Although copper prices are still down overall — continuing a yearslong trend — and metals productivity also continued to slow, mining giant Freeport-McMoRan’s second-quarter and six-month 2019 earnings report accentuated the positive future impact of its intensive development of underground mining in the Grasberg minerals district in Indonesia.
The company also projected increased North American productivity when the Lone Star mine project outside Safford, Ariz., comes online in 2020. Company spokesman Linda Hayes told the Daily Press that Grant County operations — and jobs — at the Tyrone, Chino and newly reopened Cobre Mine were not imperiled by low copper prices or the ongoing trade war between the U.S. and China.
“The Cobre restart is complete, and we are actively mining there,” Hayes said. “There are no current plans for substantial changes to our New Mexico mining operations. Our head count remains steady. We continue to post available jobs, especially for electricians and diesel diagnostic mechanics. Applicants are encouraged to visit FMjobs.com for more information.”
Freeport-McMoRan is a significant contributor to the economy in Grant County. County Assessor Raul Turrieta presented some figures to the Silver Consolidated Schools Board of Education this spring that showed the devastating impact that decreased copper production could have on the county’s tax base and tax-funded services like schools — and the July earnings report showed a continued decline in copper production in North America. That translates to less tax dollars for Grant County, since the mine pays property taxes based on the amount of metal — mostly copper, but also gold and molybdenum — that the company extracts from its mines here each year.
Turrieta presented his annual report to the Grant County Commission at their regular meeting July 25, in which the 2019 taxable value of Freeport’s Grant County interests was shown to have declined by nearly 11 percent since last year. This continues a yearslong downward trend. In 2016, the county assessed taxes on $227,121,258 worth of copper extracted at the Chino and Tyrone mines; in 2019, that combined value fell to $177,767,942.
Despite volatile world markets and the decrease in productivity at the company’s Grant County mines, area nonprofits, schools and other organizations that rely on financial support — through generous grants and donations — from the Freeport-McMoRan Foundation shouldn’t panic, according to Hayes.
“We do not have any current plans to change our community engagement efforts,” she said.
Freeport divested itself of its petroleum interests and stopped reporting oil figures in 2017, a move that was intended to save the company money and allow it to invest heavily in its mining portfolio. Despite volatile metal markets, technology development means metals are expected to be far more reliably profitable than fossil fuels in a world that relies on materials like copper for so many of its products.
As predicted, Freeport’s capital expenditures rose, from $5 billion in the second quarter of 2018 to $6 billion in the second quarter of 2019. This was largely due to heavy investment in new and expanded mining projects. For comparison, the company’s capital expenditures in the first six months of 2017 were reported at $706 million; in 2019, Freeport reported expenditures of $1.25 billion for the first six months of the year.
Average realized prices in the second quarter of 2019 were reported at $2.75 per pound for copper, $1,351 per ounce for gold and $13.15 per pound for molybdenum. This compared to a reported $3.08 per pound of copper in the second quarter of 2018, and is roughly the same price reported in the second quarter of 2017. Gold was up slightly from $1,274 per ounce in second-quarter 2018 and molybdenum also rose over a reported average of $12.89 per pound in second-quarter 2018.
“Consolidated sales volumes for the year 2019 are expected to approximate 3.3 billion pounds of copper, 0.8 million ounces of gold and 94 million pounds of molybdenum, including 830 million pounds of copper, 230,000 ounces of gold and 25 million pounds of molybdenum in third-quarter 2019,” the report said. “As PT-FI [Freeport-Indonesia] transitions mining from the open pit to underground, metal production is expected to improve by 2021.”
While gold sales volume is down by half from the second quarter of last year, amounts of copper and molybdenum sold remained nearly static from the second quarter of 2018 and second-quarter 2017. Projections are virtually unchanged from the first quarter of 2019, with molybdenum sales volume estimates down slightly and copper and gold unchanged.
As the firm continues its heavy investment in resource development, the cost of producing copper doubled over the same time last year, from 96 cents per pound in the second quarter of 2018 to $1.92 in 2019.
Shareholders will be disappointed — but likely not surprised — by the report, which reflects the current overall low profitability of producing copper and other metals for the world market. The company reported a net loss attributable to common stock of $72 million.
“Based on estimated realized prices and updated gold sales and cost guidance for the second quarter, FCX [Freeport’s stock exchange symbol] expects to generate adjusted earnings before interest, taxes and depreciation (Adjusted EBITDA) of approximately $430 million in second-quarter 2019 and to record an approximate $0.05 per share loss to net income before any non-recurring items.”
The company nonetheless said it would pay a quarterly cash dividend of 5 cents per share on common stock at the beginning of August, the same as for second-quarter 2018.
Geoffrey Plant may be reached at geoff@scdaily press.com.