費利浦·麥克莫蘭銅金 (FCX) 2011 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 2011 earnings conference call.

Our results were 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 broadcast live on the internet, and anyone may listen to the call by accessing our website home page and clicking on the webcast link for the conference call.

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

They're also accessible using the webcast link on our website at FCX.com.

In addition to analysts and investors, the financial press has been invited to listen to today's call, and a replay of the webcast will be available on our website later today.

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

We'd like to refer everyone to the cautionary language included in our press release and presentation materials and to the risk factors described in our SEC filings.

On the call today are Jim Bob Moffett, our Chairman of the board; Richard Adkerson, President and Chief Executive Officer.

We also have several our senior operating team here today; Red Conger, who runs the Americas operations, Mark Johnson, who runs Indonesia, and Dave Thornton, who runs our molybdenum business.

I'll start by briefly summarizing our financial results and then turn the call over to Richard, who'll be going through the presentation materials.

As usual, after our remarks we'll open up the call for questions.

Today we reported first-quarter 2011 net income attributable to common stock of $1.5 billion, or $1.57 per share, compared to net income of $897 million, $1.00 per share for the first quarter of 2010.

The 2010 historical earnings per share amounts have been adjusted to reflect the two-for-one stock split that took effect on February 1st of 2011.

Our sales of copper in the first quarter were 926 million pounds.

Those were higher than our previous estimate in January of 840 million pounds, but slightly lower than last year's first quarter of 960 million pounds.

In the first quarter we had a favorable variance to our production performance, primarily in Indonesia where we had accessed a higher grade ore than we previously expected, that we advanced volumes into the first quarter that we previously expected to be mined in future periods.

We also had improved production performance in North and South America.

In the first quarter our gold sales of 480,000 ounces were higher than our January estimate of 325,000 ounces, again because of mining higher grade ore in Indonesia and those sales in the first quarter approximated the level of the prior-year period.

Our first-quarter 2011 molybdenum sales of 20-million pounds were higher than our prior estimate of 17 million pounds in the year-ago period, primarily reflecting improved demand in the chemical and metallurgical sectors.

First-quarter results included positive pricing of all of our commodities; copper, gold and molybdenum.

Our realized price for copper in the first quarter was $4.31 per pound.

That was higher than last year's $3.42 per pound.

And our gold realization of about $1,400 per ounce compared favorably with last-year's first quarter $1,110 per counsel.

First-quarter Molybdenum price of $18 per pound was about 20% higher than the year-ago period.

As anticipated, our consolidated unit site production and delivery costs of $1.61 per pound in the first quarter of 2011 were higher than the year-ago period of $1.35 per pound of copper, reflecting higher input costs, including energy, materials, and labor.

We also -- our net unit costs, net of credits, were lower, though, than the first quarter of the prior year.

We averaged $0.79 per pound compared with $0.82 per pound in the prior-year period.

That was because of higher gold and molybdenum byproduct credits in the current-year period.

We had strong operating cash flows during the quarter, which totaled $2.4 billion.

Those were significantly above our capital expenditures, which totaled $505 million during the quarter.

We ended the quarter of March 31st with total debt of $4.8 billion, but after taking into account the redemption -- $1.1 billion redemption of our 8.25% senior notes that we made on April 1st, our total debt approximated $3.7 billion, and our consolidated cash exceeded that amount and approximated $4.1 billion.

We also announced separately today our board of directors declared a supplemental common stock dividend of $0.50 per share, which will be paid on June 1st to shareholders of record as of May 15, 2011.

This supplemental dividend to be paid in June is in addition to our regularly quarterly common stock dividend of $0.25 per share.

Our total shares outstanding currently approximate 947 million shares.

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

Good morning, everyone.

I would like to start with slide 4, which has the financial results that Kathleen just reviewed for you, and add a little color to how we had better-than-anticipated performance for this year.

To start with, as we look across all of our mines and processing operations, we really had strong performance in our units across the board.

We benefited from the high commodity prices and it was great to see our business operating so well at a time when we have the exposure to these -- to prices at this level, and in particular I want to comment on the situation that we had at Grasberg.

Some of you will recall that mid-year last year we announced that we were making some revisions to our mine plan at that time because of issues that we saw in a section of the Grasberg open pit.

We deferred some planned production, changed some of our mining activities, and reflected those in our plans.

As we went forward, at the end of 2010 and into the first quarter, we made really good progress in dealing with those slope issues, and that allowed us, as a result of the improved situation there, to get access to higher grade material at the bottom of the Grasberg pit.

It's an unusual mine, certainly different from any of our other mines and different from other mines in the industry, in that the grades of copper, and particularly of gold, are so high at the lower elevations of the pit that by mining a relatively small amount of material in the context of the total material that we mine out there each day.

That translates into higher volumes of copper, and particularly for gold.

And that allowed us to mine -- to produce almost 50% more physical ounces of gold this year than we had projected.

It's something that happens over time.

We develop our plans.

Then on an operational basis as we see the opportunity to access higher grades quicker -- those volumes would always be mined during our life-of-mine plan, but when we can do that quicker than planned in a way that's safe in terms of the integrity of the pit and in a way that is consistent with our maintaining our long-term mine plans on the basis of both safety and economics, we do that.

And that's what allowed us to have the kinds of volumes that we had for gold and to some extent copper.

But looking beyond that, I want to emphasize that, as you look at the -- particularly like the data on page 5, you can see that our operations in North America, South America, and Africa and our molybdenum business all performed very well during the quarter.

Kathleen mentioned the fact that, like everyone in the industry, we're facing some higher input costs from energy, tires, steel, that's just the world we live in.

And some of the reasons for that are correlated with reasons we have higher copper prices.

What I was pleased about is we reviewed our individual operations that even in the face of these increased input costs, our team was able to achieve and maintain certain efficiencies that we built in our business following the downturn in 2008/2009.

So, while some of the costs were inevitable, we have had efficiencies that we are working every day to maintain, and we had success in doing that.

With the higher volumes of gold at Grasberg and the high gold price, another feature of our Company is that allowed us to have such an attractive consolidated unit cost of $0.79 net of credits for this year that adds in all of those factors together.

Our view on copper markets remains very positive.

We are running our business and developing our development plans with an optimistic view about long-term demand for copper globally, driven by China and the developing world, as well as an improvement in the economies of the developed world.

Coupled with the continuing challenges the industry faces in maintaining and developing new supplies of copper to meet that demand.

In the near-to-medium term, a number of issues affect that, including the unfortunate tragedy in Japan, as well as buying patterns in China.

But we continue to be extremely positive about the outlook for the copper industry and the molybdenum business and, of course, we benefit from the record prices we're now achieving in the gold markets.

On slide 7 is just a simple illustration of what our strategy is and I will say our strategy is simple and straight forward.

We are working diligently.

Our exploration team has done an outstanding job in adding to our mineral resource base, principally by drilling activity and exploration analysis associated with our existing ore bodies.

That's leading to significant reserve additions.

It has been four years since the Phelps Dodge combination with Freeport and we've added 43 billion pounds of proved and probable copper reserves as a result of that activity.

The Phelps Dodge reserves that we acquired at that time were between 55 billion and 60 billion pounds, so that is a very significant incremental addition to our reserves as a result of our activities.

Then we're looking at our reserves and our resources and developing attractive development projects by investing internally in them, and we are aggressively pursuing those because of our positive view of the markets for our products and we're going forward just as quickly as we can.

These projects take time, because of not only drilling requirements but engineering analysis, metallurgical work, permitting, securing power and water in certain instances, but all of those are going to add into significant future growth for our Company over a long period of time, and we have a long-term pipeline of projects that'll be coming up over time.

In the meantime, the very positive markets we have, our existing strong production base, our attractive cost structure is generating cash flows in excess of the requirements for current investments.

And that's allowing our board to have a very attractive cash returns to our shareholders.

So, we're focused on growing production, focused on generating cash flows, and that adds up to a very attractive situation for our Company.

I want to comment on a number of our projects that we're working on and the progress that we're making.

At Morenci, our flagship mine in North America, we have restarted the mill that we had shut down during 2008.

It averaged 48,000 tons per day and nearing its design capacity.

We have increased the mine rate, which we had cut in half there in an effort to reduce an element of high-cost production from our operations and drive our costs down.

Now we're stepping mine rates back up.

We have reached our original target of roughly 700,000 short tons, and we're looking to increase that rate further as we can do at economically in the present price environment.

We have begun feasibility studies for our mill expansion at Morenci.

Morenci, in the not too distant past, was viewed as a mine that didn't have expansion opportunities.

Now, with our exploration work and understanding the resource better, we're seeing the opportunity for significant growth and stepping our mill expansion up to 115,000 tons per day, which is more than a doubling of our current design rate.

That would provide an additional 150 million to 200 million pounds of copper within the next two or three years.

In the Miami Globe district, a historical mining area just East of Phoenix here, we have begun mining activities that we had deferred at Miami.

We are doing stripping now, and we're ramping this up to get 100 million pounds of copper a year.

It's a $40 million project and it's basically capturing copper reserves in an area where we were having to spend money to do reclamation activities and so the economics are extraordinarily positive there.

At our mine at Safford, near Morenci, we have completed the construction of a sulfur burner.

The ore at Safford requires significant sulfuric acid to produce it.

By having this sulfur burner there we have a lot more flexibility with our operations and there is attractive expansion opportunities at the Safford ore bodies, as well as the nearby Lone Star ore body, and the sulfur burner gives us that opportunity to look for those more aggressively than we otherwise would have.

In New Mexico, Chino Mine was our one mine that we had totally ceased operations on in 2008 and now we are restarting it.

Restart will required about $150 million of costs.

We will build up over time to 200-million pounds a year of copper, very attractive economics.

And Chino is a 100-year plus mine, and as we keep working we keep adding reserves.

So, it's -- in this environment it's a very attractive asset for us.

I was just at our mine in Chile at El Abra Sulfolix, I was there for Susco week.

We had talked about the Sulfolix project.

This is a replacement-type project where we have sulfide ore that's available to us to replace a depleting oxide ore base.

We deferred this project for a year and now we've completed it.

We commenced production in the first quarter of this year and we're extending the leech pad now.

It's a $725 million capital project with an initial phase of $565 million, and the construction project has gone extraordinarily well.

One of the things about -- a common theme you hear about our mines, at El Abra our exploration activities have identified significantly greater resource than we thought was there and this is a sulfide resource.

We're working with our partner, Cadeco, to identify synergies for a joint development effort to give us access to this ore.

We're looking at other potential sources of ore in the area, and we believe that we will find the opportunity to go forward with a major incremental mill project at El Abra.

At Cerro Verde in [Peru] (corrected by company after the call) we have been working on and are now completing a feasibility study for a very large-scale concentrator expansion.

We've had additional reserves added -- resources added.

Our current reserve life is 78 years, so we need to find ways to shorten that by expanding production.

We had talked about a double or tripling, now we're focused on tripling production there.

The feasibility study will be completed by mid year and then we'll be filing our impact assessment.

This will be one of the world's largest concentrator operations with this level of expansion.

In Indonesia we are progressing, as we have been for a number of years now, the development of our underground reserves.

These are probably the most attractive reserves to develop in the global mining industry considering the grades of copper and the gold -- associated gold to be produced with it.

We are mining underground now with our DOZ mine at 80,000-tons per day on the global stage.

That is one of the world's very largest underground mines.

We're also -- we've been blockade mining at Grasberg since the early 1980s.

We have a long track record of doing that safely and in a way that's -- with attractive economics.

When the Grasberg open pit is completed, and our current plans call for that to be completed in 2016, although we're studying the possibility of extending it somewhat beyond that and we'll make a decision on that in the next year or so.

We will be a total underground operations.

And we're very confident about our ability to have large-scale mine volumes.

Our throughput through our mill would be roughly equivalent to where it is today, and with very significant copper and gold production and an attractive cost level.

In Africa, a good news story there is that with our initial development we had designed a mill to operate at 8,000-tons per day and we are achieving close to 11,000-tons per day through that mill.

What this has allowed us to do is to add some mining equipment, not significant investments, but to increase the ore so that we can take advantage of the higher design, higher capacity achieved by our mill and we're doing that and achieving higher volumes.

We are actively studying the second-phase expansion, which would add 150-million pounds a year at Tenke Fungurume over the next couple of years.

And our exploration and metallurgical work and engineering work on further expansions is progressing.

But we would have further opportunities with available oxide ore.

We are looking at alternatives for processing the very large amounts of mixed ore in what appears to be a really large sulfide resource there to provide us a long-term opportunities.

This past week -- or this week a presidential decree was signed and published, which formally completes the contract review process that we were engaged in for many months.

The decree really was a step to validate the amendments to our contracts that we signed with the government in the fourth quarter of 2010.

Since that date there were no further negotiations or requests by the government, so it was a formal step to complete that process.

At Climax our construction is now 60% complete.

As we talked about at our last earnings call, we accelerated our construction activities from our original plan.

We took advantage of the structures that we had built earlier to do work inside the structures on the Sag Mill and the Ball Mill.

Mine development activities have begun now, and we expect to complete construction totally by early 2012.

This was a $700 million project and we're about halfway there in terms of costs.

Very attractive project with 30 million pounds of initial production of molybdenum at a very attractive cost level and we have the ability to expand that.

We've begun hiring mining operators to do the stripping and preparing the mine for production.

Our next step will be a decision as to when to hire operators for the processing facilities and at that point we will set a specific start update for the project.

We have an analysis, a summary of our copper projects that I mentioned earlier on slide 16.

The Morenci expansions, Miami, Chino, Tenke, Cerro Verde debottlenecking project that's now in place, gives us about 500-million pounds of incremental copper.

And then the El Abra Sulfolix, the Grasberg underground, will be replacement-type projects to replace depleting ores or the depleting pit at the Grasberg.

So, those are all progressing.

Then, there are other near-term major projects that we are pursuing.

The Cerro Verde project that I mentioned earlier, preliminary capital's about $3.5 billion on that project.

The mill expansion at Morenci, the next expansion at Tenke would add 900 million pounds to 950 million pounds of copper over the relatively near term.

Timing will be affected by how we proceed with our engineering studies and permitting and so forth, but this gives us a significant incremental copper.

Now, other projects that we are working on just as diligently are very significant projects beyond these.

This includes a large-scale mill at Morenci, mill expansion opportunities at our Sierrita mine outside Tucson, which has a significant molybdenum component to it.

At Baghdad we're looking at a district that had historical mining opportunities.

At Ajo, here in Arizona, and in Twin Buttes was a mine that had not operated in several years and it's just adjacent to Cerrita where we're looking at joint operations or perhaps a separate development at Twin Buttes.

And then I mentioned Safford and Lone Star, the significant opportunity at El Abra and then at Africa the further expansion of oxides and the ultimate development of the sulfide resource there.

So, this is what I was talking about earlier.

Our development opportunities extend from things that are starting now to things the that will be starting in the near term to others that will require longer-term investments, but it's a continual flow of expansion opportunities.

We're increasing our exploration budget to $225 million.

It's focused on our existing ore bodies and it's had great success in adding reserves and development opportunities for us.

For 2011 we are expecting, under our current plans, to have 3.9 billion pounds of copper sales and 1.6 million ounces of gold, and 73 million pounds of molybdenum.

As always, our objective is to advance production and as we've seen this quarter there are times when we have that opportunity.

At Grasberg this was an unusual quarter, we can't expect that every quarter.

But if you look back at our history over a long period of time, we've been successful in meeting or beating our plans and we're committed to trying to continue to do that.

There's always risk and uncertainties in our business and we've dealt with those in the past and will in the future, but that's our goal.

Our outlook, based on these numbers and $1,400 gold and $15 molybdenum would give us a unit cost of over a dollar a pound, $8.3 billion of operating cash flows at $4.25 copper for the remainder of this year.

That's after cash taxes and after the cash interest that we have.

Our interest is way down and taxes are high, though, obviously with what we're earning and we have significant leverage to copper prices.

We're continuing with our near-term estimate of $2.5 billion of capital and we expect that our capital spending beyond 2011 will increase above our previous guidance as we get board approval for the Cerro Verde expansion and other projects.

Our quarterly sales outlook -- I mean our outlook for the next three years of sales are presented on slide 21.

As you can see, increases beginning to come in on our copper production.

The gold variation is strictly a function of mine sequencing at Grasberg.

Volumes are higher when we're at the lower parts of the pit and lower when we're at the upper parts.

We will be beginning, by the end of this period, to be moving towards toward the final phases of mining at Grasberg, and as we approach the end of its mine life and stripping requirements are reduced, volumes will go up higher and the economics will be very attractive during that period.

On a quarterly basis we made some adjustments to reflect what we've done in the first quarter here.

We're ending up with similar production in the second and third quarter.

We see an opportunity and we have a lower fourth-quarter estimate now, reflecting the fact that we accelerated some of the gold that we were going to produce then from Grasberg into the first quarter.

And you can see the gold sales reflecting this mine sequencing issue that I thought--.

Our molybdenum business is performing strongly.

For the year our cash costs is presented on slide 23 and a very attractive situation given commodity prices.

Obviously, to have copper prices over $4 and cash costs of $1.00, which is -- it shows the margins that we have available to us.

And even in the face of increasing -- certain increasing input costs, our cost management programs are working.

On a model basis at $4 copper our operating cash flows would be approaching $8 billion, at $4.50 copper $9 billion, so you can see our leverage there.

Our sensitivities to our commodity prices and certain of our input costs are shown on page 25, so you can adjust these for any different views that you might have on these revenue and cost elements.

Capital expenditures, as I mentioned, we're keeping our guidance for 2011 at $2.5 billion.

We're now looking at just over $2 billion for 2012, but that number and subsequent numbers are likely to be adjusted higher.

We did take a step, as Kathleen mentioned, on April 1st of redeeming a $1.1 billion senior note as an effective use of our cash.

Our current average interest costs is just over 8%.

Our ability to borrow in the market is well below that.

We are investment grade rated by all the agencies.

We will have an opportunity to look at a callable note that's call kicks in early next year, in the first half of next year.

We don't have any particular target we're driving toward with debt, we've just been seeing the debt reductions as an opportunity to -- as an evaluation of how to use cash.

We are committed to maintaining this strong balance sheet and our liquidity position so that we can invest in these attractive growth projects.

The current common dividend, after we reinstated it in 2009 and increased it in 2010 is $1.00 a share, and our board announced another supplemental dividend of $0.50 per share to be paid June the 1st.

This is the second special supplemental dividend that our board has declared, and it will continue to review our financial policy on ongoing basis.

With these commodity prices the board will have the opportunity to consider further cash returns to shareholders.

So, that's a summary of our story and we are very pleased to report these results to you and very proud of all of our team around the world about how hard they're working and how effective their work is going.

And with that we will be happy, operator, to turn the phone over for questions.

(Operator Instructions).

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

Yes, good morning and congratulations to the whole Freeport team on another great quarter.

I have a question on the gold side.

I know, Richard, you talked a lot about how the -- you've changed the mine plan a little bit in terms of where you were mining at Grasberg and achieved significantly higher gold, but for the full year, even though you're maybe leveling things off, for the full year you're still now estimating 135,000-ounces higher than you had back in January.

My question is, I know you've maybe moved around a little bit in the pit, but are you achieving higher grades than you thought were there in some instances in the mine?

No, Mike, one of the things we've had with Grasberg, and this is -- goes back for -- when we started mining in the early 1990s, and we've done a lot of drilling to get good models, but over time the models have held up, so we're seeing the grades that we expected to see.

The only time historically that there may be some variation is that when we make a transition from the low grade zone to the high grade zone the timing of that is -- may affect expected grades.

But the Grasberg has performed remarkably consistent over many years now in terms of providing us the grades that we were expecting based on our drilling results.

Okay, and then one last --

All of this is strictly a function of our ongoing monitoring, and we were very conservative in the way we monitored this pit situation.

But as we got -- as we did some remedial work and as we got comfortable with all of our monitoring activity, it just allowed us to mine a different shape than we expected to be able to mine in the first quarter, and that means some of that material, which we would have expected to mine in the fourth quarter, some in future years, came to us in this first quarter.

And one other question about Grasberg.

Unfortunate with the accident the other day, but do you have any idea when you'll restart the underground?

What Mike is referring to is we did have an incident in our DOZ mine of where we had wet material that flowed unexpectedly and very sad to report we lost two of our workers.

We have had over the years a very strong safety record throughout the operation, but particularly in the underground mines, and beginning back in the mid-90s, when we were mining the I Z mine, which was just directly above the current DOZ mine, we invested to deal with this wet muck situation by developing robotic-type mining activities and when we -- our analysis indicating exposure to wet conditions, we mined it without people.

Now, we are investigating and working with the government investigators now as to what happened in this situation.

We are all very, very focused on this.

We're very sad about it.

We're going to get to the bottom and review our procedures, and understand how this happened and do everything we can do to ensure that it doesn't ever happen again.

The history -- we will have to work with the mine inspectors from the government.

Historically that has required a short period of time, and we don't see anything that's different this time, but it will actually require us to complete that process before we start -- resume underground mining at the DOZ.

The DOZ provides about 20% -- a little more than 20%, 80 million out of, say, 230 million to our mill.

And other operations in the pit and the mill itself are not affected by this.

Thank you, Richard.

Thanks, Mike.

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

Thank you, operator.

Hi, Richard.

You have made recently in some forums comments about the acquisition and there has been a lot of activity in the copper arena.

Any new thoughts on that?

Well, Sal, I tell you, when I was down in Chile as usual I did a number of interviews and some of them over emphasized this question that I got about acquisitions.

Our focus strategically is to invest internally on our projects and I've always said that.

I said it then and that is our strategic focus.

I did say that as we are, we are positioned that if an attractive acquisition came to us, we are financially and technically available and prepared to take advantage of it.

We don't expect it, it's not part of our strategy, and if it did come to us, it would have to be an extraordinary opportunity.

So there's no change.

We are monitoring everything that goes on in this industry and looking -- always looking for opportunities where we can apply our skills and our financial resources to create shareholder value, but we are focused on our internal projects.

Okay, and one more question.

On Morenci you have given some more clarification of the incremental capacity beyond what you're doing right now.

Looks like you plan to put it -- you plan to start in 2014, if everything goes right.

Is this a phased expansion type of project where there could be more expansion further, or do you think this is the limit you're reaching over there at Morenci?

I am going to let Red Conger answer this question.

Yes, Sal, the expansion immediately in front of us is something that we can do right away with current permitting footprints and water resources, Then there are additional volumes that we can produce in the future given longer permitting processes and additional water resources.

And, Red, I think it is fair to say, Sal, that when we started looking at this resource and this opportunity, our first thought was looking at this larger-scale opportunity that's still there, but in doing that we saw an opportunity going in and doing a near-term, less-complicated smaller project that doesn't take away from the larger opportunity but gives us these incremental volumes on an economic basis earlier.

Got it.

Thank you very much.

All right, Sal, thanks.

Your next question comes from the line of Brian Yu with Citi.

Great, thank you.

Richard, my question is more -- a little bit of a follow up on what Sal just asked, but the theoretical nature.

On the M&A side, if you were looking at a couple projects with similar return and risk characteristics or potential acquisition targets, would you have a preference for copper or potentially diversifying to a different resource?

We're very positive about the copper business.

We're in it from exploration through development through marketing.

We are the world's largest public producer.

In fact, our consolidated operations make us the world's largest producer of copper, so we're very positive about copper, and we think the world's going to need copper so if we saw a copper opportunity it would be attractive.

But we wouldn't limit ourselves to that.

And it's not just -- we don't have a strategy of trying to diversify for the sake of diversification.

I think what 2008 showed us was something that I was saying before then is that these resources are correlated in the way they're affected by global demand situations.

And so what we would be looking for, if we were to invest outside copper, would be a very attractive asset because at the end of the day the quality of the assets is what makes a mining company attractive.

And if we could use our technical capabilities and find an attractive asset that was outside copper we'd be prepared to move on it, but we are very positive about the copper business.

Okay.

And my second question on the less theoretical side, with Climax can you give us a sense of how the production outlook would unfold over the next few years if you decided to restart in early 2012?

Dave Thornton runs our molybdenum business and Dave will respond.

Yes, Brian, we're waiting still to decide on when we'll start up Climax, but the project will be completed by early 2012, and we'd have an initial ramp up in the first year of roughly half of our 30-million pounds of capacity and then the second year we would be at full capacity, 30-million pounds, and would proceed from there.

And then, of course, we'd look at expansion opportunities after that.

Let me also say these copper projects that I've talked about earlier bring a significant amount of molybdenum with them.

And in fact, I mentioned Sierrita, that district, Cerro Verde has an existing molybdenum line, it would be expanded.

We were beginning to produce molybdenum at Morenci and our expansions there would have it.

So when we look at the total molybdenum business we have the byproduct of molybdenum, we have Henderson, and now Climax is looming to come onstream, and we are very active downstream.

Our predecessor companies and Dave's team has done a great job of developing markets for us.

We sell proportionately more of our molybdenum into the chemical market than does the industry as a whole.

And we have the ability, by having these primary mines at Henderson, to flex operations if we need to once we get onstream to deal with changes in market conditions.

So it's a great asset for our Company.

It's exactly what a mining company would like to have, industry leading position in a critical metal, with growth opportunities and low-cost structures and flexibility and good marketing impact.

Okay.

Thank you.

Our next question comes from the line of Paretosh Misra with Morgan Stanley.

Hi, good morning.

I had two questions.

Number one, on Cerro Verde, I was wondering if you could discuss any expectations of operating costs at Cerro Verde after the expansion?

Should we expect any operating cost synergies?

Well, I would say overall it'll be a similar cost level to what we have now.

In some ways we're replicating the expansion that was completed at the end of 2006 and it's a very efficient operation now, so we will be designing this to maximize volumes, and our analysis is based on essentially continuing our existing cost structure.

Okay, and then second on Morenci.

What's the right way to think of the total potential there, because you can increase the mining rate and I believe you can take it to about a million tons per day and then you also have this mill expansion taking place, so what's -- how should I think of the total potential there at Morenci?

Well, one thing to keep in mind is our -- the bulk of our existing operations is an oxide ore body.

A number of years ago Morenci went to SXEW and that continues to be significant part of our operations and will be.

The new opportunity for us is with sulfide resources that we're finding as extensions of the existing pits and at depth and we don't know yet the extent of those resources.

But in the context of a world that needs copper like it does it's very significant.

So that's allowing us to take the step now, which we're completing and people working on feasibility for near-term mill expansion and setting us up for this longer-term mill expansion.

And we're continuing to drill, to design the right mine structure, mine plans and all to take advantage of this newly-known sulfide resource that our exploration drilling has revealed to us.

Got it.

Thank you very much.

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

Thank you very much.

Hi, everyone.

I've got a couple questions and the first question is just a follow up on Grasberg.

And, Richard, when I heard you talking about robotics, you're looking into that possibly because of this issue and I'm wondering how comfortable are you that this won't have an issue or an impact structurally as you're looking to further develop the underground ore bodies?

That's my first question.

Yes, Tony, let me answer that.

We have been using these remote mining robotic-type machines now for ten years --

Right.

-- and it's an active -- it's a fairly significant part of our total draw points that we're using them on, and they've been working very well.

It's a bit slower than manned draw points, but it's not like this is new technology and so forth for us.

The Grasberg block cave -- and, Mark, add onto this -- does not have the degree of risk for wet muck that we've experience with the DOZ mine and its predecessor mines, which is a different source of mineralization.

The Grasberg block cave is a continuation of the ore body that we've been mining from the pit.

It's the same ore body and it's just at a certain point it gets to be economic to access it underground as opposed from the pit, and just because of the nature of the geology, the location of it, the water is always an issue.

I'm not going to -- I don't want to say that.

It's always an issue underground, but with the heavy rainfall and the conditions there at Grasberg the risks are more pronounced and more significant with the DOZ mine.

Have you factored any impact at all on your production at this point while the suspension of the mining in that zone is in effect?

No, and we don't expect it to be significant.

Okay.

And then the second question I have is related to El Abra, and I see the issues that Codelco is dealing with; i.e., the large CapEx they have on make just primarily to maintain their output.

I'm wondering, is there a possibility that you guys could potentially maybe increase your stake in El Abra as they seem to be a little financially strapped?

Is that something that you're actively thinking about?

Well, to say that Codelco is financially strapped, they have tremendous resources and cash flows.

Their issue is how do they tie in the running of their business with the requirements for cash from the government and Codelco has indicated no interest in giving up resources and politically that's very difficult.

We are trying -- we have great relationships and great partnership there, and great relationship with the senior management of Codelco, and we're looking for opportunities to work together on resource development, but the likelihood of their giving up resources is very small.

I phrased it the wrong way.

What I meant was, because it didn't seem to be a priority for them and that they've had a lot of other capital spending to do on their other operations and this seems to be very attractive from your standpoint.

That's what I meant, and I think you know what I meant.

And you're right in the point is we're working on various joint venture structures that we might pursue with them.

All right, Richard, that's great.

Thank you.

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

Good morning, thank you for taking my question.

It's about the cobalt at the Tenke Fungurume.

You're still selling the cobalt at a significant discount to cobalt prices, and I was wondering if you could let us know how you expect that to change over time, whether you'll be putting in additional capital to actually capture more of the cobalt price?

Well, the reason the discount occurs, of course, is -- and I know you're aware of that, Gary, but just for the rest of the people on the line -- is we're producing an intermediate product right now at Tenke.

It's a -- and it is a product that is sold to users who do further processing to use it.

It is -- there's a very strong market for that product now, and so we're having great success in selling it and getting good prices for that product but it's obviously a lower price than you would get for refined cobalt.

As part of our expansions at Tenke we are examining the potential to develop a refinery to upgrade this product that we're producing to metallic cobalt.

It's a small market and all of this comes in to our view of how we get the expanding amount of cobalt that we will be producing into the market in an efficient way and possibly we might do something jointly with others to achieve that.

But we've had great success from the marketing effort with cobalt to date, and we are considering a number of options, including the construction of refinery as we go forward.

Just as a ballpark estimate, roughly how much would a cobalt refinery cost to build?

Let me see.

It's not a lot of money, probably in the range -- and, boy, this is ballpark -- $150 million, $200 million.

Okay, great.

Thanks.

And finally I've got just a simple question.

It looks like your guidance for moly production for this year implies a significant decline in Henderson over the remaining part of the year.

Is that correct?

Yes, we're -- it's mainly based on, Gary, the market as we see it.

Henderson has no restrictions on its productions and it has the swing capabilities on the upside so we're just showing what we think the market is right now.

But if the market remains strong, like it did in the first quarter, Henderson can increase its production to meet demand.

Okay, perfect.

That's all for me.

Thanks very much.

Thanks, Gary.

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

Congratulations on the massive progress.

After the $3.5 billion Cerro Verde CapEx project, what other projects or potential prospects, ideas, et cetera, do you think would be the number two capital consumer?

Would with it be either Morenci or Grasberg?

Well, Grasberg has its capital program laid out for it.

It's a plan for -- that we've been working on for several years, John.

We've completed the access to get to the underground mines and now we're beginning to start mine development.

We can't start operating the block cave under the Grasberg until we stop mining at the pit because of subsidence that's inherent with block cave mining.

So the Grasberg capital program is established, and coming along on plan, on schedule.

After the significant capital at Cerro Verde we have the situation in Africa with Tenke where the resource development's going to be driven by our exploration work, our metallurgical work, and logistical work, and it's the nature of that operation and where it's located results in our ability to invest there on a quicker time schedule than we would at certain of other -- our other mines.

Then we see the North American sulfides, the major -- the more major project.

The near-term project at Morenci will proceed.

The longer-term sulfide deposit developments require drilling.

Water issues are critically important here in Arizona and we've got a very active effort going on to develop water resources and water conservation measures and so forth to deal with that.

But that would be the next focus, and that's across several mines.

It's Morenci, Sierrita, Twin Buttes, [following goes] Bagdad and potentially Ajo, so those will be there.

And then the El Abra sulfide, which I don't think is far behind those.

We'll be working on all of these at the same time, but that is a project that would require -- access to water is the big issue for that and how we worked out synergies with Codelco and others in the area.

So that's kind of a line up.

Thank you very much.

Thanks, John.

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

Yes, good morning, gentlemen.

Most of my questions have been asked, but if I could come back to Climax for a moment.

You're 60% complete, you said yourself there that it's a great asset.

The current price is a good 10% above the $15 a pound that you mention a lot and that's with, shall we say, a mediocre stainless steel sector for moly, which will probably pick up at some point.

And yet you continue to talk about evaluating the start up for timing and when you look at the slide on page 21 it's still not included in your sales in 2012 or even 2013.

So was wondering what are the factors that you need to see in place to give a firm green light to this project?

Okay.

Just from a procedural matter, we put numbers in our outlook numbers when we get board approval and we're going forward with the project and at this point we haven't done that with Climax.

We're spending all of this money, which is a change from where we were a year ago, so that we will have the option of deciding when to increase and it's strictly going to be based, John, on a market read.

We're such a large producer.

We have our byproduct moly, the market is small, and so we will have the ability to make the decision and that could occur sooner than later, but when we start hiring operators for these facilities, then we'll have a date certain for getting started, but it's strictly a market read.

Okay, thanks.

Your next question comes from the line of Charles Bradford with Bradford Research.

Hello.

On slide 10 you talk about the Chino restart costing $150 million or more.

Is that what you spent in the first quarter, or what you plan to spend for the full restart?

Chuck, that's -- this is Kathleen.

That's the total amount that will be spent as we restart, and it's mine equipment and refurbishment of the mill there.

Are there any other start-up costs that could start to come down before the end of the year?

Well, we talked about Morenci and the possibility of further increasing our mine rate there, and that's not a big capital cost to deal with.

I'm looking more at the operating side like this $150 million, which I'm assuming, based on your answer, will be pretty much over by the end of the year?

Yes, and most of that is capital, capital costs.

Oh, okay.

Yes, that's capital.

Okay, I thought it was --

That's what I was looking at.

The operating costs are built into our numbers and those will be the cumulative result of input costs changes and our collective efforts to constrain them.

But capital costs are what they are and, look, we're out here every day looking for ways to spend capital to produce more copper and we'll report to you as we find them.

Okay.

Well, thank you.

Thanks, Chuck.

Your next question comes from the line of Paul Massoud with Stifel Nicolaus.

Thanks for taking my question.

Congrats on the quarter.

Just first as a follow up on Climax, in terms of understanding some of the thinking and what the board will probably go through as they decide whether or not to restart, are sales agreements and potential contracting for sales ahead of the restart part of that process?

Are you -- is there any sort of a demand from consumers for Climax and that they're coming to you to ask for the restart?

We went away from the way the business had been done prior to the merger, when Climax did do some relatively long term -- not long-term contracts but period contracts that actually set some price floors and ceilings as a way of capturing markets.

Most of you know by following Freeport that our basic approach is to sell into markets and realize market prices.

We don't hedge or enter into long-term contracts for prices with the rest of our business, and so we put that philosophy in place with Climax and we basically sell at the market.

We do have very close relationships with our customers and we work together to understand their needs and we're a valued supplier because of our ability to do that.

So it's more of a question of our understanding what our customers' needs are as opposed to having a contractual arrangement to assure those things.

Dave, you --

No, that's great, Richard.

Really the issue is it's a big mine, it's a big -- a large amount of molybdenum coming into a small market, so we're just watching the markets right now and seeing what we feel the future demand growth really is for molybdenum and get comfortable with that.

And then switching gears a bit.

Looking at Tenke, you announced expansion at Tenke over the next couple of years.

Is there any update on transport infrastructure, any progress in terms of negotiating to get a rail line to the coast?

Yes, we haven't begun any negotiations on that.

We're in the exploratory phase, some general discussions with the government, some discussions with other producers, continuing to monitor what's going on in Angola.

We're looking -- we have a continual process of looking at other transportation routes.

Right now we're going through Durban -- out of Durban, which is a long haul.

I must tell you it's working better than I expected personally in terms of the truck movements and so forth, considering the distance and the number of vehicles that we have out there, so it's working reasonably well.

Fuel costs are having their impact, and we believe that we can use this system for the expansions that we have right before us.

We are looking at the possibility of developing access through Angola into Dar-es-Salaam.

Dealing with these things requires that you have security and assurances and that sort of thing.

But there's an opportunity to reduce cost by looking at alternatives and we're continuing to do that, but the bulk of our shipping for the foreseeable future will be continuing the 3,000 click trip down through southern Africa coming out of Tenke through Zambia.

Thanks.

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

Good morning, Brian.

Brian, your phone may be on mute.

We'll catch up with Brian later.

Your final question comes from the line of Sal Tharani with Goldman Sachs.

Thank you.

Richard, on Cerro Verde initially you started talking about doubling and then you mentioned triple and now you're not mentioning doubling the capacity, going straight for triple.

I remember the water was an issue .

Have you resolved that problem, or you think you're very close to resolving it that you can get enough water, particularly on the back of what happened at Tia Maria?

Are you okay with your -- all the local communities in terms of this

Well, Sal, you picked up on the fact that we have gotten more confident about the water situation for Cerro Verde and we are in a different situation than Tia Maria.

We're not looking at a desalinization opportunity for Cerro Verde.

We've had an alternative that we've looked at, and we've been working on a collaborative basis with the local community in the Arequipa area and we believe we've developed an alternative that will be positively received by the local community.

It involves the construction of a wastewater plant and using reclaimed water to provide it for us.

And so while we're in the final stages of completing our studies and then starting the environmental impact studies, we have confidence that we have this water alternative identified and one that works with the local community.

Thank you very much.

All right.

We really appreciate everybody's participation on the call, and look forward to continuing in 2010 on a very positive track.

2011.

2011.

Sorry.

Thanks a lot.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation and you may now disconnect.