Mining giant Freeport-McMoRan saw its stock price tumble over 8% Thursday after announcing that operations at its massive Indonesian mining facility are recovering more slowly than projected following last year’s devastating flood that claimed lives and halted production.
The Phoenix-headquartered corporation, which leads the world in publicly traded copper mining operations, now anticipates restoring just 65% of output at its Grasberg facility by the latter half of 2024, a significant reduction from its earlier projection of 85% recovery.
This setback occurs amid skyrocketing global copper demand driven by expanding artificial intelligence sectors and power generation infrastructure, limiting Freeport’s ability to capitalize on market opportunities. Copper serves as a crucial component in motors, computing equipment, battery systems, and electrical wiring due to its superior conductivity properties.
The production delays stem from necessary modifications to ore-loading equipment at the underground facility. Since operations ceased in September, unexpected groundwater infiltration has made the extracted materials significantly wetter, necessitating the installation of specialized equipment called “spillminators” – advanced mining chutes created by South African firm CAN Engineering Worx to prevent dangerous mud surges.
“We understand the engineered solution to this issue, but it will take time to make modifications,” stated CEO Kathleen Quirk, noting the problem emerged in recent weeks. “We’re confident in the ability to restore large-scale production safely.”
The company has also postponed plans to transition the facility’s energy source from coal to natural gas by approximately 18 months due to the incident.
Freeport now projects the mine will yield 800 million pounds of copper and 700 million ounces of gold in 2024, down from previous estimates of 1.1 billion pounds of copper and roughly 800 million ounces of gold. The Grasberg operation represents the world’s second-largest copper extraction site and the planet’s biggest gold mining facility.
Jefferies analyst Chris LaFemina noted that despite Freeport’s confidence in addressing restart challenges, “the market will question the guidance and is now unlikely to give Freeport the benefit of the doubt on the planned ramp.”
While the company faces no concerns regarding sulfuric acid availability – essential for copper refining – despite Middle East conflict-related supply disruptions because it produces the chemical at its own smelting facilities, rising diesel costs have increased annual expenses by $500 million.
First-quarter copper output dropped 23.7% to 662 million recoverable pounds, while gold production plummeted 66.2% to 97,000 recoverable ounces. However, copper prices surged 36.7% during the January-March period due to supply constraints, limited inventories, and strong demand, helping offset volume declines.
The company posted adjusted earnings of 57 cents per share for the quarter ending March 31, surpassing analysts’ average prediction of 46 cents according to LSEG data.
