費利浦·麥克莫蘭銅金 (FCX) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Freeport McMoRan Copper & Gold first 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 & Gold first quarter 2009 earnings conference call.

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

Our conference call today is being -- is being broadcast live on the internet and we'll have several slides to supplement our comments.

The slides are accessible using the fcx.com website home page link.

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 home page 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, our Chairman; Richard Adkerson, the President and Chief Executive Officer; Red Conger, who heads up our Americas operations; and Mark Johnson, who heads up our Indonesian operations.

We've got a number of our senior operating team traveling this week.

I'll briefly summarize our financial results and then turn the call over to Richard, who will discuss our operations and outlook.

We'll then open up the call for questions.

FCX reported first quarter 2009 net income applicable to common stock of $43 million, $0.11 per share, compared with net income applicable to common stock of $1.1 billion, or $2.64 per share in the first quarter of 2008.

Our first quarter 2009 net income applicable to common stock included net charges of $24 million, or $0.06 a share, which were detailed in our press release, but those included $31 million in charges, or $0.08 a share associated with adjustments to our environmental reserves; $22 million, or $0.05 a share for restructuring and other costs associated with our revised operating plans; $19 million, or $0.05 a share associated with lower costs or market molybdenum inventory adjustments related to the decline in molybdenum prices.

These charges were partly offset by reductions to general and administrative costs associated with reduced compensation costs totaling $29 million, or $0.07 per share, and a $19 million gain for copper derivative contracts associated with our customer contracts for rod sales.

Our first quarter consolidated copper sales of one billion pounds was slightly above our previous guidance of 990 million pounds and higher than the first quarter 2008 sales of 911 million pounds, reflecting the higher grades at Grasberg.

Our gold sales of 545,000 ounces in the first quarter were nearly two times the year-ago level of 280,000 ounces because of the higher ore grades at Grasberg.

Our gold sales during the quarter exceeded our previous estimates of 500,000 ounces.

Molybdenum sales during the quarter totaled ten million pounds.

Those were lower than the first quarter of sales of 20 million pounds and our January 2009 guidance of 13 million pounds because of demand conditions in the molybdenum markets.

Our copper prices recorded averaged $1.72 per pound in the first quarter of 2009.

That was over 50% lower than the first quarter of 2008.

Our realized gold prices averaged $904 per ounce as compared with $933 per ounce in the year ago period.

We realized $11.52 per pound of molybdenum during the first quarter and that was a reduction of 64% compared with nearly $32 per pound in the first quarter of 2008.

We've got a number of things that we'll be talking about on the call, particularly on our costs, where we achieved strong execution of our revised operating plans.

Our unit costs during the quarter -- net cash cost, net of our by-product credits, on a consolidated basis averaged $0.66 per pound during the first quarter of 2009.

That was significantly lower than the year-ago period of $1.06 per pound.

Our operating cash flows totaled a use of $258 million during the first quarter.

That reflected a very large working capital use of $919 million and that was anticipated.

It was primarily associated with the timing of settlements with customers on our 2008 provisionally priced sales.

Capital expenditures totaled $519 million for the first quarter.

About half of that related to the initial development of our Tenke project.

Richard's going to give an update on that, which is nearing completion.

We also reported previously that we completed a public offering of 26.8 million shares of common stock during February at an average price of $28 per share.

That generated gross proceeds of $750 million and brought our shares -- basic common shares outstanding to 412 million shares.

Assuming conversion of our 5.5 convertible preferred stock and our mandatory convertible preferred stock we would have roughly 469 million shares outstanding.

Total debt approximated $7.2 billion at the end of the quarter and our consolidated cash position was $644 million at the end of March.

We had no amounts borrowed under our $1.5 billion credit facility.

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

Good morning, everyone.

In getting ready for this conference call today, I went back and glanced at the transcript for our last conference call for our year-end results and two things jumped out at me.

At that point, I said the near term copper price was going to be driven by events in China.

And by the end of the first quarter, Chinese purchases of copper had come in very strongly, as they continue to spend money in building infrastructure in their country and they face a scarcity of scrap and also have been building up copper stocks, but that has caused copper prices to be stronger, even in the face of very weak market conditions in the US and the rest of the developed world.

The second thing, at the time of our last conference call, we were completing a process that we had literally started the first week in October of revising our operating plans to adjust to the lower copper and molybdenum prices.

And we had worked diligently right up until the time of that call to come up with new plans and I said we have plans that would allow us to be cash flow positive at our mines and be supportive of our business strategy, but that investors should watch how we execute on those plans.

And I'm really pleased with the results of this first quarter, and Red Conger, Mark Johnson, Dave Thornton and their operating teams aggressively went out to those plans and the results of their activities are shown in the financial results that you see today.

Page 4, Kathleen mentioned that the price of copper is half of what it was during the first quarter of '08.

Price of gold is roughly -- it actually averaged a bit lower than it did in '08, which is a bit surprising -- I know it is surprising to a number of people -- and molybdenum was down two-thirds.

Even with that, we had good cash flow generation, taking into account the working capital uses that we talked about last quarterly call, and we ended up with $0.11 a share of earnings.

And for those of you who model earnings, I'll point out that that is net of $0.06 of special charges that Kathleen outlined for you.

Some of you may have picked those -- some of those up, some of you may not have, but it also reflected $0.15 for the deferral of profits that we've actually already generated through mining and sales of copper concentrate that will be recognized in future periods under the accounting rules because it's sold inter-company to our Atlantic Copper smelter.

And once that concentrate is processed and copper is sold out of the smelter, those profits, which have already been generated in the first quarter, will be recognized in our earnings.

Most of that -- if the prices stay roughly where they are today and operations continue as we expect, most of that would turnaround in the second quarter.

So all things being equal -- and they may not be, but all things being equal we would have stronger earnings in the second quarter and in subsequent quarters in 2009.

Page 5 -- and I'll talk about this more, I've got a couple more slides -- shows our -- at the bottom the sales by our different regions; North America, South America and Indonesia.

Point out the significant increase in both copper and gold sales in Indonesia.

At Grasberg, we are operating now in the highest grade section of that mine.

That changes over time, depending on the sequencing of our operations and as we work on this pit, which is now almost two kilometers across and a kilometer deep.

As we maintain the integrity of this pit over time, we manage high-grade section -- we mine high-grade sections and other times we have to be in the upper regions where grades are lower.

But we're now in high-grade sections and you can see just what kind of leverage that has on our volumes, very supportive of our business now.

We knew Grasberg would be the keystone asset when we combined our Company with Phelps Dodge, and particularly in times of low commodity prices, and that's exactly the role it's serving.

Our gold revenues, considering the gold volumes and the current gold price, more than offset our total operating cost to Grasberg, so we were producing in the first quarter roughly 370 million pounds of copper at a net credit cash cost.

But our cash costs have come down significantly in the rest of our operations as we've adjusted our operating plans to limit the marginal higher cost volumes and as we've taken advantage of the lower input costs that have gone along with the lower copper prices, and you can see there's significant declines in these costs, even though we've lost by-product credits because of the lower molybdenum sales.

On Page 6 you can see on a consolidated basis, in terms of our site production delivery cost on a per pound basis we've had a 36% reduction from the third quarter of '08, prior to us beginning to implement our new operating plans, until the first quarter of '09.

That reflects these revised plans.

It also reflects the Grasberg ore grade situation and how we've been very aggressive in moving to achieve lower cost and take advantage of the available lower input cost.

This was particularly important for our North American operations.

In the third quarter, by design because we've been pushing the production of marginal pounds, we had been aggressively increasing volumes, knowing that our unit cost would go up.

And in the third quarter, at our largest mine in North America, the Morenci mine, our average unit cost -- and there are no by-product credits at Morenci -- was approaching $2 a pound.

And you can see that $2 before by-product credits at any of our mines has now been reduced significantly into the first quarter of '09.

Diesel prices are down, power prices are down, acid costs are down, but we have taken very strong steps to push out those marginal pounds.

So our employment at Morenci has gone from 3,500 to 4,000 down to below 2,000 people.

We've idled equipment, we're mining higher grades, we're doing what we need to do to make that operation and our other operations cash flow positive.

Page 8 talks about our provisional pricing.

We always get a lot of questions on this.

Under longstanding commercial practices in the copper business, copper concentrates are provisionally priced when ships -- when shipped, and that's the point where we record our sales, and then they're subject to a final price determination, whether the price is higher or lower, which occurs, depending on the contract, from one to four months following shipment.

And the accounting impact is the sales accrued initially at the provisional priced amounts and then adjusted in subsequent periods.

From a cash flow standpoint the customers pay us 90% of the provisional price at time of shipments and then there's a cash settlement at final prices.

In the first quarter we had final sales with customers that totaled a $600 million cash requirement that we had to return cash to our customers because of the receipt of prices at times when the price of copper was so much higher and that was what resulted in our working capital requirement for the quarter.

It's a one-time type event.

There will be adjustments going forward but nothing of that magnitude absent some major subsequent swing in copper prices.

But in the normal course of business these settlements are not material.

In early April, we made a decision -- and I want to be clear about this because we've had a longstanding philosophy of not hedging copper production and that philosophy has not changed.

We have not -- have no plans of hedging any of our future copper production.

But historically -- and although we haven't done it in some time -- we had taken steps to lock in open pounds and we did that at the end of the second quarter where we locked in -- at the end of the first quarter, where we locked in $1.86 for roughly 350 million pounds of PTFIs, provisionally priced open pounds, at the end of the first quarter.

Substantially all of this will reverse in the second quarter so there won't be any mark-to-market accounting implications of any consequence and we did this to -- as part of our overall actions to preserve liquidity of the Company to give us assurance of these prices in an uncertain marketplace.

It also has the impact of limiting earnings volatility and we don't -- have not made a decision to do this on an ongoing basis.

We'll look at it on a quarter-by-quarter basis and make those decisions.

Again want to emphasize this does not change our basic approach to -- philosophy.

We believe we should offer investors an unhedged opportunity with respect to our commodities and that's what we are doing.

Page 9 shows the copper markets -- copper price.

You can see the recent jump in prices from roughly the $1.40 level going into the quarter up to above $2 a pound.

I talked about China being the reason for this and as we go forward, given the market conditions elsewhere around the world, the copper price in the short term is going to be driven by China.

We continue to be very positive, extremely positive about being in the copper and molybdenum business.

The inventories, as you can see by this chart, are low by historical standards and we have a much larger copper market than we had prior to -- in the historical periods prior to 2004.

And even though the price has been weak, exchange stocks are low by historical standards and consumer stocks around the world are also low.

The industry continues to face supply issues that are unrelated to price, from grades at aging mines, from equipment issues, the challenges of operating mines in today's world continue unrelated to price, and then of course price has had an impact on our level of production and the level of certain other companies.

So as the developing world sees its economies recovering -- and we're not in any position to predict when that will occur -- and as China and the rest of the undeveloped world continue to build infrastructure and invest in the standard of living of people in their countries, the world is going to have a strong demand for copper and the industry is going to be challenged to have the supplies to meet that demand.

As I look at this chart I think back to this same time six years ago, in the spring of 2003, and although this scale of copper prices on the right side is squeezed, there are some similarities for our industry based on where the industry was then.

The world itself is quite different, but in the spring of 2003 the US economy was in a recession, the developed world was in recession, the copper price was roughly $0.75, roughly 5% of the industry's capacity was curtailed, inventories were very high, and people in the industry didn't expect the price to reach $1 within a three or four-year timeframe.

But in that year, even with weak US economy, China's demand was so strong that inventories began to fall and by 2004, when the US economies recovered, the price of copper jumped and it essentially doubled from the spring of 2003 to the end of 2004 and then continued upward because of the supply issues that the industry faced.

So I think that's a case study of thinking what we will be facing at some point when, as China continues to develop, as the rest of the undeveloped world follows suit over time, and as the developed world's economies recover.

Page 10 talks about what we have done with our Company.

I mentioned we started this process of reviewing our operating plans at the start of the fourth quarter and we continued to work on it.

We're continuing to work on it.

We're executing on the plans, but as we execute on the plans we are looking at ways to optimize those and that involves changes and we will continue to change over time.

But we're operating Morenci and Safford SXEW operations in eastern Arizona near each other at roughly half their designed capacity rates.

That's helping to drive their costs down.

We suspended operations at our Chino mine in New Mexico, although we continue to view some copper and adjusted the mining rate at Tyrone significantly.

We didn't make as significant changes in South America but we did adjust the mine rates at our Candelaria and Ojos district to help contain costs there.

We continue to operate Grasberg aggressively because of its cost structure and the grades that we have available.

And essentially the same can be said about our Cerro Verde mine in Peru, which is a large low-cost mine, and the cash flows from those mines are supporting our capital expenditure program, our debt servicing and our corporate G&A program and the other mines are being operated to be cash flow positive, even with lower prices.

Molybdenum business is, of course, severely affected by the fall off in demand for our metallic molybdenum in the steel industry.

We sell a significant portion of our molybdenum as a chemical and that is somewhat weaker but not as -- nearly as weak as in the steel industry, and to adjust our operations in response to the lower demand for the product we've taken stages of reduction at our molybdenum mine in Colorado, the Henderson mine, and now it is planned to be operated at roughly 40% of its capacity to reduce the amounts that we produce.

We've also made some adjustments at our by-product mines, including suspending the molybdenum circuit at our Cerro Verde mine in Peru.

At all of our operations, including Grasberg and Cerro Verde, we are deferring projects when we can, we are reducing cost wherever we have the opportunity to reduce cost.

We've reduced our administrative cost, reduced our headcount at our corporate headquarters by a quarter, and as I said I'm very, very pleased with the way the organization has responded to the necessities that the current market environment places before us.

Page 11 shows our outlook for sales.

This is similar to what we had at the end of the fourth quarter and our last earnings release.

It shows that our production levels -- sales levels for copper will continue at roughly the level we operated at in 2007-2008, but what that doesn't show is just a significant amount of reductions that we put in place from what we had planned to produce and sell.

We had been -- had a strategy up through the third quarter of adding to volumes and we were successful in doing that, so we have cut back from what our plans are.

We continue to have high volumes.

You can see with the gold sales the impact of the mining sequencing at Grasberg where we'll have roughly a million ounces more gold sales this year, strong sales going into 2010, and then below that, the moly chart shows the actions -- the effect of the actions that we've taken to adjust our moly sales in response to the low prices in the marketplace currently.

Page 12 shows the outlook now for quarterly sales of copper, gold, and molybdenum for our Company.

You can see that our quarterly copper sales will be in the range of 950 million to a billion pounds.

Gold sales will be strong in the second and third quarters and almost 500,000 ounces in the fourth quarter, and then the current outlook for moly sales is shown on Page 12 and we will continue to review that.

Again depending on what the market needs for that product is and it will determine how -- to what extent we operate Henderson.

Page 13 shows for the year 2009 -- previously the charts we'd shown it for the first quarter but this shows the outlook for the year for our sales by region and also our outlook for unit cost, both at site production and delivery before by-product credits, the impact of by-product credits and our outlook currently for where we expect to be for the year.

Now, this reflects the new outlook for molybdenum, for example, with lower molybdenum sales.

It has gold in here that's priced at $900 an ounce, molybdenum at $8 a pound.

That will have an impact on these net numbers depending on where the actual prices are.

As we went into the first quarter we were having to make some assumptions about where input costs were going.

Now we are using the current outlook for those input costs and as that changes these numbers will change.

So there's lots of pluses and minuses that go into this.

We're going to try to maximize our mine plans and be aggressive in finding ways of managing our costs and we're going to do our best to try to beat these numbers as we go forward.

Exploration.

We had doubled our exploration spending between 2007 and 2008.

Our total expenditures were roughly $250 million, mostly spent in drilling core holes associated with our existing ore bodies in terms of gaining a better understanding of the geology with a view towards adding to reserves and ultimately adding to expansion projects.

And we were, and continue to be very positive about our ability to do that.

Lots of drilling also at our new project in Africa, Tenke Fungurume.

You can see how the budget was spent, divided geographically.

We were successful.

We added significant reserves in '08, three times the amount of our copper production and six or seven times our moly production, and we expect to be able to continue to use the information from that core drilling to add reserves going forward and to continue to work to look to how to convert reserves into cash flow producing assets.

But we're going to spend less on core drilling in 2009 and reduce our budget from $250 million to $75 million, but not at all changing our emphasis on exploration

Slide 15 shows our EBITDA numbers and our cash flow numbers, excluding working capital, but the operating cash flow is net of cash interest and cash taxes and shows that at the current level of copper and gold and molybdenum prices we would expect on average for 2009, 2010 to have roughly $4.5 billion of EBITDA and over $3 billion of operating cash flows.

You can see the variance here to those numbers, if copper and gold prices and molybdenum prices vary -- or I guess this is a copper price variance here that's shown on this slide, but on the next slide, on Page 16, we give you the sensitivities so that you can use our analysis and adjust prices to your own view of prices for both commodities, which we sell, and also some important input costs to give those to you for financial analysis purposes.

Page 17 includes our capital expenditures, and in light of our steps to protect liquidity we made a significant reduction of roughly $1 billion in our planned capital spending for 2009.

Our current outlook for the year is $1.3 billion, roughly equally divided between sustaining capital and the new projects that we're continuing.

We suspended our projects, except for the completion of the Tenke Fungurume project in Africa, the continued development of the underground ore bodies at Grasberg.

Then in 2010 our current outlook is for $1 billion of capital.

We will have completed our spending at Tenke roughly by the mid part of 2009 and the projects include Grasberg, and we currently have the Sulfolix project, the project to develop the sulfide ore reserves at El Abra, included in 2010.

Later this year we'll be making the decision about whether to go forward with that or defer it further, which we can do without losing the resource if we see market conditions indicate we should defer capital.

An important quarter for Tenke.

Again, I'm just really pleased with our construction team and our operations team there.

They beat my own personal estimate about when they would be able to first produce copper.

Today we are looking at our first actual shipment of copper from that operations to the marketplace, and that involves trucking the copper cathodes -- this is an SXEW operations -- from Katanga in the DRC to South Africa to marketplace.

It's sort of a test shipment but we are producing copper there.

We have an inventory of cathodes ready for shipment and as a project continues to be completed.

We are completing the copper circuit, which is essentially completed now, we're focusing on the cobalt circuit and an acid plant that we're building there, we're on schedule to ramp up to full capacity in the second half and that involves an annual rate of 250 million pounds of copper and 18 million pounds of cobalt.

Capital costs are significant.

We're building this, not just for this project but to be able to expand because we are confident that the resource will allow us to do that.

We'll time subsequent expansions depending on market conditions, but the resource is there and we are adding to our reserves, still drilling there, expect to continue to add to our reserves.

Some great pictures on Page 19.

You can see an aerial shot in the lower left of the facility.

This is a world-class facility.

The first line tailings disposal facility in this region and there is copper ready for shipment so that's a beautiful site for us and it's going well.

As I said, we are building this to world-class standards from an environmental management, occupational safety and social responsibility.

We're making investments in the community, which need investments to deal with the standard of living that the people have there.

We've upgraded the road.

We're investing in the power facilities to give us reliable power, doing social programs, which we will continue to expand as we earn revenues.

This is a contractual arrangement that is fair to the DRC by international standards.

In terms of taxes, royalties and equity participation, we're continuing to work with the government on their contract review process.

Progress has been made.

We anticipate that this will be successfully concluded during the second Quarter.

At Grasberg we're looking forward to the time when the open pit will be fully mined.

Our current plan is that -- to complete the open pit mining in roughly 2015.

We're continuing to review that.

For the last several years we've been building infrastructure to allow us to mine the underground reserves that lie directly underneath the open pit.

It's really the same ore body.

It's just it'll be mined with a very large block cave mine.

We've expanded our DOZ mine.

That had significant undeveloped resources there and so once the open pit is mined this will continue to be a very high-volume, low-cost operation and extending through the current life of our contract, which is 2041.

But we're continuing to develop those reserves so that we can move to the underground era, as planned.

Financially, our Company is well situated in current market conditions, and looking back to two-years ago we're very happy that we made the decisions that we made at that time to delever.

And as a result of those delevering actions that we took in 2007 we have a very attractive debt maturity schedule, as you can see on Page 22.

We have very small amounts of debt principal payments for a number of years.

We'll continue to review our cash flows and debt marketplace to see whether we should take actions to retire some of this debt in advance of this maturity.

From a financial policy standpoint we are committed to have a strong balance sheet and I think our track record of the actions that we've taken to delever, adjust our operations, raise capital, which we had a successful offering of common stock, and using a procedure called an at-the-market offering, which allowed us to place $750 million of common stock in the marketplace in a way that was not disruptive to the marketplace and gave us additional liquidity.

We're managing our costs, which I keep saying over and over, limiting our capital.

In this environment we're going to continue to focus on protecting liquidity because the one thing we want to do is for our Company to continue to own these assets that we own today.

Because we believe those assets are going to be worth significant value in the future, and we want our shareholders to be the ones to benefit from that.

So, that is where we are at the end of the first quarter of 2009.

That's what our outlook is.

Jim Bob's here on the line with me and we're pleased to open the line for your questions.

(Operator instructions).

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

Hey, Richard, hi, Jim Bob and Kathleen.

Hey, Mike.

Congratulations on the good operational quarter and on the progress you're making at Tenke.

I do have a question though on Tenke.

While you've had great progress on bringing this up ahead of schedule, at least your schedule, what's the progress -- or can you tell us any progress you've made on the contract with the government?

Well, it's been a process that has taken much longer than the government had indicated it was planning to devote to this and it's a difficult time for the country.

At the end of '08 they had to face the renewed problems in the eastern provinces, which is far away from us and did not affect us at all.

Most of you know that the Congo is as big as Europe, as big as the US east of the Mississippi and it doesn't have roads or infrastructure so these eastern provinces are not things that affect us but it did divert the government's attention.

Recently they've had a change in their leadership of their assembly, their parliament, and the company is facing economic challenges that -- where they already had challenges, but with a drop off in mining activities from the lower prices that's made those even much more significant, So there've been a lot of things that have diverted the attention of the government officials during the time we were hoping to get this contract reviewed.

We have consistently worked cooperatively in discussions with the government and with the state-owned company, Gecamines.

We've worked hard to advise the government of the benefits that our project will have for the country as a whole, for the workforce and for the region, and we've been successful in getting those points across.

They have had a process of where they had -- the most recent process.

They've had several but the most recent process was having a contract review commission that was headed by their senior minister for the economy and financial affairs, a vice prime minister.

We successfully worked with that group.

There was then a sub group of the council of ministers that deal with the economy and financial affairs and we've worked successfully through that group.

And now we're waiting for the final action for the -- by the council of ministers.

There's one point, Mike, that I want to make sure everybody understands.

We have a contract.

We aren't waiting for an approval of a contract.

The contract we have was transparently renegotiated in the 2003, 2000 timeframe.

It allows us to ship product, it allows us to operate our business, and we are proceeding on the basis of that contract that is enforceable under Congolese law and gives us the basis for doing what we're doing, but we're working with this review process, which is a review of all contracts, not just ours.

Richard, have you made the first shipment yet and how long does it actually take to get to the port?

The first truck shipment is leaving today, and it takes 20 -- we're estimating an average of 20 days.

This is a test shipment, as we're going through different border crossings and so fourth, and it'll be 20 to 30 days.

But we've been shipping significant amounts of construction materials on this same route and so it's not like it's something that we're just starting.

It's just this time the trucks are going to be carrying copper cathode as opposed to bringing in construction equipment and mill equipment and sulfuric acid and all of the things we've been shipping.

It 20 to 30 days round trip --

No.

-- or just one --?

One way.

One way, okay.

And then the la --

That's a good point, Mike, because we can use this for this project, for maybe the next expansion project.

In the long run to develop this property to its potential we'll need rail infrastructure and there is construction going on now in other countries to give us that access.

But we have -- we've actually just got a note that we've been averaging less than 15 days inbound, so hopefully we'll be able to do that.

But we've improved the roads.

The biggest challenge we faced initially was the quality of the roads inside the DRC, going from where we are on the road from the border to Kolwezi.

We're in between there and we were going to go through Lubumbashi down to the border crossing and we -- initially it was with a consortium of companies but those companies have now stopped operating and so it's basically been on our shoulders to improve that road.

But we made the improvements, we continued construction during the rainy period, and now we're confident about our ability to ship but it will take a long time.

And last question, what was the biggest surprise you saw in the first quarter on the cost -- the copper cash cost coming in so much lower and I think you had expected, at $0.66?

It was -- I don't want to characterize it as a surprise, but I was concerned about our ability to execute on these plans that we put together.

As you recall well, Mike, we announced one set of plans in the middle of December and the price continued to decline and we had to develop new plans over the next three weeks or so -- over the next month, really, before our earnings release and we were working hard at looking alternatives, making decisions, and we got our plans together that we announced to you with our fourth quarter earnings release and those were dramatic changes.

I mean, significant reductions in people, significant reallocation of equipment use and retirement of equipment, so we had a plan and I think I cautioned everyone that having a plan is one thing, executing on it is another, so the really good surprise was our ability to achieve that plan and I really tip my hat to all of our operating team and our leadership for our ability to do that.

Okay, thanks a lot, Rich, and congratulations again on a good quarter.

Thanks, Mike.

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

Hi, everybody.

I just have just one quick clarification question, first of all.

Where does the $62 million hit on the deferrals between PTFI and Atlantic Copper, where does that flow through the income statement?

Well what you see is we produced the -- this is Kathleen, David.

We produced the copper and copper concentrate at PTFI and so it really shows up when we sell it.

We eliminate the sale and the cost, so it's in revenues, it's in cost, and then with the $62 million is the net effect.

It's primarily between PTFI and Atlantic Copper but we also have some inter-company associated with our Cerro Verde sales, but it shows up in revenues and in costs.

And the net effect is the negative $62 million.

And then the -- so in terms of the unit cost per pound figure, does that include a portion of that?

No, what you see for PTFI is actually what our costs were during the quarter.

It's a cash-cost basis and it's the volumes that we sell including the volumes we sell on an inter-company basis.

For that subsidiary.

Okay, got it.

Just as a follow up -- or unrelated actually, there was some chatter out of Indonesia yesterday regarding a presidential decree to allow underground mining in protected forests.

Obviously you've got a large reserve and resource position there and I'm just wondering if you had some initial thoughts on what the potential long-term impact could be if there was an easing in the restrictions on the underground mining in the forest in Indonesia?

First of all, our Grasberg operations, including the large reserves that we have there, were not affected by the previous government ruling about this issue so we were -- we've been free and clear to operate there.

It potentially could be beneficial to us because of our large exploration acreage that we have outside of the Grasberg area, which we call Block A.

Certain of those areas were already exempt from that because of the way the original ruling and their contract situation was there, but overall, it potentially could be beneficial with us -- for us.

But we always felt that had we discovered a significant ore resource in our exploration area we could have worked with the government to develop it.

So in terms of saying that this was a major issue for us, we didn't see it that way but potentially it could be beneficial to us just in terms of administratively getting clearance to deal with what we might find there.

Okay, fair enough.

Thanks and congrats on a good quarter.

Thanks.

Thanks, David.

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

Thanks very much.

Hi, Richard, Jim Bob, Kathleen and Red.

Richard, I've got two questions here.

First, how should we think about Tenke in terms of modeling costs as you guys are in start up right now?

Yes, its cost structure will be an attractive one once we get to full production capacity and we deal with the start-up type issues that are not really unique to Tenke but just common start-up type issues.

So the cost structure for 2009 will not be indicative of what our long-term cost structure will be and to tell you the truth, right now we have some uncertainties ourselves as to how it will work out.

We have to demobilize a very large construction work crew there, and our real initial focus is to assure that we get this thing constructed in the right way and start it up, so we're going to be spending some money and some of that will go through our operating cost there, but as we go forward on the long-term basis, it will have an attractive cost structure.

Some of that cost structure's going to be driven by the price of cobalt and long run, if cobalt is at $10 a pound we should have something that should be -- a unit cost of something less than $0.50.

But there is some uncertainties on that, Tony.

If cobalt is -- today cobalt is above $10 a pound and that market is a very small market.

We're going to be producing a lot of cobalt, but while we're doing that a lot of other operations in the Congo and in Zambia are suspending production, So longer range, if the price of cobalt is higher those costs are going to come down substantially.

But the process itself, Richard, is fairly efficient because I believe you guys are going to combine both the copper and the cobalt in the processing component of the facility; correct?

Well there will be a separate cobalt circuit that we're now constructing.

It'll go through the copper circuit initially and then the residue of the copper circuit will then be processed in the cobalt circuit.

So it's an integrated facility, but the ore initially will go through the SAG mill and end up going through the SXEW processing to extract copper and then go through a separate process to produce the cobalt product that we'll be selling.

And I understand you guys are -- in addition to using sulfuric acid you're using some bioleaching there, as well?

It's really sulfuric acid.

It's really one of these units of where the -- as opposed to leach stacks it's going to be a unit where the acid is in a facility that does an agitation-type leach process.

Okay.

The other question I have is, what conditions or data points do you need to see before bringing back the North American operations?

Boy, that's really going to be an interesting decision point for us, but I think what we'd really need to see is going to be a robust copper market and that means recovery in the United States, Europe, and Japan.

Hopefully the stimulus packages and the actions to provide liquidity and financial strength to the banking system will lead to that, but we'll need to see that occurring.

China can be very -- is very important and very supportive.

Quite frankly they're doing what we expected them to do and that'll be supportive of the marketplace, but we'll need to see recovery in the developed world to have a robust market to give us the confidence of going forward.

Tony, this is Jim Bob.

I'd like to make one comment about the cost structure in Africa, which doesn't apply to '09.

But I think the way we look at Africa is much like we look at Indonesia.

With the high percentage of cobalt in the ore, as cobalt prices go up and down we could actually see production costs of zero using cobalt as a by-product.

One main difference, in Africa it's strictly related to cobalt prices whereas Indonesia, as you know, depending on our mining sequence, our goal goes up and goes down depending on where we are in the golden horseshoe.

So in some respects, as we get the substantial ore body up and running with expansions you're going to have a situation where you're going to have the cost structure, which [is said] $0.50 to $10 cobalt.

But if cobalt should strengthen and go into the 20s we could have a zero production cost.

But once again, my main point is, in Indonesia it depends on the price of gold and where we are in the mining sequence, whereas in Africa, the cobalt and the copper will flow substantially in the same percentages because of the ore bodies being monolithic as opposed to the geometry of the ore body in Indonesia.

I hope that's clear.

Very helpful, Jim Bob, I appreciate that further color, thank you.

Thank you, guys.

Your next question comes from the line of Mark Liinamaa with Morgan Stanley.

Hi, all.

Hey, Mark.

Just quickly on scrap markets.

Tight scrap markets have been one of the contributors to the strength in the copper price, would you be able to share any insights on whether you think this is cyclical or are we seeing more of a secular tightness in scrap being that maybe we collected a little bit much relative to historic consumption at the peak of the cycle?

Thanks.

Well, our executive who runs our concentrate marketing activity was just in China and there is a clear scarcity of scrap there and Mark to a certain degree is going to be a function of price.

Scrap comes as recovery from fabrication plants and as the fabrication plants have cut back their operating rates there's less scrap but then there's also secondary scrap and with the copper price being below $2 a pound it just wasn't economic to collect and ship that scrap, so you could expect scrap to come back once the price rises.

But it has always been the less visible part of the marketplace, a significant part of the marketplace, and the dynamics over time will and continue to change.

Thank you and good luck with everything.

Thanks Mark.

Appreciate it.

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

Good morning.

Just three quick questions.

Just on Slide 13 where you talk about sales per region and then there's a little footnote saying your sales from Africa of 100 million pounds are in there, are they actually in one of those regions or are they -- is it separate?

No, it's separate.

If you add up the total it will be 100 million pounds short of our 3.9 billion pounds of guidance, so we just haven't separately put the Africa region on the schedule.

Great, that's what I thought.

Second question, you talked about in North America going down another 200 million pounds next year, yet you talk about having fairly good flexibility to come back quickly.

Why does it take so long?

If you're going to be 200 million pounds down later that seems to be a long time to actually drop down to that new level and still, if you see what I'm saying, maintain flexibility coming up.

Can you just explain why that occurs?

Is it just the leach cycle or --?

Yes, exactly.

The places where we've curtailed production have been our SXEW leaching operations.

We have not curtailed production at Sierrita and Baghdad, which are concentrate operations, because if you cut back there you tend to drive your unit cost up because it has higher fixed cost.

So we have reduced our mine rate, our stacking rate, and when you do that, there is a long-term consequence for that because that material is placed on the stacks and then recovered over a number of months.

And so by cutting that back we're having an impact on future production that you can't just turn around altogether.

In fact, some of the things we've been doing in 2007 and 2008 were a recovery from the last time that these operations were curtailed, so -- and I think that I mentioned that before when we were saying that if the price of copper dropped -- and you remember, we developed our plans and the scenario of roughly $1.25 copper.

I said if it were to go below that we'd have to make other decisions and the further decisions you make the more long-term consequences you have.

We tried to balance it so that we can come back relatively quickly, but there will be a time lag between when we can recover and -- or when we make the decision to recover and when we start really getting back to levels where we were.

Okay, great.

And my final question just relates -- I know every quarter I ask this, but in the US now you have very good cash costs and obviously South America and Indonesia make money and just I would have thought -- you had a tax rate consolidated of 63% this quarter and I would have thought in the US, even if you add $0.20 as part of the depreciation you'd have been making money everywhere.

So is it just that there's a lag in inventory coming through and the actual costs of production in North America are higher than that 122, or how did we get to 63% because I would have thought with Grasberg being the biggest contributor and a tax rate of 50% you'd probably have had a rate down a little lower?

Well, it has to do with the fact that we really aren't paying taxes in the US because of the interest cost allocation and some G&A cost allocation.

So while we will be cash flow positive we still have depreciation charges, which are different than the book depreciation charges, have interest cost because of the way the US tax laws relate to where you can and where you can't allocate interest costs.

So our cash taxes are going to be in Indonesia and in Peru and without any taxes paid in the US, even though those rates are higher on a consolidated basis the effective book provision ends up being where it is.

Okay, so say we get back to $2.50 or $3 at some time, we'll still have the tax rate go down though, right?

Right, that's correct.

The table on Page 14 that shows what our tax rate -- effective tax rate would be on an annual basis at these various prices ranging from $1.50 to $2.50, and it's 63% in the first quarter if you take the -- if you look at the $2 case on an annual basis would be 48% for 2009, which means that our tax rate in the second quarter, third quarter, fourth quarter will be lower than what we had in the first quarter.

Right.

Okay.

I just wanted to --so it actually -- it's just that mix.

There's no lag in the fact that we could still have inventory from the fourth quarter, which might be $1.95 a pound (inaudible) that's coming through in the first quarter.

There's none of that affecting everything this time, too?

There's not a lag when you book it through inventory, if you see what I'm saying?

No, that's right.

Okay, great.

Thank you very much.

Okay, Brian.

Your next question comes from the line of Kuni Chen with Banc of America Securities.

Hi, good day, everybody.

Just a couple of quick ones.

As far as US operations go can you just give us a sense on how quickly you can bring back production once you make that decision?

Is that kind of two, three months or something longer than that?

Longer than that, Kuni.

Longer than that.

You're talking about -- if we were to make the decision, let's say, in the second half of '09, then it's a couple years.

The longer it goes the more it gets extended.

Now at the same time we have the opportunity to expand and those expansions may come in during that timeframe, so we're not really just stuck with this price schedule.

We have the opportunity to expand in several places and Africa is one where the second stage of expansion will be much quicker than the initial development because we're building a lot of infrastructure.

We were pursuing an incremental production enhancement at Cerro Verde.

We're also continuing to study a large scale project there.

And we have the opportunities to do some expansions at Sierrita, for example.

So lag will be related to Morenci/Safford operations and other operations we could go back into pushing volumes quickly, both for copper and for molybdenum, by the way.

Molybdenum recovery could be much quicker than that.

So the lag thing is limited Morenci/Safford, and the longer this goes the longer that lag time will be.

Got you.

And then just a final question on China.

Obviously we've seen the copper imparts pick up here in February and March.

What are your views on the sustainability on that?

Well, we have a long-term view that's positive about China's continuing to invest in infrastructure.

They're doing things to build facilities; housing, transportation, railroads, power facilities that consume copper.

So we believe the consumption activities to develop internally and the standard of living -- the Chinese GDP growth was stronger than some had anticipated.

A number of people are upgrading their outlook for China's economic growth now and copper is inherent to -- copper demand's inherent in the consumption of copper.

Their export business, which is also -- which is down is going to be affected by the world's economy, but we think a lot of the activity in China will be -- is clearly sustainable.

Their buying practices could cause variability.

We've seen that in the past.

You might recall 2006 wherein May copper went to $4 and China backed out of the marketplace, even though their economy and spending and consumption of copper continued to be in place.

But they just didn't buy anything for the number of months and the price of copper dropped.

So their buying practices will create volatility in the near term, but underlying that is economic growth, infrastructure development that involves the real consumption of copper.

Okay, thanks.

Good luck.

Thanks a lot.

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

Hi, good morning, Richard and everybody.

Thanks for taking this call.

My question was related to unit costs and it would seem that with the unit cost hitting $0.66 in the first quarter and your full-year guidance remaining at $0.70 that you're kind of saying that the best of the cost cutting is behind you, so I just wanted to understand if that's the case?

And secondly, just related to your updated guidance I noticed you're now using a $2 baseline copper price for 2009 versus $1.50 previously, so $0.50 change, but you've only increased your incremental operating cash flow forecast by around $1.5 billion instead of the $2 billion one would assume given that $0.50 change.

So are you bracing for any kind of second-half increase in costs or some -- what change in your thinking that you wouldn't be raising your cash flow guidance by essentially $2 billion?

Well, let me deal with the cost structure first.

It's really such a combination of things.

Let me say in response to your specific question, we aren't bracing ourselves for any cost increase.

That's not in our plans at all.

It's the combination of the by-product credits.

The lower molybdenum credit has some -- production has some impact.

Grasberg was stronger than planned in the first quarter.

Historically for many years when Grasberg is in this high-grade section of the pit we have operationally been able to achieve better-than-planned results, because it doesn't take a lot of material with grades of copper and gold at this level to improve and as we go forward into 2009 we're going to continue to look for opportunities to do that safely, but -- and we'll see if we're successful in doing that.

But our -- at the beginning of the year we had to make some estimates on where we thought input costs would be in terms of energy.

And we have not only diesel but purchased power and coal that we deal with and that's a big part of our cost structure.

Our workforce reductions, our steel costs, a lot of those things were based on estimates at that time.

Now we have the experience of the first quarter and we've updated all those based on that experience, so we will see how we do.

But it's a combination of things.

There is nothing in our cost picture that shows some big increase and we're going to continue to work to achieve efficiencies.

One thing Red's finding is, particularly in North America.

as we've reduced our workforce, we're bringing in much more efficiency.

Our safety statistics are better, for example, and that's a real positive thing because we had been adding to our workforce so aggressively that we had less-experienced workers and those were the ones that we've reduced our workforce on, So we're seeing more efficiencies, safer operations and all those things are good.

Jorge, in terms of the operating cash flows for 2009, at the beginning of the year we assumed $1.50 copper and we always show sensitivities, but at $1.50 copper we were talking about $1 billion of cash flow -- operating cash flow for 2009, net of $600 million in working capital requirements.

If we assume the first quarter actual results and then just update the copper price for $2 for the balance of the year our cash flows of approximately $2.5 billion again net of $600 million of working capital.

So if you run the math the numbers work for the balance of the three quarters, as you would expect.

As Richard said there's not any change in our cost structure that we're anticipating going forward, and everything is pretty much similar to what we had in January.

We've updated some of the costs for actual diesel prices that we're experiencing.

We also updated the cost for the effects of $2 copper, which you'd see in increased royalties and treatment charges, et cetera.

So there's nothing unusual that you wouldn't expect in $2 copper.

And Jorge, there's nothing magic about this number.

We don't go through any kind of extensive processes.

It's not our projection of price.

We don't project prices.

Literally last week Kathleen and I sat down and discussed whether we should use $1.75 or $2 and I said the current price is above $2, let's just use $2.

And so it is a frame of reference for people who follow us to use and we recognize that everyone's going to use their own prices.

And I just want you to know it's not -- there's not any kind of great insight you should get about the fact that we use $1.75 versus $2 because we don't -- we're not predicting a price.

Okay, that's fair.

But just to clarify then, again, given that you reported $0.66 in the first quarter, you're still standing by your full-year unit cost guidance of around $0.70 -- think you reduced it by about $0.01 from $0.71 to $0.70 -- but do you think there's actually downside risks to those costs?

In other words that they might come in better than budgeted, as you said, because you made surprise to the upside in Indonesia, or are you still comfortable with your $0.70 guidance?

Well I want to say that what we try to do is give you our best guidance based on the analysis of all of the elements of cost and production and you should consider $0.70 from that standpoint.

We're going to work real hard to beat that, and I do think we have the chance of coming in lower.

And one of the big things is a possibility of getting some higher-grade ore at Grasberg through the last three quarters of the year like we did in the first quarter and if we do that then that's going to really help our unit cost structure and all these other costs are going to be what they're going to be, but -- so I can't say anything more than that.

That's our best guidance now.

There is the opportunity to beat it.

If oil prices go from $50 to $75 that's going to be a negative, but that'll be whatever it'll be.

Okay, great.

Thank you.

Thanks, Jorge.

Your next question comes from the line of Victor Flores with HSBC.

Thank you.

Good morning.

I have one question with respect to the South American assets and then two with respect to Tenke.

Just starting with South America.

Richard, you mentioned that you'd be rethinking the sulfide project at El Abra later this year.

Is there a possibility that you will also rethink the expansion of Cerro Verde, or is there perhaps the point that you're comparing the two and might do one instead of the other?

Let's see.

I don't really see it as a comparison of the two.

We have the incentive to go forward with the project at El Abra because the oxide ore is on a decline and if we don't go forward with that then we'll have a gap between when the decline in the oxide occurs and we ramp up with the sulfide.

We have a 51% interest in that project and our partner is Codelco and those decisions are going to be made in consultation and working with Codelco.

I would say the decision at Cerro Verde is going to be separate from that and that's going to be made on the basis of the overall market situation and where we stand with it.

So I don't -- we also have partners to work with there, of course, as well.

So I don't see it as an either/or, or really that much of a competing situation, but something that will be driven by the market.

And I think the deferral of the sulfide would occur if -- markets would have to weaken significantly from where they are right now, and when we last talked with you on one of these conference calls, a large portion of the world was predicting that even though copper prices were in the $1.50 range that they were going to weaken substantially from that and as always, we're running our business on the basis of scenarios.

We aren't predicting prices.

We're just going to be prepared to act based on the different scenarios that we might be facing.

Great, thank you.

And then two questions with respect to Tenke.

I guess CRU has been saying that the sulfuric acid price could head pretty low this year and we've heard instances where people basically are paying to have their sulfuric acid taken away from them, so I'm just wondering whether that has any impact on the asset plan at Tenke?

I realize that you're far from infrastructure and there probably isn't that much cheap asset around, but I'm just wondering if there's any impact as a result of that?

Well, the thing you say about sulfuric acid is also true for elemental sulfur.

Its price has varied in a similar way to acid prices and there are sources for high-quality sulfur in that region and over the long run, we -- as we are develop -- again, we're developing this project for the long run.

We think it will make sense for us to build this plant and have it ready to go for [further] expansions and take advantage of the favorable market for high-quality elemental sulfur to burn in that plant.

On a day-to-day basis, some of these impacts could indicate it would make sense to buy acid rather than to build a plant but longer run that decision is pretty clear -- is very clear cut.

It's a lot more efficient to bring in -- truck in sulfur than to have to truck in the larger volumes of acid.

Right.

And then just finally, one question.

Now that you're actually producing cathode and getting ready to ship it, is there any requirement or mechanism that you have to hold back certain parts of the cash flow or the cash you receive for the sale of cathode until the contract negotiation is bedded down?

Absolutely not.

No.

We have a contract that gives us the access to the cash and the management of it and there's no uncertainties about operations or spending or anything else related to the business there.

Great.

Thank you so much.

Okay.

Thanks a lot, Victor.

Your next question comes from the line of Gary Lampard with Canaccord.

Oh, good morning.

Good morning.

My question relates to Tenke Fungurume, as well.

How do you think conceptually in terms of expansion?

Obviously the resource base can support many levels of expansion, first step probably doubling to about 200,000 tons per annum.

What constraints are there against that sort of expansion?

I guess power is the primary potential one.

Do you have the power to double up to 200,000 tons per annum?

Yes.

power's not a constraint.

We are -- we currently have the power available to us that would allow us to double it.

We're making investments in restoring some generating facilities -- hydro generating facilities that are going to add reliability to that power, so there are really no constraints, Gary, to the next step of the expansion other than the issue of whether the market needs that.

Right, okay, I guess the other general question, how would you look at brownfield costs compared to your start-up costs?

Brownfield costs related to the start-up cost?

On a compare to start up.

If you were to double production do you think the cost would be half of your greenfield cost?

Oh, of the expansion project?

Right, yes.

The capital cost to expand?

Yes.

It would be substantially less.

We are going through a study now of dealing with that.

We're continuing to drill in different areas to understand exactly -- this is a huge concession.

For those of you who haven't followed it it's 600 square miles.

There's mineralization throughout that and part of the decision would be made is what would be the next development location to find the ore for the expansion that Gary's talking about.

So Gary, all I can say is, it would be substantially less, it would be a very attractive project with a great operating cost and capital cost project.

We won't have to do things like building a new town site or -- we've already included the power cost in this project and a lot of the other types of basic infrastructure.

But let's wait until we get a little clearer view on exactly which ore we'll be using and what project we'll do before we talk about capital costs.

Richard, this is Jim Bob.

You mentioned the size of the concession and the extensive ore.

This is basically a flat terrain without any impairments and going in any direction we want to go and as you know, the ore that we have out there is at the surface and we're basically using graders to scrape the ore.

We don't have a big situation where you've got some terrain features like we had in Indonesia when you go from one level to the other.

You don't have an underground versus an open pit.

For many, many years, you're going to have a -- basically surface of the excavation of ore, which can easily be trucked to the existing facility.

So that's a big difference just because of the fact that the terrain here is very friendly to literally moving from one end of the concession to the other.

Okay.

And in terms of timing, would something like two years from the time you make a decision be a reasonable assumption?

Yes.

If you really look at it we -- there was very little construction done in 2007 on this project, so we basically built this project during 2008 and the first quarter of 2009.

Yes.

Okay.

All right, thanks very much for that.

Okay, Gary, thank you.

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

Good morning everyone.

Thanks for a great presentation and really showing some stamina here on the call, everyone.

Just a quick question and feel free to answer very briefly.

I know you've been at it for quite a while.

First of all, just on moly, taking Henderson down, there seems to be some differences of opinions out there.

China reverted to net import status.

There's other observers that are see -- claim to be seeing new orders out of North America for moly going to China.

Have you received those calls and are you suspicious of this kind of commentary and how genuine do you regard it?

I'm not going to -- John, I'm not in a position to comment on some of the comments but we have our downstream processing and marketing facilities to deal with customers, basically here in the US and in Europe, and that's what we are dealing with.

We've historically not shipped to China.

We do have relationships there that may give us some opportunities to do that and there have been some recent inquiries about it, but we're really not in a position to comment on it any more than that.

We're basically working our plans off what we see from our traditional customers and if this gives us some new opportunities we can very quickly react to take advantage of them.

Very good, very good.

And then just a follow up on something we discussed on the call last quarter, just the thought about -- any thoughts -- renewed thoughts about trying to lock in some of these low input costs.

It looks like there's a pretty historic disconnect between attractive copper prices and relatively low -- very low quotes for diesel fuel, natural gas in the United States and coal globally.

It looks like kind of the situation that does not come around very often and particularly when we look forward to 2011 with the Grasberg grades in the 80, pushback in some parts at a third degrade of what we're mining today and then potentially hopefully in that environment some of the US operations coming back.

As great as $0.60 to $0.70 costs are today they could be much, much, much higher with those ore grades, those mines, and higher input costs.

Any further thoughts about trying to lock in long-term diesel, natural gas or coal?

Well, let me say first of all, yes, we have included this.

It's on our website, our longer-term mine plans for grasberg.

This is something that Freeport's had a tradition of doing and we've continued that.

Now, as Grasberg does get into those future years Mark is working hard with our team to take actions to move copper ore and old ore forward and historically, we've been able to find ways of doing that, and as those plans keep getting developed, we will advise you of those.

But that's a long-term plan.

We always see plans as calls for action as opposed to the ends of action, so we're going to continue to work to do that.

And at the same time we have the opportunity at our operations to increase production, Tenke will be at full stream and other things will be coming up.

I know that's not the basic question you asked but just since you commented on that longer-term outlook I want to make sure it's put in the right context for where we are.

John, we continue to see this correlation between our input cost and commodity prices and we then use that correlation as a way to adjust our operations so that we can be flexible to meet market conditions.

And our hedging philosophy of giving investors the exposure to an unhedged marketplace is really one that carries forward to input costs, as well as it does to commodity prices.

I understand your logic.

I'm not necessarily taking issue with it, but just philosophically, we adjust our operations to be responsive to overall market conditions, and that includes both the commodity prices for products we sell, as well as our input costs.

Great.

Thank you and good luck as Tenke continues to come up.

Thanks, John.

Good to hear from you.

Your next question comes from the line of [Peter Volker] with [Sinizar Capital].

Hi, guys, undeniably a solid quarter given the circumstances.

I've got three quick questions.

First is just a clarification, a prior comment on Tenke.

You're going to be exiting the calendar year at a 750 million-pound capacity, if not run rate, correct?

No, it's 250 million.

I'm sorry, that's what I meant, 250 million.

That's what I meant.

250 million, Peter.

Okay, so -- okay.

And you're going to be -- you're actually going to be producing 100 million pounds this year?

Well, there's uncertainty about that because that's based on an assumption of when we get up.

We could produce more or less than that.

Okay.

That's what's in our plan.

Understood.

The next question is about -- a little bit about China.

I'm hearing that Chinese buyers are expressing some interest in contracting for longer terms, greater than six months, for copper, cathode and I'm not positive but possibly concentrate as well.

They've done so with -- for cathode with some Chilean producers.

Have you heard anything about that?

Have they contacted you about that?

Is there any reason you would pursue some of those relationships?

Well, you've got -- we are -- in Asia we're essentially a concentrate supplier.

Our copper cathode is in large part produced in the US where we then market it through our rod operations and supply about half the copper fod in the US.

And then in Asia -- in Europe, through Atlantic Copper, where we produce that.

The -- Mitsubishi manages the cathode output at the Gresik plant in Indonesia so we're not really in that marketplace of supplying cathode to Asia.

Our copper concentrate contracts are long-term contracts.

They are multi-year contracts and we sell some concentrate, not a large percentage of our concentrate, into China.

We're talking to them about longer-term contracts but that is marketed in a way if where we get the current market price for the copper and gold that's in the concentrate at the time of the shipment, and then we have annual negotiations of the processing fees and that would be the structure of any contract we would do in China.

Okay, thank you.

And the last question, now this announcement was made on April 1st so I'm not exactly sure what to make of that, but Bob Friedland over at Ivanhoe made an announcement down in Santiago about what could be a fairly significant find in Catanga -- he calls it Camoa.

It's going to produce sulfur and potentially sulfuric acid.

It's probably several years out at the earliest, but it's only 100-kilometers from Tenke, and he was talking about ore grades above three, even 4%.

He was talking about 10-meter plus deep seems and a 100 -- or a 1,000square kilometers of potentially developable resources.

Can you comment on that?

Are there any synergies there?

He was also talking about looking for partners to develop the resources.

Does this have any impact on Tenke?

a

And the last issue is he also mentioned that the rail line through Angola was upgraded and was running to the DRC border.

Now that's -- I've heard stories directly to the contrary of that.

But I guess my broader question is similar to a question asked earlier, what are the gating factors to increasing the production run rate above 250 million pounds at Tenke?

Is it the rail line, what's the progress there, and then is there anything synergistic in terms of sharing infrastructure resources with something like Camoa, maybe sulfur, is that one of the potential sources of sulfur you were talking about earlier?

Well, let me say that -- let's see, Peter.

Let me see if I can organi -- I want to organize my thoughts about this.

First of all, I said earlier that to develop Tenke on a stand-alone basis to its full potential we'll need rail shipping capabilities and the Angola railway is an important part of that.

Maybe Robert has information I don't have, but my understanding is that that railroad is not yet complete and there's some significant bridge work and other work to be done for that but we are engaged in some long-term planning about upgrading the rail facilities in the Congo to connect with that.

And so that does look like the long-term alternative that's most efficient, certainly the closest port for us to get to, so that's important.

We will always work to achieve synergies that are available from other operations that may work for us to deal with and we would certainly work with Ivanhoe or whoever in the area that might have synergies to work with and if something comes out that makes sense then we will work for it.

That is not the source of sulfur that I was talking about.

I was talking about sulfur in the Mid East that comes from very large markets there that have the opportunity for us to access in a high-quality sulfur.

So that was there but we'll continue to see what happens.

The development of an operation that would generate sulfur requires a construction of a concentrator mill of some sort and that's a big project so that is somewhere down the road before that would be available.

And just in terms of the resource quality that was being mentioned, does that have any bearing on the potential for Tenke?

No, (inaudible) far away.

Richard, let me handle this one.

Why don't we just put it this way.

We don't comment on things that Ivanhoe or any other producer announces, especially until we have a chance to go in and look at the resource, which we'll probably have a chance to do.

But I think it'd be best if we just don't comment on the quality of the ore, et cetera, because Ivanhoe's the only one that's really done the work and got the information available to us.

Okay, understood.

Thank you very much.

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

Probably there's almost 2,000 people in Morenci or other locations that you had to let go were pretty good people because you hired them in the first place.

What would be the timetable in terms of the copper price or economic conditions in terms of bringing some people back, first?

And second, could you describe or review your tax return by operating country?

It looked like from the cash costs and volume that copper and moly might have had a $175 million contribution in terms of output times price minus cash cost in the US, but you obviously have depreciation and many overhead items in the US.

Did you have a profit for taxes in the US and could you just walk us through the tax return by country?

Okay.

Let me say first of all, ,the workforce, that reduction that we did was done in stages and we took steps and it's gone very well.

We try to be as fair to people as they're leaving as when we hire them.

And we had an early retirement program, we had an incentivized retirement program and incentivized severance program, and then a lot of the reductions were in the less-experienced workers.

And one of the -- this time a year ago the biggest challenge we had was finding workers and we were hiring a lot of inexperienced workers.

Employment for these operations in Arizona over the past five years had doubled, up to almost 10,000 people.

With these cutbacks we're now down to roughly the level of where the operations were in 2006 at the time we announced the Phelps Dodge transaction.

So we had the ability and we've taken steps to retain the more-experienced workers.

We've done some reassignments of people to different areas so that we could keep the people that were experienced in their operations and we have -- so we have curtailed the less-experienced people and then the people that were nearing retirement.

If -- in the event of economic recovery there will be a challenge to recruit workers to work in these small towns in eastern Arizona.

That's just a fact of life.

Right now in Phoenix there is significant unemployment, significant opportunities, but if the copper market recovers Phoenix is going to recover and so we'll be back in the position of having to take steps to recruit workers.

We use some workers globally now and one of the good things that we're able to do is to lever off of our operations in Indonesia and elsewhere to bring people into work here, training people in the Congo here, and so it's going to be -- but that will be a future business problem, John.

John, on the -- this is Kathleen.

On the taxes there's a schedule on Page 14 of the press release that goes through, has a table that shows the income by region and the applicable tax rates.

In the US we did have a loss in the first quarter for income purposes, which includes the, as Richard was talking about earlier, not only the cash cost but the depreciation, also interest costs to the parent company and administrative costs.

So for book income purposes it's a loss and we don't record a benefit on that, so you see how that raises the effective tax rate to 63% during the quarter.

But Indonesia, we're continuing to pay at our contract rate of 35% plus we've got withholding taxes.

In Peru, the tax rate's 30% plus withholding taxes.

And in Chile we've got a 17% income tax rate and a 22% withholding tax rate.

So if you have questions after looking at the disclosure feel free to give us a call, but it's all outlined on Page 14.

Thank you for calling that to my attention.

Thanks, John.

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

Good morning.

Good morning.

Good morning.

Just one question about the minimum cash balance that you guys would look to keep on hand.

I guess $644 million, it doesn't -- to me doesn't seem low but I think it's the lowest that I think we've had since you bought Phelps Dodge and obviously you've got the entire revolver availability left, but I just wanted to know how you guys plan to look at the cash you keep on the balance sheet versus the total liquidity you keep under the revolver going forward?

Well, the cash on the balance sheet really reflects -- what we've been doing since the Phelps Dodge transaction is moving as much cash flow as available from the subsidiaries as is generated up to the parent, so that we could service debt, repay debt, repay dividends, et cetera, so that's really been the focus.

And why you've seen the cash balance decline since the time of the combination is just so that we could be more efficient with our use of cash.

So what you see on the balance sheet now is what we have and we've got some cash in South America that's not able to be distributed because of some of the statutory rules there, but as we generate additional cash flows that'll be available to the parent.

So we really look at our overall liquidity.

As you mentioned we have a fully unfunded revolver plus the cash, so we really try to look at both the cash and the revolver combined and we don't have a minimum level of cash.

We try to work down our cash as much as possible to be efficient with our capital, but there's not a minimum level of cash that we're looking for.

Okay.

And I know you guys had spoken early -- like in the fourth quarter you said, oh, we expect to draw down X amount of the revolver in the first quarter, but seems as -- obviously the copper price is the biggest deciding factor but it seems as though if copper prices remain reasonable you wouldn't need to drawdown the revolver to fund any other major cash out flows through the year?

That's correct and that was really the basic reason, Justine, that we did our equity offering.

In other words, that in effect funded this working capital requirement and at the time we said we did it so that we would not have to use our -- make a big draw under our revolver because we want to have that revolver available for what I think revolvers should be for and that's unexpected events.

Excellent.

Thank you so much.

I appreciate it.

Okay.

Your next question comes from the line of Dave Katz with JPMorgan.

Could you talk a bit about your working capital expectations?

Specifically you guys have indicated that you -- at $2 copper you envision a $600 million working capital of use.

By my calculations you had a $900 million use in the first quarter so does that imply a $300 million source for the rest of the year?

And then I was hoping you could also talk about the growth in accounts receivable balances.

Okay, Dave, you got it.

You're exactly right.

We're expecting a source of working capital to offset the use -- part of the use in the first half of the year.

And just think about it.

At a time when we're producing additional volumes at Grasberg and so fourth your accounts receivable are going to grow and that's -- part of that -- that's consistent with this deferral we have for inner-company profit sales, so that's just a function of what happens to you when you're producing additional volumes at an operation like Grasberg.

Both volumes and prices -- higher prices during the quarter.

Okay, thank you.

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

Yes, thanks.

Richard, you spoke about if the American continent, European and Japanese recover [profitably] then there might be a better copper price, but if that occurs [probably] do you need to raise your CapEx (inaudible) for 2010 if the recovery happens sooner than expected?

Your CapEx around $1 billion, do you need to raise that?

No, Sanil, we don't need to raise it, because we're doing certain things with our capital Expenditures.

Right now we're maintaining our business, we're not letting our business deteriorate because we're not having to defer necessary maintenance capital, and we're working to complete Tenke, we're working to continue the underground development at Grasberg, and we have in our plans that I talked about earlier the suffelox project that El Abra.

So there's no requirements that if that happened to do it, but we will be evaluating the marketplace to see if investing additional capital gives us a really strong returns and that'll be the analysis that we'll go through.

But there's no -- there's nothing out there of some kind of hidden capital requirement that pops up if prices rise.

So that raises another question basically.

If that's the case, the focus that you have shown free cash flow or cash flow thing, even if the copper goes back to $1.50 you're still going to be free cash flow positive in 2009, and if the dollar -- if copper goes up to $2 you would be strongly free cash flow positive in 2010 with the CapEx that you have planned.

So does that mean that if your project remains [debt] payment, you can start resuming your -- or you can resume your dividend payments to common stockholders?

Well, that'll be something that our board will review ongoing on a basis as we go forward and that'll depend on the market outlook.

I will tell you we are going to be committed to protecting liquidity in this time of economic uncertainty, and our industry is benefiting by Chinese activity, but there's still a great deal of economic uncertainty in the world and we're going to be prudent about maintaining liquidity in light of that.

So we couldn't be more positive about what we're going to see in the future.

Okay.

The inventories are low.

The industry's having a tough time producing copper and you can read current news accounts about that and the world's going to need copper and we've got the assets and the resources to produce it.

But we're going to be -- continue to be prudent about managing our operations in this time of uncertainty because we feel so good about where we're going to be at some point in the future.

Okay, just a last question on the debt levels.

You currently have about $7.2 billion.

Where do you want to reduce to by the year end?

Well, we're comfortable with where our debt level is right now, so any decisions we make to retire debt before its scheduled maturity will depend on the cash flow that we have available and the decisions about how we use that cash flow.

But we're very comfortable with our current level of debt.

Okay, great.

Thank you.

Thank you.

Your final question comes from the line of Ross Cardon with Polygon.

Hi, guys, just on Tenke.

Do you get 100% writing down allowances for tax?

Do we get what now?

I couldn't hear you.

Sorry.

Are you able to write off CapEx 100% against taxable profit?

No.

In other words do you -- You don't?

Okay.

There is --

How does that work?

There is a depreciation -- within the tax code for the DRC, like with other countries, there is depreciation schedules that are defined by the tax code.

which is reflected in our contract.

So it's not a 100% write off but it is an accelerated depreciation method that's an accounting-based determination of income, which is not unlike that of the situation in the US or other countries.

Okay.

Is there any guidance you can give me?

For example, is it over a four-year period or how accelerated is it?

I tell you, let's follow up with that.

It's just kind of a typical deal and I've seen analysis on it but I don't want to just comment off the top of my head as to how it works.

But it's -- for the group as a whole this kind of a standard tax depreciation methodology that's typical for what we see in the US and Indonesia and South America.

And Ross, give us a call and we'll follow up with you.

Okay, will do.

Second question, again relating to Tenke is on the power.

Earlier you said that it's -- that you have ate available, it's not a constraint.

I just wanted to ask you, let's say tomorrow you decided that you were going to do 200,000 tons of copper.

Would the power be available or is there more work to be done both by yourself and other parties?

And if so, who are the other parties are that are involved in the power project?

Well, the power is available.

The question is extended reliability and that's why we've entered this arrangement with the government entity called SNELL, which is the Congolese power authority, and under that arrangement we are investing in the restoration of hydropower facilities that will improve the availability and reliability of power over the long run and that's in progress now.

We're doing this in the form of a loan that will get repaid based on our uses of power over time.

But there's a great source of hydropower in the country and that will be an advantage because of that.

In terms of its availability and its cost, it will below cost power for us.

Okay.

And then are there other parties other than SNELL and yourselves involved in that project?

Are you relying on other people to put up the cash, as well?

No, not for this project.

There are others who are also -- have had plans to make investments in other facilities and some of those have been deferred and so fourth, but our project is a Tenke Fungurume mining project and it's going forward.

Okay.

Just third question, again on Tenke.

If Lundin Mining does not have the cash or have the financing available to fund, let's say, a second-stage expansion would you provide them with a free carry, and then once that's paid off then they would start receiving a dividend, is that how it would work?

No.

No, no, we have a -- there's no obligation for us to provide any free carry to our partner there.

They've indicated an ability to fund their costs going forward, and if they're unable to do that our joint venture arrangement covers how we would handle that, but we have no obligation to provide a free carry for our partner, Lundin, who I will say has been a good partner for us in our project.

All right okay.

And just one last question on the -- again on Tenke.

I was looking at the feasibility that you put out in March and it looks like when you look at the tons that you're mining, so the tons of ore versus what you're sending to the mill, there's a big difference there and it looks like, when you look at the grade that you're sending to the mill versus the [head] grade that you're mining, obviously you're screening what you send to the mill, but would it not be more cost effective to be more selective in the mining rather than the [feed] that you send to the mill, because there's a huge amount of material that you're stockpiling?

Ross, we didn't put out any feasibility study in March.

Sorry, it was the Lundin one.

Sorry, the one on the Lundin side.

Right, so we didn't put it out.

We're managing the project to give us the grade of ore to make this initial project feasible and attractive.

As in mining operations it's typical, we also have to mine some ore that we then are stockpiling that's lower grade and then we'll be developing longer-term plans about how to deal with that ore in the processing.

But this is all in accordance with our long-term life of mine plan.

Right, okay.

All right, thanks, guys.

Yes.

Thanks a lot.

Everyone, we really appreciate your participation on the call.

I know we had a lot of questions, but if you have others we are available to respond to them.

Richard, let me just make one final comment.

We didn't talk a lot about but if questions had come up we had a slide that showed that we reduced our exploration expenditures significantly to $75 million.

I want to remind everybody that we made a policy decision after the acquisition of Phelps Dodge that we'd go in and spent almost $300 million of drilling drill holes that went outside the traditional areas that had been drilled by Phelps Dodge.

I just wanted to report to you that we continue to, even with the expenditures for actual drilling operations, cut substantially to get to the $75 million level all the data that we picked up during the $300 million expenditure to try to better understand what kind of ore we have that was outside the existing ore bodies that had been [delineated] by Phelps Dodge.

We continue to -- on a daily basis our whole group is focusing on analyzing the information that we acquired over that 18-month period when we were drilling unprecedented amounts of wells and we continue to see ore grades continue below the bottom of the pits that were existing and in areas adjacent to it, even the bridges between the existing pits.

So you can -- you will be happy to know that there's a substantial amount of ore that's going to be brought into proven categories over the years as a result of the intense drilling program that we did.

So exploration is alive and breathing and the amount of money we're spending has no impact on the potential of adding new ore in 2009, 2010, 2011.

We continued that in a very energetic way.

All right.

Thanks, Jim Bob, and that's the future of our Company and one that we're all just tremendously excited about.

We saw when we were doing initial due diligence on Phelps Dodge and then after we got into this that it was a great opportunity to make an attractive purchase based on what was known at the time, but this ability to add values that are not reflected today in our stock price and for our shareholders to have the opportunity to capture all these values in the future is what we're really focused on and it's a lot more accretive than going out and trying to acquire any kind of existing operations.

So it's a real exciting part of our future.

Once again, thanks to everybody and we'll look forward to speaking with you about our year as it progresses.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.