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.