Freeport-McMoRan Copper & Gold Class B FCX
Q4 2011 Earnings Call Transcript
Transcript Call Date 01/19/2012

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold Fourth Quarter and Year End Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I would now like to turn the conference over to Ms. Kathleen Quirk, Executive Vice President and Chief Financial Officer. Please go ahead, ma’am.

Kathleen L. Quirk - EVP, CFO and Treasurer: Thank you. Good morning. Welcome to the Freeport-McMoRan Copper & Gold fourth quarter 2011 earnings conference call. Our results were released earlier this morning and a copy of the press release is available on our website at 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 for the conference call. As usual, we'll have several slides to supplement our comments this morning and they are also available on our webcast link at fcx.com.

In addition to analysts and investors, the financial press has been invited to listen to today’s call, and a replay of the webcast will be available on our website later today.

Before we begin our comments today, we’d like to remind everyone that our press release and certain of our comments on this call will include forward-looking statements. We’d like to refer everyone to the cautionary language included in our press release and presentation materials, and to the risk factors described in our SEC filings.

On the call today are Jim Bob Moffett, our Chairman of the Board; Richard Adkerson, our Chief Executive Officer; we also have Dave Thornton, and Mark Johnson here with us today.

I’ll start by briefly summarizing our financial results, and then turn the call over to Richard, who will be referring to the presentation materials on our website.

Today FCX reported fourth quarter 2011 net income attributable to common stock of $640 million or $0.67 per share compared with $1.5 billion or $1.63 per share for the fourth quarter of 2010. For the year 2011 FCX reported net income attributable to common stock of $4.6 billion or $4.78 per share compared with $4.3 billion or $4.57 per share for the year 2010.

Our fourth quarter of 2011 consolidated copper sales of 823 million pounds and gold sales of 133,000 ounces were lower than our original October 2011 estimates of 915 million pounds of copper and 305,000 ounces of gold. In the fourth quarter 2010 sales of 941 million pounds of copper and 590,000 ounces of gold primarily because of labor disruptions and the temporary suspension of milling operations at PT Freeport Indonesia as a result of damage to the concentrate and fuel pipelines.

Our copper and gold sales were higher than the revised 2011 estimates of 800 million pounds of copper and 105,000 ounces of gold primarily because of higher Grasberg production late in the year and timing of shipments principally from North America.

The estimated impact of the labor and pipeline disruptions net to PTFI totaled 165 million pounds of copper and 170,000 ounces of gold for the fourth quarter of 2011, and for the year, totaled 235 million pounds of copper and 275,000 ounces of gold.

Our fourth quarter 2011 consolidated molybdenum sales were 19 million pounds. That was higher than our estimate in October of 18 million pounds and the year ago fourth quarter sales of 17 million pounds. As we've been reporting, PTFI's milling operations were temporarily suspended, resulting from the damage to the concentrate and fuel pipelines resulting from civil unrest that occurred during the course of the strike.

We reached financial terms of a new two-year labor agreement in mid-December 2011 and the repairs to the pipelines are substantially complete. We've begun to ramp up production and are also working cooperatively with the Government of Indonesia to address the security issues. Maintaining security is a requirement of returning to normal operations. We're currently mobilizing the workforce and full operations are expected to be restored during the first quarter of 2012.

Our realized copper price during the fourth quarter was $3.42 per pound. That was below the fourth quarter of 2010 realized price of $4.18 per pound. For gold, we realized approximately $1,656 per ounce in the fourth quarter of 2011, and that was 18% higher than the $1,398 per ounce realized in the fourth quarter of 2010.

Our molybdenum price realization for the fourth quarter of 2011 averaged $15 per pound. That was lower than the year ago average of $16.60 per pound. As anticipated our consolidated average unit net cash cost net of byproduct credits averaged $1.57 per pound of copper in the fourth quarter of 2011. It was higher than the unit net cash cost of $0.53 in the fourth quarter of 2010, principally because of lower copper and gold volumes in Indonesia. Our net – consolidated net unit cash cost for the fourth quarter included $116 million on a consolidated basis associated with signing bonuses and other costs related to new labor agreements in Indonesia and South America. We also had higher unit net cash cost from higher mining and higher input costs in North and South America.

Operating cash flows during the fourth quarter totaled $746 million and for the year totaled $6.6 billion compared with $6.3 billion for the year 2010. During the fourth quarter, our capital expenditures totaled $785 million, which brought the total for the year to $2.5 billion and that compared with $1.4 billion for the year 2010.

We reported our preliminary estimated consolidated proven and probable reserves. At year-end 2011, our reserves included 120 billion pounds of copper, 34 million ounces of gold, and 3.4 billion pounds of molybdenum, which were determined using long-term prices of $2 for copper, $750 for gold, and $10 per pound of molybdenum.

We've added significant reserves in recent years and drilling activities conducted during the year have identified potential for significant reserve additions in future periods. We ended the year in a very strong financial position. Our cash of $4.8 billion exceeded debt of $3.5 billion. During the year, we repaid $1.2 billion in debt and our common stock dividends to shareholders totaled $1.4 billion. We currently have 948 million common shares outstanding.

Now, I'll turn the call over to Richard, who'll be referring to the slides on our website.

Richard C. Adkerson - President and CEO: Good morning, everyone. As reflected in Kathleen's summary of our financial results, the second half of 2011 and particularly the fourth quarter were very eventful for our Company. We faced some significant challenges at our operations in Papua in Indonesia with the strike that was our first strike of that nature that we've had in our 40 year plus operations there, with the civil unrest and security issues there. We also had a lengthy strike at Cerro Verde in Peru.

When you step back and look at those challenging circumstances to see the financial results for the year where we exceeded our records that we had established in 2010, it's really a gratifying accomplishment. The labor disruptions and security issues at Grasberg did affect our fourth quarter results, but even during the course of the strike and for the other operations that we had, we had very solid operating performance and our operating team has just done a great job in these circumstances.

We do have new labor agreements at Grasberg that we've reached an agreement on. We were able to complete an agreement at Cerro Verde where we were able to operate without a significant impact on production during the course of the strike, and then we reached a new agreement at El Abra in advance of the exploration of the contract there on a normal course of business basis. As we were dealing with these issues, we continued to advance our growth projects to increase our copper production and those projects are leading to a 25% increase in our copper production over the next four years. We continue to pursue and are accelerating our exploration program to identify future reserves and production growth and our company has a very strong balance sheet, which provides us the basis for investing in growth and also for our Board to consider returns to shareholders.

The Slide on page 4 has details of the data that Kathleen reviewed with you and you can see the impact in the fourth quarter of the situation we faced in Indonesia. We gave revised guidance early in December and our results are consistent with that, with slightly higher gold production or higher gold production. Even in these circumstances in the fourth quarter, before working capital changes, we generated over $1 billion of operating cash flows during a time when we had less than $800 million of capital expenditures. So the Company continued to have strong financial results.

Page 5 shows our cost structure with the lower volumes in Indonesia. We had an abnormal cost situation on a unit basis there. We will be returning to a normal situation as we go forward. We also had cost associated with the new labor contract and that added $0.14 per pound to our consolidated net cash costs.

At the bottom of the slide, you can see our sales by region in North America, South America, and in Indonesia, and the very low amounts that we had in the fourth quarter in Indonesia. This was a adverse consequence to us, but it was also adverse to other stakeholders in the projects. The financial consequences of the strike were felt by our workforce. Those that were on strike received lower pay. It was felt by the local community in the Tamika area by the province.

The government of Indonesia has more than 50% participation in the cash flows generated by our projects, so it was a significant financial issue to the government and we are going to be using the stakeholder impacts in terms of developing relationships with our employees going forward, and we have reached an agreement with them that future labor negotiations are going be based on cost-of-living changes and competitive wages in Indonesia. So, we're going to take this situation, and work to do the best we can to avoid a recurrence of this situation in the future. As I said, it’s the first strike we’ve had of this nature in Indonesia since we’ve been there.

The markets today overall do reflect the concerns about the situation in Europe, and the situation of relatively low growth in United States, but the copper markets having said that are tight worldwide. The LME inventories have come down recently by 25% during the fourth quarter. China continues to be strong, despite concerns going into this year and throughout the year about credit tightening and inflation factors there. Record imports of copper into China occurred during December. Today, worldwide inventories are roughly 10 days of consumption, and we're seeing fairly positive outlook actually by our downstream customers in the United States. Certain sectors are strong, including automobiles and export-related sectors, and there's some improvement even in the construction business. So, as we look forward in a world that involves economic uncertainties, we see a tight and encouraging market for copper as we go into 2012.

Gold continues to be trading at strong levels and molybdenum prices are hanging in there, and we feel very positive about the future for molybdenum, and are investing in our business to grow our participation as the world's leading producer of molybdenum.

Page 7 talks about some of these issues about the physical tightness in the marketplace, the positive data from China. In the U.S., I mentioned the sectors that were growing, including the automobile area and residential constructions. Improvement is still weak, but improving; and the overall market sentiment is good. So, demand in a world that goes forward without Europe going to create a global financial crisis, if that avoided, we feel good about our markets as we go forward, and the copper producers continue to face supply constraints in terms of developing new projects and keeping existing mines operating.

Couple of comments about the labor agreement. At Grasberg, we had a strike that began on September 15. We had a earlier work stoppage in the beginning of July, and then the strike occurred, we had the disturbance in mid-October which resulted in breaching of our pipelines and thus being forced to shut down our milling operations because we couldn't deliver concentrates from our mills in the highlands to the port, and our team did an excellent job before the strike was settled in restoring the pipeline situation.

We diverted the pipelines around the area where the breaching and destruction of our pipeline occurred. Our team went into emergency mode and was able to accomplish a lot in a short period of time, which they've gone over and over during the history of Grasberg's operations. With the assistance of the government, we were able to reach agreement on the financial terms with the union which were very similar to the terms that we have been proposing. There's been widespread misunderstanding of what the union was demanding and what we were paying. The union's demands were clearly excessive and when that was understood, efforts were made to reach a conclusion. We were able to do that in the middle of December and now, we're going forward.

As Kathleen mentioned, there was a significant impact to fourth quarter production. The fact of the matter is the resources that we would have produced then are still there. I mean it's not a question of losing the sales permanently, the resources are there and they will be produced in future years. There was as I said, a near-term adverse financial consequences to all stakeholders. The security issues are a matter of concern to our Company, to our workforce, to the local community and must be addressed and we are working aggressively with the government authorities to find a way to deal with that, to provide security to find a resolution of what's behind the shooting incidents that occurred. We must get this accomplished to restore that, but as this is happening, we are ramping back up to work, strikers are returning to work and are being integrated back in the workforce as we speak.

The strike at Cerro Verde was also a very long strike, but we were able to continue to operate there and did not have a major impact on production. We got a new three-year agreement and we are going to work to build relationships with our workforce there to try to avoid future instances of strikes like this and as I said, we were able to get a new contract at El Abra without having to face the challenges of a strike.

The strategy of our Company is very clear. We have enormous resources to deal with. Our proved and probable reserves at $2 copper are at 120 billion pounds. We also have identified mineralized material beyond those reserves based on our exploration work and analysis of our drilling and understanding our ore bodies that provides us material that has contained copper essentially equivalent to our proved reserves and so that gives us an enormous resource base of copper for a world that’s going to be needing copper for years and years to come, and we think this is what gives our Company such a great opportunity and a bright future.

We are focused on continuing to explore to add to these resources, and then converting resources to reserves and reserves to development projects, and development projects into cash flow generation and we've got a program to do that in the near-term, the mid-term, and long-term, we will have a continued opportunity to grow that will be based on our existing properties.

The success that we’ve had there is illustrated on the chart on Page 10. At the bottom, you can see that since the combination of Freeport and Phelps Dodge in 2007, we’ve had very substantial additions to our proved and probable reserves, substantially in excess of our production. Our reserves are growing. They continue to grow, and as I said, this is the future of our Company.

Page 11 shows what I was mentioning earlier that at $2 we have 120 billion pounds of proved and probable copper reserves, at 220 contained pounds of roughly that same amount in our mineralized material. Interestingly, over half of that’s in our North American properties, which not too long ago were viewed as being dead end short-lived properties, but with the world’s needs for copper they’ve turned out to be very valuable assets, and assets that we will be focused on and growing for the future.

Since 2006, we have spent roughly $800 million on explorations. On Page 12, you can see where that is spent geographically. That’s resulted in adding 46 billion pounds of proved and probable copper reserves. Cerro Verde has been a resource where a lot of those reserve additions have come from, and it's a good example. Cerro Verde was a sizable mine. Our exploration activities generate – identified significant new reserves and resources. Now we have development plans to triple its mill output, and it will be a very valuable contributor to our growth plan.

The same opportunity is happening at El Abra, which four years ago, five years ago we didn't really have any prospects for growth, but we've identified additional sulfide resources, but it's just an example of what we're about and what our opportunities are for our company.

Near term our copper projects that we restarted after the suspension of activities in the financial crisis of 2008 and 2009 have gone well. The Morenci mill is restarted. We've increased the mine rate. Together that's adding 125 million pounds of copper a year. The Miami restart is substantially done to add 70 million pounds a year, and our mine in New Mexico at Chino is now ramping up, and by 2014 we'll have 200 million pounds coming from that. These are all projects that we had deferred in 2008-2009.

We also at that time deferred the restart construction project at our Climax mine in Colorado. It's a pure molybdenum mine. Now we're virtually completed – 95% complete of this restart project. We'll be starting this up in 2012, ramping up to initial capacity of 20 million pounds of molybdenum a year. This is expandable beyond that. We started mine development earlier this year, and in the very near future, we'll be feeding ore to the mill and going forward with it.

The El Abra's Sulfolix project which was really a replacement project for depleting oxide ore at EL Abra commenced production in the first quarter of 2011. This project extends the mine life by 10 years with substantial annual copper production. Our team has identified a very large sulfide resource that goes beyond the resource that would be processed through Sulfolix and we are now studying the potential for our major mill project there, similar to what we've done at Cerro Verde.

The long-term underground development at Grasberg in Indonesia is proceeding. We have very significant underground reserves there, aggregate reserve of 37 billion pounds of copper and 32 million ounces of gold. That's a huge resource. Our current underground mine, the DOZ mine, has a capacity of 80,000 tons per day, and we're ramping back up to restore that to normal production.

We are developing the Big Gossan mine which is a high-grade mine that will be operational 2013. The Grasberg block cave, which is resource that lies directly underneath the Grasberg pit, we are completing our advancing development of that resource, so that it can come on stream when the pit depletes which is currently scheduled to occur late in 2016 and the Deep MLZ mine, which is an extension of DOZ mine has now been subject to a feasibility study and starting it up in 2015, So that as we convert from the open pit to underground at the Grasberg, the MLZ will be a significant contributor. All this together will allow us to reach underground production at 240,000 tons per day, which is a remarkable level of underground production, but we are comfortable with this because we've been block caving at Grasberg since for over 20 years now and we've had great success with it and very comfortable with it.

Beyond the near-term copper projects, we are having significant mill expansions. As I mentioned at Cerro Verde, this will result in Cerro Verde being the largest milling operation in the mining industry. The capital numbers are now included in our CapEx projections as you'll see in a minute. We have a mill expansion at Morenci, where we are completing a feasibility study. It appears to be very straight forward spending just over $1 billion of capital to 225 million pounds per year of incremental copper, and we're now under construction at the first expansion space at Tenke to add 150 million pounds of copper for less than $1 billion and we expect to achieve full rates there at 2013. The Morenci mill is illustrated on the chart on page 18. Interesting about Morenci, flagship copper mine in North America since 1943 it's produced 26.5 billion pounds of copper, and yet – and was thought to be on its last leg, not too long ago, but if you look at its existing proved and probable reserves and its resources, which we're continuing to explore and expect to add to, you can see that its, maybe based on that, only roughly halfway through its life, so it's going to be a source of growth for us and a significant profit contributor.

The Cerro Verde mill expansion is a project that involves applying existing technology. We had a major expansion there that was completed late 2006, early 2007. Water issues are a challenge in Peru. We’ve come out with an approach that is being very favorably received by the local community, and the government of developing a wastewater treatment plant for the City of Arequipa, and that will improve standards of living there, but also provide us the water for our plant. We are now having our EIS reviewed, and expect to commence construction in 2013, have this online in 2016.

At Tenke, expanding mill throughput to 14,000 tons per day, expanding the mining rate, adding takeouts capacity, and as I said, we expect to have 150 million pounds of copper a year. Construction is now underway. There were elections in the DRC in November. Throughout this period, which there were some turmoil associated with the political activities, we were able to continue to operate in a normal fashion, and as you can see from the financial results, we had positive operating results at Tenke during 2011.

Beyond these projects which are actively being pursued, we are also engaged in significant studies for other future projects; and in North America, these include a large-scale mill project at Morenci, expansion possibilities at Sierrita and the adjoining ore body at Twin Buttes, at Baghdad at Ajo which is a historic mine with a resource that looks attractive for further development. At Safford, the adjoining Lone Star ore body provides us the opportunity to have a very long life for that facility. I mentioned El Abra. In Africa beyond the existing project, we have additional expansion opportunities with the identified oxide ore base, and we're drilling and doing evaluation of the large resource associated with mixed ores and sulfide ores at Tenke, and we expect to have future major expansions there.

Our exploration spending budget is being increased to $275 million reflecting our positive outlook for the copper business going forward, and also the resources that we have available to us. This is being focused on our existing ore bodies and Brownfield opportunities with some Greenfield projects that we are also pursuing.

For 2012, because of mine sequencing activities and the need to do some stripping operations at Grasberg, we're going to have a lower than normal year for copper and gold production there. For the company as a whole, our copper production – copper sales are projected to be 3.8 billion pounds, gold at 1.2 million ounces and molybdenum at 80 million pounds. The interesting thing with molybdenum for the near-term market, as Climax is being ramped up, it is going to be a period of time where because of mine sequencing and the ore body, we'll be having somewhat lower production out to Sierrita. So, we won't be flooding the marketplace, but as we go forward, Sierrita will return to normal levels and we'll have the opportunity to participate in a positive market for molybdenum as we go forward.

The unit cash costs are going to reflect an unusual situation in 2012 because of low volumes of copper and gold at Grasberg. Future unit cost will decline to a more normal level for the Freeport organization as those higher volumes are achieved in 2012 and going forward. At 350 copper, this plan would generate $4.7 billion of operating cash flows, net of $800 million in working capital uses, and capital expenditures are projected at $4 billion including $2.4 billion for major projects.

The near-term sales profile is shown on Page 24. You can see increasing sales and we've also included a bar there for what our sales are projected to be once completion of our current are, and that's a 25% increase. You can see gold sales returning to more normal levels at Grasberg in 2013 and 2014.

Our quarterly sales are shown on Page 25 for this year. You can see copper production building up as we go through the year, and the gold sales situation at Grasberg which, again, reflects mine sequencing there.

The sales by region are shown on page 26 for your information on page 27 you can see our cost structure for 2012. I'll again point out the unusual situation at Grasberg because of the mine sequencing, 2011 saw a period of time where we did see some increases in input cost across our operations occurring across the industry for energy and other costs, but our basic cost structure has not changed. To illustrate that on page 28, we show a reconciliation of our 2011. Our cost of on a company basis consolidated of just $1 a pound and what it would be in 2012, if we had, had in 2012 the volumes of a normal year at Grasberg and we're using the average of 2013-2014, our cost would have been $0.20 lower going into 2012.

EBITDA on various copper prices and cash earnings – operating cash flows are shown on page 29 at $3.50 copper, operating cash flows would be $6.5 billion roughly at $4 they grow to over $8 billion and over $11.5 million of EBITDA. The sensitivities for copper molybdenum and gold in certain of our input costs are shown on page 30 for your use, so that you can see how those would change as prices and cost vary. Our capital expenditures are shown on page 31. The numbers now include Cerro Verde and Tenke. Those projects have been approved. They are being advanced. It does not include the major expansion that we are looking at, at Morenci, and as we proceed with advancing that project, we’d expect additional capital to be spent there.

Our balance sheet of course is very strong. We’ve been focused over the past four years on debt reduction, and have been successful in doing that. So, our Company is very strong with just $3.5 billion of debt, and just under $5 billion of cash. What this allows us to do is to be comfortable with investing in growth, and we have these growth opportunities that are available to us. We believe the markets will be very positive for having that growth rate, significant profits for our Company. It will also allow our Board to consider our returns to shareholders. We’ve had a history of paying strong dividends and buying stock back on occasions. This is a Board decision, and they will be reviewing this on an ongoing basis.

As I said, second half of 2011 was an eventful year. Our operating team has just performed in an outstanding way in facing these challenges. As an organization, the team has done well in addressing production opportunities, addressing safety, addressing growth projects, and we have a great group of people here, and we really look forward to going forward into 2012.

With that, operator, we will open the line for questions.

Transcript Call Date 01/19/2012

Operator: David Gagliano, Barclays Capital.

David Gagliano - Barclays Capital: I just had a quick question on the capital spending at Cerro Verde in 2012 –actually two quick questions. First, I just want to clarify that roughly $1 billion spend at Cerro Verde, is that your interest, or is that on a 100% basis, and then second if construction is starting in 2013, what's the $1 billion in 2012 going towards? Is that the wastewater treatment plant, equipment purchases, or something else? Thanks.

Richard C. Adkerson - President and CEO: Yeah. It's on a consolidated basis, Dave, and that spending would be for ordering equipment and doing preparation for the construction to begin.

Operator: Sal Tharani, Goldman Sachs.

Sal Tharani - Goldman Sachs: Can you give us some idea for what's your plan for the cash flow, as there's a tremendous amount of cash flow you're going to be generating, have you looked into – now that the Grasberg is resolved, have you looked into paying increasing dividends or paying some special dividends?

Richard C. Adkerson - President and CEO: Yes. This is – as I said, we're really focused on spending capital, and we have $40 billion of CapEx to spend next year – for this year, for 2012, and we have other projects that we're considering, and that's going to be our principal focus. Beyond that the Board will be – it will be a Board decision about financial policy with shareholders and I can just refer you to what our tradition has been at Freeport for our Board's reaction to that in the past.

Operator: Michael Gambardella, JPMorgan.

Michael Gambardella - JPMorgan: I have a question on Grasberg. When your slurry pipeline was cut, I think you were operating – right before that, you were operating around 70%, 75% of capacity at Grasberg with the hourly – about 25% of the hourly back I think you had said, and contract workers, and then the salaried workers. I thought you had kept those workers going on stripping and also advancing some maintenance projects, and I see you increased your gold forecast for Grasberg in 2012 versus your previous by about 10%, but you actually reduced the copper side by about 6%, 6.5%. Can you talk a little bit about why you reduced the copper side and not the gold?

Richard C. Adkerson - President and CEO: I'll let Mark address that, Mike.

Mark J. Johnson - President, Freeport-McMoRan Indonesia: Really, one of the – the impact of this pipeline sabotage, as you mentioned, our fourth quarter forecast considered the workforce that we had to operate. We were operating fine until the pipeline event. The impact of that was that really production from Grasberg essentially got shifted into 2012. The same happened for DOZ. One other thing as a result of the strike that had a impact on our 2012 metal is that the Big Gossan project got delayed. Our emphasis during the strike period was to continue to maintain the cave management at the DOZ for the underground mines. We took a lower priority on the Big Gossan operation and therefore, our ramp up in Big Gossan has been delayed and that's the primary impact to the 2012 metal is, that we had planned on being at the end of 2012 being up to 7000 tons a day in Big Gossan, that's going to be delayed by six months, it's going to be more towards the middle of 2013. It's a very low tonnage mine, it's a very high grade, it's about 3% copper equivalent deposit and that was the biggest impact to the 2012 metal.

Operator: Richard Garchitorena, Credit Suisse.

Richard Garchitorena - Credit Suisse: Just a follow-up on that. It looks like you took your gold production forecast down slightly from 2013 to '15 at Grasberg. So just wondering is that also related to the Big Gossan or is there any color on grades they you may be able to give us?

Richard C. Adkerson - President and CEO: It's just the sequencing of the pit primarily there is the shifting of the metal from one year to the other. Big Gossan would back up, it'll be at the full rate in 2013. So the ups and downs that you see from copper and gold beyond 2012 is more where we are at in the pit and just the shift from the end of one year to the beginning of the next.

Richard Garchitorena - Credit Suisse: My second question. On the potential additional projects on Slide 21, I was wondering is there any way you can quantify how we should think about that going forward on top of the $5 billion that you are already targeting by 2015, '16 or so?

Richard C. Adkerson - President and CEO: Well, those will involve very significant projects and they will give us the opportunity to have substantial growth beyond that. At this point, we will be filling you in, as we go forward with identifying the projects and exactly how we'll be attacking them. But it does involve the opportunity for significant growth. If you look, at the ones that will be the nearer term projects along on those lines. The major mill expansion at Morenci is one, the major mill projects at El Abra is another. These gives us the opportunity to have at El Abra projects that would in line or in the order of magnitudes like we've been doing it. Cerro Verde, Tenke is going to be a project where we will have growth, I think, on a continual basis as we go forward. So it’s a question of looking at these resources, and as I said, changing them into development projects and cash flows, but what we see for our Company is a very long period of continuing growing volumes with what we have right now, and we're continuing to find new resources and that will give us further opportunities.

Operator: Oscar Cabrera, Bank of America Merrill Lynch.

Oscar Cabrera - Bank of America Merrill Lynch: With respect to Cerro Verde in Peru, you provide us an idea of the level of capital spend until you – until the project becomes operational, like you said $1 billion in 2012, what would that capital spend look like over 2013, '14, '15, and with changes in the tax code in Peru, are you looking at a similar situation to previous projects in Peru, has there been any changes that may impact capital spend as you're developing the project?

Kathleen L. Quirk - EVP, CFO and Treasurer: Oscar, this is Kathleen. Actually for 2012, included in our capital forecast is roughly $600 million for the Cerro Verde expansion, which includes some long lead items, and permitting and engineering that we're doing. That amount steps up in 2013 as we get into construction to about twice that, and then the balance in 2014 and 2015. We went through a process – to your question on the taxes, we went through a process to evaluate the new tax regime, and looked at the Cerro Verde project in the context of the new tax regime, and it did not have a significant impact on our economics. The way it worked is that at lower prices, it was actually a little better, and then at high – as prices got higher, there was – the taxes were increased, but it didn't have a very significant impact on our economics at Cerro Verde. With respect to Peru, I mean, our focus really is on the development potential of this asset.

Richard C. Adkerson - President and CEO: Oscar, as you know, there was a complicated tax government participation structure in Peru that involved these voluntary – so called voluntary payments that had been made over time, and the new tax code replaced many of those.

Operator: Brian MacArthur, UBS Securities.

Brian MacArthur - UBS: I just want to go back to el Abra. You've made a number of comments about it being a potential similar to Cerro Verde. Can you just clarify when you say that, whether you're referring the weight at Cerro Verde the first time like a 120,000 tons, or are we talking about something that might be maybe the 360,000 tons a day like Cerro Verde now, or is it somewhere in between? What sort of magnitude are we actually talking about here?

Richard C. Adkerson - President and CEO: Brian, as usual, you get me walking down on slippery slope here, because we're in the pre-feasibility stage, but just to try to be responsive, we're looking at a range of scenarios to be as much as maybe 240,000 tons, but that is what we potentially could do. We may not de one that big initially, but that's where the magnitude of what we're looking at.

Operator: Garrett Nelson, BB&T Capital Markets.

Garrett Nelson - BB&T Capital Markets: Just two questions on Climax. Could you be any more specific as to what quarter of 2012 you're targeting startup, and of the 80 million pound molybdenum sales guidance, how many pounds are incorporated from Climax?

Richard C. Adkerson - President and CEO: I’ll let Dave answer it since it's his business.

David Thornton - President, Climax Molybdenum: Garrett, we're looking at startup in the first quarter of this year. We're starting commissioning right now on some of the major equipment, primary crusher, SAG mill, ball mill. So, we anticipate startup before the end of the first quarter. For production for the year, we're estimating around 7 million pounds this year from Climax.

Kathleen L. Quirk - EVP, CFO and Treasurer: We also have in our projections lower grades from some of our byproducts mines and so essentially this ramp up at Climax is offsetting the decline in byproducts and that's why we don't see a significant change in our 2012 sales compared with '11. But we'll have the flexibility subject to market conditions to increase production, potentially ramp up (indiscernible), Climax or change Henderson, if market factors are there for us.

Garrett Nelson - BB&T Capital Markets: I think, Richard mentioned Sierrita as being one of those mines?

Richard C. Adkerson - President and CEO: Right. That's correct. I mean, Sierrita, I think is the world's lowest grade copper mine, but it's a very profitable mine because of the significant molybdenum byproduct there and it's just a question of where we are in that ore body and it's going to be the resources there and it's going to be coming back to more traditional levels of production after we get through the next year or two.

Operator: Kuni Chen, CRT Capital Group.

Kuni Chen - CRT Capital Group: Just a follow-up question on Peru, one of your peers in the mining space is having some difficulty with a big $5 billion project there, obviously there's been protest and what not, just want to know what your thought processes is around that and whether that has any implications for Cerro Verde going forward?

Richard C. Adkerson - President and CEO: Well, it's in a completely different part of the country, a completely different community situation there. Cerro Verde has been operating near Arequipa for many years now, and we’ve put a lot of efforts into building relationships with the local community. So, it's not appropriate for me to comment on somebody else's issues, but with respect to our issues, we have worked effectively with the water rights. We've done – we're doing a water project for the city now. We’ve come up with this solution for improving life in Arequipa through this wastewater project, with giving us water for our plant. As a result, for example, the mayor of Arequipa who was a major supporter of Humala is a very active proponent of our project. I met with the President (indiscernible) President Humala on couple of occasions, was very encouraged about his support of mine development and our project, and so I think that’s our circumstance that we have now. Now, we do have to get permits, and there’s always uncertainties, but we feel very comfortable in the way we’ve approached the EIS in the project and with our relationships there.

Operator: Wayne Atwell, Rodman & Renshaw.

Wayne Atwell - Rodman & Renshaw: Do you have any projects in the pipeline, which should be in-situ copper leaching?

Richard C. Adkerson - President and CEO: No. We’ve looked at that in the past, and no, our projects involve open pit development and block cave development underground.

Wayne Atwell - Rodman & Renshaw: Yeah. I know you had done some work on one, and was that that you thought the technology didn't work or that project wasn't economic, or what happened? That was years ago, do you remember what happened?

Richard C. Adkerson - President and CEO: That was years and years ago, and actually it was a project that had some support by the – some government subsidies. Those went away and the economics just didn't look attractive to us.

Wayne Atwell - Rodman & Renshaw: Was it the technology or was it that project?

Richard C. Adkerson - President and CEO: Wayne, this was many years ago, and I think, it was focused on that project. We really – we monitor technology, but we really don't have a comment on it, other than it's not in our plans.

James R. Moffett - Chairman: Richard, I'd just – it's Jim Bob. The biggest problem with leaching is it leaves the gold behind. So, when you have that attitude to farm, Wayne, it just didn't make sense, with the high grade copper that we have, and the fact that we have gold byproducts and silver byproducts, you can't afford to leave that behind.

Operator: Paretosh Misra, Morgan Stanley.

Paretosh Misra - Morgan Stanley: So, on Morenci, and talking about that larger bigger expansion, what kind of activities have you planned for this year, anything specific besides just more exploration?

Kathleen L. Quirk - EVP, CFO and Treasurer: Well, we're focused initially in Morenci on the near-term project which would expand the mill to 115,000 tons a day and that feasibility study is being completed. Beyond that, we are looking at potentially a larger mill expansion, and going through what would be required in terms of that. The exploration results or the data that we've been gathering, that would support an expansion, but there are other factors including water and permitting that we have to work through. But on the near-term, on the horizon, we've got this initial project. It was very actionable. Permitting is underway. We believe we have the water for it. So, that's something we'll focus on in the near-term, but beyond that, we've got to solve some other issues to get to the major expansion.

Richard C. Adkerson - President and CEO: Morenci has just been a place of great activity. I mean when we were faced with the situation in 2008, 2009, we took the mill, the existing mill, the old mill down, we cut the mine rate in half, we idled huge number of trucks, 100 trucks or so, and now, since then, we've been in stages increasing the mine rate, starting up the old mill, improving the logistics of the operation, working on longer-term recoveries. Now, in this mill expansion activity, we're going – we got this major mill going. A number of you visited Morenci. So, it's amine with lots of activity going on, lots of exploration drilling, and strategic planning for where we're going with it in the future. It's a great operation.

Operator: (David Stevens, Decade).

David Stevens - Decade: For Grasberg, it looks like the ramp-up is progressing pretty rapidly. Could you give us a sense of what the current utilization rate is or maybe what the current daily production rate is, and also, how far off do you think we are in terms of weeks from achieving the target utilization rate?

Richard C. Adkerson - President and CEO: Well, we are ramping up. There is a questions, there's time that requires of bringing the worker back. There were roughly 6000 striking workers as well as some contractor employees. We have a workforce of roughly 23,000 out there and little more than half our employees, so there is a period of time of physically getting people back to work and getting them integrated, safety briefings and things of that nature. As we do this, we're addressing the security issues that continue to be a major concern for us. So we are delivering concentrate to port now. We expect to have the mill rate up say by the end of this month, the middle of the first quarter and that would represent a return to a full normal operations, subject to the continued progress on all the areas that I just talked about.

Operator: Charles Bradford, Bradford Research.

Charles Bradford - Bradford Research: Just a quick question on TC/RC, I believe I saw that they were going to be 60 and 6 for this year, but is that the correct number, and how long does that price last?

Richard C. Adkerson - President and CEO: Chuck, our – we have completed our negotiations with our smelter customers, and we're slightly above that 60 and 6. I mean, there is numbers that are out in the press actually, we don't comment on them because they are commercial numbers, but there's amazing reporting on TC and RCs in the press, but we are slightly above that 60 and 6. We reached agreements on very positive terms with our customers. We’ve had long histories with them. We worked with them in challenging times and there are a couple of our customers that are going through operational issues in the Philippines right now. They’ve worked with us in dealing with the issues when we've had production issues like we’ve had at the end of 2011. So, we are going forward. We have annual negotiations there. Some people have mid-year negotiations, our contract – our TCs and RCs are negotiated on an annual basis, so we’ve completed it for 2012, and we will go through another negotiation at the end of this year into 2012. David, our mills are operating at roughly 160,000 tons per day now in response to your earlier question. We did have one day where it was up to 200,000, several days, so that's kind of where we are as we speak.

Operator: Brett Levy, Jefferies & Company.

Brett Levy - Jefferies & Company: Just a little bit more refinement on the ramp-up process. My sense was that during the strikes both in Peru and Indonesia, that there was a little bit of high grading going on. Can you guys talk about kind of the quality of the ore grades, and if you are going to have to do a little bit of extra overburden removal in the first couple of quarters after these strikes? Just give a little color around that.

Richard C. Adkerson - President and CEO: Well, it really wasn’t high grading in – Kathleen is saying, maybe a little bit of that at Cerro Verde, but in the overall picture, not significant. At Grasberg, because the mill was shut down and the road was blocked, beginning in mid-October. While we did some mining for stockpiles, we focused on waste movement and maintaining the drop points in the DOZ. So, I would not at all call it high grading at Grasberg, it's just when we had the opportunity up through the middle of October to produce, we produced in more or less a normal fashion about three-quarters of regular capacity. So, even though we did focus on waste removal, because of the limited work force that we had after the road was blocked in the middle of October, we really fell behind some on waste removal at that point too, and which now is reflected in our mine plans as we go into 2012.

Operator: Justine Fisher, Goldman Sachs.

Justine Fisher - Goldman Sachs: I was just wondering, I had a question for Kathleen on the capital structure. Obviously, you guys mentioned in your press release that the $3 billion of 8.375% bonds are callable in April of this year, and I was wondering whether or not, what level of debt Freeport would be comfortable going down to, would it be kind of $2 billion-and-change level and then also given where funding costs are in the corporate market, obviously, you're not really making much on your cash on the one hand, so you might as well spend that on CapEx, but would you consider increasing the level of debt in order to fund some of the CapEx program, just because your balance sheet can take it?

Kathleen L. Quirk - EVP, CFO and Treasurer: In terms of the level of debt, we've been repaying debt because we had excess cash. We're going to be looking at refinancing of the debt that you've referenced. It's highly attractive to us to do that. Our funding cost of a new debt instrument would be significantly lower than the current coupon. So, we'll be looking at that, we'll be looking at how much to refinance versus repay, and when we look at the debt capacity, even though we bring the debt down to a certain level, we still believe we have significant capacity to have additional debt if we have uses for the cash. So, we want to make sure that we don't have debt on the balance sheet that's not – that will have an interest where we're not using the cash to generate returns. So, that's really what we're focused on there.

Justine Fisher - Goldman Sachs: Historically, Freeport has not been a Company that has levered up in order to return cash to shareholders but we have seen a lot of other companies do that, given the cost of borrowing in the corporate market. Is returning cash to shareholders considered an appropriate use of additional debt by you guys and by the Board?

Richard C. Adkerson - President and CEO: What we've really been focused on is the use of cash flow that we generate. As you mentioned, we're not just spending money on capital just because we have cash, we're spending money on capital because we've got great projects that have high rates of return and we're very positive about our forward markets. So, beyond that, it's more of a question of using cash as opposed to thinking about some sort of levered returns to shareholders.

Operator: Sal Tharani, Goldman Sachs.

Sal Tharani - Goldman Sachs: Richard, you mentioned about working with other stakeholders in future at Grasberg to avoid what happened in the fourth quarter, I was just wondering can you elaborate a little bit more in that, does it mean that when you go with the next time, you will actually have with us always besides the union (indiscernible) is that the way you will be handling this?

Richard C. Adkerson - President and CEO: Well, Sal, we did this time. I mean it's a very interesting and complex social situation there. I mean we are more than 90% of the economy of the regency where we are located. We're two-thirds or more of the economy of the province of Papua. So everything that happens to us has very broad consequences to the local community and the local community has many components to it. There the indigenous people that originally live there in the area. There's been a huge influx of people from Papua and other places in Indonesia there and then our workforce adds a lot to that. So what happens to Freeport has consequences that are very broad across the community. So we continually work with them. We had a great support from the local community during the course of the strike and when we're going to use that, use experience that we learned here to try work together in a more positive way with our union workforce, and its leaders to help us avoid having anything like this in the future. It was harmful to everyone, and I think, people recognize that now and we are committed to finding a way of dealing with this more positively.

Operator: Oscar Cabrera, Bank of America Merrill Lynch.

Oscar Cabrera - Bank of America Merrill Lynch: On your copper reserves and mineralized material, you guys have been doing a great job in increasing the amount of reserves, since the Phelps Dodge acquisition in 2007. What caught my eye though is that your long-term prices from last year and this year are similar, and you replaced your reserves, which is great. But just wondering like gold companies are using a substantially higher long-term price to value their reserves and granted smaller corporate companies are using a higher long-term price, so just wondering what’s the thought process behind that and have you done like if you were to put like $2.25 or $2.20 on your – that you use for your mineralized material for your reserves, what would the effect be?

Richard C. Adkerson - President and CEO: We do use $2.20 for our mineralized material. First of all, I want to be clear. What we use for reserve pricing is not reflective of our view of the markets. We use this to have a conservative price for determining reserves. We are looking for opportunities. We are not – we don't limit our opportunities to any arbitrary reserve pricing mechanism. When you do have these regulatory requirements to report reserves they do involve a process of going through mine plans based on these prices, so it's not a question of just changing a price and you add volumes at the end or things like this. The changing of the price really would involve going with a significant amount of work of developing new mine plans on the basis of that price. And so, we felt that it was conservative and efficient for us to stay with last year's pricing for determining reserves. It's not really what drives our investment plans. We don't lock in on any particular price; we use an array of prices of thinking about what opportunities are there, if prices are higher; and if prices go lower, how a development project would fit in to our overall portfolio of assets, and how we would manage that not as an individual project, but on a portfolio basis. So, it was more – those prices were used more as a basis for conservatism and efficiency.

Operator: John Tumazos, John Tumazos Very Independent Research.

John Tumazos - John Tumazos Very Independent Research, LLC: Congratulations on getting all the wheels turning. There have been this unfortunate incidence, sporadic shootings, or attempts in West Papua, could you update us on how large is the security for us, whether it's troops or your own people, armed or not, and how much bigger you think it would have to be to try to eliminate any hazard to your employees, given that over the years, the Grasberg location has been sort of like a Harvard pedigree for mining technical people? You've always had a tremendous organization. I'm sure it's paramount to you to preserve that.

Richard C. Adkerson - President and CEO: Well, your last statement is exactly right. It is the most important thing we're faced with and are very highest priority. So, I can assure you we're giving a lot of attention to this and working with the government authorities at all levels and working on the ground with people and getting security advice from others. Our security forces are not armed there. So, our internal security has never been armed and they serve a role in security but the principal responsibility for dealing with armed insurgents or others who were involved in these shooting activities is the government supported by our people in going forward. Freeport is one of a handful six or seven, I believe, operations in Indonesia that's designated as a vital national object, and in 2004, the responsibility for providing security was transferred from the military, called the TNI, to the police. Going back a number of years, they were under similar command, now they are two sets of organizations and the police are the ones that are primarily responsible for security, there's special assigned police from outside Papua there, that's organic police that's located there permanently and there's also military in the area that forms sort of the outer ring of security because of the issues beyond the nearby areas. In fact that, it's a border area with PNG as well. So we believe that the total number of police and military there vary, something like 1200 to 1800 depending on rotating assignments. The number of people is adequate, the issue is one of dealing with a difficult terrain and have an effective management of the forces that are there in terms of manning security post, conducting convoys and provided security for those convoys and we're focused on now and working with the government officials is to have more effective management of resources there and more effective follow-up of pursuit and arrest and bringing people who are doing these terrible acts to justice and we're getting support of our contractors and the people of the local community because this not a Freeport issue, it's a community issue and it affects us and we are very concerned about our people and the people community and putting our top priority into addressing it and it's a necessary element for us to address in terms of restoring our production to the traditional levels.

Richard C. Adkerson - President and CEO: Thanks everyone for your interest. Follow-up questions can be directed to us through David Joint and we look forward to reporting to you on our progress as we go forward.

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