Grasberg Mines Will Buoy Freeport’s Gold Sales
Freeport McMoran Copper’s (NYSE:FCX) has seen a seen some volatility in its gold sales over the past few years. Its sales decreased from 2.32 million ounces in 2007 to 1.31 million ounces in 2008 due to mining in the lower grade section of the Grasberg open pit. Then sales rose again in 2009 to a high of 2.64 million with accelerated mining in higher grade sections of the Grasberg mines. Freeport competes with Southern Copper (NYSE:PCU), Codelco, Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM).
Due to a “geotechnical issue” experienced at the mine last year, the company lowered its 2011 sales guidance from 1.9 million to 1.5 million ounces. [1] However, last quarter it raised its estimates for 2011 to 1.6 million ounces as it has been able to access higher grade ore at its Grasberg mine more quickly. [2]
We expect that a good amount of reserves at the Grasberg mine will help keep Freeport’s gold sales elevated. While we estimate that gold sales will rise to 2.5 million ounces by the end of our forecast period, Trefis members predict a higher level of sales reaching 2.75 million ounces. The member estimates imply slight upside to our $55.58 price estimate for FCX stock and a total potential upside of around 12%.
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Strong Gold Reserves to Support Production
We currently estimate that gold accounts for around 20% of Freeport’s stock value. Gold will become a bigger source of value for Freeport in the years to come primarily because of the company’s Indonesian mine that boasts the largest single recoverable reserves of gold compared to any other mine in the world. Almost 90% of the total gold sold by Freeport comes from the Grasberg mines in Indonesia. This mine had proven reserves of 33.7 million ounces in 2010 – enough to sustain Freeport’s production at current levels for at least 12 more years. (See How Much Glitter Does Gold Add to Freeport’s Stock?)
Our complete analysis for Freeport McMoran Copper’s stock is here.
Notes:- Freeport cuts 2011 gold sales estimate by 20 pct, Reuters, July 10, 2010 [↩]
- Freeport Raises 2011 Gold Sales Outlook, Fox News, April 20, 2011 [↩]