St. LOUIS (ResourceInvestor.com) -- Plummeting copper prices slammed third-quarter profits of Freeport McMoRan Copper & Gold Inc. to the tune of almost one-third, the company said Tuesday.
The Phoenix-based miner, that touts itself as the world's largest, publicly traded copper-company, saw its third-quarter profit fall to $523 million, or $1.31 a share, from $775 million, or $1.87 a share, during the same period a year ago. Operating income dropped to $1.13 billion from $1.88 billion a year ago.
Shares of Freeport fell more than 5% in afternoon trading as earnings, which fell 30% for the quarter ended Sept. 30, were lower than analyst expectations. Wall Street analysts surveyed by news organizations Dow Jones and Bloomberg had forecast earnings of $1.45 a share.
The "pretty striking" slide of copper prices from June to now significantly hamstrung the company's earnings, Freeport McMoRan's Chief Executive Officer Richard Adkerson said during a conference call Tuesday morning.
He said copper spot price at the end of June was $3.98 a pound but slid 27% to $2.90 a pound by the end of the quarter. Today, prices fell below $2 a pound for the first time in almost two years on the London Metals Exchange.
Adkerson said the company will scale back some operations because of deteriorating global financial conditions as well as sliding metals prices.
"We will be responsive to current market conditions by reducing costs and capital spending and curtailing high-cost operations if required," the company said in a statement. Adkerson added: "We're deferring certain projects, but the basic strategy of our business is unchanged."
The company also cited concerns about slower growth in China as problems, but Freeport said the underlying fundamentals of copper still remain strong, citing low inventories, supply constraints and the absence of new projects that should keep the copper market taut.
"Youve got such a drastic drop in commodity prices, yet the basic market remains tight," Adkerson said.
Adkerson said Freeport remains in good shape despite shoddy global conditions, and the company isn't in a position where it would have to borrow money from any struggling financial institutions.
"We know how to do this - we knew we were in a commodity business and it's a risk of the marketplace we had to face," Adkerson said. "We're taking steps internally to stop spending. ...
Our company is not financially stressed in any way, and there's no change in our long-term strategy."
FCX said consolidated sales from its mines during the quarter were up - totaling 1 billion pounds of copper, 307,000 ounces of gold and 19 million pounds of molybdenum. During the year-ago period, mine sales were 949 million pounds of copper, 269,000 ounces of gold and 16 million pounds of molybdenum.
For the fourth quarter of 2008, FCX said it expects consolidated sales to be 1.17 billion pounds of copper 395,000 ounces of gold and 15 million pounds of molybdenum, totaling 4 billion pounds of copper, 1.2 million ounces of gold and 74 million pounds of molybdenum for full-year 2008.
During the third-quarter, Freeport, which operates seven open-pit mines in the U.S., bought back 6.3 million shares of its common stock worth about $500 million, but the company doesn't plan to buy back any more shares in the short term, Adkerson said.
Earlier this month, Friedman Billings Ramsey upgraded its rating on Freeport-McMoRan from Market Perform to Outperform, saying the stock is oversold. FBR also lowered its price target for Freeport from $115 to $85 to reflect the decline in copper prices, though.
And in this article, Gregory Zuckerman of the Wall Street Journal writes that Freeport could be a good buy if commodity prices ever stabilized.
Zuckerman writes: "Freeport-McMoRan Copper & Gold has a 6.1% dividend yield and trades for less than five times its expected 2009 earnings. The catch? It has suffered as commodity prices have plunged. Shares have been dumped by hedge funds -- former fans of the stock that have found themselves under heavy pressure lately and eager to raise cash. Any stabilization of commodity prices likely would leave the company in a strong position, analysts say."
At last check, shares of Freeport-McMoRan were down 5.2%, or $1.92, to $34.80 on the New York Stock Exchange.