Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoran second quarter conference call. 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, press star 1 on your touchtone phone. If you require assistance during the conference, please press star 0. 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, and good morning, everyone. Welcome to our conference call. Earlier this morning, we reported our second quarter 2020 operating and financial results, and a copy of the press release and slides 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 conference 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. We'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 and our quarterly report on Form 10-Q, each filed with the SEC as updated by FCX's subsequent filings with the SEC. On the call today is Richard Atchison, Vice Chairman and Chief Executive Officer. Red Conger is on the call, as well as Mark Johnson, Steve Higgins, Rick Coleman, and Mike Kendrick. I'll start by briefly summarizing the financial results and then turn the call over to Richard, who will be going through the presentation materials. As usual, after our prepared remarks, we'll open the call up for questions. Today, FCX reported net income attributable to common stock of $53 million, or three cents per share, in the second quarter of 2020. The results included net credits of $9 million or roughly one cent per share, primarily associated with favorable metals inventory adjustments and an income tax credit. And those were mostly offset by COVID-19 related costs and employee separation programs. Adjusted net income after these special items totaled 44 million or three cents per share in the second quarter. Our adjusted earnings before interest taxes and depreciation for the second quarter totaled 754 million. That was above our July 6th estimate of approximately 650 million, primarily reflecting slightly higher sales volumes in the quarter and lower costs than our prior estimates. A reconciliation of our EBITDA is available on slide 38 of our slide deck. Copper sales during the second quarter were 759 million pounds, that was about 10% higher than our April 2020 estimate, and that reflected better than anticipated production rates in Indonesia and North America and the timing of shipments from Saraverde. Our second quarter gold sales of 184,000 ounces were 12% higher than our April 2020 estimate, reflecting a strong performance in Indonesia. The average realized copper price during the quarter for copper was $2.55 per pound. That was below the year-ago quarterly average of $2.75 per pound. And gold realized prices averaged $17.49 per ounce during the second quarter above last year's second quarter of $13.51 per ounce. Consolidated average unit net cash costs averaged $1.47 per pound in the second quarter of 2020. that was lower than the year-ago quarter and also lower than our April 2020 estimate of $1.63 per pound, reflecting the higher copper and gold sales volumes and strong execution of our cost reduction initiatives. We generated strong cash flows during the quarter, totaling $491 million in cash flows from operations, and funded capital expenditures, totaling $527 million during the period. We ended the quarter with consolidated debt totaling $9.9 billion and consolidated cash totaled $1.5 billion, with strong liquidity and no borrowings under our $3.5 billion revolving credit facility. Now I'd like to turn the call over to Richard, who will be referring to our slide presentation materials. Richard, please go ahead.

Okay, thank you Kathleen and good morning to each of you and we appreciate your participating in our call today. Hope you and your families are staying well and safe. This has been a very trying time over the past four months. Work has been intense. Life is challenging. I'm pleased that our team has shown the discipline to persevere. We face lots of problems, but I want to say that this quarterly report, as we previewed earlier, is really a good news for our Freeport team and the great work we've been doing. We'll refer to the slides and go into slide three. At Freeport, we are, of course, continuing to prioritize the health and safety of our workers, and we're also working hard to support the communities where we operate as we serve our customers with their ongoing requirements for copper. In late April, we laid out a comprehensive plan to share with our stakeholders at that time to describe how we were going to manage the COVID-19 health and economic issues, keep our people safe, and how we were going to safeguard our business to protect the value of our assets for what we are convinced will be a really positive long-term future. Since that time, over the past three months, I've been extremely proud of our Freeport team for the way they responded to this plan and this crisis in a very short period, making tough decisions during the height of this unprecedented crisis, and more importantly, how our team is executing on these plans safely with a spirit of commitment and cooperation. We have Had a real sense of urgency in implementing these plans. We moved very quickly to reduce costs and capital spending. And you can see this in our second quarter results in our annual guidance that we're providing today. Our management of worker health care to date has been effective. Pleased that in addition to manage these health issues, our team has also achieved strong safety performance during the quarter and That's particularly gratifying because of our concerns that people might be distracted, but that's not been the case. We have been able to produce safely our products using strict operating protocols, distancing, enhancing protective equipment for our workers, sanitation, and particularly significant investments in testing and tracing isolated, infected people and treating those that are sick. We've actually had only a handful of people to be seriously sick and the vast majority of the people that have encountered the disease today have recovered. Many have not had no symptoms, but that's not deterred us from going forward with this program to protect their safety. Our workforce is adhering to global health standards. We're making sure everyone focuses on their own personal safety and the well-being of people around them. We are continuing and enhancing and responding to these protocols as we go forward. Our global team of workers is, of course, critical to our company's success, and we recognize that and personally appreciate the dedication, commitment, and their cooperation during this challenging time. Other than government imposed restrictions in Cerro Verde, there have only been very limited impacts from the pandemic at our operating sites. But knowing just how fast this virus can spread, we remain diligent and steadfast in protecting people. As I said, in April, we laid out our plans to address our business and boost liquidity in what was then a very weak and volatile market environment. As a reminder, we laid out our plan to reduce cost and capital spending in 2020 by over $2 billion through the reduction of about 15% of our planned copper production, totaling about 400 million pounds, and aggressive management of all costs, including GNA and exploration. Our execution of these plans has been very effective. You see that in our second quarter results. which are better than the revised forecast. Our sales volume exceeded our April guidance by 10% for copper, 12% by gold. All achieved very safely in the face of this global crisis. Our team maintained focus, drive, and came together to meet the challenges as we've done in the past at Freeport. Copper prices have improved dramatically during the quarter. Our plan was based In April, on a $2.30 per pound copper price, and we had contingencies for much lower prices. Even though prices are higher, we are staying the course, remain disciplined in executing our cost containment plans. We're convinced this is prudent in light of the uncertainties and dynamic nature of the ongoing pandemic. We're not letting down our guard at all or taking any victory lapses. We're more focused than ever as an organization to drive long-term values that we see in our assets. In a few seconds, I'll be reporting more in detail on the progress our team has made at Grassburg. The team there continues to shine in its operations, and it's really key to our long-term strategy. We are on schedule in ramping up to deliver large, low-cost, sustainable production volume of copper and gold for years to come. The team has consistently been meeting or beating forecasts. That's been our situation for several quarters now, and I'm pleased to report that we're on track with our ramp-up plan. And I also want to especially acknowledge the Cerro Verde team for their exceptional work during this quarter to restore operations at our site near Arequipa in Peru. We've worked very closely with the Peruvian government and local authorities. We developed a safe plan for return to operations at Cerro Verde. By June, we were operating at 80% of our 2019 rates. We're continuing to increase productivity with protocols that protect workers in the communities surrounding Arequipa. The Lone Star project in eastern Arizona advanced during the quarter on schedule and that is now being commissioned. We also continue to build flexibility in our balance sheet through extending maturities at attractive rates. We're working with our bank group to provide enhanced downside protection to maintain liquidity through our bank credit facility. All of this has effectively safeguarded our business allowed us to navigate this period of uncertainty and retain the massive upside we see in our asset that is now increasingly close to being in front of us. Our company benefits from a major way from having an extraordinary long life and durable reserve base and resource base, premier position in copper, which has a compelling long-term outlook, and significant exposure to gold markets. I'm confident that continued strong execution will make these assets even more valuable to our shareholders in the future. Now, turning to slide four, we talk about our commitment to our communities. This has been longstanding, unwavering. Communities are home for our workers and their families. They're essential to our long-term success. Across the gold, we've supported communities during this time with much-needed medical supplies, food, monetary support in many respects. Dealing with COVID is bringing us closer to communities, bringing us closer to communities where we operate to fight a common foe. Our people are stepping up to help communities to meet these growing needs. And as a company, we're continuing to find ways to make a difference. On slide five, we talk about our commitment to all stakeholders. uh our focus is on our shareholders of course but equally on our workers communities and environment that and this has been embedded in freeport's culture for many years we cannot be successful in generating long-term value for shareholders unless we address sustainability issues appropriately effective we learned that many years ago while this Commitment is being highlighted through our actions in response to the COVID pandemic. In our recent support, published annual report on sustainability, which you can find on our website, summarizes all of our programs in this important area. I'm pleased to note we've recently published our first climate report, which details our efforts to date and our plans to address climate-related risk and opportunities to go forward And, of course, copper is going to play a key role broadly in dealing with carbon reduction as the world focuses more on climate issues. As I mentioned and as shown on slide six, copper prices have recovered sharply from the lows in March. We're now back to the point where they were earlier in the year at the height of the crisis. Speaking candidly, this recovery is became sooner and stronger than we and others anticipated, similarly to what we saw in 2009-2010. China's economy is recovering strongly and steadily from the first quarter low, being led by its industrial sector, infrastructure spending, and the government's actions to stimulate the Chinese economy. Around the world, ongoing monetary and physical stimulus is helping offset the the negative economic downturn from COVID. We're beginning to see a restart in the global economies. We're also seeing some positive signs as businesses reopen in the Western world, particularly with automobile production beginning to improve. Supplies of copper during this COVID pandemic have been affected. Both mine supply and scrap availability are lower. Notably, inventories have remained low and have actually moved even lower in recent months. Now, this is very notable because it's not typical of past commodity downturns. Typically, in downturns, inventories rise and then have to be worked off when recovery occurs. Currently, low inventories are a good omen for copper as it positions the metal for our material gains as economic activity rebounds. Now, having said this, we report a cognizant of the risk of current uncertainties. We will continue to operate our business prudently until there is clarity. As economies around the world recover and improve, copper will be a major benefit, and prices are still well below what is needed to incentivize investments in new projects which results in a tight market as we go forward. Slide seven, we show how to become clearly and more widely acknowledged that copper's importance in the global economy will be key to achieving decarbonization initiatives that will require greater intensity for the use of copper. Copper is strongly supported by fundamentals as an essential metal in the overall global economy. And as the economy recovers and the world grows, more copper will be needed. But momentum is growing in efforts to reduce carbon around the world. I'm personally convinced this is going to be a mandate for all companies and governments, a mandate by people as we go forward. From electric vehicles and charging stations to 5G and other technical applications, all of this is driven by electronics. and electronics require copper. Copper is essentially not only in times when the economy is growing, but also times like these, when healthcare, water and food supply, communication and technology are critically important. Telecommunications, digital technologies, cloud applications have never been more important than in today's world. The current pandemic is bringing to light what copper can achieve, improving what copper can achieve in improving global health. Studies have demonstrated that copper can destroy viruses like COVID-19. Use in healthcare equipment, facilities, public places will undoubtedly grow significantly. Our company Freeport is foremost in copper. Copper is widely considered the best positioned major commodity from a supply-demand standpoint, and Freeport will be a major beneficiary of these trends. Now, beginning on slide eight, I'll give you a brief update on our operations and projects. At Cerro Verde, its production was impacted during the quarter by the government order which restricted operating rates for Cerro Verde and other mines in Peru. Our Cerro Verde team is doing terrific work in working with the government and our workforce in implementing protocols to demonstrate to the government and our workers that we can operate safely. During the quarter, we managed to increase rates from about a third of capacity to about 80% of 2019 levels. Our current plans assume we operate at about 350,000 tons per day through the mill for the balance of the year. We will continuously monitor conditions in the region and work to increase rates over time. We have demonstrated in the past that the modern concentrator complex at Cerro Verde, the largest in the world copper industry, can produce at rates over 400,000 metric tons per day. Cerro Verde has been a large contributor to the local economy, one of the largest employers in the region, has a bright long-term future. Cerro Verde is simply a great long-term asset for Freeport. Now for the good stuff. At Gratsburg, I'm very pleased to report of the positive progress on our underground ramp up. For several quarters now, our team has consistently been meeting or beating expectations. And this quarter's progress is particularly noteworthy in light of doing this with having to manage the impact of the pandemic. Combined production from our two major mines, the Grassberg Block Cave and the Deep MLZ mine, averaged nearly 55,000 tons of ore per day. This is ahead of our forecast and almost 50% above the first quarter of this year. By the end of the quarter, we were producing 70,000 tons of ore per day containing high grades of copper and gold and we expect to exit 2020 at 95,000 tons per day. We added 46 new drawbells during the quarter. These are the rock funnels that are used to collect ore simultaneously, which add scale. We now have 260 drawbell locations and are growing these. Infrastructure is in place. What we're doing now is basic block cave mining, advancing the cave fronts, building drawbells, and commencing production. On slide nine, we show a new chart this quarter to illustrate the pace of our underground production ramp up. The annualized run rate in the second quarter, this is really notable, is now at about close to 50% of the ultimate goal of producing an average of 1.55 billion pounds of copper and 1.6 million ounces of gold from the underground ore bodies. This is triple what we achieved a year ago. As indicated in the graph, we expect to average about 70% of the annual targeted run rate by the fourth quarter of this year, and by the end of 2021, be it 90% of the targeted run rates. We expect to continue to add new drawbells to allow us to increase production Basically, we'll now continue to do what we've now been doing over the last several quarters. Going this all down, it's straightforward that all of this is achievable because of the more than 15 years we've been investing in this program. Making the decision to continue this investment during our negotiations with the Indonesian government, our contract. The investments we made in development infrastructure, the technical expertise of our team in managing Block Cave, and a social license we have earned in Grassburg position us. Over the many years we've been there, we are now positioned for achieving the success that we've been pointing to for such a long period of time. Look, we know better than anybody in the world the risk inherent in Block Cave mining, and there are issues that we will face. But the progress to date demonstrates validity in our confidence. We've gone a long way in de-risking the long-term plan. We recently achieved a major milestone, which was expected. The Grassberg Block Cave has now intersected the massive Grassberg Oven Pit. This is a milestone. It was also a situation that We had to be prepared to manage because it involves certain unknowns. I'm gratified to say that Mark Johnson and his team are dealing with this, and we don't perceive this as being a problem. And now the massive Grassberg open pit will literally crumble into the block cave mine we're developing. The value creation from this transformation is truly massive. Notably, the gold benefit of Grassberg production has been and will be a major benefit combined with rates of high grades of copper. At full production, the Grasberg mine is the largest gold mine, even though gold is a byproduct of the copper operations. The high grades of copper combined with this gold component make Grasberg one of the mining industries truly most valuable. fabulous aspect in its history. As gold prices approximate $1,800 an ounce, revenues from gold are projected to completely offset the total cost of production at Grassburg. EBITDA from this operation would average $4.5 to $5 billion a year at copper and gold prices. I really want to say and emphasize that our partnership with the government of Indonesia remains strong and I would say grows stronger every day. We're now fully aligned in our mutual objectives of creating values for all stakeholders and what a much improved situation it is for all of us to be focused on developing and operating this asset and not to be sidetracked by dealing with contract issues as we were for so long. I can't say enough about how pleased I am with the agreement we reached in December 2018 and how it's being operated. I want to say, as indicated in our April report, we continue to experience delays with the development of the proposed new smelter in the Gresic area of eastern Java. We're continuing to do run-in planning and site work to a certain degree, but COVID is a real serious problem in the Grassic area, and it is delaying progress with this project with workers and with contractors. We are continuing our discussions with the government regarding our request for a year's delay in completing the project. We are also continuing engaged in discussing with partners and representatives of the government alternative scenarios that would be beneficial to the government and the PTFI. These matters are currently under consideration, and we'll keep you informed of what happens with this. You know, there's nothing easy about this project we're doing. It takes a world-class team in terms of competency, with years of experience, a strong track record of success. This is a unique asset in a unique physical setting. We're meeting this challenge. We met the challenge of dealing with the unexpected seismic events at the deep MLZ mine with a hydraulic fracking solution that is now working and is proving to be very effective. We are confident about our team's ability to meet these challenges and confident going forward that the biggest risks we face are behind us. Slide 9 illustrates what I've been talking about in terms of the progress that we're making towards getting to our long-term goal, which we will subsequently have reached by the end of just next year, 18 months from now. Many of you recall how we were talking about dealing with this 15 years ago, and now we're 18 months away. As I said, in terms of targeted production, we're at about 50% way there. In terms of throughput from our two major mines, we're a third of the way there and moving forward. Slide 10 covered the smelter, which I've talked about. Slide 11, we talk about our Lone Star Mine in eastern Arizona. This is the mine, as most of you know, that's directly adjacent to the Safford Mine where we're using available production facilities as the Safford Mine ages and has availability for capacity. It's just across the mountain ridge from Marinci. in an area of the world that we're very well familiar with and very well accepted. Our progress at Lone Star was excellent in the quarter. The missioning work has begun. We are ramping up placement of ore on a newly constructed leach pad at Safford. The pre-stripping we undertook to explore the ore is substantially behind us now, and we're setting up for the production phase to begin begin this quarter and third quarter. Project capital of 825 million is largely behind us, expected to be a bit lower than the original budget. Initial project forecasted at 200 million pounds of copper annually. We're evaluating exciting opportunities to increase production over time with low capital. This is a tremendous resource with great expansion opportunities. But for now, we're focused on optimizing the initial project will turn to major expansions of Lone Star when market conditions warrant. Over the long term, this asset will be a significant future cornerstone asset for Freeport in the United States in our outlook. I want to point out the United States has major advantages for mining investment compared with other countries around the world in general. For our company, there are no taxes for our U.S. investments for many, many years to come. We pay no royalties because we own lands and feet. Energy costs are lower. We have a flexible workforce with no unions. We now have an improved regulatory framework. Freeport has achieved, through hard work, community and government support for our businesses and in the United States benefits from a strong rule of law. Slide 12, we summarize the work we've been talking about over the past year that our company has been doing with automation. We continue to leverage the technology tools we've developed to unlock bottlenecks, use machine learning, strive to have our best operating performance every hour of every day. We have reduced the budget for this initiative, the spending budget for this initiative, but our teams continue to work to progress the work we started in 2018 and 19 using internal resources with minimal capital investment. We continue to be encouraged by the power of these two and the results we've generated to date, and I can say the enthusiasm of our team for this initiative is very high. Now, pulling this all together on slide 13, you will see that we're on a path to double our EBITDA from 2020 levels as we go forward. Execution of these plans, now well underway, will allow us to grow copper volumes by over 20% in 2021, grow volumes by 75%, reduce our net unit cost by over 20%, and significantly expand our margin in cash flows. Assuming an average of $2.70 copper for 2020, This takes into account the first year actual average and 285 copper for the balance of the year. EVA DA would approximate $3.4 billion. This expands to $6 to $7 billion per year at $2.75 to $3 copper. Our gold revenues are expected to approximate $2.7 billion per year at $1,800 gold. So you can see the very positive exposure we have to gold prices. Through our decisive actions announced in April for 2020, we have protected the downside while we've retained the growth in cash flows for 2021 and beyond. That was the objective of the whole exercise. This combination of growing volumes has the potential to coincide with the rise in copper prices. to enable us to strengthen our balance sheet and then return to the day when we can provide significant cash returns to our shareholders. We at Freeport have all worked so hard to position our company for this opportunity and it's particularly gratifying now to see this firmly within our line of sight. Slide 14, I'm so proud of our organization and what we refer to internally as the Freeport Edge. Our management team has extensive experience in managing tough market environments. Leadership teams across our company are seasoned and battle-hardened. They have been effective and successful in past downturns. Each crisis is different, but in each of our past experiences, Freeport as a company has come out stronger. We have a management structure and a team that is collaborative, experienced, and decisive. We never cut corners on important issues involving worker safety, environmental obligations, responsibilities to our communities, and commitments to governments. We keep a long-term focus on our license to operate around the world that we have worked so hard to earn. We've shown that we can adjust to market conditions quickly. We've done this on multiple occasions and we're doing it now. We develop contingency plans for further actions We're required to take this on a site-by-site basis. Value orientation is a real hallmark of this report organization. Freeport is FOMOS and copper in the industry, and copper is a great place to be. Freeport's portfolio of assets are large and high quality. We are an established industry leader by developing and operating mines that are among the largest in the world. Our assets are long-lived and durable with embedded options for reserve and resource growth. We have strong franchises in the USA, South America, and Indonesia. We have industry-leading technical capabilities through a strong track record of project execution demonstrated over many years. We've earned the trust and respect of our partners, our customers, our suppliers, financial markets, Most importantly, our workers, communities, and host companies where we operate. It's really important that our block caving experience in our company is one of the most extensive and longstanding in the history of the global mining industry. We've been successfully operating block cave mines in Indonesia since the early 1980s, and we have an important molybdenum block caving operation in Colorado at our Henderson mine. This experience and capabilities and competency is critically important as we tradition Grassberg with the largest block caving operation in the world, and I can tell you it's highly valued by our Indonesian partners. Our experience in battle testing management has demonstrated the capabilities to perform in good times and in bad. We are confident in our ability to deliver these plans safely and efficiently. Before turning the presentation back to Kathleen, I want to close by sincerely thanking all of our Freeport people. They inspire me every day. I want to recognize them for their strength and resiliency, their dedication and performance. I'm personally proud to be part of this team over all these years. I can tell you we're all motivated and committed to persevering and achieving success for all of our stakeholders. Kathleen?