Freeport-McMoran, Inc. (FCX)

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Freeport-McMoRan Copper & Gold Inc. (FCX)

Q1 2010 Earnings Call Transcript

April 21, 2010 10:00 am ET

Executives

Kathleen Quirk – EVP, CFO and Treasurer

Richard Adkerson – President and CEO

Mark Johnson – COO of Indonesian Operation

Jim Bob Moffett – Chairman

Dave Thornton – President of Climax Molybdenum

Analysts

Michael Gambardella – JP Morgan

Tony Rizzuto – Dahlman Rose

Kuni Chen – Banc of America/Merrill Lynch

David Gagliano – Credit Suisse

Sal Tharani – Goldman Sachs

Mark Liinamaa – Morgan Stanley

John Redstone – Desjardins

Charles Bradford – Affiliated Research

Lark Smith [ph] – Scotia Capital

Sanil Daptardar – Sentinel Investments

Justine Fisher – Goldman Sachs

Dave Katz – JP Morgan

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold first quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer. (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 Quirk

Thank you and good morning, everyone. Welcome to the Freeport-McMoRan Copper & Gold first quarter 2010 earnings conference call. Our results are 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 anyone may listen to the call by accessing our website home page and clicking on the webcast link for the call. We also have several slides to supplement our comments; those are also available on our webcast link at fcx.com. In addition to analysts and investors, the financial press has also 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 today's comments, we'd like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements. I want 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 are Richard Adkerson, President and Chief Executive Officer; Jim Bob Moffett, our Chairman of the Board. I have got number of our senior operating team here today including Red Conger, Dave Thornton and Mark Johnson. I'll start by briefly summarizing our financial results and then turn the call over to Richard who will be going through our presentation materials. We will then open up the call for the Q&A.

Today, FCX reported first quarter 2010 net income applicable to common stock of $897 million, $2 per share as compared with net income of $43 million or $0.11 per share in the first quarter of 2009. Our 2010 first quarter results include losses on the early extinguishment of debt totaling $23 million to net income or $0.05 per share.

Our first quarter consolidated as copper sales of 960 million pounds were higher than the January 2010 estimate of 890 million pounds but below first quarter 2009 copper sales of 1 billion pounds. The favorable variance to the January 2010 estimate, however, reflects the timing of sales from our North American copper mines and the variance to the 2009 period reflects the anticipated lower copper ore grades at Grasberg resulting from our plan mine sequencing and lower sales from our South America mines in the first quarter as anticipated.

These lower sales were partly offset by sales from the Tenke Fungurume mine in Africa where we sold over 60 million pounds of copper in the first quarter. Our consolidated gold sales for the first quarter of 2010 totaled 478,000, that was slightly less than our previous estimate of 490,000 ounces and lower than the first quarter of 2009 sales of 545,000 ounces that reflects the lower ore grades at Grasberg resulting from the lower grade material that we are currently mining.

Our molybdenum sales of 17 million pounds in the first quarter of 2010 were significantly higher than last year's first quarter of 10 million pounds and higher than our estimate of 15 million pounds because of improved demand in the metallurgical and chemical sectors of the molybdenum markets.

Our first quarter results reflect improved pricing for all of our products, copper, gold and molybdenum. Our realized price for copper was $3.42 per pound in the first quarter that was almost double the price in the year-ago quarter. Our gold realization was 1110 per ounce in the first quarter 2010 that compared with $904 per ounce in first quarter of 2009 and our realized molybdenum price of $15.09 per pound in the first quarter of 2010 was over 30% higher than last year's first quarter.

Our consolidated unit net cash cost averaged $0.81 per pound in the first quarter of 2010. As anticipated, it was higher than the $0.66 per pound reported in the first quarter of 2009. As previously discussed, our higher unit cost in 2010 primarily reflect the anticipated lower copper volumes at Grasberg.

Our operating cash flows in the quarter very strong at 1.8 billion. This was significantly above our capital expenditures of $231 million. We took additional steps during the quarter to reduce debt. We paid – reduced our debt by $281 million in the – in the first quarter and then on April 1st, we redeemed another $1 billion in senior floating rate notes due 2015.

Going back to the first quarter of 2009, the last 15 months, we have repaid approximately $2.3 billion in debt and that results in interest savings of about $155 million per annum. After taking into account, the April 1st payment, our total debt approximated $5.1 billion and our consolidated cash position approximated $2.7 billion.

We separately announced today, a separate press release that our board has authorized an increase in our common stock dividend from an annual rate of $0.60 per share to a $0.20 per share, that's $0.30 per quarter to be paid with the next dividend scheduled in August of 2010.

At the end of March, we had $431 million common shares outstanding. On May 1, our 6¾mandatory convertible preferred stock will automatically convert into common stock assuming the minimum conversion rate, FCX would have approximately 470 million common shares outstanding after conversion. This will reduce our preferred dividends by about $194 million for the year or just under $50 million a quarter.

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

Richard Adkerson

Good morning, everyone. Our first slide on slide three has a picture of our annual report. We will have the wide mailing of this annual report go out later this week. And in it, we talk about the success we had in executing our operating plans in 2009, focus on our long-life assets, our significant reserves and mineral resources and our prospects for growing our business over time. The fact that our assets are geographically diverse, we have a strong financial position as Kathleen just outlined and we have a great management team that performed very, very well during 2009.

The first quarter 2010 highlights which Kathleen just reviewed those. On page four, when I look at these numbers a couple of things really jump out at me. First, we had a quarter of where we had more than 5% fewer volumes, lower volumes in copper production, 10% lower production of gold and that was driven by our mine plans, our sequencing at Grasberg. It is our operation performed very strongly in the first quarter of '10 as they did if first quarter of '09 but we did have lower volumes.

We had copper prices that were twice on average the realizations that we had a year ago, though realizations were up 20% and it shows how leveraged our business is to these commodity prices. Our revenues were up by two thirds and our earnings were up 20 times over the quarter, a year ago.

But focus on the costs, as copper prices have doubled, certain of our costs do go up as you know energy costs for example are higher. But our cost structure is very similar to what we had a year ago. Our net unit costs reflecting the benefits of the higher molybdenum prices and the higher gold prices even though we had lower gold volumes is in the same neighborhood as our costs were a year ago.

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