Freeport-McMoRan, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoran Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question during the Q&A session, press star 1 on your 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 everyone. Welcome to our conference call. Earlier this morning we reported our second quarter 2023 operating and financial results and a copy of the press release and slides are available on our website at fcx.com. Our call today is being broadcast live on the internet and anyone may listen to the call by accessing our website home page 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. I'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 Ackerson, our Chairman of the Board and CEO, Marie Robertson, our Chief Financial Officer, Josh Olmstead, who leads our Americas operations, Mark Johnson, who leads our Indonesian operations, Corey Stevens, who heads up our Engineering, Construction, and Technical Services group, Mike Kendrick, who leads our molybdenum business, and Steve Higgins, our chief administrative officer. We'll start the call. Richard will make some opening remarks, and then I'll go through the prepared materials, our slide materials, and then we'll open the call to take your questions. So I'd like to turn the call over to Richard.

Thanks, Kathleen. Good morning, everybody. Thanks for joining us. The positive second quarter results and outlook we're reporting today reflect that our operational performance has been in line with our plans and our prior guidance. Our teams in Freeport's global operations are executing with focus, drive, and enthusiasm, all hallmarks of the Freeport culture. Fundamentals in the global copper market remain positive despite the frequently expressed concerns about a global economic slowdown and issues in China. Electrification is expanding with ongoing advances in alternative energy, electric vehicles, connectivity, and supporting infrastructure. Global copper inventories remain remarkably low, and this is notable in the context of the concerns about the global economy in China. The current demand for copper is much stronger than headline economic data. While market experts have significantly varying views about the short-term outlook for the economy and for the price of copper, there is a growing positive consensus on the medium and longer-term outlook based on projected demand growing faster than supply development. Freeport is extraordinarily well-situated in these circumstances. With our large-scale, currently producing assets, which were focused on executing the ongoing positive performance, and an attractive pipeline for future growth from the large-scale undeveloped reserves and resources already in our current asset base. Kathleen will now summarize the quarter and our outlook, and then I'll be back along with our team to answer any questions you may have.

Thank you, Richard. And I'll start on slide three, where we summarize our key operating and financial highlights for the second quarter. Production results across the portfolio were strong in the second quarter, approaching 1.1 billion pounds of copper and nearly 500,000 ounces of gold. Our copper sales were about 3% below our guidance as a result of administrative delays in obtaining PTFI's export license approval. We expect that PTFI will receive approval to resume concentrate exports over the next several days. Our unit net cash cost during the quarter averaged $1.47 per pound and that was a little better than our guidance of $1.51 per pound. With average copper prices realized of $3.84 per pound in the quarter, we generated strong margins and EBITDA of $2.14 billion. Our operating cash flows totaled $1.7 billion and that was substantially above our mining capital expenditures which totals $700 million roughly, and that excludes the smelter capital of approximately $500 million in the quarter, which is being funded from proceeds that we raised last year. The balance sheet, liquidity, financial flexibility remain in great shape, excluding net debt associated with the smelter. We ended the quarter with under $1 billion of net debt. you'll see that we completed and we conducted some additional open market purchases of our public debt in the quarter at prices below par. As we look forward, we're well positioned for strong results in the second half of the year, as second half copper volumes are projected to be over 15% higher than the first half, and second half gold sales are projected to be over 25%, than what we sold in the first half of the year. We're going to move to slide four where we showcase a few of the operational highlights that we're particularly proud of in the second quarter. At Cerro Verde, where we operate one of the largest concentrate sites in the world, the mill averaged 425,000 tons of ore throughput per day during the quarter. This was a site that was designed several years ago at 360,000 tons per day, and over time, our team has found ways to improve efficiencies and will continue to do that in the future. At Grassburg, mill rates averaged over 200,000 tons per day. It was 207,000 tons per day in the quarter, and that was processing very high grades of both copper and gold ore. that was significantly above the first quarter level and actually the highest average quarterly throughput in over a decade. All this ore is coming from our large-scale, modern, and efficient underground mines now. Notably, the large-scale operation at Grasberg produced copper during the quarter at a net cash credit of nine cents per pound, and it was just extraordinary performance. We're making steady progress on the smelter in Indonesia. This is an important initiative, and we're now at 75% compared with 60% progress three months ago. Our project execution is going well, and our team is very focused on completing the project efficiently over the next several months. We expect to complete construction by the second quarter of 2024 and begin commissioning and ramp up over the balance of 2024. We're also happy to report ongoing progress with our LEACH initiative, and that's particularly helping our sites in the U.S. During the second quarter, this effort yielded incremental copper of 29 million pounds, and that was over two times the level in last year's second quarter. We're about 60% of our targeted annual run rate at this level and we're well on our way to getting to our target of roughly 200 million pounds of copper per year incremental from this initiative. We're gonna talk about it later in the presentation but our confidence is increasing in meeting the initial target and on the significant upside for this highly valuable initiative. Turning to slide five and you've seen a lot of press reports over the last several weeks about the regulatory situation in Indonesia and we're providing an update on recent regulatory changes in the country. As many of you know, Indonesia is highly focused on downstream resource development. It's been evolving over many years and that reflects the country's national strategic priorities. The evolution of this ultimately led to our agreement in 2018 to expand our domestic smelting and refining capacity in the country. In 2020, Indonesia passed a law restricting exports of certain minerals, weren't all defined, but that was beginning in June of 2023. Given our IUPK license and rights and progress on the smelter, we continued to work with the government to allow time for us to complete our projects which were delayed by the pandemic. As we mentioned, the projects are well advanced and nearing completion, and we were really honored to host Indonesia's President Joko Widodo at our smelter site in June. Beginning in June and July of this year, various ministries completed regulatory process to enable ongoing exports of copper concentrates through May of 2024 for exporters with more than 50% smelter progress, and we're over 70%. Last week, the Trade Ministry enacted legislation to allow the exports, and now just in the administrative process, we expect to receive formal approval to resume exports over the next several days. We're going to continue to work with the government to enable exports to continue in 2024 until the new smelter is fully ramped up and operational. The Ministry of Finance also passed regulations last week to increase the duties on exports for various products, including copper concentrates, for companies with progress of more than 70%. the new duty rate is 7.5% for the second half of this year. Under our IUPK, which provides stabilized terms for taxes, royalties, and duties, duties are phased out after 50% progress, and so we're currently reviewing the IUPK provisions with the ministry and are engaged in discussions on this matter. To date, the production impacts on our operations from the shipping delays have been limited, and this has been more of a timing consideration between production and sales. We currently have a sizable volume of copper concentrate at our port site ready for shipment, and we expect to work down inventories over the next several months. Moving to the copper markets on slide six, and Richard touched on this in his comments, Copper is the metal when it comes to electrification, and Freeport is really well positioned as a leader in the global copper industry. The short-term market situation is characterized by, on the one hand, favorable demand drivers from growing intensity in autos, renewables, and data centers, and that's partly offset by slowing manufacturing growth. China remains the world's largest consumer of copper, And even with the country's current economic challenges and the weakness in the property sector, copper consumption continues to grow, and that's been bolstered by large investments in copper-intensive electrical grid and strong growth in electric vehicle production. Richard referenced the inventories, which are very low levels by historical standards. They're now lower than they were at the start of this year, and we see this as evidence of a tightly balanced market. As we look forward over the next several years, demand is expected to accelerate with third-party projections for demand to double by 2035. Investments in low-carbon renewable power, electrification, will lead to massive growth in demand. And in addition to that, the initiatives by many countries for major infrastructure programs and the uses of copper for connectivity, data, AI, Those are also growing demand drivers. At the same time, the ability of the copper industry to meet this rising demand is a major challenge, and we're working very hard to increase our supplies as we look forward. We believe prices will need to rise to incentivize new supplies of copper. At Freeport, we benefit from a large reserve position and an even greater resource position to be able to grow our business in the future. As I mentioned, we're really focused on continuing to support the growing demand, producing responsibly, and we're pursuing several initiatives to enhance our production going forward. Moving to slide seven, we provide an update of our three-year outlook for sales volumes. This is largely unchanged from our prior forecasts. We've reduced our 2023 copper sales volumes by about 40 million pounds, that's about 1%, to take into account the shipping schedules and the balance of the year. The guidance for 2024 and 2025 is unchanged, and we are focused on continued success in our leach efforts, which we believe have the potential to provide some upside to these estimates. Moving to the regional information on slide 8, we show our projected 2023 volumes and unit net cash costs by region. Our business in the Americas, including the U.S. and in South America, comprise about two-thirds of our 2023 copper sales and all of our molybdenum sales. And Indonesia represents about one-third of the copper sales and all of our gold sales. On a consolidated basis from a cost standpoint, our unit net cash cost forecast of $1.55 per pound for the year 2023 is consistent with our prior estimate. We've had some small offsetting changes between the regions, but in total, we're continuing to project cash costs of $1.55 for the year. As we move through the year, We're continuing to experience improving cost trends for several of our commodity-based input costs, and we're seeing more stability in labor, services, and equipment component costs. We remain focused on cost management and all of our ongoing initiatives to improve productivity to offset the cost increases that we've experienced in recent years. The estimates that were provided on slide eight assume that the export duties in Indonesia are unchanged from our existing duties. As I mentioned previously, the new regulations impose higher duties than our stabilized rates under the IUPK, and we're engaged in discussions with the government to review this. We've provided some sensitivities on potential impacts of the higher duty rates on this page, which you can see at the bottom would have a seven cents per pound impact on consolidated unit net cash costs for the year, take into account the impact in Indonesia of 19 cents per pound for the year with the duty starting in the second half. On slide nine, we updated our outlook for our margins and cash flows, and if we put together our projected volumes and cost projections, we show the modeled results for our EBITDA and cash flow at various copper prices ranging from $4 to $5 copper. These results on the slide are modeled using the average of our 2024 and 2025 volume and cost estimates, and we hold gold flat in these scenarios at $1,950 per ounce. and molybdenum flat at $20 per pound. Both of those commodities are slightly above that today. Annual EBITDA under these assumptions would range from about $11 billion per annum to $15 billion per annum at $5. The $11 billion was at $4. And our operating cash flows before working capital would range from from nearly $8 billion per year at $4 copper and $11 billion per year at $5 copper. We've got some sensitivities to the various commodities, both the sales commodities as well as our input costs. On the right of the chart, we're well positioned with our long-life reserves, large-scale production to benefit from future metals' intensive growth trends And we've got prospects as we look forward for increasing cash returns under our performance-based financial policy payout framework. We'll turn to capital expenditures next on slide 10, where we show our current forecast for capital expenditures in 2023 and 2024. These include the capital that we're investing in the Indonesian smelter project and those amounts are being funded from a debt offering we did last year and we've got cash on the balance sheet and availability to support those investments and the detail of those expenditures are on page 25 of the slide deck. But all in all, on the non-smelter related investments, We've had some timing adjustments, moving some spending from 23 to 24, but the current forecast for the two years is pretty similar to what we had before. It's about 3% higher for the two-year period, and that reflects some updated estimates, principally for projects at Grassburg. We've highlighted here on the slide discretionary projects, and these are the projects that are being funded with the 50 percent of available cash that's not distributed. Those total two billion dollars over 23 and 24 and these are value enhancing initiatives that we've got some details on 24 on slide 24 in our reference material but value enhancing initiatives to improve our position as we look forward. We'll talk on development options and our growth on slide 11. We're really focused, as we said, on looking at the outlook for growing copper demand and looking at our brownfield strategy, given the risk and actionability of greenfield projects our strategy of developing our resources within our portfolio. We're focused on extensions of our existing operations and our broad portfolio of brownfield opportunities. We've categorized the growth on slide 11 in near-term, medium-term, and longer-term development options. And you can see in the near-term, the best options for us for growth achieving our initial leach targets and the actions that we have particularly in our US operations to enhance productivity and reliability by increasing our mining rates in the US through workforce additions automation and achieving higher targets for asset efficiency and reliability in our equipment and processing facilities we believe we have the opportunity to add 200 million pounds of copper a year with very limited capital investment. We're very focused on the details of the reliability and asset efficiency that we're pursuing and see that potential as we look forward. We also outlined the potential of our leach opportunity beyond the initial target of 200 million pounds for annum. We talked extensively about this on our last call. We've got very large areas under leach. We've got new approaches and operating practices that we are deploying on this effort. And the more we work on it, the more optimistic we are about this opportunity is much larger than the initial 200 million pounds. We continue to see the clear opportunity of expanding the initial 200 million pounds of copper per annum. to 800 million pounds per annum over the next three to five years. We're continuing initiatives to increase heat to our stockpiles. We're continuing to enhance our ability to identify and deploy solution to areas of the stockpiles which aren't getting adequate solution. And we're continuing our work on additives through internal testing as well as looking at technology that others have with respect to additives. This is a major value opportunity, a major catalyst for us, and Freeport is one of the best-placed companies in the industry to capture value from it, and that's because of our large existing stockpiles with billions of pounds of copper still in them, our technical know-how, and the ability of our team to deploy learnings quickly across the portfolio through our operational control of all the mines we have interest in. In addition to the leach opportunity, we've got more traditional sources of growth that we're pursuing. We're continuing to evaluate the expansion of our Baghdad mine in Arizona. We're completing the feasibility studies on that expansion. We've got the major El Abra opportunity in Chile, where we have an existing operation and very large reserves. resources that support future expansion. And, of course, we're developing, making progress with the 90,000 ton per day Kuching Liar block cave in Indonesia. And that's expected to commence production by the end of the decade. At Baghdad, we're making some investments to advance tailings and other infrastructure to enhance our optionality for the project. And we're doing the same at Elabor, looking at some investments in water infrastructure, not only that would support the current operation, but provide optionality for the large mill project in the future. After those two projects, we've got a big opportunity at our Safford Lone Star District in eastern Arizona. We've got current production there and have identified a significant resource that would allow us to make that district another cornerstone asset for Freeport as we look into the 2030 timeframe. We've got a series of U.S. brownfield projects that we're also looking at. A big opportunity for us is in Indonesia where an extension of our operating rights beyond 2041 which we're continuing to advance, would open the door for long-term large-scale mining beyond 2041 and potential reserve expansion and additional development options in one of the world's largest and highest grade copper and gold mining districts. With these projects, we're in a position to continue our leadership role, supplying copper to a world with growing requirements, we're gonna continue to be disciplined in our approach, but focused on executing the projects where we can create value for shareholders. On the last slide, on slide 12, we reiterate the financial policy priorities. Those are really centered on our strong balance sheet, which we have, our cash returns to shareholders, and investments in our value-enhancing growth projects. The balance sheet is solid. We've got very strong credit metrics and flexibility within our debt targets to execute on projects. At the same time, we've distributed over $3 billion to shareholders through dividends and share purchases since commencing this performance-based policy and have an attractive future long-term portfolio that will allow us to use a portion of our cash flow to build long-term value for shareholders. Richard mentioned the team is energized, motivated, and we're focused on continuing to drive value in our business and executing these plans responsibly, safely, and efficiently. Thanks for your attention, your participation, and operator will now open the call for questions.

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 phones. If your question has been answered or you wish to remove yourself from the queue, please press star one again. 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. Our first question comes from the line of Alex Hacking with Citi. Please go ahead.

Yeah, morning, Kathleen and Richard. Yeah, morning. So I guess I only have one question. I saw a press release this morning about a strike at Cerro Verde, 72 hours. Could you maybe give us some context on that? Thanks.

Sure. Josh, you're on the line. Why don't you respond to that? I was just at Cerro Verde, and I've got to tell you, I'm so proud of what the team's done down there.

Yeah, morning. One other thing, we really pride ourselves on our open and ongoing conversations with all of our employees and the union. We have two unions at Cerro Verde, and this is one of the original unions, which accounts for roughly 28% of our total workforce. And it's just been some ongoing conversation that we've generated dialogue for. We have a meeting with the Labor Department tomorrow to try and continue to foster the conversation and avoid, avoid potential strike there. Um, but we're in, you know, we'll continue to have those dialogues and, you know, we're working through and being as open and transparent as we can with the union to work through and address any of the issues. Okay.

We have a long, long, we have a long history in Peru, Sarah Verde of being able to deal. Sometimes we get affected by, Strike's not related to our operations and so forth, but our team is prepared for it. And we're hopeful that this thing gets resolved. It's not really a major substantive issue in my observation on it. And our team will be able to manage our way through it if, in fact, we have to deal with it. Yeah. Okay. Thanks, Josh.

Your next question will come from the line of Christopher Lefimina with Jefferies. Please go ahead.

Hi, Richard. Hi, Kathleen. Thanks for taking my question. I actually have quite a few questions about the situation in Indonesia, but limited to just two for now. So the first question is, our understanding at the beginning of July is that the concentrate storage areas were nearly filled, and you would likely have to shut down the operations if you did not have an export license imminently. And I'm wondering, First of all, whether you've been able to continue to operate at Grassburg or if the mines are shut down for now. And the second question is just related to the export. Sorry, you want to answer that one first?

Let's answer your first question. Yeah, let's go ahead and answer that. One of the complications we had with this is that the domestic smelter at Gresic that PT Smelting owns, which is not affected by any sort of export issues, was undergoing a maintenance, a planned maintenance turnaround. So there was limited concentrates we could ship domestically. That has been completed and now we've begun returning to ship, shipping to Gresik. We haven't shut down at all. We, our team is, adjusted to the situation by advancing some planned maintenance activities that we had for the second half of the year. And while the storage facilities were approaching their limits, meeting their limits, you know, we have not had a significant, we've had some impact, but not a significant impact on operations. We anticipate resuming exports very shortly, and we have a lot of concentrate that's been produced at its own site that's ready to sell, and we'll be moving that to market.

Okay, that's helpful. Thank you for that. The second question is regarding, I think Kathleen said the export license is days away, and obviously as per the IUPK, smelter construction past 50% means no more export duties for you, but under this new regulation, there will be an export duty, and I'm wondering if if the export license will be granted to you even if you were disputing having to pay the new hire export duty because you potentially are protected via the IUPK?

Well, in order to export... All indications are and expectations are is that we will be able to export. We're continuing discussions right now to present our case. And if we can resolve it, that would be the best outcome. If we can't, we'd begin exports and then pursue our legal rights separately.

Great. Thank you for that. Kathleen, do you have something to add?

No, that's great. Thank you, Richard.

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

Good morning, Kathleen and Richard. So my first question is on Cerro Verde. You are operating quite well there, and the company, if I understand correctly, it doesn't really have a significant debt anymore. So with the cash regeneration there, what are your plans? Do you expect to continue to pay dividends? You already announced, I think, twice payments in the second quarter, you pay more in the third quarter. You typically in the past did pay in the second and fourth quarters. Should we expect another payment in the fourth quarter, so three in 2023? Just overall, what can you tell on Cerro Verde, and I'll come back with the second question.

I think Carla, she characterized it correctly. We're essentially distributing cash flow out of Cerro Verde. We've done very well on the debt side, and from time to time, we reserve cash for items that we know about, obligations that we need to pay, or items that we know about, but we expect to continue to generate cash flow at Cerro Verde, and to the extent we don't have obligations to pay that out to shareholders. We don't have a decision at this point exactly what the cash flow and dividends will be quarter by quarter at this point, but we do expect to continue to distribute cash out of Cerro Verde.

Thanks, Kathleen. And then the second question is regarding CapEx. Overall, CapEx is not changing much, as you already mentioned, but when I looked at the individual projects, I did notice that the PMR in Indonesia, as well as the Grassroot Meal Recovery Project increased capex 10 to 20% higher than in the last update. So I wonder if you can provide some comments as to what is driving that.

Yeah. We did have an increase in our precious metals refinery, an updated estimate for this precious metals refinery. It is an operation that is relatively small compared to the overall capital, but as we've gone through more engineering, the cost estimates have increased. A little different than the big project, the Manyar project, where a lot of things were ordered, a lot of things were put in place prior to the big rise in inflation. To date, on that project, we've been pretty good at maintaining the cost estimates. The bigger project, we had better terms on components, etc., but we are getting hit with some increases related to the precious metals refinery. The copper cleaner... With all the projects going on at Grasberg, the mill project, the project we're doing for power, the filter plant we're doing at Port Site, the availability of experts and contractors has been slower than what was originally projected and the project has taken a little longer. which is impacting the cost. But there's nothing materially different about what we're doing there. It's just in this environment, things are taking a bit longer and adding to the cost. But I do want to have a shout-out to our team managing the bigger smelter, that bigger spend. They're doing a great job in managing that project.

And Carlos, you know this industry well enough to see what's been going on with project costs around the globe. And I joined Kathleen in complimenting our smelter team. But our overall operations team, our supply chain management, you see what our cost performance is in a world that's still affected by inflation. I mean, commodity-related costs are down. But overall, we're taking that and running it through with all of our suppliers. And when you look at our operating cost and our project cost, I'm really proud of our operating and supply management teams for the good work they're doing.

Yeah, no, definitely. Thank you, Richard. Thank you, Kathleen.

Carlos.

Thanks, Carlos.

Your next question comes from the line of Timna Tanners with Wolf Research. Please go ahead.

Hey, good morning, everyone. Good morning. I wanted to speak in two, but just one is really high level. And I know we've talked a lot about Indonesia in the short term, but there's also the broader issue of the additional 10% stake they're asking for and the renegotiation IUPK further out. But I just sense that compared to five, six years ago when you seemed a bit more concerned about the relationship with Indonesia, it seems like you're not as concerned this time. I just wanted to see if you could add some more color to that. Is that indeed the case and maybe why? And how much time do we have, I guess, before we really need to think about a settlement or a decision on this? Is it near term or is it medium term?

Tim, let me correct one thing you said. There's no renegotiation of the IUPK. Our current IUPK runs to 2041. And we have no rights beyond that. And that was negotiated after a lengthy period and settled in 2018. And the settlement in 2018 has proved to be extraordinary positive for all stakeholders. The government of Indonesia, which acquired Rio Tinto's interest during that process, achieved its goals of getting a 51% equity ownership interest. and together with taxes, royalties, and other fees, has essentially a 70% interest in the economics of the project. Through that, FCX retained its interest because it was already burdened by the Rio Tinto joint venture interest. And then since that date, we've successfully completed the conversion from the open pit to this underground mine, and you can just see the track record that our team's achieving with that. And over that period of time, copper prices have been good. All stakeholders have benefited. Now, when the president, and you talk about the relationships, a key factor in that was when President Joko Widodo visited our job site in Papua at the end of August, early September, the first Indonesian president to do that since Suharto did in the early 70s. He was very positive about what he saw there, about the progress we're making, about the extent of progress we made in increasing Indonesian management, Indonesian employees, POPLINs that are working in our operations. That was a key point in helping to build on the 2018 deal and making relationships so much more positive. Now, we have a mutual understanding that this operation needs to be run in a way that maximizes the resources that are available there. And having a drop-dead date for an operation like this of 2041 is not beneficial to anyone because the expiration, delineation, long-term capital planning needs to be factored taking into account the resources that are available there. So, we had no rights to provide a basis for going forward beyond 2041. We've had items for discussion, including an additional ownership interest for Indonesian government to deal with, and we've agreed to support Papuan businesses to do things of that nature. It's much different than the nature of the discussions we had going into 2018, where there was really contentious views and opposing views on various subjects that were all settled. Now we're in a mode of where there's a mutual recognition of the benefit for all stakeholders for us to plan this operation beyond 2041, and I have a lot of confidence we'll be able to achieve it. Do you have any follow-up on that, Timna?

Timna, I was just going to add that a big change from maybe historically when you were thinking about it is the alignment we have, better alignment we have with the government, the state-owned enterprise there owns 51% of the shares. And of course we pay taxes and royalties, so the economic interest of the government in this operation is much greater than it was. And so the alignment is very positive as we look forward to create this value that Richard's talking about beyond 2041. And when we talk about beyond 2041 and the opportunity, this allows us really to think about the asset and opens the door for development much greater than what we were planning before because, as Richard said, the reserves don't end in 2041. We see a lot of opportunity in using the infrastructure that we already have to further development. And the 10%, the share thing that you read about, what we were engaged in is looking at preserving what we have through 2041 but compensating the government in some way for that extension beyond 2041. So again, like we did in 2018, this would be only done if we could find the right win-win for both Freeport and the government, which we think we can.

That's a good point, Kathleen.

The 10% would only come into play after 2041. And a key factor is under the 2018 agreement, Freeport-McMoran controls the management of the operations, and everybody's happy with that. There's widespread recognition in the government of just how complicated this business is, and they're very complimentary and pleased with the way we're running the business. So it's really a good partnership.

Okay, thanks. Your next question comes from the line of Michael Dudas with Vertical Research Partners. Please go ahead.

Good morning, Kathleen, Richard. Good morning, Mike.

Good morning.

Kathleen, you mentioned, you know, you bought some debt back at a discount, I guess, during the quarter, and certainly the dividend plan is in place. But as you look into the second half of the year and the CapEx and what the anticipated cash flows might be, how do you – how is the board thinking about share repurchases since it appears you're refrained from that during the first half – It's a valuation, opportunistic, just balance. Maybe you could shed a little bit more light on that as we move into the second half of the year, especially if copper prices begin to sharply recover.

Yeah. Well, if copper prices sharply recover, we're going to be generating a lot of free cash flow. Under the policy, we're distributing 50%. And if you go back cumulatively to when we started it in the second half of 2021, we We've distributed over 50% between the dividends and the share buybacks. With improved market conditions, that's going to give us a lot of leverage to free cash flow and give us the ability to consider how we deploy that, whether it be share buybacks, dividends, et cetera. And so we're following the policy. We're keeping our debt very low. The cash flow that we've generated since the policy started, over 50% has gone to shareholders, but the other 50% is still on our balance sheet because we've got projects earmarked to fund. So we're following the policy. We think it's a great balance between balance sheet capital returns to shareholders and investing in our long-term growth, and we're going to continue to follow that.

I appreciate that. Thanks, Kathleen.

Your next question... Mike, we believe the shares are good value at today's levels.

Your next question will come from the line of Brian McArthur with Raymond James. Please go ahead.

Good morning. I just want to follow up and thank you for your answer on Timna's question. But when you convert it from underground or from open pit to underground, I mean, we started building that, I think, in 2005, and it took 15 years. So under this long-term planning for 2041, when do you actually, to efficiently develop your body post-KL, Are we talking you need to have this all figured out 15 years in advance like before, so you have to start in 2026? What sort of time horizon are you looking at to be efficient going forward?

Brian, that's exactly the point that we're making. I think, as we talked about earlier, with the government now owning a big piece of PTFI and participating in our business and our operating committee, they understand that this has to be planned with long-term horizons. And so there's not a drop-dead date, but the sooner the better because the closer we get to 2041, the more difficult it would be to change the outcome. So Um, that's, that's a point, a really important point. And the government has, has, has recognized this more so now than they ever have. And that gives us the opportunity to, to have this, you know, have this discussion about moving forward with, um, with a, um, with, with, with the extension, the smelter is a big part of that. You know, we, we, we, with the, with the smelter completion, The regulations in Indonesia now allow for companies with refined processing facilities to be able to apply for longer-term horizons. And so the regulatory environment is recognizing that, and that's all part of what we're trying to achieve. It's not a specific date, but the sooner the better in terms of long-term planning.

And Brian, just let me say, because of the IUPK term, we only report reserves through 2041. But with our work to develop our mine plans to 2041, we've already identified production that would extend, production of significance that would extend beyond that. And Mark Johnson and our PTFI team have already started the process of looking at delineating these ore bodies to see what opportunities are there. And so we would, as we did, as you said, in the early 2000s for this underground conversion, we would get immediately in developing the plans long term for extending production. The Couching Lear we know goes far beyond that, and we haven't defined the limits of the Grassberg Block Cave or the The other ore body, Kathleen, helped me with it. Deep MLZ. You know, that's the same ore system that Freeport began mining in the early 1980s, and it's just continued to go further and further in depth. So we're really excited about it, and, you know, I've been involved in this ore body for so many years, and one continual thing has been it's always gotten bigger than anybody anticipated it would. And so it's really an exciting opportunity for us.

and for the government so so can i just ask to follow up on that because that's what i was trying to figure out is the additional or past 2041 is it depth that you said dmlz kale bigger or is it there's another whole area where you have to put in another whole say common infrastructure project there's something else out there because originally the original drilling in the area was all cut off and whatever um is this depth or is it just more development underground or is there another whole like, if I call it the whole like original common infrastructure that would have to be put in?

Well, you wouldn't have to do a whole common infrastructure. I mean, it would be something that would utilize what we have there and extend beyond that. But the truth is, we have a lot of indications of things But we really need to do more active delineation drilling to see what's there and then develop our plans around that.

And Brian, if you look at our resource statement in the 10-K, you'll see there's a lot of resource there that's not in reserves. And some of that's material that comes after 2041. Some of it would require some additional processing type handling because some of it has high pyrite content, and that could be a challenge and an opportunity for us. But initially, the opportunity really is at DeepMLZ. We're already starting to conduct some exploration below DeepMLZ. So really, from what we know about, we think there's a lot of opportunity. And then with a life of mine extension, we'll have incentive to go do more exploration. because we haven't done exploration for 20-plus years, given we already had enough reserves to get us through 2041. So it's a great opportunity for, as Richard said, both the government and for Freeport. And this is an asset that's really needed in the global copper industry, really, really important.

Great. Thanks very much. Brian, you'll remember this. You'll remember this, Brian, because you were around then. When we first started developing these underground operations that 20 years ago, we were shooting for 120,000 tons a day through our mill. Look what we did in this quarter, you know, 240,000 tons a day. So that's just the nature of this great ore body.

Totally agree. As you said, though, it takes a lot of long-term planning, too.

that's the nature of our business great thank you very much for all that color i appreciate it your next question comes from the line of cleve rookwood with ubs please go ahead hey good morning everybody thanks for taking the question um just one quick follow-up from me and it's a little bit more near-term focus than the discussion we've been having but in indonesia Can you just help frame the next 18 months, the approval that you expect to get in the next several days? How much of an extension does that get you on your ability to export concentrate? And then based on the smelter construction timeline and the ramp, when would you expect to see shipping concentrate from Indonesia, such that this concentrate export license isn't really an issue anymore?

The regulation that's just been adjusted goes through May of 2024. And we have export quotas that the government approves in connection with their review of our annual work plans. So our current quota that we'll be shipping under goes through the year end this year of 2023. we'll have to update that work plan, which is just an ordinary course thing, which we do in the fall. And that will allow us to increase the quota to get us through May. And then in connection with that, and we've already been discussing this with the government, while the smelter we expect will be mechanically complete in the second quarter of next year, you still have a multi-month period throughout 2024, and it will be reducing over time, but a period of time where the smelter needs to be ramped up. And so that part we will continue to review with the government. The big thing is to get mechanical completion done, and we believe the government will continue to work with us to allow for some exports beyond that, but we'll have to work that through with the government. Really, by the end of next year, we're expecting that essentially we'll have enough capacity to deal with our production out of PTFI, and that's what we're focused on doing. We talked about this earlier. The project team is doing a Really good job. We're very pleased with our EPC contractor there. We've got thousands of people on the ground, and if you see the pictures, it's really, really developing. We know and recognize that smelter operations can be complex, and we're doing a lot of work and planning around operational readiness, but our target is to get you know, get the full ramp-up done as we, you know, by the end of next year.

Got it. Great. Thank you for that. Appreciate it.

And I'll now hand the conference back over to management for any closing remarks.

Well, thanks, everyone, for your participation. If you have any follow-ups, feel free to contact David, and we look forward to continuing to report to you on our progress.

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