Good morning, and hello from me. For those of you just joining us, again, welcome to BofA's 41st Annual Global Metals, Mining and Steel Conference. I'm Lawson Winder, BofA's North American Senior Metals and Mining Analyst. My next guest has been at every single one of these events since its first day. Thanks to Dan, who kicked the event off 41 years ago. So our next guest has been part of Freeport-McMoRan since 1989. He is synonymous with the company. He's synonymous with copper, and it is my absolute pleasure to have with me here today from Freeport, Chairman and outgoing Chief Executive Officer, Richard Adkerson. Richard, I think you were gonna say a word or two about the CEO transition, so I'll let you take it away, and I'll come sit down with you.
Thank you very much. I've gotta recognize Dan 'cause he's the one that got me started on all these conferences. It was in Dublin 21 years ago, and the price of copper had just tipped above $0.70 a pound. You know, after being down in the 60s, China was just starting to emerge, and my colleague and good buddy, Chip Goodyear, got up. All the other CEOs were there. It was my first conference, and Chip said he didn't want the price of copper to go too high 'cause it would stimulate uneconomic investment. $0.70. 3 years later, it was $4. Great lesson there. People can't predict what's gonna happen in this marketplace. And, it's great to be back. Thanks, Bank of America, old Merrill Lynch, for organizing this. It's great to see all of y'all. Man, this outgoing stuff hurts.
It's the time, you know, it's the right thing to do. I just hate getting older, but, you know, it's what it is. It's my idea. And Kathleen Quirk, who's in the back of the room, is gonna become CEO in less than a month from now when we have our annual shareholders meeting. She actually joined the company about 6 months after I did, much younger, and, you know, we worked together ever since then. She was CFO when I became CEO 20 years ago and became president 3 years ago. This is, you know, this is like, you know, I was a good functioning iPhone 12. You know, you're getting a iPhone 15 Pro now as CEO.
She's an upgraded version, and she'll do a great job, and the good thing about it is she's been there every step of the way with everything we've done. Somebody congratulated me for developing her well. The fact of the matter is, she's developed me in a lot of ways and supported me with all the twists and turns we've been through. Freeport's doing great right now. I mean, I think you all know that. I predict higher copper prices 20 years ago at a dinner talk I gave at the Merrill Lynch conference, and, you know, and have consistently said that. Now, hopefully, we're seeing the realities of the fundamentals of supply and demand emerge, and it always was as much of a supply story as the demand side.
Demand's changed from China to a broader range today, and, you know, you all know about that, and we can answer questions about it. But what led me to... You know, we were a copper gold company at that point. We only had Grasberg. We were one-third gold, two-thirds copper. And I went down to CESCO for the first time, and actually, the prices had ticked up, and I started asking the producers down there, "Where's the next wave of supply coming from?" Which had been the history of the industry, and you had the copper cycle. And when I probed it, the first inklings, that supply wasn't there like it had been historically. And so today, don't just look at demand, but look at supply. It's a tough-- mining is a tough business. Copper mining is a tough business. Dealing with governments is tough.
Grades are changing. The quality of ore bodies are much lower than they ever had been. So I've never been more optimistic about the future. Our company is totally focused on copper. We made that focus. My predecessor got us off course about a dozen years ago and almost killed us, but we survived and have come back. We got a really good board now. When I became chairman, I had six new board members, very strong, independent people, and we review strategy all the time, but we are very comfortable with our focus on copper, and that's what we are.
Thank you very much. That was well said. So with continuing with that theme on, on copper, Richard, might wanna drill down and just get your your thoughts on a few issues pertinent to the copper price. So what price today do you think is necessary to incentivize that new supply that we just don't have? And, and obviously, on a, on a 5-10-year view, there are huge deficits expected by almost any forecast. And then when you think about potential supply, how do you think about potential alternatives like scrap or aluminum substitution or novel leach, which is subject dear and near to Freeport?
Absolutely. And this is a conversation I have with the new directors, a couple of them. Bob Dudley was from BP, and Ryan Lance is from Conoco and oil and gas background. Oil and gas was my background, my first part of my career, and everybody wants to know an incentive price. In fact, you know, there's an article that just came out, the incentive price is $12,000 a ton. When you're running a company, there is no single incentive price. Every project, and we have relatively few projects that we invest in, has to stand on its own, and what we do at Freeport is we look at a scenario of future prices, and think what much money could we make by investing? And then we say, what if we have this asset in our portfolio, how do we manage the portfolio if prices weaken?
So it's not like there's some magic price, and there's this big dam of projects that's gonna break forward when that price gets hit, because a lot of the barriers to building new projects are far beyond just price. You know, you have the governments you've got to work with, you've got workforce issues, you've got community issues, you know, whether you can get support from the local communities for your project. So it and I understand what you have to do in terms of looking at the overall markets, and you have to think about a price, but, you know, really, if this price today is sustainable, there'll be new projects. We will have some. We're very anxious to start new projects and to go forward.
But there's a limited number of them, and beyond price, there's real barriers to how they'll come in. Now, what does that mean? I think, you know, we've got a higher copper price today than we've had recently. I think it's gonna go higher. I think the, just the fundamentals will drive it higher. As the price go higher, goes higher, it's gonna trigger a lot of things beyond just new project development. By the way, stating the obvious, there's a big difference in a brownfield expansion and a greenfield expansion, wherever you are around the world, but that's a huge difference between those two. But when prices go higher, it's gonna trigger a lot of things.
It's gonna trigger conservation, thrifting, scrap, substitution, although copper, because of its physical qualities, has a big advantage over any substitutes, and that's been the case for a long time, and I keep looking for a shale oil in copper, and I can't find one. So there's gonna be a lot of dynamics that's going to occur that'll happen all together, that'll try to deal with a higher price, and all of that will be happening. I may not mention them all, but you know what I'm saying. But it will be in the context of a higher price.
For a company like ours that have a substantial amount of current production, big resource base for brownfield expansions, I just feel great about where we are, and we will be growing the company over time through organic investments. You'll ask me about M&A. We weren't planning M&A when we did the Phelps Dodge deal in 2007. I mean, the stars and moons lined up, and we acquired a company 2.5 times our size and created a modern Freeport. We're prepared. You can be sure bankers are knocking on our door every day. We have a small internal team that's looking at all the opportunities around the world, and if the right opportunity comes along, we'll be prepared. We have a strong balance sheet.
We'll be prepared to jump on it, but our strategy is based on organic growth. And so we... You know, you look back in history, and I made this brief reference to our disastrous oil and gas deal, but almost every major company in our industry has made a bad deal, you know, a real bad deal. And you generally, just from where I sit now in my career, and I observe it, it was when a management team or a board decided to force a deal for a strategic purpose. They just said, "We're gonna go into this business and go do it." And then they force a deal, and how many times have those deals been bad deals?
The good deals are when the circumstances come about, and you're prepared to act on it, you act on it, and that's when you can create value, in my view.
So on that organic growth team, novel leach at Freeport is a really exciting opportunity. So you guys are now generating about 200 million pounds annually from that. You've targeted 800 million pounds. What are the steps to get to that 800 million pound?
I tell you, this is—this is really something that's emerged in recent years. So exciting for Freeport. One of my early mining mentors told me that great mines make great miners. And, you know, high-grade mines are high-grade, you know, high-grade mines better than a low-grade mine. And, and, what we have in the Americas, in North America particularly, is low-grade mines, and you work hard to create enthusiasm about it, because when you're working with a Grasberg, if somebody comes up with a good idea, they put it in place, and they can see these big numbers jump up. It's tougher in a low-grade mine.
So leaching, which Phelps Dodge was a leader on, I still think, you know, we're the biggest leaching company in the world, but I don't have statistics to back that up right now. But when this emergence came through of new technology applied to leaching, man, it is so exciting. And our team, you know, out in the field are really excited about it. What it means is, and you've seen the numbers that you just referred to, is that we have a plan to get to, we talk in pounds, 800,000 pounds. That's as big as a big concentrator expansion. Very low capital, no permitting, low operating cost, no carbon emissions. I mean, it's so good that we're putting everything we can into it.
Kathleen and our guy that runs our tech business now, Cory, is taking the lead on it, and you go in and talk to our people that's doing research and putting it out in the field. First step, you know, there's a lot of focus on the additives in the leaching process, and that's a great opportunity. But the first step is operational. We're using heat, we're using probes, we're heating. We're understanding now that the chemistry within these massive leach piles are different from one place to another, and operationally, you'll do different things in different parts before you just put water and acid, and what came out, came out. And that's where the first two steps of this is coming from. It's coming from operational changes.
We're using artificial intelligence and probes and seeing what happens and reacting to it faster. And then we're doing R&D with a number of different, and a number of different avenues to look to see what's the next step of improving, you know, the, the reagents that go into triggering the leach. And that's where, you know, we, we believe within five years, we'll be up to this 800,000 pounds of incremental production, not in our reserves, never would have been produced had we not done this. And then beyond that, for us, we have all these historical leach stacks. This is only our active leach stacks. We're looking at applying it to new project development, you know, potentially, potentially, comparing it to building a concentrator. If you can do the leach, you might, you know, avoid the capital of a concentrator.
So it's right at the top of our priority list and so important to our company, and everybody is excited about it from the guys that are working on the ground, except for the ones that are having to put those big covers over these massive leach stacks. That's hard work, but it's just great to feel it and to feel that this is a new opportunity for a company like ours in the Americas.
I appreciate you preemptively addressing many of my questions on M&A, but there's one that was actually addressed in an earlier presentation I wouldn't mind getting your thoughts on, and that is Freeport itself a target, given its incredible portfolio of copper assets?
So I will tell you, and this is built into me from the early stages of my career. I was there when the major oil companies were defending their companies as institutions, and I was working with a guy named Boone Pickens, and I'm just totally committed to this idea that our... I'm a shareholder, and our job is to run this business for shareholders and not an institution. Phelps Dodge was an institution. They didn't own many shares. They just wanted to protect that, i.e., as an institution. I remember I walked in a major oil company one time, was talking about a concept that I developed called a royalty trust. And the guy looked at me and he said, "I understand what this does for the shareholders, but what does it do for my company?" Think about that.
Our total deal is to create value for our company, and if someone comes in and proposes something for us that creates value for our shareholders in relation to that's, we would view as incremental to what we can do, execute our own strategy, for sure, we'd consider it. But we've grown to a size now that we're, you know, a pretty good-sized company for anybody else. And we've got some unique aspects with the, you know, the uniqueness of Grasberg, you know, which is a company's been there 60 years. I've been going there for 35 years. It's not just something. It's not a coal mine you can't walk away from, and somebody else picks it up and goes forward. So, I mean, it's, but to answer your question is, yes, we would listen.
Thanks for that, Richard. On capital return. So, Freeport's not been active in the buyback since July 2022. There's good reasons for that. We're now in a very strong copper price environment. There's obviously the capital return policy of 50% of available cash. I mean, can investors obviously expect that, but can investors expect anything beyond the current policy, given-
Well, you know, looking back at the history of Freeport, we've returned cash to shareholders over the years, many ways. In fact, that's what I was arguing for 12 years ago when they did the oil and gas deal, 'cause we, you know, we had a company with a $60 billion market cap and zero debt and a positive outlook, and the board said, "Let's go do something new." I said, "Let's return cash to shareholders." I lost. So we have this policy now because people were asking us what our policy was, and we said we'd had a debt target of $3 billion. We're now below $1 billion versus that target. So our balance sheet's real strong. And we said we return. We're not gonna borrow money, not gonna borrow money to for shareholder returns.
We're not gonna do a leveraged buyout type deal, but we were gonna allocate available cash flows, in rough terms, 50%, to shareholder, 50% for projects. The truth is, particularly as copper price goes higher, cash comes in faster than you can spend on projects. And so we've executed on that policy. It's been a combination of dividends and share buybacks. The policy will remain the same. We talk about it every quarter with the board and with copper prices. We're very levered to copper prices. With copper prices come up, more cash comes in. We're gonna invest in projects. That's gonna take time. There'll be more cash available for the board to consider what to do with it....
And we today, when we have one-on-ones, we always ask people, "Do you like dividends or share buybacks?" I don't know if it's 50/50 split, but there's a big division among our shareholders as to which they prefer. When we see buybacks, it's not an investment decision, but it's an efficient way of returning cash to shareholders.
So on Indonesia, leading up to this year's election earlier this year, I mean, there was certainly a lot of concern, and things seem to have gone extremely well. With the new president in place, I mean, does that change in any way the way which Freeport approaches Indonesia, or do you expect any strategic or regulatory changes coming from the other side, for better or for worse?
It doesn't change the way we approach Indonesia. We're running out of time, but I think most of you know, we reached a landmark deal for Freeport in 2018 when we resolved decades-long disputes with the government of Indonesia. That's been very successful. It's created huge values for Indonesia. The government now owns 51% of the shares of our affiliate there. They have high taxes, high royalties, and so the government has really benefited financially from the success we've had in going underground and managing our business. President Joko Widodo, two terms, I think he did a great job in a very difficult country. The guy's leaving with a 80% positive approval rating. Where else in the world can you see a president like that? We've known the newly elected President Prabowo. I worked with him on...
He was a general. We worked with him on security matters years ago. He's been a member of cabinet. Joko Widodo's son is his vice president, a young man. And, you know, it's like me and Kathleen. People say, "Well, anything gonna change?" Well, it'd change if I were staying as CEO. So over time, you get a new president, new administration, there'll be some changes made, but we don't see fundamentally changes made. And we, we now have a very positive approval by large members of government, large members of business community and civil society, support by our workforce. So, we're gonna work to maintain the positive relationships with the government when the new administration comes in later this fall.
So negotiations continue with the government of Indonesia on extending the life of Grasberg beyond 2041. They had, under the previous administration, proposed an increase of 10% in their interest or local interest in the project. Where do those negotiations stand?
They're not negotiations now. We've negotiated. Negotiations were completed. First point to realize is this is not like when we were negotiating a dispute over our contract. We have no rights beyond 2041. We have a special permit to operate to 2041. If that doesn't change, FCX controls the operations. We'll run this business with a stop date, and that's not good for anybody. You need to maximize the value of the resource. We haven't done adequate drilling. You know, we know we have-- there are resources beyond 2041, but because we have any rights, we really haven't done delineation drilling. During my time at Grasberg, all it's done is gotten bigger. All it's done from the very start, it's gotten bigger and bigger and bigger. So, we've reached an agreement with the government. They needed to have some compensation for extending beyond 2041.
We agreed it would be 10% of our interest. We've also agreed that would be effective 2041 forward, not before that. That FCX will continue to, we, we control operations through an operating committee, and we'll continue that. We don't want to be an investor in a state-owned company. This is arguably the most complicated mine in the world because of where it's located and the nature of the operations, the big underground deals we deal in. And we've agreed to build some processing facilities in Papua to help Papuan businesses advance, which we've done over the years with the broader Indonesian business community. So we have an agreement. I really don't get debates with it. Occasionally, you'll see someone comment. I mean, that's just part of the scenery. But we're not negotiating. There's no disputes.
We're just waiting for some regulations to get changed. The elections occurred, and that was a distraction for this process. And so, I'm confident we'll get this done.
Wanted to also ask you about strategy, your objectives for 2024 and the long term for Freeport. But thinking about the motto, Foremost in Copper, what does that mean to the folks at Freeport?
So we were working on annual report, and I was taking a shower one morning, and I was trying to think about a theme for the annual report, and I thought of Foremost in Copper. And so I came in and told our team, and everybody just latched on to it. And so it's, it's now kind of been a theme that we use as a tagline for everything we do. And what that means is we're focused on copper. That's our strategy, and we have an aspiration to be the best copper company in the world. And so our people responded positively to it, and that's what we use as sort of an aspirational tagline for Freeport.
I wanted to give folks a chance to ask a question. If there's anybody in the audience that has something on their mind they'd like to propose to Richard, please raise your hand. We can get you a microphone. Otherwise, Richard, I might ask you one more question, which is just on Bagdad expansion, the 2x expansion. Really, really exciting expansions, something that investors are watching quite closely. You know, what are the conditions for Freeport to make a positive decision on that?
So Bagdad is just a question of building a new concentrator and supporting tailings facilities and so forth, and it's got an 80-year reserve life, and we're cutting the reserve life in half. I mean, it's as simple a project as you could have in this industry. The challenge we face is, workers, housing. That's a big problem in the United States right now. And, you know, it's really interesting with all the predictions for a recession and so forth, but in our part of the world, you know, people have other opportunities, and working in rural mining places is a challenge in getting people.
So we're working to deal with that through technology, where for the first time in our company, we're installing driverless trucks there, for example, we're doing other things mechanically to reduce that, and we're working with the local communities and others about providing houses. It's the project is economic. I expected, I expect it to be approved a couple of years ago, and we ran into this worker issue, and... But it's gonna happen and, as soon, just as soon as we can get our arms around how to get it staffed.
Fantastic. Richard, thank you so much for being here. It was-
And by the way, I see my partner down here from Codelco got a great project in Chile that we're 51/49 partners in at El Abra. It's a typical Chilean challenging project with water and physical location and so forth, but it's a great asset. We've been there a long time, and that was one of a number of surprises that came out of Phelps Dodge. We weren't aware of the big sulfide deposit that lay underneath El Abra when we bought Phelps Dodge, but we're looking forward to getting up here and announcing that we're going forward with this project. We're aligned on doing that. You got to go through permitting and everything, but that's just, our friends are gonna help us there in getting that done more quickly.
So, in the right way, we're gonna do it the right way, but we're looking forward to that, too.
So-
Thank you very much.
Yeah, thank you.
All right.