Hi, everybody. Thank you for dialing into, this session of our annual Base Metals and Battery Materials Summit. It's my pleasure to host Richard Atkinson, the chairman and CEO of Freeport, who all of you know. A lot going on in the cotton markets, a lot going on at Freeport specifically, which has been there a long time and he's seen a lot in the industry and looking forward to this chat. And maybe Richard, just to kind of kick things off, I mean, you know, there's a lot of things that have been changing in the world.
And one thing that's changed at Freeport is your progress at Grasberg. So maybe you can just give us an update as to how the blockade projects are progressing. I mean, seems like a lot of the de risking has already been done. You're ramping these things up and what's kind of going on there most recently? And also maybe any commentary around the impact of COVID in Indonesia?
How is that affecting your operations and projects in particular?
Thanks, Chris, and thanks for hosting us. Appreciate your coverage of our industry and our company. Let's just schedule these future meetings when the markets are better than they've been the last few days.
So looking back on my career, in the mid-90s, you know, we designed the long term plan for the open pit at Grasberg, mid-90s. And then we started investing fifteen years or more in the underground and we completed just note that Freeport has been doing substantial blockade mining at Grasberg in addition to the open pit since early 1980s. We also have a large block cave molybdenum mine here in The United States. So we really experienced with it, but it was a major undertaking. I mean, really major undertaking key for our company in its future.
We completed mining the open pit right at the 2019 and went out there for the final part of it. And then COVID hit us, you know, early in 2020. So it was a was a white knuckles time. You know, we were at trough production out of Indonesia, which has always supported us during periods of low copper prices and a lot of uncertainties, physically about operating, what was gonna be the impact on on on on the economy and so forth. So know, which is really, really gratifying, a lot of good things with our company, but is to see the progress that our team was able to make as they manage COVID during the last almost two years now since we stopped mining the open pit.
We have almost 30,000 people working in Poplar, and it's in a damp environment because it rains a lot there. It's at altitude, and people live close together. And we've had cases. You know, there was the initial outbreak, and then this summer in July and August and into September, the Delta variant brought a new round of cases and we put in protocols that we'd had before. We've been able to continue to operate since early September.
The cases have dropped. We've got a significant number of people vaccinated there of all things. We worked hard with the government to get that. And I've just checked my note. We, you know, we have, at BTFI, we've we've we've have almost seventy five, eighty percent that really had had at least one shot.
And, so, now the physical progress we've reported on it quarterly, we set out our, you know, we give a lot of details about what we're attempting to do. And man, it's gone incredibly well. As we speak today, at the end of the last quarter, were up to like 80% of our targeted mine rates. We'll be at 100%, close to it now, but by the end of the year, the risk associated with the development of the underground mines is now behind us. We have the infrastructure in place, the equipment.
We added a new crusher recently to the Grasper Block Cave mine, which gives us a lot more flexibility there. We're doing a mill expansion that is now underway. It will be our third SAG mill by 2023 that will be up and running, which will allow us to process the volume of ore that we have. Our teams meeting the targets, the number makes it look easy, but it's not. There's always issues that come up in a project of this scale and our team meets those and is carried forward with them.
So I'm just I'm really proud of them. And for me, first, my first visit to Grasberg was 1988 and I saw the second drill hose being put in the ore body. So I've watched this whole thing develop, knowing this conversion to underground was coming and now to see it and for it to be successful is really gratifying. And hats off to our technical team who's planned it, executed and our PTFI team is doing so well.
So it's really an incredible asset in terms of how it was developed initially and the scale of it and, obviously, the geography and the geology, all very unique. It's kind of the eighth wonder of the world. And it's, you know, the progress you've had there recently has been very impressive. So it'll it'll be nice when that gets back up to full capacity, obviously, very well across asset. But I think, you know, maybe one of the the aspects of Freeport that is often underappreciated is that you're not just an Indonesian mining company.
Obviously, you have very large scale, very, consistent operations in The US, in Peru, and then you have an asset in Chile as well. So when when we think about the assets outside of Indonesia, in particular, Peru and Chile, political environment in those countries has changed. You know, of course, in strong commodity cycles, tax and royalty risk kinda becomes tax and royalty reality everywhere. How do you think about kind of, you know, tax and royalty and and just geopolitical factors in Chile and Peru? Are those governments do they understand the importance of foreign direct investment?
Are they partners in the mining industry? And how do you see this all playing out?
Yeah. This this is a feature of the global mining industry, always has been. You know, we We've dealt with contract issues in Indonesia. We reached a global settlement of those in December 2018, and that's working very well. We've got a great partner with a state owned company, Mind ID, there.
And we faced issues in The Congo with that when we were there and political issues in The United States. And in Latin America, Chile produces 25% of the world's copper. And it has created the strongest economy in Latin America because of the way that it brought in the mining industry in the late seventies and encouraged development. You know, the countries, and we've seen this globally, are struggling to deal with income inequality and how does that get addressed. And so the the leaders are faced with the issue of balancing, of of supporting mining operations and then needing the the calls within their countries for people to do more for the less fortunate people in the countries.
And so it's understandable what's going through. It's it's somewhat different dynamics in Chile and Peru. They're always there there always are. And the industry is, well established in Chile and is working together, with the government as it tries to reach its balance of how to deal with income inequalities to meet social goals. It's going to take some time.
They're on a schedule of of, reviewing their constitution. The industry is represented. It's, presenting its views and listening to the views of the other side. So I'm confident that something will be worked out, but it's gonna be a degree of uncertainty hanging there where 25% of world's copper comes from. Chris, you know, we have a great development project there with our Alabra mine where, you mentioned Freeport going from an Indonesian owned only business.
We really created the modern Freeport in 2007 when we acquired Phelps Dodge. And, man, looking back to there, this El Abra resource was a very small operation and thought it had a limited life. And as we've done brownfield exploration drilling and understand ore body, it's tremendous opportunity. The world's gonna need that copper at some point. But we're not making a investment decision on that project until we have a better understanding of the direction of what happens with taxes and royalties in Chile.
So this is going to be an overhang for the industry in terms of supply development. There are a number of those, and we'll talk about that more later from the macro standpoint, but it's there. Now Peru is in a different situation. You know, it's now the world's second largest copper producer. We have a big presence in Peru with our Cerro Verde mine.
It's, you know, an enormous operation. It's got the largest scale, milling facilities in the in the global copper industry there, and it's a very long life profitable operation. The operation has been around for a long time, goes back thirty years or more. There's been two major expansions, one that was done in 02/2005, 02/2007, and another was completed in 2016. We do have a stability agreement there, but we're engaged with the industry in talking with the government.
I I just had dinner Sunday night in Washington with a with a group with the new president of Peru, and he was explaining, how he perceives the needs of the poor regions of the country for support. As an industry, we've gotta find a way to do that. I spoke with him about what we've done for the region right around our our mind in Arequipa where we're very well supported. We we put a lot into community affairs. But when I think as an industry, we're gonna have to come together and think about how do we make sure the people in the remote areas of Peru are generally very poor, understand that mining is a solution to their problems.
And, it's going to be a process because the president, he talked talked to me about his background. He's he was a teacher in a rural area, and he's, has these, you know, feelings about desires to help people. And and we feel that way too. That's one of the really good things about being in this industry is you can do a lot of good for people by giving jobs and helping communities, deal with environmental issues. We we built Eric Keepers, first wastewater treatment facility to and and and and improve the standard of living in the city, improve the ecology of the river that runs through the city and downstream for farmers.
It was a heavily polluted river, now it's got fish in it and everything. So all that thing is good. We have we have common goals for helping people as we run our business. And so we're gonna have to work with the president and his new administration in finding ways of as I see it, and I I listen to him very carefully, of expanding our impact to the rural areas where people can see that mining can make an impact, you know, of and he understands the need to having a mining industry. He's not the first elected president in Peru that's come in with this type of agenda, and we found ways of working with others.
Described to him the the way that we've worked with presidents since I've been involved since 2007 and committed to working with him too. So, but it's an issue, because of this, this need that people feel to direct to address the poor populations of their country. So it's something that we gotta work through. All of this is gonna overhang supply development and operations, for the industry. And when you take these two largest countries as being in that situation, it's definitely it definitely will have a impact on supply development.
And when we
think about supply development to Freeport, mean, you have you mentioned El Abra, where you have substantial potential, but you also have projects in The U. S. Right in your backyard at Lone Star and Baghdad. Can you just kind of give us an overview or remind us of what your project pipeline looks like in The U. S, what the timing is in these projects, what the next steps are, etcetera?
Yeah, it's really exciting. I mean, we all remember, not all of you because I'm sure some of you are too young to remember, but you know, you go back into the nineties and everyone thought that the copper industry was dead in the Southwest US, you know, mines were closing, smelters are being decommissioned. And now it's really exciting to look at the resources that we have that's going to provide development for the long term for our business in The US where US benefits from a currently favorable tax regime, that's being discussed as we speak. We own our properties in The US in fees, so there's no royalties. And our workers get the benefit of the supportive communities that you don't have elsewhere in terms of health and education and so forth.
There are a lot of advantages to doing business in The US, and you can see it in our operations where we are very profitable with, low grade mines that are very old, and that we're expanding. And, with the use of technology that we've been pursuing over the past couple of years in terms of of of of of being able to use, information technology to monitor operations, make them more efficient, understand the resources that we have and what's going on in stockpiles and so forth, that's really good. And then this Lone Star project is tremendously exciting. It's an ore body that was known about for a very long time. We have begun developing an oxide ore covering over what is an enormous sulfide resource.
We completed that. We were able to use facilities at our nearby Stafford mine, which, was just completed back when we acquired Phelps Dodge, but had a limited life. And so it has available processing facilities that's allowing us to begin, which in one sense is a stripping operation, but we're making money out of it because it's oxide ore and we're being being able to take advantage of this, facilities that we have capable. And that's gonna make money for us. It's going to be a nice operation.
We've got expansion opportunities there. It started small, but what's really exciting is the sulfide deposit, and it's just across the mountain ridge from Morenci, which is the largest mine in North America. Inside our company, we believe that, Lone Star will be ultimately as big as Morenci. I mean, is that the the resource is that large. It's gonna take time to do that, but in an industry one of the things I like about our industry as compared to other industries, like oil and gas business or like gold miners, we have long reserve lives.
We don't have the reinvestment risk that others have. And so while early in my career, was in the you know, I came up to the oil and gas business, and you live and die by present values. You know, present values can be a bit misleading because by having long life resources where you present value is discounted, by not having reinvestment risk, it really creates substantial value in your company. And that's what Lone Star represents for us. It is really exciting.
Community support us. The Native Americans support us. We've we've built training facilities for them. We're assisting in building, educational facilities. I I met with the, chairman of the, San Carlos Apaches recently, and they're really excited.
They wanna be more involved with us. So we we we benefit by having support from the local communities, the state, and the Native American groups there for this operation. So it's really going to be good. The initial project we're going to be starting on is on
the other side of Arizona, in North
West Arizona in our Baghdad mine. And there we have a long reserve life and we're basically going to be doubling our mill capacity and we'll start on that and we'll
get formally approved. I feel confident
in next few months, and we'll be off and running on that. We've worked for years to secure water water resources for it. Water is always an issue in in Arizona and Chile and Peru for for mines. In getting the water resources for us, it'll be a straightforward mill expansion and will shorten that reserve life, bring values forward. And then beyond that, Morenci itself has tremendous underground resources, I mean undeveloped resources.
Our mines in New Mexico do as well. So we've got a long life ahead of us in The United States. Our company particularly benefits by having a loss carryforward, kind of the only silver lining out of the oil and gas deal that the company did earlier. So it really gives a lot of advantages, favorable taxes, community support, no royalties, and, and and, you know, we have been fortunate in developing, I mentioned it community support. That's really important because you can see just how hard it is to develop new mines in The United States or really anywhere around the world.
Right.
So if we look at the global copper market, you know, there's clearly significant supply challenges, new projects are simply not being sanctioned, lead times are getting longer. There's this renewable energy kind of decarbonization demand component that could lead to fairly significant kind of structural deficits in the cotton market where, you know, some people like myself believe that we could be in a period of extended period of very high prices, maybe like nothing we've seen before. But then, I guess, the question is, you know, how does the market ultimately balance? Inventories can't go negative. So you're gonna need more supply to be developed.
You're gonna need more scrap. You're gonna need some potentially demand substitution. But what about the potential of that technology? So I mean, even for Freeport, the use of kind of new niching technologies, do you think that's gonna be a potential part of the solution to the kind of structural gap between demand and supply? Or is this a gap that's going to be very difficult to resolve?
Well, Chris, it's all of the above. You know, you mentioned briefly scrap development. There will be some substitution that will happen and it will all be needed. It will all be needed and complicated development projects like El Abra will ultimately help fill that gap. But there are a lot of barriers to supply development, and all of that's gonna place.
You took the words out of my mouth with the recent report that you wrote, Chris, in talking about the impact of carbon reduction. You know, it really is beneficial for copper producers and other some other resource producers. But, man, we're all committed to it. I'm chairman of ICMM now, and we're, working on a new client position for our members that we're going to be issuing shortly. I can tell you across the board of the 28 members of ICMM, companies recognize the need to reduce carbon for their own operations and for the way their products are used downstream.
That's gonna cost a lot of money. I mean, it's you know, there there there there's this huge wave of aspirations that's coming from communities, governments, civil society, investors, banks to reduce carbon. And and while that was debated for some time and avoided, unfortunately, now everybody's all in on it. And, you know, for us, it means, as a company, and I was just meeting with the CEO and head of mining of Caterpillar, you know, we've gotta develop, vehicles that don't use diesel to haul. And, I mean, it's an enormous task to think about these large scale haul trucks that have to climb.
You see the the pit behind you, and, you know, this is not gonna be like driving a Tesla. I mean, the batteries the batteries will weigh a ton, and they'll require frequent recharging. And and when you think about replacing a truck fleet with these vehicles, I mean, and developing new mines with all this carbon reduction issues coming into it, that's gonna be another burden on supply development. So when you step back and look at the impact on Freeport, copper is just critical in every investment to reduce carbon, whether it's alternative energy generation from solar, wind, whether it's, you know, electric vehicles are emerging quicker than anybody thought. And I think that rate of that that pace of change is gonna quicken rather than fall off, but they require four times more copper than, internal combustion engines plus charging stations.
You think about artificial intelligence and five g networks and all the wiring that's going to be needed to support that, which is all going to be key to carbon reduction and have other benefits as well. Spending on infrastructure to expand connectivity to rural areas in developed countries and to undeveloped countries. There's just a lot of good things going on from copper demand standpoint. We're always going to be subject to near term market situations and a lot of uncertainties going on around the world. So it's not, you know, it's not going to be constant ups, but there's nothing in it.
We jumped on this bandwagon. In fact, an analyst just wrote a piece on a conversation we had back in 2005 when when we were restructuring Freeport and deciding where to go with our future. And we bought into the copper story that early. So I've been singing this song for a long time, and it led us to acquire Phelps Dodge. But, you know, you know, times change and go through different things that none of us can predict.
But the underlying story is really solid. I mean, it's just really solid. Now it's pretty widely recognized when you look back and think how large companies have grown over that period of time in terms of their market caps and their profitability and how much they've all sought to grow their copper business and how little success has been made in that. It's it's really striking to think about companies with the resources, technology, and the desire to build copper production, and these barriers are keeping people from doing it. And as we speak now, even though prices jumped up, you know, so quickly after COVID, You don't see big new projects being announced.
You know, there were some projects that were started back three, four years ago, seventeen, eighteen, that will be finished. Some of those are good projects. But it's a structurally, from a fundamental supply demand standpoint, it's hard to imagine a commodity that's as well situated as copper is.
And it's not only the commodity, but if we think about the progression of Freeport. Right? Five or six years ago, you had a lot of debt. Cap price was low, you were dealing with, you know, the the issues in in Indonesia regarding ownership of Grasberg. A lot of the risks around the business from five or six years ago have been resolved.
You know, you've cleaned up the balance sheet with a point now where capital returns will begin again. The political climate for you in Indonesia appears to be materially better now than it was then. You are arguably in a position of strength now. Obviously, copper price helps as well. But even if we let's assume that, you know, we go into the things that aren't predictable.
We go into the downturn here with the Chinese property market problems. You know, you're you're you're in a kind of position where you can be opportunistic through the cycle. And or at the very least, I I suppose you're in a position where you can continue to invest in the business through the cycle. So what's what's the strategic approach to Freeport in terms of looking for opportunities? I mean, do you feel like you have enough in your own kind of on your plate internally that you don't need to look for any potential compelling opportunities?
Or could you be opportunistic if market conditions allowed that for you?
Yeah. It's interesting to look back. Open my shoulder, Chris. I mean, you know, we we had built this company up to this situation we're in now back in 02/2011, coming after the Phillips Dodge deal, paying off all that debt after the financial crisis. And then we got diverted when our board went off on this oil and gas deal, and then commodity prices dropped.
The situation in Indonesia became complicated. You know? Fortunately, the Indonesian thing, it was years of hard work. We ended up with a better result than I expected us to. A lot of it had to do with Rio Tinto deciding to sell their joint venture interest, and the government was able to achieve its desired equity ownership in the project as well as high taxes or so.
So all that's good. The underground conversion is good. We had to, you know, sell some good assets and raise some equity capital to get out of the debt of 2015, 2016. And we had to exit going gas business, you know, and all of that is just I mean, it's really gratifying to be here right now because we have issues to face every day, but now the opportunities are our focus. Now we benefit from having this really enormous resource available to our company that's already in our portfolio.
It's brownfield resources. We can do a long we're already stuck. For example, we're already starting talking with the government of Indonesia about extending our operating rights there beyond 02/1941. You know, the current rights are 02/1941. It will make no sense for anybody to run that business with a stop date like that.
So we'll find a way forward there. And I mentioned Lone Star, but other other resources. So it's really great to think about not having to have greenfield exploration success, not having to do make acquisitions, but having a base that will allow us to sustain and grow our business from there. You know, we've got this new technology stuff we're working on. We're looking at ways of recovering copper from old
old waste tax, and I don't
know if anyone in the industry has the opportunity for that that we have. I mean, we've identified 38,000,000,000 pounds of copper is sitting there in waste stacks and we can't recover all of that. If we get 10% or 20% of the success and we're working, our guys are really excited about it. We're working with a series of different technology approaches to that. We're not focused on e one, but we we're looking at all of them.
And it's it's really exciting. So it it it it strategically, it's just great not having to do something. But we'll be there if opportunities arise. You know, subsidized was an opportunity that arose because of the stars aligned in 2006 with that company, with markets, with financial markets. And we were able to do a 38,000,000,000 deal for a company that two or three years earlier had been on its back financially.
So, you know, so so I I really feel like we're in the catbird seat. We're we have a set of resources that would be impossible to replicate. The value of those resources are gonna grow. The scarcity value of these assets is really significant, and, and we're gonna be well positioned. We've a great team.
We've we've, you know, I had a personal commitment at this stage in my career. I'm not planning on going anywhere. We got two characters talking about running for president a couple years, ma'am. Both of them are older than me. So yeah.
But, you know, at this stage of my career, I wanted to see us have a sustainable board and a world class board that this company deserves. We've added four new board members since I became chairman, and and, you know, we're not done yet. Want to see us have a sustainable management team. We've had three members of our senior management group lead the company over the past couple of years, and we've replaced them with internal younger people, and we're doing really well. We've added a number of resources beyond people to come in and help us with ESG matters.
You know, kept when I became chairman, kept me became president. You can see us at some point finding having a new CFO to so so, you know, the company is gonna be well situated not only from an asset resource basis. Our technical team is really good. We we manage things in The Americas as one business. We share resources and people, supply chain issues.
Indonesia is going so well. So, you know, we're well situated to succeed.
It it seems like the, you know, the logical progression, again, going back the last five or six years, it's been a lot of hard work for you getting Indonesia sorted out in terms of ownership of Grasberg, developing the blockades where there was a lot of skepticism originally, in particular on the DMLC, which appears to be working relatively well, fixing the balance sheet. Cap prices helped as well. Your shares have been a really strong recovery. You're in a position now of being on the verge of doing relatively large scale capital returns. It seems like and the question is, in terms of timing for you, after the blockades at Grasberg are both kind of at full capacity, it's almost like a natural it's the next phase of Freeport, right?
So it's about the longer term organic growth in US. It's about this kind of cash flow and capital return strategy, which could be a very powerful component to the investment case. But, you know, I I would think if we go back five or six years, there's a there's a list of kind of items that you want to check off that you needed to really feel like you succeeded at the end at Freeport. You would have checked off all those items by now once those Grasberg projects are done. So is that kind of a logical point where, you know, obviously, depending on what's going what's going on a little bit, a logical point where you you might feel like you've kind of done what you wanted to do and then succession becomes more, relevant?
Or is it maybe it's hard to to really calm this or figure out when you when you want step down?
Well, you know, the big thing is health and energy. You know, that's that's the big thing. And, you know, I've had really long talks with with with our board members. Clearly, the new board members that are are recruited were very interested in that, you know, and and around the company. I just wanna be sure that I can perform at a high level.
There are lots of things I like to do. I mean, if if if if I got fired tomorrow, I'd I'd, you know, I'd I'd have a lot of fun. But I I think one of the things that's that's driving me to wanna stay is to see this thing through, you know, to be here and be part of the success. I love the people I work with. You know, I've I've I've gone from having 15 people report to me after Phelps Dodge to, you know, have, like, two or three now.
But I'm engaged in the business on a full time basis. We've got a great, collaborative way of working together. We don't have dukes and feastings or duchess and feastings. You know? We we we we we we we approach everything on a team's approach.
I brought that philosophy with me, I think, from my years in public accounting and and and and it's really good to see us having the kind of board this company needs and deserves right now and with the management team we have. So, Chris, I we've been through the the tough times and good times in the past, and and and and you can tell how I feel about where we are and what our future looks like. And I quite frankly just wanna be I wanna be part of it provided I can I can I can contribute in the way that I do? I enjoy I mean, it's the first time I met the president of Peru after knowing all of his predecessors, and and and, you know, he ran on a complicated and controversial but I enjoyed meeting the guy. I mean, he was impressive to me.
The younger guy, he he made some comment about my experience, and I said, listen. Experience is overrated. You know? And so it's that sort of thing that you have is, you know, enjoy getting to know people in the industry. I I really enjoyed being part of ICMM.
You know, this is my second time around to be chairman. We got 18 new members in ICMM. So you're constantly meeting new people and getting to know them, and that's a lot of fun. So I really enjoy it. I mean, quite frankly, enjoy it.
Richard, I think we've
gone over our allotted time here. So thank you very much as always for taking the time to speak with us and you know, best of luck to you. We look forward to catching up again soon. But, you know, thank you once you get your time today. I really appreciate it.
Yeah. Thank you, Chris. Thanks for sponsoring this. And, again, thank you for your coverage. My pleasure.
Talk to soon. Thank you all for dialing in. Cheers.