Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan first quarter earnings 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 touchtone 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, Executive Vice President and Chief Financial Officer. Please go ahead, ma'am.
Thank you. Good morning, everyone. Welcome to the Freeport-McMoRan first quarter 2019 earnings conference call. Our results were released earlier this morning, 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, 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, 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, actual results may differ materially.
We'd like to refer everyone to the cautionary language included in our press release and presentation materials to the risk factors described in our Form 10-K and subsequent SEC filings. On the call today are Richard Adkerson, our Chief Executive Officer. Red Conger is here. Mark Johnson is on the line, Mike Kendrick is also here. I'll start by briefly summarizing our financial results, then we'll turn the call over to Richard, who will be reviewing our recent performance and outlook using the prepared slide presentation materials that are on our website. As usual, after our prepared remarks, we'll open up the call for questions. Today, FCX reported net income attributable to common stock of $31 million or $0.02 a share in the first quarter of 2019.
After adjusting for net charges of $36 million or $0.03 a share, which are detailed on page Roman numeral six of the press release, adjusted net income attributable to common stock totaled $67 million or $0.05 per share in the first quarter of 2019. Our adjusted earnings before interest, taxes, and depreciation for the first quarter totaled $778 million. A reconciliation of our adjusted EBITDA calculation is available on page 28 of our slide deck. Our sales for the first quarter totaled 784 million pounds of copper, 242,000 ounces of gold, 22 million pounds of molybdenum. As expected, our sales volumes were lower than the year-ago quarter, primarily associated with the transition at the Grasberg mine in Indonesia. Our copper and gold sales were approximately 5% lower than the January 2019 sales estimates of 825 million pounds 255,000 ounces of gold.
This reflects the weather impacts at the events that we had at El Abra during the quarter, which normal operations have now been restored, unscheduled maintenance at one of our North American sites, and the timing of some shipments from Indonesia. Our quarterly average realized price for the first quarter was $2.90 per pound. That was slightly below last year's first quarter average price of $3.11 per pound. Our gold realized price of $1,291 per ounce was slightly below last year's first quarter of $1,312 per ounce. Our consolidated average net unit cash cost net of byproduct credits was $1.78 per pound in the first quarter of 2019. As anticipated, the unit net cash costs were higher than the first quarter of 2018 average of $0.98 per pound. That primarily reflected lower sales volumes from Indonesia.
We generated operating cash flows of $534 million in the first quarter. We funded capital expenditures, including capital expenditures associated with our underground development and with the Lone Star development totaling $622 million. During March, we redeemed all of our outstanding notes due 2020. That was $1 billion in debt redemption during March. We ended the quarter with $2.8 billion in consolidated cash and $9.9 billion in consolidated debt. We had no borrowings and $3.5 billion available under our revolving credit facility. I'll now turn the call over to Richard, who will be referring to our slide presentation materials.
Good morning, everyone. The first quarter for Freeport was really straightforward. We are pleased to report that we're on track with our plans that we discussed at our last earnings call. Across the board, our business is going in a normal fashion. As a result, we haven't made any significant changes to our operational outlook. Our important initiatives that we have that we're working on these two years of transition at Grasberg, are proceeding as scheduled and as planned. This is the first quarter of those two years. As we look forward to the ramping up Grasberg to sustainable levels, it's going to be a good time for our company. As a note, we just published our new annual report. It showcases our assets, the strength and quality of our geographically diverse portfolio of mining assets, and the inherent fundamental values that these assets provide.
Going forward, looking forward, we have a very clear strategy that we're confident will build value for shareholders. The important accomplishment we achieved in recent years to strengthen our balance sheet to reach a resolution of our longstanding issues on our contract in Indonesia, providing us a clear-cut long-range opportunity to operate in a stable fashion, really position us to deliver on this commitment to build values for our shareholders. Our 2019 priorities as part of this strategy is listed on page four of the slide deck. Here at the company, we're laser-focused on executing these priorities during 2019. We are diverting any plans for major new capital investments or looking at M&A activity because we are confident that if we're successful, we believe we will be in achieving these priorities, that that's what's going to drive the future values of our company.
In Indonesia, the ramp-up of the underground mines are going well. They're proceeding on schedule. We'll cover other milestones later in the presentation. In the Americas, we're really focused now on productivity, cost control, and discipline across all of our operations. We're pleased with the success that Red Conger and his team are achieving. In that regard, our Lone Star project is on schedule. It's not a huge capital investment, but it's a profitable one. We continue really to be encouraged by exploratory drilling and analysis results for this asset, which we believe has the outlook of growing to a world-class resource. We continue to study, evaluate, and rank potential future growth projects to establish long-term value opportunities for our company. As I said, for the next couple of years, we're in the study mode as opposed to the committing capital mode.
Success on all these objectives, combined with what we expect to be a positive future copper market environment, that's a consensus across the industry, will provide values for our shareholders. Turning to page three, we list out the attributes of our company that have been consistent. Leading copper producer, responsible operator, great set of long-lived assets that can be operated at an attractive cost structure. The portfolio would be difficult for anyone to replicate. We've got significant current production volumes, which we can continue by managing our existing sets of assets. I mentioned our potential future growth options. We've got a proven track record for superior execution. Since [quarrying] got started 12 years ago, we've successfully managed major expansions of our assets when the time was right. The expansion at Cerro Verde in Peru is a prime example of that.
We also, in two phases, built a great mine in the Congo with Tenke Fungurume. We expanded Morenci. We expanded our Climax Mine. We've shown what we can do in terms of execution and building assets and in operating assets. We have a benefit for our company that's really a significant one. We operate all the mines that we have interest in, and that allows us to share expertise, to find things that work in one place and spread it across the company, and to be able to allocate resources, people, equipment, supply chain issues on a company-wide basis. With the steps we've taken over the past three years, we're now financially strong. We'll get stronger. We're positive about the outlook for the copper business and seen nothing in recent developments to change that view, we have a clear strategy of building values for the shareholders.
I previously referenced the slide on page four that talked about what we're going to be doing this year and looking into next year. Focused on the transition at Grasberg, in Americas productivity cost controls, and also in eastern Arizona, advancing the Lone Star project and assessing long-term opportunities. We're confident about what we're doing. Looking at an operations update in North America. We are making progress in this productivity cost control management. We're using advanced analytics. We started a project at our Bagdad mine as, in effect, a test case. It's been very successful. It's doing things that we always knew how to do, and we had a team to do it. What we're doing now is using data capabilities to measure things and respond to them very quickly.
You hear a lot about this across all industries, this is not anything that's different. Applying it in a business like ours is not something that people intuitively think about. We brought in McKinsey and other outside experts to work with us, really encouraged by what's happening at Bagdad. The next stop's going to be Morenci, across the board, we're going to be using this big data analytics to help make our business better, reduce our costs, improve productivity. In South America, the Cerro Verde mine continues just to excel. It's exceptional. The mill, which was originally designed to add to our 120,000 tons per day existing facility, 240,000 tons today, is operating well over nameplate, continues to have opportunities to further improve.
That has us focused on debottlenecking the rest of the business to take advantage of this processing facilities that we had. Our volumes were off in the first quarter in the Americas. The principal reason for that was at El Abra, the driest place in the world. I mean, Atacama Desert, this is at altitude. Moisture just doesn't get across the Andes to this part of the world. In the second quarter, in a week's time, in the first quarter, in a week's time, we had 10 years' worth of rain at this site. 10 years' worth of rain. It was a major flood event. We were out 35 days. The team responded very well to restore our operations, by mid-March, we're up and running again in a normal fashion. We also helped the people in the local community.
It was an extraordinary event that had a big impact. We also had a sales impact because we were pushing a turnaround at our Miami smelter in Arizona. As part of our productivity, we were trying to extend the time before we started the turnaround. I think, Red, it was 10 days or 15 days before we were going to shut down anyway. We had an event in the furnace, that knocked that smelter out for a period of time in the first quarter. You see, there's a difference between our production numbers and our sales numbers, that was because of the cut-off to the marketplace we had because of this event at the smelter. It's up and running again. All those volumes are going to be going through. It shows up in our unit cost numbers because we have lower volumes, lower sales volumes.
Otherwise, our costs were pretty much in line with what we were looking for. In Indonesia, Grasberg, we're completing the final phases of the Grasberg open pit. Our plans call for that to happen mid-year this year. We may have an opportunity to extend that. It's very high-grade material. It's an issue of where we're focused on the long-term. We're going to do this safely. The underground ramp-up is proceeding as planned. This is what's going on with us. On slide six, we have these efficiency measures that we're taking through using data innovation. I mentioned the Bagdad team that we formed across our board using our metallurgist, our operators, process control team. We've got big data experts from our organization and from the outside.
We're using this information technology to do very basic things about running the mill, making sure that we have the right grind for the right ore, dispatching in our mine operations, just bringing all the basics together, but using information technology to make us a lot better. We're really encouraged by it. The initial results at Bagdad were a 12% increase in mill throughput. We've increased recoveries, all this doing without much capital being put into it. It's very profitable. As I said, we're now taking it to Morenci, and we'll be using our information that we have across the board. If we're able to achieve, which we think we will be, a 10% increase through productivity measures, that's equivalent to adding 20 million pounds of copper a year annually with virtually no capital.
We want to continue to use technology to standardize our systems and processes and to help us achieve this kind of meaningful addition to our volumes. Lone Star is really taking shape. Those of you who follow us know this is a long-known resource that's adjacent to our Safford mine, which was just beginning production 12 years ago. Its original oxide resources are being depleted. This is right across the mountain ridge from Morenci. We are now in the phase of mining a leach oxide deposit that we will be able to process at our excess facilities at the adjacent Safford mine as that mine ramps down. This allows us to profit from this oxide cover over a major sulfide resource that we're working to understand, and it's an $850 million project. We spent just under $400 million of that by the end of the quarter.
It's got very favorable economics, and it'll give us 200 million pounds a year of copper with expansion opportunities for the oxide. We're doing that. The real exciting thing long run is this is serving as a stripping exercise over what we are seeing as a major sulfide resource, and we've shown some drill hole results that we're seeing, and we're beginning long-term plans about how we would develop that resource. It'd be a major mill investment. Literally, as we look at this, it has the potential of being another Morenci, which is the flagship mine of our operations or the industry's operations in North America. We're really excited about it. I mentioned at Cerro Verde with this outperformance by the mill that we're having. You can see with the 360,000 tons nameplate, we're operating well above that. Indications are we can continue to do that.
That means we're processing 15% more ore than originally designed, and now we're looking about how to feed the mill. How to make the movement from the mine to mill more efficient, but also how to attach the mine in a way to get more ore to it. We began this process just three years, early 2016, after a $4.5 billion-$5 billion expansion project that was completed at the end of 2015 going into 2016. We're three years into it. It's improving day by day. It's a great asset, and we're real proud of it. PT-FI underground transition. How long we've been looking for this? It's something for me. My first trip to the job site in Papua was in first quarter of 1988 when we were just drilling the original drill holes. Now we're seeing that pit being completed, major activity there.
Now going forward, by the end of the year, we'll be totally underground, with the Grasberg Block Cave, which is the same ore body extending beneath the open pit. It's got about 1 billion tons of reserves at 1% copper and 0.72 grams per ton gold on average. As we've been working in recent years on all these matters, we've been working with in Indonesia and going through all the issues there. Mark Johnson and his team has really done a great job in investing in the infrastructure to get us in place to kick this mine off as we're doing right now. We're making great progress. In the first quarter, we've been focused at the Grasberg Block Cave on expanding the cave and opening drawbells. We had 11 drawbells open by the end of the first quarter. One was blasted in December and 10 in the quarter.
We're five drawbells ahead of schedule. Undercutting of the new face in that mine is proceeding. This is really two mines in one, three faces going on in those two mines. This is ore that we've been mining now for 30 years, so it's the same ore. We know the chemistry of it. We don't expect any issues associated with processing and so forth. The adjacent mine, which is a separate mineralization feature altogether, is a Deep MLZ mine. This is the latest, deepest extension of mining in a block cave underground that Freeport began in the early 1980s. After our work in the first quarter, we're on target for development against the forecast to get this mine up to stream. It's been delayed because we encountered seismic events.
In response to that, our team, which is very experienced, and we've brought a team of global experts into play, have designed a program of using hydraulic fracking, which has been used in South America but not in our operations previously, to precondition this harder than expected rock so that we can promulgate caving in a normal fashion. To date, we've hydrofrac'd 14 holes, 9 from the DOZ truck level and 5 from the undercut level. The seismic response to this has been positive, and so we're very encouraged by it. It's working so well that we're likely to build this into an ongoing feature in mining the Deep MLZ mine. We are really taking this mine in two phases. There's a production block two, which we are opening up the cave area to the west of the current cave.
This provides a second separate working face. It'll grow the hydraulic radius faster, and we'll be in better shape. By doing this, we're now on track of meeting our targets for ramping up this to meet our original targets. All of this is going well. We've got the really significant reserves there of these two mines, and we're on track to continue to achieve what we've set out to achieve and meet our plans. On page 10, slide 10, we have the ramp-up of the underground. You can see the impact of completing mining in the open pit in 2019. Mark and his guys are looking at perhaps getting a bit more out of the pit. As I said, our focus is going to be how can we get back up to sustainable levels on our timeframe. After two years of lower volumes, we'll begin ramping up.
You can see how that works with the Grasberg Block Cave beginning this year and then basically doubling every year up to 130,000 tons a day. That'll be our primary asset going beyond 2023. The Deep MLZ mine is also ramping up, going from 27,000 tons per day in the mine in 2020 to almost 60,000, 80,000, and long term 80,000. We're on track to get this sustainable volumes coming out of these mines, feeding our mill at over 200,000 tons per day, which is a major accomplishment in terms of having large-scale underground mining, and we're on track to get it done. There's a lot of talk about copper markets. As usual, we were down in CESCO, talked with everybody down there. We have seen nothing to change our fundamental view about the positive outlook from a fundamental standpoint.
When you look at the long-term reduced percentage growth in China, but the sheer amount of copper that would be required for that economy with the mature markets, our current business in the United States has been strong over the past couple of years. We supply about a third of the downstream copper to the U.S. market from our mines in the U.S., and it's really, really tight. Longer range, you're looking at what's the emerging markets are going to require. You certainly see that in Indonesia. I've spent a lot of time in Jakarta and just watching the cranes and seeing the growth in that economy, and that's true all across Southeast Asia into Latin America, ultimately Eastern Europe and Africa. We feel very confident about the fundamentals of copper, its qualities, and its need for the world's economy.
Things that will add to it over time in terms of the growing electrification of the world, the use of alternative energy, electronics in everything we do, electric vehicles and so forth. We feel very good about the demand for copper, the project pipeline remains thin. We know as an experienced operator what it takes to develop new projects, and we also know that others in the industry are going to share our disciplined approach to what we do going forward. We believe that a significant long-term structural deficit remains in place and that our assets and their ability to address this deficit are going to create great values for our shareholder. For the year, we're looking at producing 3.3 billion pounds of copper, 800 million ounces of gold, just under 800 million ounces of gold. 800-
Thousand.
Thousand ounces of gold. Thanks, Kathleen. Just under 100 million pounds of molybdenum. Site production costs are going to be higher than the long-term sustainable amounts because of lower volumes with the Grasberg transition. Our operating cash cost, depending on the price of copper, will come close to funding our CapEx over these 2 years, and our current dividend may fall a bit short, again, depending on the price of copper. The company is financially strong and certainly has the financial flexibility to deal with that. Our details for our production coming out of the 2 years and seeing the significant increase in copper and gold sales as we ramp up the Grasberg Block Cave and the Deep MLZ will provide substantial cash flows.
That's shown on slide 14, where we show the cash flows for the transition year of 2020 and averages for the next two years. You can see at $3 copper, it goes from just over $4 billion to $7 and a half billion. If copper prices are higher, that delta gets much higher. We're set up to have a situation of really benefiting from the ramp-up on underground at Grasberg, having potentially good copper markets. We're focused on keeping a strong balance sheet. We should have opportunities to further reduce our debt in the future. We're going to be disciplined about investments. For the time being, we'll maintain our current dividend. The board's looking forward to days in the future when we can increase it, and believe that we're real well-positioned. It's been a good quarter, and we're going to be continually focused on execution.
With that, we'll open the line up for your questions and look forward to hearing them.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press star one on your touch-tone phone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. If you are using a speakerphone, please pick up your handset before pressing the numbers. One moment please for our first question. The first question comes from the line of Piyush Sood with Morgan Stanley. Your line is open.
Hey, guys. Good morning.
Good morning, Piyush.
A couple of questions. First one, the 2021 outlook on costs of $1.30. What are you assuming for export duties out of Indonesia? Do you see them falling versus the 5% level right now, or are you holding them at 5%?
Once we get to a certain level of construction progress on the smelter, they fall to zero, and so we're expecting, during that period of time, that our export duties will fall away in Indonesia.
That would mean that you probably hit the threshold, which takes these export duties down to zero. Maybe the construction on the smelter, or at least the progress on the smelter, has to start happening soon to meet that timeline?
It's already started. We had a commitment to build the smelter with our December agreements. With that agreement, we're full, as I said, I think at a conference, we're full throttle on the smelter development. We've got a site. We're working with the engineers. We've met the initial targets that the government had set. We are in progress with it right now. We didn't start it in earnest until we got the agreement with the government in December. We had done some initial prep work, but now we're full throttle into it.
We read that PT Amman, the owners of Batu Hijau, will likely go ahead with their own smelter, so they might be less inclined to partner with PT-FI. Is that something you would comment on? If that's true, would you be open to other international partners?
The answer is yes to both those questions. We have a great relationship with the Amman people. We've known them for a long time. We had discussions about doing something together, and we still may. At the present time, they've concluded they need to do something at Sumbawa. We looked at that, decided it didn't work for us. We're focused on East Gresik, and continuing to talk with them about whether they might join us there. At the present time, that's not the plan. Yes, we are talking with potential other international investors who might have an interest in the offtake.
Okay. Last one from me. The reduction in gold guidance in 2021, do you think that's largely just a rounding of the total, or is that because of some changes to mine planning?
No, that's actually just a rounding change. We had just a real slight change in gold output, which rounded from one six to one five. The same thing with the capital expenditures for this year. It was less than a $50 million change, but just because of the rounding, it rounded up.
All right. Thanks for the color, and all the best.
Thank you very much.
The next question comes from Matthew Korn with Goldman Sachs. Your line is open.
Hey, good morning, Richard. Good morning, Kathleen.
Good morning.
It's Matthew Korn here. You've given us a walk to your cost expectations for 2021. What kind of indications can you give us around 2020? Because I'm looking at your slide 14, in which you lay out the EBITDA levels indicated. I see that what you now expect for 2020, copper at $3, looks a lot like what the average last quarter for 2019 and 2020 looked like. How can we think about? The volumes aren't going to increase that much in terms of Grasberg, but should we see any substantial cost improvement that will actually flow through?
We do expect to see lower unit costs in 2020 versus 2019. Stepping down somewhat, not getting to $1.30 like we talked about for 2021, but it will step down some during 2020.
All right.
I'll just say, with having the new structural deal, with having this progress we're making on the underground advancement, Mark has been working with us, and his team's really going to be focused on cost efficiencies at Grasberg, and we think there's some opportunities there. We know there are opportunities there, and we're going to find them.
All right. Well, looking out at the PT-FI plan and looking out at the expected production level at Grasberg, it's always good to see that kind of stability. I did see some slight changes in the underground ramp for 2020. Looks like there's a little bit of decline in throughput and ton per day throughput, but it doesn't look like that's actually the MLZ. It looks like it's actually more DOZ and Big Gossan. Is there anything in particular driving that slight reduction in ore milled?
Well, we do have a program of updating all of our outlooks every quarter. You're going to see quarter by quarter, what we try to avoid is having any kind of big annual review and not reporting things there. As DOZ is a very mature mine and the Big Gossan is not a block cave mine, you're going to see some adjustments to there. DOZ, throughout its life, has had issues with wet muck, and we really kind of led the industry in developing remote control mining in response to that. They've had some issues like that. These are just normal adjustments that are typical for operations review. There's nothing fundamentally that's changed. Right. Mark Johnson is in Indonesia and is on the call. Mark, do you have anything to add to that?
Big Gossan was unchanged. We're still targeting ramping it up to 7,000 tons per day, which is the nameplate. We'll get to that in the third quarter of this year. DOZ, we had a slight reduction in what we saw based on some of our recent experience on ramping up the automation systems. We had a peak of 43,000 tons a day that we've reduced to 37. We've had some real breakthroughs there. We continue to be optimistic on how we're applying the technology into DOZ. We are being just a little bit more cautious on the out years.
Fair enough. That's very helpful. Appreciate it.
Thanks, Mark.
I'll pass it along, guys.
All right. Thanks, Matt.
The next question is from Curt Woodworth with Credit Suisse. Your line is open.
Hey, good morning, Richard, Kathleen.
Morning.
Good morning.
First question is just with regard to, I guess, the hydraulic fracking at Deep MLZ, and you talked about adding a third unit there. Could you just talk about what the, I guess, the milestones you expect to achieve there over the next several quarters? Then you mentioned starting to produce in block 2 or the second mine area, which extends the radius. I mean, is effectively that giving you more cushion in terms of hitting your production targets, or if you could just elaborate on kind of exactly how that provides confidence to the target. Thank you.
Well, it's those steps that allow us to meet this plan. What we've done is we began this process and are now seeing good positive results for it, and we're continuing. We had one issue that had some maintenance problems with it, and so we bought a new unit to bring it on stream. All of this is what goes in to enable us to meet the plan. The report today is that as we stand here, it's working as we had hoped. Now for us to achieve the plan, we have to continue having that progress day by day. We're very encouraged about it. There's not anything that I would describe as cushion, but it's what's gone in to enable us to present this plan, and that's our expectation.
We have confidence, but we recognize we're in a show me time, so we show ourselves, show the world that we can achieve this plan. The really good news is we've had a good first quarter starting this year off and doing just that. I don't know if that answers your question or if anything's in specific Mark can address.
No, that's helpful. Just second question on, I guess, how you think about sort of your resource base and portfolio where there's a lot of strategic interest and relatively high private party valuation multiples being paid for assets. Is there any potential that you see for either monetization of assets or reserves or JV arrangements that could accelerate the deleveraging targets you have?
Well, we're very comfortable with really where our balance sheet is today. You look at what's happened with our bond trading, our relationships with our banks and so forth. We don't feel any pressure to further reduce our debt. If copper prices stay reasonably strong, if they strengthen as some expect, we'll have cash available to further reduce our debt, and we'll do that. That's just a use of cash as opposed to feeling any pressure to do it. We like these resources for our own company's opportunities to create value. We have a partner at our El Abra mine. Codelco's a 49% partner at El Abra in Chile. We own 100% of a number of our properties here in the U.S. One of the great things about our company is we don't face income taxes on production in the U.S. for a very long time.
The combination of tax loss carryforward from the oil and gas deal and the new U.S. tax regime. When you think about having development opportunities with zero tax and you look internationally and you've got significant taxes wherever you look, that's a real opportunity for us. From time to time, we're approached to people about who want to do something. If it makes sense for us, we'll do it, so far we haven't reached that conclusion. We'll have an open mind, there's no pressure to do anything. We're very comfortable with our balance sheet.
Great. Thank you.
The next question is from Christopher Terry with Deutsche Bank. Your line is open.
Hi, Richard and Kathleen. A couple questions from me. Firstly, on the second quarter numbers that you've guided towards, those are down a little bit, I guess, on the update for the full Q 2018. Can you just talk through some of the moving parts on that and the slight push-out to the second half of the year? I think it's around El Abra, Grasberg, et cetera. Is it around the export delays on Grasberg? Looking for a little bit more color on the second quarter. Thanks.
Chris, it's Kathleen. In our shipping schedule, we've got some concentrate inventory build at Grasberg planned during the second quarter. Potentially, those could move into the second quarter from the third quarter. At this point in time, our shipping schedule shows that we've got some concentrate build during the quarter. It's really more of a shipment timing as opposed to anything else.
Okay. Thanks, Kathleen. In terms of the comment on the export permit, trying to increase the amount there, that would only impact things, say, early next year or in that order, right? It's not a cap on an amount that you can ship per month or anything. It's a total amount for a year, right? Can you just give some color?
It's a total amount per year. It was set based on our plan that we submitted to the government last fall, last October-November timeframe. It shows a quota that's much lower than it has been historically because we're in this transition. We actually believe that we're going to produce more than that quota this year, so we'll be going in to get a revision. That's partially why our shipping schedule is planned the way it is to give us time to get that revision. It's not a big revision we're looking for in these numbers. We do want to try to build some flexibility in there because, as Richard mentioned, Mark and the team are looking at some trade-off studies as to whether we can get more out of the open pit this year. That's something that we'll be evaluating week by week.
We do have some upside to the numbers we believe, but we'll need to get a revision to our export quota. It's an annual thing, but it was based on a plan submitted last year, now we have some opportunities to increase it.
As a practical matter, we kind of wanted to see how this analysis goes about what we might be able to achieve. The presidential election was just held in Indonesia, we didn't want to make any new filings until after that. That's part of the reasons of why we haven't acted yet to adjust the plan for the very positive news that we're having about having increased production.
Okay, thanks for that. The last one from me, you spoke about the smelter, I think, in one of the earlier questions, but what should we expect just in terms of any announcements on that in terms of financing or key developments for the Indonesian smelter? Thanks.
Right now, we are doing the front-end engineering work. We've contracted with a third party to do that study for us. We're doing some ground improvement work at the site. We are evaluating potential partner and financing plans for the smelter. We don't have a significant amount of capital to invest this year. It starts to increase next year. We'd like to be able to have some sort of financing plan in place by the end of this year. Those discussions are ongoing.
All right. Thanks, Kathleen. Thanks, Richard.
Thanks, Chris.
The next question comes from David Gagliano with BMO Capital Markets. Your line is open.
Hi. Thanks for taking my questions. I just wanted to focus in on the North American operations. Obviously, these assets have been around for quite a while. Typically, they're very predictable. This quarter, volumes came in low, costs came in high. You flagged, I think, a smelter issue in Miami, I think, and then unscheduled maintenance, maybe that's the smelter issue. You also mentioned implementing productivity targets, efficiency measures. When I look at the full-year targets, they imply about a 10% rebound during the next three quarters in volume. Long-winded question or long-winded intro to my question, which is, can you just expand a bit on what the main issues are in North America? Are we running into more challenging ore feeds, grade reconciliations, cropping up, that kind of thing? Thanks.
Yeah. None of the latter, Dave. You look at the production number versus the sales number points to the smelter issue. It was really an unexpected event, but it occurred right before we were going to have a turnaround shutdown in any event. We were down, and we just were producing things as expected, but we couldn't sell it because of this issue at the smelter. As you know, these smelters are complicated assets, and around the world you're seeing things like this. This was nothing to do. The grades are there. We're improving in operations. In 2015, 2016, we had really scaled back maintenance capital, as we talked about in earlier calls. Really stretched our team. We've rebuilt that now. We've added to volumes. North America, South America, it's really going very well. The thing you saw was that.
We did have a, it didn't have a major effect, we had some maintenance issues that we had at our Chino mine in New Mexico, which it is an older mine. You go back five years ago, we didn't think Chino would be around. Now we've done some drilling, we may have a major expansion project there in our future. Our concentrator there was down 15 days. You'll have these things all along, you see in mines. Fundamentally, our America's operations are grades. The models are holding up. The team's getting better, more efficient. That shows up in our production numbers. The sales thing was a one-off deal because of the smelter issue.
Dave.
It was down 40 days, by the way.
I will say, just going back, not just this quarter, but going back several quarters, in North America, you do see a trend of costs going up, and that really reflects the mining rate increases that we've done. Back in 2015 and 2016, we took mining rates way down, to try to maximize cash flow during a tough time in the copper market. We've been ramping back up our mining rates and milling rates, and that's had some impact on costs. As we look forward, we're really focused on bringing in efficiencies, and containing costs, and using technologies to arrest any increase in inflationary pressures, et cetera. We're really focused on this cost management, particularly in North America. We did have some diesel price increases, and that's reflected in our updated guidance. The diesel price was up 10, 12% from our plan numbers.
We've factored that into our new guidance, and we factored in some of these issues that Richard was talking about in maintenance that we experienced in the first quarter. This cost thing and productivity is really where we see being able to drive value in the U.S. because the more we can contain costs there, the larger the resources. That's why we're investing in these technologies to have lower costs, better productivity, and ultimately more value.
Okay. That's helpful. Thank you very much. Just switching gears back to Indo and the smelter. The CapEx guide, I think we've talked about this in the past. The CapEx guide in 2019 and 2020 is exclusive of funding for the smelter. Given where we are now, can you just comment a bit on what you think CapEx will be in 2019 and 2020 for the smelter Freeport's portion of the total funding?
Yeah. Well, just the nine-
Wait. One thing I want to make sure when we say Freeport, we're talking about the smelter being funded by PT-FI. Our current plans is, and you could conceive of a joint venture scenario, but we don't anticipate equity capital requirements out of FCX for the smelter. It'll be spread over a number of years as a PT-FI investment, and we're a shareholder in PT-FI, as is Inalum. That's where the funding for this will go. If it's totally debt financed, as is likely to be the case, that would result in incremental consolidated debt out of FCX . The cash requirements all would come out of PT-FI, and it's all folded into our December agreement with the government. Go ahead, Kathleen.
Yeah, I was just going to say, the spend for this year, and again, it's really ground improvement and continuing with the front-end engineering, is less than $100 million. As we get into 2020, and we don't have a specific number until the feed work is done, the front engineering is done, we're estimating somewhere in the $500 million range next year. As Richard said, we expect this to be funded out of PT-FI, or with partners. PT-FI would have a separate financing arrangement or a new project company would have a separate financing arrangement. As Richard said, we don't expect it to come from FCX.
Got it. Understood. Okay, that's helpful. Thanks very much.
Thanks, David.
The next question is from Orest Wowkodaw with Scotiabank. Your line is open.
Hi, good morning. To follow up on Grasberg, just when I look at your mine plan here over the next couple of years, the part that really jumps out at me is that massive step up in 2021, where effectively you're calling for a 300,000 ton year-over-year increase in copper production. I'm just curious how realistic you think that is and whether that kind of tonnage has ever been produced in the market from a year-over-year basis from any kind of block cave. It just seems overly aggressive to me, and trying to figure out I guess, what makes you so comfortable with that and then maybe we can go from there.
It is totally realistic. Quite frankly, we wouldn't present it in our plans. We have had experience with operating large block scale mines as we've been doing managed the pit since the early 80s. This is not just a single mine. The Grasberg Block Cave is going to have three phases to it. We've modeled all this with exactly what we have shown we could do with our DOZ mine, which was really the third phase of the development of the ore body that the Deep MLZ mine is the fourth phase, in fact. That began in the mid 1990s, when we brought in Rio Tinto that replaced a mine called the IOZ, which was depleting. Over time, we've shown what we could do. It's not a single mine.
It's large numbers in the aggregate, but it's things that we've done, and we have, in effect, three phases going forward in the Grasberg Block Cave, which I want to just go back to and say, this is the same ore that we've been mined. It's not deep under the surface like the Deep MLZ mine. This is basically doing what we've done before. The Deep MLZ mine, as I mentioned, has two phases, and by having that second phase, it's going to allow us to meet our original target of getting up to full scale production in 2021. It's the one where we've had to bring in this fracking and we're satisfied with the progress. That's the key issue for us is that having this fracking to pre-condition the rock to allow it to cave as we've planned is what we're engaged in now.
This has worked in other places. First time for us to do it at Grasberg. I would suggest, rather than thinking about this as having this one massive single mine that may lead you to think it's an aggressive expectation, is to break it apart and say, like it is five different mines that we're doing. Mark, I can assure everybody, Mark is not an overly aggressive person when it comes to numbers. Mark, why don't you add some comments to what I just said.
Yeah. I think going back to what you initially started with, Richard, is the ramp up for each of these phases, GBC really is two block caves that share one set of infrastructure. Deep MLZ, as you mentioned, we have two phases that we'll be advancing at the same time. Both of them are based on actual ramp ups that we experienced in the DOZ as we ramped it up from 20 to 58,000 tons. It's very much driven by the undercutting rate and the amount of draw points that you can develop. All of these, both the GBC and Deep MLZ as we ramp them up, are following those empirical or historical experiences that we had. We are getting more efficient at both the undercutting and the draw point development. We feel that we're well positioned to ramp them up.
The other thing when you look at the volumes is just, particularly in the Deep MLZ, as we ramp up the tons, we're really in the very sweet spot of the ore body. As we ramp up the tons in 2020 and 2021, copper grades are 1.65 to 1.7. You're seeing not only an addition of tons, but the grade of those tons are quite high. GBC also is in very good grades as we ramp up in the initial years.
Thanks, Mark.
Thank you for that. Just as a follow-up, more of an accounting question. Your environmental obligations and shutdown costs, they were $42 million this quarter. They seem to be kind of jumping around a fair amount. I am just wondering if you can give us an idea of what we should anticipate those going forward on an annual basis.
If you look at the press release, Roman numeral VI, it shows that we did have a special item that was recorded or accrual that was recorded in the first quarter for legacy costs. If you adjust for that number, the balance would be kind of a run rate. We do have from time to time, this was a legacy item where we had an indemnification from an asset that Phelps Dodge had sold years and years ago. It met the cap, and so we had to accrue for it. If you back that out, you will see that on a run rate basis, that is where it will be except for these one-off items that we cannot forecast.
Okay. Thanks so much.
This is just like our mine plans. We review all of these legacy liability issues and our reclamation activities every quarter. We have a separate team with outside experts that is involved with that. They will, like mine plans, get adjusted as new conditions come into place. I will say that going into the Phelps Dodge deal 12 years ago, that was a huge concern for us. People wanted us to do an unfriendly deal, and we decided not to until we could do some due diligence on it. Over the 12 years, we have managed those costs to be less than, in aggregate, than what we anticipated. It is a constant fight, and issues come up all the time that we have to deal with. It is a major part of our business, so it is a reasonable question for you to ask.
Thank you very much.
The next question is from Oscar Cabrera with CIBC. Your line is open.
Thank you, operator, and good morning, everyone. Richard, in your prepared remarks, I'm glad you mentioned that you're going to take a steady mode for the next two years and then deploy additional capital for your other opportunities. As you're thinking through that, where does adding value to shareholders in, whether it be a special dividend or buyback, how does that play into your thinking now?
It's a use of cash. As we look forward, with the strategy of not committing new capital now. If we have a scenario, which many people think is reasonable, where we have a good copper market two years out from now, we're ramping up production in Grasberg. You see just how much our cash flows would increase with success in that ramp up. Even if we decide to sanction a new project after that time, and I'll say after that time, any new project's gonna take a number of years to invest in. In that scenario, we would have substantial excess cash for our company as we've had in years past. We would look to further reduce our debt and then make decisions about where to set an appropriate long-term dividend.
If there's additional cash beyond that, we have paid special dividends in the past or buy stock back. It's a use of cash, Oscar, rather than having a planned strategy going into it, and it's going to be based on the circumstances that we face then.
No, sir, that's clear. Thanks very much. You piqued my interest with this additional production out of Grasberg in 2019. I was under the impression that after you depleted the open pit, that would be it. I was wondering if you can provide a scope of the increase that you could have in 2019. Does this go forward to 2020? How do you achieve that? I believe Mark referred to grades in some of the block caves.
Oscar, don't think of this as the open pit being depleted. Depleted is when you have an ore body and you've mined the whole ore body. This is the same ore body that's going down below the limits of the open pit. We worked on this in the mid-'90s to design an optimal shape of the open pit. As we make this transition, the ore is still there in the pit. It's just in the future, that ore is going to be mined in the Grasberg Block Cave. As we're pulling out of it, we have these geotechnical issues of the shape of the pit, how to be safe, how to make sure that as we wind down mining there, we're not putting anybody at risk. At the same time, we've already started promulgating the block cave in the Grasberg Block Cave.
This is a bit of a cat and mouse game. If we can get that ore out of the pit as we're starting up the Grasberg Block Cave, that's gravy. It's very high grade. We're literally mining the road ramps that come out of that pit. Mark and his guys are gonna, and we always knew this was gonna be the case at this time, they're gonna see what they can scrape out of that pit of high-grade copper and particularly gold ore. We've given you our best estimate. This would all be done, I don't think, Mark, there's any thoughts that this would extend beyond 2019, right? We're looking at potential excess in the second half of this year. Isn't that right?
That's true. It's very small scale mining. We're doing 30,000 to 35,000 tons a day in this extension of the pit. As you mentioned, we're taking the ramps that were left in the final pit that were 40 meters wide, and we were narrowing those. Those ramps are all in good grade ore. It's a relatively small scale, boutique type mining that extends the life of the pit. The one thing that we're managing, and we have excellent monitoring capabilities, is as the cave develops, at some point, we're going to see some reflection of the cave activity in the high wall of the pit. That is what will drive us away from this continued ramp removal. If it were not for the block cave underneath, we could do this conceivably into the early part of 2020.
Our best estimate is that, what we reflected in the forecast, is the ramp removal will end in June. We've got plans that if the monitoring shows that it's safe to continue, we would continue that on a month-by-month basis beyond, as long as the monitoring allows us. We don't intend to slow down the block cave development to try to maximize the potential from the pit. The value is truly in the block cave longer term. That's our focus. The open pit mining is an auxiliary opportunity during the interim.
Great, Mark Johnson. Super helpful. The last thing, if I may. In one of the notes for your 2019 operating estimates, you state here that the 2019 sales assumes Indonesian government approval of increase of PT-FI export quota. Could you provide a number for that additional scope? I think you have a permit for 180,000 tons.
What's in our plan is very close to that. We've got a little bit more in the plan today. I think it's 40,000 tons of concentrate or something. It's not a huge amount. We do want to get some flexibility for these things that Mark Johnson is referring to. Just to meet our existing plan, it's not a significant number.
Thanks very much, everyone. Good luck.
Thank you.
The next question is from John Tumazos with John Tumazos Very Independent Research. Your line is open.
Thank you very much. If I could impose with two questions. First, it's very exciting, Richard, when you say Lone Star could be Morenci, and I know you're not going to wait 100 years to drill it out. The first question is, do you think that defining Lone Star and the sulfides is a 10-year, $300 million project or a five-year, $100 million project or faster in terms of firming up that 50 billion-70 billion pounds? Second question, and forgive me for thinking outside the box a little bit. I remember when Freeport sold everything to just be Grasberg because Grasberg looked so good back 25, 30 years ago. This isn't a good time to sell everything and just be Lone Star because the market's afraid of a gazillion things that wouldn't give you a good price if you sold a mine.
Why not distribute Lone Star to shareholders or Safford to shareholders and have two pieces of paper where Safford is 100% owned in Arizona? You probably could have a smart tax guy figure out how to preserve the tax shields that wouldn't pay taxes. Lone Star alone might command over $5 billion of your market cap of $20 billion, and based on the questions people are asking you, they don't understand your company today.
Yeah.
Excuse me for throwing all that at you, Richard.
John, you never.
Morenci's real good.
We worked 30 years together, the last thing I would do is expect you not to think out of the box. I appreciate your question, and I understand your thought about it. Let me see.
How long does it take to drill it out?
Yeah. We are drilling it out. We have been drilling it out, we've upped our budget for drilling this past year. We're spending about $8 million a quarter. We're directing resources there away from some other greenfield efforts that we had and other things, we expect that we will have a good understanding of this ore body by early next year. It's a question of drilling it out, developing high-level models of what the resource, going through that whole process that you're so familiar with.
Test work.
Doing metallurgical test work to see what's there. And so far, you see the grades, you see what we're seeing so far, it just keeps expanding in terms of its breadth and depth, that's why we see it. It's right there in the backyard of our total operations. I don't think it makes sense to take Lone Star itself out. We'll take on board this whole idea, there's just these huge benefits of having this Americas operations as a single business. As I look what other companies go through in terms of dealing with joint venture operations and issues related to safety and all the things that go into it, I don't guess I should expect, I don't expect people, just from a pure investment logic standpoint, to understand just what a massive synergy that is for our company and what it is.
We're going to, as I said, focus on doing what we're doing the next two years. There'll be strategic opportunities for us to look at in the long run, but not now. We still, you hear from the question, skepticism about our ability to upgrade. We're very confident, but I appreciate we're in a show-me mode. We need to get Grasberg in a position of where it's once again like it was when you said, I still remember George Putnam died this past quarter. He was our director when I first joined the company in 1989, that when we first saw what Grasberg was, we were making decisions that you said, do we focus on that? We did. We shut down everything, sold all these assets. That was a good year in my jobs when we first joined the company.
I was the first three or four years, we were selling assets all over the world. George said, "Play the cards that's dealt to you." He said that at one of my first Freeport board members, that was Grasberg was dealt to us. We made decision. This was a company that five or six years earlier, had passed on Escondida and let Rio Tinto buy it because of political risk in Chile. Anyway, Kathleen's telling me to go on. Those are all war stories. We understand what you're saying. We're going to have broad mind about what we do with this company. For two years, we're going to have a focused mind. We're going to do what we just laid out we're doing.
John, I know you know this, as we're doing the oxide projects, that really improves the value of the underlying sulfide resource. We've got this great opportunity not only for the first initial project that we're completing next year, but additional expansion opportunities of the oxide, those are NPV positive projects, then just make the sulfides more valuable. We're really excited about the resource there. Again, that could be a cornerstone asset for this company for years to come.
Thank you.
I'll throw out a commercial if you have any interest in the history of what's happened to Freeport and where we've gotten to. I'm speaking to the Melbourne Mining Club in London at its meeting on June the 20th. We're going to have a full discussion of how we got to where we are.
Thanks. Next question, please.
The next question comes from Andreas Buchmüller. Your line is open.
Let's move on. Maybe we can come back to that one.
The next question is from Chris Mancini with Gabelli & Company. Your line is open.
Hi, everybody. Just quick on Lone Star again. The concept is that you don't necessarily have to strip all of the, or mine all of the oxides before you get to the sulfides.
Yes, we do.
Okay. Would that be like
It's just like overburden.
Just like Cerrejón.
Right. Okay.
Like Cerrejón was. Like all these other mines that other companies in the industry, too, they got to move overburden to get to the ore. It's just fortunate this overburden.
Leachable.
Leachable. It's profitable.
Is it 200 million pounds a year, and then you have, is it 5.6 billion pounds of oxide ore? Wouldn't that be a really long time before you get to the sulfides?
It's expanding. It's expanding, yeah. We could make investments in facilities to shorten the life of the oxide ore. Right now, it's designed to use the facilities at Safford, which are available. As we go through this process of understanding the sulfide ore, we're also understanding more about the oxide ore. What we could do is, scenario here, what's the scenario? If the oxide ore does expand, build some new facilities, mine it out quicker, shorten its life, get to the sulfide earlier.
Okay. The concept would be what we would likely see would be first an expansion of oxide production at Lone Star, then you'd be defining the sulfides and just show us instead of, say, 200 million pounds a year for 20 years, it could be you could show us 500 million pounds for 20 years or something like that, which includes the sulfides.
500 million pounds for a shorter period of time. During that time, you could then invest in the sulfide infrastructure and so forth at the same time.
Right.
It'd be a concerted project because this would be a major sulfide mine in, how long Cerro Verde take us, Red, to From start of permitting, seven years, eight. Seven years. All of this fits together.
Right. Okay. the first step would be, we would see an expansion of the sulfides and the capital needed for that.
Essentially the oxide
bigger fleet. Right.
Right.
Sorry. Right. Expansion of the oxide. Okay, got it. Okay, thanks. Then quickly, just on El Abra. What are you
All I'll say is.
Sure
Think about a company with that kind of core asset.
Yeah.
Here we've got Morenci, Cerro Verde, Grasberg. There are not mines like this. You look at the biggest mines in the world. Now, people have got things going on now that are different, but top 10, 12 mines in the world, Grasberg's the youngest.
Yeah.
To be able to take a company like ours and plug in that kind of asset in that neighborhood with that kind of ore, with what we're good at, that's a huge deal.
I agree. It's low tax, I mean, no taxes, like you said.
No taxes. You know what's paying off? 40s plus % taxes in Indonesia and-
Yeah
damn near that much in Chile.
Yeah.
Zero tax. That's a lot of that.
Yeah. As you expand the oxides, you should be able to get benefits from economies of scale, at Lone Star, so the unit cost should decline. Yeah, that's a huge-
By the way, there's a big sulfide deposit under Safford.
Right. Okay, great. That's, yeah.
All that comes in, it's a district. This is not just I don't know. It's exciting. I know people are worried about China and this two-year transition, you take a longer-term view of this company, we really have some great assets.
Yeah. Fantastic. Okay, great. On the El Abra expansion, what are you waiting for there in terms of committing to doing that? Do you need to do more engineering or is it an issue with your partner, Codelco, needing to-
We're doing some value engineering to try to bring the capital cost down, and at the same time, moving the studies along for the U.S. projects. What we're wanting to do at the end of the day is compare the economics and pluses and minuses of the various projects and rank them and sequence them. We're aligned with our partner and are taking this time really to try to improve the economics while we look at these other options in the U.S., where we are doing work to try to develop concentrating facilities at a lower capital intensity than what's been done historically. We're taking this time to improve economics, reduce capital intensity, and drive values while we're ramping up Grasberg and watching this market situation.
Okay, great. Thanks a lot.
Thank you, Chris.
The next question comes from Michael Dudas with Vertical Research Partners. Your line is open.
Richard, Kathleen, thanks for squeezing me in. Just one question. As you think about Freeport and looking at investment going forward and looking at the industry and what you talked about out in Chile a couple of weeks ago, if Freeport was two years out in 2021 and Grasberg was humming and everything was doing well, would you be changing how you think about capital allocation and investment in the business, given where copper is at $2.85, $2.90 today? Do you think others in the industry are going to be still rather cautious in bringing up and making final investment decisions on these expansion projects? Do you sense there's going to be an acceleration because of this perceived gap that everybody's pointing towards five, 10 years from now?
I can see a range of scenarios within what you just said. You start out with a base of saying, despite we've seen This time last year, everything was rosy. It changed in the summer with the trade war stuff, then everybody started raising questions about China. Now China has taken steps to use its tremendous financial resources to stimulate its economy to offset the weakening consumer export business. They're investing in infrastructure in the country. They're revamping the One Belt, One Road thing, and that's good for resources. There's all these questions about what's going on globally, economically. The political situation's complicated everywhere around the world. Everybody's stepping back and thinking about, well, how's that going to unfold?
You've got, I guess I've lived through maybe three generations of CEOs in this industry, and you've got history of companies that have been under burden of making bad investment decisions or strategic decisions. You got a structure of where boards and managements are understandably conservative about what they're going to do. That's all going to be good for the outlook for the commodity. Then just the resources are very limited. I really think this two years from now, where we're going to be. I'm really looking forward to being there. I'm happy to be where I am now, but two years from now, I think it's going to be even better. We're going to be in a position of generating a lot of cash. I'd love to return cash to shareholders.
That was a lot of fun, get back to that as we look for chances to invest. It's kind of like history repeating itself. That's where we were beginning 2010, going into 2011. I think it's going to be a time of generating cash, really getting the balance sheet strong. I was happy with 0 debt. Be real disciplined about it, the way we would approach to allocating capital. We got some great projects. There's trade-offs that build in a lot of factors. It's not just looking at the resource and the grades, but the required capital, the tax structure, the energy cost features, and then the water accessibility and cost. All those things will come into play.
I think where you see we'll be in a scenario with reasonable commodity markets, success and execution in the last two years of generating cash, reducing debt, returning cash to shareholders, disciplined growth.
Appreciate your observations, Richard. Thank you.
Our last question comes from Lucas Pipes with B. Riley FBR .
Good afternoon, everyone. Matt Key here, asking a question for Lucas. There's been some reports about two landslides during the quarter. I wanted to ask you if you'd maybe be able to provide a little bit more background on that. Thank you.
Well, we haven't had a land-- Well, let's see.
He's talking about the thing about the mill.
The mill.
Mark-
Well, let me set the stage, then Mark's here to talk about it. We had a real tragic accident in our ore flow delivery system at Grasberg. This was a real heartbreaker for all of us because as part of that system, we've had ore passes that we've used now for over 20 years, where the ore is mined, crushed, conveyed to ore passes at the Grasberg mine operations level. It goes through these ore passes 600 feet, where it's dropped and to the mill-
600 meters.
600 meters. Sorry, Mark. 600 meters to where it's dropped at the mill level. We've had a series of these ore passes over the years. They've operated very well generally. We had an accident of where some ore got hung up in one of the ore passes. Two of our workers were in an unfortunate position, we're trying to examine why they were where they were. Efforts were made to free this ore. It broke loose and covered these guys, they perished. Here we are with a system that literally maybe two months from now would've been retired. We hadn't had any accidents like it's really a sad situation. That's one case which you may be describing as a landfall, that was an issue with our ore pass system.
In the area that's above our mill, we did have some landfall events. This has always been an area of concern. You may have seen pictures of it, but this is a massive industrial development done in a challenging place with high elevation around it. Heavy rainfall and severe elevations. Over the years, we've had a couple of cases of where we've had ground give way, particularly in times when it rains and dries out. This happens all around the island. It's not just where we are. We've had a couple of events that have occurred recently there. No one's got hurt. Hasn't been major impact of damage to our equipment. We've had to do some cleanup, but this is things we've encountered in the past and sort of, kind of part of what we have to deal with being physically where we are.
We haven't had anything else, Red, have we? Mark, do you have anything to add to that or?
No. The one above the mill, it was just as you said, we're in this very deep, steep valley. The mill facilities are tucked at the bottom of it. We had a natural event. It was about 900 meters above our north south mill. A very small amount of material, but it came down unexpectedly. It's very difficult to predict these natural events. It came down. We were fortunate that it buried a road near our stockpile. We've been continuing to manage that over the last month or so. It hasn't shown any activity. We built some barriers around any of the areas that we have people working below and continue to assess the situation.
Yep. Mark makes a good point. It was a natural event unrelated to mining. That mill has been there since 1972. It's been expanded massively over time. I don't know if it still is, but back when I was managing insurance, it was the largest single-site insurance risk. We haven't had any major, with operations now for 40 years, we haven't had a major catastrophic event in any fashion there, and this certainly is far from that.
Got it. Thank you. Thank you for that detailed response. Just one more for me if I could squeeze it in. We've seen a lot of large M&A take place this year in the mining space, albeit on the precious side, with one included an unsolicited offer. Do you view-
You're calling gold precious?
Yeah. Do you have a view on M&A kind of in base metals and would you consider an additional defenses given your current valuation in the market? Thank you.
M&A's coming, in the base metals business. Companies are large, with great balance sheets. Every company's got its own story, so there's issues that might be barriers to it. When you have a situation of limited resources and great assets and scarcity of assets, I think it's just inevitable that things will happen. Defenses, we don't have any extraordinary defenses. We're going to take actions to make sure our shareholders are well-represented. We don't think now is the time to consider things like that. I will tell you my judgment is, it's not likely to be an immediate issue because of the circumstances of the industry. The facts are, is you can't predict M&A. I mean, we're a great example of that. We were a company that had very limited access to capital and then Phelps Dodge presented itself, and things happened.
It's going to be driven more by circumstances and opportunities and not something that you can totally plan for.
Got it. Thank you for that color and best of luck moving forward.
Thank you very much. I appreciate that. Appreciate everybody's being on the call and we look forward to reporting you on our progress as we go forward into the rest of this year. Thanks, everybody.
Thank you.
Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.