Underground Production Ramp-Up At Graesberg Continues To Advance
PHOENIX, AZ - Richard C. Adkerson, President and Chief Executive Officer of Freeport-McMoRan Inc., said, "Our seasoned, motivated and value-focused global organization delivered strong results during the third quarter and continues to demonstrate the 'Freeport Edge'. Our team is protecting the health of our workforce and communities where we operate as a first priority, as we serve customers, operate efficiently and advance significant growth in production. Our strong cash flows in the third quarter, growing volumes, effective cost management and positive market outlook for our products provide momentum to continue to strengthen our balance sheet, increase returns to shareholders and generate long-term values for all stakeholders."
Third-quarter 2020 copper sales of 848 million pounds were 7 percent higher than the July 2020 estimate of 790 million pounds of copper, primarily reflecting higher sales from North America and South America mines. Third-quarter 2020 copper sales were higher than third-quarter 2019 sales volumes of 795 million pounds of copper, primarily reflecting higher copper ore grades in Indonesia, partly offset by lower sales from North America and South America as a result of lower mining rates associated with the April 2020 revised operating plans.
Third-quarter 2020 gold sales of 234 thousand ounces were 6 percent higher than the July 2020 estimate of 220 thousand ounces of gold, primarily reflecting higher ore grades in Indonesia. Third-quarter 2020 gold sales were lower than third-quarter 2019 sales volumes of 243 thousand ounces of gold, primarily reflecting lower mining and milling rates associated with the ramp-up of underground mining at PT Freeport Indonesia (PT-FI), partly offset by timing of shipments in third-quarter 2019. Third-quarter 2020 molybdenum sales of 20 million pounds were higher than the July 2020 estimate of 18 million pounds but were lower than third-quarter 2019 sales of 22 million pounds.
Consolidated sales volumes for the year 2020 are expected to approximate 3.18 billion pounds of copper, 0.8 million ounces of gold and 80 million pounds of molybdenum, including 840 million pounds of copper, 270 thousand ounces of gold and 21 million pounds of molybdenum in fourth-quarter 2020. Metal production is expected to improve significantly in 2021 with estimated consolidated sales of 3.85 billion pounds of copper and 1.4 million ounces of gold for the year 2021. Projected sales volumes are dependent on operational performance, continued progress of the ramp-up of underground mining at PT-FI, impacts and duration of the COVID-19 pandemic, weather-related conditions, timing of shipments, and other factors.
FCX recently completed the Lone Star copper leach project, with production ramping-up and remaining on track to produce approximately 200 million pounds of copper annually. FCX reviewed options for restarting the Chino mine and currently expects to restart Chino at a reduced rate of approximately 50 percent of capacity (approximately 100 million pounds of copper per year) beginning in 2021.
FCX's consolidated copper sales volumes from North America of 379 million pounds in third-quarter 2020 were lower than third-quarter 2019 copper sales volumes of 395 million pounds, primarily reflecting lower mining rates associated with the April 2020 revised operating plans, partly offset by production from Lone Star. North America copper sales are estimated to approximate 1.4 billion pounds for the year 2020, similar to the year 2019.
Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.67 per pound of copper in third-quarter 2020 were lower than third-quarter 2019 unit net cash costs of $1.92 per pound, primarily reflecting lower mining rates and input costs, and cost reductions associated with the April 2020 revised operating plans, partly offset by lower sales volumes and by-product credits.
Cerro Verde continued to make progress toward restoring operations during third-quarter 2020, with operating rates averaging 351,000 metric tons of ore per day (approximately 90 percent of the 2019 annual average). FCX is continuing to operate El Abra consistent with its April 2020 revised operating plans while closely monitoring public health conditions in Chile. Sales from South America mining are expected to approximate 950 million pounds of copper for the year 2020, compared with 1.2 billion pounds of copper for the year 2019.
Average unit net cash costs (net of by-product credits) for South America mining of $1.83 per pound of copper in third-quarter 2020 were slightly higher than average unit net cash costs of $1.81 per pound in third-quarter 2019, primarily reflecting lower by-product credits and sales volumes, partly offset by lower mining rates.
The ramp-up of underground production at the Grasberg minerals district in Indonesia continues to advance on schedule. During third-quarter 2020, a total of 55 new drawbells were added at the Grasberg Block Cave and Deep Mill Level Zone (DMLZ) underground mines, bringing cumulative open drawbells to over 300. Combined average production from the Grasberg Block Cave and DMLZ mines approximated 60,000 metric tons of ore per day during third-quarter 2020, 9 percent above the second-quarter 2020 average but approximately 15 percent below the July 2020 forecast, primarily reflecting unplanned downtime and a brief labor-related work stoppage. However, metal volume targets were achieved during third-quarter 2020 as a result of higher ore grades. At the end of September 2020, combined average production from the Grasberg Block Cave and DMLZ mines totaled approximately 94,000 metric tons of ore per day and the ramp-up schedule remains on track. PT-FI expects its 2021 production to approximate 1.4 billion pounds of copper and 1.4 million ounces of gold, which is nearly double projected 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 average unit net cash cost of approximately $0.20 per pound of copper assuming an average price of $1,400 per ounce of gold and achievement of projected sales volumes and cost estimates.
PT-FI's estimated annual capital spending on underground mine development projects is expected to average approximately $0.9 billion per year for the three-year period 2020 through 2022, net of scheduled contributions from PT Indonesia Asahan Aluminum (Persero) (PT Inalum). In accordance with applicable accounting guidance, aggregate costs (before scheduled contributions from PT Inalum), which are expected to average $1.0 billion per year for the three-year period 2020 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 disruptions to work and travel schedules of international contractors and current restrictions on access to the proposed physical site in Gresik, Indonesia associated with COVID-19 mitigation measures, PT-FI has notified the Indonesian government of delays in achieving the completion timeline of December 2023. PT-FI continues to discuss with the Indonesian government a deferred schedule for the project as well as other alternatives in light of COVID-19 and global economic conditions.
The Henderson and Climax mines produce 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 6 million pounds of molybdenum in third-quarter 2020 was lower than production of 7 million pounds of molybdenum in third-quarter 2019, primarily reflecting lower operating rates pursuant to the April 2020 revised operating plans in response to current market conditions. Refer to summary operating data on page 3 for FCX's consolidated molybdenum sales and average realized prices, which includes sales of molybdenum produced at the Molybdenum mines and from FCX's North America and South America copper mines.
Average unit net cash costs for the Molyb
The Company’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 2020 are expected to approximate $31 million, approximately 60 percent below 2019 expenditures. FCX has long-lived reserves and a significant resource position in its existing portfolio.