Freeport-McMoran, Inc. (FCX)

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Freeport-McMoRan Copper & Gold (FCX)

Q2 2011 Earnings Call

July 21, 2011 10:00 am ET

Executives

Conger Harry - President of Americas Division

Richard Adkerson - Chief Executive Officer, President, Director and Chairman of FM Services Company

James Moffett - Chairman of the Board

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

David Thornton - President of Climax Molybdenum

Analysts

Isabel Darrigrandi - Celfin Capital

Anthony Rizzuto - Dahlman Rose & Company, LLC

Paretosh Misra - Morgan Stanley

John Tumazos - Sanford C. Bernstein & Co., Inc.

Charles Bradford - Bradford Research

Richard Garchitorena - Crédit Suisse AG

Oscar Cabrera - BofA Merrill Lynch

Brian Yu - Citigroup Inc

Brian MacArthur - UBS Investment Bank

Sal Tharani - Goldman Sachs Group Inc.

Michael Gambardella - JP Morgan Chase & Co

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold Second 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 Quirk

Thank you, and good morning, everyone. Welcome to the Freeport-McMoRan Copper & Gold Second Quarter 2011 Earnings Conference Call. Our results were released earlier this morning, and a copy of our press release is available on our website at fcx.com. Today's conference call today is being broadcast live on the Internet, and anyone may listen to the conference call by accessing our website home page and clicking on the webcast link for the conference call.

We have several slides to supplement our comments this morning, and we'll be referring to the slides during the call. They're also available on our webcast link on 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 our comments today, we'd like to remind everyone that today's press release and certain of our comments on this call 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 are Jim Bob Moffett, our Chairman of the Board; Richard Adkerson, our Chief Executive Officer. We also have Red Conger with us today and Dave Thornton.

I'll start by briefly summarizing our financial results and then turn the call over to Richard, who will be reviewing our recent performance and outlook using the slide materials on our website.

Today, FCX reported second quarter 2011 net income attributable to common stock of $1.4 billion or $1.43 per share. That was more than double last year's second quarter $649 million or $0.70 per share. Our second quarter 2011 results included net losses on early extinguishment of debt totaling $54 million or $0.06 per share, and we also had adjustments to environmental reserves totaling $36 million charge or $0.04 per share. For the 6 months of 2011, our net income attributable to common stock was $2.9 billion or $3 a share, compared with $1.5 billion or $1.70 per share for the first 6 months of 2010.

Our sales in the second quarter of copper totaled 1 billion pounds. That was higher than our April 2011 estimate of 965 million pounds, primarily because of the timing of shipments principally in North America. Our consolidated copper sales for the second quarter of 2011 were also higher than the second quarter of 2010 of 914 million pounds, and that reflects our increased production in North America and the timing of shipments in South America and Africa. Our consolidated gold sales during the second quarter of 2011 of 356,000 ounces were slightly lower than our previous estimate of 365,000 ounces, but higher than second quarter 2010 sales of 298,000 ounces. The variances were primarily related to the timing of mine sequencing at Grasberg.

Our molybdenum sales in the second quarter of 2011 totaled 21 million pounds. That was higher than our estimate of 17 million pounds and the second quarter 2010 sales of 16 million pounds, primarily reflecting improved demand for molybdenum. Our sales for the year 2011 for copper are expected to approximate 3.9 billion pounds, 1.6 million ounces for gold and 77 million pounds for molybdenum. Our forecast for the third quarter includes 940 million pounds of copper, 415,000 ounces of gold and 18 million pounds of molybdenum for the third quarter of 2011.

Our results in the second quarter included positive pricing of all of our key commodities: copper, gold and molybdenum. Our realized price for copper of $4.22 per pound was over $1 higher than the previous year's period. For gold, our price of $1,509 per ounce in the second quarter of 2011 was higher than last year's $1,234 per ounce realization, and our price of molybdenum of $18 per pound approximated the year-ago period.

Our consolidated average unit net cash costs, these are net of by-product credits for molybdenum and gold, averaged $0.93 per pound of copper in the second quarter of 2011. Those were lower than last year's unit net cash cost of $0.97, primarily because of higher gold and molybdenum credits in the second quarter of 2011. And those were partly offset by higher site production and delivery costs as a result of increased mining and milling activities and higher input costs, including materials, energy and currency exchange rate impacts.

With strong cash flows during the second quarter totaling $1.7 billion, those were significantly above our capital expenditures, which totaled $527 million during the second quarter. For the 6 months, our operating cash flows totaled $4 billion, and capital expenditures totaled $1 billion.

We ended the quarter with our cash balance exceeding our debt. Total debt approximates $3.5 billion, and our consolidated cash balance approximated $4.4 billion. During the second quarter, we repaid $1.2 billion in debt, including the April 2000 redemption of our 8.25% senior notes. On June 1, FCX paid a supplemental common dividend of $0.50 per share, which was in addition to FCX's current annual common stock dividend of $1 per share, which is $0.25 quarterly. We've paid common dividends year-to-date of $949 million, which includes nearly $500 million for the supplemental dividends paid on June 1. We have approximately 948 million common shares outstanding.

I'd now like to turn the call over to Richard, who'll be referring to the presentation materials on our website.

Richard Adkerson

Good morning, everyone. As I look at these numbers on Slide 3, just look at them and they speak for themselves. It was a very good quarter for us. The thing about it is looking under these numbers, we faced a number of the same issues that the industry is going through in terms of issues involving operations, equipment issues, weather issues in South America. We had to deal with an unfortunate industrial accident that we had in the underground at Grasberg, where we sadly lost 2 people. And we had to curtail production for a period of time.

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