Q4 2019 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Freeport Mcmoran, a fourth quarter earnings 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 Q1 day session Press Star one on your Touchtone phone.

If you require assistance during the conference Please press Star zero.

I'd now like turn the conference over to Miss Kathleen Quirk Executive Vice President and Chief Financial Officer. Please go ahead ma'am.

Oh, Thank you and welcome to the Freeport Mcmoran fourth quarter 2019 earnings Conference call. Our results were released earlier this morning, and a copy of the press release and slides for today's call are available on our website at FCX dotcom.

Our conference call today's 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.

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 Form 10-K .

Also on the call to meet with me today or Richard Adkerson.

Ed Konger, Mark Johnson and might Kendrick.

I'll start by briefly summarizing our financial results and then we'll turn the call over to Richard who will review, our recent performance and outlook as usual after our remarks, we'll open up the call for questions.

Today FCX reported net income attributable to common stock of $9 million for the fourth quarter of 2019.

After adjusting for net charges of 22 million or two cents per share, which primarily reflected net charges that at P.T.F.I., mostly related to historical contested tax audits.

Metals inventory adjustments and partly offset by gains on asset sales. The adjusted net income attributable common stock totaled 31 million or two cents a share in the fourth quarter of 2019.

For details about the special charges. Please refer to schedule seven Romanov minimal seven in our press release.

Adjusted earnings before interest taxes and depreciation.

And amortization for the fourth quarter EBITDA totaled 891 million. We also have a reconciliation of EBITDA available on page 35 of the presentation materials.

Fourth quarter copper sales totaled 906 million pounds those were higher than our October estimate of 870 million pounds and gold sales of 317000 ounces in the fourth quarter 417000 ounces higher than our October estimate of 200.

2000 ounces.

The positive variance the guidance are both copper and gold was primarily associated with an extension of money from the Grasberg open pit, which was completed in the fourth quarter and also the timing of shipments as we sold some inventory from the from the third quarter.

Our average realized price in the fourth quarter was to 74 prepare that was similar to the year ago.

Average copper price and gold prices of 14, 91 average for the quarter or slightly above last year's fourth quarter.

Our consolidated average unit net cash cost net of byproduct credits.

Was a $1.16 not to the Dollarssixty seven for pounds of copper in the fourth quarter of 2019, those were lower than our our estimate primarily reflecting the higher copper and gold sales volumes in the quarter.

Operating cash flows during the fourth quarter totaled $170 million that was net of a 250 million dollar tax payment related to to contested tax audits in Indonesia and capital expenditures were about 700 million during the quarter, including about 400 million for major price.

Todd projects.

During the quarter, we generated 450 million and proceeds from asset sales associated with the previously announced completion of of the sale of a portion of our interest in Freeport cobalt up and also a sale of our lower are lower zone interest in the exploration project in Serbia.

We ended the year with consolidated debt of 9.8 billion and consolidated cash totaled 2 billion.

We had no borrowings and three and a half billion available under our revolving credit facility.

I'll now like to turn the call over Richard he'll be referring to our slide presentation materials.

Thank you Kathleen and good morning, Thank each of you for participating in today's call.

We had freeport had an excellent fourth quarter.

[noise] doing what we set out to do during the period of time execution is or battle call and that's exactly what we did we executed.

We have strong momentum.

Three important initiatives to expand margins and cash flows and increased value for shareholders.

Looking back on the year 2019, we set a strong foundation for the long term <unk> positioned our company for profitable growth for years to calm.

We start with the first and most impactful initiatives from that is our underground ramp up at Grasberg.

Which I'm pleased to report is accelerating as planned.

During the fourth quarter, we completed surface mining at the Grasberg open pit now we are entirely focused on establishing.

Large scale production from our massive low cost in long lives underground ore bodies, and that's going to be a source for significant cash flows for 20 plus years to come.

Oh, we benefit from the state substantial development in infrastructure that is already being completed.

Oh, the strength of our team, which possesses a necessary technical competencies experiences and motivational to successfully execute our plan and that's what they're doing.

ER positive production results in 2019.

Is enhancing our previously existing confidence so far ramp up schedule and.

We've talked before we're going to show me stage for ourselves and for investors and that's what we're doing we're showing people that were doing what we set out to do.

The designs of the Grasberg block cave and the deeper emails EMA on a world class.

We.

Or using the our mining experience that we've had over our 40 year history of underground mining.

To enhance infrastructure construction, we're using new technology, a thomas loaders and remote control equipment.

Well, we've made advances in ground support.

As for techniques under undercut blasting and cave management, and we're going to continue to take advantage of these improved technologies as we go forward technology advances.

In underground mining, our or more impactful and more achievable and open pit mining simply because the nature of the processes.

We were successful in meeting or exceeding important milestones during the year, you know view that more detailed in a moment.

Second initiative is the commissioning of a new mine in Arizona Lone Star.

We will be commencing production.

In this year 2020.

Project is on track that 75% complete within budget.

We have a great.

Experiences and track record and working in Arizona, notably we have the support of the communities near this mine and that's important when you look at the issues people face.

In Arizona around the world and developing new mines.

Economics of this investments really attractive provide a source of long term cash flow with low risk growth opportunities.

Expiration of this ore body continues to be positive both with respect to an expanding oxide resource and as we look into the future with though very large sulfide resource, which has a potential making this a keystone mine of tier one asset in the global mining industry.

The third value driver relates to our innovation program.

Really focusing on enhancing productivity expanding markets without spending a lot of capital.

During 2019, we took our experience that we had working with our Baghdad mine and initiated a series of projects throughout our American portfolio of mines.

Using new technology machine learning.

More data driven interactive and cross function operating structure, bringing all of our skills in those areas within our company together.

Experiences demonstrate these tools that allow us to work our existing assets harder.

Unlock bottlenecks and improve overall performance.

Early results are positive we're prioritizing initiatives now to implement these on a larger scale.

We have.

Begun to incorporate these initiatives these projects into our plans.

And currently or.

Expecting to achieve 200 million pounds of annual production incremental production by 2022.

If sizing again, it was very low capital.

Each of these three initiatives are well advanced they're all largely with our own control and provide a clear path for.

Our cash flows value creation [noise].

Slide four Warner with all the talk about SG.

We have read computer aided our commitment to all of our stakeholders.

For us this starts with a strong culture of safety at all levels of our organization. That's the core of everything we do we operate in a dangerous industry was challenging physical environments and we are really diligent.

In the developing tools to enhance safety performance with particular emphasis on fatality prevention and continuous improvement.

We we recognize and appreciate the performance of our global workforce, who are an integral to our success.

We pay people fairly well in compensation and benefits, we provide career opportunities for people to grow in there in their work and to support the families and it's a big part of what we do.

Freeport as long history of partnering with communities, where we operate.

To ensure that the work that we do results in a positive impact on communities with regard to their health, where affair and sustainability and we continue to work to do this and that's important feature for would do.

Environmental protection programs are also key to us and we are dedicated significant.

Human and financial resources to addressing this our management programs are designed to mitigate impacts and closely monitor performance.

We have a particular focus on water conservation a water is an issue.

Oh, most mines that we have it.

We are increasing sourcing of low carbon and renewable energy and have a track record of world class remediation programs.

We are taking a very active role in working within I see a minimum and key stakeholders.

On developing a new global standards for tailings management.

Oh, we've enhanced our disclosures in this area so that all stakeholders have excess.

Who are tailings management activities and how we're dealing with this important area of our business.

[noise] report, we are leading an important producer of copper in the global industry is fundamental is a world transitions to a low carbon economy.

Copper is a key driver and mitigating carbon emissions through the application of renewable energy technologies and is a net positive for the future economy.

Our commitment to sustain animal and responsible mining is not new this focus on.

Communities workers and environment.

Is something that's been part of our culture for for years, we recognize long ago. This is essential to the longstanding sustainable by industry and that we cannot be successful in generating value for shareholders unless we address these issues.

Secondly, and we we are committed to doing that.

Slide five talks about copper markets.

Big picture fundamentals are strongly supported for the future in our company is going to be a beneficiary of those strong for fundamentals.

When we look back on 2019.

With slowing global growth.

With the impact on.

Within China with in the U.S. with Oh.

Weakened.

Performance was a manufacturing sector with it.

The issues in Europe is striking that copper inventories are at low levels that they are today supply growth continues to be relatively low markets Oh can be expected to be tight in the future to become tight in the future.

Copper will benefit under a scenario of even modest global growth in the added benefit of increasing use of copper to implement de carbonization trends.

A feature that's going to be part of the long term future of our industry.

The current price today has improved from the 2019 lows, but is still well below the incentive price needed to attract new supply.

Slide six Oh, we address.

Turning again talking about our strategy on the impacts of that.

That said often we're laser focused on execution of this strategy and that's what we're we're all about we've worked for years now in planning and developing a particularly at Grasberg the transition to the underground and now we are executing executing this.

Very efficiently as you can see by the numbers were reported today.

We will have a growing production and cash flow profile, that's going to be very significant and it will benefit our shareholders in years to call.

We're well they have some of this underground transition results to date on target.

We're moving closer to 2021, when we start seeing the results of this work that we've been doing over the past 15, plus years and then beyond that.

How we will be able to.

Benefit from these investments in this work that we're doing.

Through the execution of the ramp up at Grasberg. The commissioning of the Lone Star project ongoing productivity is in our Americas operations.

We expect to increase our copper and gold sales volumes for over 30% in 2021 compared with it.

Just completed 2019 trough year.

This resulted in a 25% reduction in that unit cost all things being equal and more than double our EBITDA and cash flows.

At current commodity prices.

I personally believe there's a potential for higher prices with a growing production profile at a time when copper markets, maybe rising or shareholders would have exposure to a positive long term future and freeport will be particularly well.

Situated.

As it faces that future.

Much of the capital investment we need to achieve this result has already been made and achievement of our targets continue to reduce the risk that this plan had embedded in it.

These are long life assets with a strong base for solid cash flows for the future.

Slide seven we show a summary comparing.

Historical and future results for Grasberg.

The Grasberg district in Indonesia, and popular where we have operated since the early 19 seventies.

Is one of the world's largest and most valuable mining districts historically.

Very large copper producer, but with a significant byproduct gold component is one of the world's largest gold deposits.

Grasberg has delivered cash flows over the last 30 years.

We expect even more cash flow in the future and its truly truly a remarkable asset and that's why we've had such a focus in maintaining and developing our rights working with the government of Indonesia to secure that we've had a year now since we achieved the new structure and its way.

Working very effectively.

Picture at the top left is a picture of the open pit in December we have now completed mining from the surface. So the pit is no longer being mined and it's quite a remarkable picture.

Our mark and his team did a great job and extending the life of the pit.

We had to do this in a cautious way because.

Future interaction of the block cave.

Mining underneath the pit same ore body is to be mine from surface and we had to make sure that we could not.

Not expose our people or the ore body to risk when this interaction as this interaction begins to occur we did this safely.

We did we're able to produce longer than we anticipated going into the in in the beginning of the year.

Just stepping back at this I look at this picture I have a picture in my office of the Grasberg <unk> every year since it started production and it starts with it.

Snapshot that I took in 1988 at the exploration site.

And then to see this pit completed.

Since 1990.

Pdfs produced 33 billion pounds of copper 53 million ounces of go from the Grasberg district generated $100 billion in gross revenues.

During this period of time, we moved 5 billion tons of material, both ore and waste to pursue process about 1.8 billion tonnes of ore.

As I've said, we're now totally focused on establishing off your long skin large scale production from the underground.

We're a leader have been for years and block cave mining decades of experience dating back to the.