Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Freeport-McMoRan third 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 touch-tone phone. If you require assistance during the conference, please press star zero. I would now like to turn the conference over to Mr. David Joint, Vice President, Investor Relations. Please go ahead, sir.
David Joint: Thank you, Regina, and good morning, everyone. Welcome to the Freeport conference call. Earlier this morning, FCX reported its third quarter operating and financial results. A copy of today's press release with supplemental schedules and slides are available on our website, fcx.com. Today's conference call is being broadcast live on the Internet. Anyone may listen to the conference call by accessing our website homepage and clicking on the webcast link. A replay of the webcast will be available on our website later today. Before we begin our comments, we would like to remind everyone that today's press release and certain of our comments on the call include non-GAAP measures and forward-looking statements, and actual results may differ materially.
David Joint: Please refer to the cautionary language included in our press release in slides and to the risk factors described in our SEC filings, all of which are available on our website. Also on the call with me today are Richard Adkerson, Chairman of the Board, Kathleen Quirk, President and Chief Executive Officer, Maree Robertson, Executive Vice President and Chief Financial Officer, and other members of our management team. Richard will make some opening remarks, Kathleen and Maree will review our slide materials, and then we will open up the call for questions. Richard?
Richard Adkerson: Thanks, David. We appreciate you all for joining us today. We have been looking forward to speaking with you about our strong third quarter results and our positive outlook for the future. We are pleased and proud of our team with the steady progress throughout the year achieved on the Grasberg ramp up and with our initiatives across our business to drive value. As we look forward, the table is set for growing our volumes in the near term, medium term, and longer term, supported by our portfolio of long-lived assets and by a qualified and experienced team. Leaders in Indonesia have expressed support for the extension of our operating rights beyond 2041. We continue to work with the Ministry of Energy and Mineral Resources on documentation to implement the memorandum of understanding we signed with the Government of Indonesia.
Richard Adkerson: Freeport's growth plans match up exceptionally well with accelerating requirements for copper.
Richard Adkerson: Electrification continues to advance at a rapid pace, bigger and faster than we have seen in the past, and copper is the metal of electrification. The world requires a lot more copper and supplies are challenged. Freeport is particularly well-positioned to grow with the market. After working in this industry for decades, today's opportunity, where structural trends point to multi-year period of significant demand growth, is unique. We at Freeport have the right assets at the right time. With a strong team in the Freeport family and our strong financial positions, we are well positioned to capture this opportunity for the benefit of our shareholders and all our stakeholders. Kathleen?
Kathleen Quirk: Great. Thank you, Richard, and thank all of you for participating on today's call, where we will review our Q3 performance and update you on our initiatives, projects, and future outlook. Today, we will be discussing our team's work across our global business to build value. Our solid progress and momentum to safely and sustainably restore large-scale production at Grasberg, drive operational excellence and new technology initiatives in the Americas, and advance plans for value-enhancing organic growth. Starting on slide three, we show the highlights of our Q3 performance. Copper sales have increased in each of the last three quarters, and we expect Q4 sales to be the strongest of the year by far. Steady progress continues at Grasberg, with 67% ramp up achieved and confidence is building toward full scale. Strong operational execution, combined with the favorable metal price backdrop, provided significant margins, cash flows, and earnings.
Kathleen Quirk: The diversity of our portfolio and pricing leverage for our US business comes through in the results. Operating income for our US mining operations more than doubled in Q3 compared with last year's Q3, with strong conversion to the bottom line. This contributed to an increase of over 80% in our consolidated net income compared with the year-ago quarter. The progress achieved during 2026 sets us up for growing volumes and improving financial performance as we look ahead to 2027 and 2028. Additionally, we are advancing our future growth plans with a series of projects in progress. We returned nearly $1 billion to shareholders year to date, including $300 million in share purchases.
Kathleen Quirk: Our financial position remains strong, and as we look ahead, growing volumes combined with a positive market environment for our products sets us up for significant increase in cash flows to support our value-enhancing investment program and increasing returns to shareholders. Moving to the copper markets on slide four. As a leading global supplier of refined copper, Freeport has strategic significance and is strongly positioned to benefit from copper's essential and increasingly important role in societies around the world. Copper's superior conductivity makes it the metal of electrification, and the global economy is rapidly becoming more electrified. Globally, copper demand is expected to rise in a number of applications, including the massive requirements for the power grid to support new technologies.
Kathleen Quirk: LME copper prices averaged $6.09 per pound year to date through September and currently approximate $6.58 per pound on the LME, an increase of 16% since the start of the year. Our US customers report robust copper demand associated with growing requirements for electricity and energy infrastructure, data center builds, and in the transportation sector. Copper continues to be strategically significant to China as the world's largest consumer to support its domestic power grid, technology advancement, and manufacturing of autos and consumer goods for growing exports. The sizable movement of product to US warehouses continues, resulting in tight market conditions in the major consuming regions outside of the US. The situation underscores the strategic role of copper in the global economy and supply chains to support future growth. The signals we see are clearly pointing to requirements for additional copper supplies to meet growing demand.
Kathleen Quirk: At Freeport, we have a valuable, geographically diverse portfolio of integrated copper assets with large-scale production facilities that are difficult to replicate, long life reserves and resources, and a portfolio of low-risk brownfield expansion opportunities to serve a growing market. I am going to move to the operating highlights on slide five, where we summarize the highlights by geographic region. Starting with the US, we continue to focus on operating disciplines to improve efficiencies and productivity to grow production despite low ore grades. We were successful in improving our mining rates compared with the year-ago quarter. However, an abnormally high frequency of extreme weather events in the Q3, which have continued in the Q4, disrupted some of the momentum achieved earlier in the year.
Kathleen Quirk: We are deploying new technology tools to enhance our operating models and are investing in more efficient trucks and mining equipment to support our objective of increasing US production and reducing costs. We continue to pursue an exceptional opportunity to unlock meaningful value through application of new technologies for recovering copper in our leaching processes. Data from our work to date is supportive of a potential breakthrough, and we are looking forward to what we will learn as we go through to 2027 as high-potential, next-generation proprietary additives are deployed in the field. In South America, our flagship Cerro Verde operation in Peru continues to demonstrate solid operating performance and productivity consistent with a large-scale, world-class operation. At El Abra in Chile, ore grades and operating rates were impacted during the quarter by mine sequencing to address slope management.
Kathleen Quirk: We are now commissioning new facilities at El Abra that will allow us to enhance metal production by increasing temperatures in our leach pads. We continue to work with the Chilean government to advance our environmental impact study to position El Abra for a major transformative expansion. In Indonesia, we are pleased to report that the team continues to achieve meaningful progress on the ramp-up at the Grasberg Block Cave. We operated at 67% of mine capacity during the Q3, and progress is advancing for meaningful growth as we go into 2027. Upgrades to the material handling system for our automated rail system are progressing on schedule, and we continue to advance work for a restart of production Block 1 South in 2027. We continue to target overall rates reaching 80% by mid-2027 and approach full capacity by the end of next year.
Kathleen Quirk: We were successful in restarting the smelter and now have both smelters in Indonesia in operation to support our mine ramp-up. The team is executing the phased ramp-up safely and efficiently, and we continue to de-risk the plans and increase confidence in a long-term outlook. In Indonesia, we continue to experience abnormally dry weather conditions and are closely monitoring forecasts which predict conditions to return to more normal levels as we move into 2027. The dry conditions are generally favorable for mining, but low water availability presents challenges in increasing mill rates. We are actively managing the situation with limited impacts to date. As Richard mentioned, we are continuing to work cooperatively with the Indonesian government to secure our long-term operating extension in accordance with the MoU reached early in the year. We submitted our application in June and we are continuing to work to complete the formal process.
Kathleen Quirk: The government continues to express support for extension to provide long-term continuity of large-scale operations and mutual benefits. Big picture of the Q3, the team executed well, but experienced challenging operating conditions. You will note we continue to expect the Q4 will be the strongest of the year, but have adjusted our 2026 copper sales by approximately 2% to incorporate the impact of shortfalls in the US and in Chile. Our team is committed to execution, dedicated to overcoming challenges, and driven for excellence in all that we do. I am going to move to slide 6, where we have some real excitement around Freeport about the growth catalyst. We are driven to increase copper supply to a growing market and are strongly positioned as we look forward with significant near-term, medium-term, and long-term growth.
Kathleen Quirk: The progress we have made throughout 2026 positions us for significant growth in volumes, margins, and cash flows in 2027 and 2028, as Maree will cover shortly. In the short term, we are positioned to grow from 3 billion pounds this year to 3.7 billion pounds in 2027 and over 4 billion pounds in 2028. Continued strong execution of the Grasberg recovery is the major driver with improved US production adding incrementally. This growth notably does not require new capital. With our US growth initiative as America's copper champion, we see a path for Freeport to be a 4.5 to 5 billion pound a year copper producer in the 2030 timeframe, with success in our innovative leach initiative and our expansion of our Bagdad mine in Arizona.
Kathleen Quirk: We continue to see the innovative leach initiative as one of the most attractive opportunities in our company because it leverages our existing infrastructure, is scalable, is not capital intensive, and has low incremental operating costs. We have been on this journey and advancing this initiative for the last 3 to 4 years, and our excitement continues to build, supported by progress in developing a proprietary next generation additive that would unlock recoveries of low-grade ores previously thought to be unrecoverable. As you will see in the chart, lab testing of the new Freeport additive is showing incremental recoveries of more than 4 times those achieved with our initial additive. The next generation additive is now being manufactured on a fast-track schedule and will start receiving commercial quantities for field deployment as we go into 2027.
Kathleen Quirk: While we need to be cautious until it is proven in the field, this could represent the major breakthrough technology that we have been working to achieve. We expect to make an investment decision on the Bagdad expansion in the Q4. Very excited about this. We see it as an attractive opportunity to transform Bagdad into the second largest copper mine in the US, benefiting from economies of scale and the use of modern technology to set the operation up for improved multi-decade performance. We are also advancing further growth options, which could be developed by the mid-2030s with a large-scale expansion of the El Abra mine in Chile and exciting possibilities for development of our large resource position in the Safford Lone Star District in Arizona.
Kathleen Quirk: We see our pipeline of organic growth being particularly attractive in the context of an industry where greenfield projects carry significant risk and development time frames can span 15 to 20 years. We have a differentiated, advantageous position since our projects are brownfield in nature, resulting in benefits from leveraging existing infrastructure, lower capital intensity, experienced workforces, and relationships with key stakeholders to move more quickly with less risk than a greenfield project. We are increasingly mindful of escalating inflationary pressures affecting capital costs for major projects and the need to be disciplined on qualifying projects, delivering investment returns, and carefully controlling budgets and schedules. We are going to continue to be focused, selective, and deliberate as we go forward and on balancing investments and growth with shareholder returns.
Kathleen Quirk: At Freeport, we benefit from an experienced and highly respected project development team with proven experience in successfully managing major projects around the world. Putting this all together, the setup for Freeport is exceptionally strong and Team Freeport is intensely focused on execution and delivery to capture the value and the special opportunities that lie ahead. Now I am going to turn the call to Maree to review our outlook, and then we will take your questions.
Maree Robertson: Thanks, Kathleen. Just flipping to slide 7, we show our 3-year outlook for sales volumes of copper, gold, and molybdenum. As Kathleen referenced, we expect significant production and sales growth in the coming years. We have trimmed our 2026 copper sales by about 2%, taking into account slightly lower production in the US and Chile, and by approximately 2.5% in 2027 to reflect current mine plan updates. Copper sales in 2028 are consistent with previous estimates, and gold and moly sales are unchanged for the 3-year period. We expect our Q4 2026 sales volumes to be the highest of the year, with copper sales increasing 17% and gold sales nearly tripling from Q3 levels.
Maree Robertson: For the year 2027, we expect annual growth in copper sales of over 20% compared with 2026, and more than a 50% increase in gold volumes, with additional growth in 2028 of 10% for copper and 20% for gold. Our team remains focused on delivering our plans safely and efficiently, which will translate into strong financial performance and meaningful future cash flow growth. Moving to slide 8, we continue to carefully manage all costs and capital whilst driving efficiency and productivity programs, particularly in light of inflationary pressures affecting our business and the industry. As discussed on prior calls, we continue to experience cost pressures and volatility in global energy and commodity markets, including oil, sulfur, and acid, largely associated with the conflict in the Middle East. Rising energy costs during 2026, particularly diesel prices, have impacted costs by approximately $500 million compared with 2025.
Maree Robertson: Sulfuric acid, a key input into various copper processing technologies across the industry, has more than doubled this year. Notably, Freeport is comparatively well-positioned given our integrated business model and is generally insulated from price moves as a significant producer of sulfuric acid through our smelting operations and consumer of acid in our leaching processes. In addition to operating costs, capital costs across the mining industry have been trending at a greater pace than overall headline inflation rates in recent years. These pressures affect both sustaining capital and expansion project costs, reinforcing the importance of remaining highly focused on carefully assessing our priorities, pursuing continuous optimization programs, and maintaining rigorous and strict projects and cost controls. On net unit cash costs, we are maintaining our full year guidance for 2026 of $1.90 per pound, with by-products, particularly molybdenum, providing an offset to the impact of higher input costs.
Maree Robertson: In putting together our projected volumes and cost estimates, we show modeled results on slide 9 for EBITDA and cash flow at various copper prices, ranging from $5 to $7 copper. These are modeled results using the average of 2027 and 2028, with current volume and cost estimates and holding gold flat at $4,000 per ounce and molybdenum flat at $32 per pound. Annual EBITDA would range from over $12 billion per annum at $5 copper to $19.5 billion at $7 copper, with operating cash flows ranging from over $9 billion per year at $5 to approximately $15 billion at $7 copper. We show sensitivities to various commodities on the right, and you'll note we are highly leveraged to copper prices, with each $0.10 per pound change equating to approximately $390 million in annual EBITDA in the 2027-2028 period.
Maree Robertson: We also have exposure to gold prices, with each $100 per ounce change in price approximating $105 million in annual EBITDA, and to molybdenum, which has shown significant price strength in recent months. Each $1 per pound change in moly approximates $85 million in EBITDA per annum. With our long life reserves and large scale production, we are well-positioned to generate substantial cash flows to fund future organic growth and cash returns under our performance-based payout framework. Slide 10 shows our current forecast for capital expenditure in 2026 and 2027. Our 2026 capital expenditure is currently estimated to approximate $4.4 billion, a 2% increase from the prior estimate, and $5.2 billion for 2027, an increase of approximately $400 million above the July estimate, primarily reflecting additional mining equipment investments to support and enhance productivity improvements in the US and cost inflation.
Maree Robertson: The discretionary projects are expected to approximate $1.6 billion in 2026 and $2 billion in 2027, with roughly 50% related to the Kucing Liar development and the LNG project at Grasberg. The balance includes acceleration of tailings and other infrastructure to support the Bagdad expansion, upgraded mining equipment, and capitalized interest. The discretionary category reflects the capital investments we are making in new projects that, under our financial policy, are funded with the 50% of available cash that is not distributed. These projects are value-enhancing initiatives and are detailed on slide 28 in our reference material. The capital estimates exclude projects that remain subject to completion of final studies and board approval, including the potential Bagdad 2X expansion project. As I mentioned on the previous slide, we will continue to carefully manage our spending and deploy capital strategically to projects with the best return and risk/reward profiles.
Maree Robertson: Finally, on slide 11, we reiterate that financial policy priorities centered on a strong balance sheet, cash returns to shareholders, and investments in value-enhancing growth projects. Our balance sheet is solid with investment-grade ratings, robust credit metrics, and flexibility within our debt targets to execute on our projects. We have a strong liquidity position and have substantial flexibility for funding upcoming 2027 maturities. Our strong balance sheet and significant cash flow generation supports disciplined investment in future growth whilst returning cash to shareholders. Since adopting our financial policy in 2021, we have distributed $6.6 billion to shareholders through dividends and share purchases, including approximately $1 billion year-to-date in 2026, and have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders. Our global team is focused on disciplined execution, profitable growth, and long-term value creation.
Maree Robertson: Thanks for your attention, and we will now turn to questions.
Operator: Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, press star 1 on your touchtone phone. 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 please limit your questions to 1. If you have additional questions, please return to the queue. One moment, please, for our first question. Our first question will come from the line of Richard Garchitorena with Barclays. Please go ahead.
Richard Garchitorena: Great. Thanks, and congrats on a strong quarter. First, my question on Grasberg. Given the progress that you are seeing, with ramp-up on track production from Block 1S expected for mid-2027, and then full run rates by the end of the year, how should we think about the cadence of production for copper and gold in the H1 of next year versus H2? How should we think about the mine plan heading into 2028 as you ramp up even further?
Kathleen Quirk: Thank you, Richard, and we are very pleased with the progress that we are making at Grasberg. The installation of the material handling system upgrades is going well, and we expect that those will be wrapping up towards the end of this year and early next year. I think as you look at where we are for 2027, you should see H1 starting to ramp up. H2 will likely be higher than H1, but we expect with the start-up of these panels that are currently down, that will add a lot. PB1 South is not a huge contributor in 2027, but you will see pretty significant ramp-up throughout the year. H2 will be higher than H1, and Q1 will probably be the lowest of the year.
Operator: Our next question will come from the line of Chris LaFemina with Jefferies. Please go ahead.
Chris LaFemina: Hi. Hi, Kathleen, Maree, Richard, thanks for taking my question. First, I want to say congratulations on the progress you are making at Grasberg. It has been an impressive recovery there in the last couple of quarters. I wanted to ask about the idle facility costs, the recovery and restoration costs that you book each quarter. I think it is $240 some odd million in Q3, more than $900 million year to date. A question about that, first of all, how much of that relates to costs that are going to go away when Grasberg fully ramps, in other words, costs that you are spending to repair the operation versus what portion of those costs are actually fixed costs that you will continue to carry going forward? That is my first question, is around the idle cost of Grasberg.
Kathleen Quirk: Okay. Thanks, Chris. Thanks for your comments. The idle costs are essentially fixed costs. The accounting rules require us to charge costs that are not attributable to production directly to production costs rather than going through cost of sales. But those costs won't go away, but they will be in our unit costs going forward. We expect the Q4, because rates are consistent between Q3 and Q4, we expect the Q4 to be similar to the Q3. But beginning in 2027, we don't expect to have those costs treated separately, and they'll be in our all-in unit costs. But of course, with the rising volumes, we've got a very significant increase in volumes going from 700 million pounds of copper this year to 1.2 billion next year. You'll see very low unit costs continuing at Grasberg.
Kathleen Quirk: It's really an accounting classification as opposed to a change in cost.
Chris LaFemina: Got it. Thanks. And just one question on the US operations. You're doing a lot of good work there in terms of getting mining rates up. Obviously, grades there are low, but I've noticed that recovery rates have been trending lower. And wondering if that will continue and why that might be happening. Is the nature of the ore changing? Is this something that's temporary? What's going on there? Thanks.
Kathleen Quirk: Thank you. I'm going to let Cory Stevens cover that one. But you're right, your last comment about nature of the different types of ore, that does affect recovery. But Corey, why don't you give us some color on that?
Cory Stevens: Yeah. Kathleen and team, really the recovery rates are driven by how the ore body presents itself. We have really been mining lower volumes in past years, to be honest, missing expectations of where we really wanted to be, and there is a bit of catch-up at this point in time as we increase volumes and the ore presents itself to get to the better locations for better grade. That is where a lot of our focus is really placed on increasing mine performance and really adjusting to employ various technologies as we go forward. We have officially launched our remote operating center here in Phoenix that really couples a high operating standard with state-of-the-art technology and analytics to be able to deploy and work with the teams at sites to help them be successful as they work through the higher volumes.
Cory Stevens: We are implementing new tooling with new higher payload, ultra-class haul trucks, better mine plans and road designs. Really, we see the solution going forward at this point with higher volumes to really set these processing plants up and then coupling that with the new technologies that we are developing on the leach enhancements and the additives on that front.
Chris LaFemina: Do you expect the recovery rates to rise from where they are today, or should they stabilize where they are?
Cory Stevens: Yeah. Really, that kind of goes back to this additive development work, which is really giving us a lot of confidence that our Gen 1 additives we have deployed in 2025 and 2026, that is really giving us at expected results from our lab protocols, and that gives us confidence that our Gen 2 additives are really going to launch us into this next phase of development that really could change quite everything in terms of how we are going to be leveraging the copper that is in the existing stockpiles, but also harness the resource that is in the ground still. We are really pretty excited about where that is headed. We have got limited demonstrations that are in the portfolio right now that is really going to set the stage for how we really want to leverage that going forward. We are quite optimistic on how that is going to play out.
Cory Stevens: Yes, there's going to be learnings with those commercial deployments that we have planned in 2027. The team stands ready to adapt and adjust as we pursue America's copper champion.
Kathleen Quirk: Chris, I think you're referring to, Cory was talking about the leach recoveries, but I think you're also referring to the mill recoveries, and those are impacted by the types of ore and what those recoveries are. So those will vary depending on the types of ores that are being milled. As Cory was saying, we're really very excited about the opportunities in the US. We're thinking bigger and bolder. These resources are very large. They're low grade, but the more that we can drive productivity, and we're leveraging technology, we see that as a major value unlock for us. The more that we can drive productivity. Cory talked about a different kind of truck that we're using. We've had great success with those in Peru at Cerro Verde, and those are going to allow us to be more efficient, more productive as we go forward.
Kathleen Quirk: We're really focused on increasing our mining rates in the US, particularly at Morenci, where we pretty much process everything that we mine there. The more progress we make on building those mining rates up, the better we're going to be in terms of increasing production in the US, not just from the leach, but also through our mills. So we're very excited about the opportunity to enhance our operating models within our US mines.
Chris LaFemina: Great. Thank you. Good luck.
Operator: Our next question will come from the line of Katja Jancic with BMO Capital Markets. Please go ahead.
Katja Jancic: Hi. Thank you for taking my question. Maybe staying on the US side, specifically on the leaching. I think you mentioned that the new additives are performing as expected, but it does seem that leaching ramp-up is a bit slower than previously expected. Can you talk about what is driving that?
Kathleen Quirk: As Cory was talking about, the current additive that we are using is showing what we expected in the lab. It is consistent, maybe a bit better than what it was predicted to be in the lab. We have always been, as I mentioned, over the last couple of years, we have always been testing multiple additives, and so we have not yet tested in the field this next generation additive. That has the potential to put us on the path for scale. That, combined with the work that we are doing to increase temperature of our stockpiles, has the potential to really help us with scale. We have 300 million pounds targeted in 2027 compared to just over 200 million pounds in 2026. But those new additives, which I said are being manufactured now, really show the potential that we were looking for to supercharge these recoveries.
Kathleen Quirk: We will have to wait a little bit longer, but the optimism and excitement around this initiative is building because we have, as we have talked about before, over 40 billion pounds of copper that is already been mined. It is in above-ground stockpiles, and prior technologies did not allow us to recover copper from it. So now, with the promise of potential next-generation additives, we see a real opportunity to build scale. To date, we have been using principally operating tactics to get more solution to areas within the stockpile that were dry. But now we are able to enhance that with additives. We have started with the initial additive, but we expect that that will be replaced with these new additives we have got coming in in 2027. So this is going to evolve. It will be a dynamic period for us in 2027.
Kathleen Quirk: But we really see it having the potential to unlock a lot of copper throughout, not just in North America, but South America. A lot of copper as we go forward. This is something proprietary to Freeport. Very proud of the teams that we have that have been working on this to unlock this value. It is unlike anything we have in the mining industry because it does not require significant new capital. So stay tuned. But we are very excited about what lies ahead.
Katja Jancic: Thank you.
Operator: Our next question will come from the line of Orest Wowkodaw with Scotiabank. Please go ahead.
Orest Wowkodaw: Yes, good morning. I am wondering if you can give us some more color on the increase to the CapEx guidance for 2027. It looks like it went up $400 million from the Q2 guidance. Is that just inflation on the existing planned projects, or have you added projects to the list?
Kathleen Quirk: Well, we've added in the category that we call other, sustaining and other. We've added more mining equipment. As I mentioned, the success we've had with the ultra-class haul trucks in Peru at Cerro Verde has been very strong, so we've added some additional trucks to allow us to continue to increase mining rates to unlock more copper production as we go forward. That was about half or so of the increase. We do have some inflation that's part of it, and we have some additional costs as we complete the project at Atlantic Copper, the CirCular project that we expect to complete during 2027. Those are the key categories. But as Maree mentioned, we are seeing capital cost inflation. We see it in operating costs, but we also are seeing it in capital costs.
Kathleen Quirk: The cost of the type of equipment that we purchase has gone up, and it's trended higher than CPI in recent years. We are continuing to work to control costs, to prioritize what makes sense. But from a big picture standpoint, this industry historically, in recent years, arguably has been underinvested. As we look forward at making sure that we've got the ability to grow our business in line with where we see demand for copper growing, we've got to be thinking bigger and bolder. That doesn't mean we're not going to control spend. We're going to control spend. It's in our DNA. But bigger and bolder in terms of how can we get more out of our existing assets. Incremental capital spend can make us more efficient, more productive, help us address the labor challenges that we have.
Kathleen Quirk: We're thinking differently about the future than maybe we have in the past in terms of making sure that all these operations are producing at their max rates to be able to meet the requirements of the future. As we've been saying, what we see in front of us is very significant growth and demand, and we've got to be prepared to step up to that demand and do it in a profitable and economic way. But that's part of what you're seeing, Orest.
Orest Wowkodaw: Thank you. Appreciate the color. Is it fair to sort of read into this that that approach likely continues into 2028 in terms of more of an elevated spend?
Kathleen Quirk: Well, as we see the markets today, we see a need, a signal to produce more. We are going to be looking within our portfolio of what is the cheapest way, the most economic and productive way to build new capacity and get more out of what we already have, the resources that we already have. If we can add incremental capital and get benefits and quick payouts, those are things that we are going to be inclined to do. We have also the major project, and our board will be considering the investment in Bagdad. We are very enthusiastic about moving forward with that project. As we look at this, it all fits into our balance of investing in our business, growing our copper production to match what we see is strong demand going forward.
Kathleen Quirk: The absence of supply growth across the industry, the absence of real significant supply growth. What we are doing is trying to figure out on a brownfield basis, how can we get more to be able to meet these demands? We will monitor it. We will monitor market conditions as well. At Freeport, we have had a long history of adjusting to market conditions. If we need to conserve capital, we can. As we see it right now, these are going to be very strong economic capital decisions that we are making that help us set us up for the future growth that we are pursuing.
Orest Wowkodaw: Makes sense. Thank you.
Operator: Our next question will come from the line of Lawson Winder with Bank of America Securities. Please go ahead.
Lawson Winder: Thank you, operator. Good morning, Richard and Kathleen and Maree. Thank you for this call, and congratulations on the nice quarter. If I could, I would like to ask about Bagdad and the investment decision that is expected in Q4 2026. I think this is a really exciting moment for Freeport USA. When thinking about the CapEx that you have now put out, the $4.5 billion, you have had now another quarter to refine the engineering work. Do you see any potential change in that $4.5 billion estimate? Could you just walk us through timelines? Are there any permits outstanding that still need to be concluded post an FID decision later this quarter? When would be a reasonable time for us to assume commissioning would start for this asset and then ultimately run rate capacity? Thank you.
Kathleen Quirk: Thanks. In terms of permits, we have what we need to go forward with this expansion. We have been working on it for some time. We have been spending money to ready the operation for this investment. We have been advancing work on our tailings down there that we would have needed to do anyway down the road, but to be ready for new production. We have converted the haulage fleet there to fully autonomous to prepare for the ability to scale. One of the things that has been a factor for us in thinking about growing in the US has been the tight labor market, particularly for the types of skills that we need. We have been leaning on technology to help us scale. At Bagdad, that was the first mine we selected to deploy the autonomous trucks.
Kathleen Quirk: As we move forward with an expansion that will allow us to scale and continue to add autonomous trucks to scale that without needing as many people as we would have otherwise needed. In terms of your question on the capital cost, our estimate now on a go-forward basis is still at that $4.5 billion level. We have done a lot of work on it this year. We have been working with our contractors. We have been working to make it as efficient as possible. It is a competitive market in Arizona with all of the, not just copper projects, but all the other activity really is driving demand for skills in Arizona in the semiconductor sector, with all the build going on in electricity build out and data centers. It is a very active time in Arizona.
Kathleen Quirk: We have been planning this, working to de-risk the capital as much as possible, working on a model that would allow us to prefab certain of the materials so we do not have to do everything or limit what is done on site. We have been doing a lot of things to try to de-risk the capital, but it is an environment where, as we mentioned, escalation, labor costs, cost of steel, other things, tariffs, other things that are affecting cost, energy markets have a degree of an impact. All those things are things that we are taking into account. We do not know what the future inflation will be, but in current dollars we are drawing a circle around $4.5 billion, and we are going to work very hard to manage both the capital spend and the time schedule.
Kathleen Quirk: We expect the project would come in within the next, from the final decision, come in around 3 and a half years. Our team is well organized. One of the things about Freeport is we have a project development execution team that is best in class. The project controls are excellent. Our work with contractors is very strong. We have an approach where we do not just turn over a project to a contractor to execute. We are right in there executing. All the costs and everything are on our system so that we can manage and control those. Having said that, it is a challenging environment, but if any team was ready, this team is ready.
Kathleen Quirk: A lot of the people on this team that we are forming were integral in getting that smelter done in Indonesia during a very challenging time during the pandemic, and really worked hard to bring that project in. So we have resource capacity within the company that will be dedicated to this. We have contractors that we have been working with for some time, both on the EPC side and on our labor side. We feel we are ready. We are going to talk with the board about it. This is a real opportunity for us as America's copper champion to leverage what we have there. The facilities are currently undersized for the size of the resource, and so we are really looking at this for the long term, and to set this operation up to be more efficient, more modernized. This was done in the 1940s.
Kathleen Quirk: More modernized, and this will be a mine of the future and one that we are very excited about moving forward. So we will make a decision with our board here soon and hopefully be on our way. In terms of the incremental production, the Bagdad we are looking at a doubling. It would be something on the order of 200, 250 million pounds a year. The concentrator size will be more than doubled. We benefit at Bagdad from a large amount of molybdenum production, so we will be adding 10 to 12 million pounds a year of molybdenum. So big feature of the project is using economies of scale to bring down our costs, and that is what we are focused on across the US, is finding ways to reduce our costs as we go forward.
Lawson Winder: Thank you very much, Kathleen. I appreciate that.
Kathleen Quirk: Thanks, Lawson.
Operator: Our next question will come from the line of Timna Tanners with Wells Fargo. Please go ahead.
Timna Tanners: Yeah. Hey, good morning, all. Hope you are doing well. I wanted to ask, if I could, two quick follow-ups. One is regarding the leaching discussion. Really helpful detail on the potential benefits from the new additives. I wanted to just clarify, is it possible that this additive is not in your numbers right now and could result in upside to your numbers, or do you think that the success of the additive would be beyond 2027? Just a little more color on that.
Kathleen Quirk: Okay.
Timna Tanners: Yeah, I will ask the other one next. Yeah, sure.
Kathleen Quirk: We have 300 million pounds in our numbers for 2027 and 2028.
Kathleen Quirk: That is lower than potentially could be expected if the additive is as successful in the field as it is in the lab. With that data, that would give us the plan to decide where to go. This is a test. It is a commercial test. We have enough quantities that we have manufactured to be able to fully test it. If it is successful, this could be really what we have been looking for. You could have a situation where leach recoveries start to compete with a mill recovery, and that could have implications to how we think about the future. The Safford opportunity we are pursuing a mill, but that could change the flow sheet some as well.
Kathleen Quirk: Remember, our target or our potential, our aspiration is to scale the leach opportunity from just over 200 this year to 300 next year, and then ultimately, by 2030, to get to this 800-million-pound level. That would be done with a combination of a successful leach additive and the increased temperatures that we are currently testing now. We are just starting a project at El Abra now to heat the solution that is going into the stockpiles there. We are doing some at Cerro Verde, where we have smaller leaching operations, and we have plans to do it in Morenci as well. We will have to see. The testing work that we are doing is showing really strong recoveries, and it is a possibility that we may not even need heat in the US if the recoveries are as good as what the lab is showing.
Kathleen Quirk: It is dynamic, and we will have a lot more information as we go through 2027. It is not in our forecast. We feel confident we can get to 300, but the 800 is going to depend on the results in the field. We are not at a point where we can give guidance. We see it as a potential value driver that we are pursuing aggressively. We are not at a point to put it into our forecast.
Timna Tanners: Okay, appreciate that. If I could, I know you've been talking, of course, about organic growth opportunities, but to the extent that this high copper price yields a pretty attractive free cash flow going forward, do you consider M&A? Do you consider other ways to grow outside of your organic opportunities?
Kathleen Quirk: Always. We have our base case plan of organic growth. At Freeport, we're advantaged in that we do have a significant organic growth pipeline. But we're always monitoring market opportunities. Richard just did a podcast, for those of you who haven't seen it yet. He did a podcast with Andrea Hotter about the Phelps Dodge deal. For those of you who haven't seen it, you should see it because it's a good example. We're going on our 20-year anniversary there. At the time, we didn't expect that opportunity to become available. But we were prepared and were ready to move on it. It ended up being, I believe, one of the best M&A transactions in our sector, going back to looking at where we were and where Freeport is today.
Kathleen Quirk: We'll continue to monitor the landscape, look for opportunities that could add value to the company. But we're on a path with our base case of creating value through our organic plan. I would not rule out M&A, but our base case is our organic growth opportunities, which we can create a lot of value from.
Timna Tanners: Okay, great. Thank you. All the best.
Operator: Our next question will come from the line of Bill Peterson with JP Morgan. Please go ahead.
Bill Peterson: Yeah. Hi, good morning. Nice job on the quarter, and thanks for taking the questions. I guess on the impact of cost, $500 million higher in 2026 relative to 2025. Can you provide a further breakdown between diesel and electricity as well as call outs per region, US, Indonesia, and South America?
Kathleen Quirk: Yeah. I think Maree covered some of that in her comments. For 2026 compared to 2025, it is on the order of $500 million in increased energy, which includes electricity and diesel. Diesel was the biggest factor, but we are seeing increased electricity rates. We saw that quarter to quarter in the US between Q2 and Q3, a significant increase in electricity rates. But the biggest part of that was diesel, and you have seen more than doubling of diesel costs for the year. We consume about 275 million gallons of diesel a year. 100 of that is in the US. Then we have 80 in Peru and the balance in Indonesia.
Bill Peterson: Thanks, Kathleen. I guess for the next year, the PFS for Safford/Lone Star, is there any more granularity you can provide on that timing? I guess conceptually, when we think about the capital intensity of dollars per ton, when we think about Bagdad, I am not sure, a lot of that may be US related to labor and other costs. I guess that is over $40,000 per ton. Is that the right kind of ballpark? What would bring that in lower? What could bring that in, I guess, higher, as we think about capital intensity?
Kathleen Quirk: With the Bagdad one, when you consider the molybdenum credits, on a copper equivalent basis, it is around $35,000 a ton.
Bill Peterson: Yeah.
Kathleen Quirk: But the Lone Star Safford, we are looking at potentially a mill on the same size as at Bagdad. We do have some gold at one of the deposits at Safford. So that is helpful. As I said, one of the things that we are wanting to get more information on as we go into 2027, to form our final views on the ultimate development of Lone Star and Safford is the success of the leaching initiative. So that will play into, ultimately, what the flow sheet looks like. So we are feeding in data to those studies as we get it to do the trade-off work.
Kathleen Quirk: But one thing, Bill, that I know you know this, but one thing to point out when you are comparing capital cost intensity across different operations, one of the things that needs to be taken into account in overall economics is the US fiscal situation, where while you might have a higher capital intensity because of the lower grades, it offsets itself because you do not have royalties. Our tax rate is very low in the US, and so there are some offsetting factors that make the economics attractive. So, all those things need to come into play. You cannot just compare capital intensity and say one project is better than the other.
Bill Peterson: Yeah. No, it totally makes sense. Thank you.
Kathleen Quirk: Troy, do you want to add anything about Lone Star or Safford that I did not mention?
Cory Stevens: No. Yeah. I think all those trade-offs really are going to converge to give us the right solution. But, we are trying to balance capital intensity versus the value proposition, and how do we best harness the resource between leaching and milling. It is not really one solution or the other, but it is going to be a combination of both that is really unlocking the true value.
Bill Peterson: Great. Thanks for that.
Operator: Our next question will come from the line of Daniel Major with UBS. Please go ahead.
Daniel Major: Hi, Kathleen, Richard, thanks for the questions. Maybe a couple just focusing back on Grasberg. The longer-dated production guidance given in the mine plan has come down a little bit over the last couple of updates. Can you just walk us through the drivers there? I think you previously said it is not associated with normalizing after the mud rush. And then associated with that, has anything changed with respect to bringing back PB1C and PB1N, and are they needed to achieve sustainable production in line with the guidance you have given over the medium term?
Kathleen Quirk: Thank you. In terms of the overall 5 years at Grasberg, it is very similar to the prior guidance. I think there was a small change in 2030 from what we had previously. But in general, the plan that we laid out in the last quarter is consistent. Each quarter, we update our plans. We go through updates to the expected mine sequence, what makes sense in terms of the production rates. Right now, with this El Niño situation and limits on the mill, on water availability, what we end up doing is reducing some production that's very low grade. Ultimately, we maximize as much as possible the metal production and adjust the mill rates to do that, to maximize it. The long-term plans include a restart of PB1 South, as we said, by mid-year.
Kathleen Quirk: We also are continuing to evaluate the restart of PB1C, which is where the incident occurred. PB1C is a very small piece of our. You look at '28, it's very inconsequential. As you go out, it's a little bit more. By 2030, it's probably 3% to 6%, 3% for copper, 6% for gold, in the 2030 timeframe. We're constantly looking at what's the right way from a safety standpoint, a productivity standpoint, to mine GBC. That'll continue to evolve as we go forward. We also are reviewing the schedule for Kucing Liar. That is expected to start ramping up in the 2029, 2030 timeframe. With the focus that we've had on the GBC, we are somewhat behind on development rates in KL. We're working on looking at our plans there to figure out what we can make up between now and then.
Kathleen Quirk: Our focus has been on a safe and sustainable ramp-up of Grasberg, and we feel, big picture, that's well in hand. Mark, I don't know if
Daniel Major: Okay, Thank you.
Kathleen Quirk: you want to add anything to any of those comments.
Mark Johnson: No, you said it well. We really haven't changed anything with the PB1 North and PB1C. We continue to look at options that'll potentially make it more robust. We're also working on, as we look at the 5 years, PB3, PB4 all play a big role. We've been doing some rehab in PB3, but we're beginning the undercutting and PB4 as well. Along with the major production that's coming out of PB2 right now. I think Kathleen mentioned the construction of the conveyor or the chute galleries is going well, both in the PB2 area and for the restart of PB1 South.
Daniel Major: Okay.
Operator: Our next question will come from the line of Bob Brackett with Bernstein Research. Please go ahead.
Bob Brackett: Good morning. Coming back to the Gen 2 additives, you mentioned you will have sufficient quantities to start a trial in 2027. Should we think about a 6 to 12-month trial so that perhaps this time next year we will know whether it is go or no go, or could it be a bit faster than that?
Kathleen Quirk: Well, I think that is a good benchmark to use. Interestingly, in the testing we have done, the longer it stays under leach, the better recovery. So the tail continues to increase as it goes. So we will be getting information continually, but I think we will have some information this time next year, and we will update quarterly, of course. This is something we are very excited about. Can't wait to get it in. So we will keep you updated as we have additional insight.
Bob Brackett: Yeah. The fact that you mentioned that it could compete with mill recoveries is quite a tease. My follow-up would be talking about Grasberg risk management. You have four initiatives around mud removal, two of them underway, and it feels like the slower of the two initiatives you have slipped a little. Should we interpret that as a good thing, that the early initiatives are doing their job, or how should we think about that delay from 2027 to 2028?
Kathleen Quirk: I'm going to give that to Mark to comment on. Mark, go ahead.
Mark Johnson: Yeah. Just as we got into the two projects that you mentioned, the in-pit pumping and the drift that we're developing, those are both going well. We're still learning a bit more about. As we got into the drift development, there was a little bit of poor ground. We've gotten through that. That's going well now. A lot of them were just a little bit of an adjustment. It's nothing major. We believe all of these initiatives that are going on in parallel are going to be tools that we have available to us, and we just want to have all the options possible as we get into the GBC restart. Obviously, El Niño has helped us out a great deal. We're getting very little water in some of the dewatering drilling that we put into the pit bottom, and that's simply because it's dried up.
Mark Johnson: The drier weather, although it's had some challenges, as Kathleen Quirk mentioned, on our mill rate, it's really helped us in a lot of areas, particularly in GBC, on these initiatives.
Bob Brackett: Very clear. Thanks for that.
Operator: Our next question will come from the line of Nick Cash with Goldman Sachs. Please go ahead.
Nick Cash: Hi, team, and thank you for answering the question here. Just wanted to jump back to the US for a second and your comments of $500 million of higher energy costs versus 2025. With US site production, delivery costs, et cetera, now at around $3.80 per pound versus $3.65 last quarter for the full year, just thinking, as we bridge into 2027, how much of the cost increase should reverse with, I guess, normalized US weather or operating rates versus remain embedded from some of the structurally higher cost inputs that you mentioned before in terms of labor or other input cost inflation?
Kathleen Quirk: Yeah. In all of our numbers that Maree was talking about in terms of EBITDA, et cetera, we have baked into our numbers kind of the current energy market environment. At some point, hopefully those will start to decline, but those are baked in. The thing that we can bring down the unit cost for in the US, the thing that has the biggest potential is getting copper volumes up. We are working to do that with increasing the mining rates. Next year, we are expecting an increase from this year. Of course, we have got the increase in leach, but we have also got some other small increases. That really is what our goal is to build productivity, increase the production in the US to reduce the overall cost. But we have got high energy costs right now. Acid costs, while we are insulated globally, we are affected.
Kathleen Quirk: When you look at the US, we are a net buyer of acid. That is offset in our revenues elsewhere, as Maree was talking about. But it does show up in the acid prices, do show up in the unit cost. Materials and supplies, it had moderated a lot, but now with the inflationary environment, we are starting to see increases again. The thing that we can do the best is to improve our productivity, and Cory was touching on some of the things we are doing to do that around technology. That is going to be the biggest driver for us to control the unit cost, is getting more productivity.
Nick Cash: That's super helpful, Kathleen. Thank you.
Operator: Our next question will come from the line of Brian MacArthur with Raymond James. Please go ahead.
Brian MacArthur: Good morning, and thank you for taking my question. Can I go back to the comment that was made, the teaser, as Bob called it, for recoveries from the leaching that you might get up to mill-like levels. If I look at getting from 300 million pounds to 800 million pounds, how much of that is recovery improvement versus just more volume over time? I guess maybe the way I ask it is, if none of this other stuff works, can you go above 300? Conversely, if you do get the mill-like recoveries, can you get above 800 out in 2030?
Kathleen Quirk: Ultimately, it's about recoveries. When you look at the residual copper that's in our stockpiles, and it depends on the ore types, but at Morenci, for instance, the recovery is very low. If you have an uplift of 40% or more, that's not going to be a mill recovery. But in places like Chino, where the leach recoveries is higher to start with, you add 40% or more and you get closer to 80% or 85%. So it depends on the ore types that are involved. But the thing that could help us in addition to the residual copper is these additives are going to be helping us also with new placements. We're just going to have to wait, Brian. I don't want to speculate on whether we could be over or under 800.
Kathleen Quirk: We have been through the model several times, and we feel that 800, it is aspirational, but you can model it based on what we know. Give us a few more quarters to give you more feedback specifically on what that could look like. The 200 was really tactical things. Those are things like having sensors everywhere that tell you where you need to put more solution. We have been doing that. We have been injecting solution to targeted levels using advanced drilling and targeted drilling. We have been using helicopters to drop drip lines where they could not be accessed in the past. We have been doing a lot of tactical things to what we call get the rocks wet. This new era over the next few years will be about technology, and it will be about the additive plus the work we are doing to increase temperature of the stockpile.
Kathleen Quirk: Both of those things coming together is where we see the production curve starting to scale. But we are at the point now where we have to test it and see how it does in the field and what the implications are.
Brian MacArthur: Great. That is very helpful color. Maybe if I could ask another question. I know it is not the core business, but just on the molybdenum. It has come up a number of times in the call, and you do have a slide talking about being the world's largest moly producer. How much excess capacity is there in the primary? It is in the US, so I would think if you could get it up in these markets, it would be a good thing to do. My second question is, I see sales go down next year. Is that just byproduct coming out of the US mines or the international mines? Why would it go down next year in a good moly market?
Kathleen Quirk: It will vary. We have got our two primary mines, and then the production will vary, depending on what the production is from our byproduct mines. We are very positive on the outlook for moly. A lot of the same drivers that we are talking about with copper, the supply challenges at the same time where uses from molybdenum are growing. We see it as a real privileged business we have as in being the world's largest producer. We do have some opportunities to expand primary at Climax, and so we are kind of dusting off our old schedules of those to look at those. But our priority, Brian, is really to move copper. But we will continue to look at what the opportunities are so that we can have additional optionality in the moly business.
Brian MacArthur: Great. Thanks very much, Kathleen.
Operator: Our final question will come from the line of Liam Fitzpatrick with Deutsche Bank. Please go ahead.
Liam Fitzpatrick: Good morning, Kathleen and team. Two quick ones, I hope. Firstly, just a clarification on the CapEx guidance for 2027. Does that include anything for Bagdad in terms of the $4.5 billion project number that could be approved later this year? The second one is just on buybacks. Based on what you are showing us here on sensitivities at current spot prices, there could be a very material uplift in cash flows next year. Based on that 50% of available cash flows that could be returned to shareholders, how often do you make that decision in terms of how much stock to buy back? Is it on a kind of rolling quarterly basis or is it less frequent?
Kathleen Quirk: We generally monitor. We have a policy where 50% of the cash flow is for investments in our future growth, and the other half is for shareholder returns. We have the dividends, and then we have been using cash flows above that to get to the 50% to stock. So we monitor it quarterly, and look at our, make sure that we are being consistent with the overall distribution policy. But you are right. We are going to be generating a lot in the current market environment and with our growth coming, very significant rise in cash flows. So that will, by the policy, mean we have more cash to distribute while at the same time investing in growth. We do not have, for the $4.5 billion, we do not have anything in 2027 at this point.
Liam Fitzpatrick: Okay, thank you.
Operator: I will now turn the call over to management for any closing remarks.
Kathleen Quirk: Well, thank you all for participating. Lots of good questions. I just asked Richard if he wants to make any observations, comments, or closing remarks.
Richard Adkerson: Thanks, Kathleen. You can tell everyone that our management team, our board is very excited about Freeport's outlook and what we have available to us going forward. We appreciate your attention and your support, and if you have any follow-up questions, let us know. Thank you.
Operator: Ladies and gentlemen, that will conclude our call for today. Thank you all for joining. You may now disconnect.
