費利浦·麥克莫蘭銅金 (FCX) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Freeport McMoRan Cooper & Gold fourth quarter earnings conference call.

At this time, all participants are in a listen only mode.

Later, we will conduct a question and answer session.

(Operator Instructions).

I would now like to turn the conference over to Ms.

Kathleen Quirk, Executive Vice President and Chief Financial Officer.

Please go ahead, ma'am.

Thank you and good morning, everyone.

Welcome to the Freeport McMoRan Copper and Gold fourth quarter 2008 earnings conference call.

Our earnings announcement was released earlier this morning and a copy of the Press Release is available on our website at www.fcx.com.

Our conference call today is being broadcast live on the internet and will also have several slides to supplement our comments this morning.

The slides are accessible using the webcast link on our www.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 of the call will be available by accessing the webcast link on our internet homepage later today.

Before we begin today's comments, I'd like to remind everyone that today's Press Release and certain of our comments on this call include forward-looking statements.

Please refer to the cautionary language included in our Press Release and slide presentation and to our risk factors described in our SEC filings.

On the call today are Jim Bob Moffett, Chairman of the Board, Richard Adkerson, President and Chief Executive Officer, and we also have our senior operations team here, Mark Johnson, Red Conger, John Marsden, and Dave Thornton.

I'll start by briefly summarizing the financial results and then turn the call over to Richard, who will refer to the slide presentation materials and review our operations and outlook.

We'll then open the call for questions.

Today, FCX reported a Fourth Quarter 2008 net loss applicable to common stock of $13.9 billion, $36.78 per share.

After adjusting for a number of special items that we had during the quarter, which are detailed on Page three of the release, in total, $14 billion, $36.84 per share, our Fourth Quarter 2008 adjusted net income totaled $23 million or $0.06 per share.

This compared to the Fourth Quarter 2007 net income of $414 million or $1.05 per share.

During the Fourth Quarter of 2008, we completed a review of the carrying values of our inventories, including the long lived mill and leach stockpiles.

Our long lived assets and goodwill and recorded after-tax charges totaling $13.1 billion or $34.51 per share.

This was to reduce the carrying values related to the March 2000 acquisition of Phelps Dodge.

These are described on Page 13 of the release and Richard will go into more detail in the presentation.

These charges do not impact cash flows.

During the quarter, we also recorded adjustments to our provisionally priced copper sales that were priced at $2.89 at the end of September and those were subject to final pricing in future periods.

Adjustments for these sales decreased our Fourth Quarter revenues by approximately $745 million, which impacted our Fourth Quarter results by $343 million to our net loss of $0.91 per share.

With strong sales of copper and gold during the quarter, our sales for the Fourth Quarter totaled 1.2 billion pounds of copper, 462,000 ounces of gold, and we sold 12 million pounds of molybdenum during the quarter.

For the year, we sold 4.1 billion pounds of copper, 1.3 million ounces of gold and 71 million pounds of molybdenum.

Commodity prices declined dramatically during the Fourth Quarter.

They averaged $3.61 for the first nine months of 2008 and declined to four year lows of $1.26 per pound in December.

We experienced unprecedented volatility over the last few months.

Copper price was $1.38 at January 23, which was Friday.

Our recorded prices for the quarter averaged $1.55 per pound.

These were approximately 50% lower than the Fourth Quarter of 2007 and operating cash flows were $3.4 billion for the year.

This was net of $1.2 billion in working capital requirements.

Capital expenditures during the year totaled $2.7 billion and we ended the year with $7.4 billion in debt and just under $900 million in cash.

We had borrowings under our revolving credit facility at year-end of $150 million and net of letters of credit outstanding of $74 million, head availability under the credit facilities of $1.3 billion.

In December, we announced revisions to our operating plans and today, we're announcing further revisions to those plans which Richard will be reviewing.

Now, I'd like to turn the call over to Richard, who will be referring to slide materials on our website.

Good morning, everyone.

I'm going to cover our response to the market conditions operationally.

How we're taking steps to limit capital expenditures, to drive our cost of operations down so that we are cash flow positive, even at low prices and how we're reducing cost overall.

I want to review with you to make sure everyone has an understanding of the write-offs that we're reporting today.

We talked about this in December during our last call.

We completed our analysis based on year-end prices and the results are reported today.

And then, to look at our financial outlook and where we are going with the Company.

News every day is talking about markets.

There's not much to add.

Business is weak because of the global economic situation.

Copper inventories have risen.

Not as much as they did in past periods of low prices.

Stocks today represent about seven days of consumption.

It's been limited by supply disruptions, which continue to be a feature of the industry of significance.

And copper will respond to global economic conditions and the continued development of infrastructure in China and elsewhere around the world.

Our business is supported by the strong goal price, which is over $800 and we're producing significant amounts of gold at Grasberg and that's an important feature of our Company and really part of the strategy that we had put in place when we combined Phelps Dodge with our business.

After a rapid decline fairly early in the Fourth Quarter in the molybdenum business, prices have stabilized recently.

This week, we're selling molybdenum at $9.30 a pound and we've adjusted our operations to be responsive to that situation.

Slide four talks about some of the issues that relate to the overall market situation.

Obviously, the market is effected by what's going on in the investment community with hedge funds and others withdrawing from investing in commodities.

As I mentioned, LME stocks are up 225,000 metric tons since the end of September and the market is anticipating further increases in stocks but it's a big question of what goes on in the marketplace.

And obviously, China is a key to that.

When we look at where our business is and what we're doing to be responsive to these conditions, we continue to feel confident about the long run outlook for our commodities.

Outside of the low prices, the industry has struggled.

We had five years of very positive Markets and during 2008, mine supply was virtually flat with 2007.

And underlying all of this current economic downturn is the basic problem as the industry has challenged to find new supplies of copper and the copper that is being produced from existing mines is being limited by falling grades and operational issues and other factors.

We believe that this means that the resources that we have in our Company and even though we've written down the cost, we have the same assets that we have.

We haven't walked away from any of our resources or any of our growth opportunities.

Points to a bright future for our Company and these current market conditions will be supportive of the long run outlook for copper and molybdenum.

And in the long run as China and the developing world continues to require infrastructure as a global economies recover, we're going to be positioned to take advantage of that.

Now, we reported in December the steps that we took aggressively and quickly when the market turned on us in late in the third quarter.

We immediately aggressively reduced cost in our capital spending.

We have a goal of protecting the liquidity of our business.

That's the real key to us to allow us to take advantage of what we believe is going to be a long-term bright future for us.

And we're doing it in a way, as I mentioned, that preserves, our reserves, and our resources, and our growth opportunities, so that we will be in a place where we can respond to a positive impact going forward.

As a result of the steps that we've taken, we will have reduced volumes of copper sales and molybdenum sales in 2009 and 2010, compared with where we are at the end of the third quarter.

Fourth Quarter by the way was a record quarter for the combined companies in terms of copper production and 2008 was a record year, but we were pushing to produce marginal pounds and to expand.

Now, we're reducing marginal pounds and limiting production to drive our unit cost down to be responsive to the marketplace.

And so we currently estimate that we will produce 9% less copper in 2009, 17% less in 2010 and less molybdenum, 25% in '09, 40% in '010.

We'll continue to monitor the marketplace and make adjustments in response to whatever the market brings to us to face.

As a result of the steps we're taking, we're seeing a significant reduction in our unit site production and delivery costs compared with 2008 down by more than a quarter.

We've reduced or eliminated 50% of our planned capital spending for '09 by deferring development projects.

We've cancelled $650 million of equipment.

And we've made reductions in all elements of our business, in our exploration, R&D and administrative cost.

And as you recall, we did suspend our dividends to protect our liquidity and today, we're announcing separately that we're filing a prospectus supplement to give us the ability to do an at the market offering of common stock of up to $750 million.

All of this again is designed to protect our liquidity going forward.

Kathleen reviewed our financial results on page eight.

Our year-end numbers came in in line, slightly better in terms of volumes than what we forecast in December at our update release at that time for copper and gold.

Molybdenum was roughly the same.

We continue to adjust our molybdenum business to reflect the marketplace.

Our loss reflects the writedowns of goodwill and our impairment charges for our property, plant and equipment and our inventory.

So it is a very large write-off, which would be expected but considering the fact that we had the recent write up of the assets in connection with the Phelps Dodge transaction.

And copper prices are half of what they were when we did our purchase price allocation, which we just completed in the first quarter of 2008.

Taking out the special items, the writedowns and other special items that are detailed in our Press Release, we essentially broke even for the quarter, even though prices were low.

Phelps Dodge transaction.

Obviously, the purchase was done in a totally different economic environment.

We put together two companies.

We created the opportunity to expand production and to grow the business.

And that's what we were focused on until midway in September.

We've changed very quickly and have now been responding to that in the manner that I just talked about.

The change in commodity prices requires us under the accounting rules to one -- look at goodwill and when you look at our stock, which was roughly $60 a share at the time of the acquisition, the decision to write-off the goodwill was clear cut and that was $6 billion of the write-off with no tax effect.

The copper prices is less than half of what it was when we did the purchase price allocation.

It was a $26 billion transaction but it resulted in the write up after you took into account liabilities of $40 billion of assets, including the $6 billion of goodwill.

So clearly, that had to be written down and that's what we did, just straight way in accordance with the accounting rules.

Having said that, we firmly believe that the Phelps Dodge transaction was a positive for FCX, as we sit here today.

We generated substantial cash flows during 2007 and 2008.

This allowed us, along with the issuance of equity, immediately following the transaction to pay down a significant portion of the acquisition debt.

$10 billion during 2007.

Our ongoing exploration, which was a major focus of our strategy after the transaction has resulted in us adding to our reserves and also adding significantly to our mineral resources.

Pointing to a good future for our Company and matching up the Phelps Dodge assets with Grasberg, which we always recognize that Grasberg would be the foundation asset for our business during times like this.

Strategically as it continues to be attractive.

The merger was based on longer term view that prices would be volatile and they have been.

We certainly didn't predict what the world was going through but we knew there was risk associated with prices.

And we still feel positive about the set of assets that we have and the Company we have going forward.

The impairment charges are list on Page 10.

We start off with looking at our inventories and our inventories are a bit unusual in many Companies because of our leach stockpiles which are longer term inventories.

We had to write those down to lower cost market using year-end prices and the current outlook for prices and that resulted in roughly $0.5 billion of after-tax write-off.

With the property, plant and equipment, we had to look at the reserves that we had and the mineralized material, using year-end prices and the outlook for prices.

We had to follow really the same analysis that we did when we allocated purchase price.

We had just done this.

So there wasn't any real controversy about how we would do it.

We just used the different price situation and that resulted in $11 billion pre-tax and $6.6 billion after-tax.

And clearly the goodwill had to be written off considering the marketplace.

So that's how we came up with the numbers.

The prices are illustrated on the charts on Page 11.

The blue lines show how we allocate, how we use prices in allocating cost at the time of the acquisition.

At that time, at the close of the transaction, the price of copper was roughly in the $3.00 range.

We use forward prices working down to a long term price of $1.20, which is what we're using for our reserves at the time.

For molybdenum, the price was over $25 a pound and we worked down to an $8 price going out to 2011.

For the impairment assessment that we did as of the end of 2008, we used current prices for a three-year period and then used $1.60 long term, which we're using for our reserves now.

And molybdenum was $8.

So we followed the same analysis and that resulted in the charge that we had.

You all know it's non-cash.

This is just adjusting the carrying amounts that we have on our books.

We have the same assets.

This is not a case of a Company that had to walk away from assets.

We had the same minds, the same reserves, the same resources, the same future growth opportunities.

So we followed the accounting rules and that's the result.

It doesn't really affect the way we're looking at our business or how we're adjusting to it.

When you look at the Phelps Dodge transaction, we acquired $4 billion of cash that the Company had at the time of the acquisition.

Since then, we've generated $7 billion of operating cash flows.

The chart on the right shows the point I was making about the reserves at 12-31-06, the proved and probable reserves under SEC standards for the Phelps Dodge assets was 55 billion pounds.

Two years later after significant amounts of production, high levels of production for the two-year period are SEC reserves are up to 66 billion pounds.

We got mineralized material that has contained copper in excess of that and you could see our molybdenum reserves also increased by 25%.

So we have been successful in doing what we set out to do in terms of building assets for this business.

During 2008, we more that replaced our production of both copper and molybdenum.

You can see the reserve analysis that shows the reserve additions for copper were three times the production and seven times the production for molybdenum.

And over long periods of time the combined companies have been able to through the exploration programs add to reserves despite producing very high volumes for mature mines.

And this is what we've all been talking about.

The ability -- the ability to add reserves, add resources and identify growth from existing mines.

We have the new mine we're developing at Tenke Fungurume and the Democratic Republic of Kongo.

But the bulk of this is mines that have been operating for some time.

And the opportunities and reserves are spread throughout the world on Page 14.

You can see the split of our reserves between North America, South America and Indonesia.

Good geographical split and also, the significant additions that were being able to be made at all of our operations.

We increased the reserves at Tenke Fungurume over a third this year and longer range, we continue to see the ability to add significant reserves for that.

Page 15 shows the reserves that we have in terms of SEC reserves based at $1.60 long-term price of copper and mineralized material, which would be the source of additional reserve adds over time as we do further drilling, economic analysis, technology studies, land right, water issues.

All the things you have to do to prove the economic feasibility of reserves but it gives us a great opportunity that we have for our Company to be responsive to the long-term bright future that we see for the copper business.

To update you, where we stand with operating plan revisions that we talked about in December.

We did as we indicated then review operating plans at each of our mines to develop the optimum low-cost operating scenario going forward.

At December, we said we did that in a scenario of $1.50 to $2.00 copper when markets weakened.

We updated that and we'll continue to update it.

This is not going to be a process that we did and it's ending.

We're going to continue to work to try to drive our costs down and be responsive to the marketplace.

But at the present time, we come up with a plan to curtail high cost copper volumes.

We've reduced our volumes in response to help balance the market, taking steps to aggressively control cost, reducing inventories, deferring and eliminating capital and reducing manpower levels in connection with scaling back operations.

The major step that we've taken with our new plan going into 2008 versus December was a further significant reduction of our operating rates at our flagship mine, Morenci in Arizona.

The current plan costs Morenci it to be operating at roughly half of its capacity.

That involves a significant reduction in the cost from what we announced in December.

At that point, we announced we were scaling back Safford by 50%, suspending operations at Chino in New Mexico, reducing rates at Tyrone and deferring previously announced expansion projects we were pursuing.

This reduces manpower costs across the board and it allows us to take these North American operations and put their costs down at a level that is cash flow positive at $1.25 copper.

South America and Indonesia, we've similarly gone through processes of reducing cost.

We deferred the Sulfolix project at El Abra in Chile.

Indonesia is going to be a good year for Grasberg because we began accessing the higher-grade material late in 2008.

And we'll be there in 2009 and that will give us one million ounces roughly more gold next year than we had in 2008.

And you can see our copper sales estimates at the bottom of this chart for South America and Indonesia.

For molybdenum, we adjust Henderson, our stand-alone mine molybdenum mine in Colorado to be responsive to the marketplace and we'll continue to do that.

It is a mine of where we can cut volumes there and maintain the unit cost structure because of the nature of its operations.

Our current plan is to reduce it by 25% but that's going to be subject to ongoing review.

We're curtailing the moly circuit at Cerro Verde in Chile and in Peru and we deferred the Climax restart, as we previously announced.

Our sales profile is shown on Page 20.

2008 for copper, four billion pounds approximately.

We had anticipated going into the Fourth Quarter, having copper sales of 4.3 billion pounds in 2009 and 4.6 in 2010.

Our current plans now are 3.9 for '09 and 3.8 for '010.

As a result of our steps to drive our costs down.

You can see the gold production, which is essentially all from Grasberg.

We'll have two good gold years in '09 and '010 and the molybdenum adjustments to Henderson and our by-product production again in response to the marketplace.

An analysis of those changes in sales volumes is included on Page 21.

And you can see the bulk of the changes in '09 come from North America and then in '010, we begin to see reductions in South America as a result of the downswing in the oxide project at El Abra.

And Page 22 shows our sales by region for 2008, 2009.

Sales roughly distributed, roughly equally in North America, South America and Indonesia with our molybdenum coming from North America and gold coming from Indonesia.

Our unit cost data is updated from what we had presented to you in December on Page 23.

We'll note that we have increased the by-product gold estimate here from $750 to $800 with the recent movements in gold.

So as a result of that, Indonesia now, the gold based on our current mine plans and production volumes and $800 gold, our gold revenues would offset all of our cash cost of operations at Grasberg.

And this is something we achieved several years in the past.

Really important to us this year but we've taken down the unit cost for North America from what we were showing you in December of $1.33 a pound, down to $1.17.

As a result of the further steps we're taking at Morenci.

And on a combined basis, our consolidated cost for the year 2008 is $0.71 per pound after by-product credits and that's down from $0.89 in December.

So we've made some progress and we'll continue to work at this.

This is for the year.

The quarterly amounts will be different from that and our first quarter is going to be a bit higher than this annual average for several reasons.

Some of our cost steps, particularly in North America will be phased in.

We have some higher costs that are carryover in the first quarter.

We have some inventory effects.

We wrote our work in process inventory down to $1.40.

So that inventory will come into our cost at $1.40.

Grasberg on a relative basis will produce more gold later in the year than in the first quarter.

So our cost will be above the annual average in early in 2009 and then it will be offset with lower cost as we go through the year.

Our cost by source of costs are shown on Page 24.

You can see energy represents about 20% of our cost.

consolidated manpower is 25%.

Materials and supplies are just over a third.

A number of our costs are coming down.

Of course, with the decline in oil price, steel prices, sulfur prices, and we are taking steps to aggressively take advantage of those.

We gave our best estimate in giving the unit costs that I just reviewed with you but that will be affected by cost trends as we go forward in 2009 and by our ability to take advantage of it as promptly as we have.

But we're really focused on this and committed to do this to help mitigate the decline in prices.

I mentioned, we're reducing costs across the board and with our exploration program, where we've been spending aggressively, roughly $250 million in 2008.

We're currently budgeting $75 million for '09.

That doesn't mean we're de-emphasizing exploration.

We've done a lot of drilling over the two years and our exploration team is going to spend this time.

We're cutting back on drilling but our exploration team will be analyzing the information that we've gained working into our long-term mine plans and laying out our operating strategy as we go forward in the future in terms of adding reserves.

Page 26 shows our operating cash flows and EBITDA at a range of prices from $1.25 to $1.75.

This is the average numbers for '09 and '010.

You can see at $1.50, the current price, we would have just under $3 billion of EBITDA and about 1.75 of operating cash flows and the variances at different levels, and this is at $800 gold, $9 molybdenum, and excludes working capital changes.

We will have working capital uses of significance in early in 2009.

Part of this has to do with just the normal flow of payables and receivables but also we have a special situation with the rapid drop in copper prices.

We were provisionally paid at a higher price during 2008 than we will realize when these contracts are finalized and we'll be having to write some checks back to our customers, as a result of the settlements of those provisional contracts.

The variance sensitivities to price changes for commodities is on Page 27.

This $0.10 change in copper is $260 million variance on operating cash flows and you can see our other commodities that we've given you some information for your modeling purposes.

Page 28 shows that we are making adjustments to our capital expenditures.

As we went through our year-end process, we updated where we believe we stand now.

We're going to continue to review capital as we go forward in the year.

We're currently estimating $1.3 billion in '09 and $1 billion in '010.

This includes capital to complete the first stage of development of the Tenke Fungurume project in Africa.

You see a good picture of where we stand right now on Page 29.

We made good progress during rainy season there and in advancing the project.

We expect to be commissioning it shortly and to reach a commercial production during the second half of 2009.

This was a project where it would have been very difficult to defer costs or pull back from it because of the nature of the project, where it is.

We also had a committment to the government to go forward with it and we had spent substantial amount of capital and cash flows will be beneficial to us as we go forward.

We believe, we can come in -- we had estimated $1.75 billion in aggregate capital cost.

We incurred $1.4 billion through the end of '08.

We expect to come in slightly below that but this is really a good performance by our expansion team in terms of progressing to this project.

We are engaged in discussions with officials of the government on our contract review process.

We have a contract that is enforceable that we see as fair to the government and to us.

And we are possibly talking to the government about that and expect to have this resolved in the relatively near future, and we continue to work with the government on it.

Our capital also includes the progression of the underground development of our resources and reserves at Grasberg District.

It's important that we continue to do this because the pit will is scheduled to deplete in roughly 2015 because of the time to access and develop the underground reserves so that we can continue to have high volume production in the era past the depletion of the pit.

We are continuing with that spending.

We have deferred spending on the Big Gossan mine.

And we are monitoring capital costs carefully but we are progressing with our long-term mine plan for Grasberg, which obviously this great mine is a corner stone asset of our Company.

From a financial perspective, it was fortuitous that we were able to reduce our debt so dramatically following the Phelps Dodge acquisition.

We ended up at the end of the year with $7.4 billion of debt and if you'll turn to Page 33, you can see that for a number of years looking forward, we have relatively low amounts of very low amounts of principal payments.

So we're not in the position of having to go to the market, to refinance our debt during these difficult times and that is a strong positive for our Company.

From a financial standpoint, we are focused on maintaining a strong balance sheet, on protecting our liquidity during this time of low prices.

We're doing that and we have been able to do it.

We're aggressively managing our cost, limiting capital investments, and really working to contain all of our costs.

We're doing this, as I keep saying over and over, preserving our reserves, our resources, our growth opportunities for the future and our Board working with us in reviewing our financial policy on an ongoing basis.

The Company is well situated in a difficult marketplace, with good assets, good people, and we'll manage our way through this and look forward to a bright future.

With that, operator, we can turn the call over to questions.

Ladies and gentlemen, we will now begin the question and answer session.

(Operator Instructions).

The first question comes from the line of Michael Gambardella with JP Morgan.

Hi, good morning, Richard.

Good morning, Mike.

Got a question on moly pricing.

It looked like the moly pricing was around $25 realized in the quarter.

Are you expecting that to drop down right to $9 in the first quarter?

Well, it is right as we speak today.

The price is set at the end of the week for the next week.

So this week it's $9.30 and it's really been at that level.

We were over -- we were $32, $33 and then it went 27, 22, 18, 13, 10 and on consecutive weeks.

So it dropped rapidly during the fourth quarter.

And it's essentially, you end up with kind of a months lag before the average price catches up with you.

So Dave is here.

It's been down below $10 now for the past month.

Yes.

For the past month.

And again, on your cost assumptions for the Company for '09, you're using a $9 moly price assumption, right?

That's correct.

Okay, thank you very much.

We used $8 for our reserves and for our impairment charges.

The next question comes from the line of Jorge Beristain with Deutsche Bank.

Hi.

Good morning.

My question had to do with the filing to issue potentially up to $750 million of more stock.

If you could comment a little bit on the timing of that.

And what the principal uses would be.

And a question I receive from clients is we assume that would all just be common stock as well?

Yes.

We announced today separately that under our shelf registration statement, we filed a prospectus supplement.

This works like a reverse stock buyback program.

You sell into the marketplace and Jorge, it's designed with the goal of giving us additional tool to preserve our liquidity.

The details of the offering are going to be in the prospectus supplement and it is common stock.

And any comments around the timing of when you would exercise that and are there already institutional buyers lined up for a size of offering like that?

Well, it's totally at our discretion and we will use judgment as to when the offering occurs and is sold into the marketplace.

It's an open-market type transaction.

Like I said, it's like a reverse stock buyback program.

And we feel with our liquidity that our Company is well suited for this type transaction.

Okay, and a second question, if I could follow-up.

Just on the unit cost guidance that have come down significantly even since your last December guidance.

Do you believe that based on what you know now with where energy costs seem to be leveling out and exchange rates.

Are there sensitivities of further downside to that guidance or do you believe now that having taken out the high cost production that that's a fairly solid number that we should use in our modeling?

You know, Jorge, the world has such volatility in prices and situations.

The way I would suggest you look at this, this is our best estimate after doing a lot of work of where we stand right now.

It's our challenge to go out and achieve this plan, and we're going to report to you how we do it and we're going to be working real hard to do it but we are going to be subject to the marketplace as to how these things develop.

If a lot of our energy costs just go straight through, 230 million-gallons of diesel that we buy in the marketplace.

And in South America, some of our electricity comes from diesel generation at the current time and that's a fuel price adjustment where it's very rapid.

So things like this, I just saw that sulfur looks to be priced at Tampa at zero, where it was $600 a ton a year ago.

And so this is a volatile marketplace.

We're going to be subject to that volatility both in our sales revenues and in our cost but we're committed to -- we recognize the importance of taking as maximum benefit as we can from this change in cost structure.

So that's where we are right now and we'll report to you as we go forward.

Okay, great.

Thank you.

This is Jim Bob.

Let me add to that two questions.

The first question regarding the stock filing.

Remember, when we made the great Grasberg discovery, the largest mineral body in the world.

The second largest discovery, we've made in minerals was during the Phelps Dodge transaction.

We acquired Mosi Mineral, Mosi National Reserves, the play in Africa could rival the Grasberg, once we get it fully developed.

So you can rest assured that although the filing for that stock has been done to protect our liquidity, that these reserves in the ground are still worth exactly what they were at the time of the Phelps Dodge acquisition.

We now control the greatest mineral deposits in the world.

All of the exploration we've done around the Phelps Dodge properties and continue to do at the Grasberg.

As you can see has more reserves than we're producing.

We added 300% of the copper that we produced just this year.

All of the ore bodies that we acquired in the Phelps Dodge transaction have sheets of ore that we knew were going to be present, but the extent of those sheets with the drilling we've done in the last 18 months has been overwhelming.

Not only in the amount of volume that exists below each of these pits but the fact that the grade in many cases has gone higher as we went below the existing fence, many intercepts over 1% copper.

And as we've said, we have brown fill exploration, which is better than any Greenfield exploration we could be doing and why is that so important?

Because the infrastructure already exists at these pits that we're further delineating.

So that could go on for years.

And we're talking some of these deposits are going to have 100 year reserve life.

So you can rest assured that before we pull the trigger on selling any stock at these prices, that they will be done only if we have to do it to protect our liquidity.

The second thing that is so important is that we're now -- we now have been since we made this Phelps Dodge acquisition, many people were concerned, even though we have the greatest ore body in the world.

In Indonesia, which this year, we'll have a zero production cost of being in the sweet spot in the gold.

We have the multi-national, multi-mineral Company now, which is the best minerals Company that you could possibly have imagined and as the costs come down because of the third party cost, whether it's Caterpillar equipment, whether it's diesel, we will work to get these costs on down and we are talking $0.70 now.

We're going to take it lower.

So we've got all kinds of ways to get through these low prices, so that the stock will be the last resort as far as us making a decision to dilute the shareholders ownership in this great mineral body.

Remember that.

Okay, great.

Thank you.

The next question comes from the line of Tony Rizzuto with Dahlman Rose.

Hi, Richard.

Hi, Kathryn.

Good morning Tony.

Hey, Tony.

I just have a couple questions.

First to follow-up on Tenke, I notice that Anville mining was able to retain its original interest in the projects that it's got in the DRC, but it had to give up some things and I think make some additional cash payments.

And I think there's been some other maybe social spending and maybe the government increases its involvement in some other aspects.

I was wondering, can you share with us.

I know you are pretty adamant about what you believe to be the case here but could you give us a better idea as to timing and how this might be shifting at all, if any?

And the copper market being where it is, does that give you some additional negotiating leverage, if you will?

Well, the process is unfolding.

Discussions are going on right now, and the government had formed a council of ministers to take the lead in their discussion with us.

Tony, the contracts, the operators there operate under different contracts or under the mining code and our situation is specific to the original contract that was signed in 1996 and then renegotiated over a two-year period ending in 2005.

The country is suffering because of the impact of low copper and cobalt prices.

Its had a severe reduction in its mining activities and the country is under financial stress for many reasons.

They also have difficult political issues going on there.

So members of government would like to see more benefit coming earlier out of our project than the contract provides.

Key government officials recognize that our contract is a valid one and are also appreciative of the fact that we're living up to our commitments with our development and with our employment and with bringing this project in to production.

I wouldn't want to characterize it as leverage.

It's just the facts of the economic scenario we're dealing in.

Our position has been clear.

We want to be cooperate ever with the government and I'm confident we'll find a way forward that both the government and we'll be happy with.

Richard Adkerson, did I hear you say that key members think that your stance is a reasonable one?

Yes, and we've had an ongoing education process with senior members throughout the government and parliament and a number of people are very supportive of us and appreciative of the fact of what we're doing there.

It's a great project.

In a country where they've had lots of issues with artiesnal miners.

We're doing a world class project that fits the standards of development, environmental management that you'd see anywhere else in the world and it's the first time you've seen that in a place like the DRC.

Excellent.

And the other question I had was just along with that, the CapEx versus your December 3rd announcements and the CapEx being increased from that level of the 1.1 to the 1.3, is that primarily all due to Tenke?

I may have missed that during your formal comments.

I'm sorry.

Well it was just a function of our going through and completing our year-end review of cost and coming out with our best estimates.

Our '09 costs are up.

It is principally at the Tenke from the December estimate and our tin costs are down but these capital cost estimates will be subject to further adjustments and review as we go through the year.

Thank you very much.

I appreciate that, Richard.

Okay, Tony, thanks.

The next question comes from the line of Victor FLores with HSBC.

Thank you, good morning.

I have two questions.

The first and they'vere both related to Tenke actually.

Would it be possible to just walk us through the level of completion on the major infrastructure projects for the plant and the mine and let us know when you think you'll achieve mechanical completion and how long you've budgeted for the commissioning phase?

All right, I'm going to ask John Marsden who manages our construction activities as part of his responsibilities to respond, Victor.

Thank you.

Yes, good morning.

We've obviously got a significant amount of construction activity on the ground at Tenke and in the district.

We've got a construction workforce of approximately 5,000 people.

We've got a total workforce there in that district of close to 8,000.

We've got a number of large number of contractors that are working on the project for us.

As of early January, construction had advanced well.

It's a combination of work on the mine and the processing plant, which of course is the bulk of the work but also we've got infrastructure work that is going on which relates to roads, improving of roads and access around the Katanga region, so that we can get supplies in and the logistics of getting materials and so on to the site.

We've also got other ancillary activity related to infrastructure in the region to support the plant and the mine going forward.

Our construction completion right now is in the low 80% range but we are at almost the peak of manpower, just over the peak of manpower and construction is continuing to advance well.

We'll be entering commissioning for the plant and this is the initial plant designed to produce 250 million pounds of copper per year, when it gets to the full rate and it will produce approximately 18 million pounds of cobalt per year.

And we're going to be entering commissioning activities in the second quarter.

We will be commissioning different sections of the plant.

Obviously, the front end of the plant will be Commissioned before the back end of the plant.

So we'll be Commissioning the grinding portion of the plant and then making copper and then finally, ramping up the cobalt and other ancillary sections of the plant.

We expect to reach commercial production rates in the second half of 2009.

Great.

Thank you, and if I could just ask a follow-up regarding prices.

You've given us some sensitivity for copper and gold on earnings and what not.

Could you give us a sense of what you're thinking about the cobalt price and what rough sensitivity there might be to changes in those prices?

Well, we're using in our estimates that we've provided $10 for cobalt and John gave the number.

When we get to a full run rate of 18 million pounds, you can see what the sensitivities are based on $10 cobalt for 18 million pounds.

Great.

Thank you so much.

Thanks, Victor.

The next question comes from the line of Kuni Chen with Banc of America Securities, Merrill Lynch.

Hi.

Good day, everybody.

Just a follow-up on the earlier question on cost.

As you look at your costs coming down toward the $0.70 level for '09, can you just help frame that for us, sort of what percent of the cost reductions would be taken out of marginal production versus declines in input costs?

Well, it does reflect both.

We start out by looking at the input costs and that cuts across all of the operations, from Grasberg to South America to North America.

and then, we as I said, a series of studies at each mine looking over the next three year period to see what would be the optimal way to maintain the cost at a low level.

It's very difficult to say what percent of the cost is which because it's all integrated.

so I really can't give you a percentage.

In some ways, you can look at the reduction of the cost in North America from where we were in mid-December to the end of the year and most of that had to do with adjusting of operations but some of that was further reductions in energy cost.

Okay, fine.

And just a quick follow-up.

On the provisionally priced copper in the fourth quarter, I think it was at $1.39 so basically, if we assume that copper prices let's say are flat at this level, then the working capital impact early on in the year would be neutral.

Can you just elaborate on that?

No.

The working capital impact doesn't really affect the open pounds directly at the end of the year.

It had to do with the sales of copper at the time when the prices were much higher than $1.50.

And the way our contracts work at the time of shipment, we provisionally bill our customers and get paid 90% generally, varies contract by contract, of that provisional price at that time.

So we actually get the cash in before the contract finalizes and then under the terms of the contract, when it finalizes there's a settlement.

We could either receive cash if the price goes up or we have to pay cash if the price goes down.

We have the unusual situation right now of just how dramatically prices dropped and so that's what ends up being the amount of working capital change.

It will be affected by where the price is at whatever level but it won't be offset by the prices being at $1 or $1.50.

I guess can you give us some sensitivity around what that working capital impact could be?

Just if you take the amounts that were fixed based on our 2008 sales that we adjusted in the fourth quarter, we expect that the working capital requirement as Richard described where we have to refund customers will be on the order of $600 million in 2009.

And that's related to those sales and then, we'll have -- we book the sales at year-end at $1.39.

So we could have subsequent changes to those sales but the 600 million relates to sales that were made earlier in 2008.

Great.

Thank you.

The next question comes from the line of John Hill with Cambrian Funds.

Thanks and good morning.

Thank you, as always, for a very concise presentation and for showing just as much prudence and pragmatism in down cycles as you have in the prior up episodes.

First question I wanted to ask was a lot of the actions being taken in North America really recall what happened at Phelps Dodge in 2001 and 2002, to a different situation in many ways and different asset balance than the rest but what are we doing to protect those assets and make sure that we don't fall into the same situation where there were so many restart difficulties on the other side?

Well, it is a different situation.

Particularly, with the significance of molybdenum, even at $9 a pound.

Operations like Sierrita and Baghdad, we're continuing to operate those because they are profitable even at these -- even though they are low grade with a combination of molybdenum, they have that.

And we are taking steps -- Morenci was really the one that we really had to focus our attention on because of its cost structure.

We had pushed Morenci's mine right up to very high levels.

We were trying to get as much copper out of that operation as we could and as you recall, John, the third quarter our costs were approaching $2 a pound there but during the third quarter, when you're averaging $3.60 a pound, it's great margins to do that.

So it was really Morenci to a lesser extent, Safford, that we've really had to attack.

We've done that and we're doing it in ways that will allow us to ramp up when conditions change.

We've had significant manpower reductions but we're reducing manpower in a way to retain the skills that are most needed for an ongoing basis.

And so we -- it will take some time because of the nature of SXEW operations and getting things increasing stacking rates and things of that nature, but we are spending significant efforts to guard ourselves against what you talked about.

We also benefit from the fact that in the past few years, there's been significant investments made in equipment and in facilities and so forth that that puts us in a better position than historical operations were.

Great perspective, and then just a quick follow-up on consumable and input costs and such.

We all know how closely copper,moly, and gold prices tend to attract the key inputs to mining, be it gas, diesel, coal, etc.

What are the perspectives about looking forward and taking some steps to really look in some of these prices?

For example, buying and interest in a large Indonesian resource of coal or locking in multi-year gas contracts to protect some of those key inputs in the southwestern United States and diesel fuel overall?

Well, we'll continue to look for opportunities of that nature.

You're right.

Fundamentally, this correlation works for us both on the upside and the downside because a significant part of our costs are correlated to commodity prices.

But those -- our first order of business, John, was in a very short period of time adjusting our capital plans and adjusting our operations.

Now, as we go forward into the world we're going to be looking at a whole range of alternatives of what we might do.

Very good, thank you.

John, this is Jim Bob.

Let me just tell you one other thing about the start up once these prices turn around so we can get back to work, and band our facilities.

One of the things that Phelps Dodge didn't have when they were ramping back up when they shut down .We've had this almost two years of new drilling in the Morenci and other, the copper district mines.

We've done an extensive amount of drilling.

At Morenci, for instance, we've been able to identify some copper grades at almost 1% that will be focused on during this period of time.

We're going to be getting ourselves from a stripping standpoint in shape to be able to hit those hard once we start ramping back up so that we can feed higher grade material to the facilities.

That's something that they've never done before.

And I can tell you when you see the actual cross sections of the amount that we've added at Morenci, for instance and the grade of that, it will startle you.

Thanks for that, Jim Bob.

Thanks, John.

Appreciate your comments.

The next question comes from the line of John Tumazos with John Tumazos Independent Research.

Could you update us on your production planning compared to the December 3 call per the $1.50 to $2 copper price planning range you described at the beginning of last month.

Prices have been toward the lower end of that range or slightly below.

Specifically, are costs evolving lower than you thought than almost two months ago?

And what interacts with it, for example, would rising copper inventories cause you to take a more conservative view?

Yes, John.

It was obviously, the marketplace affects our thinking and our inventories or a reflection of the marketplace.

So it was something that was built into it but our principal focus was on the cost issue.

As you remember, when we were giving our December update, the price weakened very significantly during that week.

So we were working as we spoke then and we went back and reviewed each one of our operations in light of a scenario in the range of $1.25 copper, and that's what we updated our analysis.

We made some tweaks at some other operations but the focus of the change was on Morenci and in December, we were talking in broad terms of reducing Morenci's operating rate by 25%.

And we ended up after studying a number of alternatives settling on the current plan that we have, which involves a mine rate of 500,000 tons per day, which is less than half of what we've been doing.

And that was the main change in the plan and the real requirement for us there was to adjust Morenci's operation so that cost was pushed down to a level where you could live at $1.25 copper.

All right.

This is Jim Bob.

I might just add that I saw copper broke at $1.60.

I don't know who is buying out there that is listening to us but copper just broke $1.60.

Thank you.

Talk about volatility.

The next question comes from Peter Bolkner with [Zintar Capital].

Hi, a couple of really quick questions.

First, when I look at your CapEx plan that you announced on the December 3 call of 1.1 billion versus today at 1.3, and then I see your exploration budget actually went down from 100 million to 75.

So the real delta is about 225 million bucks of incremental CapEx.

No, no, wait.

The exploration cost is not part of CapEx.

Okay, sorry.

So just 200.

Thanks for that clarification.

So just the 200.

Could you just give me some indication as to where that's incrementally being spent?

Well, it's principally Tenke.

Okay.

When we had our December announcement, we were going through our normal process of our year-end development of our plan.

We have a long established schedule for coming out with our financial plans.

We present them to our Board for approval in its January meeting and just as part of that process, we reviewed all elements of the cost and adjusted it.

As I said, we adjusted 2009 up and 2010 down.

So at the end of last year, at the end of 2008, you had $350 billion left based on the original estimate of total project costs; correct?

Roughly, yes, and we expect to be able to come in as we said somewhat below that estimate.

Okay, so I'm just trying to understand what your thought process was in December versus today and since it's mostly Tenke, because of the amount that you're adding to the budget represents almost all of what remains on Tenke.

So has there been something specific there that's caused you to make such a dramatic change in your CapEx plans for 2009?

No.

It wasn't all Tenke, and it's nothing dramatic.

It's just an update of our planning process.

And some of it on Tenke, we did come in at $2.7 billion for 2008 capital spending.

Some of the situation on Tenke is that money that we're funding in 2009 was in our plan for 2008.

So some of it is timing on Tenke, but when we did the December estimate, we looked at trying to cut some costs of on the Tenke project.

We still think we'll come in slightly below the 1.75 billion that we had previously estimated but we don't think we'll be able to come in as low as what we thought we could in December.

So we've increased it slightly and some of it is timing from 2008.

Okay, two other really quick issues and again I apologize because just for my ignorance on this but obviously, since Phelps Dodge closed there's been a lot of drilling activity and in the fourth quarter, you were talking about 144 billion copper equivalent pounds up from 64 when you closed the deal.

In terms of the asset impairments, the ten or the six before or after-tax, how does the exploration and development activity play into that?

Do you get any credit for that?

Was that part of the processor was it really just based on the purchase accounting adjustment that you made at the time the deal closed?

We essentially based the impairment test on proved and probable reserves.

But most recent or at the time the deal closing?

No.

The most recent was at year-end, so our proved reserves were up and that had an impact.

The process you go through is first of all, you look at your carrying amounts and then you look at your in discounted cash flows using the price scenarios that I laid out and essentially using your proved and probable reserves.

And when that undiscounted amount is less than your book value then you have to use a present value calculation to come up with the amount of the write-off.

Some of those reserves that we identified will be produced in years in the future.

So when you discount it, it has an impact but it's just what we did.

So we did use the reserves but the resources were -- were only used for the some smaller portion of the cost.

Okay, and just on Page 11 of your slide presentation, you had very steeply backward dated copper curve when the deal was done and now it's positively sloped and it actually, you have the crossover point at 2012.

I guess I'm trying to understand the very, very, large impairment, when you have some fairly long dated assets and you're really only talking about the real change, obviously there's the discounting impact in terms of time but from 2012 on you actually have a benefit versus what you were modeling previously.

Is the cost side also, did that play a role in some of these impairments?

Yes, because it had to reflect the current cost but you kind of brushed off something that's a big number.

When you said the discounting impact is there.

I mean, that's really significant.

Yes.

You look at that wedge for those years.

That is a -- that's a major factor in determining what the writedown was.

We played this writedown, as I like to say the fair way.

We didn't try to maximize it.

We didn't try to minimize it.

The instructions that I gave to our people and in working with our outside auditors, I said we know we have a writedown because prices went from $3 to less than $1.50.

Let's calculate it as accounting rules say calculate it.

We have established a process very recently with how we allocate the purchase price.

We didn't try to tilt this thing one way or another.

We just did it and we've done it now.

The assets are still there.

We followed the accounting rules and now, we're going to go forward.

Okay, last quick question.

Just in terms of Jim Bob's comments regarding the shelf registration and the stock sales really being a last resort, I just wanted to sort of go back and make sure I understood that correctly.

Well let me say this.

We can't, because of the SEC registration rules, we can't really talk much about that on this call.

You have to go the prospectus summary and that will set out the details on the offering and we really can't, because of SEC legal requirements, can't comment on it at this call.

Okay, thank you very much.

Let me add something to the Tenke conversation.

We were talking about the write up of reserves since we have all of the exploration.

Some of the issues at Tenke are that we've done a lot of drilling.

If you just sit down and look 30 miles out your window, we've drilling a bunch of core holes at over a 30-mile area that is by service geology.

We could see the ore body was expanding but the drilling that we did was done on a wide spacing area.

What does that mean?

You have to have a certain spacing requirement and then you have to get reserves into a probable or possible.

So what we've added in Tenke is a lot of mineralized material, which is on one of the charts that we've shown.

And we can't use those reserves, so-called mineralized reserves in the kind of calculation that we're accounting to do to try and look at the impairment charges.

Those can only be brought into proved reserves and probable reserves as we increased the density and which we will do.

And Peter, let me, Kathleen just sent me a note to remind me that a lot of our reserve editions were at Cerro Verde and Cerro Verde wasn't written down.

So these writedowns were done on a mine by mine basis.

Got it.

Thank you.

The next question comes from the line of John Redstone with Desjardins.

Good morning, gentlemen.

Just one question.

Looking out to 2010, if and I stress if, we have a substantial increase in market conditions between now and the end of the year.

How easy, how quickly would it be for you to significantly increase your planned level of production for 2010 given the decisions that were already in place today?

Well, there's certain things we could do that would add volumes but there are steps we are taking now that will have a time lag.

And as we looked at these alternatives of different production rates at Morenci, we looked at those as to when or what would be your flexibility in returning operations but we have equipment.

I think we have 100 parked trucks in our operations today.

We have to look over our shoulders in terms of workforce because this time last year, our biggest challenge was finding a workforce to allow us to expand like we were.

So there will be, John, some lag but we're doing this with a view for how could we ramp up as quickly as we can.

And we'll have, you know, this is something we'll be talking about every quarter from now as to where the market is.

How we're responding to it.

What our plans are going forward.

So it's not beyond the realm of possibility that you might be able to do over 4 billion pounds next year.

Am I right in assuming that or is it just too late?

Yes.

Yes.

All right, okay.

And you know, beyond that, we have sitting in the wings, a very attractive expansion project at Cerro Verde.

We have the project at El Abra, that we've suspended for right now but we would start, that project has its environmental studies done, has its plans, would kick it off and if it's a year delay, it's a year behind where we were.

Climax mine, if aluminum prices recover and our costs with higher input costs was in the 3.50 a pound range, within 12-18 months we could be producing that facility.

So we have these expansion projects that are still there.

They can be re-ignited when the market justifies it.

Thank you.

The next question comes from the line of Mark [Linama] with Morgan Stanley.

Good morning.

Good morning, Mark.

Could you comment your 1-30 site production delivery cost in North America, 1.17 on a net basis.

Can you give an idea of where you think that sits on the cost curve next year?

I just don't know Mark.

Costs have changed so much.

Companies -- when we read -- what we read around the industry, and I can see people are making changes but a lot of those changes aren't exactly transparent right now, as to what the effects are going to be on cost and so fourth.

So we have really done this with a focus of saying, like I said at $1.25 in copper how can we run our business in the right way.

Maybe as a bit of an extension to that, the 1.60 long term copper price be used in coming up with your asset values.

Can you give any idea of the process you used at arriving at that level?

It wasn't scientific.

We actually go through a process every year that we do sort of in the mid year time frame of thinking about what are we going to use for our reserve determinations because reserve estimates in the mining business require a lot of work.

You got to come up with mine plans and so fourth and we had settled in on this $1.60 price mid year 2008.

It happens to match up pretty well with the forward prices.

So we felt comfortable in using it but there's nothing that has a lot of analytical basis other than that around it.

And maybe just one very housekeeping.

Any idea what depreciation costs would look like given your operating plans as they stand today?

Yes.

With the impairments, we'll have lower depreciation going forward than what we had in 2008.

And there's a footnote on one of the slides that describes what the numbers are but we're estimating for 2009 a billion dollars in depreciation which is roughly $800 million less than 2008.

It's on Slide ten.

Thank you very much and good luck with everything.

Thanks Mark.

The next question comes from the line of Brian MacArthur with UBS.

Good morning.

Just a couple of questions.

Just following up, I think in December when we talked about the out flow of the cash flow in the first quarter there was sort of a number of 750 million, which included provisional pricing and deferred taxes.

And now, we're talking about a working capital change this year of 600 million.

Is the 600 equivalent to the 750 or is it just the 600 plus deferred taxes that have to be accrued taxes have to be paid enough in the first quarter adds up to the 750.

I guess the actual working capital out flow here in the near term?

Right.

The estimate in December was 750 million for the year and that was net change in working capital and that's comparable to the $600 million that we're currently estimating in 2009.

The previous estimate was based on 175 copper and this one is on 150 and we have pluses and minuses in various areas, Brian.

We're working very hard to release cash from the balance sheet through working capital by using existing materials and supplies when we can, but we do have these provisional payment items.

We do have some tax requirements or working capital, so net-net, we expect $600 million in 2009.

Most of that will be in the first part of the year.

Great, thanks.

Second question relates and I know I guess you can't talk about it too much because of the prospectus, but there was in your 8-K, a talk about under the covenants moving 715 million, I believe, from the third quarter to the fourth quarter for the EBITDA calculation.

Can I just confirm when we were doing a rolling four quarters, and I gather that's for provisional pricing, you add that back to the fourth quarter number but you would still in the third quarter then still have the provisional pricing of 282.

Would still be in the second EBITDA for the third quarter.

Is that how it works on my rolling averages?

Brian, if you're doing quarter by quarter, reduce the third quarter EBITDA by 715 and add it back to the fourth quarter.

Okay, so as we rollout to the fourth quarter next year that 715 is just designed to keep it up rolling that period so the third quarter is covered still by the first part of that quarter that had high copper prices effectively?

Well, yes.

So when you get into the third quarter of next year, the effect of the 12 months is that you have a normal looking 12 months rather than having a distorted fourth quarter with a large provisional pricing adjustment in it.

Right but then going forward if we had a horrible situation, copper went to $0.60, we'll still have to wait provisional pricing going forward.

Is that right?

That's right.

2009 calendar year is not affected by this amendment.

Okay.

Great.

Thanks.

Finally, I know we've been through this any number of times but any ballpark tax rate for next year?

45 as good as anything else?

Well there's some discussion in our supplemental pages in the back, Brian, where we talk about tax rates.

And the tax rates as you know were calculated based on the statutory rates in our international operations and in the US and you can't use US losses against our foreign income.

So it will be highly sensitive to prices but at $1.50 copper, we're estimating an effective tax rate of 75% in 2009 and that's because at $1.50, we would have tax losses in the US that you can't -- we continue to pay our taxes in Indonesia based on our 35% rate, but there's a footnote described in the tax section in the supplemental pages.

Great.

Thanks, just a chance to get through that.

Thanks very much.

The next question comes from the line of David Gagliano with Credit Suisse.

Hi.

I think you've covered obviously most of my questions.

I do have one, though.

Related to the change in proven and probable reserves in '08, how much of the 12.8 billion-pound net increase was due to the change in the copper price assumption from $1.20 to $1.60?

Very, very small because it also reflected higher cost in there.

This is really the results of our drilling activity, Dave.

Okay.

Fair enough.

Thanks.

The next question comes from the line of Justine Fisher with Goldman Sachs.

Good morning.

Sorry about that.

My first question is just on the leverage covenant adjustment.

Did you guys disclose the fee, if any, that you guys have to pay forgetting that adjustment to be made?

No but it was a 1-HC that we paid to the bank group.

Okay, and then I know that I guess based on even consensus estimates on Bloomberg for 2009 EBITDA, which were now over the adjustment.

So based on those consensus estimates you guys don't come close to having to worry about the covenant?

But is there a reason you didn't try and just wave the covenant for all of '09?

So you wouldn't have to worry about bumping up against the five times?

Well the amendment that we did was really a technical amendment to deal with the issue distortion in the fourth quarter and you can see we give sensitivities on EBITDA in our presentation on Slide 26.

Okay, so basically you guys just didn't think that it was necessary to go back and have that much more involved discussion based on your sensitivity calculation, you wouldn't really need to renegotiate that?

Well, Justine, to renegotiate something like that could have a major impact on the pricing of our credit facility.

Yes, that's why I'm asking.

It's a big step and companies are doing it pre-emptively now but only if you think you'll have to worry about it.

That's right.

You could only do that if you had to do it.

We had just an unusual distortion because of the way this provisional pricing worked.

Our banks were very supportive.

They understood it and we were able to handle it in kind of a normal course of business but we did not see a need to enter in kind of the complicated discussions that other companies are having to do with credit facilities.

Okay, and then another question on cash out flow.

You guys paid the dividend to minority interests that shows up on the cash flow statement and it looks like it was pretty small during the fourth quarter and my guess is that's because it's based on copper prices.

So given the decline it wasn't a large a pay out.

Is there any ballpark for what that number might be in 2009?

I guess there's a footnote in the presentation as to the number of pounds that that dividend and minority interest might be based on but is there a ballpark at various copper prices you can give for that cash out flow?

It's based on the cash flow that we generate in the foreign subsidiaries.

Principally from Grasberg and from Cerro Verde.

And so it is affected by prices and it will also be affected by the operating performance at those operations.

In 2009 and again, this is based on $1.50 copper case, we would have minority interest distribution something in the order of 125 million.

For the total year?

Yes.

Okay, that's a lot.

And then the last question is just about the Henderson mine and the operating costs.

Richard, I know you mentioned that you guys are able to produce production without really increasing the unit cost and I'm not quite clear on what the situation is with operations there that allows you to do that.

Can you just clarify that a little bit, please?

Okay, I'll let Dave Thornton who runs that business answer that question.

That's an underground operation up there versus in copper primarily the open pit.

And what we're doing there is, we've got the block caves set up for higher rate and we're just slowing down the pull rate of the ore out of the columns.

So we've reduced some staffing levels up there and we've reduced 25%.

So really, our operating costs up there haven't changed dramatically because the mining costs are pretty set.

Okay, all right.

Thank you so much.

I appreciate it.

Okay.

The next question comes from the line of Dave [Katz] with JP Morgan.

Free cash flow, pardon me, on the cash flow item that was described as decrease in global reclamation and remediation trust for 430 million?

Dave?

Can you repeat your question?

Yes, we couldn't understand your question, Dave.

I'm sorry.

I was hoping you could go into a little more detail on the cash flow item that was titled " Decrease in global reclamation, remediation trusts"?

Yes, we had some trusts for reclamation that were established prior to the acquisition, which allowed us to fund reclamation costs, our ongoing reclamation costs out of that fund.

This was cash we had that was available to fund reclamation costs and so we've taken the cash out of that fund to reimburse us for the reclamation spending that we've had over the last couple of years.

Okay, and are there any expectations of further out flows in 2009?

Yes.

We have ongoing out flows for our environmental costs.

Okay, and then with regard to the EBITDA for the covenant calculation, would it be possible to get the covenant EBITDA for the last on a quarterly basis for the last four quarters?

Why don't you call us and we can talk you through that.

Sounds great.

Yes, it's just available from our quarterly financial statements.

The next question comes from the line of Brett Levy with Jefferies & Company.

Hi, guys.

As you guys look at the working capital adjustments that you're talking about from the first quarter, particularly.

And I'll follow-up with kind of a little bit more specificity, can you break down the items?

Some of it is going to be from provisional pricing.

Some of it is going to be other working capital.

If you could just sort of give a rough sense as to the size of that and what the key elements are?

That would be great.

In terms of where it's coming from in the first part of the year, it's essentially all related to this provisional pricing.

And what is the anticipated size?

The total is 600 million and we have some things that are going positive and negative but the provisional pricing impact is roughly 600 million.

And then we've got some things going pluses and minuses that offset.

All right, and then as I look at, I think you'd mentioned in terms of EBITDA impact and I was unclear as to whether or not that was third quarter of '09 or 2008.

A minus 17 and a plus 715, is that '08 and '09?

And then also, as it relates to provisional pricing, when you guys talk about what you anticipate the EBITDA impact would be in Q1 and Q2 of 09?

Okay.

The 715 million is just a reclassification between the third quarter and fourth quarter of 08.

It has no impact on the quarterly periods or the calendar year of 2009.

That's what I thought.

Okay, and then we recorded our fourth quarter, December 31 open pounds and there's details in our Press Release on Page 14 and 15 but we recorded our sales of copper at 139 per pound and each $0.05 change would have an approximate 16 million effect on our net income.

And then how does that break down by quarter?

Most of that -- we market to market every period.

So at the end of March, we will reflect any pounds that remain open in our first quarter.

Okay, thanks very much.

Okay, Brett.

The next question comes from the line of Wayne Atwell with Pontis Management.

Thank you and thank you for a very detailed discussion.

Can you give us an estimate of the capital cost to go underground at Grasberg?

I think your target is 2015.

What's it going to cost you between now and then to complete that?

Mark Johnson is here.

I'll let him speak to that but Wayne, let me also say that when we filed our 10-K as we have been doing every year, there's going to be a lot of detailed information that will be included there.

Wayne, our costs for the, as we said, block cave development has been ongoing and our costs going forward from here on is right at $3 billion.

Obviously, a lot of that was priced out at -- that's a recent estimate, so we'll continue to watch how the input costs will influence our estimate on that development.

That's spread out.

That's not all that cost is not incurred between now and 2015.

It's spread out.

That's right.

It goes up to 2021 until we get up to full production.

So we're talking about going from '09 to 2021 and aggregate costs for that period is $3 billion.

The numbers -- just give some numbers for what we'll be spending.

Yes, in 2009, we have roughly $200 million for underground development at Grasberg and in 2010, roughly 300 million.

Probably similar amount in 2011 and that's -- that will be 250-$300 million kind of numbers we'll spend.

Yes, 2009.

It's right around 90 million and then it ramps up to close to 300 million.

Okay, thank you.

And I know you're not looking to spend more money on capital spending but if I'm not mistaking you have a gold property near Grasberg Wabu, which last I heard, it had 4-6 million ounces of gold.

Gold is one of the few commodities that people are excited about.

Have you given any thought to developing that?

Maybe bringing on a partner where if they put up much, if not all, of the capital to put into production?

Well, we continue to study the situation at Wabu.

From time to time, we have interest in it, from others and we will continue to see if that opportunity develops.

But we have nothing to report today on it, Wayne.

I mean, is this a good idea or is this something that's pretty far in the back burner?

Well, right now we've been focused on our current imperative of dealing with how we adjust our capital programs and our operations to the new cost structure but as I answered to John Hill's question, as we go forward we'll be looking at all alternatives.

Thank you.

The next question comes from the line of Steven Grissante.

Hi, thanks very much for taking my question.

Just continuing on the provisional pricing working capital swings.

So I'm just trying to bridge out the $745 million that you reduced your fourth quarter sales by.

And then also, the additional 600 million you're going to take.

So in other words, your income statement took a $745 million hit on the top line but because that's provisionally priced and I believe as of your early December update you said that wasn't going to hit until the early year, that cash out flow hasn't actually happened yet.

Is that fair or is it really just the 745-600 net?

Some of it has happened and some of it has not happened.

That's correct.

So for earnings purposes, we mark them to market and we settle with the customers under the terms of the contract.

Some of those provisional pricing adjustments have been settled for cash purposes and some of them haven't and that's what the $600 million relates to is the cash piece.

Okay, but in order of magnitude it's not the 745 plus 600?

It's just the 600?

Right.

Okay and then can I ask, what was your revolver availability as of your latest checking with your bank group?

So it's 150 million at 12-31, just curious as to what that updated number is.

Right.

The borrowings as of Friday were 300 million.

Okay.

Thank you very much.

The next question comes from the line of Sanil Daptardar with Sentinel Asset Management.

Thanks.

On the reserves which was valued down, the impairment, has it valued down because of the commodity price -- following the commodity price.

Can you revalue up or if you have to revalue up to what level would you do that?

No.

Under accounting rules, once you write these costs down it establishes a new cost basis going forward.

Okay.

After the market has been completely dependent on economic recovery but when you look at the way basically, if you look in the market as I said, China is going to be the long term driver for copper recovery.

Currently, are you seeing kind of China buying into the copper market or do you think that it's completely plateaued right now or they are not doing anything?

They'vere clearly doing something.

I mean, their growth rates are down but the fourth quarter GNP was in the range of 7% growth and that involves copper use, their investing of infrastructure.

They've had announced plans to continue to invest.

They have the resources to do it and I'm confident that they will continue to do it.

The question is, what is the impact of the global economy on their export business, the commercial real estate situation.

But clearly China is going to be the key factor near term and in terms of copper markets and they' are doing activities within their country that's going to consume copper.

Okay.

On the CapEx that you talked about 1.3 billion in 2009.

How much of that is the maintenance CapEx?

Back on Slide --

600 million.

600 million.

But it's indicated on the slide on Capital Expenditures.

Okay.

Thank you.

Slide 28.

Okay.

Thanks.

Thank you.

The last question will come from the line of Riaul [Ederal] with Marathon.

Hi.

Thanks for taking my question.

Two quick questions.

One was you guided towards the $3 billion of EBITDA number with a copper price of $1.50 and an operating cash flow before working capital adjustments of like a billion six.

Could you help me bridge the gap between the two numbers as to what is the cash expense?

Taxes and interest.

So there's almost a billion dollars of taxes in that number I guess?

And interest.

Interest, we have roughly $600 million of interest.

Okay.

And the second question --

So over $7 billion of debt at a cost of about 7.5%.

Got it, and it does have the dividends in that, right for the preferred?

No.

Those come out of financing activities.

So after operating cash flows, we have investing activities which includes capital expenditures and then the preferred dividends are in financing activities.

Got it.

The GAAP basis cash flow statement.

Got it.

Sorry for that.

I should have figured it out myself.

In terms of the cash number that you quoted how much of that cash is sitting in US and how much of that cash is either outside of US or in some ways a minority share?

Okay.

Well, that's also in our press release on page 15.

We had 872 million of consolidated cash at year-end.

112 million at domestic in the US and international total was 760 million.

So net of minority interest share and taxes, withholding taxes if it was distributed, it's roughly 450 million.

Thank you so much.

All right.

Thank you for your questions and we appreciate everybody's interest.

If you have follow-up, you know to contact us and we'll be responsive.

We will be reporting to you on a current basis on our progress in executing these plans that we laid out today.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.