Freeport-McMoran: Cuts Production; Suspends Dividend

We are responding aggressively to the current market conditions which have weakened dramatically in recent weeks. These revisions to our plans will allow us to reduce operating costs and capital spending, adjust our production profile to better match market requirements and preserve our valuable resources for anticipated improved market conditions.

- James Moffett, Chairman, and Richard Adkerson, CEO, Freeport McMoran

On Wednesday morning giant copper producer Freeport-McMoran (FCX) announced significant near-term strategy changes in response to the collapse of the global copper market:

• The company will be cutting 2009 copper production by 200 million pounds and 2010 copper production by 500 million pounds.
• The company will be cutting back 2009 capital expenditures by $1.2 billion from $2.3 billion to $1.1 billion.
• The company is suspending its annual $2.00 per share dividend.
• As a result of these production cutbacks which are focused on its higher cost North American mines, unit costs per pound are expected to decrease 18% from 2008 to $0.89 a pound next year (FCX Press Release).

Predictably, the stock market crushed Freeport shares on the news, and sent them down almost 20%, below $18 a share, on heavy volume Wednesday morning.

But, really, this is a welcome development for long-term Freeport investors. Why continue to sell its valuable copper at $1.60 a pound when the longer term intrinsic value is much higher? It makes tremendous sense to scale back production and reduce costs and capital expenditures in the face of a weakening demand environment.

If you can look past what will be a bad 2009, Freeport represents enormous long-term value, while Wednesday just might have been capitulation, marking an intermediate term low.

Disclosure: Top Gun is long Freeport McMoran (FCX) shares.

Comments

[waldipup:]

"Why continue to sell its valuable copper at $1.60 a pound when the longer term intrinsic value is much higher?"

Everybody is losing their money because of this type of thinking.

Commodities have all spiked to new highs and then crashed , so

now 1.60 is too cheap to sell Copper.

Except for this spike to 4 bucks , and a couple in the past to hi 1's - 2 bucks , 1.60 is the highest price Copper has ever been to sell at.

But now 4 bucks is its "intrinsic value" and 1.60 is too cheap.

Sure , hold some for the long run in case dramatically higher prices set in as a spec to hit a home run with.

But for the bulk of your investment capital/risk , look at long term prices and ignore hype that ignores average long term prices and only points to the sky as a goal.

1.60 is high enough for Copper.

Soybeans are down to 7 from 15. So are they "way below their intrinsic value" also?

2008 Dec 04 09:57 AM

[Pipo:]

Listen to a Richard Adkerson video interview of FCX`s CEO. He talks about the current situation.

ceotalk.blogspot.com/2...

2008 Dec 04 12:56 PM