Freeport-McMoRan Inc. (NYSE: FCX):
- 25% reduction ($700 million) in
estimated 2016 Mining capital expenditures
- Projected consolidated 2016 capital
expenditures for Mining and Oil & Gas estimated at $4.0 billion
- 29% reduction from July 2015
estimates.
- Reduction in copper sales of 150
million pounds per year in 2016e and 2017e
- 20% reduction in estimated 2016 unit
site production and delivery costs compared with 2015e
- Actions enhance outlook for Free Cash
Flow generation at low prices
Freeport-McMoRan Inc. (NYSE: FCX) announced today revised
capital and operating plans in response to the recent decline in
copper prices resulting in reduced capital expenditures, lower
production levels and lower operating, administrative and
exploration costs. These actions are the results of the previously
announced review of operating plans for FCX’s mining business.
Since 2013, FCX’s business strategy for its global mining
business has been focused on the completion of three major organic
growth projects in the U.S., South America and Africa and on its
long-term development plans in Indonesia, while aggressively
managing operations to position the company for long-term free cash
flow generation to be used for debt reduction and returns to
shareholders. FCX has successfully completed expansions at its
Tenke Fungurume mine in Africa and its flagship U.S. Morenci mine,
which are providing significant cash flows despite recent declines
in copper prices. With the imminent completion of the Cerro Verde
project and access to projected higher grades at Grasberg beginning
in 2016, FCX is positioned to generate strong cash flows for debt
reduction. In response to recent declines in commodity prices and
the current weakness in global economic conditions, FCX is
undertaking aggressive actions to modify its operations and
spending plans to enhance its financial performance.
LME copper prices averaged $3.11 per pound in 2014 and $2.69 per
pound in the six month period ending June 30, 2015. During the
third quarter of 2015, copper prices have averaged $2.41 per pound
and currently approximate $2.25 per pound, near a six year low.
FCX views the long-term outlook for its business positively,
supported by limitations on supplies of copper and requirements for
copper in the world’s economy. In the near-term, FCX must respond
aggressively to current market conditions by deferring investments
and adjusting operations to maximize current cash flow under weak
market conditions while preserving its large mineral resources and
growth options for the longer term. FCX will continue to carefully
monitor market conditions and capital spending.
Since late 2014, FCX has reduced its consolidated 2015 capital
expenditure budget from $7.5 billion to $6.3 billion, including
reductions of $700 million in oil and gas expenditures and $500
million in mining expenditures. After incorporating today’s
announcements and the August 5, 2015 announcement of reduced oil
and gas expenditures, capital expenditures for 2016 are expected to
decline to a total of $4.0 billion, including $1.4 billion in
mining projects, $0.6 billion in mining sustaining capital and $2.0
billion in oil and gas expenditures. The current 2016 capital
estimate of $4.0 billion is approximately 29% lower than the $5.6
billion estimate on July 23, 2015, reflecting aggressive actions in
response to current market conditions.
James R. Moffett, FCX’s Chairman, Richard C. Adkerson, Vice
Chairman and Chief Executive Officer and James C. Flores, Vice
Chairman and FM O&G Chief Executive Officer, said, “The steps
we are taking to reduce costs and capital expenditures will
strengthen our financial position during a period of weak and
uncertain market conditions and preserve our large resource base
for improved future market conditions. We appreciate the support
and focus of our global organization as we execute these plans.
Our high quality portfolio of long-lived assets, flexible
operating structure and experienced management team provide a solid
base to address the current market conditions while maintaining an
attractive portfolio of assets positioned for long-term
success.”
OPERATIONS & REVISED PLANS
Following are FCX’s previously reported estimates and its
current estimates of sales volumes, unit net cash costs and capital
expenditures:
July 23
Estimate
Current
Estimate
2015e
2016e
2015e
2016e
Copper Sales (billion lbs) 4.2 5.4 4.2 5.25
Gold Sales
(million ozs) 1.3 1.9 1.3 1.9
Oil Equivalents (MMBOE)
52.3 55.0 53.0 59.7
Copper Unit Net Cash Cost ($/lb)
$1.53 $1.25 $1.51 $1.15
Capital Expenditures ($ in
billions) Major Mining Projects $2.5 $1.5 $2.5 $1.4 Other
Mining
$1.0
$1.2
$1.0
$0.6
Mining Sub-Total $3.5 $2.7 $3.5 $2.0 Oil & Gas
$2.8
$2.9
$2.8
$2.0
Consolidated Total $6.3 $5.6 $6.3 $4.0
The impact of the revised plans will be to reduce 2016 and 2017
copper production by approximately 150 million pounds per year from
July 23, 2015 estimates, principally resulting from reduced
operating rates at several of FCX’s mining operations in the
Americas. The changes enable FCX to achieve lower operating costs,
greater efficiencies and preserve resources for anticipated
improved longer-term market conditions.
Based on the revised operating plans and reductions in estimated
energy and other input costs, FCX’s site production and delivery
costs, before by-product credits, would average approximately $1.45
per pound in 2016, approximately 20 percent lower than 2015 levels.
Net unit costs after by-product credits would approximate $1.15 per
pound in 2016, assuming prices of $6 per pound for molybdenum and
$1,150 per ounce for gold.
North America Copper Mines. FCX operates seven open-pit
copper mines in North America - Morenci, Bagdad, Safford, Sierrita
and Miami in Arizona, and Chino and Tyrone in New Mexico. The North
America copper mining operations have substantial production
capacity, flexible operating structures and long-lived reserves and
resources with significant additional development potential.
FCX’s revised plans in North America incorporate reductions in
mining rates to reduce operating and capital costs, including the
suspension of mining operations at its Miami mine (which produced
57 million pounds in 2014), a 50% reduction in mining rates at the
Tyrone mine (which produced 94 million pounds in 2014) and
adjustments to mining rates at other U.S. mines. The revised plans
at each of the operations incorporate the impacts of lower energy,
acid and other consumables, reduced labor costs and a significant
reduction in capital spending plans. These plans will continue to
be reviewed and additional adjustments may be made as market
conditions warrant.
These changes are expected to result in an approximate 10
percent reduction in employees and contractors at U.S. mining
operations.
South America Copper Mines. FCX operates two copper mines
in South America – Cerro Verde in Peru and El Abra in Chile.
The revised operating plans for 2016 for the South America
copper mines principally reflect adjustments to the mine plan at El
Abra (which produced 367 mm pounds in 2014) to reduce mining and
stacking rates by approximately 50% to achieve lower operating and
labor costs, defer capital expenditures and extend the life of the
existing operations. At Cerro Verde, the concentrator expansion is
proceeding toward completion in late 2015, which will enable Cerro
Verde to contribute significant cash flows as a large-scale,
long-lived and low-cost operation in the coming years. The plans
also incorporate favorable impacts of reduced input costs and
foreign exchange rates.
Africa Mining. Through its 56 percent owned and
consolidated subsidiary Tenke Fungurume Mining S.A. (TFM), FCX
operates in the Tenke Fungurume (Tenke) minerals district in the
Katanga province of the Democratic Republic of Congo (DRC). In
addition to copper, the Tenke mine produces cobalt hydroxide.
Revised plans at Tenke Fungurume incorporate a 50 percent
reduction in capital spending for 2016 and various initiatives to
reduce operating, administrative and exploration costs. Future
development and expansion opportunities are being deferred pending
improved market conditions.
Indonesia Mining. Through its 90.64 percent owned and
consolidated subsidiary PT Freeport Indonesia (PT-FI), FCX's assets
include one of the world's largest copper and gold deposits at the
Grasberg minerals district in Papua, Indonesia. PT-FI operates a
proportionately consolidated joint venture, which produces copper
concentrates that contain significant quantities of gold and
silver.
PT-FI’s concentrate shipments are proceeding normally following
receipt of its export license from Indonesian government
authorities on July 29, 2015. During the third quarter, milling
operations have been impacted by a reduction in process water
available under current El Nino conditions, resulting in a
reduction in PT-FI’s annual copper sales volumes for 2015 of
approximately 25 million pounds from the July 23, 2015 estimate of
860 million pounds.
PT-FI’s ore grades are expected to improve significantly in 2016
and 2017 with access to higher grade sections of the Grasberg open
pit, resulting in higher production and lower unit costs.
PT-FI’s revised plans incorporate improved operational
efficiencies, reductions in input costs, supplies and contractor
costs, foreign exchange impacts and a 15 percent deferral of
capital expenditures in 2016 from previous estimates.
PT-FI is developing large-scale, long-lived, high-grade
underground ore bodies in the Grasberg minerals district. These
underground ore bodies are expected to maintain large scale
operations following the transition from the Grasberg open pit,
currently anticipated to occur in late 2017. Development of the
Grasberg Block Cave and Deep Mill Level Zone (DMLZ) underground
mines is advancing to enable DMLZ to commence production in late
2015 and the Grasberg Block Cave mine to commence production in
2018.
Over the next five years, estimated aggregate capital spending
on these projects is currently expected to average $1.1 billion per
year ($0.9 billion per year net to PT-FI), including aggregate
costs over the period beyond 2016 of $2.0 billion ($1.6 billion net
to PT-FI) attributable to investments in additional power,
processing and development of certain ore types expected to be
mined longer term (beyond the five year plan). In response to
recent market conditions and the uncertain global economic
environment, PT-FI is undertaking a review of its underground
development plans, which may result in the deferral of costs
related to longer-term power and processing investments.
Molybdenum. FCX is the world’s largest molybdenum
producer and FCX conducts molybdenum mining operations at the
Henderson and Climax primary molybdenum mines in Colorado in
addition to sales of by-product molybdenum from its North and South
America copper mines.
FCX has revised mine plans at its Henderson primary molybdenum
mine to operate at a lower rate, reflecting a 35 percent reduction
in Henderson’s previous annual production estimate of 27 million
pounds. FCX is also continuing to review its molybdenum production
plans at its by-product mines and is engaged in discussions with
its customers to incorporate potential changes in the pricing
structure for its chemicals products to ensure continuation of
chemical grade production at reasonable margins for this high value
product.
Oil & Gas. As previously reported on August 5, 2015,
Freeport-McMoRan Oil & Gas (FM O&G) is deferring
investments in several long-term projects in response to oil and
gas market conditions. Capital expenditures for 2016 and 2017 have
been reduced to $2.0 billion per year. The revised plans, together
with initiatives to obtain third party financing, including the
previously announced potential initial public offering of a
minority interest in FM O&G or other actions, will be pursued
as required to fund oil and gas capital spending within cash flow
for 2016 and subsequent years.
Other Items. FCX’s revised plans include a reduction in
its 2016 minerals exploration costs from $100 million to $50
million and the company is pursuing significant reductions in its
general and administrative costs. In addition, FCX is targeting
reductions in its working capital requirements and savings in the
global procurement of materials, supplies and third party service
costs.
OUTLOOK
Current Outlook * ($ in billions)
2015e
2016e
Operating Cash Flow $3.1 $6.3
Capital
Expenditures $6.3 $4.0
*see price assumptions below
Using estimated sales volumes for 2015 and assuming average
prices of $2.25 per pound of copper, $1,150 per ounce of gold and
$6 per pound of molybdenum and recent futures prices of $50 per
barrel of Brent crude for the second half of 2015, FCX’s
consolidated operating cash flows would approximate $3.1 billion in
2015. FCX plans to fund its $6.3 billion capital expenditure budget
with operating cash flows, amounts available under its $1.8 billion
Cerro Verde bank facility and borrowings under its $4 billion bank
credit facility. In addition, the company is executing a program to
raise up to $1 billion in proceeds from its previously announced
at-the-market common stock offering and is considering additional
opportunities to sell a minority interest in its oil and gas
subsidiary. The company will continue to assess opportunities to
partner with strategic investors potentially interested in
investing capital with FCX in the development of its oil and gas
and its mining properties. FCX has a broad set of assets with
valuable infrastructure and associated resources with attractive
long-term production and development potential.
Using the same price assumptions and the recent 2016 future
prices of $54 per barrel for Brent crude, FCX’s operating cash
flows are estimated to approximate $6.3 billion in 2016, providing
cash flow for required capital investments totaling $4.0 billion,
dividends and repayment of debt. Each $0.10 per pound change in
copper, $5 per barrel change in Brent crude, $1 per pound change in
molybdenum and $50 per ounce change in gold in 2016 would impact
cash flows, before changes in working capital, by $360 million,
$140 million, $70 million and $50 million respectively.
FCX is a premier U.S.-based natural resources company with an
industry-leading global portfolio of mineral assets, significant
oil and gas resources and a growing production profile. FCX is the
world's largest publicly traded copper producer.
FCX's portfolio of assets includes the Grasberg minerals
district in Indonesia, one of the world's largest copper and gold
deposits; significant mining operations in the Americas, including
the large-scale Morenci minerals district in North America and the
Cerro Verde operation in South America; the Tenke Fungurume
minerals district in the DRC; and significant U.S. oil and natural
gas assets in the Deepwater GOM, onshore and offshore California
and in the Haynesville natural gas shale, and a position in the
Inboard Lower Tertiary/Cretaceous natural gas trend onshore in
South Louisiana. Additional information about FCX is available on
FCX's website at "fcx.com."
Cautionary Statement Regarding Forward-Looking
Statements: This press release contains forward-looking
statements, which are all statements other than statements of
historical facts, such as statements regarding targeted reductions
in capital spending and operating and administrative costs the
estimated impact of adjustments to mine plans and other factors on
projected production and sales volumes and unit costs, projected
operating cash flow, and future ability to pay dividends and repay
debt. The declaration of dividends is at the discretion of the
Board and will depend on FCX’s financial results, cash
requirements, future prospects, and other factors deemed relevant
by the Board.
FCX cautions readers that forward-looking statements are not
guarantees of future performance and actual results may differ
materially from those anticipated, projected or assumed in the
forward-looking statements. Important factors that can cause FCX's
actual results to differ materially from those anticipated in the
forward-looking statements include supply of and demand for, and
prices of copper, gold, molybdenum, cobalt, crude oil and natural
gas, mine sequencing, production rates, industry risks, regulatory
changes, political risks, drilling results, potential additional
oil and gas property impairment charges, potential additional LCM
inventory adjustments, potential impairment of long-lived mining
assets, the outcome of negotiations with the Indonesian government
regarding PT-FI's COW, PT-FI's ability to obtain renewal of its
export license after January 28, 2016, PT-FI’s ability to renew its
bi-annual labor agreement expiring in September 2015, PT Smelting's
ability to restart smelter operations as expected in September
2015, the potential effects of violence in Indonesia, the
resolution of administrative disputes in the DRC, weather- and
climate-related risks, labor relations, environmental risks,
litigation results and other factors described in more detail under
the heading “Risk Factors” in FCX's Annual Report on Form 10-K for
the year ended December 31, 2014, filed with the U.S. Securities
and Exchange Commission (SEC) as updated by FCX’s subsequent
filings with the SEC.
Investors are cautioned that many of the assumptions on which
FCX's forward-looking statements are based are likely to change
after the forward-looking statements are made, including for
example commodity prices, which FCX cannot control, and production
volumes and costs, some aspects of which FCX may not be able to
control. Further, FCX may make changes to its business plans that
could affect its results. FCX cautions investors that it does not
intend to update forward-looking statements more frequently than
quarterly notwithstanding any changes in FCX's assumptions, changes
in business plans, actual experience or other changes, and FCX
undertakes no obligation to update any forward-looking
statements.
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version on businesswire.com: http://www.businesswire.com/news/home/20150827005445/en/
Freeport-McMoRan Inc.Financial Contacts:Kathleen L. Quirk,
602-366-8016orDavid P. Joint, 504-582-4203orMedia Contact:Eric E.
Kinneberg, 602-366-7994
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