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.