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Freeport to End Indonesia Strike - Analyst Blog

A wage deal has been reached to end a three-month strike at a giant gold and copper mine in Indonesia owned by US company Freeport McMoRan Copper & Gold Inc. ( FCX ).

As per Freeport Indonesia's Union, the two sides have agreed to pay 37% increase over two years including 24% rise in its first year to end the longest-running industrial dispute in Indonesia.

Around 8,000 of Freeport's 23,000 workers in Indonesia's Papua province have been on strike since Sept. 15, crippling production at the Grasberg mine, which holds the world's largest gold and second-largest copper reserves.

Workers originally wanted a 20-fold increase, from a minimum of $1.50 an hour to $30, but their demands steadily declined. The strike has slashed production by 50%, prompting the company to declare force majeure, a legal declaration of extraordinary circumstances enabling it to avoid liability on existing orders, in October. This move came after the company failed to deliver shipments to some customers.

Even if workers return, it is likely to take some days to ramp up production, and even longer to resume shipments since the firm needs to repair a sabotaged pipeline that takes metal concentrate from the mine to its port.

Recently, Freeport released its third-quarter earnings. The company reported a profit of $1.1 billion or $1.10 per share in the third quarter of 2011 versus $1.2 billion or $1.24 per share in the prior-year quarter. The profit missed the Zacks Consensus Estimate by 2 cents per share.

Revenues in the quarter were $5.20 billion versus $5.15 billion in the prior-year quarter, surpassing the Zacks Consensus Estimate of $5.01 billion. Consolidated sales from mines totaled 947 million pounds of copper, 409,000 ounces of gold and 19 million pounds of molybdenum compared with 1.1 billion pounds of copper, 497,000 ounces of gold and 17 million pounds of molybdenum in the third quarter of 2010.

Consolidated unit net cash costs (net of by-product credits) averaged 80 cents per pound of copper compared with 82 cents per pound in the third quarter of 2010. Operating income slumped $2.1 billion from $2.5 billion in the year-ago quarter.

Freeport-McMoRan's consolidated sales from mines for the year 2011 are expected to approximate 3.8 billion pounds of copper, 1.6 million ounces of gold and 78 million pounds of molybdenum, including 915 million pounds of copper, 305 thousand ounces of gold and 18 million pounds of molybdenum for fourth-quarter 2011.

Based on current 2011 sales volume and cost estimates and assuming average prices of $1,600 per ounce for gold and $14 per pound for molybdenum for fourth-quarter 2011, consolidated unit net cash costs (net of by-product credits) are estimated to average $0.95 per pound of copper for the year 2011.

Based on current 2011 sales volume and cost estimates and assuming average prices of $3.25 per pound for copper, $1,600 per ounce for gold and $14 per pound for molybdenum for fourth-quarter 2011, operating cash flows are estimated to approximate $7 billion for the year 2011. Capital expenditures are expected to approximate $2.6 billion for the year 2011, including $1.4 billion for major projects and $1.2 billion for sustaining capital.

Headquartered in Phoenix, Arizona, Freeport-McMoRan Copper & Gold Inc. is engaged in mineral exploration and development; mining and milling of copper, gold, molybdenum and silver; as well as the smelting and refining of copper concentrates.

The company conducts its operations primarily through its principal operating subsidiaries, PT Freeport Indonesia, Freeport-McMoRan Corporation (formerly Phelps Dodge) and Atlantic Copper. Its major competitors include Newmont Mining Corp. ( NEM ) and Southern Copper Corp. ( SCCO ). It currently retains Zacks #3 Rank on its stock, which translates to a short-term Hold rating.

FREEPT MC COP-B ( FCX ): Free Stock Analysis Report

NEWMONT MINING ( NEM ): Free Stock Analysis Report

SOUTHERN COPPER ( SCCO ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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