Freeport-McMoRan Copper & Gold CEO Richard Adkerson gave perhaps what was one of the most frank talks among a sea of promotional presentations aimed at the BMO Global Metals & Mining Conference Monday.
I wish I could tell you a better story, Adkerson told the mining executives, metals analysts, and institutional investors attending the conference.
As he put up a graphic illustrating the steep drop in the copper market, Adkerson remarked, One hell of a slide isn't it? He noted that copper prices were at only 75-cents per pound five years ago, and then copper went up significantly with prices that stayed strong.
Now with the global economic downturn, they've (copper prices) come off a cliff.
Meanwhile, Freeport's molybdenum assets also jumped off that cliff as the bottom dropped out of significant global economies.
Nevertheless, Adkerson insisted, the underlying fundamentals of the copper business remain positive. Because of financing restraints and lack of new mega-copper reserves, the supply of new copper projects is limited. Sixty percent of existing copper mines will either be depleted or will go underground by 2021.
As molybdenum has declined, consumers and traders have destocked their supplies as mines have dramatically cut back production or simply idled. Adkerson suggested the low moly supply levels should lead to a quick response by producers when demand returns.
Adkerson said Freeport will continue to reduce its copper production by 9% this year and 17% in 2010. Moly production will be cut 25% this year and 40% in 2010.
As the majority of copper and moly producers slash their capital expenditure budgets, it points to a very bright future for us, he asserted. Our assets in the long run will be very valuable and very valuable for our shareholders.
Meanwhile, Thank God we have Grasberg, Adkerson declared, with 40 million ounces of gold reserves that will enable the copper and moly company to survive these current tough times. Freeport is also busy ensuring that it will own all its own assets as they become more valuable when the economies of the U.S., Japan and Europe return to functionality and start using copper.
The real key to the market place in the near term is what's going on in China, he advised.