Earnings Call Transcript
FREEPORT-MCMORAN INC (FCX)
Earnings Call Transcript - FCX Q2 2021
Operator, Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Second Quarter Conference Call. At this time all participants are in a listen-only mode. I would now like to turn the conference over to Ms. Kathleen Quirk, President and Chief Financial Officer. Please go ahead, ma’am.
Kathleen Quirk, President and CFO
Thank you, and good morning, and welcome to the Freeport-McMoRan second quarter conference call. FCX released results earlier this morning, and a copy of today’s 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 SEC filings. On the call with me today Richard Adkerson, our Chairman and Chief Executive Officer; Mark Johnson, our Chief Operating Officer for Indonesia; Josh Olmsted, our Chief Operating Officer for the Americas; Mike Kendrick, who leads our molybdenum business; Rick Coleman, who leads our construction and growth projects; and Steve Higgins, our Chief Administrative Officer. I’ll start by briefly summarizing our financial results, and then we’ll turn the call over to Richard who will review our outlook and the slide presentation materials that have been provided to you. As usual, after our remarks we’ll open up the call for questions. Today, FCX reported second quarter 2021 net income attributable to common stock of $1.08 billion, or $0.73 per share. That included net charges totaling $56 million or $0.04 per share, detailed on page Roman numeral seven of our press release. Adjusted net income attributable to common stock totaled $1.14 billion or $0.77 per share. Our adjusted EBITDA for the second quarter of 2021 totaled $2.7 billion. And you can find a reconciliation of our EBITDA calculations on Page 35 of our slide deck materials. We had a strong second quarter, our copper sales of 929 million pounds, and gold sales of 305,000 ounces were significantly above the year-ago quarter. But our sales were approximately 5% lower for copper and 8% lower for gold relative to our recent estimates, primarily reflecting the timing of shipments from Indonesia. Our annual guidance is consistent with our prior estimates. Our results in the second quarter benefited from strong pricing. Our second quarter average realized copper price of $4.34 a pound was 70% higher than a year ago quarterly average. Our net unit cash costs of $1.48 per pound of copper on average in the second quarter, slightly above our estimate going into the quarter of $1.42 per pound, but that primarily related to nonrecurring charges associated with a new four-year labor agreement at Cerro Verde. Operating cash flow generation was extremely strong, totaling $2.4 billion during the quarter. That included $0.5 billion of working capital sources. And our operating cash flows significantly exceeded our capital expenditures of $433 million during the quarter. Our consolidated debt totaled $9.7 billion at the end of June, and our consolidated cash and cash equivalents totaled $6.3 billion at the end of June. Net debt was $3.4 billion at the end of the quarter and we achieved our targeted net debt level several months ahead of our schedule. I’d now like to turn the call over to Richard and we’ll be reviewing the slide materials that have been provided. Go ahead, Richard.
Richard Adkerson, Chairman and CEO
Thank you, Kathleen. Thanks, everybody for joining us. We're really pleased to report what’s now becoming a string of really strong operating performances for our company. And with this great positive outlook for our business, we’re all really enthusiastic about it. Hoping all of you are staying healthy through this pandemic. Vaccinations are giving us an opportunity to protect ourselves and those around us and we’re working hard to encourage our people globally to take full advantage of this opportunity whenever possible. Our teams are working safely. We remained diligent with our COVID protocols that have been so effective. With the recent rise in cases globally we are refocusing, redoubling our efforts, restoring some protocols that we had loosened to keep our team and community safe. Our results in the second quarter demonstrate really strong execution of our plans, really strong and favorable pricing for our products. Kathleen mentioned the shipping issue, logistics is an issue globally, if we’ve been able to – we basically met or slightly exceeded our production targets. We’ve been able to ship everything we produced. We would have beat our sales targets. We also in the mining industry had some one-off type issues affecting production. Without those and with shipping, we would have had a real strong beat on our previous guidance. It’s really important our Grasberg underground ramp-up is proceeding on schedule. This is a remarkable, and I would say a historic success for both our company and even the mining industry. Our team in Indonesia is doing remarkable and outstanding work and this is building value for our shareholders in long-term sustainable, low-cost values for the future. Production, we’re making money in the Americas, copper prices, production in the U.S. is increasing. Our Lone Star project in Eastern Arizona is really exciting. We have a series of ongoing value-enhancing opportunities in the U.S. in front of us, and I’m personally really encouraged about future growth in the U.S. In South America, our teams in Peru and Chile, are navigating the pandemic effectively, we’re restoring production that we have curtailed a year ago. We have achieved these outstanding financial results made possible by the hard work and investments we’ve been making for many years. We’re now generating significant cash flows, which will be sustainable for years in the future. This quarter alone, we had $2 billion of cash flow after capital spending. That’s just remarkable considering where we were just a year ago. Kathleen mentioned, and it’s notable that we reached our debt target several months earlier than our forecast earlier this year. We ended the quarter with $3.4 billion of net debt. That’s within the targeted range we said of $3 to $4 billion. We reduced our debt by roughly 60% over the past year. We’re now positioned in accordance with a financial policy that our board adopted earlier this year, and that we disclose to the market to shift our capital allocation priorities by increasing cash returns to shareholders as we make disciplined investments for future growth of our business. This policy will allow us to maintain a strong balance sheet with high-grade credit metrics, while providing cash for increasing shareholder returns and investing in our company’s long-term future. Slide 4 talks about how we’re devoting significant attention and resources to sustainability initiatives. And this has always been key to our company and our tradition of our company. We are committed to the sustainability principles of ICMM. We’re also moving to certify all of our operations with a Copper Mark, a relatively new industry framework developed by the International Copper Association to ensure responsible production consistent with the UN’s sustainability development goals. Today, we lead the industry with six of our operations now certified. In the second quarter, we submitted five additional operating sites to this initiative, and we’ve committed to validate all of our sites to this robust framework. Responsible production is critical in building and maintaining trust, which we’ve earned over the years through long-standing partnerships with communities as we delivered copper value by society produced in a safe, environmentally sound, and innovative manner. Slide 5 talks about electrification, which is key to copper. The majority of copper goes into generating and transmitting electricity, and copper is critical in every aspect of achieving low-carbon goals for the global economy. This ranges from electric vehicles and supported infrastructure to clean energy from wind and solar copper is simply essential to a green economy. This transition is now just beginning to unfold. It will add significantly to future demand for copper. And as the global leading copper producer Freeport is solidly positioned to benefit from this higher future demand. In addition, now companies around the world are responding to COVID with aggressive fiscal and monetary policies. This alone is creating important near-term copper demand beyond China. China’s consumption remains strong, there are mixed economic signals, but even with that demand for copper in China is strong and now it’s higher consumption is being generated from economic recovery in developed countries around the world. That’s even in the face of an important sector of copper demand automobiles, which is being constrained by the chip problem. So this increasingly important incremental demand outside China, the long-term growth from global from growth in emerging markets is very positive for our outlook. Copper demand is also expanding from technological advances and communications, artificial intelligence applications, expanding connectivity through global infrastructure initiatives and efforts to improve health through using copper to fight viruses and other infections. Slide 6 talks about this growing demand, the global challenges and maintaining much less growing supply makes the outlook for copper compelling. I would say compelling is an understated word and really positive and enthusiastic about it. This recent pullback in copper pricing that we’ve seen has not altered in any way our conviction of the favorable long-term outlook for copper. This is a decision we made years ago, which underscores our strategy of Freeport to focus on copper because of its favorable fundamentals, the nature of our assets, and our team. There are always actions that influence sentiment and short-term pricing at any point in time. But beyond that indisputable facts support a positive fundamental outlook for copper. Demand growth is inevitable, maintaining supply or growing supplies challenged, our prices will be required to support major new investments in copper, rising demand scarcity of supplies point to a large impending structural deficit supporting much higher future copper prices. Our company has high-quality assets, industry-leading experience, and a highly motivated team that will allow us to benefit from these fundamentals. The portfolio of assets in copper business is rare, and not unique in our industry would be difficult, if not impossible to replicate these assets. With strong growing production, embedded Brownfield, low-risk growth from our large portfolio of undeveloped resources, our assets are extremely valuable in today’s world and will become more valuable as these market develops deeply in the future. Slide 7 highlights our growing margins and cash flows. We’ve had meaningful volume growth in recent quarters that you’ve all seen this growth will continue. By the year 2021 copper value – copper volumes are projected to increase 20%, gold volumes 55% over 2020. Then looking forward to 2022, let’s see further growth of 15% to 20% over 2021 levels. The capital and execution risk to achieve these higher volumes are largely behind us. Our volumes will incur low incremental costs. We had expanded margins, the prices ranging for $4 to $5 per pound for copper. We would generate annual EBITDA for 2022 and 2023 of $12 billion to $17 billion of copper with capital expenditures in the range of $2.5 billion a year. Looking back, there was always an overhang for Freeport related to execution risk with this underground development. Political risks in Indonesia, debt levels, you look back over the past three years, we have met and mitigated all these major risks that were overhanging our company. And it’s been a really exciting, gratifying time for our company. Slide 8 highlights the great progress we’re making with Grasberg underground ramp-up. I’ve just met with Mark Johnson and his team in Indonesia and really congratulated them on the fabulous work they are doing even in the face of COVID. In the second quarter, we achieved just under 80% of our target annualized run rates for metal sales. We’re on track to reach full rates for metal production by the end of the year and our team in Indonesia has just done a fabulous job in the face of dealing with the pandemic in a challenging physical environment. We executed well-designed operating protocols. We’re dealing with this new upturn in cases in Indonesia in recent weeks. We’re helping to support the government in our local community. We’ve implemented travel and other restrictions to mitigate the spread. We’re encouraged by the increasing availability of vaccines at our job site and in general in Indonesia. A number of our workers, a significant number have already received vaccines. We have a goal of providing vaccines to all of our workforce in the second half of the year and we’re supporting nearby communities in their efforts to respond to COVID. We have strong support from the government of Indonesia, a real positive partnership with PT-FI state-owned shareholders on that shareholder mine; we’re all working together and are aligned. I’ve been working in path for over 30 years, and I’m personally proud and gratified by our team’s accomplishments. Since we began investing in the underground over 20 years ago the transition from the open pit that began 18 months ago and dealing with COVID is just remarkable what we’ve been able to do. Planning investing in this transition began in the 1990s, and now experiencing the success especially for all of us in Freeport. We now look forward to continuing long-term success and Grasberg by building values in this world-class historic mining district with low-cost, high-volume, and sustainable production. Slide 9 shows the multiple options for Brownfield low-risk growth across our global portfolio, increasingly encouraged by the opportunities in the U.S. where we have favorable community support across the board with where we operate, favorable tax situation, and a long history of working in a responsible way. We’re expanding our mine production in Lone Star, Bagdad, and other sites, and we have exciting new opportunities from technology involving leach recovery from our historical operations. The Lone Star mine, our newest operation situated adjacent to our long-standing operations in Southeast Arizona. There we have strong community support and this new mine is performing above design capacity. We’re evaluating expansions of Lone Star’s oxide ores. We’re actually making a lot of money in what normally would be stripping operations. We’re conducting long-range planning for the development of a potentially world-class sulfide resource that lies beneath this oxide cover in our historical mining area. We have an opportunity and a strong likelihood of moving forward with constructing a new concentrating the double production in our Bagdad mine in Northwest Arizona. We expect to finish this project next year. Emerging leaching technology, which I am excited about, provides substantial opportunities for added growth across our portfolio of global resources. We’re evaluating attractive expansion operation expansion, opportunity at El Abra mine in Chile, where we’re partnered with CODELCO. This project would require significant capital investment along lead time, but it’s attractively large, major future expansion of El Abra is likely but not now. We’re deferring investment decision on this project until we have more clarity about the mining policy issues currently under consideration by the Government in Chile. We’re also evaluating the development of an underground deposit called Kucing Liar in the Grasberg district, operated by PT-FI. This copper-gold resources involves a large block cave mine using the substantial infrastructure that we already have in place. We have expertise, and a long track record; Mark Johnson and his team have come up with revised development plans that make the project less capital intensive and the economics better. It’s a large operation it’d be a block cave with about 90,000 tons per day. So that’s real big, 6 billion plus tons of copper resource, 6 million ounces of gold. And it fits right in with our plans. We have additional opportunities to invest in projects to support our copper, our carbon reduction, and other sustainability goals, including investing to develop clean, renewable energy for our operations and communities. We’re advancing plans for an exciting ESG type project to recover metals from the recycling of electronic devices at our Atlantic Copper processing facilities in Spain. Bottom line, we’re going to be disciplined in devoting capital to new investments. We’re going to be focused on value-added projects supported by long-lived reserves. We have a long track record of success in developing projects. We have established licenses to operate and positive relationships and support from communities where we have the opportunities to invest. Slide 10 goes back to Lone Star shows we’re meeting, exceeding expectations. The original plan was 75,000 tons a day, 200 million pounds of copper; we now exceeded this, reaching the targeted rate of 95,000 tons a day on a sustained basis with takeouts capacity to do this yielding 285 million pounds of copper. Looking at a further increment would involve a relatively small investment in tankhouses, mining equipment; we’re using 300 or more pounds of copper, 80% more than our original design. The product here though is longer term; we have a major opportunity for Lone Star to become a cornerstone asset for our company. The potential resource is 10 times more than our current reserve. As we mined these oxide ores, we’re gaining access to this underpin potentially massive sulfide resource, a long-term keystone asset for our company. Slide 11 talks about this reference I made earlier to leaching technology, gaining additional copper from material that’s already been mined. We’re progressing this. We have lots of opportunities to apply. It’s an exciting potentially have a new opportunity with low incremental cost and low-carbon footprint. We’re engaged in multiple studies using a range of different technologies internally and externally to capture this value from existing stockpiles. Our estimate now is for 38 billion pounds of copper in these stockpiles. This is a material that’s already been in mines. And if we can recover just 10% to 20% as material it would be like having a major new mine with variable capital and operating costs. A significant portion of this is in our flagship Morenci mine, the largest mine in North America, where we are now applying artificial intelligence data analytics to help us understand what’s going on with these leaching performance opportunities. Our team historically was instrumental in unlocking substantial values years ago with the venue SX/EW technology. We’re now focused on taking this leaching technology to the next level by using modern approaches to it. We’ve established a cross-functional team of technical experts, metallurgists, mine planners, data scientists, geologists, business analysts, all working together to take full advantage of this really exciting opportunity. Slide 12, we have strong operating franchises in the U.S., South America, and Indonesia gained the trust and respect of our partners, our customers, suppliers, financial markets, and more importantly, the workers, communities, and host governments where we operate. We have significant large scale project development, operating expertise. Team Freeport has all the capabilities to undertake new projects responsibly and efficiently. I’m going to close on Slide 13 by recognizing people of Freeport. All around the globe, their commitment, dedication, resilience, and positive outlook, cooperative spirit is just gratifying. Our team is passionate about the role we’re going to play in achieving a better and more sustainable future for everyone. Team Freeport has the capabilities and drive to continue to meet and exceed our own high level of expectations and those of our stakeholders. We’re living in a time of great challenge and exceptional opportunity for our business, and our team, we’re meeting the challenges, embracing the opportunities, our futures charge ahead responsibly, reliably, and relentlessly. Kathleen, I’ll turn the call back over to you to talk about our financial results.
Kathleen Quirk, President and CFO
Okay, great. Thank you, Richard. I’m going to start on Slide 15 and just make some brief comments on our operating matters and go through our financials and then we’ll open it up for questions. Richard talked about the great progress we’re making at Lone Star. We’re very focused now on sustaining the rates to keep our tankhouse full way, which has a capacity of 285 million pounds per year of copper, and looking at potential increments beyond that with relatively small and attractive investments. Richard also mentioned our plans at Bagdad; we’re advancing studies to double the capacity there, and hope to be in a position to qualify a project and commence a project there next year. At Morenci, we’ve started to increase our mining rates, which had been curtailed in the last 12 months. We averaged about 725,000 tons per day of mine material in the second quarter, and are ramping up to reach 800,000 tons per day by the end of this year, going to 900,000 tons a day in 2023. We’ve also advanced from 2022 to restart some of Morenci milling capacity that was also idled last year to reduce costs. Now with the improvement in copper prices, these actions result in more profitable production. We’re also very encouraged by the opportunity to add low-cost production at Morenci through our Leach technology initiatives. In South America, the teams are continuing to work to restore production to pre-pandemic levels. We continue to target a full restoration at Cerro Verde in 2022. And we’ve been running at about 95% of the mill capacity in recent months. You’ve seen in our press release that the Cerro Verde team reached a new four-year labor agreement with a significant percentage of the workforce during the second quarter. That was in advance of our labor agreement exploration which is coming up at the end of August of this year. We’re very pleased with the win-win outcome of the agreement and now working to conclude a mutually satisfactory agreement with the balance of employees. At El Abra in Chile, we’re well on our way to restoring production levels that were curtailed last year. We’re increasing the stalking rate of material on the leach pads and moving forward to add a new leach pad to accommodate the higher rates. This is capital that was always part of our plan, but was deferred last year as part of the capital conservation plans that we rolled out in April of last year. This allows El Abra to increase production on a sustained basis to about 200 million pounds to 250 million pounds per annum for the next several years as we assess opportunities for a major expansion there. As Richard talked about Grasberg, we’re continuing to deliver results and generating strong cash flows. As you recall, we started the second quarter with significantly more concentrate inventory than we normally carry. With a strong production volume and some maintenance downtime at our port, weather issues at quarter end, sales were below our earlier estimates in the quarter. This is a really short-term timing issue, and we expect to be able to work inventory levels down in the second half of this year. We successfully commissioned at Grasberg the second crusher at our Grasberg Block Cave during the quarter, and that’ll provide sufficient capacity for a ramp-up to 130,000 tons per day you’ve seen the performance and the records achieved from the Grasberg Block Cave during the quarter. We’re also moving to advance the installation of our third SAG mill there, that’s been part of our plan to support the higher rates of throughput. We’ve also identified an opportunity to invest in a new mill circuit that will allow us to increase copper and gold production in Indonesia through the achievement of higher mill recoveries in the initial phases of this project and the economics are highly attractive. Our global team also remains focused on cost management and efficiency projects to extend equipment lives improve energy efficiency, and maintenance practices with the use of technology. We have experienced some degree of cost increases this year principally from energy price increases and to a lesser extent the impact on consumables of steel price increases, increased freight costs, and sulfuric acid costs. We’ve had partially offsetting these items we’ve had the benefits of a weaker exchange rate in South America versus the U.S. dollar. The increases in costs have been offset by significant increases in molybdenum prices in recent months. And those have provided a very nice hedge to certain of these cost inflation items. We talk on slide; we’ve seen in the release plans for to meet our commitments in Indonesia for the new smelter. On Slide 16, we provide an update on our plans to meet the commitments that we agreed to with the Indonesian government in 2018 to construct 2 million tons per year of in-country processing facility of copper concentrate. We have been advancing the discussions with our Japanese partners to expand the existing smelter at PT Smelting that would fulfill a portion of the obligation. And there are several financial and operating benefits of expanding this facility, which has been expanded very efficiently in the past. After considering various alternatives for the balance of the commitment, we’ve concluded that the best long-term option is to continue with our plans to construct a new Greenfield Smelter in East Java near the existing facilities at PT Smelting. We recently entered into an EPC contract with Chiyoda to construct a 1.7 million ton facility there. And we’re now focused on completing the project as efficiently and as timely as possible. We show in the graph on Slide 16 on the right, the estimated timing of expenditures over roughly a three-year period, FCX is responsible for 49% of these expenditures. We recently completed a new $1 billion bank credit facility for PT-FI to advance these projects and are planning additional debt financing, which can be obtained at attractive rates to fund these activities. As indicated the long-term cost of the financing expected for the smelter would be offset by a phase-out of the 5% export duty. And we show a graph on the bottom of Slide 16, which shows you that the economic impact is not material as the cost of the smelter would be essentially offset in lower duties that we’re currently paying. Slide 17 provides a three-year outlook for volumes. These are consistent with our previous guidance. We’re continuing to pursue additional incremental near-term growth opportunities and conducting our longer-range development planning. Moving to Slide 18, we show the significance of cash flow generation using these volumes and cost estimates and the prices ranging from $4 to $5 copper and holding gold and molybdenum flat at $1,800 per ounce of gold and $16 per pound of molybdenum. But you see here in these graphs we would generate EBITDA in the range of over $12.5 billion per annum for 2022 and 2023 on average at $4 copper to $17 billion per annum at $5 copper, and at its operating cash flows net of taxes and interest would be $9 billion to $12 billion using these price assumptions. As demonstrated in the second quarter we’re generating very significant free cash flow and this trend is expected to continue with cash flows significantly above our capital spending, On Slide 19, we include our projected capital of $2.2 billion this year and $2.5 billion in 2022. As you’ll note, we shifted about $100 million in expenditures from 2021 to 2022, which is timing related. And we’ve advanced some capital from future years into 2022 to reflect the timing of additional leach pad construction at Lone Star and the addition of some highly attractive growth spending in Indonesia related to mill recoveries. We’ve entered a period of outstanding free cash flow generation that growing volumes, strong markets, and low capital requirements you’ll see on Slide 20, and this is backward-looking, but over the last 12 months, we’ve reduced our net debt by $5 billion, and that included $2 billion in the second quarter alone. You’ll see our credit metrics are strong, and less than 0.5 times EBITDA on a trailing 12 month basis, and we’re projecting our credit metrics to continue to be strong and improving. As Richard mentioned, we achieved our targeted net debt level several months ahead of our schedule. With our long-lived asset base and growing production profile and strong markets will have the ability to continue to strengthen our balance sheet, provide increasing cash returns to shareholders, and build additional values in our asset base. The Slide on 21, just reiterates our financial policy, our performance-based payout policy, which was established by our board earlier this year, providing that up to 50% of free cash flow would be used for shareholder returns with the balance available for growth and further balance sheet improvements. And with the recent achievement of our net debt target, we expect our board will consider additional payouts to shareholders with our 2021 results. We’re looking forward to reporting on our continued progress and continuing to build additional values as we go forward. And now, operator, we’d like to open the call up for questions.
Richard Adkerson, Chairman and CEO
Kathleen, I want to put an explanation point on your comments you made about cost management. They were going focused on inflation around the world and the impact on mining companies and as Kathleen said we’ve had higher energy costs, our grinding material costs. But Josh Olmstead and our America’s team has just done a great job in helping offset that. Mike Kendrick is running our molybdenum business, which is a primary production business and a byproduct business. And with higher molybdenum prices is offsetting some of these cost increases, we’ve got a high gold price would help us. Danny Hughes is leading our supply chain group. So a combination of all these things is helping us as a company to really mitigate much of these increases in cost, working with logistics. So, I just wanted to make a note of that because I think it’s important given all of our concerns about, where inflation is leading us. So let’s do turn over to questions. Thank you.
Operator, Operator
Our first question will come from Emily Chieng of Goldman Sachs. Please go ahead.
Emily Chieng, Analyst
Good morning, Richard and Kathleen. Thanks for the update today and congratulations on getting to a net debt target. So, quickly maybe just following up on Kathleen’s last point then just on capital return, is there a reason why you would wait till the end of full year 2021 before executing that capital returns program and just further on that train of thought there? Is there a preference yet between parts of special dividend or buyback program to shift to a variable dividend strategy? Thank you.
Kathleen Quirk, President and CFO
Thanks, Emily. We’ve just reached the net debt target at the end of June and so going forward, we would have up to 50% of the cash flows available as we generate them to consider additional payouts to shareholders. Our board will be reviewing this and we do expect that we will be following the policy that will be paying out up to 50% of the excess cash flow. We have not made any conclusions on whether it will be additional dividend payouts or share buybacks. And that’ll be something that will be considered at the time, but the commitment is there to pay strong cash returns to shareholders with our free cash flow. And we expect over the next several months to continue to generate free cash flow. And that’ll continue into next year and beyond.
Emily Chieng, Analyst
Great, that’s helpful. And a quick one, if I could squeeze it in just on Grasberg, I believe that the end of Q1, you reached 75% of your full production there. Can you remind us where we are today, where you’d expect to be at the end of 3Q? And that 100% production level is that a fourth quarter average or an exit rate? Thank you.
Kathleen Quirk, President and CFO
78% was the average.
Richard Adkerson, Chairman and CEO
We’re just under 80% right now, in terms of metal production targets. That’s well ahead of schedule. We’ll be at 100% by the end of this year.
Kathleen Quirk, President and CFO
And that’s the average for the fourth quarter, Emily, so we’ll expect to hit the run rates in the fourth quarter.
Emily Chieng, Analyst
Perfect. That’s helpful. Thank you, Kathleen. Thanks, Richard.
Richard Adkerson, Chairman and CEO
Thank you, Emily.
Operator, Operator
Your next question will come from the line of David Gagliano with BMO Capital Markets.
David Gagliano, Analyst
Hi, thank you for taking my questions. I just wanted to actually ask a little bit on the CapEx. I know capital spending changes. I know, Kathleen, you flagged it, but I missed some of the commentary there. Can you walk through how much of the increase, incremental sort of net increase of $200 million is just general cost creep, versus pulling projects forward? And what are those projects? Again, if you can just give us a little more detail on that? That’s my first question. Then just since I’m only getting one, I just have another parts – question, which is the – just if you could talk a little bit about there’s slight changes to the exit rates or extraction exit rate targets between the Block Cave and the DMLZ Zone. Block Cave went up, DMLZ Zone went down. And I was wondering, if you can just speak to the reason behind those changes? Thanks.
Kathleen Quirk, President and CFO
On the capital, we shifted a $100 million of capital from 2021 to 2022. And that really was a timing matter—we haven’t been spending as quickly as what was originally budgeted. So, we just—$100 million is related to the timing. We’ve also brought forward some capital that was in our plans in the future, dealing with constructing new leach pads at Lone Star. And then we also—the only new thing that we’ve added in 2022 is this project that we talked about with respect to increasing mill recoveries at Grasberg, and that will be spent over a multi-year period. It’s roughly $400 million in total, but we’ve got $100 million scheduled in 2022. Ultimately, that will add volumes. We expect, on the order of 50 million pounds of copper and 50,000 ounces of gold and it’s a very attractive and short payout project. So that’s a positive and that’ll be used as one of the projects, just one of many, hopefully that will be used with our other 50% of cash flows. There really weren’t—on the second question there really weren’t any material changes with respect to the Deep MLZ and Grasberg, Block Cave. We update the plans every quarter. And there were really only minor changes between the two and really that the long-term plan for Grasberg and Deep MLZ is consistent with the previous forecasts and Mark, I don’t know if you want to add anything there. But it’s—we’re certainly very much in line with our previous forecasts.
Mark Johnson, COO for Indonesia
Yes, the only minor changes throughout 2022 until, SAG3 is the mine plan is, or the mine rates are constrained by the mill throughput. What we did is, there’s been some minor modifications, some of the values of GDC. During this constraint period, the grades of GDC are coming up. So, we swapped some of the GDC material for the higher value for slightly lower value material from the Deep MLZ.
Richard Adkerson, Chairman and CEO
Dave, good to hear your voice. Let me just say, the higher capital spending is a positive. We’ve come out of a period of time with capital constraints. Now, we’re spending capital, not huge incremental amounts some of its timing, but to create new values. And the Deep MLZ is a huge success story, because we’ve successfully met, manage the size of necessity issues that we encountered earlier. So in Mark’s point, the key to our future success is these mine rates, we need to build mine rates up. And we’re successfully doing that. And we’re dealing with this constraint at the mill by building SAG3 and making other investments. But the key to our future success was meeting our mine rate targets. And that’s been a key for 15-20 years. And for us to be able to achieve that is just something that we all feel so good about, and congratulations to our team for doing that over the years.
David Gagliano, Analyst
That’s helpful. Thanks very much.
Richard Adkerson, Chairman and CEO
Thanks, David.
Operator, Operator
Our next question will come from the line of Chris LaFemina with Jefferies.
Chris LaFemina, Analyst
Hi, Richard. Hi, Kathleen, thank you for taking my question. My question was going to be about Grasberg and the shipping issues there. But actually, your answer to the last question brings something else to mine, which is your organic growth pipeline. So, it’s really interesting how each quarter, you seem to identify a little bit more incremental volumes that you might be able to get out of some of your existing assets, you have this mill project now the mill recovery project at Grasberg, you have potential smaller expenses at Lone Star, low capital intensity, not a whole lot of new incremental volumes, but there is growth there potentially anyway that a lot of us may be we’re not aware of. However, when I look at your production guidance at Grasberg or to the overall company, the guidance has not been increased to reflect any of this potential growth. And the question regarding that is, is that because these projects are not yet reflected in guidance, or is it just that they’re small and there’s a lot of moving parts here? And it’s kind of a rounding to what your guidance was? So how do we think about the production beyond, say 2022, 2023 and how this manufacturer guidance?
Kathleen Quirk, President and CFO
Yes, I think it’s the latter, Chris. The Grasberg mill project wouldn’t come in terms of the recoveries until 2024. And it’s, within the rounding, but I do believe we have some upside. As we look forward, I do believe we have some upside on a consolidated basis from these initiatives that potentially could come into 2022 and 2023.
Richard Adkerson, Chairman and CEO
Chris, let me say, this is a complicated business, I mean, we get to these numbers, and we look and see how they look. But underneath that, there are always unexpected things that jump up, and in terms of, there are new challenges in measuring grade, these column heights in the underground development are large, and so being able, we had higher grades, first quarter, slightly lower grades in the second, that’s just going to be a feature of what we have to deal with. So, there are just a lot of moving parts. Our team around the world keeps finding ways to incrementally improve things; those will unfold into our numbers over time, and there’ll be a lot of moving parts. Shipping, for those of you who follow us for a long period of time know that, that’s always a timing issue, that Grasberg affords there’s a very shallow point of, a shallow sea there. We have a relatively complicated historical loading operation there. We have to lighter concentrates out to ships and in weather, shipping schedules, logistic issues will always have a timing impact. I just come back again. The real key to us is mine rates, mining rates incrementally improve things, and that’s just an ongoing process that we think.
Chris LaFemina, Analyst
And sorry, is the shipping some of the shipping issues at Grasberg many of which are kind of ordinary and normal types of things? Is there a COVID impact there as well? Was that a factor in the last quarter? Was that not a reason for the shipping problem?
Kathleen Quirk, President and CFO
No, not really, we had some maintenance that we were doing on the ship loaders, which impacted us earlier in the quarter. And then we got hit by weather at the end of the quarter. So that’s, that was really, it wasn’t really COVID related.
Chris LaFemina, Analyst
Okay, thank you.
Richard Adkerson, Chairman and CEO
We’re early in action to I mean, this is just an example. It wasn’t major, but it has an impact. We have concentrated pipelines to go from the highlands down to the port, with a scheduled plan, maintenance of some things happening, we had to advance this plan, that plan maintenance. So nothing unusual—this is typical of our operations there since then started ramping up the Grasberg in the 1990s. And so it’ll be part of the things we’ll have to deal with in the future. It just not the focus of our success, focus for success with this mine rate ramp-up.
Chris LaFemina, Analyst
Understood. Thank you.
Operator, Operator
Your next question comes from the line of Alex Hacking with Citi.
Alex Hacking, Analyst
Yes. Hi, good morning, Richard and Kathleen. You have the slide on the new leaching technology. I’m very curious, in your view on this low grade sulfide, chalcopyrite leaching technology, it seems very promising. There are a lot of impressive people associated with it. It sounds like; you guys are testing it out. How do you, personally what’s your view on the technology that doesn’t seem promising to you? And then how do you judge sort of the potential future impact on Freeport and the copper industry more broadly, like 10 years from now, this technology plays out? How much additional copper do you think that Freeport could be producing? And how much additional copper do you think could be produced globally using this technology? Thank you.
Richard Adkerson, Chairman and CEO
So Alex, and thanks for the question. I want to make clear if there’s not one technology in play here, there’s a series of efforts by different parties to develop different technologies. We have our own R&D work going on. And we’re looking across the board and how this might apply to us. I think we are specially situated to take advantage of it because we have these large number and size of pass reaching operation, some of which are now totally inactive, that we can look to apply these to. So we have a special opportunity in industry. Others have some, but we have a special opportunity to look at this in two ways. One of it is to use the leaching technology and by the way, we’re supplementing that with this artificial intelligence, data analytics opportunity to measure the impact of all this, but to apply this to inactive and existing leach pads that we have a large abundance for us. So that's one thing. And then aspirationally it might provide a way to recover material from mining operations that would otherwise have to be recovered through mill investments. And it could be looking ahead an opportunity to minimize capital by recovering low-grade sulfide deposits that would otherwise have to be mined and milled. So it’s early stages, we don’t have complete answers. I just want to share with you how exciting it is. It’s an opportunity for us, opportunity for others the industry. This is not a shill all tight game changer for the fundamentals of copper supply.
Kathleen Quirk, President and CFO
On Slide 11, the 38 billion pounds that are identified here. That represents material that’s already been mined, that is not in our reserves, not in any of our production plans. And so just recovering, a small percentage of that ends up being potentially over time, a fairly large number. But Josh, you want to make some comments on your perspective?
Josh Olmsted, COO for Americas
Sure, thanks, Kathleen. Yes, just as Richard and Kathleen have talked to, it’s really exciting with respect to the opportunity there. The thing that I think, for us that’s unlocking it, even more than just the various technologies that are out there that we’re studying and researching and running different pilot tests on is the combination of that, with the data analytics that Richard touched on. The data analytics that in the processes that we learned over the last several years in our application of that technology on the milling side has now opened our eyes to opportunities on the leaching side. And that in combination with the various technologies is really exciting for us, because it’s allowing us to look at things in a way that we haven’t ever looked at previously. And we’ve started to see some of the benefits of that at Morenci, as we’ve done some of this pilot work, and that’s what’s really looked ahead us getting us excited about what the potential is going forward. The other thing that I would note is, as Richard said, it’s not, what I would call a fundamental game changer or step change for the industry. And it happens over time. But it’s really low incremental costs, low-carbon footprint and an incremental adder as we go forward. But it’s really exciting. There’s lots of energy, if I think about the similar things that we saw with our agile efforts earlier, we’re seeing similar things on the leaching side, as we engage with various levels of the organization, the employee engagement and the excitement and the passion and the ideas that they’re bringing to the table in combination with the models that we’re generating is really good, I think untapping or tapping into I should say, that these opportunities bring value for us.
Richard Adkerson, Chairman and CEO
Yes, I got Cory Stevens is leading this had a session with this new team that’s been formed. It’s a large, Freeport is a large number of people recall him and his guys are adding to this. I just walked away from this is a new opportunity. You’ve heard me talk for years about the outlook for the copper market being so positive. The assets that we have, the undeveloped reserves, the undeveloped resources we have. This is beyond that. This is not even it’s not reserves; of course, it’s not in our resources. So this is a brand new opportunity to be significant for Freeport, and nobody’s better situated than us to take advantage of it.
Alex Hacking, Analyst
Thanks, I appreciate the color. Now, I’ve read some other, sorry as I can say, I’ve read some of the comments that, this could maybe add, 5% to global copper production on the long run. So, but it sounds like you think this is going to be more kind of longer dated and extending life of mine, and not really that kind of a potential game changer. Appreciate it. Thanks.
Richard Adkerson, Chairman and CEO
Me too early to say that Alex, way too early.
Operator, Operator
Your next question comes from the line of Carlos De Alba with Morgan Stanley.
Carlos De Alba, Analyst
Yes. Thank you very much, Richard and Kathleen, just continuing on the growth opportunities. I wonder, if you could update us on the 200 million pounds per year target that you had before the pandemic, you’re driven by the innovation and productivity enhancements in Americas, is that get another growth opportunity for you guys or is more – or is not that now embedded in the praise that you have been describing today, just now in this call.
Kathleen Quirk, President and CFO
That is embedded. We’ve continued that project. We internalized it. We were doing some external work and we to cut back on capital and operating we externalized – internalized it and that agile work way and using artificial intelligence is embedded in now in everything that we do. So that is in our plans, I’d say the one area where it’s not is at Cerro Verde, because we have not been able to get the mill, we’re running roughly 95% of the pre-pandemic levels. We had plans prior to that to move well above 400,000 tons a day. And so I think with the pandemic passing, at some point, we will be able to go back to those initiatives at Cerro Verde and those are not in our plans. But in the year end they are.
Richard Adkerson, Chairman and CEO
This is not like building a concentrator to one time deal. It’s an ongoing deal, we’ll continue to add it, as Kathleen said, we’ve been limited to what we could do with Cerro Verde. The world’s – with the world’s largest concentrating milling operations are, and because of our focus on mine rate ramp-up. At Grasberg, we haven’t yet brought all those new tools and skills and opportunities, technology, the PT-FI and we’ll be doing that in the future. So this is not a one-time deal, but an ongoing part of our business going forward. And our team is really bought into it.
Carlos De Alba, Analyst
All right. That’s clear. And then just if I may ask on the smelter financing. So the idea still to get a broad financing for this venture initiative, and that means that from a cash flow perspective for Freeport, it doesn’t jeopardize the potential increasing in dividends or returns to shareholders correct, that you will be getting the money from the banks or whoever you get the money from. And therefore, the cash flow generation that the company has still allows for you guys to pay dividends and shares.
Kathleen Quirk, President and CFO
That’s correct. Yes. The debt service would affect our dividend to the extent of 49% of the debt service. But that’s all said with a duty phase-out. So really, the dividends to FCX are not expected to be impacted.
Richard Adkerson, Chairman and CEO
And the costs of the smelter are tax-deductible to PT-FI.
Carlos De Alba, Analyst
Then the financing costs you mean return?
Richard Adkerson, Chairman and CEO
No, I'm talking about the operating costs and so forth.
Carlos De Alba, Analyst
Okay.
Richard Adkerson, Chairman and CEO
Appreciation. This is all of the PT-FI though. You nailed it, Marcos in your analysis. I’m just pointing out that you’ve got the relief from the 5% export duty. You’ve got an operation where the depreciation and operating costs are tax-deductible in the consolidated Indonesian tax return for PT-FI, which is substantial Indonesian taxpayers. The government gets almost 50% of the economics at PT-FI through taxes and royalties.
Carlos De Alba, Analyst
All right. Excellent. Thank you very much.
Kathleen Quirk, President and CFO
Thanks, Carlos.
Operator, Operator
The next question comes from the line of Orest Wowkodaw with Scotiabank.
Orest Wowkodaw, Analyst
Hi, good morning. Just given what’s happening in Chile and Peru with respect to potentially materially higher taxation of royalties in the future. I’m just wondering if that is changing or thinking at all in terms of future growth, and whether we could see Freeport look to perhaps develop deposits outside of those countries in some of the emerging fronts, maybe something like Ecuador or others.
Richard Adkerson, Chairman and CEO
Excellent point. 40% of today’s copper supply comes from Chile and Peru, 40%. And now we have both countries going through the political process that is looking to get more from the governments away from the miners. We don’t know how all this will turn out and it’s going to take time to know that. Just certified the new President in Peru, Chile’s got a long-term process looking at their constitution. We’ve already said that the impact in Chile is causing us to delay a decision on a world-class expansion opportunity we have in El Abra. Other miners are also going to be affected by this. We really don’t know what the outcome is. Bottom line, this is going to be supportive of future prices.
Kathleen Quirk, President and CFO
Our U.S. assets are more valuable to your second point, we’re not planning to go outside of our geographic footprint. We have opportunities in the U.S. and elsewhere.
Orest Wowkodaw, Analyst
Okay. Just as a follow-up. I mean, I know you have stability agreement in place of Cerro Verde, I think it’s about 2029. But, I mean, given some of the comments from the new President in Peru, I mean, how much confidence do you have that that’s going to be honored?
Richard Adkerson, Chairman and CEO
Well, you look back over our shoulder, there have been other Presidents in Peru over time that have gone into office with similar types of comments, and when they get into office the reality of the importance of the mining industry to support their economies, becomes self-evident. We don’t know now. We’re working with the rest of the industry in Peru to present a case by the importance of copper mining to that country. But we will have to work our way through this. It is an uncertainty. We don’t have a significant growth opportunity in Peru, but we have a very substantial operation in Cerro Verde that is significant in terms of our current and future levels of copper production. And so it wouldn’t be helpful, our instructed to try to play the outcome for all this. We do have a strong stabilization agreement, which is relatively new replacing an older one, and it’s stronger. But as we’ve always done, we will work with the industry and will try to work cooperatively with the government and communities to contribute to Indonesia’s efforts to relieve poverty, and that I mean, Peru’s efforts, really poverty in that country.
Orest Wowkodaw, Analyst
Thank you for the color.
Operator, Operator
Your next question comes from the line of Abhi Agarwal with Deutsche Bank.
Abhi Agarwal, Analyst
Thanks. Thank you. Morning Richard and Kathleen, thanks a lot for the call. I just had one follow-up question to the previous question. So given you are focusing on Bagdad and Lone Star resource development over the next year, I know it’s early days, but when do you think you’ll be able to make a decision? And is there any sort of CapEx guidelines here?
Kathleen Quirk, President and CFO
Well, with Lone Star where we’re working this incrementally. We’ve already been running this higher than the design rate, and we’ve got plans and studies looking at is there a further increment and those will be sorted out in the next several months. With respect to Bagdad, that is a major project and we’re advancing our engineer – our studies, feasibility studies, we’re looking at all facets of water and tailings. And as I said, I’m hopeful that we will be in a position to be able to qualify that project next year. We don’t have the final capital expenditure estimates, we’ve been working to try to find mill setups that would be lower capital intensity than a traditional mill, but that work is still underway.
Abhi Agarwal, Analyst
Got it. Thank you. And if I could squeeze in one more question, please. So if I look at Slide 7, with the 2Q Slide 7 and compared to the 1Q, the EBITDA sensitivities haven’t changed, even though the gold price and the moly price assumptions have gone up. So is that basically a function of unit costs being assumed to be higher in 2022, 2023? Am I – did I miss something?
Kathleen Quirk, President and CFO
No. We do have some higher costs baked into our numbers with respect to the items we talked about earlier, principally energy and – more than offsetting the impact for these higher gold and molybdenum prices, but these are order of magnitude rounded numbers it should be slightly above these numbers, but we just continued with the order of magnitude that we previously presented. But we are including some cost inflation in our revised forecast.
Abhi Agarwal, Analyst
Got it. Thank you very much.
Operator, Operator
Your next question comes from the line of Michael Glick with JPMorgan.
Michael Glick, Analyst
Hey, good morning. Just one question for me. As it relates to the drought in the Southwestern U.S., I mean, it seems like a pretty tough situation there. And I know, agriculture is a lot bigger deal than mining in terms of water usage. But could you maybe speak to any potential impacts from that on operations and costs and just remind us of your water agreements in place?
Richard Adkerson, Chairman and CEO
It is a concerning of the level of Colorado River, which is one of the major sources of water for operations. But this is not a new problem. We’ve been doing this consistently over the years. And we have taken steps, with communities, with Native American groups, with the farming community to deal with it. So, we don’t see – we see this is an ongoing process that we will have to devote resources and management to we don’t see any kind of crisis emerging. But we’re going to work cooperatively with everybody to try to conserve water when we do a great job right now with our conservation, reuse of water, and let’s going to be an ongoing management deal. All of that’s built into our current cost structure and we won’t anticipate major changes in that looking forward.
Michael Glick, Analyst
Understood. Thank you.
Operator, Operator
Your next question will come from the line of Michael Dudas with VRP.
Michael Dudas, Analyst
Good morning, Richard and Kathleen. Turning back to the smelter, with the timeline of a 2024 completion, as Chiyoda, which I’m sure it’s a competitive process, is it a fixed price contract? Is there a healthy enough contingency to take to respect all the potential changes with COVID and the supply chain issues, which everybody is certain to worry more about, and is their comfort level that the government along with PT-FIs those type of contract structure that would be there to achieve that target?
Kathleen Quirk, President and CFO
There is contingency in our estimate. It is not a fixed price contract for all the reasons that you just mentioned. We want to be able to help manage the costs and didn’t want to have a lot of risks baked into the capital that may or may not occur. So, we felt this was the right structure, there’s risk sharing within the contract. The government understands the situation in terms of COVID, we were delayed over the last 12, 15 months associated with the project. And the current situation is something we’re also monitoring very closely. But we’re keeping the government informed regularly about the timeline. And our commitment is to – with Chiyoda is to get this done as timely as possible, but recognizing their certain things that will be outside of our control, like the current COVID situation.
Michael Dudas, Analyst
And that $2.8 billion big change from maybe what was thought about two, three, four, several years ago?
Kathleen Quirk, President and CFO
Well, the scope is different. We had previously we were thinking of having two lines at the smelter for 2 million tons total and we reduced it to 1.7 tons, because of the expansion opportunity at PT Smelting. So the scope is a little different. And yes, there have been some changing cost factors you’ve seen all the – what those are in terms of where construction costs are currently. But we’ve done a good bit of value engineering over this period with Chiyoda, but all parties are committed to having an open book and making this the smelter as successful as possible and bringing it online as cost-efficiently as possible. And so we were in the range of $3 billion, $2.5 billion, $3 billion before, but there’s been some pluses and minuses. And we’re slightly above that now.
Michael Dudas, Analyst
The open book risk sharing is definitely the way to go here. Thanks a lot, Kathleen.
Operator, Operator
Your next question comes from the line of Matthew Murphy with Barclays.
Matthew Murphy, Analyst
Hi, I’m wondering as you’re getting close to full throughput at Grasberg here. If you can give any color on underground mining costs, thinking like on a per ton basis, where you’re at – where you’re aiming to get and is it, where you had hoped to be?
Richard Adkerson, Chairman and CEO
Yes. We’re achieving where we hoped to be, no question about that. We have to deal with some of these general factors, but just achieving the volumes having the gold credit, and high grades of copper, just allow us to do it. Mark, do you want to comment on this?
Mark Johnson, COO for Indonesia
Yes. We’ve had a lot of focus on operating unit rates. And we’re very close to where we want to be, I think there’s still some opportunities and just be more efficient with some of the mining. Obvious that GDC, the train haulage system has proved to be very efficient. That’s – it’s a completely unmanned operation and that’s going very well. Deep MLZ, the fracking is helping out, we’re seeing that the cave is continuing to mature, a lot less secondary blasting. So a lot of these things are settling down. But I’d say it’s very much in line with the forecast that we had, and we think there’s still some opportunities to continue to improve.
Matthew Murphy, Analyst
Okay, thank you.
Operator, Operator
Our final question will come from the line of Jatinder Goel with Exane BNP Paribas.
Jatinder Goel, Analyst
Hi, good morning. Good afternoon. Thank you for taking the question. Just one question on those administrative fines in Indonesia, now, we’re looking at 2024 timeline, and looks like you’ve taken a minor provision in your accounts as well, any color you can provide on where we are on that discussion with the government? And is there any accessibility these fines should not be levied and should not be recovered to the same extent, as indicated in media previously?
Kathleen Quirk, President and CFO
Yes. We worked with the government during the quarter, and this third party that the government engaged and we engaged to review our performance against the plan and the schedule and what was related to the pandemic. And they look like the fine will be in the $16 million range, which we’ve fully accrued in the quarter we had previously accrued $13 million. And so it looks like that is behind us. We also with this provided a new schedule to the government of what the progress is expected to be. And so that is what will be measured against in the future. So, we’re not expecting this to be an ongoing matter and it’s – we’re pleased with the resolution of it.
Jatinder Goel, Analyst
Understood. That’s very clear. Kathleen, if I can ask you very quick one, on moly, how sustainable do you think current strong prices are? And do you have much flex in the system to respond with better volumes from year to time the mines?
Kathleen Quirk, President and CFO
On the latter part of that we are looking at, we’ve been operating primary mines are below their capacity. We are looking at potential options to increase production from the Climax mine. In terms of prices, we don’t predict prices, but the market is Mike can tell you has been very tight. And we’re seeing that continue even during the summer months. And I don’t know Mike you want to add?
Richard Adkerson, Chairman and CEO
Our Molybdenum business, it’s a great business and leverage to prices and we’re able to flex. Mike you want to make a comment on that?
Mike Kendrick, Molybdenum Lead
Sure. Yes, Kathleen is absolutely right, that we’re looking at how we can expand production at Climax and putting together a ramp-up plan for that to respond to the economic conditions. And then with regards to price, I think the predominant feature is that the vast majority of Western Molybdenum comes from byproduct production. And right now, you’re starting to see that you don’t have these copper mines that are coming online and it correlates to our general story of how important copper is, but also that it’s hard to find resources, bring them on and they come with molybdenum. So, we think there’s kind of a natural correlation between the copper and the molybdenum story. And there’s definitely a structural deficit this summer. And we’ll have to see how it plays out over time.
Jatinder Goel, Analyst
Excellent, thank you so much.
Richard Adkerson, Chairman and CEO
All right. Well, thanks, everyone. It’s exciting times; the best is yet to come. So hang on. Thank you.
Operator, Operator
Ladies and gentlemen, that concludes our call for today. Thank you for your participation. You may now disconnect.