Freeport cuts 2020 estimated copper sales by 11% in pandemic response

Freeport-McMoRan has reduced its estimated full-year copper volumes for 2020 by 400 million lb to 3.1 billion lb, an 11% drop from previous estimates provided in January, as a result of new measures implemented in response to the coronavirus pandemic, the company said Friday.

"We've had a series of cost reductions and capital expenditure reductions," Freeport Chief Financial Officer Kathleen Quirk told investors during an earnings call. "We've also reduced our copper production volumes by 400 million lb in response to market conditions in an effort to reduce our costs and capital expenditures."

The new measures include ongoing suspensions at two of the company's mines, project deferrals and revised operating plans at mines that remain open.

"In the Americas, we reduced mining rates across the board by about 20% in total," Quirk said. "This had the impact of reducing all elements of our operating costs and the capital that higher mining rates would require. We note that this material is still there and available to us in the future as market conditions warrant."

The reduced mining rates in the Americas could continue into part of 2021, though sites such as Freeport's Grasberg mine in Indonesia are expected to ramp up in that period, Quirk added.

Quirk said Freeport's original plans at the beginning of the year were based on copper prices expected in the range between 275 cents/lb and 300 cents/lb.

"I think you'd have to see prices move back to those levels and have more economic certainty around the economy," Quirk said, referencing Freeport's timeline for its current operating modifications. "We're going to be very disciplined about executing these plans, really focused on costs and really focused on capital in the near term to make sure that we can preserve our financial position during 2020. As we get into 2021, we can start looking beyond at what the market conditions are and whether we restore full mining operations at that point."

The COMEX copper spot price settled at 232.4 cents/lb on April 23, down from 283.3 cents/lb on January 2.

Analysts with Jefferies expected Freeport to implement major operational changes in response to market conditions caused by the pandemic.

"This extreme austerity approach is appropriate, in our view, as it will enable Freeport to weather the storm even if market conditions significantly deteriorate and still position the company well for an eventual recovery," Jefferies analyst Christopher LaFemina said in a research note.

Freeport's Q1 copper shipments fell 7% on the year to 729 million lb.

Q1 COPPER OUTPUT SLIPS 6%

Freeport's first-quarter copper production dropped 6% on the year due to a mining transition at Grasberg and operation suspensions at mines in Peru and New Mexico, according to a statement released Friday.

Freeport's overall decline in copper output was mainly attributable to its Cerro Verde mine in Peru, where the suspension of operations led Q1 production at the site to plunge 22% year on year to 203 million lb. The company placed Cerro Verde on care and maintenance on March 16 after Peru declared a national emergency in response to the pandemic. The decree has now been extended through May 10.

"Returning Cerro Verde to normal production is important to the government of Peru," Freeport CEO Richard Adkerson said during the call with investors. "Our plan is to develop and ramp up Cerro Verde late in the second quarter and return to higher production levels in the second half of the year."

Copper output at the Grasberg open-pit mine also slipped 3% year on year to 140 million lb in Q1 as Freeport continues its transition to underground mining at the site.

Freeport said the transition will be followed by a ramp up at Grasberg, leading to average annual copper production of 1.55 billion lb over the next several years at the mine.

Earlier this month, the Phoenix-based miner also indefinitely suspended operations at its Chino copper mine in New Mexico after multiple employees at the mine tested positive for the coronavirus. Freeport said the mine remains shutdown. Chino produced 42 million lb of copper in Q1.

Freeport posted a Q1 loss of $491 million on $2.8 billion in revenue, down from a $31 million profit on sales of $3.8 billion in Q1 2019.