Freeport-McMoRan Copper & Gold Inc. Reports Fourth-Quarter and Year Ended December 31, 2012 Results

Freeport-McMoRan Copper & Gold Inc. Reports Fourth-Quarter and Year Ended December 31, 2012 Results

PHOENIX--(BUSINESS WIRE)-- Freeport-McMoRan Copper & Gold Inc. (NYS: FCX) :

  • Net income attributable to common stock for fourth-quarter 2012 was $743 million, $0.78 per share, compared with net income of $640 million, $0.67 per share, for fourth-quarter 2011. Net income attributable to common stock for the year 2012 was $3.0 billion, $3.19 per share, compared with $4.6 billion, $4.78 per share, for the year 2011.
  • Consolidated sales from mines for fourth-quarter 2012 totaled 972 million pounds of copper, 254 thousand ounces of gold and 21 million pounds of molybdenum, compared with 823 million pounds of copper, 133 thousand ounces of gold and 19 million pounds of molybdenum for fourth-quarter 2011. Consolidated sales for the year 2012 totaled 3.65 billion pounds of copper, 1.0 million ounces of gold and 83 million pounds of molybdenum, compared with 3.70 billion pounds of copper, 1.4 million ounces of gold and 79 million pounds of molybdenum for the year 2011.
  • Consolidated sales from mines for the year 2013 are expected to approximate 4.3 billion pounds of copper, 1.4 million ounces of gold and 90 million pounds of molybdenum, including 940 million pounds of copper, 230 thousand ounces of gold and 23 million pounds of molybdenum for first-quarter 2013.
  • Consolidated unit net cash costs (net of by-product credits) averaged $1.54 per pound of copper for fourth-quarter 2012, compared with $1.57 per pound for fourth-quarter 2011. Based on current sales volume and cost estimates and assuming average prices of $1,700 per ounce for gold and $11 per pound for molybdenum, consolidated unit net cash costs (net of by-product credits) are estimated to average $1.35 per pound of copper for the year 2013.
  • Operating cash flows totaled $1.3 billion for fourth-quarter 2012 (including $122 million of net working capital sources and other tax payments) and $3.8 billion (net of $1.4 billion in working capital uses and other tax payments) for the year 2012, compared with $746 million for fourth-quarter 2011 (net of $335 million in working capital uses and other tax payments) and $6.6 billion (net of $461 million in working capital uses and other tax payments) for the year 2011. Based on current sales volume and cost estimates and assuming average prices of $3.65 per pound for copper, $1,700 per ounce for gold and $11 per pound for molybdenum, operating cash flows are estimated to approximate $7 billion for the year 2013, excluding results of pending acquisitions.
  • Capital expenditures totaled $976 million for fourth-quarter 2012 and $3.5 billion for the year 2012, compared with $785 million for fourth-quarter 2011 and $2.5 billion for the year 2011. Excluding amounts for pending acquisitions, capital expenditures are expected to approximate $4.6 billion for the year 2013, including $2.8 billion for major projects and $1.8 billion for sustaining capital.
  • At December 31, 2012, consolidated cash totaled $3.7 billion and total debt totaled $3.5 billion.
  • On December 5, 2012, FCX announced definitive agreements to acquire Plains Exploration & Production Company (PXP) and McMoRan Exploration Co. (MMR) in transactions totaling $20 billion, which would create a premier U.S.-based natural resource company. The transactions are expected to close in second-quarter 2013.

Freeport-McMoRan Copper & Gold Inc. (NYS: FCX) reported fourth-quarter 2012 net income attributable to common stock of $743 million, $0.78 per share, compared with $640 million, $0.67 per share, for fourth-quarter 2011. Fourth-quarter 2012 net income included a net credit of $40 million ($0.04 per share) associated with adjustments to environmental obligations and related litigation reserves and a gain for insurance recoveries, partly offset by charges for labor agreement costs at Candelaria and for costs associated with the PXP and MMR transactions. Fourth-quarter 2011 net income included a net charge of $73 million ($0.08 per share) associated with adjustments to environmental obligations and related litigation reserves and bonuses for new labor agreements and other employee costs at PT Freeport Indonesia, Cerro Verde and El Abra. For the year 2012, FCX reported net income attributable to common stock of $3.0 billion, $3.19 per share, compared with $4.6 billion, $4.78 per share, for the year 2011.


James R. Moffett, Chairman of the Board, and Richard C. Adkerson, President and Chief Executive Officer said, "Our global team continues to achieve strong and safe production while aggressively managing costs and executing on financially attractive projects to grow our copper production from 3.66 billion pounds in 2012 to over 5 billion pounds per annum in 2015. We are positive about the long-term outlook for our business, the markets we serve and the opportunities that the pending oil and gas acquisitions will provide. We are focused on executing our strategy of developing long-term resources in a cost effective and financially attractive manner to generate long-term value for shareholders."

SUMMARY FINANCIAL AND OPERATING DATA

       
Three Months Ended Years Ended
December 31, December 31,
  2012     2011 2012     2011
Financial Data (in millions, except per share amounts)
Revenuesa $ 4,513 $ 4,162 $ 18,010 $ 20,880
Operating income $ 1,358

b,c,d,e

$ 1,297 b,d $ 5,814 b,c,d,e $ 9,140 b,d
Net income attributable to common stockf $ 743 b,c,d,e $ 640 b,d $ 3,041 b,c,d,e,g,h $ 4,560 b,d,g,h
Diluted net income per share of common stock $ 0.78 b,c,d,e $ 0.67 b,d $ 3.19 b,c,d,e,g,h $ 4.78 b,d,g,h
Diluted weighted-average common
shares outstanding 954 953 954 955
Operating cash flowsi $ 1,265 $ 746 $ 3,774 $ 6,620
Capital expenditures $ 976 $ 785 $ 3,494 $ 2,534
 
Mining Operating Data
Copper (millions of recoverable pounds)
Production 1,005 823 3,663 3,691
Sales, excluding purchases 972 823 3,648 3,698
Average realized price per pound $ 3.60 $ 3.42 $ 3.60 $ 3.86
Site production and delivery costs per poundj $ 2.01 $ 1.96 $ 2.00 $ 1.72
Unit net cash costs per poundj $ 1.54 $ 1.57 $ 1.48 $ 1.01
Gold (thousands of recoverable ounces)
Production 251 181 958 1,383
Sales, excluding purchases 254 133 1,010 1,378
Average realized price per ounce $ 1,681 $ 1,656 $ 1,665 $ 1,583
Molybdenum (millions of recoverable pounds)
Production 24 18 85 83
Sales, excluding purchases 21 19 83 79
Average realized price per pound $ 12.62 $ 15.08 $ 14.26 $ 16.98

a. Includes the impact of adjustments to provisionally priced sales recognized in prior periods (refer to the "Consolidated Statements of Income" on page IV for further discussion).

b. Includes net (credits) charges for adjustments to environmental obligations and related litigation reserves totaling $(42) million ($(24) million to net income attributable to common stockholders or $(0.03) per share) for fourth-quarter 2012, $29 million ($23 million to net income attributable to common stockholders or $0.02 per share) for fourth-quarter 2011, $(62) million ($(40) million to net income attributable to common stockholders or $(0.04) per share) for the year 2012 and $107 million ($86 million to net income attributable to common stockholders or $0.09 per share) for the year 2011.

c. The 2012 periods include a gain of $59 million ($31 million to net income attributable to common stockholders or $0.03 per share) for the settlement of the insurance claim for business interruption and property damage relating to the 2011 incidents affecting PT Freeport Indonesia's concentrate pipelines.

d. The 2012 periods include a charge of $16 million ($8 million to net income attributable to common stockholders or $0.01 per share) associated with labor agreement costs at Candelaria. The 2011 periods include charges totaling $116 million ($50 million to net income attributable to common stockholders or $0.05 per share) primarily associated with bonuses for new labor agreements and other employee costs at PT Freeport Indonesia, Cerro Verde and El Abra.

e. The 2012 periods include charges of $9 million ($7 million to net income attributable to common stockholders or $0.01 per share) for costs associated with the PXP and MMR transactions.

f. FCX defers recognizing profits on intercompany sales until final sales to third parties occur (refer to the "Consolidated Statements of Income" on page IV for a summary of net impacts from changes in these deferrals).

g. Includes net losses on early extinguishment of debt totaling $149 million ($0.16 per share) for the year 2012, and $60 million ($0.06 per share) for the year 2011.

h. The year 2012 includes a net credit of $98 million, net of noncontrolling interests ($0.11 per share) associated with adjustments to Cerro Verde's deferred income taxes. The year 2011 includes a charge of $49 million, net of noncontrolling interests ($0.05 per share) for additional taxes associated with Cerro Verde's election to pay a special mining burden during the remaining term of its current stability agreement. For further discussion refer to the supplemental schedule, "Provision for Income Taxes," on page XXVI, which is also available on FCX's website, "www.fcx.com."

i. Includes net working capital sources (uses) and other tax payments of $122 million for fourth-quarter 2012, $(335) million for fourth-quarter 2011, $(1.4) billion for the year 2012 and $(461) million for the year 2011.

j. Reflects per pound weighted-average site production and delivery costs and unit net cash costs (net of by-product credits) for all copper mines, excluding net noncash and other costs. For reconciliations of per pound unit costs by operating division to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page VII, which is also available on FCX's website, "www.fcx.com."

OPERATIONS

Consolidated. Fourth-quarter 2012 consolidated copper sales of 972 million pounds were higher than the October 2012 estimates of 930 million pounds, primarily reflecting higher production in North and South America. Fourth-quarter 2012 consolidated sales of 254 thousand ounces of gold and 21 million pounds of molybdenum approximated the October 2012 estimates of 255 thousand ounces of gold and 20 million pounds of molybdenum. Fourth-quarter 2012 consolidated copper and gold sales were higher than fourth-quarter 2011 sales of 823 million pounds of copper and 133 thousand ounces of gold primarily reflecting the impact of PT Freeport Indonesia labor disruptions in fourth-quarter 2011. Operations and productivity have improved in 2012 at PT Freeport Indonesia.

Consolidated sales from mines for the year 2013 are expected to approximate 4.3 billion pounds of copper, 1.4 million ounces of gold and 90 million pounds of molybdenum, including 940 million pounds of copper, 230 thousand ounces of gold and 23 million pounds of molybdenum in first-quarter 2013. Projected copper sales for 2013 are expected be 18 percent higher than 2012 sales, reflecting access to higher grade ore at PT Freeport Indonesia and in South America and higher production in North America and Africa. Projected 2013 gold sales are expected to be 37 percent higher than 2012, primarily reflecting higher ore grades at Grasberg.

Consolidated average unit net cash costs (net of by-product credits) of $1.54 per pound of copper in fourth-quarter 2012 were lower than unit net cash costs of $1.57 per pound in fourth-quarter 2011 reflecting charges in fourth-quarter 2011 associated with new labor agreements and other employee costs, partly offset by higher fourth-quarter 2012 mining costs in North and South America.

FCX expects to gain access to higher grade ore at Grasberg in late 2013, which will result in higher copper and gold production volumes. Approximately 29 percent of 2013 consolidated copper sales volumes and 37 percent of consolidated gold sales volumes are expected in fourth-quarter 2013. Quarterly unit net cash costs vary with fluctuations in sales volumes and average realized prices for gold and molybdenum. Assuming average prices of $1,700 per ounce of gold and $11 per pound of molybdenum and achievement of current sales volume and cost estimates, consolidated unit net cash costs (net of by-product credits) for FCX's copper mining operations are expected to average $1.67 per pound of copper in first-quarter 2013 and $1.35 per pound for the year 2013. The impact of price changes on 2013 consolidated unit net cash costs would approximate $0.015 per pound for each $50 per ounce change in the average price of gold and $0.015 per pound for each $2 per pound change in the average price of molybdenum.

North America Copper Mines. FCX operates seven open-pit copper mines in North America - Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Tyrone and Chino in New Mexico. All of the North America mining operations are wholly owned, except for Morenci. FCX records its 85 percent joint venture interest in Morenci using the proportionate consolidation method. In addition to copper, certain of FCX's North America copper mines (Sierrita, Bagdad, Morenci and Chino) also produce molybdenum concentrates.

Operating and Development Activities. FCX has completed projects to increase production at its North America copper mines, including restarting certain mining and milling operations and increasing mining rates at Morenci and Chino. Ramp up activities at Chino are continuing, with annual production of approximately 250 million pounds of copper targeted in 2014. FCX continues to evaluate opportunities to invest in additional production capacity at its North America copper mines in response to positive exploration results in recent years.

At Morenci, FCX is engaged in a project to expand mining and milling capacity to process additional sulfide ores identified through exploratory drilling. The approximate $1.4 billion project is targeting incremental annual production of approximately 225 million pounds of copper in 2014 (an approximate 40 percent increase from 2012) through an increase in milling rates from 50,000 metric tons of ore per day to approximately 115,000 metric tons of ore per day and mining rates from 700,000 short tons per day to 900,000 short tons per day. Engineering activities are progressing and construction activities are under way.

Operating Data. Following is summary consolidated operating data for the North America copper mines for the fourth quarters and years ended 2012 and 2011:

       
Three Months Ended Years Ended
December 31, December 31,
  2012     2011 2012     2011
Copper (millions of recoverable pounds)
Production 358 341 1,363 1,258
Sales, excluding purchases 321 333 1,351 1,247
Average realized price per pound $ 3.63 $ 3.44 $ 3.64 $ 3.99
 
Molybdenum (millions of recoverable pounds)
Productiona 9 8 36 35
 
Unit net cash costs per pound of copper:
Site production and delivery, excluding adjustments $ 2.00 $ 1.73 $ 1.91 $ 1.78
By-product credits, primarily molybdenumb (0.35 ) (0.37 ) (0.36 ) (0.48 )
Treatment charges 0.13   0.12   0.12   0.11  
Unit net cash costsc $ 1.78   $ 1.48   $ 1.67   $ 1.41  

a. Reflects molybdenum production from certain of the North America copper mines. Sales of molybdenum are reflected in the Molybdenum division (refer to page 9).

b. Molybdenum credits reflect volumes produced at market-based pricing.

c. For a reconciliation of unit net cash costs per pound to production and delivery costs applicable to sales reported in FCX's consolidated financial statements, refer to the supplemental schedule, "Product Revenues and Production Costs," beginning on page VII, which is also available on FCX's website, "www.fcx.com."

Consolidated copper sales volumes from North America of 321 million pounds in fourth-quarter 2012 were lower than fourth-quarter 2011 sales of 333 million pounds primarily reflecting timing of shipments.

FCX expects sales from the North America copper mines to approximate 1.45 billion pounds of copper for the year 2013, compared with 1.35 billion pounds of copper in 2012, primarily reflecting higher production at Morenci and Chino.

Average unit net cash costs (net of by-product credits) for the North America copper mines of $1.78 per pound of copper in fourth-quarter 2012 were higher than unit net cash costs of $1.48 per pound in fourth-quarter 2011, primarily reflecting increased mining and milling activities.

FCX estimates that average unit net cash costs (net of by-product credits) for the North America copper mines would approximate $1.82 per pound of copper for the year 2013, based on current sales volume and cost estimates and assuming an average molybdenum price of $11 per pound. North America's average unit net cash costs for 2013 would change by approximately $0.04 per pound for each $2 per pound change in the average price of molybdenum. North America's average unit net cash costs for 2013 are expected to be higher than 2012 because of lower molybdenum credits and higher mining rates.

South America Mining. FCX operates four copper mines in South America - Cerro Verde in Peru and El Abra, Candelaria and Ojos del Salado in Chile. FCX owns a 53.56 percent interest in Cerro Verde, a 51 percent interest in El Abra, and an 80 percent interest in both the Candelaria and Ojos del Salado mining complexes. All operations in South America are consolidated in FCX's financial statements. South America mining includes open-pit and underground mining. In addition to copper, the Cerro Verde mine produces molybdenum concentrates, and the Candelaria and Ojos del Salado mines produce gold and silver.

Operating and Development Activities. At Cerro Verde, FCX is engaged in a large-scale expansion. The approximate $4.4 billion project would expand the concentrator facilities from 120,000 metric tons of ore per day to 360,000 metric tons of ore per day and provide incremental annual production of approximately 600 million pounds of copper and 15 million pounds of molybdenum beginning in 2016. Cerro Verde received approval of the environmental impact assessment in fourth-quarter 2012. Detailed engineering and long-lead item procurement are under way, and construction is expected to commence in 2013.

FCX is also engaged in pre-feasibility studies for a potential large-scale milling operation at El Abra to process additional sulfide material and to achieve higher recoveries. Exploration results at El Abra have identified a significant sulfide resource.

Operating Data. Following is summary consolidated operating data for the South America mining operations for the fourth quarters and years ended 2012 and 2011:

       
Three Months Ended Years Ended
December 31, December 31,
  2012     2011 2012     2011
Copper (millions of recoverable pounds)
Production 349 337 1,257 1,306
Sales 350 357 1,245 1,322
Average realized price per pound $ 3.60 $ 3.45 $ 3.58 $ 3.77
 
Gold (thousands of recoverable ounces)
Production 26 28 83 101
Sales 26 29 82 101
Average realized price per ounce $ 1,686 $ 1,626 $ 1,673 $ 1,580
 
Molybdenum (millions of recoverable pounds)
Productiona 2 2 8 10
 
Unit net cash costs per pound of copper:

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