Freeport CEO sees banner years ahead after gains won in ‘battle’

Such success will be underpinned by a production boost after a disruptive year at the company’s mines. Adkerson expects copper volumes to expand by 20% and gold by 70% next year, with rising outputs lowering costs. With copper near seven-year highs and gold hovering about 10% below its peak, he sees profit margins swelling. At those prices, the producer says it’s on track to double earnings before interest, taxes, depreciation and amortization next year.

Adkerson, who has been at Freeport since 1989 and CEO since 2003, has helped guide the world’s biggest publicly traded copper company through what he calls a series of “twists and turns.”

Those include the mid-decade collapse of the commodity boom — which forced it to sell assets and shares to manage its debt — years of tortured negotiations to secure long-term mining rights for its flagship Grasberg operation in Indonesia, and a multibillion-dollar revamp of that giant mine.

Then Covid-19 hit, forcing the Phoenix-based company to revise its operating plans, cut its dividend and some executive pay, and delay capital spending. Despite disruptions, Freeport pushed ahead with its ramp up of Grasberg, a copper and gold mine that has been transitioning from open pit to underground operations.

“By the end of 2021 we will be back at full production,” Adkerson said, returning the mine to its position as one of the world’s single biggest sources of copper and gold.

Freeport also brought its Lone Star project in Arizona online this year. It is slowly returning its Covid-hit Cerro Verde mine in Peru back to normal operations and plans to restart its Chino mine in New Mexico next year at half capacity.

Investors have noticed the company’s efforts, with Freeport’s stock four times higher than its March low.

Rising cash flow has been pushing down net-debt levels, which were about $8 billion at the end of the third quarter, Chief Financial Officer Kathleen Quirk said on the same call. As that continues, Freeport will “significantly” increase cash returns to shareholders “over time”, Adkerson said. He expects the board will start a discussion on reinstating dividends “very early in 2021.”

The next use for cash would be to boost production, Adkerson said, and the first choice would be projects at existing operations.

“We don’t have to make acquisitions to sustain our production profile,” he said.

Copper smelter

One unfinished piece of business is in Indonesia. Freeport pledged to help build a copper smelter in the country as part of 2018 agreements that gave a majority stake of its Indonesian operations to state-owned PT Indonesia Asahan Aluminium. In August, local unit PT Freeport Indonesia sought government approval to push back the target for finishing the $3 billion project in East Java by a year, to 2024, after the pandemic disrupted construction.

Adkerson said Freeport remains committed to the project, while PT-FI also is part of talks on an alternative plant with a Chinese company and the government.

“My sense is that this will get sorted out sooner than later,” he said. “It’s under discussion.”

The CEO and vice chairman said he intends to stick around to see the agreements fulfilled. In any case, he said, Freeport has a succession plan in place around a strong executive team. On the cusp of his 74th birthday, he adds his health and energy levels are good, noting: “I’m younger than Joe Biden.”

(By Steven Frank)