Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoran fourth 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 the Freeport-McMoran fourth quarter conference call. Earlier this morning we reported our fourth quarter and full year 2020 operating and financial results and a copy of today's press release and our 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 this call are will 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 on our SEC filings. On the call today, Richard Ackerson. We also have a number of our senior team with us today. Mark Johnson is here, Josh Olmstead, Mike Kendrick, Rick Coleman, and Steve Higgins. I'll start by briefly summarizing the results for the quarter, and then we'll turn the call over to Richard, who will be reviewing our outlook. After our prepared remarks, we'll be taking questions. Today, FCX reported net income attributable to common stock of $708 million, or 48 cents per share, in the fourth quarter, and $599 million or 41 cents per share for the year ended 2020. We had a number of special items in the fourth quarter which are detailed on Roman numeral seven of our press release. Those totaled net credits of 142 million or 10 cents a share, mainly associated with the gain on the sale of assets and partly offset by charges for litigation settlement and international tax matters. Our adjusted net income attributable to common stock after these items totaled $566 million, or 39 cents per share, for the fourth quarter of 2020. Our adjusted earnings before interest taxes, depreciation, and amortization, or EBITDA, for the fourth quarter approximated $1.9 billion, and we generated $4.2 billion of adjusted EBITDA for the year 2020. A reconciliation of our EBITDA is available on page 38 of the slide materials. We had a very strong fourth quarter. Our sales volumes of copper of 866 million pounds were 3% above our October 2020 estimate. And our gold sales of 293,000 ounces were 9% higher than our October 2020 guidance. These primarily reflected higher copper sales from Cerro Verde in Indonesia and higher gold ore grades in Indonesia. We benefited during the quarter from improved pricing for both copper and gold. The realized price of copper was $3.40 per pound in the fourth quarter, and that was 24% above the year-ago quarterly average. Fourth quarter gold realized price was $18.70 per ounce, and that was about 25% above the year-ago average. Our unit net cash cost came in at an average of $1.28 per pound of copper, and that was lower than what we had got it to in October. Notably, in the fourth quarter, we generated very strong cash flows, which totaled $1.3 billion. in the quarter, and that exceeded our capital spending of just under $400 million during the period. We were, together with our asset sale proceeds in the fourth quarter, we were successful in reducing our net debt by about $1.6 billion in the fourth quarter alone, and we ended the year with net debt approximating $6.1 billion. We had no borrowings under our revolving credit facility, consolidated cash of $3.7 billion, and we're in a strong position as we look forward to generating increasing cash flows as we go forward. I'd now like to turn the call over to Richard, who will be referring to our slide materials that you can reference on our website.

Good morning, and thank you all for coming. participating in today's call. It's great to be able to talk to you today about our performance in 2020 and our positive outlook. It's been a head-spinning year when we think back to March and April and all of the challenges we were facing at that point and the world was facing. To be at this point is really head-spinning in many ways and remarkable, but it's been quite a year for Freeport. I really hope you and your families and colleagues are staying safe and well. We've all made personal sacrifices. It's been a tough year for us at Freeport. The progress our company's made has really been a godsend as we've all been working in ways that are so different than in the past. We remain focused on working to protect our health and safety of our people. We're supporting the communities where we operate during this crisis. We're really encouraged by the scientific advances with therapeutics, and now that vaccines are finally being distributed, but we know all this is going to take time to have the distribution widely placed, and we're all looking forward to returning to normal lives. But for the time being, we're staying diligent with our protocols, and these have really proven to be so effective for us at Freeport. I'm immensely proud of our Freeport team. for their response to the COVID challenge. Navigating through a pandemic like this that none of us have ever seen and with this degree of duration has been difficult for everyone in all the communities around us. Our team has demonstrated real resilience, competence, and drive throughout all this, come together to address the situation proactively while we maintain focus on continuing to protect and enhance our business And that's worked for the benefit of all stakeholders. On slide three, we show the highlights for 2020, a year of extraordinary accomplishment for Freeport. We laid a strong foundation for future growth and cash flows and profitability, which is exactly what we set out to do and had a strategy to do. And to have been able to achieve what we did in the face of COVID is nothing short of remarkable. Earlier in 2020, we announced in April, we moved quickly to develop new operating protocols to maintain our business's continuity. We totally redesigned our operating plans from what we had announced this time a year ago to safeguard our business, protect our liquidity, and to be responsive to the really heightened uncertainty that we were facing and everyone is facing. At Freeport, all hands were on deck to build an optimal plan. Each of our operating teams around the globe played an important role in developing and then executing these aggressive plans. We just had a tremendous buy-in by everyone, and that enabled us to execute the plans so well. Big positive from this process that our team's collaboration, which has always been a strength of our organization, is now more strong than it's ever been. Employment engagement, commitment, energy, and morale are at a very high level. We effectively executed the revised plans at a big focus on cost and capital management. And then significantly, we advanced the largest block caving operation in the world at our Grassberg mine in Indonesia. You'll see we met our key milestones for this massive multi-year, multi-billion dollar undertaking. At the same time, we also completed on time and on budget the Lone Star Project in Arizona, and this is a potential future Keystone asset for our company. The progress we made this year set the foundation for strong cash flows literally for years to come. We turned the corner during 2020 to begin generating sustainable and substantial free cash flow. Beginning in the third quarter of 2020 and now continuing in the fourth quarter, And as we look forward, we've generated and are generating significant free cash flow, and that enabled us to reduce our net debt by $2.4 billion in the second half of the year. Slide four highlights key financial metrics by comparing our actual results for 2020 with the plan we presented to you last January prior to the onset of the pandemic. So this is not the the revised April plan, but the one that we had before we knew what we were facing. In that comparison, our unit net cash cost for 2020 were 15% lower than the January 2020 guidance. EVA DA and operating cash flow improved by over 25%. Capital spending was reduced by 29%. We also generated approximately $550 million in in after-tax proceeds from the sale of a non-cash flow producing assets that we disposed of this year. We ended the year with $2.7 billion lower debt than our original January plan. Think about that. Facing COVID, all the uncertainties, having to make the changes, and then coming back to do so much better than we set out to do before COVID was known about. This was accomplished at an average copper price realization of $2.95 for the year, 10% a pound higher than our plan, 10 cents per pound, just 10 cents, well below the current price. The team did an outstanding job. We're strongly positioned for the future. In addition to the strong operating and financial performance in 2020, we achieved new milestones in the ESG area, and that's shown on slide five. We committed to the copper mark. This is a new assurance framework developed by the International Copper Association, and our Steve Higgins is now the president of ICA, to promote and demonstrate responsible production practices focusing on meeting the United Nations sustainability development goals. Big step forward. We established climate targets and added transparency with a new climate report, which is now available on our website. We took a leading role with ICMM, International Council on Metals and Mining, beginning over a year ago when it served as the industry representative in a multi-stakeholder initiative to develop a new tailing standard for the mining industry. following the disasters in Brazil, and then the subsequent development of implementation guidance for ICMM members. This was a major undertaking by the industry and by our company, which took a lead in the process, and it reflects the importance of managing tailings for storage facilities safely and responsibly. After serving two terms as chairman of ICMM more than 10 years ago, I recently accepted a new term as chairman ICMM currently has 27 CEO council members from the largest global mining and metals companies, and I'm leading a strategic review of the organization to meet the increasing importance of ESG issues facing our industry. We advanced our inclusion and diversity initiatives, which is core to our values at Freeport. We invested in our communities and continue to expand organizational resources in this effort. Worker safety is our highest priority, and we showed that with what we did in response to COVID. Our safety statistics in 2020 measured by interest rates and incidence rates met our targets. Fatality position continues to be a focus of our work safety management, and regrettably, we had five fatalities in our operations last year. On slide six, you've heard me say for a long time that the copper price would benefit from its favorable fundamental outlooks. Prices rose significantly in late 2020 in recognition of copper's favorable demand trends and the limited ability of the industry to increase supply. The recent price move is significant, but note that prices are still lower than they were just over 10 years ago. are almost 10 years ago. Arguably, the fundamental outlook for copper today is better than it was 10 years ago. China's leading the recovery and global stimulus measures in countries around the world are also being positive for growth in copper demand. Freeport is a leading producer of copper, and this commodity is critical to the economy of the future. It's essential to support global growth, and broad-scaled economic activity, but it is also essential and strategic for technologies required for the transition to a global cleaner energy future that's on the front burner for everyone. More and more, we're seeing adoption of policies to reduce carbon emissions around the globe. Seventy percent of the world's copper supply is used to deliver electricity. As clean energy initiatives are implemented, the intensity of copper use will increase. The chart on slide seven shows that copper utilization in electric vehicles and in the generation of renewable power is more than four times greater per unit than for traditional vehicles and power generation. CRU estimates that copper demand for electrification and renewables will increase significantly over the coming years. In a relatively short timeframe, global demand just from these green initiatives could approximate the size of today's U.S. copper market. As demand accelerates, copper supply will continue to struggle to keep up, and this supports a favorable near-term and long-term fundamental outlook. The current situation echoes the early 2000s when I became CEO of Freeport at a time when Chinese demand appeared and accelerated in such a dramatic fashion without a supply response, which created the commodity super cycle and sharp increases in copper prices, very similar to what we're facing today. Turning to Indonesia on slide eight, our PTFI team is delivering really impressive results. During 2020, we built the momentum for the ramp-up of our massive underground rinds And by the fourth quarter, we had reached nearly 70% of the targeted annual run rates for sales volumes. This is something we were looking forward to beginning in the mid-1990s when we designed the original pit, which is now completed, and is something that we've been investing in over the past 15 years. And to see it coming together like it is, is truly gratifying. And Mark Johnson and his team have just done an exceptional job. Continued growth during 2021 is expected to enable us to reach our full annualized targets by the end of this year. Considering the operating health challenges we faced in Papua, this is notable and striking. The team stayed on schedule, met our objectives. The project is massive and complex, and we did this by designing and maintaining effective COVID protocols in a very large workplace in a very challenging remote location. Our progress with the ramp-up has reduced risk for PTFIs underground mines significantly. The major risk as we started this was developing infrastructure, infrastructures in place. There's always risk in mining. It's inherent in our business. But the major risks for this underground development are behind us, and we're confident and have a track record of managing the types of risk we'll be facing going forward. We can't make them go away, but we can manage them. And so we're really pleased with where we stand with that process. We're also continuing discussions currently regarding the new smelter in Indonesia. In early 2020, we requested a delay in the agreed time schedule for completing of construction of the new smelter at a site in eastern Java near Gressing, which is near the existing PT smelting facility. We haven't been able to progress work there because of COVID issues for the local workforce and international contracts. This is a greenfield smelter with a total cost of about $3 billion. That number continues to be refined and changed, and this project would be debt financed by PTFI, the Indonesian entity. Over the last several months, PTFI and our partner and majority shareholder of PTFI, the Indonesian state-owned company MindID, have been discussing with the government alternatives to this commitment to build a new smelter project. which was reflected in our IUPK mining license granted in December 2018. During the fourth quarter, we advanced discussions with the majority owner of the existing PT smelting facility at Gresik for a 30% expansion to add smelting capacity in Indonesia and partially satisfy our commitment to the government. Commercial and financing discussions for this expansion are ongoing. are being advanced, engineering is in progress. Initial estimates indicate that this project could be done for $250 million and be done efficiently in the current TCRC environment, and it would partially meet our obligation to the government. Then separately, at the request of the government, at the request of the government, PTFI is currently engaged in discussion with a third party regarding the potential for the development of a new greenfield smelter at an alternate location away from eastern Java. This project would be in lieu of DTFIs constructing the new greenfield smelter that I mentioned above. A third party would lead the development for the smelter and arrange its financing. DTFI would commit to be a supplier of concentrate for the project. and the partners and the government are working expeditiously to reach a decision on the path forward. On slide 10, we show our 2021 priorities for our ongoing efforts in creating values for our company. We are building on the progress of 2020 by focusing on execution of plans to grow production volumes, manage costs, and capital spending efficiently We're expanding our recent innovation efforts, applying technology and innovative management processes in our operations around the world. In all of this, while we manage and are sensitive to our responsibilities to workers, communities, governments, and other stakeholders, we look forward to resuming cash returns to shareholders during 2021, and we'll be in a position to do that, and we will be in discussions with our board on taking actions. We will be in a period now for the long term of harvesting cash flows now that we are completing the major long-term investment program in Indonesia. We're discussing with the board a financial policy that would now enable a near-term resumption of the dividend and then, over time, a performance-based shareholder return policy. Significantly, we have recommenced work. We suspended early in 2020 to evaluate and advance future organic growth opportunities from our large portfolio of undeveloped reserves and mineral resources. We look forward to doing that. The efforts of 2020, the work of our team over many years now, has enabled us to increase margins and cash flow substantially for 2021 below and beyond. At 350 copper, we're on a path to nearly double EBITDA from 2020 levels. Copper sales for 2021 are projected to increase 20% over 2020. Gold volumes are projected to increase by over 50%. Our unit net cash costs of production will decline. And this is occurring at a time for improved pricing for copper. I recall in an earlier conference call like this, I said an ideal situation for Freeport would be able to be completing the Grasberg expansion at times with copper prices, and here we are. The significantly higher cash flows will enable us to maintain a strong balance sheet, build value in our business, return substantial cash flows to shareholders. As shown on slide 12, We have a long-life portfolio of mineral reserves, reserve life for approved and probable reserves of over 30 years. We have substantial options for the potential to expand our reserve base from our large inventory of mineral resources beyond reported reserves. All of this is associated with brownfield expansions of our existing ore bodies. What this means is that for our company to have long-term success, we are not required to have success and exploration. We hope we do. We're not required to do deals. Strategic opportunities may come to us, but we've got this base already in our portfolio that provides for a sustainable long-term future for Freeport. Slide 13 highlights the organic projects we are now assessing. During 2020, to conserve cash, we paused work on our expansion projects. We're now re-engaged. broad range of opportunities. During 2021, we will be developing a ranking of these projects to guide our thinking on sequencing and long-term planning. We have no plans to increase substantially capital spending on projects in the near term, but in the long term, these growth opportunities will be approached in a measured and disciplined way. I'll close with slide 14, which I've titled the Freeport Edge, which is a term we're using internally around our company. Our management team at Freeport has extensive experience in managing this business. Leadership teams across the company are seasoned, value-oriented, and intensely engaged. We have a management structure that is collaborative. We're experienced in working together, and we're decisive. We make a decision, and we execute. We recognize our responsibilities we undertake when we're granted hard-earned license to operate and we never cut corners on important issues. Looking at our team at Freeport is a combination of managements with long tenure and experience. We also have a cadre of younger managers who bring new ideas, approaches, and energies. We have strategic new hires who bring outside perspectives. We've had three senior executives who've retired at the end of their careers over the last two years. Internal replacements were promoted and performing effectively. And this just demonstrates the depth of talent in our organizations. Freeport is foremost in copper. Our portfolio of assets is large, high quality. We're an established industry leader, operate mines that are among the largest in the world. Our assets are long-lived and durable with embedded options, reserve, resource growth. We have strong operating franchises in the United States, South America, and Indonesia. We're a reliable supplier to the global copper industry, have industry-leading technical capabilities, supported by a strong track record of project execution and business management over many years. We've earned the trust and respect of our partners, our customers, suppliers, financial markets, and most importantly, our workers, communities, and host countries where we operate. Our block caving experience is among the most extensive and longstanding in the history of the global mining industry. We've been operating block caves in Indonesia since the early 1980s. We have an important molybdenum block caving operation in Colorado. And this is critically important as we transition Grasberg to become the largest block caving operation in the world. I'll close before turning to your questions by thanking our people and recognizing their strength, resiliency, and performance. I'm proud to be part of this team. And I look forward to continue to be part of the team and to participate in our future successes. We will build on our accomplishments as we as will be depicted on our 2020 annual Portrait shareholders. We are charging ahead responsibly, reliably and relentlessly. Thank you for your attention and operator. Let's open the lines for questions.