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Freeport-McMoRan CEO says low copper price "not sustainable" amid strong demand

While trade tensions and sluggish global economic growth have weighed on the copper market, Freeport-McMoRan Inc. President and CEO Richard Adkerson said he expects strong demand to support prices.

"They're simply not sustainable," Adkerson said about decreased copper prices on an Oct. 23 earnings call, noting Wood Mackenzie estimates a US$3.30/lb copper price is needed to incentivize new production.

Adkerson pointed to low inventories of copper and increasing use of the metal in applications such as electric vehicles as signs that the copper market was in decent health. "Even with the economic effects we're seeing, the demand for copper remains relatively strong throughout the world, in China and the U.S. and elsewhere," he said.

In the third quarter, Freeport-McMoRan swung to a US$131 million net loss and fell short of consensus for adjusted EBITDA, according to Deutsche Bank analyst Chris Terry. Consensus was for US$617 million in adjusted EBITDA, he said in an Oct. 23 note, while Freeport-McMoRan reported US$564 million in adjusted EBITDA. Terry's forecast was closer to the market at US$601 million.

At the giant Grasberg copper-gold mine in Indonesia, Freeport-McMoRan continued to transition from open-pit mining to underground operations during the quarter, where seismic issues in the Deep MLZ area has held back development. But with a new monitoring system to help predict and address issues, Adkerson said Freeport-McMoRan had largely put the problem behind it.

"We are now confident that based on our results ... we have met the challenges of this rock situation," he said.

Terry said in an interview with S&P Global Market Intelligence that Freeport-McMoRan had clearly made good progress in ramping up underground operations, helping decrease some of the risk associated with the transition. Still, he said it remains to be seen how the full ramp-up unfolds as Freeport-McMoRan moves to increase underground production from the mine over the next couple of years.

Terry also said he expects Freeport-McMoRan to post strong fourth-quarter production numbers.

On the earnings call, Adkerson also addressed the possibility of increasing shareholder distributions, which Freeport-McMoRan has put on hold in recent years as it pays down debt. While not pinning down a timeline, he said that, with an improving copper market, Freeport-McMoRan could focus more on shareholder distributions.

"Shareholders ... have been patient," he said. "They deserve to be rewarded for that."

Freeport-McMoRan will consider both dividends and share buybacks, Adkerson said. He also reiterated, as in past quarters, that Freeport-McMoRan is looking at projects it already owns for potential growth rather than acquisitions.