Oct. 20 (Bloomberg) -- Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper miner, said it’s operating the open pit at the Grasberg mine in Indonesia at about two-thirds of capacity after workers went on strike.
The Phoenix-based company is “uncertain” how soon the dispute will be resolved, Chief Executive Officer Richard Adkerson said yesterday on Freeport’s third-quarter earnings conference call. The company lowered its full-year copper sales forecast by 100 million pounds (45,360 metric tons) to 3.8 billion pounds because of protests by workers at Grasberg, the latest of which started Sept. 15.
Strikes at Grasberg, which has the world’s largest recoverable reserves of copper, lost 70 million pounds of sales of the metal in the third quarter, Freeport said. An unidentified gunman killed three contractors last week while a pipeline carrying ore was sabotaged on Oct. 16, according to the company. The mine’s mill is running at 75 to 80 percent of capacity and underground operations are at about 80 percent of capacity, Adkerson said.
“I was pleasantly surprised that they are essentially able to operate at a fairly high level with just 60 percent of the regular workforce,” Tony Rizzuto, a New York-based analyst at Dahlman Rose & Co., said in a telephone interview. He doesn’t own the stock and rates the shares a “buy.”
Workers in Peru, Chile, Bolivia and Indonesia have downed tools at copper, gold and zinc mines this year to seek improved conditions and a bigger slice of record profits after metal prices increased. About 8,000 workers at Grasberg started a strike for higher wages last month. The stoppage was extended for a second month until Nov. 15.
The union members will continue blocking the main road to Grasberg until management is willing to return with a new offer on wage increases, according to Virgo Solossa, head of organizational affairs at PT Freeport Indonesia’s union. Freeport said Oct. 18 that the action is illegal.
“If they think the road block is illegal, why don’t they open a dialog with us?” Solossa said by telephone from Timika, the closest town to Grasberg. “We haven’t heard anything from the management until now.”
The union will appeal in a meeting with parliament members today for Freeport to resume talks, he said.
The Grasberg union agreed to cut its wage-raise demands to $7.50 to $33 an hour, Solossa said Oct. 18. Workers had initially sought an increase of $35 to $200 an hour from $1.50 to $3.50 currently. Freeport said it has offered a 25 percent raise over two years.
Freeport has filed a labor court application in Indonesia, after the striking workers rejected recommendations made by a government-appointed mediator, Adkerson said on the call.
A dispute at its Cerro Verde mine in Peru hasn’t “materially” affected copper and molybdenum output, Freeport said. Workers at Cerro Verde went on strike on Sept. 29. The dispute can be resolved “in the near term,” Adkerson said.
Strikes at Grasberg also lost Freeport 100,000 ounces of gold in the third quarter, Adkerson said. Gold sales of 409,000 ounces in the period missed Freeport’s 415,000-ounce forecast. Copper sales of 947 million pounds beat a July 2011 prediction of 940 million pounds, mainly because of the timing of shipments in North America, Freeport said.
Freeport fell 2.8 percent to $34.38 at the close in New York. The company said in a separate statement its quarterly dividend will be 25 cents a share.
Third-quarter net income fell 11 percent to $1.05 billion, or $1.10 a share, from $1.18 billion, or $1.24, Freeport said. The average of 18 analysts’ estimates compiled by Bloomberg was for $1.01 a share. Sales were little changed at $5.2 billion, from $5.15 billion previously, beating the $4.72 average of analysts’ estimates.
Freeport is studying expansions in Peru, the Democratic Republic of Congo and Arizona that could add 1 billion pounds of annual copper production at a cost of $6 billion, Adkerson said. The company raised its estimate for the cost of expanding Cerro Verde’s mill by $500 million to about $4 billion.
“That’s the world the industry lives in today,” the CEO said. “We watch what is going on with others in the industry and capital-cost escalation is a significant factor and it is going to have an impact on supply development and the timing of projects.”
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