Freeport’s Grasberg go-go days back as gold, copper prices rally

Tunnel vision. Image: PT-FI.

Phoenix-based Freeport McMoRan’s (NYSE:FCX) iconic Grasberg mine in the Papua province of Indonesia will become an entirely underground operation in a little over a year – nearly doubling copper and gold output in the process.

Freeport Indonesia (PT-FI) expects this year’s copper and gold sales to be lower than usual at 0.77 billion pounds (350kt) and 820,000 ounces, CEO Tony Wenas told investors last week,  but said that figure will jump to 1.4 billion pounds (635kt) and 1.4 million ounces next year.

“As gold prices approximate $1,800 an ounce, revenues from gold are projected to completely offset the total cost of production at Grasberg”

Richard Adkerson, Freeport CEO

At full tilt in 2022, the Grasberg complex will produce 1.55 billion pounds (703kt) of copper and 1.6 million ounces of gold per year, which at today’s prices are worth $7.9 billion.

Freeport CEO Richard Adkerson pointed out during the company’s Q2  conference call that at full production, Grasberg is the globe’s largest gold mine, even though the gold is a byproduct: 

“The high grades of copper combined with this gold component make Grasberg one of the mining industry’s truly most valuable fabulous assets in its history.

“As gold prices approximate $1,800 an ounce, revenues from gold are projected to completely offset the total cost of production at Grasberg.”

With gold predicted to scale $2,000 again (futures advanced to $1,975 on Thursday) in the not too distant future and silver credits at the mine also growing nicely, Adkerson’s praise of Grasberg may turn out not to be all that fulsome.

Copper’s 50% rally since March to top $3.00 a pound coupled with gold’s record-breaking run has seen Freeport’s stock triple in just six months for a market value of $23.4 billion.

Plenty P&P

Mined since the 1967 by Freeport, during its heyday in the early 2000s the complex located in the remote Sudiman mountains, hit peak production of 3.5 million ounces of gold and 1.9 billion pounds of copper (861kt). 

Discovered in 1938 by a Dutch geologist, the Ertsberg (ore mountain) skarn and porphyry systems are still being exploited today as part of the DMLZ underground mine and are expected to produce through 2041.

Grasberg’s proven and probable reserves estimate at its four producing mines and one undeveloped mine at end-2019 was pegged at 46.4 million ounces of gold, 18.9 million tonnes of copper, and 291 million ounces of silver.

At ruling prices, the in-situ value of the contained metals tallies up to $228 billion, second only to Escondida in Chile.      

After years of wrangling, majority ownership of Grasberg was transferred to the Indonesian government at the end of 2018, reducing Freeport’s stake to just shy of 49%. 

Under the deal, Freeport’s economic interest in its Indonesian operations is pegged at 81.3% through 2022. Mining rights are extended to 2041, subject to Freeport building a new smelter in the Asian nation.