Freeport beats copper estimates in relief to tight supplies
Freeport-McMoRan produced more copper than expected last quarter and raised its annual sales projection in a much-needed boost to tight global supplies of the metal.
The Phoenix-based company is on schedule with the ramp-up of underground operations at its flagship Grasberg mine in Indonesia and is stepping up output from North America just as copper surges toward the highest price in almost a decade. At its Cerro Verde mine in Peru, Freeport plans to get back to pre-pandemic levels next year.
At a time of robust demand and production disruptions elsewhere, Freeport’s expansion provides some relief for smelters and consumers of the metal used in wiring. Rather than a spike, Chief Executive Officer Richard Adkerson sees copper’s rally to above $4 a pound as supported by fundamentals — with scarce stockpiles, strong demand and dearth of big new projects waiting in the wings, reports Bloomberg.
“The outlook for copper has never been better,” Adkerson said, citing structural deficits that support higher prices.
In the first quarter, Freeport reported ran output of 910 million pounds compared with the 825.4 million average of analysts’ estimates compiled by Bloomberg. The company now expects to sell about 3.85 billion pounds this year, up slightly from a January projection and sees annual sales growing to 4.4 billion pounds in the next two years.
Rising production costs are one of the only headwinds to earnings growth, with the company matching cash cost estimates in the quarter but raising its projection for the year amid pricier energy and freight. Adjusted earnings came in at 51 cents a share in the first quarter compared with the 50-cent average estimate. Sales met expectations.
Adkerson said the company had resumed evaluations of future growth projects and expects to have that process ready by year-end. With high copper prices indicating debt targets will be met around the same time, Freeport will then look at other capital allocation opportunities such as additional dividends.
“With Freeport’s major transition year at Grasberg now mostly in the rearview mirror, we expect the company to have ample financial flexibility to re-deploy and accelerate key capital allocation priorities, such as capital returns and leverage optimization,” B. Riley Securities analyst Lucas Pipes wrote in a note to clients.
The one remaining component of its Indonesian strategy are smelters. The company agreed to build a smelter as part of renewing its contracts at Grasberg, and has been working with the government on proposals. A decision is yet to be made on proceeding with a project alone or with partners.
The company’s shares have more than quadrupled in value in the past year in one of the best performances among copper suppliers tracked by Bloomberg Intelligence. The stock was down 2.8% at 11:20 a.m. in New York.
Freeport is focused on expanding its own assets rather than looking at growth through acquisitions after making M&A missteps in past cycles.
“We have no strategy of engaging in M&A markets, but we’ll be positioned now for the first time in a long, long time to take advantage of an opportunity that comes to us,” Adkerson said.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.