Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan First Quarter Conference Call. I would now like to turn the conference over to Ms. Kathleen Quirk, President. Please go ahead, ma'am.

Thank you, and good morning. Welcome to the Freeport-McMoRan conference call. Earlier this morning, we reported first quarter 2022 operating and financial results, and a copy of our press release and slides are available on our website at fcx.com. Our conference call today 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. 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, we'd like to remind everyone that today's press release and certain of our comments on the call include forward-looking statements, and actual results may differ materially. I'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 annual report on Form 10-K. On the call with me today are Richard Adkerson, our Chairman and CEO. I'd also like to welcome Maree Robertson, our new CFO. She's joining us today on the call, and Maree joined us in March. We're delighted to have her on our team. Mark Johnson is on, who is the COO of our Indonesian business; Josh Olmsted, who is the COO of our Americas business; Mike Kendrick is on, who runs our global molybdenum business; and Steve Higgins is also on today, our Chief Administrative Officer. Richard is going to start by making some opening comments and then we'll be going through the slide materials and the outlook included in our slide materials. So Richard, I'll turn it to you.

Yes. Thanks, Kathleen. We're going to follow a new format for our earnings presentation today. This format reflects the current position of our company after years, literally years of having to deal with significant company-specific problems that are now largely behind us. We have a clear mission in Freeport, and that is to be foremost in copper. I will make some very brief opening comments. Kathleen will review our positive first quarter results, our positive outlook, and then we'll be available to answer questions. The case for copper as a commodity is strong. I've been saying this for 20 years, but it's never been better. Demand is growing globally. Globally, growth is no longer dependent solely on China. With COVID recovery, infrastructure spending, the spread of electricity everywhere, it's generating significant growth in Europe. Business is strong in the U.S. and in Asia, outside China. The coming demand for carbon reduction and its impact on copper demand is truly extraordinary, and it's coming. It's beginning, but it's not here now. Copper supply development for many reasons is challenging. As I said recently, the supply challenge can't be solved simply by higher prices. I find it notable that the price of copper today is $4.50 in a world where there are a whole series of economic headwinds. Many of these are transitory. Higher copper prices in the future are likely, and I'm very comfortable with Freeport's strategy of focusing this business on copper. Our strategy to achieve our mission of being foremost in copper is straightforward. We will execute our operating plan safely and responsibly. We have an unmatched set of globally diverse copper-producing assets. We are taking advantage of emerging technology involving data analytics, new work practices, and increasingly important advancing leaching technology where Freeport is well positioned as a global leader in leaching. We will be developing organic growth projects in a disciplined way over time from our large set of undeveloped resources. We will execute our financial plan, maintain our currently strong balance sheet while returning significant cash to shareholders. Other opportunities for Freeport may arise, and we are positioned to take advantage if they do, but our strategy is focused internally. Here are a few points I suggest you note in Kathleen's presentation. Look at our strong execution of our plans in the first quarter. Look at our success in meeting the challenges of higher input costs, both through effective cost management and the benefit of past strategic decision. For example, the long-term development of Grasberg mine and its high copper and gold grades, higher gold grades or higher gold prices are helping to offset input cost increases. Note, our positive situation in Indonesia. With our partner, shareholder MIND ID, with the government of Indonesia, local communities, and workforce. We worked hard to achieve this. Our environmental performance in a very challenging location is exemplary in Indonesia. The financial results are spectacular, reflecting the good work of our PT-FI team and literally three decades of efforts and investments getting to where we are today. We're progressing with the development of a new large-scale smelter in Indonesia. Our recent international bond financing at PT-FI was a major milestone for our company. Our team achieved investment-grade ratings and a strong market reception for this $3 billion financing. Looking back years ago, I would not have envisioned our ability to do this. Two-thirds of our copper is produced in the Americas, where our team is operating effectively and where we have significant growth for the future. And finally, I want to briefly note steps we have taken this past year to build a high-quality sustainable Board of Directors and a sustainable management team for the future. These are commitments I personally made to myself a year ago when I became Chairman. We've added six new directors in a year, and you'll be able to see the details on this in our proxy, which will soon be available. Four of these six are individuals with significant international large company CEO experience; two have significant business and financial expertise. Together with the four continuing independent directors, we now have a high-quality Board, one that Freeport has long deserved. Building this Board is a highlight in my personal professional career. At the same time, we made important changes to our management team. Kathleen mentioned that Maree has recently joined us as our CFO. At a young age, she has a distinguished career in international mining. We've made a number of transitions of important positions with internal promotions and added significant capabilities with external hires, particularly in the ESP area. We now have a younger, more diverse management team at Freeport. They are great people who embrace a special culture we have with the Freeport Global family. I'm personally excited about continuing as a member of this team, blessed to be in good health and energy. I am confident now that Freeport has a Board and management team that is capable of achieving our mission and executing our strategy beyond my tenure. With that, Kathleen, I'll turn it over to you.

Thank you, Richard. I will start on Slide 3. Richard highlighted that we had an excellent first quarter. Slide 3 outlines the key achievements. We saw significant growth in both volumes and margins, which led to strong cash flows and notable returns for our shareholders. Our sales of copper were 24% higher compared to the same quarter last year, and gold sales were up 59%. We exceeded our copper sales guidance for the year by 6%. The strong demand in the U.S. during the quarter helped us lower our inventories. Our gold sales also surpassed our plans by 8%. Since achieving our target metal run rates in late 2021, Grasberg has been performing well, maintaining a high-volume, low-cost operation. Our average unit net cash cost for the quarter was $1.33 per pound, which was below our guidance for the first quarter and less than the average from the previous year. This is especially remarkable considering the rising cost pressures affecting the industry and enabled us to realize strong margins with average copper realizations of $4.66 per pound during the quarter. Notably, Grasberg's costs resulted in a net credit of $0.06 per pound for the quarter. As Richard pointed out, this indicates that gold revenues were sufficient to cover all of our cash production costs at that site. We recorded an adjusted EBITDA of $3.4 billion and adjusted net income of $1.6 billion, or $1.07 per share, for the first quarter, excluding nonrecurring charges. Our operating cash flows were robust, totaling $1.7 billion, which was net of approximately $800 million in working capital uses, primarily due to the timing of cash taxes. We generated more cash flow than our capital expenditure, allowing us to provide substantial returns to shareholders while maintaining a solid balance sheet. We continued our share repurchase program throughout the quarter, spending nearly $600 million on share buybacks. Since the program commenced in November last year, we have acquired 27 million shares at an average price of around $42 each. We have used $1.1 billion of the allocated $3 billion for this program. Our total share repurchases and common stock dividends, which have doubled from last year's rate, were close to $800 million in the first quarter. Our balance sheet remains strong, with net debt at $1.3 billion at the end of the quarter, about half of which is related to financing of the Indonesian smelter project, which is progressing. As Richard noted, we are optimistic about the opportunities our assets will bring to meet the increasing global demand for copper. We are advancing several projects across short-, medium-, and long-term timeframes. We are also dedicating significant resources to our sustainability goals and now lead the industry with nine of our operational sites certified under the Copper Mark. We have a solid foundation for success, effectively executing our strategy and focusing on delivering our initiatives. Slide 4 provides a summary of the recent reports we filed, including our annual shareholders' report, and today we filed our 2021 sustainability report. Our recent annual report, titled "Electrifying the Future," emphasizes our assets and Freeport's vital role in supplying modern applications of copper. We wish for you to review the sustainability report in detail, available on our website. We take pride in our ongoing efforts, which are embedded in all our business plans and support responsible production practices. Moving on to Slide 5, we recently celebrated PT Freeport Indonesia's 55th anniversary. We have been operating at this site for over five decades, establishing one of the industry's most significant operations, providing tens of thousands of jobs, and contributing positively to the Indonesian government and the Papua region. As Richard previously mentioned, we have invested significantly over the years to create a world-class operation there that will benefit all stakeholders for generations to come. We are leading the industry in technology, supporting our extensive block cave mining operation. Richard discussed how, with our new partnership established with the government in 2018 and our dedicated team, we are excited about the future of this remarkable mining region. In terms of markets, Richard covered this well. We see the foundational outlook for the copper market as very positive, aided by copper's role in the global economy, increasing focus on infrastructure, and its critical role in achieving global decarbonization goals. The trends in demand are broad and global. We expect these to continue and accelerate due to modern applications using more copper. Many experts anticipate we are only at the beginning of a multi-year period of rising demand. In the past decade, China accounted for most of the growth in demand, but we are now witnessing significant growth in demand for copper in Western economies due to infrastructure spending and decarbonization efforts. The scarcity of new mine supply development is increasing as demand rises. The pipeline for development opportunities is significantly less than historical levels. Apart from the current projects nearing completion, there is a notable lack of new supply development to meet anticipated demand increases. The global physical markets are tight, highlighted by the low inventory levels on exchanges. Supply chains remain under strain. While macro factors like China's economy, geopolitical issues, and Federal Reserve actions influence market sentiment, the low inventory and supply issues suggest potential for higher prices in the future. Freeport is well-positioned as a responsible large-scale producer, and the strategies Richard outlined, focused on copper, sustainable reserves, and growth options, indicate bright prospects for our portfolio to become increasingly scarce and valuable. I will now provide some details about our first-quarter operations, as shown on Slide 7. In the U.S., the Lone Star mine continues to exceed design expectations. After we commissioned it in late 2020, it produced 265 million pounds of copper in 2021, marking a 30% increase from the initial design. We are working on expanding production to 300 million pounds annually by 2023 with an investment of about $250 million. By accelerating the mining of oxide ores at Lone Star, we will unlock a larger sulfide opportunity in the future. At Morenci, our largest North American mine, we restarted the mill in March and have been gradually ramping up to capacity. Early in the quarter, mining rates were impacted by an increase in COVID cases, resulting in lower annual production compared to our prior expectations. However, we are back on track and expect Morenci to produce 7% more copper in 2022 than last year. We are advancing leach recovery initiatives at Morenci, employing data analytics and new technologies to enhance leach production, which we consider a significant value-enhancing opportunity. We will update progress on this initiative throughout the year. At Bagdad, we are moving forward with the Bagdad 2x project, aimed at doubling production at our Northwest Arizona site. We are completing studies and planning to start early works for mine equipment and additional stripping alongside these studies. Turning to South America, our teams have done an exceptional job dealing with the pandemic. When cases surged in January and February in Peru, it affected our first-quarter mining rates by about 10%, but the situation improved in March, and we aim to reach our target mill rates of 400,000 tons per day for the rest of the year. Despite the lower mining rate in the first quarter impacting our 2022 production plans for Cerro Verde, we still aim for an 8% increase in its production this year compared to 2021. We are working towards fully restoring production at Cerro Verde this year and expect to reach 1 billion pounds annually from this large-scale operation. El Abra in Chile succeeded in increasing the stacking rate on its leach pad, and we anticipate a 30% increase in production this year, maintaining 200 million to 250 million pounds annually in the coming years as we explore future growth opportunities. At Grasberg, we've maintained large-scale metal production after achieving set run rates last quarter, and we recorded higher gold recoveries than planned, contributing positively to the quarter's performance. Our 2022 volume forecasts for Grasberg remain aligned with previous estimations, with minor adjustments in mine sequencing for Grasberg Block Cave and Deep MLZ, but overall five-year metal production estimates are consistent with earlier projections. We are advancing projects at the mill to boost capacity slated for the second half of next year. Additionally, we are diversifying our power sources in Indonesia and advancing the long-term development of Kucing Liar, where our team is excelling in managing the largest and most profitable underground operation globally. On the next slide, Richard mentioned the leach opportunities available at Freeport, which is a crucial initiative designed to extract additional value from our historic leach stockpiles. This could yield significant benefits by increasing production from material already mined and stored. Given that new projects may take a decade to develop, this is a vital opportunity for us to bring forth the equivalent of a new mine with minimal time, carbon emissions, and capital costs. We regard this as a tremendous value opportunity, and we are pursuing it aggressively. In the first quarter, we began insulating our leach stockpiles to retain heat, which has been shown to enhance leach recoveries, and initial work suggests it could add to our near-term production. We are also improving our processes through data analytics, providing new insights. Our internal efforts for additives and partnerships with third parties who possess proprietary technologies show promise. Collectively, we believe these initiatives could yield an additional 100 million to 200 million pounds of copper from our Americas portfolio in the near term. Achieving early success will enable us to optimize and expand this potential further. As depicted in the charts, we estimate currently 38 billion pounds of copper in our stockpiles, which have already been mined but are not included in our reserves or production plans. A substantial portion of this opportunity is at our Morenci mine, with our cross-functional team of experts—metallurgists, planners, data scientists, geologists, and analysts—working collaboratively to maximize this valuable opportunity. The leach opportunity is a singular aspect of our growth strategy, and Richard highlighted our focus moving forward. We have a range of options, as illustrated on Slide 9, for brownfield, low-risk growth across the portfolio. We possess more than 190 billion pounds of copper mineral resources, in addition to proven and probable reserves exceeding 100 billion pounds. We've addressed the leach opportunity and the ongoing oxide expansion at Lone Star as near-term production drivers over the next 12 to 18 months. In the medium term, we anticipate doubling Bagdad's size by 2026, with a feasibility study completion slated for the first half of next year, and we aim to initiate construction thereafter. In the longer term, we have a considerable sulfide opportunity at Lone Star, with a 50 billion-pound copper resource within our established mining area in Eastern Arizona. The El Abra project in Chile has a resource nearing 30 billion pounds. We are planning a facility that could potentially yield over 700 million pounds of copper annually, and we are monitoring developments in Chile while awaiting the results of ongoing constitutional work in the country. Kucing Liar in the Grasberg district represents a natural extension of our operations, allowing us to maintain large-scale operations in Papua for many years. We believe our projects will be essential in the future. Our track record in qualifying and developing projects responsibly and efficiently, supported by our technical expertise and established operational licenses, enhances our prospects. On Slide 10, we provide updates on our annual sales projections for the coming years, which we revise quarterly. The volume outlook aligns mostly with our previous forecasts, and we remain on track with our execution plans. Changes to our copper sales guidance for 2022 and 2023 are minimal, around 1%, primarily reflecting COVID-related downtime in the Americas and timing shifts at Grasberg between 2023 and 2025. After a 19% increase in copper sales in 2021, we forecast a 12% increase in 2022 attributed to higher production across our portfolio, with anticipated growth continuing into 2023. We're projecting about 36% of our sales this year to come from U.S. mines, 27% from South America, and 37% from Indonesia. On Slide 11, we acknowledge the ongoing discussions regarding cost pressures in our industry. The cost challenges we face this year are well-known, involving increases in energy and commodity-related inputs such as sulfuric acid, explosives, grinding media, and other consumables. We will continue to manage and mitigate these impacts as best as we can. Fortunately, our byproduct credits, especially from gold, help provide some relief. We have reconciled our prior unit cash cost estimates for 2022 based on our January predictions against our current assessments, integrating recent commodity pricing and operating plans. Half of the unit cost increase is offset by stronger gold prices and production. Overall, we have seen unit cash costs rise by about $0.09 per pound of copper, representing a roughly 7% increase. These figures were based on a copper price estimate of $0.25 per pound higher than our earlier planning. Presently, we are observing copper prices around $4.70 per pound, with projected cash costs of $1.44 for this year, which will produce strong margins for us. On Slide 12, we illustrate our robust cash flow generation at varying price points. This is a key strength for Freeport, showcasing our significant exposure to copper markets alongside our large-scale production capabilities. The slide demonstrates cash flow generation forecasts using our current volume, cost estimates, and price ranges from $4 to $5 per pound of copper. At $4 copper, our annual EBITDA may exceed $11 billion, approaching nearly $16 billion at $5 copper, with operating cash flows predicted to range from over $8 billion to nearly $12 billion at $5. Furthermore, we highlight sensitivity to various commodities. While we cannot predict prices, our business's strong fundamentals suggest higher copper prices are likely. Notably, every $0.25 per pound change in copper equates to over $1 billion in annual EBITDA, tracking our ability to generate significant free cash flow, which we expect to remain well above our capital expenditures. Slide 13 shows our capital expenditure forecast, which largely remains unchanged from prior guidance, while reflecting some timing adjustments between 2022 and 2023. Included are early equipment purchases for the Bagdad expansion in 2023 and the Kucing Liar project ramp-up. Both are noted as discretionary projects concerning our available cash returns strategy. We detail our discretionary project spending in an appendix for your reference. Around 25% of our capital spending over the next two years is allocated to value-enhancing projects, each promising solid financial returns and operational benefits. A portion of the 50% of our free cash flow earmarked for organic investments will support these discretionary initiatives. We also want to mention the significant reduction in spending on the Grasberg Block Cave and Deep MLZ projects, amounting to $500 million less from 2022 to 2023 as we complete those projects. Moving to the next slide, we provide updates on our smelter project, where detailed engineering, procurement, and early construction activities, including pilings and concrete installation, are progressing. We now have around 2,000 workers on-site, which will expand to over 10,000 next year. You'll find updated photographs for reference in the appendix. This project is vital for PT Freeport Indonesia and the Indonesian government, and we aim to complete it efficiently and on schedule. Richard mentioned the successful bond offering earlier this month, securing $3 billion to fund smelter costs, which features long-term financing with an average duration of approximately 14 years and an average interest rate of 5.4%. Richard noted the positive investor response highlights PT Freeport Indonesia's strong business fundamentals. The cost of this financing will largely be mitigated by the gradual elimination of the 5% export duty, resulting in a negligible economic impact from the smelter. Concerning our balance sheet, maintaining a strong position has remained a core focus for us over the years. We've made substantial improvements in reducing our debt, with nearly $4 billion less over the last 12 months, while our EBITDA continues to increase. Our significant free cash flow, as demonstrated by growing volumes and favorable market conditions, as well as low capital requirements, places us in an excellent position to uphold our strategy of maintaining a strong balance sheet while investing in long-term growth and returning cash to our shareholders. Finally, on Slide 16, we summarize our financial policy. The scorecard reflects considerable increases in shareholder returns during a strong execution period and improved balance sheet. We initiated the Board-authorized performance payout policy in November last year, where our share purchase program and dividends aim to distribute 50% of our cash flow after capital expenditures, excluding smelter and discretionary project investments. Since initiating this program in November 2021, we have utilized about one-third of the $3 billion allocation for share buybacks, acquiring 27 million common shares at an average cost just below $42 each. There is also a variable dividend component in our 2022 common stock dividends, which is double the base amount, with the first payment at this enhanced rate made in the first quarter this year. Our Board will review further actions as we advance through the program. As reported, returns to shareholders in the first quarter totaled nearly $800 million. With ongoing favorable market conditions and strong execution, we anticipate robust shareholder returns will continue. Richard reiterated the outstanding opportunities present in our business. As a team, we are successfully tackling challenges while embracing new opportunities. Our future looks exceptionally promising, and as Freeport, we are committed to electrifying the future, doing so responsibly, reliably, and unwaveringly. This concludes our quarterly summary and outlook, and we are now ready to address your questions.

Your first question comes from Chris LaFemina with Jefferies.

Question about, Kathleen, you mentioned the sensitivities, and every $0.25 per pound change in copper is about $1 billion in annualized EBITDA. But then on the slide where you show the new 2022 cost guidance, I think it's a $0.09 per pound increase in guidance. And you said that there was a $0.25 per pound increase in your price assumption when you derive that guidance. So the question is, if we think about changes in the copper price, should we assume that a $0.25 increase in the price fully translates into that $1 billion of EBITDA? Or do we need to adjust that for some sort of cost increase as well? And if we do, how much of a cost increase should we expect to reach $0.25? In other words, is that $0.09 per pound increase in costs associated with the $0.25 increase in price, kind of the way we should think about cost and prices moving together? I'm not sure if that question makes sense, but I'm just trying to understand the sensitivity to prices and costs.

Yes. We understand the question. The sensitivities that we show are just in terms of the copper price without having changes in input prices. I think right now, what we're seeing is increases that are unusual, correlations that are unusual. Energy prices have risen in some of these other commodities like sulfuric acid and the explosives and things like that, all reflecting kind of a geopolitical situation. I don't think the long-term trends, if you look at the correlation between copper prices and some of these inputs, are as dramatic as what we're seeing this year. Time will tell, we'll see, but we don't expect to see these kinds of $0.09 increases for $0.25 move in copper prices. It will depend on, obviously, the fundamentals of each commodity. But right now, some of the commodities are moving in a direction differently on a short-term basis because of what we're seeing in the Russia-Ukraine situation.

And just a follow-up to that. And going back to the China cycle, obviously, many years ago, but was the cost inflation that you saw then very different from what you're seeing today? In other words, do you think that the war is having a disproportionate impact on cost inflation today? Or are we just seeing generally typical cost inflation that we get in bull markets and commodities?

Well, if you go back, I'll talk about three years of copper demand, when copper was correlated to industrial production before China emerged in roughly 2003 as the China era, and now we're in a new era of copper prices, it's been various factors. Back when copper was cyclical and driven by industrial production in the developed world, there was a correlation between prices. But then when China emerged and copper prices went from a dip below $0.70 and went to $4 in a short period of time when nobody was expecting, there wasn't a correlation with prices. Today, it is affected by the dislocations caused by Russia and the situation in Ukraine, particularly with oil and gas prices, and you'll just have to reach your own judgment of how sustainable that is or how much is the impact of the current situation. But there are other commodities; it's having an impact on copper prices. Russia was a relatively small producer of copper globally of 3% to 4%, and regionally affected markets, and the market is so tight, it has an impact, but other commodities are being more effective than copper. And as I said, many of these things, I believe, are transitory. So we're taking steps where we can to control prices. Copper prices are rising faster than costs for us. So our profitability is growing, and we're encouraged about that continuing into the future.

Yes, our diesel costs that we went into the year with our plan of roughly $2.50 a gallon. We've increased that in this most recent guidance by about 40%. And normally, we would not see that kind of dislocation. And when we look at the long-term trends of diesel prices and copper prices, we normally wouldn't see that. So same holds for some of the fertilizers and ammonium nitrate, the product we use for explosives has gone up a lot, as sulfuric acid has as well. And we believe a lot of those are up just generally because of commodity prices, but the Ukraine and Russia situation has exacerbated some of that. So we don't see it as a long-term cost in our structure at those levels.

Your next question comes from the line of Emily Chieng with Goldman Sachs.

My first question is a little bigger picture in nature and related to how you're thinking about growth. Perhaps how have increasing steel costs, raw materials, consumables, and labor changed the business case, if at all, when you think about sanctioning brownfield and greenfield production longer term?

Emily, those really aren't driving factors on our investment decisions. The resources that we have are just economically not that sensitive to even these kinds of price increases. Our timing issue on the brownfield development projects is related to engineering and permitting and community relations and things like that. These are things that affect supply development across the industry, and it's a double-edged sword of copper. It's a major factor of why copper prices are so strong. So we'll factor in the higher prices, but when we undertake a project, the investment decision is not going to be driven by those factors, but by others. For example, in Chile, we're awaiting to make an investment decision on El Abra, which is a great project, but there's a lot of uncertainties about the government policy toward mining in Chile. And so that's what we're monitoring before we proceed with an investment decision there.

And Emily, the leaching opportunity that we have, we don't have exposure to steel and structural costs for that opportunity. And that's why we're really pushing that with a sense of urgency because that really is very low capital intensity and operating cost intensity that will translate right to our bottom line if we can crack that code. So it's the equivalent of bringing on a new mine without having all the capital costs. So that is a really, really strong thing for us as a company if we can continue to advance the leaching opportunity.

And on position, how well positioned Freeport is to take advantage of those advancements. We're the largest leaching operation in the world. Morenci is the largest single mine from leaching, and it's been part of our company's experience for decades. So we're really excited about it.

Great. That makes a lot of sense. And just real quick, if I can follow up on labor markets? And I appreciate any color that you have on the labor cost component than some of that might be higher profit sharing. But anything that you can share on the workforce outlook or labor availability would be helpful. I'll leave it at that.

Well, thanks, Emily, and I'll let Kathleen follow up. But we do have a special situation with our large workforce in Peru, where under government laws and regulations, there is a mandated profit-sharing plan. And so as profits go up, their workers automatically benefit from higher wages as part of that process. But Kathleen, why don't you follow up generally on labor costs elsewhere?

Yes. The main thing that we're experiencing, Emily, in terms of labor is really focused more in the U.S., the main issue. It’s a very competitive job environment, as you've seen. We've got significant job openings in our U.S. operations. We've been supplementing our workforce with outside contractors to help us with projects and capacity assurance. And so really, you're seeing more utilization of contractors right now. But we have made some progress in hiring in the first quarter. We've been and have had a number of openings for several months, and we're starting to make progress in the first quarter in getting these positions filled. But I'd say it's more a matter of tightness in terms of availability of people as opposed to really big increases in wage rates. We have increased our wage rates, and we've provided some supplements and incentives for people. But the main thing has been we've had to use higher price contractors until we get all these positions filled. We aren't seeing the same kind of issues in Indonesia. And Richard mentioned, the Peru impacts with profit sharing. We just signed a new labor agreement, both in Indonesia and in Peru, and the labor situation there is much easier than it is in the U.S.

Your next question comes from the line of Orest Wowkodaw from Scotiabank.

I would like to follow up on the cost outlook. Specifically, I'm curious if there is a significant delay in the impact of rising costs. Is this due to previous contracts for input costs like explosives and fuel? Should we expect to see a notable increase in your cost base as we get closer to the end of this year, assuming current costs remain steady?

That's really not a significant factor. There may be a short-term contract that gets renegotiated, but the costs you see are essentially the current costs that we're experiencing now.

Yes. The outlook you see reflects our current estimate. Each quarter, we update all of our operating plans and cost inputs. The latest outlook for the year is based on the market prices from when we prepared this forecast recently.

And while there's uncertainties, my expectation is we're facing kind of the height of dislocations from global supply chains to other factors. COVID shutdown in China and situation in Ukraine, so my personal expectation is rather than seeing costs going up in the future, we'll see them come down. But time will tell.

Your next question comes from the line of Alex Hacking from Citi.

Can you hear me?

We can.

I apologize for the issue with my handset. Let me take a contrarian view regarding growth. Looking at your production profile, it peaks in 2023, with some declines expected in 2024 and 2025, particularly in Grasberg and other areas, aside from leaching opportunities. Are these efforts primarily aimed at maintaining production at the current 4.5 billion pound level, or do they have the potential to generate a compound annual growth rate? I'm excluding the multibillion dollar sulfide projects from this discussion.

In the near term, you're correct. We have these leach opportunities, which take about 7 to 10 years to develop a new mine. Therefore, these leach opportunities can help us in the short term. Looking ahead, we expect growth to come from the significant potential we have at Lone Star and El Abra. We haven't decided on El Abra yet, but the prospect of over 700 million pounds of new production, along with the Lone Star sulfide, would represent a substantial increase. However, developing new supplies in copper is very challenging and typically takes many years. We saw considerable growth in 2021 and again in 2022, but it’s uncommon in our industry to experience that level of growth in copper production, which really supports the fundamental outlook.

Alex, I've been trying to communicate to policymakers and others interested in our industry just how long-term the copper business is. I participated in CERAWeek in Houston alongside oil and gas companies, and there was much discussion about the time it takes for them to respond to production demands. Executives from energy companies mentioned that it’s a long-term business with responses taking months. I pointed out that copper takes years to respond. There was significant pressure on us regarding the development of the Grasberg underground while negotiating our contract rights with the Government of Indonesia, and delaying that development would have meant a loss of production for us. When we discuss growth, we are considering a very long-term perspective. This long-term view contributes to the favorable copper price, and I believe copper prices will rise further. Many companies in our energy industry are struggling to meet their production targets, while we have managed to do so. All these factors will support prices, and I am truly surprised that today’s copper price remains stable amid global market conditions that typically lead to lower prices.

Great. And congrats on being one of the few in the copper industry that's actually hitting your production targets.

Your next question comes from the line of Lawson Winder from Bank of America Securities.

If I could maybe ask on capital allocation and M&A. One of your partners in Cerro Verde recently divested of its minority interest in another gold mine in Peru. And it just got me wondering that with Freeport, would you guys be open to increasing your interest in Cerro Verde, should the opportunity emerge? And I'm asking particularly in light of the political situation there.

Yes. We would. It's just such a great asset. Funny historical story before the Phelps Dodge deal. I called the Phelps Dodge CEO when he sold down originally interest in Cerro Verde. At a time when they needed production, and I said, 'What are you doing?' I wish they had kept greater production. We got great partners. But yes, it's such a great long-term asset, and those kinds of quality of assets are really, really scarce in our business. And while that's a project that we can enhance growth at the margin, it's not a project where there's going to be a step-change change in volumes in the future. We've got some leaching opportunities there. We can be more efficient. We can overcome some of the issues that COVID has caused us, but it's just a great long-term asset with our positive view of the copper markets. We're glad we have it, and we wish we owned more.

Okay. That's fantastic. And if I could maybe just sneak in a follow-up question, if you don't mind? But just in terms of the total capital return this quarter, I mean it appears to be in excess of 50% of available cash flow, maybe I'm looking at available cash flow incorrectly. But I mean, if this is the case, is that something you could expect to continue going forward or just something that was sort of even out over time?

Yes. We're assessing it on an annual basis and noted a significant working capital item in the first quarter. Therefore, we are not adjusting our returns on the changes in working capital, and this pattern is not anticipated to persist throughout the year. Essentially, we are focused on an annual perspective, making some estimates, and ensuring consistency in our share buyback program.

Yes, due to the timing challenges in making investments with favorable copper prices, cash is expected to come in more quickly than it goes out. This is something our Board will be considering moving forward. The 50% is a guideline for investors to understand our perspective, but it is not a fixed commitment.

Your next question comes from the line of Abhi Agarwal from Deutsche Bank.

My first question is on Peru. So Peru is seeing a significant upheaval right now across several mines. Cerro Verde has been immune, thankfully, over the last 12 months or so. Have you seen any signs of disturbance at Cerro Verde given what's happened more recently?

No, not really. We've put in a lot of effort to build a strong relationship with the local community in Arequipa. Over the years, we've made significant community investments, including constructing a freshwater system for the city, which is the second largest in Peru. We also established a wastewater collection and processing facility for a city that was previously discharging its wastewater into the River Chile. This has greatly improved the river's ecology, benefiting agriculture and other areas. We pay our employees well and managed through the challenges of COVID effectively. Fortunately, we maintain a positive relationship with the local community and strive to keep it that way.

If I could sneak in another one? So this is a question on the new leach technologies, which you and Kathleen discussed. You mentioned that it's very low capital intensity, which is great to hear. But the question I have is, in your view, how easy it is to implement it across other operations owned by other mining companies and a bit of a long shot here, but how much do you think it could increase overall production globally?

We are making progress, though it is still in the early stages. We are exploring a variety of technologies, some of which are proprietary, while others involve external contractors or partnerships with other companies in Latin America. We are enthusiastic about these developments, but we cannot yet predict the potential for significant additional production. As mentioned, we are targeting 200 million pounds a year focused on our current active leach stacks, but there are additional opportunities if everything goes as we envision, particularly with some older inactive leach stacks. This could also serve as an alternative to investing in concentrators for processing sulfide ores. I feel energized when discussing this with our technical team, who share their enthusiasm about the progress. We will keep you updated as we gain more clarity on the incremental production.

Your next question comes from the line of Carlos De Alba from Morgan Stanley.

I have a question regarding Grasberg. I understand that the changes were not very significant, but could you provide more details about the sequence of changes you are experiencing or projecting for Grasberg? Additionally, could you comment on whether this might affect your cost outlook or profile for the operation and the company as a whole?

No, these are just normal mine plan adjustments that come up as conditions change. When you look at the numbers from Grasberg, it looks like it's almost like an assembly line process, but we're constantly dealing with changes in geology and other conditions. But there's nothing unusual there, and it's certainly nothing that has a fundamental change in the low-cost operations there. Mark Johnson is on the line, and he's our longtime head of operations there at Grasberg. And Mark, why don't you make a comment in response to this question.

Yes, Richard, I think you addressed it pretty well. More specifically, in 2023, this little bit of a swap in metal production '23 to '24 was primarily due to Deep MLZ, where we continue to learn and apply the deposit-specific cadence parameters. And what we ended up doing is slowing down the cave advance a little bit going to the west, and that deferred a little bit of higher-grade metal from 2023 into 2024 and 2025. At the same time, we were able to increase our milling rate and the additional tons at the mills allows the mines to ramp up. And so that more or less offset any of the change that we made at Deep MLZ.

All right. Excellent. And then just on Cerro Verde, if I may, very quickly. When do you expect that you might get back to the 1 billion pound level of production?

We're nearing the 1 billion pound mark this year, and we anticipate reaching it next year. In terms of gold at Grasberg, we saw higher recoveries in the first quarter of this year, and we've slightly increased our gold volumes for 2022. We haven't factored any of these increases into our projections for the following years. There are potential benefits for gold as we look ahead that haven't been included yet, but we will have to monitor how things unfold this year.

Next question comes from the line of Michael Dudas from Vertical Research Partners.

Welcome, Maree. You're going to enjoy this moving forward. Kathleen is taking her time. Richard, as you mentioned in your prepared remarks, the market price for copper is not responding to investment demand or supply adjustments as one might expect in other cycles. I want to highlight that it's not only copper; it's also other metals. Given the booming expectations around electric vehicles and net zero, it seems that mining investment may be limited across the board, which will maintain upward pressure on pricing. What is the best way for the market to signal and foster more confidence if the price remains disconnected and unresponsive?

There are numerous factors contributing to supply constraints. Historically, when China emerged, there was an expectation for a significant supply response, as had been the case in the copper market prior. However, upon closer examination over the past 20 years, it became clear that copper has remained a top priority for major mining companies. The declining quality of deposits and the increasingly challenging jurisdictions in which they're located have compounded these issues. Additionally, with 40% of the world’s copper coming from Chile and Peru, the ongoing political discussions in those countries regarding industry treatment are also critical factors. Delays in project development, even for relatively straightforward initiatives like the mill project at Bagdad, demonstrate that timelines can extend significantly. More complex projects face even greater opposition globally, while U.S. brownfield projects benefit from established community relationships. Conversely, new mine developments in the U.S. encounter significant delays and obstacles. Without a major global economic event, I believe we are heading towards an environment with high copper prices, alongside challenges in finding substitutes, increasing scrap supply, and initiating new projects, all of which present barriers. I remain confident in our strategy as a copper-focused company, leveraging our execution capabilities, maintaining a focused approach, and fostering strong relationships. Our experiences, particularly with the Grasberg project in Indonesia, have taught us the importance of engaging with local communities, providing job opportunities and benefits, and these lessons continue to yield positive results for us.

Your last question comes from the line of Alex Terentiew from Stifel.

I wanted to revisit the growth options, specifically regarding Lone Star and El Abra sulfides. I understand these are long-term projects, but could you outline the timeline or schedule for us? Is there a possibility of these coming into production within a decade? Additionally, you mentioned El Abra's 700 million pounds. I know the oxide is currently being mined effectively as a pre-strip. Do you foresee any overlap between the oxide leaching and the sulfides, or will it simply shift to a sulfide operation?

El Abra and Lone Star are distinct projects. When we acquired Phelps Dodge 15 years ago, El Abra was seen as a declining short-term asset. However, through our exploration drilling, we identified a significant sulfide deposit that is quite large but located at a high altitude, requiring desalinization and energy, making it a costly project. Nevertheless, it could be economically viable with current prices. The focus is on monitoring developments in Chile and preparing for future work. Regarding Lone Star, which is near our historic Safford mine, we have strong community support for our operations. We are expanding oxide production there, which is contributing to the stripping for the sulfide resource we are assessing and determining how to develop. Josh, would you like to add some comments about this?

I'll just comment on the portfolio there, just on the concurrent, we could have concurrent leach for a period of time at the El Abra alongside of the concentrating, same as Lone Star. We have that in many of our operations, including Morenci, where we have concurrent leach operations and concentrating operations. And yes, to answer your question, these projects could be within the decade. But it takes a very long time as we've all been talking about on this call. Sorry to interrupt. Go ahead, Josh.

Good morning, everyone. I wanted to add a few more points. Kathleen mentioned this earlier. We believe those projects could be completed within a decade, depending on the timing with El Abra. Regarding Lone Star, as you pointed out in your question, the oxide mining is primarily serving as a stripping process for the sulfide. With our ongoing drilling at Lone Star, we're finding that the ore body, while not identical to Morenci, will develop into a district similar to Morenci, characterized by a mixture of leaching and milling sulfides in the future. This will be a concurrent operation, where both processes are happening simultaneously rather than transitioning directly from oxide to sulfide. This approach will enable us to maximize the value of the resource and the annual production.

Now we will turn the call over to management for any closing remarks.

All right. Well, thanks, everybody, for your interest, and I'll just close and say I hope to see both Lone Star and El Abra's projects get kicked off. So that will give you some time frame on it. And we are really proud of our team and really feel good about where we are and where we're going. So thank you for your interest, and we look forward to reporting our progress in the future.

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