Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan second quarter conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to ask a question during the Q&A session, press star one on your touch-tone phone. If you require assistance during the conference, please press star zero. I would now like to turn the conference over to Ms. Kathleen Quirk, President. Please go ahead, ma'am.
Thank you and good morning. Welcome to the Freeport-McMoRan second quarter conference call. Earlier this morning, FCX reported second quarter 2022 operating and financial results, and a copy of today's press release and slides are available on our website at fcx.com. Our call today is being broadcast live on the Internet, and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today's call, and a replay of the webcast will be available on our website later today. Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements, and actual results may differ materially.
I'd like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings. On the call today with me, Richard Adkerson, our Chairman of the Board and Chief Executive Officer. Maree Robertson, our Chief Financial Officer. Mark Johnson, Chief Operating Officer of Indonesia. Josh Olmsted, Chief Operating Officer for the Americas. Mike Kendrick, who runs our molybdenum business. Cory Stevens, who leads our centralized technical services, engineering, and construction. Rick Coleman, who's leading a number of our projects, including the smelter project in Indonesia, and Steve Higgins, our Chief Administrative Officer. Richard's gonna make some opening comments to start us off, and then I'll come back and cover the materials in the slide presentation. Now I'll turn the call over to Richard for his comments.
Thank you, Kathleen. Good morning to everyone. Thank you for joining us. I'm going to open up with some brief remarks about where Freeport is as a company. The second quarter was truly a tale of two cities for Freeport. We had very strong operations, and then we've had to deal with this sudden and unexpected significant decline in copper prices. For our operations, we executed our plans. We met our production targets. We met our unit production cost target as well. It was $1.41. That was really supported by the ongoing success we've had at Grasberg in the 20-year effort to convert the open pit mine to the industry's largest underground operations. Grasberg's now returned as the second-largest copper mine in the world, the largest single gold mine in the world.
It's 38% of our consolidated copper sales at Freeport. Our second quarter unit costs at PTFI were below zero. Our gold revenues fully funded our total operating costs, and the success in this operation is a highlight in the careers of all of us associated with PTFI. Our operations in America performed well. We maintained our positive outlook. As Kathleen will illustrate, I just cannot be more pleased, well, with our global team and the way we operated in the second quarter. We executed the financial policy we established early last year. At that time, we set a debt target of $3 billion-$4 billion and an allocation of available cash flows between dividends, share buybacks, and investments. We ended the quarter with a comparative debt amount of $1 billion. There was $600 million of Indonesian debt that's separately financed there.
Our debt reduced to that level simply because we weren't able, for timing reasons, market reasons, to spend money on expansions in accordance with the allocation. We've paid our base dividend and our supplemental dividend. We purchased FCX shares in the open market. Since we began that program, we purchased 48 million shares. We retired $750 million of debt in the open market at a discount. Our board has now approved an increase in our buyback program authorization to five billion shares. We have roughly three billion shares remaining. Our financial policy is solid, and our execution is strong. That's only one side, but it's an important one. The other side of the coin is markets. It's just striking how quickly and dramatically markets changed in the second quarter.
Prior to this call, I went back and read analyst comments going into the quarter, and the optimism was widespread. Copper prices approached $5. Many were expecting it to go higher. We used $4.50 in our outlook, and now we have prices just above $3.25. Market sentiment reversed so dramatically. I read with interest the recent Bank of America investor survey of institutional investors where they described it as a full panic mode, the lowest expectation in the history of the survey going back to 1995 by investors. The economic analysts are debating on how significant in the duration of the downturn. At Freeport, we hope for the best, we prepare for the worst. Our management team is experienced and has successfully managed past downturns, all of which have been followed by significant recoveries.
This is not our first rodeo. We have our playbook. We've dealt with this before. This time, importantly, we have a strong balance sheet, and that will enable us to manage whatever we face in this marketplace. We will work to protect our strong financial condition, protect our assets, our growth opportunities for the bright future that lies ahead for copper. There's a disconnect in today's physical market and the current copper price. Our world in producing and selling copper for us feels about the same it did when copper was at $4.50. Customers report strong business. Copper inventories are at historical lows. There has been, to date, no significant impact on physical demand. Today's market is tight.
Our strategy of being the world's foremost copper company is intact, and that's based on the long-term fundamentals of the demand and supply for copper. The reality of today's copper price stares us squarely in the face. It's a major impact on our revenues and our cash flows. The outlook is uncertain. Analysts are calling in a range from a near-term major recession to a longer-term stagflation. Some see a less significant downturn with a near-term recovery. If that happens, watch out. We at Freeport do not know what's going to happen near term. As I said, we hope for the best, prepare for the worst. Whatever happens, the long-term outlook for copper is bright. FCX is well-positioned to be a major beneficiary.
The world is becoming increasingly electrified, with the demand for copper growing as the world acts to reduce carbon emissions with electric vehicles and alternative power generations. S&P Global's Daniel Yergin, a highly respected authority for many years in the energy business, recently published a report pointing to a doubling of copper demand because of the energy transition by 2035, accompanied by huge deficits. I encourage you to read this report. With the established need for the copper to support the world's economy and future global growth, we're in a new era of copper demand with the energy transitions. Supplies for new copper are challenged. There is no clear line of sight for mine development to meet future demand.
The result is there has to be more scrap recovery, there has to be conservation and substitution, more mines and expansions, more mines to be developed, expansions, but all this takes years to execute, as you can see from our company. The result will be higher copper prices. The current price for copper is unsustainable. Absent a global long-term economic collapse, that is simply inevitable. Now, Kathleen, I'll let you review the quarter and present the information we have in our slides.
Okay, great. Thank you, Richard, and I'll cover the presentation that's on our website, and then we'll come back and take your questions. Starting on slide three, we summarize the highlights of the second quarter. We achieved solid operating performance in the quarter and continued our momentum in executing our operating plans, growing our production year-over-year, and managing costs in a challenging environment. Our sales volumes for copper were 17% higher than last year's second quarter and 5% above our recent guidance. We benefited from strong operating performance across the portfolio. Gold sales were 56% above the year-ago quarter and 18% above our April guidance, reflecting the exceptional performance at Grasberg. Our consolidated average unit net cash costs for the quarter of $1.41 per pound were in line with our guidance.
Notably, Grasberg's costs were a net credit of $0.02 per pound in the quarter, meaning that the gold revenues more than offset all of our cash production costs at the site. We're actively engaged in cost management and efficiencies across the portfolio to mitigate cost increases. We generated adjusted EBITDA of $2.3 billion in the quarter. This was net of a $355 million reduction associated with copper sales recorded in the first quarter, provisionally priced at the end of March at $4.71 per pound, which remains subject to final settlement. The decline in copper prices during the second quarter resulted in a negative adjustment for these provisionally priced sales. Our adjusted net income totaled $854 million in the second quarter, $0.58 per share.
That excluded net charges detailed on Roman numeral page seven of our earnings release, totaling $0.01 per share. Operating cash flows of $1.6 billion in the quarter exceeded our capital expenditures of roughly $900 million. Capital spending in the quarter included $400 million of major projects, principally associated with the Grasberg underground and roughly $200 million to advance the construction of the Indonesian smelter. We took advantage of weakness in credit markets during the quarter and opportunistically repurchased debt in the open market. To date, we have purchased $754 million of FCX's notes in open market transactions at a cost of $718 million, including $582 million in principal amount in the second quarter. The current market situation provides a great opportunity for us to reduce absolute debt levels at attractive prices.
We continue to execute our share repurchase program. Since starting the program last November, we have purchased 48 million shares at a total cost of $1.8 billion, an average approximating $38 per share. Since the end of the first quarter, we purchased nearly $800 million in stock, including $110 million in July, which were executed at an average share price of $28 per share. Since reaching our net debt target in the middle of last year in the range of $3 billion-$4 billion, we have used approximately 50% of our free cash flow for shareholder returns. Today, we announced that our board increased our share purchase authorization by $2 billion to refresh availability on the program to the $3 billion range.
The timing of our future purchases will be dependent on our cash flows and general market conditions. We'll continue our priority of maintaining a strong balance sheet and use excess cash to return to shareholders. As Richard discussed, the magnitude of the decline in copper in recent weeks was sudden and unexpected. We have the balance sheet, asset quality, and experience to successfully manage a volatile and uncertain market environment. Our net debt at the end of June was $1.6 billion. That included $600 million in net debt associated with the Indonesian smelter. Consolidated debt was $11.1 billion, and consolidated cash was $9.5 billion. We don't have requirements to raise capital in the current environment. We've been opportunistic and taken advantage of recent market weakness to repurchase our debt and equity securities.
As we look forward, we will manage through the near term effectively and are positive about our strategy centered on being foremost in copper, the strength of our assets and our team focused on increasing value for all stakeholders. Moving to markets on slide four, we show a graph of year-to-date copper prices. The price four months ago hit a high of $4.87 per pound, with market analysts predicting multi-year periods of price increases based on fundamentals of rising demand required to support the energy transition, limited supplies, and sizable deficits on the horizon. You've all read about the macro factors which have manifested over the last several weeks, triggering recessionary concerns.
In addition, concerns about the impact of COVID shutdowns in China and a strong U.S. dollar have weighed on copper, which is viewed as a close proxy for sentiment on the health of the global economy. The reality is that this has been a financially driven anticipatory move in copper prices. Physical markets remain healthy, as evidenced by the global exchange inventories illustrated on this chart, which remain at historically low levels. Our customers report solid orders, and the industry continues to struggle to meet production targets. The current decline in price is below Wood Mackenzie's estimate of $4.25 per pound necessary to incentivize new supply under an accelerated energy transition. It will also provide less cash flow to the industry to develop new supplies, making the projected deficits in copper more significant in the future.
The long-term secular demand trends for copper demand associated with electrification, decarbonization will be important demand drivers for copper. We see these trends being less economically sensitive than traditional uses of copper in the economy. We fully recognize the short-term uncertainties but have conviction about long-term fundamentals for the copper markets. Richard mentioned the S&P Global report. Many of you have seen it. It was published last week, prepared by analysts at S&P Global and led by Dan Yergin, a well-known energy industry expert, author, and historian. The independent study, which is available on S&P Global's website, forecasts above-trend copper demand through 2035 associated with electrification and the energy transition. The report projects long-term structural deficits in copper and highlights copper's prominent role in the global aspirations of a net zero economy.
It confirms the work of other reputable analysts on the future of copper and will serve as an educational tool for governments and other policymakers on the importance of future new copper supply developments. We recognize the short-term macro is a different picture. As we move to slide six, Richard highlighted this. It summarizes our experience in managing challenging environments. For those of you who have followed our company and industry for a long time, you know that our team is proficient in successfully navigating challenging circumstances. This slide on slide six summarizes our actions in prior periods when we took decisive steps to adjust our operating plans, reduce costs, defer spending, protect liquidity, and preserve our asset values for improved market conditions. Notably, we operate all of our mines and manage major capital and operating decisions centrally.
Each one of these periods had its own unique challenges, and our team proved its agility each time. We're prepared to respond to a weakening market environment if necessary. We're in a much stronger position than in past downturns with a significantly improved balance sheet and our successful expansion of the low-cost production at Grasberg. Our team is resilient, experienced, professional, and value-driven in our approach. We can't predict the extent or timeframe of the current situation, but as a responsible producer of scale and a strategy focused on copper with long life reserves, the prospects are bright for our portfolio to become more scarce and highly valued in the future. On slide seven, we provide some additional details on our operating activities in the quarter. In the U.S., the Lone Star Mine continues to perform above design capacity.
We're expanding further to take us to 300 million pounds per annum by 2023, with an investment of approximately $250 million. As we accelerate the mining of oxide ores, this will expose a much larger sulfide opportunity at this site. We're also advancing, and we're very excited about our leach recovery initiatives at Morenci and across the Americas portfolio using data analytics and new technologies to enhance our leach production. This is a significant value-enhancing opportunity for us, and we continue to gain momentum and expect to have success on this priority initiative. At our Bagdad Mine in northwest Arizona, we are advancing plans for the Bagdad 2X project to double production. Studies are advancing, and we're planning to advance early initiatives in parallel with the studies.
We're focusing on developing this opportunity as a future growth option, but we'll be flexible on timing subject to market conditions. In South America, the teams have done exceptional work navigating the pandemic. We've had a great highlight and significant milestone for the Cerro Verde team during the quarter, setting a quarterly record for concentrating, averaging 427,000 tons of concentrate per day. At Cerro Verde, we also had some recent positive results on exploration, which have the potential to expand reserves and increase grades at this large-scale operation. At El Abra, we have increased stacking rates and commencing leaching on a new leach pad.
We continue to evaluate our alternatives for the long term at El Abra, including options for a new concentrator or an extension of existing operations subject to ongoing monitoring of the investment climate in Chile. At Grasberg, we sustained our large-scale metal production after reaching our target metal run rate in the fourth quarter of last year. The cost position at Grasberg is exceptional, and the team there is doing outstanding work in managing and sustaining the largest and most profitable underground operation in the world. During the quarter, we again achieved higher gold recoveries compared with forecasts, which contributed to a favorable variance for the quarter, and we've now increased our outlook for full-year gold production. At PTFI, we are advancing mill projects to provide additional capacity in the second half of 2023. We're diversifying our power sources and advancing the long-term development for Kucing Liar.
The construction of the new smelter in Indonesia is advancing. We reached an important construction milestone during the quarter, which will enable us to begin to reduce export duties later this year. Turning to slide eight, we provide a three-year outlook for our volumes, which are largely in line with our prior forecast. We've made small changes to our 2022 copper volumes, totaling about 40 million pounds or about 1%, and have increased our forecast for gold volumes in 2022 by about 5%. The execution of our long-term plans is on track. After delivering 19% increase in copper sales in 2021, we are projecting growth in volumes in 2022 and further growth in 2023.
For 2022, we estimate 36% of our sales volumes will come from the U.S., 27% from South America, and 37% from Grasberg. Moving to our cost outlook on slide nine. As I mentioned, we're actively engaged in cost management and efficiency initiatives to mitigate the impacts of the challenging cost environment. We've updated our plans to incorporate recent commodity pricing, exchange rates, and our latest operating plans. We're now estimating unit net cash costs for the year approximating $1.50 per pound for 2022. That compares with our prior estimate of $1.44 per pound. As you'll see from the reconciliation on slide nine, the majority of this increase reflects the decline in byproduct credits associated with a reduction in assumed gold and molybdenum prices for the balance of the year.
Our projected $0.03 per pound increase in site production and delivery costs reflects the assumption of higher energy prices in the second half compared with our prior forecast, higher consumable costs, together with the impact of a change in the estimate for copper in the maturing leach pad at El Abra. This was partly offset by the favorable impact we have on labor costs internationally associated with weakening exchange rates compared to the U.S. dollar. Historically, copper prices have been correlated with a number of our input costs. Should recessionary pressures continue, historical correlations would indicate that we may begin to see a reversal of some of the cost experiences we've seen over the last two years.
Moving to slide 10, as one of the world's leading copper producers, our earnings and cash flows have significant leverage to the price of copper up and down. On slide 10, we show modeled results for our EBITDA and cash flow at various prices, and have shown a broad range of prices this quarter, given the volatility ranging from $3-$5 per pound of copper, which is close to where the prices were earlier in the year. We've updated our gold and molybdenum prices to reflect current prices. As Richard talked about, the current price is not sustainable long-term, given the cost structure of the industry and the need for new supply development in the future.
We show modeled results on this slide using the average of 2023 and 2024, with current volume and cost estimates and holding gold flat at $1,700 per ounce and molybdenum at $16 per pound. Our annual EBITDA under these scenarios would range from over $6 billion per annum at $3 copper to $15 billion per year at $5 copper, with operating cash flows ranging from $4.5 billion per year at $3 copper to over $11 billion per year at $5 copper. We show sensitivities on the right to various commodities and input costs. We can't predict prices and are prepared to manage in a low price environment. Long-term fundamentals of our business indicate that low copper prices are not sustainable longer term, providing increased cash flow as market conditions improve.
We show the consolidated capital expenditures on slide 11. These are largely unchanged from our prior guidance. We've reduced the 2022 capital forecast by $100 million, which is a timing variance with 2023. As you've probably noted, we've been spending capital during 2022 at a slower pace than our original plans. In the current weak environment, we'll review opportunities to defer spending as we've done in the past. We have flexibility with our plans and benefit from the fact that the major investments required for the Grasberg transition are largely behind us and will begin to decline as we go into 2023. On slide 12, we show our future growth options embedded in our asset base. We have multiple options for brownfield, low risk growth across our portfolio.
Recall we have 191 billion pounds of copper mineral resources in our portfolio in addition to our proved and probable reserves of 107 billion pounds of copper. The leaching opportunity is a major value driver opportunity for us, and it's not included in our reserves and resources. Success in this area would enable us to create the equivalent of a new mine with extremely low capital intensity, low incremental operating costs, and importantly, a low carbon footprint. We're continuing to apply covers to our leach stockpiles as the retention of heat is proven to enhance recoveries. We're using data analytics and evaluating various additives that can further enhance recoveries.
We're initially targeting the addition of 100 million-200 million pounds of new copper per annum within a relatively short time frame and believe we can build on this target with initial success. We currently estimate 38 billion pounds of copper in our stockpiles, which has already been mined, but not in our reserves or production plans. A significant portion of this opportunity is at our flagship Morenci mine, the largest mine in North America. A cross-functional team of technical experts, metallurgists, mine planners, data scientists, geologists, and business analysts are working together to take full advantage of this exciting opportunity. We review the ongoing oxide expansion at Lone Star, which is progressing on schedule. Longer term, we have the massive Lone Star sulfide opportunity, a 50 billion pound copper resource in our established mining area in eastern Arizona.
This project is right in our wheelhouse and is a valuable development option for the future. In the medium term, we're planning to double the size of Bagdad. We have a very large reserve position at this site. We expect to complete the feasibility study for this project in the first half of next year and would be positioned to start construction activities as market conditions warrant. The El Abra project has a resource approaching 30 billion pounds of copper, and we've done a lot of work in identifying an operation that could produce over 700 million pounds of copper per year. In parallel with our evaluation of a major expansion, we're also considering investments in water, which would extend the life of the existing operation while maintaining the longer-term growth option. We continue to closely monitor developments in Chile and are deferring decisions for the time being.
In Indonesia, the Kucing Liar project is a natural extension of our operations there and will allow us to continue large-scale, low-cost mining there for decades to come. The learnings and shared infrastructure from our successful development of Grasberg Underground and the deep MLZ really enhance the value of this project at Kucing Liar. We benefit from having a large pipeline of options and have flexibility on the timing of development of our projects, particularly the extensive options we have for development of new supply in the U.S., where we own most of our land and fee. We believe the world is gonna need our projects in the future. We have a long track record of success in qualifying and developing projects in an efficient and responsible manner, enhanced by our industry-leading technical capabilities, established licenses to operate and our strong franchises in the areas of focus.
I want to turn to our balance sheet on slide 13, which our financial policy is centered around. It's centered around a strong balance sheet. The actions we've taken in the past have placed us in an exceptionally strong position, particularly in the context of current market weakness. We don't have a need to raise new capital for the foreseeable future. During the quarter, we took a number of steps which further de-risked our balance sheet. We raised long-term financing for the smelter. We repaid our term loans at PTFI and Cerro Verde and expanded our bank credit facilities for these subsidiaries. We opportunistically purchased over $750 million in senior notes at attractive prices.
As we talked about, our net debt, including $11 billion in total debt and $9.5 billion of cash, net debt, including the smelter net debt, was $1 billion and below our targeted net debt of $3 billion-$4 billion, providing cushion in a weak market environment. We have an attractive debt maturity profile, as you'll see, with easily manageable maturities. We can continue to be opportunistic on value opportunities to repurchase debt in the open market. Slide 14, in closing, we show a scorecard of our shareholder returns, which have increased with our strong financial performance in recent quarters. We were active in the market in the second quarter and into July and have allocated approximately 50% of excess cash flows to shareholder returns since the third quarter of last year.
That consisted of $1.8 billion in share repurchases and common stock dividends totaling over $650 million during this period. Our board authorized a $2 billion increase in our share purchase program to restore $3 billion in availability under the program. We'll continue to prioritize our balance sheet as the cornerstone of our financial policy, and that'll allow us to operate well in varying market conditions and drive long-term returns for shareholders. The discretionary purchases of our shares will be dependent on market conditions and cash flow generation in the future, and our board will continue to review our financial policy on a regular basis. In summary, we're all focused on long-term value and executing our plans responsibly, safely and efficiently.
Despite the recent market conditions, we're optimistic about the value of our assets, the strength of our global team, the fundamentals of the copper business, and the future prospects for the markets we serve. We appreciate your attention, and we look forward to your questions. Operator will now open the call for Q&A.
Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, press star one on your touchtone phone. If your question has been answered or you wish to remove yourself from the queue, please press star one again. If you are using a speakerphone, please pick up your handset before pressing the numbers. We ask that you limit your questions to one. If you have additional questions, please return to the queue. One moment, please, for our first question. The first question comes on the line of Emily Chang with Goldman Sachs. Please go ahead.
Good morning, Richard and Kathleen, and thank you for the update this morning. My first question is just around the 3Q copper shipment guidance. It looks like that's a little bit lower on a sequential basis than 2Q before it moves back up again. Could you perhaps point to what region may be driving that? Is that timing of shipments or perhaps something to do with the mine plan for the third quarter?
Emily, it's primarily timing. We did sell more in the second quarter. We produced more, but we also had some timing variances in the second quarter, where we sold more in the U.S. than we expected. In Indonesia, we also brought down our concentrate inventory. It's mainly a timing. We're pretty much at run rates currently.
Great. Thank you.
We do have challenges with timing in Indonesia from time to time with the shallow water port that we have there. Rough seas can just delay loading, and we of course record sales at the time of loading. That's just something we've had to deal with over the years.
Understood. That's very clear. Thank you.
Your next question will come from the line of Chris LaFemina with Jefferies. Please go ahead.
Thanks, operator. Hi, Richard and Kathleen. Thank you for taking my question.
We appreciate you.
Kathleen, you mentioned your ability to kind of manage through the downturn, deferring spending is one option. Historically, Freeport in declining price environments has taken high cost capacity offline and, you know, like we've had a lot of cost inflation in mining. The cost curve appears to be steepening pretty dramatically. I'm wondering how much further the price would have to fall before you would consider taking some capacity offline. That's my first question.
I think, Chris, what we're really looking at is the physical markets. Right now the physical markets are tight, as Richard talked about earlier. Inventories are low. You know, we certainly do not want to produce at a loss at any of our operations, and we'd prefer to keep our reserves in the ground for better markets in the future. Right now, you know, the situation is so dynamic. It appears that, you know, physical markets continue to be robust. We're gonna be watching it, and it'll be a combination of factors including, you know, what input costs do as well. We go through mine by mine and look at overall production costs, capital costs, the overall cash flows, and we'll make adjustments as needed.
It may be, you know, first adjustments be to defer some capital projects, which, you know, do have an impact on copper volumes longer term. We're gonna be looking at all these things and closely monitoring the conditions. As I mentioned, we operate everything, so we control all these decisions, and we can look very quickly across the portfolio on where things stand, and so we're prepared to make adjustments. I don't wanna give a projection as to what number, but we, you know, we have reduced copper production in the past, particularly when demand has fallen.
You talked about the market, the market being physically tight. You can see that in the inventory data. It's a little bit perplexing though, because the Chinese macro got so bad in the second quarter due to the lockdowns and presumably Chinese demand materially weakened. Underlying demand must have materially weakened there. There's been year-over-year in the second quarter, fairly substantial supply growth from the two biggest miners in the world, including your own, had pretty big production growth year-over-year. A lot of companies are lowering their production guidance, but second quarter looks like a quarter where you had an increase in supply and potentially a collapse in Chinese demand, yet inventories didn't really change. I'm just trying to reconcile what might have happened.
Do you think the Chinese may be buying copper for strategic reserves, or is there something else going on in the market that would explain why it's staying relatively tight despite the biggest end market potentially, you know, seemingly imploding in the last quarter?
Well, well, Chris, in preparing for this call, I've made a concerted effort to, with my contacts in the industry who are very knowledgeable of the business on the ground in China to answer your direct question there, 'cause that was perplexing. I inquired broadly about were there inventories in China that were not visible, what was going on with Chinese commodity trading companies. The word came back, you know, that inventories were not building. There wasn't unusual trading. You're right. A couple of our mine and the other big mine increased, but there was also supply disruptions in Latin America during the quarter. It appears as that in effect balanced some of the Chinese demand issues. We don't see our customers in China.
We have a diverse customer base in Asia. We, by design, don't sell all of our copper into China, but into Japan and South Korea and Taiwan, and we don't see any impact on demand. I understand your question, and I just want to share with you what I've been able to find from it, but we're just not seeing it in our business.
Thank you.
Western world has been strong as well, Chris, so that's been different than in past years.
Right. Even in Europe, you know, our business there is strong. I know the uncertainty facing Europe over this energy situation, so I'm not diminishing any of that. It's just our business is strong as many customers over there are avoiding Russian copper. It is unusual as I talked about. It is a disconnect. There's a serious disconnect right now between the physical marketplace that we're seeing and what's going on with copper prices.
All right, thank you for that.
Your next question will come from the line of David Gagliano with BMO Capital Markets. Please go ahead.
Thanks for taking my questions. Chris, just hit the one I wanted to ask about, which is the cadence. I know if you look back historically, you know, 2008, 2009, I believe, if memory serves me correctly, copper prices, you know, went to, like, $1.50 when Freeport acted. Then, you know, 2015, 2016, again, off the top of my head, I think copper prices were kind of in the $2-$2.50 range. You know, given cost pressures that we've seen everywhere, is it reasonable? Is sort of a $2.50-$3 per pound range a reasonable zone to start thinking about when we'll see, you know, more action at existing assets?
In response to your question, the earlier one we had about that. I think everyone understands that we at Freeport have a broad range of operations with different cost structures. I mean, that was really the whole basis for putting together Grasberg with the Phelps Dodge assets. It allows us to manage those assets more efficiently when you've got an asset like Grasberg to support it. When times get tough historically, what we've done is been able to use Grasberg to support all of our corporate G&A and our debt financing costs. Then we challenge each one of our mines to operate as a minimum cash flow breakeven. We review this mine by mine, and every mine makes that decision or decisions to support achieving that objective.
Within the larger mines, and I'll just use Morenci as an example, the largest mine in North America, there are layers of operations within Morenci that have different cost levels. It's not just a question of focusing on individual mines, but what goes on in layers within the existing mines, and we're able to take steps when necessary to adjust operations to reflect the current economics. It's a balancing act because decisions you make to do that have consequences that go on for years in the future. We manage, as Kathleen said a couple of times now, we manage all these operations ourselves, and we run our business in the Americas essentially as a single business unit. We all get together, we find out what's working, what's not, what can be done, what are the opportunities.
We balance the longer term consequences with the need to meet current realities. It is as I said, we have the same basic team we've had that we've done this before, so we have a game plan for what's going on, and now our operators are ahead of us on occasion. Everybody knows what to do. Everybody is pitching in and acting as a team to deal with our corporate objectives. It's not an easy question to say, "Is there a price where this happens with this mine?" It's an interactive process that cuts across all of our mines in the Americas. Of course, in Indonesia, we're gonna produce as aggressively as we can safely and consistently with our long-term plans.
It's so great now to be ramped up to the extent we are. We've still got a couple steps to do, but just two years ago it was really scary when we were having volumes down there and the world was facing COVID. We're so much better positioned now.
Okay, that's helpful.
David Gagliano, you raised this.
Sorry.
You raised this in your comments and, you know, we look at a lot of the publications that show where cost support is for copper. You know, those estimates are dated. You know, there've been a lot of changes in input costs that, you know, the historical cost support for copper has been increased significantly. You know, $3.25 copper is not the same as it was two years ago, and so that's a factor as well. Reading tea leaves about how long this will last, we're, you know, we can move quickly. This has happened suddenly, and we're starting a process to look at, you know, what we can do, particularly on the capital spend. That's the quickest way to increase cash flow.
Okay. That's helpful. Thank you. Just a quick follow-up. Obviously, the authorization increased the buyback from $3 billion to $5 billion at a time when copper's dropping. You know, if copper kind of holds where it is, we don't see a lot of free cash flow, which by the way, is no different from a company that reported last night that also raised their buyback. My question is just really, can you just speak to the thought process and the approach to the buyback, you know, moving forward, considering everything else that's going on in the market right now? Is there any? Also, is there any kind of duration to the $5 billion buyback timeline-wise?
What we tried to do at the urging of a number of our shareholders last year was to establish a financial policy so that people knew what direction we were going in. We worked on it for months and finally came up with a policy that was announced about how we were allocating available cash flows, what was our debt targets, how we were allocating cash flows between shareholder returns and investments. There's always a challenge in the investment side of it because it takes so long to do it. Anyway, that's just part of the function.
We felt that, and we discussed this with our board, we felt that it was best to give the marketplace a direction since we've executed so much of our existing authorization that we would have the availability to act for share buybacks when it was warranted by the marketplace. I wanna be careful to say this because I'm not predicting anything. I mean, clearly, my long career has taught me not to, not to be confident in myself or others in predicting these short-term movements. David, there is a scenario here with the market being so tight, and if things turn out not to be as dire as most expect now, there could be a dramatic recovery in copper prices, and that would translate to a recovery in Freeport share price.
We want people to understand what we'd be prepared to do if the circumstances change dramatically from where they are now for most to predict. We're still gonna run the business with the primary goal of protecting our assets and protecting our future because we're confident the future of this company is so bright. Past actions by the company put that in peril at times. We're not gonna do that this time. We're gonna have discipline about it, but we wanted the market to know that we have this authorization available to us for us to execute when it makes sense.
Yeah. I think another factor out there is as you look at the copper price needed to support new mine development and compare that to where our share is trading and what's implied in our shares, you know, it's attractive, you know, versus new supply development. On the flip side, we are looking at this staring the situation in the face where new supply development is required. There's some bunch of disconnects in the market right now, and, you know, we wanted to signal positive. We're gonna, you know, use excess cash flows to buy stock back.
You know, the lower copper prices gives us less cash flows to use, but we're gonna continue to look at our plans and see how we might modify that with this disconnect in where our share price is trading and what's needed long term to develop new supplies.
I mean, maybe it's trite because most managements say this, but our management and our board truly believe that the fundamental value of Freeport is substantially higher than what the stock's trading now.
Okay.
Your next question will come from the line of Lawson Winder with Bank of America Securities.
Hello, Richard and Kathleen.
Morning.
Good morning.
Good morning.
Thank you very much for the update again today. It is very nice to hear from you. As always, I hope you both are well. I just wanted to kind of dig down on your comments regarding the increase in the cash cost guidance. Kathleen, you mentioned it was a majority of the forces driving that were actually just a reduction in the byproduct price assumptions. I was getting to that too, though. I was getting to a very small majority, so almost close to 50/50. Would you happen to have a specific number in terms of how that broke down between inflation and the change in the price assumption? And then maybe if you could just speak to some of the key, I guess, unexpected inflationary items that you saw in the quarter.
Thanks so much.
Sure. Yeah, sure. On slide nine, we show a roll forward and you can see there where we've gone from $1.44 to $1.50, and the byproduct credit, because we're using lower gold prices in moly than what we used in our prior forecast is down by $0.05. So, you know, we had a $0.06 increase and five cents of that is from reduced byproduct credits. The site production, the top line number, the site production delivery being up $0.03, the major factors there that impact or impacting our cost guidance is energy.
We used just for reference in our last forecast, we used $3.50 per gallon for diesel prices just for one reference in our outlook, which was around the price at the time. The price in the second quarter ended up being above $4 per gallon, and that's declined somewhat to $3.70. We're using current or at least prices as of last week for oil prices, for diesel prices, roughly $3.70 per gallon in our outlook. Coal prices are also up from our prior forecast. Purchased power costs are up slightly. We had some offsets in currencies.
The stronger dollar results in lower operating costs in our international locations, and so we've reflected that. We've had some contractual consumable price increases, which are rolling in, which we've brought into the forecast. This is more of an accounting deal, but we also had as we are transitioning at El Abra from a former leach pad to a new leach pad, we had some changes in our estimates of what copper's remaining in that leach pad. What that does is basically, if we reduce the amount of copper available in the leach pad, it increases our cost for the remaining pounds. That is not a cash item.
It's essentially we've already spent the cash, but it'll roll through our unit net cash costs, and that was a factor as well. The headlines energy, materials and supplies, this deal at El Abra, which is more noise offset by a stronger dollar and profit sharing and other, you know, costs that are driven by copper prices. Net of all that, we were $0.03 on site production and delivery, and our export duties and royalties went down by $0.02. The biggest, you know, factor you can look at this and say it's by-product credits, which we were using $1,950 for gold in the prior forecast, and now we're using $1,700.
$19 for moly in the prior forecast, which is what it was, and that price has declined to $16.
And-
Thank you.
And-
Oh, sorry.
Growing volumes in Indonesia. I mean, you know, with that cost structure, when it gets to be a greater proportion of consolidated numbers, that's a huge benefit.
Maybe as a follow-up, I find it remarkable that you did not mention labor among all of that. Are you just not seeing signs of any meaningful labor inflation? I guess you're obviously confident that you don't expect to see any going forward.
Well, we had already updated in our second quarter, you know, in the second quarter, in our first quarter results in April, we had already updated our labor costs for inflation. We've also, you know, in contract labor that we're using. Our labor costs actually in this forecast are a little lower because of this currency factor that I mentioned. That doesn't affect our U.S. operations. You know, when you look at South America and where the Peruvian and Chilean currencies have moved relative to the dollar, that helps 'cause our costs in those countries for labor are principally denominated in the local currency.
Thank you very much.
Let me throw a shout-out.
Awesome.
Well, thank you. I wanna give a shout-out to our supply chain team that's just done a remarkable job in working with our suppliers in a difficult environment, you know, not only from a cost standpoint, but from a delivery standpoint. They've just done a great job in working directly hand-in-hand with our operations to do what we can to offset these challenges that are broadly across all businesses.
Your next question will come from the line of Carlos de Alba with Morgan Stanley. Please go ahead.
Yeah, good morning Richard and Kathleen. Thank you very much. A couple of questions, if I may. First one, it seems that the leaching technology could be a very attractive return on investment for you. So I wonder if you can give us maybe a little bit more color as to what is the current status there, what are some of the work that is still pending to do, and if you have any sense of a potential timing for that investment to materialize. Then the other is, clearly a lot of volatility, as you mentioned, and a couple prices have suffered. Since you are quite constructive on the market, this might be an opportunity.
This is maybe a sensitive topic, but what is the rationale of keeping Cerro Verde as a publicly traded company? I mean, wouldn't potentially be that also a good investment for Freeport shareholders?
Carlos, regarding the first question related to your comments on leaching, it is our best project in the portfolio and is something that's a catalyst for us to really add value to our business. You know, as you mentioned, low capital intensity, very low operating costs, and particularly in this current environment, we are highly motivated. We've got teams. We're running it like a project. We've got teams highly focused on this. It's our number one priority. It's got, you know, an element of research and development associated with it, so it's not just execution. You know, it's got some science associated with it. We are advancing our understanding of the science.
Our company and its predecessors have been really leaders in this area and, you know, we've got a team of people who have a lot of experience in the science of this as well as some new approaches that are gonna allow us to be successful here. Cory Stevens is on the line, who is leading this effort, and with Josh and the whole Americas team. Cory, I don't know if you wanna make any comments, you know, in addition to what we said earlier. Cory's phone rings quite a bit because we do see this as being a real value opportunity for us to create value for our business and shareholders. Cory, is there anything you wanna add that wasn't covered?
No, thanks, Kathleen. Yeah, so, you know, leaching really does offer a number of compelling advantages on a number of fronts. The analytics capabilities is really unlocking a more granular look at all the different aspects that we see in terms of recovery, and it's enabling us to decouple, you know, static recipes that we had in the past to more dynamic recipes that maximize value as we go forward. But that's just one bucket, and it's very organic. We're, you know, at Morenci, a center of our attention right now.
We're executing to the moderate volumes that we've put into this year's forecast, building confidence into a sustainable what that looks like going forward, and then have a number of activities going to add even more with a very large backlog of a number of alternatives that we're pursuing.
Thanks, Cory.
Thank you.
It's data analytics, additives, which we're exploring, as well as heat, which we're applying across all of our stockpiles, and we're well on our way to doing that. As we retain heat in the stockpile, the data shows that recoveries are greater. It's a multifaceted approach to it. We're focused initially at Morenci. Chino is the second largest one in the U.S., and we're moving with data analytics there. We're trying out some additives at Sierrita. We've got some third party activity going on at our Bagdad mine in Arizona. We're trying a bunch of alternatives to enhance our understanding, and we're gaining confidence that we'll be able to. We set this target of 100 million-200 million pounds over a 12-18-month timeframe.
We're increasing our confidence and our ability to get to that. Once we get to that'll open up some iterations that will allow us to expand it from there. We gotta get, you know, the first success. We've had some early successes. It's just we gotta get to scale on it. Stay tuned.
Yeah.
Alba, second question on Cerro Verde.
Well, let me.
Uh.
Kathleen.
Okay.
Let me just add, you know, the real focus is what Kathleen and Corey talked about, you know, is taking advantage of our leach, our existing leach operations. With success, the future beyond that is really exciting about what we might do in terms of, you know, mining sulfide ores and processing them with this technology or looking at historical leach stacks. It is really exciting, and our whole team is really pumped up about it. Very good to see. Our project is called Leach to the Last Drop.
Just to circle back on Cerro Verde, you know, we monitor the share price there, the public share price there. The public float is a historical carry forward that has been in place for a very long time. But we do monitor the trading conditions, opportunities if they arise and being able to repurchase. It's a different scenario than in the U.S., where we can have active share purchase programs. But we are in tune with the market there and with certain of the investors and we'll look at that on an opportunistic basis as we compare uses of cash flow with other priorities at the corporate level.
All right. Thank you very much. I appreciate the color.
Your next question will come from the line of Michael Dudas with VRP. Please go ahead.
Yes, good morning, everybody.
Hey, Michael.
Morning, Michael.
Oh, hi. So Richard, we've had this location over the last six, seven weeks, which has perplexed a lot of folks. On top of the S&P report, the S&P Global report that you cited that was published a couple weeks ago, historically these types of corrections or uncertainty in the market, will it lead to exponential delays in decision-making and getting some of the supply to the marketplace? Is there gonna be just or is this, well, we know that longer term copper's gonna be great, so we're gonna go through with these discussions. Obviously, you're looking at it in one very measured way.
Historically as an industry, we're gonna see further pressure on inventories and deficits because this type of, you know, nervousness could lead to further delays in the needed investment for the product?
Yeah, unquestionably. I mean, you just think about the impact on corporate strategy, the amount of financing that's available for smaller projects. This is just another element of this series of barriers to supply development that the industry had already faced. Unquestionably, I mean, it was pointed out earlier in the discussion that for a company like ours is, you know, we got this really great project in Chile, that's being delayed by the political situation there and the uncertainties about taxation. But when you balance that out with a company like ours and potentially being able to buy your stock back so cheaply, that's gonna have an impact. Investment in this industry is just so long-term.
It is so long-term, even for, you know, a project as straightforward as doubling our concentrator at Bagdad. That's a multi-year effort to go through the permitting, the planning process, the procurement process. It's the long-term nature of this business and a head-spinning move in prices like this is gonna have an impact on those investment decisions. I don't know of any company that's just gonna close their eyes and say, you know, that "The market's so good in the future, we're just gonna ignore this." You can't ignore it. I mean, it's been such a dramatic decline, and there's still such uncertainties as to what's gonna happen that all of that is going to delay production investments.
There was just such a limited number of investments available out there anyway. It's just building towards this coming huge deficit in the copper markets.
Thank you, Richard.
Your next question will come from the line of Timna Tanners with Wolfe Research. Please go ahead.
Hi, thank you. I guess I'm just trying to kinda square that what we've been discussing in terms of report slide 12 in terms of all those projects. What does it take that you need to see from the Chilean politics to get more confident in El Abra? And you know, what does it take in terms of copper prices just generally to proceed, or are many of these still very attractive at recent prices? Thanks very much.
Timna, thanks for your question. It's, you know, in looking at our situation, there's a lot of balancing of competing economics for these projects that come into play. The uncertainty at El Abra, where we have a 50%, 51% interest, and we operate it, Codelco's our partner, just means that is a burden on that project. Whereas at investments in the U.S., where Kathleen mentioned we own substantially all of our land and fee, so there's no royalties, where we have a favorable income tax situation that's partially due to the tax legislation that's in place now and partially due to that operating loss carry-forward we have from the oil and gas investment. All the issues around community support and what you have to provide in international operations affects that balance that we have.
Kucing Liar is different because it's just a clear-cut fit into our long-term plan for managing the available ore at Grasberg. By the way, I might mention, Emily, you had in your report today a question about extending the 2041 deadline there. We're in early discussions. I think we have a pathway forward, but we have to proceed with that, and that is something that would benefit all stakeholders and also open that whole area up for further exploration, which has been limited because of the 2041 deadline under our existing operating rights. It's not an easy question to say, Timna, but it's a balancing off on all these things. Right now, you know, the leach focus is not being. It's gonna be affected by economics, timing of Bagdad maybe.
The Lone Star project, the near-term expansions are going well. We may have some more opportunities there. The sulfide is longer term, and then El Abra is the one that's really challenged. Beyond that, we have further opportunities in the U.S. at Morenci and at our other mines. What I really like about our company is we have this huge pipeline of projects. The nearest term will take time, other than leaching, which will come quicker. Beyond that, we have such great resources that are available to us beyond reserves. Over time, those will come to reserves, and so this company is sustainable for a very long period of time without having to do anything else.
The decisions about timing and when to commit and so forth. There's a lot of moving parts, and that's just gotten more complicated by seeing this 30% drop of copper prices and not knowing what's gonna happen in the next 2-3 years globally. It had an impact on us, and it'll have an impact on other companies.
Okay. Great. Thanks for that context. Appreciate it.
Your next question comes from the line of Abhi Agarwal with Deutsche Bank. Please go ahead.
Thank you. Morning, Richard and Kathleen. I just had-
Good morning.
a question on inflation. In terms of inflation, where do you see the biggest upside risk into the year-end and 2023? You did talk about using spot gasoline prices and including labor in your forecast. Does the Q3 and the 2022 guide reflect the spot consumable prices you are seeing? That's my first question.
Yeah.
The first answer is yes to that. We're using spot prices for our energy inputs.
Yeah. That's just our philosophy in planning overall. You know, we develop an outlook and a plan based on current prices, and then we look at a number of different scenarios for what might happen if that varies. But we don't go into any kind of economic analysis ourselves or coming up with predictions on the future. I learned long ago that's a dead man's game. We just use current prices and then look at scenarios. Now, I will say this. For those of you who followed the company a long time, you've heard me say about the correlation between our input costs and copper prices that's been there, and that's one of the rationales we've always used for not hedging.
This current market, you know, has disrupted some of those long-standing traditional relationships. You know, energy's the most significant one, and that's changing. Every day, you see that changing. We're just having to approach this with prudence, with an overall goal of protecting this great set of assets we have and protecting the future that I think is gonna be so great for our company. We're going into that mode that we've followed before of really aggressively managing our business as the world around us changes.
To your question about, you know, where we see the most risk or opportunity, either way, I'd say energy is the one that's the most uncertain. As Richard talked about the correlation, you know, what we're spending on energy, if we did historical correlations going back over a long period of time, our energy costs correlated to a $3.25 copper price would be 40% lower or greater. But yet people are talking about potentially energy prices spiking again because of what's going on in the world. If we really do get this recession really comes through, you know, maybe it's a scenario where historical correlations start to fold in more than they are today. Our current plans are not based on historical correlations.
They're based on the current market conditions.
You know, and this is obvious to all of you.
Right
The biggest risk to our business right now is the future demand gonna drop off a cliff because of a global recession? That's what the market's pricing that in large part right now because that's what the expectation was. I mean, look at that Bank of America survey that they did, you know, 80% of the people were projecting bad times. We haven't had that yet, but that's the risk to our business. If the dire expectations about recession occur, demand will fall off. We can adjust to it. We're not going to put our company at risk, and that's why we're gonna be very prudent about the way we manage capital, manage operations, we manage our financial policy. You know, I'm such a big believer in copper.
I have this urge to be a lot more austere about it, but history has taught me we need to be really prudent to protect ourselves in case things happen that might put us at risk. We're not gonna do that. I'm just not gonna do it.
Your next question will come from the line of John Tumazos with John Tumazos Very Independent Research LLC. Please go ahead.
Thank you very much.
Hey, John.
Richard, we're in such a strong position at Freeport, and given that the two big capital projects of the smelter and Kucing Liar are basically non-discretionary, that we really don't need to make too many changes, lay off geologists, swing CapEx around a lot, and that there's less risk of a double mistake of making all these cuts and then the market recovering. You know, panics start and stop so fast, it's so hard for you to manage. Do you think it's very likely we're steady-state at Freeport?
Well, let's see. You mentioned people. You know, we made substantial cuts in personnel just over two years ago with the COVID issue. You know, we did that. We always treat people fairly. It was mostly between incentivized retirements or incentivized terminations and so forth, and we were very effective with doing that. By the way, we have carried over some really efficient benefits in our G&A cost and what we learned during that period of time about not needing to travel as much and working efficiently with our people. I encourage all of you to go back and look at the history of Freeport's G&A and just see what progress we've made with it. John, we're actively looking for technical people.
I mean, we're not talking about cutting back technical people at all because this opportunity with leaching, with data analytics, which is used in leaching, but in the rest of our business, and you know, my experience has shown you find good technical people, they'll create value for us. Steady state, maybe that's one way of saying it. You know now that, with Grasberg being where it is with its ramp up, we're still working on a mill enhancement there, power issues. We're dealing with our power plant there and we have some other investments made, but you know, we're at our run rate. Clearly the expansions are being affected by today's copper price.
Yeah, we're just focused on staying in a strong financial position, keeping all of our options open, and being prepared to act when time makes sense.
We raised the capital we need for the smelter. That's an important part of our agreement with the Indonesian government. We raised the capital we need both in the bond and the bank markets earlier this year before things got deteriorated. We're in good shape. That's an execution project. The Kucing Liar. It's a complicated execution project, but it's an execution project. The Kucing Liar project is investments over a long period of time. We can have some pluses and minuses, you know, as we look out in the plan to tweak it, but it's a long-term investment.
The places where we do have opportunities to look at is, you know, in the short term, some of the funding that we were planning in the Americas for various projects to build capacity assurance, to sustain higher mining rates so that we could, you know, keep our production levels high. Those kinds of things, as we've done in the past, we will look at if we need to essentially cut spending. The reductions in mining rates help current cash flow. It makes it harder in the future to get the flywheel going again as we've, you know, just now doing with the cutbacks we did in 2020. As Richard said, it's something that our team has experience with. We do it in a disciplined way.
I think the important thing for the market to understand is that as we do these kinds of things, the switch doesn't get turned on quickly, so they have lasting effects. Not, you know, you don't lose value. It's not lost, but it's deferred for potentially an extended period of time. We take all that into account when we make these decisions on modifying operating plans.
The timing of that PTFI $3 billion financing was very fortuitous. I was just looking at this morning at what we issued it with and what today's interest rates are for those bonds that are trading. It was great that Kathleen and her team got that done when they got it done.
Our final question will come from the line of Jatinder Goel with Exane BNP Paribas. Please go ahead.
Thank you, operator. Good morning and good afternoon. Just a question on inflation, but from a different perspective. A number of other companies in the sector are highlighting CapEx inflation being higher than OpEx inflation. Interestingly, encouragingly, your CapEx guidance is almost unchanged for this year and next year, barring some $100 million shift. What's driving that? Are you seeing any CapEx inflation, or is there any deferral of activity keeping that absolute $3.1 billion average CapEx guide unchanged, but it's at the cost of some lower activity level?
Yeah. I think it's a function of where we are in these projects. You know, in Indonesia, a large portion of our capital budget was related to the underground development. We were well advanced in this project. The last part of it really is this increase in our SAG milling circuit, which is coming on in 2023. But if we're starting projects today or in the last six months, I think that's a fair assumption. That also goes into the calculus of, you know, is this the environment that you want to undertake major new projects in because not only do you have the costs up, but the availability of labor to someone's question earlier, the risks are higher.
The current copper price doesn't appropriately reflect what is required to get new projects developed. That's the thing Richard was talking about earlier where, you know, we've got a big disconnect. You know, our capital projects that we're doing today have been in progress for a long time. So and we've got a, you know, a core amount of sustaining projects, and we do have, you know, some higher equipment and parts and those kinds of things. Some of the parts have affected OpEx. Given where we are in our capital cycle, we don't have the inflation that someone, you know, brand new starting a new project would have today.
Yes. It's the nature of what we're spending money on, and like Kathleen said, where we are in the cycle. You know, supply chain issues are still real too, and that would be a very daunting thing to think about if you were undertaking a $6 billion-$7 billion new project in this industry. All I just keep coming back. I just keep coming back that the supply chain. I mean, the supply barriers to develop copper to meet this demand are really significant. You just think about we've had high copper prices now for 20 years and look, just look at what the industry has tried to spend to develop and what's been developed. Now you got, you know, these new things that are coming in.
You know, you can't wipe away community environmental concerns just because the world needs copper. You have all these social issues that are competing for the populations in Latin America and problems that, you know. You know, we in the U.S. benefit because we have greenfield expansions, but you see the problems of trying to build, I mean, brownfield expansions. You see the problems in trying to build greenfield expansions here in the U.S. They're just daunting. I've just never seen anything like it, and it's just so clear to me after looking at commodities, businesses, you know, natural resource businesses now for all these decades about where the copper business is and what the future lies ahead for us.
That's why I'm so excited about what our company will benefit from in terms of assets, people, experience, how we do things. It's gonna be a great future.
Excellent. Thank you. Just a quick follow-up. On the smelting CapEx, the only change has been in the precious metals refinery side. Is all of the remaining CapEx on existing smelter expansion plus the new greenfield smelter all locked in and there is no risk of escalation there, just to be sure?
No, it's not locked.
No.
Yeah. We agreed with the EPC contractor to a target price, and we both share some risk in that, and we've got some contingencies. You know, a good portion also is think about the labor costs, local labor costs, and where the U.S. dollar is. That, that'll help us if things stay with the way they are. It's not a fixed price contract. It's got some risk sharing between the parties.
Understood. Thank you so much, Richard and Kathleen. All the best.
Thank you very much.
I'll now turn the call back over to management for any closing remarks.
Let me just say, you all know how I feel and what's the basis for our company strategy and so forth. If any of you, and I'm asking this question broadly within the industry with, in all my contacts. If any of you on this call who follow our company so closely, if you have a different view about the fundamental outlook for the business, you know, just call me directly. I'd be very interested in hearing it. One thing the reality is that I certainly recognize is that even with institutional investors, their views of their investments are much more short-run than what Freeport's view is of how we have to invest for the future of this copper business. I'm really interested in hearing contrary views if any of you would like to share them with me.
With that
Thanks, everyone.
Thank you all for this meeting, and we look forward to reporting the next quarter and seeing how this world unfolds. It's gonna be very interesting. Thank you all.
Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.