Conference Transcript - FCX 2026-05-12

Lawson Winder, Analyst — Bank of America

Just before we take our coffee break, I would, well, I guess I'll introduce myself again for those who weren't here this morning. I'm Lawson Winder, B of A, Senior North American Metals and Mining Analyst. And please join me in welcoming Kathleen Kirk, who's President and CEO of Freeport Mac Moran, and an influential global mining executive and a leading voice in the global copper market with more than 20 years at Freeport and has been instrumental in guiding that company's past and future. So hello, Kathleen. Welcome to Miami. Please join me on stage. And folks, the setup for today's chat with Kathleen and I will be a fireside chat. We're also welcome to take questions from the audience. Hi, Kathleen. So we'll just sit down and get right into it. Kathleen, you recently spoke about copper and copper being in a new era. You talked about it being driven by electrification and AI data centers and investment in the grid. Why the change in tone? It's quite a bit more positive than even just a year ago.

Speaker 1

And then how sustainable do you see those demand trends actually at freeport we have been very positive about copper going back a very long time um the in 2003 uh the era of copper was really defined by the massive growth in china and at that time we started looking at the situation growing demand for copper and started to see the issues around supply development. And so really in 2007 was when Freeport made its big strategy commitment to copper through the acquisition of Phelps Dodge. And as you remember, Freeport at that time was about, with Grasper, was about 60% copper, 40% gold. So I was a big copper gold producer, and it was complicated from a multiple standpoint of how the company traded. But we really looked at the fundamentals of the copper industry and felt that the opportunities in copper would be very, very positive over the long term. We didn't expect in 2007 to see what we're seeing today, where copper is becoming even more important in the global economy. It's not just about just development, urban development, and development of people around the world, but it's communications, it's electrification. and copper today is really underpinned not just by growth in china but more broad-based and when you look at how much is going into energy infrastructure and electrification and power grids and what's needed really to for countries to compete on a global basis with with with respect to technologies and ai copper is right there and copper is its characteristics are superior when it comes to conductivity it's the metal when it comes to electrification and yet over this time period it's become even more challenging to develop new sources of supply growth so freeport is committed to copper is foremost in copper and is well positioned not only with current large-scale production but with uh with organic growth opportunities and some innovation and technology that'll allow us to drive value in the future so we're very very excited about the demand drivers which have become less cyclical recently and more secular in terms of trends and demand drivers and freeport's just really well positioned to participate in that so sticking with the copper market supply disruptions have been a feature of the market for a decade now um to what do you attribute the heightened level of copper supply disruption recently and then you know what needs to change in the industry for that track record um so if you look look back at the data um and and some of the industry consultants do an excellent job at tracking and and so does our our sell side equity analysts as well but tracking disruptions and historically they have been around five percent of um of of of mine supply has been subject to some type of disruption in recent years to your point that has moved up some estimate to six or seven percent of the market and so it's a part of the market it's been a feature of the market even going back more than the time frame you talked about is having minds that have issues in terms of meeting what they expected to meet at any on any given year and so when people and analysts forecast supply and demand they usually provide some type of allowance for disruptions in their fundamental supply demand balances but to your question about why this is occurring and why it may be recurring to at a greater scale you know a couple percentage points over historical it's it's a interesting interesting dynamic you know historically if you go way back you'll see there's been a lot of disruptions that come from you know labor disruptions or labor labor issues that's been less of a feature of the market and I think one thing that the industry has done our industry has done is has improved a lot labor relations has improved a lot on community relations you see sometimes you'll have disruptions coming from operations because of community issues or roadblocks or things like that and I think the industry has gotten a lot better when it comes to managing risks not only technical risk but non-technical risk and um and dealing with things in a very proactive way so that's been a been a positive um but normally when you have um some large disruptions it can come during a startup phase it can come early in the phase of a ramp up of a mine with a newer mine you have less of a track record you have less certainty about exactly what the what sort of issues you'll you'll you'll have to work through as you're as you're ramping up so many times and we as an industry try to bake this in when we're giving our forecasts and guidance that you are going to have some challenges when when you're starting up but sometimes they're more than than what um what what what we expect but one of the things and and and you know we at freeport feel very strongly about this but one of the things that we need to do as an industry not just for investors but for all of our stakeholders for those that rely on us our customers is have a reliable production profile now that is easier said than done this industry has many many challenges both technical risk and non non-technical risk in terms of meeting production forecasts but it's something that we have to do as an industry we have to do better at freeport we're very focused on doing what we say executing understanding the risks of what we're doing being proactive about how to address those risks and um we've had you know you go back in history and and i think freeport has a pretty good track record when it comes to execution but we've had some issues just recently that i know many of you already know about when we had our our our disruption at grassberg in uh september of last year and when you have a disruption at a mind the size of grassberg the second largest in the world it is a big deal it is a big deal for for supply now it's our job as as management team to really work to avoid any unforeseen disruptions and we've operated at grassberg a very long time and we've been operating the underground um before this occurred for five years or so the the grassberg blockade we have underground history going back to the 80s but this particular ore body we had been operating for five years uh prior to this and had a an issue which humbled us and our team worked very very difficult very very under difficult circumstances and recovered very well now we're back in the ramp up mode we've had some delays with downstream and material handling that we're working through but when you have a big mine like rassburg and there is an issue it can be a big disruption to the market and so it's our job as a management team to really work hard to avoid these situations to understand the risk to when there is an issue to address it very proactively and i think our industry as a whole is getting better in many different areas of operations but as you think about what we're dealing with now as an industry the technical challenges are more difficult than they were historically the mines that are being developed now the big large underground mines or more technically complex than a surface mine would have been we can't generalize every single operation but generally the places where we're investing not necessarily just freeport but everyone in the industry is having to invest in more challenging geographies which that brings it brings another level of risk so one of the things that we benefit from at freeport in terms of execution and managing our risk is that we're in jurisdictions where we have a lot of experience so a lot of the growth that we're doing at freeport is actually brownfield in nature and lower risk we do operate you know some technically complex places but for the most part a good portion of our our assets are in the americas or in established places um and we'll talk we'll have that chance i hope later in the presentation to talk more about our growth options in the company but um it's about understanding the risk managing those risks doing what you say you're going to do and being proactive being transparent but it's mining we are going to have inherent risks and it's our job as the industry and management team to be able to overcome any challenges and that's what that's what we focus on doing so for folks following your story very closely in the turnaround and ramp back up at Grasberg what are the milestones they should be watching over the next six to twelve months just to know everything's on track and give them confidence that you're on the right track so the big milestone that we achieved in March was actually completing the work that we needed to complete between September and March number one to understand what caused the issue how to avoid it in the future and to do the remedial work in order to prepare ourselves for startup that was a big de-risking period that we went through between September and March and and that was accomplished um now the the the ramp up is started um we reported last month um a slightly slower ramp up schedule um and during our earnings release in april a slower ramp up schedule than we originally targeted and that was to put in place some additional downstream infrastructure to deal with material types over the course of this long-term asset and so we made the decision to enhance the material handling systems within the the operation and that's going to require us some additional time to get to the full ramp up But we're operating today, we're ramping up, we expect to be at around 60-65% as we get into the second half of this year, reach 80% by middle of 2027, and approach full capacity by the end of 2027. This is a big operation, and we've got plans in place to install this equipment, and that'll be the milestones of installing these material handling systems that allow us to transfer ore from our block cave to the rail cars for further processing. And those are the enhancements we're making to the systems now. We've got the plan. We'll continue to optimize it. We think we have opportunities to do that, to optimize as we go forward. In any startup, because this is now somewhat similar to a startup, even though we have a lot of operating history, you're going to face challenges. We know that. We try to allow for time to address any challenges we may encounter as we go forward. But our team there is very experienced, extremely experienced. we've been operating block cave mines in this district since the 1980s freeport has in terms of skill sets among the best underground mining capabilities in the industry so we're confident in the resource we're confident in getting back to full production but we're doing this for the long term and we're doing it in a way that will give us a more robust system downstream system to be able to um to handle any type of material that's being produced from the mine so those are the big the big things we'll report on this regularly every quarter we will give a full update as to where we stand um but our team is very confident uh this is not a this is a timing issue as you know it's not a um it's not a change in the resource or anything like that but um we're very confident and in in the long-term future this great asset we just got We signed an MOU in the first quarter with the government of Indonesia to extend our operating rights beyond 2041. So that gives us a lot of running room as we go forward with this great ore body that has both copper and gold in the same ore and is among one of the highest grade and most valuable ore bodies in the world.

Lawson Winder, Analyst — Bank of America

So before we leave Grasberg, I like that you pivoted to the future outlook at the asset. So thinking about the extension beyond 2041, how does that change your capital allocation now that you have this longer run, this longer runway?

Speaker 1

Well, you know, if you look back at where we were with this asset, we, we, Grasberg was discovered in the late 80s. and our contract was signed this current one was signed in 91 and goes out to 2041 we did an amendment in 2018 when we brought in the Indonesian government as a big shareholder but we were always thinking about the district with lenses on that said it's 2041 but it's a huge district and we know that there is more resource there beyond 2041 and so what this extension really does is lifts those lenses and allows us to think about broad more broadly what is the potential here and in the past any investment that we were making had to be robust enough to pay out before 2041. Now as we think about it we can think about what is the best long-term value opportunity and there are investments that we're making now like in the we've got an ore body that we're investing in called Kuchin Liar. Our previous economics were based on being able to generate attractive returns between now and 2041 now this that resource doesn't end in 2041 we've got a lot of resources within this district that go on and extend beyond that period of time and so it'll allow us to think about things in a much much broader way to say what's the maximum potential not having any date in mind but what's the right way to invest here to maximize the value potential for this district for all the stakeholders it's not just for freeport to benefit but it's all the community it's all the government the government stakeholders our workforce everyone can think about this as a life of resource type opportunity rather than saying oh i have to make my investments and and get returns back by 2041 if you had that scenario you wouldn't make any more investments and so this will allow us to continue to invest in like i said one of the world's the second largest copper mine and sometimes the world's largest gold producer in any given year single mine you said that uh very recently that novel

Lawson Winder, Analyst — Bank of America

leach would uh experience a pivotal change this year and you know you also made other comments that uh it's one of the highest npv opportunities in the portfolio and as well you've spoken about how heat and additives could drive another step change when you're thinking about that asset what needs to be proven in 2026 to then validate the path toward 400 and then 800 million pounds per year and then how do you see the the key risks okay scaling that okay this is something that we're so excited about at freeport um we have the potential with existing ore that's already been mined to reprocess the ore and recover more copper and so what lawson's talking about is the potential

Speaker 1

from all of these stockpiles that we have many of which are located in the u.s we've got over 40 billion pounds of ore that's in these stockpiles that has already been processed but we've left behind a lot of copper so previously old technology we would have thought this was waste now with new technology it can be recovered not all of it but a good portion can be recovered for value and so when you think about the potential for having 800 million pounds a year that you can recover from existing stockpiles that have already been mined materials in the stockpile already so you've already incurred costs to get it there and now you have to come up with technology to reprocess which we're well on our way to it's a huge value it's not capital intensive you know it might cost to build an 800 million pound a year mine copper mine might cost you 10 billion dollars or more here we don't have the we don't have big capital requirements now we have to prove the technology and that was what he was talking about for 2026 to date what we've been doing is going into these stockpiles in different ways using sensors and using different operational tactics to recover more copper and we've been successful in getting a run rate of just over 200 million pounds a year now this year is pivotal for us because we're deploying not just operational tactics but new technologies on these stockpiles freeport has been over the past few years working to um to develop an additive that could be applied to the to the to the stockpiles to enhance copper recoveries and we've been working in the lab we've been pilot testing and now we're actually deploying this additive at scale in certain stockpiles at Morenci our biggest mine in North America and we're seeing encouraging results we also have in our lab other additives that we've been testing that show even more promise maybe two or three times more recovery than the one that we're deploying the field now so a lot of promise there we're going to start getting results as we go through the back part of this year the other thing that and you think about like copper and how copper is produced and copper going through a smelter like what what catalyzes it heat you know a smelter is a very very hot furnace and ultimately produces copper from concentrate here we have all this copper sitting in the stockpiles and it's been proven that the hotter the temperature the more you raise the temperature within the stockpiles the more recovery you're going to get so we've been pursuing opportunities to add heat to our stockpiles and um and so we've right now we've just deployed we've just constructed some um some technology at our morency mine to put in some boilers we're doing it the same thing in in our mine in chile um to to add heat but we're going to start directly putting heat into the stockpiles to raise the temperature to get more copper recovery so these this information this data that we're getting is going to guide us for the future and between the heat and the additives that's where we see the step change we're well on our way we've been investing in it we've got all the all the experts not only internally but externally helping us through this and we're gonna we're gonna crack this code it's going to be a lot of value for um for freeport given the fact that we have this big footprint of stockpiles where we have copper that hasn't been recovered in i'm going to pick up on

Lawson Winder, Analyst — Bank of America

your comments about the u.s operations another thing you've talked about recently is the ability to drive cost down to two dollars and fifty cents from above three dollars right now today in the u.s operations so as you think about that goal and that ambition what's the interplay between the innovation piece of it and volume growth and then some of the external cost pressures and other factors that are ultimately going to allow you to get to that 250 yeah well our target has been to go to bring our driver costs in the u.s down our u.s mines are low grade and so they're they're higher costs than something like would be like in indonesia or some of the international

Speaker 1

locations so our work has been on making the u.s operations as efficient as possible this leech opportunity that i was just talking about is one way that we're doing that is bringing on incremental pounds rather than three dollars per pound the leach opportunity could be like a dollar per pound and so it brings down our average cost the more volumes we add at a lower incremental cost brings down our average cost in the u.s the other thing we're doing is we're leaning heavily into technology and so we're using technology in different ways than we have in the past we're becoming a lot more automated we just converted uh one of our minds in arizona to completely autonomous um and we're leaning more heavily into technologies that will automate the business make us more efficient help us maintain our equipment better help us manage downtime you know all those things that um that that will drive value in the u.s and i i know we don't have a huge amount of time left but i want to highlight that freeport's u.s business is really well positioned in this kind of environment to generate huge amounts of cash flow um it's highly leveraged we've got we've got low grades relatively high costs compared to other places but as copper prices in this environment increase the leverage really shines through the leverage really comes through because it goes right to the bottom line we don't have in the u.s because of we own the land and fee we don't have big royal we don't royalties we don't have a we have nols currently and even when we do get into a taxpaying situation the u.s tax rates are low relative to what they are internationally so our u.s business with its growth potential with this novel leach potential is a source of significant value for freeport and again if you look at the math and look at the sensitivity of where copper prices are you have a positive view of the copper industry this u.s business is going to be extremely valuable i want to check with folks in the audience to see if anybody had any questions please just pop up your hand right now if you do and we're happy to address that in the few minutes that we have left um otherwise we we do have a question from an analyst that covered you over 20 years ago this is going to be a really this is going to be from the expert he's he remembers all this stuff yeah thank you uh the interesting thing

Speaker 2

i've noticed this morning over the presentations comparing this conference to a couple decades ago everything then was focused on exploration exploration exploration these days it's on brownfield expansions or call them greenfield projects adjacent to existing projects and big districts for mining instead of mines with that said how does the exploration situation look going forward are we going to just see incremental growth in districts and with all the growth that's predicted and analysts are very good at predictions

Speaker 1

uh do you do you see enough supply coming online it's great to see you dan um exploration's got to be part of the industry i mean we have to work to continue to try to find new resources but as you know that history of our industry it's a mature industry and large discoveries are extremely rare and you know freeport used to have a chart in your days that would show all the time it showed you know the years of discoveries of the largest resources and you know the newest ones were places like grasberg you know in in 1988 or 9 and um and you've had others you've had drc you've had some success in drc but they're the the using relying on exploration as your future growth is not something you can always count on but you have to do it you have to you have to to work on it but what we as an industry are trying to do because we do need to grow we do need to be able to meet the demand that's coming in this industry we need to have more predictable sources of growth over the medium term and those lead you to brownfield and those are the things that can make a difference over the next five to ten years the exploration that you're talking about is a is a 20-year exercise but the things that can move the needle you know in the in the in the medium term are going to be brownfield opportunities and i'm a big believer in technology because you know we put a lot of money in exploration and sometimes it works but more times than not it doesn't but it's it's something like r&d that you're investing in and you're doing a lot of work to qualify exploration but it may not always work or technology is is sometimes the same thing we as an industry need to be putting more investment in technology we have an industry where like in the leaching technology we only recover like 40 it depends on on on what the nature of the ore is but we may only recover like 40 percent of the copper we need to be recovering all of that copper if we're going to meet the requirements of the future and so technology investments and ways to make us more efficient like in the u.s we have resources that go on for miles and miles and miles but you hit the economic limit so you can't produce them economically after a given period but if you drive down your costs guess what you have more reserves that you can recover economically so those are the things that in addition to exploration we need to spend money on and bring in smart people and partners to help us with technology investments in this industry because i think there's still a lot of untapped potential left and to answer your question about meeting supply we're committed as an industry so that our our consumers rely on us and we're committed to finding ways to grow our production in a reasonable way so that people can feel comfortable with coppers there to support their power project or data center or whatever they're doing to um as the world becomes more and more electrified kathleen thank you very much folks we're going to take a brief break right now and we'll be back in several minutes thank you