Freeport-McMoRan - Earnings Call - Q2 2025

Executive Summary

• Strong beat on both revenue and EPS. Q2 revenue was $7.58B vs S&P Global consensus $7.19B, and adjusted EPS was $0.54 vs $0.44; management also delivered lower unit net cash costs ($1.13/lb) and higher realized prices ($4.54/lb). Q2 2025 actual vs. consensus in “Estimates Context” below (S&P Global).
• Guidance reset: 2025 copper held effectively flat vs April while gold cut meaningfully on Grasberg gold grade timing; 2025 unit net cash costs raised to $1.55/lb (from $1.50). Q3 2025 mix shifts: lower copper/moly sales vs April, but higher gold sales.
• U.S. tariff tailwinds: COMEX-LME premium widened to ~28% (as of 7/22), implying ~$1.7B annualized cash flow uplift from U.S. sales; 2025 operating cash flow guided to ~$7.0B baseline and ~$7.9B including $1.25/lb premium assumption.
• Indonesia smelter startup reached first anode in July; first cathode expected by end of July. This supports IUPK extension application in 2025 and will eliminate export duties, a future margin positive.

What Went Well and What Went Wrong

• What Went Well

  • Beat on top and bottom line with improved cash generation: revenue $7.58B, diluted EPS $0.53 (adjusted $0.54), operating cash flow $2.20B. “Quarterly unit net cash costs significantly below April 2025 guidance”.
  • U.S. pricing premium and strong gold price realizations supported margins: copper realization $4.54/lb and gold realization $3,291/oz; management highlighted “favorable pricing for U.S. copper sales and global gold sales”.
  • Execution milestones: “Commenced start-up activities at the new Indonesia smelter in May 2025; expect first production of copper cathode in July 2025.” CEO: “We achieved a major milestone during the second quarter with the startup of our new large-scale copper smelter in Indonesia”.

• What Went Wrong

  • Gold volume reset from Grasberg ore grade model timing drives higher cost guidance: 2025 gold down to 1.3Moz (from 1.6Moz), with 2025 unit net cash costs raised to $1.55/lb (from $1.50/lb) as lower by-product credits flow through.
  • Indonesia production rates impacted by maintenance and lower grades: PTFI Q2 production 359M lbs Cu and 311k oz Au, down YoY; maintenance on SAG-2 expected to complete in Q3.
  • Tariff pass-through risk on inputs: management continues to estimate potential ~5% cost impact on U.S. purchased goods via suppliers, requiring mitigation via sourcing and efficiency programs.

Transcript

Operator 1 (participant)

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan second 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 touch-tone phone. If you require assistance during the conference, please press star zero. I would now like to turn the conference over to Mr. David Joint, Vice President, Investor Relations. Please go ahead, sir.

David Joint (VP of Investor Relations)

Good morning, everyone, and welcome to the Freeport conference call. Earlier this morning, FCX reported its second quarter 2025 operating and financial results. A copy of today's release with supplemental schedules and slides is available on our website, fcx.com. Today's conference call 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. In addition to analyst investors, the financial press has been invited to listen to today's call. 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 non-GAAP measures and forward-looking statements, and actual results may differ materially.

Please refer to the cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website. Also on the call with me today are Richard Adkerson, Chairman of the Board; Kathleen Quirk, President and Chief Executive Officer; Maree Robertson, Executive Vice President and CFO; and other senior members of our management team. Richard will make some opening remarks. Kathleen and Maree will review our slide materials, and then we'll open up the call for questions. Richard?

Richard Adkerson (Chairman of the Board)

Thank you, David, and thank you all for joining us. Copper is currently in the spotlight, of course. COMEX prices are hitting all-time highs. LME prices are strong. Uses are growing. Electricity means copper, and the world is increasingly electric. This results in high demand, and the industry continues to be challenged to find the supplies to meet this demand and future demand. Governments are focused on critical minerals, including copper. Our company is strongly positioned. One-third of our copper is in the U.S., roughly one-third in Indonesia, and one-third in Peru and Chile. We are the dominant producer in the U.S., producing over 70% of the country's refined copper. We're fully integrated. We have substantial organic growth to the U.S., and we're committed to that growth. Freeport committed to its strategy to copper over 20 years ago.

Our tagline has been "Foremost in Copper," and that's what we're striving to be. The startup of the Indonesian smelter is a big accomplishment. Congratulations to team Freeport. We will now be effectively fully integrated producer globally. We're pleased to see the trade agreement between Indonesia and the United States, productive discussions with President Prabowo and President Trump. We convey to the Indonesian leaders negotiating the deal to note that Freeport, a widely held public company in the U.S. with almost a 60-year history of operating in Indonesia, is the operator of the world's second-largest copper mine located there. Grasberg Operations and District is our cornerstone asset. Second-largest copper mine in the world. In this most recent quarter, we had a net credit for operating costs of $1 a pound. This asset has enabled us to create the modern Freeport.

With the smelter nearing completion, we are progressing our discussions with the Indonesian government about extending our operating rights beyond 2041. Doing so, we create great value for FCX shareholders, but it also would be very positive for all stakeholders in the operation. With those comments, I'll turn the call over to Kathleen and Maree to report on our quarter and our outlook.

Kathleen Quirk (President and CEO)

Great. Thank you, Richard. I'll cover the highlights of the second quarter starting on page three. We generated strong margins and cash flows during the quarter and achieved significant milestones on several important initiatives. Our sales of copper and gold were better than past, and net unit cash production costs during the quarter of $1.13 per pound were significantly improved from what we guided to and from last year's second quarter. With an average quarter copper realization of over $4.50 per pound, which was about $0.20 per pound above the international benchmark pricing, we generated quarterly EBITDA of $3.2 billion and operating cash flows of $2.2 billion. Our sales volumes exceeded production as we were successful in reducing inventories in Indonesia, both at the mine site and in our newly commissioned Precious Metals Refinery, which performed well during the second quarter.

As we look at the balance of the year, we're well positioned for continued strong financial performance. Our sales of copper in the second half are expected to be nearly 10% higher than our first half volumes, and gold sales, after taking into account revisions to our Grasberg gold production, which we'll talk more about, are expected to be similar to the first half levels. The current premium on our U.S. copper sales, which recently tripled from second quarter levels, adds additional margins and cash flows. As we look ahead to 2026 and 2027, volume growth and lower costs set us up nicely to expand margins and cash flows as we go forward. We achieved a major milestone in the quarter with the startup of our new copper smelter in Indonesia, a project we've been working on for the past 10 years.

We started up about a month ahead of schedule and have progressed startup activities to the stage of producing our first cathodes, which we expect by the end of this month. We remain focused on ramping up to reach design capacity by the end of the year. Another real exciting development during the quarter was the start of a field trial at our U.S. Morenci Mine using an internally developed leach additive. Our team of scientists have been working on this for some time, and we are progressing work on additional options, which are showing very impressive lab results. There's more work to do, but we're making real progress. Identifying the right additive, combined with our precision leaching operating practices, will be a big step toward reaching our objective of producing 800 million pounds per annum from this initiative.

We continue to advance optionality in our organic growth pipeline, and we're well positioned with our significant resources and experienced team and our strong financial position. We purchased 1.5 million shares of stock during the second quarter, bringing our first half stock purchases to 2.9 million shares at an average cost of $36.41 per share. We continue to target 50% of excess cash flow for shareholder returns in line with our financial policy. Turning to the next slide, slide four, it is a summary of our 2025 priorities. We have covered these on previous calls, and these are the areas that are defining our everyday pursuit of value creation. First, execution, mastering the basics, and making every day count are key objectives. We are focused on delivering our plans safely and efficiently and driving our costs lower, particularly in the U.S.

Scaling leach opportunity is a major value driver for Freeport. We continue to target a 40% increase in our run rate to achieve 300 million pounds by the end of the year on our path to 800 million pounds per annum. Delivering the smelter, a safe and efficient ramp-up of the PTFI smelter, is strategically important. It will de-risk our plans and position us for extension of our long-term operating rights in Indonesia. With the early startup, we are well on our way. We posted a video this morning of the progress on our website, and we hope you will have the chance to review it. We are very proud of what our team is accomplishing there. Innovation is an increasingly important value driver for our business. Our operating teams are embracing technologies and new tools to enable better productivity and cost performance.

We will continue to build optionality in our growth portfolio. We have three major project opportunities being advanced in the Americas, which we will talk more about. Turning to copper markets on slide five, copper has been actively covered in the media recently, with widespread recognition of the rising strategic importance of this essential metal and a broad use of applications. Market fundamentals remain positive, underpinned by copper's increasing use in the global economy and as an important driver of electrification, global energy requirements, and defense systems. Copper prices averaged $4.32 on the London Metals Exchange during the quarter and $4.72 on the U.S. COMEX Exchange. Following the July 8th U.S. tariff announcement, U.S. prices rose significantly. While tariff policies have dominated headlines and resulted in rising inventories in the U.S., global exchange inventories remain at low levels, particularly in relation to consumption trends.

Copper demand globally continues to benefit from the secular trends and major new investments in AI technology, power infrastructure, decarbonization, and transportation. In the U.S., demand continues to be supported by the secular drivers, and we are seeing improving trends in Europe. China continues to be a major driver of copper demand, and India represents an important growth market in the future. As we have talked about in the past, the fundamentals of the copper markets are highly attractive, with the outlook for demand growth to outpace available supplies as we go forward. Here at Freeport, we are in a great position to increase volumes in the coming years to supply a world with growing requirements. Moving to slide six, we talk about the regional premiums and the market differentials between the U.S. pricing benchmarks and international benchmarks.

For background, the reference price for Freeport's copper sales contracts is based on geography. Our international sales are based on the London Metals Exchange price, and our U.S. sales are based on the U.S. COMEX reference price. These two benchmarks have been closely correlated in the past, but as you can see, a differential emerged earlier this year after the U.S. opened a Section 232 investigation, and the differential widened significantly earlier in July following the U.S. announcement of a 50% tariff on copper imports with an expected implementation date on August 1st. We're still waiting on additional details on implementation of the tariff announcement. The U.S. currently imports approximately half of its copper cathode requirements, and the current domestic supply of cathodes, the rest of it, are majority produced by Freeport.

As indicated in the charts, as of yesterday's close, the U.S. premium approximates $1.25 per pound, or about 28% above the LME price. This implies an approximate $1.7 billion annual financial benefit on Freeport's U.S. sales. Longer range, the differential will be determined by market factors, including how the tariff structure is applied to various copper products, available domestic supplies, and requirements for imported copper and other factors. We're actively working to boost domestic supplies of copper with a special emphasis on growing our refined production in a cost-effective manner through our innovative leach initiative, and we're focused on supporting the growing requirement for our U.S. customer base. Freeport is an important American copper producer and is by far the largest contributor to the U.S. copper market, with an established and successful franchise dating to the late 1800s. As America's copper champion, we appreciate the administration's recognition of copper as a critical mineral and the efforts underway by the U.S. government to boost domestic production.

Our operations in the U.S. supply approximately 70% of the refined copper produced here. Our operations in the U.S. are fully integrated with mines and smelting and refining facilities and innovative leach processes that efficiently produce refined cathode. About 60% of our U.S. production is sourced through leaching processes and the balance through our smelter. We employ a large workforce in the U.S., and importantly, we've earned the trust of communities in the Southwest U.S. where we operate and with our U.S. copper customers. In talking about our global refined metal on slide eight, Freeport is a significant producer. With the completion of our new smelter in Indonesia, Freeport will essentially be fully integrated globally with internal processing facilities for its mine production.

This is important because countries are becoming more and more focused on critical mineral supply chain resilience, national security issues, and global trade. Freeport's positioning as a major producer of refined copper is of strategic significance for the long term. As indicated, we produce a substantial amount of refined copper from leach processing, which does not require a smelter process. And we're going to continue to pursue innovative opportunities to add refined copper on a cost-effective basis. Moving to operations on slide nine, we'll talk about the operating highlights by geographic region, starting in the U.S., where we continue to drive operating disciplines to enhance efficiencies and improve costs and margins. Making progress, as indicated by the improved performance compared with the year-ago quarter. With several initiatives underway, there's more opportunity ahead. Our operating teams are benefiting from new tools and data analytics to drive value.

We continue to rebuild skills within our workforce to reduce reliance on more costly contractors. As we look forward, we expect production in the U.S. to increase in 2025 and 2026 compared with 2024 levels. Absent changes in commodity-based input costs, we're talking unit costs to trend to the $2.50 per pound range in 2027. The autonomous haul truck conversion at our Baghdad Mine in the U.S. will allow us to test this potential of applying this technology for use at other locations. At Baghdad, we have half of the autonomous trucks in service and expect to complete the balance over the next few months. We have several initiatives in progress to achieve further scaling in our innovative leach program. This is a high priority.

Our teams are now much better equipped with new data and analytic tools, expanded areas under leach, and precision leaching processes to achieve higher recoveries in material previously considered waste. Achieving our targeted run rate to 300 million pounds per annum will benefit 2026 production. We are planning projects to use heat in our injection process to further enhance recoveries, and we're advancing internally developed leach additives to provide additional volumes toward our ultimate target of 800 million pounds per annum. As I mentioned, a field trial is underway at Morenci with our first internal-generated additive, and we've recently identified a potential second additive with initial lab testing indicating superior performance compared with anything we've seen to date. In addition, we're advancing new technology and automation in our basic mining processes to optimize performance.

Our work to date indicates a significant opportunity for value creation through meaningful cost reduction and reserve expansion within our existing operations. We'll also continue to advocate for U.S. legislation to recognize copper as formally as a critical mineral and eligibility for incentives to promote domestic production. Moving to South America, the team at our Cerro Verde operation posted another solid quarter with volumes and costs in line with our expectations. As anticipated, volumes at Cerro Verde were below the year-ago quarter because of lower ore grades. At Al Abra, we have advanced plans to test heated graphene injections in our leach stockpile there expected in 2026, and that is targeted to increase copper recovery and metal volumes. We continue to plan for a major expansion at Al Abra, which would capitalize on the large resource we have there and bring substantial scale and operating efficiencies to the mine.

In Indonesia, during the second quarter, copper sales and gold sales were boosted significantly by a reduction in concentrate and in-process inventory following the mid-March approval of our export permit and good performance at the newly commissioned Precious Metals Refinery, which processed all of the anode slimes produced at PT Smelting during the quarter. Milling rates improved in the second quarter compared with first quarter levels, and that reflected a restart of our SAG-3 mill in the second quarter. In April, we commenced a large planned maintenance project on our SAG-2 mill, which is expected to be completed by the end of the third quarter. This will set us up for return to mill rates in the 220,000 ton-per-day range in the fourth quarter and beyond. Notably, during the second quarter, net unit cash costs at Grasberg were actually a net credit of $0.99 per pound.

As indicated, the smelter startup in the second quarter was a meaningful accomplishment, and we're working to ramp up in the balance of the year. We have revised our near-term outlook for gold to incorporate adjustments to our draw point flow model in the Grasberg Block Cave. This resulted in an approximate 15% reduction in expected 2025 gold production, but did not significantly impact long-range plans, as indicated on the next slide. We provided some information on Grasberg ore grades on slide 10. For background, the Grasberg Block Cave is one of three currently producing block cave mines in the Grasberg District. It's the same ore body we mined from the surface for over 25 years prior to transitioning to underground mining in the 2020 timeframe.

For those of you who have followed us over time, you'll recall there are sections within the Grasberg ore body with significant grade variation, especially for gold. This results in large swings in gold grades depending on where the material is coming from within the ore body. The Grasberg Block Cave is a massive block cave. We extract ore from five production blocks and have over 900 draw points currently producing within these five production blocks. We have a practice across the company of updating our forecast quarterly, taking into account all available information. For our block cave mines, we use industry-proven software to model cave flows and ore grades. During the second quarter, we experienced lower grades for gold than our scheduling model estimated and undertook a process to review our ore grade models.

We recalibrated the model on a draw point by draw point basis to better reflect the timing of various ore grades flowing through the draw points. Importantly, the changes are timing-related and not expected to impact the ultimate recoveries over the life of the deposit. In looking at the updated model, we were able to replicate historical results with better precision than the prior ore grade distribution model. With mining, there are always learnings throughout the life of a mine, but the management systems and data tools we use today, particularly in our underground, are much improved from the historical open pit era. You can see from the revised multi-year production forecast that the impact is limited to 2025 gold production. Over the five-year period, the aggregate production of gold is close to our prior estimates, and there was no significant impact on copper production.

With the completion of major mill maintenance in 2025, we're set up to increase mill operating rates in the future. Also, in our 2025 forecast, we've incorporated an increase in copper concentrate consumption at the new smelter in Indonesia because of the earlier-than-forecast startup. This results in more in-process inventory than previously forecast and is a timing item. We want to point out that as we transition from an exporter of concentrate to a fully integrated producer in Indonesia, there will be timing differences between production and sales by quarter. The sale of concentrates historically were recognized immediately on loading of ships at our mine site, and with the smelter, sales will be recognized after processing and sale of refined metal. This is really a timing match between production and sales.

As we look forward, and I'm moving now to our project pipeline, it's clear that additional copper supplies are required to support energy infrastructure, new technologies, and more advanced societies. We have an extensive copper resource position and a broad range of projects in various stages of development. These initiatives total 2.5 billion pounds of copper, which can be developed from Freeport's known resources in jurisdictions where we have established history and experience. Our projects in Indonesia also have the benefit of high gold content that goes along with the copper. Because these projects are brownfield in nature, we benefit from leveraging existing infrastructure, our experienced workforces, and relationships with key stakeholders to move more quickly with less risk than a greenfield project. As we mentioned, we're also looking at innovation and really feel this can bring improvements to the capital intensity of developing new projects.

In the U.S., the projects have the potential to increase production by over a billion pounds per annum, with a large portion of that coming from low-cost and low-capital-intensive incremental leach volumes. In addition, we have an actionable expansion opportunity at our Baghdad Mine and are also studying the potential to expand and double production in the Safford-Lone Star District. In South America, we and our partner, Codelco, are planning a major expansion at Al Abra through the addition of a new concentrator, which would provide 750 million pounds of incremental copper per annum. We're completing our permit application. We expect to file that in early 2026. We are encouraged by the Chilean government's initiatives to expedite the permitting process broadly in Chile. In Indonesia, our Kuching Liar development continues, and we expect to commence production by 2030.

We're conducting additional exploration below our deep MLZ ore body and expect that with an extension of our operating rights beyond 2041, we'll be set up for additional long-term development options in the highly attractive Grasberg District. We'll continue to be disciplined in our approach, targeting opportunities that enhance long-term value. We have some additional details on these projects covered on slide 26 of the reference materials. Maree is going to cover our financial outlook on the next few slides, and then we'll open up the call for your questions. Maree?

Maree Robertson (EVP and CFO)

Thanks, Kathleen. Just moving on to slide 12, we show our three-year outlook for sales volumes of copper, gold, and molybdenum. Our guidance for 2025 takes into account the Grasberg ore grade revision, which Kathleen has already discussed, and the timing of production versus sales associated with the smelter startup.

2025 guidance for copper is around 1% below the prior forecast, with gold sales down around 17%. These changes are not expected to impact our long-range plans, and guidance for 2026 and 2027 remain consistent with our previous estimates. Continued success in our leaching initiative would provide upside to these estimates. We provide quarterly estimates on slide 23 of the reference material. As you can see, copper sales in the second half of the year are nearly 10% higher than the first half. Our current estimate, the net unit cost for the year 2025, using $3,300 for gold and $22 for moly, is approximately $1.55 per pound, about 5 cents per pound above the April estimate, principally reflecting the impact of lower gold volumes, partly offset by higher prices of gold and molybdenum.

The current unit net cash cost estimate is better than our estimate going into the year of $1.60 per pound. We are continuing initiatives to drive costs lower as we go forward. The details of costs by region are presented on slide 22 in the reference materials. Moving to slide 13, putting together our projected volumes and cost estimates, we show modeled results for EBITDA and cash flow at various copper prices ranging from $4-$5 copper. These are modeled results using the average of 2026 and 2027 with current volume and cost estimates and holding gold flat at $3,300 per ounce and molybdenum flat at $22 per pound. Annual EBITDA would range from over $11.5 billion per annum at $4 copper to over $15.5 billion per annum at $5 copper, with operating cash flows ranging from $8.5 billion per year at $4 to over $11.5 billion at $5.

These estimates assume the US price is the same as the international benchmark price. If we incorporate a 25% premium to our US sales, which is similar to current levels, annual EBITDA would increase by approximately 10%, and operating cash flows would increase by approximately 15%. A 50% premium would increase EBITDA by over 20% and operating cash flows by almost 30%. We show sensitivities to various commodities on the right side of the slide. You will note we are highly leveraged to copper prices, with each $0.10 per pound change equating to approximately $425 million in annual EBITDA. We'll also benefit from improving gold prices, with each $100 per ounce change in price approximating $150 million in annual EBITDA. Moving on to slide 14, this shows our current forecast for capital expenditure in 2025 and 2026.

Total capital expenditures over the two-year period are similar to our previous guidance, with some timing variances, which has deferred approximately $100 million of spend from 2025 to 2026. The discretionary projects are expected to approximate $1.6 billion-$1.7 billion per year in 2025 and 2026, with roughly 50% related to the Kuching Liar development and the LNG project at Grasberg. The balance includes acceleration of tailings and other infrastructure to support the Baghdad expansion, the Atlantic Copper Circular Project, which is expected to be completed by mid-2026, and capitalized interest. The discretionary category reflects the capital investments we're making in new value-enhancing projects that, under our financial policy, are funded with the 50% of available cash that is not distributed. These projects, which are detailed on slide 31, will benefit our results in the future.

We will continue to be disciplined in allocating capital to projects that enhance our position and generate attractive returns. This is consistent with our track record of efficient capital allocation and value-driven approach. On slide 15, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders, and investments in value-enhancing projects. Our balance sheet is solid, with investment-grade ratings, strong credit metrics, and flexibility within our debt targets to execute on our projects. We don't have any significant debt maturities until 2027. In addition to paying our first-quarter base and variable dividend, we have repurchased $107 million of FCX common stock in the open market year to date. In total, we have distributed over $5 billion to shareholders through dividends and share purchases since adopting our financial policy of returning 50% of excess cash flow in 2021.

We have an attractive future long-term portfolio that will enable us to continue to build long-term value for shareholders with the remaining 50%. We actively monitor current market conditions and carefully manage the timing of our projects to ensure our financial flexibility remains strong. Our global team is focused on driving value in our business. Committed to strong execution of our plans, providing cash to invest in profitable growth and return cash to shareholders. In concluding today's presentation on slide 16, Freeport's large-scale, low-cost, proven producing assets, actionable low-risk growth options, experience and leadership in the global copper industry, as well as our advantageous US footprint, provide a strong foundation for the future. Thanks for your attention, and we'll now take your questions.

Operator 1 (participant)

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, press Star 1 on your touchtone phone. If your question has been answered or you wish to remove yourself from the queue, please press Star 1 a second time. If you are using a speakerphone, 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. Our first question comes from the line of Bill Peterson with JPMorgan. Please go ahead.

Kathleen Quirk (President and CEO)

Good morning, Bill.

Bill Peterson (Equity Research)

Yeah. Hi. Yeah. Hi. Good morning, Kathleen and team, for taking the question. I wanted to ask about the, I guess, the mine plan change. It sounds like you look at this on a quarterly basis, but trying to get a sense for, I guess, what has changed now. Is it something you had seen earlier, but felt you needed more data to, I guess, change the plan, and just anything else that went into, basically, the modeling update and plan?

Kathleen Quirk (President and CEO)

Yeah. Thanks for the question. Mark Johnson is here on the call if we need to fill in anything. We update our quarterly forecast, as I mentioned. We update our multi-year forecast every quarter. In Grasberg, we go through a process for each of the ore bodies and look at what the expected rates are. In determining the grades, we use an established software package that the industry uses for modeling block caves.

We did detect, starting in the first half of the year, some differentials between what we were actually getting out of the recovery of ore grades versus what the model suggested. Historically, it has been a pretty close match. We did recalibrate it once before at the end of 2023. It did not have material impacts. We took on a process to look at the various settings within the scheduling model and were able to develop an update to the calibration that replicated very, very closely the match that we historically were realizing. We have updated that. You need to consider just the background of the variation of grade within this ore body.

We have 900 draw points that we are collecting ore through, and there could be changes in the timing of how that ore flows through the draw points, from which sections it is coming from, particularly below the pit. Where you remember, in the open pit area, we had a very high-grade core of gold at the bottom of the pit. The interplay of the flows, where it is moving, is really just a timing of figuring out scheduling of how that will roll through our grades. We were very close when we recalibrated the model over the long term, but it did have the short-term impact. I do not know, Mark, if you want to add anything, any perspectives to those comments.

Mark Johnson (President and COO)

No, I think you handled it very well, Kathleen. One thing I just might want to mention is what we're seeing is that as we start mining from a draw point, we're very confident because the material is just directly above the area that we're mining. As we continue to pull through this column of rock, some of it is up to 500 meters above us. This estimation becomes a bit more complex. Not all the material makes its way through that column at an equal rate. The smaller material tends to work its way through the column of rock quicker, and then also, we have material that shifts laterally and can end up in other draw points. It becomes a bit more of a big mixing as you get further up. As Kathleen mentioned, the team that we have on this, the tools that we use are world-class.

Really, we didn't see much variability at all on the copper. It's much more stable in the grades, but the gold can shift in value quite dramatically over a relatively short distance, same as it was in the open pit. In the open pit, we knew exactly that volume of material that we were mining at any given point. As I mentioned, in the block cave, that becomes a bit more of a complex estimating of how that material will work its way from the higher areas of the block cave down into these draw points.

Kathleen Quirk (President and CEO)

Thank you, Mark.

Bill Peterson (Equity Research)

Thanks, Mark. Thanks, Mark and Kathleen.

Operator 1 (participant)

Our next question comes from the line of Katja Jancic with BMO. Please go ahead.

Katja Jancic (Metals and Mining Analyst)

Hi. Thank you for taking my questions. Maybe, Kathleen, you mentioned you continue to expect costs in North America to decline over the next two years. If I'm not mistaken, that doesn't incorporate expectation for the impact from tariffs. Can you maybe talk a bit about how could tariffs impact that outlook?

Kathleen Quirk (President and CEO)

We're monitoring very closely the impact of tariffs in terms of what Freeport brings in as the importer of record. It's not a significant impact so far. The bigger impact that we're working with our suppliers on is what they are seeing and what various inputs they have into their costs. We're working very closely to monitor that. We've got a task force set up to monitor it so that we don't have suppliers that are just trying to pass along, use the opportunity to pass along price increases. We're really getting down into the data to understand what it could mean.

The tariffs to date, and I know there's some negotiations that are ongoing, but we're currently estimating potential to have a 5% impact on our costs. That's something we're monitoring. We're going to look for ways to modify our supply chains, if possible, and work closely with our vendors to make sure that we're sourcing the material as much as possible that's tariff-free. Things like the steel and aluminum tariffs, that is hitting us to a degree as well. We benefit on the one hand to a much larger extent on the copper situation, which we talked about. The tariff is impacting our operating costs, but not to a significant degree.

Really, the cost savings that we are talking about are really the efforts underway to drive better efficiencies through our innovation that we are doing, focusing on the basics, rationalizing contractors like we talked about, reducing unplanned downtime, getting better asset efficiencies. Our asset health is in a much better situation in the U.S. than it has been in recent years. Now that inflation is somewhat moderated, we are now in a position where we are really driving what we can do to bring costs lower. We have got a lot of automation projects underway, and of course, the leach initiative will really help us out because those incremental pounds are coming in at a very low cost. We are really excited about the opportunity in the U.S. to bring down costs, and at the same time, we are seeing this premium.

Our U.S. business should perform very, very well as we look forward. As a reminder, we do not have—we have NOLs in the U.S., net operating losses, so it can come into our margins and cash flows and drop to the bottom line through our results. It is a real opportunity for us, and we are very focused on driving value in our U.S. business through efficiency programs and cost reduction programs in addition to the benefit we are getting on this premium.

Katja Jancic (Metals and Mining Analyst)

Thank you.

Operator 1 (participant)

Our next question comes from the line of Orest Wowkodaw with Scotiabank. Please go ahead.

Orest Wowkodaw (Equity Analyst of Mining Industry)

Hi. Good morning. A couple of questions, if I could. Firstly, I was wondering if there has been any discussions with the U.S. administration with respect to financing or incentives to advance any of your U.S.-based growth.

Kathleen Quirk (President and CEO)

We have had discussions with various government authorities about Freeport. We have gone through the submission of the Section 232 comments, and we have engaged with various representatives of the U.S. government just as an education about what Freeport is doing in the U.S. As a dominant producer, we talked about supplying 70% of the refined copper that is produced in the U.S. to this market. We have talked about the technology and the innovation that we have in the business that will allow us to potentially, in the short term, bring on some additional refined copper. It is not a given that you can bring on refined copper very quickly.

In terms of there are only two operating smelters in the U.S., and what we can do in the short term is really try to boost production, refined production through our leach initiative. We have talked with the U.S. about the IRA benefits that, being a critical mineral, you have a 10% production credit. Copper is not currently on that list, and we are working to try to get copper on that list. We know with the recent legislation, some of the IRA benefits are being phased out. Really, what we are hoping to accomplish, we're very happy about the attention to permitting reforms. We're hoping to accomplish incentives that would be long-term in nature and really could boost U.S. refined production. We're educating. It's a two-way conversation. Richard's been involved in various discussions as well. We're in a good position on this. Our Baghdad expansion is actionable.

We're wanting to get our autonomous truck conversion completed. We want to understand how this tariff situation will be implemented, etc. In the near term, we're really looking at our leach initiative as an opportunity to grow refined production in the U.S.

Orest Wowkodaw (Equity Analyst of Mining Industry)

Just as a quick follow-up, do you see any opportunity for potential tariff exemptions on your refined copper coming from either Atlantic Copper or Indonesia into the U.S.?

Kathleen Quirk (President and CEO)

We don't know. We're waiting on the details of the implementation to be released. We're not aware of any exemptions at this point.

Orest Wowkodaw (Equity Analyst of Mining Industry)

Thank you.

Operator 2 (participant)

Your next question comes from the line of Alan Spence from BNP Paribas. Your line is open.

Alan Spence (Equity Research Analyst of Metals and Mining)

Good morning. Thank you. Indonesia has 27 cents per pound related to treatment charges in cash cost guidance for 2025. Into next year with Manyar up and running, what do you think your internal cost to operate that smelter would be on a cents-to-pound basis?

Kathleen Quirk (President and CEO)

They're going to be in different categories in terms of where the impacts of the smelter will be. The operating cost of the new smelter is somewhere on the order of 27 cents a pound. That doesn't take into account the additional revenues that we get from getting essentially when you sell concentrate to a smelter, the smelter takes a percentage of the metal that you're selling them. That'll show up in revenues, something on the order of 2.5% of the revenues of the additional volumes will show up in our revenues. Net cost will be credited.

Essentially, when you look at the impact of the smelter, you're looking at something on the order of 15 or 16 cents net when you consider the revenue impact. Then, of course, the export duty will go away, which was something on the order of 30 cents or more in the second quarter. It should, at the end of the day, benefit our margins.

Alan Spence (Equity Research Analyst of Metals and Mining)

Thank you very much.

Operator 2 (participant)

Your next question comes from the line of Lawson Winder from BofA Securities. Your line is open.

Lawson Winder (Senior Equity Research Analyst)

Thank you very much, operator. Good morning, Richard, Kathleen, and Maree. Thank you for the update. I wanted to just follow up on the Indonesian question there about potentially sending refined copper from Grasberg to the U.S. Just looking at the two agreements as, or the agreement as we know it is today, and then looking at what the import tariffs are as proposed, so 50% versus 19%. I mean, is there any thought internally for the potential just to ship refined copper from Indonesia to the U.S. and take advantage of that spread, assuming these agreements and the Section 232 tariffs are finalized as proposed?

Kathleen Quirk (President and CEO)

Historically, Indonesia has not shipped copper in any significance to the U.S. We've been a concentrate producer mostly historically, although we've had the existing smelter at PT Smelting. Historically, the copper produced has been shipped out as concentrate or domestically consumed or consumed within Southeast Asia. We'll look at whatever makes sense in the future as to where it makes the most sense to sell the cathode coming out of our new smelter.

The logical places in the near term will be continuing to sell in Asia, but we'll look at what makes the most sense. The point is that as the U.S. is looking at its strategic interests in critical minerals, having a U.S. company with a significant ownership of this operation in Indonesia and management over it, it gives the U.S. essentially a security of supply if it makes sense, if it's required to use it. Today, the trade flows are mostly, as you know, ore is coming to the U.S. from places like Chile, which is the predominant supplier, and Canada and Peru as well. We'll have to just look to see how all this unfolds and what makes the most sense for trade flows.

Lawson Winder (Senior Equity Research Analyst)

Yeah. Thanks so much for that color. And then just a sort of follow-up on that concept in terms of refined copper within the United States. Have you given any thought to whether, if Freeport were to build a smelter in the U.S., whether a brownfield expansion at Miami would make more sense, or would it possibly make more sense to build a greenfield smelter? Thank you.

Kathleen Quirk (President and CEO)

Yeah. We're doing some work, and we have been doing some work even before this on whether there's an opportunity on a cost-effective basis to expand the Miami-Arizona smelter. We're continuing to study that, as well as is there an opportunity potentially to recover some additional scrap and use our infrastructure in the U.S. to do that? That's been very, very limited historically. We'll look at whether there's an opportunity to do it in the future. We're looking at an expansion of Miami, the smelter in the U.S.

Greenfield would be very challenging. I mentioned in terms of timeframe, I mentioned the Indonesia smelter. We were working on that. It feels like a lifetime, but we've been working on it for 10 years in terms of identifying a site location for it, going through all that needed. Indonesia really wanted to fast-track it. It takes a long time to go through and find the proper site, and go through the permitting process, engineering, all those things. We do have the existing infrastructure here in the U.S. and Arizona, and we'll look to. Look to whether it would make sense to expand it. I want to emphasize, though, the real opportunity for us in the near term to get more refined metal in the U.S. is continued success with our leach program. And I mentioned the additive trial we're doing.

We're making some progress on additional additives that combine with our precision leaching processes, as well as we're going to introduce heated graphenate into the solutions that we're injecting into the stockpiles. So we're working on those things. That can happen more quickly than trying to develop a more costly greenfield smelter.

Lawson Winder (Senior Equity Research Analyst)

Thanks very much, Kathleen. Appreciate it.

Operator 1 (participant)

Our next question comes from the line of Liam Fitzpatrick with Deutsche Bank. Please go ahead.

Liam Fitzpatrick (Head of Metals and Mining Equity Research)

Good morning, Kathleen and team. First one on the buyback. It was still very modest in Q2 in terms of the pace of buyback and despite net debt being well below your target now. Can you just outline what's holding you back at the moment in terms of increasing the pace of share repurchases? And if I can, one quick follow-up on Indonesia. I know you've said the 2026 guidance on copper and gold is unchanged, but given the variability you're experiencing, what level of confidence do you have or can you really have in that medium-term gold guidance? Thank you.

Kathleen Quirk (President and CEO)

On the first question regarding the buyback, we are applying our financial policy, which is to distribute through dividends and share buybacks 50% of our available cash flows. And that's about where we are through the program, about at 50%. Now, we've just seen this change on the U.S. premium. It tripled from the second quarter. Should it continue to be significant as it is today, that will provide more cash flow for shareholder returns under the policy. With respect to being below our net debt target, you'll recall that half was for the shareholder returns and half was for balance sheet or profitable growth.

We've got several projects that we are looking at that, like, for instance, the Baghdad expansion project, which we haven't made a decision on, but potentially that could use some of the other 50% that we've generated since we put the policy in place at the end of the second half of 2021. That's where we stand. As we look forward at today's prices, we should have more cash flow to deploy to our shareholder returns. With respect to the gold volumes, we go through a comprehensive process every quarter. We feel confident with the modeling that we've done and that we feel that the gold grades are there. We'll just keep working as much as we can to get our rates up. We were impacted in the first half by two major maintenance projects.

One of the concentrators was down for the first quarter in Indonesia, and the second one is down now. Maintenance will be completed at the end of the third quarter, and we'll be able to increase our mill rates and keep the mine rates going. We feel confident in using the best information we have today. Mining does have risks, as you know well. We're working hard with the data we have. You can look at our historical performance, and I think we've done pretty well when it comes to executing and keeping our information up to date so that we do not have surprises. The other area that's real important for us is getting the smelter up and running. In the fourth quarter, we expect to not be exporting concentrates in the U.S.

Our plan does not assume any exports in the fourth quarter, and all of it will be coming from the new smelter. We're real focused on making sure that we get that smelter up and running and things are going well so far. The nature of these smelters is such that you do have issues from time to time. We've incorporated the ramp-up curve in our estimates, but we're going to work hard to execute on these plans as we've done in the past.

Liam Fitzpatrick (Head of Metals and Mining Equity Research)

Okay. Got it. Thank you.

Operator 1 (participant)

Our next question comes from the line of Carlos de Alba with Morgan Stanley. Please go ahead.

Carlos de Alba (Managing Director)

Yeah. Thank you. Good morning, everyone. Just coming back to the discussion of the smelting. I mean, Kathleen, what can the potential Miami expansion accommodate, the increased concentrate from Baghdad and the concentrate portion of Lone Star expansions when it comes, or if not, then what would be Freeport's options to handle those additional concentrates when they come?

Kathleen Quirk (President and CEO)

Yeah. With respect to the Miami expansion, we've been looking at something on the order of 30% increase to the current concentrate treatment. Miami, by the way, the Miami smelter is performing very well. That team has been very helpful. That and the Atlantic Copper team both have been very helpful with our new smelter in Indonesia and helping our team there to achieve the ramp-up. We've been looking at something on the order of 30%.

Interestingly enough, on the Lone Star project, it will be kind of like over time, kind of like a Morenci where you have a significant portion of the production coming from the leach volume. Depending on how we do with our leach additive, we may have the option to send more to leach production as opposed to concentrating. We do have, at the Lone Star project, a part of the deposit that has both copper and gold in the grade, and so that will likely require a concentrator. We're in a great position, Carlos, with this focus on getting refined production. We're in a great position with the smelters we have today to leverage those, and also with this leach processing where Freeport has a very significant. Experience in that. So we're in a good position.

It's not easy looking at the future of how to bring in more refined copper, but we're pleased with the portfolio we have that allows us to leverage it more quickly.

Carlos de Alba (Managing Director)

No, definitely, the optionality that you have is quite unique here in the U.S. I wonder if, as part of your discussions with the U.S. administration, have you talked about the challenges of bringing a smelting capacity in the U.S., and how have they responded to that? Would they potentially consider some loans or investments, private-public partnership or something to that end to solve that issue and maybe accelerate the refining expansions?

Kathleen Quirk (President and CEO)

We have not gotten into that level of discussion with the government. There is a desire to see more refined copper being produced in the U.S., but we have not gotten into any discussions about Greenfield. We've really just emphasized what Freeport's doing in the near term through our leach innovation initiative and what we're doing to advance our Baghdad project as well.

Carlos de Alba (Managing Director)

That makes sense. Thank you very much, Kathleen. Congratulations and good luck.

Kathleen Quirk (President and CEO)

Thanks, Carlos.

Operator 1 (participant)

Our next question comes from the line of Daniel Major with UBS. Please go ahead.

Daniel Major (Metals and Mining Analyst)

Hi. Hi, Kathleen, and thanks for the questions. Just to follow up on the Indonesia smelter and the sales destinations for those volumes, you mentioned the possibility of selling to the U.S. in an environment where there was a preferential tariff kind of regime. Can you make any comments on whether any of the volumes are contractually committed from either the existing or the new smelter over the next 12 months that would prevent you from selling to the U.S.?

Kathleen Quirk (President and CEO)

I just want to come back. I'm not sure that you've characterized exactly what we're saying about Indonesia. In the near term, our plans are based on selling our copper cathode that will be produced. We've been working on marketing plans, and our near-term plans are that that will be sold in Asia. We have flexibility. We don't have long-term contracts locked up. We do have flexibility to send it to the place that makes the most sense. I mentioned that the trade flows currently are logistically advantaged selling it in Asia. We're very—what's happening in Indonesia with respect to domestic production, there's a real desire in Indonesia to bring up its domestic consumption of copper, and there's actually been some infrastructure developed by other companies near our operating site. So we'll sell domestically and then look to where the best market is to sell, but we're not locked up long-term.

Daniel Major (Metals and Mining Analyst)

Okay. That's clear. Thanks. Just one of the couple of modeling questions, if I may. Could you give us any guidance around working capital for the Q3 given the changes in shipment timings out of Indonesia?

Kathleen Quirk (President and CEO)

Yeah. We do have some working capital requirements in the third quarter, but that's expected to turn in the fourth quarter. For the year, we've had a use of working capital so far this year, but for the year, we're not expecting any kind of material working capital requirements for 2025.

Daniel Major (Metals and Mining Analyst)

Okay. Thanks so much.

Operator 1 (participant)

Our next question comes from the line of Chris LaFemina with Jefferies. Please go ahead.

Chris LaFemina (Equity Research Analyst)

Hi, Kathleen. Hi, Richard and Maree. Thanks for taking my question. So basically, I want to ask about the market. We have COMEX prices up more than 40% year-to-date. I'm not sure we've ever had the price rally this much in such a short period of time from a pretty high starting point. The U.S. industrial economy isn't exactly firing on all cylinders right now. I'm wondering about demand implications of this massive price spike in the U.S. and even globally with LME prices rising as well. Do you think these sorts of price increases can be tolerated? Is demand inelastic enough that this isn't really going to be affected by higher prices, or are we getting to a point now with COMEX approaching $6 a pound that you could see real negative implications on demand?

Kathleen Quirk (President and CEO)

Thank you, Chris. It's an interesting question. When we look at the demand drivers for copper and the secular trends, we see continued strong demand.

What we do see from time to time, and we saw it last year in China, and you may see some of it going on in the U.S., is when prices move rapidly in a short period of time, some customers will try to figure out if it's real before they buy, and people are trying to understand what the implications of this tariff are, and the details haven't been released yet. But underlying what's going on, you hear about it every day, the AI data centers, the need for more energy infrastructure, more power generation. The underlying trends are significant. Copper within big projects doesn't end up being the biggest item. People need it, and it's a metal that is the best metal when it comes to conducting electricity.

I can't give you a precise answer about whether there'll be any short-term impacts from it, but I think the long-term trends are positive in terms of needing copper to fulfill what we're trying to do from a technology standpoint and overall energy infrastructure standpoint. Richard and Steve Higgins are on as well. Richard, I don't know if you want to add anything or Steve to what I said.

Richard Adkerson (Chairman of the Board)

Yeah. Let me just say a couple of things, Chris. This move that you've talked about reflects the fact that there was this global exporting of copper in the United States in advance of the tariffs getting in here and now, before the tariffs came to place. Now, there's this big question about what are the tariffs ultimately going to be. They certainly don't reflect the—even at these prices, they don't reflect the 50% tariff that's been floated. But.

We really don't know. Once the tariffs are announced, then there will be an adjustment in flows, and there will be potentially benefit on LME prices. Ultimately, it's going to be global supply demand that will end up driving it. Whatever tariffs are there, how they're absorbed, where they're absorbed in the U.S. marketplace. Copper is just so difficult to replace for its fundamental uses because of its inherent qualities. It's not like—there'll be pushes as prices rise to find ways to substitute copper, to thrift it, and so forth. Underlying all of that is just nothing conducts electricity like copper in the world's electric. That fundamental strength and demand will be there. Steve, I don't know if you have any other thoughts.

Steve Higgins (EVP and Chief Administrative Officer)

No, nothing to add. That was very well said.

Chris LaFemina (Equity Research Analyst)

Yeah. I mean, I guess what I was thinking there is—I thank you for that—but I was thinking the competitiveness of kind of downstream in the U.S. Let's assume these tariffs are a permanent thing. Do you start to get a mix in demand globally to other regions? I get it that the LME price depends on global supply and demand, but for Freeport specifically, obviously, the COMEX premium matters as well. Do you start to get a shift in tons away from the U.S. to elsewhere, which means that the benefit of the tariff to U.S. producers becomes less over time?

Richard Adkerson (Chairman of the Board)

I think that very much depends on how it's applied to downstream derivative products, which we don't know. There's another factor here that really we haven't mentioned on this call. That's a big uncertain.

Going back to a previous question, in the past, we've really only lobbied the federal government to try to make permitting more efficient and try to coordinate permitting between state and federal government. Today, we're encouraging the government—not lobbying because we can't lobby—but encouraging the government to reach deal with our international partners that are favorable to both countries. Trying to educate people. I'm sure you all watch news commentators, and you hear things that sometimes it's just astounding, like people wanting to open up these old smelters, reopen them. The old smelters, they don't realize they're gone. The smelters that were once there are no longer here. To try to build a new smelter in today's world, where you have zero or negative TCs and RCs, is a tough deal now. They have not raised the idea of government subsidies and so forth.

We've been trying, as Kathleen said, to get this production credit applied to copper, but that's a challenge. The thing that's overhanging this that we're looking into more is the impact of scrap in the U.S. There's primary scrap and secondary scrap. The U.S. over time had closed its secondary scrap processors because of the environmental issues and cost issues associated with it. Almost all secondary scrap's been going to China or elsewhere. Now there's been some new secondary scrap facilities opened up. That's a potential source of U.S. refined supply. It's complicated as well for the reasons I just mentioned. That's the thing to watch. It's what we're watching as we look at all of these things going forward. It's just a complicated, foggy world, and we just all have to focus on doing it. Listen, I'm real proud of what our team is doing.

I mean, we've been through history at Freeport of having to dig our way out of some real tough problems over the years. Now we've got a lot of those past problems behind us. Kathleen's leading the team and focusing on technology, getting more copper out of what we have there, reducing cost. There are ways of doing that. That's what we're really focused on as we wait for this political situation to clear and to see where we're going from here.

Chris LaFemina (Equity Research Analyst)

Thank you.

Operator 1 (participant)

Our next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Please go ahead.

John Tumazos (Owner and CEO)

Thank you very much. Could you explain some of the hurdles in engineering the Baghdad expansion? Clearly, you've been mining a long time. You know about the reliability of the ore grades, the comminution character, and explain just how it takes a year or so to get the definitive phase. Concerning Lone Star, is the expansion in consideration increasing the mining and stacking rate 120,000 tons a day oxide, or is it also bringing forward the sulfide mill? Just looking forward to all the good progress.

Kathleen Quirk (President and CEO)

Yeah. Thank you, John. On the Baghdad side, we've done a lot of work there, and we've been working internally and with our outside engineers on defining that project. Really, it's not been—the big constraint for us has just been the ability to execute a project in the environment we've been in the last few years, in an inflationary environment where labor was really, really tight. We'd watched projects elsewhere in the industry have big cost blowouts, and that's not something that we wanted to do.

Really, from Baghdad's standpoint, we're going to be able to produce these reserves regardless of whether we expand. The expansion, obviously, would give us more near-term production, near-term cash flows, but it's really a question of when the right time is to start it. We've been taking the time while we've been considering to advance some things and de-risk the project. This autonomous truck conversion that we're doing is going to reduce reliance on employment. We will have to expand our employment there, but not to the degree if we had the trucks that were all operated with people. We've been doing that. We've been dealing with housing at Baghdad. We've been advancing some of the tailings work, which we would ultimately have to do long-term. But we've been advancing it so that when we're ready to go, we can just move forward with construction.

We've been creating optionality with the project, but the main caution that we've had with it is just wanting to make sure that we convince ourselves that we can execute the project efficiently within our capital budget. Now we want to monitor what's happening with tariffs and how that might be affecting capital costs. We want some more clarity there while we continue to advance the autonomous truck fleet. That's where we stand at Baghdad. Lone Star, we're advancing a study to look at what the next phase of expansion could be. We've got the Joseph Kobreis deposit at Safford, which I mentioned earlier, is high-grade and also has gold in it. That would be a concentrator project. With respect to Lone Star sulfides, we're going to look at the right mix of leach versus concentrating.

If we put the concentrator in for Joseph Kobreis deposit, that will help the economics ultimately of sending some through the mill. The vision, the big picture vision, this is an enormous resource in this district. Big picture vision is to have a cornerstone asset like Morenci that'll be a leach and concentrate producer of scale over a very long period of time. Lone Star was the last big mine that—I mean, Safford-Lone Star was the last big mine that was done in the United States. We brought it online in the 2007-2008 timeframe, and we've expanded it since then. For U.S. mines, it's relatively new, even though that was some time ago. We're really excited about the potential there, and we want to get this study done to really define what the flowsheet will look like.

John Tumazos (Owner and CEO)

Thank you very much.

Operator 1 (participant)

Our final question will come from the line of Brian MacArthur with Raymond James. Please go ahead.

Brian MacArthur (Managing Director)

Good morning, and thank you for taking my question. Can I just go back to Grasberg to make sure I understand this? You sort of lost 200,000 ounces over your five-year plan. That sounds to me it's just different flows through draw points. If I look past the five years, is there anything different I should worry about there? Is there anything you've learned through this whole process that would change your thinking on KL, just given it is a lot higher gold grade going forward? Thanks.

Kathleen Quirk (President and CEO)

Yeah. Nothing has changed with respect to our long-range Grasberg Block Cave plans. We are, to your point about KL, looking at what is the best NPV when we're developing KL, but what's the best NPV?

We always look at the interplay between the grades coming from various ore bodies that could maximize the net present value. We'll have that opportunity. The development of Kucing Liar adds additional optionality within the portfolio. And you've pointed out we've got high grades there, both copper and gold. Currently, the recovery assumptions in our reserves are lower than what we're getting in the mill recoveries, what we're getting in Grasberg Block Cave. But that's a real opportunity for us. But you're right to point that out, Brian. And we're constantly re-looking at what the right sequencing is between these ore bodies. And with a 2041 extension, it's going to open up a whole lot of opportunity for us to recover more than we could have otherwise. So we're very excited about the long range of what we can do there.

Brian MacArthur (Managing Director)

And sorry, you actually went to my second question there. As you pointed out, I mean, the recoveries at KL and the metallurgy was different with an awful lot lower in the gold. From what you see now, do you think you're going to be able to get up to the current recoveries you see at GBC? Because obviously, you said that's a pretty big opportunity.

Kathleen Quirk (President and CEO)

Yeah. We have not yet. I mean, we've been able to make some changes over time and have brought the recoveries up. But that's still an opportunity for us.

Brian MacArthur (Managing Director)

Great. Thanks very much for answering my questions.

Richard Adkerson (Chairman of the Board)

Brian, this is Richard. Let me add just one quick thing on this because I've observed some things about this grade issue with the Grasberg Block Cave. I just want to point out a couple of things.

One, when you look at the shortfall, don't forget to take into account the tax effect of that and also the non-controlling interest effect. The government of Indonesia has 51% of that, and there's a tax effect to it. So I've observed some people overstating the impact of it. And as Kathleen and Mark said, this is not a fundamental change that the resource is requiring us to make operating changes in the way we operate. What we're talking about here is getting a better handle on when that gold in the ore is going to be processed. And we're learning more about it. We're using better models. It's not a resource question. It's a timing question. And we want to give the market, as we always do, our best effort in giving you guidance as to when that gold's coming. It's going to be there. It's going to come.

It's a question of when.

Kathleen Quirk (President and CEO)

Thank you, Richard.

Operator 1 (participant)

With that, I'll hand the call back to management for any closing remarks.

Kathleen Quirk (President and CEO)

Thank you, everyone. And thanks for a comprehensive call. We're available if anyone has any follow-up questions. And thanks for your— We'll keep you updated as we go forward.

Operator 1 (participant)

Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.