Freeport-McMoRan Inc. Q1 2023 Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMaran first quarter conference call. At this time all participants are in a listen-only mode.
Speaker 1: 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 touch tone phone. If you require assistance during the conference, please press star 0. I would now like to turn the conference over to Ms. Kathleen Quirk, President. Please go ahead, ma'am.
Speaker 2: Thank you, Regina, and good morning. Welcome to the Freeport-McMirand conference call. Earlier this morning, we reported our first quarter of 2023 operating financial results, and a copy of today's press release and slides are available on our website at FCX.com.
Speaker 2: 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.
Speaker 2: 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.
Speaker 2: 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 made different materially. Like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings.
Speaker 2: Also on the call today is Richard Atkinson, the Chairman of the Board and Chief Executive Officer, Marie Robertson, our CFO , Mark Johnson, our Chief Operating Officer for Indonesia, Josh Olmsted, our Chief Operating Officer for the Americas, and our Chief Operating Officer
Speaker 2: Mike Hendrick who leads our molybdenum business.
Speaker 2: Corey Stevens who leads our engineering and our project development activities.
Speaker 2: I'll turn the call over to Richard who will make some opening comments and then we'll come back and review the prepared slide materials and then take your questions.
Speaker 2: Richard?
Speaker 3: Thank you, Kathleen, and thank you all for joining us. Kathleen will review the results of the quarter and our outlook, and I'll join our team in responding to your questions.
Speaker 3: I'm pleased with our global team's responses to challenges we faced in the first quarter.
Speaker 3: You all know mining is a tough business. That's evidenced by the recent reports throughout the industry.
Speaker 3: Who you are in our industry is defined by your responses to challenges.
Speaker 3: I'm very proud of who we are at Freeport.
Speaker 3: Our team in Indonesia once again proved resilient in overcoming a major flood event.
Speaker 3: Now we're accustomed to dealing with rainfall at Grasberg.
Speaker 3: It's located high in the mountains of New Guinea, one of the wettest places on the globe.
Speaker 3: We just celebrated our 56th anniversary of operating there.
Speaker 3: Our systems are designed to handle significant rainfall.
Speaker 3: The intensity of the event we experienced in January was unusually severe.
Speaker 3: Our established systems prevented major damages. Our team bounced back quickly by taking immediate actions to restore production and mitigate future risks. So, this year there has been a Ku out restart.
Speaker 3: And we have a great start in the second quarter with operations there.
Speaker 3: Kathleen and I have made a series of trips to Indonesia in recent months.
Speaker 3: For me, it's personally gratifying to experience the markedly more positive attitudes there about free port than in years past.
Speaker 3: All this resulted from the partnership we established with the government in 2018.
Speaker 3: the success we have achieved in the multi-year, large-scale development of our underground operations.
Speaker 3: and the positive outlook for copper in the future.
Speaker 3: Grassburg is now returned to rank as the world's second largest copper mine. Our net cash cost of production at Grassburg in the first quarter was a negative 8 cents per pound. Grassburg is now returning to rank as the world's third largest copper mine.
Speaker 3: We are now working positive with the government to extend PTFI's operating rights.
Speaker 3: beyond 2041 in a way that benefits all stakeholders.
Speaker 3: At Sara Verde, our team negotiated through a volatile period of political turmoil in Peru.
Speaker 3: Our team rallied around the community and our workforce to handle the situation in a remarkable fashion.
Speaker 3: Our U.S. team is stepping up to overcome the challenges associated with labor availability in the United States.
Speaker 3: We appreciate the commitment and drive of the Global Freeport team to reach our goal in challenging circumstances.
Speaker 3: Copper markets continue to be supported by low levels of inventories.
Speaker 3: China's accelerating economic recovery.
Speaker 3: and the ongoing positive global demand drivers for copper.
Speaker 3: Our customers continue to buy all the copper we can produce and seek more.
Speaker 3: As we move forward, copper miners will be required to expand production to meet demand.
Speaker 3: At Freeport, we're in a strong position to develop new sources of copper supply.
Speaker 3: to grow our business from our vast brownfield resources.
Speaker 3: our vast brownfield resources.
Speaker 3: and
Speaker 3: And also to grow our business.
Speaker 3: from the rapidly developing leach technology and the supporting data analytics. At Freeport, we benefit from strong franchises and support from communities where we operate.
Speaker 3: We are committed to maintaining a strong balance sheet.
Speaker 3: We have an exemplary track record for success in project and operations execution.
Speaker 3: Focused execution is the backbone of our culture at Freeport.
Speaker 3: We have a clearly defined strategy and a relentless drive for achieving long-term success.
Speaker 3: Kathleen will now review our slides.
Speaker 2: Thank you Richard and I'll start on slide 3. You've probably seen we published our annual report and our sustainability report today and the reports are available on our website. The theme of this year's annual report is the power of copper.
Speaker 2: It highlights the critical role that Freeport and our principal product, copper, play in powering the global economy and the growing uses of copper as the world decarbonizes and reimagines modern infrastructure to support a highly connected world.
Speaker 2: We're also proud to publish our annual sustainability report.
Speaker 2: We've been reporting on our comprehensive sustainability initiatives for 22 years now, and transparency continues to be enhanced.
Speaker 2: The report summarizes our initiatives, our achievements, and the challenges that we face in managing the safety, social, and environmental aspects of our business.
Speaker 2: which are critical to our long-term success.
Speaker 2: We use international standards, best practices, and third parties such as the Copper Mart to measure our performance and responsibility to our stakeholders.
Speaker 2: We hope you will have the chance to review this information and engage with us on these topics.
Speaker 2: We will turn to slide 4, which summarizes our key operating and financial highlights in the first quarter.
Speaker 2: As previously disclosed, our grass berg operations were temporarily disrupted in February following a significant weather impact in our mill area. As Richard said, the team did a great job to safely restore production to normal levels in March.
Speaker 2: Despite the lower volumes compared with our estimates going into the quarter, our consolidated unit net cash costs were essentially in line with our guidance.
Speaker 2: Consolidated costs per unit averaged $1.76 per pound.
Speaker 2: in the quarter as higher by-product credits more than offset the volume impact.
Speaker 2: As Richard mentioned, notably, even with the disruption, Glassburg unit net cash costs averaged a net credit of 8 cents per pound, meaning the gold revenues more than offset the cash costs of production.
Speaker 2: With the return to normal operations in March and a great start in April , we expect our volumes to be strong in the balance of the year.
Speaker 2: Our margins in the quarter were strong. Our EBITDA totaled $2.2 billion in the quarter. Operating cash flows, which were net of $500 million use of cash for working capital, totaled $1.1 billion.
Speaker 2: We funded investments during the quarter of 1.1 billion. That included about 400 million for major mining projects and 300 million for the Indonesian smelter which is being funded from proceeds from financing we raised last year.
Excluding that debt associated with the smelter, we ended the quarter with $1.3 billion in net debt. Our balance sheet, liquidity, financial flexibility are in terrific shape. The outlook is positive for free cash flow generation in the balance of the year. The next slide, Richard talked about
the challenges we faced in the first quarter and we face these across our global operations.
Our teams executed well in the circumstances, and you can see on the left the production impact of the weather event at Grasberg in February and the strong recovery in March.
In Peru, we and other companies experience the challenging environment of the
earlier in the year associated with widespread protests which impacted supply chains and transportation routes.
Our team at Sara Verde did a great job managing the situation efficiently and safely.
The situation in Peru has improved in recent weeks.
we're now operating at normal rates. In the US we were challenged with ongoing labor shortages, extreme weather events earlier in the quarter, and unplanned maintenance issues.
We are working to improve productivity and reliability, working on skills development and pursuing technology and automation initiatives as we aggressively seek to recruit workers with ongoing skills development and automation initiatives.
tight labor market conditions in the US.
The leach recovery efforts, which we'll talk more about, really help to offset some of the shortfalls in mining rates and we're going to continue to build on this.
Turning to the markets on slide six.
Freeport is well positioned as a leader in the global copper industry.
Demand for copper is expected to accelerate going forward with projections for demand to double by 2035.
Demand for copper is expected to accelerate going forward with projections for demand to double by 2035. Copper is essential in electrification.
Low carbon investments in renewable power and electrification are driving massive growth in demand.
In addition, the initiatives by many countries for major infrastructure programs and the uses of copper for connectivity, data, and artificial intelligence are also growing demand for other drivers.
At the same time, the ability of the industry to meet this rising demand is a real challenge. All of us can look back at this time last year when many were projecting the market to move to a surplus in 2023, pointing to the new projects that were coming online.
As we look at the situation today, most analysts now project the market to be balanced this year.
even with the new projects. And longer term the projections are for very large deficits.
Under this backdrop, we believe prices will need to rise to incentivize new supplies. At Freeport, we benefit from a large reserve position, as you see on the slide, and an even larger resource position to grow our business in the future.
We're strongly positioned to continue to support growing demand.
and are pursuing several of these initiatives to enhance production going forward.
On slide seven, we talk about the molybdenum markets and as we've discussed, in addition to being a leading copper producer, Freeport is the world's largest molybdenum producer.
Last quarter we spoke about the significant rise in molybdenum from $18 per pound in late 2022 to a high of over $38 per pound in the first quarter of this year.
we realized $30 per pound for our molybdenum sales in the first quarter.
$30 per pound for our molybdenum sales in the first quarter. The price rose sharply.
beginning in late 2022 in response to supply issues and favorable demand drivers in energy and aerospace sectors.
The prices began to drop from the highs in recent weeks, partly related to improved supply.
As we look forward the demand drivers for molly are positive and since molly is principally produced as a byproduct from copper mines
It's also subject to some of the same supply issues as we have in copper.
Current price of molly approximates just over $21 per pound.
We're really excited, moving to slide 8, really excited to talk today to give you an update on our leech initiatives, which Richard referred to earlier.
Our efforts to increase copper production to enhance recoveries from our massive leach stockpiles is continuing to gain momentum.
Based on our results today, we're gaining increasing confidence in achieving our initial target of 200 million pounds per annum.
and have begun to model what the next phase could look like.
On the left side of the chart we summarize the various categories that make up the initial 200 million pound target.
basically in three buckets. The first is
three buckets. The first relates to heat.
increasing temperatures within the stockpiles.
The second is an initiative we call Leach Everywhere, which is focused on making sure the entire stockpile has the benefit of the liquid solution we use to leach copper.
The third category, which is really important, involves data analytics using new data available through sensors.
used in a variety of ways including optimizing the amount of solution used and the rate of application we use to achieve the best results.
It has been proven that increasing heat in the stockpiles enhances recovery.
We've advanced the installation of covers on our stockpiles for heat retention, and we've mechanized the process, and that's allowed us to execute more efficiently. We now have over 30 percent of our massive stockpiles covered. These initiatives provide 30 percent of the target an increase.
The Leach Everywhere Initiative makes up 50 percent of the uplift and uses targeted drilling to improve flow of the solution that may not be getting through the stockpile.
We're also drilling injection wells to add the liquid solution to lower stockpile sections.
The sensors we've installed and access to other technology used in oil and gas formations are providing new information on where additional leaf solution would stimulate the process and support higher production.
If the data analytics works is providing new insights, we really haven't had the benefit of this in the past and we're now able to get the benefit to determine the optimal operating protocols under various conditions of the stockpiles.
The initial success of these initiatives adds production at low incremental costs.
success of these initiatives as production at low incremental cost and a low carbon footprint.
In parallel with our initial activities, we've been doing substantial work on the drivers to stimulate leach production and have modeled results on what the next phase of initiatives could yield.
We see an opportunity to add an additional 600 million pounds per annum from these initiatives, which would provide a total of 800 million pounds per year. That's the size of a major new mine without the capital intensity and a very low incremental operating cost.
The three areas of focus are highlighted in the center of the slide.
We are in various stages of development on each of these initiatives. We have a lot of work to do to advance these initiatives. Some of this requires further innovation, but we have a clear path to success in this program.
We are evaluating opportunities to increase the temperature further by heating the liquid solution before application on the stockpile.
We are evaluating options to do this using solar generated power, geothermal, or other renewable sources at our mine sites to accomplish the additional heat requirement.
We're also testing various additives that we're developing both internally as well as from third-party initiatives.
And we're using artificial intelligence in our journey and in our evaluations to help expedite the process. We're also evaluating options to inject air into the stockpiles in areas that are not getting enough oxygen.
Again, we have much more knowledge of what is going on within the stockpiles and are working to design solutions to re-stimulate copper production.
Freeport is in an exceptionally strong position to lead the industry in this area, with massive stockpiles currently under leach.
ongoing mind leech for
mine for leach activities and the latent tank house capacity that we have.
This will be part of our growth plans as we go forward in addition to the organic growth that we have to develop new copper in traditional ways.
Slide 9 highlights the growth and development outlook.
growing copper demand, and the limitations and risks in actionable greenfield project development, our strategy and development priorities are focused on extensions of our existing operations and our portfolio of brownfield opportunities.
On slide 9, we show our near-term, medium-term, and longer-term development options.
Following the significant growth in recent years achieved through the successful Grasberg development we're focused on advancing the next phases.
In the near term, we see the best options for growth in achieving our initial leach targets and actions to enhance productivity and reliability in our U.S. operations.
If we can get our mining rates up in the US, which we're working on.
We can hit our targets for asset efficiency and reliability. We have the opportunity to add an additional 200 million pounds per year with limited capital investment.
In the medium term, we've outlined a series of initiatives. The first includes the second phase of our leach project.
We're also looking to expand our Baghdad mine in Arizona and expect to complete feasibility studies this year.
We have a major opportunity in Chile at our LAVR project.
and we already have an existing operation and looking to expand it significantly.
And we're in the process of developing a new 90,000 ton per day block cave mine in Indonesia called Kuching Liar which is currently in progress.
expected to commence initial production by the end of the decade. At Baghdad we're making some investments which are included in our new capital expenditure guidance to conduct early works in the tailings area to enhance optionality to move more quickly with the mill expansion project following completion of the feasibility study.
Longer term, and we're already working on these projects as they require long lead times, we expect we'll have the opportunity for further major expansion in the Safford Lone Star District where we haven't identified significant resource and we have a series of U.S. brownfield projects that can be pursued.
In Indonesia, Richard talked about the extension discussions we're having and the extension of our operating rights beyond 2041 would open the door for continuation of large-scale mining and potential additional development options in one of the world's largest and highest-grade copper and gold mining districts.
We're in an outstanding position to continue our leadership role in supplying copper to a world with growing requirements. We're going to continue to be disciplined in our approach and focused on executing projects where we can create value for shareholders. On slide 10, we provide an update of our three-year outlook for sales volumes.
We've updated the 2023 sales guidance to take into account the first quarter disruption.
and the impact of lower mining rates in the US. Despite the disruption at Grasberg in February , our goal volumes for 2023 are about 3% higher than prior estimates.
We've incorporated the estimates for stronger gold recoveries in our January forecast and we're doing really well in that regard.
The guidance for 2024 and 2025 is unchanged, but with continued success in our leech efforts, we have some upside to these estimates.
On slide 11, we show a comparison of our prior unit net cash cost guidance for 2023 compared to our current estimate.
We currently estimate unit cash costs to average $1.55 per pound for 2023. That's slightly lower than our January estimate of $1.60 per pound. The impact of the lower copper volumes is offset by...
higher by-product credits, and a reduction in export duties in Indonesia associated with our smelter construction progress. Our assumptions for the key commodity-based input costs are similar to the January estimates.
We're starting to experience less inflationary pressures in certain areas than in 2022, particularly for energy, while labor costs, services, and equipment components have increased.
In the reference slides on page 23, you will see the reference slide that will show you
You'll note an approximate 7% increase.
in site production and delivery costs for our U.S. mines compared with prior estimates.
This largely reflects a reduction in volumes in the U.S. associated with the challenges we discussed earlier. We have ongoing initiatives to improve productivity there. Moving to our cash flows, on slide 12 we show modeled results for EBITDA on cash flow at various copper prices.
hold gold flat at $2,000 and molybdenum flat at $18 per pound in these models.
Our annual EBITDA on these scenarios would range from over $10.5 billion per annum at $4 copper to $15 billion per annum at $5 copper.
Operating cash flows would range from $7.5 billion per year at $4 copper to $11 billion per year at $5 copper.
We show some sensitivities to the various commodities on the right.
And with our long-term, long-life reserves and large-scale production...
We're really in a position to benefit from future metals intensive growth trends and the prospects for increasing cash flows and cash returns under our performance based payout framework.
On slide 13 we provide an update to our capital expenditures. Current forecasts and these exclude the Indonesian smelter project which is being funded with cash that we raised last year in a bond offering but our current forecast for 2023 totals three and a half billion.
That's up from the prior estimate of $3.4 billion and capital expenditures for 2024 currently forecast to approximate $3.3 billion. The change from our prior guidance principally reflects investments we're planning at Baghdad to jumpstart early works to support optionality for future expansion.
The Baghdad investments are projects that we categorize as discretionary and do not reduce the cash available for distribution under our payout policy as they will be funded with the remaining 50% of free cash flow retained for growth projects. On slide 14, the
We've got some great pictures showing the construction of our new smelter in Indonesia. This is a major undertaking for us. It's impressive and will be on a world-class scale. The project will become the world's largest single-line flash copper smelting facility and it's advancing rapidly.
We expect to commission the project in 2024. The project will include a precious metals processing facility and an expansion of the existing nearby smelter. It will align with Indonesia's downstream policy and enable PTFI to process all of its concentrates domestically.
and provide significant financial flexibility for the future.
We are executing the performance-based payout policy which provides for 50% of our free cash flow to be allocated to shareholder returns in the form of dividends and share purchases and the balance available to invest in our projects. We will continue to pay a base dividend and a variable dividend at a combined annual rate of $0.60 per share.
And since commencing the performance-based payout policy in 2021, we've returned about 60% of our free cash flow to shareholders, and it further strengthened our balance sheet along the way, providing capacity for funding new projects over time.
We did not purchase shares in the first quarter, but have availability under a share purchase authorization to conduct purchases pursuant to the policy. We have a positive outlook for substantial free cash flow generation in the future depending on prices and other factors.
The three priorities of balance sheet strength, allocating cash flow to a mix of shareholder returns and organic growth, we believe will enhance long-term value for the benefit of our shareholders.
Our global team is energized, we're motivated to continue building value in our business, and we're executing our plans responsibly, safely, and efficiently.
Thanks for your attention and we'll now take questions.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press star 1 on your touch tone phone. If your question has been answered or you wish to remove yourself from the queue, please press star 1 again. If you are using a speakerphone, please pick up your handset before pressing the numbers.
We ask that you limit your questions to one. If you have additional questions, please return to the queue. One moment, please, for our first question. Our first question comes from the line of Chris LaFimina with Jeffries. Please go ahead.
Hi, thanks operator Kathleen Richard. Thank you for taking my question. I actually have a bunch of questions But I'll just ask one and then I get back in the queue There's a lot there's a lot of M&A activity happening in mining obviously at the moment and copper seems to be a major focus
And I know I think Richard's talked a little bit about looking at M&A opportunities in the past, but you obviously haven't done much in recent years. And I'm just wondering what your overall philosophy is around M&A. Are there jurisdictions that you'd be focused on? Is it important to have operational synergies? Are there any kind of key criteria that you would consider? Or is it just really about being opportunistic?
And then secondly, is M&A something that is increasingly on your radar screen just as a result of consolidation in the industry in general? Thank you.
Thanks, Chris. As you know well for...
A long time now I've been saying that
It's inevitable because...
the challenges in developing projects and it's not just a price issue it's really just the availability of actionable
companies in our industry that are diversified companies have had copper at the top of their strategic list for a long time. It's notable of the overall lack of success in developing new projects. There have been a few of course. So all those things come
you know, what we're seeing going on right now with M&A activity. Now for us, we don't have a strategy of growing through M&A. We are focused on our large scale.
inventory of reserves and resources that Kathleen described, but that does not mean that we would not take advantage of opportunities that may arise. So we're not defining regions or any other
we would only do something if it was clearly something that was value enhancing for our shareholders. So we're not in a position of looking for things to do but now with our company having made such great progress and strengthened our balance sheet, completing the major underground conversion at Grasberg and
we would be in a position if an opportunity arises, but it would only be in that case. Okay, thanks.
we would be in a position if an opportunity arises but it would only be in that case. Okay thanks.
Your next question will come from the line of Emily Chang with Goldman Sachs. Please go ahead. Good morning, Richard and Kathleen. My question is just around the leaching technology that you've talked a little bit more about today. I wanted to dig through the 600 million pounds of step change in leaching volumes there. I think as we talk about the third-party catalytic leaching technology, I think that's been deployed at a large...
leading the efforts but in terms of the additional 600 million pounds
A portion of it could be through these additives, but it's important to note that the additives that we're pursuing are both internal and through third parties.
And we've got a trial going on with a relatively small stockpile at Baghdad with JETI and we've got some new initiatives going on with JETI at Alabra.
But the bulk of what we're outlining here is initiatives that we can pursue on our own.
There is a lot of innovation involved and technology involved, but it's not rocket science.
The sensors and data that we have now is pointing us to where the issues are. Where is the solution not getting through the stockpile? Where is the stockpile not getting oxygen to it? These things can add once we identify the problem.
we as an industry can find a solution. And at Freeport we have such big stockpiles, that's why we have such a big opportunity here.
So the bulk of what we're talking about, the opportunity we're talking about, is largely at Morenci.
It might, we don't know yet, but it might compete with traditional mill technology. But we're really looking at what's available now through third parties, but our initiative and our objective is to find a way to solve this on our own because that's the best way to...
to maximize the yields for free port. But Cora, do you want to add anything to those comments? Yeah, Kathleen, you said it well. About our R&D efforts, we've been chasing some...
you know, internal leads that look very promising. And then in the first quarter, what we've been able to do.
is couple our work with artificial intelligence and machine learning much like how big pharma uses to develop their new products.
is couple our work with artificial intelligence and machine learning, much like how Big Pharma uses to develop their new products in a way that's driving us.
to increase the breadth and scope of the candidates that we're looking for for implementation. And then in parallel, we're actually bringing in more capabilities to do quick tests and medium scale tests and in the field at scale tests, but that's where we're most excited. And then coupling that with some of the temperature activities.
we see that our confidence is growing on that front. Great, that's very helpful. Thank you.
Your next question will come from the line of Carlos de Alba with Morgan Stanley . Please go ahead.
Thank you very much. Good morning everyone. Just on Indonesia, I wonder if you can give us perhaps an update on how the conversations are for obtaining the export license, extension of the export license in June and also any conversations that you may have had with the government and your local partner.
extending the contract beyond 2041 ahead of time. Thank you. Yes, thanks
All of these things are happening in parallel with each other.
to get the contract extension approved, and there's widespread support for it within the government, requires some procedural actions to deal with
then also to amend the IUPK that we would grant it in December of 2018. That would be a fairly simple process. So we're
The June date has to do with this broader issue the country is pursuing with
downstreaming for minerals broadly, and so that's why that was there. We don't anticipate that will be something that would limit our ability to continue operations beyond June . Six tried to make the experiment in July , but job Manhattan took immediate action.
Anything more, Carlos, to be specific on it?
Richard, I just want to point out that our IUPK that we entered into, that Richard referred to in 2018,
allows us to continue exports through, at that point, contemplated December 2023. And that has some force majeure provisions, which clearly the delays that we've experienced related to COVID and supply chains are force majeure.
So our IUPK allows us to do it, but we need to get the approval from the government to put in this regulation after the IUPK was signed to restrict exports in the broad...
range and it's not defined which minerals they're trying to to achieve but we're working with the government we're keeping them informed and they're visiting our copper smelter site. They're very impressed with the progress that we've made. Unfortunately it's not going to be finished.
It'll be the construction will be substantially complete by the end of this year, but it won't be completely finished. And so we'll need the the ability to continue to export and importantly with the alignment we now have with the government ownership, it's very important for the government revenues as well for for exports to continue.
We're going to continue to work on it. We don't have the extension beyond June yet, but we do expect to get it.
Kathleen's right.
We have these legal rights that are documented, but I want to emphasize we're working cooperatively with the government and not just pushing our legal rights. And we're getting a good response from it.
Okay, and just one clarification, for the extension beyond 2041, or the contract beyond 2041, is this something that requires legislative approval or is just an executive decision obviously together with the ministries and all that?
The government will decide really how to document it. There is a path forward for it to be done without formally going through new legislation. We do benefit now by having strong support within the Parliament of Indonesia who visited our operations.
parliamentary group overseeing mining came to the US.
and visit us here. So I just want to emphasize the whole tone has changed.
You know, the President visited our operations in late August , early September , and it was a very positive – one of the highlights of my career there in Indonesia was his visits, and we're building off of this to find the right way forward and do it in a way that everybody wins from it. The government would win.
This 2041 date was in our original 1991 contract of work, was carried forward in the 2018 IUPK, and we actually have not done significant delineation drilling to see the extent of the resource. In Cornerville this was installed in Upper
beyond what's been necessary to fill up the production profile through 2041. And yet in doing that we have a very
beyond that already identified, but we are really excited about the opportunity to go in and drill to see you know in the
30 plus year history of Grasberg, it always has gotten bigger over time. And I'm confident as we do more drilling it will continue to be to grow and be bigger just because the nature of the the ore system there and the grades that are available to us. It's really exciting and so
That's what we want to achieve with the government is to get the extension granted, then undertake an active program of delineation. We only report reserves through 2041, and this would give us a chance to develop reserves beyond that date and to develop...
and to come up with plans for developing those reserves for future growth. It's just a great long-term asset as a base for our company for its future.
to come up with plans for developing those reserves for future growth. It's just a great long-term asset as a base for our company for its future. Thank you very much Richard and Kathleen.
Thank you for your question. Your next question comes from the line of Brian McArthur with Raymond James. Please go ahead.
Good morning. I just want to follow up a little bit on the leeching situation and I appreciate all the detail. I just want to clarify, I think you said most of this was internal, so it's not jetty, but then you made a comment about the bulk of it's Morenci. Morenci is sort of 50% of the stockpiles, but there's a whole bunch of other North American stuff. Is there a tank house issue or is that $800 million?
constrained going forward by anything else or could it just be bigger if you can do stuff at Baghdad and Sareeda and everywhere else? Brian , we have a we have latent take-house capacity across the business of about a billion pounds a year and it's in different places but
That is what makes this so compelling is that there really isn't a lot of incremental capital involved in these initiatives. Historical leach production, you go back decades, has declined over time. We're just having a resurgence of what it once was.
this new data available to us that's telling us what's going on within the stockpiles is providing us with a roadmap to kind of have a renaissance of the prior leach production. So, if need be, we could invest in new tank house capacity.
But the low-hanging fruit is we've got latent tankhouse capacity at many of these sites. So we're really approaching this across the footprint. But the highest impact to date has been at Morenci.
And that will likely be the lion's share of where we get additional pounds, but we have opportunities across the footprint. We also have inactive operations, inactive leach stockpiles that we can look to in the future. But the first, the lowest hanging fruit and the highest value is in places where we're already leaching.
Yeah, and Marency is the world's largest leaching operation today and it was where much of the modern leaching technology was originally developed decades ago. So I just wish I could...
have a good way of conveying the excitement of our team working on this. It's really fun to see. We're leeching everywhere and we're leeching everywhere and we're going to leech to the last drop. And the benefits are just, you know, no permitting to do this kind of stuff.
very little capital, tank house capital, if it's necessary, is not significant in the bigger picture of things. And the climate, the carbon emissions are... So it's a winner on every respect and that's why we're working cooperatively with other companies and with JETI and...
and focusing on what we can do on our own, because if we do it on our own, we capture all the economics for our shareholders. So it's a multifaceted deal. Like I said, it's really a lot of fun. It's injected a level of enthusiasm into our whole organization that's really fun to see.
No, I might be pushing it here, but just as a related thing, you also talked about North American staffing, asset efficiency of 200 million pounds. So that has nothing to do with any of this. That's independent. What actually is that part of the equation?
Well, it's not limited to the mining industry. Certainly it's not restraining us with our efforts to advance leaching. But it's an issue that as I talk with...
other CEOs in the Business Roundtable, everywhere people are experiencing it. Some of it grew out of COVID and the way people are.
approaching, you know, life, work, styles as they go forward, but it's a real issue for us and we're
attacking it by aggressively recruiting for people but also it's a spurring our efforts to see what can we do with technology to make our business less
But it is a real issue in the US, not in Peru, Chile, Indonesia. But it is a significant matter in the US.
But Brian , it's basically getting our mining rates up and also getting our plant and processing going.
and to reliability standards consistent with what we've experienced in the past.
So some of the experience levels have impacted us.
for the reasons Richard just talked about. But these are things, these are self-help items and we've already got efforts underway to work on it and a game plan for how we're working on it. But it's an opportunity that we don't need to go do a major project.
to go get. Again, the initial leech initiative and this self-help work that we're doing is some of the highest value opportunities we have in the near term.
Right, and while at a billion pounds, I guess it's equivalent to being one of the biggest, one of the top five copper mines in the world.
Right, and while at a billion pounds, I guess it's equivalent to being one of the biggest, one of the top five copper mines in the world. Yep. Alright.
Great, thank you very much. Your next question comes from the line of Kim Natanners with Wolf Research. Please go ahead. Hey, good morning. I wanted to look at slide five and kind of the cadence as you described and kind of understand what the trajectory is going forward. So is the poetry just the commute as you described?
It sounds like the Peruvian situation has really improved from what we hear. So is that fully behind and we can expect this run rate going forward? I know you talked about labor issues continuing, but I assume the weather, you know, we are not going to forecast interruptions there. So I just wanted to get a little bit more about the cadence you'd expect in the regions and any impact on costs that might be lingering. Thanks. Kathleen, I'll start by just making a comment about Peru.
There are different issues in different parts of the country of Peru.
And the, in our operation is located just off the outskirts of the city of Arequipa in the Arequipa region.
And while there were protests there, they weren't as large as the protests in other areas.
And we did have some disruptions of personnel movement and supplies for a period of time. And in our region, it has improved. The issues Burst Gre Bit
have not been resolved in the country. And so that remains there as an ongoing risk, but as you look at...
this trajectory issue, I think it's important to look at individual regions and see what's going on there and not assume that because we made such improvement that that's carried forward to the same extent in other regions.
So it's complicated. This whole business is complicated, but Peru is very complicated. And, Tim, you can look at slide 26.
and that has our quarterly sales volumes for the balance of the year. The first quarter was impacted by these disruptions, but also we had the conversion to to tolling in Indonesia, which we had projected.
projected going into the quarter, but you can see where we expect to be on a run rate for the balance of this year. You can see very, very strong recovery from first quarter in the balance of 2023. Thank you. Anything on the cost side as a second part of the question I had asked? Is that also out of the woods for most of the group besides the labor?
last year and that's principally energy you know we saw the big spike in energy starting around this time last year some of and some of the other input costs that that were exacerbated by the Russia Ukraine situation some of those things have
decline in East and so that's that is helpful, but we still have labor.
our services costs that were contracted for, some of our components, equipment components, all those things are still with us in 2023. So we've got some elements of relief and some elements of costs that are higher. They're no higher than what we estimated.
Thank you for taking my question.
Could you give us some color on the February escalation?
$38 spot molly whether there was some specific shortage.
probably there were some high purity customers that had to get
there were some high purity customers that had to get the good molly.
I noticed that the Spence concentrator began reporting molly output to Kachilko for January and presumably Cabrada Blanca will start in April and May.
The dispense concentrator began reporting molly output to Kachilko for January and presumably Cabrada Blanca will start in April and May.
You were not the source of the supply increase, but maybe you have some insight as to where else the supply might have rebounded when the price doubled. Thank you. John , I'll comment, and Mike Kendrick can add to it, but partially what happened in the first quarter.
was some of the same supply issues from Mali that impacted copper. And the situation in South America, particularly in Peru, did have an impact on supplies. And at the same time, we were seeing some strong growth in demand.
There was extreme tightness in the first quarter, and some of that got relieved in Peru when things started to return to more normal operations. We continue to see, as we look forward, demand drivers for Mali being positive, and the supply side, which will... We/#re known as the design-twistaying system, and we are wherein I went to learn about how different things were based on different principles of blue out come relation, and we DCED access this to help us drive fasterbody through that spectrum of accessibility Winter West
is the one that people try to maximize and sometimes Molly isn't maximized in those scenarios. But that was I think the main thing that occurred from a Molly perspective on supply. Mike, I don't know if you want to add, there's other things that we should add to that.
No, I think you captured it very well, Kathleen. I think it really highlights what a tight physical market Mali is, and as a result, there's no attenuation when there's a demand need in any given week and there's not supply available. I'll let us know thoseitute.
both rapid increases and rapid decreases through the system. And as to your question on quality, we're a large player in that area and we conduct that business under contract.
So, most of our high-quality material is designated 100 percent all the time to those products.
our high quality material is designated 100% all the time to those products.
Thanks, John . Your next question comes from the line of Michael Dudas with Vertical Research. Please go ahead. Good morning, Richard and Kathleen. Good morning. As you indicated in your previous remarks, you talked about the observation that at the Spirgo, the market was in over 200 million people.
gross capital into positive capital.
What do you think the risk is a year from now that Mark, is there upside or downside risk towards supply given those dynamics as you work through it over the next 18 months? You were breaking up a bit, but you were asking about the supply side risk assessment, right? Yes. Yes. Yes.
that Mark, is there upside or downside risk towards supply given those dynamics as you work through it over the next, well, 18 months? You were breaking up a bit, but you were asking about the supply side risk assessment, right? Yes, yes, yes. Yep.
If you go back several years when the projects that are now
coming on stream were first announced, there were to be massive, there was projected massive surpluses in this calendar year and calendar year 24-25 and those projects
you know, got delayed for different reasons. COVID hit. And they're not having the major surplus situation this year as markets basically balance.
And you know, it got delayed for different reasons. COVID hit. And they're not having the major surplus situation this year as markets basically balanced. And they've been looking to get out of borders now. So far.
24, there's potential surfaces. But there's not new projects of significance coming on stream after that. So I would say that the supply side risk is much more on the downside. You know, we've seen
issues related to meaning production projections being higher for various reasons, you know, the Peru situation and operational issues like we had in Indonesia occurred in other places. So I think if you look back for a long-term history, supply costs projections tend to be...
The projections tend to be higher than reality when experience actually happens, and I think that's where we are now. We have this leaking project which gives us some upside.
But overall, the risks, I think, are more on the downside.
Thank you, Richard.
Thank you, Michael. Appreciate it. Your next question comes from the line of Matthew Murphy with Barclays. Please go ahead. If you have registered for Also
Hi, just a question on the cash flow statement. Non-controlling interest distributions were zero this quarter which...
I guess it's happened a few times in the past, but what drives that? And in this case, should we assume that there's going to be a bit of catch up later in the year?
The first quarter we had
some significant taxes that was expected. We had some significant taxes that we paid in the first quarter related to the prior year period and so we did not have distributions in the first quarter as that was used to fund.
fund those expenses, but we do expect that you'll see that line item increase throughout the year. We're generating a lot of free cash flow at PTFI and at Sara Verde and those funds will be distributed. So in terms of thinking about it, we do provide some guidance.
on the impact of non-controlling interest on our net income. And the estimates for cash flow are similar to that, maybe a bit lower than the earnings impact, but somewhere in that neighborhood..
on the impact of non-controlling interest on our net income. And the estimates for cash flow are similar to that, maybe a bit lower than the earnings impact, but somewhere in that neighborhood. Okay, that's great. Thanks.
Your next question comes from the line of Oris D'Alcadale with Scotiabank. Please go ahead. Oris, you may be on mute. Our next question will come from the line of Lawson Linder with Bank of America Securities. Please go ahead.
for the regulatory environment there for mining. Thanks so much.
Well, Lawson, it's...
It's still uncertain. And while there were some, from our perspective, some positive developments that have occurred since this process started, we're still waiting to see where it ends up. There's fiscal issues relating to royalties and taxes. There are also regulatory issues.
that we and other miners will.
You know, wait to see how they play out. We're doing some things now to maintain optionality. We're planning some investments in desalinization, which will not only benefit the opportunity for us to extend existing operations, but also to maintain the opportunity to maintain
give us some ability for the potential mill project. As we talked about earlier, we're doing some work on leaching and that could continue to evolve our expectations about the design of the new project.
We are keeping options open and making some advances to enhance that optionality. The project at Alabra is very strong. We are in the process of updating our...
capital cost numbers to reflect what the current environment is. But Elabra has a huge resource.
We're talking about potentially increasing production there. You saw the numbers in the press release, I mean in our slide presentation. And that project is likely a project that will get done. It's a question of it's not an if, it's when. We're working to keep the analysis.
Thank you. Looking at that potential doubling in demand within a 12 to 15 year time frame, what's your thoughts on taking on one of those large scale resources and some of the more important concepts we want to talk about today?
under explored jurisdictions of the world and bring it forward as a greenfield project. Is that something you're looking at at all or will you rather focus your strength and balance sheet on the organic growth pipeline and potential industry consolidation?
Richard, I'll take that one. We're really focused on our organic opportunities. You see the portfolio we have, we're really fortunate to have...
of organic growth that some others, not everyone has within our industry. As we've looked at greenfield opportunities over many years, we've looked at the
You haven't seen huge Greenfield success. It's rare. We're not saying it can't be done. We keep our finger on the pulse of what the availability of Greenfield is. But our focus is on the
our brownfield opportunities, the leach opportunities we had. Someone noted earlier that it's a major top line if we can get this leach opportunity to reality. Our focus is more on the lower risk, the more certainty around our brownfield opportunities.
I'll continue to monitor what's available in Greenfield. We spend a little bit of money on Greenfield exploration, but our focus, because of our pipeline and asset profile, is focused more on Brownfield.
Our next question will come from the line of Chris Lefimina with Jefferies. Please go ahead. Hi, thanks, operator, again. So, Kathleen, you mentioned the increases in CapEx guidance relate primarily to early investments in Baghdad for future expansions. Right. I think back in October , Richard had said...
that investment in growth was on hold because obviously the macro environment was not very good. I'm just wondering has anything changed in Freeport's view of the world over the last six months? Is it just that China has reopened? Is it because supply issues are getting worse?
Or is there just no change and this was kind of the natural progression for these projects? Thanks. Not really any significant change This really gets to optionality the work that we're doing on the early works a lot of it relates to tailings infrastructure That we would have to do anyway
several years out, but we'd have to do any way to support Baghdad's life of mind plans. And so this is bringing some of that forward so that if we do decide to move forward with Baghdad, we'll be in a better position to bring it on more quickly.
But it doesn't change. We still have the challenges of Baghdad of just not only just economic uncertainties, but the challenges of of the just housing and and people for the project.
But this project, the acceleration of the tailings infrastructure will give us options as we go forward. And that's what this is really all about for us, is maintaining optionality within our portfolio to be able to, none of this happens overnight, but to potentially move more quickly.
Has your view about copper changed? But having said that and under appreciating the uncertainties in today's world, I would say for our industry the economic situation has improved from
But having said that and without under appreciating the uncertainties in today's world, I would say for our industry the economic situation has improved from where it
And you know throughout this China's demand for copper in the second half of the year was strong.
I believe it was the strongest second half that they've ever experienced.
And we're encouraged by the GDP growth in 2023. We recognize the comments about it being driven by consumers and that there are continuing issues. Inflation has improved. And so I think the overall environment has improved.
in recent months. But as Kathleen said, that's not really what's driving our decisions.
The Baghdad project faces worker issue, housing issues. Chile is restrained by continuing political uncertainties, but we believe all these projects will be needed by the world. They'll be very profitable for our shareholders, and so we're investing in them, planning for them, and anticipating that the
that includes the desalination plant. Could you give us a little bit of background on that? It rains a lot obviously in Indonesia.
Why were fresh water supplies not adequate? Could you have used salt water for cooling? I'm assuming that most of the waters for cooling in the Big Smelter. Or is this sort of a community relations thing to not draw upon local water supplies.
We looked at a number of options, Sean. This is not a water and this isn't a big part of the project in terms of capital requirements. We thought this was the best option for reliable water for the project. But Corey, I don't know if you want to add anything to that.
in the future and what the potential social impacts are going to be and what future demands are going to be.
potential social impacts are going to be and what future demands are going to be in the renewability of those.
sources and came to the conclusion that desalinization was the best route. And then you look at the capital cost differences to use saltwater versus desal and this became the most prudent route for us.
Thank you. We'll now turn the call back over to management for any closing remarks.
We appreciate your participation and your interest. If you have further questions, contact David Joint and we'd be happy to respond to them.
We appreciate your participation and your interest. If you have further questions, contact David Joint and we'd be happy to respond to them. We look forward to reporting in the future on our progress.
Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.