Freeport-McMoran's Grasberg operation in Indonesia's Papua province.Reuters
Freeport-McMoRan Copper & Gold Inc.'s fourth-quarter profit dropped almost 60 per cent, hurt by lower production from a strike at one of its biggest mines, and its shares fell even though it beat lowered Wall Street estimates.
The company said it was working to restore operations at its vast Grasberg mine in Indonesia following a three-month strike, but did not say when it would lift a force majeure in effect there. It also said that this year it expects to sell less gold than in 2011.
"The strike is over and they are off and running, but a lot depends on the copper price," analyst Charles Bradford, of Bradford Research, said of Thursday's results.
During the fourth quarter, the price of the red metal rose about 8 per cent, but overall in 2011, it was 25 per cent lower than the year before.
Freeport, whose revenue dropped about 25 per cent from the 2010 fourth quarter, said its average realized copper price in the 2011 quarter was $3.42 (U.S.) a pound – down from $4.18 in the previous year. In addition, costs rose to $1.57 a pound from 53 cents, contributing to the earnings drop.
Chief executive officer Richard Adkerson acknowledged the results "were unfavorably impacted by disruptions" at Grasberg, where the strike curtailed production. The company has just started to restore shipments of copper concentrate.
But the company did not say if or when it would lift a force majeure in place at Grasberg. Force majeure is a legal clause under which it essentially states it cannot meet contractual obligations.
The effect of the strike was evident in the production numbers Freeport released.
Consolidated sales from its mines in the fourth quarter totalled 823 million pounds of copper and 133,000 ounces of gold. That was down sharply from 941 million pounds of copper and 590,000 ounces of gold in the same quarter a year ago.
Freeport said profit was $640-million or 67 cents a share, compared with $1.5-billion or $1.63 in the same quarter of 2010.
The Phoenix -based company said revenue fell to $4.1-billion from $5.6-billion, partly due to lower sales prices of metals. It sold gold on average for $1,656 an ounce in the quarter, which although higher than $1,398 in the 2010 quarter, was down from $1,693 in the third quarter.
Copper, which it sold at $3.42 a pound in the fourth quarter, was sold at $3.60 in the third.
Analysts, who had lowered their estimates during the three-month strike, on average were expecting earnings of 60 cents a share, according to Thomson Reuters I/B/E/S.
Looking ahead, Freeport said consolidated sales from mines for 2012 are expected to be about 3.8 billion pounds of copper, up from 3.7 billion pounds in 2011. But expected gold production of 1.2 million ounces is below the 1.4 million of last year.
For the first quarter, Freeport expects 875 million pounds of copper, 425,000 ounces of gold and 20 million pounds of molybdenum.