- Important Milestones Achieved in Underground Mining
Transition at PT Freeport Indonesia
- Affirms 2019 Consolidated Copper and Gold Sales
Guidance
- Comments on Revised Second-Quarter 2019 Estimates
Freeport-McMoRan Inc. (NYSE: FCX) today provided an update on
its operations and outlook at PT Freeport Indonesia (PT-FI),
affirmed its April 2019 guidance for 2019 consolidated copper and
gold sales volumes and provided revised estimates for
second-quarter 2019.
PT-FI OPERATIONAL UPDATE
During second-quarter 2019, PT-FI achieved important milestones
with respect to its newly commissioned underground mining
operations in the Grasberg minerals district in Papua,
Indonesia.
Grasberg Block Cave. PT-FI has commenced extraction of
ore from the Grasberg Block Cave underground mine, which is the
same ore body historically mined from the surface in the open pit.
Since its discovery in 1988, production from the Grasberg open pit
has totaled approximately 27 billion pounds of copper and 46
million ounces of gold. Over its life, PT-FI expects to produce an
additional 17 billion pounds of copper and 14 million ounces of
gold from the Grasberg Block Cave underground mine, making Grasberg
one of the world's largest copper and gold deposits.
In 2023, PT-FI expects to produce an average of 130,000 metric
tons of ore per day from five production blocks spanning 335,000
square meters (covering over 80 acres) in the large-scale Grasberg
Block Cave underground mine. At average reserve grades of 0.96
percent copper and 0.72 grams per tonne of gold, 130,000 metric
tons of ore per day is expected to equate to production of 850
million pounds of copper and 700,000 ounces of gold per year.
Access to higher grades is expected in the early years of
production.
Second-Quarter 2019 Operational Highlights:
- Undercutting in the Grasberg Block Cave underground mine
exceeded 20,000 square meters, over 20 percent above forecast.
Inception to date, undercutting in the Grasberg Block Cave
underground mine totals 48,000 square meters.
- Initiated drawbelling in two additional production blocks,
bringing the active production blocks to three. Eighteen drawbells
were opened, exceeding forecast. Open drawbells in inventory in the
three active production blocks currently total 29.
- Ore extraction ramped up from an average of 5,000 metric tons
per day in first-quarter 2019 to an average of approximately 9,000
metric tons per day in June 2019 and is expected to reach 15,000
metric tons per day by the end of 2019.
- The fully autonomous, state-of-the-art underground rail system
is supporting efficient transport of ore to the oreflow system for
delivery to the mill processing facility.
Monitoring data on cave propagation in the Grasberg Block Cave
underground mine is providing increased confidence in growing
production rates over time. As existing drawpoints mature and
additional drawpoints are added, cave expansion is expected to
accelerate production from an average of 30,000 metric tons of ore
per day in 2020 to 130,000 metric tons of ore per day in 2023.
Deep Mill Level Zone (DMLZ). The DMLZ underground mine,
located east of the Grasberg ore body and below the Deep Ore Zone
(DOZ) underground mine, is expected to produce 8 billion pounds of
copper and 8 million ounces of gold over its life.
In 2022, PT-FI expects to produce from three production blocks
in the DMLZ underground mine spanning 200,000 square meters (a
footprint approaching 50 acres). At average reserve grades of 0.92
percent copper and 0.76 grams per tonne of gold, 80,000 metric tons
of ore per day is expected to equate to production of 500 million
pounds of copper and 560,000 ounces of gold per year. Access to
higher ore grades is expected in the early years of production.
Second-Quarter 2019 Operational Highlights:
- Hydraulic fracturing operations are ongoing and continue to be
successful in conditioning the rock for large-scale mining.
- Undercutting approached 4,000 square meters, in-line with
forecast. Inception to date, undercutting totals 58,000 square
meters.
- In June 2019, undercutting commenced on the second production
block to establish two large production blocks in the DMLZ
underground mine for ore extraction.
- A total of four drawbells were opened, bringing total inventory
of drawbells to 74.
- Production ramped up from an average of 6,800 metric tons of
ore per day in first-quarter 2019 to an average of approximately
9,000 metric tons of ore per day in June. The DMLZ underground mine
is expected to reach 11,000 metric tons of ore per day by the end
of 2019.
Ongoing hydraulic fracturing operations combined with continued
undercutting and drawbell openings in the two production blocks are
expected to expand the cave, supporting higher rates of production
with an average of 28,000 metric tons of ore per day estimated in
2020 and 80,000 metric tons of ore per day in 2022.
Grasberg Open Pit. PT-FI continues to mine the final
stages of the Grasberg open pit. During second-quarter 2019, PT-FI
opened an additional mining area to extend pit life options into
third-quarter 2019 and potentially longer (previous estimates were
based on mining through June 2019). The mine sequencing changes in
the open pit delayed access to the high-grade material previously
forecast to be produced during second-quarter 2019, resulting in
lower copper and gold production from the open pit than the April
2019 estimates.
Revised 2019 mine plans for the Grasberg open pit are expected
to meet and provide an opportunity to exceed the April 2019
estimates for copper and gold production for the year 2019. PT-FI
will continue to monitor geotechnical conditions to determine the
extent of mining in the open pit. Material not mined from the open
pit would be available to be mined from the Grasberg Block
Cave.
CONSOLIDATED SALES VOLUMES
FCX expects its consolidated copper sales volumes for
second-quarter 2019 to approximate the April 2019 estimates of 800
million pounds, with higher copper sales from the Americas
offsetting lower copper sales from Indonesia. Sales of gold for
second-quarter 2019 are expected to approximate 190 thousand
ounces, below the April 2019 estimate of 265 thousand ounces
because of mine sequencing changes in the Grasberg open pit which
delayed access to high-grade material. FCX currently expects
consolidated sales for the year 2019 to be in-line with the April
2019 estimates of 3.3 billion pounds of copper and 0.8 million
ounces of gold.
REVISED SECOND-QUARTER 2019 ESTIMATES
LME copper prices averaged $2.77 per pound during second-quarter
2019. The average three-month forward price at the end of June was
$2.72 per pound and will be used to record provisionally priced
copper sales, expected to finally settle in the second half of
2019. FCX expects its second-quarter 2019 copper sales to be
recorded at an average price of approximately $2.73 per pound.
At March 31, 2019, FCX had provisionally priced copper sales at
its copper mining operations totaling 364 million pounds of copper
(net of intercompany sales and noncontrolling interests) recorded
at an average of $2.94 per pound, subject to final pricing over the
next several months. FCX estimates that the mark-to-market impact
of lower copper prices in the quarter associated with March 31,
2019, provisionally priced sales will reduce second quarter
revenues by approximately $85 million.
Current analyst estimates reflect an average copper price of
approximately $2.95 per pound for the second quarter. The impact on
second-quarter 2019 revenues of lower copper prices, including
adjustments for provisionally priced sales recorded at March 31,
2019, is estimated to total approximately $260 million.
Unit net cash costs from the Americas operations for the second
quarter of 2019 are expected to be in-line with prior estimates.
The impact of deferred copper and gold sales volumes from PT-FI is
expected to result in higher unit net cash costs than previously
estimated. Because of the fixed nature of a large portion of
Indonesia's costs, unit net cash costs vary depending on copper and
gold volumes. FCX currently estimates its second-quarter 2019
consolidated unit net cash costs will be approximately 15 percent
higher than April 2019 guidance of $1.67 per pound of copper. A
significant portion of this variance is timing in nature as unit
net cash costs are expected to benefit from access to higher grade
ore from the Grasberg open pit in the second half of 2019.
Based on estimated realized prices and updated gold sales and
cost guidance for the second quarter, FCX expects to generate
adjusted earnings before interest, taxes and depreciation (Adjusted
EBITDA) of approximately $430 million in second-quarter 2019 and to
record an approximate $0.05 per share loss to net income before any
non-recurring items.
The revised second-quarter 2019 financial estimates in this
press release are based on modeled results and subject to further
changes upon completion of FCX’s normal closing process and
finalization of quarterly financial and accounting procedures.
On Wednesday, July 24, 2019, FCX plans to release second-quarter
2019 financial results and conduct a conference call with
securities analysts at 10:00 a.m. Eastern Time to discuss the
results. An audio webcast of the conference call along with slides
will be broadcast live on fcx.com.
FCX is a leading international mining company with headquarters
in Phoenix, Arizona. FCX operates large, long-lived, geographically
diverse assets with significant proven and probable reserves of
copper, gold and molybdenum. FCX is one of the world's largest
publicly traded copper producers.
FCX’s portfolio of assets includes the Grasberg minerals
district in Indonesia, one of the world's largest copper and gold
deposits; and significant mining operations in North America and
South America, including the large-scale Morenci minerals district
in Arizona and the Cerro Verde operation in Peru. Additional
information about FCX is available on FCX's website at
"fcx.com."
Cautionary Statement and Regulation G Disclosure: This
press release contains forward-looking statements in which FCX
discusses its potential future performance. Forward-looking
statements are all statements other than statements of historical
fact, such as statements regarding revised second-quarter 2019
estimates (which reflect current model results and are subject to
changes); projected guidance; projections or expectations relating
to ore grades and milling rates; production and sales volumes; unit
net cash costs; operating cash flows; capital expenditures; FCX's
expectations regarding its share of PT-FI's net income and future
cash flows through 2022; PT-FI's development, financing,
construction and completion of a new smelter in Indonesia; PT-FI's
compliance with environmental standards under the new framework
established by Indonesia’s Ministry of Environment and Forestry;
exploration efforts and results; development and production
activities, rates and costs; liquidity; tax rates; export quotas
and duties; the impact of copper, gold and molybdenum price
changes; the impact of deferred intercompany profits on earnings;
reserve estimates; and future dividend payments, share purchases
and sales. The words “anticipates,” “may,” “can,” “plans,”
“believes,” “estimates,” “expects,” “projects,” "targets,"
“intends,” “likely,” “will,” “should,” “to be,” ”potential" and any
similar expressions are intended to identify those assertions as
forward-looking statements. The declaration of dividends is at the
discretion of the FCX Board of Directors (the Board) and will
depend on FCX's financial results, cash requirements, future
prospects, and other factors deemed relevant by the Board.
FCX cautions readers that forward-looking statements are not
guarantees of future performance and actual results may differ
materially from those anticipated, expected, projected or assumed
in the forward-looking statements. Important factors that can cause
FCX's actual results to differ materially from those anticipated in
the forward-looking statements include, but are not limited to,
supply of and demand for, and prices of, copper, gold and
molybdenum; mine sequencing; changes in mine plans; production
rates; timing of shipments; results of feasibility studies;
potential inventory adjustments; potential impairment of long-lived
mining assets; the potential effects of violence in Indonesia
generally and in the province of Papua; the Indonesian government's
approval of an increase in PT-FI's export quota for the current
export period, which ends March 8, 2020, and extension of PT-FI's
export license after March 8, 2020; risks associated with
underground mining; satisfaction of requirements in accordance with
PT-FI's special mining license (IUPK) to extend mining rights from
2031 through 2041; industry risks; regulatory changes; political
and social risks; labor relations; weather- and climate-related
risks; environmental risks; litigation results; cybersecurity
incidents; and other factors described in more detail under the
heading “Risk Factors” in FCX's Annual Report on Form 10-K for the
year ended December 31, 2018, filed with the U.S. Securities and
Exchange Commission (SEC). The revised second-quarter 2019
financial estimates in this press release are based on modeled
results and subject to further changes upon completion of FCX’s
normal closing process and finalization of quarterly financial and
accounting procedures.
Investors are cautioned that many of the assumptions upon which
FCX's forward-looking statements are based are likely to change
after the forward-looking statements are made, including for
example commodity prices, which FCX cannot control, and production
volumes and costs, some aspects of which FCX may not be able to
control. Further, FCX may make changes to its business plans that
could affect its results. FCX cautions investors that it does not
intend to update forward-looking statements more frequently than
quarterly notwithstanding any changes in its assumptions, changes
in business plans, actual experience or other changes, and FCX
undertakes no obligation to update any forward-looking
statements.
Adjusted EBITDA, unit net cash costs and net income before
non-recurring items are non-GAAP financial measures that are
frequently used by securities analysts, investors, lenders and
others to evaluate companies’ performance, including, among other
things, profitability before the effect of financing and similar
decisions. Adjusted EBITDA, unit net cash costs and net income
before non-recurring items should not be considered as a substitute
for measures of financial performance prepared in accordance with
GAAP. Adjusted EBITDA, unit net cash costs and net income before
non-recurring items may not necessarily be comparable to similarly
titled measures reported by other companies, as different companies
calculate such measures differently. A reconciliation of the
forward-looking non-GAAP financial measures in this press release
to the most directly comparable financial measures calculated and
presented in accordance with GAAP are not available at this time.
However, a detailed reconciliation of non-GAAP financial measures
to the most directly comparable GAAP financial measures will be
presented in connection with FCX’s release reporting full financial
results for the quarter ended June 30, 2019 scheduled to be
released on July 24, 2019.
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Financial Contacts: Kathleen L. Quirk (602)
366-8016
David P. Joint (504) 582-4203
Media Contact: Linda S. Hayes (602) 366-7824
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