2020 Copper Sales Volume Projected At 3.5 Billion Pounds
PHOENIX, AZ Freeport-McMoRan Inc. (FCX) President and Chief Executive Officer, Richard C. Adkerson, said, “We are on schedule to establish large-scale production from our high-grade, low-cost and long-lived underground ore bodies at Grasberg in Indonesia; the Lone Star project in Arizona is nearing completion; and early results from our innovation initiatives to enhance productivity at our operations in the Americas are positive. These initiatives are expected to strengthen our cost position, future cash flows and long-term value, further advancing Freeport as foremost in the global copper industry. We are focused on execution of these plans designed to increase copper and gold sales by more than 30 percent, reduce unit net cash costs by approximately 25 percent and more than double operating cash flows in 2021."
The company advanced initiatives in its North America and South America mining operations to enhance productivity, expand margins and reduce the capital intensity of the business through the utilization of new technology applications in combination with a more interactive operating structure. The pilot program initiated at the Bagdad mine in northwest Arizona in late 2018 was highly successful in utilizing data science, machine learning and integrated functional teams to address bottlenecks, provide cost benefits and drive improved overall performance. The program is now being implemented across the North America and South America operations.
A series of action items have been identified, prioritized and are being implemented. Based on the opportunities identified to date, FCX has incorporated higher mining and milling rates in its future plans, resulting in estimated incremental production of approximately 100 million pounds of copper in 2021 and approximately 200 million pounds in 2022.
Fourth-quarter 2019 copper sales of 906 million pounds were 4 percent higher than the October 2019 estimate of 870 million pounds, and 15 percent higher than fourth-quarter 2018 sales of 785 million pounds, mostly reflecting higher sales from Indonesia, primarily associated with an extension of mining from the Grasberg open pit, which was completed in the fourth quarter, and the timing of shipments.
Fourth-quarter 2019 gold sales of 317 thousand ounces were 117 thousand ounces higher than the October 2019 estimate of 200 thousand ounces and approximately 20 percent higher than fourth-quarter 2018 sales of 266 thousand ounces, primarily reflecting an extension of mining from the Grasberg open pit and the timing of shipments.
Fourth-quarter 2019 molybdenum sales of 22 million pounds were slightly lower than both the October 2019 estimate and fourth-quarter 2018 sales of 24 million pounds.
Consolidated sales volumes for the year 2020 are expected to approximate 3.5 billion pounds of copper, 0.8 million ounces of gold and 88 million pounds of molybdenum, including 725 million pounds of copper, 105 thousand ounces of gold and 22 million pounds of molybdenum in first-quarter 2020. As PT-FI continues to ramp-up production from its significant underground ore bodies, metal production is expected to improve significantly by 2021.
Through exploration drilling, FCX has identified a significant resource at its wholly owned Lone Star copper leach project located near the Safford operation in eastern Arizona. An initial project to develop the Lone Star leachable ores commenced in 2018, with first production expected during 2020. Initial production from the Lone Star leachable ores following a ramp-up period is expected to average approximately 200 million pounds of copper per year, with the potential for future expansion options. Total capital costs for the initial project, including mine equipment and pre-production stripping, are expected to approximate $850 million and will benefit from the utilization of existing infrastructure at the adjacent Safford operation. As of December 31, 2019, approximately $655 million has been incurred for this project, which is on schedule and within budget. The project also advances exposure to a significant sulfide resource. FCX expects to incorporate positive drilling and ongoing results in its future development plans.
All of the North America mining operations are wholly owned, except for Morenci. The company has significant undeveloped reserves and resources in North America and a portfolio of potential long-term development projects. FCX operates the Morenci, Bagdad, Safford, Sierrita and Miami in Arizona, and Chino and Tyrone in New Mexico. In addition to copper, certain of the North America copper mines produce molybdenum concentrate, gold and silver. Production from the Molybdenum mines totaled 5 million pounds of molybdenum in fourth-quarter and 29 million pounds for the year, compared with 9 million pounds in fourth-quarter 2018 and 35 million pounds for the year 2018.
In Peru, Cerro Verde's expanded operations benefit from its large-scale, long-lived reserves and cost efficiencies and have continued to perform well. Debottlenecking projects and additional initiatives to enhance operating rates continue to be advanced. Cerro Verde concentrating operations averaged 396,800 metric tons of ore per day in fourth-quarter 2019, approximately 10 percent above design capacity. Ongoing productivity and innovation initiatives are targeting the opportunity to increase production to 420,000 metric tons of ore per day in 2021. Evaluating a large-scale expansion at El Abra in Chile, to process additional sulfide material and to achieve higher recoveries. El Abra's large sulfide resource could potentially support a major mill project similar to facilities constructed at Cerro Verde. Technical and economic studies continue to determine the optimal scope and timing for the project in parallel with extending the life of the current leaching operation.
During the fourth-quarter PT-FI completed mining in the Indonesia Grasberg open pit and continues to achieve important milestones in ramping-up production of large-scale quantities of copper and gold from its significant underground ore bodies. In aggregate, the Grasberg open pit produced over 27 billion pounds of copper and 46 million ounces of gold in the 30-year period from 1990 through 2019. PT-FI has commenced extraction of ore from the Grasberg Block Cave underground mine, which is the same ore body historically mined from the surface in the Grasberg open pit. Reserves from the Grasberg Block Cave totaled 17.2 billion pounds of copper and 14.2 million ounces of gold at December 31, 2019, representing approximately half of PT-FI's total copper and gold reserves. Undercutting, drawbell construction and ore extraction activities in the Grasberg Block Cave underground mine continue to track expectations. Ore extraction from the Grasberg Block Cave underground mine averaged 11,200 metric tons of ore per day in fourth-quarter 2019, including a planned three week outage for the installation of ore-flow infrastructure. Following completion of the maintenance program in mid-December, ore extraction from the Grasberg Block Cave averaged 17,000 metric tons of ore per day. Monitoring data on cave propagation in the Grasberg Block Cave underground mine is providing confidence in growing production rates over time. As existing drawpoints mature and additional drawpoints are added, cave development is expected to increase production rates to an average of 30,000 metric tons of ore per day in 2020, over 60,000 metric tons of ore per day in 2021 and 130,000 metric tons of ore per day in 2023 from five production blocks spanning 335,000 square meters.
The Deep Mill Level Zone (DMLZ) underground mine, located east of the Grasberg ore body and below the Deep Ore Zone (DOZ) underground mine, has continued its ramp up of production. Hydraulic fracturing operations have been effective in managing rock stresses and pre-conditioning the cave following mining-induced seismic activity experienced in 2017 and 2018. Ore extraction continues to exceed expectations, averaging 14,900 metric tons of ore per day in fourth-quarter 2019 and reached approximately 16,000 metric tons of ore per day at year-end 2019. Ongoing hydraulic fracturing operations combined with continued undercutting and drawbell openings in the two currently active production blocks are expected to expand the cave, supporting higher production rates that are expected to average 29,000 metric tons of ore per day in 2020, approach 60,000 metric tons of ore per day in 2021 and 80,000 metric tons of ore per day in 2022 from three production blocks.
Results to date from the Grasberg Block Cave and DMLZ underground mines are positive and in line with long-term plans to reach full production rates. Because of the nature of block caving, estimates of timing of future production from PT-FI's underground ore bodies will continue to be reviewed and may be modified as additional information becomes available.
In connection with the extension of PT-FI's mining rights from 2031 to 2041, PT-FI committed to construct a new smelter in Indonesia by December 21, 2023. A site for the new smelter has been selected, and ground preparation is advancing. Engineering and front-end engineering and design for the selected process technology are advancing and expected to be completed in 2020. The preliminary capital cost estimate for the project approximates $3 billion, pending completion of final engineering. Estimated capital expenditures for 2020 approximate $0.5 billion. PT-FI has advanced financing discussions with a syndicate of banks and expects the project will be funded by a bank loan to PT-FI. The debt service for the new smelter will be shared by PT-FI's shareholders according to their respective equity ownership percentages. As a result, FCX's future distributions from PT-FI will incorporate approximately 49 percent of the smelter debt service.
FCX's mining exploration activities are generally associated with its existing mines, focusing on opportunities to expand reserves and resources to support development of additional future production capacity. A drilling program to further delineate the Lone Star resource continues to indicate significant additional mineralization in this district, with higher ore grades than FCX's other North America copper mines. Exploration results continue to indicate opportunities for significant future potential reserve additions in North America and South America. Exploration spending is expected to approximate $70 million for the year 2020, compared with $77 million in 2019.
FCX has significant reserves, resources and future development opportunities within its portfolio of mining assets. FCX's preliminary estimated consolidated recoverable proven and probable reserves from its mines at years end, include 116.0 billion pounds of copper, 29.6 million ounces of gold and 3.58 billion pounds of molybdenum, which were determined using $2.50 per pound for copper, $1,200 per ounce for gold and $10.00 per pound for molybdenum. The preliminary estimated recoverable proven and probable mining reserves presented in the table below represent the estimated metal quantities from which it expects to be paid after application of estimated metallurgical recovery rates and smelter recovery rates, where applicable. Recoverable reserve volumes are those which estimates can be economically and legally extracted or produced at the time of the reserve determination.
The company’s address is 333 N. Central Ave, Phoenix, AZ 85004, (602) 366-8100, www.fcx.com.