Q4 2021 Freeport-McMoRan Inc Earnings Call
Yes.
Thanks.
Thank you.
[music].
Ladies and gentlemen, thank.
You for standing by and welcome to the Freeport Mcmoran fourth quarter Conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
You wish to ask a question during the Q&A session Bressler Walgreens 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, welcome to the Freeport Mcmoran Conference call earlier. This morning, we reported our fourth quarter and year end 2021, operating and financial results 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 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 today's comments, we'd like to remind everyone that our press release and certain of our comments on today's call include forward looking statements and actual results may differ materially we'd like to refer everyone to the cautionary language included in our press release and presentation materials.
And to the risk factors described in our SEC filings.
On the call with me today.
Richard Akerson, our chairman of the board and Chief Executive Officer.
Mark Johnson, who heads up our Indonesian operations.
Sean said, who heads up our Americas business.
Mike Kendrick, who leaves leads our molybdenum business.
We will also have Rick Coleman, and course Stevens, who support our team with engineering and construction technical services and support for our growth projects and Steve Higgins, our chief administrative officer.
I'll start by briefly summarizing our financial results and then I'll turn over the call to Richard who will review the slide materials on our on our in our presentation.
I'll make some comments and then we'll open up the call for questions.
Questions.
Today <unk> reported fourth quarter 2021, net income attributable to common stock of $1 1 billion or <unk> 74 per share.
And adjusted net income after excluding net charges totaling <unk> 3 billion or <unk> 21 per share.
<unk> was $1 4 billion or <unk> 96 per share.
For the quarter for the year ended 2021, our net income attributable to common stock totaled $4 3 billion $2 90 per share.
<unk> net income totaled $4 6 billion or $3 13 per share.
A reconciliation of our adjusted net income.
Roman numeral seven and as part of today's release.
Our adjusted earnings before interest taxes, and depreciation for the fourth quarter totaled $3 2 billion and for the year totaled $10 9 billion. We've got a reconciliation of our EBITDA calculations on page 43 of our presentation materials.
Our team delivered great volume growth during the year, our copper sales of over 1 billion pounds during the fourth quarter approximated our.
<unk> going into the period and for the year, we sold $3 8 billion pounds of copper that was a 19% increase from 2020.
Fourth quarter 2021 gold sales of 395000 ounces or about 5% above our <unk>.
Guidance going into the quarter and that reflected higher throughput rates in Indonesia, our app.
Annual gold sales totaled $1 4 million ounces for the year and were 59% above the 2020 total.
We benefited during the quarter from positive pricing for copper our averaged realized price of $4 42 per pound in the fourth quarter was more than a dollar per pound higher than the fourth quarter of 2020, our realized gold price of $808 per ounce was slightly below the year ago.
Quarter and our results also benefited from our improved molybdenum prices a realization in the fourth quarter.
Of 2021 of over $19 per pound was almost double the year ago periods realization.
Unit net cash costs during the fourth quarter averaged $1 29 per pound a quarter per pound of copper.
That was slightly above our estimate of 126 going into the quarter, but that reflected.
Charge, a nonrecurring charge associated with the successful completion of our multiyear collective labor agreements at Cerro Verde in Peru.
Strong cash flow generation again during the quarter, we generated $2 $3 billion of operating cash flows and for the year, we generated $7 $7 billion of operating cash flow and that exceeded our capital spending of $2 1 billion for the year.
As you saw in November of 2021, our board approved a new share purchase program authorizing purchases of up to $3 billion of <unk> common stock.
Through January 25th we acquired $15 4 million shares at a total cost of $600 million and that was an average price of $39 per share.
<unk> also approved in November and increase in the in common stock dividends for 2022 effect effectively doubling our common stock dividend.
And on December 22nd we declared dividends totaling <unk> 15 per share that will be paid on February 1st of this year to shareholders of record.
As of January 14th.
Our balance sheet is strong you'll see that in the in the results the net debt at the end of the year.
Totaled $1 4 billion.
And we had no borrowings under our.
Three and a half billion dollar revolver. So we've got strong liquidity with $8 billion of cash at the end of at the end of 2021, I'd now like to turn the call over to Richard who'll be referring to our presentation materials on our website.
Yeah.
Thanks, Kathleen and Hello, everyone.
At the end of 2021.
Especially the <unk>.
<unk>.
Matt a series of multi year complex challenges.
With great success you start.
The debt picture, which Kathleen mentioned, just six years ago.
Yes, it was a $20 billion and the way to manage it was really unclear.
We have now reached a point, where our debt is de minimus.
We have started a program of shareholder returns with dividends and share buybacks.
We have assets.
That will allow us to increase those over time.
Our credit rating has been raised to investment grade, but two of the agencies.
When you look at the Grasberg underground project, which goes back much farther we began our initial plans for this underground operation in the mid 19 nineties.
We began spending capital 20 years ago.
By the end of the year, we met our target reaching our metal.
Long term run rate.
We are taking steps successfully in half.
Way forward to increase our mining rate.
200000 tons per day.
The underground is just remarkable.
During this period of ramping up Grasberg, we had challenges in our dealings with the Indonesian government about our contract of work.
We resolve those three years ago.
Pleased to report that our relationships with the government of Indonesia is one now of cooperation.
Working together mutually for common.
Relationships have never been may have never been.
Better than two years ago, we started facing COVID-19 .
Sure Deforest.
Sure.
Steps to be prepared to manage the risk that were emerging.
We successfully managed our way through that and achieved our debt reduction grasberg underground from that standpoint.
ESG is on everybody's mind. These days, it's always been part of our psyche report.
The nature of our operations.
John .
Aggressive efforts to deal with climate change impacts of our operations. We are working with the copper industry with this copper Mark designation, which we have been a leader in working with us.
Communities.
I became chairman about a year ago, I made commitments to myself to strengthen Freeport's board.
We've added six new directors.
For our well known highly regarded.
Our Ceos with <unk>.
Extensive international business experience.
Experience, who add a lot to our board we have two women we added that both our financial experts experienced an audit committee dealings one is probably is in the Hispanic.
Just been a great work by our team we have a real sense of accomplishment and will.
Looking forward now to the future with optimism commitment and excitement.
Turning to our results our copper volumes grew by 19% compared with the prior year.
Collecting this ramp up in Indonesia.
Our unit cost decline, despite rising energy costs and other unit and other input cost our team's done a great job of managing the challenges of supply chain cost inflation, we generate strong margins, our EBITDA and cash flow rose by two five times over.
Over 2020.
And we ended the year with just over $1 billion in net debt.
And we are well prepared with our loan loss reserve and resource base to advance organic growth over time.
Now with the ramp up at Grasberg.
Reaching the point, where it is now looking to our operations in the Americas for future growth.
Nice to talk about accomplishments, but we're all focused on what we go where we go from here, how we build more value for our company and we have a great opportunity to do that.
Copper.
Over 20 years ago, our company made a commitment to copper and it was driven by supply side constraints that we saw in the global marketplace at that time growth in China.
And we have fundamentally stuck with that.
But we've made a diversion of this oil and gas deal, but that's behind US now, but the fundamental outlook for copper is positive as it was 20 years ago.
Now, even more positive and becoming increasingly positive.
Driven by Koppers role in the global economy, just fundamentally need for copper and as the world develops so I'd in China, China continues to be an important part of the market.
Global growth will occur outside China.
But the new elements of demand are really significant.
The investments in carbon reduction and everyone's talking about carbon reduction.
<unk> significantly more copper than than the world is required in the past electrification is a key to climate change and to.
Two thirds to three quarters of copper is huge.
Is dealt with electrification.
Whether it's electric vehicles alternative energy generation all of these require much more copper than traditional power then you look beyond that to technology advances.
Communications artificial intelligence expanding connectivity.
As infrastructure is developed around the world public health initiatives. All of these are creating what I'm, calling a new era of copper demand and these are broad based.
They're inevitable copper will be affected by.
Risk to the global economy from time to time, but underlying that is a long term view.
Very positive outlook for copper in our company is solidly positioned to benefit there.
You add that together with supply and scarcity.
And the demand factors and you have a real compelling case for investing in our company.
We are seeing increasing scarcity and supply it.
Time, when demand is growing so significantly.
There are a limited number of projects, which have been under development for some time now that are scheduled to come on stream in the near term, but when you look beyond that it's hard to find.
Actionable projects that are can be.
Developed within a very short period of time, just takes a long time and then there is increasing political risk around the world.
We will have its impact on.
On copper supply development.
Notably in Chile, and Peru, where 40% of the world's copper club trends Theres new precedence.
One on the agenda.
That are oriented towards social programs.
Require more revenues to implement it and how the industry and the government deal with that will be very important.
But beyond that you see this in countries like the United States you see.
Other countries restricting new supply development for community social issues.
Countries around the world are demanding more.
Monitors in terms of revenues and that goes beyond Chile, and Peru, ranging all the way from Asia to Central America Africa all of these things.
And in tube supplier constraints at a time when the world needs more copper.
We're focused on the long term outlook for our markets.
We always prepare sales and recognize that near term risks may emerge to the <unk>.
Global economy now we're strong financially to deal with those risks we've structured our business in a way that we have flexibility to manage it so much more comfortable today about whether our company is positioned to take advantage.
We believe will be a very positive view for copper as a commodity.
You look at our reserve base.
We report reserves will report reserves this year based on mine plans of $2 50 copper.
We don't limit ourselves looking at projects on that basis, because we have an optimistic view about copper, but we have more than $2 50, copper we have more than a 25 year reserve life.
Okay proved and probable reserves.
And beyond that in our incremental resources, we have enormous amounts of copper that.
Over time, we will be brought into reserves as we do.
The delineation drilling and engineering work to bring those into reserves and ultimately into new projects.
Is really a key asset for Freeport It provides us a lot of options for the future.
When you look at the scarcity in the industry for development opportunities.
Report does not.
Need to alone acquisitions to support our long term future, we always monitor opportunities, but we have the assets within our company now to sustain our business and growing it significantly overtime.
With these favorable markets our margins and cash flows are growing.
We have well established plans our whole team is focused on executing plans to produce more copper produce it at a lower cost.
We built a strong foundation for the future.
Significant sales increase in 2021 growth factor for the near term.
13% in 2022, improving in 2023.
We have de risk our plans.
Spec growing margins.
And are really prepared to execute to generate cash to support returns to shareholders.
As we invest in future growth.
Looking at slide there that shows the successful ramp up of the Grasberg underground.
Wish you all could see me because I got a big small base when I look at this it's really significant with what we've done there. Our team. There is just really to be complimented meeting all these challenges.
There is nothing there is nothing short of a monumental task as I mentioned earlier it was years to achieve this.
Underground development turning to the next slide.
Over 350 miles of tunnels.
Seven miles of an underground railroad with Peter and electric trains running.
<unk> huge crushers five miles of conveyor belts, the chance to take large numbers of people down.
Underground all underground over 500 draw barrels have been opened.
Almost 350000 meters of undercut and we're really on track to achieve long term sustainable rates of an excess of 200000 tonnes a day from our mines through our mills. This gives us a very strong base.
Long term we've done this now to create return grasberg to be the second largest copper mine in the world.
The largest single DOUMA and even though it's a byproduct and look at it fourth quarter. When we had our net cash costs in the face of all of this inflation.
Only eight cents per pound for the second largest copper mine in the world.
We are on track to achieve our long term run rate of $1 6 billion pounds of copper a year over 750000 tons.
All of this look simple on paper, but man it was a challenge to get it done and our team deserves a tremendous amount of credit for doing that now.
Now when you look at where are we going to grow for the future.
Where are we going to sustain our business for the future. This new lease technologies that we're working.
In the Americas is a huge opportunity for Freeport.
Our company historically was a leader in developing leaching Lindsay mine in Arizona is the world's largest leaching operation in today's global copper market.
<unk> technology that we will have to improve recoveries and achieve recoveries.
Historical.
Weigh stacks.
Creating copper that no one thought we had the opportunity to.
Cover is really significant for us than we have.
Our mine in northwestern Arizona, Baghdad mine, which is a long reserve life.
Set up perfectly for a mill expansion.
And to achieve greater volumes out of it relatively straightforward way.
In Eastern Arizona, we have the Lone Star mine, which are truly believe someday will be the all star mine for Freeport.
Working and expanding recoveries from the oxide ore that's there taking advantage of facilities that are nearby.
Safford mine, which is.
Where production is declining as planned but underneath that the lone Star mine has a sulfide resource.
We believe we will make it be the all star mine for us.
The project in Chile that the world will need we're waiting to see how things unfold there.
This kuching Leer mine that we have.
Undeveloped at Grasberg is going to be an important part of our future. There. This will be one of the world's largest block cave mines in its own right 80000 tonnes. A day, it's got resource from 6 billion pounds of copper.
So as we go through 2041.
Talking with the government now preliminarily about.
<unk> beyond that.
We'll be producing well below 2041 was that one stream.
We are targeting getting up to 240000 tons, a day of moderate mill right out of the operations Grasberg.
And there is a slide.
Lone Star that I referred to earlier you can see the data.
Increasing yet, but the real prize there the oxide development will be profitable and the volumes track.
Tractive cost with it.
Real long term.
There is this.
Sulfide resource that underlies the oxide.
Very large.
Take time to do it but it will have a complex we believe ultimately similar to the <unk> mine, which is the largest mine in North America now.
Leach technology, some youll hear a lot about from us throughout the energy industry.
We will be a leader here, we are looking at several different.
The types of technologies.
All of them are excited we are.
<unk> is leading our team here.
It's really.
New element of demand just in our existing waste acts.
We have.
We believe we have almost 40 billion pounds of copper in those stacks.
And even small recoveries out of that could result in.
Copper that would be equivalent to developing a whole new mine. So it's early stage technology lot of work to do a lot of excitement by our team about doing this so.
Really good I want to close by recognizing our team around the world.
I'm, so proud to be part of this team.
We've got a group of people that are technically competent.
Highly motivated work together cooperatively.
That are buying and to making Freeport the foremost copper company in the world and keeping it there.
We have the capabilities on hand to meet and exceed our expectations.
<unk> opportunities for our business.
Want you to know that.
Regardless of which read out in London planted misname part of this team for as long as God willing to allow me to do it.
Having more fun than I've had in years.
Sure.
I'm really excited with part of this team as we go forward.
So kathleen.
Alright, Thank you Richard and I will just start on slide 17, and make some comments on our operating and financial matters and then we can turn it over to your questions.
We're providing some additional details on our fourth quarter operating activities on slide 17, and as Richard said the Lone Star mine. He is now renamed its all Star live as it continues to perform above design capacity.
Recall, we commissioned the mine in the second half of 2020 and last year, we produced 265 million pounds of copper.
That was a 30% increase from the original design of 200 million pounds per year.
We have incorporated now further incremental expansion into our plans, which will take us up to 300 million pounds per year by 2023 with an investment of approximately $250 million.
And as Richard mentioned as we as we accelerate the mining of the oxide.
Or is this will expose us to the loggers sulfide opportunity.
At Morency, we're gaining momentum on our leach initiatives, we have substantial material that has already been placed on leach stockpiles, which provide an opportunity to increase our copper production at a low incremental cost and notably a low carbon footprint.
We're applying new technologies and using data analytics and censoring to measure our success and we're very encouraged by some early wins and are optimistic that theres much more to come we started the effort at morency because of its significance.
The early wins at Morency has allowed the team at <unk> to share its findings across the portfolio and this gives us a significant value opportunity for Freeport and we hope to report progress ongoing progress to you as we go through the year.
We also continue to ramp up mining and milling rates at morency, and we estimate that production from <unk>.
<unk> will be about 10% more copper in 2022.
Compared with 2021.
South America teams there are doing great work to restore production to pre pandemic levels.
21 sales with South America were about 8% higher than 2020 and were projecting an additional increase in 2022, we continue to target a full restoration of Cerro Verde.
No operations during this year and will be on our way to getting back to a 1 billion pounds per annum from this large scale operation our team at Cerro Verde continues to do outstanding work in managing the pandemic and have really had a terrific fourth quarter. We were also successful and finalize.
<unk> multi year labor agreement.
At Cerro Verde during 2021 at.
Laura in Chile, we're making good progress in increasing our stacking rates of material on our leach pads, there and we're also advancing construction of a new leach pad to accommodate the higher rates, we are expecting a 30% increase in 2022 production at El Abra off of a relatively low.
Base, but we plan to sustain a level of 200 to 250 million pounds per year for the next several years as we assess opportunities there for future growth.
At Grasberg as Richard mentioned, the highlight of the year was really reaching our targeted net.
That'll run rate in the fourth quarter. This was an enormous milestone.
A success for US we're all proud of it we're focused on sustaining this during 2022 and we will have opportunities to increase our mill throughput rates in the second half of next year with the completion of our new Sag circuit, which is under construction.
Our team at Grasberg as energetic as ever working to advance <unk> and several other projects in the portfolio.
Our next slide slide 18.
Just an update on our progress to develop new smelting capacity in Indonesia that meet our commitments to the government.
Our site for the new smelter is starting to take shape as you can see from the photo.
On slide in the fourth quarter, we completed the pile support for the flash furnace and are starting to pour concrete. We also completed agreements.
In the fourth quarter with our Japanese partner.
To expand the existing smelter at PT smelting.
We're focused on completing these projects are sufficiently and timely as possible.
We have been funding the cost of the smelter through.
<unk>.
$1 billion Bank credit facility that PT Fi secured and we're planning additional debt financing of PT Fi, which can be attained obtained at attractive rates to complete the project.
As indicated on the slide the long term cost of the financing for the smelter would be essentially offset by a phase out of the 5% export duty. So the economic impact is not material.
We provide on slide 19.
Our three year outlook for volumes.
And just we're pleased to report our execution is on track we have some minor offsetting changes to our prior guidance for copper sales for 2022 and 2023 and have now included our current outlook for 2024.
After delivering a 19% increase in copper in 2021, we're projecting a 13% increase in 2022 and this includes higher production across the portfolio. We've got further growth plan for 2023, and our existing plans and.
Our.
Sales for copper in 2022, we estimate about 36% will come from the U S, 27% from South America, and about 37% from Grasberg.
We're showing on on slide 20.
Our.
Our core have the quarterly volumes work.
We're expecting grades will be lower in the first half at several of our sites in the Americas and that will be increasing throughout the year.
See our gold sales are fairly steady and roughly 400000 ounces per quarter during during 2022.
On Slide 21, we show a comparison of our net unit cash costs.
For 2021, and we roll that forward to 2022.
And you can see that the cost of.
Similar between the years.
For some time, our global team has been focused on cost management and efficiency projects to extend equipment lives improve energy efficiencies maintenance practices and using technology to help us in all of this this is serving us very well in the current environment.
And were also supported by the Great Global supply chain team, who is doing terrific work with outside operations management and through our partnerships with long term suppliers to address our business needs.
As you'll see on the slide our estimated consolidated unit net cash cost for 2020 to expect it to be very similar to 2021.
We've got increases that we're experiencing in <unk>.
For input costs, including energy sulfuric acid.
We've got some higher labor and outside services costs for 2022 compared to 2021.
And higher costs for materials and supplies, so that essentially is being offset by our higher volumes.
We're going to continue to focus on cost management and provide our operators with technology driven solutions to assist with the current.
Cost pressures in inflationary environment.
Richard mentioned the strong cash flows that we're generating and we see that continuing in the future on slide 22, we show the significance of our cash flow.
Using our volume and cost estimates and prices ranging from $4 to $5 copper and holding gold flat in $2800 per ounce and molybdenum at $19 per pound.
We show modeled results.
He has been using the averages of 'twenty three and 'twenty four.
And you can see here that annual EBITDA over this period would range from $12 billion per annum at $4 copper to over $16 billion per annum at $5 copper.
And our operating cash flows would range from nearly nine $9 billion a year to $12 billion per year at this scenario ease any scenarios.
As demonstrated in the last several quarters, we're generating significant free cash flow and this trend is expected to continue.
With cash flow significantly above our capital spending.
Moving to capital spending we show on slide 23, our outlook for for capital.
For 2021.
Our capital expenditures, excluding the smelter costs totaled $1 9 billion and that was slightly below our guidance, excluding the smelter of $2 billion.
Were projecting capital of $3 3 billion in 2022.
$2 7 billion in 2023.
The primary change from our guidance prior guidance for 2022.
Flex. The addition of the incremental Lonestar expansion and our plans to advance the circular project at Atlanta copper.
You'll also note the large decrease in spend on the Grasberg block cave and deep MLG beginning in 2023 and you've also seen here.
Questionary projects that were advancing to improve profitability and value as we go forward and about 20% of the capital for the next two years reflects recent value enhancing additions.
And those are detailed more on slide 24.
Where we have a summary of the discretionary capital with added to our plan so as achieving our net debt targets last year and commenced our shareholder return policy.
These projects all have solid financial returns great operational benefits.
And again represent value enhancing investments using a portion of the 50% of free cash flow, we are earmarking for organic investments and balance sheet improvement.
Our free cash flow generation is significant and that supported by growing volumes.
Positive markets and low with low capital requirements.
You'll see on slide 25 and Richard.
Highlighted this not only the last what we've done over the last several years, but just in 2021 alone.
We reduced our net debt by nearly $5 billion and our EBITDA continues to grow we're really in a fantastic position to execute our strategy maintain a solid balance sheet and return substantial cash to shareholders.
Our financial policy is summarized on slide 26.
Centered around a strong balance sheet.
And combined with a performance base payout policy.
It provides for up to 50% of free cash flow to be used for shareholder returns with the balance for growth and further balance sheet improvements.
As Youll see on slide 27, we commenced implementation of the policy following our board's actions in November of last year.
We purchased nearly $500 million of stock in the fourth quarter and through January to date, our purchases cumulative purchases totaled $600 million. So we're well on our way to using a $3 billion authorization.
Our board also approved a variable dividend for 2022.
Essentially doubles, our common stock dividend.
The combination of this share purchase program and our dividends are designed to distribute 50% of our cash flow, while maintaining the balance sheet.
And a super strong position in providing flexibility for our long term investments. So in summary, I just want to Echo what Richard said, we are well positioned for success in 2022 and beyond.
Team is passionate about execution, we've got momentum and we look forward to building on this success and.
Operator, we will now like to turn the call back to you to start the Q&A session.
Thank you ladies and gentlemen, we will now begin the question and answer session.
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If you have additional questions. Please return to the Q1 moment. Please for our first question.
The first question comes from the line of Emily Chang.
From Goldman Sachs. Your line is now open.
Good morning.
Brian and thank you for the update this morning Michael.
My question is just around the Baghdad expansion I believe in the slides there was a comment around potential for construction to commence in 2023, where the potential 2026 ton up perhaps could you talk about the progress we've made to date Darrin advancing technical studies as well as any final hurdles in that whole project sanction.
Any early indication of what Capex could potentially look like for this capex.
Sure.
Emily we are starting feasibility of that project.
Now and we've been working on various scoping level studies over the past several years as we've been discussing.
But we are.
Starting with feasibility study and that will really define the final cost estimates, but we think it'll be efficient because we've got.
A lot of infrastructure already there, we're adding the new concentrator that.
We'll really take into account the.
The efficiencies that we've gained that Baghdad existing concentrator in recent years and.
And once we go forward and get the feasibility study.
Studies done we've eliminated permitting process, we believe and that's what gives us.
Gives us hope that that project could be in <unk>.
Operation in 2026.
The economics of it will be we believe will be positive and really advancing.
Is dancing in an efficient manner.
Many of the production that double the production there because it is a very long reserve life approximating roughly 80 years since so we're bringing that looking to bring that value forward.
Great. Thank you.
Your next question comes from the line of Lawson Winder from Bank of America Securities.
Hello, Good morning, Richard and Kathleen very nice to hear from Bob. Thank you for today's update.
Maybe I can ask about the <unk>.
Star mine.
Could you also could you update us on your thoughts in terms of what's driving the current outperformance.
Is that just better recoveries or is there other aspects at play and then and then when we think about the current loan and your expansion to 300 million pounds is outperforming by.
Five or 6% so how should we think about that 300 million pounds should we think about it in terms of being more like 318 to 320 billion pounds. Thank you.
Okay.
Josh.
Yes, Josh wanted to respond to it Josh is our.
Chief operating officer for the Americas.
Good morning.
Realistically, if we look at lone Star and what we've been able to achieve since you've started up we really leveraged a lot of our learnings that we had seen.
From our <unk>.
Exercises.
Experience at Bagdad with respect to identifying bottlenecks in the process.
Leveraging the workforce through kind of an agile way of working and as we've done that the team at Lone Star has been able to identify opportunities that really eliminated bottlenecks.
Allows us to.
Work on incremental gains over time, and as we think about the.
The next step in that is just a continuation of that same process in the sense of identifying what's limiting our ability to maximize production.
Some of the site and so the team has done a great job of going through that entire system identifying what those bottlenecks are and we've put projects in place to really attack those bottlenecks and maximize where were at the 300 million pounds is probably at the limit of our current existing hydro facilities in the <unk> capacity.
Above and beyond that would be a bit of a challenge, but im not going to say that the team there isn't going to continue to look for opportunities to add additional incremental pounds, but I think that 300 million pound target that we're headed quarters is pretty close to that limit based on what we have today.
Thanks very much.
Yeah.
Your next question comes from the line of Christopher Mandeville with Jefferies. Your line is open.
Hi, Thanks, Hi, Richard and Kathleen Thanks for taking my question.
Yes.
If we look at the progress of Freeport in the last five or six years, you've obviously overcome some.
Really substantial challenges in the company is.
Find yourself in a position of clear strength today, and you're kind of unleashing what is ultimately a massive organic growth pipeline.
What's probably more growth than we even are aware of today, just because of resources assumes a substantial and you talked today, Richard about leaching technologies, which you mentioned last quarter as well, but you talked about this as a huge opportunity. My question around that is first of all how much production potential could we see from from these new leaching technologies, what's the timeframe is it in any.
Your guidance, yet we're sort of operating costs, just like the economic benefit that you will realize from this leaching and I guess the reason why I asked that question just because a lot of other major copper miners are talking about various new leaching technology as being substantial.
And it really it comes down to there's going to be an economic benefit to having more volumes, but the question. Then is what does it mean for overall <unk> copper supply and demand. So how much when is it coming online is within your guidance and what sort of operating costs.
We do have a small amount of.
Of benefit factored into our guidance from the some of the early successes at morency, but thats just a <unk>.
Very small fraction of what we what we expect to get.
We do have some and this is unfolding Chris so so it's going to be evolving as we go but we've kind of internally.
Ed.
Let's go after.
Trying to get 100 to 200 million pounds from this and then.
In the near term.
And.
So where we're looking to gradually improve.
We are in 2022, and you'll be hearing more about it but from a cost standpoint.
If you think about where where the incremental cost of this is.
We've got much of this material is already in our leach stockpiles. So we've already expanded the funds to mine it and it's in stockpiles and so it's a very low incremental cost to be able to recover it.
So that's that's the opportunity for us as we look at it having low incremental capital to go after at low incremental operating costs, we have latent tank house capacity, Josh mentioned, we're filling the tank house at Safford, but at all of our mines, We've got some tank house capacity.
That we can feel it.
If we're able to get more recoveries. So economically this is a real opportunity for us, but when you are talking about 100 to 200 million pounds.
And we've got.
38 billion pounds of of material and stockpiles, that's a small and that's a small amount, but it does have value to us and we hope to we hope to go capture it but.
But in terms of this being a sea change for supply for the industry.
We just don't we don't see it it'll it'll take time and it will come out over time.
But it is made.
It's a value opportunity for us as a company given given higher set of circumstances with the large stockpiles enlightened tank house capacity.
Corey I don't know if you want to add anything to that but that's that's that's where we are with it.
Now Kathleen you covered it well.
Thank you.
Corey Stevens by the ways step.
Stepping up to lead our project development engineering.
The key guy and leaving us on this deal.
Chris you know in an earlier life back into $80 work in the oil and gas business the shale business really.
Initially kicked off.
And so his team here will tell you I'm always looking around corners to say is there some kind of shale.
Oil and gas.
Development, if you could change the industry like that did for the petroleum industry.
And.
This is a huge opportunity for us huge in the sense of.
Being able to add value of significance, but in terms of being a shale oil kind of.
C change for the industry as gasoline called it.
We think that that's not in the cards.
That's very helpful. Thank you Richard.
Your next question comes from the line of Michael Dudas from vertical research. Your line is open.
Good morning, Richard Kathleen and good morning.
Okay.
My question surrounds.
Given the.
You highlighted that this coffee with supply growth that you see in the pipeline being somewhat thin.
Or can you maybe characterize from where you thought a year against where we are today.
Given the political dynamics, especially in the two largest copper producing countries given your kind of.
Positioning and much better jurisdiction so it seems.
Is that going really be a delay even further just in the next six to 12 months as the industry kind of figures out how to best negotiated deal with those governments and certainly there could be some other opportunities over the next several quarters.
On those issues limiting.
Some of these much needed projects.
Marketplace by the end of the spectrum.
There's no question I mean, you just look at our situation in El Abra.
We would be in a different situation with El Abra.
It's a political issues about royalties.
And the physical regime for copper production and Julian we're different we would.
Would be moving more aggressively right now with with El Abra of what we're doing is we are preparing ourselves.
As we move forward, but we're not deferring any decision to move forward.
Give some clarity from the government in Chile, and so that's just one example, but there's no question.
<unk> people.
Some have stability agreements.
Question is.
The government's going to honor stability agreements.
You're seeing.
Recently in other countries, where monitors who had to go back and change deals worthy.
They had.
They felt they had firm contractual agreements we had to make some concessions in Indonesia to get our.
Our issue with the government resolved there, which.
<unk>, which we did in a favorable basis, but.
That's just reality around the world today.
And as the us looked like as a much better place to be relative to some of these other countries youre investment you're talking about enhanced.
Enhance and accelerate that.
Yes in the U S.
I would make a distinction.
Between Greenfield developments.
Brownfield developments and all of our developments are brownfield is places where we have established operations.
Solid track record of doing things in the right way.
And we have developed.
Positive relationships with local communities.
And with.
Governments.
State local governments and with.
And as these people.
That's a different deal than trying to go in and developing a new mine, where theres not an existing because mine.
<unk>.
Significant bonds.
Half impact zone.
On the.
Physical environment, where they operate on the local communities. There is competition for water resources, there is issues related to.
Historical factors with indigenous people and all of that make it much more.
Much more complicated you can kick off a list of projects in the us that way.
But there are also international projects and face the same deal so for us.
U S is particularly attractive favorable tax situation.
The port four mines by communities is not.
True.
In terms of having community.
Education systems healthcare systems.
<unk>.
No.
Sure.
In other countries, we excellent provide all of that so it's very attractive.
<unk> for us.
We own all of our.
Virtually all of our fans in the U S. C. So there's no royalties.
You look at the.
The royalty rates that are being jacked up around the world. That's a big difference and then we have the company specific situations.
A significant net operating loss carryforward.
Yeah.
Maybe the only I'm trying to think maybe the only good thing that came out of the oil and gas deal, we got a big NOL that protects us.
Texas.
For years to come even though in the U S. We have.
Lower tax rates fundamentally than we do.
Nationally so for all those reasons.
Yes.
Our stablish presence in the U S is really the big one that makes it so attractive to us.
I appreciate that thank you Richard.
Your next question comes from Atlanta, Alex Hacking with Citi. Your line is now open.
Yes, good morning, Richard and Kathleen and thanks for the call. So I just wanted to follow up on a couple of the earlier questions.
The Capex for Baghdad about moves ahead would that be planned capex or discretionary I assume it will be discretionary and then just quickly on lone star.
The the.
The increase in the production rates that you've achieved and its been announced does that does that meaningfully pull forward the potential for the sulfide project by by years.
Or does it does it not really matter.
No.
Baghdad is totally discretionary I mean.
We could continue to operate the existing scale of business that we have there.
Is that where it makes sense.
I think with the markets, we're facing and the opportunities that that closes. It is highly likely we will do it but it is discretionary and.
We will update the market on plans as we made commitments to go forward would you expect us to do.
And.
<unk> point about Lone Star.
If you just look back at the other major projects around the world where.
Get to the.
The mineral resource you have to.
Sometimes two years of investment and stripping to remove overburden to get down to the ore.
Here, we have the benefit of.
Mining, the overburden, which is oxide ore profitably.
And by doing that we are stripping that material.
That is.
Overlays the sulfide resource.
So it is tremendously beneficial to the long term development of this.
And as I said, we're going to make money.
Out of this oxide end of the day.
We are continuing to drill and continuing economic studies, but.
So the future of building a major mill complex.
At Lone star to process.
Large.
Sulfide resources, we're talking about.
In terms of ore.
And Alex I think if you are asking about specifically bad debt with respect to the financial policy. The answer is yes in terms of how we will treat that 50.
3%.
That we're retaining of cash free cash flow.
Earmarking for future investments in growth as well as to maintain our balance sheet. So so that's that's how we're thinking about it.
Thanks.
Yes.
Your next question comes from the line of Carlos de Alba from Morgan Stanley . Your line is now open.
Yes, good morning return on screen.
Just a question around cash cost for the year and I guess for the first the first quarter, how should we could you provide a bit more color I would've expected.
Higher guidance guidance for higher cost in the first quarter above and beyond the $1 35 per pound given the comments of lower grade suspected in the first half of the year.
There are other factors that will mitigate the negative implications on costs from from the lower grade perspective in the first semester.
Yeah, well and part of it part of it too is waiting waiting the low cost in Indonesia.
To have higher costs in the U S and South America.
So that's why you're not seeing much fluctuation.
Between the first quarter and the full year.
Yes.
Alright, thank you.
Just thinking about is the Indonesian ramps up fourth.
Fourth quarter was eight cents a pound for the year. It was on the order of.
Less than 20.
18 19 pounds.
We see costs going forward with higher volumes in that same range in Indonesia. So.
Yeah.
It's a big factor in our business and our teams done a good job of controlling costs, but we're like everybody else, we have our energy costs.
Other input costs are going up so it's just it's just.
Sure.
What we have to deal with but.
That was the whole basis for putting these companies together back in 2007 was to match up.
<unk>.
Indonesian asset, which is special because this copper grades and there is no content.
With the lower grade mines in America, which are profitable, but which have higher costs.
And so that's.
That's just.
Carryover benefit from what we.
While we did so many years ago.
Thanks for the color Richard.
Sure.
Your next question comes from the line of Michael Glick from Jpmorgan.
May correct myself, I said 50 billion tons of ore at Lone Star 60 billion pounds of copper resource.
Good morning, guys just relative to your financial policy could you remind us how often you revisit.
Variable portion of the policy on a practical basis.
Our board reviews on a regular basis.
<unk>.
Formerly it's at least annually, but it's something that we review with our board on an ongoing basis.
Okay got it thank you.
You can see an example for that with what we did in the third quarter.
<unk> started the policy.
Paying the variable dividend and buying stock back.
A year ago. When we started looking at this we plan to do that.
At our.
First meeting in 2022.
Got it.
We have made such progress markets. So good we advanced it so.
Hey.
And just as it is.
Just a little color on the way we run Freeport, we don't have an annual planning process.
We update our long term plans every quarter.
And we go through.
Really disciplined process to do that.
So everything is real time so.
We talked about looking at this financial policy owner.
<unk>.
Annual basis.
As Kathleen said, we talk with our board about it continually.
And if things change, we don't limit ourselves to acting on any kind of straight jacket timeframe.
Yes.
Got it. Thank you that's helpful color.
Yes.
Your next question comes from the line of Abby Agarwal from Deutsche Bank.
Thanks, Operator, Martin Richard I'm guessing thanks, a lot for your presentation.
I think since you've mentioned that you are in preliminary talks with the Indonesian government to extend the contract beyond 2041 can you shed a bit more detail around what the critical path is for that agreement to be side. Thank you.
Yes, it's very preliminary.
<unk>.
<unk>.
Really you tried to address that years earlier and.
So complicated to get everything else known.
It's in everybody's interest all stakeholders interest.
For us to have a continuation of operations beyond 2041.
Makes no sense for anybody for us to run this business.
With any kind of drop dead date.
And so there is a broad and knowledge from it that we need to do it it's very preliminary and so I don't have the answers to your questions about how we structure to what we would mean.
I can say that these preliminary talks are being very well received and there is a.
There is a.
A recognition that it's in everybody's interest for us.
To go beyond 2041.
Thank you.
Your next question comes from the line of John <unk>.
From John Tumazos, very independent research LLC.
Thank you.
Hey, John just on modeling.
As recently as 2017 and 18, the output was 95 million pounds.
And.
So the industry statistics or five 4% decline in World mine up for the last year through November .
So I guess a lot of the copper mines are having lower moly grades.
World Steel and stainless steel outputs are rising.
Do you have any opportunities to.
To expand Marlin throughput further to offset the lower grades.
Cerro Verde or some of the other copper months.
John You know, we have two primary molybdenum mines in Colorado.
The climax mine and the Henderson mine.
And we did cut back production from those mines.
When.
The market was in a different situation than it is today.
But we do have the opportunity to expand production from our primary mines, particularly at climax.
And we're doing some work now.
To advance some stripping activities. So that we do have more flexibility in the future to raise our primary molybdenum mine production.
To respond to this increased demand and limited supplies of molybdenum. So so we do have a lot of optionality.
And our primary mines for Formula.
Thank you.
Concerning the costs in Indonesia for smelting.
You are reporting 24 cents for treatment charges 20 cents for export duties.
And I guess those are averages where some of the output is in country at graphic and some of it is exported concentrates.
If it were say half and half.
Domestic versus export.
Would it.
Be right to think of the cost something like 18.
When you export concentrates to Asia.
30.
For the treatment costs.
Smelter.
And then the export duties would be nothing if you treated them.
Iran smelter.
More than 20 for that portion you're exporting maybe 40.
Yes.
Youre Directionally right John .
And.
Maybe we will get back to you with some details because I think some.
The export numbers that you talked about are in the range of what we're doing at 16 to 18.
And we do pay this export duty.
<unk>.
While the cost for domestic.
Assessing at the smelter will be much higher.
Particularly when you provide for any kind of.
Cost factor for the capital that will go into it.
It will eliminate the.
The export duty.
So the net economic effect.
<unk>.
Together with the fact that the cost of the smelter will be included in <unk> consolidated tax return.
So any kind of costs that go through there we'll see.
Serve to reduce taxes, so the reduction in taxes.
They're not having to pay the export duty.
In a broad sense offsets the economics to <unk> five buildings smelter.
Yes.
As we're thinking about it John and the capital cost amortization over the long period of the smelter will essentially offset the duty.
And then really when you look at the operating costs.
Cash operating costs of the smelter it shouldnt be that much different than.
And then exporting.
TC Rcs, so that's kind of how we're thinking about the two elements.
That was the point that I think.
And I just don't have the numbers in front of me, John but I don't think the cost of processing. It PT smelting is the size you indicated the current deal.
We're expanding that smelter by 30% to as part of this.
This effort to achieve the goal of in country processing.
But it's very very efficient smelter, we built it back in the mid nineties.
It's kind of a world class in terms of its cost management.
Thank you so a lot of complicated details.
Yes.
Your next question comes from the line of Jeff <unk> coal.
<unk>.
Thank you operator, good morning, Richard and Kathleen Rosman, producing this townsend's.
A question on your 2030 food copper.
Copper guidance can you please indicate.
Rich operations will drop volumes.
At 300 million pounds drop year on year in 2024, and Grasberg is now flat. So rich operations, we'll see that drop and is there just a one year blip or.
Is that a continued plan just to understand because grasberg, we'd lose 115 million pounds in 2025 as well.
But just trying to put their discretionary dollars growth capex in perspective.
Guidance and would be currency beyond beautiful. Thank you.
I'll, let Kathleen maybe Josh talk to that but I'll just make a point that you know these.
<unk>.
Mine plan projections are subject to constant adjustments for various reasons that.
And some of it in the results in some volumes going from one year to another but they all reflect.
Steps taken to maximize the long term values of the mines, we don't.
One of these mines to achieve any kind of targeted predetermined targets for volumes.
As I said, we have a.
A dynamic.
Real time.
Planning process and our goal throughout all of those planning process is how do we maximize the long term.
NPV of the resources that we have and so you.
You look back at our history.
<unk> shifted volumes from one year to the next.
Okay.
Good.
Pacific to 23% versus 24.
We do have some lower grades in some of the U S operations.
Notably the RNC in some slightly lower grades at Cerro Verde.
'twenty three 'twenty four.
But as we talked about earlier, we don't have anything in here for and then as a consequence for the installation opportunity.
And so we're all motivated to.
To get to get additional volumes with low capital intensity.
From that leaching opportunity and then we've got Baghdad coming in beyond that and we've got a series of other opportunities as well, but that's it's really some grade as Richard was talking about we do have great shifting from year to year.
Have some lower grades in 2024 versus <unk> 23.
Yes.
Thank you so much.
Your next question comes from the line of Alex Barron Chu from Stifel.
Hi, everybody thanks for taking the call.
Just a couple follow ups to some questions already asked.
First could.
Christian Mayer.
Indonesian.
License discussions beyond 2041 is the pace of investment at that project dependent on those trucks and the second follow up question for me is on the moly.
<unk>.
The price has obviously been quite strong in the past year gone from what $12 to 19 can you give us any insight as to the demand outlook I understand you guys have an opportunity understanding opportunities to expand but.
Anything you can say about demand outlook for the next one or two years.
On the K out all of our economics.
We'll run on on the basis of the 2041.
So if we are successful in.
And extending it there's going to be a lot more or was there some <unk> and other ore bodies that come in but we've run the economics and.
Our plans based on two.
2041 date, and its a very attractive projected and Mark can talk to you more about this but we.
We're really leveraging all.
The learnings that we gained from deep MLC and glass for block cave.
To continue our momentum.
Extending development.
And it leverages off of all the infrastructure, we have there. So it's really a good project on its own and it will just be even better if we're able to.
Two to extend beyond the 2041.
And just one quick comment on that.
With all these years of.
Uncertainty related to our deal with the Indonesian government now for 2041, we've done.
And the fact that we've had such.
Resources already discovered.
Fill up our mill and so forth.
We haven't done much.
Exploratory type drilling and Grasberg district for some time now.
And so that's one of the main factors that makes it desirable for all stakeholders would be for us to have a deal that goes beyond 2041, which would then allow us to undertake more.
<unk>.
Delineation, who were drilling our exploratory core drilling.
Just look at that.
Schematic that we had on the ore bodies that are there and where theyre located and where they've come from historically.
It's just it's just clear that debt.
While we don't know yet because we haven't drilled it but to highlight the annuity is theres a lot more resources, there that haven't yet been identified.
Okay, great. Thanks, guys.
Right.
The line and he can he can share with you some of our feelings about the outlook for demand from for Molly.
Thanks Catherine.
A few thoughts on that.
Positive on the outlook.
Moly over the next few years.
Things like energy whether it's.
Traditional energy sources that require.
Molly bearing steels or if it's renewables are all very positive right now infrastructure development all around the world.
Uses Molly and as we've seen whether it's here Europe .
China Asia.
All very positive indicators and pollution control in general uses a lot of stainless steel.
There again, we're seeing very positive indicators, our customer base, both in Europe , United States are.
Our positive outlook over the next few years and then if you look at the Chinese five year plan. There is definitely an upscaling of materials that they are using throughout their economy and what they're emphasizing.
So we're.
We are relatively optimistic on demand.
That's great. Thank you.
Yes.
Thanks, Mike.
Our last question comes from the line of Carlos de Alba with Morgan Stanley .
Yes. Thank you very much for squeezing me in for a.
Second time.
On on working capital.
If I may maybe Kathleen.
Yes.
The sensitivity on the numbers you provided guidance on cash from operations.
Around 8 billion.
This year and that is net of $1 2 billion of working capital in order to use it. So I don't know exactly how much of your working capital, but assuming that is the majority of the $1. Three could you could you give us some color on that.
The bigger number for working capital.
Yes.
We had a benefit a large benefit during during 2021, a big portion of that is the timing of our tax payments internationally.
You generally pain on the prior year.
Schedule and so theres some timing variances when you have.
Rising volumes are rising.
<unk> ability and so that's just timing of tax payments.
Alright got it thank you very much.
Now well turn it over to management for any closing remarks.
Yes. Thank you all for participating in the call today.
Pleasure to be able to.
Reported great progress our team is making and we look forward to.
Continuing that progress and are really excited about what lies ahead for us. So thank you for your interest and if you have any further questions or need for follow up.
Please contact David joint and we will respond to you.
Have a good day everyone.
Ladies and gentlemen that concludes our call for today.
You for your participation you may now disconnect.
Okay.
[music].
No.
Sure.
Sure.
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