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Posts Tagged ‘FCX’

Mining Week 51/’11: Grasberg back in business

December 18, 2011 Comments off

Top Stories of the Week:

  • Freeport McMoran strikes deal on Grasberg
    • Freeport reached a two year extension of the collective labor agreement at its Indonesian Grasberg mine after a 3-month strike. The new agreement holds a 40% wage increase over 2 years, improved benefits, and the promise to base wage future negotiations on cost of living and competitor benchmarks.
    • Only days after the announcement of the agreement a helicopter transporting Freeport’s workers was shot at close to the mine, wounding one person.
    • Sources: Freeport McMoran press release; Wall Street Journal; Financial Times
  • Further coal consolidation in Australia
    • Less than a year after being put up for sale and then declining all offers made Whitehaven teamed up with Aston Resources to create the largest listed coal mining company in Australia with $5.1bln market value. The deal is structured as a shares only acquisition of Aston by Whitehaven.
    • Sources: Financial Times; Whitehaven merger documentation
  • Anglo reassured in South African court
    • The South African court ruled that the department of mines had no right to grant the mining rights of Sishen iron ore mine in the country to a junior mining company with strong ties to some influential politicians, but that instead the Kumba Iron Ore holds the rights to the mine. Kumba is majority owned by Anglo American.
    • Sources: Anglo American press release; Financial Times; Wall Street Journal

    Trends & Implications:

    • The coal mining industry in Australia is still relatively fragmented, with both the diversified supermajors and many domestic listed and unlisted companies active in the industry. Because the mining districts are much less concentrated than the iron ore or gold districts of the country it is harder to achieve economies of scale that would justify many mergers. The deals taken place are mainly based on transportation and sales negotiation synergies.
    • The Wall Street Journal published a good, readable, article this week describing the developments in the mining industry, signaling the combination of two key drivers this year: declining prices, and increasing costs. The resulting low margins will move the focus of many mining companies in the coming years to cost control. However, the winners of this cycle will be the companies that manage to invest during this period with lower profits to build capacity that will make them benefit from the structural increase in prices that will be caused by the structural price increases in the industry. Clearly not all cost increases are structural: equipment and contractor scarcity is mainly a temporary result of an overheated industry; but cost increases resulting from the move to harder forms of mining will stick.

    ©2011 | Wilfred Visser | thebusinessofmining.com

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Strike Begins at Freeport Indonesia

September 16, 2011 Comments off

“Freeport-McMoRan Copper & Gold Inc.’s Indonesia unit suspended mining operations at its Grasberg mine in West Papua on Thursday, as workers started a strike that could last a month, a labor union spokesman said. ‘All of the mining operations, except for the public facilities, are shut down,’ Juli Parrorongan told Dow Jones Newswires in a text message. All workers at the mine are participating in the strike, which will last until Oct. 15 if the company refuses their demand for higher pay, Mr. Parrorongan said.

Freeport suspended operations during a weeklong strike at Grasberg in July and lost about 35 million pounds of copper and 60,000 ounces of gold output. ‘We are disappointed that union workers decided to implement an illegal work stoppage,’ PT Freeport Indonesia, which is 90.64% owned by Freeport-McMoRan, said in a statement. The company said that since July 20, it ‘has negotiated in a diligent good-faith manner’ with the union toward a collective labor agreement to cover 2011-13.”

Source: Wall Street Journal, September 15 2011

Observations:

  • Grasberg forecasted 2011 total mine sales of 1 billion pounds of copper and 1.3 million troy ounces of gold, representing approximately 3.1% of global copper production and 1.5% of global gold production.
  • Current negotiations started after an 8-day strike in July. Freeport offers a 22% wage increase over 2 years, but unions demand an increase of salaries by more than 100%.

Implications:

  • Copper price has been relatively stable for the year to date, but the news of the strike at Grasberg coincides with reports of falling production in Chile and increased buying by Chinese traders, potentially leading to a new price rally.
  • Several analysts still expect a modest global copper supply increase for the year. However, if strikes spread to other mines supply for the year might actually decrease for the first time in about a decade. Global production has almost doubled in the past 20 years, only experiencing a short stabilization in 2002-2003.

©2011 | Wilfred Visser | thebusinessofmining.com

Freeport-McMoran profits up on copper demand

January 21, 2011 Comments off

“The accelerating bull market in copper, which is facing a stagnant supply base amid rising demand, lifted pre-tax profits at Freeport-McMoRan 46 per cent to a record $8.5bn last year. US-based Freeport, the largest publicly traded producer of the red metal, offered the first indication on Thursday of the financial bonanza that the big copper miners were enjoying. The New York-listed company published its annual results ahead of Rio Tinto, Anglo American and Xstrata, other copper miners expected to unveil similar windfalls from copper.

Freeport’s earnings per share rose 56 per cent from $5.86 last year to $9.14 in the year to December. The company closed 2010 by declaring a $1 per share special dividend that cleared $472m of excess cash from its books. Copper production slid from 3.35bn pounds in 2009 to 3.14bn pounds last year, continuing long-term stagnation that has hit the industry. Rio this week revealed it mined 16 per cent less copper year in 2010 versus the previous year.”

Source: Financial Times, January 20 2011

Observations:

  • Reuters notes that the share price of Freeport is falling behind on copper future price since February of this year.

    Reuters' analysis of FCX stock vs. copper future

  • FCX currently expects capital expenditures to approximate $2.5bln for the year 2011. Still the company is turning out a special dividend worth almost $500mln.

Implications:

  • The results of the company missed the analysts estimates, resulting in drop of the stock price. The main reason for dissatisfaction is the decrease in production to 3.14bln pounds. Production is expected to increase by over 20% in 2011. The company does not appear to have more growth options at the moment, returning excess cash back to shareholders instead of investing above the planned $2.5bln.
  • Country risk of Congo, where the Tenke Fungurume project is located, will cause the production outlook to remain uncertain. Freeport has signed a deal with the government in October that appears to be promising. However, 2011 will have to prove the stability of the deal.

©2011 | Wilfred Visser | thebusinessofmining.com

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