Freeport-McMoRan taking steps to preserve balance sheet as copper prices fall

By Jennifer Lanning Drey

Portland, Ore., Oct. 21 - Freeport-McMoRan Copper & Gold Inc. is limiting investments, reducing capital expenditures and adjusting financial policies after seeing the price of copper fall to a current $2 per pound from $4 per pound in August, Freeport-McMoRan chief executive officer Richard C. Adkerson said Monday.

"We're taking steps now to preserve our balance sheet while maintaining the resource that we have available and the opportunity to grow that resource over time to take advantage of what we continue to believe will be a great business to be in," Adkerson said during the company's third-quarter earnings conference call.

The CEO went on to say that the company is not under financial pressure and has not changed its long-term strategy, which includes continuing its exploration program.

However, he added that the timing of certain projects might be deferred.

"We are going to be looking at our exploration spending like our other costs, focused on those activities that would have an impact in terms of adding reserves and identifying longer-term activities, but some of the costs will be reduced as we look at our total cost profile," he said

Freeport-McMoRan now projects full-year capital expenditures of $2.7 billion, demonstrating a decrease from its originally planned $3 billion of capex. The company's third-quarter capex totaled $766 million.

The 2009 capex projection was reduced to $2.3 billion from $2.5 billion, and Adkerson stressed during the call that the number may continue to change.

"We will be prudent with how we commit capital, how we spend money and how we manage our operating costs and our volumes," Adkerson said.

Preserving liquidity

Freeport-McMoRan ended the third quarter with $1.2 billion of cash and $7.2 billion of total debt. Its $1.5 billion bank credit facility was undrawn at Sept. 30.

When asked whether the company would consider using the facility to prevent further reductions to planned capital expenditures, Adkerson said the facility was viewed as a short-term cushion for capital spending rather than a long-term source of funding.

"We want to be committed to maintaining our financial flexibility, and I don't see our credit facility as a form of long-term financing of the capital program," he said.

The company's next significant debt maturity is in 2015.

Freeport-McMoRan's operating cash flows totaled $1.5 billion for the third-quarter 2008. Based on current price estimates, the company expects full-year operating cash flows in excess of $3.5 billion.

Third-quarter net income was $523 million, compared with $775 million for the third-quarter 2007.

Phoenix-based Freeport-McMoRan is an international mining company.

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