Ladies and gentlemen, thank you for standing by . Welcome to the Freeport-McMoRan third quarter conference call . At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. If you wish to ask a question during the Q&A session, press star one on your touchtone phone. If you require assistance during the conference, please press star 0. I would now like to hand the conference over to Ms. Kathleen Quirk, President and Chief Financial Officer. Please go ahead, ma'am.
Great. Thank you, and good morning, everyone, and welcome to the Freeport-McMoRan conference call. Earlier this morning, we reported our third quarter 2021 operating and financial results, and a copy of today's press release and the slides are available on our website at fcx.com. Our conference call today is being broadcast live on the internet, and anyone may listen to the call by accessing our website homepage and clicking on the webcast link for the conference call. In addition to analysts and investors, the financial press has been invited to listen to today's call, and a replay of the webcast will be available on our website later today. Before we begin our comments, we'd like to remind everyone that today's press release and certain of our comments on the call include forward-looking statements, and actual results may differ materially.
We'd like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in FCX's SEC filings. On the call with me today are Richard Adkerson, our Chairman and Chief Executive Officer, Mark Johnson, our COO of Indonesia, Josh Olmsted, our Chief Operating Officer for the Americas, Steve Higgins, our Chief Administrative Officer, Rick Coleman, who runs our engineering and construction business, and Mike Kendrick, who runs our molybdenum business. I'll start by briefly summarizing our financial results, and then we'll turn the call over to Richard, who will go through the materials in our slide presentation materials. After our formal remarks, we'll take your questions. Today, FCX reported third quarter 2021 net income attributable to common stock of $1.4 billion. That was $0.94 per share.
An adjusted net income attributable to common stock of $1.3 billion, or $0.89 per share. The $0.89 per share excludes net credits totaling $0.05 a share, primarily associated with tax credits related to the release of valuation allowances at PT Freeport Indonesia, and a gain on the sale of FCX's remaining cobalt business. The details of our adjusted net income are reflected in our press release on page Roman numeral VII. We generated adjusted EBITDA for the third quarter of roughly $3 billion, we've got a reconciliation of the EBITDA on page 37 of our slide deck. Favorable results in the third quarter reflect strong execution by our team growing our production volume safely, efficiently and responsibly. Our sales volumes for the quarter for copper exceeded 1 billion pounds. That approximated our prior estimate in July of 2021 and was above the year ago period.
Gold sales of 400,000 ounces were approximately 12% higher than our prior estimate, and also significantly above the year ago period. We also benefited from positive pricing for copper. Our third quarter average realized copper price was $4.20 per pound. That was substantially above the year ago period. Gold prices were slightly below the year ago period. We also benefited from improved molybdenum prices in the quarter, where prices nearly doubled from the year ago period. Net unit cash costs were $1.24 per pound in the third quarter. That was lower than our estimate going into the period, and we had some good performance from our leach production, which reduced our unit production costs in the period. We generated strong cash flows, and we've been doing that every quarter this year, generating $2 billion of operating cash flow, which exceeded capital spending of roughly $500 million during the quarter.
Our balance sheet is strong. We ended the quarter with consolidated debt of $9.7 billion and consolidated cash of $7.7 billion, which resulted in net debt of $2 billion. We had no borrowings under our credit facility and have $3.5 billion available. We also announced today some liability management where we called for redemption our outstanding notes due 2022. That has a total principal amount of $524 million. I'd now like to turn the call over to Richard, who will be referring to the slide presentation materials. Richard, go ahead.
Thanks, everyone. Thank you for joining our call. Really pleased to be able to review our strong performance for this quarter and where we are with the company. It's a special time. Several years ago on a call, I said, if we could be fortunate enough to ramp up our underground production at Grasberg, at the same time we had a positive copper market, it would be a great time for Freeport. This is really a great time for us. We're going to focus on the future. Just one comment. I was last at job site two years ago in October. We were just completing the mining of the open pit and starting the ramp-up of the Grasberg Block Cave. During this two-year period, our progress has been nothing short of remarkable.
I really congratulate our team at job site, but also in the Americas for what we've been able to accomplish, even in the face of all the distractions and challenges that COVID brought on. I hope you and all your family and your colleagues are staying healthy. This thing's not over. We're keeping our guards up. I encourage you to as well. We have, at Freeport, had a successful program to give vaccines to our people internationally. Over 90% of our people in South America are now vaccinated, and 85% in Papua and Indonesia are vaccinated. We continue to be challenged at some of our operations in the United States, which is common across our country, unfortunately. We're encouraging our people and making some progress there. The news is, we've been able to meet the challenge of COVID and accomplish what we're reporting to you today.
Our copper volumes have grown over 20% from a year ago. That reflects this really exceptional execution of our business. With these prices that we have today, we're generating very strong margin. Our EBITDA doubled from a year ago. Our strong operating cash flows that Kathleen mentioned in the quarter are really exceptional, particularly when you looked at our capital expenditures were only $500 million. Now that we've met our debt target, we met that at the end of June, way ahead of what we anticipated at the beginning of the year, we're now focused on managing these cash flows. That's a happy time for us, looking at investments for our long-term future.
At the same time, we're being able to increase returns to shareholders and maintain a really strong balance sheet, which is going to be a real hallmark of our company going forward. Everybody's focused on carbon reduction and climate initiatives, and with COP26 coming up next month, it's going to be all over the papers. We published our second report on our climate initiatives. We put a lot more resources into it. We're really focused on it. As a company, compared with other natural resource companies, we have much limited Scope 3 emissions than other natural resources, and we're really focused on our Scope 1 and 2 emissions and have a plan to achieve targets that we believe are realistic and achievable.
We and the other 28 members of ICMM, International Council on Mining and Metals, which I chair, have signed a commitment to work towards having 0 net carbon emissions by 2050, and everybody's working hard on it. We're also continuing to make progress to certify all of our operations with the International Copper Association's Copper Mark, and this just clearly demonstrates our commitment to responsible production. You recall that I became chairman earlier this year, and when that occurred, I made a real commitment to build the kind of board that the company like ours really needs and deserves. We have added four new members in 2021. We added two this quarter, Marcela E. Donadio and Sara Grootwassink Lewis. That brings us to a total of eight independent directors, which have a broad range of experience, and it's going to be a real strength of our company going forward.
Underlying all of this is the fundamental outlook for copper is incredibly favorable. Copper's role in the economy, as economy changes with global investments in infrastructure, I know we have a controversy here, trends are going to develop. The world is getting increasingly focused on electrification with modern techno- intelligence. A new major element that people are talking about and recognizing now for demand that's coming, it's not here in real significance now, is making to reduce carbon. Across the board, those investments result in significant demands for copper. You've got, we'll talk about this more, the commodity really supported by supply factors. I mentioned our climate report. It was reported in September. It's on our website. I encourage you all to take a look at it.
It really details work in a much more comprehensive way than we did in our first report last year about how our company will work to reduce greenhouse gas emissions and how we're approaching climate scenario analysis and reporting in line with recommendations of the Task Force on Climate-related Financial Disclosures. We are, as a company and as an organization firmly committed to this. We see it in our everyday operations in the West and hurricanes on the Gulf Coast, weather patterns all around the world. We all know we need to do our part for our company. As I said, as the rest of the world, the rest of the industry is, it's going to create a lot of copper demand. We established a target to reduce our greenhouse gas emissions in Indonesia by 30%, which is a new target for us.
We have this aspirational goal of net zero by 2050. Our two big issues are, one, the coal power plant in Indonesia. A lot of power required for our massive operations there. We're now investing in a dual fuel-powered plant there. We're looking to a future of power being generated by biodiesel initially, the natural gas, looking at hydropower opportunities. We're working on that. The other major issue is how to convert our big haul truck fleet, massive trucks, diesel driven, to how to convert that to electrical power or hydrogen-powered vehicles. We'll hear a lot more about this in the week. Just know that our company's committed to it, to deal with our own emissions and to work with industry and communities in general to meet the things we need to meet with climate change. Copper's essential to that.
It's a strategic metal in many respects for the future. The world is getting increasingly electrified, and more than 65% of the world's copper is used to deliver electricity. When you look at electric vehicles, charging stations, clean power from wind, solar, all of these require significantly more copper to operate than the way that things are currently done now. It's a challenging time for us, and we're serious about this challenge, but it is also a great opportunity for us as a responsible global copper producer. We got this rising demand, and supply is a real issue for this industry. Even today, with the economic uncertainties in China and globally, copper inventories are remarkably low. The LME recently hit a 47-year low. Shanghai is lower than it's been since 2009.
While there will be some new projects that were started four or five years ago, delayed by COVID, coming on stream in the next couple of years, that'll bring some new copper to the market. Beyond that, the cupboard is pretty empty in terms of new supply projects of any significance. The world today, the opportunities are smaller. They're more difficult to develop and produce. Permitting still requires a very long period of time. The industry really, one, has an issue with meeting the demand with supply, and that's going to require action across a lot of fronts. More scrap, some substitution.
Copper as a commodity is so much better than any alternatives that in whichever environment you can envision for the world going forward, absent some doomsday situation in the global economy, it's just in a situation of where copper prices have to be strong, and in my view, stronger than they are today. Turning to slide seven, what this means for our company is, with all the work we've done today in preparing our business and building our assets, we're going to have really significant margins and cash flow. Six years ago, our company was facing real challenges, and we worked our way through that very successfully.
As we were working so hard, dealing with some real tough problems, and talked about the assets that we had in our company, the long-term assets, the quality of the team, our track record, our capabilities, and that's really what inspired us all to work so hard to get to where we are today. Copper volumes are 20%, gold volumes are 50% higher than they were a year ago, and they'll be growing another 15%-20% next year. It's a great feeling as we were ending the quarter and looking at September in particular, that the capital and execution risk to achieve these higher volumes, which we've been pointing to for a very long period of time, that those risks are behind us. The higher volumes are coming with low incremental cost. $12.5 billion-$17 billion capital expenditures.
We have a new project that we'll be talking about in Indonesia. Including that, our capital expenditures will range on the order of $2 billion- $2.5 billion a year. That means we're where we were wanting to be, where we targeted to be, where we thought we would be. The important part is, now we've done it, we're just not pointing to it. Slide eight shows about this ramp up of the Grasberg mine. Man, this slide looks like this was really a straightforward, easy to accomplish deal. There are challenges every day out there. This is the most complicated mine in the world when it was an open pit mine, and now in the industry's historically, and historic, large underground mine, it is truly remarkable. The third quarter was 90% of our target annualized rate. We were at target in September.
We're now on track to reach full rates metal production by the end of the year. Our team in Indonesia just needs to be congratulated and recognized for strategically so important for us, and it was a real matter of concern when we had COVID facing us. It's easy on paper, but man, it's a challenge every day. I had a great meeting with our team in advance of this call, and the excitement, morale, and so forth, is just exceptional. It's really something special for our company, and we now look forward to taking the steps that we need to take to sustain this for the life of this ore body. We're beginning to talk with the government and getting positive initial responses about extending our operating rights beyond 2041.
Because of the ramp-up, the limit of the operating rights, we haven't done much exploratory drilling, extension-type core drilling. Our feeling and our confidence is there's a lot more resources beyond what we're developing now, and we're explaining that to the government. As I said, initial reactions are positive, and I'm confident that we will not be facing an end of this operation in 2041. That makes no sense for any stakeholder. We need to look at it to take advantage of the long-term resources available to us. Slide nine talks about our growth of our company. A real strength of Freeport is its large reserve base. Proved and probable reserves, which gives us sustainability of our operations for a very long period of time. Beyond that, we have resources that are even larger than our reserves that are ground trying to permit to build new mines.
We have great, we've involved them, we share. As a result, we have these multiple options for long-term brownfield. I'm really encouraged by the opportunities we have in the U.S., where we have great community support. You have the benefit of strong communities and supporting schools, hospitals, education. Great workforce, great community. We pay our people really well. We make sure they have living wages, and we're sensitive to them. Here we see across the board, long reserve life and double production. Lone Star. You're going to hear a lot about Lone Star in Freeport's future. This has a long-term opportunity to be across the ridge from Morenci, the largest mine in North America. Long-term Morenci. Right now, we're having real success with the new oxide mine we started this past year. It's expanding.
It's got funded by using available production facilities at our nearby Sierrita mine that is winding down. That is really a stripping operation for this enormous sulfide deposit. We have a great project in Chile at our El Abra mine, where we're partners with Codelco. This is a mine where we have a sulfide leaching. There's a big sulfide resource, capital project to build a mill with desalinization plant. We're looking at a number of alternatives there. Chile's going through a process of people assessing how they're going to tax and what the fiscal regime's going to be for mining projects. We're going to wait to see how that plays out before making any investment decision. In the meantime, we're getting prepared, working with communities, preparing for permitting and so forth. This will be a project that the world will ultimately need going forward.
We've got a neat project that's not very cycling electronic equipment. This responds to people wanting to see carbon emissions of significant investments. We're looking for that. We're looking for other opportunities like that. This Kucing Liar mine in Indonesia is really special. I was actually out there in the 1990s, as we were driving the Amole Drift, which was a dewatering drift going underneath the Grasberg open pit. Driving the pit, we found this ore body. The engineers give our geologists a hard time about it because they literally pierced this ore body that we hadn't really to the south flank of the Grasberg pit. We've been working the timing for it. In the context of, if you turn to slide 10, you can see where it's located. That's in a separate mineralization zone from our DMLZ and the Grasberg pit.
It's along a fault line. It may have resource it has some complicated geology and mineralogy, but it's a big mine. If 90,000 tons a day block cave, you only think of that as not being a huge mine because it's next to the Grasberg block cave. It's like 60% the size of DMLZ, 40% the size of Grasberg block cave, 350 million tons of ore, good copper and gold grades, 90,000 tons a day from a block cave. That's big by global standards, and it's going to occur over a number of years. It will help sustain our high level of low-cost production out of Grasberg, 500 million pounds of copper a year, 500,000 ounces of gold when it's ramped up in 2030. Capital expenditure is going to be spent over a number of years. Use existing infrastructure.
Just ask your gold analysts how they'd feel if gold companies were to announce a gold mine that was $500,000 a year and 500 million pounds of copper a year. This is a significant opportunity for us. 12, I mentioned Lone Star. You can see how we're ramping up the oxides. We got 2P reserves of about 5.5 billion pounds. The real prize here is the sulfides underlying it. We've done some drilling to identify it. We're doing preliminary plans of how to process it and so forth. Mineral potential is 50 billion pounds. 50 billion pounds. Our guys in Freeport-McMoRan on this call are really excited about it, is new opportunities to apply technology to leaching. Guys in Freeport, predecessors were long leaders in leaching of SX/CW leaching. The opportunities globally for traditional SX/EW leaching are diminishing because they've been accessed and taken advantage of it.
This opens up a whole new realm of opportunities for us to add production with limited capital and low carbon emissions. This will range from looking at a series of additives and approaches for existing leach stacks. Really getting excited by using these data analytics efforts that we started several years ago, of taking certain actions. It's a combination of things. There's several alternatives we're looking at. The opportunity is really significant. Our guys estimate we got almost 40 billion pounds of copper in our existing stockpiles. This has already been mined. It's not in reserves or resources or any production plans. If we can recover just a piece of this, it's the size of a new mine, low capital, low operating cost, low carbon footprint.
A lot of this is at Morenci, there are other places, it could even apply to some old historical mines that have old leach stacks situated to take advantage of that because of the history that we've had with these older mines and what this could mean for it. This is a stay tuned deal. We're not building in our plans yet, it's like a development project, low capital, low cost, low carbon, it's really good. Listen, we're just feeling great about Freeport. I mean, we've been to the wars together. We're adding some really new resources to our team, despite COVID. We're bringing in support. We got young people in our organization stepping up to leadership positions. It's a dynamic company. It's remarkable that through all the trials and tribulations we went through, we had very limited numbers of people to leave us.
Our people look at each other, we're inspired by each other, and it's just great. Strong cash flows. We're going to be responsible. We have this great track record of doing all this. If you look at our success we've had in developing projects all around the world, different kinds of mining, different kinds of processing technology. Market outlook is great. We've got these organic growth opportunities. Really, as a shareholder myself, the prospects of seeing returns on those shareholders coming of significance is just a great feeling. I hope you can sense how we all feel about our company and our outlook, and really appreciate your interest. I'm going to turn it over to Kathleen before we open up for questions.
All right, great. Thank you, Richard. I'm just going to cover some brief comments on financial and operating matters, and then we'll open up for questions. Just really starting on slide 16, we provide some additional details on our operating activities. Richard mentioned Lone Star, and the performance there has been really strong. Our operations are exceeding our design capacity, which was originally 200 million pounds. We're exceeding that now by 25%, and we're continuing to optimize and planning for the next increment of production from oxides as we study the longer-term opportunities. Richard mentioned the leach work that we're doing. It's a major focus at Morenci. We have a big effort underway to enhance recoveries, and we're deploying a variety of initiatives. Some of these have already produced results, and that did enable us to increase expected recovery from some of our leach material in the third quarter.
What this does is gets us more volumes, but also allows us to reduce unit costs, having a bigger pool to spread costs over. That's a really positive thing, and more to come as we go forward. At Morenci, we're continuing to work to increase mining rates. We're targeting getting up to 900,000 tons of material per day in 2023. That's a major undertaking. It's 30% higher than where we were in 2020. As we reported, we have restarted mill, which had been idled since the first half of 2020, and that's proceeding. We started the mill in the third quarter. We did experience some delays, but those are largely behind us. We also had, as probably a lot of you seen the weather conditions in the Southwest that we experienced this summer.
We did experience severe wet weather and some power issues during monsoon season, we always have monsoon season, but this year was more severe than normal, and that did impact some of our operations in the third quarter. Again, that's behind us as well. I want to just echo what Richard said about our team in South America. The Cerro Verde team has overcome significant challenges in dealing with the pandemic. We've been operating at about 95% of capacity on movement around Arequipa, our team just does great work in managing this and being creative about how to manage it safely. We're optimistic that achieve higher rates at Cerro Verde. El Abra is making great progress.
We're increasing the stacking rate of material, and we're focused on sustaining a level of production at El Abra in the 200 million-250 million pound per year range, as we look to potentially expand that as we go forward. Richard talked about the terrific results at Grasberg. Team there is just continuing to deliver results quarter after quarter. We expect to be at our quarterly run rate for metal beginning here in the fourth quarter. For the next several quarters, we project the mill will run at about 175,000 tons per day until 2023, when we install the new SAG mill, which is currently under construction. That will support higher rates as we continue to ramp up DMLZ and then make room for the Kucing Liar project that Richard mentioned. A lot of talk right now about inflation. Our team is really focused on cost management and efficiency projects.
We're focused on extending equipment lives, ways to improve our energy efficiency, ways to efficiently implement maintenance practices, and really use technology in all of this. We have, like everyone else, experienced some cost increases. Those have really principally been associated with the energy price increases. To a lesser extent, we've had some other impacts on our consumables, the impact of steel prices on some of our consumables. We've had higher sulfuric acid costs, freight costs. We really want to send appreciation to our global supply chain team. They're doing excellent work in keeping our operations stocked with critical supplies and managing in these uncertain times. They've just done an outstanding job in keeping our business continuity going. I will note that we have seen very strong prices in molybdenum, and those have more than offset some of these inflationary pressures we've had on the cost side.
Turning to the smelter, on slide 17, we provide an update of our activities with the greenfield smelter we're developing in East Java and the work we're doing with our partner at PT Smelting to expand the facility there. We're focused on completing this project as efficiently and timely as possible. We're advancing the engineering and commercial arrangements. We've commenced preparing the land for construction. You probably have seen press reports that the president of Indonesia recently visited the site in a groundbreaking ceremony. It just indicates the significance of this project to the country. We've got a $1 billion bank credit facility in place for PTFI to use to advance the projects. We are going to plan additional debt financing for the project, which can be obtained at attractive rates to fund the project long term.
As we previously have discussed, the long-term cost of the financing for the smelter will essentially be offset by a phase-out of the 5% export duty. The economic impact to PTFI is not material, and this is a project that is shared 51% by our shareholder, PTFI shareholder MIND ID, and the balance of FCX. Turning to our volumes, and Richard talked about the growth in volumes. We've had great success in execution. We've got our three-year outlook listed on slide 18, and this is generally consistent with our previous guidance. We made some relatively minor adjustments to the fourth quarter of 2021, but you'll see here that the execution of our plan is on track. We show on slide 19 the strong cash flow generation of this business.
We've got very significant free cash flows using our volume and cost estimates and prices ranging from $4-$5 copper, holding gold flat at $1,800, and molybdenum at current prices around $19 per pound. The real growth in our volumes with low incremental costs show EBITDA ranging from $12.5 billion per annum on average for 2022 and 2023 at $4 copper and $17 billion at $5 copper, as Richard has mentioned. Operating cash flows, and this is net of tax, ranges from $9 billion to over $12 billion, which provides significant cash flows, not only to invest in our business and fund programs, grow our business, but also increase capital returns to investors. Our capital spending plans are detailed on the next slide 20.
You'll see here that we reduced our outlook for 2021 for capital spending from $2.2 billion previously to $2.2 billion. That excludes the smelter investment. That reflects really timing. We've had really a timing issue in getting these projects going. Some of that fallen over into 2022 to commence development of the Kucing Liar ore body that Richard mentioned previously. You're talking about $9 billion-$12 billion of operating cash flows and CapEx below $3 billion. Very strong free cash flow. We've got growing volumes, strong markets, low capital requirements. That's really allowed us just over the past 12 months to reduce our net debt by nearly $6 billion. We're down now to $2 billion in net debt. I know some of you remember a time when it was multiples of this.
It positions us well as we go forward to invest in future growth and increase our payout. The last slide, 22, refers to our financial policy. It is centered around a strong balance sheet. The combination of the strong balance sheet and the success in growing our volumes will put us in a strong position. Our board had established earlier this year, a policy that provides for up to 50% of free cash flow to be used for shareholder returns with the balance improvements. With the achievement of our net debt targets, we look forward to the implementation of this policy. We expect our board will determine the structure and size of additional payouts to shareholders with our annual results, and this will be something that we update, and it gets reviewed periodically. That concludes our remarks.
We look forward to reporting our progress and continuing to build on our momentum as we go forward. Operator, we'd now like to turn the call over for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press star one on your touchtone phone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Please pick up your handset before pressing the numbers. We ask that you limit your questions to one. If you have additional questions, please return to the queue. One moment please for our first question.
Ramps, but relative to the factory in 4Q and really into 2022, how should we think about inflationary pressures given what's happened with coal in Indonesia, freight power, particularly in Europe and Spain, and labor as well? Are there any annual contract resets we should be mindful of going into 2022?
We've built in to have a coal contract in Indonesia that is done annually. For the most part, our energy costs are floating with the market. Of the increase that we're expecting next year, we've got a big fixed cost business, so it comes at a low cost. We are projecting that our unit costs will decline. While cost inflation managed well and producing volumes at low incremental costs, will help us drive costs lower in the face of rising inflation.
Great. Thank you.
Yeah, Michael, I raised this question with our team getting ready for this because, I quite frankly, when I saw the out years, I was pleasantly surprised because of everything you're reading just generally about things. The currency rates are helping us, and these byproduct credits aren't really important to us. Of course, in Indonesia, gold's growing and molybdenum is doing well. I think we benefit because Freeport manages its Americas business as one business. We operate relationships with suppliers. We're a premium customer for all of our major suppliers. It's something we're watching and some of our costs are correlated to copper prices. It's a factor, but I was expecting to be more, quite frankly, myself.
Awesome. Thank you.
Our next question comes to the line of Emily Chieng with Goldman Sachs. Your line is now open.
Good morning, Richard and Kathleen. C ould you give us some color as to what's driving the hesitation around maybe accelerating this announcement a little bit about earlier, or are we growth projects is in the next couple positive? Thank you.
Emily, it's just more a question of how quickly this has developed. When we set the policy, we were anticipating meeting our debt target. It happened so quickly. Business has gone so well. We've added new board members. We had set much earlier a process that would result in this being addressed after the beginning of the year, when we got our annual results. We'll be talking with our board about it. We are also having engagements with a number of our significant shareholders about stock buybacks and dividends. Some of the traditional thinking seems to be shifting some, but it's nothing about that's causing us to do that. We have regular scheduled board meetings, and we talk about it every board meeting.
It's just more the question of how to set the process early on, and clearly we're making progress much faster because of markets, but also because of our execution than we had anticipated. It's a good situation, but that's why we are where we are.
There's no hesitation, Emily, on this. We've just got to implement it.
Yeah.
Appreciate it and looking forward to it.
All of us are, Emily. Thanks.
Our next question comes to the line of David Gagliano with BMO Capital Markets. Elias, Melbourne.
Hey, David.
All right. Thanks. Hey, thanks for taking my questions. Obviously, a lot going on here, the leaching potential, development opportunities, et cetera. I just wanted to focus in on Kucing Liar for a minute. In a certain respect, it's early days, but Kucing Liar obviously been a well-known part of the Grasberg. I just have two questions. First of all, if you could talk about spending over the next 10 years, and then secondly, talk about the primary developmental risk as you see it today. Again, I know it's early days, but you referenced complicated geology, mineralogy. What are, in your view, the primary developmental challenges for Kucing Liar? That's it for me.
Like our other block caves, it is spread out over a long period of time. So you know, it'll start out next year somewhere in the $200 million range, maybe a bit lower than that, but ultimately, ramp up to average about $400 million a year. That's done over an approximate 10-year period, and the production will come on to sequence. All of this is sequenced together, but the production will come on to sequence when we have availability in the mill as we have some declines with other ore bodies. Mark, if you want to give some background about KL. As Richard was saying, this is just a natural progression for us. It gives us really a place to continue to use everything we learned from DMLZ and Grasberg Block Cave full time to begin transitioning to develop another ore body there.
David, it's going to look very much like DMLZ. It's at a similar elevation. It's technology to it. We ended up having to play a bit of catch-up. We've got a much better geotechnical knowledge and how to address that part of the risk. It does, as Kathleen says, it benefits, it ties into the GBC development of the ore flow system, ventilation, access. We're driving three headings, starting very soon, and they all tie off of a development that's either off of the Big Gossan or off of Drifting that goes back to GBC. The previous KL reserve had much more complex metallurgy and geology. Over the last couple of years, we changed our material that was a little bit lower grade, but that the material could be processed through our current mill.
That took away a lot of challenges that the previous KL mine plant had. We had to change our flotation circuit. We had much more of the environmental management with pyrite concentrate that would be generated. This plan, it's about 0.9 copper, 0.9 ounce per ton gold. The tons that Richard mentioned are very much driven by this 2041 date that we're working on, and this deposit has a lot of growth, both on the same footprint that we're working about now and at deeper levels. I feel like this is going to be our chance to take all the lessons learned. We're looking at the potential of applying electric mining equipment there. I think we get a fresh start with a lot of experience that's going to apply itself, and KL's going to benefit from it.
I want to tell you, David, that the original reserve, as Mark said, had all this pyrite material, and our gold recoveries were very low and processing was complicated. Dealing with the pyrite tails was real complicated. I was just so impressed when Mark and his mine planning team came in with this new plan, which makes it much more traditional, much less risky, much less capital intensive, and in fact, created more value because originally we were only getting 50% recovery out of that pyrite-laden gold and ore. It's a great example of having a really good mine planning team and led by Mark.
Okay. That's helpful. Thank you. Just a quick follow-up on the timing of the CapEx. $4 billion over roughly 10 years, $200 million in 2022. Is the lion's share of the spend likely towards the latter half of the decade? Is that reasonable to say? Can you give us a little more color on the timing of that ramp?
It'll average around that, because.
Yeah, it's pretty consistent because we've developed most of the access and ventilation and all those sorts of things, it's not chunky.
Okay.
This is more or less mine development, and that occurs on a regular pattern.
Okay. Understood. Thank you.
Our next question comes to the line of Chris LaFemina with Jefferies. Your line's now open.
Hi. Thank you. Hi, Richard. Hi, Kathleen. How are you?
Hi, Chris. Great.
Just a follow-up question on the KL project. It sounds like the gold grades there are quite a bit higher than they are at the Grasberg Block Cave under the DMLZ, and the copper grades are kind of similar. Is this a project where we should expect operating costs to be at least as low, if not lower than what you're going to get from the two current Block Cave projects?
The answer is yes.
It'll be lower cost. Should we also think about it as just being sort of a mine life extension to the Grasberg Block Cave, or would there be a period where you'd have, you're obviously constrained by the mill capacity, but would there be a period where you might have higher production as this is online along with you still operating the Grasberg Block Cave?
It just fits in really well with grade changes with our existing mines. It folds right in. It's a sustainability of production project as opposed to a significant growth project.
We get up to a mill capacity of 240. Before KL, that mill would run somewhere around 220. KL benefits somewhat also by the mill capacity provide. Then as Richard and Kathleen mentioned, it just fits in nicely, as the grades in some of the when the grades at it are better than the grades at, for instance, at DMLZ.
Chris, to put that in perspective, way back in the 1990s when we were designing the Grasberg open pit and looking forward to life beyond the pit, our original targets was 120,000 tons a day through the mill.
Okay.
Over time, the anticipated 120,000 ton per day mill rate from the underground to 240,000 tons from the underground is, just to put it in perspective.
You went from being in a position where you were kind of managing a balance sheet, trying to develop these two really difficult underground projects in Indonesia, negotiating with the government regarding ownership at Grasberg, and you probably couldn't have drawn it up any better as to how it's progressed in terms of the development of the projects, the de-leveraging of the balance sheet. The ramp-up of the Grasberg Block Cave and DMLZ has been really impressive. I think there was a lot of skepticism in the market about whether you could actually deliver on that kind of unleashing this massive appreciated until recently. You've kind of been highlighting it in recent quarters, but now we're there. You're going to be developing these projects.
You're obviously talking as well about this kind of catalytic leaching and leaching copper out of old leach stacks, chalcopyrite ores, which historically have not been commercial. Is this a technology that you think could potentially be revolutionary in the industry in terms of leading to a lot of supply growth from old, kind of what had been waste stockpiles? Do we have to worry about the copper supply-demand balance as a result of these sorts of new technologies leading to lots of growth?
That's again, Chris, a question I've been asking our team all along. In a prior life, I actually worked with the first company out of Houston that did the very first fracking operation for the whole oil and gas industry way back in the '80s. I've asked that question, and while it's a tremendous opportunity and particularly good for our company, considering the nature of our stockpiles and the history of our operations and the way we've dealt with low grade, this will be beneficial. People are really going to be pursuing it. It's not just one technology that's being pursued, but a series of different options. It's an evolving story. It's not likely to be the kind of game changer that fracking was in the oil and gas business.
Okay. That's fair. Thank you for that.
Our next question comes to the line of Lawson Winder from Bank of America Securities. Your line's now open.
Hi, good morning, and thank you for the update. It's nice to hear from both of you. There's so much to discuss, but I'd like to actually touch on your efforts around ESG, particularly in Indonesia. It's really exciting that you're targeting a 30% reduction in emissions by 2030. I'm wondering, how do you think about the cost of that? Or what is the cost that you factored in in order to achieve that? When you think about it, maybe from the other way, in terms of IRR, if you assume some carbon pricing assumption around where maybe European carbon prices are today. What kind of IRR do you actually get on those type of investments? Thank you.
That, I kind of hate people who say that's a good question. Some people just say it all the time, that is a real good question, and it's something that is really underappreciated right now. We're particularly focused on it within ICMM because here we had the 28 largest mining companies that represent about a third of the global mining industry unanimously making this commitment. As I said, with Freeport, because of our limited Scope 3 emissions, it's not as big a challenge as it is for some other miners and resource companies. We don't know yet what the cost of this is going to be. It's going to be significant. There's just no way around it.
We met with senior management at Caterpillar to try to think about designing 400-ton haul trucks that can make the grades up these big pits that we have. The battery in those, at this current level of technology is changing, but damn battery weighs a ton and its life is very short. You got to deal with all the recharging and trolley systems and so forth. Again, it's going to involve a lot of cost. Right now, while people are really making these commitments in good faith, they're doing it at a time and it's going to rely on technology advancing questions and answers with all that right now. We kind of have I think we got our arms around converting the coal plant things.
The question of how do you deal with haulage and electrifying shovels and a lot of the shovels are already electric, just light vehicles and so forth. In our underground mines, we have a big electric train helping us deliver ore. There are going to have to be some investments there. It's going to be an unfolding story. You raise a point that people following us and companies in our industry ought to really be tracking, because as we said earlier today, there's more questions than answers in that area. I just might make one add-on to that. That's going to be another factor. We've got 30 years or so to have this unwind, but it's going to affect mine life, it's going to affect the economics of project development. All of those things are going to come into play.
So in your list of-
Very fair.
One of the other things to keep in mind in Indonesia is we have with the transition to underground, when we were mining at the surface, we had to move both ore and waste, to get the metal production. Here underground, it's very efficient. With the block caving, you're really just mining ore. It is more efficient. As Richard said, we've got some electrical applications underground. Mark talked about expanding that as we look at new developments in KL. There are some benefits that we have in Indonesia from the change from surface mining to our underground mining.
We were moving 800,000 to 1 million metric tons a day in that open pit mine. Think about that. We still are having to move material around to manage waste and deal with our tailing system and so forth, but that's a big change. We got plans of developing new mines. This is kind of a conundrum. The world needs more copper, and yet more copper, until technology breaks through, is going to result in more carbon emissions. This is not the only industry where that's an issue that's unknown right now, but it's certainly true in our industry.
Thank you for your thoughts.
Our next question comes from the line of Orest Wowkodaw from Scotiabank. Your line is now open.
Yes, good morning. I was wondering if we can get some details on the potential timeline for the Bagdad concentrator expansion. How much time is involved for permitting something like that? Even with the Lone Star expansion, is it fair to say that probably we wouldn't see any CapEx for either in 2022?
Well, I'll let others answer. We'll have CapEx for Lone Star with this oxide, because we're expanding the oxide. We started out at a certain level. We're stepping it up. Kathleen, you or Colin, somebody else could.
Yeah. It'll be small. It'll be advancing feasibility next year. Thinking, Bagdad is probably out or so before we'll have production. You won't have meaningful CapEx for another couple of years associated with it. Lone Star, the next increment of expansion is relatively low in terms of capital intensity. The longer-term opportunity is timeframe, but it's meaningful. The big thing that we really are focused on is growth through these low capital intensive opportunities to get more out of what we already have, or these leach. That's really where we can impact things in the shorter term.
I'm going to put an exclamation point on what Kathleen just said about Bagdad. Because, going back to the early 2000s, there was just a feeling that higher prices would bring production. That's been the history of the copper industry. Here we are at Bagdad, where we already have the reserves, we have established operation, full support of the community, and we're just talking about shortening the reserve life by building a new concentrator. That's five years out. That's as easy a project as you're going to find in this industry. That's what I was just saying, this coming situation, absent some doomsday global economic situation, there's just going to be a time when the world is going to be very short of copper.
I couldn't agree more. Richard, just as a quick follow-up, in terms of the capital allocation framework of paying out up to 50% of effectively free cash flow, how does the smelter CapEx fit into that?
You need to keep that in mind because that is one of the goals I was trying to achieve when we were negotiating all this back in 2018, is we consolidate PTFI. That'll show up as consolidated debt for us. It's financed at the subsidiary level. The obligation is going to be shared by the two shareholders, FCX and MIND ID. It will go into PTFI's tax calculations. The project will be something that will affect PTFI's taxes. When you step back from that Indonesian operation, I was really pleased. I don't know if any of you reviewed the Indonesian media coverage, but they just had these athletic games in Papua, where the president was there and senior government people. They had the groundbreaking at Gresik.
I have never in 30 years, knowing what a great investment the country made when they bought out Rio Tinto's joint venture interest in 2018. For the government going forward, when you look at the government's equity position, their 51% share of equity, which we'll step up to that in stages. The high tax rate we have, royalties we pay. You look at the payments that are made for intercompany transfers to FCX. The government's economic interest in the project exceeds 70%. We were able to retain through the negotiations, the interest we had going into it. This is truly something that all the parties are very happy with. What a relief it is to be working in Indonesia and not have to deal with the kind of complications we had for so many years.
Thanks, Richard.
Our next question comes to the line of Carlos De Alba with Morgan Stanley. Your line is now open.
Yeah. Thank you very much. Good morning, Richard and Kathleen. Just on KL, how much, if anything, of the estimated 500 million pounds of copper at KL would be incremental or 100% would be just to replace or sustain your production profile in Indonesia? Together with that, and just following on the discussion, how do you envision, Richard, or what is on the negotiating table, for the potential extension of your rights in Indonesia? Would the government potentially get a higher stake in the scope of the negotiation?
Okay. With your first question, and Kathleen, help me this is probably embarrassing.
Yeah.
Is this-
It's really
Well, let me just say, though.
Yeah.
We give a five-year outlook for PTFI's production. Is that in the press release or was that-
Yeah. Mm-hmm. Yeah.
Okay.
No, it's in there.
Carlos, just follow that, and you can see that as we said before, this is more of a question of sustaining production levels as opposed to a growth project. You can see what we show for five years, and that will give you a view of the trend going forward. With respect to your second question, it's really early stages, but we have broached it. I've talked with senior government people about it and our partner, MIND ID, the state-owned company under the auspices of the Minister of State-Owned Enterprises. Everybody recognizes the mutual benefits for it. Sure, the government would like a bigger interest, but think about the complications of that, because with an extension, we will want to start, as Mark said, we've got opportunities at KL and elsewhere to invest, and we'll make those investments in advance of 2041.
We have to balance out how you share those costs, where we basically have 50% economics of new investments with what's our interest going to be going forward. That's early days to be discussed and benefits to all stakeholders for finding a way forward on this are clear cut.
Understood.
The alignment between FCX and the government is really good, to have the kind of incentives for both parties we tried to design in 2018, and that's really what's happened.
No, that's very clear. Given everything that goes around developing a project of this magnitude, K.L., what would be ideally the extension of the time for those rights that you were looking for, 20, 30?
Well, just to be clear on KL.
To be clear on KL, yeah, Kathleen, those economics are baked into a 2041 drop-dead date.
Okay.
They're not dependent on extension. What the opportunity is to make KL bigger and to find other resources, because we really have done very limited delineation type. We don't know the answers, but we're optimistic that there's resources there that we don't know about yet. The best answer is for projects like this to not have a time frame, but to have incentives for all the parties to work to maximize the resources over the long term. Time frames make no sense.
Thank you very much.
I want to be clear, the KL economics are not dependent on an extension. The current project.
Our next question comes to the line of Brian MacArthur with Raymond James. Your line's now open.
Good morning. Well, Richard, you just answered the question I had right there. Maybe I'll try something else. Just on the molybdenum business, obviously, it's doing a lot better. I see Climax has come up a little bit. What's the strategy going forward? Do you plan to ramp things up more there? At Sierrita, which obviously has a big moly credit, why wouldn't it be ramped up bigger in the whole thing in the near term, too?
Well, we've been creating the processing facilities and capabilities. Mike Kendrick on the line, he can chip in on this, but rather than just being a metal producer and a by-product producer, the past efforts created a really sustainable global leading business of where we're able to maximize the value of our ore resources in Colorado from our molybdenum mines through the by-products credits in North America and South America. We can expect those to come with expansion projects and moreover. We're able to generate higher than the metal price value from molybdenum by processing it as a chemical product, and we run this thing as a business. It obviously ebbs and flows with the price of molybdenum. Today's price, look out three or four years and a lot of cash coming out of that business. It's strategically important to us.
We just got a great team. It's a global team. They work together very well. Colorado is a state where you've got, all states are, but you got to be very careful about environmental management. The city of Denver gets maybe 10% of its drinking water off of Climax Mountain. It's a business that goes back 100 years, more than 100 years for our predecessors, and is strategically very important, and now it's generating cash. Mike, you want to add anything to that?
I was just going to add, Richard, Brian, we do have opportunities to increase primary moly production at the Climax mine. If you think about what the big deficits people are talking about in copper, there could be mounting deficits in moly at some point. We want to be in a position, and that's what our primary mines can do, is meet market demand. We had curtailed capacity in the past to match up with markets, now we have the opportunity potentially to increase. We're going to be doing some mine stripping and that sort of thing to be positioned so that the markets are there, we can be there to participate with this quality product that the market wants. We're looking at all of that. I don't know, Mike, if you want to add something to that.
No, I think you both have captured it really well is that Freeport has made tremendous investments in the moly business over the last decade, including the Climax mine, a tremendously productive circuit at Cerro Verde and at our other by-product circuits in North America. We've been able to take that with our downstream operations that we've inherited, and we've made incremental investments over time there, and they're very productive, and we can service not only the metallurgical, but the chemical industry and the lubricant industry very well. As Kathleen says, we're definitely evaluating the next steps.
Sorry, just on Sierrita, given the big moly credit there, is that all the way back to full capacity yet?
Josh.
Good morning. I was going to jump in with respect to Sierrita. We've been ramping back up at Sierrita in terms of the mine plan and stripping over the last six to eight months. If you think about it from a moly perspective, it's really been driven by the sequencing and the grade available in the mine. As the moly price has gone up, they're looking at what's the best way to optimize the value at Sierrita. The upside is incremental. It's not significant because the mill is at its capacity as we sit today and going forward. There's opportunities, as Kathleen touched on earlier, with respect to incremental milling rate increases, which we're working on through data analytics and digital type tools, but it'll be incremental at best as we go forward.
Thank you very much.
Thanks, Brian.
Thanks, Brian.
Our next question comes to the line of Alex Hacking from Citi. The line is now open.
Hey, Alex.
Thanks. My question was already answered, which was around the economics of KL. If the contract. I'll let someone else ask a question. Thanks.
Thanks, Alex.
Our next question comes on the line of Michael Dudas from Vertical Research.
Hey, Michael.
Good morning, Richard, Kathleen. This is great news on the relationship with the Indonesian government. Maybe you could share some additional thoughts on what your options. Is there anything out of Washington, with all the noise, that could impact mining, could impact potential investment, or how the mining industry will react as some of this legislation comes forward?
All right. Wow, I got to discipline my comments with those questions.
Sorry about that, Richard.
No, it's the world we live in.
Yeah.
Chile is separate from Peru, it's got really a lot of questions about it right now. It's driven by this widespread feeling within the country of people, as people are having around the world, dealing with income inequalities and social programs versus other government initiatives and so forth. It's got a complicated election coming up. There's no clear-cut front runner right now. There's processes going on within the parliament, within issues related to consideration of constitutional changes, it's really, from my perspective, muddy waters there. It's not currently nearly as significant as Peru in terms of El Abra's production is a small part of our production. It is affecting our consideration of expansion. We're working with the industry. We're not at the top of the charts in terms of production there, we're working with others on it.
In Peru always consistently has complicated presidential politics, and we've seen this story before, where a left-leaning candidate gets into office, and runs on platforms that are very much addressing getting more money out of mining companies. President Castillo ran on that platform. He had the backing of the far left-wing parties there. I got to meet him within this past month. He came to Washington. It was a Sunday before UN week, and with a small group of mining executives, had dinner with him, and my first time to meet him. He comes from a non-political leader background.
He was a teacher in the interior of Peru, and when he talked with us that night, I found him to be very compelling in his emotional feelings about doing more to help the people from the region where he came from, but also throughout Peru, the poor people, in terms of education and so forth. There, I had a better feeling than I had going into it. I had the chance to have exchanges about different issues. None of us got into details about so forth, but he emphasized that he recognized the importance that mining plays in Peru, and that's what always happens when people get in office to achieve social programs. They see how much mining contributes to the country financially, and that's needed to do.
At the very outset of and replace that was prime minister, it's a really wait-and-see thing about it, working with others in the industry. We need to be responsive to his concerns. We focus almost all of our community programs on the regions where we operate. I think we've got to take a broader view and show people in the interior that mining can help their lives. That's what I'm working on right now. I am more optimistic now than I was during the election. You'll hear different views by different miners there. People are very concerned, rightly so. Our situation is we have a new stability agreement. We're maximizing the operations at Cerro Verde. It's a big producer, major contributor to our volumes. It's got the world's largest mine site, concentrate facilities.
We have great relationships with the local community. We want to build off that and try to reach out and find some common ground to work with President Castillo. It's uncertain. Man, what about the U.S.? What can you say in Washington these days? The current administration change, and yet I don't expect them to lessen up any requirements for permitting environmental management community issues. That just runs against the grain of their political situation. It's really uncertain. We're all hopeful we'll see some steps towards infrastructure building. The country really needs it. You see it in ports and roads and bridges all over the country. I just don't have any comment on the political situation other than be distressed about approach to relationships with China in this country, and that's a bipartisan issue, and it's a complicated one.
China's going to be an important part of our world going forward. The country's too big, the people are very smart, they work hard, and they create a lot of economic velocity. Anyway, I'm staying out of politics and focused on Freeport.
You sound like a true ambassador, Richard. Thank you.
He's like.
Thank you. Now, we'll turn the call over to management for any closing remarks.
Well, Kathleen, I thought going into this thing, we had such a good quarter, we'd have a real short call, but I really appreciate your good questions. As always, there are a lot of complicated issues to face with. I woke up this morning feeling on top of the world, and then opened my screen to see for the first in a number of days, a weekday in the market, and I said, "That was just God's way of reminding me about the business we're in." We couldn't be more. I think you get, I hope you get the sense, not just from me, but from our whole team, of just how good we feel about what we've done, and we're not going to focus on what we've done, we're focusing on where we go from here. It's a long-range business. This is a long-range company.
We don't feel any pressure to do anything from any kind of M&A standpoint or be overly aggressive in new investment decisions. We can approach this in a very straightforward, logical way. In the meantime, make a lot of money and show shareholders some gratitude for sticking with us and being part of our company. Thank you all. If you have follow-up questions, as always, let David know and we'll be responsive.
Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.