Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the FreeSource McMoran third 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. Welcome to the Freeport-McMillan third quarter conference call. Earlier this morning, we reported our third quarter 2020 operating and financial results, and a copy of today's press release and slides are available on our website at fcx.com. Our 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 Form 10-K and quarterly reports on Form 10-Q, each filed with the U.S. Securities and Exchange Commission. On the call today is Richard Atchison. Mark Johnson is also on the call, Josh Olmstead, Mike Kendrick, Steve Higgins, and Rick Coleman. I'll start by briefly summarizing the quarter financial results, and then we'll turn the call over to Richard, who will review the slide materials, and we'll then open up the call for questions. Today, FCX reported net income attributable to common stock of $329 million, or 22 cents per share, for the third quarter of 2020. After taking into account debt extinguishing costs associated with our refinancing during the quarter and other non-recurring net charges totaling $101 million or $0.07 per share, adjusted net income attributable to common stock totaled $430 million or $0.29 per share. These special items can be reviewed on page Roman numeral 7 of our press release. Our adjusted earnings before interest taxes and depreciation and amortization, or EBITDA, totaled $1.4 billion for the third quarter of 2020. And a reconciliation of the EBITDA calculation is available on page 32 of our slide deck. Our third quarter results benefited from improved pricing for both copper and gold, strong copper and gold sales volumes that were above the prior estimates, and solid cost performance. The average realized price during the quarter for copper was $3.01 per pound. That was 15% above the year-ago average. And the third quarter realized gold price of just over $1,900 per ounce was 28% above the year-ago quarterly average. We generated strong cash flows in the quarter. Operating cash flows totaled $1.2 billion and exceeded roughly $400 million of capital expenditures during the quarter. We ended the quarter with $10 billion of total debt, and our consolidated cash position grew during the quarter from $1.5 billion at the start of the period to a total of $2.4 billion at the end of the quarter. I'd now like to turn the call over to Richard, who will be referring to our slide materials.

Thanks, Kathleen. Good morning, everyone. Thank you all for participating in today's call. I hope you and your families and your colleagues are all staying well and safe. This coronavirus situation has not ended. We at Freeport are not letting up our guard in any fashion. We remain focused on protecting the health and safety of our people and the communities where we work. And we're all looking forward to a medical solution, which will come in time. In the meantime, though, we are staying vigilant. with our health protocols, and we're also being conservative in the way we continue to run our business. And this has proved to serve us well over the last six months. I'm really proud of our Freeport team for the aggressive response we developed as an organization and how we've executed the plans that we announced just six months ago. It seems like a decade ago, but it was at the end of April when we announced plans that were well received by our company in the market to take steps to reduce costs, capital costs, operating costs, and G&A costs, suspend some low-margin production. And we put those plans in place, and we really went after them in an aggressive way, and it served us well. Starting with slide three, we present the highlights for the quarter, and it's notable just how much cash flow we're generating. We've been talking about this for years. a long time. Tomorrow has finally arrived for Freeport. This is the quarter where all this work that we've been doing for years and years is beginning to show its presence. This pre-clash flow generation will actually accelerate as we go forward into the fourth quarter, into 2021. By the end of 2021, we'll reach really a a relatively steady state of volumes and that extends for the 20 years beyond that that our current contract rights extend to. But as you see clearly, our sales volumes, our cost and capital performance were favorable to the estimates we provided the market three months ago. Our Grasper team achieved its quarterly sales targets and continue to make excellent progress with the ramp-up of our large underground mines, the Grasper Block Cave and the Deep MLZ mine. In Arizona, we completed the Lone Star project during the quarter. It was completed on time and below budget. Bottom line, we generated substantial cash flows in the quarter, reduced our debt in this quarter by $800 million. And this was all achieved operating safely in a challenging environment because of the pandemic. Our team maintained its focus on the health of our workers and our protocols and showed real drive and commitment in executing our plans while managing this health issue. As an organization, we're all stepping up to meet this challenge. We've met challenges effectively in the past. Turning to slide four, you know, this is LME week, and it's a strange deal not being in London last night. It would have been the night of our Freeport reception. It's such a fun event, and it's disappointing not to be there. We distributed a video to people, and if you didn't get it, contact David, and we'll get it to you, but it's a lot of fun. looking at the video and thinking about all the good times we've had in London and looking forward to coming back next year. But, you know, thinking about LME Week and the times we're facing right now really makes us all very pleased to be a company that's a leading producer of copper. Copper is critical to the economy of the world, has been, but even more so as we look to the future. Copper is absolutely essential and strategic to the technologies that the world is moving to to transition to a global clean energy future. And more and more, we're seeing the adoption of policies both in community governments, but by companies to reduce carbon emissions. This initiative no longer is being debated as to whether it's needed or not. But there's a real commitment now to accelerate. And as a result of the steps that will be required to reduce carbon, the intensity of use of copper in those applications is really significant. Copper utilization in electric vehicles and the generation of renewable power requires four times more copper per unit than traditional internal combustion vehicles require and traditional power generation requires. The coming transition to 5G technology will be positive from copper with required data centers to supporting infrastructure with lots of new copper wiring required to support 5G. These major trends, which are in place and irreversible, will bring significant new sources of demand for copper, and that will supplement the already significant requirements for copper to fund global growth in the developing world. We are committed at Freeport to being a responsible producer of copper, which is a very favorable metal in terms of these positive ESG factors going forward. In addition to Freeport's commitment to the International Council of Mining and Metals, where I just returned as chairman after serving 10 years ago, during the third quarter, we committed to the Copper Mart, which is a new assurance framework developed by the International Copper Association that's specific to the copper industry. that demonstrates responsible production practices and how operations for copper can contribute to the UN's sustainable development goals. And we are fully committed to these things. Currently in the market conditions, thinking back to six months ago, none of us would have anticipated that we would be today, just six months later, after facing the industrial downturn that was accelerating at that time, and all of the uncertainties from a health and economic standpoint, to think that here we would be at the end of our third quarter in such a favorable market condition. This has been led by the really dramatic recovery of the Chinese economy and the demand that that's generated for copper. Economic conditions in other parts of the world continue to face uncertainties, and we are certainly sensitive to those uncertainties. And as I said, we're not letting our guard down. But we're encouraged by these demand trends in China. And then we look at global stimulus measures and decarbonization initiatives. which are also supportive of copper demand, at a time when supplies of copper remain limited. And this supply effect has been really emphasized by what we've gone on with the COVID situation. Prices have recovered from the lows earlier this year. You may recall that we were preparing – For a scenario of $2 copper in a year today, we have copper at $3.15. That's pretty remarkable. But the fundamentals of the copper market are increasingly attractive. We put together a slide on five to give a historical perspective on these copper markets. And thinking back, there are really strong similarities and parallels to what we've seen earlier. In the early 2000s, when the world was coming out of a global recession, there was policy-driven demand, particularly in copper, combined with limited new supplies, which was a new factor in the market at that time. And that drove a major repricing of copper to kick off the commodity super cycles. Then again in 2009, following the global financial crisis that emerged in 2008, China again led a significant and unexpected recovery in copper prices, when prices increased over three times from the lows over that 24-month period. In each of these times, FCA share price performed strongly. On the right side of the chart, which shows what's happened since March, copper is notable. And this is something that I think is striking and is different. Copper inventories have declined, even with the major downturn in the global economy. Who could have ever thought that the US GNP would drop by a third in the second quarter and copper inventories would not have risen? The global pandemic resulted in disruption of supply as well as demand, of course. And with low inventories and limited new supply, the market is positioned for additional gains as we look forward to a medical solution to COVID-19 and for economies to recover with major copper-intensive infrastructure spending on the horizon. Again, In the past, when the downturn occurred, inventories built. The inventories had to be run off. We don't have that this time. We have low inventories. And so with recovery, we're better positioned to see copper perform strongly. Now, turning to our company, the challenge for us in 2020, unlike these earlier times when we faced downturns, was Along with the lower prices driven by COVID-19, we were at a time of trough production at Grasberg. We completed mining the Grasberg open pit at the end of 2019. We couldn't even begin to ramp up in any significant way of the Grasberg block cave ore body, which is our largest underground mine. ore body until we were complete mining in the pit. So all this started, and production dropped from the pit. It was at low levels from the underground. And then we get hit with low copper prices from COVID and operational challenges in the Americas because of the ale situation. And so that makes what's happened for our company over the last six months really, really special. Our team in the Americas continues to do great work executing our plans, and the plans were aggressive and challenging. You can see the results of the execution and our financial results. We made the decision to complete the initial Lone Star Development Project, which is located right in the heart of our operations in eastern Arizona. This is a relatively small but very large positive returns initial project, and it opens the opportunity for a very large future significant project. The team at Cerro Verde in Peru has done exceptional work in restoring our large-scale operations there. They were really challenged by COVID. Our people at Cerro Verde lived in the town of Arequipa, which was facing a challenging community situation with COVID. We had to work with the local community and with the government to restore operations. We've done that largely. We've kept a sharp focus on cost and capital management. We had one mine, an older mine in New Mexico that we shut down operations because of the COVID situation. We're now taking actions to restart that mine next year at a much reduced rate. a smaller footprint will allow us to achieve cost and capital benefits as compared with prior operations. On the call today is Josh Armstead, and I want to recognize him and congratulate him on his expanded new role in managing our operations in the Americas. Josh was named Chief Operating Officer for the Americas in August following Redd Congress' departure. Redd was a great friend, a long-time employee who who decided to move for family reasons, and we congratulate him and wish him well. Josh was Red's right-hand guy along with the rest of our team for recent years. He's an experienced operator, a really good, strong, inspirational leader. He's been with our company 28 years. He has worked in leadership roles at a number of our operations across our America's assets. Josh is really highly qualified and well prepared for success in this new role. He's off just to a great start. He's been a key driver of our innovation initiatives, which all of our team is committed to, and is committed to having a high performance culture. The really good thing is Josh has a terrific team around him. We have really significant technical depth, world class in every respect, and We all look forward to working together with him and his team to accomplish what we have before us, opportunities going forward. At Grantsburg, our third quarter annual sale volumes on an annualized basis reached 58% of the targeted annual run rate post-ramp-up. I want you to focus on this. We generated all these cash flows. by being at less than 60% of our targets of where we're going to, and we're making progress on reaching those targets. For so long I've been talking at these calls about looking at this ramp-up. It's not like starting a new operation with a one-point-in-time startup, but it was a process, a process of increasing volumes We're at 58% of the target, and we saw we generated this level of cash flows. So as we increase that ramp up, volumes grow, cash flows will grow as well. It wasn't without its challenges this past quarter. We had a COVID-related labor disruption situation. that we had to deal with. We were actually shut down for four or five days as we worked with a group of indigenous workers in our workforce who wanted to be able to return to the lowlands where many of their families lived. We had restricted travel. We had to negotiate a resolution. With that, we also had some maintenance issues with material handling. So it's notable. And we're going to have situations that are an inherent part of mining as we go forward. But here's a quarter where we had to deal with a temporary shutdown, some unscheduled maintenance issues, and yet we were able to meet our metals targets. By the end of the quarter, the mining rates at the Grasberg Block Cave and the Deep Delano Z had reached targeted levels. We continue to target metal production that will approach 90% of the ramp-up targets by the middle of next year, middle of 2021. Note that the unit cost for Grasberg In the third quarter, it averaged 13 cents a pound. Grassberg, of course, has this really significant gold component in its ore, which at full production rates makes it the largest gold mine in the world, even though it's a byproduct production. But using current gold prices, looking forward, If prices stay at this level, Lowell Revenues will fund all of the costs of operations for Grassburg and will be producing over a billion and a half pounds of copper a year with full ramp up that will reach at the end of 2021 at a zero or negative unit cost. In Indonesia, I mentioned that the discussions about the new smelter are ongoing. They're being led by our partner, Mind ID Interloom. BTFIs requested a 12-month delay in construction of the new smelter that we had committed to because of COVID issues, which affects international contractors and local workers. The government is in the process of assessing alternatives to building a new smelter. No decision has been reached. The discussions are going, being led by MindID and the Ministry of State-owned Enterprises. The alternatives that are under consideration would be mutually beneficial to the government, first of all, and to PTFI. We will keep you informed as developments occur going forward. I will note that our partnership that we established with the government of Indonesia and the structure for governance and operating management that we established in December 2018 is really going well. The partnership is strong, mutually supportive. We and the government, through the state-owned enterprise and the Ministry of State-Owned Enterprises, the Ministry of Mines, the Ministry of Industry, the Ministry of Finance, we're all fully aligned now in our objectives of creating value for all stakeholders. We're working together, and that's a huge positive development for Freeport and for the asset itself. Slide seven, we're focused on execution. That's what we've been saying for so long, and that's what the results show that we have been successful in doing. But we're focused on execution. Continued success will drive strong and improving results. We're now on a path to double EBITDA from 2020 levels as we go forward. Execution of these plans, all well underway. Biggest risks are behind us. There will always be risks, but the biggest risks are behind us. We'll allow us to grow our copper volumes by 20% in 2021, gold volumes by 70%. That would result in a reduction in net using costs by 20% for the company and completely expand, significantly expand margins and cash flows. You see this in our third quarter results. Our financial performance will improve throughout 2021. Our current operating rights, as I mentioned earlier, extend to 2041 with fixed fiscal terms. This will allow BTSI to generate massive future cash flows from this set of remarkable copper and gold resources. Our company is going to stay focused on execution as we complete this transition at Grassburg. We are deferring any decisions about major investments. And as we go forward with the higher cash flows that will be generated, we'll be able to reduce our debt and further improve our balance sheet. You see what we've done this quarter. I'm confident that in 2021, we'll be in a position to recommend to our board a resumption of our dividend for the board to consider, and that as we go forward, we will be able to generate increasing returns to shareholders from higher cash flows. In addition, we'll have opportunities to consider significant growth from large-scale organic, low-cost, low-risk, high-return, disciplined brownfield investments in our large portfolio of undeveloped reserves and resources. Freeport can maintain its production, grow its production, without having success in refilled exploration, which we hope we do, or without having to do any M&A deals. Slide 8 shows this. We have a long-lived portfolio of mineral reserves, recoverable reserves, extends beyond 30 years with substantial options to expand these reserves in the future, considering our large inventory of mineralized material with our resources beyond current approved and probable reserves. For now, however, I want to emphasize again we're focused on executing our plans efficiently, delivering on our targets, As we go forward, we'll be accessing growth options in a measured and disciplined way. I'll close with slide nine with what we adopted internally as the Freeport Edge. Our management team has had extensive experience in managing this business responsibly. We've been together a long time now. Leadership teams across the company are seasoned, battle-hardened, value-oriented, We're all intensely engaged, and that's one thing I keep talking about our work during 2020. It has been really intense. But our people are energetic, highly motivated. We have an action-oriented management structure. We work together collaboratively. We're experienced, decisive, never cut corners on important issues like worker safety, community responsibilities, environmental obligations. We keep a long-term focus on our licensed operator around the world. We work hard to earn this and to keep it. We know, and we've had a long history of operating on the premise that our shareholders cannot succeed unless all stakeholders in our businesses succeed. Freeport is clearly on a global basis foremost in copper. Our portfolio of assets are large, high-quality assets. We're an established industry leader, great track record, operate mines, develop mines among the largest in the world. Our assets are long-lived, durable with embedded options for reserve and resource growth, strong franchises in the U.S., South America, and Indonesia, industry-leading technical capabilities with a strong track record of project execution around the world over many years. We've earned the trust and respect of our partners, our customers, our suppliers, the financial markets, most importantly, our workers, communities, and host countries. Notably, our block caving experience is, if not the most, one of the most extensive and longstanding in the history of the global mining industry. And that's so critically important for success, both in the ramp up at Grassburg and being able to continue to execute our plans. over the next 20 years. This is not for the faint of heart. We've been operating block cave mines in Indonesia since the early 1980s, and we have an important molybdenum block caving operation at our Henderson mine in Colorado. This is critically important as we transferred Grasper from this enormous surface mine that we completed at the end of 2018 to the largest block caving operation in the history of the mining industry. Our team has demonstrated its capabilities in good times and bad, and I want to close by thanking our people, recognizing their strength and resilience, their dedication, and now this performance that's evidenced in today's report. I'm personally proud to be part of this team. I look forward to the success we're going to have before us in the future. We're all motivated and committed to persevere. and to achieve this success for the benefit of all of our stakeholders. So thank you for that. And now I will return the presentation over to Kathleen to talk about some financial matters.