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Freeport-McMoRan Reports Third-Quarter and Nine-Month 2018 Results

Posted: 30.11.2018

Freeport-McMoRan Reports Third-Quarter And Nine-Month 2018 Results

10/24/18

PHOENIX--(BUSINESS WIRE)-- Freeport-McMoRan Inc. (NYSE: FCX):

  • Net income attributable to common stock totaled $556 million, $0.38 per share, in third-quarter 2018. After adjusting for net gains of $42 million, $0.03 per share, third-quarter 2018 adjusted net income attributable to common stock totaled $514 million, $0.35 per share.
  • Consolidated sales totaled 1.04 billion pounds of copper, 837 thousand ounces of gold and 22 million pounds of molybdenum in third-quarter 2018.
  • Consolidated sales for the year 2018 are expected to approximate 3.8 billion pounds of copper, 2.45 million ounces of gold and 95 million pounds of molybdenum, including 790 million pounds of copper, 330 thousand ounces of gold and 25 million pounds of molybdenum in fourth-quarter 2018.
  • Average realized prices in third-quarter 2018 were $2.80 per pound for copper, $1,191 per ounce for gold and $12.40 per pound for molybdenum.
  • Average unit net cash costs in third-quarter 2018 were $0.93 per pound of copper and are expected to average $1.06 per pound of copper for the year 2018.
  • Operating cash flows totaled $1.25 billion in third-quarter 2018 and $3.9 billion for the first nine months of 2018. Based on current sales volume and cost estimates, and assuming average prices of $2.85 per pound for copper, $1,200 per ounce for gold and $12.00 per pound for molybdenum for fourth-quarter 2018, operating cash flows are expected to approximate $4.2 billion (net of $0.5 billion in working capital uses and timing of other tax payments) for the year 2018.
  • Capital expenditures totaled $0.5 billion (including approximately $0.4 billion for major mining projects) in third-quarter 2018 and $1.4 billion (including approximately $0.9 billion for major mining projects) for the first nine months of 2018. Capital expenditures for the year 2018 are expected to approximate $2.0 billion, including $1.2 billion for major mining projects primarily associated with underground development activities in the Grasberg minerals district in Indonesia and development of the Lone Star oxide project in Arizona.
  • On September 27, 2018, FCX and PT Freeport Indonesia (PT-FI) entered into a definitive agreementwith PT Indonesia Asahan Aluminium (Persero) (PT Inalum) consistent with previously agreed economic terms. Closing is expected to occur in late 2018 or early 2019, subject to satisfaction of conditions.
  • On September 26, 2018, FCX declared a quarterly cash dividend of $0.05 per share on its common stock, which will be paid on November 1, 2018.
  • At September 30, 2018, consolidated debt totaled $11.1 billionand consolidated cash totaled $4.6 billion. FCX had no borrowings and $3.5 billion available under its revolving credit facility at September 30, 2018.

Freeport-McMoRan Inc. (NYSE: FCX) reported net income attributable to common stock of $556 million ($0.38 per share) in third-quarter 2018 and $2.1 billion ($1.45 per share) for the first nine months of 2018. After adjusting for net gains of $42 million ($0.03 per share), primarily reflecting adjustments to assets held for sale and the fair value of potential contingent consideration, partly offset by nonrecurring charges for Cerro Verde's new three-year collective labor agreement (CLA), adjusted net income attributable to common stock totaled $514 million ($0.35 per share) in third-quarter 2018. Refer to the supplemental schedule, "Adjusted Net Income," on page VII, which is available on FCX's website, "fcx.com," for additional information.

Richard C. Adkerson, President and Chief Executive Officer, said, "Our global team delivered a solid operating quarter and maintained a sharp focus on productivity, cost management, capital discipline and initiatives to build value for shareholders. The pending completion of our new long-term partnership with the Indonesian government will enable us to de-risk a world class asset. Supported by a premier portfolio of geographically diverse long-lived copper assets, a solid balance sheet, a large resource position to support future growth and a positive fundamental outlook for copper, FCX is poised to deliver substantial value to shareholders."

 

SUMMARY FINANCIAL DATA

 
    

Three Months Ended 
September 30,

  

Nine Months Ended 
September 30,

    2018  2017  2018  2017
    (in millions, except per share amounts)
Revenuesa,b   $4,908  $4,310  $14,944   $11,362
Operating incomea   $1,315  $928  $4,438   $2,211
Net income from continuing operations   $668  $242  $2,535   $836
Net income attributable to common stockc,d   $556  $280  $2,117   $776
Diluted net income (loss) per share of common stock:             
Continuing operations   $0.38  $0.19  $1.46   $0.50
Discontinued operations       (0.01)  0.03
    $0.38  $0.19  $1.45   $0.53
Diluted weighted-average common shares outstanding   1,458  1,454  1,458   1,453
Operating cash flowse   $1,247  $1,183  $3,925   $3,012
Capital expenditures   $507  $314  $1,391   $1,020
At September 30:             
Cash and cash equivalents   $4,556  $4,957  $4,556   $4,957
Total debt, including current portion   $11,127  $14,782  $11,127   $14,782
                  

a.For segment financial results, refer to the supplemental schedules, "Business Segments," beginning on page IX, which are available on FCX's website, "fcx.com."

 

b.Includes adjustments to prior period provisionally priced concentrate and cathode copper sales totaling $(111) million ($(48) million to net income attributable to common stock or $(0.03) per share) in third-quarter 2018, $95 million ($39 million to net income attributable to common stock or $0.03 per share) in third-quarter 2017, $(70) million ($(31) million to net income attributable to common stock or $(0.02) per share) for the first nine months of 2018 and $81 million ($35 million to net income attributable to common stock or $0.02 per share) for the first nine months of 2017. For further discussion, refer to the supplemental schedule, "Derivative Instruments," beginning on page VIII, which is available on FCX's website, "fcx.com."

 

c.Includes net gains (charges) of $42 million ($0.03 per share) in third-quarter 2018, $(212) million ($(0.15) per share) in third-quarter 2017, $69 million ($0.04 per share) for the first nine months of 2018 and $(178) million ($(0.12) per share) for the first nine months of 2017 that are described in the supplemental schedule, "Adjusted Net Income," on page VII, which is available on FCX's website, "fcx.com."

 

d.FCX defers recognizing profits on intercompany sales until final sales to third parties occur. For a summary of net impacts from changes in these deferrals, refer to the supplemental schedule, "Deferred Profits," on page IX, which is available on FCX's website, "fcx.com."

 

e.Includes net working capital sources (uses) and timing of other tax payments of $59 million in third-quarter 2018, $46 million in third-quarter 2017, $(154) million for the first nine months of 2018 and $389 million for the first nine months of 2017.

 
 

SUMMARY OPERATING DATA

                   
    

Three Months Ended 
September 30,

   

Nine Months Ended 
September 30,

  
    2018   2017   2018   2017  
Copper (millions of recoverable pounds)                  
Production   1,006   996   2,972   2,730  
Sales, excluding purchases   1,044   932   3,026   2,683  
Average realized price per pound   $2.80   $2.94   $2.96   $2.79  
Site production and delivery costs per pounda   $1.73 b $1.56 c $1.70 b $1.59 c
Unit net cash costs per pounda   $0.93 b $1.20 c $0.95 b $1.25 c
Gold (thousands of recoverable ounces)                  
Production   760   418   2,105   1,010  
Sales, excluding purchases   837   355   2,123   969  
Average realized price per ounce   $1,191   $1,290   $1,249   $1,261  
Molybdenum (millions of recoverable pounds)                  
Production   23   24   69   70  
Sales, excluding purchases   22   22   70   71  
Average realized price per pound   $12.40   $9.22   $12.41   $9.18  
                       

a.Reflects per pound weighted-average production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, before net noncash and other costs. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedules, "Product Revenues and Production Costs," beginning on page XII, which are available on FCX's website, "fcx.com."

 

b.Includes $0.07 per pound of copper in third-quarter 2018 and $0.02 per pound of copper for the first nine months of 2018 associated with nonrecurring charges for Cerro Verde's new three-year CLA. Refer to the supplemental schedule, "Adjusted Net Income," on page VII, which is available on FCX's website, "fcx.com," for additional information.

 

c.Excludes $0.01 per pound of copper in third-quarter 2017 and $0.04 per pound of copper for the first nine months of 2017 associated with PT-FI workforce reductions. Refer to the supplemental schedule, "Adjusted Net Income," on page VII, which is available on FCX's website, "fcx.com," for additional information.

 

Consolidated Sales Volumes

Third-quarter 2018 copper sales of 1.04 billion pounds were 8 percent higher than the July 2018 estimate of 970 million pounds and 12 percent higher than third-quarter 2017 sales of 932 million pounds, primarily reflecting higher ore grades and operating rates in Indonesia.

Third-quarter 2018 gold sales of 837 thousand ounces were 20 percent higher than the July 2018 estimate of 700 thousand ounces and more than double third-quarter 2017 sales of 355 thousand ounces, primarily reflecting higher ore grades and operating rates in Indonesia.

Third-quarter 2018 molybdenum sales of 22 million pounds were lower than the July 2018 estimate of 24 million pounds and approximated third-quarter 2017 sales.

Sales volumes for the year 2018 are expected to approximate 3.8 billion pounds of copper, 2.45 million ounces of gold and 95 million pounds of molybdenum, including 790 million pounds of copper, 330 thousand ounces of gold and 25 million pounds of molybdenum in fourth-quarter 2018.

Projections for 2018 and other forward looking statements in this release assume extension of PT-FI’s long-term mining rights or an extension of PT-FI’s temporary special mining license (IUPK) after October 31, 2018. Refer to "Indonesia Mining," beginning on page 7, for further discussion of Indonesia regulatory matters.

Consolidated Unit Costs

Consolidated average unit net cash costs (net of by-product credits) for FCX's copper mines of $0.93 per pound of copper in third-quarter 2018 were lower than unit net cash costs of $1.20 per pound in third-quarter 2017, primarily reflecting higher by-product credits, partly offset by nonrecurring charges associated with Cerro Verde's new three-year CLA.

Assuming average prices of $1,200 per ounce of gold and $12.00 per pound of molybdenum for fourth-quarter 2018 and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for copper mines are expected to average $1.06 per pound of copper for the year 2018 (including $1.45 per pound of copper in fourth-quarter 2018). The impact of price changes for fourth-quarter 2018 on consolidated unit net cash costs would approximate $0.01 per pound for each $50 per ounce change in the average price of gold and $0.005 per pound for each $2 per pound change in the average price of molybdenum. Quarterly unit net cash costs vary with fluctuations in sales volumes and realized prices, primarily for gold and molybdenum.

MINING OPERATIONS

North America Copper Mines. FCX operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. In addition to copper, certain of FCX's North America copper mines produce molybdenum concentrate, gold and silver. All of the North America mining operations are wholly owned, except for Morenci. FCX records its 72 percent undivided joint venture interest in Morenci using the proportionate consolidation method.

Operating and Development Activities.FCX has significant undeveloped reserves and resources in North America and a portfolio of potential long-term development projects. Future investments will be undertaken based on the results of economic and technical feasibility studies, and are dependent on market conditions. FCX continues to study opportunities to reduce the capital intensity of its potential long-term development projects.

Through exploration drilling, FCX has identified a significant resource at its wholly owned Lone Star project located near the Safford operation in eastern Arizona. An initial project to develop the Lone Star oxide ores commenced in first-quarter 2018, with first production expected by the end of 2020. Total capital costs, including mine equipment and pre-production stripping, are expected to approximate $850 million and will benefit from the utilization of existing infrastructure at the adjacent Safford operation. As of September 30, 2018, approximately $200 million has been incurred for this project. Production from the Lone Star oxide ores is expected to average approximately 200 million pounds of copper per year with an approximate 20-year mine life. The project also advances exposure to a significant sulfide resource. FCX continues to advance drilling activities to define future large-scale development opportunities in the Lone Star/Safford minerals district.

Operating Data. Following is summary consolidated operating data for the North America copper mines for the third quarters and first nine months of 2018 and 2017:

        
    

Three Months Ended 
September 30,

  

Nine Months Ended 
September 30,

    2018  2017  2018  2017
Copper (millions of recoverable pounds)             
Production   349   375   1,051   1,151 
Sales, excluding purchases   350   347   1,095   1,130 
Average realized price per pound   $2.77   $2.92   $3.02   $2.74 
              
Molybdenum (millions of recoverable pounds)             
Productiona   8   8   23   25 
              
Unit net cash costs per pound of copper b   

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