Freeport Commences Commissioning of New Indonesian Smelter and Provides Update on Second-Quarter 2024 Copper and Gold Sales

Rhea-AI Summary

Freeport (NYSE: FCX) has completed construction of its new Manyar smelter in Indonesia and commenced commissioning operations, with full production expected by the end of 2024. The Indonesian government has approved PT Freeport Indonesia's (PT-FI) export license for copper concentrates and anode slimes through December 2024.

However, FCX anticipates a 5% and 30% decline in Q2 2024 sales for copper and gold respectively, compared to April 2024 guidance, due to a delay in the export license. Additionally, consolidated unit net cash costs are expected to rise to $1.77 per pound of copper from the previously estimated $1.57, primarily due to lower by-product credits. FCX expects its average copper realization for Q2 to be approximately $4.45 per pound.

The company is reviewing its sales guidance but does not foresee a material change to its annual 2024 copper volume guidance. A change in mine sequencing at the Grasberg Block Cave may slightly reduce expected 2024 gold sales to 1.8 million ounces from previous estimates of 2.0 million ounces. FCX will report its Q2 2024 earnings on July 23, 2024.

Positive

• Completion of Manyar smelter positions PT-FI as a fully integrated producer in Indonesia.
• Indonesian government approved PT-FI's export license through December 2024.
• Average copper realization for Q2 2024 is expected to be $4.45 per pound.

Negative

• Expected Q2 2024 copper sales are approximately 5% below April 2024 guidance.
• Expected Q2 2024 gold sales are approximately 30% below April 2024 guidance.
• Consolidated unit net cash costs for Q2 2024 are estimated at $1.77 per pound, up from $1.57.
• 2024 gold sales are expected to be 1.8 million ounces, down from 2.0 million ounces.

Financial Analyst

The initiation of commissioning operations at Freeport's new Manyar smelter in Gresik, Indonesia, is significant for multiple reasons. This completion means that PT Freeport Indonesia (PT-FI) is positioning itself as a fully integrated producer in the region, which can have long-term benefits. However, there are some short-term financial consequences to consider.

First, the positive: By achieving full ramp-up by the end of 2024, Freeport could potentially see an increase in its profit margins as it reduces dependency on third-party smelters. Copper cathode production will allow the company to capture more value within the supply chain.

The challenges: Approval to export copper concentrates and anode slimes is limited until December 2024. This poses a temporary risk to revenue as export duties will still need to be paid under Indonesian regulations. Additionally, the delay in obtaining the export license impacted second-quarter sales, showing a drop of about 5% in copper and 30% in gold compared to previous guidance. This will likely elevate the unit net cash costs for the quarter to approximately $1.77 per pound of copper, from an initial estimate of $1.57. Despite these short-term setbacks, FCX's consolidated average copper realization is expected to be around $4.45 per pound, which is a positive indicator.

Overall, while there are immediate hurdles due to the licensing delay, the long-term outlook with the full ramp-up of the smelter and its integration capabilities looks promising for Freeport.

Market Research Analyst

The news about FCX's progress on its Indonesian smelter is pertinent for understanding both market positioning and supply dynamics in the global copper market. By investing in this smelter, Freeport can exercise more control over its copper processing and reduce dependence on external smelters, which usually comes with additional costs. This move will likely enhance Freeport’s competitive positioning in the copper market by improving operational efficiencies and potentially lowering production costs in the long run.

However, the company's forecasted short-term impact on copper and gold sales due to the delay in obtaining the export license is noteworthy. The 5% drop in copper sales and a substantial 30% drop in gold sales from previous guidance could raise concerns about Freeport’s ability to meet near-term financial targets. This shortfall and the increase in unit net cash costs underscore the operational challenges faced during this transition period.

Looking longer-term, the successful ramp-up of the smelter could lead to reduced export tariffs, improved profit margins and better alignment with Indonesian regulatory requirements, making Freeport more resilient to geopolitical risks. Investors should consider both the short-term financial setbacks and the long-term strategic benefits of this development.

PHOENIX--(BUSINESS WIRE)-- Freeport (NYSE: FCX) announced today that its Indonesian subsidiary, PT Freeport Indonesia (PT-FI), substantially completed construction of its new Manyar smelter in Gresik, Indonesia in June 2024 and has commenced commissioning operations. FCX expects the smelter will begin producing copper cathodes in the coming months and continues to target full ramp up by the end of 2024 in line with previous expectations.

Richard C. Adkerson, Chairman of the Board, and Kathleen L. Quirk, President and Chief Executive Officer, said: “We are pleased to announce this important milestone for our new smelter in Indonesia. Our team executed this large and complex project extremely well and is prepared to deliver the ramp-up to full production safely and efficiently. The completion of the project positions PT-FI as a fully integrated producer in Indonesia, providing a foundation to extend its long-term operating rights.”

FCX also announced that on July 2, 2024, PT-FI received approval from the Indonesian government to export copper concentrates and anode slimes through December 2024 when the full ramp-up of the new processing facilities is expected. PT-FI will continue to pay export duties on copper concentrates during the smelter ramp-up period pursuant to Indonesian regulations.

PT-FI’s prior concentrate and anode slime export licenses expired on May 31, 2024, and PT-FI did not export copper concentrates or anode slimes during June 2024.

As a result of the delay in obtaining PT-FI’s export license, FCX expects a portion of its second-quarter 2024 production will be shipped in future periods. FCX currently expects its consolidated sales for second-quarter 2024 to be approximately 5% below April 2024 guidance of 975 million pounds of copper and approximately 30% below April 2024 guidance of 500 thousand ounces of gold.

Consolidated unit net cash costs for second-quarter 2024, which were previously estimated at $1.57 per pound of copper, are currently estimated to approximate $1.77 per pound for the quarter, principally reflecting lower by-product credits as a result of the delay in shipments. FCX’s consolidated average copper realization for the second quarter is expected to approximate $4.45 per pound.

FCX is reviewing its sales guidance in connection with its routine quarterly forecast updates and does not currently expect a material change to its annual 2024 copper volume guidance. As a result of a change in mine sequencing principally to address wet conditions in certain of the Grasberg Block Cave draw points, 2024 gold sales are expected to approximate 1.8 million ounces compared with previous estimates approaching 2.0 million ounces. This change is a timing issue and not expected to affect long-range plans.

FCX will release its second-quarter 2024 earnings results before the market opens on Tuesday, July 23, 2024, and will hold a conference call to discuss the results at 10:00 a.m. Eastern Time that same day.

FREEPORT: Foremost in Copper

FCX is a leading international metals company with the objective of being foremost in copper. Headquartered in Phoenix, Arizona, FCX operates large, long-lived, geographically diverse assets with significant proven and probable reserves of copper, gold and molybdenum. FCX is one of the world’s largest publicly traded copper producers.

FCX’s portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits; and significant operations in North America and South America, including the large-scale Morenci minerals district in Arizona and the Cerro Verde operation in Peru.

By supplying responsibly produced copper, FCX is proud to be a positive contributor to the world well beyond its operational boundaries. Additional information about FCX is available on FCX's website at fcx.com.

Cautionary Statement: This press release contains forward-looking statements in which FCX discusses its potential future performance, operations and projects. Forward-looking statements are all statements other than statements of historical facts, such as plans, projections or expectations relating to production and sales volumes, unit net cash costs, export duties, commissioning and full ramp up of the Manyar smelter, timing of shipments of inventoried production, and potential extension of operating rights beyond 2041. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” "targets," “intends,” “likely,” “will,” “should,” “to be,” ”potential" and any similar expressions are intended to identify those assertions as forward-looking statements.

FCX cautions readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, expected, projected or assumed in the forward-looking statements. Important factors that can cause FCX's actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, PT-FI’s ability to continue to export and sell copper concentrates and anode slimes through full ramp-up of new processing facilities; changes in export duties; achieving full ramp-up of new processing facilities; timing of shipments; satisfaction of requirements in accordance with PT-FI’s IUPK to extend mining rights from 2031 through 2041; discussions relating to the extension of PT-FI’s IUPK beyond 2041; and other factors described in more detail under the heading “Risk Factors” in FCX's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (SEC).

Investors are cautioned that many of the assumptions upon which FCX's forward-looking statements are based are likely to change after the date the forward-looking statements are made, including for example commodity prices, which FCX cannot control, and production volumes and costs, some aspects of which FCX may not be able to control. Further, FCX may make changes to its business plans that could affect its results. FCX undertakes no obligation to update any forward-looking statements, which speak only as of the date made, notwithstanding any changes in its assumptions, changes in business plans, actual experience or other changes.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240702919436/en/

Financial Contact:

David P. Joint

(504) 582-4203

Media Contact:

Linda S. Hayes

(602) 366-7824

Source: Freeport-McMoRan Inc.

FAQ

What is the status of Freeport's Manyar smelter project in Indonesia?

Freeport has completed construction of the Manyar smelter in Indonesia and commenced commissioning operations, with full production expected by the end of 2024.

How did the delay in PT-FI's export license affect Freeport's Q2 2024 sales?

The delay in PT-FI's export license resulted in expected Q2 2024 copper sales being approximately 5% below guidance and gold sales being approximately 30% below guidance.

What are the expected consolidated unit net cash costs for Freeport in Q2 2024?

The consolidated unit net cash costs for Freeport in Q2 2024 are estimated to be $1.77 per pound, up from the previous estimate of $1.57.

What is Freeport's expected average copper realization for Q2 2024?

Freeport expects its average copper realization for Q2 2024 to be approximately $4.45 per pound.

What is the new estimate for Freeport's 2024 gold sales?

Freeport now expects its 2024 gold sales to be approximately 1.8 million ounces, compared to the previous estimate of 2.0 million ounces.

When will Freeport release its Q2 2024 earnings results?

Freeport will release its Q2 2024 earnings results on July 23, 2024, before the market opens.