July 21, 2011 / 12:12 PM / 7 years ago

UPDATE 4-Freeport profit up but costs, copper price drag

* Q2 profit $1.43/shr vs Wall St estimate $1.33/shr

* Revenue rises to $5.81 bln from $3.86 bln a year ago

* Shares dip on copper price fall (Adds CEO comments on strike, markets, share drop)

By Steve James

NEW YORK, July 21 (Reuters) - Freeport-McMoRan Copper & Gold Inc’s (FCX.N) second-quarter profit doubled, beating Wall Street estimates, but the company said costs are creeping up and it expects to sell less copper in the third quarter.

That outlook, combined with a fall in the copper price on Thursday, sent Freeport shares down 0.8 percent to $55.47 in afternoon trading on the New York Stock Exchange.

Some analysts also cited lingering uncertainty over the labor situation at Freeport’s vast Grasberg mine in Indonesia, where a strike this month disrupted production.

“We estimate that the aggregate impact of production lost during the strike period was 35 million pounds of copper and 60,000 ounces of gold,” Chief Executive Officer Richard Adkerson told Wall Street analysts on a conference call.

He said the strike, which he termed “illegal,” led to a temporary suspension of all mining, milling and concentration shipments from the nine. The company has begun negotiations with the union on a contract due to be renewed in October.

Adkerson said Grasberg gold sales were about 100,000 ounces less than in the year-ago quarter because the company was mining a section containing lower ore grades.

“And that has an impact on some of our unit cost numbers,” he said. “Our cost did come in lower than we had projected (but) a bit higher than the first quarter, and that reflects the 100,000 ounces of lower gold sales.”

Earlier, the company reported a big jump in profit, citing soaring metal prices and higher copper sales than expected at its North American mines.

“Markets today are very interesting after having some weakness during the second half of the quarter as a result of the slowing global situation in the U.S. and Europe and the problems in Japan,” Adkerson said.

In addition, there was “uncertainty in China, because of their efforts to cool their economy. (But) by the end of the quarter, prices were ticking up, and today are very strong.”

In the past year, the price of copper — a key metal in construction and wiring — rose 45 percent to around $4.27 per pound on June 30. Gold rose 20 percent to $1,499 per ounce and has since risen to record highs above $1,600.

But on Thursday, the copper price fell as data showing shrinking manufacturing activity in top consumer China fueled demand fears. Adkerson said “there’s clearly a destocking of inventories in China.”

Freeport’s second-quarter net earnings rose to $1.4 billion, or $1.43 per share, from $649 million, or 70 cents per share, a year earlier. The analysts’ average estimate was $1.33 per share, according to Thomson Reuters I/B/E/S. Revenue increased to $5.81 billion from $3.86 billion.

“Higher copper sales — that’s the answer; most of that goes to the bottom line,” said analyst Charles Bradford of Bradford Research in New York.

Second-quarter consolidated copper sales of 1.0 billion pounds were higher than the company’s previous estimate of 965 million pounds, primarily because of the timing of shipments, principally in North America.

Copper sales were also higher than the 914 million pounds a year earlier because of increased production in North America and the timing of shipments in South America and Africa.

But for the third quarter, Freeport said it expects to sell less copper — 940 million pounds.

Consolidated gold sales of 356,000 ounces were slightly below the company’s estimate of 365,000 ounces, but higher than year-earlier sales of 298,000 ounces. The variances primarily reflect the grades of ore at Grasberg.

Freeport sold 21 million pounds of molybdenum — more than its estimate of 17 million pounds and second-quarter 2010 sales of 16 million pounds, because of improved demand.

In the third quarter, Freeport anticipates sales of 415,000 ounces of gold and 18 million pounds of molybdenum.

Freeport’s average realized price for copper in the quarter was $4.22 per pound, up sharply from $3.06 a year earlier but slightly down from $4.24 in the first quarter of 2011.

It realized $1,509 per ounce for gold, an increase from $1.234 in the second quarter of 2010, while molybdenum prices were roughly flat at $18.16 per pound, Freeport said. (Reporting by Steve James, editing by Gerald E. McCormick, Lisa Von Ahn and Derek Caney)

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