N.O. Freeport-McMoRan Copper and Gold Inc. Mine Hits Gold Rush With 3Q Gains

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Eco-Terrorism : Freeport Mining

N.O. Freeport-McMoRan Copper and Gold Inc. Mine Hits Gold Rush With 3Q Gains
By Penix, Matthew
Nov 6, 2006, 14:20

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Buried 500 acres below the mountainous glacier caps of eastern Indonesia's Papua highlands is a network of dark cavernous twists and turns, a honeycomb of rock and soil spanning 600 miles.

Roughly 8 percent of Indonesia's population - 18,000 people - hitch rides daily to go 13,000 feet up the side of the mountain to a copper and gold mine. They haul their booty in trucks the size of houses back down the hill, past the tropical mango swamps and to the Arafura Sea ports.

This is the famed the Grasberg Indonesian mine, New Orleans Freeport-McMoRan Copper and Gold Inc.'s sole business venture, and it's making top company administrators and shareholders rich.

The city's newest Fortune 500 company, listed by Forbes Magazine at No. 480 this year, earned $350.7 million in the third quarter, or $1.67 per share, more than doubling earnings of $165.8 million, or 86 cents a share, in the year-ago period when it set record annual gains of $935 million.

Quarterly revenue rose 67 percent to $1.64 billion from $983.3 million.

Following a second quarter where the price of gold settled at a historically high $719.80 an ounce in May, third-quarter averages lost some of their Midas touch at $621 an ounce.

But analysts such as Donald W. Doyle Jr., chairman and CEO of Blanchard Economic Research in New Orleans, said gold could surge as high as $800 by the first quarter in 2007.

"Gold has been influenced greatly by a number of factors that don't have much to do with the supply or demand side of the market," Doyle said. "The great thing is that gold is just beginning to exert its role as a monetary asset and regardless of how other commodities perform, Blanchard believes the next period of the gold bull market will result from investors recognizing that precious metals are currency alternatives, not simply commodities." Doyle expects gold to top $800 by late 2007 with silver reaching $18. Copper improved to $3.48 a pound in the latest period versus $3.30 a pound in the second quarter.

All those precious metals turn into cash for Freeport. With proved and probable reserves for the mine totaling 40 billion pounds of copper and 44 million ounces of gold, Kathleen Quirk, senior vice president, chief financial officer and treasurer, said the company has enough reserves to mine at its current pace until 2041.

Since 1988, when geologist chairman and co-founder James R. Moffett sniffed out the mine, the discovery has produced 17.6 billion pounds of copper and 26.1 million ounces of gold, said spokesman William Collier. Moffett forecasts mining 1.24 billion pounds of copper and 1.9 million ounces of gold annually for the next five years.

Deep inside the dark recess of caves, miners are consistently discovering new deposits, Collier said.

"It was a great quarter," said Victor Lazarovici, an analyst at BMO Capital Markets, an international consulting firm with offices in Brazil, Dallas and Atlanta. "When you're running one of the lowest-cost mines in the world and prices are at historic highs, you tend to do well."

James Turk, editor of Freemarket Gold and Money Report in North Conway, N.H., said Freeport will earn even more in the next 18 months.

He predicts gold fever for traders with prices reaching four digits. "It's a replay of the 1970s when gold boomed and it's early in the game," he said.

Turk, who urged buying Freeport stock in October 2000 when prices were $8 a share compared with $57.77 last week, said he expects the trend to continue for years.

"The reality is not that gold is climbing. The dollar is decreasing," he said. "Gold is money. It's in the constitution. It's the money of the United States. When the dollar's link to gold was removed by (former) President Richard Nixon, the discipline previously imposed on the dollar went with it, and a 15-fold increase in the dollar price of crude oil since then has been the result."

Shareholder windfall

While Freeport's quarterly sales slipped, higher gold prices offset the decline. Freeport reported a 6.6 percent slump in copper sales to 323.6 million pounds, which still exceeded company forecasts of 280 million pounds. Gold sales rose less than 1 percent to 478,000 ounces but topped company estimates of 320,000 ounces.

"When you look at our nine-month results to date, we've already exceeded last year's revenue," said Quirk. "We're on track to have another record year."

Because company debt is so low at $76 million, shareholders also reap benefits. Turk, who's been monitoring Freeport for six years, predicts shareholders who bought $8 shares will see dividends equal that price soon.

"They have a good management team, a great mine and they pay excess cash flow in cash dividends," he said.

The company, frequently the subject of takeover speculation in a consolidating mining sector, refuses to say if it is in talks with potential buyers.

Turk doesn't think a merger is likely.

The company is uniquely split between its copper and gold mining operations. This causes confusion in companies who specialize in gold or copper alone.

That seems fine with Freeport CEO Richard Adkerson. "If we did anything, it would have to be extraordinary," he said.

(Copyright 2006 Dolan Media Newswires)

(c) 2006 New Orleans CityBusiness. Provided by ProQuest Information and Learning. All rights Reserved.

http://www.blackenterprise.com/yb/ybopen.asp?section=ybbf&story_id=99944279&ID=blackenterprise&p=3

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