Freeport reports higher copper sales, lower gold sales at RI unit
Wednesday, April 27 2016 - 02:13 AM WIB
US-based Freeport McMoRan Copper & Gold Inc said that consolidated copper sales volume at its Indonesian subsidiary PT Freeport Indonesia (PT-FI) in the first quarter of this year increased by 12.26 percent to 174 million pounds compared to 155 million pounds in the corresponding period of last year.
The company, however, said in a statement issued Tuesday that gold sales volume at PT-FI, which operates the giant Grasberg mine in Indonesia?s Papua Province, fell by 25 percent to 195,000 ounces in the first quarter of this year from 260,000 ounces in the same period of last year, primarily reflecting lower gold ore grades and recoveries.
The company said that during first-quarter 2016, copper production was impacted by reduced mill operating rates associated with unplanned equipment failures. Temporary repairs to the mill were performed and a permanent repair is scheduled in second-quarter 2016. As a result, second-quarter 2016 mill rates are expected to approximate first-quarter 2016 mill rates. The impact of the equipment failure and repairs is a reduction of 65 million pounds of copper for the year 2016, compared with January 2016 estimates.
Freeport further said in the statement that at the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold. Consolidated sales volumes from Indonesia mining are expected to approximate 1.4 billion pounds of copper and 1.85 million ounces of gold for the year 2016, compared with 744 million pounds of copper and 1.2 million ounces of gold for the year 2015. PT-FI expects ore grades to improve significantly beginning in the second half of 2016, with approximately 70 percent of copper sales and 80 percent of gold sales anticipated in the second half of the year.
A significant portion of PT-FI's costs are fixed and unit costs vary depending on volumes and other factors. Indonesia's unit net cash costs (including gold and silver credits) of $1.24 per pound of copper in first-quarter 2016 were lower than unit net cash costs of $1.34 per pound in first-quarter 2015, primarily reflecting higher copper sales volumes and lower export duties, partly offset by lower gold and silver credits.
Based on current sales volume and cost estimates, and assuming an average gold price of $1,250 per ounce for the remainder of 2016, unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $0.07 per pound of copper for the year 2016 and $0.96 per pound for second-quarter 2016. Indonesia mining's unit net cash costs for the year 2016 would change by approximately $0.06 per pound for each $50 per ounce change in the average price of gold. Because of the fixed nature of a large portion of Indonesia mining's costs, unit costs vary from quarter to quarter depending on copper and gold volumes. Higher anticipated ore grades from Grasberg in the second half of 2016 are expected to result in lower unit net cash costs in the second half of the year.
PT-FI has further revised its plans to incorporate improved operational efficiencies, reductions in input costs, supplies and contractor costs, foreign exchange impacts and an approximate 20 percent deferral of capital expenditures that had been planned for 2016.
PT-FI has several projects in progress 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, currently anticipated to occur in late 2017. Production from the Deep Mill Level Zone commenced during September 2015, and the Grasberg Block Cave mine is anticipated to commence production in 2018.
From 2016 to 2020, estimated aggregate capital spending on these projects is currently expected to average $1.0 billion per year ($0.8 billion per year net to PT-FI). Considering the long-term nature and size of these projects, actual costs could vary from these estimates. In response to market conditions and Indonesian regulatory uncertainty, the timing of these expenditures continues to be reviewed, Freeport said.
| Indonesian Mining Operations | Three Months Ended March 31, | |
| 2016 | 2015 | |
| Copper (million of recoverable pounds): | ||
| Production | 165 | 154 |
| Sales | 174 | 155 |
| Average realized price per pound | $ 2.20 | $ 2.74 |
| Gold (thousands of recoverable ounces): | ||
| Production | 178 | 255 |
| Sales | 195 | 260 |
| Average realized price per ounce | $ 1,228 | $ 1,186 |
| Unit net cash costs per pound of coppera | ||
| Site production and delivery, excluding adjustments | $ 2.24 | $ 2.84 |
| Gold and silver credits | (1.52 ) | (2.09 ) |
| Treatment charges | 0.31 | 0.29 |
| Export duties | 0.08 | 0.14 |
| Royalty on metals | 0.13 | 0.16 |
| Unit net cash (credits) costs | $ 1.24 | $ 1.34 |
| a. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedules, "Product Revenues and Production Costs," beginning on page X, which are available on FCX's website, "fcx.com." | ||
Editing by Reiner Simanjuntak