The Freeport-McMoRan Second Quarter Conference Call has begun, with Kathleen Quirk, President, welcoming participants. Richard Adkerson, CEO and Chairman of the Board, will make opening comments, followed by Quirk discussing the prepared materials. Other members of the Freeport-McMoRan team, including Josh Olmsted, Mark Johnson, Cory Stevens, Mike Kendrick, and Steve Higgins, are also present. The call will conclude with a question-and-answer session.

Freeport's second quarter results and outlook reflect that their operational performance is in line with their plans and prior guidance. Global copper inventories remain low and there is a growing consensus on the medium and long-term outlook for copper demand. Freeport is well-positioned with their currently producing assets and attractive pipeline for future growth. Production results for the quarter included 1.1 billion pounds of copper and nearly 500,000 ounces of gold.

In the second quarter, copper sales were below guidance due to administrative delays in obtaining an export license. This caused the unit net cash costs to be slightly lower than expected at $1.47 per pound and resulted in strong margins and EBITDA of $2.14 billion. Operating cash flows totaled $1.7 billion and the balance sheet liquidity and financial flexibility remain in great shape. At Cerro Verde, one of the largest concentrate sites in the world, mill throughput averaged 425,000 tons of ore per day during the quarter. The team is looking to improve efficiencies in the future.

In the second quarter of 2021, Grasberg mill rates averaged over 200,000 tons per day, the highest average throughput in a decade. This ore was coming from efficient underground mines, producing copper at a net cash credit of $0.09 per pound. The leach initiative yielded an incremental copper of 29 million pounds, and the team is on track to reach a target of 200 million pounds of copper per year. In Indonesia, regulatory changes have been made and updates are being provided.

Indonesia has been focused on downstream resource development for many years, leading to an agreement to expand domestic smelting and refining capacity in 2018. In 2020, the country passed a law restricting exports of certain minerals, but allowed for exports of copper concentrates for companies with more than 50% smelter progress until May 2024. Last week, the trade and finance ministries passed regulations to increase duties on exports and allow for continued exports in 2024. The new duty rate is 7.5% for the second half of this year. The IUPK provides stabilized terms for taxes, royalties, and duties, and the company is currently reviewing the IUPK provisions with the ministry.

Copper is a key metal for electrification, and demand is expected to double by 2035 due to investments in renewable power and other initiatives. Freeport is well-positioned to meet this rising demand, but prices will need to increase to incentivize new supplies. Shipping delays have had limited impacts on production, and there is currently a sizeable volume of copper concentrate ready for shipment. Inventories are at low levels, indicating a tightly balanced market.

Freeport provides an update of their three-year outlook for sales volumes, largely unchanged from their prior forecast. They project 2023 copper sales volumes will be reduced by 40 million pounds, with regional information on Slide 8. Their consolidated unit net cash cost forecast of $1.55 per pound is consistent with their prior estimate, and they are focused on cost management and improving productivity to offset recent cost increases. The estimates assume Indonesian export duties remain unchanged.

The new regulations imposed higher duties than the stabilized rates under the IUPK, which will have a $0.07 per pound impact on consolidated unit net cash cost for the year. Slide 9 provides an outlook for margins and cash flows, and the projected EBITDA and cash flow range from $11 billion per annum to $15 billion per annum at $5 copper. Operating cash flows before working capital range from nearly $8 billion per year at $4 copper and $11 billion per year at $5 copper. The company is well-positioned to benefit from future metals intensive growth trends and has prospects for increasing cash returns.

The company has outlined their capital expenditure forecast for 2023 and 2024, which includes investments in the Indonesian smelter project. The forecast is slightly higher than before and discretionary projects, funded with 50% of available cash, total $2 billion over the two years. The company is focused on growing copper demand and their brownfield strategy of developing resources within their portfolio, with expansions of existing operations as the near-term best options for growth.

Freeport is pursuing multiple opportunities to increase copper production, including workforce additions, automation, and improved asset efficiency and reliability in their equipment and processing facilities. They believe they can increase copper production by 200 million pounds a year with minimal capital investment. Additionally, they are looking to expand their leach opportunity beyond the initial 200 million pounds, potentially to 800 million pounds a year over the next three to five years. They are also looking to expand their Bagdad mine in Arizona.

Freeport is completing feasibility studies for an expansion, with major opportunities in El Abra, Chile, Kucing Liar in Indonesia, Bagdad, and Safford/Lone Star in Arizona. They are making investments in infrastructure to enhance their optionality for these projects. In addition, they are looking into extending their operating rights in Indonesia beyond 2041. Freeport's financial policy priorities are centered around maintaining a strong balance sheet, returning cash to shareholders, and investing in value-enhancing growth projects.

At Cerro Verde, Freeport-McMoRan has had ongoing conversations with their employees and the two unions present. A potential strike has been threatened, but the company is working to prevent it by having a meeting with the labor department. The team is proud of the progress they have made, and Freeport-McMoRan has distributed over $3 billion to shareholders through dividends and share purchases since commencing a performance based policy.

Richard Adkerson explains that Freeport-McMoRan has not had to shut down operations at Grasberg due to the lack of an export license. They have been able to continue to operate because the domestic smelter at Gresik, owned by PT Smelting, was undergoing maintenance and was not affected by any export issues. Now that the maintenance has been completed, they are able to ship concentrates to Gresik again.

Kathleen Quirk and Richard Adkerson are discussing the company's ability to export and the new regulations that may require them to pay an export duty. They are confident that they will be able to export and are continuing discussions to present their case. The company is doing well at Cerro Verde and has no significant debt, so they are considering continuing to pay dividends with the cash regeneration.

Kathleen Quirk of Cerro Verde reported that they expect to continue to distribute cash flow out of Cerro Verde, but do not yet have a decision on what the cash flow and dividends will be quarter by quarter. She also mentioned that their precious metals refinery project had an updated estimate that was higher than the last update, due to more engineering and a rise in inflation.

Grasberg is currently experiencing some cost increases due to the precious metals refinery. This is due to slower availability of experts and contractors than originally projected and the project taking longer. Richard Adkerson compliments the smelter team and overall operations team for their good work in managing cost performance. There is also the issue of Indonesia asking for an additional 10% stake and renegotiating the IUPK further out.

Richard Adkerson corrects the idea that there is a renegotiation of the IUPK, which runs to 2041. He explains that the 2018 settlement was positive for all stakeholders, with Indonesia achieving its goal of a 51% equity ownership interest. He also notes the successful conversion from open pit to underground mine and the positive relationship between Indonesia and FCX, which was highlighted by President Joko Widodo's visit to the job site in Papua in early September. He also notes the progress made in increasing Indonesian management and employees of Papuans working in FCX's operations.

The 2018 deal has helped to build relationships between stakeholders in a positive way. A drop dead date of 2041 is not beneficial to anyone and so a mutual recognition of the benefit of planning beyond 2041 has been established. Additionally, there is now better alignment between the government, state-owned enterprise, and the company paying taxes and royalties, creating a greater economic interest for the government in the operation.

Freeport-McMoRan and the government have a good partnership, and the 10% share of reserves that was discussed would only come into play after 2041. The Board is considering debt repayment and dividends, but Mike Dudas asked about share repurchases in the second half of the year, given the expected cash flows.

Kathleen Quirk and Michael Dudas discussed the opportunistic evaluation of copper prices and how the company plans to deploy their free cash flow. Richard Adkerson expressed confidence in the value of the company's shares. Brian MacArthur then asked when the ore body post-KL would be developed, to which Quirk responded that the company is following their policy of distributing 50% of free cash flow between dividends and share buybacks, while keeping their debt low and investing in long-term growth. They would need to start planning 15 years in advance in order to efficiently develop the ore body.

Kathleen Quirk and Richard Adkerson discuss the need for long-term planning in order to be efficient going forward, noting that the government has recently become more supportive of this. They mention the smelter completion and the regulations in Indonesia as enabling longer term horizons, and that PT-FI is already in the process of developing mine plans to extend production beyond 2041. They also note the potential for extended production from Kucing Liar and the Grasberg Block Cave.

Richard Adkerson and Kathleen Quirk explain that the Deep MLZ ore system that Freeport began mining in the early 1980s has continued to get bigger than expected. Brian MacArthur asks if this means additional development underground or if a new common infrastructure project needs to be put in. Adkerson and Quirk explain that they need to do more active delineation drilling to understand what is there and develop their plans accordingly. They also mention that there is a lot of resource in the area that is not in reserves and some of it would require additional processing.

Freeport-McMoRan is expecting to receive approval for an extension of their ability to export concentrate in Indonesia, which will last until May 2024. Richard Adkerson noted that when they first started developing underground operations, they were aiming for 120,000 tons a day through their mill, but in the most recent quarter, they achieved 240,000 tons a day. The extension will provide an opportunity for both the government and Freeport to explore more, as well as for long-term planning.

The company is planning to update its work plan in the fall to increase the export quota to get through May. The company is expecting the smelter to be mechanically complete in the second quarter of next year, and they are working with the government to allow for some exports beyond that. The project team is doing a good job and the smelter is developing quickly. The company is aiming for the full ramp up to be complete by the end of next year.

Richard Adkerson thanked everyone for their participation and concluded the call. He encouraged anyone with follow up questions to contact David and said they look forward to reporting on their progress.

This summary was generated with AI and may contain some inaccuracies.