Freeport-Mcmoran Inc (FCX) September 2026 Conference Transcript

All right. Why don't we get started? Kathleen, probably most of you are familiar with her. Kathleen Quirk is the president and CEO of Freeport. Thank you for being here. We've done this now for several years. It's always a pleasure to host you and have this conversation. So maybe why don't we start with some introductory comments, maybe something that you want the audience to take away for sure today, and then I have some Q&A. Perfect. Great.

Thank you, Carlos. And thanks, Morgan Stanley, for hosting this conference. We enjoy being here every year and look forward to the continued engagement with the investors here. There's a lot of interest in what we're doing at Freeport. We've got a big agenda going on. Copper is our focus, and we're working. We're entering a new period here of growth. We've got some key initiatives that we're pursuing. One is the recovery of the Grasberg, which is going very well, and we can talk more about that. We've got a very exciting growth profile in the U.S. that we're pursuing. We've got brownfield expansion opportunities that we're moving forward to make a decision on in the U.S., as well as a big investment or big opportunity we have in technology. We're leaning very heavily into innovation and technology, which will allow us to capture some value, some significant value associated with processing of above-ground material that is ripe for Freeport to take advantage of. So that's a big initiative. And then we've got growth also in South America. So it's a very exciting time within our industry at Freeport. In the near term, our focus is going to be on growth in the U.S., where Freeport enjoys a very advantaged position as being America's copper champion, where we supply about 70% of the copper that's produced in the U.S. comes from the Freeport operations. So, anyways, great time to be in copper. big challenges, because as we look forward, we see a world that's becoming more copper intensive with electrification, and it's up to us to continue to be able to supply that market efficiently and reliably, and we're up to the challenge, and that's what we're going to do.

I mean, that sets the stage very nicely for the conversation. But maybe before we get into company-specific, on the copper market, I think everyone understands very well the demand story. Electrification of the wall will require a lot of materials, and certainly copper is one of them, maybe at the top. But on the supply side, this is what I would like to explore with you. We have had a series of issues in the last 12 to 18 months that have reduced production. But also, prices have now been elevated for quite some time, and yet the supply response is taking a lot of time to arrive. What do you think that is from a company perspective? What is delaying the sanctioning of new projects?

When you look at our industry and go back historically, there have always been, it seems, periods of time where demand is accelerated and there are supply responses. There have been projects waiting for the opportunity to develop when demand accelerates. This time, we don't have that. I think you start with one of the issues for copper supply is that discoveries, major new discoveries of new resources is extremely rare. And so you don't see constant replenishing of projects because there aren't significant new discoveries. When you do have a discovery, it can take two decades or so to be able to develop it. So there is a real challenge now with a lack of greenfield opportunities. There are a number of projects that the industry is pursuing, and you've seen a lot in Argentina and different places, but we don't have the pipeline of projects that we once had in the industry. So copper prices could go, you know, you've seen copper prices go from $4 through $5 through $6, and to your point, not a near-term supply response. So what it's going to take for our industry, there's still a lot of copper out there, and what it's going to take for our industry is to be more innovative. And you've seen, at the same time, you've seen inflationary pressures. So it costs a lot more to develop a major new copper mine than it used to cost. But it's going to require us to be more innovative. And so what we're doing at Freeport is working on technology and other innovative opportunities to recover more of what we have. And we still have a lot of copper within our operations that, for various reasons, hasn't been recovered. The technology wasn't there to be able to recover all the copper out of the ore. And so one of the things we're doing is investing in technology to get us there. We're also investing in brownfield opportunities. Those can be done more quickly with less risk than a greenfield development. And so I think you're going to see not only Freeport, but others in the industry start to work to get the brownfield projects moving. But the fundamentals of copper, you know, in my view, as we look forward, have not been this strong in some time. Over the past 20 years, you've seen demand grow. So most of the growth has come from China in terms of demand drivers over the past 20 years. Now, with what you referenced in terms of the electrification, all of the power and energy infrastructure that's needed, it's more broad-based. And so we're going to need to work hard as an industry to find new ways of developing supply on a cost-effective basis in light of all the inflation we're seeing. But at Freeport, we're up to the challenge, and we've got a number of levers that we're working to pull.

You mentioned innovation and Freeport, and I wanted to get into that discussion. The leaching projects that you have, obviously, will give you that, will give you volume, will give you low cost. You have, I think, a target of 300 million pounds this year and a long-term objective of maybe getting closer to 800 million pounds. What is the roadmap to take us there? Any updates, any latest developments on how that is going?

Yeah, thanks. So this is a very exciting and ambitious undertaking for Freeport. In recent decades, really starting in the 80s, there was a technology developed that allowed companies to extract copper from a process we call leaching where solution is used into, released into the ore and you can recover copper and actually produce copper cathode directly and that was effective for some time but over time the amount of production available from leaching started to decline and that's because you only get a small portion of the overall recovery through this process using historical technology. You may only get 30% of the copper that's in the ore recovered using oil technology. What we've been working on at Freeport is using new technologies to recover more of that copper. And so we've been at it for the last few years using some different operational tactics initially, and now we're starting to get into deploying some of the new chemistry that we're applying and other initiatives that we're applying to these stockpiles to recover even more copper. So when you think about it, having 800 million pounds a year from ore that has already been mined and we're essentially just reprocessing. It's not a capital intensive initiative. It's low incremental operating costs because you've already incurred the mining costs. So this is essentially reprocessing material. and you have the ability to do it at scale. Now, so far on our journey, we've gotten 200 million pounds a year roughly out of the 800. So we've still got a lot more to go. And so what we're doing now to be able to scale it, as Carlos says, we're working to get to a run rate around 300 million at the end of the year. so that would allow us to increase our production, increase the scale. We're doing two things, really. We have been working to qualify a new additive, a new reagent, chemical reagent that we could apply to these stockpiles. The one we're using now that is a new technology was readily available, and so we procured some of it and started testing it, And it's providing some positive results. But there are two additional additives that we've been working on in our laboratories, which is showing multiples of the recovery potential compared to the one we're using now. So we had to specially go and get this material procured and manufactured. And so we've been working with various chemicals manufacturers to manufacture the products. And now it's on order, it's being manufactured, and we expect to get it at the end of this year and early into next year, which will allow us to start deploying it at scale in the field rather than just in a lab. So that has enormous potential. It's not proven yet. It's proven in a lab. It's got to be proven in the field. But once it is, and it's a huge amount of value we're unlocking. And so the second value driver for the leaching initiative is around increasing the temperature of our stockpiles. We've got 40 billion pounds of copper in our stockpiles. We know that copper reacts more favorably when it's under high temperature. And so we're working to put higher temperatures, actually starting to heat solutions before they're injected into stockpiles, And so the new additive plus the heat technology will allow us to, we think, scale materially this opportunity. It's not a slam dunk. You know, we're proving, we're having to prove new technologies and new ways of doing this process, but the reward is tremendous. And so we think, you know, based on our modeling to date of what we've been able to achieve in our lab and applying that to the field, we think we have the opportunity to go from 200 million pounds to 800 million pounds within a three-, four-year period. And when you think about that, that's the size of a major new copper mine.

And how much of the incremental volume is embedded in the guidance for 2027 or 2028?

We don't have a lot of that in there because we need to prove it to ourselves as well. So we're confident in the ability to scale this to the 300 million pound level. That's in our guidance for next year. But beyond that, we want to see how these field testing work comes together, how the heat trials work. So we've got upside in our guidance numbers, but we've got to get the results in. And, you know, over the coming quarters, we should have better results to communicate to you. But a really, really significant opportunity. It's a competitive edge of Freeport because we have all this experience in terms of leach processing, but we also have the inventory. As I mentioned, we've got 40 billion pounds of copper that's above the ground. It's already been mined, and we just need to find ways to recover more of it. And the technologies are evolving so quickly, so it's exciting. It's going to take this. It's going to take these kinds of technologies to meet this demand that you're talking about that's coming from all these new sources of electrification, which copper is key. Copper is very key when it comes to electrifying the world, which we're doing.

And obviously you mentioned, you highlighted the point that you have already mined these materials in the stockpiles. So there is a cost advantage to process those and turning them into copper. Tina Company has mentioned something around $2.50 per pound in cost maybe in 2027, 2028. How are you tracking toward that? Or is there a lot of volatility on raw materials, diesel, oil prices, and whatnot? But I think a question that oftentimes we discuss with investors is why, even though you're already producing 200 million pounds, why costing North America maybe haven't necessarily reflected that? Can you elaborate on that?

So what Carlos is referring to is our U.S. business is higher cost than the rest of the places we operate. It's very efficiently run, but the reason why it's higher cost than, say, South America or, of course, Indonesia is because the grades that we mine in the U.S. are lower than the assets are more mature. The grades are lower than we have internationally. So we have to be, you know, in terms of running our U.S. operations, we have to be extremely efficient. And we've been investing in automation. We're investing in different technologies to help us bring down our costs. But importantly, you know, while our costs in the U.S. might be $3 a pound on average, and we have a goal to get that down to the $2.50 range, When you think about the margins and the bottom line contribution, particularly in the context of today's copper market, you're talking about a copper market where prices are above $6, roughly $6.50 per pound, that margin in the U.S. essentially drops to the bottom line. So it's very impactful. We don't have the level of tax burdens and non-controlling interests in the U.S. that we have in other places. So, you know, when you look at our results, our recent results, the U.S., while it may be our higher cost market, really contributed more than half of our bottom line net income. So in this kind of copper market environment, the U.S. has a lot of very significant earnings and cash flow leverage. But we've been working to bring down, to your point, we've been working to bring down our costs in the U.S. In roughly $3 range, we've been targeting getting the $2.50. We thought we were on the verge of driving to that level in 2027, and that was more in an environment where inflation had moderated. but we've just now moved into some headwinds with energy and particularly diesel prices and some other areas like sulfuric acid, other parts and supplies, et cetera, that will start to bleed in. But fundamentally, we're still looking to drive costs lower than what they would otherwise be through these initiatives, through this innovation and technology initiatives. And when you think about the fact that we've already mined the material, the incremental cost of bringing on the new copper unit is low relative to the average cost. So, so far, this 200 million pounds has been incrementally a cost of less than a dollar. And Carlos is asking why our average is still $3. And that's because we continue to fight the lower grades. But as we scale from here, as we scale more production from this innovative leech process, as we get more efficient with our U.S. operations, I think you'll see costs trending more positively. We've got headwinds with energy prices that we've got to deal with. But we're making great strides in the U.S. business. And again, you know, coming right to the bottom line, every dollar that we save in cost goes to the bottom line, as does the revenue. So that's what we're focused on is creating more value from our U.S. business.

And maybe before we go to Indonesia, given this leverage that you have, operating leverage that you have in the U.S., what can you tell us about Baghdad expansion? I think the economic break-even for the operations, the projects around $4, we're at $6.50. How is the progress towards a final investment decision going, and what are the key challenges that you envision as a company to develop this project?

So what Carlos is referring to is a very exciting brownfield investment opportunity we have at a mine in the U.S. that's probably a couple of hours, two, two, two and a half hours away from our headquarters in Phoenix. It's a mine that's been around since the 1940s, and the reserves of this operation have grown to where the current processing capabilities are undersized relative to the size of the resource. So we've been studying for some time the opportunity to do a major expansion at this mine, and it does require a copper price, an incentive price, to earn our cost of capital of at least $4 a pound. And so we've been monitoring it. We've been monitoring this overall capital cost inflation that the industry is dealing with. we've been monitoring the availability of skilled trade in this area to be able to execute the project construction so whole things we've been doing in terms of studying we've been looking for creative ways to execute the project we in fact in terms of this labor tightness that I talked about we converted that mine's haul truck fleet all too autonomous recently so all the trucks that we operate haul trucks that we operate, the big haul trucks we operate at that mine are all being run without drivers and that's a technology that we look to adopt that we'll adopt across the U.S. but it was our first U.S. site to adopt that technology. We're looking at how we can maybe build some of the components of the expansion off-site in areas where there may not be as much tightness in terms of labor, so we're working on those kinds of things. But we're competing also with others that have deep pockets and looking for skilled trade as well. They're looking to build data centers and other energy infrastructure in the region, And so we're competing for labor with those markets as well. But we've got a plan outline to take to our board later this year and very excited about the opportunity to invest in this operation. It would become the second largest copper mine of any copper mine in the U.S. It would importantly provide economies of scale, break down its operating cost structure by having more economies of scale and allow us to have a more resilient operation there and profitable operation. And so we're excited. We're nearing the point where we think we can bring it for a final decision and hope to have a positive green signal of this one by the end of the year.

All right. And then moving to Indonesia, about a year ago, right before this conference last year, Unfortunately, Freeport had a terrible situation in Indonesia in the underground mining there. Can you walk us through the turnaround? Where do we stand right now? What are the milestones that we need to look for in the next few months?

So around this time last year, we did have an incident in our Grasberg mine. We've been operating in Indonesia for 60 years, almost six decades. and have had a long and successful track record there the incident was unprecedented and we conducted an investigation we now understand what what the factors that led to it were and have put in place remedial activities to to address the risk of what it was actually a mud rush external mud rush that came into the mine. But we've done a lot of work. We've made tremendous progress over the last year. We've restarted production in some of the smaller areas initially, but then earlier this year we started production at a larger scale in the Block Cave, Grassberg Block Cave. And you probably saw in the second quarter the performance. where the ramp-up reached a, essentially doubled during the second quarter. And so we expect to be at roughly 65% of capacity in the second half of this year. We're tracking well. What we're doing now in order to get to full capacity as we go into 27 and by the end of 27, is we're putting in place some additional upgrades into our materials handling system, the rail infrastructure at this site that will allow us to really be able to deliver any type of ore that we might encounter during the mining process. So made really good progress there. Again, this is a very high grade, So we're producing a lot of high-grade copper as well as gold, very attractive cost structure, very significant margins, and we're looking to return to normal operations there. The team really feels like we're there in terms of the milestones. We've de-risked the plan significantly once we started the production again in a grassberg blockade we've been ramping up according to plan the conditions are are good our people are are in in in strong um strong morale and um and and the accomplishment there and in this recovery has been very impressive over the last several months and we're going to continue that it's a it's an important asset for freeport and one that's um driven a lot of value in the past will drive a lot of value in the future. And a lot of people want to ask about Grasberg, but we also have, you know, diversity within the company. As I mentioned, we've got 50% of our earnings and net income to the bottom line coming from the U.S. now. So we've got great diversity within the portfolio, but we expect to continue to drive value in Indonesia as we go forward.

And maybe staying with Grasberg and the turnaround process and the ramp-up, is there a possibility of an accelerated ramp-up given the dry conditions that Super Nino brings to Indonesia in particular?

A lot of people have asked about that, and actually, you know, if you look at weather patterns all over the world, you know, it has caused some disruptions within the industry, not specifically to free pour, but within the industry, particularly in South America. But in Indonesia, it's been a really dry period, as Carlos said, and that's good for the mine. And so when you look at the moisture levels within the material that we're mining compared to where we were earlier in the year, it's much, much easier to mine, much different now, much better. And that's two factors. One is the dry conditions. The other is the fact that we're mining at a greater scale. But in terms of the overall, you know, change in the weather, it really hasn't affected our ramp-up. We're going to still do this upgrading that we talked about doing so that we have a robust situation system that will work in any kind of weather condition. So I don't want you worried about checking the weather every day in Indonesia because we'll be prepared for any type of weather conditions, which we have had to address in the past.

Perfect. Maybe on the smelting side in Indonesia, you have now the two smelters. You have some restrictions on what type of material you can export out of the country. What is right now the status with the two smelters, the production there, and your shipments out of the country?

Yeah, so two smelters in Indonesia. One smelter, we built a new smelter in recent years. We were not operating it because the ramp-up was occurring. We've just restarted that smelter. So just at the end of August, we're now operating two smelters. You might have read some news about one of the smelters having an operational challenge, but that's been resolved. And so we've now got two smelters operating. The new smelter is ramping up. We're still going through our startup process, but that's all going well. Smelters are difficult animals to start up, but I'm very happy with how the team is performing there. One of the things about Freeport that's interesting and the governments around the world really like is the fact that we're fully integrated. So not only do we have a significant amount of product that we mine, we also have processing capabilities for when you look at our balance, we've got enough processing capacity to process everything we mine. So we're fully integrated, strategic in terms of not only mining but also producing the finished product, which is so important as governments and consumers around the world are looking at supply chains and security of supply. Freeport is very strategic in that it's processing essentially all the copper that it mines, and so that's been a big plus. And particularly when we look at, you know, what the U.S. is trying to do in becoming more self-sufficient when it comes to copper, Freeport plays right into that because Freeport is supplying 70% of the copper that is produced in the U.S. is coming from Freeport's processing. So smelters are an important thing in today's world a lot. When you talk to policymakers, they want to know not only what you're mining and where your mines are, but where are your smelters. And so that's a strategic advantage that Freeport has.

I'm talking about government. My next question has to do with what happened last week. A little bit of a headline with not a lot of substance, but the copper price as well as the equities really suffer on that one day. What are you hearing? What are your expectations regarding a potential Section 232 tariff on copper cathodes? The downstream products already are protected with the tariff, not the cathodes, and everyone was surprised by the news. What is your interpretation of what is happening?

Yeah, so I don't think there was anything new in the news report from last week. It basically said the government has not made a decision yet, which we all knew the government had not made a decision yet. But as Carlos was saying, our downstream products are being tariffed by as much as 50 percent. and there was a recommendation from Commerce from some time ago that pointed to a recommendation of having a tariff on copper cathodes, which is the product we produce, of 15% beginning in January of 27, moving to 30% in 28. that hasn't been that recommendation has not been it was it was scheduled to be reviewed again june 30th and and so that hasn't been decided on but that's the government policy and we'll wait to see what what the government does decide but there are as you mentioned tariffs on on the downstream and the news last week you know you know you saw a market reaction to it but it really wasn't anything definitive. It just was the government hasn't decided. So we'll just have to wait and see.

All right. And then talking about the smelters, it's a challenging business. Returns on investment are not necessarily the most attractive. But what is a free process strategy around smelting in the U.S.? If you approve Baghdad, your concentrate corn production is going to also increase. Would you be looking at But expanding your smelting capacity, potentially the government could help with the funding. What is the board thinking?

Well, I think the first step is to move forward with the project in terms of the mining side of the project. We're currently balanced in the U.S., so we have enough smelter capacity to process everything we produce in the U.S. We also leach a lot. So we process everything, for the most part, that we mine in the U.S. domestically. But if we do go forward, when we do go forward with Baghdad, I would say that we would look at the expansion more from the perspective of it's an integrated system. So we strategically, not only do we process the copper into cathode, But then we use the acid, which is valuable to us, the sulfuric acid, to make more copper, cathode. So it's strategically valuable for us, the whole system. So we'll look at it. We'll look at whether there are any incentives to take advantage of. But the first step would be to get moving forward on the mine production, and then we'll see what it might mean for additional smelter processing in the U.S.

We've basically run out of time, but I do want to ask one last question. You have been paying a dividend, the base dividend plus the special dividend. Now you restarted your share buy back program, and you might start approving some projects in the near future. How is the company going to balance investment in growth as well as returning money to shareholders?

Well, we have a framework where the policy is to take half of the available cash, discretionary cash flow, and return to shareholders and half for these investments in future profitable growth that Carlos is referring to. And so that's the policy, really, that our board approved and that we're following. We've got a very strong balance sheet. And so this really is, we look at our cash flow and capital allocation. We're looking to grow the business at the same time as returning cash to shareholders. If we get into what we're in now, where you've got very strong markets, that continues. And I mentioned this thing about the U.S. business and how much leverage we have at the prices. If markets change dramatically, we may have the ability to return more to shareholders if we don't have, you know, near-term projects to invest in. So that will be, you know, a nice problem to have. And our board has been one to return cash to shareholders in the past and we'll look to do that in the future. But we want to grow as well. And the world needs what we produce, you know, more than ever. And we want to continue to invest in the business for long-term profitable growth as well.

Well, fantastic. Thank you very much, Kathleen. I'm looking forward for that. We appreciate you here. Thank you very much.