Freeport-McMoRan, Inc.

Good morning, everyone, and welcome to the Freeport conference call. Earlier this morning, Freeport reported its third quarter 2024 operating and financial results. A copy of today's press release with supplemental schedules and slides is available on our website, fcx.com. Today's conference call is being broadcast live on the internet. Anyone may listen to the conference call by accessing our website homepage and clicking on the webcast link. In addition to analysts and investors, the financial press has been invited to listen to today's call. 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 non-GAAP measures and forward-looking statements, and actual results may differ materially. Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website. Also on the call with me today are Richard Atkerson, Chairman of the Board, Kathleen Quirk, President and Chief Executive Officer, Marie Robertson, Executive Vice President and CFO, and other senior members of our management team. Richard will make some opening remarks, Kathleen will review our slide materials, and then we'll open up the call for questions.

Thanks, David, and thanks, everyone, for joining us. It was a solid quarter, as you can see, and that's a result of the good work that our global Freeport team has accomplished, and I'm really proud of them and look forward to the future. We've got great outlook for our company, great outlook long-term for copper, a commodity that we base our strategy on. So Kathleen will review with you the results of the quarter and talk about it. We're making progress with this fire we had at our new smelter in Indonesia, and we'll review that as well. We have a new president in Indonesia, Prabowo Subianto. When Prabowo was a general three decades ago, we worked together closely. on issues affecting our operations in Papua. He knows our business. He's appointed a cabinet, which includes a number of cabinet members from Joko Widodo's cabinet and other people that we've known over the years. We look forward to working with him and believe his understanding of our business and of our location in Papua will be a big benefit as we work with his administration going forward. Kathleen, I'll turn the call over to you to review our results and our outlook.

Okay, great. Thank you, Richard. And I'm going to start on our slide presentation starting on slide three with our highlights of the third quarter and first nine months of 2024. Our team continues to deliver on our operating plans and pursue value through enhancing efficiencies, managing costs aggressively, and building value in our organic growth portfolio. You'll see here we've generated strong margins and cash flows during the quarter, with $2.7 billion in EBITDA and $1.9 billion in operating cash flows. Our operating performance was supported by sales volumes exceeding guidance for both copper and gold and favorable unit cash cost performance compared to both our guidance and the year-ago quarter. We're focused on initiatives to build value from organic growth. At Freeport, we benefit from a large reserve and resource position with near-term, medium-term, and longer-term embedded growth options. The high potential innovative leach technologies are delivering results, and we have several ongoing initiatives to add scale and low-cost copper volumes in our America's business. In the first nine months of 2024, the incremental copper production from our leach initiative was nearly 70% higher than the comparable period last year. And we have additional projects underway to build scale and improve on our U.S. cost position. We're also advancing our brownfield expansion opportunities, position the business for long-term growth to supply a market with increased requirements for copper. During the third quarter, we purchased 5.3 million shares of Cerro Verde, in at-market transactions on the Peruvian Stock Exchange at a cost of $210 million. And that allowed us to increase our ownership in this highly attractive asset from the prior level of 53.6% to 55%. The public photo of Sara Verde now represents about 4.3% of the outstanding shares. We ended the quarter in a strong position financially. And as we look forward, we're very optimistic about the markets we serve, our portfolio of high-quality copper assets, and the future prospects for strong cash flow generation to support investments and value-enhancing projects and returns to shareholders. I will talk about markets on slide four. Copper prices, again, during the third quarter traded in a broad range. On the LME, they ranged between 391 and 447 per pound. And on the COMEX exchange, ranged from 394 per pound to 466 per pound. The settlement prices on the LME for the quarter averaged $4.18 per pound. As we look at the quarter and where prices traded, they largely followed macro sentiments. which weighed global economic data and economic pressures in China against actions by the Fed and other central banks to cut interest rates and the potential for large economic stimulus in China. At the micro level, we continue to see secular demand trends associated with electrification providing strong demand for copper and offsetting the impact of a cyclical slowdown. In the U.S., our customers continue to report strong demand for power cable and building wire associated with substantial investment in electrical infrastructure and AI data centers. This growing sector more than offset weakness in traditional demand sectors in residential construction and autos. Demand from China continues to be supported by significant investments in the electrical grid and continued growth in China's production of electric vehicles. Notably, China's demand for copper continues to grow despite a weak property sector. Recent announcements for economic stimulus in China to support the country's economic growth targets could provide further support for metals demand as we move through 2024 and into 2025. As we've discussed in the past, copper is a foundational metal and a key component of electrification. Its physical characteristics and superior conductivity make it essential to electrification. New massive investment in the power grid, renewable generation, technology infrastructure, and transportation are driving increased demand for copper and forecast call for above-trend growth and demand for the foreseeable future. As we look at these fundamentals of demand and match it up with supply, We continue to see a tightly balanced market in the near term and deficit conditions longer run. This is going to require new investments and innovative technologies to build supplies longer term. And at Freeport, we're driven to supply copper reliably and responsibly to a growing market. With our leading industry position, our large-scale current operations, and our future growth pipeline, we're well positioned to benefit from this fundamental outlook for copper. Remind everyone that in addition to copper, we're also a major gold producer and are benefiting from increasing gold prices. We'll turn to operations on slide five, where we summarize the quarterly operating results by geographic region. In the U.S., we're continuing to take actions to improve efficiencies and cost performance to mitigate the impact of lower grades. We have more work to do, but recent trends are improving. We're closely monitoring key performance indicators and seeing positive trends in recent months in asset efficiency associated with key areas of loading, hauling, crushing, and stacking. Our equipment reliability is a focus area, and we're making strides in reducing unplanned downtime. We're also rationalizing the use of contractors to reduce costs and allocating internal resources to our key focus areas. In addition, success in our leach initiative and further scaling incremental low cost production will also drive reductions in our cost structure. In South America, the team at Cerro Verde, the Cerro Verde operation posted another solid quarter. Mill throughput exceeded 420,000 metric tons of ore per day during the quarter and our mill recovery improved from last year's third quarter. Our unit net cash costs were slightly less than last year's third quarter after excluding the 12 cents per pound non-recurring charge in the quarter for a new labor agreement. After reaching agreement with Sara Verde's second union, we now have multi-year labor agreements covering Sara Verde's hourly workforce. Mentioned earlier, we purchased additional Sara Verde shares That gives us more exposure to this established, long-lived, and high-quality asset. In Indonesia, results were quite strong, and that's evidenced by a unit net cash credit of 71 cents per pound. The team is consistently delivering strong volumes of both copper and gold from our large-scale underground ore bodies. Our sales in the quarter were higher than our estimates going into the period with increased mill rates and ore grades. We also benefited from strong gold sales in the quarter, reflecting good production performance and a reduction in inventory from June 30th levels. Our near-term focus areas include continued strong execution of our operating plans, commissioning of a value-driven copper cleaning circuit at our site in Papua to support strong mill recoveries, and commissioning the precious metals refinery. We're also working to restore smelter operations following the recent smelter fire event, which we'll talk about more on the next slide. Just an update on where we are with the smelter. We made good progress during the third quarter on our commissioning and startup. This is a project that our team managed construction in a challenging market in a very effective manner. But we did experience a setback last week on October 14th from a fire incident in a glass gas cleaning facility used in a sulfuric acid production process. Our safety protocols were effective and the fire was extinguished in a short period of time without injury to our personnel. Startup activities have been temporarily suspended as a result while we conduct damage and root cause assessments and develop our recovery plans. We've presented a picture on the slide that you can review, but as you can see, the incident affected a relatively small area of the overall project. We have teams actively engaged in planning the repairs and assessing lead times for replacement equipment. We expect that the repair costs will be covered by our insurance programs and we're also working with the Indonesian government on continuity of concentrated exports during the outage. Our mining operations in Papua have not been impacted, and our team is focused on restoring smelter operations safely and expeditiously. We look forward to achieving our objective of being a fully integrated producer in Indonesia, which positions us to secure a long-term extension of our operating rights there. We'll continue to be very excited about our innovative leach initiative. On slide seven, you can see that early results continue to indicate significant value potential. Just a reminder, we achieved our initial targeted run rate of 200 million pounds per annum of copper per annum at the end of last year and are now driving initiatives to scale this initiative to 300 to 400 million pounds per annum in the next couple of years. Ultimately, our goal is to achieve 800 million pounds per annum from this value enhancing growth initiative. This is the size of a major new mine with low capital investment required, low incremental operating costs, and that'll significantly enhance the value and competitive position of our America's production. You can see on the slide the significant growth in incremental volumes from these initiatives over the last several quarters. Our results have been achieved by enhancing heat retention in the LEAP stockpiles, using data from sensors and analytics to identify targets, and through deploying new operational tactics to direct solution injection to areas that were previously inaccessible. We continue to build confidence in boosting the run rate to 300 to 400 million pounds per year during 2026. Some of the examples of the initiatives that are now underway that will add volumes in the future include expanding our surface area under leach by using helicopters to install irrigation in areas previously inaccessible under conventional techniques. and by scaling our targeted solution injection wells. We're making great progress on our leach injection technology, great progress on our drilling. We're drilling much more efficiently, and we're able to increase the rate of well development. In parallel, we're also advancing innovation-driven initiatives, which would support our ultimate objective of reaching 800 million pounds per annum. We believe there's significant opportunity from increasing heat to the stockpiles. We're looking at adding heat to the leach solution using external energy or using pyrite-hosted ores to generate additional heat. Heat is a proven source to improve recoveries in this type of application. We're also continuing to advance testing of new additives at scale, and we look forward to reporting to you on our progress on these initiatives. At Freeport, we're really well positioned to capture the value of this opportunity with an extensive inventory of substantial residual copper from material already mined, an industry-leading technical team with expertise in leaching technology, and a strong multi-discipline innovation team dedicated to this initiative. We've got additional opportunities for growth beyond the leach opportunity, and you can see that on slide eight where we list our organic growth projects. All of these projects are brownfield opportunities where we're leveraging existing assets and established operations. The LEACH initiative that we just talked about is our best opportunity to grow in the near term, and we're pursuing this initiative very aggressively. In the U.S., we also have opportunities for expansion at our Baghdad and Safar Lone Star operations. And at Baghdad, we're advancing investments in automation, tailings and energy infrastructure, and expanded employee housing. in this remote location to position us to execute the project more efficiently when the time is right. We don't have major permitting hurdles and this is really a straightforward option. We're monitoring conditions and progress with our de-risking initiatives and continue to expect to be in a position to make a decision next year on the expansion plans. In the Safford Lone Star District, where we have a very large resource, we're engaged in studies to define a brownfield expansion. We're targeting opportunities to more than double current production levels, which are currently around 300 million pounds per annum. The large resource that we have at this location, it gives us an opportunity for Safford Lone Star to become a generational cornerstone asset for Freeport and Arizona in the next decade. At Alhabra in Chile, this is our partnership with Codelco. As we previously reported, we completed pre-feasibility studies, and we're in the process of preparing an environmental impact statement, which we expect to be completed by the end of next year. The project involves investment in a new concentrator scale similar to the size of Cerro Verde that we installed nearly 10 years ago, investments in a desalinization and pipeline system to support our water requirements. This project is large. It would provide 750 million pounds of annual copper production and 9 million pounds of annual molybdenum production. It's a long-lead project. It would require something on the order of seven to eight years because of the timeframe for permitting in Chile. And we're going to continue to review economics in the context of market conditions. But we believe this is a project that will be required in the future to support long-term copper demand trends. And this is a project in our portfolio that Freeport can execute. In Indonesia, we continue to progress our large-scale Kuching Liar development. This is a very large ore body adjacent to our existing operations, our existing ore bodies in Papua. We expect to commence production by 2030. We're also conducting exploration below our deep MLZ ore body. We're getting encouraging results. We expect an extension of our operating rights in Indonesia beyond 2041. will set us up for additional long-term development options in this highly attractive district. By pursuing all of these initiatives and advancing them, we're really focused on building optionality for future growth. We're going to continue to be disciplined in our approach and focused on targeting opportunities that can be executed over time that enhance long-term value. Our slide 9 shows our three-year outlook, which we show every quarter and keep updated. This is the outlook for sales of copper, gold, and molybdenum. And you'll see the sales guidance is very similar to our previous outlook. We also have updated our estimates for our unit net cash costs. We expect our average for 2024 to approximate $1.58 per pound. That is below our our July estimate of $1.63 per pound and similar to our guidance at the start of the year of $1.60 per pound. We've got some details of this information by region on slide 19 in the reference materials. So as. We move to cash flows at margins and cash flows and putting together our projected volumes and cost projections. On slide 10, we show modeled results for EBITDA and cash flow at various copper prices ranging from $4 to $5 per pound. These are modeled results using the average of 2025 and 2026. with our current volume projections and cost estimates and holding gold flat at $2,600 per ounce and molybdenum flat at $20 per pound. You'll see here that annual EBITDA at $4 copper would range from $11 billion and it would go to approximately $15 billion per annum at $5 copper. Our operating cash flows at these price ranges would be over $7 billion at $4 copper to $10.5 billion at $5 copper. We've got sensitivities that we've presented on the right of this chart. You'll note that we're highly leveraged to copper price with each 10 cents per pound, according to about $420 million in annual EBITDA. We'll also leverage the gold and will benefit from improving gold prices with each $100 change in gold prices approximating $150 million in annual EBITDA. With long-life reserves, large-scale production, Freeport is well-positioned to generate substantial cash flow to fund future organic growth and cash returns under our performance-based payout framework. Moving to the next slide, on slide 11, we're showing our current forecast for capital expenditures for this year and next. Capital expenditures for 2024 are forecast at about $3.6 billion, and we estimate capital expenditures for next year to total about $4.2 billion. You'll see there have been some timing shifts between the two years, but over the two years, the changes are not material. We'll note that the discretionary projects over this two-year period totaled $2.5 billion. This is the category that reflects the capital investments we're making in new projects that under our financial policy are funded with the 50% of available cash that's not distributed. They're value-enhancing projects. growth projects provide good returns, and they're detailed on slide 23 in our reference materials. As we look forward, we're going to continue to be disciplined in deploying capital and really focused on those opportunities that build value in our business. And finally, on slide 12, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders, and investments in value-enhancing growth projects. We've got a very solid balance sheet, investment-grade ratings from all three agencies, strong credit metrics and flexibility within our debt targets to execute on our projects. We've distributed $4.5 billion to shareholders through dividends and share purchases. Since implementing this framework, we've got a very attractive future long-term portfolio that will enable us to continue to build value for shareholders. Our global team is very focused on driving value. We're committed to strong execution of our plans, providing cash to invest in profitable growth and returns to shareholders. Thanks for everyone for your attention, and now I would like to open the call to take your questions.