Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoran first quarter conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question during the Q&A session, press star 1 on your touchtone phone. If you require assistance during the conference, please press star 0. I would now like to turn the conference over to Ms. Kathleen Quirk, President. Please go ahead, ma'am.

Thank you, and good morning. Welcome to the Freeport-McMoran conference call. Earlier this morning, we reported first quarter 2022 operating and financial results, and a copy of our press release and slides are available on our website at fcx.com. Our conference call today is being broadcast live on the Internet, and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today's call and a replay of the webcast will be available on our website later today. Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include forward-looking statements and actual results may differ materially. We'd like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our annual report on Form 10-K. On the call with me today are Richard Ackerson, our chairman and CEO. We'd also like to welcome Marie Robertson, our new CFO. She's joining us today on the call, and Marie joined us in March. We're delighted to have her on our team. Mark Johnson is on, who's the COO of our Indonesian business. Josh Olmstead. who's the COO of our Americas business. Mike Kendrick is on, who runs our global molybdenum business. And Steve Higgins is also on today, our chief administrative officer. Richard's going to start by making some opening comments, and then we'll be going through the slide materials and the outlook included in our slide materials. So, Richard, I'll turn it to you.

Thanks, Kathleen. We're going to follow a new format for our earnings presentation today. This format reflects the current position of our company after years, literally years, of having to deal with significant company-specific problems that are now largely behind us. We have a clear mission in Freeport, and that is to be foremost in copper. I will make some very brief opening comments. Kathleen will review our positive first quarter results. our positive outlook, and then we'll be available to answer questions. The case for copper as a commodity is strong. I've been saying this for 20 years, but it's never been better. Demand is growing globally. Growth is no longer dependent solely on China. With COVID recovery, infrastructure spending, the spread of electricity everywhere, it's generating significant growth in Europe. Business is strong in the U.S., and in Asia outside China. The coming demand for carbon reduction and its impact on copper demand is truly extraordinary, and it's coming. It's beginning, but it's not here now. Copper supply development for many reasons is challenging. As I said recently, the supply challenge can't be solved simply by higher prices. I find it notable that the price of copper today is $4.50 in a world where there are a whole series of economic headwinds. Many of these are transitory. Higher copper prices in the future are likely, and I'm very comfortable with Freeport's strategy of focusing its business on copper. Our strategy to achieve our mission of being foremost in copper is straightforward. We will execute our operating plan safely and responsibly. We have an unmatched set of globally diverse copper producing assets. We are taking advantage of emerging technology involving data analytics, new work practices, and increasingly important advancing in leaching technology where Freeport is well positioned as a global leader in leaching. We will be developing organic growth projects in a disciplined way over time from our large set of undeveloped resources. We will execute our financial plan. maintain our currently strong balance sheet while returning significant cash to shareholders. Other opportunities for Freeport may arise, and we're positioned to take advantage if they do, but our strategy is focused internally. Here's a few points I suggest you note in Kathleen's presentation. Look at our strong execution of our plans in the first quarter. Look at our success in meeting the challenges of higher input costs. both through effective cost management and the benefit of past strategic decision. For example, the long-term development of the Grasberg mine and its high copper and gold rates, higher gold prices are helping to offset input cost increases. Note our positive situation in Indonesia with our partner shareholder, MindID, with the government of Indonesia, local communities, and workforce. We worked hard to achieve this. Our environmental performance in a very challenging location is exemplary in Indonesia. The financial results are spectacular, reflecting the good work of our PTFI team and literally three decades of efforts and investments getting to where we are today. We're progressing with the development of a new large-scale smelter in Indonesia. Our recent international bond financing at PTFI was a major milestone for our company. Our team achieved investment grade ratings and there was strong market reception for this $3 billion financing. Looking back years ago, I wouldn't have envisioned our ability to do this. Two-thirds of our coverage produced in America is where our team is operating effectively and where we have significant growth for the future. And finally, I want to briefly note steps we have taken this past year to build a high-quality, sustainable board of directors and a sustainable management team for the future. These are commitments I personally made to myself a year ago when I became chairman. We've added six new directors in a year. You'll be able to see the details on this in our proxy, which will soon be available. Four of these six are individuals with significant international large company CEO experience. Two have significant business and financial expertise. Together with the four continuing independent directors, we now have a high-quality board, one that Freeport has long deserved. Building this board is a highlight of my personal professional career. At the same time, we've made important changes to our management team. Kathleen mentioned that Marie has recently joined us as our CFO. At a young age, she has a distinguished career in international mining. We've made a number of transitions of important positions with internal promotions and added significant capabilities with external hires, particularly in the ESP area. We now have a younger, more diverse management team at Freeport. They are great people who embrace the special culture we have with the Freeport global family. I'm personally excited about continuing as a member of this team, blessed to be in good health and energy. I am confident knowing that Freeport now has a board management team that is capable of achieving our mission and executing a strategy beyond my tenure. With that, Kathleen, I'll turn it over to you.

Thank you, Richard. And I'll start on slide three. Richard mentioned we had a really good first quarter. Slide three summarizes the highlights. We achieved meaningful growth in volumes and margins. which translated into strong cash flows and significant cash returns to shareholders. Our copper and gold sales were 24% higher for copper than the year-ago quarter and 59% higher for gold than the year-ago quarter. Our copper sales were 6% above our guidance going into the year. We benefited from strong U.S. demand in the quarter, which allowed us to reduce inventories. Our gold sales were also above our plan, 8%. After reaching the targeted metal run rates in late 2021, Brasburg is operating well and sustaining a high-volume, low-cost operation. Our average unit net cash cost for the quarter of $1.33 per pound came in under our guidance in the first quarter and below the year-ago quarterly average. This is particularly impressive given the cost pressures affecting all of us, and allowed us to generate strong margins with average copper realizations of $4.66 per pound during the quarter. Notably, Grassberg's costs were a net credit of $0.06 per pound in the quarter. Richard referenced this earlier, but this means that the gold revenues more than offset all of our cash production costs at the site. We generated adjusted EBITDA of $3.4 billion in the quarter, and adjusted net income, excluding non-recurring charges of $1.6 billion or $1.7 per share for the first quarter. We generated very strong operating cash flows, totaling $1.7 billion. This was net of about $800 million in working capital uses, primarily reflecting the timing of our cash taxes. Our cash flows significantly exceeded our capital expending, and that allowed us to return substantial cash to shareholders, while maintaining a strong balance sheet. We continued our share purchase program during the quarter, funded nearly $600 million of share purchases. Since starting the program in November of last year, we have purchased 27 million shares at an average cost approximating $42 per share. We're $1.1 billion into the program out of a total of $3 billion. Our total share purchases and common stock dividends, which doubled from the last year's rate, approached $800 million in the first quarter. Our balance sheet remains strong. Net debt was $1.3 billion at the end of the quarter. About half of this relates to financing of the Indonesian smelter project, which is advancing. As Richard said, as we look forward, we're enthusiastic about the embedded opportunities our asset can bring to supply the world's rising demand for copper. With several projects, we are progressing with near-term, medium-term, and longer-term horizons. We're continuing to dedicate significant resources to our sustainability objectives and now lead the industry with nine of our operating sites certified under the copper mark. We have a strong foundation for success. We're executing our strategy very effectively. and we'll continue to focus on delivering on our plans. Slide four is just a summary of the recent reports that we filed, our annual report to shareholders, and just today, filing our 2021 sustainability report. Our theme for our recent annual report is titled Electrifying the Future, and it highlights our assets and the prominent role that Freeport has in supplying modern uses for copper. We also published the sustainability report. This marks our 21st year of reporting on our sustainability programs. As a leader in the industry, we also want to lead in our reporting and transparency in this important area. We really hope you'll have the opportunity to review the report in detail. It's available on our website. We're proud of the work we're doing. It's embedded in all of our business plans. and supports our responsible production practices. On slide five, we had a neat deal earlier this month. We celebrated PT Freeport Indonesia's 55th anniversary. We've operated this same site for more than five decades, and we've developed one of the industry's most prominent operations, providing tens of thousands of jobs and meaningful economic impacts to the Indonesian government and province of Papua. As Richard mentioned, we've invested heavily over the years to create a modern, world-class operation there that will benefit all stakeholders for decades to come. We lead the industry in technology, supporting our large-scale block cave mining. As Richard mentioned, with our new partnership with the government established in 2018 and our committed and focused team, we're enthusiastic about the future for this exceptional mining district. Turning to markets, Richard covered this in his comments. We view the fundamental outlook of the copper business as very positive. Supported by copper's role in the global economy, a renewed focus on infrastructure, connectivity, and copper's essential role in meeting global decarbonization targets. The demand trends are broad-based and global in nature. We see this continuing and accelerating with the increased intensity of use for copper associated with modern applications. Many are predicting we're in the early stages of a multi-year period of rising demand. Over the last decade, most of the growth in demand has come from China. As Richard mentioned, we're now seeing a major expansion of growth in demand for copper for infrastructure spending and decarbonization from Western world economies. The scarcity of new mine supply development is growing at a time when demand is rising. The project pipeline of actual development opportunities is significantly lower than it has been historically. Beyond the projects which are being completed now, there's a real absence of new supply development necessary to meet estimated demand increases. The current physical markets are tight, as evidenced by the low level of inventories on global exchanges. Supply chains continue to be stretched. While we'll see macro factors such as China's economy, geopolitical considerations, and actions by the Fed impacting sentiment, the low level of inventories and supply limitations sets us up for a scenario of higher prices in the future. We're in a great position at Freeport As a responsible producer of scale and a strategy, as Richard outlined, focused on copper, long live reserves and future growth options, the prospects are bright for our portfolio to become more scarce and highly valued in the future. I'll comment a little bit about some details of our first quarter operations moving to slide seven. In the U.S., the Lone Star Mine continues to perform well above design capacity. As you remember, we commissioned the mine in late 2020 and produced 265 million pounds of copper in 2021, a 30% increase from the original design. We're expanding further to take us to 300 million pounds per annum by 2023 with an investment of roughly 250 million. As we accelerate the mining of oxide ores at Lone Star, this will expose a much larger sulfide opportunity for us in the future. At Morenci, our largest mine in the North American portfolio, we completed the restart of our mill in March. We've been ramping up for several months and are now running at capacity. With the rise in COVID cases early in the quarter, our mining rates were constrained, resulting in the reduction in annual production compared with our prior expectations. We are back on track. We expect Morenci to produce 7% more copper in 2022 compared with last year. As Richard mentioned, we're also advancing our leach recovery initiatives. We're focused at Morenci using data analytics. and new technologies to enhance our leach production. This is a significant value-enhancing opportunity for Freeport, and we'll be reporting progress on this initiative as we go through the year. At Baghdad, we're advancing our plans for what we're calling the Baghdad 2X project to double production at this mine in northwest Arizona. We're advancing studies and planning to commence early work principally for mine equipment and additional stripping in parallel with the studies. Turning to South America, the teams have done exceptional work navigating the pandemic. When things started to improve in late 21, we had a spike in cases in January and February in Peru. That did have an impact on our mining rates in the first quarter by about 10%. Situation improved significantly in March. We expect to reach our targeted mill rates of 400,000 tons per day in the balance of the year. The lower mining rate in the first quarter is expected to have a small impact on our 2022 production at Cerro Verde compared with our prior plans, but we still see 8% growth in Cerro Verde production in 2022 compared with 2021. We continue to target a full restoration at Cerro Verde this year and be on our way to back to 1 billion pounds per annum from this large-scale operation. Elabra has been successful in Chile in increasing the stacking rate of material on its leach pad. We expect a 30% increase in 2022 production at Elabra and to sustain a level of 200 to 250 million pounds per annum for the next several years as we assess opportunities for future growth. At Grassberg, we sustained our large-scale metal production after reaching our targeted metal run rate in the fourth quarter of last year. We achieved higher gold recoveries compared with our plan, which contributed to a favorable variance for the quarter. Our 2022 volumes are consistent with our prior forecast for Grassberg. We incorporated some relatively small adjustments for changes in mine sequencing in Glassburg Block Cave and deep MLZ, but the five-year metal forecast is generally consistent with prior expectations. We're advancing mill projects to provide additional capacity targeted for the second half of next year. We're diversifying our power sources in Indonesia. and we're advancing the long-term development for Kuching Liar. The team there is doing outstanding work in managing and sustaining the largest and most profitable underground operation in the world. On the next slide, Richard touched upon the leach opportunities we have at Freeport, and this is a major initiative ongoing that we have to extract more value from our historical leach stockpiles. This could unlock significant value for us by increasing production from material already mined and placed onto stockpiles. In the context of an industry where new projects can take 10 years to develop, this is a significant opportunity for us to bring the equivalent of a new mine on stream in a fraction of the time it takes to develop with a fraction of the carbon footprint, very little incremental capital, and operating costs, a tremendous value opportunity for us, and we're pursuing it with urgency. During the first quarter, we commenced the process to insulate our leach stockpiles to retain heat. Heat is proven to improve leach recoveries, and work to date has indicated the potential to incrementally add to our production in the near term. We're also enhancing our processes with the use of data analytics This tool is providing new insights and opportunities. We're working on internal technologies for additives as well as with third parties who have proprietary technologies. We're optimistic that these collective initiatives have the opportunity to add an incremental 100 to 200 million pounds of copper across our America's portfolio in the near term. Early success will enable us to optimize and expand this potential moving forward. As you'll see in the charts, we currently estimate 38 billion pounds of copper in our stockpiles, which already has been mined, but this is not included in our reserves or production plans. A significant portion of this opportunity is at our flagship Morenci mine and our cross-functional team of technical experts, metallurgists, mine planners, data scientists, geologists, and business analysts are all working together to take full advantage of this great opportunity for us. The leach opportunity is just one facet of our growth, and Richard touched upon what we'll be focusing on as we go forward. We have multiple options, looking at slide nine, multiple options for brownfield, low-risk growth across the portfolio. Recall we have over 190 billion pounds of copper mineral resources in our portfolio, in addition to the proven improbable reserves of over 100 billion pounds of copper. We talked about the leach opportunity and the ongoing oxide expansion at Lone Star. These are near-term opportunities to add incremental production in a 12- to 18-month time frame. In the medium term, we're highly optimistic that we'll double the size of Baghdad, in the 2026 timeframe. We expect to complete the feasibility study in the first half of next year and be in a position to commence construction activities. Longer term, we have the massive Lone Star sulfide opportunity of 50 billion pound copper resource in our established mining area in eastern Arizona. The ALABRA project in Chile has a resource approaching 30 billion pounds We've done a lot of work in identifying an operation that could produce over 700 million pounds of copper per annum. We're closely monitoring the developments in Chile and we'll defer our decision for the time being pending the results of the ongoing constitutional work that's being done in the country. At Cuchinlear in the Grassberg District, it's a natural extension of our operations. This will allow us to continue our large-scale operation in Papua for decades to come. We believe the world will need our projects in the future. We have a long track record of success in qualifying and developing projects in an efficient, responsible manner, and this is enhanced by our industry-leading technical capabilities, our established license to operate, and our strong franchises in our areas of focus. Looking at our sales profile on slide 10, this is the annual sales for the next few years that we update each quarter. The outlook for volumes is largely in line with our prior forecast, and the execution of our plans is on track. We have insignificant changes to our prior guidance for copper sales for 2022 and 2023 in the 1% range. That principally reflects the COVID downtime experienced in the Americas earlier this year and some timing changes at Grasper between 2023 and 2025. After delivering a 19% increase in copper sales in 2021, we're projecting a 12% increase in 2022, reflecting higher production across the portfolio and further growth in 2023. We estimate about 36% of our sales for this year will come from our U.S. mines, 27% from South America, and 37% from Indonesia. On slide 11, there's been a lot of discussion about cost pressures in our industry, the cost pressures that we're facing, that the entire industry is facing this year, a well-documented energy and other commodity-related inputs, such as sulfuric acid, explosives, grinding media, and other consumables have increased. We'll continue to work to manage and mitigate these impacts to the extent possible. We also benefit from the fact that our byproduct credits, particularly for gold, provide mitigation. We show a reconciliation of our prior unit net cash for 2022 estimates based on our January estimates, compared to our current estimates. We've updated all of our plans to incorporate recent commodity pricing in our latest operating plans. You'll see here that half of the unit cost increase is offset by stronger gold prices and production. Bottom line, unit cash costs are up about 9 cents per pound of copper, or an approximate 7% increase. These numbers were built off a copper price assumption that was 25 cents per pound above the prior plan. But we're looking today at $4.70 copper, current market with a cash cost of $1.44 estimated for this year, which will generate very strong margins for us. We show on the next slide, slide 12, the significant cash flow generation at various prices. This is a great strength of Freeport, a big exposure to copper markets, and the large-scale nature of our existing capacity. We're in an enviable position with our significant new production that we've brought online in recent quarters, and we show on this slide, slide 12, the significance of cash flow generation using our volume and cost estimates and prices ranging from $4 to $5 copper. These are modeled results using the average of 2023 and 2024 with current volume and cost estimates. And our annual EBITDA at these prices from $4 to $5 per pound, prices are closer to $5 today than $4, would average over $11 billion at $4 copper to nearly $16 billion per annum at $5 copper, and operating cash flows very strong, ranging from over $8 billion to approach $12 billion at $5 copper. Also on the chart, we've got sensitivities to various commodities. We can't predict prices, but the long-term fundamentals of our business indicate the prospects for higher copper prices. And as we go forward, you can note that each 25 cents per pound change in copper equates to over a billion dollars in annual EBITDA. We'll generate significant free cash flow. We expect this to continue with cash flows significantly above our capital spending. And you'll see the capital spending on slide 13. These are largely unchanged from our prior guidance. We're forecasting some offsetting timing differences between 2022 and 2023, and have also included some early equipment purchases for our Baghdad expansion project in 2023, as well as ramping up the Kuching-Liar project. Both of these projects are designated as discretionary projects for purposes of our available cash returns framework. We've got a tracking of the discretionary category included for your reference in the appendix. Roughly 25% of our capital spend over the next two years is associated with value-enhancing projects. These projects all have solid financial returns and operational benefits and will use a portion of the 50% of free cash flow we are earmarking for organic investments toward these discretionary projects. Also note, and you'll see this in the slide, we've got a large decrease in spend on the Grassberg Block Cave and Deep MLZ from 2022 to 2023, totaling $500 million. So as those projects are being fully developed, we'll see our planned capital expenditures coming down. The next slide, we provided an update on our activities for the smelter. We're engaged in detailed engineering and procurement, and early construction activities are advancing with pilings and concrete installation. We've got about 2,000 workers now on site, and that'll grow to over 10,000 workers next year. We've got some updated photos for your reference in the appendix. And as we've been talking about for some time, This project is important for PT Freeport Indonesia and the Indonesian government. We are focused on completing the project as efficiently and timely as possible. Richard mentioned the successful bond offering we did earlier this month, raised $3 billion to support the cost of the smelter, long-term financing, average duration, of roughly 14 years and an average cost of 5.4%. Richard mentioned the investor response. It was very positive and reflects the strength of PTFI's underlying business. The cost of this financing is largely offset by a phase-out of the 5% export duty. So the economic impact of the smelter is not material. Turning to the balance sheet, it's a core focus of ours and has been for the last several years. We've made meaningful progress in reducing our debt, and our whole financial policy is centered around maintaining a strong balance sheet. We reduced our debt just over the last 12 months. by nearly $4 billion, and our EBITDA continues to grow. Our free cash flow is significant, as you've seen, with growing volumes, positive markets, and low capital requirements. We're in a fantastic position to execute the strategy of maintaining a strong balance sheet, investing in our long-term future, and returning substantial cash to shareholders. The last slide that we'll cover is the summary of the financial policy. On slide 16, we show a scorecard of our shareholder returns. Those have increased meaningfully with a period of strong execution and balance sheet improvement. We began implementing the Board authorized performance payout policy in November of last year. The combination of our share purchase program with dividends are designed to distribute 50% of our cash flow after capital expenditures, excluding the smelter investments and discretionary projects. Since November of 2021, when we began to implement the program, we've utilized about a one-third of the authorized $3 billion share purchase program We've purchased 27 million shares, common stock, and an average cost of just under $42 per share. We also have a variable dividend component in our common stock dividends for 2022. This is double the base dividend, and the first payment at this higher rate was made in the first quarter of this year. Our board will have the opportunity to consider additional actions as we progress the program further. I mentioned in the first quarter alone, returns to shareholders totaled nearly $800 million. With a continuation of favorable market conditions, solid execution of our plans, we expect shareholder returns to continue to be strong. As Richard mentioned, we have exceptional opportunities in our business. As a team, we are meeting the challenges and embracing the opportunities. Our future is very bright, and we at Freeport are electrifying the future, and we're going to do this responsibly, reliably, and relentlessly. So that's a summary of our quarter and outlook, and now we'd like to take your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press star 1 on your touchtone phone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. If you're 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. Your first question comes from the line of Chris Lafamina with Jefferies. The line is now open.

hey thank you for taking my question hi Kathleen hi Richard uh question about Kathleen you mentioned the sensitivities and every 25 cents per pound change in copper is about a billion dollars in annualized EBITDA but then on the slide where you show the new 2022 cost guidance I think it's a nine cent per pound increase in guidance and you said that there was a 25 cent per pound increase in your price assumption when you derive that guidance so the question is if we if we think about you know changes in the copper price Should we assume that a 25 cent increase in the price fully translates into that $1 billion of EBITDA? Do we need to adjust that to some sort of cost increase as well? And if we do, how much of a cost increase should we expect for each 25 cents? In other words, is that 9 cents per pound increase in costs associated with a 25% increase in price kind of the way we should think about costs and prices moving together? I'm not sure if that question makes sense, but I'm just trying to understand the sensitivity to prices and costs.

We understand the question. The sensitivities that we show are just in terms of the copper price without having changes in input prices. I think right now what we're seeing is increases that are unusual, correlations that are unusual. Energy prices have risen and some of these other commodities like sulfuric acid and and explosives and things like that, you know, are reflecting kind of a geopolitical situation. I don't think the long-term trends, if you look at the correlation between copper prices and some of these inputs, are as dramatic as what we're seeing this year. You know, time will tell, we'll see, but we don't expect to see these kinds of, you know, nine-cent increases for 25-cent move in copper prices. It will depend on, obviously, the fundamentals of each commodity, but right now some of the commodities are moving in a direction differently on a short-term basis because of what we're seeing in the Russia-Ukraine situation.

Thank you for that. Just a follow-up to that, and going back to the China cycle, obviously many years ago, but Was the cost inflation that you saw then very different from what you're seeing today? In other words, do you think that the war is having a disproportionate impact on cost inflation today, or are we just seeing generally typical cost inflation that we get in bull markets and commodities?

Well, if you go back, you know, I talk about three years of copper demand, you know, when copper was correlated to industrial production before China emerged and roughly 2003 is the China era, and now we're in a new era of copper prices. It's been various factors. Back when copper was cyclical and driven by industrial production in the developed world, there was a correlation between prices. But then when China emerged and copper prices went from a dip below 70 cents and went to $4 in a short period of time when nobody was expected, there wasn't a correlation with prices today. It is affected by the dislocations caused by Russia and the situation in Ukraine, particularly with oil and gas prices. I mean, and you'll just have to reach your own judgment of how sustainable that is or how much is the impact of the current situation. But there are other commodities. It's having an impact on copper prices, but Russia was a relatively small producer of copper globally, 3%, 4%, and regionally affected markets. And the market's so tight, it has an impact. But other commodities are being more effective than copper. And as I said, many of these things, I believe, are transitory. Yeah. We're taking steps where we can to control prices. Copper prices are rising faster than costs for us, so our profitability is growing, and we're encouraged about that continuing into the future.

Sounds great.

Thank you very much.

Our diesel costs that we went into the year with our plan of roughly $2.50 a gallon we've increased that in this most recent guidance by about 40%. And normally we would not see that kind of, you know, dislocation. You know, and when we look at the long-term trends of diesel prices and copper prices, we normally wouldn't see that. So same holds for some of the fertilizers and, you know, ammonia nitrate, the product we use for explosives, has gone up a lot, as sulfuric acid has as well. And we believe a lot of those are up just generally because of commodity prices, but the Ukraine-Russia situation has exacerbated some of that. So we don't see it as a long-term cost in our structure at those levels.

Thanks. Your next question comes from the line of Emily Cheng. with Goldman Sachs. Your line is now open.

Good morning, Richard and Kathleen, and thanks for the update. My first question is a little bigger picture in nature and related to how you're thinking about growth. Perhaps how have increasing steel costs, raw materials, consumables, and labor changed the business case, if at all, when you think about sanctioning brownfield and greenfield production longer term?

You know, Emily, those really aren't driving factors on our investment decisions. The resources that we have are just economically not that sensitive to even these kind of price increases. So our timing issue on the brownfield development projects is one related to engineering and permitting and community relations and things like that. These are things that affect supply development across the industry, and it's a double-edged sword of copper. It's a major factor of why copper prices are so strong. So we'll factor in the higher prices, but when we undertake a project, the investment decision is not going to be driven by those factors but by others. For example, in Chile, we're awaiting making an investment decision on El Abro, which is a great project, but there's a lot of uncertainties about the government policy towards mining in Chile, and so that's what we're monitoring before we may proceed with an investment decision there.

And Emily, the leaching opportunity that we have, we don't have exposure to steel and structural costs for that opportunity, and that's why we're we're really pushing that with a sense of urgency because that really is very low capital intensity and operating cost intensity that will translate right to our bottom line if we can crack that code. So it's the equivalent of bringing on a new mine without having all the capital costs. So that would be a really, really strong thing for us as a company if we can continue to advance the leaching opportunity.

And I position how well positioned Freeport is to take advantage of those advancements. You know, we're the largest leaching operation in the world. Marinci is the largest single mine from leaching, and it's been part of our company's experience for decades. So we're really excited about it.

Great. That makes a lot of sense. And just real quick, I have to kind of follow up on labor markets. And I appreciate any color that you have on the labor cost component there. And some of that might be higher profit sharing. But anything that you can share on the workforce outlook or labor availability would be helpful. I'll leave it at that. Thank you.

Well, thanks, Emily. And I'll let Kathleen follow up. But we do have a special situation with our large workforce in Peru where under government laws and regulations, there is a mandated profit sharing plan. And so as profits goes up there, workers automatically benefit in higher wages as part of that process. But, Kathleen, why don't you follow up generally on labor costs elsewhere?

Yeah. The main thing that we're experiencing, Emily, in terms of labor is really focused more in the U.S., the main issue here. It's a very competitive job environment as you've seen. We've got significant job openings in our U.S. operations. We've been supplementing our workforce with outside contractors to help us with projects and capacity assurance. And so really you're seeing you know, more utilization of contractors right now. But we have made some progress in hiring in the first quarter. You know, we've been and have had a number of openings for several months, and we're starting to make progress in the first quarter in getting these positions filled. But I'd say it's more a matter of tightness in terms of availability of people as opposed to you know, really big increases in wage rates. We have increased our wage rates, and we've provided some supplements and incentives for people. But the main thing has been, you know, we've had to use higher-priced contractors until we get, you know, all these positions filled. We aren't seeing the same kind of issues in Indonesia, and Richard mentioned the Peru impacts with – with profit-sharing. We just signed a new contract labor agreement both in Indonesia and in Peru, and the labor situation there is much easier than it is in the U.S.

Understood. Thank you.

Your next question comes from the line of Oris Wolkada from Scotiabank. Your line is now open.

Hi, good morning. Just following up on the outlook for costs and specifically I was wondering if there is a big lag impact on seeing higher costs flow through and I don't know if that's from previous contracts that you may have for things for some of the input costs like explosives and fuel and whether there's still I guess this lagging impact that we should see if current costs stay where they are whether we could see a fairly significant rise in your cost base as we approach closer to the end of this year.

That's really not a significant factor. I mean, there may be a short-term contract that gets renegotiated, but the costs you see are essentially the current costs that we're experiencing now. That's perfect. Thank you.

So the outlook that you have, reflects our current estimate. Each quarter we update all of our operating plans and cost input. So what you're seeing in the latest outlook for the year is based on the market prices when we prepared this forecast just recently. Thanks, Kathleen.

And while there's uncertainties, my expectation is we're facing kind of the height of dislocations you know, from global supply chains to other factors, you know, COVID shutdown in China and situation in Ukraine. So my personal expectations is rather than seeing costs going up in the future, we'll see them come down.

Thank you, Richard.

But time will tell.

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

Your line is now open. Hey, Alex.

Alex, we're going to reopen your line. Your line's now open.

Hi, can you hear me?

We can.

Okay, sorry. Sorry, Richard. I had a problem with my handset there. So let me just play devil's advocate on the growth side. You know, if you look at your production profile, it does, you know, peak in 2023 with, you know, some, you know, declines in 24 to 25 in Grasberg and elsewhere. You know, Baghdad, leaching opportunities, are these more of keeping the production at the current, you know, four and a half billion pound level, or can they really kind of generate a growth CAGR? You know, and here, I guess I'm setting aside, you know, the multi-billion dollar, you know, sulfide projects. Thanks.

In the near term, Alex, you're right. I mean, in the near term, what we've got is these leach opportunities. And, you know, like I said, it takes seven, ten years to build a new mine. And so these leach opportunities really can fill in the near term. You know, longer term, we're really looking at growth coming from this big potential we have at Lone Star. and also Elabra. You know, we hadn't made a decision on Elabra yet, but that's 700 million pounds plus of new production, and the Lone Star sulfide would be a meaningful amount of increase as well. But, I mean, it's a feature of the copper market. You know, it's very, very challenging to develop new supplies, and it takes, you know, many years to do it. We've had significant growth in 2021 and again in 2022, but it's not common in our industry to see that kind of growth in copper production, and that's really what underpins the fundamental outlook for it.

Alex, that's one thing I've been trying to get across to policymakers and others who follow our industry, just about how long-term the copper business is. I participated in Cambridge Energy's – the CERA week down in Houston with oil and gas companies, and everybody was asking the oil and gas companies about the time for response to production, and they were talking about it. The executives with the energy companies were saying, well, it's a long-term business. It takes months to respond. And I said, well, copper takes years to respond. And so that's why I pointed out. There was a lot of pressure on us for periods of time to delay development of the Grasberg underground as we were talking with the government in Indonesia about our contract rights. Had we done that, we wouldn't have had this production available to us. What we're looking at when we talk about growth is growth from a very long-term basis. It's one of the reasons why we have a favorable copper price and why I believe copper prices are going to go higher. I mean, we're seeing companies across our energy industry today being challenged with meeting their production targets. We've done that. But all of that's going to be supportive of prices. And as I said, I'm really struck by having today's copper price in the kind of global market with headwinds that would normally lead to lower prices.

Great. Thanks, Richard. Thanks, Kathleen. And, you know, congrats on being one of the few in the copper industry that's actually hitting your production targets.

Thanks, Alex.

Thank you.

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

Hello, Richard and Kathleen. Good morning. Thank you very much for the update. If I could maybe ask on capital allocation and, excuse me, M&A, one of your partners in Cerro Verde recently divested of its minority interest in another gold mine in Peru. And it just got me wondering that with Freeport, would you guys be open to increasing your interest in Cerro Verde should the opportunity emerge? And I'm asking particularly in light of the political situation there. Thank you.

Yes, we would. It's just such a great asset. Funny historical story. Before the Phelps Dodge deal, I called the Phelps Dodge CEO when he sold down originally interest in Sara Dougherty at a time when they needed production. I said, what are you doing? I wish they had kept a greater production. We've got great partners. But, yeah, it's such a great long-term asset. And those kinds of quality of assets are really, really scarce in our business. And while that's a project that we can enhance growth at the margin, it's not a project where there's going to be a step change in volumes in the future. You know, we've got some leaching opportunities there. We can be more efficient. We can overcome some of the issues that COVID has caused us. But it's – It's just a great long-term asset with our positive view of the copper markets. We're glad we have it, and we wish we owned more.

Okay, that's fantastic. And if I could maybe just sneak in a follow-up question, if you don't mind. But just in terms of the total capital return this quarter, I mean, it appears to be in excess of 50% of available cash flow. Maybe I'm looking at available cash flow incorrectly, but, I mean, if this is the case, is it something you could expect to continue going forward or just something that would sort of even out over time?

Yeah, we're looking at it on an annual basis, really, and we had a big working capital item in the first quarter, and so we're not varying our returns on that. on a working capital change like that, that's not expected to continue through the year. So really, we're looking at it as an annual, and we're having to make some estimates and that kind of thing, but we're trying to have some consistency in the share buyback program.

Yeah. And the facts are, because of these Time challenges in pursuing investments. With strong copper prices, cash is going to come in faster than it's going to go out. So that's something our board's going to have to, will be considering going forward.

Okay, that's clear. Thanks very much, both of you.

Yeah, and the 50% was a guidance for investors to understand what our thinking is, but it's not any sort of fixed in stone guidance.

Your next question comes from Abby Agarwal from Deutsche Bank. Your line is now open.

Thank you. Morning, Richard. Morning, Kathleen. Thanks a lot for the presentation and your remarks. My first question is on Peru. So Peru is seeing a significant upheaval right now across several mines. Sarawade has been immune thankfully over the last 12 months or so. Have you seen any signs of disturbance at Sarawade given what's happened more recently?

No, not really. We've worked really hard with the local community in Arequipa and have established a positive relationship. We did some really important things in terms of community investment over the years. We built a freshwater system for the city and second largest city in Peru. Then we developed for a city that was just dumping its wastewater into the River Chile, we developed a wastewater collection and processing facility. The ecology of the river has really improved, which is been very positive in many levels with agriculture interests and so forth. So we've done a lot. We've paid people well. We managed through COVID effectively, and it was challenging. But fortunately, we have a really positive relationship with the local community, and we work hard to preserve that.

Thanks, Richard. If I could sneak in another one. This is a question on the new lease technologies which you and Kathleen discussed. You mentioned that it's very low capital intensity, which is great to hear. But the question I have is, in your view, how easy it is to implement it across other operations owned by other mining companies? And a bit of a long shot here, but how much do you think it could increase overall production by globally?

Well, we're advancing it. It's still early days. We're working with a group of different technologies. Some of it's proprietary, some of it's with outside contractors, and some's in joint ventures with other companies in Latin America. So we're excited about it. but we haven't yet been able to forecast what we believe will ultimately be a significant incremental production. Kathleen mentioned 200 million pounds a year as a target we're currently working for. That's focused on our existing active leach stacks, but there's other opportunities if this works as we anticipate it would with some old historical inactive leach stacks. and potentially be an alternative to investments in concentrators to process sulfide ores. I get pumped up when I talk with our technical team about it, and they brief me on what's going on because of this excitement they're expressing. But we'll keep you informed, keep the market informed as we're able to get more visibility about incremental production.

Got it. Thank you very much.

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

Yeah, thank you very much. Good morning, Richard and Kathleen. So the question is for me on Gransberg. I know that the changes weren't that significant, but if you could give us a little more color on the sequencing changes that you guys experiencing or that you project now in Gransberg, that'd be great. And also if you could comment if this might impact in any way your cost outlook or profile for the operation and therefore for the company.

No, these are just normal. normal mine plan adjustments that come up as conditions change. When you look at the numbers from Grasberg, it looks like it's almost like an assembly line process, but we're constantly dealing with changes in geology and other conditions, but there's nothing unusual there, and it's certainly nothing that that has a fundamental change in the low-cost operations there. Mark Johnson is on the line, and he's, you know, our longtime head of operations there at Grassburg. And, Mark, why don't you make a comment in response to this question?

Yeah, Richard, I think you addressed it pretty well. Most specifically in 2023, this little bit of a swap-in metal production from 23 to 24 was due primarily to deep MLZ, where we continued to learn and apply the deposit-specific caving parameters. And what we ended up doing is slowing down the cave advance a little bit, going to the west, and that deferred a little bit of higher-grade metal from 2023 into 2024 and 2025. At the same time, we're we were able to increase our milling rate and the additional tons at the middle allows the mines to ramp up. And so that more or less offset any of the change that we made at DeepMLC.

All right, excellent. Thank you very much. And then just on Cerro Verde, if I may very quickly, when do you expect that you might get back to the 1 billion pound level of production?

We're getting close to that this year, and next year we expect to be – and it changes modestly on the margin with grades, but we're getting close to the billion-pound mark this year, and we'll be there next year.

All right, excellent. Thank you very much. Good luck.

Thank you. We did, in terms of the gold at Grassburg – We did experience some higher recoveries in the first quarter of this year, and we've increased our gold volumes slightly for the year for 2022. We haven't incorporated any of these increases in the out years, and so we do potentially have some benefits for gold as we look forward that we haven't incorporated, but we'll have to see how the experience goes as we go through this year.

All right, that's encouraging. Thank you, Kathleen.

Next question comes from the line of Michael Duda from Vertical Research Partners. Your line is now open.

Good morning, Mike. Good morning, Kathleen, Richard, and welcome, Marie. You're going to get this fun going forward. And Kathleen is not too quick to pause. Anyway, so Richard, I was As you mentioned in your prepared remarks, you know, the market price for copper is not the listening investment demand or the supply response that I think you would have suspected on the cycles. And you talked about some of the issues, but, you know, given that it's not just copper, but other metals, given the expectations on EV and net zero is booming, do you it appears that mining investment may be constrained across the board, which is going to keep this pressure on pricing. How best for the market to signal to get more copper into the marketplace if the price isn't signaling it now?

Well, I mean, there's just – things are just piling up that's adding to the supply constraints. I mean – That's a story 20 years ago when China emerged, there was a general expectation that there would be a major supply response, as there always had been in copper before that. But then people started looking hard, and it's been going on for 20 years now. Copper's been at the top of the strategic objectives of the major mining companies ever since then. It's a combination of geology, the quality of Deposits are much, much lower than they were before. They're in much more challenging jurisdictions. Often their grades are lower. Many are underground. And so that's been a factor that's overriding everything. And now, you know, with 40% of the copper coming from Chile and Peru and those countries going through political discussions about the direction of how they're going to be treating the industry, that That's clearly a factor that's out there. As things get delayed, because of the amount of time that requires to develop even a straightforward project like this mill project we have at Baghdad, it's about as simple a project as you could have, but it's taken several years to get engineering and permitting. It's just a question of building a new mill. building some tailings facilities i mean there's nothing really that complicated but when you start looking at projects that are really complicated that are really in in challenging jurisdictions you can see around the world communities opposing new developments you know while we benefit in the u.s because ours are brownfield we have good relationships with communities that we worked hard to keep people are trying to build new mines in the u.s are running into really serious delays and sometimes brick walls about not being able to go forward. So these things are just pyramiding, and absent some really significant global economic event, I'm just hard-pressed to see where we're not heading for an environment of where copper prices are going to be very high, and it's going to be real challenges as people try to substitute, get more scrapped, develop new projects, all of those things have barriers. As I said at the start, I'm really confident about our strategy of being a copper company. I think we're really well suited to benefit for our stakeholders by being good at execution as we've shown, by being focused, by doing things the right way, by building relationships. We mentioned Peru, same way in the US, same way in Indonesia. We learned long ago in our experience in coming up and developing the Grassberg in Indonesia was you cannot turn a blind eye to the local people. You have to give them jobs, opportunities, benefits. And so we've learned those lessons, and it's paying off for us, and I think it will continue to pay off for us.

Excellent, Richard. Thank you.

Your last question comes from the line of Alex from Seafolk. Your line is now open.

All right. Good morning, everybody. I just wanted to circle back on some of these, the growth options here, in particular, the Lone Star and NL Abra sulfides. I know these are long lead time projects, but is there any way you can kind of just lay out for us the timeline or schedule Or another way, is there any way you could kind of see these coming into production, say, within a decade? And then also you talked about El Abra, 700 million pounds. I know the oxide is currently being mined, and it's effectively like a pre-strip. But do you think that would have some overlap with the oxide leach and the sulfides, or would it just basically transition to a sulfide operation?

Yeah, well, El Abra and Lone Star – are different. When we acquired Phelps Dodge 15 years ago, El Abro was viewed as a declining short-term asset. It was through our exploratory drilling that we discovered this large sulfide deposit. It is very large, but it's at altitude. It requires desalinization energy and so forth. It would be an expensive project but certainly one that would be economic with today's and current process. And so it's just a question of seeing what Chile does and then doing all the work we have to do to get ready for it. The stripping side of things, and I'll let Josh say a couple of comments about it, is really what's happening at Lone Star, which is adjacent to our historical site. Safford Mine just across the mountain ridge from Morenci. And again, a place where we have great community support to do what we're doing. But there we're expanding this oxide production and it's serving as a stripping towards a sulfide resource that we're continuing to evaluate and sort through how to development. You know, the 10-year... Josh, why don't you make a couple of comments about it?

Yeah, I'll just comment on the part before we go there, just on the concurrent You know, we could have concurrent leach for a period of time at the LIBRO alongside of the concentrating, same as Lone Star. You know, we have that in many of our operations, including Morenci, where we have concurrent leach operations and concentrating operations. And, yes, to answer your question, these projects could be within the decade of But it takes a very long time, as we've all been talking about on this call. Sorry to interrupt. Go ahead, Josh.

Morning, everybody. Just a few additional comments. I think Kathleen touched on it. I think those projects would be able to be done within a decade, depending obviously on timing with respect to Elabra. As far as Lone Star, as you indicated in your question, the oxide mining is really functioning as a stripping for the sulfide. One of the things that we continue to discover as we do additional drilling at Lone Star is that that ore body is what I would classify as, while not the same as Marinci, is going to be a district similar to Marinci in the sense that it'll be a combination of leaching and milling sulfides as it goes forward and gets put into place. And so it would be a concurrent operation and production of both. It wouldn't be a pure oxide then transitioning to a pure sulfide, but rather an ongoing combination of of the two, which will allow us to really maximize the value of the resource and the pounds on an annual basis. Okay. That's great. Thank you.

Now, we will turn the call over to management for any closing remarks.

All right. Well, thanks, everybody, for your interest. I'll just close and say I hope to see both both Lone Star and Al Arbor's projects get kicked off. So that will give you some time frame on it. And we are really proud of our team and really feel good about where we are and where we're going. So thank you for your interest, and we look forward to reporting our progress in the future.

Ladies and gentlemen, that concludes our conference call for today. Thank you for your participation. You may not disconnect.