費利浦·麥克莫蘭銅金 (FCX) 2009 Q4 法說會逐字稿

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

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

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

(Operator Instructions).

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

Kathleen Quirk, Executive Vice President and Chief Financial Officer.

Please go ahead, ma'am.

Thank you and good morning, everyone and welcome to the Freeport-McMoRan Copper & Gold fourth quarter 2009 earnings conference call.

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

Our conference call today is being broadcast live on the Internet.

We have several slides to supplement our comments this morning and we'll be referring to the slides during the call.

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

In addition to analysts and investors, the financial press has also been invited to listen to today's call and a replay will be available by accessing the webcast link on our Internet 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 materials and to the risk factors described in our SEC filings.

On the call today is Jim Bob Moffett, our Chairman of the Board, Richard Adkerson, President and Chief Executive Officer.

We also have Red Conger with us today, Dave Thornton and Mark Johnson.

I'll briefly summarize our financial results and then turn the call over to Richard who will be referring to the slide materials on our website to discuss our operations and outlook.

We'll then follow up with questions.

Today FCX reported fourth quarter 2009 net income attributable to common stock of $971 million.

That was $2.15 per share compared with a net loss of $13.9 billion or $36.78 per share for the fourth quarter of 2008.

After adjusting for special items totaling $14 billion in the prior year quarter, our adjusted net income totaled $23 million or $0.06 a share for the fourth quarter of 2008.

For the year ended 2009, we reported net income attributable to common stock of $2.5 billion, $5.86 per share compared with a net loss of $11.3 billion or $29.72 per share for 2008.

Our fourth quarter copper sales of 989 million pounds were higher than our previous estimate of 915 million pounds as we gained access to higher grade material in the Grasberg mine but they were lower than last year's fourth quarter 2008 sales of 1.2 billion pounds, and we were mining in a relatively higher grade section at Grasberg.

Our gold sales for the quarter, fourth quarter of 2009 totaled 551,000 ounces.

Those again were higher than our estimate of 425,000 ounces and higher than last year's fourth quarter of 462,000 ounces.

Molybdenum sales during the fourth quarter totaled 16 million pounds, that was higher than last year's fourth quarter of 12 million pounds, and our prior estimate because of improved sales to Asia.

Our recorded copper prices during the fourth quarter of 2009 averaged $3.20 per pound.

That was more than double the average of the fourth quarter of 2008.

And I realize gold prices averaged $1,115 per ounce during the quarter compared with $818 in the year ago period.

We realized $13.45 per pound from molybdenum sales during the fourth quarter, that compared to $24.55 in the fourth quarter of 2008.

I think you'll see from our results that they reflect our continued strong operating performance and execution across all of our operations.

This is also shown in our unit net cash cost.

Net of by-product credits which averaged $0.62 per pound for the fourth quarter of 2009, significantly lower than last year's $1.04 per pound.

We averaged $0.55 per pound for the year 2009 compared to $1.16 for 2008.

We generated strong cash flows during the quarter totaling $1.5 billion.

For the year we generated $4.4 billion of operating cash flows, and that was net of a $770 million reduction in cash flow for working capital uses.

Our capital expenditures for the fourth quarter totaled $449 million.

That included a $200 million property acquisition that we made during the quarter that's adjacent to our Sierrita mine and our capital expenditures for the year totaled $1.6 billion.

We ended the year in a strong financial position.

Our total debt approximated $6.3 billion at the end of the year.

We had reduced debt during the year total of $1 billion included-- including just under $300 million in the fourth quarter.

We ended the year with cash-- a cash balance of $2.7 billion.

At the end of the year we had 430 million common shares outstanding assuming conversion of our mandatory convertible preferred stock which automatically converts on May 1st, 2010.

We would have between 469 million and 477 million common shares outstanding depending on the applicable market price of FCX's common stock at the time of conversion.

Now I'd like to turn the call over to Richard who will be covering materials in our slide presentation.

Good morning, everyone.

In preparing for today's call, last evening I went back and reread our conference call from a year ago and it's quite a stark comparison.

Two things really jumped out from comparing what we said last year to what we're reporting to you today.

First of all is we set out an aggressive plan to deal with very low commodity prices during our call last year, and during 2009 we executed on that plan in remarkable fashion.

Second thing of course is we have much higher prices of copper and molybdenum today.

And adding those things together resulted in what you're seeing for the quarter, fourth quarter and for the year 2009, is a very strong operating and financial performance.

The cash flows that we've generated have allowed us to strengthen our balance sheet.

This gives us the enhanced financial and liquidity position that positions our Company well to take advantage of what we believe is going to be a very positive long-term outlook for the commodity businesses that we're in.

Then in looking at 2009 we successfully started up our Tenke operations in the Democratic Republic of Congo.

Even though we reduced our expiration spending during 2009, we were able to continue our long-term experience of adding to our proved and probable mineral reserves, and we're-- have confidence that we'll be able to continue that in the future even though we have high levels of current production.

While we curtailed high cost production at some of our mines, we maintained all of the future growth opportunities that we had in our portfolio going into the year.

We-- because of the nature of the ownership rights of our ore bodies we didn't lose anything by deferring projects and curtailing operations.

Then while we had eliminated our dividend at the end of 2008 in response to the times we were living in then, we've now taken actions to restate our annual cash dividend to shareholders.

And when we look forward with the amount of cash that we generate, we look forward to an increasing ability to return cash to shareholders.

Turning to Slide four, the strong volume performance that we had during 2009 first of all can be attributable to the fact that we were mining during the year in the highest grade section that we have available to us in the Grasberg open-pit mine.

For those of you who have followed Freeport over the years, you know that our mine sequencing allows to us have access to this high-grade ore from time to time depending on where we are in the pit.

And when we have access to that ore, by taking advantage when we can from a prudent standpoint in terms of maintaining the integrity of the mine and maintaining our long-term mine plans by accessing a limited amount of material we can add significant volumes to copper and gold.

And that's what you saw happen to us in the fourth quarter and characterized 2009.

Of course having the access to the high-grade gold volumes at Grasberg was very beneficial to us during these times of high gold prices.

But stepping back from Grasberg, which we've always known would be our bedrock asset during times of low commodity prices, particularly proud of the performance by Red Conger's team and by Dave Thornton's team with the molybdenum business because we had very solid results of our mines in the Americas, and these are mines, because of their grades, are challenged when commodity prices are low.

But you can see by the results we set out an aggressive plan and we achieved it.

And then of course to have the successful start up of Tenke in a country that has such a-- challenges in terms of infrastructure development is a significant accomplishment.

We significantly reduced our cost structure, and this was a challenge we faced and met.

We revised our operating plans prior to mid-third quarter of 2008.

We had had a strategy of pushing incremental volumes because we could earn margins on them, when prices changed we started scaling back those operations where we had high cross incremental volumes, and that was able-- we were able to drive our costs down benefiting by lower input costs.

The Grasberg, of course, with its high gold grades proved our cost structure, but this aggressive cost manager along-- management along with lower input costs allowed us to push our costs down by 26% before by-product credit.

Kathleen went over our financial results that are summarized on Slide five.

We went into the year telling you we were projecting to have 3.9 billion pounds of copper sales.

We exceeded that by 4.1.

Our copper price a year ago was in the $1.40 range.

We averaged $2.60 for the year, $3.20 in the fourth quarter.

That generated a lot of cash for us with our reduced cost structure.

And then at Grasberg we went into the year with an outlook of 2.2 million ounces of gold sales.

We produced 400,000 ounces more than that because of our ability to access high-grade gold.

Now this is gold that was there.

It would have been in our future plans, but by following our philosophy of trying to move forward metal when we can safely do so, we were able to have the kind of year that we have, and this has been the characterization of the Grasberg mine ever since we started mining it in the early 1990s.

That resulted in the very strong financial performance that we're reporting to you today.

In the fourth quarter, Slide six shows that our Company-wide cash costs net of by-product credits was a very positive $0.62 a pound.

You can see that at Grasberg our gold revenues more than offset our total cost of operations so that we had a negative cost on a unit basis of $0.67 a pound but very strong performance in North America and South America.

And then the chart at the bottom of Page six shows how our sales are distributed between North America, South America and Indonesia where we have the geographical diversification that the Phelps Dodge transaction brought to us.

This was a record quarter in terms of unit cost performance for Grasberg, came at a very positive time for us.

Our reserve situation present on Page seven.

As I said we took advantage this year of a lot of core hole drilling and exploration work that we had done during 2007 and 2008.

Did less core drilling this year, but with the information that we had were able to replace 150% of our copper production, three times our molybdenum production, and you can see that when you look at our pro forma of our Company over a ten year basis we've had a long history of being able to add reserves through extensions of our existing ore bodies and through our exploration program and this is going to be a key objective and one that we have a lot of confidence in being able to contain-- continue in the future.

Our reserves by area are shown on Page eight.

We have significant reserves in all areas of the world that we operate in, North America, South America, Africa and Indonesia and the ability to add reserves in each of those areas.

And we will continue to work to do that.

Page nine shows that $1.60 copper, which we used this year for our proved and probable reserve analysis, we have over 100 billion pounds of recoverable payable copper in our properties.

In those properties based on drilling and exploration analysis that we've done to date, we have an incremental 100 billion pounds of in place copper that's not yet defined and qualified to be proved and probable reserves, but at $2 copper we have that material that gives us the chance to work over time to take the steps that are necessary to define those as proved and probable reserves and then to develop cash flow generating projects out of those.

That's within our existing set of assets and which really points to such a favorable position for our Company going forward.

We don't have to acquire properties or acquire companies to give ourselves a growth profile in the future.

Besides our strong operating performance of course, the thing that is positive from 2009, has been the strong performance of copper in the marketplace going from lows in late 2008 to early 2009, the price has now risen to where it is today of roughly $3.40 which is a price that was not expected by any consensus outlook going into this year.

A lot of uncertainties in the world, but the strength in China, because of the growth of it's internal economy, the spending that China has done in it's infrastructure development and stimulus programs, renewed investor interest in copper has resulted in a strong price.

And as we've just seen the reports that are coming out currently on Chinese economic growth in the fourth quarter, their economy continues to do -- continues to do very well, and the beginning of seeing positive signs and economic data in the US is encouraging for the outlook for copper, although we recognize that there's risk in the marketplace and we're going to run our business to manage the possibility of lower prices while positioning ourselves to take advantage of what we believe is going to be a very, very positive view of copper in the long run.

Molybdenum had a recovery from its lows of about $8 a pound during the spring of 2009.

There was a spike in mid-year and prices dropped back to -- went to $18 to approximately $11, and now molybdenum prices are moving back up to $15.

And that's-- we're the world's largest producer of this strategic metal and it's a very positive feature of our Company.

Of course gold prices continue to reflect the attractiveness of gold during economic times and times of weak dollar.

As we look forward into 2010, we are positioned to continue our strong operating performance.

We are looking to have copper sales of 3.8 billion pounds, a bit lower than this year because of mine sequencing at Grasberg principally and the effects of curtailed operations in North America.

The Grasberg sequencing leads us and the fact that we accessed some gold earlier in 2009 to a gold sales outlook of 1.8 million ounces with 60 million pounds of molybdenum.

That would result on a modeled basis in a unit net cash cost of an attractive $0.86 a pound with prices of gold at $1,100 an ounce and molybdenum of $12 a pound.

That model results would generate $5.3 billion of operating cash flows at $3.25 copper and we have a revised capital expenditure outlook of $1.7 billion.

Because of the positive market situation, we are taking some steps not to go back to the kind of expenditures strategy that we had in 2007/2008, but we are taking some steps to move forward on some projects that we had temporarily deferred during 2009.

That includes restart of mining in the historical Miami-Globe district here in Arizona where we are spending money on reclamation activities.

We are now going forward to begin producing some copper from those operations.

This is a project that we had planned earlier.

At Morenci we had suspended the concentrator mill as part of our plans last year.

We have a-- we're mining sulfide ore which is available to feed that mill as part of our operations there, so we're planning to restart that mill or taking steps to restart that mill now which will enhance our profitability at Morenci.

In Chile we had deferred for a year a project at our El Abra mine to begin mining a large sulfide mineral deposit which was available to us as we deplete the current oxide pit.

This project extends mine life, continues El Abra as a major mine with significant volumes going forward.

We have now restarted that project and we're continuing to study other expansion opportunities at El Abra with our partner Codelco.

In Peru at Cerro Verde we are taking a step now to incrementally increase its mill rate based on our existing mining and mill facility configuration.

This will be a very positive incremental addition.

Our very large reserve base which is growing at Cerro Verde continues to give us an opportunity to study and we're engaged in those studies now to look at a large scale expansion at that project where we have the footprint and the ability to expand, and we'll be reporting to you on that.

At Grasberg operations in Indonesia we have continued during 2009 and forward the development of our very large underground projects to develop the reserves that are there.

These are 40 billion pounds plus of copper, 35 million ounces of gold, enormous reserves with very large life.

We've continued to develop the access to the reserves that directly underly the existing pit which will be available to us as the pit depletes which is currently scheduled for 2015.

We're continuing to study exactly how we will mine the Grasberg as we approach depletion of the pit.

Our DOZ mine which is an adjacent ore body and a continuation of blockade mining that we began there during the early 1980s is now up to a sustained rate of 80,000 tons per day world class in every respect and very profitable.

We continue the development of the small high-grade Big Gossan mine and will start production late this year ramping that up to provide profitable volumes there.

And we're continuing to study the extension of the DOZ mine at depth with what we call the Deep MLZ mine.

So Grasberg continues to produce well currently and to provide a great future for our Company.

In Africa at the Tenke Fungurume mine, we completed construction activities during the first half of the year.

We have now achieved design production rates on copper.

We're dealing with start up issues the cobalt circuit and with logistical issues associated with getting product to market.

At full rates this initial phase will have aggregate annual metal of 250 million pounds a year and 18 million pounds of cobalt, although we may -- we expect to produce higher levels of cobalt during the initial years.

We continue to explore this large 600 square mile plus concession.

We've added reserves this year.

We'll continue to add reserves as we go forward.

We have initiated in the fourth quarter of 2009 a second phase to that project which is an optimization of the current plant, and initially we're looking at potentially increasing current capacity by 50%.

As I mentioned, we had reduced our exploration spending in 2009 as part of our cost containment project.

We're increasing it to the $100 million level in 2010 and we'll be looking at all of our major mineral districts in the regions around the world and expect that to continue to be positive in terms of adding reserves and future development projects.

The sales profile for looking forward to 2010/2011 is shown on Page 17.

You see the gold chart in the upper right shows the impact of sequencing at Grasberg where we were in the low-grade section in 2008 moving to the high-grade section in 2009 and then we will be sequencing the lower grades early in 2010 returning to higher grades by the end of the year.

We're currently looking at 3.8 billion pounds of copper consolidated worldwide for 2010 and 2011.

This impact of sequencing at Grasberg is really shown on Page 18 where we show you our quarterly outlook for copper and gold sales, our sales are going to be back end loaded this year because of Grasberg sequencing both for copper and particularly for gold where substantially all of our gold comes out of Grasberg.

You can see mid-year we'll be down to lower grade sections returning to higher grade sections by 2010.

These are grades that are shown to be there by our exploration and our reserve model.

Overtime our reserve model at Grasberg, which is supported by core holes, thousands of core holes and exploration analysis, has historically shown to be very, very accurate over time in giving us guidance as to where we're going to go.

So it's not a question of having a mine with diminishing grades, it's just when we can physically access the higher grades.

Our sales by region for our 2009/2010 are shown on Page 19.

Essentially we have our copper sales shared by North America, South America and Indonesia.

Our molybdenum comes out of North America and the gold comes out of Grasberg.

Production cost for the year are shown on Page 20.

2009 experience shown earlier a year ago we had a plan to show that we would work to achieve unit costs of $0.71 a pound for the year.

Our actual experience with the higher volumes at Grasberg and higher gold prices is at-- resulted in $0.55 but the performance at North America, South America were both consistent with the plan that we had set out at the beginning of the year.

As we look forward to 2010 some of our input costs like copper costs have risen and that'll be-- have an impact on our cost performance.

The lower volumes at Grasberg will have an impact, but when you add it all up we end up with a very attractive consolidated cost picture going forward, particularly in relation to a copper market today where we have $3.40 copper.

The reconciliation of 2009 and 2010 is shown on Page 21 showing the impact of Grasberg, principally because of its lower volumes.

The nature of our site operating costs are shown on Page 22 where you can see that energy is roughly 20% of our costs, man power and materials are about a third each.

When you add all of this together and look at varying copper prices, our projected or modeled cash flows and cash earnings are presented on Page 23.

When you look at a range of copper from $2.50 to $3.50, you see our EBITDA could range from just under $6 billion to just under $10 billion over that price range.

At $3 copper we would have roughly $5 billion of operating cash flows which excludes working capital changes but is net of cash taxes and cash interest.

So very strong outlook at these prices for cash generation.

And the sensitivities to commodity prices and certain input costs are shown on Page 24 for your information.

Capital spending dropped off significantly in 2010 as we deferred projects our-- 2009.

2010 we have increased our outlook for capital spending because of the projects I mentioned earlier by about $300 million, and we'll continuing review that as we study the market and study our growth opportunities.

The balance sheet is very strong for our Company and is growing stronger.

Page 26 shows where we were at March 2007 following the Phelps Dodge deal with over $17.5 billion of debt.

We reduced that during 2007 and 2008 by about $10 billion and today we have gross debt of $6.3 billion and cash of $2.7 billion.

So very strong situation in terms of total debt but particularly with our debt maturity schedule which is outlined on Page 27, we have very small amounts of debt that are maturing until 2015, and we're looking at opportunities now to use some of our cash to opportunistically reduce that debt in 2015 and after.

Our financial policy is to focus on having a strong balance sheet liquidity position.

We made great progress this year in managing costs, and we believe that we've learned a lot during this year that'll allow us to sustain effective cost management as we go forward.

We will invest in attractive growth projects as economic conditions warrant.

As I mentioned, we're going to look for ways to reduce our debt on an economic basis.

The Board has restated the dividend, and with this kind of cash generation capacity, we're going to have the opportunity to discuss with our Board the opportunity to return cash to shareholders as we look forward in the future.

So we are real pleased with our team's performance this year, encouraged by where the market is today.

But as we mentioned a year ago, even in the face of very low prices, we continue to be very optimistic about the future of copper.

The industry is supported by supply challenges first of all, challenges from aging mines, the inability of the industry to find new projects of the quality that historical projects have been.

And then when you look at the fundamental requirements the world has for copper in the developing economies and in the developed worlds as those economies recover and the physical nature of copper where it's a commodity that's difficult to substitute for it's basic uses, we're-- we have a very positive outlook for copper long-- over the longer term and we're very pleased about where our Company is positioned to take advantage of that market place.

So with that Operator, we'd like to open the line for questions.

(Operator Instructions) Our first question comes from the line of David Gagliano with Credit Suisse.

Hi, my question is regarding actua;ly the logic behind the restarts at the various projects.

It sounded to me like in terms of your comments, Richard and also in the press release that improving market conditions were the reason behind the restarts.

So my question is, is that primarily a copper price-driven improvement or an underlying demand-driven improvement?

And if it's demand driven, if you could just give us the main areas of demand improvement that you are seeing?

Thanks.

Okay thanks, Dave.

First of all, these are relatively modest steps in the overall picture.

We're doing some things that we can do that have some short-term incremental benefits, and we're deferring those major projects.

We continue to defer the major projects that require very large amounts of capital and require a confidence about the long-term demand situation.

So the fact that the copper price is high makes these projects, are higher than it was a year ago, give these projects very, very high rates of returns and very quick paybacks.

And so there we're-- in this environment it didn't take a lot of analysis to say you want to go ahead and do these.

In $1.40 copper environment we didn't, but just the current copper price, to answer your question, drove these decisions.

Your second -- the question about fundamental demand, we're seeing some more positive numbers about the economy in the US and Western Europe and Japan, but still there's great uncertainties about that, and so before we undertake the expenditures of the very large amounts of capital and the longer return characteristics that big projects would involve, we're not today starting to invest in those types of projects.

Okay.

Fair enough.

Thanks.

Thank you.

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

Good morning.

Richard, with regard to your comments on the potential for expansion at Tenke, can you comment a little more, does your study include expansion of infrastructure for shipping?

Is it covered under the existing agreement you have with the government?

And further in Africa, would you consider other opportunities to grow production from that region other than growing the Tenke property itself?

Thanks.

Okay, first of all this is more in the nature of an incremental improvement of our initial project, so it would be optimizing what we have now.

It would involve shipping on the same basis that we're currently shipping product, and that's by truck to South Africa to get to marketplace.

Longer range to develop this project what we believe will be its ultimate potential will require other infrastructure to allow rail shipments and access to different ports, but this is an optimization of the existing project.

Our contract with the government covers this and our longer term projects we are continuing our discussions with the government and its contract review process.

We're continuing with positive discussions, but those discussions have not yet been concluded.

But we want to note that we do have a contract which does cover this potential project as well as future expansion projects as the life of a mine type contracts.

So we are, we're currently focused on this optimization project.

Our work in Africa is focused on Tenke Fungurume because of its size and potential growth opportunities.

We have an exploration project that's nearby there that's a separate contract situation, but for the present time we are focused on Tenke Fungurume because of its size and its potential growth opportunities.

Thanks.

And with the number of companies that are there, are there any moves to get together some sort of consortium to expand infrastructure so that the region can live up to its promise?

Thanks.

That'll be it for me.

All right thanks, Mark.

Well over time we have worked with other companies on infrastructure development.

For example, on the national road that goes from Kolwezi down to the border, Kolwezi down to the border, we have worked cooperatively with companies over time.

Now, the situation of other companies changed dramatically during late 2008 when the prices of copper and molybdenum dropped-- and cobalt dropped so much, so at different times we've had consortiums and not.

We are now studying together with other companies the future of rail access there, and we will work cooperatively with other companies, but our projects are such a size that we're driven by what makes sense for us.

Thanks, Richard.

Thanks, Mark.

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

Thank you very much.

Hi, Jim Bob, Richard, Kathleen and the other troops on the line.

I've got a question here on Cerro Verde and when I visited Cerro Verde last year, you certainly have tremendous capabilities in terms of water availability, the resource itself, et cetera, and the electricity availability in the region.

What besides the market may be being on a more stable footing, where would that sit in terms of your pecking order, Richard, and Jim Bob as you see it as you look forward in terms of the growth plans for the Company?

Because of all the reasons you said, it's at the top of the list.

And we have this chance to spend a relatively small amount of capital there to optimize what we have.

But in terms of a major growth project, for the very reasons you said, it's really at the top of our list.

And what would cause you to act more quickly on this?

Is it a matter of the economy just being on a sounder footing?

Exactly.

I mean as soon as we-- as soon as some of the current uncertainties related to the economy in the US and the western world are resolved and we can see that the world globally requires that copper, then we're going to be prepared to go forward.

We're, as we speak, engaged in studies at assessing the size of that expansion, exactly how we would approach it.

We're looking at capital cost estimates.

There's been a huge fluctuation over time in the cost of construction.

But we're studying that right now so that when we gain the confidence that these economic uncertainties facing the western world are resolved, then you'll see us going forward at Cerro Verde because it's a great resource, got great footprint, great access to all of the things that you need to justify expansion.

Thank you very much.

Richard, I might just, I might just add to that for Tony.

Tony as you recall our comments have been on an aggressive basis.

As we drill these additional core holes and continue to reanalyze the old core holes that have been drilled in the past, we see I think I used an analogy one time before that in all of our properties what's been the highlight of production has been the ore that had been oxidized by natural weathering.

And that ore is the ore that is [favorable] to be leached.

The big sulfide ore bodies that have to be milled and then smelted are all in place and so that Cerro Verde as you just, as Richard just said and you pointed to, is a great opportunity for us.

But it's-- we have in just about every one of our major ore bodies we have this huge sulfide ore that has not been expanded and those projects would all be on our watch list as we see the demand for copper go up and we see the depletion of other mines.

Thank you, Jim Bob.

For-- we applaud your discipline that you guys are showing in the marketplace.

Thank you.

Thanks, Tony.

Thanks, Tony.

Our next question comes from the line of Sal Tharani with Goldman Sachs.

Good morning.

Just wanted to understand the use of cash flow.

You certainly will have a strong cash flow as you have projected.

The CapEx numbers you have given and absent that you're not going to be purchasing any large properties, looks like there'll be an opportunity to do something, you have mentioned buying back (inaudible) basis.

Have you thought of any other ways of returning cash flow to the-- cash to the shareholders in terms of share buyback or additional dividends?

Exactly.

I mean we're going to first look for the opportunity to reduce debt, and we have some opportunities that we're analyzing right now to do that.

Then as the market goes forward, we'll be assessing when is the time to invest in new projects, we just referred to.

And then other than that we're going to have the opportunity to look at both the increased dividends and share buybacks.

Okay.

So that would be your --

And of course you can look at our longstanding track record of the Freeport-McMoRan Board and Companies to see that that's been not just something we say we do, but we have a track record of doing that over a long period of time.

Okay, fair enough.

And the last question is on the demand side you made some comments earlier, but we're also seeing while you are bringing capacity up that we are seeing some build up in inventory and some concerns about China trying to slow the economy over there.

Is that concerning to you or have you-- are you putting that in your projection of expansion?

Well, obviously.

I mean the key to it is really the restoration of economic-- of a vibrant economy in the US and the west.

Concerns about China have been things that have been expressed since China emerged in 2003.

And a year ago there was a lot of skepticism about China because of the impact of the global recession, the potential impact of the global recession on its export economy and there was talk about its property values being over inflated, and yet we've seen China have this remarkable economic performance during 2009, so it is an issue.

When we talk about inventories, exchange stocks have risen during the second half of 2009 as a consequence of weak demand in the US and Europe.

And yet when we talk with our customers in the US and in Europe, their inventories are very low, and when you look exchange stocks in relation to an expanded market because of China, the relative amount of stock on exchanges is much lower today than it was, for example, in 2001 when we had our-- when we had the last recession.

So the markets are going to be what the markets are going to be.

We run our business to be responsive to near-term conditions, but we really focus on what's the opportunities available to us long run.

Last year we didn't want to get in a corner because of liquidity issues.

We structured our business that would have avoided that if we had had to live through a year of low prices.

We fortunately didn't have to do that.

We made a lot of money.

That's allowed to us take steps to improve our financial situation and our liquidity, so we're very well positioned going forward.

And I think a real key when you look back at last year was questions was, which I heard a lot at the time of the Phelps Dodge Freeport deal, can the new Freeport manage low commodity prices.

We had developed plans to show that we could.

Now we've executed those plans and demonstrated we could.

And we're positioned to do extraordinarily well in a positive commodity price environment.

Thank you very much.

Our next question comes from the line of Kuni Chen with Banc of America/Merrill Lynch.

Hi, good morning, everybody.

Good morning, Kuni.

I guess first off, obviously the mix issue is pretty clear for the year ahead and what that does to your cost mix as well.

If we just focus on the site production costs, particularly for North America, the outlook for 2010 has costs up relatively higher versus the other regions, if you compare the 2010 outlook versus your cost performance in the fourth quarter.

Can you just speak to what's driving that in North America?

Yes, it's input costs.

I mean, compared with where we are.

We-- North America has really operated extraordinarily well with the plan we set out last year.

And that was where we faced our big challenges.

Kuni, you remember that in the third quarter of 2008 Morenci's costs, where we have no by-product credits at all, was at $2, and that was our flagship mine.

And now we've taken steps through effectively managing our workforce, our effectively managing our equipment utilization to drive the costs of Morenci down to where it's a very, very profitable operation today.

So what you're seeing is a continuation of operating using these cost containments approaches that we did, and then having the input-- a year ago sulfur, sulfuric acid was free.

I mean we were taking-- we had a few shipments of sulfuric acid where people delivered it to us and we just took it without paying for it.

Well, today sulfuric acid prices are up a bit.

Of course energy prices are higher and those are the things that you're seeing.

Okay and just--

We also, this is Kathleen, we also passed some lower volumes in our some of our concentrating operations which ends up bringing up their unit costs because of the fixed nature of the cost structure there.

Right.

And then just to follow up also on North America, can you just talk a bit about the Twin Butte purchase, kind of flush out some more on your plans for those resources and how that adds value and what kind of returns that you'll look for there over time?

Yes well, Twin Buttes is a property that's immediately adjacent to Sierrita.

And it-- over time it was operated as part of the Sierrita operations under contractual relationships.

It is a property that for years the organization has recognized should be part of Sierrita, but this gave us -- this was the first time we really had the opportunity to close the deal.

It has some copper resources that we're going to study about how to develop.

And alternatives are to develop that on a stand alone basis or to develop it as part of the Sierrita operations, and we're looking at those alternatives.

What it also gives us is some important material that we can use in managing the tailings of Sierrita which absent that would have been much more costly.

So by spending $200 million to acquire this resource, a lot of that's going to be recaptured if we never access the resources that are there.

We believe we will because we think the copper markets will justify developing the copper resources that are there either on a stand alone basis as part of the Sierrita operations.

But even if that weren't to happen, this is a strategic acquisition that makes sense just in terms of the long-term management of the tailing at Sierrita.

So we were really pleased as finally stars and moons align to allow us and the previous owner to come together and allow us to make the acquisition.

Okay.

Thanks.

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

Hi good morning, and Richard and everybody, congratulations on the very strong results.

My question was just again to hone in on the dividend policy.

You made it very clear that the Board, in your presentation, has authorized a $0.60 common dividend for the year, but I wanted to understand the mechanics.

If this is set on a rolling quarterly basis, in other words if by 2 or 3Q of this year you decide to take your dividend to $0.25 in a quarter, would that then imply an annualized dividend policy of $1 if that's how we should interpreted it or should we interpret as you said that your first order of priority pay down some debt, then fund some more growth and a dividend policy review would be more in the second half of the year?

And my follow-up question to that is what further improvements would you want to see in the balance sheet to trigger a potential dividend policy review?

Well Jorge, all of these things are not mutually exclusive.

In other words, we--we-- we're pleased that we have an investment grade credit rating from S&P and Fitch.

We're one step below that with Moody's, and we have these-- the debt obligations that are there.

So to the extent we have cash and we can retire that debt, it makes sense for us as a Company to do it.

We don't-- we're not a Company that's facing refinancing obligations that you have to do that.

It's something that's part of a long-term financial strategy.

And as part of that long-term financial strategy, we want to invest during the time when it makes sense to invest.

And as we look forward when we make these major investments that we were talking about in terms of new mills at Cerro Verde and new mills at Morenci and potentially Sierrita and the idea of a continuing expansion at Tenke and what opportunities might come to us at Grasberg or in our exploration area that we don't know about, we'll look at the best way to finance those.

We want to have an appropriate amount of leverage within our Company, and so it's an interactive process of looking at how these things fit together and then as we generate this excess cash and review our investment opportunities, we will talk with our Board.

If the Board does decide to increase the regular dividend, which we did as recently as mid-2008, that would set a new dividend policy for some period of time going forward.

Historically we have bought stock back when we had excess cash.

Freeport paid special one time dividends.

It had a-- in fact, we had a policy of doing that regularly over time.

So all those things are available to us and I think you can look at our history and get a sense of what our philosophy is, and look at the market conditions and get a sense of where the Board might go.

But ultimately it is a decision that our Board will make and we review that with them at every meeting we have.

Okay.

Thank you.

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

Good morning.

Wondered if you could give us an update on the Climax molybdenum project?

Well that project is was one of the projects that we deferred.

We were in the midst of construction.

It is an extraordinarily good project.

It's just exactly what a mining company wants to have.

It's a project that has long-lived reserves, very attractive cost structure and a reasonable capital cost.

When the molybdenum market changed, and it's a small marketplace, and we're the largest producer we have this by-product molybdenum that's going to come regardless of what the price is, and we had the ability to flex our Henderson mine, which is our stand alone molybdenum mine, the underground mine that's in Colorado, it made sense to defer that project.

So we are continuing to do some work there to complete the project, basically requires two summers.

This is -- this project is located at 10,000 feet on the Continental Divide, and you can do construction during the spring and summer and fall months, so we'll-- we have it available.

We have a lot of the equipment that's on site.

When we pull the trigger 18 months later, we can be producing, start producing 30 million pounds of molybdenum a year with opportunity to grow that significantly at a very attractive cost structure, $4 a pound or such, so it's there.

We're continue-- we look at that continually, Dave Thornton and his team reviews the overall marketplace.

And I can tell you that when the market needs that molybdenum, this project is coming.

I mean it's going to be there.

Okay.

But just to be absolutely clear then, your projection for 65 million pounds in 2011 doesn't include anything from Climax?

No, it does not.

Okay, thank you.

And we will report to you, as we do on all things, we'll be very transparent about where we stand with our decision to go forward.

Thanks very much.

Thank you.

Our next question comes from the line of Paul Mathoud with Stifel Nicolaus.

Hi, good morning.

Good morning, Paul.

I had a question about your ability at Grasberg in particular to accelerate copper and gold production compared to the plans that you put out.

I mean if we continue to see gold prices, for example, stay high, would you be able to sort of follow suit as we saw in 2009 to pull some production forward?

Not to the extent that we had in 2009.

And I'll just refer you to our supplemental slides that are there on our website that shows our sequencing, and I think that will clearly indicate why we had this opportunity during 2009 to grab some additional high-grade material.

And we're always on the lookout, Mark Johnson working with our team there at Grasberg for those opportunities to do that when we can maintain the geotechnical integrity of the pit and where we can do so in a way that doesn't disrupt our long-term mine plans, overtime we'll continue to do that.

But in 2009 when we were in the very highest grade section, we could do that and as I said, accessing a relatively small amount of material because of the very high-grades allows you to get more metal.

Now, as in 2010 as we move to the higher elevations of the Grasberg, you don't have that same kind of opportunity.

We'll continue to could do that, but it won't have the same impact.

Now by the end of 2010, we'll be back in higher grade material.

You could see that with our fourth quarter projections, and then our team will continue to look for opportunities to do that.

Mark, is there anything you want to -- ?

Yes, Richard, like you said in 2009 it took -- we accelerated about a million and-a-half tons at 7 South, and as Richard said that was very impactive.

We'll continue to look in 2010.

8 East will be our source for the high grade.

We feel we have an appropriate plan for our mining rate in 8 East.

And as Richard said, we also have to keep in mind distributing phases, both 9 North, 9 South, and we look at where we are relative to that in our stripping and our ability to accelerate mining rates in 8 East and like Richard said it would be in the fourth quarter if we had an opportunity to really access some impactive tons.

And to put a million and-a-half tons of material in context, on an average day we're mining over 700,000 tons of waste and ore at the Grasberg.

So 700,000 tons, a million and-a-half tons had that kind of impact on metal.

Okay.

It's just a fabulous ore body.

I guess as a follow-up to some of the commentary that you made on costs, I mean I know you said in the past that you don't -- you try not to engage in any hedging of production, but just curious if there was any input costs or currency hedging that you might have engaged in for your 2010 costs?

No, there's not.

No we looked at the correlation between our input costs and our -- and the copper price, and because-- we have some-- we have fixed costs, our equipment fleet, our personnel compliment, the infrastructure support.

But when you look at the variable input costs like fuel, they're correlated to the copper price.

So when copper price goes up, typically fuel prices and some other input costs, steel costs and so forth go up.

And our philosophy is that correlation is such that we don't look at hedging costs.

Thanks.

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

Good morning.

I have a couple of questions.

Just quickly in South America, you comment about productions down year-over-year mostly due to El Abra.

But if I look at this, it looks like Cerro Verde should be up because you should have some of the year of that expansion.

Looks like El Abra is down about 100 million pounds a year.

Is that kind of right in the way I should think about El Abra at 250 going forward until the new expansion comes in?

Well it's going to-- well first of all the benefits at Cerro Verde are principally very late in the year in 2011, so you're not going to see much of an impact during 2010 from that.

And at El Abra, Brian, you recall we were going to start on the Sulfolix project in 2009, and we deferred it a year.

And what we're facing there is a depletion of the availability of the oxide ore.

So there is a drop off of oxide ore that will -- that's just inevitable and that will ultimately be replaced by the sulfide ore but we deferred it a year, so you're seeing the impact of those two things coming together.

And then we have grade changes at Candelaria that are plus or minus, but that's the big thing is the decision that we made to defer Sulfolix a year has an impact on our volumes at El Abra.

Okay my second question is kind of on the same lines of North America, was kind of talked about earlier, but again we have sales down year-over-year but presuming Morenci's coming back up.

Is there something going on in any of the other operations, or is it just grade or-- we're down 100 million pounds there with a little bump back or is it just an inventory issue sales versus production?

Well there's a couple of things going on here as always.

There's different deals.

But the fact that we curtail mining rates at Morenci has an impact that's a tail impact.

In other words, we benefited during 2009 because of mining rates at high levels in 2008 and earlier years.

Because you're putting material on the leach pads and it takes time to draw that copper off the leach pads.

And so the consequence of cutting back on the mining rate, putting less material on the leach pads is going to be in effect we're going to see for several years going forward.

And that means even if we were to say at Morenci, which we're not, but if we were to say we're going to restore mine rates to over a million tons a year--

A day.

A day, a million tons a day, you wouldn't see the impact on copper production over time because you would take-- it would a time lag in getting the copper out of the leach pads and that's just a fundamental difference in concentrating operations and leaching operations.

So you have that.

We also have some grade issues at Sierrita that's affecting us.

And so the combination is-- of the Safford Morenci grade issues at Sierrita which is up and down that's-- is that what ends up with the variations you see.

And Brian, in terms of Morenci's production, we are bringing back the milling operations, but in terms of the mining rates, which is what we cut so much of in early 2009, we're still operating at roughly 500,000 tons a day.

And at one point we were operating, as Richard said, at over a million tons a day.

So we're still looking at scenarios from Morenci in terms of the mine rate, but right now we're still operating at curtailed rates.

Okay, that's very helpful.

And just at Sierrita which the grade going lower, is that on the moly side too and that's kind of why you see moly go up but maybe not as much as I thought going back to 80% at Henderson, is Sierrita's moly coming down too?

It's a little bit, it's not a major factor.

Not a major.

Okay my final question is something totally unrelated.

But with gold continuing to do well, what's the update on Wabu?

I mean you probably got 5 million ounces there which versus a lot of other publicly traded companies right now that's ahead of what they have in the gold sector.

Is there any update on that or where does that stand now?

Well actually as we've evaluated Wabu and the access issues and the cost issues of developing, it's not a project that makes sense for us.

It may make sense for someone else over time, but it-- in terms of the issues associated with access, the amount of resource that we've been able to identify, the nature of processing that would be required and so forth, it's not a project that we're planning on going forward with.

Great, thank you very much.

I appreciate it.

Your next question comes from the line of Charles Bradford with Affiliated New York.

Good morning.

Just a question on the $54 million litigation that you mentioned as ongoing litigation.

What does this entail?

This had to do with an issue that's-- that we disclosed in extensively in our financial statements as part of the acquisition of Phelps Dodge we stepped into a number of historical situations that had legal exposure.

This was a -- this has to do with the fact that Phelps Dodge represented an amalgamation of its historical operations that went back to the 1800s, Cypress Minerals [Amex].

And across the country there were operations, some of which have not operated for 50 or 75 years, which had historical environmental clean up issues that had to do with operations that occurred at times when people weren't aware of the environmental impacts or weren't -- when there were no regulations.

And this was a settlement of one of those situations.

It is a-- it's part of our ongoing costs.

We have a significant amounts reservee for other costs with projects that we deal with, and it's important part of our business.

And when we look at it it was just part of the costs that we incurred in terms of putting these companies together and realizing all of these great things that we're realizing as a result of it.

Is there anything else you can tell us about the negotiations in the Congo?

Well there's not really much to report other than we are having positive discussions as we speak, and we are listening to concerns that the government is expressing and working to be responsive to it.

We are-- continue to discuss with the government the benefits that our project has for the country, the region, the workforce and the population in general and the tremendous opportunity that we and the country together have to expand this to be a world class operation.

And what we-- I think we'll ultimately mutually work towards is to reach a basis for us to approach the expansion opportunities that we have in a partnership fashion that we can go forward on.

It's clearly a country that has its challenges, economically and politically and socially, and that's just where the resource is.

But we're committed to working together in a positive fashion to reach a mutually agreeable way to go forward.

Thank you very much.

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

Congratulations on the spectacular performances this year, this past year.

A couple specific questions.

How much is Safford swatted to produce next year and is the asset plant moving forward at Safford?

And for the underground projects in Indonesia, what would the tons per day throughput be at Big Gossen in 2013 and at the mid-levels beneath the DOZ?

John, the Safford numbers for 2010 are roughly 130 to 140 million pounds.

In terms of the underground ramp up, Big Gossen's going to ramp up to 7,000 tons a day.

You'll remember this is a relatively small but very high-grade mine.

We're-- we've got the deep MLZ project, which Mark can talk more about, but we're targeting getting to 80,000 tons a day eventually with that underground mine.

As you know we're at 80,000 tons a day currently at DOZ.

And then our deep Grasberg block cave mine, which we've been advancing, is targeting to get to [160,000] tons a day.

I'm sorry, the MLZ 80,000 is within the DOZ?

It's an extension of the DOZ at depth and laterally.

The volume is part of the 80,000 tons or is it 80,000 further tons?

John, DOZ will be-- DOZ will start ramping down in 2015/2016 and at that time we'll be bringing up the deep MLZ which is approximately 500 meters below the DOZ.

And we'll start ramping up the deep MLZ just as the deep MLZ just as the DOZ is depleting.

It'll be a similarly sized mine, the deep MLZ.

We have some very good grades in the early parts, the early sections of the deep MLZ that are going to be very impactive for our metal production during that period when the Grasberg pit is depleted.

We'll also be bringing up the Grasberg block cave during that same time, and that'll be our long term-- both of those mines will be our main stays long term post pit.

And John, you've been around looking at this long enough to remember the strategic challenge that we faced one time of how to fill up our mill once the pit depleted.

And I mean for several years it was looking like 100,000/120,000 tons per day, now we've just shown you that we have proved and probable reserves and a mine plan that allows us to be 200,000/240,000 tons a day and we're continuing to drill that resource.

And the drilling data that we got may well change our plans to enhance that.

So as I said before, Grasberg is such a great ore body that now we're looking at, even without the pit, having this to be just a fabulous ore body in terms of throughput volumes and cost structure and long reserve life.

So that's a great story.

We are continuing to study the sulfur burn at Safford.

We had deferred that, we reinstituted those studies.

We expect to complete those and reach a decision later this year.

The sulfur burner would allow us to increase Safford's production.

It is an ore body that requires a lot of sulfur and that's what leading us to do this study and-- but we haven't approved it yet.

It's not in the capital yet.

Thank you.

Thanks, John.

Our next question comes from the line of Daniel Rohr with Morgan-- with Morning Star.

Hi, thanks for taking my question.

Excluding by-product credits, consolidated unit costs were up $0.10 sequentially in the quarter.

Could you give us a sense of how much of that increase was attributable to rising material on (inaudible) prices as opposed to other factors like say ore grade changes or differences in the proportion of contribution across your mine portfolio?

Well let's see, it is all those things.

And it's not a-- it's like that there was any one factor that's a huge increase.

But clearly the increase in energy costs, some increase in steel costs and so forth have affected it.

Let us see if we can if we can come up with some comment on that as we go through our background material here.

Yes.

Most of the, most of the sequential numbers came out of-- per side costs came out of South America.

And we are seeing, particularly in Chile, we are seeing increased labor costs associated with the foreign exchange changes where the Peso has (inaudible) significantly against the dollar.

Thank you very much.

And we've also had successful negotiations of labor contracts at a couple of our operations there, they had some incremental costs but we were very pleased to-- with the way those went.

Thanks a lot.

The next question comes from Dave Katz with JPMorgan.

Hi, I was hoping that you guys could discuss the ongoing discussions with Indonesia regarding the possible sale back to the government of the 9.6% interest in Grasberg.

Yes, as we've previously reported we have had discussions now for some time with a-- with the Province of Papua for a potential transaction that would be based on the market value of that interest.

We believe strategically having the Province and the people of Papua as owners of that interest would be beneficial to us and further align our mutual interest there.

We have a great relationship with the province led by the Governor of [Braswabu] and they have a strong interest in having an ownership interest.

We've got-- we've had discussions about how we might do that on a basis that is-- represents the interests of our shareholders, and we're continuing to have those discussions.

But it would be on that basis, on a basis that would be strategically positive and a transaction that would be fair to our shareholders.

Given that the discussions have been going on for some time, have they -- has there been any recent advancement or does it seem like it may be a long-term, a long-term type sale?

Well there-- the discussions have gone on for a long time.

Indonesia just went through elections, and that was something that the country was focused on for a number of months, but we continue to have very positive discussions.

It was also impacted by the fact that we had such incredible market volatility.

We saw the value of assets, including FCX stock, go on this roller coaster ride, so that's made it more complicated to get-- to find a basis for going forward.

But what I can report to you is we have great relationships with the Province and we'll continue those discussions and work towards finding a way where it works for them and works for us.

Thank you very much.

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

Hi, guys.

I know you guys do not hedge, but given that you are buying back your six and eight year notes at yields under 6% and that the bulk of the [deal] right now is coming from Indonesia.

The Indonesian Sovereign is yielding up near 9%.

Is any of your cash being put in some of the Sovereigns or the longer paper of the Sovereigns where you guys are doing business?

No, not really.

And even though we are in Indonesia, the huge bulk of our costs, all of our revenues and bulk of our costs are US dollars.

So we're not doing anything like that at all.

And in Indonesia, 75% of our costs are US dollar-based, and the remaining 25% is split between Australian dollar (inaudible) and Indonesia Rupiah, so it's not a major factor.

But our cash, Brett, is all invested very conservatively.

And so the arbitrage for us on paying back debt is that we're getting a very small return, very, very small return on the cash and are earning on the debt we're buying back spreads in the 300 basis points plus range.

So-- and it also reduces our debt on our balance sheet.

So-- but we're not investing any of our cash in other debt securities.

So you're mainly in US short paper, is that what you're saying?

Yes.

We're in highly-- a very, very conservative -- my investment policy is strict on what we invest in.

So we're investing in very, very short-term, high quality.

And very glad we did that during the last part of 2008.

Listen, we're going to make our money mining and running our mining business and not through our treasury activities.

We'll let Goldman Sachs make their money through those kinds of activities.

All right, thanks very much, guys.

We're going to be miners.

Our next question comes from the line of Sanil Daptardar with Sentinel Investments.

Thanks.

Just like wondering about curtail capacity in North America, what percentage of that curtail capacity is coming back in 2010?

Well it's not really anything significant in 2010.

As Kathleen said, the biggest adjustment we made was at Morenci where we reduced the mining rate by 50%.

We are going to restart the mill but that's basically going to get access to material we're mining anyway, the sulfide material we're mining anyway.

So it's-- it's not-- we're not yet at the point of turning the on switch for curtail capacity.

Any specific reason for that because you cited that the data points coming out from the US are positive, so you sounded optimistic on the copper demand beyond China, so --?

I'm optimistic longer term.

I'm not pessimistic near term.

But I still-- we still need to wait to see till the fundamental numbers improve in the US.

Copper demand in the US is highly correlated to industrial production.

Okay.

And when you see a return that's sustainable to industrial production in the United States, given all of the issues that we face with the residential markets, and for several years copper was strongly supported in the United States by commercial real estate, and that shoe is yet to fully play out.

There are a number of projects around the country today that are being completed.

But since mid-September 2008, absence in government spending, there's been virtually no new commercial real estate development and so we're going to need to see some fundamental industrial production growth in the United States to justify going out and starting major projects or restarting curtail production.

Okay.

On the--

And even when we do that, that's going to take time.

Okay.

That's going to take time for the results of that to come in place.

Now, fundamentally that's all going to be very supportive of the copper markets because fundamentally that says supply availability is going to be a supportive fashion for copper prices industry wide not just for us because consumer inventories are very low.

And when times -- when things turn, there is going to be demand for copper that's not going to be there.

And so that's going to be fundamentally supportive of prices.

Okay.

This is Jim Bob.

Let me just make sure that we haven't spoiled the investments you grew by saying that we were able to quickly make these decisions at the first of the year to be responsive to this downturn in the copper prices and make all of our decisions to scale back our operations.

One should not assume that that's just click of a switch and it happens and click off a switch and it happens.

These things are very disruptive to operations when you're trying to make these decisions and turn down a mine.

So that's why I think it is important, as Richard is trying to make a point, that we can't just flip a switch and turn these things back to full production and then flip a switch and turn them back.

It costs a lot of money and it is a big distraction to the operation.

So if when you get things operating in a cost efficient mode, you want to make sure before you started pulling the switch to start back up, because if you make the wrong decision then you have a huge distraction of having to be in the process of ramping back up and all of a sudden you got to pull the switch to ramp back down.

It's very-- it's not that easy to do.

Yes.

I got that.

On the moly side in the commentary you mentioned about the moly demand in the fourth quarter was mainly driven by Asia because China had benn, mainly has been a big factor.

But have you seen any kind of demand improvement in the developed world for moly or it's mainly the Asian markets?

We'll let Dave Thornton respond to that.

Yes, we've seen some improvement in the west but mainly in the second half of 2009.

But one of the metrics that we watch is US steel capacity utilization numbers and they've increased to about the low 60% range, and in the first half of 2009 they were in the below 50% range.

So still way off the 2008 range of about high 80s to 90%.

So seeing some improvement but not enough.

Okay.

But then the future will be still driven by Asia in that case because you're including your moly production in 2010, so--?

Yes, we're increasing it slightly.

Slightly.

We-- as I -- as we mentioned, we haven't made a decision to restart Climax.

We have scaled back Henderson.

We've come off the -- we've gotten down to 40% production.

We're down to 20% now which started the moly circuit at Cerro Verde, so there's some-- and then our by-products going to depend on grades and operations there, so that's all you're seeing there.

Okay.

Great.

Thanks a lot, guys.

Thank you.

Our next question comes from [Dan Kaskus] with Morgan Stanley.

Hi.

With regards to debt repurchases, I noticed in the press release that you repurchased 24 million of the bonds at the Phelps Dodge level.

Any chance that you'd be looking at other maturity, are you going to-- mainly going to focus (inaudible) bonds?

We're looking at-- we're really looking at all of it.

So we'll continue to look at all the debt securities.

Okay.

Thank you.

Our next question comes from the line of [Peter Volkner] with [Sansar].

Hi, guys.

Not only great quarter, but great job just over the course of the last eighteen months dealing with the volatility in the market.

Thanks, Peter.

Most of my questions have been answered in terms of specifics, so I have something just a little bit more broad in nature.

I'm aware of the Brownfield expansions and investments and the potentials that you have and obviously also the longer term potential at Tenke, but your balance sheet, especially with the cash flow outlook for 2010, is about in as good shape as it's been in a long time.

So are there Greenfield opportunities out there when-- I'm not talking about that's currently in your portfolio, but just surveying the global landscape?

Is that something that you're open to, are there opportunities there.?

And are they restricted, if they are, are they restricted to primary copper projects or are there other metals that you have interest in?

Well, we do have an exploration team that's very experienced in looking at global exploration opportunities and they're continuing to do that.

One of the things that we were able to expand our scope with this past year was to work more with some junior companies that were financially challenged and so we're looking at those.

The thing about it, Peter, is that not only are we looking at it, but you've got this whole industry of very financially strong companies that are diversified metals companies.

And when you go and look at the investor presentations of each of those companies, when they talk about their strategic objectives, copper is right at the top of their list.

So as a Company, we're prepared to do that.

We're on the outlook for it.

We have the technical skills and financial resources to develop any copper project anywhere in the world.

Again coming back to why we're so positive about the marketplace is all of this effort is not generating new projects.

I mean, there are some new projects, they're Brownfield expansions, but the new projects that the industry is able to identify are very challenging.

They're either deep underground with technical challenges, they're in places in the world wherefore community acceptance or for government relations or other technical challenges, they're expensive and tough to develop.

And so what that leads us back to is the benefits of really focusing on these Brownfield expansions of our existing operations where we have challenges in terms of power and water and land rights and all of those things.

But in comparison with what you face, with having a Greenfield project, they're much much less.

Now if we find the right one we're going to be prepared to jump on it and go forward with it.

We do believe copper is a great business to be in so we are focused on looking at potential copper opportunities around the world, but we monitor the molybdenum market and there are other markets if we find the right resource.

And the resource business, is one thing that we-- that's imprinted on all of us, is the key to it is having quality assets.

It's not just a question of saying, you want to get an asset.

It's got to be quality and when we say quality that means large, long reserve life with attractive cost structure.

Yes, I get the--

Let me just add this, because I think this is important.

We've said it over and over.

When you look at Greenfield versus Brownfield, I've tried to describe, and Rich has tried to describe on numerous occasions, the category of ore bodies that we have and I'll just repeat what I said a while ago.

The oxide ore that we've been mining in most of the mines, because of the grade has been leached and the leach process was a boom to keep the lower grade properties profitable during low copper price times.

But when you ask about Greenfield, you have to always compare to the assets that you have in the Brownfield and say, are my Brownfield projects better than Greenfields and for all of the reasons that Richard stated like some of the deeper ore bodies that are being looked at and some of the land and environmental problems associated with trying to get those things developed.

Whether you're talking about Alaska or the Rocky Mountain area, mining district in the United States, there's so many factors that have to be considered.

But to make it simple, when we look at our Greenfield opportunities, we always keep our staff out there making sure that we're not going to miss something.

But then we look at our Brownfield projects and the enormous amount of sulfide ore as I said earlier that's available to us by going from a leach process to a milling process always comes out for us and if there's a huge increase in demand for copper and we see the expand that we need to put more into the market, taking those sulfide projects and putting them to production is so much more profitable for us because we already got existing infrastructure, et cetera, et cetera, et cetera, and just a matter of deepening pits.

And the Greenfield projects just don't come anywhere close to matching what we can do.

You saw the slide earlier that showed the amount of mineralized material that we have.

I know you understand that the only difference between mineralized material and reserves is you have to have a mining plan that shows the feasibility of mining that ore.

And that enormous mineralized material number that you saw is why we have such a great opportunity to use the Brownfields that are literally by any other category.

The only reason why they're called Brownfields by us is because they're in association with our existing ore bodies.

Anybody else would be looking at the size of the reserves that are involved in these opportunities at depth in our sulfide ore, would call those opportunities Greenfield because they're so large.

Right.

If I could just follow-up briefly, because when I look out-- I mean the production guidance that you've given for 2010, notwithstanding obviously there's going to be changes in grades, et cetera, but when we look out over five years going underground in Indonesia and the change in economics after 2021 in Indonesia and then also understanding the infrastructure requirements that are largely outside of your hands necessary to take Tenke to the next level over the next five years, when I look at your longer term production profile, are you saying that Greenfield opportunities are going to be able to basically meet whatever challenges there are over the next 10 years?

Or would there be opportunities outside of your existing portfolio of assets that could be accretive long term?

Let's just say that we've looked around the world, had a great opportunity since the Phelps Dodge acquisition, and once again look at all of the copper and gold belts that are available for exploration, where you may have the opportunity to find a Greenfield project that would be another Grasberg-type opportunity.

And this year look around the world, one thing you have to really look back at is the past is always the key to the present.

If you look at the top 10 producing mines that are producing all of the copper to meet the current copper demand, remember that you still have the profile that says that Grasberg was found in 1988.

Before that, the (inaudible) of the world, El Teniente, all of the big mines that are still in the top 10 were found at the turn of the century.

And so it's clear that when you look at only Escondida and Grasberg being found in recent years that are providing the copper in the market today is a good reminder that there hasn't been a major Greenfield project that matches some of these world class ore bodies in the last 20 years that you can point to.

And the reason for that is is the opportunities just weren't there.

That's why you see people today stretching to go for mines that are ultra deep or tremendous environmental situations, like they're having up in Alaska today, trying to get (inaudible) into production.

So you have to look at all of those kind of factors when you start trying to say, what's the best opportunity for Freeport-McMoRan to have a long-term outlook in terms of keeping copper resources that we can come to the market for and still comes out of our mineralized materials, i.e.

our Brownfield operations.

All right, thank you.

So Peter, just one thing.

What I think is such a positive factor with our Company, is with our big reserve base and with our mineralized material and growth that that adds, that gives us a base case for our long-term future.

There'll be ups and downs depending on mine development and other factors, but we're not a Company that has to go out and do something to replace its reserves or to grow.

With a very positive market outlook and what we have in our portfolio, we've got a good long-term future already laid out.

Then we're going to be in a world of where opportunities may come to us to enhance that, and that may be Greenfield exploration, it could be any number of things, but it's a great established base for our long-term future with the outlook for very positive markets that will give us the chance to be in this industry and to take advantage of whatever opportunities come to us.

So you've got internal hurdles in terms of uses of cash flow whether it's dividends, share buybacks, Brownfield expansions, et cetera, but you're not restricting yourself to that.

If there's an external long dated opportunity with a good return profile and it meets your geological requirements, I mean that would be something, that would be something that you're not going to exclude?

No question about it.

And even if we-- as we go forward and pay dividends and buy stock back or how we return cash to shareholders, good opportunities are financeable, and with our improved finance-- balance sheet and with the financing markets being where they are, we have access to financing to do anything we want to do.

That's right.

So we're not restricted.

We don't have to save cash back because we might have opportunities.

We have access to financing and if there are opportunities they're financeable.

Terrific.

Thanks a lot.

Thank you, Peter.

Our final question comes from the line of Tony Rizzuto with Dahlman Rose.

Thank you very much, I appreciate you coming back to me.

Richard, I just want to make sure, and Jim Bob I think you were talking about this earlier, I just want to make sure I heard this correctly about Grasberg because this is critically important in my view.

When you guys were talking about the ability to achieve mill throughput rates of 200 to 240,000 tons a day, so basically similar levels to what you're doing now at Grasberg and did I hear you correctly on that?

Because I don't think I've really heard you sound as confident in the past as you did today on that.

And then I'd like to also feel out if you could give us some view as to what ore grades and recovery rates might do?

All right, well, the answer about confidence is yes.

Straightforward yes.

We are very confident about it.

There's a transition time between the depletion of the pit and as we ramp up that will have an impact on production during that transition period and we're taking steps to deal with that through the way we manage the DOZ, MLZ, the Big Gossen and stockpiling and so fourth.

But the numbers are very attractive once we get through that transition period and get into an operating mode of the underground mines.

Tony, you can look at our 10-K and we have ore body by ore body, the grades that you can see, the grades for the Deep Grasberg, the grades for the DOZ, the MLZ, the Kucing Liar, you can see what kind of grades in copper and gold.

The ore that we have in the Deep Grasberg is essentially similar to what we're mining in the pit so recoveries and mineralogy will be essentially the same.

The DOZ/MLZ has great ore characteristics.

We do-- we have a great opportunity with the Kucing Liar because right now because of its pyrite content we're only looking at recovering 50% of the gold that's there and we're looking at ways of potentially getting more of that gold.

So the-- but you've really touched on what is, and I mentioned this when I was talking with John Tumazos earlier, a big change over the past 10 years at Grasberg is the ongoing exploration has provided us the resources to now have this continued at a much higher level of throughput than we were 10 years ago.

And Richard, I think the thing that's important when we talk about the confidence level of keeping our production levels when we go underground, the events that have occurred since we found the original Grasberg deposits and we're able to continue to look at the underground ore body that we've expanded it grew from 75 up to almost half a billion over there at the MLZ.

All that underground work that we've been doing at 80,000 tons has given us a great opportunity to be in the underground mining business as far as training personnel, et cetera, et cetera, et cetera.

But if we hadn't had that adjacent ore body at the Ertsberg that was a huge underground operation competing with any of the biggest they've ever been or produced in the world, it would have been a training camp operation as opposed to a commercial operation trying to just get prepared to go underground.

And the other thing everybody should remember is when you go underground people think about, well aren't the costs going to go up?

Well when you-- if you look at the terrain at the Grasberg and know that we have to operate in an open-pit, where weather is such a huge impact on those big trucks hauling the waste out of that ore, that big open-pit is the mineralized material, and having to do these pushbacks to be sure we keep the symmetry of the pit, once you go underground, you're basically block caving that mine and it reduces almost to zero the waste material and the stacking expansion of how you stack that ore.

Excuse me, the waste material that has to be mined just to keep the symmetry of the pit, so the number of the trucks, the vulnerability to weather operations, the vulnerability of a slide in the pit, all the things that you see that are the pitfalls of being in a pit, not to make a pun.

But having, just to summarize again, having that ongoing expansion of our underground ore body be almost like it was-- what was a coincidental opportunity to get prepared to go underground.

And the lower expansion and the lower vulnerability to mining block caving underground and getting away from many of the vulnerabilities of being in that terrain with all of the rainfall and fog and other things that lurk in the dark.

But when you're in the pit, we've had all that under control, but you can rest assured that it's a 24 hour/365 day job operating these pits without having something get away from you.

Excellent color on that.

I appreciate that both, gentlemen.

It's fantastic.

Thank you.

All right, well, we want to thank everyone for their attention and we look forward to continuing to report our progress as we move into 2010.

If any of you have any follow-up questions, or needs for information, please contact us.

David Joint's available to handle the direction of your questions.

Thanks a lot.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.