FCX Expects 3.3 Billion Pounds Of Copper Sales In 2019
PHOENIX, AZ - Freeport-McMoRan Inc. (FCX) President and Chief Executive Officer, Richard C. Adkerson said, "During the first quarter, our global team maintained its focus on providing products necessary to support growing economies around the world in a cost-efficient, safe and environmentally responsible manner. Our transition to underground mining at Grasberg, in Indonesia, is advancing according to plan, and we are encouraged by recent milestones. In North America and South America, we are advancing the Lone Star copper leach project in eastern Arizona and continuing to focus on opportunities to enhance operating performance from existing mines. As we look forward, we are optimistic about the future that our asset base and copper market fundamentals are expected to provide shareholders. Our strategy will continue to focus on maximizing the value of our existing resource base through rigorous cost management, productivity and technology, executing our plan to successfully transition from open-pit mining to large-scale underground mining at Grasberg, generating cash flows to enhance shareholder returns and creating value organically from our large undeveloped resource position.” Adjusted net income attributable to common stock totaled $67 million in first-quarter 2019.
First-quarter 2019 copper sales of 784 million pounds and gold sales of 242 thousand ounces were approximately five percent lower than January 2019 sales estimates of 825 million pounds of copper and 255 thousand ounces of gold, reflecting impacts from weather events at El Abra, in Chile, unscheduled maintenance in North America and timing of shipments in Indonesia. First-quarter 2019 copper and gold sales were lower than first-quarter 2018 sales volumes primarily reflecting anticipated lower mill rates and ore grades as PT Freeport Indonesia (PT-FI) transitions mining from the open pit to underground. First-quarter 2019 molybdenum sales of 22 million pounds were lower than the January 2019 estimate and first-quarter 2018 sales of 24 million pounds.
Sales volumes for the year 2019 are expected to approximate 3.3 billion pounds of copper, 0.8 million ounces of gold and 94 million pounds of molybdenum, including 800 million pounds of copper, 265 thousand ounces of gold and 25 million pounds of molybdenum in second-quarter 2019. As PT-FI transitions mining from the open pit to underground, its production is expected to be significantly lower in 2019 and 2020, compared with 2018. Metal production is expected to improve significantly by 2021 following a ramp-up period.
The company 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.
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 pursue projects to enhance productivity through innovative technologies and 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 leachable ores commenced in first-quarter 2018, with first production expected by the end of 2020. Initial production from the Lone Star leachable ores is expected to average approximately 200 million pounds of copper per year, with the potential for future expansion options. The project also advances exposure to a significant sulfide resource. FCX expects to incorporate recent positive drilling and ongoing results in its future development plans.
North America's consolidated copper sales volumes of 320 million pounds in first-quarter 2019 were lower than first-quarter 2018 sales of 384 million pounds, primarily reflecting timing of shipments. North America copper sales are estimated to approximate 1.4 billion pounds for the year 2019, similar to 2018.
The company’s operates two copper mines in South America: Cerro Verde in Peru (in which FCX owns a 53.56 percent interest) and El Abra in Chile (in which FCX owns a 51 percent interest). Cerro Verde's expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. Cerro Verde's concentrator facilities have continued to perform well, with average mill throughput rates of 386,500 metric tons of ore per day in first-quarter 2019. Debottlenecking projects and additional initiatives to enhance operating rates are being advanced. FCX continues to evaluate a large-scale expansion at El Abra to process additional sulfide material and to achieve higher recoveries. El Abra's large sulfide resource could potentially support a major mill project similar to facilities constructed at Cerro Verde. Technical and economic studies are being advanced to determine the optimal scope and timing for the project.
Sales from South America mining are expected to approximate 1.3 billion pounds of copper for the year 2019, similar to 2018.
Average unit net cash costs (net of by-product credits) for South America mining of $1.59 per pound of copper in first-quarter 2019 were lower than unit net cash costs of $1.74 per pound in first-quarter 2018, primarily reflecting higher by-product credits.
PT-FI's assets include one of the world's largest copper and gold deposits 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. PT-FI is consolidated in FCX's financial statements.
The transaction completed in December 2018 regarding PT-FI's long-term mining rights and share ownership provided for FCX and the other pre-transaction PT-FI shareholders to retain the economics of the revenue and cost sharing arrangements under the former joint venture with Rio Tinto. As a result, FCX’s economic interest in PT-FI is expected to approximate 81 percent through 2022. PT-FI is currently mining the final phase of the Grasberg open pit and expects to transition to the Grasberg Block Cave (GBC) underground mine in mid-2019. PT-FI continues to assess opportunities to recover additional ore from the open pit during the remainder of 2019, subject to mine planning considerations.
PT-FI continues to advance several projects in the Grasberg minerals district related to the development of its large-scale, long-lived, high-grade underground ore bodies. In aggregate, these underground ore bodies are expected to produce large-scale quantities of copper and gold following the transition from the Grasberg open pit.
Substantial progress has been made to prepare for the transition to mining of the GBC underground mine. First undercut blasting occurred in late 2018 and several drawbells have been constructed and blasted to prepare for mining. Cave production is in progress and on schedule. All underground mining levels and the ore flow system are being commissioned. Production rates over the next five years are expected to ramp up to 130,000 metric tons of ore per day.
During third-quarter 2018, PT-FI commenced hydraulic fracturing activities to manage rock stresses and pre-condition the Deep Mill Level Zone (DMLZ) underground mine for large-scale production following mining induced seismic activity experienced in 2017 and 2018. Results to date have been effective in managing rock stresses and pre-conditioning the cave. PT-FI expects to commence the ramp-up of production in the DMLZ underground mine by mid-2019 and to reach full production rates of 80,000 metric tons per day in 2022. Estimates of timing of future production continue to be reviewed and may be modified as additional information becomes available.
In connection with completion of the December 2018 transaction, PT-FI committed to construct a new smelter in Indonesia by December 21, 2023. PT-FI has reviewed various process technologies and has initiated front-end engineering and design for the selected technology. The preliminary capital cost estimate for the project is in the $3 billion range and PT-FI intends to pursue financing, commercial and potential partner arrangements for this project. The economics of PT-FI’s share of the new smelter will be shared by PT-FI’s shareholders according to their respective share ownership percentages.
The two wholly owned molybdenum mines: Henderson underground mine and the Climax open-pit mine, both in Colorado. 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 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 totaled 8 million pounds of molybdenum in first-quarter 2019 and 9 million pounds in first-quarter 2018. 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.
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. A drilling program to further delineate the Lone Star resource continues to indicate significant additional mineralization in this district, with higher ore grades than FCX's other North America copper mines. Exploration results continue to indicate opportunities for significant future potential reserve additions in North America and South America. Exploration spending is expected to approximate $70 million for the year 2019, compared with $78 million in 2018.
The company’s address is 333 N. Central Ave., Phoenix, AZ 85004, (602) 366-8100, www.fcx.com.