October 24, 2018 / 12:16 PM / 9 months ago

Freeport market-beating results fail to assure investors

Toronto/Bengaluru (Reuters) - Freeport-McMoRan Inc on Wednesday reported market-beating results as output and grades at its big Indonesian mine rose, but early share gains turned negative as investors digested forecasts for the world’s biggest public copper miner.

FILE PHOTO: Vehicles used for transporting workers to the Grasberg copper mine operated by Freeport McMoRan Inc are seen at the Gorong-Gorong terminal in Timika, Mimika, Papua province, Indonesia on November 16, 2017. REUTERS/Muhammad Yamin/File Photo

Freeport, which said gold sales from its Grasberg mine in Indonesia more than doubled in the third quarter, left its full-year copper and gold sales forecast relatively unchanged. That means much of the beat reflects a shift in the timing of sales to the third from fourth quarter, said Barclays Capital analyst Matthew Murphy.

Additionally, investors may be rattled by ongoing uncertainty over Freeport’s complex $3.85 billion deal to sell its majority stake in Grasberg to the Indonesia government, said Clarksons Platou analyst Jeremy Sussman.

The transaction is expected to close in late 2018 or early 2019, but Freeport is “not popping champagne bottles yet,” Chief Executive Richard Adkerson said on a conference call.

Until mid-2019, Freeport will mine Grasberg’s depleting open pit and then transition to underground mining, which will “significantly” hurt output until 2021.

Freeport shares were down nearly 5 percent at $11.05 in early afternoon trade, after the company said it has solid long-term growth prospects but is deferring development decisions until market conditions improve.

Copper markets are rattled by U.S.-China trade war worries, Adkerson said, despite looming supply constraints of the metal. Copper prices have dropped 11 percent since early May, while gold is about 6 percent lower this year.

Freeport is focused on developing its own projects, rather than buying assets from another miner, Adkerson said.

“With all these uncertainties, I think it’s unlikely that anybody’s going to be pursuing big-scale deals,” he said. “I certainly don’t consider it to be something that we would look at in the near term, given our share price.”

Freeport stock is down some 40 percent so far this year.

In the third quarter, the average realized price for copper fell nearly 5 percent, to $2.80 per pound, while gold prices were about 8 percent lower from the same period last year, at $1,191 per ounce.

Copper sales, meantime, rose to 1.04 billion pounds from 932 million pounds, while gold sales grew to 837,000 ounces from 355,000 ounces.

Adjusted net income of 35 cents per share bettered the average analyst estimate of 33 cents per share, according to Refinitiv.

Revenue increased 13 percent to $4.91 billion, ahead of an expectation for $4.56 billion.

Reporting by Susan Taylor in Toronto, Shanti S Nair in Bengaluru; Editing by Shounak Dasgupta and Steve Orlofsky

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