Freeport-McMoran, Inc. (FCX)

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Freeport-McMoRan Copper & Gold Inc. (CNI)

Q4 2008 Earnings Call

January 26, 2009 10:00 am ET

Executives

Kathleen L. Quirk – Executive Vice President & Chief Financial Officer

James R. Moffett – Chairman of the Board

Richard C. Adkerson – President & Chief Executive Officer

David Thornton – President of Climax Molybdenum

John Marsden – President of Mining Division

Mark Johnson – Chief Operating Officer of Indonesian Operations

Analysts

Michael Gambardella - J.P. Morgan

Jorge Beristain - Deutsche Bank Securities

Anthony Rizzuto - Dahlman Rose & Co.

Victor Flores - HSBC

Kuni Chen - Bank of America Securities/Merrill Lynch

[John Hill] – Cambrian Fund

John Tumazos - John Tumazos Very Independent Research

[Peter Bulkner] – Sansar Capital

John Redstone - Desjardins Securities

[Mark Leeanama] – Morgan Stanley

Brian Macarthur - UBS

David Gagliano - Credit Suisse

Justine Fisher - Goldman Sachs

[Dave Katz] – J.P. Morgan

Brett Levy - Jefferies & Company

[Wayne Atwell – Pontiss Management]

Steve Grisanti - Tricadia

[Sunil Gathader] – Sentinel Asset Management

[Raoul Aderol] - Marathon

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport McMoRan Copper and Gold fourth quarter earnings conference call. (Operator Instructions) I would now like to turn the conference over to Miss Kathryn 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 and Gold fourth quarter 2008 earnings conference call. Our earnings announcement was 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 and we’ll also have several slides to supplement our comments this morning. The slides are accessible using the webcast link on our fcx.com website homepage.

In addition to analysts and investors, the financial press has also been invited to listen to today’s call and a replay of the call will be available by accessing the webcast link on our Internet homepage later today.

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

On the call today are Jim-Bob Moffett, our Chairman of the Board; Richard Adkerson, President and Chief Executive Officer; and we also have our Senior Operations Team here, Mark Johnson, Red Conger, John Marsden and Dave Thornton.

I’ll start by briefly summarizing the financial results and then turn the call over to Richard who will refer to the slide presentation materials and review our operations and outlook. We’ll then open the call for questions.

Today FCX reported a fourth quarter 2008 net loss applicable to common stock of $13.9 billion, $36.78 per share. After adjusting for a number of special items that we had during the quarter which are detailed on Page 3 of the release, in total $14 billion, $36.84 per share, our fourth quarter 2008 adjusted net income totaled $23 million or $0.06 per share. This compared to the fourth quarter 2007 net income of $414 million, $1.05 per share.

During the fourth quarter of 2008, we completed our review of the carrying values of our inventories including the long-lived mill and leach stockpiles, our long-lived assets and goodwill and recorded after tax charges totaling $13.1 billion or $34.51 per share. This was to reduce the carrying values that related to the March, 2000 acquisition of Phelps Dodge. These are described on Page 13 of the release and Richard will go into more detail in the presentation. These charges do not impact cash flows.

During the quarter we also recorded adjustments to our provisionally priced copper sales that were priced at $2.89 at the end of September and those were subject to final pricing in future periods. Adjustments for these sales decreased our fourth quarter revenues by approximately

$745 million, which impacted our fourth quarter results by $343 million to our net loss, $0.91 per share.

With strong sales of copper and gold for the quarter, our sales for the fourth quarter totaled 1.2 billion pounds of copper; 462,000 ounces of gold; and we sold 12 million pounds of molybdenum during the quarter. For the year, we sold 4.1 billion pounds of copper; 1.3 million ounces of gold; and 71 million pounds of molybdenum.

Commodity prices declined dramatically during the fourth quarter. They averaged $3.61 for the first nine months of 2008, and declined to four year lows of $1.26 per pound in December. We experienced unprecedented volatility over the last few months. Copper was $1.38 at January 23, which was Friday.

Our recorded prices for the quarter averaged $1.55 per pound. These were approximately 50% lower than then fourth quarter of 2007. And operating cash flows were $3.4 billion for the year. This was net of $1.2 billion in working capital requirements.

Capital expenditures during the year totaled $2.7 billion, and we ended the year with $7.4 billion in debt and just under $900 million in cash. We had borrowings under our revolving credit facility at year-end of $150 million and net of letters of credit outstanding of $74 million had availability under the credit facilities of $1.3 billion. In December we announced revisions to our operating plans and today we’re announcing further revisions to those plans, which Richard will be reviewing.

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

Richard C. Adkerson

Good morning everyone. I’m going to cover our response to the market conditions operationally; how we’re taking steps to limit capital expenditures; to drive our costs of operations down so that we are cash flow positive even at low prices; and how we’re reducing costs overall.

I want to review with you to make sure everyone has an understanding of the write-offs that we’re reporting today. We talked about this in December during our last call. We completed our analysis based on year-end prices and the results are reported today. And then to look at our financial outlook and where we’re going as a company.

News every day is talking about markets. There’s not much to add. Business is weak. Because of the global economic situation, copper inventories have risen; not as much as they did in past periods of low prices. Stocks today represent about seven days of consumption. It’s been limited by supply disruptions, which continue to be a feature of the industry of significance. And copper will respond to global economic conditions and the continued development of infrastructure in China and elsewhere around the world.

Our business is supported by the strong gold price, which is over $800 and we’re producing significant amounts of gold at Grasberg. And that’s an important feature of our company and really part of the strategy that we had put in place when we combined Phelps Dodge with our business. After a rapid decline fairly early in the fourth quarter, the molybdenum prices have stabilized recently. This week we’re selling molybdenum at $9.30 a pound and we’ve adjusted our operations to be responsive to that situation.

Slide 4 talks about some of the issues that relate to the overall market situation. Obviously the market is affected by what’s gone on in the investment community with hedge funds and others withdrawing from investing in commodities. As I mentioned LME stocks are up 225,000 metric tons since the end of September and the market’s anticipating further increases in stocks, but it’s a big question of what goes on in the marketplace and obviously China is a key to that.

When we look at where our business is and what we’re doing to be responsive to these conditions, we continue to feel confident about the long run outlook for our commodities. Outside of the low prices, the industry has struggled. We had five years of very positive markets and during 2008, mine supply was virtually flat with 2007.

And in underlying all of this current economic downturn is the basic problem as the industry challenged to find new supplies of copper and the copper that is being produced from existing mines is being limited by falling grades and operational issues and other factors. We believe that this means this means that the resources that we have in our company, and even though we’ve written down the cost we have the same assets that we had; we haven’t walked away from any of our resources or any of our growth opportunities; points to a bright future for our company and these current market conditions will be supportive of the long run outlook for copper and molybdenum.

Read the rest of this transcript for free on seekingalpha.com