and even longer to
resume shipments since the firm needs to repair a sabotaged
pipeline that takes metal concentrate from the mine to its
port.
Recently, Freeport released its
third-quarter earnings. The company reported a profit of $1.1
billion or $1.10 per share in the third quarter of 2011 versus $1.2
billion or $1.24 per share in the prior-year quarter. The profit
missed the Zacks Consensus Estimate by 2 cents per share.
Revenues in the quarter were $5.20
billion versus $5.15 billion in the prior-year quarter, surpassing
the Zacks Consensus Estimate of $5.01 billion. Consolidated sales
from mines totaled 947 million pounds of copper, 409,000 ounces of
gold and 19 million pounds of molybdenum compared with 1.1 billion
pounds of copper, 497,000 ounces of gold and 17 million pounds of
molybdenum in the third quarter of 2010.
Consolidated unit net cash costs
(net of by-product credits) averaged 80 cents per pound of copper
compared with 82 cents per pound in the third quarter of 2010.
Operating income slumped $2.1 billion from $2.5 billion in the
year-ago quarter.
Freeport-McMoRan’s consolidated
sales from mines for the year 2011 are expected to approximate 3.8
billion pounds of copper, 1.6 million ounces of gold and 78 million
pounds of molybdenum, including 915 million pounds of copper, 305
thousand ounces of gold and 18 million pounds of molybdenum for
fourth-quarter 2011.
Based on current 2011 sales volume
and cost estimates and assuming average prices of $1,600 per ounce
for gold and $14 per pound for molybdenum for fourth-quarter 2011,
consolidated unit net cash costs (net of by-product credits) are
estimated to average $0.95 per pound of copper for the year
2011.
Based on current 2011 sales volume
and cost estimates and assuming average prices of $3.25 per pound
for copper, $1,600 per ounce for gold and $14 per pound for
molybdenum for fourth-quarter 2011, operating cash flows are
estimated to approximate $7 billion for the year 2011. Capital
expenditures are expected to approximate $2.6 billion for the year
2011, including $1.4 billion for major projects and $1.2 billion
for sustaining capital.
Headquartered in Phoenix, Arizona,
Freeport-McMoRan Copper & Gold Inc. is engaged in mineral
exploration and development; mining and milling of copper, gold,
molybdenum and silver; as well as the smelting and refining of
copper concentrates.
The company conducts its operations
primarily through its principal operating subsidiaries, PT Freeport
Indonesia, Freeport-McMoRan Corporation (formerly Phelps Dodge) and
Atlantic Copper. Its major competitors include Newmont
Mining Corp. (NEM) and Southern Copper
Corp. (SCCO). It currently retains Zacks #3 Rank on its
stock, which translates to a short-term Hold rating.
FREEPT MC COP-B (FCX): Free Stock Analysis Report
NEWMONT MINING (NEM): Free Stock Analysis Report
SOUTHERN COPPER (SCCO): Free Stock Analysis Report
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