Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) said on Wednesday that it will reduce 2009 copper production by approx 200 million pounds and slash 2010 production by approx 500 million pounds from October 2008 estimates.

The company attributed the decision to "the recent sharp decline in copper and molybdenum prices."

In a statement Chief Executive Officer Richard Adkerson said "we are responding aggressively to the current market conditions, which have weakened dramatically in recent weeks. He added that the “severity of the decline in prices” will limit the company’s ability to invest in growth projects.

"These revisions to our plans will allow us to reduce operating costs and capital spending, adjust our production profile to better match market requirements and preserve our valuable resources for anticipated improved market conditions." Atkerson said further.

The company, which is one of the world's largest producers of gold, will also suspend dividend payments.

"The suspension of our dividend reflects the sharp and rapid decline in copper and molybdenum prices, the dislocation of capital markets and the uncertain economic outlook," Richard Adkerson said in a statement. The company said that the suspension of the annual dividend of $2 per share will save the company about $755 million on an annual basis.

The company is also mulling to cut its 2009 capital expenditure budget more than 50% to $1.1 billion from an earlier estimate of $2.3 billion.

Phoenix, Arizona-based miner said it would delay expansions at the copper mines in Arizona and defer the restart of its Miami mine in the state, cutting about $370 million in planned capital costs.

It said that, when using a copper price of $1.75 per pound, a molybdenum price of $10 per pound and current estimates of costs to convert to finished goods, an additional charge of approximately $665 million would be recorded in the fourth quarter.

In November, the company had said that it would be reducing the headcount by more than 600 jobs at its U.S. mining operations to lower costs. It has also suspended share buybacks.

Mining companies like Freeport-McMoRan Copper & Gold Inc. are facing the heat as the demand for commodities has slumped in last few months in response to recessionary conditions in major consumer countries. A report by NBER on Monday showed US entered recession way back in December 2007. Germany, Japan, Eurozone, Hong Kong, Spain and Italy too have slipped into recession while Chinese demand has been showing signs of moderation. A prolonged housing slump and trouble in auto industry in US has made matters worse for a metal like copper, which is used extensively in the sector. Copper prices have declined from about $3.61 per ton at the end of September to an average of $1.69 last month Even Gold has fallen substantially from its peak. The company in its statement illustrated that the price of molybdenum, a byproduct of copper mining used to harden steel, has undergone a “sudden and sharp” fall to $9 a pound from the $33 a pound average in the first nine months, Freeport said.

Shares of Freeport-McMoRan Copper & Gold Inc. plunged $4.41 or 20.21% to $17.41 in early trade on Wednesday.

Disclosure: Author does not own any of the stocks discussed here.