Earnings Call Transcript
FREEPORT-MCMORAN INC (FCX)
Earnings Call Transcript - FCX Q2 2024
Operator, N/A
Thank you for joining us. Welcome to the Freeport-McMoRan Second Quarter Conference Call. All participants are currently in listen-only mode. We will have a question-and-answer session later. Now, I would like to turn the conference over to Mr. David Joint, Vice President of Investor Relations. Please proceed.
David Joint, VP, Investor Relations
Thank you, Regina and good morning everyone. Welcome to the Freeport-McMoRan conference call. Earlier this morning, FCX reported its second quarter 2024 operating and financial results. A copy of today's release with supplemental schedules and slides is available on our website, fcx.com. Today's conference call is being broadcast live on the Internet. Anyone may listen to the conference call by accessing our website homepage and clicking on the webcast link. In addition to analysts and investors, the financial press has been invited to listen to today's call. 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 non-GAAP measures and forward-looking statements, and actual results may differ materially. Please refer to our cautionary language included in our press release and slides and to the risk factors described in our SEC filings, all of which are available on our website. Also on the call with me today are Richard Adkerson, Chairman of the Board; Kathleen Quirk, President and Chief Executive Officer; Maree Robertson, Executive Vice President and CFO; and other senior members of our management team. Richard will make some opening comments, Kathleen will review our slide materials, and then we'll open up the call for questions. Richard?
Richard Adkerson, Chairman of the Board
Thank you, David, and thank you all for joining us today. We've experienced a few months of market volatility. I appeared on CNBC when copper first reached $5, and I was quite pleased. However, the reality of the copper market has emerged, and I want to share some thoughts on it. Many of you have heard me say that copper has shifted from being a cyclical metal to one more influenced by episodic events. In China, demand has been increasing, setting records even amidst poor performance in some sectors, particularly the property sector. Recently, demand has softened in other areas. Credit markets in China have been weak, and high prices have led to destocking. There remains a tight concentrate market, with TCs and RCs at record low levels, resulting in an influx of scrap into the marketplace. The government had incentivized scrap collection for a while. Consequently, due to destocking and weakening demand, global inventories have grown, prompting macro trading in commodities, especially following the disappointing outcomes from the Third Plenary Session regarding economic incentives in China. This situation won’t continue indefinitely. There are limits to destocking, and China will react to its economic needs; there is inherent strength there, and we are confident that improvement will occur over time. They have already taken the first step with a recent interest rate cut. At the core of this situation are the fundamentals of the global copper market. The world is becoming increasingly electrified, with challenges related to connectivity and carbon emissions that must be addressed. Increased defense spending, as highlighted by A1 and Jeff Currie, adds another layer of demand. Supply chain issues and challenges persist and are, in some cases, intensifying. Looking ahead, our strategy is grounded in a fundamentally optimistic view of long-term copper demand and the need to develop new supplies to meet that demand. Witnessing copper at $5 was remarkable, and I believe we will see it again. I also want to acknowledge our team for their excellent work in commissioning our new smelter in Indonesia. This is a significant project, the largest single-line smelter in the world. Construction is nearly complete. We shared a video on our website last night, and I encourage everyone to watch it to appreciate the size and scale of this world-class facility. Visiting it really highlights its magnitude. This project was a major commitment we made to the Indonesian government in 2018 to resolve issues that had been long-standing; it holds strategic importance for our interests in Indonesia, allowing us to become a fully-integrated producer with our mining operations. PT-FI will now be positioned to apply for a long-term extension of its operations, significantly benefiting all stakeholders, including the government, the people of Papua, our employees, Freeport, shareholders, and our partner, MIND ID, a state-owned entity. This project has been in development for several years amid challenges posed by COVID and inflation affecting many projects in the copper industry; our team's success in completing it on time and within budget is commendable. It's truly an impressive facility. Be sure to check out the video. We are excited about securing our extension and planning to maximize the value of this resource over its lifespan without the constraints of a 2041 deadline. I'm really encouraged by this achievement, and again, our team did an outstanding job. Kathleen, I’ll pass it over to you.
Kathleen Quirk, President & CEO
Okay. Thank you, Richard, and I'm going to start on Slide 3, with the information reflecting the results of our second quarter and first half of 2024. Our team continues to focus on what matters in driving value in our business, focused on executing our plans reliably and responsibly, enhancing efficiencies, managing costs aggressively and building optionality value in our organic growth portfolio. During the second quarter, we generated strong margins and cash flows with $2.7 billion in EBITDA and $2 billion in operating cash flows. Our production volumes were largely in line with our estimates going into the period, but as we reported in early July, our shipments of copper and gold were impacted in June as a result of obtaining export licenses in Indonesia, which has now been secured. I want to highlight two important items of significance and momentum for the future. The first item, Richard talked about it, it's the Indonesian smelter project advancing to the commissioning phase. As Richard discussed, our team has managed this large and complex project in an exemplary manner, and we're now focused on further derisking through a successful startup in the months ahead. Solid project execution is a hallmark of our Freeport team who stepped up once again to deliver in a challenging environment for major capital projects. The successful completion of this strategic investment is of significance and positions us to secure a long-term extension of our operating rights in Indonesia. The second value driver I want to highlight is the ongoing momentum in our innovative leach project to build additional scale in low-cost incremental production. Continued scaling of this initiative is a major value driver and a differentiator for Freeport. As you'll see, our second quarter and first half incremental production from this initiative doubled compared to the same period in 2023. As we set our sights on scaling this initiative further, we see the opportunity to lower our unit costs in the U.S. meaningfully. We continue to execute our established shareholder return framework with $0.5 billion in dividends and share purchases year-to-date. We ended the quarter in a strong position financially, with a favorable future outlook as we head into the second half of this year. Turning to copper markets, copper prices have fluctuated between $3.67 per pound and $4.92 per pound on the LME exchange, with an even wider range on the U.S. COMEX exchange throughout 2024. We have previously discussed the influence of macro sentiment and investor strategies that can lead to significant price changes. The domestic economic issues in China, the ongoing struggles in the property market, destocking, management of working capital, rising copper exchange inventories, and delays in economic stimulus actions have all impacted the market. In the U.S., demand for copper remains robust across various sectors. Looking globally, favorable demand factors are emerging due to copper's essential role in the economy, particularly in electrification and copper-intensive energy applications. Its physical properties and superior conductivity solidify its status as the metal of electrification. Substantial investments in power grids, renewable energy, technological infrastructure, and transportation are expected to bolster copper demand, with forecasts predicting above-trend growth in demand for the foreseeable future. Analyzing the fundamentals, we see a mismatch between demand and supply, considering the constraints on existing supply growth, the difficulties and time needed to develop new supplies, and predictions for peak mine supply in the next few years. These elements, along with enduring demand trends, indicate tight market conditions ahead. With Freeport's strong industry position, extensive current operations, and growth pipeline, we are well-equipped to take advantage of this fundamental outlook moving forward. Now, turning to our operations on slide 5. We summarized the quarterly operating results by geographic region. In the U.S., we continue to focus our efforts on mitigating the impact of lower ore grade phases currently being mined. You'll see in our operational details provided in our press release that the ore grades processed through our mill and leach facilities in the U.S. had more than a 10% decrease in ore grades compared to the year-ago period. All else being equal, this results in higher costs on a per-unit basis. We're very focused on mitigating these impacts, and to mitigate it, we're focused on initiatives to improve productivity, equipment reliability, take advantage of automation and new technologies and importantly, add low-cost incremental volumes through our innovative leach initiative, and we think this can have an impact as we go forward. In South America, our team and our large-scale Cerro Verde operation posted a solid second quarter. You can see the mill throughput exceeded 425,000 tons of ore per day. This is a strong recovery from the first quarter, with higher throughput and recoveries contributing to higher copper and molybdenum volumes. Our unit net cash costs improved sequentially from the first quarter in South America, even after giving effect to a $0.22 per pound non-recurring charge for the new labor agreement reached during the quarter. In Indonesia, despite delays in shipping during the month of June, the results were strong, and you'll see net unit cash credits of $0.21 per pound. Our quarterly mill rates were lower than what we achieved in the first quarter as we advanced maintenance in June to manage inventory during the shipping delays. We also announced previously a change in mine sequencing that will affect gold volumes for the year. During the second quarter, we modified our mine plans for 2024 to address some disruption from certain wet draw points in the Grasberg Block Cave. We're currently maintaining our mining rates but have shifted to areas with slightly lower gold grades as we implement operating solutions to regain access to the higher-grade material. This is a timing matter and not a significant issue for our long-term plans. I want to talk some more about our innovative leach initiative, and we've got some information on slide 6. We're continuing to build momentum with this initiative. Given the low incremental cost and low capital intensity associated with these activities, which essentially involve recovering incremental copper from material that has already been mined. The returns and value proposition on this opportunity are significant and a major catalyst for us. You can see the significant growth in incremental volumes from these initiatives over the last several quarters. As a refresher, we have achieved our initial targeted run rate of 200 million pounds of copper per annum and now have our sights on scaling this to 400 million pounds per annum in the next couple of years. Ultimately, our goal is to achieve 800 million pounds per annum from this exciting initiative. This is the size of a major new mine with low capital investment required and incremental operating costs, which will greatly enhance the value and competitive position of our Americas production. I want to go over how we're doing this. The results to date have been achieved by enhancing heat retention in the leach stockpiles, by using data from sensors and analytics, which help us identify where the opportunities are located within these massive stockpiles and deploying new operational tactics to bring our catalyst solution to areas that were previously inaccessible. We're now building on these successful initiatives and have a high degree of confidence in boosting the run rate to 300 million pounds to 400 million pounds during 2026. Some examples of new initiatives include expanding our surface area under leach by using drone technology and helicopters to install irrigation in areas previously inaccessible under conventional techniques and scaling our solution injection wells. With this experience, we're drilling more efficiently, getting more injection wells placed and are testing techniques to expand the impact of injection wells over broader areas. In parallel, we're working on innovation-driven initiatives, that would really move the needle to our ultimate objective of reaching 800 million pounds per annum. These include adding direct heat to the stockpiles from renewable or other sources, taking advantage of pyrite-hosted ore to generate additional heat and testing new additives that we've been developing. At Freeport, we're really well positioned to capture this value with an extensive inventory of substantial residual copper from material already mined, industry-leading technical expertise and leaching technology and a strong multi-disciplined and focused innovation team dedicated to this initiative. Turning to our other areas of growth of project pipeline on Slide 7. We discussed earlier the extended time frames required for the industry to develop new supplies. At Freeport, we have the advantage of leveraging existing infrastructure to develop new supplies and have a series of projects we are advancing. Our leach initiative is our best opportunity to grow in the near term, and we're pursuing this aggressively as we've talked about. But beyond that, in the U.S., we have a brownfield expansion at our Bagdad mine in Arizona where we have an extensive reserve position. We've already reported. We've completed our studies. We're now advancing investments in automation, tailings and energy infrastructure and expanded employee housing in this remote location to position us to execute the project more efficiently when the time is right. This project, unlike other things that you see around the industry, does not have major permitting hurdles and it represents a straightforward option. We're monitoring conditions and progress with our derisking initiatives and expect to be in a position to make a decision on our investment next year. We've also commenced pre-feasibility studies to define a brownfield expansion in the Lone Star, Safford District. Most of you know, this is our newest operation in the U.S. and we're really just getting started here. We have our sights set on more than doubling current production levels in the 300 million pounds per annum range. This is an enormous resource, and we expect this district will become a generational cornerstone asset for Freeport in Arizona in the next decade. At El Abra in Chile, where we are in partnership with CODELCO, we have completed pre-feasibility studies and we're now preparing an environmental impact statement expected to be completed by the end of next year. The project involves – that we're considering, involves an investment in a new concentrator of scale similar to the size of Cerro Verde concentrator we installed nearly 10 years ago, investments in desalination and a pipeline system to support our water requirements. The preliminary estimate for incremental capital costs for the new concentrator project and related infrastructure, which continue to be reviewed approximate $7.5 billion and would provide 750 million pounds of annual copper production and 9 million pounds of molybdenum per annum over a very long life. This project would require about seven to eight years of lead time because of permitting requirements, but we're advancing so we have optionality, and we're going to continue to review the economics in the context of market conditions, but believe this is a project that will be required in the future to support long-term copper demand trends. In Indonesia, we're making great progress on our large-scale Kucing Liar development scheduled to commence production prior to 2030. We're also conducting additional exploration below our Deep MLZ ore body and expect an extension of our operating lines beyond 2041 will set up for additional long-term exploration and development options in this highly-attractive district. We're advancing all these initiatives to build optionality for growth, and we'll continue to be disciplined in our approach, targeting opportunities that can be executed efficiently, profitably and value-enhancing. Richard talked about the PT-FI extension beyond 2041, and the key role that the smelter plays in that process. We've reviewed in the past our discussions with the Indonesian government to extend our rights to provide continuity of the significant benefits of this operation to the people of Papua and the Republic of Indonesia. During the second quarter, the government enacted a regulation applicable to a broad range of license holders in Indonesia. We've highlighted the applicable provisions for IUPK license holders such as PT-FI, which are the requirements for the conditions that need to be met for approval for an extension. These conditions are in line with our expectations, and we are in the process of completing an application to be in a position to file this application during 2024. The previous requirement for extensions could only be requested five years before expiry. So these new regulations allow us to apply now, reflecting the government's recognition of the long lead times required for investment. It is a really positive development for PT-FI and its stakeholders. We look forward to making our application and be in a position to extend our rights so that we can continue our long-range planning and maximize the value of this great resource. Slide 9 presents our three-year forecast for the sales volumes of copper, gold, and molybdenum. We have made slight adjustments to our 2024 copper sales, mainly due to minor revisions in the U.S. and Indonesia. As mentioned before, the gold volumes for 2024 will now incorporate the changes in mine sequencing, which we addressed earlier, and this is primarily related to timing. The rest of the guidance remains fairly consistent with our prior outlook. For 2024, we currently project consolidated unit cash costs to be around $1.63 per pound, which is slightly above our April estimate of $1.57 and aligns with our initial guidance of $1.60 per pound at the beginning of the year. Further details can be found on Slide 20 in the reference materials. Slide 10 outlines the cash flow generating potential of our business by combining our projected volumes and cost forecasts. We present a modeled outcome for our EBITDA and cash flow at different copper prices ranging from $4 to $5 per pound. With this modeling for 2025 and 2026, along with current volume and cost estimates, and assuming gold remains steady at $2,300 per ounce and molybdenum stays at $20 per pound, we anticipate annual EBITDA to be nearly $11 billion at $4 copper, reaching up to $15 billion at $5 copper. Our operating cash flows in these scenarios would range from $7.5 billion annually at $4 copper to $11 billion at $5 copper. We have included some sensitivities on the right side of this chart for your reference. With long-life reserves and large-scale production, we are well-positioned to take advantage of an improved fundamental outlook moving forward. On Slide 11, we present our current forecast for capital expenditures in 2024 and 2025. We anticipate approximately $3.7 billion for 2024 and $4.1 billion for 2025. This reflects a modest increase over the two-year period, primarily due to adjustments in estimates for our sustaining capital program and long-term projects in the Grasberg District. We will remain disciplined in our capital deployment, ensuring that the investments we make deliver value and support our initiatives. During this two-year timeframe, the discretionary projects total $2.5 billion, representing the capital investments in new projects funded by 50% of our available cash that is not distributed, in accordance with our financial policy. Additional information about these value-enhancing projects is available on Slide 23 in our reference materials, which will assist us in creating value moving forward. On Slide 12, in conclusion, we reiterate the financial policy priorities centered on a strong balance sheet, cash returns to shareholders, and investments in value-enhancing growth projects. Our balance sheet is solid. We've got strong credit metrics and flexibility within our debt targets to execute on our strategy. During the quarter, our credit rating was upgraded by S&P and now we're investment-grade rated by all three major rating agencies. As indicated on the slide, we've distributed $4.3 billion to shareholders year-to-date through dividends and share purchases. We've got an attractive future long-term portfolio that allows us to continue to build value and follow-up policy of investing in projects that build long-term value and returning cash to shareholders. We actively monitor the market conditions and carefully manage the timing of our projects to make sure our financial flexibility remains strong. Our global team is driven by value. We're focused on our clear strategy to execute our plans, invest in our future, and return cash to shareholders. And thank you for your attention, and we'll now take your questions.
Operator, N/A
Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Alan Spence with BNP Paribas. Please go ahead.
Alan Spence, Analyst
Thank you all. Good morning.
Kathleen Quirk, President & CEO
Good morning, Alan.
Alan Spence, Analyst
Good morning, Kathleen, Maree and Richard. On the North American operations, your grades were lower year-on-year. And the leaching volumes in Q2 are annualizing above the 2024 target, yet copper sales guidance was decreased, I appreciate just by 1%. But do we put those together and conclude that North American optimization targets are maybe proving a bit more challenging this year?
Kathleen Quirk, President & CEO
Alan, we are really focused on productivity in North America. This is a big priority of our management team. During the second quarter, we made really good progress. We've got a series of metrics we're following that will drive the production higher. The one area that we're working on is we're continuing to have some unplanned maintenance, some disruptions caused by that. And really the asset health and reliability programs that we're putting in place and continue to build on, which has been a hallmark of our US operations, are important to make sure that we meet our production targets. So I think we feel we're turning the corner. We've got very, very sharp focus on these things. The leach production is helping us to offset the impacts of low ore grades, and as I mentioned before, that's really going to help us bring down the average cost of our US production as we scale this further. But we've got to get these productivity objectives met. We're making progress on it. We had some issues in the quarter with some downtime in our mill and also some of our crush and convey facilities, but we're making progress to make sure our equipment is reliable and we don't have unplanned outages. And that's something we're really focused on as we go forward.
Alan Spence, Analyst
Thanks for that. And just a quick follow-up question on the leaching. You provided some helpful additional color on it. You mentioned a high probability of getting to the $300 million to $400 million range by 2026. But just to confirm, none of that would be in current 2026 sales volume guidance?
Kathleen Quirk, President & CEO
We have included our current rate of sustaining 200 million pounds per year into our forecast. As we scale up with a high level of confidence that we will, this creates potential upside for our projections. Additionally, the productivity initiatives I mentioned will contribute to this upside. We know where to focus, our teams are actively working on it, and we are committed to achieving our goals. The leach initiative will significantly help reduce unit costs.
Carlos De Alba, Analyst
Yeah. Thank you very much. Good morning, Kathleen and Richard. So Kathleen, just continue with the discussion on the leach projects and initiatives in North America. Can you remind us or give us some color as to how much lower cash cost does those initiatives or those volumes have relative to the North American and overall current cash cost?
Kathleen Quirk, President & CEO
Yeah. So the incremental cost per pound for the leach initiatives is under $1 per pound incrementally. The reason why they're lower is because the mining cost has already been incurred. So this is ore that is in stockpiles where we're essentially recovering more metal than what our prior plans suggested we could do. We're identifying places within the stockpile where the rock has not gotten the benefit of this catalyst solution. We've been able to identify these areas through our censoring and data analytics. We're working on operational tactics to go after it. Essentially, you don't have the mining cost because you've already incurred that. So, this is all just incremental. To the extent it scales, that has the benefit of bringing down the average unit cost in the U.S. We're really focused on achieving this milestone as it will change the competitive position of these U.S. operations, principally our Morenci mine. We're really excited about it. We've got new technologies. We're bringing in some expertise from other industries, adjacent industries. It’s helping us. We’ve got the agricultural industry that we've been taking the page from. We've got oil and gas industry, services industry that’s helping us with some of these drilling techniques.
Carlos De Alba, Analyst
Thanks, Kathleen. And maybe just another one, and I understand this might be difficult to answer precisely. But with the new regulation for IUPK in Indonesia in place, and basically, as you mentioned, PT-FI imposition or having met basically the requirements to apply for an extension. What is the path ahead to get the approval of the extension? I don't know if there is anything on timing or milestones that you can point to, and is this something that we have to wait until the new President is sworn in?
Kathleen Quirk, President & CEO
Well, the regulation was issued. We were waiting for a while for the regulation to be finalized. The regulation was issued at the end of May, and that's a really positive development. The catalyst really to put us in a position to be qualified as an integrated producer, which you have to be under this regulation to apply for a life of mine extension, was the smelter. Moving the smelter into commissioning and the operational phase as we move into the next few months really positions us to be able to apply. None of the conditions that are outlined in the regulation were surprises to us, they were in line with what we've been talking about with the government for some time now. We've got to actually put together the application package, which we're doing and we can apply now at any time. We expect to apply for the license; there are not any guidelines for how long the government has to respond to that application, but discussions we've had previously have suggested that the government wants to move forward with this quickly because they understand the long lead times, and they want to really see us get started on defining new resources and mine plans that allow us to have continuity beyond 2041. Our objective is to get this done during 2024. I think that is really doable. Whether or not it's within this administration, the current administration is in place through October, I think there's a widespread positive reaction to the smelter and to PT-FI being an integrated producer and to continuing the long-term benefits. Whether it's this administration or the next, I think there’s positive momentum for PT-FI to get this done during 2024.
Carlos De Alba, Analyst
Thank you.
Richard Adkerson, Chairman of the Board
And Kathleen, I want to emphasize that this situation is different from what we've encountered before. We are not in a position of debate about this. It is in everyone's best interest that there is broad acceptance of this, and there is now a clear understanding that all stakeholders benefit from our efforts to maximize the value of this resource. For those of you who have followed us in the past, this is a new process, and it is very encouraging.
Liam Fitzpatrick, Analyst
Good morning everyone. Just a question around the new smelter in Indonesia and the ramp-up profile. On the face of it, it appears a fairly optimistic target to achieve full capacity by year-end, just given the size and the complexity of it. So can you give us some color on some of the key ramp-up milestones that you'll need to achieve through H2 to hit that target? And then separately, moving forward, do you plan to give us any separate disclosure for the smelter, so that we can assess the operating performance and the profitability so on? Thank you.
Kathleen Quirk, President & CEO
Liam, in terms of your first question, it is a very large complex project and smelter startups there aren't a lot of them on the scale in the Western world in recent years. We've recognized that for some time and have been planning for this over an extensive period of time. We've brought together the expertise that Freeport has around the world in operating smelters. We operate a smelter in the U.S., in Arizona. We have an efficient smelter in Huelva, Spain, that we've operated for some time. We also have an existing smelter in Indonesia that we're in partnership with a Japanese partner that has been very successful. So we've brought to bear all of the expertise in not only looking at construction, and we've had a dedicated team on the construction side who have just done a great job. But on an operational side, we've been standing up this team for some time to be able to run the smelter and train people. We've already got the people employed and brought in expertise from around the world to lead startup. We've planned for it, and your point is well understood by the company. We feel we’re well-prepared for it; with any start-up, you're going to have issues. We recognize that. Every time we've thrown issues and challenges at this team through the construction period and into the commissioning period, we've been able to overcome them. I hope you have a chance, if you haven't already, to look at the video showing really where this – where the smelter is in terms of operational readiness, and we're showing all the various facilities as part of it. We’ve planned for it; we understand it's going to be a different way of marketing our product. In the past, in Indonesia, we've loaded concentrate on a ship and paid the TC/RC and collected our revenue, and that was pretty simple. Now it's got a more complex logistics situation, and we've got a number of products we'll be marketing; the team has been working on this, and we’ve got expertise in operating smelters and marketing various products. We’re well situated for it. In terms of the reporting, it will be reported. It's integrated into PT-FI. It will be reported as part of PT-FI's results; you'll be able to see its operating costs through the TC and RC line on our unit cost. Above that line in the revenue line, of course, we're going to be able to generate higher revenues because we're marketing directly. We have essentially the free metal that will come through to our benefit. We don't have to pay a smelter, the payable factors, etc. So, it will be a piece of revenues and a piece of operating costs, but we'll provide disclosures to help you through that. We won't have the duties any longer. And so that's a sizable benefit as well for our results. Just in terms of the operations and readiness, I'm going to ask Cory Stevens to make a couple of comments. Cory heads up our Engineering Group, our Project Construction Group, our group that deals with operational efficiencies. He's got a big portfolio, not only leading the smelter project but also the leach innovation initiative. Cory just back from Indonesia, maybe you can just supplement what I was talking about in terms of the readiness for operations.
Cory Stevens, Head of Engineering Group
Yes. Thanks Kathleen. Yes. The commissioning work is well underway. It's a number of giant unit processes, and the teams are collaborating between operations and Kathleen mentioned it. But we've got a large contingent of operating folks from around the world, we're calling boots on the ground, and they're all out there together working side-by-side to commission this large project. I mean, it's pretty immense. Just to give you an idea, I mean, there are 45,000 pieces of instrumentation and computer connections that we're verifying, double checking, and running the equipment through the operating ranges to be able to start up. The ramp-up plan, when we go to start this up, the plant wasn't designed to run very slow. So, we end up having to run it at essentially 50% capacity or a little bit better than that right from the start. There are a lot of checks and safety checks going on right now to be able to operate at that level and double check the procedures so forth and then we’ll be able to ramp up from there. The team's energized, it's well choreographed, and has been planned for years, and we're ready to make it happen.
Kathleen Quirk, President & CEO
I want to highlight that at Freeport, when we undertake a major project, we benefit from having a centralized team that supports our operational teams. Unlike some companies that lack this infrastructure to effectively manage the construction phase and transition to operations, we can combine the best talent for executing a successful start-up. While I’m not downplaying challenges that may arise, we have the right individuals in place to ensure a safe and efficient launch. We anticipate starting the first processing of concentrate at the facility in August. As Cory mentioned, we expect to ramp up quickly through the end of 2024. Additionally, we’ll be starting up a precious metal refinery around the same time. A significant amount of planning has gone into this project, it has been executed well, and we expect to maintain that level of execution during the ramp-up phase.
Liam Fitzpatrick, Analyst
That was a very comprehensive answer. So thank you both. Could I just ask a quick follow-up? Is there one item along the critical path over the next few months that you'd highlight that once you get through that, you'll be sleeping a bit easier at night?
Kathleen Quirk, President & CEO
Cory, do you have one on your mind?
Cory Stevens, Head of Engineering Group
Yes. We're taking extra precautions on the second stage of the smelting furnace, the flash converting furnace; there's only six of these running in the world. It's fairly specialized, and we're taking extra precautions there. That is at the heart of what's going to enable the smelter to operate at the levels that we want it to.
Liam Fitzpatrick, Analyst
Thank you.
Bob Brackett, Analyst
Good morning. A question around the gold sales revision. I understand the wet conditions in the Block Cave changed your mine sequencing into maybe a lower gold grade area, but why doesn’t those ounces come back in the plan period? So if you lost 0.2 million ounces this year, wouldn't you argue that it should reappear in 2025 or 2026?
Kathleen Quirk, President & CEO
Yes, it's 150,000 ounces, Bob, and it will be included in our plan over the next few years. It just didn't impact our numbers enough, but it's strictly a timing issue. When we evaluate our overall five-year plan, the changes are minimal. Mark Johnson is on the call; the challenge we faced in the second quarter, which we anticipate may continue into 2024, was due to wet draw points that experienced spillage that we were unable to clean up promptly. It takes time to address these spills. Our remote underground mining system is functioning very well, and the team is developing a remote pumping system to expedite the cleanup process, reducing disruptions in affected areas. It truly is just a matter of timing. Mark, do you have anything to add to those remarks?
Mark Johnson, N/A
No, Kathleen, I think you touched on it. We've been managing wet muck going back to the IOZ, so roughly over 20 years. Some things, as you mentioned, we had some spills that traveled a bit further. So in the GBC, there are some unique material characteristics that we're mitigating. The primary one, as Kathleen mentioned, is the ability to remotely place pumping equipment and pump out the water that accumulates during some of our timely entry criteria. We have a period of time that we wait to get safely back in; what we're seeing is that the water builds up during that period of waiting. By getting the remote pumping in, we'll be able to have it pump before the time is taking place so we can start our cleanup much quicker. One of the things that we did in GBC, that was a bit unique, we built in the additional operational flexibility by developing more draw points than theoretically required to meet the production rate. That’s what allowed us to shift to this other area that had very similar copper grades, but incrementally lower gold grades. Over the five years, that goal you had mentioned is back in the plan. We plan to have this mitigation measure firmly in place in the fourth quarter, and I'm confident we can do that.
Bob Brackett, Analyst
Great. That's very clear. A quick follow-up on sort of the third condition around the IUPK application is commitment for additional exploration and increases in refining capacity. Is that a hard dollar amount that you have to put into the application? Or is that something that you've discussed? Or is that a softer sort of target?
Kathleen Quirk, President & CEO
That would be approved by the Minister of Energy and Minerals. We have been in discussions with the government and have plans to conduct exploration, some of which is currently underway. In the future, we will carry out additional exploration to help identify more resources, which is essential for our extension plan. Regarding the additional refining capacity, we have been engaging with the government, aiming for increased capacity in Papua. Our existing smelter is situated in Gresik, and we continue to discuss further capacity in Papua with the government. The regulation does not specify a particular amount or level of investment; it is more about assessing what is necessary within the country. The goal is to have this capacity located in Papua, and we will be collaborating with the government to evaluate this.
Orest Wowkodaw, Analyst
Hi. Good morning. Just a clarification on the potential IUPK extension. It sounds like you're moving towards giving up an extra 10% in the asset post 2041. Would you receive any proceeds for that, or is that effectively just the cost of the extension?
Kathleen Quirk, President & CEO
The 10%, offering a 10% interest to a state-owned company, and we're talking with MIND ID about their objective to acquire an additional 10%. The discussions we've had to date with the government have involved offering that 10%, and this is coming from FCX's shares, offering that 10% at a reimbursement of our capital costs incurred for the current period through 2041 to the extent that, that benefits the period beyond 2041. It's essentially a book value concept. The rationale for offering the 10% and the mechanism for valuing it have been that the government is granting PT-FI with the extension, and it's a cost of the deal. From our perspective, being able to extend beyond 2041, there's a lot of value there, which if we don't move forward and make investments, we won't be able to accomplish. We felt it was in the spirit of the partnership we have with the government where it's a one-off alignment and a win-win that this was an appropriate way to give us the optionality to have significant value beyond 2041.
Orest Wowkodaw, Analyst
Okay. Thank you. And just as a quick follow-up, it's nice to see the buyback resume here in July. It's been two years, I think, since we've seen any share repurchase. Should we expect that now to ramp up in the second half of the year with the smelter commissioning and ramp-up?
Kathleen Quirk, President & CEO
The financial policy is basically one where we distribute through dividends and share purchases, available cash, 50% of available cash. The smelter investments were not part of that math. So we're financing those separately. The available cash definition really just reflects the flow and less the CapEx that's required for the current operation. It doesn't include the smelter; it doesn't include our future growth investments in discretionary projects that we've labeled earlier. It will be a function of what our cash flows are, and we certainly want to continue buying back stock; however, it will be a function of our ultimate cash flows, and we'll continue to follow that policy. Just as a reminder, we're moving past the hour here, and I know people have been asking more than one question, so please limit to one, and we'll get back to you with follow-ups.
Michael Dudas, Analyst
David and Richard.
Richard Adkerson, Chairman of the Board
Hey, Mike.
Kathleen Quirk, President & CEO
Mike, I think your line is cutting out.
Michael Dudas, Analyst
Can you hear me now?
Kathleen Quirk, President & CEO
I can hear you now.
Michael Dudas, Analyst
Thank you. Your discussions and negotiations with the Indonesian government have been progressing well, as you've indicated today and in previous calls. Could you provide an update on the situation in Peru, Chile, and potentially North America? Specifically, how does this relate to the level of investments you're planning, as well as those of your competitors, in light of the recent volatility and increase in copper prices, and any feedback from government officials about facilitating the supply that the market currently demands?
Kathleen Quirk, President & CEO
I think in South America, there's a strong desire to see more investment; certainly, Peru and Chile both want to see more investment in mining, as it's such a big part of their economy. They are very, very interested. Now you’ve got to make sure you’ve got the community and social matters done in the right way, but there is a strong desire from those to make investments. Chile is going through a process now of looking at its permitting and trying to streamline permitting. We talked about the El Abra project going through a long permitting process, and we're hopeful that this process that the government is now undertaking will allow a streamlining of permits. Both countries want to see more investment in mining. The U.S. as well, you've seen that in recent times with the U.S. prioritizing metals that are critical to the supply chain. The environment for these countries for making investments is more positive than it has been in the past. I want to emphasize the social aspect of this and the community aspect. It doesn't mean that that lowers the bar on our responsibilities for sustainability and environmental management and social good. You’ve got to tick all the boxes, but there is a growing recognition of a need for these metals, and copper is at the forefront of that. We are in a good position; we're in a particularly good position in the U.S. with our current operations where what we're talking about doing is building on existing operations. The permitting requirements are not as extensive for the types of projects we're pursuing as they would be for a greenfield project or projects in Chile, for example. The U.S. is also talking about streamlining permitting and regulatory. We're in a good position; the Lone Star, Safford opportunity that I talked about earlier is one that even though our studies are a little behind where we are in Chile with El Abra, that project will catch up pretty quickly because we don't have the extensive permitting requirements to do that project that we have in Chile. We have an advantage in the U.S. with the existing operations in leveraging our current position. The leaching doesn't require new permits. We're in a good position to bring on projects more quickly than maybe others could.
Richard Adkerson, Chairman of the Board
Years of dedication to doing the right thing and building relationships have resulted in strong support from communities, Native American groups, state governments, and regulators in the U.S. The same applies to our Cerro Verde project in the Arequipa region of Peru, which can be quite challenging politically. However, our efforts to support the community have proven beneficial. In Chile, our 49% partner at El Abra, CODELCO, is eager for us to progress and provides strong support. We have cultivated a relationship with a key figure and will participate in a panel with him at APAC and Peru this fall. His perspective has shifted significantly since his initial election as he recognizes the need to bolster the mining sector in Chile. This is a crucial aspect of our business globally. We gained valuable insights from the early development of Grasberg regarding the importance of maintaining good relationships with indigenous populations and the central government. I take pride in our team's achievements, and we remain committed to seeking common ground and conducting our operations in a responsible manner.
Lawson Winder, Analyst
Operator, thank you very much. Kathleen and Richard, hello and thank you for taking my call. I'll keep my question brief. I wanted to ask about Kucing Liar, which is a significant high-return project for you. Could you provide an update on when you expect first production? Additionally, what is the anticipated pace of spending? This project has a budget of $4 billion, and I understand that around $400 million has been spent over the last two years. When do you expect spending to increase? Thank you.
Kathleen Quirk, President & CEO
Lawson, you're right. It's like our other projects, long-term development, Grasberg underground blockade, the capital is spent over a multiyear period. In our projections, we show that we'll start ramping up spending in Kucing Liar as we go forward. The average of $400 million a year over a 10-year period; we’re spending a little bit lower than that, and that will begin to ramp up, and we’ll have some years where it's higher than $400 million. There may be additional development in that $4 billion that will occur after we start. We are expecting a start-up KL towards the end of this decade in advance of 2030. It is a very large scale, 90,000 tons a day of ore and significant copper and gold production from that deposit. A real benefit of this extension beyond 2041, is the resource is much larger than what we'll mine between the late 2020s and in 2041. We did the economics, and they paid at just the life that ends in 2041. There’s a lot of resource beyond that, that will come into the fold with an extension. It’s a great extension of Grasberg. It’s in that district. We’re leveraging everything that we've learned from developing the Grasberg Block Cave and Deep MLZ, and prior to that, from our other ore bodies. We're in a good place here and feel good about our execution of this project over the next several years, leading into 2030, where we'll have good production coming from this operation.
Brian MacArthur, Analyst
Good morning, Rick. Good morning, Kathleen. Thank you for taking my question. I just want to go back to this 10% on the IUPK. I just want to confirm, A, until 2041 you maintain your 48.76%. I think that’s what I understand is that it's 10% thereafter. But then two, on the capital, do you put it all in for 2041 and then get it back? Or is this going to be more like for a while at Rio, where as you develop reserves and their ownership goes up, that you share the cap in different ratios like we saw that said, with the Rio Tinto stuff historically? I'm just trying to figure out exactly how the cash flows are going to work on this.
Kathleen Quirk, President & CEO
Yes. As part of the application to the government for the extension, we will submit an agreement to make the transaction. That agreement is currently being discussed with MIND ID. What’s been discussed over the last couple of years regarding this, or the last year plus, is the way it will work is the 10% share transfer will take place in 2041. The price paid at that point will be a reimbursement of the capital that was incurred between now and 2041 that benefits the period beyond 2041. To the extent, it's not like the Rio Tinto deal at all. It's basically just a reimbursement at book value of what's there to benefit the period beyond 2041. So essentially, look at the book value at the end of 2041 and that pro rata percentage; 10% of our shares will be transferred, and the purchase price will be the reimbursement of capital. The cash flows between now and 2041 won't be impacted by it.
Richard Adkerson, Chairman of the Board
And Brian, that transaction occurs after 2041. It's not like the Rio deal where the transaction occurred in the mid-90s, and it was just a question of how it was applied. If for whatever reason it doesn't occur, then our interest will stay the same. It's anticipated that the government would act to acquire that 10%, and that would be the agreement on the cost reimbursement that gets triggered when that transaction occurs.
Bill Peterson, Analyst
Hi, Kathleen and team. Thanks for taking the question. Nice to see the doubling of the leaching in the first half of 2024 relative to the first half last year. Looking ahead, how should we think about the trajectory from here? Do you expect to be at a similar output as the recent quarter, 55 million pounds or some of the productivity items you highlighted, such as using technology, to see further upside in the back half of the year and into 2025 as you progress to the 300 million to 400 million pounds per year target in 2026?
Kathleen Quirk, President & CEO
The current run rate is what's in our numbers. We do see opportunities to build on it through these initiatives that we're pursuing to move up to this 300 million to 400 million pound per annum range. It will come over time. It's not going to come in all at once. As we go through this year and next year, we'll probably have more than what we've currently got in our plans. We haven't put forward; we're still deploying these tactics; we feel very confident about them, but we haven't put those into our numbers at this stage, and that will be something that we'll continue to update as we go forward.
Operator, N/A
With that, I'll turn the call back over to management for any closing remarks.
Kathleen Quirk, President & CEO
Thank you, Regina, and thank you everyone for your interest and participation. If you have any follow-ups, feel free to contact David.
Operator, N/A
Ladies and gentlemen, that concludes our call for today. Thank you for your participation, and you may now disconnect.