Production From Lone Star Continues To Ramp-up On Schedule
PHOENIX, AZ - Freeport-McMoRan Inc., President and Chief Executive Officer, Richard C. Adkerson, said, "During 2020, our global team responded to the challenges of the pandemic in an exceptional fashion, safeguarding our people, communities and assets as we executed and delivered on our clearly defined strategy. Together we achieved strong operating performance and project execution, establishing a solid foundation for future growth in sales volumes and cash flows. We are enthusiastic about the future prospects for our business based on the positive outlook for the markets we serve, our long-lived and high-quality copper assets, our seasoned and highly motivated global organization and the critical role of copper to the technologies necessary to deliver clean energy and support the global transition to a low-carbon economy."
Fourth-quarter 2020 copper sales of 866 million pounds were 3 percent higher than the October 2020 estimate of 840 million pounds of copper, primarily reflecting higher sales from Cerro Verde and Indonesia. Fourth- quarter 2020 copper sales were lower than fourth-quarter 2019 sales of 906 million pounds of copper, primarily reflecting previously announced operating plan adjustments, partly offset by higher mining rates and copper ore grades in Indonesia. Fourth-quarter 2020 gold sales of 293 thousand ounces were 9 percent higher than the October 2020 estimate of 270 thousand ounces of gold, primarily reflecting higher gold ore grades in Indonesia. Fourth-quarter 2020 gold sales were lower than fourth-quarter 2019 sales of 317 thousand ounces of gold, primarily reflecting timing of shipments in fourth-quarter 2019. Fourth-quarter 2020 molybdenum sales of 21 million pounds were in line with both the October 2020 estimate and fourth-quarter 2019 sales of 22 million pounds.
Consolidated sales volumes for the year 2021 are expected to approximate 3.8 billion pounds of copper, 1.3 million ounces of gold and 85 million pounds of molybdenum, including 825 million pounds of copper, 275 thousand ounces of gold and 20 million pounds of molybdenum in first-quarter 2021. Projected sales volumes are dependent on operational performance, continued progress of the ramp-up of underground mining at PT Freeport Indonesia (PT-FI), impacts and duration of the COVID-19 pandemic, timing of shipments, and other factors.
FCX’s North America operating sites continue to focus on strong execution of operating plans. Production from Lone Star continues to ramp-up on schedule and is expected to exceed 200 million pounds of copper for the year 2021. FCX plans to advance studies for potential expansions and long-term development options for its large-scale sulfide resources at Lone Star. The Company’s North America Copper Mines are Morenci, Bagdad, Safford (including Lone Star), Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. In addition to copper, certain of these 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. In January 2021, FCX restarted mining activities at the Chino mine at a reduced rate of approximately 100 million pounds of copper per year (approximately 50 percent of capacity).
South America Mining during fourth-quarter 2020, Cerro Verde, in Peru, continued to increase milling rates to an average of 373,200 metric tons of ore per day while operating consistent with the April 2020 revised operating plans and under strict COVID-19 restrictions and protocols. FCX expects Cerro Verde's mill rates to average approximately 360,000 metric tons of ore per day in 2021 with the potential to ramp-up to pre-COVID-19 levels approximating 400,000 metric tons of ore per day as COVID-19 restrictions are lifted. El Abra, in Chile, plans to increase operating rates during 2021 to pre-COVID-19 levels, subject to ongoing monitoring of public health conditions in Chile. Incremental copper production associated with increasing El Abra's stacking rates from 65,000 metric tons of ore per day to over 100,000 metric tons of ore per day, approximates 70 million pounds per year beginning in 2022. Copper sales from South America mining are expected to approximate 1.0 billion pounds for the year 2021. Consolidated copper sales volumes from South America of 260 million pounds in fourth-quarter 2020 were lower than fourth-quarter 2019 copper sales volumes of 345 million pounds, primarily reflecting lower mining rates associated with COVID-19 protocols and the April 2020 revised operating plans.
PT-FI operates one of the world’s largest copper and gold mines at the Grasberg minerals district in Papua, Indonesia. PT-FI produces copper concentrate that contains significant quantities of gold and silver. FCX has a 48.76 percent ownership interest in PT-FI and manages its mining operations. Under the terms of the shareholders agreement, FCX’s economic interest in PT-FI approximates 81 percent through 2022. PT-FI's results are consolidated in FCX's financial statements. The ramp-up of underground production at the Grasberg minerals district in Indonesia continues to advance on schedule. During fourth-quarter 2020, a total of 56 new drawbells were constructed at the Grasberg Block Cave and Deep Mill Level Zone (DMLZ) underground mines, bringing cumulative open drawbells to over 370. Combined average production from the Grasberg Block Cave and DMLZ mines approximated 85,000 metric tons of ore per day during fourth-quarter 2020 (including approximately 95,000 metric tons of ore per day during the month of December). PT-FI expects production for the year 2021 to approximate 1.4 billion pounds of copper and 1.4 million ounces of gold, which is nearly double 2020 levels. The successful completion of this ramp up is expected to enable PT-FI to generate average annual production for the next several years of 1.55 billion pounds of copper and 1.6 million ounces of gold at an attractive unit net cash cost, providing significant margins and cash flows.
PT-FI's estimated annual capital spending on underground mine development projects is expected to average approximately $0.9 billion per year for the two-year period 2021 through 2022, net of scheduled contributions from PT Indonesia Asahan Aluminium (Persero) (PT Inalum). In accordance with applicable accounting guidance, aggregate costs (before scheduled contributions from PT Inalum), which are expected to average $1.1 billion per year for the two-year period 2021 through 2022, will be reflected as an investing activity in FCX's cash flow statement, and contributions from PT Inalum will be reflected as a financing activity.
As a result of COVID-19 mitigation measures, there have been disruptions to work and travel schedules of international contractors and restrictions on access to the proposed physical site of the new smelter in Gresik, Indonesia. Accordingly, during 2020, PT-FI notified the Indonesia government of delays in achieving the completion timeline of December 2023. PT-FI continues to discuss with the Indonesia government a deferred schedule for the project as well as other alternatives in light of the ongoing COVID-19 pandemic and volatile global economic conditions.
In connection with its commitment to develop additional smelter capacity in Indonesia, PT-FI has advanced discussions with the majority owner of the existing smelter in Gresik, Indonesia (PT Smelting), which is 25-percent owned by PT-FI, regarding an expansion of the smelter to increase smelter concentrate treatment capacity by approximately 30 percent (300,000 metric tons of concentrate per year). Commercial and financial arrangements for this potential project are being advanced.
An expansion of PT Smelting would reduce PT-FI's smelter development commitment from 2.0 million metric tons of concentrate per year to 1.7 million metric tons per year. PT-FI continues to evaluate a new greenfield smelter project located in East Java in parallel with discussions with a third party to develop new smelter capacity at an alternate location in partnership with PT-FI.
At the two wholly owned molybdenum mines in Colorado - the Henderson underground mine and the Climax open-pit mine, had a combined production of high-purity, chemical- grade molybdenum concentrate, which is typically further processed into value-added molybdenum chemical products. The majority of the molybdenum concentrate produced at the Henderson and Climax mines, as well as from FCX's North America and South America copper mines, is processed at FCX's conversion facilities. Production from the molybdenum mines of 5 million pounds of molybdenum in fourth-quarter 2020 approximated fourth-quarter 2019.
FCX's mining exploration activities are generally associated with its existing mines, focusing on opportunities to expand reserves and resources to support development of additional future production capacity. Exploration results continue to indicate opportunities for significant future potential reserve additions in North America and South America. Exploration expenditures for the year 2021 are expected to approximate $34 million, consistent with the year 2020. FCX has long-lived reserves and a significant resource position in its existing portfolio.
PRELIMINARY ESTIMATED RECOVERABLE PROVEN AND PROBABLE MINERAL RESERVES
FCX has significant reserves, resources and future development opportunities within its portfolio of mining assets. FCX's preliminary estimated consolidated recoverable proven and probable reserves from its mines include 113.2 billion pounds of copper, 28.9 million ounces of gold and 3.71 billion pounds of molybdenum.