Freeport-McMoran, Inc. (FCX)

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Freeport-McMoRan Copper & Gold Inc. (FCX)

Q4 2012 Earnings Call

January 22, 2013 10:00 am ET

Executives

Kathleen L. Quirk – Executive Vice President, Chief Financial Officer and Treasurer

Richard C. Adkerson – President and Chief Executive Officer and Director-Freeport-McMoRan Copper & Gold Inc.

James R. Moffett – Chairman-Freeport-McMoRan, Co-Chairman, President and Chief Executive Officer-McMoRan Exploration Co.

Mark J. Johnson – Chief Operating Officer-Indonesian Operations

Analysts

Sal Tharani – Goldman Sachs

Anthony Rizzuto – Dahlman Rose & Co.

Brian T. MacArthur – UBS Securities Canada, Inc.

Paretosh Misra – Morgan Stanley

Oscar Cabrera – Bank of America Merrill Lynch

Jorge Beristain – Deutsche Bank Securities

John Tumazos – John Tumazos Very Independent Research, LLC

Tony Robson – BMO Capital Markets

Paul Massoud – Stifel Nicolaus & Company, Inc.

Wayne M. Cooperman – Cobalt Capital Management, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later, we will conduct a question-and-answer session. (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. Good morning everyone and welcome to the Freeport-McMoRan Copper & Gold fourth 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, and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. We also 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 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; President and Chief Executive Officer; Red Conger is here, Mark Johnson and David Thornton have also joined us this morning.

I’ll start by briefly summarizing the financial results, and then turn the call over to Richard who will review our recent performance and outlook. As usual, after our prepared remarks, we’ll open up the call for questions.

Today, FCX reported fourth quarter 2012 net income attributable to common stock of $743 million or $0.78 per share, compared with $640 million or $0.67 per share for the fourth quarter of 2011. Our fourth quarter 2012, net income included net credits totaling $40 million or $0.04 a share associated with adjustments to environmental obligations and related litigation reserves, a gain for insurance recoveries, partly offset by charges for new labor agreements in South America, and for costs associated with the pending transactions with Plains Exploration and McMoRan.

Our fourth quarter 2012 consolidated copper sales of 972 million pounds were higher than our estimates of 930 million pounds primarily reflecting higher production from our Americas operations. Fourth quarter 2012 consolidated gold sales of 254,000 ounces and molybdenum sales of 21 million pounds approximated our October 2012 estimates of 255,000 ounces and 20 million pounds of molybdenum.

Our fourth quarter 2012 consolidated copper and gold sales were higher than fourth quarter 2011 sales of 823 million pounds of copper and 133,000 ounces of gold, primarily reflecting the impact in the fourth quarter of 2011 of the labor disruptions at PT Freeport Indonesia. Operations have improved during 2012 at PT Freeport Indonesia. Our sales for the year 2012 of copper totaled 3.65 billion pounds, 1 million ounces of gold, and 83 million pounds of molybdenum that compared to 3.7 billion pounds of copper, 1.4 million ounces of gold, and 79 million pounds of molybdenum in the 2011 year.

As Richard will be discussing, we have got an outlook for growing production volumes in 2013 and beyond. Our realized copper price for the fourth quarter of 2012 was $3.60 that compared to a realized price of $3.42 per pound in the fourth quarter of 2011. Our gold realization averaged $1,681 per ounce in the fourth quarter of 2012 compared to $1,656 per ounce in the fourth quarter of 2011, and the molybdenum price in the fourth quarter of 2012 averaged $12.62 per pound compared with $15.08 per pound in the year ago quarter.

Our consolidated average unit net cash costs for the fourth quarter averaged a $1.54 per pound, it was slightly better than our estimates going into the quarter and lower than last years unit net cash cost of $1.57 per pound.

Our full year average unit net cash cost for 2012 was averaged $1.48 per pound, and again as we grow our production volumes we've got an outlook for declining unit cash costs in 2013 and beyond. The operating cash flows during the quarter totaled $1.3 billion, which included net working capital sources of $122 million, and for the year, we generated $3.8 billion of operating cash flows, and that was net of working capital use of $1.4 billion. Capital expenditures for the fourth quarter totaled $976 million bringing the annual capital expenditures to $3.5 billion in 2012. We ended the year with a cash position of $3.7 billion, which exceeded our total debt, which was $3.5 billion at year end 2012.

We also have included in the release, an update on our transactions that we announced on December 5, whereby FCX announced definitive agreements to acquire Plains Exploration & Production Company and McMoRan Exploration, the Plains per share consideration is equivalent to 0.6531 shares of FCX common stock and $25 in cash that works out to $3.4 billion in cash and 91 million shares of FCX common stock. The MMR per share consideration consist of $14.75 in cash, and 1.15 units of a royalty trust which will hold a 5% overriding royalty interest in future production from McMoRan’s ultra-deep exploration prospects.

The completion of the transaction is subject to receipt of the Plains and McMoRan shareholders’ approval, regulatory approvals, and other customary conditions.

In late December, the U.S. Federal Trade Commission granted early termination of the Hart-Scott-Rodino waiting period with respect to both transactions. We expect that the Plains and McMoRan shareholder meetings will be scheduled upon the effectiveness of the registrations filed with the SEC in late December, and we expect the transactions to close in the second quarter of 2013.

I’d now like to turn the call over to Richard, who will be referring to the slide presentation on our website.

Richard C. Adkerson

Thanks Kathleen. Good morning to everyone. I am going to start initially by focusing on our global mining business and on copper. 2012 was a year that was abnormal for us, and I want to try to explain why that occurred and what our outlook will be going forward beyond 2012. Later we will cover the transactions that Kathleen referred to that we announced on December 5, and respond to questions about those. After those transactions, I want to point out that 75% of our business will be represented by our global mining business and copper will continue to be the driver of our cash flows and profitability.

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