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Freeport profit drops 14 percent

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Freeport profit drops 14 percent

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Freeport-McMoRan Copper & Gold Inc., one of Southern Arizona's biggest employers, earned less in the second quarter this year than it did last year, largely because of the increased cost of fuel.

"We are seeing higher costs. You're going to hear that from every company in our industry and other industries," Richard Adkerson, president and chief executive officer, told analysts during a conference call. "The great thing about our assets is that we are situated so that we can absorb the impact of these costs."

Among those assets: the Sierrita mine southwest of Tucson, the Morenci mine near the New Mexico border and a new mine near Safford. Phoenix-based Freeport had 5,840 full-time-equivalent employees in Southern Arizona as of the beginning of the year, ranking it ninth among the region's employers, according to the Star 200 survey.

Although the lagging U.S. economy has slowed the demand for copper, Adkerson said the market remains tight because of challenges the industry has in meeting production targets amid higher costs.

Freeport's net income declined to $947 million, or $2.25 a share, from $1.1 billion, or $2.62 a share, a year earlier, Freeport said Tuesday in a statement. That trails the $2.44 average estimate of four analysts surveyed by Bloomberg. Sales were little changed at $5.44 billion.

Adkerson is digging new mines to exploit record metal prices and further reduce reliance on the Grasberg mine in Indonesia, where lower-grade ore cut output during the quarter. Freeport is also contending with surging costs for fuel, skilled labor and equipment.

"The big thing is the movement in costs," Charl Malan, a fund manager at Van Eck Associates in New York, said today in a telephone interview. "Most of their mines use trucks and shovels, which gives them exposure to recent diesel price increases."

Freeport fell $6.48, or 6.1 percent, to $100.53 at 4:15 p.m. in New York Stock Exchange composite trading. The decline was the biggest since July 2 and took the drop in the share price this year to 1.9 percent.

Copper-production costs increased to $1.25 a pound during the quarter "principally" because of higher prices for energy, Freeport said. The estimated average cost this year will be $1.10, 10 percent more than forecast in April, the company said.

Crude-oil prices have climbed 33 percent this year and reached a record $147.27 a barrel on July 11. Energy now accounts for about 30 percent of the company's total operating expenses, Adkerson said today on a conference call.

"We're seeing higher costs everywhere in our industry," Adkerson said. "Energy costs are up, sulfur costs are up."

Copper sales fell 6.7 percent to 942 million pounds as the company mined lower-grade ore from the Grasberg mine. Gold sales dropped 71 percent to 265,000 ounces.

Freeport will access higher-grade ore at Grasberg in the second half, helping increase production and lower overall output costs, Adkerson said.