Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoran conference call where management will discuss revised operating plans in response to the COVID-19 pandemic and first quarter financial results. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question during the Q&A session, please press star 1 on your touchtone phone. If you require assistance during the conference, please press star zero. I would now like to turn the conference over to Ms. Kathleen Quirk, Executive Vice President and Chief Financial Officer. Please go ahead, ma'am.

Thank you. Good morning, everyone, and welcome to the Freeport-McMoran Conference Call. Earlier this morning, we reported our revised operating plans and our first quarter operating and financial results. A copy of today's press release and the presentation materials are available on our website at fcx.com. Our conference call today is being broadcast live on the Internet, and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the call. In addition to analysts and investors, the financial press has been invited to listen to today's call, and a replay of the webcast will be available on our website later today. Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include forward-looking statements, and actual results may differ materially. I'd like to refer everyone to the cautionary language included in our press release and presentation materials, and to the risk factors described in our 2019 Form 10-K. On the call today is Richard Atterson, our Chief Executive Officer. Red Conger is on, Mark Johnson is on from Indonesia. We've got a number of other of our senior executives on the phone as well and they'll be available to participate in our Q&A session. Our comments today in the prepared materials will be principally focused on our plans and our outlook and how we are addressing current market conditions. I'll briefly summarize our financial results for the first quarter and then turn the call over to Richard, who will be reviewing our revised plans. As usual, we'll open up the call for Q&A after our prepared remarks. We announced revised operating plans, as you've seen in the press release. We've had a series of cost reductions and capital expenditure reductions. We've also reduced our copper production volumes by 400 million pounds in response to market conditions in an effort to reduce our costs and capital expenditures. In terms of our first quarter results, we reported a net loss attributable to common stock of 491 million in the quarter. That was 34 cents a share, which included 256 million or 18 cents per share associated with inventory valuation adjustments and other items that are detailed in our press release attachment on Roman numeral six. Adjusted net loss attributable to common stock totaled 235 million or 16 cents per share in the first quarter. Our adjusted EBITDA, earnings before interest taxes and depreciation for the first quarter, totaled 189 million and we've included a reconciliation of our EBITDA calculation on page 43 of our slide materials. First quarter sales of copper and gold were slightly higher than our January 2020 estimates. We sold 729 million pounds of copper during the quarter and 144,000 ounces of gold. That mostly reflected higher production from PT Freeport, Indonesia, partially offset by lower sales volumes in the Americas. Our average realized price in the first quarter was $2.43 per pound. That was 16% lower than the year ago average price of $2.90 per pound. And the realized price for gold in the first quarter was just over $1,600 per ounce, which was 24% above the first quarter of the prior year. Our consolidated average unit net cash costs were also lower than our expectations. They averaged $1.90 per pound of copper in the first quarter, and the estimate going into the quarter was about $2 per pound. Capital expenditures for the quarter totaled $600 million. That included roughly $300 million for projects that were doing to increase production and reduce unit costs in Indonesia and also our Lone Star project in the US and Arizona. We ended the quarter with a cash balance of $1.6 billion and consolidated debt of $10 billion. We had no borrowings under our $3.5 billion revolving credit facility. and have significant liquidity as we manage volatility during 2020. I'd now like to turn the call over to Richard, who will be referring to our slide materials.

Good morning. Thank each of you for participating in today's call. I hope you and your families are well and staying safe during this very difficult time for everyone. Our Freeport family extends sympathy and support to all those that are impacted by the virus and also by the very significant economic hardship that has brought on so many people. We appreciate particularly the global healthcare providers, government authorities and others who are on the front lines working often at personal peril to protect our people and all people around the world. At Freeport, we are prioritizing the health and safety of our workers while we support the communities where we operate as we serve customers with the ongoing requirements of copper. Copper is an essential metal for the global economy even in today's world. The plan we're announcing today is a comprehensive response by our company following a carefully planned process to develop proactive actions first to safeguard our people and our business, and then to protect the value of our assets for the long term. Very proud of our Freeport team for the response they developed in a very short period during a time when the world faces this unprecedented pandemic crisis. Our team is responding the right way with the right attitude of commitment and cooperation. Our revised plan will target year-end financial liquidity that at current copper prices actually exceeds the liquidity that we had targeted in our annual plan announced just a quarter ago. That was when copper prices were more than 20% higher than today's price. What we had to do with this plan was offset the loss of approximately $1.7 billion of cash flow from lower prices. We've done this by reducing spending, revising mine plans, and taking a series of financial initiatives. Importantly, we have contingency plans to preserve our business if the copper price were to fall further. What this plan will do is carry us over to brighter days for our company. When production volumes increase substantially with the ramp up of our new underground mines in Indonesia, 2021, and as the world's economy recovers, whenever that might be. Our pre-pour team has done fabulous work by making tough decisions in developing the plan while we are protecting our workers, treating them fairly. I personally cannot thank our team enough for the work done in developing this plan. Look, we fully recognize the uncertainties we all face about the duration and extent of the pandemic and its impact on the global economies. Having said that, I'm confident the actions we are taking will allow Freeport to navigate this period of uncertainty and position our company for long-term success. Starting with slide three, I emphasize again that the health and well-being of our people is number one priority. As we protect our workers, We are addressing the current financial challenge using our experience and successfully responding to past financial crises. We have an existing playbook that we're following, but we're also taking into account current conditions and uncertainties. We are now undertaking aggressive, proactive actions focused on protecting liquidity by cutting costs, maximizing cash flows. The situation is dynamic and uncertain. We're prepared to do further adjustments to preserve liquidity and protect long-term values if we have to. Our company benefits in a major way from having extraordinarily long lives and durable reserves and resources. I'm confident that the actions we're announcing today and our preparation to respond further as required will make these assets even more valuable for shareholders in the future. Turning to slide four, we have implemented prudent health protocols in all of our locations to do what we can to avert a spread of coronavirus in our operations. We're monitoring and following all the guidelines of international health organizations and governments. The effort's being led by a dedicated team of medical advisors and providers. Our procedures are robust, forward-looking, proactive rather than reactive. Our international medical providers are administering testing, tracing, quarantine procedures on an ongoing basis. We've severely restricted and, in most cases, eliminated travel. Group meetings have been eliminated, working virtually. And all work that can be done remotely is being done remotely. In our operations, physical distancing and mining processing is being achieved. Ours is not like a factory where people are working totally together. Truck drivers, shovel operators, other operators can work with social distance. At the sites where we provide housing, meals, transportation, we are being diligent with sanitization, isolation of workers showing symptoms, and treating workers who have potential illness with state-of-the-art equipment and facilities. Our management of worker health to date has been very effective. We've experienced a limited, less than 50 confirmed cases to date across our global workforce, which approaches 70,000 workers. But knowing just how fast this virus can spread, we remain diligent, proactive in protecting our people. Slide five addresses our commitment to communities where we operate. This commitment is long-standing and unwavering. These communities are the homes for our workers and their families. They're essential to our long-term success. Across the globe, we're supporting communities during this time of great need. We're prioritizing critical needs caused by COVID-19, and we continue to work to community governments to . Slide six presents a global span of our workforce, including employees and contractors. Worldwide companies or countries are dealing with the pandemic in varying degrees. Our workforce is adhering to global health standards, focusing on their personal safety, and the well-being of those around them. Our global team of workers is critical to our company's success, and we fully recognize that. I personally appreciate the dedication, commitment, and cooperation during this challenging time. Slide seven, we note that copper is a metal strategic to the world, and its importance is growing. Report is a long-time leading supplier of copper to the global economy. We're working closely with customers to meet their needs in today's world, protecting our business so we can reliably serve customers in the future. Copper is essential to the global economy, not only in times when the economy is growing, but also in times like these, when health care, water and food supply, communications, and technology are critically important. telecommunications, digital technologies, and cloud applications have never been more important than in today's world, and copper is an essential element in meeting these requirements. On slide eight, I want to note, and many of you probably have seen, recent reports on the growing recognition of copper's antimicrobial properties. Copper can play a significant role in preventing transmission of viruses and bacteria. This has been known for a long time. Our industry has supported research efforts and education efforts for the public to understand the benefits of copper in fighting the spread of infections in normal times. The current pandemic is bringing to light what copper can achieve in improving public health. Studies have demonstrated that copper can destroy viruses like COVID-19. Copper's use in healthcare equipment and facilities and in public places will undoubtedly grow significantly when the cost of copper, which has been a barrier in the past, is measured by the enormous cost to society that is being brought on by this pandemic. Breeport will be at the forefront of leading the world to understand the benefits of greater uses of copper globally. To learn more about this, I'll refer you to the Copper Development Association's website, and you can read articles about it almost every day in the press. On slide nine, we talk about just how quickly the market conditions change. seems like a lifetime. When FCX reported this fourth quarter results, the global economy was showing clear signs of progress. The phase one deal with China was encouraging after trade issues had burdened copper prices for the previous 18 months. The copper price was then $2.85 a pound and poised and seemed poised to move higher. Now we have copper prices today about 50 cents a pound lower than in late January. And in recent times, we have seen copper trade down to near $2 a pound. Totally unexpected. At the same time, gold prices have risen dramatically. Gold is a benefit to our operations in Indonesia. Oil markets are in turmoil. Diesel fuel. Roughly 8% of operating costs has declined roughly by 50%. Dollar has strengthened and lowers our U.S. dollar costs for expenditures incurring local currencies. Many other input costs have dropped. The rapid change in markets required us to move quickly and aggressively to adjust our plans. Report's 2020 revenues were already abnormally low, because of the transition of Grasberg to underground mining. We completed mining the massive Grasberg high-volume open pit in December 2018. Today, PTFI is effectively managing the coronavirus health challenge. PTFI is progressing on schedule with the ramp-up of its massive underground mines. This has been the critical strategic initiative for our company for many years. Continued progress with this ramp up will place Freeport in a much stronger cash flow position, even if copper prices stay low in 2021 and beyond. The gold benefit of Grassberg's production is a major benefit, as I said. The gold component of Grassberg's production is a major benefit. It's what, together with good copper grades, make this one of the mining industry's most fabulous assets. Of course, gold is having its day in the sun. Copper's day will come. On slide 10, we talk about this transition at Grassford to move to underground mining and with the current ramp up. We've incorporated in our original plans, our budget going into 2020, prior to the current pandemic, a series of proactive steps to protect our balance sheet and liquidity. Over the past four years, we had cut what was then crippling debt levels in 2016 in half. During 2019, we extended our $3.5 billion in credit facility, currently undrawn, for our new five-year term extending to 2024. Kathleen and her team also worked with our banks to obtain amendments to our bank credit revolving covenants to give us flexibility during the Grasper ramp-up. In recent months, we've had two bond offerings raising a total of $2.5 billion in long-term notes at attractive rates, which we use to refinance debt maturities. Today, we have no significant near-term debt maturities. Slide 11. now addresses the aggressive actions we're now taking. Our team undertook a comprehensive and iterative process involving site management across the company. Red Conger and his team in Americas were facing the challenge this time around of not being supported by cash flows coming out of Indonesia. cash we're generating in Indonesia is going into continuing to develop the underground. So what they had to do for each operation, each individual mine, was develop a plan to maximize near-term cash flow at low prices while protecting long-term values. All the savings reflected in our new plans that we're reporting today are supported by detailed analysis. We left no stone unturned. This was not a top-down exercise. The objective was set at the top, but our operating teams developed these plans and now own them. They are committed to executing them, and our senior management team and our administrative organizations will support them. Everybody's on board. Our board of directors has deferred common stock dividends in 2020, prioritized liquidity. The Board will review dividend actions on a regular basis with a goal of restoring dividends when conditions improve. The chart on the right summarizes the combined impact of these actions. Based on our January plan at $2.85 copper, we would have ended the year with a consolidated cash position of $1 billion before returning to significant cash flow generation in 2021 with grass-roots ramp-up and beyond. Despite this 50 cents a pound current reduction in copper prices, our revised plans at 230 copper, plans we're announcing today, project $1.7 billion in cash at your end and increase in liquidity without raising new capital. This is a major accomplishment. Three or four weeks ago, we wouldn't have anticipated it. We have stress test our plans at lower prices to ensure we have a plan to bridge us through 2020, regardless of prices, and put us in a strong position as we enter 2021, when we will be adding large-scale, low-cost values for grassland. Significantly, we've reserved a plan to double EBITDA in 2021 from this year's levels without higher copper prices. illustrates the impact of this. Execution of these plans will set us up for significant improvements in 2021, apart from changes in prices, copper prices. Projecting a 26% increase in copper sales volumes in 2021, 75% increase in gold volumes. The outlook takes into account approximately 400 million pounds of America's production that we are idling in this plan and our projections include that remaining island in 2021 which will adjust it if conditions improve our unit cost projected to decline 2021 either die with double 2020 levels of 230 copper and 1600 gold cash flow benefit from potential a high higher gold price is noted as well many expect as well as the potential for a return of copper prices to the levels we saw earlier this year. Looking at slide 13, we note that our management team has had extensive experience in managing tough market environments. Leadership teams across the company are seasoned, they've been effective and successful in past downturns. If prices is different, But in each of our past experiences, Freeport has come out stronger. We have a management structure and a team that is collaborative, experienced, and decisive. Never cut corners on important issues involving worker safety or environmental obligations. We keep a long-term focus on our license to operate around the world that we worked so hard to earn. We adjust to market conditions quickly, develop contingency plans for further actions as required, do this on a site-by-site basis. Our plans safeguard and protect long-term values. This is a real hallmark of this Freeport organization. Highlighted on the slide are actions we took in 2008-2009 crisis. 2014 and reached critically low levels in 2015 and 2016 when our company was heavily burdened by debt from our discontinued oil and gas business. Note where share prices were for FCX during each of these crises and the improvement within two years that followed. We're all committed to successful execution of these plans. We're all intensely focused on restoring value in our shares. Now I want to provide you a brief update of our operations and projects. Slide 14 addresses Cerro Verde. As reported previously, the Peruvian government declared a national emergency which was just extended to May 10th. This government order affects Cerro Verde and other mines in Peru. Our Cerro Verde team is doing great work in managing smaller scale operations during this period while we protect the health of a much reduced workforce and as we work with the government to explain our health protocols so that we can position Saraverde for a restart to normal operations. Saraverde has been operating in excess of design capacity for several quarters, achieved a mill throughput of over 400,000 metric tons per day leading up to March 16th. We're currently operating about a third of this level. Our plans are developing on ramping up Cerro Verde late in the second quarter and returning to higher production levels in the second half. Returning Cerro Verde to normal production is important to the government of Peru and the community of Arequipa. Cerro Verde has been a large contributor to the national local economy, one of the largest employers in the region. Slide 15 covers our new mine that we're developing in eastern Arizona adjacent to our Safford mine very close to Marinci. It's called Lone Star. We're nearly in completion of this new mine, and we will commence production in the coming months. The project is 90% complete. Capital is largely behind us. We're advancing on schedule with pre-stripping, which we expect to complete in the third quarter. We've started to ramp up placement of ore on newly constructed leach pad at the nearby Safford operation. Project is forecast to add 200 million pounds of copper per year, initially with opportunities to increase production over time with low capital intensity. While we have great expansion opportunities at Lone Star, We are deferring those until market conditions warrant. We remain excited about the long-term opportunity for Lone Star. We believe it will be a significant future cornerstone asset for Freeport in the United States. At Grassburg, very pleased to report that our Grassburg Underground ramp-up is proceeding on schedule. Cave propagation for the Raspberry Block Cave and the DeepMLZ, mine continue to go well. We have achieved important milestones to establish large-scale production from these high-grade, low-cost oil bodies. Been consistently meeting our exceeding key performance indicators. I congratulate Mark Johnson and our PTF team for its Noteworthy performance in advancing this massive undertaking in such an effective manner. During the first quarter, production from the Grassberg Block Cave and Deep MLZ together averaged over 37,000 tons per day, slightly in excess of our forecast at the beginning of the year, and over 44% higher than prior quarter rates. By the end of the first quarter, we were producing at a combined rate of over 40,000 metric tons per day, Rates will be increasing continually as we go forward. We've added almost 50 new drawbells at the two mines during the quarter, compared with 34 in the fourth quarter. We now have 250 open drawbells, which are the rock funnels that allow us to gain scale in ore production. These are high-grade, large copper and gold ore bites. It's noteworthy that the first quarter mill weight throughput was only about a half of last year's first quarter. Yet PTFI's quarterly metal production was similar to last year's first quarter. This demonstrates that these underground ore bodies can produce at scale because of their grades. At full rates, the production of these two ore bodies is projected to average over 1.3 billion pounds of copper, 1.3 million ounces of gold per year. In the earlier years, we'll have higher grades, and that'll yield higher metal production. Average net unit costs are expected to average less than 20 cents a pound in the first five years at full production rates. 20 cents a pound, that's notable and rare for large-scale operations in the global copper industry. The entire PTFE team deserves compliments for their extraordinary performance. in managing the health situation while continuing to educate on this major project. We have a workforce of about 30,000 people. A large portion of that work in the Highlands where they live in dorms and eat in mess halls. Our team is supported by world-class medical providers. They've been proactive with a series of actions to help us prevent any major outbreak at this remote location. Our testing and screening activities in one of the most remote places in the world are much more advanced than much of what we're seeing today in communities in the United States. Our PTFI development operating team is supported by FCX's global world-class technical organization. PTFI Indonesia is benefiting now from its ownership that was put in place in late 2018, where now we have a 51% shareholder that's a state-owned company named MindID. And now we have a much more positive relationship with the government of Indonesia after our December 2018 IUPG permit. Unlike years past, now all stakeholder interest in our business in Indonesia are aligned. Slide 17 talks about the smelter that we committed to construct as part of the IUPK. We're facing delays with this project. It's located far from our operations in Papua in a densely populated area of eastern Java. We have notified the government of delays because of worker restrictions and supply chain issues. and we're in discussions to extend the December 2023 project deadline. We're also reviewing with the government other issues related to the smelter that might be mutually beneficial to PTFE and the government. We do not expect to incur capital expenditures of significance in 2020 on the smelter as a result of the delays that we're experiencing. Slide 18, looks at copper markets. Copper prices have dropped from weaker demand from the declining GDP, of course. On the other hand, supplies of coppers have been impacted by the pandemic. Copper mines and development projects are being curtailed or canceled. The scrap market, which provides a large part of refined copper to the market, currently very weak. We're encouraged by data now coming out of China indicating an emerging recovery. There's strong likelihood around the world that ongoing stimulus actions will help economies recover. Despite the near-term uncertainties, we're not trying to base our business on ours or anybody else's ability to predict these near-term situations, the long-term outlook for copper remains highly positive and in some ways being supported by the supply curtailments we're now seeing. Copper is strongly supported by fundamentals, has an essential role in the overall global economy, a major element in efforts to reduce carbon in the world, and The world is increasingly turning to electronics in so many respects, extended from electric vehicles, charging stations, but also 5G and other technical factors are going to require more electronics in the world. Supplies of copper continue to be limited. No one can predict with confidence when economies will recover. Copper is a highly attractive commodity in its position to move substantially higher as economic conditions improve. Freeport will be a major beneficiary of this movement. I've included slide 19 as an infographic developed by the Copper Development Associations, which I thought does a great job job of illustrating broad ranges of uses of copper in the economy. I'll just refer it to you and ask you to take a look at it when you have a moment to consider it. By 20, we present our reserve and resource position. We have long-lived and valuable resources that will be available for all organic growth development for decades to come. volumes we've elected to curtail the current market will be more valuable in the future as economic conditions improve. Before turning to Kathleen to review the financial outlook in more detail, I want to close with the following. Freeport is foremost in copper. Looking beyond the current troubled conditions, Copper is widely considered the best positioned major commodity for our supply from a supply-demand standpoint. Freeport's portfolio of copper assets are large and high quality. We're an established industry leader. We operate the mines that we have interest in, which are among the largest in the world. And by operating all of our assets, it provides us valuable synergies and flexibility across the portfolio deal with times like these and to take advantages of the brighter days to come. Our assets are long-lived, durable, with embedded options for reserve and resource growth. Strong franchises in the United States, South America, and Indonesia. Near-term report is an advanced stage for a major increase in margin and cash flows beginning in 2021. Apart from copper price movements, and extended for 20 years and further. We have industry-leading technical capabilities through strong track record of execution over many years. We've learned the trust and respect of our partners, our customers, our suppliers, financial markets, and most importantly, our workers, communities, and host countries where we operate. Our block caving experience is one of the most extensive and long-standing in the history of the global mining industry. We've been operating block caves in Indonesia since the early 1980s, and we have an important Elizabethan block cave operation in Colorado. This is a critically important factor as we transition grass butter to the largest block caving operation in the world. Our experienced and battle-tested management team has demonstrated the capabilities to perform in good times and bad. We are confident of our ability to, quote, prove our mettle as we've done in the past. Slide 22, I'm going to close by talking about our people. Again, I want to recognize the strength and resiliency of the entire Freeport family and who inspire me every day. I'm proud to be part of this team. We're all motivated and committed to persevere and achieve success for all of our stakeholders. Kathleen, I'll let you take over.