Q2 2021 Freeport-McMoRan Inc Earnings Call
Okay.
Yes.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Freeport Mcmoran second quarter Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you wish to ask a question during the Q&A session Press Star 1 on your Touchtone phone.
If you require assistance during the conference. Please press Star 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, and welcome to the Freeport Mcmoran second quarter Conference call.
F. T X are released our results earlier this morning, and a copy of today's press release and slides are available on our website at <unk> Dot Com. Our conference 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 for us for the conference call.
In addition to analysts and investors the financial press has been invited to listen to today's call and a replay of the webcast will be available on our website later today.
Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include forward looking statements and actual results may differ materially.
To refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings.
On the call with me today are Richard Akerson, our chairman and Chief Executive Officer, Mark Johnson, Our Chief operating Officer for Indonesia, Josh on said, our Chief operating officer for the Americas.
Mike Kendrick, who leads our molybdenum business.
Rick Coleman, who leads our construction and growth projects.
Steve Higgins, our chief administrative officer.
I'll start by briefly summarizing our financial results and then we'll turn the call over to Richard who will review our.
Outlook and the slide presentation materials that are that have been provided to you.
As usual after our remarks, we'll open up the call for questions.
Today F. T X reported second quarter 2021, net income attributable to common stock of 1 point O 8 billion or 73 cents per share that included net charges totaling $56 million.04 per share detailed on page Roman numeral 7 of.
Our press release.
Adjusted net income attributable to common stock totaled 1.14 billion or <unk> 77 per share.
Our adjusted EBITDA for the second quarter of 2021 totaled $2.7 billion and you can find a reconciliation of our EBITDA calculations on page 35 of our slide deck materials.
We had a strong second quarter of our copper sales of 929 million pounds and gold sales of 305000 ounces were significantly above the year ago quarter.
But our sales for approximately 5% lower for copper and 8% lower for gold relative to our recent estimates primarily reflecting the timing of shipments from Indonesia.
Our annual guidance is consistent with our prior estimates.
Our results from the second quarter benefited from strong pricing, our second quarter average realized copper price of $4.34 per pound was 70% higher than a year ago, a quarterly average.
Our net unit cash cost of $1.48 per pound of copper.
On average in the second quarter was slightly above our estimate going into the quarter of $1.42 per pound, but that primarily related to nonrecurring charges associated with our new for year Labor agreement at sea.
Cerro Verde.
Operating cash flow generation was extremely strong totaling $2.4 billion during the quarter that included a <unk> 5 billion of working capital sources.
And our operating cash flow significantly exceeded our capital expenditures of $433 million during the quarter.
Our consolidated debt totaled $9.7 billion at the end of June and our consolidated cash and cash equivalents totaled $6.3 billion at the end of June net debt was $3.4 billion at the end of the quarter and we achieved our targeted net debt less.
<unk>.
Several months ahead of our schedule.
I'd now like to turn the call over to Richard and will be reviewing the the slide materials that have been provided.
Go ahead, Richard Kathleen Thanks, everybody for joining us.
Sure.
Reported.
Yes.
Strong operating performance for our company.
Company.
Great.
Yes.
Sure.
Hum.
Thanks.
For the opportunity to protect ourselves.
We're working hard to encourage young people.
For me.
Okay.
Whenever possible.
Working safely.
No.
Covid protocols.
With the recent rise in cases.
We are refocusing.
And our efforts.
Doing some protocols.
Mhm.
Our team.
Okay.
Oh.
Second quarter, demonstrating really strong execution.
For our plan.
A really strong and favorable pricing for our products.
Kathleen.
Yeah.
Globally.
When we basically been flat.
Right.
<unk> targets.
Sure for everything we produce.
Ah beat our sales targets, we also for.
In the mining industry debt from 1 all right.
Thank you for production.
Without those and we're shipping we would've had a real strong beat or.
Uh huh.
Really important our restaurant underground ramp up is proceeding on.
On schedule.
A remarkable and I would say storage.
For both our company and even the mining industry.
Remarkably standard.
Any work.
Building value for our shareholders and long term sustainable.
Low cost.
For them.
Production.
We're making money in the Americas.
Copper prices.
In the U S.
Our Lone Star project in Eastern Arizona is really exciting we have a series of ongoing value enhancing opportunities in the U S and for.
Front of us.
Personally I'm really encouraged about future growth in the U S.
South America changed in Peru, and Chile.
Effectively we're restoring production that we've curtailed.
No.
We have achieved these outstanding financial results made possible by the hard work and investments we've been making for many years.
We're now generating significant cash flow, which will be sustainable for years for the future.
This quarter alone, we had $2 billion for cash flow after capital spending.
That's just remark from considering where we were just a year ago.
Kathleen mentioned and it's notable that we reached our debt.
Debt target set.
Several months earlier for.
Cash earlier this year.
We ended the quarter with $3.4 billion of net debt.
That's within the targeted range, we said a $3 billion to $4 billion.
Our debt.
60% over the past year.
We're now positioned in accordance with the financial policy that our board adopted early this year.
We've disclosed to the market for sure.
Shifting our capital allocation priorities.
Creasing cash returns to shareholders.
As we make disciplined investments for future growth of our business.
This policy will allow us to maintain a strong balance sheet with high grade credit metrics, while providing cash for increasing shareholder returns.
Investing in our company's long term future.
Okay.
Slide 4.
Talks about how we're.
Voting significant attention and resources just to say it.
This has always been.
Key to our company in a position of our company.
We are committed to the sustainability principles of I assume you know them.
We're also moving to certify all of our operations with a copper mark.
Relatively new industry framework.
On the International Copper Association.
To ensure responsible production consistent with human sustainability development goals.
The day, we lead the industry with 6 of our operations now certified.
In the second quarter, we submitted 5 additional operating sites for this initiative.
And we've committed to validate all of our sites for this robust framework.
Responsible production.
Critical in building and maintaining trust.
Which we've learned over the years through long standing partnerships with communities as we delivered.
Product copper valued by society produced in say environmentally sound unit.
Weighted manner.
Slide 5 talks about electrification.
It's key to copper.
Hmm.
A majority of copper goes into generating transmitting or.
Electricity and.
Copper is critical in every aspect of achieving low carbon goals for the global economy.
Oranges from electric vehicles, and supporting infrastructure to clean energy from wind and solar.
Or is just simply are essential to a green economy. This true.
<unk> is now just beginning to unfold.
It will add significantly to future demand for copper.
And as the global leading copper producer Freeport is solidly positioned to benefit from this higher future demand.
In addition, now companies around the world are responding to Covid.
It was aggressive fiscal and monetary policies.
This alone is creating important near term copper demand beyond China.
For China's consumption remains strong there are some mixed economic signals.
Signals, but even with that demand for copper in China is strong and now it's.
Higher consumption is being generated from economic recovery recovery in developed countries around the world.
That's even in the face of an important sector of copper demand automobiles, which is being constrained so I'll just jump from.
So this increasingly important incremental demand.
As such on them for long term growth from global from growth in emerging markets.
It is very positive for our outlook.
Copper demand is also expanding from technology advances in communications artificial intelligence applications.
Expanding connectivity through global infrastructure structure initiatives.
Efforts to improve health for using copper to fight viruses and other infections.
Slide 6 talks about this growing demand.
The global challenges in maintaining much less growing supply makes the outlook for copper.
Kelly.
I would say compelling is an understated word really really positive and enthusiastic about it.
This recent pullback in copper pricing that we've seen has not altered in any way our conviction.
With favorable long term outlook for copper.
This is a decision we made years ago, which underscores our strategy to Freeport.
Focus on copper.
As a as favorable fundamentals the nature of our assets and our team.
There are always actions that influence cinema and short term pricing at any point in time.
So beyond that indisputable facts support a positive fundamental outlook for copper demand.
<unk> growth is inevitable maintaining supply our growing suppliers challenged.
Our prices will be required to support major new investments in copper.
Rising demand scarcity of supplies.
0.2, large impending structural deficit.
Supporting much higher future copper prices.
Our company has higher quality assets.
Industry, leading experience highly motivated team will allow us to benefit from these from these fundamentals.
Portfolio of assets from the copper business.
It's rare if not unique in our industry.
It would be difficult not impossible to replicate these assets.
With strong growing production.
Embedded brownfield low risk growth from our large portfolio of undeveloped resources.
Our assets are extremely valuable in today's world.
It won't come more valuable as the market develops market debt Simpson emerge in the future.
Slide 7 highlights our growing margins and cash flows.
We've had meaningful volume growth in recent quarters, which you've all seen.
This growth will continue.
Are projected to increase.
So volume 55 per cent.
We will see a further grows.
Of 15% to 20% over.
2021.
And execution risk.
To achieve these higher volumes were largely.
Hi.
Our volumes will.
With low incremental cost.
Per pound for copper.
We would generate annual EBITDA for 22, and 23 of 12 billion to $17 billion of cost.
But with capital expenditures in the range of 2 and a half million dollars a year.
Looking back there was always an overhang for <unk>.
Report related to <unk>.
Execution risk with this underground development political risks in Indonesia.
Debt levels, you look back over the past 3 years, we have met and mitigated all these major initiative are overhanging our company.
It's been a really exciting gratifying time for our company.
Slide 8 highlights the great progress we're making.
Johnson and his team and then.
In Asia, and really for graduate I Didnt animals Fabulous work for their doing even in the face of Covid.
In the second quarter.
Quarter, we achieved just under 80% of our targeted annualized run rates for metal sales.
We're on track to reach full rates for the metal production by the end of the year and our team in Indonesia has just done a fabulous job.
In the face of dealing with pandemic and a challenging physical environment.
<unk> executed.
Well designed operating protocols.
Dealing with this new upturn in cases in Indonesia in recent weeks, we're helping to support for government and our local community we've implemented travel other restrictions to mitigate the spread we're.
We're encouraged by the increasing availability of vaccines that our job site and generally in Indonesia.
Number of our workers a significant number of already seen vaccines and receive vaccines.
We haven't go providing vaccines for all of our works for us in the second half of the year and we're supporting nearby communities in their efforts to respond to Covid.
We have a real strong support from the government of Indonesia.
A real positive partnership.
With <unk> stay at home shareholders on that shareholder mining.
We're all working together and are aligned.
I've been working impossible for 30 years over 30 years.
Personally proud and gratified by our team's accomplishments.
Since we began it.
Vesting in the underground.
Over 20 years ago.
Transitioning from the old debt.
18 months ago.
In dealing with Covid, it's just remarkable what we've been able to do.
Planning investing in this transition began in the 19 nineties.
Now experiencing the success, especially for all of us at Freeport.
Now look forward to continuing long term success at Grasberg.
Building value to this world class store volume and sustainable production.
Slide 9 shows the multiple options for graph brownfield low risk growth.
Across our global portfolio.
Increasingly encouraged by the opportunities in the U S where we have.
Favorable community support across the board with where we operate.
Favorable tax situation and a long history of working in a responsible way.
We are expanding our mine production at Lone Star Baghdad, other sites and we have exciting new opportunities from technology involving leach recovery from our historical operations.
The Lone Star mine unused operation situated adjacent.
Through our long standing operations in South East, Arizona.
There we have strong community support.
And this new mines performing above design capacity.
We're evaluating expansions of lone star's akshay oxide ores.
We're actually making a lot of money and what normally would be stripping operations. We're conducting long range planning for the development of a potentially.
World Class sulfide resource.
Lies beneath this oxide cover in our historical mining area.
We have an opportunity and a strong likelihood of moving forward with that.
Constructing a new concentrating the day.
Total production in our Bagdad mine in northwest Arizona.
We expect to commit to this project next year.
<unk> leased leaching technology, which I am pumped about.
Provides substantial opportunities for added growth.
Across our portfolio of global resources.
We are evaluating attractive expansion operation expansion opportunity.
At our El Abra mine in Chile, with asthma, a long lead time.
But its attract large.
Major future expansion in bio operating is likely.
But not now we are deferring investment decision on this project.
Until we have more clarity about the mining policy issues currently under consideration by the government in Chile.
We're also evaluating development.
And under GAAP.
The ground deposits at all.
Cuccinelli error in the Grasberg different history.
Operated by <unk>.
Copper gold resources involved in large block cave mine.
Using the substantial infrastructure that we already have in place.
We have expertise long track record Mark Johnson and his team has come up with revised development plans that make the project less capital intensive.
Economics, better so large operation that would be a block cave with about 90000 tons per day, so thats real.
<unk> per tons of copper resource 6 million ounces of gold.
And it fits right in with our plans.
We have additional opportunities to invest in projects.
To support our copper our carbon reduction.
They're staying ability does.
Excluding investing to develop.
Renewable energy for our operations and communities.
We are advancing plans for an exciting ESG type project.
To recover metals for.
From the recycle.
Bottom line, we're going to be disciplined and devoting capital to new investments, we're going to be focused on that.
You added projects supported by long life reserves.
We have a long track record of success in developing projects, we have established a license to operate.
And positive relationship and support from the communities, where we have the opportunities to invest.
Slide 10 goes back to Lone Star shows we're meeting exceeding expectation.
Original plan was 75000 tonnes, a day 200 million pounds of copper.
We did this right.
Seeing that targeted range 95000 tonnes a day other increment that would involve relatively small investment bank houses mining.
Mining equipment reuse.
Reorder or more pounds of copper.
Okay.
5 for you, though is longer term.
Have a major opportunity for lone star because.
From.
A cornerstone asset for our company.
Potential resources 10 times more than our current reserves.
As we mine the oxide ores were gaining access.
Good day.
Reference I made earlier.
Okay.
<unk>.
Gaining additional copper.
Okay.
We are progressing this we have lots of opportunities to apply.
Yeah.
Exciting potentially high value opportunity.
With low incremental cost.
For technologies internally and externally.
Capture this value from existing stockpile.
Our estimate now.
Our 30 day stockpile this is material.
So if it's already in mind.
And if we can recover just 10% to 20% of this material it would be like having a major new mine.
With very low.
For capital and operating cost.
Significant portion of this is that our flagship Mcglinchey mine largest mining North America.
We are now applying artificial intelligence data analytics to help us understand what's going on with these leaching performance opportunities.
Our team historically was instrumental.
And Lockheed.
<unk> substantial value for years ago with their new Sx EW technology. We are now focused on taking the leaching technology to the next level.
Using modern approaches to it we've established a cross functional team of technical experts.
Allergic mine planners data some really exciting opportunities.
Slide 12, we have strong operating franchises in the U S South America and Indonesia.
The trust and respect for our partners, our customers suppliers financial more markets and more importantly, the workers communities and host governments, where we operate.
Significant large scale project development operating expertise.
Dean <unk> for it is all of the capabilities to undertake new projects in a responsible for efficient manner.
Moving to close on slide 13 by Richard.
All around the go low.
Commitment dedication.
<unk> positive outlook.
Our team is passionate about the ROE.
So we're going to play achieving a better and more sustainable future for everyone.
<unk> reported the capabilities and drive to continue to meet.
Our stakeholders.
Moving.
Unit rate at time of Great challenge, an exceptional opportunity for our business.
As our team.
Sure.
Meeting the challenges embracing the opportunities our futures bright.
<unk> reported charging ahead responsibly reliably into it.
Yeah.
Kathleen I'll turn the call back over to you to talk about our financial results. Okay. Great. Thank you Richard and I'm going to start on slide 15, and just make some brief comments on our operating Mariner matters and go through our financials and then we'll open it up for questions.
Richard talked about the great progress, we're making at Lone Star.
Very focused now on sustaining.
Sustaining the rates to keep our tank house full there, which has a capacity of 285 million pounds per.
Per year of copper.
And looking at potential increments beyond with relatively small on attractive investments.
Richard also mentioned our plans at Bagdad, we're advancing studies to double the capacity there.
And hope to be in a position to qualify a project and commenced the project there for next year.
At <unk>, we have started to increase our mining rates, which had been curtailed.
In the last 12 months.
We averaged about 725 quarter and are ramping up to reach 800000 tonnes per day.
In 2023.
We've also advanced from 2022 the restart.
Have some of the RNC knowing capacity that was also idled last year to reduce cost.
And now with the improvement in copper prices.
These actions.
Our resolve and more profitable production.
We're also very encouraged by the opportunity to add low cost production at morency through our Leach technology initiatives.
In South America. The teams are continuing to work to restore production to pre pandemic levels.
Continue to target a full restoration at Cerro Verde in 2022.
We've been running at about 95% have their mill capacity in recent months.
You have seen in our press release that the Cerro Verde team reached a new for year labor agreement with a significant percentage.
I was in advance of our labor agreement exploration, which is coming up at the end of August for this year.
We're very pleased with a win win outcome or the agreement and now working to conclude a mutually satisfactory agreement with the balance of employees.
At El Abra in Chile, we're well on our way to restoring production levels that were curtailed last year, we're increasing the stacking rate of material on the leach pads and moving forward to add a new leach pad to accommodate the higher rates.
This is capital that was always part of our plan, but was deferred last year as part of the capital Conservation plans that we rolled out in April of last year.
This allows a low but to increase production on a sustained basis to about 200 to 250 million pounds per annum for the next several years as we assess opportunities for a major expansion there.
As Richard talked about at Grasberg cash flows.
As you recall, we started the second quarter was significantly more concentrate at the strong production volumes.
And some maintenance downtime at our port weather issues at quarter end sales below well below our earlier estimates in the quarter.
This is a really a short term timing issue and we expect to be able to work inventory levels down from the second half of this year.
We successfully commissioned at Grasberg, the second crusher at our Grasberg block cave during the quarter and that'll provide sufficient capacity for our ramp up to 130000 tons per day you've seen.
Performance in our records achieved from the Grasberg block cave during the quarter.
We're also moving to advance the installation of our third Sag mill there that's been part of our plan.
To support the higher rates for throughput.
We've also identified an opportunity to invest in a new mill circuit.
That will allow us to increase copper and gold production in Indonesia for the <unk>.
Treatment of higher mill recoveries when the initial phases of this project and the economics are highly attractive.
Our global team also remains focused on cost management and efficiency projects to extend equipment lives improve energy efficiency and maintenance practices, but the use of technology.
We have experienced some degree of cost increases.
This year, principally from energy price increases.
And to a lesser expense the impact on consumables of steel price increases.
Increased freight cost and sulphuric acid cost.
We've had a partially offsetting these items, we've had the benefits of a weaker exchange rate and.
South America versus the U S dollar.
The increases in cost.
Has been offset by significant increase in molybdenum price prices in recent months and those have provided a very nice hedge to them to certain of these cost inflation items.
We talk on on slide and you've seen in the in the release.
Plans for us to meet our commitments in Indonesia.
For the new smelter.
On slide 16, we provide an update on our plans.
2 to meet the commitment that we agreed to with the Indonesian government in 2018 to construct 2 million tons per year of of in country processing facility of copper concentrate.
We have been advancing.
For the discussions with our Japanese partners to expand the existing smelter at PT smelting that would fulfill a portion of the obligation and there are several financial and operating benefits of expanding this facility, which has been expanded very efficiently in the past.
<unk>.
After considering various alternatives for the balance of the commitment. We've concluded that the best long term option is to continue with our plans to construct a new greenfield smelter in east Java near the existing facilities at P. T smelting.
We recently entered into an EPC contract with chiyoda to construct a $1.7 million ton facility there and we're now focused on completing the project as efficiently and as timely as possible. We show in the graph on slide 16 on the right.
The estimated timing of expenditures over roughly a 3 year period of SPX is responsible for 49% of these expenditures.
We recently completed a new $1 billion bank credit facility for P. Tsi to advance these projects and are planning additional debt financing, which can be obtained at attractive rates to fund these activities.
And as indicated the long term cost for the financing expected for the smelter would be offset by a phase out of the 5% export duty and we show a graph on the bottom of slide 16, which shows you that the economic impact is not material as of the call.
Cost of the smelter would would be essentially offset in lower low.
Or do these which we're currently paying.
Slide 17.
The 3 year outlook for volumes and these are consistent with our previous guidance, we're continuing to pursue additional incremental near term growth opportunities and conducting our longer range development planning.
Moving to slide 18, we show the significance of cash flow generation using these volumes and cost estimates.
And at prices ranging from 4 to $5.
Copper and holding them holding gold and molybdenum flat at $1800 per ounce of gold and $16 per pound of molybdenum.
But you see here on these glass, we would generate EBITDA.
In the range of over 12, and a half billion dollars per annum for 'twenty 2 'twenty 3 on average at $4 copper to $17 billion per annum at $5 copper and at.
Operating cash flows net of taxes and interest are.
Would be $9 billion to $12 billion easing as price assumption.
Assumptions.
As demonstrated in the second quarter were generating very significant free cash flow and this is a this trend is expected to continue with cash flow significantly above our capital spending.
On Slide 19, we include a projected capital of $2.2 billion. This year and $2.5 billion in 2022 as you'll note we shifted about $100 million in expenditures from 2021 to 'twenty 'twenty, 2 which is timing related.
And we've advanced from capital from future years into 2022 to reflect the timing of additional leach pad construction at low.
Non stop and the addition of some highly attractive growth spending in Indonesia related to mill recoveries.
We've entered a period of outstanding free cash flow generation, we've got growing volumes strong markets and low capital requirements, you'll see on slide 20, and this is backward looking but over the last 12 months, we've reduced our net debt by $5 billion and that included $2 billion in the.
Quarter alone, you'll see our credit metrics are strong and less than 2.5 times EBITDA on a non a trail.
Trailing 12 month basis, and we are projecting our credit metrics continue to be strong and improving.
As Richard mentioned, we achieved our.
Targeted net debt level several months ahead of our schedule.
With a long life asset base and growing production profile.
And strong markets will have the ability to continue to strengthen our balance sheet provide increasing cash returns to shareholders and build additional values in our asset base.
The slide on a 'twenty, 1 just reiterates our financial policy.
We have performance based pay out policy, what she was established by our board earlier this year.
Providing that.
50% of free cash flow.
Would be used for shareholder returns with the balance available for growth and further balance sheet improvements and with the recent achievement of our net debt target. We expect our board will consider additional payouts to shareholders with our 2021 our results.
We're looking for to reporting on our continued progress and continuing to build additional values as we go forward.
And now operator, we'd like to open the call up for questions.
Ladies and gentlemen, I want to put an exclamation point on your own.
The comments you made about cost management.
It's focused on inflation around the world and the impact on mining company.
And it's definitely said, we've had higher energy cost are grinding material cost.
But Josh homestead and our.
Americas team have just done a great job.
And then helping offset the.
My Kindred and running our molybdenum business, which is for.
Primary production business and a byproduct business.
And with higher molybdenum prices is offsetting.
Some of these cost increases we've got a high gold price would helps us Danny Hughes is leading our supply chain group.
And so a combination of all of these things.
Is helping us as a company to really mitigate much of these increases in cost working with logistics. So.
I just wanted to make a note of that because I think it's important giving given all of our concerns about where inflation is leading.
So.
Let's do turn it over to questions. Thank you.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question press Star 1 on your Touchtone phone with your question has been answered or you wish to remove yourself from the queue. Please press. The pound key you are using a speakerphone. Please pick up your handset before pressing the numbers, we ask that you limit your.
For questions to 1 do you have additional questions. Please return to the queue. Our first question will come from the line of Emily Chang with Goldman Sachs. Please go ahead.
Good morning, Richard and Kathleen Thanks for the update today and congratulations on getting to your net debt target.
So quickly maybe just following up on Kathleen's last point, then just on capital return.
Is there a reason why you would wait until the end of full year 'twenty, 1 before executing that capital return program and just further on that train of thought is there a preference yet between paths for special dividend buyback program or.
Pat to shift to a variable dividend strategy. Thank you.
Thanks, Emily we've just reached the debt talk net debt target at the end of June and so going forward, we would have up to 50% of the cash flows available as we generate them too.
To to consider additional pay out to shareholders, our board will be reviewing and reviewing this and.
We do expect that we will be following the policy that debt will be paying out of up to 50 per cent of the excess cash flow.
We have not made any conclusions on whether it will be additional dividend payouts for share buybacks and that'll be something that will be considered.
At the time, but the commitment is there too.
To pay you pay strong cash returns to shareholders with our with our free cash flow and we expect over the next several months to continue to generate free cash flow and then I'll continue into into next year and beyond.
Great that's helpful and a quick 1 if I could squeeze it in just on Grasberg I believe that the end of Q1 are you reached 75 percentage.
For production that can you remind us where we are today, where you would expect to be at the end of <unk> and that 100% production level is that a fourth quarter average or an exit rate. Thank you.
78 liter engine.
We're just under 80% right now in terms of metal production targets.
Well ahead of schedule, we've yet it will be 100 at 100% by the end of this year.
Thank you and that's the average for the fourth quarter I'm, Emily So will we.
Back to hit the <unk> hit the run rates in the fourth quarter.
Perfect. That's helpful. Thank you Kathleen Thanks, Richard.
Thank you Emily.
Your next question will come from the line of David Gagliano with BMO capital markets.
Hi, Thanks for taking my questions.
I just wanted to actually ask you a little bit on the Capex I know for capital spending changes I know Kathleen you flagged it.
Kind of missed some of the commentary there can you can you walk through how much of the increase the incremental sort of net increase sorry, a 200 million is just general cost creep vs.
First point projects forward in.
What are those projects again, if you could just give us a little more detail on that that's my first question and then just since I'm only getting 1 I just haven't reported.
So that's question which is.
Just if you could talk a little bit about the slight changes to the.
You know the exit rates or extraction exit rate targets between the block cave and the <unk> zone.
<unk> went up the MLD zone went down and I was wondering if you could just speak to the reasons behind those changes. Thanks.
Yeah.
On the capital, we shifted $100 million of capital from.
From 2021, and 2022 and that really was a timing a timing matter, we havent been than spending as quickly as as is what was originally budget and budgeted. So we've just 100 million of it is related to the timing. We've also brought.
For some capital that was in our plans in the future dealing with constructing new leach pads at at Lone Star.
And then.
We also are the only new thing that we've added in 2022 is this project that we talked about with respect to an increasing mill recoveries at Grasberg and that'll be spent over a multiyear period, its roughly $400 million in total.
<unk>.
But we've got 100 million scheduled in 2022, ultimately that will add.
<unk> volumes, we expect you know on the order of 50 million pounds of copper and 50000 ounces of gold and it's very attractive and short payout.
Project. So that's that's that's that's a positive and that'll be used as 1 of the projects just 1 of many hopefully that will be used with our other 50% of of of cash flows.
There really werent on the second question, there really weren't any material changes with respect to to deep MLC and Grasberg block cave.
We update our plans every quarter and there were really only minor minor changes between the 2 and really the for long term plan for.
Glass Paragon and deep MLC and this is consistent with the previous forecast and Mark I don't know if you want to add anything there, but it's you know we start with certainly very much in line with our previous forecast.
The only minor changes throughout 2022 until say 3 years.
The mine plan as.
The mine rates were constrained by the mill throughput what we did is theres been some.
Minor modifications some of the values of GBC.
This constrained period the grades at GBC are coming up.
So we swapped some of the GBC material for the tire value for slightly lower value material from the deep MLC.
Okay. That's helpful.
Thanks for let me just say that.
The higher capital spending as a positive we've come out of a period of time with capital constraints.
Now we're spending capital.
Not huge incremental some of its timing.
But to create new value.
The deep <unk> Z is a huge success story, because we've successfully met manage the seismicity issues.
We encountered earlier so.
And Mark's point.
The key to our future success.
Is the mining rates, we need to build a mining rates up.
We are doing that.
Dan.
We're dealing with this constraint at the mill building Sag for it and making other investments, but the key to our future success with meeting our mining rate targets and debt.
Been a key for 15.20 years and for us to be able to achieve there.
Just something to be.
I'll feel so good about and congratulating our team for doing that.
Over the years.
Okay. That's helpful. Thanks very much.
Our next question will come from the line of Chris 1 for <unk> with Jefferies.
Hi, Richard and Kathleen and thank you for taking my question.
My question was going to be about grasberg in the shipping issues, there, but actually your answer for the last question bring something else Tomorrow, and which is your organic growth pipeline. So it's really interesting how each quarter you seem to identify a little bit more incremental volume that you might be able to get out of some of your existing assets.
There is no project recovery project at Grasberg, you have potential small expansion lonestar low capital intensity not a whole lot of new incremental volumes, but there is growth there potentially any way that a lot of us maybe we're not aware of.
However, when I look at your production guidance at Grasberg or for the overall company. The guidance has not been increased to reflect any of this potential growth in the question regarding that is that because these projects are not yet reflected in guidance or is it just that they're small and there's a lot of moving parts here and.
It's kind of a rounding error to what your guidance was so how do we think about the production beyond say 2022 for 2023 and how this might affect your guidance.
Yeah, I think it's the latter Chris.
The Grasberg meal project wouldn't come in in terms of the recoveries until 2024.
And it's you know within the rounding, but I do believe we have some upside.
As we look forward I do believe we have some upside consult on a consolidated basis from these initiatives and that potentially could come into 'twenty, 2 and 'twenty 3.
Okay. Thanks for that.
Okay, Let me say you know.
This is a complicated business I mean, we get to these numbers and we look and see how they look.
Underneath that you know there are always unexpected things that jump up.
And in terms of.
This new challenge and measuring grade these column heights.
And the underground development, a large and so being able.
We had higher grades first quarter slightly lower grades second that's just going to be a feature of what we have to deal with so there's just a lot of moving parts our team our team around the world.
Finding ways to incrementally improve things those will unfold into our numbers over time and there'll be a lot of moving parts shifting for those of you who followed us for a lumpy for Todd noted that's always a timing issue.
ASP for day is a very shallow point.
Shallow see there we have a relatively complicated historical loading operations. There we have to the wider concentrates out shifts.
Whether shipping schedules logistic issues will always.
We have a timing impact I'd just come back to Ian.
The real key to us as mining rates.
Finding ways to incrementally improve things.
That's just an ongoing process.
Yeah.
I'm sorry.
Some of the shipping issues at Grasberg, and many of which are kind of ordinary normal types of things or is there a COVID-19 impact there as well was that a factor in the last quarter or was that not a reason for these for the shipping from.
No not really we had you know we had some maintenance that we were doing on the ship floaters, which impact for this earlier in the quarter and then we got we got hit by weather at the end of the quarter.
So that was really what was it wasn't really COVID-19 related okay.
Okay. Thank you early.
Action 2.
I mean this is just an example, it wasn't major.
It has an impact we have concentrate pipeline to go from the highlands down to support with a scheduled planned maintenance up some things happened we had to advances plane.
Planned maintenance so.
Nothing unusual this is typical of <unk>.
Our operations there.
It's started ramping up the grasberg in the 19 nineties.
It will be part of the things, we'll have to deal with in the future.
It is not the focus of our success focus for our success.
Is this non rate ramp up.
Understood. Thank you.
Your next question comes from the line of Alex hacking with Citi.
Yeah, Hi, good morning, Richard Richard and Kathleen.
So you have the slide on the new leaching technology.
I'm I'm very curious.
Your view on this low grade sulfide Chelsea.
Chalco pyrite leaching technology.
It seems very promising because a lot of impressive people associated with it and it sounds like you guys are testing it out how do you. How are you I mean, firstly whats your view on the technology, but it doesn't seem.
Does it seem promising to you and then how do you how do you judge the potential future impact on Freeport and <unk>.
Copper industry.
More broadly like 10 years from now for this technology plays out.
How much additional cost for do you think that freeport could be producing and how much additional copper.
It could be produced globally using this technology. Thank you.
So Alex Thanks for the question it's.
I wanted to be clear there is not 1 technology.
<unk> here.
Sheri series for that.
Of efforts.
By different parties to develop different technologies.
We have our own R&D work going on and we're looking across the board and how this might apply to us.
We are especially situated to take advantage of it because we have the vs.
Large.
Number and size of Paas leaching operations, some of which are now totally inactive debt.
We can look to apply these to so we have.
Special opportunity in an industry others have some but we have a special opportunity for.
If you look at this in 2 ways.
1 of it is to use the <unk> technology and by the way, we're supplementing that with this artificial intelligence data analytics opportunity to measure the impact of all of this.
This too.
Enacted and existing reaching leach.
Leach pads that we have a large abundance for us. So that's 1 thing and then ask.
Operationally.
To provide a way to.
Recover.
Material from.
Mining operations.
That would otherwise have to be recovered from a mill investment.
And it could be.
Looking ahead.
An opportunity to minimize capital by recovering.
Low grade sulfide deposits.
That would otherwise have to be mined in mill. So its early stages, we don't have complete answers.
Just wanted to share with you how exciting it is.
It's an opportunity for us opportunity for the industry.
It is not a shale all tight.
Game changer for the fundamentals of copper supply.
There on slide 11, the 38 billion pounds that are that are identified here.
That represents material that's already been mined that is not in our reserves, but not in any of our production plans and so guests recovering a small small percentage of that.
Ends up being potentially over time at a fairly large number but Josh do you want to make some comments on your perspective.
Sure. Thanks Kathleen.
Just as Richard and Kathleen and talk to you.
Really exciting with respect to the opportunity there the thing that I think.
For us that's unlocking it even more than just the very various technologies that are out there that we're studying in researching and running different pilot tests on as debt.
Combination of that with the data analytics that Richard touched on the data analytics that then the processes that we learned over the last several years in our application of that technology on the milling side has now opened our eyes to opportunities on the leaching side in that debt.
That in combination with the various technologies Inc.
Really exciting for us because it's allowing us to look at things in a way that we haven't even looked at previously.
And we've said are starting to see some of the benefits of that at morency as we've done some of this pilot work and Thats what is really low.
How does it get to getting us excited about what the potential is going forward. The other thing that I would notice.
As Richard said, it's not a it's not a what I would call a fundamental game changer or a step change for the industry and it happens over time, but it's really low incremental cost low carbon footprint footprint and an incremental adder as we go forward, but it's really exciting theres lots of energy.
Think about the similar things that we saw with with our.
Hi, Joe efforts earlier, we're seeing similar things on the leaching side as we engage with various levels of the organization and the employee engagement the excitement and the passion and the ideas that they are bringing to the table in combination with the models that we're generating is really good I think untapped.
GAAP into U I should say these opportunities for them.
Value for them for us.
Yes, our guidance Corey Stevens is leading this.
He had a session with this.
That's been formed isn't large.
For Freeport is a large number of people with Covid and his his guys are adding to this and I'll just walk away from this is a new opportunity.
You've heard me talk about years for years about.
The outlook for the copper market being so positive.
The assets that we have.
For the undeveloped reserves the undeveloped resource we have this is beyond that this is not even not in reserves of course is not in our resources.
This is a brand new opportunity could be significant for Freeport and nobody's better situated than us to take advantage of it.
Thanks, I really appreciate the color.
Yeah.
So I was going to say I read some of the comments that.
This could may be at 5% the global copper production on the long run so but it sounds like you do you think this is going to be more kind of longer dated in it.
Extending life of mine I'm, not really that kind of that central came true.
Changer I appreciate that thanks.
Way too early to say that way through her.
Your next question comes from the line of Carlos de Alba with Morgan Stanley.
Thank you very much Richard and Kathleen.
Continuing on the on the growth opportunities.
I'm wondering if you could update us on the 200 million pounds per year.
That you had before the pandemic driven by the innovation and productivity enhancements in America.
Yet another growth opportunity for you guys or would you use more or it's not bad now embedded in the price that you have been describing day.
Just smiling in these calls.
We internalized it we were doing some external work and wait to cut back on on capital and operating we externalized internalized I said and that.
Agile work way and using artificial intelligence is embedded now in everything that we do.
So that area, where its not is at Cerro Verde them, because we have not been able to.
2.
To get the mill you know, we're running a roughly 95 per cent of the pre pandemic levels.
We had plans prior to that to move well above 400000 tonnes a day stomach passing.
At.
Some point, we will be.
At Cerro Verde and those are not in.
Not in our plans, but in the EBITDA.
This is not like build a concentrator to onetime deal. It's an ongoing deal will continue to add it as Kathleen said, we've been limited to what we could do with Cerro Verde.
For the worlds largest concentrating milling operations are.
Cost of our focus on.
Mining rate ramp up.
At Grasberg.
We haven't yet brought all of those tools and skills as opportunities that neither of the future. So this is not a 1 time deal, but an ongoing part of our business going forward.
Our teams really bought into it.
Alright.
That's clear and then just if I may ask on the smelter.
Financing so the idea.
It's still to get.
Financing for these for.
These are event for the initiative.
And that means that for me.
Cash flow perspective for Freeport.
And Youll per day.
The potential increasing dividends or returns to shareholders.
Sure I'll, just correct that you will be getting the money.
From from the from from the banks or whoever.
You get the money from.
And therefore.
Therefore, the cash flow generation that the company has steel allows for for you guys to pay dividends.
Correct.
That's correct.
The debt the debt.
The debt service would affect our dividend.
With a duty.
Days out so really the dividend.
And to be impacted.
And depending on.
The cost of the smelter are tax deductible to PT Fi.
Okay.
The financing cost you mean Richard.
No I'm talking about the operating cost and so forth okay alright.
Alright, Okay. Depreciation this is always the DTF I Love you you you nailed.
<unk> Barcodes from your analysis.
You've got the religion.
From the 5% export duty you've got in operations.
Where does.
Depreciation and operating cost are tax deductible.
The consolidated Indonesian tax return for <unk>.
Okay.
The government gets almost 50% of the economics and <unk> through taxes and royalties now they have an equity ownership of 50%. So 17.
80% or more of the economics of Indonesia go to the government.
<unk> retained the interest is essentially all of the interest we had going into these negotiations which for years I didn't think we could do but what a fabulous outcome for all parties, we had in 2018.
Okay next slide.
Question comes from the line of worthwhile Cabela's.
With Scotia Bank.
Hi, good morning.
Just given expect to potentially materially.
Higher taxation of royalties.
For the future.
I'm just wondering if that is changing your thing.
Future growth and whether we could see Freeport look to perhaps.
And some of the emerging fronts maybe.
We felt like Ecuador or others.
Yes.
Excellent point.
<unk> 40 per cent of today's copper supply comes from Chile and Peru.
40%.
Now we have both countries going for the political process.
Debt looking to get more for the government.
From the miners, we don't know how all of this will turn out and its going to take time to know that.
Just certified the new President.
In Peru, Chile has got a long term process looking at their constitution.
We've already said is the.
The impact in Chile is causing us to do.
Delay a decision on a world class expansion opportunity, we have in El Abra.
Their monitors are also going to be affected by this we really don't know what the outcome is.
Bottom line this is going to be supportive of future prices.
Richard how.
For our U S assets more valuable for them.
It shouldn't your second point, we're not planning to go outside of our of our geographic footprint we have opportunities.
And in the U S and elsewhere.
Okay.
It just as a follow up I mean, I know you have a stability agreement in place for Cerro Verde I think till about I think it's about 2029, but I mean, given some of the comments from the new President in Peru, I mean, how much confidence do you have that that's going to be honored.
Well.
You look back over our shoulder there have been other presidents for Peru over time that have gone into office with similar types of comments Ed.
When they get into office the reality.
Ported from the mining industry to support their economies.
Become self evident.
We don't know now we're working with the rest of the industry in Peru.
We presented a case for the importance of of.
Copper mining for that country.
We will have to work our way through for this is an uncertainty.
We don't have.
Difficult growth.
<unk>, Peru, but we have a very substantial operations Cerro Verde debt.
Significant in terms of our current and future levels.
Copper production.
So.
And it wouldn't be.
Helpful.
Structures to try to like the outcome for all of this we do have.
We do have a strong stabilization agreement.
Which we.
Relatively near replacing an older 1 that.
It's stronger.
But as we've always done we will work with the industry and we'll try to work cooperatively with the government from the entities.
To contribute.
As in the <unk> efforts to relieve poverty index I mean.
Bruce efforts relief poverty in that country.
Thank you for the color.
Your next question will come from the line of RBR Galore with Deutsche Bank.
Thanks, Thank you Richard I mean, Kathleen Thanks, a lot.
I guess, so just had just had 1 follow up question to the previous question so given given that.
You are focusing on bad debt and Lone star the Soc development over the next year.
Early days, but when do you think you'd be able to make a decision and is there any sort of capex guidelines.
Well with Lone Star, where you know we're working this incrementally that we've already been running higher than the design right and we've got plans and studying is looking at is there further increments and those will be.
Sorted out in the next several months.
With respect to Baghdad that is a major project and we're advancing our engineering studies feasibility studies.
We're looking at all facets of water in tailings.
And as I said, I I'm I'm hopeful that we will be in a position to.
Be able to qualify that project next year.
We don't have the final capital expenditure.
Estimates, we've been working to try to find mill set ups that would be in a lower capital intensity than a traditional mail, but that work is still still underway.
Got it thank you.
If I could squeeze in 1 more question. Please so if I look at the slide 7.
You don't give guidance I went and compare it to the 1 to 1.
The EBITDA sensitivities haven't changed even though the gold price and the moly price assumptions have gone up. So is that is that basically a function of unit cost being assumed to be higher in 'twenty 2 'twenty 3.
Did I Miss something.
No. We we do have some higher cost baked into our numbers with respect to the items, we talked about earlier principally energy.
And the more.
More than offsetting the impact for this these higher gold.
And molybdenum prices, but these are order of magnitude rounded numbers.
You know it should be slightly above these numbers, but we just you know continued with its order of magnitude that we previously presented.
But the we.
We are currently are including some cost inflation in our in our revised forecast.
Got it thank you very much.
Your next question comes from the line of Michael Glick with Jpmorgan.
Hey, Good morning, just 1 question for me.
As it relates to the drought in the southwestern U S. I mean, it seems like a pretty tough situation there.
Agriculture is a lot bigger deals in mining in terms of water usage, but could you maybe speak to any potential impacts from that on operations and cost and just remind us of your water agreements in place.
It's.
It is a concern you know the level of the Colorado River, which is 1 of them.
Major sources of water for our operations, but this was not a new problem.
We've been doing with this consistently over the years.
And we have.
Taken steps with communities with native American groups.
With the farming community to deal with it. So we don't see we see this as an ongoing process that we will have to devote resources and management to we don't see any kind of crisis emerging.
But we're going to work cooperatively with everybody to try to conserve water.
We do a great job right now with our conservation reuse of water and but it's going to be an ongoing management deal. All of that is built into our current cost structure and we don't anticipate may.
Major changes in debt.
Forward.
Understood. Thank you.
Yeah.
Your next question will come from the line of Michael Dudas with ERP.
Good morning, Richard and Kathleen turning back to the smelter.
With the timeline of a 2020 for completion.
Toyota I'm sure was a competitive process and so is it a fixed price contract is there hoping of contingent Q2.
Hey, good to respect all the central changes with Covid and the supply chain issues, which everybody is starting to worry more about.
Is there a comfort level that the government along with PTSD.
For those type of contract structure and it would be there to achieve that.
That target.
There is contingency in our in our estimate.
It is not a fixed price contract for all the reasons that you just mentioned.
We want to be able to help manage the cost and.
And didn't want to them to have a lot of risk baked into the capital that may or may not occur. So.
We felt this was the right REIT structure of this risk sharing within the contract the government understands.
The situation in terms of Covid, we were delayed.
Over the last 12.15 months associated with it with the project.
And the current situation is something we're also monitoring very closely.
But where we're keeping the government informed regularly about the timeline and our commitment is to with Chiyoda is to get this done as timely as possible, but recognizing there are certain things that will be outside of our control like the current COVID-19 situation.
And that $2.8 billion, a big change from maybe what you thought about 2.3 for several years ago.
Well the scope is different.
Previously we were thinking of having 2 lines at the smelter.
For 2 million tonnes total and we reduced it to $1.7 because of the expansion opportunity at P. T smell paying for the scopes are little different and yes, there have been some some changing cost factors you've seen all of the what those what those are in terms of.
There were construction costs are currently.
But we've done a good bit of value engineering over this period with chiyoda for all parties are committed to having.
We have an open book and making this the smelter as successful as possible and bringing it online as it is.
Cost efficiently as possible.
And so when we were in the range of $3 billion, 2 and a half $3 billion before but theres been some pluses and minuses.
And we're slightly above that now.
The open book risk sharing is definitely for the way you go here. Thanks, a lot Kathleen.
Your next question will come from the line of Matthew Murphy with Barclays.
Hi.
Wondering as Youre getting close to full throughput at Grasberg here.
If you can give any color on underground mining cost.
Thinking like on a per ton basis, where you're at where you are going to debt.
Where you had hoped to be.
Yes.
We are achieving where we'd hope to be no question about debt.
We have to deal with some of the general factors.
Just achieving the volumes, having the gold credit.
The high grades of copper just allow us to do at Marquis unit.
Yeah, we've had a lot of focus on operating unit rates.
We're very close to where we want to be I think theres still some opportunities and just.
Being more efficient with some of the day.
Mining.
I'll spend GBC.
The train haulage system has proved to be very efficient.
It's completely unmanned.
Operations, and that's going very well.
Deep MLC.
Fracking is helping out.
We're seeing that the cave is continuing to mature.
A lot less secondary blasting. So a lot of these things are settling down but I'd say, it's very much within the forecast that we had and we think theres still some opportunities to continue to improve.
Okay. Thank you.
Okay.
Our final question will come from the line of day Tinder goal with Exane BNP Paribas.
Oh, Hi, good morning, good afternoon, and thank you for taking my question. Just 1 question on those administered do fine in Indonesia.
We are looking at 'twenty 'twenty for timeline and it looks like you've taken a minor provision in Europe.
Is there any color you can provide and then we are on the discussion with the government and is there any acceptability that'd be fine should not be evident from nordea recovered to the same extent.
Indicated in media previously yes.
Yes, we worked with the government during the quarter and this third party that the government engaged and we engage to to review our performance against the plan and the schedule and what was related to the pandemic and they and it looks like the.
Define them will be in the $16 million range, which we've with which were fully accrued in the quarter. We had previously accrued 13.
And so it looks like that is that is behind us.
We also with this provided a new schedule to the government.
Of what of what the progress is expected to be and so that is what will be measured against in the future. So we're not expecting.
Just to be an ongoing matter and it's you know we're pleased with it with the resolution of it.
Understood.
If I can ask a very quick 1 on moly.
Sustainable do you think the current strong pricing and do have much flex in the system to respond with better volumes from your 2 time day mines.
On the latter part of that we are looking at you know we've been operating our primary mines at below their capacity we are looking at.
Potential options to increase production from the climax mine.
In terms of price since we don't we don't predict prices, but the market is as Mike can tell you is is it's been very tight and and we're seeing that that continue even during the summer months.
I don't know remind everyone runs our molybdenum business, it's a great business.
Leverage to prices and were able to flex Mike do you want to make a comment.
Sure.
Yeah, Kathleen is absolutely right.
Looking at how we can expand production that climax in putting together a rapid ramp up plan for that to respond to the economic conditions.
And then with regards to price I think the predominant feature is that the vast majority of western.
And it comes from byproduct production.
Right now Youre starting to see that you don't have these copper mines that are coming online and that correlates to.
Our general story.
How important copper is but also that it's hard to sleep.
<unk> resources bring them on and they come with molybdenum. So we think there's kind of a natural.
A natural correlation between copper and molybdenum story and.
There's definitely a structural.
Is it this summer and we'll have to see how it plays out over time.
Yeah.
Okay. Thank you so much.
Alright, well thanks, everyone for exciting times for best is yet to come so hang on.
<unk>.
Ladies and gentlemen that concludes our call for today. Thank you for your participation you may now disconnect.
Okay.
[noise].