US-based Freeport-McMoRan remains positive on the outlook for copper, despite the recent decline in prices associated with international trade developments, CEO Richard Adkerson affirmed on Wednesday.

Copper has been caught up in the trade war rhetoric between the US and China, while at the same time, supply has been stable as expected disruptions from expiring labour contracts in Chile have not played out.

The red metal has fallen sharply in the last month-and-a-half, from $3.25/lb in mid-June, to below $2.75/lb last week.

Rising trade tensions have not yet impacted on demand for its products, but Adkerson said that the world’s largest publically traded copper producer would be prepared to adjust its plans if it did.

He said in the company’s second-quarter conference call that the group had the flexibility to adjust to a lower price environment, in the same way as it did during the 2008 global economic recession.

“If price dropped again, we would adjust our operations to ensure that all our mines operate on a cash flow positive basis. We would defer expenditures, we would adjust operating costs, while deferring capital expenditures and we would hunker down again for a period of time,” Adkerson said, stressing that it was “strictly a contingency plan”.

Freeport-McMoRan, which operates mines in North America, South America and the major Grasberg operation in Indonesia produced 1.01-million pounds of copper in the June 2018 quarter, compared with 883 000 lb in the same period of 2017. Unit net cash costs amounted to $0.96/lb, compared with $1.19/lb a year earlier.

Gold production increased from 353 000 oz in the second quarter of 2017, to 746 000 oz in the period under review, while molybdenum production increased to 24-million pounds, from 23-million pounds.

The group sold 989-million pounds of copper in the second quarter, beating the April estimate of 970-million pounds for the quarter. The higher-than-forecast sales reflect higher mining and milling rates, as well as higher ore grades in Indonesia.

Second-quarter 2018 gold sales of 676 000 oz were lower than the April 2018 estimate of 700 000 oz, primarily because of the timing of shipments, and were higher than second-quarter 2017 sales of 432 000 oz, primarily reflecting higher ore grades and operating rates in Indonesia.

Sales volumes for 2018 are expected to be about 3.8-billion pounds of copper, 2.4-million ounces of gold and 95-million pounds of molybdenum, including 970-million pounds of copper, 700 000 oz of gold and 24-million pounds of molybdenum in third-quarter 2018.

REVISED GRASBERG PLAN
Meanwhile, Freeport-McMoRan also announced a revised mine plan for its Grasberg operation. Freeport Indonesia (PT-FI) is currently mining the final phase of the Grasberg openpit, which contains high copper and gold ore grades.

The revised mine plan entails extending mining activities in the openpit by about six months, following results of an economic analysis. The ore from the openpit will be mined until PT-FI transitions to the Grasberg block cave underground mine in the first half of 2019.

“Mine development activities are sufficiently advanced to commence caving in the first half of 2019. The ore flow and underground rail haulage systems are expected to be fully commissioned and operational in the second half of 2018,” the group stated.

During the transition period of 2019 and 2020, lower copper and gold production is forecast from the Indonesia mining operations.

PT-FI has also revised its mine plan for the ramp-up of the Deep Mill Level Zone (DMLZ) underground mine at Grasberg, following mining-induced seismic activity that began in 2017 and continued during 2018.

PT-FI will now conduct hydraulic fracturing activities to manage rock stresses and pre-condition the DMLZ for large-scale production. PT-FI's revised mine plans, which will continue to be reviewed, currently project block cave mining activities in the DMLZ to start in mid-2019, following a period of fracking activities designed to safely manage production.

The DMLZ will reach full production rates of 80 000 t/d in 2022, Adkerson affirmed in the conference call.

FINANCIAL RESULTS
Freeport-McMoRan reported second-quarter net income attributable to common stock of $869-million, or $0.59 a share, compared with $268-million a year earlier. After adjusting for net gains of $16-million, $0.01 per share, second-quarter 2018 adjusted net income attributable to common stock totalled $853-million, or $0.58 a share.

Operating cash flows totalled $1.3-billion in second-quarter 2018 and $2.7-billion for the first six months of 2018, compared with $1.03-billion in the second quarter of 2017 and $1.8-billion in the first half of 2017.

Based on current sales volume and cost estimates, and assuming average prices of $2.75/lb for copper, $1 250/oz for gold and $11/lb for molybdenum for the second half of 2018, operating cash flows are expected to be about $4.3-billion for the year 2018.

Freeport-McMoRan will spend about $2-billion on capital expenditure in 2018, including $1.1-billion for major mining projects primarily associated with underground development activities in the Grasberg minerals district in Indonesia and development of the Lone Star oxide project in Arizona.