Freeport CEO: Copper's Scarcity Drives Prices Higher

NEW YORK, Nov 16, 2011 (Dow Jones) -- Copper's scarcity leaves Freeport McMoRan Copper & Gold Inc. (FCX) well positioned to take advantage of higher prices by expanding existing mines, said Chief Executive Richard Adkerson.

Adkerson was speaking at the Dahlman Rose Global Mining, Metals and Materials conference in New York.

Copper has become increasingly scarce over the past decade, which has limited copper-mining companies' ability to boost supply as prices rise.

The limited number of new mines and the long time it takes to bring on new production is "striking," Adkerson said.

Copper prices continue to trade well above the cost of production despite ongoing problems in Europe and now questions about demand in China, the world's top copper consumer, Adkerson said. The copper market's strong performance comes from producers' inability to ramp up production enough to bring prices down.

Moreover, while copper has been losing market share to plastics in plumbing applications and to aluminum in heat transfer applications like air conditioning, it remains the go-to material for electrical and electronic uses. "Motors and electronics are everywhere we look," Adkerson said, adding "copper is tough to replace for its basic uses."

Freeport is well positioned to take advantage of this market environment as the company's growth is dependent on expanding and developing the company's existing resources rather than new mines. Building new mines "in today's world that's a difficult proposition wherever you are," Adkerson said. Freeport is spending $2 billion on resource exploration, "almost all of it on what you'd call brown field exploration," Adkerson said, adding "we do have some green field exploration but we're not counting on them."

The company is facing a wage dispute at its Grasberg copper and gold mine, the third largest copper mine in the world, in Indonesia. Production at the Grasberg mine stalled in late October and negotiations have been slow. Adkerson characterized Grasberg worker wage demands as "excessive."

He said haul truck drivers at the mine earned around $20,000 a year in addition to housing expenses and food, and the company had offered a 35% increase.

"We want to be fair and generous ... (But) they are asking for multiples of that ... I just don't know where those numbers are coming from," Adkerson said.