Freeport-McMoRan declares force majeurePublished by MAC on 2003-12-18
Freeport-McMoRan declares force majeure
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.