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Text: Today, FCX reported second quarter 2021 net income attributable to common stock of $1.08 billion or $0.73 per share.
Adjusted net income attributable to common stock totaled $1.14 billion or $0.77 per share.
Our adjusted EBITDA for the second quarter of 2021 totaled $2.7 billion.
And you can find a reconciliation of our EBITDA calculations on Page 35 of our slide deck materials.
We had a strong second quarter.
Our copper sales of 929 million pounds and gold sales of 305,000 ounces were significantly above the year ago quarter, but our sales were approximately 5% lower for copper and 8% lower for gold relative to our recent estimates, primarily reflecting the timing of shipments from Indonesia.
Our annual guidance is consistent with our prior estimates.
Our results in the second quarter benefited from strong pricing.
Our second quarter average realized copper price of $4.34 a pound was 70% higher than the year ago quarterly average.
Our net unit cash cost of $1.48 per pound of copper on average in the second quarter was slightly above our estimate going into the quarter of $1.42 per pound, but that primarily related to nonrecurring charges associated with a new four-year labor agreement at Cerro Verde.
Operating cash flow generation was extremely strong, totaling $2.4 billion during the quarter.
That included $0.5 billion of working capital sources.
And our operating cash flow significantly exceeded our capital expenditures of $433 million during the quarter.
Our consolidated debt totaled $9.7 billion at the end of June.
And our consolidated cash and cash equivalents totaled $6.3 billion at the end of June.
Net debt was $3.4 billion at the end of the quarter, and we achieved our targeted net debt level several months ahead of our schedule.
We are really pleased to reporting what's now becoming a string of really strong operating performances for our company.
And with this great positive outlook for our business, we're all really enthusiastic about it.
Hoping all of you are staying healthy through this pandemic.
Vaccinations are giving us an opportunity to protect ourselves and those around us, and we're working hard to encourage our people globally to take full advantage of this opportunity whenever possible.
Our teams are working safely.
We remain diligent with our COVID protocols that have been so effective.
With the recent rise in cases globally, we are refocusing, redoubling our efforts, restoring some protocols that we had loosened to keep our team and communities safe.
Our results in the second quarter demonstrate really strong execution of our plans, really strong and favorable pricing for our products.
Kathleen mentioned the shipping issue.
Logistics is an issue globally.
We've been able to -- we basically met or slightly exceeded our production targets.
We've been able to ship everything we produced.
We would have beat our sales target.
We also, common in the mining industry, had some one-off type issues affecting production.
Without those and with shipping, we would have had a real strong beat on our previous guide.
Really important, our Grasberg underground ramp-up is proceeding on schedule.
This is a remarkable and, I would say, a historic success for both our company and even the mining industry.
Our team in Indonesia is doing remarkable and outstanding work.
And this is building value for our shareholders and long-term, sustainable, low-cost values for the future.
We're making money in the Americas.
Copper prices -- production in the U.S. is increasing.
Our Lone Star project in Eastern Arizona is really exciting.
We have a series of ongoing value-enhancing opportunities in the U.S. in front of us.
And I'm personally really encouraged about future growth in the U.S. The South America teams in Peru and Chile are navigating the pandemic effectively.
We're restoring production that we have curtailed a year ago.
We have achieved these outstanding financial results made possible by the hard work and investments we've been making for many years.
We are now generating significant cash flows, which will be sustainable for years in the future.
This quarter alone, we had $2 billion of cash flow after capital spending.
That's just remarkable considering where we were just a year ago.
Kathleen mentioned, and it's notable that we reached our debt target several months earlier than our forecast earlier this year.
We ended the quarter with $3.4 billion of net debt, and that's within the targeted range we set at $3 billion to $4 billion.
We've reduced our debt by like 60% over the past year.
We're now positioned in accordance with the financial policy that our Board adopted earlier this year and that we disclosed to the market to shift our capital allocation priorities by increasing cash returns to shareholders as we make disciplined investments for future growth of our business.
This policy will allow us to maintain a strong balance sheet with high-grade credit metrics while providing cash for increasing shareholder returns and investing in our company's long-term future.
Slide four talks about how we're devoting significant attention and resources to sustainability initiatives.
And this has always been key to our company and a position of our company.
We are committed to the sustainability principles of ICMM.
We're also moving to certify all of our operations with The Copper Mark, a relatively new industry framework developed by the International Copper Association to ensure responsible production consistent with UN sustainability development goals.
To date, we lead the industry with six of our operations now certified.
In the second quarter, we submitted five additional operating sites for this initiative, and we've committed to validate all of our sites to this robust framework.
Responsible production is critical in building and maintaining trust, which we've earned over the years through long-standing partnerships with communities as we deliver a product, copper, valued by society, produced in safe, environmentally sound, innovative manner.
Slide five talks about electrification, which is key to copper.
Majority of copper goes into generating and transmitting electricity, and copper is critical in every aspect of achieving low carbon goals for the global economy.
This ranges from electric vehicles and supporting infrastructure to clean energy from wind and solar.
Copper is just simply essential to a green economy.
This transition is now just beginning to unfold.
It will add significantly to future demand for copper.
And as the global leading copper producer, Freeport is solidly positioned to benefit from this higher future demand.
In addition, now companies around the world are responding to COVID with aggressive physical and monetary policies.
This alone is creating important near-term copper demand beyond China.
And China's consumption remains strong.
There are some mixed economic signals.
But even with that, demand for copper in China is strong.
And now as higher consumption is being generated from economic recovery in developed countries around the world, and that's even in the face of an important sector of copper demand, automobiles, which is being constrained by this chip problem.
So this increasingly important incremental demand outside China, the long-term growth from global -- from growth in emerging markets just is very positive for our outlook.
Copper demand is also expanding from technology advances in communications, artificial intelligence applications, expanding connectivity through global infrastructure initiatives and efforts to improve health through using copper to fight viruses and other infections.
Slide six talks about this growing demand, the global challenges in maintaining much less growing supply makes the outlook for copper, compelling.
I would say compelling is an understated word.
Really, really positive and enthusiastic about it.
This recent pullback in copper pricing that we've seen has not altered in any way our conviction, but the favorable long-term outlook for copper.
This is a decision we made years ago, which underscores our strategy at Freeport to focus on copper because of its favorable fundamentals, the nature of our assets and our team.
There are always actions that influence sentiment in short-term pricing at any point in time.
So beyond that, indisputable facts support a positive fundamental outlook for copper.
Demand growth is inevitable.
Maintaining supply or growing supply is challenged.
Our prices will be required to support major new investments in copper.
Rising demand, scarcity of supplies point to large impending structural deficit, supporting much higher future copper prices.
Our company has high-quality assets, industry-leading experience, highly motivated team will allow us to benefit from these fundamentals.
Portfolio of assets in the copper business is rare, if not unique, in our industry.
It would be difficult, if not impossible to replicate these assets.
With strong growing production, embedded brownfield, low-risk growth from our large portfolio of undeveloped resources, our assets are extremely valuable in today's world and will become more valuable as these market develops -- market deficits emerge in the future.
Slide seven highlights our growing margins and cash flows.
We've had meaningful volume growth in recent quarters that you've all seen.
This growth will continue.
For the year 2021, copper value -- copper volumes are projected to increase 20%; gold volume, 55% over 2020.
Then looking forward to 2022, we'll see a further growth of 15% to 20% over 2021 levels.
The capital and execution risk to achieve these higher volumes are largely behind us.
Our volumes will -- with low incremental costs, we yield expanding margins at prices ranging from $4 to $5 per pound for copper.
We've generated annual EBITDA for '22 and '23 of $12 billion to $17 billion of copper with capital expenditures in the range of $2.5 billion a year.
Looking back, there was always an overhang for report related to execution risk with this underground development, political risk in Indonesia, debt levels.
If you look back over the past three years, we have met and mitigated all of these major risks that were overhanging our company, and it's been a really exciting and gratifying time for our company.
Slide eight highlights the great progress we're making with the Grasberg underground ramp-up.
I just met with Mark Johnson and his team in Indonesia and really congratulating them on the fabulous work they're doing even in the face of COVID.
In the second quarter, we achieved just under 80% of our target annualized run rate for metal sales.
We're on track to reach full rates of metal production by the end of the year.
And our team in Indonesia has just done a fabulous job in the face of dealing with pandemic and a challenging physical environment.
We executed well-designed operating protocols.
We're dealing with this new upturn in cases in Indonesia in recent weeks.
We're helping to support the government and our local community.
We've implemented travel, other restrictions to mitigate the spread.
We're encouraged by the increasing availability of vaccines at our job site and generally in Indonesia.
A number of our workers -- a significant number have already received vaccines -- have received vaccines.
We have a goal of providing vaccines to all of our workforce in the second half of the year, and we're supporting nearby communities in their efforts to respond to COVID.
We have a real strong support from the government of Indonesia, a real positive partnership with PT-FI state home shareholders on that shareholder mine and they were all working together and are aligned.
I've been working in Freeport for 30 years -- over 30 years.
And I'm personally proud and gratified by our team's accomplishments since we began investing in the underground over 20 years ago, transition from the open pit that began 18 months ago and dealing with COVID, it's just remarkable what we've been able to do.
Planning and investing in this transition began in the 1990s.
Now experiencing this success is special for all of us at Freeport.
We now look forward to continuing long-term success at Grasberg by building value to this world-class historic mining district with low-cost, high-volume and sustainable production.
Slide nine shows the multiple options for brownfield low-risk growth across our global portfolio.
Increasingly encouraged by the opportunities in the U.S. where we have favorable community support across the board with where we operate, favorable tax situation and a long history of working in a responsible way.
We are expanding our mine production at Lone Star, Bagdad, other sites.
And we have exciting new opportunities from technology evolving leach recovery from our historical operations.
The Lone Star mine, our newest operation situated adjacent to our long-standing operations in Southeast Arizona.
There, we have strong community support, and this new mine is performing above design capacity.
We're evaluating expansions of Lone Star's oxide ores.
We're actually making a lot of money in what normally would be stripping operations.
We're conducting long-range planning for the development of a potentially world-class sulfide resource that lies beneath this oxide cover in our historical mining area.
We have an opportunity and a strong likelihood of moving forward with constructing a new concentrator to double production in our Bagdad mine in Northwest Arizona.
We expect to commence this project next year.
Emerging leaching technology, which I am pumped about, provides substantial opportunities for added growth across our portfolio of global resources.
We are evaluating an attractive expansion operation -- expansion opportunity at our El Abra mine in Chile where we're partners with CODELCO.
This project would require significant capital investment and long lead time, but it's attractive and large.
Major future expansion in El Abra is likely, but not now.
We are deferring investment decision on this project until we have more clarity about the mining policy issues currently under consideration by the government in Chile.
We're also evaluating development of an underground deposit of Kucing Liar in the Grasberg district operated by PT-FI.
This copper gold resource involves a large block cave mine using the substantial infrastructure that we already have in place.
We have expertise, long track record.
Mark Johnson and his team has come up with revised development plans that make the project less capital-intensive.
The economic is better.
It's a large operation.
It would be a block cave with about 90,000 tonnes per day.
So that's a real big, six billion tonnes of copper resource, six million ounces of gold, and it fits right in with our plans.
We have additional opportunities to invest in projects to support our copper -- our carbon reduction, our sustainability goals, including investing to develop clean renewable energy for our operations and communities.
We're advancing plans for an exciting ESG-type project to recover metals from the recycle of electronic devices at our Atlantic Copper processing facilities in Spain.
Bottom line, we're going to be disciplined in devoting capital to new investments.
We're going to be focused on value-added projects supported by long life reserves.
We have a long track record of success in developing projects.
We have established license to operate and positive relationship and support from communities where we have the opportunities to invest.
Slide 10 goes back to Lone Star, shows we're meeting, exceeding expectation.
Original plan was 75,000 tonnes a day, 200 million pounds of copper.
We now exceeded this, reaching the targeted rate of 95,000 tonnes a day.
On a sustained basis, we have takeouts capacity to do this to yield 285 million pounds of copper.
Looking at a further increment that would involve a relatively small investment in tank houses, mining equipment to produce 300-or-more pounds of copper, 50% more our than original design.
The project view though is longer term.
We have a major opportunity for Lone Star to become a cornerstone asset for our company.
Potential resource is 10 times more than our current reserve.
As we mine these oxide ores, we're gaining access to this underlying potentially massive sulfide resource.
Long-term cornerstone asset for our company.
Slide 11 talks about this reference I made earlier through reaching technology, gaining additional copper from material that's already mined.
We have lots of opportunities to apply.
It's an exciting potentially high-value opportunity with low incremental cost and low carbon footprint.
We're engaged in multiple studies using a range of different technologies internally and externally to capture this value from existing stockpiles.
Our estimate now is for 38 billion pounds of copper in these stockpiles.
This is material that's already been mined.
And if we can recover just 10% to 20% of this material, it would be like having a major new mine with variable capital and operating costs.
A significant portion of this is in our flagship Morenci mine, the largest mine in North America, where we are now applying artificial intelligence, data analytics to help us understand what's going on with these leaching performance opportunities.
Our team historically was an instrumental in unlocking substantial values years ago with the new SXEW technology.
We are now focused on taking this leaching technology to the next level by using modern approaches to it.
We've established a cross-functional team of technical experts, metallurgists, mine planners, data scientists, geologists, business analysts all working together to take full advantage of this really exciting opportunity.
We have strong operating franchises in the U.S., South America and Indonesia, gained the trust and respect of our partners, our customers, suppliers, financial markets, and more importantly, the workers, communities and host governments where we operate.
We have significant large-scale project development, operating expertise.
Team Freeport has all the capabilities to undertake new projects in a responsible, efficient manner.
I want to close on slide 13 by recognizing the people of Freeport.
All around the world, their commitment, dedication, resilience, positive outlook, cooperative spirit is just gratifying.
Our team is passionate about the role we're going to play in achieving a better and more sustainable future for everyone.
Team Freeport has the capabilities and drive to continue to meet, exceed our own high level of expectations and those of our stakeholders.
We're living in a great -- a time of great challenge and exceptional opportunity for our business.
At our team, we're meeting the challenges, embracing the opportunities.
Our future is bright.
We at Freeport are charging ahead responsibly, reliably and relentlessly.
Richard talked about the great progress we're making at Lone Star.
We're very focused now on sustaining the rates to keep our tankhouse full there, which has a capacity of 285 million pounds per year of copper and looking at potential increments beyond that with relatively small and attractive investments.
Richard also mentioned our plans at Bagdad.
We're advancing studies to double the capacity there and hope to be in a position to qualify a project and commence a project there next year.
At Morenci, we've started to increase our mining rates, which had been curtailed in the last 12 months.
We averaged about 725,000 tonnes per day of mining material in the second quarter and are ramping up to reach 800,000 tonnes per day by the end of this year, going to 900,000 tonnes a day in 2023.
We've also advanced from 2022 the restart of some of Morenci milling capacity.
That was also idled last year to reduce cost.
Now with the improvement in copper prices, these actions result in more profitable production.
We're also very encouraged by the opportunity to add low-cost production at Morenci through our leach technology initiatives.
In South America, the teams are continuing to work to restore production to prepandemic levels.
We continue to target a full restoration at Cerro Verde in 2022.
And we've been running at about 95% of the mill capacity in recent months.
That was in advance of our labor agreement exploration, which is coming up at the end of August of this year.
We're very pleased with the win-win outcome of the agreement and now working to conclude a mutually satisfactory agreement with the balance of employees.
At El Abra in Chile, we're well on our way to restoring production levels that were curtailed last year.
We're increasing the stacking rate of material on the leach pads and moving forward to add a new leach pad to accommodate the higher rates.
This is capital that was always part of our plan, but was deferred last year as part of the capital conservation plans that we rolled out in April of last year.
This allows El Abra to increase production on a sustained basis to about 200 million to 250 million pounds per annum for the next several years as we assess opportunities for a major expansion there.
As Richard talked about at Grasberg, we're continuing to deliver results and generating strong cash flows.
As you recall, we started the second quarter with significantly more concentrate inventory than we normally carry with the strong production volumes and some maintenance downtime at our port, weather issues at quarter end, sales were below our earlier estimates in the quarter.
This is really a short-term timing issue, and we expect to be able to work inventory levels down in the second half of this year.
We successfully commissioned at Grasberg the second crusher at our Grasberg Block Cave during the quarter, and that will provide sufficient capacity for a ramp-up to 130,000 tonnes per day.
You've seen the performance and the records achieved from the Grasberg Block Cave during the quarter.
We're also moving to advance the installation of our third SAG mill there.
That's been part of our plan to support the higher rates of throughput.
We've also identified an opportunity to invest in a new mill circuit that will allow us to increase copper and gold production in Indonesia through the achievement of higher mill recoveries when the initial phases of this project and the economics are highly attractive.
Our global team also remains focused on cost management and efficiency projects to extend equipment lives, improve energy efficiency and maintenance practices with the use of technology.
We have experienced some degree of cost increases this year, principally from energy price increases and, to a lesser extent, the impact on consumables of steel price increases, increased freight costs and sulfuric acid cost.
We've had -- partially offsetting these items, we've had the benefits of a weaker exchange rate in South America versus the U.S. dollar.
The increases in costs have been offset by significant increase in molybdenum prices in recent months, and those have provided a very nice hedge to certain of these cost inflation items.
We talked on slide, you've seen in the release our plans for -- to meet our commitments in Indonesia for the new smelter.
On slide 16, we provide an update on our plans to meet the commitment that we agreed to with the Indonesian government in 2018 to construct two million tonnes per year of in-country processing facility of copper concentrate.
We have been advancing the discussions with our Japanese partners to expand the existing smelter at PT Smelting.
That would fulfill a portion of the obligation.
And there are several financial and operating benefits of expanding this facility, which has been expanded very efficiently in the past.
After considering various alternatives for the balance of the commitment, we've concluded that the best long-term option is to continue with our plans to construct a new greenfield smelter in East Java near the existing facilities at PT Smelting.
We recently entered into an EPC contract with Chiyoda to construct a 1.7 million tonne facility there.
And we're now focused on completing the project as efficiently and as timely as possible.
We show in the graph on slide 16 on the right, the estimated timing of expenditures over roughly a three-year period.
FCX is responsible for 49% of these expenditures.
We recently completed a new $1 billion bank credit facility for PT-FI to advance these projects and are planning additional debt financing, which can be attained at attractive rates to fund these activities.
As indicated, the long-term cost of the financing expected for the smelter would be offset by a phaseout of the 5% export duty.
And we show a graph on the bottom of slide 16 which shows you that the economic impact is not material as the cost of the smelter would be essentially offset in lower duties, which we're currently paying.
Slide 17 provides a three-year outlook for volumes.
These are consistent with our previous guidance.
We're continuing to pursue additional incremental near-term growth opportunities and conducting our longer-range development planning.
Moving to slide 18, we show the significance of cash flow generation using these volumes and cost estimates.
And the price is ranging from $4 to $5 copper and holding gold and molybdenum flat at $1,800 per ounce of gold and $16 per pound of molybdenum.
What you see here on these graphs, we would generate EBITDA in the range of over $12.5 billion per annum for '22 and '23 on average at $4 copper to $17 billion per annum at $5 copper.
And at operating cash flows, net of taxes and interest would be $9 billion to $12 billion using these price assumptions.
As demonstrated in the second quarter, we're generating very significant free cash flow, and this trend is expected to continue with cash flow significantly above our capital spending.
On slide 19, we include our projected capital of $2.2 billion this year and $2.5 billion in 2022.
As you'll note, we shifted about $100 million in expenditures from 2021 to 2022, which was timing related.
And we've advanced some capital from future years into 2022 to reflect the timing of additional leach pad construction at Lone Star and the addition of some highly attractive growth spending in Indonesia related to mill recoveries.
We've entered a period of outstanding free cash flow generation.
We've got growing volumes, strong markets and low capital requirements.
You'll see on slide 20, and this is backward looking, but over the last 12 months, we've reduced our net debt by $5 billion, and that included $2 billion in the second quarter alone.
You'll see our credit metrics are strong and less than 0.5 times EBITDA on a trailing 12-month basis.
And we're projecting our credit metrics to continue to be strong and improving.
As Richard mentioned, we achieved our targeted net debt level several months ahead of our schedule with our long-lived asset base and growing production profile and strong markets.
We'll have the ability to continue to strengthen our balance sheet, provide increasing cash returns to shareholders and build additional values in our asset base.
The slide on 21 just reiterates our financial policy.
We have performance-based payout policy, which was established by our Board earlier this year, providing up to 50% of free cash flow, would be used for shareholder returns with the balance available for growth and further balance sheet improvements.
And with the recent achievement of our net debt target, we expect our Board will consider additional payouts to shareholders with our 2021 results.
We're looking forward to reporting on our continued progress and continuing to build additional values as we go forward.
Kathleen, I want to put an exclamation point on your -- the comments you made about cost management.
Everyone is focused on inflation around the world and the impact on mining companies.
And as Kathleen said, we've had higher energy costs, higher grinding material cost.
But Josh Olmsted and our Americas team have just done a great job in helping offset that.
Mike Kendrick in running our molybdenum business, which is a primary production business and a by-product business and with higher molybdenum prices is offsetting us some of these cost increases.
We've got a high gold price which helps us.
Danny Hughes is leading our supply chain group.
And so a combination of all these things is helping us as a company to really mitigate much of these increases in costs, working with logistics.
So I just wanted to make a note of that because I think it's important giving -- given all of our concerns about where inflation is leading us.
So let's do turn over to questions.

user
compname reports q2 earnings per share of $0.73.
qtrly earnings per share $0.73.
freeport-mcmoran - average realized prices in q2 2021 were $4.34 per pound for copper, $1,794 per ounce for gold and $13.11 per pound for molybdenum.
qtrly adjusted net income attributable to common stock totaled $1.14 billion, or $0.77 per share.
consolidated sales totaled 929 million pounds of copper, 305 thousand ounces of gold and 22 million pounds of molybdenum in q2.
ramp-up of grasberg underground mines advancing on schedule.
freeport-mcmoran - sees q3 consolidated sales of 1.035 billion pounds of copper, 360 thousand ounces of gold and 21 million pounds of molybdenum.

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