Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport McMoran third quarter conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question during the Q&A session, press star one on your touchtone phone. If you require assistance during the conference, please press star zero. I would now like to hand the conference over to Ms. Kathleen Quirk, President and Chief Financial Officer. Please go ahead, ma'am.

Great, thank you and good morning everyone and welcome to the Freeport-McMoran conference call. Earlier this morning we reported our third quarter 2021 operating and financial results and a copy of today's press release and the 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 Ann Olson 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 FCX's SEC filings. On the call with me today, Richard Atterson, our chairman and chief executive officer, Mark Johnson, our COO of Indonesia, Josh Olmstead, our chief operating officer for the Americas, Steve Higgins, our chief administrative officer, Rick Coleman, who runs our engineering and construction business, and Mike Kendrick, who runs our molybdenum business. I'll start by briefly summarizing our financial results, and then we'll turn the call over to Richard, who will go through the materials in our slide presentation materials. After our formal remarks, we'll take your questions. Today, FCX reported third quarter 2021 net income attributable to common stock of $1.4 billion. That was 94 cents per share. an adjusted net income attributable to common stock of 1.3 billion, or 89 cents per share. The 89 cents per share excludes net credits totaling 5 cents a share, primarily associated with tax credits related to the release of valuation allowances at PT Freeport Indonesia, and a gain on the sale of FCX's remaining cobalt business. The details of our adjusted net income are reflected in our press release on page Roman numeral 7. We generated adjusted EBITDA for the third quarter of roughly $3 billion, and we've got a reconciliation of the EBITDA on page 37 of our slide deck. Favorable results in the third quarter reflect strong execution by our team, growing our production volume safely, efficiently, and responsibly. Our sales volumes for the quarter for copper exceeded a billion pounds. That approximated our prior estimate in July of 2021 and was above the year-ago period. Gold sales of 400,000 ounces were approximately 12% higher than our prior estimate and also significantly above the year-ago period. We also benefited from positive pricing for copper. Our third quarter average realized copper price was $4.20 per pound. That was substantially above the year ago period. And gold prices were slightly below the year ago period. We also benefited from improved molybdenum prices in the quarter, where prices nearly doubled from the year ago period. Net unit cash costs were $1.24 per pound in the third quarter. That was lower than our estimate going into the period, and we had some good performance from our leach production, which reduced our unit production costs in the period. Generated strong cash flows, and we've been doing that every quarter this year, generating $2 billion of operating cash flow, which exceeded capital spending of roughly $500 million during the quarter. Our balance sheet is strong. We ended the quarter with consolidated debt of $9.7 billion, and consolidated cash of $7.7 billion, which resulted in net debt of $2 billion. We had no borrowings under our credit facility and had $3.5 billion available. We also announced today some liability management where we called for redemption. Our outstanding notes due 2022 That has a total principal amount of $524 million. I'll now like to turn the call over to Richard, who will be referring to the slide presentation materials. Richard, go ahead.

Thanks, everyone. Thank you for joining our call. I'm really pleased to be able to review our strong performance for this quarter. where we are with the company. It's a special time. Several years ago in a call, I said if we could be fortunate enough to ramp up our underground production at Grasberg at the same time we had a positive copper market, it would be a great time for Freeport, and this is really a great time for us. We're going to focus on the future, but just one comment. I was last at Jobsite two years ago in October, And we were just completing the mining of the open pit and starting the ramp up of the Grassberg block cave. And so during this two year period, our progress has been nothing short of remarkable. And I really congratulate our team and the job site, but also in the Americas for what we've been able to accomplish, even in the face of all the distractions and challenges that COVID brought on. I hope you and all your family and your colleagues are staying healthy. This thing's not over. We're keeping our guards up. I encourage you to as well. We have at Freeport had a successful program to get vaccines to our people internationally. Over 90% of our people in South America are now vaccinated and 85% in Papua and Indonesia are vaccinated. We continue to be challenged at some of our operations in the United States, which is common across our country, unfortunately, but we're encouraging our people and making some progress there. But the news is we've been able to meet the challenge of COVID and accomplish what we're reporting to you today. Our copper volumes have grown over 20% from a year ago. And that reflects this really exceptional execution of our business. With these prices that we have today, we're generating very strong margin. Our EBITDA doubled from a year ago. Our strong operating cash flows that Kathleen mentioned in the quarter are really exceptional, particularly when you looked at our capital expenditures were only $500 million. Now, this is generating cash flows to now that we've met our debt target, and we met that at the end of June, way ahead of what we anticipated at the beginning of the year. We're now focused on managing these cash flows, and that's a happy time for us looking at investments for our long-term future. At the same time, we're being able to increase returns to shareholders and maintain a really strong balance sheet, which is going to be a real hallmark of our company going forward. Everybody's focused on carbon reduction and climate initiatives and COP26 coming up next month. It's going to be all over the papers. We published our second report on our climate initiatives. We put a lot more resources into it. We're really focused on it. As a company, Compared with other natural resource companies, we have much limited Scope 3 emissions and other natural resources. And we're really focused on our Scope 1 and 2 emissions and have a plan to achieve targets that we believe are realistic and achievable. We and the other 28 members of ICMM International Council of Mining and Metals, which I chair, have signed a commitment to work towards having zero net carbon emissions by 2050. And everybody's working hard on it. We're also continuing to make progress to certify all of our operations with the International Copper Association's copper mark. And this just clearly demonstrates our commitment to responsible production. You recall that I became chairman earlier this year. And when that occurred, I made a real commitment to build the kind of board that the company like ours really needs and deserves. We've added four new members in 2021. We added two this quarter, Marcelo Donatio and Sarah Lewis. That brings us to a total of eight independent directors, which have a broad range of experience, and it's going to be a real strength of our company going forward. Underlying all of this is the fundamental outlook for copper is incredibly favorable. Copper's role in the economy, and as the economy changes with global investments in infrastructure, and I know we have a controversy here, but industries are going to develop The world is getting increasingly focused on electrification with modern technology and intelligence. And then a new major element that people are talking about and recognizing now for demand that's coming, it's not here in real significance now, is energy making to reduce carbon. And across the board, those investments result in significant demands for copper. And then you've got, and we'll talk about this more, the commodity really supported by supply factors. I mentioned our climate report. It was reported in September. It's on our website. I encourage you all to take a look at it. It really details work in a much more comprehensive way than we did in our first report last year. about how our company will work to reduce greenhouse gas emissions and how we're approaching climate scenario analysis and we're reporting in line with recommendations of the task force and climate related financial disclosures we are as a company and as an organization firmly committed to this uh we we see it now every day operations in the west and and hurricanes on the gulf coast weather patterns all around the world. We all know we need our part for our company. As I said, as the rest of the world, the rest of the industry, it's going to create a lot of copper demand. We established a target to reduce our greenhouse gas emissions in Indonesia by 30%, which is a new target for us. We have this aspirational goal of net zero by 2050. Our two big issues are, one, the coal-powered power plant in Indonesia. A lot of power required for our massive operations there.

We're now investing in a dual-fuel-powered plant there.

We're looking to a future of power being generated by biodiesel initially, natural gas, looking at hydropower opportunities. So we're working on that. And then the other major issue is how to convert our big haul truck fleet, massive trucks, diesel driven, how to work to convert that to electrical power or hydrogen powered vehicles. We'll hear a lot more about this in the week. Just know that our company is committed to it, to deal with our own emissions and to work with industry and communities in general to meet the things we need to meet with climate change. Copper is essential to that. It's a strategic metal in many respects for the future. The world is getting increasingly electrified and More than 65% of the world's copper is used to deliver electricity. And when you look at electric vehicles, charging stations, clean power from wind, solar, all of these require significantly more copper to operate than the way that things are currently done now. And so it's a challenging time for us, and we're serious about this challenge, but it is also a great opportunity for us as a responsible global copper producer. So we got these rising demand and supply is a real issue for this industry. Uh, even today with the economic uncertainties, uh, in China, uh, in globally, uh, copper inventories are remarkably low. The LME recently hit a 47-year low. Shanghai is lower than it's been since 2009. And while there will be some new projects that were started four or five years ago, delayed by COVID, coming on stream in the next couple of years, that will bring some new copper to the market. Beyond that, the cupboard is pretty empty in terms of new projects the new supply projects of any significance. And the world today, the opportunities are smaller. They're more difficult to develop and produce. Permitting still requires a very long period of time. And so the industry really, one, has an issue with meeting the demand with supply, and that's going to require action across a lot of fronts, you know, more scrap, some substitution. But copper as a commodity is so much better than any alternatives that in whatever environment you can envision for the world going forward, Absent some doomsday situation in the global economy, it's just in a situation of where copper prices have to be strong, and in my view, stronger than they are today. Turning to slide seven, what this means for our company is with all the work we've done today in preparing our business and building our assets, we're going to have really significant margins in cash flows. Six years ago, our company was facing real challenges, and we worked our way through that very successfully. As we were working so hard and facing dealing with some real tough problems and talked about the assets that we had in our company, the long-term assets, the quality of the team, our track record, our capabilities, and that's really what inspired us all to work so hard to get to where we are today. You know, copper volumes are 20 percent gold volumes are 50 percent higher than they were a year ago and they'll be growing another 15 20 percent next year it's a great feeling as we were ending the quarter and looking at september in particular that the capital and execution risk to achieve these higher volumes which we've been pointing to for

for a very long period of time, that those risks are behind us. The higher volumes are coming with low incremental cost, $12.5 billion to $17 billion in capital expenditures.

new project that we'll be talking about in Indonesia, including that our capital expenditures will range on the order of two to two and a half billion dollars a year. So that means we're where we're wanting to be, where we're targeting to be, where we thought we would be. But the important part is now we've done it, we're just not pointing to it. And slide eight shows about this ramp up of the Grassberg mine. Man, that was You know, this slide looks like this was really a straightforward, easy-to-accomplish deal. There are challenges every day, I tell you. This is the most complicated mine in the world when it was an open pit mine, and now in the industry's historically and historic large underground mine, it is truly remarkable. The third quarter was 90% of our target annualized rate. We were at target in September. We're now on track to reach full rates metal production by the end of the year. And our team in Indonesia just needs to be congratulated and recognized for strategically so important for us. And it was a real matter of concern when we had COVID facing us.

It's easy on paper, but man, it's a challenge every day. And I had a great meeting with our team in advance of this call.

And the excitement, morale, and so forth is just exceptional. It's really something special for our company.

And we now look forward to taking the steps that we need to take to sustain this far up.

for the life of this orbite. We're beginning to talk with the government and getting positive initial responses about extending our operating rights beyond 2041 because of the ramp-up, the limit of the operating rights. We haven't done much exploratory drilling, extension-type core drilling. Our feeling and our confidence is there's a lot more resources beyond what we're developing now, and we're explaining that to the government. As I said, initial reactions are positive, and I'm confident that we will not be facing an end to this Operation 2041. That makes no sense for any stakeholder. We need to look at it to take advantage of the long-term resources available to us. Slide 9 talks about Our growth of our company, a real strength of Freeport is its large reserve base, proved improbable reserves, which gives us a sustainable ability of our operations for a very long period of time. And beyond that, we have resources that are even larger than our reserves that are ground trying to permit to build new mines.

We have great we've involved them. And so as a result, we had these multiple options for long-term brownfield.

And I'm really encouraged by the opportunities we had in the United States. We have great community support. You have the benefit of strong communities and supporting schools, hospitals, education, great workforce, great community. We pay our people really well. We make sure they have living wages. We're sensitive to them.

So here we see across the board long reserve life and double production. Lone Star.

You're going to hear a lot about Lone Star in Freeport's future.

This has a long-term opportunity to be across the ridge from the largest mine in North America

and it's got right now we're having real success with our the new oxide mine we started this past year it's expanding it's got by using available production facilities at our nearby Safford mine that's winding down and then that is really a stripping operation for this enormous sulfide deposit. We have a great project in Chile at our El Alba mine where we're partners with Codelco. This is a mine where we have a sulfide leaching facility.

There's a big sulfide resource capital project to build a mill with desalinization plant.

We're looking at a number of alternatives there. Chile's going through a a process of people assessing how they're going to tax and what the fiscal regime is going to be for mining projects.

We're going to wait to see how that plays out before making any investment decisions.

But in the meantime, we're getting prepared, working with communities, working with the preparing for permitting and so forth. This will be a project that the world will ultimately need going forward. We've got a neat project. It's not very recycling electronic equipment.

This responds to people wanting to see carbon emissions of significance and investments.

And so we're looking for that. We're looking for other opportunities like that. And then this Kuchingli Air mine in Indonesia is really special. I was actually out there in the 90s when, as we were driving the Imoli drift, which was a dewatering drift going underneath the Grassberg Open Pit, driving the pit, we found this ore body. The engineers give our geologists a hard time about it, because they literally pierced this ore body that we had really to the south flank of the Grassberg pit. And we've been working timing for it. In the context of, if you turn to slide 10, you can see where it's located. that's in a separate mineralization zone from our DOZ, DPMLZ, and the Grassberg pit. It's a long fault line. It may have resources.

It has some complicated geology and mineralogy, but it's a big mine. I mean, a 90,000-ton-a-day block

You know, you only think of that as not being a huge mine because it's next to the grass bird blockade, but it's like 60% size of deep MLZ, 40% the size of grass bird blockade, 350 million tons of ore, good copper and gold grades, 90,000 tons a day from a blockade. That's big by global standards. And it's going to occur over a number of years. It will help sustain our high level of low-cost production out of grass bird, 500 million pounds of copper a year, 500,000 ounces of gold when it's ramped up in 2030. Capital expenditure is going to be spent over a number of years using existing infrastructure. Just ask your gold analysts how they'd feel if gold companies were to announce a gold mine that was $500,000 a year and 500 million pounds of copper a year. This is a significant opportunity for us. 12, I mentioned Lone Star. You can see how we're ramping up the oxides. We've got two P reserves of about 5.5 billion pounds. The real... prize here is the sulfides underlying it. We've done some drilling to identify it. We're doing preliminary plans of how to process it and so forth. Mineral potential is 50 billion pounds.

50 billion pounds. And our guys on this call are really exciting about it.

is new opportunities to apply technology to leaching. Dodge and Freeport's predecessors were long leaders in leaching of SXCW leaching. The opportunities globally for traditional SXCW leaching are diminishing because they've been accessed

and taking advantage of it. But this opens up a whole new realm of opportunities for us to add production with limited capital and low carbon emissions.

This will range from looking at a series of attitudes and approaches for existing leach stacks, really getting excited by using these data analytics efforts that we started several years ago of taking certain actions.

So it's a combination of things.

There are several alternatives we're looking at. The opportunity is really significant. Our guys estimate we've got almost 40 billion pounds of copper in as our existing stockpiles. This has already been mined. It's not in reserves or resources or any production plans. If we're going to cover just a piece of this, it's the size of a new mine. Low capital, low operating costs, low carbon footprint.

A lot of this is at Marinci, but There are other places.

And it could even apply to some old historical mines that have old leaf stacks to take advantage of that because of the history that we've had with these older mines and what this could mean for it. So this is a stay tuned deal. We're not building in our plans yet, but it's like development project, low capital, low cost, low carbon, so it's really good.

So listen, we're just feeling great about Freeport. We've been to the awards together.

Our team is adding some really new resources to our team despite COVID. We're bringing in support we got young people in our organization stepping up to leadership positions uh you know it's a it's a dynamic company it's remarkable that through all the trials and tribulations went through we had very limited numbers of people to leave us our people look at each other and we're inspired by each other and it's just great strong cash flows we're going to be responsible we have this great track record doing all this If you look at our success we've had in developing projects all around the world, different kinds of mining, different kinds of processing technology, you know, market outlook is great. We've got these organic growth opportunities. And really, as a shareholder myself, the prospects of seeing returns on those shareholders coming of significance is just a great feeling. So I hope... you can sense how we all feel about our company and our outlook and really appreciate your interest. And I'm going to turn it over to Kathleen before we open up for questions.

All right, great. Thank you, Richard.

I'm just going to cover some brief comments on financial and operating matters, and then we'll open up for questions. And just really starting on slide 16, we provide some additional details on our operating activities. Richard mentioned Lone Star, and the performance there has been really strong. Our operations are exceeding our design capacity, which was originally 200 million pounds. We're exceeding that now by 25%. And we're continuing to optimize and planning for the next increment of production from oxides as we study the longer term opportunities. Richard mentioned the leach work that we're doing. It's a major focus at Marinci. We have a big effort underway to enhance recoveries and we're deploying a variety of initiatives. Some of these have already produced results and that did enable us to increase expected recovery from some of our leach material in the third quarter. And what this does is gets us more volumes, but also allows us to reduce unit costs, having a bigger pool to spread costs over. So that's a really positive thing and more to come as we go forward. At Maranci, we're continuing to work to increase mining rates. We're targeting getting up to 900,000 tons of material per day in 2023. That's a major undertaking, 30% higher than where we were in 2020. As we reported, we have started restarting mill, which had been idled since the first half of 2020, and that's proceeding. We started the mill in the third quarter. We did experience some delays, but those are largely behind us. We also had, as probably a lot of you have seen, the weather conditions in the southwest that we experienced this summer. We did experience severe wet weather and some power issues during monsoon season, and we always have monsoon season, but this year was more severe than normal, and that did impact some of our operations in the third quarter, and again, that's behind us as well. I want to just echo what Richard said about our team in South America. The Cerro Verde team has overcome significant challenges in dealing with the pandemic. We've been operating at about 95% of capacity on movement around Arequipa, and our team just does does great work in managing this and being creative about how to manage it safely.

We're optimistic that achieve higher rates at Cerro Verde. Elabra is making great progress. We're increasing the stacking rate of materials.

And we're focused on sustaining a level of production at Alabra in the 200, 250 million pound per year range as we look to potentially expand that as we go forward. Richard talked about the terrific results at Glassburg. The team there is just continuing to deliver results quarter after quarter. We expect to be at our quarterly run rate for metal beginning here in the fourth quarter. And for the next several quarters, we project the mill will run at about 175,000 tons per day until 2023 when we install the new sag mill, which is currently under construction. And that will support higher rates as we continue to ramp up deep MLZ and then make room for the Kuching Liar project that Richard mentioned.

You know, a lot of talk right now about inflation.

Our team is really focused on cost management and efficiency projects. We're focused on extending equipment lines, ways to improve our energy efficiency, ways to efficiently implement maintenance practices and really use technology in all of this. We have, like everyone else, experienced some cost increases. Those have really principally been associated with the energy price increases. To a lesser extent, we've had some other impacts on our consumables, the impact of steel prices on some of our consumables. We've had higher sulfuric acid costs, freight costs. But we really want to send appreciation to our global supply chain team. They're doing excellent work in keeping our operations stocked with critical supplies and managing in these uncertain times and they've just done an outstanding job in keeping our business continuity going. I will note that we have seen very strong prices in molybdenum and those have more than offset some of these inflationary pressures we've had on the cost side. Turning to the smelter, on 5-17 we provide an update of our activities with the with the Greenfield smelter we're developing in East Java and the work we're doing with our partner at PT Smelting to expand the facility there. We're focused on completing this project as efficiently and timely as possible. We're advancing the engineering and commercial arrangements and we've commenced preparing the land for construction. You probably have seen press reports that the President of Indonesia recently visited the site in a groundbreaking ceremony, and it just indicates the significance of this project to the country. We've got a billion-dollar bank credit facility in place for PTFI to use to advance the projects, and we are going to plan additional debt financing for the project, which can be obtained at attractive rates to fund the project long-term. As we previously discussed, the long-term cost of the financing for the smelter will essentially be offset by a phase-out of the 5% export duty, so the economic impact to PTFI is not material, and this is a project that is shared 51% by our shareholder, PTFE shareholder mind ID and the balance of FCX. Turning to our volumes, and Richard talked about the growth in volumes, we've had great success in execution. We've got our three-year outlook listed on slide 18. And this is generally consistent with our previous guidance. We made some relatively minor adjustments to the fourth quarter. of 2021, but you'll see here that the execution of our plan is on track. We show on slide 19 the strong cash flow generation of this business. We've got very significant free cash flows using our volume and cost estimates and prices ranging from $4 to $5 copper. holding gold flat at $1,800 and molybdenum at current prices around $19 per pound. The real growth in our volumes with low incremental costs show EBITDA ranging from $12.5 billion per annum on average for 2022 and 2023 at $4 copper and $17 billion at $5 copper, as Richard has mentioned. And operating cash flows, And this is net of tax ranges from $9 billion to over $12 billion, which provides significant cash flows, not only to invest in our business and fund programs, grow our business, but also increase capital returns to investors. Our capital spending plans are detailed on the next slide, slide 20. You'll see here that we reduced our outlook for 2021 for capital spending from $2.2 billion previously to $2 billion, and that excludes the smelter investment. But that reflects really timing. We've had really a timing issue in getting these projects going. Um, and so that would just fall some of that falling over into into 2022 to commence development of the coaching. We are or body that Richard mentioned previously. So you're talking about nine to $12 billion of operating cash flows and capex below $3 billion. Very strong free cash flow. Um, we've got growing volume, strong markets, low capital requirements. And that's really allowed us, just over the past 12 months, to reduce our debt, our net debt, by nearly $6 billion. And so we're down now to $2 billion in net debt. I know some of you remember a time when it was multiples of this. And so we're in a great... Credit metrics are extremely...

it positions as well as we go forward to invest in future growth and increase our pay.

The last slide, 22, refers to our financial policy. It is centered around a strong balance sheet. The combination of the strong balance sheet and the success in growing our volumes will put us in a strong position. Our board had established earlier this year, a policy that provides for up to 50% of free cash flow to be used for shareholder returns with the balance improvements. We look forward to, with the achievement of our net debt targets, we look forward to the implementation of this policy.

We expect our board will determine the structure and size of additional payouts

to shareholders with our annual results and this will be something that we update and it gets reviewed periodically.

So that concludes our remarks.

We look forward to reporting our progress and continuing to build on our momentum as we go forward and operator would now like to turn the call over for questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press star one 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. 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.

One moment, please, for our first question. Zachary, in 4Q and really into 22, how should we think about inflationary pressures given what's happened with coal in Indonesia, freight, power particularly in Europe and Spain, and labor as well? And are there any annual contract resets we should be mindful of going into 2022?

We've built into

We have a coal contract in Indonesia that is done annually, but for the most part, our energy costs are floating with the market.

Because of the increase that we're expecting next year, you know, and that really, we've got a big fixed cost business, so it comes at a low cost. We are projecting that our unit costs will decline. So while cost inflation managed well and producing volumes at low incremental costs will help us drive costs lower in the face of rising inflation.

Great. Thank you.

Yeah, Michael, I raised this question with our team getting ready for this because, quite frankly, when I saw the out years, I was pleasantly surprised because of everything you're reading just generally about things. But, you know, the currency rates are helping us, and these byproduct credits aren't really important to us. Of course, in Indonesia, the gold's growing, and the lithium is doing well. And I think we benefit because Freeport – manages this America's business as one business. We operate relationships with suppliers. We're a premium customer for all of our major suppliers. So it's something we're watching, and, you know, some of our costs are correlated to copper prices. So it's a factor, but I was struck. I was expecting to be more, quite frankly, myself than it's.

Awesome, thank you. Our next question comes from the line of Emily Cheng with Goldman Sachs. Your line is now open.

Good morning, Richard and Kathleen. Pat, could you give us some color as to what's driving the hesitation around maybe accelerating this announcement a little bit about earlier?

Emily, it's just more a question of how quickly this is developed. You know, when we set the policy, we were anticipating meeting our debt target. It happened so quickly. Business has gone so well. We've, you know, had it. new board members and so we had set much earlier a process that would result in this being addressed after the beginning of the year when we got our annual results and so we'll be talking with our board about it you know we are also having engagements with a number of our significant shareholders about Stock buybacks and dividends, some of the traditional thinking seems to be shifting some, but it's nothing about that's causing us to do that. And, you know, we have regular scheduled board meetings, and we talk about it at every board meeting. So it's just more of a question of how to set the process early on, and clearly we're We're making progress much faster because of markets, but also because of our execution than we had anticipated. And so it's a good situation, but that's why we are where we are.

And there's no hesitation, Emily, on this. We've just got to implement it.

Yeah.

Appreciate it. I'm looking forward to it.

All of us are, Emily. Thanks.

Our next question. comes to the line of David Gagliano with BMO Capital Markets. Elias Melvin.

Hey, David. Hey, thanks for taking my questions. Obviously, a lot going on here, the leaching potential, development opportunities, et cetera, et cetera. I just wanted to focus in on Kuching Liar for a minute. In a certain respect, it's early days, but Kuching Liar has obviously been a well-known part of the graph. I just have two questions. First of all, if you could talk about spending over the next 10 years, And then secondly, talk about the primary developmental risk as you see it today. Again, I know it's early days, but you referenced complicated geology, mineralogy. What are, in your view, the primary developmental challenges for Kuching Liar?

That's it for me.

Like our other block caves, it's spread out over a long period of time. So it'll start out next year somewhere in the 200 million.

million dollar range uh... maybe a bit lower than that but ultimately uh... ramp up to average about four hundred million dollars a year and so that's gone over a proximate ten-year period and the production will come on to sequence all this is sequenced together but the production will come on to sequence when we have uh... availability in the mill as we have some declines with other other war bodies but um...

Mark, if you want to give some background about KL, as Richard was saying, this is just a natural progression for us.

It gives us really a place to continue to use everything we learned from Deep MOZ and Glassburg Block Cave full time to begin transitioning to develop another ore body there.

yeah and david it's going to look very much like deep mlz it's at a similar elevation technology to it we ended up having to play a bit of catch-up so we've got a much better geotechnical knowledge and how to address that part of the the uh the um you know it does as kathleen says it benefits it uh it it ties into the gbc uh development of the ore flow system ventilation access uh we're driving three three headings uh starting very soon and they all tie off of a development that's uh either off of the Big Dawson or off of drifting that goes back to GBC. The previous KL Reserve had much more complex metallurgy and geology. Over the last couple of years, we changed our new material that was a little bit lower grade, but that the material could be processed through our current mill. So that took away a lot of the challenges that the previous KL mine plant had. We had to change our flotation circuit. We had much more of the environmental management with pyrite concentrate that would be generated. So this plan, it's about 0.9 copper, 0.9 gold. The tons that Richard mentioned are very much driven by this 2041 plan. that we're working on. And this deposit has a lot of growth, both on the same footprint that we're working out now and at deeper levels. So I feel like this is going to be our chance to take all the lessons learned. We're looking at the potential of applying electric mining equipment there. So I think we get a fresh start with a lot of experience that's going to apply itself and kale is going to benefit from it.

And I want to tell you, Dave, that when Mark, the original reserve, as Mark said, had all this pyrite material and our gold recovers were very low and processing was complicated. And dealing with the pyrite tails was real complicated. I was just so impressed when Mark and his mine planning team came in with this new plan. which makes it much more traditional, much less risky, much less capital-intensive, and, in fact, created more value because originally we were only getting 50% recovery out of that pyrite-laden gold in the ore. So it's a great example of having a really good mine planning team led by Mark.

Okay, that's helpful. Thank you. Just a quick follow-up on the timing of the cap back. So $4 billion over roughly 10 years, $200 million in 2022. Is the lion's share of the spend likely towards the latter half of the decade? Is that reasonable to say? Can you give us a little more color on the timing of that ramp?

It'll average around that.

It's pretty consistent because this is Because we've developed most of the access and ventilation and all those sorts of things, it's not chunky.

This is more or less mine development. And that occurs on a regular pattern.

OK. Understood. Thank you.

Our next question comes from the line of Chris LaFemina with Jefferies. Your line is now open. Hi, thank you.

Hi, Richard. Hi, Kathleen. How are you? Great. Just a follow-up question on the KL project. So it sounds like the gold grades there are quite a bit higher than they are at the grass-fed blockade and the DMLZ, and the copper grades are kind of similar. So is this a project where we should expect operating costs to be at least as low, if not lower, than what you're going to get from the two current blockade projects? And secondly... The answer is yes. Okay, so it'll be lower cost. And should we also think about it as just being sort of a mine life extension to the Grassberg Block Cave, or would there be a period where you have, I mean, you're obviously constrained by the mill capacity, but would there be a period where you might have higher production as this is online, along with just still operating the Grassberg Block Cave?

It just fits in really well with grade changes with existing mines. You know, it folds right in. It's a sustainability of production project as opposed to a significant growth project.

We get up to a mill capacity of 240. Before KL, that mill would run somewhere around 220. So KAL benefits somewhat also by the milk capacity that they provide.

And then as Richard and Kathleen mentioned, it just fits in nicely as the grades in some of the when the grades at IDD are better than the grades at, for instance, at Deep MLZ. And Chris, to put

that in perspective way back in the 1990s when we were designing the grassberg open pit and looking forward to life beyond the pit our original targets was 120 000 tons a day through the mill so over time anticipated 120 000 ton per day mill rate from the underground to 240 000 tons from the underground it's Just to put it in perspective.

You went from being in a position where you were kind of managing a balance sheet, trying to develop these two really difficult underground projects in Indonesia, negotiating with the government regarding ownership at Grasberg. And you probably couldn't have drawn it up any better as to how it's progressed in terms of the development of the projects, the deleveraging of the balance sheet. You know, the ramp-up of the Grasberg blockade and DMLZ has been really impressive. So I think there was a lot of skepticism in the market about whether you could actually deliver on that. Kind of unleashing this massive. You're appreciated until recently. I mean, you've kind of been highlighting it in recent quarters, but now we're there. So you're going to be developing these projects. And, you know, you're obviously talking as well about this kind of catalytic leaching and, you know, leaching copyright of old leach stacks, you know, Chaco Pirators, which historically have not been commercial. Is this a technology that you think could potentially be revolutionary in the industry in terms of leading to a lot of supply growth from old, kind of what had been waste stockpiles. We have to worry about the copper supply-demand balance as a result of these sorts of new technologies leading to lots of growth.

That's again, Chris, a question I've been asking our team all along. In a prior life, I actually worked with the first company out of Houston that did the very first fracking operation for the whole oil and gas industry way back in the 80s. And so I've asked that question. And while it's a tremendous... opportunity and particularly good for our company considering the nature of our stockpiles and the history of our operations and the way we've dealt with low-grade. This will be beneficial. People are really going to be pursuing it. There is not just one technology that's being pursued, but a series of different options. So it's an evolving story. it's not likely to be the kind of game changer that fracking was in the long gas business.

Okay. That's great. Thank you for that.

Our next question comes from the line of Lawson Winder from Bank of America Securities. Your line is now open.

Hi. Good morning, and thank you for the update. It's nice to hear from both of you. There's so much to discuss, but I'd like to actually touch on your efforts around ESG, particularly in Indonesia. I mean, it's really exciting that you're targeting a 30% reduction in emissions by 2030. And I was wondering, how do you think about the cost of that? Or what is the cost that you've factored in in order to achieve that? And then when you think about it maybe from the other way, in terms of IRR, I mean, if you assume some carbon pricing assumption around where maybe European corporates are today, but what kind of IRR do you actually get on those types of investments?

Thank you. I kind of hate people who say that's a good question. Some people just say it all the time, but that is a real good question, and it's something that is really underappreciated right now. And we're particularly focused on it within ICMM because here we had the 28 largest mining companies that represent about a third of the global mining industry unanimously making this commitment. And as I said, with Freeport, because of our limited scope three emissions, it's not as big a challenge as it is for some other miners and resource companies. But we don't know yet what the cost of this is going to be. And it's going to be significant. I mean, there's just no way around it. You know, I met with a senior management caterpillar, and to try to think about designing 400-ton haul trucks that can make the grades up these big pits that we have, you know, the battery in those, you know, at this current level of technology is changing. The damn battery weighs a ton. And its life is very short, so you've got to deal with all the recharging and trowing systems and so forth. It's going to involve a lot of cost. And right now, while people are really making these commitments in good faith, they're doing it at a time when it's going to rely on technology advances, questions and answers, and with all that right now. You know, we kind of have a good, I think we got our arms around converting the coal plant things. But the question of how do you deal with haulage and electrifying shovels, and a lot of the shovels are already electric, but just light vehicles and so forth. You know, in our underground mines, we have a big electric train. us deliver ore but there ought to be some investments there so it's going to be an unfolding story and you raise the point that people following us and companies in our industry ought to really be tracking because as we see here today there's more questions than answers in that area I just might make one add-on to that that's going to be another factor in And we've got 30 years or so to have this unwind, but it's going to affect mine life. It's going to affect the economics of project development.

All of those things are going to come into play. So in your list of... Very fair.

One of the other...

One of the things to keep in mind in Indonesia is we have, you know, with the transition to underground, when we were mining at the surface, we had to move both ore and waste to get the metal production. Here underground, it's very efficient. You're with the block caving and you're really just mining ore. And so it is more efficient. As Richard said, we've got some electrical applications underground. Mark talked about expanding that as we look at new developments in KL. So there are some benefits that we have in Indonesia from the change from surface mining to our underground mining.

Yeah, we were moving 800,000 to a million metric tons a day in that open pit mine. Think about that. We still have to move material around to manage waste and deal with our tailing system and so forth, but that's a big change. But, you know, we've got plans of developing new mines. This is kind of a conundrum. The world needs more copper, and yet more copper, until technology breaks through, is going to result in more carbon emissions. And this is not the only industry where that's an issue that's unknown right now, but it's certainly true in our industry.

Thank you for your thoughts.

Our next question comes from the line of Ores Volkado from Scotia Bank. Your line is now open.

Yes, good morning. I was wondering if we can get some details on the potential timeline for the Baghdad concentrator expansion like how much time is involved for permitting something like that um and even with the lone star expansion is it fair to say that probably we wouldn't see any capex for either in 2022 well i'll let uh i'll let others answer we have we we'll have capex for uh for lone star with this oxide because we're expanding the oxide you know we started out uh

at a certain level, and we're stepping it up. But, Kathleen, you were calling somebody else to talk.

Yeah, it'll be small. Yeah, it'll be advancing feasibility next year. I'm thinking, you know, that is probably out or so before we'll have production, and so you won't have meaningful capex, you know, for another couple of years. associated with it. And Lone Star, the next increment of expansion is relatively low in terms of capital intensity. The longer term opportunity is time frame, but it's meaningful. The big thing that we really are focused on is growth through these low capital intensive opportunities to get more out of what we already have or these you know leech tech so that you know that's really where we can you know we can impact things in the short term I'm going to put an exclamation point on what Catherine just said about Baghdad because you know going back

Back to the early 2000s, there was just a feeling that higher prices would bring production.

I mean, and that had been the history of the copper industry.

But here we are in Baghdad, where we already have the reserves, we have established operation, full support of the community, and we're just talking about shortening the reserve life by building a new concentrator. And that's five years out. That's as easy a project as you're going to find in this industry. So that's what I was just saying. This coming situation, absent some doomsday global economic situation, there's just going to be a time when the world is going to be very short of copper.

I couldn't agree more. Richard, just as a quick follow-up, in terms of the capital allocation framework of paying out up to 50% of effectively free cash flow, How does the smelter capex get into that? Is that excellent?

And you need to keep that in mind because that is one of the goals I was trying to achieve when we were negotiating all this back in 2018, is we consolidate PTFI. The economics of, and so that'll show up as consolidated debt for us, but it's financed at the subsidiary level The obligation is going to be shared by the two shareholders, FCX and MindID. It will go into PTFI's tax calculations, so the project will be something that will affect PTFI's taxes. And when you step back from that Indonesian operation, I was really pleased

I don't know if any of you reviewed the Indonesian media coverage, but they just had these athletic games in Papua where the president was there and senior government people.

They had the groundbreaking aggressive. I have never in 30 years what a great investment the country made when they bought out Rio Tinto's joint venture interest in 2018. for the government going forward. And when you look at the government's equity position, their 51% share of equity, which we'll step up to that in stages, the high tax rate we have, royalties we pay, you look at the payments that are made for intercompany transfers to FCX, the government's economic interest in the project exceeds 70%. we were able to retain through the negotiations the interest we had going into it. So this is truly something that all the parties are very happy with. And what a relief it is to be working in Indonesia and not have to deal with the kind of complications we had for so many years. Thanks, Richard.

Our next question comes to the line of Carlos Delbo with Morgan Stanley. Your line is now open.

Yeah, thank you very much. Good morning, Richard and Kathleen. Just on KL, how much, if anything, of the estimated 500 million pounds of copper at KL would be incremental or 100% would be just to replace and sustain your production profile in Indonesia? And together with that and just following on the discussion, How do you envision, Richard, or what is on the negotiating table for the potential extension of your rights in Indonesia?

Would the government potentially get a higher stake in the scope of the negotiation? Okay, so with your first question, And Kathleen helped me.

Well, let me just say though, we give a five-year outlook for PTFIs production. And is that in these, in the press release? Yeah.

Okay.

So, Carlos, just follow that. And you can see that, as we said before, this is more of a question of sustaining production levels as opposed to a growth project. But you can see what we've shown for five years, and that will give you a view of the trend going forward. Now, with respect to your second question, It's really early stages, but we have broached it. I've talked with senior government people about it, and our partner, MindID, the state-owned company, under the auspices of the Minister of State-owned Enterprises, everybody recognizes the mutual benefits part. Sure, the government would like a bigger interest, but think about the complications of that, because with an extension... we will want to start as mark said we've got opportunities to kl and elsewhere to invest and we'll make those investments in advance of 2041 and so we have to balance out how you share those calls you know where we basically have 50 economics of new investments with what's our interest going to be going forward So that's early days to be discussed and benefits to all stakeholders for finding a way forward on this or clear-cut.

The alignment between, you know, the FCX and the government is really good, you know, to have the kind of incentives for both parties. We tried to design in 2018, and that's really what's happened.

no that's right and given the the everything that goes around developing a project of this magnitude uh kl i what would be ideally the the extension of the time um for those rides that you were looking for 20 30 lines well just to be clear on kl to be clear on kl yeah kathleen that's

Those economics are baked into a 2041 drop dead date. OK. So they're not dependent on extension.

What the opportunity is is to make the KL bigger and to find other resources, because we really have done very limited delineation type errors. And so we don't know the answers. But we're optimistic that there's resources there that we don't know about yet. And you know the best answer is for projects like this to not have a time frame, but to have incentives for all the parties to work to maximize the resources over the long term. Time frames make no sense.

Thank you very much.

But I want to be clear, the KEL economics are not dependent on an extension, the current project.

Our next question comes from the line of Brian McArthur with Raymond James. Your line is now open.

Good morning. Well, Richard, you just answered the question I had right there.

Maybe I'll try something else. On the molybdenum business, obviously it's doing a lot better.

I see climax has come up a little bit. Like what's the strategy going forward? Like you plan to wrap things up more there and at Cerita, which obviously had a big Molly credit, like why wouldn't it be ramped up bigger in the whole thing in the near term too?

Well, you know, we've been in creating the processing facilities capabilities and Mike Hendricks on the line he can chip in on this but but you know rather than just being a metal producer and a byproduct producer the past efforts created a really sustainable global leading business of where we're able to to maximize the value of our ore resources in Colorado from our molybdenum mines to the byproducts credits in North America and South America. And we can expect those to come with expansion projects and more. And so we're able to generate higher than the metal price value from molybdenum by processing it as a chemical product. And we run this thing as a business. It obviously ebbs and flows with the price of aluminum. Today's price will look out three or four years and a lot of cash coming out of that business. But it's strategically important to us. We just got a great team. It's a global team. They work together very well. You know, Colorado is a state where you've got all states are, but you've got to be very careful about environmental management. The city of Denver gets maybe 10% of its drinking water off of Climax Mountain. And so it's a business that goes back 100 years, more than 100 years for our predecessors, and it's strategically very important, and now it's generating cash. Mike, you want to add anything?

I was just going to add, Richard and Brian, we do have opportunities to increase primary molly production at the Climax Mines. And if you think about, you know, what the big deficits people are talking about in copper, you know, there could be mounting deficits in Mali at some point. And so we want to be in a position, and that's what our primary mines can do, is meet market demand. And we've got, you know, we had curtailed capacity in the past to match up with market demand. And now we have the opportunity potentially to increase. And so we're going to be doing some mine stripping and that sort of thing to be positioned so that the markets are there. We can be there to participate with this quality product that the market wants. So we're looking at all of that. Mike, if you want to add something to that.

No, I think you both have captured it really well is that we've made, Freeport has made tremendous investments in the Mali business over the last decade, including the Climax mine, a tremendously productive circuit at Cerro Verde and at our other byproduct circuits in North America. And we've been able to take that with our downstream operations that we've inherited and we've made incremental investments over time. and they're very productive and we can service not only the metallurgical, but the chemical industry and the lubricant industry very well. And as Kathleen says, we're definitely evaluating the next steps.

And sorry, just on Cerita, given the big molly credit there, is that all the way back to full capacity yet?

Josh. Yeah, good morning. Yeah, I was going to jump in with respect to see Rita. So they've been we've been ramping back up at Syrita in terms of the mine plan and stripping over the last eight six to eight months. And so if you think about it from a Molly perspective, it's really been driven by the sequencing and the great available in the mine. And so as the Molly price has gone up, they're looking at what's the best way to optimize the value at Sierrita, but the upside is incremental. It's not significant because the mill is at its capacity as we sit today and going forward. There's opportunities, as Kathleen touched on earlier, with respect to incremental milling rate increases, which we're working on through data analytics and digital type tools, but it'll be incremental at best as we go forward. Thank you very much.

Thanks, Brian.

Thanks, Brian.

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

Hey, Alex. Thanks. My question was already answered, which was around the economics of KL.

I'll let someone else ask a question. Thanks. Thanks, Alex.

Our next question comes from the line of Michael Dudas from Vertical Research.

Your line is now open. Hey, Michael. Good morning, Richard, Kathleen.

This is great, great news on the relationship with the Indonesian government. Maybe you could share some additional thoughts on what your options are. Is there anything out of Washington, you know, with all the noise that could impact mining, could impact potential investment, or how the mining industry will react as some of this legislation comes forward?

All right. Wow. I got to I got to discipline my comments with those questions. Sorry about that. Sorry about that, Richard. No, no, no, no. It's the world we live in. Chile is separate from Peru, and it's got really a lot of questions about it right now. It's driven by this wide... spread feeling within the country of people, as people are happening around the world, dealing with income inequalities and social problems versus other government initiatives and so forth. And it's got a complicated election coming up. There's no clear-cut frontrunner right now. There's processes going on within the parliament, within issues related to consideration of constitutional changes. And so it's really... uh from my perspective muddy waters there it's not currently nearly as significant as peru in terms of el opera's production is a small part of our production but it is affecting our consideration of expansion uh but we're working with the industry uh you know we're not you know we're not uh at the top of the charts in terms of production there so we're working with others on it in peru You know, Peru always consistently has complicated presidential politics and, you know, we've seen this story before where a left-leaning candidate gets into office and runs on platforms that are very much addressing, you know, getting more money out of mining companies. And President Castillo ran on that platform. He had the backing of the far left-wing parties there. I got to meet him within this past month. He came to Washington. It was a Sunday before U.N. week, and with a small group of mining executives had dinner with him. My first time to meet him, he comes from a non-political, non-political leader background. He was a teacher in the interior of Peru. And when he talked with us that night, I found him to be very compelling in his emotional feelings about doing more to help the people from the region where he came from, but also throughout Peru, the poor people in terms of education and so forth. There, I had a better feeling than I had going into it. I had the chance to have exchanges about different issues. We did not get into, none of us got into details about but he emphasized that he recognized the importance that mining plays in Peru and that's what always happens when people get in office to achieve social programs.

they see how much mining contributes to the country financially and that's needed to do you know at the very outset and replace it was Prime Minister and so it's a really wait and see thing about it, working with others in the industry.

We need to be responsive to his concerns. And that's what I'm trying to... We focus almost all of our community programs on the regions where we operate. I think we've got to take a broader view and show people in the interior that mining can help their lives. And so that's what I'm working on right now. And so I am more optimistic now than I was during the election. You'll hear different views by different minors there. People are very concerned, rightly so. Our situation is we have a new stability agreement. We're maximizing the operations at Cerro Verde.

You know, it's the Big producer, major contributor to our volumes.

It's got the world's largest mine site, concentrated facilities. We have great relationships with the local community. So we want to build off that and try to reach out and find some common ground to work with President Castillo. But it's uncertain. Man, what about the US? What can you say in Washington these days?

And you know, the current administration change and yet I don't expect them to lessen up any requirements for permitting environmental management community issues because that just runs against the grain of their political situation so it's really uncertain you know we're we're all hopeful we'll see

some steps towards infrastructure building. The country really needs it. You know, you see it in ports and roads and bridges all over the country. But, you know, I just don't have any comment on the political situation other than be distressed about the approach to relationships with China in this country. And that's a bipartisan issue, and it's a complicated one.

But China is going to be an important part of our world going forward.

I mean, the country's too big. The people are very smart. They work hard, and they create a lot of economic velocity.

So anyway, I'm focused. I'm staying out of politics and focused on Freeport.

You sound like a true ambassador, Richard. Thank you.

He's right.

Thank you. Now? We'll turn the call over to management for any closing remarks.

Well, Kathleen, I thought going into this thing we had such a good quarter we'd have a real short call, but I really appreciate your good questions. As always, there are a lot of complicated issues to face with. I woke up this morning feeling on top of the world and then opened my screen to see for the first in a number of days, a weekday in the market, and I said, That was just God's way of reminding me about the business we're in. But we couldn't be more – I think you get – I hope you get the sense, not just from me, but from our whole team, of just how good we feel about what we've done. And, you know, we're not going to focus on what we've done. We're focusing on where we go from here. And it's a long-range business. This is a long-range company. We don't feel any pressure to do – to do anything from any kind of M&A standpoint or be overly aggressive in new investment decisions, we can approach this in a very straightforward, logical way. And in the meantime, make a lot of money and show shareholders some gratitude for sticking with us and being part of our company. So thank you all. If you have follow-up questions, as always, Let David know and we'll be responsive.

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