Freeport-McMoRan Inc. (FCX) Earnings Call Transcript & Summary

Good morning. Our next session is with Freeport. We're going to do this as a fireside chat. So if you do have questions, please send them in through the app. Joining me today are Richard Adkerson, Chairman and CEO; and Kathleen Quirk, President and incoming CEO.

And I want to kick it off, Richard, after 20 years at the helm of Freeport, you decided to transition the CEO role to Kathleen. Can you talk a bit about the decision to do this now?

So I turned 77 the day after Jimmy Buffett died in December, who is my age. And I think I'm getting old enough finally to run for President of the United States. Three years ago -- it has been 20 years since -- I've been coming to this conference for 20 years, and it's great. Thanks, BMO for hosting and thanks to all of you who attended our sessions over the years, and we've had a lot of interesting thing happened at this conference, a lot of deals that we advanced and some we didn't make, but it's always been a great conference, and we appreciate sponsoring it. Three years ago, I became Chairman, finally. A number of you have heard me express dissatisfaction over the previous Board at Freeport. And we added 6 directors when I became Chairman, including 4 CEO types and financial experts. And I made a private commitment to myself at that point in my career to say, I want that Freeport to have a sustainable Board, and I want it to have a sustainable management team. We had a team that's been together for so long. We call it the Freeport family. And -- but a number have been there so long that they're retiring and we're replacing them. You wouldn't believe it because Kathleen is so young, she and I started at Freeport exactly at the same time 35 years ago. And after we split off FCX, she had worked in the Ag Minerals business and worked with Chip Goodyear, who was my partner back in those days. And when we sold that business, she became a Treasurer, and that's when we started working together and then she became CFO 20 years ago. I want to give a round of a hand for her career and all that she's accomplished. It's a great feeling after devoting my life to this company so much to leave it in such great hands, I mean, she's just a remarkable leader, and she's taken over more and more. And we've got work to do. I'm going to stay as Chairman and work with the Board, but I'm also going to support Kathleen in transition. And then I'm going to focus on strategic issues. We've got a new government coming in, in Indonesia, new government in the U.S., we've got political issues in Chile and Peru, we need to work with. We want to grow our business. We spent too much of our career being workout artist. Five major times the company has been threatened with mostly self-imposed problems, and we spent too much of our time dealing with those. In between, we did the Phelps Dodge deal and then 12 years ago, we did 4 major development projects that were successful. Together, they created a modern Freeport. And that's what we're going to work on as we go forward, and I'm going to help Kathleen, and we're going to establish our relationships with governments, with communities, within the industry, and we're going to look for ways to grow our business. And that's a real challenge. We're committed to copper, I feel strong about that as I ever did. I've been on this stage and I debated Mick Davis and others about diversity of commodities. I never felt nickel would pull out copper when copper went down. And just as committed to copper and feel as much passionate about it as they ever have. The supply side is so strongly supported and the world is going to get more electric. It's not going to be as smooth and easy thing, but we've got a great set of assets to build on internally. We've got a great team. We execute really well. So that's where we are. And I hate getting older. I just hate it. I'm fighting with that old man in. Last year, I had a knee surgery from a horse accident, and I was limping coming up here and I felt bad. Anyway, the company has got a great future, and I just feel great about what we're doing with the management transition. It's the right thing to do and the right time to do it.

Age is just a number, Richard.

Just wait.

Kathleen, as Richard said, you've been with Freeport for 35 years. You were close with Richard over this time. Do you envision any strategic changes moving forward?

The company is so well positioned as a leader in the copper industry. We've got great assets, geographically diverse, operationally diverse. We've got organic growth opportunities. We've got a number of things that differentiate Freeport, and these will continue to be really important as we go forward. The first thing is to execute reliably and responsibly. And that's a challenge in our industry. You've seen it across the board with a number of companies facing challenges with supply development, project execution. That's a hallmark of Freeport, and that will be something that our team will continue to focus on in terms of execution. People, big deal at Freeport. Richard talked about the culture. I want to give him a lot of credit for developing a culture at Freeport where we work to create value for shareholders and for all of our stakeholders. And people stay around the company for a long time. We have a sense of commitment and passion for our business and what we create, and that's going to continue to be a priority of mine, is to keep that culture going because it does add value to the company. Technology is going to be a big focus. We're already focusing on innovation and technology as it applies to our new leaching technologies, a lot of value in our industry. It's going to go more broad than just leaching. It's going to cover a whole range of things that we now have tools available to us in our industry that all of us need to embrace that will allow us to drive better performance in the future. And the other thing that I'm very focused on, Richard is focused on it as well is our growth pipeline. And we all are looking at the outlook for copper, the need to produce more copper units. We've got opportunities within the portfolio. We're advancing those. Unfortunately, the price isn't sufficient today to really trigger big investment decisions, but we are advancing where we're derisking those projects. And when the time comes, we'll have opportunities within the portfolio. We're doing a lot in Indonesia. Executing very well. We're also pursuing a growth project there at Kucing Liar. So I feel very, very good about our strategy, about our ability of the team to execute and I just feel very excited about the opportunity, very excited about where Freeport's position our ability to generate value in the future.

We'll take one question from the app. What do you think about Gary's quote about not being early to the party when it comes to growth projects?

Not being what?

Early to the party.

I want to be early to the party. I mean I want us to grow. I mean, I -- that's been in me. And I know I read some commentary about the management transition and you talk about cost control and things like that. God knows what this company would be if we hadn't had barriers to growth that we've had over the years. Now I do agree that you have to have the things addressed that Kathleen talked about. And one thing we didn't learn we did those 4 projects together 12 years ago and we would have benefited from more front-end engineering studies and those where they have been more efficient. But that includes Cerro Verde. It included expansion of Morenci, reopening Climax, building Tenke Fungurume, which we created tremendous values on. So I mean, we're going to be disciplined. And Kathleen has really been involved in all that, and she's very, very disciplined person. And so from that standpoint, we're not just going to run out willy-nilly and do it just because. You won't see any greater believers in the copper markets than the 2 of us sitting on this stage. And we want to grow, but we're going to make sure we got our arms around -- everybody is focused on operating capital cost in new projects. Well, operating costs change as well. And so you've got to -- you got to deal with that and make sure you understand what you're doing before you do it, and that's what we'll do.

When you do look at the projects, obviously, you're looking for higher copper price. But what are -- can you talk a bit more about what are the other areas or factors that you consider before you make a final decision?

Well, you start in the 1.7 billion pounds of copper that we believe we can bring on into the market over time. The leaching initiative is one that we're pursuing very aggressively. And we reached our targeted run rate, initial run rate, 200 million pounds per annum at the end of last year. And we have the opportunity potentially to produce as much as 800 million pounds from that initiative at a very low operating cost in significant amount of capital, very attractive economics, the most attractive in our whole portfolio.

And no permitting.

So that is going on separately. So just put that aside, on the other projects that we have in the U.S., our Bagdad project, we've done the feasibility work. It's a fairly straightforward project. The consideration there, one, is market conditions. The second, though, is the availability of labor. And there's a very tight labor market, particularly in Arizona, particularly in remote areas like our Bagdad location. So what we're doing now to advance the project is we plan to convert our haulage fleet there to fully autonomous. And so we're in the process now of working to convert that fleet to all autonomous. That's going to help us with our labor pool. We're also advancing some tailings work. So that when the time comes, we would have derisked the project and be further along with it. At some point, the project will make sense, and we're tackling the obstacles that are in front of us. In Chile, our partner, CODELCO is here in the front table. Thank you for all your support. We have a great partnership with CODELCO at El Abra, and we have a big opportunity there to unlock a huge resource that through a mill concentrator, we're currently doing a leach project there, and we see an opportunity to develop a concentrator project similar to what we have at Cerro Verde, very attractive. It's going to be costly. We're going through our cost estimates, again, in light of what happened with the most recent project in Chile. And so we're retesting the economics and getting ourselves into a position that we will -- to Richard's point, we've got to get a permit for it, and it's an extensive permitting process. We're looking to prepare for permitting application in 2025. It takes some time to get to the point where we can file that. But it's a huge opportunity for us. And again, we're looking to derisk it as we go forward, really understand the capital costs and our ability to execute. And then our project in Indonesia is on top of that, the Kucing Liar project, very significant producer of both copper and gold, a very attractive project because we're using a lot of the existing infrastructure that we already have in Indonesia. That is a long-term development where looking to bring it on around the start of the new decade in 2030, going very, very well. And what we've been able to achieve in Indonesia, and you saw our fourth quarter results where we had a net cash cost in that operation of $0.00 per pound, meaning the cost of -- cash cost of production was completely offset by our gold revenues. We've got a great opportunity in Indonesia to continue to develop and have very large-scale production there.

Maybe staying a bit on the Kucing Liar. So you're spending about $400 million per year for the project over the next 10 years. Given that we're seeing inflationary pressures across the board, is there a risk to CapEx?

No. I mean, Grasberg is such a great asset because it's got high grades of copper and all that gold there. So that was a whole strategic reason for putting together Freeport and Phelps Dodge during periods of low copper prices, Grasberg was there to provide cash flow to support that service G&A costs. So this -- it's a lay down project, and we're doing it -- there won't be any copper price that would delay that. And with the extension under our old contract, under our new permit, it would all ending in 2041. And so we know that we have -- we can't report reserves beyond 2041, but we know we have reserve quality resources already established. But we haven't done much delineation in drilling. And when we're talking with the government, we're telling them, we need to do this for the long-term planning. We spent, for the underground mine that was 20 years of investments before we started offering the industry's largest underground operations, and you can see how it's going. So it's in all stakeholders' interest for us to extend that 2041. We have no rights right now beyond that. So it's something we have to work for the government to get it done. But the President of Indonesia is very supportive and the Mines Minister. So there's no controversy about is just getting the regulatory process is completed to get it done. And we're already starting to do exploration work there. So it's a bedrock asset of our company, but -- and in the U.S., we own all of our lands and fees, so there's no royalties, very favorable tax situation and even more favorable because we have a big NOL, which makes me grimace. But -- when you got community support for our operations, native American support, we built the community relations to the point where people want us to expand and so it's a great opportunity for us well. And those tax royalty situations have offset the lower grades that we have to deal with there.

I think it's important on Kucing Liar also to take into account the fact that we did bring the Grasberg Block Cave mine online, the Deep MLZ mine online. So really, the methodology that we're going through and developing Kucing Liar takes advantage of all of our experience -- recent experience with that development. And all of the learnings that will drive better efficiencies as we complete -- as we complete that project. So we feel very good about the development of Kucing Liar and with an extension at Grasberg being able to unlock a lot more opportunity there than we ever thought we could.

It's 50,000 tons, right?

90,000 tons a day.

90,000 tons a day.

Yes.

So this is world-class block cave mine, 90,000 tons a day. Now we're mining some days 240,000 tons a day from underground -- from underground. Think about that.

And then regarding the mining rights extension in Indonesia, how is that progressing? Do you have a time line by when you want to get it done? And is the presidential election impacting that?

Yes, when I talk with the President in the first week in September of 2022, we're going to get it done by the end of the year. And he's very supportive. It's just -- I never thought I could be as patient person as I am going through the regulatory processes there. So there's no debate about it. They just had the election. It hasn't been officially certified yet, but all indications are there was a majority winner in the first round. The new government doesn't come in until the fall, and so we anticipate this happening.

What's been really great about our relationship with the Indonesian government over the last 5 years since we signed the new agreement in 2018 is that now the government is a partner with us in the operation. And so there is a lot greater and deeper understanding of the need -- the long lead times involved in mining. And so actually, they recognize this, the government recognized this issue 2 years ago that if we were able to get an extension, we could do more evaluation, more exploration, more investment sooner so that we didn't cut off values that would go to all the stakeholders. So that's been a real benefit of bringing together the Indonesian government as an owner in this asset is as much stronger alignment than there ever has been in the operation.

Yes, it's just night and day. And the government through taxes, royalties, fees and their 51% equity interest has 70% of the economics of this project. Thanks to our friends at Rio Tinto selling out to the government, Freeport was able to maintain its interest and that allowed the government to meet their objective of having a 51% of the equity interest. We have a shareholder agreement that gives us the right to operate, which was our bright line objective in the negotiations. We didn't want to invest in a state-owned business. So we have clear cut -- FCX is the operator.

And then I think last year, there were some reportings that the government is looking for an incremental 10% share. How do you think about that? And how that would impact the shareholders?

I mean that was -- our discussions led to that because we didn't have any rights beyond 2041. And so in terms of discussions to reach a mutual agreement to go forward, we agreed to divest that additional interest.

In 2041.

In 2041, but not before that.

And we have a question from the app. What is the most important lesson that you have learned over the last 35 years that you would be willing to share for all the people in the room who are younger than the next President of the U.S.?

How long do we have?

I'm trying to see. I got it shorten to say because the -- there's just been so much. I love being with Freeport and the people I work with and all the investors and so forth, which was once just a huge part of my life. We couldn't get anybody to buy FCX because we were in Indonesia and we were 1/3 gold, 2/3 copper. It was kind of the lesson. I had 20 years in public accounting, working in the oil and gas business in a senior position there. And I hated corporate culture. I mean that's why I never wanted to go into to a company. I got dissatisfied with what was going on in the firm I was in. And so I ended up coming to Freeport, and I've known Jim Bob and the company, I worked with them for 20 years before that. And for whatever reason, he let me reestablish -- and Kathleen mentioned this, the corporate culture. And we are different. We are not structured. We don't even look at really organizational charts, and we have a problem with foreign team to go work on this. Sometimes, I'm on the team. Sometimes Kathleen is on it or we're on it together. And we just have this deal, we win as a team, we lose as a team. You have to be qualified, work hard, be committed to be on the team. So we're pretty rigorous about who makes it and who doesn't. But once you on it, we're in it together. And we don't look for fall guys. We don't call people in the office, say, you got to go fix this. We look at ourselves and say, let's go fix it together. So if I say the thing to me that I take the most pride in, is creating that culture, and then we went to Phelps Dodge, which had a really tough corporate culture. The operations were consistent with the way we did things, and that was the easy thing, but we just kind of blew up the corporate culture real quickly and changed it to the Freeport culture. And now the former Phelps Dodge people are the biggest supporter of that culture. So I think the thing is if you can get an organization that where people aren't afraid to -- if there's a mistake or a problem, they raise it up. They don't have a fear that they got to go solve it themselves. Tailings thing is the biggest deal. We tell our people, well, if we got a problem with tailings dam, you've got to let everybody know about it. You don't feel like it's your problem to solve, but we do that with kind of everything we have going on. We're dealing with low-grade productivity issues in the Americas right now in the U.S. We've got to solve that problem. And...

But I would just say in just working with Richard over a long period of time, the thing that I've learned from him is in our industry -- that's applicable to our industry is finding common ground. And whether it be common ground with employees, workforce, stakeholders, governments, communities, investors, ICMM matters, Richard knows how to find common ground. And that's what our industry is about. And the sustainability of our industry is about our ability to sustain a business over long term to find win-win situations, not try to get every last penny from anyone, but to be fair and honest and reasonable in executing the business. And he's just been a great role model to all of us. And in being fair and reasonable and find a common ground with all of our stakeholders.

In my career, one of my mentors, he gave me a responsible position. He said to me -- and I uses all the time. I'm going to give you very specific instructions on how to succeed. Do the right thing and don't screw up. So when somebody comes in to me and says, "I want to have a better job or I want to have a promotion." That's what I tell them. I say, "do the right thing, don't screw up. Start doing the job that you aspire to before you get promoted in a cooperative way, not a competitive way." That's what Kathleen has done. I mean we've had a 20-year transition, but particularly over the 17 years since Phelps Dodge, I had 16 people reporting to me and then when she became President, I've had one. That's -- it's just that attitude of -- we're in it together. We're going to do the right thing and everybody makes mistakes, and when we do, we say how can we solve it? How can roll up our sleeves and go do it.

Well, Richard, Kathleen, thank you so much. Unfortunately, we ran out of time.

Thank you.

Thank you.

Thanks to all of you.