費利浦·麥克莫蘭銅金 (FCX) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Freeport-McMoRan Copper & Gold first-quarter 2005 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) I would now like to turn the conference over to Kathleen Quirk, Chief Financial Officer. Please go ahead, ma'am.

Good morning, everyone. Welcome to the Freeport-McMoRan Copper & Gold first-quarter 2005 earnings conference call. We released the FCX earnings this morning, and a copy of our press release is available on the FCX website at FCX.com. Today's conference call is being broadcast live on the Internet, and we also have several slides to supplement our comments. We will be referring to the slides during the call. You can access the slides using our webcast link on our FCX.com website homepage.

In addition to analysts and investors, the financial press has also been invited to listen to today's call, and a replay will be available by accessing the webcast link on our Internet homepage later today.

Before we begin today's comments, we would like to remind everyone that today's press release and certain of our comments on this column include forward-looking statements. We would like to refer our participants to the cautionary language included in our press release and our slide presentation and to our risk factors described in our SEC filings.

Also on the call today are Richard Adkerson, our President and Chief Executive Officer, and Jim Bob Moffett, Chairman of the Board. I will start by briefly summarizing our financial results and then turn over the call to Richard, who will review our operations and our financial outlook. Then we will open up the call for questions.

Today FCX reported first-quarter 2005 net income applicable to common stock of 130.4 million, $0.70 per share, compared with a net loss of 19.6 million, $0.10 per share for the first quarter of 2004. Last year's first-quarter results reflected accelerated waste removal efforts resulting in the mining of lower grade ore following the pit wall slippage at the Grasberg mine during the fourth quarter of 2003.

Our first-quarter results included net deferrals and profits on PT-FI sales to Atlantic Copper and on 25% of PT-FI sales to PT Smelting, resulting in a decrease to net income totaling 34.2 million or $0.17 per share, compared with an increase to net income in last year's first quarter of 24.8 million or $0.13 per share in the first quarter of 2004.

Our diluted net income per share for the first quarter of 2005 reflects assumed conversion of FCX's 7% convertible Senior Notes, resulting in the exclusion of interest charged to expense totaling 10.3 million and the inclusion of 18.6 million shares. This instrument was not dilutive for the prior year first quarter.

Our first-quarter 2005 sales totaled 328 million pounds of copper and 595,000 ounces of gold, compared with 105.4 million pounds and 123,800 ounces in the first quarter of 2004. We are on track with our projected annual sales for 2005 of 1.5 billion pounds of copper and 2.9 million ounces of gold net to our interest. Our first quarter realized copper price was $1.51 per pound; that is 13% higher than last first quarter's average. And our gold prices of about $427 per ounce were 4% higher than in the first quarter of 2004.

We generated 162 million in operating cash flows during the quarter and reduced our total debt by 183 million. Our debt totaled 1.77 billion at the end of March 2005, 1.46 billion net of 310 million in cash on hand. We also paid common dividends totaling 135 million during the first quarter, including 90 million for a $0.50 special dividend paid at the end of March. I would now like to turn the call over to Richard Adkerson.

Good morning. I hope everyone by now has had the chance to see our 2004 annual report that we recently published, and the dramatic picture of the highly mineralized rock sample from the floor of the Grasberg open pit mine that is on the cover of it. We titled our annual report "Making the Grade," and that reflects our success during 2004 in returning to the high-grade portion of the Grasberg open pit, following the mine incidents that we had in the third quarter of '03.

In the first quarter of '05, we made a very positive first step in having the highly successful year that we expect to have this year, as we continue to have access to higher-grade material in an exceptional way. Our first-quarter metal sales, our Company share of those sales of 328 million pounds of copper, was essentially consistent with the guidance we gave earlier, a bit larger with average copper realizations of over $1.50 a pound. We sold 15% more gold ounces at almost 600 million ounces during the year, at over $425 an ounce; and we expect to have continuing high volumes as we go forward.

Our unit cash cost of production, net of our gold credits, was $0.07 a pound. Our operating cash flows were $162 million; and capital expenditures were 26 million, continuing a trend that we will see going forward of having high operating cash flow and low capital expenditures. Our cash operating cash flows during the first quarter were lower than they will be for the remaining nine months, for working capital timing reasons. We paid significant taxes in the first quarter, for example, including taxes on our insurance settlement that we realized during the fourth quarter.

We have talked about using some of our cash to prepay debt, and we executed on that plan during the first quarter. We paid $183 million of debt during the first quarter, including significant amounts in advance of their scheduled maturities; and our total debt by the end of the quarter had dropped to $1.77 billion, and $1.46 billion net of $310 million of cash. That includes $578 million of a Convertible Bond that is today well in the money.

We paid a total of $135 million of dividends on our common stock during the first quarter. Our regular dividend of $0.25 a share, and our second special dividend we paid $0.50 a share in March after paying $0.25 a share during December.

On our next slide, we summarize our copper and gold sales and our net cash cost of production. Our Company, as you know, is in an enviable position of being a high-volume producer with an extraordinary low-cost situation in an industry where the average cash costs are currently approaching $0.50 a pound.

At copper prices of $1.40 and gold at $4.20 for the balance of the year, taking into account the first quarter realizations, we would anticipate that our operating cash flow would exceed $1.2 billion, which would give us over $1 billion of operating cash flows in the last three quarters of the year. After taking out expected capital expenditures for the year's scheduled debt repayments and our regular dividend during the remaining three quarters, that would leave us over $600 million of available cash. And that would be after paying, as I said, $1 in regular dividend.

We continue to see strong markets for our metals. The first quarter for 2005 in the copper market was stronger than many analysts had anticipated because of continued strong demand from China, which of course has had very high growth rates in recent years and today is the largest consumer of copper. That strong activity continued in the first quarter. And with the level of growth rates in the U.S., copper inventories continues to stay at very low levels. Prices rose to record levels by the end of the quarter.

Going forward, the market continues to be fundamentally strong because of demand factors and the absence of large new copper projects in numbers that are significant to the marketplace. Copper production will increase during 2005. A significant part of that increase will be the return of existing mines to their normal levels of production, including the year-on-year change in our operations as well as other mines. So what we see is the fundamentals of the copper being very strong in the intermediate term, and very pleased about where our Company is positioned in that industry.

Gold prices continue to be supported by the weak dollar and deficits in the U.S. and currency factors. Those will continue to drive the market going forward.

There has been, as those of you who follow the industry closely recognize, a very dramatic change in the copper concentrate market. That is the product we sell out of PT-FI's copper concentrate. That market has changed dramatically from a year ago, when the contract price for the processing charges that TC/RC charges was less than $0.10 a pound; and now it has risen to more than twice that level. And the market continues to be tight in terms of smelter availability.

For our Company's situation, because of our downstream investors' investment in copper smelters, the effect of changes in TC/RC rate essentially offset in our consolidated results, net of taxes and minority interest. We sell about 25% of our concentrates to Atlantic Copper, just over 25% to Gresik, and the remaining 50% at PT-FI goes into the marketplace.

This will be a very interesting year as new smelters come online, as maintenance practices, maintenance activities at other smelters change. There is an expectation that the market will be more balanced by late in the year and going into next year. But in any event it is important from our Company's standpoint to recognize that, while we did not benefit from the low TC/RC rates in past years, we will not be adversely affected by increases as we go forward.

We continue on page 7 to give the same guidance we did at the beginning of the year for our mine plans for coming years. We continue to expect to have 1.5 billion pounds of copper sales in 2005, 50% more than we had in '04; and roughly twice the gold sales at 2.9 million ounces; and then returning to normal levels of copper and gold sales as we go forward.

We had available to us this year significant amounts of high-grade ore because of the mining activities that we had in 2004, where we deferred mining high-grade ore as we were dealing with the 2003 mine situation. Past this year, we will be back in the more normal levels that will reflect the sequencing of our mining.

We have a chart on that, two charts on that, on pages 8 and 9, which indicate in the colored charts, which are shown on your computer screen, where our high-grade material is located in Grasberg mine. This is essentially located at the bottom levels of the pit, in the so-called golden horseshoe, where we have extraordinary grades; and particularly for gold at those levels. You can see at the charts the blue area has the lower-grade material, going to the red areas where we have greater than 3% copper equivalent.

At any given year, our mining activities consist of a combination of mining waste and lower-grade material from the upper levels of the pit as well as higher-grade material from the lower levels. During 2005, because of our mining activities in 2004, we will be mining very high-grade material from our 6 South primary pushback in '05. You can see we will also be mining lower-grade material as we prepare to mine 6 North in '06, and so on. By '07 and '08 our primary high-grade material will come from the 7 South pushback and then moving deeper into the pit.

I have read in certain reports about falling grades in the Grasberg as we go forward from '05 to '06 because our volumes fall out. It is not really a question of grades. In fact, as we get deeper into the pit -- and the pit has about 10 years of life remaining -- in the last years of the pit we will be in very high-grade material essentially with low amounts of waste to be mined. It is simply a question in any given year as to how we sequence the mining of waste and higher-grade material as we go forward.

Page 9 shows how this will change quarter-to-quarter and it reflects how much high-grade material we will have available to us in any particular quarter. You can see our material is coming from 6 South; and by the third and fourth quarters we will be mining very high-grade material, which will give us the ability to have such high copper and gold sales for the year.

The quarterly sales are presented on page 10. We will have essentially the same levels of copper production expected in the second quarter, and then increasing significantly in the third and fourth quarters. In gold sales -- which, as I mentioned, the gold mineralization is more highly pronounced at the lower levels of the pit -- we will be stepping up from 600 to 650 to 750 to 900,000 ounces during the year. Again this is our share of the production there, net of Rio Tinto's joint venture share in the production. That is what will allow us to have the really extraordinary year as we go forward.

Page 11 presents our net cash costs and of course reflects the substantial benefits we get by having such high degrees of mineralization of gold in our ore. In this analysis, we show our gold revenues as credits to our cost. At $425 gold and our current cost structure, we are now looking at a net cash cost of about $0.02 per pound.

I want to point out that this is net of our deferred stripping costs, which would be about $0.05 a pound during 2005. We, as many other mining companies, have had an accounting policy for the history of our Company of averaging our stripping cost over the life of the pit's operations. This has been a matter of discussion within the accounting profession and the SEC in recent years. In March of this year, a new accounting rule was adopted that will require the stripping costs essentially be expensed as they are incurred. This new rule is expected to be effective for 2006. When that rule is put in place by our Company, we will be reflecting those costs in this cash cost analysis.

All mining companies, in fact all industrial companies, are seeing the effects of noncontrollable elements on their cost structure. And we are seeing, and these numbers reflect, increases in diesel cost; currency FX -- about a sixth of our costs are Australian dollar denominated cost; some impact from our coal cost; and materials cost because of higher prices of steel and the like. Those things are issues that we have to deal with, and we are working with initiatives to offset those as we go forward.

We benefit by having our electricity generated under long-term coal contracts and by having long-term relationships with our suppliers. But these costs are elements that affect our business, and we are working on several initiatives to work to offset them.

Our capital expenditures that we expect for the year continue to be at about $180 million. This reflects some deferral of costs that we expected to occur in 2004. Then going forward, our costs drop to a range of 130 to $150 million a year, averaging 145 for the next five years.

This includes the continued expansion of the DOZ mine to its sustainable rate of 50,000 tons per day; and that project is progressing well. It has very high returns. As well as the development of our Common Infrastructure project. We're putting in a new tunnel or adit system 400 meters below our existing tunnels. This will provide access to the development of our significant undeveloped underground reserves as the Grasberg pit depletes, as well as assist continuing mining operations and giving us the ability to explore at depth in areas that we have not been able to reach before.

Page 13 lists our current development projects that we have currently reflected in our capital expenditure outlook. The DOZ project, which is shared 60/40 under our joint venture with Rio Tinto, is a $62 million high-return project. A Common Infrastructure project is progressing on schedule. Then we are looking at, we are doing several projects to improve our mill optimization recoveries and so forth.

We also have a project that we are completing the analysis on and will be presenting to our Board for approval. It is the development of the Big Gossan mine, which is one of our undeveloped underground mines, which has been in our reserves for some time. It will allow us to develop this mine and achieve a couple of strategic objectives.

First of all, it is a financially attractive project. It has very good rates of return, 23% after-tax rate of return at $1.25 and $400 gold; and good returns even at significantly lower commodity prices. It will give us at full rates (ph), which will ramp up beginning in 2008 and reaching 7,000 tons a day by 2010, of 135 million tons of copper a year and 65,000 ounces of gold. This will provide us production during the transitional period that we will have in going from the open pit to our underground operations. Our total recoverable metal from this project are 2.3 billion tons and 1.1 million ounces. I said 135 million pounds of copper instead of ounces, of course.

But it will also allow us to continue our efforts to train our workforce for the very large-scale underground operations that we will be undertaking after the depletion of the Grasberg pit. So this is a good return project, and in addition it provides us some significant advantages. The total capital to our Company's interest is $195 million; and that will be spread over four years. It is not included in our current numbers, but we will be presenting this to our Board for approval, and we expect to go forward with it.

The Common Infrastructure project is shown. It's a schematic that is presented on the next slide. As I said, this will come in at the 2,500 meter elevation, 400 meters below the Amole tunnel. It will provide access to our DOZ and deep MLZ reserves, the reserves that lie adjacent to and at a depth below the existing producing DOZ, the Grasberg block cave which lies underneath the Grasberg, the Kucing Liar and the Big Gossan. This is an important project. We began it last year and are making good progress on it at the current time.

On page 16, we see the map of the island of New Guinea divided between Papua New Guinea to the East and the Indonesian province of Papua, formerly known as Irian Jaya, to the West. The mountains that cut diagonally across the mountain range have had significantly more exploration on the PNG side of the island; and a number of mines were developed. We have the only mine in the Indonesian sector, and we have had exploration rights to a broad area of the mountain range that goes through there. Based on exploration work that we had done in the 1990s, we had identified a number of interesting prospective areas to pursue. Those operations were suspended with the low commodity prices and the impact of the change in government in Indonesia on our cost of capital.

We retain those rights and are looking forward to the time of getting back into the field and pursuing those. This is the focus, the limitations of our exploration areas, our efforts. But it's one of the most highly prospective areas in the world. As I said, as a management team we are very excited about this opportunity going forward.

Currently, though, our focus is on generating cash flows and providing returns to shareholders. Our ability to do that is illustrated by the chart on page 17, which looks at annual average cash flows, averaging the next three years of volumes using our cost structure and looking at our annual dividend requirements for our common stock and our preferred stock with our regular dividend of $0.25 a share. As you know, we initiated a dividend in the first quarter of '03, have increased it twice to now $0.25 a quarter.

Even at significantly lower copper and gold prices than we are currently realizing, we will be generating substantial amounts of additional cash flow above our dividend requirements; and that is after paying our capital expenditures. As I said, for this year, with a continuation of the current levels of prices, it would be over $1.2 billion with $180 million of capital expenditures.

Our debt situation is presented on page 18; and this reflects the $187 million of debt payments that we did in the first quarter of '05. We prepaid some of the near-term maturities, which will increase the amount of available cash flow above required debt payments going forward. We're continuing to assess potential opportunities for dealing with our recently issued securities, the 10 1/8 notes, the 7% converts, and the 6 7/8% notes. Their call terms make those securities challenging to deal with in the very near term, but you can see that we have a very manageable debt situation that we are entirely comfortable with. With our cash flows we will be able then to focus on returning debt to our shareholders.

Going forward, our Board will continue to review our regular dividend payments. We want to set the regular dividend at levels that are sustainable over (ph) copper prices. We will be generating substantial amounts of additional cash.

We have a share buyback program, an authorization for 20 million shares. We bought back just over 3 million shares in 2004 during the first quarter. When, with working capital changes, our cash was constrained, we made a decision to use excess cash that we generated then to prepay debt. Beyond the first quarter we will be able to assess opportunities for buying shares back, for looking at the appropriate level with our Board for the regular dividend, and potentially having the opportunity to pay additional special dividends.

With that, we would like to open the phone line for questions. Jim Bob is here on the line as well and will be available to respond to questions that you may have.

Operator?

(OPERATOR INSTRUCTIONS) John Hill from Smith Barney.

Good day, everyone, and congratulations on a strong result. I was wondering if you could just talk about the gold production profile a little bit this year. There has obviously been some minor changes with production now ramping through the year, peaking Q4 instead of Q3. Could you just describe some of the sequencing changes that lead to that?

Yes, we were able to advance some metal into the first quarter as we were executing our plan going into the year. So we had 15% more metal that we achieved in the first quarter. As a result of that, that affected the design of the mine plans going forward. That simply reflects, John, the change in sequencing.

Obviously, as we go into a particular year, a particular quarter, in fact on a day by day, week by week basis, our operating team continues to evaluate our operations and looks for opportunities to bring metal forward. We will continue to do that. So the changes that you see are no more than a reflection of the effects of how we executed the mine plan in the first quarter.

Great. Also if you could just provide a little bit of insight into the TC/RCs you are paying on the 50% or so or production that does not go to Gresik or Atlantic Copper. In other words, that sent to Japan and elsewhere. What level of TC/RCs do you have locked in?

Okay, John, let me just make a couple of background notes. We're one of the two largest suppliers of copper concentrates, custom concentrates, into the marketplace along with the Escondida mine in South America. The 50% roughly that we don't sell to our affiliate smelters goes into Asia, as you would expect, because of the transportation effects there. We have had long-term relationships with the Japanese smelters who have been customers of our for over 30 years now. We also sell into the Philippines and into Taiwan, India, and some into China.

Our specific rates that we negotiate with our customers are confidential. But it is widely reported that the long-term contract rates that were negotiated during the fourth quarter of 2004 were in the range of 85, 8.5, which is about $0.22. We sell substantially all of our concentrates under long-term contracts and very, very little into the spot market, 2% maybe. That equates to about a $0.22 a pound.

That phases in over a two-year period, since most of our contracts are under what is called a Brix system. We negotiated this rate for two-year periods. This particular year, half will be the year-before rates and half will be this rate.

There are some smelters who have mid-year contract negotiations. We have only one small contract, and so we will be renegotiating our rates going forward in the fall of 2005. As we have seen, the market changes dramatically. So for the present time we basically have long-term rates for our half that is roughly half $0.22 and roughly half $0.14 from the prior-year.

Great, thanks; and congrats again on a strong quarter.

Thanks, John, and as I mentioned, and I know I have said this once, but I will mention it again, to the extent we pay higher rates at PT-FI, we end up getting higher revenues at Atlantic Copper. We report these as separate business segments in our financial statements. But in the consolidated results, because we have no taxes at Atlantic Copper, our minority interest, they essentially offset.

Lee Cooperman from Omega Advisors.

I guess I am trying to get either under your kimono or into your heads, if that doesn't sound too aggressive, in terms of understanding the Board and management's priority in the use of the free cash flow. If I understood what you said, that after the dollar dividend you have about $600 million of availability this year. If I recall, the 3 million shares you bought last year were bought around 30. A year has gone by since April of last year.

All things being equal, meaning budgets don't change, stock price is where it is, the world is where it is, how would you prefer to utilize that 600 million cash available between stock repurchase versus supplemental dividends versus prepaying some debt, etc.? Any help you could be would be (multiple speakers).

Okay, Lee. In addition to the 600 million we also have $300 million of cash going into the second quarter. So that is there. We will retain some of that, say $900 million, for debt repayments next year. We have a first-quarter obligation for the second series of our gold-denominated preferred stock that is due during the first quarter of '05; and we anticipate paying that off at its scheduled maturity.

If you look our debt schedule, while we will continue to look at potential opportunities to pay some of the longer-term debt, as I mentioned, because of their call maturities, those right now appear to be limited as to what we can do. So that would leave the plan going forward to have the $900 million reduced by debt repay, the '05 maturity, the '06 maturity, as well as normal cash that we will need for working capital and safety-net type purposes.

Then the remaining amount is what we're going to be talking with our Board about with, in terms of the level of our regular dividend. Then the decision will be made about stock buybacks and special dividends. Clearly with the recent movement in our shares as well as the shares of other metals companies, that makes the opportunities for buying back stock more attractive.

Can you hear me? The maturity in '06 is what, 253 million if I read the chart right.

That's correct.

(inaudible) Let me just be sure I get it correct. Richard said on two occasions that we had a maturity in 2005. He meant to say 2006, which he finally corrected; and that's the 253 million you are talking about.

But then we got $900 million now, minus the 253, plus you are going to generate free cash next year again. So you could probably have upwards of over $1 billion that you have to kind of think about using over the next 12, 18 months.

And it continues beyond that. That is the story. We have very low levels of capital expenditures, very low levels of operating costs, high volumes, and depending on commodity prices it will continue to be significant amounts.

Lee, the answer is we have got limited opportunities to pay back debt because, other than that 2006, the other bonds are all in the money. But the call on it makes it impossible to do anything very creative. But we continue to look at that.

I guess I am really thinking -- I'm not even thinking about paying back debt. I guess what I got on my mind is I see all these LBO firms standing up and taking companies private, which is not as suitable for us. But what about -- in the past you've included charts about net asset value and things like that. What about creating some forward purchases of the stock to create some debt maturities in '07 ',08, '09 which you don't have; and buy forward, if we have a feeling that the stock doesn't reflect the underlying asset value of the business?

In essence, what you are saying is a good creative idea, and we're looking at all of the above.

Got you. Okay. Thank you. Good luck.

Daniel Roling from Merrill Lynch.

Richard, going back to the accounting rule change that you were talking about, with having to expense the stripping, deferred stripping. Will that lead to a write-down or an expensive of the accumulated deferred stripping sometime late this year or next year?

Yes, that will -- it is a reduction in the past year's amounts. At the end of March, that was $250 million. So that will be in effect, through -- they will allow either a restatement or what is called a cumulative effect to be a below-line item for the current year. But that would flow into income, into shareholder's equity, retained earnings, at the time we adopt that new accounting rule.

Currently, that is required to be adopted in 2006. It could be adopted earlier, optionally. That number net of taxes and minority interest would flow through to our retained earnings, our income and retained earnings.

Okay, thank you.

Wayne Atwell from Morgan Stanley.

If you could turn to Page 13 on your slides, and go through those projects, and tell us what status they are at? Are these all under development?

The projects on Page 13 are all under development. They are all included in our current capital expenditure outlook, and they are all progressing according to budget.

The DOZ 50K project will be completed by 2007. You may recall, Wayne, that this mine was originally designed as a 25,000 ton per day mine. We spent a little capital, included the 35,000 tons. It has been operating consistently at in excess of 40,000 tons. By spending some money on a new crusher and some ventilation, we are going to be able to sustain the rates at over 50,000 tons a day in the long run.

This is a very positive development for our Company because, not only is it a great project by itself, in fact it may well be the largest single block caving mine in the world. But it's a great indication for where we will be going in the long-term future as we develop the Deep Grasberg and the KL and whatever other ore bodies that we have.

So this would add roughly 10,000 tons?

About 10,000 tons, yes, on a sustained basis.

The other two, when do you think they would be finished?

The Common Infrastructure project --

End of '06?

-- is an ongoing project. We will have the access to the Big Gossan by '06; and then to access to the Grasberg block cave, which will be the initial significant source of new ore following the depletion of the pit by '08 or '09. We will begin the infrastructure development for the block cave mine at that point as well.

And the mill optimization, is not just ongoing?

Yes, that is some specific projects that -- looking at opportunities that we have to improve recoveries and efficiency within the mill. That is ongoing.

Thank you.

Victor Flores from HSBC.

A couple questions with respect to Big Gossan. Can you give us a sense, if you can, as to what the operating cost structure will be at the mine?

Yes. This mine will be different from the DOZ and from our plans to develop the Deep Grasberg and the KL, in that it is going to be an open stope mine. Its operating cost per ton, based on our feasibility studies, are at $14 a ton, whereas we are currently at roughly $4 a ton for the DOZ. Our outlook for the very large block caving operations that we will have at the Deep Grasberg is lower than that.

So it has a higher cost structure, but it also has significantly higher grades. This mine will have roughly 3.3% copper equivalent grades as we go forward. So the fact that it has such high grades will allow us to mine it using the higher-cost mining technique that we will be using there.

Great, thank you. Just one follow-up. How much cost creep have you noticed in the capital budget? What areas specifically, if there was any or there is any cost creep?

In the capital budget itself, about half of our capital budget currently is for maintenance capital items; and the remaining half of the $190 million is essentially for the increase of the -- for the development of the DOZ, the Common Infrastructure, and other projects. There has been some cost element there increase, but it is not significant in terms of our capital budget.

The area where current cost effects are most significant for our business have been with diesel cost and things of that nature that affect our operating costs.

Sorry, I meant specifically cost creep with respect to the capital budget for Big Gossan.

Oh, for Big Gossan. As we look the additional cost, it was an increase. In previous studies that go back five or six years ago, it was roughly a $150 million project. That increase, some of had to do with scope changes, but our current total estimate of cost is about $225 million.

But that includes both the scope cost as well as we have added significant reserves, 44% more copper and 50% more gold than we had included in our recent 10-K reserves so the scoping study of the project. We transformed it from a reserve type study to the study that we will be presenting for authorization by our Board and by our joint venture partner, have resulted in an increased reserve, increased scope. But that also reflects the reason estimates of the cost that will go into it.

Richard, I might just add that, as you can see from the next slide, where you go Common Infrastructure, one of the things that makes this project so attractive is that the Common Infrastructure tunnels that are driven go right through this deposit. By doing that and (indiscernible) the high grade, the 3.4% copper, 44 million tons, which is a very extraordinary deposit, that is how we were able to add those reserves. And we were able to (indiscernible) the ability to mine it.

In short words, the only difference between the DOZ and the Grasberg underground is that this very high-grade deposit happens to be below the level of the tunnel and mill; but we have to stope it and bring it up and work against gravity. That is what adds the cost.

In saying that, some of the grades at the very top of the deposit are up as high as 6, 8% pure copper. So just a nugget sitting right there. If you look at the infrastructure tunnel, it is just a nugget that is sitting right there underneath the tunnel. That is what has let us add new scope, as Richard says, and even though the cost is higher you are getting substantially more copper and gold.

Great, thank you very much.

John Tumazos from Prudential.

Congratulations on all the progress. In your regional slide, you noted Etna Bay and a few of the prospects a little bit away from the main mine infrastructure. How much is your budget for '05 or possibly '06 for exploration away from the immediate vicinity of Tembagapura? Could you give us an idea, now that you're doing very well financially, as to what the time table will be, at looking at the broad region once again?

Our total exploration budget is about $15 million of our Company's share for 2005, and we will evaluate what opportunities we have for '06 as we develop our budget for those years. But it is currently anticipated to be roughly the same level. That is almost totally in Block A, John. We have not budgeted any significant cost for returning to the areas outside Block A, because that will depend on the resolution of some governmental issues that are currently the reasons why we're not resuming exploration.

Progress has been made on those. The new president, Yudhoyono, has been promoting a very active pro-business pro foreign investment environment for continuing operations. But there still needs to be certain steps taken to allow us to return. When those return we will be designing the specific budget costs for what we will be doing there, and that is when we will be reporting those to you.

Thank you.

Ms. Quirk, I am showing no further questions at this time. I will turn the conference back to you.

Thank you, everybody, for your participation and your interest. If there are any follow-ups, you can feel free to give us a call. Operator, that completes our comments.

Thank you, ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day.

Thank you.