費利浦·麥克莫蘭銅金 (FCX) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Freeport 2003 earnings.

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

Afterwards we will conduct a question and question-and-answer session.

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

I would now like to turn the conference over to Mr. Richard Adkerson, President and Chief Financial Officer of Freeport-McMoran.

Please go ahead, sir.

Good morning, everyone, and welcome to our first quarter earnings conference call.

We issued our earnings quarterly release earlier this morning, a copy of the press release is available at FCX.com.

We also issued a press release reporting the results of our tender offer for our 2006 7.5% bonds.

We were successful in acquiring -- agreeing to acquire $133 million, or two-thirds of that issue, as part of our activities in using our recently raised cash to reduce our debt.

I will also note that we filed registration statements yesterday with the SEC, to publicly register the privately issued senior note offering -- notes that we issued during the first quarter.

And that was just to register the previously issued securities.

Today's conference call is being broadcast live on the Internet, and one may listen to the call by accessing FCX.com.

We also will have several slides to supplement our comments this morning, as we did last quarter.

And I will be referring to those slides during the call, and the slides are available using the web cast Lincoln our web site at FCX.com.

In addition to analysts and press, as has been our custom, has been invited to listen to today's call and a replay of the call will be available on our web site later today.

Before beginning our comments, as usual I want to remind everyone that today's press release and certain of our comments on this call include forward-looking statements, including sales, production, production costs and other data.

These are important factors that might cause future results to differ from the projections as described in our annual report on form 10-K, can filed with the SEC, and the full cautionary statements included in the press release and on the web site.

Joining me on the call today will be Jim Bob Moffett, our Chairman and Chief Executive Officer.

The first quarter of 2003 for FCX reflected continued strong operating and financial performance, continuing from the second half of 2002.

Our earnings per share of $.33 cents includes a cumulative effect of $.05 cents for an accounting change that was necessitated by new accounting standard, FAS 143 relating to how we calculate and accrue asset retirement obligations and you'll be seeing or have seen this for a number of companies that are affected by this new standard initially for the first quarter of 2003.

This compares with the three cents per share loss for the first quarter of '02.

We sold 392 million pounds of copper and 584,000 ounces of gold during the quarter.

Our net unit cash production costs was $.07 cents a pound, as previously announced and as I mentioned earlier we completed over a billion of new financing in two senior note issues that were placed during the first quarter, and our board has adopted a new cash dividend policy and we will be paying an initial cash dividend of $.09 cents a share on a quarterly basis beginning in the second quarter.

Our average pricing for copper in the first quarter of '03 was the same as in prior year's quarters of $.73 cents a pound.

Remind everyone that our average realization is driven by the price at the end of the quarter.

The average LNE price for the quarter was $.75 cents, but at the end of the quarter the price was $.72 cents, and because of the nature of our contracts with the open pounds, that price significant portion of our first quarter sales resulting in an average of $.73 cents.

Our average gold price was $52 an ounce higher than '02 at $342 an ounce.

This resulted in a significant increase in our revenues from $400 million to $594 million.

Our operating -- our operating income also increased significantly from $88 million to almost $200 million, resulting in the net income before cumulative effect of $.28 cents a share.

Our operating cash flows were $49 million for the quarter, we had a significant working capital use during the quarter resulting from tax payments, and we'll be looking at very strong operating cash flows for the year.

If you continue today's prices going forward, we would have $575 million of operating cash flows for the year, which is higher than we had last year.

The next slide details the information relating to our recent financing transactions.

On January 29th, we closed $500 million senior note issue of 10% and 8% percent straight debt notes due in 2010 with a four-year no call.

We followed up on February 11 with $575 million of senior convertible notes that had a 7% interest rate and a conversion price of $30.87, which was a 70% premium to the price of the date of issuance.

These notes are due in 2011.

This gave us a significantly new financial situation for our company, and we have very strong near-term liquidity and we've been taking actions to use that cash to reduce our debt.

I mentioned the tender offer that we announced today, we also announced earlier a tender offer which was successful in acquiring $100 million of our putable bonds, the 7.2% bonds, we got 40% of that issue that are with a put due in November of this year, and we're looking at other obligations that is we have to use our cash to reduce our debt.

I mentioned our new dividend policy, at this rate we would be using $52 million a year based on our current shares outstanding, and that's a relatively small portion of our available free cash flow.

Our board will continue to assess our policy relating to providing returns to our shareholders in the form of dividends and potentially stock buybacks as we go forward with our financial strategy.

To illustrate our liquidity position, slide 11 shows a reconciliation of our unrestricted cash at the beginning of 2003, which you can see in the first quarter had grown by March 31st to $763 million , after looking at our senior note offerings and the debts that we paid.

We've rolled this forward to the full year of 2003 in the second column, net of capital expenditures, we would have cash from operations of $463 million , based on what we've already accomplished to date we would have debt payments either at maturity or prepayments of $975 million , after dividends that would leave us $460 million of cash.

You can see from this, the effect of our financing has been that we have refinanced almost a billion of our existing securities, extended their maturities to 2010 and 2011, and have essentially the cash that we will earn in 2003 at the bank at the end of the year.

Then looking forward at our debt maturities on page 8, you can see that we have a very manageable maturity requirements for a number of years as we go forward.

Going forward into 2004, based on the projection of prices that I just reviewed with you, we would have $400 million, $460 million of cash, facing an average maturities of about $100 million a year for the next two years, and then as we look at 2006, we've already paid $130 million of that maturity with the tender offer we announced today.

The 8 and ¼% convertible notes are well in the money with a conversion price of $14.30..cents, those notes are callable beginning in mid 2004, and we fully expect those to go into equity, that's $605 million , so the maturities in '06 would then be down to $300 million , and you can see for the next three years we average less than $100 million a year, so our recent financing has placed us in a very strong financial position, particularly with respect to our liquidity.

All this is driven, of course, by the great ore body we have in the Grasberg district with our operations in Papua Indonesia.

The schematic is shown Page 9.

The Grasberg open-pit is now providing 80% roughly of the through-put through our mill.

You see the DOZ, IOZ mine complex in the right section of that.

That is, we completed the expansion of the DOZ mine to 35,000 tons per day in the first quarter.

That capital with the initial development, which was targeted at 25,000 tons a day, $280 million with Rio tin tow paying 40% of that and we continue to have additional expansion opportunities there and attractive expiration results.

The schematic also shows our significant undeveloped underground mines, which have current reserves that are twice that of the open-pit, and we will be developing initial access for the development of those mines to bring on production as the open-pit depletes in roughly 2014.

And it's this great asset which gives us the ability to give the outlook we detailed on the slides that will be included on the Internet.

I'll just say a couple of words about those.

Our outlook for sales of copper and gold for the next five years is unchanged from the guidance we gave you at the -- at our year end earnings call averaging 1.4 billion pounds of copper a year for the next five years and 2.3 million ounces of gold.

We expect to produce 1.4 billion pounds of copper and 2.6 million ounces in 2003.

Our quarterly sales for '03 are included on Page 12, they're relatively minor adjustments.

From the previous data that we gave we will show 700,000 ounces of gold for the second quarter, which is significantly above this first quarter results, with slightly lower copper sales for the second quarter.

Our unit production cost, which we had just under $.08 cents for the year 2002, if we have a continuation of today's gold prices and with 1.6-- or 2.6 million ounces of gold sales, our gold revenues would offset all of our production cost for 2003 resulting in a zero net cash cost for our 1.4 billion ounces of gold sales.

Included also in our charts are the sensitivities that we have from a cash production cost unit cash production cost standpoint for changes in the gold price, given our current cost structure and copper sales.

That's presented on Page 14.

Our capital expenditure outlook is on page 15 is unchanged from the previous guidance for '03 we're looking at $150 million of cap ex for our share at PTFI, and an additional $10 million at Atlantic Copper and others for $160 million , that compares with $575 million of operating cash flows that would yield the significant free cash flows that we would generate for this year, and with the completion of the DOZ project this quarter, our capital expenditures will ramp down as we look forward over the five-year period, to roughly $100 million a year of PTFI.

Sensitivities, many of you have seen before for changes in the prices of copper and gold are included on page 16.

And the slide concludes -- the slide presentation concludes on page 17 with the reserved base comparative value of our assets looking at a copper price for our reserves at $.10 cents a pound and gold price of $100 an ounce, which is reflects the price for gold paid in recent transactions in the marketplace.

The value of our assets would indicate a share price in the mid $30 a range, significantly above today's share price.

We appreciate your interest and would now operator like to turn the session over for questions and answers, and would seek your questions.

Thank you.

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

You will hear a three-tone prompt acknowledging your request.

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

If you're using a speaker phone, please lift your hand sets before entering your request.

One moment for the first question.

Our first questions comes from the line of Brett Levy with Royal Bank of Canada.

Please go ahead.

Hey, guys, congratulations on another very good quarter.

Two questions really relate to kind of, you know, just a little bit of an update in terms of what you're hearing in Indonesia these days, sort of trends towards democracy, a little bit of an update on that front would be wonderful.

And then also, just in terms of reserves, are you guys, you know, in a phase at this point where you're aggressively seek to go acquire large or discover additional large reserve bases here -- significant capital expenditure?

This is Jim Bob Moffett.

I'll take that question.

Start with Indonesian situation.

Really nothing to update to say to you anything new about democratization in Indonesia.

The (inaudible) administration and all of the ministers still continue to try to stabilize the economy and of course to stabilize their economy they focus on foreign investment.

We had a guest in the United States two weeks ago, minister of mines, we other oil and gas companies and mining companies hosted a dinner for him in Washington, and at that meeting we focused on what else the companies wanted to do, him to do and the administration to do in order for them to increase their investment and oil and gas and mining.

He pointed out the fact that the GNP almost 33% came from mining and oil and gas and 40% of foreign investment came from that.

I highlight that to you because it's projects like TANGU, a project west of us on the (inaudible) that they've (inaudible) some of the gas to China.

They've got to continue to try to make the government of Indonesia a user-friendly government for the industry to compete with the that might go elsewhere.

That might go elsewhere, might -- they might go today.

I don't have to tell you that with the hot spots that I've been talking to all of you about for the last four years, all over the world and the mineral trends where you find minerals in oil and gas, has come to be where the hot spots boiled over and the current situation that we're in, we won't waste our phone call here trying to get into a debate about how we think the war in Iraq is going, but the military side to that is pretty clear.

What's not clear to me is things that will follow, such as shutting off the Syrian oil pipeline yesterday, I'm sure you read those things, being metals and minerals analysts, that the repercussions of those things and the kind of things that are going on there and in Nigeria where you had many of the oil fields shut in and then the Venezuelan situation, you say what are you talking about oil and gas for, Jim Bob?

We're talking about the same trends with Argentina sitting just south of Chile, there's a lot of reasons in the mineral belts to reemphasize the points I've been making that these mineral trends that are so limited where you can find minerals, it's really hard to find politically acceptable places to go.

With the Indonesia situation, I don't know how you rank the volatility of places to be in the world today, it would be interesting to see a poll of people, but not -- there's not any more I can say other than to say Indonesia's situation is stable, the security situation, other than demonstrations against the Iraqi war, have been focused on getting the economy in shape so that the people who are going to run for office in 2004, since next year is an election year, is going on much like you will start to see the focus of the administration in the USA.

So I guess you'd say, Jim Bob, are you saying Indonesia is sort of like everywhere else in the world?

I guess I'd say yes.

I don't see any difference between Indonesia and most of the other countries in the world that are now, who is the alliance, who are the coalitions, would you rather be -- would you rather have a mine in France or Germany today if there were a mine to find?

Would you rather have an oil field in Germany or France?

It's a pretty interesting question, ladies and gentlemen.

And I think you get back to our focus that the politics are certainly something that are relevant, but politics are going to change every two or three years, every five years, and what we have to do is keep the focus on the fact we've been in production and we've shown you interesting things, no matter how volatile the situation in Indonesia is, where you've seen the (inaudible) fluctuate, our performance in (inaudible), we've just continued to increase our production and reduced our costs continue to do so in the middle of all of this and even with SARS now, which in Asia is a bigger threat than the Iraqi war.

Our operation is so isolated we're able to continue to perform.

So I hope that in some way answers your question about the politics on the expiration side.

We continue to replace our reserves every year with the great opportunity we have to drill and add on to the perimeter of both the underground Grasberg, and we continue to grow the big DOZ deposit to the south east of the Grasberg, which is a separate entity, but a related deposit and it's got the same kind of mineral logy, copper and gold and all the drilling we're doing in (inaudible) is to continue to add to the size of those reserves, the footprint, shall we say, we've got a lot of resources that is we're converting into reserves with that drilling, and of course even at our production rate, that's why we've been able to really for the last seven years replace our reserves, we believe we can continue to do that for some time to come.

As far as new deposits are concerned, we continue to look at wild berry which is our gold deposit to the northwest, but with the price of gold being $309 an ounce, one month and $325 an ounce the next month, and people not sure what's going to happen to the price of gold with the aftereffect of all the volatility, we think it's still prudent to look at our properties and decide where we should place our efforts (inaudible) reserves we have the big KAMA PU prospect to the west, about 100 kilometers to the west.

We had to stop our drilling, we just didn't want to stretch the security apparatus, as long as security was an issue, and we will go back there at some point.

We continue to look at and monitor all over the world things that are going on.

We have the same issue and that is the other reserves that have been drilled and found and bought around the world still are in our at least compared to our mine second tier properties and there's a lot of value being played, I'm sure you've seen MIM purchase by XTRADA, which copper properties.

I'll let you decide how they would rank with the Grasberg.

But once again, we've said consistently that we’re going to continue to take it out of reserve base here at (inaudible).

We'll be ever mindful of the rest of the world, but we're not going to make our very unique mine because it's mineralogy and low cost with other low grade deposits and turn a silk purse into a sow's ear.

So far we think that's worked out well.

We continue to look for other opportunities and I hope that answered your question.

Very well.

One other question.

Are you guys considering at this point increasing the size of a share buyback or anything in that zip code?

I think Richard covered it very quickly.

Remember, before we lost our credit rating when the fall of SID HARTO, and the Asian crisis, we paid a dividend, bought stock back, and a paid debt down.

Paid a billion of dividend.

Bought back a billion worth of stock.

Paid back a billion worth of credit.

We had our credit flexibility much improved.

Richard went over the maternity schedule with you.

We're going to look at our cash flow, ladies and gentlemen, and decide what adds value to the shareholders.

A lot of shareholders would like to say I'd like to see you pay it back in dividends other people would say I'd like to see you reduce the flow.

Other people would say I'd like to see you continue to pay down debt.

So we want to make everybody happy and we want to do the prudent thing, and the fact is this board of directors and your management team realizes that people want to see some value added creation to them, but we will do what's the most prudent, we hope, with the cash flow that we have that's usable, and that could mean additional dividend increases, dividends as you know in the mining business, they go up when you have good cash flow and go down when you get constrained cash flow.

We think at these kind of prices, this is the lower level of what we're looking at, for the rest of the industry to barely survive.

Could copper prices go lower in certainly they could go lower.

We went into a stagnation around the world with all this volatility and probably go back in the 60 cents but we still make cash flow.

As cash flow goes up, and because of the increase in prices, (inaudible) we try to evaluate where that money ought to go, and to decide which has better value for you and as you know, we talk to the street all the time as we are in this quarterly phone call and hopefully we can make everybody feel that all of the good aspirations of the shareholders have been fulfilled with what we do with the mine at its cash flow output.

All right, thank you very much.

Our next question comes from the line of Tony Rizzuto, with Bear Stearns.

Please proceed with your question.

Thank you.

That was a pretty insightful of the answer.

For one, I would like to see you pay back more debt and I know there's a lot of shareholders that would like to see that, too, Jim Bob.

My question is on the tax rate, it tripped us up a little bit.

It was higher than we were looking for and I wonder if you can give us a little guidance in what was maybe comprising that and is that sustainable through the remaining quarters of this year?

Tony, the reason that the tax rate is not as easy to calculate sitting in your shoes as it would be, is because we paid a taxes in Indonesia.

And in Indonesia we have a fixed income tax rate of 35% that's based on the taxable income of PTFI, and then we pay a 10% withholding tax on dividends and interest that PTFI, pays to FCX.

The expenses that are incurred at FCX and the tax losses that are generated at Atlantic Copper do not provide any benefit from an income tax standpoint since our taxes are paid in Indonesia.

And the reason the rate went up this year, I mean this quarter, was because of the additional interest expense at the parent company, FCX, which does not -- and that came about because of our new financings, and we knew as we decided to go forward with these financings, that there would be a cost of obtaining this improved financial liquidity situation and financial circumstances, and part of that cost is that we incur certain interest expense at FCX that's not tax deductible.

So as you go forward, you should take that into account in your analysis.

To the extent that we got to watch the way that the debt is being repaid, but clearly it will likely trend at these similar levels, at least for the next several quarters?

Well, that's correct.

But the tender offer that we had were for notes that were issued by FCX.

Okay.

And those are the 7.2% notes, right?

the 7.2 and the 7.5% that we announced today.

All right, thanks.

So we'll be clear in our announcements as we have things about what impact it has on debt at PTFI, and debt at FCX.

But that's kind of the analytical point to take into account.

All right, that's helpful.

I appreciate it, Richard.

Okay, Tony.

Our next question comes from the line of Dan Roling of Merrill Lynch, please go ahead.

Thank you.

A couple questions.

First, at the big copper conference in Santiago a couple weeks ago, there was a lot of discussion by KODELCO (ph) that they had concern that the copper market was somewhat in oversupply and they were going to start building 200,000 tons of copper in inventory on their own books, and hold it there until the alimey (ph) inventories came down below 800,000 tons.

The question I have for you gentlemen do you have the same concern that the copper market is moving towards a short-term oversupply as KODELCO does?

Well, Dan, since you and other people Tony and other analysts, I don't want to leave out anybody here, provide great statistics on this as well as the (inaudible) people, I think everybody has their own emotional issue right now as to what's going to happen to the economy and frankly, depending on what happens to the economy, the surplus will either build or start to get worked off.

We've talked about this ad infinitum, none of these surpluses get worked off until all of a sudden everything is just right and then they fall off a cliff.

So I'll be honest with you, I think it would be all of the emotions about what's going to happen to the world economy, that trying to predict the surplus or lack of surplus buildup in the copper market is almost as perilous as trying to guess what's going to happen to world oil prices today, Dan.

There's just so many things going on that could flip one way or another that could cause this, I mean for instance it's so complicated because everybody's been talking about how much copper that they're going to buy in China.

All of a sudden you get this SARS scare that sounds like, if you read the newspaper, between the airlines and the rest of the businesses in Hong Kong, that China may go into some sort of an isolation for the next two years.

And all of us don't believe any of that is going to happen.

But you write enough of that stuff in the newspapers, Dan, and all of a sudden people walk around and they're so sensitive to what could happen to where the market is, and then I think that you can get opinions all over the charts.

The answer is, the copper market is the copper market.

The production that is has been withheld is still withheld.

And I ain’t trying to guess what's going to be the next six months economic outlook around the world in areas, the infrastructure use especially the area like China, I just discussed, is like playing Russian roulette with six bullets in your gun.

Thank you, and I agree with that, Jim Bob.

Another question, though.

With the weakening of the U.S. dollar, should we be especially mindful of any currency impacts either in Spain Atlantic Copper or any change in the Indonesian U.S. dollar exchange rate?

Well, on that score, Dan, and you and I and others have had many conversations about how we hate derivatives, and unfortunately, currency hedges are a form of derivatives and we've all had a good laugh about in Spain how we get the accounting people coming down because of this hedge we got into where we had the hedge, the Spanish currency, because of the bank agreement that we had (inaudible) alignment, now we have the hedge being reported good for us that doesn't flow through the balance sheet but adds to equity and the bad part flows through balance sheet this has gone from $.80 cents to $1.08, in terms of its relationship to the government, we all know about the RUPIA (ph).

The only thing I can say about the currency hedge, we continue to look at that.

We've been hedging, as you know, continuously, the RUPIA, and have done pretty well doing that.

It's not as easy to do that because the RUPIA has not been that volatile in the last year.

Once it got around the 9,000 level it sort of hung in there.

In an election year coming we're trying to be mindful, but we try to take advantage, on dips to try to extend some of our hedges.

But hedging dollar and hedging RUPIA, and PE SETA right now, kind of goes back to the conversation we just had that you just related to.

And the only thing I can tell you, if we hedge correctly, you guys are going to love us.

If we hedge incorrectly with these currencies, you're going to kick our butts the way you've always done and should.

Thank you. .

Dan, let me add just a couple of things to that.

At Atlantic Copper, we have hedged roughly 60% of our operating costs and we see the benefits of that.

For the unhedged portion as the dollar weakens in relation to the Euro, which it did in the first quarter, that does result in some additional operating cost as Atlantic Copper, and part the biggest -- and that's the biggest reason, when you saw its unit cost increasing from $.10 cents a pound to 15 % a pound, almost $.04 of that related to the strengthening of the Euro on the unhedged portion of our production cost.

The RUPIA, itself, as Jim Bob said, has been stable in relation to the dollar, so we haven't seen any -- and we don't have any hedges any longer on the RUPIA, but we don't see any currency effects because even though the dollar has been weak, the RUPIA in relation to the dollar has been stable for some time now.

One last thing.

When does that derivative in Spain run off?

It does run off at the end of '03.

And that was, I think Jim Bob referred to, it was certainly talked about it in the past, that was a requirement for our financing nonrecourse financing that we did at Atlantic Copper.

So the end of this year?

At the end of this year, that's correct.

Thank you.

Our next question comes from the line of Wayne Atwell with Morgan Stanley.

Please proceed with our question.

Good morning, a couple quick questions.

Are you drifting an addit (ph) at this point in time?

Acid we are beginning and included in our --.

We are beginning and are included in our plans we are developing a new access that will go from those of you that have been there, from the ridge camp area which is just below our mill complex, but as part of our initial development of the common infrastructure for our underground mines and also to assist in the dewatering of the Grasberg pit, we will be beginning next year the development of a new underground addit system to access our underground mines.

Those are included in our capital expenditure numbers I reviewed with you earlier, Wayne.

I'm looking at slide 9 works that be parallel to and under the EMOLI tunnel?

It would be under and at a lower level than the EMOLI tunnel.

What level would that be?

I think that's at 2600 meters.

That's about right, Richard.

I think it's 2600 meters.

This is the unfolding infrastructure, Wayne, that you've seen where we have these multilevels so that when we start our block caves and the underground and of the (inaudible) we can go down and get, get the (inaudible) of it.

What you'll start to see is the various addits.

We have a full mine plan as to what this thing will look like in 2016.

We'll start to get going over that more with you so you understand it, and the pieces will be slowly put in, because some of them are also to be used for dewatering just like the EMOLI is.

So the infrastructure that you will see has to do with the multilevel addits, and how they will ultimately provide the infrastructure to mine the underground Grasberg and the (inaudible). and big (inaudible), will be systematically begun and the money will show up in our cap ex.

There's not a lot of money on a year by year basis so by the time we go underground we'll be ready.

I was -- it seems to be the last time, finding ore, the last time you've driven ADIT S.

Bingo.

As we cross those faults we'll get to better understand the depth of some of these ore bodies.

Because we've done so much drilling, it won't be quite as much of a Wayne, it won't be so much of a surprise as it was when we drilled the EMOLI, because we've had a chance to do a lot of drilling.

But between the Grasberg and the Urchberg (ph), especially these underground deposits Kl and Urchberg line up and appear to be limited in the gap between those two and these additional addits will give us an opportunity to learn more about the gap between those two and how they relate.

Once again, it won't be quite as much of a frontier effort as when we drove the EMOLI, because without that we weren't able to get the underground drilling with the KL.

Right.

Is there any plan to move off of block A, and start doing expiration work in the areas where you've done it in the past?

We are looking real hard at going back to KOMOPO, we're trying to get a feel for the security situation, and every time we think a security situation makes some sense, then we ends up with a war or some volatility like we've all gone through in the last six weeks, and three months, and this period afterwards, are things going to be calm?

Election year coming up.

We have the mines minister and other ministers want to see us get back to work.

Wayne, we're watching that very closely.

We know what we want to do.

We want to get back on KOMOPO, we want to get back on a lot of this stuff to the west where we're doing and see if we can get back into full-fledged development, which is not an expensive expiration effort but it has huge potential as you remember.

Right.

And what is the magic number for WABU, what gold price do you think you'd need to go ahead with that?

I don't know, I'll call on my favorite analyst on the phone and tell him to give me a projection, they'd like to see us go forward.

It's not very good answer to your question, Wayne, but the answer is we would like to see a price of 350 north and think it would be sustainable for the WABU to really be a profitable operation.

and then lastly, I had to cut out so I'm sorry if this was asked but in terms of share buyback, you have not bought back any shares to the best of my knowledge?

I think I have to call Wayne Atwell and get approval, but we buy back shares versus pay debt.

It seems if I don't do that, then I see Wayne Atwell he's not very happy with me.

That was when you had a lot of bank debt.

You don't have as much bank debt now.

I'd endorse sort of revenue sharing and maybe 20% of your free cash flow into share buybacks.

I set you up for that because while you were off the phone I had told them we would go back and look at our historical pattern of paying dividends, buying shares back and paying debt down the way we did before '97.

That was my answer before, Wayne, that's why I was making a little bit of a joust with you.

Right.

And as you said, our financial structure has a lot to do with the appetite that you people are going to have for analyzing whether we're doing the right, the wrong thing to buy stock, pay dividend or pay debt.

And that's going to be a challenge which we will continue to take on and hopefully do the right thing.

Great, thank you so much.

Our next question comes from the line of Jim Kirkland with Goldman Sachs.

Please proceed with your question.

Good morning, guys.

Richard, you mentioned about the $97 million change in working capital related to tax.

Could you please give us a little bit more color on that.

Simply, when we have to write the checks to pay our taxes for 2002, I mean there were other working capital changes in there, but that was a big tax payment.

As I may have mentioned to you Jim and to others, the government of Indonesia over time has changed their requirements of when you pay taxes to either the year following the year that you earn your income, or in advance as we do here in the U.S. with estimate payments.

And so we have seen effects on our working capital changes from year to year.

But it's strictly a timing difference, so it's not anything that's a permanent amount, it's just when we actually have to pay our cash taxes.

Thanks, very much Richard.

And that's, Jim, another -- that's why we try to give guidance on annual cash flow amounts, so that you can see the effect of those timing differences, we expect much of that to reverse in the second quarter.

Gotcha.

Our next question comes from Ernie Nutter with RBC Capital Markets.

Please proceed with your question.

Thank you.

Good morning, gentlemen.

Just a couple.

Your gold realizations were about 342, I guess versus an average price of 352.

Is that all timing of sales, or is there a portion of that that is part of the gold in the concentrate?

No, it's all timing, Ernie, it just depends on when the ships go out.

Our sales are recognize when the concentrate is loaded on the ships at our port site, we do have to defer profits for shipments to Atlantic Copper and to a lesser extent to Gresik, but it's strictly the fact that we just don't have a daily constant average, but it depends on when the ships are loaded and the price is at those dates.

Okay, that's great.

And a couple of things.

Just the daily production going forward with, you know, the recent developments there.

What should we be looking at for Q2, Q3, 2004, et cetera?

Well, when you say the daily production, in terms of --.

Tons maybe.

In terms of mill rate, the mill rate will run at various rates depending on the types of ore that we have, and this quarter we averaged nearly 240,000 tons.

We will probably be averaging 230,000 tons plus or minus, but the real key statistic that we have is how much metal do we pull out of the ore, and the mill rate is just a function of what we're having there.

Our mill is operated very well with high availability rates, our recoveries for both copper and gold are approaching 90%, which is higher, much higher than we had built into the feasibility study for this project when the mill was initially designed.

So the mill is operating very well, and the rates are strictly a function about the hardness and chemical nature of the ore that goes through that.

We'll work with that.

And one last question, if I may.

Just looking at $52 million dollar in interest expense for instance in Q1, can you give us an idea of how much expense was at the PTFI level and how much was at the FCX level?

Yeah, although, you know, Q1 is a quarter that we, you know, while we have these financings that came in the middle of the quarter, you don't see the full effect of the financing.

Of the 52, $38 million was at the parent company.

Okay, that's great.

And do you --.

and 11 million was -- let's see PTFI, and we interest have interest, of course, at Atlantic Copper.

Okay, and do you expect those proportions really to change a lot as we go into the next couple of quarters, Richard?

Or where with you see them going up, PTFI going up or down?

I guess maybe FCX going down a bit?

Well, it really varies.

Since we've paid off all of our bank debt, some of that was at PTFI, and we've added the debt, there were some intercompany loans, so it would be roughly that amount.

But we're still evaluating our use of this cash and how we pay off debt, and we will just have to report to you as we take certain actions, Ernie, as to how that -- how that plays out.

Okay, that's terrific.

Thank you very much.

Our next question comes from Karen ORTSLAND, of TSO and Associates.

This is a great conference to see dividend policy and dividend being reinstituted.

Can you give background why $.09 cents and why quarterly and why not special dividends or semi-annual, and that would be helpful to see what the process behind it was.

Well, the dividend policy, as we've said, dividends and metals -- in metals companies have historically followed the trends of their profitability, which is tied closely to the price of metal.

And what we tried to do is once we got out of the banks, because we were with the covenants in the bank loan, we couldn't pay any dividend.

We tried to quickly look and see a dividend policy that would be a reflection of the dividend we ought to be paying with copper at $.75 cents, and gold at $325.

Now, that's always a difficult situation other than to be sure that we're paying a part -- a dividends out of cash flow.

And as we said in this report, and as you can see, dividends would only be a small portion of our cash flow.

As we look at this level of what we ought to pay in dividends and what we ought to buy -- spend to pay back debt and to buy stock, as copper prices go down, the dividend, we hope, would be safe and that's why we set it at a level that if copper prices did dip, we wouldn't have to immediately adjust it.

If copper prices go up and we are going to be very, very mindful, even on a quarterly basis, if copper prices go up significantly because of all this supply/demand curve that we said was so volatile, then this board will react quickly, in my opinion, to increasing this dividend so that it increases with our increased profitability.

So, I hope that gives you some idea.

We had to sort of -- the dividend that we paid were not necessarily a dividend that we would have paid overnight had we not had these restrictions.

The minutes -- the win we got out of this bank, as you saw, the same day we said we want to give something back to the shareholders, and $.09 cents appeared to be about the right number that we were comfortable with, because of the fact that we had just received these new bond issues and needed to look at what we were going to be able to do this with this money and how we could get our debts paid off..

So that as interest expense goes down and profits go up, we will be able to respond by using this usable cash flow in a very resourceful way and the $.09 cents was about the right level that the board and the management was comfortable with to get started back with the dividend policy.

But we will be reviewing that quarterly.

Good, good.

And Terry, let me just say it's customary in the U.S. for companies to pay quarterly dividends, and so we wanted to do something that would be customary and not something that would look out of the ordinary, and I think to do anything but a quarterly dividend would have been out of the ordinary here.

No question.

Non-U.S. companies sometimes have different practices.

That's good, Richard.

One other industry company as well regarding Freeport.

We've discussed this in the past.

You've well hedged given your Atlantic Copper and also Gresik, but from your knowledge of the industry, obviously the smelting refining area is not certainly smelting especially, not necessarily doing quite well, do you see any structural changes coming up given the smelters or some areas not doing very well and you eventually is going to impact the whole industry, even volumes as well.

Do you see any trends from your discussion and negotiations with the smelters, do you see kind of a panic moment arriving giving the smelting treatment charges they are now?

Everybody's in a panic about smelters but Freeport, the fact that the more money we make at the mine, because of the charges being lower at the smelter, as you know, it's benefited the shareholders.

What we have to tell you is we continue to look at the plight of the industry to see if there's a way for to us benefit by the ownership of these and not have them be at a reduced value just because we own them, and if there's anything we can do to see this in a better structure but still keep a significant hedge against TCRC charges you can count on the fact that we continue to talk to the industry and look at the industry to see what we can do because clearly the TCRC, with the charges where they are, and even on the long-term and spot, the smelter business is not a good business to be in unless you're in the mining business, and have big mines that can take the benefit of this integrated structure.

So, we will be very mindful and hopefully creative as we go forward, to try to find a compromise, if there's one available, to in essence keep our hedge but also have every effort to bring more value forward for the smelters.

And let's hope there will be some opportunities because everybody else is panicking but us.

Okay.

Richard, one quick question.

You said two-thirds of the issue was tendered, one-third was not tendered.

Where does the one-third stand?

Is that something philosophical or something that is structural?.

You'd have to ask the holders.

I mean, in our position we followed the SEC rules, we offered to buy the bonds at a certain price, and then we increased that price and the offer had to stay open a prescribed length of time and people who wanted to tender, tendered and we closed out the offer and bought the ones that were there.

We still have the ability in the marketplace to buy bonds in the marketplace, and it's just a question of the holders, how they assess the value of their tender offer.

But in relation to the interest that they're receiving.

So two-thirds said yes and one-third said they want to hold the bonds for now.

Just a comment on that.

We talked about the Indonesian and the political situation.

I think that this bond issue and the way it came in when we tender for it is a pretty good indicator of what we were talking about earlier about how people look at the stability of Indonesia versus a year ago or two years ago.

If you had tendered this thing two years ago, you'd have gotten every time of every dime of these bonds overnight.

In this case, as you can see, people felt the first bonds due in December were defeased examined now you have people in '06 looking at defeased.

I presume what they were looking at, they're getting 7.2 on the money, what are they going to do with it if they turn it into bonds?

Where are they going to invest it in an area they would be better suited, they must not have been able to find a home for it.

All we can do is presume this is an indication of the people's appetite for staying in an Indonesian investment, that along with the fact we just sold a billion worth of new securities and the debt market and convert market.

So, I don't know if that's a good barometer for you but that's the way I interpret it.

a silver lining after all.

Yeah, and here are bonds that were selling at such a discount, as short period of time ago, and in late 2001, that they were yielding in excess of 15% and now people are holding them even though we're offering them a premium to them, and that's quite a remarkable change.

We have several other questions and we'll keep the lines open for those questions.

We're reaching the end of our scheduled time, but we will stay here and answer questions as long as there are questions.

I do want to make a couple of comments for those who might be dropping off.

Just in terms of providing some assistance for those who do models, going into the second quarter.

A couple of things to take into account.

Is that our refinancings will result in some charges related to the premiums that we're paying and the -- peer paying, and cost associated.

Based on what we've done that will be $4.7 million recognized in the second quarter, $.03 cents a share.

Some time ago that was an extraordinary item, the accounting rules now say that its as part of your regular net income, but it is a one-time item.

Another factor, and Tony this goes back to some of your questions about taxes, but another factor relating to our business is that in periods of where we have increasing revenues for sales, and in the second quarter we will be having increased gold sales as we move up to 700,000 ounces, and the amount of sales will of course be determined by the price of gold.

But with those additional volumes, we will have higher deferrals of intercompany profits in the second quarter.

That all depends on when ships go to Atlantic Copper and the timing, so there's uncertainties, but based on our current shipping schedule, we would anticipate an additional reduction in income of about $.05 cents a share, that would offset the higher revenues from the sales.

So I wanted to get those two items in on the public record so that everybody knows about them.

In light of the fair disclosure rules of the SEC. 401 give guidance for those who model quarterly results, you have that information available to you.

And operator, with that, we will continue with the questions that are cued up.

I'm sorry.

Our next question comes from the line of Albert Arias, from Goldman Sachs.

Please proceed with your question.

Thank you, gentlemen.

Just very quick.

You mention in your presentation about the evolution of expansion options that you're considering at the DOZ underground operations.

If you could please elaborate a little bit about the timing of those potential expansions and how would that affect your production profile, and, you know, my understanding was there was not going to be any major increasing processing capacity over the next few years.

Is this a change from that strategy?

Remember, our slogan of this company is expiration drives the mining plant and the DOZ as we've drilled out the bottom of the (inaudible) has increased from 100 million tons to 500 million tons and continues to increase as we continue to drill and find more high quality ore in association with this ore body.

And the DOZ, which we basically have finished the original commitment, we're just putting the finishing touch on it, was supposed to be a 25,000-ton/35,000 ton, but 35 was pushing the upper limits and we've mined up to 40,000 tons already, but as the footprint size increases, we continue to look at how we can take more ore from the DOZ, since it's bigger and our infrastructure appears to handle it without any substantial increase in cost.

We're looking at the possibility of that DOZ now having the upper reaches of 50,000 tons, we're actually producing 50,000 tons plus below and on the ground but some of that is coming from the IOZ, which is the intermediate zone right above the DOZ, and it will deplete sometime in the 203 and we believe with the few that we can expand the mining rate to possibly be between 40 and 50,000 tons just from the IOZ, and with similar grades.

And of course, that would be a substantial increase in what we were -- we had been projecting because what it would say is we would keep, have a potential to hold our 40/50,000 ton production rate even after the IOZ depletes it.

It represents 21% of our fee and if we can hold that with just the DOZ, because it has grown so significantly, that would be a significant impact on our mining rate.

Yeah, to give you just an indication of how little capital would be involved, the original DOZ project, which was 25,000 tons a day, was about $240 million in total, shared 60/40 by PTFI, and Rio Tin Tow, it was only $35 million to up that to 35,000 a day which was nameplate production capacity of where we are today, so we would see the ability to increase it beyond that and we are looking at 50,000, which would be twice the original target.

It's something that would involve relatively little capital and the capital would have extremely high returns and short payback period.

So it's very good economics and Jim Bob said, all driven by the quality of this ore body and how we're able to add to it.

I'll just remind everybody that this mill that we are now operating was initially designed to run at 190,000 tons a day since very early on, because of the ore that we've had available to it and the nature of -- and how well it's operated, we've been operating it at 230, 240, 250,000 tons a day.

And it is permitted up to 300,000 tons a day which gives us the opportunity to add to that without new permitting, with little capital at the mine and little capital at the mill, which would give us very high returns on whatever money we do spend.

the timing of this would be after the end of this year, or are we talking about --.

We're looking at it right now, and we'll report to you as that analysis continues, and --.

What happens on the time is since we're down there finishing off the DOZ, we just continue to leave our crews there and as we decide how we can take more of this ore, and widen the block cave, that just is a continuous process.

That's why the incremental cash flow, incremental capital expenditure, excuse me, is nominal and remember this is the footprint has grown so significantly since we made our original net 25,000 ton a day estimation, so the good news there is we spent the money for 25,000 tons and with a small incremental increase because the expiration had been positive, we can double our production and you can all make your own calculations what that does to our rate of return.

This is not in your cap ex for this year because the studies are not finished or you have anticipated this and it's already part of your cap ex?

No; the cap ex includes the increased 35,000 tons.

We've spent actually $31 million of the $35 million in the first quarter.

So we are continuing to study it and we'll be reporting to you as we go forward and if there's additional capital, again, the additional capital would be split 60/40.

All right, thank you very much.

Our next question is from Tony Lesiak with HSBC securities.

Please go ahead with your question.

Good morning.

I have a couple of questions.

The first one pertains to the other $650 million in repayment scheduled for the remainder of 2003.

What are the expected retirements buy instrument and could you outline what additional repayments might be possible? .

Okay.

I'll give you the 975 for the year.

Okay.

That's $279 million of bank debt, $383 million of senior notes, $90 million of scheduled repayments on our infrastructure financing, which is principally our PJP power deal. $15 million of Atlantic copper and $270 -- $207 million which would be the cash requirement for our series 1 gold denominated preferred stock at $325 dollar gold.

So that totals $975 million .

We are looking at all obligations on our balance sheet, we have some financing alternatives with those gold preferreds.

We have some other maturities that we are currently considering and we'll report to you about those as we go forward with it.

Since those involve negotiations, we want to not say much about it until we get involved in those negotiations.

Okay.

Just a follow-up, then.

What cash position are you comfortable with carrying going forward?

What cash position.

Well, what we'd want to do, we would want to look at our cash availability that would come from the cash that we would have on hand, and we're also considering, we have -- we terminated our old bank credit facility.

We are considering putting together a new backup bank credit facility.

We have a temporary one in place now, but we're looking at having one and that's also under consideration as to the size.

It would not be a one anywhere near as large as the billion-dollar facility we had in the past, but we would want -- we were considering having one strictly as a backup standpoint.

So all of this would have to do with looking at our cash obligations, the decisions that the board ultimately makes about where our dividends and potentially our stock buyback program goes, about potential investments if development opportunities come to us through our expiration program and that's a dynamic situation that our board looks at every quarter.

Okay.

In terms of the interest expense, could you give us, I guess, your best guess for the year, based on these scheduled repayments?

for the average interest -- for the interest costs of the year?

Yeah.

At the present time, we would be looking at approximately $200 million .

Okay.

Now, that, I want to say, is contingent on and subject to whatever actions we take in the financial steps that I outlined earlier.

Okay.

And the final question relates to the Aussie dollar impact on cash operating costs.

Was there one, or do you foresee one, I guess in the near future?

It's relatively minor.

It's-- there was some -- there was some impact. $.05 cent change in the Aussie dollar affects our operating cost by about $10 million .

Just as background, about a sixth of our operating costs are RUPIA-denominated.

That's primarily labor although some materials we buy in Indonesia.

The remainder is relatively small amount of Australian , some small amounts of Singapore but the bulk is U.S. dollar and that's at PTFI.

Thank you very much.

Sure.

Our next question goes from Soi Gong Gim with CS First Boston.

Please go ahead with your question.

Thank you for the call.

I have two questions.

Given that your capital structure is very aggressive.

Can you give us an idea of the level of debt to capitalization ratio that you would be comfortable working with in the long-term and when do you think you will be able to achieve that?

And my second question is, a follow-up to the earlier questions about share buybacks.

Can you give us an idea on the process that you would go through in determining the priority and the usage of free cash flows going forward for debt reduction or dividend payouts or share buybacks.

Thank you.

Let me just say that with our maturities stretched out for ten or 11 years, we're going to be a lot less concerned about debt to equity ratio, I know it's a very important parameter and you determining the financial health of a company.

As you look at our maturity schedules now and see that we've in essence taken on maturity schedules out ten or 11 years, excuse me, 2010, 2011, what we would like to do is to tell that you we're going to look at our cash flow, which would depend on what copper prices and gold prices are, we'll look at amount of money that's necessary to service our existing interest expense as most of this debt as you know is either infrastructure debt that is say a leaseback or will be these long-term securities that we've entered into.

We'll take a hard look at the usable cash flow over and above that in determining the use of the money.

And the exact formula as to how that money would be deployed in terms of dividends, debt pay down, share buybacks is going to depend on the velocity of the revenues we get, which will be solely tied to the price of copper and gold.

And that's about as much detail as I think we would be prepared publicly to give you as to what the parameters we look at to determine where this money ought to be deployed.

Let me just add a couple of comments.

One is, we very strongly, and I want to use the word very strongly, feel that we do not have an aggressive debt level relative to the assets of our company, the cash flows that our business generates, and our maturity requirement.

The current amount on our books, on our balance sheet of stockholders' equity, which in traditional financial statement analysis, you look at the relationship of debt to book equity, our book equity has been affected by the company's history of paying dividends and having stock buybacks.

That number will change as the convertible offering of $600 million , which is callable beginning at the end of July of '04 goes into equity as we're comfortable that it will.

But when you look at our debt in relation to the market value of our equity, we're at about 50%.

And we believe the value of our assets are at least twice that's reflected in our current market value of our stock.

So from that perspective in relation to the fundamental value of our assets, our debt is really only like 25% of the total enterprise value.

So I think my schedule that shows the amount of cash flow that we have on hand and we're talking about having $450 to $500 million of cash in the bank at the end of this year, with only $100 million on average of maturities for the next two years, after the conversion of the convertible in '06, $300 million that year and less than $100 million for the next several years, and remember we have twice the number of reserves underground that we had from our existing producing reserves, our company's debt level is very manageable and something that we're very comfortable with.

Okay, thank you very much.

Our next question comes from Dan Roling with Merrill Lynch.

Please go ahead.

Thank you.

I thought I might get one more in.

Jim Bob, if you have a choice, everything else being equal, security not an issue, are you going to spend your cash on expiration or share buybacks?

If we have expiration opportunity, we'd spend on expiration, and mainly that's the easy answer because the amount of money we spend is insignificant compared to our cash flow.

I mean, you can get a lot done now that we have all of our beach head established there, we operate all of our expiration programs, we operate all of them out of job site, both low lands, uplands, all the back up for core analysis, logistics, and that means that we can send these swat teams out and get the drilling done, get the cores back to job site by helicopter.

If we didn't have a beach head it would be a huge expense.

As a matter of fact, the people we watched around us when we had people there in JAYA, 60% of the cost would be logistical cost.

In our case, 15 to 20% is logistical cost because we have all this logistical stuff in Tamika (ph), and Timbagipura (ph), we don't have to reproduce to go out and gather new data.

So it's such an insignificant cost compared to our cash that we wouldn't even hesitate to go in and get back full swing and the expiration business in the (inaudible) areas.

Thank you very much.

Yes, Dan.

There are no further questions.

Please continue with your presentation or your closing remarks.

Well, we want to thank everyone for their participation, and as usual, we're -- we are available for any follow-up questions that are -- or comments that you may have, and we look forward to continuing to reporting to you as 2003 progresses.

Ladies and gentlemen, that does conclude our conference for today.

We thank you for participating, and ask that you all please disconnect your line.--- 0