費利浦·麥克莫蘭銅金 (FCX) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

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.

Good morning, everyone, and welcome to the Freeport-McMoRan Copper & Gold fourth quarter 2012 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.

We also have several slides to supplement our comments this morning and will be referring to the slides during the call.

The slides are also accessible using the webcast link on FCX.com.

In addition to analysts and in 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 today, we would like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements.

We would 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; Jim Bob Moffett, our Chairman of the Board; Richard Adkerson, President and Chief Executive Officer; Red Conger is here; Mark Johnson and Dave Thornton have also joined us this morning.

I'll start by briefly summarizing the financial results and then turn the call over to Richard, who will review our recent performance and outlook.

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

Today, FCX reported fourth quarter 2012 net income attributable to common stock of $743 million, or $0.78 per share compared with $640 million or $0.67 per share for the fourth quarter of 2011.

Our fourth quarter 2012 net income included net credits totalling $40 million, or $0.04 a share, associated with adjustments, environmental obligations and related litigation reserves, a gain for insurance recoveries, partly offset by charges for new labor agreements in South America and for costs associated with the pending transactions with Plains Exploration and McMoRan.

Our fourth quarter 2012 consolidated copper sales of 972 million pounds were higher than our estimates of 930 million pounds, primarily reflecting higher production from our Americas operations.

Fourth quarter 2012 consolidated gold sales of 254,000 ounces and molybdenum sales of 21 million pounds approximated our October 2012 estimates of 255,000 ounces and 20 million pounds of molybdenum.

Our fourth quarter 2012 consolidated copper and gold sales were higher than fourth quarter 2011 sales, of 823 million pounds of copper and 133,000 ounces of gold, primarily reflecting the impact in the fourth quarter of 2011 of the labor disruptions at PT Freeport Indonesia.

Operations have improved during 2012 at PT Freeport, Indonesia.

Our sales for the year 2012 of copper totaled 3.65 billion pounds, 1 million ounces of gold, and 83 pounds of -- 83 million pounds of molybdenum.

That compared to 3.7 billion pounds of copper, 1.4 million ounces of gold, and 79 million pounds of molybdenum in the 2011 year.

As Richard will be discussing, we've got an outlook for growing production volumes in 2013 and beyond.

Our realized copper price for the fourth quarter of 2012 is $3.60.

That compared to a realized price of $3.42 per pound in the fourth quarter of 2011.

Our gold realization average of $1,681 per ounce in the fourth quarter of 2012 compared to $1,656 per ounce in the fourth quarter of 2011, and the molybdenum price in the fourth quarter of 2012 averaged $12.62 per pound compared with $15.08 per pound in the year-ago quarter.

Our consolidated average net unit cash cost for the fourth quarter averaged $1.54 per pound.

This was slightly better than our estimates going into the quarter and lower than last year's unit net cash costs of $1.57 per pound.

Our full-year average unit net cash costs for 2012 averaged $1.48 per pound.

And, again, as we grow our production volumes, we've got an outlook for declining unit cash costs in 2013 and beyond.

The operating cash flows during the quarter totaled $1.3 billion, which included networking capital sources of $122 million.

And for the year, we generated $3.8 billion of operating cash flows and that was net of working capital use of $1.4 billion.

Capital expenditures for the fourth quarter totaled $976 million, bringing the annual capital expenditures to $3.5 billion in 2012.

We ended the year with a cash position of $3.7 billion, which exceeded our total debt, which was $3.5 billion at year end 2012.

We also included in the release an update on our transactions that we announced on December 5th, whereby FCX announced definitive agreements to acquire Plains Exploration and Production Company and McMoRan Exploration.

The Plains per share consideration is equivalent to 0.6531 shares of FCX common stock and $25 in cash.

That works out to $3.4 billion in cash and 91 million shares of FCX common stock.

The MMR per share consideration consists of $14.75 in cash and 1.15 units of a royalty trust, which will hold a 5% overriding royalty interest in future production from McMoRan's ultra deep exploration prospects.

Completion of the transaction is subject to receipt of the Plains and McMoRan shareholders' approval, regulatory approvals, and other customary conditions.

In late December, the US Federal Trade Commission granted early termination of the Hart-Scott-Rodino waiting period with respect to both transactions.

We expect that the Plains and McMoRan shareholder meetings will be scheduled upon the effectiveness of the registrations filed with the SEC in late December and we expect the transactions to close in the second quarter of 2013.

I would now like to turn the call over to Richard, who will be referring to the slide presentation on our website.

Thanks, Kathleen, and good morning to everyone.

I'm going to start initially by focusing on our global mining business and on copper.

2012 was a year that was abnormal for us and I want to try to explain why that occurred and what our outlook will be going forward beyond 2012.

Later, we will cover the transactions that Kathleen referred to that we announced on December 5th and respond to questions about those.

After those transactions, I want to point out that 75% of our business will be represented by our global mining business and copper will continue to be the driver of our cash flows and profitability.

Looking at 2012, we executed on our efforts to grow production in North America and Africa.

And I'm going to come back to that, but we are having success in executing our growth plans and we have the prospects for very significant growth in copper volumes.

By 2015, our plans would result in higher volumes consolidated for our Company of greater than 35% than the volumes we had in 2012.

2012 was significantly affected by unusually ore grades in Indonesia and some of that came about as a result of the strike that we had in 2011 and the effect on productivity.

Looking back, these are the lowest grades that we've had at Grasberg in 18 years.

And we are looking to having higher grades in 2013 beginning near the end of the year and beyond that our profitability at Grasberg should be extraordinary.

We are continuing to advance financially attractive brownfield development projects.

The Phase II project at Tenke Fungurume and the Democratic Republic of Congo is substantially complete, on time and on budget, which is a significant accomplishment in relation to our initial project.

At our major expansion at Cerro Verde mine in Peru, we've received approval of our environmental impact study and we expect to begin construction in 2013.

And we have begun construction of our expansion project at our flagship mine in Arizona at Morenci.

So we are positioned for multi year growth in copper volumes of significance.

When we look at the quarter, the quarter was one where we executed our plans.

Our consolidated volumes were slightly higher than we had, than we had given guidance for.

Our unit net cash cost was 5% lower than our guidance.

We achieved our targets for gold and molybdenum.

The cash costs, if we look at page 6, shows that in North America, we were right on line with what our guidance was going into the quarter.

Red Conger is here.

He and his team have done a great job in managing costs, achieving production volumes.

Our unit costs were lower in South America, they were actually lower than anticipated in Indonesia, and in Africa, and overall at $1.54 consolidated costs this year was lower than our guidance of $1.62.

Our sales in North America, South America, Africa were higher than our outlooks, as well as in Indonesia.

But again, I want to come back to just why this was such an unusual year.

We want to focus on Grasberg as a reason for that.

We had very unusually low metal production in 2012, both compared with historical levels, as you can see at the charts at the bottom, for copper and gold and that resulted from lower grades in the Grasberg open pit.

This year, we were mining at the upper reaches of that pit.

We have included in our reference slides schematics that we have shown for many years that show that.

We are now beginning our final push backs for the open pit.

We expect the pit to produce through 2016.

And as we go forward beginning late in 2013 and 2014, our stripping requirements are going to drop dramatically and our volumes will increase and our profitability will increase.

We were also affected by a slower than anticipated ramp up of our underground DOZ mine where panel repairs that we had following the inactivity relating to the strike are more extensive.

We expect to get back to traditional levels.

This mine has a capacity of roughly 80,000 tons per day.

The current rate is 50,000 tons per day.

So because of mine sequencing, some adjustments because of geotechnical factors, we just had lower grades this year and that resulted in having unit costs at Grasberg of $1.24 where we've been averaging $0.13.

We will have lower costs next year as we moved in the higher grades by the end of the year and then going in the period through the remaining life of the open pit, we should be down to where our gold revenues will more than fully fund our operating costs.

So that had a lot to do with why 2012 was an abnormal year for us.

Now, looking at copper markets, copper is not currently at its all-time highs that we experienced in 2011, but considering the global economic situation, there's no way to say anything other than current price is very strong.

And in today's world, we are seeing in our business some degree of improvements, in markets in the United States, in the Middle East.

China shows promise this year for renewed growth as they spend, as China spends on infrastructure and takes steps to improve its economy.

Construction in the US is growing.

Automobiles have been strong and the outlook is for continued strength.

There's investments being made by power companies to invest in the grid.

There's some short-term effect from the damage caused by Hurricane Sandy.

And overall in the US, our business and our customers are talking to us about an environment of not significant, but moderate growth.

Europe, of course, continues to be very weak, but in China, the market appears to be picking up from reviewed investment in infrastructure.

The facts are that there are things that could cause variations in copper prices near term, because of inventory levels in China and there's always speculation about that.

But underlying today's world is an improved outlook for the global economy based on where we were several months ago and that should be good for our business.

China, of course, remains the important demand driver.

Global exchange inventories remain relatively low.

And underlying all this marketplace, which is in many ways unique for copper as a commodity, is supply challenges.

We've talked for years about the impact on grades of aging mines, on impacts on aging mechanical systems at mines developed in the past, the inferior quality of new development projects available to the industry, and around the world today many companies are reducing capital and deferring projects and that should be supportive of prices in the long run.

The strength of our Company is the reserves and resources that we have available to us.

Page 10 gives our report on our year end reserves at the end of 2012 and we show proved and probable copper reserves based on mine plans at $2 a pound for copper, of 116 billion pounds and then our 3.42 billion pounds of molybdenum and 32.5 million ounces for gold.

We've had significant increases in our reserves since the acquisition of Phelps Dodge in 2007.

Over 46 billion pounds of copper.

You can see in the chart that our reserves are essentially divided equally between North America, South America, and Indonesia.

And those reserves give us the opportunity for near-term and longer-term growth.

And beyond the reserves that we have on page 11 is a significant aspect to our Company, is mineralized material that contains copper, not yet meeting the standards to be reported as proved and probable reserves.

But at a $2.20 copper price, this contained copper is over 100 billion pounds of incremental copper.

And these resources, 50% of those are located in North America.

We have these near term projects that are progressing that should give us this really significant near-term increase in volumes.

But what this provides us is a longer-term opportunity for a development project beyond those and we will -- we have not lost our enthusiasm about copper markets or our enthusiasm about developing these resources and these should create really significant values for our shareholders because they are not currently valued in our stock.

And to the extent we can create cash flow projects out of them, all of that will come to our shareholders.

Now, we did not add reserves this year, but we continued an aggressive exploration program and we have the potential for significant future increases in reserves.

The exploration program is a matter of timing.

It involves doing exploration drilling, metallurgical analysis, analysis of economic factors related to land holdings, availability of power and water, and we continue to advance those.

We have a tremendous opportunity with our El Abra property in Chile, where we have identified over the past five years a very large sulfide resource and we are working to develop the feasibility of a major mill project there to supplement our current sulfide leaching project, our Sulfolix project.

Other than that, though, we have growth opportunities in the US and in Africa with our Kisanfu concession, which is separate from Tenke Fungurume, but we are going to continue to target these, do work with a view towards adding reserves, but more importantly, with looking for how we can advance these reserves and resources into projects.

Slide 13 shows a slide that we've been using for many years.

Makes a couple of points.

One, of course, Grasberg is there, as the mine with the largest copper reserves in the world.

It also has more gold reserves than any mine in the world.

Its production is down, typically it's near the top of the copper production chart.

But we note the years when these mines were discovered.

The point here is, it is very rare to find a world class copper mine and mines, when they are found, produce for decades.

You see it in the industry.

Over the past 10 years, companies have been spending significant money for exploration.

It's noteworthy the relatively few successes that have come about through exploration.

Then, while we have significant resources, the facts are, it takes time to convert those resources into development projects and producing mines.

That's just the nature of this business.

I call it the double edged sword of the copper markets.

That's the reason copper prices are high and are likely to remain strong, because of that time.

But with our Company, we have the opportunity through our near term brownfield development projects to add this significant volumes.

In North America at Morenci, and beyond the current mill project that is now under way with construction, we have significant sulfide expansions that gives us a chance to look at a future large mill opportunity at Morenci.

I mentioned El Abra, the Cerro Verde expansion is under way.

We expect to commence construction next year.

Phase II at Tenke is complete.

We have additional growth opportunities there, with our oxide resource, there's a very significant mixed ore and sulfide resource for future expansion opportunities that we are doing exploration analysis, metallurgical work, processing work, and logistics work to see how we could take advantage for it.

And then Grasberg, beyond the open pit era has decades of life in the underground that will result in it being a high volume, low cost operation for many years going forward.

Slide 15 shows this growth that we have on a consolidated basis, starting with 2012.

We're looking for 20% growth in volumes next year.

Another 15% beyond 2014, and that should be sustainable.

You can see the chart at the top where this growth is coming from.

It is from our global business.

These brownfield projects have significantly less risk than projects that are greenfield in nature.

The infrastructure development because you're operating in place already is much less.

Technology has proven it results in efficient expenditure of capital.

You get the benefits of scale as you expand and you understand the risks better and they are just less significant.

And that gives you higher returns off brownfield projects than other projects.

So again, I want to just go back and think about 2012.

We've got these kind of growth opportunities going forward, for copper.

In gold, we expect to have 40% higher gold volumes in 2013 coming out of Grasberg than before.

We expect our unit costs, and this will be coming into play later in 2013 to be down by 10% next year, to go from the $1.50 level to $1.35.

And then assuming continuation of current cost levels, we would see unit costs dropping in 2014 by, say, another 20% to the $1.15, $1.20 level.

That's consolidated basis, heading towards 5 billion pounds.

With that kind of unit cost level, just shows what a great business and that translates into higher operating cash flows at current prices.

We would expect our operating cash flows to increase a third next year and 60% over 2012 by 2014.

The details of our brownfield expansion projects are on the next set of slides, beginning with Morenci where we're expanding our mill to 115,000 tons per day and our mining rate significantly to 900,000 tons.

This is 1.4 billion-pound -- $1.4 billion project, to add 225 million pounds.

And you can see the historical and perspective outlook for Morenci, which not too long ago was viewed as an end of life, dead end asset.

Now it's an asset that generates significant current profits and significant growth going forward.

Cerro Verde, we're going to be tripling the output of our mill there.

Completion would result in this being the largest concentrated milling operations in the world.

Increased mining rates, more capital, $4.4 billion, but significant incremental production of 600 million pounds per year with moly alone.

With it, at this stage, we are more than halfway through our engineering work.

Online to commence construction in 2013 and completed in 2016.

I mentioned the success of our Phase II project at Tenke, where we're expanding our mill to 14,000 tons per day, increasing our mining rate, adding tank house capacity, $850 million of capital costs to get 150 million pounds of incremental copper.

We are in effect complete with this project now.

We have to, next year we'll be building our second sulphur burner there to provide sulphur for our operations and we're already thinking about what our next expansion will be.

We've announced today a, an acquisition of a cobalt refinery by the Tenke Fungurume mining partners.

Cobalt's a very small market.

We're going to be producing a lot of cobalt.

We were dealing with the issues of how to access that market in an efficient way.

We knew we needed to make an investment.

We found this opportunity to purchase an existing facility and have acted on it.

And we -- this gives us an experienced management team and direct access to end markets, similar in some ways to what cyprus MX did back many years ago in the way that they approached the molybdenum market with the investments that they made, followed-up by Phelps Dodge and that gives us an efficient access to downstream markets in molybdenum, this will do it for cobalt.

At Grasberg, we have made significant progress with the underground development and advancing this in an efficient way.

It involves a significant amount of capital, but will be spent over a number of years.

The Grasberg blockade will be prepared for startup in 2017.

This is an extension of the current ore body we're mining in the pit.

Same ore body extending down to where we will again be mining it underground.

And we're also will be starting up, expected in 2015 an extension of our current DOZ mine, the DMLZ mine, which will have a capacity of 80,000 tons a day in 2021 and very attractive grades.

You can see that on the underground era, that we will be mining an ore body that will give us significant metal volumes in relation to our historical metal volumes for both, for both copper and gold.

There's an interesting reference slide that we have shown back in the back that shows our mine plan and our share of metal production from 2013 to go forward.

Let's see.

I don't have a page number for that.

Page 38.

And you can see what we expect in 2013 and as we go forward in the years 2014 to 2016 is what attractive levels of copper volumes and gold volumes we will have as we complete mining to open pit with very limited stripping.

There's a transition year in 2017, which is not a terrible year.

It's much better than historically we were looking for, as we will have the benefit of the DMLZ mine, some stock piling material, and then beyond that from 2017 to 2021 back to metal, of copper and gold that's consistent with historical levels for Grasberg.

Our outlook for 2013 on page 21 is for 4.3 billion pounds of copper, 1.4 million ounces of gold, as I said 40% higher, lower unit cash costs, this will come into play.

I'll show you a slide in a minute, later in the year, particularly in the fourth quarter.

Our unit cost will be higher in the first quarter and just shows you if we average down to $1.35, how low they are going to be beyond that.

At $3.65 copper, our modeled operating cash flows would be approximately 7 billion pounds and we're looking to -- $7 billion, and we're looking at capital expenditures of $4.6 billion.

Page 22 shows this growing copper sales production profile, it shows growing gold sales based on the Grasberg mine plan and our molybdenum sales with taking into account our recently restored Climax mine.

Quarterly production that I referred to earlier is on page 23, showing the first quarter, this is like the old days at Grasberg, when we seemed to have this every year.

But we have a lower in the first quarter with a really strong second half of the year, particularly in the fourth quarter, you can see looking at over 500,000 ounces of gold sales in the fourth quarter based on our reaching the higher grade sections of the mine.

Our sales by region are shown on page 24, show growth in North America, South America, recovery significantly in Indonesia and growth in Africa.

And that will result in the unit cost improvement that I referred to earlier.

This shows at the bottom of the page, 2013 consolidated unit costs going from $1.48 to a projected $1.35 based on $3.65 copper, $1,700 gold, $11 molybdenum and $12 cobalt.

And as I said, this will be vary significantly by quarter.

And this shows a reconciliation of how we go on page 26 from $1.48 to $1.35.

It also shows that if we had the 2014 Grasberg volumes, our costs would go down to $1.15.

And that's assuming today's cost levels stay the same.

27 shows the impact of growth on our business.

The solid green and gold portions of the chart show what our averages are expected to be for 2013 and 2014, where ranging from $3 to $4 of copper prices, our EBITDA would range from $7 billion to $11 billion and cash flows from $5 billion to $8 billion.

As I said, roughly $7 billion at current copper prices for that period.

Then, adding in the growth that would occur from our volumes in 2015 to '16, you can see the very significant increases of roughly 50% with EBITDA ranging from $11 billion to $16 billion, and operating cash flows from $8 billion to $11 billion.

So the effective growth in the mining business is significant.

The sensitivities to prices and certain input costs are included on page 28.

For your information, our exploration spending continues to be aggressive as we show on Page 29, with our budget for 2013 at $235 million, focusing on brownfield opportunities around the world.

We have some investments in Greenfield.

If that's successful that, would be great.

But our opportunities are really significant with our brownfield expansions.

Capital expenditures on page 30 are projected for $4.6 billion for 2013.

As we complete our major projects over the next three years, those capital expenditures would be dropping.

We're working hard to come up with new projects to supplement those on a going-forward basis to take advantage of our reserve and resource position.

That's a summary of our existing global mining business and our opportunities in the copper industry.

We announced on December 5th transactions to acquire Plains Exploration and McMoRan.

The Board's decision to invest in these assets is explained in great detail in a filing we made with the SEC on form S4 right at the end of December.

And I would encourage you to spend some time looking at that document.

It described the process the Board followed in considering the deal and in negotiating the terms of the transaction, because of the related party situation involving the three companies, FCX had a special committee of independent and unaffiliated directors who considered this transaction and negotiated the terms.

The Board's decision was driven by its positive long-term global economic outlook.

Our Board is real believers in the outlook for commodities, including the commodities in our mining business and the, and the outlook for the oil and gas business.

Board was faced with the situation that I referred to earlier about limited opportunities to invest in copper beyond our brownfield expansions.

Over the years, we've been tracking opportunities to invest outside the Company in M&A transactions in the mining business and have not found opportunities that were attractive to us.

And these transactions were provided with the opportunities to acquire high quality assets in the oil and gas industry, an industry that our Board and Management team has had experience in where we understand the risk and opportunities associated with that business.

Near-term cash flows of these assets are going to be driven by crude oil revenues and crude oil is a commodity that's closely correlated to copper.

So this is something that's consistent with our view about the global economic outlook.

The assets have current production that generate strong margins and cash flows.

We anticipate following a disciplined business plan to use the current cash flows off the oil and gas business that we are acquiring to fund its exploration, development, capital expenditures.

Those assets provide financially attractive near-term and long-term growth opportunities.

It provides geographic diversification, exposure to other commodities.

It also gives us an enhanced exposure to exploration, particularly in the McMoRan situation through its ultra deep gas drilling program, but also with the Plains assets, particularly in the deep water where they have multiple high quality exploration targets.

In addition to this exposure to oil markets through McMoRan's exploration, Plains position in the Haynesville shale, it will give the Company an important position in the US natural gas market for the long-term.

It's not driving current cash flows or economics, but that business potentially has very significant values to our shareholders.

It will give us a chance to achieve long-term returns for shareholders.

The combined companies have the management capabilities to execute a disciplined business plan.

We're going to be -- we took advantage, are taking advantage of low cost debt financing to fund the cash portion of this transaction and we're going to be committed to a disciplined approach to delevering the debt that we'll be taking on.

You can see on 32 at the bottom that we'll go from a mining company to a company of where mining represents roughly 75% of our position, our business from an EBITDA standpoint and oil and gas 25%.

And we'll go from a situation of where North America, the US currently represents about 35%, 30% of our business to 50% of our business.

Credit rating agency's considered this a positive in terms of maintaining our investment grade credit rating.

Slide 33 shows what our pro forma combined EBITDA and operating cash flows will be.

The solid sections of these charts, the green and red sections present the combined 2013-2014 outlook.

And then the growth from both the mining business and the oil and gas business is represented in the dotted lines above that.

You can see this is similar to what we saw with just our mining business on a stand-alone basis, one of the attractive things here is looking at the growth opportunities in oil and gas is complementary to the growth that we have in the mining business and gives us a chance to have significant growth.

Slide 34 presents the way we're going to be focused in running our business.

We are going to have -- maintain a strong balance sheet and credit profile.

We, we've had a long track record of doing this, generating values for shareholders, of managing our balance sheet in a disciplined way.

As we talk, we're in the market right now with our bank deals and as we talk with the banks and the credit rating agencies, everyone is, is positive about the way we managed the debt in the Phelps Dodge transaction in 2007 and how we dealt with the 2008, 2009 financial crisis.

We're going to continue to do that.

We have developed assets at Grasberg, at Tenke Fungurume, in a very aggressive and disciplined way.

We've taken advantage of opportunities provided by Phelps Dodge in 2007 to achieve asset and geographical diversity and then taken advantage of markets to develop assets to, that created significant values for our shareholders.

These assets will provide us an opportunity to enhance long-term returns for shareholders and that's what we're going to be focused on.

I'll just point out our executive management teams have significant shareholders in FCX and we are committed to creating values in those shares.

We're going to be sensitive to risk.

We are going to do rigorous economic analysis for making investments, we're going to protect our downside and get leverage to the upside.

We're going to prioritize and rank opportunities to invest in those with the highest returns, as we manage risk and we look at our overall portfolio.

We're going to limit the number of projects we look at.

We're going to be really committed to this deleveraging program.

We'll begin the process with roughly $20 billion of gross debt, $16 billion of net debt.

Our plan would not be to come back to zero net debt, as we are right now.

But to reduce our debt to a targeted level, we're thinking now of roughly $12 billion.

After reaching that, we would be back in a position to invest in our growth projects, but given continuation of attractive commodity prices, we would have excess cash that would allow us to return cash to shareholders through higher dividends and potentially stock buybacks.

In the meantime, we're going to be continuing our current dividend rate at $1.25 a share and we're going to be committed to this long-standing tradition at Freeport of maximizing value for shareholders and managing the risk of our business.

So with that, Jim Bob's here with me and our management team to respond to questions that you might have.

(Operator Instructions)

Sal Tharani, Goldman Sachs.

Good morning.

Just quick question on the -- couple of questions.

First on the slide about the 2015 copper production, does that include Morenci's full production rate of 600 million pounds in there?

Yes, it does, Sal.

We expect to get to full rates at Morenci in 2014.

Okay, so you expect that to be -- because I think it says that the growth would come by 20 -- the project will finish by 2016, but do you think it will be ready by 2014 in terms of production?

Morenci will be 2014.

The Cerro Verde--

I'm sorry.

I meant Cerro Verde.

I'm sorry.

It's got some Cerro Verde in 2015, but it reaches full production in 2016.

Okay, and there's modest change in your CapEx outlook of in between the major mining projects and other projects, $200 million, anything particular to note here?

The mix is different than what it was in Q3.

Yes, it's slightly different.

We had some carry-over sustaining projects that we didn't spend in 2012, our CapEx in 2012 was slightly below what we thought.

We carried over some projects into 2013, but no material changes, just some slight timing variations.

Okay.

Thank you very much.

Thanks, Sal.

Tony Rizzuto, Dahlman Rose.

Hi, all.

Hi, Richard.

I've got a couple questions here.

I was wondering if you could update us a little bit with the contract of work review and the process there, and the timing, again, of the presidential election.

Okay, the presidential election occurs in 2014, the first round is mid-year in 2014.

This month begins the process also of electing a new governor in Papua.

And so 2013 and 2014; 2013, a number of provincial elections will be held in Indonesia.

And the presidential and parliamentary elections will occur in 2014.

We have -- we began a process in a formal way a little over a year ago in talking with the government about our -- getting our extension for our contract, for those of you who don't follow us that closely, we operate under contract of work in Indonesia.

We signed the most recent contract in 1991.

It has a 30-year primary term and the contract itself provides us the right to extend it for two 10-year periods, through 2041, and we have to apply for that.

The government cannot unreasonably withhold or delay granting that extension.

The -- Indonesia passed a new mining law and the country has undertaken a review of all contract of works, including ours.

And what our discussions involved is a discussion around this review of contracts, obtaining the extension for our existing contract, and we are working cooperatively with the government to find ways of being responsive to certain of the aspirations of people in government and the population in Indonesia, and protecting the interests of our shareholder by getting our extensions on a way that protects the values of our operations there.

Confident we'll be able to get that.

The election and political situation in Indonesia requires time to go through the process and that's what we're doing now.

And we've made what I feel is good progress and I'm confident we'll be able to resolve this in a way that our shareholders will be happy with and that the government of Indonesia will also find acceptable.

This is Jim Bob, let me add one thing for Tony.

Under normal circumstances, if we didn't have this massive underground project underway, $15 billion project, some in the government would say that we should only ask for an extension two years before our contract expires, which would be 2019.

But with us spending, as you've seen from our spending charts, $15 billion over the next number of years to get to full production with the underground, we went with the idea that you have to have certainty and the government agrees.

That's just another wrinkle that causes us to have to deal with this in a business way, and we're getting good support from the government.

But under normal circumstances, some in the government would say you should wait until two years before your contract expires.

That's just a wrinkle that we need to be sure and point out.

Has it changed in any way, the dialogue that you guys are having with the government there, given the plans to acquire these energy companies?

No.

I'm not sure even they are aware of it, Tony.

Okay.

They are focused on our business.

Okay.

And I've had discussions, a number of -- they read the news releases and the papers and so forth.

But, we -- it was, like when we acquired Phelps Dodge, you know they were interested in it.

We made the point that that gave us a lot more global resources that we could apply to bear, and running our business, of course Indonesia is a significant oil producer.

But it's not a factor in our discussions.

Okay.

The other question I have is one on the copper market.

Richard, you made some comments that there's always uncertainty surrounding Chinese inventories.

And I was wondering if you did have any more specific thoughts on the level of bonded warehouse stocks there, and how you think this may potentially impact Chinese imports in 2013.

Obviously Chinese imports have been so substantial to the market, and just wondering, any additional thoughts you may have there.

Well, I wanted to comment on it, because it is a factor.

And I didn't -- while we see these emerging, more positive views about the markets, and certainly today as I talk to people, to our commercial people, to others involved in China, the view about China is more positive than it was say at LME Week last fall.

While the copper market -- Tony, as you know better than anybody, is a really pretty visible global marketplace.

The one aspect that has less visibility is this issue about off exchange inventories in China, and there's currently different views about the level of those inventories.

Our people tend to believe that those inventories are not liquid, like exchange inventories.

But we have seen instances in the past of where the Chinese have adjusted buying patterns and that's the factor that could occur.

When that happens, I've always looked underneath that to see what's going on in the fundamental economy because actions on buying patterns tend to be temporary and the underlying economy is really what's going to drive the copper price long run.

But I felt that I needed to mention that because those inventories are significant and the question is, is the degree of liquidity and how they come into play in affecting imports?

That's great insight.

I appreciate it, Richard, and Jim Bob, too, for your insight as well.

Thank you.

On the double edge sword of copper prices that Richard was talking about, I think it's important to bring up at this point the extensive list of projects that are either being delayed or canceled in all of the mining business, and of course this is because the commodity prices have gone up so rapidly.

But unfortunately, as these mines are developed, the cost of development, whether you're talking about mining equipment, trucks, all of the metal that's used, the greenfield projects, as all of you are aware, some of these costs are going up double and triple and people are walking away from the projects, delaying them, mothballing them, doing whatever you call it.

An extensive list, 30 or 40 of these.

What does that mean?

That means that those projects have been put into people's long-term projections of supply/demand for copper.

Those projects are not going to happen.

And that's exactly why our greenfield projects are being looked at harder than the brownfield.

And the brownfield, as Richard said, we already have existing infrastructure, so we have a whole way to look at that cost and have an idea of what it's going to cost to make the expansions.

But going into a greenfield area, new country, new infrastructure, or maybe lack of infrastructure, so those projects that aren't going to get finished, that people were counting on for supply and demand are going to have a huge impact on the price of copper.

So that's why we, on a long-term view, look at copper as being very positive because the lack of new projects coming on will drive the price of copper higher, which benefits our very active program over the last six years since the, six, seven years since the acquisition of Phelps Dodge.

Thanks, Jim Bob.

Brian MacArthur, UBS Securities.

Good morning.

I have two questions.

Just on Grasberg, you talked about getting back to full rights to DOZ later in the year.

Should we think of a operating rate there of 200,000 tons per day versus 165,000?

Is that a ballpark way to think about it, or are we going to get all the way back to open pit to call it, 150,000 tons and then get 70,000 tons out of the underground over the year?

Brian, I'll let Mark Johnson, who is our Chief Operating Officer for Grasberg talk to you about that.

Brian, I think you're referring to total mill rates.

And what we'll be doing is what's been discussed, is that DOZ will get back up to 80,000 tons a day by the fourth quarter.

We're going through, as Richard described, a process of repairing some panels that were damaged.

Those repairs will be done by the end of the third quarter and DOZ will be back at that 80,000 tons a day.

The total mill rate is variable.

It's very much driven by the material types that we get out of the Grasberg.

Some of the material that would be mining in 2013 is a bit harder.

Total mill throughput drops as a result of that, but the mill is running at full production.

We're not cutting back on mill rates.

We're essentially milling every ton we can, and we'll average about 210,000 tons a day in 2013.

Towards the end of the year, we'll be into the very high grade stock work of the Grasberg.

That material is typically very good milling material also, we'll get higher throughput, higher recoveries, good con grade.

So this year, things will continue to get better from the first quarter all the way through the fourth quarter.

Great, thank you.

That's very, very helpful.

The other question I just wanted to check; for your guidance for costs on Tenke for the year, I see they are coming down, but the copper production is going up.

Are those costs before the OMG deal, i.e., crediting at the 60% of copper, cobalt price, or is it post the OMG deal, where I assume you'll ultimately credit the full cobalt price that you realize?

Right, the guidance that was given, Brian, does not include the benefits of the higher cobalt price that we'll receive.

The partnership that is acquiring the assets is -- are the same partners that are in Tenke Fungurume, but Tenke Fungurume is not acquiring, Tenke Fungurume will continue to sell cobalt hydroxide at market, and then this joint venture will actually own the refinery.

But in terms of the numbers that you've seen, that does -- that includes continuing to sell cobalt the same way we have been in the past.

So will you have a new subsection of financials with showing that whole thing like do you for downstream copper?

Is that the way it's going to come out, or is it going to be all embedded in the Tenke sub-financials if I look at it that way?

It will probably be separate, in terms of -- because actually the Tenke operation doesn't own the refinery.

But we'll make it so that you understand it and understand the values that we're getting from the refinery.

Great.

Thank you very much.

Paretosh Misra, Morgan Stanley.

Hi, guys.

Two questions on Grasberg.

First, I saw the total mill rate in fourth quarter was sequentially down.

Is that also because of the harder [ore] that Mark just described?

Yes.

Yes, that's right.

Okay.

Second, your labor contract at -- actually at both Grasberg and Tenke expired this year.

Have you had any conversations yet with the labor unions?

We have ongoing conversations with the unions and it's different situations in all the places that we operate.

In Africa, we've had very positive relationships, and have not had any controversy over union situations.

We had the very difficult situation which was really our first time to encounter this in 2011, with the labor union in PTFI.

We've made progress in working with the work force, with the union workers, the nonunion workers, our staff, which was major problems for us at the beginning of the year and affected our operations and worker productivity.

We still have issues to deal with and we are working to achieve that.

In our discussions with the union to date, both sides have expressed a view of working to avoid a strike, but that is something that we will have to deal with.

In Indonesia, by law, contracts only last for two years, and so that's something that we'll have to deal with.

The labor issues are -- have become an issue throughout Indonesia today, and the government is concerned about it and we're working our way through that.

But that's something that we're just going to have to report to you as we go along.

And I'm glad you asked the question because as Mark was responding to Brian, I think it's important to keep in mind that these opportunities are what the ore body gives us and we're going to have to work to achieve a relationship with our unions to be able to take advantage of them in the way that the ore body provides us.

Appreciate the incremental color, Richard.

Thanks.

Okay.

Oscar Cabrera, Bank of America Merrill Lynch.

Good morning, everyone.

Good morning, Richard.

So focusing on Grasberg one more time, interested in the capital expenditures that you have over the next five years and beyond, on a 100% basis, you're spending $5.5 billion, about half of that for the next five years.

When do you spend the balance, Richard?

Is that part of the underground development towards 2020, or does it -- ?

Actually, it is.

That's the nature of underground development is that you have a continuing expenditure of capital as you advance the block-caving operation.

Unlike a big open pit and mill facilities, you have a one-time front-end slug of capital and then you just have maintenance capital as you go forward.

With underground development, there's ongoing expenditures to advance the block cave and that's going to be part of our capital as we go forward.

And I think -- Kathleen, do you have a comment?

She's looking --

No, I think that's right.

We've given what we expect to average.

Some years will be higher than the average, some years lower than the average.

But as Richard said, it's a long-term development plan.

So it's not any one year where you've got all the expenditures.

It occurs over the course of the long-term development of the asset.

So that's -- I'm sorry.

That sustaining capital of about $500 million will be ongoing?

That's what I'm trying to get at.

Yes, yes.

That's right.

Whether you call it sustaining capital or investment capital, that's just the nature of underground investment.

Now, this is -- and Jim Bob referred to this earlier -- this is a big number for Indonesia and particularly for Papua, you're talking maybe $15 billion investment in a country that's looking to get investments.

We have a work force of 23,000 people there, including employees and contractors.

We are more than 90% of the economy of the [Mamika] region where we're located, between half and two-thirds of the economy of Papua, which is really important to the government of Indonesia.

We support businesses and infrastructure development and so forth.

As you think about these labor issues and these contract issues, that's the context of where we're operating.

This is -- it's important for our shareholders.

It's important for Indonesia.

Absolutely.

This is Jim Bob.

Let me add a couple of things.

There's a stand-off here when you go underground.

You have to continue to spend these big dollars to advance the underground.

What you have to remember is, remember the photos that we've worked with before, showing the cross sections, similar to what's in the reference slides.

When you're in the open pit, you're mining ore, but you're mining waste.

For instance, this year, we're up at the very top of the pit where we're at the extreme platform of the open pit, when you go in the underground because of the block caving method you don't deal with the waste.

You just -- your ore basically, because it has been altered by diogenesis, when the ore body was put in place.

The reason why block caving works is, the metamorphic rock that surrounds you is the host rock, when you are block caving, it doesn't cave on top of you.

You go from a huge open pit operation, where you are exposed to the elements, fog, 150 trucks operating 24 hours a day.

When you're underground, all you're mining is the ore itself, because that's the way block caving works.

So I think it's important for people to understand.

That's why your operating costs don't go up.

When you go underground, some people have the feeling, it's going to be more expensive going underground.

What you don't spend on waste, and remember, when you haul this waste, you have to separate the waste.

And you have to keep peeling it back because you can't get the angle of the pit too high or you have the pit walls that fail on you.

All that waste that we've been dealing with since we started the open pit disappears because you're underground and you're really block caving ore.

I hope that's understandable.

Thank you, Jim Bob.

That leads in nicely to the second part of my question.

You are expecting costs at Grasberg to decline to about $1.15 a pound.

I was wondering if you could put into context what you expect for '14, '15 and as you deplete the open pit.

Because without any stripping in the higher gold production those costs must become very low.

But then more importantly, how do you -- ?

Oscar, let me just make sure I say something.

That $1.15 was consolidated.

Not on the Grasberg.

I'm sorry.

Yes, the $1.15, going from $1.48 to $1.35, to I say, $1.15, $1.20 is consolidated.

In that context, Grasberg goes back to being, as I said, a situation of where for, let's say beginning in the fourth quarter of next year and through the life of the open pit where the gold revenues will totally fund and perhaps more than fund the operating costs.

So Grasberg costs will go to zero or below, which is what we've had in some years in the past.

But for years we've been talking about the situation as we get to the end of the open pit, where your stripping ratios, your stripping drops off dramatically.

You're down in the lower elevations of the pit where the higher grades are.

We'll be retiring equipment and reducing work force, and costs will go down and volumes will go up and that's a good direction to go in.

It's important to use the reference slides.

If you look at the reference slides, it shows where we're going to be getting the ore from in the year 2013.

You see we start up at the very top of the pit, at the extreme limits of the push backs.

By the time you get to the bottom of the pit, you're in what we call the inner ring of gold.

That's a good indication, because that's basically what you're going to be mining when you get underground.

If you can take what you have at the end of 2013 and imagine that you're going to stay in that ring of gold at the bottom of the pit, which is what you're going to be block caving, once you get underneath it, that's why Richard says, it's just a precursor of what's going to come in terms of the, the gold grades and the copper grades and that's what makes the Grasberg the king of the mines.

Absolutely.

I'm sorry, Richard, I misspoke.

I'm just interested in hearing you, what the cost in Grasberg, you expect once the mine goes completely underground.

So 2013, $0.68 a pound?

So Oscar, in the -- as we approach the end of the life of the pit, we'll be in a net credit position in terms of, as they said, the gold revenues will more than offset the total cost of production.

As we get into the underground era and get ramped up, we expect the unit net cash cost net of credit at current gold prices to be below $0.30 a pound.

Thank you very much.

That's based on today's input cost levels and everything else.

Below $0.30 a pound, driven by what happens to input costs, those are large part correlated to copper prices and gold prices.

So it's still world class in every respect.

Absolutely.

Thank you very much.

Okay, Oscar.

Thank you.

Jorge Beristain, Deutsche Bank.

Good morning, everybody.

My question was just following up on the update that you have for your resource estimates, what you refer to as your mineralized material.

I did notice that you've recently upped the cutoff grade for copper prices to be $2.20 per pound.

Historically you used to quote about a $2 per pound cutoff.

We have not seen an incremental increase in the resource there.

And I was just wondering if you could comment as to, is that because you're now expecting slightly higher operating costs for those potential mineralized resources?

At what point do you think we're going to start seeing additive or conversion of those mineralized materials to actually proven and probable, as this has been a theme you have been talking about for a few years?

Thank you.

Jorge, on the first part of the question, we used the same pricing issue this year that we used last year on our reserves, it was $2, and on the mineralized material, $2.20, so that's consistent with what you have seen in the prior year.

And years, too.

It's been more than just past year.

Yes.

And then, Jorge, that slide that we showed, where the near-term reserve additions potentially can come from with the big element from El Abra and others, that's doing exactly what you are talking about.

That's looking at those resources and doing the work that it takes to get it to reserves and essentially what that requires is feasibility studies.

We have to be able to demonstrate that we can come up -- we know the resources are there.

They have been identified through our drilling -- core drilling and now the process of converting them to reserves require that you look at mine plans, access to power and water, which is critical in Northern Chile, of course, the size of processing facilities, the cost, how you deal with metallurgy and processing and all of those factors.

And those are major things that require time to work on.

So, that's where --

Richard, let me add to that.

This is Jim Bob.

The most important thing in the mineralized areas is that we have is scarcity of data.

Mineralized versus resources means what kind of spacing do you have on your drilling.

In some of these mineralized areas is just a matter of going out and increasing our spacing.

In other words, we go in and we may have drill holes that are a mile apart and we just have to project what those, what's in between those, then we go in and start to close in the grid.

That's how you turn mineralized into resource and then into proved reserves.

And it's a vast area.

As you might imagine with the amount of money we spent the last seven years to add this 46 billion -- lot of that stuff was considered mineralized, because we just didn't have the spacing.

That's the definition that you need to throw in there, is how much drilling do you have to get enough data to really be able to call it mineralized versus resource.

And I did misread the difference.

Your mineralized material is at $2.20 cutoff and your PMP is at $2.

And just a follow-up question, Richard, on the comments that you made earlier in the call about your target for net debt under the combined PXP/MMR deal, you said now that you might be targeting to get net debt down to about $12 billion, and at that point, would be in a position to either spend on growth, buy back stock and/or raise dividends.

Could you just flush that out a little bit more?

Why the slightly higher level?

Is that in response, perhaps, to shareholder pressure to return cash to shareholders sooner, or what's driving the thought process there?

Okay.

You're right, it is net debt.

With the continuation of current commodity prices, we should reach that target level in a relatively near term.

Roughly two and a half, three years or so.

We should be down to that in a relatively short period of time, assuming continuation of current commodity levels, price levels.

And what that allows us to do is kind of all three of what you talked about, continue to invest, have excess cash to shareholders, be in the situation we've been in recent years.

We got down to zero net debt at FCX not because that was necessarily a financial strategy to get there.

It happened -- in fact, when we finished the Phelps Dodge deal, Jorge, you may recall that we were talking about having long-term debt of roughly $7 billion at FCX going forward.

But after 2008, 2009, we had gotten to be very conservative, because of the risk there, about managing cash and when the markets came back quicker and stronger than people anticipated, copper prices started rising by the second quarter of 2009.

We used that cash then to reduce debt.

So it was more of a circumstance of those times as opposed to the financial strategy.

We, like many of our shareholders have expressed to us, believe that we should maintain an appropriate amount of leverage to leverage our balance sheet for our equity returns.

$12 billion would be less than one times EBITDA, so that's kind of what we're thinking about doing right now.

As I've said, getting down to zero net debt was more of a circumstance of the situation as opposed to a financial objective that we were pursuing.

Got it.

Thanks very much.

And one other thing, Jorge, I want to go back to this issue of this $2 and $2.20.

I want to make sure everybody understands, that is not our projection of prices.

It's not our view of any long-term view price of copper.

It's what we have to do just to comply with SEC reserve determinations and we've used this.

It's not something that's easily changeable, because if you change the price, you have to develop new mine plans and so forth.

We actually, as a Company don't have a long-term price projection.

We consider a scenario of different prices when we look at investment opportunities.

As I said before, we want to manage downside risk, get exposure to what we believe is going to be a very positive future for commodities and that way we can make money and protect our downside risk.

Great.

Thank you.

Okay, thanks.

John Tumazos, John Tumazos Very Independent Research.

Thank you.

I want to congratulate you on the good operations at Grasberg, the permit in Peru, and completing the expansion smoothly at Tenke.

Other companies have had tougher times in some of those countries.

I'm trying to understand what will be normal in the new Freeport, and I'm trying to not think of it in terms of the old company.

You're adding the oil and gas and not doubling, but significantly increasing the mining.

In the current year 2013, your sustaining capital is $1.8 billion and you're saying that that will fall to $1.4 billion next year and $1 billion in 2015.

And in 2015, the total capital before oil and gas will be $3 billion.

What's causing the bulge in sustaining capital this year?

What will depreciation be when the capital programs are done in 2015 and what will the -- is it possible 2016 will be a down year for CapEx?

John, this is Kathleen.

We've been spending on sustaining CapEx something on the order of $1 billion to $1.5 billion.

And as we've shown, particularly during the '08, '09 financial crisis, we have some flexibility with those projections.

The bump in 2013 reflects the, some of the timing issues that carried over from 2012 to 2013.

We are investing in equipment to assure reliability.

We are investing in trucks and shovels, as we're expanding our mining rates.

And so we do have some projects that don't, we don't have every single year.

And, this issue about getting to the end of the mine life at Grasberg where we are going to be, as I said, cutting back on equipment and so forth, our sustaining capital at Grasberg will be dropping dramatically as we go forward.

So let's see.

Kathleen's looking at this depreciation number.

Yes, we are expecting depreciation for 2013 to be somewhat higher than 2012, roughly $1.5 billion in 2013 versus approximately $1.2 in 2012.

And then as we get these projects online, depreciation will get up to roughly $2.2 billion in the 2015 time period.

And that's just the business that we have today.

Of course we'll have pro forma results, which will include (inaudible) and will have the purchase price allocation associated with those assets.

We'll update our guidance on that as we go forward.

Will the $3 billion mining CapEx, total CapEx rate you're projecting for 2015 be something that we should think of as a normal level, given that the depreciation is up to $2.2 and there will always be some projects?

No, no.

I -- that's simply where we are now with our plans.

We don't include CapEx in our outlook unless the projects have been approved.

We're going to work hard, as we talked about earlier, to find new projects in our mining business to spend capital on because we think that is the way to create long-term value for our shareholders.

As a practical matter, it's going to take time to get these projects to the point of where we can get them authorized.

We're going to be responsive to the market conditions as we go forward.

But we hope to find ways to spend capital, but this thing that we talked about earlier, there are just constraints on how quickly we can spend it because we've got to do these feasibility studies and other factors.

But there's not really a normal aspect to this.

We're going to be very return-oriented to see where can we spend capital and get strong returns for the shareholders.

And, John, there's not going to be -- this is not a question of having an old Freeport and new Freeport.

This is going to be the long-term tradition of Freeport going forward in terms of the way e run this business and allocate capital and be disciplined about the way we do things.

So this is not any kind of transformation transaction that's going to change the traditions that have been part of this Company for a long period of time.

Tony Robson, BMO Capital Markets.

Good morning, and thank you for taking my questions.

First question I think, to Kathleen.

Tax rate for the quarter was a bit lower than I had expected, it was about 28%.

Any guidance for 2013, please, for tax rates, before the oil impact?

And a follow-up question is on the oil, I guess to Richard or to Jim Bob, the feedback I've had from Freeport's shareholders has been that the [product] positions are somewhat controversial.

Given the relative size of the deals and that feedback, and you may have had some [real or almost], any thoughts on opening up those mergers to Freeport shareholders to vote?

Thank you.

Tony, this is Kathleen.

On the first part of your question, regarding taxes; the effective rate in the fourth quarter was 29%, and for the year was 32%.

There were some adjustments in the fourth quarter as we looked at the overall average for the year.

As we get improved income relative to the size of the Company, the improved contribution from Indonesia, which has our highest tax rate, we expect tax rates to -- effective rates to increase during 2013.

We've got some disclosure on that in the back of the press release, but currently projecting 35% -- 34% to 35% for effective tax rate before the transactions in 2013.

Thank you.

What's the question?

He asked about the shareholder vote for FCX.

FCX.

I'm sorry, Tony.

I was looking at something else, you asked about the shareholder vote for FCX.

There will be shareholder votes for McMoRan and for Plains.

For FCX, there is no shareholder vote.

The requirements for shareholder votes are set by the New York Stock Exchange and we operate under Delaware law.

And the number of shares to be issued in this transaction to Plains doesn't exceed those levels requiring a shareholder vote and when shareholder votes aren't required, they are -- I'm told by the lawyers -- virtually never held because buyers would not be willing to accept a condition in terms of agreeing to sell a business generally, not in this case, on the basis of having some sort of voluntary shareholder vote.

Thank you.

Paul Massoud, Stifel Nicolaus.

Good morning.

Thanks for taking my call, my question.

I guess my question is about your hedging policy.

Obviously you don't hedge your copper, but oil and gas assets that you're going to be buying do have some hedges.

I was curious if, after the deal closes if you'll be continuing the hedging policy that's in place at Plains or if you'll let those hedges roll off and approach the oil and gas the same way you approach copper.

Okay.

Just a comment about it.

Paul, as you noted, we have had a tradition of not hedging in our mining business.

We manage our price risk by the way we structure our portfolio of assets and respond to different pricing market conditions.

Many of our input costs in the mining business are highly correlated to the price of copper, so if the price goes down, input costs go down and so forth.

Hedging is more common in the oil and gas business for independent producers.

Plains had made a significant acquisition of assets from BP earlier, well, in 2012, and had adopted a business strategy of delevering the debt that it took on in connection with that acquisition.

And the hedges that they put in place were supportive of that deleveraging strategy.

And that will carry over to our own deleveraging strategy because their production volumes have a strong history of production and now, by having prices assured at attractive levels we will be able to have a degree of assurance for our own policy of reaching these targeted debt levels that I mentioned earlier.

Where we'll go beyond that is something that we're going to talk about and consider as we go forward and that will be a part of our review of the strategy of how we invest in the oil and gas business.

But that has not yet--

Richard, this is Jim Bob.

Let me just add that 21% of our costs, as you'll see from the charts, is energy-related.

So by having the oil and gas hedges, it will give us -- a good price for oil and gas is a hedge on our energy costs that we have across the board in our mining business.

Okay.

Thanks, Paul.

Thanks a lot.

Wayne Cooperman, Cobalt Capital.

Hey, guys.

Sorry, if this is repetitive, I apologize.

Did you guys say, would you guys entertain more energy acquisitions at the right price, if you saw stuff you liked?

And, B, I think you said this, but assuming the MMR ends up being very successful and you really prove out the ultra deep, could you see separating the oil and gas assets again, because they would have a much different cost of capital than the copper and gold company?

Well, Wayne, this, this investment that we'll be making in the oil and gas business gives us a platform for looking for growth opportunities across a broader range of assets.

And so we're going to be -- first of all, I want to say we're going to be disciplined about it.

Our business plan of delevering and where we commit capital.

But it will give us an opportunity to consider where to invest for the highest returns.

There's not a plan to make acquisitions either in the oil and gas business or in the mining business, but we're going to be cognizant of opportunities across the set of assets that we'll have and we'll make decisions based on our assessments of those opportunities in a disciplined factor.

And we're focused on achieving success in the investments in McMoRan, the investments in Plains, where there's significant growth opportunities that complement what we have in our mining business and that's what we're focused on as opposed to any kind of long-term strategy about future restructurings of the Company.

All right, thanks.

Richard, this is Jim Bob.

Let me just add to that.

When you talk about what we're going to do, I've been Chairman of this Company now for over 30 years, and CEO for 20 years.

Richard has been CEO for 10 years, so you got 30 years of management that you've seen, and nothing is going to change about this job that we do.

What we try to do is be the best management team in the mine, for that matter in the corporate, and we think we've done a pretty good job of that now, and Jim Flores, he's also got a well-documented record.

So what we're go doing be doing is taking the huge cash flow and resources that you've seen in the pro forma and looking at how do we invest that.

We can look globally because with these acquisitions, we've now leap-frogged, we're bigger than American [Parish], we're bigger than Newmont, we're bigger than Anadarko, we're bigger than Apache.

Occidental is the only company that's larger than we are, so we've got a resource here now which is basically a major resource that can compete with the majors worldwide.

But what that means is we're going to take the same, this Board and the management of it, of Richard, myself, and now Jim Flores.

We're going to be looking at best opportunity to grow our assets and what we do with the capital will depend on what the prices of the commodities are.

We're committed to having this financial policy Richard's talked about.

We're committed to returning to shareholders, so nothing's changed about this Company, 30 years of management that's going to continue to manage the Company.

And you've got this Board, has had a solid record, acquired Phelps Dodge and we've shown that our insight into that by taking a company that was a 150-year-old company and tripling the reserves that they had at the time of the acquisition through our exploration expertise.

So what everybody needs to remember is the 30 years that you've had with mine and Richard's management, and now the addition of Jim Flores, and our great Board of Directors, we are going to make decisions that will give you the same kind of returns that you've had in the past.

All right.

Well, thanks, everyone, for participating in our call, and we're available for follow-up to the extent you would like to follow up.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.