Freeport McMoRan Endures Rough Commodity Prices in 2013, but Expects $7 Billion in Capex for 2014

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Researched by Industrial Info Resources (Sugar Land, Texas)--Executives at Freeport-McMoRan Copper & Gold Incorporated (NYSE:FCX) (FCX) (Phoenix, Arizona), a global leader in the production of copper and gold, were optimistic about 2014, despite declines in profits for fourth-quarter and full-year 2013, when tumbling commodity prices offset stronger sales and the addition of an oil & gas business. Net income was reported to be $2.66 billion for the full year, a 12.59% decrease from 2012, and $707 million for the fourth quarter, a 4.85% decrease from fourth-quarter 2012.

Total revenues stood at $20.92 billion for the full year, a 16.16% increase from 2012, and $5.89 billion for the fourth quarter, a 30.4% increase from the same period in 2012. Consolidated copper sales totaled 4.1 billion pounds, a 12.33% increase from the previous year, reflecting higher volumes from global mining operations, particularly from South America and Indonesia in the fourth quarter, and higher ore grades and recovery rates in North America. In recent years, FCX has boosted production at its North American copper mines amid favorable exploration. Consolidated gold sales totaled 1.2 million ounces, a 20% increase from 2012; in particular, Indonesia saw higher ore grades and an improved operating performance. Molybdenum sales totaled 93 million pounds, a 12.05% increase.

Among the factors contributing to the profit declines were sharp drops in the prices of copper and gold; charges for unrealized oil and gas derivative contracts that amounted to $118 million in the quarter and $312 million in the full year; and $76 million in charges related to the Morenci project in Arizona.

In the second quarter of 2013, FCX stepped into the Oil & Gas Industry by completing its acquisitions of Plains Exploration & Production Company and McMoRan Exploration Company, which became known as Freeport McMoRan Oil & Gas. The acquired assets include properties in the Eagle Ford Shale, the Haynesville Shale in Louisiana, and the deepwater Gulf of Mexico. In its first seven months of operation, the oil & gas segment added $2.93 billion to 2013's total revenues, while sales totaled 38.1 million barrels of oil equivalent, largely due to higher Eagle Ford Shale production.

Capital expenditures were reported to be $5.29 billion for full-year 2013, compared with $3.49 billion in 2012. The total includes $2.3 billion for major mining projects and $1.45 billion for Freeport McMoRan Oil & Gas.

Industrial Info is tracking more than $14.4 billion in active projects involving FCX, including the $1.4 billion addition to an aboveground copper mine and concentrator in Morenci, Arizona. The project is intended to expand the open pit mining rate from 700,000 to 900,000 tons per day, and to increase copper production from 125 million to 225 million pounds per year. For more information, see October 15, 2013, article - U.S. Mining Project Starts Lead to Banner Year for Construction in Rocky Mountains Region.

Industrial Info also is tracking FCX's large-scale expansion at the Cerro Verde copper and molybdenum mine near Arequipa, Peru. The project involves constructing a new concentrator plant that will triple capacity from 120,000 to 360,000 tons per day, producing an additional 600 million pounds of copper to reach 1.1 billion pounds. FCX executives said that engineering is more than 90% complete.

"The emphasis in our entire organization is on operational execution throughout the year, and the results have been strong," said Richard Adkerson, the president and chief executive officer of FCX, in a conference call. "We had a 12% increase in copper sales, and we had growing volumes in all four regions that we operate in. We had a positive and significant contribution from the oil & gas business, and we executed on our plans to grow our volumes."

Capital expenditures for 2014 are expected to total about $7 billion, with $3 billion each for major mining projects and major oil & gas projects. Adkerson said that U.S. demand for copper appears to be improving, particularly in key industries, such as housing and automotive. He also noted that FCX is seeing a recovery in the European copper markets, while the cathode market remains tight as a lack of scrap drives consumption. FCX has strong expectations for its Eagle Ford and Haynesville assets, and executives expect deepwater Gulf of Mexico production to more than double over the next five years.

"As we talk to our downstream [U.S. copper] customers, we're hearing positive comments about the performance in 2013 and a degree of confidence about the performance in 2014," Adkerson said.

He later added: "We're seeing relatively positive near-term fundamentals for copper in a world that has continuing economic uncertainties, but longer-term fundamentals remain particularly strong, because of constraints on supply globally and the demand for copper throughout the world."

For more information, visit Industrial Info's Global Metals and Minerals Project Database.

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