Hi. Good morning, everyone, and welcome to Citi's twenty twenty one basic materials conference. I'm Alex Hacking, our US metals and mining analyst. Very happy to be joined this morning by Kathleen Quirk, who is the president and the CFO of Freeport. I'm sure you all know, but Freeport is the largest private copper company in the world.
Mine's in, you know, US, South America, Indonesia. So thanks for joining us this morning, Kathleen. So I mean, I'll start with a sort of very broad questionstatement. Is this sort of the best moment for Freeport in the last ten years, given the combination of the copper outlook, the successful ramp up of Grasberg and the the strength of the balance sheet.
Yeah. Well, it's clearly a great time, Alex, for Freeport, and and and thanks for hosting this conference, by the way. But, we're in this a terrific position, as you referenced, with the copper market. It was a leading producer of copper with very significant reserves and production capacity of a very great pipeline for future growth embedded in the company. We've done a a terrific job over the last several years in executing our plan.
It's all been all about execution for us, and we've proven our resilience. We faced ups and downs, but we're really in a in a great position as we enter, close out 2021 and enter 2022. You referenced the balance sheet. We've made incredible progress with the with the balance sheet Now in a position where we're returning substantial cash flows to shareholders. You referenced the Grasberg Underground ramp up.
Just credit goes out to our team there. We've been planning that for for fifteen, twenty years or more, and they've just executed masterfully through this, through the pandemic. And we're now producing very large steel production at very low cost there. And and our team throughout the throughout the globe has done really, really well in managing costs in a in a difficult environment, bringing back production after the pandemic, and keeping everybody safe. So really good.
And while these are great times for Freeport currently, we really do believe our best years are ahead. And you referenced the, the copper markets. You know, fundamentally, we believe copper is very, very well placed. We've got a situation where we're entering a new era of copper demand, which includes the, the massive amounts of of copper that's used in decarbonization, and that transition is really just starting. So we've got really strong growth in in demand expectations and globally limitations on supply, and I'm sure we'll get more into that that that situation.
But, really, really pleased with where Freeport is and and our strategy of being foremost in copper.
Okay. Thanks thanks, Kathleen. And I guess, more specifically on the copper price, how how do you see the copper price heading heading into next year? I think investors have some concerns around what's happened in the Chinese property market, we can see that inventory is still very, very low. So maybe just your thoughts on copper for next year.
Thank you.
Yeah. And I think you just hit it. You know, we're we're in a situation now where inventories are at multiyear lows and and multi decade lows in in in some areas. And you've seen growth GDP growth come back from from the pandemic. But as I mentioned, you know, we're really just getting started on this decarbonization.
And the the adoption of electric vehicles continues to expand. We see that as a as a big growth market for for copper, and then just ongoing growth in the economies as we recover from the pandemic. The neat thing about where we sit right now in copper markets is over the last ten or fifteen years, most of the growth has come from China. And, as we look forward, we see demand growth being much broader based, you know, coming from all over the world. The decarbonization is going on globally.
So really, in in a as we look forward seeing broad based, global demand growth and limitations on supply. There are some projects that are in the pipeline, that are coming online. You know, Grasberg has been ramping up. There are some projects in in in Chile, Peru, in the DRC. But as you look forward, there's really not enough copper supply in the pipeline.
And as you know, Alex, you know, it takes five, ten years and sometimes longer to bring on new supplies. So we're really in a in a in a great position fundamentally for copper. Of course, there'll be ups and downs associated with people's concerns about what's going on in China's properties sector or or or whatever might be the headline. But really underlying that is you look at the physical markets, the fundamentals of the market, and copper is really well positioned as we go into next year.
Thanks. And I guess does Freeport have any view on how many tons are we gonna need over the next or how many new tons are we gonna need over the next, you know, five five to ten years?
Yeah. Well, there are a lot of estimates out there, and and all the the common theme is a lot more. Mhmm. You know, I think, you know, consensus around something on the order of 5,000,000 tons of of copper demand over the next ten years is gonna be needed or copper supply is gonna be needed. And Citi has talked about this call on on on scrap.
But there is substantial amount of copper demand associated with the decarbonization. You know, I think you guys estimate, you know, 70% of the growth in copper demand is coming from decarbonization. And if you think about 5,000,000 tons of copper, that's sizable. You know, that's that's you look to look at the top 10 mines, producing mines, and you'd need, you know, to to have that much more production coming in, which really is diff very, very difficult to see that happening. So they're gonna have to be other things.
They're gonna we're gonna have to be, you know, very innovative, and that's Freeport's working on that. We're working to get more out of the assets that we have, working on, you know, leach recoveries. We're working on debottlenecking, everything that we can do to, to to improve supply. But big major projects, are are very, very challenging in this environment, take years, and there's really a limitation of what's in the pipeline.
Okay. Thanks. Yeah. 500,000 building one five hundred thousand ton a year mine a year is not or two two hundred and fifty thousand ton a year mines a year is not an easy task. I guess turning a little bit to the company.
Could you maybe give us an update on how the underground is coming at Grasberg and the expectations for next year? And is that project fully derisked at this point in your view, or is there still some lingering operational risk?
Well, as I mentioned, the team has just done an incredible job in ramping up the the production. The execution has been extremely positive as we've gone through 2020. As you remember, we stopped mining from the surface in at the 2019, and so we were ramping up the underground, in the midst of the pandemic. And if you've seen the results each quarter, we've, we've we've built that production profile. And as each quarter has gone by, we have, derisked the project in a in a significant way.
There'll always be risk in mining. I I think you you understand that, Alex, and, underground mining has its own, you know, its own characteristics. But the major risk the major risk that we faced in in ramping up these these very large scale mines that, you know, really have not done at this scale globally, are behind us. And, as we go forward, you know, we're gonna continue to execute. We've got, a new a new SAG mill that we're putting in in 2023 time frame.
And so during 2022, we'll be in pretty much steady state as to, as to the the the the ore throughput rates of where we were at the end of the third quarter. But that's, you know, very significant amount of metal that we're producing. But the team's done an outstanding job in in planning, and that's that's been a big part of this. As I mentioned, we've been planning for this since the mid nineties. They actually started investing in the underground, infrastructure in 02/2003.
So it's a long lead time project. It was planned exceptionally well, and it's being executed in a in an outstanding fashion. So while we we, you know, we understand this risk and and and we try to plan and mitigate risk, you know, we'll face challenges. But we've got a great team great team out there, supported by a great technical team at our headquarters. And, we feel very good, and the government feels very good about how we've executed to date and the outlook as we go forward.
Thanks. And I guess could you just maybe touch on a little bit the relationship with the local partners and the government? It seems like everything is very positive at the moment. You know, you you worked through the some of the challenges over the past few years.
Yeah. Well, this this, agreement that we reached with the government at the 2018, to extend our operating rights and and restructure the the ownership when the government bought Rio Tinto's interest, has gone extremely well. What's really been positive about the new arrangement is this very strong alignment, between FCX and the government of Indonesia. The government now owns 51% of the, of the of of of of PTFI of of subsidiary, and, FCX, controls the operation through a through a management committee, operating committee. And and it's been just really, really good.
We've had great have great, rapport, great cooperation between the parties. The team at PT FI is focused on maximizing the value of, the interest of PT FI, and and we've we're just operating according to our agreement. It took many years, as you know, to to get to an agreement, but we really put together an agreement that's a win win, for for the investors and for the people of Indonesia. And it's and it's it's being executed, very well. We just, the president just came attended the inauguration ceremony for the smelter, and we just started groundbreaking there.
And that was one of our commitments associated with our agreement in 2018. But the the the the the partnership is very strong. I would say our relationship with the government of Indonesia is stronger than it's ever been, and it gets back to this alignment of interest.
Okay. Thanks. And then turning to South America, I think most of the headlines recently have been around political noise. So I guess starting with Peru, I guess any comments around how you're viewing Peru under the new regime, the potential there for higher taxation? Thanks.
Yeah. Well, we operate, one of
the
largest concentrators in the world, at our mine in Cerro Verde and located it in in Arequipa, which is the second largest city in Peru. And we've had a long history of successful operations there. One of the things that we've done over the years over many years in Peru is really strengthen partnerships with the local community. And in many cases, we've done that, you know, voluntarily. And, and that's one of the things that's really helped us in Peru is to have a strong partnership with the local community.
We've made significant investments in the in the local community. As as you probably know, when we did our expansion in 2015, we put in a water treatment facility that is providing clean water to to to the city, which is a which is a great asset for that community. And so we haven't had the types of issues from a from a social standpoint that some other mining companies have had in in Peru that are operating in different areas. We'll have our challenges. We we know and they'll be, you know, they'll be aspirations that the community has and we'll have to find balances.
But we've really focused our political risk mitigation there on partnering with the local community, and that's that's proven to to to serve us well. In terms of the the new administration there, we're we're we're listening. We don't have any, expected changes to our taxation at this point in time. We wanna find ways to support, the agenda of the of the administration to the extent that we can we and others in the mining industry can support education in Peru and and help bringing bringing more education across the country. But we're just right now, just in execution mode and and and and listening to the aspirations and trying to figure out how we can be responsive to those.
But at this point in time, we have a stability agreement, in in Peru. There's no indication that the government, will want to change that at this point. But, you know, as we operate all over the world, we have to be in, you know, an integral part of that of that that discussion, and we have to operate in any, you know, political environment. So, we're a good corporate citizen there. The the jobs that we provide in in Peru are very significant.
We talk about copper prices, and and copper prices really benefit, our workers there. There's a profit sharing mechanism that they benefit from. So it's, it's it's a good situation. Of course, we're watching all the headlines. But in terms of our operations there, it's it's it's we think it continues to go very well.
Okay. Thanks. And then I guess just on on Chile with with El Abra, any views there on how the on how the tax situation is is gonna evolve? I know there's a lot of a lot of moving parts. Yeah.
But any thoughts? Thank you.
Yeah. There are a lot of moving parts there. You know, El unlike Cerro Verde, which is a significant part of our overall asset base and and and cash flow currently. El currently is relatively small to relative to the size of of FCX, but we do have a very attractive investment opportunity at El Abra that we have been planning for for some time now. We're continuing to to follow what's going on there, to follow the the the the constitutional process, the the discussion going on about the about the royalties there, and also, you know, following the election process.
As as you know, the the Chile copper and Chile are are are partners, where copper's, you know, production from Chile is, like, 25% of the global copper supply. So it's an important, part of the overall Chilean economy. I do believe that, there will be a resolution that will be workable between the government and the copper miners, which provide, you know, substantial substantial financial benefits to the to the country and have for some time now. We're watching the situation. We're monitoring it.
We're not making any big investment commitment to that project. Currently, we're keeping it warm in terms of making plans, but, but we're gonna wait and see. I think there'll be some more clarity as we look into 2022, and and and we'll be able to make a decision from that point. But I do believe that Chile will continue to be an important supplier of global copper as we as we go forward.
Okay. Thanks. Yeah. I mean, I guess the the El Alba project is a is a is a case study on what, you know, Chile on the potential impact of taxes in Chile. And then just on The U.
S. Side, could you maybe give us an update on the ramp up of the Lone Star project? Thanks.
Yeah. Well, Lone Star, located in Eastern Arizona, is our newest mine. We brought it online in 2020. It is near the Morenci Mine, which is the largest mine in North America. And we're real excited about Lone Star.
You know, when you look at the potential there, we've identified resource potential of of 50,000,000,000 pounds of copper, which is, like, 10 times what the current reserve is. So the future prospects are are are very favorable for development at Lone Star over time. We brought on the mine, initially producing from the the oxide cap. The the big sulfide the the big potential is underneath the oxide cap. But we brought that online.
It was originally designed to produce £200,000,000 a year. We're currently in the £250,000,000 a year range. And, you know, so it's operating 25% above its its design capacity. We've got a further increment that we're evaluating fairly low capital intensity to to get to £300,000,000 a year. And what that does is allows us to make profitable investments to increase the current capacity, but it also involves increasing the mining rates so that we can access the, the longer term opportunity more quickly.
It still takes time, you know, probably to get to the major project there. We're probably ten years out. But we do see we do see a real opportunity there for Lone Star to be a large producing asset in The US. You know, you've seen many companies in the mining industry have trouble getting permits or trust from the communities in in operating in The US. Freeport has a really strong franchise in The US and and trust in the communities.
This is an established mining area where we do have community support. So it's, it's got all the right the right characteristics. It's it's relatively low grade when you look at a project in The DRC or or, or or another place like our mine in Indonesia. But but the risks are are substantially lower, and we see this mine potentially becoming a cornerstone asset for us in in The US where we have, you know, an established position and and and a and a great operating franchise. Elsewhere in The US, we are we are looking at our Baghdad mine in Northwestern Arizona.
We're looking to potentially double the capacity there. We're in the feasibility part of that planning. And so a year from now or so, we'll be in a position where we we don't subject to there being a fatal flaw, which we don't expect anything, you know, we expect to green light green light that project, and that'll essentially, you know, double the production there. It's a very long reserve life, currently over eighty years, so we'll be bringing that value forward. The other real exciting thing that we have going on in in The US and in South America, but but we're focused mainly on on The US right now, is this leaching opportunity where we are, you know, basically, we've got and you've seen in our slide, we have 38,000,000,000 pounds of material that's already been mined.
It's sitting in stockpiles, so it has a very low carbon footprint from here. And what we're working to do is trying to find ways to recover a portion of that material. It's not in our reserves. We don't have anything in our plans of significance to to to to recover that material, but we're making a lot of progress. We're encouraged by, the work we're doing on the on the we're and we're using new technologies.
We're using a lot of data analytics and and and we got a variety of of technologies that we're looking at to to get a portion of that that that copper recovered. And that copper, if we're successful in cracking the code, which we're we're really excited about about doing, is gonna come with low capital intensity, as I said, a low carbon footprint, low incremental operating costs. So there's a lot of value, particularly for a company like Freeport that has a significant amount of material that's already in stockpiles that that's not recoverable today with with historic technologies.
Okay. Thanks. And I guess just following up on that leaching point then. There's a private company, I won't use their name, but says they have very, very promising technology on that front. And I assume that that technology is proprietary to them and they're gonna patent it and everything.
Are are you working with them, or, you know, are you working on on your own technology, and is that proprietary?
Yeah. Well, we're working with third parties Mhmm. As well as our own our own initiatives. And, you know, as we've been talking about, the the supply of copper is very limited. And, we're gonna have as an industry, we're gonna have to find ways to recover more from copper that we already have.
And technology, you know, Freeport's really leaned into technology, to to improve recoveries in our concentrator, to improve throughput rates in our concentrators. Now we're really moving to to these leach technologies. And there's a real opportunity here for you know, when you do a, when you process through leaching, the costs are attractive, but the recoveries per pound are, much lower than you would get under a a concentrating operation. So our objective is even if we find ways to improve recoveries by 10 or 20%, that's really meaningful. That's really meaningful to even a company like Freeport.
It wouldn't come out all at once. It would happen over time. But, potentially, it would be like us having a new mine with very low capital costs and and and operating costs. So to answer the question, we're we're working with with third parties. There there are multiple parties that are that are that are engaged in this, but we're also, pursuing our own technologies because, you know, we've got all the data.
We've got all the knowledge of these these or characteristics, and we've been really focused on data analytics that help us understand the cause and effect of of of this leach processing technology. And so we're that's that's something you'll be hearing us talk more about as we get into 2022 and beyond that would potentially add some incremental production as we as we go forward.
Thanks. And then you also mentioned the the the Baghdad expansion earlier. So if we think about the project portfolio or investments, you already approved Kuching Liar that's going to be going on in Indonesia. Should we think about Baghdad expansion being likely the first investment, El Abra sulfides potentially following that if the situation in Chile remains positive as we expect, and then sort of the Lone Star Sulfides project coming after that?
Yeah. I think that
k.
Yeah. And we'll have with respect to Lone Star, we'll have probably an increment, you know, not a major project, but an increment, that'll probably come in before Baghdad comes in. Mhmm. But you sequenced that that that pretty much correctly. You know, we're we're we're we've got Baghdad, which is which is a pretty straightforward project, El Abra, which is pending as we evaluate the situation in Chile, and then the longer term Lone Star opportunity.
I guess and then how how about m and a? It feels like for the last ten years, I've been reading nothing but media reports about Freeport maybe being the target of M and A. But with your share price where it is, it seems like maybe there could be opportunities for Freeport to be buying today. Or are you just are you focused on the organic portfolio?
We're really focused on the organic portfolio. We are you know, we keep up with what's available in the market, but we always come back to how does that compare to what's in our portfolio. And we're really fortunate as Freeport to have, opportunities organically that we can do over time. It doesn't, you know, it doesn't happen all at once, but but we can we can compare those opportunities to, to what's available externally. And, you know, as you know, with what the outlook is for copper, you know, there really aren't a lot of companies out there that want to, you know, want to allow quality copper assets to to be sold.
But we we follow the market, but it's not really our our base case is execution of our existing asset base, which is substantial.
Okay. On the cost side, it's obviously very topical. Every CFO I talk to says cost of everything is going up. How are you thinking about the cost pressure heading into 2022? It seems like a lot of mining companies are talking about maybe 5% to 10% cost pressure or something like that, which a lot of it is well, some of it is also price related royalties and things like that.
How how are you how are you anticipating the the cost pressure or seeing the cost pressure today?
Yeah. Most of the cost pressures that we have faced, we faced earlier this year with with, the increase significant increase in energy prices.
Mhmm.
And that drives some other commodity based input costs as well. So energy's been the the biggest one. Recently, we've seen increases in other, you know, commodities that we use in our business like sulfuric acid, ammonium nitrate that we use for for our for our blasting and and mining processes. But the team has really done a good job from a supply chain standpoint in partnering, and this is it goes back a number of years, but partnering with our suppliers. You know, Freeport, because we manage all of the mines that we have interest in, we're able to have, you know, a lot of operating stress in terms of purchasing power and that sort of thing.
And and so we communicate regularly with our suppliers, and so we haven't had the issue of being able to get supplies. But you're right. The cost hasn't increased. We've been, you know, doing our best to to to manage that situation, but it is a factor. I will say, though, we've had some offsets, in that we've had the the currency situation in South America where the dollar has strengthened against those currencies.
That's helped us from a from a from a most of our labor costs are in in the local currencies. Of course, this is a byproduct, but molybdenum prices have have really risen. So that's that's cushioned some of this this cost inflation. But it is you know, we are experiencing it. Our labor situation's, good internationally.
In The US, we do have a tight labor situation. We've we you know, we've got some, you know, substantial job openings in The US. We're we're our team is managing through it and executing through it, but, but it is a tight labor market, particularly in the in The US.
Okay. Thanks thanks, Kathleen. So I guess we're we're up on half an hour here, so I'll I'll I'll I'll draw to a close. I I wanna thank you again for participating. Don't know if you have any final comments, but, again, thank thank you so much.
It's great to hear
from you. Thanks, Alice. Really, really appreciate, being part of the conference, and we look forward to our investor meetings today. Thank you.