Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoran Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to ask a question during the Q&A session, press star 1 on your touch-tone 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 and welcome to the Freeport-McMoran second quarter conference call. FCX released our results earlier this morning and a copy of today's press release and slides are available on our website at fcx.com. Our conference call today is being broadcast live on the internet and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today's call, and a replay of the webcast will be available on our website later today. Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include forward-looking statements, and actual results may differ materially. We'd like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings. On the call with me today, Richard Atkerson, our chairman and chief executive officer, Mark Johnson, our chief operating officer for Indonesia, Josh Onsred, our chief operating officer for the Americas, Mike Kendrick, who leads our molybdenum business, Rick Coleman, who leads our construction and growth projects, and Steve Higgins, our chief administrative officer. I'll start by briefly summarizing our financial results, and then we'll turn the call over to Richard, who will review our outlook and the slide presentation materials that have been provided to you. As usual, after our remarks, we'll open up the call for questions. Today, FCX reported second quarter 2021 net income attributable to common stock of $1.08 billion, or 73 cents per share. That included net charges totaling $56 million, or 4 cents per share, detailed on page Roman numeral 7 of our press release. Adjusted net income attributable to common stock totaled $1.14 billion, or 77 cents per share. Our adjusted EBITDA for the second quarter of 2021 totaled 2.7 billion, and you can find a reconciliation of our EBITDA calculations on page 35 of our slide deck materials. We had a strong second quarter. Our copper sales of 929 million pounds and gold sales of 305,000 ounces were significantly above the year-ago quarter. but our sales were approximately 5% lower for copper and 8% lower for gold relative to our recent estimates, primarily reflecting the timing of shipments from Indonesia. Our annual guidance is consistent with our prior estimates. Our results in the second quarter benefited from strong pricing. Our second quarter averaged realized copper price of $4.34 a pound, was 70% higher than a year ago quarterly average. Our net unit cash cost of 148 per pound of copper on average in the second quarter was slightly above our estimate going into the quarter of 142 per pound, but that primarily related to non-recurring charges associated with a new four-year labor agreement at Cerro Verde. Operating cash flow generation was extremely strong, totaling $2.4 billion during the quarter. That included $0.5 billion of working capital sources. And our operating cash flow significantly exceeded our capital expenditures of $433 million during the quarter. Our consolidated debt totaled $9.7 billion at the end of June. And our consolidated cash and cash equivalents totaled $6.3 billion at the end of June. Net debt was $3.4 billion at the end of the quarter. And we achieved our targeted net debt level several months ahead of our schedule. I'd now like to turn the call over to Richard, and we'll be reviewing the slide materials that have been provided.

Go ahead, Richard. Thanks, everybody, for joining us. We are really pleased to report in what's now becoming a string of really strong operating performances for our company. And with this great positive outlook for our business, we're all really enthusiastic about it. Hoping all of you are staying healthy through this pandemic. Vaccinations are giving us an opportunity to protect ourselves and those around us. And we're working hard to encourage our people globally to take full advantage of this opportunity whenever possible. Our teams are working safely. We remain diligent with our COVID protocols that have been so effective. With the recent rise in cases globally, we are refocusing, redoubling our efforts, restoring some protocols that we had loosened to keep our team and community safe. Our results in the second quarter demonstrate really strong execution of our plans. really strong and favorable pricing for our product. Kathleen mentioned the shipping issue. Logistics is an issue globally. We basically met or slightly exceeded our production targets. We've been able to ship everything we produce. We would have beat our sales target. We also, common in the mining industry, had some one-off type issues affecting production. Without those and with shipping, we would have had a real strong beat on our previous guidance. Really important, our Grassberg underground ramp-up is proceeding on schedule. This is a remarkable and I would say a historic success for both our company and even the mining industry. Our team in Indonesia is doing remarkable and outstanding work, and this is building value for our shareholders. and long-term sustainable low-cost values for the future. Production, we're making money in the Americas, copper prices, production in the U.S. is increasing. Our Lone Star project in eastern Arizona is really exciting. We have a series of ongoing value-enhancing opportunities in the U.S. In front of us in South America, our teams in Peru and Chile, are navigating the pandemic. Effectively, we're restoring production that we had curtailed a year ago. We have achieved these outstanding financial results with the work and investments we've been making for many years. We're now generating significant cash flows, which will be sustainable for years in the future. This quarter alone, we had $2 billion in cash flow after capital spending. That's just remarkable considering where we were just a year ago. That being mentioned, and it's notable, that we reached our debt target several months earlier than our forecast earlier this year.

Within the targeted range we set of $3 to $4 billion.

We reduced our debt by like 60% over the past year. early this year and we disclosed to the market to shift our capital allocation priorities by holders as we make both of our business this policy will allow us to maintain a strong balance sheet with high-grade credit metrics while providing cash for increasing shareholder returns and and investing in our company's long-term future. Slide four talks about how we're devoting significant attention and resources to sustainability initiatives. And this has always been key to our company and a tradition of our company. We are committed to the sustainability principles of ICMM. We're also moving to certify all of our operations with a copper mark. a relatively new industry framework developed by the International Copper Association to ensure responsible production consistent with UN sustainability development goals. Today, we lead the industry with six of our operations now certified. In the second quarter, we submitted five additional operating sites to this initiative, and we've committed to validate all of our sites to this robust framework. Responsible production critical in building and maintaining trust, which we've earned over the years through long-standing partnerships with communities as we deliver a product, copper, valued by society, produced in a safe, environmentally sound, innovative manner. Slide five talks about electrification, which is key to copper. The majority of copper goes into generating and transmitting electricity, and copper is critical in every aspect of achieving low-carbon goals for the global economy. This ranges from electric vehicles and supporting infrastructure to clean energy from wind and solar. Copper is just simply essential to a green economy. This transition is now just beginning to unfold. It will add significantly to future demand for copper, and as the global leading copper producer, Freeport is solidly positioned to benefit from this higher future demand. In addition, now companies around the world are responding to COVID with aggressive fiscal and monetary policies. This alone is creating important near-term copper demand beyond China. China's consumption remains strong. There are some mixed economic signals. But even with that, demand for copper in China is strong. And now it's higher consumption is being generated from economic recovery in developed countries around the world. And that's even in the face of an important sector of copper demand, automobiles, which is being constrained by this chip problem. So this increasingly important incremental demand outside China, the long-term growth from global, from growth in emerging markets, just is very positive for our outlook. Copper demand is also expanding from technology advances in communications, artificial intelligence applications, expanding connectivity through global infrastructure initiatives, and efforts to improve health through using copper to fight viruses and other infections. Slide six talks about this growing demand, the global challenges in maintaining much less growing supply makes the outlook for copper compelling. I would say compelling is an understated word, really, really positive and enthusiastic about it. This recent pullback in copper pricing that we've seen has not altered in any way our conviction of the favorable long-term outlook for copper. This is a decision we made years ago which underscores our strategy at Freeport to focus on copper because of its favorable fundamentals, the nature of our assets, and our team. There are always actions that influence sentiment and short-term pricing at any point in time. But beyond that, indisputable facts support a positive fundamental outlook for copper. Demand growth is inevitable. Maintaining supply or growing supply is challenged. Our prices will be required to support major new investments in copper. Rising demand, scarcity of supplies, point to large impending structural deficit supporting much higher future copper prices. Our company has high quality assets, industry leading experience, highly motivated team will allow us to benefit from these fundamentals. Portfolio of assets in the copper business is rare and not unique in our industry. because it's not impossible to replicate these assets with strong growing production embedded brownfield low risk growth from our large portfolio of undeveloped resources our assets are extremely valuable in today's world and will become more valuable as these market develops market deficits emerge in the future slide seven highlights our growing margins and cash flows we've had meaningful volume growth in recent quarters that you've all seen, this growth will continue. For the year 2021, copper value, copper volumes are projected to increase 20 percent, gold volume 55 percent over 2020. Then looking forward to 2022, we'll see a further growth of 15 to 20 percent over 2021 levels. The capital and execution risk to achieve these higher volumes are largely behind us. Our volumes will, with low incremental costs, we yield expanding margins. The price is ranging from $45 per pound for copper. We would generate annual EBITDA for 22 and 23 of $12 billion to $17 billion of copper with capital expenditures in the range of $2.5 billion a year. Looking back, there was always an overhang for report related to execution risk with this underground development, political risks in Indonesia, death levels. If you look back over the past three years, we have met and mitigated all these major risks that were overhanging our company, and it's been a really exciting, gratifying time for our company. So I'd hate to highlight the great progress we're making with the Grassberg underground ramp-ups. I just met with Mark Johnson and his team in Indonesia and really congratulated him on the fabulous work they're doing, even in the face of COVID. In the second quarter, we achieved just under 80% of our target annualized run rates for metal sales. We're on track to reach full rates of metal production by the end of the year, and our team in Indonesia has just done a fabulous job in the face of dealing with pandemic in a challenging physical environment. We executed well-designed operating protocols. We're dealing with this new upturn in cases in Indonesia in recent weeks. We're helping to support the government in our local community. We've implemented travel, other restrictions to mitigate the spread. We're encouraged by the increasing availability of vaccines at our job sites. and generally in Indonesia. A number of our workers, a significant number, have already seen vaccines and received vaccines. We have a goal of providing vaccines to all of our workforce in the second half of the year, and we're supporting nearby communities in their efforts to respond to COVID. We have a real strong support from the government of Indonesia, a real positive partnership with PTFI, stay-at-home shareholders, and shareholder miners. They were all working together and are aligned. I've been working at Poplar for 30 years, over 30 years, and I'm personally proud and gratified by our team's accomplishments since we began investing in the underground over 20 years ago, the transition from the old pit that began 18 months ago, and dealing with COVID, it's just remarkable what we've been able to do. Planning and investing in this transition began in the 1990s. Now, experiencing this success is special for all of us at Freeport. We now look forward to continuing long-term success at Grassburg by building values in this world-class historic mining district with low-cost, high-volume, and sustainable production. Slide 9 shows the multiple options for brownfield low-risk growth across our global portfolio, increasingly encouraged by the opportunities in the U.S. where we have favorable community support across the board with where we operate, favorable tax situation, and a long history of working in a responsible way. We're expanding our mine production at Lone Star, Baghdad, other sites, and we have exciting new opportunities from technology involving leach recovery from our historical operations. The Lone Star Mine, our newest operation, is situated adjacent to our longstanding operations in southeast Arizona. There we have strong community support, and this new mine is performing above design capacity. We're evaluating expansions of Lone Star's oxide ores We're actually making a lot of money in what normally would be stripping operations. We're conducting long-range planning for the development of potentially world-class sulfide resource that lies beneath this oxide cover in our historical mining area. We have an opportunity and a strong likelihood of moving forward with constructing a new concentrating to double production in our Baghdad mine in northwest Arizona. We expect to commence this project next year. Emerging leaching technology, which I am pumped about, provides substantial opportunities for added growth across our portfolio of global resources. We're evaluating attractive expansion opportunity at our El Abra mine in Chile, where we're partners with Codelco. This project would require significant capital investment along lead time, but it's a track that's large. Major future expansion of El Abra is likely, but not now. We're deferring investment decision on this project until we have more clarity about the mining policy issues currently under consideration by the government in Chile. We're also evaluating development of an underground deposit called Couchingly Air in the Grasberg District operated by PTFI. This copper-gold resource involves a large block cave mine using the substantial infrastructure that we already have in place. We have expertise, long track record. Mark Johnson and his team has come up with revised development plans that make the project less capital intensive, economics better. It's a large operation. It'd be a block cave with about 90,000 tons per day, so that's real big. Six billion tons of copper resource, six million ounces of gold, and it fits right in with our plans. We have additional opportunities to invest in projects to support our Copper, our carbon reduction, other sustainability goals, including investing to develop clean, renewable energy for our operations and communities. We're advancing plans for an exciting ESG-type project to recover metals from the recycling of electronic devices at our Atlantic copper processing facilities in Spain. Bottom line, we're going to be disciplined in devoting capital to new investments. We're going to be focused on value-added projects supported by long-life reserves. We have a long track record of success in developing projects. We have established license to operate and positive relationship and support from communities where we have the opportunities to invest. Slide 10 goes back to Lone Star, shows we're meeting exceeding expectations. Original plan was 75,000 tons a day, 200 million pounds of copper. We've now exceeded this, reaching the targeted rate to 95,000 tons a day. On a sustained basis, we have tankhouse capacity to do this to yield 285 million pounds of copper. Looking at a further increment that would involve a relatively small investment in tankhouses, mining equipment for use 300 or more pounds of copper, 50% more than our original design. The prize here, though, is longer term. We have a major opportunity for Lone Star to become a cornerstone asset for our company. Potential resource is 10 times more than our current reserve. As we mine these oxide ores, we're gaining access to this underlying potentially massive sulfide resource. Long-term keystone asset for our company. Slide 11 talks about this reference I made earlier to reaching technology, gaining additional copper from material that's already mined. We're progressing this. We have lots of opportunities to apply. It's an exciting, potentially high-value opportunity with low incremental cost and low carbon footprint. We're engaged in multiple studies using a range of different technologies internally and externally to capture this value from existing stockpiles. Our estimate now is for 38 billion pounds of copper in these stockpiles. This is material that's already been mined. And if we can recover just 10 to 20% of this material, it would be like having a major new mine very low capital and operating costs. A significant portion of this is at our flagship Marinci mine, the largest mine in North America, where we are now applying artificial intelligence, data analytics, to help us understand what's going on with these leaching performance opportunities. Our team historically was instrumental in unlocking substantial values years ago with the then-new SACW technology We're now focused on taking this leaching technology to the next level by using modern approaches to it. We've established a cross-functional team of technical experts, metallurgists, mine planners, data scientists, geologists, business analysts, all working together to take full advantage of this really exciting opportunity. Slide 12. We have strong operating franchises in the U.S., South America, and Indonesia, gain the trust and respect of our partners, our customers, suppliers, financial markets, and more importantly, the workers, communities, and host governments where we operate. We have significant large-scale project development, operating expertise. Team Freeport has all the capabilities to undertake new projects in a responsible, efficient manner. I want to close on slide 13 by recognizing the people of Freeport. All around the road, their commitment, dedication, resilience, positive outlook, cooperative spirit is just gratifying. Our team is passionate about the role we're going to play in achieving a better and more sustainable future for everyone. Team Freeport has the capabilities and drive to continue to meet, exceed our own high level of expectations and those of our stakeholders. We're living in a time of great challenge and exceptional opportunity for our business. As our team, we're meeting the challenges, embracing the opportunities. Our future is bright. We at 3PORT are charging ahead responsibly, reliably, and relentlessly. Kathleen, I'll turn the call back over to you to talk about our financial results.

Okay, great. Thank you, Richard. And I'm going to start on slide 15 and just make some brief comments on our operating matters and go through our financials, and then we'll open it up for questions. Richard talked about the great progress we're making at Lone Star. We're very focused now on sustaining the rates to keep our tank house full there, which has a capacity of 285 million pounds per year of copper. and looking at potential increments beyond that with relatively small and attractive investments. Richard also mentioned our plans at Baghdad. We're advancing studies to double the capacity there and hope to be in a position to qualify a project and commence a project there next year. At Malincy, we've started to increase our mining rates, which had been curtailed, in the last 12 months. We averaged about 725,000 tons per day of mine material in the second quarter and are ramping up to reach 800,000 tons per day by the end of this year, going to 900,000 tons a day in 2023. We've also advanced from 2022 to restart some of Marinci's milling capacity. That was also idled last year to reduce costs. Now, with the improvement in copper prices, these actions result in more profitable production. We're also very encouraged by the opportunity to add low-cost production at Marinci through our leach technology initiatives. In South America, the teams are continuing to work to restore production to pre-pandemic levels. We continue to target a full restoration at Cerro Verde in 2022, and we've been running at about 95% of the mill capacity in recent months. You've seen in our press release that the Cerro Verde team reached a new four-year labor agreement with a significant percentage of the workforce during the second quarter. That was in advance of our labor agreement exploration, which is coming up at the end of August of this year. We're very pleased with the win-win outcome of the agreement and now working to conclude a mutually satisfactory agreement with the balance of employees. At Alhambra in Chile, we're well on our way to restoring production levels that were curtailed last year. We're increasing the stacking rate of material on the leach pads and moving forward to add a new leach pad to accommodate the higher rates. This is capital that was always part of our plan but was deferred last year as part of the capital conservation plans that we rolled out in April of last year. This allows Elabra to increase production on a sustained basis to about $200 million to $250 million pounds per annum for the next several years as we assess opportunities for a major expansion there. As Richard talked about at Grassburg, we're continuing to deliver results and generating strong cash flows. As you recall, we started the second quarter with significantly more concentrate inventory than we normally carry. With the strong production volumes and some maintenance downtime at our port, weather issues at quarter end,

Sales were below our earlier estimates in the quarter.

This is really a short-term timing issue, and we expect to be able to work inventory levels down in the second half of this year. We successfully commissioned at Grassburg the second crusher at our Grassburg block cave during the quarter, and that will provide sufficient capacity for a ramp up to 130,000 tons per day. You've seen the the performance and the records achieved from the Glassburg Block Cave during the quarter. We're also moving to advance the installation of our third sag mill there. That's been part of our plan to support the higher rates of throughput. We've also identified an opportunity to invest in a new mill circuit that will allow us to increase copper and gold production in Indonesia through the achievement of higher mill recoveries. when the initial phases of this project and the economics are highly attractive. Our global team also remains focused on cost management and efficiency projects to extend equipment lives, improve energy efficiency, and maintenance practices with the use of technology. We have experienced some degree of cost increases this year, principally from energy price increases and to a lesser extent, the impact on consumables of steel price increases, increased freight costs, and sulfuric acid costs. We've had partially offsetting these items. We've had the benefits of a weaker exchange rate in South America versus the U.S. dollar. The increases in costs have been offset by significant increase in molybdenum prices in recent months. And those have provided a very nice hedge to certain of these cost inflation items. We talk on slide, we've seen in the release, our plans to meet our commitments in Indonesia for the new smelter. On slide 16, we provide an update on our plan that we agreed to with the Indonesian government in 2018 to construct 2 million tons.

We have been advancing the discussions. That would fulfill a portion of the obligation.

financial and operating benefits of expanding this facility which has been expanded very efficiently in the past after considering various alternatives for the balance of the commitment we've concluded is to continue with our plans to construct a new greenfield smelter existing facilities at pt smelting we recently

We entered into an EPC contract with CHIOTA to construct a 1.7 million ton facility there and we're now focused on completing the project as efficiently and as timely as possible.

We show in the graph on slide 16 on the right the estimated timing of expenditures over roughly a three-year period SCX is responsible for 49% of these expenditures. We recently completed a new $1 billion bank credit facility for PTFI to advance these projects and are planning additional debt financing which can be attained at attractive rates to fund these activities. As indicated, the long-term cost of the financing expected for the smelter would be offset by a phase out of the 5% export duty. And we show a graph on the bottom of slide 16, which shows you that the economic impact is not material as the cost of the smelter would be essentially offset in lower duties, which we're currently paying. Slide 17, provides a three-year outlook for volumes. These are consistent with our previous guidance. We're continuing to pursue additional incremental near-term growth opportunities and conducting our longer-range development planning. Moving to slide 18, we show the significance of cash flow generation using these volumes and cost estimates. And the price is ranging from $4 to $5 copper and holding gold and molybdenum flat at $1,800 per ounce of gold and $16 per pound of molybdenum. But you see here on these graphs, we would generate EBITDA in the range of over $12.5 billion per annum for 22 and 23 on average at $4 copper to $17 billion per annum at $5 copper And at operating cash flows, net of taxes and interest would be $9 to $12 billion using these price assumptions. As demonstrated in the second quarter, we're generating very significant free cash flow. And this trend is expected to continue with cash flows significantly above our capital and $2.5 billion in 2022. As you'll note, we shifted about $100 million in expenditures from 2021 to 2022. We've advanced some capital from future years into 2022 to reflect the timing of additional leach pad construction in Indonesia related to mill recoveries.

cash flow generation, we've got growing volumes, strong market requirements.

You'll see on slide 20, and this is backward looking, but over the last 12 months, we've reduced our net debt by $5 billion, and that included $2 billion in the second quarter alone. You'll see our credit metrics are strong at less than 0.5 times EBITDA on a and we're projecting our credit metrics continue to be strong and improving. As Richard mentioned, we achieved our targeted net debt level several months ahead of our schedule. With our long-lived asset base and growing production profile and strong markets, we'll have the ability to continue to strengthen our balance sheet, provide increasing cash returns to shareholders, and build additional values in our asset base. The slide on 21 just reiterates our financial policy. We have performance-based payout policy, which was established by our board earlier this year, providing that up to 50% of free cash flow would be used for shareholder returns with the balance available for growth and further balance sheet improvements. And with the recent achievement of our net debt target, We expect our board will consider additional payouts to shareholders with our 2021 results. We're looking forward to reporting on our continued progress and continuing to build additional values as we go forward. And now, operator, we'd like to open the call up for questions.

I want to put an exclamation point on your

the comments you made about cost management.

Everybody's focused on inflation around the world and the impact on mining companies.

And as Kathleen said, we've had higher energy costs, higher grinding material costs.

But Josh Olmstead and our Americas team have just done a great job in helping offset that. Mike Kendrick in running our molybdenum business, which is a primary production business and a byproduct business. And with higher millennium prices is offsetting some of these cost increases. We've got a high gold price, which helps us. Danny Hughes is leading our supply chain group, helping us as a company to really mitigate much of these increases in cost working with logistics. So I just wanted to make a note of that because I think it's important giving given all of our concerns about where inflation is leading us. So let's do turn over to questions. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press star 1 on your touch-tone 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 one. If you have additional questions, please return to the queue. Our first question will come from the line of Emily Chang with Goldman Sachs. Please go ahead.

Good morning, Richard and Kathleen. Thanks for the update today, and congratulations on getting to your net debt target so quickly. Maybe just following up on Kathleen's last point then, just on capital returns, Is there a reason why you would wait until the end of fall year 21 before executing that capital returns program? And just further on that train of thought there, is there a preference yet between PAPSA's special dividend, a buyback program, or PAPSA's shift to a variable dividend strategy? Thank you.

Thanks, Emily. We've just reached the net debt target at the end of June, and so going forward, we would have up to 50% of the cash flows available as we generate them to consider additional payouts to shareholders. Our board will be reviewing this and we do expect that we will be following the policy that we'll be paying out up to 50% of the excess cash flow. We have not made any conclusions on whether it will be additional dividend payouts or share buybacks, and that will be something that will be considered at the time. But the commitment is there to pay strong cash returns to shareholders with our free cash flow, and we expect over the next several months to continue to generate free cash flow, and that will continue into next year and beyond.

Great, that's helpful. And a quick one, if I could squeeze it in. Just on Grassberg, I believe that the end of Q1, you reached 75% of your full production there. Can you remind us where we are today, where you'd expect to be at the end of Q3? And that 100% production level, is that a fourth quarter average or an exit rate? Thank you.

78% was the average.

They're just under 80% right now in terms of metal production targets. That's well ahead of schedule. We'll be at 100% by the end of this year.

Thank you. And that's the average for the fourth quarter, Emily. So we expect to hit the run rates in the fourth quarter.

Perfect. That's helpful. Thank you, Kathleen. Thanks, Rachel.

Thank you, Emily.

Your next question will come from the line of David Gagliano with BMO.

A little bit on the capital spending changes. I know, Kathleen, you flagged it. I kind of missed some of the commentary there. Can you walk through how much of the increase, the incremental sort of net increase is just general cost creep versus pulling projects forward? And what are those projects again, if you can just give us a little more detail on that? That's my first question. And then just... Another part to this question, which is just if you could talk a little bit about the slight changes to the exit rates or extraction exit rate targets between the blockade and the DMLZ zone. Blockade went up. DMLZ zone went down. And I was wondering if you could just speak to the reasons behind those changes. Thanks.

On the capital, we shifted $100 million of capital from 2021 to 2022, and that really was a timing matter. We haven't been spending as quickly as what was originally budgeted. So $100 million is related to the timing. We've also brought forward some capital that was in our plans in the future. dealing with constructing new leach pads at Lone Star. And then we also, the only new thing that we've added in 2022 is this project that we talked about with respect to increasing mill recoveries at Grassburg. And that'll be spent over a multi-year period. It's roughly $400 million in total but we've got 100 million scheduled in 2022. Ultimately, that will add volumes. We expect, you know, on the order of 50 million pounds of copper and 50,000 ounces of gold, and it's a very attractive and short payout project. So that's a positive, and that'll be used as one of the projects, just one of many, hopefully, that will be used with our other 50% of cash flows. There really weren't, on the second question, there really weren't any material changes with respect to DeepMLZ and Glassburg Block Cave. We update the plans every quarter, and there were really only minor changes. minor changes between the two and really the long-term plan for Grasberg and DeepMLZ is consistent with the previous forecast. And Mark, I don't know if you want to add anything there, but it's, you know, was certainly very much in line with our previous forecast.

Yeah. The only minor changes throughout 2022 until, say, three is up,

Uh, the, the mine plan is, uh, or the mill, the mine rates are constrained by the mill throughput. Uh, what we did is, uh, there's been some minor modifications, some of the values of GBC during this constraint period, the grades at GBC are coming up. Uh, so we swapped some of the GBC material for the higher value for slightly lower value, uh, material from the deep MLZ.

Dave, good to hear your voice. Let me just say the higher capital spending is a positive. We've come out of a period of time with capital constraints. Now we're spending capital, not huge incremental amounts, some of it's timing, but to create new values. And the deep MLZ is a huge success story because we've successfully met and managed the seismicity issues that we encountered earlier. So And Mark's point, the key to our future success is these mine rates. We need to build the mine rates up, and we're successfully doing that, and we're dealing with this constraint at the mill by building SAG III and making other investments. But the key to our future success was meeting our mine rate targets, and that's been a key for 15, 20 years. And for us to be able to achieve that is just something that we all feel so good about and congratulating our team for doing that over the years.

Okay, that's helpful. Thanks very much.

Thanks, Dave.

Our next question will come from the line with Chris with Jeffrey.

Hi, Richard. Hi, Kathleen. Thank you for taking my question. My question was going to be about Grassburg and the shipping issues there, but actually, your answer to the last question brings something else to mind, which is your organic growth pipeline. It's really interesting, at each quarter, you seem to identify a little bit more incremental volumes that you might be able to get out of some of your existing assets. You have this mill recovery project at Grassburg, you have potential small expansions at Lone Star, low capital intensity, not a whole lot of new incremental volumes, but there is growth there potentially anyway that a lot of us maybe were not aware of. However, when I look at your production guidance at Grassberg or for the overall company, the guidance has not been increased to reflect any of this potential growth. And the question regarding that is, is that because these projects are not yet reflected in guidance, or is it just that they're small and there's a lot of moving parts here and, you know, it's kind of a rounding error to what your guidance was. So how do we think about the production beyond, say, 2022 or 2023 and how this might impact your guidance?

So the recovery is until 2024. Um, and it's, you know, within the rounding, but I do believe we have some upside, um, as we look forward upside, uh, consult on a consolidated basis from these initiatives, um, that two and 23. Okay.

Thanks for that.

Chris, let me say, you know, this is a complicated business. I mean, we get to these numbers and we look and see how good they look. But underneath that, there are always unexpected things that jump up. And in terms of, there's new challenge in measuring grade. These column heights in the underground development are large. And so being able, we had higher grades the first quarter, slightly lower grades the second. That's just going to be a feature of what we have to deal with. So there are just a lot of around the world keeps finding ways to incrementally improve things. Those will unfold into our numbers over time, and there will be a lot of moving parts. Shipping, for those of you who follow us for a long period of time, know that that's always a timing issue at Grassburg. Our port there is a very shallow point, a shallow sea there. We have a relatively complicated historical loading Operation there, we have to lighter concentrate out the ships and weather, shipping schedules, logistic issues will always have a timing impact. I just come back again. The real key to us is mine rates, finding ways to improve things, and that's just an ongoing process that we have.

And sorry, is the shipping, some of the shipping issues at Grassburg, many of which are kind of ordinary and normal types of things, is there a COVID impact there as well? Was that a factor in the last quarter, or was that not a reason for the shipping problem?

No, not really. We had some maintenance that we were doing on the shiploaders, which impacted us earlier in the quarter, and then we got hit by weather at the end of the quarter. So that was really, well, it wasn't really COVID-related.

We had an early action to, I mean, this is just an example. It wasn't major, but it has an impact. We have concentrate pipelines that go from the highlands down to the port. We have a scheduled planned maintenance. Some things happened we had to advance that planned maintenance. So nothing unusual. This is typical of our operations there. You know, since we started ramping up the grass burning in the 1990s. And so it'll be part of the things we'll have to deal with in the future. It's just not the focus of our success. The focus of our success is this mine rape ramp up.

Understood. Thank you.

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

Yeah, hi. Good morning, Rich and Kathleen. You have the slide on the new leaching technology. I'm very curious in your view on this low-grade sulfide chalcopyrite leaching technology. It seems very promising. There's a lot of impressive people associated with it, and it sounds like you guys are. Firstly, what's your view? Does it seem promising to you? And then how do you see it? How do you judge sort of the potential future impact on Freeport and the copper industry more broadly? Like 10 years from now, if this technology plays out, how much additional copper do you think that Freeport could be producing, and how much additional copper do you think could be produced globally using this technology? Thank you.

So, Alex, thanks for the question. I want to be clear. There's not one technology. in play here. There's a series of different parties to develop . We have our own R&D work going on, and we're looking across the board at how this might apply to us. I think we are especially of it because we have these large number and size of past leaching operations, some of which are now totally inactive, that we can look to apply these to. So we have a special opportunity in the industry, others have some, but we have a special opportunity to look at this in two ways. One of it is to use the leaching technology, and by the way, we're supplementing that with artificial intelligence, data analytics, opportunity to measure the impact of all this, but to apply this to inactive and existing leaching, leach pads that we have a large abundance for. So that's one thing. And then, aspirationally, it might provide a way to recover material from mining operations that would otherwise have to be recovered through mill investments. And it could be, looking ahead, an opportunity to minimize capital by recovering low-grade sulfide deposits that would otherwise have to be mined and milled. So it's early stages. We don't have complete answers. I just want to share with you how exciting it is. It's an opportunity for us, opportunity for the industry. This is not a shale oil type game changer for the fundamentals of copper supply.

On slide 11, the 38 billion pounds that are identified here, that represents material that's already been mined that is not in our reserves. not in any of our production plans. And so just recovering, you know, a small percentage of that, you know, ends up being potentially over time a fairly large number. But Josh, do you want to make some comments on your perspectives?

Sure. Thanks, Kathleen. Yeah, you know, just as Richard and Kathleen have talked to, it's really exciting with respect to the opportunity there. The thing that I think for us that's unlocking it even more than just the various technologies that are out there that we're studying and researching and running different pilot tests on is the combination of that with the data analytics that Richard touched on. The data analytics and the processes that we learned over the last several years in our application of that technology on the milling side has now opened our eyes to opportunities on the leaching side. And that in combination with the various technologies is really exciting for us because it's allowing us to look at things in a way that we haven't ever looked at previously. And we've started to see some of the benefits of that at Marinci as we've done some of this pilot work, and that's what's really getting us excited about what the potential is going forward. The other thing that I would note is, as Richard said, it's not a – what I would call a fundamental game changer or a step change for the industry, and it happens over time. But it's really low incremental cost, low carbon footprint, and an incremental adder as we go forward. But it's really exciting. There's lots of energy. If I think about the similar things that we saw with our – agile efforts earlier, we're seeing similar things on the leeching side as we engage with various levels of the organization. The employee engagement, the excitement and the passion and the ideas that they're bringing to the table in combination with the models that we're generating is really going to, I think, untap or tap into, I should say, these opportunities and bring value forward for us.

Yeah, our guy Corey Stevens is leading this, had a session with this new team that's been formed. For Freeport, it's a large number of people. Rick Coleman and his guys are adding to this. And I just walked away from, this is a new opportunity. You've heard me talk for years about the outlook for the copper market being so positive, the assets that we have, the undeveloped reserves, the undeveloped resources we have. This is beyond that. It's not in reserves, of course. It's not in our resources. So this is a brand-new opportunity that could be significant for Freeport, and nobody's better situated than us to take advantage of it.

Thanks. I really appreciate the color. I've read some other comments that this could maybe add 5% to global copper production on the long run. But it sounds like you think this is going to be more kind of long-dated and expensive. extending life of mine and not really that kind of a potential game changer. I appreciate the comment. Thanks.

It's way too early to say that, Alex. Way too early. Thanks.

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

Thank you very much, Richard and Kathleen. Just continuing on the growth opportunities, I wonder if you could update us on the £200 million per year target that you had before the pandemic, driven by the innovation and productivity enhancements in the Americas. Is that yet another growth opportunity for you guys, or is that now embedded in the praise that you have been describing just now in this call?

That is embedded. We've continued that project. We internalized it. We were doing some external work, and to cut back on capital and operating, we've seen artificial intelligence is embedded now in everything that we do. So that is in our plans.

I'd say the one area where it's not is at Sara Verde.

because we have not been able to get the mill, you know, we're running roughly 95% of the pre-pandemic levels. We had plans prior to that to move well above 400,000 tons a day. And so I think with the pandemic passing at some point, we will be able to go back to those initiatives at Cerro Verde.

As Kathleen said, we've been limited to what we could do with Cerro Verde, one of the world's largest concentrating milling operations. We haven't yet brought all those new tools and skills and opportunities and technology that in the future. So this is not a one-time deal, but an ongoing part of our business going forward, and our team's really bought into it.

All right, that's clear. And then just if I may ask on the smelter financing, so the idea is still to get a project financing for this venture initiative, and that means that from a cash flow perspective for Freeport, it doesn't jeopardize the potential increase in dividends or returns to shareholders, correct? You will be getting the money from the banks or whoever you get the money from, and therefore, the cash flow generation that the company has still allows for you guys to pay dividends and or back shares.

That's correct. The debt service would affect our dividend to the extent of 49% of the debt service, but that's offset with the duty phase-out. So really the dividends to FCX are not expected to be impacted.

And importantly, the cost of the smelter are tax-deductible to PTFI.

But the financing costs, you mean the return?

No, I'm talking about the operating costs and so forth. Okay. The depreciation. This is all in the PTF file. You nailed it, Marcos, in your analysis. I'm just pointing out that you've got the relief from the 5% export duty. You've got an operation where the depreciation and operating costs are tax deductible. in the consolidated Indonesian tax return for PTFI, which is a substantial Indonesian taxpayer. The government gets almost 50% of the economics in PTFI through taxes and royalties. Now they have an equity ownership of 50%. So 70% or more of the economics of Indonesia go to the government.

I didn't think we could do. What a fabulous outcome for all parties.

All right.

The next question comes from the line of . Hi, good morning.

Just given respect to potentially materially higher taxation of royalties, in the future. I'm just wondering if that is changing your future growth and whether we could see Freeport look to perhaps develop deposits outside of those countries and some of the emerging fronts, maybe something like Ecuador or others.

An excellent point.

Forty percent of today's copper supply comes from Chile and Peru. 40%. Now we have both countries going through a political process that's looking to get more for the governments away from the miners. We don't know how all this will turn out, and it's going to take time to know that. Just certified the new president in Peru. Chile's got a long-term process looking at their constitution. We've already said on a world-class expansion opportunity we have in El Opera. Other miners are also going to be affected by this. We really don't know what the outcome is. Bottom line, this is going to be supportive of future prices.

Richard, how... Our U.S. assets are more valuable, to your second point. We're not planning to... to go outside of our geographic footprint, we have opportunities in the U.S. and elsewhere.

Okay. Just as a follow-up, I mean, I know you have a stability agreement in place at Cerro Verde, I think until about, I think it's about 2029. But, I mean, given some of the comments from the new president in Peru, I mean, how much confidence do you have that that's going to be honored?

Well, you look back over our shoulder,

There have been other presidents in Peru over time that have gone into office with similar types of comments.

And when they get into office, the reality of the importance of the mining industry to support their economy becomes self-evident.

We don't know now. We're working with the rest of the industry in Peru. to preserve, but we will have to work our way through this. It is an uncertainty. We don't have significant growth opportunities in Peru, but we have a very substantial operation at Cerro Verde that is significant in terms of our current and future levels of copper production. And so, you know, it wouldn't be helpful are instructed to try to state the outcome for all this. We do have a strong stabilization agreement, which is relatively new, replaced an older one, and it's stronger. But as we've always done, we'll work with the industry. We'll try to work cooperatively with the government communities to contribute to Indonesia's efforts to relieve poverty in the coming bruise efforts to relieve poverty in that country.

Thank you for the caller.

Your next question will come from the line of Avi Agarwal with Deutsche Bank.

Thanks. Thank you. Morning, Richard and Kathleen. Thanks a lot for the call. I just had one follow-up question to the previous question. So given you are focusing on Baghdad and Lone Star Resource Development for the next year, I know it's early days, but when do you think you'll be able to make a decision? And is there any sort of CAPEX guidelines there?

Well, with Lone Star, we're working this incrementally. We've already been running it higher than the design rate, and we've got plans and studies looking at is there a further increment, and those will be sorted out in the next several months. With respect to Baghdad, that is a major project, and We're advancing our studies, feasibility studies. We're looking at all facets of water and tailings. And as I said, I'm hopeful that we will be in a position to be able to qualify that project next year. We don't have the final capital expenditure estimates. We've been working to try to find

um mill setups that would be you know lower capital intensity than it got it thank you and if if i could squeeze in one more question please so if i look at the slide seven uh with the tokyo slide seven and compare it to the 1q1 uh the the ebitda sensitivities haven't changed even though the

gold price and the molly price assumptions have gone up.

So is that basically a function of unit costs being assumed?

No, we do have some higher costs with respect to the items we talked about earlier, principally energy. And more than offsetting the impact for these higher gold and molybdenum prices, but these are order of magnitude rounded numbers. It should be slightly above these numbers, but we just continued with the order of magnitude that we previously presented. But we are including some cost inflation in our revised forecast.

Got it. Thank you very much.

Your next question comes from the line of Michael Glick with J.P. Morgan.

Hey, as it relates to the drought in the southwestern U.S., I mean, it seems like a pretty tough situation there. I know agriculture is a lot bigger deal than mining in terms of water usage, but could you maybe speak to any potential impacts from that on operations and costs and just remind us of your water agreements in place?

It's... You know, it is a concern, you know, the level of the Colorado River, which is one of the major sources of water for our operations, but this is not a new problem. We've been dealing with this consistently over the years, and we have taken steps with communities, with Native American groups, with the farming community to deal with it so we don't see We think this is an ongoing process that we will have to devote resources and management to. We don't see any kind of crisis emerging, but we're going to work cooperatively with everybody to try to conserve water. We do a great job right now with our conservation reuse of water, but it's going to be an ongoing management deal. All of that's built into our code.

Understood. Thank you.

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

Good morning, Richard and Kathleen.

Turning back to the smelter, with the timeline of a 2024 completion, As Toyota, I'm sure it's a competitive process. Is it a fixed price contract? Is there a healthy enough contingency to take it or to respect all the potential changes with COVID and the supply chain issues, which everybody is starting to worry more about? And is there a comfort level that the government, along with PPFI, is the type of contract structure and what could be there to achieve that target?

There is contingency in our estimate. It is not a fixed price contract for all the reasons that you just mentioned. We want to be able to help manage the cost and and didn't want to have a lot of risk baked into the capital that may or may not occur. So we felt this was the right structure. There's risk sharing within the contract. The government understands the situation in terms of COVID. We were delayed over the last 12, 15 months associated with the project. Um, and the current situation is something we're also monitoring very closely. Um, but we're we're keeping the government informed regularly about the timeline, and our commitment is with chioda is to get this done as timely as possible. But recognizing there are certain things that will be outside of our control, like the current code situation.

And that $2.8 billion, a big change from maybe what was thought about two, three, four, several years ago?

Well, the scope is different. We had previously, we were thinking of having two lines at the smelter for two million tons total, and we reduced it to 1.7 because of the expansion opportunity at PT smelting. So the scope's a little different. And yes, there have been some some changing cost factors. You've seen what those are in terms of where construction costs are currently. But we've done a good bit of value engineering over this period with CHIOTA. All parties are committed to having an open book and making this smelter as successful as possible and bringing it online as cost efficiently as possible. And so we were in the range of $3 billion, $2.5 billion, $3 billion before, but there's been some pluses and minuses, and we're slightly above that now.

The open book risk sharing is definitely the way to go here. Thanks a lot, Kathleen.

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

Hi. I'm wondering, as you're getting close to full throughput at Grasberg here, um, if you can give any color on underground mining costs, um, thinking like on a per ton basis, where you're at, where you're aiming to get, and is it, you know, where you had hoped to be?

Yeah, it's, uh, we, we're, we're achieving where we hope to be. No question about that. You know, we, we, we have to deal with some of these general factors, but, um, just achieving the volumes, having the gold credit, and the high grades of copper just allow us to do it. Mark, you want to comment on this?

Yeah, we've had a lot of focus on operating unit rates, and we're very close to where we want to be. I think there's still some opportunities on just being more efficient with some of the mining. Obviously, at GBC, the The train haulage system has proved to be very efficient. It's a completely unmanned operation, and that's going very well. Deep MLZ, the fracking is helping out. We're seeing that the cave is continuing to mature, a lot less secondary blasting. So a lot of these things are settling down, but I'd say it's very much within

the the forecast that we had and we think there's still some opportunities to to continue to improve okay thank you our final question will come from the line of detinder goal with exam bmp paraba

Hi, good morning, good afternoon. Thank you for taking the question. Just one question on those administrative fines in Indonesia. Now we are looking at 2024 timeline and looks like you've taken a minor provision in your accounts as well. Any color you can provide on where we are on that discussion with the government and is there any acceptability that these fines should not be levied and should not be recovered to the same extent as indicated in media previously?

Yes, we worked with the government during the quarter and this third party that comments against the plan and the schedule and what was related to the pandemic. And it looks like the fine will be in the $16 million previously accrued $13 million. And so it looks like that is behind us. We also, with this, provided a new schedule to the government of what the progress is expected to be, and so that is what will be measured against in the future. So we're not expecting this to be an ongoing matter, and we're pleased with the resolution of it.

That's very clear, Kathleen.

If I can ask a very quick one. Molly, how sustainable do you think current strong prices are, and do you have much flex in the system to respond with better volumes from your two primary mines?

On the latter part of that, we are looking at, you know, we've been operating primary mines at below their capacity. We are looking at potential options to increase production from the Climax mine. In terms of prices, we don't predict prices, but the market, as Mike can tell you, has been very tight, and we're seeing that continue even during the summer months.

I don't know, Mike, do you want to? My kitchen runs our molybdenum business.

It's a great business and leveraged production at climax and putting together a ramp-up plan for that to respond to the economic conditions. And then with regards to price, I think the predominant feature is that the vast majority of western molybdenum comes from byproduct production. And, you know, right now you're starting to see that don't have these copper mines that are coming online and it correlates to you know our general story of how important copper is but also that it's hard to find resources bring them on and they come with molybdenum so we think there's kind of a a natural correlation between the copper and the molybdenum story and um there's there's definitely a structural um deficit this summer And we'll have to see how it plays out over time.

Excellent. Thank you so much.

All right. Well, thanks, everyone. It's exciting times. The best is yet to come. So hang on. Thank you.

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