Mining Company Freeport-McMoRan Cuts $800 Million Capex After Copper Price Plunge

Researched by Industrial Info Resources (Sugar Land, Texas)--Faced with a sharp drop in copper prices amid the COVID-19 pandemic, Freeport-McMoRan Incorporated (NYSE:FCX) (Phoenix, Arizona) is slashing $800 million from its planned capital expenditures this year and reducing mining rates at its Americas facilities by 20%.

Industrial Info is tracking more than $12 billion worth of active Freeport-McMoRan projects.

Click on the image at right for a graph showing Freeport McMoRan project activity by world region.

The company said Friday it was revising its planned capital expenditures to $2 billion, a 29% reduction. For 2021, Freeport-McMoRan is planning $2.3 billion in capital expenditures, down by $100 million from its initial plans.

Copper prices dropped by about 50 cents per pound to about $2.30 per pound in the first quarter, Chief Executive Officer Richard Adkerson said during a Friday conference call with industry analysts. The company has acted "quickly and aggressively" to adjust its spending and operational plans, he said.

Freeport-McMoRan now estimates there will be a 400 million-ton reduction (15%) in copper sales from the Americas. The company also has cut $1.3 billion in operating costs for the year.

Chief Executive Officer Kathleen Quirk said at least some mines will maintain reduced operating rates for the rest of this year and into 2021.

Freeport-McMoRan operates seven open-pit copper mines in North America. It recently suspended operations at its Chino copper mine in New Mexico because of the spread of COVID-19 among "a limited number of employees" there, according to a company statement. The company has deferred about $300 million in capital projects from 2020 for the North American copper mines.

The company has suspended about $150 million in capital expenditures associated with initiatives in the Americas to enhance productivity through new technologies and operational practices.

Adkerson said that among the roughly 70,000 Freeport-McMoRan workers across the globe, only 50 have tested positive for the coronavirus. In response to the virus, the company has greatly restricted travel, prohibited group meetings, enhanced sanitization practices and enforced physical distancing, among other measures, he said.

One big project still planned for completion this year is the $850 million Lone Star above-ground copper mine project in Arizona. Located seven miles from the company's Safford mine, the $850 million Lone Star project has reserves of 4.4 billion pounds of copper. The project is 90% complete and is planned to wrap up in the third quarter this year. project report.

Freeport-McMoRan also plans to reduce production at its Climax open-pit molybdenum mine in Colorado by 50% in response to falling prices. The Climax mine produced 17 million pounds of molybdenum in 2019.

In South America, the company plans to defer about $200 million in capital expenditures. It operates two copper mines in South America: Cerro Verde in Peru and El Abra in Chile. The Cerro Verde mine was placed in care-and-maintenance status after the Peruvian government declared a national emergency in response to COVID-19. The Cerro Verde mine has been operating at one-third of planned rates. The government's restrictions have been extended to May 10.

In Indonesia, production continues to ramp up at the Deep Mill Level Zone (DMLZ) and Grasberg Block Cave underground mines. Combined average daily production from the DMLZ and Grasberg Block Cave underground mines averaged 37,500 metric tons of ore per day in the first quarter. Freeport-McMoRan expects 2021 production of 1.4 billion pounds of copper and 1.4 million ounces of gold.

While the price of copper plummeted in the first quarter, Freeport-McMoRan benefited from rising gold prices.

Gold is having its day in the sun, but copper's day will come again, Adkerson said, noting that copper is an essential metal in the economy.

During first-quarter 2020, the company reported a net loss of $491 million, compared with a net profit of $31 million in first-quarter 2019.

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