Freeport-McMoRan, the world's largest publicly traded copper producer, said on Thursday it expects a slower-than-anticipated recovery at its flagship Grasberg mine in Indonesia after a fatal flood last year disrupted operations, sending its shares down more than 8%.

The Phoenix-based company now expects only about 65% of production at Grasberg, the world's second-largest copper mine and largest gold mine, to be restored by the second half of the year, down from a previous forecast of 85%.

The delay was announced amid a global surge in copper demand due to growth in the artificial intelligence and power generation industries, meaning that Freeport is not fully able to meet that need.

Copper, one of the best electricity-conducting metals, is used worldwide in motors, computers, batteries and wiring.

PRODUCTION RECOVERY DELAY
The Grasberg delay is tied to changes the company is making to equipment that helps in the loading of ore onto trains.

The underground mine's ore had grown unexpectedly wetter due to groundwater since it was idled in September, requiring the installation of "spillminators," specialised mining chutes designed by South Africa's CAN Engineering Worx that can help defend against mud rushes.

"We understand the engineered solution to this issue, but it will take time to make modifications," said Freeport CEO Kathleen Quirk, who added that the issue arose in recent weeks. "We're confident in the ability to restore large-scale production safely."

Freeport also said it had delayed by about 18 months a plan to convert Grasberg's power source from coal to natural gas due to the accident.

It now expects the mine to produce 800-million pounds of copper and 700 000 oz of gold this year, down from an earlier estimate of 1.1-billion pounds of copper and about 800 000 oz of gold.

Jefferies analyst Chris LaFemina said that while Freeport is confident it can address the restart challenges, "the market will question the guidance and is now unlikely to give Freeport the benefit of the doubt on the planned ramp."

RISING COSTS, HIGHER ADJUSTED PROFIT
Freeport does not have concerns about its access to sulfuric acid - used to make refined copper - amidst supply crunches tied to the war in the Middle East because it makes the chemical at its smelters and sells it to markets in Europe and Asia.

Quirk said, however, that if the Middle East conflict drags into 2027, "we'll have to look at what it means" for the company's sulfuric acid supplies.

Freeport said rising diesel prices have increased its annual costs by $500-million.

The company's copper production fell 23.7% to 662-million recoverable pounds in the first quarter, while gold production was down 66.2% at 97,000 recoverable ounces.

Average copper prices rose 36.7% during the January-March quarter, supported by supply constraints, low inventories and robust demand. That price jump helped Freeport offset the hit from lower volumes.

The company reported an adjusted profit of 57 cents per share for the three months ended March 31, compared with analysts' average estimate of 46 cents, according to data compiled by LSEG.