Ladies and gentlemen, thank you for standing by. Welcome to the Freeport McMoran 4th Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. I would now like to turn the conference over to Ms.
Kathleen Quirk, Executive Vice President and Chief Financial Officer. Please go
ahead, ma'am. Thank you, and welcome to the Freeport McMoran 4th quarter 2019 earnings conference call. Our results were released earlier this morning and a copy of the press release and slides for today's call are available on our website at fcx.com. Our conference 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 the call include forward looking statements and actual results may differ materially. We'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 Form 10 ks. Also on the call with me today are Richard Atkerson, Red Conger, Mark Johnson and Mike Kendrick. I'll start by briefly summarizing our financial results and then we'll turn the call over to Richard, who will review our recent performance and outlook. As usual, after our remarks, we'll open up the call for questions.
Today, FCX reported net income attributable to common stock of $9,000,000 for the Q4 of 2019. After adjusting for net charges of $22,000,000 or $0.02 per share, which primarily reflected net charges at PTFI, mostly related to historical contested tax audits, metals inventory adjustments and partly offset by gains on asset sales, the adjusted net income attributable to common stock totaled $31,000,000 or $0.02 a share in the Q4 of 2019. For details about the special charges, please refer to Schedule 7, Roman numeral 7 in our press release. Adjusted earnings before interest, taxes and depreciation and amortization for the Q4 EBITDA totaled $891,000,000 We also have a reconciliation of EBITDA available on Page 35 of the presentation materials. 4th quarter copper sales totaled £906,000,000 Those were higher than our October estimate of 8 £70,000,000 and gold sales of 317,000 ounces in the 4th quarter were 117,000 ounces higher than our October estimate of 200,000 ounces.
The positive variance to guidance for both copper and gold was primarily associated with an extension of mining from the Grasberg open pit, which was completed in the 4th quarter and also the timing of shipments as we sold some inventory from the 3rd quarter. Our average realized price in the 4th quarter was $2.74 per pound that was similar to the year ago of average copper price and gold prices of $14.91 average for the quarter were slightly above last year's Q4. Our consolidated average unit net cash cost net of byproduct credits was $1.67 per pound of copper in the Q4 of 2019. Those were lower than our estimate, primarily reflecting the higher copper and gold sales volumes in the quarter. Operating cash flows during the Q4 totaled $170,000,000 that was net of a $250,000,000 tax payment related to contested tax audits in Indonesia.
And capital expenditures were about $700,000,000 during the quarter, including about $400,000,000 for major projects. During the quarter, we generated $450,000,000 in proceeds from asset sales associated with the previously announced completion of the sale of a portion of our interest in Freeport Cobalt and also a sale of our lower zone interest in the exploration project in Serbia. We ended the year with consolidated debt of $9,800,000,000 and consolidated cash totaled $2,000,000,000 We had no borrowings and $3,500,000,000 available under our revolving credit facility. I would now like to turn the call over to Richard, who will be referring to our slide presentation materials.
Thank you, Kathleen, and good morning and thank each of you for participating in today's call. We at Freeport had an excellent Q4 doing what we set out to do. During this period of time, execution is our battle call and that's exactly what we did. We executed. We have strong momentum on 3 important initiatives to expand margins and cash flows and increase values for shareholders.
Looking back on the year 2019, we set a strong foundation for the long term and positioned our company for profitable growth for years to come. We start with the 1st and most impactful initiatives and that is our underground ramp up at Grasberg, which I'm pleased to report is accelerating as planned. During the Q4, we completed surface mining at the Grasberg open pit. Now we are entirely focused on establishing large scale production from our massive low cost and long lived underground ore bodies. And that's going to be a source for significant cash flows for 20 plus years to come.
We benefit from the substantial development and infrastructure that is already being completed. The strength of our team, which possesses necessary technical competences, experiences and motivation to successfully execute our plan and that's what they're doing. Positive production results in 2019 is enhancing our previously existing confidence for our ramp up schedule. And we've talked before, we're in a show me stage for ourselves and for our investors and that's what we've done. We're showing people that we're doing what we set out to do.
The designs of the Grasberg Block Cave and the Deep MLZ mines are world class. We are using our mining experience that we've had over our 40 year history of underground mining to enhance infrastructure construction. We're using new technology, autonomous loaders and remote control equipment. We've made advances in ground support techniques, undercut blasting and cave management. And we're going to continue to take advantage of these improved technologies as we go forward.
Technology advances in underground mining are more impactful and more achievable than open pit mining simply because of the nature of the processes. We were successful in meeting or exceeding important milestones during the year and I'll review that in more detail in a moment. 2nd initiative is the commissioning of a new mine in Arizona Lone Star. We will be commencing production in this year, in 2020. Project is on track, about 75% complete within budget.
We have great experiences and track record in working in Arizona. Notably, we have the support of the communities near this mine and that's important when you look at the issues people face in Arizona around the world in developing new mines. Economics of this investment is really attractive. It will provide a source of long term cash flow with low risk growth opportunities. Exploration of this ore body continues to be positive, both with respect to an expanding oxide resource and as we look into the future with a very large sulfide resource, which has the potential of making this a keystone mine, a Tier 1 asset in the global mining industry.
The 3rd value driver relates to our innovation program, really focusing on enhancing productivity, expanding markets without spending a lot of capital. During 2019, we took our experience that we had working with our Baghdad mine and initiated a series of projects throughout our American portfolio of mines using new technology machine learning, more data driven interactive and cross function operating structure, bringing all of our skills in those areas within our company together. Our experience has demonstrated these tools allow us to work our existing assets harder, unlock bottlenecks and improve overall performance. Early results are positive. We're prioritizing initiatives now to implement these on a larger scale.
We have begun to incorporate these initiatives, these projects into our plans and currently are expecting to achieve £200,000,000 of annual production incremental production by 2022, emphasizing again with very low capital. Each of these three initiatives are well advanced. They're all largely with our own control and provide a clear path for higher cash flows and value creation. Slide 4. We want to with all the talk about ESG, we have reiterated our commitment to all of our stakeholders.
For us, this starts with a strong culture of safety at all levels of our organization. That's the core of everything we do. We operate in a dangerous industry with challenging physical environments, and we are really diligent in developing tools to enhance safety performance with particularly emphasis on fatality prevention and continuous improvement. We recognize and appreciate the performance of our global workforce who are integral to our success. We pay people fairly in compensation and benefits.
We provide career opportunities for people to grow in their work and to support their families and it's a big part of what we do. Freeport has a long history of partnering with communities where we operate to ensure that the work that we do results in a positive impact on communities with regard to their health, welfare and sustainability. And we continue to work to do this and it's an important feature of what we do. Environmental and protection programs are also key to us and we dedicate a significant human and financial resources to addressing this. Our management programs are designed to mitigate impacts and closely monitor performance.
We have a particular focus on water conservation. Water is an issue in most mines that we have. We are increasing sourcing of low carbon and renewable energy and have a track record of world class remediation programs. We are taking a very active role in working within ICMM and key stakeholders on developing a new global standards for tailings management. We have enhanced our disclosures in this area so that all stakeholders have access to our tailings management activities and how we're dealing with this important area of our business.
At Freeport, we are a leading and important producer of copper in the global industry. This is fundamental as the world transitions to a low carbon economy. Copper is a key driver in mitigating carbon emissions through the application of renewable energy technologies and is a net positive for the future economy. Our commitment to sustainable and responsible mining is not new. This focus on communities, workers and environment is something that's been part of our culture for years.
We recognized long ago this is essential to the long standing sustainability of our industry and that we cannot be successful in generating value for shareholders unless we address these issues effectively and we are committed to doing that. Slide 5 talks about copper markets. Big picture fundamentals are strongly supported for the future and our company is going to be a beneficiary of those strong fundamentals. When we look back on 2019, with slowing global growth, with the impact on within China, within the U. S, with a weakened performance of the manufacturing sector with the issues in Europe, it's striking that copper inventories are at the low levels that they are today.
Supply growth continues to be relatively low. Markets can be expected to be tight in the future to become tight in future. Copper will benefit under a scenario of even modest global growth and the added benefit of increasing use of copper to implement decarbonization trends is a feature that's going to be part of the long term future of our industry. The current price today has improved from the 2019 lows, but is still well below the incentive price needed to attract new supply. Slide 6, we address returning again to talking about our strategy and the impacts of that.
As I've said often, we're laser focused on execution of this strategy, and that's what we're all about. We've worked for years now in planning and developing, particularly at Grasberg, the transition to the underground and now we are executing this very efficiently as you can see by the numbers we reported today. We have a growing production and cash flow profile that's going to be very significant and will benefit our shareholders in years to come. We're well advanced on this underground transition. Results to date are on target.
We're moving closer to 2021 when we start seeing the results of this work that we've been doing over the past 15 plus years. And then beyond that, how we will be able to benefit from these investments in this work that we're doing. Through the execution of the ramp up at Grasberg, the commissioning of the Lone Star project, ongoing productivities in our Americas operations, We expect to increase our copper and gold sales volumes by over 30% in 2021 compared with the just completed 2019 trough year. This will result in a 25% reduction in net unit cost, all things being equal, and more than double our EBITDA and cash flows at current commodity prices. I personally believe there's a potential for higher prices With a growing production profile at a time when corporate markets may be rising, our shareholders would have exposure to a positive long term future and Freeport will be particularly well situated as it faces that future.
Much of the capital investment we need to achieve this result has already been made and achievement of our targets continue to reduce the risk that this plan had embedded in it. These are long live assets with a strong base for solid cash flows for the future. Slide 7, we show a summary comparing historical and future results for Grasberg. The Grasberg district in Indonesia in Papua, where we have operated since the early 1970s, is one of the world's largest and most valuable mining districts historically. Very large copper producer, but with a significant byproduct gold component, it is one of the world's largest gold deposits.
Grasberg has delivered cash flows over the last 30 years. We expect even more cash flow in the future and it's truly, truly a remarkable asset. And that's why we've had such a focus in maintaining and developing our rights, working with the government of Indonesia to secure that. We've had a year now since we achieved the new structure and it's working very effectively. A picture at the top left is a picture of the open pit in December.
We have now completed mining from the surface. So the pit is no longer being mined and it's quite a remarkable picture. Mark and his team did a great job in extending the life of the pit. We had to do this in a cautious way because of the future interaction of the block cave mining underneath the pit, same ore body, just to be mined from the surface. And we had to make sure that we could not expose our people or the ore body to risk when this interaction as this interaction begins to occur.
We did this safely. We did we're able to produce longer than we anticipated going into the in the beginning of the year. And just stepping back at this, I look at this picture. I have a picture in my office of the Grasberg pit every year since it started production. And it starts with a snapshot that I took in 1988 at the exploration site, and then to see this pit completed.
Since 1990, PTFI has produced £33,000,000,000 of copper, 53,000,000 ounces of gold from the Grasberg District, generated $100,000,000,000 in gross revenues. During this period of time, we moved 5,000,000,000 tons of material, both ore and waste to process about 1,800,000,000 tons of ore. As I've said, we're now totally focused on establishing large scale production from the underground. And we're a leader, have been for years in block cave mining, decades of experience dating back to the early 1980s at PT FI. The Grasberg Block Cave, which represents about 50% of our underground reserves is the same very same ore body mined from the pit, but the block cave method will allow us to mine more profitably than continuing from our surface.
In Block Cave, the ore collapses under gravity. There's no stripping or mine waste. As we show in our slide, we only have to mine 1 third of the material that we had to mine historically and produce more copper in the underground era. Mining 1,800,000,000 tons of ore will be lower cost than mining 5,200,000,000 tons of ore. The gross revenues associated with these reserves to be produced over the next 20 years or so at $3 copper $1500 gold would approximate $150,000,000,000 approximately 50% more than we produced over the last 30 years.
Developing the infrastructure for the scale of operations was our biggest challenge. We've essentially done that. And we still have to add we're building some additional crushers, some additional power. We'll make some mill modifications. But the infrastructure has been done.
Now we're mining and the mining will be in different phases of this. It's not just 1 mine or 2 mines. And it's of a scale that's consistent with what we've done in the past. We have met the biggest challenges of doing this and now we're just doing what we've done in the past essentially. Our reserves are reported only through 2,041, which is the termination date of our existing agreement with the government.
The resource goes beyond that. And I would I expect that Freeport will continue to be involved beyond 2,000 41. So with the block caving, we had this multiyear investment period that began in 2,003, more than 2 thirds of the underground development meters of our largest mines have been achieved. We invested in infrastructure, state of art autonomous underground rail system. Most of the capital costs for the Grasberg Block Cave and Deep MLZ are behind us.
Slide 8 shows the underground milestones we achieved in 2019. 4th quarter combined ore production from the Grasberg Block Cave and the Deep MLZ was higher than our forecast, averaging 26,000 tons per day for the quarter. We exited 2019 at a combined rate of 33,000 tons a day. Quarterly rates for Grasberg Block Cave included a 20 day outage for planned modification of our ore force system. We continue to add new drawbells, which is the structural features that allow us to extract the ore and mine it.
These are rock funnels used to collect the ore, which goes into loaders as the ore collapses from the structure above it. We continue to add drawbells across the footprint. We will build scale for higher production. We added some new schematics in the reference information at the back of the presentation, so you can review what we've completed to date and what we plan to do in 2020. In the Q4, we added 34 new drawbells at the Grasberg Block Cave and DeepL MLZ.
Compared to 14 in the Q1 of 2019. We expect to continue adding drawbells over 2020 to average 48 a quarter. Cave propagation for the Grasberg Block Cave and Deepa MOMZ continues to go very well. The Grasberg Block Cave will be the largest contributor to copper and gold production following the ramp up. Reserves total about £1,000,000,000 of high grade copper and gold 1,000,000,000 tons.
Grasberg Block Cave will have a very large footprint, 80 acres at full rate, 180 acres over the life of the mine. The size of the ore body gives us the ability to produce simultaneously from 5 production blocks, 5 production blocks, not just a single mine. Given the scale, flexibility and assurance that we can have continuous productions. So in substance, we have multiple mines underground sharing the same infrastructure. We know the rock types from mining the same ore for the past 30 years through the extensive drilling that we've done.
We're assessing ore about 300 meters below the pit bottom in the Grasberg Block Cave. As we continue undercutting and adding draw points, the cave expansion at the Grasberg Block Cave will ramp up to 130,000 tons per day from these different cave fronts at the Grasberg Block Cave by 2023. The Deep MLZ is a different mineralization zone where we are using hydraulic fracking, which has been very effective in managing the seismicity issues we talked about previously. We're continuing undercutting the Deep MLZ drawbell openings. We will have 2 active production blocks in the near term there, 3 in the longer term.
In the early years, the grades in the Deep MLZ are very high. 4th quarter grades at Deep MLZ were 1.7 percent copper and over 1.7 grams per ton of gold. At full rates, production from these 2 ore bodies is projected to average over £1,300,000,000 of copper, 1,300,000 ounces of gold and that's sustainable at very high levels over the long term. Earlier years higher grades will enhance production. Average net unit cash costs are expected to average about $0.30 a pound in the 1st 5 years at full rates is really notable and rare for large scale operations in our industry.
The key for us now is to continue our undercutting to undercutting to expand the footprint to open up new areas for drawbells and ore production. We expect to increase the number of drawbells in 2020 as work areas expand. Again, this is doing things at a scale that we've done in the past. The infrastructure is essentially in place and now we're just executing mining like we're doing. There's risk in mining projects and there'll be pluses and minuses as we go forward.
But we felt we've dealt we've dealt with now dealt with the major structural risk that we face going into this and we're real positive about our results to date and our ability to manage risk as we go forward. Slide 9 shows an update on the Lone Star project in Arizona, commissioned as a new mine in the coming in this year in 2020. See from the pictures, the mine is taking shape. We're ramping up placement of oil on the leach pad at the nearby Safford operations where we have available facilities to process this ore without major new capital expenditures. The current project is forecast to add £200,000,000 of copper per annum initially and we have opportunities to increase production with low capital requirements.
We're continuing to, as I mentioned, to analyze positive exploration data that just keeps coming at us at this ore body and we'll be incorporating in our future plans. We're very positive about the upside to build scale on what could become a significant cornerstone asset for us in the United States, in Arizona over time where we have no royalties because we own the land, we have virtually no taxes because of our situation, a lot of value. Slide 10. This innovation initiative has really taken shape. Over the last several months, we developed a blueprint for our operating sites to implement these new data driven technology tools, provide operator training, redesign our operating teams to incorporate cross functional disciplines, bringing in our people on-site with data analysts and outside experts to achieve what we can achieve.
The availability of these new technologies is truly changing the way we work. We're challenging the status quo. We're not accepting what we did in the past. It's giving us the ability to adjust quickly to maximize productivity. We're leveraging these data analytics and collaborating across function, arming our operators with tools, empowering them to make decisions quickly using real time data, bottlenecks are being broken down and results are being measured in real time to really determine and improve productivity.
The slide talks about 2 of these initiatives, 1 for our concentrating plants and one for our mining operations. We're developing algorithms in the concentrating plants, which literally takes 100 of 1,000 of data points on ore types, metallurgy and other operating conditions to make recommendations in real time designed to maximize copper production. These models, which we call TROY and acronym, are tailored to each site based on the characteristics of the ore body and the processing equipment environment that we have. In the mine, we're developing technology to aggregate data from multiple existing systems to provide dispatch personnel with level of productivity at any given work shift and to maximize the nature of the ore that we have in the mine. Energy around this mission within our team continues to build.
I was just with our global team last week and it's really gratifying to see how they are embracing this initiative. Organization has really gotten behind it. We had really positive results at our Bagdad mine in Northwest Arizona, where we, in effect, field tested this. Is reached at Baghdad, we achieved a 15% increase in output, lower unit cost and other benefits. We're prioritizing projects in the process of implementing them.
We have included at this point in our plans adding £200,000,000 of copper from these initiatives beginning in 2022. Our team keeps expressing confidence that we can do better than that. And so we'll be looking forward to reporting you how that works to lower our average and capital costs. Costs are relatively low, in the range of $200,000,000 to implement these things. It's highly attractive considering that a new project to add £200,000,000 of copper would involve capital in the range of $1,500,000,000 to $2,000,000,000 and take much longer to implement.
Kathleen is going to cover our financial outlook, and I'll just close by highlighting the key value drivers that characterize Freeport as foremost in the global copper industry. We start with a valuable portfolio of high quality assets, Tier 1 assets, with scale supported by exceptional technical team and managed efficiently responsibly. We operate all the mines that we have interest in and that gives us a powerful ability to lever experiences, allocate resources, people and deal with supply chain issues. Our assets are long live, durable and have embedded options for growth. We are an industry leader in copper, which is supported as a commodity by strong fundamentals.
We have a growing production profile and cash profile of significance and you'll see this clearly in the slides that Kathleen will talk about. Right now, we're focused on executing these three initiatives. We will have a future that will give us an opportunity to consider a number of alternatives as we go forward, including investing in a disciplined way on growing our undeveloped resources. Collectively, these positive attributes provide us with strong financial outlook and fundamental value. We're gaining real momentum, I think, as you can see by the data we're reporting today to achieve our objectives.
I want to repeat again, we're clearly focused on executing our plans in an effective way. We now have a clear path of generating a meaningful increase revenues, earnings and cash flow And I personally look forward to reporting to you on our ongoing progress. Thank you. Kathleen?
Thank you, Richard. And I'm going to start on Slide 13 and take you through how all these initiatives translate into improving cash flow and value for our shareholders. We've summarized on Slide 13 our consolidated sales outlook for the periods 2020 through 2022. And you can see here the 30% growth in copper sales between 2019 2021 that Richard referred to previously. This equates to an increase of about £1,000,000,000 of copper, which results in incremental revenues totaling $2,800,000,000 at today's copper price.
The volumes that are coming in, the growth volumes that are coming in are at a very low incremental costs, which results in a sizable increase in our EBITDA and cash flows as you'll see modeled in a moment. For 2020, we're projecting £3,500,000,000 of copper sales. That's in line with our previous estimates. The increase of £200,000,000 between 2019 2020 primarily reflects increases in North America and Indonesia, partly offset by lower grades in South America. In 2021, we're projecting sales of £4,300,000,000 of copper as output in Indonesia returns to more historical levels.
And we've also included a projected benefit of an incremental £100,000,000 of copper in 20 21 £200,000,000 of copper in 2022 associated with the Americas Innovation and Productivity Initiatives that Red is leading and Richard talked about a few minutes ago. We show 2022 volumes growing to 4,600,000,000 pounds of copper. For gold, we also expect sales to rise as we ramp up the underground at Grasberg. As we talked about, our sales in 2019 exceeded our gold sales, exceeded our forecast. And in the 4th quarter, we're about 100,000 ounces higher than what we expected going into the quarter.
For the outlook, we made some small model revisions in our latest forecast, but the estimates are pretty close to our previous estimates with gold volumes forecasted 800,000 ounces in 2020, growing to 1,400,000 ounces in 2021,701,700,000 ounces in 2022. Sales of molybdenum are expected to be in the £90,000,000 range as we go forward. But we do have additional capacity that we can produce if market conditions warrant. Moving to the next slide on Slide 14, we show our projected 2020 volumes by quarter for your reference. With the underground ramp up at Grasberg, the sales are expected to increase throughout the year.
And by the Q4, you'll see what we expect to be at an annual run rate approaching £4,000,000,000 which is well on our way to the £4,300,000,000 target that we expect to achieve in 2021. Our slide on Page 15 illustrates that our growing production profile is coming in at a lower incremental cost. And that will drive our unit cost down as we go forward. For 2019, our average net unit cash cost net of byproduct credits was $1.74 per pound. We're projecting a similar level in 2020 for the average.
And that reflects a lower top line unit net site production cost in 2020, but it's offset by lower unit byproduct credits. We're assuming in these estimates $10 a pound for moly. Moly prices did decline some in the Q4 and are currently around the $10 level. But there's a $0.03 per pound impact for each $2 change in molybdenum for 2020. As we move to 2021, because we are ramping up production, the unit cash costs are expected to decline by 25% from the 2019 2020 averages.
And that's just a function of scale at Grasberg. We expect that at full rates, the underground operations in Indonesia will be among the lowest in the world. And the innovation and productivity initiatives in the Americas is also expected to deliver lower incremental costs than our average. So we're very focused on bringing the unit cost down as we build scale and productivity in the operations. On Slide 16, we show a modeled result of our EBITDA and cash flows at various prices, copper prices.
We're holding gold flat in these models at $1500 and molybdenum flat at $10 a pound over this period. In 2019, our EBITDA totaled about $2,700,000,000 and that was at an average copper price of $2.73 per pound. For 2020, we're estimating EBITDA would range between $3,000,000,000 $5,000,000,000 at copper prices between $2.75 $3.25 $1. And notably, and this is where the leverage of the increased volumes come in, at the average of 20 21 2022, EBITDA would grow to $6,500,000,000 to $8,500,000,000 using the same price range. So when we look at 2021 2022, we go from 2,700,000,000 dollars in EBITDA in 2019 to over $6,500,000,000 in 2021 2022 at current prices.
This is all from existing projects that are in an advanced stage. As we've been emphasizing, it's about execution Over the next few quarters, achieving our key milestones, we'll continue to de risk the plan. We have a similar story for operating cash flows, net of our cash taxes and interest. Our operating cash flows grow from $1,500,000,000 in 2019 and would range from over $4,000,000,000 to $6,000,000,000 in 20212022 at copper prices ranging from current levels to $3.25 per pound. As our cash flow grows, we're going to be very disciplined about capital spending, to target increased returns to shareholders as we complete the transition at Grasberg.
Slide 17 shows our capital expenditures for 2019 and projected spend for 2020 2021. Capital expenditures totaled 2,650,000,000 dollars for 2019 and are expected to total $2,800,000,000 in 2020. We've included about $150,000,000 in capital investments in 2020 associated with our innovation and productivity project. That has a very quick payback and will add long term value. We've added £100,000,000 of copper in 2021 and £200,000,000 in 2022.
So you can see the quick payback of those projects and I think it's going to build a foundation of improved long term value of our Americas business as we go forward. The balance of capital in 2020 includes $1,300,000,000 in underground capital spending at Grasberg and the completion of the Lone Star project. We've also got capital sustaining capital in the $1,000,000,000 range. For 2021, we expect capital to decline by about $400,000,000 and we've included $1,200,000,000 in sustaining capital in the balance for projects mostly related to Grasberg. I will note that the underground capital at Grasberg is expected to decline significantly beginning in 2022.
As Richard mentioned, we've got a big part of the infrastructure completed. And so we do see capital beginning to decline significantly from Indonesia beginning in 2022 and beyond. We're continuing to manage our capital expenditures very carefully and thoughtfully. The investments we're making now are at an advanced stage. They're going to strengthen our margins at low prices and enhance our long term asset base while providing leverage to improve markets over time.
The amounts do not include the new smelter in Indonesia, in which FCX will share 49% of the economics. We've got some information on the smelter on the next slide, on Slide 18. It's a status update of where we stand. We're in the process of completing our engineering studies and expect to have confirmed project costs and project schedules during 2020. The preliminary capital cost estimate on a 100% basis approximates $3,000,000,000 for this project, with capital estimated to be in the 500,000,000 dollars range for 2020.
We're in the process of making the necessary improvements to the ground at the land site in East Java, Indonesia. We've also made very good progress on our financing discussions there at an advanced stage with a syndicate of banks. And we expect the bank facility will be available during 2020 to fund the capital over time as it's required. We're planning for the financing to be made at PTFI without recourse to FCX and for the new facility to be drawn as needed to offset cash outlays for the smelter. And so we do not expect the dividends out of PTFI to be burdened by smelter development capital during the construction period.
We've included a chart at the bottom of this slide to show the after tax cost of the debt service. And you'll see here that the in this example, we show an amortization of the capital cost spread over the life of the existing reserves. The initial financing will be shorter term, but can be financed refinanced and this illustrates what the cost of it is over the remaining 20 plus year life of reserve. But the net impact on FCX's equity share is about $88,000,000 per year. We're also showing here that as part of the smelter development, we will be phasing export duty that PTFI currently pays.
It's currently 5%. And as that is phased out, the savings average over the life of the mine is a similar amount, almost $80,000,000 So we've got the cost here, but also the benefit of reducing the phasing out the export duty. We also will have the benefit of having operating costs at the smelter, which should be very competitive compared to global TC and RC markets. Turning to Slide 19, we're just summarizing here where we are from a debt position, net debt position. We ended 2019 with just below $8,000,000,000 in net debt.
We've got a strong balance sheet, good liquidity position. We have $2,000,000,000 in cash and an undrawn credit facility. So strong liquidity and we do not have significant maturities until 2022. And in closing, before we take your questions, we just want to reiterate where we are in terms of establishing the necessary production we need to grow our revenues and cash flows. We're very positive about the financial outlook.
The initiatives that we have in place are advancing in line with the expectations And we're focused on continuing to hit the milestones in 2020, executing effectively and delivering on these plans. So those will all translate into a substantial growth in revenues, margins and free cash flows as we go forward. So we appreciate the attention. And now operator, we'd like to open the call for questions.
Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of Alex Hacking with Citi.
Good morning, Richard and Kathleen, and thanks for the question. I have a couple of questions on South America, if that's okay. Firstly, on Cerro Verde, it looks like costs will be going up this year. Is that primarily due to grade decline? And how should we think about that going forward?
I think you're mining around 0.35% today, which I think is around where reserve grade is. So how should we think about that going forward? 2nd question, your JV partner at El Abra, Codelco, has announced cuts to their CapEx budgets going forward. Does that affect El Abra in any way or you're thinking about the future of El Abra? Thank you.
Thanks, Alex. Alex, this is Kathleen. The grades in Cerro Verde were about 0.36 in 2019. We're expecting that to be about 0.33 in 2020 and are not expecting in the near term further decline. But what we are doing is ramping up the concentrator there.
We've got it's already producing 10% above where it was originally designed. But, Red and the team have identified opportunities to increase the concentrating rate to 420,000 tons a day. And that would be the biggest concentrator in the world. We expect that to start coming in, in 2021. So we've got relatively flat grades at 0.33%, but very large scale and these efficiency initiatives are going to help Cerro Verde.
The ones that Richard was referring to about the mine related initiative, the Chloe project that's being piloted at Cerro Verde. So we're really, really positive about Cerro Verde to continue to try to improve efficiency of its mining rate to feed the big mill that it has there. On El Abra, we're not anticipating any changes with the partnership we have with Codelco. We work very closely with them on the expansion opportunities. And a lot where we're really focused on continuing to optimize what we have.
We're currently looking at the evaluating the expansion project, but not looking to pull any trigger on that right now. So we have some substantial time with the existing operations to consider what's next. I don't know, Red, do you want to add anything on Cerro Verde? Okay.
So let me just say
with El Abra, we are working cooperatively with Cadelco on it. They're encouraging us to work on it. We're not planning on initiating major new expansion projects until we complete this process of the underground conversion at Grasberg. And so we're studying it now along with expansion at Baghdad and others, and we'll be doing trade offs to see what makes sense when the time comes to make decisions on expansion. So we think that if it does come down to a joint decision to expand El Abra that there will be sources of capital to finance that.
So I don't think that's going to be a constraint to us. But that's a future decision to be made.
Okay. Thank you very much.
Your next question comes from the line of Carlos De Alba with Morgan Stanley.
Thank you very much. Good morning, Richard and Kathleen. So just in terms of the smelter in financing in Indonesia, Kathleen, have you been facing any pushbacks? Or what obstacles are you getting from the conversations with the banks? When do you really think during this year that you can wrap this issue for good, so the company can move on and investors can feel more confident where the money is going to come from and at what rates?
And then if I may ask, Richard or Kathleen,
do you
have an early sense of the potential CapEx estimate for the oxide expansion at the Lonestar? And when do you think you can be ready to make a decision? Thank you.
Carlos, the answer to your first question is, we are in an advanced stage of discussions with a group of banks. We have been for several months. We are very close to having the $3,000,000,000 in commitments raised. And so we do expect the facility to be in place in time for the to fund the capital. We don't we haven't been spending that much capital on it.
Most of the work to date has been on ground improvement and we're doing the engineering studies right now. So, but we do expect that the bank facility will be in place in 2020 ahead of when it's needed to fund the $500,000,000 that we're talking about estimate for 2020. There really hasn't been pushback. There's strong interest in PT Freeport Indonesia. It does Freeport PT FI does not have existing debt.
The banks like the strong sponsorship of our partner, Interlum and FCX. And so it's there hasn't been pushback on it.
Yes. To say, it's contrary to pushback. There is a very positive reception in the banking community to participate in this. So it's and it's because, as Kathleen says, BTF has no debt. The banks like to do business.
With Freeport, they like to do business. With Interloom, they like to do business with the government of Indonesia. So we have a positive reception for that. With respect to Lonestar, we're focused right now on getting this initial project up and running. As I said, production commences this year and we're analyzing exploration data to make decisions on where to go from that.
So it's a work in progress on the future right now, both far and oxide expansion. And ultimately, I'm confident we'll do a sulfide project there. But that's all a work in progress.
But there is capacity at Safford in the tank house there to do more than the 200. And so there could be some low capital mining equipment related things to raise the production at Lone Star. So incremental expansions, I think will come in at a very cheap capital cost. So we have some flexibility there. Great.
Thank you very much. All the best.
All right. Thank you.
Your next question comes from the line of Lucas Pipes with B. Riley FBR.
Hey, good morning, everyone. Hey, Lucas. I wanted to take a closer look at 2022 production. So on Slide 13, you show growth through 2022 and there's about £300,000,000 of growth versus in 2022 versus 2021. And then you have £200,000,000 from the efficiency drive and then on Slide 31, you show also £300,000,000 of growth from Indonesia.
So in short, should we be thinking about the efficiency drive offsetting depletion? And if so, where would we be seeing that depletion in 2022? Thank you.
It just varies, Lucas. We've got some higher grades in 2021 than we have in 2022. So it's not necessarily depletion. It's just we do have some variability in grades principally in North America. So 2021, we benefit from having some higher grades compared to 2020 and compared to 2022.
But most of the growth is coming from Indonesia that year, but we've also been able to offset this lower grade in 2022 with the efficiency impacts.
That's helpful. Thank you for that. And then I wanted to ask about kind of the CapEx outlook past 2021. I think you mentioned in your prepared remarks, Kathleen, that Indonesian spending should be dropping substantially. But can you elaborate what would be kind of a ballpark for the 2 major buckets with mining and then major projects beyond 2021 specifically?
Thank you.
Well, I think we've mentioned the Indonesia development capital for underground is averaging about $1,000,000,000 a year. That in 2020, it's a bit higher than that. But by 2022, it's well below that average, probably half that average and then starts to decline as we go forward. So that's when you see the capital really falling off is after 2022. We have projected very low capital for underground development.
I mean, we've obviously invested a lot in the past, but that's we're at the peak now and it's declining.
That's very helpful. I appreciate it. Thank you.
Your next question comes from the line of Matthew Korn with Goldman Sachs.
Hey, good morning, everyone. Just want to say as it's been through the year, it's been great to see the progress made at Grasberg. I appreciate the work gone into that. Couple of questions for me. Just in the near term, expectations for the Q1 reflect a pretty step back in production, step up in per pound costs.
Is that due to this being the Q1 where you're completely out of the open pit? And then second, Kathleen, I wanted to ask a little bit more on just the accounting for smelter as this comes through over the course of the year. So I'm sure the debt is going to be consolidated in the balance sheet. I expect the total 100% spending for the smelter come through on your cash flow statement. But can you help us out with some of the other pieces or the other offsets that would reflect your partner's participation there?
That would be very helpful. Thanks.
Okay. In terms of the first item, the production for the Q1, you're right about that, Matt. The main difference is the Grasberg. We don't have the open pit any longer. So that's the biggest impact on the Q1.
We also do have, some variances at Cerro Verde primarily, in our estimates for the Q1. And for South America, the Q1 is the lowest of the year based on our current mine plan. So really Q1 for all sites is low, but ramping up during the year and it's just mine planning. As usual, we'll try to produce as much as we can that fits within the overall mine plan. On the smelter, you are correct that it is consolidated.
You'll see it in our consolidated results in capital expenditures, then it will be in our consolidated debt. And what we try to do on Slide 16 is to let you understand really what the economic impact is. It'll be financed at the PTFI level. So we won't have FCX will not have cash to put in for the smelter nor will our partner. It will be financed at the PTFI level.
And so really the impact that FCX will see from an economic standpoint is the effect on dividends coming out of PTFI. And what we've shown here is really with the benefit of having the export duty phased out and that will offset essentially the debt service. So that's really the economic impact. But when you look at the financial statements, it will be in the consolidated results. But we want to focus on what the true economics are.
So Matthew, you've touched on an important part point that I think everybody understands, but just to make sure there's an understanding, our new structure with Interlum, the state owned company in Indonesia, differs from where we were with our previous partner Rio Tinto, which Rio Tinto is a joint venture interest. Now there's the entity PTFI, which has 2 shareholders Interloom 51%, FCX 49%, but it's the entity PTFI that will is building the smelter that's doing the financing at that entity level. And while DTFI FCX only owns 49% of the economics, that's close to the economic interest we had under the Rio Tinto structure. So that's why we're very happy about it. Through a shareholders agreement, FCX retains operating control over the operations.
So it's just important to understand that if there had been equity requirements of shareholders that would have been made $5,149,000 but we've concluded that the availability of this low cost bank financing is so attractive that that's the best way to finance this. And as Kathleen says, when you look through it and the fact that the export duty is going away, there's not really a lot of difference. Plus, there's going to be some impact of having an incremental major smelter in the world on global TCs and RCs, which will be beneficial to the rest of our business.
I appreciate the clarity. Thank you.
Your next question comes from the line of Matthew Murphy with Barclays.
Hi. Kathleen, I had a question on the Slide 16. If I look at 2020 operating cash flow, let's say the $2.75 per pound scenario and I compare that to your presentation from Q3, the drop looks a little more than just the byproduct assumptions. So I'm wondering, has anything else changed in the expectations? You said top line production costs would be down, but are they down less than you expected at Q3 or anything else that can explain that change?
The big differences between our last quarter's forecast and this one is we made a change in molybdenum, you noted that from $12 to $10 We also have incorporated our new mine plans and some of the studies we're doing that are expensed in our for the innovation projects. And then just some changes in timing on tax payments. So nothing really major beyond those changes and assumptions.
Okay. Thanks a lot.
Your next question comes from the line of Chris Terry with Deutsche Bank.
Hi, Richard and Kathleen. Thanks for taking my questions. 2 from me. First one just on cash flow and thinking about other ways you can reduce your net debt further. Just wondered if you could touch on working capital over the next 12 months or so.
And then also you've done a good job on the asset sales in 4Q. Just wondered if there's any other assets in the portfolio, JVs, etcetera, where you can monetize some of the rest of the portfolio that we might be missing? That's my first question. Thanks.
Yes. Thanks, Chris. And I think you saw we did complete some asset sales in the 4th quarter. And we've got some additional potential transactions that we'll continue to look at if they make sense economically, where we do have some non core assets that are not producing that potentially could be monetized for cash. So we'll continue to look at that if we can do it at a valuation that is positive for our shareholders.
We're continuing to work on reducing working capital. All of our teams and Reg's team continue to look at our supply chain and how we can gain better efficiencies of using supplies that we already have across the organization to share those resources. During the Q4, you could see we did bring down our sales concentrate and finished goods and inventory. We'll continue to try to focus on doing that. But that's an area of focus as all of us are focused on this transition period and really trying to conserve cash as much as possible.
So that as we go into the improved outlook, we can be in a position to begin returning more cash to shareholders.
Okay. Thanks for that. And then my other question just relates to CapEx as well. I know that you've gone through that on a number of the other questions. But I just wanted to touch on so the smelter totaled €3,500,000,000 in 2020.
Would we expect sort of an even split of 800 roughly for the other 3 years to go out to 2023?
We are in the process of getting final engineering done and project schedules. So we don't have at this point an exact estimate of capital cost. I would expect just based on our preliminary estimates that the capital in 2020, one would be slightly above the average you just talked about and in 2023 be slightly below. I think most of the capital will be spread between 2021 2022. But that's I think for your modeling purposes, what you have is probably pretty close.
Okay, thanks. And then just as well on the CapEx, so 2020 your guidance was 2.6 percent gone to 2.8 percent. Is that just a timing issue against 2021, 2022? Or is there something that moved there in terms of the buckets? Thanks.
Well, most of the increase, we've got $150,000,000 in our 2020 plan for this productivity initiative, which is adding £100,000,000 of copper in 2021 $200,000,000 in 2022. So when you look at the CapEx, you also have to consider how much production we're adding in the near term. So it's got a very quick payback.
Okay. That's it from me. All the best guys. Thanks.
Thank you.
Your next question comes from the line of Orest Wowkodaw with Scotiabank.
Hi, good morning. Just wanted to again return back to unit costs. I've been a bit surprised about just the upward trend that we've seen in both North America and South America. And in your guidance of, I guess, about $130 a pound for 2021, does that assume that unit costs continue kind of in North America, South America around that $1.90 to $2 mark?
We do show some slight benefit The one thing that just to keep in mind that we've been doing in recent years is increasing our mining rate, which is going to set us up for better production, more flexible production in the future. And so what you've seen in 2018, 2019 is a big increase in our mining rate from where we took it down after the market change in 2016. So we've been building back the mining rate. That's going to give us better long term value and more consistent performance as we go forward. But we're not projecting increases like we've had in recent years.
And in fact, these productivity initiatives, the volumes are coming in at lower incremental costs. So we do expect to have that trend reversed as we look into 2021.
Okay. And longer term, I mean, assuming grades only decline in the future or stay flat at best, Are we should we anticipate the North America, South America costs are going to be, I don't know, somewhere in the 180 range?
Yes. I mean, that's part of the reason we're aggressively moving on these initiatives is we are very focused on maintaining a cost position despite the fact that you have longer hauls and changes in grades over time. But, so that's really what we're focused on is how do we offset more than offset inflation and these other factors that affect not only our mines, but mines across the industry that have different profiles as they mature.
Okay. And then finally, just on the Q1 production sales guidance of £725,000,000 can you give us what the Grasberg copper is embedded in that number?
It's about 115,000,000, 120 $5,000,000 now.
Okay. So that would imply there is quite a step down in North America, South America than in Q1?
From the Q4, yes. I think I mentioned that because we also had we've got lower production in the Q1, we also had some sales timing. You recall that boosted 4th quarter sales versus the production in the Q4.
Okay. Thank you so much.
Your next question comes from the line of Chris Lefebena with Jefferies.
Hey, Richard, Kathleen. Thanks for taking my question. Just on Grasberg, the operational progress with the Block Cave and the DMLZ has been very impressive in the last few quarters. And in fact, the DMLZ, I think you're tracking well ahead of where you had expected. If you think about the well, I guess there's a lot of scale and complexity to these projects, a lot of moving parts.
But in terms of the risks now going forward, do you feel like most of the risk in those projects is largely behind us and you have very high level of confidence around the ramp up there? And what really are the key risks going forward now? I mean, the caving is working, the hydraulic fracking is working. Is it just a matter of making these things bigger and
So
So I think I did say that when you step back and look at where we were as we were looking forward for this and we've been looking forward for this ever since the mid-90s when we developed the plans for the ultimate pit design in the Grasberg pit, I mean, we were thinking about where to go. And over time, the resource just got bigger and bigger and bigger. The big issue for us was developing this infrastructure. And that is largely behind us. I mean, we've got some crushers to complete that we're constructing now, some power, looking at a mill improvement.
But the fundamental we developed some visuals. If you could see this thing, it is incredible. I mean, the sheer size of the adits and the crushers and this ore train and all of these things, that was the real big risk thing going into this. And that's essentially behind us. Now we're opening up these drawbells and propagating the cave.
And it's done in sections. And so each one of those are of a scale that's not larger than what we've done in the past in mining the DOZ, the IOWZ, DOZ and so forth. So there's ongoing things to deal with. There will be different kinds of ground conditions we have to face. But what's going to be so great about this is that we'll have flexibility in going from one of these phases to another as we deal with it.
So mining always has its risk and I don't want anyone to sit here and say that we don't. But I got to tell you the big risk associated with this underground development, in my opinion, Mark, I think you'll agree with this, right, are behind us. So it's now a question. It's more of an operating thing now. It's more of operations and that's what we've been so good at over time.
The one thing I'd add there too just the Smart Johnson is, there's nothing unique with the equipment we're adding. It's more of the same. Our manpower levels in the underground stay flat. So we've kind of transitioned people from development roles into operating roles. So from a training and recruiting standpoint, we're well positioned right now.
So as Richard said, it's more of the same. These mine areas are opening up. It's much like a pushback and an open pit. As you add pushbacks, you have more work areas. We're adding more production blocks, more cave fronts, and it just provides that room for all the additional draw belt construction.
So in Deep MLZ, still the seismicity is something we watch very closely. We the hydro fracking area, all the tools that we've applied are mitigating those quite well. We're very confident there. We're well positioned to be able to continue to do that. It's going to be one of our units of operation throughout the deep MLZ.
In GVC, it's just as Kathleen had mentioned before, it's the same ore body. The grades are trending well. Mine grades relative to what we saw it. So, yes, we believe we every month, every quarter, we're getting better positioned much of those risks, much of the challenges are behind us.
And there's another factor that as I think about it in response to your question, our labor situation right now is so much better than it has been since 2011 or 2012. I mean the teams motivate, everybody is working together, our relationships with the union is good. Our relationships with the government is much, much improved. And so there were a lot of these issues that had an impact over time in what we were doing when we had strikes and blockages and all those. So that's not part of our situation now and we don't anticipate it being part of the situation going forward.
So just a lot we just all have this great feeling about the way things are going here and it's a lot of things coming together, getting this work done, but also settling down with the government, developing good relationships with the workforce. Security situation has been good, although security in Papua continues to be a concern of the government. But in our area, security has been good. And so it's we're just moving along and it's moving in a very positive direction.
Well, congratulations on the progress. Sounds like a
good time for a site visit.
Yes. We're looking forward to it. We're looking forward to it. And I think there have been things that kept us from doing that in the past, but we're I mean nobody goes to that place and comes away from it with the same feeling. I was visiting with J.
S. In London LME Week. And even though they're out of it, he just kept talking over and over about what a fabulous operation it is and engineering accomplishments. So it's we look forward to giving you a chance to see it.
Thank you.
Your next question comes from the line of John Tumazos with John Tumazos Very Independent Research.
Thank you very much. I'm looking at the Slide 9 on Lone Star and I just want to make sure I comprehend it. There were 68 holes I guess in the upper row that averaged intercepts of 0.56 copper, were those the holes prior to 2019 And were the 28 holes that average 0.82 percent, the 2019 holes?
No, they're not divided that way, John. They're just they're shown for illustrative purposes as we got the data in. So
To show the number of holes where we have the higher grade intercepts.
So with And some of those intercepts wouldn't be inside of ultimate pits even at this point at pits that are drawn at today's copper prices, 2.50 copper prices. So they're not these are just the size of the mineral endowment there is what we're trying to show. Presumably
the high grade stuff is in pit?
We're going to see. As Richard pointed out, we're building the mineral models. We're going to float cones and do all of that analysis.
So John, we had some historical drilling there and we were able to use even before 2015. I mean, this ore body has been an exploration target for many, many years. And so we upgraded the drilling. We initially did enough to take advantage of the available facilities at Safford as it was winding down. And so the first project was how can we use these facilities at Safford.
We continue to drill And as we continue to drill, some of it is outside of that planned current production, we're finding very attractive opportunities, which we are now analyzing. And those opportunities include oxide, as Kathleen said, there's a possibility of being able to further use Safford. There may be an opportunity to do other capital investment to take advantage of that resource. And then we continue to develop the sulfide. So this is very much an unfolding story.
But as it does unfold, the exploration use continues to be very positive.
What grade does the 200,000,000 pound production plan assume?
You're going to have to look that up. Shelving through paper. We'll find that for you.
Sure. And if there are these high grade zones, are you going to build an electro winning tank house for £200,000,000 of capacity or £300,000,000 or more £1,000,000 capacity? Or will you take the pregnant solution to the old Safford Tank House or Miami or Tyrone? It sounds like some of these ores are almost like having a twin because it has twice some of the ore has twice as much copper as other ores.
That's right. And as I said, the initial project was to not build new tank houses for this project, but to use what we had available at Safford. And there's still excess capacity at Safford, which would allow us to expand the current project. The next step would be to say, do we invest in new processing facilities to match up with the resource that we're finding and then ultimately with the sulfide. So it's not going to go to Miami or any of that.
We're going to use as much as we can effectively of the existing facilities at Safford. The next step will be say, do we do some incremental investment in new facilities to take advantage of the resource. And then ultimately, and this is down the road, if we get to that sulfide, then that could be a very major project for us because and as I said, potentially be a numeracy. So that's what's exciting about this.
John, the reserve grade at Lonestar is oxide, as you probably know, is in the 0.44 average range. In the early years, we expect the leach ore to be slightly above that in the 0.5 range in the early years. And as Richard was saying, as we mine the oxide, generate cash flow off of the oxide, that really is going to increase the value of ultimate development down the road because effectively we're stripping the ore body.
Yes. And that's what's great about this, John, because of Safford being there, normally you have a big sulfide resource, you face all this, and you see this as an example of other projects being developed. You have this massive stripping cost in today's world where grades aren't as high. Stripping gets to be a big part of the cost of what you're doing here. Our stripping is creating value.
A combination of where it is near Safford and yet it is stripping and it's going expose what looks to be a massive sulfide opportunity for us for the future.
If I could ask one last one and forgive me. I read of the overture you had from another company a week or 2 ago. And clearly you're on the brink of copper recovering, new projects, getting Indonesia down, etcetera. And you don't want someone to take a shot at you just before everything turns up. Do you think it would be a good idea to do a share buyback?
Your balance sheets turned around and $1,000,000,000 or $2,000,000,000 of stock buyback might be it's nice to be complemented or flattered, but you don't want somebody trying to do a merger with you just before everything turns around?
So I do not think the time is right to do a share buyback. And John, you know how long I've worked in this industry. And the one thing that comes home to me through all the things that we at Freeport have been through over the years is life is much better with less leverage than more leverage. And we made progress with reducing our leverage. We're on the verge right now of generating substantial cash flows, which will allow us to further reduce leverage and return to being able to increasing returns to shareholders.
I believe that's the right answer for us and that's what we're going to be focused on doing.
Thank you.
Your next question comes from the line of Andreas Bokkenheuser with UBS.
Thank you very much. Just I know we're running a bit late, but just one question from me. Can you just add a little bit more color on the maintenance shutdown we saw at Grasberg in the Q4? I know you installed some overflow equipment. What was that specifically?
And how should we think about 2020? Do you have any particular equipment installation, maintenance, shutdown, processes planned sometime in the near future? That's all for me. Thank you.
Yes. This is Mark Johnson. We mentioned it in the last quarter update, the plant shutdown. We had one conveyor that in the ore flow system that was able to collect ore from the Grasberg open pit. And this same belt also collects ore from the Grasberg block cave.
We no longer needed the portion of that belt that service the pit. So we shortened that belt by about 40%, which just makes the longer term system more robust. So it was a matter of taking the tail fully of that belt and moving it to a different location. And then we also modified a bunch of the motors, the controls, so that it would be a much more modern system for this long term application at the Grasberg Block Cave. Going forward, we obviously have maintenance plans.
They're built into our production plan that's integral to our planning, looking at crushers, conveyors, mill, which we've always done. So going forward, the production plans are reflective of our maintenance plans. There's nothing significant or unique coming out. We continue to incrementally add to our infrastructure as Richard discussed, the rail systems, all those things just continue to grow,
But it's all going quite well and on plan. So stepping back, we just had this conversation with Mark, what's going to be key for us to meet these production plans. And Mark, don't let me get way out ahead of myself here, but we don't see that as mine. We see it really as being able to deliver this massive amount of ore from the mining activities to the mill facilities. And this is not I mean, we benefit by gravity here.
We are developing these mines horizontally and not vertically. And so it's not terribly complicated, but what it does require you to do is make sure you stick with these maintenance programs. And because if you don't stick with the maintenance programs, you're going to have unplanned issues and that's a lot more complicated. So throughout the whole system, there's this constant deal of planned maintenance programs and we are really our Americas team is supporting our operations out there to make sure that we have our arms around this because that's what we need to manage to ensure that the ore that we can mine and mining has got its complications, but we're real confident about that. But making sure we don't get hamstrung by the fact that we're moving this massive amount of ore and that our systems are well maintained and operated to allow us to do it.
That is very clear. Thank you very much for the clarification.
Your next question comes from the line of Jitinder Goel with Exane BNP Paribas.
Hi, good morning. Thank you for taking questions. Couple more from my side, please. Firstly, on these productivity enhancement projects, you mentioned €150,000,000 included in current year's CapEx guidance. Are you able to give a number for 2021 that's included in your current 2021 CapEx guidance?
And is that the only spend that you need to do to keep £200,000,000 of production run rate? Or would you still need to spend more beyond 2021 as well? 2nd question on Moly. You're still using $13 price for 2021 cost guidance, but you've taken your production guidance down and you're using $10 for this year. So just trying to square that you do seem to have spare capacity in the system and $13 looks like a good price.
How do I reconcile lowered volume but still using $13 for 2021 cost guidance, please? Thank you.
Yes. We don't have much capital in 2021 for the productivity initiatives. The total was $200,000,000 $150,000,000 of that is in 2020. We spent some in 2019 and we'll have some in 2021. But that is the capital.
It's mainly mining equipment and the development costs of these data models that are included in those numbers. So we do feel that and that's what we'll continue to do is to try to do this on with low capital intensity. So that's as we go forward, we'll look to see if there's other incremental projects that have a very quick payback. But at this point
We hope we'll add some. It won't be massive amounts, but we our hope is that this thing will identify areas that we can spend a little bit of capital and generate good big returns off of it because it is very high returns versus having to build new concentrators and things like that. So that's what's in our plan right now.
Yes. And then on the roll forward of the cost, we kept the Moly assumption consistent with what we had used previously. It might make sense for us to increase our primary molybdenum production, but that will be something that we'll evaluate. We've been as you've seen in the numbers, we've been cutting back the we don't want to we don't want to provide and put a surplus into the market because we have so much volume that comes from our byproduct mines. But we'll have that opportunity to look at if that's prices do improve what the moly production would be from the primary mines.
But the byproduct mines are the ones that are included in the cash unit costs that we provide.
Yes. We clearly have a capacity to add to those volumes.
Great. Thank you very much. Very clear.
Your next question comes from the line of Chris Mancini with Gabelli Funds.
Hi, everybody. Thanks for the question. On Slide 18, quickly, the $180,000,000 of annual debt service, does that include for the smelter, does that include amortization of the $3,000,000,000 loan or is it just interest? And sorry, Kathy?
It does include amortization spread out over the remaining life. So over the roughly 19, 20 years after the smelter is operational. So it assumes that it's financed over the life of the reserves. And as I mentioned, we'll likely have a shorter term financing at first, but that can be refinanced as we go forward. So it includes principal and interest.
Okay. Thanks. And do you expect any return from the actual investments? So meaning, well, like once the smelter is built, if we were to include any profitability from the smelter, can we like subtract that from the 180 in terms of what the ultimate kind of cost of the smelter is?
Well, we're showing here on the right of that chart that by building the smelter, we can phase out the export duty. Okay. So that offsets essentially this 2, we 2, we expect that once the smelter is operational, smelter cash costs generally are below $0.20 a pound. In fact, our Atlantic Copper operations were well below $0.20 a pound in 2019 compared to market rates in the $0.25 a pound range on average. So you'll have some margin depending on TCRCs.
But as Richard pointed out earlier, we also get a benefit to the rest of our operations in Cerro Verde and the Americas that with this capacity, it will likely bring down market TCRC rates and that will benefit our other operations that are paying market rates for treatment charges.
Right. Okay. So you won't accept this won't accept any third party concentrate. It'll be just from Grasberg and your costs should go down slightly, your treatment costs because right now you're shipping around half your concentrate. So the treatment cost should go down a little bit.
Correct. Right.
And is that sorry. I
was just going to say in terms of returns, our mining projects have much, much greater returns. But what the point is here is that we are going to be able to offset the capital costs and interest from the smelter and other benefits.
Right. Is that cost benefit that $160,000,000 a year of export duty reduction, is that in your guidance now?
Yes.
It is. Okay. Okay, great. Thanks a lot.
Our final question will come from the line of Oscar Cabrera with CIBC.
Thank you, operator, and good morning, everyone. Last but not least, I hope. Just concentrating two questions, one in production and the other one on CapEx. So Cerro Verde is producing about £1,000,000,000, or produces about £1,000,000,000 a year. Your throughput at 420,000 tons per day, about 60,000 tons per day higher than nameplate capacity.
So was the plan to keep production at about £1,000,000,000 or is that declining over the next 5 years?
So I think, Oscar, you're right. I mean, we're having to offset the grade decline at Cerro Verde and we are putting more through the concentrator. In 2020, we expect to be a bit below the £1,000,000,000 but return back to the £1,000,000,000 level in the years following 2020.
And when we designed the plant, it was going to come off, it would be off £1,000,000,000 by now.
Yes.
So we've been able to keep it at that level.
Yes. And that's what we hope to do with our mining initiatives and all these things is looking for I mean, we're just saying in passing 420,000.
No, it's a big deal. It is a big
deal. It's the biggest in the world. I mean, and we're really proud of it. And so it gives us opportunity to say how can we maximize the resource in ways that help us. And we're going to I mean, that's Red's everyday job.
I mean, we try to figure out how to drive the cost down, get more volume, be safe. Should have said that first, right, Red? You got it.
Yes. No, absolutely. It doesn't get lost on us. So the next question with regards to CapEx is at a higher throughput rate, do you need to expand your tailings? And do you have the permits for that and if so, what would the CapEx be?
Oscar, we're in good shape now for tailings capacity, but as we expand these reserves, we're doing tailing capacity studies, where do we put this material in the future, not only at Cerro Verde, but at all of our operations. So as Richard said, that's part of the ongoing work that we're doing all the time. How do we maximize these resources and take care of all the environmental and safety concerns at the same time.
Fair to say, Red though, at Cerro Verde, that's a planning challenge, it's not a constraint.
Fair. Very well put.
Yes. And we've got 420 in sight and permitted. Red has aspirations of going above 420 and thinks that we can do that over the longer term. And then that's what he's talking about is having some planning done around what would we need to do to move that up another increment. So it's a great resource and a great concentrator facility and we're just working on scenarios of max mass of value.
And then lastly, if I may, I think I missed this with one of the previous questions. The CapEx in Grasberg after 2021, would that return to about $1,000,000,000 a year?
It's less than that. After 2022, it's substantially less than that, Oscar. 20 22, it starts to trail off and then very low capital after that. So that's when really you can harvest the cash flows associated with this higher production.
Great. Thanks everyone for everything and congratulations on the strong performance.
Thanks, Oscar. Thank you, Oscar.
We'll now turn the call over to management for any closing remarks.
Again, thank you all for participating and we look forward to future reports and David Joint is available to follow-up with any questions you might have. Thank you.
Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.