Good morning. Our next session is with Freeport. We're going to do this as a fireside chat, so if you do have questions, please send them in through the app. Joining me today are Richard Adkerson, Chairman and CEO, and Kathleen Quirk, President and Incoming CEO. I wanna kick it off, Richard, after 20 years at the helm of Freeport, you decided to transition the CEO role to Kathleen. Can you talk a bit about the decision to do this now?
So I turned 77 the day after Jimmy Buffett died in December, who was my age. And, you know, I think I'm getting old enough finally to run for President of the United States. Three years ago it has been 20 years since I've been coming to this conference for 20 years, and it's great. Thanks, BMO, for hosting it, and thanks to all of you who've attended our sessions over the years. And, we've had a lot of interesting things happen to this conference, a lot of deals that we advanced and some we didn't make. But it's always been a great conference, and we appreciate sponsoring it. Three years ago, I became chairman finally. A number of you have heard me express dissatisfaction over the previous board at Freeport. And we added six directors when I became chairman, including four CEO types and financial experts.
I made a private commitment to myself at that point in my career to say I wanted Freeport to have a sustainable board, and I wanted to have a sustainable management team. We had a team that's been together for so long. We call it the Freeport family. And, but a number have been there so long that they're retiring and we're replacing them. You wouldn't believe it 'cause Kathleen's so young.
She, she and I started Freeport exactly the same time, 35 years ago. And after we split off FCX, she had worked in the ag minerals business and, worked with Chip Goodyear, who was my partner back in those days. And, when we sold that business, she became treasurer, and that's when we started working together. And then she became CFO 20 years ago.
I wanna give her a round of a hand for her career and all that she's accomplished. You know, it's a great feeling, after devoting my life to this company so much to leave it in such great hands. I mean, she's just a remarkable leader, and she's taken over more and more. And we got work to do. You know, I'm gonna stay as Chairman and work with the board, but I'm also gonna support Kathleen in the transition. And then I'm gonna focus on strategic issues. You know, we got a new government coming in in Indonesia, a new government in the U.S. We got political issues in Chile and Peru we need to work with. We wanna grow our business. We spent too much of our career, being workout artists.
You know, five major times the company has been threatened with, mostly self-imposed problems, and we spent too much of our time dealing with those. In between, we did the Phelps Dodge deal. And then 12 years ago, we did four major development projects that were successful. And together, they created the modern Freeport, and that's what we're gonna work on as we go forward. And I'm gonna help Kathleen, and we're gonna establish our relationships with governments, with communities, within the industry. And we're gonna look for ways to ways to grow our business. And that's a real challenge. We're committed to copper. I, I feel as strongly about that as I ever did. I've been on this stage, and I debated Mick Davis and others about diversity of commodities. I never felt nickel would pull out copper when copper went down.
Just as committed to copper, and I feel as much passion about it as I ever have. The supply side is so strongly supported, and the world's gonna get more electric. It's not gonna be as smooth and easy thing, but we've got a great set of assets to build on internally. We got a great team. We execute really well. So that's where we are. And I, you know, I hate getting older. I just hate it. I'm fighting letting an old man in. You know, and last year, I had a knee surgery from a horse accident, and I was limping coming up here, and I felt bad. Anyway, you know, it's the company's got a great future, and I just feel great about what we're doing with the management transitions.
The right thing to do and right time to do it.
Age is just a number, Richard.
Kathleen.
Just wait. Just wait.
Kathleen, as Richard said, you've been with Freeport for 35 years. You worked close with Richard over this time. Do you envision any strategic changes moving forward?
The company is so well positioned, as a leader in the copper industry. We've got great assets, geographically diverse, operationally diverse. We've got, organic growth opportunities. We've got a number of things that differentiate Freeport, and though these will continue to be really important as we go forward. The first thing is to execute reliably and responsibly. That's a challenge in our industry. You've seen it across the board with a number of companies facing challenges with supply development, project execution. That's a hallmark of Freeport, and that'll be something that our team will continue to focus on in terms of execution. People, big deal at Freeport. Richard talked about the culture. I wanna give him a lot of credit for developing a culture at Freeport where we work to create value for shareholders and for all of our stakeholders.
People stay around the company for a long time. We have a sense of commitment and passion for our business and what we create. That's gonna continue to be a priority of mine is to keep that culture going because it does add value to the company. Technology's gonna be a big focus. We're already focusing on innovation and technology, as it applies to our new leaching technologies. A lot of value in our industry. It's gonna go be more broad than just leaching. It's gonna cover a whole range of things that we now have tools available to us in our industry that all of us need to embrace that'll allow us to drive better performance in the future. And the other thing that I'm very focused on, Richard's focused on it as well, is our growth pipeline.
And we all are looking at the outlook for copper, the need to produce more copper units. We've got opportunities within the portfolio. We're advancing those. Unfortunately, the price isn't sufficient today to really trigger big investment decisions, but we are advancing. We're, we do de-risking those projects. And when the time comes, we'll have opportunities within, within the portfolio. We're doing a lot in Indonesia, executing very well. We're also pursuing a growth project there at Kucing Liar. So I feel very, very good about our strategy, about our ability of the team to execute. And, I, I, I just feel very excited about the opportunity, very excited about, about how where Freeport's position, our ability to generate value in the future.
We'll take one question from the app. What do you think about Gary's quote about not being early to the party when it comes to growth projects?
Not being what?
Early to the party.
I wanna be early to the party. I mean, I want us to grow. I mean, it's been in me. And I know I read some commentary about the management transition, and you talk about cost control and things we did. You know, God knows what this company would be if we hadn't had the barriers to growth that we've had over the years. Now, I do agree that you have to have the things addressed that Kathleen talked about. The one thing we did learn when we did those four projects together 12 years ago is we would have benefited from more front-end engineering studies on those. We would have been more efficient. But that included Cerro Verde. It included expansion at Morenci, reopening Climax, building Tenke Fungurume, which we created tremendous values on.
So, I mean, we're gonna be disciplined, you know. Kathleen's really been involved in all that, and she's a very, very disciplined person. So from that standpoint, you know, we're not just gonna run out willy-nilly and do it just because you won't see any greater believers in the copper market than the two of us sitting on this stage. We wanna grow, but we're gonna make sure we got our arms around, you know, the CI - it everybody's focused on operating, capital cost in new projects. Well, operating costs have changed as well. So, you know, you gotta deal with that and make sure you understand what you're doing before you do it. That's what we'll do.
When you do look at the projects, obviously, you're looking for higher copper prices. But what are can you talk a bit more about what are the other areas or factors that you consider before you make a final decision?
Well, you start in the 1.7 billion lbs of copper that we believe we can bring on into the market, over time. The leaching initiative is one that we're pursuing very aggressively. And we reached our targeted run rate, initial run rate of 200 million lbs per annum, at the end of last year. And we have the opportunity potentially to produce as much as 800 million lbs from that initiative, at a very low operating cost, insignificant amount of capital, very attractive economics, the most attractive in our whole portfolio.
And no permitting?
So that is going on separately. So just put that aside. On the other projects that we have, in the U.S., our Bagdad project, we've done the feasibility work. It's a fairly straightforward project. The consideration there, one, is market conditions. The second, though, is the availability of labor. And there's a very tight labor market, particularly in Arizona, particularly in remote areas like our Bagdad location. So what we're doing now, to advance the project, is we plan to convert our haulage fleet there to fully autonomous. And so we're in the process now of working to convert that fleet to all autonomous. That's gonna help us with our labor pool. We're also advancing some tailings work so that when the time comes, we would have de-risked the project and be further along with it.
At some point, the project will make sense, and we're tackling the obstacles that are in front of us. In Chile, our partner, Codelco, is here in the front table. Thank you for all your support. We have a great partnership with Codelco at El Abra. And we have a big opportunity there to unlock a huge resource that through a mill concentrator, we're currently doing a leach project there. And we see an opportunity to develop a concentrator project similar to what we have at Cerro Verde. Very attractive. It's going to be costly. We're going through our cost estimates, again, in light of what happened with the most recent project in Chile.
And so we're retesting the economics and getting ourselves into a position that we will, to Richard's point, we've gotta get a permit for it, and it's an extensive permitting process. We're looking to, to prepare for permitting application in 2025. It takes some time to get to the point where we can file that. But it's a huge opportunity for us. And again, we're looking to, to, to de-risk it as we go forward, really understand the, the capital costs and our ability to execute. And then our project in Indonesia is, is on top of that, the Kucing Liar project, very significant producer of both copper and gold, a very attractive project because we're using a lot of the existing infrastructure that we already have in, in Indonesia. That is a long-term development.
We're looking to bring it on around the start of the new decade in 2030, going very, very well. What we've been able to achieve in Indonesia and you saw our fourth-quarter results where we had a net cash cost in that operation of $0.00 per pound, meaning cash cost of production was completely offset by our gold revenues. We've got a great opportunity in Indonesia to continue to develop and have very large-scale production there.
Maybe staying a bit on the Kucing Liar. So you're spending about $400 million per year for the project over the next 10 years. Given that we're seeing inflationary pressures across the board, is there a risk to CapEx?
No. This, I mean, Grasberg's such a great asset 'cause it's got high grades of copper and all that gold there. So that was a whole strategic reason for putting together Freeport and Phelps Dodge is during periods of low copper prices, Grasberg was there to provide cash flow to support that service and G&A costs. So this, it's a laydown project, and we're doing it. And there won't be any copper price that would delay that. And with the extension under our old contract and under our new permit, we, it would all ending at 2041. And so we know that we can't report reserves beyond 2041, but we know we have reserve quality resources already established. But we haven't done much delineation drilling.
And when we're talking with the government, we're telling them, "You know, we need to do this for the long-term planning." We spent for the underground mine, it was 20 years of investments before we started operating the industry's largest underground operations. And you can see how it's going. So it's in all stakeholders' interests for us to extend that 2041. We have no rights right now beyond that. So it's something we have to work for the government to get it done. But the president of Indonesia is very supportive, and the mines minister is so there's no controversy about it. It's just getting the regulatory processes completed to get it done. And we're already starting to do exploration work there. So it's a bedrock asset of our company.
But man, in the U.S., you know, we own all of our lands and fees, so there's no royalties. You know, very favorable tax situation and even more favorable 'cause we have a big NOL, which makes me grimace. But, you know, and you got community support for our operations, Native American support. We built the community relations to the point where people want us to expand. And so it's a great opportunity for us as well. And those, you know, tax, royalty, situations have offset the lower grades that we have to deal with there.
I think it's important on Kucing Liar also to take into account the fact that we did bring the Grasberg Block Cave mine online, the DMLZ mine online. So really, the methodology that we're going through and developing Kucing Liar takes advantage of all of our experience, recent experience with that development and all of the learnings that'll drive better efficiencies as we complete that project. So we feel very good about the development of Kucing Liar and with an extension at Grasberg, being able to unlock a lot more opportunity there than we ever thought we could.
It's 50,000 tons, right?
90,000 tons a day.
90,000 tons a day?
Yep.
So this is world-class Block Cave mine, 90,000 tons a day. Now we're mining some days 240,000 tons a day from underground, from underground. Think about that.
Regarding the mining rights extension in Indonesia.
Mm-hmm.
How's that progressing? Do you have a timeline by when you wanna get it done? And is the presidential election impacting that?
Yeah. I wanna, you know, when I talk with the president in the first week in September of 2022, we're gonna get it done by the end of the year. And, you know, he's very supportive. It's just, I never thought I could be as patient a person as I am in going through the regulatory processes there. So there's no debate about it. They just had the election. It hasn't been officially certified yet, but all indications are there was a majority winner, in, in, in the first round. The new government doesn't come in until the fall. And so, we anticipate this happening.
What's been really great about our relationship with the Indonesian government over the last five years since we signed the new agreement in 2018 is that now the government is a partner with us in the operation. And so there is a lot greater and deeper understanding of the need, the long lead times involved in mining. And so actually, they recognize this the government recognized this issue two years ago that if we were able to get an extension, we could do more evaluation, more exploration, more investment sooner so that we didn't cut off values that would go to all the stakeholders. So that's been a real benefit of bringing together the Indonesian government as an owner in this asset is this much stronger alignment than there ever has been in the operation.
Yeah. It's just night and day. The government through taxes, royalties, fees, and their 51% equity interest has 70% of the economics of this project. Thanks to our friends at Rio Tinto selling out to the government, Freeport was able to maintain its interest, and that allowed the government to meet their objective of having a 51% of the equity interest. We have a shareholder's agreement that gives us the right to operate, which was our, our bright line objective in the negotiations. We didn't wanna invest in a state-owned business. We have clear-cut. FCX is the operator.
And then I think last year, there were some reports that the government is looking for an incremental 10% share. How do you think about that and how that would impact the shareholders?
I mean, that was. Our discussions led to that because we didn't have any rights beyond 2041. And so in terms of discussions to reach a mutual agreement to go forward, we agreed to divest that additional interest.
In 2041?
In 2041, but not before then.
We have a question from the app. What is the most important lesson that you have learned over the last 35 years that you would be willing to share for all the people in the room who are younger than the next president of the U.S.?
How long do we have for a question?
I'm trying to see. I gotta shorten this out 'cause there's just been so much. And I mean, I've loved being with Freeport and the people I work with and all, you know, the investors and so forth, which was once just a huge part of my life. We couldn't get anybody to buy FCX 'cause we were in Indonesia, and we were 1/3 gold, 2/3 copper. You know, it was kind of a lesson. I had 20 years in public accounting, working in the oil and gas business, senior position there. And I never hated corporate culture. I mean, that's why I never wanted to go into a company. And so I ended up coming to Freeport.
You know, I'd known Jim Bob and the company. I'd worked with them for 20 years before that. For whatever reason, he let me reestablish, and Kathleen mentioned this, the corporate culture. We are different. We are not structured. We don't even look at really organizational charts. When we have a problem, we form a team. We go work on it. Sometimes I'm on the team, you know. Sometimes Kathleen's on it. We own it together. We just have this deal. We win as a team. We lose as a team. You have to be qualified, work hard, be committed to be on the team. We're pretty rigorous about who makes it and who doesn't. Once you're on it, we're in it together. We don't look for all guys.
We don't call people in the office and say, "You gotta go fix this." We look at ourselves and say, "Let's go fix it together." So if I say the thing to me that I take the most pride in is creating that culture. And then we went into Phelps Dodge, which had a really tough corporate culture. The operations were consistent with the way we did things. And that was the easy thing. But we just kind of blew up the corporate culture real quickly and changed it to the Freeport culture. And now the former Phelps Dodge people are the biggest supporter of that culture. So I think the thing is if you can get an organization that, you know, where people aren't afraid to if there's a mistake or a problem, they raise it up.
You know, they don't have a fear that they gotta go solve it themselves. You know, tailings thing's the biggest deal. We, we tell our people, "Boy, if we got a problem with tailings dam, you gotta let everybody know about it. You don't feel like it's your problem to solve." But we, we do that with kind of everything we have going on. We're dealing with low-grade productivity issues in the Americas right now, in the U.S. We gotta solve that problem. And,
But I would just say, in just working with Richard over a long period of time, the thing that I've learned from him is, in our industry, that's applicable to our industry: finding common ground. Whether it be common ground with employees, workforce, stakeholders, governments, communities, investors, ICMM matters, Richard knows how to find common ground. That's what our industry is about. The sustainability of our industry is about our ability to sustain a business over a long term, to find win-win situations, not try to get every last penny from anyone, but to be fair and honest and reasonable in executing the business. He's just been a great role model to all of us in being fair and reasonable and finding common ground with all of our stakeholders.
Or in my career, one of my mentors, he gave me a responsible position. He said, "I'm gonna" and I use this all the time. "I'm gonna give you very specific instructions on how to succeed. Do the right thing and don't screw up." And so when somebody comes into me and says, "I wanna have a better job. I wanna have a promotion," that's what I tell them. I say, "Do the right thing. Don't screw up. Start doing the job that you aspire to before you get promoted in a cooperative way, not a competitive way." And that's what Kathleen's done. I mean, we've had a 20-year transition, you know, but particularly over the 17 years since Phelps Dodge, I had 16 people reporting to me. And then when she became president, I've had one.
But that's, you know, it's just that attitude of we're in it together. We're gonna do the right thing. And everybody makes mistakes. And when we do, we say, "How can we solve it? How can we roll up our sleeves and go do it?
Well, Richard, Kathleen, thank you so much. Unfortunately, we ran out of time.
Thank you.
Thank you.
Thank all of y'all.