MAC/20: Mines and Communities

Yet another pit fall at Grasberg mine, as global investor downgrades the company

Published by MAC on 2003-12-22


Yet another pit fall at Freeport-Rio Tinto mine, as global investor downgrades the company

Morgan Stanley downgrades Freeport

MiningNews

December 22, 2003

The share price of U.S. copper and gold producer, Freeport McMoran, has been hit hard by a downgrade from the leading investment bank. Morgan Stanley downgraded Freeport from a status it calls "equal weight" to "underweight", broker code for sell.

The bank said it believed Freeport share will rise over 2004, but that it will underperform key rivals, such as Phelps Dodge and Alcoa.

Freeport shares plunged by 6% to $US41 after the release of the downgrade.


Freeport-McMoRan declares force majeure

Reuters

December 18, 2003

NEW YORK, Dec 18 (Reuters) - Freeport-McMoRan Copper & Gold said Thursday it will not be able to deliver copper from its largest mine because a rock slippage last week has forced it to stop mining high-grade ore.

The disruption at its Grasberg mine in Indonesia sent copper prices, already up on production curtailments and strong demand from China, to more than 6-year highs on futures markets in New York and London.

The mining giant said it will forego mining of higher grade ore at Grasberg, which already suffered a landslide in October that killed at least three people, and declared force majeure -- a form of legal protection when unforeseen events impede a company's ability to fulfill a contract.

The company cut its fourth-quarter copper sales outlook to about 165 million lbs, about 35 million lbs below previous estimates.

"The reduced shipments will affect results," said Victor Lazarovici, an analyst at BMO Nesbitt Burns who has a "market perform" rating on the stock and does not own any of its shares. "The lift in copper prices won't offset the volume loss."

The news comes six days after a rock slippage at the mine curtailed mining, resulting in minor property damage and no injuries, the company said. The mine, which has the world's largest gold reserves and third-largest copper reserves, had already been partially closed after the October landslide that killed at least three workers and left five others missing.

"These are not normal events for a mining company. For them to declare force majeure, you should really look at this with a little more caution," said Kirk Schmitt, a research analyst with Victory Capital Management, which does not own any shares of Freeport.

"I think there are reasons for concern here," such as whether the mine is being run safely enough, he added.

Because of the rock slippage, Freeport-McMoRan said it will mine low-waste and low-grade material instead of higher grade ore, resulting in the deferral of some metal sales from 2004 to 2005.

In New York, COMEX March copper futures shot up to $1.0120 per lb, the highest in nearly 6-1/2 years. In London, LME the red metal rose to $2,218 per tonne to set a fresh 6-1/4-year high.

Freeport also expects fourth-quarter gold sales of about 260,000 ounces, about 10,000 ounces above its previous estimate.

Normal operations will begin again once safe access is assured. The company said it will evaluate stabilization activities in the first quarter.

Shares of Freeport were down 96 cents, or 2.1 percent, at $43.94 in midday trade on the New York Stock Exchange, after falling as low as $43.83 earlier in the session.


Freeport-McMoRan Down 5%; Prudential Equity Group Cites Indonesia Risks

By Tiffany Kary , Dow Jones Newswires

December 22, 2003

New York - Freeport-McMoran Copper & Gold (FCX) shares fell 7% Monday, as a Wall Street firm said the company's Indonesian mining operation faces significant political and geological risks.

Prudential Equity Group started investment coverage of the New Orleans mining company's stock with an underweight rating earlier. That means Freeport McMoRan's shares are expected to have a lower total return than the average of other mining issues in the next year and a half.

Prudential analyst John Tumazos set a price target of $27 a share, well below Freeport McMoRan's 52-week high of $46.74 set on Dec.9. Tumazos raised concerns over the maturation of a major pit in Indonesia on the heels of troubling landslides there.

Friday, Freeport McMoRan said a second, minor rock slide had occurred on Dec. 12 at the pit, where an Oct. 9 slide had caused fatalities. The company said the latest incident - a 150,000-tonne pebble slide - blocked access to the higher grade ore areas of the mine, and will delay some metal sales from 2004 to 2005.

Tumazos said the company will probably see 10% less ore at a 10% lower grade, and predicted earnings of 9 cents a share in the fourth quarter, $1.12 a share in 2003, and $1.81 a share in 2004 - 0.below Wall Street's views of 12 cents a share, $1.28 a share and $1.90 a share, respectively.

Freeport-McMoran wasn't immediately available for comment.

Tumazos noted that while analysis of pit slope is difficult given the heavy equatorial rainfall at the Indonesian mine, and varying rock mechanics, it appears there is a 50% chance that there will be more slides and setbacks there.

As for political risks, Tumazos cited concerns over the Indonesian central government and a local tribal council. Freeport McMoRan shares traded recently at $39.00, off 6% on volume of 5.35 million shares. Average daily volume is 2.52 million shares. Freeport McMoRan's stock has gained 192% since hitting a 52-week low hit last March. Prudential's action follows Morgan Stanley's downgrade Thursday on stock-price concerns. Monday's losses come on the heels of 3% and 5.1% declines Thursday and Friday.

"A weak Indonesian central government, breakup of the country, changes in taxes or discrimination against the (Freeport McMoRan U.S.-U.K. mining consortium) concern us," Prudential's Tumazos said. "Global environmental treaties or Indonesian rules may change, and we are uncomfortable with the disposal of up to 250,000 tonnes per day of ground rock tailings down a creek into a river delta near the sea.

"A Kyoto Accord-type legislation banning global disposal of solid waste to waterways is conceivable, and this analyst would applaud such a ban applied to the U.S., state or local government on the Eastern U.S. shores," he said. Prudential's Tumazos doesn't own Freeport-McMoran shares, and Prudential doesn't have investment banking business with the company Prudential also raised valuation worries, and noted that the recent fever for gold shares may give the stock a higher valuation than it would normally receive.

"We stopped short of applying a lower price target only because of a plentiful supply of gold bug investors willing to pay premiums," said Tumazos, who said his $27 price target is based on 9.5 times estimated earnings, the same price/earnings measure he uses with competitor Phelps Dodge Corp. (PD).

Tiffany Kary, Dow Jones Newswires; 201-938-5285; Tiffany.Kary@dowjones.com


Freeport-McMoRan Copper & Gold Inc. Announces Conversions and Redemptions of its Step-Up Convertible Preferred Stock

New Orleans, La. - (Business Wire)

22nd December 2003

Freeport-McMoRan Copper & Gold Inc. announced today the results of the call for redemption of its outstanding depositary shares representing its Step-Up Convertible Preferred Stock. Of the 14.0 million depositary shares outstanding at the time of the call, 13.8 million depositary shares converted into 11.6 million shares of FCX's common stock, resulting in approximately 183 million shares of FCX common stock outstanding. The remaining depositary shares outstanding as of the close of business on the December 19, 2003 redemption date will be redeemed for approximately $4 million cash.

Richard C. Adkerson, President and Chief Executive Officer said, "This transaction follows a series of steps completed in 2003 to strengthen our balance sheet and enhance our financial flexibility. The conversion of these preferred shares into common equity will simplify our capital structure and result in cash savings of approximately $15 million per annum at the current level of common stock dividend."

FCX explores for, develops, mines and processes ore containing copper, gold and silver in Indonesia, and smelts and refines copper concentrates in Spain and Indonesia. Additional information on FCX is available on our Internet website www.fcx.com.

CONTACT:Freeport-McMoRan Copper & Gold Inc., New Orleans Financial Contacts: Richard C. Adkerson, 504-582-1663 David P. Joint, 504-582-4203 or Media

Contact: William L. Collier, 504-582-1750

SOURCE: Freeport-McMoRan Copper & Gold Inc.

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