Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoran first 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, President and Chief Financial Officer. Please go ahead, ma'am.

Thank you and good morning everyone and welcome to the Freeport-McMoran conference call. We released our results this morning 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 annual report on Form 10-K. On the call with me today, Richard Atkerson, our chairman and CEO. We've got Mark Johnson, who leads our Indonesian operations. Josh Olmsted, who leads America's operations. Mike Kendrick, who leads our molybdenum business. Steve Higgins, who leads our commercial activities and is our chief administrative officer as well. and Rick Coleman who leads our project development activities. And I'll just start with briefly summarizing our financial results. We'll work through our slides and some prepared remarks and then we'll take your questions. Today we reported first quarter 2021 net income attributable to common stock of $718 million. That was 48 cents per share and adjusted net income of $756 million, or $0.51 per share, after adjusting for net charges totaling $38 million, or $0.03 per share. And a detail of those net non-recurring charges are in the press release on Roman numeral VI. We reported adjusted earnings before interest taxes, depreciation, and amortization, or adjusted EBITDA, during the quarter of $2.04 billion. and we've got a reconciliation of our EBITDA calculations on page 36 of our slide deck. In the first quarter of 2021, we had copper sales of 825 million pounds, which approximated our estimate. Our gold production in the first quarter of 2021 was in line with our estimate in January. However, we had a deferral of certain shipments in Indonesia to the second quarter, and that resulted in a timing variance for our gold sales. In the first quarter, we benefited from improved pricing. Our first quarter average realized copper price was $3.94 per pound, substantially above the year-ago quarter. And our gold price of $17.13 per ounce was also above the year-ago realized price. We continue to focus on maintaining a low-cost position. Our consolidated average net cost for our copper mines averaged $139 per pound of copper in the first quarter. We generated strong operating cash flows totaling $1.1 billion, and that was net of $300 million of working capital uses and the cash flows exceeded capital spending, which totaled $370 million during the quarter. As you've seen, our board in February adopted a new financial policy aligned with our strategic objectives of maintaining a strong balance sheet, increasing cash returns to shareholders, and advancing opportunities for future growth. We ended the quarter in a strong financial position. with $4.6 billion of consolidated cash, $9.8 billion of debt, and our debt net of cash was $5.2 billion at the end of March. Richard, I'd like to turn the call over to you, and we'll start reviewing the slide materials that are on our website.

Thanks, Kathleen. I couldn't be more pleased to be able to review with you our first quarter performance and particularly exciting progress we've achieved over the past year when we all faced such uncertainties. It's a special, active, invigorating time here at Freeport. Our teams are working safely. We remain vigilant with COVID as we have successfully executed our operations plans and we're now working on projects for future growth our grassberg underground ramp up is proceeding on schedule that's key for our strategy production in the united states is increasing with our newly commissioned lone star mine uh the first quarter start restart of our chino mine in new mexico and from increased mine rates where we at Marinci, our flagship mine in the US, the largest in North America, where we curtail production a year ago to conserve cash. In South America, we're working to restore production levels to pre-pandemic levels, and we'll achieve that over the next 12 months. The Cerro Verde team in Peru and our Alhambra team in Chile are doing outstanding work in navigating these issues. We're focusing on sustainability initiatives, as all businesses are. This has always been key to Freeport in managing our operations with the new Copper Mark. This Copper Mark is an industry framework that was recently developed by the International Copper Association to ensure responsible production consistent with UN sustainable development goals. To date, we lead the industry with six of our operations now certified, and we're working to get all certified. Going to the slides, I have just a few slides to review with you. On slide three, our annual sustainability report has been published and is now available on our website. This is the 20th year we've reported on sustainability. We're working to make it better. I encourage each of you to read it. We're proud of our good work on sustainability and remain committed to continuous improvement. Past years, we released this report with our annual shareholders. At our annual shareholders meeting, we moved it up. We've added new resources to our Freeport team working on sustainability issues. And I congratulate this team for their efforts to make this report available now, earlier, so that we can facilitate our expanding engagements with the broad set of constituencies that are now focused on our sustainability performance and initiatives. Last year, we published our initial report on climate. Our 2021 report is forthcoming. We recently published our annual report to shareholders with what I think is a great theme, charging ahead responsibly, reliably, and relentlessly. This theme portrays where we are currently positioned at Freeport as a leading and growing global copper producer, We are determined to succeed and operate responsibly, and the Freeport tradition will be relentless in the execution of our strategy. Slide four, our first quarter production was in line with our targets. We increased our 2021 sales guidance to 3.85 billion pounds of copper and our 2022 volumes to 4.4 billion pounds. The Grassberg ramp-up that I referenced earlier continues to progress in a simply outstanding fashion. We've now achieved 75% of our annualized targeted long run metal production run rate. We're on track to be at 90% by the third quarter and full rates by year end. After all these years of hard work, reporting this progress is simply a highlight of my career. The credit, though, goes to our team on the ground in Indonesia, supported by our global team of technical experts. This is a historical major accomplishment as we've converted, as we are finalizing the conversion of the Grassberg open pit to this massive underground operations. America's businesses are going well. We are achieving production and cost targets, and now we're actively focusing and working on future growth opportunities, generating strong cash flows, improving our balance sheet. Over the past 12 months, net debt was reduced by over $3 billion to $5.2 billion by the end of this first quarter. But during this period, copper price averaged $3.13. You know, it's now... over $4.25. Many are predicting higher prices near term. Our near-term outlook of copper and gold sales volumes is substantially higher. Our recent performance, this large reduction in debt with lower commodity prices, lower production volumes, demonstrates the current strength of our company in generating cash flows. Our strong performance and the positive outlook for our business and commodities has enabled our board to adopt a new financial policy which will provide increasing cash returns to shareholders while providing flexibility for growth and building a very strong balance sheet. We've also added two new directors, David Abney, the retired chairman and CEO of UPS, with his massive global supply chain operations, Bob Dudley, the retired CEO of BP, a longtime leader in the global extractive industry, have joined our board. Each of these men have strong knowledge and experience in global markets and with issues we face in managing our business. Bob and David had many opportunities to join other boards. Their decisions to join our boards is personally gratifying and appreciated. They are really enthusiastic about working with their fellow directors at Freeport and and our management team in creating value responsibly for our stakeholders. Moving to slide five, countries around the world responding to COVID with aggressive fiscal and monetary policies. This is an important element of near-term demand for copper extending beyond China. China has been the driver of copper demand growth over the past two decades. now the source of new demand is expanding. In addition to continuing strong copper consumption in China, higher copper consumption in developed countries with COVID recovery initiatives, and the increasingly important demand in emerging markets driven by global growth, copper now has major new sources of demand from global investments in carbon reduction, Infrastructure and expanded technology, 5G, artificial intelligence, and data analytics broadly all require more copper. Importantly, copper is essential to the transition to a global cleaner energy future. Roughly 70% of copper is used to deliver electricity. As clean energy initiatives are implemented, copper intensity in the economy expands in a major way. The outlook for copper has never been better. Slide six. Significant demand growth is inevitable. Supply to meet this growth is severely challenged. It's going to require meaningfully higher pricing demand, scarcity of new supplies, point to large impending structural deficits, supporting much higher copper prices than previously anticipated. I'm sure you've noted this in recent forecasts by a widening group of industry analysts. Freeport is notably well positioned to benefit from these fundamentals. A leading responsible large-scale producer of copper with near-term and longer-term growth embedded in our portfolio. The scarcity value of a portfolio like ours is unique. It's extremely valuable now, and it's going to be even more valuable as large market deficits emerge. Slide 7 highlights our near-term growth. For 2021, copper volumes are anticipated to be 20% higher and gold volumes 50% higher than in 2020, 55% higher than in 2020. Volumes are expected to go further in 2020 in the 15% to 20% range. 20% range for both copper and gold. The capital to achieve these near-term higher volumes and the execution risk are largely behind us. Higher volumes with low incremental costs will yield expanded margins. At prices ranging from $4 to $5 for copper, we would generate annual EBITDA for 2022 and 2023 of over $12 billion to the range of $17 billion per annum. That's big numbers. Page 8 describes this new financial policy our board adopted earlier this year. It's designed first to support a strong balance sheet, increase returns to shareholders, and provide funds for investments for the future. The current market for copper and its favorable outlook are providing substantial cash flows to meet these objectives, as I just outlined. Our board approved a base dividend of $0.30 per annum per share. Our first quarterly dividend will be paid in May as we resume dividends. After reaching a target net debt in the $3 billion to $4 billion range, which at today's prices will do by the end of this year, our board's policy establishes a performance-based payout framework for additional cash returned to shareholders through dividends and potentially stock buybacks. Returns to shareholders will be determined by allocating available cash flow of up to 50% to shareholder returns and the balance available for future growth and potentially further debt reduction below our targeted $3 to $4 billion, our board will assess the additional payout at least annually. With the current level of copper prices across our portfolio, we resumed our work that we suspended a year ago cause of covet to evaluate and the timing and the initiation of these opportunities in the u.s we're looking at expansions at lone star in baghdad and also evaluating opportunities to increase production from leach recovery technologies that's really exciting the lone star mine is our newest mine it's adjacent to our existing operations in southeast arizona where the companies operate as operations go back to the 1800s. There we have strong community support. We have great relationships with the Native American groups. We're evaluating expansions of Lone Star's oxides ore, which we're now producing and which are growing in terms of the availability of ores. But importantly, we're also conducting these longer-range planning for the development what looks to be a potentially world-class sulfide resource right in the midst of this historical mining area. At Baghdad and in northwest Arizona, we have an opportunity to construct a new concentrator to double production. We have a very long reserve life there. Also there, we have strong community support. I keep emphasizing this because that's a challenge for new supply development around the world. We're focused on technology to reduce capital intensity in these projects. Leach technology initiatives provide substantial opportunities in this regard to add value all across the portfolio. We're continuing to evaluate an attractive, potentially significant expansion of our El Abra mine in Chile, where we're partners with Codelco. This project would require larger investment, longer lead times than our U.S. project. resource is attractive and very large. This signifies that a major future expansion of El Abro is likely. We're evaluating the development of a new deposit, an undeveloped deposit, at PTFI in Papua, Indonesia. It's called Kuching Le'er. This copper-gold project involves a large block cave mine using the substantial infrastructure already in place for Grasberg. It would benefit from our expertise and long track record of success in block caving. We're also, and this is a lot of fun, evaluating a series of interesting investments in projects that support our carbon reduction and other sustainability goals. This involves ideas of developing new energy generation that's clean, renewable for our operations in nearby communities. And we're advancing plans for exciting projects at Atlanta Copy in Spain to recover valuable metals through recycling electronic devices, which again is good from a sustainability standpoint. Now we have these opportunities. We're going to be disciplined by making new investments, by being selective and measured in deploying capital, focused on value-added investments, You can do this because we have such long line of reserves, established license to operate, and we're going to work with communities affected by new investments. Slide 10 points to this reserve position. Our reserve life is over 30 years. Now, that's proved and probable economically recoverable reserves. In addition, we have identified over 100 billion pounds of copper from mineral resources beyond reserves. all part of our existing operations. We're going to be working to incorporate these into future reserve additions and mine plants. It is becoming increasingly more challenging and costly for our industry to develop supplies to meet the dramatically increasing demand for copper. And our team literally loves where our free port is situated in this environment. Slide 11, we have strong operating franchises in the U.S., South America, and Indonesia. In all these localities, we've earned the trust and respect of our partners, our customers, suppliers, financial markets, and most importantly, our workers' communities in the countries where we operate. We have significant development in large-scale operating expertise. We have all the capabilities now to undertake new projects anywhere in the world, regardless of the or the situation in a responsible and efficient manner. I want to close by recognizing the people of Freeport around the globe. Their commitment, dedication, and remarkable achievements over the past year of COVID is really special. In the context of all the challenges our team has faced over the years and we've overcome, I'm just immensely proud of this team. Building on these accomplishments with an increasingly bright future, Freeport is charging ahead responsibly, reliably, and relentlessly. Kathleen's going to review the financial results with you.

Thank you, Richard, and I'll just make some brief comments on financial and operating matters, and then we can take your questions. Starting on slide 14, we provide some additional details on our operating activities. You can see in the U.S. the Lone Star mine is operating well. We see opportunities to continue to increase our stacking rates there and fill up the tank house, which has a capacity in the 285 million pound per annum range. With continued success in increasing the mining and stacking rates, we'll have an opportunity for relatively low incremental investments to increase production from the Lone Star Oxides well above the original design. We restarted Chino in the first quarter at a 50% rate, and as we gain the efficiencies we are targeting there, we'll likely have opportunities to ramp up further. At Marinci, we're increasing mining rates by about 10%. This was previously planned for 2022, But we are accelerating this, which will give us additional production in 2022 compared with the earlier plan and set us up for growing production over time. In South America, the team was able to achieve stronger rates compared with our plan. Because of the operating restrictions in Peru, we felt it was prudent to maintain our plan this year at a milling rate of 360,000 tons per day And we expect to ramp that up over the next 12 months to the $400,000 per day level as COVID restrictions are lifted. At Elabor, we're making great progress, increasing our operating rates to provide additional copper in 2022. As Richard mentioned, at Grassburg, we made excellent progress in the first quarter. continuing to execute the ramp-up plan to achieve our targeted metal run rates by the end of the year. We ended the first quarter with more inventory than originally expected, and these sales will be recorded in the second quarter. You will note from our detailed schedules and the reference material that we've made some small changes in the Grassberg Block Cave and Deep MLZ mine sequencing. The net effect of these were not material to our metal production, and the outlook is similar to the prior plans. We're very encouraged with the scale of the ramp-up going on both at Grasper Block Cave and Deep MLZ. We'll be adding a second crusher at Grasper Block Cave this quarter, which will set us up to continue to increase rates there. On the next slide, we provide an update on our plans to develop new smelter capacity in Indonesia to meet our commitments to the government. We're proceeding with our Japanese partners at PT Smelting to expand the existing smelter. This can be done on a relatively low-cost basis and would reduce the required capacity for the new smelter to 1.7 million tons of concentrate per annum. The cost for PP smelting is roughly $250 million, and PTFI would fund these costs through a bank financing, which is currently in progress. As you've read, we have been engaging in discussions with a third party for the balance of the requirement, whereby this party would build a new smelter under a structure similar to what we developed for the PT smelting existing smelter in the 1990s. To date, the parties have had extensive negotiations, but we have not yet reached acceptable commercial terms. In the interim, we're continuing our planning on the Greenfield project in East Java. As we show on this chart on the right, you'll see that the long-term cost, the economics for the financing of the smelter, which we would plan to finance with debt, would be offset by a phase-out of the 5% export duty we're currently paying. So the economic impact for PTFI is not material. On the next slide, Slide 16, we provide our three-year outlook for copper volumes, gold volumes, and aluminum volumes. We are increasing our copper sales volumes in 2021 to 3.85 billion pounds from the prior estimate of just over 3.8 billion pounds. And we've increased our 2022 guidance by 100 million pounds to 4.4 billion pounds of copper. and that's reflective of incremental increases in the U.S. The rest of the sales estimates are largely unchanged. As Richard mentioned, we're continuing to assess additional incremental short-term growth opportunities while we conduct longer-range development planning. We provided on slide 17 an overview of our estimated unit net cash cost for the year. You will note that we have updated our estimate um to to average 133 per pound of copper in net unit cash costs compared with the prior estimate of 125 per pound a large portion of this increase is associated with higher royalties duties and profit sharing related to the change in price assumptions from three dollars and fifty cents per pound of copper to four dollars per pound we've also increased our cost estimates to reflect higher energy costs principally oil related which our forecast is now higher by about 25 percent. Our team continues to do a great job in managing costs efficiently. We have seen some increases but they have not been significant. Our team continues to look for creative ways to to maintain our low-cost position. On slide 18, we show the significance of cash flow generation using our volume and cost estimates, and we provided sensitivities ranging from $4 per pound copper to $5, and we hold gold flat at $17.50 per ounce and molybdenum at $11 per pound. The growth in volumes at low incremental costs results in very significant EBITDA generation. You can see here ranging from over 12.5 billion per annum on average for 2022 and 2023 at $4 copper to 17 billion per annum at $5 copper. Operating cash flows under these price scenarios would range from nearly 9 billion to 12 billion. And these cash flows are significantly above our planned capital spending, providing substantial free cash flows as we go forward. On slide 19, we show our capital project forecast, and we show projected capital of $2.3 billion in 2021. That includes potential spending on the Indonesian smelter, which again would be debt finance, but the 2021 guidance numbers are very similar to what we had in our previous reports. Our 2022 capital of $2.2 billion on a consolidated basis is about $200 million higher than our previous forecast, and that incorporates an acceleration of mining investments to bring volumes forward and provide capacity assurance for our plans. We are in a strong financial position and have entered a period of exceptional free cash flow generation. Slide 20 kind of shows you the exceptional cash flow generation that we have in the business. You can see on the slide where in a six-month period of time, our cash balance has increased by over $2 billion. Our long-lived asset base, our growing production profile, strong markets provide the ability to continue to strengthen our balance sheet, provide cash returns to shareholders, and build additional values in our asset base. Our financial policy that Richard talked about earlier is designed to tick all of these boxes, and we look forward to executing on these plans. And in closing, I'll just say, to echo what Richard said, it's an exciting time at Freeport. We've got the right assets at the right time, and we're staying focused on continuing our momentum. And now operator would like to open the call for questions.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press star 1 on your touchtone phone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. If you are using a speakerphone, please pick up your handset before pressing the numbers. We ask that you limit your questions to 1. If you have additional questions, please return to the queue. One moment please for our first question. Our first question comes from the line of Emily Chang with Goldman Sachs. Please go ahead.

Good morning, Richard and Kathleen. Thanks for the update here today. Just a question around the capital allocation policy, and we appreciate that you updated this a couple of months ago, but certainly sounds like there's a significant amount of cash returns potential upcoming if we were to assume current copper prices. but maybe on the other side of that could you discuss how you're thinking about you know when the right time to sanction growth would be um and any color you can provide on sort of long-term or sustainable copper prices that you would need to see or need to base case in your assumptions for this and then you mentioned uh being disciplined and selective but uh as you look over the next couple of years at what point would you start considering pulling the trigger on growth

So, Emily, we had suspended all of our studies on growth projects a year ago, and now we've resumed those analysis with the purpose of understanding the pros and cons of each of the projects and developing an evaluation of them. That basic work of evaluation we expect to continue at least through the end of this year. And by the end of the year, we hope to be able to have a clearer path forward. So it will be some time before there is any commitment to actually initiate significant capital spending. And then in the meantime, we point all the volume growth that's coming about from Grassberg, the resumption of operations from COVID, et cetera. So we're going to have increasing volumes with strong prices and high cash flows with limited amount of capital being spent because we just won't be ready, as you say, to sanction projects. We don't have any particular target at copper price. We've always looked. at a scenario of different prices, that of how a new project would fit into our portfolio. We want to take advantage of these resources that we have and yet have risk managements by how they fit into all of our existing portfolios. So we don't look at it so much on an individual project by project basis, but how does it fit in with our projects? You know, Freeport Freeport really benefits from the fact that we operate all the projects we have interest in. So that allows us to approach these on a consistent corporate strategic basis as opposed to an individual project-by-project basis. Certainly at these price levels, our projects are economic. And now you know the prospects are for prices to go much higher. So I anticipate that over time we will be spending money on capital. That's just not going to happen in the near term. And that's going to be a feature of the entire industry. Because even when we decide to spend, the time frame for developing a project is multiple years, you know, minimum six to eight years. So all of that's going to be, as you well know, Emily, because you write about it all the time, that's going to be very supportive of copper prices. You can't turn on the valve quickly to add new mine supply. And when you can't do that and demand rises, that translates into higher prices.

got it that's that's very helpful car and one quick one if i could squeeze it in um just an operational update at the grass dog block cave and deep mlz um looks like you know sales volumes are maybe moved out a quarter a little bit but anything you can provide on sort of the sustainability of the copper grazer thing any ramp profile comments and pieces draw belling that please thank you yeah johnson on mark you want to just give an update on

Yeah, we're generally on plan. Grades are tracking well from the model to what we see at the mill. In fact, we're fortunate that the mill has actually seen a little bit more grade than the mine has recorded as sending. Drawbell opening, it's probably shown in the slides that we did make some adjustments in deep MLZ. We slowed down the cave advance in some of our diorite rock types, which are the more challenging rock, and accelerated the cave advance in some of the sparns going off to the west in PB2. In GBC, we've accelerated our drawbell opening. And over the five years, it's relatively the same.

Great. That helps. Thank you.

Yeah. And the fact we referenced delay in shipments, that had nothing to do with operations. The inventory was there on site. There were loading, shipping, some administrative issues with the government. And so all that inventory was produced on site, now will be sold. And as inventory built, we were able to advance some... maintenance activities from the second quarter to the first quarter, all of which is to be supportive of meeting our plans going forward.

Our next question comes from the line. It's Chris Lithumena with Jefferies.

Hey, thanks for taking my question. Good morning. Good morning. Just questions about the performance in South America. It was good to see you. that you appear to be operating well there despite the escalation of COVID. But we have some political risk that is potentially escalating there as well, especially in Peru with the upcoming presidential runoff. So the first question is related to the contracts and licenses that you have in Peru. Is it similar to what you had in Indonesia where you have a stability agreement with international arbitration provisions should something go wrong in terms of government trying to significantly increase taxes or try to nationalize a mine? Do you have that same sort of protection there? Yes.

The answer to that is an absolute yes. Stability agreements has been a feature of the operations in Cerro Verde since way before Freeport, but we were able to get a new stability agreement as we expanded the business. And You know there's always a correlation between the aspirations of government and workers for more funds as copper prices rise. Copper is so critical to Peru in terms of a country that still faces challenges of poverty and so forth. We just step back and watch political environments. We know we have to work with whatever governments, wherever in the world, that a country selects. But we do have strong rights to do that. And unlike some operations in Peru, we have positive relationships with the local community because of social investments we've made in water and wastewater projects. So... Our team there is just, I mean, I can't tell you what a great job they've done. A year ago, we were really worried about Peru. Our workers lived in the city of Arequipa. There was a real issue with community spread, but we've been able to work the community, develop temporary living, and we got our rates up to near our original run rate targets, and we can expand further as we go forward. The team there has just done a remarkably good job.

That's so very good to hear. Thank you for that.

And just under the stability agreement, our taxes are fixed in that agreement, and they're actually higher than the current statutory rate in Peru. So we've paid higher to get the stability. And we also pay a lot with the communities and big employer. We have a profit-sharing program. mechanism there, and that's partly why you saw the cost increases, but we do as the mine becomes more profitable with higher prices, there's a large profit sharing that goes to employees, partially to employees and partially to the country. So it's a good model to share economics both to the local communities and and country and workers and to the investors.

Great, thanks. And with respect to potential expansion at Alaba, we're hearing from other Chilean miners about challenges getting permits. It seems like in some cases permitting is nearly impossible, which I suppose for the copper market is pretty bullish if companies can't bring capacity online in Chile. But I'm just wondering in terms of Alaba, what sort of permitting hurdles you might have to actually expand that asset.

Thank you. We'll have an environmental impact statement that we'll file in connection with the project. So that is a very comprehensive permitting process. We've gone through it before, and you have to do a lot of baseline work, et cetera. So there's a lot of work you have to do before you actually submit it. But that project, you know, partially is, you know, the permitting is partially why Richard's saying it's, you know, six to eight years out. Okay.

In the best environment, Chris, it's going to take a long time to get that permit. Now, we don't have some of the, because of where this mine's located and the fact that it's been a long-running existing operation, It's nearby Codelco Mine. It doesn't have some of the permitting issues that others have. A major mill expansion would require a desalinization plant and the cost of transmitting that water up to the high altitudes where we operate. But it's in a setting where we don't face some of the challenges others face. But best case, it takes a long time, and it's a big project. Great, thanks.

Our next question comes from the line of Alex Hacking with Citi.

Hey, Alex. Hey, Richard. How are you? Good morning. Just following up on Chris's question on Peru, I'm not sure how much you can answer here, but has there been any engagement yet between the mining industry and the candidates, particularly, you know, the candidate that's leading in the polls? And then secondly, regarding your production footprint, you know, with Chinovac and Sarah Verde, heading back to full rates, does that put Freeport's production footprint, you know, back at normalized, you know, pre-COVID levels? Or is there a potential, you know, future upside at these prices?

Thanks. I'll take the second one first. You know, just in terms of the ramp back up, you know, we've made the decision to start ramping Alabra back up. That's in progress. We expect to get back to pre-COVID levels there in 2022. That's reflected in our guidance. Same with Cerro Verde. In the U.S., you know, we had cut back the mining rates significantly. We're starting to ramp those back up. We have some opportunities, still have some opportunities at Valencia that aren't, you know, that aren't baked into our forecast yet. And then we have opportunities at Chino because our plan right now is running Chino at 50%. In addition to that, as we mentioned, we have some incremental opportunities potentially at Lone Star. So I would say in the U.S. we do have some opportunities that aren't in our near-term plans that we'll be assessing as well as some of the leech opportunities technology applications that Richard referred to earlier. So we do have some near-term opportunities not in our plans.

Hey, Kathleen, let's let Josh make a brief comment about that. Josh Olmstead was named this past year to be our Chief Operating Officer in America's He's been the number two guy for many years. He's a young guy, but he's got a long career in Freeport and is just doing an outstanding job in bringing energy and leadership to our group. So, Josh, make a couple of comments.

Thanks, Richard. As Kathleen was stating, you know, we have some near-term opportunities with Marinci, Lone Star, incremental things. You know, the most exciting piece, I think, is the work that we're doing on the leach technology that both Richard and Kathleen touched on. You know, if we can prove out some of the concepts that we've identified and began working on, it could have a significant impact on our ability to take advantage of long-term stockpiles that we have out there that contain copper today that we haven't been able to extract. And so this leaching technology is really could be meaningful as we look for opportunities to get some incremental low-cost incremental copper as we move forward. And so our plans are working on that this year with the goal of having very similar to Richard's comments about the bigger scale projects, having much more clarity by the end of the year on what that looks like and what the potential value is for us. But we're super excited about what we're seeing so far.

So restarts, technology, leeching, all those point to growing volumes from our traditional operations, Chris. Alex, right? We're at Alex now. So Alex on Peru. Man, how complicated are politics everywhere in the world? And in Peru, as they were approaching this runoff, you had a half dozen more candidates, each having 10% plus or minus support in the polls. So it was very complicated. Freeport stays out of politics. As I said, we just run our business, support communities, be prepared to work with whoever emerges in the political process. The mining industry in Peru, there's an active mining association that's led by Peruvians, and they engage with candidates to understand and interact and communicate with them on policies affecting mining. And I'm sure they'll be working with both of these candidates as we go forward. And you will notice the candidate who earlier was being very aggressive in talking about mining is now making comments about the importance of mining to Peru. So all of that will come to play, and we'll just have to see what happens.

Thank you very much.

Your next question comes from the line of Tim Nataners with Bank of America.

Hey, good morning. Thanks for taking my question. I wanted to ask a little bit. I want to ask a little bit more about costs. Obviously, you went through in detail about what caused the incremental cost in the quarter and in the guidance. But obviously, costs are rising and inflation is a big topic. I mean, do you think that this encapsulates the future cost that you could bear fully, or are you seeing further pressure? And can you detail where that could come from and a little bit of what you've been seeing in more detail?

So the first point I want to make is a point Kathleen referenced earlier. Some important elements of our cost are correlated to copper prices. They're correlated. I mean, things like royalties, there's profit-sharing plans, Labor costs in general, there's correlation. Then there's other input costs that are correlated. Energy costs, which is an important element of our costs, and energy costs have risen in recent months. Copper prices have risen even more, thankfully, but energy costs are built into that. And then certain other costs are correlated. are seeing some inflation. So far, energy costs are the ones that outside of the profit-sharing royalty costs are the ones that have the biggest impact. And as time goes by and copper prices rise, you know, we'll have to deal with inflation. But we have such strong margins. We have a great supply group team that works with our suppliers to offset costs wherever we can. We're working really aggressively to do that so you know tim i think i mean i know you realize this because you're right about it but inflation is good for copper i mean inflation is good for copper with what the world's doing today with all this spending on covert recovery with uh spending around the world that's being driven to to deal with economic inequalities You know, that's pushing money to people who consume, who create economic velocity, which creates demand for copper. So in the broader sense, all these forces will work to the benefit of our company.

Yeah. And, you know, what's been interesting is you look at today, you know, four and a quarter copper. You know, last time copper was four and a quarter, oil wasn't at 60%. you know it might have been a hundred and dollars a barrel so um so we are benefiting from from you know the lower energy prices um even though they have they have come up some um the the historical correlations just you know aren't aren't as um as correlated as they once were and we've we you know we go through a review you know each quarter on where we are with our supply chain and revise our forecast every quarter to reflect, you know, current pricing and that sort of thing. So that's baked into these plans. And as Richard said, whether we'll have, you know, additional cost pressures from, you know, tightening freight markets or, you know, other supplies, you know, we'll have to see where that goes. But right now the forecast that we developed is based on, you know, what our pricing contracts are currently.

It's a high-quality problem, but if we're assuming a bit higher copper price, for example, we should also incorporate it. It sounds like some assumption of inflation as well.

Well, as I said, yes. The answer is yes. There's correlations. I mean, royalties rise, profit-sharing rise, and then you make your judgment about energy, steel costs, and so forth. And I know I'm a broken record, Tim, and I know you understand, but the bottom line is margins rise. Sure. For many businesses, these inflationary movements deteriorate margins. Historically, our margins have stayed very strong as copper prices rise and other costs rise.

For sure. That's clear. Thank you.

Thank you.

Your next question comes from the line of Matthew Murphy with Barclays.

Hi, um, I have a question on the Indonesia smelter and wondering if you can help me understand the risks around the pace of the project. So there was the, um, the disclosure in your 10 K about the fine. And there's been some comments the press and just wondering what you're expecting is it possible through this you know discussion and looking at the options that you could see more fines or you could see more frustration from Indonesian government or do you think it's it's going the other way and it'll get resolved I'm gonna let Kathleen talk about this she's whacked and work actively with the parties there and negotiating the

the terms. We are going to cooperate with the government. We made a commitment in December 18 to build a smelter, and I'm being very clear that we recognize that commitment, and we are prepared to honor it. There are different views within the government of Indonesia. You know, when you reference the government, it could be interpreted as being a one group. There are different views within the government itself about whether to support this development if we debate or go forward that we initially started. And so shareholder mind ID and with the Ministry of State on Enterprises, with the Ministry of Energy and Mines to find what is best, what decision the government ultimately made, and we're prepared to go forward provided we have, if we go in the direction of the Weed of Bay, we have reasonable terms and reasonable regulatory environment. So, Kathleen, why don't you talk about this? And the Mines Ministry wants to push us. I believe we'll resolve this situation and that everything's going to be okay. But, Kathleen, why don't you give us some details?

Okay. Under the regulations, the government grants annual export licenses to And then there is a six-month check to evaluate your progress against the smelter development schedule that they have and they have approved. As a result of COVID, as we said, during 2020, we notified the government that our schedule was impacted by the pandemic, and they were force majeure conditions that prevented us from achieving the schedule. And under regulations, there's potential for fines if you don't achieve the schedule, and that's what the government did. They levied this fine. And we have gone in and explained to them the reasons why the project was delayed and that this was, you know, force majeure, which is allowed under the regulations to waive any penalty. So we're in those discussions with the government. They're asking for some additional support for our position in details. I mean, it's obvious that COVID affected schedules for projects all around the world, but they're asking for some more details. We think it will get resolved soon. in a mutually satisfactory way. But as Richard said, we're also very focused on meeting our commitment to the government. Ultimately, we notified them that we had a 12-month delay in reaching the, because of COVID, reaching the deadline of December of 23 to construct the new smelter. And now we expect that that wouldn't be completed until 2024. this option that richards referring to it we debate potentially could get us back on schedule uh... and we just need to make sure that it you know it it it fits with you know from a commercial standpoint and and and overall business risk standpoint uh... but we you know we're working closely with the government you know what i i can say that our interests having our partner in a woman died the our interests are are very much aligned and um... and we're all on the same page in terms of what know what we need to do and we're just working our way through through the government's regulations to to to resolve this issue and i'm confident we will thanks kathleen so the outcome of the discussion with uh the government would that be the completion of sort of a new um smelter uh progress schedule yeah right that's part of what we're discussing is a new schedule for the project, and that's tied in with our discussions with them on this administrative fine.

Okay, thank you.

Your next question comes from the line of Carlos D'Alba with Morgan Stanley.

Thank you very much, Richard and Kathleen. Good morning. Just following up on the smelter, would you please expand a little bit more on the status of the negotiations between commercial parties, maybe for a third party to do the investment in the major smelter? Are those still ongoing, or have they stopped? And we should now come back and think more about PTI doing – PTFI doing the smelter on its own. And then on CAPEX, and it's not a big increase, but CAPEX outlook for 2022 increased about $200 million related to other projects. Is there anything in concrete that you would highlight, or is it just based on the series of projects that you elaborated on earlier in the call?

Yeah.

Well, on the last question. Let me just say on the last question, it's good news, Carlos. You know, higher copper prices gives you an incentive to spend money to increase values. And so these are items that were largely in our long-term plans that we're advancing to create value. Right, Kathleen?

Yes. Yeah, that's exactly right. We've brought forward some capital. We've also, you know, increased production. So that's what that was. And it's basically mining equipment investments. The first part of it, in terms of the negotiations, and we don't publicly comment on details of the negotiations while they're still in progress, but we had all set a target of trying to get the commercial agreement with the third party done by the end of March. uh... and so there were extensive negotiations that went back and forth during the first quarter uh... by the end of march we had not uh... reached an acceptable agreement uh... and we you know with if they've been moving in parallel uh... this other project you know at some point we've got to make a decision uh... we haven't finalized that decision yet uh... but we are moving uh... the the our own project forward so that we can meet our obligations to the government and not rely solely on a third party. So at this point, we are still having some discussions with the third party, but we're moving the other one in parallel as well. So as soon as we get a final decision, and believe me, we all want that as soon as possible, we'll convey that.

convey that to you. I appreciate it, Carlos. Thank you very much, Richard.

Carlos, and when we talk there, we say, I was listening to Kathleen, some of the we is decisions by the government. The we in Indonesia is the PPFI, which is a partnership between MindID and FCX. FCX operates But we in Indonesia is that partnership along with the Ministry of State Owned Enterprises. It's a different world from those of you who followed us for all the years we were dealing with the government when FCX had to take the lead and really me personally was there on the ground on these negotiations. Now we're there very much as a team.

Hi, good morning. Just again a follow-up on the smelter. At some point, I assume you're going to have to make a decision in terms of whether to build your own or whether to go with a third party. Is there, at this point, is there a drop dead date in terms of which direction that goes? I mean, certainly you can't drag this on forever. No, it's the government.

I mean, it's really, it's the government. We're prepared. If we could get, if the government supports it and we could get a reasonable deal with and a regulatory environment dealing with our IUPK obligations, you know, DTFI is prepared to deal with WIDA Bay. If that doesn't happen, we're prepared to go forward with the other project. And we're working on that. We're not sitting here not doing anything. We're prepared to go forward. I just think it's important to keep in mind that while this is a big project and it's a management issue, it's not a huge financial issue to FCX. I mean, we were paying a 5% export duty. That would be relieved with a smelter. The financial implications are not that significant, and more than 70% of the financial implications go to the government through taxes and equity share ownership. So...

But, Horace, we do want to make a decision sooner. There's not some kind of drop-dead date, but we want to make this decision very soon.

Okay.

Thank you. I was going to say as a follow-up. Go ahead, Richard. No, I'm just saying it's not like we can say we're going to do this. It's got to be a joint decision. between the government and PTSI.

I see. Okay. Is it fair to assume, I mean, given that benchmark or spot TCs for copper are so depressed right now that in order for a third party to agree to build a smelter, is it fair to assume that they'd be looking for some kind of stability in the TCs perhaps that are at higher levels? Yes.

Yes.

Okay. Yes. Okay, and just a point of clarification. Did I hear earlier you state that you hope to be in a position to provide the market with some guidance on some of the brownfield growth opportunities in the U.S. by the end of the year? Was that correct? That's our hope.

That's our aspiration. I mean, as you know, we're a very transparent company. And our hope is that we get some clarity by the end of the year. Josh mentioned it. Kathleen mentioned it. And as we do, we're going to keep all of you informed. Great. Thank you so much.

Your next question comes from the line of John Jamazos with John Jamazos Theory Independent Research.

Hey, John. Thank you very much. Good morning. Thank you for taking my call, and congrats on all the money that's raining on you. Just following up on Emily's first question, for the Baghdad Mill project and the Al-Abra Mill project and the Couchingly Year underground project, which we know you're going to meticulously engineer and study as you plan and permit and build and finance, is it safe to say each of those are likely to come on 2025 or later?

Yes. Is it six?

Yeah, Baghdad could come on quicker than the other two. You know the long lead times for investments for KL. And KL, that's in our long-term plans. We're just optimizing it now. So in that capital, we spend over a long period of time. uh... and then you know elaborate just from a sequencing standpoint uh... would come behind baghdad from uh... from uh... you know time period that that that it could come online so uh... you're talking about you know if he started everything right now you're talking about seven years out with all the permitting process seven eight years maybe though the permitting process but uh... baghdad could be could be done probably, you know, on your 2025-type timeline, you know, depending on when we start.

If I could ask one more. I recall Couching Lear drill results that were very good in the 90s. How recently has that been drilled and updated? So you have access and you've updated those studies and have more information?

Yeah, Mark, why don't we talk about – Yeah, we've also – John, you'll probably remember that Couching Lear has pyrite content. And so, Mark, talk about how we've been working on it. And this has been a continual work project. It is independent of Grassberg Block Cave, Deep MLZ, and our other operations. But, Mark, maybe comment on how we've – how we've updated our analysis of KL.

Yeah, I mean, in the last three years or so, it was a significant change. It wasn't so much new drilling. We did do some drilling over the last couple of years, and we revisited some of the metallurgical work. The big change there was, and as Richard alluded to, the The original KAL mine plan was more focused on higher copper equivalent grade, but it also had much higher pyrite and required a significant change to our processing. The new mine plan focuses on some slightly lower copper equivalent portion of the resource that has now become the reserve, and this part of the ore body Essentially, we leave the mill as it is. The pyrite problem is largely diminished and almost eliminated. So the overall capital as far as processing, power requirements, environmental management have dropped significantly. In addition, this new portion of the new mine plan, the areas that we mine, the gold recoveries go up substantially. In our initial reserves several years ago, gold recoveries were below 50%. The new plan has gold recoveries over 60, and we think there's upside there. So it's a much less capital-intensive, much more robust plan, a lot less environmental management costs that go with this new KL plan. The one thing, Richard mentioned that it's independent. But in some ways, it does tie in. We share parts of the GBC ore flow system. KL ramps up. And in coordination with the GBC plan, we use some of the same conveyor. And then the big part was is that the mill is relatively unchanged with this new plan.

And so, John, thank you, Mark. So, John, this is not a competing project to our America's growth plan. I mean, it's in our long-term plan, as Kathleen said. It fits in with everything we're doing out there. And then the tradeoffs of where we invest in America, this is one where we will be looking at the pros and cons of each project. You know, in the U.S., We have no royalties because we only land in fee. We have no taxes because of our tax laws carry forward for a very long period of time, and tax rates in the U.S. are very low. So, I mean, all of this, you know, this is an after-tax, after-royalty economic analysis, and we're going to decide where can we add value most economically for our shareholders.

We're just so happy to see it raining money and good opportunities on you. Thanks, Sean.

Thank you. It's been a long, winding road, but it's great.

Your next question comes from the line of Michael Dudas with VRP.

Yes, good morning, Richard and Kathleen. I need to follow up on your thoughts on investment for Freeport. Certainly looking at after-tax returns, capital price, et cetera, taxes, How much more will ESG be involved in some of the analysis that not only you but the industry is going to have to work on? Is that going to add significant hurdles generally? Obviously, you have to have a social license to operate. I understand that. But is it because of the more importance? Is that going to be helpful? Is that going to add hurdles to some of this long-term investment that the industry is going to require to meet the demand needs going forward?

It is today. I mean, it is today. And, I mean, ESG matters are not something that's common across old projects. They're all site-specific related. You know, I made a point, and I think you probably picked up on it, in talking about our growth projects in Arizona being supported by communities and by Native American groups. That's because we've been there for so long, and we have devoted attention and resources to those communities and to providing opportunities beyond just our separate operations. Elsewhere in Arizona, even, which has a favorable state view for mining development, there are huge barriers from an ESG standpoint to mining. you know, to developments. And you just, you know, you just look at Rosemont and Resolution and other projects. So you have to go and look at each particular project, the way companies are provided. But it's an enormous barrier, and it's going to grow. I mean, you know, the number of groups that are involved in ESG attention, You know, you see it, you know, with institutional investors, which you are aware with, but consumer groups, you know, are very focused. Automobile manufacturers are focused about where are their minerals coming from, where's their copper coming from. That's why this copper mark thing I referenced is so important. So it's an enormous issue right now, and it's going to be a major impact on – it's going to be on –

supply development so yeah and it's always been part of our project evaluation it's you know even more so today but it's always been part of our evaluation is you know using less energy diversifying our energy sources to looking at renewables you know water is a big issue that we manage you know we found a great solution in in Cerro Verde in Peru when we did that project where we built a wastewater treatment plant to get water so we didn't compete with other uses of water in the country and actually help the community. So we're always looking as part of our projects, how does this project help the community? And ESG has always been part of it. As Richard said, it's just growing much, much larger. You know, and I guess you know this, but copper is really a great story. We don't have the scope three emissions that other companies have to deal with. Copper is actually what copper is used for is actually, you know, used for decarbonization. But the scope one and two areas is something that we, you know, we work hard on every day, and it's all part of our project development plans and capital investment plans.

I appreciate those thoughtful answers. Thank you.

Your next question comes from the line of Andreas Bokenduser with UBS.

Thank you very much. Thanks for taking my question. Just a quick operational question, a two-part one, actually. Obviously, we saw production a bit higher in Q1 versus sales. Can you just comment a little bit further about the restocking? I think you were saying also that there might be some co-sales at Glassburg that are going to get delayed into sales in Q2. So what kind of drove that?

Okay, so let me address that. You know, we don't sell copper and gold in Grassburg. We sell copper concentrate. It's got copper and gold in it. We get paid for the individual components at LME prices. But as I mentioned earlier, what happened at Grassburg is we met our production targets. We transported this copper concentrate to the port site to be ready to ship. Some shipments got delayed. for various reasons. So the production's done, and we recognize sales when the concentrate's loaded ships. So literally all we have is some of those sales are going to be in the second quarter rather than first quarter, and it's just that simple. And throughout our operations, we have timing issues like that. For those of you who follow the Grasberg, you know we have weather conditions at port. It's a shallow water sea, and so weather conditions can delay shipments. But all this ends up being strictly a timing. Whether it's at the last of the first quarter or the early part of the second quarter is irrelevant.

Generally, our production equals our sales, and we did have some both in the U.S. and in In Indonesia, we did have some changes between production and sales, but that's, like Richard said, just timing.

As you can imagine, we can sell everything we produce. That's not an issue.

Absolutely. That's very clear. And then a follow up question. You've obviously been mentioning that you expect the output at Peru and Cerro Verde to kind of return to normal next year. Are there any other minds in your global portfolios that are right now kind of feeling the pressure of any COVID restrictions or anything of that nature where you expect there could be a bit of a volume ramp up going into next year?

Well, we mentioned we restart. We've actually suspended operations at the Chino mine in New Mexico, relatively small mine, but we resuming operations there. We, uh, reduced, uh, uh, mine rate stripping rates at, at Marinci to conserve costs. And that'll take some time to restore and production will build up from there, but it's nothing, nothing of real significance. Um, the amazing thing is the guys, Mark and his team at Grassberg have just done remarkable with, uh, um, meeting our targets there in the face of a very challenging COVID location. And we've done a remarkable job in managing all that and continue to.

Yeah, I'd say logistically in South America is where we have the biggest constraints currently. But we're still dealing with it all over in terms of protocols, et cetera. So we're not letting up the guard, and we're continuing to be very careful about how we operate to make sure people are safe. But in terms of the logistical side of things, it's mainly impacted South America.

Okay, for South America. We have a great internal medical director. We work with International SOS for years, and they've been fabulous in helping us build testing facilities and facilities for dealing with infected people. We're able to treat them, get them back to work, and that's an ongoing process.

Okay, that's clear. So for South America, the expected plan is to ramp up, happen in the second half, and then you're kind of back at full run rate in early 2022. Is that the right way of thinking about it?

Well, in Peru specifically, you know, our plan is to run at this reduced rate all year long. And, you know, we'll assess that as we go. But right now the going in assumption is that we'll be in a situation where you know, for the balance of 2021, and then go back to the plan in 2022. That's the assumption. In Chile, you know, it's a smaller operation, but we are beginning to increase our mining and stacking rates there. And the metal impact will happen in 2022. But we're starting that now. So But our plan at Cerro Verde, which is our largest operation in South America, is to be at this slightly lower rate in the balance of the year. The team did a great job and was able to surpass expectations in the first quarter, but it's not something that we feel is prudent to assume because the restrictions are still very significant.

Okay, that's very clear. Thank you very much. Thank you.

Your next question comes from the line of Lucas Pikes with B. Reilly Securities.

Good morning, Richard, Kathleen. Thanks very much for taking my question as well. Most of my questions have been asked and answered, but I wanted to circle back, Richard, to some of the earlier comments you made regarding this being one of the best copper markets outlooks you've seen. And in light of that, when we think about the framework for retaining capital versus returning capital, to what extent could this be subject to review? We spend a lot of time on this call talking about organic growth, for example. So could there be an incentive to toggle this ratio more towards the growth side? And then along the same vein, M&A, have your views on that evolved? And if so, what geography could make sense? Could you be looking at producing miners or would you look pre-production? Would appreciate any updated thoughts on that as well. Thank you very much.

That's a very good multilayered question. Let me see if I can answer it precisely. Yeah, I've been around a long time. And I see there's three kind of eras of copper demand. Pre-early 2000s, it was all driven by developed countries' GDP. Copper was the most correlated commodity to GDP, and it would rise and fall based on business cycles. China emerged, and now for almost two decades, has dominated new demand growth. It's all come from China when you look at it. The rest of the world's kind of been flat. The new era today, which is so exciting, is China's rate of growth, which people have been pointing to for some time, inevitably is falling, has to fall. COVID's kind of complicated all that up. But its absolute demand for copper volumes is so strong because its economy has grown, and that's going to continue even as it pivots its economy to consumers and exports. The absolute amount of copper that it grows, even though the rate of growth will drop, the absolute amount will be strong. Now, the reason I'm so excited about now is now you've got its COVID recovered in the developed world, but also all this movement around the world, and you see it clearly here in the United States, to push money to a broader set of people to enhance consumption. All this move towards income inequality, which everybody recognizes we've got to do, and that's going to create new copper demand. And then my long-term story has always been, In the undeveloped world, global growth, all the vast numbers of people around the world that are living in substandard conditions have aspirations of having better conditions. That requires more energy, more transportation, communication, more copper. So that's why I say the demand side to me is in a new era, and it's really positive. And the supply side, I don't know how it's going to keep up with it. I literally don't. Here we have all of these projects at Freeport. The price of copper could double overnight. Some people talk about it doubling anyway, but overnight. And we couldn't add due production of significance for a number of years, for a number of years. So it's going to be really interesting to see prices. Unless there's some global calamity, Prices, it just seems to me, clearly have to rise substantially. Substitution has to occur. Scrap has to grow. But how to meet that demand? And that's why I'm so thrilled about where we are after all this time working to put this company together. John Tommaso's referenced it. I mean, we've been through so much, but I recall Kathleen and I developed a strategy in 2003, 2004 when I became CEO of focusing on copper. And now it's so great here all these years later to see it coming to fruition.

Very helpful.

And in terms of the M&A question, you know, we're really focused on our existing assets. We've got development options within the portfolio. We always monitor what's available externally and compare that against what we have.

Let me add just a personal observation on that. Our company made a misstep. Other mining companies made missteps when they forced M&A for strategic reasons. You just look over and over again. Felsage came to us as an opportunity. It wasn't a strategic plan to do it. We had talked with him about buying us. So where we are now is we have no strategy of engaging in M&A markets, but we'll be positioned now for the first time in a long, long time. If an opportunity comes to us, it comes to us to take advantage of it. Our strategy is forward, execute, invest, invest in a disciplined way in our resources that provide growth, that create value. If something comes to us, we're going to be in a position to consider it, but that's not our strategic objective. You mentioned startup operations. Those come to us all the time. But we have trouble. It's been a big barrier to make the economics of those work because to get into it, you've got to pay the value that's been paid already. When we have all these resources in our portfolio where there's no value being given to them in our share price. So we see that's been a real barrier of making even what might be at some level interesting projects work economically for our company. And we've had a long saying in Freeport, big mines get bigger and small mines get smaller. So that's also a tough issue.

Richard Kathleen, thank you very much for the color and continued best of luck. Thank you.

Your next question comes from the line of Jitinder Goel with Exane B&P Paribas.

Hi, good morning and good afternoon. Thank you for taking the question. Just one on smelter. To get a bit more clarity, is it only one party that you are engaging with on potentially outsourcing the smelter, or are there multi-parties? The reason for asking, you might have seen a news release or a media article last week that Indonesia has signed MOU with ENFI, and that's in West Papua, where people were said to have committed to 800,000 tons of raw material as well. which doesn't seem to align with the full scale of smelters. I'm not sure if you're looking at just one smelter, one part of it. Thank you.

Yeah, the discussions to date have been most extensive with the project at Weta Bay. The project that you're referring to is in Papua, a potential project. You know, we're familiar with the developer there and have indicated that, you know, if there's excess capacity, we may be able to supply. But, you know, our options right now are focused on the base supply or focused on either the Queda Bay option or our project at Grassic.

Yeah. We, in response to your comment, we've made no commitment for supply on the Poplar project. For years, we would have liked to have seen a smelter developed in Poplar because we, you know, it would be desirable to help the local community there. But the infrastructure cost, the absence of infrastructure, the timing investment that would be required for infrastructure have made it impracticable in the past.

That's very clear. Thank you so much.

Our final question will come from the line and brought to you by Raymond James.

Hi, good morning. Hi, how are you today? I'd like to go back and talk a little bit about KL because, you know, finally after years it's getting closer. But it does sound like the project, as per John's comment, has changed. So I just want to try and understand. stand a little bit because when you look at the grade of this you know it's point the reserve grades whatever 0.9 copper and 0.9 grand per ton gold so it's a little more gold than some of the others so in this new plan I guess my first question is you talked to certain areas of the ore body is there an area that's higher grade which you start which helps the economics and my second question It sounds like the new plan obviously saves CapEx, which is good. Technically, probably is easier, which is good. But then you talk about lower copper equivalency, so I'm trying to figure out just how much lower that copper equivalency is. And secondly, obviously that depends on price assumptions too. So this sounds pretty good.

Yeah, we'll let Mark talk about it, but the – There's a section of the mine that, and we did the same thing with the Glassburg Block Cave development. We modified it over time to focus on the lowest pyrite sections. And what Mark will tell you is that with KL, we redesigned the mine plan to reduce the capital intensity Because in order to get the pyrite, there's more capital in the mill, more environmental management required, and the recovery starts going down. You know, you mentioned the 0.9, but it has a very low recovery, some of the ore. So what we have developed here is a more optimal plan that reduces up-front CapEx and modestly changes the... the total ore, but from a metal standpoint, you're actually ending up with similar metal because you've got higher recoveries.

So Mark, do you want to add to that? Just, and then we'll turn to Mark. But it's not that complicated. It's, we've designed a new mine plan to avoid and minimize the pyrite section. Right. So, and by doing that, we reduce mill investments, plus there was going to have to be a pipeline. You've been out there. A pipeline from the mill down to Lowlands and storage, all right, in Lowlands. So, Mark, it's more of an engineering design determination, which gets all these economic benefits than anything else. Mark?

Yeah, and I think the major – not necessarily the highest grade, but where the highest value after capital investment was in the ore body – And if not for having a debt, you know, our contract with the government goes out to 2041. If not for that, the material that we've deferred would also be in reserves. So what we've done in this new plan is brought forward. There's about half of the old reserve that overlaps with the old reserve. And then there's another half where we've deferred a part of the lower value ore and being able to substitute it with higher value ore. This ore that we're now mining would be sediment hosted, very similar to what we milled for years in the DOZ, deep MLZ. The old reserve was very much centered on this fault that had the highest grades, but had, as Richard and Kathleen mentioned, some of the bigger challenges were a new mill. We had to grind it much finer. That came with additional power requirements. And then we had to manage the pyrite, which for us is to segregate it from the mod ADA and store it separately. So by recognizing all the costs that are associated with some of the higher copper equivalent grade, that's a combination of the copper and gold value, and substitute it with looking more on a value rather than purely on copper equivalency, we came up with a much more optimal sequencing of the mine with the opportunity to go after this other material at a later date if we had the opportunity to mine beyond 2041.

And as Mark said, reduce risk, more robust. And we're doing some things right now to continue to try to enhance those gold recoveries.

And can you, with this new plan, and I forget what the original rate, you figured KL was going to go through it. Can you actually offset the... at a higher mining rate? Because I think you'd still have milk capacity at 240,000 tons too, right? Does that offset it in, or is it still sort of the same rate there?

It's very similar mining rates that we had before. The tonnage is similar. It's a little bit less because we start a little bit later. It does fill the 240,000 tons of milk capacity that we'll have with the SAG-3. And so there's obviously a district-wide plan that we sequence all of the ore bodies to best fill that mill in an optimal fashion. This would peak at 90,000 tons a day, just marginally above what we're planning to do with the deep MLZ. And it ramps up as GDC would start to drop off. And so it's a balancing of the highest value material getting the first opportunity for mill space.

Great. Thank you very much. That's very helpful. And it certainly sounds like it's a much more profit risk adjusted capital intensity project than maybe it was thought of 15 years ago when we first looked at this, I guess. Yes, correct. Exactly right. Thank you very much. Thanks, Brian.

Now we'll turn the call over to management for any closing remarks.

240,000 tons a day from the underground operation. I'll just leave it with that. Thank you so much for being on our call, and we look forward to continuing to report our progress as we go forward this year and following years. Thank you.

Ladies and gentlemen, that concludes our call for today. Thank you for your participation, and you may now disconnect.