Freeport-McMoRan Copper & Gold Inc, a top global copper miner that is expanding into energy, posted a 15 percent drop in first-quarter profit on Thursday, as higher costs and lower copper prices outweighed a boost in production. While revenue in the quarter slipped and came in below analyst estimates, adjusted earnings slightly exceeded expectations. Its shares were down 2 percent at $27.45 on Thursday morning on the New York Stock Exchange.
The Phoenix, Arizona-based copper producer is in the middle of a $9 billion push to diversify into the US energy sector, a move that has been criticised by investors as a pricey and unnecessary distraction. Freeport has defended its bid to buy oil and gas companies Plains Exploration & Production Co and McMoRan Exploration Co, saying there is a lack of good copper assets available. It is the world's largest publicly listed copper producer.
The deal will transform Freeport, with about a quarter of the combined company's 2013 operating earnings expected to come from oil and gas, an attractive shift at a time when the United States is poised to become the world's top oil producer. Freeport said it had completed $10.5 billion in debt financings associated with the two take-overs, at a weighted average interest rate of about 3.1 percent. It expects the deal to close in the second quarter of 2013.
At the same time, Freeport said it expects to spend some $4.4 billion on projects this year, including $2.6 billion on major projects and $1.8 billion in sustaining capital. Major projects include expansions at the Cerro Verde mine in Peru and at the Morenci mine in Arizona, along with further development work underground at the Grasberg mine in Indonesia. The company's consolidated cash totaled $9.6 billion at the end of the first quarter and total debt was $10.1 billion.
Net income attributable to shareholders for the quarter was $648 million, or 68 cents per share, compared with $764 million, or 80 cents per share, in the year-earlier period. Adjusted to remove one-time items, earnings were 73 cents a share, compared with an average analyst estimate of 71 cents a share, according to Thomson Reuters I/B/E/S. Revenue fell slightly to $4.58 billion, below analyst estimates of $4.64 billion. Freeport said its copper sales rose 15 percent to 954 million pounds, up from 827 million pounds, while the realised copper price fell to $3.51 per pound from $3.82. Net cash costs per pound of copper were $1.57, up from $1.26. Gold sales fell 26 percent to 214,000 ounces, down from 288,000 ounces in the first quarter of 2012, on lower ore grades in Indonesia. The average realized gold price fell to $1,606 per ounce, from $1,694.