FCX says copper prices to rise on tight supplies: Report

Copper prices are poised to move higher amid tight supplies in the copper market and an industry that fails to meet production targets, Freeport McMoRan Copper & Gold Inc. (FCX) was quoted by Dow Jones as saying.

While in New York Wednesday, FCX President and Chief Executive Officer Richard Adkerson said there is no better situation for a mining company right now than in the copper market.

"There are no major mines that are underdeveloped at this time and with consumption in China strong and the market tight, the situation for higher prices is right," Adkerson said.

Although many industry experts contend that copper prices will drop by the second half of 2006, Adkerson said there is also a risk that the market will move higher due to a continued lack of supplies.

For the gold market, Adkerson said the yellow metal is no longer tracking the moves of the dollar/euro rate, but it is taking other factors into play, which are similar in many ways to the copper market.

"There is an absence of new gold mines and companies continue to miss production targets. Jewelry demand is up and Central banks are buying gold," Adkerson said, adding that the outlook for higher gold prices is strong.

As for Freeport's operations, Adkerson said the Grasberg copper mining complex in Indonesia has recovered from a pit wall failure about 2 years ago.

"We are in great shape since the wall failure. That section of the wall is gone and we are now pursuing high grade copper and gold (from the area)," Adkerson said.

Into 2006 and 2007, FCX said its copper production will be slightly lower, while gold production will be down significantly.

"Both (production for gold and silver) will be down in 2007 and 2008, and it's all driven by sequencing," Adkerson said, noting that lower grade ore needs to be mined first in order to get to higher grade ore at the bottom of the pit.

Recently, FCX said copper production at PT Freeport Indonesia is about 5 percent below quarterly estimated copper sales and 10 percent below gold sales.

The shortfalls were due to lower ore grades, and FCX said it is currently working to process available higher grade ore in December.

Adkerson said that although the company is attempting to make up for the short fall, "we may not make it."

"We are producing at high levels and things didn't get off to a good start," he said.

Industrywide, Adkerson said mining companies are returning to normal production levels but most targets for copper production are unlikely to be met this year due to tight supply in the marketplace.

Citing factors such as workers' strikes and water and power issues, Adkerson said there is more downside potential for copper production.

Looking ahead, Adkerson said FCX isn't in the market for any acquisitions at this time. (*)