Q2 2024 Earnings Summary
- Freeport's leaching initiatives are expected to significantly boost copper production, with high confidence in reaching 300 million to 400 million pounds per annum by 2026, providing upside potential to production numbers.
- Strong support from governments and communities in key regions like the U.S., Peru, and Chile is facilitating investments in mining projects and leveraging existing operations for faster project execution, particularly with favorable permitting conditions in the U.S.
- Potential extension of PT-FI's operating rights in Indonesia beyond 2041 and development of the large-scale Kucing Liar project, expected to start production before 2030, will unlock significant value and contribute substantial copper and gold production, extending the life of Grasberg operations.
- Lower ore grades and equipment reliability issues in North America are impacting production and increasing unit costs, with the company needing to address unplanned maintenance and disruptions, indicating that optimization targets are proving challenging.
- FCX may have to divest an additional 10% stake in its Indonesian operations post-2041 to a state-owned company at book value as a condition for extending its mining rights, potentially diluting its future earnings from this key asset.
- Significant capital expenditures are required for projects like the Kucing Liar development and potential additional refining capacity in Indonesia, which could increase financial pressure and limit cash flow available for shareholder returns, with uncertainties in timing and execution.
-
Indonesian Smelter Ramp-Up
Q: Can you detail key ramp-up milestones for the new smelter and will you provide separate disclosures on its performance?
A: Kathleen Quirk explained that they have planned extensively for the smelter startup, bringing together global expertise and training the necessary personnel. They are confident in achieving full capacity by year-end, despite potential challenges. Cory Stevens added that commissioning is underway, with safety checks and plans to initially run at 50% capacity, ramping up from there. They are taking extra precautions with the flash converting furnace. Disclosures will be integrated into PT-FI's results, reflecting operating costs and revenues. -
Indonesia IUPK Extension
Q: What is the path to get approval for the IUPK extension, and any timing or milestones you can point to?
A: Kathleen Quirk stated that with the new regulation issued in May, and the smelter moving into commissioning, PT-FI is positioned to apply for a life-of-mine extension. They expect to apply soon, aiming to complete the approval during 2024. Discussions with the government have been positive, and they don't anticipate waiting for the new President. Richard Adkerson added that the process is different from the past, with widespread acceptance and understanding of the benefits. -
10% Share Transfer Post-2041
Q: Are you giving up an extra 10% post-2041 without proceeds, and how will the cash flows work with the 10% IUPK share transfer?
A: Kathleen Quirk explained they would offer a 10% interest to a state-owned company post-2041, with reimbursement of capital costs incurred through 2041 that benefit the period beyond. This is essentially a book value concept and part of the agreement for the extension. The cash flows between now and 2041 won't be impacted. -
Leaching Projects in North America
Q: How much lower are the cash costs for the leaching initiatives, and what is the expected trajectory?
A: Kathleen Quirk stated that the incremental cost per pound for leaching initiatives is under $1 per pound because mining costs have already been incurred. They are identifying ore in stockpiles to recover more metal. Scaling up leach production will bring down average unit costs in the U.S., improving competitiveness. The current run rate is in their numbers, and they see opportunities to build towards 300 to 400 million pounds per annum by 2026. -
Gold Sales Revision and Impact
Q: Why don't the lost gold ounces due to wet conditions come back later in the plan?
A: Kathleen Quirk said the loss of 150,000 ounces is purely a timing issue, and these ounces will come back into the plan over the next few years. It didn't significantly change the overall 5-year plan. -
Share Buyback Resumption
Q: Should we expect share buybacks to ramp up in the second half of the year?
A: Kathleen Quirk indicated they will continue buying back stock, following their policy to distribute 50% of available cash through dividends and share repurchases, excluding smelter investments. It will depend on cash flows. -
Kucing Liar Project Update
Q: When do you expect first production from Kucing Liar, and when will spending pick up?
A: Kathleen Quirk expects Kucing Liar to start up toward the end of this decade, before 2030. Spending will ramp up over the next several years, with some years exceeding the average $400 million per year. They are leveraging learnings from developing the Grasberg Block Cave. -
Relationships with Governments
Q: How are things in Peru, Chile, and North America regarding investments and government relations?
A: Kathleen Quirk stated there's a strong desire in Peru and Chile for more mining investment, with governments recognizing the need for metals like copper. The U.S. is also prioritizing critical metals. They emphasize the importance of social and community matters and see a more positive environment for investments. Richard Adkerson added that years of commitment to building relationships have led to uniform support from communities and governments.
Research analysts covering FREEPORT-MCMORAN.