Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoran fourth quarter conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you wish to ask a question during the Q&A session, press star 1 on your 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. Welcome to the Freeport-McMillan conference call. Earlier this morning, we reported our fourth quarter and year-end 2021 operating and financial results, 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 today's comments, we'd like to remind everyone that our press release and certain of our comments on today's 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 are Richard Atterson, our Chairman of the Board and Chief Executive Officer, Mark Johnson, who heads up our Indonesian operations, Josh Olmstead, who heads up our Americas business, Mike Kendrick, who leads our Molybdenum business. We also have Rick Coleman and Corey Stevens, who support our team with engineering and construction, technical services, and support for our growth projects, and Steve Higgins, our chief administrative officer. I'll start by briefly summarizing our financial results, and then I'll turn over the call to Richard, who will review the slide materials in our presentation. I'll make some comments, and then we'll open up the call for questions. Today, FCX reported fourth quarter 2021 net income attributable to common stock of $1.1 billion, or $0.74 per share, and adjusted net income after excluding net charges totaling $0.3 billion, or $0.21 per share, was $1.4 billion, or $0.96 per share, for the quarter. For the year ended 2021, Our net income attributable to common stock totaled $4.3 billion, $2.90 per share, and adjusted net income totaled $4.6 billion, or $3.13 per share. We have a reconciliation of our adjusted net income on Roman numeral 7 as part of today's release. Our adjusted earnings before interest, taxes, and depreciation for the fourth quarter totaled $3.2 billion, And for the year, totaled 10.9 billion. We've got a reconciliation of our EBITDA calculations on page 43 of our presentation materials. Our team delivered great volume growth during the year. Our copper sales of over a billion pounds during the fourth quarter approximated our guidance going into the period. And for the year, we sold 3.8 billion pounds of copper. That was a 19 percent increase from 2020. Our fourth quarter 2021 gold sales of 395,000 ounces were about 5% above our guidance going into the quarter, and that reflected higher throughput rates in Indonesia. Our annual gold sales totaled 1.4 million ounces for the year and were 59% above the 2020 total. We benefited during the quarter from positive pricing for copper, Our average realized price of $4.42 per pound in the fourth quarter was more than a dollar per pound higher than the fourth quarter of 2020. Our realized gold price of $1,808 per ounce was slightly below the year-ago quarter, and our results also benefited from improved molybdenum prices, a realization in the fourth quarter of 2021 of over $19 per pound, was almost doubled the year-ago period's realization. Unit net cash costs during the fourth quarter averaged $1.29 per pound of copper. That was slightly above our estimate of $1.26 going into the quarter, but that reflected a non-recurring charge associated with the successful completion of our multi-year collective labor agreements at Cerro Verde in Peru. strong cashflow generation. Again, during the quarter, we generated $2.3 billion of operating cash flows. And for the year we generated $7.7 billion of operating cash flow, and that exceeded our capital spending of 2.1 billion for the year. As you saw in November of 2021, our board approved a new share purchase program. authorizing purchases of up to $3 billion of FCX common stock. Through January 25th, we acquired 15.4 million shares at a total cost of $600 million, and that was an average price of $39 per share. The board also approved in November an increase in common stock dividends for 2022, effectively doubling our common stock dividend. And on December 22nd, we declared dividends totaling 15 cents per share that will be paid on February 1st of this year to shareholders of record as of January 14th. Our balance sheet is strong. You'll see that in the results. The net debt at the end of the year totaled $1.4 billion, and we had no borrowings under our $3.5 billion revolver, so we've got strong liquidity with $8 billion of cash at the end of 2021. I'd now like to turn the call over to Richard, who will be referring to our presentation materials on our website.

Thanks, Kathleen, and hello, everyone. The end of 2021 is a special time for our Freeport team. We've met a series of multi-year complex challenges with great success. You start by looking at the debt picture, which Kathleen mentioned. Just six years ago, our debt was at $20 billion and the way to manage it was really unclear. uh we have now reached a point where our debt is de minimis we have started a program of shareholder returns with higher dividends and share buybacks we have assets in a outlook that will allow us to increase those over time our our credit rating has been raised to investment grade by two of the agencies Then you look at the Grasberg underground project, which goes back much further. We began our initial plans for this underground operation in the mid 1990s. We began spending capital 20 years ago. By the end of the year, we met our target by reaching our metal long-term run rate. We are taking steps successfully and have the way forward to increase our mining rate to well over 200,000 tons per day from the underground. That's just remarkable. During this period of ramping up Grasberg, we had challenges in our dealings with the Indonesian government about our contract of work. We resolved those three years ago, and I'm pleased to report that our relationships with the government of Indonesia is one Now, cooperation, working together mutually for common goals, relationships have never been better. Then two years ago, we started facing COVID. That was a huge uncertainty for us. At the time, we took aggressive steps to be prepared to manage the risk that were emerging. We've successfully managed our way through that and achieved our debt reduction in Grassburg Underground from that standpoint. esgs on everybody's mind these days it's always been part of our psyche at freeport because the nature of operations but we've begun aggressive efforts to deal with climate change impacts of our operations we're working with the copper industry with this copper mark designation which we have been a leader in working with icmm with communities I became chairman about a year ago. I made commitments to myself to strengthen Freeport's board. This year we've added six new directors. Four are well-known, highly regarded CEOs with extensive international business experience who add a lot to our board. We have two women we added that both are financial experts, experienced in audit committee, dealings. One is proudly as an Hispanic. It's just been a great work by our team. We have a real sense of accomplishment and we're really looking forward now to the future with optimism, commitment and excitement. Turning to our results, our copper volumes grew by 19% compared with the prior year, reflecting this ramp up in Indonesia. Our unit costs declined despite rising energy costs and other input costs. Our team has done a great job of managing the challenges of supply chain and cost inflation. We generate strong margins. Our EBITDA and cash flow rose by two and a half times over 2020. And we ended the year with just over $1 billion in net debt. And we're well prepared with our long-lived reserve and resource base to advance organic growth over time. Now with the ramp-up at Grassburg reaching the point of where it is, we're now looking to our operations in the Americas for future growth. It's nice to talk about accomplishments, but we're all focused on where we go from here, how we build more value for our company, and we have a great opportunity to do that. Copper. Over 20 years ago, our company made a commitment to copper, and it was driven by supply-side constraints that we saw in the global marketplace, at that time growth in China. we've we've we have fundamentally stuck with that uh we our board made a diversion with this oil and gas deal but that's behind us now but the fundamental outlook for copper as positive as it was 20 years ago is now even more positive and becoming increasingly positive it's driven by copper's role in the global economy just fundamentally the need for copper and As the world develops, we saw it in China. China continues to be an important part of the market. Global growth will occur outside China. But the new elements of demand are really significant. Any investments in carbon reduction, and everyone's talking about carbon reduction, requires significantly more copper than the world has required in the past. Electrification is the key to climate change. two-thirds to three-quarters of copper's use is dealt with electrification. Whether it's electric vehicles, alternative energy generations, all of these require much more copper than the traditional power. Then you move beyond that to technology advances in communications, artificial intelligence, expanding connectivity as infrastructure is developed, around the world, public health initiatives, all of these are creating what I'm calling a new era of copper demand. And these are broad-based. They're inevitable. Copper will be affected by risks to the global economy from time to time, but underlying that is a long-term, very positive outlook for copper, and our company is solidly positioned to benefit from that. You add that together with supply scarcity and the demand factors, and you have a real compelling case for investing in our company. We're seeing increasing scarcity in supply at a time when demand is growing so significantly. There are a limited number of projects which have been under development for some time now that are scheduled to come on stream in the near term. But when you look beyond that, it's hard to find actionable projects that can be developed within a very short period of time. It just takes a long time. And then there's increasing political risk around the world that will have its impact on copper supply development, notably in Chile and Peru, where 40% of the world's copper comes from. There's new presence. who run on agendas that are oriented towards social programs that require more revenues to implement it. And how the industry and the governments deal with that will be very important. But beyond that, you see this in countries like the United States. You see other countries restricting new supply development for community social issues. countries around the world are demanding more of miners in terms of revenues, and that goes beyond Chile and Peru, ranging all the way from Asia to Central America to Africa. All of these things add in to supply constraints at a time when the world needs more copper. We're focused on the long-term outlook for our markets. We always prepare ourselves and recognize that near-term risk may emerge to the global economy. Now we're strong financially to deal with those risks. We've structured our business in a way that we have flexibility to manage it. So we're much more comfortable today about whether our company is positioned to take advantage for what we believe will be a very positive view for copper as a commodity. You look at our reserve base. We report reserves. We'll report reserves this year based on mine plans of $2.50 copper. You know, we don't limit ourselves to looking at projects on that basis because we have an optimistic view about copper. But we have more than 250 copper. We have more than a 25-year reserve life, approved and probable reserves. And beyond that, in our incremental mineral resources, we have enormous amounts of copper that over time will be brought into reserves as we do delineation drilling and engineering work to bring those into reserves and ultimately into new projects. This is really a key asset for Freeport. It provides us a lot of options for the future. when you look at the scarcity in the industry for development opportunities. Freeport does not really need to rely on acquisitions to support our long-term future. We always monitor opportunities, but we have the assets within our company and how to sustain our business in growing it significantly over time. With these favorable markets, our margins and cash flows are growing. We have well-established plans. Our whole team goal is focused on executing plans to produce more copper, produce it at a lower cost. We built a strong foundation for the future. We had significant sales increase in 2021. We've got growth factored in for the near term, additional 13 percent in 2022 and improving in 2023. We have de-risked our plans. We expect growing margins and are really prepared to execute, to generate the cash, to support returns to shareholders as we invest in future growth. Looking at the slide now that shows the successful ramp-up of the Grasberg Underground, and I just wish you all could see me because I've got a big smile on my face when I look at this. It's really significant with what we've done there. Our team there is just really to be complimented and meeting all these challenges is nothing was nothing short of a monumental task as i mentioned earlier it was years to to achieve this the underground development turning to the next slide over 350 miles of tunnels seven miles of an underground railroad with 10 electric trains running four huge crushers five miles of conveyor belts these shafts to take large numbers of people down underground it's all underground over 500 drawbells have been opened almost 350 000 meters of undercut and we're really on track to achieve long-term sustainable rates of any excess of 200 000 tons a day from our minds through our mills this gives us a very strong base of long terms we've done this now to create return grassberg to be the second largest copper mine in the world, the largest single gold mine, even though it's a byproduct. Look at a fourth quarter when we had our net cash costs in the face of all this inflation of only eight cents per pound for the second largest copper mine in the world. We are on track to achieve a long-term run rate of 1.6 billion pounds of copper a year. over 750 000 tons all this looks simple on paper but man it was a challenge to get it done and our team deserves a tremendous amount of credit for for doing that now we look at where are we going to grow for the future how are we going to sustain our business for the future this new lease technologies that we're working in the americas is a huge opportunity for freeport Our company historically was a leader in developing leaching. Our Marincy mine in Arizona is the world's largest leaching operation in today's global copper market. And this technology that we will have to improve recoveries and achieve recoveries from historical waste stacks and just creating copper no one thought we had the opportunity to recover, is really significant for us. Then we have our mine in northwestern Arizona, the Baghdad Mine, which has a long reserve life, set up perfectly for a mill expansion and to achieve greater volumes out of it in a relatively straightforward way. In eastern Arizona, we have the Lone Star Mine, which I truly believe someday will be the all-star mine for Freeport. We're working and expanding recoveries from the oxide ore that's there, taking advantage of facilities at our nearby Safford mine, which is where production is declining as planned. But underneath that, the Lone Star mine has a sulfide resource that I really believe will make it be the all-star mine for us. Good project in Chile that the world will need. We're waiting to see how things unfold there. And then this Cuchingley air mine that we have undeveloped at Grasberg is going to be an important part of our future there. This will be one of the world's largest block cave mines in its own right, 80,000 tons a day. It's got a resource of 6 billion pounds of copper, 5 million ounces of gold through 2041. We're talking with the government now, preliminarily, about extending our rights beyond that, and that mine will be producing well below 2041. When that's on stream, we are targeting getting up to 240,000 tons a day of mine rate and mill rate out of the operations in Grassburg. There's a slide on Lone Star that I referred to earlier. You can see the data of how we're increasing it But the real prize there, the oxide development will be profitable, add the volumes, attractive cost. But the real long-term prize there is this sulfide resource that underlies the oxide. It's very large. It'll take time to do it, but it'll have a complex, we believe, ultimately similar to the Marinci Mine, which is the largest mine in North America now. This leach technology is something you'll hear a lot about from us throughout the energy industry. We will be a leader here. We are looking at several different types of technologies. All of them are excited. Corey is leading our team here, and it's really a new element of demand. Just in our existing waste stacks, we have we believe we have almost 40 billion pounds of copper in those stacks and even small recoveries out of that could result in copper that would be equivalent to developing a whole new mine so it's early stage technology a lot of work to do a lot of excitement by our team about doing this so it's it's really good i want to close by just recognizing our team around the world I'm so proud to be part of this team. We've got a group of people that are technically competent, that are highly motivated, that work together cooperatively, that are buying in to making Freeport the foremost copper company in the world and keeping it there. And we have the capabilities on hand to meet and exceed our expectations. Exceptional opportunities for our business. And I want you to know that Regardless of what you read out in London, I'm planning on staying part of this team for as long as God's willing to allow me to do it. I'm having more fun now than I've had in years, and I'm really excited to be part of this team as we go forward. So, Kathleen. All right.

Thank you, Richard. And I'll just start on slide 17 and make some comments on our operating and financial matters, and then we can turn it over to your questions. We're providing some additional details on our fourth quarter operating activities on slide 17. And as Richard said, the Lone Star Mine, he's now renamed it the All Star Mine, but it continues to perform above the design capacity. You'll recall we commissioned the mine in the second half of 2020, and last year we produced 265 million pounds of copper. That was a 30% increase from the original design of 200 million pounds per year. We have incorporated now a further incremental expansion into our plans, which will take us up to 300 million pounds per year by 2023, with an investment of approximately 250 million. And as Richard mentioned, as we accelerate the mining of the outside ores, this will expose us to the larger sulfide opportunity. At Morenci, we're gaining momentum on our leach initiatives. We have substantial material that has already been placed on leach stockpiles, which provide an opportunity to increase our copper production at a low incremental cost and notably a low carbon footprint. We're applying new technologies and using data analytics and censoring to measure our success, and we're very encouraged by some early wins and are optimistic that there's much more to come. We started the effort at Marinci because of its significance, but the early wins at Marinci have allowed the team at Marinci to share its findings across the portfolio, and this gives us a significant value opportunity for Freeport, and we hope to report ongoing progress to you as we go through the year. We also continue to ramp up mining and milling rates at Marinci, and we estimate that production from Marinci will be about 10% more copper in 2022 compared with 2021. In South America, our teams there are doing great work to restore production to pre-pandemic levels. The 2021 sales from South America were about 8% higher than 2020, and we're projecting an additional increase in 2022. We continue to target a full restoration at Cerro Verde of its mill operations during this year, and we'll be on our way to getting back to a billion pounds per annum from this large-scale operation. Our team at Cerro Verde continues to do outstanding work in managing the pandemic and had really a terrific fourth quarter. We were also successful in finalizing our multi-year labor agreement at Cerro Verde during 2021. At Alhabra in Chile, we're making good progress in increasing our stacking rates of material on our leach pads there, and we're also advancing construction of a new leach pad to accommodate the higher rates. We're expecting a 30% increase in 2022 production at Alhabra off of a relatively low base, but we plan to sustain a level of 200 to 250 million pounds per year for the next several years as we assess opportunities there for future growth. At Grassburg, as Richard mentioned, the highlight of the year was really reaching our targeted metal run rate in the fourth quarter.

This was an enormous milestone of success for us.

We're all proud of it.

We're focused on sustaining this during 2022. ever working to advance Kuching Liar and several other projects in the portfolio.

Our next slide is just an update on our progress to develop new smelting capacity in Indonesia to meet our commitments to the government.

The site for the new smelter is starting to take shape, as you can see from the photo on the slide.

In the fourth quarter we completed the pile support for the flash furnace and are starting to pour concrete. We also completed agreements in the fourth quarter with our Japanese partner to expand the existing smelter at PT Smelting. We're focused on completing these projects as efficiently and timely as possible. We've been funding the cost of the smelter through a one billion dollar bank credit facility that ptfi secured and we're planning additional debt financing at ptfi which can be obtained obtained at attractive rates to complete the project as indicated on the slide the long-term cost of the financing for the smelter would be essentially offset by a phase out of the five percent export duty so the economic impact is not material We provide on slide 19 a three-year outlook for volumes. And just we're pleased to report our execution is on track. We have for 2022 and 2023, and have now included our current outlook for 2024.

After delivering a 19% increase in copper in 2021, production across the portfolio. We've got further growth in our existing plans.

And our sales for copper in 2022, we estimate about 36% will come from the U.S., 27% from South America, and about 37%. We're showing on slide 20 how the quarterly volumes work out.

We're expecting great growth.

at several of our sites in the Americas, and that will be increasing throughout the year. You can see our gold sales are fairly steady at roughly $400,000 in 2022.

On slide 21, we showed you the cash costs for 2021 and 2022. And you can see that the costs are pretty similar.

For some time, our global team has been focused on cost management and efficiency projects to extend equipment lives, improve energy efficiencies, maintenance practices, and using technology to help us in all of this.

And we're also a great global supply chain team.

work with our site operations management and through our partnerships with long-term suppliers to address our business needs as you'll see on the slide our estimated 2021 we've got increases that we're experiencing in for input costs including energy sulfuric acid We've got some higher labor and outside services compared to 2021, and higher costs for materials and supplies. But that essentially is being offset by our higher volumes. We're going to continue to focus on cost management and provide our operators with technology-driven solutions to assist with the current cost pressure. Richard mentioned the strong cash flows.

that we're generating and we see that continuing in the future.

On slide 22, we show the significance of our cash flow using our volume and cost estimates and prices ranging from $4 to $5 copper per ounce and molybdenum at $19 per pound. We show modeled results using the average of 23 and 24.

And you see here that annually EBITDA over this period $5 copper.

And our operating cash flows would range from nearly $9 billion a year to $12 billion.

As demonstrated in the last several quarters,

significant free cash flow and this trend is expected to continue with cash flow significantly above our capital spending. Moving to capital spending will show on slide 23 our outlook for capital. For 2021, capital expenditures excluding the smelter costs totaled $1.9 billion, and that was slightly below $2 billion. We're projecting capital of $3.3 billion in 2022 and $2.7 billion in 2023.

Prior guidance for 2022 reflects the addition of the incremental Lone Star expansion project at Atlantic Copper. You'll also note the large decrease in spend on the Glassburg block cave and deep MLZ beginning in 2023.

And you've also seen here the discretionary projects that we're advancing to improve profitability and value as we go forward. And about 20 percent of the capital for the next two years reflects recent value-enhancing additions. And those are detailed more on slide 24, where we have a summary of the discretionary capital we've added to our plan since achieving our net debt targets last year and commenced our shareholder return policy. These projects all have solid financial returns, great operational benefits, And again, represent value-enhancing investments using a portion of the 50% of free cash flow we are earmarking for organic investments and balance sheet improvement. Our free cash flow generation is significant, and that's supported by growing volumes, positive markets, and low capital requirements. You'll see on slide 25, and Richard highlighted this you know not only the last what we've done over the last several years but just in 2021 alone we reduced our net debt by nearly five billion dollars and our ebitda continues to grow we're really in a fantastic position to execute our strategy maintain a solid balance sheet and return substantial cash to shareholders our financial policy is is summarized on slide 26 It's centered around a strong balance sheet and combined with a performance-based payout policy that provides for up to 50% of free cash flow to be used for shareholder returns with a balance for growth and further balance sheet improvements. As you'll see on slide 27, we commenced implementation of the policy following our board's actions in November of last year. We purchased nearly $500 million in stock in the fourth quarter, and through January to date, our purchases, cumulative purchases, total $600 million. We're well on our way to using our $3 billion authorization. Our board also approved a variable dividend for 2022, which essentially doubles our common stock dividend. The combination of the share purchase program and our dividends are designed to distribute 50% of our cash flow while maintaining the balance sheet in a super strong position and providing flexibility for our long-term investments. So in summary, I just want to echo what Richard said. We're well positioned for success in 2022 and beyond. Our team is passionate about execution. We've got momentum, and we look forward to building on this success. And operator will now like to turn the call back to you to start the quick Q&A session.

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

Good morning, Kathleen, and thank you for the update this morning. My question is just around the Baghdad expansion. I believe in the slides there is a comment around potential for construction to commence in 2023 with a potential 2026 startup. But could you talk about the progress you've made to date there in advancing sort of technical studies as well as any final hurdles to be met before project expansion and any early indication of what CAPEX could potentially look like for this project?

Emily, we are starting feasibility of that project now, and we've been working on various scoping level studies over the past several years as we've been discussing. But we are starting the feasibility study, and that will really define the final cost estimates. But we think it will be efficient because we've got, you know, a lot of infrastructure already there. We're adding the new concentrator that, really take into account the efficiencies that we've gained at that Baghdad existing concentrator in recent years. And once we go forward and get the feasibility studies done, we have a limited permitting process, we believe, and that's what gives us hope that that project could be in operation in 2026. The economics of it will be, we believe, will be positive in really advancing in an efficient manner the production, double the production there because it is a very long reserve life, approximately roughly 80 years. And so we're bringing that, looking to bring that value forward.

Great. Thank you.

Your next question comes from the line of Lawson Winder from Bank of America Securities.

Hello. Good morning, Richard and Kathleen. Very nice to hear from you both, and thank you for today's update. Maybe I could ask about the all-star mine. Can you update us on your thoughts in terms of what's driving the current outperformance? Is that just better recoveries, or is there other aspects at play? And then when we think about the current Lone Star Mine and your expansion to 300 million pounds, I mean, it's outperforming by 5% or 6%. So how should we think about that 300 million pounds? Should we think about it in terms of being more like 318 to 320 million pounds? Thank you.

Josh, you want to take that?

Yeah, Josh, why don't you respond to it? Josh is our chief operating officer for the Americas.

Good morning. Yeah, you know, realistically, if we look at Lone Star and what we've been able to achieve since we started it up, we really leveraged a lot of the learnings that we had seen, you know, from our exercises and experience at Baghdad with respect to identifying bottlenecks in the process. and leveraging the workforce through kind of an agile way of working. And as we've done that, the team at Lone Star has been able to identify opportunities that really eliminated bottlenecks and that allowed for us to work on incremental gains over time. And as we think about the next step in that, it was just a continuation of that same process in the sense of identifying what's limiting our ability to maximize the opportunities production at the site and so the team has done a great job of going through that entire system identifying what those bottlenecks are and we put projects in place to really attack those bottlenecks and maximize where we're at. The 300 million pounds is probably at the limit of our current existing hydromet facilities and the tankhouse capacity. So anything above and beyond that would be a bit of a challenge, but I'm not going to say that the team there isn't going to continue to look for opportunities to add additional incremental pounds, but I think that 300 million pound target that we're headed for is pretty close to that limit based on what we have today.

Thanks very much.

Your next question comes from the line of Christopher Lafermina. Hi, thanks.

Hi, Richard and Kathleen. Thank you for taking my question. So if we look at the progress of Freeport in the last five or six years, you've obviously overcome some really substantial challenges, and the company has, you know, you find yourself in a position of clear strength today, and you're kind of unleashing what is ultimately a massive organic growth pipeline with probably more growth than we even are aware of today just because the resources are so substantial. And you talked today, Richard, about leaching technologies, which you mentioned last quarter as well, but you talked about this as a huge opportunity. And my question around that is, first of all, how much production potential could we see from these new leaching technologies? What's the timeframe? Is it in any of your guidance yet? what sort of operating costs, just like the economic benefit that you will realize from this leaching. And I guess the reason why I ask that question is because a lot of other major copper miners are talking about various new leaching technologies being substantial. And it really comes down to, you know, there's going to be an economic benefit due to having more volumes. But the question then is, what does it mean for overall copper supply and demand? So how much? When is it coming online? Is it in your guidance? And what sort of operating costs?

We do have a small amount of benefit factored into our guidance from the early successes at Marinci, but that's just a very small fraction of what we expect to get. We do have some, and this is unfolding, Chris, so it's going to be evolving as we go, but we've kind of internally said, you know, let's go after trying to get 100 to 200 million pounds from this in the near term. And so we're looking to gradually improve where we are in 2022, and you'll be hearing more about it. But from a cost standpoint, if you think about where the incremental cost of this is, we've got much of this material is already in our leach stockpiles. So we've already extended the funds to mine it, and it's in stockpiles. And so it's a very low incremental cost to be able to recover it. So that's the opportunity for us, you know, as we look at it, having low incremental capital to go after it, low incremental operating costs, We have latent tankhouse capacity. Josh mentioned we're filling the tankhouse at Safford, but at all of our mines, we've got some tankhouse capacity that we can fill if we're able to get more recoveries. So economically, this is a real opportunity for us. But when you're talking about 100 to 200 million pounds, and we've got 38 billion pounds of of material in stockpiles, that's a small amount. But it does have value to us and we hope to go capture it. But in terms of this being a sea change for supply for the industry, we just don't see it. It'll take time and it'll come out over time. uh... but it is you know it's a meaningful value opportunity for us as a company given you know given our set of circumstances with the large stockpiles and the latent tankhouse capacity and corey i don't know if you want to add anything to that but that that's that's where we are with it now kathleen you covered it well corey stevens by the way is stepping up to lead our project development engineering and

He's the key guy in leading us on this deal. And Chris, you know, in an earlier life, back in the 80s, I was working in the oil and gas business when the shale business really got initially kicked off. And so, this team here will tell you, I'm always looking around corners to say, is there some kind of shale oil and gas development that could change the industry like that did for the petroleum industry? And this is a huge opportunity for us, huge in the sense of being able to add value of significance. But in terms of being a shallow kind of sea change for the industry, as Kathleen called it, we think that's not in the cards.

That's very helpful. Thank you, Richard.

Your next question comes from Lion of Michael Dudas from Vertical Research. Your line is open.

Good morning, Richard, Kathleen.

Good morning. My question surrounds, given the, you highlighted the difficulty in supply growth that you see in the pipeline being somewhat thin. Can you maybe characterize from where you thought a year ago to where you are today, given the political dynamics, especially in the two largest copper producing countries, and given your kind of, you know, positioning in much better jurisdiction, so it seems. Is that going to really be a delay even further just in the next six to 12 months as the industry kind of figures out how to best negotiate and deal with those new governments? And certainly there could be some other opportunities over the next, you know, several quarters on those issues and limiting even getting some of these much-needed projects to get out in the marketplace by the end of this decade.

There's no question. I mean, you know, you just look at our situation at El Abra. We would be in a different situation with El Abra if this was, if the political issues about royalties and the fiscal regime for copper production in Chile were different. We would be moving more aggressively right now with El Abra. What we're doing is we're preparing ourselves for, to move forward. But we're not. We're deferring any decision to move forward until we get some clarity from the government in Chile. And so that's just one example. There's no question it's it's affecting people. It's you know, some some have stability agreements. And the question is, the government's going to honor stability agreements. You know, you've seen recently in other countries where miners have had to go back and change deals where they thought they had firm contractual agreements. We had to make some concessions in Indonesia to get our issue with the government resolved there, which we did on a favorable basis. But that's just reality around the world today.

And does the U.S. look like it's a much better place to be relative to some of these other countries? Your investment, what you're talking about today, seems like you want to enhance and accelerate that in your asset profile.

Yeah, well, in the U.S., I would make a distinction between greenfield developments and brownfield developments. And all of our developments are brownfield.

It's places where we have established operations. and a solid track record of doing things in the right way.

And we have developed positive relationships with local communities and with governments, state, local governments, and with mines inevitably, significant mines have impacts on the Physical environment where they operate on the local communities. There's competition for water resources there's issues related to Historic people and all that make it much more You can kick off a list of And but they're also international projects that face the same deal so for us, you know favorable tax situation support for our minds by communities. It's not true in other places in terms of having community educational systems, health care systems.

You know, we're all that. So it's very attractive for us.

Virtually all of our plans in the U.S. are in fees, so there's no royalties.

And you look at the royalty rates that are being jacked up around the world, and that's a big difference.

And then we have the company-specific situation of having a significant net operating loss carried forward. I'm trying to think if there's another, but maybe the only good thing that came out of the oil and gas deal, we've got a big NOL that protects us from

taxes for years to come, even though in the US we have lower tax rates fundamentally than we do internationally.

So for all those reasons, our established presence in the US is really the big one that makes it so attractive to us. Appreciate that. Thank you, Richard.

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

Your line is now open. Apex for Baghdad, if that moves or discretionary.

I assume it will be discretionary. And then just quickly on Lone Star, the increase in the production, right, that you've achieved and it's been announced, does that Does that meaningfully pull forward the potential for the Sulfify project by years, or does it not really matter?

Thanks.

No, well, Baghdad is totally discretionary. I mean, if that were to make sense, you know, I think with the markets we're facing and the opportunities that that poses itself,

know we will update the market forward which I expect us to do and the point about Lone Star is you know you can just look back at the other major projects around the world where to get to the mineral resource you have to sometimes take years of investment in stripping to remove overburden.

And by doing that, we are stripping that material that overlays the sulfide resource. So it is tremendously beneficial to the long-term development of this opportunity. And as I said, we're going to make money. Out of the SOC side, at the end of the day, we're continuing.

I see a future of building a major mill complex at Lone Star to process sulfide resources. What we're talking about is 50 billion tons of ore.

Financial policy, the answer is yes, in terms of how we will treat that.

You know, 50% that we're retaining of free cash flow, we're earmarking for future investments and growth, as well as to maintain our balance sheet. So that's how we're thinking about it.

Your next question comes from the line of Carlos Galba from Morgan Stanley. Your line is now open.

Good morning, Richard and Kathleen. Just a question around cash costs for the year and I guess for the first quarter. Could you provide a little bit more color? I would have expected guidance for higher costs in the first quarter above and beyond the 135 per pound, given the comment of lower grades expected in the first half of the year. I don't know if there are other factors that would mitigate the negative implications on costs from the lower grades expected in the first semester.

The low costs in Indonesia to the higher costs in the U.S.

and South America. So that's why you're not seeing much fluctuation, you know, between the first quarter and the full year.

Thank you. You just think about it, as the Indonesian ramps up, fourth quarter was $0.08 a pound. For the year, it was on the order of less than $0.20, I don't know, $0.18, $0.19 a pound. And we see costs going forward with our volumes in that same range and in Indonesia. So, you know, it's a big factor in our business.

And our team's done a good job of controlling costs, but we're like everybody else. Everybody else, we have our energy costs and other input costs are going up.

So it's just what we have to deal with. But that was the whole basis for putting these companies together back in 2007 was to match up the Indonesian assets, which is special because of its copper grades and its gold content with these lower grade mines in America, which are profitable, but which have higher costs. And so that's just a carryover benefit for what we did so many years ago.

Sure. Your next question comes from Michael Glick from JP Morgan.

Let me correct myself.

I said 50 billion tons of ore at Lone Star is 50 billion pounds of copper resources.

Good morning, guys. Just relative to your financial policy, could you remind us how often you'll revisit the variable portion of the policy on a practical basis?

Our board reviews it on a regular basis. You know, formally, it's at least annually, but it's something that we review with the Board on an ongoing basis.

Male Speaker 1 Okay. Got it. Thank you. Male Speaker 2 You can see an example for that with what we did in the third quarter, you know, when we started the policy of paying the variable dividend and buying stock back. A year ago, when we started looking at this, we had planned to do that at our first meeting in 2022 but we've made such progress markets were so good we advanced it so uh and just as a you know just a little color on the way we run freeport we don't have an annual planning process we update and we go through a really disciplined process to do that so

Everything is real-time.

So while we talked about looking at this financial policy on an annual basis, as Kathleen says, we talk with our board about it continually. And if things change, we don't limit ourselves to acting on any kind of straitjacket timeframe.

Got it. Thank you. That's helpful, Colin.

Your next question, Council Lion of Abbey, Agarwal from Joy 2 Bank.

Thanks, . Thanks a lot for your presentation. mentioned that you are in preliminary talks with the Indonesian government to extend the contract of work to beyond 2041. Can you share a bit more detail around what the critical part is for that agreement to be signed? Thank you.

Yes, preliminary talks. We really tried to address that years earlier, and it was just so complicated to get everything else done. It's in everybody's interest, all stakeholders' interest, for us to have a continuation of operations beyond 2041. It makes no sense for anybody for us to run this business with any kind of drop-dead date. There's a broad acknowledgement that we need to do it. It's very preliminary, and so I don't have answers to your questions about how we structure it or what we would mean. But I can say that these preliminary talks are being very well received, and there is a recognition that it's in everybody's interest for us to go beyond 2041. Thank you.

First on MOLLE, as recently as 2017-18, the output was 95 million pounds. And the industry statistics are 5.4% decline in world mine output last year through November. So I guess a lot of the copper mines are having lower MOLLE grades. World steel and stainless steel outputs are rising. Do you have any opportunities to expand MOLLE throughput further to offset the lower grades at Cerro Verde or some of the other copper mines?

Well, John, you know we have two primary molybdenum mines in Colorado, the Climax mine and the Henderson mine. And we did cut back production from those mines when the market was in a different situation than it is today. But we do have the opportunity to expand production from our primary mines, particularly at Climax. And we're doing some work now to advance some stripping activities so that we do have more flexibility in the future to raise our primary molybdenum mine production to respond to this increased demand and limited supplies of molybdenum. So we do have a lot of optionality in our primary minds for molybdenum.

Thank you. Concerning the costs in Indonesia for smelting, you're reporting $0.24 for treatment charges and $0.20 for export. I guess those are averages where some of the output is in country at Gresik and some of it is exported concentrates. If it were, say, half and half domestic versus export, would it be right to think of the cost as something like 18 cents when you export concentrates to Asia 30 cents for the treatment costs it's your own smelter and then the export duties would be nothing if you treated them it's your own smelter but more than 20 cents for that portion you're exporting maybe 40 cents yeah you know you're directionally right John in

Maybe we'll get back to you with some details, because I think some of the export numbers that you talk about are in the range of what we're doing, you know, at 16 to 18 cents. And we do pay this export duty. While the cost for domestic processing at the smelter will be much higher particularly when you provide for any kind of cost factor for the capital that will go into it, it will eliminate the ETFI together with the fact that the consolidated tax return to go through there will serve to reduce taxes.

So, the reduction in taxes having to pay the export duty

sense offsets the economics to ptfi building the smelter yes so the the as we're thinking about it john the capital cost amortization over the long period of the smelter will essentially offset the cost you know the cash operating cost off of the smelter it shouldn't be that much different than um So that's kind of how we're thinking about the two elements.

That was a point that I think, and I just don't have the numbers in front of me, John, seeing it PT smelting is as high as you indicated, the current deal. And we're expanding that smelter by this effort to achieve the goal of in-country processing. But it's a very efficient smelter. We built it back in the mid-'90s, and it's world-class in terms of its cost management.

Thank you. That's a lot of complicated details. Yeah.

Your next question comes to the line of Jethinder Kohl from BNP Biopass Exane.

Thank you. Good morning, Richard and Kathleen. Good afternoon for those in the other time zones. Question on your 2024 copper guidance. Can you please indicate which operations will drop volumes? Because there is a £300 million drop here and there in 2024 and Grasberg is now flat. So which operations will see that drop? And is that just a one year blip or is that a continued trend? Just to understand, because Grasberg will lose 150 million pounds in 2025 as well. But just trying to put that discretionary and growth capex in perspective with the guidance and what we can't see beyond 2024. Thank you.

I'll let Kathleen, maybe Josh talk to that. But I just make a point that, you know, these these Mine plan projections are subject to constant adjustments for various reasons. Some of them result in some volumes going from one year to another, but they all reflect steps taken to maximize the long-term values of the mines. We don't run these mines to achieve any kind of targeted, predetermined targets for volumes.

But as I said, we have a dynamic real-time planning process.

And our goal throughout all those planning processes is how do we maximize the long-term NPV of the resources that we have. And so you look back at our history, there's continuous shifting of volume from one year to the next.

specific to 23 versus 24 we do have some lower grades in some of the US operations notably at Valencia and some slightly lower grades at Cerro Verde from 23 to 24 but you know as we talked about earlier we don't have anything in here for of any consequence for this leaching opportunity And so we're all motivated to get additional volumes with low capital intensity in from that leaching opportunity. And then we've got Baghdad coming in beyond that. And we've got a series of other opportunities as well. But it's really some grade, as Richard was talking about, we do have grades shifting from year to year. And we do have some lower grades in 2024 versus 2023.

Thank you so much. Your next question comes from the line of Alex Terenschew from Stiesel.

Hi, everybody. Thanks for taking my call. Just a couple of follow-ups to some questions already asked. First, at Kuching Liar in the Indonesian license discussions beyond 2041, is the pace of investment at that project dependent on those talks? And the second follow-up question, if I may, is on the Mali business. The price has obviously been quite strong the past year, gone from, what, $12 to $19. Can you give us any insight as to the demand outlook? I understand you guys have an opportunity and are seeing opportunities to expand, but anything you can say about demand outlook for the next one or two years?

On the KL, all of our economics... were run on the basis of the 2041. So if we are successful in extending it, there's going to be a lot more reserves from KL and other war bodies that come in. But we've run the economics and our plans based on the 2041 date, and it's a very attractive project. And Mark can talk to you more about this, but we're really leveraging They're all the learnings that we gain from DeepMLZ and Glassburg Block Cave to continue our momentum in extending development. And it leverages off of all the infrastructure we have there. So it's really a good project on its own, and it'll just be even better if we're able to extend beyond the 2041s.

And just one quick comment on that. with all these years of uncertainty related to our deal with the Indonesian government, now with the 2041, we've done, and the fact that we've had such resources already discovered to fill up our mill and so forth, we haven't done much exploratory-type drilling in the Grassberg District for some time now. And so that's one of the main factors that makes it desirable for all stakeholders would be for us to have a deal that goes beyond 2041, which would then allow us to undertake more delineation core drilling or exploratory core drilling. And just look at that schematic that we have located and where they've come from historically. And it's just clear that that while we don't know yet because we haven't drilled it, but the high likelihood is there's a lot more resources there that haven't yet been identified. Okay, that's great. Thanks, guys.

Mike is on the line, and he can share with you some of our feelings about the outlook for demand from Molly.

Thanks, Kathleen. Well, a few thoughts on that is we're positive on the outlook for Mali over the next few years. You know, things like energy, whether it's traditional energy sources that require Mali-bearing steels or if it's renewables, are all very positive right now. Infrastructure development all around the world uses Mali. And as we've seen, whether it's here, Europe, China, Asia, all very positive indicators. And pollution control in general uses a lot of stainless steel. And there again, you know, we're seeing very positive indicators. Our customer base, both in Europe, United States, have positive outlooks over the next few years. And then if you look at the Chinese five-year plan, There's definitely an upscaling of materials that they're using throughout their economy and what they're emphasizing. So we're relatively optimistic on demand. That's great. Thank you.

Thanks, Mike.

Our last question comes from the line of Carlos de Alba with Morgan Stanley.

Thank you very much for speaking to me for the second time. Just on working capital, if I may, maybe, Kathleen, the sensitivity or the number that you provided guidance on cash flow operations is around $8 billion. dollars this year, and that is net of $1.3 billion in working capital and other uses. So I don't know exactly how much is working capital, but assuming that is the majority of the $1.3, could you give us some color on that? I mean, that's a bigger number for working capital than I was expecting.

Yeah, and you saw we had a benefit, a large benefit during 2021. A big portion of that is the timing of our tax payments internationally. You're generally paying on a prior year. um... the schedule and so there's some timing variances when you have you know rising volumes a rising uh... profitability and so that's just timing of of tax payments all right go ahead thank you very much now we will turn it over to management for any closing remarks thank you all for participating in the call today uh... real pleasure to be able to

report great progress our team's making and we look forward to continuing that progress and are really excited about what lies ahead for us so thank you for your interest and if you have any further questions or need for follow-up please contact david joint and we will respond to you have a good day everyone ladies and gentlemen that concludes our call for today

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