Q2 2023 Freeport-McMoRan Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Freeport Mcmoran second quarter Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you wish to ask a question during the Q&A session Press Star one on your Touchtone phone if you require assist.
And during the conference. Please press Star Zero I would now like to turn the conference over to MS. Kathleen Quirk President. Please go ahead ma'am.
Thank you and good morning, everyone welcome to our conference call.
Earlier. This morning, we reported our second quarter 2023, operating and financial results and a copy of the press release and slides are available on our website at <unk> Dot Com AR.
Call today is being broadcast live on the Internet and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call.
In addition to analysts and investors the financial press has been invited to listen to today's call and a replay of the webcast will be available on our website later today.
Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include forward looking statements and actual results may differ materially.
Like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings.
On the call with me today are Richard Akerson, our chairman of the board and CEO .
Marine Robertson, our Chief Financial Officer, Josh almost dead, who leads our Americas operations, Mark Johnson, who leads our Indonesian operations.
Corey Stevens, who heads up our engineering construction and technical services group, Mike Kendrick, who leads our molybdenum business and Steve Higgins, our chief administrative officer.
Will start the call Richard will make some opening remarks, and then I'll go through the prepared materials, our slide materials and then we'll open the call to take your questions. So a lot like turn the call over to Richard.
Thanks, Kathleen and good morning, everybody thanks for joining us.
Positive second quarter results and outlook, we are reporting today.
Flagged at our operational performance has been in line with our plans and our prior guidance.
TS is free for its global operations.
Executing with focus drive and enthusiasm.
All hormone hallmarks of the Shreveport culture.
Fundamentals in the global copper market remain positive.
Despite the frequently expressed concerns about.
About a global economic slowdown and issues in China.
Vacations, expanding with ongoing advances in alternative energy electric vehicles connectivity and supporting infrastructure.
Global copper inventories remained remarkably low and this is notable.
The context of the concerns about the global economy in China.
Current demand for copper is much stronger than headline economic data.
While market experts significantly varying views.
Short term outlook for the economy and for the price of copper.
Growing positive consensus.
Medium and longer term outlook based on projected demand growing faster than supply development.
Freeport is extraordinarily well situated in the circumstances.
Large scale currently producing assets, which were focused on executing.
Ongoing positive performance and attractive pipeline for future growth from the large scale undeveloped reserves and resources already in our current asset base.
Kathleen will now summarize the quarter and our outlook.
And then I'll be back along with our team to answer any questions you may have.
Thank you Richard and I'll start on slide three.
Where we summarize our key operating and financial highlights for the second quarter production results across the portfolio was strong in the second quarter approaching $1 1 billion pounds of copper and nearly 500000 ounces of gold.
Copper sales were about 3% below our guidance as a result of administrative delays in obtaining <unk> export license approval.
We expect that <unk> will receive approval to resume concentrate exports over the next several days.
Our unit net cash cost during the quarter averaged $1 47 per pound and that was a little better than our guidance of $1 51 per pound with average copper prices our realized of $3.84 per pound in the quarter, we generated strong margins and EBITDA of 2.14.
$4 billion.
Our operating cash flows totaled $1 7 billion and that was substantially above our mining capital expenditures, which totaled 700 million roughly and that excludes the smelter capital of approximately $500 million in the quarter, which is being funded from proceeds that we raised last year.
The balance sheet liquidity and financial flexibility remain in great shape, excluding that debt associated with the smelter. We ended the quarter with a under a $1 billion of net debt you'll.
You'll see that we completed and we conducted some additional open market purchases of our public debt in the quarter at prices below par.
We look forward, we're well positioned for strong results in the second half of the year.
As second half copper volumes are projected to be over 15% higher than the first half and second half gold sales are projected to be over 25%.
Other than what we sold in the first half of the year.
I'm going to move to slide four where we showcase a few of the operational highlights that we're particularly proud of in the second quarter.
At Cerro Verde, where we operate one of the largest concentrate sites in the world. The mill averaged 425000 tons of ore throughput per day during the quarter.
This was a site that was designed several years ago at 360000 tons per day and over time. Our team has found ways to improve efficiencies and we'll continue to do that in the future.
At Grasberg no rates averaged over 200000 tons per day was 207000 tons per day in the quarter and that was processing very high grades of both copper and gold ore that was significantly above the first quarter level and actually the highest average quarterly throughput and over a.
All of this was coming from a large scale modern and efficient underground mines now.
Notably that the large scale operation at Grasberg produce copper during the quarter at a net cash credit of nine cents per pound and it was just extraordinary performance.
We're making steady progress on the smelter in Indonesia. This is an important initiative and we're now it's 75% compared with 60% progress three months ago.
Project execution is going well and our team is very focused on completing the project efficiently over the next several months, we expect to complete construction by the second quarter of 2024 and begin commissioning and ramp up over the balance of 2024.
We're also happy to report ongoing progress without niche Leach initiative, and that's particularly helping our sites in the U S.
During the second quarter. This effort yielded incremental copper of 29 million pounds and that was over two times the level in last year's second quarter, we're about 60% of our at of our targeted annual run rate at this level and we're well on our way to getting to our target.
Of the roughly 200 million pounds of copper per year incremental from this from this initiative, we're going to talk later more about it later in the presentation, but our confidence is increasing and in meeting the initial target and on the significant upside for this highly valuable initiative.
Turning to slide five and you've seen a lot of press reports over the last several weeks about the regulatory situation in Indonesia, and we're providing an update on recent regulatory changes.
And in the country as many of you know Indonesia is highly focused on downstream resource development, that's been evolving over many years and that reflects the country's national strategic priorities.
The evolution of this ultimately led to our agreement in 2018.
To expand our domestic smelting and refining capacity in the country.
In 'twenty 'twenty, Indonesia passed a law restricting exports of of certain minerals, what werent all define but that was beginning in June of 2023.
Given our I E P K licensing rights and progress on the smelter. We continue to work with the government to allow time for us to complete our projects, which were delayed by the pandemic.
As we mentioned the projects are well advanced and nearing completion, and we were really honored to host Indonesia, President Joker window at our <unk> smelter site in in June .
Beginning in June and July of this year, various ministries completed regulatory process.
To enable ongoing exports of copper concentrates through may of 'twenty 'twenty four for X borders with more than 50% smelter progress and we've where we're over 70%.
Last week, the trade Ministry enacted legislation to allow the exports and now just in the administrative process, we expect to receive.
Formal approval to resume exports over the next several days, we're going to continue to work with the government to enable exports.
To continue in 2024 until the new smelter is fully ramped up and operational.
The Ministry of Finance also passed regulations last week to increase the duties on exports for various products, including copper concentrates for four companies with progress of more than 70% of the the the the duty the new duty rate is seven point.
5% for the second half of this year.
Under our IU, PK, which provides stabilized terms for taxes royalties and duties duties are phased out after 50% progress and so we're currently reviewing the <unk> PK provisions with the Ministry and are engaged in discussions on this matter.
To date, the production impacts on our operations from the from the shipping delays have been limited and this has been more of a timing consideration between production and sales. We currently have a sizable volume of copper concentrate at our port site.
For shipment and we expect to work down inventories over the next several months.
Moving to the top of markets on slide six and Richard.
Touched on this in his comments.
Copper is the metal when it comes to electrification and Freeport is really well positioned as a leader in the global copper industry.
The short term market situation is characterized by on the one hand favorable demand drivers from go growing intensity in autos renewables in data centers, and that's partly offset by slowing manufacturing growth.
China remains the world's largest consumer of copper and even with the country's current economic challenges and the weakness in the property sector copper consumption continues to grow and that's been bolstered by large investments in copper intensive electrical grid.
Strong strong growth in electric vehicle production.
Richard referenced the inventories, which are very low levels by historical standards, they're now lower than they were at the start of this year and we see this as evidence of a tightly balanced market.
So as we as we look forward over the next several years demand is expected to accelerate with third party projections for demand to double by 2035.
Investments in low carbon renewable power electrification.
Lead to massive growth in demand and in addition to that the initiatives by many countries for major infrastructure programs.
And the uses of copper for connectivity data AI, because they're also growing demand drivers.
At the same time, the ability of the copper industry to meet this rising demand is a major challenge and we're working very hard to to increase our suppliers. As we look forward. We believe prices will need to rise to incentivize new supplies of copper.
At Freeport, we benefit from a large reserve position and an even greater resource position to be able to grow our business in the future as I mentioned, where we're really focused on continuing to support the growing demand producing responsibly and we're pursuing several initial.
It is to enhance our production going forward.
Okay.
Moving to slide seven we provide an update of our three year outlook for sales volumes. This is largely unchanged from our prior forecast we've reduced our 2023 copper sales volumes by about 40 million pounds, that's about 1% to take into account the.
Shipping schedules and the balance of the year.
The guidance for 'twenty 'twenty, four and 'twenty 25 is unchanged and we do we are focused on continued success in our leach efforts, which we believe have the potential.
To provide some upside to these estimates.
I'm moving to the regional information on slide eight.
We show our projected 2023 volumes and unit net cash cost by region.
Our business in the Americas, including the U S and in South America comprise about two thirds of our 2023 copper sales and all of our molybdenum sales in Indonesia represents about one third of the copper sales in all of our gold sales on a consolidated basis from a cost standpoint are.
Unit net cash cost forecast of $1 55 per pound for the year 2023 is consistent with our prior estimate we've had some small offsetting changes between the regions.
But in total we're we're continuing to project cash costs of $1 55 for the year.
As we move through the year, where we're continuing to experience improving cost trends for several of our commodity based input cost and we're seeing more stability in labor services and equipment component costs.
We will remain focused on on cost management and all of our ongoing initiatives to improve productivity to offset the cost increases that we've experienced in recent years.
The estimates that were provided on slide eight assumed that the export duties in Indonesia are unchanged from our existing duties.
As I mentioned previously that the new regulations imposed higher duties that are stabilized rates under the Yahoo, PK and we're engaged in discussions with the government to review this.
We've provided some sensitivities on potential impacts of the higher duty rates on this page what.
What you can see at the bottom would have a seven cents per pound impact on consolidated unit net cash cost for the year take into account the impact in Indonesia of 19 cents per pound.
For the fourth for the year with the duty starting in the second half.
I'm on slide nine we updated our our outlook for for our margins and cash flows.
And if we put together our projected volumes and cost projections, we show the modeled results for our EBITDA and cash flow at various copper prices ranging from $4 to $5 copper. These results on a slot or modeled them using the average of our 'twenty 'twenty four and 'twenty two.
25.
Volume and cost estimates and we hold gold flat in these scenarios at 1900 and $50 per ounce and molybdenum flat at $20 per pound both of those commodities are slightly above that today.
Annual EBITDA and under these assumptions would range from about $11 billion per annum to $15 billion per annum at $5 11 billion was at $4.
And our operating cash flows before working capital would range from nearly $8 billion per year at $4 copper and $11 billion per year at $5 copper, we've got some sensitivities to the various commodities both of the the sales commodities as well.
Our input costs on the right of the chart mm, we're well position with our long live reserves large scale production to benefit from future metals intensive growth trends.
And we got prospects as we look forward for increasing cash returns under our performance based financial policy payout framework.
Our return to capital expenditures next I'm on Slide 10, where we show our current forecast for capital expenditures in 2023, and 'twenty 'twenty four.
These include the the capital that we're investing in the Indonesian smelter project and those those amounts are are being funded from them from a debt offering we did last year and we've got cash on the balance sheet and availability to support those investments and the detail of those expenditures on page.
25 of the slide deck.
But all in all on the on the non smelter related investments.
The we've had some timing adjustments moving some spending from 'twenty three to 'twenty four.
But the the current forecast for the two years is pretty similar to what we had before it's about 3% higher for the two year.
Two year period and that that reflects some updated estimates principally for projects at Grasberg.
We've highlighted here on the slide discretionary projects and these are the projects that are being funded with a 50% of available cash that's not distributed those totaled $2 billion over 23, and 'twenty four and these are value enhancing initiatives we've got some.
On 24 on slide 24, and I'll reference material, but value enhancing initiatives to improve our position as we look forward.
We'll talk on on on development options in our growth on Slide 11, you know we were really focused as we said Oh I'm looking at the outlook for growing copper demand and looking at and our brownfield strategy.
Given the risk and action ability of Greenfield projects, our strategy of developing our resources within our portfolio, we're focused on extensions of our existing operations.
And our broad portfolio of of brownfield opportunities. We've categorized the growth on slide 11, and in near term medium term and longer term development operation options and.
And you can see in the near term the best options for us for growth are achieving our initial leach targets.
And the actions that we have particularly in our U S operations to enhance productivity and reliability by increasing our mining rates in the U S through workforce additions.
Automation and achieving higher targets for asset efficiency and reliability in our equipment and processing facilities. We believe we have the opportunity to add.
200 million pounds of copper a year with a with very limited capital investment and we're very focused on the details of the reliability and asset efficiency that we're pursuing in and see that potential as we look forward.
We also outlined.
The potential of our leach opportunity beyond the initial target of 200 million pounds per annum.
We talked extensively about this on our last call them, we've got law very large areas under leach.
We've got new approaches and operating practices that we are deploying on this effort and the more we work on it the more optimistic we are about this opportunity is much larger than the initial 200 million pounds. We continue to see the clear opportunity of expanding the initial 200 million.
Turns of copper per annum to 800 million pounds of per annum over the next three to five years.
We're continuing initiatives to increase heat to our stockpiles were continuing to enhance our ability to identify and deploy solution to areas of the stockpiles, which aren't getting adequate solution and we're continuing our work on additives through internal testing as well as looking at.
Technology.
That others have with respect to additives.
This is a major value opportunity a major catalyst for us and Freeport is is one of the best placed companies in the industry to capture value from it and that's because of our large existing stockpiles with billions of pounds of copper still in them, our technical know how and the ability of our team to deploy.
Learnings quickly across the portfolio through our operational control of all of the mines, we have interest in.
In addition to the to the Leach opportunity we've got more traditional.
Sources of growth that we're pursuing we're continuing to evaluate the expansion of our Bagdad mine in Arizona, We're completing the feasibility studies on on on that expansion.
We've got the major El Abra opportunity in Chile, where we have an existing operation and in very large reserves resources that.
To support our future expansion.
And of course, we're developing them, making progress with the 90000 ton per day Cuccinelli, our block cave in Indonesia, and that's expected to commence production by the end of the decade.
At Bagdad, we're making some investments to advance tailings and other infrastructure to enhance our optionality.
For the project and we're doing the same at El Abra or looking at some investments in water infrastructure not only that would support the current operation, but provide optionality for the for the large mill project in the future.
After those two projects, we've got and a big opportunity. It is that our Safford Lone Star District and in Eastern Arizona.
We've got current production there and have identified a significant resource that would allow us to.
Make that district, another cornerstone asset for Freeport.
As we look into the 2030 time frame.
We've got a series of U S. Brownfield projects that were also are looking at a big opportunity for US is in Indonesia, where an extension of our operating rights beyond 2041, which we're continuing to advance would open the door for them.
For long term large scale mining beyond 2041, and potential reserve expansion and additional development options and one of the world's largest and highest grade copper and gold mining districts.
Where with these projects were in a position to continue our leadership role supplying copper to a world where growing requirements. We're going to continue to be disciplined in our approach, but focused on executing the projects, where we can create value for shareholders.
On the last slide we read on slide 12, we reiterate the financial policy priorities.
Those are really centered on our on our strong balance sheet, which we have or cash returns to shareholders and investments and in our value enhancing growth projects. The balance sheet is solid we've got very strong credit metrics and flexibility within our debt targets to execute on.
<unk> at the same time, we've distributed over $3 billion to shareholders through dividends and share purchases since commencing this performance based policy and have an attractive future long term portfolio folio that will allow us to use a portion of our cash flow to build long term value for <unk>.
Shareholders.
Richard mentioned the team is energized motivated and where we're focused on continuing to drive value in our business and executing these plans responsibly safely and efficiently.
Thanks for your attention and your participation in our operator will now open the call for questions.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question press star one on your Touchtone phone. If your question has been answered or you wish to remove yourself from the queue. Please press star one again, if you are using a speakerphone. Please pick up your handset before pressing the numbers, we ask that you limit your questions.
To what do you have additional questions. Please return to the Q1 moment. Please for our first question.
Okay.
Our first question comes from the line of Alex Hacking with Citi. Please go ahead.
Yeah good morning.
And Richard.
Yeah morning, So I guess the only have one question that I saw a press release. This morning about a strike at Cerro Verde 72 hours.
Could you maybe give us some context on that thanks.
Sure.
Josh Josh.
Why don't you respond to that I was just at Cerro Verde in arc.
So for us what the team's done down there.
Good morning.
One other thing when we before we.
We really pride ourselves on our open they're not ongoing conversations with.
All of our employees and the unions. There is we have two units at Cerro Verde.
And this is one of the original unions, which which accounts for roughly 20.
28% of our of our total workforce and that's it.
It's been some ongoing conversation that we regenerated dialogue for we have a meeting with the Labor Department Tomorrow to try and continue to foster the conversation of the board.
Avoid potential strike there.
But we're you know we'll continue to have those dialogues.
Through and being as open and transparent.
To work through on addressing that issues.
Yeah.
Okay.
Oh well.
Well, we have a long history.
Cerro Verde has been able to deal sometimes we get affected.
Strikes not related to our operations and so forth, but our team is.
For and.
We're hopeful that this thing gets resolved, it's not really a major substitution of observation.
And.
He will be able to manage our way through it.
Yes.
Yes.
Yeah.
Okay. Thanks, Josh.
Okay.
Your next question will come from the line of Christopher <unk> with Jefferies. Please go ahead.
Hi, Richard Kathleen Thanks for taking my question.
I actually have quite a few quite a few questions about your situation in Indonesia.
Limited to just to for now so the first question is I understand that at the beginning of July is that the concentrate storage areas, where nearly filled and you would likely have to shut.
Shut down the operations. If you did not have an export license and I'm wondering first of all whether you've been able to continue to operate at grasberg or if the mines are shut down for now.
And the second question is just related to the exports.
Thank you Mike.
To answer your first question, yes. Thanks wanted to ask you there.
One of the complications we had with this.
Is that the domestic smelter grassy PT smelting homes.
Which is not affected by any sort of export issues was undergoing a.
Okay.
That's a planned maintenance turnaround so there was limited.
Concentrates we could ship domestically that has been completed and now we've begun returning to ship shipping digressing.
We haven't shut down at all.
Our team is.
Adjusted to the situations by advancing some planned maintenance activities that we have for the second half of the year.
And while the storage.
Facilities were.
The approaching their limits meeting their limits.
You know we have not had a.
Significant we've had some impact but not a significant impact on the operations.
We anticipate resuming exports very shortly.
We have a lot of concentrate that's been produced its own site is ready to sell.
We'll be moving that to market.
Okay. That's helpful. Thank you for that the.
The second question is regarding I think Kathleen answered the export licenses days away.
And obviously that was pretty <unk> smelter construction past, 50% means no more export duties view, but under this new regulation, there will be an export duty and I'm wondering if the export license will be granted to you. Even if you were disputing having to pay the new higher export duty because you potentially are protected via the <unk>.
T J.
Yeah.
Well in order to all indications are and expectations.
Expectations are is that we will be able to export.
Were continuing discussions.
Now to present our case.
And if.
If we can resolve it that would be the best outcome. If we can we begin exports and then pursue.
Legal rights separately.
Great. Thank you for that.
Yeah.
Yeah.
Yes, absolutely Dan no. That's that's great. Thank you Richard.
Your next question comes from the line of Carlos de Alba with Morgan Stanley . Please go ahead.
Hey, good morning, Kathleen and Richard.
My first question is on several that are there.
You are operating quite well there and the company if I understand correctly it doesn't really have a significant debt anymore.
Any more.
With the cash generation there what are your plans.
Do you expect to.
Continue to pay dividends are you already announced twice.
Cigna's second.
Second quarter, you pay more in the third quarter you typically in the past.
You pay in the second and fourth quarters should we expect.
Other payment in the fourth quarter, so 320.
<unk> three.
Just overall, what can you tell on unsettled out there and I'll come back with a second question.
Where.
Carlos you characterized it correctly, where essentially distributing cash flow I'm out of out of out of Cerro Verde them, we've done very well on on on the debt side.
And from time to time, we reserve cash for items that we know about obligations that we need to pay or items that we know about it.
But we expect to them to continue to generate cash flow at Cerro Verde and.
And to the extent, we don't have obligations to pay that out to shareholders. I don't have we don't have a decision at this point exactly what the what the the cash flow and dividends will be quarter by quarter. At this point, we're gonna, but we we do expect to continue to distribute cash out of Cerro Verde.
Thanks, Kathleen and then the second question is regarding Capex.
The overall.
Changed much as you as you already mentioned, but when I looked at the individual projects.
It'd be modest.
But the TMR.
In Indonesia, as well as the gradual mill recovery project increase Capex.
Turning to 20% higher than in the last update so I wonder if you can provide some comments as to what is driving that yeah.
Yeah. We did have we did have an increase in our in our precious metals refinery.
Up an updated estimate for this precious metals refinery.
It is a it is an operation that is relatively small compared to the overall capital, but as we've gone through more engineering.
The the cost estimates have increased.
A little different than the than the Big project ammonia project, where a lot of things were ordered a lot of things were put in place.
Prior to the big rise and in an inflation and so to date, we've been on that project.
We've been pretty pretty good at maintaining the the the cost estimate so the bigger the bigger the bigger project. We had we had better better terms on on components et cetera, but we are you know we are getting hit with some some increases related to the precious.
Metals refinery the copper cleaner.
With the with all the the the projects going on at at Grasberg.
The mill project the project, we're doing for power.
The filter plant were doing at Port site the.
The availability of of of experts and contractors has been.
Slower than what was originally projected and the project has taken a little longer which is which is which is impacting the cost, but but there's nothing materially different about what we're doing there which is in this environment things are things, we're taking a bit longer in and adding to the cost.
But I do want to you know I do want to have a shout out to our team managing the the the bigger smelter that bigger spend as they're doing a great job in managing that project.
And Carlos you know this industry well enough to see what's been going on with project costs around the globe.
Uh huh.
Hmm.
Julian Kathleen and complementing our smelter.
But our overall operations team our supply chain management, you see what our cost performance is.
In a world that still affected by.
Brian inflation commodity.
Royalty cost are down, but overall, we're taking that and running it through all of our suppliers.
When you look at our operating cost and our project cost I'm really proud of our operating and supply management team for the good work you're doing.
Yes definitely.
Thank you Richard Thank you Kathleen.
Carlos.
Your next question comes from the line of Timna Tanners with Wolfe Research. Please go ahead.
Okay.
Hey, good morning, everyone.
Morning.
One.
Q, but I just was really high level and I know, we've talked a lot about Indonesia in the short term, but there's also the broader issue of the additional 10% stake they're asking for them and the renegotiation of IEP can't further out, but I just sense that compared to five six years ago. When you seemed a bit more concerned about the relationship with them.
Indonesia, It seems like you're not as concerned this time. So I just wanted to see if you could add some more color to that is that indeed, the case and maybe why.
And how much time do we have I guess before we really need to think about and you know settlement.
Or a decision on this and then there is it near term or medium term.
Yeah.
So let me correct. One thing you said there is no renegotiation of the PK.
Our current U P J.
One to 2041.
And we have no rights beyond that.
And that was negotiated after a lengthy period.
In 2018.
And the settlement in 2018 has proved to be extra.
Extraordinary positive for all stakeholders.
Asia.
Would you acquired Rio Tinto interest during that process.
<unk> achieved its goals of getting a 51% equity ownership interest.
And together with taxes royalties and other fees has essentially a 70% interest in the economics of the project.
Through that <unk> retained its introduced because he was already burdened.
Rio Tinto joint venture interest and then since that date, we've successfully completed.
Version from the open pit.
To this underground mine and you can just see the track record that our teams achieving that and and over that period of time from copper prices have been good all stakeholders have benefited.
When the President and you talk about the relationships are key.
Factoring that was when president Joe Guido to visit our job site in Papua.
End of August early September the first Indonesia present to do this in two hard to <unk> 70.
He was very positive about what he saw there the progress we're making about the extent of progress we've made in increasing Indonesian management Indonesian employees of pop ones that are working in our operations.
Uh huh.
That was a key point.
Helping to build on the 2018 deal and making relationships. So much more policy now we all we have a mutual understanding that this operation needs to be run in a way that maximizes the resources that are available there.
Having a drop dead date for an operation like this 2041.
Not beneficial to anyone because.
The.
The exploration delineation long term capital planning needs to be factored taking into account the resources that are available there.
We had no rights to.
Ill.
Provide a basis for going forward beyond 2041, we've had items for discussion.
Including an additional ownership interest for it.
For for Indonesian government to deal with and we've agreed to support popcorn businesses to do things of that nature. So.
It's much different than the <unk>.
Nature of the discussions we had going into 2018, where there was really contentious views opposing views on various subjects that were all settled now.
Now we are in.
The mode of where there's a mutual recognition.
Benefit for all stakeholders for us to play in this operation beyond 2041, and I have a lot of confidence we'll be able to achieve it.
Is that you have any follow up on that.
Yes, I just wanted to add go ahead.
The other thing I was just going to add that you know a big change from maybe historically when you were thinking about it is the alignment we have better alignment, we have with them with the government of the.
The government state owned enterprise their own 51% of the shares and I'm of course, we pay taxes and royalties. So the economic interests of the government in this operation as is much greater than it was and so the alignment is is very positive as we look forward to create this value.
Is that rich was talking about beyond 2041.
And when we talk about beyond 2041 and the opportunity.
This allows us really to think about the asset and opens the door for development much greater than what we were planning before because.
As Richard said the reserves don't end in 2041, and we see if we see a lot of opportunity and using the infrastructure that we already have two two to further development.
In the 10% that's the sure thing that you read about.
What we were engaged in is is looking at preserving what we have through 2041, but compensated in the government in some way for that extension beyond 2041. So.
Again like we did in 2018 this would be only done if we could find the right win win for both Freeport and the government, which we think we can.
That's helpful.
Okay.
Yeah.
10% would only come into play after 2041 and a key factor is under the 2018 agreement Freeport Mcmoran manage control and management of the operations and everybody is happy with that.
Widespread recognition in the government just how complicated this businesses and they're very complementary and pleased with our the way we're running the business. So it's a huge.
You are truly a good partnership.
Okay. Thanks.
Your next question comes from the line of Michael Dudas with vertical Research partners. Please go ahead.
Good morning, Kathleen Richard.
Good morning, Mike Good morning.
Kathy.
Kathy you mentioned.
Watson.
Just kind of I guess during the quarter.
The dividend.
Dividend plan is in place too.
As you look into the second half of the year and the Capex.
Dissipated castles might be how do you how does the board thinking about share repurchases.
In the first half is a valuation opportunistic just balance maybe you can shed a little bit more light on that maybe the second half of the year, especially with copper prices.
Yeah.
Yeah.
Well, if if copper prices sharply the recover we're going to be generating a lot of it a lot of free cash flow under the policy.
Where where distress.
Distributing 50% and if you go back cumulatively to where when we started it in the second half of 2021 we've distributed over 50%.
Between the dividends and the share buybacks.
With improved market conditions, that's going to give us a lot of leverage to free cash flow and give us the ability to consider how we deploy that whether it be.
Share buybacks dividends et cetera, and so we're following the policy, we're keeping our debt you know very I'm very low the the cash flow that we've generated since the policy started now over 50% has gone to shareholders, but the other 50% is is some of it's still on our bad.
Alan sheet, because we've got projects ear marked.
To fund so we're following the policy, we think it's a great balance between balance sheet capital returns to shareholders and investing in our long term growth and we're going to continue that.
Continue to follow that.
I appreciate that thanks, Kevin.
Your next question sure.
I just wanted to say, Mike we believe the shares are good value at today's levels.
Yeah.
Your next question will come from the line of Brian Macarthur with Raymond James. Please go ahead.
Hi, Good morning, I, just wanted to follow up and thank you for your answer on 10 minutes question, but when you convert it from underground or from open pit to underground I mean, we started building that I think in 2005 and it took 15 years. So under this long term planning for 2021 2041 one.
Do you actually to efficiently develop your body post K L.
Are we talking you need to have this all figured out 15 years in advance like before so you have to start in 2020 sector, but what sort of time horizon are you looking at.
To be efficient going forward, Brian that's exactly the point that we're making in and I think as we talked about earlier with the government now owning them a big piece of of of P. T. A phy and participating in our you know.
And our business and our operating committee.
They understand that this has to be planned with long term horizons, and so theres not a drop dead date, but the sooner the better.
Because the closer we get to 2041, the more you know the more difficult it would be too to change the change the outcome. So that's that's a point a really important point and the government has is recognize this more so now than.
They ever have and that gives us the opportunity to.
To have this you know I had this discussion about moving forward with them with a with with the extension. The smelters are big part of that you know we we.
We.
With the with the smelter completion.
Regulations in Indonesia, now allow for companies with with with refined our processing facilities to be able to apply for longer term horizons and so the regulatory environment is recognizing that in and that's all part of what where we're trying to achieve is not a specific date, but the sooner the better in terms.
Long term planning.
And Brian just let me say because of the <unk>.
<unk>, we only report reserves through 2041.
But with our work to develop our mindful here through 2041.
We've already identified production that would extend production of significance that would extend beyond that.
Mark Johnson <unk> already started the process.
Looking.
Delineating these ore bodies to see what opportunities are there and so we would as we did as you said in the early two thousands.
Underground conversion.
Didn't get immediately and developing the plan long term for extending.
<unk> could you layer, we know goes far beyond that and we haven't defined the limits of the Grasberg block cave.
Yeah.
Yeah.
Yeah.
Hum.
Yes.
Deep sea.
That's the same ore system.
Freeport began mining in the early 19, <unk> and it just continue to go further and further in debt. So.
Really excited about it and.
I've been involved in this whole body for so many years and one continual thing it's been it's always gotten bigger than anybody anticipated it would and so it's a really exciting opportunity for us and for them.
So can I just ask a follow up on that because that's what I was trying to figure out.
The addition, or past 2041 is the depth that you said D. M. L E K L bigger or is it there's another whole area, where you have to put it in another whole say common infrastructure project is something else out there because originally the original drilling in the area with all cut off and whatever.
Is this depth or is it just.
Our development underground or is there another whole like if I call. It the whole like original common infrastructure that would have to be put in.
Well in Israel, you wouldn't have to do.
Oh, okay.
Common infrastructure I mean, it would be something that would utilize what we have there and extend beyond that but the truth is.
We have a lot of indications of things, but we really do more active delineation drilling to see what's there and develop our plans around that.
And Brian if you look at our our resource statement in the 10-K, you'll see there's a lot of resource there that's not in reserves and some of that's material that that it comes after 2041.
Some of it would require some additional processing type handling you know because if someone has high pyrite.
Content and that you know that could be a challenge and an opportunity for us.
But initially the opportunity really is adept deep MLC and we're already starting to conduct some some exploration below deep M. L D.
So really from what we know about we think there's a lot of opportunity and then with our life of mine extension will have will have incentive to go do more exploration them, because we haven't done exploration for a 2020 plus years, given we already had.
Enough reserves to get us through 2041, so it's a great opportunity for blood as Richard said, both the government and and and for Freeport.
And this is an asset that that's really needed you know and the global global copper industry really really important.
Sure.
Great. Thanks, very much as I can remember this.
You'll remember this Brian because you were around.
When we first started developing this underground operations that 20 years ago shooting for 120000 tons a day through our meal look what we did in this quarter.
240000 tonnes a day.
That's just the nature of this great ore body.
Okay.
Totally agree as you said, though it takes a lot of long term planning too.
Yeah, Thanks, and they're part of our business.
Great. Thank you very much for all that color I appreciate it.
Uh huh.
Your next question comes from the line of Cleve Rueckert with UBS. Please go ahead.
Hey, good morning, everybody. Thanks for taking the question.
Just one quick follow up for me and it's a little bit more near term focused and the discussions we've been having but yeah in Indonesia.
Can you just help frame in the next 18 months the approval that you expect to get in the next several days how much of an extension does that does that get you on your ability to export concentrate and then based on sort of the smelter construction timeline and the ramp when would you expect to see shipping concentrate from from Indonesia, especially.
This concentrate export license isn't really an issue anymore.
The regulation the <unk>.
The regulation that's the that's just been adjusted goes through May of 'twenty, 'twenty, four and we have export quotas that.
The government approves in connection with their review of our annual work plans. So our current quota that will be shipping under go through the year and this year.
Of 2023, we'll have to update that work plan in which we is it's just an ordinary course thing, which we do in the fall and that will that will allow us to increase the quota to get us through may <unk>.
And then in connection with that and we've already been been.
Seeing this with the government.
While the smelter, we expect will be mechanically complete in the second quarter of next year, you still have a a multi month period throughout 2024, and it'll be reducing over time, but in a period of time, where the smelter smelter needs to be ramped up.
And so that part we will continue to review with the government. The Big thing is to get mechanical completion done and we believe the government will continue to work with us.
I'm too to allow for some exports beyond that but we'll have to we'll have to work that through with the government but.
Really by the end of next year, we are we're expecting that that the essentially we'll have we'll have enough capacity to.
To deal with our production out of P. T F I and and that's what that's what we're focused on doing that.
<unk> talked about this earlier the project team is doing a really good job, we're very pleased with them with our with our EPC contractor there.
We've got thousands of people on the ground and if you see the pictures and it is it's really really developing we know and recognize that smell.
Smelter operations can be complex and we're doing a lot of work and planning around operational readiness.
But our target is to get you know get we get the full ramp up done.
As we you know by the end by the end of next year.
Got it alright, great. Thank you for that I appreciate it.
And I'll now hand, the conference back over to management for any closing remarks.
Well thanks, everyone for your participation. If you have any follow ups feel free to contact David and.
We look forward to continuing to report to you on our progress.
Ladies and gentlemen, thank you all to our call for today.
Thank you for your participation and you may now disconnect.
Yeah.
Yeah.
Yeah.
Or to you on our progress.
Ladies and gentlemen, thank you all to our call for today.
Thank you for your people.