Freeport-McMoran, Inc. (FCX)

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Freeport-McMoRan Copper & Gold Inc. (FCX)

Q2 2010 Earnings Conference Call

July 21, 2010 10:00 am ET

Executives

Kathleen Quirk - EVP, CFO & Treasurer

Richard Adkerson - President & CEO

Jim Bob Moffett - Chairman of the Board

Red Conger - President of Freeport-McMoRan Americas

Mark Johnson - President of Freeport-McMoRan Indonesia

Analysts

David Gagliano - Credit Suisse

Michael Gambardella - JPMorgan

Kuni Chen - BofA Merrill Lynch

Sal Tharani - Goldman Sachs

Gary Lampard - Canaccord

Brian Macarthur - UBS Securities

Lawrence Smith - Scotia Capital

Brian Yu - Citigroup

Jorge Beristain - Deutsche Bank

Tony Rizzuto - Dalhman Rose & Co.

Wayne Atwell - Casimir Capital

David Katz - JPMorgan

Brett Levy - Jeffries & Company

Presentation

Operator

Ladies gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold Second 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 Instruction). 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, good morning everyone. Welcome to the Freeport-McMoRan Copper & Gold second quarter 2010 earnings conference call. Our results 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 webcast, 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 today’s comments, we 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 presentation materials and to the risk factors described in our SEC filings.

On the call today is Richard Adkerson, President and Chief Executive Officer, Jim Bob Moffett, Chairman of the Board, we also have several 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 referring to the materials in our slide presentation. After our formal remarks we will open up the call for questions.

Today FCX reported second quarter 2010 net income attributable to common stock of $649 million, $1.40 per share compared with net income of $588 million or $1.38 per share for the second quarter of 2009.

The results from the second quarter of 2010 included losses on the early establishment of debt totaling $42 million to net income which was $0.09 a share and we also had an unfavorable impact of our provisional pounds that were recorded at March at a higher price that resulted in $72 million impact or $0.15 per share decrease in net income in the second quarter.

Our consolidated sales for copper of 914 million pounds in the second quarter of 2010 were higher than our April estimates of 830 million pounds but as anticipated were lower than the second quarter of 2009 sales of 1.1 billion pounds.

The variance to our previous estimate primarily reflects favorable production performance in the Americas and Indonesia and the timing of shipment principally in North America. The variance to the 2009 period primarily reflects lower copper ore grades at Grasberg resulting from planned mine sequencing and anticipated lower sales from our South America mines which was partially offset by higher contribution from the Tenke Fungurume mine in Africa.

Our gold sales of 298,000 ounces during the quarter were higher than our estimate of 270,000 ounces but significantly lower than the second-quarter 2009 sales of

837,000 ounces. The favorable variance primarily reflects the timing of mine

sequencing at Grasberg.

Molybdenum sales totaled 16 million pounds in the second quarter periods. They were higher than our estimate of 15 million pounds in April because of improved demand in the chemicals sector during the quarter.

Our second quarter results reflect improved pricing for our products, all of our products copper, gold and molybdenum compared to the year ago period, realized price during the second quarter of $3.06 was about 38% higher than our price in the second quarter of 2009 at $2.22.

For gold, we have realized $1,234 per ounce in the second quarter compared to $932 per ounce in the second quarter of 2009 and molybdenum price averaged $18 a pound which was significantly higher than $10 per pound price in the year ago period. Our unit net cash cost on a consolidated basis average $0.97 per pound for the second quarter of 2010, that compared with $0.43 per pound for the second quarter of 2009, the higher unit cash cost primarily reflects anticipated lower gold and copper volumes at Grasberg and South America probably offset by higher by-product gold and molybdenum prices.

As operating cash flows in the second quarter totaled $1.1 billion, was significantly higher than our capital expenditures of just under $300 million and for the six months ended at June 30th, our operating cash flows totaled $2.9 billion and capital expenditures totaled $527 million.

During the second quarter we repaid a total $1.3 billion in debt that included the April redemption of our senior floating rate notes totaling $1 billion and we also made open market purchases of our public debt securities of just under $300 million.

Since the beginning of 2009 we repaid $2.6 billion in debt, this is just over third of our debt that was outstanding at that time and this has resulted in annual interest cost savings of over $170 million per year.

At the end of June, our total debt approximated $4.8 billion and our consolidated cash approximate $3 billion. And also during the second quarter our six and three quarter mandatory convertible preferred stock converted into 39 million shares of FCX common stock and our shares outstanding as of June 30th totaled 470 million shares.

As previously announced our board authorized an increase in our common stock dividend from $0.50 on annual basis to $1.20 per share and the first quarterly dividend at this new rate of $0.30 per quarter we paid on August 1st.

I would like to turn the call over to Richard now as he will be referring to our slide presentation.

Richard Adkerson

Thank you Kathleen, the first slide is on page three and it has the financial statistics that Kathleen just reviewed with you. There’s a couple of things I think when you look at this they become apparent about our company. And that is the significance of our exposure to the copper markets, which was where we want to be, because we feel so good about copper going forward, because of its essential need in the world economies and the challenges that the industry has in developing supplies and producing current production to meet those opportunities.

Here we have a quarter in the second quarter of where we had such a substantially lower amount of gold sales out of Grasberg, simply because of mine sequencing. We had well over 800,000 ounces last year, and under 300,000 ounces this year.

Our copper volumes were lower, and yet because of our copper prices we were able to generate comparable earnings that we did in the second quarter of last year. And that’s even more apparent when we look at the first half statistics where we had much lower copper sales last year. We had 1.4 million ounces last year in gold sales, and 765,000 ounces this year, 50% less copper volumes, and yet our earnings were more than double of what they were last year because of the copper price movement.

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