Okay, great. Thank you for joining us again. One quick housekeeping item before we get started. Just as a reminder, you can submit your questions for the presenters by clicking the three horizontal bars on the top right of the webcast screen. Then in that dropdown, click on the question mark icon, and you can send those questions in.
So our next fireside chat is with Richard Ackerson, the Chairman of the Board and CEO of Freeport. Freeport is the largest publicly traded copper producer globally, also a major gold producer. 2021 is a critical execution year for Freeport. It's in the key part of its underground expansion at Grasberg, which if it continues to go according to plan, will result in or is expected to result in copper volume growth of nearly 20% in 2021 and then another 10% in 2022 and gold volume growth of over 50% in 2021 and another 20% in 2022. Richard is one of the longest tenured senior executives, in the copper industry.
He's navigated this company through some tremendous changes, some acquisitions, political and social challenges, globally in Indonesia, boom and bust price cycles, etcetera, etcetera. So with that intro, Richard, thank you for joining us today. You have obviously been a longtime copper bull. What do you think of the most recent move in copper prices? You know, where do you think it goes from here, and and what does it mean to Freeport and and to its shareholders?
Well, Dave, great to see you again. We've known each other for a long time, and thanks to you and BMO for sponsoring this conference. It's always a lot of fun when we can get together in person. In fact, it was my last public really, my last public outing last year when we left left the conference and, looking forward to when we get back together face to face. But thank you for doing this, and thank you for your interest in our company.
May have been to you, but, maybe to this conference. But, you know, several years ago, after we had gone through our challenges of 2015 and into '16, I made a comment that if we could be ramping up Grasberg at a time with good copper prices, it would be a special time for Freeport. And that's happening. Man, it was a, you know, long time coming, a long and winding road, particularly, when we look back on 2020 and the and and the challenges we were so concerned about in late March and and April to end up the year as strong as we did is, I've used the word head spinning, and it quite frankly is. But yet, as you know, I have been talking positively about copper for a long time.
It it led us when I became CEO so many years ago, to, acquire Phelps Dodge, in 02/2007. It was a bet on copper then. Our company was two thirds copper, one third gold with the Grasberg Mine and generating lots of cash, paying lots of distributions. Investors loved it, but but we didn't think it was sustainable. We thought somebody would acquire us quite frankly when that didn't happen.
We looked at the market, and and, you know, there was an expectation when the super cycle started in 02/2003, 2004 after having copper prices below 70¢ that supply would automatically follow like it always done. That didn't happen. You know? And and and and so prices went unexpectedly to $4 a pound when when the CEOs running the businesses at that time didn't think it could get above a dollar. We've been through a lot since the end of the financial crisis, the the commodity downturn in in in 02/2015, 02/2016, and then we've had company specific issues, You know, you know, an unfortunate diversion.
We're not the only company to have done that, but our oil and gas deal was a disaster. Then we had issues in getting resolution in Indonesia, which we successfully did at the 2018, and now we're facing and meeting the challenges of the ramp up at Grasberg. I feel very good about the marketplace and in some ways better than I did ten years ago because of the growing demand for copper beyond just global growth and and and standard industrial use, which had always driven the past and which is still there. But now when you look at the role copper plays in carbon reduction, in any form, when you look at the expansion of five g networks and artificial intelligence, the build out of infrastructure, you know, we're talking about that here in The United States, but globally, you know, that's a lot of copper wire wherever you turn. And so that's new elements of demand, will be underpinned by global growth.
And even though we've had, long periods of time with strong prices, well financed companies with commitment to add copper supplies, it's just notable that that just hasn't been successful in a significant way. So I know I'm singing my song. I've said it for a long time. Feels good to see it unfolding right now, but Topper is very well supported. And then we can talk more about it, but Freeport, as as you know, is so well placed with our strong asset base, our seasoned team of technical people who built and operate mines that are the largest in the world.
So just in all of this personal sacrifices we've all made, and everybody's had to make it, is the godsend for our company to see things unfolding as they are.
Okay. Great. Just turning a little bit to the, you know, the future of Freeport. You were recently, you know, named chairman of the board. You added that to your CEO role, and Kathleen Quirk recently added the role of president to her CFO role.
Can you just comment on what these changes mean for Freeport, you know, both now and in the future?
Well, our past chairman was a longtime board member, Jerry Ford, who stepped up to become first our lead director and then chairman five years ago, and and and and performed great service for our company. So here I am. In fact, there's, Neil, who wrote an article that's in Financial Times today where I comment on Freeport having a thirty year reserve life and actually, you know, double that when you look at our resources. And I said, Richard doesn't have that kind of reserve life, you know, at my age. So is is is, I don't have plans to retire.
Thank God. I've got good health and energy and, a really strong personal desire to personally be part of what I think is gonna be a great near term future for our company. But, you know, reality is, you know, I'm 74 years old. And, so during the time I have left, I wanna focus on execution, you know, and that's the keyword for us in recent years, continues to be that in 2021. I wanna build a sustainable board.
We we're we're we're in an effort to expand our board. Our board is small for historical reasons, and we need to to add board members with different capabilities and expertise and ways to contribute to the future of our company. We need to make sure we have a sustainable management team. Now we've got a really good, deep, young management team. We, we had three senior people to leave in the last couple of years, retirements.
I mean, they we've had very little turnover. Amazing, Dave. When you look at all the trials and tribulations of Freeport, the people have stuck with it is is really heartwarming. But we replaced each of those three, our our America's chief operating officer, our general counsel chief administrative officer with internal promotions. And, we've added some new people dealing with sustainability, ESG issues, and other other issues, we'll continue to to look to do that.
You know, Kathleen's just done a great job. She she joined Freeport the same time I did. Early on her career, she worked a lot with Chip Goodyear when Chip and I were partners at Freeport and learned a lot from Chip. And, then we became partners in the late nineties in dealing with the financial issues with Freeport, became CFO when I became CEO in 02/2003. And in recent years, she's expanded her role of responsibilities to work with our operating team.
Beginning in 02/2016, she started working in Indonesia and has now taken the lead there. So it it's just like when I became CEO following Jim Bob. You know, I was actually doing most of the job before, you know, before I was named, and Kathleen is is doing more and more responsibility, which is allowing me to focus on these strategic issues for this company, spending a lot of time talking with investors, listening to them, spending a lot of time and listening to people on ESG issues. And, you know, I'm chairman of ICMM. We're going through a lot of changes there and strategic review.
It's giving me the chance to we got a huge number of new CEOs in this industry, you know, some long standing companies, but some other companies that are emerging. The landscape is changing. The challenges are changing. So I'm really enjoying spending time with the these new CEOs. You know, we've got a new CEO at Rio Tinto.
It's the seventh CEO that I would have worked with at Rio, and they've been great partners and got a great company. And so it's it's a natural progression that's going on. I'm not backing away from the business in any way. Definitely not talk every day. We have a great informal way of working with our team.
So if there's others on our team that I wanna talk to, I pick up pick up the phone and call them. We we don't have a hierarchical structure. We we we work informally, learning to work remotely, and using platforms like this, fits right in with the way Freeport operates. So we've got great morale, as you can imagine, with the the stock price movement, the debt reduction, the progress in Indonesia. So, really, it it it it's it's a natural progression, I would say.
Okay, great. The prompt for questions definitely worked here. I've got quite a few coming in from the app here. I just I'll try and take these in some semblance of order. One of the questions is there's been some press lately regarding your U.
S. Copper operations and and and potential expansions, in the domestic US. And I was wondering if you could just comment on the status of those, you know, on the plans.
So I have I have been out, you know, talking with the media. I'm gonna do some more of that as we as we go forward because we have a lot of questions and so forth. And the Reuters article came out. It was a good article, and and the reporter earnings follows lately. But, we're not on the verge of approving projects right now.
We have great opportunities. We actually, a year ago, suspended our our our spending on evaluation of these projects. We've reinstituted that, and I'm totally confident the world's gonna need that copper. And The US is a great place for us. We have a very favorable tax position.
We own virtually all of our mining lands in fees, so there's no royalties. And you look at royalties and taxes internationally, and that's a huge advantage for The US. You got good energy situation, community support. Notably, all of our expansion opportunities are brownfield expansions, and we have tremendous relationships with communities and in The US with Native American groups who have been our partners in many areas, and we continue to work closely with them. So there's a lot of reasons to look to expand The US, and we've got the resources there.
Our our Baghdad operation in Northwest Arizona has a resource that, that looks attractive to expand. We have to deal with, tailing sites and water issues and but but but but that's a project we're looking at. This Lone Star project, where we just completed our first step with that, is, immensely important for the future of Freeport. It was a oxide development where we're using available processing facilities in the nearby Safford mine. We have, in all likelihood, another oxide opportunity, and then there's a huge sulfide resource.
And this is not only near our Safford mine, but just across the mountain range from Morenci. I mean, in in in a county, in both of those in counties where we just we have great acceptance by the local communities. And this could be like Morenci is the biggest mine in North America. Lone Star could challenge it. In the future.
It'll take some time. Then in South America, we got El Abra, where we're partners with Codelco. It's it's kind of this, you know, typical major project for the industry, low grade sulfide deposit that's gonna require desalinization and and transportation of water to heights. But it's, it's, again, it's a project that the industry's gonna need in its future. Now we're, in 2021, gonna execute.
I mean, we're we're not gonna be approving new projects in 2021. The board, with our recommendation, adopted a new financial policy that's a shareholder friendly policy with this significant increase in cash. You know, we turned the corner in the third quarter. When you look at our cash flows, at lower prices, but at current prices, there's there's tremendous amount of cash coming in. And the board had signaled to the market that this this is what I was this is what I was advocating ten years ago.
We're gonna be, you know, distributing cash to shareholder in form of dividends, perhaps stock buybacks, and then we'll have, you know, $4 plus copper. Our debt's gonna be, you know, $2,000,000,000 or so by the end of the year. And so that's not an issue, and that will leave cash over to consider growth projects. And then we're gonna be positioned strategically to consider other things. So it's it's really where I wanted our company to be, and it took ten years to get back here, and we're back.
And and and and and so we're gonna be very disciplined, initially generating cash, continuing to improve the balance sheet, turning cash to shareholders, and looking at disciplined brownfield growth opportunities.
Okay. Just picking up on that, I appreciate those details. The capital allocation policy is really centered around up to I think it's up to 50% of available cash, to return to shareholders. That does leave the door open a bit to interpretation, whether it's more heavily weighted to the low end or the high end of that range, obviously. So over the next one to two years, is there more emphasis on returning the cash to the shareholders or funding these organic growth projects?
The truth is we are just, you know, in the last three, four months, re executing economic evaluations of those projects. And these projects take time to unfold. So when you're talking about a two or three year time frame, you're looking more cash distributions. I mean, Dave, I this is trite to say, but I say it all the time. If the price of copper goes to $10 tomorrow, it's still seven or eight years before we get significant volume increases.
That's what's supportive copper prices. You know? It's there's in light of this very favorable demand picture, there's still very limited projects. You know, there were a couple of projects that are good projects that were deferred because of COVID. Those would be completed.
There are a couple of other good projects around the world, but it's it's it's limited in terms of the overall marketplace. We have this great set of assets, but I know how long it's gonna take us to to to to to increase volume significantly. We got a good project in Indonesia that's gonna add value there. Each one of these projects is gonna look at not by trying to get bigger, but will they add value to our shareholders to allow us to return cash to shareholders? That's what's gonna drive us.
Got it. Okay, great. Thanks for that. I have another one from the app here. You actually might be this is a bit of a curveball.
You might have a better perspective, on the Indonesian nickel industry than perhaps, anybody. And the question is, do you think that the battery industry might be facing nickel shortages in the coming years based on your perspective?
I'm really I've watched the nickel industry in Indonesia. We were had good relationships with Inco and Vale, and and so we're aware we looked at a couple of projects ourselves years ago and and decided not to pursue it. So but I'm not I'm I'm not an expert there. I know Indonesia, we're we're working with the government on this ultra project, and they have aspirations of of using their nickel resources and building a downstream industry for that. And god bless them.
I hope they're successful with that. You know, before, there's a lot of difference in copper and nickel and copper and other resources. You know, in copper, you create 95% of the value through what we do in our mines, our mines and our concentrating. Nickel was is much of the value is created downstream. And and until recently, much of that downstream value was done in other countries.
And so now the Indonesians are pressing and working with the Chinese and other investors to develop a downstream industry and with their big population and so forth. Think it's a a good thing for the country to do, but I can't answer your question about the resource.
Fair enough. So just switching gears to the ESG theme. Obviously, you mentioned you were named chairman of ICMM again. You previously held that position from, I think, 2008 to 2011. So the question is, how do you think the industry is doing in managing ESG risks?
And how has that changed during your your career?
Oh, man. Boy, they picked great times. They asked me to do this. You know? 02/2008, 2011 was a financial crisis, and now we're dealing with COVID.
You know, ICBM has done a great job. You know, it was created, back in the 2000 time frame. I was really involved from the start, in trying to deal with the criticisms about broadly sustainability in this issues for the industry, and, organization dealt with that. Now it's getting much more complicated. Civil society, and it's going to government bodies, communities, banks, investors, you know, this is at the forefront of what people are considering.
And it makes, our job in running the mining companies more complicated. It makes ICMM's jobs more complicated. And we have to rise up and meet the challenge. There's a consensus among council members that we need to do that. We're now 28 of the world's largest mining companies, and, we're going through a strategic review on on how to do that.
There's a number of groups involved. There's there's issues issues with, different groups trying to establish different standards, and, we've gotta be engaged in that and take a a leadership role, but listen to others. I mean and so that's what, we added resources in Freeport. We've published our first climate report last year. It's always been part of our culture, and I think we learned so much about it, you know, getting in the mining industry in Indonesia.
That's a very complicated place in Papua with the indigenous people, the environmental challenges, the changes in the government in Indonesia, what it's gone through over the thirty years I've been going there. And so we we were there, then we went to Africa and dealt with the the DRC successfully in Peru and in Arizona, you know, with the Native American group. So it's something that's it's not new for us. It's been part of everyday life. I've been actively involved.
Our senior management team has. But now, you know, this whole issue of the pressure of climate change, which was debated for several years and now is widely recognized we've gotta do things. And then how do you measure ESG performance? There's a number of initiatives going on with that. It's something we all are having to deal with, and there's no easy answers.
But we're we're gonna be fully engaged both as a company and with ICMM.
Okay. Great. We've got time for, for one more question. So I'm not going to let you off the hook here that easily. So I do want to ask about your view towards Freeport's role in M and A opportunities in the sector.
Would Freeport prefer to be a buyer or seller of assets over the next, let's say, three years? And if you can just leave in some commentary how the low multiples, the pervasively low multiples throughout the sector, how that factors into your thought process.
So when I look back on things, and you know I was engaged in debates years ago with a diversified com companies about the benefits of diversity. I've I've always had a strong view that the success of a mining company is based on the quality of its assets and quality is long life, attractive cost structure, and growth opportunities. And, I think, 02/2008, 2009 proved you're not gonna be bailed out of a down copper market with nickel. You know? It's it's just everything demands too correlated.
And so, we're gonna we're gonna keep focusing on our things. Another observation is and and, you know, Freeport's board did this. But when companies have made mistakes, too often, it's been a board or a management team comes up with a strategic view of something that needs to that they think needs to be done and then forces a transaction. And too often, those turn out to be bad decisions. You can you can tick off a whole list of those in our industry.
I think, like, what we did with Felps Dodge, it was an opportunity that came to us because of our situation and Felps Dodge's situation at that time in the financial markets. So I want to position us so that if opportunities come, we have the chance to do it. We don't have any strategy for doing m and a deals. There's no Freeport strategy for doing that. If you ask me for the next three years, something may come up, but that would be as a result of an opportunity that comes up, and we don't foresee that right now.
Could happen. But I wanna be positioned to take part of it. I don't believe combining a company like ours with a gold company makes any sense at all. When I look at what gold companies, investors look for to invest in gold companies, the nature of their assets, short lives, the reinvestment risk they have is just inconsistent with a company like ours, where copper is built on global economic growth and positive economic outlooks. We've got such long lives.
We don't have to do any deal. You know, we don't we do exploration. Hopefully, it's successful. There's nothing like it in the natural resource industry, but we don't have to have success in exploration. We don't have to make acquisitions, you know, besides the thirty five year plus reserve base we have, and that's recoverable crude and proper reserve.
We've got resources essentially double that. So, you know, this company can continue to succeed, continue to grow without doing anything from an m and a standpoint. If opportunities make sense for shareholders, then we'll be positioned to to to consider it.
Excellent. Well, great answer. Unfortunately, we've run out of time. However, it is a good segue because I believe Mark Bristow is our next speaker. So interesting comments at the end there.
I appreciate the time and and, obviously, hope everything goes well for the rest of the the meetings this week. Thank you.
Alright. Thank you so much, Dave, and thanks to BMO for hosting this.