On Tuesday, Freeport-McMoRan posted a $4.2 billion loss for the first quarter of 2016, which was mostly attributed to the declining values of its oil and gas assets. The company’s mines remain profitable with strong cash flows.
During the quarter, Freeport-McMoRan sold 1.1 billion pounds (lb) of copper, 201,000 (ounces) oz of gold, and 17 million lb of molybdenum, compared with 960 million lb of copper, 263,000 oz of gold, and 23 million lb of molybdenum, during the first quarter of 2015. Copper production received a boost from the Cerro Verde expansion project in Peru, which reached full capacity during the quarter. Cerro Verde is on track to produce more than 1 billion lb of copper this year.
Freeport-McMoRan also expects to sell about 5 billion lb of copper, 1.85 million oz of gold, and 71 million lb of molybdenum in 2016. The company reported average realized prices of $2.17/lb for copper and $1,227/oz for gold. For the quarter, its cash costs averaged $1.38/lb. Cash costs for copper were $1.64/lb in the first quarter of 2015, primarily reflecting higher volumes from South America and the impact of ongoing cost reduction initiatives. If gold and moly prices average $1,250/oz and $5/lb, respectively, for the remainder of 2016, the company expects that average cash cost to decrease to $1.05/lb of copper for the entire year.
Freeport-McMoRan operates seven open-pit copper mines in North America: Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. Together they sold 503 million lb of copper in the first quarter, which exceeded first-quarter 2015 sales of 472 million lb, primarily reflecting higher ore grades at Morenci and Safford. Copper sales from North American operations are estimated at 1.75 billion lb for 2016, compared with 2 billion lb in 2015, which reflects the stake the company sold in Morenci.
Average cash costs (net of byproduct credits) for the North American copper mines of $1.42/lb of copper in the first quarter of 2016 were lower than the unit net cash costs of $1.76/lb in the first quarter of 2015, primarily reflecting the impact of cost reduction initiatives and higher sales volumes, partly offset by lower byproduct credits.
Cash costs for the North America copper mines are expected to average $1.45/lb for 2016, based on current sales volumes and cost estimates.
The company operates two copper mines in South America, Cerro Verde (53.56% interest) and El Abra in Chile (51% interest). In September 2015, the Cerro Verde expansion project commenced operations and achieved capacity operating rates during the first quarter of 2016. The expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies. The project expanded the concentrator facilities from 120,000 metric tons per day (mt/d) of ore to 360,000 mt/d and is on track to provide incremental annual production of approximately 600 million lb of copper and 15 million lb of molybdenum. El Abra has reduced mining and stacking rates by approximately 50% to achieve lower operating and labor costs, defer capital expenditures and extend the life of the existing operations.
Indonesia’s first-quarter 2016 consolidated copper sales of 174 million lb were higher than first-quarter 2015 sales of 155 million lb, primarily reflecting higher copper ore grades. Indonesia’s first-quarter 2016 gold sales of 195,000 oz were lower than first-quarter 2015 sales of 260,000 oz, primarily reflecting lower gold ore grades and recoveries.
During first-quarter 2016, copper production was impacted by reduced mill operating rates associated with unplanned equipment failures. Temporary repairs to the mill were performed and a permanent repair is scheduled in second-quarter 2016. As a result, second-quarter 2016 mill rates are expected to approximate first-quarter 2016 mill rates. The impact of the equipment failure and repairs is a reduction of 65 million lb of copper for 2016, compared with January 2016 estimates.
At the Grasberg mine, the sequencing of mining areas with varying ore grades causes fluctuations in quarterly and annual production of copper and gold. Consolidated sales volumes from Indonesia mining are expected to be 1.4 billion lb of copper and 1.85 million oz of gold for 2016, compared with 744 million lb of copper and 1.2 million oz of gold in 2015. Ore grades are expected to improve significantly beginning in the second half of 2016, with approximately 70% of copper sales and 80% of gold sales anticipated in the second half of the year.
Indonesia’s unit net cash costs (including gold and silver credits) of $1.24/lb of copper in the first quarter of 2016 were lower than unit net cash costs of $1.34/lb in the first quarter of 2015, primarily reflecting higher copper sales volumes and lower export duties, partly offset by lower gold and silver credits. The higher anticipated ore grades from Grasberg in the second half of 2016 are expected to result in lower unit net cash costs in the second half of the year.