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 Adkerson, the Chairman and CEO of Freeport, who all of you know. A lot going on in the copper markets, a lot going on at Freeport specifically. Richard's been there a long time, he's seen a lot in the industry, looking forward to this chat. Richard, just to kind of kick things off, there's a lot of things that have been changing in the world, one thing that's changed at Freeport is your progress at Grasberg. Maybe you can just give us an update as to how the block cave projects there are progressing. It seems like a lot of the de-risking has already been done. You're ramping these things up. What's going on there most recently?
Also maybe any commentary around the impact of COVID in Indonesia. How has that affected your operations and the projects in particular?
Thanks, Chris. Thanks for hosting this. 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. Looking back on my career, in the mid-1990s, we designed the long-term plan for the open pit at Grasberg, mid-1990s. We started investing 15 years or more in the underground. Just note that Freeport has been doing substantial block cave mining at Grasberg in addition to the open pit since early 1980s. We also have a large block cave molybdenum mine here in the U.S. We're really experienced with it. It was a major undertaking. Really major undertaking, key for our company and its future. We completed mining the open pit right at the end of 2019. I went out there for the final part of it.
COVID hit us early in 2020. It was white knuckles time. 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 going to be the impact on the economy and so forth. What is really, really gratifying, a lot of good things with our company, is to see the progress that our team was able to make as they managed COVID during the last almost two years now, since we stopped mining the open pit. We have almost 30,000 people working in Papua. It's in a damp environment because it rains a lot there. It's at altitude. People live close together. We've had cases.
There was the initial outbreak. Then this summer in July and August and into September, the Delta variant brought a new round of cases. 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. I just checked my note, at PTFI, we have almost 75%, 80% that have had at least one shot. Now the physical progress, we've reported on it quarterly. We give a lot of details about what we're attempting to do. Mine, it's gone incredibly well. As we speak today, at the end of the last quarter, we 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 mine is now behind us. We have the infrastructure in place, the equipment. We added a new crusher recently to the Grasberg block cave mine, which gives us a lot more flexibility there. We're doing a mill expansion that is now underway. It'll be our third SAG mill. By 2023, that'll be up and running, which will allow us to process the volume of ore that we have. Our team's 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 has carried far with them. I'm really proud of them.
For me, my first visit to Grasberg was 1988, and I saw the second drill holes being put in the ore body. 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. Hats off to our technical team who's planned it, executed, and our PTFI team is doing so well.
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. The progress you've had there recently has been very impressive. It'll be nice when that gets back up to full capacity. Obviously, a very low-cost asset. I think maybe one of 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 U.S., in Peru, and then you have an asset in Chile as well. When we think about the assets outside of Indonesia, in particular Peru and Chile, political environment in those countries has changed.
Of course, in strong commodity cycles, tax and royalty risk kind of becomes tax and royalty reality everywhere. How do you think about tax and royalty and just geopolitical factors in Chile and Peru? Those governments, do they understand the importance of foreign direct investment? Are they partners with the mining industry? How do you see this all playing out?
Yeah. This is the future of the global mining industry, always has been. We've dealt with contract issues in Indonesia. We reached a global settlement of those in December of 2018, and that's working very well. We got a great partner with the state-owned company, MIND ID, there. We faced issues in the Congo with that when we were there, and political issues in the U.S. 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 1970s and encouraged development. The countries, and we're seeing this globally, are struggling to deal with income inequality and how does that get addressed.
The leaders are faced with the issue of balancing supporting mining operations and then meeting the calls within their countries for people to do more for the less fortunate people in the countries. It's understandable what's going through. It's somewhat different dynamics in Chile and Peru. There always are. The industry is well-established in Chile and is working together, with the government as it tries to reach this 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 reviewing their constitution. The industry is represented. It's presenting its views and listening to the views of the other side. I'm confident that something will be worked out, but it's going to be a degree of uncertainty hanging there where 25% of the world's copper comes from.
Chris, you know we have a great development project there with our El Abra mine where you mentioned Freeport going from an Indonesian-only business. We really created the modern Freeport in 2007 when we acquired Phelps Dodge. Mine, looking back to there, this El Abra resource was a very small operation and thought it had a limited life. As we've done brownfield exploration drilling and understand the ore body, it's a tremendous opportunity. The world's going to need that copper at some point. 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. 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. It's there.
Peru is in a different situation. It's now the world's second-largest copper producer. We have a big presence in Peru with our Cerro Verde mine. It's an enormous operation. It's got the largest scale milling facilities in the global copper industry there, and it's a very long life, profitable operation. The operation's been around for a long time. It goes back 30 years or more. There's been two major expansions, one that was done in 2005, 2007, and another one was completed in 2016. We do have a stability agreement there, but we're engaged with the industry in talking with the government. I just had dinner Sunday night in Washington with a group, with the new president of Peru. He was explaining how he perceives the needs of the poor regions of the country for support. As an industry, we've got to find a way to do that.
I spoke with him about what we've done for the region right around our mine in Arequipa, where we're very well supported. We put a lot into community affairs. What I think as an industry, we're going to have to come together and think about how do we make sure the people in the remote areas of Peru, who are generally very poor, understand that mining is a solution to their problems. It's going to be a process because the president, he talked to me about his background. He was a teacher in a rural area, and he has these genuine feelings about desires to help people. 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 built Arequipa's first wastewater treatment facility to 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. All that thing is good. We have common goals for helping people as we run our business, we're going to have to work with the President and his new administration in finding ways of, as I see it, and I listen to him very carefully, of expanding our impact to the rural areas where people can see that mining can make an impact. 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 an agenda, and we found ways of working with others.
I described to him the way that we've worked with presidents since I've been involved, since 2007, and committed to working with him too. It's an issue because of this need that people feel to address the poor populations of their country. It's something that we got to work through. All of this is going to overhang supply development and operations for the industry. When you take these two largest countries as being in that situation, it definitely will have an impact on supply development.
When we think about supply development for Freeport, I mean, 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 at Bagdad. Can you just give us an overview, remind us of what your project pipeline looks like in the U.S., where the timing is in these projects, what the next steps are, et cetera?
Yeah, it's really exciting. We all remember, not all of you, because I'm sure some of you are too young to remember, but if you go back into the 1990s and everyone thought that the copper industry was dead in the Southwest U.S. Mines were closing, smelters were being decommissioned. 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 U.S., where U.S. benefits from a currently favorable tax regime that's being discussed as we speak. We own our properties in the U.S. in fee, 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 U.S., 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. With the use of technology that we've been pursuing over the past couple of years in terms 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. 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 Safford mine, which was just completed back when we acquired Phelps Dodge, but had a limited life. It has available processing facilities that is allowing us to begin, which in one sense is a stripping operation, but we are making money out of it because it is oxide ore, and we are being able to take advantage of these facilities that we have capable. That is going to make money for us. It is going to be a nice operation. We have got expansion opportunities there. It started small, but what is really exciting is the sulfide deposit, and it is 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, the resource is that large.
It's going to take time to do that. 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, and we don't have the reinvestment risks that others have. While early in my career, I came up through the oil and gas business, and you live and die by present values. Present values can be a bit misleading because by having long life resources where your present value is discounted, by not having reinvestment risks, it really creates substantial value in your company. That's what Lone Star represents for us, and it's really exciting. Communities support us. The Native Americans support us. We've built training facilities for them. We're assisting them in building educational facilities.
I met with the Chairman of the San Carlos Apaches recently. They're really excited and want to be more involved with us. We benefit by having support from the local communities, the state, and the Native American groups there for this operation. It's just really going to be good. The initial project we're going to be starting on is on the other side of Arizona, in Northwest Arizona, in our Bagdad mine. 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 the next few months. We'll be off and running on that. We've worked for years to secure water resources for it. Water's always an issue in Arizona and Chile and Peru for mines.
Getting the water resources for us, it'll be a straightforward mill expansion, and we'll shorten that reserve life, bring values forward. Beyond that, Morenci itself has tremendous underground resources-- undeveloped resources. Our mines in New Mexico do as well. We've got a long life ahead of us in the United States. Our company particularly benefits by having a loss carry-forward, kind of the only silver lining out of that oil and gas deal the company did earlier. It really gives a lot of advantages. Favorable taxes, community support, no royalties, and we have been fortunate in developing I mentioned that 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. If we look at the global copper market, 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 copper market, where some people, like myself, believe that we could be in an extended period of very high prices and maybe like nothing we've seen before. I guess the question is, how does the market ultimately balance? Inventories can't go negative, so you're going to need more supply to be developed. You're going to need more scrap. You're going to need some potentially demand substitution. What about the potential impact of technology?
Even for Freeport, the use of kind of new leaching technologies, do you think that's going to 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 mentioned briefly scrap development. There will be some substitution that'll happen, and it'll all be needed. It'll all be needed. Complicated development projects like El Abra will ultimately help fill that gap. There are a lot of barriers to supply development. You took the words out of my mouth with the recent report that you wrote, Chris, in talking about the impact of carbon reduction. It really is beneficial for copper producers and some other resource producers. Man, we're all committed to it. I'm Chairman of ICMM now, and we're working on a new climate 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 going to cost a lot of money. There's this huge wave of aspirations that's coming from communities, governments, civil society, investors, banks to reduce carbon. While that was debated for some time and avoided, unfortunately, now everybody's all in on it. For us, it means, as a company, I was just meeting with the CEO and Head of Mining of Caterpillar, we've got to develop vehicles that don't use diesel to haul. It's an enormous task to think about these large-scale haul trucks that have to climb. You see the pit behind you, and this is not going to be like driving a Tesla.
The batteries will weigh a ton, and they'll require frequent recharging. When you think about replacing a truck fleet with these vehicles, and developing new mines with all these carbon reduction issues coming into it, that's going to be another burden on supply development. 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 electric vehicles are emerging quicker than anybody thought. I think that pace of change is going to quicken rather than fall off.
They require four times more copper than internal combustion engines, plus charging stations. You think about artificial intelligence and 5G 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 a copper demand standpoint. We're always going to be subject to near- term market situations. There's a lot of uncertainties going on around the world. It's not going to be constant ups, but there's nothing we jumped on this bandwagon.
In fact, an analyst just wrote a piece on a conversation we had back in 2005 when we were restructuring Freeport and deciding where to go with our future, and we bought into the copper story that early. We've been singing this song for a long time, and it led us through acquire Phelps Dodge. Times changing, and we go through different things that none of us can predict. 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 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. As we speak now, even though prices jumped up so quickly after COVID, you don't see big new projects being announced. There were some projects that were started back three, four years ago, 2017, 2018, that will be finished, and some of those are good projects. Structurally, from a fundamental supply and demand standpoint, it's hard to imagine a commodity that's as well situated as copper is.
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. Copper price was low. You were dealing with the issues in Indonesia regarding the ownership of Grasberg. A lot of the risks around the business from five or six years ago have been resolved. You've cleaned up the balance sheet. You were deploying our capital returns 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, the copper price helps as well. Let's assume that these things are unpredictable. We go into a downturn here with the Chinese property market problems.
You're in a kind of position where you can be opportunistic through the cycle, and, or at the very least, I suppose you're in a position where you can continue to invest in your business through the cycle. What's the strategic approach to Freeport-McMoRan, in terms of looking for opportunities? I mean, do you feel like you have enough 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 over my shoulder, Chris. I mean, we had built this company up to this situation we're in now back in 2011, coming after the Phelps Dodge deal, paying off all that debt after the financial crisis. 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. 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 and whatnot. All that's good. The underground conversion's good.
We had to sell some good assets, and raise some equity capital to get out of the debt of 2015, 2016. We had to exit the oil and gas business. All of that is just, I mean, it's really gratifying to be here right now because we have issues to face every day. 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, and we can do a long plan. For example, we're already starting talking with the government of Indonesia about extending our operating rights there beyond 2041. The current rights are to 2041. It will make no sense for anybody to run that business with a stop date like that. We'll find a way forward there. I mentioned Lone Star, but other resources.
It's really great to think about not having to have greenfield exploration success, not having to make acquisitions, but having a base that will allow us to sustain and grow our business from there. We've got this new technology stuff we're working on. We're looking at ways of recovering copper from old waste stacks. I don't know if anyone in the industry has the opportunity for that we have. We've identified 38,000,000,000 lbs of copper just sitting there in waste stacks, and we can't recover all of that. If we get 10% or 20% of these success, and our guys are really excited about it. We're working with a series of different technology approaches to that. We're not focused on any one, but we're looking at all of them, and it's really exciting. Strategically, it's just great not having to do something.
We'll be there if opportunities arise. Phelps Dodge was an opportunity that arose because of the stars aligned in 2006 with that company, with markets, with financial markets. We were able to do a $38 billion deal for a company that two or three years earlier had been on its back financially. I really feel like we're in the catbird seat. We have a set of resources that would be impossible to replicate. The value of those resources are going to grow. The scarcity value of these assets is really significant, and we're going to be well-positioned. We've got a great team. I have 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 from now. Both of them are older than me.
At this stage in 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 we're not done yet. I want to see us have a sustainable management team. We've had three members of our senior management group leave 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. When I became Chairman, Kathleen became President. You can see us at some point having a new CFO. The company's going to be well-situated, not only from an asset resource basis. Our technical team is really good. We manage things in the Americas as `one business.
We share resources and people, supply chain issues. Indonesia is going so well. We're well-situated to succeed.
It seems like 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 block caves, where there was a lot of skepticism originally, in particular on the DMLZ, which appears to be working relatively well, fixing the balance sheet. Copper prices helped as well. Your shares have really strongly recovered. You're in a position now of being on the verge of doing relatively large-scale capital returns. The question is, in terms of timing for you, after the block caves at Grasberg are both kind of at full capacity, it's almost like a natural, it's the next phase of Freeport, right? It's about the longer-term organic growth in the U.S.
It's about this kind of cash flow and capital return strategy, which could be a very powerful component to the investment case. I would think if we go back five or six years, there was a list of kind of items that you wanted 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. Is that kind of the logical point where, obviously, depending on what's going on in the world, but the logical point where you might feel like you've kind of done what you wanted to do, and then succession becomes more relevant? Is it maybe it's hard to really time this or figure out when you'd want to step down?
The big thing is health and energy. That's the big thing. I've had really long talks with our board members. Clearly, the new board members that are recruited were very interested in that. Around the company, I just want to be sure that I can perform at a high level. There are lots of things I like to do. If I got fired tomorrow, I'd have a lot of fun. I think one of the things that's driving me to want to stay is to see this thing through, to be here and be part of the success. I love the people I work with. I've gone from having 15 people report to me after Phelps Dodge to have two or three now. 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 fiefdoms or duchess and fiefdoms. We approach everything on a team approach. I brought that philosophy with me, I think, from my years in public accounting, 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. Chris, we've been through the tough times and good times in the past, and you can tell how I feel about where we are and what our future looks like. I quite frankly just want to be part of it, provided I can contribute in the way that I do. I enjoy. It's the first time I met the President of Peru after knowing all of his predecessors. I enjoyed meeting the guy. He was impressive to me, a younger guy.
He made some comment about my experience, and I said, Listen, experience is overrated. It's that sort of thing that you have is enjoy getting to know the people in the industry. I really enjoy being part of ICMM. 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. I really enjoy it. Quite frankly, I 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 best of luck to you, and we look forward to catching up again soon. Again, thank you once again for your time today. I really appreciate it.
Thank you, Chris. Thanks for sponsoring this. Again, thank you for your coverage.
My pleasure. Talk to you soon. Thank you all for dialing in. Cheers.