Q1 2021 Freeport-McMoRan Inc Earnings Call

Yeah.

Yes.

Ladies and gentlemen, thank you for standing by welcome to the Freeport Mcmoran first quarter conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you wish to ask a question during the Q&A session Press Star one on your Touchtone phone if you require assistance during the conference.

Please press the Star Zero I would now like to turn the conference over to MS. Kathleen Quirk, President and Chief Financial Officer. Please go ahead ma'am.

Thank you and good morning, everyone and welcome to the Freeport Mcmoran Conference call. We released our results. This morning of an a.

Copy of the of today's press release and 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 of certain of our comments on the call include forward looking statements and actual results may differ materially.

Like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our annual report on form 10-K.

On the call with me today are Richard Akerson, our chairman and CEO, We've got Mark Johnson, who leads our Indonesian operations, Josh all of them said, who leads our Americas operations of.

Mike Kendrick, who leads our molybdenum business, Steve Higgins, who leads our commercial activities and as our chief administrative officer, as well and Rick Coleman, who leads our project development activities and I'd I just start with briefly summarizing our financial results.

We will walk through our slides I'm in some prepared remarks, and then we'll take your questions.

Today, we reported first quarter 2021, net income attributable to common stock of $718 million that was 48 cents per share.

And adjusted net income of 756 million of 51 cents per share after adjusting for net charges totaling 38 million or three cents per share in the detail of those net nonrecurring charges are.

In the press release on the Roman numeral six.

We reported adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA during the quarter of 2.04 billion and we've got a reconciliation of our EBITDA calculations on page 36 of our slide deck.

In the first quarter of 2021.

We had copper sales of 825 million pounds.

Which approximated of our estimate our gold production in the first quarter of 2021 was in line with our our estimate in January However, we had a deferral of certain shipments in Indonesia to the second quarter and that resulted in a timing variance for our gold sales.

In the first quarter, we benefited from improved pricing in our first quarter average realized copper price was $3 of 94 cents per pound substantially above the year ago quarter.

And our gold price of 17 13 per ounce was also above the year ago realized price. We continue to focus on on maintaining our low cost position. Our consolidated average unit net costs are for our copper mines averaged 139.

From a pound of copper in the first quarter.

We generated strong operating cash flows totaling $1 1 billion and that was net of a 300 million of working capital uses.

And the cash flow has exceeded capital spending which totaled $370 million during the quarter.

As you've seen our board in February adopted the financing of new financial policy, along with our strategic objectives of maintaining the strong balance sheet, increasing cash returns of shareholders and advancing the opportunities for future growth. We ended the quarter in a strong financial position with four.

The $6 billion of of consolidated cash of $9.8 billion of of debt and our net debt our debt net of cash was $5 2 billion at the end of the end of March.

Richard of I'd like to turn the call over to you and we will start reviewing the slide materials that are on our website.

Thanks, Kathleen I couldn't be more pleased to be able to review a few of our first quarter performance.

And particularly exciting progress we've achieved over the past year of who we all face such uncertainties interest.

Special active invigorating time here at Freeport.

Our teams are working safely.

Safely remain weak.

With Covid.

We have successfully executed our operations plan and we're now working on projects for future growth.

Our of Grasberg underground ramp up is proceeding on schedule. That's the key for our strategy production in the United States is increasing with our newly commissioned Lone Star mine.

The first quarter start restart of Marciano mining.

The co.

[laughter].

From increased mining rates.

Where are we at Marin to your flagship mine in the U S. The largest of North America, where we could curtail production a year ago.

Of course.

Conserved cash.

In South America, we're working to restore production levels of pre pandemic levels.

We will achieve that over the next 12 months the.

The Cerro Verde team in Peru, and area of opportunity material Youre doing outstanding work.

Forget any of these issues were.

We're focusing on the sustainability initiatives as all businesses are this has always been key to Freeport and managing our operations. We are moving to certify the each of our operations with the new copper Mark.

Copper Mark is a industry framework.

That was recently developed by the International Copper Association.

To ensure responsible production consistent with you in the sustainable development goals today, we lead the industry with six of our operations now certified and we're working to get all of all certified.

Going to the slides I haven't used the fuselage to review with you on slide three our annual sustainability report has been published and is now available on our website.

This is the 20th year, we've reported on the sustainability, we're working to make it better.

I encourage all of you each of you to read it.

We're proud of our good work on sustainability and remain committed to continuous improvement.

Last year's we released this report with our annual shareholders.

At our annual shareholders meeting, we moved it up we've added new resources to our Freeport team working on sustainability issues.

I congratulate this team for their efforts to make this report available now earlier, so that we can facilitate our expanding engagements with the broad set of constituencies that are now focused on our sustainability performance and initiatives.

Last year, we published our initial report on climate of.

2021 report is forthcoming.

We recently published our annual board shareholders with one of I think the great thing charging ahead responsibly reliably and relentlessly. The this theme portrays where we're currently positioned at Freeport as of <unk>.

Leading and growing global copper producer.

We are determined to succeed in the operating responsibly in the.

Freeport tradition will be relentless execution of our strategy.

Slide four the first quarter production was in line with our targets, we increased our 2021 sales guidance to $3.

<unk> 5 billion pounds of copper.

In our 2022 volumes to four 4 billion pounds.

The grasberg ramp up that I referenced earlier continues to progress.

The simply outstanding fashion.

We've now achieved 75% of our annualized targeted long run metal production run rate, we are on track to be at 90% by the third quarter and full rates by year end.

After all these years of hard work reporting this progress is simply the highlight of my career the credit goes to our team on the ground in Indonesia supported by our global team of technical experts.

Is that of historical major accomplishment as we've converted.

We are finalizing the conversion of the Grasberg open pit.

To this massive underground operations.

Our Americas businesses businesses are going well, we are achieving production and cost targets and now we're at cause really focusing and working on future growth opportunities.

Generating strong cash flows improving our balance sheet.

Over the past 12 months net debt was reduced by over $3 billion to $5 $2 billion by the end of this first quarter.

But during this period copper price averaged $3.13.

It's now over $4.25 many of predicting.

Prices near term.

Our near term outlook of copper and gold sales volumes of substantially higher a recent.

Performance of this large reduction in debt.

With lower commodity prices more production volumes day.

<unk> the current strength of our company of generating cash flows.

Our strong performance and the positive outlook for our business and the commodities has enabled our board to adopt the new financial policy.

Which will provide increasing cash returns to shareholders.

[laughter], while providing flexibility for growth.

And building a very strong balance sheet.

We've also added two new directors, David Abney, the retired chairman and CEO of UBS.

With this massive global supply chain operations.

Bob Dudley the retired CEO of BT of longtime leader in the global Extractive industry have joined our board.

Each of these men have strong knowledge and experience in global markets and with the issues, we face in managing our business.

Bob and David had.

Many opportunities to join other boards their decisions join our board of just personally gratifying and appreciate it.

We're really enthusiastic about working with their fellow directors at Freeport, and our management team in creating value responsibly for all stakeholders.

Moving to slide five countries around the world of responding to Covid.

With aggressive.

Fiscal and monetary policies.

This is an important element of near term demand for copper the extending beyond China.

John has been the driver of copper demand growth over the past two decades.

Now the source of new demand is expanding.

In addition to continuing strong copper consumption in China.

Higher copper consumption in developed countries with Covid recovery initiatives.

And the increasingly important demand in emerging markets.

Driven by global growth.

Copper now has major new sources of demand.

From global investments from carbon reduction infrastructure and expanded technology of <unk> artificial intelligence and data analytics broadly all require more copper.

Importantly, copper is essential to the transition to a global cleaner energy future roughly.

Roughly 70, 570% of copper as you used to delivery of electricity.

As clean energy initiatives are implemented.

Or intensity in the economy expands and the major way.

The comparable of the outlook for copper has never been better.

Slide six.

The significant demand growth is inevitable.

Supply to meet this growth is severely challenged.

It's going to require meaningfully higher prices to support mining investment.

The combination of rising demand scarcity of new supplies point too large of impending structural deficits supporting much higher copper prices than previously anticipated.

I'm sure you've noted this in recent forecast by widening group of industry analyst.

Freeport is notably well positioned to benefit from these fundamentals.

A leading responsible large scale producer of copper with near term and longer term growth embedded in our portfolio.

The scarcity value of a portfolio like ours is unique.

It's extremely valuable now.

We're going to be even more valuable as large market deficits emerge.

Slide seven highlights our near term growth.

For 2021 copper volumes are anticipated to be 20% higher and go volume, 50% higher than in 2020, 55% higher than in 2020.

Volumes are expected to grow further in 2020, and the 15 to 20 per site.

The 20% range from both copper and gold.

The capital to achieve these near term higher volumes.

And the execution risk are largely behind us.

Higher volumes with low incremental cost will you don't expanded margins.

Prices ranging from $45 per copper, we would generate annual EBITDA for 2022 and 2023.

Of over $12 billion to the range of $17 billion per annum.

That's as big numbers.

Page eight describes this new financial policy adopted our board adopted earlier this year.

Design first to support a strong balance sheet.

Increased returns to shareholders.

And provide funds for our investments for the future.

The current market for copper and its favorable outlook are providing substantial cash flows to meet these objectives as I've just outlined our board approved a base dividend of <unk>.

30, <unk> per annum per share of.

First quarterly dividend will be paid in may.

As we resume dividends after reaching a target net debt in the $3 billion to $4 billion range.

Which at today's.

Rice's will do by the end of this year our book.

<unk> policy established uses of performance based pay out framework.

For additional cash returned to shareholders through dividends and potentially stock buybacks.

Returns to shareholders when we do determine allocating available cash flow of up to 50% to shareholder returns and the balance of available for future growth and potentially further debt reduction below our targeted three of 4 billion of.

Board will assess the additional pay out at least annually.

With the current level of copper prices and the outlook for proper and gold prices. The numbers noted above 0.2 of large cash returns to shareholders with substantial.

Resources available for future growth investments.

Slide nine describes some of these growth investments, we have multiple options across our portfolio.

We resumed our work that we suspended a year ago because of COVID-19 to evaluate and the timing.

And the initiation of these opportunities in the U S. We're looking at expansions at Lone Star and book.

From Leach recovery technologies, that's really exciting.

The Lone Star mine is our newest mine, it's adjacent to our existing operations in South East, Arizona, where.

Where the companies operate as operations go back to the 18 hundreds.

There we have strong community support and we have great relationships with the native American groups, we're evaluating expansions of of Lone star's oxides of war, which we're now producing.

And which are <unk>.

All of our growing in terms of the availability of the worst.

Importantly, we're also conducting these longer range planning for the development.

It looks to be a potentially world class sulfide resource.

Right in the midst of this historical mining area.

Hum.

Bad debt and in North West, Arizona, we have an opportunity to construct a new concentrator to double production. We are of very long reserve life there.

Also there we have strong community support I keep emphasizing this because that's the challenge for new supply development around the world. We're focused on technology to reduce capital intensity of these projects.

<unk> technology initiatives provide substantial opportunities in this regard to add value all across the portfolio.

We're continuing to evaluate and attractive potentially significant expansion.

Of our El Abra mine in Chile, where we're partners with codelco.

This project would require a larger investment longer lead times in our U S project <unk>.

Resources attractive and very large signifies that of major future expansion of El Abra is likely.

We're evaluating the development of a new deposit of undeveloped deposit at.

PT Fi and pop when Indonesia, it's called Cuccinelli Air.

The copper gold project involves a large block cave mining using the substantial infrastructure already in place for Grasberg. It would benefit from our expertise and long track record of success in block caving.

We're also and this is a lot of fun and VI weighting of series of interesting investments in.

In projects that support our carbon reduction and others sustainability goals. This involves.

The ideas of the developing.

New energy generation.

It's clean renewable for our operations in nearby communities and we are advancing plans for an exciting projects that Atlanta copied in Spain to recover.

<unk> of amount of metals through recycling of electronic devices, which again is.

Good from a sustainability standpoint.

Now we have these opportunities.

To be disciplined about making new investments by being selective and measured.

And deploying capital focused on value added investments can.

Can do this because we have such long live reserves established license to operate and we're going to work with communities affected by new investments.

Slide 10 points to this reserve position.

The reserve life.

He has over 30 years now that's proved and probable economically recoverable reserves.

In addition, we have identified over 100 billion pounds of copper from mineral resources beyond reserves, all part of our existing operations, we're going to be working to incorporate these into future reserve additions and mine plans.

It is becoming increasingly more challenging and costly for our industry to the supplies to the meet the dramatically increasing demand for copper and our team literally loves where our of Freeport is situated in this environment.

Slide 11, we have strong operating franchises in the U S South America and Indonesia.

And all of these localities we've earned the trust and respect of our partners our customers suppliers and the.

Markets. The most importantly, our workers communities and the countries, where we operate.

We are of significant development and large scale of operating expertise development and large scale operating expertise we have all of the capabilities now to undertake new projects anywhere in the world regardless of the.

Of the or the situation in a responsible and efficient manner.

I don't want to close by recognizing the people of Freeport around the globe.

Our commitment and dedication of remarkable achievements over the past year of Covid is really special.

In the context of all of the challenges our team of space over.

Over the years and we've overcome just immensely proud of the scene.

Building on these accomplishments with an increasingly back future bright future Freeport is charging ahead responsibly reliably and relentlessly.

Kathleen is going to review the financial results with you.

Thank you Richard and I will just make some brief comments on <unk>.

The financial and operating manners matters, and then we can take your questions.

Starting on slide 14 and with the.

Provide some additional details on our operating activities.

You can see in the in the U S alone Star mining is operating well and we see opportunities to continue to increase the stacking rates there and fill up the tank house, which has the capacity and the 285 million pound per annum range with continued success in increasing the mining and stacking.

The rates will have an opportunity for relatively low incremental investments increased production from the loan star oxides, well above the original design.

We started chino in the first quarter at a 50% rate and as we gain the efficiencies where you're targeting their likelihood of opportunities to ramp up further.

And in the landscape, we're increasing mining rates by about 10%.

This was previously planned for 2022, but we are accelerating Nashville she'll give us additional production in 2022 compared with the early of plan and set us up for growing production over time.

And in South America, the team was able to achieve stronger rates compare with that plan.

Because of the operating restrictions in Peru, we felt it was prudent to maintain our plan. This year at of milling rate of 360000 tons per day.

And we expect to ramp that up.

Over the next 12 months of the 400000 tonne per day level as Covid restrictions are lifted.

At elaborate we're making great progress increasing our operating rates.

To provide additional copper in 2022.

As Richard mentioned, the Grasberg, we made excellent progress from the first quarter continuing to execute the ramp up plan to the kit to achieve our targeted that'll run rates by the end of the year.

We ended the first quarter with more inventory than originally expected and the sales will be recorded in the second quarter.

You will note from our detailed schedules in the reference material that we've made some small changes in the last part of block cave in.

And then all of the mine sequencing. The net effect of these were not material to our metal production and the outlook is similar to the prior plans and we're very encouraged with the the scale of the ramp up going on both at the Grasberg block cave and deep and housing will be adding the second crusher at Grasberg block cave. This.

Quarter to set us up to continue to increase rates there.

On the next slide.

We provide an update on our.

Plans to develop new smelter capacity in Indonesia to meet our commitments to the government.

We're proceeding with our Japanese partners at P. T smelting to expand the existing smelter. This can be done on a relatively low cost basis.

The case the required capacity for the new smelter to one 7 million tonnes of concentrate per annum. The.

The cost.

For P. P smelting is roughly $250 million.

N P. T S. I would find these costs the way our bank financing, which is currently in progress.

As you've read we have been engaging in discussions with third party.

For the for the balance of the requirement whereby this party with Dell the new smelter under a structure similar to what we developed for the P.

P T smelting the existing smelter in the 19 nineties and to date. The parties have had extensive extensive negotiations, but we have not yet reached acceptable commercial terms in the interim we're continuing our planning on the Greenfield project in East Java.

As we show on this chart on the right you'll see that the the long term costs. The economics for the financing of the smelter, which we would plan of finance for GAAP would be offset by a phase out.

At the 5% export duty, we're currently paying so the economic impact from P. Tsi is not material.

On slide on the next slide of.

Slide 16, we provide our three year outlook for copper volume skull volumes in molybdenum volumes, we are increasing our copper sales volumes in 2021 to 3.85 billion pounds.

From the prior estimate of just over $3 8 billion pounds.

And with the increase that 'twenty 'twenty two guidance by 100 million pounds to four 4 billion pounds of copper and that's reflective of incremental increases in the U S. The rest of the sales estimates are largely unchanged.

As Richard mentioned, we're continuing to <expletive>ess.

<unk> incremental near term growth opportunities, while we conduct our longer range development planning.

We provided on slide 17.

An overview of our estimated unit net cash cost for the year you will note that we have updated our estimate to average $1 33 per pound of copper in net unit cash costs compared with the prior estimate of $1 25 per pack.

Dan.

A large portion of this increase is <expletive>ociated with higher royalties duties and profit sharing related to the change in price <expletive>umptions from $3.50 per pound of copper the $4 per pound was also increased our cost estimates to reflect higher energy cost.

Principally oil related which I forecast is now higher by about 25 per cent.

Hum came as the continues to do a great job in managing cost efficiently.

We have seen some increases, but but they have not been.

It's not been significant and her team continue to look for creative ways to kind of.

The maintain out of low cost position.

On slide 18, we show the significance of.

Cash flow generation.

And our volume and cost estimates and we've provided sensitivities ranging from $4 $4 per pound copper the $5 and we hold gold flat at $17 50 per ounce and molybdenum and $11 per pound.

The growth in volumes at low incremental costs results in very significant EBITDA generation you can see here.

Ranging from over 12, and a half billion per annum on average for.

2022, and 2023 at $4 copper to 17 billion per annum at $5 copper operating cash flows under these price scenarios.

From nearly $9 billion to $12 billion.

And these cash flows are significantly above our planned capital spending providing substantial free cash flow as we go forward.

On Slide 19, we show our capital project forecast them and we show our projected capital of $2 3 billion in 2021 that it includes potential spending on the Indonesian smelter, which again would be debt finance them, but these.

The 2021 guidance numbers are very similar to what we had in our previous reports.

Our 2022 capital.

Outside of $2.2 billion on a consolidated basis.

It's about 200 million higher than our previous forecast and that incorporates an acceleration of mining investments to bring the volumes forward and provide capacity <expletive>urance for our plants.

We've answered as we are in a strong financial position and if the answer in a period of exceptional free cash flow generation.

Slide 20.

The shows you that.

That that the exceptional cash flow generation that we have in the business.

You can see on the slide where in a six month period of time, how cash balance has increased by over $2 billion.

The long life <expletive>et base of growing production profile strong markets provide the ability to continue to strengthen our balance sheet.

The cash returns of shareholders and build additional values in our <expletive>et base.

The financial policy that Richard talked about earlier is designed to take all of these boxes and we look forward to executing on these plans.

And the quality and I'll, just say backer of what Richard said, it's an exciting time of Freeport, We've got the right <expletive>ets at the right time, and we're staying focused on continuing our momentum and now operator, we'd like to open the call for questions.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question press star one on your Touchtone phone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key if you are using a speakerphone. Please pick up your handset before pressing the numbers. We ask that you limit your questions to one of you have additional questions. Please.

The return to the Q1 moment please for our first question.

Our first question comes from the line of Emily Chang with Goldman Sachs. Please go ahead.

Good morning, Richard and Kathleen Thanks for the update here today, you asked the question around the capital allocation policy and we appreciate that you don't get at this a couple of months, but does that line sounds like does the significant amount of cash returns potential upcoming of Florida can current copper prices.

Maybe on the other side of that could you discuss how you're thinking about when the right time, the sanction growth would be and any color you can provide on sort of one time or sustainable copper prices that coordinate the C. R.

I think the base case in your <expletive>umptions for the <unk>.

Mentioned that being disciplined in the collective but as you look over the next couple of years at what point would you start considering not pulling the trigger on growth.

So Emily we are we have suspended all of our studies on growth projects a year ago.

And now we've resumed those analysis with the purpose of.

Understanding the pros and cons of each of the projects.

And developing an evaluation of them.

That that basic work of evaluation, we expect.

To continue at least through the end of this year.

And by the end of the year, we hope to be able to have a clear path.

A clear path forward.

So it will be some time before there is any commitment to.

To actually initiate significant capital spending.

And then in the meantime, we pointed to all of the volume growth, it's coming about from Grasberg.

Resumption of operations from Covid et cetera, So we're gonna have increasing volumes of strong prices and high cash flows.

With limited amount of capsule of being spent because we just wont be ready as you say the sanction projects.

We don't have any particular target at copper price, we've always look at a scenario of different prices.

That of how a new project would fit into our portfolio.

We want to take advantage of these resources that we have and yet have risk management, but how they fit into.

All of our existing portfolio. So we don't look at it so much on an individual project by project basis, but how does it fit in with with our projects you know of Freeport Freeport really benefits from the fact that we operate all of the projects. We have interest in so that allows us to approach these owner.

On a from a consistent corporate strategic basis as opposed to an individual project by project basis.

Certainly at these price levels.

Of our projects are economic and now you know the prospects are for price Cisco much ours. So I anticipate that over time, we will be spending money on capital, that's just not going to happen.

In the near term.

That's gonna be a feature of the entire industry.

So even when we decide to spend the time frame for developing a project is multiple years.

Minimum of six to eight years, so that all of that's going into the as you well know anybody because you write about it all the time, that's going to be very supportive of copper prices.

Can't turn on the buyout of quickly to add new mine supply and when you can't do that in volume and in the mining demand rises.

The.

That translates into higher prices.

Got it that's very helpful color and one quick one if I could squeeze it in just the an operational update at the Grasberg block cave and data logging.

Right.

Sales volumes of maybe moved out a quarter of little bit, but anything you can provide on sort of the sustainability of the copper grades of thing any of that profile.

First I'll comment and pace of the trouble dialing that please thank you.

Yeah Johnson on Mark do you want to just give the update on <unk>.

Yes, we're generally on plan.

Kids are tracking well from the model to what we see at the mill in fact were.

Fortunate that the mill has actually seen a little bit more great.

The mine is recorded as sending draw bell.

Opening.

Probably shown in the slides that we.

We did make some adjustments and deepening of the.

We slowed down the cave advance in some of our direct rock types.

Which are the more challenging rock and accelerated the KF advance and some of the Barnes going off to the west.

MTV too.

And the GBC we've added.

The accelerated our draw bell opening.

Over the five years, it's relatively the same.

Great. That's helpful. Thank you.

Yeah.

And in the end.

And the fact, we referenced.

Delay in shipments that had nothing to do with the operations.

Inventory was there on site there were loading shipping some administrative issues with the government and so all of that inventory was produced on site now will be sold.

And as inventory built we were able to advance some of.

Maintenance activities from the second quarter to the first quarter of all of which will be supportive of of them.

Meeting of our plans going forward.

Our next question comes from the line of Chris within the married with Jefferies.

Hey, Thanks for taking my question and good morning.

All of these questions about as Richard how are you sort of questions about the performance in South America was good the city that you appear to be operating well there despite the escalation of Covid.

But we have some political risks potentially escalating there as well, especially in Peru with the upcoming presidential run off. So the first question is related to the contract from licenses that you have in Peru is it similar to what you had in Indonesia, where you have a stability agreement with international arbitration provisions should something go.

Along the way in terms of government trying to.

The increased taxes or try to nationalize. The mind is that you have the same sort of protection there.

And yes, the answer to that is an absolute yes.

And you know we are.

The stability of agreements has been a feature of the operations in Cerro Verde since way before Freeport, but we.

We're able to get a new state of ability of agreement as we expanded the business and.

You know, there's always a correlation between the aspirations of government workers for more funds as copper prices rise but.

The copper copper copper is so.

Critical to Peru.

In terms of the country that.

You know still faces challenges of poverty and so forth. So we.

Ooh would you step back and watch political environments, we know we'd have to work with whatever governments wherever in the world.

Country selects, but we do have strong rights to do that and unlike some.

Some operations in Peru, we have.

Positive relationships with the local community because of social investments, we've made in water and wastewater projects. So.

Our team there is just I mean, I can't tell you what a great job that go with it.

The year ago, we were really worried about Peru.

<unk> lived in the city of Arequipa.

Real issue with community spread but we've been the work the community developed temporary living and we got our rates of two.

The near our original.

Run rate targets and we can expand further as we go forward. The team there has just done a remarkably good job.

That's all very Covid here. Thank you for that and then in terms of its just sit there with the agreement. We do we do that our taxes are fixed in that in that agreement and.

They were actually higher than the current statutory rate in in Peru. So so we've you know we've.

Paid higher to get to get the stability.

And you know, we also pay them a lot with with the communities in the employer.

We have of profit sharing mechanism, there and and that's partly why you saw the the cost increases that we do is is is the mine becomes more profitable with higher prices.

There's a large profit sharing that goes to two employees, partially to employees and partially to the to the.

The country. So it's the it's a good model to share of economics, and both to the local communities and and in country and the workers into you know until the until the investors.

Great, Thanks, and with respect to a potential expansion at a library of hearing from other Chilean miners about challenges getting permits.

And it seems like in some cases permitting is nearly impossible, which I suppose for the copper of market is pretty bullish of companies can bring capacity online in Chile, but I'm just wondering in terms of El Abra wood.

Sort of permitting hurdles you might have to actually spend that <expletive>et will have an environmental impact statement that we'll file in connection with the project. So that is a very comprehensive.

The permitting process.

We've gone through it before and you have to do a lot of baseline work et cetera. So there's a lot of a lot of work you have to do before you actually submit it.

But that project, partially partially as you know the permitting is partially why what you're saying, it's six to eight years out.

Okay great.

And the best environment, Chris it's going to take a long time to get that permit now we don't have some of the causes of where this mine is located in the fact that it's been a long running existing operations.

It's near of Codelco mining it doesn't have some of the permitting issues that others have.

A major mill expansion would require a day.

The organization.

Plant and.

And in the cost of transmitting that water up to the high altitudes, where we operate but it's in the setting where we don't face some of the challenges other space, but that's the case it takes a long time.

It's the big projects.

Great. Thanks.

Our next question comes from the line of Alex hacking with Citi.

Okay.

Hey, Richard how are you. Good morning, just following up on Chris's question on per.

I'm not sure how much you can answer here, but has.

Has there been any engagement yet between the mining industry and the candidates, particularly with the candidate that's leading in the polls and then secondly regarding your production footprint with Geno backend.

Cerro Verde heading back to full range does that put freeport's production footprint back.

Back out normalized pre COVID-19 levels.

Or is there of potential future upside at these prices.

I'll take the second one first yeah, just in terms of the the ramp back up you know we've we've made.

Made the decision to start ramping of Libra backup that's in progress we expect to get back to pre COVID-19 levels. There in 2022, that's reflected in our in our guidance.

The same with with Cerro Verde.

In the U S. We had cut back the mining rates significantly.

We're starting to ramp those back up we have some opportunities still have some opportunities that morency that arent you know that arent baked into our forecast yet and then we have opportunities of Chino.

Because our plan right now is running chino of 50%.

In addition to that and as we mentioned we have some incremental opportunities potentially at lone star. So I would say in the U S. We do have some opportunities that that aren't on the tariff plans and that will be we will be <expletive>essing.

As well as you know some of the Leach technology applications that that Richard referred to earlier. So we do have some near term opportunities not in our plans, but hey, Kathleen looks like most of that Josh.

Make a brief comment about the Josh.

That is.

Was named this past year to be our chief operating officer in the Americas.

It's been the number two guy from many years of young Guy, but he's got a long career in Freeport is just doing an outstanding job in bringing the energy and leadership to our groups of Josh. Thanks, a couple of comments.

Thanks Richard.

Kathleen was stated and you know we have some near term opportunities with 90 Lone star of incremental gains you know the more.

The exciting piece I think it is the work that we're doing on the Leach technology, the both Richard and Kathleen touched on you know if we can if we can prove out some of the concepts that we've identified and began began working on it could have a significant impact on our ability to take advantage of long term stockpiles that we have out there that contain contain.

Contained copper today that we haven't been able to extract and so the the leaching technology really could be meaningful as we look for opportunities to get some incremental low cost incremental copper as we move forward and so our plans are working on that this year.

With the goal of having very similar to Richard comments about the the bigger scale projects, having much more clarity by the end of the year on what that looks like and what the potential value for us, but we're super excited about what we're seeing so far.

So restarts of technology, reaching all of those point to to grow in volumes from our traditional operations Chris.

Alex right, where the average now so Alex zone, Peru.

Man, how complicated of politics everywhere in the world and in Peru.

Approaching this run off you got it.

Half of dozen more candidates each having.

The 10% plus or minus of support in the polls. So it was very complicated.

Freeport stays out of politics.

As I said, we don't we.

We just run our.

<unk> supports communities be prepared to work with whoever emerges in the political process the mine.

Many industry in Peru is.

There is an active mining <expletive>ociations is led by peruvians and they engage with candidates to understand and interact and communicate with them on policies affecting mining.

And I'm sure there'll be working with both of these candidates.

As we go forward.

You will notice the.

Candidate, who earlier was.

The very aggressive in talking about.

The mining is now making comments about the importance of the Montney to Peru. So all of that will come to play and we'll just have to see what happens.

Thank you very much.

Your next question comes from the line of Timna Tanners with Bank of America.

Hey, good morning, Thanks for taking my question one of them.

Little bit I wanted to ask a little bit more about cost. Obviously you went through in detail about what caused the incremental cost in the quarter end of the guidance, but how you know obviously costs are rising inflation is the big topic. I mean do you think that this encapsulates the future costs that you could bury fully or are you seeing further price.

And can you detail where that could come from and a little bit of what you've been seeing my email.

So the first one I want to make is the point Kathleen referenced earlier.

Some important elements of our of our costs are correlated to copper prices.

They're correlated I mean, the things like royalties.

The sharing plans.

Labor cost in general Theres correlation then there's other input costs.

The are correlated.

Energy cost, which is an important element of our cost and with energy costs have risen in recent months copper prices have risen even more thankfully, but with the energy cost or are built into that and then certain other costs are.

We're seeing some inflation so far of energy costs are the ones that of that outside of the profit share and royalty costs are the ones that are the that have the biggest impact and as time goes by and copper prices.

Raj.

Well, we'll have to deal with inflation, but we have such strong margins.

We are of great splash.

Group team that works with our suppliers to offset costs wherever we can we're working really aggressively to do that so.

You know Timna I think.

I know you realize this growth you're right about it but inflation is good for copper.

I mean inflation is good for comparable with what the world's doing the day with all of the spending on Covid recovery.

Spending around the world, that's being driven to the deal with <unk>.

The economic and the qualities.

That's pushing money to people, who consume and create economic velocity, which creates demand for copper.

And in the broader sense.

All of these forces will work to the benefit of our company, Yeah and I you know what's been interesting is you look at today, you know for in the quarter copper.

The last time of copper was for the quarter oil wasn't at 60.

Your line of about 100 and in Dallas of barrel. So.

So we are benefiting from from you know the the lower.

All of our energy prices.

Even though they have they have come up some the.

The historical correlations just aren't arent as as correlated as they once were and we you know we go through all of you you know each quarter on where we are with our supply chain.

And revise our forecast every quarter to reflect.

Current pricing and that sort of thing so that's baked into these plants and as Richard said, whether we will have additional cost pressures.

From tightening freight markets or other supplies.

I'll have to see where that goes but right now the the forecast that we developed is based on what our pricing contracts are currently.

It's of high quality problem, but if we're <expletive>uming a bit higher copper price. For example, we should all think incorporate it sounds like some <expletive>umption of inflation as well.

Well as I said.

Yes. The answer is yes, there's correlations I mean royalty drives profit sharing Raj and then you make your judgment about about energy steel costs and so forth.

But.

And I don't want a broken record Tim that I know you understand it but the bottom line as margins rise.

It for me for many businesses these inflationary.

The movements are.

Deteriorate margins here.

Historically, our margins have stayed very strong as copper prices rise and the other cost of ours.

No for sure that's clear thank you.

Thank you.

Your next question comes from a variety of Matthew Murphy with Barclays.

Hi.

Yeah, Hi, I have a question on the Indonesia smelter and wondering if you can help me understand the risks around the pace of.

Of the project so there was the.

The disc.

Closure in your 10-K about the fine and there's been some comments.

And the price I'm, just wondering what you're expecting is it possible through the.

The discussion and looking at the options that you could see more funds or you could see.

More frustration from Indonesian government or do you think.

It's going the other way and it all of that resolved.

I'm going to let Kathleen talk about Ashish black the work actively with the parties there of negotiating the.

The terms.

We are going to cooperate with the government. We made a commitment in December 18 to build the smelter and Oh.

We've been very clear that we recognize the commitment and we are prepared to honor it.

There are different views within the government of Indonesia, when you referenced the governments.

It could be interpreted as being a.

One group there are different views within the government itself.

<unk>.

Whether it's the spoke this development we'd of Bay, our go forward with the.

The project aggressive that we initially started.

And so we are.

Working closely with our partner and shareholder mind, the D and with the Ministry of State owned enterprises with the Ministry of energy and mines to find what.

As best.

What decision of the government all of if we made and we're prepared to go forward.

Provided we have if we go in the direction of the weight of value we have.

The reasonable terms and reasonable regulatory environment. So Kathleen why don't you talk about this.

And then in.

The most of the industry wants to push US I believe we will resolve this situation and that everything is gonna be okay, with Kathleen which gives them. Okay under the regulations. The government grants annual export licenses and then there is a six month check to them to the value.

Hey, good progress against the the smelter development schedule of that sheet that they have you know they have and they are approved.

And as a result of Covid as we said during 2020, we notified the government that our schedule.

<unk> was impacted by the pandemic and they were forced measure of conditions that prevented that prevented us from the from our achieving schedule.

And under the regulations. There is a is the potential for fines. If you don't achieve the schedule and that's that's what the government did they love it that's fine.

And we have gone in and explain to them.

The the reasons why the project was delayed and that this was you know force mature, which is allowed under the rent regulations to waive any penalty. So we're in those discussions with the government they were asking for some additional support.

For our position in details I mean, it's obvious that the COVID-19 affected schedules.

Off of projects all around the world, but they were asking for some more details we think it will get resolved.

In a mutually satisfactory way.

But as Richard said, we're also.

Very focused on me and our commitment to the government ultimately we notified them that we had a 12 month delay in reaching the.

Because of Covid, reaching the deadline of December of 'twenty three to construct the new smelter.

And now we expect that that wouldn't be completed until 2020 for this option that Richard just referring to wait a day potentially could get us back on schedule.

And we just need to make sure that it fits what you know from a commercial standpoint, and an overall business from our standpoint, but.

But we you know we're working closely with the government you know what I can say that our interest having a partner and a lot of mind I D. Our interests are very much aligned and and we're all on the same page in terms of what you know what we need to do and we're just working our way through.

The government's regulations too to resolve this issue and I'm confident we will.

Thanks, Kathleen so the outcome of the discussion with.

The government would that the the completion of the sort of a new smelter.

Smelter.

<unk> schedule.

The contract right. That's part of what we're discussing is the new schedule of.

For the you know for the project and and that's tied in with our discussions with them on the <unk>.

On the administrative side.

Okay. Thank you.

Your next question comes from the line of Carlos de Alba with Morgan Stanley.

The much Richard and Kathleen the money just following up on the smelter.

Would you please.

The expire until it would be more on the status of the negotiations with the commercial parties, maybe for the third party to do the investment teams in the merger of smelter.

Those are still ongoing or have they stopped and we should now come back and say more about.

<unk> doing.

<unk> doing the this message don't eat zone.

And then on Capex and he's not he's not a big increase but the capex outlook for 2022.

The increase about 200.

$20 million.

Related to all of the projects.

There anything in.

The complete.

Highlights of what is just based on all of the series of price that you were the you elaborated on engineering, Nicole Yeah, well all the time.

Question.

Let me just say on the last question is good news Carlos.

Higher copper prices gives you an incentive to spend money to increase values. So these are items that were largely in our long term plans that we're advancing to create value right. Kathleen yes, yeah. That's exactly right. We brought forward. Some capital. We've also increased production. So so that's what.

That was out of it is basically mining equipment investments.

The the the.

The first part of it in terms of the negotiations and we don't you know we don't publicly comment on.

On details of the negotiations, while they're still in progress.

But you know we it all set.

Set of target of trying to get the commercial agreement with the third party done by the end of March.

And so they were extensive negotiations that went back and forth during the first quarter.

By the end of March we had not.

The reach an acceptable agreement.

And we you know as if it had been moving in parallel.

The other project you know at some point, we've got to make a decision.

We haven't finalized that decision yet.

But we are moving up the.

The the Greenfield around project forward.

So that we can meet our obligations to the to the to the governments and not rely solely on the on the third party. So at this point, we are still having some discussions with the third party, but but were moving you know moving the other one in parallel as well so as soon as we kind of the final decision and believe.

And the way, we all we all want that as soon as possible.

Well, you know can day convey that T.

And the next year and I appreciate the color. Thank you very much Richard.

Kronos system.

And then when we talk there we say.

I was listening to Kathleen and some of the some of the weakness decisions by the government.

The way in Indonesia is.

The PT Fi, which is a partnership between mind the edge.

And F C X F CX operates.

But we in Indonesia is that partnership along with the Ministry of State owned enterprises. This of different world from those of you who followed us for all of the years when we're dealing with the government win win win F. C actually had to take the lead in and really be personally was there one of the ground.

The lease negotiations now where they're very much as the team.

Kathleen says its in line and it's a much better environment than we had historically.

Our next question will come from the line of Orange Bar code all the Scotiabank.

Hi, Good morning, just again, a follow up on the smelter at some point I <expletive>ume youre going to have to make a decision.

In terms of whether to build your own or whether to go with the third party is it's there.

At this point is there a drop dead date in terms of which which direction that goes I mean, certainly you can't drag the soft forever.

Now if the government.

I mean, it's really.

It's the government's gonna make the decision we are prepared.

If we could get if.

If the government supports it and we could get a reasonable deal with.

Concentrate sales terms and of.

The regulatory environment dealing with or are you PK obligations.

P. D F. I was prepared to deal with we debate if that doesn't happen and we're prepared to go forward with.

The other project and we're working on that we're not sitting here.

Not doing anything we're prepared to go forward.

And.

I just think of it it's important to keep in mind that while this is a big project and it is.

Management issue is.

Not a huge financial issues of Fcs.

I mean, we we were paying a 5% of export duty.

That would be relief with the smelter the financial implications of our.

Are not that significant of more than 70 per cent of the financial applications go to the government through taxes and equity share ownership. So.

Hum.

But of course, what we do well you know we do want to make a decision you know soon or theres not some kind of drop dead date, but we want to make this decision very soon.

Okay.

Thank you and just the.

I was going to say my follow up go ahead Richard.

I'm just saying, it's you know it's not like we can say, we're going to do this we're doing it.

It's got to be a joint decision.

Between the government and <unk>.

I see okay is it fair to <expletive>ume I mean, given the benchmark or spot Tcs for copper so depressed right now.

In order for the third party to agree to build the smelter. The is it fair to <expletive>ume that they'd be looking for some kind of stability of the T. Six perhaps others that are at a higher level of yes, yes. Okay.

Yes, okay.

Okay, and just the point of clarification did I hear earlier.

You state that you hope to be in a position to provide the market with some guidance on some of the brownfield growth opportunities and in the U S. By the end of the year is that correct.

That's our hope that's our aspiration.

As you know, we're very we're very transparent company.

Great. Thank you so much.

Yeah.

Your next question comes from South very independent research.

Hey, John Thank you very much of good morning. Thank you for taking my call and congrats on all of the money its range.

Up on animal is first question.

For the the map the.

Baghdad Mill project in the switching of your underground project.

Which we know your line.

The meticulously engineering study.

As you're.

Are you planning permit and build the finance is.

Is it safe to say each of those are likely to come on 2025 or later.

Yes.

Is it say yes.

The six.

Yeah.

Baghdad could come on.

You know quicker than than the other two the you know you know the long lead times for investments for K L and N K L.

That's in our long term plans, we were just optimizing it now so and that capital will be spent over a long period of time.

And then you know a lot of broadcast from a sequencing standpoint would come behind Baghdad from a from a.

The time period that that it could come on line so.

You're talking about you know if he started everything right now you're talking about seven years out.

With all of the permitting process seven eight years, maybe the all of the permitting process, but the Baghdad could be could be done.

Probably you know on on your <unk>.

2025 type timeline, if we you know it depends on when we start.

If I can ask one more I recall Kuching weird drill results were very good in the nineties.

How recently has that been drilled and updated.

Okay.

One of your so you have access and you've updated those studies and have more information.

Mike talked about we.

We've also.

10, and so Mark talk about how we we've been working on and this has been a continual work project. It is independent.

Grasberg block Cave depot.

Mark maybe comment on how we.

How we've updated our analysis of kayo.

Yeah.

In the last three years or so is the significant change.

Wasn't so much new drilling we did do some drilling over the last couple of years.

And we revisited some of the metallurgical work.

The Big change there was and as Richard alluded to the the.

The original Kale mine plan was more focused on higher copper equivalent grade, but it also had much higher pyrite and required a significant change to our processing.

The new mine plan focuses on.

Some slightly lower copper equivalent portion of the resource that has now become the reserve.

And we've.

And this is part of the ore body.

Essentially we leave the mill as it is the.

The pyrite problem is largely diminished and almost eliminated so the overall capital as far as processing power requirements environment kind of management have dropped significantly. In addition, the this new portion of the the new mine plan the areas that we mined the.

The gold the gold recoveries go up substantially we in our initial reserves several years ago gold recoveries were below 50% the new.

New plan has the recoveries over 60, and we think Theres upside there. So it's a much less capital intensive much more robust plan.

A lot less environmental management costs that go with this new <unk> plan.

The one thing Richard mentioned that it's independent.

But in some ways it does tie and we share parts of the GBC ore flow system.

The all ramps up and in coordination with the GBC plan. We we use some of the same conveyor and then the big part was is that the mill is relatively unchanged with this new plan.

Yep.

So John So John Yeah Mark.

So John this is not a competing project to our Americas growth spread.

It's it's it's in our long term plan as Kathleen said it fits in with everything we're doing out there and then the tradeoffs of where we invest in the Americas was one where we will be looking at the pros and cons of each project you know in the U S. We have.

No royalties, because we own the land and see we have no taxes because of our tax loss carry forward for a very long period of time in tax rates in the U S of very low so I mean all of this you know this is an after tax after royalty economic analysis, and we're going to sort of where can we add value of most.

<unk> for our shareholders.

We're just so happy to see it raining money in good opportunities on you.

Thanks, Sean.

So the long winding road.

But the tax rate.

Your next question comes from the line of Michael Dudas with the ERP.

Yes, good morning, good morning, Richard and Kathleen I need the follow up on your thoughts on investing for.

Freeport.

Certainly.

Looking at after the types of turns copper price etcetera taxes.

How much more will ESG the involved in some of the analysis that not only you, but the industry is going to have to work on to get you thinking of adding significant hurdles generally some obviously you have to have all the social license to the operating mine I understand that but is it because of the more imports of that that'd be helpful exactly at hurdles.

Some of this long term investment that the industry is going to require to meet the.

The demand needs going forward.

It's not only go in it is today.

I mean, it is today and I mean, ESG matters or not.

That's common across the old projects at all.

Site specific related.

You know I made a point I think you probably picked up on it and talking about our growth projects in Arizona being supported by the communities.

And the native American groups.

That's because we've been there for so long.

And we have devoted attention and resources to those communities.

And to providing opportunities beyond just starts of a separate operations elsewhere in Arizona, even which is from favorable.

They view from mining development, they're huge barriers from an ESG standpoint too.

Two.

Two developments and you just you just look at Rosemont and resolution of the projects. So you have to go and look at each particular project each of the way companies are simple.

Provided but it it's enormous barrier and its going to grow I mean, you know the number of groups that are involved in the.

In the.

S G attention.

See you know with the.

Institutional investors would you all were with the consumer groups you know are very focused.

Automobile manufacturers are focused about where where are there minerals coming from where is the copper coming from that's why this cough of Mark <unk>.

The rest is so important so it's kind of it's an enormous issue right now and it's going to be a major impact on there's going to be on supply of development. So yeah, and it's always been part of our project evaluation them, it's even more so today, but its always been part of our.

Evaluation is easy.

Using less energy diversifying our energy sources to looking at renewables.

The water as the big issue that we manage.

Found a great solution in Cerro Verde in Peru, when we did that project.

Where we deal with the wastewater treatment plant to get water. So we didn't compete with them with other uses of water in the country and actually help the community. So we're always looking as part of our Ah projects. How does this project you know of help the community.

And ESG has always been part of it and as Richard said, it's it's you know just growing growing much much larger.

I guess you know this but copper is really a great story, we don't have the scope three emissions that other companies have to deal with copper <expletive>ets actually.

What type of a handful of US actually you know use for the compensation, but the scope one and two areas of something that we you know the we we work hard on every day and it's all part of our project development plans the capital investment plans.

No I appreciate those thoughtful answers thank you.

Yeah.

Your next question comes from a variety of of James Bell continues.

With UBS.

Well. Thank you very much. Thanks for taking my question just a quick operational question of true pod one actually.

Obviously, we saw production a bit higher in Q1 versus sales.

Can you just comment a little bit further about the restocking I think he was saying also that that might be from gold sales at grasberg of it or get delayed into sales in Q2, So what kind of drove that okay. So let me address that you know, we don't sell copper and gold in Grasberg, we sell copper concentrate.

Got copper and gold in it we get paid for the.

The individual components of the <unk> prices.

As I mentioned earlier, what happened at Grasberg as we beat our book.

We met our production targets.

Transported this copper concentrate to the port site to be ready to ship some shipments got the way.

Various reasons.

So the production is done the.

And we recognize sales when the concentrates loaded on the ships.

Literally all we have is some of those sales are going to the end of second quarter were in the first quarter and it's just that simple.

And throughout our operations, we have timing issues like that.

For those of you fall of the Grasberg you know we have weather conditions at Ford as the shallow water city and so weather conditions can delay shipments.

All of this ends up many of them strictly economy, whether it's the last of the first quarter of the early part of the second quarter you know what are the relevant.

Okay, that's very true.

Generally our production equals our sales and we did have some both of them in the U S and in.

And in Indonesia, We did we did have some changes between production and sales, but that's like Richard is that just timing.

Can imagine we can sell everything we produce and thats not an issue.

Absolutely that's very clear.

And then a follow up question, you've obviously been mentioning that you expect the output of the.

Peru, instead of Earth day to kind of return to normal next year are there any other mines in your global portfolio set of right now kind of feeling the pressure of any COVID-19 restrictions or anything of that nature.

Expect that could be a bit of of volume ramp up going into next year.

Well, we mentioned when we restart we would actually suspended operations at the Chino mine in new Mexico relatively small mine, but we've resuming operations. There we are reduced.

The mine rate stripping rates morency to conserve cost and that'll take some time to restore production of build up from there, but there's nothing nothing of real significance.

The Amazing thing is the guys Mark and his team at Grasberg.

The remarkable with the.

Meeting our targets there in the face of the very challenging Covid COVID-19 location.

And we've done it.

Remarkable job in managing all of that and continue to yeah, I'd say of logistically in South America is where you know we have the the Vegas constraints currently.

But we you know we're still dealing with it all over in terms of per.

Total calls et cetera. So we're not you know we're not letting up the garden and we're continuing to be very very careful about how we operate to make sure people are safe, but in terms of of the logistical side of things, it's mainly impacted the South America.

Okay.

We have about half of our interim.

The internal medical director, we work with international Sos for years, and they've been fabulous and helping us.

Bill testing facilities and facilities for dealing with the thick.

In fact, it people were able to treat them get them back to work.

And Thats an ongoing process.

Okay. That's clear so for South America do you expect the planned as the ramp up happens in the second half and then you'll kind of back at full run rate of early 2022 is that is that the right way of thinking about it.

Well in South and Peru, specifically, you know our plan is to run at this reduced freight all year long and you know we know well.

Well, we'll <expletive>ess that as we go the right now the going in <expletive>umption is that we'll be in the situation.

For the balance of of of 2021, and then go back to the plan in 2022, that's the the <expletive>umption and in Chile with the smaller operation, but we are beginning to increase of our mining and stacking rates there.

And the metal impact will happen in 2022.

But we're starting that now so but.

But I plan of Cerro Verde, which is our largest operation in South America is is to be at this the slow slightly lower rate.

And then the balance of the year of the team did a great job and was able to surp<expletive> expectations from the first quarter, but it's not something that we feel is prudent to <expletive>ume because of the restrictions are still very.

In a very very significant.

Okay, that's very clear thank you very much.

Thank you.

Your next question comes from the line of Lucas pipes with B Riley Securities.

I mean, when it was just one of your Kathleen Thanks, very much for taking my question as well most of my questions have been asked and answered.

I wanted to circle back Richard to some of the earlier comments you made regarding the speaking one of the best copper markets outlooks you've seen.

And in the.

In light of that when we think about the framework for retaining capital versus returning capital.

To what extent could this be subject to review.

We spend a lot of time on this call talking about organic growth. For example, so could there be an incentive to talk of ice this ratio more towards the growth side.

And then Ah.

Along the same vein.

M&A is.

Have your views on that evolved and if so what geography could make sense would you look to the could you be looking at producing.

Miners of would you book Preproduction would appreciate any and any updated thoughts from that as well. Thank you very much.

That's a very good multi layered question, let me see if I can answer it.

Precisely.

I've been around a long time.

And I see there's three.

Kind of areas of copper demand.

<unk>.

Pre early two thousands it was all driven by the developed countries.

The GDP.

The coppers.

Most correlated commodity of the GDP.

It would rise and fall based on business cycles, China emerge and now for almost two decades has dominated.

<unk> demand growth, it's all come from China. When you look at it the rest of the world kind of kind of been flat.

The new here of today, which is so exciting.

It is.

China's rate of growth, which people to the point at some time inevitably is falling as default COVID-19 is kind of complicated all of that up but it's absolute demand for copper volumes are so strong because of its economies growth and that's going to continue with the even as it pivots as the economy to consumers the next.

Sports itself.

The literally the absolute amount of copper that it grows even though the rate of growth will drop the absolute amount of the strong.

Now the reason I said the reason I'm. So excited about now is now you've got it's COVID-19 recovered in the developed world.

But also all of this movement around the World of you see is clearly here in the United States.

Two.

Push money to a broader set of people.

To enhance consumption you know this all of this move towards the incoming and a quality, which everybody recognizes we got to do and that's going to create new copper demand and then my long term story has always been.

And the undeveloped world Global growth you know all of the vast numbers of people around the world that are living in sub standard conditions have aspirations of having better conditions that requires more energy more transportation communications more copper so thats why I say the demand side.

And it's really positive.

And the supply side.

I don't know, how it's going to keep up with it literally don't here we have all of these.

All of these projects at Freeport and the <unk>.

Rice of copper.

Double overnight.

You know some people were talking about a doubling of couldn't add do production of significance.

I guess for a number of years.

For a number of years, so it's going to be really interesting to see prices I just unless there's some global calamity.

The prices.

Some of you clearly have to rise substantially.

Substitution has to occur.

The scrap has to grow.

But how to meet that demand.

That's why I'm, so thrilled about where we are after all of this time working to put this company together John Tumazos referenced it I mean, we you know we've been through so much.

I recall Kathleen I developed a strategy in 2003 2004, when I became CEO of focusing on copper.

Now so great here all of these years later to see it coming.

To fruition.

Yeah.

Very helpful. So.

And in terms of the M&A question, you know, we're really focused on all of our existing <expletive>ets. We've got you know we've got development options within the portfolio, we always monitor of what's available externally and compare that against what we have so.

Right.

Let me add just the.

Personal observation on that.

You know our.

Our company made a mistake misstep other mining companies made the steps when the forest M&A for.

Strategic reasons.

Do you just look over and over again.

Phelps Dodge came to us.

It's an opportunity it wasn't in the strategic plan to do it we had talk with him of up on us. So where we are now is we have no strategy.

Of.

Engaging in M&A markets.

But we will be positioned now.

For the first time in the long long time too.

Two if an opportunity come to the comes to us to take advantage of.

Our strategy is straightforward.

Execute.

Invest.

Invest in a disciplined way in our resources that provide growth the Cree.

Right value.

If something comes to us we're going to be in a position to consider it but that's not our strategic objective.

You mentioned you mentioned startup of operations you know in the.

That's come to us all the time.

But.

We had trouble it's been a big barrier to make the economics of those work because to get into it you got to pay the value.

That's been executed already when we have all of the set of resources in our portfolio, where Theres no are you being given to them that our share price.

So we we we see that's been a real barrier of the.

Making the even what might the at some level of interesting projects work economically for our company.

And we've had a long saying of Freeport big mines get bigger in small amounts.

So.

That's also the tough issue.

Richard Kathleen Thank you very much for the color and the continued best of luck.

Okay.

Your next question comes from the line of the kindergarten with Exane BNP Paribas.

Hi, good morning, and good afternoon. Thank you for taking the question just one on the smelter debate the big more clarity is it the only one party that you are engaging with the on Oh potentially outsourcing the smelter multi party.

Good evening put asking you might have seen the news release of me.

The article last week that the Indonesia signed Mou with UNFI.

And that's the rest of.

The people, who have committed 800000 tons of raw material as well.

It doesn't seem to align with the full scale of smelting.

Not sure what Youre looking at just one smelter one part of the multiple elements to it. Thank you yeah. The discussions to date has been the most.

The most expensive with the project debt at the wait a day of the project that you're referring to is in Papua potential project and.

We're familiar with the developer there and have indicated that you know that there's excess capacity, we may be able to supply but.

Our options right now of focused on the day supply of focused on.

Either of this way the day option or are projected the cl<expletive>ic.

We are.

Response to your comment we've made no commitment for supply.

One of the possible project.

For years, we would've liked to have seen of smelter developed impossible because we you know it.

It would be desirable to help the local community there, but the infrastructure cost.

Absence of infrastructure.

The timing investment that will be acquired from structure.

I have made it impractical in the pack.

Yes.

Understood that's pretty standard speaking to emerge.

Our final question will come from the line of Brian Macarthur with Raymond James.

Hi, Good morning, Hi, how are you today.

Hi.

I'd like to go back and talk a little bit about K L. Because you know finally after years of getting closer but it does sound like the project as per John's comment has changed so I just wanted to try and under.

Stand a little bit because when you look at the grade of this you know at the point the reserve grades whatever 0.9, copper and 0.9 grams per tonne gold. So it's a little more gold than some of the others. So in this new plan I guess my first question is you talked about certain areas of the ore body is there an area that's higher grew.

Right, which you start which helps the economics and my second question. It sounds like the new plan, obviously sales capex, which is good technically probably is easier.

Which is good but then you talk about lower.

Copper equivalency, so I'm trying to figure out of just how much.

Of that copper equivalents, he is and secondary of that obviously that depends on price <expletive>umptions too. So.

One of them already good yeah, well I'll, let mark talk about it but the the.

There's a section of the mine that and we did the same thing with the Gl<expletive>berg Block Cave development, you know we modified it over time to focus on the lowest pyrites sections.

And what Mark will tell you is that with KL when we redesigned the mine plan to reduce the capital intensity because in order to get the pyrite theres more capital in the mail them or.

Environmental management required and the recovery starts going down you know you mentioned the 0.9, but it has a very low recovery some of the some of the ore. So what we have developed here is a more optimal plan that reduces upfront capex and and.

Modestly changes the the the total ore, but from a metal standpoint, you're actually Indianapolis Standalone that'll because you've got higher recoveries some of the kind of.

I didn't want the habit.

And then we'll turn to Mark.

But it's not that complicated.

We've designed the new mine plan to avoid and minimize the pyrite section right.

So by doing that we reduce the mill investments plus there was going to have to be a pipeline of you've been you've been out there of pipeline from the mill down in the low ones of the storage power rate in the low end so mark it's more of a.

Engineering design determination, which gets all of these economic benefits than anything else Mark yes.

And I think the the major advance force understanding where the not necessarily the highest grade the where the highest value after capital investment was in the ore body.

And if not for having a debt you know our contract with the government goes out to 2041.

If not for that the material that we've deferred would also be in reserves. So what we've done in this new plan has brought forward.

There's about half of the old reserve that overlaps with the of that overlaps with the old Reserve and then there is another half where we've deferred of part of the lower value or and been able to substitute of with higher value ore.

This the solar that we're now mining would be sediment hosted very similar to what we mill for years and the.

The deals the deep <unk>.

The old reserve was was very much centered on this.

This fall to that that the highest grades but had as Richard and Kathleen mentioned some of the bigger challenges were.

A new mill, we had the grind it much finer that came with the additional power requirements and then we had to manage the pyrite, which for US is to segregated from the <unk> NDA and storage separately so by recognizing.

Recognizing all of the costs that are <expletive>ociated with some of the higher copper equivalent grade that's a combination of the copper and gold value.

And substituted with.

Looking more on a value rather than purely on copper equivalents C.

We came up with a much more optimal sequencing of the mine with the opportunity to go after this other material at a later date, if we had.

The opportunity to mine beyond 2041.

Yeah.

And its moderate out of it is risk more robust.

Plan and with you know we're doing some things right now to continue to.

The enhance enhanced those gold recoveries.

Okay.

And can you with the new plan and I forget what the original rate you can figure out what's going to go through it can actually all of that the.

The mining rate because the I think it's still a mill capacity of 240000 tons to write the does that offset it in or is it still sort of in the same rate there. It is.

Very similar mining rates that.

That we had before the tonnage is a similar sort of of less because we we start a little bit later, but this does.

Well the 240000 tonnes of mill capacity that we'll have with the stage three.

And so there's obviously a.

District wide plan that we sequence all of the ore bodies to best fill that mill in an optimal fashion.

This would peak at 90000 tons a day just just the.

Marginally above what were planning to do with the deep MLC.

And then it ramps up as GBC would start to drop off.

And so it's a balancing of of the highest value material getting the first opportunity for for mill space.

Yes.

Great. Thank you very much that's very helpful and it certainly sounded like it so much more.

Yeah.

The profit risk adjusted capital intensity projects that maybe it was thought of 15 years ago. When we first looked at this I guess, yes, yes.

That's correct that's exactly right.

Thank you very much.

That's fine.

Now what are the kind of it.

Over to management for any closing remarks.

240000 tonnes a day from the underground operation.

Leave it with that thank you so much for being on our call and we look forward to continuing to report our progress as we go forward.

This year and following years. Thank you.

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

Yeah.

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