Freeport-McMoran, Inc. (FCX)

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Freeport-McMoRan Copper & Gold Inc. (FCX)

Q4 2009 Earnings Call

January 21, 2010 10:00 a.m. ET

Executives

Kathleen Quirk - EVP, CFO

Richard Adkerson - President and CEO

Jim Bob Moffett - Chairman

Red Conger

Dave Thornton

Mark Johnson

Analysts

David Gagliano - Credit Suisse

Mark Liinamaa - Morgan Stanley

Tony Rizzuto - Dahlman Rose

Sal Tharani - Goldman Sachs

Kuni Chen - Bank of America-Merrill Lynch

Jorge Beristain - Deutsche Bank

John Redstone - Desjardins

Paul Mathoud - Stifel Nicolaus

Brian MacArthur - UBS Securities

Charles Bradford - Affiliated New York

Dave Katz - JP Morgan

Brett Levy - Jeffries & Company

Presentation

Operator

Welcome to the Freeport-McMoRan Copper & Gold fourth 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.

Kathleen Quirk

Thank you and good morning everyone and welcome to the Freeport-McMoran Copper & Gold fourth quarter 2009 earnings conference call. Our press release was made earlier this morning and a copy of the release is available on our website at fcx.com.

Our conference call today is being broadcast live on the Internet. We have several slides to supplement our comments this morning and we’ll be referring to the slides during the call. The slides are accessible using the webcast link on our fcx.com website home page. In vision to analysts and investors the financial press has also been invited to listen to today's call and a replay will be available by accessing the webcast link on our Internet homepage later today.

Before we began 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 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, President and Chief Executive Officer. We also have Red Conger with us today, Dave Thornton and Mark Johnson.

I'll briefly summarize our financial results and then turn the call over to Richard who will be referring to the slide materials on our website to discuss our operations and outlook. We'll then follow-up with questions.

Today FCX reported fourth quarter 2009 net income attributable to common stock of $971 million and $2.15 per share compared with the net loss of $13.9 billion or $36.78 per share for the fourth quarter of 2008. After adjusting for special items totaling $14 billion in the prior year quarter, our adjusted net income totaled $23 million or $0.06 a share for the fourth quarter of 2008. For the year ended 2009 we reported net income attributable to common stock of $2.5 billion $5.86 per share compare with the net loss of $11.3 billion were $29.72 per share for 2008.

Our fourth quarter copper sales of 989 million pounds were higher than our previous estimate of 915 million pounds as we gained access to higher grade material in the Grasberg mine, but they were lower than last year's fourth quarter 2008 sales of 1.2 billion pounds when we were mining in a relatively higher grade section at Grasberg.

Our gold sales for the fourth quarter of 2009 totaled 551,000 ounces, those again were higher than our estimate of 425,000 ounces and higher than last year's fourth quarter of 462,000 ounces. Molybdenum sales during the fourth quarter totaled 16 million pounds that was higher than last year's fourth of 12 million pounds in our prior estimates because of improved sales to Asia.

Our recorded copper prices during the fourth quarter of 2009 averaged $3.20 per pound that was more than double the average of the fourth quarter of 2008. And our realized gold prices averaged $1,115 per ounce during the quarter compared with $818 in the year ago period. We realized $13.45 per pound for molybdenum sales during the fourth quarter that compared to $24.55 in the fourth quarter of 2008.

I think you’ll see from our results that they reflect our continued strong operating performance and execution across all our operations. This is also shown in our unit net cash costs, net of byproduct credits, which averaged $0.62 per pound for the fourth quarter of 2009 significantly lower than last year's $4 per pound. We averaged $0.55 per pound for the year 2009 compared to $116 for 2008.

We generated strong cash flows during the quarter totaling $1.5 billion, for the year we generated $4.4 billion of operating cash flows and that was net of a $770 million reduction in cash flow for working capital uses. Our capital expenditures for the fourth quarter totaled $449 million that included a $200 million property acquisition that we made during the quarter that's adjacent to our Sierrita mine and our capital expenditures for the year totaled $1.6 billion.

We ended the year in a strong financial position. Our total debt approximated $6.3 billion at the end of the year. We had reduced debt during the year, total of $1 billion including just under $300 million in the fourth quarter. We ended the year with cash balance of $2.7 billion.

At the end of the year, we had 430 million common shares outstanding assuming conversion of our mandatory convertible preferred stock which automatically converts on May 1, 2010. We would have between 459 million and 477 million common shares outstanding depending on the applicable market price of FCX's common stock at the time of conversion.

Now I’d like to turn the call over to Richard who will be converging materials in our slide presentation.

Richard Adkerson

Good morning, everyone. In preparing for today’s call, last evening I went back and reread our conference call from a year-ago and it’s quite a start comparison. Two things really jumped out from comparing what we said last to what we are reporting to you today. First of all is, we set out an aggressive plan to deal with very low commodity prices during our call last year. And during 2009, we executed on that plan in remarkable fashion. Second thing of course is we have much higher prices of copper and molybdenum today and adding those things together resulted in what you’re seeing for the quarter fourth quarter and for the year 2009, is a very strong operating and financing performance.

The cash flows that we’ve generated have allowed us to strengthen our balance sheet, this gives us the enhanced financial and liquidity position that positions are company well to take advantage of what we believe is going to be a very positive long-term outlook for the commodity businesses that were in. Then in looking at 2009 we successfully started up our Tenke operations in the Democratic Republic of Congo. Even though we reduced our exploration spending during 2009, we were able to continue our long term experience of adding to our proved and probable mineral reserves and we have confidence that we’ll be able to continue that in the future even though we have high levels of current production.

While we curtailed high cost production at some of our mines, we maintained all of the future growth opportunities that we had in our portfolio going into the year. Because of the nature of the ownership rights of our ore bodies we didn’t lose anything by deferring and curtailing operations. While we had eliminated our dividend at the end of 2008 in response to the times we were moving in then we have now taken actions to restate our annual cash dividend to shareholders and when we look forward with the amount of cash that we generate, we look forward to an increasing ability with the current cash to shareholders.

Turning to slide four, the strong volume performance that we had during 2009, first of all can be attributable to the fact that we were mining during the year and the highest grade section that we have available to us in the Grasberg Open Pit mine. For those of you who have followed Freeport over the years, you know that our mine sequencing allow us to have access to this high grade ore from time-to-time to anywhere we are in the pit. And when we have access to that ore, by taking advantage when we can from a prudent standpoint in terms of maintaining the integrity of the mine and maintaining our long-term mine plans by accessing a limited amount of material we can add significant volumes to copper and gold and that’s what you saw happen to us in the fourth quarter and characterize 2009. Of course having the access to the high-grade gold volumes at Grasberg was very beneficial to us during these times of high gold prices.

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