(Reuters) - Freeport-McMoRan Copper & Gold Inc (FCX.N) reported a sharp drop in second-quarter profit on Tuesday and laid out a plan to cut medium-term spending in light of declining metal prices and global economic uncertainty.
The Arizona-based miner said it is clamping down on spending and has cut $1.9 billion in planned capital expenditures and other costs through 2014.
The news pushed the company’s shares up 2.2 percent to $29.79 around midday.
“I think the stock is reacting positively because of the capex deferrals and exploration expense cuts - that’s what the market wanted to see,” said Garrett Nelson, an analyst with BB&T Capital Markets. “Investors want to see measured growth.”
Nelson said plans to divest some recently acquired oil and gas projects in the Gulf of Mexico - the company closed a $19 billion takeover of two U.S. energy companies in the second quarter - was a positive, as asset sales could help reduce Freeport’s high debt burden.
The company has committed to lowering its total debt load to $12 billion from $21 billion over the next three years.
The world’s No. 1 publicly listed copper producer cut its full-year outlook for copper and gold sales after production was halted for nearly two months at its Grasberg complex in Indonesia following a fatal tunnel collapse.
Freeport now expects to sell 4.1 billion pounds of copper this year, down 5 percent from its previous forecast, and 1.1 million ounces of gold, down 21 percent.
Lower output from its Indonesian operations pushed up copper unit cash costs, which rose 24 percent to $1.85 per pound in the quarter. With production back online at the massive complex, the company now expects 2013 cash costs to average $1.58 per pound.
Freeport also said it has started talks with the union at Grasberg, with the current contract set to expire in September. Relations have been strained in recent years following a three-month strike in late 2011 as well as a series of minor spats.
“There is a recognition by all interested parties - including the union, our management, the local community, the central government - that a strike would not be in anybody’s interest,” Chief Executive Richard Adkerson said on a conference call.
Freeport’s cuts to spending through 2014 come as mining companies around the world are struggling to eke out a profit, with sagging metal prices cutting into margins that have already been hit by soaring capital and operating costs.
The cuts and deferrals include $1 billion from mining capital projects, $400 million in reduced oil and gas investments, and $500 million in exploration, research and other costs.
“We undertook a project, looking at all our capital spending projects, and made a decision to defer costs or eliminate costs when we could do that without really disrupting either our near-term or long-term growth opportunities,” said Adkerson. “And we’ve had success with that.”
The company’s capital plans remains under review and could be revised as market conditions warrant.
Freeport now expects to spend $5.5 billion in 2013, with $2.3 billion earmarked for major projects at mining operations and $1.5 billion for oil and gas operations.
Despite the spending cuts, Freeport said it remains committed to its regular quarterly dividend.
Freeport reported second-quarter net income of $482 million, or 49 cents a share, down from $710 million, or 74 cents a share, a year earlier.
Profits were hurt by lower metal prices and higher costs, along with charges related to the acquisitions of Plains Exploration & Production Co and McMoRan Exploration Co, deals that closed on May 31 and June 3, respectively.
Revenue fell 4 percent to $4.3 billion in the quarter.
Copper sales were up 3 percent at 951 million pounds, but that increase was outweighed by higher cash costs and a 10 percent drop in the realized copper price.
Gold sales slid 35 percent to 173,000 ounces and the average realized gold price fell 17 percent.
The new oil and gas unit had revenue of $372 million, with cash production costs totaling $83 million.
Reporting by Julie Gordon in Toronto; Editing by John Wallace and Jeffrey Benkoe