When Freeport McMoRan Copper & Gold's revenues fell by half within weeks in late 2008, it was do or die. To preserve liquidity, the company slashed its workforce and capital spending and eliminated its dividend. It still saw cash fall to less than $1 billion. Since then, the mining company has reinstated its dividend, now larger than it was prior to the financial crisis, rehired most of its workforce and grown its cash to nearly $5 billion. Freeport also ramped up operations idled during the downturn and set in motion a $6 billion investment plan to increase its copper production 25% over the next few years.
Kathleen Quirk, who was appointed CFO in 2003 and retained the position through the company's 2007 merger with Phelps Dodge, discusses how the financial crisis affected the company's approach to decision making.
T&R: Does the di
verse team of executives you organized to determine steps to maintain liquidity and future operational viability during the crisis remain active?
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Quirk: It's got different projects now. Our revenues have gone up, but we've also had some commodity-cost inflation on our input costs. So we're working as best we can to preserve the cost savings programs we put in place at that time.
T&R: For example?
Quirk: As we're staging these operational ramp-ups, back to where we were before the crisis, we're seeking to do it in a measured fashion. For example, we are purchasing some equipment, but we're also determining whether certain operations use equipment that can be shared across other operations over time, to gain synergies. Our seven mines in North America, for example, can share equipment with operations in South America. We're also trying to do that with materials and supplies.
Before the crisis, the whole industry was operating with the pedal to the metal. When you ramp up in a planned fashion, there are savings to be achieved.
T&R: How does the finance department fit in?
Quirk: The finance function had to work closely with operations to help make decisions that would help us in the short term and not impact long-term prospects for the business. I think the role is much more partnering with operations management to really understand their businesses and the future values available for our shareholders, so we make the right decisions during all parts of market cycles.
T&R: Was that approach in place before the crisis?
Quirk: We were a year and a half into our merger [with Phelps Dodge]. As an organization, we became much stronger working through that, looking at how decisions were made and how they set the company up for the future. When the crisis happened, the organization hadn't been tested in a situation exactly like that one, but it worked out very well.
T&R: Where does Freeport McMoRan now see the greatest risks and rewards?
Quirk: China is an important factor in our market. It's a risk for us but also an opportunity. There are other developing markets that are growing their copper consumption, and the economies of the U.S. and Europe, which have been weak, at some point will turn around. So there are risks and opportunities, and that's part of what our business is, and it's why we try to maintain as low a cost position as we can and a strong balance sheet, so we can deal with volatility and also have the ability take advantage of improving market conditions.
Read Kathleen Quirk's profile as one of Treasury & Risk's 2011 CFOs to Watch here.
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