Freeport to Defer Indonesian Copper Exports Amid Permit Delay

Located in the Sudirman Mountains of Indonesia, the Grasberg Mine is the largest gold and third largest copper mine in the world. The rim of the open pit is at about 4,270 metres (14,010 ft). Image: NASA Earth Observatory

Jan. 22 (Bloomberg) — Freeport-McMoRan Copper & Gold Inc., the largest publicly traded copper producer, will defer the equivalent of about a 10th of monthly sales of the metal until delays related to new Indonesian export regulations are resolved.

Freeport hasn’t received administrative approvals for 2014 exports from its Grasberg copper and gold mine in the Southeast Asian nation, the Phoenix-based company said today in its fourth-quarter earnings statement. Freeport expects to defer about 40 million pounds of copper and 80,000 ounces of gold per month at the mine, its largest producer by revenue.

Indonesia introduced regulations on metal exports this month, which curbed the shipping of unprocessed ore and placed duties on exports of copper concentrates by companies including Freeport. The duty on copper concentrates, a semi-processed ore, will be 25 percent this year and rise to 60 percent by mid-2016.

Freeport, which also operates mines in the Americas and the Democratic Republic of Congo, “is working with the Indonesian government to clarify the situation and to defend its rights” under the contract with the government that allows it to operate Grasberg and export metal concentrate, the company said. It’s also seeking to obtain the 2014 export permits, which have been delayed as a result of the regulations.

“Near-term uncertainty over Indonesia is a stock overhang,” Morgan Stanley analysts including Paretosh Misra said in a Jan. 15 report.

Copper Sales

Freeport fell 1.2 percent to $34.82 at 9:49 a.m. in New York. The shares have declined 7.8 percent this year.

Freeport’s fourth-quarter copper sales rose 17 percent to 1.14 billion pounds from a year earlier, the company said today in the statement. It reported gold sales of 512,000 ounces, compared with 254,000 ounces.

Freeport said its current forecasts for copper sales of 4.4 billion pounds of copper and 1.7 million ounces of gold in 2014 assume no changes to planned shipments from its Indonesian unit. The company will update its 2014 outlook as export approvals are obtained.

Fourth-quarter net income fell to $707 million, or 68 cents a share, from $743 million, or 78 cents, a year earlier, while profit excluding one-time items was 84 cents, topping the 80- cent average of 18 analysts’ estimates compiled by Bloomberg. Sales climbed 30 percent to $5.89 billion, missing the $6.1 billion average estimate.

Freeport, which completed two oil and natural gas acquisitions last year, is cutting spending and seeking asset sales to reduce debt after copper and gold prices fell.

Reviewing Assets

The company continues to review its assets and will also consider options including joint venture transactions or further spending cuts, Freeport said today.

Freeport’s average cost per pound of copper was $1.16 in the fourth quarter, beating the $1.46 average of three estimates compiled by Bloomberg. The average cash cost per pound of copper was $1.54 a year earlier.

“Despite the strong performance, we would expect uncertainty surrounding the exporting of copper concentrate from Indonesia to continue to weigh on shares,” Anthony Rizzuto, an analyst at Cowen & Co., said today in a note.

The average copper price in the quarter was $3.27 a pound for futures on the Comex in New York, 9.4 percent lower than the same period of 2012. Gold averaged $1,273.43 an ounce in the quarter, 26 percent less than a year earlier.

Freeport acquired Plains Exploration & Production Co. and McMoRan Exploration Co. last year in transactions valued at about $9 billion, excluding assumed debt, to diversify into oil and gas.

(Freeport scheduled a conference call for 10 a.m. New York time. U.S. callers should dial 1-800-403-5770, international callers 1-706-679-8487. The pass code is 31054328.)

– Liezel Hill, Copyright 2014 Bloomberg.

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