Freeport-McMoRan Copper & Gold's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Freeport-McMoRan Copper & Gold (FCX)

Q1 2012 Earnings Call

April 19, 2012 10:00 am ET

Executives

Kathleen L. Quirk - Chief Financial Officer, Executive Vice President, Treasurer and Commissioner of PT Freeport Indonesia

Richard C. Adkerson - Chief Executive Officer, President, Director and Chairman of Fm Services Company - Sub

James R. Moffett - Chairman of the Board

Analysts

Michael F. Gambardella - JP Morgan Chase & Co, Research Division

Brian Yu - Citigroup Inc, Research Division

David Gagliano - Barclays Capital, Research Division

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Aldo J. Mazzaferro - Macquarie Research

Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division

Paretosh Misra - Morgan Stanley, Research Division

Brian MacArthur - UBS Investment Bank, Research Division

Richard Garchitorena - Crédit Suisse AG, Research Division

John Charles Tumazos - John Tumazos Very Independent Research, LLC

Charles A. Bradford - Bradford Research, Inc.

Paul A. Massoud - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Ms. Kathleen Quirk, Executive Vice President and Chief Financial Officer. Please go ahead, ma'am.

Kathleen L. Quirk

Thank you, and good morning, everyone. Welcome to the Freeport-McMoRan Copper & Gold First Quarter 2012 Earnings Conference Call. Our results were released earlier this morning and a copy of the press release is available on our website at fcx.com. Our conference call today is being broadcast live on the Internet. Anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call.

As usual, we have several slides to supplement our comments this morning, and we'll be referring to the slides during the call. The slides are also accessible using the webcast link on fcx.com. In addition to analysts and investors, the financial press has been invited to listen to today's call, and a replay of the webcast will be available on our website later today.

Before we begin our comments today, we'd like to remind everyone that today's press release and certain of our comments on this call will include forward-looking statements. We'd like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings.

On the call today is Jim Bob Moffett, our Chairman of the Board; Richard Adkerson, our President and Chief Executive Officer; and Mark Johnson is also with us today. I'll start by briefly summarizing our financial results and then turn the call over to Richard who will review our recent performance and outlook. As usual, after our remarks, we'll open up the call for questions.

Today, FCX reported first quarter 2012 net income attributable to common stock of $764 million or $0.80 per share compared with $1.5 billion or $1.57 per share for first quarter 2011. The first quarter 2012 results included $149 million or $0.16 per share in losses on the early extinguishment of debt in connection with the refinancing of $3 billion in senior notes during the quarter.

Our first quarter 2012 consolidated sales of 827 million pounds of copper and 288,000 ounces of gold were lower than the January 2012 estimates of 875 million pounds of copper and 425,000 ounces of gold. Our copper sales in the first quarter were higher than the revised March 2012 estimate of 795 million pounds, and gold sales were slightly below the revised estimates of 300,000 ounces.

As we previously reported, labor-related work interruptions and temporary suspension of operations affected production at PT Freeport Indonesia during the first quarter 2012. This was partly offset by higher sales from North America.

The estimated impact of the work interruptions at PT Freeport Indonesia during the first quarter totaled about 80 million pounds of copper and 125,000 ounces of gold. Operations and productivity at PT-FI have improved recently, and for the quarter-to-date period, our milling rates averaged approximately 200,000 metric tons of ore per day compared with just under 115,000 metric tons of ore per day in the first quarter.

Full operations, which are dependent on our ability to maintain security and productivity in the workplace are expected to be restored during the second quarter of 2012.

Our molybdenum sales in the first quarter of 21 million pounds were slightly higher than our estimate of 20 million pounds and the year-ago level of 20 million pounds. Our realized prices during the first quarter averaged $3.82 per pound. That was lower than last year's first quarter of $4.31 per pound. And for gold, we realized almost $1,700 per ounce in the first quarter 2012, which was higher than last year's $1,400 per ounce in the first quarter of 2011.

The molybdenum price recorded realization averaged $15.34 per pound in the first quarter of 2012 compared to the year-ago average of $18.10 per pound. As anticipated, our consolidated average unit net cash cost net of byproduct credits of $1.26 per pound of copper in the first quarter of 2012 were higher than the year-ago level of $0.79 per pound, primarily because of lower copper volumes in Indonesia, higher mining and input costs in North and South America and lower byproduct credits.

Our operating cash flows during the first quarter totaled just above $800 million and that was net of $720 million in working capital requirements. Capital expenditures during the first quarter totaled just over $700 million. That included expenditures to advance our growth projects, which are targeted to increase our annual copper production by over 25% over the next several years.

We ended the quarter in a strong financial position. Our consolidated cash totaled $4.5 billion, which exceeded our total debt of approximately $3.5 billion. During the quarter, we sold $3 billion of senior notes in 3 tranches with a weighted average interest rate approximating 3%. We used the proceeds to reduce higher cost debt. We redeemed the remaining $3 billion of our 8.375% senior notes and will generate interest cost savings associated with this transaction of $160 million per year.

In February of 2012, our board authorized an increase in our common stock dividend to an annual rate of $1.25 per share, with the first quarterly dividend at the higher rate to be paid on May 1 to shareholders of record on April 13.

I'd now like to turn the call over to Richard who will be referring to the slide materials on our website.

Richard C. Adkerson

Thank you, Kathleen. During the quarter, we've published our annual report to shareholders for 2011 and Slide 3 talks about the themes that we spoke to in the annual report about our leadership position in global copper markets, the gold production we have out of our Grasberg mine in Indonesia, our world-leading low-cost molybdenum business, our growing cobalt business and our company, with its very substantial, proved and probable reserves of resources and of reserves of our products, as well as our significant resources, is particularly well-situated to take advantage for the global demand in the future.

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