Q4 2020 Freeport-McMoRan Inc Earnings Call
Later, we will conduct a question and answer session. If you wish to ask a question during the Q&A session Press Star one on your Touchtone phone. If you require assistance during the conference. Please press Star Zero I would now like to turn the conference over to MS. Kathleen Quirk Executive Vice President and Chief Financial Officer. Please go ahead ma'am.
Yeah.
Thank you and good morning, everyone welcome to the Freeport Mcmoran fourth quarter conference call.
Early this morning, we reported our fourth quarter and full year 2020, operating and financial results and a copy of today's press release and our slides are available on our website at F. C X dot com.
Our 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 this call will 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.
On our SEC filings.
On the call today are Richard Akerson, our we also have a number of our senior team with US today are Mark Johnson is here, Josh on said I'm, Mike Kendrick, Rick Coleman, and Steve Higgins I'll start by briefly summarizing the results for the for.
Quarter, and then we'll turn on turn the call over to Richard Who'll be reviewing our outlook.
After our prepared remarks, we'll be taking questions.
Today F. C X reported net income attributable to common stock of 708 million or 48 cents per share in the fourth quarter and 599 million.
A 41 cents per share for the year ended 2020.
We had a number of special items in the fourth quarter, which are detailed on Roman numeral seven of our press release.
Those totaled net credits of 142 million or 10 cents a share.
Mainly associated with the gain on the sale of assets and partly offset by charges for litigation settlement and international tax matters.
Our adjusted net income attributable to common stock. After these items totaled 566 million or <unk> 39 per share for the fourth quarter of 2020.
Our adjusted earnings before interest taxes, depreciation and amortization or EBITDA for the fourth quarter.
Rocksim added 1.9 billion and we generated $4 2 billion of adjusted EBITDA for the year 'twenty 'twenty a reconciliation of our EBITDA is available on page 38 of the slide materials.
We had a very strong fourth quarter.
Our sales volumes of copper of 866 million pounds were 3% above our October 'twenty 'twenty estimate and our gold sales of 293000 ounces were 9% higher than our October 2020 guidance are these primarily reflected.
Higher copper sales from Cerro Verde.
And in Indonesia, and higher gold ore grades in Indonesia.
We benefited during the quarter from improved pricing for both copper and gold.
On the realized price of copper was $3 40 per pound in the fourth quarter and that was 24% above the year ago quarterly average.
Fourth quarter gold realized price was 18 70 per.
Per ounce and that was about 25% above the year ago average.
Our unit net cash cost came in at an average of $1 28 per pound of copper and that was lower than what we had guided to in October.
Notably in the fourth quarter, we generated very strong cash flows.
Which totaled $1 3 billion.
In the quarter and that exceeded our capital spending of just under 400 million during the period.
We were together with our asset sale proceeds in the fourth quarter, we were successful in reducing our net debt by about $1.6 billion in the in the fourth quarter alone.
And we ended the year with net debt approximating $6 $1 billion.
We had no borrowings under our revolving credit facility our.
Consolidated cash of $3 7 billion and we were in a strong position as we look forward to to generating increasing cash flows as we go forward.
I'd now like to turn the call over to Richard who'll be referring to our slide materials that you can reference on our website.
Good morning.
You all for.
Participating on today's call.
Great to be able to talk to you today about our performance in 2020 on a positive outlook.
It's been a it's been a year when we think back to March and April.
All of the challenges we were facing at that point in the world is facing.
You have a b at this point.
Spending in many ways and remarkable but it's been a quieter year for free.
Sure.
I really hope you and your families and colleagues are staying safe and well.
We've all made per.
Sacrifice, there's just been a tough year.
Or else it free for the progress on companies made is really been a godsend.
We've all been working in ways that are so different than past.
We remain focused on working to protect our health and safety of our people we're supporting the communities where we operate during this crisis, we're really encouraged by the scientific advances with therapeutics.
Vaccines are finally being distributed book all of them. We know all of this is going to take time to do.
Distribution widely placed and we're all looking forward to returning to normal lives, but for time being we're staying village on with our protocols.
Really proven to be so effective for us at Freeport.
I'm immensely proud of our Freeport team for their response to the Covid challenge.
Advocating through a pandemic like this and none of us have ever seen and with this degree of your duration that's been difficult for everyone and all the communities around us our team has demonstrated real resilience competence drive throughout all of this come together to address this.
Situation proactively while we've maintained focus on continuing to protect and enhance our business and that's worked for the benefit of all stakeholders on.
On slide three we show the highlights for 2020.
Year of extraordinary accomplishment for Freeport, we laid a strong foundation for future growth free cash flows and profitability.
Which is exactly what we set out to do and had a strategy to do so.
<unk> been able to achieve what we did in the face of Covid is nothing short of remarkable.
Earlier in 2020, we announced in April we moved quickly to develop new operating protocols to maintain our business continuity.
We totally redesigned our operating plans from what we had announced this.
At this time a year ago.
<unk> got a business protect our liquidity and to be responsive to the really heightened uncertainty that we were facing and everyone's facing a free.
Reported all hands are on deck to build the optimal plan.
Each of our operating teams around the globe played an important role in developing and then executing these aggressive plans.
Just had a tremendous buy in by everyone.
And that enabled us to execute the plan so well big.
Big positive.
From this process that our team's collaboration which has always been a strength of our organization is now.
Strong as it's ever been employment engagement commitment energy and morale or a very high level.
We effectively executed the revised plans.
Got a big focus on cost and capital management.
And then significantly.
We advanced the largest block caving operation in the world at on Grasberg mine in Indonesia.
You'll see we met our key milestones for this massive multi year multi billion dollar on undertaking.
At the same time, we also completed on time and on budget. The Lone Star project in Arizona, and this is a potential future Keystone asset for our company.
The progress we made this year has set the foundation for strong cash flows.
Literally for years to come.
We turned the corner during 'twenty 'twenty, two began generating sustainable and substantial free cash flow beginning in the third quarter of 2020 and now continuing in the fourth quarter.
And as we look forward, we've generated and are generating significant free cash flow and debt.
It enabled us to reduce our net debt by $2 $4 billion in the second half of the year.
Slide four highlights key financial metrics by comparing our actual sales for 'twenty 'twenty with the plan we presented to you last January.
To the onset of the pandemic. So this is not.
The revised April played out but the one that we had before we knew what we were facing.
That comparison, our unit net cash cost for 2020 were 15% lower than the January 2020 guidance EBITDA and operating cash flow improved.
Over 25% cap.
Capital spending was reduced by 29%.
We also generated approximately $550 million in after tax proceeds from the sale of a non cash flow producing assets that we disposed of this year.
We ended the year with $2 $7 billion lower debt than our original January plan I.
I think about that.
Based on Covid and all the uncertainties, having to make the changes and then coming back to do so much better than we set out to do before Covid was known about.
This was accomplished in an average copper price realization of $2.
<unk> 95 per cent for the year 10 per cent a pound higher than our plan 10 per since its brown, just didn't turn sense well below the current price.
The team did an outstanding job, we're strongly positioned for the future.
In addition to the strong.
Operating and financial performance in 2020, we achieved new milestones in the ESG area and that's shown on slide five.
We committed to the copper market.
This is a new assurance framework developed by the International Copper Association.
Steve Higgins is now the president of ICA to promote and demonstrate responsible production practices.
Focusing on meeting the United Nations sustainability development goals.
Big step forward, we established a climate targets and added transparency transparency with our new climate report, which is now available on our website.
We took a leading role with Aussie on me International Council on metals and mining.
Beginning.
Over a year ago.
When it served as the industry representative.
On a multi stakeholder initiatives to develop a new tailing standard for the mining industry.
Following the disasters in Brazil, and then the subsequent development of implementation guidance Brasilia and members.
Was a major undertaking by the industry and bought by a company, which took a lead in the process.
And it reflects the importance of managing tailings storage.
Storage facility safely and responsibly.
After serving two terms as chairman of I assume a M.
More than 10 years ago, our recently accepted a new term as chairman.
I'm currently has 27 CEO council members from the largest global mining and metals companies.
I'm, leading a strategic review of the organization to meet the increasing importance of ESG issues facing our industry.
We advanced our inclusion and diversity initiatives, which is core to our values at Freeport, we invested in our communities and continue to expand organizational resources in this effort.
Worker safety is our highest priority and we showed that with what we did in response to Covid.
Our safety statistics.
In 'twenty 'twenty measured by interest rate.
And incidence rates met our targets a fatality position continues to be a focus of our work safety net.
Management and the Red Oak incredibly we had five fatalities and in our operations last year.
On slide six.
You've heard me say for a long time that the copper price would benefit from its favorable fundamental outlooks price.
Prices rose significantly in late 2020, and recognition of koppers favorable demand trends and the limited ability of the industry to increase supply.
The recent price move is significant.
But note that prices are still lower than they were just over 10 years ago.
Our almost 10 years ago arguably the fundamental outlook for copper today is better than it was 10 years ago.
China's leading the recovery and global stimulus measures in countries around the world are also being positive for growth in copper demand.
Freeport is the leading is a leading producer of copper in this commodity is critical to the economy of the future.
Central for to support global growth, and and and and broad scale to economic activity.
But it is also essential and strategic for technologies required for the transition to a global cleaner energy future.
That's on the front burner for everyone.
More and more we're seeing adoption of policies to reduce carbon emissions around the globe.
70 per cent of the world's copper supply as you used to deliver electricity.
Clean energy initiatives are implemented.
Density of copper use will increase the chart on slide seven shows that copper utilization in electric vehicles and in the generation of renewable power is more than four times greater per unit than for traditional vehicles and power generation.
C. R U estimates that copper demand for electrification and renewables will increase significantly over the coming years in a row.
Relatively short timeframe global demand just from these green initiatives could approximate the size of today's U S copper market.
As demand accelerates.
Copper supply will continue to struggle to keep up.
And this supports a favorable near term and long term fundamental outlook.
This current situation.
That goes to the early two thousands.
When I became CEO of Freeport edits.
At a time when Chinese demand appear.
Appeared and accelerate into such a dramatic fashion without a supply response, which created they've got commodity super cycle.
Increases in copper prices very similar to what we're facing today.
Turning to Indonesia on slide eight our P. T F team.
There's delivering really impressive results.
During 2020, we built the momentum for the ramp up of our massive underground mines and by the fourth quarter. We had reached nearly 70% of the targeted annual run rates for sales volumes. This is something we were looking forward to beginning in the mid 19 nineties. When we designed the original.
Debt, which is now completed.
And it's something that we've been investing in over the past 15 years and to see it coming together like it is truly gratifying and Mark Johnson and his team have just done an exceptional job continue.
Continued growth during 2021 is expected to enable us to reach our full annualized targets by the end of this year.
Considering the operating and health challenges we face.
And in Papua This is notable and striking the team stayed on schedule met our objectives. The project is massive and complex and when we did this by designing and maintaining effective COVID-19 protocols.
A very large workplace in a very challenging remote location on.
Progress with the ramp up has reduced risk for P. D F EIS.
Underground mine significantly.
Major risk as we started this was developing the infrastructure infrastructures in place there's always risk in mining it's inherent in our business, but the major risks with this underground development are behind us and we are confident and have a track record of managing the types of risk would be facing going forward you can't make them go away, but we can be.
And so we're really pleased with where we stand with that process.
We're also continuing discussions.
Currently regarding the new smelter in Indonesia.
In early 2020, we requested a delay in degree agree Tom schedule.
We're completing of construction of the new smelter at a site in eastern Java near grassy, which is near the existing PT smelting facility.
We haven't been able to progress work there because of Covid issues.
For the local workforce and international contracts.
This was a greenfield Smith smelter with <unk>.
Total cost of about $3 billion.
That number continues to be refined and changed and this project would be debt financed.
P T F. The Indonesian entity.
Over the last several months.
D T F I N our partner and majority shareholder in P. D F on the <unk>.
Indonesia stayed on company mind I D.
I have been discussing with the government alternatives to this commitment to build a new smelter.
Which was reflected in our IU PK mining licenses granted in December 2018.
During the fourth quarter, we advanced discussions with the majority owner of the existing D. T smelting facility aggressive for a 30% expansion to add smelting capacity in Indonesia, and partially satisfy our commitment to the government.
Commercial and financing discussions for this expansions are are are being advanced engineering is in progress initial estimates.
Indicate that this project could be done for $250 million and be done efficiently in the current TCR C environment and it was partially meet our obligations to the government.
And then separately at the request of the government.
It's a question of the government D. T. F is currently engaged in discussion with a third party.
Regarding the potential for the development of a new Greenfield smelter at an alternate location away from Eastern Java. This project would be in lieu of P. D. F is constructing the new Greenfield smelter that I mentioned above.
Third party, a third party would lead the development for the smelter and it ranges from Nancy.
P T F I would commit to be a supplier of concentrate for the project and the partners and the government are working expeditiously expeditiously to reach a decision on the path forward.
On Slide 10, we show our 2021 per route per our priorities are.
Our own going efforts in creating value for our company.
We built we were building on the progress of 2020 by focusing on execution of plans to grow production volumes vantage costs and capital spending efficiently. We're expanding our recent innovation efforts applying technology and innovating innovative management processes and our operations around the world.
And on all of this while we manage and are sensitive to our responsibilities to workers' communities governments and other stakeholders.
We look forward to resuming cash returned to shareholders during 2021, and we'll be in a position to do that and we will be in discussions with our board on taking actions.
We will be in a period now.
Our.
For the long term of harvesting cash flows now that we are completing the major long term investment program in Indonesia.
We are discussing with the board a financial policy that went on now and then.
<unk>, a near term resumption of the dividend and then overtime a performance space shareholder return policy.
Significantly we have recommenced work, we suspend it early in 2022.
Evaluate and advance future organic growth opportunities from our large portfolio of undeveloped reserves and mineral resources, we look forward to doing that the.
The.
Efforts of 2020 work of our team over many years now.
It has enabled us to increase margins and cash flow substantially for 'twenty, 'twenty, one and below and beyond.
At $3 50, copper, we're on a path to nearly double EBITDA from 2020 levels.
Copper sales for 'twenty or 'twenty, one are projected to increase 20% over 2020 go volumes are projected to increase by over 50%. Our unit net cash cost of production will decline and this is occurring at a time for improved pricing for copper.
Recall in an earlier conference call like this I said it.
An ideal situation for Freeport would be able to be to be completing the grasberg expansion at a time good copper prices.
Here we are.
Significantly higher cash flows will enable us to maintain.
<unk> balance sheet Bill.
Bill value on our business returned substantial cash flows to shareholders.
As shown on slide 12, we have a long life portfolio of mineral reserves.
Reserve life or a proved and probable reserves of over 30 years.
We have substantial options for the potential to expand our reserve base from our large inventory of mineral resources beyond reported reserves. All of this is associated with brownfield expansions of our existing ore bodies. What this means is if our company to have long term success, we are not required.
To have success in exploration, we hope we do we're not required to do deals.
Strategic opportunities may come to us, but we've got this base already in our portfolio that provides for a sustainable long term future from Freeport.
Slide 13 highlights the organic projects, we are now assessing.
During 2020 to conserve cash we paused work on our expansion projects were now re engaged broad range of opportunities. During 2021, we will be developing a ranking of these projects to guide our thinking on sequencing and long term planning.
We have no plans to increase substantially capital spending on projects in the near term, but in the long term these growth opportunities will be approached in a measured and disciplined way.
I'll close with slide 14, which we which is titled the Freeport edge, which is the term we're using internally around our company.
Our management team at Freeport has extensive experience in managing this business.
<unk> teams across the company are seasoned.
<unk> oriented and intensely engaged we have a management structure that is collaborative.
Experienced in working together and we decide to make a decision we execute.
We recognize our responsibilities we undertake when we were granted.
Order on a license to operate and we never cut corners on important issues.
Looking at our team at Freeport is a combination of managements with long tenure and experience.
We also have a cadre of younger managers, who bring new ideas approaches and energies, we have strategic new hires who bring outside perspectives. We've.
We've had three senior executives.
Retired at the end of their careers.
Over the last two years internal replacements were promoted.
Forming effectively and this just demonstrates the depth of talent on our organizations free.
Freeport is foremost in copper.
Our portfolio of assets is large and high quality.
Stablish industry leader operating mines that are among the largest in the world our assets on long lived and durable with embedded options reserve resource growth, we have strong operating franchises in the United States, South America and Indonesia.
Allowable supplier to the global copper industry average.
Industry, leading technical capabilities supported by a strong track record of project, probably get project execution and business management over many years we've.
We've earned the trust and respect of our partners, our customers suppliers financial import markets and most importantly, our workers communities and host countries, where we operate.
Our block caving experience is among the most extensive and long standing in the history of the global mining industry, we've been operating block caves in Indonesia since the early 19 eighties, we have.
On an important molybdenum block caving operations in Colorado.
This is critically important as we transition grasberg to become the largest block caving operation in the world.
I'll close before turning to your questions about thanking our people and recognizing their strength resiliency and performance I'm per.
That would be part of this team.
Forward to continue to be part of the team.
On to participate in our future successes.
We will build on our accomplishments.
We will.
We'll be depicted on our 2020 on your report to shareholders. We are charging ahead.
Responsibly reliably and relentlessly.
Thank you for your attention and operator lets open the lines for questions.
Hi, Bert hit on this when I make a few comments and then and then we can take the questions I'll be brief.
Continuing on with the slide presentation on on Slide 16.
We provide some additional details on the on a quarter on our operating plans.
We're continuing in the U S to ramp on production from the New Lone Star mine and in January of this year, we commenced a restart start of that on vaccinia online, which we previously announce them in South America, where we're continuing to operate Cerro Verde at a reduced rate.
Roughly 360000 tons per day, we get a little more than that in the fourth quarter.
And our team is prepared to increase rates to a level of 400000 tons, which is about where we were tons per day, which is about where we were pre COVID-19.
After the Covid restrictions are lifted.
At El Abra, we've incorporated in our latest plans an increase in operating rates, which will provide additional volumes beginning in 2022.
And as we've talked about a classifier, we made excellent progress in the fourth quarter and are continuing to execute the ramp up plan to achieve their targeted that'll run rates by the end of this year.
Slide 17, we present the outlook for 'twenty 'twenty one.
The guidance is largely in line with our previous estimates.
We made some minor revisions to 'twenty 'twenty one volumes. These were largely timing in nature to reflect the latest classified line plans and we've updated our cost models to incorporate.
Current pricing for energy currencies and ongoing maintenance programs.
We expect to sell I guess over $3 8 billion pounds of copper and 2021 at an average unit net cash costs of $1 25 per pound.
And at $3 50, copper this would generate about $8 billion of EBITDA and five and a half day in Dallas in operating cash flows for the year 2021, which is nearly double the 2020 levels and as you'll see we expect further growth in 2022 and 2023.
<unk>, which is shown on on slide 18, where we provide a three year outlook for volumes.
After stacking growth of nearly 20% copper and over 50 per cent for gold in 2021.
As 2020, we're projecting further growth of 13% and copper volumes and over 20% in coal volumes for the year 2022.
And these projects have been in development for some time most of the capital is behind us.
Which gives us which gives us a runway here of generating growth.
And cash flows on margins.
The build up in volume for 2021, and it's reflected on on slide 19.
And on Slide 20, we show the significance of the cash flow generation using these volumes and our cost estimates and we show a range of prices from 350 to $4 copper holding gold flat at 18 50 per ounce and hadn't alleging on at non Dallas per pound, but you can see that the growth.
Both in volumes and very low incremental cost.
It's an EBITDA ranging from over $10 billion per annum on average for the years 2022, and 'twenty twenty-three share.
Over $12 billion per year at $4 copper.
Operating cash flows which are net of <unk>.
Taxes and interest.
Would range from $7 million at 350 per pound of copper to Oh, right and a half day in at $4 copper.
And as Richard was mentioning.
At $4 copper is still well below historical periods of demand strength.
The cash the cash flows generation are expected to be significantly above our client our planned capital spending.
Which will provide substantial free cash flow as we go forward.
On Slide 21 includes our projected capital of $2 3 billion in 2021 that excludes potential spending on the Indonesian smelter, which would be debt financed and it's still under evaluation.
We're maintaining our basic capital plans.
On where we're being very disciplined about our capital spend the 'twenty 'twenty. One capital. This is roughly as you'll see about $100 million higher than the previous forecast and that incorporates an acceleration of some money.
Quit many investments to provide capacity assurance for our plants.
We're on a strong financial position as you see.
We've entered a period of exceptional free cash flow generation.
The long life asset based and ongoing cost and capital management will provide the ability to continue to strengthen our balance sheet.
Provide cash returns to shareholders and build additional values on our asset base.
Regarding financial policy, we're working with our board on our shareholder return policy that would balance our priorities, while providing increasing returns to shareholders based on this performance that's very exciting.
Writing time for Freeport, and we're staying very focused on continuing our momentum in and now operator, we'd like to take questions.
Kathleen I apologize for not.
Okay.
What I'm trying to get you out.
Okay, let's have some questions.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question press star one on your attach on phone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
By using a speakerphone please pick up your handset.
Yes that you limit your questions to one and you have additional questions. Please return to the queue. The first question comes from the line of Emily Chang with Goldman Sachs.
Hi, guys congratulations on a great quarter here on.
The first question on hard is just really around digging into some of the capital allocation.
Cash and strategy plans it had again.
Are you able to provide any darrin.
And in all key financial metrics on our operational targets that Youre looking for.
Yeah, I'm thinking about taking the dividend all around when we might see some movement on price.
On the 10 looks like a 'twenty 'twenty, one it's obama to harvesting yet, but any kind of kind of line on that would be great. Thank you.
Okay. So with respect to the dividend we're already there. We were just we have a we'll have a board meeting as early this year and we were going to sit down with the board about a broader long term financial policy that I made reference to and we'll be in a position to recommend to the board to reinstate the dividend.
Uh huh.
But theres no need for further financial metrics with that when you look at our improved financial situation of where we're moving to paying the dividend before the the issue with the.
The growth project is is one that.
It requires more work and requires some.
Some time in evaluating the market as we go forward.
The.
They range in size, but the projects from large ones.
We have a significant.
Expansion opportunity in an El Abra in Chile, with our partner Codelco and it's on the order of the project. We did at Cerro Verde several years ago, and we have a series of projects in the U S. A.
Debt initially aren't as large although down the road, there's some very large ones available the day.
The U S has some advantages.
Our tax rates are very favorable and we have a very large loss carryforward. So we don't pay.
Pay taxes in the U S for years to come.
We own most of the lands in in and.
You can see so theres no royalties and so when you cut out taxes and royalties in the U S versus foreign economics, and with a favorable energy situation in the U S and community support for.
Workers are.
There's just a lot of advantages there. So we we we had to suspend this work.
The uncertainties of Covid, we're now Rick Coleman on his team are digging back into it and we're going to be doing tradeoffs with each individual projects as we go forward in 2021, and we'll be able to report to you.
About our intentions, we we're constantly approached by others in the industry, who would like to be our partners in these projects.
And so there'll be a lot of opportunities there and.
As to say today, we just resuming the work that we were engaged in previously.
Yeah.
Our next question comes from the line of Chris within the net with Jefferies.
Hi, Richard Kathleen and thank you for taking my call.
Just two questions regarding grasberg. The first is it looks like for the Grasberg block cave, you've made a pretty material increase to your annual production guidance from 850 million pounds at average reserve grade to 950, and I'm wondering what is driving that.
Increased by 100 million pounds of annual production from the Grasberg Block Cave. That's my first question.
Alright, well we are.
The Grasberg block cave is growing extraordinarily well I mean, it's up it's an ore body that we knew well because it's the same ore body that we mined.
You know from.
The early Ninety's to December.
December 2019, so no we know the ore body.
It it it doesn't have some of the pressure situations that we've had to deal with that the deep M. L. Z mine and so when you just look at the advancement of the block caving operations the development of draw bells and.
Day, we've operated we're just ahead of schedule. So it's nothing more than that and then the team being very efficient being ahead of schedule.
Okay, it's nothing to do with surprise in terms of grades I mean, it looks like the average grade for the reserve is higher than it was the last time you reported results is there something different in terms of the mine plan or just some of the drilling they've done there where you've seen some different results than you expected.
No. It's just you know as you mine and ore body and go forward. Its a dynamic situation and you are you update the mine plans and reserves for the experience and the.
It's just great to see the Grasberg block cave.
Having this really positive.
Development mode I mean, it is special.
Okay. Thanks for that and then secondly on on Indonesia in terms of the smelter so.
The options here on number one you build a new smelter, which I think you've said in the past could cost up to $3 billion you'd fund effectively half of that obviously debt financed through the asset but half of that that would be attributable to freeport. The other option is to expand the graphic smelter or build the precious metals refinery and have a third party build a smelter if a third party. So my first question is in that second scenario.
That's $250 million for the smelter expansion, maybe $2 50 per our precious metals refinery. So 500 million in total of which you would pay that half is that correct.
Well, let me.
Well, let me pick on a few words that you just said okay.
First of all Freeport.
The <unk>.
F. C Act so lets call the U S Company F T X the Indonesian entity P. T F on.
Okay. We are a shareholder of P. T F I, we own 49% of the shares.
We have rights to operate under a shareholders' agreement we'd be in Fcs.
Mondavi owns 51% so it's a separate entity.
And it is the entity that would construct and finance the smelter. So it's no 50 50 sharing.
I mean, it is it would be financed in that entity.
It's a substantial entity with with no external debt.
From time to time, there's some.
Borrowings from F CX, but to meet working capital needs, but it's a it's a substantial entity that clearly can debt financed this entity on its own.
So that's the way this thing would be approached and financed.
Now, we do consolidate debt entity because of our operating rights.
It's a very positive thing that we do have the ability to do that under the accounting rules.
That way, we can reported as part of our global operations. So.
To the extent that alternative is.
Followed and D D F <unk>.
It takes the lead in constructing in financing the smelter the debt they didn't incurs would be consolidated on our balance sheet, but it wouldn't be obligations of S. C eggs to provide funding for it.
Right understood. So.
So in that scenario P. T. S. I would tell you $500 million four a precious metal refinery and the expansion of the graphic smelter, whereas in the other scenario, where you build a smelter PT Fi would effectively spend $3 billion right. So and then in a scenario where you just expand the smelter build a precious metals refinery net of third party build a second separate smelter.
Would there be a risk here will you be paying materially above market T. Crc's net smelter or how should we think about the cost to you with on that building a smelter.
So.
Let me, let me go back to one step by expanding Grassi.
We could downsize the greenfield smelter that.
P D F I would build.
And the $3 billion number would be adjusted.
To be offset with the additional cost of the expansion so.
At this point, it's I think it's fair to still consider which we may have ways of reducing the capital and we're working towards those but to think about both of those projects together.
And the precious metal facilities, all being a $3 billion project from ETF.
Now this new alternative.
Would result in not having to build.
The Greenfield smelter.
Another party would come in and do that arrange it and finance it.
So the debt would not be incurred by P. P F.
Okay, we're still in the process.
Negotiating T C R C.
Rates for that there will be some need for financial support because of the market.
There's an opportunity for us to end up in a much more favorable situation for P. T F.
If we're successful in these negotiations and the government considers it positive because it would be a step in there.
One.
Government initiatives to develop industry in Indonesia.
This would tie into some nickel operations and potentially some downstream.
Battery operations and the like for Indonesia, So strategically the government of Indonesia sees its.
Positive it could be positive for P. T F on.
And so that's the basis for our deal and now we're in the process of negotiating the terms of that deal.
Thank you Kathleen we're where we're really running their processes in parallel and so that we can compare.
Economics of each.
We were attracted to that third party model because you know that was a model that was successful for us in the past when we've L. P original smelter.
And so we'll be evaluating the economics of of that that option alongside of the.
On the original option as well so well you know really what we're seeking to do is to do this and that and the best economic fashion as we can and the benefit of having a third party doing it as it allows <unk> to to really focus on mine development in upstream, which is like you know if P T.
<unk> is really strong net so we're.
Still on the early stages of evaluating the two alternatives and progressing both of them in parallel to determine which as you know the best four.
For a free from a P T F I and its shareholders.
Thank you Francis Crick curious I want to close with one thing One reminder, I say this every time, but I just want to close with it if we do go forward with our original commitment build a smelter.
Just remember that the negative economics of that smelter.
Our born more than 70% by the government of Indonesia.
Because of taxes royalties, there are 51% equity ownership in P. T F on.
And so and.
In essence less than 30% of the negative economics of the smelter.
Come back to two to two F CX through its 49% shareholding in P. Tsi.
Many people are seem to be.
Assigning more negative value for FCA extra this smelter then the economics.
Really.
Justify.
Right.
Okay. Thanks.
And that's why we're so and that's why on where we are aligned with the government and trying to make this as economic as possible.
Your next question comes from the line of Alex hacking with Citi.
Hey, good morning, Richard and Kathleen and congrats on all the achievements last year.
Thanks, Alex.
So my question is around Capex.
If we look back to the beginning of last year.
You were going to spend $2 8 billion last year and $2 4 billion this year.
Ended up spending 2 billion and $2 three so secondly, a $1 billion has been cut out of capex over that two year period or no.
Roughly 20% no one in the financial markets are complaining about that but.
I guess could you help us understand where that money is gone.
Is it deferred in a sense or is that money that.
It's effectively not going to be spent or does it reflect FX and other.
If I could.
Changes to the price and cost of thing if that question makes sense. Thanks.
Yeah.
Part of the.
Part of.
The capital that we deferred in in 'twenty 'twenty was related to the smelter and so that's that's something we've been talking about on this call are still still uncertain, but there was significant capital that we did cut in in 2020 and we.
You know the fact, we cut mining rates, we deferred some some projects and we're still operating.
Under under those conditions, we did bring forward.
It is as it is.
Mentioned, we brought back in $100 million of of.
Line equipment, and really allowing us to do some rebuilds them more quickly than what was in the April plan.
And those would have been in the original plan. So so some of it is timing related and some of it really is just trying to be as efficient as possible.
With our equipment fleets.
You know and that's one of the benefits that we have high operating on all these mines.
Is is planning the equipment fleets, where they bring the highest value moving we can move equipment from from different sites to.
The benefit from from from from just.
Being able to operate them together.
And we also we also just really trying to work the assets you know use this technology.
On that we have and the organizational improvement initiatives.
To go to work the assets harder and you know we started that program, what we called America concentrated but it is in a price not just a milling operations, but mining operations and really looking to improve.
Improve the lives of our equipment.
You know on first higher lives all those things you know really add up and so yeah.
Yes, there's always there's always tension and pressure.
And people wanting to to to sustain that smaller and on.
Your line equipment and I'm on any business, but we're really taking on a very disciplined approach in and using the learnings that we debt. We gained in 2020 and even prior to that to them to try to drive better capital efficiency on the business.
Great. Thanks Kathleen.
Your next question comes from the line of Timna Tanners with Bank of America.
Hey, good morning, I, just wanted to ask about two things.
One is on the cost side, you know it crept up a little bit and some people are asking about that so I just wanted to understand it seems like you made it clear that that was energy and currency maybe some other issues, but does that also incorporate some of that cost containment measures that you had you know is that fixed or could it change as the year progresses with currency and other efficiencies.
That's one question on any other question is just to ask about Richard Sands, because I know Richard you told me you were going to pursue another term like president Trump and Youre going to watch on the Indonesia progress and so those are behind US now and you took on another time with IC on them. So just wondering if you could give us up your updated thoughts there as well.
Well on the <unk>.
First question on Cotton will you on a go first Fisher.
No I was just going on and I'm going to I'll, let you give the details but timna.
No.
You look back over time, some of our costs are correlated to the copper price.
Oh, we have profit sharing for our workforce in Peru, So the more money, we make there the more our labor cost goes there you know we've seen an uptick in energy cost recently from where they were earlier. So just inevitably there's a copper prices rise we have some increases in unit.
Cost and we are able to offset.
Those but not completely eliminate them through our cost efficiency.
With Kathleen and are you you go ahead and they're on.
Or maybe you want to answer the second question to Kathleen.
[laughter].
But no I think you captured it Richard.
You know we updated our model for all of the like the current rates in terms of energy we've seen some some energy some oil price increase.
You know, although the price of oil relative to copper is still.
Very low we have we have seen some increases in oil prices, which are.
Sex of solar energy costs, we've had some increase in electricity costs and Richard mentioned profit sharing.
But you know we updated our our budgets to reflect all of that.
The input costs and bad debt that theory, but.
Bottom line standpoint, we are continuing to drive the benefits that we got in 2020 through these revised plans and really working to.
Two to hold on to these cost savings we learned a lot you know and we always say that necessitates a mother of invention and we learned a lot during 2020 and and so were you know a basic cost structure, where we're working to to preserve but we do have.
Some some variability with them with with input cost, but but it's something that we're just you know we're just continuing to focus on.
Is it is it is the main driver is cost and capital efficiency in the business.
It's really important in the Americas, and because you know that we have such leverage to to the copper price and we really want to maintain as low cost as possible on its got programs in place that are ever.
And then on working on that every day.
Yeah.
So timna you know since I made that comment about Trump.
At your conference we now have an older President Trump so maybe maybe that extends my timeframe on.
You know personally.
We've been through such a.
Our situation at Freeport.
Really over my 30 years being here, but particularly over the last 10 years and now that we are.
Where we're seeing the positive results of all of this work and.
Particularly the recovery, we made from five years ago I'm.
Healthy.
It won't be part of it.
I really enjoy and love the people I work with and we just have this incredible good spirit among our team.
I do have a concern and that's why I made some comments on the last slide you know some people look at me and say Freeport's, an old company, maybe but we really if you look throughout our organization we have.
A lot of.
Of young experienced managers with our.
With our longer tenured people you have great depth, we're showing we can sustain positions.
When I do when I do leave.
We're going to have a sustainable company going forward, we're going to have a sustainable board, we're working on that now but.
So anyway I'm.
Then a crazy year.
For someone who's traveled all the time to be working like like I've worked like our other people work but.
Having this success with a company, which is not just a peak thing or an unusual thing but this is you know you look at the markets inventories are low.
As elements of copper demand that are new that are growing supplies.
Supplies.
All of this is coming in place and I don't think it's going to be it was a great year for Freeport I mean.
Yeah.
We went from below $5 a share to be in the eighth best performing stock in the S&P 500.
How can you envision that I mean, that's a head spinner, but.
I think I think there's great things to come and I won't be here from the part of it because we work.
So hard to get there I should mention in that you know Jim Bob died recently.
<unk>.
He and I have met in my first year out of college as he was starting off.
Mcmoran and we are we were two different people, but we established a very good partnership.
We brought different skills to bear in building Freeport and and you know in his later years, Jim Bob was focused on is oil and gas concepts.
And but he was always there we did have a major disagreement I mean, there's no way to hide it over the oil and gas deal in 2011. He thought it was a really good deal for the company I did not the board decided to do it and it causes significant problems when commodity prices fell.
Uh huh.
He was very sick for a while but I'm happy to say that in recent years CNI established in recent times.
He announced reestablished a really good personal relationship and it was a sad day for all of us when when he lost his life to Covid.
Thank you for on it.
Yeah.
Your next question will come from the line of Chris Terry with Deutsche Bank.
Hi, Richard and Kathleen and hope, you're both well I just wanted to dig into that I spoke a little bit further given it's a pivotal just talk about the December 4th quarter development rights and then how you exited the year and then as you've put in your 2021 guidance in place.
Whether you see those estimates potentially still conservative versus how how will you you went on the development rights in 2020.
Well, Mark sphere, and Marc I'll say, a couple of things and maybe you can chime in.
No.
We have four four mines for underground mines there. The two major ones are the Grasberg block cave and the deep M. L Z and each of those have separate heading so this is not like a single mine or even.
Two major mines, but a collection of minds with a common infrastructure and as we've developed the access to the ore bodies and expanded those that gives us a lot.
Flexibility to deal with operating issues that may come up with particular.
Sections of the mine, where we're mining in there.
Every things like that on the that'll come up wet book and so forth, we haven't had much of that yet.
But here's where we are we mentioned just how well Grasberg block cave is going and we're ahead of schedule on that.
Grasberg the deep <unk> mine has had the challenges overtime was having the seismicity events, you know that our mining related not natural and.
We've implemented a program of using.
Fracking technology.
Recondition the ore bodies, so that we could leave the pressures that caused these we still face some from time to time, but we've got great great procedure procedures for dealing with it.
They're different ore bodies different settings.
Yeah.
The Grasberg block Cave is ahead of the P. M on Z as maybe a month or two behind but.
Talk a little bit about your perceptions on how we are how we're doing with a deep MLC.
Yeah, Chris Deep M. L Z as Richard mentioned in the fourth quarter. We were ahead on all the development aspects the well we were on target on draw billing undercutting.
And where are we.
<unk> had some challenges with certain.
And just the material flow and what I mean from there is taking the material from the extraction level getting it through the rock breaker or getting it to the Grizzlies.
Through the internal ore passes the 60 meter long ore passes.
And getting them into the trucks to take it to the crusher.
The problems that we had there was we deal from everything from very very course.
Blocky material to find sticky material and we're coming up with methods that I am confident we'll address that.
That allow us to to take both the big stuff in the fine stuff and run them through these ore passes it's something that we saw at the initial stages of D O Z.
And we're working our way through that.
On the.
On the G. P C. The Grasberg block cave, we had a very good year, we were on draw Belling Undercutting. We're ahead on our tonnage rates for the fourth quarter.
Marginally ahead and we're in a good position there we rebuild our second will complete the second crusher GBC in April of this year, which will be a major milestone.
We continue to develop the rail haulage and there's a major.
A milestone that will achieve in the second quarter to let these trains running a loop rather than out and back and that's going to increase our production from from our overall mine system. So so both mines are tracking well on as Richard mentioned, we do have DOZ, it's it's a mature mine.
But it hit targets Big Gossan, our stope mine was.
We had very good results this last year.
Last quarter in particular, so it's a we've had some pluses and minuses, but overall we were in a very good position entering this year.
And in <unk>.
Particularly in the GBC, we've hit our peak in our draw billing in 2020.
Just associated with the mine plan and consistent with our long range plans that starts to tail off.
You don't need as many draw bells to to continue to sustain the ramp up in production.
<unk>, we pretty much stays steady for the next three years on draw building and undercutting.
So the next two years is really just doing more of the same.
Growing these mines Theres no real rate increase in the amount of development in fact, it's flatter or dropping off.
And it's just a matter of.
Continue to be very consistent in how we've.
Going forward as to what we've been able to demonstrate over the last couple of years and particularly in 2020.
And our volumes will be increasing I mean.
Were you know 75 to 80 per cent, there now, but that will increase and that will be long term and and and and and what we tried to do with our publicly disclosed guidance just to be realistic. We we don't try to.
Do anything other than that and give you our our current plans on what they are and will do better than that sometimes and sometimes we may not we also have an undeveloped ore body that we've been doing some work on debt.
Could add value for the future and that's an ore body called the Cuccinelli air it's a ore body with.
High grade material had some pyrite in it.
Mark and his team has come up with a revised plan to deal with that it's about a $5 billion projects spread over many years a number of years in the future, but that's that's that's not near term, but it's something debt within the time frame of our current.
Current value PK will be something that will.
Sustain add value for BDSI.
Thanks, Thanks, Richard I appreciate the color just one other follow up on on the smelter in terms of the aggressive ownership thing, 25% free board and 75% Mitsubishi and Midland.
Just in terms of the expansion that could take place and I just wanted to be clear. The JV partners that you have the the theyre comfortable doing the expansion on that asset right.
The.
We've been working with a majority partner there in and they would lead the they would lead the development of the project.
And we will work out you know the ownership as we go forward, but the structure that we're talking about is that is that P. T. F. I would would advance the funds to to the smelter company.
As alone and potentially convert that into equity after the after the smelter is completed but net net that she materials would with me the project to.
To develop the expansion they've done multiple expansions there since at the smelter was constructed in the mid Ninety's there excellent excellent operators and very efficient and cash capital management, So where we're on we're working with them to to lead the expansion.
And I'll just echo I was involved with the.
With the structure for the original smelter development, the nineties and Mitsubishi should have been an excellent partner they couldn't have been better they operate that smelter and a first class way you know.
On the World of Smelters has changed so much in those days.
At Grasberg, we Couldnt find places to place our concentrate so we had to we bought a smelter in Spain, we worked to build a smelter in Indonesia.
World has changed or such a global.
Excess capacity of smelters, but Mitsubishi has been there through thick and thin and it's just on a market with good job.
Thanks, Richard and Kathleen on all the best.
It's Chris.
Your next question comes from the line of Al <unk> with Scotia Bank.
Hi, Good morning, just following up on the Indonesian.
Smelter alternatives do you anticipate that.
The ultimate plan is going to be resolved.
Call. It on the next six to 12 months and then along that you anticipate that's actually great.
I'm sorry go ahead, Virginia, the answer to that is yes.
So it's fairly closer.
Well it needs to be I mean, we we got this deadline you know that we've.
We're working with the government to extend a year, but we have to get on with this.
The aggressive area smelter or go forward with this other thing the government incentive so it's if it's going to be resolved in it.
And.
Clearly within that time frame.
Okay.
Do you anticipate under any of these alternatives actually spending capital this year or is it more likely going to start call. It.
2022.
We don't have will have some capital for the for the from the PT smelting and expansion it'll be advanced as alone.
And they're doing the engineering now we don't have definitive agreements with them, but we're very close to that and again you know any of the funding.
Funding, where we're planning to to them.
<unk> financing debt financing, we've got discussions with banks about debt financing for that.
And then on the on the largest smelter.
We will just depend on which alternative.
Hum.
One would be on you know one on would be the third party doing it and we potentially could be in a minority equity on our like we were on the P. T smelting project.
Or the or the the Greenfield would involve some some spending in 2021, but not not significant.
But as Richard said, we just need to get the clarity over the next year over the next several months to them to make a decision on which path to.
Okay.
Wonderful again again to be clear when Kathleen he says we.
In that context is P T F on.
Right Okay.
And then just as a follow up is it fair to say that you like three quarters in no rush to begin.
Destructing kind of new copper capacity on a greenfield level, but we're going to see more discipline.
Just by Freeport from by the industry. This time.
Well, we certainly have no rush I do think it's a great asset of our company but.
You know we are not.
We're going to continue our focus on getting this project in Indonesia completed and that's going to be in running our Americas business sufficiently and an increasing volume.
Volume when we can and in controlling costs and so forth. So there's certainly no rush.
You know in the industry itself there are some projects that were.
We have begun and delayed because of Covid day.
And over time, those are going to be be completed.
You just you don't see any evidence of a big rush to start.
Start investments.
I don't expect that to occur.
Thank you.
Your next question comes from the line of Carlos de Alba with Morgan Stanley.
Thank you very much good morning, everyone. So a couple of questions. If I may the first one is maybe Richard.
Has the management team.
Come on with some potential proposals for the board industrial debt.
Shareholders had program.
Would like to discuss on that hopefully implement any sorry, if you can share some of what you on your team on thinking that would be great.
On the second question was just coming back to the MLP.
The debt.
On the forecast.
Often draw bells.
Blasted.
On our forecast for the end of 'twenty 'twenty, one 'twenty 'twenty two.
Down so maybe for Mike.
Yes.
The impact on the challenges associated with the material flow what explained the reduction in your engine were up and draw bells forecast for four Dcs on next year and also what is behind that.
A small reduction in copper and gold sales from PT Fi in 'twenty 'twenty one thank you.
Mark why don't you answer first and I'll come back to the financial policy.
Yeah, there's not any issue on the draw Bell opening if there was a reduction that is very very minor we've been very consistent.
We ended the fourth quarter with 15 draw bells.
Within the deep MLC blasted and that's gonna be relatively are flat rate.
There might have been some.
Ones or twos that are different but it's not.
Anything that was significant in our forecast as Richard mentioned, it's more about this.
The debt, where we are in the ramping up of the tons and it's it's more in line any changes in the tonnage is more a reflection.
Of this material flow challenge that we're undertaking but it's just marginally behind and at the same time. The GBC is marginally ahead.
And so the day ramp up rates are very consistent from one forecast or the other.
Some slight changes in grades that are nothing significant its not drilling results. It's.
It's not any changes in reserves.
<unk>, where we're actually drawing theres some at the end of every quarter, we reflect what we've done and then we build that into what we're doing forward. So theres really no significant change.
Our underground plans, both the deep MLG in G. D C. The other two mines deals even big Gossan are both very consistent in fact in big Gossan, we've changed our stope sequencing a bit that's going to add some metal.
So we'll continue to look for opportunities and to reflect our actual.
Our actual production and operation over the over the previous quarters.
Yeah I know.
Just a side comment you know that the these are these other two mines that we have.
The little tiny compared with.
Grasberg block cave and the.
Deep <unk> Z, but when you look at underground mines in the industry those are substantial mines in and of themselves.
You know this copper differences just a rounding I mean, it's less than a per cent I mean, so we're right on plan for copper and the gold things remember, we had higher growth now and we got we upgraded our goal for 2022. So every year, there's going to be.
Those kinds of adjustments, we're going to try to.
Try to produce more go which we were able to do in 2020.
And then we adjust our plans for that so were theres nothing here other than we're right on right on our targets and everything is going as planned.
The financial policy.
I'll go back and say, what I've said before.
We have ongoing informal discussions with board members, we have formal board members coming up my anticipation is that there will be a restoration of our dividend and then a financial policy that will give guidance to the market of how we will be dividing cash.
Cash flows in the future.
No.
For further debt reduction, although quite frankly were.
Yeah.
If if if you look at our cash flows that we just talked to you about today.
And at $3 50, copper price, we get down to about $3 million from net debt at the end of 2022. So.
You know, we we certainly can support higher levels of debt to net and that means there's plenty of cash to two two.
Enhanced cash returns to shareholders and then have availability of on.
Funds.
Spending on how we structure it for future organic growth projects when when when when we decide to initiate those so.
Restoration of dividend.
Financial policy that will provide for increasing cash returns to shareholders over a long term.
With funds available for for organic growth investments.
Alright, Thanks, and good luck this year. Thank you.
Thanks for your question and I appreciate your comment.
Your next question comes from the line of Matthew Murphy with Barclays.
Hi, there.
Question on some of your innovation initiatives I guess this time last year you were talking about some specific programs with data science machine learning.
On that you were going to roll out for something like $150 million to $200 million box.
Should we consider that embedded in this guidance or is that a program that still on pause that might be re initiated at some point, we are and Josh on stairs on he can he can talk more about about it but we are.
Continuing those projects we've brought a number of things in house and we were doing a lot of work externally as well, but we bought a number of those initiatives in house.
We're still progressing with some of the.
On the automated models that help predict.
Debt or mill throughput rates and help them develop the right recipe to maximize throughput through the mill and we were adopting a lot of the data analytics.
In other areas as well you know we're working on them adopting in data analytics and process in our leach operations as well.
So we're we're continuing and the team is very actively involved in using technology and.
Nation to enhance performance.
We're not you know what are the Cerro Verde.
Increase you know, we're not doing that now because of that.
The COVID-19 restrictions and expect to continue to look at driving now rates higher there beginning next year.
But oh gosh, why don't you just talk a little bit about it because it's really it's really a inc.
Exciting area that the cash.
Cash and his team are working on actively every day and it may not look exactly the same as what we were talking about them at the beginning of last year, because we've learned a lot and where.
We're improving from there but.
Yeah.
The bottom line. The answering your question is yes, we have built in a lot of it into these plans, but there's there's there's upside from there Josh you want to add anything to that.
Kathleen let me introduce Josh to the group, Okay just briefly.
Beginning September 1st Josh became our senior operating manager for the Americas as senior Vice President He's he's been with the company 28 years.
And he's only 50 years old or so but he is progressively risen and the organization has senior leadership roles at several of our operating sites in the U S and South America.
And over the past four years. He his leadership role has grown as he worked with Red Conger, who retired and he's just been doing a great job these broader and energy to this he's very teamwork focused or are other operating managers are coalescing around and it works very well with our.
With with our technical group and with our financial administrative groups. So Josh Homestead why don't you follow up Kathleen comments.
Thanks, Richard I appreciate the Matthew you know just as Kathleen indicated.
If we look at on a year ago. When we were talking about America concentrated on about 150, 150 to 200 million on investment compared to where we sit today one of the I'm on a call. It a benefits from one of the things that we took advantage of during 2020 was how do we internalize a lot of that stuff on at an additive Kathleen alluded to we took a lot of those learner.
And really embedded in the operations and that's what allowed us to be as successful as we were in 2020 and as we look at 2021 and beyond we continue to leverage whether that be data analytics.
On the AI and how that applies the tools that are out there and we look for opportunities.
Those things are embedded in the plan today, but I think it's also going to drive additional things as we go forward debt won't require the investment or the dollar.
That we have thought about previously just from the fact that we've got an internalized and we're leveraging a lot of the energy passion and excitement of our workforce and tapping into ideas that are allowing us to add incremental.
Benefits across the organization from an efficiency perspective, as well as from a cost perspective, and so it's really exciting to see.
The folks at all levels of the organization to have the opportunity and take the opportunity to provide ideas that then turn into significant value for us as an organization and so I you know I just continue to be encouraged with our ability to execute on those things and identify opportunities going forward to leverage data leverage analytics.
And on it and put the right information that they are in the right People's hands at the right time to make good decisions.
And that to the point about Freeport operating all the assets, we benefit from all being on the same system.
And so this data analytics work that we're doing really can be.
Compared and shared across the company and collaborate in and really take the best of each of the operations and apply that to two to the portfolio and we're starting to do some work with Marc and his team on on different things as well so.
Cash was saying, it's really there's really some some synergies here and the work that we did in 2020 Atlantis.
Just to kind of take some of the so first on our own and and drive it so I'm.
More to come on that.
That's interesting thanks.
Your next question comes from the line of Lucas pipes with B Riley Securities.
Hey, good morning, Richard and Kathleen.
Okay.
I want to pick up on one of your comments from the prepared remarks regarding.
How this period as the mine in early 2000, and I think he even mentioned a super cycle.
What is your confidence level today that we're on the path or maybe already entered the period like this and then.
There were a few questions on M&A.
Organic growth and obviously on your conclusion on where we are on the cycle.
This super cycle. This is of course really really important for how you think about these things so.
Got.
Maybe incorporate all these thoughts.
Really appreciate it.
There are no comments on.
Thank you.
So we're working remotely Lucas if we were sitting as we normally do around our conference desk in Phoenix, Kathleen would be kicking me out on the table.
Because.
That question is just like given a monkey on machine good.
Uh huh.
2003.
We had gone through.
A real tough time in copper with the economic issues of the late 19 nineties, the global recession, the global slowdown copper prices had dropped.
One point, you know to below 70 cents.
I recall and it was at.
Timna in America Merrill Lynch Conference in.
And.
In Ireland that was my first conference as CEO I was right before him ACO and the price of covered just dipped over 70 since nobody in the industry thought it could go.
On a dollar within the foreseeable future and everybody was running the business so what happened.
China emerged in a way nobody expected.
Create a whole new element demand historically whenever copper prices jumped up the industry had.
<unk> had projects primarily in Latin America to invest in.
And the industry was.
Widely dive.
Divided.
And there'll be new investment.
Supplies would come on in the business cycle would turn down.
In copper prices would drop.
Time, China added.
And in 2003, a permanent element of new demand that was beyond the traditional demand from copper that was tied into global industrial production.
And there was widespread expectation that the industry would invest.
And.
And add new supplies I remember them.
On my partner Chip good year got up at that conference and said.
And price covers that he hoped that the price wouldn't rise too much because it would create uneconomic investment.
What happened was the industry start looking for new projects, then and geologically they werent there and there were all these other barriers to investment so we had higher prices.
Without a supply response.
That led us to do stuffs Dodge deals in 2007.
Our market cap in 2003 was 6 billion. It was 12 billion itself Dodge deal. We we did a $38 billion business combination of the biggest in the industry lift.
We lived through the financial crisis and then.
Emerged in 2011, as a company with a $60 billion market cap and no debt.
What are we like here the reason that I feel this is an echo is that we still have a world that's being.
Burdened by the economic slowdown with Covid.
While there has been recoveries in pockets of the economy, there's been stimulus by governments in China has recovered much faster than we heard and we heard about earlier think about a world where we had a slowdown to the extent we did in 2020 and copper inventories are at levels that we hadn't seen since.
The mid two thousands.
And so here we are and.
And we just talked about how there's not a huge rush.
To invest in new projects all of the major companies want to grow copper as part of their portfolios. That's been the case since the mid two thousands.
They've been challenged in doing that.
Projects today.
The world.
<unk> are more difficult less quality than they were underground lower grades you know you look at it at Cerro Verde Cobra, Panama. These are big low grade projects that require huge investments in infrastructure and.
Equipment and mill processing.
And then you know you have these barriers to production debt Keith.
Tractive projects in and around the world from.
Going forward.
Political issues in countries that are you.
You know in Africa challenged you know Latin America is having political issues, Indonesia has been what it's been so.
I do feel there.
Net is the world's global economy.
Recovers in a reasonable way not an extremely.
And we have this big move towards looking at all the stats that are coming about for electric vehicles in the United States.
And think about what general Motors is doing and what China is doing.
You think about the.
The change in the global perception about climate change in the United States Forest fires Hurricanes I mean.
This is this is something that's gonna have to be addressed.
And when it is addressed its going to require tremendous amounts of infrastructure spending extraordinary mouse and in all of those elements are spinning there's an element of copper of significance into it. So that's why I feel like we are you know echoing 2003 today.
Richard I really appreciate your expenses.
Best of luck and thanks again.
I think we have time from one more question operator and for those of you who didnt get questions and we'll we'll follow up with you.
Our final question will come from the line of Curt Woodworth with credit Suisse.
Hey, Kurt.
Hey, Richard how are you.
Thanks for fitting me in.
Okay.
Yeah.
In terms of the super cycle or things like that in the past they have been also opportunities for monetization or.
Potentially useful in terms of bringing in JV partners at very accretive terms potentially develop assets. So you know.
To your point, Richard on Grasberg being de risked having little net debt by the end of 'twenty two you'd be.
You know you'd have to do.
Wherewithal to develop you know maybe multiple projects I'm, just curious kind of how you think about it.
Potentially growing the business from a capital efficient basis going forward because obviously.
You know in the past when you do get into the Super cycles, I think one of the issues mining industry has been lack of seeing that cash come back to shareholders. So I'm, just curious kind of how you balance that.
Going forward. Thank you one point on discount there before Richard comments that we already have growth I mean, if you look at our our outlook.
Cash on this before you know not only do we have growth in 'twenty and 'twenty, one but also on 'twenty 'twenty. Two so we've got that and we've got to execute on that plan and that's going to give us a lot of cash flow to be in a position to give to you know.
Get some returns back to shareholders. After this big investment program.
So.
Yeah, I look over the shoulder you know if you look back at Freeport.
When when copper prices begin rising from 2003 2004, we returned tremendous amounts of cash to investors out of out of Grasberg. We were like a royalty trust or an MLP or something then after Phelps Dodge we de Levered very quickly and we start returning to paying dividends again and we will.
Position in 2011 to continue do that the board decided to invest in oil and gas and took it away. So here we are coming back from.
The situation that we are now we don't need a commodities boom to generate lots of cash returned to shareholders.
At $3 50, copper you see what the numbers are I think copper could go much higher than street 50, I can't guarantee it but that's my gut.
And Timna, that's one of the reasons I'm going to keep working.
No I think it's going to be really a special time and when that happens we will be able to really return cash to shareholders in a substantial way.
This question of <unk>.
Investing.
Right now.
Money is so cheap you wouldn't want to bring in a joint venture partner that may not stay that way forever, but financing is incredibly cheap and available.
You know I wish Phelps Dodge hadn't given up the interest from Marine C or the interest in Cerro Verde. So if we got good projects.
We'll look at the most efficient way way to finance it.
That could well be could be partners because lots of people want to be our partners and then others may have projects that we are we have the opportunity to join in on.
There could be.
Opportunities in M&A market, but all of that is as part of this really bright future that I see from Freeport. The vision right now is focused on getting 'twenty 'twenty one.
To be a successful as 2020 was.
And when that happens when that happens and we got long term run rates at Grasberg, Josh and his team has fine tuned our business in the Americas.
Got this lone Star project.
Don't overlook that that could be a new marine see down the road.
This is just a company that's really well situated to generate cash and not have to do anything to have a sustainable future, but having the world open to us to do lots of different things, it's really really exciting.
Thank you very much best of luck.
Alright. Thank you all for participating we look forward to reporting our progress in 2021.
Take care take care of yourselves your families with people around you.
We're not over the hump yet on Covid.
But.
Just just hang in there this life's going to get better.
Thanks for participating.
Ladies and gentlemen that concludes our call for today. Thank you for your participation you may now disconnect.
Yeah.
Yeah.
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