Freeport reports higher Q3 sales from RI unit as workers plan strike
Wednesday, October 29 2014 - 01:42 AM WIB
US mining giant Freeport McMoRan Copper & Gold Inc, which operates a large gold and copper mine in Papua, Indonesia, through subsidiary PT Freeport Indonesia (PT-FI), reported higher third quarter copper and gold sales from the Indonesian unit. The company confirmed a planned one-month strike by PT-FI workers.
The company said in a report obtained Wednesday that copper and gold sales in the third quarter of this year, respectively, increased to 258 million pounds and 505 thousand ounces compared to third-quarter 2013 sales of 237 million pounds of copper and 278 thousand ounces of gold primarily reflecting higher ore grades.
At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold, the company said.
?Sales from Indonesia mining are expected to approximate 0.7 billion pounds of copper and 1.15 million ounces of gold for the year 2014, compared with 0.9 billion pounds of copper and 1.1 million ounces of gold for the year 2013. Sales from Indonesia mining are expected to increase through 2016 as PT-FI gains access to higher grade ore,? the report said.
On September 27, 2014, four Grasberg workers were fatally injured when a haul truck collided with a light vehicle near the Grasberg open pit operations. Operations in the Grasberg open pit were temporarily suspended in order to complete internal and government investigations regarding the accident.
On October 13, 2014, Indonesian authorities approved the resumption of operations after issuing recommendations on traffic control procedures which have been implemented by PT-FI. Workforce attendance in several operating areas reflect normal levels, the company said.
?However, a large percentage of Grasberg open pit operators have not reported to their scheduled shifts resulting in reduced production from the open pit during October,? Freeport said.
The company said that these actions conflict with agreed policies and processes in the Collective Labor Agreement (CLA) and PT-FI is working with union leadership regarding this work stoppage to resume normal operations as soon as possible.
?On October 27, 2014, PT-FI received notice from union leadership indicating its intention to conduct a 30-day strike beginning on November 6. This action is unlawful and inconsistent with the terms of the CLA. PT-FI will continue to engage in discussions with union leadership and to encourage its workers to follow the terms of its CLA to avoid losses to PT-FI, its workers, the local community and all stakeholders,? Freeport said.
Elsewhere in the report, Freeport said that a significant portion of PT-FI's costs are fixed and unit costs vary depending on production volumes. Indonesia's unit net cash costs (including gold and silver credits) of $0.60 per pound of copper in third-quarter 2014 were lower than unit net cash costs of $0.99 per pound in third-quarter 2013, primarily reflecting higher gold and silver credits, partly offset by export duties, increased royalty rates and the impact of lower production rates in third-quarter 2014.
Unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $1.19 per pound of copper for the year 2014, based on current sales volume and cost estimates, and assuming an average gold price of $1,250 per ounce for fourth-quarter 2014.
Indonesia mining's projected unit net cash costs would change by approximately $0.05 per pound for each $50 per ounce change in the average price of gold for fourth-quarter 2014. Because of the fixed nature of a large portion of Indonesia's costs, unit costs vary from quarter to quarter depending on copper and gold volumes.
PT-FI has several projects in progress in the Grasberg minerals district related to the development of large-scale, long-lived, high-grade underground ore bodies. ?In aggregate, these underground ore bodies are expected to ramp up over several years to process approximately 240,000 metric tons of ore per day following the transition from the Grasberg open pit, currently anticipated to occur in 2017,? the report said.
Development of the Grasberg Block Cave and Deep Mill Level Zone (DMLZ) underground mines is advancing to enable DMLZ to commence production in 2015 and the Grasberg Block Cave mine to commence production in 2017, it added.
?Over the next five years, estimated aggregate capital spending on these projects is currently expected to average $0.9 billion per year ($0.7 billion per year net to PT-FI),? Freeport said.
Considering the long-term nature and size of these projects, actual costs could vary from these estimates. Additionally, the company said, PT-FI may reduce or defer these activities pending resolution of negotiations for an amended contract of work (COW).
| Indonesian Mining Operations | Three Months Ended September 30 | |
| 2014 | 2013 | |
| Copper (million of recoverable pounds): | ||
| Production | 203 | 253 |
| Sales | 258 | 237 |
| Average realized price per pound | $ 3.05 | $ 3.30 |
| Gold (thousands of recoverable ounces): | ||
| Production | 426 | 297 |
| Sales | 505 | 278 |
| Average realized price per ounce | $ 1,219 | $ 1,330 |
| Unit net cash (credits) costs per pound of copper: | ||
| Site production and delivery, excluding adjustments | $ 2.42 | $ 2.30 |
| Gold and silver credits | (2.44 ) | (1.65 ) |
| Treatment charges | 0.25 | 0.23 |
| Export duties | 0.16 | ?
|
| Royalties | 0.21 | 0.11 |
| Unit net cash (credits) costs (*) | $ 0.60 | $ 0.99 |
| * For a reconciliation of unit net cash costs (credits) per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page VI, which is available on FCX's website, "www.fcx.com." | ||
Editing by Reiner Simanjuntak