Freeport-McMoRan (FCX) announced on August 27 plans to lower its capital spending in 2016 by 29%, while also cutting copper production at its Miami and Tyrone mines in the United States and at the El Abra mine in Chile. At the same time, FCX will be bringing a major concentrator expansion on line at the Cerro Verde mine in Peru beginning in late 2015. With this new production from Cerro Verde and increased production from the Grasberg mine in Indonesia added to the mix, FCX is estimating that its copper sales will increase from 4.2 billion lb in 2015 to 5.25 billion lb in 2016.

FCX stated that the revisions to its operating plans were made in response to falling LME copper prices, which dropped from an average of $3.11/lb in 2014 to $2.69/lb in the first half of 2015 and which continued to fall to about $2.25/lb, near a six-year low, at the time of its announcement.

FCX now is now budgeting $4 billion for capital spending in 2016, down from the $5.6 billion it announced on July 23, 2015. The 2016 estimate includes $1.4 billion for mining projects, $0.6 billion in mining sustaining capital, and $2 billion for oil and gas expenditures.

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. Production cuts will come from a suspension of operations at Miami, which produced 57 million lb of copper in 2014, and a 50% reduction in mining rates at Tyrone, which produced 94 million lb in 2014.

Other U.S. mines will also see some production cuts. Overall, FCX expects these changes to result in an approximate 10% reduction in employees and contractors at its U.S. copper mines.

In South America, FCX operates the Cerro Verde mine in Peru and the El Abra mine in Chile. Revised operating plans for these mines in 2016 include an approximate 50% reduction in mining rates at El Abra, as well as a reduction in capital expenditures. At Cerro Verde, the concentrator expansion that is nearing completion will triple plant throughput from 120,000 mt/d to 360,000 metric tons per day (mt/d) at design capacity.

In Africa, FCX operates the Tenke Fungurume copper-cobalt mine in Katanga province of the Democratic Republic of Congo. The company is not planning to reduce production at the mine; however, revised operating plans call for a 50% reduction in capital spending in 2016 and various initiatives to reduce operating, administrative, and exploration costs. Future development and expansion opportunities are being deferred pending improved market conditions.

In Indonesia, FCX holds a 90.64% interest in PT Freeport Indonesia (PT-FI), whose assets include one of the world’s largest copper and gold mines at Grasberg in Papua province. 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 for 2016 include improved operating efficiencies and a 15% deferral of previously planned capital expenditures.

PT-FI is developing long-lived, high-grade underground orebodies in the Grasberg district. These mines are expected to maintain large-scale operations for PT-FI following a transition from the Grasberg open pit, currently scheduled for late 2017. Over the next five years, capital spending on these projects is planned to average $1.1 billion per year. However, PT-FI is undertaking a review of these plans that could result in the deferral of some costs related to longer-term power and processing investments.

Finally, FCX is the world’s largest molybdenum miner. In North America, the company plans to cut production at its Henderson primary molybdenum mine in Colorado by about 35% to about 17.5 million lb in 2016. The company is also reviewing byproduct molybdenum production at its primary copper mines and is engaged in discussions with customers regarding potential increases in the pricing of its molybdenum chemicals products to ensure continuation of chemical grade production at reasonable margins.

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