Freeport-McMoRan To Increase Gold Production By 70 Percent
Freeport-McMoRan Inc. (FCX) President and Chief Executive Officer, Richard C. Adkerson, said, "Our global team has established strong momentum on our three major initiatives to build value for shareholders. We are effectively executing our plans to establish large-scale production from our significant high-grade, low-cost and long-lived underground ore bodies at Grasberg; advance the Lone Star project in Arizona as a new cornerstone asset in the U.S.; and progress our innovation initiatives to enhance productivity and grow our Americas operations with low capital intensity. These initiatives are expected to significantly enhance our cost position, cash flow and the long-term value of our premier copper portfolio, providing opportunities for increased returns to shareholders. We are pleased with our progress to date and remain focused on successful execution of our plans, which would enable us to increase copper production by 30 percent, gold production by 70 percent, reduce unit net cash costs by 25 percent and more than double operating cash flows in 2021 from 2019 levels.”
Third-quarter 2019 copper sales of 795 million pounds were four percent lower than the July 2019 estimate of 830 million pounds of copper, primarily because of lower production from Cerro Verde and timing of shipments, partly offset by higher production and sales from North America. Third-quarter 2019 gold sales of 243 thousand ounces were six percent higher than the July 2019 estimate of 230 thousand ounces of gold.
Third-quarter 2019 copper and gold sales were lower than third-quarter 2018 sales primarily reflecting anticipated lower mill rates and ore grades as PT Freeport Indonesia (PT-FI) transitions mining from the open pit to underground. Third-quarter 2019 copper sales were also lower in South America, reflecting the timing of shipments and lower grades and recovery rates at Cerro Verde, offset by higher copper sales in North America, primarily related to higher mining and milling rates.
Third-quarter 2019 molybdenum sales of 22 million pounds were lower than the July 2019 estimate of 25 million pounds and approximated third-quarter 2018 sales of 22 million pounds.
Consolidated sales volumes for the year 2019 are expected to approximate 3.3 billion pounds of copper, 874 thousand ounces of gold and 92 million pounds of molybdenum, including 870 million pounds of copper, 200 thousand ounces of gold and 24 million pounds of molybdenum in fourth-quarter 2019. As PT-FI transitions mining from the open pit to underground, metal production is currently expected to improve significantly by 2021.
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. The company 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 identify opportunities to reduce the capital intensity of its potential long-term development projects. Early results from innovation initiatives have been positive, and the company expects to incorporate these enhancements into its future mine plans in 2020.
Through exploration drilling, FCX has identified a significant resource at its wholly owned Lone Star copper leach project located near the Safford operation in eastern Arizona. An initial project to develop the Lone Star leachable ores commenced in 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. Total capital costs for the initial project, 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, 2019, approximately $575 million has been incurred for this project, which is on schedule and within budget. The project also advances exposure to a significant sulfide resource. The company expects to incorporate positive drilling and ongoing results in its future development plans.
South America's consolidated copper sales volumes of 261 million pounds in third-quarter 2019 were lower than third-quarter 2018 copper sales volumes of 326 million pounds reflecting lower ore grades and recovery rates at Cerro Verde and the timing of shipments. Third-quarter 2019 production and sales were impacted by protests in Peru associated with an unaffiliated copper development project that blocked access to the shipping ports and main transportation routes, mill maintenance activities and mine sequencing changes at Cerro Verde that delayed access to higher grade material. Sales from South America mining are expected to approximate 1.2 billion pounds of copper for the year 2019.
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. As a result of the December 2018 transaction regarding PT-FI's long-term mining rights and share ownership, FCX’s economic interest in PT-FI is expected to approximate 81 percent through 2022.
Operating and Development Activities. PT-FI continues to mine the final stages of the Grasberg open pit and currently expects to complete mining in the open pit in fourth-quarter 2019, subject to geotechnical conditions.
PT-FI has commenced production from its significant underground ore bodies and continues to achieve important milestones to produce large-scale quantities of copper and gold following the transition from the Grasberg open pit. PT-FI's estimated annual capital spending on underground mine development projects is expected to average $0.8 billion per year for the four-year period 2019 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 $0.95 billion per year for the four-year period 2019 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. Considering the long-term nature and size of these projects, actual costs could vary from these estimates.
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 Grasberg open pit. Undercutting, drawbell construction and ore extraction activities in the Grasberg Block Cave underground mine continue to meet or exceed expectations. Ore extraction from the Grasberg Block Cave underground mine averaged 10,600 metric tons of ore per day in third-quarter 2019 and is expected to ramp up to 16,000 metric tons of ore per day by the end of 2019. Monitoring data on cave propagation in the Grasberg Block Cave underground mine is providing confidence in growing production rates over time. As existing drawpoints mature and additional drawpoints are added, cave expansion is expected to accelerate production rates 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 from five production blocks spanning 335,000 square meters.
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, has continued its ramp up of production. Hydraulic fracturing operations have been effective in managing rock stresses and pre-conditioning the cave following mining-induced seismic activity experienced in 2017 and 2018. Ore extraction continues to exceed expectations, averaging 9,800 metric tons of ore per day in third-quarter 2019. During third-quarter 2019, PT-FI elected to temporarily slow undercutting rates in one of the DMLZ production blocks until the desired cave shape was achieved. Undercutting re-commenced in September 2019. Ore extraction is expected to ramp up to 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 production rates that are expected to average 28,000 metric tons of ore per day in 2020 and 80,000 metric tons of ore per day in 2022 from three production blocks.
Results to date from the Grasberg Block Cave and DMLZ underground mine are positive and in line with long-term plans to reach full production rates. Because of the nature of block caving, estimates of timing of future production from PT-FI's underground ore bodies will continue to be reviewed and may be modified as additional information becomes available.
Indonesian Smelter. In connection with the extension of PT-FI's mining rights from 2031 to 2041, PT-FI committed to construct a new smelter in Indonesia by December 21, 2023. A site for the new smelter has been selected and ground preparation is in progress. Engineering and front-end engineering and design for the selected process technology are ongoing, with construction of the smelter expected to begin in 2020. The preliminary capital cost estimate for the project approximates $3 billion, and PT-FI is pursuing financing and commercial 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 company has two wholly owned molybdenum mines in Colorado, the Henderson underground mine, and the Climax open-pit mine. 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.