費利浦·麥克莫蘭銅金 (FCX) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the FCX fourth quarter and year-end 2002 earnings conference call.

During presentation all participants will be in a listen-only mode.

Afterwards we will conduct a question and answer session.

At that time if you have a question, please press the 1 followed by the 4 on your telephone.

I'd now like to turn the conference over to Mr. Richard Adkerson, president and Chief Financial Officer with FCX.

Please go ahead, sir.

Good morning, everyone.

Welcome to our call.

I'm here with the chairman and chief executive officer James R. Moffett.

Our earnings release was announced this morning.

Available at our web site FCX.com.

And we are broadcasting this conference call live on the Internet.

Anyone can listen by going to the FCX.com and clicking for the conference call.

We also have several slides this morning.

It's the first time we've used these in our quarterly conference calls and we'll refer to the slides during the call.

You can access the slides on the webcast link by again going to FCX.com and following the links to get to the slides.

In addition to the analyst and investors who are participating today, members of financial press have been invited to listen to today's call.

A replay of call will be available on the web site later today, and you or your associates can listen to it then.

As we do at each call, we refer to a cautionary statement which is on page 2 of the slides.

We'll be talking today about some forward looking information relating to various aspects of our operations and financial performance.

Of course there are a number of future factors that can be predicted that might affect this.

We've listed some risk factors as we're required to do on our Form 10(k) that's filed with the SEC.

So you can refer to those.

And we encourage everyone to follow our filings, our filings with the SEC.

So, with that, we'd like to begin by reviewing our fourth quarter and the year 2002.

It was a very good year for us.

We had strong performance in the fourth quarter and throughout the year.

We had record copper sales of 1.5b pounds, and this was what we anticipated at the beginning of the year.

At that time we had expected to produce roughly 2m ounces of gold.

Our actual gold sales for the year were 2.3m, 2.2m ounces.

There were 2.3m ounces throughout the year.

Our operations performed admirably, particularly here in the second half.

Set a number of operating records for the year.

Our unit net cash costs were below 8 cents a pound, which maintains us by a significant margin as the lowest cost copper producer in the industry.

And even with another year of low copper prices, we were able to generate very substantial cash flows by matching our strong volumes of copper and gold with our call structure.

And we reduced our debt by 278 million for the year.

We again added to our oil reserves for the year.

And we'll conclude our presentation by looking into 2003 when we expect to have another strong operating year.

For the year, we averaged 71 cents a pound for copper and $312 an ounce for gold.

This generated $127m of net income, well over last year for the year. 64 cents in the fourth quarter, 87 cents per share.

Very strong cash flows.

Our EBITDA for the year was over $900m.

For the third year operating cash flows were over $500m.

And as I said, importantly, as we are focusing our financial strategy and reducing our debt level, we reduced our debt by $278m for the year following $258m last year.

So well over $500m debt deductions for a two-year period.

Yesterday we announced that we will be undertaking a senior note offering of at least $250m.

On slide number 5, we have the structure of our company's debt, which, together with our redeemable preferred stock, totaled under $2.4b net of cash at the end of the year.

That includes $600m of convertible notes that we issued just over 18 months ago, which have a conversion price of just over $14 per share, well under today's share price.

Those mature in 2006 and are callable in mid 2004.

Next year we have two maturities that we are planning to deal with.

In November, the first of our two issues of senior notes which total $450m, $250m issue of that has a quip requirement next November.

Under the terms of our bank of credit facility, we will be able to use our cash flows that we'll generate next year.

And our availability of bank credit facility to fund that maturity.

In August the first issue of our gold preferred shares had has a redemption date.

And we have signed an amendment with our bank group that would allow us to in effect use proceeds from the bond offering to fund the cash requirement for this security.

It has a $2.32m plus book value at today's gold price.

The cash requirement next August, if that were to be the gold price then, would be about $210m.

So it's less than book value.

And we also have the opportunity to talk with those holders about potentially extending that.

Our bank debt at the end of the year is down to $279m.

And you may recall that our bank debt going into 2001 was $1b.

So we have made significant progress in generating cash flows and developing a maturity schedule that we're very comfortable with.

Slide 6 shows once again we added to our reserves for this year, adding both to our copper and gold reserves.

We show the aggregate production which includes the [Rio tin toe] partnership shares and joint venture share operations, as well as our company share net of Rio tin toe.

At the end of the year we have roughly 40b pounds of copper reserves.

We started the year with almost 60m ounces of gold reserves.

Then we're producing at 1.4 to 1.5b pounds of copper a year, and two 2.5m gold ounces a year to our interest.

Which demonstrates our long our reserves are and at a very low cost position.

Slide 7 shows actually what our reserves have done .

Since 1997, that was the year we completed our $1b four concentrator expansion.

Which essentially brought -- did bring 1m mine infrastructure operations to a fully developed state.

And since that time, we have had production to our interest, over 7b pounds of copper and about roughly 11.5m ounces of gold.

And yet our copper reserves are substantially higher than they were the beginning of the period.

Our gold reserves, we've replaced our production with that.

This just reflects the very significant over body we have.

And the ability that we have through our exploration and area immediately surrounding the [inaudible].

Both with our open pit operations and underground, we continue to add reserves.

And we fully expect to be able to continue to do that as we go forward.

We will look briefly at our outlook for 2003.

And on slide 9 you can see that we've updated the five- year forecast that we presented at our analyst meeting in November.

To give our five- year outlook for copper and gold sales.

As we mentioned in the past, the Grasberg ore body on an annual basis has relatively consistent copper production.

And you can see that our copper production over the next five years is expected to reflect that consistency and average 1.4b pounds a year.

The gold production varies because of the high grade core of the Grasberg which has high gold grades.

And depending on our ability to access that at any given year, our gold production varies somewhat.

But we will be averaging 2.3m ounces of gold for the five-year period.

And we had a strong gold year the last two years.

And we expect to have a strong gold year next year with producing 3.3m ounces of 2.6 million to our interest.

Slide 10 gives you our outlook for 2003 on a quarter-by-quarter basis.

In comparison with our quarterly copper and gold sales for 2002, you can see the copper production from 370m pounds to 320m pounds totaling 1.4b for the year.

We produced 430m ounces in the fourth quarter.

We expect to produce 415m ounces.

As I mentioned going into 2002, we expected 2m ounces of gold.

We achieved 2.3m.

Looking forward, we're looking at 2.6m again for our interest.

The fourth quarter exceeded our estimate.

We gave you at the third quarter call of 630 to 678 ounces.

All of this reflects the ability of our operating team.

And working with an ore body with this kind of high grade to develop operating plans.

And operating tactics that allows us to maximize the copper and gold we produce out of the ore body.

And we'll continue to work at that.

The slide on page 11 demonstrates the point that I just made about the varying grades within the pit of the Grasberg ore body.

Essentially reflects the high grade ore of gold in the ore body.

And shows, as we work over time and mine the pit in symmetrical fashions, that in various times we'll have relatively roughly more or less of this high grade center.

Which explains the variability in our annual goal gold sales.

We feel very confident, though, in our ability to give you guidance on volumes.

As those of you who follow us in the past have noted, we typically have been able to produce.

And sell higher amounts than we predict, but we're very confident about both our volumes and our cost structure based on the drilling that we've done in the Grasberg.

And our experience that we've had in operating since this discovery in 1988.

Our cost situation in 2002 is presented on page 12.

Our unit site costs decreased from 39 cents to 36 cents a pound with copper reflecting the strong volumes that we've had.

We had strong gold credits, and for the past two years we produced less than 10 cents a pound.

Next year looks particularly attractive to us because of the high gold volumes that we're producing.

And at gold prices and in this analysis, we look at gold prices averaging current levels for $350 an ounce.

We would be actually having gold revenues that would exceed our cash cost to production.

So we end up with a net credit of 7 cents a pound, since our gold revenues will be higher than our costs for the year.

And the chart on page 13 gives you an array of what our cost structure would be on the unit basis at varying gold prices.

You can see the 7 cents at today's price, and even if the price were to go down to $300 an ounce on average for the year, our revenues would essentially equal to our costs.

And at $400 gold, we would have a net credit of 17 cents a pound for every pound of copper that we would sell.

Matching the cost structure, operating cost structure and the cash flows with our capital expenditures, again, just demonstrates our strong cash flow capability.

As I mentioned, our Grasberg ore body is essentially totally developed.

In the first quarter we'll be completing the D.O.

Z project which has been increased from 25,000 tons per day to 35,000 tons per day.

Very high return rate project.

That will be the last required mine development that we'll need to match underground ore with our Grasberg pit for the remaining life of the pit.

From that point forward we'll be looking at sustaining capital costs.

You can see at $110m a year basically on average.

Page 15 shows the details of our capital expenditures for next year.

The two main projects that we're completing are the [D.O.

Z] project which was $18 million.

It was roughly originally a $240m project with a $35m increment to go 35,000 tons a day.

We're completing that in the first quarter.

We're also completing the [inaudible] handling system.

So you back out roughly $40m of project completed and get down to our sustaining cost.

While we predict cost and volumes, prediction of prices is something that's in your court.

We're giving you some guidance on how to adjust our cash flow numbers based on our current structure.

For every $25 change in the price of gold, there would be a impact on our earnings and cash flows of $33m or 22 cents a share.

For every 10 cents change in the price of copper there would be a $70m impact on earnings and cash flows with the 48 cents per share.

So you can easily model our business.

And we always like to close our presentation by focusing on how strong the value is of our asset.

And we do that with this chart in which we show a marker value of copper reserves in the ground of 10 cents a pound.

Which is a number that's validated by the equity trading values of copper companies and what companies have been paying for copper in the M&A market.

And looking at what companies have recently paid for gold reserves in the ground, about $100 an ounce plus.

That would indicate a value of our company on a per share basis in the mid $30.

Just based on our proved and probable reserves, well above today's share price.

And we are working very hard to maintain these values to be able to move towards a market valuation of our company.

And we believe our performance this year is a positive step in that direction.

With that, Jim Bob, I'll turn the mic over to you.

I'm not going to really expand on that.

The results speak for themselves.

What I'd like to do -- what I think would be more productive is to open it up for questions.

And see that all the good information that we've provided, whether we've got any questions that we haven't answered in our presentation this afternoon.

Great, Jim.

Operator would you please open the line for questions?

Thank you.

Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone.

You will hear a three-tone prompt to acknowledge your request.

If your question has been answered and you'd like to withdraw your registration, please press the 1 followed by the 3.

If you are using a speakerphone, please lift your handset before entering 'request.

One moment, please for the first question.

First question will come from the line of Wayne Cooperman with Cobalt Capital.

Please go ahead.

Hey, guys, how are you?

Good morning, Wayne.

The 41 cents -- is that after the 2 cent currency hit or is that before that?

That's after.

That's our net income.

So it's 43 cents minus 2 from the currency adjustment?

That's correct.

Secondly, you guys do like -- I guess the prices of the commodities were a lot higher at the end of the quarter than the beginning.

Do you guys do like adjustments after the fact?

Or you don't do that?

For our gold sales, Wayne, they get recorded basically at the price at the time of shipment.

Our copper sales are priced over a period that extends about three months.

So most of our -- we priced our open pounds, and that would be most of our fourth quarter production at the price that was in effect at the end of the year, and that was 70 cents.

The upward movement in copper prices to 75 cents occurred in January, after the year-end.

So we basically priced our fourth quarter sales at 70 cents.

If prices were to remain at 75 cents, that adjustment would have happened in the first quarter of '03.

There is some adjustment in the first quarter.

That's right.

And that would be determined on the price of copper at March 31st.

Great.

Could you talk a little bit more about the senior note issue, what that does for you?

And does that remove any covenants with the banks or anything like that that we can do more things going forward?

The senior note issue was part of a $450m note issue that we issued in 1996 when we were an investment grade rated company.

And it had very limited covenants.

So repaying that in November does not really –

[inaudible].

What we're working towards, and if you look at the ability -- we're talking about, again, with the today's copper prices and our outlook for volumes and costs, of generating $375m of debt reductions next year.

That would add up to $800m of debt reductions over the past three years -- $900m.

So we will have our bank debt if prices stay at this level, and obviously if prices go higher that would generate more cash.

But we would be -- our bank debt would be at a low level.

And during this period of time we'll be talking about -- as we mentioned in the past, restructuring our credit facilities to remove some of these restricted covenants that we've had.

Right.

I guess specifically the $250m that you guys announced to pay down the bank debt -- did that do anything by itself?

Or that's just part of a process?

That's part of the process.

Right.

Congratulations.

I don't suppose you guys would want to opine on your gold and copper forecast for '03?

Well, once again, Wayne, we try to give you our volumes.

And all you guys on Wall Street are a whole lot better predictors than we are, so we kind of let you do your own thing.

Okay.

Thanks.

The next question will come from the line of Dan Willin (ph) with Merrill Lynch.

Please go ahead.

Thank you.

And I'll echo the congratulations on a great quarter.

Richard, I missed what you said about sustaining capital.

The slide said $86m, but did you say $110m?

Or is $110m your budgeted amount for the year?

Well, $86m is really sustaining capital.

When you look at our projected total capital on page 14, which includes Atlantic Copper and some of the other miner projects which will continue over time, this continuing capital level which is essentially all sustaining capital will be at $110m a year roughly.

Okay, thank you.

That's what I thought.

The next question will come from the line of Brett Levy with Royal Bank of Canada.

Please go ahead.

Really, two questions.

First off, at current levels particularly for gold, are you guys thinking about any sort of hedging strategy?

And then the second question relates to any update you can give us on kind of the [megawatt] government sort of privatization?

Any update on the 2004 plans for elections and that sort of thing in the region?

Well, Richard you answer the first question.

Okay.

On gold hedging I just want to note for – I think everyone understands we have not hedged any of our copper and gold production.

And in the current environment, we do not anticipate hedging activities.

Obviously today the [tango] rate is very low for gold.

And the attractiveness of hedging for anyone is certainly not what it's been in the past.

That's reflected by the number of companies that are unwinding hedge positions.

We always monitor the market.

In the past we had a six month rolling gold hedge.

The economics for that just don't make sense for us in the current environment.

On the political side, really I don't think there's been much change in the comments I'd make [megawatt] government.

They've made a lot of progress.

Obviously with some of the things that are going on.

In their effort to try get their balanced budget, they have had to take a lot of heat to reduce subsidies on things like power and telephones.

In any of these third world countries as we've seen around the world, that gives a lot of political momentum for people to want to pose the government.

So you've seen a lot of emotional things in the street over these subsidies being cut.

I don't think it's going to have a big effect on her.

Because in the financial community, they applaud that she's trying to balance the budget.

And we've just got to see whether she has to compromise between balancing the budget and get re-elected if that's what she wants to do.

As far as 2004 is concerned, I think under the current circumstances that you'll see a lot of emotional things in this year that are going to be politically motivated.

But as far as who is going to be re-elected, I just try to stay out of that politics.

We hope the people of Indonesia will elect the best president.

And this is going to be a volatile year with all the things that we have going on in the United States and in the world at large.

That it's beyond anybody's recognizance of when we're seeing a more volatile time internationally that could affect the politics of every president, including our own.

So I think it would be dynamite to try to say where that election is going in 2004.

So I think we'll all just have to stay tuned.

But the bottom line of where we come from is with our long term contract and the other long term contracts that are in Indonesia, all those contracts will be honored by whoever is president.

And let's just all hope politically around the world people decide to be more rational than they've been in 2002.

All right.

Thanks, guys, and congrats on the strong results.

The next question will come from the line of terns Terrence Oshman (ph) with T S O and Associates.

Please go ahead.

Thanks.

First question is on the smelter foundry performance.

The costs as you reported in the capital of cash position.

Costs have been fluctuating -- I guess a lot to do with the volumes.

But for forward purposes, what prices or what costs should we use, number one?

Number two, do you still believe that 110 are the numbers that are going to be good terms for the [inaudible] smelter?

Smelters -- as we note in our press release, the results are affected by the very weak [T C and R C] rates.

When you look at the industry's cost structure, they can't supports rates at this level which are driven by the supply demand dynamics in the concentrate markets.

Both of our smelters are operating very strongly.

Atlantic Copper is operating at 20 cents a pound.

Our P.T.

Smelting smelter at [Gresik] had a maintenance turnaround period which occurs every four years this year.

So its costs for 2002 were slightly higher, but in the fourth quarter it operated at 10 cents a pound.

And we expect to be able to continue to operate at 10 or 11 cents a pound.

The smelters are operating very efficiently.

They require low amounts of capital.

They will continue to play as they have in the past an important role in providing a home for our concentrates, roughly half of our almost 3m tons a year of concentrates goes to our two smelters that we have interest in.

And it helps us in negotiating rates in the marketplace.

So the volumes that have been secured for 2003 between you and other parties for both smelters?

Yes.

We provide all of the concentrates for P.T. Smelting.

And Atlantic Copper, which is an operation that has performed very well in terms of its fundamental operations, it actually set a record for concentrate treated this year.

We provide about half of its supply.

And other half it has long term, very positive relationships with other customers.

So both smelters are expected to have adequate feeds to operate at design levels.

In fact, they're operating at above design levels.

Are you saying the Atlantic smelter, you're happy with 12 to 14 cents or more like 12 cents going forward and P.T. at about 10 cents going forward?

That's correct.

I'd say 12 cents and between 10 and 11 cents for Gresik.

Next question is to Jim Bob.

With respect to the local incident a couple of months ago, any follow-up on that with respect to teachers and all?

And there is a lot of reports in the press, unsubstantiated.

Whatever came out of it in the end?

Well, the press sort of speaks for itself.

We sort of kept our comments limited to what we said in the beginning.

We don't have any evidence that you haven't already read about in the press.

And both the police and the military and Indonesia have now got a joint investigating team.

The FBI who was originally at job site at the request of the state department has not made any official statement.

I understand they're going back to job site.

So, as far as speculating on the investigation, I just don't care to do that.

It was such a terrible incident, like all these horrible terrorist acts that are happening around the world.

So you say it's in the press.

People have said “who could have done this?”.

Could it have been the military, could it have been the OPM, could it have been somebody that was trying -- that was mad at Freeport?

You can go down the list and say “who is it?”.

And all you have is a group of investigators who are trying to say, “here's a group of people that are the leading suspects.”.

But unfortunately after the Bali bombing, a lot of the focus went over to the Bali bombing because it was Indonesia's 9/11.

And they just haven't been able to identify the suspects that might have done this the way they have in Bali.

But all the people coming out of the woodwork as a result of the Bali investigation -- as you may be reading, they're arresting people all over Indonesia, they're finding caches of ammunition.

At some point somebody is going to be connected back to this incident.

But frankly it's a terrorist act and like many of these terrorist acts that are perpetrated by people who want to stay anonymous.

At this point the perpetrator is anonymous, that's really all we know and apparently all the investigators know.

So we continue to support all the investigators and hope that we can come up with an answer as to who would have done this.

In the meantime, our operations are peaceful, we’ve increased our security.

Everybody is more aware just like they are all over the world today.

We’re all vulnerable to incidents we couldn't imagine two years ago.

Fair enough.

One quick question.

Who are the underwriters for the senior notes, Richard?

We are restricted to only saying what we did in our press release about that by SEC regulations.

So unfortunately I can't answer your question.

Later this week you'll be disclosing that, right?

Well, this is a 144A marketing.

We'll be out talking with people beginning this afternoon.

And the process will go forward.

Thank you, guys.

And if you want to register for a question, please press the 1 followed by the 4 at this time.

One moment, please, for the next question.

Next question will come from the line of Bill Dobbs (ph) with [Parlam] Capital Management.

Please go ahead.

Hi, Jim Bob and Richard.

Quick question about the debt deal.

You're talking about the underwriters, but obviously would you consider possibly upsizing the deals if there is good demand?

Yes, we have that flexibility.

And we want to ensure that we have a strong execution that we and our investors are happy with.

But we'll be dictated by the market reception.

And any actual proceeds would go toward debt reduction probably on the credit line?

Exactly.

The amendment provides that all proceeds -- the offering is a minimum of $250m to $300m to go for debt reduction.

We would have some flexibility of using 25 percent of the proceeds over $300m.

But our focus right now is really paying down our debt, getting our balance sheet in a position of where it reflects the strength of our operations and our credit worthiness.

Right.

Let's assume we're out a year or two from now and we get rid of the bank line.

So we're out of the banks.

Is there no more restrictions on you or is there one in the convertible that you did 18 months ago on your use of proceeds?

No, the convertibles really have no onerous covenant provisions.

And again, that $600m is well into the money now.

And 18 months from now, in July of '04, it is callable.

So when you look at our debt picture -- that is very likely expected to move into equity, so that's another $600m.

With this $350m of debt projected debt reduction next year, that puts us at just over $2b.

And with $600m in equity, you really get our debt down to very low levels in relation to our annual cash flow generating capabilities.

Right.

And last follow-up on that is the potential for, obviously -- so what you're saying there is that, freeing up those flexibilities, you could issue stocks still grossing under value by stock if you wanted to?

That's right.

Dividend policy and stock buy back policies are things that we're looking to develop, the financial structure that would give us the options of doing that when it makes sense.

Right.

You know as we talk about it, this is the best guide as to what this board and management would do.

And what we would like the shareholders see us do before the banks became concerned about the drop in our credit rating as a result in the drop of our credit rating of Indonesia.

We owned $1b in bank debt.

We had paid $1b in dividends and bought $1b of stock back because we thought that was the best use of shareholders money -- was to own more of this deposit and give the shareholders the benefit of the cash flows.

Unfortunately we had $1b worth of debt when a our credit rating was changed because the credit rating of the government of Indonesia.

Even though we were investment grade credit from our financial ratios.

What we need to do now is to see what happens to the credit rating of Indonesia.

What happens to our credit rating as we continue to pay this debt down.

But obviously the covenants we have in our bank credit today represent a company that owed $1b of bank debt and today we owe less than $300m.

And are going to earn almost $400m of excess cash so that we could use to pay debt down.

So, as Richard said, that plus conversion of the $600m would be $1b off our current debt which would reduce us down to just over $1b of debt.

And of that $1b, as you know, about half of that would be life of mine debt which is really sale lease back on things like our big power plant.

And the non-recourse money 200 plus million against the smelters.

So what you basically should be aware of, by this time next year, depending on what happens to the market, we basically could be out of debt as opposed to having a credit facility that reflected a company that owed a billion worth of bank debt and had these other bonds.

So we are going to be in a completely different picture at the end of next year.

At 70 cent copper and $325 gold, we'll be looking over the precipice of being completely out of callable debt and have almost no bank debt.

So I think we all just have to roll forward.

And let's see what happens with these copper prices and see what the end of the year looks like next year.

They go by pretty fast.

But I think everybody would agree based on my political comments and this volatile climate we're in.

We're in a shape once we get this bond issue finished, which is why we're doing it now.

We will go through this next six to nine months when we've got all kind of unpredictable international things going on that could affect the financial markets.

We'll be flying high and looking good even at 70 cent copper and $325 gold.

That's where we're trying to put ourselves.

So next year we can control our own destiny about what we want to do about dividends and buy backs and cap Xs and as opposed to having covenants in our bank agreements that dictate our policies.

And then last question.

You brought up the Indonesian credit rating.

Are you still working with them to help improve their credit rating?

And obviously [megawatt ease] budget would help or go a long way toward helping that, should she make the right decision.

But are you guys still kind of actively involved making the --

The most active involvement we have in helping the credit rating pay Indonesia’s taxes, Bill.

I'm confident anybody would listen to what we have to say.

But the best thing we can do for Indonesia and our credit rating is to be the largest private employer, pay our taxes with the largest taxpayer in the country.

And with the balance of payments that we help with, with all the import exports that we do, buying all the goods that we do.

And even our smelter in Gresik which had a huge impact on the balance of payments.

The best thing we can do to help the Indonesian credit rating is be a good corporate citizen and good contractor.

Which we think we're in the elite status over there.

Okay, thank you very much.

The next question will come from the line of Soi Gong Gim (ph) with CS First Boston.

Please go ahead.

Hi, good morning.

Congratulations on the good results.

Can you give us a timeline as to when you expect to complete the senior note offering?

And my second question is -- following this development, will there be any change in the covenants imposed by the bank credit facility?

And my last question is -- you have a bunch of debt maturity in 2006.

Why the strategy of repaying debt maturities for that year?

Thank you.

We're starting the process for the bond offering.

We had the announcement late yesterday.

And we'll immediately be going out and talking with investors.

And that will drive the timing of the deal, but we're moving forward immediately with it.

The issuance of the bonds themselves will not automatically trigger any change in the covenants of the bank credit facility.

That would require negotiations with the banks.

What our intention would be would be to develop a new bank group at the appropriate time that would have a new set of facilities with it.

When you look at our '06 maturities, the largest maturity in that period of time would be the $600 million of convertible notes, which we expect to be converted to equity before its maturity date.

Beyond that, we'll have lots of flexibility in how to deal with the remaining maturities, which includes the second issue of the senior notes, the 7.5 percent issue, and the second gold security.

Jim Bob just walked through the analysis that even with low commodity prices, by that time at the end of '05, which is a year beyond when he was talking about.

Our debt would be down to essentially one year's EBITDA for our company, which gives us lots of flexibilities in deciding between now and the end as to how to deal with those maturities.

So we anticipate our credit to be stronger.

So that would give us, you know, as it has strengthened over the past two years.

I'll remind you, at the time we did the bank credit, redid our bank credit facilities, our senior notes were trading at 16 to 18 percent.

Those have strengthened significantly to roughly the 10 percent level.

And we would expect continuing improvements in our credit strength which would open up new avenues of capital for us.

Okay.

Thank you very much.

The next question will come from the line of Dan Rolen (ph) with Merrill Lynch.

Please go ahead.

Talking about exploration for a moment, if you don't mind.

Given that what you said earlier regarding the Grasberg is basically being from an investment standpoint nature -- given the outlook for your financial position is vastly improved, and if a year from now the political issues have stabilized -- is there much exploration potential left and what is your exploration budget for '03 and '04?

Thank you, Dan.

Obviously what we hope to accomplish in the last five years is to show we are the largest producer in copper and gold in the world.

Even after producing for five years, we in essence have increased our gold and copper reserves.

Basically in some years increased our reserves if you go back to where we were in 1997.

So we added just in the [Erns berg Grasberg] district this year -- 1.5b pounds of copper and 600,000 ounces of gold which is a good exploration year.

So we intend to continue our exploration and spend probably $6m to $8m in block A further defining the [Erns berg] underground.

Which as you know has grown from 100m tons up to over 500m tons.

And we still have a considerable resource.

We've still got a good bit of definition to do on the [inaudible] boundaries in block A between the base of the Grasberg [inaudible] intrusion.

So we expect to be able to add some reserves from resources to reserves in block A.

As you know, Dan, we've got a sheathe of ore around [koochinar] which is as about as big as our proven reserve in [koochinar] which is about 400m tons.

And that's probably 1.5 percent copper average.

It's the case of us getting enough of adrenaline and getting our mining plan so as to get some of that into production.

So looking at just the Grasberg [Erns berg].

We'll probably be spending somewhere less than $10m in the Grasberg [Erns berg] district to continue to add reserves as we've done in the last five years.

Certainly security issues are improved during the year.

As we've discussed, we're looking at the wobbly deposit.

Not just because of the security issue but because wobbly 40 miles to the north of the Grasberg [Erns berg] berg had been mothballed until the gold prices got over $300 an ounce.

And we have a deposit there that already has a proven 5m ounces of gold.

We believe with some delineation drilling could reach 10 million, about the size of [bulgara].

That's a surface deposit that could be mined easily because we don't have to have an access road to get the ore out.

We can basically fire the gold out of the operation.

So that's a good target for us to spend some exploration money.

And then again, you've seen the other areas where we have the magnetic highs that have identified several areas.

One could potentially be another Grasberg type ore body.

In the preliminary drilling we had 700,000 tons of resources that had been identified of point 7 copper.

So there's a lot of exploration potential and that would probably take another $10m to $15m outside of block A if we to were to go back into wobbly.

And do any delineation drilling there and delineation drilling on the [conkoa] project which is huge exploration project for us.

So that's kind of the outlook, Dan.

I'd say for the next two years, $10m to $20m in exploration in [inaudible] and that would be about the right number.

Half of it in block A and half of it outside of block A.

Thank you, Jim Bob.

It's $10m to $20m per year for the next two years or in total?

$10m to $20m for the next two years per year.

Thank you.

Gentlemen, I am showing no further questions.

Please continue your presentation or any closing remarks you may have.

We appreciate everyone's interest.

Obviously if you have any questions after, after reviewing this material, we're available.

So give us a call, and we look forward to a great 2003 and to reporting on our results as the year progresses. .Thanks for joining us.

Ladies and gentlemen, this does conclude your conference call for today.

We thank you for your participation and ask that you please disconnect your lines.