Freeport reports lower gold sales
Wednesday, July 27 2016 - 02:53 AM WIB
US giant Freeport McMoRan Copper & Gold Inc (FCX) said that gold sales volume from its Grasberg mine in Indonesia, operated by subsidiary PT Freeport Indonesia (PT-FI), in the second quarter of this year dropped by 56.35 percent to 151,000 ounces from 346,000 ounces in the corresponding period of last year.
The company said in a statement Tuesday this was primarily caused by lower gold ore grades and lower mining and milling rates. The company said that gold production fell to 158,000 ounces from 360,000 ounces (see table below).
Freeport also said that Indonesia's consolidated copper sales totaled 196 million pounds in both the second quarters of 2016 and 2015 as higher copper ore grades in the 2016 period were offset by lower mining and milling rates.
The company explained that during second-quarter 2016, PT Freeport Indonesia (PT-FI) completed repairs to its large-scale concentrating facility, which required 23 days of downtime to repair one of the milling circuits. PT-FI?s second-quarter 2016 production was also impacted by lower than expected mining rates and productivity in the Grasberg open pit, which affects the timing of metal production. Productivity in the Grasberg open pit has improved in July.
Elsewhere, the company provided the following explanations.
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 operations are expected to approximate 1.3 billion pounds of copper and 1.7 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, with approximately 40 percent of its 2016 copper sales and 55 percent of its 2016 gold sales anticipated in fourth-quarter 2016.
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 $1.20 per pound of copper in second-quarter 2016 were higher than unit net cash costs of $0.81 per pound in second-quarter 2015, primarily reflecting lower gold credits, partly offset by lower royalties, export duties and energy costs.
Based on current sales volume and cost estimates, and assuming an average gold price of $1,300 per ounce for the second half of 2016, unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $0.12 per pound of copper for the year 2016 and $0.43 per pound for third-quarter 2016. Indonesia mining's unit net cash costs for the year 2016 would change by approximately $0.05 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. Anticipated higher ore grades from the Grasberg mine are expected to result in lower unit net cash costs in the second half of 2016.
Table of Operating Data. Following is a summary of consolidated operating data for the Indonesia mining operations for the second quarters and first six months of 2016 and 2015:
| Indonesian Mining Operations | Three Months Ended June 30, | Six Months Ended June 30, | ||
| 2016 | 2015 | 2016 | 2015 | |
| Copper (million of recoverable pounds): | ||||
| Production | 208 | 205 | 373 | 359 |
| Sales | 196 | 196 | 370 | 351 |
| Average realized price per pound | $ 2.20 | $ 2.61 | $ 2.17 | $ 2.66 |
| Gold (thousands of recoverable ounces): | ||||
| Production | 158 | 360 | 336 | 615 |
| Sales | 151 | 346 | 346 | 606 |
| Average realized price per ounce | $ 1,292 | $ 1,173 | $ 1,260 | $ 1,183 |
| Unit net cash costs per pound of coppera | ||||
| Site production and delivery, excluding adjustments | $ 1.77 | $ 2.26 | $ 1.99 | $ 2.51 |
| Gold and silver credits | (1.05 ) | (2.13 ) | (1.27 ) | (2.11 ) |
| Treatment charges | 0.29 | 0.32 | 0.30 | 0.31 |
| Export duties | 0.08 | 0.18 | 0.08 | 0.16 |
| Royalty on metals | 0.11 | 0.18 | 0.12 | 0.17 |
| Unit net cash (credits) costs | $ 1.20 | $ 0.81 | $ 1.22 | $ 1.04 |
| 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 XV, which are available on FCX's website, "fcx.com." | ||||
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 early 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.
Editing by Reiner Simanjuntak