費利浦·麥克莫蘭銅金 (FCX) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Freeport-McMoRan Copper & Gold Second 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 Second Quarter 2013 Earnings Conference Call.

We're pleased to be here today to report our first quarter of results following our oil and gas acquisitions which were consummated in the second quarter.

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 will be referring to the slides during the call.

They're also accessible using our Webcast link on 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, we would like to remind everyone that today's press release and certain of our comments on this call include forward-looking statements.

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

On the call today is our Chairman of the Board, Jim Bob Moffett; Richard Adkerson, Vice Chairman, President, and Chief Executive Officer; Jim Flores, Vice Chairman, President, and Chief Executive Officer of our Freeport McMoRan Oil & Gas subsidiary; and we've got a number of other executives with us today who will be available to answer any questions.

I'll start by briefly summarizing the financial results, and then turn the call over to Richard, and he will be reviewing performance and outlook, as well as Jim Bob and Jim Flores.

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

FCX reported today net income attributable to common stock of $482 million, or $0.49 per share in the second quarter of 2013.

That compared to $710 million, or $0.74 per share in the prior-year quarter.

Our results include the results of the wholly-owned subsidiary, Freeport-McMoRan Oil & Gas, following the acquisitions of PXP on May 31, 2013, and of McMoRan Exploration on June 3, 2013.

Our second-quarter results included a number of items associated with the transactions.

We had $128 million gain to net income attributable to common stock, or $0.13 per share.

That reflected a gain on FCX's initial preferred stock investment, and the subsequent acquisition of McMoRan.

We had $183 million net income attributable to common stock, or $0.19 per share, associated with net reductions in deferred tax liabilities and deferred tax asset valuation allowances.

Those were net of charges of $61 million, or $46 million to net income, attributable common stock of $0.05 a share, for transaction and related costs associated with the acquisitions.

As you'll see in the release, the second-quarter results also included unfavorable adjustments to our provisionally priced concentrate and [caso] copper sales recognized in prior periods.

That totaled $55 million to net income, or $0.06 per share.

We also had unfavorable adjustments of $35 million, or $27 million to net income attributable to common stock, $0.03 per share related to oil and gas derivative instruments that were assumed in connection with the acquisitions.

Our second-quarter consolidated copper sales of 951 million pounds and 173,000 ounces of gold were lower than our April 2013 estimates of 1 billion pounds of copper and 295,000 ounces of gold, primarily reflecting lower production from Indonesia as a result of the temporary suspension of operations in mid-May.

Our second quarter 2013 sales from the recently acquired oil and gas operations totaled 5 million barrels of oil equivalents for the period from June 1 through June 30, which included 3 million barrels of crude oil, 7.7 Bcf of natural gas, and 0.3 million barrels of natural gas liquids.

The copper price realization for the quarter was $3.17 per pound.

That was lower than last year's second quarter of $3.53 per pound.

For gold, we realized $1,322 per ounce in the second quarter, compared to last year's second quarter of $1,588 per ounce.

During June, the Brent crude oil prices averaged just over $103 per barrel, and our realized price for crude oil in June was $97.42 per barrel, or about 94% of Brent crude.

Excluding the impact of derivative instruments, the June 2003 average realized price for crude oil was $97.05.

Our consolidated average unit net cash cost for our mining operations averaged $1.85 per pound of copper in the second quarter.

That was higher than the year-ago period of $1.49, primarily reflecting lower copper and gold volumes in Indonesia, and anticipated higher mining rates in North America; and also the impact of lower gold prices and net by-product credits.

The cash production costs for oil and gas averaged $16.58 per barrel of oil equivalent in June 2013.

Operating cash flows during the quarter totaled $1 billion, including $235 million in working capital sources, and our capital expenditures totaled $1.2 billion in the quarter.

We ended the June period with $21.2 billion in total debt, which included $700 million of fair-value adjustments to the stated value of assumed debt, and a consolidated cash position of $3.3 billion at the end of June.

As previously reported, our Board of Directors declared a supplemental dividend of $1 per share, which was paid on July 1. The value of that dividend was $1 billion.

That was in addition to our regular quarterly dividend, which equates to $1.25 per share per annum.

During the second quarter -- we'll be talking more about this throughout the call -- we took a number of actions to reduce or defer capital expenditures and other costs.

We've got a progress report included in the materials which we'll be talking more about.

We're going to pursue additional capital cost reductions and divestitures as required to maintain our strong balance sheet, while preserving our strong resource position and portfolio of assets with attractive long-term growth prospects.

I'd now like to turn over the call to Richard.

Thanks, Kathleen.

Obviously, a very active quarter for us.

We've got a lot to talk about today with the oil and gas acquisitions of McMoRan and PXP.

We're going to focus on the strong margins, cash flows, near-term and long-time growth opportunities that we have from these assets, and how that complements the outlook for our mining business going forward.

You will see that we really had strong operating performance in North America, South America, and in Africa, and we will be focusing on that.

Our results were significantly affected, of course, by this tragic accident that we had on May 14 at our PT-FI operations in Papua.

We had significantly lower volumes of copper and gold as a result of that, and also we were impacted by the fact that a lot of our costs are fixed and continue during the period we were shut down.

After a period of grief and attention to the families and to our work force and to the community as a result of the loss of life in this accident, we worked on safety procedures and coordination with the government, and returned to operations in the open pit and the mill on June 24, roughly six weeks after the accident, and began underground mining operations on July 9, almost two months later.

That had an impact.

We want to make sure you understand what that meant.

We did advance our development projects in the mining business at Tenke, Morenci, Cerro Verde, Grasberg underground development.

We progressed with the Lucius development in our oil and gas business, a major discovery that's looking to come on stream in the near term.

We did have $1 a share supplemental dividend paid on July 1 that was in conjunction with completing the mergers, to go along with our regular $1.25 annual dividend.

Kathleen mentioned this, but you'll hear more about it today, about our commitment to achieve our debt-reduction targets.

Even with lower commodity prices, which we had a lot of volatility during the second quarter, and lower prices at the end of the quarter, uncertainty about the future with the impact of the Grasberg deferral of operations with changes in plans, we have a set of assets that's going to allow us to achieve this targeted debt reduction, and you'll be hearing about our commitment to do that.

Before we get into the specifics on these matters, I'm going to turn the mic over for Jim Bob to make some comments.

Good morning.

At our annual shareholders meeting, I thought you'd like to know that 15 of our Directors nominated were elected; and we had the ratification of (inaudible).

The advisory vote on [San Ropay] did not receive a majority vote.

Obviously, the Board will continue to consider the shareholder feedback we've been working with our compensation people, and we will look again.

Incentives and rewards were discussed by the new shareholder feedback.

Suffice it to say, we'll make sure our pay is competitive and tied to shareholder return.

Shareholder proposal -- the advisory vote on independent chairman received the majority of the votes cast.

What this means is the independent directors would consider how we deal with this.

I should mention that the independent members of our Board have already appointed Gerald Ford to the newly created position of lead independent director, and we think having an independent director like we've elected -- which could have been several of our Board members.

Gerry was chosen by the Board.

He has an impeccable reputation in the financial community.

He's been on our Board, and is totally aware of our management goals and the Board's goals.

So we think we've addressed this with advisory vote on an Independent Chairman.

The Board believes that structure is the best interest of the shareholders, and addresses the so-called non-binding advisory proposal.

The bylaw amends on shareholder rights -- recall [a share of] special meeting of 15% received the majority of the votes cast.

I won't spend any time on that.

But you'll find that in our bylaws, in the state of Delaware, that the 15% ownership has several things that are peculiar to it, and we'll get into that when the time comes.

The environmental director and the Board diversity did not receive a majority of the votes cast.

Now, on the recent performance, I have -- on the next slide.

We thought you'd be interested to see that since we announced the deal in December, what's happened to the metals prices -- copper, of course, being our main metal, and gold.

Look at the oil -- 21% up, 5% natural gas.

On the indexes, you have a similar indication.

We think this already starts to speak to the wisdom of having a more diversified asset base, including the oil and gas asset.

One of the things on top of the performance [is showing] current prices.

Remember, discoveries in copper are very rare.

If you look at the recovery of copper reserves on slide 6, you'll notice that the Grasberg in '88, the Escondida in '79, were really the two main major discoveries.

There have been no discoveries that make this list from 2000.

Over to the copper production, look at the dates of the Escondida, Grasberg, and then the most recent ones.

Chuquicamata -- 1910.

El Teniente -- 1910.

Los Bronces -- 1876.

[Moshe] -- 1935.

Morenci, 1870.

What this says is, because the copper reserves were all reachable and found by surface geology, that most of the reserves in the Rockies and Andes were found during the early prospecting days.

With the advent of the oil and gas program, as you'll hear from Jim, there's tremendous potential for us to have major discovery potential.

Not only do we have a more diversified base, we've been very fortunate since the acquisition of Phelps Dodge; we've been using our green fields, of course; but the brown fields have discovered the equivalent of another Grasberg.

That's been going on for almost seven years.

As you'll see, we continue to look at the green field opportunities in the mineral business.

Brown fields will be our mainstay, but we do now have a world-class opportunity to have some discoveries in oil and gas.

On page 7, I wanted to be sure that you know that the -- we got into the Company, under the mandate of our Board, office of the Chairman -- we have myself, Richard, and Jim Flores.

As you can see, we're all on the same page.

That's philosophically, as well as physically.

You'll hear from Richard and from Jim that we're dedicated to the goal of reducing our leverage.

We said we would do it in 2016.

But you're going to hear some comments to show that we're -- as a result of more discussion with the Board -- we're looking at ways to reduce it even before that date.

Again, all of us are going to be working to expand our resources, take advantage of our existing resources, have strong financial discipline, and take advantage of this treasure trove of assets until we find ourself as we put these companies together.

With that, I'll turn the meeting back over to Richard.

I think you'll be happy to hear some of the exciting stuff that we've been looking at as we look at this new asset base.

Thank you, Richard.

Thanks, Jim Bob.

On the financial highlights page on page 8, I'm not going to repeat what Kathleen reviewed with you at the start of the call, but I want to just point out the impact of the suspension of operations of PT-FI.

You see that our volumes of 950 million pounds of copper, they were roughly -- that reflected the impact of having 125 million pounds of less production.

With gold, of 173 million ounces, we had 125 million ounces less production of gold.

So that is really what drove the shortfall in our performance, together with this factor that I mentioned that many of our costs at PT-FI are fixed.

Now, that works for us in a very positive way as volumes increase, because we don't have increased cost that's commensurate with higher prices, but it also had an effect this quarter of having our unit cost higher because of the fixed nature of our cost.

This is further shown on page 9. You can see in North America and South America and Africa, where we have our unit costs at the top of the page and our volumes at the bottom of the page, that those operations really performed strongly, both in terms of having production achievement of our targets, our goals, and control of our cost in today's environment.

The numbers speak for themselves.

The impact in Indonesia saw our unit cost rise significantly as a result of the lower volumes and the fixed nature of our cost.

The oil and gas operations -- and Jim will talk more to this in a few minutes, are presented in summary on page 10.

This only reflects one month of operations.

We'll account for the oil and gas acquisitions prospectively going forward.

It was only from June in this particular quarter, but I want to point out just how strong the margins are in this business, looking at the unit revenue cost and the operation margin per BOE.

Across the board, this, again, is a business that has very high operating margins; and that gives a chance to focus on profitable growth and disciplined growth and achieve value creation for our Company through these assets.

Copper markets -- some bullet points on page 11.

This was a very volatile quarter.

It started out fairly strong, had a dip in price of significance early in the quarter, when some Chinese economic concerns came back.

It bounced back, and then in June when the US Fed talked about moderating their open market purchases of bonds, and the purchasing number came out in China, and growth was just marginally less, the price dropped off.

These are macroeconomic events.

There really hasn't been supported by fundamentals in the market place, which really haven't changed that much.

China continues to remain the important demand driver in the business, consuming almost 40% of the world's copper, and accounting for the growth in demand.

Within China, fundamental copper demand is really strong.

It's growing at 8% to 10% a year.

The downstream business is strong.

Scrap is short.

Premiums are up.

I'll just refer you to the analysts that follow the business and you can substantiate that.

But the prices are what they are because of market sentiment.

Europe remains weak.

Our business in the US supported by automobiles and a stronger construction [larsen] is relatively strong and longer-range supply challenges persist.

But be that as it may, the copper price is what it is.

We don't run our business on any near-term expectations of price.

We're very confident about the long-term fundamentals of this market place.

What you'll see is we're responding to the lower prices and to the risk of that continuing in the future, and we're taking that with actions to reduce costs.

We began that during the quarter in earnest.

On page 12, within our mining business, we undertook a project at looking at all of our capital spending projects, and making decisions to defer cost or eliminate cost when we could do that, without really disrupting either our near-term at this point, or our long-term growth opportunity.

We've had success with that.

There's a list of items that just illustrates the breadth of scope that our team has done, led by Red and Mark and Dave Thornton and our whole team, to find items of where we could achieve this goal of conserving cash.

We aren't finished, but as a report today with where we are, we have capital reductions for the next two years of $1.4 billion, and that includes $400 million in the oil and gas business, which has gone through a similar process of looking at their capital spending, and then looking at costs beyond capital.

We end up with a total of $1 billion for the deferrals over the next two years.

Now that's one element, and it's continuing.

The other element is to look at our asset base and look for ways again of -- as Jim Bob said -- achieving this target of reaching our right balance sheet goals for debt, in light of lower commodity prices; and finding ways of potentially accelerating -- achieving that goal from beyond a target of 2016.

We've initiated plans to sell conventional oil and gas production on the shelf of the Gulf of Mexico, and that's a process that's started.

We have a broad set of other assets that gives us many alternatives in terms of potential property sale or innovative structures to come up with ways of achieving this goal.

It is a commitment.

It is a commitment and we're committed to do it, and we've committed to doing it in whatever environment we have to deal with.

At the same time that we were going through this process, we're continuing to date with our brown field development projects in the mining business.

We had three major projects that were growth projects that we're targeting to add about 1 billion pounds of copper sales a year, which is a significant amount of volume.

We've completed the Tenke Fungurume Phase II project -- on time, on budget.

The Morenci Mill project is in progress.

We've incurred about $600 billion to date of our revised estimate of $1.6 billion to our interest.

We have an 85% interest at Morenci.

That's going very well.

Very high rate-of-return project, and one that has a very quick pay-back because of significant volumes that come out of that project, as we add on to the existing substantial operations at Morenci.

At Cerro Verde, we commenced construction earlier this year.

The plan is to complete that in 2016.

We've incurred about $800 million out of the $4.4 billion.

Good support from the government, the local community.

And so the numbers that you see to date involve continuations of those projects.

We have options of changing those decisions if market conditions warrant, but we can achieve this targeted debt-reduction goal and do these projects at the same time.

We're also continuing the underground development at PT-FI which is necessary for us to be able to go forward with this very valuable operation beyond the exploration of mining in the open pit, which continues to be expected by roughly the end of 2016.

We did have this horrific accident that we've talked about earlier on May 14, where we had a tunnel collapse in a training facility, and we had fatalities and injuries.

This wasn't really a mining accident.

It was apart from our mining operations.

It was an incredibly horrific convergence of events that came together because of the geology of the rock, and the influence of water and air on our ground support facilities.

It unfortunately just happened just as we were having this training meeting.

It was terrible.

All of our organization has responded in a caring and professional way about it.

But we also undertook internally a special safety review of all of our operations, focusing on underground operations where people gather.

We worked with people with the Energy and Mines Ministry in Indonesia and an independent team they formed.

At the conclusion of that process, we were able to resume operations on June 24 in the open pit and the mill, and on July 9 in the underground.

We are now ramping up the underground operations.

You can't just start those immediately at full-scale production, and that ramping up is progressing.

In the quarter we lost roughly 125 million pounds of copper and 125,000 ounces of gold.

The full year impact will be greater than that.

We estimate 230 million pounds of copper and 250,000 ounces of gold.

That resource is still there.

It's not going anywhere.

We'll produce it in the future.

But the impact for the year reflects a couple factors.

One is the time it takes to ramp up underground to get back to full production levels.

Plus, as you will recall in the first quarter, we talked about how we were going to assess high-grade ore at the end of the year under our mine plans.

Now, some of that higher grade ore will be pushed out into future years.

We presented this slide, which we had shown for 2012, earlier on page 16 to show just what the impact was.

We're showing the average of copper and gold production in prior years from 2002 to 2011.

An average for what our mine plan shows for 2014 to 2016, which at that point we will transfer from being a combination open pit/underground operation to a full underground operation.

You can just see the significance of the volume that we've had -- the low volumes we've had in 2012 and 2013 -- and how that translates in the chart on the far right to our unit cost, which averaged for PT-FI $0.13 a pound for the 2007- 2011 period.

We've actually been projected at a net credit going forward.

This will depend on the price of gold.

This is at $1,300 an ounce gold.

That illustrates the impact on current operations for that.

Page 17 shows part of our cost-saving efforts.

We've re-focused our mining exploration expenditures, reducing about $55 million of cost.

The bulk of our spending is on our brown field expansion of our ore bodies.

But we do have some green field spending.

That of course is -- a green field discovery is the best thing that can happen to a natural resource Company.

But our brown field projects are projects that add a lot of value for us.

I'm going to turn the mic over to Jim Flores, and Jim's going to be talking about our oil and gas activities.

Good morning.

Thank you, Richard.

Looking at the oil and gas development activities -- first, we have several large areas -- California, Eagle Ford, deep water, Haynesville, and also the ultra deep completions we'll talk about.

In California, it's been a tremendous asset on the oil and gas business for a long period of time.

The fields have been discovered 100 years ago, they've been producing at high rates and high margins for a long period of time.

A lot of people don't realize that California's the third most productive state in the country, and it's got a tremendous oil and gas business.

The big thing it has for our Company is a lot of free cash flow from a standpoint of very low maintenance capital to keep very high flow rates.

Obviously with our strong pricing, gives us big margins, as Rich had highlighted earlier in his presentation.

California will continue to get its ample amount of capital to maintain that production, and look forward to a stable base going forward.

The Eagle Ford is one of our newer assets.

It's been developed in the last five years.

It's had a tremendous growth rate because of the rig activity as we expanded from two to over eight rigs over a period.

We're now reducing that rig fleet, and reaping the large cash flows out of our high oil price at LOS pricing in our eastern Eagle Ford.

We're in the premium position in the play -- call it the heart of the watermelon.

We're in the [graven] sequence that's got the thick oil bearing part of the shale, and our wells continue to produce several thousand barrels a day as they come on.

The near-term cash flow expansion will come at the peril of our rig count there.

We'll be reducing our rig count going forward, and this is one of the areas where we're able to save a lot of our CapEx savings -- at the same point in time, maximizing the cash flow for the Company.

What you're seeing is we're taking advantage of the high oil prices in California and Eagle Ford to generate cash flow for the overall Company.

In the deepwater, we've made a large effort there, obviously on the backs of some of our non-operated activities like our Lucius project, which is operated by Anadarko.

It's on time and on budget.

Contrary to a lot of the highlights you've heard in some of the large projects around the Gulf and around the world, done an excellent job.

We expect that spar to be on location this summer, and be established initial production the second half of 2014.

Everything continues to look just stellar on the Lucius project.

Our large-scale infrastructure that we have in the eastern part of the Gulf at Holstein, Horn Mountain, and Marlin continue to reap benefits.

We're getting very comfortable.

We took over formal operations May 1 from the seller.

It allows us to really weld our employees together and be able to look at all our development projects.

The big growth opportunity we have there, tying back additional leases, additional production to that important infrastructure.

Accordingly with that, we were very active in the last lease sale in March.

We had a lease sale and we've now been awarded all 11 of our blocks from the recent lease sale, which will add several hundred million dollars of tie-back opportunities to our Holstein platform.

Our goals in the deepwater Gulf of Mexico are to triple our oil production over the next five years, and we have the assets and we have the geology and the reserves to do it.

It's a matter of execution.

On the Haynesville, which is one of the more significant gas fields in the world, much less the United States, we have over five Tcf of gas attributable to our interest there in various forms.

All of our acreage there has been drilled then plumbed.

It's maintained under our held-by-production rights there.

We have not only significant Haynesville production reserves, but we also have shallower Bossier reserves.

The Haynesville's going to be the cornerstone of our gas business for a long time to come.

As we continue to watch gas prices and are bullish to the second half of this decade, we think Haynesville's going to be an important part of our expanding gas business.

Moving on to our gas business, our ultra deep completions' going forward, talk about that program.

We're going to be active in completing the Davy Jones Number Two well, and also the Blackbeard West Number One well; and of course, Lineham Creek Number One well that Chevron's continuing to test at this point in time geologically and with the drill bit and with the coring opportunities, to get all the data we need to put together a successful completion there.

We look for an active production sequence out of the ultra deep with all the completions that we're going to be doing, as we get on those early in 2014 toward getting some revenues out to the royalty owners by the end of 2014.

That's our goal.

All right, at the same point in time, exploration-wise, we're drilling our Loma North well.

It's moving toward the Lower Tertiary section, which is the primary objective.

Stay tuned on that as those results become available.

We have a large exploratory inventory here.

One of our goals as a Company is to look at ways of managing our exploration expense and bringing in joint venture partners to help us participate.

We have a cup runneth over of exciting opportunities.

They're all very large, and we're going to continue to manage that growth in accordance what Richard talked about being disciplined and focused on returns, and make sure that our exploration spending supports all of those activities and adds value every single day.

Speaking of adding value from the exploration standpoint, our Phobos well, which we were basically carried on our Phobos well through our Plains offshore structure with our great partner, EIG there, we've found 250 feet of pay, and a nice column over a 5,000- to 7,000-acre structure with Anadarko and Exxon.

This is just south of our Lucius infrastructure, so we're highly excited about the commercial aspects of Phobos.

I look forward to offsetting that well either late this year or sometime next year in 2014.

The oil and gas business, even though it's a couple months old as far as Freeport-McMoRan is concerned, it's off and running and we've hit the ground with a lot of great support from Management and the Board, and look forward to being a big part of the story going forward.

Thanks, Jim.

Let's go to slide 20 and we'll update our outlook for the year.

Our current sales outlook is for 4.1 billion pounds of copper.

That reflects roughly 200 million pounds lower than we were at the first quarter, for the reasons we talked about at Grasberg.

Gold at 1.1 million ounces; molybdenum at 92 million pounds; oil at 35 million barrels equivalent -- that's 65% oil.

For those -- I know some of you are very familiar with oil and gas business and others less so.

Be careful with these barrels of equivalent.

Because of tradition and some SEC rules, oil and gas is equated at six to one, even though gas is selling today at $3.60, and oil's at $110 a barrel.

65% of these equivalent barrels are oil, but oil represents over 90%, or roughly 90%, of the revenues.

Unit costs are projected at $1,300 gold, at $1.58 a pound, $19 per barrel of equivalent.

Operating cash flows -- we're now looking at $3.15 copper, at being at $5.8 billion.

Each $0.10 change in copper for the remainder of the year represents roughly $200 million.

Capital expenditures of $5.5 billion, which includes $4.4 billion from the mining business and $1.5 billion from the oil and gas business.

A production profile as we look forward for the end of the year and into 2015 shows our growth from completing our copper expansion projects, going from the 4 billion-pound level to 5 billion-pound level.

The gold sales reflects the recovery of Grasberg and the access to higher-grade ore because of our mine sequencing.

Molybdenum sales reflect the operations of our byproducts from our copper mines as well as Henderson and Climax.

The oil and gas sales outlook reflects the growth that Jim reviewed with you earlier.

From a unit production cost level, we expect to continue the positive performance on volumes and growth in our mines in North America, South America, as well as Africa.

Then with the ramp-up of operations in Indonesia, we're looking at $1,300 gold and getting annual costs down to around $1.50 level.

And then with significant improvements in that as we go forward into 2014.

Page 23 shows the cash-flow generating capacity of our Company.

EBITDA charts are shown on the top, and operating cash flows -- which is net of cash taxes and cash interest -- is shown at the bottom.

We show this at varying prices, ranging for copper prices from $3 to $4, with $13 gold (sic -- slide shows $1,300 gold), $10 molybdenum and $100 oil.

You can see within that range EBITDAs ranging from $10 billion to $15 billion a year for 2014-2015 average; operating cash flows at $8 billion to $12 billion; and then in 2016 when we have the benefit of these higher volumes, you see 40% increases in those numbers, with 2016 having EBITDA of $15 billion to $18 billion, and operating cash flows of $12 billion to $16 billion.

It just shows the strength of these assets and how much cash they can generate.

Our sensitivities that we present each quarter is shown on page 24.

On an annual basis, each $0.10 change in copper is $330 million of operating cash flows.

You can see molybdenum and gold variations, our oil sales variations.

Then we've shown oil price variations net of our consumption of diesel within our mining operations.

That's for your use in terms of your modeling purposes.

Our revised capital expenditures are presented on page 24.

You can see that the mining capital has been reduced in 2013 and 2014 from previous levels, and some of those projects have been deferred to 2015.

We are continuing to review those, and we will be responsive to market conditions in terms of how we spend capital and how we manage ourselves before, in light of this really strong commitment to balance-sheet management, which we show on page 25.

Our total debt at June 30 was $20.5 billion -- just point out that includes a $700-million mark-to-market for some Plains debt.

That gets amortized over time before its maturity.

The maturity doesn't change; it's strictly just an accounting recording thing.

This excludes here on this chart, though, the fair-value adjustments.

Total debt net of cash -- and most of that cash will be used to fund capital expenditures going forward -- is $17 billion.

We have this commitment by 2016 to reduce this debt to roughly the $12 billion level through strong -- using our cash flows, using capital, operating cost discipline.

We have a large resource base.

We've started a divestiture process.

We're considering other opportunities.

We're going to respond to market conditions.

That's the mandate of our Board.

We have a number of ways to achieve that, even if we have to face a period of low copper prices.

We also have some opportunities to refinance our balance sheet and to repay or refinance higher-cost debt.

We're going to be looking at market opportunities and the right time to do that.

At the end of the day, our financial policy remains the same -- having a strong balance sheet, which we and our Board have concluded is necessary and appropriate to manage this big resource base, so we can take advantage of it to create shareholder value.

We have these targeted debt reductions that we're going to achieve over the next three years; but we believe we can do it sooner than later.

We're going to invest in projects in a disciplined way, and have strong financial returns.

Our plan involves a commitment to our current dividend level of $1.25 per share.

The Board will as always review financial policy going forward, and continue the Freeport long-standing tradition of looking to maximize shareholder value.

We have a strong and focused organization.

As Jim Bob said, we're all on the same page in terms of looking at how we run this business for creating shareholder value.

We're going to focus on execution, operation excellence, achieving production costs, managing costs, and capital management; and invest for returns, protect the balance sheet and our dividend.

That's what we are telling you today that our commitment is to.

With that, Regina, we'll open the phone for questions.

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

(Operator Instructions)

Our first question comes from the line of Tony Rizzuto with Cowen & Company.

I was very happy to see some spending restraint, but I'm a bit surprised to see a little bit -- not to see a little bit slower approach at Cerro Verde.

I was wondering if you could just go through the thought process again and elaborate a little bit as to why that project -- why it's basically not touched here in terms of a little bit slower approach going forward.

Yes, Tony.

Tony raises a good point, just so everyone's aware of it.

We had this project at Cerro Verde that we've been working on now for a number of years.

We suspended it in 2008 and 2009, started in earnest in 2010.

We own the rights to this resource because of our existing operations.

It is a project that from an ownership standpoint would not be affected if we decided to defer it, and that is an option for us going forward.

There's several factors that lead us to want to continue with this project, so long as we can achieve our balance-sheet management through other means.

One of those has to do with the very positive relationships that we've developed with the local community, and with the central government in Peru.

As all of you who follow the mining industry know, that's really unusual for major projects in Peru, where there gets to be competition often around water rights, often around community issues.

And there's opposition in many cases and controversy with projects.

Our team has done a great job in positioning this project to date where we haven't had those issues.

We've worked with the city of Arequipa, the nearby city of Arequipa, the second largest city in Peru, where we've developed a positive deal by providing that city of a million-plus people with a fresh water system.

We're accessing water for our expansion through a wastewater collection and processing system, where previously the city was just dumping waste water into the river.

Now it will be collected, treated, and we'll have access to water.

We have negotiated a new financial tax royalty stability agreement that's in place.

A deferral would result in us having to give up that stability agreement and go back at some future date to deal with it.

There's obviously also costs to mobilization, demobilization.

You add all of that up, and with the other alternatives that we have of achieving our goals for this debt reduction.

And also in view of our long-term positive view about the copper market, we are currently have our plans of continuing that project.

But noting that it is an alternative available to us if market conditions are such that we need to act on it.

All right, Richard.

If I could just have a follow-up.

The timing of the underground development in Indonesia, has that been pushed out a little bit because of the unfortunate incident there?

Just a follow-up there, and how is that going to affect -- you're talking about the transition to 100% underground in kind of that 2016, 2017 time frame.

How should we think about that now?

Well, the -- our work in the underground development was interrupted for a period of time as a result of the accident.

This is one area of our operations that throughout the strike and the labor issues of 2011, 2012 progressed very well.

We have a great underground development team that Mark leads and our guys on the ground lead.

And that was really -- that project was really in many ways going ahead of schedule for us.

While this does represent a period of time where we had to divert attention away from it and we suspended operations, we don't feel that we are significantly off schedule for meeting our targets.

Now, as we get down to the last period of time of mining in the pit and so forth, there's likely to be changes as we try to look for ways of maximizing the ore body.

But at this point, we feel we'll be prepared to transition to underground when the time is right.

Just for information purposes, I know Tony, you're well familiar with this, we've been mining -- we've been block-caving since the early 1980s at Grasburg in a successful way.

In our current full operating mode there, the underground operations provide more than a third of the throughput to our mill.

And through our DOZ mine, we are also expanding that ore body at depth, with deep MLZ zone which is scheduled really to start 2015.

All of that gives us a lot of confidence in our ability to make this transition in an effective way, and we're going to be prepared for it.

Mark, do you have --?

That's correct.

We still show Deep MLZ starting up in early 2015.

The Grasberg block cave is still on schedule to be ready for us at the end of the pit.

We did have some float in the schedule between the end of the pit and the start of the block cave -- about six months.

As Richard said, prior to this incident we were exceeding our development meters.

As we got the okay to start back up in those work areas we really picked up without any issue.

We're optimistic that we'll be ready for those projects to start up on time.

I'll just point everybody to slide 42 in your reference slides, which gives you a schedule of how this fits together.

Thanks, Tony.

Thank you, gentlemen.

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

Just a quick question -- maybe this is for Jim Flores.

I wanted to understand, the last guidance that was published before the deal was consummated was from December.

And that showed about an oil and gas equivalent graph there showing 78 million barrels of oil equivalent for 2014 and 94 million for 2015.

Those numbers have been paired back significantly to an average of roughly 60 for both of these years.

I do understand that some of this may be just dropping out the ultra deep stuff, but even on an apples-to-apples basis it would seem that you're cutting your implied BOE guidance there by about 12% on average for 2014 and 2015.

I just wanted to understand what was driving that.

Jorge, there has been a modification of the expectations.

Obviously, we've reduced CapEx about 20%.

The change there has really reduced the production growth rate at the Eagle Ford from a 15% growth rate to a 20% decline rate.

But we saved $400 million of CapEx -- or $300 million of CapEx there specifically, and we generated $300 million of free cash flow.

So a $600-million swing in free cash flow.

In these low copper price environments, it's one of the things when you have $110 Brent [mills] oil, you can be a cash-flow contributor -- just showing the flexibility of our assets there.

The leases are all owned by us, held by production.

We can ramp back up the drilling, and ramp back up the production; but we thought it was prudent from a standpoint facing debt reductions and low copper prices to generate free cash flows.

That's one area that happened.

Additionally, the scheduling of equipment and completions in the ultra deep as you mentioned right there was another area.

Then the third area is the deep water Gulf of Mexico scheduling has been accelerated.

What I mean by accelerated, we have three drill ships planned to be in the Gulf of Mexico next year drilling wells on all of our properties.

That requires us to accelerate the development of the tie-back facilities to our main production facilities.

When you do that, it takes -- there's a bit of construction time at each one of those facilities, somewhere between 45 days and 60 days.

Under the accelerated development plan, which will pay huge dividends in 2015 and 2016.

2014, however, we have scheduled three major platform modification periods of 60 days each, which all hit in the same year, which have the effect of reducing volumes during that year.

But instead of having it spread out over three years during that earlier forecast.

So when you amplify that shutdown which is basically a positive long-term, because it allows us to bring in all the additional production and meet those goals of tripling our production out in the Gulf of Mexico on the oil side and the gas side in the next five years, it's unfortunate from a modeling perspective.

I hope that gives you some framework between the Eagle Ford, the ultra deep, and the scheduling in the deep water for why we modified our volume.

However, we've been able to maintain our free cash flow because of the modifications in CapEx.

Jim, sorry, is the idea of not bringing for the Eagle Ford cash flow to run as you're saying to save cash flow, to contribute something up to the Freeport holding Company, to help in the deleveraging process?

Or are you still standing by the idea that the oil and gas assets broadly speaking are free-cash-flow neutral to the deleveraging process?

Both.

We're going to be sending cash flow up to the corporation, depending on the oil price.

Our oil prices are significantly stronger than the $100 a barrel price in our models and so forth.

That could mean -- every $10 an additional $350 million to $400 million of additional cash flow.

At least it's going to be funding its own CapEx.

When you talk about reducing CapEx and reducing volumes in the strong price environment, we can do that.

That's not always the case, but that's what going to happen going forward.

We will cover our costs.

Great, thanks.

Sorry, if I could just have a follow-up question with Richard.

Just on the Indonesian side of the fence, all these changes that again the Indo government continues to propose in terms of the banning of concentrate and raw material exports out of the country.

Can you again confirm that you are unaffected by these potential regulatory changes there?

We have under our contract of work, which is a -- as you know, Jorge, but just for -- to make sure that I say this, the contract has -- was adopted by the Indonesian government, has the status of law.

Under that contract it provides us the right to export our concentrates.

In 2009, the government passed a law which restricts exports of ore.

The Ministry of Energy and Mineral Resources has adopted a regulation that extends that to concentrates.

That's where you hear this comments that come out of Indonesia, which as a Democratic society, you hear a lot of comments, as you do here in the press.

We are working in connection with seeking an extension of our contract, which we have the rights to have that extension -- requires government approval to find ways of working with the government cooperatively to reach a mutually satisfactory answer to this.

We have advised the government that we will work with any entities that seeks to develop smelters.

We have a commitment to supporting businesses in Indonesia, but doing that in a way that protects the interest of our shareholders.

We are continuing those discussions.

Recently, government officials have targeted completing our and others contracts of work discussions this year.

And we're prepared to do that, and hopeful that that will be successful and from a timing standpoint.

But we have confidence, absolute confidence about our ability to continue to operate, as evidenced by the investments we're making in our underground mines, which will be generating their cash flows, essentially after 2021, which is the extension period.

Great.

Thanks, Richard.

All right, Jorge.

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

Thank you.

How is it going with the labor negotiations?

You mentioned in the press release that it has restarted.

I was just wondering if you expect it to go to the end, or do you think there will be a conclusion before the contract day's finished in September -- in November, I'm sorry?

Thank you, Sal.

The labor negotiations had just had their kick-off meeting in early May, right before we had the accident on May 14.

It was suspended until the last couple of weeks when we restarted our operations and the preliminary discussions have begun.

There is a recognition by all interested parties -- including the union, our Management, the local community, the central government, that a strike would not be in anybody's interest.

So we start out from that standpoint.

We had a framework for dealing with wage adjustments that was part of our agreement in 2011 in the last negotiations when where had the extended strike.

We're certainly prepared to work with the union on a timely basis.

The union has made public comments within the last week that they are targeting completing the negotiations quickly, and so that's the goal right now.

We will just continue to work and report to you as that progresses, but that's the framework that we're really starting the discussions right now.

Okay.

One more thing on the underground operation, the ramp-up is going to be another year, looks like middle of 2014, you mentioned in the press release.

I was just wondering, is it -- are you being more cautious, or is it normal that it takes that long -- from what, 40,000 tons per day to 80,000 tons, which is the optimal level you want to be?

Sal, I know you've watched us for a long time.

You watched us develop the DOZ initially, and you saw just the nature in block caving operations is that ramp-ups take time.

We're working on it as quickly as we can safely do it.

We certainly hope to be able to do it before the middle of next year, and we're making progress now in achieving that.

As always, our guys -- as we set these plans on a basis that we have confidence that we can achieve them.

Then we work on trying to maximize those plans as we go forward.

We've had a lot of success doing that historically.

We will -- we're tackling it.

We're going at it full stream -- full steam on a safe basis.

I think we have a good chance of beating it.

Mark, do you --?

That's right.

We have a number of objectives in the DOZ, just not tonnage.

We've got a very high grade section of the ore body that's in the scar.

We balance that with the diorites that are higher in gold.

Our schedules, although tonnage is one of the measures, we have a lot of things that we're managing.

We're going at it to maximize the value of DOZ.

We've got some ongoing repairs that were there pre-existing the incident, and we're picking up and we're making good progress on that.

The ramp-up to date has gone or exceeded what we had expected just for these last couple weeks.

Thank you very much.

Thanks, Sal.

Your next question comes from the line of Curt Woodworth with Nomura.

Thanks, good morning.

Rich, I just wondered if you could kind of talk more broadly about how you see the copper business transitioning over the next several years, in terms of once you ramp these expansions and transition into the underground, do you see any more meaningful shifts in the unit cost profile of the business?

Also, what do you think an appropriate level of maintenance spending for the copper business will look like at that time?

Thanks.

We're focused on these expansion projects and the expansion at Cerro Verde and Morenci is basically coming in on unit costs that's consistent with our current operations.

At Tenke, that expansion also, unit cost is consistent with current operations.

We keep working -- because of that high grades of that ore there, we believe we have the opportunity of driving unit cost down.

A lot of our costs are dealt with -- deal with logistics and power where we have cheap power now, but we have power supply concerns.

All of that just ties in to doing business in that particular country, and that particular location.

We're focused on that.

At Grasberg, transition to underground period will allow that mine to continue as a world-class mine from a cost -- unit cost standpoint.

That will all depend on the price of fuel, the price of gold, and so forth; but it will be high volumes, low cost.

Then if you look beyond that in the longer range future for Freeport, is we have this enormous reserve base and resource base.

We'll reach production levels of about 5 billion pounds a year, and at $2 copper, we have proved and probable reserves of in excess of 120 billion or 100 billion pounds.

Then we have resources beyond that of equivalent amounts of identified copper with our existing mines.

Over half of that's in the United States.

It's typical of our current production -- relatively low grades, large resources, but we see those costs coming in consistent with the level of our current operations.

You need to -- just like I was talking about in the oil and gas business, you need to look at gas and oil separately.

In our business, you need to look at Indonesia as one set of assets, Africa as one set of assets with tremendous growth opportunities, very high grades.

Then in the Americas, kind of the standard of what the global copper industry has available to it is resources that have relatively low grades.

The thing that we have as a benefit in relation to the rest of the industry is ours are brown-field expansions.

And the projects that are challenging are green-field expansion with low grades and big infrastructure development, lots of pre-stripping and those sorts of things, which we don't have with our operations.

We think with the positive copper movement going forward for a very long period of time, we will have a series of growth opportunities that take time, take permitting, take resources.

That's why copper prices are above, and likely to continue to be above production costs.

Great.

One follow-up, if I may.

Can you kind of characterize incremental CapEx or savings opportunities?

Is that going to be somewhat market-dependent, where if the copper price were to remain weak, then you would look to accelerate those types of plans?

Or do you think that the $1.9 billion you've announced is the first layer of that process, and there's incremental savings opportunities you're going to look to pursue, regardless of the market climb over the next 12 months to 18 months?

Well, I can't say enough for the way Red and his team have approached this.

I mean, we saw the situation in the market volatility develop in June.

We saw the need to reduce our debt, and our guys went at it in a very disciplined and quick way, just like we did in 2008, 2009.

We don't see this situation as anywhere near the challenges or the fears of 2008, 2009.

But we started this, as I said, as a first step.

It's a continuing process, and we'll be looking at our business in mining and oil and gas with a continuation of doing it.

Of course, if market conditions deteriorate, we'll have to do more.

We have the ability to do more, both from cost-reduction activities, and then from being innovative in the way that we extract value out of this broad set of assets.

That could lead to lots of situations, joint venture arrangements in both sets of assets.

We've looked at MLP opportunities.

We've looked at other types of kind of financial engineering type things.

We just have a lot of options to do it.

The message that all of us wanted to get across to you today is the message our Board has given us.

I know we've read some skepticism about it because of low copper prices, but we are committed to maintain the strong balance sheet, and we've got ways of doing it.

Great.

Thanks very much.

Your next question comes from the line of Adam Daugherty with Omega Advisors.

Good morning, guys.

On the potential oil and gas asset sale, can you give us a little more detail around the assets -- things like commodity mix and reserves associated with the asset and CapEx?

The second question is conceptually speaking, how did you arrive at this asset as being appropriate for a sale?

Adam, this is Jim.

We're right in the beginning or early stages of the sales process, and we've signed confidentiality agreements with buyers and the process of getting that process started.

So I don't want to give a whole lot of -- I don't want to expound on a bunch of details that are in that process.

But what we're looking for is somewhere between $500 million and $700 million worth of capital out of the Gulf of Mexico shelf business.

The Gulf of Mexico shelf conventional is an area that is not a primary growth target for our Company.

There's other companies out there that see opportunities out there, and the risk profile that more fits their needs.

As Richard talked about and Jim Bob also expounded on is the large diversity of assets we have and growth opportunities.

But the thing really to focus on is the high quality of our asset base, and the high quality of the growth opportunities that we're going to prune off the ones that's don't fit our profile.

So that's basically what we do.

In an aspect like the Gulf of Mexico which is so dynamic, we do have a large position there on the shelf in the Gulf of Mexico, and also in the Gulf Coast as well as deep water.

The process of trimming back in an area and then also re-establishing based on seismic interpretation and so forth is always a possibility.

This was basically one of the easiest places to re-allocate our manpower resources to our existing assets, and still raise a significant amount of capital in a business that just doesn't fit the new profile of Freeport-McMoRan.

Okay, thanks.

So is it safe to say that sort of in the hierarchy of criteria growth, when you look at your oil and gas assets growth, the ability to achieve growth is very high on the list?

It's two forms.

In this large framework of Freeport, you can see where free cash flow is becoming a big aspect for the oil and gas business to not only -- we've always focused on it at our business.

But we've always used it as reinvestment capital.

There's a return on assets and return on capital structure here at Freeport that we have to adjust to and blend to; therefore, some of our assets like California and Eagle Ford and so forth and we can find ways to maximize them through structures like Richard talked -- we're looking at -- seriously looking at an MLP structure that would make a lot of sense when we're trading at four and a half times cash flow, when you can start trading at an eight times cash flow if your assets that qualify.

All those things, this new family of assets here at Freeport, between the copper, oil and gas, and gold, has given us an opportunity to be more flexible in structure.

And try to rein out that value; and also accelerate not only the growth of our volumetric assets like the deep water and the ultra deep and assets like that.

But also some of our free cash flowing assets, be a able to rein out value there through the innovative MLP structure.

As we continue to research this and start thinking about putting together, thinking about even effects on the copper side, I think it's going to be exciting days ahead, real value realization.

We don't need to create a lot of value.

We need to get realized for the value we've already created in these assets, especially at these oil prices.

Got it.

Thank you.

I'll just say.

Just like I was talking about the growth from the resource base in mining, these growth opportunities in the deep water from these big structures and the undeveloped, unexploited nature of the resource there that we'll now have access to; the ultra deep exploration leverage that we have there; this really significant position in Haynesville and the US natural gas business which we all believe has the opportunity to have a lot of value down the road -- as we deal with this near-term directive to reduce debt, we've all got our eyes on the long-term ability to grow across our set of businesses.

Just a point, everybody.

Remember the Analyst Day presentation.

Those were not exploratory opportunities.

We have a long list of development opportunities.

Our cups runneth over on growth opportunities and the aspect of present value in those in today's market.

And also of the reserves that aren't going to grow is one of the high priorities, especially in this deleveraging market.

So we're totally in sync on all of this.

Okay, thank you.

Thanks, Adam.

Your next question comes from the line of Oscar Cabrera with Bank of America-Merrill Lynch.

Hi.

Good morning, everyone.

Maybe just start, Richard, a clarification, please.

During the Analyst Day you mentioned CapEx and divestments and savings of about $1.5 billion.

So are the asset sales in addition to that, to the $1.9 billion representing?

Yes.

Yes.

Okay, that's easy.

Next, would it be possible to provide us with color on -- as to the oil and gas capital expenditures -- provide us a percentage of how much is being allocated to each one of the regions?

Each one of the regions.

Slide 24 shows the aggregate oil and gas capital expenditures.

There's also, Oscar -- this is cat Kathleen -- in the press release on page 13 shows what we incurred in June.

And what the outlook looks like for the second half of the year, which was $1.3 billion in total, $400 million for the deep water, similar amount in the Eagle Ford, and $200 million in the ultra deep.

Kathleen and Richard, just trying to assess how much of -- Jim talked about the climb in CapEx in the Eagle Ford.

I wanted to assess how much capital is being put into each one of those?

I can check back with you if that's easier.

Okay, good.

But that's -- for everybody's purposes, look at that.

Oscar, give us a call and we'll follow up with you on it.

Great.

Then --

Oscar, just Eagle Ford-specific we're going from about $600 million of CapEx in the Eagle Ford down to about $300 million of CapEx, Eagle Ford specific -- if that helps you in the meantime.

We're maintaining capital expenditure in California to keep the production volumes up.

Accelerate the deep water.

The deep water is where we have the chance of really having major incremental big hits to create shareholder value.

That's the focus for future growth near term and longer term.

Okay, that's helpful.

Thank you.

Similarly, with respect to operating costs, you gave us a global $19 a barrel.

Would it be possible to, at a later date, I don't know what the best form, just to get a segmentation on the different areas of oil and gas production?

There's a slide, Oscar, in the back in reference slides which takes you through that.

I'm just looking for number here.

I think it's --

31.

-- 31.

It shows you by region what the operating cost profile looks like.

Okay, perfect.

Thank you very much.

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

Thank you for taking my question.

As it relates to the ultra deep gas, could you explain how and when you'll decide to double up versus fold your cards for the big winners and losers?

And specifically the Davy Jones one and two?

I'm not -- by no means -- please don't misunderstand me that it's a bad idea.

I just think that heat and pressure and temperature varies greatly from spot to spot, so some are going to be easier to complete and others won't.

Specifically, last month when you described at 30,000 feet the Davy Jones drill muds solidifying.

It almost sounded like the pressure and temperature is like brick kiln, and fracking lends itself to sedimentary layers of shale, as opposed to bricks.

That's kind of my thought process.

You know how the Comstock in the 1870s, the miners took ice baths every 30 minutes because it was so hot.

In other places it's not like that.

Conditions will vary from spot to spot?

John let me say that's why we've been waiting on the results of wells like Loma and to the north of Davy Jones.

Been waiting on the data from [creek].

We're looking at all that.

We're also looking at the deep water.

We had some new information that we had to so-called in-board, out-board well cocks.

We're finding out there that the sedimentary character of the rock changes significantly as you go from the Southern end of the basin to the middle of the basin, called in-board, out-board.

We're going to have that same thing as we go on shore, as we tried to explain to you.

We're getting in shallower depths, and our temperature's going down, our pressure's going down.

But as far as mud solidifying, bricks, and all that, there's not near as eccentric as you described it.

But the answer is I've said to you before an example.

If you look at the desk you're sitting in front of, if you take and put the four bore holes that we have to the Wilcox on the shelf and onshore, they cover up less than a quarter of your desk.

We're trying to figure out a 200-square-mile area on shore, and a 200-square-mile area on the shelf.

We're going to get a lot of information.

But the sensitivities you're talking about, that's all part of trying to pick the sweet spot.

Every play in exploration, whether it's a shale play or the ultra deep, or the deep water, has a sweet spot.

And we're getting enough data now that hopefully we're going to be able to do that.

Thank you.

Your next question will come from the line of Paretosh Misra with Morgan Stanley.

Hi, everyone.

A quick question for Jim.

I know you've talked a bit about exploration, thanks.

But could you just maybe summarize any couple of two or three things where you do expect an update in third or fourth quarter of this year on exploration side?

Sure.

Initially will be Loma North and our plans for going forward on Lynum Creek.

Those two projects in the ultra deep will be involved in our decision-making process in the third and fourth quarter.

Other than that, it's going do be our Holstein drilling as our rig becomes active on our platform -- the first time it's been active in about 10 years that we've got a lot of great projects to drill.

We'll begin drilling our deep-water projects in the fourth quarter of 2013.

Then 2014 you're looking at our Tara project.

It's going to be drilled.

It's a very high potential Lucius look-alike project that's going to be drilled in second quarter of 2014 to start off, as well as following up with additional projects like England and maybe Martinique.

We'll have a full schedule calendar starting in 2014 going forward of some of our exciting exploration that we're leveraging in to.

But as far as 2013 it's Loman, Lynum Creek, and then our Holstein development starting in the deep water.

Great, thanks.

Second and final question on Grasberg -- probably for Mark.

Is there a total mill rate or the DOZ mill rate that you're targeting for the year end 2013?

Yes, we'll be -- in DOZ, we'll be up to 70,000 tons at the end of the year.

The total mill rate will be 210, 220.

We'll also be bringing up the Big Dawson, will likely begin to ramp up again.

We took some of the resources from Big Dawson in the third quarter, allocated them to development crews and to the DOZ.

We'll be at the 210 to 220.

2014 will be roughly 225.

Great, thanks.

Really appreciate that.

Your final question will come from the line of Carly Mattson with Goldman Sachs.

Hi, good morning.

Could you give a little more color on the commentary you made earlier about considering refinancing the balance sheet and higher-cost debt?

In particular, talk to any updated views on how Freeport looks at potentially clawing some of the PXP bonds?

Carly, this is Kathleen.

That is a priority of ours.

We've got just under $2 billion in debt that we can use equity claw-backs for.

And so we'll be looking to do that either with cash flow generated or asset sales or refinancing.

But that debt will be our most economic debt to repay in the near term.

So we're very focused on that.

We've also got a series of securities within the assumed debt that have calls over the next few years, and so we'll be looking at that.

We're going to be opportunistic about that, and looking at what makes sense economically.

But it is an objective of ours over time to refinance the balance sheet into more of an investment-grade type of a balance sheet.

Great, thanks.

Is there any -- is there a specific timing that we should be thinking about for at least the claw-back portion of the bonds?

We're going to be looking to do that just as soon as we can.

We're looking at free cash flow generation, as well as some of these other initiatives that are under way.

Wonderful.

Thank you.

All right.

We appreciate everybody's interest and participation, and we look forward to reporting success as we go forward this year.

Ladies and gentlemen, that concludes our call for today.

Thank you for your participation.

You may now disconnect.