Freeport reports lower sales from RI ops due to export restrictions

By Ruli Setiawan

US gold and copper giant Freeport McMoRan Copper & Gold Inc reported lower sales volume from its Indonesian operations following the introduction of tighter export regulations by the government on January 12 of this year. The company anticipates export to resume in May.

Freeport, which operates the giant Grasberg mine in Papua through subsidiary PT Freeport Indonesia (PTFI), said in a statement obtained Friday that first quarter sales from its Indonesian unit were lower at 109 million pounds of copper and 162 thousand ounces of gold, compared to first-quarter 2013 sales of 198 million pounds of copper and 191 thousand ounces of gold, primarily because of lower milling rates as a result of the restrictions on concentrate exports from Indonesia, which resulted in the deferral of approximately 125 million pounds of copper and 140 thousand ounces of gold in first-quarter 2014.

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 0.9 billion pounds of copper and 1.5 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.

?These estimates assume resumption of exports from PTFI beginning in May 2014. To the extent PTFI is unable to resume exports in May 2014, this will result in a deferral of approximately 50 million pounds of copper and 80 thousand ounces of gold per month,? the statement said. ?Upon a favorable resolution of the restrictions on exports matter, sales from Indonesia mining are expected to increase through 2016 as PT-FI gains access to higher grade ore.?

Indonesian media reports said on Friday that the Ministry of Energy and Mineral Resources is set to finally issue the necessary export recommendation for Freeport and four other miners to allow them to resume export of mineral concentrates. PTFI export quota for this year is estimated at 1.5 million tons of copper concentrates. The government is also considering to ease the much-criticized punitive export tax if the miners could show progress in the construction of planned domestic smelters. PTFI exports about two-third of its export concentrates, with the remainder allocated for the domestic market.

Elsewhere, the statement said that a significant portion of PTFI's costs are fixed and unit costs vary depending on production volumes. During first-quarter 2014, PTFI operated at approximately half of normal rates.

?Indonesia's unit net cash costs exclude $0.49 per pound of copper for fixed costs charged directly to cost of sales as a result of the impact of export restrictions on PTFI's operating rates. Excluding this amount, Indonesia's unit net cash costs (including gold and silver credits) of $1.53 per pound of copper in first-quarter 2014 were higher than unit net cash costs of $1.34 per pound in first-quarter 2013, primarily reflecting lower volumes,? the US giant said.

Unit net cash costs (net of gold and silver credits) for Indonesia mining are expected to approximate $0.70 per pound of copper for the year 2014, based on current sales volume and cost estimates, which assumes the resumption of exports from PTFI beginning in May 2014, and assuming an average gold price of $1,300 per ounce for the remainder of 2014. Indonesia mining's projected unit net cash costs would change by approximately $0.075per pound for each $50 per ounce change in the average price of gold for the remainder of 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, the company further said.

Through its 90.64 percent owned and consolidated subsidiary PTFI, Freeport?s assets include one of the world's largest copper and gold deposits at the Grasberg minerals district in Papua, Indonesia. PTFI operates a proportionately consolidated joint venture, which produces copper concentrates that contain significant quantities of gold and silver.

Indonesian Mining Operations	Three Months Ended March 31
	2014	2013
Copper (million of recoverable pounds):
Production	140	219
Sales	109	198
Average realized price per pound	$ 3.04	$ 3.43
Gold (thousands of recoverable ounces):
Production	208	212
Sales	162	191
Average realized price per ounce	$ 1,299	$ 1,604
Unit net cash (credits) costs per pound of copper:
Site production and delivery, excluding adjustments	$ 3.33	$ 2.61
Gold and silver credits	(2.15 )	(1.63 )
Treatment charges	0.24	0.23
Royalties	0.11	0.13
Unit net cash (credits) costs (*)	$ 1.53	$ 1.34
* 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